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First South Bancorp, Inc. Reports Increase in June 30, 2012 Quarterly and Six Months Operating Results

WASHINGTON, N.C., July 18, 2012 /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 ended June 30, 2012, and for the six months ended June 30, 2012.

For the 2012 second quarter, net income increased 25.8% to $480,751 ($0.05 per diluted common share), from net income of $382,090 ($0.04 per diluted common share) earned in the comparative 2011 second quarter. Net income for the first six months of 2012 increased 33.0% to $942,647 ($0.10 per share diluted), from net income of $708,873 ($0.07 per share diluted) earned in the first six months of 2011.

Tom Vann, President and CEO, commented, "I am pleased to report the Company's operating results for the second quarter of 2012. The Company continues to generate solid core earnings.  Second quarter 2012 net earnings were $480,751, after recording $775,000 of credit loss provisions and $898,090 of other real estate owned valuation adjustments.  In the 2012 second quarter, we continued evaluating the credit quality of the Bank's loan portfolio and market values of foreclosed properties.  While the level of our nonperforming assets has declined by approximately $4.4 million during the first half of this year, based on our evaluation we will continue to take a conservative position in managing the financial stress some of our borrowers are facing.  Consequently, we are provisioning accordingly to maintain our allowance for loan and lease losses at an adequate level.  Mitigating our nonperforming assets will continue to be a top priority for the Bank during 2012," said Mr. Vann.

Asset Quality

Total nonperforming assets, including loans on non-accrual status, restructured loans on non-accrual status and other real estate owned, declined to $55.7 million at June 30, 2012, from $60.0 million at December 31, 2011.  Loans on non-accrual status declined to $37.8 million at June 30, 2012, from $43.0 million at December 31, 2011. 

The Bank recorded $775,000 of provisions for credit losses in the 2012 second quarter, compared to $3.1 million in the 2011 second quarter. Credit loss provisions were necessary to maintain the allowance for loan and lease losses (ALLL) at a level that management believes is adequate to absorb probable future losses in the loan portfolio.  The ALLL was $14.0 million at June 30, 2012 (2.8% of total loans), compared to $15.2 million at December 31, 2011 (2.8% of total loans). Net charge offs were $1.2 million in the 2012 second quarter, compared to $3.7 million in the 2011 second quarter.

Mr. Vann stated, "Management continues to take a prudent and conservative posture in provisioning for credit losses as we mitigate 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 ALLL."

Other real estate owned increased marginally to $17.8 million at June 30, 2012, from $17.0 million at December 31, 2011, reflecting foreclosure activity net of sales and write-downs of certain real estate properties. 

Net Interest Income

Net interest income declined to $7.5 million for the 2012 second quarter, from $8.2 million for the 2011 second quarter. The change in levels of net interest income is influenced by the volume of interest-earning assets and interest-bearing liabilities and the management of rates earned and paid during each respective reporting period. The net interest margin on average earning assets remained relatively consistent at 4.4% for the 2012 second quarter, compared to 4.6% for 2011 second quarter.

Non-Interest Income

Total non-interest income increased to $2.7 million for the 2012 second quarter, from $2.5 million for the comparative 2011 second quarter.  The Bank strives to maintain a consistent level of revenue across loan and deposit service offerings.  Fees, service charges and loan servicing fees remained relatively constant at $1.7 million for the 2012 second quarter, compared to $1.8 million for the 2011 second quarter.

Net gains from mortgage loan sales increased to $264,266 for the 2012 second quarter, from $111,546 for the comparative 2011 second quarter.  Net gains from investment securities sales were $485,047 for the 2012 second quarter. There were no sales of investment securities during 2011 second quarter. 

In its efforts of mitigating nonperforming assets, the Bank recognized net losses of $47,056 on the sale of other real estate owned properties during the 2012 second quarter, compared to net gains of $53,387 in the 2011 second quarter.

Non-Interest Expense

Total non-interest expense increased to $8.6 million for the 2012 second quarter, from $7.0 million for the comparative 2012 second quarter.  Compensation and fringe benefits, the largest component of these expenses, increased to $4.4 million for the 2012 second quarter, from $3.9 million for the comparative 2011 second quarter.  This increase primarily results from the accrual of anticipated lump-sum retirement benefits payable to the current CEO upon his retirement at the end of the 2012 third quarter, and the employment of the successor CEO during the current period.  

Expenses attributable to valuation adjustments, ongoing maintenance and property taxes for other real estate owned properties increased to $1.3 million for the 2012 second quarter, from $265,334 for the comparative 2011 second quarter.  "The stabilization of property values continues to be an issue in the markets we serve.  We will continue monitoring these values and mitigate nonperforming assets as quickly as feasible," said Mr. Vann.

FDIC insurance premiums declined to $259,087 for the 2012 second quarter, from $293,284 for the comparative 2011 second quarter, reflecting a new change in the FDIC's deposit insurance assessment calculation based on assets and tier one capital versus deposits.

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

Income tax expense increased to $272,348 for the 2012 second quarter, compared to a $225,671 for the comparative 2011 second quarter.  Changes in the amount of income tax expense reflects changes in pretax income, deductible expenses, the application of permanent and temporary differences and the applicable income tax rates in effect during each period. 

Balance Sheet

Total assets declined to $742.0 million at June 30, 2012, from $746.9 million at December 31, 2011. Net loans and leases receivable declined to $491.5 million at June 30, 2012, from $525.2 million at December 31, 2011, reflecting the net of principal repayments, the volume of loans originated, foreclosures, sales, and securitizations of loans into mortgage-backed securities during the current year.  

Investment securities increased to $165.0 million at June 30, 2012, from $138.5 million at December 31, 2011, reflecting the net of purchases, sales, and securitizations and principal repayments of certain mortgage loans during the current quarter.  Mortgage-backed securities increased to $146.4 million at June 30, 2012, from $138.5 million at December 31, 2011.  During the current period, the Bank implemented a strategy to diversify its investment portfolio through the purchase of certain tax-exempt municipal securities.  At June 30, 2012, the balance of newly acquired municipal securities was $18.6 million.

Cash and overnight investments increased to $34.8 million at June 30, 2012, from $32.8 million at December 31, 2011, reflecting net changes in the Bank's cash flow and liquidity position resulting primarily from core deposit growth and slower loan demand.   

Total deposits declined to $634.6 million at June 30, 2012, from $642.6 million at December 31, 2011.  Core checking and savings accounts increased to $291.6 million at June 30, 2012, from $272.7 at December 31, 2011; while certificates of deposits declined to $343.0 million at June 30, 2012, from $370.0 million at December 31, 2012.  The Bank strives to manage its cost of deposits by monitoring the volume and rates paid on maturing certificates of deposits in relationship to current funding needs and market interest rates.  The Bank did not renew certain higher rate maturing time deposits during the 2012 second quarter, and was able to reprice new and maturing time deposits at lower rates.  The cost of funds improved to 0.83% for the 2012 second quarter, from 1.14% for the comparative 2011 second quarter.

Stockholders' equity increased to $86.2 million at June 30, 2012, from $84.1 million at December 31, 2011, reflecting year-to-date net income and changes in accumulated other comprehensive income.  The equity to assets ratio was 11.6% at June 30, 2012, compared to 11.3% at December 31, 2011.  There were 9,751,271 common shares outstanding at both June 30, 2012 and December 31, 2011.  The book value per common share increased to $8.84 at June 30, 2012, from $8.63 at December 31, 2011.

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 26 full service branch offices 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.

First South Bancorp, Inc. and Subsidiary



Consolidated Statements of Financial Condition












June 30



December 31,




2012



2011

*

Assets


(unaudited)












Cash and due from banks

$

12,465,913


$

14,298,146


Interest-earning deposits with banks


22,292,778



18,476,173


Investment securities available for sale, at fair value


164,976,511



138,515,210


Loans and leases receivable:







   Held for sale


4,397,747



6,435,983


   Held for investment


501,067,144



533,960,226


   Allowance for loan and lease losses


(14,003,657)



(15,194,014)


           Loans and leases receivable, net


491,461,234



525,202,195


Premises and equipment, net


12,620,995



11,679,430


Other real estate owned


17,845,050



17,004,874


Federal Home Loan Bank stock, at cost


1,288,200



1,886,900


Accrued interest receivable


2,454,890



2,210,314


Goodwill


4,218,576



4,218,576


Mortgage servicing rights


1,333,366



1,237,161


Identifiable intangible assets


55,020



70,740


Income tax receivable


3,013,879



2,194,677


Prepaid expenses and other assets


7,938,384



9,946,459









          Total assets

$

741,964,796


$

746,940,855









Liabilities and Stockholders' Equity














Deposits:







  Demand

$

261,295,293


$

243,719,526


  Savings


30,346,697



28,988,522


  Large denomination certificates of deposit


181,946,545



195,429,182


  Other time


161,041,299



174,479,477


          Total deposits


634,629,834



642,616,707


Borrowed money


1,758,154



2,096,189


Junior subordinated debentures


10,310,000



10,310,000


Other liabilities


9,098,635



7,804,687


          Total liabilities


655,796,623



662,827,583









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







   11,254,222 shares issued; 9,751,271 shares outstanding


97,513



97,513


Additional paid-in capital


35,812,995



35,815,098


Retained earnings, substantially restricted


77,452,728



76,510,081


Treasury stock, at cost


(31,967,269)



(31,967,269)


Accumulated other comprehensive income, net


4,772,206



3,657,849


           Total stockholders' equity


86,168,173



84,113,272









           Total liabilities and stockholders' equity

$

741,964,796


$

746,940,855









*Derived from audited consolidated financial statements














First South Bancorp, Inc. and Subsidiary





Consolidated Statements of Operations and Comprehensive Income

(unaudited)












Three Months Ended



Six Months Ended


June 30,



June 30,


2012



2011



2012



2011












Interest income:











  Interest and fees on loans

$

7,447,269


$

8,905,881


$

15,113,844


$

17,729,875

  Interest and dividends on investments and deposits


1,370,749



1,282,570



2,617,711



2,349,776

           Total interest income


8,818,018



10,188,451



17,731,555



20,079,651













Interest expense:












  Interest on deposits


1,249,628



1,924,835



2,570,823



3,901,704

  Interest on borrowings


923



1,553



2,039



28,967

  Interest on junior subordinated notes


91,117



83,911



183,311



165,232

           Total interest expense


1,341,668



2,010,299



2,756,173



4,095,903

Net interest income


7,476,350



8,178,152



14,975,382



15,983,748

Provision for credit losses


775,000



3,080,000



2,615,000



5,530,011

           Net interest income after provision for credit losses


6,701,350



5,098,152



12,360,382



10,453,737













Non-interest income:












  Fees and service charges


1,454,625



1,581,922



2,934,762



3,068,624

  Loan servicing fees


202,776



196,988



415,577



395,072

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


(47,056)



53,387



(76,021)



(28,708)

  Gain on sale of mortgage loans 


264,266



111,546



568,874



231,528

  Gain on sale of investment securities


485,047



-



1,518,904



52,146

  Other  income


292,999



553,868



532,509



761,000

           Total non-interest income


2,652,657



2,497,711



5,894,605



4,479,662













Non-interest expense:












  Compensation and fringe benefits


4,387,489



3,941,577



8,545,101



7,731,256

  Federal deposit insurance premiums


259,087



293,284



511,486



584,784

  Premises and equipment


538,812



433,512



967,280



856,792

  Advertising


67,531



38,280



133,565



85,384

  Payroll and other taxes


357,480



352,520



763,275



754,148

  Data processing


604,250



622,859



1,213,959



1,223,400

  Amortization of intangible assets


124,942



145,578



225,498



292,781

  Other real estate owned expense


1,307,097



265,334



2,585,396



484,851

  Other


954,220



895,158



1,893,492



1,760,919

           Total non-interest expense


8,600,908



6,988,102



16,839,052



13,774,315













Income before income tax expense


753,099



607,761



1,415,935



1,159,084

Income tax expense


272,348



225,671



473,288



450,211













NET INCOME

$

480,751


$

382,090


$

942,647


$

708,873













Other comprehensive income, net of taxes


1,348,083



843,478



1,114,357



623,231

Comprehensive income 

$

1,828,834


$

1,225,568


$

2,057,004


$

1,332,104













Per share data: 












Basic earnings per share

$

0.05


$

0.04


$

0.10


$

0.07

Diluted earnings per share

$

0.05


$

0.04


$

0.10


$

0.07

Average basic shares outstanding


9,751,271



9,751,271



9,751,271



9,751,271

Average diluted shares outstanding


9,751,271



9,751,271



9,751,271



9,751,271















 

First South Bancorp, Inc.

Supplemental Financial Data (Unaudited)
























Quarterly


Year to Date






6/30/2012


3/31/2012


12/31/2011


9/30/2011


6/30/2011


6/30/2012


6/30/2011





           (dollars in thousands except per share data)





Consolidated balance sheet data:















Total assets



$

741,965

$

750,350

$

746,941

$

768,411

$

784,538

$

741,965

$

784,538



















Loans receivable (net):















Mortgage



$

73,455

$

80,263

$

66,249

$

80,453

$

56,564

$

73,455

$

56,564

Commercial




341,385


352,459


378,823


405,712


428,141


341,385


428,141

Consumer




70,168


71,270


72,821


74,097


76,459


70,168


76,459

Leases




6,453


7,393


7,309


7,972


7,825


6,453


7,825


Total loans (net)

$

491,461

$

511,385

$

525,202

$

568,234

$

568,989

$

491,461

$

568,989



















Cash and investments

$

34,759

$

64,662

$

32,774

$

32,909

$

44,565

$

34,759

$

44,565

Investment securities


164,977


123,036


138,515


119,764


124,539


164,977


124,539

Premises and equipment


12,621


12,985


11,679


11,209


10,753


12,621


10,753

Goodwill


4,219


4,219


4,219


4,219


4,219


4,219


4,219

Mortgage servicing rights


1,333


1,268


1,237


1,091


1,197


1,333


1,197



















Deposits:

















Savings



$

30,347

$

31,068

$

28,988

$

27,551

$

26,999

$

30,347

$

26,999

Checking




261,295


262,500


243,720


243,582


240,048


261,295


240,048

Certificates




342,988


354,780


369,909


394,007


416,855


342,988


416,855


Total deposits

$

634,630

$

648,348

$

642,617

$

665,140

$

683,902

$

634,630

$

683,902



















Borrowings



$

1,758

$

1,681

$

2,096

$

1,976

$

2,349

$

1,758

$

2,349

Junior subordinated debentures


10,310


10,310


10,310


10,310


10,310


10,310


10,310

Stockholders' equity


86,168


84,343


84,113


82,061


80,894


86,168


80,894



















Consolidated earnings summary:















Interest income


$

8,818

$

8,914

$

9,363

$

9,861

$

10,188

$

17,731

$

20,080

Interest expense



1,342


1,415


1,608


1,852


2,010


2,756


4,096

Net interest income



7,476


7,499


7,755


8,009


8,178


14,975


15,984

Provision for credit losses


775


1,840


2,640


2,643


3,080


2,615


5,530

Noninterest income



2,653


3,243


2,648


2,292


2,498


5,895


4,479

Noninterest expense


8,601


8,239


7,180


6,999


6,988


16,839


13,774

Income tax expense 


272


201


142


256


226


473


450

Net income 

$

481

$

462

$

441

$

403

$

382

$

943

$

709



















Per Share Data: 















Basic earnings per share

$

0.05

$

0.05

$

0.05

$

0.04

$

0.04

$

0.10

$

0.07

Diluted earnings per share

$

0.05

$

0.05

$

0.05

$

0.04

$

0.04

$

0.10

$

0.07

Book value per share

$

8.84

$

8.65

$

8.63

$

8.42

$

8.30

$

8.84

$

8.30



















Average basic shares


9,751,271


9,751,271


9,751,271


9,751,271


9,751,271


9,751,271


9,751,271

Average diluted shares


9,751,271


9,751,271


9,751,271


9,751,271


9,751,271


9,751,271


9,751,271





































First South Bancorp, Inc.

Supplemental Financial Data (Unaudited)






Quarterly


Year to Date






6/30/2012


3/31/2012


12/31/2011


9/30/2011


6/30/2011


6/30/2012


6/30/2011








           (dollars in thousands except per share data)





Performance ratios:















Yield on average earning assets


5.22%


5.26%


5.44%


5.64%


5.78%


5.24%


5.69%

Cost of funds


0.83%


0.87%


0.96%


1.08%


1.14%


0.85%


1.16%

Net interest spread


4.39%


4.39%


4.48%


4.56%


4.64%


4.39%


4.53%

Net interest margin/average earning assets


4.42%


4.42%


4.51%


4.58%


4.64%


4.43%


4.53%

Earning assets to total assets


90.94%


90.90%


91.09%


90.47%


88.61%


90.94%


88.61%



















Return on average assets (annualized)


0.26%


0.25%


0.23%


0.21%


0.19%


0.25%


0.18%

Return on average equity (annualized)


2.26%


2.18%


2.13%


1.97%


1.90%


2.22%


1.76%



















Average assets

$

742,690

$

744,395

$

757,905

$

774,383

$

791,644

$

742,570

$

793,412

Average earning assets

$

676,041

$

678,043

$

688,457

$

698,984

$

704,792

$

676,325

$

705,750

Average equity

$

85,018

$

84,582

$

82,708

$

81,757

$

80,517

$

84,865

$

80,333



















Equity/Assets


11.61%


11.24%


11.26%


10.68%


10.31%


11.61%


10.31%

Tangible Equity/Assets


11.04%


10.67%


10.69%


10.12%


9.76%


11.04%


9.76%



















Asset quality data and ratios:















Loans on nonaccrual status:
















Nonaccrual loans 
















  Earning

$

1,494

$

2,255

$

10,601

$

3,179

$

3,853

$

1,494

$

3,853


  Non-Earning


11,151


8,757


11,007


15,107


15,657


11,151


15,657


     Total Non-Accrual Loans

$

12,645

$

11,012

$

21,608

$

18,286

$

19,510

$

12,645

$

19,510


Nonaccrual restructured loans
















   Past Due TDRs

$

9,100

$

6,029

$

9,170

$

12,568

$

11,228

$

9,100

$

11,228


   Current TDRs


16,065


20,456


12,247


11,172


10,421


16,065


10,421


      Total TDRs

$

25,165

$

26,485

$

21,417

$

23,740

$

21,649

$

25,165

$

21,649

Total loans on nonaccrual status

$

37,810

$

37,497

$

43,025

$

42,026

$

41,159

$

37,810

$

41,159

Other real estate owned 


17,845


17,324


17,005


12,886


11,387


17,845


11,387

Total nonperforming assets

$

55,655

$

54,821

$

60,030

$

54,912

$

52,546

$

55,655

$

52,546



















Allowance for credit losses

$

14,268

$

14,637

$

15,448

$

18,563

$

18,918

$

14,268

$

18,918

Allowance for credit losses to loans


2.82%


2.78%


2.85%


3.16%


3.21%


2.82%


3.21%



















Net charge-offs 

$

1,167

$

2,638

$

5,752

$

3,018

$

3,713

$

3,806

$

5,679

Net charge-offs to loans 


0.24%


0.52%


1.10%


0.53%


0.65%


0.77%


1.00%

Nonaccrual loans to loans


7.69%


7.33%


8.19%


7.40%


7.23%


7.69%


7.23%

Nonperforming assets to assets


7.50%


7.31%


8.06%


7.15%


6.69%


7.50%


6.69%

Loans to deposits


79.80%


81.25%


84.26%


88.35%


86.10%


79.80%


86.10%

Loans to assets


68.26%


70.21%


72.66%


76.48%


75.06%


68.26%


75.06%

Loans serviced for others

$

326,021

$

316,297

$

319,363

$

302,307

$

314,220

$

326,021

$

314,220



















 

For more information contact:
First South Bancorp, Inc. Bill Wall (CFO) (252-940-5017)
Website: www.firstsouthnc.com

SOURCE First South Bancorp, Inc.



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