The Bank also reported that unaudited net income for the first quarter of 2008 was $98,000 or $0.12 per diluted share compared with net income of $249,000 or $0.30 per diluted share for the first quarter of 2007. Earnings for the quarter were lower due to higher operating expenses due primarily to the opening of the Bank's new branch in Beaufort in July of last year, a decline in net interest margin and an increase in the provision for loan losses. The 2007 earnings per share amount was adjusted to reflect the 6 for 5 stock split in August 2007.

Net interest income decreased $75,000 or 8% to $913,000 for the current period compared to $988,000 for the 2007 period. The decline in net interest income was the direct result of interest rate cuts by the Federal Reserve over the past several months. Since September 2007, the Fed has cut interest rates by 3 percentage points. These cuts, coupled with the Bank's slower repricing deposits caused the Bank's net interest margin to decline from 4.07% a year ago to 3.39% as of March 31, 2008.

The Bank maintains a reserve for loan losses based on management's evaluation of internal and external factors. At March 31, 2008, the reserve was 1.28% of total loans outstanding. The Bank recorded a provision for loan losses of $67,000 during the current quarter compared to $29,000 for the 2007 quarter.

Non-interest income increased $50,000 or 27% from $180,000 for the prior year period to $230,000 for the current 2008 period due principally to increases in service charges and fees on deposit accounts. Non-interest expense increased from $758,000 for the 2007 quarter to $940,000 for the current period. Operating expenses of the Bank's Beaufort branch which opened in July 2007 accounted for approximately half of the increase in those expenses.

Commenting on the first quarter performance, Phil Collins, President and CEO, said, "The decline in net interest margin has significantly affected our profitability. Our increase in expenses is the direct result of our commitment to provide expanded service throughout Carteret County with the opening of our Beaufort Branch. While we expect to operate at a lower level of profitability until economic conditions improve, we believe we are well positioned if we take a long term view of the future." -- Sound Banking Company