EX-99.1 2 v111221_ex99-1.htm Unassociated Document
EXHIBIT 99.1
  
PRESS RELEASE
FOR IMMEDIATE RELEASE
April 21, 2008
For more information contact:
First South Bancorp, Inc.
Bill Wall (CFO) or Tom Vann (CEO)
Website: www.firstsouthnc.com
Phone: (252) 946-4178
   
First South Bancorp, Inc. Reports March 31, 2008 Operating Results

Washington, North Carolina - 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 March 31, 2008.

Net income for the March 2008 quarter was $3,900,958 compared to net income of $4,135,885 earned in the linked December 2007 quarter and $4,297,997 earned in the comparative year ago March 2007 quarter. Diluted earnings per share were $0.40 per share for the March 2008 quarter, compared to $0.42 per share for the December 2007 quarter and $0.43 per share for the March 2007 quarter.

Tom Vann, President and Chief Executive Officer of the Company, stated, “We are pleased to have met our diluted earnings per share estimate for the March 2008 quarter, although we experienced a higher than anticipated challenge of interest rate compression and an increase in the volume of non-performing loans. As has most of the banking industry, we have experienced intense price competition for both loans and deposits. This has been a contributing factor to our net interest margin compression in the March 2008 quarter, and has been significantly influenced by the Federal Reserve’s 300 basis point rate cuts over a period of only six months. First South is an asset-sensitive bank and consequently, the Federal Reserve’s aggressive series of rate cuts has caused an immediate downward pricing of our loan portfolio, while outpacing our ability to reduce our funding cost as rapidly. Over the remainder of 2008, we should see some improvement in our net interest margin as we reprice maturing certificates of deposits at significantly lower rates.

The local and national economy continues to weaken as a result of the slowdown in the housing market. Many financial institutions have been challenged by problems relating to sub-prime lending. First South does not have any sub-prime loan exposure. However, we have financed residential and construction mortgages which have been affected by slower loan demand. While we may face further challenges due to the weakening real estate market, we are closely monitoring and evaluating all significant loans in our portfolio. We will continue to actively manage our credit risk and exposure while we wait for the stabilization of the real estate market. Looking forward to the remainder of 2008, we remain cautiously optimistic as we believe competition and pricing pressures will continue on both deposits and loans. The amount and timing of any future Federal Reserve rate cuts remains uncertain, and may further impact us, as well as the rest of the banking industry, particularly if those cuts are significant.”

Total assets of the Company increased to $913.9 million at March 31, 2008, from $909.3 million at December 31, 2007. The net loan and leases receivable portfolio grew to $772.3 million at March 31, 2008, from $765.1 million at December 31, 2007. Earning assets (net of nonperforming loans) were 93.0% of total assets at March 31, 2008 compared to 93.6% at December 31, 2007 and 93.8% at March 31, 2007. The yield on average earning assets was 7.6% for the March 2008 quarter compared to 8.3% for the December 2007 quarter and 8.1% for the March 2007 quarter, reflecting the impact of the recent Federal Reserve rate cuts and the increase in nonperforming loans.

Nonperforming loans increased to $12.8 million at March 31, 2008, from $7.6 million at December 31, 2007. Significant nonperforming loans consists primarily of six commercial borrowers (residential and commercial real estate developers), with total exposure of $10.2 million at March 31, 2008. The Bank believes these nonperforming loans will ultimately be resolved in the Bank’s favor, although there are no guarantees or assurances. As a result of the increased nonperforming loans, the Bank’s accrued unrecognized interest increased to $754,000 at March 31, 2008, from $506,000 at December 31, 2007.

The Bank is also managing its other real estate owned of approximately $1.5 million to resolve these properties and believes the carrying values are representative of the fair market values, although there can be no assurances that the ultimate sale proceeds will be equal to or greater than the carrying values.

The Bank maintains allowances for credit losses upon an evaluation of inherent risk and estimates of probable credit losses within the loan portfolio. The Bank recorded no provisions for credit losses during the March 2008 or March 2007 quarters, compared to $150,000 during the December 2007 quarter. At March 31, 2008, the Bank had $9.8 million of allowances for credit losses, or 1.3% of total loans outstanding. The Bank also remains cautiously optimistic regarding the continued performance of the loan portfolio.

Total deposits and borrowings was $806.4 million at March 31, 2008 compared to $803.4 million at December 31, 2007. During the March 2008 quarter, the Bank borrowed $45.0 million of fixed rated advances from the Federal Home Loan Bank of Atlanta at various terms ranging from 18 to 36 months at a weighted average cost of 3.01%, in order to reduce its funding costs by locking into lower rates. The Bank’s cost of funds was 3.3% for the March 2008 quarter, compared to 3.6% for the December 2007 quarter and 3.5% for the March 2007 quarter. In conjunction with the decline in yield on earning assets, the net interest spread declined to 4.3% for the March 2008 quarter, from 4.7% for the December 2007 quarter and 4.6% for the March 2007 quarter.

The Bank continues to focus on its key performance ratios and the impact of the economic slow down. Efforts continue to be placed on operating efficiency by managing net interest income, growing non-interest income, and controlling operating expenses, resulting in an efficiency ratio 48.5% for the March 2008 quarter, compared to 47.3% for the December 2007 quarter and 43.8% for the March 2007 quarter. The return on average assets (ROA) was 1.7%, 1.8% and 1.9%, respectively, for the quarters ended March 2008, December 2007 and March 2007. The return on average equity (ROE) was 18.0%, 19.2% and 21.3%, respectively, for the quarters ended March 2008, December 2007 and March 2007.

During the March 2008 quarter, the Company declared its 44th consecutive quarterly cash dividend of $0.20 per share, payable April 24, 2008 to stockholders of record as of April 10, 2008. This cash dividend payment represents a 50.0% payout ratio of this quarter’s basic earnings per share. This quarterly cash dividend payment represents a 5.26% payment rate increase over the previous quarterly dividend payment. The current annual cash dividend rate, adjusted for the payment rate increase, will become $0.80 per share. The Board of Directors determined the increase in the cash dividend was appropriate in consideration of the Company’s capital position and operating results. Future dividends will depend upon the Company’s financial condition, earnings, equity structure, capital needs, regulatory requirements and economic conditions.
 
During the March 2008 quarter, the Company and the Bank received national and statewide rankings and recognition from American Banker, U. S. Banker, the Triangle Business Journal and Freddie Mac for various operating performance ratios including efficiency, ROE and excellence in investor reporting. The Company is listed in the NASDAQ Global Select Market, which places it in a peer group of the top listed companies in the world. In addition, the Company is listed in the Russell Index of funds which helps raise the Company’s visibility with investors that rely on the Russell Indexes as part of their investment strategy.

During the March 2008 quarter, the Bank opened a new loan production office in Durham, North Carolina. This expansion allows us to better serve the banking needs in our growing market area, expand our customer base in existing markets and continue the growth of our branch office network.

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 and securities brokerage services through an affiliation with a broker/dealer. The Bank operates through its main office headquartered in Washington, North Carolina, and has 30 full service branch offices and two loan production 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. 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”.


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(NASDAQ: FSBK)


First South Bancorp, Inc. and Subsidiary
          
Consolidated Statements of Financial Condition
          
 
          
   
March 31
  
December 31
  
   
2008
  
2007*
  
Assets
  
(unaudited)
      
           
Cash and due from banks
  
$
24,179,684
  
$
22,273,592
  
Interest-bearing deposits in financial institutions
    
2,071,880
    
1,755,695
  
Investment securities - available for sale
    
46,872,318
    
49,064,278
  
Mortgage-backed securities - available for sale
    
36,564,663
    
37,828,064
  
Mortgage-backed securities - held for investment
    
1,191,418
    
1,291,762
  
Loans and leases receivable, net:
              
Held for sale
    
7,597,811
    
7,515,626
  
Held for investment
    
764,679,685
    
757,567,279
  
Premises and equipment, net
    
9,304,673
    
9,433,399
  
Real estate owned
    
1,526,023
    
1,601,704
  
Federal Home Loan Bank of Atlanta stock, at cost
              
which approximates market
    
3,658,600
    
3,210,100
  
Accrued interest receivable
    
4,877,058
    
5,103,405
  
Goodwill
    
4,218,576
    
4,218,576
  
Mortgage servicing rights
    
1,130,695
    
1,150,616
  
Identifiable intangible assets
    
188,640
    
196,500
  
Prepaid expenses and other assets
    
5,825,531
    
7,077,115
  
               
Total assets
  
$
913,887,255
  
$
909,287,711
  
             
Liabilities and Stockholders' Equity
              
               
Deposits:
              
Demand
  
$
252,153,617
  
$
243,647,606
  
Savings
    
17,865,619
    
17,497,763
  
Large denomination certificates of deposit
    
214,650,518
    
204,509,581
  
Other time
    
269,659,448
    
295,714,633
  
Total deposits
    
754,329,202
    
761,369,583
  
Borrowed money
    
52,098,547
    
42,067,421
  
Junior subordinated debentures
    
10,310,000
    
10,310,000
  
Other liabilities
    
10,076,641
    
9,505,385
  
Total liabilities
    
826,814,390
    
823,252,389
  
 
              
Common stock, $.01 par value, 25,000,000 shares authorized;
              
11,254,222 issued; 9,763,346 and 9,808,655
              
shares outstanding, respectively
    
97,633
    
98,087
  
Additional paid-in capital
    
35,943,807
    
36,761,824
  
Retained earnings, substantially restricted
    
81,626,091
    
79,679,027
  
Treasury stock at cost
    
(31,734,252
)
  
(30,880,120
)
Accumulated other comprehensive loss, net
    
1,139,586
   
376,504
 
Total stockholders' equity
    
87,072,865
    
86,035,322
  
               
Total liabilities and stockholders' equity
  
$
913,887,255
  
$
909,287,711
  
             
*Derived from audited consolidated financial statements
              
 
 

First South Bancorp, Inc. and Subsidiary
           
Consolidated Statements of Operations
            
(unaudited)
            
   
 Three Months Ended
  
   
 March 31
  
   
 2008
  
2007
  
   
  
  
 
  
Interest income:
            
  Interest and fees on loans
  
$
15,178,294
  
$
15,986,587
  
  Interest and dividends on investments and deposits
    
1,204,840
    
1,335,378
  
           Total interest income
    
16,383,134
    
17,321,965
  
               
Interest expense:
              
  Interest on deposits
    
6,186,586
    
6,868,826
  
  Interest on borrowings
    
399,663
    
143,342
  
  Interest on junior subordinated notes
    
196,661
    
207,844
  
           Total interest expense
    
6,782,910
    
7,220,012
  
Net interest income
    
9,600,224
    
10,101,953
  
Provision for credit losses
    
-
    
-
  
           Net interest income after provision for credit losses
    
9,600,224
    
10,101,953
  
               
Non-interest income:
              
  Fees and service charges
    
1,887,261
    
1,816,737
  
  Loan servicing fees
    
163,207
    
162,100
  
  Gain (loss) on sale of real estate, net
    
69,515
   
(143
)
  Gain on sale of mortgage loans
    
229,530
    
214,644
  
  Other  income
    
324,691
    
291,170
  
           Total non-interest income
    
2,674,204
    
2,484,508
  
               
Non-interest expense:
              
  Compensation and fringe benefits
    
3,587,805
    
3,297,926
  
  Federal insurance premiums
    
22,347
    
24,287
  
  Premises and equipment
    
499,874
    
473,094
  
  Advertising
    
35,016
    
26,495
  
  Payroll and other taxes
    
370,260
    
351,965
  
  Data processing
    
643,531
    
621,611
  
  Amortization of intangible assets
    
102,058
    
96,969
  
  Other
    
699,419
    
628,954
  
           Total non-interest expense
    
5,960,310
    
5,521,301
  
Income before income taxes 
    
6,314,118
    
7,065,160
  
Income taxes
    
2,413,160
    
2,767,163
  
               
Net income
  
$
3,900,958
  
$
4,297,997
  
               
Per share data: 
              
Basic earnings per share
  
$
0.40
  
$
0.43
  
Diluted earnings per share
  
$
0.40
  
$
0.43
  
Dividends per share
  
$
0.20
  
$
0.19
  
Weighted average shares-Basic
    
9,802,770
    
9,930,732
  
Weighted average shares-Diluted
    
9,833,335
    
10,069,085
  
 
 

 
Supplemental Quarterly Financial Data (Unaudited)
  
                           
       
3/31/2008
  
12/31/2007
  
9/30/2007
  
6/30/2007
  
3/31/2007
  
Consolidated balance sheet data:
  
(dollars in thousands except per share data)
  
Total assets
      
$
913,887
  
$
909,288
  
$
907,921
  
$
910,568
  
$
911,020
  
Loans receivable (net)
        
772,277
    
765,083
    
760,710
    
745,392
    
739,608
  
Cash and investments
        
73,124
    
73,094
    
76,310
    
94,023
    
106,790
  
Mortgage-backed securities
        
37,756
    
39,120
    
38,194
    
38,826
    
35,246
  
Premises and equipment
        
9,305
    
9,433
    
9,352
    
9,405
    
9,173
  
Goodwill
        
4,219
    
4,219
    
4,219
    
4,219
    
4,219
  
Mortgage servicing rights
        
1,131
    
1,151
    
1,146
    
1,232
    
1,283
  
                                     
Deposits
        
754,329
    
761,370
    
777,628
    
799,090
    
802,217
  
Borrowings
        
52,099
    
42,067
    
21,752
    
7,056
    
6,005
  
Junior subordinated debentures
        
10,310
    
10,310
    
10,310
    
10,310
    
10,310
  
Stockholders' equity
        
87,073
    
86,026
    
85,315
    
83,306
    
82,519
  
                                     
Consolidated earnings summary:
                                    
Interest income
      
$
16,383
  
$
17,591
  
$
17,639
  
$
17,525
  
$
17,322
  
Interest expense
        
6,783
    
7,309
    
7,295
    
7,286
    
7,220
  
Net interest income
        
9,600
    
10,282
    
10,344
    
10,239
    
10,102
  
Provision for credit losses
        
0
    
150
    
100
    
100
    
0
  
Noninterest income
        
2,674
    
2,726
    
2,544
    
2,382
    
2,484
  
Noninterest expense
        
5,960
    
6,084
    
5,816
    
5,489
    
5,521
  
Income taxes
        
2,413
    
2,638
    
2,714
    
2,721
    
2,767
  
Net income
      
$
3,901
  
$
4,136
  
$
4,258
  
$
4,311
  
$
4,298
  
                                     
Per Share Data: *
                                    
Earnings per share-Basic * 
      
$
0.40
  
$
0.42
  
$
0.43
  
$
0.43
  
$
0.43
  
Earnings per share-Diluted *
      
$
0.40
  
$
0.42
  
$
0.42
  
$
0.43
  
$
0.43
  
Dividends per share * 
      
$
0.20
  
$
0.19
  
$
0.19
  
$
0.19
  
$
0.19
  
Book value per share*
      
$
8.92
  
$
8.77
  
$
8.62
  
$
8.38
  
$
8.29
  
                                     
Average shares-Basic *
        
9,802,770
    
9,862,276
    
9,923,236
    
9,943,148
    
9,930,732
  
Average shares-Diluted*
        
9,833,335
    
9,955,496
    
10,030,595
    
10,055,509
    
10,069,085
  
*Adjusted for 3-for-2 stock split on May 25, 2006
                                    
                                     
Performance ratios:
                                    
Yield on earning assets
        
7.62
%
  
8.26
%
  
8.35
%
  
8.27
%
  
8.13
%
Cost of funds
        
3.30
%
  
3.59
%
  
3.60
%
  
3.60
%
  
3.54
%
Net interest spread
        
4.32
%
  
4.67
%
  
4.75
%
  
4.67
%
  
4.59
%
Net interest margin on earning assets
        
4.46
%
  
4.83
%
  
4.90
%
  
4.83
%
  
4.74
%
Earning assets to total assets
        
92.99
%
  
93.55
%
  
92.73
%
  
93.84
%
  
93.79
%
                                     
Return on average assets 
        
1.70
%
  
1.81
%
  
1.88
%
  
1.91
%
  
1.90
%
Return on average equity 
        
17.97
%
  
19.22
%
  
20.12
%
  
20.72
%
  
21.34
%
Efficiency ratio 
        
48.49
%
  
47.26
%
  
45.42
%
  
43.43
%
  
43.80
%
Dividend payout ratio
        
50.00
%
  
45.24
%
  
44.19
%
  
44.19
%
  
44.19
%
                                     
Average assets
      
$
919,708
  
$
913,729
  
$
906,686
  
$
903,931
  
$
906,864
  
Average equity
      
$
86,810
  
$
86,096
  
$
84,663
  
$
83,209
  
$
80,544
  
                                     
Asset quality data and ratios:
                                    
Nonperforming loans 
      
$
12,819
  
$
7,555
  
$
8,268
  
$
2,012
  
$
3,019
  
Other real estate owned 
      
$
1,526
  
$
1,602
  
$
1,524
  
$
1,344
  
$
1,060
  
                                     
Allowance for loan and lease losses
      
$
9,394
  
$
9,487
  
$
9,267
  
$
9,172
  
$
9,120
  
Allowance for unfunded loan commitments
      
$
393
  
$
403
  
$
726
  
$
767
  
$
765
  
Allowance for credit losses
      
$
9,787
  
$
9,890
  
$
9,993
  
$
9,939
  
$
9,885
  
                                     
Allowance for loan and lease losses to loans
        
1.20
%
  
1.22
%
  
1.20
%
  
1.21
%
  
1.21
%
Allowance for unfunded loan commitments 
                                    
to unfunded commitments
        
0.26
%
  
0.27
%
  
0.43
%
  
0.47
%
  
0.52
%
Allowance for credit losses to loans
        
1.25
%
  
1.27
%
  
1.30
%
  
1.31
%
  
1.32
%
                                     
Net charge-offs (recoveries) 
      
$
102
  
$
254
  
$
47
  
$
45
  
$
38
  
Net charge-offs (recoveries) to loans 
        
0.013
%
  
0.033
%
  
0.006
%
  
0.006
%
  
0.005
%
Nonperforming loans to assets
        
1.40
%
  
0.83
%
  
0.91
%
  
0.22
%
  
0.33
%
Loans to deposits
        
102.38
%
  
100.49
%
  
97.82
%
  
93.28
%
  
92.20
%
Loans to assets
        
84.50
%
  
84.12
%
  
83.79
%
  
81.86
%
  
81.18
%
Loans serviced for others
      
$
255,700
  
$
254,671
  
$
244,900
  
$
252,363
  
$
254,741