For More Information: | PRESS RELEASE | |
| Gary F. Hoskins, CFO | ||
| (704) 884-2263 | ||
| gary.hoskins@citizenssouth.com | ||
| FOR IMMEDIATE RELEASE |
CITIZENS SOUTH BANKING CORPORATION ANNOUNCES SOLID EARNINGS AND POSITIVE ASSET QUALITY TRENDS FOR THE THIRD QUARTER OF 2008
GASTONIA, NC, October 20, 2008 . . . . . Citizens South Banking Corporation (NASDAQ: CSBC), the holding company for Citizens South Bank, reported that net income for the quarter ended September 30, 2008, amounted to $822,000, or $0.11 per diluted share, compared to $1.3 million, or $0.18 per diluted share, for the quarter ended September 30, 2007. This represents a decrease of 39.0% and 38.9%, respectively, compared to the same quarter last year.
Operating income (as calculated in the attached table) for the quarter ended September 30, 2008, totaled $1.1 million, or $0.15 per diluted share, excluding a $285,000 after-tax other-than-temporary impairment and an $8,000 after-tax net gain on the sale of assets. Operating income for the quarter ended September 30, 2007, totaled $1.3 million, or $0.18 per diluted share. This represents a decrease of 18.5% and 16.7%, respectively, compared to the same quarter last year.
Solid Credit Quality Ratios
The Company’s credit quality continued to compare favorably with industry peers and has improved on a linked-quarter basis as shown below:
| June 30, 2008 | September 30, 2008 | ||||||
| Nonperforming loans / total loans | 0.64% | 0.53% | |||||
| Nonperforming assets / total assets | 0.56% | 0.55% | |||||
| Nonperforming loans / total assets | 0.75% | 0.72% | |||||
| Net charge-offs / average loans | 0.07% | 0.07% | |||||
| Allowance for loan losses / total loans | 1.12% | 1.12% | |||||
Management attributes the Company’s credit quality to its conservative underwriting practices and market discipline. 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 classified as “sub-prime.” Also, the relative price stability of the residential real estate market and generally healthy economy in the Charlotte region has contributed to our success in avoiding significant problems in the quality of our loan portfolio.
Margin Expansion on a Linked-Quarter Basis
The Company’s fully taxable equivalent net interest margin expanded by 11 basis points on a linked-quarter basis to 3.02% as the Company’s cost of funds continued to reprice at lower interest rates. This marks the largest linked quarter margin expansion by the Company over the past two years.
Strong Loan Growth
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 $23.6 million, or 15.0% annualized, during the three-month period ended September 30, 2008. This loan growth was sparked by the addition of several new lenders and additional opportunities arising as a result of several bank mergers in our market. The Company experienced loan growth in every category of loan type except for construction loans, which decreased by $11.3 million, or 11.5%. Management expects that loan growth will soften for the remainder of 2008 and well into 2009. However, we expect to make market share gains in selective asset categories as a result of the market disruptions stemming from a number of recently completed and announced mergers in the Charlotte market.
Stable Deposit Portfolio
Total outstanding deposits amounted to $584.9 million at September 30, 2008, which was comparable to the deposit balance at June 30, 2008. During the third quarter of 2008, checking account balances remained flat, after experiencing strong growth in the second quarter of 2008. Management continues to focus on increasing the Company’s number of retail and commercial accounts through employee incentives and enhanced treasury management services. The Company experienced an $8.5 million, or 7.3%, decline in money market accounts due to intense market competition. This decrease was offset by a $9.0 million increase in time deposits. The moderate level of deposit growth was largely attributable to the Company’s continued disciplined approach to deposit pricing and strong liquidity position. The Company will continue to actively market deposit products at pricing points that are determined to be economically favorable by the Company.
Noninterest Income and Expense
Noninterest operating income (as defined in the tables that follow) improved by $9,000 from the third quarter of 2007 to the third quarter of 2008. This improvement was largely due to increased fee income on deposit accounts resulting from the increased number of demand deposit accounts over the past year. Noninterest operating expense (as defined in the tables that follow) increased by $187,000, or 4.2%, during the comparable third quarter periods. This increase was primarily due to increased staffing levels related to the opening of a new full-service office in Rock Hill, South Carolina in the first quarter of 2008.
Other-than-Temporary Impairment
During the third quarter of 2008, management evaluated the Company’s investment portfolio and determined that an impairment on a $1.0 million pooled trust preferred security was “other-than-temporary.” A fair value evaluation of the security by an independent third party determined that the after-tax “other-than-temporary” impairment of the security was $285,000. As a result, this amount was charged against current quarter earnings.
In making the earnings announcement, Kim S. Price, President and CEO, stated “Citizens South Bank continues to perform favorably at a time when our industry is under substantial pressure. 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 during unprecedented market turbulence. These actions have positioned us to endure difficult economic times and to excel when our industry and economy normalizes.”
General Information
Headquartered in Gastonia, North Carolina, Citizens South Bank was founded in 1904. Deposits are FDIC insured up to applicable regulatory limits. At September 30, 2008, the Bank had approximately $823 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.
-END-
Important Tables Follow
# # #
Citizens South Banking Corporation Selected Financial Information | |||||||||||||
(dollars in thousands, except per share data) | Quarter ended September 30, 2008 | Quarter ended September 30, 2007 | Nine Months ended September 30, 2008 | Nine Months ended September 30, 2007 | |||||||||
Reconciliation of GAAP to non-GAAP Measures: Net income, as reported (GAAP) | $ | 822 | $ | 1,349 | $ | 2,654 | $ | 4,338 | |||||
| Non-operating items (net of 39% tax): | |||||||||||||
| (Gain)/ loss on sale of assets, net | (8 | ) | - | (167 | ) | (205 | ) | ||||||
| Reorganization & merger/integration expenses | - | - | 134 | - | |||||||||
| Impairment of investments | 285 | - | 285 | 99 | |||||||||
| Insurance proceeds, net | - | - | - | (112 | ) | ||||||||
Net Operating Income | $ | 1,099 | $ | 1,349 | $ | 2,906 | $ | 4,120 | |||||
Noninterest income, as reported (GAAP) | $ | 1,492 | $ | 1,534 | $ | 4,765 | $ | 5,051 | |||||
| Non-operating items: | |||||||||||||
| (Gain)/ loss on sale of assets, net | (14 | ) | - | (275 | ) | (336 | ) | ||||||
| Fair value adjustment on deferred comp assets | 12 | (52 | ) | 64 | (110 | ) | |||||||
| Insurance proceeds, net | - | - | - | (112 | ) | ||||||||
Noninterest Operating Income | $ | 1,490 | $ | 1,482 | $ | 4,554 | $ | 4,493 | |||||
Noninterest expense, as reported (GAAP) | $ | 5,145 | $ | 4,554 | $ | 14,729 | $ | 13,456 | |||||
| Non-operating items: | |||||||||||||
| Impairment of investments | (468 | ) | - | (468 | ) | (162 | ) | ||||||
| Fair value adjustment on deferred comp assets | 12 | (52 | ) | 64 | (110 | ) | |||||||
| Reorganization & merger/integration expenses | - | - | (220 | ) | - | ||||||||
Noninterest Operating Expense | $ | 4,689 | $ | 4,502 | $ | 14,105 | $ | 13,184 | |||||
Per Share Data: | |||||||||||||
| Average common shares outstanding, basic | 7,358,086 | 7,627,620 | 7,380,236 | 7,748,605 | |||||||||
| Basic net income - GAAP | $ | 0.11 | $ | 0.18 | $ | 0.36 | $ | 0.56 | |||||
| Basic net income - Operating | 0.15 | 0.18 | 0.39 | 0.53 | |||||||||
| Average common shares outstanding, diluted | 7,386,513 | 7,691,722 | 7,414,274 | 7,817,438 | |||||||||
| Diluted net income - GAAP | $ | 0.11 | $ | 0.18 | $ | 0.36 | $ | 0.55 | |||||
| Diluted net income - Operating | 0.15 | 0.18 | 0.39 | 0.53 | |||||||||
| Cash dividends declared | $ | 0.085 | $ | 0.08 | $ | 0.255 | $ | 0.24 | |||||
| Period-end book value | 11.02 | 10.86 | 11.02 | 10.86 | |||||||||
Financial Ratios (annualized): | |||||||||||||
| Return on average stockholders’ equity - GAAP | 3.97 | % | 6.37 | % | 4.25 | % | 6.83 | % | |||||
| Return on avg. stockholders’ equity - Operating | 5.30 | 6.35 | 4.66 | 6.49 | |||||||||
| Return on average assets - GAAP | 0.40 | % | 0.70 | % | 0.45 | % | 0.78 | % | |||||
| Return on average assets - Operating | 0.53 | 0.70 | 0.49 | 0.74 | |||||||||
| Efficiency ratio - GAAP | 74.85 | % | 68.61 | % | 74.22 | % | 66.37 | % | |||||
| Efficiency ratio - Operating | 68.03 | 68.61 | 71.51 | 67.06 | |||||||||
| Net interest margin (tax equivalent) | 3.02 | % | 3.13 | % | 2.96 | % | 3.19 | % | |||||
| Total equity to total assets | 10.06 | 11.12 | 10.06 | 11.12 | |||||||||
| Tangible equity to tangible assets | 6.59 | 7.29 | 6.59 | 7.29 | |||||||||
Asset Quality Data: | |||||||||||||
| Allowance for loan losses | $ | 7,027 | $ | 6,292 | $ | 7,027 | $ | 6,292 | |||||
| Nonperforming loans | 3,335 | 2,528 | 3,335 | 2,528 | |||||||||
| Nonperforming assets | 4,549 | 3,164 | 4,549 | 3,164 | |||||||||
| Net charge-offs | 449 | 135 | 932 | 432 | |||||||||
| Net charge-offs to average loans | 0.07 | % | 0.02 | % | 0.16 | % | 0.08 | % | |||||
| Allowance for loan losses to total loans | 1.12 | 1.15 | 1.12 | 1.15 | |||||||||
| Nonperforming loans to total loans | 0.53 | 0.46 | 0.53 | 0.46 | |||||||||
| Nonperforming assets to total assets | 0.55 | 0.42 | 0.55 | 0.42 | |||||||||
| Nonperforming assets to total loans | 0.72 | 0.58 | 0.72 | 0.58 | |||||||||
Average Balances: | |||||||||||||
| Total assets | $ | 817,613 | $ | 759,132 | $ | 794,066 | $ | 746,974 | |||||
| Loans receivable, net of unearned income | 615,755 | 532,902 | 590,554 | 519,132 | |||||||||
| Interest-earning assets | 724,679 | 668,671 | 700,135 | 653,662 | |||||||||
| Deposits | 581,162 | 579,141 | 579,810 | 573,374 | |||||||||
| Interest-bearing liabilities | 685,823 | 625,128 | 659,411 | 612,301 | |||||||||
| Stockholders’ equity | 82,478 | 83,984 | 83,685 | 83,984 | |||||||||
At Period End: | |||||||||||||
| Total assets | $ | 823,030 | $ | 760,987 | $ | 823,030 | $ | 760,987 | |||||
| Loans receivable, net of unearned income | 621,469 | 548,026 | 621,469 | 548,026 | |||||||||
| Interest-earning assets | 732,683 | 676,874 | 732,683 | 676,874 | |||||||||
| Deposits | 584,928 | 572,114 | 584,928 | 572,114 | |||||||||
| Interest-bearing liabilities | 691,600 | 628,084 | 691,600 | 628,084 | |||||||||
| Stockholders’ equity | 82,827 | 84,378 | 82,827 | 84,378 | |||||||||
Citizens South Banking Corporation
Consolidated Statements of Financial Condition
(dollars in thousands)
September 30, 2008 | December 31, 2007 | ||||||
(unaudited) | |||||||
ASSETS | |||||||
| Cash and cash equivalents | 13,924 | 29,739 | |||||
| Investment securities available-for-sale, at fair value | 26,512 | 46,519 | |||||
| Mortgage-backed securities available-for-sale, at fair value | 81,010 | 69,893 | |||||
| Loans receivable, net unearned income | 628,496 | 559,956 | |||||
| Allowance for loan losses | (7,027 | ) | (6,144 | ) | |||
| Loans receivable, net | 621,469 | 553,812 | |||||
| Real estate acquired through foreclosure, net | 1,214 | 529 | |||||
| Premises and equipment, net | 17,334 | 17,965 | |||||
| Accrued interest receivable | 2,621 | 3,254 | |||||
| Federal Home Loan Bank stock, at cost | 5,355 | 4,236 | |||||
| Intangible assets | 30,635 | 31,037 | |||||
| Bank owned life insurance | 16,635 | 16,099 | |||||
| Other assets | 6,321 | 6,057 | |||||
Total assets | $ | 823,030 | $ | 779,140 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities: | |||||||
| Demand deposit accounts | $ | 114,318 | $ | 101,981 | |||
| Money market deposit accounts | 107,555 | 129,688 | |||||
| Savings accounts | 11,288 | 12,037 | |||||
| Time deposits | 351,767 | 347,059 | |||||
| Total deposits | 584,928 | 590,765 | |||||
| Borrowed money | 147,518 | 96,284 | |||||
| Deferred compensation | 5,407 | 5,389 | |||||
| Other liabilities | 2,350 | 2,669 | |||||
| Total liabilities | 740,203 | 695,107 | |||||
Stockholders' Equity: | |||||||
| Common stock issued and outstanding, $0.01 par value, 20,000,000 shares | |||||||
| authorized, 9,062,727 issued at September 30, 2008, and December 31, 2007, | |||||||
| and 7,516,816 shares outstanding at September 30, 2008, and 7,610,017 shares | |||||||
| outstanding at December 31, 2007 | 91 | 91 | |||||
| Additional paid-in-capital | 68,726 | 67,718 | |||||
| Unallocated common stock held by Employee Stock Ownership Plan | (1,110 | ) | (1,247 | ) | |||
| Retained earnings, substantially restricted | 34,895 | 36,028 | |||||
| Accumulated unrealized loss on securities available-for-sale, net of tax | (1,442 | ) | (343 | ) | |||
| Treasury stock of 1,545,911 shares at September 30, 2008, and 1,452,710 shares | |||||||
| at December 31, 2007 | (18,333 | ) | (18,214 | ) | |||
| Total stockholders’ equity | 82,827 | 84,033 | |||||
Total liabilities and stockholders’ equity | $ | 823,030 | $ | 779,140 | |||
Citizens South Banking Corporation
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
2008 | 2007 | 2008 | 2007 | ||||||||||
Interest Income: | |||||||||||||
| Loans | $ | 9,416 | $ | 10,377 | $ | 28,160 | $ | 30,331 | |||||
| Investment securities | 358 | 710 | 1,127 | 2,070 | |||||||||
| Interest-bearing deposits | 13 | 73 | 149 | 342 | |||||||||
| Mortgage-backed and related securities | 1,019 | 783 | 2,825 | 2,150 | |||||||||
| Total interest income | 10,806 | 11,943 | 32,261 | 34,893 | |||||||||
Interest Expense: | |||||||||||||
| Deposits | 3,997 | 5,741 | 13,397 | 16,672 | |||||||||
| Borrowed funds | 1,427 | 1,099 | 3,783 | 2,999 | |||||||||
| Total interest expense | 5,424 | 6,840 | 17,180 | 19,671 | |||||||||
| Net interest income | 5,382 | 5,103 | 15,081 | 15,222 | |||||||||
| Provision for loan losses | 720 | 300 | 1,815 | 960 | |||||||||
| Net interest income after provision for loan losses | 4,662 | 4,803 | 13,266 | 14,262 | |||||||||
Noninterest Income: | |||||||||||||
| Fee income on deposit accounts | 802 | 680 | 2,256 | 2,026 | |||||||||
| Mortgage banking income | 169 | 239 | 650 | 749 | |||||||||
| Income on lending activities | 84 | 116 | 297 | 358 | |||||||||
| Dividends on FHLB stock | 40 | 53 | 168 | 149 | |||||||||
| Increase in cash value of bank-owned life insurance | 195 | 191 | 571 | 578 | |||||||||
| Fair value adjustment on deferred compensation assets | (12 | ) | 52 | (65 | ) | 110 | |||||||
| Life insurance proceeds, net | - | - | - | 112 | |||||||||
| Net gain on sale of assets | 14 | - | 275 | 336 | |||||||||
| Other noninterest income | 200 | 203 | 613 | 633 | |||||||||
| Total noninterest income | 1,492 | 1,534 | 4,765 | 5,051 | |||||||||
Noninterest Expense: | |||||||||||||
| Compensation and benefits | 2,565 | 2,461 | 7,665 | 7,167 | |||||||||
| Fair value adjustment on deferred comp. obligations | (12 | ) | 52 | (64 | ) | 110 | |||||||
| Occupancy and equipment expense | 662 | 661 | 2,012 | 2,001 | |||||||||
| Professional services | 201 | 127 | 639 | 403 | |||||||||
| Amortization of intangible assets | 126 | 156 | 402 | 483 | |||||||||
| Reorganization expenses | - | - | 220 | - | |||||||||
| Impairment of securities | 468 | - | 468 | 162 | |||||||||
| Other noninterest expense | 1,135 | 1,097 | 3,388 | 3,130 | |||||||||
| Total noninterest expense | 5,145 | 4,554 | 14,730 | 13,456 | |||||||||
| Income before income taxes | 1,009 | 1,783 | 3,301 | 5,857 | |||||||||
| Provision for income taxes | 187 | 434 | 647 | 1,519 | |||||||||
Net income | $ | 822 | $ | 1,349 | $ | 2,654 | $ | 4,338 | |||||
Net income per common share: | |||||||||||||
| Basic | $ | 0.11 | $ | 0.18 | $ | 0.36 | $ | 0.56 | |||||
| Diluted | $ | 0.11 | $ | 0.18 | $ | 0.36 | $ | 0.55 | |||||
Weighted average common shares outstanding: | |||||||||||||
| Basic | 7,358,086 | 7,627,620 | 7,380,236 | 7,748,605 | |||||||||
| Diluted | 7,386,513 | 7,691,722 | 7,414,274 | 7,817,438 | |||||||||