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First South Bancorp, Inc. Reports Increased March 31, 2017 Quarterly Operating Results, Total Assets in Excess of $1.0 Billion

WASHINGTON, N.C., April 20, 2017 /PRNewswire/ -- First South Bancorp, Inc. (FSBK) (the "Company"), the parent holding company of First South Bank (the "Bank"), reports its unaudited financial results for the quarter ended March 31, 2017.

The Company continues to achieve strong earnings and margin expansion through robust loan and deposit growth.  The Company generated net income for the first quarter of 2017 of $1.9 million, which represented a $411,000 or 28.2% increase when compared to the $1.5 million of net income generated in the first quarter of 2016.  As a result, the Company's diluted earnings per common share (EPS) for the first quarter of 2017 increased 33.3% to $0.20 per share, from $0.15 per share for the first quarter of 2016.  The net interest margin for the quarter ended March 31, 2017 was 3.74%, an eight basis point increase above the 3.66% posted for the first quarter of 2016.  Over the past twelve months, loans and leases held for investment (HFI) and total deposits have grown $88.1 million and $101.2 million, respectively, bringing total assets to in excess of $1.0 billion. 

Chief Executive Officer Bruce Elder said, "We are pleased to announce another quarter of solid financial results.  We have again demonstrated our ability to grow the balance sheet in a profitable fashion while driving efficiencies by continuing to analyze how we deliver You First banking to our customer base.  Our growth of loans and deposits over the last twelve months has generated increases in net interest income and core, non-interest income.  Coupled with controlled non-interest expenses, our growth has translated into improved earnings, higher margins and dividend levels, greater efficiency and improved returns on average assets and equity from the prior year first quarter."

HIGHLIGHTS

  • Strong quarterly earnings performance with net income of $1.9 million, diluted EPS of $0.20 per share, return on average assets (ROA) of 0.75%, return on average equity (ROE) of 8.52% and return on average tangible common equity* (ROTCE) of 9.32%.
  • Pre-tax, pre-provision operating earnings* for the quarter of $3.0 million are 48% higher than the $2.0 million reported for the prior year first quarter.
  • Total assets grew to $1.04 billion at March 31, 2017, the Company's first quarter-end reporting period to surpass the billion dollar threshold.
  • Loans and leases HFI grew $88.1 million or 13.8% during the past twelve months to $727.1 million.
  • Deposits grew $101.2 million or 12.4% during the past twelve months to $919.9 million.
  • Total non-interest bearing deposits grew 24.6% to $204.6 million on a year-over-year basis.
  • Net interest margin expanded to 3.74% for the quarter, compared to 3.66% for the first quarter of 2016.
  • Asset quality metrics continue to improve.
  • Continued to maintain a strong capital position.
  • The consolidation of two branches into nearby locations should improve future efficiency.
  • Increased quarterly dividend payment rate to $0.035 per share, a 16.7% increase.

The Company's loan and deposit growth continues to support revenue increases, allowing for net interest margin expansion despite the prevailing low interest rate environment.  As a result, our net interest income (NII) grew to $8.7 million for the first quarter of 2017 from $7.8 million for the comparative first quarter of 2016.

Total non-interest income was $3.3 million, or 27.6% of total revenue (net interest income plus noninterest income) in the first quarter of 2017, compared to $3.6 million, or 31.5% of total revenue in the comparative 2016 first quarter.  Non-interest income for the first quarter of 2016 included a $284,000 gain on the sale of securities as well as the receipt of a $230,000 non-recurring fee.  The sale of other real estate owned (OREO) during the first quarter of 2017 resulted in $82,000 of net gains, compared to a $12,000 net loss posted during the first quarter of 2016.

The Company's efficiency ratio for the first quarter of 2017 improved to 74.92%, from 80.74% in the first quarter of 2016.  Non-interest expenses in the first quarter of 2017 declined to $9.0 million, from $9.1 million in the first quarter of 2016. 

Income tax expense was $778,000 for the 2017 first quarter, compared to $574,000 for the 2016 first quarter.  The effective income tax rates were 29.36% and 28.20% for these reporting periods, respectively.

BALANCE SHEET GROWTH
Loans and leases HFI totaled $727.1 million at March 31, 2017, increasing $26.5 million, over the $700.6 million held at December 31, 2016 and increasing $88.1 million from March 31, 2016.  Loans held for sale declined to $2.5 million at March 31, 2017, from the $5.1 million held at the end of fiscal year 2016.  Investment securities and interest-bearing deposits with other banks increased by $27.7 million to $244.1 million at March 31, 2017, from $216.4 million at year-end 2016, resulting primarily from strong deposit growth during the quarter.

Deposits totaled $919.9 million at March 31, 2017, increasing $49.3 million, or 5.7%, from $870.6 million at December 31, 2016, and increasing $101.2 million, or 12.4% from March 31, 2016.  Non-maturity deposits (personal and business checking, money market, and savings accounts) grew by $37.2 million, or 6.1%, to $651.3 million at March 31, 2017, from $614.1 million at December 31, 2016.  Certificates of deposit (CDs) increased to $268.6 million at March 31, 2017, from $256.6 million at December 31, 2016.  CDs represented 29.2% and 29.5% of total deposits at March 31, 2017, and December 31, 2016, respectively.

Stockholders' equity increased by $2.1 million to $89.3 million at March 31, 2017, from $87.2 million at December 31, 2016.  This increase reflects the $1.9 million of net income earned for the 2017 first quarter and a $535,000 increase in accumulated other comprehensive income resulting from the mark-to-market adjustment of the available-for-sale securities portfolio, and is net of $332,000 dividends declared. 

The tangible equity to assets ratio* was 8.03% at March 31, 2017, compared to 8.21% at December 31, 2016.  The tangible book value per common share* increased to $8.79 at March 31, 2017, from $8.57 at December 31, 2016.

ASSET QUALITY
Solid asset quality metrics in the first quarter of 2017 continue to reflect the Company's disciplined credit culture.  Non-performing assets (NPAs) declined to $5.9 million at March 31, 2017, or 0.57% of total assets, from $6.3 million, or 0.63% of total assets, at December 31, 2016.  NPAs at March 31, 2017 included $3.1 million of OREO, which declined by $115,000, from $3.2 million at December 31, 2016.  Nonaccrual loans and leases were $2.8 million at March 31, 2017, or 0.38% of loans and leases HFI, compared to $3.1 million, or 0.44%, at December 31, 2016.

The provision for credit losses in the 2017 first quarter was $265,000 versus $225,000 for the 2016 first quarter.  The allowance for loan losses represented 1.23% of loans and leases HFI at March 31, 2017, compared to 1.24% at December 31, 2016.

REGULATORY CAPITAL STRENGTH
As of March 31, 2017, reported regulatory capital ratios at the Bank were 12.79% for total risk-based capital, 11.59% for tier 1 risk-based capital and common equity tier 1 risk-based capital and 8.89% for tier 1 leverage, compared to 13.01% for total risk-based capital, 11.80% for tier 1 risk-based capital and common equity tier 1 risk-based capital and 8.89% for tier 1 leverage at December 31, 2016.

CORPORATE AND INVESTOR INFORMATION
The Bank has been serving the citizens of eastern and central North Carolina since 1902 and offers a variety of financial products and services to business and individual customers. The Bank operates through its main office headquartered in Washington, North Carolina, and has 28 full-service branch offices located throughout eastern and central North Carolina.  The Bank also provides a full menu of leasing services through its wholly-owned subsidiary, First South Leasing, LLC. In addition, under its First South Wealth Management division, the Bank makes securities brokerage services available through an affiliation with an independent broker/dealer.

Additional investor information for the Company and the Bank may be accessed on our website at www.firstsouthnc.com.

The Company's common stock symbol as traded on the NASDAQ Global Select Market is "FSBK".

FORWARD-LOOKING STATEMENTS
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 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. The Company assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

*NON-GAAP FINANCIAL MEASURES
Important disclosures about and reconciliations of non-GAAP measures to the corresponding GAAP measures, are provided below and attached to this press release.

This press release and the accompanying Supplemental Financial Data contain financial information determined by methods other than in accordance with generally accepted accounting principles (GAAP) in the United States.  Management uses these "non-GAAP" measures in their analysis of the Company's performance. Management believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.  Reconciliations of non-GAAP disclosures are provided within the accompanying tables to this press release.

(FSBK)

For more information contact:
Bruce Elder (CEO)       (252) 940-4936
Scott McLean (CFO)    (252) 940-5016
Website: www.firstsouthnc.com

 

First South Bancorp, Inc. and Subsidiary









Consolidated Statements of Financial Condition




















March 31,



December 31,



March 31,



2017



2016



2016

Assets


(Unaudited)






(Unaudited)

Cash and due from banks

$

21,650,045


$

22,854,712


$

17,729,075

Interest-bearing deposits with banks


49,062,514



23,320,968



18,385,994

Investment securities available for sale, at fair value


194,538,513



192,606,119



213,011,148

Investment securities held to maturity


509,912



509,617



508,746

Mortgage loans held for sale


2,506,883



5,098,518



2,489,873










Loans and leases held for investment


727,142,668



700,642,291



639,044,574

   Allowance for loan and lease losses


(8,940,879)



(8,673,172)



(8,135,054)

           Net loans and leases held for investment


718,201,789



691,969,119



630,909,520










Premises and equipment, net


11,572,036



11,291,596



12,143,734

Assets held for sale


192,720



192,720



1,083,320

Other real estate owned


3,114,760



3,229,423



5,956,092

Federal Home Loan Bank stock, at cost


1,528,900



1,573,700



1,828,700

Accrued interest receivable


2,973,712



3,525,684



2,845,975

Goodwill


4,218,576



4,218,576



4,218,576

Mortgage servicing rights


2,140,105



2,148,905



1,247,005

Identifiable intangible assets


1,550,768



1,611,187



1,824,432

Bank-owned life insurance


18,219,320



18,080,183



17,653,186

Prepaid expenses and other assets


7,443,786



8,470,887



8,272,379










          Total assets

$

1,039,424,339


$

990,701,914


$

940,107,755










Liabilities and Stockholders' Equity









Deposits:









  Non-interest bearing demand

$

204,575,610


$

196,917,165


$

164,244,311

  Interest bearing demand


298,983,678



272,098,903



244,323,710

  Savings


147,718,357



145,031,981



146,254,503

  Large denomination certificates of deposit


135,765,040



122,819,510



119,229,985

  Other time


132,823,471



133,732,804



144,614,799

          Total deposits


919,866,156



870,600,363



818,667,308










Borrowed money


15,000,000



17,000,000



21,500,000

Junior subordinated debentures


10,310,000



10,310,000



10,310,000

Other liabilities


4,966,400



5,607,832



5,451,329

          Total liabilities


950,142,556



903,518,195



855,928,637



















Common stock, $.01 par value, 25,000,000 shares authorized;









   9,500,266; 9,494,935; and 9,493,776 shares outstanding, respectively


95,003



94,949



94,938

Additional paid-in capital


36,042,028



36,018,743



35,957,524

Retained earnings


51,100,449



49,560,595



44,914,635

Accumulated other comprehensive income


2,044,303



1,509,432



3,212,021

           Total stockholders' equity


89,281,783



87,183,719



84,179,118










           Total liabilities and stockholders' equity

$

1,039,424,339


$

990,701,914


$

940,107,755










 

 

First South Bancorp, Inc. and Subsidiary







Consolidated Statements of Operations







Three Months Ended March 31, 2017 and 2016







(Unaudited)












Three Months Ended





March 31,





2017



2016









Interest income:








  Interest and fees on loans



$

8,213,288


$

7,191,595

  Interest on investments and deposits



1,390,679



1,480,252

           Total interest income



9,603,967



8,671,847









Interest expense:








  Interest on deposits




753,989



669,276

  Interest on borrowings




61,959



73,086

  Interest on junior subordinated notes



124,250



140,039

           Total interest expense



940,198



882,401









Net interest income




8,663,769



7,789,446

Provision for credit losses




265,000



225,000

           Net interest income after provision for credit losses


8,398,769



7,564,446









Non-interest income:








  Deposit fees and service charges



1,856,220



1,907,407

  Loan fees and charges




86,044



56,985

  Mortgage loan servicing fees



321,838



234,001

  Gain on sale and other fees on mortgage loans



473,562



413,861

  Gain (loss) on sale of other real estate, net



81,651



(12,168)

  Gain on sale of investment securities



0



283,514

  Other  income




478,787



692,285

           Total non-interest income



3,298,102



3,575,885









Non-interest expense:








  Compensation and fringe benefits



5,113,553



5,039,954

  Federal deposit insurance premiums



147,374



161,609

  Premises and equipment




1,398,550



1,373,809

  Marketing




63,739



187,818

  Data processing




793,368



796,487

  Amortization of intangible assets



149,197



131,527

  Other real estate owned expense



164,767



93,674

  Other




1,216,002



1,321,048

           Total non-interest expense



9,046,550



9,105,926









Income before income tax expense



2,650,321



2,034,405

Income tax expense




778,124



573,611









NET INCOME



$

1,872,197


$

1,460,794

















Per share data:








Basic earnings per share



$

0.20


$

0.15

Diluted earnings per share



$

0.20


$

0.15

Dividends per share



$

0.035


$

0.025

Average basic shares outstanding



9,497,601



9,491,201

Average diluted shares outstanding



9,541,548



9,514,797









 

 

First South Bancorp, Inc.

Supplemental Financial Data (Unaudited)


















Quarter to Date





3/31/2017


12/31/2016


9/30/2016


6/30/2016


3/31/2016




(dollars in thousands except per share data)

Consolidated balance sheet data:











Total assets

$

1,039,424

$

990,702

$

985,795

$

961,479

$

940,108














Loans held for sale:

$

2,507

$

5,099

$

7,313

$

5,252

$

2,490














Loans and leases held for investment (HFI):












Mortgage

$

73,107

$

74,905

$

74,710

$

73,100

$

73,412


Commercial


558,578


535,047


518,265


510,678


482,779


Consumer


73,188


69,454


69,039


66,138


64,521


Leases


22,270


21,236


20,452


18,927


18,333



Total loans and leases HFI


727,143


700,642


682,466


668,843


639,045

Allowance for loan and lease losses


(8,941)


(8,673)


(8,498)


(8,338)


(8,135)

Net loans and leases HFI

$

718,202

$

691,969

$

673,968

$

660,505

$

630,910














Cash & interest bearing deposits

$

70,713

$

46,176

$

57,209

$

40,734

$

36,115

Investment securities


195,048


193,116


193,765


200,364


213,520

Bank-owned life insurance


18,219


18,080


17,937


17,795


17,653

Premises and equipment


11,572


11,292


11,609


11,671


12,144

Goodwill



4,219


4,219


4,219


4,219


4,219

Mortgage servicing rights


2,140


2,149


2,091


1,273


1,247

Identifiable intangible assets


1,551


1,611


1,682


1,753


1,824














Deposits:












Non-interest checking

$

204,576

$

196,917

$

189,873

$

177,281

$

164,244

Interest checking


212,386


189,401


176,034


170,153


171,323

Money market


86,598


82,698


88,081


72,054


73,000

Savings



147,718


145,032


141,701


142,151


146,255

Certificates


268,588


256,552


264,142


263,823


263,845


Total deposits

$

919,866

$

870,600

$

859,831

$

825,462

$

818,667














Borrowings

$

15,000

$

17,000

$

20,000

$

32,500

$

21,500

Junior subordinated debentures


10,310


10,310


10,310


10,310


10,310

Stockholders' equity


89,282


87,184


88,294


87,327


84,179














Consolidated earnings summary:











Interest income

$

9,604

$

9,336

$

9,210

$

8,998

$

8,672

Interest expense


940


920


911


898


882

Net interest income


8,664


8,416


8,299


8,100


7,790

Provision for credit losses


265


200


220


325


225

Noninterest income


3,298


3,372


3,691


3,548


3,576

Noninterest expense


9,047


8,819


8,929


9,046


9,106

Income before taxes


2,650


2,769


2,841


2,277


2,035

Income tax expense


778


775


947


665


574

Net income

$

1,872

$

1,994

$

1,894

$

1,612

$

1,461














Per Share Data:











Basic earnings per share

$

0.20

$

0.21

$

0.20

$

0.17

$

0.15

Diluted earnings per share

$

0.20

$

0.21

$

0.20

$

0.17

$

0.15

Dividends per share

$

0.035

$

0.03

$

0.03

$

0.03

$

0.025

Book value per share

$

9.40

$

9.18

$

9.30

$

9.20

$

8.87














Shares outstanding


9,500,266


9,494,935


9,494,935


9,493,776


9,493,776

Average basic shares


9,497,601


9,494,935


9,494,861


9,493,776


9,491,201

Average diluted shares


9,541,548


9,529,753


9,525,302


9,519,565


9,514,797














Performance ratios (tax equivalent):











Yield on average earning assets


4.15%


4.07%


4.13%


4.17%


4.07%

Cost of interest bearing liabilities


0.52%


0.52%


0.52%


0.52%


0.52%

Net interest spread


3.62%


3.55%


3.61%


3.64%


3.55%

Net interest margin


3.74%


3.68%


3.73%


3.76%


3.66%

Average earning assets to total average assets


93.32%


92.92%


92.42%


92.38%


92.20%














Return on average assets (annualized)


0.75%


0.80%


0.78%


0.68%


0.63%

Return on average equity (annualized)


8.52%


8.94%


8.52%


7.55%


6.97%

Efficiency ratio


74.92%


74.16%


73.84%


77.59%


80.74%














Average assets

$

1,014,310

$

992,192

$

968,729

$

947,761

$

938,702

Average earning assets

$

946,578

$

921,984

$

895,290

$

875,529

$

865,463

Average equity

$

89,143

$

88,694

$

88,481

$

85,927

$

84,265














Equity/Assets


8.59%


8.80%


8.96%


9.08%


8.95%



























First South Bancorp, Inc.


Supplemental Financial Data (Unaudited)










Quarter to Date





3/31/2017


12/31/2016


9/30/2016


6/30/2016


3/31/2016




(dollars in thousands except per share data)

Asset quality data and ratios:











Nonaccrual loans and leases:












Non-TDR nonaccrual loans and leases












  Earning

$

576

$

410

$

569

$

555

$

945


  Non-Earning


1,479


1,257


1,289


1,075


895



Total Non-TDR nonaccrual loans and leases

$

2,055

$

1,667

$

1,858

$

1,630

$

1,840


TDR nonaccrual loans and leases












   Current TDRs

$

720

$

422

$

792

$

706

$

847


   Past Due TDRs


0


962


248


250


154



Total TDR nonaccrual loans and leases

$

720

$

1,384

$

1,040

$

956

$

1,001

Total nonaccrual loans and leases

$

2,775

$

3,051

$

2,898

$

2,586

$

2,841

Loans and leases >90 days past due, still accruing


0


0


0


218


153

Other real estate owned


3,115


3,229


4,810


5,541


5,956

Total nonperforming assets

$

5,890

$

6,280

$

7,708

$

8,345

$

8,950














Allowance for loan and lease losses to












loans and leases HFI


1.23%


1.24%


1.25%


1.25%


1.27%














Net charge-offs (recoveries)

$

(3)

$

25

$

60

$

122

$

(44)

Net charge-offs (recoveries) to total loans and leases


0.00%


0.00%


0.01%


0.02%


-0.01%

Total nonaccrual loans and leases to total loans












and leases HFI


0.38%


0.44%


0.42%


0.39%


0.44%

Total nonperforming assets to total assets


0.57%


0.63%


0.78%


0.87%


0.95%

Total loans and leases to total deposits


79.32%


81.06%


80.22%


81.66%


78.36%

Total loans and leases to total assets


70.20%


71.24%


69.97%


70.11%


68.24%

Loans serviced for others

$

368,617

$

371,956

$

370,606

$

292,222

$

293,548














Reconciliation of Non-GAAP Measures:











Pre-tax pre-provision operating earnings (non-GAAP):











Income before taxes (GAAP)

$

2,650

$

2,769

$

2,841

$

2,277

$

2,035

Provision for credit losses


265


200


220


325


225

Pre-tax pre-provision net income


2,915


2,969


3,061


2,602


2,260

Securities (gains) losses, net


0


0


0


(184)


(284)

OREO valuations


119


140


0


103


7

OREO (gains) losses, (net)


(82)


(80)


(77)


14


12

Pre-tax pre-provision operating











  earnings (non-GAAP)

$

2,952

$

3,029

$

2,984

$

2,535

$

1,995














Total core non-interest income (non-GAAP):











Non-interest income (GAAP)

$

3,298

$

3,372

$

3,691

$

3,548

$

3,576

Securities (gains) losses, net


0


0


0


(184)


(284)

OREO (gains) losses, (net)


(82)


(80)


(77)


14


12

Total core non-interest income (non-GAAP)

$

3,216

$

3,292

$

3,614

$

3,378

$

3,304














Tangible equity (non-GAAP):











Total equity (GAAP)

$

89,282

$

87,184

$

88,294

$

87,327

$

84,179

Intangible assets (a)


5,770


5,830


5,901


5,972


6,043

Tangible equity (non-GAAP)

$

83,512

$

81,354

$

82,393

$

81,355

$

78,136

Tangible Equity/Assets (non-GAAP)


8.03%


8.21%


8.36%


8.46%


8.31%

Tangible book value per share (non-GAAP)

$

8.79

$

8.57

$

8.68

$

8.57

$

8.23














Return on average tangible common equity (non-GAAP):











Net income (GAAP)

$

1,872

$

1,994

$

1,894

$

1,612

$

1,461

Amortization of intangibles, net of tax


43


51


47


50


51

Tangible net income available to shareholders (non-GAAP)

$

1,915

$

2,045

$

1,941

$

1,662

$

1,512














Average equity


89,143


88,694


88,481


85,927


84,265

Average intangible assets (a)


5,809


5,876


5,946


6,018


6,088

Average tangible common equity (non-GAAP)

$

83,334

$

82,818

$

82,535

$

79,909

$

78,177

Return on average tangible common equity (non-GAAP)


9.32%


9.82%


9.36%


8.37%


7.78%














(a) Excludes mortgage servicing rights
























 

 

Average Balances – Yield/Cost Analysis

Three Months Ended March 31,


2017


2016



Average
Balance


Interest


Average
Yield/Cost


Average
Balance


Interest


Average
Yield/Cost


Interest earning assets:

(Dollars in thousands)

Loans receivable

$     708,822


$     8,213


4.64

%

$     621,345


$     7,192


4.59

%

Investments and deposits

237,756


1,391


2.67

(1)

244,118


1,480


2.73

(1)

  Total earning assets

946,578


9,604


4.15

(1)

865,463


8,672


4.07

(1)

Nonearning assets

67,732






73,239






  Total assets

$  1,014,310






$     938,702



















Interest bearing liabilities:













Deposits

$     691,992


754


0.44


$     641,460


669


0.42


Borrowings

22,161


62


1.12


33,313


73


0.87


Junior subordinated debentures

10,310


124


4.82


10,310


140


5.37


  Total interest bearing liabilities

724,463


940


0.52


685,083


882


0.52


Noninterest bearing demand deposits

195,183


-


-


163,269


-


-


  Total sources of funds

919,646


940


0.41


848,352


882


0.42


Other liabilities

5,521






6,085






Stockholders' equity

89,143






84,265






  Total liabilities and equity

$  1,014,310






$     938,702



















Net interest income



$     8,664






$     7,790

















Interest rate spread (1)(2)





3.62

%





3.55

%

Net interest margin (1)(3)





3.74

%





3.66

%

Ratio of earning assets to interest bearing liabilities




130.66

%





126.33

%














(1)     Shown as a tax-adjusted yield.













(2)     Represents the difference between the average yield on earning assets and the average cost of funds.




(3)     Represents net interest income divided by average earning assets.





















 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/first-south-bancorp-inc-reports-increased-march-31-2017-quarterly-operating-results-total-assets-in-excess-of-10-billion-300442651.html