FSBK First South Bancorp

WASHINGTON, N.C., Oct. 19 /PRNewswire-FirstCall/ -- 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 September 30, 2006 (unaudited), the third quarter of its fiscal year ending December 31, 2006, and its earnings for the nine months ended September 30, 2006 (unaudited). Net income for the quarter ended September 30, 2006 increased 17.5% to $4,317,013 from net income of $3,674,362 earned in the quarter ended September 30, 2005. Diluted earnings per share increased 16.2% to $0.43 per share for the quarter ended September 30, 2006 from $0.37 per share for the quarter ended September 30, 2005. Net income for the nine months ended September 30, 2006 increased 28.1% to $12,827,219 from net income of $10,013,033 earned in the nine months ended September 30, 2005. Diluted earnings per share increased 29.0% to $1.29 per share for the nine months ended September 30, 2006 from $1.00 per share for the nine months ended September 30, 2005. Tom Vann, President and Chief Executive Officer of the Company, stated, "Our core earnings this quarter continue to be supported by the strength of our net interest income, during a period of rising interest rates and many challenging issues facing our country. The net loan and leases receivable portfolio increased 7.5% to $762.0 million at September 30, 2006 from $708.8 million at September 30, 2005, while deposits increased 9.9% to $803.5 million at September 30, 2006 from $731.4 million at September 30, 2005. "Total assets of the Company increased to $916.9 million at September 30, 2006 from $825.3 million at September 30, 2005, reflecting an 11.1% annualized growth rate. Net interest income increased 10.5% to $10.6 million for the quarter ended September 30, 2006 from $9.6 million for the quarter ended September 30, 2005, reflecting both our balance sheet and interest rate risk management efforts. "The Bank maintains allowances for loan and lease losses and a reserve for unfunded loan commitments, based upon an evaluation of inherent risk and estimates of probable credit losses within the loan and lease portfolio. The Bank recorded $150,000 and $394,000 of provisions for credit losses during the quarters ended September 30, 2006 and 2005, respectively. At September 30, 2006, the Bank had $8.6 million of general allowances, $529,000 of specific allowances and $891,000 of reserves for unfunded commitments, totaling $10.1 million, or 1.3% of total loans outstanding, which management considers adequate to absorb probable losses on loans, leases and unfunded commitments. "We continue to place efforts on our operating efficiency by managing net interest income, growing non-interest income, and controlling operating expenses, resulting in a 44.5% efficiency ratio for the quarter ended September 30, 2006. In addition, our key performance ratios, return on average assets (ROA) and return on average equity (ROE), continue to place us at the top of our peer group. Our ROA and ROE was 1.9% and 23.1%, respectively, for the quarter ended September 30, 2006." 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 26 full service branch offices and a 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 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. For more information contact: Bill Wall (CFO) or Tom Vann (CEO) First South Bancorp, Inc. Phone: (252) 946-4178 Website: http://www.firstsouthnc.com/ First South Bancorp, Inc. and Subsidiary Consolidated Statements of Financial Condition September 30 December 31 2006 2005* Assets (unaudited) Cash and due from banks $28,743,822 $32,523,922 Interest-bearing deposits in financial institutions 407,057 419,470 Investment securities - available for sale 56,462,644 41,827,690 Mortgage-backed securities - available for sale 35,973,138 20,639,067 Mortgage-backed securities - held for investment 1,745,392 2,063,310 Loans and leases receivable - held for sale 22,523,128 10,845,783 Loans and leases receivable - held for investment 739,496,675 698,083,024 Premises and equipment, net 8,665,223 8,831,170 Real estate owned 1,005,670 13,886 Federal Home Loan Bank of Atlanta stock, at cost 2,077,300 1,689,200 Accrued interest receivable 5,675,295 4,288,600 Goodwill 4,218,576 4,218,576 Mortgage servicing rights 1,349,111 1,402,085 Identifiable intangible assets 235,800 259,380 Prepaid expenses and other assets 8,335,473 7,128,671 Total assets $916,914,304 $834,233,834 Liabilities and Stockholders' Equity Deposits: Demand $258,388,391 $244,879,590 Savings 20,086,541 21,509,653 Large denomination certificates of deposit 180,895,268 153,954,109 Other time 344,142,022 313,409,713 Total deposits 803,512,222 733,753,065 Borrowed money 15,396,635 11,787,528 Junior subordinated debentures 10,310,000 10,310,000 Other liabilities 11,420,295 10,192,769 Total liabilities 840,639,152 766,043,362 Common stock, $.01 par value, 25,000,000 shares authorized, 11,254,222, and 8,000,000 issued; 9,784,799 and 6,339,548 shares outstanding, respectively 97,848 63,395 Additional paid-in capital 38,251,441 37,624,894 Retained earnings, substantially restricted 67,516,171 59,661,079 Treasury stock, at cost (28,963,476) (28,787,979) Accumulated other comprehensive loss, net (626,832) (370,917) Total stockholders' equity 76,275,152 68,190,472 Total liabilities and stockholders' equity $916,914,304 $834,233,834 * Derived from audited consolidated financial statements. First South Bancorp, Inc. and Subsidiary Consolidated Statements of Operations (unaudited) Three Months Ended Nine Months Ended September 30 September 30 2006 2005 2006 2005 Interest income: Interest and fees on loans $16,343,405 $13,141,783 $46,627,123 $36,250,881 Interest and dividends on investments and deposits 1,184,504 769,736 3,275,549 1,993,812 Total interest income 17,527,909 13,911,519 49,902,672 38,244,693 Interest expense: Interest on deposits 6,401,150 4,135,826 16,857,542 10,217,249 Interest on borrowings 343,224 49,393 800,877 229,304 Interest on junior subordinated debentures 215,913 164,578 604,979 456,433 Total interest expense 6,960,287 4,349,797 18,263,398 10,902,986 Net interest income 10,567,622 9,561,722 31,639,274 27,341,707 Provision for credit losses 150,000 394,197 932,878 1,445,197 Net interest income after provision for credit losses 10,417,622 9,167,525 30,706,396 25,896,510 Noninterest income: Fees and service charges 1,765,863 1,644,174 4,995,844 4,443,993 Loan servicing fees 166,898 170,094 501,323 522,083 Gain on sale of real estate, net 2,314 137,619 4,825 182,251 Gain on sale of mortgage loans 11,453 37,750 315,361 200,171 Other income 570,020 275,226 1,251,635 725,204 Total noninterest income 2,516,548 2,264,863 7,068,988 6,073,702 Noninterest expense: Compensation and fringe benefits 3,440,189 3,239,770 10,097,401 9,271,301 Federal insurance premiums 24,109 22,248 71,221 66,293 Premises and equipment 449,374 448,947 1,331,508 1,331,206 Advertising 104,640 48,056 181,981 147,772 Payroll and other taxes 289,594 279,243 1,013,172 855,759 Data processing 599,612 594,560 1,765,477 1,691,793 Amortization of intangible assets 93,784 127,258 281,488 306,965 Other 756,655 671,585 1,933,077 1,953,874 Total noninterest expense 5,757,957 5,431,667 16,675,325 15,624,963 Income before income taxes 7,176,213 6,000,721 21,100,059 16,345,249 Income taxes 2,859,200 2,326,359 8,272,840 6,332,216 Net income $4,317,013 $3,674,362 $12,827,219 $10,013,033 Per share data: * Basic earnings per share $0.44 $0.39 $1.32 $1.06 Diluted earnings per share $0.43 $0.37 $1.29 $1.00 Dividends per share $0.17 $0.13 $0.51 $0.39 Weighted average shares - Basic 9,776,933 9,421,101 9,693,010 9,476,055 Weighted average shares - Diluted 10,070,678 9,930,546 9,981,253 9,966,906 * Adjusted for 3-for-2 stock split on May 25, 2006 First South Bancorp, Inc. Supplemental Quarterly Financial Data (Unaudited) 09/30/2006 06/30/2006 03/31/2006 (dollars in thousands except per share data) Consolidated balance sheet data: Total assets $916,914 $898,581 $870,979 Loans receivable (net) 762,020 750,264 737,519 Cash and investments 85,614 76,689 83,824 Mortgage-backed securities 37,719 37,935 21,925 Premises and equipment 8,665 9,000 8,873 Goodwill 4,219 4,219 4,219 Mortgage servicing rights 1,349 1,433 1,415 Deposits 803,512 772,969 771,611 Borrowings 15,397 29,736 6,414 Junior subordinated debentures 10,310 10,310 10,310 Stockholders' equity 76,275 72,657 70,882 Consolidated earnings summary: Interest income $17,528 $16,794 $15,581 Interest expense 6,960 6,082 5,221 Net interest income 10,568 10,712 10,360 Provision for credit losses 150 437 346 Noninterest income 2,516 2,311 2,244 Noninterest expense 5,758 5,562 5,358 Income taxes 2,859 2,737 2,677 Net income $4,317 $4,287 $4,223 Per Share Data: * Earnings per share-Basic * $0.44 $0.44 $0.44 Earnings per share-Diluted * $0.43 $0.43 $0.42 Dividends per share * $0.17 $0.17 $0.17 Book value per share * $7.80 $7.44 $7.39 Average shares-Basic * 9,776,933 9,719,014 9,580,471 Average shares-Diluted * 10,070,678 10,010,945 10,024,792 *Adjusted for 3-for-2 stock split on May 25, 2006 Performance ratios: Yield on earning assets 8.26% 8.08% 7.78% Cost of funds 3.39% 3.03% 2.69% Net interest spread 4.87% 5.05% 5.09% Net interest margin on earning assets 4.98% 5.15% 5.17% Earning assets to total assets 93.65% 93.24% 93.88% Return on average assets 1.90% 1.93% 1.97% Return on average equity 23.13% 24.25% 24.12% Efficiency ratio 44.46% 42.65% 42.44% Dividend payout ratio 38.64% 38.64% 38.64% Asset quality data and ratios: Nonperforming loans $3,314 $3,029 $2,120 Real estate owned $1,006 $67 $14 Allowance for loan and lease losses $9,174 $8,891 $8,456 Reserve for unfunded loan commitments $891 $1,010 $1,109 Allowance for credit losses $10,065 $9,901 $9,565 Allowance for loan and lease losses to loans 1.19% 1.17% 1.13% Allowance for credit losses to loans 1.31% 1.30% 1.28% Net charge-offs (recoveries) $-15 $100 $4 Net charge-offs (recoveries) to loans -0.002% 0.013% 0.001% Nonperforming loans to assets 0.36% 0.34% 0.24% Loans to deposits 94.84% 97.06% 95.58% Loans to assets 83.11% 83.49% 84.68% Loans serviced for others $253,485 $261,279 $251,787 Supplemental Quarterly Financial First South Bancorp, Inc. Data (Unaudited) 12/31/2005 09/30/2005 Consolidated balance sheet data: Total assets $834,234 $825,257 Loans receivable (net) 708,929 708,769 Cash and investments 74,771 81,638 Mortgage-backed securities 22,702 7,546 Premises and equipment 8,831 9,004 Goodwill 4,219 4,219 Mortgage servicing rights 1,402 1,491 Deposits 733,753 731,351 Borrowings 11,788 6,015 Junior subordinated debentures 10,310 10,310 Stockholders' equity 68,190 66,177 Consolidated earnings summary: Interest income $14,931 $13,912 Interest expense 4,560 4,350 Net interest income 10,371 9,562 Provision for credit losses 266 394 Noninterest income 2,133 2,265 Noninterest expense 5,507 5,432 Income taxes 2,615 2,327 Net income $4,116 $3,674 Per Share Data: * Earnings per share-Basic * $0.43 $0.39 Earnings per share-Diluted * $0.41 $0.37 Dividends per share * $0.14 $0.13 Book value per share * $7.17 $6.96 Average shares-Basic * 9,500,829 9,421,101 Average shares-Diluted * 10,006,262 9,930,546 *Adjusted for 3-for-2 stock split on May 25, 2006 Performance ratios: Yield on earning assets 7.68% 7.34% Cost of funds 2.42% 2.37% Net interest spread 5.26% 4.97% Net interest margin on earning assets 5.33% 5.04% Earning assets to total assets 92.97% 93.73% Return on average assets 1.98% 1.81% Return on average equity 24.35% 22.44% Efficiency ratio 43.98% 45.86% Dividend payout ratio 32.56% 33.33% Asset quality data and ratios: Nonperforming loans $2,259 $2,810 Real estate owned $14 $82 Allowance for loan and lease losses $8,113 $9,101 Reserve for unfunded loan commitments $1,109 $0 Allowance for credit losses $9,222 $9,101 Allowance for loan and lease losses to loans 1.13% 1.27% Allowance for credit losses to loans 1.29% 1.27% Net charge-offs (recoveries) $145 $29 Net charge-offs (recoveries) to loans 0.020% 0.004% Nonperforming loans to assets 0.27% 0.34% Loans to deposits 96.62% 96.91% Loans to assets 84.98% 85.88% Loans serviced for others $260,632 $255,442 DATASOURCE: First South Bancorp, Inc. CONTACT: Bill Wall, CFO, or Tom Vann, CEO, both of First South Bancorp, Inc., +1-252-946-4178 Web site: http://www.firstsouthnc.com/

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