EX-99.1 2 v120230_ex99-1.htm
 
EXHIBIT 99.1

PRESS RELEASE
FOR IMMEDIATE RELEASE
July 17, 2008
For more information contact:
First South Bancorp, Inc.
Bill Wall (CFO) or Tom Vann (CEO)
 
Phone: (252) 946-4178
 
Website: www.firstsouthnc.com

First South Bancorp, Inc. Reports June 30, 2008 Quarterly and Six Months Earnings

Washington, North Carolina - First South Bancorp, Inc. (NASDAQ: FSBK) (the “Company”), the parent holding company of First South Bank (the “Bank”), reports its earnings for the quarter ended June 30, 2008 (unaudited), the second quarter of its fiscal year ending December 31, 2008, and its earnings for the six months ended June 30, 2008 (unaudited).
 
Net income was $3.0 million, or $0.31 per diluted share, for the second quarter of 2008 compared to net income of $4.3 million, or $0.43 per diluted share, for the second quarter of 2007. Net income for the first six months of 2008 was $6.9 million, or $0.70 per diluted share, compared to net income of $8.6 million, or $0.86 per diluted share, for the first six months of 2007.
 
Second quarter 2008 net interest income was $9.2 million, compared to $10.2 million for the second quarter of 2007. The decrease in net interest income results primarily from a decline in the net interest margin, significantly influenced by the Federal Reserve’s 325 basis point rate cuts since September 2007, and partially offset by an increase in average earning assets and a decline in the cost of funds. Average earning assets increased to $869.6 million for the second quarter of 2008 from $847.7 million for the second quarter of 2007. The net interest margin was 4.22% for the second quarter of 2008, down 24 basis points from 4.46% for the linked first quarter of 2008.
 
The cost of funds of 2.97% for the second quarter of 2008 was a 33 basis point improvement from 3.30% for the linked first quarter of 2008, and a 63 basis point improvement from 3.60% for the second quarter of 2007. The Company was able to improve its cost of funds by the combination of deposit repricing, and the rollover of time deposits and the repositioning of borrowings within the lower interest rate environment.
 
Non-interest income was $2.8 million for the second quarter of 2008, compared to $2.4 million for the second quarter of 2007. The increase includes approximately $245,000 of gains on the sale of mortgage loans and mortgage backed securities. The Company executed these sale transactions to support a more balanced sensitivity to future interest rate changes.
 
The Company also experienced growth in noninterest income across both loan and deposit service offerings. Revenues from loan and deposit fees and service charges increased to $2.1 million for the second quarter of 2008 from $1.8 million for the second quarter of 2007.
 
Non-interest expense was $5.9 million for the second quarter of 2008, compared to $5.5 million for the second quarter of 2007. The $407,000 increase in non-interest expense increase is due to additional costs associated with opening two new full service offices and three loan production offices during 2007 and 2008, as well costs required to support the increased earning assets and customer transaction activity between the respective periods. In managing its non-interest expense, the Company has reduced its full time equivalent employees to 269 at June 30, 2008 from 287 at December 31, 2007.
 
 
 
 
 
Total assets were $910.2 million at June 30, 2008, compared to $909.3 million at December 31, 2007. Total loans were $765.1 million at both June 30, 2008 and December 31, 2007, respectively. Cash, investments and mortgage backed securities $110.0 million at June 30, 2008 and $112.2 million at December 31, 2007.
 
The Company recorded loan loss provisions of $1.1 million in the second quarter of 2008, compared to $100,000 in the second quarter of 2007. The increased loan loss provision contributed to the reduced earnings for the current quarter when compared to both the preceding and prior year comparative quarters. The Company's allowance for credit has remained firm during the past 12 months, at 1.33% of total loans at June 30, 2008, compared to 1.31% at June 30, 2007.
 
The Company's non-performing loans declined to $6.4 million at June 30, 2008 from $12.8 million at March 31, 2008. The decline in non-performing loans is a result of management’s collection and work-out efforts combined with foreclosures on certain real estate properties. Management believes non-performing loans are either well collateralized or adequately reserved. However, there can be no assurance in the future that regulators, increased risks in its loans and leases portfolio, changes in economic conditions and other factors will not require additional adjustments to the allowance for credit losses.
 
Other real estate owned increased to $4.0 million at June 30, 2008 from $1.6 million at December 31, 2007, reflecting foreclosures of certain non-performing loans. At June 30, 2008, other real estate owned consisted of seventeen single family residential properties, one lot and one commercial building. The Bank believes the adjusted carrying values of these properties are representative of their fair market values, although there can be no assurances that the ultimate sales will be equal to or greater than the carrying values.

Deposits declined to $744.3 million at June 30, 2008 from $761.4 million at December 31, 2007. Checking accounts were $247.6 million at June 30, 2008, compared to $243.6 million at December 31, 2007, reflecting continued efforts of attracting lower costing core deposits. Time deposits declined to $478.0 million at June 30, 2008 from $500.2 million at December 31, 2007.
During the first and second quarters of 2008, and amid intense competitive pressure on interest rates, the Bank chose to not renew certain maturing time deposits at higher rates, in efforts to control its time deposit cost. The Bank also began repricing certain new and maturing time deposits at lower rates, obtained lower costing borrowings, and combined with lower costing checking accounts, has effectively managed its cost of funds within the intense competitive market pressure.

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 29 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.
 
 
2
 
 
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”.

 
 
 

 
(More)
 
 
 
 
 
 
(NASDAQ: FSBK)
 
3
 
 
First South Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
 
 
  
  
  
 
  
 
  
 June 30
  
December 31
  
 
  
 2008
  
2007*
  
Assets
  
 (unaudited)
  
 
  
 
  
  
  
 
  
 
          
Cash and due from banks
  
$
27,320,474
  
$
22,273,592
  
Interest-bearing deposits in financial institutions
    
6,667,612
    
1,755,695
  
Investment securities - available for sale
    
41,125,928
    
49,064,278
  
Mortgage-backed securities - available for sale
    
30,340,891
    
37,828,064
  
Mortgage-backed securities - held for investment
    
4,518,152
    
1,291,762
  
Loans and leases receivable, net:
          
Held for sale
    
4,932,138
    
7,515,626
  
Held for investment
    
760,154,308
    
757,567,279
  
Premises and equipment, net
    
9,332,994
    
9,433,399
  
Real estate owned
    
4,026,046
    
1,601,704
  
Federal Home Loan Bank of Atlanta stock, at cost which approximates market
    
3,658,600
    
3,210,100
  
Accrued interest receivable
    
4,618,334
    
5,103,405
  
Goodwill
    
4,218,576
    
4,218,576
  
Mortgage servicing rights
    
1,111,442
    
1,150,616
  
Identifiable intangible assets
    
180,780
    
196,500
  
Prepaid expenses and other assets
    
8,038,118
    
7,077,115
  
 
          
Total assets
  
$
910,244,393
  
$
909,287,711
  
 
          
Liabilities and Stockholders' Equity
          
 
          
Deposits:
          
Demand
  
$
247,642,094
  
$
243,647,606
  
Savings
    
18,681,815
    
17,497,763
  
Large denomination certificates of deposit
    
217,600,738
    
204,509,581
  
Other time
    
260,368,198
    
295,714,633
  
Total deposits
    
744,292,845
    
761,369,583
  
Borrowed money
    
54,163,723
    
42,067,421
  
Junior subordinated debentures
    
10,310,000
    
10,310,000
  
Other liabilities
    
14,560,593
    
9,505,385
  
Total liabilities
    
823,327,161
    
823,252,389
  
 
          
 
          
Common stock, $.01 par value, 25,000,000 shares authorized; 11,254,222 issued; 9,753,096 and 9,808,655 shares outstanding, respectively
    
97,531
    
98,087
  
Additional paid-in capital
    
35,911,450
    
36,761,824
  
Retained earnings, substantially restricted
    
82,687,218
    
79,679,027
  
Treasury stock at cost
    
(31,976,615
)
  
(30,880,120
)
Accumulated other comprehensive income, net
    
197,648
   
376,504
 
Total stockholders' equity
    
86,917,232
    
86,035,322
  
 
          
Total liabilities and stockholders' equity
  
$
910,244,393
  
$
909,287,711
  
 
*Derived from audited consolidated financial statements
 
 
4
 
 
First South Bancorp, Inc. and Subsidiary
Consolidated Statements of Operations
(unaudited)
 
 
  
Three Months Ended  
  
Six Months Ended  
  
 
  
June 30  
  
June 30  
  
 
  
2008
  
 2007
  
2008
  
 2007
  
 
  
 
  
  
  
 
  
  
  
Interest income:
                  
Interest and fees on loans
  
$
14,164,079
  
$
16,177,817
  
$
29,342,373
  
$
32,164,404
  
Interest and dividends on investments and deposits
    
1,055,050
    
1,347,839
    
2,259,890
    
2,683,217
  
Total interest income
    
15,219,129
    
17,525,656
    
31,602,263
    
34,847,621
  
 
                  
Interest expense:
                  
Interest on deposits
    
5,505,117
    
6,997,293
    
11,691,704
    
13,866,119
  
Interest on borrowings
    
395,594
    
77,046
    
795,257
    
220,388
  
Interest on junior subordinated notes
    
144,293
    
212,111
    
340,954
    
419,955
  
Total interest expense
    
6,045,004
    
7,286,450
    
12,827,915
    
14,506,462
  
 
                  
 
                  
Net interest income
    
9,174,125
    
10,239,206
    
18,774,348
    
20,341,159
  
Provision for credit losses
    
1,148,684
    
100,000
    
1,148,684
    
100,000
  
Net interest income after provision for credit losses
    
8,025,441
    
10,139,206
    
17,625,664
    
20,241,159
  
 
                  
Non-interest income:
                  
Fees and service charges
    
2,094,583
    
1,821,399
    
3,981,843
    
3,638,137
  
Loan servicing fees
    
163,322
    
164,600
    
326,529
    
326,699
  
Gain on sale of real estate, net
    
30,987
   
19,501
    
100,502
    
19,359
  
Gain on sale of mortgage loans
    
174,697
    
37,675
    
404,228
    
252,319
  
Gain on sale of mortgage backed securities
    
69,911
    
-
    
69,911
    
-
  
Other income
    
287,056
    
338,344
    
610,947
    
629,513
  
Total non-interest income
    
2,820,556
    
2,381,519
    
5,493,960
    
4,866,027
  
 
                  
 
                  
Non-interest expense:
                  
Compensation and fringe benefits
    
3,451,365
    
3,348,150
    
7,039,170
    
6,646,076
  
Federal insurance premiums
    
21,430
    
24,160
    
43,777
    
48,447
  
Premises and equipment
    
512,714
    
465,656
    
1,012,588
    
938,749
  
Advertising
    
28,288
    
28,992
    
63,304
    
55,488
  
Payroll and other taxes
    
324,303
    
314,291
    
694,563
    
666,256
  
Data processing
    
623,538
    
624,449
    
1,267,069
    
1,246,060
  
Amortization of intangible assets
    
126,744
    
98,475
    
228,802
    
195,444
  
Other
    
807,810
    
584,907
    
1,506,428
    
1,213,861
  
Total non-interest expense
    
5,896,192
    
5,489,080
    
11,855,701
    
11,010,381
  
 
                  
Income before income taxes
   
4,949,805
    
7,031,645
    
11,263,923
    
14,096,805
  
 
                  
Income taxes
    
1,938,059
    
2,720,558
    
4,351,219
    
5,487,721
  
 
                  
Net income
  
$
3,011,746
  
$
4,311,087
  
$
6,912,704
  
$
8,609,084
  
 
                  
Per share data:
                 
Basic earnings per share
  
$
0.31
  
$
0.43
  
$
0.71
  
$
0.87
  
Diluted earnings per share
  
$
0.31
  
$
0.43
  
$
0.70
  
$
0.86
  
Dividends per share
  
$
0.20
  
$
0.19
  
$
0.40
  
$
0.38
  
Weighted average shares-Basic
    
9,756,519
    
9,943,148
    
9,779,465
    
9,937,037
  
Weighted average shares-Diluted
    
9,782,038
    
10,055,509
    
9,807,507
    
10,062,394
  
  
 
5
 
 
First South Bancorp, Inc.
  
Supplemental Quarterly Financial Data (Unaudited)
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
6/30/2008
  
3/31/2008
  
12/31/2007
  
9/30/2007
  
6/30/2007
  
Consolidated balance sheet data:
  
 (dollars in thousands except per share data)
  
Total assets
  
$
910,244
  
$
913,887
  
$
909,288
  
$
907,921
  
$
910,568
  
Loans receivable (net):
                      
Mortgage
    
47,710
    
51,013
    
50,461
    
59,666
    
54,173
  
Commercial
    
601,485
    
606,514
    
601,300
    
586,710
    
578,799
  
Consumer
    
102,870
    
101,071
    
100,387
    
100,969
    
98,992
  
Leases
    
13,021
    
13,679
    
12,935
    
13,365
    
13,428
  
Total
    
765,086
    
772,277
    
765,083
    
760,710
    
745,392
  
 
                      
Cash and investments
    
75,114
    
73,124
    
73,094
    
76,310
    
94,023
  
Mortgage-backed securities
    
34,859
    
37,756
    
39,120
    
38,194
    
38,826
  
Premises and equipment
    
9,333
    
9,305
    
9,433
    
9,352
    
9,405
  
Goodwill
    
4,219
    
4,219
    
4,219
    
4,219
    
4,219
  
Mortgage servicing rights
    
1,111
    
1,131
    
1,151
    
1,146
    
1,232
  
 
                      
Deposits:
                      
Savings
    
18,682
    
17,866
    
17,498
    
18,538
    
18,899
  
Checking
    
247,642
    
252,153
    
243,648
    
262,183
    
266,354
  
Certificates
    
477,969
    
484,310
    
500,224
    
496,907
    
513,837
  
Total
    
744,293
    
754,329
    
761,370
    
777,628
    
799,090
  
 
                      
Borrowings
    
54,164
    
52,099
    
42,067
    
21,752
    
7,056
  
Junior subordinated debentures
    
10,310
    
10,310
    
10,310
    
10,310
    
10,310
  
Stockholders' equity
    
86,917
    
87,073
    
86,026
    
85,315
    
83,306
  
 
                      
Consolidated earnings summary:
                      
Interest income
  
$
15,219
  
$
16,383
  
$
17,591
  
$
17,639
  
$
17,525
  
Interest expense
    
6,045
    
6,783
    
7,309
    
7,295
    
7,286
  
Net interest income
    
9,174
    
9,600
    
10,282
    
10,344
    
10,239
  
Provision for credit losses
    
1,149
    
0
    
150
    
100
    
100
  
Noninterest income
    
2,821
    
2,674
    
2,726
    
2,544
    
2,382
  
Noninterest expense
    
5,896
    
5,960
    
6,084
    
5,816
    
5,489
  
Income taxes
    
1,938
    
2,413
    
2,638
    
2,714
    
2,721
  
Net income
  
$
3,012
  
$
3,901
  
$
4,136
  
$
4,258
  
$
4,311
  
 
                      
Per Share Data:
                     
Earnings per share-Basic
  
$
0.31
  
$
0.40
  
$
0.42
  
$
0.43
  
$
0.43
  
Earnings per share-Diluted
  
$
0.31
  
$
0.40
  
$
0.42
  
$
0.42
  
$
0.43
  
Dividends per share
  
$
0.20
  
$
0.20
  
$
0.19
  
$
0.19
  
$
0.19
  
Book value per share
  
$
8.91
  
$
8.92
  
$
8.77
  
$
8.62
  
$
8.38
  
 
                      
Average shares-Basic
   
9,756,519
    
9,802,770
    
9,862,276
    
9,923,236
    
9,943,148
  
Average shares-Diluted
    
9,782,038
    
9,833,335
    
9,955,496
    
10,030,595
    
10,055,509
  
 
 
6
 
 
 
  
6/30/2008
  
3/31/2008
  
12/31/2007
  
9/30/2007
  
6/30/2007
  
 
  
(dollars in thousands except per share data)
  
Performance ratios:
                      
Yield on earning assets
    
7.00
%
  
7.62
%
  
8.26
%
  
8.35
%
  
8.27
%
Cost of funds
    
2.97
%
  
3.30
%
  
3.59
%
  
3.60
%
  
3.60
%
Net interest spread
    
4.03
%
  
4.32
%
  
4.67
%
  
4.75
%
  
4.67
%
Net interest margin on earning assets
    
4.22
%
  
4.46
%
  
4.83
%
  
4.90
%
  
4.83
%
Earning assets to total assets
    
95.83
%
  
92.99
%
  
93.55
%
  
92.73
%
  
93.84
%
 
                      
Return on average assets
   
1.32
%
  
1.70
%
  
1.81
%
  
1.88
%
  
1.91
%
Return on average equity
   
13.72
%
  
17.97
%
  
19.22
%
  
20.12
%
  
20.72
%
Efficiency ratio
   
49.09
%
  
48.49
%
  
47.26
%
  
45.42
%
  
43.43
%
Dividend payout ratio
    
64.52
%
  
50.00
%
  
45.24
%
  
44.19
%
  
44.19
%
 
                      
Average assets
  
$
914,012
  
$
919,708
  
$
913,729
  
$
906,686
  
$
903,931
  
Average earning assets
  
$
869,559
  
$
858,705
  
$
851,569
  
$
845,154
  
$
847,678
  
Average equity
  
$
87,790
  
$
86,810
  
$
86,096
  
$
84,663
  
$
83,209
  
 
                      
Equity/Assets
    
9.55
%
  
9.53
%
  
9.46
%
  
9.40
%
  
9.15
%
Tangible Equity/Assets
    
9.07
%
  
9.05
%
  
8.98
%
  
8.91
%
  
8.66
%
 
                      
Asset quality data and ratios:
                      
Nonperforming loans
 
$
6,389
  
$
12,819
  
$
7,555
  
$
8,268
  
$
2,012
  
Other real estate owned
 
$
4,026
  
$
1,526
  
$
1,602
  
$
1,524
  
$
1,344
  
 
                      
Allowance for loan and lease losses
  
$
9,957
  
$
9,394
  
$
9,487
  
$
9,267
  
$
9,172
  
Allowance for unfunded loan commitments
  
$
391
  
$
393
  
$
403
  
$
726
  
$
767
  
Allowance for credit losses
  
$
10,348
  
$
9,787
  
$
9,890
  
$
9,993
  
$
9,939
  
 
                      
Allowance for loan and lease losses to loans
    
1.28
%
  
1.20
%
  
1.22
%
  
1.20
%
  
1.21
%
Allowance for unfunded loan commitments to unfunded commitments
    
0.32
%
  
0.26
%
  
0.27
%
  
0.43
%
  
0.47
%
Allowance for credit losses to loans
    
1.33
%
  
1.25
%
  
1.27
%
  
1.30
%
  
1.31
%
 
                      
Net charge-offs (recoveries)
 
$
588
  
$
102
  
$
254
  
$
47
  
$
45
  
Net charge-offs (recoveries) to loans
   
0.090
%
  
0.013
%
  
0.033
%
  
0.006
%
  
0.006
%
Nonperforming loans to assets
    
0.70
%
  
1.40
%
  
0.83
%
  
0.91
%
  
0.22
%
Loans to deposits
    
101.94
%
  
102.38
%
  
100.49
%
  
97.82
%
  
93.28
%
Loans to assets
    
83.35
%
  
84.50
%
  
84.12
%
  
83.79
%
  
81.86
%
Loans serviced for others
  
$
256,515
  
$
255,700
  
$
254,671
  
$
244,900
  
$
252,363
  
 
 
7