##### 



EXHIBIT 13
 SOUTHERN COMMUNITY
BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED FINANCIAL REPORT
 DECEMBER 31, 2006




---



##### 



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 2006
 TABLE OF CONTENTS
 PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    1CONSOLIDATED FINANCIAL STATEMENTSConsolidated balance sheets
    
    
    2Consolidated statements of income
    
    
    3Consolidated statements of comprehensive income
    
    
    4Consolidated statements of shareholders equity
    
    
    5Consolidated statements of cash flows
    
    
    6-7Notes to consolidated financial statements
    
    
    8-31




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 To the Board of Directors
Southern Community Bancshares, Inc. and Subsidiary
Fayetteville, Georgia
 Southern Community Bancshares,
Inc. and subsidiary
   
 1




---



##### 



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED BALANCE SHEETS
 As of December 31,2006
    
    
    2005AssetsCash and due from banks
    
    $
    5,029,384
    
    
    $
    6,061,522Interest bearing deposits in banks
    
    
    741,012
    
    
    
    624,508Federal funds sold
    
    
    13,747,000
    
    
    
    2,607,000Securities available for sale, at fair value
    
    
    55,368,977
    
    
    
    53,390,782Restricted equity securities, at cost
    
    
    2,669,900
    
    
    
    1,891,700Loans
    
    
    293,223,692
    
    
    
    253,954,205Less allowance for loan losses
    
    
    3,051,229
    
    
    
    3,000,956Loans, net
    
    
    290,172,463
    
    
    
    250,953,249Premises and equipment
    
    
    9,372,877
    
    
    
    9,595,753Other assets
    
    
    9,232,642
    
    
    
    8,724,690Total assets
    
    $
    386,334,255
    
    
    $
    333,849,204Liabilities and Shareholders EquityDeposits
Noninterest-bearing
    
    $
    36,833,998
    
    
    $
    32,008,840Interest-bearing
    
    
    254,955,724
    
    
    
    229,630,366Total deposits
    
    
    291,789,722
    
    
    
    261,639,206Federal Home Loan Bank advances
    
    
    44,500,000
    
    
    
    30,000,000Securities sold under repurchase agreements
    
    
    12,913,674
    
    
    
    13,163,086Subordinated debentures
    
    
    10,929,000
    
    
    
    5,774,000Other liabilities
    
    
    1,753,246
    
    
    
    1,733,077Total liabilities
    
    
    361,885,642
    
    
    
    312,309,369Commitments and contingencies (Note 14)Shareholders equity
Capital stock, no par value; 10,000,000 shares authorized;
2,592,894 and 2,587,081 shares issued and outstanding, respectively
    
    
    16,171,236
    
    
    
    16,073,993Retained earnings
    
    
    8,816,424
    
    
    
    6,320,807Accumulated other comprehensive loss
    
    
    (539,047
    )
    
    
    (854,965
    )Total shareholders equity
    
    
    24,448,613
    
    
    
    21,539,835Total liabilities and shareholders equity
    
    $
    386,334,255
    
    
    $
    333,849,204
 See Notes to Consolidated Financial Statements.
 2




---



##### 



SOUTHERN
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF INCOME
 Years Ended December 31,2006
    
    
    2005
    
    
    2004Interest incomeLoans, including fees
    
    $
    24,098,725
    
    
    $
    16,647,627
    
    
    $
    11,215,484Taxable securities
    
    
    2,206,331
    
    
    
    1,726,004
    
    
    
    1,827,419Nontaxable securities
    
    
    529,776
    
    
    
    456,336
    
    
    
    379,233Federal funds sold
    
    
    429,142
    
    
    
    313,198
    
    
    
    130,289Interest bearing deposits in banks
    
    
    59,115
    
    
    
    33,478
    
    
    
    17,633Total interest income
    
    
    27,323,089
    
    
    
    19,176,643
    
    
    
    13,570,058Interest expenseDeposits
    
    
    10,345,029
    
    
    
    6,305,563
    
    
    
    3,850,358Other borrowings
    
    
    2,417,843
    
    
    
    1,466,637
    
    
    
    814,636Total interest expense
    
    
    12,762,872
    
    
    
    7,772,200
    
    
    
    4,664,994Net interest income
    
    
    14,560,217
    
    
    
    11,404,443
    
    
    
    8,905,064Provision for loan losses
    
    
    2,877,000
    
    
    
    1,415,660
    
    
    
    1,031,121Net interest income after provision for loan losses
    
    
    11,683,217
    
    
    
    9,988,783
    
    
    
    7,873,943Other incomeService charges on deposit accounts
    
    
    831,947
    
    
    
    615,705
    
    
    
    461,262Gain on sale of securities available-for-sale
    
    
    39,614
    
    
    
    106,121
    
    
    
    85,416Income from life insurance policy
    
    
    495,088
    
    
    
    
    
    
    
    Other operating income
    
    
    282,808
    
    
    
    74,235
    
    
    
    66,766Total other income
    
    
    1,649,457
    
    
    
    796,061
    
    
    
    613,444Other expensesSalaries and employee benefits
    
    
    5,607,920
    
    
    
    4,479,416
    
    
    
    3,426,141Equipment and occupancy expenses
    
    
    1,669,284
    
    
    
    1,247,250
    
    
    
    814,069Other operating expenses
    
    
    2,781,488
    
    
    
    2,376,001
    
    
    
    1,805,418Total other expenses
    
    
    10,058,692
    
    
    
    8,102,667
    
    
    
    6,045,628Net income before income taxes
    
    
    3,273,982
    
    
    
    2,682,177
    
    
    
    2,441,759Income tax expense
    
    
    778,365
    
    
    
    815,304
    
    
    
    761,436Net income
    
    $
    2,495,617
    
    
    $
    1,866,873
    
    
    $
    1,680,323Basic earnings per share
    
    $
    0.96
    
    
    $
    0.72
    
    
    $
    0.65Diluted earnings per share
    
    $
    0.93
    
    
    $
    0.70
    
    
    $
    0.63Dividends declared per share
    
    $
    
    
    
    $
    
    
    
    $
    
 See Notes to Consolidated Financial Statements.
 3




---



##### 



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Years Ended December 31,2006
    
    
    2005
    
    
    2004Net income
    
    $
    2,495,617
    
    
    $
    1,866,873
    
    
    $
    1,680,323Other comprehensive income (loss):Unrealized holding gains (losses) on securities available-for-sale arising during period,
net of tax (benefits) of $208,679, $(328,957) and $84,959, respectively
    
    
    340,479
    
    
    
    (536,720
    )
    
    
    138,619Reclassification adjustment for gains realized in net income,
net of taxes of $15,053, $40,326 and 32,458, respectively
    
    
    (24,561
    )
    
    
    (65,795
    )
    
    
    (52,958
    )Other comprehensive income (loss)
    
    
    315,918
    
    
    
    (602,515
    )
    
    
    85,661Comprehensive income
    
    $
    2,811,535
    
    
    $
    1,264,358
    
    
    $
    1,765,984
 See Notes to Consolidated Financial Statements.
 4




---



##### 



SOUTHERN
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AccumulatedOther
    
    
    TotalCapital Stock
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Earnings
    
    
    Loss
    
    
    EquityBalance, December 31, 2003
    
    
    1,934,777
    
    
    $
    16,050,433
    
    
    $
    2,773,611
    
    
    $
    (338,111
    )
    
    $
    18,485,933Net income
    
    
    
    
    
    
    
    
    
    
    1,680,323
    
    
    
    
    
    
    
    1,680,323Issuance of common stock
    
    
    1,049
    
    
    
    8,425
    
    
    
    
    
    
    
    
    
    
    
    8,425Four-for-three stock split
    
    
    644,700
    
    
    
    (4,062
    )
    
    
    
    
    
    
    
    
    
    
    (4,062
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,661
    
    
    
    85,661Balance, December 31, 2004
    
    
    2,580,526
    
    
    
    16,054,796
    
    
    
    4,453,934
    
    
    
    (252,450
    )
    
    
    20,256,280Net income
    
    
    
    
    
    
    
    
    
    
    1,866,873
    
    
    
    
    
    
    
    1,866,873Options exercised, net of repurchases
    
    
    6,135
    
    
    
    11,217
    
    
    
    
    
    
    
    
    
    
    
    11,217Issuance of common stock
    
    
    420
    
    
    
    7,980
    
    
    
    
    
    
    
    
    
    
    
    7,980Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (602,515
    )
    
    
    (602,515
    )Balance, December 31, 2005
    
    
    2,587,081
    
    
    
    16,073,993
    
    
    
    6,320,807
    
    
    
    (854,965
    )
    
    
    21,539,835Net income
    
    
    
    
    
    
    
    
    
    
    2,495,617
    
    
    
    
    
    
    
    2,495,617Stock-based compensation
    
    
    
    
    
    
    42,273
    
    
    
    
    
    
    
    
    
    
    
    42,273Options exercised
    
    
    5,333
    
    
    
    45,010
    
    
    
    
    
    
    
    
    
    
    
    45,010Issuance of common stock
    
    
    480
    
    
    
    9,960
    
    
    
    
    
    
    
    
    
    
    
    9,960Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    315,918
    
    
    
    315,918Balance, December 31, 2006
    
    
    2,592,894
    
    
    $
    16,171,236
    
    
    $
    8,816,424
    
    
    $
    (539,047
    )
    
    $
    24,448,613
  5




---



##### 



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2006
    
    
    2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    2,495,617
    
    
    $
    1,866,873
    
    
    $
    1,680,323Adjustments to reconcile net income to net cash provided
by operating activitiesDepreciation
    
    
    688,850
    
    
    
    580,413
    
    
    
    401,101Provision for loan losses
    
    
    2,877,000
    
    
    
    1,415,660
    
    
    
    1,031,121Gain on sale of securities available-for-sale
    
    
    (39,614
    )
    
    
    (106,121
    )
    
    
    (85,416
    )Deferred income taxes
    
    
    240,221
    
    
    
    (310,663
    )
    
    
    (144,428
    )Increase (decrease) in taxes payable
    
    
    (612,165
    )
    
    
    332,351
    
    
    
    (124,244
    )Increase in interest receivable
    
    
    (556,109
    )
    
    
    (674,355
    )
    
    
    (170,649
    )Increase in interest payable
    
    
    361,546
    
    
    
    627,316
    
    
    
    47,340Increase in cash surrender value of life insurance
    
    
    (195,171
    )
    
    
    (32,547
    )
    
    
    Income from life insurance policy
    
    
    (495,088
    )
    
    
    
    
    
    
    Stock based compensation expense
    
    
    42,273
    
    
    
    
    
    
    
    Gain on sale of other real estate owned
    
    
    
    
    
    
    (5,825
    )
    
    
    Net other operating activities
    
    
    547,558
    
    
    
    337,394
    
    
    
    (55,875
    )Net cash provided by operating activities
    
    
    5,354,918
    
    
    
    4,030,496
    
    
    
    2,579,273INVESTING ACTIVITIESDecrease (increase) in interest-bearing deposits in banks
    
    
    (116,504
    )
    
    
    1,413,723
    
    
    
    (1,954,357
    )Purchase of securities available for sale
    
    
    (9,121,740
    )
    
    
    (12,862,135
    )
    
    
    (4,028,402
    )Proceeds from maturities of securities available for sale
    
    
    5,694,479
    
    
    
    4,539,422
    
    
    
    5,130,824Proceeds from sales of securities available for sale
    
    
    1,998,225
    
    
    
    4,681,938
    
    
    
    8,304,924Purchase of restricted equity securities
    
    
    (778,200
    )
    
    
    (420,400
    )
    
    
    (721,300
    )Decrease in cash surrender value of life insurance
    
    
    378,932
    
    
    
    
    
    
    
    Net decrease (increase) in federal funds sold
    
    
    (11,140,000
    )
    
    
    15,771,000
    
    
    
    (17,762,000
    )Net increase in loans
    
    
    (42,292,348
    )
    
    
    (67,923,706
    )
    
    
    (62,168,908
    )Purchase of bank owned life insurance
    
    
    
    
    
    
    (5,000,000
    )
    
    
    Net purchases of premises and equipment
    
    
    (465,974
    )
    
    
    (2,399,117
    )
    
    
    (2,967,728
    )Proceeds from sales of other real estate owned
    
    
    
    
    
    
    281,292
    
    
    
    Net cash used in investing activities
    
    
    (55,843,130
    )
    
    
    (61,917,983
    )
    
    
    (76,166,947
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    30,150,516
    
    
    
    45,874,971
    
    
    
    55,989,167Proceeds from issuance of capital stock
    
    
    54,970
    
    
    
    19,197
    
    
    
    8,425Payment for fractional shares
    
    
    
    
    
    
    
    
    
    
    (4,062
    )Proceeds from issuance of subordinated debentures-net
    
    
    5,000,000
    
    
    
    
    
    
    
    5,467,000Net increase (decrease) in Federal Home Loan Bank advances
    
    
    14,500,000
    
    
    
    6,000,000
    
    
    
    9,000,000Net (decrease) increase in repurchase agreements
    
    
    (249,412
    )
    
    
    8,410,172
    
    
    
    3,048,726Net cash provided by financing activities
    
    
    49,456,074
    
    
    
    60,304,340
    
    
    
    73,509,256Net increase (decrease) in cash and due from banks
    
    
    (1,032,138
    )
    
    
    2,416,853
    
    
    
    (78,418
    )Cash and due from banks at beginning of period
    
    
    6,061,522
    
    
    
    3,644,669
    
    
    
    3,723,087Cash and due from banks at end of period
    
    $
    5,029,384
    
    
    $
    6,061,522
    
    
    $
    3,644,669
 See Notes to Consolidated Financial Statements.
 6




---



##### 



SOUTHERN
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2006
    
    
    2005
    
    
    2004SUPPLEMENTAL DISCLOSURECash paid for interest
    
    $
    12,401,326
    
    
    $
    7,144,884
    
    
    $
    4,617,654Cash paid for taxes
    
    $
    1,150,308
    
    
    $
    847,300
    
    
    $
    1,044,013NONCASH TRANSACTIONSForeclosed assets acquired in settlement of loans
    
    $
    196,134
    
    
    $
    275,467
    
    
    $
    225,997
 See Notes to Consolidated Financial Statements.
 7




---



##### 



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
  Basis of Presentation and Accounting Estimates
    Cash, Due From Banks and Cash Flows
   8




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Securities
  Loans
    9




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Allowance for Loan Losses
   Premises and Equipment
    Foreclosed Assets
  10




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Income Taxes
  Profit-Sharing Plan
  Stock Compensation Plans
   11




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  December 31, 2005
    
    
    December 31, 2004Net earnings
    
    As reported
    
    $
    1,866,873
    
    
    
    1,680,323Effect of grants
    
    
    (13,639
    )
    
    
    (13,175
    )Proforma
    
    $
    1,853,234
    
    
    
    1,667,148Basic earnings per share
    
    As reported
    
    $
    0.72
    
    
    
    0.65Proforma
    
    $
    0.72
    
    
    
    0.65Diluted earnings per share
    
    As reported
    
    $
    0.70
    
    
    
    0.63Proforma
    
    $
    0.69
    
    
    
    0.62
 Earnings Per Share
 
 Comprehensive Income
  Recent Accounting Standards
 Accounting for Servicing of Financial Assets
 Accounting for Servicing of Financial
Assets  an amendment of FASB Statement 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
 12




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Accounting for Uncertainty in Income Taxes
 Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement 109 Accounting for Income Taxes
 Fair Value Measurements
 Fair Value Measurements
 Considering the Effects of Misstatements
  13




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2. SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2006:U.S. Government
sponsored agencies
    
    $
    23,948,923
    
    
    $
    
    
    
    $
    (384,790
    )
    
    $
    23,564,133State and municipal securities
    
    
    13,450,877
    
    
    
    87,748
    
    
    
    (94,025
    )
    
    
    13,444,600Corporate bonds
    
    
    1,880,118
    
    
    
    3,612
    
    
    
    (12,630
    )
    
    
    1,871,100Mortgage-backed securities
    
    
    16,958,490
    
    
    
    18,575
    
    
    
    (487,921
    )
    
    
    16,489,144$
    56,238,408
    
    
    $
    109,935
    
    
    $
    (979,366
    )
    
    $
    55,368,977December 31, 2005:U.S. Government
sponsored agencies
    
    $
    23,978,678
    
    
    $
    625
    
    
    $
    (524,528
    )
    
    $
    23,454,775State and municipal securities
    
    
    12,764,629
    
    
    
    24,346
    
    
    
    (240,806
    )
    
    
    12,548,169Corporate bonds
    
    
    1,725,565
    
    
    
    15,160
    
    
    
    (765
    )
    
    
    1,739,960Mortgage-backed securities
    
    
    16,300,885
    
    
    
    
    
    
    
    (653,007
    )
    
    
    15,647,878$
    54,769,757
    
    
    $
    40,131
    
    
    $
    (1,419,106
    )
    
    $
    53,390,782
   Amortized
    
    
    FairCost
    
    
    ValueDue from one to five years
    
    $
    5,815,940
    
    
    $
    5,686,492Due from five to ten years
    
    
    7,336,007
    
    
    
    7,231,616Due after ten years
    
    
    26,127,971
    
    
    
    25,961,725Mortgage-backed securities
    
    
    16,958,490
    
    
    
    16,489,144$
    56,238,408
    
    
    $
    55,368,977
 14




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2. SECURITIES (Continued)
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Gross gains
    
    $
    39,614
    
    
    $
    116,433
    
    
    $
    88,303Gross losses
    
    
    
    
    
    
    (10,312
    )
    
    
    (2,887
    )Net realized gains
    
    $
    39,614
    
    
    $
    106,121
    
    
    $
    85,416
  Less Than 12 Months
    
    
    12 Months or MoreDescription of Securities:
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDecember 31, 2006
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Government sponsored agencies
    
    $
    2,955,387
    
    
    $
    (8,007
    )
    
    $
    20,608,746
    
    
    $
    (376,783
    )State and municipal securities
    
    
    3,768,478
    
    
    
    (11,405
    )
    
    
    3,688,303
    
    
    
    (82,620
    )Mortgage-backed securities
    
    
    897,897
    
    
    
    (7,964
    )
    
    
    12,768,165
    
    
    
    (479,957
    )Corporate bonds
    
    
    987,370
    
    
    
    (12,630
    )
    
    
    
    
    
    
    Total temporarily impaired securities
    
    $
    8,609,132
    
    
    $
    (40,006
    )
    
    $
    37,065,214
    
    
    $
    (939,360
    )December 31, 2005U.S. Government sponsored agencies
    
    $
    1,465,335
    
    
    $
    (30,786
    )
    
    $
    19,988,815
    
    
    $
    (493,742
    )State and municipal securities
    
    
    6,813,710
    
    
    
    (135,527
    )
    
    
    2,545,792
    
    
    
    (105,279
    )Mortgage-backed securities
    
    
    3,167,804
    
    
    
    (64,897
    )
    
    
    12,480,074
    
    
    
    (588,110
    )Corporate bonds
    
    
    250,800
    
    
    
    (765
    )
    
    
    
    
    
    
    Total temporarily impaired securities
    
    $
    11,697,649
    
    
    $
    (231,975
    )
    
    $
    35,014,681
    
    
    $
    (1,187,131
    )
   15




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2. SECURITIES (Continued)
  NOTE 3. LOANS
  December 31,2006
    
    
    2005Commercial
    
    $
    19,569,280
    
    
    $
    23,928,120Real estate  construction
    
    
    168,719,930
    
    
    
    134,997,221Real estate  mortgage
    
    
    101,169,298
    
    
    
    90,640,347Consumer installment and other
    
    
    4,194,848
    
    
    
    4,823,684293,653,356
    
    
    
    254,389,372Deferred loan fees
    
    
    (429,664
    )
    
    
    (435,167
    )Allowance for loan losses
    
    
    (3,051,229
    )
    
    
    (3,000,956
    )Loans, net
    
    $
    290,172,463
    
    
    $
    250,953,249
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Balance, beginning of year
    
    $
    3,000,956
    
    
    $
    2,016,557
    
    
    $
    1,419,479Provision for loan losses
    
    
    2,877,000
    
    
    
    1,415,660
    
    
    
    1,031,121Loans charged off
    
    
    (2,946,914
    )
    
    
    (456,593
    )
    
    
    (434,428
    )Recoveries of loans previously charged off
    
    
    120,187
    
    
    
    25,332
    
    
    
    385Balance, end of year
    
    $
    3,051,229
    
    
    $
    3,000,956
    
    
    $
    2,016,557
 16




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3. LOANS (Continued)
  As of and for the Years EndedDecember 31,2006
    
    
    2005
    
    
    2004Impaired loans without a valuation allowance
    
    $
    
    
    
    $
    
    
    
    $
    Impaired loans with a valuation allowance
    
    
    1,034,310
    
    
    
    6,348,580
    
    
    
    4,811,853Total impaired loans
    
    $
    1,034,310
    
    
    $
    6,348,580
    
    
    $
    4,811,853Valuation allowance related to impaired loans
    
    $
    223,034
    
    
    $
    1,123,148
    
    
    $
    533,496Average investment in impaired loans
    
    $
    4,485,068
    
    
    $
    4,687,575
    
    
    $
    1,760,363Interest income recognized on impaired loans
    
    $
    102,546
    
    
    $
    192,925
    
    
    $
    38Nonaccrual loans
    
    $
    406,341
    
    
    $
    2,538,834
    
    
    $
    4,811,853Loans past due ninety days or more and still accruing interest
    
    $
    1,266,803
    
    
    $
    464
    
    
    $
    26,300
  Balance, beginning of year
    
    $
    6,618,544Advances
    
    
    7,825,003Repayments
    
    
    (3,380,869
    )Balance, end of year
    
    $
    11,062,678
 NOTE 4. PREMISES AND EQUIPMENT
  December 31,2006
    
    
    2005Land and improvements
    
    $
    2,120,748
    
    
    $
    2,120,748Buildings
    
    
    5,923,758
    
    
    
    5,831,926Furniture and equipment
    
    
    3,796,406
    
    
    
    3,422,26411,840,912
    
    
    
    11,374,938Accumulated depreciation
    
    
    (2,468,035
    )
    
    
    (1,779,185
    )$
    9,372,877
    
    
    $
    9,595,753
 17




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4. PREMISES AND EQUIPMENT (Continued)
 Leases
    2007
    
    $
    358,4242008
    
    
    322,2122009
    
    
    238,2122010
    
    
    223,412$
    1,142,260
 NOTE 5. BANK OWNED LIFE INSURANCE
  NOTE 6. DEPOSITS
  2007
    
    $
    169,500,3182008
    
    
    22,793,2682009
    
    
    4,636,4642010
    
    
    2,413,8452011
    
    
    1,192,589$
    200,536,484
   18




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
  NOTE 8. FEDERAL HOME LOAN BANK ADVANCES
  December 31,2006
    
    
    2005Advance with interest due quarterly at 3.01% and principal due on September 5, 2008.
    
    $
    
    
    
    $
    15,000,000Advance with interest due quarterly at 3.44% and principal due on March 10, 2015.
    
    
    10,000,000
    
    
    
    10,000,000Advance with interest due quarterly at 4.44% and principal due on May 5, 2008.
    
    
    5,000,000
    
    
    
    5,000,000Advance with interest due quarterly at 4.44% and principal due on May 5, 2008.
    
    
    5,000,000
    
    
    
    Advance with variable interest (5.34% at December 31, 2006) maturing on March 27, 2008.
    
    
    7,500,000Advance with interest due quarterly at 4.10% and principal due on November 8, 2016.
    
    
    7,000,000Advance with interest due quarterly at 5.06% and principal due on December 21, 2007.
    
    
    10,000,000$
    44,500,000
    
    
    $
    30,000,000
  NOTE 9. SUBORDINATED DEBENTURES
   19




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9. SUBORDINATED DEBENTURES (Continued)
        20




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9. SUBORDINATED DEBENTURES (Continued)
  NOTE 10. EMPLOYEE BENEFIT PLAN
  NOTE 11. STOCK COMPENSATION PLAN
   21




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 11. STOCK COMPENSATION PLAN (Continued)
 Stock option activity for the years endedDecember 31, 2006, 2005, and 2004Weighted AverageWeighted Average
    
    
    Remaining
    
    
    AggregateOption Price Per
    
    
    Contractual Term
    
    
    IntrinsicShares
    
    
    Share
    
    
    (in years)
    
    
    ValueOutstanding, December 31, 2003
    
    
    219,555
    
    
    $
    6.94Granted during the period
    
    
    
    
    
    
    Forfeited during the period
    
    
    (5,333
    )
    
    
    6.89Exercised during the period
    
    
    (684
    )
    
    
    7.29Outstanding, December 31, 2004
    
    
    213,538
    
    
    
    6.94Granted during the period
    
    
    2,000
    
    
    
    21.38Forfeited during the period
    
    
    
    
    
    
    Exercised during the period
    
    
    (6,135
    )
    
    
    6.89Outstanding, December 31, 2005
    
    
    209,403
    
    
    
    7.08Granted during the period
    
    
    4,500
    
    
    
    19.00Forfeited during the period
    
    
    
    
    
    
    Exercised during the period
    
    
    (5,333
    )
    
    
    8.44Outstanding, December 31, 2006
    
    
    208,570
    
    
    $
    7.30
    
    
    
    5.11
    
    
    $
    2,784,785Number of shares exercisable
    
    
    202,737
    
    
    $
    6.95
    
    
    
    4.99
    
    
    $
    2,778,327
    22




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 11. STOCK COMPENSATION PLAN (Continued)
 2006
    
    
    2005Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility
    
    
    28.00
    %
    
    
    27.00
    %Risk free interest rate
    
    
    4.77
    %
    
    
    4.37
    %Expected term
    
    10 years
    
    
    10 years
 NOTE 12. INCOME TAXES
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Current
    
    $
    538,144
    
    
    $
    1,125,967
    
    
    $
    905,864Deferred
    
    
    240,221
    
    
    
    (310,663
    )
    
    
    (144,428
    )$
    778,365
    
    
    $
    815,304
    
    
    $
    761,436
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Income tax at statutory federal rate
    
    $
    1,113,154
    
    
    $
    913,965
    
    
    $
    830,199Tax-exempt interest
    
    
    (179,727
    )
    
    
    (154,844
    )
    
    
    (128,550
    )Disallowed interest
    
    
    31,355
    
    
    
    16,968
    
    
    
    12,857Life insurance income
    
    
    (245,754
    )
    
    
    
    
    
    
    State tax
    
    
    34,857
    
    
    
    38,514
    
    
    
    32,298Other items
    
    
    24,480
    
    
    
    701
    
    
    
    14,632Income tax expense
    
    $
    778,365
    
    
    $
    815,304
    
    
    $
    761,436
 23




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 12. INCOME TAXES (Continued)
 Years Ended December 31,2006
    
    
    2005
    
    
    2004Deferred tax assets:Loan loss reserves
    
    $
    724,932
    
    
    $
    999,539
    
    
    $
    683,852Preopening and organization expenses
    
    
    2,783
    
    
    
    12,325
    
    
    
    25,032Deferred loan fees
    
    
    162,137
    
    
    
    112,301
    
    
    
    136,868Nonaccrual loans
    
    
    8,453
    
    
    
    30,676
    
    
    
    43,528Securities available for sale
    
    
    330,384
    
    
    
    524,011
    
    
    
    154,728$
    1,228,689
    
    
    $
    1,678,852
    
    
    $
    1,044,008Deferred tax liabilities:Depreciation
    
    
    355,843
    
    
    
    339,875
    
    
    
    352,696Cash basis adjustment for income tax reporting purposes
    
    
    
    
    
    
    32,282
    
    
    
    64,563$
    355,843
    
    
    $
    372,157
    
    
    $
    417,259Net deferred tax assets
    
    $
    872,846
    
    
    $
    1,306,695
    
    
    $
    626,749
 NOTE 13. EARNINGS PER SHARE
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Net income
    
    
    2,495,617
    
    
    $
    1,866,873
    
    
    
    $ 1,680,323Weighted average number of common shares outstanding
    
    
    2,588,952
    
    
    
    2,585,687
    
    
    
    2,579,523Effect of dilutive options
    
    
    87,241
    
    
    
    91,991
    
    
    
    88,806Weighted average number of common shares outstanding used to calculate dilutive earnings per share
    
    
    2,676,193
    
    
    
    2,677,678
    
    
    
    2,668,329
 NOTE 14. COMMITMENTS AND CONTINGENCIES
 Loan Commitments
  24




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)
  December 31,2006
    
    
    2005Commercial letters of credit
    
    $
    1,196,305
    
    
    $
    1,683,174Commitments to extend credit
    
    
    64,853,280
    
    
    
    50,917,218$
    66,049,585
    
    
    $
    52,600,392
   Contingencies
  NOTE 15. CONCENTRATIONS OF CREDIT
   25




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 16. REGULATORY MATTERS
     26




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 16. REGULATORY MATTERS (Continued)
 To Be WellFor Capital
    
    
    Capitalized UnderAdequacy
    
    
    Prompt CorrectiveActual
    
    
    Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in Thousands)December 31, 2006:Total Capital to Risk Weighted Assets
Consolidated
    
    $
    38,968
    
    
    
    11.62
    %
    
    $
    26,832
    
    
    
    8
    %
    
    $
    N/A
    
    
    
    N/ASouthern Community Bank
    
    $
    35,171
    
    
    
    10.51
    %
    
    $
    26,782
    
    
    
    8
    %
    
    $
    33,478
    
    
    
    10
    %Tier I Capital to Risk Weighted Assets
Consolidated
    
    $
    33,288
    
    
    
    9.92
    %
    
    $
    13,391
    
    
    
    4
    %
    
    $
    N/A
    
    
    
    N/ASouthern Community Bank
    
    $
    32,120
    
    
    
    9.59
    %
    
    $
    13,391
    
    
    
    4
    %
    
    $
    20,087
    
    
    
    6
    %Tier I Capital to Average Assets
Consolidated
    
    $
    33,288
    
    
    
    8.67
    %
    
    $
    15,365
    
    
    
    4
    %
    
    $
    N/A
    
    
    
    N/ASouthern Community Bank
    
    $
    32,120
    
    
    
    8.36
    %
    
    $
    15,365
    
    
    
    4
    %
    
    $
    19,207
    
    
    
    5
    %December 31, 2005:Total Capital to Risk Weighted Assets
Consolidated
    
    $
    31,169
    
    
    
    10.75
    %
    
    $
    23,185
    
    
    
    8
    %
    
    $
    N/A
    
    
    
    N/ASouthern Community Bank
    
    $
    29,557
    
    
    
    10.04
    %
    
    $
    23,554
    
    
    
    8
    %
    
    $
    29,431
    
    
    
    10
    %Tier I Capital to Risk Weighted Assets
Consolidated
    
    $
    28,168
    
    
    
    9.72
    %
    
    $
    11,593
    
    
    
    4
    %
    
    $
    N/A
    
    
    
    N/ASouthern Community Bank
    
    $
    26,556
    
    
    
    9.02
    %
    
    $
    11,772
    
    
    
    4
    %
    
    $
    17,658
    
    
    
    6
    %Tier I Capital to Average Assets
Consolidated
    
    $
    28,168
    
    
    
    8.55
    %
    
    $
    13,173
    
    
    
    4
    %
    
    $
    N/A
    
    
    
    N/ASouthern Community Bank
    
    $
    26,556
    
    
    
    8.06
    %
    
    $
    13,173
    
    
    
    4
    %
    
    $
    16,467
    
    
    
    5
    %
 27




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
 Disclosures about Fair Value of
Financial Instruments,
  Cash, Due From Banks, Interest-bearing Deposits in Banks and Federal Funds Sold:
 Securities:
 Loans:
 Deposits:
 Federal Funds Purchased, Repurchase Agreements and Federal Home Loan Bank Advances:
 28




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
 Subordinated Debentures:
 Accrued Interest:
 Off-Balance Sheet Instruments:
  December 31, 2006
    
    December 31, 2005Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assets:Cash, due from banks,
and federal funds sold
    
    $
    19,517,396
    
    
    $
    19,517,396
    
    
    $
    9,293,030
    
    
    $
    9,293,030Securities
    
    
    58,038,877
    
    
    
    58,038,877
    
    
    
    55,282,482
    
    
    
    55,282,482Loans
    
    
    290,172,463
    
    
    
    288,681,615
    
    
    
    250,953,249
    
    
    
    248,776,768Accrued interest receivable
    
    
    2,329,931
    
    
    
    2,329,931
    
    
    
    1,773,821
    
    
    
    1,773,821Financial liabilities:Deposits
    
    
    291,789,722
    
    
    
    291,691,853
    
    
    
    261,639,206
    
    
    
    259,895,955Securities sold under
repurchase agreements
    
    
    12,913,674
    
    
    
    12,913,674
    
    
    
    13,163,086
    
    
    
    13,163,086Federal Home Loan Bank advances
    
    
    44,500,000
    
    
    
    43,068,286
    
    
    
    30,000,000
    
    
    
    30,009,894Subordinated debentures
    
    
    10,929,000
    
    
    
    10,929,000
    
    
    
    5,774,000
    
    
    
    5,774,000Accrued interest payable
    
    
    1,480,125
    
    
    
    1,480,125
    
    
    
    1,118,579
    
    
    
    1,118,579
 NOTE 18. SUPPLEMENTAL FINANCIAL DATA
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Professional fees
    
    $
    242,731
    
    
    $
    302,290
    
    
    $
    195,695Data processing expense
    
    
    414,287
    
    
    
    305,331
    
    
    
    249,176
 29




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 19. PARENT COMPANY FINANCIAL INFORMATION
  CONDENSED BALANCE SHEETS
 As of December 31,2006
    
    
    2005AssetsCash
    
    $
    3,107,996
    
    
    $
    1,139,583Investment in subsidiary
    
    
    31,580,895
    
    
    
    25,701,253Securities available for sale
    
    
    329,000
    
    
    
    174,000Other assets
    
    
    400,174
    
    
    
    324,533Total assets
    
    $
    35,418,065
    
    
    $
    27,339,369Subordinated debentures
    
    $
    10,929,000
    
    
    $
    5,774,000Other liabilities
    
    
    40,452
    
    
    
    25,534Total liabilities
    
    
    10,969,452
    
    
    
    5,799,534Shareholders equity
    
    
    24,448,613
    
    
    
    21,539,835Total liabilities and shareholders equity
    
    $
    35,418,065
    
    
    $
    27,339,369
 CONDENSED STATEMENTS OF INCOME
 Year Ended December 31,2006
    
    
    2005
    
    
    2004IncomeInterest income
    
    $
    19,209
    
    
    $
    10,549
    
    
    $
    5,171Total income
    
    
    19,209
    
    
    
    10,549
    
    
    
    5,171ExpenseInterest expense
    
    
    637,832
    
    
    
    350,049
    
    
    
    171,596Expenses, other
    
    
    271,767
    
    
    
    213,242
    
    
    
    197,815Total expenses
    
    
    909,599
    
    
    
    563,291
    
    
    
    369,411Loss before income tax benefits and equity in undistributed income of subsidiary
    
    
    (890,390
    )
    
    
    (552,742
    )
    
    
    (364,240
    )Income tax benefits
    
    
    (322,283
    )
    
    
    (210,042
    )
    
    
    (138,411
    )Loss before equity in undistributed income of subsidiary
    
    
    (568,107
    )
    
    
    (342,700
    )
    
    
    (225,829
    )Equity in undistributed income of subsidiary
    
    
    3,063,724
    
    
    
    2,209,573
    
    
    
    1,906,152Net income
    
    $
    2,495,617
    
    
    $
    1,866,873
    
    
    $
    1,680,323
 30




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 19. PARENT COMPANY FINANCIAL INFORMATION (Continued)
 Year Ended December 31,2006
    
    
    2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    2,495,617
    
    
    $
    1,866,873
    
    
    $
    1,680,323Adjustments to reconcile net income to net cash used in operating activities:Undistributed income of subsidiary
    
    
    (3,063,724
    )
    
    
    (2,209,573
    )
    
    
    (1,906,152
    )Other operating activities
    
    
    (18,450
    )
    
    
    (52,854
    )
    
    
    (35,198
    )Net cash used in operating activities
    
    
    (586,557
    )
    
    
    (395,554
    )
    
    
    (261,027
    )INVESTING ACTIVITIESCapital infusion in subsidiary
    
    
    (2,500,000
    )
    
    
    (5,000,000
    )
    
    
    (4,500,000
    )Net cash used in investing activities
    
    
    (2,500,000
    )
    
    
    (5,000,000
    )
    
    
    (4,500,000
    )FINANCING ACTIVITIESProceeds from issuance of subordinated debentures
    
    
    5,000,000
    
    
    
    
    
    
    
    5,467,000Proceeds from issuance of capital stock
    
    
    54,970
    
    
    
    19,197
    
    
    
    8,425Payment for fractional shares
    
    
    
    
    
    
    
    
    
    
    (4,062
    )Net cash provided by financing activities
    
    
    5,054,970
    
    
    
    19,197
    
    
    
    5,471,363Net increase (decrease) in cash
    
    
    1,968,413
    
    
    
    (5,376,357
    )
    
    
    710,336Cash at beginning of year
    
    
    1,139,583
    
    
    
    6,515,940
    
    
    
    5,805,604Cash at end of year
    
    $
    3,107,996
    
    
    $
    1,139,583
    
    
    $
    6,515,940
 31