Southern Community Financial Corp. has a market cap of $45.91 million; its shares were traded at around $2.73 with and P/S ratio of 0.45.
Highlight of Business Operations:Total assets decreased $21.4 million, or 1.2%, during the first quarter as loans declined for the sixth consecutive quarter. Loans outstanding decreased $21.8, million or 1.8%, due to the continued weak economic conditions and resulting slowdown in loan demand. The allowance for loan losses increased $6.4 million, or 21.5% primarily attributable to elevated levels in our provision for loan losses resulting from increases in volume and loss impairment of nonperforming loans. Foreclosed assets remained stable, increasing only $651 thousand. Investment securities and cash and due from banks increased $11.8 million, or 3.7%, and $3.7 million, or 12.3%, respectively; while federal funds sold decreased $8.9 million as part of ongoing balance sheet management to maximize available yields on investments. Total deposits were $1.31 billion at March 31, 2010, a decrease of $7.1 million, or 0.5%, from December 31, 2009. The decrease in deposits was from time deposits and demand deposits which decreased $43.4 million, or 7.0%, and $5.1 million, or 4.3%, respectively; while interest bearing transaction deposits increased $41.4 million or 7.2%. The decrease in time deposits was primarily attributed to declines in brokered deposits of $41.3 million. Borrowings decreased $8.7 million, or 3.1%, from the prior quarter end continuing a trend of allowing borrowings to mature without renewal or replacement as loan demand has declined and deposit growth has been adequate to fund new loan requests.
The Company s provision for loan losses of $10.0 million decreased from $18.0 million for the fourth quarter 2009 although it increased from $4.0 million reported in the first quarter of 2009. This level of provision and net charge-offs are the continuation of our proactive efforts to resolve troubled loans. This approach has led to an early identification of potential problem loans and their timely resolution, including the recognition of their loss exposure. The impairment of $5.1 million on two loan relationships was a significant factor in the level of provision for loan losses during the quarter. Annualized net charge-offs decreased to 1.20% of average loans in first quarter 2010 from 2.92% of average loans for fourth quarter 2009 and increased from 1.09% of average assets for the first quarter 2009. Nonperforming loans increased to $50.6 million or 4.19% of loans at March 31, 2010 from $37.7 million or 3.07% of loans at December 31, 2009. The $12.9 million increase in nonperforming loans reflects an increase of $6.7 million derived from one loan relationship as well as an increase in the volume of other new nonaccrual loans. Nonperforming assets rose to $70.9 million or 4.15% of total assets at March 31, 2010 from $57.4 million, or 3.32% of total assets, at December 31, 2009 primarily due to the increase in nonaccrual loans during the quarter. The activity for this quarter in net charge-offs, nonperforming loans and nonperforming assets continues to be predominately related to construction and development lending although commercial real estate was more of a factor. The allowance for loan losses of $36.0 million at March 31, 2010 represented 2.98% of total loans and a 0.71% coverage of nonperforming loans at current quarter-end compared with 2.41% of total loans and a 0.79% coverage of nonperforming loans at December 31, 2009. We believe the allowance is adequate for losses inherent in the loan portfolio at March 31, 2010.
Non-interest income was $4.0 million during the first quarter of 2010, compared to $3.5 million for the prior quarter and $2.6 million for the first quarter of 2009. The increase in non-interest income was primarily due to a $1.4 million gain on the sale of investment securities and improved SBIC earnings of $176 thousand compared to a $218 thousand loss in the prior quarter. All other categories decreased during the first quarter compared to the fourth quarter 2009. The decline in non-interest income during the first quarter also included a $186 thousand “other-than-temporary” impairment loss from the write-down of one equity investment security. The increase in non-interest income compared to the first quarter of 2009 was also primarily due to a $1.4 million gain on the sale of investment securities and improved service charges of $113 thousand.
During the three month period ending March 31, 2010, total assets declined $21.4 million or 1.2% to $1.71 billion. The key drivers of the change in balance sheet mix were an emphasis on maintaining an adequate allowance for loan losses, actively managing the investment portfolio, maintaining both a high level of liquidity and our regulatory capital ratios in excess of the well capitalized level. The allowance for loan losses was increased to 2.98% of period end loans compared to 2.41% at the end of the previous quarter and 1.49% at the end of the first quarter of 2009. The allowance was increased by $10.0 million during the quarter while net charge offs totaled $3.6 million. The investment portfolio was increased slightly during the quarter in order to fully utilize the increased liquidity caused by the lower loan balances. Total deposits decreased $7.1 million during the quarter with time deposits declining $43.4 million while lower cost transaction accounts increased $36.3 million. Virtually the entire decline in time deposits was brokered deposits which declined $41.3 million. Excess liquidity was also used to repay $8.7 million in borrowings. The shift in the funding mix contributed to an improvement in the net interest margin during the first quarter.
Total loans decreased $21.8 million or 1.8% during the quarter with decreases in the following major categories: $6.0 million, or 3.3%, for commercial and industrial loans, $5.9 million, or 1.3%, for commercial mortgage loans, $5.8 million, or 1.5%, for residential mortgage loans and $3.4 million, or 1.9%, for construction loans. The decrease in loans outstanding during the quarter can be attributed to a continued slowdown in loan demand during these difficult economic times. Loans held for sale decreased by $41 thousand or 1.4% from the prior year end.
Net Loss. Our net loss from operations of $4.6 million and our net loss after preferred dividends of $5.2 million for the three months ended March 31, 2010 decreased $44.7 million from the same three month period in 2009 which included a $49.5 million goodwill impairment charge. Net loss per share available to common shareholders was a $0.31 loss per share for both basic and diluted for the three months ended March 31, 2010 as compared with a $2.98 loss per share for both basic and diluted for the same period in 2009. Net interest income for the first quarter of 2010 was $13.2 million, up $788 thousand, or 6.3%, compared with the first quarter 2009, due to an improvement in the net interest margin despite a decrease in interest earning assets. The net interest margin of 3.41% improved 40 basis points from the year ago period. The Federal Reserve did not change rates during the current quarter, although repricing of interest bearing assets and liabilities continued to have an effect on the current net interest income and margin. The primary factor for the loss in the first quarter was the continued elevated level of asset quality costs, including a provision for loan losses of $10.0 million for the quarter. Non-interest income was $4.0 million during the first quarter of 2010, which represents an increase of 52.8% from non-interest income of $2.6 million reported in the comparable period in 2009. Excluding the $49.5 million goodwill impairment charge in first quarter 2009, non-interest expense increased $766 thousand, or 6.9%, compared with the same quarter a year ago. The largest increases in non-interest expense resulted from increased OREO write-downs and other OREO expense totaling $630 thousand and an increased FDIC deposit insurance premium of $304 thousand from ongoing deposit insurance premium rate increases.
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