7/27/2006 - CapitalSouth Bancorp Announces 2nd Quarter Results

CapitalSouth Bancorp Announces Second Quarter 2006 Results

FOR IMMEDIATE RELEASE - Birmingham, Alabama (July 27, 2006) - CapitalSouth Bancorp ("CapitalSouth") (NASDAQ-GM: CAPB) today announced results for the second quarter of 2006. 

Total assets at the end of the quarter were $448.4 million, a 23.8% increase over the $362.1 million at the end of the second quarter 2005.  Deposits grew 25.5% during the same period, ending the second quarter 2006 at $378.4 million.  Shareholders' equity ended the second quarter at $39.7 million, or $13.39 per share, up $1.71 from June 30, 2005.

For the quarter ended June 30, 2006, CapitalSouth reported earnings of $994,000, up 47.9% from the second quarter 2005.  During the quarter the Company recognized an after-tax gain of $666,000 from the sale of its investment in Consumer National Bank in Jackson, Mississippi ("CNB"), in connection with the acquisition of CNB by another bank.  Partially offsetting this gain was $170,200 of after-tax expense related to granting employee incentive stock options.  For the quarter, diluted earnings per share increased 10% to $.33 from the $.30 reported for the second quarter 2005.  Earnings in the second quarter 2006 resulted in a return on average shareholders' equity (ROE) of 10.09% compared to 10.36% in the same quarter of 2005, and a return on average assets (ROA) of .89% compared to .75% for the same quarter of 2005.

During the second quarter 2006, CapitalSouth recorded a loan loss provision of $104,000 and recognized $142,000 in net charge-offs, representing .16% of average total loans for the period compared with .02% for the second quarter of 2005.  This increase in net losses was primarily the result of identifying loan losses in one market.  Mr. W. Dan Puckett, Chairman and CEO, stated, "The Company has enjoyed below market loan losses for an extended time.  We believe that our loan losses will approach peer levels as our portfolios mature in our new markets.  Loan losses could also be impacted by a weakening economy."  At June 30, 2006, nonperforming assets remained at .55% of period end loans and other real estate compared to December 31, 2005.  The allowance for loan losses as a percentage of period end nonperforming loans was 260% at June 30, 2006, up from 229% at December 31, 2005.

"2006 continues to be a year of investment for our Company.  I am very pleased with the growth in our new markets," commented Mr. Puckett.  "In the second quarter, our newest market, Jacksonville, Florida, had very strong average asset growth compared to the first quarter.  Our Huntsville, Alabama market's average assets grew 21% from the first quarter of 2006, and 148% compared to the second quarter of 2005.  We believe our business model is working well in these markets and anticipate continued strong growth as we develop these markets."

CapitalSouth Bancorp is a bank holding company operating nine full service banking offices and two loan production offices through two bank subsidiaries as follows:  CapitalSouth Bank with seven full service banking offices in Birmingham and Huntsville Alabama, and Jacksonville Florida, as well as loan production offices in Fort Lauderdale, Florida and Atlanta, Georgia; and Capital Bank with two full service banking offices in Montgomery Alabama.  CapitalSouth targets small to medium-sized businesses in the markets it serves.  Two of CapitalSouth Bank's offices operate under the name "Banco Hispano" and provide financial services to the growing Latino community prevalent in their areas.  CapitalSouth offers SBA lending services and other similar programs for business owners through its Business Capital Group, which operates through full-service offices as well as the loan production offices.  CapitalSouth also provides Internet banking services at www.capitalsouthbank.com and www.capitalbankal.com as well as personal investment services.

CapitalSouth Bancorp common stock is traded on the NASDAQ Global Market System under the symbol "CAPB".

This press release contains "forward-looking" statements as defined by the Private Securities Litigation Reform Act of 1995, which is based on CapitalSouth's current expectations, estimates and projections about future events and financial trends affecting the financial condition of its business.  These statements are not historical facts or guarantees of future performance, events, or results.  Such statements involve potential risks and uncertainties and, accordingly, actual performance results may differ materially.  CapitalSouth undertakes no obligation to publicly update or revise forward-looking statements, whether as a result of new, updated information, future events, or otherwise.

Contacts:          W. Dan Puckett                                                Carol Marsh

                        Chief Executive Officer                         Chief Financial Officer

                        (205) 870-1939                                      (205) 870-1939