Citizens Republic Bancorp Reports Fifth Consecutive Quarterly Profit and Restores Deferred Tax Asset

News provided by

Citizens Republic Bancorp, Inc.

Jul 26, 2012, 04:05 ET

FLINT, Mich., July 26, 2012 /PRNewswire/ -- 

  • Net income attributable to common shareholders was $297 million or $7.35 per share for the second quarter, which includes a $277 million tax benefit, or $6.85 per share related to eliminating the valuation allowance against our deferred tax asset
  • Excluding the tax benefit, net income attributable to common shareholders was $20 million or $0.50 per share for the second quarter
  • Earnings were positively impacted by a 37% reduction in provision expense compared to the first quarter as credit trends showed continued stability and improvement
  • Pre-tax, pre-provision profit remained strong at $32 million
  • Net interest margin increased four basis points to 3.60%

Citizens Republic Bancorp, Inc. (Nasdaq: CRBC) announced net income attributable to common shareholders of $297.1 million or $7.35 per diluted share for the three months ended June 30, 2012, compared to $18.9 million or $0.47 per diluted share for last quarter, and $18.5 million, or $0.46 per diluted share for the second quarter of last year.  For the first six months of this year, Citizens recorded net income attributable to common shareholders of $316.0 million or $7.84 per share compared to a net loss of $55.8 million or $1.42 per share for the same period of 2011.  Second quarter 2012 results include a $276.8 million or $6.85 per share tax benefit related to the elimination of the valuation allowance against the deferred tax asset.

"Restoring our deferred tax asset was a significant event for us this quarter.  Just as important, our bankers continue to drive consistent earnings from our banking operations and we continue to organically grow our strong capital position by successfully executing on our strategic initiatives," commented Cathleen Nash, president and chief executive officer.

Balance Sheet

The balance sheet continues to reflect Citizens' focus on C&I and consumer lending.  Combined, C&I and consumer loan balances grew 10% compared to June 30, 2011.  Growth within these portfolios helped to mitigate the reduction in commercial real estate and residential mortgage balances. 

The changes in deposit balances were a result of growing low cost core deposits and strategically reducing more expensive single service and brokered time deposits. These initiatives have resulted in core deposit growth of 9% and a 24% reduction in time deposits compared to June 30, 2011.

Capital

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

Capital Ratios

Regulatory

Minimum for

"Well-

Capitalized"

June 30,

2012

March 31,

2012

June 30,

2011

Leverage ratio

5.00%

9.77%

8.71%

7.83%

Tier 1 capital ratio

6.00

14.70

13.70

12.43

Total capital ratio

10.00

15.96

14.97

13.77

Tier 1 common equity (non-GAAP)

8.50

7.49

6.36

Tangible equity to tangible assets (non-GAAP)

10.82

7.78

7.12

Tangible common equity to tangible assets (non-GAAP)

7.73

4.68

4.05






Net Interest Income and Margin

Net interest margin was 3.60% in the second quarter, a four basis point increase from both last quarter and the second quarter of last year. Year to date, net interest margin also increased four basis points over last year to 3.58%. These improvements in margin were a result of efforts to reduce funding costs by improving deposit mix, carefully managing deposit costs, reducing reliance on brokered time deposits, and reducing costs on long term debt by extending maturities.  The benefits from these initiatives were partially offset by lower yields in the investment securities and loan portfolios due to the continued low interest rate environment and competitive pressures.

Net interest income was $75.7 million for the second quarter of 2012, a decrease of $0.4 million from last quarter and a decrease of $1.9 million from the second quarter of last year. The decreases reflect a reduction in average earning assets, partially offset by the slightly higher net interest margins.

Credit Quality

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

  • Total delinquencies decreased 18% from last quarter to $32.7 million and currently represent 0.59% of portfolio loans.
  • Nonperforming assets were $94.0 million at the end of June, a 4% increase over the end of March and a decrease of 33% from June 30 of last year.  The increase over last quarter was directly related to a single commercial relationship.
  • Net charge-offs for the second quarter decreased to $22.2 million, compared to $28.1 million last quarter and $35.4 million in the second quarter of last year.  The provision for loan losses decreased 37% from the first quarter to $5.3 million in the second quarter. 
  • The allowance for loan losses was $136.1 million or 2.47% of portfolio loans at June 30, 2012, compared to $153.0 million or 2.77% at the end of the prior quarter, and $206.3 million or 3.67% at the end of the second quarter last year.

Noninterest Income and Expense

Noninterest income continues to be impacted by regulatory changes in the industry. Citizens' focus on services and products helps support a stable base of fee income.

  • Service charges on deposit accounts were down 4% compared to the second quarter of last year primarily the result of regulatory changes. Service charges were up 4% seasonally compared to the first quarter of 2012.
  • Net gains on loans held for sale were minimal compared to prior periods.
  • There were no realized gains or losses recorded in the investment portfolio in 2012.
  • Other income decreased compared to last quarter primarily due to lower unrealized gains on deferred compensation, which was offset in noninterest expense.

Noninterest expense continues to benefit from our improved credit environment and a continued focus on expense management.

  • Losses on ORE and credit costs were significantly lower due to the completion of problem asset resolution initiatives in early 2011.
  • FDIC insurance costs declined in 2012.
  • Improvements in noninterest expense were offset by higher salaries and incentives as well as an increase in benefit costs related to the reinstatement of employer matching in the 401(k) plan.
  • Compared to last quarter, noninterest expense declined slightly as lower payroll tax, occupancy, equipment and data processing expenses more than offset higher professional services expense and advertising costs. 

The income tax benefit for the second quarter of 2012 was $276.8 million, compared with a benefit of $10.3 million for the second quarter of 2011.  The income tax benefit for the second quarter of 2012 was related to eliminating the valuation allowance against our deferred tax asset as a result of our continued improvement in financial performance.  The deferred tax asset balance is reported in Other Assets on the Consolidated Balance Sheets.

Conference Call

Citizens' senior management will review the quarter's results in a conference call at 10:00 a.m. ET on Friday, July 27, 2012.  A live audio webcast is available on Citizens' investor relations page at www.citizensbanking.com or by calling (800) 895-0231 (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 58th 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.



June 30,

March 31,

June 30,

(in thousands)

2012

2012

2011

Assets






Cash and due from banks

$   145,432

$   145,240

$   145,126

Money market investments

203,861

300,174

176,847

Investment Securities:






    Securities available for sale, at fair value

1,480,290

1,492,985

1,368,530

    Securities held to maturity, at amortized cost






      (fair value of $1,349,429, $1,422,253

       and $1,489,461, respectively)

1,296,164

1,374,449

1,482,787

           Total investment securities

2,776,454

2,867,434

2,851,317

FHLB and Federal Reserve stock

122,123

117,943

125,635

Portfolio loans:






    Commercial and industrial

1,711,411

1,657,140

1,349,803

    Commercial real estate

1,417,409

1,487,059

1,722,242

           Total commercial

3,128,820

3,144,199

3,072,045

    Residential mortgage

588,144

611,166

708,164

    Direct consumer

881,070

903,238

978,319

    Indirect consumer

923,714

869,460

869,109

           Total portfolio loans

5,521,748

5,528,063

5,627,637

    Less: Allowance for loan losses

(136,120)

(153,007)

(206,292)

           Net portfolio loans

5,385,628

5,375,056

5,421,345

Loans held for sale

14,518

13,627

19,515

Premises and equipment

93,646

95,795

100,596

Goodwill

318,150

318,150

318,150

Other intangible assets

6,305

6,850

8,848

Bank owned life insurance

221,965

221,268

218,854

Other assets

382,411

115,809

109,397

Total assets

$9,670,493

$9,577,346

$9,495,630

Liabilities 






Noninterest-bearing deposits

$1,796,531

$1,692,865

$1,486,970

Interest-bearing demand deposits

1,025,305

993,143

917,522

Savings deposits

2,607,718

2,771,150

2,592,176

Core deposits

5,429,554

5,457,158

4,996,668

Time deposits

1,858,155

2,033,204

2,448,035

          Total deposits

7,287,709

7,490,362

7,444,703

Federal funds purchased and securities sold






      under agreements to repurchase

39,169

34,779

43,244

Other short-term borrowings

---

---

680

Other liabilities

154,718

153,987

146,169

Long-term debt

853,042

853,599

881,112

Total liabilities

8,334,638

8,532,727

8,515,908

Shareholders' Equity






Preferred stock - no par value

288,723

286,901

281,642

Common stock - no par value

1,435,920

1,435,327

1,433,094

Retained deficit

(378,520)

(675,654)

(734,091)

Accumulated other comprehensive loss

(10,268)

(1,955)

(923)

Total shareholders' equity

1,335,855

1,044,619

979,722

Total liabilities and shareholders' equity

$9,670,493

$9,577,346

$9,495,630








  
















Consolidated Statements of Operations (Unaudited)





Citizens Republic Bancorp, Inc.

Three Months Ended

Six Months Ended


June 30,

June 30,

(in thousands, except per share amounts)

2012

2011

2012

2011









Interest Income







   Interest and fees on loans

$  73,950

$77,677

$148,829

$158,388

   Interest and dividends on investment securities:







      Taxable

16,013

20,546

33,322

40,156

      Tax-exempt

2,199

2,713

4,453

5,799

   Dividends on FHLB and Federal Reserve stock

1,151

1,044

2,291

2,169

   Money market investments

114

249

329

502

      Total interest income

93,427

102,229

189,224

207,014

Interest Expense







   Deposits

9,367

15,042

20,464

31,417

   Short-term borrowings

13

19

31

37

   Long-term debt

8,367

9,562

16,931

19,340

      Total interest expense

17,747

24,623

37,426

50,794

Net Interest Income

75,680

77,606

151,798

156,220

Provision for loan losses

5,299

17,596

13,696

106,320

      Net interest income after provision for loan losses

70,381

60,010

138,102

49,900

Noninterest Income







   Service charges on deposit accounts

9,355

9,753

18,340

19,182

   Trust fees

3,582

3,811

7,184

7,734

   Mortgage and other loan income

1,952

1,883

3,810

4,825

   Brokerage and investment fees

1,331

1,533

2,654

2,641

   Card-based and other nondeposit fees

4,444

4,394

8,709

8,387

   Net gains on loans held for sale

6

1,179

923

73

   Investment securities gains (losses)

---

(993)

---

(1,376)

   Other income

1,675

1,765

4,965

5,002

      Total noninterest income

22,345

23,325

46,585

46,468

Noninterest Expense







   Salaries and employee benefits

32,801

31,265

66,099

62,283

   Occupancy

6,140

6,047

12,837

13,609

   Professional services

2,465

2,407

4,488

4,626

   Equipment

2,904

2,841

6,206

5,893

   Data processing services

3,721

4,247

7,769

8,599

   Advertising and public relations

1,708

1,802

3,043

2,371

   Postage and delivery

1,119

1,120

2,218

2,236

   Other loan expenses

3,266

3,314

6,452

8,569

   (Gains) losses on other real estate (ORE)

(173)

1,355

(559)

10,477

   ORE expenses

266

1,029

716

2,797

   Intangible asset amortization

545

778

1,123

1,606

   Other expense

11,577

13,239

23,047

28,034

      Total noninterest expense

66,339

69,444

133,439

151,100

Income (Loss) before Income Taxes 

26,387

13,891

51,248

(54,732)

Income tax benefit

(276,789)

(10,266)

(276,789)

(10,211)

Net Income (Loss)

303,176

24,157

328,037

(44,521)

Dividend on redeemable preferred stock

(6,042)

(5,701)

(11,997)

(11,328)

Net Income (Loss) Attributable to Common Shareholders

$297,134

$18,456

$316,040

$ (55,849)

Net Income (Loss) Per Common Share:







   Basic

$     7.35

$    0.46

$     7.84

$    (1.42)

   Diluted

7.35

0.46

7.84

(1.42)

Average Common Shares Outstanding: 







   Basic

39,472

39,417

39,459

39,412

   Diluted

39,472

39,417

39,459

39,412









  


























Selected Quarterly Information









Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

(in thousands, except per share amounts)

2012

2012

2011

2011

2011

Summary of Operations












Net interest income

$      75,680

$      76,119

$      78,049

$      78,841

$      77,606

Provision for loan losses

5,299

8,397

15,007

17,481

17,596

Noninterest income

22,345

24,240

24,363

24,427

23,325

Noninterest expense

66,339

67,101

66,640

65,411

69,444

Income tax (benefit) provision

(276,789)

---

2,521

(12,568)

(10,266)

Net income

303,176

24,861

18,244

32,944

24,157

Net income attributable to common shareholders (1)

297,134

18,906

12,347

27,183

18,456

Taxable equivalent adjustment

1,532

1,571

1,670

1,827

1,884














Per Common Share Data (2) 












Net income:












      Basic

$          7.35

$          0.47

$          0.31

$          0.68

$          0.46

      Diluted 

7.35

0.47

0.31

0.68

0.46

Common book value

25.85

18.83

18.24

18.03

17.34

Tangible book value (non-GAAP)

24.97

17.88

17.24

16.96

16.22

Tangible common book value (non-GAAP)

17.84

10.75

10.16

9.92

9.22

Shares outstanding, end of period (3)

40,504,637

40,247,241

40,260,213

40,255,758

40,251,874














At Period End












Assets

$  9,670,493

$  9,577,346

$  9,462,849

$  9,600,188

$  9,495,630

Earning assets

8,588,343

8,774,119

8,680,995

8,824,183

8,755,838

Portfolio loans

5,521,748

5,528,063

5,529,535

5,672,327

5,627,637

Allowance for loan losses

136,120

153,007

172,726

190,354

206,292

Deposits

7,287,709

7,490,362

7,394,941

7,539,904

7,444,703

Long-term debt

853,042

853,599

854,185

855,670

881,112

Shareholders' equity

1,335,855

1,044,619

1,019,537

1,009,143

979,722

Average for the Quarter












Assets

$  9,429,050

$  9,521,386

$  9,523,184

$  9,596,275

$  9,664,939

Earning assets

8,622,067

8,750,078

8,761,435

8,856,072

8,942,348

Portfolio loans

5,517,726

5,508,528

5,632,432

5,663,058

5,668,752

Allowance for loan losses

152,154

172,509

190,163

206,119

223,922

Deposits

7,317,653

7,441,693

7,452,137

7,546,615

7,605,707

Long-term debt

853,333

853,912

856,206

862,479

905,902

Shareholders' equity

1,061,519

1,028,494

1,017,082

991,602

963,932














Financial Ratios (annualized)












Return on average assets

12.93%

1.05%

0.76%

1.36%

1.00%

Return on average shareholders' equity

114.87

9.72

7.12

13.18

10.05

Average shareholders' equity / average assets

11.26

10.80

10.68

10.33

9.97

Net interest margin (FTE) (4)

3.60

3.56

3.62

3.63

3.56

Efficiency ratio (non-GAAP)

65.99

65.20

61.39

59.89

63.85

Allowance for loan losses as a percent of portfolio loans

2.47

2.77

3.12

3.36

3.67

Allowance for loan losses as a percent of nonperforming loans(5)

161.53

202.56

197.56

190.09

185.90

Allowance for loan losses as a percent of nonperforming assets(5)

144.85

168.87

168.97

139.01

147.99

Nonperforming loans as a percent of portfolio loans(5)

1.53

1.37

1.58

1.77

1.97

Nonperforming assets as a percent of total loans plus ORAA(5)(6)

1.69

1.63

1.84

2.39

2.46

Nonperforming assets as a percent of total assets(5)

0.97

0.95

1.08

1.43

1.47

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

1.62

2.05

2.30

2.34

2.51

Leverage ratio

9.77

8.71

8.45

8.21

7.83

Tier 1 capital ratio

14.70

13.70

13.51

12.81

12.43

Total capital ratio

15.96

14.97

14.84

14.14

13.77




























(1) Net income attributable to common shareholders includes a non-cash dividend to preferred shareholders of $6.0 million in both the second and the first quarters of 2012 and $5.9 million, $5.8 million and $5.7 million in the fourth, third, and second quarters of 2011.

(2) 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.

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

(4) Net interest margin is presented on an annual basis, includes taxable equivalent adjustments to interest income and is based on a tax rate of 35%.

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

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














Loan Portfolios

(in thousands)

June 30,

 2012

March 31,

2012

December 31,

 2011

September 30,

 2011

June 30,

 2011










Land hold

$              5,119

$              5,387

$               6,542

$            6,818

$        7,426

Land development

7,006

7,226

13,104

22,232

22,507

Construction

4,591

6,410

5,847

5,410

8,111

Income producing

803,546

877,461

913,755

975,262

1,019,551

Owner-occupied

597,147

590,575

605,113

634,179

664,647

  Total commercial real estate

1,417,409

1,487,059

1,544,361

1,643,901

1,722,242

Commercial and industrial

1,711,411

1,657,140

1,543,529

1,531,492

1,349,803

  Total commercial

3,128,820

3,144,199

3,087,890

3,175,393

3,072,045










Residential mortgage

588,144

611,166

637,245

654,561

708,164

Direct consumer

881,070

903,238

933,314

954,831

978,319

Indirect consumer

923,714

869,460

871,086

887,542

869,109

  Total consumer

2,392,928

2,383,864

2,441,645

2,496,934

2,555,592

Total portfolio loans

$       5,521,748

$       5,528,063

$         5,529,535

$      5,672,327

$  5,627,637



























Delinquency Rates By Loan Portfolio











June 30, 2012

March 31, 2012

December 31, 2011

September 30, 2011

June 30, 2011

30 to 89 days past due

(in thousands)

$

% of Portfolio

$

% of Portfolio

$

% of Portfolio

$

% of Portfolio

$

% of Portfolio


















Land hold

$          ---

---

%

$          ---

---

%

$         21

0.3

%

$           ---

---

%

$         571

7.69

%

Land development

---

---

130

1.81

---

---

216

0.97

---

---

Construction

---

---

---

---

---

---

---

---

1,722

21.23

Income producing

1,519

0.19

1,447

0.16

2,508

0.27

3,325

0.34

1,597

0.16

Owner-occupied

936

0.16

5,177

0.88

2,345

0.39

5,817

0.92

6,524

0.98

  Total commercial real estate

2,455

0.17

6,754

0.45

4,874

0.32

9,358

0.57

10,414

0.60

Commercial and industrial

1,565

0.09

2,887

0.17

2,454

0.16

2,594

0.17

3,637

0.27

  Total commercial

4,020

0.13

9,641

0.31

7,328

0.24

11,952

0.38

14,051

0.46


















Residential mortgage

7,731

1.31

7,568

1.24

9,544

1.50

9,079

1.39

11,564

1.63

Direct consumer

12,396

1.41

14,002

1.55

17,810

1.91

18,629

1.95

20,393

2.08

Indirect consumer

8,504

0.92

8,780

1.01

13,067

1.50

9,898

1.12

10,681

1.23

  Total consumer

28,631

1.20

30,350

1.27

40,421

1.66

37,606

1.51

42,638

1.67

Total delinquent loans

$   32,651

0.59

$   39,991

0.72

$   47,749

0.86

$     49,558

0.87

$     56,689

1.01






















































































Nonperforming Assets                              










June 30, 2012

March 31, 2012

December 31, 2011

September 30, 2011

June 30, 2011

(in thousands)

$

% of Portfolio

$

% of Portfolio

$

% of Portfolio

$

% of Portfolio

$

% of Portfolio
















Land hold

$        326

6.37

%

$          ---

---

%

$          ---

---

%

$         167

2.45

%

$         167

2.25

%

Land development

3

0.05

207

2.87

213

1.62

12

0.05

379

1.68

Construction

---

---

150

2.34

150

2.57

257

4.76

559

6.89

Income producing

19,408

2.42

18,566

2.12

21,171

2.32

23,227

2.38

20,180

1.98

Owner-occupied

18,187

3.05

20,716

3.51

23,798

3.93

27,540

4.34

21,169

3.18

  Total commercial real estate

37,924

2.68

39,639

2.67

45,332

2.94

51,203

3.11

42,454

2.47

Commercial and industrial

21,676

1.27

14,629

0.88

16,946

1.10

18,536

1.21

20,995

1.56

  Total nonaccruing commercial

59,600

1.90

54,268

1.73

62,278

2.02

69,739

2.20

63,449

2.07
















Residential mortgage

13,474

2.29

11,137

1.82

11,312

1.78

13,074

2.00

30,693

4.33

Direct consumer

9,263

1.05

8,895

0.98

12,115

1.30

14,704

1.54

13,944

1.43

Indirect consumer

1,875

0.20

1,074

0.12

953

0.11

1,256

0.14

1,281

0.15

  Total nonaccruing consumer

24,612

1.03

21,106

0.89

24,380

1.00

29,034

1.16

45,918

1.80

    Total nonaccruing loans

84,212

1.53

75,374

1.37

86,658

1.57

98,773

1.74

109,367

1.94

Loans 90+ days still accruing

59

---

164

---

770

0.01

1,368

0.02

1,604

0.03

  Total nonperforming portfolio loans

84,271

1.53

75,538

1.37

87,428

1.58

100,141

1.77

110,971

1.97

Nonperforming held for sale

887

3,264

2,372

20,134

11,395

Other repossessed assets acquired

8,817

11,803

12,422

16,665

17,032

  Total nonperforming assets

$   93,975

$   90,605

$ 102,222

$   136,940

$   139,398

















Restructured loans still accruing

$   18,187

$   17,911

$   32,347

$     12,206

$     12,682

















































Commercial inflows

$   23,828

$   14,027

$   13,269

$     23,901

$     24,370

Commercial outflows

(18,497)

(22,036)

(20,730)

(17,611)

(38,321)

Net change

$     5,331

$    (8,009)

$    (7,461)

$      6,290

$    (13,951)

































































































Net Charge-Offs

Three Months Ended

June 30, 2012

March 31, 2012

December 31, 2011

September 30, 2011

June 30, 2011

(in thousands)

$

% of Portfolio*

$

% of Portfolio*

$

% of Portfolio*

$

% of Portfolio*

$

% of Portfolio*
















Land hold

$        (58)

(4.58)

%

$          ---

---

%

$        (33)

(2.00)

%

$           ---

---

%

$      4,719

 N/M 

%

Land development

100

5.76

(83)

(4.64)

3,079

93.21

43

0.76

38

0.68

Construction

14

1.24

(101)

(6.33)

(4)

(0.24)

(5)

(0.34)

(1)

(0.04)

Income producing

3,100

1.55

4,151

1.90

11,924

5.18

3,156

1.28

8,228

3.24

Owner-occupied

2,384

1.61

2,537

1.73

5,791

3.80

2,129

1.33

3,149

1.90

  Total commercial real estate

5,540

1.57

6,504

1.76

20,757

5.33

5,323

1.28

16,133

3.76

Commercial and industrial

5,249

1.23

3,029

0.74

1,032

0.27

1,225

0.32

7,176

2.13

  Total commercial

10,789

1.39

9,533

1.22

21,789

2.80

6,548

0.82

23,309

3.04
















Residential mortgage

3,506

2.40

5,076

3.34

1,170

0.73

18,364

11.13

4,431

2.51

Direct consumer

5,666

2.59

10,935

4.87

6,930

2.95

5,710

2.37

5,605

2.30

Indirect consumer

2,225

0.97

2,572

1.19

2,746

1.25

2,797

1.25

2,076

0.96

  Total consumer

11,397

1.92

18,583

3.14

10,846

1.76

26,871

4.27

12,112

1.90

  Total net charge-offs

$   22,186

1.62

$   28,116

2.05

$   32,635

2.30

$     33,419

2.34

$     35,421

2.51
















* Represents an annualized rate.














N/M - Not Meaningful






































Summary of Loan Loss Experience













Three Months Ended 




June 30,

March 31,

December 31,

September 30,

June 30,

(in thousands)

2012

2012

2011

2011

2011












Allowance for loan losses - beginning of period

$153,007

$172,726

$     190,354

$      206,292

$224,117












Provision for loan losses

5,299

8,397

15,007

17,481

17,596












Charge-offs:










Commercial and industrial

3,667

2,388

1,489

994

4,016

Small business

2,271

1,265

399

1,132

3,853

Commercial real estate

8,093

8,997

21,581

5,860

16,371

Total commercial

14,031

12,650

23,470

7,986

24,240

Residential mortgage

3,972

5,210

1,366

18,369

4,659

Direct consumer

7,168

11,527

7,544

6,398

6,522

Indirect consumer

3,157

3,251

3,229

3,430

2,639

Total charge-offs

28,328

32,638

35,609

36,183

38,060












Recoveries:










Commercial and industrial

577

376

609

721

524

Small business

112

248

248

180

169

Commercial real estate

2,553

2,493

824

537

238

Total commercial

3,242

3,117

1,681

1,438

931

Residential mortgage

466

134

197

5

228

Direct consumer

1,502

592

613

688

917

Indirect consumer

932

679

483

633

563

Total recoveries

6,142

4,522

2,974

2,764

2,639












Net charge-offs

22,186

28,116

32,635

33,419

35,421
























Allowance for loan losses - end of period

$136,120

$153,007

$     172,726

$      190,354

$206,292












  





Non-GAAP Reconciliation





June 30,

March 31,

December 31,

September 30,

June 30,

(in thousands)

2012

2012

2011

2011

2011

Efficiency Ratio (non-GAAP)





Net interest income (A)

$     75,680

$     76,119

$       78,049

$        78,841

$     77,606

Taxable equivalent adjustment (B)

1,532

1,571

1,670

1,827

1,884

Investment securities gain (losses) (C)

---

---

38

3

(993)

Noninterest income (D)

22,345

24,240

24,363

24,427

23,325

Noninterest expense (E)

66,339

67,101

66,640

65,411

69,444

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

93

65

2,076

1,739

2,384

Intangible amortization (G)

545

578

688

732

778

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

65.99%

65.20%

61.39%

59.89%

63.85%







Tangible Common Equity to Tangible Assets (non-GAAP)





Total assets

$9,670,493

$9,577,346

$  9,462,849

$    9,600,188

$9,495,630

Goodwill

(318,150)

(318,150)

(318,150)

(318,150)

(318,150)

Other intangible assets

(6,305)

(6,850)

(7,428)

(8,116)

(8,848)

Tangible assets (non-GAAP)

$9,346,038

$9,252,346

$  9,137,271

$    9,273,922

$9,168,632







Total shareholders' equity

$1,335,855

$1,044,619

$  1,019,537

$    1,009,143

$   979,722

Goodwill

(318,150)

(318,150)

(318,150)

(318,150)

(318,150)

Other intangible assets

(6,305)

(6,850)

(7,428)

(8,116)

(8,848)

Tangible equity (non-GAAP)

$1,011,400

$   719,619

$     693,959

$      682,877

$   652,724







Tangible equity

$1,011,400

$   719,619

$     693,959

$      682,877

$   652,724

Preferred stock

(288,723)

(286,901)

(285,114)

(283,360)

(281,642)

Tangible common equity (non-GAAP)

$   722,677

$   432,718

$     408,845

$      399,517

$   371,082







Tier 1 Common Equity (non-GAAP)





Total shareholders' equity

$1,335,855

$1,044,619

$  1,019,537

$    1,009,143

$   979,722

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

10,268

1,955

5,820

1,075

923

Disallowed deferred tax asset

(235,529)

---

---

---

---

Other intangible assets

(6,305)

(6,850)

(7,428)

(8,116)

(8,848)

Tier 1 capital (regulatory)

$   859,806

$   795,241

$     773,446

$      757,619

$   727,314







Tier 1 capital (regulatory)

$   859,806

$   795,241

$     773,446

$      757,619

$   727,314

Qualifying capital securities

(73,667)

(73,667)

(73,667)

(73,667)

(73,667)

Preferred stock

(288,723)

(286,901)

(285,114)

(283,360)

(281,642)

Total Tier 1 common equity (non-GAAP)

$   497,416

$   434,673

$     414,665

$      400,592

$   372,005







Net risk-weighted assets (regulatory)

$5,851,871

$5,803,811

$  5,723,333

$    5,912,527

$5,850,177







Equity to assets

13.81%

10.91%

10.77%

10.51%

10.32%

Tier 1 common equity(non-GAAP)

8.50

7.49

7.24

6.77

6.36

Tangible equity to tangible assets(non-GAAP)

10.82

7.78

7.59

7.36

7.12

Tangible common equity to tangible assets(non-GAAP)

7.73

4.68

4.47

4.31

4.05







  








Non-GAAP Reconciliation








Adjusted earnings per share

Three Months Ended

Six Months Ended


June 30,

June 30,

 (in thousands, except per share amounts)

2012

2011

2012

2011










Earnings per Share








Diluted net income (loss) per share

$     7.35

$    0.46

$     7.84

$    (1.42)

Restoration of the deferred tax asset

6.85

---

6.87

---

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

$     0.50

$    0.46

$     0.97

$    (1.42)










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)

$303,176

$24,157

$328,037

$(44,521)

Restoration of the deferred tax asset

(276,789)

---

(276,789)

---

Net income (loss) (non-GAAP)

26,387

24,157

51,248

(44,521)

Dividend on redeemable preferred stock

(6,042)

(5,701)

(11,997)

(11,328)

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

20,345

18,456

39,251

(55,849)

Net income allocated to participating securities

475

272

853

---

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

$  19,870

$18,184

$  38,398

$(55,849)










Denominator:








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

39,472

39,417

39,459

39,412










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

$     0.50

$    0.46

$     0.97

$    (1.42)

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

0.50

0.46

0.97

(1.42)




















  









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

Three Months Ended

 (in thousands)

 June 30, 2012

March 31, 2012

December 31,

 2011

September 30,

2011

June 30, 2011

Net income

$303,176

$24,861

$      18,244

$       32,944

$24,157

Income tax provision (benefit)

(276,789)

---

2,521

(12,568)

(10,266)

Provision for loan losses

5,299

8,397

15,007

17,481

17,596

Net (gains) losses on loans held for sale

(6)

(916)

217

(1,952)

(1,179)

Investment securities (gains) losses

---

---

(38)

(3)

993

(Gains) losses on other real estate (ORE)

(173)

(385)

1,081

1,210

1,355

Fair-value adjustment on bank owned life insurance(1)

118

(205)

(100)

385

48

Fair-value adjustment on swaps (1)

74

(61)

(46)

268

77

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

$  31,699

$31,691

$      36,886

$       37,765

$32,781











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










Noninterest Income and Noninterest Expense


Three Months Ended



June 30,

March 31,

December 31,

September 30,

June 30,

(in thousands)

2012

2012

2011

2011

2011

Service charges on deposit accounts

$              9,355

$           8,985

$           9,724

$         10,362

$           9,753

Trust fees

3,582

3,602

3,747

3,622

3,811

Mortgage and other loan income

1,952

1,858

2,705

2,089

1,883

Brokerage and investment fees

1,331

1,324

1,243

1,188

1,533

Card-based and other nondeposit fees

4,444

4,265

4,305

4,475

4,394

Net gains (losses) on loans held for sale

6

916

(217)

1,952

1,179

Investment securities gains (losses)

---

---

38

3

(993)

Other income

1,675

3,290

2,818

736

1,765

Total noninterest income

$            22,345

$         24,240

$         24,363

$         24,427

$         23,325










Salaries and employee benefits

$            32,801

$         33,298

$         30,952

$         30,280

$         31,265

Occupancy

6,140

6,696

6,326

6,125

6,047

Professional services

2,465

2,023

2,311

2,394

2,407

Equipment

2,904

3,303

3,326

2,918

2,841

Data processing services

3,721

4,048

3,709

3,823

4,247

Advertising and public relations

1,708

1,335

1,298

2,179

1,802

Postage and delivery

1,119

1,099

1,165

1,142

1,120

Other loan expenses

3,266

3,186

3,497

3,941

3,314

(Gains) losses on other real estate (ORE)

(173)

(385)

1,081

1,210

1,355

ORE expenses

266

450

995

529

1,029

Intangible asset amortization

545

578

688

732

778

Other expense

11,577

11,470

11,292

10,138

13,239

Total noninterest expense

$            66,339

$         67,101

$         66,640

$         65,411

$         69,444












































Average Balances, Yields and Rates











Three Months Ended

June 30, 2012

March 31, 2012

June 30, 2011

Average

Average

Average

Average

Average

Average

(in thousands)

Balance

Rate

Balance

Rate

Balance

Rate

Earning Assets










Money market investments

$ 184,670

0.25

%

$ 349,652

0.25

%

$ 403,380

0.25

%

Investment securities:










Taxable

2,577,646

2.48

2,548,390

2.72

2,443,792

3.36

Tax-exempt

209,421

6.46

215,344

6.44

254,797

6.55

FHLB and Federal Reserve stock

119,413

3.87

117,942

3.88

137,433

3.04

Portfolio loans:










Commercial and industrial

1,665,640

5.45

1,573,933

5.61

1,348,499

5.38

Commercial real estate

1,465,135

5.04

1,521,448

5.04

1,766,070

5.04

Residential mortgage

601,439

4.36

627,721

4.31

719,336

4.80

Direct consumer

890,957

5.88

920,030

5.89

990,764

6.06

Indirect consumer

894,555

6.15

865,396

6.42

844,083

6.68

Total portfolio loans

5,517,726

5.40

5,508,528

5.48

5,668,752

5.51

Loans held for sale

13,191

3.40

10,222

4.54

34,194

1.72

Total earning assets

8,622,067

4.42

8,750,078

4.47

8,942,348

4.67












Nonearning Assets










Cash and due from banks

141,122


143,008


138,728

Premises and equipment

94,836


96,986


101,352

Investment security fair value adjustment

53,672


49,832


53,822

Other nonearning assets

669,507


653,991


652,611

Allowance for loan losses

(152,154)


(172,509)


(223,922)

Total assets

$ 9,429,050


$ 9,521,386


$ 9,664,939

Interest-Bearing Liabilities










Deposits:










Interest-bearing demand deposits

$ 988,884

0.14

$ 973,664

0.17

$ 947,220

0.23

Savings deposits

2,677,524

0.23

2,708,522

0.28

2,621,616

0.37

Time deposits

1,916,294

1.57

2,128,916

1.67

2,562,463

1.89

Short-term borrowings

37,148

0.13

38,683

0.19

41,340

0.18

Long-term debt

853,333

3.94

853,912

4.03

905,902

4.23

Total interest-bearing liabilities

6,473,183

1.10

6,703,697

1.18

7,078,541

1.40

Noninterest-Bearing Liabilities and Shareholders' Equity










Noninterest-bearing demand

1,734,951


1,630,591


1,474,408

Other liabilities

159,397


158,604


148,058

Shareholders' equity

1,061,519


1,028,494


963,932

Total liabilities and shareholders' equity

$ 9,429,050


$ 9,521,386


$ 9,664,939













Interest Spread

3.32

%

3.29

%

3.27

%

Contribution of noninterest bearing sources of funds

0.28


0.27


0.29

Net Interest Margin

3.60

%

3.56

%

3.56

%
























































































































Average Balances, Yields and Rates


Six Months Ended





June 30,






2012

2011




Average

Average

Average

Average

(in thousands)


Balance

Rate

Balance

Rate

Earning Assets










Money market investments



$ 267,161

0.25

%

$ 410,031

0.25

%

Investment securities:










Taxable



2,563,018

2.60

2,378,990

3.38

Tax-exempt



212,382

6.45

266,672

6.69

FHLB and Federal Reserve stock



118,678

3.87

140,635

3.10

Portfolio loans:










Commercial and industrial



1,619,785

5.53

1,385,331

4.98

Commercial real estate



1,493,292

5.04

1,904,944

5.18

Residential mortgage



614,580

4.34

730,515

4.78

Direct consumer



905,494

5.89

1,007,777

6.09

Indirect consumer



879,976

6.29

830,455

6.74

Total portfolio loans



5,513,127

5.44

5,859,022

5.46

Loans held for sale



11,707

3.90

30,547

3.38

Total earning assets



8,686,073

4.45

9,085,897

4.67

Nonearning Assets










Cash and due from banks



142,065


141,328

Premises and equipment



95,911


102,868

Investment security fair value adjustment



51,752


43,085

Other nonearning assets



661,749


667,486

Allowance for loan losses



(162,332)


(259,380)

Total assets



$ 9,475,218


$ 9,781,284

Interest-Bearing Liabilities










Deposits:










Interest-bearing demand deposits



$ 981,274

0.16

$ 949,482

0.23

Savings deposits



2,693,023

0.25

2,625,435

0.39

Time deposits



2,022,605

1.62

2,657,357

1.92

Short-term borrowings



37,916

0.16

41,264

0.18

Long-term debt



853,622

3.98

938,309

4.15

Total interest-bearing liabilities



6,588,440

1.14

7,211,847

1.42

Noninterest-Bearing Liabilities and Shareholders' Equity










Noninterest-bearing demand





1,682,772


1,435,216

Other liabilities



159,000


151,216

Shareholders' equity



1,045,006


983,005

Total liabilities and shareholders' equity



$ 9,475,218


$ 9,781,284













Interest Spread




3.30

%

3.25

%

Contribution of noninterest bearing sources of funds




0.28


0.29

Net Interest Margin




3.58

%

3.54

%












SOURCE Citizens Republic Bancorp, Inc.

21%

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