First South Bancorp, Inc. Reports September 30, 2017 Quarterly and Nine Months Operating Results - iCrowdNewswire
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Oct 20, 2017 6:20 AM ET

First South Bancorp, Inc. Reports September 30, 2017 Quarterly and Nine Months Operating Results

Disclosure NewswireTM

iCrowdNewswire - Oct 20, 2017

WASHINGTON, N.C. — First South Bancorp, Inc. (NASDAQ: FSBK) (the “Company”), the parent holding company of First South Bank (the “Bank”), reported net income of $2.9 million or $0.31 of earnings per diluted share (EPS) for the 2017 third quarter, an increase from the $1.9 million of net income and $0.20 of EPS for the 2016 third quarter.  Net income for the first nine months of 2017 was $6.8 million and $0.72 of EPS, an increase from the $5.0 million of net income and $0.52 of EPS generated during the first nine months of 2016.

 

Highlights:

  • Strong quarterly earnings performance with net income of $2.9 million; diluted EPS of $0.31 per share; return on average assets (ROA) of 1.09%, return on average equity (ROE) of 12.31% and return on average tangible common equity* (ROTCE) of 13.29%.
  • Pre-tax, pre-provision operating earnings* for the current quarter of $4.5 million, a 51% increase over the $3.0 million reported for the 2016 third quarter.
  • Continued loan growth as our loans-held-for-investment portfolio increased $80.1 million during the first nine months of 2017.
  • Total deposits have grown $85.5 million or 9.9% over the last twelve months to $945.3 million.
  • Strong core deposit growth as demonstrated by an increase in total non-interest bearing deposits of 11.9% to $212.5 million on a year-over-year basis.
  • Expanded the net interest margin (NIM) to 3.89% versus 3.73% for the third quarter of 2016.
  • Asset quality metrics continue to improve with lower levels of non-performing assets.

Bruce Elder, President and CEO, commented, “the third quarter financial performance of the Company is a reflection of the strong loan growth experienced over the past year.  Pre-tax income of $4.3 million was almost $1.4 million higher than the $2.9 million reported for the second quarter of 2017.  The increase was partially due to a $563,000 increase in net interest income driven by a $609,000 increase in interest and fee income from the loan portfolio.  Additionally, compared with Q2 2017, non-interest expenses declined by $476,000 and the provision for loan losses decreased by $385,000.” 

Mr. Elder also noted that, “the legal merger with Carolina Financial Corporation (CARO) is anticipated to occur in the fourth quarter of 2017.  We have a special meeting of shareholders scheduled for October 26, 2017 to formally vote for approval of the merger, and regulatory approval has recently been received.  Legacy branches will operate as CresCom Bank doing business as First South Bank until the data system conversion scheduled for the end of the first quarter of 2018, at which time those branches will be rebranded as CresCom Bank.  Conversion teams from both organizations are working diligently to ensure a smooth transition.”

Strong loan and deposit growth over the past twelve months, coupled with controlled expenses, has supported the Company’s solid earnings performance for both the current quarter, as well as year-to-date 2017.  Since September 30, 2016, the Company’s loans held for investment portfolio has grown $98.2 million.  During this same twelve month period the deposit base has expanded by $85.5 million, including a $22.6 million increase in non-interest bearing demand deposits.  As a result of this growth, the Company has bolstered its net interest income (NII), net interest margin (NIM), and bottom line net income. 

Income Statement:  The Company’s NII for the 2017 third quarter grew to $9.6 million compared to $8.3 million for the comparative 2016 third quarter.  Our NIM for the third quarter of 2017 expanded 16 basis points to 3.89% versus 3.73% for the same three month period one year ago.  NII for first nine months of 2017 grew to $27.4 million, from $24.2 millionin the prior year nine month period.  The NIM for the nine month period ended September 30, 2017 was 3.81% and compares favorably to the 3.72% posted for the first nine months of 2016. 

Total non-interest income was $3.5 million for the current three month period compared to $3.7 million for the prior year three-month period.  The decline was primarily a result of lower gains on disposals of OREO properties, a reduction in loan sales for Small Business Administration loans and lower profit margins on the sale of mortgage loans.  Total non-interest income for the first nine months of 2017 was $10.4 million compared to $10.8 million for prior year nine month period.  Included in non-interest income for the nine month period ended September 30, 2016 is $467,000 of pre-tax gains on the sales of investment securities.  These investment securities were sold primarily to fund growth in our loan portfolio.

Non-interest expenses for the third quarter of 2017 were $8.7 million, compared to $8.9 million for the 2016 third quarter.  Total non-interest expenses for the current nine month period totaled $27.0 million, compared to $27.1 millionfor first nine months of 2016.  The Company, as a result of prior branch consolidations as well as other cost savings, has been able to control its expenses despite incurring $387,000 in year-to-date merger-related expenses.

Income tax expense was $1.4 million for the 2017 third quarter, compared to $947,000 for the 2016 third quarter.  The effective income tax rates were 32.3% and 33.3% for these reporting periods, respectively.  For the first nine months of 2017, income tax expense was $3.0 million versus $2.2 million for the comparative period of 2016.  The effective income tax rates were 30.8% and 30.6%, respectively for the 2017 and 2016 nine-month periods.

Balance Sheet:  Loans and leases held for investment (HFI) totaled $780.7 million at September 30, 2017, increasing $80.1 million, or 11.4%, over the $700.6 million held at December 31, 2016.  Loans held for sale totaled $3.8 million at September 30, 2017 versus $5.1 million held at December 31, 2016.  Investment securities and interest-bearing deposits at other banks totaled to $228.0 million at September 30, 2017, versus $216.4 million at December 31, 2016, as earnings and cash from robust deposit growth continues to support our strong liquidity position.

Deposits totaled $945.3 million at September 30, 2017, increasing $74.7 million, or 8.6%, from $870.6 million at December 31, 2016.  Non-maturity deposits (personal and business checking, money market, and savings accounts) grew by $69.3 million, or 11.3%, to $683.3 million at September 30, 2017, from $614.0 million at December 31, 2016.  CDs increased to $261.9 million at September 30, 2017, from $256.6 million at December 31, 2016.  CDs represented 27.7% and 29.5% of total deposits at September 30, 2017 and December 31, 2016, respectively.

Stockholders’ equity increased by $7.4 million to $94.6 million at September 30, 2017, from $87.2 million at December 31, 2016.  This increase primarily reflects the $6.8 million of net income earned for the first nine months of 2017 and a $1.4 million increase in accumulated other comprehensive income resulting from the mark-to-market adjustment of the available-for-sale securities portfolio, and is net of $998,000 of dividends declared and paid to our stockholders. 

The tangible equity to assets ratio* was 8.28% at September 30, 2017, compared to 8.21% at December 31, 2016.  The tangible book value per common share* increased to $9.36 at September 30, 2017, from $8.57 at December 31, 2016.

Asset Quality:  September 30, 2017 strong asset quality metrics continue to reflect the Company’s disciplined credit culture.  Non-performing assets (NPAs) declined to $4.5 million at September 30, 2017, or 0.42% of total assets, from $6.3 million, or 0.63% of total assets, at December 31, 2016.  NPAs at September 30, 2017 included $2.2 million of other real estate owned (OREO), which has declined by $1.0 million, or 32.4%, from $3.2 million at December 31, 2016.  Nonaccrual loans and leases were $2.3 million at September 30, 2017, or 0.30% of loans and leases HFI, and compared favorably to $3.1 million, or 0.44% of loans and leases HFI, at December 31, 2016.

The provision for credit losses in the 2017 third quarter was $100,000, compared to $220,000 for the third quarter of 2016. The provision for credit losses was $850,000 in the first nine months of 2017, compared to $770,000 in the first nine months of 2016.  The allowance for loan losses represented 1.22% of loans and leases HFI at September 30, 2017, compared to 1.24% at December 31, 2016.

Regulatory Capital Strength:  As of September 30, 2017, reported regulatory capital ratios at the Bank were 12.95% for total risk-based capital, 11.73% for tier 1 risk-based capital and common equity tier 1 risk-based capital and 8.96% 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.

Key Performance Ratios:  Some of our key performance ratios are ROA, ROE and the efficiency ratio.  ROA was 1.09% for the 2017 third quarter, compared with 0.78% for the 2016 third quarter.  ROE was 12.31% for the 2017 third quarter, compared with 8.52% for the 2016 third quarter.  The Company’s efficiency ratio for the 2017 third quarter improved to 65.53%, from 73.84% for the comparative 2016 third quarter.  The efficiency ratio for the first nine months of 2017 improved to 70.55%, from 77.31% for first nine months of 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 WashingtonNorth 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: failure to meet the closing conditions contained in the Agreement and Plan of Merger and Reorganization, dated as of June 9, 2017, by and between Carolina Financial Corporation (“CARO”) and the Company (the “CARO Merger”), including approval by the stockholders of CARO and the Company, respectively, on the expected terms and time schedule; delay in closing the CARO Merger; difficulties and delays in integrating CARO’s and the Company’s businesses or fully realizing cost savings and other benefits; business disruption as a result of the CARO Merger; customer acceptance of CARO products and services; potential difficulties encountered in expanding into a new market following the CARO Merger; 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.

 

Average Balances – Yield/Cost Analysis

Three Months Ended September 30,

 

2017

 

2016

 
 

Average

Balance

 

Interest

 

Average

Yield/Cost

 

Average

 Balance

 

Interest

 

Average

Yield/Cost

 

Interest earning assets:

(Dollars in thousands)

Loans receivable

$       782,465

 

$     9,316

 

4.68

%

$      685,441

 

$     7,915

 

4.54

%

Investments and deposits

214,458

 

1,361

 

2.91

(1)

209,849

 

1,295

 

2.81

(1)

  Total earning assets

996,923

 

10,677

 

4.30

(1)

895,290

 

9,210

 

4.13

(1)

Nonearning assets

65,327

         

73,439

         

  Total assets

$    1,062,250

         

$      968,729

         
                         

Interest bearing liabilities:

                       

Deposits

$       723,960

 

842

 

0.46

 

$      663,983

 

728

 

0.44

 

Borrowings

18,288

 

70

 

1.53

 

18,506

 

56

 

1.18

 

Junior subordinated debentures

10,310

 

127

 

4.82

 

10,310

 

127

 

4.82

 

  Total interest bearing liabilities

752,558

 

1,039

 

0.55

 

692,799

 

911

 

0.52

 

Noninterest bearing demand deposits

209,192

 

 

 

181,000

 

 

 

  Total sources of funds

961,750

 

1,039

 

0.43

 

873,799

 

911

 

0.41

 

Other liabilities

6,516

         

6,449

         

Stockholders’ equity

93,984

         

88,481

         

  Total liabilities and equity

$    1,062,250

         

$      968,729

         
                         

Net interest income

   

$     9,638

         

$     8,299

     
                         

Interest rate spread (1)(2)

       

3.75

%

       

3.61

%

Net interest margin (1)(3)

       

3.89

%

       

3.73

%

Ratio of earning assets to interest bearing liabilities

     

132.47

%

       

129.23

%

                         
                         
 

Nine Months Ended September 30,

 

2017

 

2016

 
 

Average

Balance

 

Interest

 

Average

Yield/Cost

 

Average

Balance

 

Interest

 

Average

Yield/Cost

 

Interest earning assets:

(Dollars in thousands)

Loans receivable

$       747,165

 

$   26,230

 

4.64

%

$      654,696

 

$   22,749

 

4.59

%

Investments and deposits

225,738

 

4,144

 

2.80

(1)

224,065

 

4,131

 

2.78

(1)

  Total earning assets

972,903

 

30,374

 

4.22

(1)

878,761

 

26,880

 

4.12

(1)

Nonearning assets

66,734

         

72,970

         

  Total assets

$    1,039,637

         

$      951,731

         
                         

Interest bearing liabilities:

                       

Deposits

$       710,313

 

2,426

 

0.46

 

$      653,116

 

2,095

 

0.43

 

Borrowings

19,493

 

193

 

1.32

 

24,450

 

187

 

1.01

 

Junior subordinated debentures

10,310

 

378

 

4.84

 

10,310

 

409

 

5.21

 

  Total interest bearing liabilities

740,116

 

2,997

 

0.54

 

687,876

 

2,691

 

0.52

 

Noninterest bearing demand deposits

201,947

 

 

 

171,504

 

 

 

  Total sources of funds

942,063

 

2,997

 

0.42

 

859,380

 

2,691

 

0.42

 

Other liabilities

6,030

         

6,126

         

Stockholders’ equity

91,544

         

86,225

         

  Total liabilities and equity

$    1,039,637

         

$      951,731

         
                         

Net interest income

   

$   27,377

         

$   24,189

     
                         

Interest rate spread (1)(2)

       

3.68

%

       

3.60

%

Net interest margin (1)(3)

       

3.81

%

       

3.72

%

Ratio of earning assets to interest  bearing 
liabilities

       

131.45

%

       

127.75

%

(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.

             

 

First South Bancorp, Inc. and Subsidiary

               

Consolidated Statements of Financial Condition

               
                 
   

September 30,

   

December 31,

   

September 30,

   

2017

   

2016

   

2016

Assets

 

(Unaudited)

         

(Unaudited)

Cash and due from banks

$

19,923,410

 

$

22,854,712

 

$

19,272,704

Interest-bearing deposits with banks

 

36,903,842

   

23,320,968

   

37,936,276

Investment securities available for sale, at fair value

 

190,573,089

   

192,606,119

   

193,255,580

Investment securities held to maturity

 

506,223

   

509,617

   

509,328

Mortgage loans held for sale

 

3,814,715

   

5,098,518

   

7,312,568

                 

Loans and leases held for investment

 

780,713,736

   

700,642,291

   

682,465,668

   Allowance for loan and lease losses

 

(9,561,535)

   

(8,673,172)

   

(8,498,061)

           Net loans and leases held for investment

 

771,152,201

   

691,969,119

   

673,967,607

                 

Premises and equipment, net

 

10,799,043

   

11,291,596

   

11,608,966

Assets held for sale

 

185,906

   

192,720

   

192,720

Other real estate owned

 

2,183,970

   

3,229,423

   

4,810,434

Federal Home Loan Bank stock, at cost

 

1,592,700

   

1,573,700

   

1,701,200

Accrued interest receivable

 

3,595,669

   

3,525,684

   

3,118,482

Goodwill

 

4,218,576

   

4,218,576

   

4,218,576

Mortgage servicing rights

 

2,170,658

   

2,148,905

   

2,090,680

Identifiable intangible assets

 

1,429,929

   

1,611,187

   

1,682,269

Bank-owned life insurance

 

18,483,438

   

18,080,183

   

17,937,292

Prepaid expenses and other assets

 

5,947,067

   

8,470,887

   

6,180,717

                 

          Total assets

$

1,073,480,436

 

$

990,701,914

 

$

985,795,399

                 

Liabilities and Stockholders’ Equity

               

Deposits:

               

  Non-interest bearing demand

$

212,521,157

 

$

196,917,165

 

$

189,872,662

  Interest bearing demand

 

323,893,958

   

272,098,903

   

264,114,729

  Savings

 

146,933,193

   

145,031,981

   

141,701,335

  Large denomination certificates of deposit

 

136,211,749

   

122,819,510

   

124,416,507

  Other time

 

125,727,563

   

133,732,804

   

139,725,846

          Total deposits

 

945,287,620

   

870,600,363

   

859,831,079

                 

Borrowed money

 

16,500,000

   

17,000,000

   

20,000,000

Junior subordinated debentures

 

10,310,000

   

10,310,000

   

10,310,000

Other liabilities

 

6,775,248

   

5,607,832

   

7,360,372

          Total liabilities

 

978,872,868

   

903,518,195

   

897,501,451

                 
                 

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

               

   9,504,991; 9,494,935; and 9,494,935 shares outstanding, respectively

95,050

   

94,949

   

94,949

Additional paid-in capital

 

36,191,713

   

36,018,743

   

35,998,472

Retained earnings

 

55,405,706

   

49,560,595

   

47,851,299

Accumulated other comprehensive income

 

2,915,099

   

1,509,432

   

4,349,228

           Total stockholders’ equity

 

94,607,568

   

87,183,719

   

88,293,948

                 

           Total liabilities and stockholders’ equity

$

1,073,480,436

 

$

990,701,914

 

$

985,795,399

 

First South Bancorp, Inc. and Subsidiary

                       

Consolidated Statements of Operations

                       

Three and Nine Months Ended September 30, 2017 and 2016

                     

(Unaudited)

                         
       

Three Months Ended

   

Nine Months Ended

       

September 30,

   

September 30,

       

2017

   

2016

   

2017

   

2016

                           

Interest income:

                         

  Interest and fees on loans

   

$

9,316,002

 

$

7,915,133

 

$

26,229,824

 

$

22,748,826

  Interest on investments and deposits

   

1,360,943

   

1,295,051

   

4,143,972

   

4,131,333

           Total interest income

   

10,676,945

   

9,210,184

   

30,373,796

   

26,880,159

                           

Interest expense:

                         

  Interest on deposits

     

841,961

   

728,106

   

2,426,143

   

2,094,809

  Interest on borrowings

     

70,093

   

55,886

   

192,521

   

187,683

  Interest on junior subordinated notes

   

127,011

   

127,011

   

378,272

   

408,628

           Total interest expense

   

1,039,065

   

911,003

   

2,996,936

   

2,691,120

                           

Net interest income

     

9,637,880

   

8,299,181

   

27,376,860

   

24,189,039

Provision for credit losses

     

100,000

   

220,000

   

850,000

   

770,000

           Net interest income after provision for credit losses

   

9,537,880

   

8,079,181

   

26,526,860

   

23,419,039

                           

Non-interest income:

                         

  Deposit fees and service charges

   

1,902,246

   

1,907,878

   

5,723,130

   

5,746,336

  Loan fees and charges

     

88,799

   

72,578

   

267,566

   

268,212

  Mortgage loan servicing fees

   

356,823

   

343,081

   

995,650

   

850,770

  Gain on sale and other fees on mortgage loans 

   

709,554

   

812,754

   

1,837,133

   

1,795,017

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

   

14,343

   

77,416

   

69,843

   

50,932

  Gain on sale of investment securities

   

   

   

   

467,470

  Other  income

     

435,418

   

477,343

   

1,469,882

   

1,636,428

           Total non-interest income

   

3,507,183

   

3,691,050

   

10,363,204

   

10,815,165

                           

Non-interest expense:

                         

  Compensation and fringe benefits

   

5,130,718

   

4,970,846

   

15,245,172

   

14,955,785

  Federal deposit insurance premiums

   

156,054

   

157,142

   

460,546

   

479,276

  Premises and equipment

     

1,293,477

   

1,349,243

   

4,026,693

   

4,103,726

  Marketing

     

96,646

   

151,304

   

279,435

   

568,556

  Data processing

     

799,650

   

757,200

   

2,400,740

   

2,303,418

  Amortization of intangible assets

   

152,816

   

136,882

   

453,282

   

401,981

  Other real estate owned expense

   

2,483

   

119,065

   

272,342

   

425,622

  Other

     

1,105,912

   

1,286,741

   

3,860,278

   

3,842,879

           Total non-interest expense

   

8,737,756

   

8,928,423

   

26,998,488

   

27,081,243

                           

Income before income tax expense

   

4,307,307

   

2,841,808

   

9,891,576

   

7,152,961

Income tax expense

     

1,391,805

   

947,496

   

3,048,960

   

2,185,841

                           

NET INCOME

   

$

2,915,502

 

$

1,894,312

 

$

6,842,616

 

$

4,967,120

                           
                           

Per share data: 

                         

Basic earnings per share

   

$

0.31

 

$

0.20

 

$

0.72

 

$

0.52

Diluted earnings per share

   

$

0.31

 

$

0.20

 

$

0.72

 

$

0.52

Dividends per share

   

$

0.035

 

$

0.030

 

$

0.105

 

$

0.085

Average basic shares outstanding

   

9,503,800

   

9,494,861

   

9,500,809

   

9,493,285

Average diluted shares outstanding

   

9,567,989

   

9,525,302

   

9,556,254

   

9,520,216

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

SOURCE First South Bancorp, Inc.

Related Links

http://www.firstsouthnc.com

Contact Information:

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

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