1159427--3/15/2006--SOUTHERN_COMMUNITY_FINANCIAL

related topics

{stock, price, share}

{debt, indebtedness, cash}

{loan, real, estate}

{tax, income, asset}

{capital, credit, financial}

{provision, law, control}

{personnel, key, retain}

{competitive, industry, competition}

{condition, economic, financial}

{investment, property, distribution}

If the value of real estate in our core market areas were to decline materially, a significant portion of our loan portfolio could become under-collateralized, which could have a material adverse effect on us. Interest rate volatility could significantly harm our business. Southern Community may have higher loan losses than it has allowed for. The building of market share through our de novo branching strategy could cause our expenses to increase faster than our revenues. If Southern Community loses key employees with significant business contacts in its market area, its business may suffer. Government regulations may prevent or impair our ability to pay dividends, engage in acquisitions, or operate in other ways. Our trading volume has been low compared with larger bank holding companies and the sale of substantial amounts of our common stock in the public market could depress the price of our common stock. Southern Community faces strong competition in its market area, which may limit its asset growth and profitability. Southern Community s Articles of Incorporation include anti-takeover provisions that may prevent shareholders from receiving a premium for their shares or effecting a transaction favored by a majority of shareholders. Holders of our trust preferred securities have rights that are senior to those of our common shareholders. The common stock of Southern Community Financial Corporation is not FDIC insured. Risks Related to an Investment in the Preferred Securities If we do not make interest payments under the debentures, the trust will be unable to pay distributions and liquidation amounts. The guarantee would not apply because the guarantee covers payments only if the trust has funds available. We must rely on dividends from our bank subsidiary to make interest payments on the debentures to the trust. Regulatory authorities may limit dividends paid to us and thereby our ability to make interest payments on the debentures to the trust. Our obligation to make interest payments to the trust on the debentures is subordinated to existing liabilities or additional debt we may incur. We have the option to defer interest payments on the debentures for substantial periods. If we defer interest payments, holders of the preferred securities will still be required to recognize the deferred interest amounts as income. If holders of the preferred securities sell their preferred securities during a deferral period, they will forfeit the deferred interest amount and only have a capital loss. Deferrals of interest payments may increase the volatility of the market price of the preferred securities. There are no financial covenants in the indenture and the trust agreement. We may redeem some or all of the debentures at any time after December 31, 2008 and reduce the period during which holders of the preferred securities will receive distributions. We may redeem all of the debentures at any time upon the occurrence of certain events. We can distribute the debentures to holders of the preferred securities, which may have adverse tax consequences for holders of the preferred securities and could also adversely affect the market price of the preferred securities. Holders of the preferred securities must rely on the property trustee to enforce their rights if there is an event of default under the indenture.

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1159427--3/15/2006--SOUTHERN_COMMUNITY_FINANCIAL_CORP