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

20 Oct, 2011, 09:30 ET from First South Bancorp, Inc.

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