CITIZENS REPUBLIC BANCORP INC 
By (Logo: http://www.newscom.com/cgi-bin/prnh/20050421/DETH014LOGO )
On
After incorporating the aforementioned
"This past year was extremely difficult, presenting unprecedented economic
challenges for the banking industry. While these challenges had a negative
impact on our results, we believe we've taken the necessary steps to emerge
from this turmoil poised to profitably grow our franchise over the long-term.
Our internal credit stress-test analyses, based on industry peak and worse-
than-industry-peak scenarios, indicate that Citizens is solidly positioned
with sufficient capital and liquidity to manage through this uncertain credit
market," stated
"The U.S. Department of Treasury's investment in our bank has enabled us to enhance our capital and liquidity positions and our lending capabilities. Throughout the financial crisis we have continued lending and this investment expands our ability to respond to our customers' needs now and after demand improves. Additionally, our participation in the FDIC Transaction Account Guarantee Program provides 100% coverage for our non-interest bearing depositors. We believe these actions benefit the many communities we serve," Hartman concluded.
Key Highlights in the Quarter:
-- Total deposits at
-- Citizens continues to hold excess short-term (liquid) assets at
-- Citizens continues to maintain strong pre-tax pre-provision core
operating earnings, with
-- At year end Citizens' regulatory capital ratios were higher than third
quarter and continue to exceed the "well-capitalized' designation. As of
-- Tier 1 - 12.26%
-- Total Capital - 14.55%
-- Tier 1 Leverage - 9.65%
-- The allowance for loan losses at
-- Citizens recorded a non-cash valuation allowance of
Balance Sheet
Total assets at
Investment securities at
The following table displays the total commercial loan portfolio by segment at quarter end for each of the last five quarters. The following definitions are provided to clarify the types of loans included in each of the commercial real estate segments identified in the table. Land hold loans are secured by undeveloped land which has been acquired for future development. Land development loans are secured by land undergoing infrastructure improvements to create finished marketable lots for commercial or residential construction. Construction loans are secured by commercial, retail and residential real estate in the construction phase with the intent to be sold or become an income producing property. Income producing loans are secured by non-owner occupied real estate leased to one or more tenants. Owner occupied loans are secured by real estate occupied by the owner for ongoing operations.
Commercial Loan Portfolio
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
in millions 2008 2008 2008 2008 2007
------ ------ -------------------------
Land Hold $45.0 $48.3 $49.8 $61.6 $63.8
Land Development 132.7 125.0 128.2 159.2 167.8
Construction 263.5 364.2 344.1 370.7 342.6
Income Producing 1,556.2 1,533.2 1,569.9 1,567.3 1,526.0
Owner-Occupied 967.3 999.6 1,009.3 1,015.6 997.0
------- ------- ------- ------- -------
Total Commercial Real
Estate 2,964.7 3,070.3 3,101.3 3,174.4 3,097.2
Commercial and
Industrial 2,602.4 2,703.7 2,703.8 2,653.8 2,557.1
------- ------- ------- ------- -------
Total Commercial Loans $5,567.1 $5,774.0 $5,805.1 $5,828.2 $5,654.3
======== ======== ======== ======== ========
Total commercial loans at
Residential mortgage loans at
Direct consumer loans, which are primarily home equity loans, were
Indirect consumer loans, which are primarily marine and recreational
vehicle loans totaled
Loans held for sale at
Goodwill at
Total deposits at
Other interest-bearing liabilities, which include federal funds purchased
and securities sold under agreements to repurchase, other short-term
borrowings, and long-term debt, decreased
Capital Adequacy and Liquidity
Shareholders' equity at
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.
Regulatory Excess
Minimum for Capital over
"Well-Capital- Minimum
ized" 12/31/08 9/30/08 6/30/08 (in millions)
---------------------------------- ------------------------ -----------
Tier 1 capital ratio* 6.00% 12.26% 10.88% 10.80% $616.4
Total capital ratio* 10.00% 14.55% 13.13% 13.03% $447.4
Tier 1 leverage ratio* 5.00% 9.65% 8.76% 8.71% $581.6
Tangible common equity to
tangible assets 5.75% 7.33% 6.44%
Tangible equity to tangible
assets 7.88% 7.33% 7.35%
* December 31, 2008 is an estimate
-------------------------------------------------------------------------
Citizens maintains a very strong liquidity position due to its on-balance
sheet liquidity sources and very stable funding base comprised of
approximately 69% deposits, 17% long-term debt, 12% equity, and 2% short-term
liabilities. During the fourth quarter of 2008, Citizens increased total
deposits by
Citizens' parent company cash resources totaled
Net Interest Margin and Net Interest Income
Net interest margin was 3.03% for the fourth quarter of 2008 compared with 3.09% for the third quarter of 2008 and 3.26% for the fourth quarter of 2007. The decrease in net interest margin from the third quarter of 2008 was primarily the result of deposit spread compression due to price competition in Citizens' markets and an increase in loan balances transferring to nonperforming status, partially offset by expanding commercial and consumer loan spreads.
The decrease in net interest margin from the fourth quarter of 2007 was primarily the result of deposit price competition, the transfer of loans to nonperforming status, and an increase in funding costs related to extending short-term borrowings, partially offset by expanding commercial and consumer loan spreads and retail time deposits repricing to a lower rate. For the full year of 2008, net interest margin declined to 3.09% compared with 3.38% for the full year 2007 as a result of the aforementioned factors.
Net interest income was
The decrease in net interest income compared with the fourth quarter of
2007 was primarily the result of a lower net interest margin, partially offset
by a
For the full year of 2008, net interest income declined to
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 continues to manage credit quality challenges proactively, by:
-- Continuing to analyze Citizens' commercial automobile-related exposure through various forward-looking potential stress scenarios.
-- Expanding the quarterly review of non-watch credits to include commercial and industrial relationships. Coupled with the continuation of reviewing the non-watch commercial real estate relationships, these practices enable Citizens to validate obligor ratings and exposure management strategies.
-- Streamlining collection and modification programs for residential mortgage loans to mitigate foreclosures more effectively.
The following tables represent four qualitative aspects of the loan portfolio that illustrate the overall level of quality and risk inherent in the loan portfolio.
-- Table 1 - Delinquency Rates by Loan Portfolio - This table illustrates the loans where the contractual payment is 30 to 89 days past due and interest is still accruing. While these loans are actively worked to bring them current, past due loan trends may be a leading indicator of potential future nonperforming loans and charge-offs.
-- Table 2 - Commercial Watchlist - This table illustrates the commercial loans that, while still accruing interest, may be at risk due to general economic conditions or changes in a borrower's financial status.
-- Table 3 - Nonperforming Assets - This table illustrates the loans that are in nonaccrual status, loans past due 90 days or more on which interest is still accruing, nonperforming loans that are held for sale, and other repossessed assets acquired. The commercial loans included in this table are reviewed as part of the watchlist process in addition to the loans displayed in Table 2.
-- Table 4 - Net Charge-Offs - This table illustrates the portion of loans that have been charged-off during each quarter.
Table 1 -- Delinquency Rates By Loan Portfolio
30 to 89 days Past Due Dec 31, 2008 Sep 30, 2008 Jun 30, 2008
------------ ------------ ------------
% of % of % of
Port- Port- Port-
in millions $ folio $ folio $ folio
------------ ------------ ------------
Land Hold $3.9 8.67% $7.3 15.11% $9.3 18.67%
Land Development 5.2 3.92 10.3 8.24 1.1 0.86
Construction 27.3 10.36 26.1 7.17 11.9 3.46
Income Producing 76.7 4.93 50.1 3.27 48.5 3.09
Owner-Occupied 37.5 3.88 21.3 2.13 18.6 1.84
------------ ------------ ------------
Total Commercial Real Estate 150.6 5.08 115.1 3.75 89.4 2.88
Commercial and Industrial 56.5 2.17 29.1 1.08 29.5 1.09
------------ ------------ ------------
Total Commercial Loans 207.1 3.72 144.2 2.50 118.9 2.05
Residential Mortgage 39.5 3.13 37.7 2.95 38.5 2.94
Direct Consumer 25.5 1.76 19.5 1.32 18.4 1.22
Indirect Consumer 18.5 2.25 13.6 1.61 14.4 1.73
------------ ------------ ------------
Total Delinquent Loans $290.6 3.19% $215.0 2.29% $190.2 2.01%
====== ====== ======
Table 1 -- Delinquency Rates By Loan Portfolio
30 to 89 days Past Due Mar 31, 2008 Dec 31, 2007
---------------- ----------------
% of % of
in millions $ Portfolio $ Portfolio
---------------------------------
Land Hold $6.6 10.71% $4.6 7.21%
Land Development 16.3 10.24 28.7 17.10
Construction 10.5 2.83 31.7 9.25
Income Producing 29.3 1.87 54.0 3.54
Owner-Occupied 19.0 1.87 20.3 2.04
--------------- ---------------
Total Commercial Real Estate 81.7 2.57 139.3 4.50
Commercial and Industrial 39.9 1.50 39.0 1.53
--------------- ---------------
Total Commercial Loans 121.6 2.09 178.3 3.15
Residential Mortgage 33.5 2.40 46.4 3.21
Direct Consumer 21.7 1.42 24.3 1.55
Indirect Consumer 13.3 1.62 15.9 1.92
--------------- ---------------
Total Delinquent Loans $190.1 1.99% $264.9 2.79%
====== ======
Total delinquencies at
As part of the overall credit underwriting and review process, Citizens carefully monitors commercial and commercial real estate credits that are current in terms of principal and interest payments but may deteriorate in quality as economic conditions change. Commercial relationship officers monitor their clients' financial condition and initiate changes in loan ratings based on their findings. Loans that have migrated within the loan rating system to a level that requires increased oversight are considered watchlist loans (generally consistent with the regulatory definition of special mention, substandard, and doubtful loans) and include loans that are in accruing (see Table 2) or nonperforming status (see Table 3). Citizens utilizes the watchlist process as a proactive credit risk management practice to help mitigate the migration of commercial loans to nonperforming status and potential loss. Once a loan is placed on the watchlist, it is reviewed quarterly by the chief credit officer, senior credit officers, senior market managers, and commercial relationship officers to assess cash flows, collateral valuations, guarantor liquidity, and other pertinent trends. During these reviews, action plans are affirmed to address emerging problem loans or to implement a specific plan for removing the 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, 2008 Sep 30, 2008 Jun 30, 2008
% of % of % of
in millions $ Port- $ Port- $ Port-
folio folio folio
Land Hold $18.5 41.11% $20.7 42.86% $24.2 48.59%
Land Development 49.3 37.15 51.8 41.44 47.5 37.05
Construction 74.8 28.39 104.8 28.78 86.3 25.08
Income Producing 401.0 25.77 290.3 18.93 239.3 15.24
Owner-Occupied 178.4 18.44 167.0 16.71 161.8 16.03
----- ----- -----
Total Commercial Real
Estate 722.0 24.35 634.6 20.67 559.1 18.03
Commercial and Industrial 436.8 16.78 431.2 15.95 432.5 16.00
----- ----- -----
Total Watchlist Loans $1,158.8 20.82% $1,065.8 18.46% $991.6 17.08%
======== ======== ======
Table 2 -- Commercial Watchlist
Accruing loans only Mar 31, 2008 Dec 31, 2007
% of % of
in millions $ Portfolio $ Portfolio
Land Hold $27.7 44.97% $27.1 42.48%
Land Development 55.9 35.11 72.7 43.33
Construction 66.7 17.99 90.1 26.30
Income Producing 221.3 14.12 225.5 14.78
Owner-Occupied 155.8 15.34 153.0 15.35
----- -----
Total Commercial Real Estate 527.4 16.61 568.4 18.35
Commercial and Industrial 407.1 15.34 387.4 15.15
----- -----
Total Watchlist Loans $934.5 16.03% $955.8 16.90%
====== ======
Accruing watchlist loans at
Table 3 -- Nonperforming Assets
Dec 31, 2008 Sep 30, 2008 Jun 30, 2008
------------- -------------- ------------
% of % of % of
in millions $ Portfolio $ Portfolio $ Portfolio
------------- -------------- ------------
Land Hold $10.4 23.11% $11.0 22.77% $3.4 6.83%
Land Development 23.4 17.63 20.6 16.48 22.8 17.78
Construction 18.3 6.94 25.7 7.06 12.6 3.66
Income Producing 78.6 5.05 57.6 3.76 23.1 1.47
Owner-Occupied 31.8 3.29 17.7 1.77 13.1 1.30
------------- -------------- ------------
Total Commercial
Real Estate 162.5 5.48 132.6 4.32 75.0 2.42
Commercial and
Industrial 64.6 2.48 38.2 1.41 31.6 1.17
------------- -------------- ------------
Total Nonperforming
Commercial Loans 227.1 4.08 170.8 2.96 106.6 1.84
Residential Mortgage 59.5 4.71 40.2 3.14 12.4 0.95
Direct Consumer 15.1 1.04 16.3 1.10 16.3 1.09
Indirect Consumer 2.6 0.32 2.1 0.25 1.4 0.17
Loans 90+ days still
accruing and
restructured 1.7 0.02 1.9 0.02 2.5 0.03
------------- -------------- ------------
Total Nonperforming
Portfolio Loans 306.0 3.36% 231.3 2.47% 139.2 1.47%
Nonperforming Held
for Sale 75.2 86.6 92.6
Other Repossessed
Assets Acquired 58.0 46.5 54.1
------ ------ ------
Total Nonperforming
Assets $439.2 $364.4 $285.9
====== ====== ======
Table 3 -- Nonperforming Assets
Mar 31, 2008 Dec 31, 2007
% of % of
in millions $ Portfolio $ Portfolio
-------------- ---------------
Land Hold $5.5 8.93% $4.5 7.05%
Land Development 46.4 29.15 35.6 21.22
Construction 51.9 14.00 28.8 8.41
Income Producing 40.5 2.58 21.5 1.41
Owner-Occupied 23.5 2.31 19.7 1.98
------------- --------------
Total Commercial Real Estate 167.8 5.29 110.1 3.55
Commercial and Industrial 20.3 0.76 12.7 0.50
------------- --------------
Total Nonperforming Commercial
Loans 188.1 3.23 122.8 2.17
Residential Mortgage 45.8 3.29 46.9 3.25
Direct Consumer 13.5 0.88 13.7 0.87
Indirect Consumer 1.7 0.21 2.1 0.25
Loans 90+ days still
accruing and restructured 4.4 0.05 3.9 0.04
------------- --------------
Total Nonperforming Portfolio
Loans 253.5 2.65% 189.4 1.99%
Nonperforming Held for Sale 22.8 21.6
Other Repossessed Assets Acquired 50.3 40.5
------ ------
Total Nonperforming Assets $326.6 $251.5
====== ======
Nonperforming assets are comprised of nonaccrual loans, loans past due
over 90 days and still accruing interest, restructured loans, nonperforming
held for sale, and other repossessed assets acquired. Nonperforming assets
totaled
Nonperforming commercial loan outflows were
Table 4 --
Net Charge-Offs Three Months Ended
Dec 31, 2008 Sep 30, 2008 Jun 30, 2008
------------ ------------ ------------
% of % of % of
in millions $ Port- $ Port- $ Port-
folio** folio** folio**
------------ ------------ ------------
Land Hold $4.6 40.89% $1.7 14.08% $0.7 5.62%
Land Development 5.8 17.48 6.9 22.08 16.4 51.17
Construction 10.7 16.24 0.5 0.55 13.8 16.04
Income Producing 21.7 5.58 4.4 1.15 7.7 1.96
Owner-Occupied 3.1 1.28 1.3 0.52 3.4 1.35
------------ ------------ ------------
Total Commercial Real
Estate 45.9 6.19 14.8 1.93 42.0 5.42
Commercial and
Industrial 21.9 3.37 0.4 0.06 0.6 0.09
------------ ------------ ------------
Total Commercial
Loans 67.8 4.87 15.2 1.05 42.6 2.94
Residential Mortgage 1.6 0.51 0.5 0.16 20.7 6.33
Direct Consumer 5.9 1.63 3.3 0.89 3.1 0.83
Indirect Consumer 5.7 2.78 3.4 1.61 2.9 1.39
------------ ------------ ------------
Total Net Charge-offs $81.0 3.48% $22.4 0.94% $69.3 2.93%
===== ===== =====
** Represents an annualized rate.
Table 4 --
Net Charge-Offs Three Months Ended
Mar 31, 2008 Dec 31, 2007
------------ ------------
% of % of
in millions Port- Port-
$ folio** $ folio**
------------ ------------
Land Hold $0.5 3.25% $0.4 2.51%
Land Development 6.6 16.58 6.3 15.02
Construction 1.2 1.29 1.8 2.10
Income Producing 0.9 0.23 2.4 0.63
Owner-Occupied (0.1) (0.04) (0.2) (0.08)
------------ ------------
Total Commercial Real Estate 9.1 1.15 10.7 1.38
Commercial and Industrial 0.9 0.14 1.4 0.22
------------ ------------
Total Commercial Loans 10.0 0.69 12.1 0.86
Residential Mortgage 1.8 0.52 2.0 0.55
Direct Consumer 3.0 0.79 2.3 0.59
Indirect Consumer 2.6 1.27 3.3 1.59
------------ ------------
Total Net Charge-offs $17.4 0.74% $19.7 0.84%
===== =====
** Represents an annualized rate.
Full Year 2008 Full Year 2007
-------------- --------------
Net charge-offs $190.1 2.01% $50.9 0.55%
Net charge-offs totaled
After determining what Citizens believes is an adequate allowance for loan
losses, the provision for loan losses is calculated as a result of the net
effect of the quarterly change in the allowance for loan losses identified
based on the risk in the portfolio and the quarterly net charge-offs. The
provision for loan losses was
The allowance for loan losses was
Noninterest Income
Noninterest income for the fourth quarter of 2008 was
The decrease in noninterest income from the third quarter of 2008 was
primarily the result of lower other income (
The decrease in noninterest income from the fourth quarter of 2007 was
primarily due to lower other income (
The decrease in noninterest income compared to the full year of 2007 was
primarily due to a higher net loss on loans held for sale (
Noninterest Expense
Noninterest expense for the fourth quarter of 2008 was
The increase in noninterest expense from the third quarter of 2008 was
primarily the result of other expense (
to a decline in production volume and a reduction in annual performance-based incentives due to overall corporate performance for 2008.
Noninterest expense was essentially unchanged from the fourth quarter of
2007 as increases in other expense (
Salary costs included severance expense of
The increase in noninterest expense over the full year of 2007 was
primarily due to the aforementioned
Income Tax Provision
The income tax provision for the fourth quarter of 2008 was
SFAS 109, "Accounting for Income Taxes," requires that companies assess
whether a valuation allowance should be established against their deferred tax
assets based on the consideration of all available evidence using a "more
likely than not" standard. In accordance with SFAS 109, Citizens reviewed its
deferred tax asset and determined that due mainly to the significant pre-tax
loss in 2008 it must establish a valuation allowance against the entire net
deferred tax asset, excluding goodwill. As of
Reconciliation of Pre-Tax Pre-Provision Core Operating Earnings
Citizens is presenting pre-tax pre-provision core operating earnings in this release for purposes of additional analysis of operating results. Pre- tax pre-provision core operating earnings, as defined by management, represents net income (loss) excluding income tax provision (benefit), the provision for loan losses, and any impairment charges (including goodwill, credit writedowns and fair-value adjustments) caused by this economic cycle.
The following table reconciles pre-tax pre-provision core operating earnings to consolidated net income (loss) presented in accordance with US generally accepted accounting principles ("GAAP"), which is the principal and most useful measure of earnings and provides comparability of earnings with other companies. However, Citizens believes presenting pre-tax pre-provision core operating earnings provides investors with the ability to better understand Citizens' underlying operating trends separate from the direct effects of the impairment charges, credit issues, fair value adjustments, challenges inherent in the real estate downturn and other economic cycle issues and displays a consistent core operating earnings trend before the impact of these challenges. The credit quality section of this earnings release already isolates all of the challenges and issues related to the credit quality of Citizens' loan portfolio and its impact on Citizens earnings as reflected in the provision for loan losses.
Pre-Tax Pre-Provision
Core Operating Earnings Three Months Ended
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
(in thousands) 2008 2008 2008 2008 2007
-------------------------------------------------------------------------
Net Income (Loss) $(195,369) $(7,176) $(201,634) $11,127 $27,967
Income tax provision
(benefit) 99,634 (10,192) (19,401) 929 8,582
Provision for loan losses 118,565 58,390 74,480 30,619 6,055
Goodwill impairment
charge --- --- 178,089 --- ---
Fair-value writedown on
loans held for sale 5,865 1,261 2,248 --- 508
Fair-value writedown on
ORE 602 675 5,849 937 (427)
Fair-value writedown on
bank owned life
insurance 2,896 551 --- --- ---
Loss on auction rate
securities repurchase 2,406 --- --- --- ---
SFAS 157 mark-to-market
on swaps 2,414 (2,894) (293) (514)
Captive insurance
impairment charge 1,053 --- --- --- ---
-----------------------------------------------
Pre-Tax Pre-Provision
Core Operating Earnings $38,066 $40,615 $39,338 $43,098 $42,685
==============================================
-------------------------------------------------------------------------
Citizens is very focused on preserving capital, enhancing liquidity, and generating solid operating earnings in the long-term.
Forward-Looking Guidance
Citizens anticipates the following performance for the first quarter of 2009:
-- Net interest income will be slightly lower than the fourth quarter of 2008 due to continued deposit price competition and continued migration of certain loans to nonperforming status.
-- Noninterest income will be higher than the fourth quarter of 2008 primarily due to a lower net loss on loans held for sale.
-- Noninterest expense will be higher than the fourth quarter of 2008 as increases in FDIC premiums, ORE expenses, and advertising are expected to more than offset current savings initiatives.
-- Citizens does not anticipate recording an income tax provision (benefit) during 2009 unless there is a change in the realizability of the deferred tax asset.
Given the uncertainties in the Midwest economy, continued downturn in real estate markets, and volatility in borrower capacities, it is very difficult to give a narrow range of qualitative guidance on net charge-offs and provision expense at this time. Citizens anticipates net charge-offs and provision for loan losses for the first quarter of 2009 will be less than the fourth quarter of 2008, assuming future real estate values stabilize and the recessionary impact on borrowers' ability to re-pay does not continue to worsen.
Use of Non-GAAP Financial Measures
In addition to results presented in accordance with GAAP, this release includes non-GAAP financial measures such as those included in the "Reconciliation of Pre-Tax Pre-Provision Core Operating Earnings" section and the "Non-GAAP Reconciliation" table. Citizens believes these non-GAAP financial measures provide information useful to investors in understanding the underlying operational performance of the company, its business, and performance trends and facilitates comparisons with the performance of others in the banking industry. Specifically, Citizens believes the exclusion of restructuring and merger-related expenses, intangible asset amortization, and the goodwill impairment to create "core operating earnings" as well as the exclusion of related goodwill and other intangible assets, net of applicable deferred tax amounts, to create "average tangible assets" and "average tangible equity" facilitates the comparison of results for ongoing business operations. Citizens' management internally assesses the company's performance based, in part, on these non-GAAP financial measures.
In accordance with industry standards, certain designated net interest income amounts are presented on a taxable equivalent basis, including the calculation of net interest margin and the efficiency ratio displayed in the "Selected Quarterly Information" and "Financial Summary and Comparison" tables. Citizens believes the presentation of net interest margin on a taxable equivalent basis allows comparability of net interest margin with our industry peers by eliminating the effect of the differences in portfolios attributable to the proportion represented by both taxable and tax-exempt investments.
Although Citizens believes the above non-GAAP financial measures enhance investors' understanding of its business and performance, these non-GAAP measures should not be considered a substitute for GAAP basis financial measures.
Other News
Stock Repurchase Program
During the fourth quarter of 2008, Citizens did not repurchase any shares
of its stock under the stock repurchase program. As of
Analyst Conference Call
