EX-99.1 2 ex99-1.htm INVESTOR PRESENTATION, AUGUST 2011 ex99-1.htm
EXHIBIT 99.1
Investor Presentation
August 2011
 
 
 
FORWARD LOOKING STATEMENTS
2
This presentation contains certain forward-looking statements, as that term is defined in U.S.
federal securities laws. Generally, these statements relate to our business plans or strategies,
projections involving anticipated revenues, earnings, profitability, or other aspects of
operating results, or other future developments in our affairs or the industry in which we
conduct business. Forward-looking statements may be identified by reference to a future
period or periods or by the use of forward-looking terminology such as “anticipate,” “believe,”
“expect,” “intend,” “plan,” “estimate,” “would be,” “will,” “intend to,” “project,” or
similar expressions or the negative thereof, as well as statements that include future events,
tense or dates, or are not historical or current facts. 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 our current regulatory
capital and equity ratios, our ability to continue to diversify the loan portfolio, our efforts at
deepening client relationships, increasing our levels of core deposits, lowering our non-
performing asset levels, managing and reducing our credit-related costs, increasing our
revenue growth and levels of earning assets, the effects of general economic and competitive
conditions nationally and within our core market area, the sufficiency of the levels of provision
for the allowance for loan losses and amounts of charge-offs, 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, interest rate environment, and other factors including those set
forth in “Part I. Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended
December 31, 2010. Such forward-looking statements are not guarantees of future
performance. The Company does not intend to update these forward-looking statements to
reflect occurrences or unanticipated events or circumstances unless required to do so under
the federal securities laws.
 
 
 
Agenda
§ CFS Bancorp Overview
§ Strategic Growth & Diversification Plan
§ Outlook
3
 
 
 
CFS Bancorp Overview
 
 
 
CFS Bancorp Overview
§ Headquartered in Munster, IN
 — 22 full service branch locations in Northwest
 IN and South Suburban Chicago
 — CFS Bancorp formed in 1998
 — Citizens Financial Bank founded in 1934
§ $1.1B Total Assets at June 30, 2011
§ $738m Total Loans
§ $965m Total Deposits
 — 96% Deposit Funded
 — 59% Core Deposits
 — No Brokered Deposits
§ $116m Tangible Common Equity
 — 10.3% TCE Ratio
 — No Holding Company debt
 — No TruPS
 — No TARP
§ NASDAQ: CITZ
5
 
 
 
CFS Bancorp Overview
§ Ongoing
 — NPA remediation efforts
 — Sales culture with regional partnerships
 — Comprehensive performance & incentive programs
 — Focus on C&I, CRE-Owner Occupied, Multifamily
 offerings
 — Deposit acquisition and deleveraging
 — Capital management
§ Discontinued / Deemphasized
 — Commercial participations
 — Commercial construction & land development loans
6
 
 
 
Strategic Growth
& Diversification Plan
 
 
 
Strategic Growth & Diversification Plan
§ Board approved in late 2007
 — Implementation commenced in 2008
§ Four key long-term objectives
 — Reduce non-performing assets
 — Grow while diversifying by targeting small and mid-
 sized business owners for relationship banking
 opportunities
 — Expand and deepen the Company’s relationships with
 its clients
 — Align costs with anticipated future asset base
8
 
 
 
Investing in Talent to Drive Business Results
§ 40 new senior and middle managers installed since 2007
§ 4 of 5 Named Executive Officers new since 2007
9
 
 
 
Strategic Growth & Diversification Plan
§ Execution Status
 — We continue to execute the plan
 — Progress made on reducing non-performing assets
 — Loan portfolio diversification continues
 — Strong core deposit growth results achieved
 — Major investments in people and infrastructure
 complete
 — Performance management system fully
 implemented in the sales business units
 — Investor presentations conducted with current
 and prospective shareholders, and all employees
10
 
 
 
Goal = Top Quartile
Peer Group Financial Performance
11
Source: SNL Financial and CFS Bancorp, Inc.
Peer Group includes nationwide banks & thrifts with total assets between $1B and $3B.
MOST RECENT QUARTER PERFORMANCE RANKINGS
 
 
 
Strategic Growth & Diversification Plan
§ Reduce non-performing assets
§ Grow & diversify loan portfolio
§ Expand and deepen client relationships
§ Manage expenses
12
 
 
 
Reduce Non-Performing
Assets
 
 
 
Commercial Participations Drag
§ Commercial participations have created significant problems
 — Represent only 3% of gross loan portfolio
 — Account for 14% of all NPLs and 61% of OREO
 — 39% of participations are non-performing
 — Breakdown at 6/30/11 = $5.3 million CRE-NOO, $2.9 million Commercial CL&D
§ New purchases ceased in 2Q07 but impact lingers
14
 
 
 
Non-Performing Assets
15
 
 
 
Non-Performing Loans and OREO
16
 
 
 
Non-Performing Loans
§ Retail & Commercial direct originations have held up well
§ Never originated Subprime, Alt-A, or Option ARMs
17
 
 
 
Commercial Participation Loans
18
Commercial Construction and Land Loans
 
 
 
Reserve Position
§ Have conservatively applied ASC 310-10 (FAS 114) on NPLs
§ ALLL/NPL depressed due to written-down impaired loans in NPLs
 — $7.4 million of partial charge-offs on impaired collateral dependent loans
 — $8.0 of specific reserves on other NPLs in ALLL
§ OREO is carried at 53.5% of original loan value
19
 
 
 
Ongoing NPA Remediation
§ Proactive problem asset management
 — Weekly review of delinquencies by Asset Management
 Committee
 — Action plan review for all loans graded watch or worse
 — Impairment analysis prepared quarterly on all substandard
 loans > $750,000
 — Loan grade review for all loans 30-days+ past due
 — All performing past due loans reviewed
 — Monthly management reports prepared for Board of
 Directors
20
 
 
 
Ongoing NPA Remediation
§ Upgraded underwriting process & criteria
 — Hired new SVP-Senior Credit Officer in December 2007
 — Hired new VP-Credit Manager in July 2008
 — 4 new credit analysts added since December 2007
 — New Credit Policy implemented in early 2008
 — Developed new loan grading matrix utilizing objective
 attribute analysis in mid-2009
21
 
 
 
NPAs for Loans Originated Prior to 1/1/08
22
NPAs for Loans Originated After 1/1/08
Origination Volume for the period = $514.6 million
 
 
 
Grow While Diversifying
 
 
 
Growth Results in Targeted Segments
§ 46% increase in targeted growth segments since 12/31/07
 — C&I increased 39%
 — CRE-Owner Occupied increased 24%
 — Multifamily increased 102%
§ 7.2% annualized loan growth in 2nd quarter of 2011
24
 
 
 
Strategic Shift in Portfolio
§ 29% reduction in targeted shrinkage segments since 12/31/07
 — Commercial participation loans reduced 74%
 — Commercial construction & development loans (CLD) decreased 60%
25
 
 
 
Results of Commercial Loan Portfolio
Diversification Plan
§ Targeted aggressive growth segments (C&I, CRE
 Owner Occupied, and Multifamily) are up from 36% at
 12/31/07 to 53% of the portfolio at 6/30/11
§ Targeted shrinkage segments are down from 28% at
 12/31/07 to 9% of the portfolio at 6/30/11
§ Targeted moderate growth segment (CRE Non-Owner
 Occupied) has remained stable at approximately 37%
 of the portfolio
26
 
 
 
Expand and Deepen Relationships
 
 
 
Focus on Business Relationships
§ Business Banking Group reorganized to drive growth
 — New EVP Sales Management hired in 2008
 — 14 new Relationship Managers hired
 — Average banking industry experience of 20+ years
 — Expertise in C&I and Multifamily lending
§ Regional partnerships formed between Retail and
 Business Banking teams with shared goals and
 incentives
28
 
 
 
Performance Management Program
§ Power of Personal Performance (PoPP)
§ Primary focus on sales activities and behaviors
§ Utilization of balanced scorecards to track activities
§ Coaching sessions, check-ins, skill builders, and skip
 coaching
§ Improved outcomes, and client and employee
 satisfaction
 — Chicago Tribune Top Workplace - 2010
 — Northwest Indiana Times Best Workplace - 2010
 — Northwest Indiana Times Best Client Service by a
 Financial Institution - 2010
29
 
 
 
Focus on Business Relationships
§ Focus on small and medium-sized businesses
 — Aggressively grow C&I, multifamily, and owner
 occupied CRE relationships as a share of commercial
 loans
§ Increase business deposits to generate relationships
 and fund growth
§ IT platform provides competitive advantage in Cash
 Management opportunities
30
 
 
 
Focus on Business Relationships
§ Proactive prospecting
 — Feet on the street - experienced teams now in their
 markets
 — Trusted Advisor approach vs. transactional lending
 — Incentives are equally weighted between deposit
 gathering and loan production
31
 
 
 
Non-Municipal Business Deposits
32
 
 
 
Total Deposits
33
 
 
 
Total Borrowed Funds
34
 
 
 
Deposit Growth Reduces Reliance on
Wholesale Funding
35
 
 
 
Deposit Growth Reduces Reliance on
Wholesale Funding
36
 
 
 
Expanding & Deepening Client Relationships
Drive Improved NIM
§ NIM expansion driven by client relationships and deleveraging
 — Increase in core deposits
 — Increase in non-interest bearing deposits
 — Disciplined deposit and CD pricing
 — Reduced FHLB borrowings
37
 
 
 
Manage Expenses
 
 
 
Improve Efficiency Ratio
§ Overall FTE headcount reduced from 360 in 2006 to
 314 currently
§ Salary freeze throughout 2010, lifted in 2011
§ Reduce drag from NPAs ($50M x 5% = $2.5M), credit
 related costs ($1.75M), and too large investment
 portfolio ($50M x 2% = $1M)
§ Capacity for balance sheet growth based on current
 infrastructure, expense base, and capital
§ Construction of three new branches postponed
§ Ongoing efficiency review and initiatives
§ Review opportunities for additional ancillary fee
 income sources (e.g. mortgage banking, wealth
 management)
39
 
 
 
Non-Interest Expense Drivers
40
 
 
 
Non-Interest Expense Drivers (cont.)
41
 
 
 
Non-Interest Expense Drivers (cont.)
42
 
 
 
Non-Interest Expense Drivers (cont.)
43
($ in thousands)
 
 
 
 
 
 
 
 
For the year ended
 
 
 
 
 
2007
 
2010
 
Change
 
Total Non-Interest Expense
33,459
 
37,775
 
4,316
 
 
 
 
 
 
 
 
 
Less-Controllable Expenses:
 
 
 
 
 
 
 
Total Credit Related Costs
(507
)
(2,121
)
(1,614
)
 
Professional Fees
(1,284
)
(2,283
)
(999
)
 
FDIC Premiums & OTS Fees
(373
)
(2,551
)
(2,178
)
 
Total Less-Controllable Expenses
(2,164
)
(6,955
)
(4,791
)
 
 
 
 
 
 
 
 
Adjusted Non-Interest Expense
31,295
 
30,820 
 
(475
)
 
 
 
 
 
 
 
 
 
 
 
Path Forward
§ Continue execution of Strategic Growth &
 Diversification Plan
 — Focus on Northwest Indiana and South Suburban
 Chicago markets
§ Experienced senior management, sales, and credit
 teams in place
§ Improving reputation in our markets as Business
 Bankers
§ Ongoing banking consolidation provides growth
 opportunities
44
 
 
 
Investment Highlights
§ Business transformation well underway
 — New management team in place
 — Executing on Strategic Growth & Diversification Plan
 — Asset quality stabilizing
 — Improved net interest margin
§ Significant insider ownership aligned with shareholders
 — NEOs & Directors: 16.2%, including PL Capital (9.7%)
 — 401(k) Plan: 8.8%
§ Valuation opportunity
 — Substantial discount to tangible book value
45
 
 
 
Appendix
 
 
 
Financial Highlights
47
($ in millions)
 
2007
 
 
 
2008
 
 
 
2009
 
 
 
2010
 
 
 
3/31/11
 
 
 
6/30/11
 
Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
$
 1,150
 
 
$
 1,122
 
 
$
 1,082
 
 
$
 1,122
 
 
$
 1,144
 
 
$
 1,128
 
 
Total Loans
 
 793
 
 
 
 750
 
 
 
 762
 
 
 
 733
 
 
 
 724
 
 
 
 738
 
 
Deposits
 
 863
 
 
 
 824
 
 
 
 850
 
 
 
 946
 
 
 
 981
 
 
 
 965
 
 
Loans / Deposits
 
 92
%
 
 
 91
%
 
 
 90
%
 
 
 77
%
 
 
 74
%
 
 
 76
%
 
Total Equity
$
 130
 
 
$
 112
 
 
$
 110
 
 
$
 113
 
 
$
 114
 
 
$
 116
 
 
Tangible Equity
 
 129
 
 
 
 112
 
 
 
 110
 
 
 
 113
 
 
 
 114
 
 
 
 116
 
Capital
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity / Assets
 
 11.2
%
 
 
 10.0
%
 
 
 10.2
%
 
 
 10.2
%
 
 
 9.9
%
 
 
 10.3
%
 
Tier 1 Capital Ratio
 
 13.1
 
 
 
 12.0
 
 
 
 11.2
 
 
 
 12.3
 
 
 
 12.2
 
 
 
 12.2
 
 
Total Capital Ratio
 
 13.9
 
 
 
 13.2
 
 
 
 12.4
 
 
 
 13.3
 
 
 
 13.2
 
 
 
 13.3
 
Asset Quality
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NPLs / Total Loans
 
 3.7
%
 
 
 7.3
%
 
 
 7.7
%
 
 
 7.4
%
 
 
 8.2
%
 
 
 7.8
%
 
NPAs / total Assets
 
 2.7
 
 
 
 5.2
 
 
 
 6.3
 
 
 
 6.9
 
 
 
 7.3
 
 
 
 7.0
 
 
NCOs / Average Gross Loans (4)
 
 0.7
 
 
 
 2.5
 
 
 
 1.2
 
 
 
 0.8
 
 
 
 0.6
 
 
 
 0.6
 
 
ALL / Total Gross Loans
 
 1.0
 
 
 
 2.1
 
 
 
 2.6
 
 
 
 2.3
 
 
 
 2.4
 
 
 
 2.3
 
 
ALL / NPLs
 
 27.1
 
 
 
 28.4
 
 
 
 33.0
 
 
 
 31.5
 
 
 
 28.7
 
 
 
 29.8
 
 
Provision / Average Gross Loans (4)
 
 0.3
 
 
 
 3.5
 
 
 
 1.7
 
 
 
 0.5
 
 
 
 0.5
 
 
 
 0.5
 
 
Provision / NCOs
 
 42.4
 
 
 
 140.1
 
 
 
 144.9
 
 
 
 62.9
 
 
 
 91.5
 
 
 
 94.7
 
 
Texas Ratio (NPAs / (Equity + ALL))
 
 22.2
 
 
 
 45.5
 
 
 
 52.6
 
 
 
 59.0
 
 
 
 63.6
 
 
 
 58.8
 
Profitability
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Interest Margin
 
 3.0
%
 
 
 3.3
%
 
 
 3.7
%
 
 
 3.7
%
 
 
 3.6
%
 
 
 3.6
%
 
Non-Interest Income / Total Revenue (1)
 
 25.2
 
 
 
 13.9
 
 
 
 23.4
 
 
 
 20.1
 
 
 
 21.7
 
 
 
 33.1
 
 
Efficiency Ratio (2)
 
 74.2
 
 
 
 76.4
 
 
 
 81.9
 
 
 
 83.7
 
 
 
 92.4
 
 
 
 81.7
 
 
Reported Net Income
$
 7.5
 
 
$
 (11.3
)
 
$
 (0.5
)
 
$
3.5
 
 
$
0.5
 
 
$
 1.2
 
 
Earnings from Core Operations (PTPP) (3)
 
 12.7
%
 
 
 12.7
%
 
 
 13.3
%
 
 
 10.2
%
 
 
 1.5
%
 
 
 2.5
%
 
PTPP ROAE
$
 9.8
 
 
$
 10.0
 
 
$
 11.8
 
 
$
 9.0
 
 
$
 5.5
 
 
$
 8.6
 
 
PTPP ROAA
 
 1.1
 
 
 
 1.1
 
 
 
 1.2
 
 
 
 0.9
 
 
 
 0.6
 
 
 
 0.9
 
 
(1)
Total Revenue defined as Net Interest Income plus Non-Interest Income.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2)
Defined as Non-Interest Expense divided by the sum of Net Interest Income plus Non-Interest Income, excluding net gain
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
on sales of investment securities and impairment of investment securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3)
See Non-GAAP financial information on the following page.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(4)
Annualized, If applicable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Non-GAAP Metrics
48
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
Six months ended
 
 
2007
2008
2009
2010
 
6/30/10
6/30/11
 
6/30/10
6/30/11
Income (loss) before taxes
9,835
(19,968)
(2,805)
4,167
 
1,159
1,658
 
1,966
2,096
Provision for loan losses

2,328

26,296

12,588

3,877
 

817

996
 

2,527

1,899
 
 
 
 
 
 
 
 
 
 
 
 
Pre-tax, pre-provision earnings
 12,163
 6,328
 9,783
 8,044
 
 1,976
 2,654
 
 4,493
 3,995
 
 
 
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Net gain on sale of investments

(536)

(69)

(1,092)

(689)
 
 -

(173)
 

(456)

(692)
Net (gain) loss on sale of OREO

(22)

(30)

9

154
 

(11)

(2,238)
 

(12)

(2,233)
OREO related expenses

343

261

2,976

1,483
 

255

2,011
 

886

2,603
Loan collection expenses

164

655

1,077

638
 

153

233
 

322

353
Severance and early retirement expense

643
 -

37

545
 

437
 -
 

440
 -
FDIC - special assessment
 -
 -

495
 -
 
 -
 -
 
 -
 -
Impairment on investment securities
 -

4,334
 -
 -
 
 -
 -
 
 -
 -
Goodwill impairment
 -

1,185
 -
 -
 
 -
 -
 
 -
 -
 Total Adjustments:
592
6,336
3,502
2,131
 
834
(167)
 
1,180
31
 
 
 
 
 
 
 
 
 
 
 
Pre-tax, pre-provision earnings
from core operations

12,755

12,664

13,285

10,175
  

2,810

2,487
  

5,673

4,026