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

Jan 18, 2011, 17:22 ET from First South Bancorp, Inc.

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