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, 2008

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 Accelerated filer X Non-accelerated filer Smaller reporting company

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, 2008 (the most recent practicable date), the registrant had outstanding 17,324,820 shares of Common Stock, no par value.

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Part I.	FINANCIAL INFORMATION

Item 1 -	Financial Statements (Unaudited)

	Consolidated Statements of Financial Condition March 31, 2008 and December 31, 2007	11

	Consolidated Statements of Operations Three Months Ended March 31, 2008 and 2007	12

	Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2008 and 2007	13

	Consolidated Statement of Changes in Stockholders’ Equity Three Months Ended March 31, 2008	14

	Consolidated Statements of Cash Flows Three Months Ended March 31, 2008 and 2007	15

	Notes to Consolidated Financial Statements	16

Item 2 -	Selected Financial Data	3

	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4

Item 3 -	Quantitative and Qualitative Disclosures about Market Risk	22

Item 4 -	Controls and Procedures	23

Part II.	Other Information

Item 1A -	Risk Factors	23

Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 6 -	Exhibits	24

Signatures		25

Part I. FINANCIAL INFORMATION

Selected Financial Data

	Quarter Ended									% of Change March 31, 2008 from
	March 31,			December 31,			March 31,			December 31,			March 31,
	2008			2007			2007			2007			2007
	(Amounts in thousands, except per share data)
Operating Data:
Interest income	$	24,325		$	25,370		$	23,573			(4)	%		3	%
Interest expense		13,323			14,132			13,052			(6	)		2
Net interest income		11,002			11,238			10,521			(2	)		4
Provision for loan losses		925			750			850			19			8
Net interest income after provision for loan losses		10,077			10,488			9,671			(4	)		4
Non-interest income		3,589			2,840			3,132			21			13
Non-interest expense		10,560			10,487			9,759			1			8
Income before income taxes		3,106			2,841			3,044			9			2
Provision for income taxes		1,041			948			1,035			9			1
Net income	$	2,065		$	1,893		$	2,009			8			3

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

Selected Performance Ratios:
Return on average assets		0.51	%		0.49	%		0.56	%
Return on average equity		5.84	%		5.35	%		5.96	%
Net interest margin (1)		2.98	%		3.15	%		3.22	%
Efficiency ratio (2)		72.37	%		74.49	%		71.48	%

Asset Quality Ratios:
Nonperforming loans to period-end loans		0.57	%		0.17	%		0.11	%
Nonperforming assets to total assets (3)		0.48	%		0.18	%		0.18	%
Net loan charge-offs to average loans outstanding (annualized)		0.11	%		0.23	%		0.18	%
Allowance for loan losses to period-end loans		1.20	%		1.20	%		1.24	%
Allowance for loan losses to nonperforming loans		2.12	X		6.95	X		10.82	X

Capital Ratios:
Total risk-based capital		11.04	%		11.44	%		11.05	%
Tier 1 risk-based capital		9.85	%		10.28	%		9.87	%
Leverage ratio		8.60	%		8.96	%		8.57	%
Equity to assets ratio		8.54	%		9.07	%		9.14	%

Balance Sheet Data: (End of Period)
Total assets		1,690,452			1,569,182			1,510,067			7			11
Loans		1,235,952			1,188,438			1,077,878			4			13
Deposits		1,142,735			1,045,237			1,078,781			9			6
Short-term borrowings		115,301			117,772			58,605			(2	)		49
Long-term borrowings		278,005			254,633			222,552			8			20
Stockholders’ equity		144,350			142,339			138,046			1			4

Other Data:
Weighted average shares
Basic		17,359,452			17,449,203			17,423,824
Diluted		17,401,589			17,466,703			17,597,029
Period end outstanding shares		17,319,351			17,399,882			17,410,115

Number of banking offices		22			22			22
Number of full-time equivalent employees		345			337			331

(1) Net interest margin is net interest income divided by average interest-earning assets.

(2) Efficiency ratio is non-interest expense divided by the sum of net interest income and non-interest income.

(3) Nonperforming assets consist of nonaccrual loans, restructured loans and foreclosed assets, where applicable.

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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

Total assets grew $121.3 million or 7.7% during the first quarter of 2008 led by investment securities which increased $67.2 million or 29.4% and total loans which grew $47.5 million or 4.0% to end the period at $1.69 billion. Investment securities were purchased during the quarter to improve liquidity and provide additional collateral for borrowings. The majority of the securities purchased were available for sale mortgage-backed securities which increased $69.5 million while government agencies increased $9.1 million. Commercial mortgage loans, which total $396.7 million or 32.1% of gross loans, continue to comprise the largest segment of the loan portfolio and grew $5.8 million or 1.5% for the quarter. Residential mortgage loans experienced the most growth during the quarter increasing $20.2 million or 6.3% comprising 27.4% of the total loan portfolio. Of the $20.2 million increase in the residential mortgage loan segment, land and building lots increased $10.7 million, home equity loans increased $4.4 million, and 1-4 family residences increased $5.1 million. Construction loans also experienced significant growth for the quarter increasing $15.0 million or 5.8% to $274.8 million or 22.2% of total gross loans. Commercial and industrial loans increased $7.7 million or 3.9% and represent 16.6% of total gross loans while loans to individuals decreased $1.2 million or 1.0%. Total deposits were $1.14 billion at quarter end, an increase of $97.5 million or 9.3% from year-end 2007. The growth in deposits was strongest in time deposits which grew $86.2 million or 19.6% predominately via wholesale funding. Money market, Now and savings accounts grew $11.7 million or 2.4% while demand deposits declined slightly. Borrowings increased $20.9 million or 5.6% with short term borrowings decreasing $2.5 million while long term borrowings increased $23.4 million.

Net interest income decreased by $236 thousand or 2.1% for the quarter compared to the fourth quarter of 2007. The positive effect of loan growth on net interest income was more than offset by the reduction of rates on variable rate loans, limited ability to reprice time deposits and competitive pressures on rates for all deposits. Due to the impact the Federal Reserve rate cuts during the quarter, total interest income decreased by $1.0 million or 4.1% while the cost of funds decreased $809 thousand or 5.7% compared to the previous quarter as rates on money market and other transaction accounts were reduced. The net interest margin decreased 17 basis points to 2.98% compared to 3.15% for the prior quarter and decreased 24 basis points when compared to 3.22% for the first quarter of 2007.

Non-interest income was $3.6 million during the first quarter of 2008, compared to $2.8 million for the prior quarter and $3.1 million for the first quarter of 2007. The increase in the non-interest income in the current quarter was attributed to $1.0 million in nonrecurring gains on derivative activity and increases in income from mortgage banking and wealth management. SBIC activities incurred a loss of $150 thousand in the current quarter compared to a $394 thousand gain reported in the fourth quarter of 2007 and a $1.2 million gain in the first quarter of 2007. Income from SBIC activities will vary as the gains and losses from investments are recognized. Non-interest income improved by $457 thousand as increases of $1.0 million in nonrecurring gains on derivative activity, $355 thousand in service charges on deposit accounts, $184 thousand in wealth management and $181 thousand in mortgage banking income in the first quarter offset the $1.4 million reduction in fees from SBIC activities compared to the first quarter of 2007.

Non-interest expense of $10.6 million in the first quarter of 2008 increased $73 thousand or 0.7% from the prior quarter and grew by $801 thousand or 8.2% compared with the $9.8 million reported in the year ago period. This increase from a year ago reflects continued growth and investment in the expansion of the franchise through salaries and employee benefits while increases in occupancy and equipment expenses and other non-interest expense were minimal.

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The Company maintained solid credit quality during the quarter. Nonperforming loans and nonperforming assets rose by $5.0 million and $5.2 million respectively, as a result of two relationships amounting to $4.1 million on which we have been working with the borrowers during the past year. For the current quarter, net charge-offs of $330 thousand or 0.11% as a percent of average loans were 12 basis points lower than the 0.23% from the previous quarter and 6 basis points lower than the 0.17% from the first quarter of 2007.

On April 25, 2008, Southern Community Financial Corporation announced that its Board of Directors, at their regular meeting on April 23, 2008, declared a quarterly cash dividend of four cents ($0.04) per share on the Company’s common stock. The dividend is payable on May 30, 2008, to shareholders of record as of the close of business on May 15, 2008. This cash dividend is the thirteenth consecutive quarterly dividend, following two annual dividends. The Company’s first cash dividend was paid in March 2004.

Financial Condition at March 31, 2008 and December 31, 2007

During the three month period ending March 31, 2008, total assets increased by $121.3 million, or 7.7%, to $1.69 billion. The Company’s balance sheet management for the quarter emphasized improving liquidity, maintaining adequate allowance for loan losses and keeping regulatory capital ratios in excess of the well capitalized threshold. The liquidity improvement was achieved by growing the investment portfolio by $67.2 million or 29.4% over year-end levels, and funding the $121.3 million balance sheet growth with $86.2 million in time deposits and $23.3 million in long-term borrowings.

In the loan portfolio, commercial mortgage loans, which total $396.7 million or 32.2% of gross loans, continue to comprise the largest segment. Loans secured by residential mortgages experienced the most growth during the quarter increasing by $20.2 million or 6.3%. The construction segment of the portfolio increased $15.0 million to end the period at $274.8 million, or 22.2% of gross loans. Commercial and industrial lending grew $7.7 million to $205.6 million at March 31, 2008 or 16.6% of the total loan portfolio.

We utilize various funding sources, as necessary, to support balance sheet management and growth. While customer deposits continue to be our primary funding source, asset growth during the first quarter was financed primarily by wholesale funding. At March 31, 2008, deposits totaled $1.14 billion, an increase of $97.5 million or 9.3% from year-end 2007. Wholesale funding accounted for the majority of the deposit growth during the period, increasing $85.4 million or 6.5% since December 31, 2007. Our continued emphasis on growing local deposits netted an increase in non-maturity deposits of $11.3 million or 1.9% during the period.

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, 2008, our stockholders’ equity totaled $144.4 million, an increase of $2.0 million compared to December 31, 2007. The increase is primarily the result of earnings of $2.0 million and a net increase of $1.3 million in the market value of available for sale securities, partially offset by $696 thousand of cash dividends declared and paid during the period and the repurchase of 133,175 shares of our outstanding common stock during the period at a cost of $942 thousand.

Results of Operations for the Three Months Ended March 31, 2008 and 2007

Net Income. Our net income for the three months ended March 31, 2008 was $2.1 million, an increase of $56 thousand, or 2.8%, from the same three month period in 2007. Net income per share was $0.12 for both basic and diluted for the three months ended March 31, 2008 as compared with $0.12 basic and $0.11 diluted for the same period in 2007. Net interest income for the first quarter of 2008 was $11.0 million, up $481 thousand, or 4.6% compared with the first quarter 2007, 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 2.98% declined 24 basis points from the year ago period and 17 basis points on a linked quarter basis. Non-interest income was $3.6 million during the first quarter of 2008, which represents an increase of 14.6% from non-interest income of $3.1 million reported in the comparable period in 2007, primarily the result of a $1.0 million gain being recognized in connection with economic hedges in the current quarter compared to a loss of $5 thousand in the first quarter of 2007. In contrast, Salem Capital Partners, our small business investment company (SBIC) affiliate, recognized a loss of $150 thousand compared to a gain of $1.2 million in the first quarter of 2007. Non-interest expense increased $801 thousand, or 8.2% compared with the same quarter a year ago. This increase reflects continued growth and investment in the expansion of the franchise through salaries and employee benefits while increases in occupancy and equipment expenses and other operating expenses were minimal. On a linked quarter basis, non-interest expense increased 0.7%.

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Net Interest Income. During the three months ended March 31, 2008, our net interest income was $11.0 million, an increase of $481 thousand or 4.6% over the first quarter 2007. With continued strong loan demand, our volume variance had a positive impact on net interest income while rate variances had a negative impact which is reflected in our lower net interest margin.

Our net interest margin has been impacted and will continue to be impacted in the near term by actions taken by the Federal Reserve Board with respect to interest rates and by competition in our markets. During the first quarter, the Federal Reserve continued their trend of reducing the federal funds rate which they began in the third quarter of 2007. The federal funds rate was reduced three times during the quarter for a total of 200 basis points resulting in a comparable reduction in the prime rate. Prior to the change in the federal funds rate in September 2007, the rate had remained constant since June 2006. The loan portfolio is structured with approximately 44% of loans with fixed rates, which will not be immediately affected by the change, and 56% with variable rates which will reprice as the applicable rate changes. At quarter end, approximately 72% of the variable rate loans were tied to prime while 28% were tied to LIBOR or another index. The loans tied to prime were generally repriced at the time of the change while the loans tied to LIBOR reprice based on terms of the loan. Deposits, such as money market and NOW accounts, are repriced at the discretion of management. The average yield on interest-earning assets in the first quarter of 2008 decreased 63 basis points to 6.59% compared to the first quarter 2007. The lower interest rate environment has also impacted our funding costs. Our cost of average interest bearing liabilities for the first quarter of 2008 decreased 44 basis points to 3.92% compared to the first quarter of 2007. For the first quarter 2008, our net interest margin of 2.98%, decreased from 3.15% for the fourth quarter of 2007 and decreased from 3.22% from the first quarter of 2007. The effect of the first quarter rate changes and the applicable repricing of loans, deposits, and borrowings will continue to be reflected in the net interest income in future quarters. Although the Company believes our margins are stabilizing, we expect to see some continued compression in our margins as loan customers will request to refinance their loans at a lower rate; however competitive rates must still be paid for our funding sources.

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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, 2008								Three Months Ended March 31, 2007

	Average balance			Interest earned/paid		Average yield/cost			Average balance			Interest earned/paid		Average yield/cost
Interest-earning assets:
Loans	$	1,219,800		$	21,183		6.98	%	$	1,054,315		$	20,402		7.85	%
Investment securities available for sale		195,565			2,410		4.96	%		175,551			2,226		5.14	%
Investment securities held to maturity		67,756			720		4.27	%		86,903			856		3.99	%
Federal funds sold		1,916			12		2.52	%		7,449			89		4.85	%

Total interest earning assets		1,485,037			24,325		6.59	%		1,324,218			23,573		7.22	%
Other assets		140,127								143,078
Total assets	$	1,625,164							$	1,467,296

Interest-bearing liabilities:
Deposits:
NOW, Money Market, and Savings	$	478,407		$	3,255		2.74	%	$	412,864		$	3,439		3.38	%
Time deposits greater than $100K		310,923			3,963		5.13	%		319,736			3,781		4.80	%
Other time deposits		167,738			1,891		4.53	%		202,981			2,379		4.75	%
Short-term borrowings		115,301			1,320		4.60	%		80,686			901		4.53	%
Long-term borrowings		295,899			2,894		3.93	%		196,447			2,552		5.27	%

Total interest bearing liabilities		1,368,268			13,323		3.92	%		1,212,714			13,052		4.36	%

Demand deposits		102,753								104,620
Other Liabilities		11,953								13,339
Stockholders' equity		142,190								136,623

Total liabilities and stockholders' equity	$	1,625,164							$	1,467,296

Net interest income and net interest spread				$	11,002		2.67	%				$	10,521		2.85	%
Net interest margin							2.98	%							3.22	%
Ratio of average interest-earning assets to average interest-bearing liabilities		108.51	%							109.19	%

Provision for Loan Losses. The Company recorded a $925 thousand provision for loan losses for the quarter ended March 31, 2008, representing an increase of $75 thousand from the $850 thousand provision from the first quarter of 2007. The level of provision for the quarter is reflective of the trends in the loan portfolio, including loan growth, levels of non-performing loans and other loan portfolio quality measures, and analyses of impaired loans. Provisions for loan losses are charged to income to bring our allowance for loan losses to a level deemed appropriate by management based on the factors discussed under “Asset Quality.” On an annualized basis, our percentage of net loan charge-offs to average loans outstanding was 0.11% for the quarter ended March 31, 2008, compared with 0.18% for the quarter ended March 31, 2007.

Non-Interest Income. For the three months ended March 31, 2008, non-interest income increased by $457 thousand or 14.6% to $3.6 million from $3.1 million for the same period in the prior year. The growth was primarily the result of a $1.0 million gain being recognized in connection with economic hedges in the current quarter compared to a loss of $5 thousand in the first quarter of 2007. During the first quarter of 2008, several of the interest rate swaps which served as a hedge to several of our brokered certificates of deposit were called by the counterparties due to the current declining interest rate environment which increased the value of the derivatives. This had a favorable impact on the results of operations as the charge which was taken in the second quarter of 2006 to more properly comply with SFAS 133 was being amortized as a reduction of interest expense on deposits over the assumed remaining life of the swaps. When these swaps were called and the hedged deposits were called by the Bank, the remaining unamortized balance was recognized immediately as a gain from derivative activity in non-interest income. In addition, there was a minimal impact from the change in the fair value of interest rate contracts that were not called during the quarter. In contrast to this gain, Salem Capital Partners, our small business investment company (SBIC) affiliate established six years ago, recognized a loss of $150 thousand compared to a gain of $1.2 million in the first quarter of 2007. We expect to recognize a comparable loss related to the same investment in the second quarter. Income from SBIC activities will vary as the gains and losses from these investments are recognized. We experienced increases in fee income from our core business activities. Service charges and fees on deposit accounts of $1.4 million were up 33.8% from the first quarter of 2007, but were down $35 thousand on a linked quarter basis. Income from mortgage banking activities of $484 thousand was up $181 thousand, or 59.7% compared to the first quarter of 2007 and $159 thousand or 48.9% on a linked quarter basis as we had our highest quarterly revenue generation through strong mortgage volumes and loan sales. Investment brokerage and trust fees increased to $371 thousand, up 98.3% from the year ago period and up $82 thousand from the prior quarter due to increased volume of business.

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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, 2008, our non-interest expense increased $801 thousand or 8.2% over the same period in 2007. This increase was primarily related to salaries and related employee benefits as the number of employees has grown to support our expanded franchise and commissions paid increased as non-interest revenue from mortgage banking and wealth management rose to historic levels in first quarter 2008. On a linked quarter basis, cost control efforts were realized as non-interest expense increased only $73 thousand or 0.7% from the fourth quarter of 2007.

Provision for Income Taxes. Our provision for income taxes, as a percentage of income before income taxes, was 33.5% for the three months ended March 31, 2008 and 34.0% for the three months ended March 31, 2007, reflective of different levels of tax-exempt earnings.

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 $296.2 million at March 31, 2008, an increase of $67.2 million from $228.9 million at December 31, 2007. 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 $126 million. We also have the credit capacity from the Federal Home Loan Bank of Atlanta (FHLB) to borrow up to $421.7 million, as of March 31, 2008, with lendable collateral value of $218.0 million. Loans with the FHLB were $192.5 and $212.6 million at March 31, 2008 and 2007, respectfully. At March 31, 2008, we had funding of $100 million in the form of term repurchase agreements with maturities from three to five years which increased $20.0 million since year-end and $85.0 from the first quarter of 2007. We have repurchase lines of credit aggregating $110 million from various institutions. The repurchases must be adequately collateralized. We also had short-term repurchase agreements with total outstanding balances of $17.1 million and $22.7 million at March 31, 2008 and December 31, 2007, 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. At March 31, 2008, our outstanding commitments to extend credit consisted of loan commitments of $384.3 million and amounts available under home equity credit lines, other credit lines and letters of credit of $104.2 million, $16.9 million and $8.3 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.

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Throughout our eleven 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. In recent years, the Bank has emphasized initiatives to increase demand and other core deposit accounts to improve our funding mix. This emphasis continued in the first quarter of 2008 with the introduction of the ME account which pays a higher rate of interest for qualifying transaction accounts. As a result of those initiatives, non-maturity deposits at March 31, 2008 increased $11.3 million or 1.9% compared to December 31, 2007, and has had a positive impact on our net interest margin. Certificates of deposits represented 46.0% of our total deposits at March 31, 2008, an increase from 42.1% at December 31, 2007. Time deposits of $100 thousand or more totaled $360.7 million and $270.3 million at March 31, 2008 and December 31, 2007, respectively. While we will need to pay competitive rates to retain these deposits at their maturities, there are other subjective factors that will also determine their continued retention.

At March 31, 2008, 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, 2008 was 9.9%.

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, 2008, the Company had repurchased 1,258,073 shares at an average price of $8.93 per share under the three plans, including 133,175 shares at an average price of $7.07 purchased during the first quarter of 2008.

Asset Quality

We consider asset quality to be of primary importance. We employ a formal internal loan review process to ensure adherence to the Lending Policy as approved by the Board of Directors. It is the responsibility of each lending officer to assign an appropriate risk grade to every loan originated. Credit Administration, through the loan review process, validates the accuracy of the initial risk grade assessment. In addition, as a given loan’s credit quality improves or deteriorates, it is Credit Administration’s responsibility to change the borrower’s risk grade accordingly. Our policy in regard to past due loans normally requires a charge-off to the allowance for loan losses within a reasonable period after collection efforts and a thorough review have been completed. Further collection efforts are then pursued through various means including legal remedies. Loans carried in a nonaccrual status and probable losses are considered in the determination of the allowance for loan losses.

Our financial statements are prepared on the accrual basis of accounting, including the recognition of interest income on loans, unless we place a loan on nonaccrual basis. We account for loans on a nonaccrual basis when we have serious doubts about the collectibility of principal or interest. Generally, our policy is to place a loan on nonaccrual status when the loan becomes past due 90 days. We also place loans on nonaccrual status in cases where we are uncertain whether the borrower can satisfy the contractual terms of the loan agreement. Amounts received on nonaccrual loans generally are applied first to principal and then to interest only after all principal has been collected. Restructured loans are those for which concessions, including the reduction of interest rates below a rate otherwise available to that borrower or the deferral of interest or principal have been granted due to the borrower’s weakened financial condition. We record interest on restructured loans at the restructured rates, as collected, when we anticipate that no loss of original principal will occur. Management also considers potential problem loans in the evaluation of the adequacy of the Bank’s allowance for loan losses. Potential problem loans are loans which are currently performing and are not included in nonaccrual or restructured loans as shown above, but which we have doubts as to the borrower’s ability to comply with present repayment terms. These loans may become past due, reach nonaccrual or be restructured; however, as such events have not yet occurred, they are being evaluated due to a heightened risk of such occurring.

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Nonperforming assets increased to $8.0 million or 0.48% of assets at March 31, 2008, compared to $2.8 million or 0.18% of assets at December 31, 2007. (For a summary of nonperforming assets, see Note 4 to the Financial Statements.) At quarter end, we had $4.0 million of nonaccrual loans and one loan previously mentioned in the 10-K with an outstanding balance of $3.0 million which continued to accrue interest through quarter end. Subsequent to the end of the first quarter, this loan was placed in a nonaccrual status. At the end of the first quarter, the largest nonaccrual balance of any one borrower was $2.1 million, with the average balance for the twenty-nine nonaccrual loans being $139 thousand. At December 31, 2007, we had $2.1 million in nonaccrual loans. The largest nonaccrual balance of any one borrower at year end was $585 thousand, with the average balance for the twenty-four nonaccrual loans being $86 thousand.

Foreclosed assets consist of real estate acquired through foreclosure and repossessed assets. At March 31, 2008, foreclosed assets totaled $1.0 million or 0.06% of total assets, and consisted of seven properties compared to $775 thousand or 0.05% of total assets, and seven properties at December 31, 2007. The largest dollar value of a foreclosed property at December 31 2007 and March 31, 2008 was $319 thousand. We have reviewed recent appraisals of these properties and believe that the fair values, less estimated costs to sell, equal or exceed their carrying value.

Our allowance for loan losses (“ALLL”) is established through charges to earnings in the form of a provision for loan losses. We increase our allowance for loan losses by provisions charged to operations and by recoveries of amounts previously charged off and we reduce our allowance by loans charged off. In evaluating the adequacy of the allowance, we consider the growth, composition and industry diversification of the portfolio, historical loan loss experience, current delinquency levels, trends in past dues and classified assets, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions and other relevant factors derived from our history of operations.

The Bank’s format for the calculation of ALLL begins with the evaluation of loans under SFAS 114. For the purpose of evaluating loans for impairment under SFAS 114, loans are considered impaired when it is considered probable that all amounts due under the contractual terms of the loan will not be collected when due (minor shortfalls in amount or timing excepted). The Bank has established policies and procedures for identifying loans that should be considered for impairment. Loans are reviewed through multiple means such as delinquency management, credit risk reviews, watch and criticized loan monitoring meetings and general account management. Loans that are outside of the Bank’s established criteria for evaluation may be considered for SFAS 114 impairment testing when management deems the risk sufficient to warrant this approach. For loans determined to be impaired, the specific allowance is based on the most appropriate of the three measurement methods: present value of expected future cash flows, fair value of collateral, or the observable market price of a loan method. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the evaluations. Once a loan is considered impaired, it is not included in the determination of the SFAS 5 component of the allowance, even if no specific allowance (the SFAS 114 component) is considered necessary.

The Bank also utilizes various other factors to further evaluate the portfolio for risk to determine the appropriate level of allowance to provide for probable losses in the loan portfolio. The other factors utilized include the rate of loan growth, credit grade migration, policy exceptions, account officer experience, interest rate trends and various economic factors. These factors are examined for trends and the risk that they represent to the Bank’s loan portfolio. Each of these other factors is assigned a level of risk and this risk factor is applied to only the SFAS 5 pool of loans to calculate the appropriate allowance.

Throughout our history, growth in loans outstanding has been the primary reason for increases in our allowance for loan losses and the resultant provisions for loan losses. The provision for loan losses increased to $925 thousand for the first quarter of 2008 as compared to $850 thousand for the same period last year due principally to loan growth during the quarter. This growth has been spread among our major loan categories, with the concentrations of major loan categories being relatively consistent in recent years. The allowance for loan losses at March 31, 2008 was $14.9 million and represented 1.20% of total loans which remained unchanged from year end and was 2.12 times nonperforming loans. At March 31, 2007, the allowance was $13.4 million which represented 1.24% of total loans and 10.82 times nonperforming loans. As a percentage of loans outstanding, the allowance declined from the first quarter of the prior year as a result of continued solid credit quality and strong loan growth and is based on the model described above. We believe that the Company’s allowance is adequate to absorb probable future losses inherent in our loan portfolio.

-10-

Item 1 - Financial Statements

SOUTHERN COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

	March 31,			December 31,
	2008			2007 *
	(Amounts in thousands, except share data)
Assets
Cash and due from banks	$	35,037		$	31,905
Federal funds sold		4,752			2,250
Investment securities
Available for sale, at fair value		238,097			159,121
Held to maturity, at amortized cost		58,054			69,812

Loans held for sale		4,110			1,929

Loans		1,235,952			1,188,438
Allowance for loan losses		(14,853	)		(14,258	)
Net Loans		1,221,099			1,174,180

Premises and equipment, net		38,790			38,997
Goodwill		49,792			49,792
Other assets		40,721			41,196

Total Assets	$	1,690,452		$	1,569,182
Liabilities and Stockholders’ Equity
Deposits
Demand	$	109,534		$	109,895
Money market, savings and NOW		507,105			495,448
Time		526,096			439,894
Total Deposits		1,142,735			1,045,237

Short-term borrowings		115,301			117,772
Long-term borrowings		278,005			254,633
Other liabilities		10,061			9,201

Total Liabilities		1,546,102			1,426,843

Stockholders’ Equity
Preferred stock, no par value, 1,000,000 shares authorized; none issued or outstanding at March 31, 2008 and December 31, 2007		-			-
Common stock, no par value, 30,000,000 shares authorized; issued and outstanding 17,319,351 shares at March 31, 2008 and 17,399,882 shares at December 31, 2007		118,323			119,101
Retained earnings		23,435			22,198
Accumulated other comprehensive income		2,592			1,040
Total Stockholders’ Equity		144,350			142,339

Commitments and contingencies

Total Liabilities and Stockholders' Equity	$	1,690,452		$	1,569,182

* Derived from audited consolidated financial statements

See accompanying notes.

-11-

SOUTHERN COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended
	March 31,
	2008		2007
	(Amounts in thousands, except share and per share data)
Interest Income
Loans	$	21,183	$	20,402
Investment securities available for sale		2,410		2,226
Investment securities held to maturity		720		856
Federal funds sold		12		89

Total Interest Income		24,325		23,573
Interest Expense
Money market, NOW deposits and savings		3,255		3,439
Time deposits		5,854		6,160
Borrowings		4,214		3,453

Total Interest Expense		13,323		13,052

Net Interest Income		11,002		10,521

Provision for Loan Losses		925		850

Net Interest Income After Provision for Loan Losses		10,077		9,671

Non-Interest Income		3,589		3,132

Non-Interest Expense
Salaries and employee benefits		5,794		5,143
Occupancy and equipment		1,964		1,903
Other		2,802		2,713

Total Non-Interest Expense		10,560		9,759

Income Before Income Taxes		3,106		3,044

Income Tax Expense		1,041		1,035

Net Income	$	2,065	$	2,009

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

Weighted Average Shares Outstanding
Basic		17,359,452		17,423,824
Diluted		17,401,589		17,597,029

See accompanying notes.

-12-

SOUTHERN COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended
	March 31,
	2008			2007
	(Amounts in thousands)

Net income	$	2,065		$	2,009

Other comprehensive income :
Securities available for sale:
Unrealized holding gains on available for sale securities		2,119			864
Tax effect		(817	)		(333	)
Net of tax amount		1,302			531
Cash flow hedging activities:
Unrealized holding losses on
cash flow hedging activities		395			15
Tax effect		(154	)		(6	)
Reclassification of losses recognized in net income		14			14
Tax effect		(5	)		(5	)
Net of tax amount		250			18

Total other comprehensive income		1,552			549

Comprehensive income	$	3,617		$	2,558

See accompanying notes.

- 13 -

SOUTHERN COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

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

Balance at December 31, 2007		17,399,882		$	119,101		$	22,198		$	1,040	$	142,339
Net income		-			-			2,065			-		2,065
Other comprehensive income, net of tax		-			-			-			1,552		1,552
Common shares repurchased		(133,175	)		(942	)		-			-		(942	)
Stock options exercised, including income tax benefit of $19		52,644			131			-			-		131
Stock-based compensation					33			-			-		33
Cumulative effect of accounting method change		-			-			(132	)		-		(132	)
Cash dividends of $.04 per share		-			-			(696	)		-		(696	)
Balance at March 31, 2008		17,319,351		$	118,323		$	23,435		$	2,592	$	144,350

See accompanying notes.

- 14 -

SOUTHERN COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended
	March 31,
	2008			2007
	(Amounts in thousands)
Cash Flows from Operating Activities
Net income	$	2,065		$	2,009
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		1,004			956
Provision for loan losses		925			850
Stock-based compensation		33			27
Net increase in cash surrender value of life insurance		(164	)		(153	)
Realized loss on sale of premise and equipment		10			33
(Gain) Loss on economic hedges		(1,044	)		5
Deferred income taxes		(803	)		(275	)
Realized (gain) loss on sale of foreclosed property		27			(15	)
Changes in assets and liabilities:
(Increase) decrease in other assets		906			(2,476	)
Increase in other liabilities		2,022			2,106
Total Adjustments		2,916			1,058

Net Cash Provided by Operating Activities		4,981			3,067

Cash Flows from Investing Activities
Increase in federal funds sold		(2,502	)		(14,162	)
Purchase of:
Available-for-sale investment securities		(90,957	)		(11,535	)
Held-to-maturity investment securities		-			(1,719	)
Proceeds from maturities and calls of:
Available-for-sale investment securities		14,069			2,812
Held-to-maturity investment securities		11,755			5,016
Net increase in loans		(50,025	)		(53,259	)
Purchases of premises and equipment		(729	)		(429	)
Proceeds from disposal of premises and equipment		8			-
Proceeds from sale of foreclosed assets		51			209
Net Cash Used in Investing Activities		(118,330	)		(73,067	)

Cash Flows from Financing Activities
Net increase in demand deposits		11,296			59,758
Net increase (decrease) in time deposits		86,202			(5,959	)
Net decrease in short-term borrowings		(19,471	)		(34,143	)
Proceeds from long-term borrowings		40,000			50,000
Repayment of long-term borrowings		(39	)		(38	)
Net proceeds from the issuance of common stock		131			403
Common stock repurchased		(942	)		(557	)
Cash dividends paid		(696	)		(610	)
Net Cash Provided by Financing Activities		116,481			68,854

Net Increase (Decrease) in Cash and Due From Banks		3,132			(1,146	)
Cash and Due From Banks, Beginning of Period		31,905			29,160
Cash and Due From Banks, End of Period	$	35,037		$	28,014

See accompanying notes.

- 15 -

Southern Community Financial Corporation

Notes to Consolidated Financial Statements (Unaudited)

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. In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three month periods ended March 31, 2008 and 2007, 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, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2008.

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 2007 annual report on Form 10-K. This quarterly report should be read in conjunction with the annual report.

Recently issued accounting pronouncements

On January 1, 2008, the Company adopted the following new pronouncements:

SFAS No. 157, Fair Value Measurements and

SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities

The Emerging Issues Task Force (EITF) 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.

In adopting EITF 06-4, the Company recognized the cumulative impact of this pronouncement through December 31, 2007 as a reduction of beginning of the period retained earnings in the amount of $132 thousand. The effect on earnings in the current quarter and future quarters is immaterial.

The adoption of SFAS 157 and SFAS 159 did not have a material effect on our financial statements at the date of adoption. For additional information, see Note 8 (Fair Value of Assets and Liabilities) to Financial Statements.

SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement 133 , requires additional disclosures for derivatives and hedging activities. The enhanced disclosures will include a description of an entity’s objectives including how and why derivative instruments are used. Other disclosures will include how derivative instruments and related hedged items are accounted for under SFAS 133 and related interpretations and how derivatives and related hedged items affect an entity’s financial position, financial performance and cash flows. The statement also requires cross-referencing within the footnotes to improve the reader’s ability to locate information about derivative instruments. This statement is effective for the Company’s financial statements issued for the years beginning after November 15, 2008 with early adoption encouraged. The Company is in the process of evaluating the impact of the adoption of SFAS No. 161.

- 16 -

Note 2 – Net Income Per Share

Basic and diluted net income per share is 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,
	2008		2007

Weighted average number of common shares used in computing basic net income per share		17,359,452		17,423,824

Effect of dilutive stock options and awards		42,137		173,205

Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per share		17,401,589		17,597,029


Net income (in thousands)	$	2,065	$	2,009
Basic		0.12		0.12
Diluted		0.12		0.11

For the three months ended March 31, 2008 and 2007, 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 648,378 and 291,518 shares for the three months ended March 31, 2008 and 2007, respectively.

- 17 -

Note 3 – Investment Securities

The following is a summary of the securities portfolio by major classification at the dates presented.

	March 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(Amounts in thousands)

Securities available for sale:
U. S. government agencies	$	80,927	$	2,883	$	-	$	83,810
Mortgage-backed securities		131,363		1,100		222		132,241
Municipals		2,392		28		3		2,417
Other		20,031		84		486		19,629
	$	234,713	$	4,095	$	711	$	238,097

Securities held to maturity:
U. S. government agencies	$	47,500	$	316	$	-	$	47,816
Mortgage-backed securities		2,085		34		5		2,114
Municipals		8,469		166		107		8,528
	$	58,054	$	516	$	112	$	58,458

	December 31, 2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(Amounts in thousands)

Securities available for sale:
U. S. government agencies	$	72,922	$	1,754	$	5	$	74,671
Mortgage-backed securities		62,782		428		500		62,710
Municipals		2,391		5		8		2,388
Other		19,761		24		433		19,352
	$	157,856	$	2,211	$	946	$	159,121

Securities held to maturity:
U. S. government agencies	$	58,794	$	89	$	419	$	58,464
Mortgage-backed securities		2,197		8		30		2,175
Municipals		8,821		125		121		8,825
	$	69,812	$	222	$	570	$	69,464

The following tables show the gross unrealized losses and fair values for our investments and length of time that the individual securities have been in a continuous unrealized loss position.

	March 31, 2008
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses
	(Amounts in thousands)

U. S. government agencies	$	-	$	-	$	-	$	-	$	-	$	-
Mortgage-backed securities		37,483		119		15,663		108		53,146		227
Municipals		1,530		16		1,637		94		3,167		110
Other		241		27		1,420		459		1,661		486

Total temporarily impaired securities	$	39,254	$	162	$	18,720	$	661	$	57,974	$	823

- 18 -

Note 4 – Loans

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

	At March 31,						At December 31,
	2008						2007
				Percent						Percent
	Amount			of Total			Amount			of Total
	(Amounts in thousands)
Residential mortgage loans	$	338,207			27.4	%	$	318,038			26.8	%
Commercial mortgage loans		396,717			32.1	%		390,948			32.9	%
Construction loans		274,786			22.2	%		259,740			21.9	%
Commercial and industrial loans		205,553			16.6	%		197,851			16.6	%
Loans to individuals		20,689			1.7	%		21,861			1.8	%

Subtotal		1,235,952			100.0	%		1,188,438			100.0	%

Less: Allowance for loan losses		(14,853	)					(14,258	)

Net loans	$	1,221,099					$	1,174,180

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

	Three Months Ended
	March 31,
	2008			2007
	(Amounts in thousands)

Balance at beginning of period	$	14,258		$	13,040

Provision for loan losses		925			850

Charge-offs		(504	)		(597	)
Recoveries		174			124

Net charge-offs		(330	)		(473	)

Balance at end of period	$	14,853		$	13,417

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

	March 31,		December 31,		March 31,
	2008		2007		2007
	(Amounts in thousands)

Nonaccrual loans	$	4,033	$	2,052	$	1,240
Nonperforming loan		2,979		-		-
Total nonperforming loans		7,012		2,052		1,240
Foreclosed assets		1,030		775		1,419
Total nonperforming assets	$	8,042	$	2,827	$	2,659

The nonperforming loan referred to above was placed in nonaccrual status subsequent to March 31, 2008.

- 19 -

Note 4 – 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, 2008, the Company had recorded investment in loans considered impaired in accordance with SFAS No. 114 of $9.0 million. A corresponding valuation allowance of $680 thousand has been provided for impaired loans with an outstanding balance of $5.9 million. 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 5 – Borrowings

The following is a summary of our borrowings at March 31, 2008 and December 31, 2007:

	March 31,		December 31,
	2008		2007
	(Amounts in thousands)
Short-term borrowings
FHLB advances	$	60,000	$	73,000
Federal funds purchased		38,200		22,100
Repurchase agreements		17,101		22,672
	$	115,301	$	117,772

Long-term borrowings
FHLB advances	$	132,483	$	129,522
Term repurchase agreements		100,000		80,000
Jr. subordinated debentures		45,522		45,111
	$	278,005	$	254,633

- 20 -

Note 6 – Non-Interest Income and Other Non-Interest Expense

The major components of non-interest income are as follows:

	Three Months Ended
	March 31,
	2008			2007
	(Amounts in thousands)

Service charges and fees on deposit accounts	$	1,406		$	1,051
Income from mortgage banking activities		484			303
Investment brokerage and trust fees		371			187
SBIC income (loss) and management fees		(150	)		1,237
Gain (loss) and net cash settlement on economic hedges		1,044			(5	)
Other		434			359

	$	3,589		$	3,132

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

	Three Months Ended
	March 31,
	2008		2007
	(Amounts in thousands)

Postage, printing and office supplies	$	195	$	185
Telephone and communication		228		204
Advertising and promotion		343		251
Data processing and other outsourced services		193		236
Professional services		408		368
Other		1,435		1,469

	$	2,802	$	2,713

Note 7 – Common Stock Repurchase Programs

Note 8 – Fair Values of Assets and Liabilities

Effective January 1, 2008, the Company adopted SFAS 157, Fair Value Measurements (SFAS 157) and SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment for FASB Statement No. 115 (SFAS 159). The effect of adopting these two pronouncements was not material to the financial statements in the first quarter of 2008.

SFAS No. 157, defines fair value, establishes a framework for measuring fair value according to generally accepted accounting principles, and expands disclosures about fair value measurements. This statement establishes a three level fair value hierarchy that is fully described below. While this standard does not require any financial instruments to be measured at fair value the provisions of the statement must be applied in situations where other accounting pronouncements either permit or require fair value measurement. The Company reports fair value on a limited basis, most notably for available for sale investment securities and certain derivative instruments which will require compliance with the provisions of SFAS 157. The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. These include assets that are measured at the lower of cost or market that were recognized at fair value which was below cost at the end of the period. Assets subject to nonrecurring use of fair value measurements could include loans held for sale, goodwill, and foreclosed assets. At March 31, 2008, the Company had no assets or liabilities that are measured at fair value on a nonrecurring basis.

- 21 -

In accordance with FAS 157, we group our financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S. government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party services for similar or comparable assets or liabilities.

Level 3 – Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or brokered traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis.

	March 31, 2008
	Total		Level 1		Level 2		Level 3
	(Amounts in thousands)

Securities available for sale	$	238,097	$	-	$	238,097	$	-
Derivative Contracts		923				923
Total Assets	$	239,020	$	-	$	239,020	$	-

Other Liabilities (Derivatives Contracts)	$	201	$	-	$	201	$	-

The Company utilizes a third party pricing service to provide valuations on its securities portfolio. Despite most of these securities being U.S. government agency debt obligations and agency mortgage-backed securities traded in active markets, third party valuations are determined based on the characteristics of a security (such as maturity, duration, rating, etc.) and in reference to similar or comparable securities. Due to the nature and methodology of these valuations, the Company considers these fair value measurements as Level 2.

SFAS 159 allows an entity to make an irrevocable election to measure certain financial instruments at fair value. The changes in fair value from one reporting period to the next period must be reported in the income statement with additional disclosures to identify the effect on net income. The Company continued to account for securities available for sale at fair value as reported in prior years which is required by SFAS 115. Derivative activity is also reported at fair value as required by SFAS 133. Securities available for sale and derivative activity are reported on a recurring basis. Upon adoption of SFAS 159, no additional financial assets or liabilities were reported at fair value and there was no material effect on earnings.

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.

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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. If interest rates decreased instantaneously by two percentage points, our net interest income over a one-year time frame could decrease by approximately 1.2%. If interest rates increased instantaneously by two percentage points, our net interest income over a one-year time frame could increase by approximately 1.4%.

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, 2008. 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, 2008 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, 2008 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.

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, 2007.

- 23 -

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, 2008. See Note 7 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, 2008 to January 31, 2008		46,358	$	6.85		46,358		728,744
February 1, 2008 to February 29, 2008		48,317	$	7.15		48,317		680,427
March 1, 2008 to March 31, 2008		38,500	$	7.24		38,500		641,927
Total for quarter		133,175	$	7.07		133,175

Total repurchases under all programs		1,258,073	$	8.93

Item 6. Exhibits

(a)

Exhibits.



Exhibit 10.1	Restricted Stock Plan

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

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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, 2008	By:	/s/ F. Scott Bauer
		F. Scott Bauer
		Chairman and Chief Executive Officer

Date: May 9, 2008	By:	/s/ James Hastings
		James Hastings
		Executive Vice President and Chief Financial Officer

- 25 -

Exhibit 10.1

SOUTHERN COMMUNITY FINANCIAL CORPORATION

RESTRICTED STOCK PLAN

Southern Community Financial Corporation, a North Carolina corporation (the “Corporation”), does herein set forth the terms of its Restricted Stock Plan (the “Plan”), which was adopted by the Corporation’s Board of Directors (the “Board”).

1. Purpose of the Plan . The purpose of this Plan is to provide for the grant of authorized but unissued shares of its common stock, no par value (“Common Stock”), subject to certain restrictions ("Restricted Stock") to eligible directors, officers and employees of the Corporation. The Corporation believes that participation in the ownership of the Corporation by such individuals will be to the mutual benefit of the Corporation and the Grantees. The existence of this Plan will make it possible for the Corporation and any of its subsidiaries to attract and retain capable individuals to participate in the success of the Corporation.

2. Administration of the Plan . (a) This Plan shall be administered by the Compensation Committee of the Board (the "Committee").

(b) The Committee shall decide to whom Restricted Stock shall be granted under this Plan (“Grantee”), the number of shares of Restricted Stock to be granted to each Grantee, the vesting period and other conditions to which the shares of Restricted Stock shall be subject, and such additional terms and conditions for such Restricted Stock as the Committee deems appropriate. The Committee shall interpret the Plan and prescribe, amend and rescind any rules and regulations regarding the Plan. All interpretations and constructions of the Plan by the Committee shall be final and conclusive.

(c) A majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved unanimously in writing by the Committee, shall be considered as valid actions by the Committee.

(d) The Committee may designate any officers or employees of the Corporation to assist in the administration of this Plan. The Committee may authorize such individuals to execute documents on its behalf and may delegate to them such other ministerial and limited discretionary duties as the Committee may deem fit.

3. Shares of Common Stock Subject to the Plan . The number of shares of Common Stock that shall be available initially for grants of Restricted Stock under this Plan is Three hundred thousand (300,000), subject to adjustment as provided in Paragraph 14 hereof. Any shares of Restricted Stock which are forfeited by a Grantee shall be made available for future grants of Restricted Stock under this Plan.

4. Eligibility . Restricted Stock under this Plan may be granted to any Grantee determined by the Committee. An individual may hold more than one grant of Restricted Stock under this or other plans adopted by the Corporation.

5. Grant of Restricted Stock . (a) The Committee may authorize the grant of Restricted Stock to certain current directors, officers and employees of the Corporation. Such Restricted Stock shall be granted based upon the past service and the continued participation of those individuals in the management and operation of the Corporation and its subsidiaries.

(b) Restricted Stock will be deemed issued only upon (i) authorization by the Committee, and (ii) the execution and delivery of a Restricted Stock Agreement by the Grantee and a duly authorized officer of the Company.

(c) Shares of Restricted Stock shall be subject to such restrictions, terms and conditions, including forfeitures, if any, as may be determined by the Committee (“Forfeiture Provisions”), which may include, without limitation, the rendition of services to the Corporation or its subsidiaries for a specified time or the achievement of specific goals, and to the further restriction that no shares of Restricted Stock may be sold, assigned, transferred, discounted, exchanged, pledged or otherwise encumbered or disposed of until the Forfeiture Provisions set by the Committee at the time of the award of the Restricted Stock have been satisfied.

(d) Upon the forfeiture of Restricted Stock for whatever reason prior to the expiration of the Forfeiture Provisions, the shares of Common Stock covered by forfeited shares of Restricted Stock shall be available for the granting of additional shares of Restricted Stock to other Grantees during the remaining term of this Plan upon such terms and conditions as may be determined by the Committee.

6. Transfer Restrictions . (a) The Restricted Stock may not be transferred, assigned or made subject to any encumbrance, pledge or charge until such Restricted Stock has vested and any Forfeiture Provision or other restriction or condition on such Restricted Stock is removed, satisfied or has expired. All transfers of Restricted Stock not meeting the conditions set forth in this Paragraph 6 are expressly prohibited.

(b) Any prohibited transfer of Restricted Stock is void and of no effect. Should such a transfer purport to occur, the Corporation may set aside the transfer, enforce any undertaking or right under this Paragraph 6, and/or exercise any other legal or equitable remedy. The Corporation shall not be required: (i) to transfer on its books any shares of Restricted Stock that have been sold or otherwise transferred in violation of any of the provisions of this Paragraph 6; or (ii) to treat as owner of such shares of Restricted Stock or to accord the right to vote or pay dividends to any transferee to whom such shares of Restricted Stock shall have been purported to have been transferred.

(c) The Committee may permit a transfer of Restricted Stock if the transferee executes such documents as the Committee may reasonably require to protect the Corporation’s rights under the Restricted Stock Agreement and this Plan are adequately protected with respect to the shares of Restricted Stock so transferred. Such documents may include, without limitation, an agreement by the transferee to be bound by all of the terms of this Plan applicable to the Restricted Stock and of the applicable Restricted Stock Agreement as if the transferee were the original Grantee of such Restricted Stock.

(d) To facilitate the enforcement of the restrictions on transfer set forth in this Paragraph 6, the Committee may, at its discretion, require the Grantee of shares of Restricted Stock to deliver any certificate(s) for such shares and/or a stock power executed in blank by the Grantee and the Grantee’s spouse, to the Secretary of the Corporation or his or her designee. The Corporation may hold said certificate(s) and/or stock power(s) in escrow and take all such actions as are necessary to insure that all transfers and/or releases are made in accordance with the terms of this Plan. The certificates and/or stock power may be held in escrow so long as the shares of Restricted Stock are subject to any Forfeiture Provisions under a Restricted Stock Agreement. Each Grantee acknowledges that the Secretary of the Corporation (or his or her designee) is so appointed as the escrow agent with the foregoing authorities as a material inducement to the issuance of shares of Restricted Stock under this Plan, that the appointment is coupled with an interest, and that it accordingly will be irrevocable. The escrow agent will not be liable to any party to a Restricted Stock Agreement (or to any other party) for any actions or omissions unless the escrow agent is grossly negligent relative thereto. The escrow agent may rely upon any letter, notice or other document executed by any signature purported to be genuine.

7. Stock Certificates. (a) Any certificate or certificates representing shares of Restricted Stock shall bear a legend similar to the following:

“ The shares represented by this certificate have been issued pursuant to the terms of the Southern Community Financial Corporation Restricted Stock Plan and may not be sold, assigned, transferred, discounted, exchanged, pledged or otherwise encumbered or disposed of in any manner except as set forth in the terms of the agreement embodying the award of such shares .”

(b) The Corporation may place a "stop transfer" order against shares of Restricted Stock until all Forfeiture Provisions set forth in the applicable Restricted Stock Agreement have been satisfied.

(c) After the satisfaction of the Forfeiture Provisions set by the Committee, a certificate, without the legend set forth above, for the number of shares of Common Stock that are no longer subject to such Forfeiture Provisions shall be delivered to the Grantee.

8. Restricted Stock Agreement . Each issuance of Restricted Stock pursuant to this Plan shall be evidenced by a written Restricted Stock Agreement between the Corporation and the Grantee. The Restricted Stock Agreement shall be in such form as the Committee shall adopt and may contain such terms and conditions, including the Forfeiture Provisions, as the Committee may determine.

9. Market Standoff . To the extent requested by the Corporation and any underwriter of securities of the Corporation in connection with a firm commitment underwriting, no holder of any shares of Restricted Stock will transfer any such shares not included in such underwriting, or not previously registered in a registration, during the one hundred twenty (120) day period following the effective date of the registration statement filed with the SEC under the Securities Act of 1933, as amended, with respect to such offering.

10. Shareholder Rights. Except as otherwise provided in the Plan, the Grantee shall have all voting, dividend and other rights of a shareholder with respect to the shares of Restricted Stock, whether or not escrowed as provided herein, once the issuance of the Restricted Stock has been reflected on the stock transfer or similar records of the Corporation. The Grantee and his or her legal representatives shall not be deemed to be the holder of any Restricted Stock and shall not have any rights of a shareholder until the issuance of the Restricted Stock has been reflected on the stock transfer or similar records of the Corporation.

11. Effect of Enforceability of Forfeiture, Termination of Employment, Retirement, Disability or Death.

(a) Upon the enforceability of any Forfeiture Provision or in the event of the termination of employment of a Grantee for any reason other than retirement, death or disability, Grantee shall, for no consideration, forfeit to the Corporation all shares of Restricted Stock to the extent then subject to the Forfeiture Provisions. The Forfeiture Provisions shall be binding upon and enforceable against any transferee of Restricted Stock.

(b) In the event of the termination of employment of an Grantee as a result of such Grantee's retirement, notwithstanding any other provision contained herein or in any Restricted Stock Agreement, upon retirement, any Forfeiture Provisions with respect to such Restricted Stock then held by a Grantee shall become immediately void and unenforceable. For purposes of this Plan, the term "retirement" shall mean (i) termination of a Grantee's employment under conditions which would constitute retirement under any tax qualified retirement plan maintained by the Corporation, or (ii) attaining age 65.

(c) In the event of the termination of employment of a Grantee by reason of such Grantee's disability, notwithstanding any other provision contained herein or in any Restricted Stock Agreement, upon such disability, any Forfeiture Provisions with respect to such Restricted Stock then held by a Grantee shall become immediately void and unenforceable. For purposes of this Plan, the term "disability" shall be defined in the same manner as such term is defined in Section 22(e) (3) of the Internal Revenue Code of 1986, as amended.

(d) In the event that an Optionee should die while employed by the Corporation, notwithstanding any other provision contained herein or in any Restricted Stock Agreement, upon the date of death of the Optionee, any Forfeiture Provisions with respect to such Restricted Stock then held by a Grantee shall become immediately void and unenforceable. If a Grantee dies after satisfaction of the Forfeiture Provisions for all or a portion of the award but prior to the actual payment of all or such portion thereof, such payment shall be made to the Grantee's beneficiary or beneficiaries at the time and in the same manner that such payment would have been made to the Grantee.

12. Effect of Plan on Employment. (a) The fact that the Committee has granted shares of Restricted Stock to a Grantee under this Plan shall not confer on such Grantee any right to employment with the Corporation, or to a position as a director, officer or an employee of the Corporation, nor shall it limit the right of the Corporation to remove such Grantee from any position held by the Grantee or to terminate the Grantee's employment at any time.

(b) The value of the Restricted Stock granted pursuant to this Plan shall not be included as compensation, earnings, salaries, or other similar terms used when calculating the benefits under any employee benefit plan sponsored by the Corporation except as such employee benefit plan otherwise expressly provides.

13. Adjustment Upon Changes in Capitalization; Dissolution, Liquidation or Merger .

(a) In the event of a change in the number of shares of the Common Stock outstanding by reason of a stock dividend, stock split, recapitalization, reorganization, merger, exchange of shares, or other similar capital adjustment, prior to the termination of a Grantee's rights under this Plan, equitable proportionate adjustments shall be made by the Committee in (i) the number and kind of shares which remain available under this Plan, and (ii) the number and kind of shares subject to the Restricted Stock granted under this Plan. The adjustments to be made shall be determined by the Committee and shall be consistent with such change or changes in the Corporation's total number of outstanding shares.

(b) The grant of Restricted Stock under this Plan shall not affect in any way the right or power of the Corporation or its shareholders to make or authorize any adjustment, recapitalization, reorganization, or other change in the Corporation's capital structure or its business, or any merger of the Corporation, or to issue bonds, debentures, preferred or other preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of the Corporation's assets or business.

(c) Upon the effective date of the dissolution or liquidation of the Corporation, or of a reorganization or merger of the Corporation with one or more other corporations in which the Corporation is not the surviving corporation, or the transfer of all or substantially all of the assets or shares of the Corporation to another person or entity, or a tender offer approved by the Board (any such transaction being hereinafter referred to as an "Acceleration Event"), any Forfeiture Provisions with respect to outstanding shares of Restricted Stock granted hereunder shall terminate unless provision is made in writing in connection with such Acceleration Event for the assumption of the Restricted Stock granted hereunder, or the substitution for such Restricted Stock of new Restricted Stock for the shares of the successor corporation, or a parent or a subsidiary thereof, with such appropriate adjustments, as may be determined or approved by the Committee or the successor to the Corporation, to the number and kind of shares subject to such substituted Restricted Stock in which event the Restricted Stock granted hereunder, or the new Restricted Stock substituted therefore, shall continue in the manner and under the terms so provided. Termination of any Forfeiture Provisions shall be contingent upon the consummation of the Acceleration Event.

14. Tax Withholding . At the discretion of the Committee, the Grantee, as a condition to such issuance, may be required to pay to the Corporation in cash, or in such other form as the Committee may determine in its discretion, the amount of the Corporation's tax withholding liability required in connection with such issuance.

15. Listing and Registration . Notwithstanding any other provision of this Plan, shares of Restricted Stock may be issued pursuant to this Plan only after there has been compliance with all applicable federal and state securities laws, and such issuance will be subject to this overriding condition. The Corporation may include shares of Restricted Stock in a registration, but will not be required to register or qualify Restricted Stock with the SEC or any state agency.

16. Exculpation and Indemnification . In connection with this Plan, no member of the Committee shall be personally liable for any act or omission to act in such person's capacity as a member of the Committee, nor for any mistake in judgment made in good faith, unless arising out of, or resulting from, such person's own bad faith, gross negligence, willful misconduct, or criminal acts. To the extent permitted by applicable law and regulation, the Corporation shall indemnify and hold harmless the members of the Committee, and each other officer of employee of the Corporation to whom any duty or power relating to the administration or interpretation of this Plan may be assigned or delegated, from and against any and all liabilities (including any amount paid in settlement of a claim with approval of the Board) and any costs or expense (including reasonable counsel fees) incurred by such person arising out of, or as a result of, such person's duties, responsibilities, and obligations under this Plan, other than such liabilities, costs, and expenses as may arise out of, or result from, the bad faith, gross negligence, willful misconduct, or criminal acts of such persons.

17. Amendment and Modification of the Plan . The Board may at any time and from time to time amend or modify this Plan in any respect. Any amendment or modification of this Plan shall not materially reduce the rights of any Grantee under a Restricted Stock Agreement without the consent of such Grantee or the permitted transferee thereof.

18. Termination and Expiration of the Plan . This Plan may be abandoned, suspended, or terminated at any time by the Board; provided , however , that abandonment, suspension, or termination of this Plan shall not affect any Restricted Stock then outstanding under this Plan.

19. Captions and Headings; Gender and Number . Captions and paragraph headings used herein are for convenience only, do not modify or affect the meaning of any provision herein, are not a part hereof, and shall not serve as a basis for interpretation or in construction of this Plan. As used herein, the masculine gender shall include the feminine and neuter, the singular number the plural, and vice versa, whenever such meanings are appropriate.

20. Expenses of Administration of the Plan . All costs and expenses incurred in the operation and administration of this Plan shall be borne by the Corporation.

21. Governing Law . Without regard to the principles of conflicts of laws, the laws of the State of North Carolina shall govern and control the validity, interpretation, performance, and enforcement of this Plan.

22. Inspection of Plan . A copy of this Plan, and any amendments thereto or modification thereof, shall be maintained by the Secretary of the Corporation and shall be shown to any proper person making inquiry about it.

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, 2008	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, James Hastings , 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)

(a)

(b)

(c)

(d)

(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)

(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, 2008	By:	/s/ James Hastings
		James Hastings
		Executive Vice President and Chief Financial Officer

Exhibit 32