CITIZENS SOUTH BANKING CORP. 
By
Operating income (as calculated in the attached table) for the quarter
ended
Credit Quality
The Company's credit quality continues to compare favorably with industry
peers, despite some softening in the
December 31, 2008 September 30, 2008
Nonperforming loans / total loans 0.48% 0.53%
Nonperforming assets / total assets 0.69% 0.55%
Nonperforming assets / total loans 0.90% 0.72%
Net charge-offs / average loans 0.07% 0.07%
Allowance for loan losses / total loans 1.28% 1.12%
While management recognizes softness in the residential housing market, historically conservative underwriting practices and market discipline has shielded the loan portfolio from the significant portfolio deterioration suffered by many other banks in the southeast. The Company has not been an originator or purchaser of option adjustable rate or "no documentation" portfolio mortgage loans, and the portfolio does not include any mortgage loans classified as "sub-prime." Also, residential construction loans and residential acquisition and development loans were limited to local experienced contractors and developers who personally guaranteed their debt.
Net Interest Margin
During the fourth quarter of 2008 the Federal Reserve Bank lowered short- term interest rates by 175 basis points. As a result, the Company's fully taxable equivalent net interest margin contracted by 18 basis points on a linked-quarter basis to 2.84%. Approximately 43% of the Company's loans are tied to adjustable rate indices, such as the prime lending rate, which are influenced by the actions of the Federal Reserve Bank. While the Company's net interest income is relatively neutral to changes in interest rates over a one year time frame, decreases in short-term interest rates have a negative impact on short-term earnings. However, the decrease in short-term earnings is partly offset by liabilities which reprice at lower rates over the next year.
Loan Portfolio
During most of 2008 the real estate market in the
Deposit Portfolio
Demand deposit accounts increased by
During the fourth quarter, total deposits decreased by
Noninterest Income and Expense
Noninterest operating income (as defined in the tables that follow)
decreased by
In making the earnings announcement,
General Information
Headquartered in
Forward-looking Statements
This news release contains certain forward-looking statements which
include, but are not limited to, statements of our earnings expectations,
statements regarding our operating strategy, and estimates of our future costs
and benefits. These forward-looking statements are based on our current
beliefs and expectations and are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond our control. In addition, these forward-looking statements are subject
to assumptions with respect to future business strategies and decisions that
are subject to change. Forward-looking statements speak only as of the date
they are made and the Company is under no duty to update these forward-looking
statements to reflect circumstances or events that occur after the date of the
forward-looking statements or to reflect the occurrence of unanticipated
events. A number of factors could cause actual conditions, events or results
to differ significantly from those described in the forward-looking
statements. Factors that could cause such a difference include, but are not
limited to, changes in general economic conditions - either locally or
nationally, competition among depository and financial institutions, the
continuation of current revenue and expense trends, significant changes in
interest rates, unforeseen changes in the Company's markets, and legal,
regulatory, or accounting changes. The Company's reports filed from time to
time with the Securities and Exchange Commission, including the Company's Form
10-K for the year ended
Important Tables Follow
Citizens South Banking Corporation
Selected Financial Information
Quarter Quarter 12 Months 12 Months
ended ended ended ended
(dollars in thousands, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
except per share data) 2008 2007 2008 2007
Reconciliation of GAAP
to non-GAAP Measures:
Net income, as reported
(GAAP) $427 $1,327 $3,081 $5,665
Non-operating items
(net of 39% tax):
(Gain)/ loss on sale
of assets, net 68 8 (100) (197)
Reorganization &
merger/integration
expenses - - 134 -
Impairment of investments - - 285 99
Insurance proceeds, net - - - (112)
Net Operating Income $495 $1,335 $3,400 $5,455
Noninterest income, as
reported (GAAP) $1,254 $1,511 $6,019 $6,562
Non-operating items:
(Gain)/ loss on sale
of assets, net 110 13 (164) (323)
Fair value adjustment
on deferred comp assets 63 (12) 128 (122)
Insurance proceeds, net - - - (112)
Noninterest Operating
Income $1,427 $1,512 $5,983 $6,005
Noninterest expense, as
reported (GAAP) $4,496 $4,439 $19,226 $7,895
Non-operating items:
Impairment of investments - - (468) (162)
Fair value adjustment
on deferred comp assets 63 (12) 128 (122)
Reorganization &
merger/integration
expenses - - (220) -
Noninterest Operating
Expense $4,559 $4,427 $18,666 $17,611
Per Share Data:
Average common shares
outstanding, basic 7,361,434 7,513,151 7,374,051 7,688,595
Basic net income - GAAP $0.06 $0.18 $0.42 $0.74
Basic net income -
Operating $0.07 $0.18 $0.46 $0.71
Average common shares
outstanding, diluted 7,379,466 7,570,671 7,404,087 7,754,599
Diluted net income - GAAP $0.06 $0.18 $0.42 $0.73
Diluted net income -
Operating 0.07 0.18 0.46 0.70
Cash dividends declared
on common stock $0.085 $0.08 $0.34 $0.32
Period-end book value
per common share 11.21 11.05 11.21 11.05
Financial Ratios (annualized):
Return on average
stockholders' equity -
GAAP 1.92% 6.24% 3.62% 6.68%
Return on avg.
stockholders' equity -
Operating 2.22 6.28 3.99 6.43
Return on average
assets - GAAP 0.21% 0.68% 0.39% 0.75%
Return on average
assets - Operating 0.24 0.69 0.43 0.72
Efficiency ratio - GAAP
70.53% 68.04% 73.32% 66.78%
Efficiency ratio -
Operating 69.33 67.84 72.12 67.12
Net interest margin
(tax equivalent) 2.84% 3.01% 2.92% 3.15%
Total equity to total
assets 12.81 10.79 12.81 10.79
Tangible equity to
tangible assets 9.43 7.08 9.43 7.08
Asset Quality Data:
Allowance for loan losses $8.026 $6,144 $8,026 $6,144
Nonperforming loans 3,032 1,815 3,032 1,815
Nonperforming assets 5,633 2,344 5,633 2,344
Net charge-offs 462 479 1,394 911
Net charge-offs to
average loans 0.07% 0.09% 0.23% 0.17%
Allowance for loan
losses to total loans 1.28 1.10 1.28 1.10
Nonperforming loans to
total loans 0.48 0.32 0.48 0.32
Nonperforming assets to
total assets 0.69 0.30 0.69 0.30
Nonperforming assets to
total loans 0.90 0.42 0.90 0.42
Average Balances:
Total assets $820,166 $770,338 $799,869 $753,085
Loans receivable, net
of unearned income 627,888 550,255 596,467 529,399
Interest-earning assets 733,858 680,975 708,633 660,490
Deposits 579,967 581,086 579,850 575,302
Interest-bearing
liabilities 685,079 635,601 665,828 618,126
Stockholders' equity 88,498 84,362 85,232 84,783
At Period End:
Total assets $817,213 $779,140 $817,213 $779,140
Loans receivable, net
of unearned income 626,688 559,956 626,688 559,956
Interest-earning assets 733,448 690,007 733,448 690,007
Deposits 581,488 590,765 581,488 590,765
Interest-bearing
liabilities 660,881 643,478 660,881 643,478
Stockholders' equity 104,720 84,033 104,720 84,033
Citizens South Banking Corporation
Consolidated Statements of Financial Condition
(dollars in thousands)
Dec. 31, Dec. 31,
2008 2007
(unaudited)
ASSETS
Cash and cash equivalents 10,057 29,739
Investment securities
available-for-sale, at fair value 28,905 46,519
Mortgage-backed securities
available-for-sale, at fair value 80,275 69,893
Loans receivable, net unearned income 626,688 559,956
Allowance for loan losses (8,026) (6,144)
Loans receivable, net 618,662 553,812
Real estate acquired through
foreclosure, net 2,601 529
Premises and equipment, net 16,834 17,965
Accrued interest receivable 2,609 3,254
Federal Home Loan Bank stock, at cost 4,793 4,236
Intangible assets 30,525 31,037
Bank owned life insurance 16,813 16,099
Other assets 5,139 6,057
Total assets $817,213 $779,140
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposit accounts $122,731 $101,981
Money market deposit accounts 103,271 129,688
Savings accounts 10,708 12,037
Time deposits 344,778 347,059
Total deposits 581,488 590,765
Borrowed money 124,365 96,284
Deferred compensation 5,413 5,389
Other liabilities 1,227 2,669
Total liabilities 712,493 695,107
Stockholders' Equity:
Preferred stock issued and
outstanding, $0.01 par value,
10,000,000 shares authorized,
20,500 shares issued and
outstanding at December 31, 2008,
and no shares issued or outstanding
at December 31, 2007 20,507 -
Common stock issued and
outstanding, $0.01 par value,
20,000,000 shares authorized,
9,062,727 issued at
December 31, 2008, and
December 31, 2007, and 7,515,957 shares
outstanding at December 31, 2008,
and 7,610,017 shares outstanding
at December 31, 2007 91 91
Additional paid-in-capital 67,367 67,718
Unallocated common stock held
by Employee Stock Ownership Plan (1,065) (1,247)
Retained earnings, substantially
restricted 36,089 36,028
Accumulated unrealized loss on
securities available-for-sale,
net of tax 25 (343)
Treasury stock of 1,546,770
shares at December 31, 2008,
and 1,452,710 shares
at December 31, 2007 (18,294) (18,214)
Total stockholders' equity 104,720 84,033
Total liabilities and
stockholders' equity $817,213 $779,140
Citizens South Banking Corporation
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
Three Months Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
Interest Income:
Loans $9,069 $10,348 $37,229 $40,679
Investment securities 291 600 1,419 2,670
Interest-bearing deposits 8 105 157 447
Mortgage-backed and
related securities 978 789 3,803 2,939
Total interest income 10,346 11,842 42,608 46,735
Interest Expense:
Deposits 3,836 5,643 17,233 22,315
Borrowed funds 1,390 1,186 5,173 4,185
Total interest expense 5,226 6,829 22,406 26,500
Net interest income 5,120 5,013 20,202 20,235
Provision for loan losses 1,460 330 3,275 1,290
Net interest income
after provision for
loan losses 3,660 4,683 16,927 18,945
Noninterest Income:
Fee income on deposit
accounts 775 696 3,031 2,722
Mortgage banking income 179 242 829 990
Income on lending activities 87 125 384 484
Dividends on FHLB stock 12 62 180 212
Increase in cash value of
bank-owned life insurance 195 192 766 769
Fair value adjustment on
deferred compensation
assets (63) 12 (128) 122
Life insurance proceeds,
net - - - 112
Net gain on sale of assets (110) (13) 164 323
Other noninterest income 179 195 793 828
Total noninterest income 1,254 1,511 6,019 6,562
Noninterest Expense:
Compensation and benefits 2,427 2,439 10,092 9,607
Fair value adjustment on
deferred comp. obligations (63) 12 (128) 122
Occupancy and equipment
expense 647 647 2,660 2,648
Professional services 228 141 867 543
Amortization of intangible
assets 110 146 512 629
Reorganization expenses - - 220 -
Impairment of securities - - 468 162
Other noninterest expense 1,147 1,054 4,535 4,184
Total noninterest
expense 4,496 4,439 19,226 17,895
Income before income taxes 418 1,755 3,720 7,612
Provision for income taxes (9) 428 639 1,947
Net income $427 $1,327 $3,081 $5,665
Net income per common
share:
Basic $ 0.06 $0.18 $0.42 $0.74
Diluted $0.06 $0.18 $0.42 $0.73
Weighted average common
shares outstanding:
Basic 7,361,434 7,513,151 7,374,051 7,688,595
Diluted 7,379,466 7,570,671 7,404,087 7,754,599
SOURCE Citizens South Banking Corporation
