CITIZENS REPUBLIC BANCORP INC 
By FLINT, Mich., Jan. 28 /PRNewswire-FirstCall/ -- Citizens Republic Bancorp, Inc. (Nasdaq: CRBC) announced today a net loss of $64.7 million for the three months ended December 31, 2009, compared with $56.9 million for the third quarter of 2009 and $195.4 million for the fourth quarter of 2008. After incorporating the $5.3 million dividend to the preferred shareholder, Citizens reported a net loss attributable to common shareholders of $70.0 million for the three months ended December 31, 2009. Diluted net loss per share was $0.18, compared with $0.48 for the third quarter of 2009 and $1.56 for the fourth quarter of 2008. The diluted net loss per share was based on average shares outstanding of 393.8 million, 128.5 million, and 125.4 million at December 31, 2009, September 30, 2009, and December 31, 2008, respectively. The results for the fourth quarter of 2008 included a non-cash valuation allowance of $136.6 million against deferred tax assets. For the year ended December 31, 2009, Citizens recorded a net loss of $514.2 million compared with a net loss of $393.1 million for 2008.
(Logo: http://www.newscom.com/cgi-bin/prnh/20050421/DETH014LOGO )
"We continue to perform as we expected at this point in the economic cycle. We are aggressively managing the credits in our watchlist and nonperforming categories in order to mitigate future losses. We continue to maintain a strong balance sheet with robust loan loss reserves of 4.33% of portfolio loans, excess liquidity, and capital ratios above the regulatory 'well-capitalized' minimums," commented Cathleen H. Nash, president and chief executive officer.
"We think the road to economic recovery will be slower in Michigan than the rest of the country given the higher level of unemployment and job loss, but Michigan will recover. As we move into 2010, we have confidence that we will benefit from the aggressive credit steps we've taken over the last three years and the conservative, steadfast approach we've maintained in managing our capital. With the strength of our balance sheet, the conviction and dedication of our employees, and our loyal clients, we believe the company will benefit from a stabilizing economy throughout 2010," said Ms. Nash.
Key Points in the Quarter:
-- Net interest margin for the fourth quarter of 2009 was 3.13% compared
with 2.97% for the third quarter of 2009. The increase in net interest
margin was primarily the result of expanding loan spreads, declining
deposit costs, and lower interest expense due to the issuance of common
stock for debt late in the third quarter of 2009.
-- The pre-tax pre-provision core operating earnings for the fourth quarter
of 2009 totaled $34.5 million, an increase of $4.0 million or 13.1% over
the third quarter of 2009. The increase was primarily the result of a
$3.1 million improvement in net interest income.
-- Citizens continues to hold short-term (liquid) assets at December 31,
2009 of $706.2 million, a significant increase of $172.6 million or
32.4% over September 30, 2009 and $491.2 million over December 31, 2008.
Citizens' parent company cash resources totaled $114.9 million at
December 31, 2009 as compared with $124.1 million at September 30, 2009.
-- Total delinquent loans at December 31, 2009 were $155.3 million, or
1.96% of total loans, a decrease of $30.8 million or 16.6% from
September 30, 2009 and a decrease of $135.3 million or 46.6% from
December 31, 2008. Total watchlist loans decreased for the first time
in seven quarters by $99.4 million or 6.5% to $1.4 billion at December
31, 2009. Total nonperforming assets at December 31, 2009 were $595.1
million, a decrease of $12.9 million or 2.1% from September 30, 2009.
-- The allowance for loan losses at December 31, 2009 increased to $342.4
million or 4.33% of portfolio loans, compared with $339.7 million or
4.13% at September 30, 2009. The provision for loan losses for the
fourth quarter of 2009 was $84.2 million, compared with $77.8 million
for the third quarter of 2009. The increase in the provision for loan
losses was primarily due to higher net charge-offs. Net charge-offs for
the fourth quarter of 2009 totaled $81.5 million, compared with $71.5
million for the third quarter of 2009.
-- All of Citizens' regulatory capital ratios continue to exceed the
"well-capitalized" designation. As of December 31, 2009, Citizens'
estimated capital ratios were as follows:
-- Tier 1 capital - 12.49%
-- Total capital - 13.89%
-- Tier 1 leverage - 9.21%
-- Tier 1 common equity - 8.44%
-- Tangible equity to tangible assets - 8.51%
-- Tangible common equity to tangible assets - 6.16%
-- Citizens will suspend the dividend payments on its trust preferred
securities and on its Fixed Rate Cumulative Perpetual Preferred Stock,
Series A ("the TARP Preferred Stock"), issued to the U.S. Department of
the Treasury. This action will preserve $4.9 million in cash on a
quarterly basis and reduces the need for Citizens to raise additional
capital.
Balance Sheet
Total assets at December 31, 2009 were $11.9 billion, a decrease of $140.1 million or 1.2% from September 30, 2009 and a decrease of $1.2 billion or 8.8% from December 31, 2008. The declines were primarily due to reductions in total portfolio loans, partially offset by higher money market investments. Additionally, the decline from December 31, 2008 was impacted by a non-cash and non-tax-deductible goodwill impairment charge recorded in the second quarter of 2009.
Money market investments at December 31, 2009 totaled $706.2 million, an increase of $172.6 million over September 30, 2009 and an increase of $491.2 million over December 31, 2008. The increases were primarily the result of holding excess short-term funds with the Federal Reserve as a result of continued deposit growth, coupled with a decline in demand for loans from credit-worthy clients.
Investment securities at December 31, 2009 totaled $2.4 billion, essentially unchanged from September 30, 2009 and December 31, 2008.
The following table displays total portfolio loans 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.
------------------------------------------------------------------------
Loan Portfolios
Dec 31, Sep 30, Jun 30, Mar 31, Dec 31,
(in millions) 2009 2009 2009 2009 2008
-------- -------- -------- -------- --------
Land Hold $35.9 $52.0 $54.9 $54.2 $45.0
Land Development 108.9 129.7 123.1 121.2 132.7
Construction 177.9 214.8 230.4 257.7 263.5
Income Producing 1,518.4 1,509.7 1,534.5 1,558.2 1,556.2
Owner-Occupied 985.6 992.4 979.5 953.0 967.3
----- ----- ----- ----- -----
Total Commercial
Real Estate 2,826.7 2,898.6 2,922.4 2,944.3 2,964.7
Commercial and
Industrial 1,976.1 2,099.8 2,198.3 2,394.4 2,602.4
------- ------- ------- ------- -------
Total Commercial
Loans 4,802.8 4,998.4 5,120.7 5,338.7 5,567.1
Residential
Mortgage 1,036.5 1,084.8 1,145.0 1,208.0 1,262.8
Direct Consumer 1,261.4 1,308.3 1,351.5 1,405.6 1,452.2
Indirect Consumer 805.2 825.3 808.3 802.1 820.5
----- ----- ----- ----- -----
Total Consumer
Loans 3,103.1 3,218.4 3,304.8 3,415.7 3,535.5
------- ------- ------- ------- -------
Total Loans $7,905.9 $8,216.8 $8,425.5 $8,754.4 $9,102.6
======== ======== ======== ======== ========
------------------------------------------------------------------------
The decreases in total commercial loans were primarily the result of a decline in customer demand from credit-worthy clients, paydowns as a result of normal client activity, and charge-offs. Also contributing to the decrease from September 30, 2009 was the transfer of $55.5 million of nonperforming land hold, land development, and construction loans to loans held for sale ($35.2 million after market-value adjustments) during the fourth quarter of 2009. The declines in residential mortgage loans were primarily the result of paydowns from normal client activity and charge-offs. More than 90% of new mortgage originations are sold into the secondary market, resulting in minimal new loans being retained in the residential mortgage portfolio. The decreases in direct consumer loans, which are primarily home equity loans were due to weak consumer demand. Indirect consumer loans, which are primarily marine and recreational vehicle loans, fluctuate throughout the year due to seasonal demand. After taking this fluctuation into account, the indirect consumer loan portfolio is essentially unchanged from September 30, 2009 and December 31, 2008.
Loans held for sale at December 31, 2009 were $80.5 million, an increase of $19.0 million or 30.9% over September 30, 2009 and a decrease of $10.9 million or 11.9% from December 31, 2008. The increase over September 30, 2009 was primarily the result of transferring the aforementioned nonperforming land hold, land development, and construction loans from the loan portfolio at fair-market value. The variance from both prior periods also reflects a decline in commercial loans held for sale due to customer paydowns, workout activities, writedowns to reflect market-value declines for the underlying collateral, and transfers to ORE.
Goodwill at December 31, 2009 was $330.7 million, unchanged from September 30, 2009 and a decrease of $266.5 million from December 31, 2008. The decrease was due to a non-cash and non-tax-deductible goodwill impairment charge recorded in the second quarter of 2009. Citizens performed its annual impairment test during the fourth quarter of 2009 and concluded that no additional impairment was indicated. 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, financial markets, or Citizens' markets.
Total deposits at December 31, 2009 were $8.9 billion, an increase of $117.5 million or 1.3% over September 30, 2009 and a decrease of $143.1 million or 1.6% from December 31, 2008. Core deposits, which exclude all time deposits, totaled $5.0 billion at December 31, 2009, a decrease of $70.2 million or 1.4% from September 30, 2009 and an increase of $579.6 million or 13.1% over December 31, 2008. The decrease from September 30, 2009 was primarily the result of seasonal declines in public fund customer deposits. The increase over December 31, 2008 was primarily the result of clients holding higher balances in transaction accounts due to changes in FDIC coverage thresholds, and a shift in funding mix from customer time deposits. Time deposits totaled $3.9 billion at December 31, 2009, an increase of $187.6 million or 5.1% over September 30, 2009 and a decrease of $722.7 million or 15.6% from December 31, 2008. The increase over September 30, 2009 was primarily the result of the timing of replacing called brokered time deposits. The decrease from December 31, 2008 was primarily the result of a shift in funding mix from customer time deposits to core deposits throughout 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 $1.6 billion at December 31, 2009, a decrease of $166.1 million or 9.6% from September 30, 2009 and a decrease of $703.5 million or 31.0% from December 31, 2008. The decreases were primarily the result of a planned reduction in wholesale funding due to Citizens' strong liquidity position. Additionally, the decrease from December 31, 2008 incorporated the result of exchanging $209.1 million in long-term debt for Citizens' common stock in the third quarter of 2009.
Capital Adequacy and Liquidity
Shareholders' equity at December 31, 2009 totaled $1.3 billion, a decrease of $72.4 million or 5.2% from September 30, 2009 and a decrease of $270.3 million or 16.9% from December 31, 2008. The decreases were primarily the result of the net losses incurred during 2009. The decrease from December 31, 2008 was partially offset by $197.6 million of common equity generated in the third quarter of 2009 issuance of common stock for debt.
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.
------------------------------------------------------------------------
Excess
Regulatory Capital
Minimum for over
"Well- Minimum
Capitalized" 12/31/09 9/30/09 6/30/09 (in millions)
------------------------------------------------------------------------
Tier 1 capital ratio* 6.00% 12.49% 12.83% 11.81% $554.0
Total capital ratio* 10.00 13.89 14.23 13.91 332.4
Tier 1 leverage ratio* 5.00 9.21 9.63 8.68 487.5
Tier 1 common
equity ratio* 8.44 8.94 6.95
Tangible equity to
tangible assets 8.51 9.01 7.34
Tangible common
equity to tangible
assets 6.16 6.71 5.09
* December 31, 2009 is an estimate
------------------------------------------------------------------------
Citizens maintains a strong liquidity position due to its on-balance sheet liquidity sources and very stable funding base comprised of approximately 75% deposits, 13% long-term debt, 11% equity, and 1% 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. Also, securities available-for-sale and $706.2 million of money market investments could be sold for cash to provide additional liquidity, if necessary. Citizens' parent company cash resources totaled $114.9 million at December 31, 2009 as compared with $124.1 million at September 30, 2009.
In light of the net losses over the last several quarters, Citizens has determined, in consultation with the Federal Reserve Bank of Chicago as required by regulatory policy, to defer regularly scheduled quarterly interest payments of $1.1 million on its outstanding junior subordinated debentures relating to its two trust preferred securities, which will defer dividend payments to those security holders, and will also be suspending regular quarterly cash dividend payments of $3.8 million on its TARP Preferred Stock. Deferral of these payments is expected to preserve a total of $4.9 million of cash each quarter. Citizens has demonstrated it has sufficient cash and liquidity to pay the scheduled dividends on its TARP Preferred Stock and interest payments on the debentures underlying the trust preferred securities, but is taking these actions to support and preserve its capital position in light of economic conditions and to lessen the need for raising any additional capital. Citizens intends to reevaluate the deferral of these payments periodically and, in consultation with its regulators, will consider reinstating these payments when appropriate.
Under the terms of the junior subordinated debentures and trust documents, Citizens is allowed to defer payments of interest for a specified number of quarterly periods without default, but such amounts will continue to accrue. Also during the deferral period, Citizens generally may not pay cash dividends on or purchase its common stock or preferred stock, including the TARP Preferred Stock. Dividend payments on the TARP Preferred Stock may be deferred without default, but the dividend is cumulative and may eventually give the holder board representation rights.
Net Interest Margin and Net Interest Income
Net interest margin was 3.13% for the fourth quarter of 2009 compared with 2.97% for the third quarter of 2009 and 3.03% for the fourth quarter of 2008. The increase in net interest margin over the third quarter of 2009 was primarily the result of expanding loan spreads, declining deposit costs, and lower interest expense due to the debt exchange for common stock late in the third quarter of 2009.
The increase in net interest margin over the fourth quarter of 2008 was primarily the result of lower interest expense on long-term debt, expanding commercial and consumer loan spreads and retail time deposits repricing to a lower rate, partially offset by deposit price competition, the movement of loans to nonperforming status, and an increase in short-term investments to provide additional on-balance sheet liquidity. For the year ended December 31, 2009, net interest margin was 2.89% compared with 3.09% for the same period of 2008 as a result of deposit price competition, the transfer of loans to nonperforming status, and an increase in short-term investments to provide additional on-balance sheet liquidity. The decrease was partially offset by expanding commercial and consumer loan spreads and retail time deposits repricing to a lower rate.
Net interest income was $83.9 million for the fourth quarter of 2009, an increase of $3.1 million or 3.8% over the third quarter of 2009, and a decrease of $1.8 million or 2.0% from the fourth quarter of 2008. The increase over the third quarter of 2009 was primarily due to the increase in net interest margin, partially offset by a $174.8 million decrease in average earning assets due to lower demand in the current Midwest economic environment.
The decrease in net interest income compared with the fourth quarter of 2008 was primarily due to a $686.2 million decrease in average earning assets, partially offset by higher net interest margin. The decrease in average earning assets was the result of a decrease in loan portfolio balances due to lower demand in the current Midwest economic environment, partially offset by an increase in investment securities and money market investments. For the year ended December 31, 2009, net interest income declined to $317.4 million compared with $348.9 million for 2008 as a result of the lower net interest margin and a $332.5 million decrease in average earning assets due to the aforementioned factors.
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. Citizens performs quarterly reviews of the non-watch commercial credit portfolio focusing on industry segments and asset classes that have or may be expected to experience stress due to economic conditions. This process seeks to validate each such credit's risk rating, underwriting structure and exposure management under current and stressed economic scenarios while strengthening these relationships and improving communication with these clients.
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, we believe may be at risk due
to general economic conditions or changes in a borrower's financial
status and therefore require increased oversight. Watchlist loans that
are in nonperforming status are included in Table 3 below.
-- 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, restructured loans, 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.
------------------------------------------------------------------------
Table 1 --Delinquency Rates By Loan Portfolio
30 to 89 days
Past Due Dec 31, 2009 Sep 30, 2009 Jun 30, 2009
---------------- ---------------- ----------------
(dollars in % of % of % of
millions) $ Portfolio $ Portfolio $ Portfolio
--- --------- --- -------- --- ----------
Land Hold $0.6 1.56% $1.4 2.61% $3.5 6.38%
Land Development 4.7 4.34 12.0 9.29 1.3 1.06
Construction 1.7 0.95 12.1 5.64 1.7 0.74
Income
Producing 40.8 2.69 44.9 2.97 50.0 3.26
Owner-Occupied 25.0 2.53 24.4 2.46 15.6 1.59
--------------- -------------- -------------
Total Commercial
Real Estate 72.8 2.57 94.8 3.27 72.1 2.47
Commercial and
Industrial 17.0 0.86 20.2 0.96 34.0 1.55
--------------- -------------- -------------
Total Commercial
Loans 89.8 1.87 115.0 2.30 106.1 2.07
Residential
Mortgage 22.2 2.15 30.3 2.80 27.7 2.42
Direct Consumer 27.0 2.14 24.5 1.87 23.3 1.72
Indirect
Consumer 16.3 2.02 16.3 1.98 14.6 1.81
--------------- -------------- -------------
Total Consumer
Loans 65.5 2.11 71.1 2.21 65.6 1.98
--------------- -------------- -------------
Total
Delinquent
Loans $155.3 1.96% $186.1 2.26% $171.7 2.04%
====== ====== ======
30 to 89 days Past Due Mar 31, 2009 Dec 31, 2008
------------ ------------
% of % of
(dollars in millions) $ Portfolio $ Portfolio
--- --------- --- ---------
Land Hold $3.7 6.83% $3.9 8.67%
Land Development 11.1 9.16 5.2 3.92
Construction 16.7 6.48 27.3 10.36
Income Producing 64.2 4.12 76.7 4.93
Owner-Occupied 37.4 3.92 37.5 3.88
-------------- ---------------
Total Commercial Real Estate 133.1 4.52 150.6 5.08
Commercial and Industrial 47.1 1.97 56.5 2.17
-------------- ---------------
Total Commercial Loans 180.2 3.38 207.1 3.72
Residential Mortgage 25.9 2.14 39.5 3.13
Direct Consumer 20.4 1.45 25.5 1.76
Indirect Consumer 14.7 1.83 18.5 2.25
-------------- ---------------
Total Consumer Loans 61.0 1.79 83.5 2.36
-------------- ---------------
Total Delinquent Loans $241.2 2.76% $290.6 3.19%
====== ======
------------------------------------------------------------------------
The decreases in total delinquencies were primarily the result of continued emphasis on proactively managing delinquent commercial loans.
As part of its overall credit underwriting and review process and loss mitigation strategy, 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 decline. 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 accruing (see Table 2) or nonperforming (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.
------------------------------------------------------------------------
Table 2 -- Commercial Watchlist
Accruing loans only
Dec 31, 2009 Sep 30, 2009 Jun 30, 2009
---------------- ---------------- --------------
(dollars in % of % of % of
millions) $ Portfolio $ Portfolio $ Portfolio
---------------- --------------- ---------------
Land Hold $24.8 68.99% $29.0 55.76% $18.1 32.97%
Land Development 88.0 80.78 93.6 72.12 83.6 67.91
Construction 63.5 35.68 90.4 42.10 90.3 39.19
Income
Producing 521.9 34.37 519.6 34.42 458.9 29.91
Owner-
Occupied 247.3 25.09 277.3 27.94 274.4 28.01
---------------- ---------------- ---------------
Total
Commercial
Real
Estate 945.5 33.45 1,009.9 34.84 925.3 31.66
Commercial
and
Industrial 475.3 24.05 510.3 24.30 532.9 24.24
---------------- ---------------- ---------------
Total
Watchlist
Loans $1,420.8 29.58% $1,520.2 30.41% $1,458.2 28.48%
======== ======== ========
Accruing loans only Mar 31, 2009 Dec 31, 2008
------------------- -------------------
% of % of
(dollars in millions) $ Portfolio $ Portfolio
------------------- -------------------
Land Hold $15.7 28.97% $18.5 41.11%
Land Development 62.4 51.49 49.3 37.15
Construction 86.6 33.60 74.8 28.39
Income Producing 421.9 27.08 401.0 25.77
Owner-Occupied 224.2 23.53 178.4 18.44
------------------- -------------------
Total Commercial Real Estate 810.8 27.54 722.0 24.35
Commercial and Industrial 479.7 20.03 436.8 16.78
------------------- -------------------
Total Watchlist Loans $1,290.5 24.17% $1,158.8 20.82%
======== ========
------------------------------------------------------------------------
The decrease in accruing watchlist loans from September 30, 2009 was primarily the result of upgrading numerous commercial and industrial loans made to clients related to the automotive industry as well as loans migrating to nonperforming status exceeding new watchlist loans. Many of the automotive industry commercial and industrial relationships had been proactively downgraded in the first half of 2009 due to the uncertainty in the automotive industry at that time. Since some of these credits have continued to perform, they warranted an upgrade during the fourth quarter of 2009. The increase over December 31, 2008 was primarily the result of proactive commercial real estate downgrades as Citizens closely monitors borrowers' repayment capacity in this environment and the aforementioned proactive commercial and industrial downgrades in the first half of 2009.
------------------------------------------------------------------------
Table 3 -- Nonperforming Assets
Dec 31, 2009 Sep 30, 2009 Jun 30, 2009
----------------- ----------------- -----------------
(dollars in % of % of % of
millions) $ Portfolio $ Portfolio $ Portfolio
----------------- ----------------- -----------------
Land Hold $4.8 13.42% $13.3 25.56% $13.1 23.86%
Land Development 1.2 1.06 13.7 10.52 15.1 12.27
Construction 25.2 14.19 33.7 15.70 36.0 15.63
Income
Producing 121.5 8.00 126.7 8.39 139.4 9.08
Owner-Occupied 83.4 8.47 70.2 7.07 72.0 7.35
----------------- ----------------- -----------------
Total Commercial
Real
Estate 236.1 8.35 257.6 8.89 275.6 9.43
Commercial and
Industrial 84.0 4.25 111.5 5.31 91.8 4.18
----------------- ----------------- -----------------
Total
Nonaccruing
Commercial
Loans 320.1 6.67 369.1 7.38 367.4 7.17
Residential
Mortgage 125.7 12.13 106.5 9.82 103.3 9.02
Direct Consumer 21.4 1.70 21.6 1.65 20.3 1.50
Indirect
Consumer 2.6 0.32 2.6 0.31 1.4 0.17
----------------- ----------------- -----------------
Total
Nonaccruing
Consumer
Loans 149.7 4.82 130.7 4.06 125.0 3.78
Total
Nonaccruing
Loans 469.8 5.94 499.8 6.08 492.4 5.84
Loans 90+
days still
accruing 3.0 0.04 0.6 0.01 0.8 0.01
Restructured
loans still
accruing 2.6 0.03 1.1 0.01 2.5 0.03
----------------- ----------------- -----------------
Total
Nonperforming
Portfolio
Loans 475.4 6.01% 501.5 6.10% 495.7 5.88%
Nonperforming
Held for Sale 65.3 44.5 54.3
Other Repossessed
Assets Acquired 54.4 62.0 54.7
------ ------ ------
Total
Nonperforming
Assets $595.1 $608.0 $604.7
====== ====== ======
Mar 31, 2009 Dec 31, 2008
--------------- ----------------
% of % of
(dollars in millions) $ Portfolio $ Portfolio
--------------- ----------------
Land Hold $12.0 22.14% $10.4 23.11%
Land Development 14.6 12.05 23.4 17.63
Construction 26.5 10.28 18.3 6.94
Income Producing 116.3 7.46 78.6 5.05
Owner-Occupied 66.5 6.98 31.8 3.29
--------------- -----------------
Total Commercial Real Estate 235.9 8.01 162.5 5.48
Commercial and Industrial 83.7 3.50 64.6 2.48
--------------- -----------------
Total Nonaccruing Commercial
Loans 319.6 5.99 227.1 4.08
Residential Mortgage 84.6 7.00 59.5 4.71
Direct Consumer 21.0 1.49 15.1 1.04
Indirect Consumer 2.0 0.25 2.6 0.32
--------------- -----------------
Total Nonaccruing Consumer Loans 107.6 3.15 77.2 2.18
Total Nonaccruing Loans 427.2 4.88 304.3 3.34
Loans 90+ days still accruing 1.0 0.01 1.5 0.02
Restructured loans still accruing 0.4 0.00 0.2 0.00
--------------- -----------------
Total Nonperforming Portfolio
Loans 428.6 4.90% 306.0 3.36%
Nonperforming Held for Sale 64.6 75.2
Other Repossessed Assets Acquired 57.4 58.0
------ ------
Total Nonperforming Assets $550.6 $439.2
====== ======
------------------------------------------------------------------------
The decrease in nonperforming assets from September 30, 2009 was primarily the result of the aforementioned market-value adjustment of $20.3 million associated with transferring $55.5 million of nonperforming commercial real estate loans to loans held for sale during the fourth quarter of 2009. Also contributing to the decrease was a decline in commercial and industrial loans due to net charge-offs exceeding new loans migrating to nonperforming status, which was partially offset by an increase in residential mortgage loans due to the effects of the national mortgage foreclosure moratorium earlier in 2009. The increase over December 31, 2008 was primarily the result of deterioration in the real estate secured portfolios and general economic conditions in the Midwest during 2009. Nonperforming assets at December 31, 2009 represented 7.48% of total loans plus other repossessed assets acquired compared with 7.34% at September 30, 2009 and 4.79% at December 31, 2008. Nonperforming commercial loan inflows were $101.2 million in the fourth quarter of 2009 compared with $94.2 million in the third quarter of 2009 and $155.5 million in the fourth quarter of 2008. The nonperforming commercial loan inflows for the fourth quarter of 2009 included $25.3 million of loans proactively moved to nonperforming status by the respective relationship officer prior to the loans becoming 90 days past due compared with $46.1 million proactively moved during the third quarter of 2009.
Nonperforming commercial loan outflows were $150.2 million in the fourth quarter of 2009 compared with $93.0 million in the third quarter of 2009 and $99.2 million in the fourth quarter of 2008. The fourth quarter 2009 outflows included $10.4 million in loans that returned to accruing status, $35.3 million in loan payoffs and paydowns, $44.1 million in charged-off loans, $55.5 million transferred to loans held for sale, and $4.9 million transferred to other repossessed assets acquired.
------------------------------------------------------------------------
Table 4 -- Net Charge-Offs Three Months Ended
Dec 31, 2009 Sep 30, 2009 Jun 30, 2009
---------------- ---------------- ---------------
(dollars in % of % of % of
millions) $ Portfolio** $ Portfolio** $ Portfolio**
--------------- ----------------- ---------------
Land Hold $5.6 62.84% $0.5 4.02% $0.6 4.37%
Land Development 9.7 35.46 1.4 4.19 2.4 7.80
Construction 9.5 21.38 0.9 1.63 5.8 10.07
Income Producing 13.2 3.47 24.5 6.50 12.6 3.28
Owner-Occupied 2.5 1.03 4.6 1.85 7.9 3.23
--------------- ----------------- ---------------
Total Commercial
Real Estate 40.5 5.73 31.9 4.40 29.3 4.01
Commercial and
Industrial 22.5 4.56 20.1 3.84 6.8 1.24
--------------- ----------------- ---------------
Total Commercial
Loans 63.0 5.25 52.0 4.16 36.1 2.82
Residential
Mortgage 6.0 2.32 10.0 3.67 2.2 0.77
Direct
Consumer 6.2 1.97 6.3 1.92 6.5 1.92
Indirect
Consumer 6.3 3.12 3.2 1.56 4.4 2.18
--------------- ----------------- ---------------
Total Consumer
Loans 18.5 2.38 19.5 2.42 13.1 1.59
--------------- ----------------- ---------------
Total Net
Charge-offs $81.5 4.00% $71.5 3.41% $49.2 2.30%
===== ===== =====
Mar 31, 2009 Dec 31, 2008
------------------- ----------------------
(dollars in % of % of
millions) $ Portfolio** $ Portfolio**
------------------- ----------------------
Land Hold $--- --- % $4.6 40.89 %
Land Development 6.3 20.79 5.8 17.48
Construction 2.0 3.10 10.7 16.24
Income Producing 7.8 2.00 21.7 5.58
Owner-Occupied 2.4 1.01 3.1 1.28
------------------- ----------------------
Total Commercial
Real Estate 18.5 2.51 45.9 6.19
Commercial and
Industrial 8.0 1.34 21.9 3.37
------------------- ----------------------
Total Commercial
Loans 26.5 1.99 67.8 4.87
Residential
Mortgage 0.8 0.26 1.6 0.51
Direct Consumer 4.4 1.25 5.9 1.63
Indirect Consumer 5.0 2.49 5.7 2.78
------------------- ----------------------
Total Consumer
Loans 10.2 1.19 13.2 1.49
------------------- ----------------------
Total Net Charge-
offs $36.7 1.67 % $81.0 3.48 %
===== =====
** Represents an annualized rate.
------------------------------------------------------------------------
The increase in net charge-offs over the third quarter of 2009 was primarily the result of the aforementioned $20.3 million market-value adjustment related to the transfer of commercial real estate loans to loans held for sale status.
The allowance for loan losses was $342.4 million or 4.33% of portfolio loans at December 31, 2009, compared with $339.7 million or 4.13% at September 30, 2009 and $255.3 million or 2.80% at December 31, 2008. The increases were primarily the result of an increase in the loss migration rates and extended duration for commercial real estate, residential mortgage and consumer loans. The allowance for loan losses at December 31, 2009 represents 143.3% of net loans charged-off during 2009, which was Citizens' highest year of charge-offs ever recorded. 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 December 31, 2009.
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 $84.2 million in the fourth quarter of 2009, compared with $77.8 million in the third quarter of 2009 and $118.6 million in the fourth quarter of 2008. The increase over the third quarter of 2009 was primarily due to continued migration of residential mortgage loans to nonperforming loan status and higher net charge-offs. 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 decrease from the fourth quarter of 2008 was primarily the result of four large commercial charge-offs during the fourth quarter of 2008.
Noninterest Income
Noninterest income for the fourth quarter of 2009 was $15.4 million, an increase of $3.5 million or 29.9% over the third quarter of 2009 and a decrease of $0.4 million or 2.4% from the fourth quarter of 2008. Noninterest income for the year ended December 31, 2009 totaled $67.4 million, a decrease of $34.3 million or 33.7% from 2008.
The increase in noninterest income over the third quarter of 2009 was primarily the result of the net loss on the extinguishment of debt in connection with the exchange offers completed in the third quarter of 2009 ($15.9 million), partially offset by higher losses on loans held for sale ($7.9 million), lower other income ($3.5 million), and lower mortgage and other loan income ($0.7 million). The increase in losses on loans held for sale was primarily the result of additional writedowns to reflect market-value declines for the underlying collateral. The decrease in other income was primarily the result of receiving the proceeds for an insurance claim on a previous branch office during the third quarter of 2009, exiting the holding company's 2006 capital investment in a limited partnership during the third quarter of 2009, a decrease in swap income recognition resulting from changes in the related credit spreads, and a decrease in the deferred compensation asset. The decrease in mortgage and other loan income was primarily the result of lower customer transaction volume.
The decrease in noninterest income from the fourth quarter of 2008 was primarily due to higher losses on loans held for sale ($2.9 million), partially offset by higher other income ($2.1 million). The increase in losses on loans held for sale was primarily the result of additional writedowns to reflect market-value declines for the underlying collateral. The increase in other income was primarily due to higher swap income recognition resulting from changes in the related credit spreads and higher revenue on bank owned life insurance policies resulting from lower market interest rates in the fourth quarter of 2008.
The decrease in noninterest income from the full year of 2008 was primarily due to the net loss on debt extinguishment ($15.9 million) and higher net losses on loans held for sale ($10.7 million) due to the aforementioned factors, as well as lower service charges on deposit accounts ($3.5 million), and lower trust fees ($2.9 million). 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 negative market conditions.
Noninterest Expense
Noninterest expense for the fourth quarter of 2009 was $83.2 million, essentially unchanged from the third quarter of 2009 and an increase of $4.6 million or 5.8% over the fourth quarter of 2008. Noninterest expense for the year ended December 31, 2009 totaled $603.0 million, an increase of $112.3 million or 22.9% over 2008.
While noninterest expense for the fourth quarter of 2009 was essentially unchanged from the third quarter of 2009, decreases in salaries and employee benefits ($7.6 million) and other loan expenses ($0.9 million) were substantially offset by increases in other expenses ($5.2 million) and other real estate (ORE) expenses ($3.9 million). The decline in salaries and employee benefits was primarily the result of lower severance expense and benefits related to those agreements as well as lower commission-based compensation and a reduction in annual performance-based incentives due to overall corporate performance for 2009. The decline in other loan expenses was primarily the result of lower foreclosure expenses associated with repossessing collateral underlying commercial and residential real estate loans. The increase in other expenses was primarily the result of higher FDIC insurance premiums, an arbitration award payout, and losses related to mortgage indemnification payments. The increase in ORE expenses was primarily the result of higher carrying costs related to holding the ORE properties and additional market-value declines on ORE assets.
The increase in noninterest expense over the fourth quarter of 2008 was primarily the result of higher ORE expenses ($8.0 million) and other expense ($4.4 million), partially offset by lower salaries and employee benefits ($6.3 million), as well as a net decline in all other noninterest expense categories. The increases in ORE expenses and other expense were primarily the result of the aforementioned factors. The decrease in salaries and employee benefits was primarily due to lower staffing levels and suspending employer contributions to the 401(k) plan in 2009, as well as the aforementioned compensation related factors. The net decline in all other noninterest expense categories was primarily the result of various expense management initiatives implemented throughout the company.
Salary costs included severance expense of $0.3 million for the fourth quarter of 2009, compared with $1.5 million for the third quarter of 2009, and $1.2 million for the fourth quarter of 2008. Citizens had 2,125 full-time equivalent employees at December 31, 2009 compared with 2,173 at September 30, 2009 and 2,232 at December 31, 2008.
The increase in noninterest expense over the full year of 2008 was primarily the result of a higher goodwill impairment charge ($88.4 million), as well as higher other expense ($20.3 million), ORE expense ($16.8 million), and other loan expense ($11.5 million), partially offset by lower salaries and employee benefits ($19.0 million), and a net decline in all other noninterest expense categories due to the aforementioned factors.
Income Tax Benefit
The income tax benefit for the fourth quarter of 2009 was $3.3 million, compared with $11.7 million for the third quarter of 2009 and a tax expense of $99.6 million for the fourth quarter of 2008. For the year ended December 31, 2009, the income tax benefit totaled $30.0 million compared with a tax expense of $71.0 million for 2008. The increase over the third quarter of 2009 was primarily the result of changes in other comprehensive income. The decreases in the tax expense from the fourth quarter of 2008 and the full-year of 2008 were primarily the result of recording a valuation allowance of $136.6 million against deferred tax assets during the fourth quarter of 2008.
Pre-Tax Pre-Provision Core Operating Earnings
The following table displays pre-tax pre-provision core operating earnings for each of the last five quarters.
-------------------------------------------------------------------------
Pre-Tax Pre-Provision Core Operating Earnings
-------------------------------------------------------------------------
Three Months Ended
--------------------------------------------------------
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
(in thousands) 2009 2009 2009 2009 2008
-------------------------------------------------------------------------
Net Loss $(64,728) $(56,923) $(347,413) $(45,149) $(195,369)
Income tax
(benefit)
provision (3,345) (11,747) (11,415) (3,467) 99,634
Provision for loan
losses 84,192 77,783 99,962 64,017 118,565
Goodwill impairment --- --- 266,474 --- ---
Net loss on debt
extinguishment --- 15,929 --- --- ---
FDIC special
assessment --- --- 5,565 --- ---
Fair-value
writedown on loans
held for sale 8,724 859 4,350 6,152 5,865
Fair-value
writedown on ORE 8,227 3,934 3,306 7,985 602
Fair-value (write-
up)/writedown on
bank owned life
insurance (19) (360) --- 235 2,896
Loss on auction rate
securities
repurchase --- --- --- --- 2,406
Mark-to-market on
swaps 1,449 1,018 583 (2,444) 2,414
Captive insurance
impairment charge --- --- --- --- 1,053
---------------------------------------------------------
Pre-Tax Pre-Provision
Core Operating
Earnings $34,500 $30,493 $21,412 $27,329 $38,066
=========================================================
-------------------------------------------------------------------------
The increase over the third quarter of 2009 was primarily the result of higher net interest income (due to the increase in net interest margin) and lower noninterest expense (primarily due to lower salaries and employee benefits), partially offset by lower noninterest income (due to lower other income). The decrease from the fourth quarter of 2008 was primarily the result of lower net interest income (due to fewer earning assets) and lower noninterest income (due to a net minor reduction in most categories). Noninterest expense for the fourth quarter of 2009 was essentially unchanged from the fourth quarter of 2008 due to various expense management initiatives implemented throughout the company.
Analyst Conference Call
Cathleen H. Nash, president and CEO, Charles D. Christy, EVP and CFO, Mark W. Widawski, EVP and chief credit officer, and Brian D. J. Boike, 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, January 29, 2010.
A live audio webcast is available on Citizens' investor relations page at www.citizensbanking.com or by calling (800) 862-9098 (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 February 5, 2010. To listen to the replay, please dial (800) 839-3612.
Use of Non-GAAP Financial Measures
In addition to results presented in accordance with 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 core operating earnings, net interest margin, and the efficiency ratio. 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 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. To mitigate these limitations, Citizens has procedures in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components and to ensure that the capital performance is properly reflected to facilitate period-to-period comparisons. 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 in isolation, or as a substitute for GAAP basis financial measures.
Tangible Equity, Tangible Common Equity and Tier 1 Common Equity Ratios
Additionally, Citizens believes the exclusion of goodwill and other intangible assets 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. The tangible common equity ratio and Tier 1 common equity ratio have become a focus of some investors and management believes that these ratios may assist investors in analyzing Citizens' capital position absent the effects of intangible assets and preferred stock. Because tangible common equity and Tier 1 common equity are not formally defined by GAAP or codified in the federal banking regulations, these measures are considered to be non-GAAP financial measures. Because analysts and banking regulators may assess Citizens' capital adequacy using tangible common equity and Tier 1 common equity, Citizens believes that it is useful to provide investors the ability to assess its capital adequacy on these same bases. Tier 1 common equity is often expressed as a percentage of net risk-weighted assets. Under the risk-based capital framework, a bank's balance sheet assets and credit equivalent amounts of off-balance sheet items are assigned to one of four broad risk categories. The aggregated dollar amount in each category is then multiplied by the risk weight assigned to that category. The resulting weighted values from each of the four categories are added together and this sum is the risk-weighted assets total that, as adjusted, comprised the denominator of certain risk-based capital ratios. Tier 1 capital is then divided by this denominator (net risk-weighted assets) to determine the Tier 1 capital ratio. Adjustments are made to Tier 1 capital to arrive at Tier 1 common equity. The amounts disclosed as net risk-weighted assets are calculated consistent with banking regulatory requirements.
Pre-tax Pre-Provision Core Operating Earnings
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 or special assessments (including goodwill, credit writedowns, fair-value adjustments, and FDIC special assessments). 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, net loss on debt extinguishment, 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 isolates the challenges and issues related to the credit quality of Citizens' loan portfolio and their impact on Citizens' earnings as reflected in the provision for loan losses.
Net Interest Margin and Efficiency Ratio
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. Citizens believes the presentation of net interest margin on a taxable equivalent basis allows comparability of net interest margin with industry peers by eliminating the effect of the differences in portfolios attributable to the proportion represented by both taxable and tax-exempt investments.
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 229 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 47th 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 the risks and uncertainties detailed elsewhere in this release and from time to time in Citizens' Form 10-K and Form 10-Q 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.
-------------------------------------------------------------------------
Consolidated Balance Sheets (Unaudited)
Citizens Republic Bancorp and Subsidiaries
December 31, September 30, December 31,
(in thousands) 2009 2009 2008
-------------------------------------------------------------------------
Assets
Cash and due from banks $163,137 $164,537 $171,695
Money Market Investments 706,163 533,540 214,925
Investment Securities:
Securities available
for sale, at fair
value 2,225,065 2,235,323 2,248,772
Securities held to
maturity, at amortized
cost (fair value of
$139,665, $144,440
and $137,846,
respectively) 137,094 137,087 138,575
----------- ----------- -----------
Total investment
securities 2,362,159 2,372,410 2,387,347
FHLB and Federal
Reserve stock 156,278 156,278 148,764
Portfolio loans:
Commercial and
industrial 1,976,105 2,099,779 2,602,334
Commercial real estate 2,826,741 2,898,593 2,964,721
----------- ----------- -----------
Total commercial 4,802,846 4,998,372 5,567,055
Residential mortgage 1,036,443 1,084,872 1,262,841
Di
