2014

First South Bancorp, Inc. Reports Increase in March 31, 2012 Quarterly Operating Results

WASHINGTON, N.C., April 24, 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 March 31, 2012.

For the 2012 first quarter, net income increased 41.3% to $461,896 or $0.05 per diluted common share, from net income of $326,782 or $0.03 per diluted common share earned in the comparative 2011 first quarter.  

Tom Vann, President and CEO, commented, "I am pleased to report the Company's operating results for the first quarter of 2012. The Company continues to generate solid core earnings.  First quarter 2012 net earnings were $461,896, after recording $1.8 million of credit loss provisions and $898,194 of other real estate owned valuation adjustments.  In the 2012 first quarter, we continued evaluating the credit quality of the Bank's loan portfolio and market values of foreclosed properties.  While the volume of our nonperforming assets declined during this quarter, based on our evaluation we continue to take a conservative position on the financial stress some of our borrowers are facing.  Consequently, we are provisioning accordingly to replenish net charge-offs and 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 $54.8 million at March 31, 2012, from $60.0 million at December 31, 2011.  Loans on non-accrual status declined to $11.0 million at March 31, 2012, from $21.6 million at December 31, 2011.  

The Bank recorded $1.8 million of provisions for credit losses in the 2012 first quarter, compared to $2.5 million in the 2011 first quarter. Credit loss provisions were necessary to replenish net charge-offs and 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 $14.4 million at March 31, 2012 (2.7% of total loans), compared to $15.2 million at December 31, 2011 (2.8% of total loans). Net charge offs were $2.6 million in the 2012 first quarter, compared to $2.0 million in the 2011 first 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 $17.3 million at March 31, 2012, from $17.0 million at December 31, 2011, reflecting foreclosure activity net of sales and write-downs of certain real estate properties.  

"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.

Net Interest Income

Net interest income declined to $7.5 million for the 2012 first quarter, from $7.8 million for the 2011 first 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 constant at 4.4% for both the 2012 first quarter and the 2011 first quarter.

Non-Interest Income

Total non-interest income increased to $3.2 million for the 2012 first quarter, from $2.0 million for the comparative 2011 first 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 constant at $1.7 million for both the 2012 first quarter and the comparative 2011 first quarter.

Net gains from mortgage loan sales increased to $304,608 in the 2012 first quarter, from $119,982 in the comparative 2011 first quarter.  Net gains from mortgage-backed securities sales increased to $1.0 million in the 2012 first quarter, from $52,146 in the comparative 2011 first quarter.

In its efforts of mitigating nonperforming assets, the Bank recognized $28,964 of net losses on the sale of other real estate owned properties during the 2012 first quarter, compared to net losses of $82,095 in the 2011 first quarter.

Non-Interest Expense

Total non-interest expense increased to $8.2 million for the 2012 first quarter, from $6.8 million for the comparative 2011 first quarter.  Compensation and fringe benefits, the largest component of these expenses, increased to $4.2 million for the 2012 first quarter, from $3.8 million for the comparative 2011 first quarter, reflecting the Bank's efforts to maintain sufficient staffing levels necessary to support commercial and retail customer service, credit administration and banking operations.

Expenses attributable to valuation adjustments, renovating, maintenance and property taxes paid for the current volume of other real estate owned properties increased to $1.3 million for the 2012 first quarter, from $219,518 for the comparative 2011 first quarter.  

FDIC insurance premiums declined to $252,400 for the 2012 first quarter, from $291,500 for the comparative 2011 first 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 declined to $200,940 for the 2012 first quarter, compared to a $224,540 for the comparative 2011 first 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 increased to $750.3 million at March 31, 2012, from $746.9 million at December 31, 2011. Net loans and leases receivable declined to $511.4 million at March 31, 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.  

Mortgage-backed securities declined to $123.0 million at March 31, 2012, from $138.5 million at December 31, 2011, reflecting the net of sales, principal repayments and securitizations of certain mortgage loans during the current quarter.  Cash and overnight investments increased to $64.7 million at March 31, 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 increased to $648.3 million at March 31, 2012, from $642.6 million at December 31, 2011.  Borrowings in the form of repurchase agreements declined to $1.7 million at March 31, 2012, from $2.1 million at December 31, 2011.  The cost of funds improved to 0.9% for the 2012 first quarter, from 1.0% for the comparative 2011 first quarter.

Stockholders' equity increased to $84.3 million at March 31, 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 11.2% at March 31, 2012, compared to 11.3% at December 31, 2011.  There were 9,751,271 common shares outstanding at both March 31, 2012 and December 31, 2011.  The book value per common share was $8.65 at March 31, 2012, compared to $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










March 31,



December 31




2012



2011

*

Assets


(unaudited)












Cash and due from banks

$

15,568,565


$

14,298,146


Interest-bearing deposits in financial institutions


49,093,447



18,476,173


Mortgage-backed securities - available for sale, at fair value


123,036,373



138,515,210


Loans and leases receivable:







  Held for sale


9,361,702



6,435,983


  Held for investment


516,419,348



533,960,226


  Allowance for loan and lease losses


(14,396,097)



(15,194,014)


          Loans and leases receivable, net


511,384,953



525,202,195


Premises and equipment, net


12,984,563



11,679,430


Other real estate owned


17,323,798



17,004,874


Stock in Federal Home Loan Bank of Atlanta, at cost


1,886,900



1,886,900


Accrued interest receivable


2,451,090



2,210,314


Goodwill


4,218,576



4,218,576


Mortgage servicing rights


1,267,504



1,237,161


Identifiable intangible assets


62,880



70,740


Income tax receivable


3,118,961



2,194,677


Prepaid expenses and other assets


7,952,387



9,946,459









         Total assets

$

750,349,997


$

746,940,855









Liabilities and Stockholders' Equity














Deposits:







 Demand

$

262,500,055


$

243,719,526


 Savings


31,068,007



28,988,522


 Large denomination certificates of deposit


188,266,783



195,429,182


 Other time


166,513,496



174,479,477


         Total deposits


648,348,341



642,616,707


Borrowed money


1,680,899



2,096,189


Junior subordinated debentures


10,310,000



10,310,000


Other liabilities


5,667,512



7,804,687


         Total liabilities


666,006,752



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


35,816,901



35,815,098


Retained earnings, substantially restricted


76,971,977



76,510,081


Treasury stock, at cost


(31,967,269)



(31,967,269)


Accumulated other comprehensive income, net


3,424,123



3,657,849


          Total stockholders' equity


84,343,245



84,113,272









          Total liabilities and stockholders' equity

$

750,349,997


$

746,940,855









*Derived from audited consolidated financial statements









First South Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

(unaudited)



Three Months Ended



March 31



2012



2011







Interest income:






 Interest and fees on loans

$

7,666,575


$

8,823,994

 Interest and dividends on investments and deposits


1,246,961



1,067,205

          Total interest income


8,913,536



9,891,199







Interest expense:






 Interest on deposits


1,321,195



1,976,869

 Interest on borrowings


1,116



27,414

 Interest on junior subordinated notes


92,193



81,320

          Total interest expense


1,414,504



2,085,603













Net interest income


7,499,032



7,805,596

Provision for credit losses


1,840,000



2,450,011

          Net interest income after provision for credit losses


5,659,032



5,355,585







Non-interest income:






 Fees and service charges


1,480,136



1,486,702

 Loan servicing fees


212,801



198,084

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


(28,964)



(82,095)

 Gain on sale of mortgage loans


304,608



119,982

 Gain on sale of mortgage-backed securities


1,033,857



52,146

 Other  income


240,311



207,131

          Total non-interest income


3,242,749



1,981,950













Non-interest expense:






 Compensation and fringe benefits


4,157,612



3,789,679

 Federal deposit insurance premiums


252,400



291,500

 Premises and equipment


428,468



423,280

 Advertising


66,034



47,105

 Payroll and other taxes


405,795



401,628

 Data processing


598,149



600,541

 Amortization of intangible assets


100,556



147,202

 Other real estate owned expense


1,278,300



219,518

 Other


951,631



865,760

          Total non-interest expense


8,238,945



6,786,213







Income before income tax expense


662,836



551,322







Income tax expense


200,940



224,540







Net income

$

461,896


$

326,782







Per share data:






Basic earnings per share

$

0.05


$

0.03

Diluted earnings per share

$

0.05


$

0.03

Average basic shares outstanding


9,751,271



9,751,271

Average diluted shares outstanding


9,751,271



9,751,271



First South Bancorp, Inc.


 Supplemental Financial Data (Unaudited)






3/31/2012


12/31/2011


9/30/2011


6/30/2011


3/31/2011

Consolidated balance sheet data:

          (dollars in thousands except per share data)

Total assets

$

750,350

$

746,941

$

768,411

$

784,538

$

791,154












Loans receivable (net):











Mortgage

$

80,263

$

66,249

$

80,453

$

56,564

$

53,925

Commercial


352,459


378,823


405,712


428,141


445,930

Consumer


71,270


72,821


74,097


76,459


79,517

Leases


7,393


7,309


7,972


7,825


7,829


Total loans (net)

$

511,385

$

525,202

$

568,234

$

568,989

$

587,201












Cash and investments

$

64,662

$

32,774

$

32,909

$

44,565

$

34,537

Mortgage-backed securities


123,036


138,515


119,764


124,539


120,565

Premises and equipment


12,985


11,679


11,209


10,753


10,196

Goodwill


4,219


4,219


4,219


4,219


4,219

Mortgage servicing rights


1,268


1,237


1,091


1,197


1,284












Deposits:











Savings

$

31,068

$

28,988

$

27,551

$

26,999

$

26,251

Checking


262,500


243,720


243,582


240,048


237,605

Certificates


354,780


369,909


394,007


416,855


429,772


Total deposits

$

648,348

$

642,617

$

665,140

$

683,902

$

693,628












Borrowings

$

1,681

$

2,096

$

1,976

$

2,349

$

2,363

Junior subordinated debentures


10,310


10,310


10,310


10,310


10,310

Stockholders' equity


84,343


84,113


82,061


80,894


79,648












Consolidated earnings summary:











Interest income

$

8,914

$

9,363

$

9,861

$

10,188

$

9,891

Interest expense


1,415


1,608


1,852


2,010


2,086

Net interest income


7,499


7,755


8,009


8,178


7,805

Provision for credit losses


1,840


2,640


2,643


3,080


2,450

Noninterest income


3,243


2,648


2,292


2,498


1,982

Noninterest expense


8,239


7,180


6,999


6,988


6,786

Income tax expense


201


142


256


226


225

Net income

$

462

$

441

$

403

$

382

$

326












Per Share Data:











Basic earnings per share

$

0.05

$

0.05

$

0.04

$

0.04

$

0.03

Diluted earnings per share

$

0.05

$

0.05

$

0.04

$

0.04

$

0.03

Book value per share

$

8.65

$

8.63

$

8.42

$

8.30

$

8.17












Average basic shares


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

























3/31/2012


12/31/2011


9/30/2011


6/30/2011


3/31/2011


          (dollars in thousands except per share data)

Performance ratios:











Yield on average earning assets


5.26%


5.44%


5.64%


5.78%


5.59%

Cost of funds


0.87%


0.96%


1.08%


1.14%


1.18%

Net interest spread


4.39%


4.48%


4.56%


4.64%


4.41%

Net interest margin/average earning assets


4.42%


4.51%


4.58%


4.64%


4.41%

Earning assets to total assets


90.90%


91.09%


90.47%


88.61%


89.85%












Return on average assets (annualized)


0.25%


0.23%


0.21%


0.19%


0.16%

Return on average equity (annualized)


2.18%


2.13%


1.97%


1.90%


1.63%












Average assets

$

744,395

$

757,905

$

774,383

$

791,644

$

794,615

Average earning assets

$

678,043

$

688,457

$

698,984

$

704,792

$

707,982

Average equity

$

84,582

$

82,708

$

81,757

$

80,517

$

79,978












Equity/Assets


11.24%


11.26%


10.68%


10.31%


10.07%

Tangible Equity/Assets


10.67%


10.69%


10.12%


9.76%


9.52%












Asset quality data and ratios:











Loans on nonaccrual status:












Nonaccrual loans












 Earning

$

2,255

$

10,601

$

3,179

$

3,853

$

4,954


 Non-Earning

$

8,757

$

11,007

$

15,107

$

15,657

$

11,769


    Total Non-Accrual Loans

$

11,012

$

21,608

$

18,286

$

19,510

$

16,723


Nonaccrual restructured loans












  Past Due TDRs

$

6,029

$

9,170

$

12,568

$

11,228

$

15,024


  Current TDRs

$

20,456

$

12,247

$

11,172

$

10,421

$

8,780


     Total TDRs

$

26,485

$

21,417

$

23,740

$

21,649

$

23,804

Total loans on nonaccrual status

$

37,497

$

43,025

$

42,026

$

41,159

$

40,527

Other real estate owned

$

17,324

$

17,005

$

12,886

$

11,387

$

12,069

Total nonperforming assets

$

54,821

$

60,030

$

54,912

$

52,546

$

52,596












Allowance for credit losses

$

14,637

$

15,448

$

18,563

$

18,918

$

19,551

Allowance for credit losses to loans


2.78%


2.85%


3.16%


3.21%


3.22%












Net charge-offs

$

2,638

$

5,752

$

3,018

$

3,713

$

1,966

Net charge-offs to loans


0.52%


1.10%


0.53%


0.65%


0.32%

Nonaccrual loans to loans


7.33%


8.19%


7.40%


7.23%


6.90%

Nonperforming assets to assets


7.31%


8.06%


7.15%


6.69%


6.65%

Loans to deposits


81.25%


84.26%


88.35%


86.10%


87.63%

Loans to assets


70.21%


72.66%


76.48%


75.06%


76.82%

Loans serviced for others

$

316,297

$

319,363

$

302,307

$

314,220

$

317,816



For more information contact:
Bill Wall (CFO) (252-940-5017)
Tom Vann (CEO) (252-940-4916)
Website: www.firstsouthnc.com

SOURCE First South Bancorp, Inc.



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