Citizens Republic Bancorp Reports Solid Third Quarter Results

News provided by

Citizens Republic Bancorp, Inc.

Oct 25, 2012, 04:05 ET

FLINT, Mich., Oct. 25, 2012 /PRNewswire/ -- 

  • Net income attributable to common shareholders was $15 million or $0.37 per share for the third quarter, which includes over $4 million in pre-tax merger-related expenses
  • Credit metric trends reflect continued stability and improved performance across the loan portfolio
  • Pre-tax, pre-provision profit remained strong at $33 million
  • Announced agreement to merge with FirstMerit Corporation in a stock-for-stock transaction

Citizens Republic Bancorp, Inc. (Nasdaq: CRBC) announced net income attributable to common shareholders of $14.9 million or $0.37 per diluted share for the three months ended September 30, 2012, compared to $297.1 million or $7.35 per diluted share for last quarter, and $27.2 million or $0.68 per diluted share for the third quarter of last year.  For the first nine months of this year, Citizens recorded net income attributable to common shareholders of $330.9 million or $8.19 per share compared to a net loss of $28.7 million or $0.73 per share for the same period of 2011.  Year to date 2012 results include a $275.5 million or $6.82 per share tax benefit related to the elimination of the valuation allowance against the deferred tax asset in the second quarter.

"Last month we announced that we entered into a definitive merger agreement with FirstMerit Corporation.  We are excited about the transaction which creates a unique, contiguous, Midwest franchise of significant size and scale.  Until the transaction closes, we continue to successfully execute our strategic initiatives, driving our consistent earnings and organically growing our strong capital position," commented Cathleen Nash, president and chief executive officer.

Balance Sheet

Total assets increased modestly from last quarter. Increases in the investment securities portfolio and money market investments more than offset decreases in the loan portfolio.  Citizens continues to focus on C&I and consumer lending. Over the past year, growth within the C&I and indirect consumer portfolios helped to mitigate balance reductions in the commercial real estate and residential mortgage portfolios. 

Total deposit balances grew slightly, as growth in low cost core deposit balances was partially offset by strategic reductions in more expensive single service and brokered time deposits. These initiatives have resulted in core deposit growth of 6% and a 23% reduction in time deposits compared to September 30, 2011.

Capital

Citizens continues to grow capital organically through earnings and maintains a strong capital position.



Capital Ratios

Regulatory

Minimum for "Well-

September 30,

June 30,

September 30,

Capitalized"

2012

2012

2011

Leverage ratio

5.00%

9.66%

9.77%

8.21%

Tier 1 capital ratio

6.00

15.09

14.70

12.81

Total capital ratio

10.00

16.35

15.96

14.14

Tier 1 common equity (non-GAAP)

8.83

8.50

6.77

Tangible equity to tangible assets (non-GAAP)

11.00

10.82

7.36

Tangible common equity to tangible assets (non-GAAP)

7.91

7.73

4.31












Net Interest Income and Margin

Net interest margin was 3.57% in the third quarter, a three basis point decrease from last quarter and a six basis point decrease from the third quarter of last year. The decreases were a result of the continued low interest rate environment and competitive pressures on our loan portfolio, partially offset by reduced funding costs.  Year to date, net interest margin increased one basis point over last year to 3.58%.

Net interest income for the third quarter of 2012 was $75.8 million, consistent with last quarter and a decrease of $3.0 million from the third quarter of last year.  The decrease from the third quarter of last year reflects lower net interest margin and a reduction in average earning assets.  For the nine months ended September 30, 2012, net interest income decreased $7.5 million or 3% compared to the same period last year due to a reduction in average earning assets.

Credit Quality

Credit quality benefits from proactive credit management as well as returning economic stability.

  • Total delinquencies decreased 3% from last quarter to $31.6 million and currently represent 0.58% of portfolio loans.
  • Nonperforming assets were $86.2 million at the end of September 2012, an 8% decrease from the end of June 2012 and a decrease of 37% from September 30 of last year due to proactively managing and resolving delinquent commercial and consumer loans and improving the risk profile of the loan portfolio.
  • Net charge-offs for the third quarter decreased to $19.2 million, compared to $22.2 million last quarter and $33.4 million in the third quarter of last year.  The provision for loan losses was $5.2 million in the third quarter, substantially the same as the second quarter of 2012. 
  • The allowance for loan losses was $122.1 million or 2.25% of portfolio loans at September 30, 2012, compared to $136.1 million or 2.47% at the end of the prior quarter, and $190.4 million or 3.36% at the end of the third quarter last year.
Noninterest Income and Expense

Citizens' focus on services and products helps support a stable base of fee income.  Total noninterest income increased $1.4 million over last quarter and decreased $0.7 million compared to the third quarter last year.

  • Service charges were consistent with the second quarter of 2012.  Service charges on deposit accounts were down 8% compared to the third quarter of last year primarily as a result of regulatory changes.
  • Brokerage and investment fees were up 38% compared to last quarter and 54% compared to the third quarter of 2011 due to focused efforts to increase accounts and sales.
  • Minimal losses on loans held for sale were realized this quarter compared to gains in prior periods.
  • Other income increased compared to last quarter primarily due to higher unrealized gains on deferred compensation, which was offset in noninterest expense.

Noninterest expense increased $5.7 million over last quarter and $6.6 million over the third quarter of last year, primarily due to merger-related expenses and ORE losses.

  • Professional services increased compared to prior periods as a result of merger-related expenses of $4.4 million.
  • Overall, credit costs remained consistent.  However, losses on ORE increased $1.1 million during the quarter primarily related to a writedown on a single commercial ORE property.
  • Salaries and employee benefit costs increased compared to last quarter due to higher deferred compensation expense.
  • Data processing services increased over prior periods as a negotiated reduction in expense expired.

Year to date, noninterest expense decreased $11.0 million from 2011 as lower credit costs were partially offset by higher salaries and employee benefits and merger-related expenses.

Income Taxes and Deferred Tax Asset

Citizens recorded income tax expense of $1.3 million for the third quarter of 2012, compared to a benefit of $12.6 million for the third quarter of 2011.  For the first nine months of 2012, the income tax benefit totaled $275.5 million, compared with a benefit of $22.8 million for the same period of 2011.  The tax benefit for the three months ended September 30, 2011 was largely due to Citizens recording a receivable as a result of a revocation of a tax election.  The increase in tax benefit for the nine months ended September 30, 2012 was primarily the result of eliminating the valuation allowance against our deferred tax asset.  

Conference Call

Citizens' senior management will review the quarter's results in a conference call at 10:00 a.m. ET on Friday, October 26, 2012.  A live audio webcast is available on Citizens' investor relations page at www.citizensbanking.com or by calling (866) 952-1906 (conference ID: Citizens Republic).  To listen to the conference call, please connect approximately 10 minutes prior to the scheduled conference time.  A recording will be available approximately two hours after the completion of the conference call at www.citizensbanking.com, where it will be archived for 90 days.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this release includes non-GAAP financial measures such as tangible equity to tangible assets ratio, tangible common equity to tangible assets ratio, Tier 1 common equity ratio, pre-tax pre-provision profit, net interest margin, the efficiency ratio, and adjusted earnings per share.  Citizens believes these non-GAAP financial measures provide additional information that is useful to investors in understanding the underlying performance of Citizens, its business and performance trends, and such measures help facilitate performance comparisons with others in the banking industry.  Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited.  Readers should be aware of these limitations and should be cautious as to their use of such measures.  To mitigate these limitations, Citizens has procedures in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety to ensure that Citizens' performance is properly reflected to facilitate consistent period-to-period comparisons.  Although Citizens believes the above non-GAAP financial measures disclosed in this release enhance investors' understanding of its business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures.  See our related Form 8-K for further discussion regarding these non-GAAP financial measures.

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, and Wisconsin with 219 offices and 249 ATMs.  Citizens is the largest bank holding company headquartered in Michigan with roots dating back to 1871 and is the 57th largest bank holding company headquartered in the United States.  More information about Citizens 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 actual results differing materially from Citizens' expectations include the risks and uncertainties detailed from time to time in Citizens' annual and quarterly filings with the SEC, which are available at the SEC's website 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.









Consolidated Balance Sheets (Unaudited)





Citizens Republic Bancorp, Inc.








September 30,

June 30,

September 30,

(in thousands)

2012

2012

2011

Assets






Cash and due from banks

$    162,705

$     145,432

$      147,418

Money market investments

223,818

203,861

283,018

Investment Securities:






    Securities available for sale, at fair value

1,541,567

1,480,290

1,307,977

    Securities held to maturity, at amortized cost






      (fair value of $1,378,310, $1,349,429 and $1,491,048, respectively)

1,313,504

1,296,164

1,454,873

           Total investment securities

2,855,071

2,776,454

2,762,850

FHLB and Federal Reserve stock

122,123

122,123

123,696

Portfolio loans:






    Commercial and industrial

1,688,996

1,711,411

1,531,492

    Commercial real estate

1,335,601

1,417,409

1,643,901

           Total commercial

3,024,597

3,128,820

3,175,393

    Residential mortgage

570,295

588,144

654,561

    Direct consumer

865,777

881,070

954,831

    Indirect consumer

970,235

923,714

887,542

           Total portfolio loans

5,430,904

5,521,748

5,672,327

    Less: Allowance for loan losses

(122,125)

(136,120)

(190,354)

           Net portfolio loans

5,308,779

5,385,628

5,481,973

Loans held for sale

30,062

14,518

30,221

Premises and equipment

92,005

93,646

98,954

Goodwill

318,150

318,150

318,150

Other intangible assets

5,792

6,305

8,116

Bank owned life insurance

222,610

221,965

219,248

Other assets

383,675

382,411

126,544

 Total assets

$  9,724,790

$  9,670,493

$    9,600,188

Liabilities 






Noninterest-bearing deposits

$  1,854,715

$  1,796,531

$    1,621,451

Interest-bearing demand deposits

1,092,679

1,025,305

945,458

Savings deposits

2,574,642

2,607,718

2,652,267

Core deposits

5,522,036

5,429,554

5,219,176

Time deposits

1,780,929

1,858,155

2,320,728

          Total deposits

7,302,965

7,287,709

7,539,904

Federal funds purchased and securities sold






      under agreements to repurchase

42,796

39,169

40,599

Other short-term borrowings

---

---

640

Other liabilities

168,351

154,718

154,232

Long-term debt

852,481

853,042

855,670

Total liabilities

8,366,593

8,334,638

8,591,045

Shareholders' Equity






Preferred stock - no par value

290,580

288,723

283,360

Common stock - no par value

1,436,925

1,435,920

1,433,765

Retained deficit

(363,659)

(378,520)

(706,907)

Accumulated other comprehensive loss

(5,649)

(10,268)

(1,075)

Total shareholders' equity

1,358,197

1,335,855

1,009,143

  Total liabilities and shareholders' equity

$  9,724,790

$  9,670,493

$    9,600,188

























Consolidated Statements of Operations (Unaudited)







Citizens Republic Bancorp, Inc.

Three Months Ended

Nine Months Ended


September 30,

September 30,

(in thousands, except per share amounts)

2012

2011

2012

2011









Interest Income







   Interest and fees on loans

$   73,376

$   77,212

$ 222,205

$ 235,600

   Interest and dividends on investment securities:







      Taxable

16,034

20,508

49,356

60,664

      Tax-exempt

2,157

2,613

6,610

8,412

   Dividends on FHLB and Federal Reserve stock

1,196

974

3,487

3,143

   Money market investments

152

168

481

670

      Total interest income

92,915

101,475

282,139

308,489

Interest Expense







   Deposits

8,779

13,528

29,243

44,945

   Short-term borrowings

11

20

42

57

   Long-term debt

8,320

9,086

25,251

28,426

      Total interest expense

17,110

22,634

54,536

73,428

Net Interest Income

75,805

78,841

227,603

235,061

Provision for loan losses

5,195

17,481

18,891

123,801

      Net interest income after provision for loan losses

70,610

61,360

208,712

111,260

Noninterest Income







   Service charges on deposit accounts

9,554

10,362

27,894

29,544

   Trust fees

3,635

3,622

10,818

11,356

   Mortgage and other loan income

2,028

2,089

5,839

6,915

   Brokerage and investment fees

1,831

1,188

4,486

3,829

   Card-based and other nondeposit fees

4,431

4,475

13,140

12,862

   Net (losses) gains on loans held for sale

(184)

1,952

739

2,025

   Investment securities gains (losses)

---

3

---

(1,373)

   Other income

2,415

736

7,380

5,737

      Total noninterest income

23,710

24,427

70,296

70,895

Noninterest Expense







   Salaries and employee benefits

33,589

30,280

99,687

92,563

   Occupancy

6,129

6,125

18,965

19,734

   Professional services

6,806

2,394

11,294

7,020

   Equipment

2,937

2,918

9,144

8,811

   Data processing services

4,427

3,823

12,196

12,422

   Advertising and public relations

1,847

2,179

4,890

4,550

   Postage and delivery

1,157

1,142

3,375

3,378

   Other loan expenses

3,121

3,941

9,574

12,510

   Losses on other real estate (ORE)

941

1,210

382

11,687

   ORE expenses

323

529

1,039

3,326

   Intangible asset amortization

513

732

1,636

2,338

   Other expense

10,265

10,138

33,312

38,172

      Total noninterest expense

72,055

65,411

205,494

216,511

Income (Loss) before Income Taxes 

22,265

20,376

73,514

(34,356)

Income tax provision (benefit)

1,274

(12,568)

(275,514)

(22,779)

Net Income (Loss)

20,991

32,944

349,028

(11,577)

Dividend on redeemable preferred stock

(6,130)

(5,761)

(18,127)

(17,088)

Net Income (Loss) Attributable to Common Shareholders

$   14,861

$   27,183

$ 330,901

$  (28,665)

Net Income (Loss) Per Common Share:







   Basic

$      0.37

$      0.68

$      8.19

$     (0.73)

   Diluted

0.37

0.68

8.19

(0.73)

Average Common Shares Outstanding: 







   Basic

39,489

39,433

39,469

39,418

   Diluted

39,489

39,433

39,469

39,418




































Selected Quarterly Information (Unaudited)




Three Months Ended




September 30,

June 30,

March 31,

December 31,

September 30,

(in thousands, except per share amounts)

2012

2012

2012

2011

2011

Summary of Operations













Net interest income

$           75,805

$      75,680

$      76,119

$        78,049

$        78,841

Provision for loan losses

5,195

5,299

8,397

15,007

17,481

Noninterest income

23,710

22,345

24,240

24,363

24,427

Noninterest expense

72,055

66,339

67,101

66,640

65,411

Income before income taxes

22,265

26,387

24,861

20,765

20,376

Income tax provision (benefit)(1)

1,274

(276,789)

---

2,521

(12,568)

Net income

20,991

303,176

24,861

18,244

32,944

Net income attributable to common shareholders (2)

14,861

297,134

18,906

12,347

27,183

Taxable equivalent adjustment

1,503

1,532

1,571

1,670

1,827















Per Common Share Data (3) 













Net income:













      Basic

$               0.37

$          7.35

$          0.47

$            0.31

$            0.68

      Diluted 

0.37

7.35

0.47

0.31

0.68

Common book value

26.36

25.85

18.83

18.24

18.03

Tangible book value (non-GAAP)

25.53

24.97

17.88

17.24

16.96

Tangible common book value (non-GAAP)

18.36

17.84

10.75

10.16

9.92

Shares outstanding, end of period (4)

40,508,823

40,504,637

40,247,241

40,260,213

40,255,758















At Period End













Assets

$       9,724,790

$  9,670,493

$  9,577,346

$    9,462,849

$    9,600,188

Earning assets

8,600,731

8,588,343

8,774,119

8,680,995

8,824,183

Portfolio loans

5,430,904

5,521,748

5,528,063

5,529,535

5,672,327

Allowance for loan losses

122,125

136,120

153,007

172,726

190,354

Deposits

7,302,965

7,287,709

7,490,362

7,394,941

7,539,904

Long-term debt

852,481

853,042

853,599

854,185

855,670

Shareholders' equity

1,358,197

1,335,855

1,044,619

1,019,537

1,009,143

Average for the Quarter













Assets

$       9,723,587

$  9,429,050

$  9,521,386

$    9,523,184

$    9,596,275

Earning assets

8,638,390

8,622,067

8,750,078

8,761,435

8,856,072

Portfolio loans

5,501,400

5,517,726

5,508,528

5,632,432

5,663,058

Allowance for loan losses

135,968

152,154

172,509

190,163

206,119

Deposits

7,323,753

7,317,653

7,441,693

7,452,137

7,546,615

Long-term debt

852,776

853,333

853,912

856,206

862,479

Shareholders' equity

1,345,817

1,061,519

1,028,494

1,017,082

991,602















Financial Ratios (annualized)












Return on average assets

0.86

%

12.93

%

1.05

%

0.76

%

1.36

%

Return on average shareholders' equity

6.20

114.87

9.72

7.12

13.18

Average shareholders' equity / average assets

13.84

11.26

10.80

10.68

10.33

Net interest margin (FTE) (5)

3.57

3.60

3.56

3.62

3.63

Efficiency ratio (non-GAAP)(6)

65.20

65.99

65.20

61.39

59.89

Allowance for loan losses as a percent of portfolio loans

2.25

2.47

2.77

3.12

3.36

Allowance for loan losses as a percent of nonperforming loans(7)

191.29

161.53

202.56

197.56

190.09

Allowance for loan losses as a percent of nonperforming assets(7)

141.69

144.85

168.87

168.97

139.01

Nonperforming loans as a percent of portfolio loans(7)

1.18

1.53

1.37

1.58

1.77

Nonperforming assets as a percent of total loans plus ORAA(7)(8)

1.58

1.69

1.63

1.84

2.39

Nonperforming assets as a percent of total assets(7)

0.89

0.97

0.95

1.08

1.43

Ratio of net charge-offs during period to average portfolio loans

1.39

1.62

2.05

2.30

2.34

Leverage ratio

9.66

9.77

8.71

8.45

8.21

Tier 1 capital ratio

15.09

14.70

13.70

13.51

12.81

Total capital ratio

16.35

15.96

14.97

14.84

14.14















(1)Second quarter 2012 benefit is directly related to the restoration of the deferred tax asset.

(2)Net income attributable to common shareholders includes a non-cash dividend to preferred shareholders of $6.0 million in the third, second, and first quarters of  2012 and $5.9 million, and $5.8 million in the fourth, and third quarters of 2011.

(3) Earnings per share in the second quarter of 2012 includes a tax benefit of $6.85 per share related to restoring the deferred tax asset.

(4)Includes participating shares which are restricted stock units and restricted shares.

(5)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%.

(6)Efficiency ratio (non-GAAP) is calculated as follows: (Noninterest expense-Losses on other real estate ("ORE")-ORE expenses-Intangible amortization-Merger related expenses)/(Net interest income+Taxable equivalent adjustment+Total noninterst income-Investment securities gains(losses)).

(7)Nonperforming loans/assets exclude troubled debt restructurings (TDRs) that are on an accrual status and performing in accordance with their modified terms.

(8)Other real estate assets acquired (ORAA) include loans held for sale.











Loan Portfolios

(in thousands)

September 30, 2012

June 30, 2012

March 31, 2012

December 31, 2011

September 30, 2011











Land hold

$               4,984

$              5,119

$              5,387

$               6,542

$            6,818

Land development

7,521

7,006

7,226

13,104

22,232

Construction

6,689

4,591

6,410

5,847

5,410

Income producing

767,202

803,546

877,461

913,755

975,262

Owner-occupied

549,205

597,147

590,575

605,113

634,179

  Total commercial real estate

1,335,601

1,417,409

1,487,059

1,544,361

1,643,901

Commercial and industrial

1,688,996

1,711,411

1,657,140

1,543,529

1,531,492

  Total commercial

3,024,597

3,128,820

3,144,199

3,087,890

3,175,393











Residential mortgage

570,295

588,144

611,166

637,245

654,561

Direct consumer

865,777

881,070

903,238

933,314

954,831

Indirect consumer

970,235

923,714

869,460

871,086

887,542

  Total consumer

2,406,307

2,392,928

2,383,864

2,441,645

2,496,934

Total portfolio loans

$         5,430,904

$       5,521,748

$       5,528,063

$         5,529,535

$      5,672,327























Delinquency Rates By Loan Portfolio










September 30, 2012

June 30, 2012

March 31, 2012

December 31, 2011

September 30, 2011

30 to 89 days past due 

(in thousands)

$

% of Portfolio

$

% of Portfolio

$

% of Portfolio

$

% of Portfolio

$

% of Portfolio
















Land hold

$          ---

---

%

$          ---

---

%

$          ---

---

%

$         21

0.32

%

$           ---

---

%

Land development

---

---

---

---

130

1.81

---

---

216

0.97

Construction

---

---

---

---

---

---

---

---

---

---

Income producing

1,104

0.14

1,519

0.19

1,447

0.16

2,508

0.27

3,325

0.34

Owner-occupied

4,598

0.84

936

0.16

5,177

0.88

2,345

0.39

5,817

0.92

  Total commercial real estate

5,702

0.43

2,455

0.17

6,754

0.45

4,874

0.32

9,358

0.57

Commercial and industrial

880

0.05

1,565

0.09

2,887

0.17

2,454

0.16

2,594

0.17

  Total commercial

6,582

0.22

4,020

0.13

9,641

0.31

7,328

0.24

11,952

0.38
















Residential mortgage

6,029

1.06

7,731

1.31

7,568

1.24

9,544

1.50

9,079

1.39

Direct consumer

11,435

1.32

12,396

1.41

14,002

1.55

17,810

1.91

18,629

1.95

Indirect consumer

7,514

0.77

8,504

0.92

8,780

1.01

13,067

1.50

9,898

1.12

  Total consumer

24,978

1.04

28,631

1.20

30,350

1.27

40,421

1.66

37,606

1.51

Total delinquent loans

$   31,560

0.58

$   32,651

0.59

$   39,991

0.72

$   47,749

0.86

$     49,558

0.87
































































Nonperforming Assets                              










September 30, 2012

June 30, 2012

March 31, 2012

December 31, 2011

September 30, 2011

(in thousands)

$

% of Portfolio

$

% of Portfolio

$

% of Portfolio

$

% of Portfolio

$

% of Portfolio
















Land hold

$        326

6.54

%

$        326

6.37

%

$          ---

---

%

$          ---

---

%

$         167

2.45

%

Land development

3

0.04

3

0.05

207

2.87

213

1.62

12

0.05

Construction

---

---

---

---

150

2.34

150

2.57

257

4.76

Income producing

12,904

1.68

19,408

2.42

18,566

2.12

21,171

2.32

23,227

2.38

Owner-occupied

13,146

2.39

18,187

3.05

20,716

3.51

23,798

3.93

27,540

4.34

  Total commercial real estate

26,379

1.98

37,924

2.68

39,639

2.67

45,332

2.94

51,203

3.11

Commercial and industrial

9,190

0.54

21,676

1.27

14,629

0.88

16,946

1.10

18,536

1.21

  Total nonaccruing commercial

35,569

1.18

59,600

1.90

54,268

1.73

62,278

2.02

69,739

2.20
















Residential mortgage

15,271

2.68

13,474

2.29

11,137

1.82

11,312

1.78

13,074

2.00

Direct consumer

10,552

1.22

9,263

1.05

8,895

0.98

12,115

1.30

14,704

1.54

Indirect consumer

2,391

0.25

1,875

0.20

1,074

0.12

953

0.11

1,256

0.14

  Total nonaccruing consumer

28,214

1.17

24,612

1.03

21,106

0.89

24,380

1.00

29,034

1.16

    Total nonaccruing loans

63,783

1.17

84,212

1.53

75,374

1.37

86,658

1.57

98,773

1.74

Loans 90+ days still accruing

60

---

59

---

164

---

770

0.01

1,368

0.02

  Total nonperforming portfolio loans

63,843

1.18

84,271

1.53

75,538

1.37

87,428

1.58

100,141

1.77

Nonperforming held for sale

16,650

887

3,264

2,372

20,134

Other repossessed assets acquired

5,700

8,817

11,803

12,422

16,665

  Total nonperforming assets

$   86,193

$   93,975

$   90,605

$ 102,222

$   136,940

















Restructured loans still accruing

$   21,433

$   18,187

$   17,911

$   32,347

$     12,206

















































Commercial inflows

$     4,572

$   23,828

$   14,027

$   13,269

$     23,901

Commercial outflows

(28,603)

(18,496)

(22,037)

(20,730)

(17,611)

Net change

$  (24,031)

$     5,332

$    (8,010)

$    (7,461)

$      6,290

















































Net Charge-Offs

Three Months Ended

September 30, 2012

June 30, 2012

March 31, 2012

December 31, 2011

September 30, 2011

(in thousands)

$

% of Portfolio*

$

% of Portfolio*

$

% of Portfolio*

$

% of Portfolio*

$

% of Portfolio*
















Land hold

$          ---

---

%

$        (58)

(4.58)

%

$          ---

---

%

$        (33)

(2.00)

%

$           ---

---

%

Land development

(8)

(0.45)

100

5.76

(83)

(4.64)

3,079

93.21

43

0.76

Construction

(21)

(1.24)

14

1.24

(101)

(6.33)

(4)

(0.24)

(5)

(0.34)

Income producing

2,582

1.34

3,100

1.55

4,151

1.90

11,924

5.18

3,156

1.28

Owner-occupied

1,891

1.37

2,384

1.61

2,537

1.73

5,791

3.80

2,129

1.33

  Total commercial real estate

4,444

1.32

5,540

1.57

6,504

1.76

20,757

5.33

5,323

1.28

Commercial and industrial

5,363

1.26

5,249

1.23

3,029

0.74

1,032

0.27

1,225

0.32

  Total commercial

9,807

1.29

10,789

1.39

9,533

1.22

21,789

2.80

6,548

0.82
















Residential mortgage

2,515

1.75

3,506

2.40

5,076

3.34

1,170

0.73

18,364

11.13

Direct consumer

4,790

2.20

5,666

2.59

10,935

4.87

6,930

2.95

5,710

2.37

Indirect consumer

2,078

0.85

2,225

0.97

2,572

1.19

2,746

1.25

2,797

1.25

  Total consumer

9,383

1.55

11,397

1.92

18,583

3.14

10,846

1.76

26,871

4.27

  Total net charge-offs

$   19,190

1.39

$   22,186

1.62

$   28,116

2.05

$   32,635

2.30

$     33,419

2.34
















* Represents an annualized rate.
















Summary of Loan Loss Experience







Three Months Ended 







September 30,

June 30,

March 31,

December 31,

September 30,

(in thousands)


2012

2012

2012

2011

2011















Allowance for loan losses - beginning of period

$        136,120

$      153,007

$      172,726

$      190,354

$      206,292















Provision for loan losses


5,195

5,299

8,397

15,007

17,481















Charge-offs:













Commercial and industrial


4,552

3,667

2,388

1,489

994

Small business


1,039

2,271

1,265

399

1,132

Commercial real estate


5,452

8,093

8,997

21,581

5,860

Total commercial


11,043

14,031

12,650

23,470

7,986

Residential mortgage


3,261

3,972

5,210

1,366

18,369

Direct consumer


6,067

7,168

11,527

7,544

6,398

Indirect consumer


3,172

3,157

3,251

3,229

3,430

Total charge-offs


23,543

28,328

32,638

35,609

36,183















Recoveries:













Commercial and industrial


108

577

376

609

721

Small business


120

112

248

248

180

Commercial real estate


1,008

2,553

2,493

824

537

Total commercial


1,236

3,242

3,117

1,681

1,438

Residential mortgage


746

466

134

197

5

Direct consumer


1,277

1,502

592

613

688

Indirect consumer


1,094

932

679

483

633

Total recoveries


4,353

6,142

4,522

2,974

2,764















Net charge-offs


19,190

22,186

28,116

32,635

33,419






























Allowance for loan losses - end of period

$        122,125

$      136,120

$      153,007

$      172,726

$      190,354






























Non-GAAP Reconciliation





September 30,

June 30,

March 31,

December 31,

September 30,

(in thousands)

2012

2012

2012

2011

2011

Efficiency Ratio (non-GAAP)




Net interest income (A)

$        75,805

$      75,680

$      76,119

$       78,049

$        78,841

Taxable equivalent adjustment (B)

1,503

1,532

1,571

1,670

1,827

Investment securities gains (losses) (C)

---

---

---

38

3

Noninterest income (D)

23,710

22,345

24,240

24,363

24,427

Noninterest expense (E)

72,055

66,339

67,101

66,640

65,411

(Gains) losses on ORE and ORE expenses (F)

1,264

93

65

2,076

1,739

Intangible amortization (G)

513

545

578

688

732

Merger-related expenses (H)

4,411

---

---

---

---

Efficiency ratio:  (E-F-G-H)/(A+B-C+D)(non-GAAP)

65.20%

65.99%

65.20%

61.39%

59.89%






Tangible Common Equity to Tangible Assets (non-GAAP)




Total assets

$   9,724,790

$ 9,670,493

$ 9,577,346

$  9,462,849

$    9,600,188

Goodwill

(318,150)

(318,150)

(318,150)

(318,150)

(318,150)

Other intangible assets

(5,792)

(6,305)

(6,850)

(7,428)

(8,116)

Tangible assets (non-GAAP)

$   9,400,848

$ 9,346,038

$ 9,252,346

$  9,137,271

$    9,273,922






Total shareholders' equity

$   1,358,197

$ 1,335,855

$ 1,044,619

$  1,019,537

$    1,009,143

Goodwill

(318,150)

(318,150)

(318,150)

(318,150)

(318,150)

Other intangible assets

(5,792)

(6,305)

(6,850)

(7,428)

(8,116)

Tangible equity (non-GAAP)

$   1,034,255

$ 1,011,400

$    719,619

$     693,959

$       682,877






Tangible equity

$   1,034,255

$ 1,011,400

$    719,619

$     693,959

$       682,877

Preferred stock

(290,580)

(288,723)

(286,901)

(285,114)

(283,360)

Tangible common equity (non-GAAP)

$      743,675

$    722,677

$    432,718

$     408,845

$       399,517






Tier 1 Common Equity (non-GAAP)




Total shareholders' equity

$   1,358,197

$ 1,335,855

$ 1,044,619

$  1,019,537

$    1,009,143

Qualifying capital securities

73,667

73,667

73,667

73,667

73,667

Goodwill

(318,150)

(318,150)

(318,150)

(318,150)

(318,150)

Accumulated other comprehensive loss

5,649

10,268

1,955

5,820

1,075

Disallowed deferred tax asset

(235,461)

(235,529)

---

---

---

Other intangible assets

(5,792)

(6,305)

(6,850)

(7,428)

(8,116)

Tier 1 capital (regulatory)

$      878,110

$    859,806

$    795,241

$     773,446

$       757,619






Tier 1 capital (regulatory)

$      878,110

$    859,806

$    795,241

$     773,446

$       757,619

Qualifying capital securities

(73,667)

(73,667)

(73,667)

(73,667)

(73,667)

Preferred stock

(290,580)

(288,723)

(286,901)

(285,114)

(283,360)

Total Tier 1 common equity (non-GAAP)

$      513,863

$    497,416

$    434,673

$     414,665

$       400,592






Net risk-weighted assets (regulatory)

$   5,821,748

$ 5,851,871

$ 5,803,811

$  5,723,333

$    5,912,527






Equity to assets

13.97%

13.81%

10.91%

10.77%

10.51%

Tier 1 common equity(non-GAAP)

8.83

8.50

7.49

7.24

6.77

Tangible equity to tangible assets(non-GAAP)

11.00

10.82

7.78

7.59

7.36

Tangible common equity to tangible assets(non-GAAP)

7.91

7.73

4.68

4.47

4.31


















Non-GAAP Reconciliation




Adjusted earnings per share

Nine Months Ended


September 30,

 (in thousands, except per share amounts)

2012

2011






Earnings per Share




Diluted net income (loss) per share

$            8.19

$           (0.73)

Restoration of the deferred tax asset

6.82

---

Diluted net income (loss) per share (non-GAAP)

$            1.37

$           (0.73)






An itemized reconciliation between net income on a GAAP basis and net income excluding the benefit of restoring the deferred tax asset (non-GAAP) follows:






Numerator:




Net income (loss)

$       349,028

$       (11,577)

Restoration of the deferred tax asset

(275,484)

---

Net income (loss) (non-GAAP)

73,544

(11,577)

Dividend on redeemable preferred stock

(18,127)

(17,088)

Net income (loss) attributable to common shareholders (non-GAAP)

55,417

(28,665)

Net income allocated to participating securities

1,268

---

Net income (loss) after allocation to participating securities (non-GAAP)

$        54,149

$       (28,665)






Denominator:




Weighted average shares outstanding for basic and dilutive earnings per common share

39,469

39,418






Basic net income (loss) per common share (non-GAAP)

$            1.37

$           (0.73)

Diluted net income (loss) per common share (non-GAAP)

1.37

(0.73)














Pre-tax pre-provision profit (non-GAAP)

Three Months Ended

 (in thousands)

 September 30,

 2012

 June 30, 2012

March 31,

2012

December 31,

2011

September 30, 

2011

Net income

$        20,991

$   303,176

$    24,861

$      18,244

$        32,944

Income tax provision (benefit)

1,274

(276,789)

---

2,521

(12,568)

Provision for loan losses

5,195

5,299

8,397

15,007

17,481

Net losses (gains) on loans held for sale

184

(6)

(916)

217

(1,952)

Investment securities (gains) losses

---

---

---

(38)

(3)

Losses (gains) on other real estate (ORE)

941

(173)

(385)

1,081

1,210

Merger-related expenses(1)

4,411

---

---

---

---

Fair-value adjustment on bank owned life insurance(2)

(31)

118

(205)

(100)

385

Fair-value adjustment on swaps (2)

83

74

(61)

(46)

268

  Pre-tax pre-provision profit (non-GAAP)

$        33,048

$     31,699

$    31,691

$      36,886

$        37,765











(1)Merger-related expenses are contained in line item "Professional services" on Consolidated Statements of Operations.

(2)Fair-value adjustment amounts contained in line item "Other income" on Consolidated Statements of Operations.






















Noninterest Income and Noninterest Expense

Three Months Ended


September 30,

June 30,

March 31,

December 31,

September 30,

(in thousands)

2012

2012

2012

2011

2011

Service charges on deposit accounts

$              9,554

$           9,355

$           8,985

$           9,724

$         10,362

Trust fees

3,635

3,582

3,602

3,747

3,622

Mortgage and other loan income

2,028

1,952

1,858

2,705

2,089

Brokerage and investment fees

1,831

1,331

1,324

1,243

1,188

Card-based and other nondeposit fees

4,431

4,444

4,265

4,305

4,475

Gains (losses) on loans held for sale

(184)

6

916

(217)

1,952

Investment securities gains

---

---

---

38

3

Other income

2,415

1,675

3,290

2,818

736

Total noninterest income

$            23,710

$         22,345

$         24,240

$         24,363

$         24,427











Salaries and employee benefits

$            33,589

$         32,801

$         33,298

$         30,952

$         30,280

Occupancy

6,129

6,140

6,696

6,326

6,125

Professional services(1)

6,806

2,465

2,023

2,311

2,394

Equipment

2,937

2,904

3,303

3,326

2,918

Data processing services

4,427

3,721

4,048

3,709

3,823

Advertising and public relations

1,847

1,708

1,335

1,298

2,179

Postage and delivery

1,157

1,119

1,099

1,165

1,142

Other loan expenses

3,121

3,266

3,186

3,497

3,941

Losses (gains) on other real estate (ORE)

941

(173)

(385)

1,081

1,210

ORE expenses

323

266

450

995

529

Intangible asset amortization

513

545

578

688

732

Other expense

10,265

11,577

11,470

11,292

10,138

Total noninterest expense

$            72,055

$         66,339

$         67,101

$         66,640

$         65,411











(1)Includes merger-related expenses of $4.4 million in the three months ended September 30, 2012.



Average Balances, Yields and Rates











Three Months Ended

September 30, 2012

June 30, 2012

September 30, 2011

Average

Average

Average

Average

Average

Average

(in thousands)

Balance

Rate

Balance

Rate

Balance

Rate

Earning Assets










Money market investments

$              238,492

0.25

%

$       184,670

0.25

%

$       270,422

0.25

%

Investment securities:










Taxable

2,557,793

2.51

2,577,646

2.48

2,536,944

3.23

Tax-exempt

205,572

6.46

209,421

6.46

242,494

6.63

FHLB and Federal Reserve stock

122,123

3.90

119,413

3.87

123,906

3.13

Portfolio loans:










Commercial and industrial

1,713,382

5.42

1,665,640

5.45

1,440,968

5.24

Commercial real estate

1,382,873

4.81

1,465,135

5.04

1,678,996

5.07

Residential mortgage

580,002

4.36

601,439

4.36

693,494

4.45

Direct consumer

873,057

5.81

890,957

5.88

967,443

6.00

Indirect consumer

952,086

6.05

894,555

6.15

882,157

6.56

Total portfolio loans

5,501,400

5.33

5,517,726

5.40

5,663,058

5.43

Loans held for sale

13,010

3.40

13,191

3.40

19,248

4.44

 Total earning assets

8,638,390

4.36

8,622,067

4.42

8,856,072

4.64












Nonearning Assets










Cash and due from banks

145,961


141,122


147,044

Premises and equipment

92,775


94,836


99,835

Investment security fair value adjustment

54,807


53,672


46,558

Other nonearning assets

927,622


669,507


652,885

Allowance for loan losses

(135,968)


(152,154)


(206,119)

Total assets

$           9,723,587


$    9,429,050


$    9,596,275

Interest-Bearing Liabilities










Deposits:










Interest-bearing demand deposits

$           1,073,294

0.13

$       988,884

0.14

$       976,637

0.21

Savings deposits

2,602,216

0.20

2,677,524

0.23

2,648,640

0.33

Time deposits

1,825,144

1.55

1,916,294

1.57

2,380,333

1.80

Short-term borrowings

45,974

0.10

37,148

0.13

43,445

0.18

Long-term debt

852,776

3.89

853,333

3.94

862,479

4.19

Total interest-bearing liabilities

6,399,404

1.06

6,473,183

1.10

6,911,534

1.30

Noninterest-Bearing Liabilities and  Shareholders' Equity










Noninterest-bearing demand 

1,823,099


1,734,951


1,541,005

Other liabilities

155,267


159,397


152,134

Shareholders' equity

1,345,817


1,061,519


991,602

Total liabilities and shareholders' equity

$           9,723,587


$    9,429,050


$    9,596,275













Interest Spread

3.29

%

3.32

%

3.34

%

Contribution of noninterest bearing sources of funds

0.28


0.28


0.29

Net Interest Margin

3.57

%

3.60

%

3.63

%
















































Average Balances, Yields and Rates


Nine Months Ended 




September 30, 





2012

2011




Average

Average

Average

Average

(in thousands)


Balance

Rate

Balance

Rate

Earning Assets










Money market investments



$       257,535

0.25

%

$       362,983

0.25

%

Investment securities:










Taxable



2,561,262

2.57

2,432,220

3.33

Tax-exempt



210,096

6.45

258,524

6.67

FHLB and Federal Reserve stock



119,834

3.88

134,998

3.11

Portfolio loans:










Commercial and industrial



1,651,213

5.49

1,404,081

5.07

Commercial real estate



1,456,217

4.97

1,828,800

5.14

Residential mortgage



602,970

4.35

718,039

4.68

Direct consumer



894,603

5.86

994,185

6.06

Indirect consumer



904,188

6.20

847,878

6.68

Total portfolio loans



5,509,191

5.40

5,792,983

5.44

Loans held for sale



12,145

3.72

26,739

3.65

 Total earning assets



8,670,063

4.42

9,008,447

4.66

Nonearning Assets










Cash and due from banks



143,373


143,254

Premises and equipment



94,858


101,846

Investment security fair value adjustment



52,778


44,256

Other nonearning assets



751,020


662,565

Allowance for loan losses



(153,480)


(241,431)

Total assets



$    9,558,612


$    9,718,937

Interest-Bearing Liabilities










Deposits:










Interest-bearing demand deposits



$    1,012,171

0.15

$       958,634

0.22

Savings deposits



2,662,533

0.24

2,633,255

0.37

Time deposits



1,956,304

1.60

2,564,001

1.88

Short-term borrowings



40,621

0.14

41,999

0.18

Long-term debt



853,339

3.95

912,755

4.16

Total interest-bearing liabilities



6,524,968

1.12

7,110,644

1.38

Noninterest-Bearing Liabilities and  Shareholders' Equity










Noninterest-bearing demand 



1,729,889


1,470,866

Other liabilities



157,746


151,525

Shareholders' equity



1,146,009


985,902

Total liabilities and shareholders' equity



$    9,558,612


$    9,718,937













Interest Spread




3.30

%

3.28

%

Contribution of noninterest bearing sources of funds




0.28


0.29

Net Interest Margin




3.58

%

3.57

%
























SOURCE Citizens Republic Bancorp, Inc.

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