1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________.
Commission file number: 0-24611
CFS Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 35-2042093
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
707 Ridge Road, Munster, Indiana 46321
(Address of principal executive offices)
(219) 836-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The Registrant had 16,072,879 shares of Common Stock issued and outstanding as
of May 7, 2001.
2
CFS BANCORP, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition at
March 31, 2001 and December 31, 2000 3
Consolidated Statements of Income for the Three Months
Ended March 31, 2001 and 2000 4
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months Ended March 31, 2001 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2001 and 2000 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
2
3
CFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
(Unaudited)
March 31, 2001 December 31, 2000
-------------- -----------------
ASSETS
Cash and amounts due from depository institutions $ 26,616 $ 25,627
Interest-bearing deposits 61,007 18,829
Federal funds sold 27,000 14,800
----------- -----------
Cash and cash equivalents 114,623 59,256
Investment securities available-for-sale 62,650 33,786
Investment securities held-to-maturity
(fair value 2001 - $121,109; 2000 - $169,131) 120,923 170,784
Mortgage-related securities available-for-sale 273,389 279,597
Mortgage-related securities held-to-maturity
(fair value 2001 - $72,655; 2000 - $78,516) 72,610 78,857
Loans receivable, net 974,480 998,727
Investment in Federal Home Loan Bank stock, at cost 26,925 26,925
Office properties and equipment 16,095 16,358
Accrued interest receivable 10,512 10,615
Real estate owned 1,411 1,058
Investment in bank owned life insurance 23,363 22,976
Prepaid expenses and other assets 6,540 11,437
----------- -----------
Total assets $ 1,703,521 $ 1,710,376
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 970,000 $ 934,012
Borrowed money 505,125 548,076
Advance payments by borrowers for taxes and insurance 7,422 5,853
Other liabilities 20,606 23,067
----------- -----------
Total liabilities 1,503,153 1,511,008
----------- -----------
Stockholders' Equity:
Preferred stock, $.01 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - 0
at March 31, 2001 and December 31, 2000
Common stock, $.01 par value:
Authorized shares - 85,000,000
Issued shares - 23,403,585 and 23,376,385
at March 31, 2001 and December 31, 2000, respectively
Outstanding shares - 16,276,679 and 16,782,313
at March 31, 2001 and December 31, 2000, respectively 234 234
Additional paid-in capital 189,223 188,990
Retained earnings, substantially restricted 100,768 98,782
Treasury stock, at cost: 7,126,906 and 6,594,072 shares
at March 31, 2001, and December 31, 2000, respectively (74,196) (68,829)
Unearned common stock acquired by ESOP (10,766) (10,766)
Unearned common stock acquired by RRP (6,019) (6,019)
Accumulated other comprehensive income (loss), net of tax 1,124 (3,024)
----------- -----------
Total stockholders' equity 200,368 199,368
----------- -----------
Total liabilities and stockholders' equity $ 1,703,521 $ 1,710,376
=========== ===========
See accompanying notes
3
4
CFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
----------- -----------
Interest income:
Loans $ 19,251 $ 17,060
Mortgage-related securities 5,970 6,900
Other investment securities 3,294 3,525
Other 1,231 1,039
----------- -----------
Total interest income 29,746 28,524
Interest expense:
Deposits 10,896 10,328
Borrowings 7,667 6,624
----------- -----------
Total interest expense 18,563 16,952
----------- -----------
Net interest income before
provision for losses on loans 11,183 11,572
Provision for losses on loans 450 2,250
----------- -----------
Net interest income after
provision for losses on loans 10,733 9,322
Non-interest income:
Loan fees 361 421
Insurance commissions 232 218
Investment commissions 245 369
Net gain on sale of investment securities 139 --
Income from Bank-owned life insurance 388 --
Other income 646 376
----------- -----------
Total non-interest income 2,011 1,384
Non-interest expense:
Compensation and employee benefits 4,781 5,111
Net occupancy expense 704 620
Furniture and equipment expense 538 651
Data processing 322 296
Federal insurance premiums 46 50
Marketing 147 247
Other general and administrative expenses 1,227 1,021
----------- -----------
Total non-interest expense 7,765 7,996
----------- -----------
Income before income taxes 4,979 2,710
Income tax expense 1,656 1,203
----------- -----------
Net income $ 3,323 $ 1,507
=========== ===========
Per share data:
Basic earnings per share $ 0.22 $ 0.09
Diluted earnings per share 0.22 0.09
Cash dividends declared per share 0.09 0.09
Weighted average shares outstanding 14,971,854 16,532,903
Weighted average diluted shares outstanding 15,199,649 16,721,865
See accompanying notes
4
5
CFS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Unearned
Common
Additional Stock
Common Paid-In Retained Treasury Acquired
Stock Capital Earnings Stock by ESOP
----- ------- -------- ----- -------
Balance January 1, 2001 $234 $188,990 $98,782 ($68,829) ($10,766)
Net income -- -- 3,323 -- --
Other comprehensive income, net of tax:
Change in unrealized appreciation on
available-for-sale securities, net of
reclassification adjustment -- -- -- -- --
Total comprehensive income
Purchase of treasury stock -- -- -- (5,367) --
Exercise of stock options -- 186 -- -- --
Tax benefit related to
stock options exercised -- 47 -- -- --
Dividends declared on common stock -- -- (1,337) -- --
----- --------- --------- --------- ---------
Balance March 31, 2001 $234 $189,223 $100,768 ($74,196) ($10,766)
===== ========= ========= ========= =========
Unearned
Common Accumulated
Stock Other
Acquired Comprehensive
by RRP Income (Loss) Total
------ ------------- -----
Balance January 1, 2001 ($6,019) ($3,024) $199,368
Net income -- -- 3,323
Other comprehensive income, net of tax:
Change in unrealized appreciation on
available-for-sale securities, net of
reclassification adjustment -- 4,148 4,148
--------
Total comprehensive income 7,471
Purchase of treasury stock -- -- (5,367)
Exercise of stock options -- -- 186
Tax benefit related to
stock options exercised -- -- 47
Dividends declared on common stock -- -- (1,337)
-------- ------- --------
Balance March 31, 2001 ($6,019) $1,124 $200,368
======== ======= ========
See accompanying notes
5
6
CFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
------- --------
Operating activities:
Net income 3,323 $ 1,507
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for losses on loans 450 2,250
Depreciation expense 507 519
Deferred income taxes (benefit) (1,205) 703
Amortization of cost of stock benefit plans -- 358
Change in deferred income 140 113
(Increase) decrease in interest receivable 103 (1,580)
Increase (decrease) in accrued interest payable (516) 472
Proceeds from sale of loans held for sale 1,558 310
Origination of loans held for sale (1,249) (527)
Net gain on sale of available for sale securities (139) --
Net loss on sale of loans -- 2
(Increase) decrease in prepaid expenses and other assets 2,989 (5,891)
Increase (decrease) in other liabilities (2,065) 8,027
------- --------
Net cash provided by operating activities 3,896 6,263
------- --------
Investing activities:
Available for sale investment securities:
Purchases (31,285) (258)
Repayments 750 --
Sales 2,811 --
Held to maturity investment securities:
Repayments and maturities 50,000 --
Available for sale mortgage-related securities:
Purchases (9,099) --
Repayments 6,964 6,069
Sales 14,158 --
Held to maturity mortgage-related securities:
Repayments 6,166 5,697
Purchase of Federal Home Loan Bank stock (56) (1,249)
Redemption of FHLB stock 56 --
Loan originations and principal payments on loans - net 22,500 (58,060)
Additional costs on real estate owned (50) (1)
Proceeds from sale of real estate owned 545 148
Purchases of property and equipment (244) (832)
6
7
CFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
-------- --------
Net cash provided by (used in) investing activities 63,216 (48,486)
Financing activities:
Proceeds from exercise of stock options 233 165
Dividends paid on common stock (1,383) (1,531)
Purchase of treasury stock (5,367) (4,811)
Net increase in NOW, passbook and money
market accounts 7,817 6,477
Net increase (decrease) in certificates of deposit 28,337 27,441
Net increase in advance payments by borrowers for
taxes and insurance 1,569 1,641
Net increase (decrease) in borrowed funds (42,951) (57)
-------- --------
Net cash flows (used) provided by financing activities (11,745) 29,325
-------- --------
Increase (decrease) in cash and cash equivalents 55,367 (12,898)
Cash and cash equivalents at beginning of period 59,256 95,803
-------- --------
Cash and cash equivalents at end of period 114,623 $ 89,905
======== ========
See accompanying notes
7
8
CFS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENTS PRESENTATION
The accompanying consolidated financial statements were prepared in accordance
with instructions to Form 10-Q and therefore do not include all the information
or footnotes necessary for a complete presentation of financial position,
results of operations and cash flows in conformity with generally accepted
accounting principles. However, all normal recurring adjustments which, in the
opinion of management, are necessary for a fair presentation of financial
statements have been included. These financial statements should be read in
conjunction with the audited financial statements and the notes thereto for the
period ended December 31, 2000 contained in the CFS Bancorp, Inc. (the
"Company") annual report. The results for the three months ended March 31, 2001
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2001.
2. LOAN PORTFOLIO
The Company's loan portfolio consisted of the following at the dates indicated:
March 31, 2001 December 31, 2000
-------------- -----------------
(Dollars in thousands)
Mortgage Loans: Amount % Amount %
-------- ------ ---------- -----
Single-family residential $678,602 66.57% $700,790 66.62%
Multi-family residential 34,306 3.37 41,903 3.98
Commercial real estate 124,006 12.16 124,477 11.83
Construction and land
development:
Single-family residential 26,142 2.57 29,889 2.84
Multi-family residential 41,219 4.04 43,689 4.16
Commercial and land development 73,555 7.22 70,486 6.70
Home equity 20,529 2.01 20,534 1.95
--------------------- -------------------------
Total mortgage loans 998,359 97.94 1,031,768 98.08
Other loans 21,003 2.06 20,230 1.92
--------------------- -------------------------
Total loans receivable 1,019,362 100.00% 1,051,998 100.00%
--------------------- -------------------------
Less:
Undisbursed portion of
loan proceeds 36,259 45,022
Allowance for losses on
loans 7,422 7,187
Deferred loan fees 1,201 1,062
-------- --------
Loans receivable, net $974,480 $998,727
======== ========
8
9
3. INVESTMENT SECURITIES
Amortized cost of investment securities and their fair values were as follows
(in thousands):
Available-for-Sale at March 31, 2001: Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Callable agency securities $39,953 $99 $26 $39,926
Trust preferred securities 4,926 -- 351 4,575
Equity securities 8,158 1,042 405 8,795
Money Market account 9,354 -- -- 9,354
------- ------ ---- -------
$62,291 $1,141 $782 $62,650
======= ====== ==== =======
Available-for-Sale at December 31, 2000: Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Callable agency securities $20,017 $39 $ -- $20,056
Trust preferred securities 4,926 -- 360 $4,566
Equity securities 9,763 522 1,121 9,164
------- ------ ------ -------
$34,706 $ 561 $1,481 $33,786
======= ====== ====== =======
Held-to-Maturity at March 31, 2001: Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Callable agency securities $120,923 $186 $ -- $121,109
======== ==== ==== ========
Held-to-Maturity at December 31, 2000: Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Callable agency securities $170,784 $ -- $1,653 $169,131
======== ==== ====== ========
9
10
4. MORTGAGE-RELATED SECURITIES
The amortized cost of mortgage-related securities and their fair values are as
follows (in thousands):
Available-for-Sale at March 31, 2001:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Participation certificates $53,894 $633 $162 $ 54,365
Real estate mortgage investment conduits
and collateralized mortgage obligations 217,743 2,042 761 219,024
-------- ------ ---- --------
$271,637 $2,675 $923 $273,389
======== ====== ==== ========
Available-for-Sale at December 31, 2000:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Participation certificates $54,227 $741 $508 $54,460
Real estate mortgage investment conduits
and collateralized mortgage obligations 229,535 306 4,704 225,137
-------- ------ ------ --------
$283,762 $1,047 $5,212 $279,597
======== ====== ====== ========
Held-to-Maturity at March 31, 2001:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Participation certificates $33,324 $45 $313 $33,056
Real estate mortgage investment conduits
and collateralized mortgage obligations 39,286 333 20 39,599
------- ---- ---- -------
$72,610 $378 $333 $72,655
======= ==== ==== =======
Held-to-Maturity at December 31, 2000:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Participation certificates $34,349 $83 $358 $34,074
Real estate mortgage investment conduits
and collateralized mortgage obligations 44,508 143 209 44,442
------- ---- ---- -------
$78,857 $226 $567 $78,516
======= ==== ==== =======
5. NEW ACCOUNTING PROUNCEMENTS
"Accounting for Derivative Instruments and Hedging Activities" (FAS No. 133), as
amended, establishes accounting and reporting standards requiring that
derivative instruments (including certain derivative instruments embedded in
other contracts) be recorded on the balance sheet as either assets or
liabilities measured at fair value. FAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related changes in value of the
hedged item in the income statement and requires that a company document,
designate and assess the effectiveness of transactions that qualify for hedge
accounting. The Company adopted FAS No. 133 on January 1, 2001. The adoption of
FAS No. 133 did not have a material impact on the financial position or results
of operations of the Company.
10
11
In September 2000, the FASB issued FAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," that
replaces, in its entirety, FAS No. 125. Although FAS 140 has changed many of the
rules regarding securitizations, it continues to require an entity to recognize
the financial and servicing assets it controls and the liabilities it has
incurred and to derecognize financial assets when control has been surrendered
in accordance with the criteria provided in the Statement. As required, the
Company will apply the new rules prospectively to transactions beginning in the
second quarter of 2001. Based on current circumstances, the Company believes the
application of the new rules will not have a material impact on its financial
statements.
6. EARNINGS PER SHARE
Set forth below is information with respect to calculation of basic and diluted
earnings per share for the periods indicated.
Three Months Ended
------------------
March 31, 2001 March 31, 2000
-------------- --------------
(Dollars in thousands except per share data)
Net income $ 3,323 $ 1,507
Weighted average number of common shares outstanding 16,606,667 18,428,340
Average ESOP shares not committed to be released (1,061,663) (1,181,287)
Average RRP shares not vested (573,150) (714,150)
------------ ------------
Weighted average number of shares outstanding for
basic earnings per share computation purposes 14,971,854 16,532,903
Dilutive effects of employee stock options 227,795 188,962
------------ ------------
Weighted average shares and common share equivalents
outstanding for diluted earnings per share purposes 15,199,649 16,721,865
============ ============
Basic earnings per share $ 0.22 $ 0.09
Diluted earnings per share $ 0.22 $ 0.09
7. COMPREHENSIVE INCOME
Comprehensive income is the total of reported net income and all other revenues,
expenses, gains and losses that under generally accepted accounting principles
are not includable in reported net income but are reflected in stockholders'
equity.
The following table presents the Company's comprehensive income:
Three Months Ended
March 31,
-----------------------
2001 2000
---- ----
(Dollars in thousands)
Net income $3,323 $1,507
Net change in unrealized gain or (loss) on
securities available-for-sale, net 4,148 (448)
------ ------
Comprehensive income $7,471 $1,059
====== ======
11
12
8. NON-PERFORMING ASSETS
The following table sets forth information with respect to non-performing assets
at the dates indicated:
March 31, 2001 December 31, 2000
-------------- -----------------
(Dollars in thousands)
Non-accrual loans:
Mortgage loans:
Construction and land development $1,448 $4,167
Single-family residential 3,813 5,230
Multi-family residential -- --
Non-residential 2,678 1,330
Other loans 1,150 1,122
------- -------
Total non-performing loans 9,089 11,849
Other real estate owned 1,411 1,058
------- -------
Total non-performing assets $10,500 $12,907
======= =======
Non-performing assets to total assets 0.62 % 0.75 %
Non-performing loans to total loans 0.89 1.13
The following table is a summary of changes in the allowance for loan losses for
the three months ended March 31, 2001 and the year ended December 31, 2000:
Three Months Ended Year Ended
March 31, 2001 December 31, 2000
-------------- -----------------
(Dollars in thousands)
----------------------
Balance at beginning of period $7,187 $5,973
Provision for loan losses 450 3,375
Charge-offs (228) (2,279)
Recoveries 13 118
------ ------
Balance at end of period $7,422 $7,187
====== ======
Allowance for loan losses to total non-performing
loans at of period 81.66 % 60.65 %
Allowance for loan losses to total loans at end of period 0.73 0.68
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, and may be identified by
the use of such words as "believe," "expect," "anticipate," "should," "planned,"
"estimated" and "potential." Examples of forward-looking statements include, but
are not limited to, estimates with respect to the financial condition, results
of operations and business of the Company that are subject to various factors
which could cause actual results to differ materially from these estimates.
These factors include, but are not limited to, general economic conditions,
changes in interest rates, deposit flows, loan demand, real estate values, and
competition; changes in accounting principles, policies, or guidelines; changes
in legislation or regulation; and other economic, competitive, governmental,
regulatory, and technological factors affecting the Company's operations,
pricing, products and services.
12
13
CHANGES IN FINANCIAL CONDITION
At March 31, 2001 total assets were $1.7 billion or approximately $6.9 million
less than December 31, 2000. Total liabilities and stockholders' equity were
$1.5 billion and $200.4 million, respectively, at March 31, 2001. This compared
to $1.5 billion and $199.4 million, respectively, at December 31, 2000.
Cash and cash equivalents increased from $59.3 million at December 31, 2000 to
$114.6 million at March 31, 2001. This net increase of $55.3 million was, in
part, due to the fact that approximately $50.0 million of investment securities
classified as held-to-maturity (callable agency securities) were redeemed
between January 1, 2000 and March 31, 2001.
Investment securities in the held-to-maturity category decreased approximately
$50.0 million as mentioned above, while investment securities in the
available-for-sale category increased by $28.9 million. Mortgage-related
securities (available-for-sale and held-to-maturity) decreased from an aggregate
of $358.5 million at December 31, 2000 to an aggregate of $346.0 million at
March 31, 2001. This decrease of $12.5 million was due entirely to repayments
and prepayments on these securities.
Loans receivable decreased from $998.7 million at December 31, 2000 to $974.5
million at March 31, 2001. This decrease of $24.2 million was primarily due to
repayments in excess of new originations in the category of single-family
residential loans.
Deposits increased from $934.0 million to $970.0 million from December 31, 2000
and March 31, 2001. This increase was primarily a result of increased sales and
marketing efforts in 2001 and, secondarily, to a more aggressive pricing policy
on certain accounts.
Borrowed money decreased from $548.1 million at December 31, 2000 to $505.1
million at March 31, 2001. This is a result of the repayment of approximately
$43.0 million of reverse repurchase agreements in the first quarter of 2001.
Stockholders' equity increased from $199.4 million at December 31, 2000 to
$200.4 million at March 31, 2001. In addition to normal items (income and
dividends), stockholders' equity was also affected by the repurchase of 532,833
shares of the Company's common stock at an aggregate cost of $5.4 million and by
an increase in other comprehensive income of $4.1 million during the first
quarter of 2001.
13
14
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate; (iii) net interest income; (iv) interest rate spread; and (v) net
interest margin. Information is based on average daily balances.
Three Months Ended March 31,
----------------------------
2001 2000
--------------------------------------------------------
(Dollars in thousands)
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
----------------------------------------------------------------------------
Interest - earning assets:
Loans Receivable (1)
Real estate loans $974,710 $18,794 7.71% $895,465 $16,629 7.43%
Other loans 19,211 457 9.52 19,057 431 9.05
---------------------- ----------------------
Total loans 993,921 19,251 7.75 914,522 17,060 7.46
Securities (2) 540,661 9,264 6.85 601,270 10,425 6.94
Other interest-earning assets (3) 82,994 1,231 5.94 68,850 1,039 6.04
---------------------- ----------------------
Total interest-earning assets 1,617,526 29,746 7.36 1,584,642 28,524 7.20
Non-interest earning assets 82,459 58,824
---------- ----------
Total assets $1,699,985 $1,643,466
========== ==========
Interest-bearing liabilities:
Deposits:
NOW and money market accounts $130,336 $ 803 2.46% $125,434 $ 758 2.42%
Passbook accounts 206,320 1,394 2.70 217,850 1,656 3.04
Certificates of deposit 579,475 8,699 6.00 569,253 7,914 5.56
---------------------- ----------------------
Total deposits 916,131 10,896 4.76 912,537 10,328 4.53
---------------------- ----------------------
Total borrowings 520,967 7,667 5.89 471,295 6,624 5.62
---------------------- ----------------------
Total interest-bearing liabilities 1,437,098 18,563 5.17 1,383,832 16,952 4.90
Non-interest bearing liabilities (4) 63,209 56,281
Total liabilities 1,500,307 1,440,113
Net worth 199,678 203,353
---------- ----------
Total liabilities and stockholders' equity $1,699,985 $1,643,466
========== ==========
Net interest-earning assets $180,428 $200,810
========== ==========
Net interest income/interest rate spread $11,183 2.19% $11,572 2.30%
==================== ==================
Net interest margin 2.77% 2.92%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities 112.56% 114.51%
====== ======
(1) The average balance of loans receivable includes non-performing loans,
interest on which is recognized on a cash basis.
(2) Average balances of securities available for sale are based on
historical costs.
(3) Includes money market accounts, federal funds sold and interest-earning
bank deposits.
(4) Consists primarily of demand deposit accounts.
14
15
RATE /VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on net
interest income of the Company. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on interest income attributable to
changes in rate (changes in rate multiplied by prior volume); and (iii) changes
in rate/volume (changes in rate multiplied by changes in volume).
Three Months Ended March 31,
2001 compared to 2000
-------------------------------------------------------
(Dollars in thousands)
Increase (decrease) due to
--------------------------------------------------------
Total Net
Rate/ Increase
Rate Volume Volume (Decrease)
--------------------------------------------------------
Interest-earning assets:
Loans receivable:
Real estate loans $637 $1,472 $56 $2,165
Other loans 22 4 -- 26
--------------------------------------------------------
Total loans 659 1,476 56 2,191
Securities (122) (1,051) 12 (1,161)
Other interest-earning assets (17) 213 (4) 192
--------------------------------------------------------
Total net change in income on
interest-earning assets 520 638 64 1,222
Interest-bearing liabilities:
Deposits:
NOW and money markets accounts 14 30 1 45
Passbook accounts (184) (88) 10 (262)
Certificates of deposit 632 142 11 785
--------------------------------------------------------
Total deposits 462 84 22 568
Borrowings 312 698 33 1,043
--------------------------------------------------------
Total net change in expense on
interest-bearing liabilities 774 782 55 1,611
--------------------------------------------------------
Net change in net interest income ($254) ($144) $9 ($389)
========================================================
15
16
RESULTS OF OPERATIONS
The Company reported net income of $3.3 million or $0.22 per share for the three
months ended March 31, 2001 compared to $1.5 million or $0.09 per share for the
three months ended March 31, 2000. Included in the first quarter results for
2000 was a special loan loss provision of $2.0 million ($1.3 million net of tax)
related to the write down of a non-performing loan on an office building
acquired in the July 1998 acquisition of SuburbFed Financial Corp. Absent this
write-down, net income for the first quarter of 2000 would have been $2.8
million or $0.17 per share compared to the $3.3 million or $0.22 per share as
noted above.
Net interest income for the first quarter of 2001 was $11.2 million compared to
$11.6 million reported for the same period in 2000. This decrease in net
interest income primarily reflects the compression of interest rate spreads
(from 2.30 percent to 2.19 percent) and net interest margin (from 2.92 percent
to 2.77 percent) between the first quarter of 2000 and the first quarter of
2001.
Interest income was $29.7 million and $28.5 million for the three months ended
March 31, 2001 and 2000 respectively. The increase in interest income was due to
a $79.2 million or 8.9 percent increase in the average balance of real estate
loans together with a 28 basis point increase in the yield earned thereon. The
average balance of securities decreased by $60.6 million or 10.1 percent in the
first quarter of 2001 compared to the first quarter of 2000. The average balance
of other interest-earning assets increased by $14.1 million or 20.5 percent from
the first quarter of 2000 to the first quarter of 2001. Average rates on both of
these categories decreased between these two periods. In September 2000, the
Company redeployed approximately $22.5 million from interest-earning assets to
fund the purchase of Bank Owned Life Insurance (BOLI). The earnings on BOLI are
included in non-interest income.
Interest expense was $18.6 million and $17.0 million for the three months ended
March 31, 2001 and 2000, respectively. Average balances and average rates on
both deposits and borrowings increased when comparing the first quarter of 2001
to the first quarter of 2000. The primary reason in the increase in deposit
expense was a 44 basis point increase in the average rate paid on certificates
of deposit. The Company's average balance of borrowings increased by $49.7
million or 10.5 percent in the first quarter of 2001 compared to the first
quarter of 2000 and the average rate paid thereon increased by 27 basis points
to 5.89 percent.
The Company's provision for loan losses for the three months ended March 31,
2001 was $450,000 compared to $2.3 million for the same period in 2000. The
large decrease was primarily the result of the aforementioned special $2.0
million loan loss provision on one non-performing loan taken in the first
quarter of 2000. The Company continued to increase its monthly provision for
loan losses in the first quarter of 2001, due to its increased originations of
commercial, multi-family and construction loans, which are generally considered
to involve a greater degree of risk than single-family residential mortgage
loans.
Non-interest income for the three months ended March 31, 2001 was $2.0 million
compared to $1.4 million for the same period in 2000. Income for BOLI, which
amounted to $388,000, is categorized as non-interest income, and an increase of
approximately $225,000 in checking account fees accounted for most of this
increase.
Non-interest expense was $7.8 million for the three months ended March 31, 2001
compared to $8.0 million for the three months ended March 31, 2000. Savings of
payroll from staff reductions were partially offset by increases in expenses for
consulting fees paid for assistance in the Bank's process improvement program.
16
17
Income tax expense was $1.7 million for the three months ended March 31, 2001
compared to $1.2 million for a similar period in 2000. This increase was
primarily due to the increased income before income taxes in the first quarter
of 2001 compared to the first quarter of 2000. This was offset in part by the
reduced effective rate (33.3%) in the first quarter of 2001 compared to the
effective tax rate (44.4%) in the first quarter of 2000 reflecting the
implementation of certain tax planning strategies.
LIQUIDITY AND COMMITMENTS
The Company's liquidity, represented by cash and cash equivalents, is a product
of its operating, investing, and financing activities. The Company's primary
sources of funds are deposits, borrowings, amortization prepayments and
maturities of outstanding loans and mortgage-backed securities, maturities of
investment securities and other short-term investments and funds provided from
operations. While scheduled payments from the amortization of loans and
mortgage-related securities and maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates. In addition, the
Company invests excess funds in federal funds sold and other short-term interest
earning assets which provide liquidity to meet lending requirements.
Liquidity management is both a daily and long term function of business
management. Excess liquidity is generally invested in short-term investments
such as federal funds. The Company uses its sources of funds primarily to meet
its ongoing commitments, pay maturing certificates of deposit and savings
withdrawals, fund loan commitments and maintain a portfolio of mortgage-backed
and mortgage-related securities and investment securities. At March 31, 2001 the
total approved investment and loan origination commitments outstanding amounted
to $31.1 million. At the same date, the unadvanced portion of construction loans
amounted to $36.2 million. Investment securities scheduled to mature in one year
or less at March 31, 2001 were $20 million.
Based on historical experience, the Company believes that a significant portion
of maturing deposits will remain with the Company. The Company anticipates that
it will continue to have sufficient funds, together with borrowings, to meet its
current commitments.
At March 31, 2001 the Bank's regulatory capital was significantly in excess of
regulatory limits set by the Office of Thrift Supervision. The current
requirements and the Bank's actual levels at March 31, 2001 are set forth below
(dollars in thousands):
Required Capital Actual Capital Excess Capital
---------------- -------------- --------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Tangible capital $24,736 1.50 % $134,828 8.18 % $110,092 6.68 %
Core capital 65,962 4.00 134,828 8.18 68,866 4.18
Risk-based capital 72,681 8.00 142,250 15.66 69,569 7.66
17
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For a discussion of the Company's asset and liability management policies as
well as the potential impact of interest rate changes upon the market value of
the Company's portfolio equity, see Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Company's annual report for
the year ended December 31, 2000. There has been no material change in the
Company's assets and liability position or the market value of the Company's
portfolio equity since December 31, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. USE OF PROCEEDS FROM REGISTERED SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An annual meeting of stockholders of the Company was held on April 24,
2001 ("Annual Meeting").
(b) Not applicable.
(c) There were 16,431,313 shares of Common Stock of the Company eligible to
be voted at the Annual Meeting, and 13,402,429 shares were represented
at the meeting by the holders thereof, which constituted a quorum. The
items voted upon at the Annual Meeting and the vote for each proposal
were as follows:
(1) Election of directors for a three-year term.
Thomas F. Prisby FOR 12,048,277 WITHHELD 1,354,151
Frank D. Lester FOR 12,080,274 WITHHELD 1,322,154
(2) To amend the 1998 Stock Option Plan and the 1998 Recognition
and Retention Plan and Trust Agreement by revising the
provisions primarily related to the vesting of options and
awards.
FOR 11,534,402 AGAINST 1,603,552 ABSTAIN 264,474
(3) To ratify the appointment by the Board of Directors of Ernst &
Young LLP as the Company's independent auditors for the fiscal
year ending December 31, 2001.
FOR 12,822,878 AGAINST 449,895 ABSTAIN 129,655
(d) Not applicable.
18
19
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits (filed herewith unless otherwise noted)
3.1 Certificate of Incorporation of CFS Bancorp, Inc.*
3.2 Bylaws of CFS Bancorp, Inc.*
4.0 Form of Stock Certificate of CFS Bancorp, Inc.*
10.1 Form of Employment Agreement entered into between Citizens Financial
Services, FSB and each of Thomas F. Prisby, James W. Prisby and John T.
Stephens*
10.2 Form of Employment Agreement entered into between CFS Bancorp, Inc. and
each of Thomas F. Prisby, James W. Prisby and John T. Stephens*
10.5 CFS Bancorp, Inc. Amended and Restated 1998 Stock Option Plan**
10.6 CFS Bancorp, Inc. Amended and Restated 1998 Recognition and Retention
Plan and Trust Agreement**
- ------------
* Incorporated by Reference from the Company's Registration Statement on
Form S-1 filed on March 26, 1998, as amended and declared effective on
May 14, 1998.
** Incorporated by Reference from the Company's Definitive Proxy Statement
for the Annual Meeting of Stockholders filed on March 23, 2001.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CFS BANCORP, INC.
Date: May 14, 2001 By: /s/ Thomas F. Prisby
--------------------------------------
Thomas F. Prisby, Chairman and
Chief Executive Officer
Date: May 14, 2001 By: /s/ John T. Stephens
--------------------------------------
John T. Stephens, Executive Vice
President and Chief Financial Officer
19