CITIZENS SOUTH BANKING CORP. 
By GASTONIA, N.C., Oct. 19 /PRNewswire-FirstCall/ -- Citizens South Banking Corporation (Nasdaq: CSBC), the holding company for Citizens South Bank, announced financial results for the third quarter ended September 30, 2009. The Company reported a net loss of $759,000, or $0.10 per diluted share, for the quarter ended September 30, 2009, compared to net income of $822,000, or $0.11 per diluted share, for the quarter ended September 30, 2008. The decline in earnings was primarily due to an increase in the provision for loan losses, which amounted to $4.0 million for the third quarter of 2009. Kim S. Price, President and CEO, stated, "Given the state of the overall economy in the Charlotte Region, we have prudently and conservatively set aside an elevated provision for loan losses against our loan portfolio. While we have recently seen signs of some improvement in the housing market, unemployment levels in the region remain high and we believe it is in our stockholders' best interest to protect our balance sheet with these higher levels of reserves."
Price continued, "We are fortunate that our long history of profitability and our "well capitalized" status affords us the flexibility to create these protections. Our core earnings engine remains strong and is bolstered by an expanding net interest margin. While we are encouraged by recent signs of an improving housing market and slightly improving employment rates, we think cautious optimism is warranted."
Third Quarter 2009 Financial Highlights:
Credit Quality
The continued softening in the Charlotte Regional real estate market has resulted in increased levels of delinquent loans resulting in credit quality ratios that remain above the Company's historical averages. President Price commented, "With the recent completion of our normal regulatory examination, we are confident that our levels of non-performing assets are manageable, and continue to compare favorably with industry peers." During the third quarter of 2009, nonperforming assets, which include nonperforming loans and other real estate owned, increased by $1.6 million to $14.1 million, or 1.72% of total assets at September 30, 2009, as compared to $12.5 million, or 1.49% of total assets, at June 30, 2009, and $4.5 million, or 0.55% of total assets at September 30, 2008. 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 $4.0 million during the third quarter of 2009 as compared to $2.0 million during the second quarter of 2009 and $720,000 during the third quarter of 2008. At September 30, 2009, the Company's allowance for loan losses amounted to $9.5 million, or 1.54% of total loans, as compared to $8.7 million, or 1.38% of total loans at June 30, 2009, and $7.0 million, or 1.12% of total loans at September 30, 2008. Net charge-offs for the third quarter totaled $3.2 million, or 0.51% of average loans.
Net Interest Margin
The Company's net interest margin was 3.03% for the third quarter of 2009, as compared to 2.92% for the second quarter of 2009. This 11 basis point increase in the linked-quarter net interest margin was largely due to a 24 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 third quarter repriced at lower rates and contributed to the lower cost of funds.
Noninterest Income and Noninterest Expense
Noninterest income for the third quarter of 2009 increased $1.0 million, or 67.62%, as compared to the third quarter of 2008. The Company realized a $952,000 net gain on the sale of assets during the third quarter of 2009 as compared to a net gain of $13,000 during the third quarter of 2008. In addition, the Company experienced a $46,000 increase in mortgage banking income and a $57,000 increase in service charges on deposits. Mortgage banking activity increased, primarily due to higher refinancing 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 $84,000, or 1.63%, during the comparable third quarter periods. This increase was primarily due to a $207,000 increase in the Company's FDIC deposit insurance expense. Also during the comparable quarters, impairment on securities decreased by $135,000.
Loan Portfolio
A sluggish economy and management's efforts to reduce exposures in the residential construction and land acquisition and development loan portfolio resulted in a decrease in outstanding loans of $9.9 million during the nine months ended September 30, 2009. Management expects that these efforts will continue and that loan demand 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 $20.1 million, or 3.5%, during the first nine months of 2009 to $601.6 million at September 30, 2009. This growth was driven by demand deposit accounts which increased by $25.1 million, or 20.43%, to $147.8 million at September 30, 2009. This strong growth was caused 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 continue to exceed all regulatory measures and the Bank is considered "well-capitalized" for regulatory purposes. The Company's capital ratio improved to 12.67% at September 30, 2009, compared to 12.45% at June 30, 2009, and 10.06% at September 30, 2008. Mr. Price commented, "Despite our strong capital position, last week the Company announced that it had filed a registration statement to sell approximately $30 million in common stock. Our Board of Directors elected to raise additional capital in order to repay the $20.5 million in TARP proceeds received from the U.S. Treasury Department last year and to pursue additional growth and acquisition opportunities that may become available."
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 September 30, 2009, the Bank had approximately $820.6 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.
Important Tables Follow
Citizens South Banking Corporation
Quarterly Financial Highlights (Unaudited)
2009 2008
-------------------------------- -------------------------
At and for the quarters ended
-----------------------------
September 30 June 30 March 31 December 31 September 30
------------ ------- -------- ----------- ------------
(Dollars in Thousands, Except
per Share Data)
Summary of Operations:
Interest
income -
taxable
equivalent $9,620 $9,820 $9,829 $10,480 $10,940
Interest
expense 3,947 4,346 4,702 5,172 5,424
----- ----- ----- ----- -----
Net interest
income -
taxable
equivalent 5,673 5,474 5,127 5,308 5,516
Less: Taxable
equivalent
adjustment 139 142 144 134 134
--- --- --- --- ---
Net interest
income 5,534 5,332 4,983 5,174 5,382
Provision for
loan losses 3,975 1,950 900 1,460 720
----- ----- --- ----- ---
Net interest
income after
provision for
loan losses 1,559 3,382 4,083 3,714 4,662
Noninterest
income 2,501 2,016 1,249 1,254 1,492
Noninterest
expense 5,229 5,239 4,937 4,496 5,145
----- ----- ----- ----- -----
Income (loss)
before income
taxes (1,169) 159 395 472 1,009
Income tax
(benefit)
expense (672) (155) (61) (9) 187
----- ----- ---- --- ---
Net income (loss) (497) 314 456 481 822
Preferred stock
dividend and
discount on
preferred stock 262 259 253 54 -
--- --- --- -- ---
Net income (loss)
available to
common
stockholders $(759) $55 $203 $427 $822
===== === ==== ==== ====
Per Common Share Data:
Net income:
Basic $(0.10) $0.01 $0.03 $0.06 $0.11
Diluted (0.10) 0.01 0.03 0.06 0.11
Weighted average
shares
outstanding:
Basic 7,419,206 7,404,218 7,392,742 7,361,434 7,358,086
Diluted 7,419,206 7,404,218 7,392,742 7,379,466 7,386,513
End of period
shares
outstanding 7,526,854 7,526,854 7,515,957 7,515,957 7,516,816
Cash dividends
declared $0.04 $0.04 $0.04 $0.085 $0.085
Book value 11.08 11.11 11.19 11.21 11.02
Tangible book
value 7.06 7.07 7.14 7.15 6.84
End of Period Balances:
Total assets $820,608 $836,283 $851,390 $817,213 $823,030
Loans, net of
deferred fees 616,793 629,962 635,008 626,688 628,496
Investment
securities 90,174 97,452 114,933 109,180 107,522
Interest-earning
assets 734,938 751,733 765,747 733,448 732,683
Deposits 601,614 616,233 628,571 581,488 584,928
Stockholders'
equity 103,990 104,158 104,663 104,720 82,827
Quarterly Average Balances:
Total assets $831,268 $841,169 $829,319 $820,166 $817,613
Loans, net of
deferred fees 624,112 635,645 626,722 627,888 615,755
Investment
securities 94,674 107,140 110,502 108,146 116,269
Interest-earning
assets 741,974 751,381 740,404 733,858 724,949
Deposits 609,243 616,926 593,166 579,967 581,162
Stockholders'
equity 103,913 104,813 104,884 88,498 82,478
Financial Performance Ratios:
Return on
average assets
(annualized) (0.36)% 0.0% 0.10% 0.21% 0.40%
Return on average
common equity
(annualized) (3.61) 0.26 0.98 1.92 3.97
Return on
tangible
common equity
(annualized) (6.77) 1.48 2.88 3.39 8.45
Noninterest
income to
average total
assets
(annualized) 1.20 0.96 0.60 0.61 0.73
Noninterest
expense to
average total
assets
(annualized) 2.52 2.49 2.39 2.19 2.52
Efficiency ratio 65.08 71.29 79.22 69.94 74.85
Citizens South Banking Corporation
Quarterly Financial Highlights - continued (Unaudited)
2009 2008
-------------------------------- -------------------------
At and for the quarters ended
-----------------------------
September 30 June 30 March 31 December 31 September 30
------------ ------- -------- ----------- ------------
(Dollars in Thousands, Except per Share Data)
Net Interest Margin (annualized):
Yield on
earning
assets 5.13% 5.26% 5.38% 5.67% 5.99%
Cost of funds 2.30 2.54 2.90 3.02 3.13
---- ---- ---- ---- ----
Net interest
spread 2.83 2.72 2.48 2.65 2.86
Net interest
margin (1) 3.03 2.92 2.81 2.84 3.02
Credit Quality Information and Ratios:
Allowance for
loan losses -
beginning of
period $8,685 $8,730 $8,026 $7,027 $6,757
Add: Provision
for loan
losses 3,975 1,950 900 1,460 720
Less: Net
charge-offs 3,161 1,995 196 461 450
----- ----- --- --- ---
Allowance for
loan losses -
end of period 9,499 8,685 8,730 8,026 7,027
Nonperforming
loans 10,698 10,360 6,267 3,032 3,335
Other real
estate owned
(OREO) 3,444 2,111 1,672 2,601 1,214
----- ----- ----- ----- -----
Nonperforming
assets 14,142 12,471 7,939 5,633 4,549
Allowance for
loan losses to
total loans 1.54% 1.38% 1.37% 1.28% 1.12%
Net charge-offs
to average
loans 0.51 0.32 0.03 0.07 0.07
Nonperforming
loans to
total loans 1.73 1.64 0.98 0.48 0.53
Nonperforming
assets to
total assets 1.72 1.49 0.93 0.69 0.55
Nonperforming
assets to
total loans
and OREO 2.28 1.97 1.25 0.89 0.72
Capital Ratios:
Tangible common
equity ratio 6.72% 6.61% 6.54% 6.82% 6.94%
Average equity
to average
total assets 12.50 12.46 12.65 10.79 10.09
Equity to
assets at
period end 12.67 12.45 12.29 12.81 10.06
(1) Net interest margin is calculated on a fully tax equivalent basis
Citizens South Banking Corporation
Condensed Consolidated Statements of Financial Condition
September 30, 2009 December 31, 2008
------------------ -----------------
(unaudited)
(Dollars in thousands except per share data)
ASSETS
Cash and due from banks $9,846 $9,444
Interest-earning bank balances 35,650 613
------ ---
Cash and cash equivalents 45,496 10,057
Investment securities available-
for-sale, at fair value 79,112 109,180
Investment securities held to
maturity, at amortized cost 11,062 -
Loans receivable, net of deferred fees 616,793 626,688
Allowance for loan losses (9,499) (8,026)
------- ------
Loans, net 607,294 618,662
Other real estate owned 3,444 2,601
Premises and equipment, net 15,367 16,834
Accrued interest receivable 2,317 2,609
Federal Home Loan Bank stock, at cost 4,149 4,793
Bank owned life insurance 17,341 16,813
Intangible assets 30,282 30,525
Other assets 4,744 5,139
----- -----
Total assets $820,608 $817,213
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand deposit accounts $147,796 $122,731
Money market deposit accounts 115,727 103,271
Savings accounts 10,999 10,708
Time deposits 327,092 344,778
------- -------
Total deposits 601,614 581,488
Borrowed money 110,711 124,365
Other liabilities 4,293 6,640
----- -----
Total liabilities 716,618 712,493
Stockholders' Equity
Preferred stock, $0.01 par value,
1,000,000 shares authorized, 20,500
shares issued and outstanding at
September 30, 2009 and December 31,
2008 20,569 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
September 30, 2009 and 7,515,957
shares outstanding at December 31,
2008 48,587 48,099
Retained earnings, substantially
restricted 34,270 36,089
Accumulated other comprehensive
income 564 25
--- --
Total stockholders' equity 103,990 104,720
------- -------
Total liabilities and stockholders'
equity $820,608 $817,213
======== ========
Citizens South Banking Corporation
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
---- ---- ---- ----
(Dollars in thousands except per share data)
Interest Income
Loans and loan fees $8,376 $9,415 $25,176 $28,160
Investment securities 1,077 1,377 3,623 3,952
Interest-bearing
deposits 28 13 46 149
-- -- -- ---
Total interest
income 9,481 10,805 28,845 32,261
Interest Expense
Deposits 2,791 3,997 9,515 13,397
Borrowed funds 1,156 1,426 3,480 3,783
----- ----- ----- -----
Total interest expense 3,947 5,423 12,995 17,180
----- ----- ------ ------
Net interest income 5,534 5,382 15,850 15,081
Provision for loan
losses 3,975 720 6,825 1,815
----- --- ----- -----
Net interest income
after provision for
loan losses 1,559 4,662 9,025 13,266
Noninterest Income
Service charges on
deposit accounts 859 802 2,427 2,256
Mortgage banking income 215 169 975 650
Other loan fees 36 84 175 296
Dividends on FHLB stock - 40 - 168
Increase in cash value
of bank-owned life
insurance 202 195 570 571
Net gain on sale of
assets 952 13 1,016 275
Other noninterest
income 237 189 603 549
--- --- --- ---
Total noninterest
income 2,501 1,492 5,766 4,765
Noninterest Expense
Compensation and
benefits 2,570 2,553 7,588 7,601
Occupancy and equipment
expense 632 662 1,958 2,012
Professional fees 233 200 707 639
Amortization of
intangible assets 81 126 243 402
FDIC deposit insurance 232 25 825 58
Valuation adjustment
on other real estate
owned - - 175 -
Restructuring expenses - - - 220
Impairment of securities 333 468 547 468
Other noninterest
expense 1,148 1,111 3,362 3,330
----- ----- ----- -----
Total noninterest
expense 5,229 5,145 15,405 14,730
Net income (loss)
before income taxes (1,169) 1,009 (614) 3,301
Income tax expense
(benefit) (672) 187 (887) 647
----- --- ----- ---
Net income (loss) (497) 822 273 2,654
Preferred stock
dividend and discount
on preferred stock 262 - 774 -
--- --- --- ---
Net income (loss) available
to common stockholders $(759) $822 $(501) $2,654
===== ==== ===== ======
Net income (loss) per
common share:
Basic $(0.10) $0.11 $(0.07) $0.36
Diluted $(0.10) $0.11 $(0.07) $0.36
Weighted average common
shares outstanding:
Basic 7,419,206 7,358,086 7,405,199 7,380,236
Diluted 7,419,206 7,386,513 7,405,199 7,414,274
SOURCE Citizens South Banking Corporation
