CFS Bancorp (CITZ) 8-K CFS Bancorp, Inc. Reports Third Quarter Financial Results

CFS Bancorp, Inc.

707 Ridge Road l Munster, Indiana 46321

FOR IMMEDIATE RELEASE

CONTACT:    Thomas F. Prisby, Chairman and Chief Executive Officer                                219-836-2960

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. Reports Third Quarter Financial Results

MUNSTER, IN – October 26, 2011 – CFS Bancorp, Inc. (the Company), (NASDAQ: CITZ), the parent of Citizens Financial Bank (the Bank), today reported net income of $394,000, or $.04 per diluted share, for the third quarter of 2011, compared to net income of $863,000, or $.08 per diluted share, for the third quarter of 2010.  The Company’s net income for the nine months ended September 30, 2011 was $2.1 million, or $.20 per diluted share, compared to $2.5 million, or $.24 per share for the nine months ended September 30, 2010.

Financial results for the quarter include:

u   Other real estate owned decreased $4.0 million, or 18.8%, during the quarter to $17.2 million compared to $21.2 million at June 30, 2011;

u   Non-performing assets decreased to $76.5 million compared to $78.4 million at June 30, 2011;

u   Provision for loan losses increased to $2.7 million from $1.0 million for the second quarter of 2011 and $525,000 for the third quarter of 2010 due to a higher level of net charge-offs in the current quarter;

u   Core deposits increased to $596.8 million, to 60.5% of total deposits, compared to $570.6 million, or 59.2% of total deposits, at June 30, 2011;

u   Net interest margin decreased to 3.39% in the third quarter of 2011 from 3.59% in the second quarter of 2011 and 3.54% in the third quarter of 2010; and

u   The Bank’s risk-based capital ratio increased to 13.57% from 13.29% at June 30, 2011.

Chairman’s Comments

 “This is our eighth consecutive quarter of positive earnings,” said Thomas F. Prisby, Chairman and CEO.  “As we build our liquidity and maintain high cash balances earning a minimal return, our margin continues to be negatively impacted.  We are positioning the Bank to continue to grow earning assets as the opportunities for loan quantity and quality emerge.”

“Our funding quality and core deposits continue to strengthen as we continue to expand and deepen our commercial and retail relationships,” continued Prisby.  “We have renewed our efforts to expand income opportunities, and more importantly, reduce operating expenses without impacting the quality of our products and services.”

CFS Bancorp, Inc. ­– Page 2 of 13

“The reduction in non-performing assets continues as our highest priority.  Significant progress is being made by Daryl Pomranke, President and Chief Operating Officer, and the Asset Management team,” added Prisby.  “We continually evaluate all opportunities to reduce non-performing assets in a cost efficient manner.  We sold our largest other real estate owned parcel carried at $6.7 million at a small gain during the quarter.”

Progress on Strategic Growth and Diversification Plan

The Company continues to focus its efforts on reducing the level of non-performing loans, seeking to either restructure specific non-performing credits or foreclose, obtain title, and transfer the loan to other real estate owned where we can take control of and liquidate the underlying collateral.  The Company’s ratio of non-performing loans to total loans increased to 8.18% at September 30, 2011 from 7.76% at June 30, 2011, which was related to an increase in non-accruing non-owner occupied commercial real estate loans and lower total outstanding loans.  This was partially offset by transfers to other real estate owned during the quarter.  The non-performing assets ratio to total assets declined to 6.55% at September 30, 2011 from 6.95% at June 30, 2011 primarily due to the reduction in other real estate owned and the impact of a larger balance sheet.  See the Asset Quality table in this press release.

During the third quarter, the Bank sold $6.9 million of other real estate owned, recognizing pre-tax net gains on the sales of $266,000.  The Bank currently has contracts on six separate other real estate owned properties which will reduce non-performing assets by an additional $597,000 during the fourth quarter of 2011 with no anticipated loss on sale, presuming the transactions close as scheduled and pursuant to the contractual terms.

The Company also remains strongly focused on its cost structure, as non-interest expense for the third quarter of 2011 decreased to $9.2 million from $11.1 million for the second quarter of 2011 and from $9.4 million for the third quarter of 2010.  The decrease was primarily the result of the absence of large valuation allowances on other real estate owned in the second quarter of 2011.  Excluding these valuation allowances, non-interest expense for the third quarter decreased to $8.9 million from $9.3 million for the second quarter of 2011 and $9.2 million for the third quarter of 2010.

The Company continues to target specific segments in its loan portfolio for growth, including commercial and industrial, commercial real estate – owner occupied, and multifamily, which in the aggregate comprised 52.2% of the commercial loan portfolio at September 30, 2011, compared to 53.1% at June 30, 2011.  The decrease was primarily related to the payoff of a $6.8 million multifamily loan and partially offset by the origination of a $5.2 million non-owner occupied commercial real estate loan during the third quarter of 2011.  The Company’s focus on deepening relationships continues to emphasize core deposit growth.  Total core deposit balances increased 4.6% from June 30, 2011, and total core deposits as a percentage of total deposits increased to 60.5% at September 30, 2011 from 59.2% at June 30, 2011.

CFS Bancorp, Inc. ­– Page 3 of 13

Pre-tax, Pre-Provision Earnings, As Adjusted1

The Company’s pre-tax, pre-provision earnings, as adjusted, totaled $2.7 million for the third quarter of 2011 compared to $2.5 million for the second quarter of 2011 and $2.3 million for the third quarter of 2010.  The pre-tax, pre-provision earnings, as adjusted, for the third quarter of 2011 compared to the second quarter of 2011 was favorably impacted by increased service charges and other fees, gains on the sale on loans receivable, and commission income coupled with a decrease in compensation and employee benefits expense, FDIC insurance premiums and regulatory assessments, and marketing expenses.

Net Interest Income and Net Interest Margin

	Three Months Ended
	9/30/11			6/30/11			9/30/10
	(Dollars in thousands)
Net interest margin		3.39	%		3.59	%		3.54	%
Interest rate spread		3.30			3.49			3.42
Net interest income	$	8,859		$	9,187		$	8,886
Average assets:
Yield on interest-earning assets		4.12	%		4.38	%		4.56	%
Yield on loans receivable		4.82			4.94			4.90
Yield on investment securities		2.93			3.01			3.93
Average interest-earning assets	$	1,036,064		$	1,026,940		$	997,279
Average liabilities:
Cost of interest-bearing liabilities		.82	%		.89	%		1.14	%
Cost of interest-bearing deposits		.73			.81			1.02
Cost of borrowed funds		2.28			2.64			2.45
Average interest-bearing liabilities	$	922,049		$	915,785		$	899,682

The Company’s net interest margin decreased 20 basis points to 3.39% for the third quarter of 2011 from 3.59% for the second quarter of 2011 and decreased 15 basis points from 3.54% for the third quarter of 2010.  Net interest income was $8.9 million for the third quarter of 2011 compared to $9.2 million for the second quarter of 2011 and $8.9 million for the third quarter of 2010.  The net interest margin continued to be negatively impacted by the Bank’s higher levels of liquidity due to strong deposit growth, modest loan demand, and the elevated level of non-performing assets.  The yield on investment securities declined due to reinvesting proceeds from sales and maturities of investment securities in lower yielding investments as market interest rates remained low.  In addition, the higher level of the Bank’s non-performing loans continues to negatively affect the yield on loans receivable.  The Bank’s net interest margin was positively affected by a seven basis point decrease in the cost of interest-bearing liabilities from the second quarter of 2011 and a 32 basis point decrease compared to the third quarter of 2010.

 

 

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, as adjusted, is provided on the last page of the attached tables.

CFS Bancorp, Inc. ­– Page 4 of 13

Interest income decreased 4.1% to $10.8 million for the third quarter of 2011 compared to $11.2 million for the second quarter of 2011 and 6.2% from $11.5 million for the third quarter of 2010.  The fluctuations are primarily related to the Bank reinvesting its proceeds from sales and maturities of investment securities in lower yielding investments and maintaining higher levels of short-term liquid investments due to the lack of suitable higher yielding investment alternatives in the current low interest rate environment and modest loan demand.  Furthermore, the Bank’s level of non-performing assets continues to negatively impact interest income.

Interest expense decreased 6.7% to $1.9 million for the third quarter of 2011 compared to $2.0 million for the second quarter of 2011 and 26.5% from $2.6 million for the third quarter of 2010.  The Bank’s continued disciplined pricing on new deposits, repricing of renewals of existing certificates of deposit at lower interest rates, and a 37.3% reduction in the average balances of Federal Home Loan Bank (FHLB) advances contributed to the decrease in interest expense during the third quarter of 2011 compared to the third quarter of 2010.

Non-Interest Income and Non-Interest Expense

Non-interest income decreased $1.2 million, or 27.1%, to $3.3 million for the third quarter of 2011 compared to the second quarter of 2011 primarily due to a decrease of $2.0 million of net gains on sales of other real estate owned partially offset by an increase of $758,000 of net gains on sales of investment securities.  The net gains on the sale of investment securities resulted from the sale of $22.8 million of longer duration investment securities as interest rates declined to historic lows during the quarter.  Excluding these gains on sales of investment securities and other real estate owned, non-interest income increased $159,000 from the second quarter of 2011 due to increased activity related to service charges and other fees, commission income, and net gains on sales of loans receivable.

Non-interest income increased $1.2 million, or 55.6%, from $2.1 million for the third quarter of 2010 primarily due to net gains on sales of investment securities totaling $758,000 and other real estate owned totaling $266,000.  Excluding these gains on sales, non-interest income increased $161,000 from the third quarter of 2010 primarily due to increased activity related to card-based fees, commission income, and net gains on sales of loans receivable.

Non-interest expense for the third quarter of 2011 decreased 17.0% and 2.7%, respectively, to $9.2 million compared to $11.1 million for the second quarter of 2011 and $9.4 million for the third quarter of 2010.  The decrease from the second quarter of 2011 was primarily due to the absence of $1.4 million of valuation allowances of other real estate owned properties combined with decreases in compensation and employee benefits primarily related to a decrease in accrued incentive expense, FDIC insurance premiums and regulatory assessments, and marketing costs.  The decrease compared to the third quarter of 2010 is primarily due to decreases in FDIC insurance premiums and regulatory assessments, professional fees related to the proxy contest in 2010, and the absence of severance and early retirement expense in 2011.

CFS Bancorp, Inc. ­– Page 5 of 13

Income Tax Expense

During the current quarter, the Company’s income tax benefit totaled $84,000, equal to an effective tax benefit rate of 27.1%, compared to an effective tax rate of 25.6% and 17.9%, respectively, in the second quarter of 2011 and the third quarter of 2010.  The decrease in the effective tax rate during the current quarter was primarily due to the increased tax sheltering impact of income from bank-owned life insurance and other tax credits.

Asset Quality

	9/30/11			6/30/11			9/30/10
	(Dollars in thousands)
Non-performing loans (NPLs)	$	59,335		$	57,217		$	56,098
Other real estate owned		17,195			21,164			24,211
Non-performing assets (NPAs)	$	76,530		$	78,381		$	80,309
NPLs / total loans		8.18	%		7.76	%		7.75	%
NPAs / total assets		6.55			6.95			7.17
Allowance for loan losses (ALL)	$	17,186		$	17,039		$	17,485
ALL / total loans		2.37	%		2.31	%		2.41	%
ALL / NPLs		28.96			29.78			31.17
Provision for loan losses for the quarter ended	$	2,673		$	996		$	525
Net charge-offs for the quarter ended		2,526			1,052			648

Total non-performing loans increased 3.7% to $59.3 million at September 30, 2011, compared to $57.2 million at June 30, 2011.  The ratio of non-performing loans to total loans increased to 8.18% during the quarter compared to 7.76% at June 30, 2011 primarily due to a decrease in outstanding loan balances of $12.0 million from June 30, 2011.  During the third quarter of 2011, non-performing loans increased primarily due to four non-owner occupied commercial real estate loans totaling $6.1 million being transferred to nonaccrual status.  Partially offsetting the increase, net charge-offs totaled $2.5 million during the third quarter of 2011.  Non-performing loans also decreased due to the payoff of a $771,000 owner occupied commercial real estate loan from the sale of the collateral and the transfers of an owner occupied commercial real estate loan totaling $979,000 and a commercial participation loan totaling $1.9 million to other real estate owned during the third quarter of 2011.

The provision for loan losses increased to $2.7 million for the third quarter of 2011 compared to $1.0 million for the second quarter of 2011 and $525,000 for the third quarter of 2010.  The increase during the third quarter of 2011 was primarily related to the higher level of net charge-offs in the current quarter.  Net charge-offs included $532,000 on two commercial and industrial loan relationships, $876,000 on an owner occupied commercial real estate loan relationship, $448,000 on a non-owner occupied commercial real estate loan, and $360,000 on eight home equity lines of credit.

The ratio of the allowance for loan losses to total loans increased slightly to 2.37% at September 30, 2011 compared to 2.31% at June 30, 2011 and decreased slightly compared to 2.41% at September 30, 2010.  When management determines a non-performing collateral dependent loan has a collateral shortfall, management will immediately charge off the collateral shortfall.  As a result, the Company is not required to maintain an allowance for loan losses on these loans as the loan balance has already been

CFS Bancorp, Inc. ­– Page 6 of 13

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 cumulative partial charge-offs of $4.2 million recorded through September 30, 2011 on $7.3 million, net of charge-offs, of collateral dependent non-performing loans and specific impairment reserves totaling $8.7 million on other non-collateral dependent non-performing loans at September 30, 2011.

Balance Sheet and Capital

	9/30/11		6/30/11		9/30/10
	(Dollars in thousands)
Assets:
Total assets	$	1,168,481	$	1,128,019	$	1,119,479
Loans receivable, net of unearned fees		725,467		737,516		724,137
Investment securities		232,804		248,958		222,548
Liabilities and Equity:
Total liabilities		1,053,726		1,011,853		1,005,599
Deposits		986,441		964,527		929,856
Borrowed funds		56,115		38,835		64,199
Shareholders’ equity		114,755		116,166		113,880

Loans Receivable

	9/30/11						6/30/11						9/30/10
	Amount			% of Total			Amount			% of Total			Amount			% of Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	83,569			11.5	%	$	83,082			11.3	%	$	70,916			9.8	%
Commercial real estate – owner occupied		100,244			13.8			102,315			13.8			98,337			13.6
Commercial real estate – non-owner occupied		193,267			26.7			187,380			25.4			190,706			26.3
Commercial real estate – multifamily		70,129			9.7			77,562			10.5			70,259			9.7
Commercial construction and land development		22,635			3.1			23,424			3.2			26,868			3.7
Commercial participations		16,739			2.3			21,194			2.9			26,488			3.7
Total commercial loans		486,583			67.1			494,957			67.1			483,574			66.8
Retail loans:
One-to-four family residential		181,025			25.0			183,269			24.8			179,512			24.8
Home equity lines of credit		53,953			7.4			54,975			7.5			55,808			7.7
Retail construction and land development		1,299			.2			2,095			.3			4,092			.6
Other		3,007			.4			2,670			.4			1,606			.2
Total retail loans		239,284			33.0			243,009			33.0			241,018			33.3
Total loans receivable		725,867			100.1			737,966			100.1			724,592			100.1
Net deferred loan fees		(400	)		(.1	)		(450	)		(.1	)		(455	)		(.1	)
Total loans receivable, net of unearned fees	$	725,467			100.0	%	$	737,516			100.0	%	$	724,137			100.0	%

CFS Bancorp, Inc. ­– Page 7 of 13

Loan fundings during the three months ended September 30, 2011 totaled $20.3 million compared to loan fundings of $38.4 million for the three months ended June 30, 2011 and $14.8 million for the three months ended September 30, 2010, which reflects increased loan demand levels during the current year period.  The Company’s business banking pipeline continues to improve.  Loan fundings during the third quarter of 2011 were offset by loan payoffs and repayments of $22.7 million, transfers to other real estate owned totaling $3.4 million, and gross charge-offs of $2.5 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’s targeted growth segments within the loan portfolio, including commercial and industrial, commercial real estate – owner occupied, and multifamily commercial real estate, comprise 52.2% of the commercial loan portfolio at September 30, 2011.  Participations purchased decreased $4.5 million, or 21.0%, compared to June 30, 2011 and $9.7 million, or 36.8%, compared to September 30, 2010.

During the third quarter of 2011, the Bank sold $3.2 million of conforming one-to-four family mortgage loans and recorded a gain on sale of $66,000.

Deposits

	9/30/11					6/30/11					9/30/10
	Amount		% of Total			Amount		% of Total			Amount		% of Total
	(Dollars in thousands)
Checking accounts:
Non-interest bearing	$	106,476		10.8	%	$	98,377		10.2	%	$	95,086		10.2	%
Interest-bearing		172,007		17.4			154,401		16.0			143,600		15.5
Money market accounts		185,906		18.9			188,942		19.6			163,725		17.6
Savings accounts		132,378		13.4			128,902		13.4			121,732		13.1
Core deposits		596,767		60.5			570,622		59.2			524,143		56.4
Certificates of deposit accounts		389,674		39.5			393,905		40.8			405,713		43.6
Total deposits	$	986,441		100.0	%	$	964,527		100.0	%	$	929,856		100.0	%

The Bank strives to grow deposits through many channels including enhancing its brand recognition within its communities, offering attractive deposit products, bringing in new client relationships by meeting all of their banking needs, and holding its experienced sales team accountable for growing deposits and relationships.  Since September 30, 2010, the Bank has increased its core deposits by $72.6 million, or 13.9%, and core deposits at September 30, 2011 represent 60.5% of total deposits compared to 56.4% at September 30, 2010.  Increasing core deposits is reflective of our success in deepening our client relationships, one of our core Strategic Plan objectives.

CFS Bancorp, Inc. ­– Page 8 of 13

Borrowed Funds

	9/30/11		6/30/11		9/30/10
	(Dollars in thousands)
Short-term variable-rate repurchase agreements	$	16,175	$	13,730	$	13,931
FHLB advances		39,940		25,105		50,268
Total borrowed funds	$	56,115	$	38,835	$	64,199

Borrowed funds increased during the third quarter of 2011 primarily due to a new $15.0 million fixed-rate FHLB advance and increased borrowings from repurchase agreements which will fluctuate depending on the client’s liquidity levels.

Shareholders’ Equity

Shareholders’ equity at September 30, 2011 decreased $1.4 million to $114.8 million from $116.2 million at June 30, 2011 and increased $1.8 million from $112.9 million at December 31, 2010.  The decrease from June 30, 2011 was due to an increase in accumulated other comprehensive loss totaling $1.7 million and was partially offset by net income of $394,000.  The increase from December 31, 2010 was primarily related to net income totaling $2.1 million for the nine months ended September 30, 2011.

At September 30, 2011, the Company’s tangible common equity was $114.8 million, or 9.82% of tangible assets, compared to $112.9 million, or 10.07% of tangible assets at December 31, 2010.  At September 30, 2011, the Bank’s tangible, core, and risk-based capital ratios exceeded “minimum” and “well capitalized” regulatory capital requirements.

Company Profile

CFS Bancorp, Inc. is the parent of Citizens Financial Bank, a $1.2 billion asset federal savings bank.  Citizens Financial Bank is an independent bank focusing its people, products, and services on helping individuals, businesses, and communities to be successful.  The Bank has 22 full-service banking centers throughout adjoining markets in Chicago’s Southwest suburbs and Northwest Indiana.  The Company’s website can be found at www.citz.com.

Forward-Looking Information

This press release contains certain forward-looking statements and information relating to the Company that is based on the beliefs of management as well as assumptions made by and information currently available to management.  These forward-looking statements include but are not limited to statements regarding our ability to successfully execute our strategy and our Strategic Growth and Diversification Plan, the level and sufficiency of our current regulatory capital and equity ratios, our ability to continue to diversify the loan portfolio, our efforts at deepening client relationships, increasing our levels of core deposits, lowering our non-performing asset levels, managing and reducing our credit-related costs, increasing our revenue growth and levels of earning assets, the effects of general economic and competitive conditions nationally and within our core market area, our ability to sell other real estate

CFS Bancorp, Inc. ­– Page 9 of 13

owned properties, levels of provision for the allowance for loan losses and amounts of 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, 2010 and other filings the Company makes 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							Nine Months Ended
	September 30, 2011			June 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Interest income:
Loans	$	8,881		$	9,016	$	9,199	$	26,708	$	28,503
Investment securities		1,794			2,040		2,176		5,879		6,552
Other interest-earning assets		80			164		90		401		337
Total interest income		10,755			11,220		11,465		32,988		35,392
Interest expense:
Deposits		1,602			1,777		2,143		5,272		6,342
Borrowed funds		294			256		436		813		1,392
Total interest expense		1,896			2,033		2,579		6,085		7,734
Net interest income		8,859			9,187		8,886		26,903		27,658
Provision for loan losses		2,673			996		525		4,572		3,052
Net interest income after provision for loan losses		6,186			8,191		8,361		22,331		24,606
Non-interest income:
Service charges and other fees		1,263			1,174		1,290		3,513		3,830
Card-based fees		520			520		475		1,515		1,398
Commission income		100			78		40		223		140
Net gain on sale of:
Investment securities		758			173		–		1,450		456
Loans receivable		66			26		–		124		–
Other real estate owned		266			2,238		2		2,499		14
Income from bank-owned life insurance		216			210		217		632		702
Other income		121			119		103		343		371
Total non-interest income		3,310			4,538		2,127		10,299		6,911
Non-interest expense:
Compensation and employee benefits		4,818			5,047		4,709		15,104		13,928
Net occupancy expense		706			670		691		2,141		2,097
FDIC insurance premiums and regulatory assessments		481			504		623		1,638		1,891
Professional fees		309			334		512		1,031		1,850
Furniture and equipment expense		436			454		488		1,353		1,547
Data processing		424			441		443		1,307		1,316
Marketing		213			270		189		670		519
Other real estate owned related expense		614			2,011		470		3,217		1,356
Loan collection expense		117			233		156		470		478
Severance and early retirement costs		–			–		88		–		528
Other		1,068			1,107		1,068		3,293		2,990
Total non-interest expense		9,186			11,071		9,437		30,224		28,500
Income before income taxes		310			1,658		1,051		2,406		3,017
Income tax (benefit) expense		(84	)		425		188		307		475
Net income	$	394		$	1,233	$	863	$	2,099	$	2,542
Basic earnings per share	$	.04		$	.12	$	.08	$	.20	$	.24
Diluted earnings per share	$	.04		$	.11	$	.08	$	.20	$	.24
Weighted-average common and common share
equivalents outstanding:
Basic		10,693,724			10,691,424		10,657,719		10,678,788		10,626,890
Diluted		10,753,386			10,759,332		10,707,163		10,739,969		10,701,072

CFS Bancorp, Inc. ­– Page 11 of 13

CFS BANCORP, INC.
Consolidated Statements of Condition (Unaudited)
(Dollars in thousands)
	September 30, 2011			June 30, 2011			December 31, 2010			September 30, 2010
ASSETS
Cash and amounts due from depository institutions	$	33,421		$	33,075		$	24,624		$	23,098
Interest-bearing deposits		84,344			14,423			37,130			29,120
Cash and cash equivalents		117,765			47,498			61,754			52,218
Investment securities available-for-sale, at fair value		218,417			234,121			197,101			210,717
Investment securities held-to-maturity, at cost		14,387			14,837			17,201			11,831
Investment in Federal Home Loan Bank stock, at cost		8,638			8,638			20,282			23,944
Loans receivable, net of unearned fees		725,467			737,516			732,584			724,137
Allowance for loan losses		(17,186	)		(17,039	)		(17,179	)		(17,485	)
Net loans		708,281			720,477			715,405			706,652
Loans held for sale		839			211			–			4,425
Investment in bank-owned life insurance		36,095			35,880			35,463			35,273
Accrued interest receivable		2,908			3,148			3,162			3,315
Other real estate owned		17,195			21,164			22,324			24,211
Office properties and equipment		18,053			18,163			20,464			20,611
Net deferred tax assets		17,708			16,714			17,923			17,130
Prepaid expenses and other assets		8,195			7,168			10,597			9,152
Total assets	$	1,168,481		$	1,128,019		$	1,121,676		$	1,119,479
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits	$	986,441		$	964,527		$	945,884		$	929,856
Borrowed funds		56,115			38,835			53,550			64,199
Advance payments by borrowers for taxes and insurance		5,868			4,387			4,618			5,952
Other liabilities		5,302			4,104			4,696			5,592
Total liabilities		1,053,726			1,011,853			1,008,748			1,005,599
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; 10,877,015, 10,867,802, 10,850,040,
and 10,851,724 shares outstanding		234			234			234			234
Additional paid-in capital		187,023			187,133			187,164			187,075
Retained earnings		85,365			85,080			83,592			82,783
Treasury stock, at cost; 12,546,291, 12,555,504, and 12,573,266, shares
and 12,571,582 shares		(154,766	)		(154,877	)		(155,112	)		(155,022	)
Accumulated other comprehensive loss, net of tax		(3,101	)		(1,404	)		(2,950	)		(1,190	)
Total shareholders' equity		114,755			116,166			112,928			113,880
Total liabilities and shareholders' equity	$	1,168,481		$	1,128,019		$	1,121,676		$	1,119,479

CFS Bancorp, Inc. ­– Page 12 of 13

CFS BANCORP, INC.
Selected Financial Data (Unaudited)
(Dollars in thousands, except per share data)
				September 30, 2011			June 30, 2011			December 31, 2010			September 30, 2010
Book value per share				$	10.55		$	10.69		$	10.41		$	10.49
Tangible book value per share					10.55			10.69			10.41			10.49
Shareholders' equity to total assets					9.82	%		10.30	%		10.07	%		10.17	%
Tangible capital ratio (Bank only)					8.87			9.17			9.07			8.91
Core capital ratio (Bank only)					8.87			9.17			9.07			8.91
Risk-based capital ratio (Bank only)					13.57			13.29			13.32	��		13.21
Common shares outstanding					10,877,015			10,867,802			10,850,040			10,851,724
Employees (FTE)					311			315			322			315
Number of full service banking centers					22			22			22			22
	Three Months Ended									Nine Months Ended
	September 30, 2011			June 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Average Balance Data:
Total assets	$	1,150,149		$	1,141,927		$	1,111,642		$	1,140,791		$	1,095,045
Loans receivable, net of unearned fees		730,524			732,746			744,316			730,242			754,145
Investment securities		239,655			267,984			216,393			248,905			204,392
Interest-earning assets		1,036,064			1,026,940			997,279			1,025,231			989,290
Deposits		972,486			977,236			917,642			971,727			892,288
Interest-bearing deposits		871,637			877,295			829,988			872,912			802,247
Non-interest bearing deposits		100,849			99,941			87,654			98,815			90,041
Interest-bearing liabilities		922,049			915,785			899,682			915,870			882,260
Shareholders' equity		116,408			115,767			113,145			115,199			112,061
Performance Ratios (annualized):
Return on average assets		.14	%		.43	%		.31	%		.25	%		.31	%
Return on average equity		1.34			4.27			3.03			2.44			3.03
Average yield on interest-earning assets		4.12			4.38			4.56			4.30			4.78
Average cost of interest-bearing liabilities		.82			.89			1.14			.89			1.17
Interest rate spread		3.30			3.49			3.42			3.41			3.61
Net interest margin		3.39			3.59			3.54			3.51			3.74
Non-interest expense to average assets		3.17			3.89			3.37			3.54			3.48
Efficiency ratio (1)		80.50			81.69			85.70			84.54			83.56
Cash dividends declared per share		.01			.01			.01			.03			.03
Market price per share of common stock
for the period ended:
Close	$	4.34		$	5.37		$	4.56		$	4.34		$	4.56
High		5.70			5.90			4.92			5.90			6.24
Low		4.34			5.28			4.18			4.34			3.02
(1) The efficiency ratio is calculated by dividing non-interest
expense by the sum of net interest income and non-interest
income, exluding net gain on sales of investment securities.

CFS Bancorp, Inc. ­– Page 13 of 13

CFS BANCORP, INC.
Reconciliation of Income Before Income Taxes to Pre-Tax, Pre-Provision Earnings, as adjusted
(Unaudited)
(Dollars in thousands)
	Three Months Ended
	September 30, 2011			June 30, 2011			September 30, 2010
Income before income taxes	$	310		$	1,658		$	1,051
Provision for loan losses		2,673			996			525
Pre-tax, pre-provision earnings		2,983			2,654			1,576
Add back (subtract):
Net gain on sale of investment securities		(758	)		(173	)		–
Net gain on sale of other real estate owned		(266	)		(2,238	)		(2	)
Other real estate owned related expense		614			2,011			470
Loan collection expense		117			233			156
Severance and early retirement expense		–			–			88
Pre-tax, pre-provision earnings, as adjusted	$	2,690		$	2,487		$	2,288
Pre-tax, pre-provision earnings, as adjusted,
to average assets		.93	%		.87	%		.82	%
				Nine Months Ended
				September 30, 2011			September 30, 2010
Income before income taxes				$	2,406		$	3,017
Provision for loan losses					4,572			3,052
Pre-tax, pre-provision earnings					6,978			6,069
Add back (subtract):
Net gain on sale of investment securities					(1,450	)		(456	)
Net gain on sale of other real estate owned					(2,499	)		(14	)
Other real estate owned related expense					3,217			1,356
Loan collection expense					470			478
Severance and early retirement expense					–			528
Pre-tax, pre-provision earnings, as adjusted				$	6,716		$	7,961
Pre-tax, pre-provision earnings, as adjusted,
to average assets					.79	%		.97	%

The Company's accounting and reporting policies conform to U.S. generally accepted accounting principles (GAAP) and general practice within the banking industry.  Management uses certain non-GAAP financial measures to evaluate the Company's financial performance and has provided the non-GAAP financial measures of pre-tax, pre-provision earnings, as adjusted, and pre-tax, pre-provision earnings, as adjusted, to average assets.  In these non-GAAP financial measures, the provision for loan losses, other real estate owned related income and expense, loan collection expense, and certain other items, such as gains and losses on sales of investment securities and other assets, severance and early retirement expense, and FDIC special insurance premium assessment are excluded.  Management believes that these measures are useful because they provide a more comparable basis for evaluating financial performance excluding certain credit-related costs and other non-recurring items period to period and allows management and others to assess the Company's ability to generate pre-tax earnings to cover the Company’s provision for loan losses and other credit-related costs.  Although these non-GAAP financial measures are intended to enhance investors understanding of the Company's business performance, these operating measures should not be considered as an alternative to GAAP.