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

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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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