-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HCY0O2wP2zESaGaXpmL1fTiZ4femU21vimY+x2GnAVQLNjVVpHa8kgs0FKB4e4B5 OlsvYX1tRfeVud23wourtw== 0000950137-02-003067.txt : 20020515 0000950137-02-003067.hdr.sgml : 20020515 20020515113555 ACCESSION NUMBER: 0000950137-02-003067 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CFS BANCORP INC CENTRAL INDEX KEY: 0001058438 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 332042093 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24611 FILM NUMBER: 02649275 BUSINESS ADDRESS: STREET 1: 707 RIDGE ROAD CITY: MUNSTER STATE: IN ZIP: 46321 BUSINESS PHONE: 2198365500 MAIL ADDRESS: STREET 1: 707 RIDGE ROAD CITY: MUNSTER STATE: IN ZIP: 46321 10-Q 1 c69705e10-q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________. Commission file number: 0-24611 CFS Bancorp, Inc. (Exact name of registrant as specified in its charter) Delaware 35-2042093 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 707 Ridge Road, Munster, Indiana 46321 (Address of principal executive offices) (219) 836-5500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The Registrant had 13,384,548 shares of Common Stock issued and outstanding as of May 5, 2002. CFS BANCORP, INC. INDEX
Page No. -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition at March 31, 2002 and (Audited) December 31, 2001 3 Consolidated Statements of Income for the Three Months Ended March 31, 2002 and 2001 4 Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2002 5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001 6 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20
2 CFS BANCORP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands)
March 31, 2002 December 31, 2001 -------------- ----------------- (Unaudited) ----------- ASSETS Cash and amounts due from depository institutions $ 19,568 $ 28,250 Interest-bearing deposits 139,045 137,978 Federal funds sold 94,458 105,839 ----------- ----------- Cash and cash equivalents 253,071 272,067 Investment securities available-for-sale 48,217 47,225 Mortgage-backed securities available-for-sale 279,953 276,158 Mortgage-backed securities held-to-maturity (fair value 2002 - $32,777; 2001 - $37,744) 32,700 37,034 Loans receivable, net 881,188 883,352 Investment in Federal Home Loan Bank stock, at cost 26,165 26,165 Office properties and equipment 14,775 14,983 Accrued interest receivable 7,521 6,887 Real estate owned 1,416 1,128 Investment in bank-owned life insurance 30,400 30,052 Prepaid expenses and other assets 7,815 9,083 ----------- ----------- Total assets $ 1,583,221 $ 1,604,134 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $ 929,850 $ 945,948 Borrowed money 462,630 462,658 Advance payments by borrowers for taxes and insurance 5,733 4,497 Other liabilities 17,717 19,747 ----------- ----------- Total liabilities 1,415,930 1,432,850 ----------- ----------- Stockholders' Equity: Preferred stock, $.01 par value: Authorized shares - 15,000,000 Issued and outstanding shares - 0 at March 31, 2002 and December 31, 2001 Common stock, $.01 par value: Authorized shares - 85,000,000 Issued shares - 23,423,306 at March 31, 2002 and December 31, 2001 Outstanding shares - 13,401,696 and 13,626,146 at March 31, 2002 and December 31, 2001, respectively 234 234 Additional paid-in capital 189,547 189,547 Retained earnings, substantially restricted 105,431 105,064 Treasury stock, at cost: 10,021,610 and 9,797,160 shares at March 31, 2002, and December 31, 2001, respectively (115,297) (112,167) Unearned common stock acquired by ESOP (9,570) (9,570) Unearned common stock acquired by RRP (4,543) (4,543) Accumulated other comprehensive income, net of tax 1,489 2,719 ----------- ----------- Total stockholders' equity 167,291 171,284 ----------- ----------- Total liabilities and stockholders' equity $ 1,583,221 $ 1,604,134 =========== ===========
See accompanying notes 3 CFS BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) (Unaudited) Three Months Ended March 31, ---------------------------- 2002 2001 ---- ---- Interest income: Loans $ 15,588 $ 19,251 Mortgage-backed securities 4,666 5,970 Other investment securities 333 3,294 Other 1,391 1,231 ----------- ----------- Total interest income 21,978 29,746 Interest expense: Deposits 7,215 10,896 Borrowings 6,798 7,667 ----------- ----------- Total interest expense 14,013 18,563 ----------- ----------- Net interest income before provision for losses on loans 7,965 11,183 Provision for losses on loans 200 450 ----------- ----------- Net interest income after provision for losses on loans 7,765 10,733 Non-interest income: Loan fees 405 361 Fees on deposit accounts 538 489 Insurance commissions 288 232 Investment commissions 262 245 Net gain on sale of investment securities 247 139 Income from bank owned life insurance 348 388 Other income 158 157 ----------- ----------- Total non-interest income 2,246 2,011 Non-interest expense: Compensation and employee benefits 4,996 4,781 Net occupancy expense 595 704 Furniture and equipment expense 462 538 Data processing 352 322 Federal insurance premiums 44 46 Marketing 158 147 Other general and administrative expenses 1,179 1,227 ----------- ----------- Total non-interest expense 7,786 7,765 ----------- ----------- Income before income taxes 2,225 4,979 Income tax expense 661 1,656 ----------- ----------- Net income $ 1,564 $ 3,323 =========== =========== Per share data: Basic earnings per share $ 0.13 $ 0.22 Diluted earnings per share 0.12 0.22 Cash dividends declared per share 0.10 0.09 Weighted average shares outstanding 12,175,537 14,971,854 Weighted average diluted shares outstanding 12,670,862 15,199,649 See accompanying notes 4 CFS BANCORP, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands) (Unaudited)
Unearned Unearned Common Common Accumulated Additional Stock Stock Other Common Paid-In Retained Treasury Acquired Acquired Comprehensive Stock Capital Earnings Stock by ESOP by RRP Income (Loss) Total ----- ------- -------- ----- ------- ------ ------------- ----- Balance January 1, 2002 $ 234 $189,547 $105,064 ($112,167) ($9,570) ($4,543) $ 2,719 $171,284 Net income -- -- 1,564 -- -- -- -- 1,564 Other comprehensive income, net of tax: Change in unrealized appreciation on available-for-sale securities, net of reclassification adjustment -- -- -- -- -- -- (1,230) (1,230) -------- Total comprehensive income 334 Purchase of treasury stock -- -- -- (3,410) -- -- -- (3,410) Exercise of stock options -- -- -- 280 -- -- -- 280 Dividends declared on common stock -- -- (1,197) -- -- -- -- (1,197) --------------------------------------------------------------------------------------- Balance March 31, 2002 $ 234 $189,547 $105,431 ($115,297) ($9,507) ($4,543) $ 1,489 $167,291 ====== ======== ======== ========= ======= ======= ======= ========
See accompanying notes 5 CFS BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Three Months Ended March 31, ---------------------------- 2002 2001 ---- ---- Operating activities: Net income $ 1,564 $ 3,323 Adjustments to reconcile net income to net cash provided by operating activities: Provision for losses on loans 200 450 Depreciation expense 471 507 Deferred income taxes (benefit) 813 (1,205) Change in deferred income 349 140 (Increase) decrease in interest receivable (634) 103 Decrease in accrued interest payable (98) (516) Proceeds from sale of loans held for sale 4,133 1,558 Origination of loans held for sale (2,889) (1,249) Net gain on sale of available for sale securities (247) (139) Decrease in prepaid expenses and other assets 843 2,989 Decrease in other liabilities (2,176) (2,065) --------- --------- Net cash provided by operating activities 2,329 3,896 --------- --------- Investing activities: Available for sale investment securities: Purchases (110,115) (31,285) Repayments 108,442 750 Sales 834 2,811 Held to maturity investment securities: Repayments and maturities -- 50,000 Available for sale mortgage-related securities: Purchases (41,861) (9,099) Repayments 36,229 6,964 Sales -- 14,158 Held to maturity mortgage-related securities: Repayments 4,298 6,166 Purchase of Federal Home Loan Bank stock (10) (56) Redemption of FHLB stock 10 56 Loan originations and principal payments on loans - net (213) 22,500 Additional costs on real estate owned (54) (50) Proceeds from sale of real estate owned 350 545 Purchases of property and equipment (542) (244) Disposal of property and equipment 279 -- --------- --------- Net cash provided by (used in) investing activities (2,353) 63,216 --------- ---------
6 CFS BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Dollars in thousands) (Unaudited)
Three Months Ended March 31, ---------------------------- 2002 2001 ---- ---- Financing activities: Proceeds from exercise of stock options 280 233 Dividends paid on common stock (1,050) (1,383) Purchase of treasury stock (3,410) (5,367) Net increase in NOW, passbook and money market accounts 33,120 7,817 Net increase (decrease) in certificates of deposit (49,120) 28,337 Net increase in advance payments by borrowers for taxes and insurance 1,236 1,569 Net decrease in borrowed funds (28) (42,951) --------- --------- Net cash flows used by financing activities (18,972) (11,745) --------- --------- Increase (decrease) in cash and cash equivalents (18,996) 55,367 Cash and cash equivalents at beginning of period 272,067 59,256 --------- --------- Cash and cash equivalents at end of period $ 253,071 $ 114,623 ========= =========
See accompanying notes 7 CFS BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF FINANCIAL STATEMENTS PRESENTATION The accompanying consolidated financial statements were prepared in accordance with instructions to Form 10-Q and therefore do not include all the information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, all normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of financial statements have been included. These financial statements should be read in conjunction with the audited financial statements and the notes thereto for the period ended December 31, 2001 contained in the CFS Bancorp, Inc. (the "Company") annual report to the stockholders. The results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. 2. LOAN PORTFOLIO The Company's loan portfolio consisted of the following at the dates indicated:
March 31, 2002 December 31, 2001 -------------- ----------------- (Dollars in thousands) Amount % Amount % ------ ----- ------ ----- Mortgage loans: Single-family residential $ 497,943 56.01% $ 535,197 60.07% Multi-family residential 72,337 8.14 51,635 5.80 Commercial real estate 157,350 17.70 142,663 16.01 Construction and land development: Single-family residential 15,678 1.76 17,208 1.93 Multi-family residential 28,705 3.23 26,443 2.97 Commercial and land development 71,039 7.99 76,168 8.55 Home equity 42,796 4.81 41,416 4.65 --------------------- -------------------------- Total mortgage loans 885,848 99.64 890,730 99.98 Other loans: Commercial 27,171 3.06 23,996 2.69 Consumer 2,146 .24 2,066 .23 Undisbursed portion of loan proceeds (24,429) (2.75) (24,454) (2.75) Deferred loan fees (1,674) (.19) (1,324) (.15) --------------------- -------------------------- Total loans receivable 889,062 100.00% 891,014 100.00% --------------------- -------------------------- Less: Allowance for losses on loans 7,874 7,662 --------- --------- Loans receivable, net $ 881,188 $ 883,352 ========= =========
8 3. INVESTMENT SECURITIES Amortized cost of investment securities and their fair values were as follows (in thousands): Available-for-Sale at March 31, 2002:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Callable agency securities, corporate bonds, and commercial paper $36,597 $ 10 $ 82 $36,525 Trust preferred securities 4,929 -- 566 4,363 Equity securities 6,372 632 518 6,486 Money Market account -- -- -- -- Asset-backed notes 840 3 -- 843 ------- ---- ------ ------- $48,738 $645 $1,166 $48,217 ======= ==== ====== =======
Available-for-Sale at December 31, 2001:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Callable agency securities, corporate bonds and commercial paper $33,169 $ 12 $ 33 $33,148 Trust preferred securities 4,929 -- 534 4,395 Equity securities 7,489 611 454 7,646 Asset-backed notes 2,026 10 -- 2,036 ------- ---- ------ ------- $47,613 $633 $1,021 $47,225 ======= ==== ====== =======
9 4. MORTGAGE-BACKED SECURITIES The amortized cost of mortgage-backed securities and their fair values are as follows (in thousands): Available-for-Sale at March 31, 2002:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Participation certificates $ 60,701 $1,016 $ 1 $ 61,716 Real estate mortgage investment conduits and collateralized mortgage obligations 216,369 2,230 362 218,237 -------- ------ ---- -------- $277,070 $3,246 $363 $279,953 ======== ====== ==== ========
Available-for-Sale at December 31, 2001:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Participation certificates $ 32,089 $1,215 $ 79 $ 33,225 Real estate mortgage investment conduits and collateralized mortgage obligations 239,776 3,438 282 242,933 -------- ------ ---- -------- $271,865 $4,653 $361 $276,158 ======== ====== ==== ========
Held-to-Maturity at March 31, 2002:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Participation certificates $ 27,710 $ 196 $ 63 $ 27,843 Real estate mortgage investment conduits and collateralized mortgage obligations 4,990 15 71 4,934 -------- ------ ---- -------- $ 32,700 $ 211 $134 $ 32,777 ======== ====== ==== ========
Held-to-Maturity at December 31, 2001:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Participation certificates $28,644 $659 $69 $29,234 Real estate mortgage investment conduits and collateralized mortgage obligations 8,390 125 5 8,510 ----- --- - ----- $37,034 $784 $74 $37,744 ======= ==== === =======
10 5. DEPOSITS The following table sets forth the dollar amount of deposits and the percentage of total deposits in various types of deposits offered by the Bank at the dates indicated. March 31, 2002 December 31, 2001 -------------- ----------------- Amount Percentage Amount Percentage ------ ---------- ------ ---------- (Dollars in thousands) NOW accounts: Noninterest-bearing $ 28,696 3.09% $ 26,970 2.85% Interest-bearing 85,865 9.24 81,217 8.59 Money market accounts 100,707 10.83 89,205 9.44 Saving accounts 218,408 23.50 203,165 21.49 Certificates of deposit: $100,000 or less 383,987 41.31 416,675 44.07 Over $100,000 111,781 12.03 128,212 13.56 -------- ------ -------- ------ Deposits $929,444 100.00% $945,444 100.00% Accrued interest 406 504 -------- -------- Total $929,850 $945,948 ======== ======== 6. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangibles Assets, (collectively the "Statements") effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other identified intangible assets will continue to be amortized over the useful lives. The Company applied the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the non-amortization provisions of the Statement did not result in any changes to reported earnings since the Company currently has no goodwill. FASB Statement No. 144, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," (FAS No. 144) was issued in October 2001 and addresses how and when to measure impairment on long-lived assets and how to account for long-lived assets that an entity plans to dispose of either through sale, abandonment, exchange, or distribution to owners. The new provisions supersede FAS No. 121, which addressed asset impairment, and certain provisions of APB Opinion 30 related to reporting the effects of the disposal of a business segment and requires expected future operating losses from discontinued operations to be recorded in the period in which the losses are incurred rather than the measurement date. Under FAS No. 144, more dispositions may qualify for discontinued operations treatment in the income statement. The provisions of FAS No. 144 became effective for the Company on January 1, 2002, and did not have an impact on the Company's financial position or results of operations. 11 7. EARNINGS PER SHARE Set forth below is information with respect to calculation of basic and diluted earnings per share for the periods indicated.
Three Months Ended -------------------------------- March 31, 2002 March 31, 2001 -------------- -------------- (Dollars in thousands, except per share data) Net income $ 1,564 $ 3,323 Weighted average number of common shares outstanding 13,550,226 16,606,667 Average ESOP shares not committed to be released (942,039) (1,061,663) Average RRP shares not vested (432,650) (573,150) ------------ ------------ Weighted average number of shares outstanding for basic earnings per share computation purposes 12,175,537 14,971,854 Dilutive effects of employee stock options 495,325 227,795 ------------ ------------ Weighted average shares and common share equivalents outstanding for diluted earnings per share purposes 12,670,862 15,199,649 ============ ============ Basic earnings per share $ 0.13 $ 0.22 Diluted earnings per share $ 0.12 $ 0.22
8. COMPREHENSIVE INCOME Comprehensive income is the total of reported net income and all other revenues, expenses, gains and losses that under generally accepted accounting principles are not includable in reported net income but are reflected in stockholders' equity. The following table presents the Company's comprehensive income: Three Months Ended ------------------------------------ March 31, 2002 March 31, 2001 -------------- -------------- (Dollars in thousands) Net income $ 1,564 $ 3,323 Net change in unrealized gain (loss) on securities available-for-sale, net (1,230) 4,148 ------- ------- Comprehensive income $ 334 $ 7,471 ======= ======= 12 9. NON-PERFORMING ASSETS The following table sets forth information with respect to non-performing assets at the dates indicated:
March 31, 2002 December 31, 2001 -------------- ----------------- (Dollars in thousands) Non-accrual loans: Mortgage loans: Construction and land development $ 1,149 $ 1,361 Single-family residential 6,990 8,579 Multi-family residential 60 36 Non-residential 3,591 1,798 Home equity 378 692 ------- ------- Other loans: Commercial 1,107 1,117 Consumer 296 291 ------- ------- Total non-performing loans 13,571 13,874 Real estate owned 1,416 1,128 ------- ------- Total non-performing assets $14,987 $15,002 ======= ======= Non-performing assets to total assets 0.95% 0.86% Non-performing loans to total loans 1.53 1.56
The following table is a summary of changes in the allowance for loan losses for the three months ended March 31, 2002 and the year ended December 31, 2001:
Three Months Ended Year Ended Three Months Ended March 31, 2002 December 31, 2001 March 31, 2001 -------------- ----------------- -------------- (Dollars in thousands) Balance at beginning of period $ 7,662 $ 7,187 $ 7,187 Provision for loan losses 200 1,150 450 Charge-offs (10) (855) (228) Recoveries 22 180 13 ------- ------- ------- Balance at end of period $ 7,874 $ 7,662 $ 7,422 ======= ======= ======= Allowance for loan losses to total non-performing loans at of period 58.02% 55.23% 81.66% Allowance for loan losses to total loans 0.89 0.86 0.73 at end of period
13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated" and "potential." Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations, pricing, products and services. CHANGES IN FINANCIAL CONDITION Total assets were $1.6 billion at both March 31, 2002 and December 31, 2001 while total liabilities were $1.4 billion at both dates. Stockholders' equity was $167.3 million at March 31, 2002 compared to $171.3 million at December 31, 2001. Cash and cash equivalents decreased to $253.1 million at March 31, 2001 from $272.1 million at December 31, 2001. This decrease was used primarily to fund certificate of deposit withdrawals during the first quarter of 2002. Investment securities available-for-sale were $48.2 million at March 31, 2002 compared to $47.2 million at December 31, 2001. Mortgage-backed securities available-for-sale were $280.0 million at March 31, 2002 compared to $276.2 million at December 31, 2001, while mortgage-backed securities held-to-maturity were $32.7 million at March 31, 2002 compared to $37.0 million at December 31, 2001. Loans receivable were $881.2 million at March 31, 2002 compared to $883.4 million at December 31, 2001. While the balance remained relatively unchanged, there was a shift in the composition of the loan portfolio. There was a reduction of $37.3 million in single-family residential mortgage loans that was redeployed into multi-family residential and commercial real estate mortgage loans as the Company continued to implement its business strategy. Deposits were $929.9 million at March 31, 2002 compared to $945.9 million at December 31, 2001. The reduction of $16.0 million was the result of a $49.1 million reduction in certificates of deposit being partially offset by a $33.1 million increase in core deposits. Borrowed money was $462.6 million at March 31, 2002 compared to $462.7 million at December 31, 2001. Stockholders' equity was $167.3 million at March 31, 2002 compared to $171.3 million at December 31, 2001. This $4.0 million reduction was the result primarily of a $3.1 million increase in treasury stock due the repurchase by the Company of 253,000 shares of its common stock and the $1.2 million reduction in accumulated other comprehensive income during the first quarter of 2002 due to declines in unrealized gains on securities available for sale. 14 AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. Information is based on average daily balances.
Three Months Ended March 31, ------------------------------------------------------------------------ 2002 2001 ------------------------------------------------------------------------ (Dollars in thousands) Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ------------------------------------------------------------------------ Interest - earning assets: Loans Receivable (1) Real estate loans $ 862,877 $15,194 7.04% $ 974,710 $18,794 7.71% Other loans 27,341 394 5.76 19,211 457 9.52 --------------------- --------------------- Total loans 890,218 15,588 7.00 993,921 19,251 7.75 Securities (2) 359,433 4,999 5.56 540,661 9,264 6.85 Other interest-earning assets (3) 265,347 1,391 2.10 82,944 1,231 5.94 --------------------- --------------------- Total interest-earning assets 1,514,998 21,978 5.80 1,617,526 29,746 7.36 Non-interest earning assets 89,748 82,459 ---------- ---------- Total assets $1,604,746 $1,699,985 ========== ========== Interest-bearing liabilities: Deposits: NOW and money market accounts $ 178,217 $ 675 1.52% $ 130,336 $ 803 2.46% Passbook accounts 210,898 775 1.47 206,320 1,394 2.70 Certificates of deposit 518,904 5,765 4.44 579,475 8,699 6.00 --------------------- --------------------- Total deposits 908,019 7,215 3.18 916,131 10,896 4.76 Total borrowings 462,635 6,798 5.88 520,967 7,667 5.89 --------------------- --------------------- Total interest-bearing liabilities 1,370,654 14,013 4.09 1,437,098 18,563 5.17 Non-interest bearing liabilities (4) 63,343 63,209 ---------- ---------- Total liabilities 1,433,997 1,500,307 Net worth 170,749 199,678 ---------- ---------- Total liabilities and stockholders' equity $1,604,746 $1,699,985 ========== ========== Net interest-earning assets $ 144,344 $ 180,428 ========== ========== Net interest income/interest rate spread $ 7,965 1.71% $11,183 2.19% ================= ================== Net interest margin 2.10% 2.77% ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities 110.53% 112.56% ====== ======
(1) The average balance of loans receivable includes non-performing loans, interest on which is recognized on a cash basis. (2) Average balances of securities available for sale are based on historical costs. (3) Includes money market accounts, federal funds sold and interest-earning bank deposits. (4) Consists primarily of demand deposit accounts. 15 RATE /VOLUME ANALYSIS The following table sets forth the effects of changing rates and volumes on net interest income of the Company. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (changes in rate multiplied by changes in volume).
Three Months Ended March 31, 2002 compared to 2001 ----------------------------------------------- (Dollars in thousands) Increase (decrease) due to ----------------------------------------------- Total Net Rate/ Increase Rate Volume Volume (Decrease) ----------------------------------------------- Interest-earning assets: Loans receivable: Real estate loans ($1,631) ($2,156) $ 187 ($3,600) Other loans (180) 193 (76) (63) ----------------------------------------------- (1,811) (1,963) 111 (3,663) Securities (1,745) (3,105) 585 (4,265) Other interest-earning assets (796) 2,707 (1,751) 160 ----------------------------------------------- Total net change in income on interest-earning assets (4,352) (2,361) (1,055) (7,768) Interest-bearing liabilities: Deposits: NOW and money markets accounts (309) 295 (114) (128) Passbook accounts (636) 31 (14) (619) Certificates of deposit (2,261) (909) 236 (2,934) ----------------------------------------------- Total deposits (3,206) (583) 108 (3,681) Borrowings (12) (858) 1 (869) ----------------------------------------------- Total net change in expense on interest-bearing liabilities (3,218) (1,441) 109 (4,550) ----------------------------------------------- Net change in net interest income ($1,134) ($ 920) ($1,164) ($3,218) ===============================================
16 RESULTS OF OPERATIONS The Company reported net income of $1.6 million or $0.12 per diluted share for the three months ended March 31, 2002 compared to $3.3 million or $0.22 per diluted share for the three months ended March 31, 2001. Net interest income for the first quarter of 2002 was $8.0 million compared to $11.2 million for the same period in 2001. The decrease in net interest income primarily reflects the compression of interest rate spreads (from 2.19 percent to 1.71 percent) and net interest margin (from 2.77 percent to 2.10 percent) between the first quarter of 2001 and the first quarter of 2002 due primarily to declines in the weighted average yields on interest-earning assets The Company's total interest income was $22.0 million and $29.7 million for the three months ended March 31, 2002 and 2001, respectively. The average balance of net loans outstanding decreased substantially from the first quarter of 2001 to the first quarter of 2002. This decrease in the average balance of net loans outstanding of $103.7 million was accompanied by a decrease of 75 basis points in the yields earned on these loans. Similarly, the average balance of securities decreased by $181.2 million and the average yield earned on these securities decreased by 129 basis points comparing the first quarter of 2001 to the first quarter of 2002. Interest income from other interest-earning assets provided a modest offset of $160,000 to this decline as the average balances of other interest-earning assets increased by $182.4 million while the yield earned on these assets decreased by 384 basis points from the first quarter of 2001 to the first quarter of 2002. Interest expense was $14.0 million and $18.6 million for the three months ended March 31, 2002 and 2001, respectively. This decrease of $4.6 million was the result primarily of a 158 basis point decline in the average cost of deposits when comparing the first quarter of 2001 to the first quarter of 2002. A $8.1 million decrease in the average balance of deposits combined with a $58.3 million decrease in the average balances of borrowings also contributed to this decrease. The Company's provision for loan losses for the three months ended March 31, 2002 was $200,000 compared to $450,000 for the same period in 2001. The Company continued to increase its allowance for losses on loans as a percentage of total loans. The Company believes this to be prudent based on both the economic climate and the Company's strategy of increasing the ratio of multi-family and commercial real estate mortgage loans and commercial loans to total loans. Non-interest income for the three months ended March 31, 2002 was $2.2 million compared to $2.0 million for the same period in 2001. Income from loan fees, insurance commissions, investment commissions and fees on deposit accounts all increased when comparing the first quarter of 2002 to the first quarter of 2001. Fee income from bank-owned life insurance declined during this same period reflecting the lower interest rate environment existing during the first quarter of 2002 when compared to the same period in 2001. Non-interest expense was $7.8 million for both the three months ended March 31, 2002 and 2001. Reductions in occupancy, furniture and fixture expense and consulting fees were offset by increases in compensation and employee benefit expenses, resulting from increased pension and ESOP expense. After being fully funded for several years, funding was resumed for the pension plan year ending June 30, 2002. As a result, pension expense of $219,000 was recorded in the first quarter of 2002 while there was no pension expense recorded during the first quarter of 2001. ESOP expense is required to be recorded based on the number of shares to be allocated for the year to participants in the plan multiplied by the average share price of the Company's common stock for the period. This resulted in ESOP expense for the three months ended March 31, 2002 of $405,000 compared to $323,000 for the 17 three months ended March 31, 2001 due to increases in the market price of the Company's common stock. Income tax expense was $661,000 for the three months ended March 31, 2002 compared to $1.7 million for the same period in 2001. This decrease was primarily due to reduced income in the first quarter of 2002 compared to the first quarter of 2001, combined with a reduction in the effective tax rate (29.7%) in the first quarter of 2002 compared to the effective tax rate (33.3%) in the first quarter of 2001 reflecting the implementation of certain tax strategies. LIQUIDITY AND COMMITMENTS The Company's liquidity, represented by cash and cash equivalents, is a product of its operating, investing, and financing activities. The Company's primary sources of funds are deposits, borrowings, amortization prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-related securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates. In addition, the Company invests excess funds in federal funds sold and other short-term interest earning assets which provide liquidity to meet lending requirements. Liquidity management is both a daily and long term function of business management. Excess liquidity is generally invested in short-term investments such as federal funds. The Company uses its sources of funds primarily to meet its ongoing commitments, pay maturing certificates of deposit and savings withdrawals, fund loan commitments and maintain a portfolio of mortgage-backed and mortgage-related securities and investment securities. At March 31, 2002 the total approved investment and loan origination commitments outstanding amounted to $106.4 million. At the same date, the unadvanced portion of construction loans amounted to $24.4 million. Investment securities scheduled to mature in one year or less at March 31, 2002 were $5.7 million. Based on historical experience, the Company believes that a significant portion of maturing deposits will remain with the Company. The Company anticipates that it will continue to have sufficient funds, together with borrowings, to meet its current commitments. At March 31, 2002 the Bank's regulatory capital was significantly in excess of regulatory limits set by the Office of Thrift Supervision. The current requirements and the Bank's actual levels at March 31, 2002 are set forth below (dollars in thousands):
Required Capital Actual Capital Excess Capital ---------------- -------------- -------------- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- Tangible capital $23,389 1.50% $132,803 8.52% $109,414 7.02% Core capital 62,372 4.00 132,803 8.52 70,431 4.52 Risk-based capital 73,552 8.00 140,677 15.30 67,125 7.30
18 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK For a discussion of the Company's asset and liability management policies as well as the potential impact of interest rate changes upon the market value of the Company's portfolio equity, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's annual report to stockholders for the year ended December 31, 2001. There has been no material change in the Company's assets and liability position or the market value of the Company's portfolio equity since December 31, 2001. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable ITEM 2. USE OF PROCEEDS FROM REGISTERED SECURITIES Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) An annual meeting of stockholders of the Company was held on April 30, 2002 ("Annual Meeting"). (b) Not applicable. (c) There were 13,465,646 shares of Common Stock of the Company eligible to be voted at the Annual Meeting, and 11,888,367 shares were represented at the meeting by the holders thereof, which constituted a quorum. The items voted upon at the Annual Meeting and the vote for each proposal were as follows: (1) Election of directors for a three-year term. Sally A. Abbott FOR 10,699,804 WITHHELD 1,188,563 ---------- --------- Gregory W. Blaine FOR 10,831,923 WITHHELD 1,056,444 ---------- --------- Thomas J. Burns FOR 10,722,020 WITHHELD 1,166,347 ---------- --------- (2) To ratify the appointment by the Board of Directors of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending December 31, 2002. FOR 11,338,133 AGAINST 360,979 ABSTAIN 189,254 ---------- ------- ------- (d) Not applicable. 19 ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits (filed herewith unless otherwise noted) 3.1 Certificate of Incorporation of CFS Bancorp, Inc.* 3.2 Bylaws of CFS Bancorp, Inc.* 4.0 Form of Stock Certificate of CFS Bancorp, Inc.* 10.1 Form of Employment Agreement entered into between Citizens Financial Services, FSB and each of Thomas F. Prisby, James W. Prisby and John T. Stephens* 10.2 Form of Employment Agreement entered into between CFS Bancorp, Inc. and each of Thomas F. Prisby, James W. Prisby and John T. Stephens* 10.5 CFS Bancorp, Inc. Amended and Restated 1998 Stock Option Plan** 10.6 CFS Bancorp, Inc. Amended and Restated 1998 Recognition and Retention Plan and Trust Agreement** - ------------ * Incorporated by Reference from the Company's Registration Statement on Form S-1 filed on March 26, 1998, as amended and declared effective on May 14, 1998. ** Incorporated by Reference from the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders filed on March 23, 2001. SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CFS BANCORP, INC. Date: May 14, 2002 By: /s/ THOMAS F. PRISBY --------------------------------------------------- Thomas F. Prisby, Chairman and Chief Executive Officer Date: May 14, 2002 By: /s/ JOHN T. STEPHENS --------------------------------------------------- John T. Stephens, Executive Vice President and Chief Financial Officer 20 -----END PRIVACY-ENHANCED MESSAGE-----