For More Information: Gary F. Hoskins, CFO (704) 884-2263 gary.hoskins@citizenssouth.com | | NEWS RELEASE |
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| | | FOR IMMEDIATE RELEASE |
CITIZENS SOUTH BANKING CORPORATION ANNOUNCES STABLE EARNINGS AND STRONG ASSET QUALITY
FOR THE FOURTH QUARTER OF 2007
GASTONIA, NC, January 28, 2008. . . . . Citizens South Banking Corporation (Nasdaq: CSBC), the holding company for Citizens South Bank, announced that net income for the quarter ended December 31, 2007, amounted to$1.3 million, or $0.18 per diluted share, compared to $1.5 million, or $0.18 per diluted share, for the quarter ended December 31, 2006. Net income for the twelve-month period ended December 31, 2007, amounted to $5.7 million, or$0.73 per diluted share, compared to $5.5 million, or $0.67 per diluted share for the twelve-month period ended December 31, 2006. Net operating income, as calculated in the table that follows this release, for the comparable twelve month periods amounted to $5.5 million, or $0.70 per diluted share, in 2007 and $5.4 million, or $0.67 per diluted share, in 2006. This represented an increase of $0.03 per diluted share, or 4.5%, for the comparable twelve-month periods.
Credit Quality Remains Strong
Credit quality continues to compare favorably with industry peers and has improved on both an annual basis and a linked-quarter basis. Nonperforming assets totaled 0.30% of total assets at December 31, 2007, compared to 0.42% of total assets at December 31, 2006. Also, nonperforming loans to total loans totaled 0.32% at December 31, 2007, compared to 0.58% at December 31, 2006. Both of these ratios also show improvement on a linked-quarter basis with 0.42% nonperforming loans and 0.46% nonperforming assets at September 30, 2007. In addition, during the past year, reserves for loan losses increased from $5.8 million at December 31, 2006, to $6.1 million, at December 31, 2007. The current reserve for loan losses amounts to 1.10% of total loans, compared to 1.12% of total loans at the end of 2006. Net charge-offs amounted to $479,000 for the fourth quarter of 2007 compared to $96,000 for the fourth quarter of 2006. The increase in charge-offs during the fourth quarter of 2007 was primarily due to one credit relationship with a local operating company that has now been completely charged-off the books of the Bank.
The Company has not been an originator or purchaser of option adjustable rate or "no documentation" portfolio mortgage loans and the portfolio does not include any mortgage loans that the Company classifies as sub-prime.
Steady Loan Growth in the Fourth Quarter
While the Charlotte, North Carolina region remains vibrant compared to most of the country, housing starts have slowed and demand for commercial real estate has moderated. During 2007, gross loans increased by $44.6 million, or 8.6%, including $12.0 million of loan growth during the fourth quarter compared to growth of $12.2 million in the third quarter 2007. Loan pricing for borrowers with experience, strong balance sheets, and excellent credit remain highly competitive. However, the Company continues to focus on quality over volume which may result in moderate loan growth and tighter net interest margins during the first half of 2008.
Deposit Growth
During 2007, core deposits, which include demand deposits, money market deposit accounts and savings accounts, increased by $19.5 million, or 8.7%. Core deposit growth was strong in the fourth quarter of 2007, amounting to $13.3 million. This was due in part to growth in commercial deposit accounts resulting from a renewed focus on treasury services. Also during 2007, total deposits increased by $28.0 million, or 5.0%. The Company continues to actively market the Company's core deposit products at pricing points that are considered profitable to the Company and is experiencing deposit growth in spite of aggressive deposit pricing in the market place.
Margin Compression on a Linked-Quarter Basis
During the fourth quarter of 2007, the tax-equivalent net interest margin amounted to 3.01%, compared to 3.13% for the third quarter 2007. While the Company maintained a relatively neutral interest rate position on an annual basis, the Federal Reserve Board’s actions to lower the federal funds rate have a more pronounced negative impact in the first three months following a decrease in interest rates. The short-term negative effects of decreases in interest rates are mostly offset by time deposits that mature over the next twelve months and reprice at a lower cost to the Company.
Noninterest Operating Income and Expense Trends
During the comparable fourth quarter periods, noninterest operating income, as calculated in the following tables, decreased by $30,000, or 1.9%, to $1.5 million. This was primarily attributable to moderate decreases in fee income generated on loan and deposit products, which were partly offset by increases in mortgage banking fees and cash value increases on bank-owned life insurance.
While noninterest operating expense increased slightly from $4.3 million for the quarter ended December 31, 2006, to $4.4 million for the quarter ended December 31, 2007, the ratio of noninterest operating expense to average assets improved from 2.33% to 2.30% for the comparable quarters. The primary reason for the improvement in our noninterest expense ratio was the addition of several experienced loan production personnel during 2007 who contributed to the Company's steady loan growth and have proven to be efficient generators of quality asset growth.
In making the announcement, Kim S. Price, President and CEO, stated, "We are especially proud to be able to continue our positive credit quality measures and sustain our level of EPS during this time of turmoil and uncertainty in the financial markets. We are fortunate to operate in the continually positive Charlotte geographic region that shows little of the stresses demonstrated in other markets nationally. We believe our opportunities for continued market gains are excellent due to the generally favorable local economy and competitive changes in the Charlotte market created by recent bank mergers."
General Information
Headquartered in Gastonia, North Carolina, Citizens South Bank was founded in 1904. Deposits are FDIC insured. At December 31, 2007, the Bank had approximately $779 million in assets with 14 full-service offices in the Charlotte region, including Gaston, Iredell, Rowan, and Union counties in North Carolina, and three loan production offices in Mecklenburg and Union counties in North Carolina, and York 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, 2006, describe some of these factors.
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Important Tables Follow
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Citizens South Banking Corporation Selected Financial Information (dollars in thousands, except per share data) | | | | | | | | | | | | | |
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| | | | Quarter ended December 31, 2007 (unaudited) | | | Quarter ended December 31, 2006 | | | Twelve months ended December 31, 2007 (unaudited) | | | Twelve months ended December 31, 2006 | |
Reconciliation of GAAP to non-GAAP Measures: Net income, as reported (GAAP) | | $ | 1,327 | | $ | 1,483 | | $ | 5,665 | | $ | 5,455 | |
| Non-operating items: | | | | | | | | | | | | | |
| (Gain)/ loss on sale of assets, net | | | 13 | | | (109 | ) | | (323 | ) | | (69 | ) |
| Impairment of investments | | | - | | | - | | | 162 | | | - | |
| Merger and integration related expense | | | - | | | - | | | - | | | 57 | |
| Insurance proceeds, net | | | - | | | - | | | (112 | ) | | - | |
| Related income taxes, excl. ins. proceeds (39%) | | | (5 | ) | | 43 | | | 63 | | | 5 | |
Net Operating Income | | $ | 1,335 | | $ | 1,417 | | $ | 5,455 | | $ | 5,448 | |
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Noninterest income, as reported (GAAP) | | $ | 1,511 | | $ | 1,715 | | $ | 6,562 | | $ | 6,140 | |
| Non-operating items: | | | | | | | | | | | | | |
| (Gain)/ loss on sale of assets, net | | | 13 | | | (109 | ) | | (323 | ) | | 69 | |
| Fair value adjustment on deferred comp assets | | | (12 | ) | | (64 | ) | | (122 | ) | | (207 | ) |
| Insurance proceeds, net | | | - | | | - | | | (112 | ) | | - | |
Noninterest Operating Income | | $ | 1,512 | | $ | 1,542 | | $ | 6,005 | | $ | 6,002 | |
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Noninterest expense, as reported (GAAP) | | $ | 4,439 | | $ | 4,329 | | $ | 17,895 | | $ | 17,544 | |
| Non-operating items: | | | | | | | | | | | | | |
| Impairment of investments | | | - | | | - | | | (162 | ) | | - | |
| Fair value adjustment on deferred comp assets | | | (12 | ) | | (64 | ) | | (122 | ) | | (207 | ) |
| Merger and integration related expenses | | | - | | | - | | | - | | | (57 | ) |
Noninterest Operating Expense | | $ | 4,427 | | $ | 4,265 | | $ | 17,611 | | $ | 17,280 | |
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Per Share Data: | | | | | | | | | | | | | |
| Average common shares outstanding, basic | | | 7,513,151 | | | 7,949,884 | | | 7,688,595 | | | 8,017,956 | |
| Basic net income - GAAP | | $ | 0.18 | | $ | 0.19 | | $ | 0.74 | | $ | 0.68 | |
| Basic net income - Operating | | | 0.18 | | | 0.18 | | | 0.71 | | | 0.68 | |
| Average common shares outstanding, diluted | | | 7,570,671 | | | 8,025,559 | | | 7,754,599 | | | 8,095,276 | |
| Diluted net income - GAAP | | $ | 0.18 | | $ | 0.18 | | $ | 0.73 | | $ | 0.67 | |
| Diluted net income - Operating | | | 0.18 | | | 0.18 | | | 0.70 | | | 0.67 | |
| Cash dividends declared | | $ | 0.08 | | $ | 0.075 | | $ | 0.32 | | $ | 0.30 | |
| Period-end book value | | | 11.05 | | | 10.61 | | | 11.05 | | | 10.61 | |
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Financial Ratios (annualized): | | | | | | | | | | | | | |
| Return on average stockholders’ equity - GAAP | | | 6.24 | % | | 6.86 | % | | 6.68 | % | | 6.41 | % |
| Return on avg. stockholders’ equity - Operating | | | 6.28 | | | 6.55 | | | 6.43 | | | 6.41 | |
| Return on average assets - GAAP | | | 0.68 | % | | 0.80 | % | | 0.75 | % | | 0.76 | % |
| Return on average assets - Operating | | | 0.69 | | | 0.77 | | | 0.72 | | | 0.76 | |
| Efficiency ratio - GAAP | | | 68.04 | % | | 63.29 | % | | 66.78 | % | | 65.51 | % |
| Efficiency ratio - Operating | | | 67.84 | | | 63.97 | | | 67.12 | | | 65.19 | |
| Net interest margin (tax equivalent) | | | 3.01 | % | | 3.21 | % | | 3.15 | % | | 3.34 | % |
| Average equity to average assets | | | 10.95 | | | 11.70 | | | 11.26 | | | 11.86 | |
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Asset Quality Data: | | | | | | | | | | | | | |
| Allowance for loan losses | | $ | 6,144 | | $ | 5,764 | | $ | 6,144 | | $ | 5,764 | |
| Nonperforming loans | | | 1,815 | | | 3,011 | | | 1,815 | | | 3,011 | |
| Nonperforming assets | | | 2,344 | | | 3,150 | | | 2,344 | | | 3,150 | |
| Net charge-offs | | | 479 | | | 96 | | | 911 | | | 505 | |
| Net charge-offs to average loans | | | 0.09 | % | | 0.02 | % | | 0.17 | % | | 0.10 | % |
| Allowance for loan losses to total loans | | | 1.10 | | | 1.12 | | | 1.10 | | | 1.12 | |
| Nonperforming loans to total loans | | | 0.32 | | | 0.58 | | | 0.32 | | | 0.58 | |
| Nonperforming assets to total assets | | | 0.30 | | | 0.42 | | | 0.30 | | | 0.42 | |
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Average Balances: | | | | | | | | | | | | | |
| Total assets | | $ | 770,338 | | $ | 733,153 | | $ | 753,085 | | $ | 716,934 | |
| Loans receivable, net of unearned income | | | 550,255 | | | 509,717 | | | 526,913 | | | 493,324 | |
| Interest-earning assets | | | 680,975 | | | 641,624 | | | 660,490 | | | 622,793 | |
| Deposits | | | 581,086 | | | 556,778 | | | 575,302 | | | 535,935 | |
| Interest-bearing liabilities | | | 635,601 | | | 599,622 | | | 618,126 | | | 586,809 | |
| Stockholders’ equity | | | 84,362 | | | 85,774 | | | 84,783 | | | 85,035 | |
| | | | | | | | | | | | | | |
At Period End: | | | | | | | | | | | | | |
| Total assets | | $ | 779,140 | | $ | 743,370 | | $ | 779,140 | | $ | 743,370 | |
| Loans receivable, net of unearned income | | | 559,956 | | | 515,402 | | | 559,956 | | | 515,402 | |
| Interest-earning assets | | | 690,007 | | | 647,048 | | | 690,007 | | | 647,048 | |
| Deposits | | | 590,765 | | | 562,802 | | | 590,765 | | | 562,802 | |
| Interest-bearing liabilities | | | 643,478 | | | 611,004 | | | 643,478 | | | 611,004 | |
| Stockholders’ equity | | | 84,033 | | | 85,961 | | | 84,033 | | | 85,961 | |
Citizens South Banking Corporation
Consolidated Statements of Financial Condition
(dollars in thousands)
| | | | December 31, | | | December 31, | |
| | | | 2007 | | | 2006 | |
| | | | | | | | |
ASSETS | | | | | | | |
| | | | | | | | |
| Cash and due from banks | | $ | 14,285 | | $ | 17,581 | |
| Interest-earning bank balances | | | 15,454 | | | 8,640 | |
| Cash and cash equivalents | | | 29,739 | | | 26,221 | |
| Investment securities available-for-sale, at fair value | | | 46,519 | | | 65,326 | |
| Mortgage-backed securities available-for-sale, at fair value | | | 69,893 | | | 60,691 | |
| Loans receivable, net unearned income | | | 559,956 | | | 515,402 | |
| Allowance for loan losses | | | (6,144 | ) | | (5,764 | ) |
| Loans receivable, net | | | 553,812 | | | 509,638 | |
| Real estate acquired through foreclosure, net | | | 529 | | | 139 | |
| Premises and equipment, net | | | 17,965 | | | 18,287 | |
| Accrued interest receivable | | | 3,254 | | | 3,236 | |
| Federal Home Loan Bank stock, at cost | | | 4,236 | | | 3,581 | |
| Intangible assets | | | 31,037 | | | 31,666 | |
| Bank owned life insurance | | | 16,099 | | | 15,527 | |
| Other assets | | | 6,057 | | | 9,058 | |
| | | | | | | | |
Total assets | | $ | 779,140 | | $ | 743,370 | |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | |
| | | | | | | | |
Liabilities: | | | | | | | |
| Demand deposit accounts | | $ | 101,981 | | $ | 90,540 | |
| Money market deposit accounts | | | 129,688 | | | 117,632 | |
| Savings accounts | | | 12,037 | | | 16,027 | |
| Time deposits | | | 347,059 | | | 338,603 | |
| Total deposits | | | 590,765 | | | 562,802 | |
| Borrowed money | | | 96,284 | | | 85,964 | |
| Deferred compensation | | | 5,389 | | | 5,724 | |
| Other liabilities | | | 2,669 | | | 2,919 | |
| Total liabilities | | | 695,107 | | | 657,409 | |
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Stockholders' Equity: | | | | | | | |
| Preferred stock, 10,000,000 authorized, none issued | | | - | | | - | |
| Common stock issued and outstanding, $0.01 par value, 20,000,000 shares | | | | | | | |
| authorized, 9,062,727 issued at December 31, 2007, and December 31, 2006, | | | | | | | |
| and 7,606,532 shares outstanding at December 31, 2007, and 8,111,659 shares | | | | | | | |
| outstanding at December 31, 2006 | | | 91 | | | 91 | |
| Additional paid-in-capital | | | 68,683 | | | 68,578 | |
| Unallocated common stock held by Employee Stock Ownership Plan | | | (1,247 | ) | | (1,430 | ) |
| Unearned compensation related to Recognition and Retention Plan | | | (965 | ) | | (1,139 | ) |
| Retained earnings, substantially restricted | | | 36,028 | | | 33,031 | |
| Accumulated unrealized loss on securities available-for-sale, net of tax | | | (343 | ) | | (991 | ) |
| Treasury stock of 1,456,195 shares at December 31, 2007, and 951,068 shares | | | | | | | |
| at December 31, 2006 | | | (18,214 | ) | | (12,179 | ) |
| Total stockholders’ equity | | | 84,033 | | | 85,961 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 779,140 | | $ | 743,370 | |
Citizens South Banking Corporation
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
| | | | Three Months Ended December 31, | | | Twelve Months Ended December 31, | |
| | | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | | | | | | | | | | | | | |
Interest income | | | | | | | | | | | | | |
| Loans | | $ | 10,348 | | $ | 9,946 | | $ | 40,679 | | $ | 37,447 | |
| Investment securities | | | 600 | | | 539 | | | 2,670 | | | 1,997 | |
| Interest-bearing deposits | | | 105 | | | 351 | | | 447 | | | 838 | |
| Mortgage-backed and related securities | | | 789 | | | 610 | | | 2,939 | | | 2,637 | |
| Total interest income | | | 11,842 | | | 11,446 | | | 46,735 | | | 42,919 | |
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Interest Expense | | | | | | | | | | | | | |
| Deposits | | | 5,643 | | | 5,300 | | | 22,315 | | | 18,103 | |
| Borrowed funds | | | 1,186 | | | 1,021 | | | 4,185 | | | 4,176 | |
| Total interest expense | | | 6,829 | | | 6,321 | | | 26,500 | | | 22,279 | |
| | | | | | | | | | | | | | |
| Net interest income | | | 5,013 | | | 5,125 | | | 20,235 | | | 20,640 | |
| Provision for loan losses | | | 330 | | | 300 | | | 1,290 | | | 1,165 | |
| Net interest income after provision for loan losses | | | 4,683 | | | 4,825 | | | 18,945 | | | 19,475 | |
| | | | | | | | | | | | | | |
Noninterest Income | | | | | | | | | | | | | |
| Fee income on deposit accounts | | | 696 | | | 699 | | | 2,722 | | | 2,856 | |
| Fee income on mortgage banking activities | | | 242 | | | 232 | | | 990 | | | 638 | |
| Fee income on lending activities | | | 125 | | | 186 | | | 484 | | | 645 | |
| Dividends on FHLB stock | | | 62 | | | 53 | | | 212 | | | 221 | |
| Increase in cash value of bank-owned life insurance | | | 192 | | | 182 | | | 769 | | | 762 | |
| Fair value adjustment on deferred compensation assets | | | 12 | | | 64 | | | 122 | | | 207 | |
| Life insurance proceeds, net | | | - | | | - | | | 112 | | | - | |
| Net gain / (loss) on sale of assets | | | (13 | ) | | 109 | | | 323 | | | 69 | |
| Other noninterest income | | | 195 | | | 190 | | | 828 | | | 743 | |
| Total noninterest income | | | 1,511 | | | 1,715 | | | 6,562 | | | 6,141 | |
| | | | | | | | | | | | | | |
Noninterest Expense | | | | | | | | | | | | | |
| Compensation and benefits | | | 2,439 | | | 2,326 | | | 9,606 | | | 9,187 | |
| Fair value adjustment on deferred compensation obligation | | | 12 | | | 64 | | | 122 | | | 207 | |
| Occupancy and equipment expense | | | 647 | | | 624 | | | 2,648 | | | 2,614 | |
| Professional services | | | 141 | | | 130 | | | 544 | | | 550 | |
| Amortization of intangible assets | | | 146 | | | 176 | | | 629 | | | 734 | |
| Impairment of investments | | | - | | | - | | | 162 | | | - | |
| Merger and integration related expenses | | | - | | | - | | | - | | | 57 | |
| Other noninterest expenses | | | 1,054 | | | 1,009 | | | 4,184 | | | 4,195 | |
| Total noninterest expense | | | 4,439 | | | 4,329 | | | 17,895 | | | 17,544 | |
| | | | | | | | | | | | | | |
| Income before income taxes | | | 1,755 | | | 2,211 | | | 7,612 | | | 8,072 | |
| | | | | | | | | | | | | | |
| Provision for income taxes | | | 428 | | | 728 | | | 1,947 | | | 2,617 | |
| | | | | | | | | | | | | | |
Net income | | $ | 1,327 | | $ | 1,483 | | $ | 5,665 | | $ | 5,455 | |
| | | | | | | | | | | | | | |
Basic earnings per share | | $ | 0.18 | | $ | 0.19 | | $ | 0.74 | | $ | 0.68 | |
Diluted earnings per share | | $ | 0.18 | | $ | 0.18 | | $ | 0.73 | | $ | 0.67 | |
| | | | | | | | | | | | | | |
Basic average common shares outstanding | | | 7,513,151 | | | 7,949,884 | | | 7,688,595 | | | 8,017,956 | |
Diluted average common shares outstanding | | | 7,570,671 | | | 8,025,559 | | | 7,754,599 | | | 8,095,276 | |
