707 Ridge Road l Munster, Indiana 46321 |
FOR IMMEDIATE RELEASE
CONTACT: Thomas F. Prisby, Chairman and Chief Executive Officer 219-513-5102
Daryl D. Pomranke, President and Chief Operating Officer 219-513-5150
Jerry A. Weberling, Executive Vice President and CFO 219-513-5103
CFS Bancorp, Inc. Announces Net Income for the Second Quarter of 2010
MUNSTER, IN – July 27, 2010 – CFS Bancorp, Inc. (the Company), (NASDAQ: CITZ), the parent of Citizens Financial Bank (the Bank), today reported net income of $981,000, or $0.09 per share, for the second quarter of 2010, compared to net income of $670,000, or $0.06 per share, for the second quarter of 2009.
The Company’s net income for the six months ended June 30, 2010 was $1.7 million, or $0.16 per diluted share, compared to $2.1 million, or $0.20 per share, for the six months ended June 30, 2009.
Financial highlights include:
| u | Pre-tax, pre-provision earnings from core operations totaled $2.8 million for the second quarter of 2010, compared to $2.9 million for the first quarter of 2010 and $2.5 million for the second quarter of 2009 1; |
| u | Net interest margin declined 11 basis points on a sequential quarter basis, although it increased to 3.79% from 3.69% for the second quarter of 2009, the tenth consecutive quarter of year over year improvement in the net interest margin; |
| u | Non-interest expense declined 3.4% for the second quarter of 2010 when compared to the second quarter of 2009; |
| u | Annualized year to date deposit growth was 11.7% from December 31, 2009; |
| u | Non-performing assets were relatively stable for the third consecutive quarter; and |
| u | Risk-based capital ratio improved to 12.81% from 12.35% at December 31, 2009. |
Chairman’s Comments
“Given the challenging economic environment in which we are operating, higher second quarter earnings represent another step in the right direction. Reported earnings were bolstered by our ongoing attention to costs. We are also encouraged by a second consecutive quarterly moderate decline in the level of non-performing loans, but remain cautious of a slowdown in the current regional recovery as we continue to focus on asset quality,” said Thomas F. Prisby, Chairman and CEO. “Furthermore, the small business sector has not yet regained its confidence in the economic recovery, and as a result, demand for loans and subsequent asset growth expectations remain tempered.”
CFS Bancorp, Inc. - Page 2 of 13
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 the clients’ financial service needs.
The Company employs a dual strategy in managing its loan portfolio. The Company continues to make progress in its efforts to reduce non-performing loans, seeking to either restructure specific non-performing credits or 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. Since peaking at 7.74% of total loans at December 31, 2009, the Company’s ratio of non-performing loans to total loans has decreased by 27 basis points at June 30, 2010. Overall, the economic outlook remains clouded. The Company anticipates that credit quality-costs, including the provision for loan losses, will continue to affect reported earnings even as management dilig ently works to reduce non-performing assets.
The Company remains strongly focused on its cost structure. Non-interest expense for the current quarter compared to the first quarter of 2010 increased $131,000, or 1.4%, and decreased $340,000, or 3.4%, compared to the prior year quarter. Non-interest expense on a sequential quarter basis was down $306,000, or 3.2%, after excluding $437,000 of separation and early retirement severance costs in the current quarter.
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 48.1% of the commercial loan portfolio at June 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 at their historical levels. The Company’s focus on deepening relationships has emphasized core deposit and relationship-oriented time deposit growth.
Pre-tax, Pre-Provision Earnings from Core Operations 1
The Company’s pre-tax, pre-provision earnings from core operations totaled $2.8 million for the second quarter of 2010 compared to $2.9 million for the first quarter of 2010 and increased 14.5% from $2.5 million for the second quarter of 2009. Pre-tax, pre-provision earnings from core operations for the second quarter of 2010 increased from the second quarter of 2009 due to decreases in compensation and employee benefits and net occupancy expense. These reductions were partially offset by an increase in professional fees and higher Federal Deposit Insurance Corporation (FDIC) insurance expense.
For the six months ended June 30, 2010, pre-tax, pre-provision earnings from core operations increased 15.2% to $5.7 million from $4.9 million for the six months ended June 30, 2009. The
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 13 in the attached tables.
CFS Bancorp, Inc. - Page 3 of 13
improvement was primarily due to higher net interest income and lower compensation and employee benefits expense, net occupancy expense, and marketing expenses, partially offset by an increase in professional fees related to the proxy contest.
Net Interest Income and Net Interest Margin
| | | QE 6/30/10 | | | QE 3/31/10 | | | QE 6/30/09 | |
| | | (Dollars in thousands) | |
| Net interest margin | | | 3.79 | % | | | 3.90 | % | | | 3.69 | % |
| Interest rate spread | | | 3.66 | | | | 3.76 | | | | 3.53 | |
| Net interest income | | $ | 9,329 | | | $ | 9,443 | | | $ | 9,335 | |
| Average assets: | | | | | | | | | | | | |
| Yield on interest-earning assets | | | 4.84 | % | | | 4.96 | % | | | 5.13 | % |
| Yield on loans receivable | | | 5.10 | | | | 5.16 | | | | 5.23 | |
| Yield on investment securities | | | 4.24 | | | | 4.54 | | | | 5.13 | |
| Average interest-earning assets | | $ | 987,801 | | | $ | 982,630 | | | $ | 1,014,576 | |
| Average liabilities: | | | | | | | | | | | | |
| Cost of interest-bearing liabilities | | | 1.18 | % | | | 1.20 | % | | | 1.60 | % |
| Cost of deposits | | | 1.07 | | | | 1.08 | | | | 1.41 | |
| Cost of borrowed funds | | | 2.34 | | | | 2.14 | | | | 2.72 | |
| Average interest-bearing liabilities | | $ | 878,660 | | | $ | 868,088 | | | $ | 909,148 | |
The net interest margin decreased 11 basis points to 3.79% for the second quarter of 2010 from 3.90% for the first quarter of 2010 and increased 10 basis points from 3.69% for the second quarter of 2009. Net interest income remained relatively stable during the second quarter of 2010 compared to the first quarter of 2010 and the second quarter of 2009. The net interest margin was negatively impacted compared to the first quarter of 2010 by lower yields on loans receivable and investment securities during the second quarter of 2010. The yield on loans receivable declined due to several large loan payoffs during 2010 along with the reduction in interest income related to new non-accrual loans. The yi eld on investment securities decreased due to reinvesting proceeds from maturing investment securities as market interest rates declined to new lows. The net interest margin for the second quarter of 2010 was favorably impacted by the downward repricing of certificates of deposit and borrowed funds when compared to the second quarter of 2009, which more than offset the impact of the decrease in the yield on investment securities.
Interest income remained flat for the second quarter of 2010 compared to the first quarter of 2010 and decreased 8.1% from $13.0 million for the second quarter of 2009 primarily due to lower yields earned on loans and investment securities available-for-sale and other interest-earning assets combined with a decrease in the average balance of available-for-sale securities from the second quarter of 2009.
Interest expense was stable at $2.6 million for the second quarter of 2010 compared to the first quarter of 2010 and decreased 28.8% from $3.6 million for the second quarter of 2009. Interest expense was positively affected by continued disciplined pricing on deposits, the repricing of certificates of deposit at lower interest rates, and a reduction in average balances of Federal Home Loan Bank (FHLB) borrowed funds. Interest expense for the second quarter of 2010 was also positively affected by a 37.8%
CFS Bancorp, Inc. - Page 4 of 13
increase in non-interest bearing deposit accounts from the second quarter of 2009, which allowed the Company to reduce its reliance on higher-cost wholesale funding.
Non-Interest Income and Non-Interest Expense
Excluding net gain on sale of investment securities, non-interest income increased $160,000, or 7.7%, from the first quarter of 2010 due to increased business analysis charges of $27,000, retail overdraft activity totaling $27,000, and loan fees totaling $40,000 related to renewed credit enhancements and new loan originations. Non-interest income, excluding net gain on sale of investment securities, increased $125,000, or 5.9%, from the second quarter of 2009 primarily due to higher income from the Company’s bank-owned life insurance policy as a result of the repositioning of the underlying investment portfolio in the fourth quarter of 2009 into higher yielding assets and the reduction in the face amount of insurance coverag e during the first quarter of 2010.
Non-interest expense for the second quarter of 2010 increased 1.4% to $9.6 million compared to $9.5 million for the first quarter of 2010 primarily due to $437,000 of separation and early retirement severance expense incurred during the second quarter of 2010 primarily due to the separation of the prior chief financial officer. Exclusive of these severance costs, non-interest expense decreased $306,000. In addition, the second quarter of 2010 included $151,000 of increased professional fees related to various corporate matters and the recently completed proxy contest and annual meeting. These increases were partially offset by reduced costs and valuation allowances totaling $374,000 related to other real esta te owned (OREO) properties.
Non-interest expense for the second quarter of 2010 decreased 3.4% to $9.6 million compared to $9.9 million for the second quarter of 2009. Efforts to control discretionary costs have resulted in significant reductions in certain non-interest expense categories. Excluding separation and early retirement severance costs of $437,000, compensation and employee benefits expense decreased $528,000 from the second quarter of 2009 due to $180,000 of reduced pension maintenance expense, $89,000 of lower incentive accruals, $40,000 of reduced medical benefit costs, and a decrease in full time equivalent employees (FTEs) from 318 at June 30, 2009 to 316 at June 30, 2010. In addition, net occupancy expense decreased $99,000 as the Bank vacated leased space during 2009 and more fully utilized space in existing buildings. Despite successful cost control initiatives, non-interest expense continues to be impacted by varying degrees of professional fees, OREO related expenses, and FDIC insurance premiums. Professional fees increased $231,000 during the second quarter of 2010 compared to the comparable 2009 quarter as a result of various corporate matters and costs associated with the recently completed proxy contest and annual meeting. OREO related expense increased $50,000 due to the establishment of additional valuation allowances during the second quarter of 2010. FDIC insurance premiums increased $99,000 primarily due to an increase in the average balance of deposits.
Income Tax Expense
Income tax expense totaled $178,000 in the current quarter, equal to an effective tax rate of 15.4%, compared to 16.7% reported in the second quarter of 2009. The decrease in the effective tax rate compared to the second quarter of last year was attributable to an increase in tax-advantaged bank owned life insurance investment income.
CFS Bancorp, Inc. - Page 5 of 13
Asset Quality
| | | 6/30/10 | | | 3/31/10 | | | 6/30/09 | |
| | | (Dollars in thousands) | |
| Non-performing loans (NPL) | | $ | 56,482 | | | $ | 57,816 | | | $ | 52,897 | |
| Non-performing assets (NPA) | | | 68,307 | | | | 68,432 | | | | 60,268 | |
| NPL / total loans | | | 7.47 | % | | | 7.57 | % | | | 7.04 | % |
| NPA / total assets | | | 6.24 | | | | 6.27 | | | | 5.51 | |
| Allowance for loan losses (ALL) | | $ | 17,608 | | | $ | 20,402 | | | $ | 14,934 | |
| ALL / total loans | | | 2.33 | % | | | 2.67 | % | | | 1.99 | % |
| ALL / NPL | | | 31.17 | | | | 35.29 | | | | 28.23 | |
| Provision for loan losses for the quarter ended | | $ | 817 | | | $ | 1,710 | | | $ | 713 | |
| Net charge-offs for the quarter ended | | | 3,611 | | | | 769 | | | | 1,251 | |
Net charge-offs during the current quarter included $2.6 million of non-owner occupied commercial real estate loans primarily due to a $2.3 million partial charge-off that had been previously identified as a specific impairment reserve related to a purchased participation loan. Net charge-offs during the current quarter also included a partial charge-off of $696,000 related to a purchased participation commercial land development loan and $224,000 in charge-offs of one-to-four family residential loans. The decrease in the provision for loan losses in the current quarter compared to the first quarter is due to the stabilization in the level of non-performing loans and the change in the loan portfolio mix as the higher ri sk targeted contraction portfolios of commercial construction and land development and non-owner occupied commercial real estate loans continue to decrease as a percentage of the portfolio.
The ratio of allowance for loan losses to total loans decreased to 2.33% at June 30, 2010 compared to 2.67% at March 31, 2010 as a result of the aforementioned charge-off that had previously been identified through an impairment reserve. 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 $12.1 million recorded on $24.7 million of collateral dependent non-performing loans through June 30, 2010 and impairment reserves totaling $7.5 million on other non-performing loans at June 30, 2010.
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Balance Sheet and Capital
| | | 6/30/10 | | | 3/31/10 | | | 12/31/09 | |
| | | (Dollars in thousands) | |
| Assets: | | | | | | | | | |
| Total assets | | $ | 1,095,280 | | | $ | 1,092,127 | | | $ | 1,081,515 | |
| Loans receivable, net of unearned fees | | | 756,052 | | | | 763,767 | | | | 762,386 | |
| Investment securities | | | 203,099 | | | | 189,005 | | | | 193,781 | |
| | | | | | | | | | | | | |
| Liabilities and Equity: | | | | | | | | | | | | |
| Total liabilities | | | 982,507 | | | | 980,934 | | | | 971,142 | |
| Deposits | | | 899,482 | | | | 887,137 | | | | 849,758 | |
| Borrowed funds | | | 73,106 | | | | 83,440 | | | | 111,808 | |
| Shareholders’ equity | | | 112,773 | | | | 111,193 | | | | 110,373 | |
Loans Receivable
| | | 6/30/10 | | | 3/31/10 | | | 12/31/09 | |
| | | Amount | | | % of Total | | | Amount | | | % of Total | | | Amount | | | % of Total | |
| | | (Dollars in thousands) | |
| Commercial loans: | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 70,208 | | | | 9.3 | % | | $ | 75,713 | | | | 9.9 | % | | $ | 78,600 | | | | 10.3 | % |
| Commercial real estate – owner occupied | | | 95,989 | | | | 12.7 | | | | 100,083 | | | | 13.1 | | | | 99,559 | | | | 13.1 | |
Commercial real estate – non-owner occupied | | | 214,452 | | | | 28.4 | | | | 217,491 | | | | 28.5 | | | | 218,329 | | | | 28.6 | |
Commercial real estate – multifamily | | | 79,382 | | | | 10.5 | | | | 70,767 | | | | 9.3 | | | | 63,008 | | | | 8.3 | |
Commercial construction and land development | | | 50,951 | | | | 6.7 | | | | 53,081 | | | | 6.9 | | | | 55,733 | | | | 7.3 | |
Total commercial loans | | | 510,982 | | | | 67.6 | | | | 517,135 | | | | 67.7 | | | | 515,229 | | | | 67.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Retail loans: | | | | | | | | | | | | | | | | | | | | | | | | |
One-to-four family residential | | | 183,823 | | | | 24.3 | | | | 185,253 | | | | 24.3 | | | | 185,293 | | | | 24.3 | |
Home equity lines of credit | | | 56,016 | | | | 7.4 | | | | 56,029 | | | | 7.3 | | | | 56,911 | | | | 7.5 | |
Retail construction and land development | | | 3,513 | | | | 0.5 | | | | 4,034 | | | | 0.5 | | | | 3,401 | | | | 0.4 | |
Other | | | 1,718 | | | | 0.2 | | | | 1,316 | | | | 0.2 | | | | 1,552 | | | | 0.2 | |
Total retail loans | | | 245,070 | | | | 32.4 | | | | 246,632 | | | | 32.3 | | | | 247,157 | | | | 32.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total loans receivable, net of unearned fees | | $ | 756,052 | | | | 100.0 | % | | $ | 763,767 | | | | 100.0 | % | | $ | 762,386 | | | | 100.0 | % |
Total loan fundings during the six months ended June 30, 2010 were $31.5 million, which were more than offset by loan payoffs and repayments of $29.4 million, gross charge-offs of $4.5 million, and transfers to OREO of $4.0 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 48.1% of the commercial loan portfolio at June 30, 2010. Dur ing 2010, these targeted segments were impacted by loan payoffs including two commercial and industrial payoffs totaling $5.5 million and a commercial real estate – owner occupied payoff totaling $3.2 million. Since December 31, 2009, commercial
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construction and land development and non-owner occupied commercial real estate loans decreased by $8.7 million, or 3.2%.
Deposits
| | | 6/30/10 | | | 3/31/10 | | | 12/31/09 | |
| | | (Dollars in thousands) | |
| Core deposits: | | | | | | | | | |
Non-interest bearing checking | | $ | 84,137 | | | $ | 97,735 | | | $ | 89,261 | |
Interest bearing checking | | | 105,107 | | | | 104,856 | | | | 106,013 | |
Money market accounts | | | 145,533 | | | | 144,216 | | | | 136,411 | |
Savings accounts | | | 119,029 | | | | 118,121 | | | | 113,865 | |
Subtotal core deposits | | | 453,806 | | | | 464,928 | | | | 445,550 | |
| Certificates of deposit | | | 392,639 | | | | 370,454 | | | | 354,401 | |
Subtotal non-municipal deposits | | | 846,445 | | | | 835,382 | | | | 799,951 | |
| Municipal core deposits | | | 40,206 | | | | 40,758 | | | | 38,993 | |
| Municipal certificates of deposit | | | 12,831 | | | | 10,997 | | | | 10,814 | |
Subtotal municipal deposits | | | 53,037 | | | | 51,755 | | | | 49,807 | |
| Total deposits | | $ | 899,482 | | | $ | 887,137 | | | $ | 849,758 | |
The Company has had success in growing deposits through many channels including enhancing our brand recognition within our communities, offering attractive deposit products, bringing in new client relationships by meeting all of their banking needs, and holding our experienced sales team accountable for growing deposits and relationships. The decrease in the Company’s core deposits in the current quarter was primarily due to a $14.7 million reduction in the balances of a large commercial customer. Excluding this decrease, core deposits increased $3.6 million from March 31, 2010. 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 successful marketing efforts 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
| | | 6/30/10 | | | 3/31/10 | | | 12/31/09 | |
| | | (Dollars in thousands) | |
Short-term variable-rate borrowed funds and repurchase agreements | | $ | 13,684 | | | $ | 14,978 | | | $ | 24,299 | |
| FHLB borrowed funds | | | 59,422 | | | | 68,462 | | | | 87,509 | |
| Total borrowed funds | | $ | 73,106 | | | $ | 83,440 | | | $ | 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.
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Shareholders’ Equity
Shareholders’ equity at June 30, 2010 was $112.8 million compared to $110.4 million at December 31, 2009. The increase was primarily due to $1.7 million of net income for the year to date period and a decrease in the unrealized loss on investment securities available-for-sale, net of tax of $772,000, offset by cash dividends declared of $218,000, or $0.02 per share.
At June 30, 2010, the Company’s tangible common equity was $112.8 million, or 10.30% of tangible assets compared to $110.4 million, or 10.21% of tangible assets at December 31, 2009. At June 30, 2010, the Bank’s tangible, core, and risk-based capital ratios exceeded “minimum” and “well- capitalized” regulatory capital requirements.
Results for the Six Months Ended June 30, 2010
Diluted earnings per share totaled $0.16 for the six months ended June 30, 2010 compared to $0.20 for the 2009 period. For the six months ended June 30, 2010, net income totaled $1.7 million compared to $2.1 million for the 2009 period.
Net interest income increased to $18.8 million for the six months ended June 30, 2010 from $18.5 million for the comparable 2009 period. The 19 basis point improvement in the net interest margin to 3.84% compared to the prior year period was partially offset by a 3.7% decline in the average balance of interest-earning assets.
The provision for loan losses for the six months ended June 30, 2010 was $2.5 million compared to $1.3 million for the comparable 2009 period. The provision for the 2009 period benefited from a $1.3 million decrease in the specific valuation reserve on a non-owner occupied commercial real estate loan based on improved cash flow projections.
Non-interest income totaled $4.8 million for the six months ended June 30, 2010 compared to $5.1 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 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 1.5% to $19.1 million for the six months ended June 30, 2010 from $19.4 million for the comparable 2009 period. The Company’s successful cost control initiatives resulted in decreases in almost all operating expense categories including a 10.1% reduction in compensation and employee benefits. These operating expense improvements were partially offset by higher professional fees related to certain corporate matters including the current year’s proxy contest and OREO related expenses which were primarily related to the establishment of additional valuation reserves and higher maintenance expenses.
Income tax expense totaled $287,000 during the six months ended June 30, 2010 which equals an effective tax rate of 14.6%, compared to $747,000, or 26.0%, reported for the 2009 period. The decrease in the effective tax rate compared to the previous year was attributable in part due to an increase in income from tax advantaged BOLI investments and the larger impact of low-income housing credits in combination with the lower pre-tax income in the 2010 period.
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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 Southland 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 our core market area, reduction of discretionary costs and cost savings initiatives, levels of non-discretionary co sts, 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. - Page 10 of 13
| CFS BANCORP, INC. |
| Consolidated Statements of Income (Unaudited) |
| (Dollars in thousands, except per share data) |
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30, 2010 | | | March 31, 2010 | | | June 30, 2009 | | | June 30, 2010 | | | June 30, 2009 | |
| Interest income: | | | | | | | | | | | | | | | |
| Loans | | $ | 9,626 | | | $ | 9,678 | | | $ | 9,807 | | | $ | 19,304 | | | $ | 19,752 | |
| Investment securities | | | 2,163 | | | | 2,213 | | | | 3,020 | | | | 4,376 | | | | 6,063 | |
| Other | | | 123 | | | | 124 | | | | 137 | | | | 247 | | | | 380 | |
| Total interest income | | | 11,912 | | | | 12,015 | | | | 12,964 | | | | 23,927 | | | | 26,195 | |
| | | | | | | | | | | | | | | | | | | | | |
| Interest expense: | | | | | | | | | | | | | | | | | | | | |
| Deposits | | | 2,146 | | | | 2,053 | | | | 2,749 | | | | 4,199 | | | | 5,845 | |
| Borrowed funds | | | 437 | | | | 519 | | | | 880 | | | | 956 | | | | 1,840 | |
| Total interest expense | | | 2,583 | | | | 2,572 | | | | 3,629 | | | | 5,155 | | | | 7,685 | |
| Net interest income | | | 9,329 | | | | 9,443 | | | | 9,335 | | | | 18,772 | | | | 18,510 | |
| Provision for loan losses | | | 817 | | | | 1,710 | | | | 713 | | | | 2,527 | | | | 1,337 | |
| Net interest income after provision for loan losses | | | 8,512 | | | | 7,733 | | | | 8,622 | | | | 16,245 | | | | 17,173 | |
| | | | | | | | | | | | | | | | | | | | | |
| Non-interest income: | | | | | | | | | | | | | | | | | | | | |
| Service charges and other fees | | | 1,320 | | | | 1,220 | | | | 1,376 | | | | 2,540 | | | | 2,675 | |
| Card-based fees | | | 486 | | | | 437 | | | | 432 | | | | 923 | | | | 820 | |
| Commission income | | | 46 | | | | 54 | | | | 70 | | | | 100 | | | | 141 | |
| Net gain on sale of investment securities | | | – | | | | 456 | | | | – | | | | 456 | | | | 720 | |
| Net gain (loss) on sale of other assets | | | 11 | | | | 1 | | | | (6 | ) | | | 12 | | | | (6 | ) |
| Income from bank-owned life insurance | | | 262 | | | | 223 | | | | 156 | | | | 485 | | | | 334 | |
| Other income | | | 125 | | | | 155 | | | | 97 | | | | 280 | | | | 392 | |
| Total non-interest income | | | 2,250 | | | | 2,546 | | | | 2,125 | | | | 4,796 | | | | 5,076 | |
| | | | | | | | | | | | | | | | | | | | | |
| Non-interest expense: | | | | | | | | | | | | | | | | | | | | |
| Compensation and employee benefits | | | 4,550 | | | | 4,669 | | | | 5,078 | | | | 9,219 | | | | 10,253 | |
| Net occupancy expense | | | 651 | | | | 755 | | | | 750 | | | | 1,406 | | | | 1,647 | |
| Professional fees | | | 835 | | | | 684 | | | | 604 | | | | 1,519 | | | | 954 | |
| Furniture and equipment expense | | | 526 | | | | 533 | | | | 520 | | | | 1,059 | | | | 1,055 | |
| FDIC insurance premiums | | | 567 | | | | 498 | | | | 468 | | | | 1,065 | | | | 772 | |
| Data processing | | | 443 | | | | 430 | | | | 420 | | | | 873 | | | | 839 | |
| Marketing | | | 216 | | | | 114 | | | | 218 | | | | 330 | | | | 416 | |
| OREO related expense | | | 262 | | | | 636 | | | | 212 | | | | 898 | | | | 411 | |
| Loan collection expense | | | 153 | | | | 169 | | | | 230 | | | | 322 | | | | 528 | |
| Severance and early retirement costs | | | 437 | | | | 3 | | | | – | | | | 440 | | | | – | |
| FDIC special assessment | | | – | | | | – | | | | 495 | | | | – | | | | 495 | |
| Other | | | 963 | | | | 981 | | | | 948 | | | | 1,944 | | | | 2,001 | |
| Total non-interest expense | | | 9,603 | | | | 9,472 | | | | 9,943 | | | | 19,075 | | | | 19,371 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income before income taxes | | | 1,159 | | | | 807 | | | | 804 | | | | 1,966 | | | | 2,878 | |
| Income tax expense | | | 178 | | | | 109 | | | | 134 | | | | 287 | | | | 747 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 981 | | | $ | 698 | | | $ | 670 | | | $ | 1,679 | | | $ | 2,131 | |
| | | | | | | | | | | | | | | | | | | | | |
| Basic earnings per share | | $ | 0.09 | | | $ | 0.07 | | | $ | 0.06 | | | $ | 0.16 | | | $ | 0.20 | |
| Diluted earnings per share | | $ | 0.09 | | | $ | 0.07 | | | $ | 0.06 | | | $ | 0.16 | | | $ | 0.20 | |
| | | | | | | | | | | | | | | | | | | | | |
| Weighted-average common and common share | | | | | | | | | | | | | | | | | | | | |
| equivalents outstanding: | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 10,640,347 | | | | 10,581,770 | | | | 10,590,591 | | | | 10,611,220 | | | | 10,543,475 | |
| Diluted | | | 10,721,909 | | | | 10,673,776 | | | | 10,697,387 | | | | 10,697,976 | | | | 10,663,333 | |
CFS Bancorp, Inc. - Page 11 of 13
| CFS BANCORP, INC. |
| Consolidated Statements of Condition (Unaudited) |
| (Dollars in thousands) |
| | | | | | | | | | | | | |
| | | June 30, 2010 | | | March 31, 2010 | | | December 31, 2009 | | | June 30, 2009 | |
| | | | | | | | | | | | | |
| ASSETS | | | | | | | | | | | | |
| Cash and amounts due from depository institutions | | $ | 22,232 | | | $ | 26,170 | | | $ | 24,041 | | | $ | 20,553 | |
| Interest-bearing deposits | | | 9,411 | | | | 12,851 | | | | 387 | | | | 36 | |
| Federal funds sold | | | – | | | | – | | | | – | | | | 234 | |
| Cash and cash equivalents | | | 31,643 | | | | 39,021 | | | | 24,428 | | | | 20,823 | |
| | | | | | | | | | | | | | | | | |
| Investment securities available-for-sale, at fair value | | | 190,893 | | | | 184,005 | | | | 188,781 | | | | 220,324 | |
| Investment securities held-to-maturity, at cost | | | 12,206 | | | | 5,000 | | | | 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 | | | 756,052 | | | | 763,767 | | | | 762,386 | | | | 750,861 | |
| Allowance for loan losses | | | (17,608 | ) | | | (20,402 | ) | | | (19,461 | ) | | | (14,934 | ) |
| Net loans | | | 738,444 | | | | 743,365 | | | | 742,925 | | | | 735,927 | |
| | | | | | | | | | | | | | | | | |
| Accrued interest receivable | | | 3,486 | | | | 3,478 | | | | 3,469 | | | | 3,902 | |
| Other real estate owned | | | 11,825 | | | | 10,616 | | | | 9,242 | | | | 7,371 | |
| Office properties and equipment | | | 20,383 | | | | 20,128 | | | | 20,382 | | | | 19,703 | |
| Investment in bank-owned life insurance | | | 35,060 | | | | 34,797 | | | | 34,575 | | | | 36,449 | |
| Net deferred tax assets | | | 17,568 | | | | 17,817 | | | | 18,036 | | | | 14,726 | |
| Prepaid expenses and other assets | | | 9,828 | | | | 9,956 | | | | 10,733 | | | | 5,510 | |
| Total assets | | $ | 1,095,280 | | | $ | 1,092,127 | | | $ | 1,081,515 | | | $ | 1,094,679 | |
| | | | | | | | | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | |
| Deposits | | $ | 899,482 | | | $ | 887,137 | | | $ | 849,758 | | | $ | 831,104 | |
| Borrowed funds | | | 73,106 | | | | 83,440 | | | | 111,808 | | | | 132,302 | |
| Advance payments by borrowers for taxes and insurance | | | 4,186 | | | | 4,815 | | | | 4,322 | | | | 6,121 | |
| Other liabilities | | | 5,733 | | | | 5,542 | | | | 5,254 | | | | 9,702 | |
| Total liabilities | | | 982,507 | | | | 980,934 | | | | 971,142 | | | | 979,229 | |
| | | | | | | | | | | | | | | | | |
| 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; 10,846,650, 10,819,635, 10,771,061 and | | | | | | | | | | | | | |
| 10,764,458 shares outstanding | | | 234 | | | | 234 | | | | 234 | | | | 234 | |
| Additional paid-in capital | | | 187,221 | | | | 188,740 | | | | 188,930 | | | | 189,004 | |
| Retained earnings | | | 82,028 | | | | 81,156 | | | | 80,564 | | | | 83,455 | |
| Treasury stock, at cost; 12,576,656, 12,603,671, 12,652,245 and | | | | | | | | | | | | | |
| 12,658,848 shares | | | (155,168 | ) | | | (156,852 | ) | | | (157,041 | ) | | | (157,508 | ) |
| Accumulated other comprehensive income (loss), net of tax | | | (1,542 | ) | | | (2,085 | ) | | | (2,314 | ) | | | 265 | |
| Total shareholders' equity | | | 112,773 | | | | 111,193 | | | | 110,373 | | | | 115,450 | |
| | | | | | | | | | | | | | | | | |
| Total liabilities and shareholders' equity | | $ | 1,095,280 | | | $ | 1,092,127 | | | $ | 1,081,515 | | | $ | 1,094,679 | |
CFS Bancorp, Inc. - Page 12 of 13
| CFS BANCORP, INC. |
| Selected Financial Data (Unaudited) |
| (Dollars in thousands, except per share data) |
| | | | | | | | | | | | | | | | | |
| | | | | | | June 30, 2010 | | March 31, 2010 | | December 31, 2009 | | June 30, 2009 |
| | | | | | | | | | | | | | | | | |
| Book value per share | | | | | | $ | 10.40 | | | $ | 10.28 | | | $ | 10.25 | | | $ | 10.73 | |
| Shareholders' equity to total assets | | | | | | | 10.30 | % | | | 10.18 | % | | | 10.21 | % | | | 10.55 | % |
| Tangible capital ratio (Bank only) | | | | | | | 9.05 | | | | 8.92 | | | | 8.88 | | | | 9.53 | |
| Core capital ratio (Bank only) | | | | | | | 9.05 | | | | 8.92 | | | | 8.88 | | | | 9.53 | |
| Risk-based capital ratio (Bank only) | | | | | | | 12.81 | | | | 12.63 | | | | 12.35 | | | | 13.21 | |
| Common shares outstanding | | | | | | | 10,846,650 | | | | 10,819,635 | | | | 10,771,061 | | | | 10,764,458 | |
| Employees (FTE) | | | | | | | 316 | | | | 310 | | | | 312 | | | | 318 | |
| Number of branches | | | | | | | 23 | | | | 23 | | | | 23 | | | | 22 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Six Months Ended |
| | | | June 30, 2010 | | March 31, 2010 | | June 30, 2009 | | June 30, 2010 | | June 30, 2009 |
| Average Balance Data: | | | | | | | | | | | | | | | | | | | | |
| Total assets | | | $ | 1,089,864 | | | $ | 1,083,314 | | | $ | 1,099,750 | | | $ | 1,086,607 | | | $ | 1,107,087 | |
| Loans receivable, net of unearned fees | | | 757,478 | | | | 760,822 | | | | 751,957 | | | | 759,141 | | | | 752,508 | |
| Interest-earning assets | | | | 987,801 | | | | 982,630 | | | | 1,014,576 | | | | 985,230 | | | | 1,022,634 | |
| Deposits | | | | 893,790 | | | | 864,850 | | | | 845,617 | | | | 879,400 | | | | 834,611 | |
| Interest-bearing deposits | | | | 804,876 | | | | 771,230 | | | | 781,108 | | | | 788,146 | | | | 770,431 | |
| Non-interest bearing deposits | | | | 88,914 | | | | 93,620 | | | | 64,509 | | | | 91,254 | | | | 64,180 | |
| Interest-bearing liabilities | | | | 878,660 | | | | 868,088 | | | | 909,148 | | | | 873,404 | | | | 916,694 | |
| Shareholders' equity | | | | 111,844 | | | | 111,181 | | | | 111,573 | | | | 111,514 | | | | 112,008 | |
| Performance Ratios (annualized): | | | | | | | | | | | | | | | | | | | | | |
| Return on average assets | | | | 0.36 | % | | | 0.26 | % | | | 0.24 | % | | | 0.31 | % | | | 0.39 | % |
| Return on average equity | | | | 3.52 | | | | 2.55 | | | | 2.41 | | | | 3.04 | | | | 3.84 | |
| Average yield on interest-earning assets | | | 4.84 | | | | 4.96 | | | | 5.13 | | | | 4.90 | | | | 5.17 | |
| Average cost of interest-bearing liabilities | | | 1.18 | | | | 1.20 | | | | 1.60 | | | | 1.19 | | | | 1.69 | |
| Interest rate spread | | | | 3.66 | | | | 3.76 | | | | 3.53 | | | | 3.71 | | | | 3.48 | |
| Net interest margin | | | | 3.79 | | | | 3.90 | | | | 3.69 | | | | 3.84 | | | | 3.65 | |
| Non-interest expense to average assets | | | 3.53 | | | | 3.55 | | | | 3.63 | | | | 3.54 | | | | 3.53 | |
| Efficiency ratio (1) | | | | 83.01 | | | | 82.14 | | | | 86.72 | | | | 82.58 | | | | 84.69 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Cash dividends declared per share | | | | 0.01 | | | | 0.01 | | | | 0.01 | | | | 0.02 | | | | 0.02 | |
| Market price per share of common stock | | | | | | | | | | | | | | | | | |
| for the period ended: | | | | | | | | | | | | | | | | | | | | | |
| | Closing | | $ | 4.88 | | | $ | 4.43 | | | $ | 4.23 | | | $ | 4.88 | | | $ | 4.23 | |
| | High | | | 6.24 | | | | 4.99 | | | | 4.33 | | | | 6.24 | | | | 4.80 | |
| | Low | | | 4.50 | | | | 3.02 | | | | 3.50 | | | | 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. - Page 13 of 13
| CFS BANCORP, INC. |
| Reconciliation of Income Before Income Taxes to Pre-Tax, Pre-Provision Earnings from Core Operations |
| (Unaudited) |
| (Dollars in thousands) |
| | | | | | | | | | |
| | | Three Months Ended |
| | | June 30, 2010 | | March 31, 2010 | | June 30, 2009 |
| | | | | | | | | | |
| Income before income taxes | | $ | 1,159 | | | $ | 807 | | | $ | 804 | |
| Provision for loan losses | | | 817 | | | | 1,710 | | | | 713 | |
| Pre-tax, pre-provision earnings | | | 1,976 | | | | 2,517 | | | | 1,517 | |
| | | | | | | | | | | | | |
| Add back (subtract): | | | | | | | | | | | | |
| Net gain on sale of investment securities | | | – | | | | (456 | ) | | | – | |
| Net (gain) loss on sale of other assets | | | (11 | ) | | | (1 | ) | | | 6 | |
| OREO related expense | | | 262 | | | | 636 | | | | 212 | |
| Loan collection expense | | | 153 | | | | 169 | | | | 230 | |
| Severance and early retirement expense | | | 437 | | | | 3 | | | | – | |
| Special assessment - FDIC insurance | | | – | | | | – | | | | 495 | |
| | | | | | | | | | | | | |
| Pre-tax, pre-provision earnings from core operations | | $ | 2,817 | | | $ | 2,868 | | | $ | 2,460 | |
| | | | | | | | | | | | | |
| Pre-tax, pre-provision earnings from core operations | | | | | | | | | | | | |
| to average assets | | | 1.03 | % | | | 1.06 | % | | | 0.89 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | Six Months Ended |
| | | | | | | June 30, 2010 | | June 30, 2009 |
| | | | | | | | | | | | | |
| Income before income taxes | | | | | | $ | 1,966 | | | $ | 2,878 | |
| Provision for loan losses | | | | | | | 2,527 | | | | 1,337 | |
| Pre-tax, pre-provision earnings | | | | | | | 4,493 | | | | 4,215 | |
| | | | | | | | | | | | | |
| Add back (subtract): | | | | | | | | | | | | |
| Net gain on sale of investment securities | | | | | | | (456 | ) | | | (720 | ) |
| Net (gain) loss on sale of other assets | | | | | | | (12 | ) | | | 6 | |
| OREO related expense | | | | | | | 898 | | | | 411 | |
| Loan collection expense | | | | | | | 322 | | | | 528 | |
| Severance and early retirement expense | | | | | | | 440 | | | | – | |
| Special assessment - FDIC insurance | | | | | | | – | | | | 495 | |
| | | | | | | | | | | | | |
| Pre-tax, pre-provision earnings from core operations | | | | | | $ | 5,685 | | | $ | 4,935 | |
| | | | | | | | | | | | | |
| Pre-tax, pre-provision earnings from core operations | | | | | | | | | | | | |
| to average assets | | | | | | | 1.05 | % | | | 0.89 | % |
| | | | | | | | | | | | | |
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 special assessment for FDIC insurance, are excluded f rom 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.
