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First South Bancorp Inc Reports Operating Results (10-Q)

November 04, 2009 | About:
10qk

10qk

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First South Bancorp Inc (FSBK) filed Quarterly Report for the period ended 2009-09-30.

First South Bancorp Inc. serves as the holding company for First South Bank. First South Bancorp Inc has a market cap of $104.2 million; its shares were traded at around $10.69 with a P/E ratio of 13.7 and P/S ratio of 1.5. The dividend yield of First South Bancorp Inc stocks is 7.5%. First South Bancorp Inc had an annual average earning growth of 13% over the past 5 years.

Highlight of Business Operations:

Key performance ratios are return on average assets (ROA), return on average equity (ROE), and efficiency. ROA was .8% for both the three and nine months ended September 30, 2009, compared to 0.9% and 1.3% for the three and nine months ended September 30, 2008. ROE was 8.1% and 8.4% for the three and nine months ended September 30, 2009, compared to 9.4% and 13.7% for the three and nine months ended September 30, 2008. The efficiency ratio was 61.1% and 58.5% for the three and nine months ended September 30, 2009, compared to 55.3% and 50.9% for the three and nine months ended September 30, 2008.

Interest Expense. Interest expense declined to $3.9 million and $13.1 million for the three and nine months ended September 30, 2009, compared to $5.4 million and $18.2 million for the three and nine months ended September 30, 2008, reflecting a decline in interest rates between the comparative reporting periods and a decline in the volume of average interest-bearing liabilities. The effective cost of funds was 2.0% and 2.2% for the three and nine months ended September 30, 2009, compared to 2.7% and 3.0% for the three and nine months ended September 30, 2008. The Company was able to improve its cost of funds by the combination of deposit repricing, and the rollover of maturing time deposits and the repositioning of borrowings within the current lower interest rate environment. Average deposits and borrowings were $771.9 million and $778.1 million for the three and nine months ended September 30, 2009, compared to $799.7 million and $811.9 million for the three and nine months ended September 30, 2008.

Net Interest Income. Net interest income was $8.3 million and $24.1 million for the three and nine months ended September 30, 2009, compared to $9.0 million and $27.8 million for the three and nine months ended September 30, 2008. The interest rate spread (the difference between the effective yield on average earning assets and the effective cost of average deposits and borrowings) was 4.1% and 3.9% for the three and nine months ended September 30, 2009, compared to 4.2% for both the three and nine months ended September 30, 2008. The net yield on interest-earning assets (net interest income divided by average interest-earning assets) was 4.1% and 4.0% for the three and nine months ended September 30, 2009, compared to 4.3% and 4.4% for the three and nine months ended September 30, 2008. The decline in interest rate spread and net yield on interest-earning assets is a direct result of those same events impacting interest income and interest expense as discussed above.

Income Taxes. Income tax expense was $1.1 million and $3.5 million for the three and nine months ended September 30, 2009, compared to $1.3 million and $5.6 million for the three and nine months ended September 30, 2008. Changes in amounts of income tax provisions reflect changes in pretax income and estimated income tax rates in effect during each period. Effective income tax rates were 38.9% and 38.7% for the three and nine months ended September 30, 2009, compared to 38.7% and 38.6% for the three and nine months ended September 30, 2008. See “Critical Accounting Policies” for additional information.

The FDIC requires the Bank to meet a minimum leverage capital requirement of Tier 1 capital (consisting of retained earnings and common stockholder s equity, less any intangible assets) to assets ratio of 4%. The FDIC also requires the Bank to meet a ratio of total capital to risk-weighted assets of 8%, of which at least 4% must be in the form of Tier 1 capital. The North Carolina Office of the Commissioner of Banks requires the Bank to maintain a capital surplus of not less than 50% of common capital stock. The Bank was in compliance with all regulatory capital requirements at September 30, 2009 and December 31, 2008.

As has most of the banking industry, the Bank has experienced intense price competition for both loans and deposits. This has been a contributing factor to net interest margin compression in the three and nine months ended September 30, 2009, which has been significantly influenced by the Federal Reserve s 4.0% rate cuts between December 31, 2007 and December 31, 2008. The Bank is an asset-sensitive bank and consequently, the Federal Reserve s aggressive series of rate cuts has caused an immediate downward pricing of its loan portfolio, while outpacing the ability to reduce its funding cost as rapidly. With the current federal funds rate at 0% to 0.25%, it is not foreseeable that interest rates can decline farther. Over the remainder of 2009, the Bank anticipates some improvement in its net interest margin as maturing time deposits begin to reprice at lower rates, although there are no guarantees or assurances that this will occur.

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