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First                  FSBK   $0.16
same period last year         $0.18

First South Bancorp, Inc. (Nasdaq: FSBK) the parent holding company of First South Bank reports its unaudited earnings for both the quarter and year ended December 31, 2009.

Net income was $1.5 million ($0.16 per share diluted) for the 2009 fourth quarter compared to net income of $1.8 million ($0.18 per share diluted) for the linked 2009 third quarter, and $2.0 million ($0.21 per share diluted) for the comparative 2008 fourth quarter.

Net income for the year ended December 31, 2009 was $7.0 million ($0.72 per share diluted) compared to net income of $11.0 million ($1.12 per share diluted) for the year ended December 31, 2008.

The Bank recorded provisions for credit losses of $2.7 million in the 2009 fourth quarter compared to $1.3 million in the linked 2009 third quarter and $1.2 million in the comparative 2008 fourth quarter. Credit loss provisions were necessary to replenish net charge-offs and strengthen the allowance for credit losses at levels the Bank believes is adequate to absorb probable losses in the loan portfolio. The current level of the allowance for credit losses results from an internal risk grading analysis and is primarily attributable to the commercial real estate portfolio.  The allowance for credit losses was $13.7 million at December 31, 2009, representing 2.04% of total loans and leases.  

Bill Wall, executive vice president and chief financial officer, stated, "We have taken a conservative posture in our provisioning for credit losses as we continue to aggressively manage problem assets.  We believe the current level of our allowance for credit losses is adequate, however, there is no assurance in the future that regulators, increased risks in the loan portfolio, or changes in economic conditions will not require additional adjustments to the allowance for credit losses."  

"We welcome news from economists that the current recession may begin easing.  However, the current economic environment continues to be a challenging credit environment for both our customers and the banking industry.  As we address and manage through these challenges, we remain focused on long-term strategies.  These strategies include remediating problem assets, maintaining adequate levels of capital and liquidity, improving efficiency in our operations, building core customer relationships and improving our franchise value along with shareholder value.  The Company remains profitable, continues to maintain a strong capital position in excess of the well-capitalized regulatory guidelines, and combined with strengthening of the allowance for credit losses should enhance our future earnings as the current recessionary economic conditions substantially improve," stated Wall.

Net interest income increased to $8.9 million for the 2009 fourth quarter from $8.3 for both the linked 2009 third quarter and the comparative 2008 fourth quarter. The increase in net interest income in the current quarter has been influenced by deposit repricing and the rollover of maturing time deposits at lower interest rates. The net interest margin improved to 4.55% for the 2009 fourth quarter from 4.13% for the linked 2009 third quarter and 4.08% for the comparative 2008 fourth quarter.

Total non-interest income improved to $2.5 million for the 2009 fourth quarter from $2.4 million for the linked 2009 third quarter and $2.1 million for the comparative 2008 fourth quarter.  The Bank maintained a consistent level of revenue across both loan and deposit service offerings as loan fees, deposit fees and service charges and servicing fee income was $2.1 million in the 2009 fourth quarter and $2.0 million in both the linked 2009 third quarter and the comparative 2008 fourth quarter.

Net gains recognized from the sale of mortgage loans was $262,000 in the 2009 fourth quarter, $247,000 in the linked 2009 third quarter and $74,000 in the comparative 2008 fourth quarter.  

Total non-interest expense declined to $6.3 million for the 2009 fourth quarter from $6.5 million for the linked 2009 third quarter, compared to $6.0 million for 2008 fourth quarter.  Compensation and fringe benefits, the largest component of non-interest expense, has remained relatively consistent at $3.6 million for the 2009 fourth quarter, $3.5 million for the linked 2009 third quarter, and $3.3 million for the comparative 2008 fourth quarter, reflecting the Bank's efforts of managing its human resources cost. FDIC insurance premiums increased to $298,000 for the 2009 fourth quarter from $275,000 for the linked 2009 third quarter and $127,000 for the comparative 2008 fourth quarter, reflecting increased risk based assessment rates imposed by the FDIC.  

Total assets declined to $829.9 million at December 31, 2009 from $875.9 million at December 31, 2008. Total loans declined to $658.7 million at December 31, 2009 from $744.7 million at December 31, 2008, reflecting a combination of principal repayments and a decline in the volume of loans originated for investment during the current year.   Mortgage-backed securities increased to $97.2 million at December 31, 2009 from $32.8 million at December 31, 2008, reflecting the securitization of certain mortgage loans originated for sale during 2009.  Cash, interest bearing deposits and investment securities declined to $30.0 million at December 31, 2009 from $63.3 million at December 31, 2008, as the Bank has focused efforts on reducing lower yielding assets.

Nonaccrual and restructured loans declined to $10.2 million at December 31, 2009 from $15.0 million at December 31, 2008, reflecting management's efforts of remediating problem assets and managing credit quality.  Management believes it has thoroughly evaluated its nonaccrual loans and they are either well collateralized or adequately reserved.

Other real estate owned increased to $10.6 million at December 31, 2009 from $7.7 million at December 31, 2008, reflecting an increase in foreclosure activity of certain real estate properties during 2009. Based on fair value analysis, the Bank believes the adjusted carrying values of these real estate properties are representative of their fair market values, although there are no assurances that the ultimate sales prices will be equal to or greater than the carrying values.  

Total deposits declined to $688.5 million at December 31, 2009 from $716.4 million at December 31, 2008. Borrowings declined during 2009 to $37.4 million at December 31, 2009 from $52.6 million at December 31, 2008.  During 2009, the Bank chose to not match higher time deposit rates being offered by certain competitive financial institutions in its market area, in order to control its time deposit cost and to reduce its lower yielding liquid assets. The cost of funds for the 2009 fourth quarter improved to 1.61% from 2.03% for the linked 2009 third quarter and 2.59% for the comparative 2008 fourth quarter. The Bank has been able to improve its cost of funds by the combination of pricing new deposits, the renewal of maturing time deposits and the repositioning of borrowings within the current lower interest rate environment.  

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. Securities brokerage services are made available through an affiliation with an independent broker/dealer. The Bank operates through its main office headquartered in Washington, North Carolina, and has 29 full service branch offices and one loan production offices 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 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.

For more information, visit www.firstsouthnc.com

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