updated 1/24/2011 4:17:48 PM ET 2011-01-24T21:17:48

GASTONIA, N.C., Jan. 24, 2011 (GLOBE NEWSWIRE) -- Citizens South Banking Corporation (Nasdaq:CSBC), the parent company for Citizens South Bank, reported a net loss available to common stockholders of $2.0 million, or ($0.18) per diluted share, for the quarter ended December 31, 2010, compared to a net loss of $30.5 million, or ($4.11) per diluted share, for the quarter ended December 31, 2009 (which included a $29.6 million non-cash goodwill impairment charge). For the year ended December 31, 2010, the Company reported net income available to common stockholders of $7.6 million, or $0.78 per common share, compared to a net loss of $31.0 million, or ($4.19) per common share, for the year ended December 31, 2009 (which also included a $29.6 million non-cash goodwill impairment charge).

President Kim S. Price stated, "We are proud to announce that the $7.6 million in net income for 2010 is the highest level of annual earnings in the Bank's 106-year history. In 2011, we will continue to focus on improving asset quality and reducing our current level of noninterest expenses. While we are experiencing some improving asset quality metrics, we continue to build the level of our loan loss reserves due to the continued uncertainty of the general economy and local real estate markets. Also in 2011, we will continue to pursue FDIC-assisted transactions that complement the Company's existing geographic footprint and will pursue reasonable options for repaying TARP."

Fourth Quarter Financial Highlights:

Credit Quality

During the fourth quarter, the Company's level of total non-covered nonperforming loans (loans not covered under FDIC loss-share agreements) decreased by $3.4 million, or 17.19%, from 3.33% of non-covered loans at September 30, 2010, to 2.79% of non-covered loans at December 31, 2010. Also, the Company's level of non-covered nonperforming assets decreased by $4.3 million, or 15.20%, from 2.61% of total assets at September 30, 2010, to 2.25% of total assets at December 31, 2010. While the Company's level of non-covered nonperforming loans improved during the fourth quarter, the Company's accruing non-covered loans that were 30 to 89 days past due increased to $13.8 million, or 2.34% of non-covered loans, compared to $6.6 million, or 1.11% of non-covered loans, at September 30, 2010. Most of the increase was attributable to commercial real estate loans that moved from current status to 30 to 60 days delinquent. The level of past due loans at September 30, 2010, represented the Company's lowest level of past due non-covered loans in over 18 months. 

During the fourth quarter the Company increased its net charge-offs to $3.8 million, or 2.59% of average non-covered loans, compared to $2.0 million, or 1.36% of average non-covered loans during the third quarter. In addition, the Company increased its quarterly provision for loan losses from $3.0 million to $5.0 million, which improved the Company's allowance for loan losses to total non-covered loans ratio from 1.81% at the end of the third quarter to 2.02% at the end of the fourth quarter. Based on management's current evaluation of the loan portfolio, we anticipate that our quarterly provision for loan losses will be between $3.0 million and $4.0 million for each of the next two quarters.

President Price commented, "Given the real estate market and current economic conditions, we are pleased with our asset quality metrics as compared to southeastern peers. Our metrics, including our level of charge-offs and loan loss reserves, are reflective of the conservative and stringent constraints existing in today's regulatory environment. We believe that our focus on identifying and resolving credit quality problems in a timely manner was a contributing factor in the recent successful completion of our annual regulatory field examination. We remain cautiously optimistic about the direction of the economy in 2011 as we are experiencing some improving trends in unemployment levels in our markets and signs of an improving housing and real estate market."

Net Interest Margin

Compared to the fourth quarter of 2009, the Company's net interest margin has improved by 13 basis points from 3.12% at the end of 2009 to 3.25% at the end of 2010. However, on a linked quarter basis, the Company's net interest margin decreased by 17 basis points. Soft loan demand and caution in our investment portfolio decisions have contributed to high levels of liquidity hampering our recent upward trend in the net interest margin. With a recently initiated lending program to increase activity in the owner-occupied commercial real estate sector, and improving yields in the bond and mortgage backed securities market, we continue to believe we have upside potential in our net interest margin for 2011.

Balance Sheet Changes

Management's efforts to reduce exposures in the non-covered residential construction and acquisition and development loan portfolios resulted in a $16.4 million decrease in these loan portfolios during 2010, excluding covered loans acquired from the FDIC-assisted acquisition of Bank of Hiawassee. During 2010, speculative residential construction loans decreased by $5.8 million, or 51.0%, and residential acquisition and development loans decreased by $10.6 million, or 29.7%. Management expects that these efforts will continue and that new loan demand in general will remain somewhat soft throughout the first half of 2011.

The Company continues to experience strong core deposit growth. Excluding the deposits assumed in the Bank of Hiawassee acquisition, total core deposits increased by $20.5 million, or 7.1% during 2010. This growth was primarily driven by demand deposit accounts, which increased by $17.0 million, or 10.7%, and money market accounts, which increased by $3.2 million, or 2.7%, during the twelve-month period. The strong growth in core deposits was attributable to a continued focus on deposit gathering, enhanced treasury management services, and increased market share due to mergers and a general "flight to quality" among community bank depositors.

Capital

The Bank's capital continues to exceed all regulatory capital measures and the Bank was considered "well-capitalized" for regulatory purposes at December 31, 2010. This is the highest capital designation established by the Bank's regulatory authorities. The Bank's total risk-based capital ratio improved to 17.20% at December 31, 2010, compared to 16.83% at September 30, 2010. The Company's capital position continues to be a source of strength during these uncertain economic times. The Company's tangible common equity ratio, which decreased slightly from 6.74% at September 30, 2010, to 6.69% at December 31, 2010, remains strong.

Income Statement Changes

Noninterest income for the fourth quarter of 2010 compared to the fourth quarter of 2009 decreased by $107,000, or 4.5%, to $2.3 million. Excluding gains on sale of investments, which totaled $917,000 for the fourth quarter of 2009, and gain from acquisition, which totaled $148,000 for the fourth quarter of 2010, the Company's noninterest income increased by $662,000, or 45.2% for the comparable periods. This increase was partly due to a $270,000 increase in mortgage banking income and the acquisition of Bank of Hiawassee, which contributed to a $210,000 increase in service charges on deposits.

Noninterest expense decreased by $26.9 million during the comparable fourth quarter periods to $7.9 million for the quarter ended December 31, 2010. This decrease was primarily due to the $29.6 million impairment of goodwill in the fourth quarter of 2009. Excluding the impairment of goodwill, noninterest expenses increased by $2.7 million. This increase was primarily due to the Bank of Hiawassee acquisition and increased credit-related expenses. The Company has implemented cost reduction measures that include staff consolidations and facilities evaluations in an effort to reduce the Company's level of overhead for 2011 and beyond.

About Citizens South Banking Corporation   

Citizens South Bank was founded in 1904 and is headquartered in Gastonia, North Carolina. Deposits are FDIC insured up to applicable regulatory limits. At December 31, 2010, the Company had $1.1 billion in assets with 21 full-service offices in the Charlotte and North Georgia regions, including Gaston, Iredell, Rowan, Mecklenburg, and Union counties in North Carolina, York County in South Carolina, and Towns, Union, and Fannin counties in Georgia. 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 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 filings with the SEC.  

The Citizens South Banking Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7099

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, 2009, describe some of these factors. 

Quarterly Financial Highlights (unaudited) 2010 2009
  At and For the Quarters Ended
  December 31 September 30 June 30 March 31 December 31
(Dollars in thousands, except per share data)          
           
Summary of Operations:          
Interest income - taxable equivalent  $ 11,055  $ 11,675  $ 12,308  $ 9,210  $ 9,387
Interest expense  3,411  3,790  4,083  3,393  3,531
 Net interest income - taxable equivalent  7,644  7,885  8,225  5,817  5,856
Less: Taxable-equivalent adjustment  70  79  114  98  106
 Net interest income  7,574  7,806  8,111  5,719  5,750
Provision for loan losses  5,000  3,000  3,000  3,050  4,155
Net interest income after loan loss provision  2,574  4,806  5,111  2,669  1,595
Noninterest income  2,274  2,290  2,415  20,185  2,381
Noninterest expense  7,918  7,781  7,279  6,356  34,867
 Net income (loss) before income taxes  (3,070)  (685)  247  16,498  (30,891)
Income tax expense (benefit)  (1,331)  (413)  (108)  6,201  (611)
 Net income (loss)  (1,739)  (272)  355  10,297  (30,280)
Dividends on preferred stock  256  256  257  257  259
 Net income (loss) available to common shareholders  $ (1,995)  $ (528)  $ 98  $ 10,040  $ (30,539)
           
Per Common Share Data:          
Net income:          
 Basic  $ (0.18)  $ (0.05)  $ 0.01  $ 1.29  $ (4.11)
 Diluted  (0.18)  (0.05)  0.01  1.29  (4.11)
Weighted average shares outstanding:          
 Basic 11,173,174 10,844,386 9,077,042 7,786,819 7,426,992
 Diluted 11,173,174 10,844,386 9,077,042 7,786,819 7,426,992
End of period shares outstanding 11,508,750 10,964,146 10,965,941 9,125,942 7,526,854
Cash dividends declared  $ 0.01  $ 0.04  $ 0.04  $ 0.04  $ 0.04
Book value   6.32  6.86  6.91  7.39  6.87
Tangible book value  6.17  6.70  6.73  7.16  6.80
           
End of Period Balances:          
Total assets  $ 1,064,487  $ 1,087,558  $ 1,077,431  $ 1,132,652  $ 791,532
Loans, net of deferred fees  736,510  754,740  776,234  787,643  610,201
Investment securities  111,586  87,255  97,678  100,161  83,370
Interest-earning assets  914,456  937,278  927,757  987,669  725,835
Deposits  850,456  865,786  853,526  884,127  609,345
Shareholders' equity  93,443  95,682  96,410  96,390  72,322
           
Quarterly Average Balances:          
Total assets  $ 1,075,338  $ 1,080,680  $ 1,105,788  $ 873,418  $ 823,608
Loans, net of deferred fees  703,392  767,381  780,209  599,826  610,568
Investment securities  106,940  91,425  100,501  89,020  87,061
Interest-earning assets  928,756  915,882  949,130  732,124  736,134
Deposits  853,185  853,902  859,408  614,007  605,608
Shareholders' equity  94,761  96,258  96,282  78,292  103,313
           
Financial Performance Ratios (annualized) :          
Return on average assets -0.74% -0.20% 0.04% 4.66% -14.71%
Return on average common equity -10.68% -2.77% 0.56% 73.21% -146.44%
Noninterest income to average total assets (1) 0.85% 0.85% 0.87% 9.24% 1.16%
Noninterest expense to average total assets (2) 2.95% 2.88% 2.63% 2.91% 16.93%
Efficiency ratio (1) (2) 79.83% 76.47% 68.41% 24.44% 423.30%
           
           
Quarterly Financial Highlights (unaudited) 2010 2009
  At and For the Quarters Ended
  December 31 September 30 June 30 March 31 December 31
(Dollars in thousands, except per share data)          
           
Net Interest Margin (annualized):          
Yield on earning assets 4.68% 4.91% 4.96% 5.02% 4.98%
Cost of funds 1.51% 1.66% 1.72% 2.01% 2.09%
Net Interest spread 3.17% 3.25% 3.24% 3.01% 2.89%
Net interest margin (taxable equivalent) 3.25% 3.42% 3.48% 3.22% 3.12%
           
Credit Quality Information and Ratios:          
Past due loans (30-89 days) accruing - non-covered  $ 13,787  $ 6,602  $ 10,145  $ 7,003  $ 10,224
Past due loans - non-covered to total non-covered loans 2.34% 1.11% 1.68% 1.15% 1.68%
           
Past due loans (30-89 days) accruing - covered by FDIC loss-share (3)  $ 5,767  $ 8,701  $ 5,257  $ 11,030  -- 
Past due loans - covered to total covered loans 3.91% 5.43% 3.07% 6.09%  -- 
           
Allowance for loan losses - beginning of period  $ 10,752  $ 9,796  $ 9,230  $ 9,189  $ 9,499
Add: Provision for loan losses  5,000  3,000  3,000  3,050  4,155
Less: Net charge-offs (NCOs)  3,828  2,044  2,433  3,009  4,465
Allowance for loan losses - end of period  11,924  10,752  9,797  9,230  9,189
           
Allowance for loan losses to total non-covered loans 2.02% 1.81% 1.62% 1.52% 1.51%
Net charge-offs to average non-covered loans (annualized) 2.59% 1.36% 1.61% 1.98% 2.93%
Nonperforming non-covered loans to non-covered loans 2.79% 3.33% 2.15% 2.26% 1.96%
Nonperforming non-covered assets to total assets 2.26% 2.61% 1.97% 1.69% 2.15%
Nonperforming non-covered assets to total non-covered loans and other real estate owned 4.03% 4.71% 3.46% 3.12% 2.77%
           
Nonperforming Assets (NPAs):          
Nonperforming loans:          
Non-covered loans:          
 Residential  $ 1,864  $ 2,068  $ 1,646  $ 1,618  $ 898
 Construction  14  163  896  443  1,048
 Acquisition and development  2,560  340  691  2,890  3,419
 Commercial land  4,360  5,034  3,252  6,148  3,640
 Other commercial real estate  4,800  9,566  4,127  1,422  1,841
 Commercial business  287  720  742  131  140
 Consumer  2,529  1,930  1,652  1,083  1,004
Total non-covered nonperforming loans  16,414  19,821  13,006  13,735  11,990
Total nonperforming loans covered by FDIC loss-share (4)  25,541  22,416  24,924  15,846  --
Other real estate owned - non-covered  7,650  8,557  8,239  5,386  5,067
Other real estate owned - covered by FDIC loss-share  7,002  3,183  2,343  2,009  --
Total nonperforming assets  $ 56,607  $ 53,977  $ 48,512  $ 36,976  $ 17,057
           
Capital Ratios:          
Tangible common equity 6.69% 6.74% 6.86% 5.78% 6.47%
Total Risk-Based Capital (Bank only) 17.20% 16.83% 16.78% 15.53% 14.07%
Tier 1 Risk-Based Capital (Bank only) 15.47% 15.58% 15.52% 14.47% 12.98%
Tier 1 Total Capital (Bank only) 9.74% 9.58% 9.74% 9.18% 10.44%
           
           
(1) Includes the gain on acquisition of Bank of Hiawassee of $18.7 million for the quarter ended March 31, 2010. Subsequent adjustments in the amounts of $605,000, $193,000, and $148,000 were made for the quarters ended June 30, 2010, September 30, 2010, and December 31, 2010, respectively. 
(2) Includes $29.6 million impairment of goodwill for the quarter ended December 31, 2009. Also includes acquisition and integration expenses of $787,000, $94,000, $141,000, and $42,000 for the quarters ended March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010, respectively.
(3) The contractual balance of past due loans covered by FDIC loss-share agreements totaled $13.8 million, $6.4 million, $14.8 million and $7.0 million at March 31, 2010, June 30, 2010, September 30, 2010, and December 31, 2010, respectively.
(4) The contractual balance of nonperforming loans covered by FDIC loss-share agreements totaled $29.0 million, $35.4 million, $29.1 million and $31.2 million at March 31, 2010, June 30, 2010, September 30, 2010, and December 31, 2010, respectively.
 
 
CITIZENS SOUTH BANKING CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2010 and 2009    
  2010 2009
(Dollars in thousands, except per share) (Unaudited)  
     
ASSETS    
Cash and cash equivalents:    
 Cash and due from banks  $ 15,110  $ 8,925
 Interest-earning bank balances  105,789  44,255
 Cash and cash equivalents  120,899  53,180
Investment securities available for sale, at fair value  84,250  50,990
Investment securities held to maturity, at amortized cost  27,336  32,380
Federal Home Loan Bank stock, at cost  5,715  4,149
Presold loans in process of settlement  4,034  --
Loans:    
 Covered by FDIC loss-share agreements  147,576  --
 Not covered by FDIC loss-share agreements  588,934  610,201
 Allowance for loan losses  (11,924)  (9,189)
 Net loans  724,586  601,012
Other real estate owned   14,652  5,067
Premises and equipment, net  23,785  15,436
FDIC loss share receivable  24,848  --
Accrued interest receivable  3,001  2,430
Bank-owned life insurance  18,230  17,522
Intangible assets  1,690  570
Other assets  11,461  8,796
 Total assets  $ 1,064,487  $ 791,532
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Deposits  $ 850,456  $ 609,345
Securities sold under repurchase agreements  9,432  8,970
Borrowings  101,246  97,629
Other liabilities  9,910  3,266
 Total liabilities  971,044  719,210
     
Commitments and contingencies    
     
Shareholders' Equity    
Preferred stock, $0.01 par value, Authorized: 1,000,000 shares;     
 Issued and outstanding: 20,500 shares  20,672  20,589
Common stock, $0.01 par value, Authorized: 20,000,000 shares;     
 Issued: 11,561,464 and 9,062,727 shares respectively;    
 Outstanding: 11,508,750 and 7,526,854 shares respectively  124  91
Additional paid-in-capital  63,000  48,528
Retained earnings, substantially restricted  9,663  3,411
Accumulated other comprehensive income (loss)   (16)  (297)
 Total shareholders' equity  93,443  72,322
 Total liabilities and shareholders' equity  $ 1,064,487  $ 791,532
     
 
CITIZENS SOUTH BANKING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
         
  Three Months Ended Twelve Months Ended
  December 31, 2010 December 31, 2009 December 31, 2010 December 31, 2009
(Dollars in thousands, except per share data)        
         
INTEREST INCOME        
Interest and fees on loans  $ 10,297  $ 8,327  $ 40,540  $ 33,677
Investment securities:        
Taxable interest income  543  693  2,489  3,397
Tax-exempt interest income  67  208  544  1,127
Other interest income  78  53  314  100
Total interest income  10,985  9,281  43,887  38,301
INTEREST EXPENSE        
Demand deposits and savings  572  634  2,625  2,668
Time deposits  1,819  1,770  7,637  9,251
Borrowings  1,020  1,127  4,416  4,608
Total interest expense  3,411  3,531  14,678  16,527
         
Net interest income  7,574  5,750  29,209  21,774
Provision for loan losses  5,000  4,155  14,050  10,980
Net interest income after provision for loan losses  2,574  1,595  15,159  10,794
NONINTEREST INCOME        
Service charges on deposit accounts  1,039  829  3,932  3,256
Mortgage banking income  497  227  1,525  1,202
Commissions on sales of financial products  67  54  426  191
Income from bank-owned life insurance  205  200  832  770
Gain from acquisition  148  --  19,679  --
Gain on sale of investments, available for sale  --  917  349  2,198
Loss on sale of other assets  (39)  (20)  (490)  (285)
Other income  357  174  911  640
Total noninterest income  2,274  2,381  27,164  7,972
NONINTEREST EXPENSE        
Compensation and benefits  3,529  2,229  13,598  9,818
Occupancy and equipment expense  848  613  3,302  2,570
Advertising and business development  101  63  333  365
Professional services  252  352  981  1,059
Data processing fees  189  136  702  525
FDIC deposit insurance  356  251  1,326  1,076
Amortization of intangible assets  144  71  517  314
Valuation adjustment on other real estate owned  295  163  1,382  338
Impairment on investment securities  435  207  435  754
Impairment of goodwill  --  29,641  --  29,641
Acquisition and integration expenses  42  --  1,064  --
Other expenses  1,727  1,141  5,695  3,812
Total noninterest expense  7,918  34,867  29,335  50,272
         
Income before income tax expense (benefit)  (3,070)  (30,891)  12,988  (31,506)
Income tax expense (benefit)  (1,331)  (611)  4,349  (1,499)
Net income (loss)  (1,739)  (30,280)  8,639  (30,007)
Dividends on preferred stock  256  259  1,025  1,034
         
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS  $ (1,995)  $ (30,539)  $ 7,614  $ (31,041)
         
Net income (loss) per common share:        
Basic   $ (0.18)  $ (4.11)  $ 0.78  $ (4.19)
Diluted  (0.18) (4.11) 0.78 (4.19)
         
CONTACT: Gary F. Hoskins, CFO
         (704) 884-2263
         gary.hoskins@citizenssouth.com

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