Exhibit 99.1
[CFS Bancorp, Inc. Letterhead]
July 22, 2004
FOR IMMEDIATE RELEASE
CONTACT: Thomas F. Prisby, Chairman of the Board and Chief Executive Officer
219-836-5500
CFS Bancorp, Inc. Announces Second Quarter 2004 Financial Results
MUNSTER, IN - July 22, 2004 - CFS Bancorp, Inc. (NASDAQ: CITZ)
(the "Company") today reported a net loss for the second quarter of
2004 of $357,000 as compared to net income of $698,000 reported in the
second quarter of 2003. The Company's net loss for the second quarter
primarily resulted from:
* a $1.9 million provision for losses on loans for the second
quarter of 2004 as compared to $509,000 for the same period in 2003,
* legal expenses of $939,000 related to the Company's goodwill
litigation against the U.S. Government, and
* a $343,000 write-down in the cost basis of a trust preferred
security deemed to be impaired during the second quarter of 2004.
Partially offsetting these expenses, the Company's net interest
income for the second quarter of 2004 increased to $7.4 million from
$6.5 million (or 13.6%). The annualized net interest margin increased
18.5% for the second quarter of 2004 to 2.05% from 1.73% for the
second quarter of 2003. Although the Company experienced a
substantial improvement in its net interest margin, the margin
continues to be negatively impacted by the Company's fixed-rate
Federal Home Loan Bank borrowings. The Company continues to explore
the possibility of refinancing these borrowings at current market
rates.
For the six months ended June 30, 2004, net income was $887,000
compared to $1.4 million for the same period last year, representing
a decrease of 34.4%. Diluted earnings per share were $0.07 for the
first six months of 2004, a decrease of 41.7% from diluted earnings
per share of $0.12 for the comparable period last year. The return
on average assets for the six month period was 0.12% as compared to
0.17% for the same period in the prior year. For the six months ended
June 30, 2004, the return on average equity was 1.13% compared to 1.74%
for the six months ended June 30, 2003. However, for the 2004 period,
the net interest margin was 2.02%, up from 1.77% for the same period in
2003.
Chairman's Comments
"The second quarter results include an increase in net interest
margin which is reflective of the shift in our asset mix to higher
yielding loans and other adjustable-rate assets and an increase in our
core deposit balances which has driven down interest expense," said
Thomas F. Prisby, Chairman and CEO. "While the second quarter was
significantly impacted by items including legal expenses incurred during
the trial period of our goodwill litigation, the higher provisions and
the write-down in the cost basis of
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CFS Bancorp, Inc. - Page 2 of 8
one available-for-sale trust preferred security, we remain focused on
increasing net interest margin. Furthermore, we are excited about the
opportunities presented in what we believe is a rising rate
environment. During the second quarter, we have increased our average
core deposits by over 5% while remaining focused on building a well
positioned balance sheet which should continue to improve our net
interest margin and our net income in the coming quarters."
Mr. Prisby continued, "Our strategy for branch expansion
continues with the planned third quarter 2004 opening of a new branch
in Dyer, Indiana. We recently also announced the acquisition of a
branch office building located in Darien, Illinois which builds on our
presence in the southwestern suburbs of Chicago. Once we have
received final regulatory approval, we expect to open this de novo
branch during the latter part of 2004. Our Tinley Park, Illinois
branch plans continue to progress, and we expect the branch to be open
in early 2005."
Net Interest Income
Net interest income for the second quarter of 2004 was $7.4
million, up 13.6% from $6.5 million for the second quarter of 2003.
The increase was primarily due to a lower cost of funds as over $180
million of certificates of deposit with above market interest rates
either repriced at lower current market rates or were withdrawn. The
decrease in interest expense was partially offset by a modest decline
in yields on interest-earning assets. Net interest margin was 2.05%
for the second quarter of 2004, up from 1.73% for the comparable prior
year period. The Company expects its net interest income and net
interest margin to continue to improve throughout the remainder of
2004 as the Company increases its portfolio of commercial loans,
repositions its investment portfolio and continues to grow core
deposits.
Total interest income was $16.8 million for the second quarter of
2004, a decrease of $883,000 from $17.7 million for the second quarter
of 2003. Average interest-earning assets decreased 4.1% for the
second quarter of 2004 as compared to the comparable prior year
period. The Company's average loan yield was 5.52% for the quarter
ended June 30, 2004, down 76 basis points from the quarter ended June
30, 2003. The average yield on securities and other interest-earning
assets was 2.89% for the second quarter of 2004, up from 2.06% for the
comparable prior year period. This increase resulted from reduced
premium amortization on the Company's investment portfolio combined
with a decrease in total funds invested in low-yielding overnight
funds.
Total interest expense was $9.4 million for the three months
ended June 30, 2004, a decrease of $1.8 million from $11.2 million for
the three months ended June 30, 2003. The average balance of interest-
bearing liabilities decreased 5.0%, and the average cost of interest-
bearing liabilities decreased 36 basis points. The average cost of
deposits for the quarter ended June 30, 2004 was 1.47%, down 53 basis
points from the comparable prior year period while the average cost of
borrowings remained relatively stable during each of the periods.
Non-Interest Income
Non-interest income was $2.3 million for the quarter ended June
30, 2004, a decrease of $373,000 from the second quarter of 2003.
This decrease was mainly the result of a $343,000 write-down in the
cost basis of a $1.1 million trust preferred security that was deemed
to be impaired during the second quarter of 2004. In addition, the
Company incurred $23,000 of net losses on the sale of
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CFS Bancorp, Inc. - Page 3 of 8
approximately $60 million of available-for-sale securities as it took
advantage of a steep yield curve to reposition its investment portfolio.
The Company's service charges and other fees continued to improve
to $1.9 million for the second quarter of 2004 from $1.7 million for
the second quarter of 2003 as the Company maintains its efforts to
increase non-interest income.
Non-Interest Expense
Non-interest expense for the second quarter of 2004 was $9.0
million, an increase of $1.3 million over the $7.7 million reported
during the second quarter of 2003. This increase was primarily
related to the legal expenses associated with the Company's goodwill
litigation case that went to trial during the second quarter. In
addition, the Company's data processing expenses increased $257,000
during the second quarter of 2004 due to its migration to a new core
data processor. The Company estimates that the legal expenses related
to the goodwill case for the remainder of 2004 will approximate $300,000.
Income Taxes
The Company's income tax benefit for the three months ended June
30, 2004 was $906,000 or 71.7% of pre-tax losses compared to income
tax expense of $258,000 or 27.0% of pre-tax income for the three
months ended June 30, 2003. The significant decrease in income tax
expense was a result of the pre-tax loss combined with the application
of available tax credits and the effects of permanent tax differences
on the Company's pre-tax earnings. The Company anticipates that these
tax credits and permanent differences will continue to have a
favorable impact on income tax expense for the remainder of 2004.
Asset Quality
The Company's provision for loan losses increased to $1.9 million
for the second quarter of 2004 from $509,000 for the second quarter of
2003. The increase was related to three items as follows:
* The Company increased its provision by $400,000 on a $4.5 million
non-performing commercial real estate loan which was secured by a
motel. During the second quarter, the Company foreclosed on the
collateral, incurred a $1.8 million charge-off to reduce the carrying
value to its net realizable value and then sold the asset for $2.7
million.
* The Company downgraded its classification with respect to an $8.8
million commercial real estate loan secured by a hotel in Michigan.
The Company is seeking to obtain additional collateral to reduce the
risk of loss, if any. The change in the classification resulted in
a $660,000 additional provision increasing the allowance for losses
on loans.
* The Company was also required by the Office of Thrift Supervision
(OTS) to establish a $715,000 general reserve on a commercial real
estate loan participation purchased from a lending company that has
filed for bankruptcy and is under investigation for fraud. While the
Company currently believes its $2.9 million loan is not substantially
at risk of loss, the Company, nevertheless, has established this
general reserve in accordance with the OTS requirement.
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CFS Bancorp, Inc. - Page 4 of 8
The Company's non-performing assets were $24.4 million as of June
30, 2004, compared to $24.3 million at March 31, 2004 and $22.9
million at December 31, 2003. The ratio of non-performing assets to
total assets was 1.66% at June 30, 2004, up from 1.56% and 1.46% at
March 31, 2004 and December 31, 2003, respectively. The increase in
the ratio was largely due to the decrease in total assets as of June
30, 2004 as compared to March 31, 2004 and December 31, 2003.
Non-performing loans were $23.6 million at June 30, 2004, an
increase of $157,000 from $23.5 million at March 31, 2004 and $902,000
from $22.7 million at December 31, 2003. Non-performing loans
decreased by $8.9 million during the second quarter of 2004 as two
loans totaling $4.4 million were paid in full, and the $4.5 million
commercial real estate loan referenced above was transferred to real
estate owned before it was sold during the second quarter. Offsetting
this decrease was the transfer of an $8.7 million commercial real
estate loan to non-performing loans. This loan is secured by a full-
service hotel in the Chicago Metropolitan area. The Company is in the
process of assessing the value of the collateral and anticipates completing
that process by the end of the third quarter.
The Company's allowance for losses on loans was $11.3 million at
June 30, 2004, the same as $11.3 million at March 31, 2004 and an increase
of $846,000 from $10.5 million at December 31, 2003. The ratio of
allowance for losses on loans to total loans decreased to 1.12% at June
30, 2004 from 1.15% at March 31, 2004 and increased from 1.06% at December
31, 2003. The Company maintains the allowance for losses on loans at a
level that management believes will be adequate to cover all known and
inherent losses in the portfolio that are both probable and reasonable to
estimate based on internal evaluations of collectibility, prior loss
experience, value of underlying collateral and other factors including
the composition and concentrations within the loan portfolio and the level
and trends of classified and non-performing assets.
Balance Sheet Highlights
As of June 30, 2004, loans receivable were $1.0 billion, up 2.7%
from $982.0 million at December 31, 2003. The Company originated over
$130 million in new loans and lines of credit during the second
quarter, up over 65% from loan originations during the first quarter
2004. Over 70% of these originations were commercial loans and lines
of credit. As of the end of June 30, 2004, the Company has over $82
million of commercial and retail loan commitments.
Total deposits were $879.1 million at June 30, 2004, down $96.3
million from $975.4 million at December 31, 2003. The decrease was
largely caused by a reduction of $135.0 million in certificates of
deposit, partially offset by an increase in core deposits of $38.7
million. The decrease in certificates of deposit was primarily due to
the runoff of above market rate certificates. The Company is making
progress in its efforts to obtain low cost core deposits through
continued promotional efforts and retail incentive programs. Average
core deposits have increased 5.1% since March 31, 2004.
Stockholders' equity at June 30, 2004 was $154.5 million, down
from $156.0 million at December 31, 2003. The decrease was primarily
due to:
* the net loss of $357,000,
* a $2.0 million decrease in unrealized loss on available-for-sale
securities, net of tax,
* dividends declared during the first six months of 2004 totaling
$2.4 million, and
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CFS Bancorp, Inc. - page 5 of 8
* repurchases of the Company's common stock during the first six
months of 2004 totaling $854,000.
Partially offsetting the above decreases in stockholders' equity, the
Company also realized during the first six months of 2004:
* vesting of $1.3 million of common stock under the Company's
Recognition and Retention Plan, and
* stock option exercises totaling $1.5 million.
Primarily during the early part of the second quarter of 2004,
the Company repurchased 55,459 shares of its common stock at an
average price of $14.01 per share pursuant to the share repurchase
programs announced in July 2002 and March 2003. Since its initial
public offering, the Company has repurchased an aggregate of
11,591,504 shares of its common stock at an average price of $11.75
per share. As of July 22, 2004, the Company has 1,181,268 of shares
remaining to be repurchased under its current share repurchase
program.
As of June 30, 2004, stockholders' equity per common share was
$12.57, down from $12.78 at December 31, 2003. The capital ratios of
Citizens Financial Services, FSB, the Company's wholly-owned
subsidiary, continued to be in excess of regulatory requirements. As
of June 30, 2004, the Bank is deemed to be "well-capitalized" under
the regulatory framework for prompt corrective action.
CFS Bancorp, Inc. is the parent of Citizens Financial Services,
FSB, a $1.5 billion asset federal savings bank. Citizens Financial
Services provides community banking services and currently operates 22
offices throughout adjoining markets in Chicago's Southland and
Northwest Indiana. The Company maintains a website at
www.cfsbancorp.com.
# # #
This press release contains certain forward-looking statements
and information relating to the Company that is based on the beliefs
of management as well as assumptions made by and information currently
available to management. These forward-looking statements include but
are not limited to statements regarding the positive net earnings
effects of the shift in assets and deposits, interest rate environment,
expected asset yields and cost of funds, estimated costs of litigation
fees, expected growth in core deposits, establishment of new branch
offices, net interest income, loan volume, net interest margin, loan
loss reserves, income levels, new sources of non-interest income, and
impact of tax credits and permanent tax differences. In addition, the
words "anticipate," "believe," "estimate," "expect," "indicate," "intend,"
"should," and similar expressions, or the negative thereof, as they
relate to the Company or the Company's management, are intended to
identify forward-looking statements. Such statements reflect the current
views of the Company with respect to future events and are subject
to certain risks, uncertainties and assumptions. One or more of these
risks may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not
intend to update these forward-looking statements.
# # #
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA FOLLOWS.
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CFS Bancorp, Inc. Page 6 of 8
CFS BANCORP, INC.
Highlights (Unaudited)
(Dollars in thousands, except per share data) Three Months Ended Six Months Ended
EARNINGS HIGHLIGHTS AND ----------------------------- -----------------------------
PERFORMANCE RATIOS* June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
- ------------------------------------------------ -------------- ------------- ------------- -------------
<s> <c> <c> <c> <c>
Net income (loss) $ (357) $ 698 $ 887 $ 1,352
Basic earnings (loss) per share (0.03) 0.06 0.08 0.12
Diluted earnings (loss) per share (0.03) 0.06 0.07 0.12
Cash dividends declared 0.11 0.11 0.22 0.22
Return on average assets (0.09)% 0.18% 0.12% 0.17%
Return on average equity (0.90) 1.81 1.13 1.74
Average yield on interest-earning assets 4.69 4.72 4.70 4.85
Average cost on interest-bearing liabilities 2.94 3.30 2.98 3.40
Interest rate spread 1.75 1.42 1.72 1.45
Net interest margin 2.05 1.73 2.02 1.77
Non-interest expense to average assets 2.38 1.94 2.26 1.93
Efficiency ratio 89.77 84.15 86.63 84.07
Market price per share of common stock
for the period ended: Closing $ 13.25 $ 15.00 $ 13.25 $ 15.00
High 14.84 15.00 15.16 15.00
Low 12.99 13.69 12.99 13.51
STATEMENT OF CONDITION HIGHLIGHTS June 30, March 31, December 31,
AND PERFORMANCE RATIOS* 2004 2004 2003
- ---------------------------------------------------------- ----------- ----------- --------------
<s> <c> <c> <c>
Total assets $ 1,471,769 $ 1,555,658 $ 1,569,428
Loans receivable, net of unearned discount 1,008,081 984,765 981,994
Total deposits 879,102 958,913 975,369
Total stockholders' equity 154,527 158,517 155,953
Book value per common share 12.57 12.89 12.78
Non-performing loans 23,622 23,465 22,720
Non-performing assets 24,398 24,345 22,926
Allowance for losses on loans 11,299 11,295 10,453
Non-performing loans to total loans 2.34% 2.38% 2.31%
Non-performing assets to total assets 1.66 1.56 1.46
Allowance for losses on loans
to non-performing loans 47.83 48.14 46.01
Allowance for losses on loans to total loans 1.12 1.15 1.06
Average equity to average assets 10.53 10.06 9.99
Average interest-earning assets
to average interest-bearing liabilities 111.42 110.79 110.61
Employees (FTE) 344 332 330
Branches and offices 22 22 22
Three Months Ended Six Months Ended
---------------------------- -----------------------------
AVERAGE BALANCE DATA June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
- ---------------------------------------------- ------------- ------------- ------------- -------------
<s> <c> <c> <c> <c>
Total assets $ 1,514,958 $ 1,583,227 $ 1,536,599 $ 1,589,419
Loans receivable, net of unearned discount 999,818 956,481 992,449 949,169
Interest-earning assets 1,440,239 1,501,568 1,463,624 1,508,301
Total liabilities 1,355,382 1,428,138 1,378,372 1,433,072
Total deposits 916,664 946,512 940,338 952,006
Interest-bearing deposits 874,212 911,340 900,213 917,114
Interest-bearing liabilities 1,292,648 1,360,720 1,318,663 1,366,507
Stockholders' equity 159,576 155,089 158,227 156,347
_________
* Ratios are annualized where appropriate.
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CFS Bancorp, Inc. - Page 7 of 8
CFS BANCORP, INC.
Consolidated Statements of Income (Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
(Dollars in thousands, except per share data) 2004 2003 2004 2003
- ------------------------------------------------------------ ----------- ---------- ---------- ----------
Interest income:
<s> <c> <c> <c> <c>
Loans $ 13,730 $ 14,974 $ 27,846 $ 30,214
Securities 2,601 1,818 5,271 4,334
Other 469 891 1,107 1,738
----------- ---------- ---------- ----------
Total interest income 16,800 17,683 34,224 36,286
Interest expense:
Deposits 3,185 4,539 7,021 9,764
Borrowings 6,263 6,672 12,526 13,272
----------- ---------- ---------- ----------
Total interest expense 9,448 11,211 19,547 23,036
----------- ---------- ---------- ----------
Net interest income before provision for losses on loans 7,352 6,472 14,677 13,250
Provision for losses on loans 1,918 509 2,657 987
----------- ---------- ---------- ----------
Net interest income after provision for losses on loans 5,434 5,963 12,020 12,263
Non-interest income:
Service charges and other fees 1,853 1,744 3,501 3,222
Commission income 171 192 323 318
Net realized losses on available-for-sale securities (366) (1) (45) (1)
Net (loss) gain on sale of office properties (1) 24 (1) 24
Income from Bank-owned life insurance 365 367 723 729
Other income 253 322 687 606
----------- ---------- ---------- ----------
Total non-interest income 2,275 2,648 5,188 4,898
Non-interest expense:
Compensation and employee benefits 4,638 4,427 9,525 8,866
Net occupancy expense 615 578 1,257 1,200
Professional fees 1,264 461 1,661 948
Data processing 722 465 1,232 894
Furniture and equipment expense 456 480 919 957
Marketing 285 227 572 426
Other general and administrative expenses 992 1,017 2,082 1,947
----------- ---------- ---------- ----------
Total non-interest expense 8,972 7,655 17,248 15,238
----------- ---------- ---------- ----------
Income (loss) before income taxes (1,263) 956 (40) 1,923
Income tax (benefit) expense (906) 258 (927) 571
----------- ---------- ---------- ----------
Net income (loss) $ (357) $ 698 $ 887 $ 1,352
=========== ========== ========== ==========
Per share data:
Basic earnings (loss) per share $ (0.03) $ 0.06 $ 0.08 $ 0.12
Diluted earnings (loss) per share $ (0.03) $ 0.06 $ 0.07 $ 0.12
Cash dividends declared per share $ 0.11 $ 0.11 $ 0.22 $ 0.22
Weighted-average shares outstanding 11,620,390 11,256,183 11,510,467 11,302,378
Weighted-average diluted shares outstanding 11,887,039 11,644,232 11,846,355 11,729,637
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CFS Bancorp, Inc. - Page 8 of 8
CFS BANCORP, INC.
Consolidated Statements of Financial Condition (Unaudited)
June 30, December 31,
(Dollars in thousands) 2003 2004
- --------------------------------------------------------------- ---------- ---------------
ASSETS
<s> <c> <c>
Cash and amounts due from depository institutions $ 16,680 $ 18,675
Interest-bearing deposits 8,358 142,139
Federal funds sold 8,497 17,399
--------- ---------
Cash and cash equivalents 33,535 178,213
Securities, available-for-sale 347,479 327,789
Investment in Federal Home Loan Bank stock, at cost 27,397 26,766
Loans receivable, net of unearned fees 1,008,081 981,994
Allowance for losses on loans (11,299) (10,453)
--------- ---------
Net loans 996,782 971,541
Accrued interest receivable 6,599 6,623
Real estate owned 776 206
Office properties and equipment 13,687 13,738
Investment in Bank-owned life insurance 32,649 31,926
Prepaid expenses and other assets 12,865 12,626
--------- ---------
Total assets $1,471,769 $ 1,569,428
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 879,102 $ 975,369
Borrowed money 418,432 418,490
Advance payments by borrowers for taxes and insurance 6,316 5,595
Other liabilities 13,392 14,021
--------- ---------
Total liabilities 1,317,242 1,413,475
Stockholders' Equity:
Preferred stock, $0.01 par value; 15,000,000 shares authorized -- --
Common stock, $0.01 par value; 85,000,000 shares authorized;
23,423,306 shares issued as of June 30, 2004 and December 31,
2003; 12,290,934 and 12,200,015 shares outstanding as of June
30, 2004 and December 31, 2003, respectively 234 234
Additional paid-in capital 189,727 189,879
Retained earnings, substantially restricted 104,813 106,354
Treasury stock, at cost; 11,132,372 and 11,223,291 shares
as of June 30, 2004 and December 31, 2003, respectively (131,805) (132,741)
Unearned common stock acquired by ESOP (7,158) (7,158)
Unearned common stock acquired by RRP (187) (1,523)
Accumulated other comprehensive income (loss), net of tax (1,097) 908
--------- ---------
Total stockholders' equity 154,527 155,953
--------- ---------
Total liabilities and stockholders' equity $1,471,769 $1,569,428
========= =========