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

Apr 20, 2010, 10:33 ET from First South Bancorp, Inc.

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.



RELATED LINKS

http://www.firstsouthnc.com