(Source: Richard Craver Winston-Salem Journal, N.C. (MCT) — Southern Community Financial Corp.’s streak of profitable quarters reached five during the second quarter, with the bank reporting net income of $446,000.
Tuesday’s report is likely to be the second to last for Southern as an independent bank.
Shareholders vote Sept. 19 on whether to accept a $52.5 million offer from Capital Bank Financial Corp., a private-equity group based in Charlotte.
The bank would have had a profit of $1.1 million except for a $645,000 preferred-dividend payment to the U.S. Treasury for its participation in the capital-repurchase program. The bank has been deferring those payments for more than a year.
Diluted earnings were 3 cents a share, unchanged from a year ago. The average earnings forecast was a loss of 4 cents by analysts surveyed by Zacks Investment Research.
Extending the string of profitable quarters was aided in large part by improvements in Southern’s loan portfolio.
Southern, like many local community banks, has struggled with problem commercial and residential mortgage loans since the financial crisis began in late 2007.
Many community banks in recent quarters have accelerated foreclosure proceedings and the process of writing off bad loans as a way of easing pressure on their bottom lines.
Southern’s provision for loan loss dropped to $2.3 million from $2.9 million in the first quarter and $3.7 million a year ago.
Nonperforming assets were at $74.9 million on June 30, compared with $81.9 million on March 31 and $89.8 million on June 30, 2011.
However, net charge-offs rose to $3.5 million in the second quarter, compared with $2.9 million in the first quarter and $3.9 million a year ago.
Revenue from loans was at $8.4 million, compared with $8.1 million in the first quarter and $8.9 million a year ago, mostly reflecting the lower loan-loss provision.
Revenue from fees was $3.9 million, compared with $3.4 million in the first quarter and $3.3 million a year ago.
“It’s evident we have stabilized many of the negative trends brought on by the financial crisis,” Jim Hastings, Southern’s chief financial officer, said in a statement. “The bank is at a point now where it is consistently earning a profit and effectively managing its risks.
“It’s taken time and a lot of hard work to turn our organization around.”
According to analysts, the return to profitability makes curious the continued lack of explanation from Southern’s board of directors behind last week’s abrupt termination of its top two executives, Scott Bauer as chief executive and president and Jeff Clark as first executive vice president.
Though Bauer and Clark are being paid through Sept. 22, the bank said in a regulatory filing Monday that they will not receive a combined $1.1 million in change-in-control pay related to the Capital Bank Financial deal.
Southern’s board was able to avoid paying the change-in-control money by terminating Bauer and Clark before the proposed deal closed, and before the bank repaid $43 million in Troubled Asset Relief Program funding to the U.S. Treasury. TARP restrictions do not allow companies to pay severance or change-in-control packages to terminated executives while the Treasury has an investment.
In a separate regulatory filing, the bank said that on Thursday it amended employment contracts with its three remaining named executives: Hastings; Merle Andrews, its senior operations officer; and James Monroe Sr., its treasurer. Hastings was made eligible for a severance/retention award of up to $250,000; Andrews and Monroe were made eligible for up to $200,000.
©2012 Winston-Salem Journal (Winston Salem, N.C.)
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