Quarterly Report

U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

x Quarterly Report Under Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2007

o Transition Report Under Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the transition period ended

Commission File Number 000-33227

Southern Community Financial Corporation

(Exact name of registrant as specified in its charter)


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)

Registrant's telephone number, including area code (336) 768-8500

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer x Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of April 30, 2007 (the most recent practicable date), the registrant had outstanding 17,531,331 shares of Common Stock, no par value.

			Page No.
Part I.	FINANCIAL INFORMATION

Item 1 -	Financial Statements (Unaudited)

		Consolidated Balance Sheets
		March 31, 2007 and December 31, 2006	3

		Consolidated Statements of Operations
		Three Months Ended March 31, 2007 and 2006	4

		Consolidated Statements of Comprehensive Income
		Three Months Ended March 31, 2007 and 2006	5

		Consolidated Statement of Stockholders’ Equity
		Three Months Ended March 31, 2007	6

		Consolidated Statements of Cash Flows
		Three Months Ended March 31, 2007 and 2006	7

		Notes to Consolidated Financial Statements	8

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3 -	Quantitative and Qualitative Disclosures about Market Risk		17

Item 4 -	Controls and Procedures		18

Part II.	Other Information

Item 1A -	Risk Factors		19

Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds		19

Item 6 -	Exhibits		19

Signatures			20

Part I. FINANCIAL INFORMATION

Item 1 - Financial Statements

SOUTHERN COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

	March 31,			December 31,
	2007			2006 *
	(Amounts in thousands, except share data)
Assets
Cash and due from banks	$	28,014		$	29,160
Federal funds sold		14,945			783
Investment securities
Available for sale, at fair value		178,563			169,021
Held to maturity, at amortized cost		83,171			86,475

Loans		1,085,479			1,033,411
Allowance for loan losses		(13,417	)		(13,040	)
Net Loans		1,072,062			1,020,371

Premises and equipment		39,984			40,492
Goodwill		49,792			49,792
Other assets		43,536			40,371

Total Assets	$	1,510,067		$	1,436,465
Liabilities and Stockholders’ Equity
Deposits
Demand	$	113,011		$	108,950
Money market, savings and NOW		448,849			393,152
Time		516,921			522,480
Total Deposits		1,078,781			1,024,582

Short-term borrowings		58,605			92,748
Long-term debt		222,552			172,549
Other liabilities		12,083			10,361

Total Liabilities		1,372,021			1,300,240

Stockholders’ Equity
Preferred stock, no par value, 1,000,000 shares authorized; none
issued or outstanding at March 31, 2007 and December 31, 2006, respectively		-			-
Common stock, no par value, 30,000,000 shares authorized; issued and
outstanding 17,410,115 shares at March 31, 2007
and 17,405,940 shares at December 31, 2006, respectively		119,489			119,616
Retained earnings		18,767			17,368
Accumulated other comprehensive income (loss)		(210	)		(759	)
Total Stockholders’ Equity		138,046			136,225

Commitments and contingencies

Total Liabilities and Stockholders' Equity	$	1,510,067		$	1,436,465

* Derived from audited consolidated financial statements

See accompanying notes.

-3-

SOUTHERN COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended
	March 31,
	2007		2006
	(Amounts in thousands, except share and per share data)
Interest Income
Loans	$	20,402	$	16,259
Investment securities available for sale		2,226		2,140
Investment securities held to maturity		856		854
Federal funds sold		89		21

Total Interest Income		23,573		19,274
Interest Expense
Money market, savings, NOW deposits		3,439		2,097
Time deposits		6,160		4,808
Borrowings		3,453		2,320

Total Interest Expense		13,052		9,225

Net Interest Income		10,521		10,049

Provision for Loan Losses		850		475

Net Interest Income After Provision for Loan Losses		9,671		9,574

Non-Interest Income		3,132		1,337

Non-Interest Expense
Salaries and employee benefits		5,143		4,484
Occupancy and equipment		1,903		1,608
Other		2,713		2,340

Total Non-Interest Expense		9,759		8,432

Income Before Income Taxes		3,044		2,479

Income Tax Expense		1,035		875

Net Income	$	2,009	$	1,604

Net Income Per Share
Basic	$	0.12	$	0.09
Diluted		0.11		0.09

Weighted Average Shares Outstanding
Basic		17,423,824		17,624,034
Diluted		17,597,029		17,857,395

See accompanying notes.

-4-

SOUTHERN COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended
	March 31,
	2007			2006
	(Amounts in thousands)

Net income	$	2,009		$	1,604

Other comprehensive income (loss):
Securities available for sale:
Unrealized holding gains (losses) on
available for sale securities		864			(345	)
Tax effect		(333	)		133
Net of tax amount		531			(212	)
Cash flow hedging activities:
Unrealized holding losses on
cash flow hedging activities		15			-
Tax effect		(6	)		-
Reclassification of (gains) losses recognized in net income		14			-
Tax effect		(5	)		-
Net of tax amount		18			-

Total other comprehensive income (loss)		549			(212	)

Comprehensive income (loss)	$	2,558		$	1,392

See accompanying notes.

-5-

SOUTHERN COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

	Common Stock						Retained			Accumulated Other Comprehensive			Total Stockholders'
	Shares			Amount			Earnings			Income (Loss)			Equity
	(Amounts in thousands, except share data)

Balance at December 31, 2006		17,405,940		$	119,616		$	17,368		$	(759	)	$	136,225
Net income		-			-			2,009			-			2,009
Other comprehensive income, net of tax		-			-			-			549			549
Common shares repurchased		(53,372	)		(557	)		-			-			(557	)
Stock options exercised, including
income tax benefit of $117		57,547			403			-			-			403
Stock-based compensation		-			27			-			-			27
Cash dividends of $.035 per share		-			-			(610	)		-			(610	)

Balance at March 31, 2007		17,410,115		$	119,489		$	18,767		$	(210	)	$	138,046

See accompanying notes.

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SOUTHERN COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended
	March 31,
	2007			2006
	(Amounts in thousands)
Cash Flows from Operating Activities
Net income	$	2,009		$	1,604
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		956			944
Provision for loan losses		850			475
Stock-based compensation		27			11
Net increase in cash surrender value of life insurance		(153	)		(96	)
Realized loss on sale of premise and equipment		33			-
Loss on economic hedges		5			379
Deferred income taxes		(275	)		(305	)
Realized (gain) loss on sale of foreclosed property		(15	)		(11	)
Changes in assets and liabilities:
Increase in other assets		(2,476	)		(478	)
Increase in other liabilities		2,106			622
Total Adjustments		1,058			1,541

Net Cash Provided by Operating Activities		3,067			3,145

Cash Flows from Investing Activities
(Increase) decrease in federal funds sold		(14,162	)		52
Purchase of:
Available-for-sale investment securities		(11,535	)		(5,265	)
Held-to-maturity investment securities		(1,719	)		(141	)
Proceeds from maturities and calls of:
Available-for-sale investment securities		2,812			5,327
Held-to-maturity investment securities		5,016			872
Net increase in loans		(53,259	)		(52,417	)
Purchases of premises and equipment		(429	)		(5,748	)
Proceeds from disposal of premises and equipment		-			-
Proceeds from sale of foreclosed assets		209			135

Net Cash Used by Investing Activities		(73,067	)		(57,185	)

Cash Flows from Financing Activities
Net increase in deposits		53,799			56,146
Net increase (decrease) in short-term borrowings		(34,143	)		38,975
Net increase (decrease) in long-term borrowings		49,962			(39,189	)
Net proceeds from the issuance of common stock		403			496
Common stock repurchased		(557	)		(659	)
Cash dividends paid		(610	)		(528	)

Net Cash Provided by Financing Activities		68,854			55,241

Net Increase (Decrease) in Cash and Due From Banks		(1,146	)		1,201
Cash and Due From Banks, Beginning of Period		29,160			24,606

Cash and Due From Banks, End of Period	$	28,014		$	25,807

See accompanying notes.

-7-

Southern Community Financial Corporation

Notes to Consolidated Financial Statements

Note 1 - Basis of Presentation

The consolidated financial statements include the accounts of Southern Community Financial Corporation (the “Company”), and its wholly-owned subsidiary, Southern Community Bank and Trust . All intercompany transactions and balances have been eliminated in consolidation. I n 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 periods ended March 31, 2007 and 2006, in conformity with accounting principles generally accepted in the United States of America.

The preparation of the consolidated financial statements and accompanying notes requires management of the Company to make estimates and assumptions relating to reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ significantly from those estimates and assumptions. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses. To a lesser extent, significant estimates are also associated with the valuation of securities, intangibles, and derivative instruments, determination of stock-based compensation and income tax assets or liabilities, and accounting for acquisitions. Operating results for the three-month period ended March 31, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2007.

The organization and business of Southern Community Financial Corporation, 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 2006 annual report on Form 10-K. This quarterly report should be read in conjunction with the annual report.

Recently issued accounting pronouncements

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109” (“FIN 48”). This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. FIN 48 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order to be recognized in the financial statements. The adoption of the provisions of FIN 48 did not have a material impact on the Company’s financial position or results of operations. The Company classifies interest and penalties related to income tax assessments, if any, in income tax expense in the consolidated statement of operations. Fiscal years ending on or after December 31, 2003 are subject to examination by federal and state tax authorities.

We adopted the provisions of SFAS No. 155, Accounting for Certain Hybrid Financial Instruments , effective January 1, 2007. The adoption of the provisions of SFAS No. 155 had no material effect on financial position or results of operations.

The provisions of SFAS No. 156, Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140, were effective beginning January 1, 2007. The adoption of the provisions of SFAS No. 156 had no effect on financial position or results of operations.

SFAS No. 157, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is in the process of evaluating the impact of the adoption of SFAS No. 157 on the consolidated financial statements.

SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, permits an entity to choose to measure many financial instruments and certain other items at fair value. The fair value option permits companies to choose to measure eligible items at fair value at specified election dates. Companies will report unrealized gains and losses on items for which the fair value option has been elected in earnings after adoption. SFAS No. 159 requires additional disclosures related to the fair value measurements included in the companies financial statements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is permitted; however, we will adopt SFAS No. 159 effective January 1, 2008. We are evaluating the impact of SFAS No. 159 on the consolidated financial statements.

-8-

Note 2 - Net Income Per Share

Basic and diluted net income per share are computed based on the weighted average number of shares outstanding during each period. Diluted net income per share reflects the potential dilution that could occur if stock options were exercised, 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 based upon the weighted average number of common shares outstanding or assumed to be outstanding as summarized below.

	Three Months Ended
	March 31,
	2007		2006

Weighted average number of common
shares used in computing basic net
income per share		17,423,824		17,624,034

Effect of dilutive stock options and awards		173,205		233,361

Weighted average number of common
shares and dilutive potential common
shares used in computing diluted net
income per share		17,597,029		17,857,395

Net income (in thousands)	$	2,009	$	1,604
Basic		0.12		0.09
Diluted		0.11		0.09

For the three months ended March 31, 2007 and 2006, net income for determining diluted earnings per share was equivalent to net income. Options to purchase shares that have been excluded from the determination of diluted earnings per share because they are antidilutive (the exercise price is higher than the current market price) amount to 291,518 and 511,773 shares for the three months ended March 31, 2007 and 2006, respectively.

-9-

Note 3 - Loans

Following is a summary of loans at each of the balance sheet dates presented:

	At March 31,						At December 31,
	2007						2006
				Percent						Percent
	Amount			of Total			Amount			of Total
	(Dollars in thousands)
Residential mortgage loans	$	289,906			26.7	%	$	262,480			25.4	%
Commercial mortgage loans		365,764			33.7	%		359,987			34.8	%
Construction loans		220,736			20.3	%		211,858			20.5	%
Commercial and industrial loans		189,286			17.4	%		177,706			17.2	%
Loans to individuals		19,787			1.9	%		21,380			2.1	%

Subtotal		1,085,479			100.0	%		1,033,411			100.0	%

Less: Allowance for loan losses		(13,417	)					(13,040	)

Net loans	$	1,072,062					$	1,020,371

An analysis of the allowance for loan losses is as follows:

	Three Months Ended
	March 31,
	2007			2006
	(Amounts in thousands)

Balance at beginning of period	$	13,040		$	11,785

Provision for loan losses		850			475

Charge-offs		(597	)		(113	)
Recoveries		124			64

Net charge-offs		(473	)		(49	)

Balance at end of period	$	13,417		$	12,211

The following is a summary of nonperforming assets at the periods presented:

	March 31,		December 31,		March 31,
	2007		2006		2006
	(Amounts in thousands)

Nonaccrual loans	$	1,240	$	2,636	$	2,058
Foreclosed assets		1,419		895		129
Total nonperforming assets	$	2,659	$	3,531	$	2,187

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Note 3 - Loans (continued)

Management estimates the allowance for loan losses required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations, estimated collateral values, economic conditions, and other factors. The allowance consists of several components. One component is for loans that are individually classified as impaired and measured under FASB Statement No. 114. The other components are for collective loan impairment measured under FASB Statement No. 5. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

As of March 31, 2007, the Company had recorded investment in loans considered impaired in accordance with SFAS No. 114 of $2.7 million with no corresponding valuation allowance. Based upon extensive analyses of the credits, including collateral position, loss exposure, guaranties, or other considerations, no additional reserve for these impaired credits was deemed necessary.

Note 4 - Non-Interest Income and Other Non-Interest Expense

	Three Months Ended
	March 31,
	2007			2006

Service charges and fees on deposit accounts	$	1,051		$	1,035
Presold mortgage loan fees		303			214
Investment brokerage and trust fees		187			152
SBIC income and management fees		1,237			130
Gain (loss) and net cash settlement on economic hedges		(5	)		(486	)
Other		359			292

	$	3,132		$	1,337

The major components of other non-interest expense are as follows:

    Three Months Ended&


lt; /div> 
         
        
        
 
         
        March 31,
         
        
        
 
         
        2007
         
        2006
         
        
           
        
Postage, printing and office supplies
          $
        185
          $
        189
         
        
Telephone and communication
            204
            243
         
        
Advertising and promotion
            251
            235
         
        
Data processing and other outsourced services 
            236
            167
         
        
Professional services
            368
            332
         
        
Other
            1,469
            1,174
         
        
               
        
    $
        2,713
          $
        2,340
         
        

        

 
Note 5 - Common Stock Repurchase Programs

The Company announced plans to repurchase up to 300,000 shares of its common stock in March 2005, to repurchase an additional 600,000 shares of its common stock in September 2005 and to repurchase up to an additional 1 million shares of its common stock in July 2006. Through March 31, 2007, the Company had repurchased 891,298 shares at an average price of $9.35 per share under the three plans, including 53,372 shares at an average price of $10.44 purchased during the first quarter of 2007.

- 11 -

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, technological factors affecting our operations, pricing, products and services, and other factors discussed in our filings with the Securities and Exchange Commission.

Summary of First Quarter

During the first quarter of 2007, we achieved loan growth of $52.1 million or 5.0% from December 31, 2006. On the funding side, we continued efforts to build local deposits to improve our funding mix, and our initiatives resulted in deposit growth of $54.2 million, or 5.3% over December 31, 2006. Loans and deposits as of March 31, 2007 were $1.09 billion and $1.08 billion, respectively. The March 31, 2007 balances of loans and deposits represent increases of 17.8% and 8.1%, respectively, over corresponding amounts as of March 31, 2006. Credit quality remains very high, with non-performing loans declining to 0.11% of total loans at March 31, 2007. Primarily due to an increased level of earning assets, net interest income for the first quarter of 2007 increased $472 thousand, or 4.7% over the first quarter of 2006. The net interest margin was stable on a linked-quarter basis, at 3.22% for both the first quarter of 2007 and the fourth quarter of 2006, but was down from the 3.44% of the first quarter 2006 due to margin pressure from upward repricing of deposits and borrowings and competitive pricing pressures.

Non-interest income was $3.1 million during the first quarter of 2007, which represents an increase of 134.3% from non-interest income of $1.3 million reported in the comparable period in 2006. Growth in non-interest income during the first quarter of 2007 was due in large part to an increase in income from our investment in Salem Capital Partners, a small business investment company (SBIC) we established five years ago. Gains on SBIC activities in the 2007 first quarter were $1.2 million, an increase of $1.1 million from the $130 thousand reported in the 2006 first quarter. Income from SBIC activities will vary as the gains and losses from these investments are recognized. We do not expect gains from SBIC activities in the near term to be as large as those experienced in the first quarter of 2007. We designated certain economic hedges as hedges for accounting purposes in the third quarter of 2006, and as a result recognize gains and losses due to ineffectiveness since designation, while changes in the fair value of the economic hedges were recognized in income prior to designation. As a result, we recognized a loss of $5 thousand on economic hedges in the first quarter 2007, compared to a $486 thousand loss in the first quarter of 2006. Non-interest expense of $9.8 million in the current quarter was up 15.7% compared with the $8.4 million reported in the year ago period. This increase reflects continued growth and investment in the expansion of the franchise and a higher level of occupancy and equipment expenses. On a linked-quarter basis, non-interest expense increased 1.8%. Earnings per fully diluted share were $0.11 and $0.09 for the three months ended March 31, 2007 and 2006, respectively.

Financial Condition at March 31, 2007 and December 31, 2006

During the three-month period ending March 31, 2007, total assets increased by $73.6 million, or 5.1%, to $1.5 billion. We experienced strong loan growth for the quarter, with the loan portfolio increasing to $1.09 billion, a $52.1 million, or 5.0% increase for the first three months. Emphasis on growing local deposits netted an increase in non-maturity deposits of $59.8 million, or 11.9% during the period.

In the loan portfolio, commercial mortgage loans, which total $365.8 million or 33.7% of gross loans, continue to comprise the largest segment. Loans secured by residential mortgages experienced the most growth during the quarter increasing by $27.4 million or 10.5%. The commercial and industrial segment of the portfolio increased $11.6 million to end the period at $189.3 million or 17.4% of gross loans, and construction lending grew $8.9 million to end the period at $220.7 million or 20.3% of the total loan portfolio.

We utilize various funding sources, as necessary, to support balance sheet management and growth. Asset growth during the first quarter was funded primarily by deposit growth and wholesale borrowings. Customer deposits continue to be our primary funding source. At March 31, 2007, deposits totaled $1.1 billion, an increase of $54.2 million or 5.3% from year-end 2006. Core deposits accounted for the majority of the deposit growth during the period, increasing $97.6 million or 14.8% over the last twelve months and $48.0 million or 6.8% since December 31, 2006.

-12-

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 March 31, 2007, our stockholders’ equity totaled $138.0 million, an increase of $1.8 million from the December 31, 2006 balance. The increase is primarily the result of earnings of $2.0 million and a net increase of $531 thousand in the market value of available-for-sale securities, partially offset by $610 thousand of cash dividends declared and paid during the period and the repurchase of $557 thousand, or 53,372 shares, of our outstanding common stock during the period.

Results of Operations for the Three Months Ended March 31, 2007 and 2006

Net Income. Our net income for the three months ended March 31, 2007 was $2.0 million, an increase of $405 thousand, or 25.3%, from the same three-month period in 2006. Net income per share was $0.12 basic and $0.11 diluted for the three months ended March 31, 2007 as compared with $0.09 basic and diluted for the same period in 2006. Net interest income for the first quarter of 2007 was $10.5 million, up $472 thousand, or 4.7% compared with the first quarter 2006, due in part to continued strong loan and deposit growth, which was offset somewhat by compression of the net interest margin. The net interest margin of 3.22% declined 22 basis points from the year ago period, but on a linked-quarter basis was the same as the 2006 fourth quarter.

Non-interest income was $3.1 million during the first quarter of 2007, which represents an increase of 134.3% from non-interest income of $1.3 million reported in the comparable period in 2006, primarily as a result of an increase in income from Salem Capital Partners, our small business investment company (SBIC) affiliate. Non-interest expense increased $1.3 million, or 15.7% compared with the same quarter a year ago. This increase reflects continued growth and investment in the expansion of the franchise and a higher level of occupancy and equipment expenses. On a linked quarter basis, non-interest expense increased 1.8%.

Net Interest Income. During the three months ended March 31, 2007, our net interest income was $10.5 million, an increase of $472 thousand or 4.7% over the first quarter 2006. Our efforts in repositioning our balance sheet by reducing our level of investment securities to total assets while increasing our focus on deposit growth are reflected in the mix of interest-earning assets and liabilities. With continued strong loan demand, our average loans increased $166.6 million, or 18.8%, more than offsetting the $31.9 million decrease in average investment securities, when compared with the first quarter 2006.

The rates earned on a significant portion of our loan portfolio adjust when index rates, such as prime, change. As a result, interest rate increases generally result in an increase in our interest income on loans. Our net interest margin in the future will be impacted by actions taken by the Federal Reserve Board with respect to interest rates and competition in our markets. Our average yield on interest-earning assets in the first quarter of 2007 increased by 62 basis points above that of the first quarter 2006 to 7.22%, and increased 4 basis points on a linked-quarter basis. Rising interest rates have also impacted our funding costs. Our cost on average interest bearing liabilities for the first quarter of 2007 increased 82 basis points to 4.36% compared to the first quarter of 2006, and were up 2 basis points from the fourth quarter of 2006. For the first quarter 2007, our net interest margin of 3.22% was the same as the fourth quarter of 2006. Although we believe our margins are stabilizing, we expect to see some continued compression in our margins as some of our lower-rate funding reprices at higher levels.

-13-

Average Yield/Cost Analysis

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 annualized income or expense by the average balances of assets or liabilities, respectively, for the periods presented. The average loan portfolio balances include nonaccrual loans.

	Three Months Ended March 31, 2007								Three Months Ended March 31, 2006

	Average balance			Interest earned/paid		Average yield/cost			Average balance			Interest earned/paid		Average yield/cost
Interest-earning assets:
Loans	$	1,054,315		$	20,402		7.85	%	$	887,704		$	16,259		7.43	%
Investment securities available for sale		175,551			2,226		5.14	%		206,850			2,140		4.20	%
Investment securities held to maturity		86,903			856		3.99	%		87,532			854		3.96	%
Federal funds sold		7,449			89		4.85	%		1,922			21		4.43	%

Total interest earning assets		1,324,218			23,573		7.22	%		1,184,008			19,274		6.60	%
Other assets		143,078								125,216
Total assets	$	1,467,296							$	1,309,224

Interest-bearing liabilities:
Deposits:
NOW, Money Market, and Savings	$	412,864		$	3,439		3.38	%	$	325,575		$	2,097		2.61	%
Time deposits greater than $100K		319,736			3,781		4.80	%		310,794			2,997		3.91	%
Other time deposits		202,981			2,379		4.75	%		210,042			1,811		3.50	%
Short-term borrowings		80,686			901		4.53	%		43,255			458		4.29	%
Long-term debt		196,447			2,552		5.27	%		166,223			1,862		4.54	%

Total interest bearing liabilities		1,212,714			13,052		4.36	%		1,055,889			9,225		3.54	%

Demand deposits		104,620								108,089
Other Liabilities		13,339								10,528
Stockholders' equity		136,623								134,718

Total liabilities and stockholders' equity	$	1,467,296							$	1,309,224

Net interest income and net interest spread				$	10,521		2.86	%				$	10,049		3.06	%
Net interest margin							3.22	%							3.44	%
Ratio of average interest-earning assets
to average interest-bearing liabilities		109.19	%							112.13	%

Provision for Loan Losses. The allowance for loan losses represents management's estimate of an amount adequate to provide for probable losses inherent in the loan portfolio. We make specific allowances that are allocated to certain individual loans and pools of loans based on risk characteristics, as discussed below. In addition to the portion of the allowance for loan losses allocated to specific segments of the loan portfolio, we develop a component of the allowance based on qualitative and environmental factors that is not applied to specific loan groups. This unallocated portion is intended to reserve for the inherent risk in the portfolio and the intrinsic inaccuracies associated with the estimation of the allowance for loan losses and its allocation to specific loan categories, as well as other qualitative and environmental factors. In December 2006, the federal banking regulators released an Interagency Policy Statement on the Allowance for Loan and Lease Losses, and related Questions and Answers on Accounting for Loan and Lease Losses. We are in the process of evaluating the guidance in the Interagency Policy Statement and Questions and Answers, and may make enhancements to our processes of determining our allowance for loan losses. However, we do not expect any such changes in our processes to result in a material change in the level of the allowance for loan losses. While management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established the allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that regulators, in reviewing our portfolio, will not require adjustments to our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed herein. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

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The provision for loan losses for the quarter ended March 31, 2007 totaled $850 thousand, compared to a provision of $475 thousand for the three months ended March 31, 2006. During the three months ended March 31, 2007 net loan charge-offs totaled $473 thousand, a increase of $424 thousand of net charge-offs during the three months ended March 31, 2006, primarily the result of specific credits charged down in the first quarter 2007 for which losses had previously been provided. On an annualized basis, our percentage of net loan charge-offs to average loans outstanding increased sixteen basis points to 0.18% for the three months ended March 31, 2007 compared to 0.02% reported for the three months ended March 31, 2006, but were down from the 0.21% of the fourth quarter 2006. Non-performing loans at March 31, 2007 are down significantly to $1.2 million or 0.11% of total loans from $2.6 million or 0.26% of total loans at December 31, 2006 and the $2.1 million or 0.22% of total loans as of March 31, 2006. The allowance for loan losses at March 31, 2007 represented 1.24% of loans outstanding, compared with 1.26% at December 31, 2006 and 1.33% at March 31, 2006. The allowance for loan losses as a percentage of loans outstanding has declined as a result of continued strong credit quality. We believe that the Company’s allowance is adequate to absorb probable losses inherent in our loan portfolio.

Non-Interest Income. For the three months ended March 31, 2007, non-interest income increased by $1.8 million or 134% to $3.1 million from $1.3 million for the same period in the prior year. Growth in non-interest income during the first quarter of 2007 was due in large part to an increase in income from our investment in Salem Capital Partners, a small business investment company (SBIC) we established five years ago. Gains on SBIC activities in the 2007 first quarter were $1.2 million, an increase of $1.1 million from the $130 thousand reported in the 2006 first quarter. Income from SBIC activities will vary as the gains and losses from these investments are recognized. We do not expect gains from SBIC activities in the near term to be as large as those experienced in the first quarter of 2007. We experienced increases in other non-interest income, as we continue to focus on ways to expand revenues in activities other than our net interest income. Income from mortgage banking activities of $303 thousand was up $89 thousand, or 41.5% compared to the first quarter of 2006, and investment brokerage and trust fees increased to $187 thousand, up 23.0% from the year ago period. Service charges and fees on deposit accounts of $1.05 million were up 1.5% from the first quarter of 2006, but were down $58 thousand on a linked-quarter basis.

We designated certain economic hedges as hedges for accounting purposes in the third quarter of 2006, and as a result recognize gains and losses due to ineffectiveness since designation, while changes in the fair value of the economic hedges were recognized in income prior to designation. As a result, we recognized a loss of $5 thousand on economic hedges in the first quarter 2007, compared to a $486 thousand loss in the first quarter of 2006.

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 growth. From 1998 forward through the current three-month period, we have consistently maintained our ratio of non-interest expense to average total assets below 3.0%. Because of our growth, we have consistently seen increases in every major component of our non-interest expense. For the three months ended March 31, 2007, our non-interest expense increased $1.3 million or 15.7% over the same period in 2006. These increases are primarily the result of our expansion in the last twelve months, including the opening of a regional office in Mooresville, NC, in the rapidly-growing Charlotte area, our expansion into western NC with an office in the demographically-attractive Asheville market, and the consolidation in mid-2006 of our operations into a new state-of-the-art operations center. On a linked-quarter basis, non-interest expense increased 1.8% from the 2006 fourth quarter.

Provision for Income Taxes. Our provision for income taxes, as a percentage of income before income taxes, was 34.0% for the three months ended March 31, 2007 and 35.3% for the three months ended March 31, 2006, reflective of different levels of tax-exempt earnings. Effective January 1, 2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109” (“FIN 48”). This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. FIN 48 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order to be recognized in the financial statements. The adoption of the provisions of FIN 48 did not have a material impact on our financial position or results of operations.

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Liquidity and Capital Resources

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 funds 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 and customers 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 deposit and borrowing withdrawals and maturities, the Company’s primary demand for liquidity is anticipated funding under credit commitments to customers.

Investment securities totaled $261.7 million at March 31, 2007, an increase of $6.2 million from $255.5 million at December 31, 2006. We believe our liquidity is adequate to fund expected loan demand and current deposit and borrowing maturities. Supplementing customer deposits as a source of funding, we have available lines of credit from various correspondent banks to purchase federal funds on a short-term basis of approximately $78 million. We also have the credit capacity to borrow up to $358.4 million, as of March 31, 2007, from the Federal Home Loan Bank of Atlanta (FHLB), with $212.6 million outstanding as of that date. At March 31, 2006, we had FHLB borrowings outstanding of $127.3 million. At March 31, 2007, we had funding of $15 million in the form of term repurchase agreements with maturities from three to five years. We also had short-term repurchase agreements with total outstanding balances of $18.6 million and $14.6 million at March 31, 2007 and December 31, 2006, respectively, all of which were done as accommodations for our deposit customers. Securities sold under agreements to repurchase generally mature within ninety days from the transaction date and are collateralized by U.S. government agency obligations. We have repurchase lines of credit aggregating $130 million from various institutions. The repurchases must be adequately collateralized. At March 31, 2007, our outstanding commitments to extend credit consisted of loan commitments of $275.6 million and amounts available under home equity credit lines, other credit lines and letters of credit of $95.4 million, $12.9 million and $12.1 million, respectively. We believe that our combined aggregate liquidity position from all sources is sufficient to meet the funding requirements of loan demand and deposit maturities and withdrawals in the near term.

Throughout our ten-year history, our loan demand has exceeded our growth in core deposits. We have therefore relied heavily on certificates of deposits as a source of funds. While the majority of these funds are from our local market area, the Bank has utilized brokered and out-of-market certificates of deposits to diversify and supplement our deposit base. During 2005, the Bank began initiatives to increase demand and other non-interest bearing deposit accounts to improve our funding mix. As a result, of those initiatives, non-maturity deposits at March 31, 2007 increased $102.5 million or 22.3%, compared to March 31, 2006, and have had a positive impact on our net interest margin. Certificates of deposits represented 47.9% of our total deposits at March 31, 2007, a decrease from 54.0% at March 31, 2006. Brokered and out-of-market deposits increased by 1.9% at the end of the first quarter 2007. Time deposits of $100,000 or more totaled $321.2 million and $326.6 million at March 31, 2007 and March 31, 2006, respectively. Large certificates of deposits are generally considered rate sensitive. While we will need to pay competitive rates to retain these deposits at their maturities, there are other subjective factors that will determine their continued retention.

At March 31, 2007, our Tier I capital to average quarterly asset ratio was 8.6%, 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 March 31, 2007 was 9.9%.

-16-

On April 26, 2007, Southern Community Financial Corporation announced that its Board of Directors, at their regular meeting on April 18, 2007, declared a quarterly cash dividend of four cents ($0.04) per share on the Corporation’s common stock. The dividend is payable on June 1, 2007 to shareholders of record as of the close of business on May 15, 2007. This dividend represents a 14.3% increase over the previous quarterly dividends of $0.035 per share, and is the ninth consecutive quarterly dividend, following a former practice of annual dividends.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk reflects the risk of economic loss resulting from adverse changes in market prices 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, 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.

In reviewing the needs of our Bank with regard to proper management of its asset/liability program, we estimate future needs, taking into consideration investment portfolio purchases, calls and maturities in addition to estimated loan and deposit increases (due to increased demand through marketing) and forecasted interest rate changes. We use a number of measures to monitor and manage interest rate risk, including net interest income simulations and gap analyses. A net interest income simulation model is the primary tool used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Key assumptions in the model include prepayment speeds on mortgage-related assets, cash flows and maturities of other investment securities, loan and deposit volumes and pricing. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. The results of the most recent analysis indicated that the Company is relatively interest rate neutral. Based on those results, if interest rates decreased instantaneously by two percentage points, our net interest income over a one-year time frame could decrease by approximately 0.3%. If interest rates increased instantaneously by two percentage points, our net interest income over a one-year time frame could decrease by approximately 1.7%.

-17-

Item 4. Controls and Procedures

The Company conducted an evaluation, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2007. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2007 at the reasonable assurance level. However, the Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2007 that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. The Company reviews its disclosure controls and procedures, which may include its internal control over financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.

-18-

Part II. OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006 .

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company announced plans to repurchase up to 300,000 shares of its common stock in March 2005, to repurchase an additional 600,000 shares of its common stock in September 2005 and to repurchase up to an additional 1 million shares of its common stock in July 2006. The table below sets forth information with respect to shares of common stock repurchased by the Company during the three months ended March 31, 2007. See Note 5 to the Consolidated Financial Statements for additional information regarding our share repurchase program.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs		Maximum Number of Shares That May Yet Be Purchased Under the Programs

January 1, 2007 to January 31, 2007		1,308	$	10.23		1,308		1,060,766
February 1, 2007 to February 28, 2007		26,164	$	10.53		26,164		1,034,602
March 1, 2007 to March 31, 2007		25,900	$	10.35		25,900		1,008,702

Item 6. Exhibits

(a) Exhibits.

Exhibit 10.1

Amended & Restated Salary Continuation Agreement of F. Scott Bauer

Exhibit 10.2

Amended & Restated Salary Continuation Agreement of Jeffrey T. Clark

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

Section 1350 Certification

-19-

SIGNATURES

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.


	SOUTHERN COMMUNITY FINANCIAL CORPORATION

Date: May 9, 2007	By:	/s/ F. Scott Bauer
		Chairman and Chief Executive Officer



Date: May 9, 2007	By:	/s/ David W. Hinshaw
		David W. Hinshaw Executive Vice President and Chief Financial Officer

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Exhibit 10.1

SOUTHERN COMMUNITY BANK AND TRUST

Amended & Restated Salary Continuation Agreement of

F. Scott Bauer

This Amended Salary Continuation Agreement (this “Agreement”) is entered into as of this ________day of ____________________________, 2007, by and between Southern Community Bank and Trust, a North Carolina-chartered bank (the “Bank”), and F. Scott Bauer, its Chief Executive Officer (the “Executive”).

WHEREAS, the Executive has contributed substantially to the success of the Bank and the Bank desires that the Executive continue in its employ;

WHEREAS, to encourage the Executive to remain an employee of the Bank, the Bank is willing to provide salary continuation benefits to the Executive, payable from the Bank’s general assets;

WHEREAS, none of the conditions or events included in the definition of the term “golden parachute payment” that is set forth in Section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of the Bank, are contemplated insofar as the Bank is concerned;

WHEREAS, the parties hereto intend that this Agreement shall be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and to be considered a non-qualified benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of the Bank’s financial status and understands that he is a general creditor of the Bank;

WHEREAS, the Bank and the Executive entered into an Executive Supplemental Retirement Plan Executive Agreement dated as of January 25, 2002, providing for specified retirement benefits for the Executive after termination of his employment;

WHEREAS, the Bank and the Executive have negotiated and agreed to miscellaneous changes in the terms and conditions of the January 25, 2002 Executive Supplemental Retirement Plan Executive Agreement, and

WHEREAS, the Bank and the Executive intend that this Agreement shall amend and restate in its entirety the January 25, 2002 Executive Supplemental Retirement Plan Executive Agreement effective as of January 1, 2007.

NOW THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Executive and the Bank hereby agree as follows.

ARTICLE 1 DEFINITIONS

The following words and phrases used in this Agreement have the meanings specified.

1.1

“Accrual Balance” means the liability that should be accrued by the Bank under generally accepted accounting principles (“GAAP”) for the Bank’s obligation to the Executive under this Agreement, applying Accounting Principles Board Opinion No. 12 as amended by Statement of Financial Accounting Standards No. 106. The Accrual Balance shall be calculated using a Discount Rate determined by the Plan Administrator, resulting in an Accrual Balance at the Executive’s Normal Retirement Age that is equal to the present value of the normal retirement benefits assuming commencement at Normal Retirement Date of age 62.

The Executive initial Accrual Balance as of January 1, 2007 was $202,362.

The “Discount Rate” means the rate used by the Plan Administrator for determining the Accrual Balance. If required by its outside auditors, the Plan Administrator may adjust the Discount Rate to maintain the rate within reasonable standards according to GAAP. Unless otherwise changed by the Plan Administrator the Discount Rate shall be seven percent (7%). Any change in the Discount Rate shall not cause the Executive’s Account Balance to be reduced, but would only affect the future accounting accrual.

1.2	“Actuarial (Actuarially) Equivalent” means a benefit of equivalent value differing in timing, payment period, or manner of payment to the Normal Annuity Form determined by generally accepted actuarial principles. The actuarial equivalent is calculated for different purposes, as follows:

(a)

For Benefits Not Paid as a Lump Sum : All alternate forms of distributions shall be Actuarially Equivalent to the Normal Annuity Form of distribution at a Participant’s Normal Retirement Date. The alternative form of payment shall be based on the 1983 Group Annuity Male Mortality Table, with an interest assumption of 7.0%.

(b)

For Benefits Paid in a Lump Sum : Any lump sum payment (a form of benefit differing in time, period, or manner of payment from a specific benefit provided under this Agreement) shall be computed using the “1983 Group Annuity Male Mortality Table” and the “Applicable Interest Rate” where the “Applicable Interest Rate” shall mean the greater of either (i) seven percent (7%), or (ii) the 30 Year US Treasury Bond Rate in effect as of the first of the month preceding the month of payment.

1.3	“Beneficiary” means each designated person, or the estate of the deceased Executive, entitled to benefits, if any, upon the death of the Executive, determined according to Article 4.

1.4	“Change in Control” shall mean a change in control as defined in Internal Revenue Code Section 409A and rules, regulations, and guidance of general application thereunder issued by the Department of the Treasury, including -

(a)

Change in ownership: A change in ownership of Southern Community Financial Corporation occurs on the date any one person or group of persons accumulates ownership of Southern Community Financial Corporation’s stock constituting more than 50% of the total fair market value or total voting power of Southern Community Financial Corporation’s stock,

(b)

Change in effective control: A change in effective control occurs when either (i) any one person or more than one person acting as a group acquires within a 12-month period ownership of stock of Southern Community Financial Corporation possessing 35% or more of the total voting power of Southern Community Financial Corporation’s stock, or (ii) a majority of Southern Community Financial Corporation’s Board of Directors is replaced during any 12-month period by Directors whose appointment or election is not endorsed in advance by a majority of Southern Community Financial Corporation’s Board of Directors, or

(c)

Change in ownership of a substantial portion of assets: A change in the ownership of a substantial portion of Southern Community Financial Corporation’s assets occurs if in a 12 month period any one person or more than one person acting as a group acquires assets from Southern Community Financial Corporation having a total gross fair market value equal to or exceeding 40% of the total gross fair market value of all of the assets of Southern Community Financial Corporation immediately before the acquisition or acquisitions. For this purpose, “gross fair market value” means the value of Southern Community Financial Corporation’s assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

1.5	“Code” means the Internal Revenue Code of 1986, as amended, and rules, regulations, and guidance of general application issued thereunder by the Department of the Treasury.

1.6	“Disability” means that a Participant is either:

(a)

Unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or

(b)

By reason of any medically determinable physical or mental impairment (which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months) receiving income replacement benefits for a period of three (3) or more months under an accident and health plan covering employees of the Employer.

1.7	“Early Termination” means Separation from Service before Normal Retirement Age for reasons other than death, Disability, Termination for Cause, or after a Change in Control.

1.8	“Effective Date” means January 1, 2007.

1.9

“Intentional,” for purposes of this Agreement, no act or failure to act on the part of the Executive shall be deemed to have been intentional if it was due primarily to an error in judgment or negligence. An act or failure to act on the Executive’s part shall be considered intentional if it is not in good faith and if it is without a reasonable belief that the action or failure to act is in the best interests of the Bank.

1.10	“Normal Retirement Age” means the Executive’s sixty second (62 ^nd) birthday.

1.11	“Plan Administrator” or “Administrator” means the plan administrator described in Article 8.

1.12	“Plan Year” means a twelve-month period commencing on January 1 and ending on December 31 of each year. The initial Plan Year shall commence on January 1, 2007.

1.13

“Separation from Service” means the Executive’s service (as an executive and/or independent contractor to the Bank and any member of a controlled group, as defined in Code Section 414), terminates for any reason, other than because of a leave of absence approved by the Bank or the Executive’s death. For purposes of this Agreement, if there is a dispute about the employment status of the Executive or the date of the Executive’s Separation from Service, the Bank shall have the sole and absolute right to decide the dispute unless a Change in Control shall have occurred.

1.14

“Termination for Cause” and “Cause” shall have the same meaning specified in any effective Severance or Employment Agreement existing on the date hereof or hereafter entered into between the Executive and the Bank. If the Executive is not a party to a severance or employment agreement containing a definition of “termination for cause”, then Termination for Cause shall mean the Bank terminated the Executive’s employment because of any of the following reasons:

(a)

the Executive’s gross negligence or gross neglect of duties or intentional and material failure to perform stated duties after written notice thereof, or

(b)

disloyalty or dishonesty by the Executive in the performance of the Executive’s duties, or a breach of the Executive’s fiduciary duties for personal profit, in any case whether in the Executive’s capacity as a director or officer, or

(c)

intentional wrongful damage by the Executive to the business or property of the Bank or its affiliates, including without limitation the reputation of the Bank, which in the judgment of the Bank causes material harm to the Bank or affiliates, or

(d)

a willful violation by the Executive of any applicable law or significant policy of the Bank or an affiliate that, in the Bank’s judgment, results in an adverse effect on the Bank or any affiliate, regardless of whether the violation leads to criminal prosecution or conviction. For purposes of this Agreement, applicable laws include any statute, rule, regulatory order, statement of policy, or final cease-and-desist order of any governmental agency or body having regulatory authority over the Bank, or

(e)

the Executive is removed from office or permanently prohibited from participating in the Bank’s affairs by an order issued under Section 8(e)(4) or Section 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or

(f)

conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no contest to a misdemeanor involving moral turpitude, or the actual incarceration of the Executive.

1.15	Year of Vesting Service. Shall mean each calendar year in which the Executive completes 1,000 or more hours of service in the employ of the Bank.

ARTICLE 2 LIFETIME BENEFITS

2.1

Normal Retirement Benefit. Unless a Separation from Service or a Change in Control occurs before Normal Retirement Age, when the Executive attains his Normal Retirement Age the Bank shall pay to the Executive the benefit described in this Section 2.1(a) instead of any other benefit under this Agreement

(a)

Amount of Normal Form of benefit. The annual Normal Retirement benefit under this Section 2.1 is $188,504, which shall be paid in monthly installments in the monthly amount of $15,708.67 for the Life of the Executive (Normal Form is a Life Annuity).

(b)

Payment of benefit. Subject to the six month delay provision in Section 2.7 herein, the Bank shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month, beginning with the month immediately after the month in which the Executive attains the Normal Retirement Age. The Normal Retirement monthly benefit as provided in Section 2.1(a) above, shall be paid to the Executive for the Executive’s lifetime with the last payment ceasing as of the first day of the month preceding the Executives death.

(c)

Alternative Forms of Payment. Executive may elect to receive his Normal Retirement Benefit payable under this Agreement payable in a Form other than a Life Annuity (as provided above in Section 2.1(a) above), provided he elects to do so either on his initial Election Form or a Change of Election Form. Any Change of Election Form must be in accordance with IRC 409A and such Change of Election Form must be received by the Plan Administrator at least 12 months prior to the date payment of benefits are to other commence under this Agreement.

Accordingly, a Participant may elect, in lieu of a Life Annuity, to receive his Normal Retirement Benefit in one of the following Alternative Forms of Payment:

(i)

Life Annuity with either a 120 or 180 guaranteed monthly payments;

(ii)

Joint and 50% (or 100%) Survivor Annuity.

Any Alternative Form of Payment provide herein shall be the Actuarial Equivalent of the Normal Form (Life Annuity) of payment.

If the Executive’s Separation from Service thereafter is a Termination for Cause or if this Agreement terminates under Article 5, no further benefits shall be paid.

2.2	Early Termination Benefit. Upon Early Termination as defined in Section 1.7, the Bank shall pay to the Executive the benefit described in this Section 2.2(a) instead of any other benefit under this Agreement.

(a)

Amount of benefit. The Executive’s vested Accrual Balance as of the end of the month preceding his Early Termination shall be converted (without discounting for the time value of money) as of his Normal Retirement Date into a Life Annuity (or other Alternative Form of Payment as provided in Section 2.1(c) above), based on the Actuarial Equivalent of his vested Accrual Balance as of such date.

(b)

Payment of benefit. The Bank shall commence payment of the monthly retirement benefit as computed in Section 2.2 above beginning with the later of (i) the seventh month after the Executive’s Separation from Service, or (ii) the month immediately after the month in which the Executive attains his Normal Retirement Age. The monthly benefit shall be paid to the Executive for the Executive’s lifetime, subject to any Alternative Form of Payment the Executive may have elected in accordance with Section 2.1(c) herein.

(c)

Vesting of Accrued Balance . The Vested amount of a Executive’s Accrued Balance shall be determined on the basis of the Executive’s number of Years of Vesting Service according to the following schedule:

Vesting Schedule
Years of Vesting Service	Percent Vested
Less than 3	0%
3	33 1/3%
4	66 2/3%
5 or more years	100%

2.3	Disability Benefit. Upon Separation from Service because of Disability before Normal Retirement Age, the Bank shall pay to the Executive the benefit described in this Section 2.3(a) instead of any other benefit under this Agreement.

(a)

Amount of benefit. The Executive’s vested Accrual Balance as of the end of the month preceding the date of his Disability shall be converted (without discounting for the time value of money) as of his Normal Retirement Date into a Life Annuity (or other Alternative Form of Payment as provided in Section 2.1(c) above), based on the Actuarial Equivalent of his vested Accrual Balance as of such date.

(b)

Payment of benefit. The Bank shall pay the Disability benefit to the Executive in 12 equal monthly installments on the first day of each month beginning with the later of (i) the seventh month after the Executive’s Separation from Service, or (ii) the month immediately after the month in which the Executive attains his Normal Retirement Age.

2.4

Change-in-Control Benefit. If a Change in Control occurs after the Effective Date of this Agreement but before the Executive’s Normal Retirement Age and before his Separation from Service, the Bank shall pay to the Executive the benefit described in this Section 2.4(a) instead of any other benefit under this Agreement.

(a)

Amount of benefit: The benefit under this Section 2.4 is equal to the Normal Retirement Age Accrual Balance required under Section 2.1, without discounting for the time value of money. On the Effective Date of this Agreement, using the initial Discount Rate of 7 % and assuming payment of the $188,504 annual benefit under Section 2.1 beginning with the month after the month in which the Executive attains his Normal Retirement Age and ending when the Executive attains age, the Normal Retirement Age Accrual Balance was $ 1,890,148.

(b)

Payment of benefit: The Bank shall pay the Change-in-Control benefit under Section 2.4 of this Agreement to the Executive in a single lump sum within ten (10) days after the Change in Control. If the Executive receives the benefit under this Section 2.4 because of the occurrence of a Change in Control, the Executive shall not be entitled to claim additional benefits under Section 2.4 if an additional Change in Control occurs thereafter.

2.5

Occurrence of a Change in Control: Lump-sum Payment of Normal Retirement Benefit, Early Termination Benefit, or Disability Benefit Being Paid. If a Change in Control occurs at any time during the salary continuation benefit payment period and if when the Change in Control occurs the Executive is receiving or is entitled to receive at his Normal Retirement Age the benefit provided by Sections 2.1(b), 2.2(b), or 2.3(c), the Bank shall pay in a lump sum the present value of the Actuarial Equivalent of any remaining salary continuation benefits to the Executive in a single lump sum within ten (10) days after the Change in Control.

2.6

Contradiction Between this Agreement and Schedule A. If there is a contradiction between this Agreement and Schedule A attached hereto concerning the amount of a particular benefit due the Executive under Sections 2.2, 2.3, or 2.4 hereof, then the amount of the benefit determined under this Agreement shall control. If the Plan Administrator changes the Discount Rate employed for purposes of calculating the Accrual Balance, the Plan Administrator shall prepare or cause to be prepared a revised Schedule A, which shall supersede and replace any and all Schedules A previously prepared under or attached to this Agreement. However, any change in the Discount Rate shall not cause the Executive’s Account Balance to be reduced, but would only affect the future accounting accrual

2.7

Savings Clause Relating to Compliance with Code Section 409A. Despite any contrary provision of this Agreement, if when the Executive’s employment terminates the Executive is a Specified Employee, as defined in Code Section 409A, and if any payments under Article 2 of this Agreement will result in additional tax or interest to the Executive because of Section 409A, the Executive will not be entitled to the payments under Article 2 until the earliest of:

(i)

the date that is at least six (6) months after termination of the Executive’s employment for reasons other than the Executive’s death, or

(ii)

the date of the Executive’s death, or

(iii)

any earlier date that does not result in additional tax or interest to the Executive under Section 409A.

If any provision of this Agreement would subject the Executive to additional tax or interest under Section 409A of the Code or result in a violation of Section 409A of Code, the Bank shall reform such provision. However, the Bank shall maintain to the maximum extent practicable the original intent of the applicable provision without subjecting the Executive to additional tax or interest, and the Bank shall not be required to incur any additional compensation expense as a result of the reformed provision. References in this Agreement to Section 409A of the Code include rules, regulations, and guidance of general application issued by the Department of the Treasury under Code Section 409A.

2.8

One Benefit Only. Despite anything to the contrary in this Agreement, the Executive and Beneficiary are entitled to one benefit only under this Agreement, which shall be determined by the first event to occur that is dealt with by this Agreement. Except as provided in Section 2.5 or Article 3, subsequent occurrence of events dealt with by this Agreement shall not entitle the Executive or Beneficiary to other or additional benefits under this Agreement.

ARTICLE 3 DEATH BENEFITS

3.1	Death During Active Service. Except as provided in Section 5.2, if the Executive dies before a Separation from Service, at the Executive’s death the Executive’s Beneficiary shall be entitled to the sum of:

(i)

an amount in cash equal to the Accrual Balance existing at the time of the Executive’s death, unless the Change-in-Control benefit shall have previously been paid to the Executive, plus

(ii)

the benefit described in the Endorsement Split Dollar Agreement attached to this Agreement as Addendum A .

No benefit shall be paid to the Beneficiary under sub-paragraph (i) above, if the Change-in-Control benefit shall have previously been paid to the Executive. If a benefit is payable to the Executive’s Beneficiary under sub-paragraph (i) above, the benefit shall be paid in a single lump sum 90 days after the Executive’s death. However, no benefits under this Agreement or under the Endorsement Split Dollar Agreement shall be paid or payable to the Executive or the Executive’s Beneficiary if this Agreement is terminated under Article 5.

3.2

Death after Separation from Service. If the Executive dies after a Separation from Service and if such Separation from Service was not as a result of a Termination for Cause, at the Executive’s death the Executive’s Beneficiary shall be entitled to a monthly payment based on the Alternative Form of Payment the Executive elected in accordance with Section 2.1(c), provided he elected a Alternative Form of Payment in lieu of the Normal Annuity Form which is a Life Annuity. However, no payment shall be made to a Beneficiary under this Section 3.2 if a lump sum payment has previously been made under the Change-in-Control benefit payable under Section 2.5 above. However, no benefits under this Agreement shall be paid or payable to the Executive or the Executive’s Beneficiary if this Agreement is terminated under Article 5.

ARTICLE 4 BENEFICIARIES

4.1

Beneficiary Designations. The Executive shall have the right to designate at any time a Beneficiary to receive any benefits payable under this Agreement upon the death of the Executive. The Beneficiary designated under this Agreement may be the same as, or different from, the beneficiary designation under any other benefit plan of the Bank in which the Executive participates.

4.2

Beneficiary Designation: Change. The Executive shall designate a Beneficiary by completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator or its designated agent. The Executive’s Beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to change a Beneficiary by completing, signing, and otherwise complying with the terms of the Beneficiary Designation Form and the Plan Administrator’s rules and procedures, as in effect from time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by the Plan Administrator before the Executive’s death.

4.3	Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received, accepted, and acknowledged in writing by the Plan Administrator or its designated agent.

4.4

No Beneficiary Designation. If the Executive dies without a valid beneficiary designation, or if all designated Beneficiaries predecease the Executive, then the Executive’s spouse shall be the designated Beneficiary. If the Executive has no surviving spouse, the benefits shall be made to the personal representative of the Executive’s estate.

4.5

Facility of Payment. If a benefit is payable to a minor, to a person declared incapacitated, or to a person incapable of handling the disposition of his or her property, the Bank may pay such benefit to the guardian, legal representative, or person having the care or custody of the minor, incapacitated person, or incapable person. The Bank may require proof of incapacity, minority, or guardianship as it may deem appropriate before distribution of the benefit. Distribution shall completely discharge the Bank from all liability for the benefit.

ARTICLE 5 GENERAL LIMITATIONS

5.1

Termination for Cause. Despite any contrary provision of this Agreement, the Bank shall not pay any benefit under this Agreement and this Agreement shall terminate if a Separation from Service is the result of Termination for Cause. Likewise, the Beneficiary shall not be entitled to any benefits under the Endorsement Split Dollar Agreement attached to this Agreement as Addendum A and the Endorsement Split Dollar Agreement also shall terminate if Separation from Service is the result of Termination for Cause.

5.2

Suicide or Misstatement. The Bank shall not pay any benefit under this Agreement and the Beneficiary shall be entitled to no benefits under the Endorsement Split Dollar Agreement attached as Addendum A if the Executive commits suicide within two years after the date of this Agreement or if the Executive makes any material misstatement of fact on any application or resume provided to the Bank or on any life insurance application for benefits which death benefits would be payable to the Bank.

5.3

Removal. If the Executive is removed from office or permanently prohibited from participating in the Bank’s affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, and the Endorsement Split Dollar Agreement also shall terminate as of the effective date of the order.

5.4	Default. Notwithstanding any provision of this Agreement to the contrary, if the Bank is in “default” or “in danger of default,” as those terms are defined in Section 3(x) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(x), all obligations under this Agreement shall terminate.

5.5

FDIC Open-Bank Assistance. All obligations under this Agreement shall terminate, except to the extent determined that continuation of the contract is necessary for the continued operation of the Bank, when the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Federal Deposit Insurance Act Section 13(c). 12 U.S.C. 1823(c).

However, rights of the parties that have already vested in accordance with Section 2.2(c) shall not be affected by such action.

ARTICLE 6 CLAIMS AND REVIEW PROCEDURES

6.1	Claims Procedure. A person or beneficiary (“claimant”) who has not received benefits under this Agreement that he or she believes should be paid may make a claim for such benefits as follows -

(a)

Initiation - written claim. The claimant initiates a claim by submitting to the Administrator a written claim for the benefits. If the claim relates to the contents of a notice received by the claimant, the claim must be made within 60 days after the notice was received by the claimant. All other claims must be made within 180 days after the date of the event that caused the claim to arise. The claim must state with particularity the determination desired by the claimant.

(b)

Timing of Bank response. The Bank shall respond to the claimant within 90 days after receiving the claim. If the Bank determines that special circumstances require additional time for processing the claim, the Bank may extend the response period by an additional 90 days by notifying the claimant in writing before the end of the initial 90-day period that an additional period is required. The notice of extension must state the special circumstances and the date by which the Bank expects to render its decision.

(c)

Notice of decision. If the Bank denies part or all of the claim, the Bank shall notify the claimant in writing of the denial. The Bank shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth -

(i)

the specific reasons for the denial,

(ii)

a reference to the specific provisions of the Agreement on which the denial is based,

(iii)

a description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,

(iv)

an explanation of the Agreement’s review procedures and the time limits applicable to such procedures, and

(v)

a statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

6.2	Review Procedure. If the Bank denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Bank of the denial, as follows -

(a)

Initiation - written request. To initiate the review, the claimant, within 60 days after receiving the Bank’s notice of denial, must file with the Bank a written request for review.

(b)

Additional submissions - information access. The claimant shall then have the opportunity to submit written comments, documents, records, and other information relating to the claim. The Bank shall also provide the claimant, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

(c)

Considerations on review. In considering the review, the Bank shall take into account all materials and information the claimant submits relating to the claim, without regard to whether the information was submitted or considered in the initial benefit determination.

(d)

Timing of Bank response. The Bank shall respond in writing to the claimant within 60 days after receiving the request for review. If the Bank determines that special circumstances require additional time for processing the claim, the Bank may extend the response period by an additional 60 days by notifying the claimant in writing before the end of the initial 60-day period that an additional period is required. The notice of extension must state the special circumstances and the date by which the Bank expects to render its decision.

(e)

Notice of decision. The Bank shall notify the claimant in writing of its decision on review. The Bank shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth -

(i)

the specific reason for the denial,

(ii)

a reference to the specific provisions of the Agreement on which the denial is based,

(iii)

a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits, and

(iv)

a statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

6.3

Reimbursement of Expenses. If the claimant prevails at the conclusion of the claims and review procedure outlined in this Article 6, including any civil action brought by the claimant under ERISA Section 502(a), the Bank shall reimburse the claimant for all legal expenses incurred by the claimant in the claims and review procedure.

ARTICLE 7 MISCELLANEOUS

7.1

Amendments and Termination. Subject to Section 7.15 of this Agreement, this Agreement may be amended solely by a written agreement signed by the Bank and by the Executive; and except for termination occurring under Article 5, this Agreement may be terminated solely by a written agreement signed by the Bank and by the Executive.

7.2	Binding Effect. This Agreement shall bind the Executive, the Bank, and their Beneficiaries, survivors, executors, successors, administrators, and transferees.

7.3

No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Bank nor does it interfere with the Bank’s right to discharge the Executive. It also does not require the Executive to remain an employee or interfere with the Executive’s right to terminate employment at any time.

7.4	Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached, or encumbered in any manner.

7.5

Successors; Binding Agreement. By an assumption agreement in form and substance satisfactory to the Executive, the Bank shall require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform this Agreement if no such succession had occurred.

7.6	Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.

7.7	Applicable Law. This Agreement and all rights hereunder shall be governed by the laws of the State of North Carolina, except to the extent preempted by the laws of the United States of America.

7.8

Unfunded Arrangement. The Executive and Beneficiary are general unsecured creditors of the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise by the Bank to pay the benefits. Rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive’s life is a general asset of the Bank to which the Executive and Beneficiary have no preferred or secured claim.

7.9

Entire Agreement. This Agreement and the Endorsement Split Dollar Agreement attached to this Agreement as Addendum A constitute the entire agreement between the Bank and the Executive concerning the subject matter. No rights are granted to the Executive under this Agreement other than those specifically set forth. This Agreement amends and restates in its entirety the January 25, 2002 Executive Supplemental Retirement Plan Executive Agreement.

7.10

Severability. If any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held invalid, and each such other provision shall continue in full force and effect to the full extent consistent with law. If any provision of this Agreement is held invalid in part, such invalidity shall not affect the remainder of the provision not held invalid, and the remainder of such provision together with all other provisions of this Agreement shall continue in full force and effect to the full extent consistent with law.

7.11	Headings. Caption headings and subheadings herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement.

7.12

Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice. If to the Bank, notice shall be given to:

Board of Directors

Southern Community Bank and Trust

4605 Country Club Road

Winston-Salem, North Carolina 27104

or to such other or additional person or persons as the Bank shall have designated to the Executive in writing. If to the Executive, notice shall be given to the Executive at the Executive’s address appearing on the Bank’s records, or to such other or additional person or persons as the Executive shall have designated to the Bank in writing.

7.13

Payment of Legal Fees. The Bank is aware that after a Change in Control management of the Bank could cause or attempt to cause the Bank to refuse to comply with its obligations under this Agreement, or could institute or cause or attempt to cause the Bank to institute litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take other action to deny Executive the benefits intended under this Agreement. In these circumstances the purpose of this Agreement would be frustrated.

It is the intention of the Bank that the Executive not be required to incur the expenses associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. It is the intention of the Bank that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control occurs it appears to the Executive that:

(i)

the Bank has failed to comply with any of its obligations under this Agreement, or

(ii)

the Bank or any other person has taken any action to declare this Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish, or to recover from the Executive the benefits intended to be provided to the Executive hereunder,

the Bank irrevocably authorizes the Executive from time to time to retain counsel of the Executive’s choice (at the Bank’s expense as provided in this Section 7.13) to represent the Executive in the initiation or defense of any litigation or other legal action, whether by or against the Bank or any director, officer, stockholder, or other person affiliated with the Bank, in any jurisdiction.

Despite any existing or previous attorney-client relationship between the Bank and any counsel chosen by the Executive under this Section 7.13, the Bank irrevocably consents to the Executive entering into an attorney-client relationship with that counsel, and the Bank and the Executive agree that a confidential relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by the Executive as provided in this Section shall be paid or reimbursed to the Executive by the Bank on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by such counsel in accordance with such counsel’s customary practices, up to a maximum aggregate amount of $500,000, whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings.

The Bank’s obligation to pay the Executive’s legal fees provided by this Section 7.13 operates separately from and in addition to any legal fee reimbursement obligation the Bank may have with the Executive under any separate employment, severance, or other agreement between the Executive and the Bank. Despite any contrary provision in this Section 7.13 however, the Bank shall not be required to pay or reimburse the Executive’s legal expenses if doing so would violate Section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3].

7.14	Internal Revenue Code Section 280G Gross Up.

(a)

Additional payment to account for Excise Taxes . If as the result of a Change in Control the Executive becomes entitled to acceleration of benefits under this Agreement or under any other plan or agreement of or with the Bank or its affiliates (together, the “Total Benefits”), and if any of the Total Benefits will be subject to the Excise Tax as set forth in Sections 280G and 4999 of the Internal Revenue Code of 1986 (the “Excise Tax”), the Bank shall pay to the Executive the following additional amounts, consisting of:

(i)

a payment equal to the Excise Tax payable by the Executive on the Total Benefits under Section 4999 of the Internal Revenue Code (the “Excise Tax Payment”), and

(ii)

a payment equal to the amount necessary to provide the Excise Tax Payment net of all income, payroll and excise taxes.

Together, the additional amounts described in clauses (i) and (ii) above are referred to in this Agreement as the “Gross-Up Payment Amount.” Payment of the Gross-Up Payment Amount shall be made in addition to the amount set forth in Section 2.4.

Calculating the Excise Tax . For purposes of determining whether any of the Total Benefits will be subject to the Excise Tax and for purposes of determining the amount of the Excise Tax the following will apply:

1) Determination of “parachute payments” subject to the Excise Tax: Any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive’s Separation from Service (whether under the terms of this Agreement or any other agreement or any other benefit plan or arrangement with the Bank, any person whose actions result in a Change in Control, or any person affiliated with the Bank or such person) shall be treated as “parachute payments” within the meaning of Section 280G(b)(2) of the Internal Revenue Code, and all “excess parachute payments” within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of the certified public accounting firm that is retained by the Bank as of the date immediately before the Change in Control (the “Accounting Firm”) such other payments or benefits do not constitute (in whole or in part) parachute payments, or such excess parachute payments represent (in whole or in part) reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Internal Revenue Code in excess of the base amount (as defined in Section 280G(b)(3) of the Internal Revenue Code), or are otherwise not subject to the Excise Tax,

2) Calculation of benefits subject to the Excise Tax: The amount of the Total Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of:

(i)

the total amount of the Total Benefits reduced by the amount of such Total Benefits that in the opinion of the Accounting Firm are not parachute payments, or

(ii)

the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (1), above), and

Value of non-cash benefits and deferred payments: The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accounting Firm in accordance with the principles of Sections 280G(d)(3) and (4) of the Internal Revenue Code.

Assumed Marginal Income Tax Rate. For purposes of determining the amount of the Gross-Up Payment Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar years in which the Gross-Up Payment Amount is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on the date of Separation from Service, net of the reduction in federal income taxes that can be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Section 68 of the Internal Revenue Code in the amount of itemized deductions allowable to the Executive applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by the Executive, and applicable federal FICA and Medicare withholding taxes).

Return of Reduced Excise Tax Payment or Payment of Additional Excise Tax.

If the Excise Tax is later determined to be less than the amount taken into account hereunder when the Executive’s employment terminated, the Executive shall repay to the Bank - when the amount of the reduction in Excise Tax is finally determined - the portion of the Gross-Up Payment Amount attributable to the reduction (plus that portion of the Gross-Up Payment Amount attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the Gross-Up Payment Amount being repaid by the Executive to the extent that the repayment results in a reduction in Excise Tax, FICA, and Medicare withholding taxes and/or a federal, state, or local income tax deduction).

If the Excise Tax is later determined to be more than the amount taken into account hereunder when the Executive’s employment terminated (due, for example, to a payment whose existence or amount cannot be determined at the time of the Gross-Up Payment Amount), the Bank shall make an additional Gross-Up Payment Amount to the Executive for that excess (plus any interest, penalties, or additions payable by the Executive for the excess) when the amount of the excess is finally determined.

(d)

Responsibilities of the Accounting Firm and the Bank .

Determinations Shall Be Made by the Accounting Firm. Subject to the provisions of Section 7.14(a), all determinations required to be made under this Section 7.14(b) - including whether and when a Gross-Up Payment Amount is required, the amount of the Gross-Up Payment Amount and the assumptions to be used to arrive at the determination (collectively, the “Determination”) - shall be made by the Accounting Firm, which shall provide detailed supporting calculations both to the Bank and the Executive within 15 business days after receipt of notice from the Bank or the Executive that there has been a Gross-Up Payment Amount, or such earlier time as is requested by the Bank.

Fees and Expenses of the Accounting Firm and Agreement with the Accounting Firm. All fees and expenses of the Accounting Firm shall be borne solely by the Bank. The Bank shall enter into any agreement requested by the Accounting Firm in connection with the performance of its services hereunder.

Accounting Firm’s Opinion. If the Accounting Firm determines that no Excise Tax is payable by the Executive, the Accounting Firm shall furnish the Executive with a written opinion to that effect, and to the effect that failure to report Excise Tax, if any, on the Executive’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty.

Accounting Firm’s Determination Is Binding; Underpayment and Overpayment. The Determination by the Accounting Firm shall be binding on the Bank and the Executive. Because of the uncertainty in determining whether any of the Total Benefits will be subject to the Excise Tax at the time of the Determination, it is possible that a Gross-Up Payment Amount that should have been made will not have been made by the Bank (“Underpayment”), or that a Gross-Up Payment Amount will be made that should not have been made by the Bank (“Overpayment”).

If, after a Determination by the Accounting Firm, the Executive is required to make a payment of additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred. The Underpayment (together with interest at the rate provided in Section 1274(d)(2)(B) of the Internal Revenue Code) shall be paid promptly by the Bank to or for the benefit of the Executive.

If the Gross-Up Payment Amount exceeds the amount necessary to reimburse the Executive for the Excise Tax according to Section 7.14(a), the Accounting Firm shall determine the amount of the Overpayment. The Overpayment (together with interest at the rate provided in Section 1274(d)(2)(B) of the Internal Revenue Code) shall be paid promptly by the Executive to or for the benefit of the Bank. Provided that the Executive’s expenses are reimbursed by the Bank, the Executive shall cooperate with any reasonable requests by the Bank in any contests or disputes with the Internal Revenue Service relating to the Excise Tax.

Accounting Firm Conflict of Interest. If the Accounting Firm is serving as accountant or auditor for the individual, entity, or group effecting the Change in Control, the Executive may appoint another nationally recognized public accounting firm to make the Determinations required hereunder (in which case the term “Accounting Firm” as used in this Agreement shall be deemed to refer to the accounting firm appointed by the Executive under this paragraph).

7.15

Termination or Modification of Agreement Because of Changes in Law, Rules or Regulations. The Bank is entering into this Agreement on the assumption that certain existing tax laws, rules, and regulations will continue in effect in their current form. If that assumption materially changes and the change has a material detrimental effect on this Agreement, then the Bank reserves the right to terminate or modify this Agreement accordingly, subject to the written consent of the Executive, which shall not be unreasonably withheld. This Section 7.15 shall become null and void effective immediately upon an event that is considered a Change in Control.

ARTICLE 8 ADMINISTRATION OF AGREEMENT

8.1

Plan Administrator Duties. This Agreement shall be administered by a Plan Administrator consisting of the Bank’s Board of Directors or such Committee or person(s) as the Board shall appoint. The Executive may be a member of the Plan Administrator. The Plan Administrator shall also have the discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Agreement and (ii) decide or resolve any and all questions, including interpretations of this Agreement, as may arise in connection with the Agreement.

8.2	Agents. In the administration of this Agreement, the Plan Administrator may employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel, who may be counsel to the Bank.

8.3

Binding Effect of Decisions. The decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration, interpretation, and application of the Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Agreement. No Executive or Beneficiary shall be deemed to have any right, vested or non-vested, regarding the continued use of any previously adopted assumptions, including but not limited to the Discount Rate and calculation method described in Section 1.1.

8.4

Indemnity of Plan Administrator. The Bank shall indemnify and hold harmless the members of the Plan Administrator against any and all claims, losses, damages, expenses, or liabilities arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Plan Administrator or any of its members.

8.5

Bank Information. To enable the Plan Administrator to perform its functions, the Bank shall supply full and timely information to the Plan Administrator on all matters relating to the date and circumstances of the retirement, Disability, death, or Separation from Service of the Executive and such other pertinent information as the Plan Administrator may reasonably require.

ARTICLE 9 AGREEMENT NOT TO COMPETE

9.1	Covenant Not to Compete.

(a)

Without advance written consent of the Bank, the Executive shall not compete directly or indirectly with the Bank for two years after Separation from Service, plus any period during which the Executive is in violation of this covenant not to compete and any period during which the Bank seeks by litigation to enforce this covenant not to compete.

(b)

If any provision of this Section or any word, phrase, clause, sentence or other portion thereof (including, without limitation, the geographical and temporal restrictions contained therein) is held to be unenforceable or invalid for any reason, the unenforceable or invalid provision or portion shall be modified or deleted so that the provisions hereof, as modified, are legal and enforceable to the fullest extent permitted under applicable law.

(c)

Definitions : For purposes of this Section the following definitions shall apply:

(1)

“compete” shall mean:

(a)

providing financial products or services on behalf of any financial institution for any person residing in the territory,

(b)

assisting (other than through the performance of ministerial or clerical duties) any financial institution in providing financial products or services to any person residing in the territory, or

(c)

inducing or attempting to induce any person who was a customer of the Bank at the date of the Executive’s termination of employment to seek financial products or services from another financial institution.

(2)

“directly or indirectly” shall mean:

(a)

acting as a consultant, officer, director, independent contractor, or employee of any financial institution in competition with the Bank in the territory, or

(b)

communicating to such financial institution the names or addresses or any financial information concerning any person who was a customer of the Bank at the date of the Executive’s Separation from Service.

(3)

“customer” shall mean any person to whom the Bank is providing financial products or services at the date of the Executive’s Separation from Service.

(4)

“financial institution” shall mean any bank, savings association, or bank or savings association hold company, or any other institution, the business of which is engaging in activities that are financial in nature or incidental to such financial activities as described in Section 4(k) of the Bank Holding Company Act of 1956, other than the Bank or one of its affiliated corporations.

(5)

“financial product or service” shall mean any product or service that a financial institution or a financial holding company could offer by engaging in any activity that is financial in nature or incidental to such a firm’s activity under Section 4(k) of the Bank Holding Company Act of 1956 and that is offered by the Bank or any affiliate on the date of the Executive’s Separation from Service, including but not limited to banking activities that are closely related and a proper incident to banking.

(6)

“person” shall mean any individual or individuals, corporation, partnership, fiduciary or association.

(7)

“territory” shall mean all of Forsyth, Guilford, Iredell, Rockingham, Surry, Stokes, and Yadkin Counties in North Carolina and the area within a 15-mile radius of any full-service banking office of the Bank at the date of Executive’s Separation from Service.

9.2

Remedies. Because of the unique character of the services to be rendered by the Executive hereunder, the Executive understands that the Bank would not have an adequate remedy at law for the material breach or threatened breach by the Executive of any one or more of the Executive’s covenants set forth in this Article 9. Accordingly, the Executive agrees that the Bank’s remedies for a material breach or threatened breach of this Article 9 include but are not limited to forfeiture of benefits under this Agreement and a suit in equity by the Bank to enjoin the Executive from the breach or threatened breach of such covenants. The Executive hereby waives the claim or defense that an adequate remedy at law is available to the Bank and the Executive agrees not to urge in any such action the claim or defense that an adequate remedy at law exists. Nothing herein shall be construed to prohibit the Bank from pursuing any other remedies for the breach or threatened breach.

9.3	Article 9 Survives Termination But Is Void After a Change in Control. The rights and obligations set forth in this Article 9 shall survive termination of this Employment Agreement. However, Article 9 shall become null and void effective immediately upon a Change in Control.

IN WITNESS WHEREOF, the Executive and a duly authorized officer of the Bank have executed this Amended Salary Continuation Agreement as of this 16th day of March , 2007.

EXECUTIVE:			Southern Community Bank and Trust:


x /s/ F. Scott Bauer			By: /s/ Jeff T. Clark
F. Scott Bauer			Corporate Title: President

Exhibit 10.2

SOUTHERN COMMUNITY BANK AND TRUST

Amended & Restated Salary Continuation Agreement of

Jeffrey T. Clark

This Amended Salary Continuation Agreement (this “Agreement”) is entered into as of this ________day of ____________________________, 2007, by and between Southern Community Bank and Trust, a North Carolina-chartered bank (the “Bank”), and Jeffrey T. Clark, its President (the “Executive”).

WHEREAS, the Executive has contributed substantially to the success of the Bank and the Bank desires that the Executive continue in its employ;

WHEREAS, to encourage the Executive to remain an employee of the Bank, the Bank is willing to provide salary continuation benefits to the Executive, payable from the Bank’s general assets;

ARTICLE 1 DEFINITIONS

The following words and phrases used in this Agreement have the meanings specified.

1.1

The Executive initial Accrual Balance as of January 1, 2007 was $54,090.

1.2	“Actuarial (Actuarially) Equivalent” means a benefit of equivalent value differing in timing, payment period, or manner of payment to the Normal Annuity Form determined by generally accepted actuarial principles. The actuarial equivalent is calculated for different purposes, as follows:

(c)

(d)

1.3	“Beneficiary” means each designated person, or the estate of the deceased Executive, entitled to benefits, if any, upon the death of the Executive, determined according to Article 4.

1.4	“Change in Control” shall mean a change in control as defined in Internal Revenue Code Section 409A and rules, regulations, and guidance of general application thereunder issued by the Department of the Treasury, including -

(a)

(b)

(c)

1.5	“Code” means the Internal Revenue Code of 1986, as amended, and rules, regulations, and guidance of general application issued thereunder by the Department of the Treasury.

1.6	“Disability” means that a Participant is either:

(a)

(b)

1.7	“Early Termination” means Separation from Service before Normal Retirement Age for reasons other than death, Disability, Termination for Cause, or after a Change in Control.

1.8 “Effective Date” means January 1, 2007.

1.9

1.10 “Normal Retirement Age” means the Executive’s sixty second (62 ^nd) birthday.

1.11 “Plan Administrator” or “Administrator” means the plan administrator described in Article 8.

1.12	“Plan Year” means a twelve-month period commencing on January 1 and ending on December 31 of each year. The initial Plan Year shall commence on January 1, 2007.

1.13

1.14

(a)

the Executive’s gross negligence or gross neglect of duties or intentional and material failure to perform stated duties after written notice thereof, or

(b)

(c)

(d)

(e)

(g)

conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no contest to a misdemeanor involving moral turpitude, or the actual incarceration of the Executive.

1.15	Year of Vesting Service. Shall mean each calendar year in which the Executive completes 1,000 or more hours of service in the employ of the Bank.

ARTICLE 2 LIFETIME BENEFITS

2.1

(e)

Amount of Normal Form of benefit. The annual Normal Retirement benefit under this Section 2.1 is $150,490, which shall be paid in monthly installments in the monthly amount of $12,540.83 for the Life of the Executive (Normal Form is a Life Annuity).

(f)

(g)

Accordingly, a Participant may elect, in lieu of a Life Annuity, to receive his Normal Retirement Benefit in one of the following Alternative Forms of Payment:

(i)

Life Annuity with either a 120 or 180 guaranteed monthly payments;

(ii)

Joint and 50% (or 100%) Survivor Annuity.

Any Alternative Form of Payment provide herein shall be the Actuarial Equivalent of the Normal Form (Life Annuity) of payment.

If the Executive’s Separation from Service thereafter is a Termination for Cause or if this Agreement terminates under Article 5, no further benefits shall be paid.

2.2	Early Termination Benefit. Upon Early Termination as defined in Section 1.7, the Bank shall pay to the Executive the benefit described in this Section 2.2(a) instead of any other benefit under this Agreement.

(b)

(c)

Vesting Schedule
Years of Vesting Service		Percent Vested
Less than 3		0%
3		33 1/3%
4		66 2/3%
5 or more years		100%

2.3	Disability Benefit. Upon Separation from Service because of Disability before Normal Retirement Age, the Bank shall pay to the Executive the benefit described in this Section 2.3(a) instead of any other benefit under this Agreement.

(b)

2.4

(a)

Amount of benefit: The benefit under this Section 2.4 is sum of:

(i)

the Accrual Balance existing when the Change of Control occurs, plus

(ii)

one-half of the difference between the Normal Retirement Age Accrual Balance required by Section 2.1 and the Executive’s Accrual Balance as of the date of the Change in Control, without discounting for the time value of money. On the Effective Date of this Agreement, using the initial Discount Rate of 7 % and assuming payment of the $150,490 annual benefit under Section 2.1 beginning with the month after the month in which the Executive attains his Normal Retirement Age and ending when the Executive attains age, the Normal Retirement Age Accrual Balance was $ 1,546,771

(b)

2.5

2.6

2.7

(ii)

the date that is at least six (6) months after termination of the Executive’s employment for reasons other than the Executive’s death, or

(ii) the date of the Executive’s death, or

(iii) any earlier date that does not result in additional tax or interest to the Executive under Section 409A.

2.8

ARTICLE 3 DEATH BENEFITS

3.1	Death During Active Service. Except as provided in Section 5.2, if the Executive dies before a Separation from Service, at the Executive’s death the Executive’s Beneficiary shall be entitled to the sum of:

(iii)

an amount in cash equal to the Accrual Balance existing at the time of the Executive’s death, unless the Change-in-Control benefit shall have previously been paid to the Executive, plus

(iv)

the benefit described in the Endorsement Split Dollar Agreement attached to this Agreement as Addendum A .

3.2

ARTICLE 4 BENEFICIARIES

4.1

4.2

4.3	Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received, accepted, and acknowledged in writing by the Plan Administrator or its designated agent.

4.4

4.5

ARTICLE 5 GENERAL LIMITATIONS

5.1

5.2

5.3

5.4	Default. Notwithstanding any provision of this Agreement to the contrary, if the Bank is in “default” or “in danger of default,” as those terms are defined in Section 3(x) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(x), all obligations under this Agreement shall terminate.

5.5

However, rights of the parties that have already vested in accordance with Section 2.2(c) shall not be affected by such action.

ARTICLE 6 CLAIMS AND REVIEW PROCEDURES

6.1	Claims Procedure. A person or beneficiary (“claimant”) who has not received benefits under this Agreement that he or she believes should be paid may make a claim for such benefits as follows -

(a)

(b)

(c)

(i)

the specific reasons for the denial,

(ii)

a reference to the specific provisions of the Agreement on which the denial is based,

(iii)

a description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,

(iv)

an explanation of the Agreement’s review procedures and the time limits applicable to such procedures, and

(v)

a statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

6.2	Review Procedure. If the Bank denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Bank of the denial, as follows -

(a)

Initiation - written request. To initiate the review, the claimant, within 60 days after receiving the Bank’s notice of denial, must file with the Bank a written request for review.

(b)

(c)

(d)

(e)

(i)

the specific reason for the denial,

(ii)

a reference to the specific provisions of the Agreement on which the denial is based,

(iii)

(iv)

a statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

6.3

ARTICLE 7 MISCELLANEOUS

7.1

7.2	Binding Effect. This Agreement shall bind the Executive, the Bank, and their Beneficiaries, survivors, executors, successors, administrators, and transferees.

7.3

7.4	Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached, or encumbered in any manner.

7.5

7.6	Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.

7.7	Applicable Law. This Agreement and all rights hereunder shall be governed by the laws of the State of North Carolina, except to the extent preempted by the laws of the United States of America.

7.8

7.9

7.10

7.11	Headings. Caption headings and subheadings herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement.

7.12

Board of Directors

Southern Community Bank and Trust

4605 Country Club Road

Winston-Salem, North Carolina 27104

7.13

(i)

the Bank has failed to comply with any of its obligations under this Agreement, or

(ii)

7.14	Internal Revenue Code Section 280G Gross Up.

(a) Additional payment to account for Excise Taxes . If as the result of a Change in Control the Executive becomes entitled to acceleration of benefits under this Agreement or under any other plan or agreement of or with the Bank or its affiliates (together, the “Total Benefits”), and if any of the Total Benefits will be subject to the Excise Tax as set forth in Sections 280G and 4999 of the Internal Revenue Code of 1986 (the “Excise Tax”), the Bank shall pay to the Executive the following additional amounts, consisting of:

(i) a payment equal to the Excise Tax payable by the Executive on the Total Benefits under Section 4999 of the Internal Revenue Code (the “Excise Tax Payment”), and

(ii) a payment equal to the amount necessary to provide the Excise Tax Payment net of all income, payroll and excise taxes.

2) Calculation of benefits subject to the Excise Tax: The amount of the Total Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of:

(i)

the total amount of the Total Benefits reduced by the amount of such Total Benefits that in the opinion of the Accounting Firm are not parachute payments, or

(ii) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (1), above), and

Return of Reduced Excise Tax Payment or Payment of Additional Excise Tax.

(d) Responsibilities of the Accounting Firm and the Bank .

7.15

ARTICLE 8 ADMINISTRATION OF AGREEMENT

8.1

8.2	Agents. In the administration of this Agreement, the Plan Administrator may employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel, who may be counsel to the Bank.

8.3

8.4

8.5

ARTICLE 9 AGREEMENT NOT TO COMPETE

9.1	Covenant Not to Compete.

(a)

(b)

(c)

Definitions : For purposes of this Section the following definitions shall apply:

(1) “compete” shall mean:

(a) providing financial products or services on behalf of any financial institution for any person residing in the territory,

(b)

assisting (other than through the performance of ministerial or clerical duties) any financial institution in providing financial products or services to any person residing in the territory, or

(c)

(2)

“directly or indirectly” shall mean:

(a)

acting as a consultant, officer, director, independent contractor, or employee of any financial institution in competition with the Bank in the territory, or

(b)

(3)

“customer” shall mean any person to whom the Bank is providing financial products or services at the date of the Executive’s Separation from Service.

(4)

(5)

(6)

“person” shall mean any individual or individuals, corporation, partnership, fiduciary or association.

(7)

9.2

9.3	Article 9 Survives Termination But Is Void After a Change in Control. The rights and obligations set forth in this Article 9 shall survive termination of this Employment Agreement. However, Article 9 shall become null and void effective immediately upon a Change in Control.

IN WITNESS WHEREOF, the Executive and a duly authorized officer of the Bank have executed this Amended Salary Continuation Agreement as of this 14th day of March , 2007.

EXECUTIVE:			Southern Community Bank and Trust:
x /s/ Jeffrey T. Clark			/s/ F. Scott Bauer
Jeffrey T. Clark			Corporate Title: Chief Executive Officer

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Pursuant to Rule 13a-14(a)/15d-14(a)

I, F. Scott Bauer , certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Southern Community Financial Corporation, a North Carolina holding company (the "registrant");

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date: May 9, 2007	By:	/s/ F. Scott Bauer
		F. Scott Bauer Chairman and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to Rule 13a-14(a)/15d-14(a)

I, David W. Hinshaw , certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Southern Community Financial Corporation, a North Carolina holding company (the "registrant");

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date: May 9, 2007	By:	/s/ David W. Hinshaw
		David W. Hinshaw Executive Vice President and Chief Financial Officer

Exhibit 32

Section 1350 Certification

The undersigned hereby certifies that, to his knowledge, (i) the Form 10-Q filed by Southern Community Financial Corporation (the "Issuer") for the quarter ended March 31, 2007, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Issuer on the dates and for the periods presented therein.


	SOUTHERN COMMUNITY FINANCIAL CORPORATION

Date: May 9, 2007	By:	/s/ F. Scott Bauer
		F. Scott Bauer Chairman and Chief Executive Officer



Date: May 9, 2007	By:	/s/ David W. Hinshaw
		David W. Hinshaw Executive Vice President and Chief Financial Officer

	Three Months Ended& lt; /div>
	March 31,
	2007		2006

Postage, printing and office supplies	$	185	$	189
Telephone and communication		204		243
Advertising and promotion		251		235
Data processing and other outsourced services		236		167
Professional services		368		332
Other		1,469		1,174

	$	2,713	$	2,340