Published: April 21, 2008
Citizens South Banking Corporation Announces Earnings for the First Quarter 2008
GASTONIA, N.C., April 21 /PRNewswire-FirstCall/ -- Citizens South Banking
Corporation (Nasdaq: CSBC), the holding company for Citizens South Bank,
announced that net income for the quarter ended March 31, 2008, amounted to
$970,000, or $0.13 per diluted share, compared to $1.4 million, or $0.18 per
diluted share, for the quarter ended March 31, 2007. This represented a
decrease of $0.05 per diluted share, or 27.8% for the comparable periods. The
primary reason for the decrease was net interest margin compression caused
primarily by the Federal Reserve Bank's actions to decrease short-term
interest rates by 200 basis points during the first quarter of 2008. This
resulted in lower yields on assets tied to the prime lending rate and other
short-term indices.
Margin Compression on a Linked-Quarter Basis
The Bank's net interest margin amounted to 2.89% for the first quarter of
2008, compared to 3.01% for the fourth quarter of 2007. We experienced this
limited compression in the net interest margin during the first quarter of
2008 despite the Federal Reserve Board's actions to lower the federal funds
rate by 200 basis points during the quarter. As the pace of decreases in
short-term lending rates slows, the Company is expected to begin to experience
margin expansion. In fact, the Company has maintained a relatively neutral
interest rate position on an annual basis. However, decreases in short-term
interest rates had a more pronounced negative impact in the first three months
following the decrease. The short-term negative effects of decreases in
interest rates are expected to be mostly offset by time deposits that mature
over the next twelve months and reprice at a lower cost to the Company.
Credit Quality Remains Strong
Credit quality continues to compare very favorably with industry peers.
On a linked-quarter basis, nonperforming assets totaled 0.39% of total assets
at March 31, 2008, compared to 0.30% of total assets at December 31, 2007.
Also, nonperforming loans to total loans totaled 0.43% at March 31, 2008,
compared to 0.32% at December 31, 2007. During the past quarter, the
allowance for loan losses increased from $6.1 million, or 1.10% of total
loans, to $6.4 million, or 1.12% of total loans, at March 31, 2008. Net
charge-offs decreased from $479,000, or 0.09% of average loans, for the
quarter ended December 31, 2007, to $76,000, or 0.01% of average loans, for
the first quarter of 2008.
Management attributed our stable credit quality to the fact that the
Company has not been an originator or purchaser of option adjustable rate or
"no documentation" portfolio mortgage loans, and the portfolio did not include
any mortgage loans that the Company classifies as sub-prime. Also, the price
stability of the residential real estate market in theCharlotte region has
contributed to our success in avoiding significant problems in the quality of
our loan portfolio.
Steady Loan Growth in the First Quarter
While the real estate market in theCharlotte, North Carolina region
remains active compared to most of the country, housing starts and demand for
commercial real estate have moderated. However, even under these
circumstances, outstanding loans increased by $12.0 million, or 8.6%
annualized, during the three-month period ended March 31, 2008. This level of
growth is consistent with the 8.6% growth rate in 2007, including $12.0
million of loan growth during the fourth quarter, and $12.2 million in the
third quarter.
Demand Deposit Growth
During the first quarter of 2008, demand deposits increased by $2.5
million, or 10.0% annualized, to $104.5 million. In addition, savings
accounts increased at an annualized growth rate of 5.2% to $12.2 million.
However, during the first quarter of 2008, the Bank did experience declining
balances in more interest-sensitive deposit areas, such as money market
accounts and time deposits. Money market accounts decreased by $6.0 million
to $123.7 million, while time deposits decreased by $4.9 million to $342.1
million at the end of the first quarter of 2008. As a result, during the
first quarter of 2008, total deposits decreased by $8.2 million, or 5.6%
annualized. This decrease was largely attributable to the Company's action to
aggressively lower its deposit rates more quickly than some local competitors.
The Company will continue to actively market the Company's deposit products at
pricing points are determined to be profitable.
The Company opened its 15th full-service branch office inRock Hill, South
Carolina, during the first quarter of 2008. This additional office, our first
inSouth Carolina, will be an integral part of our efforts to continue growing
core deposits and market share in theCharlotte region. We believe that the
ability to branch intoYork County, South Carolina brings an important
strategic dimension to our franchise unavailable to many competitors serving
theCharlotte community bank market.
In making the announcement, Kim S. Price, President and CEO, stated "At a
time when our industry is under substantial pressure, we are pleased with our
financial performance and particularly our having avoided the credit-related
problems of many in our industry. Our disciplined approach to growth,
underwriting, and customer focus, as well as our century-plus heritage of
conservative, community banking principles are serving us well and have
positioned us to excel when our industry and economy return to more normalized
conditions."
General Information
Headquartered inGastonia, North Carolina, Citizens South Bank was founded
in 1904. Deposits are FDIC insured. At March 31, 2008, the Bank had
approximately $777 million in assets with 15 full-service offices in the
Charlotte region, includingGaston,Iredell,Rowan, andUnion counties in
North Carolina, andYork County, South Carolina. Citizens South Bank is an
Equal Housing Lender and Member, FDIC. The Bank is a wholly-owned subsidiary
of Citizens South Banking Corporation, and shares of the common stock of the
Company trade on the NASDAQ Global Market under the ticker symbol "CSBC". The
Company maintains a website at www.citizenssouth.com that includes information
on the Company, along with a list of products and services, branch locations,
current financial information, and links to the Company's 1934 Securities
Exchange Act filings with the SEC.
Forward-looking Statements
This news release contains certain forward-looking statements which
include, but are not limited to, statements of our earnings expectations,
statements regarding our operating strategy, and estimates of our future costs
and benefits. These forward-looking statements are based on our current
beliefs and expectations and are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond our control. In addition, these forward-looking statements are subject
to assumptions with respect to future business strategies and decisions that
are subject to change. Forward-looking statements speak only as of the date
they are made and the Company is under no duty to update these forward-looking
statements to reflect circumstances or events that occur after the date of the
forward-looking statements or to reflect the occurrence of unanticipated
events. A number of factors could cause actual conditions, events or results
to differ significantly from those described in the forward-looking
statements. Factors that could cause such a difference include, but are not
limited to, changes in general economic conditions - either locally or
nationally, competition among depository and financial institutions, the
continuation of current revenue and expense trends, unforeseen changes in the
Company's markets, and legal, regulatory, or accounting changes. The
Company's reports filed from time to time with the Securities and Exchange
Commission, including the Company's Form 10-K for the year ended December 31,
2007, describe some of these factors.
Important Tables Follow
Citizens South Banking Corporation
Selected Financial Information
(dollars in thousands, except per share data)
Quarter Quarter Year Year
ended ended ended ended
March 31, March 31, December 31, December 31,
2008 2007 2007 2006
Reconciliation of GAAP to
non-GAAP Measures:
Net income, as reported
(GAAP) $970 $1,400 $5,665 $5,455
Non-operating items:
(Gain)/ loss on sale of
assets, net (242) (5) (323) (69)
Reorganization & merger/
integration expenses 220 - - 57
Impairment of investments - - 162 -
Insurance proceeds, net - - (112) -
Related income taxes, excl.
ins. proceeds (39%) 8 2 63 5
Net Operating Income $956 $1,397 $5,455 $5,448
Noninterest income, as
reported (GAAP) $1,680 $1,530 $6,562 $6,140
Non-operating items:
(Gain)/ loss on sale of
assets, net (242) (5) (323) 69
Fair value adjustment on
deferred comp assets 14 (37) (122) (207)
Insurance proceeds, net - - (112) -
Noninterest Operating Income $1,452 $1,488 $6,005 $6,002
Noninterest expense, as
reported (GAAP) $4,882 $4,285 $17,895 $17,544
Non-operating items:
Impairment of investments - - (162) -
Fair value adjustment on
deferred comp assets 14 (37) (122) (207)
Reorganization & merger/
integration expenses (220) - - (57)
Noninterest Operating
Expense $4,676 $4,248 $17,611 $17,280
Per Share Data:
Average common shares
outstanding, basic 7,406,656 7,862,174 7,688,595 8,017,956
Basic net income - GAAP $0.13 $0.18 $0.74 $0.68
Basic net income -
Operating 0.13 0.18 0.71 0.68
Average common shares
outstanding, diluted 7,451,802 7,938,162 7,754,599 8,095,276
Diluted net income - GAAP $0.13 $0.18 $0.73 $0.67
Diluted net income -
Operating 0.13 0.18 0.70 0.67
Cash dividends declared $0.085 $0.08 $0.32 $0.30
Period-end book value 11.21 10.71 11.05 10.61
Financial Ratios
(annualized):
Return on average
stockholders' equity
- GAAP 4.61% 6.62% 6.68% 6.41%
Return on avg. stockholders'
equity - Operating 4.55 6.60 6.43 6.41
Return on average assets -
GAAP 0.50% 0.77% 0.75% 0.76%
Return on average assets -
Operating 0.50 0.77 0.72 0.76
Efficiency ratio - GAAP 75.49% 65.15% 66.78% 65.51%
Efficiency ratio -
Operating 74.89 65.20 67.12 65.19
Net interest margin (tax
equivalent) 2.89% 3.18% 3.15% 3.34%
Average equity to average
assets 10.93 11.61 11.26 11.86
Asset Quality Data:
Allowance for loan losses $6,427 $ 6,023 $6,144 $5,764
Nonperforming loans 2,477 1,686 1,815 3,011
Nonperforming assets 3,005 1,879 2,344 3,150
Net charge-offs 76 71 911 505
Net charge-offs to average
loans 0.01% 0.01% 0.17% 0.10%
Allowance for loan losses to
total loans 1.12 1.16 1.10 1.12
Nonperforming loans to total
loans 0.43 0.32 0.32 0.58
Nonperforming assets to
total assets 0.39 0.25 0.30 0.42
Average Balances:
Total assets $774,030 $738,674 $753,085 $716,934
Loans receivable, net of
unearned income 567,039 520,342 526,913 493,324
Interest-earning assets 680,566 644,455 660,490 622,793
Deposits 579,802 565,070 575,302 535,935
Interest-bearing
liabilities 636,875 603,396 618,126 586,809
Stockholders' equity 84,568 85,784 84,783 85,035
At Period End:
Total assets $776,583 $737,639 $779,140 $743,370
Loans receivable, net of
unearned income 571,938 519,108 559,956 515,402
Interest-earning assets 685,977 648,109 690,007 647,048
Deposits 582,567 568,173 590,765 562,802
Interest-bearing
liabilities 642,115 602,433 643,478 611,004
Stockholders' equity 84,701 85,611 84,033 85,961
Citizens South Banking Corporation
Consolidated Statements of Financial Condition
(dollars in thousands)
March 31, December 31,
2008 2007
(unaudited)
ASSETS
Cash and due from banks $13,454 $14,285
Interest-earning bank balances 14,620 15,454
Cash and cash equivalents 28,074 29,739
Investment securities available-for-sale, at
fair value 31,725 46,519
Mortgage-backed securities available-for-sale, at
fair value 70,171 69,893
Loans receivable, net unearned income 571,938 559,956
Allowance for loan losses (6,427) (6,144)
Loans receivable, net 565,511 553,812
Real estate acquired through foreclosure, net 529 529
Premises and equipment, net 17,781 17,965
Accrued interest receivable 2,708 3,254
Federal Home Loan Bank stock, at cost 4,280 4,236
Intangible assets 30,896 31,037
Bank owned life insurance 16,270 16,099
Other assets 8,638 6,057
Total assets $776,583 $779,140
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposit accounts $104,527 $101,981
Money market deposit accounts 123,733 129,688
Savings accounts 12,193 12,037
Time deposits 342,114 347,059
Total deposits 582,567 590,765
Borrowed money 101,324 96,284
Deferred compensation 4,992 5,389
Other liabilities 2,999 2,669
Total liabilities 691,882 695,107
Stockholders' Equity:
Common stock issued and outstanding, $0.01 par
value, 20,000,000 shares authorized, 9,062,727
issued at March 31, 2008, and December 31, 2007,
and 7,552,644 shares outstanding at March 31,
2008, and 7,610,017 shares outstanding at
December 31, 2007 91 91
Additional paid-in-capital 67,803 67,718
Unallocated common stock held by Employee Stock
Ownership Plan (1,202) (1,247)
Retained earnings, substantially restricted 36,268 36,028
Accumulated unrealized loss on securities
available-for-sale, net of tax 450 (343)
Treasury stock of 1,510,083 shares at March 31,
2008, and 1,452,710 shares at December 31, 2007 (18,709) (18,214)
Total stockholders' equity 84,701 84,033
Total liabilities and stockholders' equity $776,583 $779,140
Citizens South Banking Corporation
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
Three Months
Ended March 31,
2008 2007
Interest income
Loans $9,601 $9,893
Investment securities 413 669
Interest-bearing deposits 94 132
Mortgage-backed and related securities 864 671
Total interest income 10,972 11,365
Interest Expense
Deposits 5,066 5,341
Borrowed funds 1,119 978
Total interest expense 6,185 6,319
Net interest income 4,787 5,046
Provision for loan losses 345 330
Net interest income after provision for loan losses 4,442 4,716
Noninterest Income
Fee income on deposit accounts 678 653
Fee income on mortgage banking activities 203 232
Fee income on lending activities 111 110
Dividends on FHLB stock 62 51
Increase in cash value of bank-owned life insurance 188 209
Fair value adjustment on deferred compensation
assets (14) 37
Net gain on sale of assets 242 5
Other noninterest income 210 233
Total noninterest income 1,680 1,530
Noninterest Expense
Compensation and benefits 2,555 2,342
Fair value adjustment on deferred compensation
obligation (14) 37
Occupancy and equipment expense 674 668
Professional services 201 124
Amortization of intangible assets 141 165
Reorganization expenses 220 -
Other noninterest expenses 1,105 949
Total noninterest expense 4,882 4,285
Income before income taxes 1,240 1,961
Provision for income taxes 270 561
Net income $970 $1,400
Basic earnings per share $0.13 $0.18
Diluted earnings per share $0.13 $0.18
Basic average common shares outstanding 7,406,656 7,862,174
Diluted average common shares outstanding 7,451,802 7,938,162
SOURCE Citizens South Banking Corporation
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