CFS Bancorp, Inc. Announces Third Quarter Results

MUNSTER, IN, Oct 29 (MARKET WIRE) --
CFS Bancorp, Inc. (NASDAQ: CITZ) (the Company), the parent of Citizens
Financial Bank (the Bank), today reported a net loss of $4.7 million, or
$(0.44) per share for the third quarter of 2009, compared to a net loss
of $1.0 million, or $(0.10) per share for the third quarter of 2008. The
results for the third quarter of 2009 were impacted significantly by a
provision for loan losses of $9.4 million and a $1.3 million valuation
allowance on other real estate owned (OREO), which were attributable to
the impact of rapid declines in real estate collateral values.

For the nine months ended September 30, 2009, the Company reported a net
loss of $2.5 million, or $(0.24) per share, compared to a net loss of $1.6
million or $(0.15) per share for the comparable 2008 period.

Chairman's Comments

"Our financial results for the quarter were disappointing. Rapid declines
in real estate collateral values on nonperforming assets resulted in a
significant increase in our provision for loan losses as well as a $1.3
million increase in the valuation allowance on OREO. In addition, higher
professional fees related to a shareholder derivative demand and higher
FDIC insurance premiums negatively impacted earnings. These factors
exceeded reductions in controllable overhead costs, increases in
non-interest income, and increases in net interest income attributable to
higher net interest margins," said Thomas F. Prisby, Chairman & CEO.

"Despite indications that the national recession may be ending, the local
economy in our northwest Indiana and southwest suburban Chicago market
area remains depressed. Most economists are predicting a very gradual
recovery. Businesses are continuing to struggle to meet their obligations
and the commercial real estate sector is increasingly at risk. Current
declines in the real estate collateral values supporting many of the
Bank's non-performing loans and OREO led to material increases in
impairments, charge-offs and a write down of the value of OREO during the
quarter. These non-performing assets represent a significant drag on
earnings for a number of reasons, and our management team is committed to
addressing these problem credits in an aggressive, yet prudent, manner
within the constraints of current and forecasted market conditions.

"We remain committed to our Strategic Growth and Diversification Plan;
however, given that quality asset growth remains elusive in the current
environment, management intends to continue to opportunistically reduce
costs as appropriate within our longer term Strategic Growth and
Diversification Plan," added Prisby.

Progress on Strategic Growth and Diversification Plan

The Company's Strategic Growth and Diversification Plan is built around
four core objectives: decreasing non-performing loans; ensuring costs are
appropriate given the Company's targeted future asset base; growing while
diversifying by targeting small and mid-sized business owners for
relationship-based banking opportunities; and expanding and deepening the
Company's relationships with its clients by meeting a higher percentage of
the clients' financial service needs.

Progress on the Strategic Growth and Diversification plan has been
negatively impacted by the length and severity of the current recession.
The current recession started in December 2007, according to the National
Bureau of Economic Research (NBER). Even if it had ended, as some economic
observers have indicated, early in the third quarter of 2009, the current
contraction would represent the longest period of U.S. economic
contraction in the post World War II era. For comparison, the average
length of the ten prior postwar contraction periods was ten months.

The Company's ability to achieve targeted earning asset levels has been
hampered by current economic and regulatory conditions. Our efforts to
attract new business banking clients and deepen relationships with current
clients are progressing; however, our successes in this arena have
resulted in slower asset and income growth rates than would be achieved
in normal economic times. Growth remains a strategic priority, but
expectations of future growth are tempered by the reality of the market.
Management believes the Company will be able to achieve quality,
relationship-based loan growth over time and as the economy recovers.

Net Interest Income

Net interest margin increased five basis points to 3.74% for the third
quarter of 2009 from 3.69% for the second quarter of 2009 and 27 basis
points from 3.47% for the third quarter of 2008. Net interest income
increased to $9.4 million compared to $9.3 million for the second quarter
of 2009 and $8.9 million for the third quarter of 2008. Net interest
income continues to be positively affected by lower interest rates on
interest-bearing deposits and borrowed money due to lower market rates
coupled with a decrease in the amortization of the premium on the early
extinguishment of Federal Home Loan Bank (FHLB) debt.

Interest income decreased 2.9% to $12.6 million for the third quarter of
2009 compared to $13.0 million for the second quarter of 2009 and 12.4%
from $14.4 million for the third quarter of 2008. Interest income was
negatively affected during the third quarter of 2009 by an increase in
non-performing assets. The decrease from the third quarter of 2008 was due
to lower market rates of interest during the third quarter of 2009 coupled
with a 9.4% increase in non-performing assets since December 31, 2008.

Interest expense decreased 12.1% to $3.2 million for the third quarter of
2009 from $3.6 million for the second quarter of 2009 and 41.6% from $5.5
million for the third quarter of 2008. Interest expense on deposits was
positively affected by disciplined pricing on deposits, including
certificates of deposit, as current market interest rates remain lower
than 2008. In addition, the amortization of the premium on the early
extinguishment of FHLB debt decreased $246,000 from the third quarter of
2008.

Non-Interest Income and Non-Interest Expense

Excluding available-for-sale security gains and losses, non-interest
income increased $154,000 or 7.2% from the second quarter of 2009
primarily as a result of an increase in service charges and other fees.
Non-interest income excluding available-for-sale security gains and
losses decreased $341,000, or 13.0%, from the third quarter of 2008
resulting from decreases of $161,000 in service charges and other fees
and $131,000 of income on the Company's bank-owned life insurance policy
due to lower interest crediting rates.

Non-interest expense for the third quarter of 2009 increased 3.1% to $10.2
million compared to $9.9 million for the second quarter of 2009 primarily
due to a $1.1 million increase in an OREO valuation reserve caused by the
decline in its net realizable value. The linked quarter increase in
professional fees was $150,000 which was related to a shareholder
derivative demand made late in the first quarter of 2009. The Company
anticipates professional fees to continue to be higher in 2009 as compared
to 2008 because of the derivative demand. Partially offsetting these
increases were linked quarter decreases in compensation and employee
benefits expense totaling $573,000 due to the adjustment of the Company's
incentive accruals and $492,000 of FDIC insurance from the absence of the
special assessment charged in the second quarter of 2009.

Non-interest expense for the third quarter of 2009 increased 18.1% to $
10.2 million from $8.7 million for the third quarter of 2008. The increase
from the 2008 period was primarily a result of increases in
nondiscretionary expense items including the aforementioned increase in
the valuation reserve for other real estate owned; increased FDIC
insurance premiums of $431,000 due to the industry-wide increase in
assessment rates for 2009; and increased professional fees of $375,000
which are primarily related to a shareholder derivative demand made late
in the first quarter of 2009. The Company incurred professional fee
expenses totaling $551,000 for the third quarter of 2009 related to the
shareholder derivative demand.

Asset Quality

The provision for losses on loans for the third quarter of 2009 increased
to $9.4 million from $713,000 for the second quarter of 2009 and from $1.4
million for the third quarter of 2008. Net charge-offs for the third
quarter of 2009 totaled $3.6 million compared to $1.3 million for the
second quarter of 2009 and $3.2 million for the third quarter of 2008. Net
charge-offs during the third quarter of 2009 included the charge-offs of
home equity lines of credit totaling $1.6 million and partial charge-offs
of $1.8 million on several collateral dependent non-owner occupied
commercial real estate and construction and land development loans. The
third quarter provision for losses on loans was also impacted by the
increase in impairment reserves of $4.8 million on three hospitality loans
and $491,000 on a condominium project.

The allowance for losses on loans totaled $20.8 million at September 30,
2009 compared to $15.6 million at December 31, 2008. The ratio of
allowance for losses on loans to total loans increased to 2.78% at
September 30, 2009 compared to 2.07% at December 31, 2008. When management
determines a non-performing collateral dependent loan has a collateral
shortfall, management will immediately charge-off the collateral
shortfall. As a result, the Company is not required to maintain an
allowance for losses on loans on these loans as the loan balance has
already been written down to its net realizable value (fair value less
estimated costs to sell the collateral).

Balance Sheet

At September 30, 2009, the Company's total assets were $1.08 billion
compared to $1.12 billion at December 31, 2008. Securities
available-for-sale totaled $205.9 million at September 30, 2009 compared
to $251.3 million at December 31, 2008. The decrease in securities is
primarily due to maturities and pay downs coupled with sales activity
during 2009. The Company's loans receivable were relatively stable at
$748.5 million at September 30, 2009 compared to $750.0 million at
December 31, 2008.

Deposits increased $23.1 million to $847.2 million at September 30, 2009
from $824.1 million at December 31, 2008 resulting from a $31.5 million
increase in non-municipal core deposits. Investments in the Company's
branch network, technological infrastructure, human capital, and brand
have enhanced its ability to translate existing and new client
relationships into deposit growth. Partially offsetting the increase in
core deposits was an $11.2 million decrease in time deposits. Total
municipal deposits decreased $6.1 million since December 31, 2008
primarily due to seasonal factors. While the Company maintains strong
relationships with its municipal clients, and municipal deposits continue
to comprise an important funding source, management is lowering its
reliance on such funds in anticipation that the recession's impact on
municipalities and other government-related entities will result in lower
municipal deposit levels. The Company's deposits consisted of the
following as of the dates
indicated:

September 30, December 31,
2009 2008
------------ ------------
(Dollars in thousands)
Core deposits $ 440,683 $ 409,184
Certificates of deposit 353,868 356,227
------------ ------------
Subtotal non-municipal deposits 794,551 765,411
------------ ------------
Municipal core deposits 42,024 39,221
Municipal certificates of deposit 10,603 19,465
------------ ------------
Subtotal municipal deposits 52,627 58,686
------------ ------------
Total deposits $ 847,178 $ 824,097
------------ ------------

The Company's borrowed money decreased to $105.4 million at September
30, 2009 from $172.9 million at December 31, 2008 as the Company
continues to strengthen its balance sheet and enhance its liquidity
position. The Company's borrowed money consisted of the following as of
the dates
indicated:

September 30, December 31,
2009 2008
----------- -----------
(Dollars in thousands)
Short-term variable-rate borrowed money and
repurchase agreements $ 18,801 $ 28,312
Gross FHLB borrowed money 86,573 144,800
Unamortized deferred premium (17) (175)
----------- -----------
Total borrowed money $ 105,357 $ 172,937
----------- -----------

Shareholders' equity at September 30, 2009 decreased to $109.5
million from $111.8 million at December 31, 2008 as a result of the
Company's year to date net loss.

At September 30, 2009, our tangible common equity was $109.5 million, or
10.27% of tangible assets compared to $111.8 million, or 10.01% of
tangible assets at December 31, 2008. At September 30, 2009, the Bank's
total capital to risk-weighted assets declined to 12.02% compared to
13.21% at December 31, 2008 as a result of the net loss for the year
combined with a $7.4 million increase in the disallowance of deferred tax
assets for regulatory capital purposes. At September 30, 2009, the Bank's
risk-based capital ratio exceeded the regulatory limit of 10% to be
considered "well-capitalized" by $17.3 million.

CFS Bancorp, Inc. is the parent of Citizens Financial Bank, a $1.1 billion
asset federal savings bank. Citizens Financial Bank is an independent bank
focusing its people, products and services on helping individuals,
businesses and communities be successful. The Bank has 23 offices
throughout adjoining markets in Chicago's Southland and Northwest Indiana.
The Company's website can be found at www.citz.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 current regulatory capital and equity
ratios, general economic conditions, state of the banking industry,
successful execution of the Company's strategy and its Strategic Growth
and Diversification Plan, levels of provision for the allowance for
losses on loans and charge-offs, loan and deposit growth, diversification
of the loan portfolio, non-performing asset levels, interest on loans,
asset yields and cost of funds, net interest income, net interest margin,
non-interest income, non-interest expense, interest rate environment,
bank-owned life insurance interest rates, the expected effect of
amortization of deferred premium on the FHLB debt; realization of
deferred tax assets; and other risk factors identified in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2008,
as amended, and other filings with the Securities and Exchange
Commission. 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,
assumptions and changes in circumstances. Forward-looking statements are
not guarantees of future performance or outcomes, and actual results or
events may differ materially from those included in these statements. The
Company does not intend to update these forward-looking statements.

SELECTED CONSOLIDATED FINANCIALS AND OTHER DATA FOLLOW

CFS BANCORP, INC.
Highlights (Unaudited)
(Dollars in thousands, except per share data)

EARNINGS
HIGHLIGHTS AND
PERFORMANCE
RATIOS (1) Three Months Ended Nine Months Ended
------------------------------ ---------------------
September June 30, September September September
30, 2009 2009 30, 2008 30, 2009 30, 2008
--------- ------- --------- --------- ---------
Net income/(loss) $ (4,671) $ 670 $ (1,039) $ (2,540) $ (1,555)
Basic
earnings/(loss)
per share (0.44) 0.06 (0.10) (0.24) (0.15)
Diluted
earnings/(loss)
per share (0.44) 0.06 (0.10) (0.24) (0.15)
Cash dividends
declared per
share 0.01 0.01 0.12 0.03 0.36
Return on average
assets (1.70)% 0.24% (0.37)% (0.31)% (0.18)%
Return on average
equity (16.06) 2.41 (3.36) (3.00) (1.62)
Average yield on
interest-earning
assets 5.01 5.13 5.60 5.12 5.79
Average cost on
interest-bearing
liabilities 1.43 1.60 2.41 1.60 2.80
Interest rate
spread 3.58 3.53 3.19 3.52 2.99
Net interest
margin 3.74 3.69 3.47 3.68 3.31
Average equity to
average assets (2) 10.60 10.15 11.17 10.28 11.28
Average
interest-earning
assets to average
interest-bearing
liabilities (2) 112.26 111.48 113.55 111.71 113.13
Non-interest
expense to
average assets 3.73 3.63 3.13 3.60 2.86
Efficiency ratio 85.43 86.76 107.67 83.24 81.90
Market price per
share of common
stock for the
period ended:
Closing $ 4.68 $ 4.23 $ 9.25 $ 4.68 $ 9.25
High 4.68 4.33 11.84 4.80 14.93
Low 3.75 3.50 8.10 1.75 8.10

STATEMENT OF CONDITION
HIGHLIGHTS September June 30, December September
(at period end) 30, 2009 2009 31, 2008 30, 2008
----------- ----------- ----------- -----------
Total assets $ 1,078,420 $ 1,094,679 $ 1,121,855 $ 1,113,418
Loans receivable, net
of unearned fees 748,464 750,861 749,973 742,298
Total deposits 847,178 831,104 824,097 832,223
Total stockholders'
equity 109,499 115,450 111,809 121,101
Book value per common
share 10.16 10.73 10.47 11.34
Non-performing loans 55,980 52,897 54,701 47,799
Non-performing assets 63,401 60,268 57,943 51,146
Allowance for losses on
loans 20,799 14,934 15,558 8,664
Non-performing loans to
total loans 7.48% 7.04% 7.29% 6.44%
Non-performing assets
to total assets 5.88 5.51 5.16 4.59
Allowance for losses on
loans to
non-performing loans 37.15 28.23 28.44 18.13
Allowance for losses on
loans to total loans 2.78 1.99 2.07 1.17

Employees (FTE) 308 318 322 310
Banking centers and
offices 23 22 22 22

Three Months Ended Nine Months Ended
----------------------------------- -----------------------
AVERAGE BALANCE September June 30, September September September
DATA 30, 2009 2009 30, 2008 30, 2009 30, 2008
----------- ----------- ----------- ----------- -----------
Total assets $ 1,089,110 $ 1,099,750 $ 1,103,127 $ 1,101,028 $ 1,139,928
Loans
receivable,
net of
unearned fees 747,491 750,861 728,312 750,071 752,672
Total
interest-earning
assets 996,045 1,013,480 1,021,029 1,012,927 1,054,772
Total
liabilities 973,699 988,177 979,934 987,873 1,011,342
Total deposits 840,417 845,617 839,378 836,566 853,847
Interest-bearing
deposits 771,076 781,108 775,960 770,647 791,490
Non-interest
bearing
deposits 69,341 64,509 63,418 65,919 62,357
Total
interest-bearing
liabilities 887,298 909,148 899,218 906,786 932,388
Stockholders'
equity 115,411 111,573 123,193 113,155 128,586

(1) Ratios are annualized where appropriate.
(2) Ratios calculated on average balances for the periods presented.

CFS BANCORP, INC.
Condensed Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)

For the Nine Months
For the Three Months Ended Ended
---------------------------------- ----------------------
September June 30, September September September
30, 2009 2009 30, 2008 30, 2009 30, 2008
---------- ---------- ---------- ---------- ----------
Interest
income:
Loans $ 9,648 $ 9,807 $ 10,739 $ 29,400 $ 34,823
Securities 2,742 3,020 3,278 8,805 9,529
Other 195 137 347 575 1,358
---------- ---------- ---------- ---------- ----------
Total
interest
income 12,585 12,964 14,364 38,780 45,710
Interest
expense:
Deposits 2,431 2,749 4,058 8,276 14,300
Borrowings 758 880 1,399 2,598 5,241
---------- ---------- ---------- ---------- ----------
Total
interest
expense 3,189 3,629 5,457 10,874 19,541
---------- ---------- ---------- ---------- ----------
Net interest
income 9,396 9,335 8,907 27,906 26,169
Provision for
losses on
loans 9,430 713 1,441 10,767 9,355
---------- ---------- ---------- ---------- ----------
Net interest
income (loss)
after
provision for
losses
on loans (34) 8,622 7,466 17,139 16,814
Non-interest
income:
Service
charges and
other fees 1,479 1,376 1,640 4,154 4,544
Card-based
fees 429 432 408 1,249 1,203
Commission
income 56 70 88 197 281
Available-for-
sale security
gains
(losses), net 321 - (3,470) 1,041 (3,983)
Other asset
gains
(losses), net (15) (6) 11 (21) 8
Income from
bank-owned
life
insurance 218 156 349 552 1,129
Other income 112 97 124 504 445
---------- ---------- ---------- ---------- ----------
Total
non-interest
income 2,600 2,125 (850) 7,676 3,627
Non-interest
expense:
Compensation
and employee
benefits 4,505 5,078 4,510 14,758 13,025
Net occupancy
expense 763 750 865 2,410 2,406
FDIC insurance
premiums 471 963 40 1,738 120
Professional
fees 754 604 379 1,708 865
Furniture and
equipment
expense 526 520 562 1,581 1,656
Data
processing 407 420 387 1,246 1,329
Marketing 155 218 289 571 675
OREO related
expenses 1,343 212 89 1,754 279
Loan
collection
expenses 290 230 311 818 404
Other general
and
administrative
expenses 1,034 948 1,243 3,035 3,645
---------- ---------- ---------- ---------- ----------
Total
non-interest
expense 10,248 9,943 8,675 29,619 24,404
---------- ---------- ---------- ---------- ----------
Income (loss)
before income
taxes (7,682) 804 (2,059) (4,804) (3,963)
Income tax
expense
(benefit) (3,011) 134 (1,020) (2,264) (2,408)
---------- ---------- ---------- ---------- ----------
Net income
(loss) $ (4,671) $ 670 $ (1,039) $ (2,540) $ (1,555)
========== ========== ========== ========== ==========
Per share data:
Basic earnings
(loss) per
share $ (0.44) $ 0.06 $ (0.10) $ (0.24) $ (0.15)
Diluted
earnings
(loss) per
share $ (0.44) $ 0.06 $ (0.10) $ (0.24) $ (0.15)
Cash dividends
declared per
share $ 0.01 $ 0.01 $ 0.12 $ 0.03 $ 0.36
Weighted-average
shares
outstanding 10,603,828 10,590,591 10,269,945 10,563,814 10,315,899
Weighted-average
diluted
shares
outstanding 10,695,719 10,697,387 10,406,919 10,674,247 10,539,043

CFS BANCORP, INC.
Condensed Consolidated Statements of Condition (Unaudited)
(Dollars in thousands)

September June 30, December September
30, 2009 2009 31, 2008 30, 2008
----------- ----------- ----------- -----------
ASSETS
Cash and amounts due
from depository
institutions $ 22,040 $ 20,553 $ 15,714 $ 16,328
Interest-bearing
deposits 261 36 3,133 6,095
Federal funds sold - 234 259 312
----------- ----------- ----------- -----------
Cash and cash
equivalents 22,301 20,823 19,106 22,735

Securities
available-for-sale, at
fair value 205,877 220,324 251,270 249,636
Securities
held-to-maturity, at
cost 6,000 6,000 6,940 3,500
Investment in Federal
Home Loan Bank stock,
at cost 23,944 23,944 23,944 23,944

Loans receivable, net
of unearned fees 748,464 750,861 749,973 742,298
Allowance for losses
on loans (20,799) (14,934) (15,558) (8,664)
----------- ----------- ----------- -----------
Net loans 727,665 735,927 734,415 733,634

Interest receivable 3,614 3,902 4,325 4,584
Other real estate owned 7,421 7,371 3,242 3,347
Office properties and
equipment 20,612 19,703 19,790 19,907
Investment in
bank-owned life
insurance 36,662 36,449 36,606 36,435
Net deferred tax assets 16,997 14,725 15,494 8,803
Other assets 7,327 5,511 6,723 6,893
----------- ----------- ----------- -----------
Total assets $ 1,078,420 $ 1,094,679 $ 1,121,855 $ 1,113,418
=========== =========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits $ 847,178 $ 831,104 $ 824,097 $ 832,223
Borrowed money 105,357 132,302 172,937 141,146
Advance payments by
borrowers for taxes
and insurance 7,349 6,121 4,320 7,009
Other liabilities 9,037 9,702 8,692 11,939
----------- ----------- ----------- -----------
Total liabilities 968,921 979,229 1,010,046 992,317
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; 10,773,173,
10,764,458,
10,674,511 and
10,676,483 shares
outstanding 234 234 234 234
Additional paid-in
capital 188,930 189,004 189,211 189,966
Retained earnings 78,675 83,455 81,525 91,696
Treasury stock, at
cost; 12,650,133,
12,658,848,
12,748,795 and
12,746,823 shares (157,041) (157,508) (157,466) (157,439)
Unallocated common
stock held by
Employee Stock
Ownership Plan - - (832) (2,892)
Accumulated other
comprehensive income
(loss), net of tax (1,299) 265 (863) (464)
----------- ----------- ----------- -----------
Total stockholders'
equity 109,499 115,450 111,809 121,101
----------- ----------- ----------- -----------
Total liabilities
and stockholders'
equity $ 1,078,420 $ 1,094,679 $ 1,121,855 $ 1,113,418
=========== =========== =========== ===========

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