SOUTHERN COMMUNITY FINANCIAL CORP - 10-Q Quarterly Report

Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock, No Par Value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of November 10, 2003, (the most recent practicable date), the registrant had outstanding 8,880,800 shares of Common Stock, no par value.


			Page No.

Part I.	FINANCIAL INFORMATION
Item 1 -	Financial Statements (Unaudited)
		Consolidated Balance Sheets September 30, 2003 and December 31, 2002		3
		Consolidated Statements of Operations Three Months and Nine Months Ended September 30, 2003 and 2002		4
		Consolidated Statements of Comprehensive Income Three Months and Nine Months Ended September 30, 2003 and 2002		5
		Consolidated Statement of Stockholders’ Equity Nine Months Ended September 30, 2003		6
		Consolidated Statements of Cash Flows Nine Months Ended September 30, 2003 and 2002		7
		Notes to Consolidated Financial Statements		8
Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results			13
	of Operations
Item 3 -	Quantitative and Qualitative Disclosures about Market Risk			20
Item 4 -	Controls and Procedures			20
Part II.	Other Information
Item 6 -	Exhibits and Reports on Form 8-K			21

Part I. FINANCIAL INFORMATION
Item 1 – Financial Statements (Unaudited)


				September 30, 2003			December 31,
				(Unaudited)			2002*

				(Amounts in thousands,
				except share data)
Assets
Cash and due from banks				$	19,571		$	16,632
Federal funds sold					19,436			11,084
Investment securities
	Available for sale, at fair value				139,486			96,930
	Held to maturity, at amortized cost				57,301			44,749
Loans (Note 4)					496,810			421,938
Allowance for loan losses (Note 4)					(6,948	)		(6,342	)

			Net Loans		489,862			415,596
Premises and equipment					18,033			15,962
Other assets					13,171			11,286

			Total Assets	$	756,860		$	612,239

Liabilities And Stockholders’ Equity
Liabilities
	Deposits:
		Demand		$	50,019		$	41,869
		Money market and NOW			159,038			115,981
		Time			334,825			291,366

			Total Deposits		543,882			449,216
Short-term borrowings					25,000			20,180
FHLB advances					116,475			75,526
Convertible preferred securities					17,250			17,250
Other liabilities					5,022			2,528

			Total Liabilities		707,629			564,700

Stockholders’ Equity
	Common stock, no par value, 30,000,000 shares authorized; 8,869,807 shares issued and outstanding				43,436			43,123
	Retained earnings				4,657			1,830
	Accumulated other comprehensive income				1,138			2,586

			Total Stockholders’ Equity		49,231			47,539

			Total Liabilities and Stockholders’ Equity	$	756,860		$	612,239


			Three Months Ended				Nine Months Ended
			September 30,				September 30,

			2003		2002		2003		2002

			(Amounts in thousands, except per share data)
Interest Income
	Loans		$	6,998	$	6,757	$	20,177	$	18,978
	Investment securities available for sale			1,646		1,431		4,495		3,437
	Investment securities held to maturity			685		436		1,804		1,847
	Federal funds sold			9		32		33		102

		Total Interest Income		9,338		8,656		26,509		24,364

Interest Expense
	Money market and NOW deposits			369		370		875		1,061
	Time deposits			2,022		2,565		6,444		8,349
	Short-term borrowings			118		134		242		285
	FHLB advances			824		561		2,273		1,422
	Convertible preferred securities			324		325		972		807

		Total Interest Expense		3,657		3,955		10,806		11,924

		Net Interest Income		5,681		4,701		15,703		12,440
Provision for Loan Losses (Note 4)				465		400		1,690		1,180

		Net Interest Income After Provision for Loan Losses		5,216		4,301		14,013		11,260

Non-Interest Income (Note 5)				1,257		1,009		3,851		2,654

Non-Interest Expense
	Salaries and employee benefits			2,549		2,102		7,062		5,469
	Occupancy and equipment			793		636		2,259		1,842
	Other (Note 5)			1,550		1,133		4,194		3,278

		Total Non-Interest Expense		4,892		3,871		13,515		10,589

		Income Before Income Taxes		1,581		1,439		4,349		3,325
Income Tax Expense				553		503		1,522		1,161

		Net Income	$	1,028	$	936	$	2,827	$	2,164

Net Income Per Share (Note 2)
	Basic		$	.12	$	.11	$	.32	$	.25
	Diluted			.11		.10		.31		.24

SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


					Three Months Ended						Nine Months Ended
					September 30,						September 30,

					2003			2002			2003			2002

								(Amounts in thousands)
Net income					$	1,028		$	936		$	2,827		$	2,164

Other comprehensive income:
	Securities available for sale:
		Unrealized holding gains (losses) on available for sale securities				(1,670	)		1,258			(1,921	)		1,760
				Tax effect		643			(484	)		740			(685	)
		Reclassification of (gains) losses recognized in net income				—			—			—			(69	)
				Tax effect		—			—			—			26

		Net of tax amount				(1,027	)		774			(1,181	)		1,032

	Cash flow hedging activities:
		Unrealized holding gains (losses) on cash flow hedging activities				(8	)		1,085			(196	)		1,311
				Tax effect		3			(348	)		95			(435	)
		Reclassification of (gains) losses recognized in net income				(137	)		(19	)		(267	)		(19	)
				Tax effect		52			7			101			7

		Net of tax amount				(90	)		725			(267	)		864

			Total other comprehensive income (loss)			(1,117	)		1,499			(1,448	)		1,896

Comprehensive income (loss)					$	(89	)	$	2,435		$	1,379		$	4,060

SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY


								Accumulated
		Common Stock						Other			Total
						Retained		Comprehensive			Stockholders'
		Shares		Amount		Earnings		Income			Equity

		(Amounts in thousands, except share data)
Balance at December 31, 2002			8,791,683	$	43,123	$	1,830	$	2,586		$	47,539
	Net income		—		—		2,827		—			2,827
	Other comprehensive loss, net of tax		—		—		—		(1,448	)		(1,448	)
	Stock options exercised		78,124		313		—		—			313

Balance at September 30, 2003			8,869,807	$	43,436	$	4,657	$	1,138		$	49,231


					Nine Months Ended
					September 30,

					2003			2002

					(Amounts in thousands)
Cash Flows from Operating Activities
	Net income				$	2,827		$	2,164
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				1,362			956
		Provision for loan losses				1,690			1,180
		Realized gain on sales of available for sale securities, net				—			(69	)
		Realized gain on sale of equipment				38			(3	)
		Realized (gain) loss on sale of foreclosed assets				49			(19	)
		Changes in assets and liabilities:
			Increase in other assets			(837	)		(3,452	)
			Increase in other liabilities			1,497			2,089

				Net Cash Provided by Operating Activities		6,626			2,846

Cash Flows from Investing Activities
	(Increase) decrease in federal funds sold					(8,352	)		12,043
	Purchases of:
		Available-for-sale investment securities				(84,431	)		(111,771	)
		Held-to-maturity investment securities				(59,469	)		(23,251	)
	Proceeds from maturities and calls of:
		Available-for-sale investment securities				39,589			17,054
		Held-to-maturity investment securities				46,925			26,000
	Proceeds from sales of available for sale securities					—			21,220
	Net increase in loans					(76,964	)		(50,910	)
	Proceeds from unwinding of cash flow hedge					951			208
	Purchases of premises and equipment					(3,273	)		(3,922	)
	Proceeds from disposal of premises and equipment					13			3
	Proceeds from sale of foreclosed assets					684			292
	Purchase of bank-owned life insurance					(108	)		(641	)

				Net Cash Used by Investing Activities		(144,435	)		(113,675	)

Cash Flows from Financing Activities
	Net increase in deposits					94,666			55,357
	Net increase (decrease) in short-term borrowings					4,820			5,020
	Net increase in FHLB advances					40,949			30,000
	Proceeds from issuance of convertible preferred securities					—			17,250
	Net proceeds from issuance of common stock					313			82

				Net Cash Provided by Financing Activities		140,748			107,709

				Net Increase (Decrease) in Cash and Due From Banks		2,939			(3,120	)
Cash and Due From Banks, Beginning of Year						16,632			18,878

				Cash and Due From Banks, End of Period	$	19,571		$	15,758

SOUTHERN COMMUNITY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements

The consolidated financial statements include the accounts of Southern Community Financial Corporation and its wholly-owned subsidiaries, Southern Community Capital Trust I, a trust for the convertible preferred securities, and Southern Community Bank and Trust and its wholly-owned subsidiaries, Southeastern Acceptance Corporation, a consumer finance company, and VCS Management, L.L.C., the managing general partner for Venture Capital Solutions L.P., a Small Business Investment Company. All intercompany transactions and balances have been eliminated in consolidation. In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three-month and nine-month periods ended September 30, 2003 and 2002, in conformity with accounting principles generally accepted in the United States of America.

The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements, as well as the amounts of income and expense during the reporting period. Actual results could differ from those estimates. Operating results for the three-month and nine-month periods ended September 30, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2003.

The organization and business of Southern Community Financial Corporation (the “Company”), accounting policies followed by the Company and other relevant information are contained in the notes to the consolidated financial statements filed as part of the Company’s 2002 annual report on Form 10-K. This quarterly report should be read in conjunction with such annual report.

Certain amounts in the 2002 consolidated financial statements have been reclassified to conform to the 2003 presentation. The reclassifications had no effect on net income or stockholders’ equity as previously reported.

Basic and diluted net income per share are computed based on the weighted average number of shares outstanding during each period after retroactively adjusting for a 5% stock dividend distributed October 15, 2002. Diluted net income per share reflects the potential dilution that could occur if stock options were exercised or convertible trust-preferred securities were converted, resulting in the issuance of common stock that then shared in the net income of the Company.

Basic and diluted net income per share have been computed using the weighted average number of common shares outstanding or assumed to be outstanding as summarized below:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,

	2003		2002		2003		2002

Weighted average number of common shares used in computing basic net income per share		8,822,564		8,793,836		8,802,090		8,789,307
Effect of dilutive stock options		597,450		276,274		310,457		280,315
Effect of dilutive convertible preferred securities		2,088,975		—		2,088,975		—

Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per share		11,508,989		9,070,110		11,201,522		9,069,622

Basic earnings per share are based upon net income as presented in the accompanying consolidated statements of operations.

SOUTHERN COMMUNITY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements

For the three months ended September 30, 2003, net income for determining diluted earnings per share was $1,226 thousand, after adjusting for the $199 thousand after tax effect of the expense associated with the 2,088,975 dilutive convertible preferred securities. For the three months ended September 30, 2002, there were 241,837 options that were antidilutive since the exercise price exceeded the average market price for the period. For the three months ended September 30, 2002, there were 2,088,975 of antidilutive shares related to the convertible trust preferred securities. These antidilutive common stock equivalents have been omitted from the calculation of diluted earnings per share.

For the nine months ended September 30, 2003 net income for determining diluted earnings per share was $3,423 thousand, after adjusting for the $597 thousand after tax effect of the expense associated with the dilutive convertible preferred securities. For the nine months ended September 30, 2003 and 2002, there were 104,355, and 179,916 options, respectively, that were antidilutive since the exercise price exceeded the average market price for the period. For the nine months ended September 30, 2003, there were 2,088,975 of dilutive shares related to the convertible trust preferred securities. These common stock equivalents have been included in the calculation of diluted earnings per share. For the nine months ended September 30, 2002, there were 2,088,975 of antidilutive shares related to the convertible trust preferred securities. These antidilutive common stock equivalents have been omitted from the calculation of diluted earnings per share.

Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under the Company’s stock option plans have no intrinsic value at the grant date and, under Opinion No. 25, no compensation cost is recognized for them. The Company has elected to continue with the accounting methodology in Opinion No. 25. Presented below are the pro forma disclosures of net income and earnings per share and other disclosures as if the fair value based method of accounting had been applied.


			Three Months Ended				Nine Months Ended
			September 30,				September 30,

			2003		2002		2003		2002

			(Amounts in thousands,
			except per share data)
Net income:
	As reported		$	1,028	$	936	$	2,827	$	2,164
		Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		67		129		227		378

	Pro forma		$	961	$	807	$	2,600	$	1,786

Basic earnings per share:
	As reported		$	.12	$	.11	$	.32	$	.25
	Pro forma			.11		.09		.30		.20
Diluted earnings per share:
	As reported		$	.11	$	.10	$	.31	$	.24
	Pro forma			.10		.09		.29		.20

SOUTHERN COMMUNITY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements


	September 30, 2003					December 31, 2002

			Percent					Percent
	Amount		of Total			Amount		of Total

	(Amounts in thousands)
Residential mortgage loans	$	131,781		26.53	%	$	118,572		28.10	%
Commercial mortgage loans		187,240		37.69	%		137,812		32.66	%
Construction loans		71,459		14.38	%		64,500		15.29	%
Commercial and industrial loans		81,169		16.34	%		71,948		17.05	%
Loans to individuals		25,161		5.06	%		29,106		6.90	%

Subtotal		496,810		100.00	%		421,938		100.00	%

Less: Allowance for loan losses		6,948					6,342

Net loans	$	489,862				$	415,596


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

	(Amounts in thousands)
Balance at beginning of period	$	6,816		$	5,976		$	6,342		$	5,400

Provision charged to operations		465			400			1,690			1,180

Charge-offs		(349	)		(249	)		(1,133	)		(494	)
Recoveries		16			2			49			43

Net charge-offs		(333	)		(247	)		(1,084	)		(451	)

Balance at end of period	$	6,948		$	6,129		$	6,948		$	6,129

SOUTHERN COMMUNITY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements


	Three Months Ended				Nine Months Ended
	September 30,				September 30,

	2003		2002		2003		2002

	(Amounts in thousands)
Service charges and fees on deposit accounts	$	399	$	277	$	1,069	$	810
Presold mortgage loan fees		345		366		1,151		781
Investment brokerage fees		230		102		770		185
SBIC management fees		138		138		424		414
Gain on sale of investment securities		—		—		—		69
Other		145		126		437		395

	$	1,257	$	1,009	$	3,851	$	2,654


	Three Months Ended				Nine Months Ended
	September 30,				September 30,

	2003		2002		2003		2002

	(Amounts in thousands)
Postage, printing and office supplies	$	113	$	85	$	312	$	243
Advertising and promotions		235		144		624		419
Data processing and other outsourced services		367		350		998		954
Professional services		90		46		346		164
Other		745		508		1,914		1,498

	$	1,550	$	1,133	$	4,194	$	3,278

The Company has issued guarantees under standby letters of credit, which require the Company to fund the guarantee in part or in entirety, in the event the customer fails to perform under an obligating agreement. These standby letters of credit typically have terms ranging from 12 to 60 months.

The maximum amount of the Company’s guarantees under these standby letters of credit along with the carrying amount of the liability under these guarantees are as follows (in thousands):

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (Statement 146). This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). A liability for a cost associated with an exit or disposal activity shall be recognized and measured initially at its fair value in the period in which the liability is incurred, except for certain qualifying employee termination benefits. The adoption of Statement 146 by the Company on January 1, 2003 had no significant impact to the consolidated financial statements.

SOUTHERN COMMUNITY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements

In January 2003, the FASB issued FASB Interpretation No. (FIN) 46, Consolidation of Variable Interest Entities. This interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the interpretation. FIN 46 applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interest in variable interest entities obtained after January 31, 2003. For public enterprises with a variable interest in a variable interest entity created before February 1, 2003, FIN 46 applies no later than the end of the first interim or annual period ending after December 15, 2003. The Company is in the process of determining the impact of FIN 46 on its consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities (Statement 149). Statement 149 improves financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, Statement 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, clarifies when a derivative contains a financing component, amends the definition of an “underlying” to conform it to language used in FIN 45 and amends certain other existing pronouncements. Statement 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. In addition, with some exceptions, all provisions of Statement 149 should be applied prospectively. The Company does not expect the requirements of Statement 149 to have a material impact on its consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified by the Company after May 31, 2003, and is effective at the beginning of the first interim period beginning after June 15, 2003. However, the FASB has deferred indefinitely the classification and measurement provisions as they related to certain mandatorily redeemable noncontrolling interests. The adoption of this Statement had no significant impact on the consolidated financial statements.

On July 30, 2003, the Company announced the execution of a definitive agreement in which the Company will acquire The Community Bank, Pilot Mountain, NC, in a fixed exchange of cash and stock. The total per share consideration is expected to be the sum of $9.49 plus 4.00 shares of the Company’s stock times the average price of the Company’s common stock during a period of time shortly before closing. As a result of the pending acquisition, the Company anticipates to pay approximately $15.2 million in cash and issue approximately 6.4 million shares of its common stock. The transaction is valued at approximately $76 million. This transaction is expected to close in the fourth quarter of 2003 and has been approved by the directors of both the Company and The Community Bank, but is subject to approval of shareholders of each, and Federal and State Banking authorities.

On November 10, 2003, Southern Community Capital Trust II (the “Trust”), a newly formed subsidiary of the company, issued 3,450,000 Cumulative Trust Preferred Securities (the “Securities”), generating total proceeds of $34.5 million. The Securities pay distributions at an annual rate of 7.95% and mature on December 31, 2033. The Securities will pay distributions quarterly beginning on December 31, 2003. The Company has fully and unconditionally guaranteed the obligations of the Trust. The Securities are also redeemable in whole or in part any time after December 31, 2008. Subject to certain limitations, the Securities qualify as Tier 1 capital of the company for regulatory capital purposes. The principal use of the net proceeds from the sale of the debentures is to provide cash for the acquisition of The Community Bank (described above), to increase regulatory capital, and support the growth and operations of the Company.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q may contain certain forward-looking statements consisting of estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services.

Effective October 1, 2001, Southern Community Bank and Trust became a wholly owned subsidiary of Southern Community Financial Corporation. Southern Community Financial Corporation has no material assets other than those of the bank. Southern Community Bank and Trust (the “bank”) was incorporated November 14, 1996 and began banking operations on November 18, 1996. The bank is engaged in general commercial and retail banking in the Piedmont area of North Carolina, principally Forsyth, Guilford and Yadkin Counties, operating under the banking laws of North Carolina and the rules and regulations of the Federal Deposit Insurance Corporation and on February 2, 2002 the bank became a member of the Federal Reserve System. The bank undergoes periodic examinations by those regulatory authorities.

During the nine-month period ending September 30, 2003, total assets increased by $144.6 million, or 23.6%, to $756.9 million. This increase is primarily the result of growth in the loan and investment portfolios. The increase in assets was supported by deposit growth, coupled with wholesale borrowings.

Continued strong loan demand resulted in gross loans increasing $74.9 million or 17.7% to $496.8 million from $421.9 million at year-end 2002. Commercial mortgage loans experienced the greatest growth, increasing by $49.4 million, or 35.9%. In addition, loans secured by residential mortgages increased $13.2 million or 11.1%, while commercial and industrial lending increased $9.2 million or 12.8%, during the first nine months of 2003. The investment portfolio increased $55.1, million or 38.9%, to $196.8 million versus $141.7 million at the beginning of the period. This growth is primarily due to planned growth combined with pre-investment of projected maturities for the remainder of the year.

Our total liquid assets, defined as cash and due from banks, federal funds sold and investment securities, increased by $66.4 million during the nine months, to $235.8 million at September 30, 2003 versus $169.4 million at the beginning of the period. Our composition of liquid assets has benefited from the increases in investment securities and federal funds sold.

Deposits continue to be our primary funding source. At September 30, 2003, deposits totaled $543.9 million, an increase of $94.7 million or 21.1% from year-end 2002. Our growth in earning assets was further supported by a $40.9 increase in FHLB advances, which totaled $116.5 million at quarter-end, up from $75.5 million at year-end. Over this same nine-month period, short-term borrowings have increased $4.8 million or 23.9%. The emphasis on short-term borrowings has assisted the Company in reducing funding costs to support our margin following further interest rate cuts by the Federal Reserve. We will utilize various funding sources, as necessary, to support balance sheet management and growth. Demand deposits increased $8.1 million from year-end and totaled $50.0 million as of September 30, 2003 comprising 9.2% of total deposits, an increase from $41.9 million at December 31, 2002.

Our capital position remains strong, with all of our regulatory capital ratios at levels that make us “well capitalized” under federal bank regulatory capital guidelines. At September 30, 2003, our stockholders’ equity totaled $49.2 million, an increase of $1.7 million from the December 31, 2002 balance. The increase is the result of retained net income from operations during the period of $2.8 million and proceeds from the exercise of stock options in the amounts of $313,000, net of decreases in unrealized gains on investment securities available-for-sale and cash flow hedges in the amounts of $1.2 million and $267,000, net of tax, respectively.

Results of Operations for the Three Months Ended September 30, 2003 and 2002

Net Income. Our net income for the three months ended September 30, 2003 was $1.0 million, an increase of $92,000 from the same three-month period in 2002. Net income per share was $.12 basic and $.11 diluted for the three months ended September 30, 2003, as compared with $.11 basic and $.10 diluted for the same period in 2002. We have continued to experience strong growth, with total assets averaging $745.3 million during the current three-month period as compared to $558.5 million in the prior period, an increase of $186.8 million or 33.5%. Our interest rate spread and net yield on average interest-earning assets decreased 29 basis points and 37 basis points, respectively. Our net interest income grew 20.9%, from $4.7 million for the three-month period ending September 2002 to $5.7 million for the current quarter. Net income was also supported by a $248,000 increase in non-interest income. These improvements were partially offset by a 26.4% increase in non-interest expenses. Our expense growth was concentrated in additional personnel costs, and to a lesser extent, other infrastructure associated with expansion of our business. While these expenses represent investments in building our franchise, they initially hinder our earnings.

Net Interest Income. During the three months ended September 30, 2003, our net interest income increased by $980,000 or 20.8% over the second quarter 2002 results to $5.7 million. Net-interest income benefited from strong growth in average earning assets, coupled with a reduction in cost on interest-bearing liabilities which offset lower asset yields caused by the decline in interest rates from period to period. The rates earned on a significant portion of our loan portfolio adjust immediately when index rates, such as prime, change. Conversely, most of our interest-bearing liabilities, including certificates of deposit and borrowings, have rates fixed. As a result, interest rate reductions generally result in an immediate drop in our interest income on loans, with a delayed impact on interest expense because reductions in interest costs will only occur upon renewals of certificates of deposit or borrowings. Because rates stabilized at a lower level during 2002, downward repricings of our interest-bearing liabilities have been larger than our downward repricings of our interest-earning assets. Average total interest-earning assets increased $180.8 million, or 34.7%, during the three months ended September 30, 2003 as compared to the same period in 2002. Our average yields on total interest-earning assets for the same periods decreased by 132 basis points from 6.60% to 5.28%. Our average total interest-bearing liabilities increased by $165.7 million, or 34.7%. Our average cost of total interest-bearing liabilities decreased by 103 basis points from 3.28% to 2.25%. For the three months ended September 30, 2003, our net interest spread was 3.03% and our net interest margin was 3.21%. For the three months ended September 30, 2002, our net interest spread was 3.32% and our net interest margin was 3.58%.

The following table contains information relating to the Company’s average balance sheet and reflects the average yield on assets and cost of liabilities for the periods indicated. Such annualized yields and costs are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. The average loan portfolio balances include non-accrual loans.


			Three Months Ended								Three Months Ended
			September 30, 2003								September 30, 2002

			Average					Average			Average					Average
			Balance			Interest		Rate			Balance			Interest		Rate

			(Dollars in thousands)
Interest-earning assets:
	Loans		$	489,226		$	6,998		5.67	%	$	402,571		$	6,757		6.66	%
	Investment securities:
		Available for sale		126,188			1,646		5.18	%		84,453			1,431		6.72	%
		Held to maturity		83,588			685		3.26	%		28,318			436		6.11	%
	Federal funds sold			2,320			9		1.37	%		5,144			32		2.47	%

		Total interest-earning assets		701,322			9,338		5.28	%		520,486			8,656		6.60	%

Other assets				44,022								38,012

		Total assets	$	745,344							$	558,498

Interest-bearing liabilities:
	Deposits:
		NOW and money market deposits	$	149,241			369		0.98	%	$	103,491			370		1.42	%
		Time deposits over $100,000		157,945			1,068		2.68	%		197,430			1,625		3.27	%
		Other time deposits		161,329			954		2.35	%		90,145			940		4.14	%
	Short-term borrowings			37,469			118		1.24	%		22,173			134		2.43	%
	FHLB advances			120,611			824		2.71	%		47,635			561		4.67	%
	Convertible Preferred Securities			17,250			324		7.47	%		17,251			325		7.43	%

		Total interest-bearing liabilities		643,845			3,657		2.25	%		478,125			3,955		3.28	%

	Non-interest-bearing deposits			47,053								33,482
	Other liabilities			5,038								2,076
	Stockholders’ equity			49,408								44,815

		Total liabilities and stockholders’ equity	$	745,344							$	558,498

Net interest income and interest rate spread						$	5,681		3.03	%				$	4,701		3.32	%

Net yield on average interest-earning assets									3.21	%							3.58	%

Ratio of average interest-earning assets to average interest-bearing liabilities				108.93	%							108.86	%

Provision for Loan Losses. Our provision for loan losses for the three months ended September 30, 2003 was $465,000 representing an increase of $65,000 from the $400,000 provision we made for the three months ended September 30, 2002. We have continued to increase the level of our allowance for loan losses in response to the growth in our loan portfolio. In evaluating the allowance for loan losses, we consider factors that include an assessment of individual loan credit risk, growth, composition and industry diversification of the portfolio, historical loan loss experience, current delinquency levels, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions and other relevant factors. We have increased our provision during the current three-month period due to the growth in our loan portfolio and in part because of an increased level of net loan charge-offs, which totaled $333,000 during the three months ended September 30, 2003, up from $247,000 during the three months ended September 30, 2002. On an annualized basis, our percentage of net loan charge-offs to average loans outstanding was .27% and .24% for the three months ended September 30, 2003 and 2002, respectively. Non-performing assets decreased to $1.9 million, or 0.25% of total assets at September 30, 2003 from $2.4 million, or 0.41% of total assets at September 30, 2002. At September 30, 2003, the allowance for loan losses stood at $6.9 million and represented 1.40% of period-ending loans. At December 31, 2002, the allowance for loan losses stood at $6.3 million and represented 1.50% of period-ending loans. During the third quarter of 2003, the bank made certain refinements to its loan risk grading system, resulting in a required allowance for loan losses that is lower, when compared to loans outstanding, than in previous periods. We believe that the allowance is adequate to absorb probable losses inherent in our loan portfolio.

Non-Interest Income. For the three-months ended September 30, 2003, non-interest income increased $248,000, or 24.6%, to $1.3 million from $1.0 million for the same period in the prior year. Increases for the three months ended September 30, 2003 include an increase of $122,000, or 44.0%, in service charges and fees on deposit accounts primarily as a result of deposit growth and $128,000 or 125.5% in investment brokerage fees as we have increased our marketing efforts to offer investment brokerage services to both the bank’s existing customer base as well as new clients. Other operational income increased by $18,000, or 14.3%. There was a minimal decrease of $21,000 or 5.7% in our mortgage origination operations due to the leveling off of activity caused by increases in long-term rates relative to those experienced earlier in the year.

Non-Interest Expense. We strive to maintain non-interest expenses at levels that we believe are appropriate given the nature of our operations and the investments in personnel and facilities that have been necessary to support and service our earning assets. From 1998 forward through the current three-month period, we have consistently maintained our ratio of non-interest expenses to average total assets below 3%. Because of our growth we have consistently seen increases in every major component of our non-interest expenses. For the three months ended September 30, 2003, our non-interest expense increased $1.0 million, or 26.4% over the same period in 2002. Salaries and employee benefit expense increased $447,000, or 21.3%, and reflects the addition of personnel in our new branches as well as additions of personnel to expand our business, and, to a lesser degree, normal salary increases. Occupancy and equipment expense increased $157,000, or 24.7%. Other expenses increased $417,000, or 36.8%, reflecting the increased volume of business activity, principally increases in lending and deposit relationships and increases in advertising and promotions. For the three months ended September 30, 2003, on an annualized basis, our ratio of non-interest expenses to average total assets increased to 2.66% as compared with 2.65% for the same three months in 2002.

Provision for Income Taxes. Our provision for income taxes, as a percentage of income before income taxes, was 35.0% for both of the three months ended September 30, 2003 and 2002.

Net Income. Our net income for the nine months ended September 30, 2003 was $2.8 million, an increase of $663,000 from the same nine-month period in 2002. Net income per share was $.32 basic and $.31 diluted for the nine months ended September 30, 2003, as compared with $.25 basic and $.24 diluted for the same period in 2002. We have continued to experience strong growth, with total assets averaging $671.6 million during the current nine-month period as compared to $537.2 million in the prior period, an increase of $134.4 million or 25.0%. Our interest rate spread and net yield on average interest-earning assets increased 14 basis points and 3 basis points, respectively. Our net interest income grew 26.2%, from $12.4 million for the nine-month period ending September 2002 to $15.7 million for the current year-to-date through September 30, 2003. Net income was also supported by a $1.2 million increase in non-interest income. These improvements were partially offset by a 27.6% increase in non-interest expenses. Our expense growth primarily is a result of additional personnel costs, and to a lesser extent, other infrastructure associated with expansion of our business. While these expenses represent investments in building our franchise, they initially hinder our earnings.

Net Interest Income. During the nine months ended September 30, 2003, our net interest income increased by $3.3 million or 26.2% over the $12.4 million for the same nine-month period in 2002. Net-interest income benefited from strong growth in average earning assets, coupled with a reduction in cost on interest-bearing liabilities which offset lower asset yields caused by the decline in interest rates from period to period. The rates earned on a significant portion of our loan portfolio adjust immediately when index rates, such as prime, change. Conversely, most of our interest-bearing liabilities, including certificates of deposit and borrowings, have rates fixed. As a result, interest rate reductions generally result in an immediate drop in our interest income on loans, with a delayed impact on interest expense because reductions in interest costs will only occur upon renewals of certificates of deposit or borrowings. Because rates stabilized at a lower level during 2002, downward repricing of our interest-bearing liabilities have been larger than our downward repricing of our interest-earning assets during 2003. Average total interest-earning assets increased $126.0 million, or 24.9%, during the nine months ended September 30, 2003 as compared to the same period in 2002. Our average yields on total interest-earning assets for the same periods decreased by 83 basis points from 6.44% to 5.61%. Our average total interest-bearing liabilities increased by $117.4 million, or 25.6%. Our average cost of total interest-bearing liabilities decreased by 97 basis points from 3.48% to 2.51%. For the nine months ended September 30, 2003, our net interest spread was 3.10% and our net interest margin was 3.32%. For the nine months ended September 30, 2002, our net interest spread was 2.96% and our net interest margin was 3.29%.

On May 1, 2003, the bank terminated one of its interest rate swap contracts for $1.0 million, which included $59,000 of accrued interest receivable. The swap had a notional value of $25 million and under the contract we received a fixed rate of interest and paid a rate based on the daily average Prime. The unwinding of this transaction resulted in proceeds to the Company and a related gain of $951,000, which will be amortized over a twenty-nine month period, the remaining life of the swap contact, and will contribute approximately $36,500 to interest income on a monthly basis.


			Nine Months Ended								Nine Months Ended
			September 30, 2003								September 30, 2002

			Average					Average			Average					Average
			Balance			Interest		Rate			Balance			Interest		Rate

			(Dollars in thousands)
Interest-earning assets:
	Loans		$	458,328		$	20,177		5.89	%	$	387,367		$	18,978		6.55	%
	Investment securities:
		Available for sale		113,841			4,495		5.28	%		74,038			3,437		6.21	%
		Held to maturity		56,863			1,804		4.24	%		37,143			1,847		6.65	%
	Federal funds sold			2,955			33		1.49	%		7,451			102		1.83	%

		Total interest-earning assets		631,987			26,509		5.61	%		505,999			24,364		6.44	%

Other assets				39,660								31,206

		Total assets	$	671,647							$	537,205

Interest-bearing liabilities:
	Deposits:
		NOW and money market deposits	$	128,489			875		0.91	%	$	99,369			1,061		1.43	%
		Time deposits over $100,000		139,961			3,168		3.03	%		125,721			3,737		3.97	%
		Other time deposits		169,598			3,276		2.58	%		158,685			4,612		3.89	%
	Short-term borrowings			24,256			242		1.33	%		17,949			285		2.12	%
	Long-term debt			96,255			2,273		3.16	%		40,265			1,422		4.72	%
	Convertible Preferred Securities			17,250			972		7.53	%		16,417			807		7.45	%

		Total interest-bearing liabilities		575,809			10,806		2.51	%		458,406			11,924		3.48	%

	Non-interest-bearing deposits			43,057								33,464
	Other liabilities			4,105								1,813
	Stockholders’ equity			48,676								43,522

		Total liabilities and stockholders’ equity	$	671,647							$	537,205

Net interest income and interest rate spread						$	15,703		3.10	%				$	12,440		2.96	%

Net yield on average interest-earning assets									3.32	%							3.29	%

Ratio of average interest-earning assets to average interest-bearing liabilities				109.76	%							110.38	%

Provision for Loan Losses. Our provision for loan losses for the nine months ended September 30, 2003 was $1.7 million representing an increase of $510,000 from the $1.2 million provision we made for the nine months ended September 30, 2002. We have continued to increase the level of our allowance for loan losses in response to the growth in our loan portfolio. In evaluating the allowance for loan losses, we consider factors that include an assessment of individual loan credit risk, growth, composition and industry diversification of the portfolio, historical loan loss experience, current delinquency levels, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions and other relevant factors. We have increased our provision during the current nine-month period due to the growth in our loans portfolio and in part because of an increased level of net loan charge-offs, which totaled $1.1 million during the nine months ended September 30, 2003, up from $451,000 during the nine months ended September 30, 2002. Included in these charge-offs was $257,000 related to a $2.0 million purchased loan participation which paid out in the second quarter. On an annualized basis, our percentage of net loan charge-offs to average loans outstanding was .32% and .15% for the nine months ended September 30, 2003 and 2002, respectively. Non-performing assets decreased to $1.9 million, or 0.25% of total assets at September 30, 2003 from $2.4 million, or 0.41% of total assets at September 30, 2002. At September 30, 2003, the allowance for loan losses stood at $6.9 million and represented 1.40% of period-ending loans. At December 31, 2002, the allowance for loan losses stood at $6.3 million and represented 1.50% of period-ending loans. During the third quarter of 2003, the bank made certain refinements to its loan risk grading system, resulting in a required allowance for loan losses that is lower, when compared to loans outstanding, than in previous periods. We believe that the allowance is adequate to absorb probable losses inherent in our loan portfolio.

Non-Interest Income. For the nine months ended September 30, 2003, non-interest income increased by $1.2 million or 45.1% to $3.9 million from $2.7 million for the same period in the prior year, despite a $69,000 gain on sale of investment securities realized in the second quarter of 2002. Increases for the nine months ended September 30, 2003 include an increase of $259,000, or 32.0%, in service charges and fees on deposit accounts primarily as a result of deposit earning assets, increases of $370,000, or 47.4%, in mortgage origination operations from increased activity due to the low interest rate environment, and $585,000 or 316.0% in investment brokerage fees as we have increased our marketing efforts to offer investment brokerage services to both the bank’s existing customer base as well as new clients. Other operational income increased by $42,000, or 10.6%.

Non-Interest Expense. We strive to maintain non-interest expenses at levels that we believe are appropriate given the nature of our operations and the investments in personnel and facilities that have been necessary to support and service our earning assets. From 1998 forward through the current three-month period, we have consistently maintained our ratio of non-interest expenses to average total assets below 3%. Because of our growth we have consistently seen increases in every major component of our non-interest expenses. For the nine months ended September 30, 2003, our non-interest expense increased $2.9 million, or 27.6% over the same period in 2002. Salaries and employee benefits expense increased $1.6 million, or 29.1%, and reflects the addition of personnel in our new branches as well as additions of personnel to expand our business, and, to a lesser degree, normal salary increases. Occupancy and equipment expense increased $417,000, or 22.6%. Other expenses increased $916,000, or 27.9%, reflecting the increased volume of business activity, principally increases in lending and deposit relationships and increases in advertising and promotions. For the nine months ended September 30, 2003, on an annualized basis, our ratio of non-interest expenses to average total assets increased to 2.74% as compared with 2.63% for the same nine months in 2002.

Provision for Income Taxes. Our provision for income taxes, as a percentage of income before income taxes, was 35.0% and 34.9%, respectively, for the nine months ended September 30, 2003 and 2002.

Market and public confidence in our financial strength and in the strength of financial institutions in general will largely determine our access to appropriate levels of liquidity. This confidence is significantly dependent on our ability to maintain sound asset quality and appropriate levels of capital resources.

Liquidity is defined as our ability to meet anticipated customer demands for funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis. Management measures our liquidity position by giving consideration to both on- and off-balance sheet sources of, and demands for, funds on a daily and weekly basis.

Sources of liquidity include cash and cash equivalents, net of federal requirements to maintain reserves against deposit liabilities; investment securities eligible for pledging to secure borrowings from dealers, customers and correspondent banks pursuant to securities sold under repurchase agreements, investments available for sale, loan repayments, loan sales, deposits, and borrowings from the Federal Home Loan Bank and from correspondent banks under overnight federal funds credit lines. In addition to interest rate-sensitive deposits, the Company’s primary demand for liquidity is anticipated fundings under credit commitments to customers.

Because of our continued growth, we have maintained a relatively high position of liquidity in the form of federal funds sold and investment securities. These aggregated $216.2 million at September 30, 2003 an increase of $63.5 million from $152.8 million at December 31, 2002. The increase is the result of growth in the investment portfolio, a portion of which was pre-investing anticipated bond maturities for the remainder of the year. Supplementing customer deposits as a source of funding, we have available lines of credit in the amounts of $27.0 million and $100.0 million from various correspondent banks to purchase federal funds and repurchase agreements, respectively, on a short-term basis. We also have credit availability to borrow up to $181.2 million from the Federal Home Loan Bank of Atlanta, with $116.5 million outstanding at September 30, 2003 and the ability to borrow up to $113.2 million from the Federal Reserve Bank of Richmond, with no outstanding balances at September 30, 2003. At September 30, 2003, our outstanding commitments to extend credit consisted of loan commitments of $73.4 million and amounts available under home equity credit lines, other credit lines and standby letters of credit of $44.8 million, $41.1 million and $12.3 million, respectively. We believe that our combined aggregate liquidity position is sufficient to meet the funding requirements of loan demand and deposit maturities and withdrawals in the near term.

Throughout our nine-year history, our loan demand has exceeded our growth in core deposits. We have therefore relied heavily on time deposits as a source of funds. Time deposits represented 62% of our total deposits at September 30, 2003, and 65% at December 31, 2002. Certificates of deposit of $100,000 or more represented 33% of our total deposits at September 30, 2003 and 29% at December 31, 2002. The bank utilizes brokered and out-of-market deposits which amounted to $162.0 million at September 30, 2003.

At September 30, 2003, our Tier I capital to average quarterly asset ratio was 8.60%, and all of our capital ratios exceeded the minimums established for a well-capitalized bank by regulatory measures. Our Tier I risk-based capital ratio at September 30, 2003 was 10.98%.

In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, that addresses the consolidation rules to be applied to “variable interest entities.” FIN 46 has raised questions about whether certain entities, such as Southern Community Capital Trust I and newly formed Southern Community Capital Trust II, are considered variable interest entitles and should therefore not be consolidated by the companies that use them to issue trust preferred securities. If we conclude, in light of an interpretation of FIN 46 as applied to our trusts, that our trusts should no longer be consolidated, then we would be required to make certain adjustments to our consolidated financial statements to reflect the deconsolidation.

The FASB also recently issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which provides accounting guidance for the appropriate financial reporting balance sheet classification of trust preferred securities. Traditionally, trusts used for issuing trust preferred securities have been consolidated by their parent companies and trust preferred securities have been treated as eligible for Tier I regulatory capital treatment by bank holding companies under Federal Reserve Board rules and regulations. Accordingly, we have consolidated our existing trust in preparing our consolidated financial statements in the past and our outstanding convertible trust preferred securities have been treated as Tier I regulatory capital. Further, we have classified our existing outstanding convertible trust preferred securities as liabilities on our consolidated balance sheets in the past, and believe this classification is consistent with new FAS 150.

Given the issues raised by FIN 46 and FAS 150, there could be a change to the regulatory capital treatment of trust preferred securities issued by U.S. bank holding companies. Specifically, it is possible that the Federal Reserve Board may conclude that trust preferred securities should no longer be treated as Tier I regulatory capital.

If Tier I treatment for our trust preferred securities were disallowed, there would be a reduction in our consolidated capital ratios. If the Federal Reserve Board were to grant Tier 2 status to our trust preferred securities transactions, we believe that we would remain “well capitalized” under Federal Reserve Board guidelines. If the Federal Reserve Board does not grant Tier 2 status, we nonetheless believe that we would remain in compliance with all of the Federal Reserve Board’s existing minimum capital requirements.

Market risk reflects the risk of economic loss resulting from adverse changes in market price and interest rates. This risk of loss can be reflected in diminished current market values and/or reduced potential net interest income in future periods.

The Company’s market risk arises primarily from interest rate risk inherent in its lending and deposit-taking and borrowing activities. The structure of the Company’s loan and liability portfolios is such that a significant decline in interest rates may adversely impact net market values and net interest income. The Company does not maintain a trading account nor is the Company subject to currency exchange risk or commodity price risk.

Management believes, with the exception of the investment securities portfolio due to recent growth in this asset category and market conditions which has resulted in yields reducing from 5.84% to 4.90% and wholesale borrowing overall costs which have declined from 3.25% to 2.55% from year-end 2002 and September 30, 2003, respectively, there has not been any significant change in the overall analysis of financial instruments considered market risk sensitive, as measured by the factors of contractual maturities, average interest rates and estimated fair values, since the analysis prepared and presented in conjunction with the Form 10-K Annual Report for the fiscal year ended December 31, 2002.

As of the end of the period covered by this report, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, had evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)) pursuant to Exchange Act Rule 13a-14. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no significant changes in the Company’s internal controls during the Company’s last fiscal quarter that could significantly affect the Company’s internal control over financial reporting.

On July 24, 2003, the Company filed a Form 8-K with the SEC reporting operating results for the three and six months ended June 30, 2003.

On July 30, 2003, the Company filed a Form 8-K with the SEC reporting the execution of a definitive agreement in which the Company will acquire The Community Bank, Pilot Mountain, North Carolina in a fixed exchange of cash and stock.

On July 30, 2003, the Company filed a Form 8-K with the SEC announcing that the Company will host a conference regarding the definitive agreement in which the Company will acquire The Community Bank, Pilot Mountain, North Carolina in a fixed exchange of cash and stock.

On September 5, 2003, the Company filed a Form 8-K with the SEC reporting that the Company proposes to sell $30 million of Trust Preferred Securities to be issued by a subsidiary to be formed for that purpose, Southern Community Capital Trust II.

On September 25, 2003, the Company filed a Form 8-K with the SEC announcing that the Company will participate in the Sunbelt Community Bank Conference in Atlanta, Georgia.

On September 26, 2003, the Company filed a Form 8-K with the SEC reporting the filing of a registration statement relating to the public offering of 3,000,000 shares of Trust Preferred Securities. The proposed aggregate offering amount is $30 million.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


[X]		Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2003

[ ]		Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period ended ____________________


North Carolina		56-2270620

(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

4605 Country Club Road
Winston-Salem, North Carolina		27104

(Address of principal executive offices)		(Zip Code)


Part II		OTHER INFORMATION
Item 6.		Exhibits and Reports on Form 8-K


Exhibit 31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)

Exhibit 31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)

Exhibit 32		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


	SOUTHERN COMMUNITY FINANCIAL CORPORATION

Date: November 14, 2003	By:	/s/ F. Scott Bauer

		F. Scott Bauer Chairman, President and Chief Executive Officer

Date: November 14, 2003	By:	/s/ Richard M. Cobb

		Richard M. Cobb Executive Vice President, Chief Operating Officer and Chief Financial Officer