CFS Bancorp, Inc. Reports Net Income for the First Quarter of 2012
(firmenpresse) - MUNSTER, IN -- (Marketwire) -- 05/03/12 -- CFS Bancorp, Inc. (NASDAQ: CITZ), the parent of Citizens Financial Bank, today reported net income of $490,000, or $.05 per diluted share, for the first quarter of 2012, compared to net income of $472,000, or $.04 per diluted share, for the first quarter of 2011.
Financial results for the quarter include:
Core deposits increased to $627.2 million, which is 62.4% of total deposits, compared to $597.4 million, or 61.1% of total deposits at December 31, 2011;
Net interest margin was 3.43% in the first quarter of 2012 compared to 3.38% in the fourth quarter of 2011 and 3.55% in the first quarter of 2011;
Net charge-offs for the first quarter of 2012 totaled $1.7 million, a decrease from $17.3 million for the fourth quarter of 2011 and an increase from $987,000 for the first quarter of 2011;
Non-performing assets increased slightly to $65.7 million compared to $64.7 million at December 31, 2011 primarily due to one commercial and multifamily real estate relationship being transferred to non-accrual status; and
The Bank's total risk-based capital ratio increased to 13.23% from 12.65% at December 31, 2011 and 13.22% at March 31, 2011, and the Tier 1 core capital ratio decreased to 8.11% at March 31, 2012 compared to 8.26% at December 31, 2011 and 8.94% at March 31, 2011.
"We implemented several cost reduction initiatives during the first quarter to improve our efficiency and profitability," said Daryl D. Pomranke, Chief Executive Officer. "With the Voluntary Early Retirement Offering (VERO), the closing of our Bolingbrook and Orland Park, Illinois, branches, and the outsourcing of certain support functions, we have been able to reduce our full-time equivalent employees (FTEs) to 273 at March 31, 2012 from 303 at December 31, 2011 and 322 at December 31, 2010. We anticipate an additional decrease in FTEs to 262 by June 30, 2012 through normal attrition and when the remainder of the VERO employees begin their retirement. Although these initiatives resulted in us recording severance and early retirement expense of $876,000, these actions will generate future annual savings of $1.1 million in compensation and employee benefits expense and approximately $115,000 in lower other non-interest expenses."
"We are very pleased with our 5.0% core deposit growth from December 31, 2011, which includes a 9.2% increase in non-interest bearing deposits," added Pomranke. "The implementation of our High Performance Checking program increased the number of new deposit accounts, many of which were opened by a younger demographic than we have seen in recent years. We anticipate further success with this program including additional future cross-selling opportunities."
"Reducing non-performing assets remains our top priority and our asset management team is working diligently to bring resolution to some of these assets either through the restructuring of certain non-performing loans at a loan balance the borrowers can support based upon their current cash flows or through a sale of other real estate owned properties. During the first quarter, the level of charge-offs and write-downs on other real estate owned properties decreased substantially from the previous quarter even though certain non-performing asset balances were written down as a result of the receipt of updated appraisals with decreased property values. We expect further improvement in our credit quality indicators as we progress through 2012."
We continue to focus our efforts on reducing the level of non-performing loans, seeking to either restructure specific non-performing credits or foreclose, obtain title, and transfer the loan to other real estate owned where management can take control of and liquidate the underlying collateral. Our ratio of non-performing loans to total loans increased slightly to 6.55% at March 31, 2012 from 6.41% at December 31, 2011, primarily as a result of a $2.1 million increase in non-accruing commercial and multifamily real estate loans during the quarter combined with a decrease in total loans outstanding of $4.3 million. The ratio of non-performing assets to total assets was stable at 5.61% at March 31, 2012 compared to 5.63% at December 31, 2011. See the Asset Quality table in this press release for more detailed information.
We remain focused on reducing non-interest expense. Through the previously announced VERO, the March 31, 2012 branch closings in Orland Park and Bolingbrook, Illinois, and the outsourcing of certain support activities, the number of FTE employees decreased to 273 at March 31, 2012 from 303 at December 31, 2011 and 320 at March 31, 2011. The number of FTE employees is projected to further decrease to 262 at June 30, 2012 when all employees electing the VERO have retired, as well as through normal attrition. During the first quarter of 2012, we recorded $876,000 of severance and early retirement expense in conjunction with the VERO and branch closings, which will result in estimated annual savings in compensation and employee benefits expense, net of planned replacements, of approximately $900,000.
Non-interest expense for the first quarter of 2012 decreased to $10.2 million from $10.9 million for the fourth quarter of 2011 and increased slightly from $10.0 million for the first quarter of 2011. Excluding the severance and retirement compensation expense for first quarter of 2012 relating to the VERO and the retirement compensation expense recognized in the fourth quarter of 2011 related to the retirement of our former Chairman and CEO, non-interest expense for the first quarter decreased to $9.3 million compared to $9.5 million for the fourth quarter of 2011 and $10.0 million for the first quarter of 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 54.5% of the commercial loan portfolio at March 31, 2012, compared to 53.0% at December 31, 2011 and 51.0% at March 31, 2011. Our focus on deepening client relationships continues to emphasize core deposit growth. Total core deposits as a percentage of total deposits increased to 62.4% at March 31, 2012 from 61.1% at December 31, 2011 and 58.8% at March 31, 2011. The increase was primarily related to clients transferring maturing certificates of deposit to money market accounts given the current low interest rate environment combined with an increase in municipal deposits. In addition, the Bank's new High Performance Checking (HPC) deposit acquisition marketing program implemented during the first quarter of 2012 further enhanced growth in core deposits while attracting a younger demographic with 66% of the new retail accounts in the 20-49 age group, which we believe will provide additional good cross-sell opportunities. During the first ten weeks of the program, the Bank opened 1,959 new core deposit accounts compared to 987 accounts opened in the same period a year ago, with 50% of the accounts being new relationships.
Pre-tax, pre-provision earnings, as adjusted, increased $1.2 million, or 80.7%, to $2.8 million for the first quarter of 2012 from $1.5 million for the first quarter of 2011 primarily due to increases in gains on sales of loans held for sale of $135,000 and income from bank-owned life insurance of $334,000 due to the death of an insured combined with decreases in compensation and employee benefits expense of $526,000, FDIC insurance premiums and regulatory assessments of $465,000, and professional fees of $135,000. Partially offsetting these favorable variances was a $217,000 increase in marketing expense due to the HPC product promotion the first quarter of 2012. The pre-tax, pre-provision earnings, as adjusted, for the first quarter of 2012 compared to the fourth quarter of 2011 was stable at $2.8 million.
(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 margin increased five basis points to 3.43% for the first quarter of 2012 from 3.38% for the fourth quarter of 2011 and decreased twelve basis points from 3.55% for the first quarter of 2011. Net interest income was relatively stable at $8.9 million for the first quarter of 2012 compared to $9.0 million for the fourth quarter of 2011 and $8.9 million for the first quarter of 2011. The net interest margin, while up from the prior quarter, continues to be pressured by the higher levels of liquidity due to strong core deposit growth, modest loan demand, and elevated level of non-performing assets. The increase in yields on investment securities during the first quarter of 2012 was primarily related to purchases of higher yielding floating-rate securities as well as higher accretion income due to an increase in prepayments. The level of non-performing loans continues to negatively affect the yield on loans receivable. Net interest margin was positively affected by a three basis point decrease in the cost of interest-bearing liabilities from the fourth quarter of 2011 and a 24 basis point decrease compared to the first quarter of 2011.
Interest income totaled $10.6 million for the first quarter of 2012 which was relatively stable compared to $10.7 million for the fourth quarter of 2011 and decreased 3.7% from $11.0 million for the first quarter of 2011. The fluctuation from the first quarter of 2011 is 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 and modest loan demand.
Interest expense decreased 4.6% to $1.7 million for the first quarter of 2012 compared to $1.8 million for the fourth quarter of 2011 and 21.8% from $2.2 million for the first quarter of 2011. Our continuing success in growing low-cost core deposits and continued disciplined pricing on new and renewing certificates of deposit at lower interest rates contributed to the decrease in interest expense during the first quarter of 2012.
Non-interest income increased $290,000, or 11.4%, to $2.8 million for the first quarter of 2012 compared to the fourth quarter of 2011 primarily due to an increase of $153,000 related to gains on sales of investment securities and a $360,000 increase in income from bank-owned life insurance due to the death of an insured. These increases were partially offset by a $136,000 decrease in service charges and other fees due to lower client activity and seasonal factors combined with a $110,000 increase in losses on sales of other real estate owned. Excluding the net gains and losses on sales of investment securities and other real estate owned, non-interest income increased $247,000 compared to the fourth quarter of 2011 primarily due to the increase in income from bank-owned life insurance partially offset by the decrease in service charges and other fees.
Non-interest income increased $373,000, or 15.2%, from $2.5 million for the first quarter of 2011 primarily due to a $135,000 increase in gains on the sale of loans held for sale related to our expanded residential loan origination and mortgage banking activities and a $334,000 increase in income from bank-owned life insurance primarily due to the death of an insured. These increases were partially offset by a $101,000 decrease in gains recorded on the sale of investment securities and a $42,000 increase in losses on sales of other real estate owned. Excluding net gains and losses on sales of investment securities and other real estate owned, non-interest income increased $516,000 compared to the first quarter of 2011 primarily due to the increases in gains on sales of loans, bank-owned life insurance income, and card-based fees.
Non-interest expense for the first quarter of 2012 decreased $686,000, or 6.3%, to $10.2 million compared to $10.9 million for the fourth quarter of 2011 and increased 2.4% from $10.0 million for the first quarter of 2011. We recorded severance and retirement compensation expense of $876,000 during the first quarter of 2012 related to the VERO, branch closings, and the outsourcing of certain activities, and $1.4 million during the fourth quarter of 2011 related to the retirement of our former Chairman of the Board and Chief Executive Officer. Excluding the severance and retirement compensation expenses, non-interest expense for the first quarter of 2012 decreased $187,000 from the fourth quarter of 2011 and $636,000 from the first quarter of 2011.
Non-interest expense during the first quarter of 2012 compared to the fourth quarter of 2011 was also impacted by lower professional fees of $101,000 and net other real estate owned related expenses of $288,000. These decreases were partially offset by an increase in compensation and employee benefits totaling $394,000 primarily due to the absence of the reversal of incentive accruals during the fourth quarter of 2011 as a result of the Company not meeting its 2011 performance target, partially offset by increased mortgage loan deferred origination costs and lower pension and restricted stock expense. In addition, marketing expense increased $160,000 during the first quarter of 2012 over the fourth quarter of 2011 due to the HPC product launch.
Non-interest expense during the first quarter of 2012 compared to the first quarter of 2011 was impacted by decreased compensation and employee benefits of $526,000 primarily related to lower incentive compensation, lower medical premiums, and a reduction of 47, or 14.7%, FTE employees from March 31, 2011. In addition, FDIC insurance premiums and regulatory assessments decreased $165,000 and professional fees decreased $135,000 due to lower legal expenses. These decreases were partially offset by increased marketing expenses of $217,000 due to costs associated with the HPC product launch.
During the current quarter, we recorded an income tax benefit of $166,000 primarily related to the lower pre-tax income and the tax sheltering impact of the increased income from bank-owned life insurance. In addition, we increased the deferred tax valuation allowance by $166,000 resulting in no income tax benefit for the first quarter. The deferred tax asset valuation allowance totaled $6.5 million at March 31, 2012. Although realization of the current net deferred tax assets of $16.6 million is not assured, management believes it is more likely than not that all of the recorded deferred tax assets will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during tax loss carryforward periods are reduced.
Total non-performing loans increased modestly to $46.3 million at March 31, 2012 from $45.6 million at December 31, 2011 primarily due to the transfer of one commercial and multifamily real estate lending relationship totaling $2.2 million to non-accrual status. The ratio of non-performing loans to total loans increased to 6.55% during the quarter compared to 6.41% at December 31, 2011 primarily due to an increase in non-performing loans combined with a decrease in total loans.
The provision for loan losses decreased to $1.1 million for the first quarter of 2012 compared to $12.5 million for the fourth quarter of 2011 and increased from $903,000 for the first quarter of 2011. The lower provision on a sequential quarter basis was primarily due to significantly lower loan charge-offs.
The ratio of the allowance for loan losses to total loans decreased to 1.66% at March 31, 2012 compared to 1.75% at December 31, 2011 primarily due to the net charge-offs, including a $718,000 charge-off of a previously established specific reserve. 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 $13.7 million recorded through March 31, 2012 on $27.2 million (net of charge-offs) of non-performing collateral dependent loans. At March 31, 2012, the ratio of the allowance for loan losses to non-performing loans, excluding the $27.2 million of non-performing collateral dependent loans with partial charge-offs, was 61.6%.
During the first quarter, the Bank transferred its Bolingbrook banking center to other real estate owned. We also sold seven other real estate owned properties aggregating $722,000 during the first quarter of 2012 and recognized a net loss of $47,000 on these sales. We continue to explore ways to reduce our overall exposure in our non-performing assets through various alternatives, including the potential sale of certain of these assets. We currently have contracts for the sale of five separate other real estate owned properties which will reduce non-performing assets by $1.0 million with no anticipated loss on sale, presuming the transactions close as scheduled and pursuant to the contract terms.
The table below provides a summary of the more significant items in our statement of condition as of the dates indicated.
Loan fundings during the three months ended March 31, 2012 totaled $32.7 million, stable compared to the three months ended December 31, 2011. Loan fundings during the first quarter of 2012 were offset by loan payoffs and amortization of $25.4 million, mortgage loan sales of $9.2 million, and transfers to other real estate owned totaling $586,000.
Through the execution of our Strategic Growth and Diversification Plan and our focus on lending to small- to medium-sized businesses, we continue to diversify our loan portfolio and reduce loans not meeting our current defined risk tolerance. Our targeted growth segments within the loan portfolio, including commercial and industrial and owner occupied and multifamily commercial real estate loans, increased to 54.5% of the commercial loan portfolio at March 31, 2012 compared to 53.0% at December 31, 2011. Commercial participations decreased $5.0 million, or 41.2%, to $7.1 million compared to $12.1 million at December 31, 2011 primarily due to the payoff of a performing commercial participation loan during the first quarter of 2012.
During the first quarter of 2012, we sold $9.2 million of conforming one-to-four family fixed-rate mortgage loans into the secondary market and recorded a gain on sale of $167,000. We hired four additional seasoned mortgage loan originators in the last year to expand mortgage loan originations to generate additional income from our mortgage banking activities.
We strive to grow deposits through many channels including enhancing our brand recognition within our communities, offering attractive deposit products, bringing in new client relationships by meeting all of their banking needs, and holding our experienced sales team accountable for growing deposits and relationships. During the first quarter of 2012, we implemented our 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. The $29.9 million increase in core deposits during the first quarter of 2012 is primarily related to clients moving maturing certificates of deposit into money market accounts due to the current low interest rate environment, increased municipal deposits, and the impact of the new HPC program which generated approximately $3.0 million in new core deposit growth during the quarter.
Borrowed funds decreased during the first quarter of 2012 primarily due to decreased borrowings from repurchase agreements, which will fluctuate depending on the client's liquidity levels.
Shareholders' equity at March 31, 2012 was relatively stable at $103.3 million compared to $103.2 million at December 31, 2011. The increase in shareholders' equity during the first quarter of 2012 was primarily related to net income of $490,000 for the quarter, partially offset by a $299,000 increase in accumulated other comprehensive loss and dividends declared of $109,000.
At March 31, 2012, the Company's tangible common equity was $103.3 million, or 8.83% of assets, compared to $103.2 million, or 8.99% of assets at December 31, 2011. At March 31, 2012, the Bank's Tier 1 core capital ratio was 8.11% and the total risk-based capital ratio was 13.23%, both of which exceeded "minimum" and "well capitalized" regulatory capital requirements.
CFS Bancorp, Inc. is the parent of Citizens Financial Bank, a $1.2 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 .
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, 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 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.
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:
Daryl D. Pomranke
President and Chief Executive Officer
219-513-5150
Jerry A. Weberling
Executive Vice President and CFO
219-513-5103
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Datum: 03.05.2012 - 11:00 Uhr
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