updated 4/25/2011 4:17:19 PM ET 2011-04-25T20:17:19

GASTONIA, N.C., April 25, 2011 (GLOBE NEWSWIRE) -- Citizens South Banking Corporation (Nasdaq:CSBC), the parent company of Citizens South Bank, reported a net loss available to common stockholders of $1.1 million, or $0.10 per diluted share, for the quarter ended March 31, 2011, compared to net income available to common stockholders of $10.0 million, or $1.29 per diluted share, for the quarter ended March 31, 2010. The financial results for the quarter ended March 31, 2010, included an $18.7 million pre-tax gain related to the acquisition of Bank of Hiawassee and $787,000 in acquisition-related expenses.

President Kim S. Price stated, "We are encouraged by a number of indicators in this quarter's results, including healthy expansion of our net interest margin, continued growth in our core deposits, and a decrease in our level of past due loans. We continue to focus on ways to improve our asset quality while continuing to build the level of our loan loss reserves."

First Quarter Financial Highlights:

Credit Quality

The Company's credit quality results for the quarter are mixed but continue to compare favorably with southeastern peers as the Company reported lower net charge-offs,  fewer past due loans, and higher loan loss reserves during the first quarter. These positive trends are accompanied by higher levels of non-covered nonperforming assets. The Company's level of past due non-covered loans (loans not covered under FDIC loss-share agreements) decreased during the first quarter by $8.1 million, or 58.7%, to 0.97% of total non-covered loans at March 31, 2011. This represented the Company's lowest level of past due non-covered loans in over two years. In addition, criticized and classified assets decreased during the first quarter of 2011. Criticized assets decreased by 6.0% from $76.4 million, or 13.0% of non-covered loans at December 31, 2010, to $71.6 million, or, 12.2% of non-covered loans at March 31, 2011. Also, classified assets decreased from $52.2 million, or 8.9% of non-covered loans at December 31, 2010, to $51.3 million, or 8.7% of non-covered loans at March 31, 2011. 

As loans continue to move through the disposition process, updated collateral values are obtained and loans are written down on the Company's books to fair value. As a result, net charge-offs during the first quarter of 2011 totaled $2.9 million, or 1.99% of average non-covered loans, as compared to $3.8 million, or 2.59% of average non-covered loans during the fourth quarter of 2010. Also as part of the disposition process, we transferred a number of past due loans to nonaccrual status during the quarter. This contributed to a $9.2 million increase in non-covered nonperforming assets to $33.2 million, or 3.19% of total assets, at March 31, 2011. 

Due in part to the decline in net charge-offs and past due loans during the quarter, the Company reduced its loan loss provision from $5.0 million during the fourth quarter of 2010 to $3.0 million during the first quarter of 2011. Despite this decrease in the loan loss provision, our allowance for loan losses to total non-covered loans increased from 2.02% at December 31, 2010, to 2.05% at March 31, 2011. 

President Price commented, "The general economy and local real estate markets continue to be choppy with some signs of improving lot and home sales as well as declining levels of unemployment. These factors have resulted in slower inflows of delinquent loans."

Net Interest Margin

The Company's net interest margin improved by 17 basis points on a linked quarter basis from 3.25% for the fourth quarter of 2010 to 3.42% for the first quarter of 2011. This improvement was largely due to a 19 basis point decrease in the Company's cost of funds. Given the Company's high level of liquidity coupled with strong core deposit growth, we have been able to either repay maturing time deposits or reprice these time deposits at lower market rates at maturity. Also, during the quarter the Company invested approximately $40 million in U.S. Government agency mortgage-backed securities using excess liquidity.  

Balance Sheet Changes

Despite some improving trends in local economic conditions, loan demand remains soft. Total non-covered loans decreased by $2.0 million during the quarter. However, all of this decrease was experienced in January as we experienced slight increases in total non-covered loans for the last two months of the quarter.   Management continues to work on reducing the Company's exposure in the residential construction and acquisition and development loan portfolios while continuing to focus on increasing business loans to the professional market, owner-occupied commercial real estate loans, and residential and personal loans to qualified consumers.

The Company continues to experience strong core deposit growth. During the first quarter of 2011, non-time core deposits increased by $8.7 million, or 8.7% annualized, to $410.7 million. This growth was primarily driven by non-interest bearing demand deposit accounts, which increased by $8.3 million, or 47.3% annualized, for the first quarter of 2011. The strong growth in core deposits is 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 Company's tangible common equity ratio increased from 6.69% at December 31, 2010, to 6.73% at March 31, 2011. The Bank's capital levels continue to exceed all regulatory capital measures and the Bank was considered "well-capitalized" for regulatory purposes at March 31, 2011. This is the highest capital designation established by the Bank's regulatory authorities. At March 31, 2011, the Bank's total risk-based capital ratio was 16.68%, which was 167% higher than the 10.00% regulatory minimum capital ratio to be considered "well-capitalized." The Company's capital position continues to be a source of strength and provides a competitive advantage during these uncertain economic times. 

Income Statement Changes

Excluding acquisition-related items, the Company's noninterest income increased by $281,000, or 19.4%, for the first quarter of 2011. This increase was largely due to a $158,000 increase in service charges on deposit accounts, a $27,000 increase in mortgage banking income and a $113,000 increase in other noninterest income.

Noninterest expense increased by $1.3 million, or 20.7%, during the first quarter of 2011 to $7.7 million for the quarter ended March 31, 2011. This increase was primarily related to the Bank of Hiawassee acquisition and increased credit-related expenses arising from the disposition of troubled assets. As a result of the acquisition, the Company added five additional offices, for a total of 21 offices.

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 March 31, 2011, the Company had $1.0 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, 2010, describe some of these factors.

Quarterly Financial Highlights (unaudited) At and For the Quarters Ended
  2011 2010
  March 31 December 31 September 30 June 30 March 31
(Dollars in thousands, except per share data)          
           
Summary of Operations:          
Interest income - taxable equivalent  $ 10,457  $ 11,055  $ 11,675  $ 12,308  $ 9,210
Interest expense  2,855  3,411  3,790  4,083  3,393
Net interest income - taxable equivalent  7,602  7,644  7,885  8,225  5,817
Less: Taxable-equivalent adjustment  70  70  79  114  98
Net interest income  7,532  7,574  7,806  8,111  5,719
Provision for loan losses  3,000  5,000  3,000  3,000  3,050
Net interest income after loan loss provision  4,532  2,574  4,806  5,111  2,669
Noninterest income  1,478  2,274  2,290  2,415  20,185
Noninterest expense  7,672  7,918  7,781  7,279  6,356
Net income (loss) before income taxes  (1,662)  (3,070)  (685)  247  16,498
Income tax expense (benefit)  (771)  (1,331)  (413)  (108)  6,201
Net income (loss)  (891)  (1,739)  (272)  355  10,297
Dividends on preferred stock  256  256  256  257  257
Net income (loss) available to common shareholders  $ (1,147)  $ (1,995)  $ (528)  $ 98  $ 10,040
           
Per Common Share Data:          
Net income:          
Basic  $ (0.10)  $ (0.18)  $ (0.05)  $ 0.01  $ 1.29
Diluted  (0.10)  (0.18)  (0.05)  0.01  1.29
Weighted average shares outstanding:          
Basic 11,491,734 11,173,174 10,844,386 9,077,042 7,786,819
Diluted 11,491,734 11,173,174 10,844,386 9,077,042 7,786,819
End of period shares outstanding 11,508,750 11,508,750 10,964,146 10,965,941 9,125,942
           
Cash dividends declared  $ 0.01  $ 0.01  $ 0.04  $ 0.04  $ 0.04
Book value   6.22  6.32  6.86  6.91  7.39
Tangible book value  6.09  6.17  6.70  6.73  7.16
           
Selected End of Period Balances:          
Total assets  $ 1,041,444  $ 1,064,487  $ 1,087,558  $ 1,077,431  $ 1,132,652
Loans, net  724,655  736,510  754,740  776,234  787,643
Investment securities  154,006  111,586  87,255  97,678  100,161
Deposits  832,803  850,456  865,786  853,526  884,127
Shareholders' equity  92,276  93,443  95,682  96,410  96,390
           
Selected Quarterly Average Balances:          
Total assets  $ 1,053,747  $ 1,075,338  $ 1,080,680  $ 1,105,788  $ 873,418
Loans, net   726,346  747,054  767,381  780,209  599,826
Investment securities  135,645  100,691  91,361  100,501  89,020
Deposits  841,387  853,185  853,902  859,408  614,007
Shareholders' equity  93,533  94,761  96,258  96,282  78,292
           
Selected Financial Performance Ratios (annualized) :          
Return on average assets -0.44% -0.74% -0.20% 0.04% 4.66%
Return on average common equity -6.39% -10.68% -2.77% 0.56% 73.21%
Noninterest income to average total assets (1) 0.56% 0.85% 0.85% 0.87% 9.24%
Noninterest expense to average total assets (2) 2.91% 2.95% 2.88% 2.63% 2.91%
Efficiency ratio (1) (2) 84.49% 79.83% 76.47% 68.41% 24.44%
           
           
Quarterly Financial Highlights (unaudited) At and For the Quarters Ended
  2011 2010
  March 31 December 31 September 30 June 30 March 31
(Dollars in thousands, except per share data)          
           
Net Interest Margin (annualized):          
Yield on earning assets 4.62% 4.68% 4.91% 4.96% 5.02%
Cost of funds 1.32% 1.51% 1.66% 1.72% 2.01%
Net Interest spread 3.30% 3.17% 3.25% 3.24% 3.01%
Net interest margin (taxable equivalent) 3.42% 3.25% 3.42% 3.48% 3.22%
           
Credit Quality Information and Ratios:          
Past due loans (30-89 days) accruing - non-covered  $ 5,692  $ 13,787  $ 6,602  $ 10,145  $ 7,003
Past due loans - non-covered to total non-covered loans 0.97% 2.34% 1.11% 1.68% 1.15%
           
Past due loans (30-89 days) accruing - covered by FDIC loss-share (3)  $ 7,005  $ 5,767  $ 8,701  $ 5,257  $ 11,030
Past due loans - covered to total covered loans 5.09% 3.91% 5.43% 3.07% 6.09%
           
Allowance for loan losses - beginning of period  $ 11,924  $ 10,752  $ 9,796  $ 9,230  $ 9,189
Add: Provision for loan losses  3,000  5,000  3,000  3,000  3,050
Less: Net charge-offs  2,918  3,828  2,044  2,433  3,009
Allowance for loan losses - end of period  12,006  11,924  10,752  9,797  9,230
           
Allowance for loan losses to total non-covered loans 2.05% 2.02% 1.81% 1.62% 1.52%
Net charge-offs to average non-covered loans (annualized) 1.99% 2.59% 1.36% 1.61% 1.98%
Nonperforming non-covered loans to non-covered loans 4.22% 2.79% 3.33% 2.15% 2.26%
Nonperforming non-covered assets to total assets 3.19% 2.26% 2.61% 1.97% 1.78%
Nonperforming non-covered assets to total non-covered loans and other real estate owned 5.58% 4.03% 4.71% 3.46% 3.30%
           
Nonperforming Assets:          
Nonperforming non-covered loans:          
Residential  $ 2,373  $ 1,864  $ 2,068  $ 1,646  $ 1,618
Construction  72  14  163  896  443
Acquisition and development  4,971  2,560  340  691  2,890
Commercial land  4,653  4,360  5,034  3,252  6,148
Other commercial real estate  9,636  4,800  9,566  4,127  1,422
Commercial business  309  287  720  742  131
Consumer  2,742  2,529  1,930  1,652  1,083
Total nonperforming non-covered loans  24,756  16,414  19,821  13,006  13,735
Total nonperforming loans covered by FDIC loss-share (4)  24,392  25,541  22,416  24,924  18,148
Other real estate owned - non-covered  8,463  7,650  8,557  8,239  6,462
Other real estate owned - covered by FDIC loss-share  8,121  7,002  3,183  2,343  933
Total nonperforming assets  $ 65,732  $ 56,607  $ 53,977  $ 48,512  $ 39,278
           
Capital Ratios:          
Tangible common equity 6.73% 6.69% 6.74% 6.86% 5.78%
Total Risk-Based Capital (Bank only) 16.68% 16.80% 16.83% 16.78% 15.53%
Tier 1 Risk-Based Capital (Bank only) 15.43% 15.54% 15.58% 15.52% 14.47%
Tier 1 Total Capital (Bank only) 9.89% 9.74% 9.58% 9.74% 9.18%
 
 
(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, $148,000 and ($255,000) were made for the quarters ended June 30, 2010, September 30, 2010, December 31, 2010, and March 31, 2011, respectively. 
(2) 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, $7.0 million and $7.7 million at March 31, 2010, June 30, 2010, September 30, 2010, December 31, 2010, and March 31, 2011, respectively.
(4) The contractual balance of nonperforming loans covered by FDIC loss-share agreements totaled $29.0 million, $35.4 million, $29.1 million, $31.2 million and $28.7 million at March 31, 2010, June 30, 2010, September 30, 2010, December 31, 2010, and March 31, 2011 respectively.
 
 
CITIZENS SOUTH BANKING CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
     
  March 31, 2011 December 31, 2010
(Dollars in thousands, except per share) (unaudited)  
     
ASSETS    
Cash and cash equivalents:    
Cash and due from banks  $ 10,398  $ 15,110
Interest-earning bank balances  57,359  105,789
Cash and cash equivalents  67,757  120,899
Investment securities available for sale, at fair value  71,116  74,308
Investment securities held to maturity, at amortized cost  82,890  37,278
Federal Home Loan Bank stock, at cost  5,715  5,715
Presold loans in process of settlement  1,255  4,034
Loans:    
Covered by FDIC loss-share agreements  137,758  147,576
Not covered by FDIC loss-share agreements  586,897  588,934
Allowance for loan losses  (12,006)  (11,924)
Net loans  712,649  724,586
Other real estate owned   16,584  14,652
Premises and equipment, net  23,587  23,785
FDIC loss share receivable  25,611  24,848
Accrued interest receivable  2,829  3,001
Bank-owned life insurance  18,386  18,230
Intangible assets  1,551  1,690
Other assets  11,514  11,461
Total assets  $ 1,041,444  $ 1,064,487
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Deposits:    
Non-interest bearing demand  $ 78,342  $ 70,056
Interest-bearing demand  169,482  172,414
Money market accounts  145,319  142,538
Savings  17,565  17,004
Time deposits  422,095  448,444
Total deposits  832,803  850,456
Securities sold under repurchase agreements  11,389  9,432
Borrowings  96,257  101,246
Other liabilities  8,719  9,910
Total liabilities  949,168  971,044
     
Commitments and contingencies    
     
Shareholders' Equity    
Preferred stock, $0.01 par value, Authorized: 1,000,000 shares; 

Issued and outstanding: 20,500 shares
 20,692  20,672
Common stock, $0.01 par value, Authorized: 20,000,000 shares;

Issued: 11,561,464 and 10,517,127 shares respectively;

Outstanding: 11,508,750 and 9,125,942 shares respectively
 124  124
Additional paid-in-capital  63,064  63,000
Retained earnings, substantially restricted  8,382  9,663
Accumulated other comprehensive income (loss)   14  (16)
Total shareholders' equity  92,276  93,443
Total liabilities and shareholders' equity  $ 1,041,444  $ 1,064,487
 
 
CITIZENS SOUTH BANKING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
     
  Three Months Ended
  March 31, 2011 March 31, 2010
(Dollars in thousands, except per share data)    
     
Interest Income:    
Interest and fees on loans  $ 9,461  $ 8,254
Investment securities:    
Taxable interest income  790  617
Tax-exempt interest income  69  191
Other interest income  67  50
Total interest income  10,387  9,112
Interest Expense:    
Deposits  2,002  2,264
Borrowings and repurchase agreements  853  1,129
Total interest expense  2,855  3,393
     
Net interest income  7,532  5,719
Provision for loan losses  3,000  3,050
Net interest income after provision for loan losses  4,532  2,669
Noninterest Income:    
Service charges on deposit accounts  957  799
Mortgage banking income  237  210
Commissions on sales of financial products  67  118
Income from bank-owned life insurance  182  189
Gain (loss) from acquisition  (255)  18,733
Gain on sale of investments, available for sale  --  33
Gain (loss) on sale of other assets  12  (62)
Other income  278  165
Total noninterest income  1,478  20,185
Noninterest Expense:    
Compensation and benefits  3,648  2,643
Occupancy and equipment   828  683
Office supplies   70  41
Advertising and business development  54  57
Professional services  253  234
Telephone and communications  97  72
Data processing fees  183  140
FDIC deposit insurance  334  260
Amortization of intangible assets  139  65
Valuation adjustment on other real estate owned  509  484
Acquisition and integration expenses  45  787
Other expenses  1,512  890
Total noninterest expense  7,672  6,356
     
Income before income tax expense (benefit)  (1,662)  16,498
Income tax expense (benefit)  (771)  6,201
Net income (loss)  (891)  10,297
Dividends on preferred stock  256  257
     
Net income (loss) available to common shareholders  $ (1,147)  $ 10,040
     
Net income (loss) per common share:    
Basic   $ (0.10)  $ 1.29
Diluted  (0.10) 1.29
CONTACT: Gary F. Hoskins, CFO
         (704) 884-2263
         gary.hoskins@citizenssouth.com

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