CITIZENS SOUTH BANKING CORP. 
By GASTONIA, N.C., Jan. 25 /PRNewswire-FirstCall/ -- Citizens South Banking Corporation (Nasdaq: CSBC), the parent company for Citizens South Bank, announced financial results for the fourth quarter of 2009. The Company reported a net loss to common stockholders of $30.5 million, or $4.11 per diluted share, for the quarter ended December 31, 2009. This loss was largely due to a $29.6 million goodwill impairment charge which was a non-cash, non-recurring accounting adjustment that did not affect the Company's cash flow, liquidity position, or regulatory capital ratios. Kim S. Price, President and CEO, stated, "This goodwill was created as a result of the Company's prior bank acquisitions which helped to expand our Company's footprint throughout the Charlotte Region. However, due to the prolonged economic downturn, most bank stocks, including our own, have been trading at historically low levels, resulting in lower bank valuations at the end of 2009. As a result, after performing our annual goodwill impairment test, we determined that our goodwill was impaired. This impairment is a non-cash, non-operating charge that will have no effect on the Company's regulatory capital ratios or our ability to continue to serve our customers and our communities in the same manner that we have over the past 105 years."
Excluding the goodwill impairment, the Company reported a net loss of $898,000, or $0.12 per diluted share, for the quarter ended December 31, 2009, compared to net income of $427,000, or $0.06 per diluted share, for the quarter ended December 31, 2008. The decline in earnings was primarily due to an increase in the provision for loan losses, which totaled $4.2 million for the fourth quarter of 2009 and $1.5 million for the quarter ended December 31, 2008. President Price stated, "Given the continued weakness of real estate markets and the overall economy, we set aside an elevated provision for loan losses against our loan portfolio. Our core earnings engine remains strong and continues to be bolstered by an expanding net interest margin. While we are encouraged by recent signs of an improving housing market and slightly improving employment rates in our region, we think continued cautious optimism is warranted."
For the year ended December 31, 2009, the Company reported a loss of $31.0 million, or $4.19 per diluted share, compared to net income of $3.1 million, or $0.42 per diluted share, for the year ended December 31, 2008. Excluding the goodwill impairment, the Company reported a net loss of $1.4 million for the year ended December 31, 2009.
Fourth Quarter 2009 Financial Highlights:
Credit Quality
Weakness in our local real estate market has resulted in levels of delinquent loans and credit quality ratios above the Company's historical averages. President Price commented, "While our levels of nonperforming assets have increased, they remain manageable and continue to compare very favorably with industry peers. The Charlotte Region is beginning to show signs of stabilization as evidenced by the increase in housing prices for each of the past three months. Housing sales levels and housing starts are showing new signs of promise and unemployment levels seem to have stabilized. " During the fourth quarter of 2009, nonperforming assets, which include loans that are 90 days or more delinquent or in nonaccrual status and other real estate owned, increased by $2.9 million to $17.1 million, or 2.15% of total assets at December 31, 2009, as compared to $14.1 million, or 1.72% of total assets, at September 30, 2009. Most of this increase during the fourth quarter was attributable to one $2.3 million performing loan that had matured, but had not been renewed at year-end due to legal issues. The loan has since been renewed and all legal issues have been resolved.
The Company's quarterly provision for loan losses increased to $4.2 million for the fourth quarter of 2009 from $4.0 million for the third quarter of 2009. Net charge-offs for the fourth quarter totaled $4.5 million, or 2.93% of average loans, compared to $4.0 million, or 2.04% of average loans, for the third quarter of 2009. The Company had previously established specific reserves for $756,000 of the fourth quarter charge-offs through increased loan loss provisions in prior quarters. At December 31, 2009, the Company's allowance for loan losses totaled $9.2 million, or 1.51% of total loans, as compared to $9.5 million, or 1.54% of total loans at September 30, 2009.
Loan Portfolio
Efforts to reduce exposures in the residential construction and land acquisition and development loan portfolio resulted in a decrease in outstanding loans of $16.5 million during the twelve months ended December 31, 2009. During 2009, speculative residential construction loans decreased by $23.6 million, or 68.4%, to $10.9 million and commercial land and residential acquisition and development loans decreased by $17.9 million, or 19.1%, to $75.9 million. Management expects that these efforts will continue and that loan demand in general will remain soft throughout 2010. However, the Company expects to extract market share gains in selective loan categories as a result of market disruptions stemming from several recently completed and announced bank mergers in the Charlotte market.
Deposit Portfolio
Total deposits increased by $27.9 million, or 4.8%, during 2009 to $609.3 million at December 31, 2009. This growth was primarily driven by demand deposit accounts which increased by $36.7 million, or 29.9%, to $159.4 million at December 31, 2009. The strong growth in demand deposits was attributable to a keen focus on deposit gathering by our team members, enhanced treasury management services, and increased market share due to mergers of competitors.
Capital
The Company's capital position continues to be a source of strength during these uncertain economic times. The Bank continues to exceed all regulatory capital measures and is considered "well-capitalized" for regulatory purposes. This is the highest capital designation established by the Bank's regulatory authorities. The Bank's total risk-based capital ratio was 14.07% at December 31, 2009, compared to 14.68% at September 30, 2009. In addition, the Company has a tangible common equity ratio of 6.47%. Mr. Price commented, "Capital has been a strength of this Bank since our founding in 1904. This strength continues and has provided our Company with a cushion to be able to absorb these elevated levels of loan losses during recessionary periods throughout the Company's history, including the Great Depression."
Net Interest Margin
The Company's net interest margin improved to 3.12% for the fourth quarter of 2009, as compared to 3.03% for the third quarter of 2009. This nine-basis point increase in the linked-quarter net interest margin was largely due to a 21-basis point decrease in the Company's cost of funds. This represents the third consecutive quarter in which the Company has experienced margin expansion. The Company has been focused on increasing core demand deposit accounts which has contributed to this decrease in cost of funds. Also, higher-costing time deposits that matured during the fourth quarter repriced at lower rates and contributed to the lower cost of funds. In addition, during the fourth quarter of 2009, the Company restructured $29.5 million in FHLB advances, resulting in a lower effective interest rate and an extended duration. The initial cost of this restructuring was approximately $44,000, but the savings are projected to be approximately $275,000 annually, beginning in the first quarter of 2010.
Noninterest Income
Noninterest income for the fourth quarter of 2009 increased $1.2 million as compared to the fourth quarter of 2008. The Company realized an $897,000 net gain on the sale of assets during the fourth quarter of 2009 as compared to a net loss of $110,000 during the fourth quarter of 2008. In addition, the Company recorded a $48,000 increase in mortgage banking income and a $54,000 increase in service charges on deposits.
Noninterest Expense
Noninterest expense increased by $30.4 million during the comparable fourth quarter periods. This increase was primarily due to the $29.6 million goodwill impairment during the fourth quarter of 2009. In addition, there were increases related to a $192,000 increase in the Company's FDIC deposit insurance expense, a $124,000 increase in professional fees, a $163,000 valuation adjustment on other real estate owned and a $207,000 impairment of securities. The increase in the FDIC deposit insurance was the result of higher premiums charged by the FDIC throughout the banking system. Professional fees were higher due to $141,000 in fees for preparing and filing regulatory documents in conjunction with a stock offering, which was withdrawn due to unfavorable market conditions. Also, the Company paid $44,000 for restructuring a portion of its FHLB advances. Increases in other noninterest expense were largely due to increases in legal costs associated with collection, maintenance, and servicing of problem assets, loan collection costs and expenses related to owning an increased number of foreclosed properties. The impairment was taken on a pooled trust preferred security which now has an immaterial remaining balance.
About Citizens South Banking Corporation
Citizens South Bank was founded in 1904 and is headquartered in Gastonia, North Carolina. Deposits are FDIC insured up to applicable regulatory limits. At December 31, 2009, the Company had $791.5 million in assets with 16 full-service offices in the Charlotte region, including Gaston, Iredell, Rowan, Mecklenburg, and Union counties in North Carolina, and York County, South Carolina. Citizens South Bank is an Equal Housing Lender and Member, FDIC. The Bank is a wholly-owned subsidiary of Citizens South Banking Corporation, and shares of the common stock of the Company trade on the NASDAQ Global Market under the ticker symbol "CSBC". The Company maintains a website at www.citizenssouth.com that includes information on the Company, along with a list of products and services, branch locations, current financial information, and links to the Company's filings with the SEC.
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 December 31, 2008, describe some of these factors.
Citizens South Banking Corporation
Quarterly Financial Highlights (Unaudited)
2009 2008
---- ----
At and for the quarters ended
----------------------------------------------
December 31 September 30 June 30 March 31 December 31
----------- ------------ ------- -------- -----------
(Dollars in
Thousands,
Except per
Share Data)
Summary
of Operations:
Interest
income -
taxable
equivalent $9,317 $9,620 $9,820 $9,829 $10,481
Interest
expense 3,531 3,947 4,346 4,702 5,172
----- ----- ----- ----- -----
Net interest
income -
taxable
equivalent 5,786 5,673 5,474 5,127 5,309
Less: Taxable
equivalent
adjustment 106 139 142 144 134
--- --- --- --- ---
Net interest
income 5,680 5,534 5,332 4,983 5,175
Provision
for loan
losses 4,155 3,975 1,950 900 1,460
----- ----- ----- --- -----
Net interest
income after
provision
for loan
losses 1,525 1,559 3,382 4,083 3,715
Noninterest
income 2,451 2,501 2,016 1,249 1,254
Noninterest
expense 34,867 5,229 5,239 4,937 4,496
------ ----- ----- ----- -----
Income (loss)
before
income taxes (30,891) (1,169) 159 395 473
Income tax
(benefit)
expense (611) (672) (155) (61) (8)
---- ---- ---- --- ---
Net income
(loss) (30,280) (497) 314 456 481
Preferred
stock dividend
and discount
on preferred
stock 259 262 259 253 54
--- --- --- --- ---
Net income
(loss)
available
to common
stockholders $(30,539) $(759) $55 $203 $427
======== ===== === ==== ====
Per Common
Share Data:
Net income:
Basic $(4.11) $(0.10) $0.01 $0.03 $0.06
Diluted (4.11) (0.10) 0.01 0.03 0.06
Weighted average
shares
outstanding:
Basic 7,426,992 7,419,206 7,404,218 7,392,742 7,361,434
Diluted 7,426,992 7,419,206 7,404,218 7,392,742 7,379,466
End of
period shares
outstanding 7,526,854 7,526,854 7,526,854 7,515,957 7,515,957
Cash dividends
declared $0.04 $0.04 $0.04 $.04 $0.085
Book value 6.87 11.08 11.11 11.19 11.21
Tangible book
value 6.80 7.06 7.07 7.14 7.15
End of
Period Balances:
Total assets $791,532 $820,608 $836,283 $851,390 $817,213
Loans, net
of deferred
fees 610,201 616,793 629,962 635,008 626,688
Investment
securities 83,370 90,174 97,452 114,933 109,180
Interest-
earning
assets 725,835 734,938 751,733 765,747 733,448
Deposits 609,345 601,614 616,233 628,571 581,488
Stockholders'
equity 72,322 103,990 104,158 104,663 104,720
Quarterly
Average
Balances:
Total assets $823,608 $831,268 $841,169 $829,319 $820,166
Loans, net
of deferred
fees 610,568 624,112 635,645 626,722 627,888
Investment
securities 87,061 94,674 107,140 110,502 108,146
Interest-
earning
assets 736,134 741,974 751,381 740,404 733,858
Deposits 605,608 609,243 616,926 593,166 579,967
Stockholders'
equity 103,313 103,913 104,813 104,884 88,498
Financial
Performance
Ratios:
Return on
average
assets
(annualized) (14.71) % (0.36) % 0.03 % 0.10 % 0.21 %
Return on
average common
equity
(annualized) (146.44) (3.61) 0.26 0.98 1.92
Return on
tangible common
equity
(annualized) (9.92) (6.77) 1.48 2.88 3.39
Noninterest
income to
average total
assets
(annualized) 1.19 1.20 0.96 0.60 0.61
Noninterest
expense to
average total
assets (1)
(annualized) 2.54 2.52 2.49 2.39 2.19
Efficiency
ratio (1) 64.27 65.08 71.29 79.22 69.94
Citizens South Banking Corporation
Quarterly Financial Highlights - continued (Unaudited)
------------------------------------------------------
2009 2008
---- ----
At and for the quarters ended
---------------------------------------------
December 31 September 30 June 30 March 31 December 31
----------- ------------ ------- -------- -----------
(Dollars in
Thousands,
Except per
Share Data)
Net Interest
Margin
(annualized):
Yield on
earning
assets 4.98 % 5.13 % 5.26% 5.38 % 5.67 %
Cost of funds 2.09 2.30 2.54 2.90 3.02
---- ---- ---- ---- ----
Net interest
spread 2.89 2.83 2.72 2.48 2.65
Net interest
margin (2) 3.12 3.03 2.92 2.81 2.84
Credit Quality
Information
and Ratios:
Past due loans
(30+ days or
more) $21,879 $20,670 $19,458 $17,105 $11,913
Past due
loans to
total loans 3.59 % 3.35 % 3.09 % 2.69 % 1.90 %
Allowance for
loan losses -
beginning of
period 9,499 8,685 8,730 8,026 7,027
Add: Provision
for loan
losses 4,155 3,975 1,950 900 1,460
Less: Net
charge-offs 4,465 3,161 1,995 196 461
----- ----- ----- --- ---
Allowance for
loan losses -
end of
period 9,189 9,499 8,685 8,730 8,026
Allowance for
loan losses
to total loans 1.51 % 1.54 % 1.38 % 1.37 % 1.28 %
Net charge-offs
to average
loans
(annualized) 2.93 2.04 1.28 0.12 0.28
Nonperforming
loans to total
loans 1.96 1.73 1.64 0.98 0.48
Nonperforming
assets to
total assets 2.15 1.72 1.49 0.93 0.69
Nonperforming
assets to
total loans
and OREO 2.77 2.28 1.97 1.25 0.90
Nonperforming
Assets:
Nonperforming
loans (90+
days delinquent
or on nonaccrual
status):
Residential $898 $345 $432 $700 $198
Construction 1,048 1,554 1,335 1,609 693
Acquisition
and development 3,419 3,510 379 379 379
Commercial land 3,640 1,884 1,813 653 311
Other commercial
real estate 1,841 2,197 5,307 1,481 748
Commercial
business - - 94 20 5
Consumer 1,144 1,208 1,000 1,425 698
----- ----- ----- ----- ---
Total
nonperforming
loans 11,990 10,698 10,360 6,267 3,032
Other
real estate
owned (OREO) 5,067 3,444 2,111 1,672 2,601
----- ----- ----- ----- -----
Nonperforming
assets 17,057 14,142 12,471 7,939 5,633
Capital Ratios:
Tangible common
equity ratio 6.47 % 6.72 % 6.61 % 6.54 % 6.82 %
Total risk-
based capital
(Bank only) 14.07 14.68 14.31 13.94 13.07
Tier 1
risk-based
capital (Bank
only) 12.98 13.53 13.27 12.85 12.01
Tier 1 total
capital (Bank
only) 10.44 10.70 10.35 10.09 10.40
(1) Calculated excluding the $29.6 million impairment of goodwill
(2) Net interest margin is calculated on a fully tax equivalent basis
Citizens South Banking Corporation
Condensed Consolidated Statements of Financial Condition
December 31, 2009 December 31, 2008
----------------- -----------------
(Dollars in thousands except
per share data) (unaudited)
ASSETS
Cash and due from banks $8,925 $9,444
Interest-earning bank balances 44,255 613
------ ---
Cash and cash equivalents 53,180 10,057
Investment securities
available-for-sale, at fair value 50,990 109,180
Investment securities held to
maturity, at amortized cost 32,380 -
Loans receivable, net of
deferred fees 610,201 626,688
Allowance for loan losses (9,189) (8,026)
------ ------
Loans, net 601,012 618,662
Other real estate owned 5,067 2,601
Premises and equipment, net 15,436 16,834
Accrued interest receivable 2,430 2,609
Federal Home Loan Bank stock, at cost 4,149 4,793
Bank owned life insurance 17,522 16,813
Intangible assets 570 30,525
Other assets 8,796 5,139
----- -----
Total assets $791,532 $817,213
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand deposit accounts $159,394 $122,731
Money market deposit accounts 118,687 103,271
Savings accounts 10,584 10,708
Time deposits 320,680 344,778
------- -------
Total deposits 609,345 581,488
Borrowed money 106,599 124,365
Other liabilities 3,266 6,640
----- -----
Total liabilities 719,210 712,493
------- -------
Stockholders' Equity
Preferred stock, $0.01 par value,
1,000,000 shares authorized, 20,500
shares issued and outstanding at
December 31, 2009 and December 31, 2008 20,589 20,507
Common stock, $0.01 par value, 20,000,000
shares authorized, 9,062,727 shares
issued at December 31, 2009 and December
31, 2008; 7,526,854 shares outstanding
at December 31, 2009 and 7,515,957 shares
outstanding at December 31, 2008 48,619 48,099
Retained earnings, substantially
restricted 3,411 36,089
Accumulated other comprehensive income (297) 25
---- ---
Total stockholders' equity 72,322 104,720
------ -------
Total liabilities and
stockholders' equity $791,532 $817,213
======== ========
Citizens South Banking Corporation
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Twelve Months
Ended December 31 Ended December 31,
----------------- ------------------
2009 2008 2009 2008
---- ---- ---- ----
(Dollars in
thousands except
per share data)
Interest Income
Loans and loan fees $8,257 $9,069 $33,432 $37,229
Investment
securities 901 1,270 4,517 5,221
Interest-bearing
deposits 53 8 107 157
--- --- --- ---
Total interest
income 9,211 10,347 38,056 42,607
Interest Expense
Deposits 2,404 3,836 11,918 17,232
Borrowed funds 1,127 1,336 4,608 5,119
----- ----- ----- -----
Total interest
expense 3,531 5,172 16,526 22,351
----- ----- ------ ------
Net interest income 5,680 5,175 21,530 20,256
Provision for loan
losses 4,155 1,460 10,980 3,275
----- ----- ------ -----
Net interest income
after provision
for loan losses 1,525 3,715 10,550 16,981
Noninterest Income
Service charges on
deposit accounts 829 775 3,256 3,031
Mortgage banking
income 227 179 1,202 829
Other loan fees 70 87 245 384
Dividends on FHLB
stock 5 12 5 180
Increase in cash
value of bank-
owned life
insurance 200 195 770 766
Net gain (loss) on
sale of assets 897 (110) 1,913 164
Other noninterest
income 223 116 826 665
--- --- --- ---
Total noninterest
income 2,451 1,254 8,217 6,019
Noninterest Expense
Compensation and
benefits 2,229 2,364 9,818 9,964
Occupancy and
equipment expense 613 647 2,570 2,660
Professional fees 352 228 1,059 867
Amortization of
intangible assets 71 110 314 512
FDIC deposit
insurance 251 59 1,076 117
Valuation
adjustment on
other real estate
owned 163 - 338 -
Restructuring
expenses - - - 220
Impairment of
securities 207 - 754 468
Impairment of
goodwill 29,641 - 29,641 -
Other noninterest
expense 1,340 1,088 4,702 4,418
----- ----- ----- -----
Total noninterest
expense 34,867 4,496 50,272 19,226
Net income (loss)
before income
taxes (30,891) 473 (31,505) 3,774
Income tax expense
(benefit) (611) (8) (1,499) 639
---- --- ------ ---
Net income (loss) (30,280) 481 (30,006) 3,135
Preferred stock
dividend and
discount on
preferred stock 259 54 1,034 54
--- --- ----- ---
Net income (loss)
available to
common
stockholders $(30,539) $427 $(31,040) $3,081
======== ==== ======== ======
Net income (loss)
per common share:
Basic $(4.11) $0.06 $(4.19) $0.42
Diluted $(4.11) $0.06 $(4.19) $0.42
Weighted average
common shares
outstanding:
Basic 7,426,992 7,361,434 7,410,692 7,374,051
Diluted 7,426,992 7,379,466 7,410,692 7,404,087
SOURCE Citizens South Banking Corporation
