Business & Finance
Business and Finance
Business and Finance 
Fri, October 30, 2009
Thu, October 29, 2009
MUNSTER, IN--(Marketwire - October 29, 2009) - CFS Bancorp, Inc. (
For the nine months ended September 30, 2009, the Company reported a net loss of $2.5 million, or $(0.24) per share, compared to a net loss of $1.6 million or $(0.15) per share for the comparable 2008 period.
Chairman's Comments
"Our financial results for the quarter were disappointing. Rapid declines in real estate collateral values on nonperforming assets resulted in a significant increase in our provision for loan losses as well as a $1.3 million increase in the valuation allowance on OREO. In addition, higher professional fees related to a shareholder derivative demand and higher FDIC insurance premiums negatively impacted earnings. These factors exceeded reductions in controllable overhead costs, increases in non-interest income, and increases in net interest income attributable to higher net interest margins," said Thomas F. Prisby, Chairman & CEO.
"Despite indications that the national recession may be ending, the local economy in our northwest Indiana and southwest suburban Chicago market area remains depressed. Most economists are predicting a very gradual recovery. Businesses are continuing to struggle to meet their obligations and the commercial real estate sector is increasingly at risk. Current declines in the real estate collateral values supporting many of the Bank's non-performing loans and OREO led to material increases in impairments, charge-offs and a write down of the value of OREO during the quarter. These non-performing assets represent a significant drag on earnings for a number of reasons, and our management team is committed to addressing these problem credits in an aggressive, yet prudent, manner within the constraints of current and forecasted market conditions.
"We remain committed to our Strategic Growth and Diversification Plan; however, given that quality asset growth remains elusive in the current environment, management intends to continue to opportunistically reduce costs as appropriate within our longer term Strategic Growth and Diversification Plan," added Prisby.
Progress on Strategic Growth and Diversification Plan
The Company's Strategic Growth and Diversification Plan is built around four core objectives: decreasing non-performing loans; ensuring costs are appropriate given the Company's targeted future asset base; growing while diversifying by targeting small and mid-sized business owners for relationship-based banking opportunities; and expanding and deepening the Company's relationships with its clients by meeting a higher percentage of the clients' financial service needs.
Progress on the Strategic Growth and Diversification plan has been negatively impacted by the length and severity of the current recession. The current recession started in December 2007, according to the National Bureau of Economic Research (NBER). Even if it had ended, as some economic observers have indicated, early in the third quarter of 2009, the current contraction would represent the longest period of U.S. economic contraction in the post World War II era. For comparison, the average length of the ten prior postwar contraction periods was ten months.
The Company's ability to achieve targeted earning asset levels has been hampered by current economic and regulatory conditions. Our efforts to attract new business banking clients and deepen relationships with current clients are progressing; however, our successes in this arena have resulted in slower asset and income growth rates than would be achieved in normal economic times. Growth remains a strategic priority, but expectations of future growth are tempered by the reality of the market. Management believes the Company will be able to achieve quality, relationship-based loan growth over time and as the economy recovers.
Net Interest Income
Net interest margin increased five basis points to 3.74% for the third quarter of 2009 from 3.69% for the second quarter of 2009 and 27 basis points from 3.47% for the third quarter of 2008. Net interest income increased to $9.4 million compared to $9.3 million for the second quarter of 2009 and $8.9 million for the third quarter of 2008. Net interest income continues to be positively affected by lower interest rates on interest-bearing deposits and borrowed money due to lower market rates coupled with a decrease in the amortization of the premium on the early extinguishment of Federal Home Loan Bank (FHLB) debt.
Interest income decreased 2.9% to $12.6 million for the third quarter of 2009 compared to $13.0 million for the second quarter of 2009 and 12.4% from $14.4 million for the third quarter of 2008. Interest income was negatively affected during the third quarter of 2009 by an increase in non-performing assets. The decrease from the third quarter of 2008 was due to lower market rates of interest during the third quarter of 2009 coupled with a 9.4% increase in non-performing assets since December 31, 2008.
Interest expense decreased 12.1% to $3.2 million for the third quarter of 2009 from $3.6 million for the second quarter of 2009 and 41.6% from $5.5 million for the third quarter of 2008. Interest expense on deposits was positively affected by disciplined pricing on deposits, including certificates of deposit, as current market interest rates remain lower than 2008. In addition, the amortization of the premium on the early extinguishment of FHLB debt decreased $246,000 from the third quarter of 2008.
Non-Interest Income and Non-Interest Expense
Excluding available-for-sale security gains and losses, non-interest income increased $154,000 or 7.2% from the second quarter of 2009 primarily as a result of an increase in service charges and other fees. Non-interest income excluding available-for-sale security gains and losses decreased $341,000, or 13.0%, from the third quarter of 2008 resulting from decreases of $161,000 in service charges and other fees and $131,000 of income on the Company's bank-owned life insurance policy due to lower interest crediting rates.
Non-interest expense for the third quarter of 2009 increased 3.1% to $10.2 million compared to $9.9 million for the second quarter of 2009 primarily due to a $1.1 million increase in an OREO valuation reserve caused by the decline in its net realizable value. The linked quarter increase in professional fees was $150,000 which was related to a shareholder derivative demand made late in the first quarter of 2009. The Company anticipates professional fees to continue to be higher in 2009 as compared to 2008 because of the derivative demand. Partially offsetting these increases were linked quarter decreases in compensation and employee benefits expense totaling $573,000 due to the adjustment of the Company's incentive accruals and $492,000 of FDIC insurance from the absence of the special assessment charged in the second quarter of 2009.
Non-interest expense for the third quarter of 2009 increased 18.1% to $ 10.2 million from $8.7 million for the third quarter of 2008. The increase from the 2008 period was primarily a result of increases in nondiscretionary expense items including the aforementioned increase in the valuation reserve for other real estate owned; increased FDIC insurance premiums of $431,000 due to the industry-wide increase in assessment rates for 2009; and increased professional fees of $375,000 which are primarily related to a shareholder derivative demand made late in the first quarter of 2009. The Company incurred professional fee expenses totaling $551,000 for the third quarter of 2009 related to the shareholder derivative demand.
Asset Quality
The provision for losses on loans for the third quarter of 2009 increased to $9.4 million from $713,000 for the second quarter of 2009 and from $1.4 million for the third quarter of 2008. Net charge-offs for the third quarter of 2009 totaled $3.6 million compared to $1.3 million for the second quarter of 2009 and $3.2 million for the third quarter of 2008. Net charge-offs during the third quarter of 2009 included the charge-offs of home equity lines of credit totaling $1.6 million and partial charge-offs of $1.8 million on several collateral dependent non-owner occupied commercial real estate and construction and land development loans. The third quarter provision for losses on loans was also impacted by the increase in impairment reserves of $4.8 million on three hospitality loans and $491,000 on a condominium project.
The allowance for losses on loans totaled $20.8 million at September 30, 2009 compared to $15.6 million at December 31, 2008. The ratio of allowance for losses on loans to total loans increased to 2.78% at September 30, 2009 compared to 2.07% at December 31, 2008. When management determines a non-performing collateral dependent loan has a collateral shortfall, management will immediately charge-off the collateral shortfall. As a result, the Company is not required to maintain an allowance for losses on loans on these loans as the loan balance has already been written down to its net realizable value (fair value less estimated costs to sell the collateral).
Balance Sheet
At September 30, 2009, the Company's total assets were $1.08 billion compared to $1.12 billion at December 31, 2008. Securities available-for-sale totaled $205.9 million at September 30, 2009 compared to $251.3 million at December 31, 2008. The decrease in securities is primarily due to maturities and pay downs coupled with sales activity during 2009. The Company's loans receivable were relatively stable at $748.5 million at September 30, 2009 compared to $750.0 million at December 31, 2008.
Deposits increased $23.1 million to $847.2 million at September 30, 2009 from $824.1 million at December 31, 2008 resulting from a $31.5 million increase in non-municipal core deposits. Investments in the Company's branch network, technological infrastructure, human capital, and brand have enhanced its ability to translate existing and new client relationships into deposit growth. Partially offsetting the increase in core deposits was an $11.2 million decrease in time deposits. Total municipal deposits decreased $6.1 million since December 31, 2008 primarily due to seasonal factors. While the Company maintains strong relationships with its municipal clients, and municipal deposits continue to comprise an important funding source, management is lowering its reliance on such funds in anticipation that the recession's impact on municipalities and other government-related entities will result in lower municipal deposit levels. The Company's deposits consisted of the following as of the dates indicated:
September 30, December 31, 2009 2008 ------------ ------------ (Dollars in thousands) Core deposits $ 440,683 $ 409,184 Certificates of deposit 353,868 356,227 ------------ ------------ Subtotal non-municipal deposits 794,551 765,411 ------------ ------------ Municipal core deposits 42,024 39,221 Municipal certificates of deposit 10,603 19,465 ------------ ------------ Subtotal municipal deposits 52,627 58,686 ------------ ------------ Total deposits $ 847,178 $ 824,097 ------------ ------------
The Company's borrowed money decreased to $105.4 million at September 30, 2009 from $172.9 million at December 31, 2008 as the Company continues to strengthen its balance sheet and enhance its liquidity position. The Company's borrowed money consisted of the following as of the dates indicated:
September 30, December 31, 2009 2008 ----------- ----------- (Dollars in thousands) Short-term variable-rate borrowed money and repurchase agreements $ 18,801 $ 28,312 Gross FHLB borrowed money 86,573 144,800 Unamortized deferred premium (17) (175) ----------- ----------- Total borrowed money $ 105,357 $ 172,937 ----------- -----------
Shareholders' equity at September 30, 2009 decreased to $109.5 million from $111.8 million at December 31, 2008 as a result of the Company's year to date net loss.
At September 30, 2009, our tangible common equity was $109.5 million, or 10.27% of tangible assets compared to $111.8 million, or 10.01% of tangible assets at December 31, 2008. At September 30, 2009, the Bank's total capital to risk-weighted assets declined to 12.02% compared to 13.21% at December 31, 2008 as a result of the net loss for the year combined with a $7.4 million increase in the disallowance of deferred tax assets for regulatory capital purposes. At September 30, 2009, the Bank's risk-based capital ratio exceeded the regulatory limit of 10% to be considered "well-capitalized" by $17.3 million.
CFS Bancorp, Inc. is the parent of Citizens Financial Bank, a $1.1 billion asset federal savings bank. Citizens Financial Bank is an independent bank focusing its people, products and services on helping individuals, businesses and communities be successful. The Bank has 23 offices throughout adjoining markets in Chicago's Southland and Northwest Indiana. The Company's website can be found at [ www.citz.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 current regulatory capital and equity ratios, general economic conditions, state of the banking industry, successful execution of the Company's strategy and its Strategic Growth and Diversification Plan, levels of provision for the allowance for losses on loans and charge-offs, loan and deposit growth, diversification of the loan portfolio, non-performing asset levels, interest on loans, asset yields and cost of funds, net interest income, net interest margin, non-interest income, non-interest expense, interest rate environment, bank-owned life insurance interest rates, the expected effect of amortization of deferred premium on the FHLB debt; realization of deferred tax assets; and other risk factors identified in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as amended, and other filings with the Securities and Exchange Commission. 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, assumptions and changes in circumstances. Forward-looking statements are not guarantees of future performance or outcomes, and actual results or events may differ materially from those included in these statements. The Company does not intend to update these forward-looking statements.
SELECTED CONSOLIDATED FINANCIALS AND OTHER DATA FOLLOW
CFS BANCORP, INC. Highlights (Unaudited) (Dollars in thousands, except per share data) EARNINGS HIGHLIGHTS AND PERFORMANCE RATIOS (1) Three Months Ended Nine Months Ended ------------------------------ --------------------- September June 30, September September September 30, 2009 2009 30, 2008 30, 2009 30, 2008 --------- ------- --------- --------- --------- Net income/(loss) $ (4,671) $ 670 $ (1,039) $ (2,540) $ (1,555) Basic earnings/(loss) per share (0.44) 0.06 (0.10) (0.24) (0.15) Diluted earnings/(loss) per share (0.44) 0.06 (0.10) (0.24) (0.15) Cash dividends declared per share 0.01 0.01 0.12 0.03 0.36 Return on average assets (1.70)% 0.24% (0.37)% (0.31)% (0.18)% Return on average equity (16.06) 2.41 (3.36) (3.00) (1.62) Average yield on interest-earning assets 5.01 5.13 5.60 5.12 5.79 Average cost on interest-bearing liabilities 1.43 1.60 2.41 1.60 2.80 Interest rate spread 3.58 3.53 3.19 3.52 2.99 Net interest margin 3.74 3.69 3.47 3.68 3.31 Average equity to average assets (2) 10.60 10.15 11.17 10.28 11.28 Average interest-earning assets to average interest-bearing liabilities (2) 112.26 111.48 113.55 111.71 113.13 Non-interest expense to average assets 3.73 3.63 3.13 3.60 2.86 Efficiency ratio 85.43 86.76 107.67 83.24 81.90 Market price per share of common stock for the period ended: Closing $ 4.68 $ 4.23 $ 9.25 $ 4.68 $ 9.25 High 4.68 4.33 11.84 4.80 14.93 Low 3.75 3.50 8.10 1.75 8.10 STATEMENT OF CONDITION HIGHLIGHTS September June 30, December September (at period end) 30, 2009 2009 31, 2008 30, 2008 ----------- ----------- ----------- ----------- Total assets $ 1,078,420 $ 1,094,679 $ 1,121,855 $ 1,113,418 Loans receivable, net of unearned fees 748,464 750,861 749,973 742,298 Total deposits 847,178 831,104 824,097 832,223 Total stockholders' equity 109,499 115,450 111,809 121,101 Book value per common share 10.16 10.73 10.47 11.34 Non-performing loans 55,980 52,897 54,701 47,799 Non-performing assets 63,401 60,268 57,943 51,146 Allowance for losses on loans 20,799 14,934 15,558 8,664 Non-performing loans to total loans 7.48% 7.04% 7.29% 6.44% Non-performing assets to total assets 5.88 5.51 5.16 4.59 Allowance for losses on loans to non-performing loans 37.15 28.23 28.44 18.13 Allowance for losses on loans to total loans 2.78 1.99 2.07 1.17 Employees (FTE) 308 318 322 310 Banking centers and offices 23 22 22 22 Three Months Ended Nine Months Ended ----------------------------------- ----------------------- AVERAGE BALANCE September June 30, September September September DATA 30, 2009 2009 30, 2008 30, 2009 30, 2008 ----------- ----------- ----------- ----------- ----------- Total assets $ 1,089,110 $ 1,099,750 $ 1,103,127 $ 1,101,028 $ 1,139,928 Loans receivable, net of unearned fees 747,491 750,861 728,312 750,071 752,672 Total interest-earning assets 996,045 1,013,480 1,021,029 1,012,927 1,054,772 Total liabilities 973,699 988,177 979,934 987,873 1,011,342 Total deposits 840,417 845,617 839,378 836,566 853,847 Interest-bearing deposits 771,076 781,108 775,960 770,647 791,490 Non-interest bearing deposits 69,341 64,509 63,418 65,919 62,357 Total interest-bearing liabilities 887,298 909,148 899,218 906,786 932,388 Stockholders' equity 115,411 111,573 123,193 113,155 128,586 (1) Ratios are annualized where appropriate. (2) Ratios calculated on average balances for the periods presented. CFS BANCORP, INC. Condensed Consolidated Statements of Income (Unaudited) (Dollars in thousands, except per share data) For the Nine Months For the Three Months Ended Ended ---------------------------------- ---------------------- September June 30, September September September 30, 2009 2009 30, 2008 30, 2009 30, 2008 ---------- ---------- ---------- ---------- ---------- Interest income: Loans $ 9,648 $ 9,807 $ 10,739 $ 29,400 $ 34,823 Securities 2,742 3,020 3,278 8,805 9,529 Other 195 137 347 575 1,358 ---------- ---------- ---------- ---------- ---------- Total interest income 12,585 12,964 14,364 38,780 45,710 Interest expense: Deposits 2,431 2,749 4,058 8,276 14,300 Borrowings 758 880 1,399 2,598 5,241 ---------- ---------- ---------- ---------- ---------- Total interest expense 3,189 3,629 5,457 10,874 19,541 ---------- ---------- ---------- ---------- ---------- Net interest income 9,396 9,335 8,907 27,906 26,169 Provision for losses on loans 9,430 713 1,441 10,767 9,355 ---------- ---------- ---------- ---------- ---------- Net interest income (loss) after provision for losses on loans (34) 8,622 7,466 17,139 16,814 Non-interest income: Service charges and other fees 1,479 1,376 1,640 4,154 4,544 Card-based fees 429 432 408 1,249 1,203 Commission income 56 70 88 197 281 Available-for- sale security gains (losses), net 321 - (3,470) 1,041 (3,983) Other asset gains (losses), net (15) (6) 11 (21) 8 Income from bank-owned life insurance 218 156 349 552 1,129 Other income 112 97 124 504 445 ---------- ---------- ---------- ---------- ---------- Total non-interest income 2,600 2,125 (850) 7,676 3,627 Non-interest expense: Compensation and employee benefits 4,505 5,078 4,510 14,758 13,025 Net occupancy expense 763 750 865 2,410 2,406 FDIC insurance premiums 471 963 40 1,738 120 Professional fees 754 604 379 1,708 865 Furniture and equipment expense 526 520 562 1,581 1,656 Data processing 407 420 387 1,246 1,329 Marketing 155 218 289 571 675 OREO related expenses 1,343 212 89 1,754 279 Loan collection expenses 290 230 311 818 404 Other general and administrative expenses 1,034 948 1,243 3,035 3,645 ---------- ---------- ---------- ---------- ---------- Total non-interest expense 10,248 9,943 8,675 29,619 24,404 ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes (7,682) 804 (2,059) (4,804) (3,963) Income tax expense (benefit) (3,011) 134 (1,020) (2,264) (2,408) ---------- ---------- ---------- ---------- ---------- Net income (loss) $ (4,671) $ 670 $ (1,039) $ (2,540) $ (1,555) ========== ========== ========== ========== ========== Per share data: Basic earnings (loss) per share $ (0.44) $ 0.06 $ (0.10) $ (0.24) $ (0.15) Diluted earnings (loss) per share $ (0.44) $ 0.06 $ (0.10) $ (0.24) $ (0.15) Cash dividends declared per share $ 0.01 $ 0.01 $ 0.12 $ 0.03 $ 0.36 Weighted-average shares outstanding 10,603,828 10,590,591 10,269,945 10,563,814 10,315,899 Weighted-average diluted shares outstanding 10,695,719 10,697,387 10,406,919 10,674,247 10,539,043 CFS BANCORP, INC. Condensed Consolidated Statements of Condition (Unaudited) (Dollars in thousands) September June 30, December September 30, 2009 2009 31, 2008 30, 2008 ----------- ----------- ----------- ----------- ASSETS Cash and amounts due from depository institutions $ 22,040 $ 20,553 $ 15,714 $ 16,328 Interest-bearing deposits 261 36 3,133 6,095 Federal funds sold - 234 259 312 ----------- ----------- ----------- ----------- Cash and cash equivalents 22,301 20,823 19,106 22,735 Securities available-for-sale, at fair value 205,877 220,324 251,270 249,636 Securities held-to-maturity, at cost 6,000 6,000 6,940 3,500 Investment in Federal Home Loan Bank stock, at cost 23,944 23,944 23,944 23,944 Loans receivable, net of unearned fees 748,464 750,861 749,973 742,298 Allowance for losses on loans (20,799) (14,934) (15,558) (8,664) ----------- ----------- ----------- ----------- Net loans 727,665 735,927 734,415 733,634 Interest receivable 3,614 3,902 4,325 4,584 Other real estate owned 7,421 7,371 3,242 3,347 Office properties and equipment 20,612 19,703 19,790 19,907 Investment in bank-owned life insurance 36,662 36,449 36,606 36,435 Net deferred tax assets 16,997 14,725 15,494 8,803 Other assets 7,327 5,511 6,723 6,893 ----------- ----------- ----------- ----------- Total assets $ 1,078,420 $ 1,094,679 $ 1,121,855 $ 1,113,418 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $ 847,178 $ 831,104 $ 824,097 $ 832,223 Borrowed money 105,357 132,302 172,937 141,146 Advance payments by borrowers for taxes and insurance 7,349 6,121 4,320 7,009 Other liabilities 9,037 9,702 8,692 11,939 ----------- ----------- ----------- ----------- Total liabilities 968,921 979,229 1,010,046 992,317 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; 10,773,173, 10,764,458, 10,674,511 and 10,676,483 shares outstanding 234 234 234 234 Additional paid-in capital 188,930 189,004 189,211 189,966 Retained earnings 78,675 83,455 81,525 91,696 Treasury stock, at cost; 12,650,133, 12,658,848, 12,748,795 and 12,746,823 shares (157,041) (157,508) (157,466) (157,439) Unallocated common stock held by Employee Stock Ownership Plan - - (832) (2,892) Accumulated other comprehensive income (loss), net of tax (1,299) 265 (863) (464) ----------- ----------- ----------- ----------- Total stockholders' equity 109,499 115,450 111,809 121,101 ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity $ 1,078,420 $ 1,094,679 $ 1,121,855 $ 1,113,418 =========== =========== =========== ===========