First South Bancorp, Inc. Reports June 30, 2011 Quarterly and Six Months Operating Results

WASHINGTON, N.C., July 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 ended June 30, 2011, and for the six months ended June 30, 2011.

The Company reported net income of $382,000 ($0.04 per share diluted) for the 2011 second quarter, compared to net income of $327,000 ($0.03 per share diluted) for the linked 2011 first quarter, and $1.6 million ($0.16 per share diluted) for the comparative 2010 second quarter.  Net income for the first six months of 2011 was $709,000 ($0.07 per share diluted), compared to net income of $3.1 million ($0.32 per share diluted) for the first six months of 2010.

Tom Vann, President and CEO, commented, "I am pleased to report the Company's operating results for the second quarter of 2011. The Company continues to generate solid core earnings.  Second quarter 2011 net earnings were $382,000, after recording $3.1 million of credit loss provisions.  In the 2011 second 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 modestly during this quarter, based on our current analysis we continue to remain cautiously optimistic about the financial stress some of our borrowers are facing.  Consequently, we are provisioning accordingly to replenish net charge-offs and to maintain our loan loss reserves at an adequate level.  Mitigating our nonperforming assets will continue to be a top priority during 2011," said Mr. Vann.

Asset Quality

Total nonperforming assets declined to $52.5 million at June 30, 2011, from $52.9 million at December 31, 2010.  Total loans on non-accrual status declined to $41.2 million at June 30, 2011, from $41.3 million at December 31, 2010.  Loans on non-accrual status include non-accrual restructured loans, which declined to $23.0 million at June 30, 2011, from $27.0 million at December 31, 2010.  At June 30, 2011, $11.8 million of the non-accrual restructured loans were current and making payments according to the terms of the restructure. Performing restructured loans on full accrual status totaled $22.8 million at June 30, 2011, compared to $31.3 million at December 31, 2010.  Restructured loans need not continue to be reported as a restructure in calendar years after the year in which the restructuring took place if the loan is in compliance with its modified terms and yields a market rate.

Other real estate owned declined to $11.4 million at June 30, 2011, from $11.6 million at December 31, 2010, reflecting foreclosure activity net of sales of certain real estate properties.  "The stabilization of property values continues to be a concern in the markets we serve.  We will continue monitoring these values and mitigate nonperforming assets as quickly as feasible," said Mr. Vann.

The Bank recorded $3.1 million of provisions for credit losses in the 2011 second quarter, compared to $2.5 million in the linked 2011 first quarter and $2.1 million in the 2010 second 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 declined to $18.7 million at June 30, 2011 (3.17% of total loans), from $18.8 million at December 31, 2010 (3.01% of total loans). Net charge offs were $3.7 million in the 2011 second quarter, compared to $2.0 million in the linked 2011 first quarter and $7.3 million in the 2010 second quarter.

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 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 ALLL."

Net Interest Income

Net interest income increased to $8.2 million for the 2011 second quarter, from $7.8 million for the linked 2011 first quarter, compared to $8.6 million for the 2010 second quarter. The change in volume of net interest income has been influenced by earnings from an increased volume of mortgage-backed securities, the collection of interest on certain past due loans, and management of the cost of funds. The net interest margin on average earning assets improved to 4.64% for the 2011 second quarter, from 4.41% for the linked 2011 first quarter, compared to 4.64% for the 2010 second quarter.

Non-Interest Income

Total non-interest income increased to $2.5 million for the 2011 second quarter, from $2.0 million for the linked 2011 first quarter, compared to $2.8 million for the 2010 second quarter.  Revenue from loan and deposit service offerings (loan fees, deposit fees and service charges and servicing fee income) remained relatively consistent at $1.8 million for the 2011 second quarter, and to $1.7 million for the linked 2011 first quarter, compared to $2.0 million for the 2010 second quarter.

Net gains from mortgage loan sales were $112,000 in the 2011 second quarter, compared to $120,000 in the linked 2011 first quarter and $173,000 in the 2010 second quarter.  No gains were recognized from investment and mortgage-backed securities sales in the 2011 second quarter, compared to $52,000 in the linked 2011 first quarter and $458,000 in the 2010 second quarter.

In its efforts of mitigating nonperforming assets, the Bank recognized $53,000 of net gains on the sale of real estate owned properties during the 2011 second quarter, compared to $82,000 of net losses in the linked 2011 first quarter and $21,000 of net gains in the 2010 second quarter.

Non-Interest Expense

Total non-interest expense increased to $7.0 million for the 2011 second quarter, from $6.8 million for the linked 2011 first quarter and $6.7 million for the 2010 second quarter.  The largest component of non-interest expense, compensation and fringe benefits, declined to $3.9 million for the 2011 second quarter and $3.8 million for the linked 2011 first quarter, from $4.1 million for the 2010 second quarter, reflecting the Bank's efforts of managing its human resources cost.

Expenses attributable to renovating, maintenance and property taxes paid for the current volume of other real estate owned properties increased to $265,000 for the 2011 second quarter, from $220,000 for the linked 2011 first quarter, and $73,000 for the 2010 second quarter.  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.

Income tax expense was $226,000 for the 2011 second quarter, compared to $225,000 for the linked 2011 first quarter and $1.0 million for the 2010 second quarter.  Changes in the amounts of income tax provisions reflect changes in the volume of pretax income and estimated income tax rates in effect during each respective period.  

Balance Sheet

Total assets declined to $784.5 million at June 30, 2011, from $797.2 million at December 31, 2010. Net loans and leases receivable declined to $569.0 million at June 30, 2011, from $606.1 million at December 31, 2010, reflecting a net combination of principal repayments, foreclosures, sales and securitizations of loans into mortgage-backed securities, and the volume of loans originated during the current quarter.   Mortgage-backed securities increased to $124.5 million at June 30, 2011, from $98.9 million at December 31, 2010, reflecting the net of purchases, sales and securitizations of certain mortgage loans during the current quarter.  Cash and overnight investments increased to $44.6 million at June 30, 2011, from $44.4 million at December 31, 2010, reflecting net changes in the Bank's cash flow and liquidity position, including the repayment of borrowings.    

Total deposits declined to $683.9 million at June 30, 2011, from $689.5 million at December 31, 2010.  Borrowings declined to $2.3 million at June 30, 2011, from $11.5 million at December 31, 2010, reflecting the repayment of a $10.0 million fixed-rate FHLB advance. The cost of funds improved to 1.14% for the 2011 second quarter, from 1.18% for the linked 2011 first quarter, and 1.26% for the 2010 second quarter. The Bank is managing 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 increased to $80.9 million at June 30, 2011, from $79.5 million at December 31, 2010, reflecting the net effect of net income and changes in accumulated other comprehensive income.  The equity to assets ratio increased to 10.31% at June 30, 2011, from 9.97% at December 31, 2010.  There were 9,751,271 common shares outstanding at both June 30, 2011 and December 31, 2010.  The book value per share increased to $8.30 at June 30, 2011 and $8.15 at December 31, 2010.

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 27 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.

For more information contact:
Bill Wall (CFO) (252-940-5017)  

First South Bancorp, Inc. and Subsidiary 

Consolidated Statements of Financial Condition












June 30



December 31





2011



2010

*

Assets



(unaudited)













Cash and due from banks


$

24,339,911


$

14,684,377


Interest-bearing deposits in financial institutions



20,225,031



29,749,236


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



68,960,406



98,637,742


Mortgage-backed securities - held for investment



55,578,670



244,836


Loans and leases receivable:








  Held for sale



3,090,787



4,464,040


  Held for investment



584,565,238



620,440,530


  Allowance for loan and lease losses



(18,666,618)



(18,830,288)


          Loans and leases receivable, net



568,989,407



606,074,282


Premises and equipment, net



10,752,914



9,162,538


Other real estate owned



11,386,753



11,616,390


Stock in Federal Home Loan Bank of Atlanta, at cost



2,690,000



3,474,900


Accrued interest receivable



2,302,863



2,336,527


Goodwill



4,218,576



4,218,576


Mortgage servicing rights



1,197,031



1,357,659


Identifiable intangible assets



86,460



102,180


Income tax receivable



2,254,002



2,864,993


Prepaid expenses and other assets



11,556,159



12,721,610










         Total assets


$

784,538,183


$

797,245,846










Liabilities and Stockholders' Equity
















Deposits:








 Demand


$

240,048,367


$

234,501,026


 Savings



26,999,519



24,498,789


 Large denomination certificates of deposit



217,228,158



222,578,449


 Other time



199,626,364



207,886,450


         Total deposits



683,902,408



689,464,714


Borrowed money



2,349,203



11,503,110


Junior subordinated debentures



10,310,000



10,310,000


Other liabilities



7,082,092



6,454,818


         Total liabilities



703,643,703



717,732,642










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








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








  outstanding, respectively



97,513



97,513


Additional paid-in capital



35,844,758



35,795,586


Retained earnings, substantially restricted



75,665,645



74,956,772


Treasury stock, at cost



(31,967,269)



(31,967,269)


Accumulated other comprehensive income, net



1,253,833



630,602


          Total stockholders' equity



80,894,480



79,513,204










          Total liabilities and stockholders' equity


$

784,538,183


$

797,245,846










*Derived from audited consolidated financial statements



First South Bancorp, Inc. and Subsidiary 

Consolidated Statements of Operations

(unaudited)




Three Months Ended



Six Months Ended




June 30



June 30




2011



2010



2011



2010














Interest income:













 Interest and fees on loans


$

8,905,881


$

9,792,800


$

17,729,875


$

19,901,754

 Interest and dividends on investments and deposits



1,282,570



1,036,289



2,349,776



2,078,562

          Total interest income



10,188,451



10,829,089



20,079,651



21,980,316














Interest expense:













 Interest on deposits



1,924,835



2,094,488



3,901,704



4,248,126

 Interest on borrowings



1,553



81,071



28,967



220,167

 Interest on junior subordinated notes



83,911



82,768



165,232



162,784

          Total interest expense



2,010,299



2,258,327



4,095,903



4,631,077



























Net interest income



8,178,152



8,570,762



15,983,748



17,349,239

Provision for credit losses



3,080,000



2,070,000



5,530,011



4,490,000

          Net interest income after provision for credit losses



5,098,152



6,500,762



10,453,737



12,859,239














Non-interest income:













 Fees and service charges



1,581,922



1,795,404



3,068,624



3,425,920

 Loan servicing fees



196,988



187,046



395,072



366,780

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



53,387



21,223



(28,708)



33,720

 Gain on sale of mortgage loans



111,546



173,428



231,528



365,525

 Gain on sale of mortgage-backed securities



-



455,399



52,146



935,481

 Gain on sale of investment securities



-



2,406



-



2,406

 Other  income



553,868



195,717



761,000



394,963

          Total non-interest income



2,497,711



2,830,623



4,479,662



5,524,795



























Non-interest expense:













 Compensation and fringe benefits



3,941,577



4,115,034



7,731,256



7,806,236

 Federal deposit insurance premiums



293,284



286,614



584,784



583,879

 Premises and equipment



433,512



438,565



856,792



897,750

 Advertising



38,280



33,851



85,384



65,414

 Payroll and other taxes



352,520



340,096



754,148



716,710

 Data processing



622,859



644,671



1,223,400



1,263,068

 Amortization of intangible assets



145,578



107,475



292,781



224,960

 Other real estate owned expense



265,334



72,967



484,851



165,276

 Other



895,158



701,666



1,760,919



1,517,820

          Total non-interest expense



6,988,102



6,740,939



13,774,315



13,241,113














Income before income tax expense



607,761



2,590,446



1,159,084



5,142,921














Income tax expense



225,671



1,032,084



450,211



2,034,862














Net income


$

382,090


$

1,558,362


$

708,873


$

3,108,059














Per share data:













Basic earnings per share


$

0.04


$

0.16


$

0.07


$

0.32

Diluted earnings per share


$

0.04


$

0.16


$

0.07


$

0.32

Dividends per share


$

0.00


$

0.20


$

0.00


$

0.40

Average basic shares outstanding



9,751,271



9,743,971



9,751,271



9,743,244

Average diluted shares outstanding



9,751,271



9,744,679



9,751,271



9,743,598



First South Bancorp, Inc.


Supplemental Financial Data (Unaudited)






















Quarterly


Year to Date





6/30/2011


3/31/2011


12/31/2010


9/30/2010


6/30/2010


6/30/2011


6/30/2010

Consolidated balance sheet data:


(dollars in thousands except per share data)

Total assets


$

784,538

$

791,154

$

797,246

$

811,912

$

812,771

$

784,538

$

812,771


















Loans receivable (net):
















Mortgage


$

56,564

$

53,925

$

55,450

$

53,995

$

49,470

$

56,564

$

49,470

Commercial



428,141


445,930


463,155


496,489


502,425


428,141


502,425

Consumer



76,459


79,517


79,469


83,801


83,550


76,459


83,550

Leases



7,825


7,829


8,000


8,095


9,413


7,825


9,413


Total loans (net)


$

568,989

$

587,201

$

606,074

$

642,380

$

644,858

$

568,989

$

644,858


















Cash and investments


$

44,565

$

34,537

$

44,434

$

40,815

$

34,737

$

44,565

$

34,737

Mortgage-backed securities



124,539


120,565


98,883


87,245


92,559


124,539


92,559

Premises and equipment



10,753


10,196


9,163


9,216


9,240


10,753


9,240

Goodwill



4,219


4,219


4,219


4,219


4,219


4,219


4,219

Mortgage servicing rights



1,197


1,284


1,358


1,299


1,268


1,197


1,268


















Deposits:
















Savings


$

26,999

$

26,251

$

24,499

$

24,946

$

25,155

$

26,999

$

25,155

Checking



240,048


237,605


234,501


237,677


224,950


240,048


224,950

Certificates



416,855


429,772


430,465


433,432


444,435


416,855


444,435


Total deposits


$

683,902

$

693,628

$

689,465

$

696,055

$

694,540

$

683,902

$

694,540


















Borrowings


$

2,349

$

2,363

$

11,503

$

12,164

$

12,665

$

2,349

$

12,665

Junior subordinated debentures



10,310


10,310


10,310


10,310


10,310


10,310


10,310

Stockholders' equity



80,894


79,648


79,513


87,293


87,110


80,894


87,110


















Consolidated earnings summary:
















Interest income


$

10,188

$

9,891

$

9,928

$

10,963

$

10,829

$

20,080

$

21,980

Interest expense



2,010


2,086


2,166


2,222


2,258


4,096


4,631

Net interest income



8,178


7,805


7,762


8,741


8,571


15,984


17,349

Provision for credit losses



3,080


2,450


13,700


3,962


2,070


5,530


4,490

Noninterest income



2,498


1,982


1,919


3,400


2,830


4,479


5,525

Noninterest expense



6,988


6,786


6,738


6,745


6,741


13,774


13,241

Income tax expense (benefit)



226


225


(4,260)


424


1,032


450


2,035

Net income (loss)


$

382

$

326

$

(6,497)

$

1,010

$

1,558

$

709

$

3,108


















Per Share Data:
















Basic earnings (loss) per share


$

0.04

$

0.03

$

(0.67)

$

0.10

$

0.16

$

0.07

$

0.32

Diluted earnings (loss) per share


$

0.04

$

0.03

$

(0.67)

$

0.10

$

0.16

$

0.07

$

0.32

Dividends per share


$

0.00

$

0.00

$

0.00

$

0.09

$

0.20

$

0.00

$

0.40

Book value per share


$

8.30

$

8.17

$

8.15

$

8.96

$

8.94

$

8.30

$

8.94


















Average basic shares



9,751,271


9,751,271


9,748,948


9,743,971


9,743,971


9,751,271


9,743,244

Average diluted shares



9,751,271


9,751,271


9,748,948


9,743,971


9,744,679


9,751,271


9,743,598




















First South Bancorp, Inc.


Supplemental Financial Data (Unaudited)






















Quarterly


Year to Date





6/30/2011


3/31/2011


12/31/2010


9/30/2010


6/30/2010


6/30/2011


6/30/2010





(dollars in thousands except per share data)

Performance ratios:
















Yield on average earning assets



5.78%


5.59%


5.51%


5.92%


5.86%


5.69%


5.92%

Cost of funds



1.14%


1.18%


1.21%


1.24%


1.26%


1.16%


1.29%

Net interest spread



4.64%


4.41%


4.30%


4.68%


4.60%


4.53%


4.63%

Net interest margin/average earning assets



4.64%


4.41%


4.31%


4.72%


4.64%


4.53%


4.67%

Earning assets to total assets



88.61%


89.85%


89.94%


90.96%


91.13%


88.61%


91.13%


















Return on average assets (annualized)



0.19%


0.16%


-3.21%


0.50%


0.77%


0.18%


0.77%

Return on average equity (annualized)



1.90%


1.63%


-30.31%


4.60%


7.17%


1.76%


7.14%

Efficiency ratio



65.38%


69.25%


69.52%


55.50%


59.05%


67.24%


57.82%


















Average assets


$

791,644

$

794,615

$

810,459

$

813,900

$

808,266

$

793,412

$

811,413

Average earning assets


$

704,792

$

707,982

$

727,718

$

741,214

$

738,645

$

705,750

$

742,633

Average equity


$

80,517

$

79,978

$

85,746

$

87,760

$

86,957

$

80,333

$

87,065


















Equity/Assets



10.31%


10.07%


9.97%


10.75%


10.72%


10.31%


10.72%

Tangible Equity/Assets



9.76%


9.52%


9.43%


10.22%


10.18%


9.76%


10.18%


















Asset quality data and ratios:
















Loans on nonaccrual status:

















Nonaccrual loans


$

18,114

$

16,723

$

14,293

$

14,073

$

12,308

$

18,114

$

12,308


Nonaccrual restructured loans

















  Past Due TDRs


$

11,228

$

15,024

$

12,407

$

1,624

$

639

$

11,228

$

639


  Current TDRs


$

11,817

$

8,780

$

14,566

$

3,532

$

5,008

$

11,817

$

5,008


     Total TDRs


$

23,045

$

23,804

$

26,973

$

5,156

$

5,647

$

23,045

$

5,647

Total loans on nonaccrual status


$

41,159

$

40,527

$

41,266

$

19,229

$

17,955

$

41,159

$

17,955

Other real estate owned


$

11,387

$

12,069

$

11,616

$

8,599

$

8,452

$

11,387

$

8,452

Total nonperforming assets


$

52,546

$

52,596

$

52,882

$

27,828

$

26,407

$

52,546

$

26,407


















Performing restructured loans on

















accrual status


$

22,831

$

16,055

$

31,334

$

24,298

$

14,087

$

22,831

$

14,087


















Allowance for loan and lease losses


$

18,667

$

19,320

$

18,830

$

8,611

$

7,951

$

18,667

$

7,951

Allowance for unfunded loan commitments


$

251

$

231

$

237

$

163

$

171

$

251

$

171

Allowance for credit losses


$

18,918

$

19,551

$

19,067

$

8,774

$

8,122

$

18,918

$

8,122


















Allowance for loan and lease losses to loans



3.17%


3.18%


3.01%


1.32%


1.21%


3.17%


1.21%

Allowance for unfunded loan commitments

















to unfunded commitments



0.36%


0.30%


0.30%


0.20%


0.20%


0.36%


0.20%

Allowance for credit losses to loans



3.21%


3.22%


3.04%


1.35%


1.24%


3.21%


1.24%


















Net charge-offs (recoveries)


$

3,713

$

1,966

$

3,407

$

3,310

$

7,347

$

5,679

$

10,112

Net charge-offs (recoveries) to loans



0.65%


0.32%


0.54%


0.51%


1.12%


1.00%


1.57%

Nonaccrual loans to loans



7.23%


6.90%


6.81%


2.99%


2.78%


7.23%


2.78%

Nonperforming assets to assets



6.69%


6.65%


6.63%


3.43%


3.25%


6.69%


3.25%

Loans to deposits



86.10%


87.63%


90.83%


93.72%


94.49%


86.10%


94.49%

Loans to assets



75.06%


76.82%


78.55%


80.35%


80.74%


75.06%


80.74%

Loans serviced for others


$

314,220

$

317,816

$

318,218

$

307,395

$

299,361

$

314,220

$

299,361



SOURCE First South Bancorp, Inc.



RELATED LINKS
http://www.firstsouthnc.com

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