Exhibit 99.1
[CFS Bancorp, Inc. logo] Thomas F. Prisby, Chairman
October 21, 2004
FOR IMMEDIATE RELEASE
CONTACT: Thomas F. Prisby, Chairman of the Board and Chief Executive Officer
219-836-5500
CFS Bancorp, Inc. Announces Third Quarter 2004 Financial Results
MUNSTER, IN - October 21, 2004 - CFS Bancorp, Inc. (NASDAQ: CITZ)
(the Company) today reported a net loss for the third quarter of 2004
of $2.8 million as compared to net income of $967,000 reported for the
third quarter of 2003. For the nine months ended September 30, 2004,
the Company reported a net loss of $1.9 million compared to net income
of $2.3 million for the same period during 2003. Losses per share
were $0.16 for the first nine months of 2004 compared to diluted
earnings per share of $0.20 for the nine months ended September 30,
2003.
The Company's net interest income continued to improve during the
third quarter of 2004 increasing 26.4% to $8.4 million from $6.7
million for the third quarter of 2003. The annualized net interest
margin increased 33.5% for the third quarter of 2004 to 2.43% from
1.82% for the third quarter of 2003. The substantial improvement in
the Company's net interest margin from the third quarter of 2003 was
mainly an increase in the yield as a result of higher yielding
investments coupled with a decrease in the interest rate paid on
deposits. For the nine months ended September 30, 2004, the
annualized net interest margin was 2.16%, up from 1.79% for the same
period in 2003.
Offsetting the increased net interest income was an increase in
the provision for losses on loans. In connection with the Company's
third quarter evaluation of the adequacy of its allowance for losses
on loans, management identified eight loans with an estimated
aggregate impairment of $10.3 million. The estimated impairment along
with management's assessment of the adequacy of the Company's
allowance for losses on loans resulted in an additional $6.2 million
provision for losses on loans during the third quarter of 2004 as
compared to $502,000 for the same period in 2003. For the nine months
ended September 30, 2004, the provision for losses on loans was $8.8
million, an increase from the provision for losses on loans of $1.5
million for the nine months ended September 30, 2003.
As previously communicated, management of the Company continues
to explore the possibility of refinancing the fixed-rate Federal Home
Loan Bank (FHLB) borrowings. During the third quarter of 2004, the
Company identified an opportunity to partially reduce the negative
impact of these borrowings by prepaying $6.5 million of such
borrowings which bore a 5.26% fixed interest rate. This prepayment
resulted in a $485,000 charge to other non-interest expense.
In addition to the above, the Company's financial results for the
third quarter of 2004 were also affected by:
* Compensation expense of $1.0 million related to the resignation
of a senior executive officer;
CFS Bancorp, Inc. - Page 2 of 9
* an additional $585,000 write-down in the cost basis of a trust
preferred security deemed to be further impaired during the third
quarter of 2004;
* the write-down of $421,000 in viatical receivables held by the
Bank that were determined to be impaired;
* additional legal expenses of $381,000 related to the Company's
goodwill litigation; and
* an increase in loan collection expenses of $231,000.
Chairman's Comments
"The third quarter results were significantly impacted by a
number of items, the largest being the provision for losses on loans,"
said Thomas F. Prisby, Chairman and CEO. "The increased provision is
mainly the result of management's review of problem credits which were
originated a number of years ago primarily by lending officers who are
no longer with the Company. We believe that the significant
enhancements we have made in our credit underwriting and credit
administration departments over the past eighteen months will result
in improved asset quality, earlier identification of potential problem
credits and reduced provisions for losses on loans going forward. We
have also recorded non-recurring charges related to the additional
impairment of one trust preferred security, the write-down of our
invested balance in viatical receivables and the one-time charge to
compensation expense related to the resignation of our President and
Vice-Chairman."
Mr. Prisby continued, "The fixed-rate FHLB borrowings continue to
restrict our net interest margin and cause our efficiency ratio to be
above our peers. The Company continues to explore the possibility of
refinancing these borrowings at current market rates which should
improve our net interest margin and other operating ratios and
position us well going forward."
Net Interest Income
Net interest income for the third quarter of 2004 was $8.4
million, up 26.4% from $6.7 million for the third quarter of 2003.
The increase was primarily due to higher yields on securities and
other interest-earning assets along with lower cost of funds as
interest rates continued at lower levels than in 2003. Net interest
margin was 2.43% for the third quarter of 2004, up from 1.82% for the
comparable prior year period. The Company expects the positive trend
in net interest margin to continue throughout the remainder of the
year as it manages its investment portfolio and continues its focus on
originating commercial loans and growing core deposits.
Total interest income was $17.6 million for the third quarter of
2004, an increase of $587,000 from $17.0 million for the third quarter
of 2003. Average interest-earning assets decreased 5.2% for the third
quarter of 2004 as compared to the comparable prior year period. The
Company's average loan yield was 5.76% for the quarter ended September
30, 2004, down 18 basis points from the quarter ended September 30,
2003. The average yield on securities and other interest-earning
assets was 3.24% for the third quarter of 2004, up from 1.97% 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 $9.2 million for the three months
ended September 30, 2004, a decrease of $1.2 million from $10.3
million for the three months ended September 30, 2003. The average
balance of interest-bearing liabilities decreased 6.4% and the average
cost of interest-bearing liabilities decreased 16 basis points. The
average cost of interest-bearing deposits for the third quarter
CFS Bancorp, Inc. - Page 3 of 9
2004 was 1.39%, down 26 basis points from the comparable prior year period
while the average cost of borrowings increased slightly to 6.0%.
Non-Interest Income
Exclusive of net realized gains on sales of securities, non-
interest income was $2.9 million for the third quarter of 2004, an
increase of $56,000 from the third quarter of 2003. The increase was
primarily a result of a $36,000 increase in ATM and Check Card income
coupled with an increase in service charges and other fees of $16,000
for the third quarter 2004 as compared to the same period in 2003.
Net realized gains on sales of securities decreased by $200,000
reflecting $711,000 in net security gains which were partially offset
by a $585,000 impairment write-down in the cost basis of a $764,000
trust preferred security. The additional write-down was identified
when the issuer announced in September 2004 the continuation of
interest deferral on the trust preferred securities coupled with the
sale of significant assets, the continuing restructuring objectives
and regulatory restrictions.
Non-Interest Expense
Non-interest expense for the third quarter of 2004 was $10.7
million, an increase of $2.6 million over the $8.1 million reported
during the third quarter of 2003. This increase resulted from a
number of charges the Company incurred during the third quarter of
2004. Compensation expense increased due to the third quarter 2004
payout of $1.0 million in conjunction with the resignation of a senior
executive officer. In addition, professional fees increased by
$381,000 for legal expenses related to the Company's goodwill
litigation as the trial ended and closing arguments were presented.
The Company anticipates the legal expenses for the remainder of 2004
related to this litigation will be nominal. Other general and
administrative expenses increased by $1.3 million as a result of the
previously discussed prepayment penalty, viatical receivables
impairment and loan collection expense.
Income Taxes
The Company's income tax benefit for the third quarter of 2004
was $2.6 million compared to income tax expense of $315,000 for the
third quarter of 2003. The significant decrease in income tax expense
was a result of the pre-tax loss combined with the application of
available tax credits, the effects of permanent tax differences on the
Company's pre-tax earnings and the reversal of tax accruals no longer
considered necessary. The Company anticipates that these items will
continue to have a favorable impact on income tax expense for the
remainder of 2004.
Asset Quality
The Company's provision for losses on loans increased to $6.2
million for the third quarter of 2004 from $502,000 for the third
quarter of 2003. During its third quarter evaluation of the adequacy
of the allowance for losses on loans, the Company obtained updated
information, including new appraisals, on its non-performing loans.
Based on the new information, management identified eight loans that
required a reserve allocation because of a change in either the
borrower's ability to perform their obligations under the terms and
conditions of the loan agreements or the estimated value of the
collateral. The total principal amount of these eight loans is $31.9
million. Applicable to these eight loans, the Company identified an
impairment reserve of $10.3 million. At this time, the Company does
CFS Bancorp, Inc. - Page 4 of 9
not anticipate that this impairment charge will result in any future
material cash expenditures. The estimated impairment was considered
as part of management's assessment of the adequacy of the allowance
for losses on loans and resulted in a $6.2 million charge to the
provision for losses on loans.
Of the eight impaired loans, three are commercial real estate
loans secured by hotels and total $22.3 million with an impairment
reserve of $5.9 million. Other impaired commercial real estate loans
include two loans secured by multi-family housing units totaling $5.7
million with an impairment reserve of $2.0 million and one loan
secured by a golf course totaling $2.8 million with an impairment
reserve of $1.5 million. Of the two other commercial loans identified
as impaired, one is secured by business assets and the other by vacant
land. These two loans total $1.2 million with an estimated impairment
reserve of $915,000.
The Company's non-performing assets were $33.6 million as of
September 30, 2004, compared to $24.4 million at June 30, 2004 and
$22.9 million at December 31, 2003. The eight impaired loans
discussed above account for the substantial majority of such assets.
The ratio of non-performing assets to total assets was 2.35% at
September 30, 2004, up from 1.66% and 1.46% at June 30, 2004 and
December 31, 2003, respectively. The increase in the ratio resulted
from the increase in non-performing loans and a decrease in total
assets as of September 30, 2004 as compared to June 30, 2004 and
December 31, 2003. The increase in non-performing loans during the
third quarter of 2004 was mainly a result of the transfer to non-
accrual of an $8.8 million commercial real estate loan secured by a
hotel in Michigan. Also transferred to non-accrual at the request of
the Office of Thrift Supervision was a $2.9 million commercial real
estate loan participation purchased. This loan was purchased from a
lending company that has filed for bankruptcy and is under
investigation for fraud. Both of these loans have been identified at
September 30, 2004 as impaired loans and the Company has identified a
combined estimated impairment reserve of $1.5 million.
The Company's allowance for losses on loans was $16.5 million at
September 30, 2004, an increase of $5.2 million and $6.1 million,
respectively, from June 30, 2004 and December 31, 2003. The ratio of
allowance for losses on loans to total loans increased to 1.65% at
September 30, 2004 from 1.12% at June 30, 2004 and 1.06% at December
31, 2003. The Company maintains the allowance for losses on loans at
a level that management believes is 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 September 30, 2004, loans receivable were $1.0 billion, up
1.8% from $982.6 million at December 31, 2003. The Company originated
over $107.0 million in new loans and lines of credit during the third
quarter as compared to $131.0 million for the second quarter of 2004.
The decrease was mainly a result of lower originations of commercial
construction and land development loans. Loan originations for the
nine months ended September 30, 2004 totaled $317.3 million. Over 69%
of these year-to-date originations were commercial loans and lines of
credit. As of September 30, 2004, the Company had commitments to
originate commercial and retail loans totaling $69.0 million.
Total deposits were $847.4 million at September 30, 2004, down
$131.1 million from $978.4 million at December 31, 2003. The decrease
was largely caused by a reduction of $149.5 million in
CFS Bancorp, Inc. - Page 5 of 9
certificates of deposit, partially offset by an increase in core deposits
of $18.4 million. The decrease in certificates of deposit was primarily due
to the permitted runoff of above market rate certificates as they reached
maturity. 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 3.3% since
December 31, 2003.
Stockholders' equity at September 30, 2004 was $152.4 million,
down from $156.0 million at December 31, 2003. The decrease was
primarily due to:
* the net loss of $1.9 million;
* a $370,000 decrease in unrealized gains on available-for-sale
securities, net of tax;
* dividends declared during the first nine months of 2004 totaling
$3.6 million; and
* repurchases of the Company's common stock during the first nine
months of 2004 totaling $869,000.
Partially offsetting the above decreases in stockholders' equity, the
Company also realized during the first nine months of 2004:
* vesting of $1.4 million of common stock under the Company's
Recognition and Retention Plan; and
* stock option exercises totaling $1.7 million.
During the third quarter of 2004, the Company repurchased 1,112
shares of its common stock at an average price of $13.53 per share
pursuant to the share repurchase program announced in March 2003.
Since its initial public offering, the Company has repurchased an
aggregate of 11,592,616 shares of its common stock at an average price
of $11.75 per share. As of October 20, 2004, the Company has
1,180,156 of shares remaining to be repurchased under its current
share repurchase program.
As of September 30, 2004, stockholders' equity per common share
was $12.38, as compared to $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 September 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 $1.4 billion asset federal savings bank. Citizens Financial
Services provides community banking services and currently operates 24
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 loan underwriting and
administration, the interest rate environment, expected asset yields
and cost of funds, net interest income, loan volume, net interest
margin, loan loss reserves and impairment reserves, income levels and
impact of tax credits and permanent tax differences. In addition, the words
CFS Bancorp, Inc. - Page 6 of 9
"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.
CFS Bancorp, Inc. - Page 7 of 9
CFS BANCORP, INC.
Highlights (Unaudited)
(Dollars in thousands, except per share data)
EARNINGS HIGHLIGHTS AND Three Months Ended Nine Months Ended
______________________________________ _______________________________________
PERFORMANCE RATIOS* September 30, 2004 September 30, 2003 September 30, 2004 September 30, 2003
_________________________________________________ __________________ __________________ __________________ __________________
Net income (loss) $(2,781) $ 967 $(1,894) $2,319
Basic earnings (loss) per share (0.24) 0.09 (0.16) 0.21
Diluted earnings (loss) per share (0.24) 0.08 (0.16) 0.20
Cash dividends declared 0.11 0.11 0.33 0.33
Return on average assets (0.76) % 0.25 % (0.17) % 0.20 %
Return on average equity (7.11) 2.49 (1.61) 1.99
Average yield on interest-earning assets 5.08 4.64 4.83 4.79
Average cost on interest-bearing liabilities 2.96 3.12 2.98 3.31
Interest rate spread 2.12 1.52 1.85 1.48
Net interest margin 2.43 1.82 2.16 1.79
Non-interest expense to average assets 2.93 2.11 2.52 2.05
Efficiency ratio 93.98 84.77 89.49 84.63
Market price per share of common stock
for the period ended: Closing $13.87 $ 13.92 $ 13.87 $13.92
High 13.93 14.98 15.16 15.00
Low 12.90 13.84 12.90 13.51
STATEMENT OF CONDITION HIGHLIGHTS September 30, June 30, December 31,
AND PERFORMANCE RATIOS* 2004 2004 2003
____________________________________________________ _____________ ______________ ______________
Total assets $1,429,921 $1,472,144 $1,569,270
Loans receivable, net of unearned discount 1,000,424 1,008,962 982,579
Total deposits 847,353 880,680 978,440
Total stockholders' equity 152,402 154,527 155,953
Book value per common share 12.38 12.57 12.78
Non-performing loans 32,976 23,622 22,720
Non-performing assets 33,566 24,398 22,926
Allowance for losses on loans 16,506 11,299 10,453
Non-performing loans to total loans 3.30 % 2.34 % 2.31 %
Non-performing assets to total assets 2.35 1.66 1.46
Allowance for losses on loans
to non-performing loans 50.05 47.83 46.01
Allowance for losses on loans to total loans 1.65 1.12 1.06
Average equity to average assets 10.72 10.53 10.08
Average interest-earning assets
to average interest-bearing liabilities 112.12 111.43 110.27
Employees (FTE) 338 344 330
Branches and offices 24 22 22
Three Months Ended Nine Months Ended
_______________________________________ _______________________________________
AVERAGE BALANCE DATA September 30, 2004 September 30, 2003 September 30, 2004 September 30, 2003
__________________________________________ __________________ __________________ __________________ __________________
Total assets $1,450,240 $1,523,314 $1,507,807 $1,558,919
Loans receivable, net of unearned discount 1,004,586 976,415 996,515 958,413
Total interest-earning assets 1,378,651 1,453,941 1,435,085 1,490,046
Total liabilities 1,294,743 1,368,994 1,350,497 1,403,255
Total deposits 855,377 902,055 912,829 935,176
Interest-bearing deposits 809,256 865,068 869,597 899,455
Total interest-bearing liabilities 1,229,568 1,313,161 1,288,672 1,348,409
Stockholders' equity 155,497 154,320 157,310 155,664
_________________
* Ratios are annualized where appropriate.
CFS Bancorp, Inc. - Page 8 of 9
CFS BANCORP, INC.
Consolidated Statements of Income (Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
__________________________ ___________________________
(Dollars in thousands, except per share data) 2004 2003 2004 2003
_______________________________________________________ _____________ ___________ ______________ ____________
Interest income:
Loans $ 14,541 $ 14,628 $ 42,388 $ 44,818
Securities 2,712 1,631 7,983 5,844
Other 338 745 1,514 2,683
---------- --------- ---------- ----------
Total interest income 17,591 17,004 51,885 53,345
Interest expense:
Deposits 2,818 3,603 9,839 13,367
Borrowings 6,340 6,730 18,866 20,002
---------- --------- ---------- ----------
Total interest expense 9,158 10,333 28,705 33,369
---------- --------- ---------- ----------
Net interest income before provision for losses on loans 8,433 6,671 23,180 19,976
Provision for losses on loans 6,172 502 8,829 1,489
---------- --------- ---------- ----------
Net interest income after provision for losses on loans 2,261 6,169 14,351 18,487
Non-interest income:
Service charges and other fees 1,922 1,906 5,474 5,207
Commission income 204 202 527 520
Net realized gains on available-for-sale securities 126 326 81 325
Net gain (loss) on sale of office properties - 4 (1) 28
Income from Bank-owned life insurance 355 363 1,078 1,092
Other income 453 403 1,583 1,449
---------- --------- ---------- ----------
Total non-interest income 3,060 3,204 8,742 8,621
Non-interest expense:
Compensation and employee benefits 5,772 4,666 15,235 13,467
Net occupancy expense 501 562 1,759 1,764
Professional fees 775 393 2,420 1,353
Data processing 644 542 2,096 1,654
Furniture and equipment expense 258 461 1,176 1,416
Marketing 229 262 812 726
Other general and administrative expenses 2,504 1,205 4,997 3,523
---------- --------- ---------- ----------
Total non-interest expense 10,683 8,091 28,495 23,903
---------- --------- ---------- ----------
Income (loss) before income taxes (5,362) 1,282 (5,402) 3,205
Income tax expense (benefit) (2,581) 315 (3,508) 886
---------- --------- ---------- ----------
Net income (loss) $ (2,781) $ 967 $ (1,894) $ 2,319
========== ========= ========== ==========
Per share data:
Basic earnings (loss) per share $ (0.24) $ 0.09 $ (0.16) $ 0.21
Diluted earnings (loss) per share $ (0.24) $ 0.08 $ (0.16) $ 0.20
Cash dividends declared per share $ 0.11 $ 0.11 $ 0.33 $ 0.33
Weighted-average shares outstanding 11,648,808 11,251,705 11,555,801 11,285,488
Weighted-average diluted shares outstanding 11,905,252 11,658,617 11,866,131 11,705,965
CFS Bancorp, Inc. - Page 9 of 9
CFS BANCORP, INC.
Consolidated Statements of Financial Condition (Unaudited)
(Dollars in thousands) September 30, December 31,
2004 2003
_________________________________________________________________________ _____________ _____________
ASSETS
Cash and amounts due from depository institutions $ 17,770 $ 18,213
Interest-bearing deposits 39,852 149,577
Federal funds sold 6,343 9,961
--------- ---------
Cash and cash equivalents 63,965 177,751
Securities, available-for-sale 284,939 326,304
Investment in Federal Home Loan Bank stock, at cost 27,374 26,766
Loans receivable, net of unearned fees 1,000,424 982,579
Allowance for losses on loans (16,506) (10,453)
--------- ---------
Net loans 983,918 972,126
Accrued interest receivable 5,966 6,624
Real estate owned 590 206
Office properties and equipment 16,676 13,738
Investment in Bank-owned life insurance 33,001 31,926
Prepaid expenses and other assets 13,492 13,829
--------- ---------
Total assets $1,429,921 $1,569,270
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $847,353 $978,440
Borrowed money 411,829 418,490
Advance payments by borrowers for taxes and insurance 8,206 5,595
Other liabilities 10,131 10,792
--------- ---------
Total liabilities 1,277,519 1,413,317
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 September 30, 2004 and December 31, 2003;
12,310,222 and 12,200,015 shares outstanding as of September 30, 2004
and December 31, 2003, respectively 234 234
Additional paid-in capital 189,701 189,879
Retained earnings, substantially restricted 100,813 106,354
Treasury stock, at cost; 11,113,084 and 11,223,291 shares
as of September 30, 2004 and December 31, 2003, respectively (131,578) (132,741)
Unearned common stock acquired by ESOP (7,158) (7,158)
Unearned common stock acquired by RRP (148) (1,523)
Accumulated other comprehensive income, net of tax 538 908
--------- ---------
Total stockholders' equity 152,402 155,953
--------- ---------
Total liabilities and stockholders' equity $1,429,921 $1,569,270
========= =========