First South Bancorp, Inc. Reports June 30, 2010 Quarterly and Six Months Earnings
WASHINGTON, N.C., July 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 ended June 30, 2010 and for the six months ended June 30, 2010.
Net income was $1.6 million ($0.16 per share diluted) for the 2010 second quarter, compared to net income of $1.5 million ($0.16 per share diluted) for the linked 2010 first quarter, and $1.8 million ($0.18 per share diluted) for the comparative 2009 second quarter. Net income for the first six months of 2010 was $3.1 million ($0.32 per share diluted), compared to net income of $3.8 million ($0.39 per share diluted) for the first six months of 2009.
The Bank recorded provisions for credit losses of $2.1 million in the 2010 second quarter compared to $2.4 million in the linked 2010 first quarter and $1.7 million in the comparative 2009 second 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.
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 are aggressively 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."
"The current economy continues to present a challenging credit environment for the Bank, for our customers and for the banking industry. As we address and manage through these challenges, we remain focused on long-term strategies. These strategies include remediating problem assets, maintaining adequate levels of capital and liquidity, improving efficiency in our operations, building core customer relationships and improving our franchise value along with shareholder value. The Company remains profitable, continues to maintain a strong capital position in excess of the well-capitalized regulatory guidelines, and combined with volume of the allowance for credit losses should enhance our operating performance when the current recessionary economic conditions substantially improve," stated Wall.
Net interest income remained consistent at $8.6 million for the 2010 second quarter, compared to $8.8 million for the linked 2010 first quarter and $7.9 million for the comparative 2009 second quarter. Net interest income in the current quarter has been influenced by a combination of the net volume of loan originations, principal repayments and sales; and repricing new deposits and the rollover of maturing deposits in the current lower interest rate environment. The net interest margin was 4.64% for the 2010 second quarter, compared to 4.72% for the linked 2010 first quarter and 3.87% for the comparative 2009 second quarter.
Total non-interest income also remained consistent at $2.8 million for the 2010 second quarter, compared to $2.7 million for the linked 2010 first quarter and $3.2 million for the comparative 2009 second quarter. Revenue from loan and deposit service offerings (loan fees, deposit fees and service charges and servicing fee income) was $2.0 million in the 2010 second quarter, compared to $1.8 million in the linked 2010 first quarter and $2.1 in the comparative 2009 second quarter.
Net gains recognized from the sale of mortgage loans was $173,000 in the 2010 second quarter, compared to $192,000 in the linked 2010 first quarter and $430,000 in the comparative 2009 second quarter. Net gains recognized from the sale of investments and mortgage-backed securities was $458,000 in the 2010 second quarter, compared to $480,000 in the linked 2010 first quarter and $452,000 in the comparative 2009 second quarter.
Total non-interest expense was $6.7 million for the 2010 second quarter, compared to $6.5 million for both the linked 2010 first quarter and the comparative 2009 second quarter. Compensation and fringe benefits, the largest component of non-interest expense, was $4.1 million for the 2010 second quarter, compared to $3.7 million for the linked 2010 first quarter and $3.6 million for the comparative 2009 second quarter. FDIC insurance premiums were $287,000 for the 2010 second quarter, compared to $297,000 for the linked 2010 first quarter and $540,000 for the comparative 2009 second quarter, reflecting risk based assessment rates imposed by the FDIC.
Total assets declined to $812.8 million at June 30, 2010 from $829.9 million at December 31, 2009. Total loans declined to $644.9 million at June 30, 2010 from $658.7 million at December 31, 2009, reflecting a combination of principal repayments, sales and a decline in the volume of loans originated for investment during the current quarter. Mortgage-backed securities were $92.6 million at June 30, 2010, compared to $97.2 million at December 31, 2009, reflecting the securitization of certain mortgage loans originated for sale, net of principal repayments and sales during the current quarter. Cash and interest bearing deposits increased to $34.7 million at June 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 $18.0 million at June 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.
During the 2010 second quarter, the Bank refined its allowance for loan and lease losses (ALLL) methodology taking into account current generally accepted accounting principles and regulatory guidance. The refined ALLL methodology is focused on current borrower analysis and loss factors that are more indicative of actual historical loss experience in recent years pursuant to FAS 5. Previously, the Bank established specific reserves for certain impaired loans per FAS 114. The Bank has elected to write down substantially all previously calculated specific reserves. Going forward, when impairment can be reasonably calculated, the Bank will write down the affected loan by the level of that impairment. As a result of these changes, this leaves the ALLL with a distinctly different balance than in previous reporting periods, which contained a mixed balance between FAS 5 and FAS 114. Now essentially all of the Bank's calculated ALLL is under FAS 5. Where previous ALLL balances carried specific reserves under FAS 114, the Bank anticipates future reports to more closely approximate this one. The ALLL was $8.1 million at June 30, 2010, representing 1.24% of total loans and leases.
Other real estate owned declined to $8.5 million at June 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 $694.5 million at June 30, 2010 from $688.5 million at December 31, 2009. Borrowings declined to $12.7 million at June 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 second quarter improved to 1.26% from 1.31% for the linked 2010 first quarter and 2.32% for the comparative 2009 second 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 |
|||||||
June 30 |
December 31 |
||||||
2010 |
2009 |
* |
|||||
Assets |
(unaudited) |
||||||
Cash and due from banks |
$ |
17,374,290 |
$ |
17,758,370 |
|||
Interest-bearing deposits in financial institutions |
17,363,166 |
11,879,794 |
|||||
Investment securities - available for sale |
0 |
407,317 |
|||||
Mortgage-backed securities - available for sale |
92,180,716 |
96,725,468 |
|||||
Mortgage-backed securities - held for investment |
377,886 |
513,882 |
|||||
Loans and leases receivable, net: |
|||||||
Held for sale |
5,489,717 |
6,548,980 |
|||||
Held for investment |
639,367,915 |
652,106,538 |
|||||
Premises and equipment, net |
9,239,594 |
8,539,759 |
|||||
Other real estate owned |
8,451,905 |
10,561,071 |
|||||
Federal Home Loan Bank of Atlanta stock, at cost |
|||||||
which approximates market |
3,889,500 |
3,889,500 |
|||||
Accrued interest receivable |
2,936,167 |
3,318,141 |
|||||
Goodwill |
4,218,576 |
4,218,576 |
|||||
Mortgage servicing rights |
1,267,915 |
1,278,688 |
|||||
Identifiable intangible assets |
117,900 |
133,620 |
|||||
Income tax receivable |
2,057,614 |
1,831,598 |
|||||
Prepaid expenses and other assets |
8,437,655 |
10,179,333 |
|||||
Total assets |
$ |
812,770,516 |
$ |
829,890,635 |
|||
Liabilities and Stockholders' Equity |
|||||||
Deposits: |
|||||||
Demand |
$ |
224,949,564 |
$ |
224,507,362 |
|||
Savings |
25,155,189 |
23,137,391 |
|||||
Large denomination certificates of deposit |
227,899,105 |
224,198,974 |
|||||
Other time |
216,536,319 |
216,667,331 |
|||||
Total deposits |
694,540,177 |
688,511,058 |
|||||
Borrowed money |
12,665,012 |
37,380,388 |
|||||
Junior subordinated debentures |
10,310,000 |
10,310,000 |
|||||
Other liabilities |
8,145,185 |
7,475,085 |
|||||
Total liabilities |
725,660,374 |
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 |
35,858,430 |
35,841,364 |
|||||
Retained earnings, substantially restricted |
81,321,585 |
82,111,114 |
|||||
Treasury stock at cost |
(32,122,465) |
(32,158,074) |
|||||
Accumulated other comprehensive income, net |
1,955,152 |
322,277 |
|||||
Total stockholders' equity |
87,110,142 |
86,214,104 |
|||||
Total liabilities and stockholders' equity |
$ |
812,770,516 |
$ |
829,890,635 |
|||
*Derived from audited consolidated financial statements |
|||||||
First South Bancorp, Inc. and Subsidiary Consolidated Statements of Operations (unaudited) |
||||||||||||
Three Months Ended |
Six Months Ended |
|||||||||||
2010 |
2009 |
2010 |
2009 |
|||||||||
Interest income: |
||||||||||||
Interest and fees on loans |
$ |
9,792,800 |
$ |
11,564,315 |
$ |
19,901,754 |
$ |
23,265,950 |
||||
Interest and dividends on investments and deposits |
1,036,289 |
877,624 |
2,078,562 |
1,746,709 |
||||||||
Total interest income |
10,829,089 |
12,441,939 |
21,980,316 |
25,012,659 |
||||||||
Interest expense: |
||||||||||||
Interest on deposits |
2,094,488 |
4,098,542 |
4,248,126 |
8,277,479 |
||||||||
Interest on borrowings |
81,071 |
340,951 |
220,167 |
680,751 |
||||||||
Interest on junior subordinated notes |
82,768 |
106,870 |
162,784 |
217,308 |
||||||||
Total interest expense |
2,258,327 |
4,546,363 |
4,631,077 |
9,175,538 |
||||||||
Net interest income |
8,570,762 |
7,895,576 |
17,349,239 |
15,837,121 |
||||||||
Provision for credit losses |
2,070,000 |
1,700,000 |
4,490,000 |
3,220,000 |
||||||||
Net interest income after provision for credit losses |
6,500,762 |
6,195,576 |
12,859,239 |
12,617,121 |
||||||||
Non-interest income: |
||||||||||||
Fees and service charges |
1,795,404 |
1,891,452 |
3,425,920 |
3,641,937 |
||||||||
Loan servicing fees |
187,046 |
164,164 |
366,780 |
322,828 |
||||||||
Gain (loss) on sale of other real estate, net |
21,223 |
5,285 |
33,720 |
(74,448) |
||||||||
Gain on sale of mortgage loans |
173,428 |
430,218 |
365,525 |
688,102 |
||||||||
Gain on sale of mortgage-backed securities |
455,399 |
- |
935,481 |
- |
||||||||
Gain on sale of investment securities |
2,406 |
452,344 |
2,406 |
917,866 |
||||||||
Other income |
195,717 |
269,067 |
394,963 |
536,768 |
||||||||
Total non-interest income |
2,830,623 |
3,212,530 |
5,524,795 |
6,033,053 |
||||||||
Non-interest expense: |
||||||||||||
Compensation and fringe benefits |
4,115,034 |
3,591,503 |
7,806,236 |
6,999,175 |
||||||||
Federal insurance premiums |
286,614 |
540,046 |
583,879 |
680,209 |
||||||||
Premises and equipment |
438,565 |
455,940 |
897,750 |
919,855 |
||||||||
Advertising |
33,851 |
40,176 |
65,414 |
63,017 |
||||||||
Payroll and other taxes |
340,096 |
335,373 |
716,710 |
687,094 |
||||||||
Data processing |
644,671 |
604,654 |
1,263,068 |
1,203,669 |
||||||||
Amortization of intangible assets |
107,475 |
135,460 |
224,960 |
249,330 |
||||||||
Other |
774,633 |
810,192 |
1,683,096 |
1,712,910 |
||||||||
Total non-interest expense |
6,740,939 |
6,513,344 |
13,241,113 |
12,515,259 |
||||||||
Income before income taxes |
2,590,446 |
2,894,762 |
5,142,921 |
6,134,915 |
||||||||
Income taxes |
1,032,084 |
1,134,884 |
2,034,862 |
2,370,519 |
||||||||
Net income |
$ |
1,558,362 |
$ |
1,759,878 |
$ |
3,108,059 |
$ |
3,764,396 |
||||
Per share data: |
||||||||||||
Basic earnings per share |
$ |
0.16 |
$ |
0.18 |
$ |
0.32 |
$ |
0.39 |
||||
Diluted earnings per share |
$ |
0.16 |
$ |
0.18 |
$ |
0.32 |
$ |
0.39 |
||||
Dividends per share |
$ |
0.20 |
$ |
0.20 |
$ |
0.40 |
$ |
0.40 |
||||
Weighted average shares-Basic |
9,743,971 |
9,738,096 |
9,743,244 |
9,738,096 |
||||||||
Weighted average shares-Diluted |
9,744,679 |
9,738,096 |
9,743,598 |
9,738,096 |
||||||||
First South Bancorp, Inc. |
Supplemental Quarterly Financial Data |
|||||||||||
6/30/2010 |
3/31/2010 |
12/31/2009 |
9/30/2009 |
6/30/2009 |
||||||||
Consolidated balance sheet data: |
(dollars in thousands except per share data) |
|||||||||||
Total assets |
$ |
812,771 |
$ |
800,608 |
$ |
829,891 |
$ |
855,933 |
$ |
886,192 |
||
Loans receivable (net): |
||||||||||||
Mortgage |
$ |
49,470 |
$ |
48,379 |
$ |
51,820 |
$ |
49,944 |
$ |
53,537 |
||
Commercial |
502,425 |
498,525 |
508,279 |
528,216 |
547,904 |
|||||||
Consumer |
83,550 |
85,502 |
88,893 |
92,809 |
94,749 |
|||||||
Leases |
9,413 |
9,877 |
9,664 |
10,727 |
9,717 |
|||||||
Total |
$ |
644,858 |
$ |
642,283 |
$ |
658,656 |
$ |
681,696 |
$ |
705,907 |
||
Cash and investments |
$ |
34,737 |
$ |
22,690 |
$ |
30,045 |
$ |
46,741 |
$ |
57,342 |
||
Mortgage-backed securities |
92,559 |
94,735 |
97,239 |
86,275 |
81,596 |
|||||||
Premises and equipment |
9,240 |
9,034 |
8,540 |
8,608 |
8,714 |
|||||||
Goodwill |
4,219 |
4,219 |
4,219 |
4,219 |
4,219 |
|||||||
Mortgage servicing rights |
1,268 |
1,281 |
1,279 |
1,247 |
1,230 |
|||||||
Deposits: |
||||||||||||
Savings |
$ |
25,155 |
$ |
24,709 |
$ |
23,138 |
$ |
23,407 |
$ |
24,730 |
||
Checking |
224,950 |
225,997 |
224,507 |
220,018 |
225,647 |
|||||||
Certificates |
444,435 |
433,734 |
440,866 |
466,426 |
480,634 |
|||||||
Total |
$ |
694,540 |
$ |
684,440 |
$ |
688,511 |
$ |
709,851 |
$ |
731,011 |
||
Borrowings |
$ |
12,665 |
$ |
12,441 |
$ |
37,380 |
$ |
39,040 |
$ |
49,695 |
||
Junior subordinated debentures |
10,310 |
10,310 |
10,310 |
10,310 |
10,310 |
|||||||
Stockholders' equity |
87,110 |
85,962 |
86,214 |
87,281 |
86,708 |
|||||||
Consolidated earnings summary: |
||||||||||||
Interest income |
$ |
10,829 |
$ |
11,151 |
$ |
11,851 |
$ |
12,196 |
$ |
12,442 |
||
Interest expense |
2,258 |
2,372 |
2,996 |
3,922 |
4,546 |
|||||||
Net interest income |
8,571 |
8,779 |
8,855 |
8,274 |
7,896 |
|||||||
Provision for credit losses |
2,070 |
2,420 |
2,700 |
1,260 |
1,700 |
|||||||
Noninterest income |
2,830 |
2,694 |
2,527 |
2,401 |
3,212 |
|||||||
Noninterest expense |
6,741 |
6,500 |
6,300 |
6,530 |
6,513 |
|||||||
Income taxes |
1,032 |
1,003 |
872 |
1,123 |
1,135 |
|||||||
Net income |
$ |
1,558 |
$ |
1,550 |
$ |
1,510 |
$ |
1,762 |
$ |
1,760 |
||
Per Share Data: |
||||||||||||
Earnings per share-Basic |
$ |
0.16 |
$ |
0.16 |
$ |
0.16 |
$ |
0.18 |
$ |
0.18 |
||
Earnings per share-Diluted |
$ |
0.16 |
$ |
0.16 |
$ |
0.16 |
$ |
0.18 |
$ |
0.18 |
||
Dividends per share |
$ |
0.20 |
$ |
0.20 |
$ |
0.20 |
$ |
0.20 |
$ |
0.20 |
||
Book value per share |
$ |
8.94 |
$ |
8.82 |
$ |
8.85 |
$ |
8.96 |
$ |
8.90 |
||
Average shares-Basic |
9,743,971 |
9,742,505 |
9,738,475 |
9,738,475 |
9,738,096 |
|||||||
Average shares-Diluted |
9,744,679 |
9,742,505 |
9,738,550 |
9,738,550 |
9,738,096 |
|||||||
6/30/2010 |
3/31/2010 |
12/31/2009 |
9/30/2009 |
6/30/2009 |
||||||||
(dollars in thousands except per share data) |
||||||||||||
Performance ratios: |
||||||||||||
Yield on earning assets |
5.86% |
5.99% |
6.09% |
6.09% |
6.10% |
|||||||
Cost of funds |
1.26% |
1.32% |
1.61% |
2.03% |
2.32% |
|||||||
Net interest spread |
4.60% |
4.67% |
4.48% |
4.06% |
3.78% |
|||||||
Net interest margin on earning assets |
4.64% |
4.72% |
4.55% |
4.13% |
3.87% |
|||||||
Earning assets to total assets |
91.13% |
91.66% |
91.81% |
92.38% |
92.43% |
|||||||
Return on average assets |
0.77% |
0.76% |
0.72% |
0.81% |
0.80% |
|||||||
Return on average equity |
7.17% |
7.13% |
6.88% |
8.06% |
7.98% |
|||||||
Efficiency ratio |
59.05% |
56.59% |
55.28% |
61.10% |
58.57% |
|||||||
Dividend payout ratio |
125.00% |
125.00% |
125.00% |
111.11% |
111.11% |
|||||||
Average assets |
$ |
808,266 |
$ |
811,859 |
$ |
842,556 |
$ |
867,976 |
$ |
881,307 |
||
Average earning assets |
$ |
738,645 |
$ |
744,415 |
$ |
777,896 |
$ |
801,625 |
$ |
816,210 |
||
Average equity |
$ |
86,957 |
$ |
86,897 |
$ |
87,762 |
$ |
87,418 |
$ |
88,240 |
||
Equity/Assets |
10.72% |
10.74% |
10.39% |
10.20% |
9.78% |
|||||||
Tangible Equity/Assets |
10.18% |
10.19% |
9.86% |
9.69% |
9.29% |
|||||||
Asset quality data and ratios: |
||||||||||||
Nonaccrual loans |
$ |
12,308 |
$ |
8,578 |
$ |
5,838 |
$ |
7,132 |
$ |
7,609 |
||
Restructured loans |
$ |
5,647 |
$ |
4,377 |
$ |
4,343 |
$ |
4,304 |
$ |
4,304 |
||
Total nonperforming loans |
$ |
17,955 |
$ |
12,955 |
$ |
10,181 |
$ |
11,436 |
$ |
11,913 |
||
Other real estate owned |
$ |
8,452 |
$ |
8,383 |
$ |
10,561 |
$ |
12,474 |
$ |
10,408 |
||
Total nonperforming assets |
$ |
26,407 |
$ |
21,338 |
$ |
20,742 |
$ |
23,910 |
$ |
22,321 |
||
Allowance for loan and lease losses |
$ |
7,951 |
$ |
13,221 |
$ |
13,504 |
$ |
12,318 |
$ |
11,726 |
||
Allowance for unfunded loan commitments |
$ |
171 |
$ |
178 |
$ |
240 |
$ |
269 |
$ |
269 |
||
Allowance for credit losses |
$ |
8,122 |
$ |
13,399 |
$ |
13,744 |
$ |
12,587 |
$ |
11,995 |
||
Allowance for loan and lease losses to loans |
1.21% |
2.01% |
2.00% |
1.77% |
1.63% |
|||||||
Allowance for unfunded loan commitments |
||||||||||||
to unfunded commitments |
0.20% |
0.20% |
0.27% |
0.29% |
0.28% |
|||||||
Allowance for credit losses to loans |
1.24% |
2.04% |
2.04% |
1.81% |
1.67% |
|||||||
Net charge-offs (recoveries) |
$ |
7,347 |
$ |
2,765 |
$ |
1,543 |
$ |
668 |
$ |
894 |
||
Net charge-offs (recoveries) to loans |
1.14% |
0.43% |
0.23% |
0.10% |
0.13% |
|||||||
Nonperforming loans to loans |
2.78% |
2.02% |
1.55% |
1.68% |
1.69% |
|||||||
Nonperforming assets to assets |
3.25% |
2.67% |
2.50% |
2.79% |
2.52% |
|||||||
Loans to deposits |
92.85% |
93.84% |
95.66% |
96.03% |
96.57% |
|||||||
Loans to assets |
79.34% |
80.22% |
79.37% |
79.64% |
79.66% |
|||||||
Loans serviced for others |
$ |
299,361 |
$ |
296,452 |
$ |
289,324 |
$ |
281,935 |
$ |
268,266 |
||
For more information contact:
Bill Wall (CFO)
First South Bancorp, Inc.
Phone: (252) 940-5017
Website: www.firstsouthnc.com
SOURCE First South Bancorp, Inc.
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