SOURCE: CFS Bancorp, Inc.

CFS Bancorp, Inc.

October 29, 2012 07:00 ET

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

MUNSTER, IN--(Marketwire - Oct 29, 2012) - CFS Bancorp, Inc. (NASDAQ: CITZ), the parent of Citizens Financial Bank, today reported net income of $1.3 million, or $.12 per diluted share, for the third quarter of 2012, an increase from net income of $394,000, or $.04 per diluted share, for the third quarter of 2011. The Company's net income for the nine months ended September 30, 2012 was $3.1 million, or $.29 per diluted share, an increase from net income of $2.1 million, or $.20 per diluted share, for the nine months ended September 30, 2011. 

Financial results for the quarter include:

  • Non-performing assets decreased $17.1 million, or 24.0%, to $54.0 million at September 30, 2012 from $71.1 million at June 30, 2012; 
  • Net charge-offs for the third quarter of 2012 totaled $863,000, stable with $856,000 for the second quarter of 2012 and a decrease from $2.5 million for the third quarter of 2011;
  • Loans receivable decreased $9.7 million to $703.9 million from June 30, 2012 primarily due to decreases in commercial real estate owner occupied and non-owner occupied loans, including $5.8 million of transfers to other real estate owned, which were partially offset by an increase in commercial and industrial loans;
  • Core deposits increased to 63.3% of total deposits compared to 62.5% and 60.5% of total deposits at June 30, 2012 and September 30, 2011, respectively; 
  • Net interest margin increased to 3.47% during the third quarter of 2012 from 3.42% in the second quarter of 2012 and 3.39% in the third quarter of 2011; 
  • The Company's common shareholders' equity to total assets ratio increased to 9.66% at September 30, 2012 compared to 9.24% at June 30, 2012 and 8.99% at December 31, 2011; and
  • The Bank's Tier 1 core capital ratio increased to 8.85% at September 30, 2012 compared to 8.56% at June 30, 2012 and 8.26% at December 31, 2011, and the total risk-based capital ratio increased to 13.82% from 13.35% at June 30, 2012 and 12.65% at December 31, 2011.

Chief Executive Officer's Comments

"I am pleased to report a significant 24% reduction in our level of non-performing assets as well as another quarter of profitability. Our diligent problem asset resolution efforts are producing the results we have anticipated," said Daryl D. Pomranke, Chief Executive Officer. "Our decision to continue resolving individual credits by working with our clients, utilizing A/B-Note structures as appropriate, and pursuing individual sales of other real estate owned, while taking longer to complete, has, we believe, produced better outcomes than pursuing a bulk sale strategy. We expect to make additional progress in reducing non-performing assets through the remainder of 2012 and into 2013."

"The execution of our strategies to reduce non-performing assets, diversify revenue sources, and reduce non-interest expense is yielding more positive outcomes. As a result, our third quarter and year-to-date pre-tax, pre-provision earnings, as adjusted, reflect solid increases over comparable prior periods. We continue to look to our strategies for opportunities for additional improvements," added Pomranke. 

Update on Strategic Growth and Diversification Plan

We continue to focus on reducing the level of non-performing loans. Our ratio of non-performing loans to total loans decreased to 5.19% at September 30, 2012 from 7.27% at June 30, 2012, primarily due to transfers back to accrual status of $9.8 million of commercial real estate loans that were restructured and performing for at least six months, a $1.7 million paydown of a non-performing commercial participation loan, and $5.6 million of commercial real estate loans transferred to other real estate owned. The ratio of non-performing assets to total assets decreased to 4.83% at September 30, 2012 compared to 6.28% at June 30, 2012. See the Asset Quality table in this press release for more detailed information.

We also remain focused on reducing non-interest expense. Despite an increase during the third quarter of 2012 to $9.0 million from $8.5 million for the second quarter of 2012, non-interest expense decreased from $9.2 million for the third quarter of 2011. Excluding credit related costs totaling $1.2 million, non-interest expense decreased to $7.7 million for the third quarter of 2012 from $8.1 million for the second quarter of 2012 and $8.5 million from the third quarter of 2011. These decreases were related to a significant decrease in 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 has decreased to 259 at September 30, 2012 from 311 at September 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 56.5% of the commercial loan portfolio at September 30, 2012, compared to 55.6% at June 30, 2012 and 52.2% at September 30, 2011. Our focus on deepening client relationships continues to emphasize core deposits. Total core deposits, which declined $2.3 million in the third quarter of 2012, increased as a percentage of total deposits to 63.3% at September 30, 2012 from 62.5% at June 30, 2012 and 60.5% at September 30, 2011 primarily due to 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, increased $847,000, or 31.5%, to $3.5 million for the third quarter of 2012 compared to $2.7 million for the third quarter of 2011. These increases were primarily due to a $261,000 increase in gains on sales of loans held for sale along with a $636,000 decrease in compensation and employee benefits expense. 

The pre-tax, pre-provision earnings, as adjusted, for the nine months ended September 30, 2012 increased $2.7 million, or 40.1%, to $9.4 million compared to $6.7 million for the 2011 period primarily due to increases in gains on sales of loans held for sale, income from bank-owned life insurance as a result of the death of an insured in the first quarter of 2012, 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 and a slight 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  
    September 30,
2012
    June 30,
2012
    September 30,
2011
 
    (Dollars in thousands)  
Net interest margin     3.47 %     3.42 %     3.39 %
Interest rate spread     3.41       3.35       3.30  
Net interest income   $ 8,849     $ 8,944     $ 8,859  
Average assets:                        
Yield on interest-earning assets     4.02 %     4.03 %     4.12 %
  Yield on loans receivable     4.60       4.70       4.82  
  Yield on investment securities     3.21       3.42       2.93  
Average interest-earning assets   $ 1,014,769     $ 1,052,039     $ 1,036,064  
Average liabilities:                        
Cost of interest-bearing liabilities     .61 %     .68 %     .82 %
  Cost of interest-bearing deposits     .51       .58       .73  
  Cost of borrowed funds     2.29       2.30       2.28  
Average interest-bearing liabilities   $ 909,841     $ 941,398     $ 922,049  

The net interest margin increased five basis points to 3.47% for the third quarter of 2012 compared to 3.42% for the second quarter of 2012 and eight basis points from 3.39% for the third quarter of 2011. Net interest income was stable at $8.8 million for the third quarter of 2012 compared to $8.9 million for the second quarter of 2012 and the third quarter of 2011. The net interest margin benefited from loans comprising a larger proportion of interest-earning assets and decreases in non-performing assets and the cost of interest-bearing liabilities during the quarter. Higher levels of liquidity, modest loan demand, reduced but still elevated level of non-performing assets, the continued low interest rate environment, and narrowing of spreads on new investment security purchases will create pressure on the net interest margin for the foreseeable future. The third quarter 2012 decrease in yields on investment securities compared to the second quarter of 2012 was primarily related to prepayments and maturities of higher-yielding investment securities in the current lower interest rate environment with the proceeds reinvested at lower rates. The level of non-performing loans continues to negatively affect the yield on loans receivable. The net interest margin was positively affected by a seven basis point decrease in the cost of interest-bearing liabilities from the second quarter of 2012 and a 21 basis point decrease compared to the third quarter of 2011.

Interest income totaled $10.2 million for the third quarter of 2012, a decrease of 2.7% from $10.5 million for the second quarter of 2012 and 4.7% from $10.8 million for the third quarter of 2011. The decreases are 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 11.9% to $1.4 million for the third quarter of 2012 compared to $1.6 million for the second quarter of 2012 and 26.2% from $1.9 million for the third quarter of 2011. 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 third quarter of 2012.

Non-Interest Income and Non-Interest Expense

Non-interest income increased $389,000, or 14.7%, to $3.0 million for the third quarter of 2012 compared to the second quarter of 2012 primarily due to a $339,000 increase in gains on sales of other real estate owned, a $127,000 increase in gains on the sale of loans held for sale, and an $84,000 increase in deposit related fees. These increases were partially offset by a $111,000 decrease in gains on sales of investment securities. 

Non-interest income decreased $278,000, or 8.4%, from $3.3 million for the third quarter of 2011 primarily due to a $564,000 decrease in gains on the sale of investment securities and a $65,000 decrease in income from bank-owned life insurance due to lower portfolio yields. These decreases were partially offset by increases of $261,000 in gains on the sale of loans held for sale related to our expanded residential loan origination and mortgage banking activities and $159,000 in gains on the sale of other real estate owned. Excluding net gains and losses on sales of investment securities and other real estate owned, non-interest income increased $127,000 compared to the third quarter of 2011 primarily due to the increases in gains on the sale of loans held for sale partially offset by a decrease in income from bank-owned life insurance.

Non-interest expense for the third quarter of 2012 increased $427,000, or 5.0%, to $9.0 million compared to $8.5 million for the second quarter of 2012 primarily due to an increase of $758,000 of other real estate owned expense as a result of $1.0 million of net realizable value write-downs on seven properties. Excluding these credit related costs and loan collection expense, non-interest expense for the third quarter of 2012 decreased $382,000, or 4.7%, from the second quarter of 2012. This decrease is a result of a $285,000, or 6.4%, decrease in compensation and employee benefits due to slightly fewer FTEs during the quarter combined with a decrease in medical insurance expense.

Non-interest expense during the third quarter of 2012 decreased $217,000, or 2.4%, to $9.0 million from $9.2 million for the third quarter of 2011 due to lower compensation and employee benefits expense of $636,000 and professional fees of $132,000. These decreases were partially offset by a $460,000 increase in other real estate owned expense as a result of net realizable value write-downs, a $70,000 increase in marketing expenses, and a $53,000 increase in loan collection expense. Excluding credit related costs, non-interest expense for the third quarter of 2012 decreased $730,000, or 8.6%, from the third quarter of 2011.

Income Tax Expense

During the third quarter of 2012, we recorded income tax expense of $493,000, equal to an effective tax rate of 28.1%, compared to $541,000, or an effective tax rate of 28.5%, for the second quarter of 2012. During the third quarter of 2011, we recorded an income tax benefit of $84,000 due to the tax sheltering effect of the income from bank-owned life insurance and other tax credits.

Asset Quality

    September 30,
2012
    June 30,
2012
    September 30,
2011
 
    (Dollars in thousands)  
Non-performing loans (NPLs)   $ 36,567     $ 51,850     $ 59,335  
Other real estate owned     17,447       19,223       17,195  
Non-performing assets (NPAs)   $ 54,014     $ 71,073     $ 76,530  
                         
Allowance for loan losses (ALL)   $ 12,359     $ 12,062     $ 17,186  
Provision for loan losses for the quarter ended     1,160       1,150       2,673  
Loan charge-offs (recoveries):                        
  Loan charge-offs   $ 1,261     $ 892     $ 2,556  
  Recoveries     (398 )     (36 )     (30 )
Net charge-offs for the quarter ended   $ 863     $ 856     $ 2,526  
                         
NPLs / total loans     5.19 %     7.27 %     8.18 %
NPAs / total assets     4.83       6.28       6.55  
ALL / total loans     1.76       1.69       2.37  
ALL / NPLs     33.80       23.26       28.96  

Total non-performing loans decreased $15.3 million, or 29.5%, to $36.6 million at September 30, 2012 from $51.9 million at June 30, 2012. The decrease is primarily due to the transfer back to accrual status of two commercial real estate non-owner occupied and one commercial real estate owner occupied A-Note troubled debt restructurings totaling $9.8 million, a $1.7 million paydown of a non-accrual commercial participation loan, two commercial real estate loans transferred to other real estate owned totaling $5.6 million, and gross loan charge-offs totaling $1.0 million. Partially offsetting these decreases, commercial loans transferred to non-accrual status during the quarter totaled $3.1 million and retail loans transferred totaled $1.2 million. Of the total non-accrual loans at September 30, 2012, $3.9 million, or 10.5%, are current and performing in accordance with their loan agreements. The ratio of non-performing loans to total loans decreased to 5.19% at September 30, 2012 from 7.27% and 8.18%, respectively, at June 30, 2012 and September 30, 2011. 

The provision for loan losses was stable at $1.16 million for the third quarter of 2012 compared to $1.15 million for the second quarter of 2012 and decreased significantly from $2.67 million for the third quarter of 2011.

The ratio of the allowance for loan losses to total loans increased to 1.76% at September 30, 2012 compared to 1.69% at June 30, 2012 primarily due to a slight increase in the allowance for loan losses and a decrease 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 $12.3 million recorded through September 30, 2012 on $24.8 million (net of charge-offs) of non-performing collateral dependent loans. At September 30, 2012, the ratio of the allowance for loan losses to non-performing loans, excluding the $24.8 million of non-performing collateral dependent loans with partial charge-offs, improved to 105.3% from 62.8% at June 30, 2012.

During the third quarter of 2012, we transferred three loan relationships to other real estate owned totaling $5.8 million and sold 15 other real estate owned properties aggregating $6.5 million resulting in net gain on sale of $425,000. 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 $1.2 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.

             
    9/30/2012   6/30/2012   9/30/2011
    (Dollars in thousands)
Assets:                  
Total assets   $ 1,118,681   $ 1,132,094   $ 1,168,481
Interest-bearing deposits     76,972     51,687     84,344
Investment securities     215,988     240,590     232,804
Loans receivable, net of unearned fees     703,907     713,596     725,467
                   
Liabilities and Equity:                  
Total liabilities   $ 1,010,622   $ 1,027,497   $ 1,053,726
Deposits     951,061     967,154     986,441
Borrowed funds     50,018     51,306     56,115
Shareholders' equity     108,059     104,597     114,755
                   

Loans Receivable

                   
    9/30/2012     6/30/2012     9/30/2011  
    Amount     % of Total     Amount     % of Total     Amount     % of Total  
    (Dollars in thousands)  
Commercial loans:                                          
  Commercial and industrial   $ 93,794     13.3 %   $ 89,479     12.6 %   $ 83,569     11.5 %
  Commercial real estate - owner occupied     96,991     13.8       102,149     14.3       100,244     13.8  
  Commercial real estate - non-owner occupied     178,621     25.4       184,284     25.8       193,267     26.7  
  Commercial real estate - multifamily     76,549     10.9       76,647     10.7       70,129     9.7  
  Commercial construction and land development     21,935     3.1       23,353     3.3       22,635     3.1  
  Commercial participations     5,671     .8       6,453     .9       16,739     2.3  
    Total commercial loans     473,561     67.3       482,365     67.6       486,583     67.1  
Retail loans:                                          
  One-to-four family residential     178,280     25.2       177,830     24.9       181,025     25.0  
  Home equity lines of credit     47,605     6.8       49,476     6.9       53,953     7.4  
  Retail construction and land development     1,778     .3       1,518     .2       1,299     .2  
  Other     3,238     .5       2,724     .5       3,007     .4  
    Total retail loans     230,901     32.8       231,548     32.5       239,284     33.0  
      Total loans receivable     704,462     100.1       713,913     100.1       725,867     100.1  
      Net deferred loan fees     (555 )   (.1 )     (317 )   (.1 )     (400 )   (.1 )
        Total loans receivable, net of unearned fees   $ 703,907     100.0 %   $ 713,596     100.0 %   $ 725,467     100.0 %
                                           

Total loans receivable decreased $9.7 million at September 30, 2012 from June 30, 2012 primarily due to repayments totaling $21.1 million, sales of one-to-four family loans totaling $17.5 million, transfers to other real estate owned totaling $5.8 million, and gross charge-offs of $1.3 million. Partially offsetting these decreases, loan fundings during the three months ended September 30, 2012 totaled $37.3 million, a 19.2% increase from $31.3 million for the three months ended June 30, 2012. 

At September 30, 2012, our total commercial loans outstanding that were originated prior to January 1, 2008 (Pre-1/1/08) decreased to $172.3 million, or 36.4% of total commercial loans outstanding compared to $187.9 million, or 38.9%, at June 30, 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 third quarter of 2012, we sold $17.5 million of conforming one-to-four family fixed-rate mortgage loans into the secondary market and recorded a gain on sale of $327,000 compared to loan sales and gains on sale of $3.2 million and $66,000, respectively, in the third quarter of 2011.

Deposits

                   
    9/30/2012     6/30/2012     9/30/2011  
    Amount   % of Total     Amount   % of Total     Amount   % of Total  
    (Dollars in thousands)  
Checking accounts:                                    
  Non-interest bearing   $ 98,723   10.4 %   $ 97,435   10.1 %   $ 106,476   10.8 %
  Interest-bearing     177,458   18.6       179,842   18.5       172,007   17.4  
Money market accounts     179,400   18.9       182,522   18.9       185,906   18.9  
Savings accounts     146,617   15.4       144,705   15.0       132,378   13.4  
  Core deposits     602,198   63.3       604,504   62.5       596,767   60.5  
Certificates of deposit accounts     348,863   36.7       362,650   37.5       389,674   39.5  
    Total deposits   $ 951,061   100.0 %   $ 967,154   100.0 %   $ 986,441   100.0 %
                                         

During the first quarter of 2012, we implemented our High Performance Checking (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. In addition, core deposits during 2012 benefited from clients moving maturing certificates of deposit into money market and savings accounts due to the current low interest rate environment. 

Borrowed Funds

             
    9/30/2012   6/30/2012   9/30/2011
    (Dollars in thousands)
Short-term variable-rate repurchase agreements   $ 10,430   $ 11,540   $ 16,175
FHLB advances     39,588     39,766     39,940
Total borrowed funds   $ 50,018   $ 51,306   $ 56,115
                   

Borrowed funds decreased slightly during the third 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 September 30, 2012 increased to $108.1 million, or 9.66% of assets, from $104.6 million, or 9.24% of assets, at June 30, 2012. The increase was primarily due to net income of $1.3 million for the quarter and a decrease in accumulated other comprehensive loss, net of tax, of $2.4 million during the quarter. Shareholders' equity also increased from $103.2 million, or 8.99% of assets, at December 31, 2011 due to net income of $3.1 million and a decrease in accumulated other comprehensive loss, net of tax, of $1.7 million for the nine months ended September 30, 2012.

At September 30, 2012, the Bank's Tier 1 core capital ratio increased to 8.85% from 8.56% at June 30, 2012 and the total risk-based capital ratio increased to 13.82% from 13.35% at June 30, 2012. Both the Tier 1 core capital ratio and the total risk-based capital ratio exceeded "minimum" and "well capitalized" regulatory capital requirements at September 30, 2012 and June 30, 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 and mortgage loans held for sale, 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   Nine Months Ended
    September 30,
2012
  June 30,
2012
  September 30,
2011
  September 30,
2012
  September 30,
2011
Interest income:                              
  Loans receivable   $ 8,237   $ 8,243   $ 8,881   $ 24,866   $ 26,708
  Investment securities     1,923     2,186     1,794     6,239     5,879
  Other interest-earning assets     88     103     80     284     401
    Total interest income     10,248     10,532     10,755     31,389     32,988
                               
Interest expense:                              
  Deposits     1,102     1,294     1,602     3,786     5,272
  Borrowed funds     297     294     294     887     813
    Total interest expense     1,399     1,588     1,896     4,673     6,085
Net interest income     8,849     8,944     8,859     26,716     26,903
Provision for loan losses     1,160     1,150     2,673     3,360     4,572
Net interest income after provision for loan losses     7,689     7,794     6,186     23,356     22,331
                               
Non-interest income:                              
  Deposit related fees     1,662     1,578     1,675     4,709     4,708
  Commission income     55     75     100     187     223
  Net gain on sale of:                              
    Investment securities     194     305     758     917     1,450
    Loans held for sale     327     200     66     686     124
    Other real estate owned     425     86     266     464     2,499
  Income from bank-owned life insurance     151     162     216     853     632
  Other income     218     237     229     683     663
    Total non-interest income     3,032     2,643     3,310     8,499     10,299
                               
Non-interest expense:                              
  Compensation and employee benefits     4,182     4,467     4,818     13,362     15,104
  Net occupancy expense     697     679     706     2,084     2,141
  FDIC insurance premiums and regulatory assessments     475     490     481     1,453     1,638
  Data processing     462     445     424     1,345     1,307
  Furniture and equipment expense     417     468     436     1,342     1,353
  Marketing     283     322     213     1,009     670
  Professional fees     177     198     309     628     1,031
  Other real estate owned related expense, net     1,074     316     614     2,008     3,217
  Loan collection expense     170     119     117     407     470
  Severance and retirement compensation expense     --     --     --     876     --
  Other general and administrative expenses     1,032     1,038     1,068     3,204     3,293
    Total non-interest expense     8,969     8,542     9,186     27,718     30,224
                               
Income before income tax expense (benefit)     1,752     1,895     310     4,137     2,406
Income tax expense (benefit)     493     541     (84 )   1,034     307
                               
Net income   $ 1,259   $ 1,354   $ 394   $ 3,103   $ 2,099
                               
Basic earnings per share   $ .12   $ .13   $ .04   $ .29   $ .20
Diluted earnings per share     .12     .13     .04     .29     .20
                               
Weighted-average common and common share equivalents outstanding:                              
  Basic     10,747,974     10,750,313     10,693,724     10,732,118     10,678,788
  Diluted     10,806,861     10,806,555     10,753,386     10,786,679     10,739,969
   
   
CFS BANCORP, INC.  
Consolidated Statements of Condition (Unaudited)  
(Dollars in thousands)  
                   
    September 30,
2012
  June 30,
2012
  December 31,
2011
  September 30,
2011
 
                           
ASSETS                          
Cash and amounts due from depository institutions   $ 31,611   $ 33,846   $ 32,982   $ 33,421  
Interest-bearing deposits     76,972     51,687     59,090     84,344  
  Cash and cash equivalents     108,583     85,533     92,072     117,765  
                           
Investment securities available-for-sale, at fair value     202,498     226,625     234,381     218,417  
Investment securities held-to-maturity, at cost     13,490     13,965     16,371     14,387  
Investment in Federal Home Loan Bank stock, at cost     6,188     6,188     6,188     8,638  
                           
Loans receivable, net of unearned fees     703,907     713,596     711,226     725,467  
  Allowance for loan losses     (12,359 )   (12,062 )   (12,424 )   (17,186 )
    Net loans     691,548     701,534     698,802     708,281  
                           
Loans held for sale     2,199     610     1,124     839  
Investment in bank-owned life insurance     36,586     36,435     36,275     36,095  
Accrued interest receivable     2,697     2,801     3,011     2,908  
Other real estate owned     17,447     19,223     19,091     17,195  
Office properties and equipment     16,121     16,225     17,539     18,053  
Net deferred tax assets     13,801     16,281     16,273     17,708  
Prepaid expenses and other assets     7,523     6,674     7,823     8,195  
      Total assets   $ 1,118,681   $ 1,132,094   $ 1,148,950   $ 1,168,481  
                           
LIABILITIES AND SHAREHOLDERS' EQUITY                          
Deposits   $ 951,061   $ 967,154   $ 977,424   $ 986,441  
Borrowed funds     50,018     51,306     54,200     56,115  
Advance payments by borrowers for taxes and insurance     4,075     4,243     4,275     5,868  
Other liabilities     5,468     4,794     9,803     5,302  
  Total liabilities     1,010,622     1,027,497     1,045,702     1,053,726  
                           
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; 10,876,151, 10,867,357, 10,874,668, and 10,877,015 shares outstanding     234     234     234     234  
  Additional paid-in capital     187,254     187,379     187,030     187,023  
  Retained earnings     75,461     74,420     72,683     85,365  
  Treasury stock, at cost; 12,547,155, 12,555,949, 12,548,638, and 12,546,291 shares     (154,695 )   (154,824 )   (154,773 )   (154,766 )
  Accumulated other comprehensive loss, net of tax     (195 )   (2,612 )   (1,926 )   (3,101 )
    Total shareholders' equity     108,059     104,597     103,248     114,755  
      Total liabilities and shareholders' equity   $ 1,118,681   $ 1,132,094   $ 1,148,950   $ 1,168,481  
   
   
CFS BANCORP, INC.  
Selected Financial Data (Unaudited)  
(Dollars in thousands, except per share data)  
                         
    September 30,
2012
    June 30,
2012
    December 31,
2011
    September 30,
2011
 
                                 
Book value per share   $ 9.94     $ 9.62     $ 9.49     $ 10.55  
Shareholders' equity to total assets     9.66 %     9.24 %     8.99 %     9.82 %
Tier 1 core capital ratio (Bank only)     8.85       8.56       8.26       8.87  
Total risk-based capital ratio (Bank only)     13.82       13.35       12.65       13.57  
Common shares outstanding     10,876,151       10,867,357       10,874,668       10,877,015  
Employees (FTE)     259       261       303       311  
Number of full service banking centers     20       20       22       22  
                                 
         
  Three Months Ended   Nine Months Ended  
  September 30,
2012
  June 30,
2012
  September 30,
2011
  September 30,
2012
  September 30,
2011
 
Average Balance Data:                              
  Total assets $ 1,123,777   $ 1,162,099   $ 1,150,149   $ 1,148,290   $ 1,140,791  
  Loans receivable, net of unearned fees   712,663     705,410     730,524     708,942     730,242  
  Investment securities   234,395     252,698     239,655     248,606     248,905  
  Interest-earning assets   1,014,769     1,052,039     1,036,064     1,037,445     1,025,231  
  Deposits   956,939     996,741     972,486     981,232     971,727  
  Interest-bearing deposits   859,051     890,814     871,637     879,427     872,912  
  Non-interest bearing deposits   97,888     105,927     100,849     101,805     98,815  
  Interest-bearing liabilities   909,841     941,398     922,049     930,935     915,870  
  Shareholders' equity   106,145     103,827     116,408     104,755     115,199  
Performance Ratios (annualized):                              
  Return on average assets   .45 %   .47 %   .14 %   .36 %   .25 %
  Return on average equity   4.72     5.25     1.34     3.96     2.44  
  Average yield on interest-earning assets   4.02     4.03     4.12     4.04     4.30  
  Average cost of interest-bearing liabilities   .61     .68     .82     .67     .89  
  Interest rate spread   3.41     3.35     3.30     3.37     3.41  
  Net interest margin   3.47     3.42     3.39     3.44     3.51  
  Non-interest expense to average assets   3.18     2.96     3.17     3.22     3.54  
  Efficiency ratio (1)   76.74     75.71     80.50     80.82     84.54  
                               
Cash dividends declared per share $ .02   $ --   $ .01   $ .03   $ .03  
Market price per share of common stock for the period ended:                              
  Close $ 5.46   $ 4.98   $ 4.34   $ 5.46   $ 4.34  
  High   5.75     5.96     5.70     6.29     5.90  
  Low   4.42     4.30     4.34     4.30     4.34  
                               
(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  
    September 30, 2012     June 30, 2012     September 30, 2011  
Income before income taxes   $ 1,752     $ 1,895     $ 310  
Provision for loan losses     1,160       1,150       2,673  
Pre-tax, pre-provision earnings     2,912       3,045       2,983  
                         
Add back (subtract):                        
  Net gain on sale of investment securities     (194 )     (305 )     (758 )
  Net gain on sale of other real estate owned     (425 )     (86 )     (266 )
  Other real estate owned related expense, net     1,074       316       614  
  Loan collection expense     170       119       117  
Pre-tax, pre-provision earnings, as adjusted   $ 3,537     $ 3,089     $ 2,690  
                         
Pre-tax, pre-provision earnings, as adjusted, to average assets (annualized)     1.25 %     1.07 %     .93 %
                         
    Nine Months Ended  
    September 30, 2012     September 30, 2011  
Income before income taxes   $ 4,137     $ 2,406  
Provision for loan losses     3,360       4,572  
Pre-tax, pre-provision earnings     7,497       6,978  
                 
Add back (subtract):                
  Net gain on sale of investment securities     (917 )     (1,450 )
  Net gain on sale of other real estate owned     (464 )     (2,499 )
  Other real estate owned related expense, net     2,008       3,217  
  Loan collection expense     407       470  
  Severance and retirement compensation expense     876       --  
Pre-tax, pre-provision earnings, as adjusted   $ 9,407     $ 6,716  
                 
Pre-tax, pre-provision earnings, as adjusted, to average assets (annualized)     1.09 %     .79 %

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