Citizens Republic Bancorp Announces First Quarter 2011 Results

FLINT, Mich., April 28, 2011 /PRNewswire/ -- Citizens Republic Bancorp, Inc. (Nasdaq: CRBC) announced today a net loss from continuing operations of $68.7 million for the three months ended March 31, 2011, compared with net losses of $106.2 million for the fourth quarter of 2010 and $76.0 million for the first quarter of 2010.  After incorporating the $5.6 million accrued but unpaid dividend to the preferred shareholder, Citizens reported a net loss attributable to common shareholders of $74.3 million for the three months ended March 31, 2011, compared with $111.7 million for the fourth quarter of 2010 and $90.3 million for the first quarter of 2010.  Results for the first quarter of 2010 included a net loss from discontinued operations of $9.0 million.  Diluted net loss from continuing operations per share was $0.19 for the three months ended March 31, 2011, compared with $0.28 for the fourth quarter of 2010 and $0.21 for the first quarter of 2010.

"During the quarter, we substantially completed our accelerated plan to resolve problem assets that we announced last October.  The execution of that plan was right in line with our expectations," commented Cathleen Nash, president and chief executive officer.  

"We have recognized dramatic credit quality improvement by reducing the level of non-performing assets by 58%, watch list loans by 43% and delinquent loans by 61% over the last six months.  With this phase behind us, we can focus more of our energy on growing the company.  Net interest margin increased another 11 basis points this quarter.  We continue to realize consistent core deposit growth, strong liquidity and solid capital ratios.  We are in a strong position to meet our expectations of third quarter profitability," added Ms. Nash.

Key Highlights of the Quarter:

• Problem asset resolution work substantially complete
• Provision for loan losses fell to $89 million, declining 32% from the fourth quarter of 2010
• Nonperforming assets decreased by $99 million from December 31, 2010.  New inflows were under $30 million, the lowest level in over four years
• Total 30-89 day delinquencies were down $47 million and ended the quarter at 0.90% of the portfolio, the lowest level since 2006  
• Core deposits remain strong, increasing from the previous quarter and a year ago, representing 65% of total deposits at March 31, 2011
• Net interest margin increased to 3.53%, up 11 basis points from December 31, 2010 and 39 basis points from March 31, 2010

Balance Sheet

Total assets at March 31, 2011 were $9.7 billion, a decrease of $241.5 million or 2.4% from December 31, 2010 and a decrease of $1.9 billion or 16.5% from March 31, 2010.  The declines were primarily due to reductions in total portfolio loans as a result of the accelerated resolution of problem assets.  The decrease from March 31, 2010 was also due to the sale of Citizens' wholly-owned subsidiary, F&M Bank-Iowa ("F&M") during the second quarter of 2010.

Money market investments at March 31, 2011 totaled $495.6 million, an increase of $86.5 million or 21.1% from December 31, 2010 and a decrease of $265.2 million or 34.9% from March 31, 2010.  The increase from December 31, 2010 was directly related to reinvesting a portion of the loan portfolio paydowns into money market investments.  The decrease from March 31, 2010 was primarily the result of using money market investments to payoff maturing wholesale funding.

Investment securities at March 31, 2011 totaled $2.7 billion, an increase of $142.5 million or 5.6% from December 31, 2010 and an increase of $496.0 million or 22.8% over March 31, 2010.  Increases in investment securities were largely due to reinvesting a portion of the loan portfolio paydowns.

The following table displays total portfolio loans at quarter end for each of the last five quarters.  

Decreases in total portfolio loans in the first quarter of 2011 compared to the prior quarters reflect the results of the accelerated problem asset resolution ($460.0 million), paydowns as a result of normal client activity, and charge-offs.    

Core deposits, which exclude all time deposits, totaled $5.0 billion at March 31, 2011, an increase of $143.4 million or 2.9% over December 31, 2010 and an increase of $188.0 million or 3.9% over March 31, 2010.  Time deposits totaled $2.7 billion at March 31, 2011, a decrease of $178.7 million or 6.3% from December 31, 2010 and a decrease of $977.7 million or 26.8% from March 31, 2010.  Total deposits at March 31, 2011 were $7.7 billion, essentially unchanged from December 31, 2010 and a decrease of $789.7 million or 9.3% from March 31, 2010.  Changes in deposits were the result of a continued focus on core deposits and a strategic reduction of single service high cost and brokered deposits.  The change from December 31, 2010 also reflects the year end seasonal increase in public funds balances.

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 $947.4 million at March 31, 2011, a decrease of $127.6 million or 11.9% from December 31, 2010 and a decrease of $423.5 million or 30.9% from March 31, 2010.  The decreases were the result of a strategic reduction in securitized funding.  

Capital Adequacy and Liquidity

Shareholders' equity at March 31, 2011 totaled $945.4 million, a decrease of $66.3 million or 6.6% from December 31, 2010 and a decrease of $299.0 million or 24.0% from March 31, 2010.  The decreases were primarily the result of net losses incurred.

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.

Citizens maintains a strong liquidity position, with substantial on- and off-balance sheet liquidity sources and a stable funding base comprised of approximately 79% deposits, 9% long-term debt, 10% equity, and 2% short-term liabilities.  

Net Interest Margin and Net Interest Income

Net interest margin was 3.53% for the first quarter of 2011 compared with 3.42% for the fourth quarter of 2010 and 3.14% for the first quarter of 2010.  The increase in net interest margin over both prior periods was the result of declining deposit costs, reductions in high-cost funding, and wholesale funding repricing to lower fixed rates, partially offset by the effect of replacing declining loan balances with lower-yielding investment securities and money market investments and lower reinvestment rates in the loan and investment portfolios.  

Net interest income was $78.6 million for the first quarter of 2011, a decrease of $3.1 million or 3.8% from the fourth quarter of 2010, and a decrease of $2.6 million or 3.2% from the first quarter of 2010.  The decreases were the result of lower average earning assets, partially offset by the effects of the higher net interest margin.  

Credit Quality

The quality of Citizens' loan portfolio is impacted by numerous factors, including the economic environment in the markets in which Citizens operates.  Citizens carefully monitors its loans in an effort to identify and mitigate any potential credit quality issues and losses in a proactive manner.  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 the 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.

The decreases in total delinquencies were primarily the result of continued emphasis on proactively managing and resolving delinquent commercial and consumer loans.  This marks the first time since December 2006 that 30-89 day past due loans have been below 1% of total portfolio loan balances.  

As part of its overall credit underwriting and review process and loss mitigation strategy, Citizens carefully monitors commercial credits that are current in terms of principal and interest payments but may deteriorate in quality.  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 or nonperforming (included in the other tables in this section).  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 more intensive monitoring and workout activity.  Watchlist loans that are in nonperforming status are included in the nonperforming assets table below.

Watchlist credits declined $305.4 million from December 31, 2010 and $622.4 million from March 31, 2010 to $756.6 million at March 31, 2011, the lowest level since December 2006.  The decrease was primarily due to the accelerated problem asset resolution initiatives along with a decrease in the level of new inflows.