EXHIBIT 99.1

 

PRESS RELEASE	FOR IMMEDIATE RELEASE
October 16, 2014	For more information contact:
First South Bancorp, Inc.	Bruce Elder (CEO)   (252) 940-4936
	Scott McLean (CFO) (252) 940-5016
	Website: www.firstsouthnc.com

 

First South Bancorp, Inc. Reports September 30, 2014 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 and nine months ended September 30, 2014.

 

For the 2014 third quarter, net income increased 4.43% to $1.34 million, or $0.14 per diluted common share, from net income of $1.29 million, or $0.13 per diluted common share for the linked 2014 second quarter. The improvement in net income on a linked quarter basis reflects increases in net interest income and non-interest income coupled with a lower level of provision for loan and lease losses and partially offset by an increase in non-interest expenses. Pre-tax, pre-provision operating earnings (which exclude net gains on the sale of securities and other real estate owned (OREO) and valuation adjustments to OREO) were $2.36 million for the current quarter compared with $2.24 million for the quarter ended June 30, 2014, reflecting a $117,000 or 5.23% increase.

 

Net income and earnings per diluted common share for the current quarter declined by $194,000 and $0.02, respectively, when compared with $1.54 million or $0.16 per diluted common share for the quarter ended September 30, 2013. The increase in net interest income combined with decreases in non-interest expenses and income taxes were not enough to fully offset the decline in non-interest income and the larger loan loss provision. On a pre-tax, pre-provision operating basis, current quarter results were $285,000 higher than the $2.08 million from a year ago, as the prior year results included several non-recurring income items and no loan loss provision.

 

Net income for the first nine months of 2014 was $3.73 million, or $0.39 per diluted common share, compared to net income of $4.87 million, or $0.50 per diluted common share earned in the first nine months of 2013. Earnings for the current nine month period were negatively impacted by a decline in net interest income and non-interest revenue, an increase in the loan loss provisions and partially offset by decreases in non-interest expenses and income taxes. Pre-tax, pre-provision operating earnings for the current nine-month period declined by $1.08 million to $6.33 million from $7.41 million a year ago, primarily attributable to a $1.33 million decline in revenue from the sale and servicing of mortgage loans.

 

Bruce Elder, President and CEO, commented, “On September 3, 2014, we announced entering into an agreement with Bank of America to acquire nine banking centers which will expand our presence into seven new eastern North Carolina markets. While we are adding to our branch and ATM network, we view this transaction more as an acquisition of a strong core customer base. Plans and strategies for servicing these new customers are well under way. We anticipate the transaction to be finalized, subject to regulatory approval, at the close of business on Friday, December 12, 2014. In addition, we remain internally focused on our earnings and asset quality. We continue to make progress in the areas of net interest income, core non-interest income and containing non-interest expenses. After a slight uptick in nonperforming assets at the June quarter end, we resolved several credits and experienced solid improvement during the third quarter. Looking forward to the fourth quarter, our financial results will be impacted by numerous non-recurring transaction expenses related to the branch acquisition and the addition of both bankers and internal support personnel to leverage the acquired deposit base and to service these new customers.”

 

 

Net Interest Income

 

Net interest income for the 2014 third quarter increased to $6.60 million from $6.57 million for the linked 2014 second quarter and $6.53 million earned for the comparative 2013 third quarter. Net interest income for the first nine months of 2014 declined to $19.60 million, from $20.38 million for the comparative 2013 nine month period. The tax equivalent net interest margin declined 7 basis points to 4.09% for the 2014 third quarter, from 4.16% for the linked 2014 second quarter, and fell 16 basis points when compared to 4.25% for the 2013 third quarter. The tax equivalent net interest margin for the first nine months of 2014 declined by 12 basis points to 4.16%, from 4.28% for the comparative 2013 nine month period.

 

The increase in net interest income from the linked 2014 second quarter is due primarily to the net increase of average earning assets over average interest-bearing liabilities and was partially offset by lower yields on earning assets and the slightly higher cost of interest-bearing funds. During the current quarter, we locked in some longer-term funding which is consistent with our asset liability management strategy. The increase in net interest income from the comparative prior year period is due primarily to higher volumes of earning assets offset by lower yields on those assets. While the Company has experienced solid loan growth over the past twelve months, given the current low rate environment, yields on new loan production is below that of our historical levels. Similarly, the decline in net interest income for the comparative nine month periods is due primarily to a reduction in the yield and a change in the composition of our earning asset base.

 

The announced acquisition of nine banking centers from Bank of America, which remains subject to regulatory approval, will have a significant impact on the Company’s net interest margin in 2015. An immaterial amount of loans are being transferred through the transaction and we will invest those deposits using a mix of cash, short-term and intermediate term investment securities until the funds can be converted to higher yielding assets.

 

Asset Quality and Provisions for Loan Losses

 

Total nonperforming assets were $13.1 million, or 1.8% of total assets at September 30, 2014, compared to $15.3 million or 2.3% of total assets at December 31, 2013. Total loans in non-accrual status were $4.5 million at September 30, 2014, compared to $5.6 million at December 31, 2013. Our level of OREO declined to $8.1 million at September 30, 2014, from $9.4 million at December 31, 2013. The Bank continues to place improving asset quality metrics as a key component of its short-term and long-term performance objectives.

 

The allowance for loan and lease losses (ALLL) was $7.5 million at September 30, 2014, representing 1.59% of loans and leases held for investment, compared to $7.6 million at December 31, 2013, or 1.69% of loans and leases held for investment. The Bank recorded $400,000 of provision for credit losses in the 2014 third quarter, $450,000 in the linked 2014 second quarter, and none in the comparative 2013 third quarter. During the first nine months of 2014, the Bank recorded $1.1 million of provision for credit losses, compared to $400,000 in the first nine months of 2013. Management believes the ALLL remains adequate.

 

Non-Interest Income

 

Total non-interest income was $2.25 million for the 2014 third quarter compared to $2.17 million for the linked 2014 second quarter and $2.71 million for the 2013 third quarter.

 

Deposit fees and service charges were $1.12 million for the 2014 third quarter representing 49.8% of total non-interest income, compared to $1.14 million earned in the linked 2014 second quarter and $1.06 million in the 2013 third quarter, representing 52.5% and 39.3% of total non-interest income, respectively. We anticipate additional service charge revenue from deposits going forward as we focus on growing our core deposit base through new product offerings and customer acquisition.

 

 

Total non-interest income generated from the sale and servicing of mortgage loans and loan fees were $677,000 for the 2014 third quarter, compared with $612,000 in the linked 2014 second quarter and $979,000 for the 2013 third quarter. Revenue from mortgage banking activities remains well below levels from the prior year. Due primarily to heavy refinance activity, mortgage originations were robust through the third quarter of 2013 and have tapered off from that point. As we sell the majority of our originated mortgage loans and retain the servicing rights, the decline in volume has also impacted recurring revenue from servicing. We continue to explore the purchase of servicing rights to enhance revenue.

 

Net gains recognized from the sale of OREO were $9,000 for the 2014 third quarter, compared to $34,000 for the linked 2014 second quarter and $68,000 for the comparative 2013 third quarter, as the Bank continues in its efforts of disposing of these nonperforming assets.

 

There were no gains on investment security sales during the 2014 third quarter or the linked second quarter, compared to $268,000 for the 2013 third quarter.

 

Included in other non-interest income is revenue from investments in Bank-owned life insurance (BOLI) of $133,000 for the 2014 third quarter, compared to $132,000 for the linked 2014 second quarter and $103,000 for the 2013 third quarter.

 

Total core non-interest income, excluding net gains from the sale of OREO and investment securities, increased to $2.24 million for the 2014 third quarter, from to $2.14 million for the linked 2014 second quarter, and $2.37 million for the 2013 third quarter, due primarily to increases in services charges and fees on deposit accounts.

 

For the first nine months of 2014, total non-interest income was $6.33 million, compared to $8.10 million for the first nine months 2013. Fees and service charges on deposits were $3.18 million for the current period compared to $3.16 million for the prior year period. The Bank and the mortgage industry overall, has experienced a slowdown in mortgage activity due to the current economic conditions and increases in mortgage rates from their recent historic low levels. As a result, revenue generated from the sale and servicing of mortgage loans and loan fees declined by $1.33 million to $1.80 million for the first nine months of 2014, from $3.13 million for 2013 nine month period. Net gains recognized from the sale of OREO and investment securities declined to $82,000 and $14,000, respectively, for the first nine months of 2014, from $403,000 and $548,000, respectively, for the first nine months of 2013, reflecting a reduced volume of sales activity in the respective periods. BOLI earnings increased to $398,000 for the first nine months of 2014, compared to $188,000 for the first nine months of 2013.

 

Non-Interest Expense

 

Total non-interest expenses were $6.54 million for the 2014 third quarter, compared to $6.46 million for the linked 2014 second quarter and $6.93 million for the 2013 third quarter. For the first nine months of 2014, total non-interest expense declined to $19.58 million, from $20.59 million reported in the first nine months of 2013.

 

Compensation and benefit expenses, the largest component of non-interest expenses, remains relatively consistent at $3.83 million for the 2014 third quarter, compared to $3.82 million for the linked 2014 second quarter and $3.84 million for the 2013 third quarter. For the first nine months of 2014, compensation expense declined marginally to $11.45 million, from $11.53 million reported in the first nine months of 2013. The Bank will continue to manage staffing levels to ensure we meet the ongoing needs of our customers and to support our future growth.

 

 

FDIC insurance was $137,000 for the 2014 third quarter, compared to $139,000 for the linked 2014 second quarter and $228,000 for the 2013 third quarter. For the first nine months of 2014, FDIC insurance declined to $421,000, from $700,000 reported in the first nine months of 2013. The change in volume of FDIC insurance is attributable to changes in the volume of the deposit insurance assessment calculation base.

 

Data processing costs were relatively consistent at $567,000 for the 2014 third quarter, compared to $568,000 for the linked 2014 second quarter and $559,000 for the 2013 third quarter. For the first nine months of 2014, data processing costs declined to $1.72 million, from $1.75 million reported in the first nine months of 2013. Data processing costs fluctuate in conjunction with changes in the number of customer accounts and transaction activity volumes.

 

Expenses attributable to ongoing maintenance, property taxes and insurance, and valuation adjustments for OREO properties were $167,000 for the 2014 third quarter, compared $107,000 for the linked 2014 second quarter and $288,000 for the comparative 2013 third quarter. For the first nine months of 2014, OREO expenses declined significantly to $396,000, from $1.00 million for the first nine months of 2013.

 

Income tax expense was $565,000 for the 2014 third quarter, compared to $542,000 for the linked 2014 second quarter and $767,000 for the 2013 third quarter. For the first nine months of 2014, income tax expense declined to $1.53 million, from $2.61 million for the first nine months of 2013. The effective income tax rates were 29.63% for the 2014 third quarter, 29.66% for the linked 2014 second quarter and 33.28% for the 2013 third quarter. The effective income tax rates were 29.02% and 34.94% for the respective 2014 and 2013 nine month periods. The increased investment in BOLI and tax-exempt municipal bonds has resulted in lowering the Company’s income tax burden.

 

Premises and equipment, advertising, amortization of intangibles and other expense, in aggregate, were relatively consistent during the respective three and nine month reporting periods.

 

Balance Sheet

 

Total assets increased to $734.7 million at September 30, 2014, from $674.7 million at December 31, 2013. The $60.0 million increase is the result of growth in earning assets, primarily in the loans and leases held for investment and securities available for sale categories.

 

Loans and leases held for investment grew by $22.0 million during the nine months ended September 30, 2014. As a result of this net growth, total loans and leases held for investment increased to $473.0 million at September 30, 2014, from $451.0 million at December 31, 2013.

 

The investment securities portfolio increased to $188.5 million at September 30, 2014, from $150.8 million at December 31, 2013. During this current period, the Bank implemented a strategy that adds bonds of similar quality, structure and duration to our portfolio that will enhance income generation.

 

During the nine months ended September 30, 2014, the Bank had a $3.9 million net increase in its investment in BOLI, to $15.0 million at September 30, 2014, from $11.1 million at December 31, 2013. The investment returns from the BOLI will offset a portion of the cost of providing benefit plans to our employees.

 

Total deposits increased to $602.0 million at September 30, 2014, from $585.7 million at December 31, 2013. Total non-maturity deposits increased by $34.3 million to $371.8 million at September 30, 2014, from $337.5 million at December 31, 2013, and were partially offset by an $18.0 million decline in certificates of deposits. Certificates of deposit declined to $230.2 million or 38.2% of total deposits at September 30, 2014, from $248.2 million, or 42.4% of total deposits at December 31, 2013.

 

 

FHLB advances increased to $37.5 million at September 30, 2014, compared to none at December 31, 2013. Current borrowings are comprised of $17.5 million of short-term advances, and $20.0 million of long-term fixed rate funding acquired in connection with a strategy targeted at hedging the potential impact of rising interest rates on future earnings. The Bank uses FHLB borrowings as a supplemental funding source for earning asset growth, providing an effective means of managing its overall cost of funds, and managing exposure to interest rate risk. The current increase in the level of short-term advances is the result of a pre-investment strategy. In anticipation of the December transaction closing of the Bank of America branch transaction, we have begun purchasing investment securities funded with short-term FHLB advances. Once the Bank of America transaction is finalized and the deposit funds are received, the short-term advances will be repaid.

 

Stockholders' equity increased to $80.4 million at September 30, 2014, from $74.9 million at December 31, 2013. This increase reflects the $3.7 million of net income earned for the nine months ended September 30, 2014 and a $2.9 million increase in accumulated other comprehensive income resulting from the mark-to-market adjustment of the available-for-sale securities portfolio, net of $723,000 dividend payments, and $457,000 used to acquire 55,876 shares of the Company’s common stock pursuant to a previously announced repurchase plan.

 

The tangible equity to assets ratio was 10.36% at September 30, 2014, compared to 10.47% at December 31, 2013. There were 9,598,007 common shares outstanding at September 30, 2014, compared to 9,653,883 shares outstanding at December 31, 2013, reflecting the net effect of shares purchased through the stock repurchase program. The tangible book value per common share increased to $7.93 at September 30, 2014, from $7.32 at December 31, 2013.

 

Key Performance Ratios

 

Some of our key performance ratios are the return on average assets (ROA), the return on average equity (ROE) and the efficiency ratio. ROA is 0.74% for the 2014 third quarter, compared with 0.73% for the linked 2014 second quarter and 0.90% for the 2013 third quarter. ROE is 6.70% for the 2014 third quarter compared with 6.61% for the linked 2014 second quarter and 8.18% for the 2013 third quarter. The efficiency ratio (noninterest expenses as a percentage of net interest income plus noninterest income) improved to 72.52% for the 2014 third quarter, from 72.77% for the linked 2014 second quarter and 75.05% for the 2013 third quarter. The efficiency ratio measures the proportion of net operating revenues that are absorbed by overhead expenses.

 

Corporate and Investor Information

 

First South 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 26 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 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.

 

Certain amounts in the unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 have been reclassified to conform with the presentation as of and for the Three and Nine Months Ended September 30, 2014. The reclassifications had no effect on previously reported net income.

 

Non-GAAP Financial Measures

 

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States. First South Bancorp, Inc.’s 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 in the current period. 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. See the attached disclosures for a reconciliation of any non-GAAP measures to the most directly comparable GAAP measure.

 

(More)

(NASDAQ: FSBK)

 

 

First South Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

 

		September 30,				December 31,
		2014				2013
		(unaudited)				(*)
Assets
Cash and due from banks		$	10,550,246			$	11,816,071
Interest-bearing deposits with banks			9,556,326				12,419,244
Investment securities available for sale, at fair value			187,964,534				150,300,079
Investment securities held to maturity			507,025				506,176
Loans held for sale:
Mortgage loans			5,540,058				2,992,017
Total loans held for sale			5,540,058				2,992,017
Loans and leases held for investment			473,012,676				450,960,277
Allowance for loan and lease losses			(7,503,987	)			(7,609,467	)
Net loans and leases held for investment			465,508,689				443,350,810
Premises and equipment, net			12,494,066				11,759,521
Other real estate owned			8,102,764				9,353,835
Federal Home Loan Bank stock, at cost			2,294,000				848,800
Accrued interest receivable			2,322,559				2,334,944
Goodwill			4,218,576				4,218,576
Mortgage servicing rights			1,170,828				1,219,623
Identifiable intangible assets			-				7,860
Income tax receivable			2,628,641				2,901,062
Bank-owned life insurance			14,991,685				11,094,182
Prepaid expenses and other assets			6,816,223				9,599,143
Total assets		$	734,666,220			$	674,721,943
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing demand		$	99,219,406			$	96,445,049
Interest bearing demand			182,473,167				171,548,658
Savings			90,189,605				69,542,654
Large denomination certificates of deposit			107,796,042				123,492,907
Other time			122,370,135				124,674,588
Total deposits			602,048,355				585,703,856
Borrowed money			37,500,000				-
Junior subordinated debentures			10,310,000				10,310,000
Other liabilities			4,445,181				3,849,944
Total liabilities			654,303,536				599,863,800
Common stock, $.01 par value, 25,000,000 shares authorized;
9,598,007 and 9,653,883 shares outstanding, respectively			95,980				96,539
Additional paid-in capital			35,854,162				35,809,397
Retained earnings			41,400,807				38,849,326
Accumulated other comprehensive income			3,011,735				102,881
Total stockholders' equity			80,362,684				74,858,143
Total liabilities and stockholders' equity		$	734,666,220			$	674,721,943

 

(*) Derived from audited consolidated financial statements

 

 

First South Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2014 and 2013

(unaudited)

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2014				2013				2014				2013
Interest income:
Interest and fees on loans		$	6,068,196			$	6,054,886			$	17,966,829			$	18,715,042
Interest on investments and deposits			1,248,382				1,165,258				3,642,464				3,834,305
Total interest income			7,316,578				7,220,144				21,609,293				22,549,347
Interest expense:
Interest on deposits			522,861				611,975				1,608,913				1,908,473
Interest on borrowings			112,174				-				157,287				7,058
Interest on junior subordinated notes			81,371				82,391				242,651				258,731
Total interest expense			716,406				694,366				2,008,851				2,174,262
Net interest income			6,600,172				6,525,778				19,600,442				20,375,085
Provision for credit losses			400,000				-				1,100,000				400,000
Net interest income after provision for credit losses			6,200,172				6,525,778				18,500,442				19,975,085
Non-interest income:
Deposit fees and service charges			1,118,599				1,063,243				3,184,808				3,158,690
Loan fees and charges			39,057				46,076				117,615				125,694
Mortgage loan servicing fees			248,399				334,382				724,827				968,120
Gain on sale and other fees on mortgage loans			428,514				644,674				1,076,583				2,163,891
Gain on sale of other real estate, net			8,949				68,233				82,369				403,067
Gain on sale of investment securities			-				267,564				13,509				548,074
Other income			401,584				281,577				1,133,910				733,754
Total non-interest income			2,245,102				2,705,749				6,333,621				8,101,290
Non-interest expense:
Compensation and fringe benefits			3,826,855				3,838,796				11,454,632				11,530,092
Federal deposit insurance premiums			137,253				227,820				420,873				700,120
Premises and equipment			877,447				759,092				2,534,608				2,244,489
Advertising			126,892				84,228				295,905				166,290
Data processing			566,513				558,899				1,720,321				1,754,936
Amortization of intangible assets			55,796				119,253				164,008				357,573
Other real estate owned expense			167,164				287,527				395,652				1,004,711
Other			779,226				1,052,389				2,592,176				2,836,566
Total non-interest expense			6,537,146				6,928,004				19,578,175				20,594,777
Income before income tax expense			1,908,128				2,303,523				5,255,888				7,481,598
Income tax expense			565,368				766,694				1,525,293				2,613,702
NET INCOME		$	1,342,760			$	1,536,829			$	3,730,595			$	4,867,896
Per share data:
Basic earnings per share		$	0.14			$	0.16			$	0.39			$	0.50
Diluted earnings per share		$	0.14			$	0.16			$	0.39			$	0.50
Dividends per share		$	0.025			$	0.00			$	0.075			$	0.00
Average basic shares outstanding			9,598,007				9,751,271				9,626,346				9,751,271
Average diluted shares outstanding			9,616,004				9,757,881				9,644,834				9,756,480

 

 

First South Bancorp, Inc.

Supplemental Financial Data (Unaudited)

 

		Quarter to Date																				Year to Date
		9/30/2014				6/30/2014				3/31/2014				12/31/2013				9/30/2013				9/30/2014				9/30/2013
		(dollars in thousands except per share data)
Consolidated balance sheet data:
Total assets		$	734,666			$	711,547			$	700,764			$	674,722			$	682,015			$	734,666			$	682,015
Loans held for sale:		$	5,540			$	4,715			$	5,649			$	2,992			$	9,183			$	5,540			$	9,183
Loans held for investment:
Mortgage		$	67,791			$	69,454			$	66,630			$	69,006			$	68,125			$	67,791			$	68,125
Commercial			331,209				322,775				317,711				305,160				296,218				331,209				296,218
Consumer			61,959				66,122				67,621				68,615				68,537				61,959				68,537
Leases			12,054				11,650				10,123				8,179				7,467				12,054				7,467
Total loans held for investment			473,013				470,001				462,085				450,960				440,347				473,013				440,347
Allowance for loan and lease losses			(7,504	)			(7,926	)			(7,804	)			(7,609	)			(7,707	)			(7,504	)			(7,707	)
Net loans held for investment		$	465,509			$	462,075			$	454,281			$	443,351			$	432,640			$	465,509			$	432,640
Cash & interest bearing deposits		$	20,106			$	17,658			$	22,703			$	24,235			$	37,617			$	20,106			$	37,617
Investment securities			188,472				172,468				166,072				150,806				149,337				188,472				149,337
Premises and equipment			12,494				11,671				11,561				11,760				11,759				12,494				11,759
Goodwill			4,219				4,219				4,219				4,219				4,219				4,219				4,219
Mortgage servicing rights			1,171				1,180				1,119				1,220				1,268				1,171				1,268
Deposits:
Non-interest checking		$	99,219			$	97,734			$	98,419			$	96,445			$	99,350			$	99,219			$	99,350
Interest checking			130,421				133,512				129,798				128,161				129,675				130,421				129,675
Money market			52,052				45,941				45,771				43,388				43,457				52,052				43,457
Savings			90,190				85,703				79,018				69,543				60,576				90,190				60,576
Certificates			230,166				229,571				239,394				248,167				258,573				230,166				258,573
Total deposits		$	602,048			$	592,461			$	592,400			$	585,704			$	591,631			$	602,048			$	591,631
Borrowings		$	37,500			$	25,500			$	17,000			$	0			$	0			$	37,500			$	0
Junior subordinated debentures			10,310				10,310				10,310				10,310				10,310				10,310				10,310
Stockholders' equity			80,363				79,150				77,166				74,858				75,028				80,363				75,028
Consolidated earnings summary:
Interest income		$	7,316			$	7,218			$	7,075			$	7,123			$	7,220			$	21,609			$	22,549
Interest expense			716				652				640				672				694				2,009				2,174
Net interest income			6,600				6,566				6,435				6,451				6,526				19,600				20,375
Provision for credit losses			400				450				250				685				0				1,100				400
Noninterest income			2,245				2,170				1,918				2,306				2,706				6,334				8,101
Noninterest expense			6,537				6,458				6,583				6,442				6,928				19,578				20,594
Income before taxes			1,908				1,828				1,520				1,630				2,304				5,256				7,482
Income tax expense			565				542				418				486				767				1,525				2,614
Net income		$	1,343			$	1,286			$	1,102			$	1,144			$	1,537			$	3,731			$	4,868
Adjusted pre-tax pre-provision operating earnings (non-GAAP):
Income before taxes		$	1,908			$	1,828			$	1,520			$	1,630			$	2,304			$	5,256			$	7,482
Provision for credit losses			400				450				250				685				0				1,100				400
Pre-tax pre-provision net income			2,308				2,278				1,770				2,315				2,304				6,356				7,882
Securities gains			0				0				(14	)			0				(268	)			(14	)			(548	)
OREO valuations			62				0				11				62				109				73				484
OREO gains (net)			(9	)			(34	)			(39	)			(206	)			(68	)			(82	)			(403	)
Adjusted pre-tax pre-provision operating earnings (non-GAAP)		$	2,361			$	2,244			$	1,728			$	2,171			$	2,077			$	6,333			$	7,415
Per Share Data:
Basic earnings per share		$	0.14			$	0.13			$	0.11			$	0.12			$	0.16			$	0.39			$	0.50
Diluted earnings per share		$	0.14			$	0.13			$	0.11			$	0.12			$	0.16			$	0.39			$	0.50
Dividends per share		$	0.025			$	0.025			$	0.025			$	0.000			$	0.000			$	0.075			$	0.000
Book value per share		$	8.37			$	8.25			$	7.99			$	7.75			$	7.69			$	8.37			$	7.69
Tangible book value per share		$	7.93			$	7.81			$	7.56			$	7.32			$	7.26			$	7.93			$	7.26
Average basic shares			9,598,007				9,629,040				9,652,804				9,727,175				9,751,271				9,626,346				9,751,271
Average diluted shares			9,616,004				9,648,158				9,671,557				9,737,495				9,757,881				9,644,834				9,756,480

 

 

First South Bancorp, Inc.

Supplemental Financial Data (Unaudited)

 

		Quarter to Date																				Year to Date
		9/30/2014				6/30/2014				3/31/2014				12/31/2013				9/30/2013				9/30/2014				9/30/2013
		(dollars in thousands except per share data)
Performance ratios (tax equivalent):
Yield on average earning assets			4.52	%			4.56	%			4.66	%			4.63	%			4.69	%			4.58	%			4.74	%
Cost of interest bearing liabilities			0.53	%			0.49	%			0.52	%			0.53	%			0.54	%			0.51	%			0.56	%
Net interest spread			3.99	%			4.07	%			4.14	%			4.10	%			4.15	%			4.07	%			4.18	%
Net interest margin			4.09	%			4.16	%			4.24	%			4.20	%			4.25	%			4.16	%			4.28	%
Avg earning assets to total avg assets			91.30	%			91.31	%			91.76	%			91.84	%			91.66	%			91.45	%			92.08	%
Return on average assets (annualized)			0.74	%			0.73	%			0.66	%			0.67	%			0.90	%			0.71	%			0.94	%
Return on average equity (annualized)			6.70	%			6.61	%			5.89	%			5.96	%			8.18	%			6.42	%			8.47	%
Efficiency ratio			72.52	%			72.77	%			77.68	%			73.56	%			75.05	%			74.26	%			72.32	%
Average assets		$	717,091			$	705,393			$	679,608			$	681,690			$	680,741			$	700,697			$	690,428
Average earning assets		$	654,700			$	644,074			$	623,617			$	626,050			$	623,953			$	640,797			$	635,757
Average equity		$	80,243			$	78,724			$	76,682			$	76,231			$	74,569			$	78,549			$	76,817
Equity/Assets			10.94	%			11.12	%			11.01	%			11.09	%			11.00	%			10.94	%			11.00	%
Tangible Equity/Assets			10.36	%			10.53	%			10.41	%			10.47	%			10.38	%			10.36	%			10.38	%
Asset quality data and ratios:
Nonaccrual loans:
Non-TDR nonaccrual loans
Earning		$	317			$	312			$	463			$	683			$	1,459			$	317			$	1,459
Non-Earning			940				2,853				1,248				1,331				2,649				940				2,649
Total Non-TDR nonaccrual loans		$	1,257			$	3,165			$	1,711			$	2,014			$	4,108			$	1,257			$	4,108
TDR nonaccrual loans
Past Due TDRs		$	1,260			$	3,303			$	2,188			$	1,821			$	1,336			$	1,260			$	1,336
Current TDRs			2,027				1,326				1,583				1,739				1,677				2,027				1,677
Total TDR nonaccrual loans		$	3,287			$	4,629			$	3,771			$	3,560			$	3,013			$	3,287			$	3,013
Total nonaccrual loans		$	4,544			$	7,794			$	5,482			$	5,574			$	7,121			$	4,544			$	7,121
Loans >90 days past due, still accruing			476				896				61				420				544				476				544
Other real estate owned			8,103				8,729				9,013				9,354				8,996				8,103				8,996
Total nonperforming assets		$	13,123			$	17,419			$	14,556			$	15,348			$	16,661			$	13,123			$	16,661
Allowance for loan and lease losses to loans held for investment			1.59	%			1.69	%			1.69	%			1.69	%			1.75	%			1.59	%			1.75	%
Net charge-offs (recoveries)		$	822			$	328			$	56			$	782			$	898			$	1,205			$	553
Net charge-offs (recoveries) to total loans			0.17	%			0.07	%			0.01	%			0.17	%			0.20	%			0.25	%			0.12	%
Total nonaccrual loans to total loans			0.95	%			1.64	%			1.17	%			1.23	%			1.58	%			0.95	%			1.58	%
Total nonperforming assets to total assets			1.79	%			2.45	%			2.08	%			2.27	%			2.44	%			1.79	%			2.44	%
Total loans to total deposits			79.49	%			80.13	%			78.96	%			77.51	%			75.98	%			79.49	%			75.98	%
Total loans to total assets			65.14	%			66.72	%			66.75	%			67.28	%			65.91	%			65.14	%			65.91	%
Loans serviced for others		$	310,341			$	315,732			$	318,670			$	325,441			$	325,833			$	310,341			$	325,833