First South Bancorp, Inc. Reports September 30, 2010 Quarterly and Nine Months Earnings

Oct 13, 2010, 15:00 ET from First South Bancorp, Inc.

WASHINGTON, N.C., Oct. 13 /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 and nine months ended September 30, 2010.

Net income was $1.0 million ($0.10 per share diluted) for the 2010 third quarter, compared to net income of $1.6 million ($0.16 per share diluted) for the linked 2010 second quarter, and $1.8 million ($0.18 per share diluted) for the comparative 2009 third quarter.  Net income for the first nine months of 2010 was $4.1 million ($0.42 per share diluted), compared to net income of $5.5 million ($0.57 per share diluted) for the first nine months of 2009.

The Bank recorded provisions for credit losses of $4.0 million in the 2010 third quarter compared to $2.1 million in the linked 2010 second quarter and $1.3 million in the comparative 2009 third 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. Based on the overall credit quality, credit risk analysis and historical loss experience of the loan and lease receivable portfolio, the Bank believes it has established the allowance for credit losses pursuant to generally accepted accounting principles, and has taken into account the views of its regulators and the current economic environment.  The allowance for credit losses was $8.8 million at September 30, 2010, representing 1.35% of total loans and leases.

Bill Wall, executive vice president and chief financial officer stated, "During the 2010 third quarter, we took a conservative posture in our provisioning for credit losses as we are aggressively classifying and managing our 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."

"As we address and manage through a challenging credit environment for the Bank and our customers, we remain focused on long-term performance.  The Bank continues to focus on remediating problem assets, maintaining adequate capital levels and liquidity, improving operating efficiency, building core customer relationships and enhancing long-term shareholder value.  The Company remains profitable, continues to maintain a strong capital position in excess of the regulatory well-capitalized guidelines, and combined with volume of the allowance for credit losses should enhance our long-term operating performance when the current economic environment substantially improves," stated Wall.

Net interest income increased to $8.7 million for the 2010 third quarter, from $8.6 million for the linked 2010 second quarter and $8.3 million for the comparative 2009 third quarter. The net interest margin increased to 4.72% for the 2010 third quarter from 4.64% for the linked 2010 second quarter and 4.13% for the comparative 2009 third quarter.  The increase in net interest income and net interest margin continues to reflect a combination of effectively managing the rates earned on the current volume of interest-earning assets and rates paid on new and repricing interest-bearing liabilities during the current lower interest rate environment.

Total non-interest income increased to $3.4 million for the 2010 third quarter, from $2.8 million for the linked 2010 second quarter and $2.4 million for the comparative 2009 third quarter.  Revenue from loan and deposit service offerings (loan fees, deposit fees and service charges and servicing fee income) have remained consistent at $2.0 million for each of the 2010 third quarter, the linked 2010 second quarter and the comparative 2009 third quarter.

Net gains recognized from mortgage loan sales increased to $479,000 in the 2010 third quarter from $173,000 in the linked 2010 second quarter and $247,000 in the comparative 2009 third quarter. Net gains recognized from investment and mortgage-backed securities sales increased to $696,000 in the 2010 third quarter from $458,000 in the linked 2010 second quarter and none in the comparative 2009 third quarter.

Total non-interest expenses have also remained consistent at $6.7 million for both the 2010 third quarter the linked 2010 second quarter, and $6.5 million for the comparative 2009 third quarter.  Compensation and fringe benefits, the largest component of non-interest expense, was $4.0 million for the 2010 third quarter, compared to $4.1 million for the linked 2010 second quarter and $3.5 million for the comparative 2009 third quarter. FDIC insurance premiums were $285,000 for the 2010 third quarter, compared to $287,000 for the linked 2010 second quarter and $275,000 for the comparative 2009 third quarter, reflecting risk based assessment rates imposed by the FDIC.

Total assets declined to $811.9 million at September 30, 2010 from $829.9 million at December 31, 2009. Total loans declined to $642.4 million at September 30, 2010 from $658.7 million at December 31, 2009, reflecting a net combination of principal repayments, sales, securitizations and the volume of loans originated during the current period.   Mortgage-backed securities declined to $87.2 million at September 30, 2010 from $97.2 million at December 31, 2009, reflecting the net of principal repayments, sales and securitizations during the current period.  Cash and interest bearing deposits increased to $40.8 million at September 30, 2010 from $29.6 million at December 31, 2009, as the Bank used a portion of the proceeds from loan and mortgage-backed securities sales to support its liquidity position.                                                                                        

Nonperforming loans increased to $19.2 million at September 30, 2010, from $10.2 million at December 31, 2009, reflecting the 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 $8.6 million at September 30, 2010 from $10.6 million at December 31, 2009, reflecting foreclosure activity net of sales of 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 increased to $696.1 million at September 30, 2010 from $688.5 million at December 31, 2009. Borrowings declined to $12.2 million at September 30, 2010 from $37.4 million at December 31, 2009.  During the 2010 first quarter, the Bank repaid a $25.0 million 3.0% fixed-rate FHLB advance. The cost of funds for the 2010 third quarter improved to 1.24% from 1.26% for the linked 2010 second quarter and 2.03% for the comparative 2009 third 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.

First South Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

September 30,

December 31,

2010

2009

*

Assets

(unaudited)

Cash and due from banks

$

16,331,418

$

17,758,370

Interest-bearing deposits in financial institutions

24,483,235

11,879,794

Investment securities - available for sale

0

407,317

Mortgage-backed securities - available for sale

86,921,971

96,725,468

Mortgage-backed securities - held for investment

322,819

513,882

Loans and leases receivable, net:

 Held for sale

5,163,550

6,548,980

 Held for investment

637,216,753

652,106,538

Premises and equipment, net

9,215,998

8,539,759

Other real estate owned

8,598,517

10,561,071

Federal Home Loan Bank of Atlanta stock, at cost

    which approximates market

3,610,700

3,889,500

Accrued interest receivable

2,981,970

3,318,141

Goodwill

4,218,576

4,218,576

Mortgage servicing rights

1,298,828

1,278,688

Identifiable intangible assets

110,040

133,620

Income tax receivable

1,956,063

1,831,598

Prepaid expenses and other assets

9,481,773

10,179,333

         Total assets

$

811,912,211

$

829,890,635

Liabilities and Stockholders' Equity

Deposits:

 Demand

$

237,676,896

$

224,507,362

 Savings

24,946,121

23,137,391

 Large denomination certificates of deposit

222,787,058

224,198,974

 Other time

210,645,373

216,667,331

         Total deposits

696,055,448

688,511,058

Borrowed money

12,164,166

37,380,388

Junior subordinated debentures

10,310,000

10,310,000

Other liabilities

6,089,267

7,475,085

         Total liabilities

724,618,881

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, respectively

97,440

97,423

Additional paid-in capital

35,889,574

35,841,364

Retained earnings, substantially restricted

81,454,239

82,111,114

Treasury stock at cost

(32,122,465)

(32,158,074)

Accumulated other comprehensive income, net

1,974,542

322,277

          Total stockholders' equity

87,293,330

86,214,104

          Total liabilities and stockholders' equity

$

811,912,211

$

829,890,635

*Derived from audited consolidated financial statements

First South Bancorp, Inc. and Subsidiary 

Consolidated Statements of Operations

(unaudited)

Three Months Ended

Nine Months Ended

September 30

September 30

2010

2009

2010

2009

Interest income:

 Interest and fees on loans

$

9,970,388

$

11,162,577

$

29,872,142

$

34,428,527

 Interest and dividends on investments and deposits

992,276

1,033,088

3,070,839

2,779,797

          Total interest income

10,962,664

12,195,665

32,942,981

37,208,324

Interest expense:

 Interest on deposits

2,050,824

3,537,810

6,298,950

11,815,289

 Interest on borrowings

81,915

293,355

302,082

974,106

 Interest on junior subordinated notes

89,021

90,658

251,805

307,966

          Total interest expense

2,221,760

3,921,823

6,852,837

13,097,361

Net interest income

8,740,904

8,273,842

26,090,144

24,110,963

Provision for credit losses

3,961,787

1,260,000

8,451,787

4,480,000

          Net interest income after provision for credit losses

4,779,117

7,013,842

17,638,357

19,630,963

Non-interest income:

 Fees and service charges

1,772,368

1,835,435

5,198,288

5,477,372

 Loan servicing fees

188,292

173,967

555,072

496,795

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

39,858

(86,875)

73,578

(161,323)

 Gain on sale of mortgage loans

478,996

247,189

844,520

935,291

 Gain on sale of mortgage-backed securities

696,410

-

1,631,891

-

 Gain on sale of investment securities

-

-

2,406

917,866

 Other  income

223,777

231,313

618,740

768,081

          Total non-interest income

3,399,701

2,401,029

8,924,495

8,434,082

Non-interest expense:

 Compensation and fringe benefits

3,994,384

3,524,025

11,800,621

10,523,200

 Federal deposit insurance premiums

285,040

274,908

868,918

955,117

 Premises and equipment

417,751

451,967

1,315,500

1,371,822

 Advertising

46,168

37,155

111,582

100,171

 Payroll and other taxes

349,388

330,426

1,066,098

1,017,520

 Data processing

636,299

625,837

1,899,367

1,829,505

 Amortization of intangible assets

123,165

122,003

348,126

371,334

 Other

893,270

1,164,154

2,576,365

2,877,064

          Total non-interest expense

6,745,465

6,530,475

19,986,577

19,045,733

Income before income taxes

1,433,353

2,884,396

6,576,275

9,019,312

Income taxes

423,742

1,122,727

2,458,604

3,493,246

Net income

$

1,009,611

$

1,761,669

$

4,117,671

$

5,526,066

Per share data:

Basic earnings per share

$

0.10

$

0.18

$

0.42

$

0.57

Diluted earnings per share

$

0.10

$

0.18

$

0.42

$

0.57

Dividends per share

$

0.09

$

0.20

$

0.49

$

0.60

Weighted average shares-Basic

9,743,971

9,738,475

9,743,490

9,738,225

Weighted average shares-Diluted

9,743,971

3,738,550

9,743,724

9,738,250

First South Bancorp, Inc.

Supplemental Quarterly Financial Data (Unaudited)

9/30/2010

6/30/2010

3/31/2010

12/31/2009

9/30/2009

(dollars in thousands except per share data)

Consolidated balance sheet data:

Total assets

$

811,912

$

812,771

$

800,608

$

829,891

$

855,933

Loans receivable (net):

Mortgage

$

53,995

$

49,470

$

48,379

$

51,820

$

49,944

Commercial

496,489

502,425

498,525

508,279

528,216

Consumer

83,801

83,550

85,502

88,893

92,809

Leases

8,095

9,413

9,877

9,664

10,727

Total

$

642,380

$

644,858

$

642,283

$

658,656

$

681,696

Cash and investments

$

40,815

$

34,737

$

22,690

$

30,045

$

46,741

Mortgage-backed securities

87,245

92,559

94,735

97,239

86,275

Premises and equipment

9,216

9,240

9,034

8,540

8,608

Goodwill

4,219

4,219

4,219

4,219

4,219

Mortgage servicing rights

1,299

1,268

1,281

1,279

1,247

Deposits:

Savings

$

24,946

$

25,155

$

24,709

$

23,138

$

23,407

Checking

237,677

224,950

225,997

224,507

220,018

Certificates

433,432

444,435

433,734

440,866

466,426

Total

$

696,055

$

694,540

$

684,440

$

688,511

$

709,851

Borrowings

$

12,164

$

12,665

$

12,441

$

37,380

$

39,040

Junior subordinated debentures

10,310

10,310

10,310

10,310

10,310

Stockholders' equity

87,293

87,110

85,962

86,214

87,281

Consolidated earnings summary:

Interest income

$

10,963

$

10,829

$

11,151

$

11,851

$

12,196

Interest expense

2,222

2,258

2,372

2,996

3,922

Net interest income

8,741

8,571

8,779

8,855

8,274

Provision for credit losses

3,962

2,070

2,420

2,700

1,260

Noninterest income

3,400

2,830

2,694

2,527

2,401

Noninterest expense

6,745

6,741

6,500

6,300

6,530

Income taxes

424

1,032

1,003

872

1,123

Net income

$

1,010

$

1,558

$

1,550

$

1,510

$

1,762

Per Share Data:

Earnings per share-Basic

$

0.10

$

0.16

$

0.16

$

0.16

$

0.18

Earnings per share-Diluted

$

0.10

$

0.16

$

0.16

$

0.16

$

0.18

Dividends per share

$

0.09

$

0.20

$

0.20

$

0.20

$

0.20

Book value per share

$

8.96

$

8.94

$

8.82

$

8.85

$

8.96

Average shares-Basic

9,743,971

9,743,971

9,742,505

9,738,475

9,738,475

Average shares-Diluted

9,743,971

9,744,679

9,742,505

9,738,550

9,738,550

9/30/2010

6/30/2010

3/31/2010

12/31/2009

9/30/2009

(dollars in thousands except per share data)

Performance ratios:

Yield on earning assets

5.92%

5.86%

5.99%

6.09%

6.09%

Cost of funds

1.24%

1.26%

1.32%

1.61%

2.03%

Net interest spread

4.68%

4.60%

4.67%

4.48%

4.06%

Net interest margin on earning assets

4.72%

4.64%

4.72%

4.55%

4.13%

Earning assets to total assets

90.96%

91.13%

91.66%

91.81%

92.38%

Return on average assets

0.50%

0.77%

0.76%

0.72%

0.81%

Return on average equity

4.60%

7.17%

7.13%

6.88%

8.06%

Efficiency ratio

55.50%

59.05%

56.59%

55.28%

61.10%

Dividend payout ratio

90.00%

125.00%

125.00%

125.00%

111.11%

Average assets

$

813,900

$

808,266

$

811,859

$

842,556

$

867,976

Average earning assets

$

741,214

$

738,645

$

744,415

$

777,896

$

801,625

Average equity

$

87,760

$

86,957

$

86,897

$

87,762

$

87,418

Equity/Assets

10.75%

10.72%

10.74%

10.39%

10.20%

Tangible Equity/Assets

10.22%

10.18%

10.19%

9.86%

9.69%

Asset quality data and ratios:

Nonaccrual loans

$

14,073

$

12,308

$

8,578

$

5,838

$

7,132

Restructured loans

$

5,156

$

5,647

$

4,377

$

4,343

$

4,304

Total nonperforming loans

$

19,229

$

17,955

$

12,955

$

10,181

$

11,436

Other real estate owned

$

8,599

$

8,452

$

8,383

$

10,561

$

12,474

Total nonperforming assets

$

27,828

$

26,407

$

21,338

$

20,742

$

23,910

Allowance for loan and lease losses

$

8,611

$

7,951

$

13,221

$

13,504

$

12,318

Allowance for unfunded loan commitments

$

163

$

171

$

178

$

240

$

269

Allowance for credit losses

$

8,774

$

8,122

$

13,399

$

13,744

$

12,587

Allowance for loan and lease losses to loans

1.32%

1.21%

2.01%

2.00%

1.77%

Allowance for unfunded loan commitments

to unfunded commitments

0.20%

0.20%

0.20%

0.27%

0.29%

Allowance for credit losses to loans

1.35%

1.24%

2.04%

2.04%

1.81%

Net charge-offs (recoveries)

$

3,310

$

7,347

$

2,765

$

1,543

$

668

Net charge-offs (recoveries) to loans

0.52%

1.14%

0.43%

0.23%

0.10%

Nonperforming loans to loans

2.99%

2.78%

2.02%

1.55%

1.68%

Nonperforming assets to assets

3.43%

3.25%

2.67%

2.50%

2.79%

Loans to deposits

92.29%

92.85%

93.84%

95.66%

96.03%

Loans to assets

79.12%

79.34%

80.22%

79.37%

79.64%

Loans serviced for others

$

307,395

$

299,361

$

296,452

$

289,324

$

281,935

For more information contact:

Bill Wall (CFO)

Phone: (252) 940-5017

Website: www.firstsouthnc.com

SOURCE First South Bancorp, Inc.



RELATED LINKS

http://www.firstsouthnc.com