CITIZENS SOUTH BANKING CORP. 
By GASTONIA, N.C., July 20 /PRNewswire-FirstCall/ -- Citizens South Banking Corporation (Nasdaq: CSBC), the holding company for Citizens South Bank, announced financial results for the second quarter ended June 30, 2009. The Company reported net income of $55,000, or $0.01 per diluted share, for the quarter ended June 30, 2009, compared to $862,000, or $0.12 per diluted share, for the quarter ended June 30, 2008. The decline in earnings was primarily due to an increase in the provision for loan losses and a special assessment by the FDIC which was charged to all FDIC-insured financial institutions.
Kim S. Price, President and CEO, stated, "Given the state of the overall economy and the recent weakening of the Charlotte Regional economy, we are pleased that we were able to remain profitable in the second quarter. Our improved net interest margin and strong mortgage banking revenues enabled us to overcome our larger than normal provision for loan losses and the FDIC's industry-wide deposit insurance premium assessment. While we continue to see credit headwinds requiring increased loan loss provisions through 2009, we are seeing signs of improving lot and home sales, which encourage us regarding the prospects for an improving environment in 2010."
Second Quarter 2009 Financial Highlights:
Credit Quality
While the Company's credit quality ratios remain at levels above its historical averages, management believes that the current level of non-performing assets remains manageable and continues to compare favorably with industry peers. The continued softening in the Charlotte Regional housing market has resulted in increased levels of delinquent loans. During the second quarter of 2009, nonperforming assets, which include nonperforming loans and other real estate owned, increased by $4.5 million to $12.5 million, or 1.49% of total assets at June 30, 2009, as compared to $7.9 million, or 0.93% of total assets, at March 31, 2009, and $4.5 million, or 0.56% of total assets at June 30, 2008. The primary reason for the increase in delinquent loans during the second quarter of 2009 was a $3.0 million commercial real estate participation loan which became 90 days delinquent during the quarter.
Due to the general weakness in the economy and an increase in the Company's nonperforming loans, the Company's provision for loan losses increased to $2.0 million during the second quarter of 2009 as compared to $900,000 during the first quarter of 2009 and $750,000 during the second quarter of 2008. At June 30, 2009, the Company's allowance for loan losses amounted to $8.7 million, or 1.38% of total loans, as compared to $8.7 million, or 1.37% of total loans at March 31, 2009, and $6.8 million, or 1.12% of total loans at June 30, 2008. Net charge-offs for the second quarter totaled $2.0 million, or 0.31% of average loans.
Mr. Price stated, "Our asset quality metrics remain among the best of our southeastern community bank peers. While we believe that our credit quality will continue to outperform on a comparative basis, we will continue to aggressively reserve against the possibility of loan losses as a matter of prudence in this uncertain economic environment."
Net Interest Margin
The Company's net interest margin was 2.92% for the second quarter of 2009, as compared to 2.81% for the first quarter of 2009. This 11 basis point increase in the linked-quarter net interest margin was largely due to a 36 basis point decrease in the Company's cost of funds. The Company has been focused on increasing core checking accounts which has contributed to this decrease in cost of funds. In addition, higher-costing time deposits that matured during the second quarter repriced at lower rates and contributed to the lower cost of funds.
Noninterest Income and Noninterest Expense
Noninterest income, excluding net gains (losses) on sales of assets, increased $208,000, or 13.2%, from the second quarter of 2008. The primary reason for the improvement in noninterest income was an $184,000 increase in mortgage banking income and a $46,000 increase in service charges on deposits. Mortgage banking activity increased as a result of lower market rates for mortgage loans. Service charges on deposits increased due to the growth in the number and amount of core checking accounts.
Noninterest expense increased by $536,000, or 11.4%, during the comparable second quarter periods. This increase was primarily due to a $474,000 increase in the Company's FDIC deposit insurance expense. The increase in the FDIC deposit insurance expense included a $380,000 special assessment, which was charged to all FDIC-insured financial institutions based on their asset size. In addition, during the second quarter of 2009 the Company had a $50,000 writedown on a parcel of foreclosed real estate and a $91,000 impairment on an equity investment.
Loan Portfolio
Housing starts, sales prices, and demand for commercial real estate in the Charlotte Region continue to decline. Despite the slowdown in the local economy, outstanding loans increased by $3.3 million during the six months ended June 30, 2009. Management expects that loan demand in the Charlotte region will remain soft throughout 2009. However, the Company expects to extract market share gains in selective loan categories as a result of market disruptions stemming from a number of recently completed and announced mergers in the Charlotte market and with the Company's expansion directly into the Mecklenburg County, North Carolina market.
Deposit Portfolio
Total deposits increased by $34.7 million, or 6.0%, during the first half of 2009 to $616.2 million at June 30, 2009. During the same six-month period, demand deposit accounts increased by $26.7 million, or 21.8%, to $149.4 million at June 30, 2009. This strong growth was fueled in part by positive publicity that the Company received during the first quarter of 2009 relating to our nationally recognized program for utilization of TARP funds for low interest mortgage loans. The strong growth was also partly attributable to retail and commercial demand deposit account incentives, enhanced treasury management services, and increased market share due to merger disruptions of competitors.
Capital
Despite the weak economic conditions that our industry is facing, the Company's capital position continues to be a source of strength during these uncertain times. The Bank's capital ratios exceed regulatory measures and the Bank is considered "well-capitalized" for regulatory purposes. The Company's tangible common equity ratio was 6.61% at June 30, 2009, compared to 6.54% at March 31, 2009, and 6.62% at June 30, 2008.
About Citizens South Banking Corporation
Headquartered in Gastonia, North Carolina, Citizens South Bank was founded in 1904. Deposits are FDIC insured up to applicable regulatory limits. At June 30, 2009, the Bank had approximately $836 million in assets with 15 full-service offices in the Charlotte region, including Gaston, Iredell, Rowan, and Union counties in North Carolina, and York County, South Carolina. The Company also operated a loan production office in Mecklenburg County, North Carolina which is expected to become a full-service office in the third quarter of 2009. 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.
Important Tables Follow
Citizens South Banking Corporation
Quarterly Financial Highlights (Unaudited)
2009 2008
------------------- ----------------------------
At and for the months ended
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in Thousands,
Except per Share Data)
Summary of Operations:
Interest income -
taxable equivalent $9,820 $9,829 $10,480 $10,940 $10,619
Interest expense 4,346 4,702 5,172 5,424 5,571
Net interest income -
taxable equivalent 5,474 5,127 5,308 5,516 5,048
Less: Taxable
equivalent adjustment 142 144 134 134 136
Net interest income 5,332 4,983 5,174 5,382 4,912
Provision for loan
losses 1,950 900 1,460 720 750
Net interest income
after provision for
loan losses 3,382 4,083 3,714 4,662 4,162
Noninterest income 2,016 1,249 1,254 1,492 1,592
Noninterest expense 5,239 4,937 4,496 5,145 4,702
Income before income
taxes 159 395 472 1,009 1,052
Income tax (benefit)
expense (155) (61) (9) 187 190
Net income 314 456 481 822 862
Preferred stock dividend
and discount on
preferred stock 259 253 54 - -
Net income available to
common stockholders $55 $203 $427 $822 $862
Per Common Share Data:
Net income:
Basic $0.01 $0.03 $0.06 $0.11 $0.12
Diluted 0.01 0.03 0.06 0.11 0.12
Weighted average
shares
outstanding:
Basic 7,404,218 7,392,742 7,361,434 7,358,086 7,369,964
Diluted 7,404,218 7,392,742 7,379,466 7,386,513 7,422,435
End of period shares
outstanding 7,526,854 7,515,957 7,515,957 7,516,816 7,524,016
Cash dividends
declared $0.04 $0.04 $0.085 $ 0.085 $0.085
Book value 11.11 11.19 11.21 11.02 10.26
Tangible book value 7.07 7.14 7.15 6.84 6.88
End of Period
Balances:
Total assets $836,283 $851,390 $817,213 $823,030 $811,825
Loans, net of
deferred fees 629,962 635,008 626,688 628,496 604,855
Investment
securities 97,452 114,933 109,180 107,522 117,613
Interest-earning
assets 751,733 765,747 733,448 732,683 720,270
Deposits 616,233 628,571 581,488 584,928 584,801
Stockholders'
equity 104,157 104,663 104,720 82,827 82,495
Quarterly Average
Balances:
Total assets $841,169 $829,319 $820,166 $817,613 $790,625
Loans, net of
deferred fees 635,645 626,722 627,888 615,755 588,868
Investment securities 107,140 110,502 108,146 116,269 110,953
Interest-earning
assets 751,381 740,404 733,858 724,949 695,151
Deposits 616,926 593,166 579,967 581,162 578,469
Stockholders'
equity 104,813 104,884 88,498 82,478 83,965
Financial Performance
Ratios:
Return on average
assets (annualized) 0.03 % 0.10 % 0.21 % 0.40 % 0.44 %
Return on average
common equity
(annualized) 0.26 0.98 1.92 3.97 4.13
Return on tangible
common equity
(annualized) 1.48 2.88 3.39 8.45 6.43
Noninterest income
to average total
assets (annualized) 0.96 0.60 0.61 0.73 0.81
Noninterest expense
to average total assets
(annualized) 2.49 2.39 2.19 2.52 2.38
Efficiency ratio 71.29 79.22 69.94 74.85 72.29
Citizens South Banking Corporation
Quarterly Financial Highlights - continued (Unaudited)
2009 2008
------------------ ----------------------------
At and for the months ended
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in Thousands,
Except per Share Data)
Net Interest Margin
(annualized):
Yield on earning assets 5.26 % 5.38 % 5.67 % 5.99 % 6.12 %
Cost of funds 2.54 2.90 3.02 3.13 3.41
Net interest spread 2.72 2.48 2.65 2.86 2.71
Net interest margin (1) 2.92 2.81 2.84 3.02 2.91
Credit Quality Information
and Ratios:
Allowance for loan losses
- beginning of period $8,730 $8,026 $7,027 $6,757 $6,428
Add: Provision for loan
losses 1,950 900 1,460 720 750
Less: Net charge-offs 1,995 196 461 450 421
Allowance for loan losses
- end of period 8,685 8,730 8,026 7,027 6,757
Nonperforming loans 10,360 6,267 3,032 3,335 3,880
Other real estate owned
(OREO) 2,111 1,672 2,601 1,214 635
Nonperforming assets 12,471 7,939 5,633 4,549 4,515
Allowance for loan losses
to total loans 1.38 % 1.37 % 1.28 % 1.12 % 1.12 %
Net charge-offs to average
loans 0.32 0.03 0.07 0.07 0.07
Nonperforming loans to
total loans 1.64 0.98 0.48 0.53 0.64
Nonperforming assets to
total assets 1.49 0.93 0.69 0.55 0.56
Nonperforming assets to
total loans and OREO 1.97 1.25 0.89 0.72 0.75
Capital Ratios:
Tangible common equity
ratio 6.61 % 6.54 % 6.82 % 6.49 % 6.62 %
Average equity to
Average total assets 12.46 12.65 10.79 10.09 10.62
Equity to assets at
year end 12.45 12.29 12.81 10.06 10.16
(1) Net interest margin is calculated on a fully tax equivalent basis
Citizens South Banking Corporation
Condensed Consolidated Statements of Financial Condition
June 30, 2009 December 31, 2008
(Dollars in thousands except per share
data)(unaudited)
ASSETS
Cash and due from banks $8,353 $9,444
Interest-earning bank balances 31,120 613
Cash and cash equivalents 39,473 10,057
Investment securities available-for-sale,
at fair value 92,378 109,180
Investment securities held to maturity,
at amortized cost 5,074 -
Loans receivable, net of deferred fees 629,962 626,688
Allowance for loan losses (8,685) (8,026)
Loans, net 621,277 618,662
Other real estate owned 2,111 2,601
Premises and equipment, net 16,383 16,834
Accrued interest receivable 2,515 2,609
Federal Home Loan Bank stock, at cost 4,149 4,793
Bank owned life insurance 17,158 16,813
Intangible assets 30,363 30,525
Other assets 5,402 5,139
Total assets $836,283 $817,213
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand deposit accounts $149,466 $122,731
Money market deposit accounts 110,770 103,271
Savings accounts 11,156 10,708
Time deposits 344,841 344,778
Total deposits 616,233 581,488
Borrowed money 110,221 124,365
Other liabilities 5,672 6,640
Total liabilities 732,126 712,493
Stockholders' Equity
Preferred stock, $0.01 par value,
10,000,000 shares authorized, 20,500
shares issued and outstanding at
June 30, 2009 and
December 31, 2008 20,548 20,507
Common stock, $0.01 par value,
20,000,000 shares authorized, 9,062,727
shares issued at June 30, 2009 and
December 31, 2008, 7,526,854 shares
outstanding at June 30, 2009 and
7,515,957 shares outstanding at
December 31, 2008 91 91
Additional paid-in-capital 49,316 49,073
Unallocated common stock held by
Employee Stock Ownership Plan (973) (1,065)
Retained earnings, substantially
restricted 35,350 36,089
Accumulated other comprehensive income (175) 25
Total stockholders' equity 104,157 104,720
Total liabilities and stockholders'
equity $836,283 $817,213
Citizens South Banking Corporation
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2009 2008 2009 2008
(Dollars in thousands except
per share data)
Interest Income
Loans and loan fees $8,441 $9,143 $16,799 $18,745
Investment securities 381 356 754 769
Interest-bearing deposits 13 42 18 136
Mortgage-backed and related
securities 843 942 1,793 1,805
Total interest income 9,678 10,483 19,364 21,455
Interest Expense
Deposits 3,196 4,334 6,724 9,400
Borrowed funds 1,150 1,237 2,324 2,356
Total interest expense 4,346 5,571 9,048 11,756
Net interest income 5,332 4,912 10,316 9,699
Provision for loan losses 1,950 750 2,850 1,095
Net interest income after
provision for loan losses 3,382 4,162 7,466 8,604
Noninterest Income
Fee income on deposit accounts 822 776 1,569 1,454
Mortgage banking income 462 278 760 481
Other loan fees 80 102 138 213
Increase in cash value of bank-
owned life insurance 182 188 368 376
Net gain on sale of assets 235 19 64 261
Other noninterest income 235 229 366 488
Total noninterest income 2,016 1,592 3,265 3,273
Noninterest Expense
Compensation and benefits 2,526 2,506 5,018 5,047
Occupancy and equipment expense 652 676 1,326 1,351
Professional fees 237 237 474 438
Amortization of intangible assets 81 135 162 276
FDIC deposit insurance 491 17 593 33
Writedown on other real estate
owned 50 - 175 -
Reorganization expenses - - - 220
Impairment of securities 91 - 214 -
Other noninterest expense 1,111 1,131 2,214 2,220
Total noninterest expense 5,239 4,702 10,176 9,585
Income before income taxes 159 1,052 555 2,292
Provision for income taxes (155) 190 (216) 460
Net income 314 862 771 1,832
Preferred stock dividend and
discount on preferred stock 259 - 513 -
Net income available to common
stockholders $55 $862 $258 $1,832
Net income per common share:
Basic $0.01 $0.12 $0.03 $0.25
Diluted $0.01 $0.12 $0.03 $0.25
Weighted average common shares
outstanding:
Basic 7,404,218 7,369,964 7,398,938 7,391,338
Diluted 7,404,218 7,434,006 7,398,938 7,443,803
SOURCE Citizens South Banking Corporation
