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 September 30, 2002.
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 12,851,197 shares of Common Stock issued and outstanding as
of October 31, 2002.
CFS BANCORP, INC.
INDEX
Page No.
PART I FINANCIAL INFORMATION --------
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition at
September 30, 2002 and December 31, 2001 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 2002 and 2001 4
Consolidated Statement of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 2002 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 23
Item 4. Controls and Procedures 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures
2
CFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
September 30, 2002 December 31, 2001
------------------ -----------------
(Unaudited)
ASSETS
Cash and amounts due from depository institutions $ 15,614 $ 28,250
Interest-bearing deposits 90,616 137,978
Federal funds sold 91,993 105,839
----------- -----------
Cash and cash equivalents 198,223 272,067
Investment securities available-for-sale 56,192 47,225
Mortgage-backed securities available-for-sale 322,328 276,158
Mortgage-backed securities held-to-maturity
(fair value 2002 - $28,833; 2001 - $37,744) 28,302 37,034
Loans receivable, net 932,835 883,352
Investment in Federal Home Loan Bank stock, at cost 26,025 26,165
Office properties and equipment 14,214 14,983
Accrued interest receivable 6,676 6,887
Real estate owned 544 1,128
Investment in bank-owned life insurance 30,618 30,052
Prepaid expenses and other assets 14,262 9,083
----------- -----------
Total assets $ 1,630,219 $ 1,604,134
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 988,321 $ 945,948
Borrowed money 454,371 462,658
Advance payments by borrowers for taxes and insurance 5,806 4,497
Other liabilities 17,335 19,747
----------- -----------
Total liabilities 1,465,833 1,432,850
----------- -----------
Stockholders' Equity:
Preferred stock, $.01 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - 0
at September 30, 2002 and December 31, 2001
Common stock, $.01 par value:
Authorized shares - 85,000,000
Issued shares - 23,423,306
at September 30, 2002 and December 31, 2001
Outstanding shares - 12,907,411 and 13,626,146
at September 30, 2002 and December 31, 2001, respectively 234 234
Additional paid-in capital 189,345 189,547
Retained earnings, substantially restricted 106,886 105,064
Treasury stock, at cost: 10,515,895 and 9,797,160 shares
at September 30, 2002, and December 31, 2001, respectively (122,276) (112,167)
Unearned common stock acquired by ESOP (9,570) (9,570)
Unearned common stock acquired by RRP (2,874) (4,543)
Accumulated other comprehensive income, net of tax 2,641 2,719
----------- -----------
Total stockholders' equity 164,386 171,284
----------- -----------
Total liabilities and stockholders' equity $ 1,630,219 $ 1,604,134
=========== ===========
See accompanying notes.
3
CFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
For Three Months Ended For Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Interest income:
Loans $ 15,820 $ 17,440 $ 47,156 $ 54,706
Mortgage-related securities 4,691 5,087 14,053 16,657
Other investment securities 406 1,646 1,262 7,548
Other 1,130 2,618 3,682 5,919
----------- ----------- ----------- -----------
Total interest income 22,047 26,791 66,153 84,830
Interest expense:
Deposits 6,387 10,304 19,699 32,161
Borrowings 6,904 7,389 20,583 22,488
----------- ----------- ----------- -----------
Total interest expense 13,291 17,693 40,282 54,649
----------- ----------- ----------- -----------
Net interest income before
provision for losses on loans 8,756 9,098 25,871 30,181
Provision for losses on loans 500 250 1,050 1,150
----------- ----------- ----------- -----------
Net interest income after
provision for losses on loans 8,256 8,848 24,821 29,031
Non-interest income:
Loan fees 327 294 1,022 932
Fees on deposit accounts 1,230 655 2,677 1,800
Insurance commissions 294 272 958 744
Investment commissions 192 180 732 646
Gain on sale of available-for-sale
investment securities - net 10 3 281 593
Gain on sale of branches -- 2,014 -- 2,014
Income from bank-owned life insurance 394 348 1,134 1,098
Other income 192 202 575 503
----------- ----------- ----------- -----------
Total non-interest income 2,639 3,968 7,379 8,330
Non-interest expense:
Compensation and employee benefits 5,055 4,510 15,145 14,186
Net occupancy expense 650 632 1,861 1,887
Furniture and equipment expense 502 478 1,440 1,512
Federal deposit insurance premiums 40 46 126 137
Data processing 397 322 1,333 965
Marketing 216 149 627 548
Other general and administrative expenses 1,464 1,403 4,030 4,114
----------- ----------- ----------- -----------
Total non-interest expense 8,324 7,540 24,562 23,349
----------- ----------- ----------- -----------
Income before income taxes 2,571 5,276 7,638 14,012
Income tax expense 755 1,628 2,275 4,378
----------- ----------- ----------- -----------
Net income $ 1,816 $ 3,648 $ 5,363 $ 9,634
=========== =========== =========== ===========
Per share data:
Basic earnings per share $ 0.15 $ 0.26 $ 0.44 $ 0.66
Diluted earnings per share 0.15 0.25 0.43 0.64
Cash dividends declared per share 0.10 0.09 0.30 0.27
Weighted average shares outstanding 11,950,795 14,255,756 12,091,355 14,626,985
Weighted average diluted shares outstanding 12,428,830 14,811,103 12,589,649 15,103,259
See accompanying notes
4
CFS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Common
Additional Stock
Common Paid-In Retained Treasury Acquired
Stock Capital Earnings Stock by ESOP
----- ------- -------- ----- -------
Balance January 1, 2002 $ 234 $189,547 $105,064 ($112,167) ($9,570)
Net income -- -- 5,363 -- --
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 -- -- -- (10,973) --
Exercise of stock options -- (142) -- 864 --
Amortization of awards granted under
Recognition and Retention Plan ("RRP") -- (60) -- -- --
Dividends declared on common stock -- -- (3,541) -- --
---------------------------------------------------------------------------
Balance September 30, 2002 $ 234 $189,345 $106,886 ($122,276) ($9,570)
===== ======== ======== ======== ======
Common Accumulated
Stock Other
Acquired Comprehensive
by RRP Income (Loss) Total
------ ------------- -----
Balance January 1, 2002 ($4,543) $2,719 $171,284
Net income -- -- 5,363
Other comprehensive income, net of tax:
Change in unrealized appreciation on
available-for-sale securities, net of
reclassification adjustment -- (78) (78)
--------
Total comprehensive income 5,285
Purchase of treasury stock -- -- (10,973)
Exercise of stock options -- -- 722
Amortization of awards granted under
Recognition and Retention Plan ("RRP") 1,669 -- 1,609
Dividends declared on common stock -- -- (3,541)
------------------------------------------
Balance September 30, 2002 ($2,874) $2,641 $164,386
====== ====== =======
See accompanying notes
5
CFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2002 2001
---- ----
Net income $ 5,363 $ 9,634
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for losses on loans 1,050 1,150
Depreciation expense 1,366 1,487
Deferred income taxes (benefit) 1,277 (838)
Amortization of cost of stock benefit plans 1,609 1,424
Change in deferred income 1,215 134
Decrease in interest receivable 211 2,787
Increase (decrease) in accrued interest payable 275 (927)
Proceeds from sale of loans held for sale 7,027 4,889
Origination of loans held for sale (6,060) (4,490)
Net gain on sale of available-for-sale securities (281) (593)
Increase in prepaid expenses and other assets (5,638) (1,325)
Decrease in other liabilities (4,721) (628)
--------- ---------
Net cash provided by operating activities 2,693 12,704
--------- ---------
Investing activities:
Available-for-sale investment securities:
Purchases (312,289) (311,711)
Repayments 301,233 264,527
Sales 1,544 18,530
Held to maturity investment securities:
Repayments and maturities -- 151,130
Available-for-sale mortgage-related securities:
Purchases (143,874) (63,534)
Repayments 97,142 58,618
Sales -- 36,125
Held to maturity mortgage-related securities:
Repayments 8,657 34,637
Purchase of Federal Home Loan Bank stock (27) (77)
Redemption of Federal Home Loan Bank stock 167 837
Loan originations and principal payments on loans, net (54,386) 85,362
Additional costs on real estate owned (81) (194)
Proceeds from sale of real estate owned 2,336 1,874
Purchases of property and equipment (1,607) (790)
Disposals of property and equipment 1,010 144
Purchase of bank-owned life insurance -- (6,310)
--------- ---------
Net cash (used in) provided by investing activities (100,175) 269,168
--------- ---------
6
CFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2002 2001
---- ----
Financing activities:
Proceeds from exercise of stock options 722 468
Dividends paid on common stock (1,154) (4,042)
Purchase of treasury stock (10,973) (39,114)
Net increase in checking, passbook and money
market accounts 41,657 21,124
Net increase in certificates of deposit 364 35,350
Decrease in checking, passbook and money
market accounts in connection with sale of branches -- (10,823)
Decrease in certificates of deposit in connection
with sale of branches -- (28,252)
Net increase in advance payments by borrowers
for taxes and insurance 1,309 1,186
Net decrease in borrowed funds (8,287) (85,230)
--------- ---------
Net cash flows provided by (used in) financing activities 23,638 (109,333)
--------- ---------
(Decrease) increase in cash and cash equivalents (73,844) 172,539
Cash and cash equivalents at beginning of period 272,067 59,256
--------- ---------
Cash and cash equivalents at end of period $ 198,223 $ 231,795
========= =========
Supplemental disclosure of non-cash activities:
Transfer of loans to real estate owned $ 1,671 $ 1,568
See accompanying notes
7
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
year ended December 31, 2001 contained in the CFS Bancorp, Inc. (the "Company")
annual report to stockholders. The results for the three and nine months ended
September 30, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002.
2. LOAN PORTFOLIO
The Company's loan portfolio consisted of the following at the dates indicated:
September 30, 2002 December 31, 2001
------------------ -----------------
(Dollars in thousands)
Mortgage loans: Amount % Amount %
-------- ----- -------- -----
Single-family residential $428,105 45.46 % $535,197 60.07 %
Multi-family residential 68,575 7.29 51,635 5.80
Commercial real estate 243,758 25.89 142,663 16.01
Construction and land
development:
Single-family residential 12,624 1.34 17,208 1.93
Multi-family residential 60,478 6.42 26,443 2.97
Commercial and land development 93,435 9.92 76,168 8.55
Home equity 40,374 4.29 41,416 4.65
-------------------- ----------------------
Total mortgage loans 947,349 100.61 890,730 99.98
Other loans:
Commercial 40,067 4.26 23,996 2.69
Consumer 2,485 .26 2,066 .23
Undisbursed portion of
loan proceeds (45,769) (4.86) (24,454) (2.75)
Deferred loan fees (2,537) (.27) (1,324) (.15)
----------------------- --------------------------
Total loans receivable 941,595 100.00 % 891,014 100.00 %
----------------------- --------------------------
Less:
Allowance for losses on loans 8,760 7,662
-------- --------
Loans receivable, net $932,835 $883,352
======== ========
8
3. INVESTMENT SECURITIES
Amortized cost of investment securities and their fair values were as follows
(in thousands):
Available-for-Sale at September 30, 2002: Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Callable agency securities, corporate bonds and
commercial paper $46,917 $ 231 $ -- $47,148
Trust preferred securities 4,931 -- 531 4,400
Equity securities 5,596 221 1,173 4,644
------- ----- ------ -------
$57,444 $ 452 $1,704 $56,192
======= ===== ====== =======
Available-for-Sale at December 31, 2001: Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Callable agency securities, corporate bonds and
commercial paper $33,169 $ 12 $ 33 $33,148
Trust preferred securities 4,929 -- 534 4,395
Equity securities 7,489 611 454 7,646
Asset-backed notes 2,026 10 -- 2,036
------- ----- ------ -------
$47,613 $ 633 $1,021 $47,225
======= ===== ====== =======
9
4. MORTGAGE-BACKED SECURITIES
The amortized cost of mortgage-backed securities and their fair values are as
follows (in thousands):
Available-for-Sale at September 30, 2002:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Participation certificates $73,249 $2,151 $ 172 $75,228
Real estate mortgage investment conduits
and collateralized mortgage obligations 243,606 3,670 176 247,100
-------- ------ ------ --------
$316,855 $5,821 $ 348 $322,328
======== ====== ====== ========
Available-for-Sale at December 31, 2001:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Participation certificates $32,089 $1,215 $ 79 $ 33,225
Real estate mortgage investment conduits
and collateralized mortgage obligations 239,776 3,439 282 242,933
-------- ------ ------ --------
$271,865 $4,654 $ 361 $276,158
======== ====== ====== ========
Held-to-Maturity at September 30, 2002:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Participation certificates $ 26,328 $ 493 $ 29 $ 26,792
Real estate mortgage investment conduits
and collateralized mortgage obligations 1,974 67 -- 2,041
-------- ------ ------ --------
$ 28,302 $ 560 $ 29 $ 28,833
======== ====== ====== ========
Held-to-Maturity at December 31, 2001:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Participation certificates $ 28,644 $ 659 $ 69 $ 29,234
Real estate mortgage investment conduits
and collateralized mortgage obligations 8,390 125 5 8,510
-------- ------ ------ --------
$37,034 $ 784 $ 74 $ 37,744
======== ====== ====== ========
10
5. DEPOSITS
The following table sets forth the dollar amount of deposits and the percentage
of total deposits in various types of deposits offered by the Bank at the dates
indicated.
September 30, 2002 December 31, 2001
------------------ -----------------
Amount Percentage Amount Percentage
------ ---------- ------ ----------
(Dollars in thousands)
Checking accounts:
Non-interest-bearing $ 35,650 3.61% $ 26,970 2.85%
Interest-bearing 82,292 8.33 81,217 8.59
Money market accounts 108,490 10.99 89,205 9.44
Savings accounts 215,781 21.85 203,165 21.49
Certificates of deposit:
$100,000 or less 432,258 43.78 416,675 44.07
Over $100,000 112,993 11.44 128,212 13.56
------- ------ ------- ------
Total deposits 987,464 100.00% 945,444 100.00%
====== ======
Accrued interest 857 504
-------- --------
Total $988,321 $945,948
======== ========
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangibles Assets, (collectively
the "Statements") effective for fiscal years beginning after December 15, 2001.
Under the new rules, goodwill (and intangible assets deemed to have indefinite
lives) will no longer be amortized but will be subject to annual impairment
tests in accordance with the Statements. Other identified intangible assets will
continue to be amortized over the useful lives.
The Company applied the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of the Statement did not result in any changes to
reported earnings since the Company currently has no goodwill nor intangible
assets with indefinite lives.
FASB Statement No. 144, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," (SFAS No. 144) was issued in October
2001 and addresses how and when to measure impairment on long-lived assets and
how to account for long-lived assets that an entity plans to dispose of either
through sale, abandonment, exchange, or distribution to owners. The new
provisions supersede FAS No. 121, which addressed asset impairment, and certain
provisions of APB Opinion 30 related to reporting the effects of the disposal of
a business segment and requires expected future operating losses from
discontinued operations to be recorded in the period in which the losses are
incurred rather than the measurement date. Under SFAS No. 144, more dispositions
may qualify for discontinued operations treatment in the income statement. The
provisions of SFAS No. 144 became effective for the Company on January 1, 2002,
and did not have an impact on the Company's financial position or results of
operations.
11
In October 2002, the FASB issued Statement No. 147, Acquisition of Certain
Financial Institutions, which amends SFAS No. 72, Accounting for Certain
Acquisitions of Banking or Thrift Institutions, SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, and FASB Interpretation No. 9.
Except for transactions between two or more mutual enterprises, this Statement
removes acquisitions of financial institutions from the scope of both SFAS No.
72 and Interpretation 9 and requires that those transactions be accounted for in
accordance with SFAS No. 141, Business Combinations, and No. 142, Goodwill and
Other Intangible Assets. Thus, the requirement in paragraph 5 of Statement No.
72 to recognize any excess of the fair value liabilities assumed over the fair
value of tangible and identifiable intangible assets acquired as an
unidentifiable intangible asset no longer applies to acquisitions within the
scope of this Statement. In addition, this Statement amends SFAS No. 144 to
include within its scope long-term customer-relationship intangible assets of
financial institutions such as depositor- and borrower-relationship intangible
assets and credit cardholder intangible assets. Consequently, those intangible
assets are subject to the same undiscounted cash flow recoverability test and
impairment loss recognition and measurement provisions that SFAS No. 144
requires for other long-lived assets that are held and used. The adoption of
Statement No. 147 is not expected to have a material effect on the Company's
financial position or results of operation.
7. 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 Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
(Dollars in thousands, except per share data)
Net income $ 1,816 $ 3,648 $ 5,363 $ 9,634
Weighted average number of common shares outstanding 13,086,622 15,690,257 13,323,455 16,138,226
Average ESOP shares not committed to be released (882,227) (1,001,851) (912,133) (1,031,757)
Average RRP shares not vested (253,600) (432,650) (319,967) (479,483)
----------- ----------- ----------- -----------
Weighted average number of shares outstanding
for basic earnings per share computation purposes 11,950,795 14,255,756 12,091,355 14,626,986
Dilutive effects of employee stock options 478,035 555,347 498,294 386,273
----------- ----------- ----------- -----------
Weighted average shares and common share equivalents
outstanding for diluted earnings per share purposes 12,428,830 14,811,103 12,589,649 15,013,259
=========== =========== =========== ===========
Basic earnings per share $ 0.15 $ 0.26 $ 0.44 $ 0.66
Diluted earnings per share 0.15 0.25 0.43 0.64
12
8. 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 Nine Months Ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
(Dollars in thousands)
Net income $ 1,816 $ 3,648 $ 5,363 $ 9,634
Net change in unrealized gain (loss) on
securities available-for-sale, net (622) 2,747 (78) 6,215
------- ------- ------- -------
Comprehensive income $ 1,194 $ 6,395 $ 5,285 $15,849
======= ======= ======= =======
9. NON-PERFORMING ASSETS
The following table sets forth information with respect to non-performing assets
at the dates indicated:
September 30, 2002 December 31, 2001
------------------ -----------------
(Dollars in thousands)
Non-accrual loans:
Mortgage loans:
Construction and land development $13,220 $ 1,361
Single-family residential 8,133 8,579
Multi-family residential 39 36
Non-residential 5,478 1,798
Home equity 320 692
Other loans:
Commercial 1,293 1,117
Consumer 310 291
------- -------
Total non-performing loans 28,793 13,874
Real estate owned 544 1,128
------- -------
Total non-performing assets $29,337 $15,002
======= =======
Non-performing assets to total assets 1.80 % 0.94 %
Non-performing loans to total loans 3.06 1.56
13
The following table is a summary of changes in the allowance for loan losses for
the nine months ended September 30, 2002, the year ended December 31, 2001 and
the nine months ended September 30, 2001:
Nine Months Ended Year Ended Nine Months Ended
September 30, 2002 December 31, 2001 September 30, 2001
------------------ ----------------- ------------------
(Dollars in thousands)
Balance at beginning of period $7,662 $7,187 $7,187
Provision for loan losses 1,050 1,150 1,150
Charge-offs (129) (855) (833)
Recoveries 177 180 120
------ ------ ------
Balance at end of period $8,760 $7,662 $7,624
====== ====== ======
Allowance for loan losses to total
non-performing loans at end of period 30.42 % 55.23 % 58.62 %
Allowance for loan losses to total loans
at end of period 0.93 0.86 0.81
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, management's intentions, beliefs, or expectations, 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, the positive net earnings effects of various tax strategies,
anticipated future opportunities for use of liquidity, restructuring of the loan
and fixed-income portfolios, increased emphasis on business banking and
commercial lending, changes in monetary policy and interest rate environment,
the process improvement program, the consolidation and relocation of branch
offices, the resolution of a large construction loan delinquency, outsourcing of
the investment services function, 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. Many of such factors are not subject to the
Company's control. Stockholders are cautioned that any such forward-looking
statements included herein are not guarantees of future performance and involve
risks and uncertainties and that actual results may differ materially from those
contemplated by such forward-looking statements. The Company undertakes no
obligation to update or revise any forward-looking statements to reflect changes
in assumptions, the occurrence of unanticipated events or changes to future
operating results that occur subsequently to the date such forward-looking
statements are made.
14
CHANGES IN FINANCIAL CONDITION
At September 30, 2002 the Company's total assets amounted to $1.6 billion or
approximately $26.1 million more than at December 31, 2001, while total
liabilities increased $33.0 million and stockholders' equity decreased $6.9
million over this same period in connection with the implementation of the
Company's business plan.
Cash and cash equivalents were $198.2 million at September 30, 2002 compared to
$272.1 million at December 31, 2001. The decrease of $73.8 million was primarily
the result of funding commercial and multi-family real estate mortgage loans and
the purchase of mortgage-backed securities.
Investment securities available-for-sale amounted to $56.2 million at September
30, 2002 compared to $47.2 million at December 31, 2001. Mortgage-backed
securities available-for-sale were $322.3 million at September 30, 2002 compared
to $276.2 million at December 31, 2001 while mortgage-backed securities
held-to-maturity were $28.3 million at September 30, 2002 compared to $37.0
million at December 31, 2001. This $46.4 million net increase in investment and
mortgage-backed securities was a result of the Company investing in securities
with yields greater than were being earned while these funds were invested in
cash and cash equivalents. Cash flows from these securities (principal and
interest) are anticipated to be received over a relatively short period of time.
Loans receivable increased to $932.8 million at September 30, 2002 from $883.4
million at December 31, 2001. This net increase of $49.4 million resulted from
using cash and cash equivalents to fund new loan originations. The net reduction
of $111.7 million in single-family residential mortgage and construction loans
at September 30, 2002 compared to December 31, 2001 reflected the continuing
shift in the composition of the Company's loan portfolio to increased investment
in commercial, commercial real estate, multi-family real estate and home equity
loans.
Deposits were $988.3 million at September 30, 2002 compared to $945.9 million at
December 31, 2001. The increase of $42.4 million was primarily concentrated in
core deposits with total certificates of deposit relatively unchanged from
December 31, 2001 to September 30, 2002. In the third quarter of 2002, the
Company ran a special promotion to generate new customers for two branch
locations opened in July 2002. This promotion, conducted in July and August of
2002, offered a 90-day certificate of deposit at 4.0% interest. A total of $83.7
million was obtained, and the Company is currently involved in a retention
program with the goal of maintaining approximately one-half of these deposits
but, more importantly, retaining customers for the new locations.
Borrowed money decreased to $454.4 million at September 30, 2002 from $462.7
million at December 31, 2001. Borrowed funds consist of advances from the
Federal Home Loan Banks of Indianapolis and Chicago and Community Investment
Program funds from the Federal Home Loan Bank of Indianapolis, which are paid
down in accordance with scheduled payments.
Stockholders' equity was $164.4 million at September 30, 2002 compared to $171.3
million at December 31, 2001. The $6.9 million net reduction was the result
primarily of the $11.0 million repurchase of the Company's common stock offset
by $864,000 of options exercised during the first nine months of 2002. This net
decrease in stockholders' equity resulting from the Company's stock repurchase
activity was partially offset by $1.7 million of shares held in the RRP Trust
becoming vested and issued to plan participants and $1.8 million added to
retained earnings from net income less dividends paid to stockholders.
15
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
The following tables 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 September 30,
--------------------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------------------
(Dollars in thousands)
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
--------------------------------------------------------------------------------
Interest-earning assets:
Loans Receivable (1)
Real estate loans $ 896,307 $15,247 6.80% $ 897,804 $16,988 7.57%
Other loans 37,352 573 6.14 23,454 452 7.71
--------------------- -----------------------
Total loans 933,659 15,820 6.78 921,258 17,440 7.57
Securities (2) 401,769 5,097 5.07 429,706 6,733 6.27
Other interest-earning assets (3) 202,272 1,130 2.23 281,701 2,618 3.72
--------------------- -----------------------
Total interest-earning assets 1,537,700 22,047 5.74 1,632,665 26,791 6.56
Non-interest earning assets 76,589 84,975
---------- ----------
Total assets $1,614,289 $1,717,640
========== ==========
Interest-bearing liabilities:
Deposits:
NOW and money market accounts $192,530 699 1.45 $ 152,275 789 2.07
Savings accounts 215,979 698 1.29 204,468 1,038 2.03
Certificates of deposit 509,764 4,990 3.92 607,066 8,477 5.59
--------------------- -----------------------
Total deposits 918,273 6,387 2.78 963,809 10,304 4.28
Total borrowings 458,916 6,904 6.02 493,814 7,389 5.99
--------------------- -----------------------
Total interest-bearing liabilities 1,377,189 13,291 3.86 1,457,623 17,693 4.85
Non-interest bearing liabilities (4) 69,206 63,187
---------- ----------
Total liabilities 1,446,395 1,520,810
Stockholders' Equity 167,894 196,830
---------- ----------
Total liabilities and stockholders' $1,614,289 $1,717,640
equity ========== ==========
Net interest-earning assets $ 160,511 $ 175,042
========== ==========
Net interest income/interest rate spread $ 8,756 1.88% $ 9,098 1.71%
======= ====== =====================
Net interest margin 2.28% 2.23%
====== ==============
Ratio of average interest-earning assets to
average interest-bearing liabilities 111.65% 112.01%
====== ==============
(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.
16
Nine Months Ended September 30,
--------------------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------------------
(Dollars in thousands)
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
--------------------------------------------------------------------------------
Interest-earning assets:
Loans Receivable (1)
Real estate loans $ 880,205 $45,766 6.93% $ 935,294 $53,391 7.61%
Other loans 31,374 1,390 5.91 21,393 1,315 8.20
------------------------- -----------------------
Total loans 911,579 47,156 6.90 956,687 54,706 7.62
Securities (2) 380,171 15,315 5.37 487,596 24,205 6.62
Other interest-earning assets (3) 224,152 3,682 2.19 182,585 5,919 4.32
------------------------- -----------------------
Total interest-earning assets 1,515,902 66,153 5.82 1,626,868 84,830 6.95
Non-interest earning assets 80,362 83,577
---------- ----------
Total assets $1,596,264 $1,710,445
========== ==========
Interest-bearing liabilities:
Deposits:
NOW and money market accounts $187,831 2,029 1.44 $ 142,543 2,477 2.32
Savings accounts 214,903 2,167 1.34 204,693 3,716 2.42
Certificates of deposit 498,973 15,503 4.14 595,286 25,968 5.82
--------------------- -----------------------
Total deposits 901,707 19,699 2.91 942,522 32,161 4.55
Total borrowings 461,230 20,583 5.95 505,376 22,488 5.93
--------------------- -----------------------
Total interest-bearing liabilities 1,362,937 40,282 3.94 1,447,898 54,649 5.03
Non-interest bearing liabilities (4) 64,301 63,770
---------- ----------
Total liabilities 1,427,238 1,511,668
Stockholders' equity 169,026 198,777
---------- ----------
Total liabilities and stockholders' $1,596,264 $1,710,445
equity ========== ==========
Net interest-earning assets $ 152,965 $ 178,970
========== ==========
Net interest income/interest rate spread $25,871 1.88% $30,181 1.92%
======= ====== =====================
Net interest margin 2.28% 2.47%
====== ==============
Ratio of average interest-earning assets to
average interest-bearing liabilities 111.22% 112.36%
====== ==============
17
RATE/VOLUME ANALYSIS
The following tables sets forth the effects of changing rates and volumes on net
interest income of the Company for the three months ended September 30, 2002
compared to 2001. Information is provided with respect to (i) effects on
interest income attributable to changes in rate (changes in rate multiplied by
prior volume); (ii) effects on interest income attributable to changes in volume
(changes in volume multiplied by prior rate); and (iii) changes in rate/volume
(changes in rate multiplied by changes in volume).
Three Months Ended September 30,
2002 compared to 2001
-----------------------------------------
(Dollars in thousands)
Increase (decrease) due to
-----------------------------------------
Total Net
Rate/ Increase
Rate Volume Volume (Decrease)
-----------------------------------------
Interest-earning assets:
Loans receivable:
Real estate loans ($1,716) ($ 28) $ 3 ($1,741)
Other loans (92) 268 (55) 121
-----------------------------------------
Total loans receivable (1,808) 240 (52) (1,620)
Securities (1,281) (438) 83 (1,636)
Other interest-earning assets (1,045) (738) 295 (1,488)
-----------------------------------------
Total net change in income on
interest-earning assets (4,134) (936) 326 (4,744)
Interest-bearing liabilities:
Deposits:
NOW and money markets accounts (236) 209 (63) (90)
Savings accounts (378) 59 (21) (340)
Certificates of deposit (2,534) (1,360) 407 (3,487)
-----------------------------------------
Total deposits (3,148) (1,092) 323 (3,917)
Borrowings 40 (522) (3) (485)
-----------------------------------------
Total net change in expense on
interest-bearing liabilities (3,108) (1,614) 320 (4,402)
-----------------------------------------
Net change in net interest income ($1,026) $ 678 $ 6 ($ 342)
=========================================
18
Nine Months Ended September 30,
2002 compared to 2001
--------------------------------------------
(Dollars in thousands)
Increase (decrease) due to
--------------------------------------------
Total Net
Rate/ Increase
Rate Volume Volume (Decrease)
--------------------------------------------
Interest-earning assets:
Loans receivable:
Real estate loans ($ 4,761) ($ 3,145) $ 281 ($ 7,625)
Other loans (368) 614 (171) 75
--------------------------------------------
Total loans receivable (5,129) (2,531) 110 (7,550)
Securities (4,562) (5,333) 1,005 (8,890)
Other interest-earning assets (2,920) 1,348 (665) (2,237)
--------------------------------------------
Total net change in income on
interest-earning assets (12,611) (6,516) 450 (18,677)
Interest-bearing liabilities:
Deposits:
NOW and money markets accounts (938) 787 (297) (448)
Savings accounts (1,651) 185 (83) (1,549)
Certificates of deposit (7,472) (4,202) 1,209 (10,465)
--------------------------------------------
Total deposits (10,061) (3,230) 829 (12,462)
Borrowings 65 (1,964) (6) (1,905)
--------------------------------------------
Total net change in expense on
interest-bearing liabilities (9,996) (5,194) 823 (14,367)
--------------------------------------------
Net change in net interest income ($ 2,615) ($ 1,322) ($ 373) ($ 4,310)
============================================
19
RESULTS OF OPERATIONS
The Company reported net income of $1.8 million or $0.15 per diluted share for
the three months ended September 30, 2002 compared to $3.6 million or $0.25 per
diluted share for the three months ended September 30, 2001. Net income for the
nine months ended September 30, 2002 was $5.4 million or $0.43 per diluted share
compared to $9.6 million or $0.64 per diluted share for the same period in 2001.
The decrease in net income for such periods was due to the inclusion in the 2001
periods of $1.4 million of gain (net of tax) recognized from the sale of the
Bank's two LaPorte County branches that were outside of the Bank's strategic
market. The sale, which was completed in September 2001, added approximately
$0.09 per diluted share to the year to date and third quarter of 2001 results.
Net interest income for the third quarter of 2002 was $8.8 million compared to
$9.1 million reported for the third quarter of 2001. Net interest income for the
first nine months of 2002 was $25.9 million compared to $30.2 million for the
same period in 2001. As previously described, during the third quarter of 2002
the Company opened two new offices and offered 90-day certificates of deposit at
an above market rate in order to obtain customers. The above market interest
rate is no longer being offered, and a comprehensive customer retention strategy
is in effect. However, this promotion, in the short term, reduced interest rate
spreads and margins.
Interest income for the third quarter of 2002 was $22.0 million compared to
$26.8 million for the third quarter of 2001. Interest income for the first nine
months of 2002 was $66.2 million compared to $84.8 million for the first nine
months of 2001. The primary reason for the decreases in the 2002 periods was the
decline in the average yields earned on interest-earning assets in 2002 as
compared to 2001 reflecting the effect of the low-rate interest environment
existing throughout 2002. Declines in average balances of real estate loans and
securities experienced in the 2002 periods as compared to the 2001 periods also
contributed to the decline in interest income. Increases in the average balances
of other loans partially offset the decline in interest income in both the three
and nine months ended September 30, 2002 when compared to the same periods in
2001.
Interest expense for the three months ended September 30, 2002 was $13.3 million
compared to $17.7 million for the same period in 2001. Interest expense for the
nine months ended September 30, 2002 was $40.3 million compared to $54.6 million
for the nine months ended September 30, 2001. The decrease in interest expense
for the three and nine months ended September 30, 2002 when compared to the 2001
periods was primarily the result of a decrease in the average cost of deposits
and to a substantially lesser extent, the decrease in the average balances of
total deposits and borrowings.
The Company has identified the evaluation of the allowance for loan losses as a
critical accounting policy where amounts are sensitive to material variation.
This policy is significantly affected by management's judgment and uncertainties
and there is a likelihood that materially different amounts would be reported
under different, but reasonably plausible, conditions or assumptions. The
Company's provisions for loan losses for the three months ended September 30,
2002 and 2001 were $500,000 and $250,000, respectively, while the provisions for
the nine months ended September 30, 2002 and 2001 were $1.1 million and $1.2
million, respectively. In light of the Company's emphasis on increasing its
commercial real estate and business lending and the increased known and inherent
losses in the loan portfolio, the Company continues to increase its allowance.
Non-performing assets increased from $15.0 million at December 31, 2001 to $29.3
million at September 30, 2002 due primarily to inclusion in non-performing
assets of an $11.4 million construction loan on an apartment complex as
previously disclosed by the Company. Construction issues with the borrower have
been resolved, and both construction and loan payments have resumed. Management
does not expect to incur any loss on this loan, and should the loan continue to
perform in accordance with its terms, management anticipates removing this loan
from non-performing status by December 31, 2002. Also included in non-performing
assets for the first time this
20
quarter is a $3.9 million loan on a motel. A motel management company has been
retained to manage this motel until occupancy can be stabilized, average daily
room rates increased, and the property offered for sale.
Non-interest income for the three months ended September 30, 2002 was $2.6
million compared to $4.0 million for the three months ended September 30, 2001
and amounted to $7.4 million for nine months ended September 30, 2002 compared
to $8.4 million for the same period in 2001. Non-interest income for the three
and nine months ended September 20, 2001 included the previously discussed $2.0
million gain on the sale of two branch offices. Excluding this $2.0 million
gain, non-interest income for the three and nine months ended September 30, 2002
was $685,000 and $1.1 million, respectively, greater than the same periods in
2001. The improvement in non-interest income was primarily the result of
increased fees on deposit accounts in both periods.
Non-interest expense was $8.3 million for the three months ended September 30,
2002 compared to $7.5 million for the three months ended September 30, 2001.
Non-interest expense was $24.6 million for the first nine months of 2002
compared to $23.3 million for the same period in 2001. The increase in
non-interest expense for the quarter ended September 30, 2002 was due primarily
to a $545,000 increase in compensation and employee benefits, a $75,000 increase
in data processing expenses, a $67,000 increase in marketing expenses and a
$61,000 increase in other general and administrative expenses. The increase in
non-interest expenses for the nine months ended September 30, 2002 was due
primarily to a $959,000 increase in compensation and employee benefits, a
$368,000 increase in data processing expenses and a $79,000 increase in
marketing expenses. Increases in compensation and employee benefits of $280,000
resulting from severance payments due to staff restructuring within the Bank and
the investment services division in the second quarter of 2002 and increases in
pension expense of $270,000 and $708,000 for the three and nine months ended
September 30, 2002, respectively, resulting from the Bank's pension plan no
longer being fully funded. In addition, increases in data processing expenses
related to the change in processing to a proof of deposit environment accounted
for an increase during both periods of 2002 when compared to the same periods in
2001.
Income tax expense for the three months ended September 30, 2002 was $755,000 or
29.4% of income before income taxes compared to $1.6 million or 30.9% of income
before income taxes for the three months ended September 30, 2001. For the nine
months ended September 30, 2002 income tax expense was $2.3 million or 29.8% of
income before income taxes compared to $4.4 million or 31.2% for the same period
in 2001. The Company estimates that its effective rate for the remainder of 2002
will be approximately 30.0%.
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
21
withdrawals, fund loan commitments and maintain a portfolio of mortgage-backed
and mortgage-related securities and investment securities. At September 30, 2002
the total approved investment and loan origination and purchase loan commitments
outstanding amounted to $42.1 million. At the same date, the unadvanced portion
of construction loans amounted to $45.8 million. Investment securities scheduled
to mature in one year or less at September 30, 2002 amounted to $20.6 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.
REGULATORY CAPITAL
At September 30, 2002 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 September 30, 2002 are set forth
below (dollars in thousands):
Required Capital Actual Capital Excess Capital
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Tangible capital $24,082 1.50 % $131,375 8.18 % $107,293 6.68 %
Core capital 64,219 4.00 131,375 8.18 67,156 4.18
Risk-based capital 80,239 8.00 140,135 13.97 59,896 5.97
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 to
stockholders for the year ended December 31, 2001. 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, 2001.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including its chief executive officer and chief financial officer, the Company
has evaluated the effectiveness of the design and operation of its disclosure
controls and procedures within 90 days of the filing date of this quarterly
report, and based on such evaluation, the Company's chief executive officer and
chief financial officer have concluded that these controls and procedures are
effective. There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
The Company's controls and other procedures are designed to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 (the "Exchange Act") is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files under the Exchange Act is accumulated and communicated to the
Company's management, including the chief executive officer and chief financial
officer, as appropriate to allow timely decisions regarding required disclosure.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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.*
23
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**
99.1 Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
- ------------
* 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.
(b) Reports on Form 8-K
Date Item and Description
August 27, 2002 Item 5. - The Company announced that Charles R. Webb had been
appointed, effective August 27, 2002, to the Board of
Directors of the Company and the Bank.
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: November 13, 2002 By: /s/ THOMAS F. PRISBY
----------------------------------------------
Thomas F. Prisby, Chairman and
Chief Executive Officer
Date: November 13, 2002 By: /s/ JOHN T. STEPHENS
----------------------------------------------
John T. Stephens, Executive Vice President and
Chief Financial Officer
24
CERTIFICATION PURSUANT TO RULE 13a-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas F. Prisby, the Chairman of the Board and Chief Executive Officer of
CFS Bancorp, Inc, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CFS Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ Thomas F. Prisby
------------------------------ -------------------------
Thomas F. Prisby
Chairman of the Board and
Chief Executive Officer
25
CERTIFICATION PURSUANT TO RULE 13a-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John T. Stephens, the Executive Vice President and Chief Financial Officer of
CFS Bancorp, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of CFS Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ John T. Stephens
------------------------------ ----------------------------
John T. Stephens
Executive Vice President and
Chief Financial Officer
26