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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, 2006
 Commission file number: 333-86082
 SOUTHERN COMMUNITY BANCSHARES, INC.
 Georgia
    
    58-2639705(State or Other Jurisdiction
    
    (I.R.S. Employer Identification Number)of Incorporation or Organization)
 525 North Jeff Davis Drive
P.O. Box 142069
Fayetteville, Georgia 30214
 (770) 461-4365
 
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SOUTHERN COMMUNITY BANCSHARES, INC.
 FORM 10-K INDEX
 PageNumberCautionary Notice Regarding Forward-Looking Statements
    
    3Part I1. Description of Business
    
    31A. Risk Factors
    
    171B. Unresolved Staff Comments
    
    192. Description of Property
    
    203. Legal Proceedings
    
    214. Submission of Matters to a Vote of Security Holders
    
    21Part II5. Market for Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    216. Selected Financial Data
    
    237. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    247A. Quantitative and Qualitative Disclosures About Market Risk
    
    438. Financial Statements and Supplementary Data
    
    449. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    449A. Controls and Procedures
    
    449B. Other Information
    
    44Part III10. Directors, Executive Officers, and Corporate Governance
    
    4511. Executive Compensation
    
    4512. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
    
    4513. Certain Relationships and Related Transactions, and Director Independence
    
    4514. Principal Accountant Fees and Services
    
    45Part IV15. Exhibits and Financial Statement Schedules
    
    46Signatures
    
    47EX-13 CONSOLIDATED FINANCIAL STATEMENTSEX-21 SUBSIDIARIES OF THE REGISTRANTEX-23 CONSENT OF MAULDIN & JENKINS, LLCEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO
  2




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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.
  
 PART I
 
 ITEM 1. DESCRIPTION OF BUSINESS
 Southern Community Bancshares, Inc.
 ,
   3




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Southern Community Bank
    Types of Loans
  Construction and Development Loans
  Commercial and Residential Real Estate
   4




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Commercial and Industrial Loans
   Consumer Loans
   
    
    Home equity loans  open and closed end
    
    Vehicle financing
    
    Loans secured by deposits
    
    Overdraft protection lines
    
    Secured and unsecured personal loans
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Loan participations
    Managements policy for determining the loan loss allowance
  
    
    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 (when available) 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.
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
    
    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.
      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.
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
    
    Provide an investment medium which will balance market and credit risk for other
assets and the banks liability structure.
 Industry and competition
  th
  Employees
  Supervision and Regulation
 General
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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.
    
    
    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.
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Southern Community Bank
   Gramm-Leach-Bliley Act of 1999
    
    
    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;
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
    
    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
    
    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;
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
    
    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
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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;
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
    
    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.
    FDIC insurance assessments
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Safety and soundness standards
  Community Reinvestment Act
    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.
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
    
    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
    
    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
  16




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ITEM 1A. RISK FACTORS
 Risk Factors
  The markets for our services are highly competitive and we face substantial competition.
   Changes in interest rates could 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;
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
    
    developers may fail to sell the improved real estate;
    
    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 deteriorate, our business may be negatively
affected.
  Losing key personnel will negatively affect us.
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We do not intend to pay dividends on our common stock.
  We have a limited operating history.
  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
  19




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ITEM 2. DESCRIPTION OF PROPERTY
 Main Office
  West Fayetteville and Operations Center
  Peachtree City
  Locust Grove
  Newnan
  Newnan  Kroger
  Jonesboro  Kroger
  McDonough
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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 price2006:First Quarter
    
    $
    20.00
    
    
    $
    17.50Second Quarter
    
    
    21.00
    
    
    
    18.25Third Quarter
    
    
    21.00
    
    
    
    19.00Fourth Quarter
    
    
    23.95
    
    
    
    20.502005:First Quarter
    
    $
    21.00
    
    
    $
    19.50Second Quarter
    
    
    23.00
    
    
    
    20.00Third Quarter
    
    
    23.45
    
    
    
    20.85Fourth Quarter
    
    
    22.00
    
    
    
    18.50
  21




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PERFORMANCE GRAPH
  Southern
Community Bancshares, Inc.
 Total
Return Performance
 
 Period EndingIndex
    
    
    12/31/01
    
    
    
    12/31/02
    
    
    
    12/31/03
    
    
    
    12/31/04
    
    
    
    12/30/05
    
    
    
    12/31/06Southern Community Bancshares
    
    
    
    100.00
    
    
    
    
    95.44
    
    
    
    
    158.73
    
    
    
    
    151.33
    
    
    
    
    134.48
    
    
    
    
    152.72NASDAQ Composite
    
    
    
    100.00
    
    
    
    
    68.76
    
    
    
    
    103.67
    
    
    
    
    113.16
    
    
    
    
    115.57
    
    
    
    
    127.58SNL Southeast Bank Index
    
    
    
    100.00
    
    
    
    
    110.46
    
    
    
    
    138.72
    
    
    
    
    164.50
    
    
    
    
    168.39
    
    
    
    
    197.45
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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
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Total assets
    
    $
    386,334
    
    
    $
    333,849
    
    
    $
    271,245
    
    
    $
    195,646
    
    
    $
    121,077Investment securities
    
    
    55,369
    
    
    
    53,391
    
    
    
    50,616
    
    
    
    59,799
    
    
    
    22,799Loans
    
    
    293,224
    
    
    
    253,954
    
    
    
    186,737
    
    
    
    125,201
    
    
    
    90,922Allowance for loan losses
    
    
    3,051
    
    
    
    3,001
    
    
    
    2,017
    
    
    
    1,419
    
    
    
    1,141Deposits
    
    
    291,790
    
    
    
    261,639
    
    
    
    215,764
    
    
    
    159,775
    
    
    
    99,509Federal Home Loan Bank advances
    
    
    44,500
    
    
    
    30,000
    
    
    
    24,000
    
    
    
    15,000
    
    
    
    Other short-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    719Securities sold under repurchase agreements
    
    
    12,914
    
    
    
    13,163
    
    
    
    4,753
    
    
    
    1,704
    
    
    
    3,780Subordinated debentures
    
    
    10,929
    
    
    
    5,774
    
    
    
    5,774
    
    
    
    
    
    
    
    Shareholders equity
    
    
    24,449
    
    
    
    21,540
    
    
    
    20,256
    
    
    
    18,486
    
    
    
    16,632
 Year Ended December 31,Statement of Income Data
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Interest income
    
    $
    27,323
    
    
    $
    19,176
    
    
    $
    13,570
    
    
    $
    9,096
    
    
    $
    6,930Interest expense
    
    
    12,763
    
    
    
    7,772
    
    
    
    4,665
    
    
    
    3,106
    
    
    
    2,393Net interest income
    
    
    14,560
    
    
    
    11,404
    
    
    
    8,905
    
    
    
    5,990
    
    
    
    4,537Provision for loan losses
    
    
    2,877
    
    
    
    1,416
    
    
    
    1,031
    
    
    
    420
    
    
    
    359Net interest income after provision for loan losses
    
    
    11,683
    
    
    
    9,988
    
    
    
    7,874
    
    
    
    5,570
    
    
    
    4,178Noninterest income
    
    
    1,650
    
    
    
    796
    
    
    
    613
    
    
    
    722
    
    
    
    394Noninterest expense
    
    
    10,059
    
    
    
    8,103
    
    
    
    6,046
    
    
    
    3,903
    
    
    
    2,928Income tax expense
    
    
    778
    
    
    
    815
    
    
    
    761
    
    
    
    797
    
    
    
    586Net income
    
    
    2,496
    
    
    
    1,866
    
    
    
    1,680
    
    
    
    1,592
    
    
    
    1,058
 Per Share DataBook value per share at year end
    
    $
    9.43
    
    
    $
    8.33
    
    
    $
    7.85
    
    
    $
    9.55
    
    
    $
    11.93Basic earnings per share
    
    
    0.96
    
    
    
    0.72
    
    
    
    0.65
    
    
    
    0.62
    
    
    
    0.51Diluted earnings per share
    
    
    0.93
    
    
    
    0.70
    
    
    
    0.63
    
    
    
    0.61
    
    
    
    0.50Weighted-average shares outstanding  basic
    
    
    2,588,952
    
    
    
    2,585,687
    
    
    
    2,579,526
    
    
    
    1,928,764
    
    
    
    1,292,380Weighted-average shares outstanding  diluted
    
    
    2,676,193
    
    
    
    2,677,678
    
    
    
    2,668,329
    
    
    
    1,940,451
    
    
    
    1,301,989Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends payout ratio
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 RatiosReturn on average assets
    
    
    0.68
    %
    
    
    0.62
    %
    
    
    0.71
    %
    
    
    1.02
    %
    
    
    1.02
    %Return on average equity
    
    
    10.36
    %
    
    
    8.77
    %
    
    
    8.56
    %
    
    
    8.83
    %
    
    
    11.20
    %Average equity/average assets
    
    
    6.53
    %
    
    
    7.07
    %
    
    
    8.34
    %
    
    
    11.58
    %
    
    
    9.10
    %Net interest margin
    
    
    4.19
    %
    
    
    3.98
    %
    
    
    3.97
    %
    
    
    4.06
    %
    
    
    4.66
    %Non-performing assets/total loans and other real estate
    
    
    0.64
    %
    
    
    2.50
    %
    
    
    2.59
    %
    
    
    0.41
    %
    
    
    0.38
    %Allowance for loan losses/total loans
    
    
    1.04
    %
    
    
    1.18
    %
    
    
    1.08
    %
    
    
    1.13
    %
    
    
    1.25
    %
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
  Forward-Looking Statements
  Critical Accounting Policies
   Allowance for Loan Losses
    24




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Fourth Quarter 2006
  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
 Quarters endedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,(In thousands)
    
    2005
    
    2005
    
    2005
    
    2005Interest income
    
    $
    3,961
    
    
    $
    4,552
    
    
    $
    5,081
    
    
    $
    5,583Interest expense
    
    
    1,481
    
    
    
    1,846
    
    
    
    2,119
    
    
    
    2,326Net interest income
    
    
    2,480
    
    
    
    2,706
    
    
    
    2,962
    
    
    
    3,257Provision for loan losses
    
    
    305
    
    
    
    418
    
    
    
    345
    
    
    
    348Net income
    
    
    289
    
    
    
    314
    
    
    
    534
    
    
    
    730Net income per share  basic
    
    
    0.11
    
    
    
    0.12
    
    
    
    0.21
    
    
    
    0.28Net income per share  diluted
    
    
    0.11
    
    
    
    0.12
    
    
    
    0.20
    
    
    
    0.27
   25




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2006 Overview
  26




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Financial Condition as of December 31, 2006 and 2005
       27




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Liquidity and Capital Resources
     28




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ActualRegulatoryMinimumConsolidated
    
    
    Bank
    
    
    RequirementLeverage capital ratios
    
    
    8.67
    %
    
    
    8.36
    %
    
    
    5.00
    %Risk-based capital ratios:Tier one capital
    
    
    9.92
    
    
    
    9.59
    
    
    
    6.00Total capital
    
    
    11.62
    
    
    
    10.51
    
    
    
    10.00
    Results of Operations for the Years Ended December 31, 2006, 2005 and 2004
 Net Interest Income
     29




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Provision for Loan Losses
    30




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Noninterest Income
  (Dollars in Thousands)
    
    2006
    
    2005
    
    2004Income from bank-owned life insurance
    
    $
    195
    
    
    
    32
    
    
    $
    Proceeds from life insurance policy
    
    
    495
    
    
    
    
    
    
    
    Service charge income
    
    
    832
    
    
    
    616
    
    
    
    461Gain on sale of securities
    
    
    40
    
    
    
    106
    
    
    
    85Other
    
    
    88
    
    
    
    42
    
    
    
    67Noninterest income
    
    $
    1,650
    
    
    $
    796
    
    
    $
    613
   31




---



##### Table of Contents



Noninterest Expense
  (Dollars in Thousands)
    
    2006
    
    2005
    
    2004Salaries and employee benefits
    
    $
    5,608
    
    
    $
    4,479
    
    
    $
    3,426Net occupancy and equipment
    
    
    1,669
    
    
    
    1,247
    
    
    
    814Attorneys fees
    
    
    103
    
    
    
    137
    
    
    
    101Data processing
    
    
    414
    
    
    
    305
    
    
    
    249Directors fees
    
    
    154
    
    
    
    153
    
    
    
    129Accounting and audit fees
    
    
    140
    
    
    
    165
    
    
    
    105Marketing and community relations
    
    
    244
    
    
    
    189
    
    
    
    138Supplies/printing
    
    
    152
    
    
    
    145
    
    
    
    124Telephone
    
    
    112
    
    
    
    80
    
    
    
    56Dues and memberships
    
    
    40
    
    
    
    40
    
    
    
    24Other
    
    
    1,423
    
    
    
    1,163
    
    
    
    880Noninterest expense
    
    $
    10,059
    
    
    $
    8,103
    
    
    $
    6,046
       32




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##### Table of Contents



Income Tax
  Asset/Liability Management
       33




---



##### Table of Contents



After
    
    AfterThree
    
    OneMonths
    
    Yearbut
    
    butWithin
    
    Within
    
    Within
    
    AfterThree
    
    One
    
    Five
    
    FiveMonths
    
    Year
    
    Years
    
    Years
    
    TotalInterest-earning assetsFederal funds sold
    
    
    13,747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,747Interest bearing deposits
    
    
    741
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    741Securities
    
    
    1,053
    
    
    
    
    
    
    
    12,437
    
    
    
    44,549
    
    
    
    58,039Loans
    
    
    200,526
    
    
    
    22,402
    
    
    
    64,696
    
    
    
    6,030
    
    
    
    293,654216,067
    
    
    
    22,402
    
    
    
    77,133
    
    
    
    50,579
    
    
    
    366,181Interest-bearing liabilities:Interest-bearing demand deposits
    
    
    51,916
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,916Savings
    
    
    2,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,504Time Deposits
    
    
    55,488
    
    
    
    114,012
    
    
    
    31,036
    
    
    
    
    
    
    
    200,536Federal funds purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Securities sold under repurchase agreements
    
    
    12,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,914Other Borrowings
    
    
    
    
    
    
    10,000
    
    
    
    17,500
    
    
    
    17,000
    
    
    
    44,500122,822
    
    
    
    124,012
    
    
    
    48,536
    
    
    
    17,000
    
    
    
    312,370Interest rate sensitivity gap
    
    
    93,245
    
    
    
    (101,610
    )
    
    
    28,597
    
    
    
    33,579
    
    
    
    53,811Cumulative interest rate sensitivity gap
    
    
    93,245
    
    
    
    (8,365
    )
    
    
    20,232
    
    
    
    53,811Interest rate sensitivity gap ratio
    
    
    1.76
    
    
    
    0.18
    
    
    
    1.59
    
    
    
    2.98Cumulative interest rate sensitivity gap ratio
    
    
    1.76
    
    
    
    0.97
    
    
    
    1.07
    
    
    
    1.17
 Selected Financial Information and Statistical Data
  34




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##### Table of Contents



Average balances, interest income, and interest expense
  Analysis of Net Interest Income
for the Years Ended December 31, 2006, 2005, and 2004
 2006
    
    
    2005
    
    
    2004Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/(Dollars in thousands)
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateAssets:Deposits in banks
    
    $
    1,030
    
    
    $
    59
    
    
    
    5.73
    %
    
    $
    935
    
    
    $
    33
    
    
    
    3.58
    %
    
    $
    1,125
    
    
    $
    18
    
    
    
    1.60
    %Taxable investment securities
    
    
    45,928
    
    
    
    2,206
    
    
    
    4.80
    %
    
    
    39,439
    
    
    
    1,726
    
    
    
    4.38
    %
    
    
    44,231
    
    
    
    1,827
    
    
    
    4.13
    %Nontaxable investmentsecurities
    
    
    13,978
    
    
    
    530
    
    
    
    3.79
    %
    
    
    12,123
    
    
    
    456
    
    
    
    3.76
    %
    
    
    9,909
    
    
    
    379
    
    
    
    3.82
    %Securities valuation account
    
    
    (1,579
    )
    
    
    
    
    
    
    
    
    
    
    (816
    )
    
    
    
    
    
    
    
    
    
    
    (656
    )
    
    
    Federal funds sold
    
    
    8,965
    
    
    
    429
    
    
    
    4.79
    %
    
    
    9,996
    
    
    
    313
    
    
    
    3.13
    %
    
    
    8,682
    
    
    
    130
    
    
    
    1.50
    %Loans (1)
    
    
    279,457
    
    
    
    24,099
    
    
    
    8.62
    %
    
    
    225,007
    
    
    
    16,648
    
    
    
    7.40
    %
    
    
    160,948
    
    
    
    11,216
    
    
    
    6.97
    %Allowance for loan losses
    
    
    (3,472
    )
    
    
    
    
    
    
    
    
    
    
    (2,441
    )
    
    
    
    
    
    
    
    
    
    
    (1,810
    )
    
    
    Cash and due from banks
    
    
    5,551
    
    
    
    
    
    
    
    
    
    
    
    5,018
    
    
    
    
    
    
    
    
    
    
    
    4,591
    
    
    
    Other assets
    
    
    18,922
    
    
    
    
    
    
    
    
    
    
    
    11,960
    
    
    
    
    
    
    
    
    
    
    
    8,450
    
    
    
    Total Assets
    
    $
    368,780
    
    
    
    
    
    
    
    
    
    
    $
    301,221
    
    
    
    
    
    
    
    
    
    
    $
    235,470
    
    
    
    Total interest-earning assets
    
    $
    347,779
    
    
    
    27,323
    
    
    
    7.86
    %
    
    $
    286,684
    
    
    
    19,176
    
    
    
    6.69
    %
    
    $
    224,239
    
    
    
    13,570
    
    
    
    6.05
    %Liabilities:Noninterest-bearing demand
    
    $
    33,259
    
    
    
    
    
    
    
    
    
    
    $
    27,637
    
    
    
    
    
    
    
    
    
    
    $
    21,427
    
    
    
    Interest bearing demand and
savings
    
    
    56,120
    
    
    
    1,493
    
    
    
    2.66
    %
    
    
    54,810
    
    
    
    992
    
    
    
    1.81
    %
    
    
    53,991
    
    
    
    736
    
    
    
    1.36
    %Time
    
    
    200,159
    
    
    
    8,852
    
    
    
    4.42
    %
    
    
    156,146
    
    
    
    5,313
    
    
    
    3.40
    %
    
    
    108,849
    
    
    
    3,114
    
    
    
    2.86
    %Total deposits
    
    
    289,538
    
    
    
    
    
    
    
    
    
    
    
    238,593
    
    
    
    
    
    
    
    
    
    
    
    184,267Other borrowings (4)
    
    
    53,586
    
    
    
    2,418
    
    
    
    4.51
    %
    
    
    40,306
    
    
    
    1,467
    
    
    
    3.64
    %
    
    
    30,885
    
    
    
    815
    
    
    
    2.64
    %Other liabilities
    
    
    1,559
    
    
    
    
    
    
    
    
    
    
    
    1,029
    
    
    
    
    
    
    
    
    
    
    
    689
    
    
    
    Stockholders equity
    
    
    24,097
    
    
    
    
    
    
    
    
    
    
    
    21,293
    
    
    
    
    
    
    
    
    
    
    
    19,629
    
    
    
    Total liabilities and
stockholders equity
    
    $
    368,780
    
    
    
    
    
    
    
    
    
    
    $
    301,221
    
    
    
    
    
    
    
    
    
    
    $
    235,470Total interest-bearing
liabilities
    
    $
    309,865
    
    
    
    12,763
    
    
    
    4.12
    %
    
    $
    251,262
    
    
    
    7,772
    
    
    
    3.18
    %
    
    $
    193,725
    
    
    
    4,665
    
    
    
    2.41
    %Net interest income
    
    
    
    
    
    $
    14,560
    
    
    
    
    
    
    
    
    
    
    $
    11,404
    
    
    
    
    
    
    
    
    
    
    $
    8,905Net interest margin (2)
    
    
    
    
    
    
    
    
    
    
    4.19
    %
    
    
    
    
    
    
    
    
    
    
    3.98
    %
    
    
    
    
    
    
    
    
    
    
    3.97
    %Net interest spread (3)
    
    
    
    
    
    
    
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    
    
    
    3.51
    %
    
    
    
    
    
    
    
    
    
    
    3.64
    %
 
 (1)
    
    Interest income from loans includes total fee income of approximately $1,471,000,
$1,386,000, and $1,170,000 for the years ended December 31, 2006, 2005 and 2004, respectively.
The average balance of non-accrual loans included in average loans was $3,055,000,
$1,720,000, and $1,760,000 in 2006, 2005 and 2004, respectively.(2)
    
    Net interest margin is net interest income divided by average interest-earning assets.(3)
    
    Interest rate spread is the weighted average yield on interest-earning assets minus the
average rate on interest-bearing liabilities.(4)
    
    Other borrowings include subordinated debentures issued by the Company in 2004 and 2006. 35




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##### Table of Contents



Rate and Volume Analysis
  
    
    change in rate (change in rate multiplied by old volume); and
    
    change in volume (change in volume multiplied by old rate);
    
    a combination of change in rate and change in volume.
  Year Ended December 31,
    
    
    Year Ended December 31,2006 vs. 2005
    
    
    2005 vs. 2004Changes Due To:
    
    
    Changes Due To:(Dollars in Thousands)
    
    Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalIncrease (decrease) in:Income from interest-earning assets:Loans
    
    $
    4,432
    
    
    $
    3,019
    
    
    $
    7,451
    
    
    $
    4,703
    
    
    $
    729
    
    
    $
    5,432Investment securities
    
    
    373
    
    
    
    181
    
    
    
    554
    
    
    
    (124
    )
    
    
    100
    
    
    
    (24
    )Federal funds sold
    
    
    (35
    )
    
    
    151
    
    
    
    116
    
    
    
    23
    
    
    
    160
    
    
    
    183Deposits with other banks
    
    
    3
    
    
    
    23
    
    
    
    26
    
    
    
    (3
    )
    
    
    18
    
    
    
    15Total interest income
    
    
    4,773
    
    
    
    3,374
    
    
    
    8,147
    
    
    
    4,599
    
    
    
    1,007
    
    
    
    5,606Expense from interest-bearing liabilities:Interest-bearing demand and savings
    
    
    25
    
    
    
    476
    
    
    
    501
    
    
    
    11
    
    
    
    245
    
    
    
    256Time deposits
    
    
    1,714
    
    
    
    1,825
    
    
    
    3,539
    
    
    
    1,533
    
    
    
    666
    
    
    
    2,199Other borrowings
    
    
    470
    
    
    
    201
    
    
    
    671
    
    
    
    183
    
    
    
    143
    
    
    
    326Federal Home Loan Bank advances
    
    
    152
    
    
    
    128
    
    
    
    280
    
    
    
    126
    
    
    
    200
    
    
    
    326Total interest expense
    
    
    2,361
    
    
    
    2,630
    
    
    
    4,991
    
    
    
    1,853
    
    
    
    1,254
    
    
    
    3,107Net interest income
    
    $
    2,412
    
    
    $
    744
    
    
    $
    3,156
    
    
    $
    2,746
    
    
    $
    (247
    )
    
    $
    2,499
 Investment Portfolio
 Types of Investments
  December 31,(Dollars in Thousands)
    
    2006
    
    
    2005
    
    
    2004Mortgage-backed securities
    
    $
    16,489
    
    
    $
    15,648
    
    
    $
    16,143U.S. Government Sponsored Agencies
    
    
    23,564
    
    
    
    23,455
    
    
    
    21,822State an municipal securities
    
    
    13,445
    
    
    
    12,548
    
    
    
    11,149Corporate bonds
    
    
    1,871
    
    
    
    1,740
    
    
    
    1,502$
    55,369
    
    
    $
    53,391
    
    
    $
    50,616
 36




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##### Table of Contents



Maturities
  December 31,2006
    
    
    2005
    
    
    2004Year-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
    
    $
    3,575
    
    
    $
    3,474
    
    
    
    3.87
    %
    
    $
    2,527
    
    
    $
    2,405
    
    
    $
    327
    
    
    $
    327Over five years
through ten years
    
    
    6,319
    
    
    
    6,106
    
    
    
    3.64
    
    
    
    7,537
    
    
    
    7,254
    
    
    
    10,060
    
    
    
    9,860Over ten years
    
    
    7,064
    
    
    
    6,909
    
    
    
    4.55
    
    
    
    6,237
    
    
    
    5,989
    
    
    
    6,102
    
    
    
    5,956State and municipal
securitiesOne year or less
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    190
    
    
    $
    189
    
    
    $
    
    
    
    $
    Over one year
through five years
    
    
    830
    
    
    $
    835
    
    
    
    2.83
    
    
    
    849
    
    
    $
    852
    
    
    
    511
    
    
    $
    515Over five years
through ten years
    
    
    4,887
    
    
    
    4,838
    
    
    
    3.48
    
    
    
    1,635
    
    
    
    1,573
    
    
    
    1,253
    
    
    
    1,232Over ten years
    
    
    7,734
    
    
    
    7,771
    
    
    
    4.11
    
    
    
    10,090
    
    
    
    9,934
    
    
    
    9,321
    
    
    
    9,402Corporate bondsOver five years
through ten years
    
    $
    1,000
    
    
    $
    987
    
    
    
    6.75
    %
    
    $
    1,000
    
    
    $
    1,014
    
    
    $
    1,000
    
    
    $
    1,028Over ten years
    
    
    880
    
    
    
    884
    
    
    
    7.97
    
    
    
    726
    
    
    
    726
    
    
    
    474
    
    
    
    474U.S. Government
Sponsored AgenciesOne year or less
    
    $
    498
    
    
    $
    498
    
    
    
    5.03
    %
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Over one year
through five years
    
    
    4,488
    
    
    
    4,353
    
    
    
    3.57
    
    
    
    4,482
    
    
    
    4,323
    
    
    
    3,483
    
    
    
    3,452Over five years
through ten years
    
    
    2,499
    
    
    
    2,465
    
    
    
    5.41
    
    
    
    2,500
    
    
    
    2,481
    
    
    
    2,495
    
    
    
    2,485Over ten years
    
    
    16,464
    
    
    
    16,249
    
    
    
    5.75
    
    
    
    16,997
    
    
    
    16,651
    
    
    
    15,997
    
    
    
    15,885$
    56,238
    
    
    $
    55,369
    
    
    
    4.64
    %
    
    $
    54,770
    
    
    $
    53,391
    
    
    $
    51,023
    
    
    $
    50,616
 
 (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. 37




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##### Table of Contents



Loan Portfolio
 Types of Loans
  December 31,2006
    
    
    2005
    
    

    2004
    
    

    2003
    
    
    2002% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(Dollars in Thousands)
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    LoansCommercial
    
    $
    19,569
    
    
    
    7
    %
    
    $
    23,928
    
    
    
    9
    %
    
    $
    24,753
    
    
    
    13
    %
    
    $
    19,234
    
    
    
    15
    %
    
    $
    11,332
    
    
    
    12
    %Real estate-construction
    
    
    168,720
    
    
    
    58
    
    
    
    134,997
    
    
    
    53
    
    
    
    56,787
    
    
    
    31
    
    
    
    34,848
    
    
    
    28
    
    
    
    27,859
    
    
    
    31Real estate-mortgage
    
    
    101,169
    
    
    
    34
    
    
    
    90,640
    
    
    
    36
    
    
    
    101,151
    
    
    
    54
    
    
    
    66,884
    
    
    
    53
    
    
    
    48,522
    
    
    
    53Consumer installment
and other
    
    
    4,195
    
    
    
    1
    
    
    
    4,824
    
    
    
    2
    
    
    
    4,409
    
    
    
    2
    
    
    
    4,455
    
    
    
    4
    
    
    
    3,334
    
    
    
    4293,653
    
    
    
    100
    %
    
    
    254,389
    
    
    
    100
    %
    
    
    187,100
    
    
    
    100
    %
    
    
    125,421
    
    
    
    100
    %
    
    
    91,047
    
    
    
    100
    %Less:Allowance for loan
losses
    
    
    (3,051
    )
    
    
    
    
    
    
    (3,001
    )
    
    
    
    
    
    
    (2,016
    )
    
    
    
    
    
    
    (1,419
    )
    
    
    
    
    
    
    (1,141
    )Deferred loan fees
    
    
    (430
    )
    
    
    
    
    
    
    (435
    )
    
    
    
    
    
    
    (363
    )
    
    
    
    
    
    
    (220
    )
    
    
    
    
    
    
    (125
    )Net loans
    
    $
    290,172
    
    
    
    
    
    
    $
    250,953
    
    
    
    
    
    
    $
    184,721
    
    
    
    
    
    
    $
    123,782
    
    
    
    
    
    
    $
    89,781
 Maturities and Sensitivities of Loans to Changes in Interest Rates
  December 31,(Dollars in Thousands)
    
    2006
    
    
    2005CommercialOne year or less
    
    $
    8,343
    
    
    $
    12,979After one through five years
    
    
    8,779
    
    
    
    9,549After five years
    
    
    2,447
    
    
    
    1,40019,569
    
    
    
    23,928Real Estate  ConstructionOne year or less
    
    
    158,998
    
    
    
    123,590After one through five years
    
    
    9,344
    
    
    
    9,872After five years
    
    
    378
    
    
    
    1,535168,720
    
    
    
    134,997OtherOne year or less
    
    
    53,233
    
    
    
    45,916After one through five years
    
    
    49,816
    
    
    
    45,883After five years
    
    
    2,315
    
    
    
    3,665105,364
    
    
    
    95,464$
    293,653
    
    
    $
    254,389
 38




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##### Table of Contents



December 31,(Dollars in Thousands)
    
    2006
    
    
    2005Predetermined interest rates
    
    $
    58,672
    
    
    $
    63,299Floating or adjustable interest rates
    
    
    14,407
    
    
    
    8,605$
    73,079
    
    
    $
    71,904
 Risk Elements
  (Dollars in Thousands)
    
    December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Non-accrual loans
    
    $
    406
    
    
    $
    2,539
    
    
    $
    4,812
    
    
    $
    444
    
    
    $
    341Loans contractually past due 90 days or
more as to interest or principal payments
and still accruing
    
    
    1,267
    
    
    
    0
    
    
    
    26
    
    
    
    67
    
    
    
    22Restructured 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
    
    
    102
    
    
    
    49
    
    
    
    116
    
    
    
    14
    
    
    
    3Interest income that was recorded on
non-accrual and restructured loans
    
    
    103
    
    
    
    193
    
    
    
    0
    
    
    
    0
    
    
    
    0
   Summary of Loan Loss Experience
  39




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##### Table of Contents



Year Ended December 31,(Dollars in Thousands)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Average amount of loans outstanding
    
    $
    279,457
    
    
    $
    225,007
    
    
    $
    160,948
    
    
    $
    102,648
    
    
    $
    78,551Balance of allowance for loan losses
at beginning of year
    
    $
    3,001
    
    
    $
    2,016
    
    
    $
    1,419
    
    
    $
    1,141
    
    
    $
    804Loans charged off:Consumer
    
    
    (61
    )
    
    
    (88
    )
    
    
    (33
    )
    
    
    (142
    )
    
    
    (21
    )Real estate
    
    
    (705
    )
    
    
    (175
    )
    
    
    (232
    )
    
    
    
    
    
    
    Commercial
    
    
    (2,181
    )
    
    
    (194
    )
    
    
    (169
    )
    
    
    
    
    
    
    (1
    )(2,947
    )
    
    
    (457
    )
    
    
    (434
    )
    
    
    (142
    )
    
    
    (22
    )Loans recovered:
    
    
    120
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    Net charge-offs
    
    
    (2,827
    )
    
    
    (431
    )
    
    
    (434
    )
    
    
    (142
    )
    
    
    (22
    )Additions to allowance charged to operating
expense during year
    
    
    2,877
    
    
    
    1,416
    
    
    
    1,031
    
    
    
    420
    
    
    
    359Balance of allowance for loan losses at
end of year
    
    $
    3,051
    
    
    $
    3,001
    
    
    $
    2,016
    
    
    $
    1,419
    
    
    $
    1141Ratio of net loans charged off during the
year to average loans outstanding
    
    
    1.01
    %
    
    
    0.19
    %
    
    
    0.27
    %
    
    
    0.14
    %
    
    
    0.03
    %
 Allowance for Loan Losses
     40




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##### Table of Contents



December 31, 2006
    
    
    December 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003
    
    
    December 31, 2002Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percentof loans
    
    
    
    
    
    
    of loans
    
    
    
    
    
    
    of loans
    
    
    
    
    
    
    of loans
    
    
    
    
    
    
    of loansin each
    
    
    
    
    
    
    in each
    
    
    
    
    
    
    in each
    
    
    
    
    
    
    in each
    
    
    
    
    
    
    in eachcategory
    
    
    
    
    
    
    category
    
    
    
    
    
    
    category
    
    
    
    
    
    
    category
    
    
    
    
    
    
    categoryto total
    
    
    
    
    
    
    to total
    
    
    
    
    
    
    to total
    
    
    
    
    
    
    to total
    
    
    
    
    
    
    to total(Dollars in thousands)
    
    Amount
    
    
    loans
    
    
    Amount
    
    
    loans
    
    
    Amount
    
    
    loans
    
    
    Amount
    
    
    loans
    
    
    Amount
    
    
    loansCommercial
    
    $
    545
    
    
    
    6.66
    %
    
    $
    2,229
    
    
    
    9.41
    %
    
    $
    1,452
    
    
    
    13.23
    %
    
    $
    1,009
    
    
    
    15.34
    %
    
    $
    733
    
    
    
    12.45
    %Real
estate-construction
    
    
    1,424
    
    
    
    57.46
    
    
    
    396
    
    
    
    53.06
    
    
    
    263
    
    
    
    30.35
    
    
    
    131
    
    
    
    27.78
    
    
    
    82
    
    
    
    30.60Real estate-mortgage
    
    
    468
    
    
    
    34.45
    
    
    
    
    
    
    
    35.63
    
    
    
    
    
    
    
    54.06
    
    
    
    
    
    
    
    53.33
    
    
    
    
    
    
    
    53.29Consumer
installment loans
    
    
    122
    
    
    
    1.43
    
    
    
    130
    
    
    
    1.90
    
    
    
    117
    
    
    
    2.36
    
    
    
    138
    
    
    
    3.55
    
    
    
    176
    
    
    
    3.66Other unallocated
    
    
    492
    
    
    
    
    
    
    
    246
    
    
    
    
    
    
    
    184
    
    
    
    
    
    
    
    141
    
    
    
    
    
    
    
    150
    
    
    
    $
    3,051
    
    
    
    100.00
    
    
    $
    3,001
    
    
    
    100.00
    
    
    $
    2,016
    
    
    
    100.00
    
    
    $
    1,419
    
    
    
    100.00
    
    
    $
    1,141
    
    
    
    100.00
 Deposits
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(Dollars in Thousands)
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    PercentNon-interest-bearing
demand deposits
    
    $
    33,259
    
    
    
    
    %
    
    $
    27,637
    
    
    
    
    %
    
    $
    21,427
    
    
    
    
    %Interest-bearing
demand and savings
deposits
    
    
    56,120
    
    
    
    2.66
    
    
    
    54,810
    
    
    
    1.81
    
    
    
    53,991
    
    
    
    1.36Time deposits
    
    
    200,159
    
    
    
    4.42
    
    
    
    156,146
    
    
    
    3.40
    
    
    
    108,849
    
    
    
    2.86Total
    
    $
    289,538
    
    
    
    
    
    
    $
    238,593
    
    
    
    
    
    
    $
    184,267
  (Dollars in Thousands)
    
    December 31, 2006Three months or less
    
    $
    27,552Over three through six months
    
    
    24,077Over six through twelve months
    
    
    35,452Over twelve months
    
    
    18,432Total
    
    $
    105,513
   41




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##### Table of Contents



Return on Assets and Stockholders Equity
  Year Ended December 31,2006
    
    
    2005
    
    
    2004Return on assets (1)
    
    
    .68
    %
    
    
    .62
    %
    
    
    .71
    %Return on equity (2)
    
    
    10.36
    
    
    
    8.77
    
    
    
    8.56Dividend payout ratio (3)
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aEquity to assets ratio (4)
    
    
    6.53
    
    
    
    7.07
    
    
    
    8.34
 
 (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
  Lessthan
    
    
    
    
    
    
    
    
    
    
    MoreOne
    
    
    1-3
    
    
    3-5
    
    
    than five(Dollars in Thousands)
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsDemand and Savings
    
    $
    94,361
    
    
    $
    94,361
    
    
    $
    
    
    
    $
    
    
    
    $
    Time Deposits
    
    
    200,536
    
    
    
    169,500
    
    
    
    27,430
    
    
    
    3,606
    
    
    
    FHLB Advances
    
    
    44,500
    
    
    
    10,000
    
    
    
    17,500
    
    
    
    
    
    
    
    17,000Securities sold under
repurchase agreements
    
    
    12,914
    
    
    
    12,914
    
    
    
    
    
    
    
    
    
    
    
    Long-term debentures
    
    
    10,929
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,929Commitments to customers
under lines of credit
    
    
    66,050
    
    
    
    66,050
    
    
    
    
    
    
    
    
    
    
    
    Commitments under lease
agreements
    
    
    1,142
    
    
    
    359
    
    
    
    560
    
    
    
    223
    
    
    
    $
    430,432
    
    
    $
    353,184
    
    
    $
    45,490
    
    
    $
    3,829
    
    
    $
    27,929
 Off-Balance Sheet Arrangements
  Effects of Inflation
  42




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Expected Maturity Date(Dollars in thousands)
    
    2007
    
    
    2008
    
    
    2009
    
    2010
    
    2011
    
    Thereafter
    
    Total
    
    
    Fair ValueAssetsInvestment Securities
Fixed rate
    
    $
    498
    
    
    $
    2,495
    
    
    $
    2,007            $
    
    
    
    2,885
    
    
    $
    1,506
    
    
    $
    44,734
    
    
    $
    54,125
    
    
    $
    53,306Average interest rate
    
    
    2.38
    %
    
    
    3.40
    %
    
    
    4.17
    %
    
    
    4.03
    %
    
    
    5.00
    %
    
    
    4.99
    %
    
    
    4.82
    %Variable rate
    
    
    2,670
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,113
    
    
    
    4,783
    
    
    
    4,733Average interest rate
    
    
    5.90
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    5.71
    %
    
    
    5.81
    %LoansFixed rate
    
    
    40,617
    
    
    
    23,585
    
    
    
    22,646
    
    
    
    2,380
    
    
    
    1,678
    
    
    
    2,250
    
    
    
    93,156
    
    
    
    88,614Average interest rate
    
    
    8.46
    %
    
    
    7.16
    %
    
    
    7.87
    %
    
    
    7.47
    %
    
    
    8.16
    %
    
    
    6.32
    %
    
    
    7.91
    %Variable rate
    
    
    185,661
    
    
    
    5,929
    
    
    
    8,418
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    200,068
    
    
    
    200,068Average interest rate
    
    
    9.02
    %
    
    
    7.54
    %
    
    
    8.73
    %
    
    
    7.25
    %
    
    
    
    
    
    
    
    
    
    
    8.96
    %Interest-bearing deposits
with other banks
Variable rate
    
    
    741
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    741
    
    
    
    741Average interest rate
    
    
    5.73
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.73
    %LiabilitiesInterest-bearing deposits
and savings
Variable rate
    
    
    54,420
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,420
    
    
    
    54,420Average interest rate
    
    
    2.66
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.66
    %Time deposits
    
    
    169,500
    
    
    
    22,793
    
    
    
    4,637
    
    
    
    2,414
    
    
    
    1,192
    
    
    
    
    
    
    
    200,536
    
    
    
    200,439Average interest rate
    
    
    4.90
    %
    
    
    4.78
    %
    
    
    4.30
    %
    
    
    4.56
    %
    
    
    5.33
    %
    
    
    
    
    
    
    4.88
    %Fixed rate short-term
borrowings
    
    
    10,000
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,000
    
    
    
    37,000
    
    
    
    35,568Average interest rate
    
    
    5.06
    %
    
    
    4.44
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.71
    %
    
    
    4.31
    %Variable rate short-term
borrowings
    
    
    12,914
    
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,414
    
    
    
    20,414Average interest rate
    
    
    4.29
    %
    
    
    5.34
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.40
    %Variable rate long-term
borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,929
    
    
    
    10,929
    
    
    
    10,929Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.68
    %
    
    
    7.68
    %
 43




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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
  
 ITEM 9B. OTHER INFORMATION
  44




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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(a)
    
    
    (b)
    
    
    (c)Weighted-
    
    
    Number of securitiesaverage exercise
    
    
    remaining available forNumber of securities
    
    
    price of
    
    
    future issuance underto be issued upon
    
    
    outstanding
    
    
    equity compensationexercise of
    
    
    options,
    
    
    plans (excludingoutstanding options,
    
    
    warrants and
    
    
    securities reflected inPlan category
    
    warrants and rights
    
    
    rights
    
    
    column (a))Equity compensation
plans approved by
security holders
    
    
    208,570
    
    
    $
    7.30
    
    
    
    28,167Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    208,570
    
    
    $
    7.30
    
    
    
    28,167
  
 ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  45




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##### Table of Contents



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. 46




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##### Table of Contents



SIGNATURES
  SOUTHERN COMMUNITY BANCSHARES, INC.(Registrant)By:
    
    /s/ Gary D. McGahaGary D. McGahaPresident and ChiefExecutive OfficerDate: March 30, 2007
  /s/ Gary D. McGaha
    
    Date: March 30, 2007Gary D. McGaha, President,
Chief Executive Officer and Director
[Principal Executive Officer]/s/ Leslye L. Grindle
    
    Date: March 30, 2007Leslye L. Grindle, Senior Vice-President
Chief Financial Officer 
[Principal Financial Officer and
Principal Accounting Officer]/s/James S. Cameron
    
    Date: March 30, 2007James S. Cameron, Director/s/George R. Davis, Sr.

George R. Davis, Sr. , Director
    
    Date: March 30, 2007/s/ Robert B. Dixon, Jr.

Robert B. Dixon, Jr. , Director
    
    Date: March 30, 2007/s/ Richard J. Dumas
    
    Date: March 30, 2007Richard J. Dumas, Director/s/ William Wayne Leslie
    
    Date: March 30, 2007William Wayne Leslie, Director/s/ Thomas D. Reese
    
    Date: March 30, 2007Thomas D. Reese, DirectorWilliam M. Strain, DirectorJackie L. Mask, Director
 47