Citizens South Banking Corporation Announces Fourth Quarter and Annual Earnings Results for 2010

/ Source: GlobeNewswire

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 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

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. 

CONTACT: Gary F. Hoskins, CFO (704) 884-2263 gary.hoskins@citizenssouth.com