EXHIBIT 99.1 

PRESS RELEASE	FOR IMMEDIATE RELEASE
July 18, 2012	For more information contact:
First South Bancorp, Inc.	Bill Wall (CFO) (252-940-5017)
	Website: www.firstsouthnc.com

 

First South Bancorp, Inc. Reports Increase in June 30, 2012 Quarterly and Six Months 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 operating results for the quarter ended June 30, 2012, and for the six months ended June 30, 2012.

 

For the 2012 second quarter, net income increased 25.8% to $480,751 ($0.05 per diluted common share), from net income of $382,090 ($0.04 per diluted common share) earned in the comparative 2011 second quarter. Net income for the first six months of 2012 increased 33.0% to $942,647 ($0.10 per share diluted), from net income of $708,873 ($0.07 per share diluted) earned in the first six months of 2011.

 

Tom Vann, President and CEO, commented, “I am pleased to report the Company’s operating results for the second quarter of 2012. The Company continues to generate solid core earnings. Second quarter 2012 net earnings were $480,751, after recording $775,000 of credit loss provisions and $898,090 of other real estate owned valuation adjustments. In the 2012 second quarter, we continued evaluating the credit quality of the Bank’s loan portfolio and market values of foreclosed properties. While the level of our nonperforming assets has declined by approximately $4.4 million during the first half of this year, based on our evaluation we will continue to take a conservative position in managing the financial stress some of our borrowers are facing. Consequently, we are provisioning accordingly to maintain our allowance for loan and lease losses at an adequate level. Mitigating our nonperforming assets will continue to be a top priority for the Bank during 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, declined to $55.7 million at June 30, 2012, from $60.0 million at December 31, 2011. Loans on non-accrual status declined to $37.8 million at June 30, 2012, from $43.0 million at December 31, 2011.

 

The Bank recorded $775,000 of provisions for credit losses in the 2012 second quarter, compared to $3.1 million in the 2011 second quarter. Credit loss provisions were necessary 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 $14.0 million at June 30, 2012 (2.8% of total loans), compared to $15.2 million at December 31, 2011 (2.8% of total loans). Net charge offs were $1.2 million in the 2012 second quarter, compared to $3.7 million in the 2011 second quarter.

 

Mr. Vann stated, “Management continues to take a prudent and conservative posture in provisioning for credit losses 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.”

 

Other real estate owned increased marginally to $17.8 million at June 30, 2012, from $17.0 million at December 31, 2011, reflecting foreclosure activity net of sales and write-downs of certain real estate properties.

 

Net Interest Income

 

Net interest income declined to $7.5 million for the 2012 second quarter, from $8.2 million for the 2011 second 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 relatively consistent at 4.4% for the 2012 second quarter, compared to 4.6% for 2011 second quarter.

 

 

Non-Interest Income

 

Total non-interest income increased to $2.7 million for the 2012 second quarter, from $2.5 million for the comparative 2011 second quarter. The Bank strives to maintain a consistent level of revenue across loan and deposit service offerings. Fees, service charges and loan servicing fees remained relatively constant at $1.7 million for the 2012 second quarter, compared to $1.8 million for the 2011 second quarter.

 

Net gains from mortgage loan sales increased to $264,266 for the 2012 second quarter, from $111,546 for the comparative 2011 second quarter. Net gains from investment securities sales were $485,047 for the 2012 second quarter. There were no sales of investment securities during 2011 second quarter.

 

In its efforts of mitigating nonperforming assets, the Bank recognized net losses of $47,056 on the sale of other real estate owned properties during the 2012 second quarter, compared to net gains of $53,387 in the 2011 second quarter.

 

Non-Interest Expense

 

Total non-interest expense increased to $8.6 million for the 2012 second quarter, from $7.0 million for the comparative 2012 second quarter. Compensation and fringe benefits, the largest component of these expenses, increased to $4.4 million for the 2012 second quarter, from $3.9 million for the comparative 2011 second quarter. This increase primarily results from the accrual of anticipated lump-sum retirement benefits payable to the current CEO upon his retirement at the end of the 2012 third quarter, and the employment of the successor CEO during the current period.

 

Expenses attributable to valuation adjustments, ongoing maintenance and property taxes for other real estate owned properties increased to $1.3 million for the 2012 second quarter, from $265,334 for the comparative 2011 second quarter. “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.

 

FDIC insurance premiums declined to $259,087 for the 2012 second quarter, from $293,284 for the comparative 2011 second quarter, reflecting a new change in the FDIC’s deposit insurance assessment calculation based on assets and tier one capital versus deposits.

 

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 reporting periods.

 

Income tax expense increased to $272,348 for the 2012 second quarter, compared to a $225,671 for the comparative 2011 second 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 $742.0 million at June 30, 2012, from $746.9 million at December 31, 2011. Net loans and leases receivable declined to $491.5 million at June 30, 2012, from $525.2 million at December 31, 2011, reflecting the net of principal repayments, the volume of loans originated, foreclosures, sales, and securitizations of loans into mortgage-backed securities during the current year.

 

Investment securities increased to $165.0 million at June 30, 2012, from $138.5 million at December 31, 2011, reflecting the net of purchases, sales, and securitizations and principal repayments of certain mortgage loans during the current quarter. Mortgage-backed securities increased to $146.4 million at June 30, 2012, from $138.5 million at December 31, 2011. During the current period, the Bank implemented a strategy to diversify its investment portfolio through the purchase of certain tax-exempt municipal securities. At June 30, 2012, the balance of newly acquired municipal securities was $18.6 million.

 

 

Cash and overnight investments increased to $34.8 million at June 30, 2012, from $32.8 million at December 31, 2011, reflecting net changes in the Bank’s cash flow and liquidity position resulting primarily from core deposit growth and slower loan demand.

 

Total deposits declined to $634.6 million at June 30, 2012, from $642.6 million at December 31, 2011. Core checking and savings accounts increased to $291.6 million at June 30, 2012, from $272.7 at December 31, 2011; while certificates of deposits declined to $343.0 million at June 30, 2012, from $370.0 million at December 31, 2012. The Bank strives to manage its cost of deposits by monitoring the volume and rates paid on maturing certificates of deposits in relationship to current funding needs and market interest rates. The Bank did not renew certain higher rate maturing time deposits during the 2012 second quarter, and was able to reprice new and maturing time deposits at lower rates. The cost of funds improved to 0.83% for the 2012 second quarter, from 1.14% for the comparative 2011 second quarter.

 

Stockholders' equity increased to $86.2 million at June 30, 2012, from $84.1 million at December 31, 2011, reflecting year-to-date net income and changes in accumulated other comprehensive income. The equity to assets ratio was 11.6% at June 30, 2012, compared to 11.3% at December 31, 2011. There were 9,751,271 common shares outstanding at both June 30, 2012 and December 31, 2011. The book value per common share increased to $8.84 at June 30, 2012, from $8.63 at December 31, 2011.

 

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 26 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.

 

(More)

(NASDAQ: FSBK)

 

 

First South Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition 

 

		June 30				December 31,
		2012				2011		*
		(unaudited)
Assets
Cash and due from banks		$	12,465,913			$	14,298,146
Interest-earning deposits with banks			22,292,778				18,476,173
Investment securities available for sale, at fair value			164,976,511				138,515,210
Loans and leases receivable:
Held for sale			4,397,747				6,435,983
Held for investment			501,067,144				533,960,226
Allowance for loan and lease losses			(14,003,657	)			(15,194,014	)
Loans and leases receivable, net			491,461,234				525,202,195
Premises and equipment, net			12,620,995				11,679,430
Other real estate owned			17,845,050				17,004,874
Federal Home Loan Bank stock, at cost			1,288,200				1,886,900
Accrued interest receivable			2,454,890				2,210,314
Goodwill			4,218,576				4,218,576
Mortgage servicing rights			1,333,366				1,237,161
Identifiable intangible assets			55,020				70,740
Income tax receivable			3,013,879				2,194,677
Prepaid expenses and other assets			7,938,384				9,946,459
Total assets		$	741,964,796			$	746,940,855
Liabilities and Stockholders' Equity
Deposits:
Demand		$	261,295,293			$	243,719,526
Savings			30,346,697				28,988,522
Large denomination certificates of deposit			181,946,545				195,429,182
Other time			161,041,299				174,479,477
Total deposits			634,629,834				642,616,707
Borrowed money			1,758,154				2,096,189
Junior subordinated debentures			10,310,000				10,310,000
Other liabilities			9,098,635				7,804,687
Total liabilities			655,796,623				662,827,583
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			35,812,995				35,815,098
Retained earnings, substantially restricted			77,452,728				76,510,081
Treasury stock, at cost			(31,967,269	)			(31,967,269	)
Accumulated other comprehensive income, net			4,772,206				3,657,849
Total stockholders' equity			86,168,173				84,113,272
Total liabilities and stockholders' equity		$	741,964,796			$	746,940,855

  

*Derived from audited consolidated financial statements

 

 

First South Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations and Comprehensive Income

(unaudited)

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2012				2011				2012				2011
Interest income:
Interest and fees on loans		$	7,447,269			$	8,905,881			$	15,113,844			$	17,729,875
Interest and dividends on investments and deposits			1,370,749				1,282,570				2,617,711				2,349,776
Total interest income			8,818,018				10,188,451				17,731,555				20,079,651
Interest expense:
Interest on deposits			1,249,628				1,924,835				2,570,823				3,901,704
Interest on borrowings			923				1,553				2,039				28,967
Interest on junior subordinated notes			91,117				83,911				183,311				165,232
Total interest expense			1,341,668				2,010,299				2,756,173				4,095,903
Net interest income			7,476,350				8,178,152				14,975,382				15,983,748
Provision for credit losses			775,000				3,080,000				2,615,000				5,530,011
Net interest income after provision for credit losses			6,701,350				5,098,152				12,360,382				10,453,737
Non-interest income:
Fees and service charges			1,454,625				1,581,922				2,934,762				3,068,624
Loan servicing fees			202,776				196,988				415,577				395,072
Gain (loss) on sale of other real estate, net			(47,056	)			53,387				(76,021	)			(28,708	)
Gain on sale of mortgage loans			264,266				111,546				568,874				231,528
Gain on sale of investment securities			485,047				-				1,518,904				52,146
Other  income			292,999				553,868				532,509				761,000
Total non-interest income			2,652,657				2,497,711				5,894,605				4,479,662
Non-interest expense:
Compensation and fringe benefits			4,387,489				3,941,577				8,545,101				7,731,256
Federal deposit insurance premiums			259,087				293,284				511,486				584,784
Premises and equipment			538,812				433,512				967,280				856,792
Advertising			67,531				38,280				133,565				85,384
Payroll and other taxes			357,480				352,520				763,275				754,148
Data processing			604,250				622,859				1,213,959				1,223,400
Amortization of intangible assets			124,942				145,578				225,498				292,781
Other real estate owned expense			1,307,097				265,334				2,585,396				484,851
Other			954,220				895,158				1,893,492				1,760,919
Total non-interest expense			8,600,908				6,988,102				16,839,052				13,774,315
Income before income tax expense			753,099				607,761				1,415,935				1,159,084
Income tax expense			272,348				225,671				473,288				450,211
NET INCOME		$	480,751			$	382,090			$	942,647			$	708,873
Other comprehensive income, net of taxes			1,348,083				843,478				1,114,357				623,231
Comprehensive income		$	1,828,834			$	1,225,568			$	2,057,004			$	1,332,104
Per share data:
Basic earnings per share		$	0.05			$	0.04			$	0.10			$	0.07
Diluted earnings per share		$	0.05			$	0.04			$	0.10			$	0.07
Average basic shares outstanding			9,751,271				9,751,271				9,751,271				9,751,271
Average diluted shares outstanding			9,751,271				9,751,271				9,751,271				9,751,271

 

 

First South Bancorp, Inc.		Supplemental Financial Data (Unaudited)
		Quarterly																				Year to Date
		6/30/2012				3/31/2012				12/31/2011				9/30/2011				6/30/2011				6/30/2012				6/30/2011
		(dollars in thousands except per share data)
Consolidated balance sheet data:
Total assets		$	741,965			$	750,350			$	746,941			$	768,411			$	784,538			$	741,965			$	784,538
Loans receivable (net):
Mortgage		$	73,455			$	80,263			$	66,249			$	80,453			$	56,564			$	73,455			$	56,564
Commercial			341,385				352,459				378,823				405,712				428,141				341,385				428,141
Consumer			70,168				71,270				72,821				74,097				76,459				70,168				76,459
Leases			6,453				7,393				7,309				7,972				7,825				6,453				7,825
Total loans (net)		$	491,461			$	511,385			$	525,202			$	568,234			$	568,989			$	491,461			$	568,989
Cash and investments		$	34,759			$	64,662			$	32,774			$	32,909			$	44,565			$	34,759			$	44,565
Investment securities			164,977				123,036				138,515				119,764				124,539				164,977				124,539
Premises and equipment			12,621				12,985				11,679				11,209				10,753				12,621				10,753
Goodwill			4,219				4,219				4,219				4,219				4,219				4,219				4,219
Mortgage servicing rights			1,333				1,268				1,237				1,091				1,197				1,333				1,197
Deposits:
Savings		$	30,347			$	31,068			$	28,988			$	27,551			$	26,999			$	30,347			$	26,999
Checking			261,295				262,500				243,720				243,582				240,048				261,295				240,048
Certificates			342,988				354,780				369,909				394,007				416,855				342,988				416,855
Total deposits		$	634,630			$	648,348			$	642,617			$	665,140			$	683,902			$	634,630			$	683,902
Borrowings		$	1,758			$	1,681			$	2,096			$	1,976			$	2,349			$	1,758			$	2,349
Junior subordinated debentures			10,310				10,310				10,310				10,310				10,310				10,310				10,310
Stockholders' equity			86,168				84,343				84,113				82,061				80,894				86,168				80,894
Consolidated earnings summary:
Interest income		$	8,818			$	8,914			$	9,363			$	9,861			$	10,188			$	17,731			$	20,080
Interest expense			1,342				1,415				1,608				1,852				2,010				2,756				4,096
Net interest income			7,476				7,499				7,755				8,009				8,178				14,975				15,984
Provision for credit losses			775				1,840				2,640				2,643				3,080				2,615				5,530
Noninterest income			2,653				3,243				2,648				2,292				2,498				5,895				4,479
Noninterest expense			8,601				8,239				7,180				6,999				6,988				16,839				13,774
Income tax expense			272				201				142				256				226				473				450
Net income		$	481			$	462			$	441			$	403			$	382			$	943			$	709
Per Share Data:
Basic earnings per share		$	0.05			$	0.05			$	0.05			$	0.04			$	0.04			$	0.10			$	0.07
Diluted earnings per share		$	0.05			$	0.05			$	0.05			$	0.04			$	0.04			$	0.10			$	0.07
Book value per share		$	8.84			$	8.65			$	8.63			$	8.42			$	8.30			$	8.84			$	8.30
Average basic shares			9,751,271				9,751,271				9,751,271				9,751,271				9,751,271				9,751,271				9,751,271
Average diluted shares			9,751,271				9,751,271				9,751,271				9,751,271				9,751,271				9,751,271				9,751,271

 

 

First South Bancorp, Inc.		Supplemental Financial Data (Unaudited)
		Quarterly																				Year to Date
		6/30/2012				3/31/2012				12/31/2011				9/30/2011				6/30/2011				6/30/2012				6/30/2011
						(dollars in thousands except per share data)
Performance ratios:
Yield on average earning assets			5.22	%			5.26	%			5.44	%			5.64	%			5.78	%			5.24	%			5.69	%
Cost of funds			0.83	%			0.87	%			0.96	%			1.08	%			1.14	%			0.85	%			1.16	%
Net interest spread			4.39	%			4.39	%			4.48	%			4.56	%			4.64	%			4.39	%			4.53	%
Net interest margin/average earning assets			4.42	%			4.42	%			4.51	%			4.58	%			4.64	%			4.43	%			4.53	%
Earning assets to total assets			90.94	%			90.90	%			91.09	%			90.47	%			88.61	%			90.94	%			88.61	%
Return on average assets (annualized)			0.26	%			0.25	%			0.23	%			0.21	%			0.19	%			0.25	%			0.18	%
Return on average equity (annualized)			2.26	%			2.18	%			2.13	%			1.97	%			1.90	%			2.22	%			1.76	%
Average assets		$	742,690			$	744,395			$	757,905			$	774,383			$	791,644			$	742,570			$	793,412
Average earning assets		$	676,041			$	678,043			$	688,457			$	698,984			$	704,792			$	676,325			$	705,750
Average equity		$	85,018			$	84,582			$	82,708			$	81,757			$	80,517			$	84,865			$	80,333
Equity/Assets			11.61	%			11.24	%			11.26	%			10.68	%			10.31	%			11.61	%			10.31	%
Tangible Equity/Assets			11.04	%			10.67	%			10.69	%			10.12	%			9.76	%			11.04	%			9.76	%
Asset quality data and ratios:
Loans on nonaccrual status:
Nonaccrual loans
Earning		$	1,494			$	2,255			$	10,601			$	3,179			$	3,853			$	1,494			$	3,853
Non-Earning			11,151				8,757				11,007				15,107				15,657				11,151				15,657
Total Non-Accrual Loans		$	12,645			$	11,012			$	21,608			$	18,286			$	19,510			$	12,645			$	19,510
Nonaccrual restructured loans
Past Due TDRs		$	9,100			$	6,029			$	9,170			$	12,568			$	11,228			$	9,100			$	11,228
Current TDRs			16,065				20,456				12,247				11,172				10,421				16,065				10,421
Total TDRs		$	25,165			$	26,485			$	21,417			$	23,740			$	21,649			$	25,165			$	21,649
Total loans on nonaccrual status		$	37,810			$	37,497			$	43,025			$	42,026			$	41,159			$	37,810			$	41,159
Other real estate owned			17,845				17,324				17,005				12,886				11,387				17,845				11,387
Total nonperforming assets		$	55,655			$	54,821			$	60,030			$	54,912			$	52,546			$	55,655			$	52,546
Allowance for credit losses		$	14,268			$	14,637			$	15,448			$	18,563			$	18,918			$	14,268			$	18,918
Allowance for credit losses to loans			2.82	%			2.78	%			2.85	%			3.16	%			3.21	%			2.82	%			3.21	%
Net charge-offs		$	1,167			$	2,638			$	5,752			$	3,018			$	3,713			$	3,806			$	5,679
Net charge-offs to loans			0.24	%			0.52	%			1.10	%			0.53	%			0.65	%			0.77	%			1.00	%
Nonaccrual loans to loans			7.69	%			7.33	%			8.19	%			7.40	%			7.23	%			7.69	%			7.23	%
Nonperforming assets to assets			7.50	%			7.31	%			8.06	%			7.15	%			6.69	%			7.50	%			6.69	%
Loans to deposits			79.80	%			81.25	%			84.26	%			88.35	%			86.10	%			79.80	%			86.10	%
Loans to assets			68.26	%			70.21	%			72.66	%			76.48	%			75.06	%			68.26	%			75.06	%
Loans serviced for others		$	326,021			$	316,297			$	319,363			$	302,307			$	314,220			$	326,021			$	314,220