SOURCE: CFS Bancorp, Inc.

October 29, 2009 16:20 ET

CFS Bancorp, Inc. Announces Third Quarter Results

MUNSTER, IN--(Marketwire - October 29, 2009) - CFS Bancorp, Inc. (NASDAQ: CITZ) (the Company), the parent of Citizens Financial Bank (the Bank), today reported a net loss of $4.7 million, or $(0.44) per share for the third quarter of 2009, compared to a net loss of $1.0 million, or $(0.10) per share for the third quarter of 2008. The results for the third quarter of 2009 were impacted significantly by a provision for loan losses of $9.4 million and a $1.3 million valuation allowance on other real estate owned (OREO), which were attributable to the impact of rapid declines in real estate collateral values.

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
                        ===========  ===========  ===========  ===========