First South Bancorp, Inc. Reports March 31, 2010 Quarterly Earnings

WASHINGTON, N.C., April 20 /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 March 31, 2010.

Net income was $1.5 million ($0.16 per share diluted) for the 2010 first quarter, compared to net income of $1.5 million ($0.16 per share diluted) for the linked 2009 fourth quarter, and $2.0 million ($0.21 per share diluted) for the comparative 2009 first quarter.

The Bank recorded provisions for credit losses of $2.4 million in the 2010 first quarter compared to $2.7 million in the linked 2009 fourth quarter and $1.5 million in the comparative 2009 first 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. The current level of the allowance for credit losses results from an internal risk grading analysis and is primarily attributable to the commercial real estate portfolio.  The allowance for credit losses was $13.4 million at March 31, 2010, representing 2.04% of total loans and leases.

Bill Wall, executive vice president and chief financial officer stated, "We are taking a conservative posture in our provisioning for credit losses as we continue to aggressively manage 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."

"We welcome news that the deep recession may be easing; however, 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 strengthening of the allowance for credit losses should enhance our future earnings as the current recessionary economic conditions substantially improve," stated Wall.

Net interest income remained consistent at $8.8 million for the 2010 first quarter, compared $8.9 million for the linked 2009 fourth quarter and $7.9 million for the comparative 2009 first quarter. The constant level of net interest income in the current quarter has been influenced by deposit repricing and the rollover of maturing time deposits at lower interest rates. The net interest margin improved to 4.72% for the 2010 first quarter from 4.55% for the linked 2009 fourth quarter and 3.91% for the comparative 2009 first quarter.

Total non-interest income improved to $2.7 million for the 2010 first quarter, from $2.5 million for the linked 2009 fourth quarter and $2.8 million for the comparative 2009 first quarter.  Revenue from loan and deposit service offerings as loan fees, deposit fees and service charges and servicing fee income was $1.8 million in the 2010 first quarter, compared to $2.1 million in the linked 2009 fourth quarter and $1.9 in the comparative 2009 first quarter.

Net gains recognized from the sale of mortgage loans was $192,000 in the 2010 first quarter, compared to $262,000 in the linked 2009 fourth quarter and $258,000 in the comparative 2009 first quarter. Net gains recognized from the sale of investments and mortgage-backed securities was $480,000 in the 2010 first quarter, compared to none in the linked 2009 fourth quarter and $466,000 in the comparative 2009 first quarter.

Total non-interest expense was $6.5 million for the 2010 first quarter, compared to $6.3 million for the linked 2009 fourth quarter and $6.0 million for comparative 2009 first quarter.  Compensation and fringe benefits, the largest component of non-interest expense, remained relatively consistent at $3.7 million for the 2010 first quarter, compared to $3.6 million for the linked 2009 fourth quarter and $3.4 million for the comparative 2009 first quarter, reflecting the Bank's efforts of managing its human resources cost. FDIC insurance premiums were $297,000 for the 2010 first quarter, $299,000 for the linked 2009 fourth quarter and $140,000 for the comparative 2009 first quarter, reflecting increased risk based assessment rates imposed by the FDIC.

Total assets declined to $800.6 million at March 31, 2010 from $829.9 million at December 31, 2009. Total loans declined to $642.3 million at March 31, 2010 from $658.7 million at December 31, 2009, reflecting a combination of principal repayments and a decline in the volume of loans originated for investment during the current quarter.   Mortgage-backed securities were $94.7 million at March 31, 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, interest bearing deposits and investment securities declined to $22.7 million at March 31, 2010 from $30.0 million at December 31, 2009, as the Bank used lower yielding funds to repay higher costing FHLB advances.

Nonperforming loans increased to $13.0 million at March 31, 2010, from $10.2 million at December 31, 2009 and $11.2 million at March 31, 2009, reflecting continuing challenging credit environment.  Management believes it has thoroughly evaluated its nonperforming loans and they are either well collateralized or adequately reserved.

Other real estate owned declined to $8.4 million at March 31, 2010 from $10.6 million at December 31, 2009, reflecting foreclosure activity net of sales 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 declined to $684.4 million at March 31, 2010 from $688.5 million at December 31, 2009. Borrowings declined to $12.4 million at March 31, 2010 from $37.4 million at December 31, 2009.  During the current quarter, the Bank chose to not match higher time deposit rates being offered by certain competitive financial institutions in its market area, in order to better control its time deposit cost. During the current quarter, the Bank also repaid a $25.0 million 3.0% fixed-rate FHLB advance. The cost of funds for the 2010 first quarter improved to 1.32% from 1.61% for the linked 2009 fourth quarter and 2.37% for the comparative 2009 first 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.

For more information contact:

Bill Wall (CFO)

Phone: (252) 940-5017

Website: www.firstsouthnc.com

First South Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition



March 31



December 31




2010



2009

*

Assets


(unaudited)



















Cash and due from banks

$

16,831,686


$

17,758,370


Interest-bearing deposits in financial institutions


5,384,936



11,879,794


Investment securities - available for sale


473,013



407,317


Mortgage-backed securities - available for sale


94,300,764



96,725,468


Mortgage-backed securities - held for investment


433,849



513,882


Loans and leases receivable, net:







 Held for sale


4,602,352



6,548,980


 Held for investment


637,681,102



652,106,538


Premises and equipment, net


9,034,379



8,539,759


Other real estate owned


8,382,922



10,561,071


Federal Home Loan Bank of Atlanta stock, at cost







    which approximates market


3,889,500



3,889,500


Accrued interest receivable


3,211,267



3,318,141


Goodwill


4,218,576



4,218,576


Mortgage servicing rights


1,281,493



1,278,688


Identifiable intangible assets


125,760



133,620


Income tax receivable


2,360,973



1,831,598


Prepaid expenses and other assets


8,395,828



10,179,333









         Total assets

$

800,608,400


$

829,890,635









Liabilities and Stockholders' Equity














Deposits:







 Demand

$

225,997,352


$

224,507,362


 Savings


24,708,818



23,137,391


 Large denomination certificates of deposit


221,231,944



224,198,974


 Other time


212,501,766



216,667,331


         Total deposits


684,439,880



688,511,058


Borrowed money


12,441,108



37,380,388


Junior subordinated debentures


10,310,000



10,310,000


Other liabilities


7,455,479



7,475,085


         Total liabilities


714,646,467



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


97,440



97,423


Additional paid-in capital


35,837,648



35,841,364


Retained earnings, substantially restricted


81,712,017



82,111,114


Treasury stock at cost


(32,122,465)



(32,158,074)


Accumulated other comprehensive income, net


437,293



322,277


          Total stockholders' equity


85,961,933



86,214,104
















          Total liabilities and stockholders' equity

$

800,608,400


$

829,890,635









*Derived from audited consolidated financial statements









First South Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

(unaudited)



Three Months Ended



March 31



2010



2009







Interest income:






 Interest and fees on loans

$

10,108,953


$

11,701,635

 Interest and dividends on investments and deposits


1,042,274



869,085

          Total interest income


11,151,227



12,570,720







Interest expense:






 Interest on deposits


2,153,638



4,178,937

 Interest on borrowings


139,096



339,800

 Interest on junior subordinated notes


80,016



110,438

          Total interest expense


2,372,750



4,629,175













Net interest income


8,778,477



7,941,545

Provision for credit losses


2,420,000



1,520,000

          Net interest income after provision for credit losses


6,358,477



6,421,545







Non-interest income:






 Fees and service charges


1,630,517



1,750,485

 Loan servicing fees


179,733



158,663

 Gain on sale of other real estate, net


12,497



(79,733)

 Gain on sale of mortgage loans


192,096



257,885

 Gain on sale of mortgage-backed securities


480,082



465,522

 Other  income


199,247



267,701

          Total non-interest income


2,694,172



2,820,523













Non-interest expense:






 Compensation and fringe benefits


3,691,202



3,407,672

 Federal insurance premiums


297,265



140,162

 Premises and equipment


459,186



463,915

 Advertising


31,563



22,841

 Payroll and other taxes


376,614



351,721

 Data processing


618,396



599,015

 Amortization of intangible assets


117,485



113,870

 Other


908,463



902,718

          Total non-interest expense


6,500,174



6,001,914







Income before income taxes


2,552,475



3,240,154







Income taxes


1,002,778



1,235,635







Net income

$

1,549,697


$

2,004,519













Per share data:






Basic earnings per share

$

0.16


$

0.21

Diluted earnings per share

$

0.16


$

0.21

Dividends per share

$

0.20


$

0.20

Weighted average shares-Basic


9,742,505



9,738,096

Weighted average shares-Diluted


9,742,505



9,738,096



First South Bancorp, Inc.



Supplemental Quarterly Financial Data (Unaudited)





3/31/2010


12/31/2009


9/30/2009


6/30/2009


3/31/2009

Consolidated balance sheet data:

          (dollars in thousands except per share data)

Total assets

$

800,608

$

829,891

$

855,933

$

886,192

$

875,850

Loans receivable (net):











Mortgage


48,379


51,820


49,944


53,537


60,132

Commercial


498,525


508,279


528,216


547,904


566,706

Consumer


85,502


88,893


92,809


94,749


98,292

Leases


9,877


9,664


10,727


9,717


10,692


Total


642,283


658,656


681,696


705,907


735,822













Cash and investments


22,690


30,045


46,741


57,342


50,867

Mortgage-backed securities


94,735


97,239


86,275


81,596


51,100

Premises and equipment


9,034


8,540


8,608


8,714


8,866

Goodwill


4,219


4,219


4,219


4,219


4,219

Mortgage servicing rights


1,281


1,279


1,247


1,230


1,079













Deposits:











Savings


24,709


23,138


23,407


24,730


26,561

Checking


225,997


224,507


220,018


225,647


224,249

Certificates


433,734


440,866


466,426


480,634


469,624


Total


684,440


688,511


709,851


731,011


720,434













Borrowings


12,441


37,380


39,040


49,695


49,606

Junior subordinated debentures


10,310


10,310


10,310


10,310


10,310

Stockholders' equity


85,962


86,214


87,281


86,708


87,785













Consolidated earnings summary:











Interest income

$

11,151

$

11,851

$

12,196

$

12,442

$

12,571

Interest expense


2,372


2,996


3,922


4,546


4,629

Net interest income


8,779


8,855


8,274


7,896


7,942

Provision for credit losses


2,420


2,700


1,260


1,700


1,520

Noninterest income


2,694


2,527


2,401


3,212


2,821

Noninterest expense


6,500


6,300


6,530


6,513


6,002

Income taxes


1,003


872


1,123


1,135


1,236

Net income

$

1,550

$

1,510

$

1,762

$

1,760

$

2,005













Per Share Data:











Earnings per share-Basic

$

0.16

$

0.16

$

0.18

$

0.18

$

0.21

Earnings per share-Diluted

$

0.16

$

0.16

$

0.18

$

0.18

$

0.21

Dividends per share

$

0.20

$

0.20

$

0.20

$

0.20

$

0.20

Book value per share

$

8.82

$

8.85

$

8.96

$

8.90

$

9.01













Average shares-Basic


9,742,505


9,738,475


9,738,475


9,738,096


9,738,096

Average shares-Diluted


9,742,505


9,738,475


9,738,550


9,738,096


9,738,096






























3/31/2010


12/31/2009


9/30/2009


6/30/2009


3/31/2009



          (dollars in thousands except per share data)

Performance ratios:











Yield on earning assets


5.99%


6.09%


6.09%


6.10%


6.19%

Cost of funds


1.32%


1.61%


2.03%


2.32%


2.37%

Net interest spread


4.67%


4.48%


4.06%


3.78%


3.82%

Net interest margin on earning assets


4.72%


4.55%


4.13%


3.87%


3.91%

Earning assets to total assets


91.66%


91.81%


92.38%


92.43%


92.79%













Return on average assets


0.76%


0.72%


0.81%


0.80%


0.91%

Return on average equity


7.13%


6.88%


8.06%


7.98%


9.07%

Efficiency ratio


56.59%


55.28%


61.10%


58.57%


55.70%

Dividend payout ratio


125.00%


125.00%


111.11%


111.11%


95.24%













Average assets

$

811,859

$

842,556

$

867,976

$

881,307

$

878,795

Average earning assets

$

744,415

$

777,896

$

801,625

$

816,210

$

812,831

Average equity

$

86,897

$

87,762

$

87,418

$

88,240

$

88,443













Equity/Assets


10.74%


10.39%


10.20%


9.78%


10.02%

Tangible Equity/Assets


10.19%


9.86%


9.69%


9.29%


9.52%













Asset quality data and ratios:











Nonaccrual loans

$

8,578

$

5,838

$

7,132

$

7,609

$

6,940

Restructured loans

$

4,377

$

4,343

$

4,304

$

4,304

$

4,276

Total nonperforming loans

$

12,955

$

10,181

$

11,436

$

11,913

$

11,216

Other real estate owned

$

8,383

$

10,561

$

12,474

$

10,408

$

10,573

Total nonperforming assets

$

21,338

$

20,742

$

23,910

$

22,321

$

21,789













Allowance for loan and lease losses

$

13,221

$

13,504

$

12,318

$

11,726

$

10,878

Allowance for unfunded loan commitments

$

178

$

240

$

269

$

269

$

312

Allowance for credit losses

$

13,399

$

13,744

$

12,587

$

11,995

$

11,190













Allowance for loan and lease losses to loans


2.01%


2.00%


1.77%


1.63%


1.45%

Allowance for unfunded loan commitments












to unfunded commitments


0.20%


0.27%


0.29%


0.28%


0.30%

Allowance for credit losses to loans


2.04%


2.04%


1.81%


1.67%


1.50%













Net charge-offs (recoveries)

$

2,765

$

1,543

$

668

$

894

$

2,288

Net charge-offs (recoveries) to loans


0.430%


0.234%


0.098%


0.127%


0.311%

Nonperforming loans to loans


2.02%


1.55%


1.68%


1.69%


1.52%

Nonperforming assets to assets


2.67%


2.50%


2.79%


2.52%


2.49%

Loans to deposits


93.84%


95.66%


96.03%


96.57%


102.16%

Loans to assets


80.22%


79.37%


79.64%


79.66%


84.03%

Loans serviced for others

$

296,452

$

289,324

$

281,935

$

268,266

$

254,195



SOURCE First South Bancorp, Inc.



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