SOURCE: CFS Bancorp, Inc.

CFS Bancorp, Inc.

April 30, 2013 07:00 ET

CFS Bancorp, Inc. Reports an Increase in Net Income and Earnings per Share for the First Quarter of 2013

MUNSTER, IN--(Marketwired - Apr 30, 2013) - CFS Bancorp, Inc. (NASDAQ: CITZ), the parent of Citizens Financial Bank, today reported net income of $1.5 million, or $.14 per diluted share, for the first quarter of 2013, an increase of $1.0 million, or 207%, from net income of $490,000, or $.05 per share, for the first quarter of 2012. 

Financial results for the quarter include:

  • Non-performing loans decreased $1.9 million, or 7.0%, to $25.0 million at March 31, 2013 from $26.9 million at December 31, 2012 and $21.2 million, or 45.9%, from $46.3 million at March 31, 2012;
  • Non-performing assets decreased $1.5 million, or 3.1%, to $48.7 million at March 31, 2013 from $50.3 million at December 31, 2012 and $17.0 million, or 25.8%, from $65.7 million at March 31, 2012;
  • Provision for loan losses decreased to $510,000 for the first quarter of 2013 from $850,000 for the fourth quarter of 2012 and $1.1 million for the first quarter of 2012;
  • Net charge-offs for the first quarter of 2013 totaled $671,000, a decrease from $1.0 million for the fourth quarter of 2012 and $1.7 million for the first quarter of 2012;
  • Loans receivable totaled $664.7 million at March 31, 2013, a decrease of $28.0 million, or 4.0%, from December 31, 2012 and $42.6 million, or 6.0%, from March 31, 2012;
  • Core deposits increased to 66.7% of total deposits at March 31, 2013 compared to 65.1% of total deposits at December 31, 2012 and 62.4% at March 31, 2012;
  • Net interest margin decreased to 3.23% during the first quarter of 2013 from 3.38% in the fourth quarter of 2012 and 3.43% in the first quarter of 2012; 
  • The Company's shareholders' equity to total assets ratio increased to 9.84% at March 31, 2013 compared to 9.83% at December 31, 2012 and 8.83% at March 31, 2012; and
  • The Bank's Tier 1 core capital ratio was 8.92% at March 31, 2013, an increase from 8.81% at December 31, 2012 and 8.11% at March 31, 2012; the Bank's total risk-based capital ratio increased to 14.86% from 14.06% at December 31, 2012 and 13.23% at March 31, 2012.

Chief Executive Officer's Comments

"Another solid quarter of positive results in the first quarter of 2013 represents our fifth consecutive profitable quarter," said Daryl D. Pomranke, Chief Executive Officer. "We remain focused on improving our profitability, while reducing non-performing loans and assets through workouts and transfers to other real estate owned. We anticipate additional reductions in our non-performing loans and assets during the second quarter through collateral sales and loan repayments. We are also expecting to realize additional recoveries on previously charged-off loans which will help to reduce our level of provision for loan losses in future quarters."

"We continue to execute our strategic objectives and are on the right path as we see progress each quarter. Non-performing assets continue to decrease; there is continued focus on our targeted loan growth segments, even with moderate loan growth; and our High Performance Checking product has helped to increase our core deposits to over 66% of our total deposits. In addition, our non-interest expense, including other real estate owned and loan collection expenses, continues to moderate as we maintain our focus on creating efficiencies. We expect to see further progress throughout 2013," added Pomranke.

Update on Strategic Growth and Diversification Plan

Our ratio of non-performing loans to total loans decreased to 3.77% at March 31, 2013 from 3.89% at December 31, 2012. The decrease was primarily due to the transfer to other real estate owned of one non-performing commercial real estate multifamily and non-owner occupied relationship totaling $2.1 million. In addition, repayments and payoffs totaling $839,000 and charge-offs totaling $878,000 also reduced non-performing loans during the quarter. The decrease in total loan balances since December 31, 2012 partially offset the favorable impact the decreases in the non-performing loans had on the ratio to total loans. The ratio of non-performing assets to total assets decreased to 4.25% at March 31, 2013 compared to 4.42% at December 31, 2012 and 5.61% at March 31, 2012. See the "Asset Quality" table in this press release for more detailed information.

Our focus on reducing non-interest expense continues in 2013, which resulted in a 6.9% decrease to $8.5 million for the first quarter of 2013 from $9.1 million for the fourth quarter of 2012 and a 17.2% decrease from $10.2 million for the first quarter of 2012. The $627,000 decrease from the fourth quarter of 2012 is due to a reduction in other real estate owned net expense, loan collection, marketing, and professional fees. See the "Non-Interest Income and Non-Interest Expense" section in this press release for more detailed information. 

We continue to target specific segments in our loan portfolio for growth, including commercial and industrial, owner occupied commercial real estate, and multifamily, which, in the aggregate, comprised 59.3% of the commercial loan portfolio at March 31, 2013, compared to 59.2% at December 31, 2012 and 54.5% at March 31, 2012. Our focus on deepening client relationships emphasizes growth in core deposits. Total core deposits at March 31, 2013 increased by $21.5 million from December 31, 2012 and increased to 66.7% of total deposits compared to 65.1% at December 31, 2012 and 62.4% at March 31, 2012, primarily due to an increase in non-interest bearing accounts and the continued shrinkage in certificates of deposit in this low interest rate environment. 

Pre-Tax, Pre-Provision Earnings, As Adjusted1 

Pre-tax, pre-provision earnings, as adjusted, were relatively stable at $2.8 million for the first quarter of 2013 compared to $2.9 million for the fourth quarter of 2012 and $2.8 million for the first quarter of 2012. Favorable variances from the fourth quarter of 2012 include increases in gains on the sale of loans held for sale and income from bank-owned life insurance and the aforementioned decreases in marketing and professional fees, which were more than offset by a decrease in net interest income due to lower loan balances and our increased level of liquidity. Favorable variances from the first quarter of 2012 include increases in gains on the sale of loans held for sale and lower compensation and employee benefits and marketing expense during the first quarter of 2013. These favorable variances were offset by lower net interest income and income from bank-owned life insurance. 

1 A schedule reconciling earnings in accordance with U.S. generally accepted accounting principles (GAAP) to the non-GAAP measurement of pre-tax, pre-provision earnings, as adjusted, is provided on the last page of the attached tables.

Net Interest Income and Net Interest Margin

       
    Three Months Ended  
    March 31,
2013
    December 31,
2012
    March 31,
2012
 
    (Dollars in thousands)  
       
Net interest margin     3.23 %     3.38 %     3.43 %
Interest rate spread     3.17       3.31       3.36  
Net interest income   $ 8,201     $ 8,642     $ 8,923  
Average assets:                        
Yield on interest-earning assets     3.71 %     3.88 %     4.08 %
  Yield on loans receivable     4.62       4.61       4.76  
  Yield on investment securities     2.78       2.90       3.25  
Average interest-earning assets   $ 1,030,232     $ 1,018,360     $ 1,045,778  
Average liabilities:                        
Cost of interest-bearing liabilities     .54 %     .57 %     .72 %
  Cost of interest-bearing deposits     .44       .47       .63  
  Cost of borrowed funds     2.26       2.25       2.20  
Average interest-bearing liabilities   $ 908,356     $ 902,746     $ 941,803  
                         

The net interest margin decreased 15 basis points to 3.23% for the first quarter of 2013 compared to 3.38% for the fourth quarter of 2012 and 20 basis points compared to the first quarter of 2012. Net interest income decreased to $8.2 million for the first quarter of 2013 compared to $8.6 million for the fourth quarter of 2012 and $8.9 million for the first quarter of 2012, primarily due to lower interest income on loans. The net interest margin was negatively impacted by loans comprising a smaller proportion of interest-earning assets and the Bank having a higher level of liquidity. Management believes that higher levels of liquidity, modest loan demand, reduced but still elevated level of non-performing assets, the continued low interest rate environment, and significant narrowing of spreads available on new investment securities purchases will continue to pressure our net interest margin for the foreseeable future. The first quarter 2013 decrease in yields on investment securities compared to the fourth quarter of 2012 was primarily related to prepayments, maturities, and sales of higher-yielding investment securities with the proceeds reinvested at lower rates. The level of non-performing loans continues to negatively affect the yield on loans receivable. Also, the net interest margin was positively affected during the first quarter of 2013 by a three basis point decrease in the cost of interest-bearing liabilities from the fourth quarter of 2012 and an 18 basis point decrease compared to the first quarter of 2012.

Interest income totaled $9.4 million for the first quarter of 2013, a decrease of 5.3% from $9.9 million for the fourth quarter of 2012 and 11.2% from $10.6 million for the first quarter of 2012. The decreases are primarily related to the reinvestment of proceeds from sales and maturities of investment securities in lower-yielding investments, lower loan balances, and maintaining higher levels of short-term liquid investments due to the lack of suitable higher-yielding investment alternatives in the current low interest rate environment combined with modest loan demand. 

Interest expense decreased 6.5% to $1.2 million for the first quarter of 2013 compared to $1.3 million for the fourth quarter of 2012 and 27.9% from $1.7 million for the first quarter of 2012. Our continuing success in increasing the proportion of low-cost core deposits to total deposits and continued disciplined pricing on new and renewing certificates of deposit contributed to the decrease in interest expense during the first quarter of 2013.

Non-Interest Income and Non-Interest Expense

Non-interest income decreased $656,000, or 18.7%, to $2.9 million for the first quarter of 2013 compared to the fourth quarter of 2012 primarily due to decreases of $408,000 in gains on sales of investment securities, $366,000 in gains on sales of other real estate owned, and $126,000 in deposit related fees as clients historically reduce overdraft activity during the first quarter of each year. These decreases were partially offset by increases of $78,000 in net gains on sales of loans held for sale due to increased sales activity and $103,000 in income from bank-owned life insurance. The income from bank-owned life insurance increased primarily due to $218,000 received from the death of an insured during the first quarter of 2013 compared to $108,000 received from the death of an insured during the fourth quarter of 2012. 

Non-interest income was $2.9 million, a 1.1% increase from $2.8 million for the first quarter of 2012 primarily due to an increase of $304,000 in net gains on the sale of loans held for sale due to our expanded residential loan origination and mortgage banking activities. This favorable variance was partially offset by reduced net gains on the sale of investment securities of $234,000 and income from bank-owned life insurance of $210,000. The income from bank-owned life insurance decreased primarily due to $218,000 received from the death of an insured during the first quarter of 2013 compared to $378,000 received from the death of an insured during the first quarter of 2012. 

Non-interest expense for the first quarter of 2013 decreased $627,000, or 6.9%, to $8.5 million from $9.1 million for the fourth quarter of 2012. Other real estate owned expense decreased $252,000 due to lower writedowns on the net realizable value of the properties held combined with higher rental income from one of our larger non-owner occupied properties. Loan collection expense decreased $190,000 due to lower collection costs. Marketing expense and professional fees also also decreased $84,000 and $83,000, respectively. 

Non-interest expense during the first quarter of 2013 decreased $1.8 million, or 17.2%, to $8.5 million from $10.2 million for the first quarter of 2012 due to a decrease of $343,000 in compensation and employees benefits expense and the absence of $876,000 of severance and early retirement expense related to the Voluntary Early Retirement Offering that was implemented during the first quarter of 2012. In addition, other real estate owned expense decreased $368,000 due to lower holding costs.

Income Tax Expense

During the first quarter of 2013, we recorded income tax expense of $588,000, equal to an effective tax rate of 28.1%, compared to $658,000, or an effective tax rate of 29.6%, for the fourth quarter of 2012. The decrease in the income tax expense and the effective tax rate was largely related to the tax sheltering effect of the higher income from bank-owned life insurance. During the first quarter of 2012, we recorded an income tax benefit of $166,000 primarily related to the lower pre-tax income and the tax sheltering effect of the higher income from bank-owned life insurance. The tax benefit recorded was offset by the increase in the deferred tax asset valuation allowance recorded during the first quarter of 2012 totaling $166,000, resulting in no income tax benefit for the quarter.

Asset Quality

                   
    March 31,
2013
    December 31,
2012
    March 31,
2012
 
    (Dollars in thousands)  
       
Non-performing loans (NPLs)   $ 25,048     $ 26,933     $ 46,275  
Other real estate owned     23,698       23,347       19,429  
Non-performing assets (NPAs)   $ 48,746     $ 50,280     $ 65,704  
                         
Allowance for loan losses (ALL)   $ 12,024     $ 12,185     $ 11,768  
Provision for loan losses for the quarter ended     510       850       1,050  
Loan charge-offs (recoveries):                        
  Gross loan charge-offs   $ 878     $ 1,082     $ 1,759  
  Recoveries     (207 )     (58 )     (53 )
Net charge-offs for the quarter ended   $ 671     $ 1,024     $ 1,706  
                         
NPLs / total loans     3.77 %     3.89 %     6.55 %
NPAs / total assets     4.25       4.42       5.61  
ALL / total loans     1.81       1.76       1.66  
ALL / NPLs     48.00       45.24       25.43  
                         

Total non-performing loans decreased $1.9 million, or 7.0%, to $25.0 million at March 31, 2013 from $26.9 million at December 31, 2012 and $21.2 million, or 45.9%, from $46.3 million at March 31, 2012. The decrease in the first quarter of 2013 was primarily due to the transfer to other real estate owned of one non-owner occupied and multifamily commercial real estate loan relationship totaling $2.1 million combined with repayments and payoffs totaling $839,000 and charge-offs totaling $878,000. These decreases were partially offset by new non-performing loans totaling $2.0 million, including one commercial and industrial relationship totaling $1.1 million. Of the total non-performing loans at March 31, 2013, $5.9 million, or 23.4%, are current and performing in accordance with their loan agreements. The ratio of non-performing loans to total loans decreased to 3.77% at March 31, 2013 from 3.89% and 6.55% at December 31, 2012 and March 31, 2012, respectively. 

The provision for loan losses decreased to $510,000 for the first quarter of 2013 compared to $850,000 for the fourth quarter of 2012 and $1.1 million for the first quarter of 2012. The decrease during the first quarter of 2013 was related to the lower level of charge-offs and increased recoveries during the current quarter, improved asset quality indicators, and a smaller loan portfolio. 

The ratio of the allowance for loan losses to total loans increased to 1.81% at March 31, 2013 from 1.76% at December 31, 2012 and 1.66% at March 31, 2012. When it is determined that a non-performing collateral-dependent loan has a collateral shortfall, management immediately charges-off the collateral shortfall. As a result, we are not required to maintain an allowance for loan losses 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). As such, the ratio of the allowance for loan losses to total loans and the ratio of the allowance for loan losses to non-performing loans has continued to be negatively affected by cumulative partial charge-offs of $9.3 million recorded through March 31, 2013 on $9.4 million (net of charge-offs) of non-performing collateral dependent loans. At March 31, 2013, the ratio of the allowance for loan losses to non-performing loans excluding the $9.4 million of non-performing collateral dependent loans with partial charge-offs decreased to 76.9% compared to 88.2% at December 31, 2012 due to a lower amount of non-performing collateral dependent loans with partial charge-offs.

During the first quarter of 2013, we transferred one commercial real estate and three retail loan relationships totaling $2.2 million to other real estate owned and sold five other real estate owned properties aggregating $1.7 million resulting in net gains on the sales of $10,000. We continue to explore ways to reduce our overall exposure in our non-performing assets through various alternatives, including using A/B-Note structures and the potential sale of certain of these assets. We currently have contracts for the sale of certain other real estate owned properties which will reduce non-performing assets by $1.4 million once completed with no anticipated loss on sale, presuming the transactions close as scheduled and pursuant to the contract terms. We are also aware of three borrowers with non-accrual loans aggregating $3.4 million that have contracts related to the sale of the underlying collateral, which if consummated, will provide funds to repay their loans and provide loan loss recoveries of $1.1 million.

Statement of Condition Highlights

The table below provides a summary of the more significant items in our statement of condition as of the dates indicated.

             
    March 31,
2013
  December 31,
2012
  March 31,
2012
    (Dollars in thousands)
Assets:                  
Total assets   $ 1,146,368   $ 1,138,109   $ 1,170,542
Interest-earning deposits with banks     133,766     114,122     89,718
Investment securities     235,177     218,748     255,158
Loans receivable, net of unearned fees     664,308     692,267     706,938
                   
Liabilities and Equity:                  
Total liabilities   $ 1,033,591   $ 1,026,287   $ 1,067,207
Deposits     974,328     965,791     1,004,441
Borrowed funds     49,828     50,562     51,935
Shareholders' equity     112,777     111,822     103,335
                   

Loans Receivable

                   
    March 31,
2013
    December 31,
2012
    March 31,
2012
 
    Amount     % of Total     Amount     % of Total     Amount     % of Total  
    (Dollars in thousands)  
Commercial loans:                                          
  Commercial and industrial   $ 91,649     13.8 %   $ 102,628     14.8 %   $ 86,807     12.3 %
  Commercial real estate - owner occupied     99,030     14.9       98,046     14.2       95,110     13.5  
  Commercial real estate - non-owner occupied     159,414     24.0       164,392     23.7       185,070     26.2  
  Commercial real estate - multifamily     71,630     10.8       75,228     10.9       75,864     10.7  
  Commercial construction and land development     15,335     2.3       20,228     2.9       22,691     3.2  
  Commercial participations     5,137     .8       5,311     .8       7,089     1.0  
    Total commercial loans     442,195     66.6       465,833     67.3       472,631     66.9  
Retail loans:                                          
  One-to-four family residential     172,540     25.9       175,943     25.4       179,980     25.5  
  Home equity lines of credit     45,616     6.9       46,477     6.7       50,496     7.1  
  Retail construction and land development     1,370     .2       1,176     .2       1,282     .2  
  Other     3,025     .5       3,305     .5       2,942     .4  
    Total retail loans     222,551     33.5       226,901     32.8       234,700     33.2  
      Total loans receivable     664,746     100.1       692,734     100.1       707,331     100.1  
      Net deferred loan fees     (438 )   (.1 )     (467 )   (.1 )     (393 )   (.1 )
        Total loans receivable, net of unearned fees   $ 664,308     100.0 %   $ 692,267     100.0 %   $ 706,938     100.0 %
                                           

Total loans receivable decreased $28.0 million, or 4.0%, at March 31, 2013 from December 31, 2012 and $42.6 million, or 6.0%, from March 31, 2012. The first quarter decrease was primarily due to repayments totaling $26.6 million, including $10.8 million of lower commercial and industrial line usage, sales of one-to-four family loans totaling $11.7 million, transfers to other real estate owned totaling $2.2 million, and gross charge-offs of $878,000. Partially offsetting these decreases, loan fundings during the first quarter of 2013 totaled $12.8 million, down from $43.5 million, or 70.5%, for the fourth quarter of 2012 and $32.7 million, or 60.7%, for the first quarter of 2012. The decrease in loan fundings is primarily due to the competitive market for loans as well as a decrease in commercial clients utilizing lines of credit. 

At March 31, 2013, our total commercial loans outstanding that were originated prior to January 1, 2008 (Pre-1/1/08) decreased to $139.8 million, or 31.6% of total commercial loans outstanding, compared to $152.4 million, or 32.7%, at December 31, 2012 and $194.0 million, or 41.1%, at March 31, 2012. The Pre-1/1/08 portfolio has had a significantly higher percentage of non-performing loans and has accounted for 92.2% of all commercial loan charge-offs since January 1, 2008. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2012 for more detailed discussions of our Pre-1/1/08 commercial portfolio.

During the first quarter of 2013, we sold $11.7 million of conforming one-to-four family fixed-rate mortgage loans into the secondary market and recorded gains on the sales of $463,000 compared to loan sales and gains on the sales of $15.2 million and $385,000, respectively, in the fourth quarter of 2012 and $9.2 million and $159,000, respectively, in the first quarter of 2012.

Deposits

                   
    March 31,
2013
    December 31,
2012
    March 31,
2012
 
    Amount   % of Total     Amount   % of Total     Amount   % of Total  
    (Dollars in thousands)  
Checking accounts:                                    
  Non-interest bearing   $ 114,897   11.8 %   $ 107,670   11.1 %   $ 105,177   10.5 %
  Interest-bearing     192,051   19.7       185,388   19.2       179,366   17.8  
Money market accounts     183,766   18.9       182,001   18.9       202,668   20.2  
Savings accounts     159,633   16.4       153,799   15.9       140,025   13.9  
  Core deposits     650,347   66.8       628,858   65.1       627,236   62.4  
Certificates of deposit accounts     323,981   33.2       336,933   34.9       377,205   37.6  
    Total deposits   $ 974,328   100.0 %   $ 965,791   100.0 %   $ 1,004,441   100.0 %
                                     

Since the implementation of our High Performance Checking (HPC) deposit acquisition marketing program that targets both retail and business clients, we have seen a significant increase in core deposits. The program is designed to attract a younger demographic and enhance growth in the number of checking accounts, core deposits, and related fee income as well as to provide additional cross-selling opportunities. In addition, core deposits continue to benefit from clients moving maturing certificates of deposit into money market and savings accounts due to the current low interest rate environment. Partially offsetting the favorable results of HPC, our core deposits were impacted by our 2012 decision to exit four of our larger single-service deposit relationships which resulted in a decrease of $42.0 million during 2012. This decision enabled us to decrease our level of liquidity and improve our Tier 1 core capital ratios.

Borrowed Funds

             
    March 31,
2013
  December 31,
2012
  March 31,
2012
    (Dollars in thousands)
                   
Short-term variable-rate repurchase agreements   $ 10,377   $ 11,053   $ 12,123
FHLB advances     39,451     39,509     39,812
Total borrowed funds   $ 49,828   $ 50,562   $ 51,935
                   

Borrowed funds decreased during the first quarter of 2013 primarily due to levels of repurchase agreements, which will fluctuate depending on our client's liquidity needs combined with repayments of our amortizing FHLB advances.

Shareholders' Equity

Shareholders' equity at March 31, 2013 increased slightly to $112.8 million, or 9.84% of assets, from $111.8 million, or 9.83% of assets, at December 31, 2012 and $103.3 million, or 8.83% of assets, at March 31, 2012. The increase from December 31, 2012 was primarily due to net income of $1.5 million partially offset by a decrease in accumulated other comprehensive income, net of tax, of $443,000 and dividends declared of $109,000.

At March 31, 2013, the Bank's Tier 1 capital ratio increased 11 basis points to 8.92% from 8.81% at December 31, 2012 and 81 basis points from 8.11% at March 31, 2012. The Bank's total capital to risk-weighted assets ratio increased 80 basis points to 14.86% from 14.06% at December 31, 2012 and 163 basis points from 13.23% at March 31, 2012. The increases in the capital ratios are primarily related to the increase in shareholders' equity combined with a decrease in risk-based assets. At March 31, 2013, the Bank was deemed to be "well capitalized" and in excess of the regulatory capital requirements set by the OCC in December 2012 for both Tier 1 capital and total risk-based capital to risk-weighted assets. 

Company Profile

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 to be successful. We have 20 full-service banking centers throughout adjoining markets in Chicago's Southwest suburbs and Northwest Indiana. Citizens Financial Bank has been recognized by the Chicago Tribune as one of Chicago's Top 100 Workplaces for the third year in a row for 2012. Our website can be found at www.citz.com.

Forward-Looking Information

This press release contains certain forward-looking statements and information relating to us that is based on our beliefs as well as assumptions made by and information currently available to us. These forward-looking statements include but are not limited to statements regarding our ability to successfully execute our strategy and Strategic Growth and Diversification Plan, the level and sufficiency of the Bank's current regulatory capital and equity ratios, our ability to continue to diversify the loan portfolio, efforts at deepening client relationships, increasing levels of core deposits, lowering non-performing asset levels, managing and reducing credit-related costs, increasing revenue growth and levels of earning assets, the effects of general economic and competitive conditions nationally and within our core market area, the ability to sell other real estate owned properties and mortgage loans held for sale, the sufficiency of the levels of provision for and the allowance for loan losses, amounts of charge-offs, levels of loan and deposit growth, interest on loans, asset yields and cost of funds, net interest income, net interest margin, non-interest income, non-interest expense, the interest rate environment, and other risk factors identified in the filings we make 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 well as statements that include future events, tense, or dates, or that are not historical or current facts, as they relate to us, our business, prospects, or our management, are intended to identify forward-looking statements. Such statements reflect our current views 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. We do not intend to update these forward-looking statements unless required to under the federal securities laws. 

   
CFS BANCORP, INC.  
Consolidated Statements of Income (Unaudited)  
(Dollars in thousands, except per share data)  
               
    Three Months Ended  
    March 31,
2013
  December 31,
2012
  March 31,
2012
 
Interest income:                    
  Loans receivable   $ 7,700   $ 8,183   $ 8,386  
  Investment securities     1,593     1,650     2,130  
  Other interest-earning assets     124     110     93  
    Total interest income     9,417     9,943     10,609  
                     
Interest expense:                    
  Deposits     931     1,008     1,390  
  Borrowed funds     285     293     296  
    Total interest expense     1,216     1,301     1,686  
Net interest income     8,201     8,642     8,923  
Provision for loan losses     510     850     1,050  
Net interest income after provision for loan losses     7,691     7,792     7,873  
                     
Non-interest income:                    
  Deposit related fees     1,520     1,646     1,469  
  Net gain (loss) on sale of:                    
    Investment securities     184     592     418  
    Loans held for sale     463     385     159  
    Other real estate owned     10     376     (47 )
  Income from bank-owned life insurance     330     227     540  
  Other income     347     284     285  
    Total non-interest income     2,854     3,510     2,824  
                     
Non-interest expense:                    
  Compensation and employee benefits     4,370     4,315     4,713  
  Net occupancy expense     694     672     708  
  FDIC insurance premiums and regulatory assessments     481     474     488  
  Data processing     513     483     438  
  Furniture and equipment expense     403     436     457  
  Marketing     269     353     404  
  Professional fees     328     411     253  
  Other real estate owned related expense, net     250     502     618  
  Loan collection expense     133     323     118  
  Severance and retirement compensation expense     -     -     876  
  Other general and administrative expenses     1,014     1,113     1,134  
    Total non-interest expense     8,455     9,082     10,207  
                     
Income before income taxes     2,090     2,220     490  
Income tax expense     588     658     -  
                     
Net income   $ 1,502   $ 1,562   $ 490  
                     
Basic earnings per share   $ .14   $ .15   $ .05  
Diluted earnings per share     .14     .14     .05  
                     
Weighted-average common and common share equivalents outstanding:                    
  Basic     10,739,160     10,754,739     10,697,892  
  Diluted     10,810,800     10,819,679     10,746,398  
                     
   
CFS BANCORP, INC.  
Consolidated Statements of Condition (Unaudited)  
(Dollars in thousands)  
                   
    March 31,
2013
    December 31,
2012
    March 31,
2012
 
                   
ASSETS                        
Cash and amounts due from depository institutions   $ 20,474     $ 20,577     $ 23,429  
Interest-earning deposits with banks     133,766       114,122       89,718  
  Cash and cash equivalents     154,240       134,699       113,147  
                         
Investment securities available-for-sale, at fair value.     220,196       203,290       239,247  
Investment securities held-to-maturity, at cost     14,981       15,458       15,911  
                         
Loans receivable, net of deferred fees     664,308       692,267       706,938  
  Allowance for loan losses     (12,024 )     (12,185 )     (11,768 )
    Net loans     652,284       680,082       695,170  
                         
Loans held for sale     955       1,509       1,198  
Investment in Federal Home Loan Bank stock, at cost     6,188       6,188       6,188  
Bank-owned life insurance     36,233       36,604       36,273  
Accrued interest receivable     2,669       2,528       2,841  
Other real estate owned     23,698       23,347       19,429  
Office properties and equipment     15,519       15,768       16,466  
Net deferred tax assets     11,032       11,302       16,621  
Other assets     8,373       7,334       8,051  
      Total assets   $ 1,146,368     $ 1,138,109     $ 1,170,542  
                         
LIABILITIES AND SHAREHOLDERS' EQUITY                        
Deposits   $ 974,328     $ 965,791     $ 1,004,441  
Borrowed funds     49,828       50,562       51,935  
Advance payments by borrowers for taxes and insurance     4,542       4,734       4,550  
Other liabilities     4,893       5,200       6,281  
  Total liabilities     1,033,591       1,026,287       1,067,207  
                         
Shareholders' 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; 10,898,168, 10,874,687, and 10,877,788 shares outstanding     234       234       234  
  Additional paid-in capital     186,975       187,260       186,995  
  Retained earnings     78,310       76,914       73,066  
  Treasury stock, at cost; 12,525,138, 12,548,619, and 12,545,518 shares     (154,411 )     (154,698 )     (154,735 )
  Accumulated other comprehensive income (loss), net of tax     1,669       2,112       (2,225 )
    Total shareholders' equity     112,777       111,822       103,335  
      Total liabilities and shareholders' equity   $ 1,146,368     $ 1,138,109     $ 1,170,542  
                               
   
CFS BANCORP, INC.  
Selected Financial Data (Unaudited)  
(Dollars in thousands, except per share data)  
                   
    March 31,
2013
    December 31,
2012
    March 31,
2012
 
                   
Book value per share   $ 10.35     $ 10.28     $ 9.50  
Shareholders' equity to total assets     9.84 %     9.83 %     8.83 %
Tier 1 core capital ratio (Bank only)     8.92       8.81       8.11  
Total risk-based capital ratio (Bank only)     14.86       14.06       13.23  
Common shares outstanding     10,898,168       10,874,687       10,877,788  
Employees (FTE)     262       261       273  
Number of full service banking centers     20       20       20  
                         
       
    Three Months Ended  
    March 31,
2013
    December 31,
2012
    March 31,
2012
 
Average Balance Data:                        
  Total assets   $ 1,141,032     $ 1,126,087     $ 1,159,197  
  Loans receivable, net of unearned fees     676,181       706,066       708,713  
  Investment securities     229,120       222,972       258,882  
  Interest-earning assets     1,030,232       1,018,360       1,045,778  
  Deposits     966,670       956,561       990,288  
  Interest-bearing deposits     857,838       851,829       888,643  
  Non-interest bearing deposits     108,832       104,732       101,645  
  Interest-bearing liabilities     908,356       902,746       941,803  
  Shareholders' equity     112,143       108,795       104,285  
Performance Ratios (annualized):                        
  Return on average assets     .53 %     .55 %     .17 %
  Return on average equity     5.43       5.71       1.89  
  Average yield on interest-earning assets     3.71       3.88       4.08  
  Average cost of interest-bearing liabilities     .54       .57       .72  
  Interest rate spread     3.17       3.31       3.36  
  Net interest margin     3.23       3.38       3.43  
  Non-interest expense to average assets     3.01       3.21       3.54  
  Efficiency ratio (1)     77.78       78.56       90.10  
                         
Cash dividends declared per share   $ .01     $ .01     $ .01  
Market price per share of common stock for the period ended:                        
  Close   $ 7.99     $ 6.27     $ 5.70  
  High     8.07       6.41       6.29  
  Low     6.18       5.54       4.33  
   
(1) The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income, excluding net gain on sales of investment securities.  
                         
   
CFS BANCORP, INC.  
Reconciliation of Income Before Income Taxes to Pre-Tax, Pre-Provision Earnings, as adjusted  
(Unaudited)  
(Dollars in thousands)  
                   
    Three Months Ended  
    March 31, 2013     December 31, 2012     March 31, 2012  
Income before income taxes   $ 2,090     $ 2,220     $ 490  
Provision for loan losses     510       850       1,050  
Pre-tax, pre-provision earnings     2,600       3,070       1,540  
                         
Add back (subtract):                        
  Net gain on sale of investment securities     (184 )     (592 )     (418 )
  Net (gain) loss on sale of other real estate owned     (10 )     (376 )     47  
  Other real estate owned related expense, net     250       502       618  
  Loan collection expense     133       323       118  
  Severance and retirement compensation expense     -       -       876  
Pre-tax, pre-provision earnings, as adjusted   $ 2,789     $ 2,927     $ 2,781  
                         
Pre-tax, pre-provision earnings, as adjusted, to average assets (annualized)     .99 %     1.03 %     .96 %
                         

Our accounting and reporting policies conform to U.S. generally accepted accounting principles (GAAP) and general practice within the banking industry. We use certain non-GAAP financial measures to evaluate our financial performance and have provided the non-GAAP financial measures of pre-tax, pre-provision earnings, as adjusted, and pre-tax, pre-provision earnings, as adjusted, to average assets. In these non-GAAP financial measures, the provision for loan losses, other real estate owned related income and expense, loan collection expense, and certain other items, such as gains and losses on sales of investment securities and other real estate owned and severance and retirement compensation expenses, are excluded. We believe that these measures are useful because they provide a more comparable basis for evaluating financial performance excluding certain credit-related costs and other non-recurring items period to period and allows management and others to assess our ability to generate pre-tax earnings to cover our provision for loan losses and other credit-related costs. Although these non-GAAP financial measures are intended to enhance investors' understanding of our business performance, these operating measures should not be considered as an alternative to GAAP.

Contact Information

  • CONTACT:
    Daryl D. Pomranke
    President and Chief Executive Officer
    219-513-5150

    Jerry A. Weberling
    Executive Vice President and CFO
    219-513-5103