First South Bancorp, Inc. Reports December 31, 2010 Quarterly and Year End Operating Results

WASHINGTON, N.C., Jan. 18, 2011 /PRNewswire/ -- First South Bancorp, Inc.  (Nasdaq: FSBK) (the "Company"), the parent holding company of First South Bank (the "Bank"), reports its unaudited operating results for the quarter and year ended December 31, 2010.

The Company reported a net operating loss of $6.5 million for the 2010 fourth quarter, compared to net income of $1.0 million for the linked 2010 third quarter, and $1.5 million for the comparative 2009 fourth quarter. The net loss per diluted common share was $0.67 for the 2010 fourth quarter, compared to net income per diluted common share of $0.10 for the linked 2010 third quarter and $0.16 for the comparative 2009 fourth quarter.

For the year ended December 31, 2010 the Company reported a net operating loss of $2.4 million, compared to net income of $7.0 million for the year ended December 31, 2009. The net loss per diluted common share was $0.24 for 2010, compared to net income per diluted common share of $0.72 for 2009.

"In the 2010 fourth quarter, we completed an intensive evaluation of the credit quality of the Bank's loan portfolio and foreclosed properties, and are boosting our loan loss reserves by a significant amount.  In light of the continued economic uncertainty, we recognize the financial stress some of our borrowers are facing.  We feel it is prudent and wise to take a pro-active stance with regards to credit risk management and provision accordingly, so that we can get these problems behind us and move forward in a more positive manner," said Tom Vann, President and CEO.

"We are moving aggressively from a position of financial strength to deal with our credit quality. Subsequent to these necessary provision charges, our capital levels will remain in excess of the regulatory requirements to be well capitalized.  This will allow the Company to move ahead in a substantive way, and hopefully expected retained earnings over the coming years will recover much of the capital expended by taking these charges," added Mr. Vann.

Asset Quality

Non-accrual loans increased to $41.3 million (6.8% of total loans) at December 31, 2010, from $19.2 million (3.0% of total loans) at September 30, 2010.  Other real estate owned increased to $11.6 million at December 31, 2010 from $8.6 million at September 30, 2010, reflecting foreclosure activity net of sales of certain real estate properties during the fourth quarter.  Total nonperforming assets increased to $52.9 million (6.6% of total assets) at December 31, 2010, from $27.8 million (3.4% of total assets) at September 30, 2010.  "While we are encouraged that property values appear to be stabilizing, we will continue to monitor these values and mitigate nonperforming assets as quickly as feasible," said Mr. Vann.

The Bank recorded $13.7 million of provisions for credit losses in the 2010 fourth quarter, compared to $4.0 million in the linked 2010 third quarter and $2.7 million in the comparative 2009 fourth quarter. Credit loss provisions were necessary to replenish net charge-offs and strengthen the allowance for credit losses at levels that management believes is adequate to absorb probable losses in the loan portfolio. The allowance for loan and lease losses (ALLL) increased to $18.8 million at December 31, 2010 (3.0% of total loans), from $8.6 million at September 30, 2010 (1.3% of total loans). Net charge offs were $3.4 million in the 2010 fourth quarter, compared to $3.3 million in the linked 2010 third quarter and $1.5 million in the comparative 2009 fourth quarter.  

Bill Wall, executive vice president and chief financial officer stated, "We have taken a conservative posture in our provisioning for credit losses as we continue to aggressively manage problem assets.  We believe the current level of our ALLL is adequate, however, there is no assurance in the future that regulators, increased risks in the loan portfolio, or changes in economic conditions will not require additional adjustments to the allowance for credit losses".  

Net Interest Income

Net interest income declined to $7.8 million for the 2010 fourth quarter, from $8.7 million for the linked 2010 third quarter and $8.9 million the comparative 2009 fourth quarter. The decline in net interest income in the current quarter has been influenced by the increased level of non-accrual loans. The net interest margin on average earning assets declined similarly to 4.3% for the 2010 fourth quarter, from 4.7% for the linked 2010 third quarter and 4.6% for the comparative 2009 fourth quarter.

Non-Interest Income

Total non-interest income declined to $1.9 million for the 2010 fourth quarter, from $3.4 million for the linked 2010 third quarter and $2.5 million for the comparative 2009 fourth quarter.  Revenue from loan and deposit service offerings (loan fees, deposit fees and service charges and servicing fee income) remained relatively consistent at $1.9 million in the 2010 fourth quarter, $2.0 million in the linked 2010 third quarter and $2.1 million in the comparative 2009 fourth quarter.

Net gains recognized from mortgage loan sales declined to $311,000 in the 2010 fourth quarter, from $479,000 in the linked 2010 third quarter and $262,000 in the comparative 2009 fourth quarter.  Net gains recognized from investment and mortgage-backed securities sales declined to $51,000 in the 2010 fourth quarter, from $696,000 in the linked 2010 third quarter and none in the comparative 2009 fourth quarter.

In its efforts of mitigating nonperforming assets, the Bank recognized $597,000 of net losses on the sale of other real estate properties during the 2010 fourth quarter, compared to $40,000 of net gains in the linked 2010 third quarter and $39,000 of net losses in the comparative 2009 fourth quarter.

Non-Interest Expense

Total non-interest expense was $6.7 million for both the 2010 fourth quarter and the linked 2010 third quarter, compared to $6.3 million for 2009 fourth quarter.  

The largest component of non-interest expense, compensation and fringe benefits, declined to $3.8 million in the 2010 fourth quarter, from $4.0 million in the linked 2010 third quarter, and $3.6 million in the comparative 2009 fourth quarter, reflecting the Bank's efforts of managing its human resources cost.

Other noninterest expenses including FDIC insurance premiums, premises and equipment, advertising, data processing, repairs and maintenance, office supplies, professional fees, taxes and insurance, etc., remained relatively consistent during the respective periods.

As a result of the 2010 fourth quarter pre-tax operating loss, the Company recognized a $4.3 million income tax benefit, compared to income tax expense of $424,000 in the linked 2010 third quarter and $872,000 in the comparative 2009 fourth quarter.    

Balance Sheet

Total assets declined to $797.2 million at December 31, 2010, from $829.9 million at December 31, 2009. Total loans declined to $606.1 million at December 31, 2010 from $658.7 million at December 31, 2009, reflecting a combination of principal repayments, sales, securitizations and the volume of loans originated during 2010.   Mortgage-backed securities increased to $98.9 million at December 31, 2010, from $97.2 million at December 31, 2009, reflecting the net of sales and securitization of certain mortgage loans during 2010.  Cash and investments increased to $44.4 million at December 31, 2010, from $30.0 million at December 31, 2009, supporting the Bank's liquidity position.  

Total deposits increased to $689.5 million at December 31, 2010, from $688.5 million at December 31, 2009. Borrowings declined to $11.5 million at December 31, 2010, from $37.4 million at December 31, 2009.  During 2010, the Bank repaid a $25.0 million 3.0% fixed-rate FHLB advance. The cost of funds improved to 1.2% for both the 2010 fourth quarter and the linked 2010 third quarter, from 1.6% for the comparative 2009 fourth quarter. The Bank has been able to improve its cost of funds by the combination of pricing new deposits, the renewal of maturing time deposits and the repositioning of borrowings within the current lower interest rate environment.  

Stockholders' equity declined to $79.5 million at December 31, 2010, from $86.2 million at December 31, 2009, reflecting the net effect of the net operating loss, dividend payments and changes in accumulated other comprehensive income.  The equity to assets ratio was 10.0% at December 31, 2010, compared to 10.4% at December 31, 2009.

First South Bancorp, Inc. may be accessed on its website at www.firstsouthnc.com.  The Company's common stock symbol as traded on the NASDAQ Global Select Market is "FSBK".

First South Bank has been serving the citizens of eastern North Carolina since 1902 and offers a variety of financial products and services, including a leasing company. Securities brokerage services are made available through an affiliation with an independent broker/dealer. The Bank operates through its main office headquartered in Washington, North Carolina, and has 28 full service branch offices and one loan production office located throughout central, eastern, northeastern and southeastern North Carolina.

Statements contained in this release, which are not historical facts, are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors which include the effects of future economic conditions, governmental fiscal and monetary policies, legislative and regulatory changes, the risks of changes in interest rates, the effects of competition, and including without limitation to other factors that could cause actual results to differ materially as discussed in documents filed by the Company with the Securities and Exchange Commission from time to time.

(NASDAQ: FSBK)

For more information contact:

Bill Wall (CFO) (252-940-5017) or

Tom Vann (CEO) 252-940-4916

Website: www.firstsouthnc.com



First South Bancorp, Inc. and Subsidiary







Consolidated Statements of Financial Condition
















December 31



December 31,




2010



2009*


Assets


(unaudited)



















Cash and due from banks

$

14,684,377


$

17,758,370


Interest-bearing deposits in financial institutions


29,749,236



11,879,794


Investment securities - available for sale


0



407,317


Mortgage-backed securities - available for sale


98,637,742



96,725,468


Mortgage-backed securities - held for investment


244,836



513,882


Loans and leases receivable, net:







 Held for sale


4,464,040



6,548,980


 Held for investment


601,610,242



652,106,538


Premises and equipment, net


9,162,538



8,539,759


Other real estate owned


11,616,390



10,561,071


Federal Home Loan Bank of Atlanta stock, at cost







    which approximates market


3,474,900



3,889,500


Accrued interest receivable


2,336,527



3,318,141


Goodwill


4,218,576



4,218,576


Mortgage servicing rights


1,357,659



1,278,688


Identifiable intangible assets


102,180



133,620


Income tax receivable


6,217,679



1,831,598


Prepaid expenses and other assets


9,368,924



10,179,333









         Total assets

$

797,245,846


$

829,890,635









Liabilities and Stockholders' Equity














Deposits:







 Demand

$

234,501,026


$

224,507,362


 Savings


24,498,789



23,137,391


 Large denomination certificates of deposit


222,578,449



224,198,974


 Other time


207,886,450



216,667,331


         Total deposits


689,464,714



688,511,058


Borrowed money


11,503,110



37,380,388


Junior subordinated debentures


10,310,000



10,310,000


Other liabilities


6,454,818



7,475,085


         Total liabilities


717,732,642



743,676,531
















Common stock, $.01 par value, 25,000,000 shares authorized;







 11,254,222 issued; 9,751,271 and 9,742,296







 shares outstanding, respectively


97,513



97,423


Additional paid-in capital


35,795,586



35,841,364


Retained earnings, substantially restricted


74,956,772



82,111,114


Treasury stock at cost


(31,967,269)



(32,158,074)


Accumulated other comprehensive income, net


630,602



322,277


          Total stockholders' equity


79,513,204



86,214,104
















          Total liabilities and stockholders' equity

$

797,245,846


$

829,890,635









*Derived from audited consolidated financial statements









First South Bancorp, Inc. and Subsidiary 

Consolidated Statements of Operations

(unaudited)



Three Months Ended



Year Ended



December 31



December 31



2010



2009



2010



2009













Interest income:












 Interest and fees on loans

$

8,971,629


$

10,782,733


$

38,843,771


$

45,211,260

 Interest and dividends on investments and deposits


956,429



1,068,842



4,027,268



3,848,639

          Total interest income


9,928,058



11,851,575



42,871,039



49,059,899













Interest expense:












 Interest on deposits


2,002,600



2,644,057



8,301,551



14,459,345

 Interest on borrowings


82,079



270,558



384,161



1,244,664

 Interest on junior subordinated notes


81,884



81,710



333,689



389,677

          Total interest expense


2,166,563



2,996,325



9,019,401



16,093,686

























Net interest income


7,761,495



8,855,250



33,851,638



32,966,213

Provision for credit losses


13,700,000



2,700,000



22,151,787



7,180,000

          Net interest income after provision for credit losses


(5,938,505)



6,155,250



11,699,851



25,786,213













Non-interest income:












 Fees and service charges


1,665,795



1,899,647



6,864,083



7,377,019

 Loan servicing fees


192,315



182,878



747,387



679,673

 Gain (loss) on sale of other real estate, net


(596,751)



(39,409)



(523,173)



(200,732)

 Gain on sale of mortgage loans


311,169



261,737



1,155,690



1,197,029

 Gain on sale of mortgage-backed securities


50,562



-



1,682,453



-

 Gain on sale of investment securities


-



-



2,406



917,866

 Other  income


296,282



221,584



915,022



988,865

          Total non-interest income



1,919,372



2,526,437



10,843,868



10,959,720

























Non-interest expense:












 Compensation and fringe benefits


3,783,196



3,595,642



15,583,817



14,118,842

 Federal deposit insurance premiums


289,626



298,510



1,158,544



1,253,627

 Premises and equipment


425,962



451,806



1,741,462



1,823,628

 Advertising


36,798



23,341



148,380



123,513

 Payroll and other taxes


326,526



309,928



1,392,624



1,327,449

 Data processing


677,019



623,089



2,576,386



2,452,593

 Amortization of intangible assets


145,659



117,268



493,785



488,602

 Other


1,053,471



880,283



3,629,836



3,756,547

          Total non-interest expense


6,738,257



6,299,867



26,724,834



25,344,801













Income (loss) before income tax expense (benefit)


(10,757,390)



2,381,820



(4,181,115)



11,401,132













Income tax expense (benefit)


(4,259,923)



872,050



(1,801,319)



4,365,296













Net income (loss)

$

(6,497,467)


$

1,509,770


$

(2,379,796)


$

7,035,836













Per share data:












Basic earnings (loss) per share

$

(0.67)


$

0.16


$

(0.24)


$

0.72

Diluted earnings (loss) per share

$

(0.67)


$

0.16


$

(0.24)


$

0.72

Dividends per share

$

0.00


$

0.20


$

0.49


$

0.80

Average basic shares outstanding


9,748,948



9,738,475



9,744,870



9,738,225

Average diluted shares outstanding


9,748,948



9,738,475



9,745,047



9,738,244



First South Bancorp, Inc.


Supplemental Financial Data (Unaudited)
























Quarterly


Year to Date






12/31/2010


9/30/2010


6/30/2010


3/31/2010


12/31/2009


12/31/2010


12/31/2009

Consolidated balance sheet data:

          (dollars in thousands except per share data)

Total assets



$

797,246

$

811,912

$

812,771

$

800,608

$

829,891

$

797,246

$

829,891

Loans receivable (net):
















Mortgage



$

55,450

$

53,995

$

49,470

$

48,379

$

51,820

$

55,450

$

51,820

Commercial




463,155


496,489


502,425


498,525


508,279


463,155


508,279

Consumer




79,469


83,801


83,550


85,502


88,893


79,469


88,893

Leases




8,000


8,095


9,413


9,877


9,664


8,000


9,664


Total



$

606,074

$

642,380

$

644,858

$

642,283

$

658,656

$

606,074

$

658,656



















Cash and investments


$

44,434

$

40,815

$

34,737

$

22,690

$

30,045

$

44,434

$

30,045

Mortgage-backed securities



98,883


87,245


92,559


94,735


97,239


98,883


97,239

Premises and equipment



9,163


9,216


9,240


9,034


8,540


9,163


8,540

Goodwill




4,219


4,219


4,219


4,219


4,219


4,219


4,219

Mortgage servicing rights



1,358


1,299


1,268


1,281


1,279


1,358


1,279



















Deposits:

















Savings



$

24,499

$

24,946

$

25,155

$

24,709

$

23,138

$

24,499

$

23,138

Checking




234,501


237,677


224,950


225,997


224,507


234,501


224,507

Certificates




430,465


433,432


444,435


433,734


440,866


430,465


440,866


Total



$

689,465

$

696,055

$

694,540

$

684,440

$

688,511

$

689,465

$

688,511



















Borrowings



$

11,503

$

12,164

$

12,665

$

12,441

$

37,380

$

11,503

$

37,380

Junior subordinated debentures


10,310


10,310


10,310


10,310


10,310


10,310


10,310

Stockholders' equity



79,513


87,293


87,110


85,962


86,214


79,513


86,214



















Consolidated earnings summary:















Interest income



$

9,928

$

10,963

$

10,829

$

11,151

$

11,851

$

42,871

$

49,060

Interest expense




2,166


2,222


2,258


2,372


2,996


9,019


16,094

Net interest income



7,762


8,741


8,571


8,779


8,855


33,852


32,966

Provision for credit losses



13,700


3,962


2,070


2,420


2,700


22,152


7,180

Noninterest income



1,919


3,400


2,830


2,694


2,527


10,844


10,960

Noninterest expense



6,738


6,745


6,741


6,500


6,300


26,725


25,345

Income tax expense (benefit)



(4,260)


424


1,032


1,003


872


(1,801)


4,365

Net income (loss)



$

(6,497)

$

1,010

$

1,558

$

1,550

$

1,510

$

(2,380)

$

7,036



















Per Share Data:

















Basic earnings (loss) per share

$

(0.67)

$

0.10

$

0.16

$

0.16

$

0.16

$

(0.24)

$

0.72

Diluted earnings (loss) per share

$

(0.67)

$

0.10

$

0.16

$

0.16

$

0.16

$

(0.24)

$

0.72

Dividends per share


$

0.00

$

0.09

$

0.20

$

0.20

$

0.20

$

0.49

$

0.80

Book value per share


$

8.15

$

8.96

$

8.94

$

8.82

$

8.85

$

8.15

$

8.85



















Average basic shares



9,748,948


9,743,971


9,743,971


9,742,505


9,738,475


9,744,870


9,738,225

Average diluted shares



9,748,948


9,743,971


9,744,679


9,742,505


9,738,550


9,745,047


9,738,244



First South Bancorp, Inc.

Supplemental Financial Data (Unaudited)
























Quarterly


Year to Date






12/31/2010


9/30/2010


6/30/2010


3/31/2010


12/31/2009


12/31/2010


12/31/2009






          (dollars in thousands except per share data)

Performance ratios:
















Yield on earning assets



5.51%


5.92%


5.86%


5.99%


6.09%


5.81%


6.13%

Cost of funds




1.24%


1.24%


1.26%


1.32%


1.61%


1.26%


2.09%

Net interest spread



4.30%


4.68%


4.60%


4.67%


4.48%


4.55%


4.04%

Net interest margin on earning assets


4.31%


4.72%


4.64%


4.72%


4.55%


4.59%


4.12%

Earning assets to total assets



87.42%


90.96%


91.13%


91.66%


91.81%


87.42%


91.81%



















Return on average assets (annualized)


-3.21%


0.50%


0.77%


0.76%


0.72%


-0.29%


0.81%

Return on average equity (annualized)


-30.31%


4.60%


7.17%


7.13%


6.88%


-2.74%


7.98%

Efficiency ratio




69.52%


55.50%


59.05%


56.59%


55.28%


59.72%


57.63%



















Average assets



$

810,459

$

813,900

$

808,266

$

811,859

$

842,556

$

811,742

$

866,504

Average earning assets


$

720,813

$

741,214

$

738,645

$

744,415

$

777,896

$

738,073

$

800,899

Average equity



$

85,746

$

87,760

$

86,957

$

86,897

$

87,762

$

86,852

$

88,129



















Equity/Assets




9.97%


10.75%


10.72%


10.74%


10.39%


9.97%


10.39%

Tangible Equity/Assets



9.43%


10.22%


10.18%


10.19%


9.86%


9.43%


9.86%



















Asset quality data and ratios:
















Nonaccrual loans


$

14,293

$

14,073

$

12,308

$

8,578

$

5,838

$

14,293

$

5,838

Nonaccrual Restructured loans

$

26,973

$

5,156

$

5,647

$

4,377

$

4,343

$

26,973

$

4,343

Total nonaccrual loans


$

41,266

$

19,229

$

17,955

$

12,955

$

10,181

$

41,266

$

10,181

Other real estate owned


$

11,616

$

8,599

$

8,452

$

8,383

$

10,561

$

11,616

$

10,561

Total nonperforming assets


$

52,882

$

27,828

$

26,407

$

21,338

$

20,742

$

52,882

$

20,742

Performing Restructured Loans

$

31,334

$

24,298

$

14,087

$

11,599

$

11,612

$

31,334

$

11,612



















Allowance for loan and lease losses

$

18,830

$

8,611

$

7,951

$

13,221

$

13,504

$

18,830

$

13,504

Allowance for unfunded loan commitments

$

237

$

163

$

171

$

178

$

240

$

237

$

240

Allowance for credit losses


$

19,067

$

8,774

$

8,122

$

13,399

$

13,744

$

19,067

$

13,744



















Allowance for loan and lease losses to loans


3.01%


1.32%


1.21%


2.01%


2.00%


3.01%


2.00%

Allowance for unfunded loan commitments
















to unfunded commitments


0.30%


0.20%


0.20%


0.20%


0.27%


0.30%


0.27%

Allowance for credit losses to loans


3.04%


1.35%


1.24%


2.04%


2.04%


3.04%


2.04%



















Net charge-offs (recoveries)


$

3,407

$

3,310

$

7,347

$

2,765

$

1,543

$

16,829

$

5,393

Net charge-offs (recoveries) to loans


0.56%


0.52%


1.14%


0.43%


0.23%


2.78%


0.82%

Nonaccrual loans to loans



6.81%


2.99%


2.78%


2.02%


1.55%


6.81%


1.55%

Nonperforming assets to assets


6.63%


3.43%


3.25%


2.67%


2.50%


6.63%


2.50%

Loans to deposits



87.91%


92.29%


92.85%


93.84%


95.66%


87.91%


95.66%

Loans to assets




76.02%


79.12%


79.34%


80.22%


79.37%


76.02%


79.37%

Loans serviced for others


$

318,218

$

307,395

$

299,361

$

296,452

$

289,324

$

318,218

$

289,324



SOURCE First South Bancorp, Inc.



RELATED LINKS
http://www.firstsouthnc.com

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