First South Bancorp, Inc. Reports March 31, 2011 Quarterly Operating Results

WASHINGTON, N.C., April 20, 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 March 31, 2011.

The Company reported net income of $327,000 for the 2011 first quarter, compared to a net loss of $6.5 million for the linked 2010 fourth quarter, and net income of $1.5 million for the 2010 first quarter. Net income per diluted common share was $0.03 for the 2011 first quarter, compared to net loss per diluted common share of $0.67 for the linked 2010 fourth quarter and net income per diluted common share of $0.16 for the 2010 first quarter.

Tom Vann, President and CEO, commented, "I am pleased to report the Company's operating results for the first quarter of 2011. The Company continues to generate solid core earnings.  First quarter 2011 earnings were $327,000 net after recording $2.5 million of loan loss provisions.  In the 2011 first quarter, we continued evaluating the credit quality of the Bank's loan portfolio and market values of foreclosed properties.  Although our non-accrual loans declined modestly during the current quarter, based on our current analysis we remain cautiously optimistic about the financial stress some of our borrowers continue to face.  Consequently, we are provisioning accordingly to maintain our loan loss reserves at an adequate level. Reducing our non-accrual loans will continue to be a top priority during 2011," said Mr. Vann.

Asset Quality

Non-accrual loans declined to $40.5 million at March 31, 2011, from $41.3 million at December 31, 2010.  Non-accrual loans include non-accrual restructured loans, which declined to $23.8 million at March 31, 2010, from $27.0 million at December 31, 2010.  Other real estate owned increased to $12.1 million at March 31, 2011 from $11.6 million at December 31, 2010, reflecting foreclosure activity net of sales of certain real estate properties during the first quarter.  Total nonperforming assets declined to $52.6 million at March 31, 2011, from $52.9 million at December 31, 2010.  "While we are encouraged that property values appear to be stabilizing, we will continue to monitor these values and mitigate nonperforming assets as quickly as feasible," said Mr. Vann.

The Bank recorded $2.5 million of provisions for credit losses in the 2011 first quarter, compared to $13.7 million in the linked 2010 fourth quarter and $2.4 million in the 2010 first quarter. Credit loss provisions were necessary to replenish net charge-offs and to maintain the allowance for credit losses at a level that management believes is adequate to absorb probable future losses in the loan portfolio. The allowance for loan and lease losses (ALLL) increased to $19.3 million at March 31, 2011 (3.2% of total loans), from $18.8 million at December 31, 2010 (3.0% of total loans). Net charge offs were $2.0 million in the 2011 first quarter, compared to $3.4 million in the linked 2010 fourth quarter and $2.8 million in the 2010 first 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 allowance for credit losses."  

Net Interest Income

Net interest income remained constant at $7.8 million for both the 2011 first quarter and the linked 2010 fourth quarter, compared to $8.8 million for the 2010 first quarter. The changes in volume of net interest income in the past two quarters has been influenced by earnings from an increased volume of mortgage-backed securities, the level of non-accrual loans and a reduction in the cost of funds. The net interest margin on average earning assets improved to 4.4% for the 2011 first quarter, from 4.3% for the linked 2010 fourth quarter and 4.7% for the 2010 first quarter.

Non-Interest Income

Total non-interest income was $2.0 million for the 2011 first quarter, $1.9 million for the linked 2010 fourth quarter and $2.7 million for the 2010 first quarter.  Revenue from loan and deposit service offerings (loan fees, deposit fees and service charges and servicing fee income) remained relatively consistent at $1.7 million for the 2011 first quarter, compared to $1.9 million for the linked 2010 fourth quarter and $1.8 million for the 2010 first quarter.

Net gains from mortgage loan sales was $120,000 in the 2011 first quarter, $311,000 in the linked 2010 fourth quarter and $192,000 in the 2010 first quarter.  Net gains recognized from investment and mortgage-backed securities sales was $52,000 in the 2011 first quarter, $51,000 in the linked 2010 forth quarter and $480,000 in the 2010 first quarter.

In its efforts of mitigating nonperforming assets, the Bank recognized $82,000 of net losses on the sale of other real estate owned properties during the 2011 first quarter, compared to $597,000 of net losses in the linked 2010 fourth quarter and $12,000 of net gains in the 2010 first quarter.

Non-Interest Expense

Total non-interest expense was $6.8 million for the 2011 first quarter, $6.7 million for the linked 2010 fourth quarter and $6.5 million for the 2010 first quarter.  

The largest component of non-interest expense, compensation and fringe benefits, was $3.8 million for both the 2011 first quarter and the linked 2010 fourth quarter, and $3.7 million for the 2010 first quarter, reflecting the Bank's efforts of managing its human resources cost.

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 $225,000 for the 2011 first quarter, compared to a $4.3 million income tax benefit recognized in the linked 2010 fourth quarter (a result of the 2010 fourth quarter pre-tax operating loss) and $1.0 of income tax expense in the 2010 first 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 $791.2 million at March 31, 2011, from $797.2 million at December 31, 2010. Net loans and leases receivable declined to $587.2 million at March 31, 2011 from $606.1 million at December 31, 2010, reflecting a combination of principal repayments, sales and securitizations of loans into mortgage-backed securities, and the volume of loans originated during the current quarter.   Mortgage-backed securities increased to $120.6 million at March 31, 2011, from $98.9 million at December 31, 2010, reflecting the net of purchases, sales and securitization of certain mortgage loans during the current quarter.  Cash and investments declined to $34.5 million at March 31, 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 increased to $693.6 million at March 31, 2011, from $689.5 million at December 31, 2010. Borrowings declined to $2.4 million at March 31, 2011, from $11.5 million at December 31, 2010.  During the current quarter, the Bank repaid a $10.0 million fixed-rate FHLB advance. The cost of funds improved to 1.2% for both the 2011 first quarter and the linked 2010 fourth quarter, from 1.3% for the 2010 first 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 was $79.6 million at March 31, 2011, compared to $79.5 million at December 31, 2010, reflecting the net effect of quarterly net income and changes in accumulated other comprehensive income.  The equity to assets ratio was 10.1% at March 31, 2011 and 10.0% at December 31, 2010.  There were 9,751,271 common shares outstanding at both March 31, 2011 and December 31, 2010.  The book value per share was $8.17 at March 31, 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 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












March 31



December 31





2011



2010

*

Assets



(unaudited)





















Cash and due from banks


$

15,000,014


$

14,684,377


Interest-bearing deposits in financial institutions



19,536,680



29,749,236


Mortgage-backed securities - available for sale



64,105,062



98,637,742


Mortgage-backed securities - held for investment



56,460,313



244,836


Loans and leases receivable, net:








 Held for sale



2,461,545



4,464,040


 Held for investment



584,739,558



601,610,242


Premises and equipment, net



10,195,855



9,162,538


Other real estate owned



12,068,659



11,616,390


Federal Home Loan Bank of Atlanta stock, at cost








    which approximates market



3,474,900



3,474,900


Accrued interest receivable



2,457,808



2,336,527


Goodwill



4,218,576



4,218,576


Mortgage servicing rights



1,283,517



1,357,659


Identifiable intangible assets



94,320



102,180


Income tax receivable



2,480,088



6,217,679


Prepaid expenses and other assets



12,576,673



9,368,924










         Total assets


$

791,153,568


$

797,245,846










Liabilities and Stockholders' Equity
















Deposits:








 Demand


$

237,604,636


$

234,501,026


 Savings



26,251,381



24,498,789


 Large denomination certificates of deposit



226,729,367



222,578,449


 Other time



203,042,422



207,886,450


         Total deposits



693,627,806



689,464,714


Borrowed money



2,363,378



11,503,110


Junior subordinated debentures



10,310,000



10,310,000


Other liabilities



5,204,028



6,454,818


         Total liabilities



711,505,212



717,732,642


















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








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








 shares outstanding, respectively



97,513



97,513


Additional paid-in capital



35,824,203



35,795,586


Retained earnings, substantially restricted



75,283,554



74,956,772


Treasury stock at cost



(31,967,269)



(31,967,269)


Accumulated other comprehensive income, net



410,355



630,602


          Total stockholders' equity



79,648,356



79,513,204


















          Total liabilities and stockholders' equity


$

791,153,568


$

797,245,846










*Derived from audited consolidated financial statements



First South Bancorp, Inc. and Subsidiary 

Consolidated Statements of Operations

(unaudited)




Three Months Ended




March 31




2011



2010








Interest income:







 Interest and fees on loans


$

8,823,994


$

10,108,953

 Interest and dividends on investments and deposits



1,067,205



1,042,274

          Total interest income



9,891,199



11,151,227








Interest expense:







 Interest on deposits



1,976,869



2,153,638

 Interest on borrowings



27,414



139,096

 Interest on junior subordinated notes



81,320



80,016

          Total interest expense



2,085,603



2,372,750















Net interest income



7,805,596



8,778,477

Provision for credit losses



2,450,011



2,420,000

          Net interest income after provision for credit losses



5,355,585



6,358,477








Non-interest income:







 Fees and service charges



1,486,702



1,630,517

 Loan servicing fees



198,084



179,733

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



(82,095)



12,497

 Gain on sale of mortgage loans



119,982



192,096

 Gain on sale of mortgage-backed securities



52,146



480,082

 Other  income



207,131



199,247

          Total non-interest income



1,981,950



2,694,172















Non-interest expense:







 Compensation and fringe benefits



3,789,679



3,691,202

 Federal deposit insurance premiums



291,500



297,265

 Premises and equipment



423,280



459,186

 Advertising



47,105



31,563

 Payroll and other taxes



401,628



376,614

 Data processing



600,541



618,396

 Amortization of intangible assets



147,202



117,485

 Other



1,085,278



908,463

          Total non-interest expense



6,786,213



6,500,174








Income (loss) before income tax expense (benefit)



551,322



2,552,475








Income tax expense (benefit)



224,540



1,002,778








Net income (loss)


$

326,782


$

1,549,697








Per share data:







Basic earnings (loss) per share


$

0.03


$

0.16

Diluted earnings (loss) per share


$

0.03


$

0.16

Dividends per share


$

0.00


$

0.20

Average basic shares outstanding



9,751,271



9,742,505

Average diluted shares outstanding



9,751,271



9,742,505



First South Bancorp, Inc.


Supplemental Financial Data (Unaudited)


















Quarterly





3/31/2011


12/31/2010


9/30/2010


6/30/2010


3/31/2010

Consolidated balance sheet data:


(dollars in thousands except per share data)

Total assets


$

791,154

$

797,246

$

811,912

$

812,771

$

800,608














Loans receivable (net):












Mortgage


$

53,925

$

55,450

$

53,995

$

49,470

$

48,379

Commercial



445,930


463,155


496,489


502,425


498,525

Consumer



79,517


79,469


83,801


83,550


85,502

Leases



7,829


8,000


8,095


9,413


9,877


Total loans (net)


$

587,201

$

606,074

$

642,380

$

644,858

$

642,283














Cash and investments


$

34,537

$

44,434

$

40,815

$

34,737

$

22,690

Mortgage-backed securities



120,565


98,883


87,245


92,559


94,735

Premises and equipment



10,196


9,163


9,216


9,240


9,034

Goodwill



4,219


4,219


4,219


4,219


4,219

Mortgage servicing rights



1,284


1,358


1,299


1,268


1,281














Deposits:












Savings


$

26,251

$

24,499

$

24,946

$

25,155

$

24,709

Checking



237,605


234,501


237,677


224,950


225,997

Certificates



429,772


430,465


433,432


444,435


433,734


Total deposits


$

693,628

$

689,465

$

696,055

$

694,540

$

684,440














Borrowings


$

2,363

$

11,503

$

12,164

$

12,665

$

12,441

Junior subordinated debentures



10,310


10,310


10,310


10,310


10,310

Stockholders' equity



79,648


79,513


87,293


87,110


85,962














Consolidated earnings summary:












Interest income


$

9,891

$

9,928

$

10,963

$

10,829

$

11,151

Interest expense



2,086


2,166


2,222


2,258


2,372

Net interest income



7,805


7,762


8,741


8,571


8,779

Provision for credit losses



2,450


13,700


3,962


2,070


2,420

Noninterest income



1,982


1,919


3,400


2,830


2,694

Noninterest expense



6,786


6,738


6,745


6,741


6,500

Income tax expense (benefit)



225


(4,260)


424


1,032


1,003

Net income (loss)


$

326

$

(6,497)

$

1,010

$

1,558

$

1,550














Per Share Data:












Basic earnings (loss) per share


$

0.03

$

(0.67)

$

0.10

$

0.16

$

0.16

Diluted earnings (loss) per share


$

0.03

$

(0.67)

$

0.10

$

0.16

$

0.16

Dividends per share


$

0.00

$

0.00

$

0.09

$

0.20

$

0.20

Book value per share


$

8.17

$

8.15

$

8.96

$

8.94

$

8.82














Average basic shares



9,751,271


9,748,948


9,743,971


9,743,971


9,742,505

Average diluted shares



9,751,271


9,748,948


9,743,971


9,744,679


9,742,505
















First South Bancorp, Inc.




Supplemental Financial Data (Unaudited)


Quarterly





3/31/2011


12/31/2010


9/30/2010


6/30/2010


3/31/2010





(dollars in thousands except per share data)

Performance ratios:












Yield on average earning assets



5.59%


5.51%


5.92%


5.86%


5.99%

Cost of funds



1.18%


1.24%


1.24%


1.26%


1.32%

Net interest spread



4.41%


4.30%


4.68%


4.60%


4.67%

Net interest margin/average earning assets



4.41%


4.31%


4.72%


4.64%


4.72%

Earning assets to total assets



89.85%


89.94%


90.96%


91.13%


91.66%














Return on average assets (annualized)



0.16%


-3.21%


0.50%


0.77%


0.76%

Return on average equity (annualized)



1.63%


-30.31%


4.60%


7.17%


7.13%

Efficiency ratio



69.25%


69.52%


55.50%


59.05%


56.59%














Average assets


$

794,615

$

810,459

$

813,900

$

808,266

$

811,859

Average earning assets


$

707,982

$

720,813

$

741,214

$

738,645

$

744,415

Average equity


$

79,978

$

85,746

$

87,760

$

86,957

$

86,897














Equity/Assets



10.07%


9.97%


10.75%


10.72%


10.74%

Tangible Equity/Assets



9.52%


9.43%


10.22%


10.18%


10.19%














Asset quality data and ratios:












Nonaccrual loans


$

16,723

$

14,293

$

14,073

$

12,308

$

8,578

Nonaccrual restructured loans


$

23,804

$

26,973

$

5,156

$

5,647

$

4,377

Total nonaccrual loans


$

40,527

$

41,266

$

19,229

$

17,955

$

12,955

Other real estate owned


$

12,069

$

11,616

$

8,599

$

8,452

$

8,383

Total nonperforming assets


$

52,596

$

52,882

$

27,828

$

26,407

$

21,338














Allowance for loan and lease losses


$

19,320

$

18,830

$

8,611

$

7,951

$

13,221

Allowance for unfunded loan commitments


$

231

$

237

$

163

$

171

$

178

Allowance for credit losses


$

19,551

$

19,067

$

8,774

$

8,122

$

13,399














Allowance for loan and lease losses to loans



3.18%


3.01%


1.32%


1.21%


2.01%

Allowance for unfunded loan commitments













to unfunded commitments



0.30%


0.30%


0.20%


0.20%


0.20%

Allowance for credit losses to loans



3.22%


3.04%


1.35%


1.24%


2.04%














Net charge-offs (recoveries)


$

1,966

$

3,407

$

3,310

$

7,347

$

2,765

Net charge-offs (recoveries) to loans



0.32%


0.54%


0.51%


1.12%


0.42%

Nonaccrual loans to loans



6.67%


6.59%


2.95%


2.74%


1.97%

Nonperforming assets to assets



6.65%


6.63%


3.43%


3.25%


2.67%

Loans to deposits



87.63%


90.83%


93.72%


94.49%


95.97%

Loans to assets



76.82%


78.55%


80.35%


80.74%


82.05%

Loans serviced for others


$

317,816

$

318,218

$

307,395

$

299,361

$

296,452



For more information contact:
Bill Wall (CFO) (252-940-5017) or
Tom Vann (CEO) (252-940-4916)

SOURCE First South Bancorp, Inc.



RELATED LINKS
http://www.firstsouthnc.com

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