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Southern Community Financial Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 11, 2009 08:11PM
Southern Community Financial Corp. (SCMF) filed Quarterly Report for the period ended 2009-03-31. Southern Community Financial Corporation is the holding company of Southern Community Bank and Trust. Southern Community Financial Corp. has a market cap of $58.7 million; its shares were traded at around $3.5 with a P/E ratio of 18.4 and P/S ratio of 0.5. Southern Community Financial Corp. had an annual average earning growth of 1.2% over the past 5 years.
Highlight of Business Operations:
Total assets decreased $14.0 million during the first quarter primarily due to the goodwill impairment charge discussed below. Excluding the goodwill impairment charge, total assets grew $35.5 million or 2.0% during the first quarter of 2009 led by investment securities which increased $21.2 million or 6.5% and federal funds sold which grew $15.7 million to end the period at $17.9 million. Investment securities were purchased during the quarter to invest excess funds as deposits continued to grow at a steady pace while loan balances decreased due to a slowdown in loan demand precipitated by a downturn in the economy. The majority of the securities purchased were available for sale government agencies which increased $52.4 million while mortgage-backed securities increased $11.7 million and municipals increased $7.4 million. Total loans declined $17.3 million or 1.3% during the quarter to end the period at $1.30 billion. Commercial mortgage loans, which total $428.2 million or 33.0% of gross loans, continue to comprise the largest segment of the loan portfolio and were the only segment to grow during the quarter increasing $9.0 million or 2.1% for the quarter. Construction loans experienced the largest decrease for the quarter decreasing $17.0 million or 6.5% to $243.6 million or 18.8% of total gross loans, as housing construction has contracted in this economic slowdown. Residential mortgage loans decreased $3.2 million or 0.8% and comprised 30.1% of the total loan portfolio. Of the $3.2 million decrease in the residential mortgage loan segment, land and building lots decreased $1.6 million, 1-4 family residences decreased $1.4 million and home equity loans decreased $254 thousand. Commercial and industrial loans decreased $4.6 million or 2.1% and represent 16.7% of total gross loans while loans to individuals decreased $1.5 million or 7.7%. Total deposits were $1.33 billion at quarter end, an increase of $95.0 million or 7.7% from year-end 2008. Time deposits grew $94.4 million or 14.4% while a small increase in money market, savings and NOW accounts was offset by a decrease in demand deposits. Borrowings decreased $58.8 million or 15.8% with short term borrowings decreasing $43.8 million and long term borrowings decreasing $15.0 million.
The Company increased its provision for loan losses to $4.0 million for the quarter compared with $2.4 million for the fourth quarter of 2008 and $925 thousand for the first quarter of 2008. This higher provision level resulted as more loans were identified as nonperforming during the first quarter. Based on the challenges we are seeing in residential construction and development, we continued our proactive approach to credit risk management. Nonperforming loans increased to $20.3 million or 1.56% of loans at March 31, 2009 from $14.4 million or 1.10% of loans at December 31, 2008 compared to $7.0 million or 0.57% of loans at March 31, 2008. Nonperforming assets increased to $31.0 million or 1.73% of total assets at March 31, 2009 compared to $20.2 million or 1.12% of total assets at December 31, 2008. Net charge-offs during the first quarter of 2009 increased to 1.09% (annualized) of average loans compared to 0.43% in the prior quarter. The increases in net charge-offs, nonperforming loans and nonperforming assets continue to be predominately related to residential construction and development lending. The allowance for loan losses of $19.3 million at March 31, 2009 represented 1.49% of total loans and 0.95 times nonperforming loans at current quarter-end compared with 1.43% of total loans and 1.31 times nonperforming loans at December 31, 2008. We believe the allowance is adequate for losses inherent in the loan portfolio at March 31, 2009.
Non-interest income was $2.6 million during the first quarter of 2009, compared to $2.5 million for the prior quarter and $3.6 million for the first quarter of 2008. The increase in the non-interest income in the current quarter compared to the prior quarter was attributable to increases in mortgage banking income from increased refinance activity, in wealth management income from increased transaction volume in sales of annuities and life insurance products and in SBIC income. These increases were offset by a $404 thousand loss as the Company s equity investment in Silverton Bank was determined to be worthless based on their closure by banking regulators on May 1, 2009. Income from SBIC activities increased to $238 thousand in the current quarter compared to an $89 thousand gain reported in the fourth quarter of 2008 and a $150 thousand loss in the first quarter of 2008. Income from SBIC activities will vary as the gains and losses from investments are recognized. Non-interest income from mortgage banking and investment brokerage activities increased in the current quarter although they declined compared to the first quarter of 2008.
In the loan portfolio, commercial mortgage loans, which total $428.2 million or 33.0% of gross loans, continue to comprise the largest segment and was the only segment to grow during the first quarter increasing by $9.0 million or 2.1%. The construction segment of the portfolio decreased $17.0 million to end the period at $243.6 million, or 18.8% of gross loans as the residential construction and development loans continue to be impacted by decreased sales activity in the housing market. Loans secured by residential mortgages experienced a decrease of $3.2 million or 0.8% and commercial and industrial lending declined $4.6 million to $216.6 million at March 31, 2009 or 16.7% of the total loan portfolio.
We utilize various funding sources, as necessary, to support balance sheet management and growth. Customer deposits continued to be our primary funding source for asset growth during the first quarter due to substantial increases in certificates of deposit. At March 31, 2009, deposits totaled $1.33 billion, an increase of $95.0 million or 7.7% from year-end 2008. Time deposits increased $94.4 million or 14.4% during the quarter; while non-maturity deposits increased $595 thousand or less than 1% during the period as customers moved to time deposits for increased yield. Of the $94.4 million or 14.4% increase in time deposits, local retail certificates increased $106.3 million as brokered and out-of-market certificates decreased by $11.9 million during the quarter.
Net Loss. Our net loss for the three months ended March 31, 2009 was $49.3 million compared with net income of $2.07 million for the same three month period in 2008. Net income (loss) per share available to common shareholders was ($2.98) for both basic and diluted for the three months ended March 31, 2009 as compared with $0.12 for both basic and diluted for the same period in 2008. Net interest income for the first quarter of 2009 was $12.5 million, up $1.5 million, or 13.2% compared with the first quarter 2008, due in part to strong loan growth in the second and third quarters of 2008 and strong time deposit growth year-over-year. The net interest margin of 3.01% increased three basis points from the year ago period. Non-interest income was $2.6 million during the first quarter of 2009, which represents an decrease of 27.9% from non-interest income of $3.6 million reported in the comparable period in 2008, primarily the result of a nonrecurring $1.0 million gain being recognized in connection with economic hedges in the first quarter of 2008 compared to a net loss from derivative activity of $22 thousand in the first quarter of 2009. These increases were offset by a $404 thousand loss as the Company s equity investment in Silverton Bank was determined to be worthless based on their closure by banking regulators on May 1, 2009. In contrast, Salem Capital Partners, our small business investment company (SBIC) affiliate, recognized a gain of $238 thousand for first quarter 2009 compared to a loss of $150 thousand in the first quarter of 2008. Non-interest expense increased $50.0 million principally due to the $49.5 million goodwill impairment charge mentioned above. Excluding this goodwill impairment charge, non-interest expenses for the first quarter 2009 increased $523 thousand or 5% over the comparable 2008 quarter. This increase from the first quarter of 2008 reflects increased expenses associated with problem loan workout efforts including OREO costs, the buyer incentives to purchasers of bank-financed builder housing inventory, FDIC insurance cost, professional services and occupancy costs.
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