EXHIBIT 99.1
EARNINGS PRESS RELEASE OF CITIZENS SOUTH BANKING CORPORATION
CITIZENS SOUTH BANKING CORPORATION ANNOUNCES EARNINGS FOR THE
QUARTER ENDED SEPTEMBER 30, 2003
GASTONIA, NC, October 20, 2003 --- Citizens South Banking Corporation
(Nasdaq: CSBC), the holding company for Citizens South Bank, announced earnings
for the quarter ended September 30, 2003, of $94,000, or $0.01 per share.
Earnings for the same quarter in 2002 were $1.2 million, or $0.13 per share. Net
income for the nine months ended September 30, 2003, was $2.4 million, or $0.28
per share, as compared to $3.3 million, or $0.37 per share, for the nine months
ended September 30, 2002.
Third quarter earnings decreased from 2002 to 2003 primarily due to a $1.3
million pre-tax prepayment penalty associated with the restructuring of $15.0
million in borrowed funds. This action was taken by the Company in an effort to
capitalize on historically low interest rates, lower the Company's cost of
funds, and improve the Company's net interest margin. This restructuring reduced
the average interest rate paid on these borrowed funds from 5.8% to 1.8%,
resulting in an immediate reduction in interest expense of $150,000 per quarter
for the first year. The reduction in interest expense is expected to amount to
approximately $1.7 million over the next five years.
Net interest income decreased by $617,000, or 17.0%, from the quarter
ended September 30, 2002, to the comparable period in 2003. Historically low
interest rates have spurred an unprecedented level of loan refinancing as well
as decreases in interest rates on variable rate loans and yields on investments,
resulting in a $948,000, or 15.4%, decrease in interest income. The decrease in
interest income was partially offset by a $331,000, or 13.1%, decrease in
interest expense, primarily due to lower interest rates paid on deposits.
Quarterly noninterest income increased by $93,000, or 8.7%, due in part to a
$58,000 increase in loan fee income resulting from increased mortgage banking
activity and a $97,000 increase in gain on sale of assets. During the comparable
quarters, noninterest expense, excluding the prepayment penalty on borrowed
funds, increased by $93,000, or 3.4%. This change was largely attributable to a
$166,000 increase in compensation resulting mainly from the increased staffing
associated with the opening of the Bank's tenth full-service office, located in
Mooresville, North Carolina. Also, professional fees increased $61,000 due in
part to measures taken by the Company to ensure compliance with the
Sarbanes-Oxley Act. These increases in noninterest expense were partly offset by
a $109,000 decrease in the amortization of the core deposit intangible during
the third quarter of 2003. The provision for income taxes decreased by $745,000,
due to the $1.9 million reduction in pretax earnings.
The Company's asset quality remains strong despite the continued weakness
in the local and national economies. The Company's ratio of nonperforming assets
to total assets was 0.26% as of September 30, 2003, compared to 0.38% as of
September 30, 2002, and the ratio of nonperforming loans to total loans was
0.37% as of September 30, 2003, compared to 0.22% as of September 30, 2002.
Continued weakness in the local and national economies may result in some
increase of nonperforming loans in the future; however management is optimistic
that the Company's asset quality ratios will continue to outperform its industry
peers.
President and Chief Executive Officer Kim S. Price commented, "Our
transformation from traditional thrift to community bank has been hastened by
the mass of residential mortgage repayments resulting from historically low
interest rates. While we have been pleased with our commercial loan growth, the
pace of residential prepayments has negatively impacted our "net" loan growth.
We remain convinced that the changing mix of our asset portfolio, while painful
to margins in this interest rate environment, will serve shareholders well in
the long term and that loan growth will resume at more historical levels as
residential prepayment speeds normalize."
President Price continued, "In addition to implementing measures to
improve the net interest margin, we have been actively managing our excess
capital through share repurchases. The Company has recently completed the
repurchase of 343,027 shares (or 3.8% of total outstanding shares) and the Board
of Directors has now authorized the repurchase of an additional 879,900 shares
(approximately 10% of total outstanding shares) of Company stock."
Citizens South Bank was founded in 1904 and has ten offices in three North
Carolina counties - Gaston, Rowan, and Iredell, including eight cities - three
in Gastonia and one each in Dallas, Mount Holly, Stanley, Salisbury, Rockwell,
Statesville, and Mooresville.
This news release contains certain forward-looking statements, which are
subject to risks and uncertainties. A number of factors could cause actual
conditions, events or results to differ significantly from those described in
the forward-looking statements, including general economic conditions, changes
in interest rates, regulatory considerations, and competition. The Company's
reports filed from time to time with the Securities and Exchange Commission,
including the Company's Form 10-K for the year ended December 31, 2002, describe
some of these factors. Forward-looking statements speak only as of the date they
are made and the Company does not undertake to update forward-looking statements
to reflect circumstances or events that occur after the date of the
forward-looking statements or to reflect the occurrence of unanticipated events.
(Tables Follow)
# # #
Citizens South Banking Corporation
Selected Financial Information
(dollars in thousands, except per share data)
----------------------------------------------------------------------------------
Quarter ended Quarter ended Year ended
September 30, September 30, Quarter ended Quarter ended December 31,
2003 2002 June 30, 2003 March 31, 2003 2002
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(unaudited) (unaudited) (unaudited) (unaudited)
Income Statement Data:
Interest income .............................. $ 5,206 $ 6,154 $ 5,645 $ 5,903 $ 24,716
Interest expense ............................. 2,202 2,533 2,286 2,328 10,195
----------- ----------- ----------- ----------- -----------
Net interest income .......................... 3,004 3,621 3,359 3,575 14,521
Provision for loan losses .................... 15 70 15 15 225
----------- ----------- ----------- ----------- -----------
Net int. income after provision for loan
losses ..................................... 2,989 3,551 3,344 3,560 14,296
Noninterest income ........................... 1,159 1,066 1,358 1,084 4,121
Noninterest expense .......................... 2,859 2,766 3,131 2,763 11,316
Prepayment penalty on FHLB advances .......... 1,289 0 0 0 65
----------- ----------- ----------- ----------- -----------
Income before income taxes ................... 0 1,851 1,571 1,881 7,036
Income tax expense ........................... (94) 651 447 674 2,528
----------- ----------- ----------- ----------- -----------
Net income ................................... $ 94 $ 1,200 $ 1,124 $ 1,207 $ 4,508
Per Share Data (1):
Basic net income ............................. $ 0.01 $ 0.14 $ 0.13 $ 0.14 $ 0.51
Diluted net income ........................... 0.01 0.13 0.13 0.14 0.51
Cash dividends declared ...................... 0.06 0.04 0.06 0.06 0.16
Period-end book value ........................ 10.42 10.58 10.67 10.68 10.64
Financial Ratios:
Return on average stockholders' equity ....... 0.40% 10.72% 4.72% 5.00% 7.61%
Return on average assets ..................... 0.08 1.05 0.90 0.97 0.98
Efficiency ratio ............................. 100.29 59.15 66.96 59.26 61.11
Net interest margin .......................... 2.43 3.17 2.69 2.88 3.17
Average equity to average assets ............. 19.11 9.78 19.10 19.41 12.93
Asset Quality Data:
Allowance for loan losses .................... $ 3,007 $ 2,965 $ 3,002 $ 3,000 $ 2,995
Nonperforming loans .......................... 1,102 710 802 570 516
Nonperforming assets ......................... 1,270 2,008 948 810 1,823
Allowance for loan losses to total loans ..... 1.01% 0.93% 0.98% 0.98% 0.97%
Nonperforming loans to total loans ........... 0.38 0.22 0.26 0.19 0.17
Nonperforming assets to total assets ......... 0.26 0.39 0.19 0.16 0.37
Average Balances:
Total assets ................................ $ 493,732 $ 457,555 $ 498,901 $ 496,746 $ 458,316
Loans receivable, net ....................... 294,980 321,049 305,750 299,722 320,505
Interest-earning assets ..................... 448,698 413,170 454,675 453,110 416,748
Deposits .................................... 337,595 336,882 342,817 338,799 337,422
Interest-bearing liabilities ................ 377,824 388,127 383,355 374,869 381,664
Stockholders' equity ........................ 94,408 44,761 95,268 96,648 59,243
Common shares outstanding, basic (1) ........ 8,596,575 8,790,445 8,660,195 8,757,664 8,767,982
Common shares outstanding, diluted (1) ...... 8,752,979 8,945,186 8,808,915 8,920,531 8,870,054
At Period End:
Total assets ................................ $ 489,341 $ 509,797 $ 501,217 $ 501,216 $ 492,567
Loans receivable, net ....................... 288,699 310,912 298,757 299,291 299,906
Interest-earning assets ..................... 441,996 432,478 454,746 457,433 456,611
Deposits .................................... 339,619 341,697 345,014 343,865 340,862
Interest-bearing liabilities ................ 379,967 442,668 384,239 383,287 377,234
Stockholders' equity ........................ 91,667 95,871 95,253 96,795 96,383
Other Data:
Amortization of core deposit intangible ...... $ 91 $ 122 $ 106 $ 126 $ 963
Net gain / (loss) on sale of assets .......... 23 11 42 4 105
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Footnotes:
(1) All share and per share data have been restated to reflect the 2.1408
conversion ratio of existing shares of common stock used in the
second-step stock offering that was completed on September 30, 2002.
Common shares outstanding exclude unallocated shares held by the ESOP.
Citizens South Banking Corporation
Consolidated Statements of Financial Condition
(dollars in thousands)
September 30, December 31,
2003 2002
------------- ------------
(unaudited)
ASSETS
Cash and due from banks .................................................................. $ 5,697 $ 7,607
Interest-earning bank balances ........................................................... 13,830 39,392
--------- ---------
Cash and cash equivalents ............................................................. 19,527 46,999
Investment securities available-for-sale, at fair value .................................. 52,869 39,594
Mortgage-backed securities available-for-sale, at fair value ............................. 85,406 70,409
Loans receivable, net unearned income .................................................... 291,706 302,901
Allowance for loan losses ................................................................ (3,007) (2,995)
--------- ---------
Loans, net ............................................................................ 288,699 299,906
Real estate acquired through foreclosure, net ............................................ 169 1,307
Accrued interest receivable .............................................................. 1,783 1,913
Premises and equipment, net .............................................................. 13,772 8,807
Federal Home Loan Bank stock, at cost .................................................... 2,575 2,639
Cash value of life insurance policies .................................................... 10,202 6,834
Core deposit intangible .................................................................. 1,161 1,484
Goodwill ................................................................................. 6,670 6,670
Other assets ............................................................................. 6,508 6,005
--------- ---------
Total assets .......................................................................... $ 489,341 $ 492,567
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand accounts ...................................................... $ 11,056 $ 11,203
Checking accounts ........................................................................ 29,661 25,773
Money market deposit accounts ............................................................ 47,364 35,811
Savings accounts ......................................................................... 38,035 43,670
Time deposits ............................................................................ 213,503 224,405
--------- ---------
Total deposits ........................................................................ 339,619 340,862
Borrowed money ........................................................................... 51,455 47,575
Advances from borrowers for property taxes and insurance ................................. 711 440
Accrued interest payable ................................................................. 161 382
Other liabilities ........................................................................ 5,728 6,925
--------- ---------
Total liabilities ..................................................................... 397,674 396,184
--------- ---------
Stockholders' Equity:
Common stock issued and outstanding, $0.01 par value, 20,000,000 shares
authorized, 8,799,055 issued and outstanding September 30, 2003,
9,062,727 issued and outstanding December 31, 2002 .................................... 88 91
Additional paid-in-capital ............................................................... 68,327 68,176
Unallocated common stock held by Employee Stock Ownership Plan ........................... (2,024) (2,162)
Retained earnings, substantially restricted .............................................. 29,549 28,739
Accumulated unrealized gain on securities available-for-sale, net of tax ................. 399 1,539
Treasury stock of 263,672 shares, at cost ................................................ (4,672) 0
--------- ---------
Total stockholders' equity ............................................................ 91,667 96,383
--------- ---------
Total liabilities and stockholders' equity ............................................... $ 489,341 $ 492,567
========= =========
Citizens South Banking Corporation
Consolidated Statements of Operations (unaudited)
(dollars in thousands, except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2003 2002 2003 2002
---- ---- ---- ----
Interest income
Loans ....................................................... $ 4,077 $ 5,302 $ 12,910 $ 16,316
Investment securities ....................................... 311 386 1,000 1,064
Interest-bearing deposits ................................... 57 130 219 345
Mortgage-backed and related securities ...................... 761 336 2,625 921
----------- ----------- ----------- -----------
Total interest income ..................................... 5,206 6,154 16,754 18,646
Interest Expense
Deposits .................................................... 1,603 1,958 5,037 6,077
Borrowed funds .............................................. 599 575 1,779 1,672
----------- ----------- ----------- -----------
Total interest expense ...................................... 2,202 2,533 6,816 7,749
Net interest income ......................................... 3,004 3,621 9,938 10,897
Provision for loan losses ................................... 15 70 45 205
----------- ----------- ----------- -----------
Net interest income after provision for loan losses ....... 2,989 3,551 9,893 10,692
Noninterest Income
Fee income on deposit accounts .............................. 614 598 1,791 1,691
Fee income on mtg. banking and other lending activities ..... 241 183 754 498
Dividends on FHLB stock ..................................... 21 45 79 144
Gain on sale of assets ...................................... 108 11 168 119
Fair value adjustment on deferred comp. investments ......... (8) (12) 178 (62)
Other noninterest income .................................... 183 241 631 598
----------- ----------- ----------- -----------
Total noninterest income .................................. 1,159 1,066 3,601 2,988
Noninterest Expense
Compensation and benefits ................................... 1,511 1,345 4,498 4,042
Fair value adjustment on deferred compensation .............. (8) (12) 179 (62)
Occupancy and equipment expense ............................. 349 353 993 1,063
Professional services ....................................... 113 52 444 230
Amortization of intangible assets ........................... 91 200 323 808
Loss on sale of assets ...................................... 85 0 99 17
Prepayment penalty on FHLB advances ......................... 1,289 0 1,289 65
Other noninterest expenses .................................. 718 828 2,217 2,347
----------- ----------- ----------- -----------
Total noninterest expense ................................. 4,148 2,766 10,042 8,510
Income before income taxes .................................. 0 1,851 3,452 5,170
Provision for income taxes .................................. (94) 651 1,028 1,847
----------- ----------- ----------- -----------
Net income .................................................. $ 94 $ 1,200 $ 2,424 $ 3,323
=========== =========== =========== ===========
Basic earnings per share .................................... $ 0.01 $ 0.14 $ 0.28 $ 0.38
Diluted earnings per share .................................. $ 0.01 $ 0.13 $ 0.28 $ 0.37
Basic average common shares outstanding ..................... 8,596,575 8,790,445 8,670,591 8,779,548
Diluted average common shares outstanding ................... 8,752,979 8,945,186 8,810,380 8,863,041