Published: October 27, 2010
CFS Bancorp, Inc. Announces Net Income for the Third Quarter of 2010
CFS Bancorp, Inc. (the Company), (NASDAQ: CITZ), the parent of Citizens Financial Bank (the Bank), today reported net
income of $863,000, or $.08 per share, for the third quarter of 2010,
compared to a net loss of $(4.7) million, or $(.44) per share, for the
third quarter of 2009.
The Company's net income for the nine months ended September 30, 2010 was
$2.5 million, or $.24 per diluted share, compared to a net loss of $(2.5)
million, or $(.24) per share, for the nine months ended September 30, 2009.
Financial results for the quarter include:
-- Annualized year to date deposit growth was 12.6% since December 31,
2009 which includes a 6.3% increase in noninterest-bearing deposits;
-- Purchased participation loans decreased to $26.5 million from
$46.8 million at June 30, 2010, from a combination of loan paydowns and
transfers to other real estate owned (OREO);
-- Non-performing assets increased by $12.0 million to $80.3 million
primarily due to two new troubled debt restructurings;
-- Net interest margin declined to 3.54% in the current quarter from 3.79%
in the second quarter of 2010;
-- Non-interest expense declined 7.8% for the third quarter of 2010 when
compared to the prior year quarter; and
-- Risk-based capital ratio for the Bank improved to 13.21% from 12.81% at
June 30, 2010.
Chairman's Comments
"This was the fourth consecutive quarter of positive earnings, as
credit-related costs continue to moderate, and we are making good progress
in exiting our purchased participation loan exposure," said Thomas F.
Prisby, Chairman and CEO. "We are disappointed in the increase in
non-performing assets during the quarter, which is primarily due to two new
troubled debt restructurings of non-owner occupied commercial real estate
loans. These loan restructurings involve reasonable short-term concessions
to allow the borrowers additional time to obtain new leases to replace
certain
non-renewing tenants and are performing in accordance with their modified
terms."
"The industry's net interest income and net interest margin continue to be
under pressure due to a multitude of factors," continued Prisby. "The Bank
has done very well in its margin performance relative to other
publicly-traded peers."
"The Business Banking team continues to execute our strategy of pursuing
commercial and industrial, owner occupied commercial real estate, and
multifamily commercial real estate loans, while at the same time
maintaining a focus on credit quality and relationship banking," added
Prisby. "As a result, we generated strong deposit growth in all key
categories of deposits during the quarter. The bank has no brokered
deposits and does not compete with above market rate paying institutions in
need of liquidity."
Progress on Strategic Growth and Diversification Plan
The Company's Strategic Growth and Diversification Plan is built around
four core objectives: decreasing non-performing loans; ensuring costs are
appropriate given the Company's targeted future asset base; growing while
diversifying by targeting small and mid-sized business owners for
relationship-based banking opportunities; and expanding and deepening the
Company's relationships with its clients by meeting a higher percentage of
their financial service needs.
The Company employs a dual strategy in managing its loan portfolio. The
Company continues to focus its efforts on reducing non-performing loans,
seeking to either restructure specific non-performing credits or foreclose,
obtain title, and transfer the loan to OREO where we can take control of
and liquidate the underlying collateral. For new loan originations, the
Company continues to be conservative in its underwriting criteria,
resulting in a higher quality loan origination process. The Company's ratio
of non-performing loans to total loans remained stable at 7.75% compared to
December 31, 2009 with loan repayments and transfers to OREO being offset
with new non-accrual loans.
The Company remains strongly focused on its cost structure. Non-interest
expense for the current quarter compared to the second quarter of 2010
decreased $157,000, or 1.6%, and $802,000, or 7.8%, compared to the prior
year quarter. Non-interest expense for the nine months ended September 30,
2010 compared to the prior year period decreased $1.1 million, or 3.7%.
Efforts to grow while diversifying and to expand and deepen client
relationships continue but remain constrained by current economic
conditions. The Company has succeeded in increasing targeted growth
segments in its portfolio, including commercial and industrial, commercial
real estate -- owner occupied, and multifamily, to comprise 49.6% of the
commercial loan portfolio at September 30, 2010, up from 46.8%, 39.4%, and
35.6% at December 31, 2009, 2008, and 2007, respectively. The Company
expects to benefit further from this diversification effort once business
owners resume borrowing and their line of credit usage moves higher. The
Company's focus on deepening relationships has emphasized core deposit and
relationship-oriented time deposit growth which has resulted in an $80.1
million, or a 9.4%, increase in deposits since December 31, 2009.
Pre-tax, Pre-Provision Earnings from Core Operations (1)
The Company's pre-tax, pre-provision earnings from core operations totaled
$2.3 million for the third quarter of 2010 compared to $2.8 million for the
second quarter of 2010 and $3.1 million for the third quarter of 2009. The
current low interest rate environment, relatively flat yield curve, and
increase in non-accrual loans reduced the Company's net interest income
during the current quarter. In addition, lower service charges and other
fees due to recent regulatory changes also impacted earnings for the
quarter.
For the nine months ended September 30, 2010, pre-tax, pre-provision
earnings from core operations was stable at $8.0 million when compared to
the nine months ended September 30, 2009. The 2010 year to date period
included lower compensation and employee benefits expense, net occupancy
expense, and marketing expenses, partially offset by an increase in
professional fees related to the current year's proxy contest and
moderately lower levels of net interest income and fee related non-interest
income.
(1) A schedule reconciling earnings in accordance with U.S. generally
accepted accounting principles (GAAP) to the non-GAAP measurement of pre-
tax, pre-provision earnings from core operations is provided on page 14 in
the attached tables.
Net Interest Income and Net Interest Margin
QE 9/30/10 QE 6/30/10 QE 9/30/09
----------- ----------- -----------
(Dollars in thousands)
Net interest margin 3.54% 3.79% 3.74%
Interest rate spread 3.42 3.66 3.58
Net interest income $ 8,886 $ 9,329 $ 9,396
Average assets:
Yield on interest-earning assets 4.56% 4.84% 5.01%
Yield on loans receivable 4.90 5.10 5.12
Yield on investment securities 3.93 4.24 4.83
Average interest-earning assets $ 997,279 $ 987,801 $ 996,382
Average liabilities:
Cost of interest-bearing
liabilities 1.14% 1.18% 1.43%
Cost of interest-bearing deposits 1.02 1.07 1.25
Cost of borrowed funds 2.45 2.34 2.55
Average interest-bearing
liabilities $ 899,682 $ 878,660 $ 887,298
The net interest margin decreased 25 basis points to 3.54% for the third
quarter of 2010 from 3.79% for the second quarter of 2010 and 20 basis
points from 3.74% for the third quarter of 2009. Net interest income
decreased for the third quarter of 2010 compared to the second quarter of
2010 and the third quarter of 2009. The net interest margin was negatively
impacted compared to the second quarter of 2010 by lower yields on loans
receivable and investment securities, as well as the Bank having higher
levels of liquidity due to a combination of strong deposit growth and loan
portfolio shrinkage. The yield on loans receivable decreased due to several
large payoffs and a reduction in interest income related to new non-accrual
loans. The yield on investment securities declined due to reinvesting
maturing investment securities and loan payoff proceeds in lower yielding
investments as market interest rates declined significantly to new lows.
The decrease in earning asset yields was partially offset by a five basis
point decrease in the cost of interest-bearing deposits.
Interest income decreased 3.8% to $11.5 million for the third quarter of
2010 compared to $11.9 million for the second quarter of 2010 and 8.9% from
$12.6 million for the third quarter of 2009. These decreases are primarily
due to the current low interest rate environment which reduced the yields
on interest-earning assets. In addition, the Bank is currently holding
higher levels of short-term liquid investments due to the lack of superior
investment alternatives in the current interest rate environment.
Interest expense was stable at $2.6 million for the third quarter of 2010
compared to the second quarter of 2010 and decreased 19.1% from $3.2
million for the third quarter of 2009. Interest expense was positively
affected by a 26.4% increase in the average balance of noninterest-bearing
deposit accounts from the third quarter of 2009, continued disciplined
pricing on new deposits, the repricing of existing certificates of deposit
at lower interest rates, and a reduction in the average balances of Federal
Home Loan Bank (FHLB) borrowed funds.
Non-Interest Income and Non-Interest Expense
Excluding net gain on sale of investment securities, non-interest income
decreased $114,000, or 5.1%, from the second quarter of 2010 due to reduced
service charges and other fees as a result of recent regulatory changes
affecting deposit account overdraft activity and a decrease in income from
bank-owned life insurance. Non-interest income, excluding net gain on sale
of investment securities, decreased $143,000, or 6.3%, from the third
quarter of 2009 primarily due to reduced levels of service charges and
other fees as the recent regulatory changes impacted deposit account
service charges and clients conscientiously reducing their usage of
overdraft services.
Non-interest expense for the third quarter of 2010 decreased 1.6% to $9.4
million compared to $9.6 million for the second quarter of 2010 primarily
due to decreases in severance expense totaling $349,000 and professional
fees totaling $233,000. Partially offsetting these decreases was a $159,000
increase in compensation and employee benefits expense primarily related to
higher incentive accruals. In addition, OREO related expenses increased
$217,000 compared to the second quarter of 2010 primarily due to downward
valuation adjustments recorded on certain commercial real estate properties
that have been obtained through foreclosure.
Non-interest expense for the third quarter of 2010 decreased 7.8% to $9.4
million compared to $10.2 million for the third quarter of 2009. Efforts to
control discretionary costs have resulted in significant reductions in most
non-interest expense categories. OREO related expenses decreased $864,000
for the third quarter of 2010 compared to the prior year quarter due to the
establishment of higher valuation allowances during the third quarter of
2009. Professional fees decreased $150,000 during the third quarter of 2010
compared to the comparable 2009 quarter as a result of various corporate
matters and costs associated with the 2009 derivative shareholder action.
Net occupancy expense decreased $72,000 as the Bank vacated leased space
during 2009 and more fully utilized space in existing buildings.
Partially offsetting the above favorable decreases in non-interest expense
from the third quarter of 2009, the Company's compensation and employee
benefits increased $204,000. This increase is primarily a result of a
$600,000 reduction in incentive compensation accruals during the third
quarter of 2009 as expected targeted goals would not be met. During the
third quarter of 2010, the estimate of current retirement plan expense was
lower by $196,000 and medical costs decreased $190,000 due to lower claims
expense compared to the third quarter of 2009.
Income Tax Expense
Income tax expense totaled $188,000 in the current quarter, equal to an
effective tax rate of 17.9%, compared to a tax benefit rate of 39.2%
reported in the third quarter of 2009.
Asset Quality
9/30/10 6/30/10 9/30/09
--------- --------- ---------
(Dollars in thousands)
Non-performing loans (NPL) $ 56,098 $ 56,482 $ 55,980
Non-performing assets (NPA) 80,309 68,307 63,401
NPL / total loans 7.75% 7.47% 7.48%
NPA / total assets 7.17 6.24 5.88
Allowance for loan losses (ALL) $ 17,485 $ 17,608 $ 20,799
ALL / total loans 2.41% 2.33% 2.78%
ALL / NPL 31.17 31.17 37.15
Provision for loan losses for the
quarter ended $ 525 $ 817 $ 9,430
Net charge-offs for the quarter ended 648 3,611 3,565
Total non-performing loans were relatively stable at $56.1 million at
September 30, 2010 compared to $56.5 million at June 30, 2010. The ratio of
non-performing loans to total loans increased to 7.75% during the quarter
compared to June 30, 2010 primarily due to a decrease in total loans. Total
non-performing loans decreased during the third quarter of 2010 due to the
repayment of a $1.9 million impaired commercial construction and land
development purchased participation from the sale of the collateral and a
$750,000 principal reduction for a separate impaired commercial
construction and land development purchased participation. In addition,
three impaired commercial purchased participations with carrying values of
$12.3 million were transferred to OREO during the third quarter of 2010.
Offsetting these decreases during the quarter were the transfer to
non-accrual status of two non-owner occupied commercial real estate loans
totaling $10.1 million that were modified during the quarter and met the
definition of a troubled debt restructuring, and are performing in
accordance with their modified terms, two owner occupied commercial real
estate loans totaling $3.9 million, one commercial construction and land
development loan totaling $767,000, and 16 residential real estate loans
and HELOCs totaling $1.3 million.
In addition, at September 30, 2010, the Bank had $10.8 million of loan
modifications meeting the definition of a troubled debt restructuring that
were performing in accordance with their modified terms and accruing
interest. These loan modifications, and the ones noted in the above
paragraph, included short-term extensions of maturity, interest only
payments, or payment modifications to better match the timing of cash flows
due under the modified terms with the cash flows from the borrowers'
operations.
Net charge-offs during the current quarter included $462,000 related to
residential real estate loans and HELOCs, $54,000 related to a $1.2 million
impaired commercial construction and land development loan, and $41,000
related to an impaired non-owner occupied commercial real estate loan that
was transferred to OREO during the quarter at its net realizable value of
$2.8 million. The decrease in the provision for loan losses in the current
quarter compared to the prior year quarter is primarily due to $3.6 million
of charge-offs and increased impairment reserves of $5.3 million identified
during the third quarter of 2009.
The ratio of allowance for loan losses to total loans increased to 2.41% at
September 30, 2010 compared to 2.33% at June 30, 2010 as a result of a
reduction in total loans from the above mentioned payoffs and transfers to
OREO. In addition, total loans decreased when a performing $5.1 million
commercial real estate -- multifamily participation loan was repaid during
the quarter bringing the total paydowns on purchased participations to $7.9
million during the third quarter of 2010. When management determines a
non-performing collateral dependent loan has a collateral shortfall,
management will immediately charge off the collateral shortfall. As a
result, the Company is not required to maintain an allowance for loan
losses on these loans as the loan balance has already been written down to
its net realizable value (fair value less estimated costs to sell the
collateral). As such, the ratio of the allowance for loan losses to total
loans and the ratio of the allowance for loan losses to non-performing
loans have been affected by partial charge-offs of $7.3 million recorded on
$16.2 million of collateral dependent non-performing loans through
September 30, 2010 and impairment reserves totaling $7.5 million on other
non-collateral dependent non-performing participation loans at September
30, 2010.
Balance Sheet and Capital
9/30/10 6/30/10 12/31/09
----------- ----------- -----------
(Dollars in thousands)
Assets:
Total assets $ 1,119,479 $ 1,095,280 $ 1,081,515
Loans receivable, net of unearned fees 724,137 756,052 762,386
Investment securities 222,548 203,099 193,781
Liabilities and Equity:
Total liabilities 1,005,599 982,507 971,142
Deposits 929,856 899,482 849,758
Borrowed funds 64,199 73,106 111,808
Shareholders' equity 113,880 112,773 110,373
Loans Receivable
9/30/10 6/30/10 12/31/09
-------------- -------------- --------------
% of % of % of
Amount Total Amount Total Amount Total
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
Commercial loans:
Commercial and industrial $ 71,403 9.9% $ 70,208 9.3% $ 78,600 10.3%
Commercial real estate
- owner occupied 98,440 13.6 95,989 12.7 99,559 13.1
Commercial real estate
- non-owner occupied 207,787 28.7 214,452 28.4 218,329 28.6
Commercial real estate
- multifamily 70,318 9.7 79,382 10.5 63,008 8.3
Commercial construction
and land development 35,889 4.9 50,951 6.7 55,733 7.3
-------- ----- -------- ----- -------- -----
Total commercial loans 483,837 66.8 510,982 67.6 515,229 67.6
Retail loans:
One-to-four family
residential 178,769 24.7 183,823 24.3 185,293 24.3
Home equity lines of
credit 55,840 7.7 56,016 7.4 56,911 7.5
Retail construction and
land development 4,085 .6 3,513 0.5 3,401 .4
Other 1,606 .2 1,718 0.2 1,552 .2
-------- ----- -------- ----- -------- -----
Total retail loans 240,300 33.2 245,070 32.4 247,157 32.4
-------- ----- -------- ----- -------- -----
Total loans receivable,
net of unearned fees $724,137 100.0% $756,052 100.0% $762,386 100.0%
======== ===== ======== ===== ======== =====
Total loan fundings during the nine months ended September 30, 2010 were
$46.2 million, which were more than offset by loan payoffs and repayments
of $58.4 million, gross charge-offs of $5.1 million, and transfers to OREO
of $16.7 million. Through the execution of our Strategic Growth and
Diversification Plan, we continue to diversify our loan portfolio and
reduce loans not meeting our current defined risk tolerance. The Company
has increased its targeted segments of the loan portfolio, including
commercial and industrial, commercial real estate -- owner occupied, and
multifamily, to comprise 49.6% of the commercial loan portfolio at
September 30, 2010. During 2010, these targeted segments were impacted by
loan payoffs including four commercial and industrial payoffs totaling $7.2
million, two commercial real estate -- owner occupied loan payoffs totaling
$5.1 million, and two commercial real estate -- multifamily loan payoffs
totaling $5.0 million. In addition, one performing commercial real estate
-- multifamily purchased participation loan totaling $5.1 million was
repaid during the third quarter. At September 30, 2010, the balance of loan
participations purchased decreased to $26.5 million from $46.8 million at
June 30, 2010 as a result of this and other previously discussed payoffs
and the previously discussed transfers to OREO. Since December 31, 2009,
commercial construction and land development and non-owner occupied
commercial real estate loans decreased by $30.4 million, or 11.1%,
primarily due to five loan payoffs totaling $10.5 million and transfers to
OREO totaling $15.9 million.
At September 30, 2010, the Bank had $4.4 million of conforming one-to-four
family mortgage loans held for sale that were originated during the current
quarter. The Bank intends to sell these loans into the secondary market on
a servicing-retained basis in the fourth quarter of 2010.
Deposits
9/30/10 6/30/10 12/31/09
----------- ----------- -----------
(Dollars in thousands)
Core deposits:
Noninterest-bearing checking $ 94,927 $ 84,137 $ 89,261
Interest-bearing checking 123,381 110,062 106,013
Money market accounts 144,610 140,578 136,411
Savings accounts 121,732 119,029 113,865
----------- ----------- -----------
Subtotal core deposits 484,650 453,806 445,550
Certificates of deposit 399,350 392,639 354,401
----------- ----------- -----------
Subtotal non-municipal deposits 884,000 846,445 799,951
----------- ----------- -----------
Municipal core deposits 39,493 40,206 38,993
Municipal certificates of deposit 6,363 12,831 10,814
----------- ----------- -----------
Subtotal municipal deposits 45,856 53,037 49,807
----------- ----------- -----------
Total deposits $ 929,856 $ 899,482 $ 849,758
=========== =========== ===========
The Company has continued its success in growing deposits through many
channels including enhancing its brand recognition within its communities,
offering attractive deposit products, bringing in new client relationships
by meeting all of their banking needs, and holding its experienced sales
team accountable for growing deposits and relationships. The Company
increased its core deposits by $30.8 million, which included increases of
$10.8 million in noninterest-bearing checking deposits and $13.3 million in
interest-bearing checking deposits primarily related to a new deposit
relationship with a trust company. As previously mentioned, increasing core
deposits is reflective of our success in deepening our client
relationships, one of our core Strategic Plan objectives. The increase in
certificates of deposit from December 31, 2009 is primarily related to a
successful relationship-based marketing effort for these products.
While the Company maintains strong relationships with its municipal
clients, and municipal deposits continue to comprise an important funding
source, management is planning to lower its reliance on such funds over
time in anticipation that the current recession's impact on municipalities
and other government-related entities may result in lower municipal deposit
levels.
Borrowed Funds
9/30/10 6/30/10 12/31/09
----------- ----------- -----------
(Dollars in thousands)
Short-term variable-rate borrowed funds
and repurchase agreements $ 13,931 $ 13,684 $ 24,299
FHLB borrowed funds 50,268 59,422 87,509
----------- ----------- -----------
Total borrowed funds $ 64,199 $ 73,106 $ 111,808
=========== =========== ===========
Borrowed funds continued to decrease as the Company continues to strengthen
its balance sheet funding position and enhance its liquidity position
through heavier focus on deposit gathering and repaying maturing FHLB
advances.
Shareholders' Equity
Shareholders' equity at September 30, 2010 was $113.9 million compared to
$110.4 million at December 31, 2009. The increase was primarily due to $2.5
million of net income for the year to date period, a decrease in the
unrealized loss on investment securities available-for-sale, net of tax, of
$1.1 million, and vesting of restricted stock awards of $168,000, offset by
cash dividends declared of $327,000.
At September 30, 2010, the Company's tangible common equity was $113.9
million, or 10.17% of tangible assets compared to $110.4 million, or 10.21%
of tangible assets at December 31, 2009. At September 30, 2010, the Bank's
tangible, core, and risk-based capital ratios exceeded "minimum" and "well
capitalized" regulatory capital requirements.
Results for the Nine Months Ended September 30, 2010
Diluted earnings per share totaled $.24 for the nine months ended September
30, 2010 compared to a net loss per share of $(.24) for the 2009 period.
For the nine months ended September 30, 2010, net income totaled $2.5
million compared to a net loss of $(2.5) million for the 2009 period.
Net interest income was relatively stable at $27.7 million for the nine
months ended September 30, 2010 and $27.9 million for the comparable 2009
period. The six basis point improvement in the net interest margin to 3.74%
in 2010 compared to the prior year period was partially offset by a 2.4%
decline in the average balance of interest-earning assets.
The provision for loan losses for the nine months ended September 30, 2010
was $3.1 million compared to $10.8 million for the comparable 2009 period.
The large decrease in the provision for loan losses in the current year was
due to the lower level of charge-offs and impairment reserves compared to
the prior year. Other factors included the shrinkage in the total loan
portfolio, decrease in the level of non-performing loans, and change in the
loan portfolio mix as the higher risk commercial construction and land
development loans continue to decrease as a percentage of the portfolio.
Non-interest income totaled $6.9 million for the nine months ended
September 30, 2010 compared to $7.7 million for the 2009 period. Higher
card-based fees and income from bank-owned life insurance was more than
offset by lower gains on sale of investment securities, service charges and
other fees, and other income. Service charges and other fees were impacted
by lower retail overdraft activity and credit enhancement fee income
related to non-owner occupied commercial real estate lending as the Company
is not actively pursuing this product. Other income was down primarily due
to income related to certain viatical investments recorded in the 2009
period.
Non-interest expense decreased 3.7% to $28.5 million for the nine months
ended September 30, 2010 from $29.6 million for the comparable 2009 period.
The Company's successful cost control initiatives resulted in decreases in
almost all operating expense categories including a 5.6% reduction in
compensation and employee benefits, primarily due to lower retirement and
medical plan costs. Credit related costs decreased $717,000 in 2010 due to
fewer OREO valuation reserves and the absence of the prior year FDIC
special insurance premium assessment totaling $495,000. These expense
reductions were partially offset by $528,000 of severance and early
retirement expense and $417,000 of increased professional fees related to
certain corporate matters including the current year's proxy contest.
Income tax expense totaled $475,000 during the nine months ended September
30, 2010 which equals an effective tax rate of 15.7%, compared to an income
tax benefit of $(2.3) million, or a tax benefit rate of 47.1%, reported for
the 2009 period.
Company Profile
CFS Bancorp, Inc. is the parent of Citizens Financial Bank, a $1.1 billion
asset federal savings bank. Citizens Financial Bank is an independent bank
focusing its people, products, and services on helping individuals,
businesses, and communities be successful. The Bank has 23 offices
throughout adjoining markets in Chicago's Southwest suburbs and Northwest
Indiana. The Company's website can be found at www.citz.com.
Forward-Looking Information
This press release contains certain forward-looking statements and
information relating to the Company that is based on the beliefs of
management as well as assumptions made by and information currently
available to management. These forward-looking statements include but are
not limited to statements regarding successful execution of the Company's
strategy and its Strategic Growth and Diversification Plan, current
regulatory capital and equity ratios, diversification of the loan
portfolio, deepening client relationships, levels of core deposits,
non-performing asset levels, credit-related costs, revenue growth and
levels of earning assets, general economic and competitive conditions
nationally and within its core market area, cost savings initiatives,
levels of provision for the allowance for loan losses and charge-offs, loan
and deposit growth, interest on loans, asset yields and cost of funds, net
interest income, net interest margin, non-interest income, non-interest
expense, interest rate environment, and other risk factors identified in
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2009, as amended, and other filings with the Securities and Exchange
Commission. In addition, the words "anticipate," "believe," "estimate,"
"expect," "indicate," "intend," "should," and similar expressions, or the
negative thereof, as well as statements that include future events, tense,
or dates, or are not historical or current facts, as they relate to the
Company or the Company's management, are intended to identify
forward-looking statements. Such statements reflect the current views of
the Company with respect to future events and are subject to certain risks,
uncertainties, assumptions, and changes in circumstances. Forward-looking
statements are not guarantees of future performance or outcomes, and actual
results or events may differ materially from those included in these
statements. The Company does not intend to update these forward-looking
statements unless required to under the federal securities laws.
SELECTED CONSOLIDATED FINANCIALS AND OTHER DATA FOLLOW
CFS BANCORP, INC.
Consolidated Statements of Income (Loss) (Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
---------------------------------- ----------------------
September June September September September
30, 2010 30, 2010 30, 2009 30, 2010 30, 2009
----------- ----------- ---------- ----------- ----------
Interest income:
Loans $ 9,199 $ 9,626 $ 9,648 $ 28,503 $ 29,400
Investment
securities 2,176 2,163 2,742 6,552 8,805
Other 90 123 195 337 575
----------- ----------- ---------- ----------- ----------
Total
interest
income 11,465 11,912 12,585 35,392 38,780
Interest expense:
Deposits 2,143 2,146 2,431 6,342 8,276
Borrowed funds 436 437 758 1,392 2,598
----------- ----------- ---------- ----------- ----------
Total
interest
expense 2,579 2,583 3,189 7,734 10,874
----------- ----------- ---------- ----------- ----------
Net interest
income 8,886 9,329 9,396 27,658 27,906
Provision for
loan losses 525 817 9,430 3,052 10,767
----------- ----------- ---------- ----------- ----------
Net interest
income (loss)
after
provision for
loan losses 8,361 8,512 (34) 24,606 17,139
Non-interest
income:
Service
charges and
other fees 1,290 1,320 1,479 3,830 4,154
Card-based
fees 475 486 429 1,398 1,249
Commission
income 40 46 56 140 197
Net gain on
sale of
investment
securities - - 321 456 1,041
Net gain
(loss) on
sale of other
assets 2 11 (15) 14 (21)
Income from
bank-owned
life
insurance 217 262 218 702 552
Other income 112 125 112 392 504
----------- ----------- ---------- ----------- ----------
Total
non-interest
income 2,136 2,250 2,600 6,932 7,676
Non-interest
expense:
Compensation
and employee
benefits 4,709 4,550 4,505 13,928 14,758
Net occupancy
expense 691 651 763 2,097 2,410
FDIC insurance
premiums and
OTS
assessments 623 668 574 1,891 1,540
Professional
fees 512 745 662 1,850 1,433
Furniture and
equipment
expense 488 526 526 1,547 1,581
Data
processing 443 443 407 1,316 1,246
Marketing 189 216 155 519 571
OREO related
expense 479 262 1,343 1,377 1,754
Loan
collection
expense 156 153 290 478 818
Severance and
early
retirement
costs 88 437 - 528 -
FDIC special
insurance
premium
assessment - - - - 495
Other 1,068 952 1,023 2,990 3,013
----------- ----------- ---------- ----------- ----------
Total
non-interest
expense 9,446 9,603 10,248 28,521 29,619
----------- ----------- ---------- ----------- ----------
Income (loss)
before income
taxes 1,051 1,159 (7,682) 3,017 (4,804)
Income tax
expense
(benefit) 188 178 (3,011) 475 (2,264)
----------- ----------- ---------- ----------- ----------
Net income
(loss) $ 863 $ 981 $ (4,671) $ 2,542 $ (2,540)
=========== =========== ========== =========== ==========
Basic earnings
(loss) per
share $ .08 $ .09 $ (.44) $ .24 $ (.24)
Diluted earnings
(loss) per
share $ .08 $ .09 $ (.44) $ .24 $ (.24)
Weighted-average
common and
common share
equivalents
outstanding:
Basic 10,657,719 10,640,347 10,603,828 10,626,890 10,563,814
Diluted 10,707,163 10,721,909 10,695,719 10,701,072 10,674,247
CFS BANCORP, INC.
Consolidated Statements of Condition (Unaudited)
(Dollars in thousands)
September 30, June 30, December 31, September 30,
2010 2010 2009 2009
----------- ----------- ----------- -----------
ASSETS
Cash and amounts due
from depository
institutions $ 23,098 $ 22,232 $ 24,041 $ 22,040
Interest-bearing
deposits 29,120 9,411 387 261
----------- ----------- ----------- -----------
Cash and cash
equivalents 52,218 31,643 24,428 22,301
Investment securities
available-for-sale, at
fair value 210,717 190,893 188,781 205,877
Investment securities
held-to-maturity, at
cost 11,831 12,206 5,000 6,000
Investment in Federal
Home Loan Bank stock,
at cost 23,944 23,944 23,944 23,944
Loans receivable, net
of unearned fees 724,137 756,052 762,386 748,464
Allowance for loan
losses (17,485) (17,608) (19,461) (20,799)
----------- ----------- ----------- -----------
Net loans 706,652 738,444 742,925 727,665
Mortgage loans
held-for-sale, at fair
value 4,425 - - -
Accrued interest
receivable 3,315 3,486 3,469 3,614
Other real estate owned 24,211 11,825 9,242 7,421
Office properties and
equipment 20,611 20,383 20,382 20,612
Investment in
bank-owned life
insurance 35,273 35,060 34,575 36,662
Net deferred tax assets 17,130 17,568 18,036 16,997
Prepaid expenses and
other assets 9,152 9,828 10,733 7,327
----------- ----------- ----------- -----------
Total assets $ 1,119,479 $ 1,095,280 $ 1,081,515 $ 1,078,420
=========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits $ 929,856 $ 899,482 $ 849,758 $ 847,178
Borrowed funds 64,199 73,106 111,808 105,357
Advance payments by
borrowers for taxes
and insurance 5,952 4,186 4,322 7,349
Other liabilities 5,592 5,733 5,254 9,037
----------- ----------- ----------- -----------
Total liabilities 1,005,599 982,507 971,142 968,921
Shareholders' Equity:
Preferred stock, $0.01
par value; 15,000,000
shares authorized - - - -
Common stock, $0.01
par value; 85,000,000
shares authorized;
23,423,306 shares
issued; 10,851,724,
10,846,650,
10,771,061 and
10,773,173 shares
outstanding 234 234 234 234
Additional paid-in
capital 187,075 187,221 188,930 188,930
Retained earnings 82,783 82,028 80,564 78,675
Treasury stock, at
cost; 12,571,582,
12,576,656,
12,652,245 and
12,650,133 shares (155,022) (155,168) (157,041) (157,041)
Accumulated other
comprehensive loss,
net of tax (1,190) (1,542) (2,314) (1,299)
----------- ----------- ----------- -----------
Total shareholders'
equity 113,880 112,773 110,373 109,499
----------- ----------- ----------- -----------
Total liabilities
and shareholders'
equity $ 1,119,479 $ 1,095,280 $ 1,081,515 $ 1,078,420
=========== =========== =========== ===========
CFS BANCORP, INC.
Selected Financial Data (Unaudited)
(Dollars in thousands, except per share data)
September 30, June 30, December 31, September 30,
2010 2010 2009 2009
---------- ---------- ---------- ----------
Book value per share $ 10.49 $ 10.40 $ 10.25 $ 10.16
Shareholders' equity to
total assets 10.17% 10.30% 10.21% 10.15%
Tangible capital ratio
(Bank only) 8.91 9.05 8.88 8.63
Core capital ratio (Bank
only) 8.91 9.05 8.88 8.63
Risk-based capital ratio
(Bank only) 13.21 12.81 12.35 11.91
Common shares outstanding 10,851,724 10,846,650 10,771,061 10,773,173
Employees (FTE) 315 316 312 308
Number of branches 23 23 23 23
Three Months Ended Nine Months Ended
---------------------------------- ----------------------
September June September September September
30, 2010 30, 2010 30, 2009 30, 2010 30, 2009
---------- ---------- ---------- ---------- ----------
Average
Balance
Data:
Total
assets $1,111,642 $1,089,864 $1,089,110 $1,095,045 $1,101,028
Loans
receivable,
net of
unearned
fees 744,316 757,478 747,828 754,145 750,930
Interest-
earning
assets 997,279 987,801 996,382 989,290 1,013,786
Deposits 917,642 893,790 840,417 892,288 836,566
Interest-
bearing
deposits 829,988 804,876 771,076 802,247 770,647
Non-interest
bearing
deposits 87,654 88,914 69,341 90,041 65,919
Interest-
bearing
liabilities 899,682 878,660 887,298 882,260 906,786
Shareholders'
equity 113,145 111,844 115,411 112,061 113,155
Performance
Ratios
(annualized):
Return on
average
assets 0.31% 0.36% (1.70)% 0.31% (0.31)%
Return on
average
equity 3.03 3.52 (16.06) 3.03 (3.00)
Average
yield on
interest-
earning
assets 4.56 4.84 5.01 4.78 5.11
Average cost
of interest-
bearing
liabilities 1.14 1.18 1.43 1.17 1.60
Interest
rate spread 3.42 3.66 3.58 3.61 3.51
Net interest
margin 3.54 3.79 3.74 3.74 3.68
Non-interest
expense to
average
assets 3.37 3.53 3.73 3.48 3.60
Efficiency
ratio (1) 85.72 83.01 87.66 83.59 85.70
Cash dividends
declared per
share .01 .01 .01 .03 .03
Market price
per share of
common stock
for the period
ended:
Closing $ 4.56 $ 4.88 $ 4.68 $ 4.56 $ 4.68
High 4.92 6.24 4.68 6.24 4.80
Low 4.18 4.50 3.75 3.02 1.75
(1) The efficiency
ratio is calculated
by dividing
non-interest expense
by the sum of net
interest income and
non-interest income,
excluding net gain
on sales of investment
securities and other
assets.
CFS BANCORP, INC.
Reconciliation of Income (Loss) Before Income Taxes to Pre-Tax,
Pre-Provision Earnings from Core Operations
(Unaudited)
(Dollars in thousands)
Three Months Ended
----------------------------------------
September 30, June 30, September 30,
2010 2010 2009
------------ ------------ ------------
Income (loss) before income taxes $ 1,051 $ 1,159 $ (7,682)
Provision for loan losses 525 817 9,430
------------ ------------ ------------
Pre-tax, pre-provision earnings 1,576 1,976 1,748
Add back (subtract):
Net gain on sale of investment
securities - - (321)
Net (gain) loss on sale of other
assets (2) (11) 15
OREO related expense 479 262 1,343
Loan collection expense 156 153 290
Severance and early retirement
expense 88 437 -
------------ ------------ ------------
Pre-tax, pre-provision earnings
from core operations $ 2,297 $ 2,817 $ 3,075
============ ============ ============
Pre-tax, pre-provision earnings
from core operations
to average assets .82% 1.04% 1.12%
============ ============ ============
Nine Months Ended
----------------------------
September 30, September 30,
2010 2009
------------- -------------
Income (loss) before income taxes $ 3,017 $ (4,804)
Provision for loan losses 3,052 10,767
------------- -------------
Pre-tax, pre-provision earnings 6,069 5,963
Add back (subtract):
Net gain on sale of investment securities (456) (1,041)
Net (gain) loss on sale of other assets (14) 21
OREO related expense 1,377 1,754
Loan collection expense 478 818
Severance and early retirement expense 528 -
FDIC special insurance premium assessment - 495
------------- -------------
Pre-tax, pre-provision earnings from core
operations $ 7,982 $ 8,010
============= =============
Pre-tax, pre-provision earnings from core
operations to average assets .97% .97%
============= =============
The Company's accounting and reporting policies conform to U.S. generally
accepted accounting principles (GAAP) and general practice within the
banking industry. Management uses certain non-GAAP financial measures to
evaluate the Company's financial performance and has provided the non-GAAP
financial measures of pre-tax, pre-provision earnings from core operations
and pre-tax, pre-provision earnings from core operations to average assets.
In these non-GAAP financial measures, the provision for loan losses, OREO
related expense, loan collection expense, and certain other items, such as
gains and losses on sales of investment securities and other assets,
severance and early retirement expense, and FDIC special insurance premium
assessment are excluded from the determination of core operating results.
Management believes that these measures are useful because they provide a
more comparable basis for evaluating financial performance from core
operations period to period and allows us and others to assess the
Company's ability to generate earnings to cover credit costs. Although
these non-GAAP financial measures are intended to enhance investors
understanding of the Company's business performance, these should not be
considered as an alternative to GAAP.
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