SOURCE: CFS Bancorp, Inc.

CFS Bancorp, Inc.

July 31, 2012 07:00 ET

CFS Bancorp, Inc. Reports Net Income for the Second Quarter of 2012

MUNSTER, IN--(Marketwire - Jul 31, 2012) -  CFS Bancorp, Inc. (NASDAQ: CITZ), the parent of Citizens Financial Bank, today reported net income of $1.4 million, or $.13 per diluted share, for the second quarter of 2012, an increase from net income of $1.2 million, or $.11 per diluted share, for the second quarter of 2011. The Company's net income for the six months ended June 30, 2012 was $1.8 million, or $.17 per diluted share, compared to $1.7 million, or $.16 per diluted share, for the six months ended June 30, 2011. 

Financial results for the quarter include:

  • Loans receivable increased $6.7 million to $713.6 million from March 31, 2012 due to a $10.5 million increase in commercial and industrial, commercial real estate owner occupied, and commercial real estate multifamily loans partially offset by a decrease in retail loans;
  • Net charge-offs for the second quarter of 2012 totaled $856,000, a decrease from $1.7 million for the first quarter of 2012 and $1.1 million for the second quarter of 2011;
  • Non-performing assets increased to $71.1 million compared to $65.7 million at March 31, 2012 primarily due to transfers of commercial real estate non-owner occupied, commercial construction and land development, commercial and industrial, and one-to-four family residential loans to non-accrual status;
  • Core deposits, which decreased $22.7 million primarily due to proactive efforts by management to achieve reductions in four large single-service relationships, continue to represent a larger portion of total deposits at $604.5 million, which is 62.5% of total deposits, compared to $627.2 million, or 62.4% of total deposits, at March 31, 2012 and $570.6 million, or 59.2% of total deposits, at June 30, 2011;
  • Net interest margin was relatively stable at 3.42% in the second quarter of 2012 compared to 3.43% in the first quarter of 2012 and decreased from 3.59% in the second quarter of 2011;
  • The Company's tangible common shareholders' equity to total assets ratio increased to 9.24% at June 30, 2012 compared to 8.83% at March 31, 2012 and 8.99% at December 31, 2011; and
  • The Bank's Tier 1 core capital ratio increased to 8.56% at June 30, 2012 compared to 8.11% at March 31, 2012 and 8.26% at December 31, 2011, and the total risk-based capital ratio increased to 13.35% from 13.23% at March 31, 2012 and 12.65% at December 31, 2011.

Chief Executive Officer's Comments

"Our quarterly results reflect our determination to grow client relationships while reducing our cost structure," said Daryl D. Pomranke, Chief Executive Officer. "We realized a 23% reduction in total non-interest expense for the second quarter of 2012 compared to the same period last year. This is primarily due to an 80% reduction in credit related non-interest expenses and an 11% decrease in compensation and employee benefit expenses resulting from our first quarter Voluntary Early Retirement Offering (VERO), branch closings, and outsourcing. Our full-time equivalent employees decreased to 261 at June 30, 2012 from 303 at December 31, 2011." 

"Our High Performance Checking program continues to bring in new core deposit relationships and is providing deeper cross sell opportunities for those new clients than we have historically experienced," continued Pomranke. "We are beginning to see some stronger commercial loan demand resulting in an increase in total loans at June 30, 2012. We are continuing to build lending relationships while maintaining our high credit quality standards for underwriting that we put in place during 2008."

"Our nonperforming asset levels remain stubbornly high as we transferred a number of loan relationships to non-accrual status during the quarter," added Pomranke. "At June 30, 2012, $13.9 million, or 26.8%, of our non-accrual loans are current and performing in accordance with their terms. We expect to make significant progress in reducing non-performing assets over the next few quarters."

Update on Strategic Growth and Diversification Plan

We continue to focus our efforts on reducing the level of non-performing loans, seeking to either restructure specific non-performing credits or foreclose, obtain title, and transfer the property to other real estate owned where management can take control of and liquidate the underlying collateral. Our ratio of non-performing loans to total loans increased to 7.27% at June 30, 2012 from 6.55% at March 31, 2012, primarily due to transfers to non-accrual status of $4.4 million of non-owner occupied commercial real estate loans, $1.5 million of commercial construction and land development loans, $840,000 of one-to-four family residential loans, and $435,000 of commercial and industrial loans. Of the loans transferred to non-accrual during the second quarter of 2012, $5.8 million are current and performing in accordance with their agreements. The ratio of non-performing assets to total assets increased to 6.28% at June 30, 2012 compared to 5.61% at March 31, 2012. See the Asset Quality table in this press release for more detailed information.

We also remain focused on reducing non-interest expense, which decreased during the second quarter of 2012 to $8.5 million from $10.2 million for the first quarter of 2012 and $11.1 million for the second quarter of 2011. These decreases were primarily related to a significant decrease in net other real estate owned related expense and loan collection expense, lower compensation and employee benefit expense due to the previously announced VERO, the March 31, 2012 branch closings in Orland Park and Bolingbrook, Illinois, the outsourcing of certain support activities, and lower professional fees. The number of FTE employees decreased to 261 at June 30, 2012 from 273 at March 31, 2012 and 315 at June 30, 2011. 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 55.6% of the commercial loan portfolio at June 30, 2012, compared to 54.5% at March 31, 2012 and 53.1% at June 30, 2011. Our focus on deepening client relationships continues to emphasize core deposit growth. Total core deposits as a percentage of total deposits increased to 62.5% at June 30, 2012 from 62.4% at March 31, 2012 and 59.2% at June 30, 2011. The increase was primarily related to clients transferring maturing certificates of deposit to money market accounts given the current low interest rate environment.

In addition, the Bank's High Performance Checking (HPC) deposit acquisition marketing program implemented during the first quarter of 2012 further enhanced growth in core deposits while attracting a younger demographic with 66% of the new retail accounts in the 20-49 age group which will continue to provide additional cross-sell opportunities. Since the inception of the program in February 2012, the Bank opened 3,839 new core deposit accounts compared to 1,755 accounts opened in the same period a year ago, with 50% of the accounts being new relationships. The HPC program generated $5.8 million in new core deposit growth since its inception.

Pre-tax, Pre-Provision Earnings, As Adjusted1 

Pre-tax, pre-provision earnings, as adjusted, increased $602,000, or 24.2%, to $3.1 million for the second quarter of 2012 compared to $2.5 million for the second quarter of 2011. These increases were primarily due to increases in gains on sales of loans held for sale along with decreases in compensation and employee benefits expense and professional fees. Partially offsetting these positives was a modest decrease in net interest income. 

The pre-tax, pre-provision earnings, as adjusted, for the six months ended June 30, 2012 increased $1.8 million, or 45.8%, to $5.9 million compared to $4.0 million for the 2011 period primarily due to increases in gains on sales of loans held for sale, income from bank-owned life insurance from the first quarter 2012 death of an insured, and decreases in compensation and employee benefits, professional fees, and FDIC insurance premiums and regulatory assessments. These favorable variances were partially offset by an increase in marketing expenses due to the HPC promotion and a decrease in net interest income.

(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  
    June 30,
2012
    March 31,
2012
    June 30,
2011
 
    (Dollars in thousands)  
Net interest margin     3.42 %     3.43 %     3.59 %
Interest rate spread     3.35       3.36       3.49  
Net interest income   $ 8,944     $ 8,923     $ 9,187  
Average assets:                        
Yield on interest-earning assets     4.03 %     4.08 %     4.38 %
  Yield on loans receivable     4.70       4.76       4.94  
  Yield on investment securities     3.42       3.25       3.01  
Average interest-earning assets   $ 1,052,039     $ 1,045,778     $ 1,026,940  
Average liabilities:                        
Cost of interest-bearing liabilities     .68 %     .72 %     .89 %
  Cost of interest-bearing deposits     .58       .63       .81  
  Cost of borrowed funds     2.30       2.20       2.64  
Average interest-bearing liabilities   $ 941,398     $ 941,803     $ 915,785  

The net interest margin remained stable at 3.42% for the second quarter of 2012 compared to 3.43% for the first quarter of 2012 and decreased 17 basis points from 3.59% for the second quarter of 2011. Net interest income was relatively stable at $8.9 million for both the first and second quarters of 2012 and decreased slightly from $9.2 million for the second quarter of 2011. The net interest margin, while stable with the prior quarter, continues to be pressured by the higher levels of liquidity, modest loan demand, and elevated level of non-performing assets. The second quarter 2012 increase in yields on investment securities compared to the first quarter of 2012 was primarily related to late first quarter 2012 purchases of higher yielding floating-rate securities as well as higher accretion income related to a $10.8 million increase in principal paydowns. The level of non-performing loans continues to negatively affect the yield on loans receivable. The net interest margin was positively affected by a four basis point decrease in the cost of interest-bearing liabilities from the first quarter of 2012 and a 21 basis point decrease compared to the second quarter of 2011.

Interest income totaled $10.5 million for the second quarter of 2012 which was relatively stable compared to $10.6 million for the first quarter of 2012 and decreased 6.1% from $11.2 million for the second quarter of 2011. The fluctuation from the second quarter of 2011 is primarily related to the reinvestment of proceeds from sales and maturities of investment securities in lower yielding investments 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 5.8% to $1.6 million for the second quarter of 2012 compared to $1.7 million for the first quarter of 2012 and 21.9% from $2.0 million for the second quarter of 2011. Our continuing success in increasing the proportion of 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 second quarter of 2012.

Non-Interest Income and Non-Interest Expense

Non-interest income decreased $181,000, or 6.4%, to $2.6 million for the second quarter of 2012 compared to the first quarter of 2012 primarily due to a $378,000 decrease in income from bank-owned life insurance relating to the death in the first quarter of 2012 of an insured combined with a decrease of $113,000 related to gains on sales of investment securities. These decreases were partially offset by an increase in gains on sales of other real estate owned properties totaling $133,000, a $69,000 increase in service charges and other fees combined with a $44,000 increase in card-based fees. 

Non-interest income decreased $1.9 million, or 41.8%, from $4.5 million for the second quarter of 2011 primarily due to a $2.2 million decrease in gains on the sale of other real estate owned which was partially offset by increases of $174,000 in gains on the sale of loans held for sale related to our expanded residential loan origination and mortgage banking activities, $132,000 in gains on the sale of investment securities, and $57,000 in card-based fees. Excluding net gains and losses on sales of investment securities and other real estate owned, non-interest income increased $125,000 compared to the second quarter of 2011 primarily due to the increases in gains on the sale of loans held for sale and card-based fees partially offset by a decrease in income from bank-owned life insurance.

Non-interest expense for the second quarter of 2012 decreased $1.7 million, or 16.3%, to $8.5 million compared to $10.2 million for the first quarter of 2012 primarily due the severance and retirement compensation expense of $876,000 recorded for the VERO program during the first quarter of 2012 combined with decreases in net other real estate owned related expenses of $302,000, compensation and employee benefits of $246,000, and marketing expense of $82,000. Excluding the severance and retirement compensation expenses, non-interest expense for the second quarter of 2012 decreased $789,000, or 8.5%, from the first quarter of 2012.

Non-interest expense during the second quarter of 2012 decreased $2.5 million, or 22.8%, to $8.5 million from $11.1 million for the second quarter of 2011 due to lower net other real estate owned expenses of $1.7 million, compensation and employee benefits expense of $580,000, professional fees of $136,000, and loan collection expenses of $114,000. These decreases were partially offset by an increase in marketing expense of $52,000 due to the HPC product promotions.

Income Tax Expense

During the second quarter of 2012, we recorded income tax expense of $541,000, equal to an effective tax rate of 28.5%, compared to $425,000, or an effective tax rate of 25.6%, for the second quarter of 2011. During the first quarter of 2012, we recorded an income tax benefit of $166,000 due to the lower pre-tax income and tax sheltering effect of the income from bank-owned life insurance. We also increased the deferred tax asset valuation allowance by $166,000 resulting in no income tax benefit for the first quarter of 2012.

The deferred tax asset valuation allowance was unchanged at $6.5 million at June 30, 2012 compared to March 31, 2012. Although realization of the current net deferred tax assets of $16.3 million is not assured, management believes it is more likely than not that all of the recorded deferred tax assets will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during tax loss carryforward periods are reduced.

Asset Quality

                   
    June 30,
2012
    March 31,
2012
    June 30,
2011
 
    (Dollars in thousands)  
Non-performing loans (NPLs)   $ 51,850     $ 46,275     $ 57,217  
Other real estate owned     19,223       19,429       21,164  
Non-performing assets (NPAs)   $ 71,073     $ 65,704     $ 78,381  
                         
Allowance for loan losses (ALL)   $ 12,062     $ 11,768     $ 17,039  
Provision for loan losses for the quarter ended     1,150       1,050       996  
Loans charged off:                        
  Current period net charge-offs   $ 856     $ 988     $ 1,052  
  Previously established specific reserves     --       718       --  
Net charge-offs for the quarter ended   $ 856     $ 1,706     $ 1,052  
                         
NPLs / total loans     7.27 %     6.55 %     7.76 %
NPAs / total assets     6.28       5.61       6.95  
ALL / total loans     1.69       1.66       2.31  
ALL / NPLs     23.26       25.43       29.78  

Total non-performing loans increased to $51.9 million at June 30, 2012 from $46.3 million at March 31, 2012 primarily due to transfers to non-accrual status of $4.4 million of non-owner occupied commercial real estate loans, $1.5 million of commercial construction and land development loans, $840,000 of one-to-four family residential loans, and $435,000 of commercial and industrial loans. Of the loans transferred to non-accrual status during the second quarter of 2012, $5.8 million are current and performing in accordance with their loan agreements.

The provision for loan losses was relatively stable at $1.15 million for the second quarter of 2012 compared to $1.05 million for the first quarter of 2012 and increased modestly from $1.0 million for the second quarter of 2011.

The ratio of the allowance for loan losses to total loans increased to 1.69% at June 30, 2012 compared to 1.66% at March 31, 2012 primarily due the increase in the provision for loan losses partially offset by an increase in total loans. 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 $17.4 million recorded through June 30, 2012 on $32.6 million (net of charge-offs) of non-performing collateral dependent loans. At June 30, 2012, the ratio of the allowance for loan losses to non-performing loans, excluding the $32.6 million of non-performing collateral dependent loans with partial charge-offs, was 62.8%. 

During the second quarter of 2012, we transferred three loan relationships to other real estate owned totaling $1.2 million. We also sold seven other real estate owned properties aggregating $879,000 and recognized net gains of $86,000 on these sales. 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 $2.7 million with no anticipated loss on sale, presuming the transactions close as scheduled and pursuant to the contract terms. 

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.

             
    6/30/2012   3/31/2012   6/30/2011
    (Dollars in thousands)
Assets:            
Total assets   $ 1,132,094   $ 1,170,542   $ 1,128,019
Interest-bearing deposits     51,687     89,718     14,423
Investment securities     240,590     255,158     248,958
Loans receivable, net of unearned fees     713,596     706,938     737,516
                   
Liabilities and Equity:                  
Total liabilities   $ 1,027,497   $ 1,067,207   $ 1,011,853
Deposits     967,154     1,004,441     964,527
Borrowed funds     51,306     51,935     38,835
Shareholders' equity     104,597     103,335     116,166
                   

Loans Receivable

                   
    6/30/2012     3/31/2012     6/30/2011  
    Amount     % of Total     Amount     % of Total     Amount     % of Total  
    (Dollars in thousands)  
Commercial loans:                                          
  Commercial and industrial   $ 89,479     12.6 %   $ 86,807     12.3 %   $ 83,082     11.3 %
  Commercial real estate - owner occupied     102,149     14.3       95,110     13.5       102,315     13.8  
  Commercial real estate - non-owner occupied     184,284     25.8       185,070     26.2       187,380     25.4  
  Commercial real estate - multifamily     76,647     10.7       75,864     10.7       77,562     10.5  
  Commercial construction and land development     23,353     3.3       22,691     3.2       23,424     3.2  
  Commercial participations     6,453     .9       7,089     1.0       21,194     2.9  
    Total commercial loans     482,365     67.6       472,631     66.9       494,957     67.1  
Retail loans:                                          
  One-to-four family residential     177,830     24.9       179,980     25.5       183,269     24.8  
  Home equity lines of credit     49,476     6.9       50,496     7.1       54,975     7.5  
  Retail construction and land development     1,518     .2       1,282     .2       2,095     .3  
  Other     2,724     .5       2,942     .4       2,670     .4  
    Total retail loans     231,548     32.5       234,700     33.2       243,009     33.0  
      Total loans receivable     713,913     100.1       707,331     100.1       737,966     100.1  
      Net deferred loan fees     (317 )   (.1     (393 )   (.1 )     (450 )   (.1 )
        Total loans receivable, net of unearned fees   $ 713,596     100.0 %   $ 706,938     100.0 %   $ 737,516     100.0 %

Total loans receivable increased $6.7 million at June 30, 2012 from March 31, 2012 primarily due to $9.0 million of new commercial real estate owner occupied loans. Loan fundings during the three months ended June 30, 2012 totaled $31.3 million, a modest decrease compared to $32.7 million for the three months ended March 31, 2012. Loan fundings during the second quarter of 2012 were partially offset by loan payoffs and amortization of $12.3 million, residential mortgage loan sales of $11.0 million, and transfers to other real estate owned totaling $1.2 million.

Through the execution of our Strategic Growth and Diversification Plan and our focus on lending to small- to medium-sized businesses, we continue to diversify our loan portfolio and reduce loans not meeting our current defined risk tolerance. Our targeted growth segments within the loan portfolio, including commercial and industrial and owner occupied and multifamily commercial real estate loans, increased to 55.6% of the commercial loan portfolio at June 30, 2012 compared to 54.5% at March 31, 2012. Commercial participations decreased $636,000, or 9.0%, to $6.5 million compared to $7.1 million at March 31, 2012 primarily due to the payoff of a performing commercial participation loan and a principal repayment on a nonperforming participation during the second quarter of 2012. 

At June 30, 2012, our total commercial loans outstanding that were originated prior to January 1, 2008 (Pre-1/1/08) decreased to $187.9 million, or 38.9% of total commercial loans outstanding compared to $194.0 million, or 41.1%, at March 31, 2012 and $202.6 million, or 42.8%, at December 31, 2011. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2011 for a more detailed discussion of our Pre-1/1/08 commercial portfolio.

During the second quarter of 2012, we sold $11.0 million of conforming one-to-four family fixed-rate mortgage loans into the secondary market and recorded a gain on sale of $200,000. We hired four additional seasoned mortgage loan originators in the last year to expand mortgage loan originations to generate additional income from our mortgage banking activities which has resulted in an increase in one-to-four family mortgage originations to $26.2 million during the first six months of 2012, a 149% increase from the first six months of 2011.

Deposits

                   
    6/30/2012     3/31/2012     6/30/2011  
    Amount   % of Total     Amount   % of Total     Amount   % of Total  
    (Dollars in thousands)  
Checking accounts:                                    
  Non-interest bearing   $ 97,435   10.1 %   $ 105,177   10.5 %   $ 98,377   10.2 %
  Interest-bearing     179,842   18.5       179,366   17.8       154,401   16.0  
Money market accounts     182,522   18.9       202,668   20.2       188,942   19.6  
Savings accounts     144,705   15.0       140,025   13.9       128,902   13.4  
  Core deposits     604,504   62.5       627,236   62.4       570,622   59.2  
Certificates of deposit accounts     362,650   37.5       377,205   37.6       393,905   40.8  
    Total deposits   $ 967,154   100.0 %   $ 1,004,441   100.0 %   $ 964,527   100.0 %

During the first quarter of 2012, we implemented our HPC deposit acquisition marketing program that targets both retail and business clients. The program is designed to attract a younger demographic and enhance growth in core deposits and related fee income as well as to provide additional cross-selling opportunities. The HPC program has generated approximately $5.8 million in new core deposit growth since the inception of the program. In addition, core deposits during 2012 also benefited from clients moving maturing certificates of deposit into money market accounts due to the current low interest rate environment. The decrease in core deposits from March 31, 2012 is primarily a result of our proactive efforts to review the pricing and cross-sell potential of some of our larger single-service deposit relationships which enabled us to decrease the level of excess liquidity in this low interest rate environment, while at the same time improve our Tier 1 core capital ratios. 

Borrowed Funds

             
    6/30/2012   3/31/2012   6/30/2011
    (Dollars in thousands)
Short-term variable-rate repurchase agreements   $ 11,540   $ 12,123   $ 13,730
FHLB advances     39,766     39,812     25,105
Total borrowed funds   $ 51,306   $ 51,935   $ 38,835

Borrowed funds decreased during the second quarter of 2012 primarily due to decreased borrowings from repurchase agreements, which will fluctuate depending on our client's liquidity levels.

Shareholders' Equity

Shareholders' equity at June 30, 2012 increased to $104.6 million from $103.3 million at March 31, 2012 primarily related to net income of $1.4 million for the quarter.

At June 30, 2012, the Company's tangible common equity was $104.6 million, or 9.24% of assets, compared to $103.3 million, or 8.83% of assets at March 31, 2012. At June 30, 2012, the Bank's Tier 1 core capital ratio increased to 8.56% from 8.11% at March 31, 2012 and the total risk-based capital ratio increased to 13.35% from 13.23% at March 31, 2012. Both the Tier 1 core capital ratio and the total risk-based capital ratio exceeded "minimum" and "well capitalized" regulatory capital requirements at June 30, 2012 and March 31, 2012.

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. 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, 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 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   Six Months Ended
  June 30,
2012
  March 31,
2012
  June 30,
2011
  June 30,
 2012
  June 30,
2011
Interest income:                            
  Loans receivable $ 8,243   $ 8,386   $ 9,016   $ 16,629   $ 17,827
  Investment securities   2,186     2,130     2,040     4,316     4,085
  Other interest-earning assets   103     93     164     196     321
    Total interest income   10,532     10,609     11,220     21,141     22,233
                             
Interest expense:                            
  Deposits   1,294     1,390     1,777     2,684     3,670
  Borrowed funds   294     296     256     590     519
    Total interest expense   1,588     1,686     2,033     3,274     4,189
Net interest income   8,944     8,923     9,187     17,867     18,044
Provision for loan losses   1,150     1,050     996     2,200     1,899
Net interest income after provision for loan losses   7,794     7,873     8,191     15,667     16,145
                             
Non-interest income:                            
  Service charges and other fees   1,087     1,018     1,174     2,105     2,250
  Card-based fees   577     533     520     1,110     995
  Commission income   75     57     78     132     123
  Net gain (loss) on sale of:                            
    Investment securities   305     418     173     723     692
    Loans held for sale   200     159     26     359     58
    Other real estate owned   86     (47 )   2,238     39     2,233
  Income from bank-owned life insurance   162     540     210     702     416
  Other income   151     146     119     297     222
    Total non-interest income   2,643     2,824     4,538     5,467     6,989
                             
Non-interest expense:                            
  Compensation and employee benefits   4,467     4,713     5,047     9,180     10,286
  Net occupancy expense   679     708     670     1,387     1,435
  FDIC insurance premiums and regulatory assessments   490     488     504     978     1,157
  Furniture and equipment expense   468     457     454     925     917
  Data processing   445     438     441     883     883
  Marketing   322     404     270     726     457
  Professional fees   198     253     334     451     722
  Other real estate owned related expense, net   316     618     2,011     934     2,603
  Loan collection expense   119     118     233     237     353
  Severance and retirement compensation expense   --     876     --     876     --
  Other general and administrative expenses   1,038     1,134     1,107     2,172     2,225
    Total non-interest expense   8,542     10,207     11,071     18,749     21,038
                             
Income before income tax expense   1,895     490     1,658     2,385     2,096
Income tax expense   541     --     425     541     391
                             
Net income $ 1,354   $ 490   $ 1,233   $ 1,844   $ 1,705
                             
Basic earnings per share $ .13   $ .05   $ .12   $ .17   $ .16
Diluted earnings per share   .13     .05     .11     .17     .16
                             
Weighted-average common and common share equivalents outstanding:                            
  Basic   10,750,313     10,697,892     10,691,424     10,724,103     10,671,196
  Diluted   10,806,555     10,746,398     10,759,332     10,776,476     10,733,149
                             
                             
                             
CFS BANCORP, INC.  
Consolidated Statements of Condition (Unaudited)  
(Dollars in thousands)  
                       
  June 30,
2012
    March 31,
2012
    December 31,
2011
    June 30,
2011
 
                               
ASSETS                              
Cash and amounts due from depository institutions $ 33,846     $ 23,429     $ 32,982     $ 33,075  
Interest-bearing deposits   51,687       89,718       59,090       14,423  
  Cash and cash equivalents   85,533       113,147       92,072       47,498  
                               
Investment securities available-for-sale, at fair value   226,625       239,247       234,381       234,121  
Investment securities held-to-maturity, at cost   13,965       15,911       16,371       14,837  
Investment in Federal Home Loan Bank stock, at cost   6,188       6,188       6,188       8,638  
                               
Loans receivable, net of unearned fees   713,596       706,938       711,226       737,516  
  Allowance for loan losses   (12,062 )     (11,768 )     (12,424 )     (17,039 )
    Net loans   701,534       695,170       698,802       720,477  
                               
Loans held for sale   610       1,198       1,124       211  
Investment in bank-owned life insurance   36,435       36,273       36,275       35,880  
Accrued interest receivable   2,801       2,841       3,011       3,148  
Other real estate owned   19,223       19,429       19,091       21,164  
Office properties and equipment   16,225       16,466       17,539       18,163  
Net deferred tax assets   16,281       16,621       16,273       16,714  
Prepaid expenses and other assets   6,674       8,051       7,823       7,168  
    Total assets $ 1,132,094     $ 1,170,542     $ 1,148,950     $ 1,128,019  
                               
LIABILITIES AND SHAREHOLDERS' EQUITY                              
Deposits $ 967,154     $ 1,004,441     $ 977,424     $ 964,527  
Borrowed funds   51,306       51,935       54,200       38,835  
Advance payments by borrowers for taxes and insurance   4,243       4,550       4,275       4,387  
Other liabilities   4,794       6,281       9,803       4,104  
  Total liabilities   1,027,497       1,067,207       1,045,702       1,011,853  
                               
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; 10,867,357, 10,877,788, 10,874,668, and 10,867,802 shares outstanding   234       234       234       234  
  Additional paid-in capital   187,379       186,995       187,030       187,133  
  Retained earnings   74,420       73,066       72,683       85,080  
  Treasury stock, at cost; 12,555,949, 12,545,518, 12,548,638, and 12,555,504 shares   (154,824 )     (154,735 )     (154,773 )     (154,877 )
  Accumulated other comprehensive loss, net of tax   (2,612 )     (2,225 )     (1,926 )     (1,404 )
    Total shareholders' equity   104,597       103,335       103,248       116,166  
      Total liabilities and shareholders' equity $ 1,132,094     $ 1,170,542     $ 1,148,950     $ 1,128,019  
                               
                               
                               
CFS BANCORP, INC.  
Selected Financial Data (Unaudited)  
(Dollars in thousands, except per share data)  
                         
    June 30,
2012
    March 31,
2012
    December 31,
2011
    June 30,
2011
 
                                 
Book value per share   $ 9.62     $ 9.50     $ 9.49     $ 10.69  
Tangible book value per share     9.62       9.50       9.49       10.69  
Shareholders' equity to total assets     9.24 %     8.83 %     8.99 %     10.30 %
Tangible common shareholders' equity to total assets     9.24       8.83       8.99       10.30  
Tier 1 core capital ratio (Bank only)     8.56       8.11       8.26       9.17  
Total risk-based capital ratio (Bank only)     13.35       13.23       12.65       13.29  
Common shares outstanding     10,867,357       10,877,788       10,874,668       10,867,802  
Employees (FTE)     261       273       303       315  
Number of full service banking centers     20       20       22       22  
                                 
                             
  Three Months Ended     Six Months Ended  
  June 30,
2012
    March 31,
 2012
    June 30,
2011
    June 30,
2012
    June 30,
2011
 
Average Balance Data:                                      
  Total assets $ 1,162,099     $ 1,159,197     $ 1,141,927     $ 1,160,644     $ 1,136,034  
  Loans receivable, net of unearned fees   705,410       708,713       732,746       707,061       730,099  
  Investment securities   252,698       258,882       267,984       255,789       253,607  
  Interest-earning assets   1,052,039       1,045,778       1,026,940       1,048,907       1,019,726  
  Deposits   996,741       990,288       977,236       993,514       971,341  
  Interest-bearing deposits   890,814       888,643       877,295       889,728       873,560  
  Non-interest bearing deposits   105,927       101,645       99,941       103,786       97,781  
  Interest-bearing liabilities   941,398       941,803       915,785       941,599       912,729  
  Shareholders' equity   103,827       104,285       115,767       104,052       114,585  
Performance Ratios (annualized):                                      
  Return on average assets   .47 %     .17 %     .43 %     .32 %     .30 %
  Return on average equity   5.25       1.89       4.27       3.56       3.00  
  Average yield on interest-earning assets   4.03       4.08       4.38       4.05       4.40  
  Average cost of interest-bearing liabilities   .68       .72       .89       .70       .93  
  Interest rate spread   3.35       3.36       3.49       3.35       3.47  
  Net interest margin   3.42       3.43       3.59       3.43       3.57  
  Non-interest expense to average assets   2.96       3.54       3.89       3.25       3.73  
  Efficiency ratio (1)   75.71       90.10       81.69       82.92       86.43  
                                       
Cash dividends declared per share $ --     $ .01     $ .01     $ .01     $ .02  
Market price per share of common stock for the period ended:                                      
  Close $ 4.98     $ 5.70     $ 5.37     $ 4.98     $ 5.37  
  High   5.96       6.29       5.90       6.29       5.90  
  Low   4.30       4.33       5.28       4.30       5.25  
                                       
(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  
     June 30, 2012     March 31, 2012     June 30, 2011  
Income before income taxes   $ 1,895     $ 490     $ 1,658  
Provision for loan losses     1,150       1,050       996  
Pre-tax, pre-provision earnings     3,045       1,540       2,654  
                         
Add back (subtract):                        
  Net gain on sale of investment securities     (305 )     (418 )     (173 )
  Net (gain) loss on sale of other real estate owned     (86 )     47       (2,238 )
  Other real estate owned related expense, net     316       618       2,011  
  Loan collection expense     119       118       233  
  Severance and retirement compensation expense     --       876       --  
Pre-tax, pre-provision earnings, as adjusted   $ 3,089     $ 2,781     $ 2,487  
                         
Pre-tax, pre-provision earnings, as adjusted, to average assets (annualized)     1.07 %     .96 %     .87 %
                         
                         
            Six Months Ended  
            June 30, 2012     June 30, 2011  
Income before income taxes     $ 2,385     $ 2,096  
Provision for loan losses       2,200       1,899  
Pre-tax, pre-provision earnings       4,585       3,995  
                         
Add back (subtract):                        
  Net gain on sale of investment securities       (723 )     (692 )
  Net (gain) loss on sale of other real estate owned       (39 )     (2,233 )
  Other real estate owned related expense, net       934       2,603  
  Loan collection expense       237       353  
  Severance and retirement compensation expense       876       --  
Pre-tax, pre-provision earnings, as adjusted     $ 5,870     $ 4,026  
                         
Pre-tax, pre-provision earnings, as adjusted, to average assets (annualized)       1.02 %     .71 %

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