First South Bancorp, Inc. Reports September 30, 2011 Quarterly Operating Results

WASHINGTON, N.C., Oct. 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 September 30, 2011, and for the nine months ended September 30, 2011.

For the 2011 third quarter, net income increased 5.5% to $403,000 ($0.04 per share diluted), from net income of $382,000 ($0.04 per share diluted) earned in the linked 2011 second quarter, compared to $1.0 million ($0.10 per share diluted) for the 2010 third quarter.  Net income for the nine months ended September 30, 2011 was $1.1 million ($0.11 per share diluted), compared to net income of $4.1 million ($0.42 per share diluted) for the nine months ended September 30, 2010.

Tom Vann, President and CEO, commented, "I am pleased to report the Company's operating results for the third quarter of 2011. The Company continues to generate solid core earnings.  Third quarter 2011 net earnings were $403,000, after recording $2.6 million of credit loss provisions.  In the 2011 third quarter, we continued evaluating the credit quality of the Bank's loan portfolio and market values of foreclosed properties.  While the volume of our nonperforming assets increased marginally during this quarter, based on our current analysis we continue to remain cautiously optimistic about the financial stress some of our borrowers are facing.  Consequently, we are provisioning accordingly to replenish net charge-offs and to maintain our loan loss reserves at an adequate level.  Mitigating our nonperforming assets will continue to be a top priority for the remainder 2011 and into 2012," said Mr. Vann.

Asset Quality

Total nonperforming assets, including loans on non-accrual status, restructured loans on non-accrual status and other real estate owned, increased to $54.9 million at September 30, 2011, from $52.9 million at December 31, 2010.  Loans on non-accrual status increased to $18.3 million at September 30, 2011, from $14.3 million at December 31, 2010.  At September 30, 2011, $3.1 million of these loans were earning interest.  Restructured loans on non-accrual status, declined to $23.7 million at September 30, 2011, from $27.0 million at December 31, 2010.  At September 30, 2011, $11.2 million of these restructured loans were current and making scheduled payments according to the terms of the restructure.

Performing restructured loans on full accrual status totaled $19.8 million at September 30, 2011, compared to $31.3 million at December 31, 2010.  Restructured loans do not continue to be reported as a restructure in calendar years after the year in which the restructuring took place if the loan is in compliance with its modified terms and yields a market rate.

Other real estate owned increased to $12.9 million at September 30, 2011, from $11.6 million at December 31, 2010, reflecting foreclosure activity net of sales of certain real estate properties.  "The stabilization of property values continues to be an issue in the markets we serve.  We will continue monitoring these values and mitigate nonperforming assets as quickly as feasible," said Mr. Vann.

The Bank recorded $2.6 million of provisions for credit losses in the 2011 third quarter, compared to $3.1 million in the linked 2011 second quarter and $4.0 million in the 2010 third quarter. Credit loss provisions were necessary to replenish net charge-offs and to maintain the allowance for loan and lease losses (ALLL) at a level that management believes is adequate to absorb probable future losses in the loan portfolio.  The ALLL was $18.3 million at September 30, 2011 (3.12% of total loans), compared to $18.8 million at December 31, 2010 (3.01% of total loans). Net charge offs were $3.0 million in the 2011 third quarter, compared to $3.7 million in the linked 2011 second quarter and $3.3 million in the 2010 third quarter.

Mr. Vann stated, "Management continues to feel it is prudent to take a conservative posture in provisioning for credit losses during these weak economic conditions as we mitigate 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 ALLL."

Net Interest Income

Net interest income declined to $8.0 million for the 2011 third quarter, from $8.2 million for the linked 2011 second quarter, and $8.7 million for the 2010 third quarter. The change in levels of net interest income is influenced by the volume of interest-earning assets and interest-bearing liabilities and the management of rates earned and paid during each respective reporting period. The net interest margin on average earning assets remained consistent at 4.6% for both the 2011 third quarter and the linked 2011 second quarter, and 4.7% for the comparative 2010 third quarter.

Non-Interest Income

Total non-interest income declined to $2.3 million for the 2011 third quarter, from $2.5 million for the linked 2011 second quarter, compared to $3.4 million for the 2010 third quarter.  Revenue from loan and deposit service offerings (loan fees, deposit fees and service charges and servicing fee income) declined marginally to $1.7 million for the 2011 third quarter, from $1.8 million for the linked 2011 second quarter and $2.0 million for the comparative 2010 third quarter.

Net gains from mortgage loan sales were $165,000 in the 2011 third quarter, compared to $112,000 in the linked 2011 second quarter and $479,000 in the 2010 third quarter.  Net gains from mortgage-backed securities sales were $204,000 in the 2011 third quarter, compared to none in the linked 2011 second quarter and $696,000 in the 2010 third quarter.

In its efforts of mitigating nonperforming assets, the Bank recognized $16,000 of net losses on the sale of real estate owned properties during the 2011 third quarter, compared to net gains of $53,000 in the linked 2011 second quarter and $40,000 in the 2010 third quarter.

Non-Interest Expense

Total non-interest expense held consistent at $7.0 million for both the 2011 third quarter and the linked 2011 second quarter, compared to $6.7 million for the 2010 third quarter.  The largest component of non-interest expense, compensation and fringe benefits, declined to $3.7 million for the 2011 third quarter, from $3.9 million for the linked 2011 second quarter and $4.0 million for the 2010 third quarter, reflecting the Bank's efforts of managing its human resources cost.

Expenses attributable to valuation adjustments, renovating, maintenance and property taxes paid for the current volume of other real estate owned properties increased to $579,000 for the 2011 third quarter, from $265,000 for the linked 2011 second quarter, and $150,000 for the comparative 2010 third quarter.  

FDIC insurance premiums increased to $388,000 for the 2011 third quarter, from $293,000 for the linked 2011 second quarter and $285,000 for the comparative 2010 third quarter, reflecting changes in the FDIC's risk-based deposit insurance assessment rates.

Other noninterest expenses including 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 $256,000 for the 2011 third quarter, compared to $226,000 for the linked 2011 second quarter and $424,000 for the 2010 third quarter.  Changes in the amount of income tax expense reflects changes in pretax income, deductible expenses, the application of permanent and temporary differences and the applicable income tax rates in effect during each period.  

Balance Sheet

Total assets declined to $768.4 million at September 30, 2011, from $797.2 million at December 31, 2010. Net loans and leases receivable declined to $568.2 million at September 30, 2011, from $606.1 million at December 31, 2010, reflecting the net of principal repayments, foreclosures, sales and securitizations of loans into mortgage-backed securities, and the volume of loans originated during the current quarter.   Mortgage-backed securities increased to $119.8 million at September 30, 2011, from $98.9 million at December 31, 2010, reflecting the net of purchases, sales and securitizations of certain mortgage loans during the current quarter.  Cash and overnight investments declined to $32.9 million at September 30, 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 declined to $665.1 million at September 30, 2011, from $689.5 million at December 31, 2010.  Borrowings declined to $2.0 million at September 30, 2011, from $11.5 million at December 31, 2010, reflecting the repayment of a $10.0 million fixed-rate FHLB advance. The cost of funds improved to 1.1% for both the 2011 third quarter and the linked 2011 second quarter, from 1.3% for the 2010 third quarter. The Bank manages its cost of funds by a combination of pricing new deposits, the renewal of maturing time deposits and the repositioning of borrowings in the current lower interest rate environment.  

Stockholders' equity increased to $82.1 million at September 30, 2011, from $79.5 million at December 31, 2010, reflecting year-to-date net income and changes in accumulated other comprehensive income.  The equity to assets ratio increased to 10.7% at September 30, 2011, from 10.0% at December 31, 2010.  There were 9,751,271 common shares outstanding at both September 30, 2011 and December 31, 2010.  The book value per common share increased to $8.42 at September 30, 2011, from $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 27 full service branch offices 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




2011



2010

*

Assets


(unaudited)












Cash and due from banks

$

24,346,279


$

14,684,377


Interest-bearing deposits in financial institutions


8,562,673



29,749,236


Mortgage-backed securities - available for sale, at fair value


65,518,331



98,637,742


Mortgage-backed securities - held for investment


54,246,064



244,836


Loans and leases receivable:







  Held for sale


18,251,031



4,464,040


  Held for investment


568,289,053



620,440,530


  Allowance for loan and lease losses


(18,306,540)



(18,830,288)


          Loans and leases receivable, net


568,233,544



606,074,282


Premises and equipment, net


11,208,521



9,162,538


Other real estate owned


12,885,803



11,616,390


Stock in Federal Home Loan Bank of Atlanta, at cost


2,304,300



3,474,900


Accrued interest receivable


2,334,313



2,336,527


Goodwill


4,218,576



4,218,576


Mortgage servicing rights


1,090,597



1,357,659


Identifiable intangible assets


78,600



102,180


Income tax receivable


2,348,145



2,864,993


Prepaid expenses and other assets


11,035,732



12,721,610









         Total assets

$

768,411,478


$

797,245,846









Liabilities and Stockholders' Equity














Deposits:







 Demand

$

243,582,050


$

234,501,026


 Savings


27,550,731



24,498,789


 Large denomination certificates of deposit


207,641,508



222,578,449


 Other time


186,365,683



207,886,450


         Total deposits


665,139,972



689,464,714


Borrowed money


1,985,814



11,503,110


Junior subordinated debentures


10,310,000



10,310,000


Other liabilities


8,914,922



6,454,818


         Total liabilities


686,350,708



717,732,642









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







  11,254,222 shares issued; 9,751,271 shares outstanding


97,513



97,513


Additional paid-in capital


35,796,939



35,795,586


Retained earnings, substantially restricted


76,068,915



74,956,772


Treasury stock, at cost


(31,967,269)



(31,967,269)


Accumulated other comprehensive income, net


2,064,672



630,602


          Total stockholders' equity


82,060,770



79,513,204









          Total liabilities and stockholders' equity

$

768,411,478


$

797,245,846









*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



2011



2010



2011



2010













Interest income:












 Interest and fees on loans

$

8,582,320


$

9,970,388


$

26,312,194


$

29,872,142

 Interest and dividends on investments and deposits


1,278,399



992,276



3,628,175



3,070,839

          Total interest income


9,860,719



10,962,664



29,940,369



32,942,981













Interest expense:












 Interest on deposits


1,767,524



2,050,824



5,669,228



6,298,950

 Interest on borrowings


1,513



81,915



30,480



302,082

 Interest on junior subordinated notes


83,019



89,021



248,250



251,805

          Total interest expense


1,852,056



2,221,760



5,947,958



6,852,837

























Net interest income


8,008,663



8,740,904



23,992,411



26,090,144

Provision for credit losses


2,643,282



3,961,787



8,173,293



8,451,787

          Net interest income after provision for credit losses


5,365,381



4,779,117



15,819,118



17,638,357













Non-interest income:












 Fees and service charges


1,485,776



1,772,368



4,554,400



5,198,288

 Loan servicing fees


195,338



188,292



590,409



555,072

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


(15,710)



39,858



(44,418)



73,578

 Gain on sale of mortgage loans


165,418



478,996



396,946



844,520

 Gain on sale of mortgage-backed securities


204,248



696,410



256,394



1,631,891

 Gain on sale of investment securities


-



-



-



2,406

 Other  income


257,074



223,777



1,018,074



618,740

          Total non-interest income


2,292,144



3,399,701



6,771,805



8,924,495

























Non-interest expense:












 Compensation and fringe benefits


3,658,126



3,994,384



11,389,382



11,800,621

 Federal deposit insurance premiums


387,679



285,040



972,462



868,918

 Premises and equipment


416,189



417,751



1,272,981



1,315,500

 Advertising


45,670



46,168



131,055



111,582

 Payroll and other taxes


338,058



349,388



1,092,206



1,066,098

 Data processing


699,089



636,299



1,922,489



1,899,367

 Amortization of intangible assets


149,257



123,165



442,038



348,126

 Other real estate owned expense


579,001



150,021



1,063,602



313,895

 Other


725,597



743,249



2,486,766



2,262,470

          Total non-interest expense


6,998,666



6,745,465



20,772,981



19,986,577













Income before income tax expense


658,859



1,433,353



1,817,942



6,576,275













Income tax expense


255,588



423,742



705,799



2,458,604













Net income

$

403,271


$

1,009,611


$

1,112,143


$

4,117,671













Per share data:












Basic earnings per share

$

0.04


$

0.10


$

0.11


$

0.42

Diluted earnings per share

$

0.04


$

0.10


$

0.11


$

0.42

Dividends per share

$

0.00


$

0.09


$

0.00


$

0.49

Average basic shares outstanding


9,751,271



9,743,971



9,751,271



9,743,490

Average diluted shares outstanding


9,751,271



9,743,971



9,751,271



9,743,724



First South Bancorp, Inc.

Supplemental Financial Data (Unaudited)




















Quarterly


Year to Date




9/30/2011


6/30/2011


3/31/2011


12/31/2010


9/30/2010


9/30/2011


9/30/2010

Consolidated balance sheet data:

          (dollars in thousands except per share data)

Total assets

$

768,411

$

784,538

$

791,154

$

797,246

$

811,912

$

768,411

$

811,912

















Loans receivable (net):















Mortgage

$

80,453

$

56,564

$

53,925

$

55,450

$

53,995

$

80,453

$

53,995

Commercial


405,712


428,141


445,930


463,155


496,489


405,712


496,489

Consumer


74,096


76,459


79,517


79,469


83,801


74,096


83,801

Leases


7,972


7,825


7,829


8,000


8,095


7,972


8,095


Total loans (net)

$

568,233

$

568,989

$

587,201

$

606,074

$

642,380

$

568,233

$

642,380

















Cash and investments

$

32,909

$

44,565

$

34,537

$

44,434

$

40,815

$

32,909

$

40,815

Mortgage-backed securities


119,764


124,539


120,565


98,883


87,245


119,764


87,245

Premises and equipment


11,209


10,753


10,196


9,163


9,216


11,209


9,216

Goodwill


4,219


4,219


4,219


4,219


4,219


4,219


4,219

Mortgage servicing rights


1,091


1,197


1,284


1,358


1,299


1,091


1,299

















Deposits:















Savings

$

27,551

$

26,999

$

26,251

$

24,499

$

24,946

$

27,551

$

24,946

Checking


243,582


240,048


237,605


234,501


237,677


243,582


237,677

Certificates


394,007


416,855


429,772


430,465


433,432


394,007


433,432


Total deposits

$

665,140

$

683,902

$

693,628

$

689,465

$

696,055

$

665,140

$

696,055

















Borrowings

$

1,986

$

2,349

$

2,363

$

11,503

$

12,164

$

1,986

$

12,164

Junior subordinated debentures


10,310


10,310


10,310


10,310


10,310


10,310


10,310

Stockholders' equity


82,061


80,894


79,648


79,513


87,293


82,061


87,293

















Consolidated earnings summary:















Interest income

$

9,861

$

10,188

$

9,891

$

9,928

$

10,963

$

29,940

$

32,943

Interest expense


1,852


2,010


2,086


2,166


2,222


5,948


6,853

Net interest income


8,009


8,178


7,805


7,762


8,741


23,992


26,090

Provision for credit losses


2,643


3,080


2,450


13,700


3,962


8,173


8,452

Noninterest income


2,292


2,498


1,982


1,919


3,400


6,772


8,924

Noninterest expense


6,999


6,988


6,786


6,738


6,745


20,773


19,986

Income tax expense (benefit)


256


226


225


(4,260)


424


706


2,458

Net income (loss)

$

403

$

382

$

326

$

(6,497)

$

1,010

$

1,112

$

4,118

















Per Share Data:















Basic earnings (loss) per share

$

0.04

$

0.04

$

0.03

$

(0.67)

$

0.10

$

0.11

$

0.42

Diluted earnings (loss) per share

$

0.04

$

0.04

$

0.03

$

(0.67)

$

0.10

$

0.11

$

0.42

Dividends per share

$

0.00

$

0.00

$

0.00

$

0.00

$

0.09

$

0.00

$

0.49

Book value per share

$

8.42

$

8.30

$

8.17

$

8.15

$

8.96

$

8.42

$

8.96

















Average basic shares


9,751,271


9,751,271


9,751,271


9,748,948


9,743,971


9,751,271


9,743,490

Average diluted shares


9,751,271


9,751,271


9,751,271


9,748,948


9,743,971


9,751,271


9,743,724



First South Bancorp, Inc.


Supplemental Financial Data (Unaudited)




Quarterly


Year to Date




9/30/2011


6/30/2011


3/31/2011


12/31/2010


9/30/2010


9/30/2011


9/30/2010




          (dollars in thousands except per share data)

Performance ratios:















Yield on average earning assets


5.64%


5.78%


5.59%


5.51%


5.92%


5.67%


5.92%

Cost of funds


1.08%


1.14%


1.18%


1.21%


1.24%


1.13%


1.27%

Net interest spread


4.56%


4.64%


4.41%


4.30%


4.68%


4.54%


4.65%

Net interest margin/average earning assets


4.58%


4.64%


4.41%


4.31%


4.72%


4.54%


4.69%

Earning assets to total assets


90.47%


88.61%


89.85%


89.94%


90.96%


90.47%


90.96%

















Return on average assets (annualized)


0.21%


0.19%


0.16%


-3.21%


0.50%


0.19%


0.68%

Return on average equity (annualized)


1.97%


1.90%


1.63%


-30.31%


4.60%


1.83%


6.29%

Efficiency ratio


67.77%


65.38%


69.25%


69.52%


55.50%


67.47%


57.01%

















Average assets

$

774,383

$

791,644

$

794,615

$

810,459

$

813,900

$

774,383

$

813,900

Average earning assets

$

698,984

$

704,792

$

707,982

$

727,718

$

741,214

$

698,984

$

741,214

Average equity

$

81,757

$

80,517

$

79,978

$

85,746

$

87,760

$

81,757

$

87,760

















Equity/Assets


10.68%


10.31%


10.07%


9.97%


10.75%


10.68%


10.75%

Tangible Equity/Assets


10.12%


9.76%


9.52%


9.43%


10.22%


10.12%


10.22%

















Asset quality data and ratios:















Loans on nonaccrual status:
















Nonaccrual loans
















 Earning

$

3,179

$

3,853

$

4,954

$

5,143

$

2,137

$

3,179

$

2,137


 Non-Earning

$

15,107

$

15,657

$

11,769

$

9,150

$

11,936

$

15,107

$

11,936


    Total Non-Accrual Loans

$

18,286

$

19,510

$

16,723

$

14,293

$

14,073

$

18,286

$

14,073


Nonaccrual restructured loans
















  Past Due TDRs

$

12,568

$

11,228

$

15,024

$

12,407

$

1,624

$

12,568

$

1,624


  Current TDRs

$

11,172

$

10,421

$

8,780

$

14,566

$

3,532

$

11,172

$

3,532


     Total TDRs

$

23,740

$

21,649

$

23,804

$

26,973

$

5,156

$

23,740

$

5,156

Total loans on nonaccrual status

$

42,026

$

41,159

$

40,527

$

41,266

$

19,229

$

42,026

$

19,229

Other real estate owned

$

12,886

$

11,387

$

12,069

$

11,616

$

8,599

$

12,886

$

8,599

Total nonperforming assets

$

54,912

$

52,546

$

52,596

$

52,882

$

27,828

$

54,912

$

27,828

















Performing restructured loans on
















accrual status

$

19,820

$

22,831

$

16,055

$

31,334

$

24,298

$

19,820

$

24,298

















Allowance for loan and lease losses

$

18,307

$

18,667

$

19,320

$

18,830

$

8,611

$

18,307

$

8,611

Allowance for unfunded loan commitments

$

256

$

251

$

231

$

237

$

163

$

256

$

163

Allowance for credit losses

$

18,563

$

18,918

$

19,551

$

19,067

$

8,774

$

18,563

$

8,774

















Allowance for loan and lease losses to loans


3.12%


3.17%


3.18%


3.01%


1.32%


3.12%


1.32%

Allowance for unfunded loan commitments
















to unfunded commitments


0.39%


0.36%


0.30%


0.30%


0.20%


0.39%


0.20%

Allowance for credit losses to loans


3.16%


3.21%


3.22%


3.04%


1.35%


3.16%


1.35%

















Net charge-offs (recoveries)

$

3,018

$

3,713

$

1,966

$

3,407

$

3,310

$

8,697

$

13,422

Net charge-offs (recoveries) to loans


0.53%


0.65%


0.32%


0.54%


0.51%


1.53%


2.09%

Nonaccrual loans to loans


7.40%


7.23%


6.90%


6.81%


2.99%


7.40%


2.99%

Nonperforming assets to assets


7.15%


6.69%


6.65%


6.63%


3.43%


7.15%


3.43%

Loans to deposits


88.35%


86.10%


87.63%


90.83%


93.72%


88.35%


93.72%

Loans to assets


76.48%


75.06%


76.82%


78.55%


80.35%


76.48%


80.35%

Loans serviced for others

$

302,307

$

314,220

$

317,816

$

318,218

$

307,395

$

302,307

$

307,395



For more information contact:
First South Bancorp, Inc.
Bill Wall (CFO) (252-940-5017)
Website: www.firstsouthnc.com

SOURCE First South Bancorp, Inc.



RELATED LINKS
http://www.firstsouthnc.com

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