First South Bancorp, Inc. Reports June 30, 2010 Quarterly and Six Months Earnings

13 Jul, 2010, 12:55 ET from First South Bancorp, Inc.

WASHINGTON, N.C., July 13 /PRNewswire-FirstCall/ -- First South Bancorp, Inc. (Nasdaq: FSBK) (the "Company"), the parent holding company of First South Bank (the "Bank"), reports its unaudited earnings for the quarter ended June 30, 2010 and for the six months ended June 30, 2010.

Net income was $1.6 million ($0.16 per share diluted) for the 2010 second quarter, compared to net income of $1.5 million ($0.16 per share diluted) for the linked 2010 first quarter, and $1.8 million ($0.18 per share diluted) for the comparative 2009 second quarter.  Net income for the first six months of 2010 was $3.1 million ($0.32 per share diluted), compared to net income of $3.8 million ($0.39 per share diluted) for the first six months of 2009.

The Bank recorded provisions for credit losses of $2.1 million in the 2010 second quarter compared to $2.4 million in the linked 2010 first quarter and $1.7 million in the comparative 2009 second quarter. Credit loss provisions were necessary to replenish net charge-offs and to maintain the allowance for credit losses at levels the Bank believes is adequate to absorb probable losses in the loan portfolio.

Bill Wall, executive vice president and chief financial officer stated, "We continue to take a conservative posture in our provisioning for credit losses as we are aggressively managing our problem assets.  We believe the current level of our allowance for credit losses 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."

"The current economy continues to present a challenging credit environment for the Bank, for our customers and for the banking industry.  As we address and manage through these challenges, we remain focused on long-term strategies.  These strategies include remediating problem assets, maintaining adequate levels of capital and liquidity, improving efficiency in our operations, building core customer relationships and improving our franchise value along with shareholder value.  The Company remains profitable, continues to maintain a strong capital position in excess of the well-capitalized regulatory guidelines, and combined with volume of the allowance for credit losses should enhance our operating performance when the current recessionary economic conditions substantially improve," stated Wall.

Net interest income remained consistent at $8.6 million for the 2010 second quarter, compared to $8.8 million for the linked 2010 first quarter and $7.9 million for the comparative 2009 second quarter. Net interest income in the current quarter has been influenced by a combination of the net volume of loan originations, principal repayments and sales; and repricing new deposits and the rollover of maturing deposits in the current lower interest rate environment. The net interest margin was 4.64% for the 2010 second quarter, compared to 4.72% for the linked 2010 first quarter and 3.87% for the comparative 2009 second quarter.

Total non-interest income also remained consistent at $2.8 million for the 2010 second quarter, compared to $2.7 million for the linked 2010 first quarter and $3.2 million for the comparative 2009 second quarter.  Revenue from loan and deposit service offerings (loan fees, deposit fees and service charges and servicing fee income) was $2.0 million in the 2010 second quarter, compared to $1.8 million in the linked 2010 first quarter and $2.1 in the comparative 2009 second quarter.

Net gains recognized from the sale of mortgage loans was $173,000 in the 2010 second quarter, compared to $192,000 in the linked 2010 first quarter and $430,000 in the comparative 2009 second quarter. Net gains recognized from the sale of investments and mortgage-backed securities was $458,000 in the 2010 second quarter, compared to $480,000 in the linked 2010 first quarter and $452,000 in the comparative 2009 second quarter.

Total non-interest expense was $6.7 million for the 2010 second quarter, compared to $6.5 million for both the linked 2010 first quarter and the comparative 2009 second quarter.  Compensation and fringe benefits, the largest component of non-interest expense, was $4.1 million for the 2010 second quarter, compared to $3.7 million for the linked 2010 first quarter and $3.6 million for the comparative 2009 second quarter. FDIC insurance premiums were $287,000 for the 2010 second quarter, compared to $297,000 for the linked 2010 first quarter and $540,000 for the comparative 2009 second quarter, reflecting risk based assessment rates imposed by the FDIC.

Total assets declined to $812.8 million at June 30, 2010 from $829.9 million at December 31, 2009. Total loans declined to $644.9 million at June 30, 2010 from $658.7 million at December 31, 2009, reflecting a combination of principal repayments, sales and a decline in the volume of loans originated for investment during the current quarter.  Mortgage-backed securities were $92.6 million at June 30, 2010, compared to $97.2 million at December 31, 2009, reflecting the securitization of certain mortgage loans originated for sale, net of principal repayments and sales during the current quarter.  Cash and interest bearing deposits increased to $34.7 million at June 30, 2010 from $29.6 million at December 31, 2009, as the Bank used a portion of the proceeds from loan and mortgage-backed securities sales to support its liquidity position.

Nonperforming loans increased to $18.0 million at June 30, 2010, from $10.2 million at December 31, 2009, reflecting the continuing challenging credit environment.  Management believes it has thoroughly evaluated its nonperforming loans and they are either well collateralized or adequately reserved.

During the 2010 second quarter, the Bank refined its allowance for loan and lease losses (ALLL) methodology taking into account current generally accepted accounting principles and regulatory guidance.  The refined ALLL methodology is focused on current borrower analysis and loss factors that are more indicative of actual historical loss experience in recent years pursuant to FAS 5.  Previously, the Bank established specific reserves for certain impaired loans per FAS 114.  The Bank has elected to write down substantially all previously calculated specific reserves.  Going forward, when impairment can be reasonably calculated, the Bank will write down the affected loan by the level of that impairment.  As a result of these changes, this leaves the ALLL with a distinctly different balance than in previous reporting periods, which contained a mixed balance between FAS 5 and FAS 114.  Now essentially all of the Bank's calculated ALLL is under FAS 5.  Where previous ALLL balances carried specific reserves under FAS 114, the Bank anticipates future reports to more closely approximate this one. The ALLL was $8.1 million at June 30, 2010, representing 1.24% of total loans and leases.

Other real estate owned declined to $8.5 million at June 30, 2010 from $10.6 million at December 31, 2009, reflecting foreclosure activity net of sales of certain real estate properties during the current quarter. Based on fair value analysis, the Bank believes the adjusted carrying values of these real estate properties are representative of their fair market values, although there are no assurances that the ultimate sales prices will be equal to or greater than the carrying values.

Total deposits increased to $694.5 million at June 30, 2010 from $688.5 million at December 31, 2009. Borrowings declined to $12.7 million at June 30, 2010 from $37.4 million at December 31, 2009.  During the 2010 first quarter, the Bank repaid a $25.0 million 3.0% fixed-rate FHLB advance. The cost of funds for the 2010 second quarter improved to 1.26% from 1.31% for the linked 2010 first quarter and 2.32% for the comparative 2009 second 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.

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.

First South Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

June 30

December 31

2010

2009

*

Assets

(unaudited)

Cash and due from banks

$

17,374,290

$

17,758,370

Interest-bearing deposits in financial institutions

17,363,166

11,879,794

Investment securities - available for sale

0

407,317

Mortgage-backed securities - available for sale

92,180,716

96,725,468

Mortgage-backed securities - held for investment

377,886

513,882

Loans and leases receivable, net:

 Held for sale

5,489,717

6,548,980

 Held for investment

639,367,915

652,106,538

Premises and equipment, net

9,239,594

8,539,759

Other real estate owned

8,451,905

10,561,071

Federal Home Loan Bank of Atlanta stock, at cost

    which approximates market

3,889,500

3,889,500

Accrued interest receivable

2,936,167

3,318,141

Goodwill

4,218,576

4,218,576

Mortgage servicing rights

1,267,915

1,278,688

Identifiable intangible assets

117,900

133,620

Income tax receivable

2,057,614

1,831,598

Prepaid expenses and other assets

8,437,655

10,179,333

         Total assets

$

812,770,516

$

829,890,635

Liabilities and Stockholders' Equity

Deposits:

 Demand

$

224,949,564

$

224,507,362

 Savings

25,155,189

23,137,391

 Large denomination certificates of deposit

227,899,105

224,198,974

 Other time

216,536,319

216,667,331

         Total deposits

694,540,177

688,511,058

Borrowed money

12,665,012

37,380,388

Junior subordinated debentures

10,310,000

10,310,000

Other liabilities

8,145,185

7,475,085

         Total liabilities

725,660,374

743,676,531

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

 11,254,222 issued; 9,743,971 and 9,742,296

 shares outstanding, respectively

97,440

97,423

Additional paid-in capital

35,858,430

35,841,364

Retained earnings, substantially restricted

81,321,585

82,111,114

Treasury stock at cost

(32,122,465)

(32,158,074)

Accumulated other comprehensive income, net

1,955,152

322,277

          Total stockholders' equity

87,110,142

86,214,104

          Total liabilities and stockholders' equity

$

812,770,516

$

829,890,635

*Derived from audited consolidated financial statements

First South Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

(unaudited)

Three Months Ended June 30

Six Months Ended June 30

2010

2009

2010

2009

Interest income:

 Interest and fees on loans

$

9,792,800

$

11,564,315

$

19,901,754

$

23,265,950

 Interest and dividends on investments and deposits

1,036,289

877,624

2,078,562

1,746,709

          Total interest income

10,829,089

12,441,939

21,980,316

25,012,659

Interest expense:

 Interest on deposits

2,094,488

4,098,542

4,248,126

8,277,479

 Interest on borrowings

81,071

340,951

220,167

680,751

 Interest on junior subordinated notes

82,768

106,870

162,784

217,308

          Total interest expense

2,258,327

4,546,363

4,631,077

9,175,538

Net interest income

8,570,762

7,895,576

17,349,239

15,837,121

Provision for credit losses

2,070,000

1,700,000

4,490,000

3,220,000

          Net interest income after provision for credit losses

6,500,762

6,195,576

12,859,239

12,617,121

Non-interest income:

 Fees and service charges

1,795,404

1,891,452

3,425,920

3,641,937

 Loan servicing fees

187,046

164,164

366,780

322,828

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

21,223

5,285

33,720

(74,448)

 Gain on sale of mortgage loans

173,428

430,218

365,525

688,102

 Gain on sale of mortgage-backed securities

455,399

-

935,481

-

 Gain on sale of investment securities

2,406

452,344

2,406

917,866

 Other  income

195,717

269,067

394,963

536,768

          Total non-interest income

2,830,623

3,212,530

5,524,795

6,033,053

Non-interest expense:

 Compensation and fringe benefits

4,115,034

3,591,503

7,806,236

6,999,175

 Federal insurance premiums

286,614

540,046

583,879

680,209

 Premises and equipment

438,565

455,940

897,750

919,855

 Advertising

33,851

40,176

65,414

63,017

 Payroll and other taxes

340,096

335,373

716,710

687,094

 Data processing

644,671

604,654

1,263,068

1,203,669

 Amortization of intangible assets

107,475

135,460

224,960

249,330

 Other

774,633

810,192

1,683,096

1,712,910

          Total non-interest expense

6,740,939

6,513,344

13,241,113

12,515,259

Income before income taxes

2,590,446

2,894,762

5,142,921

6,134,915

Income taxes

1,032,084

1,134,884

2,034,862

2,370,519

Net income

$

1,558,362

$

1,759,878

$

3,108,059

$

3,764,396

Per share data:

Basic earnings per share

$

0.16

$

0.18

$

0.32

$

0.39

Diluted earnings per share

$

0.16

$

0.18

$

0.32

$

0.39

Dividends per share

$

0.20

$

0.20

$

0.40

$

0.40

Weighted average shares-Basic

9,743,971

9,738,096

9,743,244

9,738,096

Weighted average shares-Diluted

9,744,679

9,738,096

9,743,598

9,738,096

First South Bancorp, Inc.

Supplemental Quarterly Financial Data (Unaudited)

6/30/2010

3/31/2010

12/31/2009

9/30/2009

6/30/2009

Consolidated balance sheet data:

(dollars in thousands except per share data)

Total assets

$

812,771

$

800,608

$

829,891

$

855,933

$

886,192

Loans receivable (net):

Mortgage

$

49,470

$

48,379

$

51,820

$

49,944

$

53,537

Commercial

502,425

498,525

508,279

528,216

547,904

Consumer

83,550

85,502

88,893

92,809

94,749

Leases

9,413

9,877

9,664

10,727

9,717

Total

$

644,858

$

642,283

$

658,656

$

681,696

$

705,907

Cash and investments

$

34,737

$

22,690

$

30,045

$

46,741

$

57,342

Mortgage-backed securities

92,559

94,735

97,239

86,275

81,596

Premises and equipment

9,240

9,034

8,540

8,608

8,714

Goodwill

4,219

4,219

4,219

4,219

4,219

Mortgage servicing rights

1,268

1,281

1,279

1,247

1,230

Deposits:

Savings

$

25,155

$

24,709

$

23,138

$

23,407

$

24,730

Checking

224,950

225,997

224,507

220,018

225,647

Certificates

444,435

433,734

440,866

466,426

480,634

Total

$

694,540

$

684,440

$

688,511

$

709,851

$

731,011

Borrowings

$

12,665

$

12,441

$

37,380

$

39,040

$

49,695

Junior subordinated debentures

10,310

10,310

10,310

10,310

10,310

Stockholders' equity

87,110

85,962

86,214

87,281

86,708

Consolidated earnings summary:

Interest income

$

10,829

$

11,151

$

11,851

$

12,196

$

12,442

Interest expense

2,258

2,372

2,996

3,922

4,546

Net interest income

8,571

8,779

8,855

8,274

7,896

Provision for credit losses

2,070

2,420

2,700

1,260

1,700

Noninterest income

2,830

2,694

2,527

2,401

3,212

Noninterest expense

6,741

6,500

6,300

6,530

6,513

Income taxes

1,032

1,003

872

1,123

1,135

Net income

$

1,558

$

1,550

$

1,510

$

1,762

$

1,760

Per Share Data:

Earnings per share-Basic

$

0.16

$

0.16

$

0.16

$

0.18

$

0.18

Earnings per share-Diluted

$

0.16

$

0.16

$

0.16

$

0.18

$

0.18

Dividends per share

$

0.20

$

0.20

$

0.20

$

0.20

$

0.20

Book value per share

$

8.94

$

8.82

$

8.85

$

8.96

$

8.90

Average shares-Basic

9,743,971

9,742,505

9,738,475

9,738,475

9,738,096

Average shares-Diluted

9,744,679

9,742,505

9,738,550

9,738,550

9,738,096

6/30/2010

3/31/2010

12/31/2009

9/30/2009

6/30/2009

(dollars in thousands except per share data)

Performance ratios:

Yield on earning assets

5.86%

5.99%

6.09%

6.09%

6.10%

Cost of funds

1.26%

1.32%

1.61%

2.03%

2.32%

Net interest spread

4.60%

4.67%

4.48%

4.06%

3.78%

Net interest margin on earning assets

4.64%

4.72%

4.55%

4.13%

3.87%

Earning assets to total assets

91.13%

91.66%

91.81%

92.38%

92.43%

Return on average assets

0.77%

0.76%

0.72%

0.81%

0.80%

Return on average equity

7.17%

7.13%

6.88%

8.06%

7.98%

Efficiency ratio

59.05%

56.59%

55.28%

61.10%

58.57%

Dividend payout ratio

125.00%

125.00%

125.00%

111.11%

111.11%

Average assets

$

808,266

$

811,859

$

842,556

$

867,976

$

881,307

Average earning assets

$

738,645

$

744,415

$

777,896

$

801,625

$

816,210

Average equity

$

86,957

$

86,897

$

87,762

$

87,418

$

88,240

Equity/Assets

10.72%

10.74%

10.39%

10.20%

9.78%

Tangible Equity/Assets

10.18%

10.19%

9.86%

9.69%

9.29%

Asset quality data and ratios:

Nonaccrual loans

$

12,308

$

8,578

$

5,838

$

7,132

$

7,609

Restructured loans

$

5,647

$

4,377

$

4,343

$

4,304

$

4,304

Total nonperforming loans

$

17,955

$

12,955

$

10,181

$

11,436

$

11,913

Other real estate owned

$

8,452

$

8,383

$

10,561

$

12,474

$

10,408

Total nonperforming assets

$

26,407

$

21,338

$

20,742

$

23,910

$

22,321

Allowance for loan and lease losses

$

7,951

$

13,221

$

13,504

$

12,318

$

11,726

Allowance for unfunded loan commitments

$

171

$

178

$

240

$

269

$

269

Allowance for credit losses

$

8,122

$

13,399

$

13,744

$

12,587

$

11,995

Allowance for loan and lease losses to loans

1.21%

2.01%

2.00%

1.77%

1.63%

Allowance for unfunded loan commitments

to unfunded commitments

0.20%

0.20%

0.27%

0.29%

0.28%

Allowance for credit losses to loans

1.24%

2.04%

2.04%

1.81%

1.67%

Net charge-offs (recoveries)

$

7,347

$

2,765

$

1,543

$

668

$

894

Net charge-offs (recoveries) to loans

1.14%

0.43%

0.23%

0.10%

0.13%

Nonperforming loans to loans

2.78%

2.02%

1.55%

1.68%

1.69%

Nonperforming assets to assets

3.25%

2.67%

2.50%

2.79%

2.52%

Loans to deposits

92.85%

93.84%

95.66%

96.03%

96.57%

Loans to assets

79.34%

80.22%

79.37%

79.64%

79.66%

Loans serviced for others

$

299,361

$

296,452

$

289,324

$

281,935

$

268,266

For more information contact:

Bill Wall (CFO)

First South Bancorp, Inc.

Phone: (252) 940-5017

Website: www.firstsouthnc.com

SOURCE First South Bancorp, Inc.



RELATED LINKS

http://www.firstsouthnc.com