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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 Commission file number: 000-50252
 SOUTHERN COMMUNITY BANCSHARES, INC.
 Georgia
(State or Other Jurisdiction 
of Incorporation or Organization)
    
    58-2639705
(I.R.S. Employer Identification Number)
 525 North Jeff Davis Drive
P.O. Box 142069
Fayetteville, Georgia 30214
 (770) 461-4365
 
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    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
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SOUTHERN COMMUNITY BANCSHARES, INC.
 FORM 10-K INDEX
 PageNumberCautionary Notice Regarding Forward-Looking Statements
    
    
    3Part I1.
    
    Business
    
    
    41A.
    
    Risk Factors
    
    
    181B.
    
    Unresolved Staff Comments
    
    
    212.
    
    Properties
    
    
    223.
    
    Legal Proceedings
    
    
    234.
    
    Submission of Matters to a Vote of Security Holders
    
    
    23Part II5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    236.
    
    Selected Financial Data
    
    
    247.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    257A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    468.
    
    Financial Statements and Supplementary Data
    
    
    479.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    479A.
    
    Controls and Procedures
    
    
    479B.
    
    Other Information
    
    
    48Part III10.
    
    Directors,  Executive Officers, and Corporate Governance
    
    
    4911.
    
    Executive Compensation
    
    
    4912.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    4913.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    4914.
    
    Principal Accountant Fees and Services
    
    
    50Part IV15.
    
    Exhibits and Financial Statement Schedules
    
    
    50Signatures
    
    
    51EX-13 CONSOLIDATED FINANCIAL STATEMENTSEX-21 SUBSIDIARIES OF THE REGISTRANTEX-23 CONSENT OF MAULDIN & JENKINS, LLCEX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE PFOEX-32.1 SECTION 906, CERTIFICATION OF THE CEOEX-32.2 SECTION 906, CERTIFICATION OF THE PFO
  2




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##### Table of Contents



Cautionary Notice Regarding Forward-Looking Statements
   
    
    The effects of future economic conditions in our market areas and generally in the
United States;
    
    United States governmental and international monetary and fiscal policies;
    
    Legislative and regulatory changes;
    
    The effects of changes in interest rates on the level and composition of deposits, loan
demand, the value of loan collateral, and interest rate risks; and
    
    The effects of competition from commercial banks, thrifts, consumer finance companies,
and other financial institutions operating in our market area and elsewhere.
  3




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PART I
 
 ITEM 1.
    
    BUSINESS
 Southern Community Bancshares, Inc.
 ,
   Southern Community Bank
    Types of Loans
  4




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Construction and Development Loans
  Commercial and Residential Real Estate
   Commercial and Industrial Loans
   Consumer Loans
  5




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
    
    Home equity loans  open and closed end
    
    Vehicle financing
    
    Loans secured by deposits
    
    Overdraft protection lines
    
    Secured and unsecured personal loans
  Loan participations
    Managements policy for determining the loan loss allowance
  6




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
    
    The asset quality of individual loans.
    
    Changes in the national and local economy and business conditions/development,
including underwriting standards, collections, charge off and recovery practices.
    
    Changes in the nature and volume of the loan portfolio.
    
    Changes in the experience, ability and depth of the lending staff and management.
    
    Changes in the trend of the volume and severity of past dues and classified loans
and trends in the volume of non-accrual loans, troubled debt restructurings and other
modifications.
    
    Possible deterioration in collateral segments or other portfolio concentrations.
    
    Historical loss experience used for pools of loans (i.e. collateral types,
borrowers, purposes, etc.)
    
    Changes in the quality of the institutions loan review system and the degree of
oversight by the Banks Board of Directors.
    
    The effect of external factors such as competition and the legal and regulatory
requirement on the level of estimated credit losses in the Banks current loan
portfolio.
    
    Unfunded commitments.
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Managements policy for investing in securities
  
    
    Provide an investment medium for funds which are not needed to meet loan demand or
deposit withdrawal.
    
    Optimize income generated from the investment account consistent with the stated
objectives for liquidity and quality standards.
    
    Meet regulatory standards.
    
    Provide collateral which the Bank is required to pledge against public monies or
borrowings.
    
    Provide an investment medium for funds which may be needed for liquidity purposes.
    
    Provide an investment medium which will balance market and credit risk for other
assets and the banks liability structure.
 Industry and competition
  th
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Employees
  Supervision and Regulation
 General
   Southern Community Bancshares, Inc.
   
    
    acquiring direct or indirect ownership or control of any voting shares of any
bank if, after such acquisition, the bank holding company will directly or
indirectly own or control more than 5% of the voting shares of the bank;
    
    acquiring all or substantially all of the assets of any bank; or
    
    merging or consolidating with any other bank holding company.
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
    
    interstate acquisitions by institutions located in Georgia will be permitted in
states which also allow interstate acquisitions; and
    
    interstate acquisitions of institutions located in Georgia will be permitted by
institutions located in states which allow interstate acquisitions.
   Southern Community Bank
   Gramm-Leach-Bliley Act of 1999
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
    
    financial in nature;
    
    incidental to an activity that is financial in nature; or
    
    complimentary to a financial activity and does not pose a substantial risk to
the safety and soundness of depository institutions or the financial system in
general.
  
    
    lending, exchanging, transferring or investing for others;
    
    safeguarding money or securities;
    
    insuring, guaranteeing, or indemnifying against loss, harm, damage, illness,
disability, or death, or providing and issuing annuities, and acting as principal,
agent, or broker for these purposes in any state;
    
    providing financial, investment or economic advice;
    
    issuing or selling interests in pools of assets that a bank could hold directly;
    
    underwriting, dealing in or making markets in securities; and
    
    engaging within the United States in any activity that a bank holding company
could engage in outside of the United States, if the Federal Reserve has found that
the activity was usual in connection with banking or other financial operations
internationally.
  
    
    lending, exchanging, transferring or investing for others or safeguarding
financial assets other than money or securities;
    
    providing any device or other instrumentality for transferring financial assets;
and
    
    arranging, effecting or facilitating financial transactions for third parties.
  
    
    all of the bank holding companys depository institution subsidiaries must be
well capitalized;
    
    all of the bank holding companys depository institution subsidiaries must be
well managed; and
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
    
    the bank holding company must file with the Federal Reserve a declaration of its
election to become a financial holding company, including a certification that its
depository institution subsidiaries meet the prior two criteria.
  Payment of dividends
    
    
    that dividends of cash or property may be paid only out of the retained earnings
of the bank;
    
    that dividends may not be paid if the banks paid-in capital and retained
earnings which are set aside for dividend payment and other distributions do not,
in combination, equal at least 20% of the banks capital stock; and
    
    that dividends may not be paid without prior approval of the Georgia Department
of Banking and Finance if:
 
    
    the banks total classified assets exceed 80% of its equity capital;
    
    the aggregate amount of dividends to be declared exceeds 50% of the
banks net profits after taxes but before dividends for the previous
calendar year; or
    
    the ratio of equity capital to total adjusted assets is less than
6%.
  Capital adequacy
  12




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Support of subsidiary institution
  Prompt corrective action
   
    
    well capitalized if it has a total capital ratio of 10.0% or greater, a tier 1
capital ratio of 6.0% or greater and a leverage ratio of 5.0% or greater and is not
subject to any order or written directive by the appropriate regulatory authority to
meet and maintain a specific capital level for any capital measure;
    
    adequately capitalized if it has a total capital ratio of 8.0% or greater, a tier
1 capital ratio of 4.0% or greater and a leverage ratio of 4.0% or greater (3.0% in
certain circumstances) and is not well capitalized;
    
    undercapitalized if it has a total capital ratio of less than 8.0%, a tier 1
capital ratio of less than 4.0% or a leverage ratio of less than 4.0% (3.0% in certain
circumstances);
    
    significantly undercapitalized if it has a total capital ratio of less than 6.0%,
a tier 1 capital ratio of less than 3.0% or a leverage ratio of less than 3.0%; and
    
    critically undercapitalized if its tangible equity is equal to or less than 2.0%
of average quarterly tangible assets.
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FDIC insurance assessments
     Safety and soundness standards
  Community Reinvestment Act
   15




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USA PATRIOT Act
  
    
    to conduct enhanced scrutiny of account relationships to guard against money laundering
and report any suspicious transaction; and
    
    to ascertain the identity of the nominal and beneficial owners of, and the source of
funds deposited into, each account as needed to guard against money laundering and report
any suspicious transactions.
  
    
    the development of internal policies, procedures and controls;
    
    the designation of a compliance officer;
    
    an ongoing employee training program; and
    
    an independent audit function to test the programs.
  
    
    expeditiously search its records to determine whether it maintains or has maintained
accounts, or engaged in transactions with individuals or entities, listed in a request
submitted by the Financial Crimes Enforcement Network (FinCEN);
    
    notify FinCEN if an account or transaction is identified;
    
    designate a contact person to receive information requests;
    
    limit use of information provided by FinCEN to: (1) reporting to FinCEN, (2)
determining whether to establish or maintain an account or engage in a transaction and (3)
assisting the financial institution in complying with the Bank Secrecy Act; and
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
    
    maintain adequate procedures to protect the security and confidentiality of FinCEN
requests.
  
    
    notifies FinCEN of its intention to share information, even when sharing with an
affiliated financial institution;
    
    takes reasonable steps to verify that, prior to sharing, the financial institution or
association of financial institutions with which it intends to share information has
submitted a notice to FinCEN;
    
    limits the use of shared information to identifying and reporting on money laundering or
terrorist activities, determining whether to establish or maintain an account or engage in
a transaction, or assisting it in complying with the Bank Security Act; and
    
    maintains adequate procedures to protect the security and confidentiality of the
information.
  Future Legislation
  17




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ITEM 1A.
    
    RISK FACTORS
 Risk Factors
  Current and anticipated deterioration in the housing market and the homebuilding industry
may lead to increased loss severities and further worsening of delinquencies and
nonperforming assets in our loan portfolio. Consequently, our results of operations may be
adversely impacted.
   We may face liquidity constraints and experience higher costs of funding if we are unable to
maintain a well-capitalized status.
   The markets for our services are highly competitive and we face substantial competition.
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Changes in interest rates have had and could continue to have an adverse effect on our income.
    We have a significant amount of construction loans, which are subject to additional risks
unique to the building industry that could negatively affect our net income.
  
    
    land values may decline;
    
    developers or builders may fail to complete or develop projects;
    
    municipalities may place moratoriums on building;
    
    developers may fail to sell the improved real estate;
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
    
    there may be construction delays and cost overruns;
    
    collateral may prove insufficient; or
    
    permanent financing may not be obtained in a timely manner.
  Because a significant portion of our loan portfolio is secured by real estate, any negative
conditions affecting real estate may harm our business.
   If our allowance for loan losses is not adequate to cover actual losses, our net income may
decrease.
   If economic conditions in our market areas do not improve, our business may be negatively
affected.
  Losing key personnel will negatively affect us.
  20




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We do not intend to pay dividends on our common stock.
  We encounter technological change continually and have fewer resources than many of our
competitors to invest in technological improvements.
  We are subject to significant government regulations, including new legislation that affect
our operations and may result in higher operating costs or increased competition for us.
     
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  21




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ITEM 2.
    
    PROPERTIES
  Main Office
  West Fayetteville and Operations Center
  Peachtree City
  Locust Grove
  Newnan
  Newnan  Kroger
  Jonesboro  Kroger
  22




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Griffin
   
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR THE COMMON EQUITY, RELATED STOCKHOLDER MATTERS
 Market information
    High selling price
    
    Low selling price2007:First Quarter
    
    $
    18.55
    
    
    $
    18.55Second Quarter
    
    
    15.20
    
    
    
    15.20Third Quarter
    
    
    13.50
    
    
    
    13.50Fourth Quarter
    
    
    5.60
    
    
    
    5.602006:First Quarter
    
    $
    20.00
    
    
    $
    17.50Second Quarter
    
    
    21.00
    
    
    
    18.25Third Quarter
    
    
    21.00
    
    
    
    19.00Fourth Quarter
    
    
    23.95
    
    
    
    20.50
  23




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ITEM 6. SELECTED FINANCIAL DATA
  (Dollars in thousands, except share and per share data)
    
    As of December 31,Balance Sheet Data
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Total assets
    
    $
    408,389
    
    
    $
    386,334
    
    
    $
    333,849
    
    
    $
    271,245
    
    
    $
    195,646Investment securities
    
    
    58,197
    
    
    
    55,369
    
    
    
    53,391
    
    
    
    50,616
    
    
    
    59,799Loans
    
    
    290,796
    
    
    
    293,224
    
    
    
    253,954
    
    
    
    186,737
    
    
    
    125,201Allowance for loan losses
    
    
    7,961
    
    
    
    3,051
    
    
    
    3,001
    
    
    
    2,017
    
    
    
    1,419Deposits
    
    
    300,717
    
    
    
    291,790
    
    
    
    261,639
    
    
    
    215,764
    
    
    
    159,775Federal Home Loan Bank advances
    
    
    57,500
    
    
    
    44,500
    
    
    
    30,000
    
    
    
    24,000
    
    
    
    15,000Other short-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Securities sold under repurchase agreements
    
    
    14,574
    
    
    
    12,914
    
    
    
    13,163
    
    
    
    4,753
    
    
    
    1,704Subordinated debentures
    
    
    10,929
    
    
    
    10,929
    
    
    
    5,774
    
    
    
    5,774
    
    
    
    Shareholders equity
    
    
    22,988
    
    
    
    24,449
    
    
    
    21,540
    
    
    
    20,256
    
    
    
    18,486Year Ended December 31,Statement of Income Data
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Interest income
    
    $
    28,523
    
    
    $
    27,323
    
    
    $
    19,176
    
    
    $
    13,570
    
    
    $
    9,096Interest expense
    
    
    15,513
    
    
    
    12,763
    
    
    
    7,772
    
    
    
    4,665
    
    
    
    3,106Net interest income
    
    
    13,010
    
    
    
    14,560
    
    
    
    11,404
    
    
    
    8,905
    
    
    
    5,990Provision for loan losses
    
    
    6,418
    
    
    
    2,877
    
    
    
    1,416
    
    
    
    1,031
    
    
    
    420Net interest income after provision for loan
losses
    
    
    6,592
    
    
    
    11,683
    
    
    
    9,988
    
    
    
    7,874
    
    
    
    5,570Noninterest income
    
    
    1,161
    
    
    
    1,650
    
    
    
    796
    
    
    
    613
    
    
    
    722Noninterest expense
    
    
    11,224
    
    
    
    10,059
    
    
    
    8,103
    
    
    
    6,046
    
    
    
    3,903Income tax expense (benefit)
    
    
    (1,576
    )
    
    
    778
    
    
    
    815
    
    
    
    761
    
    
    
    797Net income
    
    
    (1,895
    )
    
    
    2,496
    
    
    
    1,866
    
    
    
    1,680
    
    
    
    1,592Per Share DataBook value per share at year end
    
    $
    8.86
    
    
    $
    9.43
    
    
    $
    8.33
    
    
    $
    7.85
    
    
    $
    9.55Basic earnings per share
    
    
    (0.73
    )
    
    
    0.96
    
    
    
    0.72
    
    
    
    0.65
    
    
    
    0.62Diluted earnings per share
    
    
    (0.73
    )
    
    
    0.93
    
    
    
    0.70
    
    
    
    0.63
    
    
    
    0.61Weighted-average shares outstanding  basic
    
    
    2,592,897
    
    
    
    2,588,952
    
    
    
    2,585,687
    
    
    
    2,579,526
    
    
    
    1,928,764Weighted-average shares outstanding  diluted
    
    
    2,592,897
    
    
    
    2,676,193
    
    
    
    2,677,678
    
    
    
    2,668,329
    
    
    
    1,940,451Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends payout ratio
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %RatiosReturn on average assets
    
    
    -0.48
    %
    
    
    0.68
    %
    
    
    0.62
    %
    
    
    0.71
    %
    
    
    1.02
    %Return on average equity
    
    
    -7.60
    %
    
    
    10.36
    %
    
    
    8.77
    %
    
    
    8.56
    %
    
    
    8.83
    %Average equity/average assets
    
    
    6.13
    %
    
    
    6.53
    %
    
    
    7.07
    %
    
    
    8.34
    %
    
    
    11.58
    %Net interest margin
    
    
    3.51
    %
    
    
    4.19
    %
    
    
    3.98
    %
    
    
    3.97
    %
    
    
    4.06
    %Non-performing assets/total loans and other
real estate
    
    
    9.99
    %
    
    
    0.64
    %
    
    
    2.50
    %
    
    
    2.59
    %
    
    
    0.41
    %Allowance for loan losses/total loans
    
    
    2.74
    %
    
    
    1.04
    %
    
    
    1.18
    %
    
    
    1.08
    %
    
    
    1.13
    %
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
  Overview
   
    
    Loans, net of unearned income, decreased 1% to approximately $290.8 million,
down from approximately $293.2 million at December 31, 2006. Each of our markets
saw a significant slowing in loan demand starting in the spring of 2007.
    
    Provision for loan losses increased $3.5 million, up 123% from 2006.
    
    Nonperforming assets increased $30.1 million to $30.7 million primarily due to
the downturn in the residential real estate market in the metropolitan Atlanta
area.
    
    Net interest income decreased $1.5 million, or 11%. This decrease is primarily
due to the movement of loans into non-accrual status and the reversal of interest
income on those loans. Additionally, loan volume saw a decrease, the banks first
decrease since opening its doors in June 2000. Net interest margin, as well,
declined 68 basis points to 3.51%, reflecting costs associated with higher levels
of nonperforming assets.
    
    Noninterest income decreased $488,000 to $1.2 million and was due to the payment
of a death benefit in 2006 of $495,000, which is non-recurring income. Noninterest
expense increased $1.2 million, the largest component of which was increased costs
associated with foreclosed properties.
    
    Total deposits were approximately $301 million, an increase of approximately 3%
from $292 million at December 31, 2006. Total assets increased approximately 6% to
$408 million, compared to approximately $386 million at December 31, 2006.
    
    Shareholders equity decreased $1.5 million to $23 million compared to December
31, 2006. This decrease is due to a net loss of $1.9 million and changes in other
comprehensive income of $400,000.
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
    
    Maintaining our subsidiary bank at a well-capitalized level, which could
include the sale of common stock through a private placement and subsequent
contribution of proceeds to our bank.
    
    Appointing four directors to a newly formed Special Assets Committee which
oversees and works with management in dealing aggressively with our nonperforming
assets through early identification, with increased reserves and ultimately
maximizing recoveries;
    
    Diversify the loan portfolio through the implementation of the Equipment Finance
Department. Increases in loan volume in this area may offset the anticipated
decline in overall loan growth.
    
    Slowing growth by not opening any new branches in the near-term; and
    
    Controlling and reducing noninterest expenses to help offset margin pressure.
 Outlook
    
    
    Net interest income will decline as a result of spread tightening and
significant increases in nonperforming assets.
    
    Loan growth will decline, given slower demand for certain types of loans,
including residential real estate, which we will not be able to offset with higher
growth in other loan categories.
    
    A continued rise in credit costs; as we expect charge-offs to significantly
increase over 2007 levels.
    
    Continued expense discipline including reduced director fees, suspension of
branching plans, elimination of potential management bonuses, and the reduction of
salaries and benefits through the elimination and consolidation of approximately 20
job positions.
 Critical Accounting Policies
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Allowance for Loan Losses
     Results for the Quarter Ended December 31, 2007
  Quarters endedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,(In thousands)
    
    2007
    
    2007
    
    2007
    
    2007Interest income
    
    $
    7,289
    
    
    $
    7,498
    
    
    $
    7,458
    
    
    $
    6,278Interest expense
    
    
    3,748
    
    
    
    3,906
    
    
    
    3,906
    
    
    
    3,953Net interest income
    
    
    3,541
    
    
    
    3,592
    
    
    
    3,552
    
    
    
    2,325Provision for loan losses
    
    
    373
    
    
    
    619
    
    
    
    1,061
    
    
    
    4,365Net income
    
    
    508
    
    
    
    398
    
    
    
    28
    
    
    
    (2,829
    )Net income per share  basic
    
    
    0.20
    
    
    
    0.15
    
    
    
    0.01
    
    
    
    (1.09
    )Net income per share  diluted
    
    
    0.19
    
    
    
    0.15
    
    
    
    0.01
    
    
    
    (1.08
    )
 27




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##### Table of Contents



Quarters endedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,(In thousands)
    
    2006
    
    2006
    
    2006
    
    2006Interest income
    
    $
    6,024
    
    
    $
    6,729
    
    
    $
    7,115
    
    
    $
    7,455Interest expense
    
    
    2,700
    
    
    
    2,946
    
    
    
    3,422
    
    
    
    3,695Net interest income
    
    
    3,324
    
    
    
    3,783
    
    
    
    3,693
    
    
    
    3,760Provision for loan losses
    
    
    365
    
    
    
    679
    
    
    
    840
    
    
    
    993Net income
    
    
    567
    
    
    
    887
    
    
    
    672
    
    
    
    370Net income per share  basic
    
    
    0.22
    
    
    
    0.34
    
    
    
    0.26
    
    
    
    0.14Net income per share  diluted
    
    
    0.21
    
    
    
    0.33
    
    
    
    0.25
    
    
    
    0.14
      28




---



##### Table of Contents



Financial Condition as of December 31, 2007 and 2006
       29




---



##### Table of Contents



Liquidity and Capital Resources
      30




---



##### Table of Contents



RegulatoryActual
    
    MinimumConsolidated
    
    Bank
    
    RequirementLeverage capital ratios
    
    
    7.85
    %
    
    
    7.29
    %
    
    
    5.00
    %Risk-based capital ratios:Tier one capital
    
    
    9.35
    
    
    
    8.70
    
    
    
    6.00Total capital
    
    
    10.78
    
    
    
    9.96
    
    
    
    10.00
   Results of Operations for the Years Ended December 31, 2007, 2006 and 2005
 Net Interest Income
     31




---



##### Table of Contents



Provision for Loan Losses
     32




---



##### Table of Contents



Noninterest Income
  (Dollars in Thousands)
    
    2007
    
    2006
    
    2005Income from bank-owned life insurance
    
    $
    185
    
    
    $
    195
    
    
    
    32Proceeds from life insurance policy
    
    
    0
    
    
    
    495
    
    
    
    Service charge income
    
    
    963
    
    
    
    832
    
    
    
    616Gain on sale of securities
    
    
    0
    
    
    
    40
    
    
    
    106Other
    
    
    13
    
    
    
    88
    
    
    
    42Total noninterest income
    
    $
    1,161
    
    
    $
    1,650
    
    
    $
    796
   Noninterest Expense
  (Dollars in Thousands)
    
    2007
    
    2006
    
    2005Salaries and employee benefits
    
    $
    6,013
    
    
    $
    5,608
    
    
    $
    4,479Net occupancy and equipment
    
    
    1,803
    
    
    
    1,669
    
    
    
    1,247Attorneys fees
    
    
    172
    
    
    
    103
    
    
    
    137Data processing
    
    
    477
    
    
    
    414
    
    
    
    305Directors fees
    
    
    163
    
    
    
    154
    
    
    
    153Accounting and audit fees
    
    
    239
    
    
    
    140
    
    
    
    165Marketing and community relations
    
    
    234
    
    
    
    244
    
    
    
    189Supplies/printing
    
    
    164
    
    
    
    152
    
    
    
    145Telephone
    
    
    143
    
    
    
    112
    
    
    
    80Dues and memberships
    
    
    56
    
    
    
    40
    
    
    
    40Other
    
    
    1,761
    
    
    
    1,423
    
    
    
    1,163Total Noninterest expense
    
    $
    11,225
    
    
    $
    10,059
    
    
    $
    8,103
 33




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##### Table of Contents



Income Tax
  Asset/Liability Management
   34




---



##### Table of Contents



35




---



##### Table of Contents



Three
    
    OneMonths
    
    Yearbut
    
    butWithin
    
    Within
    
    Within
    
    AfterThree
    
    One
    
    Five
    
    FiveMonths
    
    Year
    
    Years
    
    Years
    
    TotalInterest-earning assetsFederal funds sold
    
    
    26,039
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,039Interest bearing deposits
    
    
    3,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,504Securities
    
    
    3,282
    
    
    
    2,480
    
    
    
    7,689
    
    
    
    48,028
    
    
    
    61,479Loans
    
    
    193,395
    
    
    
    28,543
    
    
    
    63,460
    
    
    
    5,599
    
    
    
    290,997226,220
    
    
    
    31,023
    
    
    
    71,149
    
    
    
    53,627
    
    
    
    382,019Interest-bearing liabilities:Interest-bearing demand deposits
    
    
    48,515
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,515Savings
    
    
    2,859
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,859Time Deposits
    
    
    56,006
    
    
    
    149,584
    
    
    
    11,533
    
    
    
    
    
    
    
    217,123Subordinated debentures
    
    
    10,929
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,929Securities sold under repurchase agreements
    
    
    14,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,574Other Borrowings
    
    
    7,500
    
    
    
    10,000
    
    
    
    33,000
    
    
    
    7,000
    
    
    
    57,500140,383
    
    
    
    159,584
    
    
    
    44,533
    
    
    
    7,000
    
    
    
    351,500Interest rate sensitivity gap
    
    
    85,837
    
    
    
    (128,561
    )
    
    
    26,616
    
    
    
    46,627
    
    
    
    30,519Cumulative interest rate sensitivity gap
    
    
    85,837
    
    
    
    (42,724
    )
    
    
    (16,108
    )
    
    
    30,519Interest rate sensitivity gap ratio
    
    
    1.61
    
    
    
    0.19
    
    
    
    1.60
    
    
    
    7.66Cumulative interest rate sensitivity gap ratio
    
    
    1.61
    
    
    
    0.86
    
    
    
    0.95
    
    
    
    1.09
 Selected Financial Information and Statistical Data
  36




---



##### Table of Contents



Average balances, interest income, and interest expense
  Analysis of Net Interest Income
for the Years Ended December 31, 2007, 2006, and 2005
 2007
    
    
    2006
    
    
    2005Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/(Dollars in thousands)
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateAssets:Deposits in banks
    
    $
    2,154
    
    
    $
    111
    
    
    
    5.15
    %
    
    $
    1,030
    
    
    $
    59
    
    
    
    5.73
    %
    
    $
    935
    
    
    $
    33
    
    
    
    3.58
    %Taxable investment securities
    
    
    43,770
    
    
    
    2,160
    
    
    
    4.93
    %
    
    
    45,928
    
    
    
    2,206
    
    
    
    4.80
    %
    
    
    39,439
    
    
    
    1,726
    
    
    
    4.38
    %Nontaxable investment securities
    
    
    13,825
    
    
    
    544
    
    
    
    3.93
    %
    
    
    13,978
    
    
    
    530
    
    
    
    3.79
    %
    
    
    12,123
    
    
    
    456
    
    
    
    3.76
    %Securities valuation account
    
    
    (993
    )
    
    
    
    
    
    
    
    
    
    
    (1,579
    )
    
    
    
    
    
    
    
    
    
    
    (816
    )
    
    
    Federal funds sold
    
    
    6,969
    
    
    
    343
    
    
    
    4.92
    %
    
    
    8,965
    
    
    
    429
    
    
    
    4.79
    %
    
    
    9,996
    
    
    
    313
    
    
    
    3.13
    %Loans (1)
    
    
    304,880
    
    
    
    25,365
    
    
    
    8.32
    %
    
    
    279,457
    
    
    
    24,099
    
    
    
    8.62
    %
    
    
    225,007
    
    
    
    16,648
    
    
    
    7.40
    %Allowance for loan losses
    
    
    (3,807
    )
    
    
    
    
    
    
    
    
    
    
    (3,472
    )
    
    
    
    
    
    
    
    
    
    
    (2,441
    )
    
    
    Cash and due from banks
    
    
    5,787
    
    
    
    
    
    
    
    
    
    
    
    5,551
    
    
    
    
    
    
    
    
    
    
    
    5,018
    
    
    
    Other assets
    
    
    20,538
    
    
    
    
    
    
    
    
    
    
    
    18,922
    
    
    
    
    
    
    
    
    
    
    
    11,960
    
    
    
    Total Assets
    
    $
    393,123
    
    
    
    
    
    
    
    
    
    
    $
    368,780
    
    
    
    
    
    
    
    
    
    
    $
    301,221
    
    
    
    Total interest-earning assets
    
    $
    370,605
    
    
    
    28,523
    
    
    
    7.70
    %
    
    $
    347,779
    
    
    
    27,323
    
    
    
    7.86
    %
    
    $
    286,684
    
    
    
    19,176
    
    
    
    6.69
    %Liabilities:Noninterest-bearing demand
    
    $
    35,046
    
    
    
    
    
    
    
    
    
    
    $
    33,259
    
    
    
    
    
    
    
    
    
    
    $
    27,637
    
    
    
    Interest bearing demand and savings
    
    
    56,091
    
    
    
    1,670
    
    
    
    2.98
    %
    
    
    56,120
    
    
    
    1,493
    
    
    
    2.66
    %
    
    
    54,810
    
    
    
    992
    
    
    
    1.81
    %Time
    
    
    195,561
    
    
    
    9,928
    
    
    
    5.08
    %
    
    
    200,159
    
    
    
    8,852
    
    
    
    4.42
    %
    
    
    156,146
    
    
    
    5,313
    
    
    
    3.40
    %Total deposits
    
    
    286,698
    
    
    
    
    
    
    
    
    
    
    
    289,538
    
    
    
    
    
    
    
    
    
    
    
    238,593Other borrowings (2)
    
    
    80,049
    
    
    
    3,915
    
    
    
    4.89
    %
    
    
    53,586
    
    
    
    2,418
    
    
    
    4.51
    %
    
    
    40,306
    
    
    
    1,467
    
    
    
    3.64
    %Other liabilities
    
    
    1,435
    
    
    
    
    
    
    
    
    
    
    
    1,559
    
    
    
    
    
    
    
    
    
    
    
    1,029
    
    
    
    Stockholders equity
    
    
    24,942
    
    
    
    
    
    
    
    
    
    
    
    24,097
    
    
    
    
    
    
    
    
    
    
    
    21,293
    
    
    
    Total liabilities and stockholders equity
    
    $
    393,124
    
    
    
    
    
    
    
    
    
    
    $
    368,780
    
    
    
    
    
    
    
    
    
    
    $
    301,221Total interest-bearing liabilities
    
    $
    331,701
    
    
    
    15,513
    
    
    
    4.68
    %
    
    $
    309,865
    
    
    
    12,763
    
    
    
    4.12
    %
    
    $
    251,262
    
    
    
    7,772
    
    
    
    3.18
    %Net interest income
    
    
    
    
    
    $
    13,010
    
    
    
    
    
    
    
    
    
    
    $
    14,560
    
    
    
    
    
    
    
    
    
    
    $
    11,404Net interest margin (3)
    
    
    
    
    
    
    
    
    
    
    3.51
    %
    
    
    
    
    
    
    
    
    
    
    4.19
    %
    
    
    
    
    
    
    
    
    
    
    3.98
    %Net interest spread (4)
    
    
    
    
    
    
    
    
    
    
    3.02
    %
    
    
    
    
    
    
    
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    
    
    
    3.51
    %
 
 (1)
    
    Interest income from loans includes total fee income of approximately $1,378,000, $1,471,000,
and $1,386,000 for the years ended December 31, 2007, 2006 and 2005, respectively. The
average balance of non-accrual loans included in average loans was $10,460,000, $3,055,000,
and $1,720,000 in 2007, 2006 and 2005, respectively.(2)
    
    Other borrowings include subordinated debentures issued by the Company in 2004 and 2006.(3)
    
    Net interest margin is net interest income divided by average interest-earning assets.(4)
    
    Interest rate spread is the weighted average yield on interest-earning assets minus the
average rate on interest-bearing liabilities. 37




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##### Table of Contents



Rate and Volume Analysis
  
    
    change in rate (change in rate multiplied by old volume);
    
    change in volume (change in volume multiplied by old rate); and
    
    a combination of change in rate and change in volume.
  Year Ended December 31,
    
    
    Year Ended December 31,2007 vs. 2006
    
    
    2006 vs. 2005Changes Due To:
    
    
    Changes Due To:(Dollars in Thousands)
    
    Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalIncrease (decrease) in:Income from interest-earning assets:Loans
    
    $
    2,128
    
    
    $
    (862
    )
    
    $
    1,266
    
    
    $
    4,432
    
    
    $
    3,019
    
    
    $
    7,451Investment securities
    
    
    (111
    )
    
    
    79
    
    
    
    (32
    )
    
    
    373
    
    
    
    181
    
    
    
    554Federal funds sold
    
    
    (98
    )
    
    
    12
    
    
    
    (86
    )
    
    
    (35
    )
    
    
    151
    
    
    
    116Deposits with other banks
    
    
    59
    
    
    
    (7
    )
    
    
    52
    
    
    
    3
    
    
    
    23
    
    
    
    26Total interest income
    
    
    1,978
    
    
    
    (778
    )
    
    
    1,200
    
    
    
    4,773
    
    
    
    3,374
    
    
    
    8,147Expense from interest-bearing liabilities:Interest-bearing demand and savings
    
    
    (1
    )
    
    
    178
    
    
    
    177
    
    
    
    25
    
    
    
    476
    
    
    
    501Time deposits
    
    
    (209
    )
    
    
    1,285
    
    
    
    1,076
    
    
    
    1,714
    
    
    
    1,825
    
    
    
    3,539Other borrowings
    
    
    192
    
    
    
    10
    
    
    
    202
    
    
    
    470
    
    
    
    201
    
    
    
    671Federal Home Loan Bank advances
    
    
    968
    
    
    
    327
    
    
    
    1,295
    
    
    
    152
    
    
    
    128
    
    
    
    280Total interest expense
    
    
    950
    
    
    
    1,800
    
    
    
    2,750
    
    
    
    2,361
    
    
    
    2,630
    
    
    
    4,991Net interest income
    
    $
    1,028
    
    
    $
    (2,578
    )
    
    $
    (1,550
    )
    
    $
    2,412
    
    
    $
    744
    
    
    $
    3,156
 Investment Portfolio
 Types of Investments
  December 31,(Dollars in Thousands)
    
    2007
    
    
    2006
    
    
    2005Mortgage-backed securities
    
    $
    17,574
    
    
    $
    16,489
    
    
    $
    15,648U.S. Government Sponsored Agencies
    
    
    25,012
    
    
    
    23,564
    
    
    
    23,455State an municipal securities
    
    
    13,717
    
    
    
    13,445
    
    
    
    12,548Corporate bonds
    
    
    1,894
    
    
    
    1,871
    
    
    
    1,740$
    58,197
    
    
    $
    55,369
    
    
    $
    53,391
 38




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##### Table of Contents



Maturities
  December 31,2007
    
    
    2006
    
    
    2005Year-endWeightedAmortized
    
    
    Fair
    
    
    Avg.
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair(Dollars in Thousands)
    
    Cost
    
    
    Value
    
    
    Yield(1)
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    ValueMortgage-backed
securitiesOver one year
through five years
    
    $
    3,417
    
    
    $
    3,377
    
    
    
    3.95
    %
    
    $
    3,575
    
    
    $
    3,474
    
    
    $
    2,527
    
    
    $
    2,405Over five years
through ten years
    
    
    4,324
    
    
    
    4,221
    
    
    
    3.73
    
    
    
    6,319
    
    
    
    6,106
    
    
    
    7,537
    
    
    
    7,254Over ten years
    
    
    10,031
    
    
    
    9,976
    
    
    
    5.02
    
    
    
    7,064
    
    
    
    6,909
    
    
    
    6,237
    
    
    
    5,989State and municipal
securitiesOne year or less
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    $
    
    
    
    $
    190
    
    
    $
    189Over one year
through five years
    
    
    1,329
    
    
    $
    1,318
    
    
    
    3.22
    
    
    
    830
    
    
    $
    835
    
    
    
    849
    
    
    $
    852Over five years
through ten years
    
    
    4,068
    
    
    
    4,060
    
    
    
    3.77
    
    
    
    4,887
    
    
    
    4,838
    
    
    
    1,635
    
    
    
    1,573Over ten years
    
    
    8,414
    
    
    
    8,340
    
    
    
    4.16
    
    
    
    7,734
    
    
    
    7,771
    
    
    
    10,090
    
    
    
    9,934Corporate bondsOver five years
through ten years
    
    $
    1,000
    
    
    $
    1,011
    
    
    
    6.75
    %
    
    $
    1,000
    
    
    $
    987
    
    
    $
    1,000
    
    
    $
    1,014Over ten years
    
    
    880
    
    
    
    882
    
    
    
    7.61
    
    
    
    880
    
    
    
    884
    
    
    
    726
    
    
    
    726U.S. Government
Sponsored AgenciesOne year or less
    
    $
    2,498
    
    
    $
    2,480
    
    
    
    3.50
    %
    
    $
    498
    
    
    $
    498
    
    
    $
    
    
    
    $
    Over one year
through five years
    
    
    1,995
    
    
    
    1,983
    
    
    
    3.64
    
    
    
    4,488
    
    
    
    4,353
    
    
    
    4,482
    
    
    
    4,323Over five years
through ten years
    
    
    1,499
    
    
    
    1,499
    
    
    
    5.00
    
    
    
    2,499
    
    
    
    2,465
    
    
    
    2,500
    
    
    
    2,481Over ten years
    
    
    18,963
    
    
    
    19,050
    
    
    
    5.76
    
    
    
    16,464
    
    
    
    16,249
    
    
    
    16,997
    
    
    
    16,651$
    58,418
    
    
    $
    58,197
    
    
    
    4.81
    %
    
    $
    56,238
    
    
    $
    55,369
    
    
    $
    54,770
    
    
    $
    53,391
 
 (1)
    
    Yields were computed using coupon interest, adding discount accretion or subtracting premium
amortization, as appropriate, on a ratable basis over the life of each security. The weighted
average yield for each maturity range was computed using the carrying value of each security
in that range and are not calculated on a tax equivalent basis. 39




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##### Table of Contents



Loan Portfolio
 Types of Loans
  December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003% of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of(Dollars in Thousands)
    
    Amount
    
    Loans
    
    Amount
    
    Loans
    
    Amount
    
    Loans
    
    Amount
    
    Loans
    
    Amount
    
    LoansCommercial
    
    $
    22,576
    
    
    
    8
    %
    
    $
    19,569
    
    
    
    7
    %
    
    $
    23,928
    
    
    
    9
    %
    
    $
    24,753
    
    
    
    13
    %
    
    $
    19,234
    
    
    
    15
    %Real estate-construction
    
    
    162,478
    
    
    
    56
    
    
    
    168,720
    
    
    
    58
    
    
    
    134,997
    
    
    
    53
    
    
    
    56,787
    
    
    
    31
    
    
    
    34,848
    
    
    
    28Real estate-mortgage
    
    
    101,779
    
    
    
    35
    
    
    
    101,169
    
    
    
    34
    
    
    
    90,640
    
    
    
    36
    
    
    
    101,151
    
    
    
    54
    
    
    
    66,884
    
    
    
    53Consumer installment
and other
    
    
    4,164
    
    
    
    1
    
    
    
    4,195
    
    
    
    1
    
    
    
    4,824
    
    
    
    2
    
    
    
    4,409
    
    
    
    2
    
    
    
    4,455
    
    
    
    4290,997
    
    
    
    100
    %
    
    
    293,653
    
    
    
    100
    %
    
    
    254,389
    
    
    
    100
    %
    
    
    187,100
    
    
    
    100
    %
    
    
    125,421
    
    
    
    100
    %Less:Allowance for loan
losses
    
    
    (7,961
    )
    
    
    
    
    
    
    (3,051
    )
    
    
    
    
    
    
    (3,001
    )
    
    
    
    
    
    
    (2,016
    )
    
    
    
    
    
    
    (1,419
    )Deferred loan fees
    
    
    (201
    )
    
    
    
    
    
    
    (430
    )
    
    
    
    
    
    
    (435
    )
    
    
    
    
    
    
    (363
    )
    
    
    
    
    
    
    (220
    )Net loans
    
    $
    282,835
    
    
    
    
    
    
    $
    290,172
    
    
    
    
    
    
    $
    250,953
    
    
    
    
    
    
    $
    184,721
    
    
    
    
    
    
    $
    123,782
 Maturities and Sensitivities of Loans to Changes in Interest Rates
  December 31,(Dollars in Thousands)
    
    2007
    
    2006CommercialOne year or less
    
    $
    14,675
    
    
    $
    8,343After one through five years
    
    
    7,901
    
    
    
    8,779After five years
    
    
    
    
    
    
    2,44722,576
    
    
    
    19,569Real Estate  ConstructionOne year or less
    
    
    149,876
    
    
    
    158,998After one through five years
    
    
    12,602
    
    
    
    9,344After five years
    
    
    
    
    
    
    378162,478
    
    
    
    168,720OtherOne year or less
    
    
    56,452
    
    
    
    53,233After one through five years
    
    
    47,026
    
    
    
    49,816After five years
    
    
    2,465
    
    
    
    2,315105,943
    
    
    
    105,364$
    290,997
    
    
    $
    293,653
 40




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##### Table of Contents



December 31,(Dollars in Thousands)
    
    2007
    
    2006Predetermined interest rates
    
    $
    59,935
    
    
    $
    58,672Floating or adjustable interest rates
    
    
    10,059
    
    
    
    14,407$
    69,994
    
    
    $
    73,079
 Risk Elements
  December 31,(Dollars in Thousands)
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Non-accrual loans
    
    $
    19,615
    
    
    $
    406
    
    
    $
    2,539
    
    
    $
    4,812
    
    
    $
    444Loans contractually past due 90 days or
more as to interest or principal payments
and still accruing
    
    
    4,899
    
    
    
    1,267
    
    
    
    0
    
    
    
    26
    
    
    
    67Restructured loans
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Loans, now current about which there are
serious doubts as to the ability of the
borrower to comply with loan repayment
terms
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Interest income that would have been
recorded on non-accrual and restructured
loans under original terms
    
    
    1,628
    
    
    
    102
    
    
    
    49
    
    
    
    116
    
    
    
    14Interest income that was recorded on
non-accrual and restructured loans
    
    
    724
    
    
    
    103
    
    
    
    193
    
    
    
    0
    
    
    
    0
    41




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##### Table of Contents



Summary of Loan Loss Experience
  Year Ended December 31,(Dollars in Thousands)
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Average amount of loans outstanding
    
    $
    304,880
    
    
    $
    279,457
    
    
    $
    225,007
    
    
    $
    160,948
    
    
    $
    102,648Balance of allowance for loan losses
at beginning of year
    
    $
    3,051
    
    
    $
    3,001
    
    
    $
    2,016
    
    
    $
    1,419
    
    
    $
    1,141Loans charged off:Consumer
    
    
    (136
    )
    
    
    (61
    )
    
    
    (88
    )
    
    
    (33
    )
    
    
    (142
    )Real estate
    
    
    (1,344
    )
    
    
    (705
    )
    
    
    (175
    )
    
    
    (232
    )
    
    
    Commercial
    
    
    (118
    )
    
    
    (2,181
    )
    
    
    (194
    )
    
    
    (169
    )
    
    
    (1,598
    )
    
    
    (2,947
    )
    
    
    (457
    )
    
    
    (434
    )
    
    
    (142
    )Loans recovered:
    
    
    90
    
    
    
    120
    
    
    
    26
    
    
    
    
    
    
    
    Net charge-offs
    
    
    (1,508
    )
    
    
    (2,827
    )
    
    
    (431
    )
    
    
    (434
    )
    
    
    (142
    )Additions to allowance charged to operating
expense during year
    
    
    6,418
    
    
    
    2,877
    
    
    
    1,416
    
    
    
    1,031
    
    
    
    420Balance of allowance for loan losses at
end of year
    
    $
    7,961
    
    
    $
    3,051
    
    
    $
    3,001
    
    
    $
    2,016
    
    
    $
    1,419Ratio of net loans charged off during the
year to average loans outstanding
    
    
    .49
    %
    
    
    1.01
    %
    
    
    0.19
    %
    
    
    0.27
    %
    
    
    0.14
    %
 Allowance for Loan Losses
   42




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##### Table of Contents



December 31, 2007
    
    December 31, 2006
    
    December 31, 2005
    
    December 31, 2004
    
    December 31, 2003Percent of
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent ofloans in
    
    
    
    
    
    loans in
    
    
    
    
    
    loans in
    
    
    
    
    
    loans in
    
    
    
    
    
    loans ineach
    
    
    
    
    
    each
    
    
    
    
    
    each
    
    
    
    
    
    each
    
    
    
    
    
    eachcategory
    
    
    
    
    
    category
    
    
    
    
    
    category
    
    
    
    
    
    category
    
    
    
    
    
    category(Dollars in
    
    
    
    
    
    to total
    
    
    
    
    
    to total
    
    
    
    
    
    to total
    
    
    
    
    
    to total
    
    
    
    
    
    to totalThousands)
    
    Amount
    
    loans
    
    Amount
    
    loans
    
    Amount
    
    loans
    
    Amount
    
    loans
    
    Amount
    
    loansCommercial
    
    $
    149
    
    
    
    1.88
    %
    
    $
    545
    
    
    
    6.66
    %
    
    $
    2,229
    
    
    
    9.41
    %
    
    $
    1,452
    
    
    
    13.23
    %
    
    $
    1,009
    
    
    
    15.34
    %Real estate-construction
    
    
    5,056
    
    
    
    63.50
    
    
    
    1,424
    
    
    
    57.46
    
    
    
    396
    
    
    
    53.06
    
    
    
    263
    
    
    
    30.35
    
    
    
    131
    
    
    
    27.78Real estate-mortgage
    
    
    47
    
    
    
    .59
    
    
    
    468
    
    
    
    34.45
    
    
    
    
    
    
    
    35.63
    
    
    
    
    
    
    
    54.06
    
    
    
    
    
    
    
    53.33Consumer
installment loans
    
    
    20
    
    
    
    .25
    
    
    
    122
    
    
    
    1.43
    
    
    
    130
    
    
    
    1.90
    
    
    
    117
    
    
    
    2.36
    
    
    
    138
    
    
    
    3.55Other qualitative
factors
    
    
    2,689
    
    
    
    33.78
    
    
    
    492
    
    
    
    
    
    
    
    246
    
    
    
    
    
    
    
    184
    
    
    
    
    
    
    
    141
    
    
    
    $
    7,961
    
    
    
    100.00
    
    
    $
    3,051
    
    
    
    100.00
    
    
    $
    3,001
    
    
    
    100.00
    
    
    $
    2,016
    
    
    
    100.00
    
    
    $
    1,419
    
    
    
    100.00
 Deposits
  Year Ended December 31,2007
    
    2006
    
    2005(Dollars in Thousands)
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    PercentNon-interest-bearing
demand deposits
    
    $
    35,046
    
    
    
    
    %
    
    $
    33,259
    
    
    
    
    %
    
    $
    27,637
    
    
    
    
    %Interest-bearing
demand and savings
deposits
    
    
    56,091
    
    
    
    2.98
    
    
    
    56,120
    
    
    
    2.66
    
    
    
    54,810
    
    
    
    1.81Time deposits
    
    
    195,561
    
    
    
    5.08
    
    
    
    200,159
    
    
    
    4.42
    
    
    
    156,146
    
    
    
    3.40Total
    
    $
    286,698
    
    
    
    
    
    
    $
    289,538
    
    
    
    
    
    
    $
    238,593
  (Dollars in Thousands)
    
    December 31, 2007Three months or less
    
    $
    30,853Over three through six months
    
    
    20,382Over six through twelve months
    
    
    53,959Over twelve months
    
    
    5,402Total
    
    $
    110,596
  43




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##### Table of Contents



Return on Assets and Stockholders Equity
  Year Ended December 31,2007
    
    2006
    
    2005Return on assets (1)
    
    
    -.48
    %
    
    
    .68
    %
    
    
    .62
    %Return on equity (2)
    
    
    -7.60
    
    
    
    10.36
    
    
    
    8.77Dividend payout ratio (3)
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aEquity to assets ratio (4)
    
    
    6.13
    
    
    
    6.53
    
    
    
    7.07
 
 (1)
    
    Net income divided by average total assets.(2)
    
    Net income divided by average equity.(3)
    
    Dividends declared per share of common stock divided by net income per share.(4)
    
    Average common equity divided by average total assets Contract Maturities Disclosure
  Less
    
    
    
    
    
    
    
    
    
    
    Morethan
    
    
    
    
    
    
    
    
    
    
    than five(Dollars in Thousands)
    
    Total
    
    
    One year
    
    
    1-3 years
    
    
    3-5 years
    
    
    yearsDemand and Savings
    
    $
    83,594
    
    
    $
    83,594
    
    
    $
    
    
    
    $
    
    
    
    $
    Time Deposits
    
    
    217,123
    
    
    
    205,590
    
    
    
    10,343
    
    
    
    1,190
    
    
    
    FHLB Advances
    
    
    57,500
    
    
    
    17,500
    
    
    
    
    
    
    
    33,000
    
    
    
    7,000Securities sold under
repurchase agreements
    
    
    14,574
    
    
    
    14,574
    
    
    
    
    
    
    
    
    
    
    
    Long-term debentures
    
    
    10,929
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,929Commitments to customers
under lines of credit
    
    
    43,289
    
    
    
    43,289
    
    
    
    
    
    
    
    
    
    
    
    Commitments under lease
agreements
    
    
    1,890
    
    
    
    338
    
    
    
    472
    
    
    
    432
    
    
    
    648$
    428,899
    
    
    $
    364,885
    
    
    $
    10,815
    
    
    $
    34,622
    
    
    $
    18,577
 Off-Balance Sheet Arrangements
  44




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##### Table of Contents



Effects of Inflation
  45




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Expected Maturity Date(Dollars in thousands)
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    Thereafter
    
    Total
    
    Fair ValueAssetsInvestment SecuritiesFixed rate
    
    $
    2,498
    
    
    $
    1,661
    
    
    $
    2,573
    
    
    $
    1,277
    
    
    $
    2,230
    
    
    $
    46,366
    
    
    $
    56,605
    
    
    $
    56,417Average interest rate
    
    
    3.50
    %
    
    
    3.35
    %
    
    
    3.64
    %
    
    
    4.60
    %
    
    
    4.91
    %
    
    
    4.99
    %
    
    
    4.81
    %Variable rate
    
    
    3,282
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,813
    
    
    
    5,095
    
    
    
    5,062Average interest rate
    
    
    6.00
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    4.59
    %
    
    
    5.81
    %LoansFixed rate
    
    
    40,066
    
    
    
    24,736
    
    
    
    24,144
    
    
    
    2,058
    
    
    
    2,463
    
    
    
    1,678
    
    
    
    95,145
    
    
    
    95,565Average interest rate
    
    
    7.43
    %
    
    
    7.81
    %
    
    
    8.00
    %
    
    
    8.10
    %
    
    
    7.92
    %
    
    
    6.48
    %
    
    
    7.50
    %Variable rate
    
    
    185,592
    
    
    
    4,836
    
    
    
    5,223
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195,651
    
    
    
    197,651Average interest rate
    
    
    6.98
    %
    
    
    8.70
    %
    
    
    8.30
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.06
    %Interest-bearing deposits
with other banksVariable rate
    
    
    3,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,504
    
    
    
    3,504Average interest rate
    
    
    5.15
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.15
    %LiabilitiesInterest-bearing deposits
and savingsVariable rate
    
    
    51,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,374
    
    
    
    51,374Average interest rate
    
    
    2.98
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.98
    %Time deposits
    
    
    205,590
    
    
    
    7,977
    
    
    
    2,366
    
    
    
    1,118
    
    
    
    72
    
    
    
    
    
    
    
    217,123
    
    
    
    221,727Average interest rate
    
    
    5.02
    %
    
    
    4.66
    %
    
    
    4.61
    %
    
    
    5.37
    %
    
    
    4.38
    %
    
    
    
    
    
    
    5.01
    %Fixed rate short-term
borrowings
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,000
    
    
    
    7,000
    
    
    
    50,000
    
    
    
    54,207Average interest rate
    
    
    4.44
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.51
    %
    
    
    4.10
    %
    
    
    4.44
    %Variable rate short-term
borrowings
    
    
    14,574
    
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,074
    
    
    
    22,074Average interest rate
    
    
    3.71
    %
    
    
    4.86
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.10
    %Variable rate long-term
borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,929
    
    
    
    10,929
    
    
    
    10,929Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.70
    %
    
    
    7.70
    %
 46




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
    
 
 
 
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  Evaluation of Internal Control Over Financial Reporting
   47




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  48




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
   
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
  Equity Compensation Plan Table
 (c)Number ofsecurities(a)
    
    
    
    
    
    
    remaining availableNumber of
    
    
    
    
    
    for future issuancesecurities to be
    
    
    (b)
    
    
    under equityissued upon
    
    Weighted-average
    
    compensation plansexercise of
    
    exercise price of
    
    (excludingoutstanding
    
    outstanding
    
    securitiesoptions, warrants
    
    options, warrants
    
    reflected in columnPlan category
    
    and rights
    
    and rights
    
    (a))Equity compensation
plans approved by
security holders
    
    
    211,320
    
    
    $
    7.49
    
    
    
    25,417Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    211,320
    
    
    $
    7.49
    
    
    
    25,417
  
 ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  49




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  ExhibitNumber
    
    Description3.1
    
    Articles of incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 to Form SB-2 filed by the Registrant on April 12, 2002)3.2
    
    Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to Form
SB-2 filed by the Registrant on April 12, 2002)10.1
    
    2001 Incentive Stock Option Plan for Key Employees (incorporated by reference
to Exhibit 10.2 to the Registrants Form SB-2 filed with the Commission on
April 12, 2002)*10.2
    
    Employment Agreement between Gary D. McGaha and Southern Community Bank
(incorporated by reference to Exhibit 10.3 to the Registrants Form SB-2
filed with the Commission on April 12, 2002)*10.3
    
    Employment Agreement between Fred L. Faulkner and Southern Community Bank
(incorporated by reference to Exhibit 10.4 to the Registrants Form SB-2
filed with the Commission on April 12, 2002)*13
    
    Consolidated Financial Statements of Southern Community Bancshares, Inc.21
    
    Subsidiaries of the Registrant23
    
    Consent of Mauldin & Jenkins, LLC31.1
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 *
    
    Denotes management contract or compensatory plan or arrangement. 50




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##### Table of Contents



SIGNATURES
  SOUTHERN COMMUNITY BANCSHARES, INC.
(Registrant)By:
    /s/ Gary D. McGahaGary D. McGahaPresident and Chief
Executive Officer
Date: April 28, 2008  /s/ Gary D. McGaha

Gary D. McGaha, President,
Chief Executive Officer and Director
[Principal Executive Officer]
    
    Date: April 28, 2008/s/ Leslye L. Grindle

Leslye L. Grindle, Senior Vice-President
Chief Financial Officer
[Principal Financial Officer and
Principal Accounting Officer]
    
    Date: April 28, 2008/s/ James S. Cameron

James S. Cameron, Director
    
    Date: April 28, 2008/s/ George R. Davis, Sr.

George R. Davis, Sr. , Director
    
    Date: April 28, 2008/s/ Robert B. Dixon, Jr.

Robert B. Dixon, Jr. , Director
    
    Date: April 28, 2008/s/ Richard J. Dumas

Richard J. Dumas, Director
    
    Date: April 28, 2008/s/ William Wayne Leslie.

William Wayne Leslie, Director
    
    Date: April 28, 2008/s/ Thomas D. Reese

Thomas D. Reese, Director
    
    Date: April 28, 2008/s/ William M. Strain
    
    Date: April 28, 2008William M. Strain, Director/s/ Jackie L. Mask

Jackie L. Mask, Director
    
    Date: April 28, 2008
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