CFS Bancorp, Inc. Reports Net Income for the Second Quarter of 2012

Marketwired

MUNSTER, IN--(Marketwire -07/31/12)- CFS Bancorp, Inc. (CITZ), the parent of Citizens Financial Bank, today reported net income of $1.4 million, or $.13 per diluted share, for the second quarter of 2012, an increase from net income of $1.2 million, or $.11 per diluted share, for the second quarter of 2011. The Company's net income for the six months ended June 30, 2012 was $1.8 million, or $.17 per diluted share, compared to $1.7 million, or $.16 per diluted share, for the six months ended June 30, 2011.

Financial results for the quarter include:

  • Loans receivable increased $6.7 million to $713.6 million from March 31, 2012 due to a $10.5 million increase in commercial and industrial, commercial real estate owner occupied, and commercial real estate multifamily loans partially offset by a decrease in retail loans;
  • Net charge-offs for the second quarter of 2012 totaled $856,000, a decrease from $1.7 million for the first quarter of 2012 and $1.1 million for the second quarter of 2011;
  • Non-performing assets increased to $71.1 million compared to $65.7 million at March 31, 2012 primarily due to transfers of commercial real estate non-owner occupied, commercial construction and land development, commercial and industrial, and one-to-four family residential loans to non-accrual status;
  • Core deposits, which decreased $22.7 million primarily due to proactive efforts by management to achieve reductions in four large single-service relationships, continue to represent a larger portion of total deposits at $604.5 million, which is 62.5% of total deposits, compared to $627.2 million, or 62.4% of total deposits, at March 31, 2012 and $570.6 million, or 59.2% of total deposits, at June 30, 2011;
  • Net interest margin was relatively stable at 3.42% in the second quarter of 2012 compared to 3.43% in the first quarter of 2012 and decreased from 3.59% in the second quarter of 2011;
  • The Company's tangible common shareholders' equity to total assets ratio increased to 9.24% at June 30, 2012 compared to 8.83% at March 31, 2012 and 8.99% at December 31, 2011; and
  • The Bank's Tier 1 core capital ratio increased to 8.56% at June 30, 2012 compared to 8.11% at March 31, 2012 and 8.26% at December 31, 2011, and the total risk-based capital ratio increased to 13.35% from 13.23% at March 31, 2012 and 12.65% at December 31, 2011.

Chief Executive Officer's Comments

"Our quarterly results reflect our determination to grow client relationships while reducing our cost structure," said Daryl D. Pomranke, Chief Executive Officer. "We realized a 23% reduction in total non-interest expense for the second quarter of 2012 compared to the same period last year. This is primarily due to an 80% reduction in credit related non-interest expenses and an 11% decrease in compensation and employee benefit expenses resulting from our first quarter Voluntary Early Retirement Offering (VERO), branch closings, and outsourcing. Our full-time equivalent employees decreased to 261 at June 30, 2012 from 303 at December 31, 2011."

"Our High Performance Checking program continues to bring in new core deposit relationships and is providing deeper cross sell opportunities for those new clients than we have historically experienced," continued Pomranke. "We are beginning to see some stronger commercial loan demand resulting in an increase in total loans at June 30, 2012. We are continuing to build lending relationships while maintaining our high credit quality standards for underwriting that we put in place during 2008."

"Our nonperforming asset levels remain stubbornly high as we transferred a number of loan relationships to non-accrual status during the quarter," added Pomranke. "At June 30, 2012, $13.9 million, or 26.8%, of our non-accrual loans are current and performing in accordance with their terms. We expect to make significant progress in reducing non-performing assets over the next few quarters."

Update on Strategic Growth and Diversification Plan

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 property 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 to 7.27% at June 30, 2012 from 6.55% at March 31, 2012, primarily due to transfers to non-accrual status of $4.4 million of non-owner occupied commercial real estate loans, $1.5 million of commercial construction and land development loans, $840,000 of one-to-four family residential loans, and $435,000 of commercial and industrial loans. Of the loans transferred to non-accrual during the second quarter of 2012, $5.8 million are current and performing in accordance with their agreements. The ratio of non-performing assets to total assets increased to 6.28% at June 30, 2012 compared to 5.61% at March 31, 2012. See the Asset Quality table in this press release for more detailed information.

We also remain focused on reducing non-interest expense, which decreased during the second quarter of 2012 to $8.5 million from $10.2 million for the first quarter of 2012 and $11.1 million for the second quarter of 2011. These decreases were primarily related to a significant decrease in net other real estate owned related expense and loan collection expense, lower compensation and employee benefit expense due to the previously announced VERO, the March 31, 2012 branch closings in Orland Park and Bolingbrook, Illinois, the outsourcing of certain support activities, and lower professional fees. The number of FTE employees decreased to 261 at June 30, 2012 from 273 at March 31, 2012 and 315 at June 30, 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 55.6% of the commercial loan portfolio at June 30, 2012, compared to 54.5% at March 31, 2012 and 53.1% at June 30, 2011. Our focus on deepening client relationships continues to emphasize core deposit growth. Total core deposits as a percentage of total deposits increased to 62.5% at June 30, 2012 from 62.4% at March 31, 2012 and 59.2% at June 30, 2011. The increase was primarily related to clients transferring maturing certificates of deposit to money market accounts given the current low interest rate environment.

In addition, the Bank's 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 will continue to provide additional cross-sell opportunities. Since the inception of the program in February 2012, the Bank opened 3,839 new core deposit accounts compared to 1,755 accounts opened in the same period a year ago, with 50% of the accounts being new relationships. The HPC program generated $5.8 million in new core deposit growth since its inception.

Pre-tax, Pre-Provision Earnings, As Adjusted(1)

Pre-tax, pre-provision earnings, as adjusted, increased $602,000, or 24.2%, to $3.1 million for the second quarter of 2012 compared to $2.5 million for the second quarter of 2011. These increases were primarily due to increases in gains on sales of loans held for sale along with decreases in compensation and employee benefits expense and professional fees. Partially offsetting these positives was a modest decrease in net interest income.

The pre-tax, pre-provision earnings, as adjusted, for the six months ended June 30, 2012 increased $1.8 million, or 45.8%, to $5.9 million compared to $4.0 million for the 2011 period primarily due to increases in gains on sales of loans held for sale, income from bank-owned life insurance from the first quarter 2012 death of an insured, and decreases in compensation and employee benefits, professional fees, and FDIC insurance premiums and regulatory assessments. These favorable variances were partially offset by an increase in marketing expenses due to the HPC promotion and a decrease in net interest income.

(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 Income and Net Interest Margin

 

Three Months Ended
-------------------------------------
June 30, March 31, June 30,
2012 2012 2011
----------- ----------- -----------
(Dollars in thousands)
Net interest margin 3.42% 3.43% 3.59%
Interest rate spread 3.35 3.36 3.49
Net interest income $ 8,944 $ 8,923 $ 9,187
Average assets:
Yield on interest-earning assets 4.03% 4.08% 4.38%
Yield on loans receivable 4.70 4.76 4.94
Yield on investment securities 3.42 3.25 3.01
Average interest-earning assets $ 1,052,039 $ 1,045,778 $ 1,026,940
Average liabilities:
Cost of interest-bearing liabilities .68% .72% .89%
Cost of interest-bearing deposits .58 .63 .81
Cost of borrowed funds 2.30 2.20 2.64
Average interest-bearing liabilities $ 941,398 $ 941,803 $ 915,785

The net interest margin remained stable at 3.42% for the second quarter of 2012 compared to 3.43% for the first quarter of 2012 and decreased 17 basis points from 3.59% for the second quarter of 2011. Net interest income was relatively stable at $8.9 million for both the first and second quarters of 2012 and decreased slightly from $9.2 million for the second quarter of 2011. The net interest margin, while stable with the prior quarter, continues to be pressured by the higher levels of liquidity, modest loan demand, and elevated level of non-performing assets. The second quarter 2012 increase in yields on investment securities compared to the first quarter of 2012 was primarily related to late first quarter 2012 purchases of higher yielding floating-rate securities as well as higher accretion income related to a $10.8 million increase in principal paydowns. The level of non-performing loans continues to negatively affect the yield on loans receivable. The net interest margin was positively affected by a four basis point decrease in the cost of interest-bearing liabilities from the first quarter of 2012 and a 21 basis point decrease compared to the second quarter of 2011.

Interest income totaled $10.5 million for the second quarter of 2012 which was relatively stable compared to $10.6 million for the first quarter of 2012 and decreased 6.1% from $11.2 million for the second quarter of 2011. The fluctuation from the second 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 combined with modest loan demand.

Interest expense decreased 5.8% to $1.6 million for the second quarter of 2012 compared to $1.7 million for the first quarter of 2012 and 21.9% from $2.0 million for the second quarter of 2011. Our continuing success in increasing the proportion of core deposits to total deposits and continued disciplined pricing on new and renewing certificates of deposit contributed to the decrease in interest expense during the second quarter of 2012.

Non-Interest Income and Non-Interest Expense

Non-interest income decreased $181,000, or 6.4%, to $2.6 million for the second quarter of 2012 compared to the first quarter of 2012 primarily due to a $378,000 decrease in income from bank-owned life insurance relating to the death in the first quarter of 2012 of an insured combined with a decrease of $113,000 related to gains on sales of investment securities. These decreases were partially offset by an increase in gains on sales of other real estate owned properties totaling $133,000, a $69,000 increase in service charges and other fees combined with a $44,000 increase in card-based fees.

Non-interest income decreased $1.9 million, or 41.8%, from $4.5 million for the second quarter of 2011 primarily due to a $2.2 million decrease in gains on the sale of other real estate owned which was partially offset by increases of $174,000 in gains on the sale of loans held for sale related to our expanded residential loan origination and mortgage banking activities, $132,000 in gains on the sale of investment securities, and $57,000 in card-based fees. Excluding net gains and losses on sales of investment securities and other real estate owned, non-interest income increased $125,000 compared to the second quarter of 2011 primarily due to the increases in gains on the sale of loans held for sale and card-based fees partially offset by a decrease in income from bank-owned life insurance.

Non-interest expense for the second quarter of 2012 decreased $1.7 million, or 16.3%, to $8.5 million compared to $10.2 million for the first quarter of 2012 primarily due the severance and retirement compensation expense of $876,000 recorded for the VERO program during the first quarter of 2012 combined with decreases in net other real estate owned related expenses of $302,000, compensation and employee benefits of $246,000, and marketing expense of $82,000. Excluding the severance and retirement compensation expenses, non-interest expense for the second quarter of 2012 decreased $789,000, or 8.5%, from the first quarter of 2012.

Non-interest expense during the second quarter of 2012 decreased $2.5 million, or 22.8%, to $8.5 million from $11.1 million for the second quarter of 2011 due to lower net other real estate owned expenses of $1.7 million, compensation and employee benefits expense of $580,000, professional fees of $136,000, and loan collection expenses of $114,000. These decreases were partially offset by an increase in marketing expense of $52,000 due to the HPC product promotions.

Income Tax Expense

During the second quarter of 2012, we recorded income tax expense of $541,000, equal to an effective tax rate of 28.5%, compared to $425,000, or an effective tax rate of 25.6%, for the second quarter of 2011. During the first quarter of 2012, we recorded an income tax benefit of $166,000 due to the lower pre-tax income and tax sheltering effect of the income from bank-owned life insurance. We also increased the deferred tax asset valuation allowance by $166,000 resulting in no income tax benefit for the first quarter of 2012.

The deferred tax asset valuation allowance was unchanged at $6.5 million at June 30, 2012 compared to March 31, 2012. Although realization of the current net deferred tax assets of $16.3 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.

Asset Quality

 

June 30, March 31, June 30,
2012 2012 2011
----------- ----------- -----------
(Dollars in thousands)
Non-performing loans (NPLs) $ 51,850 $ 46,275 $ 57,217
Other real estate owned 19,223 19,429 21,164
----------- ----------- -----------
Non-performing assets (NPAs) $ 71,073 $ 65,704 $ 78,381
=========== =========== ===========

Allowance for loan losses (ALL) $ 12,062 $ 11,768 $ 17,039
Provision for loan losses for the
quarter ended 1,150 1,050 996
Loans charged off:
Current period net charge-offs $ 856 $ 988 $ 1,052
Previously established specific
reserves -- 718 --
----------- ----------- -----------
Net charge-offs for the quarter ended $ 856 $ 1,706 $ 1,052
=========== =========== ===========

NPLs / total loans 7.27% 6.55% 7.76%
NPAs / total assets 6.28 5.61 6.95
ALL / total loans 1.69 1.66 2.31
ALL / NPLs 23.26 25.43 29.78

Total non-performing loans increased to $51.9 million at June 30, 2012 from $46.3 million at March 31, 2012 primarily due to transfers to non-accrual status of $4.4 million of non-owner occupied commercial real estate loans, $1.5 million of commercial construction and land development loans, $840,000 of one-to-four family residential loans, and $435,000 of commercial and industrial loans. Of the loans transferred to non-accrual status during the second quarter of 2012, $5.8 million are current and performing in accordance with their loan agreements.

The provision for loan losses was relatively stable at $1.15 million for the second quarter of 2012 compared to $1.05 million for the first quarter of 2012 and increased modestly from $1.0 million for the second quarter of 2011.

The ratio of the allowance for loan losses to total loans increased to 1.69% at June 30, 2012 compared to 1.66% at March 31, 2012 primarily due the increase in the provision for loan losses partially offset by an increase in total loans. 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 $17.4 million recorded through June 30, 2012 on $32.6 million (net of charge-offs) of non-performing collateral dependent loans. At June 30, 2012, the ratio of the allowance for loan losses to non-performing loans, excluding the $32.6 million of non-performing collateral dependent loans with partial charge-offs, was 62.8%.

During the second quarter of 2012, we transferred three loan relationships to other real estate owned totaling $1.2 million. We also sold seven other real estate owned properties aggregating $879,000 and recognized net gains of $86,000 on these sales. We continue to explore ways to reduce our overall exposure in our non-performing assets through various alternatives, including using A/B note structures and the potential sale of certain of these assets. We currently have contracts for the sale of certain other real estate owned properties which will reduce non-performing assets by $2.7 million with no anticipated loss on sale, presuming the transactions close as scheduled and pursuant to the contract terms.

Statement of Condition Highlights

The table below provides a summary of the more significant items in our statement of condition as of the dates indicated.

 

6/30/2012 3/31/2012 6/30/2011
------------ ------------ ------------
(Dollars in thousands)
Assets:
Total assets $ 1,132,094 $ 1,170,542 $ 1,128,019
Interest-bearing deposits 51,687 89,718 14,423
Investment securities 240,590 255,158 248,958
Loans receivable, net of unearned
fees 713,596 706,938 737,516

Liabilities and Equity:
Total liabilities $ 1,027,497 $ 1,067,207 $ 1,011,853
Deposits 967,154 1,004,441 964,527
Borrowed funds 51,306 51,935 38,835
Shareholders' equity 104,597 103,335 116,166

Loans Receivable

 

6/30/2012 3/31/2012 6/30/2011
--------------- --------------- ---------------
% of % of % of
Amount Total Amount Total Amount Total
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
Commercial loans:
Commercial and
industrial $ 89,479 12.6% $ 86,807 12.3% $ 83,082 11.3%
Commercial real estate
- owner occupied 102,149 14.3 95,110 13.5 102,315 13.8
Commercial real estate
- non-owner occupied 184,284 25.8 185,070 26.2 187,380 25.4
Commercial real estate
- multifamily 76,647 10.7 75,864 10.7 77,562 10.5
Commercial construction
and land development 23,353 3.3 22,691 3.2 23,424 3.2
Commercial
participations 6,453 .9 7,089 1.0 21,194 2.9
-------- ----- -------- ----- -------- -----
Total commercial
loans 482,365 67.6 472,631 66.9 494,957 67.1
Retail loans:
One-to-four family
residential 177,830 24.9 179,980 25.5 183,269 24.8
Home equity lines of
credit 49,476 6.9 50,496 7.1 54,975 7.5
Retail construction and
land development 1,518 .2 1,282 .2 2,095 .3
Other 2,724 .5 2,942 .4 2,670 .4
-------- ----- -------- ----- -------- -----
Total retail loans 231,548 32.5 234,700 33.2 243,009 33.0
-------- ----- -------- ----- -------- -----
Total loans
receivable 713,913 100.1 707,331 100.1 737,966 100.1
Net deferred loan
fees (317) (.1) (393) (.1) (450) (.1)
-------- ----- -------- ----- -------- -----
Total loans
receivable, net
of unearned fees $713,596 100.0% $706,938 100.0% $737,516 100.0%
======== ===== ======== ===== ======== =====

Total loans receivable increased $6.7 million at June 30, 2012 from March 31, 2012 primarily due to $9.0 million of new commercial real estate owner occupied loans. Loan fundings during the three months ended June 30, 2012 totaled $31.3 million, a modest decrease compared to $32.7 million for the three months ended March 31, 2012. Loan fundings during the second quarter of 2012 were partially offset by loan payoffs and amortization of $12.3 million, residential mortgage loan sales of $11.0 million, and transfers to other real estate owned totaling $1.2 million.

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 55.6% of the commercial loan portfolio at June 30, 2012 compared to 54.5% at March 31, 2012. Commercial participations decreased $636,000, or 9.0%, to $6.5 million compared to $7.1 million at March 31, 2012 primarily due to the payoff of a performing commercial participation loan and a principal repayment on a nonperforming participation during the second quarter of 2012.

At June 30, 2012, our total commercial loans outstanding that were originated prior to January 1, 2008 (Pre-1/1/08) decreased to $187.9 million, or 38.9% of total commercial loans outstanding compared to $194.0 million, or 41.1%, at March 31, 2012 and $202.6 million, or 42.8%, at December 31, 2011. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2011 for a more detailed discussion of our Pre-1/1/08 commercial portfolio.

During the second quarter of 2012, we sold $11.0 million of conforming one-to-four family fixed-rate mortgage loans into the secondary market and recorded a gain on sale of $200,000. 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 which has resulted in an increase in one-to-four family mortgage originations to $26.2 million during the first six months of 2012, a 149% increase from the first six months of 2011.

Deposits

 

6/30/2012 3/31/2012 6/30/2011
-------------- ---------------- --------------
% of % of % of
Amount Total Amount Total Amount Total
-------- ----- ---------- ----- -------- -----
(Dollars in thousands)
Checking accounts:
Non-interest bearing $ 97,435 10.1% $ 105,177 10.5% $ 98,377 10.2%
Interest-bearing 179,842 18.5 179,366 17.8 154,401 16.0
Money market accounts 182,522 18.9 202,668 20.2 188,942 19.6
Savings accounts 144,705 15.0 140,025 13.9 128,902 13.4
-------- ----- ---------- ----- -------- -----
Core deposits 604,504 62.5 627,236 62.4 570,622 59.2
Certificates of deposit
accounts 362,650 37.5 377,205 37.6 393,905 40.8
-------- ----- ---------- ----- -------- -----
Total deposits $967,154 100.0% $1,004,441 100.0% $964,527 100.0%
======== ===== ========== ===== ======== =====

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 HPC program has generated approximately $5.8 million in new core deposit growth since the inception of the program. In addition, core deposits during 2012 also benefited from clients moving maturing certificates of deposit into money market accounts due to the current low interest rate environment. The decrease in core deposits from March 31, 2012 is primarily a result of our proactive efforts to review the pricing and cross-sell potential of some of our larger single-service deposit relationships which enabled us to decrease the level of excess liquidity in this low interest rate environment, while at the same time improve our Tier 1 core capital ratios.

Borrowed Funds

 

6/30/2012 3/31/2012 6/30/2011
------------ ------------ ------------
(Dollars in thousands)
Short-term variable-rate repurchase
agreements $ 11,540 $ 12,123 $ 13,730
FHLB advances 39,766 39,812 25,105
------------ ------------ ------------
Total borrowed funds $ 51,306 $ 51,935 $ 38,835
============ ============ ============

Borrowed funds decreased during the second quarter of 2012 primarily due to decreased borrowings from repurchase agreements, which will fluctuate depending on our client's liquidity levels.

Shareholders' Equity

Shareholders' equity at June 30, 2012 increased to $104.6 million from $103.3 million at March 31, 2012 primarily related to net income of $1.4 million for the quarter.

At June 30, 2012, the Company's tangible common equity was $104.6 million, or 9.24% of assets, compared to $103.3 million, or 8.83% of assets at March 31, 2012. At June 30, 2012, the Bank's Tier 1 core capital ratio increased to 8.56% from 8.11% at March 31, 2012 and the total risk-based capital ratio increased to 13.35% from 13.23% at March 31, 2012. Both the Tier 1 core capital ratio and the total risk-based capital ratio exceeded "minimum" and "well capitalized" regulatory capital requirements at June 30, 2012 and March 31, 2012.

Company Profile

CFS Bancorp, Inc. is the parent of Citizens Financial Bank, a $1.1 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 www.citz.com.

Forward-Looking Information

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.

 


CFS BANCORP, INC.
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)

Three Months Ended Six Months Ended
----------------------------------- -----------------------
June 30, March 31, June 30, June 30, June 30,
2012 2012 2011 2012 2011
----------- ----------- ----------- ----------- -----------
Interest income:
Loans
receivable $ 8,243 $ 8,386 $ 9,016 $ 16,629 $ 17,827
Investment
securities 2,186 2,130 2,040 4,316 4,085
Other interest-
earning assets 103 93 164 196 321
----------- ----------- ----------- ----------- -----------
Total
interest
income 10,532 10,609 11,220 21,141 22,233

Interest expense:
Deposits 1,294 1,390 1,777 2,684 3,670
Borrowed funds 294 296 256 590 519
----------- ----------- ----------- ----------- -----------
Total
interest
expense 1,588 1,686 2,033 3,274 4,189
----------- ----------- ----------- ----------- -----------
Net interest
income 8,944 8,923 9,187 17,867 18,044
Provision for
loan losses 1,150 1,050 996 2,200 1,899
----------- ----------- ----------- ----------- -----------
Net interest
income after
provision for
loan losses 7,794 7,873 8,191 15,667 16,145

Non-interest
income:
Service charges
and other fees 1,087 1,018 1,174 2,105 2,250
Card-based fees 577 533 520 1,110 995
Commission
income 75 57 78 132 123
Net gain (loss)
on sale of:
Investment
securities 305 418 173 723 692
Loans held
for sale 200 159 26 359 58
Other real
estate owned 86 (47) 2,238 39 2,233
Income from
bank-owned
life insurance 162 540 210 702 416
Other income 151 146 119 297 222
----------- ----------- ----------- ----------- -----------
Total non-
interest
income 2,643 2,824 4,538 5,467 6,989

Non-interest
expense:
Compensation
and employee
benefits 4,467 4,713 5,047 9,180 10,286
Net occupancy
expense 679 708 670 1,387 1,435
FDIC insurance
premiums and
regulatory
assessments 490 488 504 978 1,157
Furniture and
equipment
expense 468 457 454 925 917
Data processing 445 438 441 883 883
Marketing 322 404 270 726 457
Professional
fees 198 253 334 451 722
Other real
estate owned
related
expense, net 316 618 2,011 934 2,603
Loan collection
expense 119 118 233 237 353
Severance and
retirement
compensation
expense -- 876 -- 876 --
Other general
and
administrative
expenses 1,038 1,134 1,107 2,172 2,225
----------- ----------- ----------- ----------- -----------
Total non-
interest
expense 8,542 10,207 11,071 18,749 21,038
----------- ----------- ----------- ----------- -----------

Income before
income tax
expense 1,895 490 1,658 2,385 2,096
Income tax
expense 541 -- 425 541 391
----------- ----------- ----------- ----------- -----------

Net income $ 1,354 $ 490 $ 1,233 $ 1,844 $ 1,705
=========== =========== =========== =========== ===========

Basic earnings
per share $ .13 $ .05 $ .12 $ .17 $ .16
Diluted earnings
per share .13 .05 .11 .17 .16

Weighted-average
common and
common share
equivalents
outstanding:
Basic 10,750,313 10,697,892 10,691,424 10,724,103 10,671,196
Diluted 10,806,555 10,746,398 10,759,332 10,776,476 10,733,149



CFS BANCORP, INC.
Consolidated Statements of Condition (Unaudited)
(Dollars in thousands)

June 30, March 31, December 31, June 30,
2012 2012 2011 2011
----------- ----------- ------------ -----------

ASSETS
Cash and amounts due
from depository
institutions $ 33,846 $ 23,429 $ 32,982 $ 33,075
Interest-bearing
deposits 51,687 89,718 59,090 14,423
----------- ----------- ------------ -----------
Cash and cash
equivalents 85,533 113,147 92,072 47,498

Investment securities
available-for-sale, at
fair value 226,625 239,247 234,381 234,121
Investment securities
held-to-maturity, at
cost 13,965 15,911 16,371 14,837
Investment in Federal
Home Loan Bank stock,
at cost 6,188 6,188 6,188 8,638

Loans receivable, net of
unearned fees 713,596 706,938 711,226 737,516
Allowance for loan
losses (12,062) (11,768) (12,424) (17,039)
----------- ----------- ------------ -----------
Net loans 701,534 695,170 698,802 720,477

Loans held for sale 610 1,198 1,124 211
Investment in bank-owned
life insurance 36,435 36,273 36,275 35,880
Accrued interest
receivable 2,801 2,841 3,011 3,148
Other real estate owned 19,223 19,429 19,091 21,164
Office properties and
equipment 16,225 16,466 17,539 18,163
Net deferred tax assets 16,281 16,621 16,273 16,714
Prepaid expenses and
other assets 6,674 8,051 7,823 7,168
----------- ----------- ------------ -----------
Total assets $ 1,132,094 $ 1,170,542 $ 1,148,950 $ 1,128,019
=========== =========== ============ ===========

LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits $ 967,154 $ 1,004,441 $ 977,424 $ 964,527
Borrowed funds 51,306 51,935 54,200 38,835
Advance payments by
borrowers for taxes and
insurance 4,243 4,550 4,275 4,387
Other liabilities 4,794 6,281 9,803 4,104
----------- ----------- ------------ -----------
Total liabilities 1,027,497 1,067,207 1,045,702 1,011,853

Shareholders' equity:
Preferred stock, $0.01
par value; 15,000,000
shares authorized -- -- -- --
Common stock, $0.01
par value; 85,000,000
shares authorized;
23,423,306 shares
issued; 10,867,357,
10,877,788,
10,874,668, and
10,867,802 shares
outstanding 234 234 234 234
Additional paid-in
capital 187,379 186,995 187,030 187,133
Retained earnings 74,420 73,066 72,683 85,080
Treasury stock, at
cost; 12,555,949,
12,545,518,
12,548,638, and
12,555,504 shares (154,824) (154,735) (154,773) (154,877)
Accumulated other
comprehensive loss,
net of tax (2,612) (2,225) (1,926) (1,404)
----------- ----------- ------------ -----------
Total shareholders'
equity 104,597 103,335 103,248 116,166
----------- ----------- ------------ -----------
Total liabilities
and shareholders'
equity $ 1,132,094 $ 1,170,542 $ 1,148,950 $ 1,128,019
=========== =========== ============ ===========



CFS BANCORP, INC.
Selected Financial Data (Unaudited)
(Dollars in thousands, except per share data)

December
June 30, March 31, 31, June 30,
2012 2012 2011 2011
----------- ----------- ----------- -----------

Book value per share $ 9.62 $ 9.50 $ 9.49 $ 10.69
Tangible book value per
share 9.62 9.50 9.49 10.69
Shareholders' equity to
total assets 9.24% 8.83% 8.99% 10.30%
Tangible common
shareholders' equity to
total assets 9.24 8.83 8.99 10.30
Tier 1 core capital
ratio (Bank only) 8.56 8.11 8.26 9.17
Total risk-based capital
ratio (Bank only) 13.35 13.23 12.65 13.29
Common shares
outstanding 10,867,357 10,877,788 10,874,668 10,867,802
Employees (FTE) 261 273 303 315
Number of full service
banking centers 20 20 22 22

 

Three Months Ended Six Months Ended
---------------------------------- ----------------------
June 30, March 31, June 30, June 30, June 30,
2012 2012 2011 2012 2011
---------- ---------- ---------- ---------- ----------
Average Balance
Data:
Total assets $1,162,099 $1,159,197 $1,141,927 $1,160,644 $1,136,034
Loans
receivable,
net of
unearned fees 705,410 708,713 732,746 707,061 730,099
Investment
securities 252,698 258,882 267,984 255,789 253,607
Interest-
earning assets 1,052,039 1,045,778 1,026,940 1,048,907 1,019,726
Deposits 996,741 990,288 977,236 993,514 971,341
Interest-
bearing
deposits 890,814 888,643 877,295 889,728 873,560
Non-interest
bearing
deposits 105,927 101,645 99,941 103,786 97,781
Interest-
bearing
liabilities 941,398 941,803 915,785 941,599 912,729
Shareholders'
equity 103,827 104,285 115,767 104,052 114,585
Performance
Ratios
(annualized):
Return on
average assets .47% .17% .43% .32% .30%
Return on
average equity 5.25 1.89 4.27 3.56 3.00
Average yield
on interest-
earning assets 4.03 4.08 4.38 4.05 4.40
Average cost of
interest-
bearing
liabilities .68 .72 .89 .70 .93
Interest rate
spread 3.35 3.36 3.49 3.35 3.47
Net interest
margin 3.42 3.43 3.59 3.43 3.57
Non-interest
expense to
average assets 2.96 3.54 3.89 3.25 3.73
Efficiency
ratio (1) 75.71 90.10 81.69 82.92 86.43

Cash dividends
declared per
share $ -- $ .01 $ .01 $ .01 $ .02
Market price per
share of common
stock for the
period ended:
Close $ 4.98 $ 5.70 $ 5.37 $ 4.98 $ 5.37
High 5.96 6.29 5.90 6.29 5.90
Low 4.30 4.33 5.28 4.30 5.25

(1) The efficiency ratio is calculated by dividing non-interest expense by
the sum of net interest income and non-interest income, excluding net gain
on sales of investment securities.



CFS BANCORP, INC.
Reconciliation of Income Before Income Taxes to Pre-Tax, Pre-Provision
Earnings, as adjusted
(Unaudited)
(Dollars in thousands)

Three Months Ended
----------------------------------
June 30, March 31, June 30,
2012 2012 2011
---------- ---------- ----------
Income before income taxes $ 1,895 $ 490 $ 1,658
Provision for loan losses 1,150 1,050 996
---------- ---------- ----------
Pre-tax, pre-provision earnings 3,045 1,540 2,654

Add back (subtract):
Net gain on sale of investment
securities (305) (418) (173)
Net (gain) loss on sale of other real
estate owned (86) 47 (2,238)
Other real estate owned related
expense, net 316 618 2,011
Loan collection expense 119 118 233
Severance and retirement compensation
expense -- 876 --
---------- ---------- ----------
Pre-tax, pre-provision earnings, as
adjusted $ 3,089 $ 2,781 $ 2,487
========== ========== ==========

Pre-tax, pre-provision earnings, as
adjusted, to average assets
(annualized) 1.07% .96% .87%
========== ========== ==========


Six Months Ended
----------------------
June 30, June 30,
2012 2011
---------- ----------
Income before income taxes $ 2,385 $ 2,096
Provision for loan losses 2,200 1,899
---------- ----------
Pre-tax, pre-provision earnings 4,585 3,995

Add back (subtract):
Net gain on sale of investment securities (723) (692)
Net (gain) loss on sale of other real estate
owned (39) (2,233)
Other real estate owned related expense, net 934 2,603
Loan collection expense 237 353
Severance and retirement compensation expense 876 --
---------- ----------
Pre-tax, pre-provision earnings, as adjusted $ 5,870 $ 4,026
========== ==========

Pre-tax, pre-provision earnings, as adjusted, to
average assets (annualized) 1.02% .71%
========== ==========

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:
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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