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Southern Community Financial Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 8, 2012 09:21AM
Southern Community Financial Corp. (SCMF) filed Quarterly Report for the period ended 2012-06-30. Southern Community Financial Corp. has a market cap of $52.9 million; its shares were traded at around $3.19 with a P/E ratio of 28.5 and P/S ratio of 0.6.
Highlight of Business Operations:Net Income. Our net income from operations of $1.1 million and our net income available to common shareholders of $446 thousand for the three months ended June 30, 2012 decreased $58 thousand and $65 thousand, respectively, from the same three month period in 2011. Net income per share available to common shareholders was $0.03 per share, both basic and diluted, for the three months ended June 30, 2012 which were unchanged in comparison with the same period in 2011. Net interest income for the second quarter of 2012 was $10.7 million, down from $12.6 million, or a decrease of $1.9 million, or 15.1%, compared with the second quarter 2011, primarily due to a $108.6 million decrease in the average balance of interest earning assets. The net interest margin of 3.15% declined 28 basis points from the year ago period. The shift in the mix of earning assets from loans to lower yielding investments and overnight funds and the decreased loan yields due to pricing competition were the main influences on net interest income. The yield on interest earning assets decreased 39 basis points while the cost of funds decreased only nine basis points year-over-year. Due to the current unusually low interest rate environment, management’s ability to continue to reprice downward our deposits to achieve a meaningful reduction in our cost of funds is limited. A positive factor included in net income was the $1.4 million reduction in the provision for loan losses for the period. Non-interest income was $3.9 million during the second quarter of 2012, which represents an increase of 10.3% from non-interest income of $3.5 million reported in the comparable period in 2011. Non-interest expense declined $78 thousand year-over-year.
Non-Interest Expense. For the three months ended June 30, 2012, non-interest expenses decreased $78 thousand or 0.7%, over the same period in 2011. Merger related expenses including investment banker fees, legal fees and CPA fees, which were not present in the second quarter of 2011, were $673 thousand. Expenses related to foreclosed assets continued to be significant including a year-over-year increase in foreclosed property writedowns of $528 thousand offset by reduced other expenses of $141 thousand. Gains on sales of foreclosed assets decreased $25 thousand due to a number of factors including the higher mix of residential lots being sold this year. Reduced legal and professional expenses included savings of $165 thousand in legal fees and $287 thousand in fees on other professional services. The reduced legal fees related to a decreased volume of problem asset remediation litigation and other work. FDIC deposit insurance premiums decreased $161 thousand primarily due to decreased levels of deposits and a change in the basis of the quarterly assessment calculation. Although the premiums decreased year-over year, the premiums remained high as a result of the previously announced Consent Order and will remain at the higher assessment rates until the Consent Order is no longer in effect. Salaries and employees benefits increased $79 thousand from increases in commissions on mortgage and wealth management production, employee insurance costs and payroll taxes. Occupancy and equipment expense decreased $198 thousand which included decreases of $48 thousand in furniture and equipment depreciation, software maintenance of $44 thousand and building repairs of $49 thousand. Other reductions in non-interest expense included, among other things, advertising of $150 thousand, debit card rewards program of $73 thousand and real estate appraisals of $68 thousand.
Net Interest Income. During the six months ended June 30, 2012, our net interest income totaled $21.6 million, a year-over-year decrease of $3.8 million, or 15.0%. The primary reasons for this decrease were the $121.4 million reduction in the average balance of earning assets and the shift in the mix of earning assets from loans to lower yielding investment securities and overnight funds. The impact of these two factors was partially mitigated through the downward repricing of deposits and borrowings as well as an improved funding mix as previously mentioned. Our average yield on interest-earning assets decreased 39 basis points to 4.58% for the first six months of 2012 compared to the same period in 2011. Declining rates have also impacted our funding costs for the first six months of 2012, as funding costs decreased nine basis points to 1.59% from 1.68% for the comparable period a year ago. Average interest bearing liabilities decreased $148.7 million, or 10.8%, to $1.36 billion from $1.23 billion for the six month period ended June 2011. Average demand deposits increased $13.0 million, or 10.3%, year-over-year. For the six months ended June 30, 2012, our net interest spread decreased 30 basis points compared to the prior year at 3.29%; while our net interest margin was 3.16% compared to 3.42% for the prior year period.
Non-Interest Expense. For the six months ended June 30, 2012, the Company reported non-interest expense of $21.8 million compared to $22.7 million for the first six months of 2011, a decrease of $926 thousand, or 4.1%. FDIC deposit insurance premiums decreased $543 thousand primarily due to decreased levels of deposits and a change in the basis of the quarterly assessment calculation. Significant expense reductions of $359 thousand were realized in legal fees while other professional fees decreased an additional $486 thousand. Advertising expense decreased $152 thousand due to reduced advertisement of deposit rates. Merger related expenses including investment banker fees, legal fees and CPA fees, which were not present in the prior period, were $673 thousand. Expenses related to foreclosed assets continued to be significant including a year-over-year increase in foreclosed property writedowns of $379 thousand offset by reduced other expenses of $74 thousand. Gains on sales of foreclosed assets decreased $233 thousand due to a number of factors including the higher mix of residential lots being sold this year. Occupancy and equipment expense decreased $342 thousand compared to the prior period of 2011 due to reduced building maintenance, software maintenance and furniture and fixture leases and equipment depreciation. Other non-interest expense decreases for the period included debit card rewards of $78 thousand, contract employee services of $68 thousand, shareholder relations of $38 thousand and real estate appraisals of $32 thousand.
Nonperforming loans decreased to $55.1 million, or 6.01% of total loans, at June 30, 2012 compared to $57.9 million or 6.19% of total loans at March 31, 2012 and $68.0 million, or 7.13% of total loans, at December 31, 2011. This $12.9 million year to date decrease in nonperforming loans is due to the impact of: $6.4 million in net charge-offs $8.3 million in loans foreclosed upon and approximately $4.6 million in loan payoffs and pay downs which more than offset the $16.5 million in new additions to nonperforming loans year to date. Foreclosed assets increased $61 thousand for the first six months as $8.3 million in new foreclosed asset additions was offset by sales of foreclosed properties of $7.0 million and writedowns of $1.3 million. The increase in sales year to date was affected by the sale of three large commercial real estate properties during the second quarter.
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