CZNB Citizens Bancorp (CE)

Today, Citizens Bancorp (the “Company”) (OTCBB:CZNB), the holding company of Citizens Bank of Northern California (the “Bank”), announced operating results for the second quarter of 2010. During the quarter, the Company maintained its strong net interest margin which improved to 4.77% for the three month period ended June 30, 2010, from 4.58% for the same period in 2009. The Company recorded increased provisions for credit losses of $6.9 million in the second quarter, due to continued declines in the value of real estate in the Company’s primary market area, resulting in a net loss for the three and six month periods ended June 30, 2010 of $4.9 million and $4.5 million, respectively, compared to a net loss of $448 thousand and $2.1 million, respectively, for the same periods in 2009. Operating results were positively impacted by the reversal of liabilities totaling $1.3 million associated with the cancellation of certain deferred compensation agreements in the quarter ended June 30, 2010, compared to the reversal of $451 thousand in the same period of the prior year. The loss per share for the three and six month periods ended June 30, 2010 was $2.10 and $1.96, respectively, compared to $0.23 and $1.08 for the same periods of 2009, respectively.

Net interest income was $3.6 million for the three month period ended June 30, 2010, a decrease of $110 thousand, or 3%, as compared to $3.7 million for the same period in 2009. Net interest income was $7.2 million for the six month period ended June 30, 2010, a decrease of $58 thousand, or 1%, as compared to $7.3 million for the same period of 2009. The Company’s net interest margin increased from 4.58% and 4.40% in the three and six month periods ended June 30, 2009, respectively, to 4.77% and 4.66% in the three and six month periods ended June 30, 2010, primarily as a result of a lower cost of funds. The cost of funds decreased 52 basis points from 1.29% for the three month period ended June 30, 2009 to 0.77% for the same period in 2010 and decreased 61 basis points from 1.42% for the six month period ended June 30, 2009 to 0.81% for the same period in 2010. Average earning assets for the three months ended June 30, 2010 decreased by $21.9 million, or 7%, to $305.9 million compared to $327.8 million for the same period in 2009. For the six month period, average earning assets decreased by $17.2 million, or 5%, from $330.0 million in 2009 to $312.8 million in 2010. As of June 30, 2010, the Company’s loan to deposit ratio was 105.9% compared with 101.9% at June 30, 2009. Forgone interest on non-accrual and restructured loans adversely impacted the net interest margin by 0.91% and 1.00% for the three and six month periods ended June 30, 2010, respectively, compared to 0.80% and 0.63% for the three and six month periods ended June 30, 2009.

Underlying real estate collateral values continued to decline over the past year which reflects what has taken place in the local economy, requiring additional reserves for credit losses. The provision for credit losses for the six month period ended June 30, 2010 was $7.5 million, an increase of $4.0 million compared to the $3.5 million recorded during the same period in 2009. Costs and impairment charges associated with other real estate owned (“OREO”) were $454 thousand for the six month period ended June 30, 2010, compared to $2.1 million during the same period in 2009. Operating results for the six month period ended June 30, 2010, were positively impacted by the reversal of liabilities totaling $1.3 million associated with the cancellation of certain deferred compensation agreements, compared to the reversal of $451 thousand in the same period of the prior year.

Consistent with the Company’s plan to reduce assets and improve its capital ratios, total assets decreased $55.3 million, or 14%, to $325.9 million as of June 30, 2010, from $381.2 million as of June 30, 2009. The Company continues to maintain strong liquidity with $27.8 million in cash and cash equivalents at June 30, 2010. Total loans for the Company as of June 30, 2010 were $289.3 million, a decrease of $25.4 million, or 8%, from $314.7 million as of June 30, 2009. Over the same period, deposits decreased $35.4 million, or 11%, to $273.3 million at June 30, 2010, compared to $308.7 million at June 30, 2009. The decrease in deposits primarily reflects brokered deposit maturities of $23.1 million.

Non-performing assets increased to $35.4 million at June 30, 2010, compared to $31.7 million at June 30, 2009. During the three and six month periods ended June 30, 2010, the Company recorded a provision for credit losses of $6.9 million and $7.5 million, respectively, compared to $1.5 million and $3.5 million for the three and six month periods ended June 30, 2009. The allowance for credit losses equaled 5.50% of total loans at June 30, 2010, compared to 4.54% at June 30, 2009. The allowance for credit losses as a percent of non-accrual loans totaled 58.9% and 56.3% at June 30, 2010 and 2009, respectively.

Gary Gall, President and CEO said, “We continue to increase our provision for credit losses to offset potential future losses due to our nonperforming asset levels. Our core operations continue to generate significant revenue, and we are in the process of implementing various cost saving measures to further improve operating results. We will also start to see increases in non-interest income from our new SBA Lending Division during the second half of 2010. Despite losses in the first half of 2010, the Company has a strong core operation, which speaks highly of our branch system. We have continuously maintained a net interest margin that ranks in the top quartile of banks in the state and nationally.” He continued, “Our responsive and personalized approach continues to support the recognition of our high quality service. For the 11th year in a row, the quality of our service was voted “Best in Nevada County” by the readers of The Union newspaper. We take great pride in giving back to the community as evidenced by the commitment of our Board of Directors and valued employees who continue to make a real difference by volunteering in 81 local organizations, serve on 31 boards of directors and contribute to 66 organizations.”

During the six month period ended June 30, 2010, the decrease in non-interest expense of $2.5 million over the same period in 2009, was primarily the result of lower expenses related to OREO and the reversal of liabilities totaling $1.3 million associated with certain deferred compensation agreements that were cancelled in June 2010. In the six month period ended June 30, 2010, the Bank recorded a loss on the sale or write-down of OREO of $358 thousand compared to $1.9 million for the same period of 2009.

The Bank’s Tier 1 leverage capital ratio declined to 5.7% at June 30, 2010 from 6.8% at March 31, 2010. In order to strengthen the balance sheet of the Bank and attain a 9% Tier 1 capital ratio level, preparations are underway for an initial public offering in which we seek to raise new capital beginning in September of 2010. In order to preserve capital, in August 2009 the Company began deferring TARP dividend payments, and in July 2010 began deferring interest payments on trust preferred securities.

This release may contain certain forward-looking statements that are based on management’s current expectations regarding economic, legislative, and regulatory issues that may impact the Company’s earnings in future periods. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words “believe”, “expect”, “intend”, “estimate” or words of similar meaning, or future or conditional verbs such as “will”, “would”, “should”, “could” or “may”. Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, real estate values, and competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory and technological factors affecting the Bank’s operations, pricing, products and services. These and other important factors are detailed in various Federal Deposit Insurance Corporation filings made periodically by the Bank, copies of which are available from the Bank without charge. The Company or the Bank undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

Citizens Bank of Northern California (the “Bank”) was founded in February 1995, and is headquartered in Nevada City, California. The Bank became a wholly owned subsidiary of the Company in 2003. The Bank has six branches serving communities throughout Nevada County, including locations in Nevada City, Grass Valley, Penn Valley, Lake of the Pines, and Truckee. In addition to its Nevada County branches, the Bank services the needs of its Placer County customers with a branch located in Auburn. The Bank offers consumer loans and other traditional banking products and services, designed to meet the needs of small and middle market businesses and individuals.

 

Citizens Bancorp

Selected Financial Highlights For the three and six month periods ended June 30, 2010 and 2009  

 

      3 months     3 months    

Change %

    6 months     6 months    

Change %

(In thousands, except share and per share data)

ended ended ended ended (Unaudited)       6/30/10     6/30/09         6/30/10     6/30/09     Net interest income $3,634 $3,744 (2.9%) $7,210 $7,268 ( 0.8%) Provision for credit losses 6,900 1,500 3,600.0% 7,500 3,500 1,142.9% Total non-interest income 513 599 (14.4%) 1,092 1,123 (2.8%) Total non-interest expense 2,099 3,313 (36.6%) 5,292 7,885 (32.9%) Income tax expense (benefit) -     (190) 100.0% -     (1,209) 100.0% Net loss (4,852) (280) (1,632.9%) (4,490) (1,785) (1,515.4%) Dividends and discount accretion on preferred stock (26)     (168) 84.5% (52)     (275) 81.1% Net loss available to common shareholders ($4,878) ($448) (988.8%) ($4,542) ($2,060) (1,204.9%)   Weighted average shares outstanding: Basic 2,327,123 1,915,981 2,318,654 1,915,981 Diluted 2,327,123 1,915,981 2,318,654 1,915,981 Loss Per Share: Basic ($2.10) ($0.23) ($1.96) ($1.08) Diluted ($2.10) ($0.23) ($1.96) ($1.08)     RATIOS & OTHER INFORMATION: Annualized return on average assets (5.89%) (0.30%) (2.67%) (1.12%) Annualized return on average equity (261.00%) (5.76%) (106.58%) (20.77%) Net interest margin 4.77% 4.58% 4.66% 4.40% Efficiency ratio 50.62% 76.28% 63.74% 93.97% Annualized net charge-offs as % of avg. total loans 6.21% 1.31% 4.05% 1.27% Non-performing assets as % of total avg. assets 10.65% 8.44% 10.66% 8.54% Non-performing loans as a % of total average loans 9.23% 8.05% 9.80% 7.87% Allowance for credit losses to total loans 5.50% 4.54% 5.50% 4.54% Avg. earning assets $305,853 $327,768 $312,830 $329,996           6/30/10     12/31/09 Shareholders’ equity $5,118 $9,505 Shares outstanding (end of period) 2,335,090 2,310,090 Book value per common share ($2.32) ($0.42) Tangible equity available to common shareholders / tangible assets

(1.7%)

(0.3%)

 

BANCORP CAPITAL RATIOS

Tier 1 leverage capital ratio 2.0% 3.3% Total risk based capital ratio 8.3% 9.2%   BANK CAPITAL RATIOS Tier 1 leverage capital ratio 5.7% 6.1% Total risk based capital ratio 8.1% 8.9%  

Number of full service banking offices

7

7

Number of full-time equivalent employees 82 84           CITIZENS BANCORP UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CONDITION        

(In thousands)

                                   

June 30,2010

   

December 31,2009

   

June 30,2009

  Assets         Cash and due from banks $4,548 $6,414 $34,244 Interest-bearing deposits due from banks 23,211 55,421 342 Federal funds sold       -     -     13,720   Total cash and cash equivalents 27,759 61,835 48,306   Time deposits in other banks 2,610 100 100 Investment securities 4,200 1,561 1,564 Loans 289,282 304,739 314,676 Allowance for credit losses       (15,922)     (14,387)     (14,281)   Net loans 273,360 290,352 300,395 Premises and equipment, net 1,304 1,547 1,810 Cash surrender value of bank-owned life insurance 6,122 6,116 6,011 Other real estate owned 5,472 4,650 6,358 Interest receivable and other assets       5,092     4,897     16,639   Total Assets       $325,919     $371,058     $381,183    

Liabilities and Shareholders’ Equity

                        Liabilities Deposits Noninterest-bearing $74,660 $76,123 $72,126 Interest-bearing       198,619     226,508     236,591   Total deposits 273,279 302,631 308,717 Federal Home Loan Bank borrowings 30,000 40,000 34,000 Junior subordinated debentures 15,465 15,465 15,465 Interest payable and other liabilities       2,057     3,457     3,710   Total Liabilities       320,801     361,553     361,892     Shareholders’ Equity Preferred stock 10,525 10,473 10,421 Common stock, no par value 16,040 15,946 14,378 Accumulated deficit (21,463) (16,922) (5,515) Accumulated other comprehensive income, net       16     8     2   Total Shareholders’ Equity       5,118     9,505     19,291                           Total Liabilities and Shareholders’ Equity       $325,919     $371,058     $381,183       CITIZENS BANCORP UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS   (In thousands, except per share data)    

Threemonthsended

 

Threemonthsended

 

Sixmonthsended

 

Sixmonthsended

6/30/10   6/30/09   6/30/10   6/30/09 Interest Income Interest and fees on loans $4,186 $4,782 $8,402 $9,574 Interest on investment securities 21 12 36 25 Interest on federal funds sold - 4 - 8 Interest on deposits in banks     11   -   21   - Total Interest Income     4,218   4,798   8,459   9,607   Interest Expense Interest expense on deposits 376 815 832 1,859 Interest on borrowings 112 109 228 215 Interest on junior subordinated debentures     96   130   189   265 Total Interest Expense     584   1,054   1,249   2,339   Net Interest Income 3,634 3,744 7,210 7,268   Provision for credit losses     6,900   1,500   7,500   3,500 Net Interest (Loss) Income After Provision for Credit Losses    

(3,266)

 

2,244

 

(290)

 

3,768

  Non-Interest Income Service charges 372 334 713 672 Broker fee income 81 202 161 326 Other income     60   63   218   124 Total Non-Interest Income     513   599   1,092   1,123   Non-Interest Expenses Salaries and employee benefits 1,128 998 2,617 2,331 Occupancy and equipment 397 432 848 875 Loss on sale/writedown of other real estate owned 358 363 358 1,901 Other expenses     216   1,520   1,469   2,778 Total Non-Interest Expenses     2,099   3,313   5,292   7,885

Loss Before Provision for Income Tax

(4,852) (470) (4,490) (2,994) Benefit from income taxes     -   (190)   -   (1,209) Net Loss     ($4,852)   ($280)   ($4,490)   ($1,785)  

Dividends and discount accretion on preferred stock

   

(26)

 

(168)

 

(52)

 

(275)

Net Loss Applicable to Common Shareholders     ($4,878)   (448)   ($4,542)   (2,060) Net loss per common share Basic ($2.10) ($0.23) ($1.96) ($1.08) Diluted ($2.10) ($0.23) ($1.96) ($1.08)