For More Information: | NEWS RELEASE |
Gary F. Hoskins, CFO
(704) 884-2263
gary.hoskins@citizenssouth.com
FOR IMMEDIATE RELEASE
CITIZENS SOUTH BANKING CORPORATION ANNOUNCES EARNINGS OR THE FIRST QUARTER 2008
GASTONIA, NC, April 21, 2008 . . . . . 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 the Charlotte 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 the Charlotte, 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 in Rock Hill, South Carolina, during the first quarter of 2008. This additional office, our first in South Carolina, will be an integral part of our efforts to continue growing core deposits and market share in the Charlotte region. We believe that the ability to branch into York County, South Carolina brings an important strategic dimension to our franchise unavailable to many competitors serving the Charlotte 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 in Gastonia, 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, including Gaston, Iredell, Rowan, 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.
Kim S. Price
President and CEO
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.
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Important Tables Follow
Citizens South Banking Corporation Selected Financial Information (dollars in thousands, except per share data) |
| | | Quarter ended March 31, 2008 | | | Quarter ended March 31, 2007 | | | Year ended December 31, 2007 | | | Year ended December 31, 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 | |
| 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, |
| | | | | | | 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 | |
