GASTONIA, N.C., Jan. 20 /PRNewswire-FirstCall/ -- Citizens South Banking Corporation , the holding company for Citizens South Bank, reported net income of $427,000, or $0.06 per diluted share, for the quarter ended December 31, 2008, compared to $1.3 million, or $0.18 per diluted share, for the quarter ended December 31, 2007.
Operating income (as calculated in the attached table) for the quarter ended December 31, 2008, totaled $495,000, or $0.07 per diluted share, excluding a $68,000 after-tax net loss on the sale of assets. Operating income for the quarter ended December 31, 2007, totaled $1.3 million, or $0.18 per diluted share.
Credit Quality
The Company's credit quality continues to compare favorably with industry peers, despite some softening in the Charlotte housing market. However, as a result of the weaker national economy and signs of regional weakness, the Company increased its allowance for loan losses from 1.12% of total loans at September 30, 2008, to 1.28% of total loans at December 31, 2008, by charging $1.4 million to its provision for loan losses during the fourth quarter of 2008. On a linked-quarter basis, net charge-offs remained flat and the ratio of nonperforming loans to total loans improved slightly as shown in the table below:
December 31, 2008 September 30, 2008 Nonperforming loans / total loans 0.48% 0.53% Nonperforming assets / total assets 0.69% 0.55% Nonperforming assets / total loans 0.90% 0.72% Net charge-offs / average loans 0.07% 0.07% Allowance for loan losses / total loans 1.28% 1.12%
While management recognizes softness in the residential housing market, historically conservative underwriting practices and market discipline has shielded the loan portfolio from the significant portfolio deterioration suffered by many other banks in the southeast. The Company has not been an originator or purchaser of option adjustable rate or "no documentation" portfolio mortgage loans, and the portfolio does not include any mortgage loans classified as "sub-prime." Also, residential construction loans and residential acquisition and development loans were limited to local experienced contractors and developers who personally guaranteed their debt.
Net Interest Margin
During the fourth quarter of 2008 the Federal Reserve Bank lowered short- term interest rates by 175 basis points. As a result, the Company's fully taxable equivalent net interest margin contracted by 18 basis points on a linked-quarter basis to 2.84%. Approximately 43% of the Company's loans are tied to adjustable rate indices, such as the prime lending rate, which are influenced by the actions of the Federal Reserve Bank. While the Company's net interest income is relatively neutral to changes in interest rates over a one year time frame, decreases in short-term interest rates have a negative impact on short-term earnings. However, the decrease in short-term earnings is partly offset by liabilities which reprice at lower rates over the next year.
Loan Portfolio
During most of 2008 the real estate market in the Charlotte, North Carolina region remained active compared to most of the country. However, housing starts, sales prices, and demand for commercial real estate moderated during the fourth quarter of 2008. As a result, outstanding loans decreased by $2.8 million during the three-month period ended December 31, 2008. Management expects that loan activity in the Charlotte region will remain soft well into 2009. However, we expect to make market share gains in selective asset categories as a result of market disruptions stemming from a number of recently completed and announced mergers in the Charlotte market and with the Company's expansion into the Mecklenburg County, North Carolina market in the first quarter of 2009.
Deposit Portfolio
Demand deposit accounts increased by $8.4 million during the fourth quarter of 2008 to $122.7 million at December 31, 2008. During 2008, demand deposits increased by $20.7 million, or 20.3%. This growth was fueled by retail and commercial demand deposit account incentives, enhanced treasury management services, and increased market share derived as a result of merger disruptions of competitors.
During the fourth quarter, total deposits decreased by $3.4 million to $581.5 million at December 31, 2008. The decrease in total deposits was primarily concentrated in interest-sensitive deposit account types such as money market accounts and time deposit accounts. The Company's strong demand deposit growth, disciplined approach to deposit pricing, and strong liquidity position, enable it to limit exposure to aggressive time deposit pricing.
Noninterest Income and Expense
Noninterest operating income (as defined in the tables that follow) decreased by $85,000 from the fourth quarter of 2007 to the fourth quarter of 2008. This decrease was largely due to decreases in mortgage banking activity and lower fees generated on lending activity. Noninterest operating expense (as defined in the tables that follow) increased by $132,000, or 3.0%, during the comparable fourth quarter periods. This increase was primarily due to increased staffing levels and related expenses associated with the opening of a new full-service office in Rock Hill, South Carolina in 2008 and new staffing associated with the Company's entry into the Mecklenburg County market.
In making the earnings announcement, Kim S. Price, President and CEO, stated, "During a period when the banking industry and economy are under substantial pressure, Citizens South continues to build a powerful community banking franchise in the Charlotte region. While no company is completely immune to the effects of an economy such as the one we are experiencing, we believe that we will continue to weather the storm better than most as a result of our time-tested and disciplined approach to lending and deposit gathering. We also believe that we can utilize our position of strength to more effectively compete in a market that has seen, and is likely to continue to see, substantial disruption and consolidation among our competitors."
General Information
Headquartered in Gastonia, North Carolina, Citizens South Bank was founded in 1904. Deposits are FDIC insured up to applicable regulatory limits. At December 31, 2008, the Bank had approximately $817 million in assets with 15 full-service offices in the Charlotte region, including Gaston, Iredell, Rowan, and Union counties in North Carolina, and York County, South Carolina. Citizens South Bank is an Equal Housing Lender and Member, FDIC. The Bank is a wholly-owned subsidiary of Citizens South Banking Corporation, and shares of the common stock of the Company trade on the NASDAQ Global Market under the ticker symbol "CSBC". The Company maintains a website at http://www.citizenssouth.com/ that includes information on the Company, along with a list of products and services, branch locations, current financial information, and links to the Company's 1934 Securities Exchange Act filings with the SEC.
Forward-looking Statements
This news release contains certain forward-looking statements which include, but are not limited to, statements of our earnings expectations, statements regarding our operating strategy, and estimates of our future costs and benefits. These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Forward-looking statements speak only as of the date they are made and the Company is under no duty to update these forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements or to reflect the occurrence of unanticipated events. A number of factors could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. Factors that could cause such a difference include, but are not limited to, changes in general economic conditions - either locally or nationally, competition among depository and financial institutions, the continuation of current revenue and expense trends, significant changes in interest rates, unforeseen changes in the Company's markets, and legal, regulatory, or accounting changes. The Company's reports filed from time to time with the Securities and Exchange Commission, including the Company's Form 10-K for the year ended December 31, 2007, describe some of these factors.
Important Tables Follow Citizens South Banking Corporation Selected Financial Information Quarter Quarter 12 Months 12 Months ended ended ended ended (dollars in thousands, Dec. 31, Dec. 31, Dec. 31, Dec. 31, except per share data) 2008 2007 2008 2007 Reconciliation of GAAP to non-GAAP Measures: Net income, as reported (GAAP) $427 $1,327 $3,081 $5,665 Non-operating items (net of 39% tax): (Gain)/ loss on sale of assets, net 68 8 (100) (197) Reorganization & merger/integration expenses - - 134 - Impairment of investments - - 285 99 Insurance proceeds, net - - - (112) Net Operating Income $495 $1,335 $3,400 $5,455 Noninterest income, as reported (GAAP) $1,254 $1,511 $6,019 $6,562 Non-operating items: (Gain)/ loss on sale of assets, net 110 13 (164) (323) Fair value adjustment on deferred comp assets 63 (12) 128 (122) Insurance proceeds, net - - - (112) Noninterest Operating Income $1,427 $1,512 $5,983 $6,005 Noninterest expense, as reported (GAAP) $4,496 $4,439 $19,226 $7,895 Non-operating items: Impairment of investments - - (468) (162) Fair value adjustment on deferred comp assets 63 (12) 128 (122) Reorganization & merger/integration expenses - - (220) - Noninterest Operating Expense $4,559 $4,427 $18,666 $17,611 Per Share Data: Average common shares outstanding, basic 7,361,434 7,513,151 7,374,051 7,688,595 Basic net income - GAAP $0.06 $0.18 $0.42 $0.74 Basic net income - Operating $0.07 $0.18 $0.46 $0.71 Average common shares outstanding, diluted 7,379,466 7,570,671 7,404,087 7,754,599 Diluted net income - GAAP $0.06 $0.18 $0.42 $0.73 Diluted net income - Operating 0.07 0.18 0.46 0.70 Cash dividends declared on common stock $0.085 $0.08 $0.34 $0.32 Period-end book value per common share 11.21 11.05 11.21 11.05 Financial Ratios (annualized): Return on average stockholders' equity - GAAP 1.92% 6.24% 3.62% 6.68% Return on avg. stockholders' equity - Operating 2.22 6.28 3.99 6.43 Return on average assets - GAAP 0.21% 0.68% 0.39% 0.75% Return on average assets - Operating 0.24 0.69 0.43 0.72 Efficiency ratio - GAAP 70.53% 68.04% 73.32% 66.78% Efficiency ratio - Operating 69.33 67.84 72.12 67.12 Net interest margin (tax equivalent) 2.84% 3.01% 2.92% 3.15% Total equity to total assets 12.81 10.79 12.81 10.79 Tangible equity to tangible assets 9.43 7.08 9.43 7.08 Asset Quality Data: Allowance for loan losses $8.026 $6,144 $8,026 $6,144 Nonperforming loans 3,032 1,815 3,032 1,815 Nonperforming assets 5,633 2,344 5,633 2,344 Net charge-offs 462 479 1,394 911 Net charge-offs to average loans 0.07% 0.09% 0.23% 0.17% Allowance for loan losses to total loans 1.28 1.10 1.28 1.10 Nonperforming loans to total loans 0.48 0.32 0.48 0.32 Nonperforming assets to total assets 0.69 0.30 0.69 0.30 Nonperforming assets to total loans 0.90 0.42 0.90 0.42 Average Balances: Total assets $820,166 $770,338 $799,869 $753,085 Loans receivable, net of unearned income 627,888 550,255 596,467 529,399 Interest-earning assets 733,858 680,975 708,633 660,490 Deposits 579,967 581,086 579,850 575,302 Interest-bearing liabilities 685,079 635,601 665,828 618,126 Stockholders' equity 88,498 84,362 85,232 84,783 At Period End: Total assets $817,213 $779,140 $817,213 $779,140 Loans receivable, net of unearned income 626,688 559,956 626,688 559,956 Interest-earning assets 733,448 690,007 733,448 690,007 Deposits 581,488 590,765 581,488 590,765 Interest-bearing liabilities 660,881 643,478 660,881 643,478 Stockholders' equity 104,720 84,033 104,720 84,033 Citizens South Banking Corporation Consolidated Statements of Financial Condition (dollars in thousands) Dec. 31, Dec. 31, 2008 2007 (unaudited) ASSETS Cash and cash equivalents 10,057 29,739 Investment securities available-for-sale, at fair value 28,905 46,519 Mortgage-backed securities available-for-sale, at fair value 80,275 69,893 Loans receivable, net unearned income 626,688 559,956 Allowance for loan losses (8,026) (6,144) Loans receivable, net 618,662 553,812 Real estate acquired through foreclosure, net 2,601 529 Premises and equipment, net 16,834 17,965 Accrued interest receivable 2,609 3,254 Federal Home Loan Bank stock, at cost 4,793 4,236 Intangible assets 30,525 31,037 Bank owned life insurance 16,813 16,099 Other assets 5,139 6,057 Total assets $817,213 $779,140 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Demand deposit accounts $122,731 $101,981 Money market deposit accounts 103,271 129,688 Savings accounts 10,708 12,037 Time deposits 344,778 347,059 Total deposits 581,488 590,765 Borrowed money 124,365 96,284 Deferred compensation 5,413 5,389 Other liabilities 1,227 2,669 Total liabilities 712,493 695,107 Stockholders' Equity: Preferred stock issued and outstanding, $0.01 par value, 10,000,000 shares authorized, 20,500 shares issued and outstanding at December 31, 2008, and no shares issued or outstanding at December 31, 2007 20,507 - Common stock issued and outstanding, $0.01 par value, 20,000,000 shares authorized, 9,062,727 issued at December 31, 2008, and December 31, 2007, and 7,515,957 shares outstanding at December 31, 2008, and 7,610,017 shares outstanding at December 31, 2007 91 91 Additional paid-in-capital 67,367 67,718 Unallocated common stock held by Employee Stock Ownership Plan (1,065) (1,247) Retained earnings, substantially restricted 36,089 36,028 Accumulated unrealized loss on securities available-for-sale, net of tax 25 (343) Treasury stock of 1,546,770 shares at December 31, 2008, and 1,452,710 shares at December 31, 2007 (18,294) (18,214) Total stockholders' equity 104,720 84,033 Total liabilities and stockholders' equity $817,213 $779,140 Citizens South Banking Corporation Condensed Consolidated Statements of Operations (unaudited) (in thousands, except per share data) Three Months Twelve Months Ended December 31, Ended December 31, 2008 2007 2008 2007 Interest Income: Loans $9,069 $10,348 $37,229 $40,679 Investment securities 291 600 1,419 2,670 Interest-bearing deposits 8 105 157 447 Mortgage-backed and related securities 978 789 3,803 2,939 Total interest income 10,346 11,842 42,608 46,735 Interest Expense: Deposits 3,836 5,643 17,233 22,315 Borrowed funds 1,390 1,186 5,173 4,185 Total interest expense 5,226 6,829 22,406 26,500 Net interest income 5,120 5,013 20,202 20,235 Provision for loan losses 1,460 330 3,275 1,290 Net interest income after provision for loan losses 3,660 4,683 16,927 18,945 Noninterest Income: Fee income on deposit accounts 775 696 3,031 2,722 Mortgage banking income 179 242 829 990 Income on lending activities 87 125 384 484 Dividends on FHLB stock 12 62 180 212 Increase in cash value of bank-owned life insurance 195 192 766 769 Fair value adjustment on deferred compensation assets (63) 12 (128) 122 Life insurance proceeds, net - - - 112 Net gain on sale of assets (110) (13) 164 323 Other noninterest income 179 195 793 828 Total noninterest income 1,254 1,511 6,019 6,562 Noninterest Expense: Compensation and benefits 2,427 2,439 10,092 9,607 Fair value adjustment on deferred comp. obligations (63) 12 (128) 122 Occupancy and equipment expense 647 647 2,660 2,648 Professional services 228 141 867 543 Amortization of intangible assets 110 146 512 629 Reorganization expenses - - 220 - Impairment of securities - - 468 162 Other noninterest expense 1,147 1,054 4,535 4,184 Total noninterest expense 4,496 4,439 19,226 17,895 Income before income taxes 418 1,755 3,720 7,612 Provision for income taxes (9) 428 639 1,947 Net income $427 $1,327 $3,081 $5,665 Net income per common share: Basic $ 0.06 $0.18 $0.42 $0.74 Diluted $0.06 $0.18 $0.42 $0.73 Weighted average common shares outstanding: Basic 7,361,434 7,513,151 7,374,051 7,688,595 Diluted 7,379,466 7,570,671 7,404,087 7,754,599
