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

20 Apr, 2011, 11:01 ET from First South Bancorp, Inc.

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