EX-99.1 2 pr.txt PRESS RELEASE Exhibit 99.1 [CFS Bancorp, Inc. Letterhead] July 22, 2004 FOR IMMEDIATE RELEASE CONTACT: Thomas F. Prisby, Chairman of the Board and Chief Executive Officer 219-836-5500 CFS Bancorp, Inc. Announces Second Quarter 2004 Financial Results MUNSTER, IN - July 22, 2004 - CFS Bancorp, Inc. (NASDAQ: CITZ) (the "Company") today reported a net loss for the second quarter of 2004 of $357,000 as compared to net income of $698,000 reported in the second quarter of 2003. The Company's net loss for the second quarter primarily resulted from: * a $1.9 million provision for losses on loans for the second quarter of 2004 as compared to $509,000 for the same period in 2003, * legal expenses of $939,000 related to the Company's goodwill litigation against the U.S. Government, and * a $343,000 write-down in the cost basis of a trust preferred security deemed to be impaired during the second quarter of 2004. Partially offsetting these expenses, the Company's net interest income for the second quarter of 2004 increased to $7.4 million from $6.5 million (or 13.6%). The annualized net interest margin increased 18.5% for the second quarter of 2004 to 2.05% from 1.73% for the second quarter of 2003. Although the Company experienced a substantial improvement in its net interest margin, the margin continues to be negatively impacted by the Company's fixed-rate Federal Home Loan Bank borrowings. The Company continues to explore the possibility of refinancing these borrowings at current market rates. For the six months ended June 30, 2004, net income was $887,000 compared to $1.4 million for the same period last year, representing a decrease of 34.4%. Diluted earnings per share were $0.07 for the first six months of 2004, a decrease of 41.7% from diluted earnings per share of $0.12 for the comparable period last year. The return on average assets for the six month period was 0.12% as compared to 0.17% for the same period in the prior year. For the six months ended June 30, 2004, the return on average equity was 1.13% compared to 1.74% for the six months ended June 30, 2003. However, for the 2004 period, the net interest margin was 2.02%, up from 1.77% for the same period in 2003. Chairman's Comments "The second quarter results include an increase in net interest margin which is reflective of the shift in our asset mix to higher yielding loans and other adjustable-rate assets and an increase in our core deposit balances which has driven down interest expense," said Thomas F. Prisby, Chairman and CEO. "While the second quarter was significantly impacted by items including legal expenses incurred during the trial period of our goodwill litigation, the higher provisions and the write-down in the cost basis of -More- CFS Bancorp, Inc. - Page 2 of 8 one available-for-sale trust preferred security, we remain focused on increasing net interest margin. Furthermore, we are excited about the opportunities presented in what we believe is a rising rate environment. During the second quarter, we have increased our average core deposits by over 5% while remaining focused on building a well positioned balance sheet which should continue to improve our net interest margin and our net income in the coming quarters." Mr. Prisby continued, "Our strategy for branch expansion continues with the planned third quarter 2004 opening of a new branch in Dyer, Indiana. We recently also announced the acquisition of a branch office building located in Darien, Illinois which builds on our presence in the southwestern suburbs of Chicago. Once we have received final regulatory approval, we expect to open this de novo branch during the latter part of 2004. Our Tinley Park, Illinois branch plans continue to progress, and we expect the branch to be open in early 2005." Net Interest Income Net interest income for the second quarter of 2004 was $7.4 million, up 13.6% from $6.5 million for the second quarter of 2003. The increase was primarily due to a lower cost of funds as over $180 million of certificates of deposit with above market interest rates either repriced at lower current market rates or were withdrawn. The decrease in interest expense was partially offset by a modest decline in yields on interest-earning assets. Net interest margin was 2.05% for the second quarter of 2004, up from 1.73% for the comparable prior year period. The Company expects its net interest income and net interest margin to continue to improve throughout the remainder of 2004 as the Company increases its portfolio of commercial loans, repositions its investment portfolio and continues to grow core deposits. Total interest income was $16.8 million for the second quarter of 2004, a decrease of $883,000 from $17.7 million for the second quarter of 2003. Average interest-earning assets decreased 4.1% for the second quarter of 2004 as compared to the comparable prior year period. The Company's average loan yield was 5.52% for the quarter ended June 30, 2004, down 76 basis points from the quarter ended June 30, 2003. The average yield on securities and other interest-earning assets was 2.89% for the second quarter of 2004, up from 2.06% for the comparable prior year period. This increase resulted from reduced premium amortization on the Company's investment portfolio combined with a decrease in total funds invested in low-yielding overnight funds. Total interest expense was $9.4 million for the three months ended June 30, 2004, a decrease of $1.8 million from $11.2 million for the three months ended June 30, 2003. The average balance of interest- bearing liabilities decreased 5.0%, and the average cost of interest- bearing liabilities decreased 36 basis points. The average cost of deposits for the quarter ended June 30, 2004 was 1.47%, down 53 basis points from the comparable prior year period while the average cost of borrowings remained relatively stable during each of the periods. Non-Interest Income Non-interest income was $2.3 million for the quarter ended June 30, 2004, a decrease of $373,000 from the second quarter of 2003. This decrease was mainly the result of a $343,000 write-down in the cost basis of a $1.1 million trust preferred security that was deemed to be impaired during the second quarter of 2004. In addition, the Company incurred $23,000 of net losses on the sale of -More- CFS Bancorp, Inc. - Page 3 of 8 approximately $60 million of available-for-sale securities as it took advantage of a steep yield curve to reposition its investment portfolio. The Company's service charges and other fees continued to improve to $1.9 million for the second quarter of 2004 from $1.7 million for the second quarter of 2003 as the Company maintains its efforts to increase non-interest income. Non-Interest Expense Non-interest expense for the second quarter of 2004 was $9.0 million, an increase of $1.3 million over the $7.7 million reported during the second quarter of 2003. This increase was primarily related to the legal expenses associated with the Company's goodwill litigation case that went to trial during the second quarter. In addition, the Company's data processing expenses increased $257,000 during the second quarter of 2004 due to its migration to a new core data processor. The Company estimates that the legal expenses related to the goodwill case for the remainder of 2004 will approximate $300,000. Income Taxes The Company's income tax benefit for the three months ended June 30, 2004 was $906,000 or 71.7% of pre-tax losses compared to income tax expense of $258,000 or 27.0% of pre-tax income for the three months ended June 30, 2003. The significant decrease in income tax expense was a result of the pre-tax loss combined with the application of available tax credits and the effects of permanent tax differences on the Company's pre-tax earnings. The Company anticipates that these tax credits and permanent differences will continue to have a favorable impact on income tax expense for the remainder of 2004. Asset Quality The Company's provision for loan losses increased to $1.9 million for the second quarter of 2004 from $509,000 for the second quarter of 2003. The increase was related to three items as follows: * The Company increased its provision by $400,000 on a $4.5 million non-performing commercial real estate loan which was secured by a motel. During the second quarter, the Company foreclosed on the collateral, incurred a $1.8 million charge-off to reduce the carrying value to its net realizable value and then sold the asset for $2.7 million. * The Company downgraded its classification with respect to an $8.8 million commercial real estate loan secured by a hotel in Michigan. The Company is seeking to obtain additional collateral to reduce the risk of loss, if any. The change in the classification resulted in a $660,000 additional provision increasing the allowance for losses on loans. * The Company was also required by the Office of Thrift Supervision (OTS) to establish a $715,000 general reserve on a commercial real estate loan participation purchased from a lending company that has filed for bankruptcy and is under investigation for fraud. While the Company currently believes its $2.9 million loan is not substantially at risk of loss, the Company, nevertheless, has established this general reserve in accordance with the OTS requirement. -More- CFS Bancorp, Inc. - Page 4 of 8 The Company's non-performing assets were $24.4 million as of June 30, 2004, compared to $24.3 million at March 31, 2004 and $22.9 million at December 31, 2003. The ratio of non-performing assets to total assets was 1.66% at June 30, 2004, up from 1.56% and 1.46% at March 31, 2004 and December 31, 2003, respectively. The increase in the ratio was largely due to the decrease in total assets as of June 30, 2004 as compared to March 31, 2004 and December 31, 2003. Non-performing loans were $23.6 million at June 30, 2004, an increase of $157,000 from $23.5 million at March 31, 2004 and $902,000 from $22.7 million at December 31, 2003. Non-performing loans decreased by $8.9 million during the second quarter of 2004 as two loans totaling $4.4 million were paid in full, and the $4.5 million commercial real estate loan referenced above was transferred to real estate owned before it was sold during the second quarter. Offsetting this decrease was the transfer of an $8.7 million commercial real estate loan to non-performing loans. This loan is secured by a full- service hotel in the Chicago Metropolitan area. The Company is in the process of assessing the value of the collateral and anticipates completing that process by the end of the third quarter. The Company's allowance for losses on loans was $11.3 million at June 30, 2004, the same as $11.3 million at March 31, 2004 and an increase of $846,000 from $10.5 million at December 31, 2003. The ratio of allowance for losses on loans to total loans decreased to 1.12% at June 30, 2004 from 1.15% at March 31, 2004 and increased from 1.06% at December 31, 2003. The Company maintains the allowance for losses on loans at a level that management believes will be adequate to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate based on internal evaluations of collectibility, prior loss experience, value of underlying collateral and other factors including the composition and concentrations within the loan portfolio and the level and trends of classified and non-performing assets. Balance Sheet Highlights As of June 30, 2004, loans receivable were $1.0 billion, up 2.7% from $982.0 million at December 31, 2003. The Company originated over $130 million in new loans and lines of credit during the second quarter, up over 65% from loan originations during the first quarter 2004. Over 70% of these originations were commercial loans and lines of credit. As of the end of June 30, 2004, the Company has over $82 million of commercial and retail loan commitments. Total deposits were $879.1 million at June 30, 2004, down $96.3 million from $975.4 million at December 31, 2003. The decrease was largely caused by a reduction of $135.0 million in certificates of deposit, partially offset by an increase in core deposits of $38.7 million. The decrease in certificates of deposit was primarily due to the runoff of above market rate certificates. The Company is making progress in its efforts to obtain low cost core deposits through continued promotional efforts and retail incentive programs. Average core deposits have increased 5.1% since March 31, 2004. Stockholders' equity at June 30, 2004 was $154.5 million, down from $156.0 million at December 31, 2003. The decrease was primarily due to: * the net loss of $357,000, * a $2.0 million decrease in unrealized loss on available-for-sale securities, net of tax, * dividends declared during the first six months of 2004 totaling $2.4 million, and -More- CFS Bancorp, Inc. - page 5 of 8 * repurchases of the Company's common stock during the first six months of 2004 totaling $854,000. Partially offsetting the above decreases in stockholders' equity, the Company also realized during the first six months of 2004: * vesting of $1.3 million of common stock under the Company's Recognition and Retention Plan, and * stock option exercises totaling $1.5 million. Primarily during the early part of the second quarter of 2004, the Company repurchased 55,459 shares of its common stock at an average price of $14.01 per share pursuant to the share repurchase programs announced in July 2002 and March 2003. Since its initial public offering, the Company has repurchased an aggregate of 11,591,504 shares of its common stock at an average price of $11.75 per share. As of July 22, 2004, the Company has 1,181,268 of shares remaining to be repurchased under its current share repurchase program. As of June 30, 2004, stockholders' equity per common share was $12.57, down from $12.78 at December 31, 2003. The capital ratios of Citizens Financial Services, FSB, the Company's wholly-owned subsidiary, continued to be in excess of regulatory requirements. As of June 30, 2004, the Bank is deemed to be "well-capitalized" under the regulatory framework for prompt corrective action. CFS Bancorp, Inc. is the parent of Citizens Financial Services, FSB, a $1.5 billion asset federal savings bank. Citizens Financial Services provides community banking services and currently operates 22 offices throughout adjoining markets in Chicago's Southland and Northwest Indiana. The Company maintains a website at www.cfsbancorp.com. # # # This press release contains certain forward-looking statements and information relating to the Company that is based on the beliefs of management as well as assumptions made by and information currently available to management. These forward-looking statements include but are not limited to statements regarding the positive net earnings effects of the shift in assets and deposits, interest rate environment, expected asset yields and cost of funds, estimated costs of litigation fees, expected growth in core deposits, establishment of new branch offices, net interest income, loan volume, net interest margin, loan loss reserves, income levels, new sources of non-interest income, and impact of tax credits and permanent tax differences. In addition, the words "anticipate," "believe," "estimate," "expect," "indicate," "intend," "should," and similar expressions, or the negative thereof, as they relate to the Company or the Company's management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. One or more of these risks may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements. # # # SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA FOLLOWS. -More- CFS Bancorp, Inc. Page 6 of 8 CFS BANCORP, INC. Highlights (Unaudited) (Dollars in thousands, except per share data) Three Months Ended Six Months Ended EARNINGS HIGHLIGHTS AND ----------------------------- ----------------------------- PERFORMANCE RATIOS* June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003 ------------------------------------------------ -------------- ------------- ------------- ------------- Net income (loss) $ (357) $ 698 $ 887 $ 1,352 Basic earnings (loss) per share (0.03) 0.06 0.08 0.12 Diluted earnings (loss) per share (0.03) 0.06 0.07 0.12 Cash dividends declared 0.11 0.11 0.22 0.22 Return on average assets (0.09)% 0.18% 0.12% 0.17% Return on average equity (0.90) 1.81 1.13 1.74 Average yield on interest-earning assets 4.69 4.72 4.70 4.85 Average cost on interest-bearing liabilities 2.94 3.30 2.98 3.40 Interest rate spread 1.75 1.42 1.72 1.45 Net interest margin 2.05 1.73 2.02 1.77 Non-interest expense to average assets 2.38 1.94 2.26 1.93 Efficiency ratio 89.77 84.15 86.63 84.07 Market price per share of common stock for the period ended: Closing $ 13.25 $ 15.00 $ 13.25 $ 15.00 High 14.84 15.00 15.16 15.00 Low 12.99 13.69 12.99 13.51
STATEMENT OF CONDITION HIGHLIGHTS June 30, March 31, December 31, AND PERFORMANCE RATIOS* 2004 2004 2003 ---------------------------------------------------------- ----------- ----------- -------------- Total assets $ 1,471,769 $ 1,555,658 $ 1,569,428 Loans receivable, net of unearned discount 1,008,081 984,765 981,994 Total deposits 879,102 958,913 975,369 Total stockholders' equity 154,527 158,517 155,953 Book value per common share 12.57 12.89 12.78 Non-performing loans 23,622 23,465 22,720 Non-performing assets 24,398 24,345 22,926 Allowance for losses on loans 11,299 11,295 10,453 Non-performing loans to total loans 2.34% 2.38% 2.31% Non-performing assets to total assets 1.66 1.56 1.46 Allowance for losses on loans to non-performing loans 47.83 48.14 46.01 Allowance for losses on loans to total loans 1.12 1.15 1.06 Average equity to average assets 10.53 10.06 9.99 Average interest-earning assets to average interest-bearing liabilities 111.42 110.79 110.61 Employees (FTE) 344 332 330 Branches and offices 22 22 22
Three Months Ended Six Months Ended ---------------------------- ----------------------------- AVERAGE BALANCE DATA June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003 ---------------------------------------------- ------------- ------------- ------------- ------------- Total assets $ 1,514,958 $ 1,583,227 $ 1,536,599 $ 1,589,419 Loans receivable, net of unearned discount 999,818 956,481 992,449 949,169 Interest-earning assets 1,440,239 1,501,568 1,463,624 1,508,301 Total liabilities 1,355,382 1,428,138 1,378,372 1,433,072 Total deposits 916,664 946,512 940,338 952,006 Interest-bearing deposits 874,212 911,340 900,213 917,114 Interest-bearing liabilities 1,292,648 1,360,720 1,318,663 1,366,507 Stockholders' equity 159,576 155,089 158,227 156,347
_________ * Ratios are annualized where appropriate. -More- CFS Bancorp, Inc. - Page 7 of 8 CFS BANCORP, INC. Consolidated Statements of Income (Unaudited) For the Three Months Ended For the Six Months Ended June 30, June 30, -------------------------- ------------------------ (Dollars in thousands, except per share data) 2004 2003 2004 2003 ------------------------------------------------------------ ----------- ---------- ---------- ---------- Interest income: Loans $ 13,730 $ 14,974 $ 27,846 $ 30,214 Securities 2,601 1,818 5,271 4,334 Other 469 891 1,107 1,738 ----------- ---------- ---------- ---------- Total interest income 16,800 17,683 34,224 36,286 Interest expense: Deposits 3,185 4,539 7,021 9,764 Borrowings 6,263 6,672 12,526 13,272 ----------- ---------- ---------- ---------- Total interest expense 9,448 11,211 19,547 23,036 ----------- ---------- ---------- ---------- Net interest income before provision for losses on loans 7,352 6,472 14,677 13,250 Provision for losses on loans 1,918 509 2,657 987 ----------- ---------- ---------- ---------- Net interest income after provision for losses on loans 5,434 5,963 12,020 12,263 Non-interest income: Service charges and other fees 1,853 1,744 3,501 3,222 Commission income 171 192 323 318 Net realized losses on available-for-sale securities (366) (1) (45) (1) Net (loss) gain on sale of office properties (1) 24 (1) 24 Income from Bank-owned life insurance 365 367 723 729 Other income 253 322 687 606 ----------- ---------- ---------- ---------- Total non-interest income 2,275 2,648 5,188 4,898 Non-interest expense: Compensation and employee benefits 4,638 4,427 9,525 8,866 Net occupancy expense 615 578 1,257 1,200 Professional fees 1,264 461 1,661 948 Data processing 722 465 1,232 894 Furniture and equipment expense 456 480 919 957 Marketing 285 227 572 426 Other general and administrative expenses 992 1,017 2,082 1,947 ----------- ---------- ---------- ---------- Total non-interest expense 8,972 7,655 17,248 15,238 ----------- ---------- ---------- ---------- Income (loss) before income taxes (1,263) 956 (40) 1,923 Income tax (benefit) expense (906) 258 (927) 571 ----------- ---------- ---------- ---------- Net income (loss) $ (357) $ 698 $ 887 $ 1,352 =========== ========== ========== ========== Per share data: Basic earnings (loss) per share $ (0.03) $ 0.06 $ 0.08 $ 0.12 Diluted earnings (loss) per share $ (0.03) $ 0.06 $ 0.07 $ 0.12 Cash dividends declared per share $ 0.11 $ 0.11 $ 0.22 $ 0.22 Weighted-average shares outstanding 11,620,390 11,256,183 11,510,467 11,302,378 Weighted-average diluted shares outstanding 11,887,039 11,644,232 11,846,355 11,729,637
-More- CFS Bancorp, Inc. - Page 8 of 8 CFS BANCORP, INC. Consolidated Statements of Financial Condition (Unaudited) June 30, December 31, (Dollars in thousands) 2003 2004 --------------------------------------------------------------- ---------- --------------- ASSETS Cash and amounts due from depository institutions $ 16,680 $ 18,675 Interest-bearing deposits 8,358 142,139 Federal funds sold 8,497 17,399 --------- --------- Cash and cash equivalents 33,535 178,213 Securities, available-for-sale 347,479 327,789 Investment in Federal Home Loan Bank stock, at cost 27,397 26,766 Loans receivable, net of unearned fees 1,008,081 981,994 Allowance for losses on loans (11,299) (10,453) --------- --------- Net loans 996,782 971,541 Accrued interest receivable 6,599 6,623 Real estate owned 776 206 Office properties and equipment 13,687 13,738 Investment in Bank-owned life insurance 32,649 31,926 Prepaid expenses and other assets 12,865 12,626 --------- --------- Total assets $1,471,769 $ 1,569,428 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $ 879,102 $ 975,369 Borrowed money 418,432 418,490 Advance payments by borrowers for taxes and insurance 6,316 5,595 Other liabilities 13,392 14,021 --------- --------- Total liabilities 1,317,242 1,413,475 Stockholders' 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 as of June 30, 2004 and December 31, 2003; 12,290,934 and 12,200,015 shares outstanding as of June 30, 2004 and December 31, 2003, respectively 234 234 Additional paid-in capital 189,727 189,879 Retained earnings, substantially restricted 104,813 106,354 Treasury stock, at cost; 11,132,372 and 11,223,291 shares as of June 30, 2004 and December 31, 2003, respectively (131,805) (132,741) Unearned common stock acquired by ESOP (7,158) (7,158) Unearned common stock acquired by RRP (187) (1,523) Accumulated other comprehensive income (loss), net of tax (1,097) 908 --------- --------- Total stockholders' equity 154,527 155,953 --------- --------- Total liabilities and stockholders' equity $1,471,769 $1,569,428 ========= =========