UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 31, 2000
Commission File Number
000-28037
FIRST SOUTH BANCORP, INC.
(Exact Name of Small Business Issuer )
SOUTH CAROLINA 57-1086258
(State of Incorporation) (IRS Employer Identification Number)
1450 Reidville Road
Spartanburg, South Carolina 29306
(Address of Principal Executive Office)
(864) 595-0455
(Issuer's Telephone Number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES [X] N0 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date: Common Stock, no par value, 917,180
shares outstanding on March 31, 2000.
Transitional Small Business Disclosure Format (Check one) YES [ ] NO [X]
<PAGE>
FIRST SOUTH BANCORP, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets ........................................ 3
Statement of Operations ............................... 4
Statement of Comprehensive Income ..................... 5
Statement of Cash Flows ............................... 6
Notes to Unaudited Statements ......................... 7
Item 2. Management's Discussion and Analysis .................. 8-17
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ...................... 18
SIGNATURES .............................................................. 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 31 December 31
2000 1999
---- ----
Assets
<S> <C> <C>
Cash & due from banks .............................................................. $ 1,547 $ 978
Due from banks - interest bearing .................................................. 4,814 12
Federal funds sold ................................................................. 0 2,850
Investment securities .............................................................. 10,295 10,347
Loans .............................................................................. 64,135 56,944
Allowance for loan losses ...................................................... (835) (800)
-------- --------
Loans - net ........................................................................ 63,300 56,144
Property & equipment, net .......................................................... 3,078 2,863
Other assets ....................................................................... 2,111 1,867
-------- --------
Total assets ............................................................. $ 85,145 $ 75,061
======== ========
Liabilities
Deposits
Noninterest-bearing ................................................................ $ 3,465 $ 3,389
Interest-bearing ................................................................... 68,233 55,326
-------- --------
Total deposits ........................................................... 71,698 58,715
Other liabilities .................................................................. 2,398 5,437
-------- --------
Total liabilities ........................................................ 74,096 64,152
Shareholders' equity
Common stock - no par value;
20,000,000 authorized - issued 917,180 ............................................. 4,586 4,586
Additional paid-in capital ......................................................... 6,504 6,504
Accumulated earnings ............................................................... 186 14
Accumulated other comprehensive income/(loss) ...................................... (227) (195)
-------- --------
Total shareholders' equity .............................................. 11,049 10,909
Total liabilities and shareholders' equity .............................. $ 85,145 $ 75,061
======== ========
</TABLE>
3
<PAGE>
FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Operations
<TABLE>
<CAPTION>
(Unaudited)
Period ended March 31
Three Months
2000 1999
---- ----
(Dollars in thousands, except per share)
Interest income
<S> <C> <C>
Loans, including fees ..................................................... $1,504 $ 871
Investment securities ..................................................... 150 152
Federal funds sold ........................................................ 37 42
Other investments ......................................................... 3 19
------ ------
Total interest income ..................................................... 1,694 1,084
Interest expense
Deposits and borrowings ................................................... 866 519
Net interest income ................................................................ 828 565
Provision for loan losses .......................................................... 35 30
Net interest income after provision ................................................ 793 535
Other income
Service charges on deposit accounts ....................................... 31 31
Other income .............................................................. 93 45
------ ------
Total other income ........................................................ 124 76
Other expenses
Salaries and benefits ..................................................... 410 269
Occupancy and equipment ................................................... 98 86
Other expense ............................................................. 181 123
------ ------
Total other expense ....................................................... 689 478
Income before income taxes ......................................................... 228 133
Income taxes .............................................................. 56 50
------ ------
Net income ......................................................................... $ 172 $ 83
====== ======
Earnings per common share .......................................................... $ .19 $ .09
Diluted earnings per common share .................................................. $ .18 $ .09
</TABLE>
4
<PAGE>
FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Comprehensive Income
(000's)
(Unaudited)
Three Months Ended March 31
2000 1999
---- ----
Net Income ...................................... $ 172 $ 83
Other comprehensive income (loss):
Change in unrealized holdings gains &
losses on available for sale securities ..... (52) (55)
Income tax (expense) benefit on other
comprehensive income (loss) ..... 20 21
----- -----
Total other comprehensive income (loss) ......... (32) (34)
Comprehensive income (loss) ..................... 140 49
===== =====
5
<PAGE>
FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the three Months ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
(Unaudited)
Three Months Three Months
Ended Ended
March 31 March 31
2000 1999
---- ----
(Dollars in thousands)
Operating Activities
<S> <C> <C>
Net income ................................................................................... $ 172 $ 83
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ........................................................... 35 30
Depreciation ........................................................................ 44 43
Director fees ....................................................................... 8 7
Increase in other assets ............................................................ (355) (242)
Increase (decrease) in accrued expenses and other liabilities ....................... (200) 95
Net cash provided by operating activities .................................................... (296) 16
Investing Activities
Purchase of restricted FHLB stock ................................................... 0 (59)
Origination of loans, net of principal collected .................................... (7,133) (4,551)
Purchase of premises and equipment .................................................. (200) (20)
Net cash used in investing activities ........................................................ (7,333) (4,630)
Financing Activities
Net increase in deposits ............................................................ 12,983 1,768
Net increase in retail repurchase agreements ........................................ (332) 574
Payment (decrease) of other borrowings .............................................. (2,500) 0
Net cash provided (used) by financing activities ............................................. 10,151 2,342
Net increase (decrease) in cash and cash equivalents ......................................... 2,522 (2,272)
Cash and cash equivalents, beginning ......................................................... 3,840 5,220
Cash and cash equivalents, ending ............................................................ 6,363 2,948
</TABLE>
6
<PAGE>
FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-QSB and Item 310(b) of
Regulation SB of the Securities and Exchange Commission. Accordingly, they do
not contain all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. However, in the opinion
of management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, please refer to the financial
statements and footnotes thereto for First South Bancorp, Inc.'s fiscal year
ended December 31, 1999, contained in First South Bancorp, Inc.'s annual report
on Form 10-KSB for the year ended December 31, 1999.
Note 2. Organization
First South Bancorp, Inc., (the "Company") is a South Carolina
corporation organized in 1999 for the purpose of being a holding company for
First South Bank (the "Bank"). On September 30, 1999, pursuant to a Plan of
Exchange approved by the shareholders, all of the outstanding shares of capital
stock of the Bank were exchanged for shares of common stock of the Company. The
Company presently engages in no business other than that of owning the Bank and
has no employees.
7
<PAGE>
FIRST SOUTH BANCORP, INC.
Part I - Item 2
Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the financial
statements and related notes and more detailed information provided in the
Company's Annual Report on Form 10-KSB. Because all of the Company's operations
have thus far been conducted through a subsidiary bank, the following discussion
will refer to the results of operations and financial condition of the Bank.
Statements included in Management's Discussion and Analysis which are not
historical in nature are intended to be, and are hereby identified as "forward
looking statements" for purposes of the safe harbor provided by Section 21E of
the Securities Exchange Act of 1934, as amended. The Company cautions readers
that forward looking statements, including without limitation, those relating to
the Company's new office, future business prospects, revenues, working capital,
liquidity, capital needs, interest costs, and income, are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those indicated in the forward looking statements, due to several important
factors herein identified, among others, and other risks and factors identified
from time to time in the Company's reports filed with the Securities and
Exchange Commission.
Results of Operations
During 1999, management of the Company implemented specific plans to achieve
strategic objectives of balance sheet growth and improved earnings performance.
A primary component in these plans was the expansion into a new market which had
the greatest potential for providing an environment which would enable the bank
to attain these objectives. Accordingly, branch operations were established in
Columbia, S.C. on March 20, 2000. Though operational for only twelve days in the
first quarter period, early results from the Columbia operations have provided
an optimistic outlook on the contribution to growth and earnings this new market
will provide.
Assets for the first three months of 2000 increased 13.4 %, compared to a 4.4 %
increase for the same period in 1999. Deposits grew during in the first quarter
of 2000 by 22.1 %, well-above the 4.1 % growth during the first quarter of 1999.
Pretax income for the first quarter of 2000 was $ 171,947, a 106.9 % increase
over the first quarter 1999 amount of $83,101.
8
<PAGE>
The Bank's primary source of income is net interest income, which is the
difference between interest earned and interest paid. The net interest margin is
net interest income as a percentage of average earning assets. Net interest
margin for the three months period ended March, 2000, was 4.55 % , up from 4.39
% for the same period in 1999. Net interest expense, which is primarily the
amount of interest paid to depositors, increased by 53 basis points from 5.01%
in 1999 to 5.54 % in 2000. Interest income, primarily interest received from
loans and to a lesser degree the interest earned on the Bank's investments
portfolio, increased 89 basis points from 8.42 % in 1999 to 9.31 % in 2000. The
most notable factor contributing to the increase in the earning assets yield and
the net interest margin was the increase in loans as a percentage of total
earning assets. With loans having the highest interest yield of any category of
earning assets, the increase in the percentage of loans to total earning assets,
81.9 % in 2000 compared to 70.0 % in 1999, had a significant positive effect on
net interest income. Conversely, the increase in the average cost of funds rate
on interest-bearing liabilities of 53 basis points served to restrain
improvement in net interest earnings. The rates earned on assets and paid on
interest-bearing liabilities are expected to continue to be influenced by
competition for quality loan customers as well as government fiscal and monetary
policies.
The Bank's allowance for loan losses is analyzed monthly in accordance with a
board approved plan . This judgmental analysis is based upon a model that
assigns a risk rating on individual loans and considers the loss risks
associated with the various risk categories in relationship to the current and
forecasted economic environment. The Bank also monitors the overall portfolio as
well as the level of reserves maintained by peer banks. The monthly provision
for loan losses may fluctuate based on the results of this analysis.
For the period ending March 31, 2000, noninterest income was $124,000, a 63.2 %
increase over the $76,000 amount received during the same period in 1999. The
$48,000 increase resulted primarily from the commissions and fees generated by
the full-service brokerage operations of the Bank's subsidiary, First South
Financial Services, Inc. Service charge income remained the same in the first
quarter of 2000 compared to the same period in 1999. This situation resulted
from the rise in the interest rate of 3 month t-bills, the rate upon which
corporate deposits are provided an earnings allowance on account balances to
reduce or offset monthly activity service charges.
Through March 31, 2000, operating expenses as a percentage of average assets
increased in 2000 from that of 1999 by 12 basis points, to 3.52 % from 3.40 %.
Total operating expenses for the period ending March 31 increased in 2000 over
1999 by $211,000, or 44.1 %. While a portion of this increase can be attributed
to the growth the Bank experienced since the end of the first quarter of 1999,
the additional cost of establishing a branch office in the first quarter of 2000
added significantly to the total noninterest expense increase. Management
continues to be challenged to hold operating expenses at a level adequate to
support growth while achieving favorable operating efficiency ratios.
9
<PAGE>
Financial institutions are subject to interest rate risk to the degree that
their interest bearing liabilities (consisting principally of customer deposits)
mature or reprice more or less frequently, or on a different basis, than their
interest earning assets ( generally consisting of intermediate or long-term
loans and investment securities). The match between the scheduled repricing and
maturities of the Bank's earning assets and interest bearing liabilities within
defined time periods is referred to as "gap"analysis. The Bank's Asset/Liability
Management Committee is responsible for managing the risks associated with
changing interest rates and their impact on earnings. The regular evaluation of
the sensitivity of net interest income to changes in interest rates is an
integral part of interest rate risk management. At March 31, 2000, the
cumulative one-year gap for the Bank was a negative or liability sensitive
$3,237,000, or 3.8 % of total assets. At March 31, 2000, the cumulative
five-year gap for the Bank was a positive $7,027,000, or 8.3 % of total assets.
A positive gap means that assets would reprice faster than liabilities if
interest rates changed and with a negative gap liabilities reprice faster than
assets. The Bank's gap is within its policy limits which were established to
reduce the adverse impact on earnings which movements in interest rates can
cause. Intense competition in the Bank's market continues to pressure quality
loan rates downward while conversely pressuring deposit rates upward.
For the period ending March 31, 2000, as compared to the same period in 1999,
the Bank's average assets increased by 39.0 %. Asset growth is directly related
to deposit growth and the funds available to the Bank for investment. The growth
in average deposits reflected at quarter end for the first quarter of 2000 of
$19.7 million, or 45.3% over average deposits for the same period in 1999, would
not have been allowed to occur, however, had there not been a strong quality
loan demand during the same period. Average loan outstandings through March 31,
2000, increased $23.4 million or 64.1% over the same period's average in 1999.
The availability of local deposits in 2000 has allowed the Bank to take
advantage of the lending opportunities created by the strength of the local
economy without funding loan growth with other borrowed funds.
From March 31, 1999, until March 31, 2000, the Bank's nonpersonal loan portfolio
grew by $18.9 million, or 61.2 %, as the Bank has developed growth opportunities
in commercial and commercial real estate related business loans. While average
balances of loans secured by real estate have increased significantly, the Bank
believes prudent real estate lending has provided excellent collateral for loans
with a variety of purposes. Management believes the Bank is not dependent on any
single group of customers concentrated in any particular industry whose decline
in performance would have a material adverse effect on operations.
10
<PAGE>
The following tables are provided to assist the reader in understanding the
results of operations and financial condition.
Table One
Net interest Income and Average Balance Analysis
for the Three Months Ended March 31
2000 and 1999
(000's)
<TABLE>
<CAPTION>
Interest Average
Interest-Earning Assets (000's) Average Balance Income/Expense Yield / Cost
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Federal Funds Sold ....................... $ 2,564 $ 3,613 $ 37 $ 42 5.79% 4.75%
Investments .............................. 10,661 12,059 153 171 5.76% 5.68%
Loans .................................... 59,946 36,519 1,504 871 10.09% 9.67%
-------- -------- ------- -------
Total Interest Earning Assets ............ $ 73,171 $ 52,191 $ 1,694 $ 1,084 9.31% 8.42%
Noninterest-Earning Assets
Cash & Due From Banks .................... $ 1,400 1,228
Investments: Fair Value .................. (369) (30)
Loan Loss Reserve ........................ (812) (576)
Premises & Equipment ..................... 2,884 2,860
Interest Receivable & Other .............. 1,941 578
-------- --------
Total Noninterest-Earning Assets ......... $ 5,044 4,060
TOTAL ASSETS ............................. $ 78,215 56,251
======== ========
Interest-Bearing Liabilities
NOW, Savings, Money Market ................... $18,319 14,213 $ 214 150 4.71% 4.29%
Time Deposits & IRA's ........................ 41,474 26,225 611 354 5.93% 5.48%
Fed Funds Purchased & Repos .................. 1,727 1,426 22 14 5.05% 3.98%
Demand Notes Issued to Treasury .............. 180 99 2 1 3.58% 4.10%
Other Borrowed Funds ......................... 1,199 0 17 0 5.84% 0%
Total Interest-Bearing Liabilities ........... $62,899 41,963 $ 866 $ 519 5.54% 5.01%
Noninterest-Bearing Liabilities
Demand Deposits .............................. $ 3,449 3,122
Interest Payable ............................. 546 335
Other Liabilities ............................ 300 190
------- -------
Total Noninterest-Bearing Liabilities ........ $ 4,295 3,647
Stockholders' Equity ......................... $11,021 10,641
Total Liabilities & Equity ................... $78,215 56,251
======= =======
Net Interest Income $ 828 $ 565
Net Yield on Earning Assets 4.55% 4.39%
Interest Rate Spread 3.77% 3.41%
</TABLE>
Numerous factors contributed to an improved net interest margin from the first
quarter of 1999 to the first quarter of 2000. Most significant of these were:
(1) The category of earning assets with the highest interest yield, loans,
increased as a percentage of total earning assets from 70.0 % to 81.9 %;
(2) The bank was asset sensitive in a rising rate environment resulting in
earning assets repricing more frequently than interest-bearing liabilities.
11
<PAGE>
Not all of the balance sheet changes in the first quarter of 2000 had a positive
effect on the net interest margin, however. With loan growth outpacing deposit
growth, the necessity to partially fund loan growth from off-balance sheet
sources, specifically FHLB advances, resulted in the reliance on a funding
source with a higher cost of funds rate than rates paid on most of the deposit
categories.
Table Two
Summary of Total Noninterest Income
for the Three Months Ended March 31
2000 and 1999
(000's)
2000 1999
---- ----
Service Charges ................................ $ 31 $ 31
Commissions & Fees * ........................... 69 25
Other Noninterest Income ....................... 24 20
---- ----
Total .......................................... $124 $ 76
* This $44,000 increase was almost totally attributed to commissions generated
by the full-service brokerage subsidiary, First South Financial Services, Inc.
Table Three
Summary of Total Noninterest Expense
For the Three Months Ended March 31
2000 and 1999
(000's)
2000 1999
---- ----
Salaries & Employee Benefits * ................... $410 $269
Occupancy & Equipment ............................ 98 86
Other ............................................ 181 123
---- ----
Total ............................................ $689 $478
* $74,000 of the total $141,000 (52.5 %) increase in salaries and employee
benefits expense resulted from staffing the new office in Columbia, S.C.
12
<PAGE>
Table Four
Analysis of Loans
March 31 Balances (000's)
2000 1999
---- ----
Real Estate:
Construction & Land Development .......... $ 9,550 14.9% $ 3,070 7.6%
1-4 Family Residential Properties ........ 13,726 21.4% 8,804 21.8%
Multifamily Residential Properties ....... 727 1.1% 630 1.6%
Nonfarm Nonresidential Properties ........ 20,589 32.1% 15,856 39.2%
Other Real Estate Loans .................. 549 .9% 423 1.0%
Commercial & Industrial .................. 17,980 28.0% 10,900 27.0%
Consumer ................................. 462 .7% 634 1.6%
Other .................................... 552 .9% 93 .2%
======= =======
TOTAL .................................... $64,135 100.0% $40,410 100.0%
Table Five
Analysis of Loan Maturities and Repricing Frequency
as of March 31, 2000 (000's)
<TABLE>
<CAPTION>
Within > 3 Months > 1 Year > 3 Years Over
3 Months 12 Months 3 Years 5 Years 5 Years Total
-------- ---------- -------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Variable Rate Loans ................ $56,460 $ $ $ $ $56,460
Fixed Rate Loans ................... 1,672 1,573 2,131 1,046 225 6,647
------- ------- ------- ------- ------- -------
Total Loans** ...................... $58,132 $ 1,573 $ 2,131 $ 1,046 $ 225 $63,107
</TABLE>
** Total excludes loans on nonaccrual of $1,028
Table Six
Analysis of the Allowance for Loan Losses
for the Three Months Ended March 31
2000 1999
---- ----
Balance at Beginning of Year ................ $ 800,000 $ 575,000
Provision Charged to Operations ............. 35,000 30,340
Loans Charged-off ........................... 0 (400)
Loan Recoveries ............................. 0 60
--------- ---------
Balance at End of Year ...................... $ 835,000 $ 605,000
Total loans past due 30 days or more on 3/31/00 were two loans on nonaccrual
status totaling $1,028,000 and one loan secured by real estate in the amount of
$150,000.
13
<PAGE>
Table Seven
Analysis of Investment Securities
as of March 31, 2000
(000's)
<TABLE>
<CAPTION>
Available for Sale Held for Investment
------------------ -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less ............................ $ 0 $ 0 $ 0 $ 0
Due from one to five years ......................... 9,000 8,687 0 0
Due from five to ten years ......................... 1,000 957 0 0
Due After ten years ................................ 123 112 375 355
FHLB Stock ......................................... 164 164
======= ======= ======= =======
$10,123 $ 9,756 $ 539 $ 519
</TABLE>
At March 31, 2000, securities with a carrying value of approximately $2,880,000
were pledged to secure retail repurchase agreements and Treasury, tax and loan
deposits. The securities portfolio at 3/31/00 had a weighted average yield of
5.76%.
14
<PAGE>
Table Eight
Distribution of Interest-Earning Assets and Interest-Bearing Liabilities
Repricing Schedule as of March 31, 2000
(000's)
<TABLE>
<CAPTION>
One Year Over One Year Over
or Less to Five Years Five Years Total
------- ------------- ---------- -----
Interest Earning Assets
<S> <C> <C> <C> <C>
Due From Banks: Int.-bearing .......................... $ 4,814 $ 0 $ 0 $ 4,814
Investment Securities (Book Value) .................... 0 9,000 1,498 10,498
FHLB Stock ............................................ 164 0 0 164
Loans (Excludes nonaccruals) .......................... 59,705 3,177 225 63,107
======== ======== ======== ========
Total ................................................. $ 64,683 $ 12,177 $ 1,723 $ 78,583
Interest-Bearing Liabilities
NOW Accounts .......................................... $ 17,966 $ 0 $ 0 $ 17,966
Savings & MMIA ........................................ 2,428 0 0 2,428
Time Deposits:$100m & > ............................... 15,240 200 0 15,440
Time Deposits: < $100m ................................ 30,686 1,713 0 32,399
Repurchase Agreements ................................. 1,391 0 0 1,391
TT&L Demand Note Funds ................................ 209 0 0 209
======== ======== ======== ========
Total ................................................. $ 67,920 $ 1,913 $ 0 $ 69,833
Period Gap ........................................... ($ 3,237) $ 10,264 $ 1,723 $ 8,750
Cumulative Gap ........................................ ($ 3,237) $ 7,027 $ 8,750
Period Gap Ratios:
Interest Sensitive Assets to
Interest Sensitive Liabilities ....................... (95.2%) 639.9%
Cumulative Gap Ratios:
Interest Sensitive Assets to
Interest Sensitive Liabilities ...................... (95.2%) 110.0%
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
3 Months Over 3 Months Over One
& Less to 12 Months Year Total
------ ------------ ---- -----
<S> <C> <C> <C> <C>
Time Deposits
$100,000 and Greater ........................... $ 5,146 $10,094 $ 200 $15,440
</TABLE>
Table Nine
Selected Ratios
for the Periods Ending March 31
2000 1999
---- ----
Return on Average Assets ....................... .88% .60%
Return on Average Equity ....................... 6.26% 3.16%
Dividend Payout Ratio .......................... N/A N/A
Average Stockholders Equity
as a Percentage of Average Assets .............. 14.09% 18.92%
16
<PAGE>
Liquidity
Liquidity is the ability to meet current and future obligations through
liquidation or the maturity of existing assets or the acquisition of additional
liabilities. Adequate liquidity is necessary to meet the requirements of
customers for loans and deposit withdrawals in the most timely and economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted into cash at minimal cost (amounts due from banks and federal funds
sold). However, the most manageable sources of liquidity are composed of
liabilities, with the primary focus on liquidity management being the ability to
obtain deposits within the Bank's service area. Core deposits (total deposits
less wholesale time deposits) provide a relatively stable funding base, and were
equal to 66.2 % of total assets at March 31, 2000. Asset liquidity is provided
from several sources, including amounts due from banks and federal funds sold,
and funds from maturing loans. The Bank is a member of the FHLB of Atlanta and,
as such, has the ability to borrow against the security of its 1-4 family
residential mortgage loans. The bank also has $5.1 million available through
lines of credit with other banks as an additional source of liquidity funding.
Management believes that the Bank's overall liquidity sources are adequate to
meet its operating needs.
Capital Resources
Between the first quarter ending periods of 2000 and 1999, equity capital of the
Bank increased $617,465. With $23,607 of this increase resulting from the
additional sale of stock, $593,858 was due to the increase in retained earnings.
The Bank is subject to regulatory capital adequacy standards. Under these
standards, financial institutions are required to maintain certain minimum
capital ratios of capital to risk-weighted assets and average total assets.
Under the provisions of the Federal Deposit Insurance Corporation Improvement
Act of 1991, federal financial institutions regulatory authorities are required
to implement prescribed "prompt corrective action" upon the deterioration of the
capital position of a bank. If the capital position of an affected institution
were to fall below certain levels, increasingly stringent regulatory corrective
actions are mandated.
The Bank's March 31, 2000 capital ratios are presented in the following table,
compared with the "well capitalized" and minimum ratios under the FDIC
regulatory definitions and guidelines:
<TABLE>
<CAPTION>
To be well capitalized
For capital under prompt corrective
As of March 31, 2000 Actual adequacy purposes action provisions
(000's) ------ ----------------- -----------------
Minimum Minimum
------- -------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk .................... $12,111 17.7% $ 5,479 8.0% $ 6,848 10.0%
weighted assets)
Tier 1 Capital (to risk ................... $11,276 16.5% $ 2,739 4.0% $ 4,109 6.0%
weighted assets)
Tier 1 Capital (to ........................ $11,276 14.3% $ 3,143 4.0% $ 3,929 5.0%
average assets) (leverage)
</TABLE>
17
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
from Item 601 of
Regulation S-B Description
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K : None
18
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
First South Bancorp, Inc.
s/Barry L. Slider
May 10, 2000 ---------------------------------------------
Barry L. Slider, President and Chief
Executive Officer
s/V. Lewis Shuler
---------------------------------------------
V. Lewis Shuler, Executive Vice President
(Principal Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
27 Financial Data Schedule
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Consolidated Balance Sheet at March 31, 2000 and the unaudited
Consolidated Statement of Operations for the three months ended March 31, 2000
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,547
<INT-BEARING-DEPOSITS> 4,814
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,920
<INVESTMENTS-CARRYING> 375
<INVESTMENTS-MARKET> 355
<LOANS> 64,135
<ALLOWANCE> 835
<TOTAL-ASSETS> 85,145
<DEPOSITS> 71,698
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,398
<LONG-TERM> 0
0
0
<COMMON> 4,586
<OTHER-SE> 6,463
<TOTAL-LIABILITIES-AND-EQUITY> 85,145
<INTEREST-LOAN> 1,504
<INTEREST-INVEST> 150
<INTEREST-OTHER> 40
<INTEREST-TOTAL> 1,694
<INTEREST-DEPOSIT> 826
<INTEREST-EXPENSE> 40
<INTEREST-INCOME-NET> 828
<LOAN-LOSSES> 35
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 689
<INCOME-PRETAX> 228
<INCOME-PRE-EXTRAORDINARY> 172
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.18
<YIELD-ACTUAL> 4.55
<LOANS-NON> 1,028
<LOANS-PAST> 1,178
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 800
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 835
<ALLOWANCE-DOMESTIC> 835
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
