FLINT, Mich., April 23 /PRNewswire-FirstCall/ -- Citizens Republic Bancorp, Inc. (Nasdaq: CRBC) announced today a net loss of $45.1 million for the three months ended March 31, 2009, compared with a net loss of $195.4 million for the fourth quarter of 2008 and net income of $11.1 million for the first quarter of 2008. The decrease in the net loss as compared with the fourth quarter of 2008 was primarily the result of a non-cash valuation allowance of $136.6 million against deferred tax assets and higher provision for loan losses in the fourth quarter of 2008. After incorporating the $4.1 million dividend to the preferred shareholders, Citizens reported a net loss attributable to common shareholders of $49.3 million for the three months ended March 31, 2009. Diluted net income (loss) per share was $(0.39), compared with $(1.56) for the fourth quarter of 2008 and $0.15 for the first quarter of 2008. Annualized returns on average assets and average equity during the first quarter of 2009 were (1.40)% and (11.40)%, respectively, compared with (5.94)% and (49.86)% for the fourth quarter of 2008 and 0.33% and 2.83% for the first quarter of 2008.
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"While we are not satisfied with bottom-line results as we manage through these tough economic conditions, we are pleased with the results from several initiatives which continue to strengthen our balance sheet. During the first quarter, we increased our loan loss reserve and enhanced our already strong liquidity position. Although loan demand continues to be weak in our markets, loan commitments in the first quarter of 2009 increased 10% over the fourth quarter of 2008 while maintaining our standard underwriting criteria. Exemplifying our commitment to serving clients, Citizens Bank was recently named the Preferred Lender of the Year and the SBA Lender of the Year in Michigan by the U.S. Small Business Administration. Although these are difficult times, we are confident in our future because we remain focused on sound operating fundamentals and keeping clients and shareholders our top priority," commented Cathleen H. Nash, president and chief executive officer.
Key Highlights in the Quarter:
- Total deposits at March 31, 2009 increased $67.1 million, up slightly over December 31, 2008, and increased $632.5 million or 7.5% over March 31, 2008. This represents the sixth consecutive quarter of total deposit growth.
- Citizens continues to hold excess short-term (liquid) assets at March 31, 2009. Money market investments increased $266.6 million, more than doubling the December 31, 2008 balance.
- Citizens' regulatory capital ratios continue to exceed the "well-capitalized" designation. As of March 31, 2009, Citizens' estimated capital ratios were as follows:
- Tier 1 capital - 12.17%
- Total capital - 14.23%
- Tier 1 leverage - 9.29%
- Tangible common equity to tangible assets - 5.53%
- Tangible equity to tangible assets - 7.69%
- The allowance for loan losses at March 31, 2009 increased to $282.6 million or 3.23% of portfolio loans, compared with $255.3 million or 2.80% at December 31, 2008. The provision for loan losses for the first quarter of 2009 was $64.0 million, compared with $118.6 million for the fourth quarter of 2008. The decrease in the provision for loan losses was primarily due to lower commercial charge-offs. Net charge-offs for the first quarter of 2009 totaled $36.7 million, compared with $81.0 million for the fourth quarter of 2008.
- Noninterest income for the first quarter of 2009 totaled $19.2 million, an increase of $3.5 million over the fourth quarter of 2008. The improvement was primarily due to fee income received on approximately $100 million in mortgage origination volume during the first quarter of 2009. Trust fees and losses on loans held for sale continue to be negatively affected by conditions in the financial market and real estate values, respectively.
- Noninterest expense for the first quarter of 2009 totaled $80.8 million, an increase of $2.2 million over the fourth quarter of 2009. Expense reductions as a result of lower staffing levels and other cost savings initiatives continue to be overshadowed by higher ORE-related expenses and FDIC insurance premiums.
Balance Sheet
Total assets at March 31, 2009 were $13.0 billion, essentially unchanged from December 31, 2008 and a decrease of $557.0 million or 4.1% from March 31, 2008. The decline from March 31, 2008 was primarily due to reductions in all loan portfolios, the fourth quarter of 2008 deferred tax valuation allowance and the second quarter of 2008 goodwill impairment, partially offset by higher investment securities balances.
Investment securities at March 31, 2009 totaled $2.4 billion, essentially unchanged from December 31, 2008 and an increase of $191.8 million or 8.6% over March 31, 2008. The increase over March 31, 2008 was primarily the result of investing the proceeds from the fourth quarter of 2008 participation in the TARP Capital Purchase Program into securities that can be pledged as collateral for funding of future loans, partially offset by using portfolio cash flow to reduce short-term borrowings. Citizens did not have any other-than-temporary impairment charges during the first quarter of 2009.
The following table displays the total commercial loan portfolio by segment at quarter end for each of the last five quarters. The following definitions are provided to clarify the types of loans included in each of the commercial real estate segments identified in the table. Land hold loans are secured by undeveloped land which has been acquired for future development. Land development loans are secured by land undergoing infrastructure improvements to create finished marketable lots for commercial or residential construction. Construction loans are secured by commercial, retail and residential real estate in the construction phase with the intent to be sold or become an income producing property. Income producing loans are secured by non-owner occupied real estate leased to one or more tenants. Owner occupied loans are secured by real estate occupied by the owner for ongoing operations.
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Commercial Loan Portfolio
in millions Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
2009 2008 2008 2008 2008
-------- -------- -------- -------- --------
Land Hold $54.2 $45.0 $48.3 $49.8 $61.6
Land Development 121.2 132.7 125.0 128.2 159.2
Construction 257.7 263.5 364.2 344.1 370.7
Income Producing 1,558.2 1,556.2 1,533.2 1,569.9 1,567.3
Owner-Occupied 953.0 967.3 999.6 1,009.3 1,015.6
-------- -------- -------- -------- --------
Total Commercial Real
Estate 2,944.3 2,964.7 3,070.3 3,101.3 3,174.4
Commercial and
Industrial 2,394.4 2,602.4 2,703.7 2,703.8 2,653.8
-------- -------- -------- -------- --------
Total Commercial
Loans $5,338.7 $5,567.1 $5,774.0 $5,805.1 $5,828.2
======== ======== ======== ======== ========
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Total commercial loans at March 31, 2009 decreased $228.4 million or 4.1% from December 31, 2008 and decreased $489.5 million or 8.4% from March 31, 2008. The decrease from December 31, 2008 was primarily the result of a decline in customer demand, especially in the Michigan markets. The decrease from March 31, 2008 was primarily the result of a decline in customer demand, reducing loans with narrow margins, and transferring $86.2 million of nonperforming commercial real estate loans to loans held for sale during the second quarter of 2008, partially offset by new relationships during 2008.
Residential mortgage loans at March 31, 2009 totaled $1.2 billion, a decrease of $54.9 million or 4.3% from December 31, 2008 and a decrease of $185.8 million or 13.3% from March 31, 2008. The decline was primarily the result of the continued strategy of selling more than 90% of new mortgage originations into the secondary market. Additionally, the decrease from March 31, 2008 includes the effect of transferring $41.7 million of nonperforming residential mortgage loans to loans held for sale during the second quarter of 2008.
Direct consumer loans, which are primarily home equity loans, were $1.4 billion at March 31, 2009, a decrease of $46.5 million or 3.2% from December 31, 2008 and a decrease of $126.2 million or 8.2% from March 31, 2008. Indirect consumer loans, which are primarily marine and recreational vehicle loans, totaled $802.1 million at March 31, 2009, a decrease of $18.4 million or 2.2% from December 31, 2008 and a decrease of $16.8 million or 2.0% from March 31, 2008. The decreases for both portfolios were due to weak consumer demand.
Loans held for sale at March 31, 2009 were $89.8 million, essentially unchanged from December 31, 2008 and an increase of $8.3 million or 10.2% over March 31, 2008. The increase over March 31, 2008 was primarily the result of transferring $92.8 million in nonperforming commercial real estate and residential mortgage loans to loans held for sale during the second quarter of 2008, partially offset by a decrease in residential mortgage origination volume awaiting sale in the secondary market as a result of faster funding through Citizens' alliance with PHH Mortgage, which began at the end of the first quarter of 2008 and, to a lesser extent, a decline in commercial loans held for sale due to customer paydowns, adjustments to reflect current fair-market value, and transfers to ORE.
Goodwill at March 31, 2009 was $597.2 million, unchanged from December 31, 2008 and a decrease of $178.1 million or 23.0% from March 31, 2008. The decrease was due to a $178.1 million non-cash and non-tax-deductible goodwill impairment charge recorded in the second quarter of 2008. As required by SFAS 142, "Goodwill and Other Intangible Assets," Citizens conducted an interim goodwill impairment assessment during the first quarter of 2009 and concluded there was no additional impairment at this time. There can be no assurance, however, that future testing will not result in additional material impairment charges due to further developments in the banking industry or Citizens' markets.
Total deposits at March 31, 2009 were $9.1 billion, up slightly from December 31, 2008 and an increase of $632.5 million or 7.5% over March 31, 2008. Core deposits, which exclude all time deposits, totaled $4.7 billion at March 31, 2009, an increase of $295.5 million or 6.7% over December 31, 2008 and an increase of $266.1 million or 6.0% over March 31, 2008. The increases were primarily the result of clients holding higher balances in transaction accounts and recent changes in FDIC coverage thresholds. Time deposits totaled $4.4 billion at March 31, 2009, a decrease of $228.4 million or 4.9% from December 31, 2008 and an increase of $366.4 million or 9.1% over March 31, 2008. The decrease in time deposits from December 31, 2008 was primarily the result of a $122.6 million reduction in brokered deposits and a strategic shift in funding mix from customer time deposits to core deposits. The increase over March 31, 2008 was primarily the result of a shift in funding mix from short-term borrowings to longer-term retail certificates of deposit due to deposit generation campaigns, partially offset by the aforementioned decrease during the first quarter of 2009.
Other interest-bearing liabilities, which include federal funds purchased and securities sold under agreements to repurchase, other short-term borrowings, and long-term debt, totaled $2.1 billion at March 31, 2009, a decrease of $136.5 million or 6.0% from December 31, 2008 and a decrease of $1.2 billion or 36.2% from March 31, 2008. The decreases were primarily the result of a strategic shift in the mix of funding from debt to deposits and the proceeds from the issuance of equity securities in June 2008 being used to pay down debt.
Capital Adequacy and Liquidity
Shareholders' equity at March 31, 2009 totaled $1.6 billion, essentially unchanged from December 31, 2008 and March 31, 2008. When compared with March 31, 2008, shareholders' equity increased as a result of the $489.0 million in capital acquired during the second and fourth quarters of 2008 which was offset by the effects of the net losses incurred during 2008 and the first quarter of 2009.
Citizens continues to maintain a strong capital position, and its regulatory capital ratios are above "well-capitalized" standards, as evidenced by the following key capital ratios.
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Regulatory
Minimum for Excess Capital
"Well- over Minimum
Capitalized" 3/31/09 12/31/08 9/30/08 (in millions)
--------------------------------- --------------------------------------
Tier 1 capital ratio* 6.00% 12.17% 12.21% 10.88% $588.7
Total capital ratio* 10.00% 14.23% 14.49% 13.13% $403.6
Tier 1 leverage ratio* 5.00% 9.29% 9.66% 8.76% $536.4
Tangible common equity
to tangible assets 5.53% 5.75% 7.33%
Tangible equity to
tangible assets 7.69% 7.88% 7.33%
* March 31, 2009 is an estimate
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Citizens maintains a very strong liquidity position due to its on-balance sheet liquidity sources and very stable funding base comprised of approximately 70% deposits, 16% long-term debt, 12% equity, and 2% short-term liabilities. Citizens also has access to high levels of untapped liquidity through collateral-based borrowing capacity provided by portions of both the loan and investment securities portfolios. Additionally, money market investments and securities available-for-sale could be sold for cash to provide liquidity.
Net Interest Margin and Net Interest Income
Net interest margin was 2.73% for the first quarter of 2009 compared with 3.03% for the fourth quarter of 2008 and 3.12% for the first quarter of 2008. The decrease from the fourth quarter of 2008 was primarily the result of a reduction in loan balances due to weak customer demand, deposit price competition in Citizens' markets and an increase in loan balances transferring to nonperforming status, partially offset by expanding commercial and consumer loan spreads. Additionally, the decline in loan balances drove higher short-term investment balances, which increased liquidity but negatively impacted net interest margin.
The decrease in net interest margin from the first quarter of 2008 was primarily the result of deposit price competition, the transfer of loans to nonperforming status, and an increase in funding costs related to extending short-term borrowings, partially offset by expanding commercial and consumer loan spreads and retail time deposits repricing to a lower rate.
Net interest income was $76.9 million for the first quarter of 2009 compared with $85.7 million for the fourth quarter of 2008 and $88.3 million for the first quarter of 2008. The decreases were due to the lower net interest margin.
Credit Quality
The quality of Citizens' loan portfolio is impacted by numerous factors, including the economic environment in the markets in which Citizens operates. Citizens carefully monitors its loans in an effort to identify and mitigate any potential credit quality issues and losses in a proactive manner. In the first quarter of 2009, Citizens further expanded the non-watch commercial credit review of automotive and real estate related credits to include other manufacturers and relationships with significant credit exposure. This process seeks to validate each such credit's risk rating, underwriting structure and exposure management under current and stressed economic scenarios.
The following tables represent four qualitative aspects of the loan portfolio that illustrate the overall level of quality and risk inherent in the loan portfolio.
- Table 1 - Delinquency Rates by Loan Portfolio - This table illustrates the loans where the contractual payment is 30 to 89 days past due and interest is still accruing. While these loans are actively worked to bring them current, past due loan trends may be a leading indicator of potential future nonperforming loans and charge-offs.
- Table 2 - Commercial Watchlist - This table illustrates the commercial loans that, while still accruing interest, may be at risk due to general economic conditions or changes in a borrower's financial status.
- Table 3 - Nonperforming Assets - This table illustrates the loans that are in nonaccrual status, loans past due 90 days or more on which interest is still accruing, nonperforming loans that are held for sale, and other repossessed assets acquired. The commercial loans included in this table are reviewed as part of the watchlist process in addition to the loans displayed in Table 2.
- Table 4 - Net Charge-Offs - This table illustrates the portion of loans that have been charged-off during each quarter.
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Table 1 -- Delinquency Rates By Loan Portfolio
30 to 89 days Past Due Mar 31, 2009 Dec 31, 2008 Sep 30, 2008
--------------- --------------- -------------
% of % of % of
in millions $ Portfolio $ Portfolio $ Portfolio
--------------- --------------- -------------
Land Hold $3.7 6.83% $3.9 8.67% $7.3 15.11%
Land Development 11.1 9.16 5.2 3.92 10.3 8.24
Construction 16.7 6.48 27.3 10.36 26.1 7.17
Income Producing 64.2 4.12 76.7 4.93 50.1 3.27
Owner-Occupied 37.4 3.92 37.5 3.88 21.3 2.13
------------- ------------- -------------
Total Commercial Real
Estate 133.1 4.52 150.6 5.08 115.1 3.75
Commercial and Industrial 47.1 1.97 56.5 2.17 29.1 1.08
------------- ------------- -------------
Total Commercial Loans 180.2 3.38 207.1 3.72 144.2 2.50
Residential Mortgage 25.9 2.14 39.5 3.13 37.7 2.95
Direct Consumer 20.4 1.45 25.5 1.76 19.5 1.32
Indirect Consumer 14.7 1.83 18.5 2.25 13.6 1.61
------------- ------------- -------------
Total Delinquent Loans $241.2 2.76% $290.6 3.19% $215.0 2.29%
====== ====== ======
Jun 30, 2008 Mar 31, 2008
--------------- ---------------
% of % of
in millions $ Portfolio $ Portfolio
--------------- ---------------
Land Hold $9.3 18.67% $6.6 10.71%
Land Development 1.1 0.86 16.3 10.24
Construction 11.9 3.46 10.5 2.83
Income Producing 48.5 3.09 29.3 1.87
Owner-Occupied 18.6 1.84 19.0 1.87
------------- -------------
Total Commercial Real
Estate 89.4 2.88 81.7 2.57
Commercial and Industrial 29.5 1.09 39.9 1.50
------------- -------------
Total Commercial Loans 118.9 2.05 121.6 2.09
Residential Mortgage 38.5 2.94 33.5 2.40
Direct Consumer 18.4 1.22 21.7 1.42
Indirect Consumer 14.4 1.73 13.3 1.62
------------- -------------
Total Delinquent Loans $190.2 2.01% $190.1 1.99%
====== ======
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Total delinquencies at March 31, 2009 decreased $49.4 million or 17.0% from December 31, 2008 and increased $51.1 million or 26.9% over March 31, 2008. The decrease from December 31, 2008 was primarily the result of delinquent commercial loans returning to current status as well as delinquent loans in all portfolios migrating to nonperforming status more quickly than historically experienced. Total commercial loan delinquencies decreased 13.0% and total consumer loan delinquencies decreased 26.9%. The increase over March 31, 2008 was primarily due to the continued weak economy in the Midwest and particularly in Michigan, which continues to significantly impact Citizens' commercial real estate portfolio and, to a lesser extent, the commercial and industrial portfolio. The consumer loan portfolio has remained relatively consistent. Total commercial loan delinquencies (including commercial real estate and industrial) increased 48.2% while total consumer loan delinquencies decreased 10.9%.
As part of its overall credit underwriting and review process, Citizens carefully monitors commercial and commercial real estate credits that are current in terms of principal and interest payments but may deteriorate in quality as economic conditions change. Commercial relationship officers monitor their clients' financial condition and initiate changes in loan ratings based on their findings. Loans that have migrated within the loan rating system to a level that requires increased oversight are considered watchlist loans (generally consistent with the regulatory definition of special mention, substandard, and doubtful loans) and include loans that are in accruing (see Table 2) or nonperforming status (see Table 3). Citizens utilizes the watchlist process as a proactive credit risk management practice to help mitigate the migration of commercial loans to nonperforming status and potential loss. Once a loan is placed on the watchlist, it is reviewed quarterly by the chief credit officer, senior credit officers, senior market managers, and commercial relationship officers to assess cash flows, collateral valuations, guarantor liquidity, and other pertinent trends. During these meetings, action plans are implemented or reviewed to address emerging problem loans or to remove loans from the portfolio. Additionally, loans viewed as substandard or doubtful are transferred to Citizens' special loans or small business workout groups and are subjected to an even higher level of monitoring and workout activity.
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Table 2 -- Commercial Watchlist
Accruing loans only Mar 31, 2009 Dec 31, 2008 Sep 30, 2008
--------------- --------------- ---------------
% of % of % of
in millions $ Portfolio $ Portfolio $ Portfolio
--------------- --------------- ---------------
Land Hold $15.7 28.97% $18.5 41.11% $20.7 42.86%
Land Development 62.4 51.49 49.3 37.15 51.8 41.44
Construction 86.6 33.60 74.8 28.39 104.8 28.78
Income Producing 421.9 27.08 401.0 25.77 290.3 18.93
Owner-Occupied 224.2 23.53 178.4 18.44 167.0 16.71
--------------- --------------- ---------------
Total Commercial
Real Estate 810.8 27.54 722.0 24.35 634.6 20.67
Commercial and
Industrial 479.7 20.03 436.8 16.78 431.2 15.95
--------------- --------------- ---------------
Total Watchlist
Loans $1,290.5 24.17% $1,158.8 20.82% $1,065.8 18.46%
======== ======== ========
Jun 30, 2008 Mar 31, 2008
--------------- ---------------
% of % of
in millions $ Portfolio $ Portfolio
--------------- ---------------
Land Hold
$24.2 48.59 $27.7 44.97%
Land Development 47.5 37.05 55.9 35.11
Construction 86.3 25.08 66.7 17.99
Income Producing 239.3 15.24 221.3 14.12
Owner-Occupied 161.8 16.03 155.8 15.34
--------------- ---------------
Total Commercial
Real Estate 559.1 18.03 527.4 16.61
Commercial and
Industrial 432.5 16.00 407.1 15.34
--------------- ---------------
Total Watchlist
Loans
$991.6 17.08 $934.5 16.03%
======== ========
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Accruing watchlist loans at March 31, 2009 increased $131.7 million or 11.4% over December 31, 2008 and increased $356.0 million or 38.1% over March 31, 2008. The increases were primarily the result of continuing commercial real estate deterioration in Michigan and additional proactive downgrades in commercial and industrial loans as a result of closely monitoring borrowers' repayment capacity in this environment.
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Table 3 -- Nonperforming Assets
Mar 31, 2009 Dec 31, 2008 Sep 30, 2008
--------------- --------------- ---------------
% of % of % of
in millions $ Portfolio $ Portfolio $ Portfolio
--------------- --------------- ---------------
Land Hold $12.0 22.14% $10.4 23.11% $11.0 22.77%
Land Development 14.6 12.05 23.4 17.63 20.6 16.48
Construction 26.5 10.28 18.3 6.94 25.7 7.06
Income Producing 116.3 7.46 78.6 5.05 57.6 3.76
Owner-Occupied 66.5 6.98 31.8 3.29 17.7 1.77
--------------- --------------- ---------------
Total Commercial
Real Estate 235.9 8.01 162.5 5.48 132.6 4.32
Commercial and
Industrial 83.7 3.50 64.6 2.48 38.2 1.41
--------------- --------------- ---------------
Total Nonperforming
Commercial Loans 319.6 5.99 227.1 4.08 170.8 2.96
Residential Mortgage 84.6 7.00 59.5 4.71 40.2 3.14
Direct Consumer 21.0 1.49 15.1 1.04 16.3 1.10
Indirect Consumer 2.0 0.25 2.6 0.32 2.1 0.25
Loans 90+ days still
accruing and
restructured 1.4 0.02 1.7 0.02 1.9 0.02
--------------- --------------- ---------------
Total Nonperforming
Portfolio Loans 428.6 4.90% 306.0 3.36% 231.3 2.47%
Nonperforming Held for
Sale 64.6 75.2 86.6
Other Repossessed
Assets Acquired 57.4 58.0 46.5
--------- --------- ---------
Total Nonperforming
Assets $550.6 $439.2 $364.4
========= ========= =========
Jun 30, 2008 Mar 31, 2008
--------------- ---------------
% of % of
in millions $ Portfolio $ Portfolio
--------------- ---------------
Land Hold $3.4 6.83% $5.5 8.93%
Land Development 22.8 17.78 46.4 29.15
Construction 12.6 3.66 51.9 14.00
Income Producing 23.1 1.47 40.5 2.58
Owner-Occupied 13.1 1.30 23.5 2.31
--------------- ---------------
Total Commercial
Real Estate 75.0 2.42 167.8 5.29
Commercial and
Industrial 31.6 1.17 20.3 0.76
--------------- ---------------
Total Nonperforming
Commercial Loans 106.6 1.84 188.1 3.23
Residential Mortgage 12.4 0.95 45.8 3.29
Direct Consumer 16.3 1.09 13.5 0.88
Indirect Consumer 1.4 0.17 1.7 0.21
Loans 90+ days still
accruing and
restructured 2.5 0.03 4.4 0.05
--------------- ---------------
Total Nonperforming
Portfolio Loans 139.2 1.47% 253.5 2.65%
Nonperforming Held for
Sale 92.6 22.8
Other Repossessed
Assets Acquired 54.1 50.3
--------- ---------
Total Nonperforming
Assets $285.9 $326.6
========= =========
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Nonperforming assets are comprised of nonaccrual loans, loans past due over 90 days and still accruing interest, restructured loans, nonperforming held for sale, and other repossessed assets acquired. Nonperforming assets totaled $550.6 million at March 31, 2009, an increase of $111.4 million or 25.4% over December 31, 2008 and an increase of $224.0 million or 68.6% over March 31, 2008. The increases were primarily the result of continued deterioration in the real estate secured portfolios (particularly commercial) and general economic deterioration in the Midwest. One commercial and industrial loan that became nonperforming during the first quarter of 2009 accounted for $17.3 million of the increases. Nonperforming assets at March 31, 2009 represented 6.25% of total loans plus other repossessed assets acquired compared with 4.79% at December 31, 2008 and 3.39% at March 31, 2008. Nonperforming commercial loan inflows were $173.0 million in the first quarter of 2009 compared with $155.5 million in the fourth quarter of 2008 and $99.0 million in the first quarter of 2008.
Nonperforming commercial loan outflows were $80.4 million in the first quarter of 2009 compared with $99.2 million in the fourth quarter of 2008 and $33.7 million in the first quarter of 2008. The first quarter of 2009 outflows included $32.8 million in loans that returned to accruing status, $16.2 million in loan payoffs and paydowns, $26.2 million in charged-off loans, and $5.2 million transferring to other repossessed assets acquired.
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Table 4 -- Net Charge-Offs
Three Months Ended
-----------------------------------------------
Mar 31, 2009 Dec 31, 2008 Sep 30, 2008
--------------- --------------- ---------------
% of % of % of
in millions $ Portfolio** $ Portfolio** $ Portfolio**
--------------- --------------- ---------------
Land Hold $--- ---% $4.6 40.89% $1.7 14.08%
Land Development 6.3 20.79 5.8 17.48 6.9 22.08
Construction 2.0 3.10 10.7 16.24 0.5 0.55
Income Producing 7.8 2.00 21.7 5.58 4.4 1.15
Owner-Occupied 2.4 1.01 3.1 1.28 1.3 0.52
----------------- --------------- ---------------
Total Commercial
Real Estate 18.5 2.51 45.9 6.19 14.8 1.93
Commercial and
Industrial 8.0 1.34 21.9 3.37 0.4 0.06
----------------- --------------- ---------------
Total Commercial
Loans 26.5 1.99 67.8 4.87 15.2 1.05
Residential Mortgage 0.8 0.26 1.6 0.51 0.5 0.16
Direct Consumer 4.4 1.25 5.9 1.63 3.3 0.89
Indirect Consumer 5.0 2.49 5.7 2.78 3.4 1.61
----------------- --------------- ---------------
Total Net
Charge-offs $36.7 1.67% $81.0 3.48% $22.4 0.94%
======= ======= ======
Three Months Ended
-------------------------------
Jun 30, 2008 Mar 31, 2008
--------------- ---------------
% of % of
in millions $ Portfolio** $ Portfolio**
--------------- ---------------
Land Hold $0.7 5.62 0.5 3.25%
Land Development 16.4 51.17 6.6 16.58
Construction 13.8 16.04 1.2 1.29
Income Producing 7.7 1.96 0.9 0.23
Owner-Occupied 3.4 1.35 (0.1) (0.04)
---------------- ---------------
Total Commercial
Real Estate 42.0 5.42 9.1 1.15
Commercial and
Industrial 0.6 0.09 0.9 0.14
---------------- ---------------
Total Commercial
Loans 42.6 2.94 10.0 0.69
Residential Mortgage 20.7 6.33 1.8 0.52
Direct Consumer 3.1 0.83 3.0 0.79
Indirect Consumer 2.9 1.39 2.6 1.27
---------------- ---------------
Total Net
Charge-offs $69.3 2.93 17.4 0.74%
====== =======
** Represents an annualized rate.
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Net charge-offs totaled $36.7 million or 1.67% of average portfolio loans in the first quarter of 2009 compared with $81.0 million or 3.48% of average portfolio loans in the fourth quarter of 2008 and $17.4 million or 0.74% of average portfolio loans in the first quarter of 2008. The decrease from the fourth quarter of 2008 was primarily the result of charging off four large commercial loans in that quarter and not charging off any large commercial loans in the first quarter of 2009. The increase over the first quarter of 2008 was primarily the result of higher charge-offs on commercial real estate due to declining real estate values and general economic deterioration in the Midwest.
After determining what Citizens believes is an adequate allowance for loan losses based on the risk in the portfolio, the provision for loan losses is calculated as a result of the net effect of the quarterly change in the allowance for loan losses and the quarterly net charge-offs. The provision for loan losses was $64.0 million in the first quarter of 2009, compared with $118.6 million in the fourth quarter of 2008 and $30.6 million in the first quarter of 2008. The decrease from the fourth quarter of 2008 was primarily the result of lower net charge-offs, partially offset by continued migration of loans to nonperforming status in the first quarter of 2009. This migration, and evaluation of the underlying collateral supporting these loans, caused an increase in the allowance for loan losses due to the higher likelihood that portions of these loans may eventually be charged-off. The increase over the first quarter of 2008 was primarily the result of higher net charge-offs and the continued migration of loans to nonperforming status.
The allowance for loan losses was $282.6 million or 3.23% of portfolio loans at March 31, 2009, compared with $255.3 million or 2.80% at December 31, 2008 and $176.5 million or 1.84% at March 31, 2008. The increases were primarily the result of continued deterioration in commercial real estate loans, signs of potential deterioration in commercial and industrial loans due to recessionary pressures, and an increase in the loss migration rates and extended duration of residential mortgage and consumer loans.
The allowance for loan losses is comprised of two components: the specific allocated allowance and the risk allocated allowance. The specific allocated allowance is determined in accordance with SFAS 114 based on probable losses on specific nonperforming commercial loans after reviewing the loans for underlying cash flow and collateral value. The specific allocated allowance totaled $46.6 million at March 31, 2009, compared with $39.9 million at December 31, 2008 and $17.4 million at March 31, 2008. This represents 17.1%, 20.9%, and 25.3% of the underlying nonperforming loans at each period end, respectively. The risk allocated allowance is comprised of several loan pool valuation allowances determined in accordance with SFAS 5 based on Citizens' quantitative loan loss experience for similar loans with similar risk characteristics as well as other factors based on the best judgment of management. The risk allocated allowance totaled $236.1 million at March 31, 2009, compared with $215.4 million at December 31, 2008 and $159.1 million at March 31, 2008. This represents 150.4%, 187.1%, and 86.2% of the underlying nonperforming loans at each period end, respectively. The loans used in calculation of the risk allocated allowance exclude the loans subject to the specific allocated allowance. Based on current conditions and expectations, Citizens believes that the allowance for loan losses is adequate to address the estimated loan losses inherent in the existing loan portfolio at March 31, 2009.
Noninterest Income
Noninterest income for the first quarter of 2009 was $19.2 million, an increase of $3.5 million over the fourth quarter of 2008 and a decrease of $11.7 million from the first quarter of 2008.
The increase in noninterest income from the fourth quarter of 2008 was primarily the result of higher other income ($4.9 million) and higher mortgage and other loan income ($1.3 million), partially offset by lower service charges on deposit accounts ($1.4 million) and lower trust fees ($0.6 million). The increase in other income was primarily due to swap income recognition ($2.7 million) resulting from changes in the related credit spreads. The increase in mortgage and other loan income was primarily due to higher mortgage origination volume. The decrease in service charges on deposit accounts was primarily the result of a decline in customer transaction volume. The decrease in trust fees was primarily the result of recent negative market conditions.
The decrease in noninterest income from the first quarter of 2008 was primarily due to a net loss on loans held for sale ($6.2 million), as well as lower other income ($2.3 million), trust fees ($1.4 million), and service charges on deposit accounts ($1.2 million). The net loss on loans held for sale was primarily the result of marking the loan value down to market based on lower updated appraisal values for the underlying collateral. The decrease in other income was primarily the result of a $2.1 million gain due to Citizens' receipt of proceeds from the partial redemption of its Visa shares during the first quarter of 2008, a reduced crediting rate related to bank owned life insurance as a result of decreased returns on the underlying investments, and decreased fee income related to off-balance sheet sweep products, partially offset by the aforementioned recognition of income on swaps. The declines in trust fees and service charges on deposit accounts were primarily the result of the aforementioned factors.
Noninterest Expense
Noninterest expense for the first quarter of 2009 was $80.8 million, an increase of $2.2 million over the fourth quarter of 2008 and an increase of $4.2 million over the first quarter of 2008.
The increase in noninterest expense over the fourth quarter of 2008 was primarily the result of higher other real estate (ORE) expenses ($6.8 million) and occupancy expense ($0.7 million), partially offset by lower salaries and employee benefits ($3.3 million) and other expense ($2.0 million). The increase in ORE expenses was primarily the result of owning more repossessed properties and marking ORE assets down to market value based on lower updated appraisal values for the underlying collateral. The increase in occupancy expense was primarily the result of a seasonal increase in outside maintenance costs. The decrease in salaries and employee benefits was primarily the result of lower staffing levels, as well as lower severance and incentive expense, partially offset by higher pension and other benefit costs. The decline in other expense was primarily the result of two items recorded in the fourth quarter of 2008: a $2.4 million loss related to the repurchase of all auction rate securities sold to wealth management clients ($8.8 million in par value) to restore liquidity to their accounts and a $1.1 million loss on a captive insurance program, as well as a $0.7 million reduction in telephone expense in the first quarter of 2009 due to implementing cost-saving initiatives. The effect of these items was partially offset by a $1.8 million increase in FDIC insurance premiums as a result of an industry-wide rate increase.
The increase in noninterest expense over the first quarter of 2008 was primarily the result of higher other real estate (ORE) expenses ($7.1 million), other loan expenses ($4.1 million), and other expense ($3.0 million). The increase in ORE expenses was primarily due to the aforementioned factors. The increase in other loan expense was primarily the result of higher mortgage processing fees due to the alliance with PHH Mortgage entered into in the first quarter of 2008 and higher foreclosure expenses associated with repossessing collateral underlying commercial and residential real estate loans. The increase in other expense was primarily due to the aforementioned increase in FDIC insurance premiums, partially offset by the aforementioned reduction in telephone expense.
Salary costs included severance expense of less than $0.1 million for the first quarter of 2009, compared with $1.2 million for the fourth quarter of 2008, and $1.6 million for the first quarter of 2008. Citizens had 2,175 full-time equivalent employees at March 31, 2009 compared with 2,232 at December 31, 2008 and 2,409 at March 31, 2008.
Income Tax Provision
The income tax provision (benefit) for the first quarter of 2009 was $(3.5) million, compared with $99.6 million for the fourth quarter of 2008 and $0.9 million for the first quarter of 2008. The decrease from the fourth quarter of 2008 was primarily the result of recording a valuation allowance of $136.6 million in the fourth quarter of 2008 against deferred tax assets. The decrease from the first quarter of 2008 was primarily due to the effect of lower pre-tax income.
Reconciliation of Pre-Tax Pre-Provision Core Operating Earnings
Citizens is presenting pre-tax pre-provision core operating earnings in this release for purposes of additional analysis of our operating results. Pre-tax pre-provision core operating earnings, as defined by management, represents net income (loss) excluding income tax provision (benefit), the provision for loan losses, and any impairment charges (including goodwill, credit writedowns and fair-value adjustments) caused by this economic cycle.
The following table reconciles pre-tax pre-provision core operating earnings to consolidated net income (loss) presented in accordance with US generally accepted accounting principles ("GAAP"), which is the principal and most useful measure of earnings and provides comparability of earnings with other companies. However, Citizens believes presenting pre-tax pre-provision core operating earnings provides investors with the ability to better understand Citizens' underlying operating trends separate from the direct effects of the impairment charges, credit issues, fair value adjustments, challenges inherent in the real estate downturn and other economic cycle issues and displays a consistent core operating earnings trend before the impact of these challenges. The credit quality section of this earnings release already isolates all of the challenges and issues related to the credit quality of Citizens' loan portfolio and its impact on Citizens' earnings as reflected in the provision for loan losses.
-------------------------------------------------------------------------
Pre-Tax Pre-Provision Core Operating Earnings
Three Months Ended
--------------------------------------------------
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in thousands) 2009 2008 2008 2008 2008
-------------------------------------------------------------------------
Net Income (Loss) $(45,149) $(195,369) $(7,176) $(201,634) $11,127
Income tax provision
(benefit) (3,467) 99,634 (10,192) (19,401) 929
Provision for loan
losses 64,017 118,565 58,390 74,480 30,619
Goodwill impairment
charge --- --- --- 178,089 ---
Fair-value writedown on
loans held for sale 6,152 5,865 1,261 2,248 (1)
Fair-value writedown on
ORE 7,985 602 675 5,849 937
Fair-value writedown on
bank owned life
insurance 235 2,896 551 --- ---
Loss on auction rate
securities repurchase --- 2,406 --- --- ---
Gain related to Visa USA
shares --- --- --- --- (2,124)
Mark-to-market on swaps (2,444) 2,414 (2,894) (293) (514)
Captive insurance
impairment charge --- 1,053 --- --- ---
------------------------------------------------
Pre-Tax Pre-Provision
Core Operating Earnings $27,329 $38,066 $40,615 $39,338 $40,973
================================================
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Citizens continues to focus on preserving capital, enhancing liquidity, and generating solid operating earnings in the long-term.
Use of Non-GAAP Financial Measures
In addition to results presented in accordance with GAAP, this release includes non-GAAP financial measures such as those included in the "Reconciliation of Pre-Tax Pre-Provision Core Operating Earnings" section and the "Non-GAAP Reconciliation" table. Citizens believes these non-GAAP financial measures provide information useful to investors in understanding the underlying operational performance of the company, its business, and performance trends and facilitates comparisons with the performance of others in the banking industry. Specifically, Citizens believes the exclusion of restructuring and merger-related expenses, intangible asset amortization, and the goodwill impairment to create "core operating earnings" as well as the exclusion of related goodwill and other intangible assets, net of applicable deferred tax amounts, to create "average tangible assets" and "average tangible equity" facilitates the comparison of results for ongoing business operations. Citizens' management internally assesses the company's performance based, in part, on these non-GAAP financial measures.
In accordance with industry standards, certain designated net interest income amounts are presented on a taxable equivalent basis, including the calculation of net interest margin and the efficiency ratio displayed in the "Selected Quarterly Information" and "Financial Summary and Comparison" tables. Citizens believes the presentation of net interest margin on a taxable equivalent basis allows comparability of net interest margin with our industry peers by eliminating the effect of the differences in portfolios attributable to the proportion represented by both taxable and tax-exempt investments.
Although Citizens believes the above non-GAAP financial measures enhance investors' understanding of its business and performance, these non-GAAP measures should not be considered a substitute for GAAP basis financial measures.
Other News
Small Business Administration Recognition
On February 19, 2009, Citizens announced that it will increase the number of SBA loans it provides as a result of the new American Recovery and Reinvestment Act, which provides significant new incentives to boost small business lending.
On April 7, 2009, Citizens announced that Tom Zernick, Vice President and Head of SBA Lending, has been named Michigan Financial Services Champion by the U.S. Small Business Administration. Tom will receive his award on April 30, 2009 at the fifth annual Michigan Celebrates Small Business event. Additionally, on March 20, 2009, Citizens received the PLP Lender of the Year and SBA Lender of the Year in Michigan awards during the SBA Lenders Conference.
Analyst Conference Call
Cathleen H. Nash, president and CEO, Charles D. Christy, EVP and CFO, Mark W. Widawski, EVP and chief credit officer, and Martin E. Grunst, SVP and treasurer, will review the quarter's results in a conference call for analysts and investors at 10:00 a.m. ET on Friday, April 24, 2009.
A live audio webcast is available on Citizens' investor relations page at www.citizensbanking.com or by calling (800) 895-0198 (conference ID: Citizens Republic). To participate in the conference call, please connect approximately 10 minutes prior to the scheduled conference time.
The call will be archived for 90 days at www.citizensbanking.com. In addition, a digital recording will be available approximately two hours after the completion of the conference call until May 1, 2009. To listen to the replay, please dial (800) 388-9074.
Corporate Profile
Citizens Republic Bancorp, Inc. is a diversified financial services company providing a wide range of commercial, consumer, mortgage banking, trust and financial planning services to a broad client base. Citizens serves communities in Michigan, Ohio, Wisconsin, and Indiana as Citizens Bank and in Iowa as F&M Bank, with 231 offices and 267 ATMs. Citizens Republic Bancorp is the largest bank holding company headquartered in Michigan with roots dating back to 1871 and is the 43rd largest bank holding company headquartered in the United States. More information about Citizens Republic Bancorp is available at www.citizensbanking.com.
Safe Harbor Statement
Discussions and statements in this release that are not statements of historical fact, including without limitation statements that include terms such as "will," "may," "should," "believe," "expect," "anticipate," "estimate," "project," "intend," and "plan," and statements regarding Citizens' future financial and operating results, plans, objectives, expectations and intentions, are forward-looking statements that involve risks and uncertainties, many of which are beyond Citizens' control or are subject to change. No forward-looking statement is a guarantee of future performance and actual results could differ materially.
Factors that could cause or contribute to such differences include, without limitation, the following:
- Citizens faces the risk that loan losses, including unanticipated loan losses due to changes in loan portfolios, fraud and economic factors, could exceed the allowance for loan losses and that additional increases in the allowance will be required. Additions to the allowance for loan losses would cause Citizens' net income to decline and could have a negative impact on its capital and financial position.
- While Citizens attempts to manage the risk from changes in market interest rates, interest rate risk management techniques are not exact. In addition, Citizens may not be able to economically hedge its interest rate risk. A rapid or substantial increase or decrease in interest rates could adversely affect Citizens' net interest income and results of operations.
- Difficult economic conditions have adversely affected the banking industry and financial markets generally and may significantly affect Citizens' business, financial condition, and results of operations.
- An economic downturn, and the negative economic effects caused by terrorist attacks, potential attacks and other destabilizing events, would likely contribute to the deterioration of the quality of Citizens' loan portfolio and could reduce its customer base, its level of deposits, and demand for its financial products such as loans.
- If Citizens is unable to continue to attract and retain core deposits, to obtain third party financing on favorable terms, or to have access to interbank or other liquidity sources (as a result of rating agency downgrades or other market factors), its cost of funds will increase, adversely affecting its ability to generate the funds necessary for lending operations, reducing net interest margin and negatively affecting its results of operations.
- Increased competition with other financial institutions or an adverse change in Citizens' relationship with a number of major customers could reduce its net interest margin and net income by decreasing the number and size of loans originated, the interest rates charged on these loans and the fees charged for services to customers. If Citizens lends to customers who are less likely to pay in order to maintain historical origination levels, it may not be able to maintain current loan quality levels.
- Events such as significant adverse changes in the business climate, adverse action by a regulator, unanticipated changes in the competitive environment, and a decision to change Citizens' operations or dispose of an operating unit could have a negative effect on its goodwill or other intangible assets such that it may need to record an impairment charge, which could have a material adverse impact on its results of operations.
- Citizens may not realize its deferred income tax assets.
- Citizens' stock price can be volatile.
- The trading volume in Citizens' common stock is less than that of other larger financial services companies.
- If Citizens' stock does not continue to be traded on an established exchange, an active trading market may not continue and the trading price of its stock may decline.
- An investment in Citizens' common stock is not an insured deposit.
- Citizens may be adversely affected by the soundness of other financial institutions.
- Citizens could face unanticipated environmental liabilities or costs related to real property owned or acquired through foreclosure. Compliance with federal, state and local environmental laws and regulations, including those related to investigation and clean-up of contaminated sites, could have a negative effect on expenses and results of operations.
- Citizens is a party to various lawsuits incidental to its business. Litigation is subject to many uncertainties such that the expenses and ultimate exposure with respect to many of these matters cannot be ascertained.
- The financial services industry is undergoing rapid technological changes. If Citizens is unable to adequately invest in and implement new technology-driven products and services, it may not be able to compete effectively, or the cost to provide products and services may increase significantly.
- Citizens' business may be adversely affected by the highly regulated environment in which it operates. Changes in banking or tax laws, regulations, and regulatory practices at either the federal or state level may adversely affect Citizens, including its ability to offer new products and services, obtain financing, pay dividends from its subsidiaries to its parent company, attract deposits, or make loans at satisfactory spreads. Such changes may also result in the imposition of additional costs.
- The products and services offered by the banking industry and customer expectations regarding them are subject to change. Citizens attempts to respond to perceived customer needs and expectations by offering new products and services, which are often costly to develop and market initially. A lack of market acceptance of these products and services would have a negative effect on its financial condition and results of operations.
- As a bank holding company that conducts substantially all of its operations through its subsidiaries, the ability of Citizens' parent company to pay dividends, repurchase its shares or to repay its indebtedness depends upon the results of operations of its subsidiaries and their ability to pay dividends to the parent company. Dividends paid by these subsidiaries are subject to limits imposed by federal and state law.
- New accounting or tax pronouncements or interpretations may be issued by the accounting profession, regulators or other government bodies which could change existing accounting methods. Changes in accounting methods could negatively impact Citizens' results of operations and financial condition.
- Citizens' business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in, or disruption to, its business and a negative impact on its results of operations.
- Citizens' vendors could fail to fulfill their contractual obligations, resulting in a material interruption in, or disruption to, its business and a negative impact on its results of operations.
- Citizens' potential inability to integrate acquired operations could have a negative effect on its expenses and results of operations.
- Citizens' controls and procedures may fail or be circumvented which could have a material adverse effect on its business, results of operations and financial condition.
- Citizens' articles of incorporation and bylaws as well as certain banking laws may have an anti-takeover effect.
These factors also include risks and uncertainties detailed from time to time in Citizens' filings with the SEC, which are available at the SEC's web site www.sec.gov. Other factors not currently anticipated may also materially and adversely affect Citizens' results of operations, cash flows, financial position and prospects. There can be no assurance that future results will meet expectations. While Citizens believes that the forward-looking statements in this release are reasonable, you should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. Citizens does not undertake, and expressly disclaims any obligation to update or alter any statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
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Consolidated Balance Sheets (Unaudited)
Citizens Republic Bancorp and Subsidiaries
March 31, December 31, March 31,
(in thousands) 2009 2008 2008
-------------------------------------------------------------------------
Assets
Cash and due from banks $163,456 $171,695 $222,677
Money Market Investments:
Federal funds sold --- --- 20,000
Interest-bearing deposits
with banks 481,489 214,925 2,488
------------ ------------ ------------
Total money market
investments 481,489 214,925 22,488
Investment Securities:
Securities available for
sale, at fair value 2,271,998 2,248,772 2,085,867
Securities held to maturity,
at amortized cost (fair
value of $138,840, $137,846
and $134,233, respectively) 138,581 138,575 132,905
------------ ------------ ------------
Total investment
securities 2,410,579 2,387,347 2,218,772
FHLB and Federal Reserve stock 148,764 148,764 148,838
Portfolio loans:
Commercial and industrial 2,394,436 2,602,334 2,653,799
Commercial real estate 2,944,265 2,964,721 3,174,384
------------ ------------ ------------
Total commercial 5,338,701 5,567,055 5,828,183
Residential mortgage 1,207,973 1,262,841 1,393,801
Direct consumer 1,405,659 1,452,166 1,531,905
Indirect consumer 802,116 820,536 818,901
------------ ------------ ------------
Total portfolio loans 8,754,449 9,102,598 9,572,790
Less: Allowance for loan
losses (282,647) (255,321) (176,528)
------------ ------------ ------------
Net portfolio loans 8,471,802 8,847,277 9,396,262
Loans held for sale 89,820 91,362 81,537
Premises and equipment 122,810 124,217 127,329
Goodwill 597,218 597,218 775,308
Other intangible assets 19,377 21,414 28,099
Bank owned life insurance 218,917 218,333 216,336
Other assets 258,058 263,464 301,645
------------ ------------ ------------
Total assets $12,982,290 $13,086,016 $13,539,291
============ ============ ============
Liabilities
Noninterest-bearing deposits $1,174,392 $1,143,294 $1,113,773
Interest-bearing demand
deposits 865,441 780,176 751,130
Savings deposits 2,683,425 2,504,320 2,592,214
Time deposits 4,396,266 4,624,616 4,029,860
------------ ------------ ------------
Total deposits 9,119,524 9,052,406 8,486,977
Federal funds purchased and
securities sold under
agreements to repurchase 53,086 65,015 503,430
Other short-term borrowings 13,845 10,377 36,859
Other liabilities 163,887 164,274 136,193
Long-term debt 2,064,575 2,192,623 2,798,802
------------ ------------ ------------
Total liabilities 11,414,917 11,484,695 11,962,261
Shareholders' Equity
Preferred stock - no par value 267,566 266,088 ---
Common stock - no par value 1,214,173 1,214,469 976,445
Retained earnings 121,106 170,358 586,502
Accumulated other comprehensive
(loss) income (35,472) (49,594) 14,083
------------ ------------ ------------
Total shareholders' equity 1,567,373 1,601,321 1,577,030
------------ ------------ ------------
Total liabilities and
shareholders' equity $12,982,290 $13,086,016 $13,539,291
============ ============ ============
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Consolidated Statements of Operations (Unaudited)
Citizens Republic Bancorp and Subsidiaries
Three Months Ended
March 31,
(in thousands, except per share amounts) 2009 2008
-------------------------------------------------------------------------
Interest Income
Interest and fees on loans $119,191 $157,001
Interest and dividends on investment securities:
Taxable 21,912 21,023
Tax-exempt 6,957 7,370
Dividends on FHLB and Federal Reserve stock 1,366 1,693
Money market investments 263 30
--------- ---------
Total interest income 149,689 187,117
--------- ---------
Interest Expense
Deposits 47,140 61,578
Short-term borrowings 67 4,971
Long-term debt 25,536 32,256
--------- ---------
Total interest expense 72,743 98,805
--------- ---------
Net Interest Income 76,946 88,312
Provision for loan losses 64,017 30,619
--------- ---------
Net interest income after provision for
loan losses 12,929 57,693
--------- ---------
Noninterest Income
Service charges on deposit accounts 10,268 11,466
Trust fees 3,419 4,784
Mortgage and other loan income 3,079 3,344
Brokerage and investment fees 1,327 1,916
ATM network user fees 1,454 1,413
Bankcard fees 1,894 1,744
Gains (losses) on loans held for sale (6,152) 1
Other income 3,944 6,257
--------- ---------
Total noninterest income 19,233 30,925
Noninterest Expense
Salaries and employee benefits 33,917 42,225
Occupancy 7,923 7,675
Professional services 3,136 3,763
Equipment 2,850 3,230
Data processing services 4,274 4,304
Advertising and public relations 1,425 1,838
Postage and delivery 1,575 1,727
Other loan expenses 5,937 1,811
Other real estate (ORE) expenses 8,360 1,242
Intangible asset amortization 2,037 2,447
Other expense 9,344 6,300
--------- ---------
Total noninterest expense 80,778 76,562
--------- ---------
Income (Loss) Before Income Taxes (48,616) 12,056
Income tax provision (benefit) (3,467) 929
--------- ---------
Net Income (Loss) (45,149) 11,127
Dividend on redeemable preferred stock (4,103) ---
--------- ---------
Net Income (Loss) Attributable to Common
Shareholders $(49,252) $11,127
========= =========
Net Income (Loss) Per Common Share:
Basic $(0.39) $0.15
Diluted (0.39) 0.15
Cash Dividends Declared Per Common Share --- 0.29
Average Common Shares Outstanding:
Basic 125,400 75,248
Diluted 125,400 75,273
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Selected Quarterly Information
Citizens Republic Bancorp and Subsidiaries
1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
2009 2008 2008 2008 2008
-------------------------------------------------------------------------
Summary of Operations
(thousands)
Net interest income $76,946 $85,687 $87,318 $87,615 $88,312
Provision for loan losses 64,017 118,565 58,390 74,480 30,619
Total fees and other
income 19,233 15,755 28,005 27,058 30,925
Investment securities gains
(losses) --- (1) --- --- ---
Noninterest expense (1) 80,778 78,611 74,301 261,228 76,562
Income tax provision
(benefit) (3,467) 99,634 (10,192) (19,401) 929
Net income (loss) (2) (45,149) (195,369) (7,176) (201,634) 11,127
Net income (loss)
attributable to common
shareholders (3) (49,252) (195,596) (18,913) (201,634) 11,127
Taxable equivalent
adjustment 4,337 4,519 4,593 4,611 4,679
Cash dividends on common
stock --- --- --- --- 21,958
-------------------------------------------------------------------------
Per Common Share Data
Net Income (loss):
Basic $(0.39) $(1.56) $(0.20) $(2.53) $0.15
Diluted (0.39) (1.56) (0.20) (2.53) 0.15
Dividends - - - - 0.290
Market Value:
High $3.26 $4.75 $11.00 $13.97 $14.74
Low 0.65 1.34 1.75 2.67 10.41
Close 1.55 2.98 3.08 2.82 12.43
Book value 10.29 10.60 12.20 14.93 20.82
Common shareholders'
equity (end of period) 7.53 7.80 7.27 9.62 10.21
Shares outstanding, end of
period (000) 126,299 125,997 126,017 95,899 75,748
-------------------------------------------------------------------------
At Period End (millions)
Assets $12,982 $13,086 $13,116 $13,170 $13,539
Portfolio loans 8,754 9,103 9,378 9,449 9,573
Deposits 9,120 9,052 9,006 8,661 8,487
Shareholders' equity 1,567 1,601 1,537 1,546 1,577
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Average Balances (millions)
Assets $13,080 $13,074 $13,157 $13,296 $13,442
Portfolio loans 8,908 9,267 9,456 9,514 9,499
Deposits 9,117 8,998 8,837 8,604 8,417
Shareholders' equity 1,607 1,559 1,551 1,546 1,579
-------------------------------------------------------------------------
Credit Quality Statistics
($ in thousands)
Nonaccrual loans $427,238 $304,293 $229,391 $136,741 $249,113
Loans 90 or more days
past due and still
accruing 1,015 1,486 1,635 2,179 4,077
Restructured loans 360 256 271 285 300
-------- -------- -------- -------- --------
Total nonperforming
portfolio loans 428,613 306,035 231,297 139,205 253,490
Nonperforming held for
sale 64,604 75,142 86,645 92,658 22,754
Other repossessed assets
acquired (ORAA) 57,411 58,037 46,459 54,066 50,350
-------- -------- -------- -------- --------
Total nonperforming
assets $550,628 $439,214 $364,401 $285,929 $326,594
-------- -------- -------- -------- --------
Allowance for loan losses $282,647 $255,321 $217,727 $181,718 $176,528
Allowance for loan losses
as a percent of portfolio
loans 3.23% 2.80% 2.32% 1.92% 1.84%
Allowance for loan losses
as a percent of
nonperforming assets 51.33 58.13 59.75 63.55 54.05
Allowance for loan losses
as a percent of
nonperforming loans 65.94 83.43 94.13 130.54 69.64
Nonperforming assets as a
percent of portfolio loans
plus ORAA 6.25 4.79 3.87 3.01 3.39
Nonperforming assets as a
percent of total assets 4.24 3.36 2.78 2.17 2.41
Net loans charged off as a
percent of average
portfolio loans
(annualized) 1.67 3.48 0.94 2.93 0.74
Net loans charged off $36,691 $80,971 $22,381 $69,290 $17,444
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Performance Ratios
(annualized)
Return on average assets (1.40)% (5.94)% (0.22)% (6.10)% 0.33%
Return on average
shareholders' equity (11.40) (49.86) (1.84) (52.47) 2.83
Average shareholders'
equity / average assets 12.28 11.92 11.79 11.62 11.74
Net interest margin
(FTE)(4) 2.73 3.03 3.09 3.11 3.12
Efficiency ratio (5) 80.36 74.19 61.96 219.00 61.79
-------------------------------------------------------------------------
(1) Noninterest expense includes a goodwill impairment charge of $178.1
million in the second quarter of 2008.
(2) Net income (loss) includes a deferred tax valuation allowance of
$136.6 million in the fourth quarter of 2008.
(3) Net income (loss) attributable to common shareholders includes a
dividend on redeemable preferred stock in the amount of: $4.1
million, $0.2 million, and $11.7 million in the first quarter of
2009, the fourth quarter of 2008, and the third quarter of 2008,
respectively.
(4) Net interest margin is presented on an annual basis, includes
taxable equivalent adjustments to interest income and is based on
a tax rate of 35%.
(5) The Efficiency Ratio measures how efficiently a bank spends its
revenues. The formula is: Noninterest expense/(Net interest income +
Taxable equivalent adjustment + Total fees and other income).
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Financial Summary and Comparison
Citizens Republic Bancorp and Three months ended
Subsidiaries March 31,
2009 2008 % Change
-------------------------------------------------------------------------
Summary of Operations (thousands)
Net interest income $76,946 $88,312 (12.9)%
Provision for loan losses 64,017 30,619 109.1
Total fees and other income 19,233 30,925 (37.8)
Noninterest expense 80,778 76,562 5.5
Income tax provision (benefit) (3,467) 929 (473.3)
Net income (loss) (45,149) 11,127 (505.8)
Net income (loss) attributable to
common shareholders (1) (49,252) 11,127 (542.6)
Cash dividends on common stock --- 21,958 (100.0)
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Per Common Share Data
Net Income:
Basic $(0.39) $0.15 (360.0)%
Diluted (0.39) 0.15 (360.0)
Dividends - 0.290 (100.0)
Market Value:
High $3.26 $14.74 (77.9)%
Low 0.65 10.41 (93.8)
Close 1.55 12.43 (87.5)
Common shareholders' equity, end
of period 10.29 20.82 (50.6)
Tangible book value 7.53 10.21 (26.2)
Shares outstanding, end of
period (000) 126,299 75,748 66.7
-------------------------------------------------------------------------
At Period End (millions)
Assets $12,982 $13,539 (4.1)%
Portfolio loans 8,754 9,573 (8.5)
Deposits 9,120 8,487 7.5
Shareholders' equity 1,567 1,577 (0.6)
-------------------------------------------------------------------------
Average Balances (millions)
Assets $13,080 $13,442 (2.7)%
Portfolio loans 8,908 9,499 (6.2)
Deposits 9,117 8,417 8.3
Shareholders' equity 1,607 1,579 1.8
-------------------------------------------------------------------------
Performance Ratios (annualized)
Return on average assets (1.40)% 0.33 % (524.2)%
Return on average shareholders'
equity (11.40) 2.83 (502.8)
Average shareholders' equity /
average assets 12.28 11.74 4.6
Net interest margin (FTE) (2) 2.73 3.12 (12.5)
Efficiency ratio (3) 80.36 61.79 30.1
Net loans charged off as a percent of
average portfolio loans 1.67 0.74 125.7
-------------------------------------------------------------------------
(1) Net income (loss) attributable to common shareholders includes a
dividend on redeemable preferred stock in the amount of $4.1 million
for 2009.
(2) Net interest margin is presented on an annual basis and includes
taxable equivalent adjustments to interest income of $4.3 million
and $4.7 million for the three months ended March 31, 2009 and 2008,
respectively, based on a tax rate of 35%.
(3) The Efficiency Ratio measures how efficiently a bank spends its
revenues. The formula is: Noninterest expense/(Net interest
income + Taxable equivalent adjustment + Total fees and other
income).
-------------------------------------------------------------------------
Non-GAAP Reconciliation
Citizens Republic Bancorp and Subsidiaries
1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
2009 2008 2008 2008 2008
-------------------------------------------------------------------------
Summary of Core Operations (thousands)
Net income (loss) $(45,149) $(195,369) $(7,176) $(201,634) $11,127
Add back: Amortization
of core deposit
intangibles (net of
tax effect)(1) 1,324 1,382 1,447 1,516 1,591
Add back: Goodwill
impairment --- --- --- 178,089 ---
--------- ---------- -------- --------- --------
Core operating
earnings (loss) $(43,825) $(193,987) $(5,729) $(22,029) $12,718
========= ========== ======== ========= ========
-------------------------------------------------------------------------
Average Balances
(millions)
Average assets $13,080 $13,074 $13,157 $13,296 $13,442
Goodwill (597) (597) (597) (713) (775)
Core deposit intangible
assets (20) (22) (25) (27) (29)
Deferred taxes 7 7 8 9 10
--------- ---------- -------- --------- --------
Average tangible
assets $12,470 $12,462 $12,543 $12,565 $12,648
========= ========== ======== ========= ========
Average equity $1,607 $1,559 $1,551 $1,546 $1,579
Goodwill (597) (597) (597) (713) (775)
Core deposit intangible
assets (20) (22) (25) (27) (29)
Deferred taxes 7 7 8 9 10
--------- ---------- -------- --------- --------
Average tangible
equity $997 $947 $937 $815 $785
========= ========== ======== ========= ========
-------------------------------------------------------------------------
Performance Ratios
(annualized)
Core operating
earnings (loss)/
average tangible
assets (1.43)% (6.19)% (0.18)% (0.71)% 0.40%
Core operating
earnings (loss)/
average tangible
equity (17.84) (81.48) (2.43) (10.87) 6.52
-------------------------------------------------------------------------
(1) Tax effect of $713 for the 1st quarter of 2009 and $744, $779, $817,
and $856 for the 4th, 3rd, 2nd, and 1st quarters of 2008,
respectively.
-------------------------------------------------------------------------
Noninterest Income and Noninterest Expense (Unaudited)
Citizens Republic Bancorp and Subsidiaries
Three Months Ended
----------------------------------------------
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in thousands) 2009 2008 2008 2008 2008
-------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit
accounts $10,268 $11,714 $12,254 $12,036 $11,466
Trust fees 3,419 4,062 4,513 4,608 4,784
Mortgage and other loan
income 3,079 1,807 3,269 3,023 3,344
Brokerage and investment
fees 1,327 1,606 1,376 2,211 1,916
ATM network user fees 1,454 1,514 1,715 1,677 1,413
Bankcard fees 1,894 1,898 1,874 1,924 1,744
Gains (losses) on loans held
for sale (6,152) (5,865) (1,261) (2,248) 1
Other income 3,944 (981) 4,265 3,827 6,257
-------- -------- -------- -------- --------
Total fees and other
income 19,233 15,755 28,005 27,058 30,925
Investment securities gains --- (1) --- --- ---
-------- -------- -------- -------- --------
TOTAL NONINTEREST INCOME $19,233 $15,754 $28,005 $27,058 $30,925
======== ======== ======== ======== ========
NONINTEREST EXPENSE:
Salaries and employee
benefits $33,917 $37,194 $39,728 $39,046 $42,225
Occupancy 7,923 7,214 6,749 6,954 7,675
Professional services 3,136 3,644 3,246 4,531 3,763
Equipment 2,850 3,156 3,160 3,420 3,230
Data processing services 4,274 3,748 4,185 4,233 4,304
Advertising and public
relations 1,425 1,304 1,297 1,458 1,838
Postage and delivery 1,575 1,931 1,626 2,058 1,727
Other loan expenses 5,937 5,367 2,755 3,448 1,811
Other real estate (ORE)
expenses 8,360 1,547 1,825 6,394 1,242
Intangible asset
amortization 2,037 2,126 2,226 2,333 2,447
Goodwill impairment --- --- --- 178,089 ---
Other expense 9,344 11,380 7,504 9,264 6,300
-------- -------- -------- -------- --------
TOTAL NONINTEREST EXPENSE $80,778 $78,611 $74,301 $261,228 $76,562
======== ======== ======== ======== ========
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average Balances, Yields and Rates
Three Months Ended
----------------------------------------------------
March 31, 2009 December 31, 2008 March 31, 2008
----------------------------------------------------
(dollars in
thousands) Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
----------------------------------------------------
Earning Assets
Money market
investments $426,824 0.25% 122,574 0.58% 4,490 2.66%
Investment
securities:
Taxable 1,738,346 5.04 1,567,930 5.04 1,528,754 5.50
Tax-exempt 651,797 6.57 670,015 6.59 678,699 6.68
FHLB and Federal
Reserve stock 148,763 3.71 148,765 4.71 148,840 4.57
Portfolio loans
Commercial and
industrial 2,485,161 4.65 2,665,081 5.21 2,564,023 5.93
Commercial
real estate 2,944,144 5.34 3,031,173 6.26 3,142,244 6.90
Residential
mortgage 1,237,705 5.48 1,271,909 5.89 1,417,712 6.48
Direct
consumer 1,431,983 6.10 1,466,810 6.38 1,553,348 7.23
Indirect
consumer 809,025 6.77 832,379 6.81 821,882 6.79
----------- ----------- -----------
Total portfolio
loans 8,908,018 5.42 9,267,352 5.98 9,499,209 6.62
Loans held for sale 93,379 2.15 100,011 1.37 74,057 6.63
----------- ----------- -----------
Total earning
assets 11,967,127 5.20 11,876,647 5.78 11,934,049 6.45
Nonearning Assets
Cash and due from
banks 173,181 193,667 205,102
Bank premises and
equipment 123,573 124,195 130,216
Investment security
fair value
adjustment (6,471) (25,650) 32,294
Other nonearning
assets 1,083,358 1,129,453 1,306,441
Allowance for loan
losses (260,483) (224,674) (165,815)
----------- ----------- -----------
Total assets $13,080,285 $13,073,638 $13,442,287
=========== =========== ===========
Interest-Bearing
Liabilities
Deposits:
Interest-bearing
demand $823,161 0.46% $752,477 0.64% $776,756 0.66%
Savings deposits 2,596,840 0.93 2,545,445 1.35 2,412,725 2.38
Time deposits 4,548,786 3.59 4,559,987 3.78 4,137,557 4.48
Short-term
borrowings 71,374 0.38 80,315 0.81 632,655 3.16
Long-term debt 2,116,545 4.88 2,324,252 4.91 2,665,362 4.86
----------- ----------- -----------
Total interest-
bearing
liabilities 10,156,706 2.90 10,262,476 3.18 10,625,055 3.74
Noninterest-Bearing
Liabilities and
Shareholders'
Equity
Noninterest-
bearing demand 1,148,419 1,140,337 1,090,255
Other liabilities 168,525 111,863 148,339
Shareholders'
equity 1,606,635 1,558,962 1,578,638
----------- ----------- -----------
Total
liabilities
and
shareholders'
equity $13,080,285 $13,073,638 $13,442,287
=========== =========== ===========
Interest Spread 2.30% 2.60% 2.71%
Contribution of
noninterest bearing
sources of funds 0.43 0.43 0.41
---- ---- ----
Net Interest Margin (1) 2.73% 3.03% 3.12%
-------------------------------------------------------------------------
(1) Net interest margin is presented on an annualized basis, includes
taxable equivalent adjustments to interest income and is based on a
tax rate of 35%.
-------------------------------------------------------------------------
Nonperforming Assets
Citizens Republic Bancorp and Subsidiaries
Three Months Ended
-------------------------------------------------
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in thousands) 2009 2008 2008 2008 2008
-------------------------------------------------------------------------
Commercial and industrial $83,716 $64,573 $38,168 $31,599 $20,268
Commercial real estate 235,921 162,544 132,629 75,082 167,836
-------- -------- -------- -------- --------
Total commercial (1) 319,637 227,117 170,797 106,681 188,104
Residential mortgage 84,596 59,515 40,234 12,414 45,796
Direct consumer 20,993 15,049 16,270 16,273 13,503
Indirect consumer 2,012 2,612 2,090 1,373 1,710
Loans 90 days or more
past due and still
accruing 1,015 1,486 1,635 2,179 4,077
Restructured loans 360 256 271 285 300
-------- -------- -------- -------- --------
Total nonperforming
portfolio loans 428,613 306,035 231,297 139,205 253,490
Nonperforming held for
sale 64,604 75,142 86,645 92,658 22,754
Other Repossessed Assets
Acquired 57,411 58,037 46,459 54,066 50,350
-------- -------- -------- -------- --------
Total nonperforming
assets $550,628 $439,214 $364,401 $285,929 $326,594
======== ======== ======== ======== ========
-------------------------------------------------------------------------
(1) Changes in commercial nonperforming loans (including restructured
loans) for the quarter (in millions):
Inflows 173.0 155.5 102.6 54.5 99.0
Outflows (80.4) (99.2) (38.5) (135.9) (33.7)
-------- -------- -------- -------- --------
Net change $92.6 $56.3 $64.1 $(81.4) $65.3
======== ======== ======== ======== ========
-------------------------------------------------------------------------
Summary of Loan Loss Experience
Citizens Republic Bancorp and Subsidiaries
Three Months Ended
------------------------------------------------
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in thousands) 2009 2008 2008 2008 2008
-------------------------------------------------------------------------
Allowance for loan
losses - beginning of
period $255,321 $217,727 $181,718 $176,528 $163,353
Provision for loan
losses 64,017 118,565 58,390 74,480 30,619
Charge-offs:
Commercial and
industrial 8,108 22,813 2,222 921 1,045
Commercial real estate 18,977 46,058 15,063 42,225 9,132
-------- -------- -------- -------- --------
Total commercial 27,085 68,871 17,285 43,146 10,177
Residential mortgage 804 1,565 497 20,738 1,769
Direct consumer 4,707 6,239 3,603 3,631 3,522
Indirect consumer 5,507 6,299 3,924 3,525 3,141
-------- -------- -------- -------- --------
Total charge-offs 38,103 82,974 25,309 71,040 18,609
-------- -------- -------- -------- --------
Recoveries:
Commercial and
industrial 128 904 1,805 302 142
Commercial real estate 404 151 274 241 50
-------- -------- -------- -------- --------
Total commercial 532 1,055 2,079 543 192
Residential mortgage 3 2 12 15 ---
Direct consumer 334 385 304 565 472
Indirect consumer 543 561 533 627 501
-------- -------- -------- -------- --------
Total recoveries 1,412 2,003 2,928 1,750 1,165
-------- -------- -------- -------- --------
Net charge-offs 36,691 80,971 22,381 69,290 17,444
-------- -------- -------- -------- --------
Allowance for loan
losses - end of period $282,647 $255,321 $217,727 $181,718 $176,528
-------- -------- -------- -------- --------
Reserve for loan
commitments - end of
period $4,158 $3,941 $4,274 $5,154 $5,293
======== ======== ======== ======== ========
-------------------------------------------------------------------------
SOURCE Citizens Republic Bancorp, Inc.
