FSBC Five Star Bancorp

1st State Bancorp, Inc. Announces Increased Earnings BURLINGTON, N.C., Oct. 27 /PRNewswire-FirstCall/ -- 1st State Bancorp, Inc. , the parent holding company for 1st State Bank, has reported earnings for the quarter and year ended September 30, 2003. Net income for the year ended September 30, 2003 increased 3.1% to $3,920,000, from net income of $3,802,000 earned in the year ended September 30, 2002. Basic and diluted earnings per share increased to $1.39 and $1.33 per share, respectively, for the current year, from $1.25 and $1.21 per share, respectively, for the prior year. The increase in the basic and diluted earnings per share was favorably impacted by the Company's stock repurchase plan which was approved in August 2002. Since that date, 317,630 shares have been repurchased which represent 9.7% of shares issued. The improvement in earnings for the year ended September 30, 2003 was attributable to increased non-interest income which was offset partially by decreased net interest income. Strong refinancing activity fueled by low interest rates produced record volumes of mortgage loan originations and sales during the current year. These loan sales substantially boosted the Company's mortgage banking income to $1.9 million for the year ended September 30, 2003, an increase of $800,000 over the $1.1 million reported in the prior year. The Company's net interest income for the year ended September 30, 2003 was $11.6 million, a decrease of $700,000 from the $12.3 million reported in the prior year. Earnings continue to be negatively impacted by the historically low interest rates, which have compressed the Company's net interest margin. The Company's net interest margin has decreased 21 basis points to 3.54% for the current year from 3.75% in the prior year. Net income for the quarter ended September 30, 2003 was $952,000 or basic and diluted earnings per share of $0.34 and $0.32, respectively. These results compare with net income of $1,047,000 or basic and diluted earnings per share of $0.34 and $0.33, respectively, for the prior year's quarter. Basic and diluted earnings per share were favorably impacted by the Company's stock repurchase plan, which was approved in August 2002. The $95,000 decrease in net income resulted primarily from decreased net interest income and increased operating expenses, which were partially offset by increased non-interest income. For the quarter ended September 30, 2003, the Company's net interest margin was 3.40%, a decrease of 60 basis points from the 4.00% for the prior year's quarter. This decrease reflects the impact of a declining interest rate environment in which interest-earning assets reprice faster than liabilities due to the asset sensitive nature of the Company's balance sheet. The increase in non-interest income resulted primarily from increased mortgage banking income and increased loan originations and sales. Operating expenses increased 5.4% over the prior year. At September 30, 2003, 1st State Bancorp, Inc. had total assets of $363 million, deposits of $263 million and stockholders' equity of $62.7 million. The book value per share of common stock was $21.10 per share at September 30, 2003. 1st State Bancorp, Inc., through its subsidiary 1st State Bank, currently services its customers from seven full service banking offices in Alamance County. This press release contains statements that are forward-looking, as that term is defined by the Private Securities Litigation Act of 1995 or the Securities and Exchange Commission in its rules, regulations, and releases. The Company intends that such forward-looking statements are based on current expectations regarding important risk factors including, but not limited to, the impact of interest rates on financing issues. Accordingly, actual results may differ from those expressed in the forward-looking statements, and the making of such statements should not be regarded as a representation by the Company or any other person that results expressed therein will be achieved. 1st State Bancorp, Inc. (NASDAQ:FSBC) Summary of Financial Highlights Selected Financial Data: Sep 30, Sep 30, (in thousands - unaudited) 2003 2002 Total assets $362,640 $350,469 Loans receivable, net 225,725 220,047 Loans held for sale 645 6,798 Investment securities 111,171 89,686 Cash and cash equivalents 9,359 18,865 Deposit accounts 262,712 260,667 Advances from Federal Home Loan Bank 31,500 20,000 Dividend payable 297 241 Total stockholders' equity 62,701 61,569 Selected Operating Data: Three months ended Year ended 9/30/2003 9/30/2002 9/30/2003 9/30/2002 (in thousands - unaudited) Interest income $4,122 4,987 17,209 20,062 Interest expense 1,267 1,682 5,592 7,773 Net interest income 2,855 3,305 11,617 12,289 Provision for loan losses 60 60 240 240 Net interest income after provision for loan losses 2,795 3,245 11,377 12,049 Non-interest income 958 534 3,588 2,753 Non-interest expense 2,276 2,160 8,802 8,846 Income before taxes 1,477 1,619 6,163 5,956 Income tax expense 525 572 2,243 2,154 Net income 952 1,047 3,920 3,802 Per Share Data: Three months ended Year ended (unaudited) 09/30/2003 09/30/2002 09/30/2003 09/30/2002 Basic earnings per share $0.34 $0.34 $1.39 $1.25 Diluted earnings per share 0.32 0.33 1.33 1.21 Average shares outstanding - basic 2,808,409 3,051,947 2,811,200 3,034,415 Average shares outstanding - diluted 2,944,793 3,150,118 2,938,598 3,154,198 Cash dividends per share $0.10 $0.08 $0.38 $0.32 Book value at September 30 $21.10 $20.46 Shares outstanding at September 30 2,971,977 3,008,682 Interest Margin Three months ended Year ended 09/30/2003 9/30/2002 9/30/2003 9/30/2002 (% of average assets - unaudited) Yield on interest earning assets 4.90% 6.04% 5.25% 6.12% Cost of interest bearing liabilities 1.87% 2.53% 2.11% 2.92% Interest rate spread 3.03% 3.51% 3.14% 3.20% Net interest income as a percentage of average interest earning assets 3.40% 4.00% 3.54% 3.75% Asset Quality Sep 30, Sep 30, (unaudited) 2003 2002 Allowance for loan losses to gross loans held for investment 1.68% 1.67% Nonperforming assets to total assets 1.17% 1.25% DATASOURCE: 1st State Bancorp, Inc. CONTACT: James C. McGill of 1st State Bancorp, Inc., +1-336-227-8861

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