First South Bank announced plans to rid itself of problem assets, many of which date back to the financial crisis of five years ago, said Bruce Elder, president and CEO of the Washington-based bank.
The bank has been working on the plan for the last four months. First South will do away with the assets in two phases. The first step came Feb. 15 with the sale of problem loans with a book value of $46.5 million. The loans were sold to Emerald Portfolio, LLC.

• Read the news release issued by First South Bank. >>

Elder said First South would personally contact most of the accounts affected by the sale.
First South Bank’s fourth quarter earnings took a hit as a result of the sale. The bad loans resulted in a $17.6 million pre-tax loss.
Because of the charge, First South ended its fourth quarter in red, with a net loss of $12.9 million.
“Those losses were part of our company going forward,” Elder said Friday. “Had we not taken advantage of this sale and cleaned our balance sheet now, those expenses to property taxes, valuation adjustments… would have appeared as each was resolved. We’ve just accelerated those losses to 2012.”
The second phase will take care of other real estate owned, or “OREO” assets of First South. The OREO assets cost the bank another $5.2 million in its fourth quarter.
Because the second phase of the plan has not been finalized, Elder would not comment on the specific OREO accounts that would be up for sale.
“Virtually, any piece of property we’ve had to take back on a loan” could be on the table, he said.
Elder said First South would be stronger after dumping the problem accounts. If the bank had chosen to continue carrying loans that were in default, the fourth-quarter losses would have come in future quarters.
Elder emphasized the bank’s strong position. After clearing the balance sheets, he said the bank would be poised to start growing.
In the meantime, it’s business as usual.
“We are open for business,” Elder said. “We are actively seeking new relationships at First South.”
First South has 26 bank locations that span from Durham to the Outer Banks. The majority of the bank’s employees are in Beaufort County.
Elder said the bulk sales would not affect employment and was not a precursor to selling or merging with another bank.
“We are not for sale,” he said. “On the backside of this transaction, what we have is a stronger institution and we’re going to be able to grow our bank.”