Published:
Citizens Republic Bancorp Announces Second Quarter 2008 Results in Line With Revised Expectations and Expects Profitable Third and Fourth Quarters of 2008
FLINT, Mich., July 17 /PRNewswire-FirstCall/ -- Citizens Republic Bancorp
(Nasdaq: CRBC) reported today results in line with revised guidance from June
2008, when Citizens announced a non-cash goodwill impairment charge (which had
no impact on regulatory capital ratios or Citizens' overall liquidity) and a
credit writedown that together totaled $220.5 million ($205.6 million
after-tax). The net loss of $201.6 million for the three months ended June
30, 2008 represents a decrease of $212.7 million from the first quarter of
2008 net income of $11.1 million and a decrease of $211.2 million from the
second quarter of 2007 net income of $9.6 million. Diluted net loss per share
was $2.53, compared with diluted net income per share of $0.15 for the first
quarter of 2008 and $0.13 for the second quarter of 2007. Annualized returns
on average assets and average equity during the second quarter of 2008 were
(6.10)% and (52.47)%, respectively, compared with 0.33% and 2.83% for the
first quarter of 2008 and 0.29% and 2.49% for the second quarter of 2007.
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For the first six months of 2008, Citizens recorded a net loss of $190.5
million, or $2.46 per diluted share, which represents a decrease in net income
of $231.6 million or $3.00 per diluted share from the same period of 2007.
The decrease was primarily the result of the goodwill impairment charge and
credit writedown in the second quarter of 2008 as well as a higher provision
for loan losses.
Core operating earnings (loss), which exclude restructuring and
merger-related expenses, amortization of core deposit intangibles and the
goodwill impairment, were $(0.28) per diluted share for the second quarter of
2008, a decrease of $0.45 from $0.17 in the first quarter of 2008 and a
decrease of $0.46 from $0.18 in the second quarter of 2007. Annualized core
operating earnings (loss) to average tangible assets and annualized core
operating earnings (loss) to average tangible equity for the second quarter of
2008 were (0.71)% and (10.87)%, respectively, compared with 0.40% and 6.52%
for the first quarter of 2008 and 0.44% and 7.39% for the second quarter of
2007. These non-GAAP financial measures are discussed in more detail under
"Use of Non-GAAP Financial Measures" and are reconciled to the related GAAP
measures in the tables on page 17.
"We understand the economic challenges in the Midwest and have taken steps
to ensure we have the capital and balance sheet strength to prudently manage
through this cycle," stated William R. Hartman, chairman, president and chief
executive officer. "We expect to return to profitability for the third and
fourth quarters of 2008, assuming our provision for loan losses stabilizes as
we expect," continued Hartman.
Key Performance Highlights in the Quarter:
-- Citizens issued $79.6 million of common stock and $120.4 million of
contingent convertible perpetual non-cumulative preferred stock in June
2008 to enhance its balance sheet. As a result of this action,
Citizens improved its key capital ratios from March 31, 2008.
June 30, 2008 March 31, 2008
------------- --------------
-- Leverage ratio 8.71% 7.40%
-- Tier 1 capital ratio (estimate) 10.75% 9.04%
-- Total capital ratio (estimate) 12.98% 11.26%
-- Tangible common equity to tangible assets* 7.35% 6.07%
* Assumes conversion of preferred stock to common stock
-- Citizens recorded a non-cash goodwill impairment charge of $178.1
million in the second quarter of 2008. The goodwill impairment charge
is not tax deductible and has no impact on tangible equity or
regulatory capital ratios, or Citizens' overall liquidity position.
-- Citizens recorded a non-cash credit writedown of $42.4 million
($27.6 million after-tax) in the second quarter of 2008. This is $4.7
million less than the $47.1 million amount announced in June, which
was based on April 30, 2008 balances. The actual credit writedown
reflects a net reduction in principal balances, including paydowns and
payoffs between April 2008 and June 2008, when the charges were applied
to the individual loans. The writedown was comprised of three
components:
-- Gross charge-offs of $35.1 million as a result of transferring
$86.2 million of nonperforming commercial real estate and $42.3
million of nonperforming residential mortgage loans to held for sale
("HFS") status at an aggregate estimated fair market value of
$93.4 million;
-- Loss of $2.3 million as a result of a fair-value adjustment on
$29.8 million of commercial real estate loans previously held for
sale; and a
-- Loss on Other Real Estate ("ORE") of $5.0 million as a result of a
fair-value adjustment on $34.2 million of commercial and residential
repossessed assets.
-- The provision for loan losses for the second quarter of 2008 was $74.5
million, compared with $30.6 million for the first quarter of 2008.
Net charge-offs for the second quarter of 2008 totaled $69.3 million,
compared with $17.4 million for the first quarter of 2008. The
significant increases in the provision for loan losses and net
charge-offs were primarily due to the aforementioned $35.1 million
credit writedown as a result of transferring nonperforming commercial
real estate and residential mortgage loans to held for sale status and
higher commercial real estate charge-offs due to continued
deterioration in the Midwest economy. As a result of these actions,
Citizens improved its key credit ratios from March 31, 2008.
June 30, 2008 March 31, 2008
------------- --------------
-- Allowance for loan losses to portfolio
loans 1.92% 1.84%
-- Allowance for loan losses to
nonperforming loans 130.54% 69.64%
-- Nonperforming loans to total portfolio
loans 1.47% 2.65%
-- Even though the second quarter continued to create significant credit
challenges for the financial industry, Citizens' credit results reflect
good trends. The 30-89 day loan delinquencies at June 30, 2008 were
essentially unchanged from March 31, 2008. Nonperforming assets at
June 30, 2008 totaled $285.9 million, a decrease of $40.7 million from
March 31, 2008 as the $42.4 million reduction in nonperforming assets
due to the aforementioned credit writedown was not materially offset by
loans migrating to nonperforming status.
-- Commercial and industrial loans at June 30, 2008 increased $50.0
million or 1.9% over March 31, 2008. Citizens continues to see high
quality, profitable customer demand for commercial and industrial loans
in all of its markets.
-- Core deposits, which exclude time deposits, increased $67.7 million or
1.5% over March 31, 2008. This represents the third consecutive
quarter of core deposit growth.
-- Citizens continues to show improvement in treasury management sales and
wealth management revenue.
-- Treasury management sales totaled $0.6 million for the second
quarter of 2008, an increase of 16.8% over the first quarter of
2008. For the first six months of 2008, treasury management sales
totaled $1.1 million or an increase of 12.6% over the same period of
2007.
-- Brokerage and investment fees totaled $2.2 million for the second
quarter of 2008, an increase of 15.4% over the first quarter of
2008. For the first six months of 2008, brokerage and investment
fees totaled $4.1 million or an increase of 10.6% over the same
period of 2007.
-- Citizens has identified approximately $15 million in annual cost
savings opportunities from process improvements, technology
enhancements, benefits and other controllable costs which will begin to
be implemented during the last six months of 2008. These initiatives
should more than offset anticipated increases in future expenses, such
as marketing and other promotional expenses to support deposit growth
strategies, industry-wide increases on FDIC insurance and higher credit
workout expenses. These new cost saving opportunities are in addition
to the $34 million of cost reductions made subsequent to the Republic
merger announcement in 2006.
-- Citizens' parent company cash resources totaled $277.9 million at June
30, 2008 and its annual interest and preferred stock dividend payments
are approximately $22 million. Therefore, Citizens has no plans to
suspend the regularly scheduled quarterly dividends of $2.8 million on
its enhanced trust preferred security (NYSE: CTZPrA).
Balance Sheet
Total assets at June 30, 2008 were $13.2 billion, a decrease of $369.3
million or 2.7% from March 31, 2008 and essentially unchanged from June 30,
2007. The decrease from March 31, 2008 was primarily the result of lower
investment securities, total portfolio loans, and goodwill. Total portfolio
loans were $9.4 billion at June 30, 2008, a decrease of $123.8 million or 1.3%
from March 31, 2008 and an increase of $233.1 million or 2.5% over June 30,
2007. The decrease from March 31, 2008 was primarily the result of the
aforementioned transfer of nonperforming commercial real estate and
residential mortgage loans to loans held for sale. The increase over June 30,
2007 was primarily the result of growth in the commercial and industrial loan
portfolio, partially offset by the aforementioned loans transferred to loans
held for sale and reductions in all other loan portfolios.
Investment securities at June 30, 2008 decreased $94.2 million or 4.2%
from March 31, 2008 to $2.1 billion and decreased $210.9 million or 9.0% from
June 30, 2007. The decreases were primarily the result of using portfolio
cash flow to fund commercial loan growth and to reduce short-term borrowings.
Total commercial loans at June 30, 2008 were $5.8 billion, essentially
unchanged from March 31, 2008 and an increase of $565.9 million or 10.8% over
June 30, 2007. When compared with March 31, 2008, growth in the commercial
and industrial loan portfolio was offset by a reduction in the commercial real
estate portfolio due to the aforementioned transfer of nonperforming
commercial real estate loans to loans held for sale and managed reductions in
several loans. The increase over June 30, 2007 was primarily the result of
new relationships in all of Citizens' markets and growth from the Citizens
Bank Business Finance division (the asset-based lending unit), partially
offset by the aforementioned transfer. The following table displays
historical commercial loan portfolios by segment:
Commercial Loan Portfolio
June 30, Mar 31, Dec 31, Sept 30, June 30,
in millions 2008 2008 2007 2007 2007
--------------------------------------------------
Land Hold $49.8 $61.6 $63.8 $78.9 $81.6
Land Development 128.2 159.2 167.8 161.0 178.7
Construction 344.1 370.7 342.6 376.3 371.2
Income Producing 1,569.9 1,567.3 1,526.0 1,338.8 1,338.9
Owner-Occupied 1,009.3 1,015.6 997.0 1,113.5 1,115.6
---------- -------- -------- -------- --------
Total Commercial Real
Estate 3,101.3 3,174.4 3,097.2 3,068.5 3,086.0
Commercial and
Industrial 2,703.8 2,653.8 2,557.1 2,236.2 2,153.2
---------- -------- -------- -------- --------
Total Commercial Loans $5,805.1 $5,828.2 $5,654.3 $5,304.7 $5,239.2
======== ======== ========= ========= =========
The following definitions are provided to clarify the types of loans
included in each of the commercial real estate segments identified in the
above table. Land hold loans are secured by undeveloped land which has been
acquired for future development. Land development loans are secured by land
being developed in terms of 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.
Residential mortgage loans at June 30, 2008 decreased $85.1 million or
6.1% from March 31, 2008 to $1.3 billion and decreased $185.7 million or 12.4%
from June 30, 2007. The decreases were primarily the result of weak consumer
demand in Citizens' markets, the sale of more than 70% of new mortgage
originations into the secondary market, and the aforementioned transfer of
nonperforming residential mortgage loans to loans held for sale.
Direct consumer loans, which are primarily home equity loans, were $1.5
billion at June 30, 2008, a decrease of $29.6 million or 1.9% from March 31,
2008 and a decrease of $133.7 million or 8.2% from June 30, 2007. The
decreases were due to weak consumer demand, which is being experienced
throughout the industry.
Indirect consumer loans, which are primarily marine and recreational
vehicle loans, at June 30, 2008 increased $13.9 million or 1.7% over March 31,
2008 to $832.8 million and decreased $13.4 million or 1.6% from June 30, 2007.
The increase over March 31, 2008 was primarily the result of seasonal interest
for products traditionally financed with indirect loans. The decrease from
June 30, 2007 was primarily the result of lower consumer demand compared with
one year ago.
Loans held for sale at June 30, 2008 increased $30.0 million or 36.8% over
March 31, 2008 to $111.5 million and increased $25.6 million or 29.8% over
June 30, 2007. The increases were primarily the result of transferring $93.4
million (the aforementioned $128.5 million net of the fair-value adjustment)
in nonperforming commercial real estate and residential mortgage loans to
loans held for sale, partially offset by a decrease in residential mortgage
origination volume awaiting sale in the secondary market as a result of faster
funding through Citizens' alliance with PHH Mortgage which began in the first
quarter of 2008 and, to a lesser extent, a decline in commercial loans held
for sale due to customer paydowns, adjustments to reflect current fair-market
value, and transfers to ORE status.
Goodwill at June 30, 2008 was $597.2 million, a decrease of $178.1 million
or 23.0% from March 31, 2008 and a decrease of $183.7 million or 23.5% from
June 30, 2007. The declines were due to a $178.1 million goodwill impairment
charge recorded in the second quarter of 2008 after Citizens conducted interim
analyses to determine if the fair value of the assets and liabilities in the
Regional Banking and Specialty Commercial lines of business exceeded their
carrying amounts. Citizens determined it was necessary to perform these
analyses as a result of ongoing volatility in the financial industry,
Citizens' market capitalization decreasing to a level below tangible book
value, and continued deterioration in the credit quality of Citizens'
commercial real estate portfolio. As required under SFAS 142, "Goodwill and
Other Intangible Assets," Citizens is currently performing a step-two
impairment test to value all assets and liabilities within the Regional
Banking and Specialty Commercial lines of business in a manner consistent with
business combinations. While the aforementioned goodwill impairment charge is
an estimate, Citizens does not anticipate the results of the more thorough
analysis to be materially different. This interim goodwill assessment will
not change the timing of Citizens' annual goodwill impairment test, which is
typically completed as of the end of the third quarter. There can be no
assurance, however, that further interim assessments of goodwill will not be
necessary due to further developments in the banking industry or Citizens'
markets or that any such assessment will not result in further material
charges.
Total deposits at June 30, 2008 increased $174.2 million or 2.1% over
March 31, 2008 to $8.7 billion and increased $579.5 million or 7.2% over June
30, 2007. Core deposits, which exclude all time deposits, totaled $4.5
billion at June 30, 2008, an increase of $67.7 million or 1.5% over March 31,
2008 and an increase of $408.2 million or 9.9% over June 30, 2007. The
increases in core deposits were primarily the result of a new on-balance sheet
sweep product for Citizens' commercial clients introduced in late 2007 and
migration of funds from time deposits to savings. The increase over June 30,
2007 was partially offset by the migration of funds from lower-cost deposits
to time deposits with higher yields during 2007. Time deposits totaled $4.1
billion at June 30, 2008, an increase of $106.4 million or 2.6% over March 31,
2008 and an increase of $171.3 million or 4.3% over June 30, 2007. The
increases were primarily the result of a shift in funding mix from short-term
borrowings to brokered certificates of deposit.
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 $495.8 million or 14.8% from March
31, 2008 to $2.8 billion and decreased $652.5 million or 18.7% from June 30,
2007. The decreases were primarily the result of a shift in the mix of
funding to deposits and the proceeds from the issuance of equity securities in
June 2008 being used to paydown debt.
While shareholders' equity was essentially unchanged from both March 31,
2008 and June 30, 2007 at $1.5 billion, there were two offsetting actions
which occurred during the second quarter of 2008. During May 2008, Citizens
recorded the aforementioned goodwill impairment charge and credit writedown
that together reduced shareholders' equity by $220.5 million. On June 11,
2008, Citizens issued $79.6 million of common stock and $120.4 million of
contingent convertible perpetual non-cumulative preferred stock ("preferred
stock") that together increased shareholders' equity by $189.7 million (net of
issuance costs and the underwriting discount). At the time of the issuance,
Citizens granted the underwriters a 15% over-allotment option on each
offering, which they elected not to exercise. The newly issued shares of
common stock trade on the Nasdaq Global Select Market under the symbol CRBC
and the preferred stock trades on the New York Stock Exchange under the symbol
CTZPrB. Shareholder approval is required to increase the number of authorized
common shares to allow for conversion of the preferred stock to common stock
and Citizens intends to hold a special shareholder meeting in September 2008
to seek such approval. The preferred stock will automatically convert to a
total of 30.1 million shares of Citizens' common stock five business days
after the approval date.
In accordance with SFAS 128, "Earnings per Share," the outstanding shares
of preferred stock were excluded from dilutive earnings per share calculations
for the second quarter of 2008 because the effect would be antidilutive.
Net Interest Margin and Net Interest Income
Net interest margin was 3.11% for the second quarter of 2008 compared with
3.12% for the first quarter of 2008 and 3.44% for the second quarter of 2007.
The decrease in net interest margin from the first quarter of 2008 was
primarily the result of a shift in funding mix from lower cost savings and
transaction accounts to higher cost savings and time deposits and commercial
loan spread compression, although compression occurred at a much slower, more
favorable pace than experienced in recent quarters. In addition, the effect
of fewer commercial loans transitioning to nonaccrual status during the second
quarter was offset by a decrease in the investment portfolio yield.
The decrease in net interest margin from the second quarter of 2007 was
primarily the result of deposit price competition resulting in lower spreads
and a longer deposit repricing lag-time, a shift in funding mix, pricing
pressure on loans, and the movement of commercial loans to nonperforming
status, partially offset by a shift in asset mix from investment securities to
higher yielding commercial loans. The shift in funding mix included funds
migrating within the deposit portfolio from lower cost savings and transaction
accounts to higher cost savings and time deposits and a greater reliance on
wholesale funding. For the first six months of 2008, net interest margin
declined to 3.12% compared with 3.44% for the same period of 2007 as a result
of the aforementioned factors.
Net interest income was $87.6 million for the second quarter of 2008,
essentially unchanged from the first quarter of 2008 and a decrease of $9.2
million or 9.5% from the second quarter of 2007. The decrease from the second
quarter of 2007 was primarily the result of the lower net interest margin,
partially offset by an increase of $89.8 million in average earning assets.
The increase in average earning assets was primarily the result of an increase
in commercial loan balances, partially offset by decreases in the investment
portfolio and the residential mortgage and consumer loan portfolios.
For the first six months of 2008, net interest margin totaled $175.9
million, a decrease of $19.2 million or 9.8% from the same period of 2007 as a
result of the aforementioned factors.
Citizens anticipates net interest income for the third quarter of 2008
will be consistent with the second quarter of 2008.
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, monitor, and
mitigate any potential credit quality issues and losses in a proactive manner.
By consistently monitoring credits and pre-emptively addressing loan issues,
Citizens strives to protect shareholder value through all economic cycles.
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
June 30, 2008 March 31, 2008 December 31, 2007
---------------- ----------------------------------
% of % of % of
in millions $ Portfolio $ Portfolio $ Portfolio
---------------- ---------------- -----------------
Land Hold $9.3 18.67 % $ 6.6 10.71 % $ 4.6 7.21 %
Land Development 1.1 0.86 16.3 10.24 28.7 17.10
Construction 11.9 3.46 10.5 2.83 31.7 9.25
Income Producing 48.5 3.09 29.3 1.87 54.0 3.54
Owner-Occupied 18.6 1.84 19.0 1.87 20.3 2.04
---------------- ---------------- -----------------
Total Commercial
Real Estate 89.4 2.88 81.7 2.57 139.3 4.50
Commercial and
Industrial 29.5 1.09 39.9 1.50 39.0 1.53
---------------- ---------------- -----------------
Total Commercial
Loans 118.9 2.05 121.6 2.09 178.3 3.15
Residential
Mortgage 38.5 2.94 33.5 2.40 46.4 3.21
Direct Consumer 18.4 1.22 21.7 1.42 24.3 1.55
Indirect Consumer 14.4 1.73 13.3 1.62 15.9 1.92
---------------- ---------------- -----------------
Total Delinquent
Loans $190.2 2.01 % $190.1 1.99 % $264.9 2.79 %
======= ======= =======
September 30, 2007 June 30, 2007
---------------- ---------------
% of % of
in millions $ Portfolio $ Portfolio
---------------------------------
Land Hold $ 4.2 5.32 % $ 2.9 3.55 %
Land Development 18.4 11.43 22.7 12.70
Construction 17.6 4.68 11.1 2.99
Income Producing 31.2 2.33 24.1 1.80
Owner-Occupied 10.8 0.97 17.1 1.54
---------------- ---------------
Total Commercial Real Estate 82.2 2.68 77.9 2.53
Commercial and Industrial 22.0 0.98 22.7 1.05
---------------- ---------------
Total Commercial Loans 104.2 1.96 100.6 1.92
Residential Mortgage 37.7 2.58 38.5 2.58
Direct Consumer 21.5 1.34 19.6 1.20
Indirect Consumer 14.7 1.73 11.6 1.37
---------------- ---------------
Total Delinquent Loans $ 178.1 1.93 % $170.3 1.85 %
======== =======
Total delinquencies at June 30, 2008 were essentially unchanged from March
31, 2008 at $190.2 million as decreases in the commercial and industrial and
direct consumer portfolios were essentially offset by increases in the other
portfolios. The decline in commercial and industrial was primarily the result
of loans migrating to nonperforming status. The increase in commercial real
estate was primarily in the income producing segment due to three loans. The
increase in residential mortgage was primarily the result of seasonal client
behavior during the first quarter of 2008. These portfolios continue to be
affected by the weak Midwest economy and its related impact on real estate
values and development.
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, 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 June 30, 2008 March 31, 2008 December 31, 2007
---------------- ---------------- -----------------
% of % of % of
in millions $ Portfolio $ Portfolio $ Portfolio
---------------- ----------------------------------
Land Hold $24.2 48.59 % $ 27.7 44.97 % $ 27.1 42.48 %
Land Development 47.5 37.05 55.9 35.11 72.7 43.33
Construction 86.3 25.08 66.7 17.99 90.1 26.30
Income Producing 239.3 15.24 221.3 14.12 225.5 14.78
Owner-Occupied 161.8 16.03 155.8 15.34 153.0 15.35
---------------- ---------------- -----------------
Total Commercial
Real Estate 559.1 18.03 527.4 16.61 568.4 18.35
Commercial and
Industrial 432.5 16.00 407.1 15.34 387.4 15.15
---------------- ---------------- -----------------
Total Watchlist
Loans $991.6 17.08 % $934.5 16.03 % $955.8 16.90 %
======= ======= =======
September 30, 2007 June 30, 2007
---------------- -----------------
% of % of
in millions $ Portfolio $ Portfolio
-----------------------------------
Land Hold $ 27.0 34.22 % $ 25.2 30.88 %
Land Development 52.3 32.48 73.0 40.85
Construction 91.7 24.37 101.4 27.32
Income Producing 173.8 12.98 161.0 12.02
Owner-Occupied 213.0 19.13 219.4 19.67
---------------- -----------------
Total Commercial Real Estate 557.8 18.18 580.0 18.79
Commercial and Industrial 362.4 16.21 359.8 16.71
---------------- -----------------
Total Watchlist Loans $ 920.2 17.35 % $939.8 17.94 %
======== =======
Accruing watchlist loans at June 30, 2008 increased $57.1 million or 6.1%
over March 31, 2008. The increase was primarily the result of greater
scrutiny of commercial real estate construction and income producing loans as
well as several asset-based lending loans, which are monitored daily, included
in the commercial and industrial category.
Table 3 -- Nonperforming Assets
June 30, 2008 March 31, 2008 December 31, 2007
---------------- ---------------- -------------------
% of % of % of
in millions $ Portfolio $ Portfolio $ Portfolio
---------------- ------------------------------------
Land Hold $3.4 6.83 % $ 5.5 8.93 % $ 4.5 7.05 %
Land Development 22.8 17.78 46.4 29.15 35.6 21.22
Construction 12.6 3.66 51.9 14.00 28.8 8.41
Income Producing 23.1 1.47 40.5 2.58 21.5 1.41
Owner-Occupied 13.1 1.30 23.5 2.31 19.7 1.98
---------------- ---------------- -------------------
Total Commercial
Real Estate 75.0 2.42 167.8 5.29 110.1 3.55
Commercial and
Industrial 31.6 1.17 20.3 0.76 12.7 0.50
---------------- ---------------- -------------------
Total
Nonperforming
Commercial
Loans 106.6 1.84 188.1 3.23 122.8 2.17
Residential
Mortgage 12.4 0.95 45.8 3.29 46.9 3.25
Direct Consumer 16.3 1.09 13.5 0.88 13.7 0.87
Indirect Consumer 1.4 0.17 1.7 0.21 2.1 0.25
Loans 90+ days
still
accruing and
restructured 2.5 0.03 4.4 0.05 3.9 0.04
---------------- ---------------- --------------------
Total
Nonperforming
Portfolio Loans 139.2 1.47 % 253.5 2.65 % 189.4 1.99 %
Nonperforming Held
for Sale 92.6 22.8 21.6
Other Repossessed
Assets Acquired 54.1 50.3 40.5
--------- ---------- -----------
Total
Nonperforming
Assets $285.9 $326.6 $251.5
========= ========== ===========
September 30, 2007 June 30, 2007
------------------ ------------------
% of % of
in millions $ Portfolio $ Portfolio
-------------------------------------
Land Hold $ 3.0 3.80 % $ 0.2 0.25 %
Land Development 40.4 25.09 17.7 9.90
Construction 18.6 4.94 20.9 5.63
Income Producing 26.5 1.98 14.8 1.11
Owner-Occupied 9.0 0.81 7.2 0.65
----------------- ------------------
Total Commercial Real Estate 97.5 3.18 60.8 1.97
Commercial and Industrial 9.4 0.42 8.6 0.40
----------------- ------------------
Total Nonperforming Commercial
Loans 106.9 2.02 69.4 1.32
Residential Mortgage 32.8 2.25 35.4 2.37
Direct Consumer 10.9 0.68 9.1 0.56
Indirect Consumer 1.8 0.21 1.1 0.13
Loans 90+ days still
accruing and restructured 2.4 0.03 1.4 0.02
----------------- ------------------
Total Nonperforming Portfolio
Loans 154.8 1.68 % 116.4 1.26 %
Nonperforming Held for Sale 5.8 5.1
Other Repossessed Assets Acquired 30.4 24.9
----------- ---------
Total Nonperforming Assets $191.0 $146.4
=========== =========
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 $285.9 million at June 30, 2008, a decrease of $40.7 million or 12.5%
from March 31, 2008 and an increase of $139.5 million over June 30, 2007. The
decrease from March 31, 2008 was primarily the result of the aforementioned
$42.4 million net credit writedown, which was comprised of: 1) a $128.5
million decrease in nonperforming loans ($86.2 million in commercial real
estate and $42.3 million in residential mortgage); 2) a $5.0 million decrease
in other repossessed assets acquired; and 3) a net increase of $91.1 million
in nonperforming held for sale loans. In addition to the effects of the
credit writedown, nonperforming loans decreased as a result of loans charged
off during the second quarter of 2008 and loans migrating to other repossessed
assets acquired, partially offset by an increase in nonperforming commercial
and industrial loans due to three accruing loans migrating from the watchlist.
The increase over June 30, 2007 was primarily the result of deterioration in
the real estate secured portfolios (particularly commercial) and general
economic deterioration in the Midwest. Nonperforming assets at June 30, 2008
represented 3.01% of total loans plus other repossessed assets acquired
compared with 3.39% at March 31, 2008 and 1.58% at June 30, 2007.
Nonperforming commercial loan inflows were $54.5 million in the second quarter
of 2008 compared with $99.0 million in the first quarter of 2008 and $48.4
million in the second quarter of 2007.
Nonperforming commercial loan outflows were $135.9 million in the second
quarter of 2008 compared with $33.7 million in the first quarter of 2008 and
$28.5 million in the second quarter of 2007. The second quarter of 2008
outflows included $59.2 million that transferred to nonperforming loans held
for sale, $12.6 million in loans that returned to accruing status, $11.9
million in loan payoffs and paydowns, $42.6 million in charged-off loans, and
$9.6 million transferring to other repossessed assets acquired.
Table 4 -- Net Charge-Offs Three Months Ended
-------------------------------------
June 30, 2008 March 31, 2008
----------------- -------------------
% of % of
in millions $ Portfolio** $ Portfolio**
----------------- -------------------
Land Hold $ 0.7 5.62 % $ 0.5 3.25 %
Land Development 16.4 51.17 6.6 16.58
Construction 13.8 16.04 1.2 1.29
Income Producing 7.7 1.96 0.9 0.23
Owner-Occupied 3.4 1.35 (0.1) (0.04)
--------------- -------------------
Total Commercial Real Estate 42.0 5.42 9.1 1.15
Commercial and Industrial 0.6 0.09 0.9 0.14
--------------- -------------------
Total Commercial Loans 42.6 2.94 10.0 0.69
Residential Mortgage 20.7 6.33 1.8 0.52
Direct Consumer 3.1 0.83 3.0 0.79
Indirect Consumer 2.9 1.39 2.6 1.27
----------------- -------------------
Total Net Charge-offs $69.3 2.93 % $ 17.4 0.74 %
======= ========
Three Months Ended
----------------------------------------------------
December 31, 2007 September 30, 2007 June 30, 2007
------------------ ------------------ --------------
% of % of % of
in millions $ Portfolio** $ Portfolio* $ Portfolio**
----------------------------------------------------
Land Hold $ 0.4 2.51 % $--- - % $--- - %
Land Development 6.3 15.02 0.4 0.99 6.4 14.33
Construction 1.8 2.10 0.1 0.11 4.1 4.43
Income Producing 2.4 0.63 0.1 0.03 2.3 0.69
Owner-Occupied (0.2) (0.08) 0.6 0.22 0.9 0.32
----------------- -------------- -----------------
Total Commercial
Real Estate 10.7 1.38 1.2 0.16 13.7 1.78
Commercial and
Industrial 1.4 0.22 0.6 0.11 1.8 0.33
----------------- -------------- -----------------
Total Commercial
Loans 12.1 0.86 1.8 0.14 15.5 1.19
Residential Mortgage 2.0 0.55 1.6 0.44 0.7 0.18
Direct Consumer 2.3 0.59 2.6 0.65 2.6 0.64
Indirect Consumer 3.3 1.59 1.9 0.88 1.2 0.58
----------------- -------------- -----------------
Total Net Charge-
offs $19.7 0.84 % $7.9 0.34 % $20.0 0.87 %
========= ====== =======
** Represents an annualized rate.
Net charge-offs totaled $69.3 million or 2.93% of average portfolio loans
in the second quarter of 2008 compared with $17.4 million or 0.74% of average
portfolio loans in the first quarter of 2008 and $20.0 million or 0.87% of
average portfolio loans in the second quarter of 2007. The increases were
primarily the result of the aforementioned $35.1 million fair-value adjustment
($16.8 million on commercial real estate and $18.3 million on residential
mortgage) and higher commercial real estate charge-offs. During May 2008,
Citizens performed a comprehensive evaluation of its nonperforming commercial
real estate and residential mortgage loan portfolios due to continued
deterioration in the underlying collateral values for loans secured by real
estate, the continued challenges in the Midwest economy, and an expectation of
a more protracted workout period. Based on this review, Citizens identified
certain assets that it elected to market for sale and recorded the
aforementioned fair-value adjustment as a charge-off and moved the loans to
held for sale status.
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 $74.5 million in the second quarter of 2008,
compared with $30.6 million in the first quarter of 2008 and $31.9 million in
the second quarter of 2007. The increases were primarily the result of the
aforementioned transfer of nonperforming commercial real estate and
residential mortgage loans to loans held for sale, higher commercial real
estate charge-offs, and the continued migration of commercial real estate
watchlist loans to nonperforming status. This migration caused an increase in
the allowance for loan losses due to the higher likelihood that portions of
these loans may eventually be charged-off. For the first six months of 2008,
the provision for loan losses totaled $105.1 million compared with $35.4
million for the same period of 2007 due to the aforementioned factors.
The allowance for loan losses was $181.7 million or 1.92% of portfolio
loans at June 30, 2008, compared with $176.5 million or 1.84% at March 31,
2008. The increase was primarily the result of continued deterioration in
commercial real estate loans and an increase in the trend of residential
mortgage and consumer loan charge-offs. Based on current conditions and
expectations, it is Citizens' belief that the allowance for loan losses at
June 30, 2008 is adequate to address the estimated loan losses inherent in the
existing loan portfolio.
Citizens anticipates commercial net charge-offs for the third quarter of
2008 will be higher than the first quarter of 2008 but less than half of the
commercial net charge-offs for the second quarter of 2008. Additionally,
Citizens anticipates total consumer net charge-offs will be consistent with
the first quarter. Citizens anticipates the provision for loan losses will be
higher than net charge-offs due to growth in historical loss migration metrics
used to calculate the allowance for loan losses. Given the uncertainties in
the Midwest economy and the real estate markets, however, there can be no
assurance that more additions to the allowance for loan losses will not be
necessary over the next several quarters.
Noninterest Income
Noninterest income for the second quarter of 2008 was $27.1 million, a
decrease of $3.9 million or 12.5% from the first quarter of 2008 and a
decrease of $4.2 million or 13.5% from the second quarter of 2007. The second
quarter of 2008 includes a $2.3 million loss as a result of the aforementioned
fair-value adjustment on commercial real estate loans held for sale. For the
first six months of 2008, noninterest income totaled $58.0 million, a decrease
of $4.7 million from the same period of 2007.
The decrease in noninterest income from the first quarter of 2008 was
primarily the result of lower other income ($2.4 million) and a net loss on
HFS loans ($2.2 million), partially offset by an increase in service charges
on deposit accounts ($0.6 million) and a net increase from minor changes in
several other categories. The decrease in other income was primarily the
result of a $2.1 million gain realized in the first quarter of 2008 due to
Citizens' receipt of proceeds from the partial redemption of its Visa shares.
The net loss on HFS loans was primarily the result of the aforementioned fair-
value adjustment. The increase in service charges on deposit accounts was
primarily due to a seasonal increase in volume during the second quarter of
2008.
The decrease in noninterest income from the second quarter of 2007 was
primarily due to a net loss on HFS loans ($2.2 million), lower mortgage and
other loan income ($1.2 million) and lower other income ($0.8 million),
partially offset by higher bankcard fees ($0.5 million). The net loss on HFS
loans was primarily the result of the aforementioned fair-value adjustment.
The decrease in mortgage and other loan income was primarily the result of
lower mortgage sales during the second quarter of 2008. The decrease in other
income was due to a lower unrealized gain on deferred compensation plan
assets. Bankcard fees increased 33.3% as a result of higher client debit card
volume.
The decrease in noninterest income from the first six months of 2007 was
primarily due to lower mortgage and other loan income ($4.0 million) and a net
loss on HFS loans ($2.2 million), partially offset by higher bankcard fees
($1.0 million), higher other income ($0.5 million), and a net increase from
minor changes in several other categories as a result of the aforementioned
factors.
Citizens anticipates total noninterest income for the third quarter of
2008 will be higher than the second quarter of 2008 due to the $2.3 million
net loss on HFS loans recorded in the second quarter of 2008 as part of the
credit writedown, partially offset by lower mortgage origination volume.
Noninterest Expense
Noninterest expense for the second quarter of 2008 was $261.2 million, an
increase of $184.7 million over the first quarter of 2008 and an increase of
$173.7 million over the second quarter of 2007. The second quarter of 2008
includes a $178.1 million goodwill impairment charge and a $5.0 million net
loss as a result of the aforementioned fair-value adjustment on commercial and
residential repossessed assets. For the first six months of 2008, noninterest
expense totaled $337.8 million, an increase of $166.6 million over the same
period of 2007.
The increase in noninterest expense over the first quarter of 2008 was
primarily the result of the aforementioned goodwill impairment charge, and, to
a lesser extent, higher ORE expenses, profits, and losses, net ($5.2 million),
other expense ($3.0 million), and other loan expense ($1.6 million), partially
offset by lower salaries and employee benefits ($3.2 million) and occupancy
expense ($0.7 million). The increase in ORE expenses, profits, and losses,
net was primarily the result of the aforementioned fair-value adjustment. The
increase in other expense was primarily the result of releasing a $0.9 million
liability during the first quarter of 2008 in connection with Visa's recent
litigation, $0.7 million related to exiting two third-party contracts, higher
losses related to mortgage indemnification payments to third party investors
due to underwriting and documentation issues, and higher FDIC premiums as a
result of a mandatory phase-out of FDIC credits. The increase in other loan
expense was primarily the result of higher other mortgage processing fees due
to the alliance with PHH Mortgage entered into in the first quarter of 2008,
higher expenses related to processing commercial loans, higher foreclosure
expenses associated with repossessing collateral underlying commercial and
residential real estate loans, and higher provisioning to fund the reserve for
unused loan commitments, which fluctuates with the amount of unadvanced
customer lines of credit. The decrease in salaries and employee benefits was
primarily the result of fewer employee separation agreements as well as lower
payroll tax, unemployment insurance premiums, and hospitalization insurance
expense. The decrease in occupancy expense was primarily the result of lower
seasonal maintenance and utilities costs.
The increase in noninterest expense over the second quarter of 2007 was
primarily the result of the aforementioned goodwill impairment charge and, to
a lesser extent, higher ORE expenses, profits, and losses, net ($6.3 million),
other loan expenses ($2.4 million) and other expense ($1.4 million), partially
offset by a general decline in all other expenses due to cost savings and
efficiencies implemented throughout 2007 following completion of the Republic
merger as well as the effect of $3.4 million in restructuring and merger-
related expenses incurred in the second quarter of 2007. The increase in ORE
expenses, profits, and losses, net was primarily the result of the
aforementioned fair-value adjustment. The increases in other loan expense and
other expense were primarily due to the factors discussed above.
Salary costs included severance expense of less than $0.1 million for the
second quarter of 2008, $1.6 million for the first quarter of 2008, and $2.8
million for the second quarter of 2007. Citizens had 2,321 full-time
equivalent employees at June 30, 2008 compared with 2,409 at March 31, 2008
and 2,348 at June 30, 2007.
The increase in noninterest expense over the first six months of 2007 was
primarily due to the aforementioned $178.1 million goodwill impairment charge,
the $5.0 million fair-value adjustment on ORE, and higher other loan expenses
($3.3 million) due to the factors discussed above, partially offset by a
general decline in all expenses due to cost savings and efficiencies
implemented during 2007 as well as the effect of $7.6 million in restructuring
and merger-related expenses incurred in 2007.
Citizens anticipates total noninterest expense for the third quarter of
2008 will be slightly higher than the second quarter of 2008, excluding the
$178.1 million goodwill impairment charge and the $5.0 million loss on ORE as
part of the credit writedown, primarily due to higher expenses associated with
repossessed commercial and residential real estate.
Income Tax Provision
The effective tax rate for the second quarter of 2008 was 8.78%. Pre-tax
income includes several items that are excluded from the tax calculation, such
as the $178.1 million goodwill impairment and tax-exempt interest. Citizens
anticipates that the effective tax rate for 2008 will be approximately 5% -
9%.
Income tax provision (benefit) for the second quarter of 2008 was $(19.4)
million, a decrease of $20.3 million from the first quarter of 2008 and a
decrease of $18.5 million from the second quarter of 2007. For the first six
months of 2008, the income tax provision (benefit) totaled $(18.5) million, a
decrease of $28.6 million from the same period of 2007. The decreases were
primarily the result of lower pre-tax income, excluding the goodwill
impairment charge which is not tax-deductible, as well as the first quarter of
2008 recognition of a $1.5 million discrete tax item.
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, including those presented on page 1, which are reconciled to GAAP
financial measures on page 17. 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," "average tangible
equity" and core efficiency ratio facilitates evaluation of the effect of the
Republic merger and related goodwill on business operations of the combined
company and facilities a 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. 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 second quarter of 2008, Citizens did not repurchase any shares
of its stock under the stock repurchase program. As of June 30, 2008, there
were 1,241,154 shares remaining to be purchased under the program approved by
the Board of Directors on October 16, 2003.
Analyst Conference Call
William R. Hartman, chairman, president and CEO, Charles D. Christy, CFO,
John D. Schwab, chief credit officer, and Martin E. Grunst, treasurer will
review the quarter's results in a conference call for analysts and investors
at 10:00 a.m. ET on Friday, July 18, 2008.
A live audio webcast is available at www.citizensbanking.com through the
Investor Relations page or by calling (800) 894-5910 (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 July 25, 2008. To listen to the
replay, please dial (800) 925-9346.
Corporate Profile
Citizens Republic Bancorp 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 inMichigan,Ohio,Wisconsin, andIndiana as Citizens Bank and in
Iowa as F&M Bank, with 235 offices and 265 ATMs. Citizens Republic Bancorp is
the largest bank holding company headquartered inMichigan with roots dating
back to 1871 and is the 41st largest bank holding company headquartered inthe
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 statements that include terms such as "will,"
"may," "should," "believe," "expect," "anticipate," "estimate," "project,"
"intend," and "plan," including without limitation future financial and
operating results, plans, objectives, expectations and intentions and other
statements that are not historical facts, are forward-looking statements that
involve risks and uncertainties. Any forward-looking statement is not a
guarantee of future performance and actual results could differ materially
from those contained in the forward-looking information.
Factors that could cause or contribute to such differences include,
without limitation, the following:
-- Deteriorating economic conditions inMichigan and the other Upper
Midwest states in which Citizens operates have adversely affected its business
and may continue to adversely affect Citizens.
-- Declining real estate markets have adversely affected the value of
Citizens' loan portfolio and may lead to further losses.
Citizens may be required to record further impairment charges in respect of
its goodwill and other intangible assets.
-- Loan losses such as those due to changes in loan portfolios, fraud and
economic factors could exceed the allowance for loan losses, requiring
additional increases in the allowance that would reduce Citizens' net income
and could have a negative impact on its capital and financial position.
-- A rapid or substantial increase or decrease in interest rates could
adversely affect Citizens' net interest income and results of operations.
-- The ability of Citizens' holding company to pay dividends, repurchase
its shares or to repay its indebtedness depends upon the results of operations
of its subsidiaries and their legal ability to pay dividends to the holding
company.
-- If Citizens is unable to continue to attract core deposits or continue
to obtain third party financing on favorable terms, its cost of funds will
increase, adversely affecting the ability to generate the funds necessary for
lending operations, reducing net interest margin and negatively affecting
results of operations.
-- Increased competition with other financial institutions or an adverse
change in Citizens' relationship with a number of major customers could reduce
its net interest margin and net income by decreasing the number and size of
loans originated, the interest rates charged on these loans and the fees
charged for services to customers, and could cause Citizens to lend to
customers who are less likely to pay in order to maintain historical
origination levels.
-- Litigation to which Citizens is a party is subject to many
uncertainties such that the expenses and ultimate exposure with respect to
many of these matters cannot be ascertained.
-- If Citizens is unable to adequately invest in and implement new
technology-driven products and services to respond to rapid technological
changes in its industry, it may not be able to compete effectively, or the
cost to provide products and services may increase significantly.
-- Changes in federal or state banking laws, regulations, and regulatory
practices could affect Citizens' ability to offer new products and services,
obtain financing, pay dividends from the subsidiaries to its holding company,
attract deposits, or make loans and leases at satisfactory spreads, and could
also result in the imposition of additional costs.
-- A lack of market acceptance of Citizens' new products and services,
which are often costly to develop and market initially, would have a negative
effect on financial condition and results of operations.
Changes in accounting methods could negatively impact Citizens' results of
operations and financial condition.
-- Citizens' business continuity plans or data security systems could
prove to be inadequate, resulting in a material interruption in, or disruption
to, its business and a negative impact on its results of operations.
-- Citizens' vendors could fail to fulfill their contractual obligations,
resulting in a material interruption in, or disruption to, its business and a
negative impact on its results of operations.
-- Citizens' potential inability to integrate acquired operations could
have a negative effect on its expenses and results of operations.
-- Citizens could face unanticipated environmental liabilities or costs
related to real property owned or acquired through foreclosure, which could
have a negative effect on expenses and results of operations.
-- Citizens' controls and procedures may fail or be circumvented, which
could have a material adverse effect on its business, results of operations
and financial condition.
-- Citizens' holding company's articles of incorporation and bylaws as
well as certain banking laws may have an anti-takeover effect.
These factors also include any other risks and uncertainties detailed
from time to time in Citizens' 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 and financial position. 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.
ADD: /FIRST ADD -- CLTH023 -- Citizens Republic Bancorp Earnings/
Consolidated Balance Sheets (Unaudited)
Citizens Republic Bancorp and Subsidiaries
June 30, March 31, June 30,
(in thousands) 2008 2008 2007
-------------------------------------------------------------------------
Assets
Cash and due from banks $ 252,242 $ 222,677 $ 213,469
Money Market Investments:
Federal funds sold --- 20,000 ---
Interest-bearing deposits with
banks 183 2,488 144
----------- ----------- -----------
Total money market
investments 183 22,488 144
Investment Securities:
Securities available for
sale, at fair value 1,986,166 2,085,867 2,217,549
Securities held to maturity,
at amortized cost(fair value
of $136,423, $134,233 and
$116,838, respectively) 138,435 132,905 117,939
----------- ----------- -----------
Total investment
securities 2,124,601 2,218,772 2,335,488
FHLB and Federal Reserve stock 148,838 148,838 132,895
Portfolio loans:
Commercial and industrial 2,703,812 2,653,799 2,153,269
Commercial real estate 3,101,337 3,174,384 3,085,967
----------- ----------- -----------
Total commercial 5,805,149 5,828,183 5,239,236
Residential mortgage 1,308,729 1,393,801 1,494,450
Direct consumer 1,502,302 1,531,905 1,636,026
Indirect consumer 832,836 818,901 846,252
----------- ----------- -----------
Total portfolio loans 9,449,016 9,572,790 9,215,964
Less: Allowance for loan
losses (181,718) (176,528) (181,118)
----------- ----------- -----------
Net portfolio loans 9,267,298 9,396,262 9,034,846
Loans held for sale 111,542 81,537 85,930
Premises and equipment 125,073 127,329 133,021
Goodwill 597,218 775,308 780,914
Other intangible assets 25,766 28,099 36,008
Bank owned life insurance 218,084 216,336 210,265
Other assets 299,173 301,645 283,839
----------- ----------- -----------
Total assets $13,170,018 $13,539,291 $13,246,819
----------- ----------- -----------
Liabilities
Noninterest-bearing deposits $ 1,144,544 $ 1,113,773 $ 1,169,095
Interest-bearing demand deposits 763,983 751,130 807,605
Savings deposits 2,616,316 2,592,214 2,139,929
Time deposits 4,136,295 4,029,860 3,964,988
----------- ----------- -----------
Total deposits 8,661,138 8,486,977 8,081,617
Federal funds purchased and
securities sold under agreements
to repurchase 299,646 503,430 675,440
Other short-term borrowings 45,398 36,859 11,749
Other liabilities 119,860 136,193 135,262
Long-term debt 2,498,290 2,798,802 2,808,610
----------- ----------- -----------
Total liabilities 11,624,332 11,962,261 11,712,678
Shareholders' Equity
Preferred stock - $50 par value 114,161 --- ---
Common stock - no par value 1,052,738 976,445 973,339
Retained earnings 384,867 586,502 581,476
Accumulated other comprehensive
income (6,080) 14,083 (20,674)
----------- ----------- -----------
Total shareholders' equity 1,545,686 1,577,030 1,534,141
----------- ----------- -----------
Total liabilities and
shareholders' equity $13,170,018 $13,539,291 $13,246,819
=========== =========== ===========
Consolidated Statements of Income (Unaudited)
Citizens Republic Bancorp and
Subsidiaries Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except per share
amounts) 2008 2007 2008 2007
-------------------------------------------------------------------------
Interest Income
Interest and fees on loans $ 146,179 $ 171,320 $ 303,180 $ 343,164
Interest and dividends on
investment securities:
Taxable 19,021 22,308 40,044 46,099
Tax-exempt 7,280 7,309 14,650 14,637
Dividends on FHLB and Federal
Reserve stock 1,898 1,397 3,591 3,133
Money market investments 16 19 46 36
--------- --------- --------- ---------
Total interest income 174,394 202,353 361,511 407,069
--------- --------- --------- ---------
Interest Expense
Deposits 53,134 64,201 114,712 130,635
Short-term borrowings 1,836 9,064 6,807 20,065
Long-term debt 31,809 32,311 64,065 61,251
--------- --------- --------- ---------
Total interest expense 86,779 105,576 185,584 211,951
--------- --------- --------- ---------
Net Interest Income 87,615 96,777 175,927 195,118
Provision for loan losses 74,480 31,857 105,099 35,357
--------- --------- --------- ---------
Net interest income after
provision for loan losses 13,135 64,920 70,828 159,761
--------- --------- --------- ---------
Noninterest Income
Service charges on deposit
accounts 12,036 12,080 23,502 23,186
Trust fees 4,608 5,003 9,392 9,958
Mortgage and other loan income 3,023 4,258 6,367 10,395
Brokerage and investment fees 2,211 2,182 4,127 3,731
ATM network user fees 1,677 1,640 3,090 3,219
Bankcard fees 1,924 1,443 3,668 2,623
Profit and loss on HFS loans (2,248) --- (2,247) ---
Other income 3,827 4,672 10,084 9,589
--------- --------- --------- ---------
Total fees and other income 27,058 31,278 57,983 62,701
Investment securities losses --- --- --- (33)
--------- --------- --------- ---------
Total noninterest income 27,058 31,278 57,983 62,668
Noninterest Expense
Salaries and employee benefits 39,046 45,971 81,271 90,136
Occupancy 6,954 8,076 14,629 15,986
Professional services 4,531 4,351 8,294 8,503
Equipment 3,420 3,655 6,650 7,566
Data processing services 4,233 4,506 8,537 8,636
Advertising and public relations 1,458 3,292 3,296 5,067
Postage and delivery 2,058 2,196 3,785 4,160
Other loan expenses 3,448 1,080 5,259 1,992
ORE expenses, profits, and
losses, net 6,394 135 7,636 34
Intangible asset amortization 2,333 2,954 4,780 6,072
Goodwill impairment 178,089 --- 178,089 ---
Restructuring and merger-related
expenses --- 3,408 --- 7,594
Other expense 9,264 7,866 15,564 15,454
--------- --------- --------- ---------
Total noninterest expense 261,228 87,490 337,790 171,200
--------- --------- --------- ---------
Income (Loss) Before Income
Taxes (221,035) 8,708 (208,979) 51,229
Income tax provision (benefit) (19,401) (911) (18,472) 10,118
--------- --------- --------- ---------
Net Income (Loss) $(201,634) $ 9,619 $(190,507) $41,111
--------- --------- --------- ---------
Net Income (Loss) Per Common
Share:
Basic $ (2.53) $ 0.13 $ (2.46) $ 0.55
Diluted (2.53) 0.13 (2.46) 0.54
Cash Dividends Declared Per
Common Share --- 0.290 0.290 0.580
Average Common Shares Outstanding:
Basic 79,689 75,374 77,469 75,411
Diluted 79,689 75,649 77,469 75,782
Selected Quarterly Information
Citizens Republic Bancorp and Subsidiaries
2nd Qtr 2008 1st Qtr 2008 4th Qtr 2007
--------------------------------------------------------------------------
Summary of Operations (thousands)
Net interest income $87,615 $88,312 $92,188
Provision for loan losses 74,480 30,619 6,055
Total fees and other income 27,058 30,925 29,296
Investment securities gains (losses) --- --- ---
Noninterest expense (1) 261,228 76,562 78,880
Income tax provision (benefit) (19,401) 929 8,582
Net income (loss) (201,634) 11,127 27,967
Taxable equivalent adjustment 4,611 4,679 4,673
Cash dividends --- 21,958 21,941
--------------------------------------------------------------------------
Per Common Share Data
Net Income:
Basic $(2.53) $0.15 $0.37
Diluted (2.53) 0.15 0.37
Dividends --- 0.290 0.290
Market Value:
High $13.97 $14.74 $17.37
Low 2.67 10.41 13.00
Close 2.82 12.43 14.51
Book value 16.12 20.82 20.84
Tangible book value 9.62 10.21 10.20
Common shares outstanding, end of
period (000) 95,899 75,748 75,722
--------------------------------------------------------------------------
At Period End (millions)
Assets $13,170 $13,539 $13,506
Portfolio loans 9,449 9,573 9,501
Deposits 8,661 8,487 8,302
Shareholders' equity 1,546 1,577 1,578
--------------------------------------------------------------------------
Average Balances (millions)
Assets $13,296 $13,442 $13,305
Portfolio loans 9,514 9,499 9,335
Deposits 8,604 8,417 7,951
Shareholders' equity 1,546 1,579 1,561
--------------------------------------------------------------------------
Credit Quality Statistics (thousands)
Nonaccrual loans $136,741 $249,113 $185,397
Loans 90 or more days past due and
still accruing 2,179 4,077 3,650
Restructured loans 285 300 315
-------- -------- --------
Total nonperforming portfolio
loans 139,205 253,490 189,362
Nonperforming held for sale 92,658 22,754 21,676
Other repossessed assets acquired
(ORAA) 54,066 50,350 40,502
-------- -------- --------
Total nonperforming assets $285,929 $326,594 $251,540
-------- -------- --------
Allowance for loan losses $181,718 $176,528 $163,353
Allowance for loan losses as a percent
of portfolio loans 1.92 % 1.84 % 1.72 %
Allowance for loan losses as a percent
of nonperforming assets 63.55 54.05 64.94
Allowance for loan losses as a percent
of nonperforming loans 130.54 69.64 86.27
Nonperforming assets as a percent of
portfolio loans plus ORAA 3.01 3.39 2.64
Nonperforming assets as a percent of
total assets 2.17 2.41 1.86
Net loans charged off as a percent of
average portfolio loans (annualized) 2.93 0.74 0.84
Net loans charged off (000) $69,290 $17,444 $19,660
--------------------------------------------------------------------------
Performance Ratios (annualized)
Return on average assets (6.10)% 0.33 % 0.83 %
Return on average shareholders' equity (52.47) 2.83 7.11
Average shareholders' equity / average
assets 11.62 11.74 11.73
Net interest margin (FTE) (2) 3.11 3.12 3.26
Efficiency ratio (3) 219.00 61.79 62.52
--------------------------------------------------------------------------
3rd Qtr 2007 2nd Qtr 2007
--------------------------------------------------------------------------
Summary of Operations (thousands)
Net interest income $94,873 $96,777
Provision for loan losses 3,765 31,857
Total fees and other income 30,596 31,278
Investment securities gains (losses) 8 ---
Noninterest expense (1) 77,343 87,490
Income tax provision (benefit) 12,605 (911)
Net income (loss) 31,764 9,619
Taxable equivalent adjustment 4,620 4,629
Cash dividends 21,934 21,960
--------------------------------------------------------------------------
Per Common Share Data
Net Income:
Basic $0.42 $0.13
Diluted 0.42 0.13
Dividends 0.290 0.290
Market Value:
High $20.38 $22.50
Low 15.01 18.02
Close 16.11 18.30
Book value 20.65 20.28
Tangible book value 9.92 9.48
Common shares outstanding, end of
period (000) 75,634 75,642
--------------------------------------------------------------------------
At Period End (millions)
Assets $13,223 $13,247
Portfolio loans 9,219 9,216
Deposits 7,942 8,082
Shareholders' equity 1,562 1,534
--------------------------------------------------------------------------
Average Balances (millions)
Assets $13,165 $13,241
Portfolio loans 9,163 9,170
Deposits 8,049 8,157
Shareholders' equity 1,536 1,551
--------------------------------------------------------------------------
Credit Quality Statistics (thousands)
Nonaccrual loans $152,499 $114,950
Loans 90 or more days past due and
still accruing 1,923 1,127
Restructured loans 332 348
-------- --------
Total nonperforming portfolio
loans 154,754 116,425
Nonperforming held for sale 5,846 5,128
Other repossessed assets acquired
(ORAA) 30,395 24,811
-------- --------
Total nonperforming assets $190,995 $146,364
-------- --------
Allowance for loan losses $176,958 $181,118
Allowance for loan losses as a
percent of portfolio loans % 1.92 % 1.97 %
Allowance for loan losses as a
percent of nonperforming assets 92.65 123.74
Allowance for loan losses as a
percent of nonperforming loans 114.35 155.57
Nonperforming assets as a percent of
portfolio loans plus ORAA 2.06 1.58
Nonperforming assets as a percent of
total assets 1.44 1.10
Net loans charged off as a percent of
average portfolio loans (annualized) 0.34 0.87
Net loans charged off (000) $7,925 $19,978
--------------------------------------------------------------------------
Performance Ratios (annualized)
Return on average assets % 0.96 % 0.29 %
Return on average shareholders'
equity 8.20 2.49
Average shareholders' equity /
average assets 11.67 11.72
Net interest margin (FTE) (2) 3.39 3.44
Efficiency ratio (3) 59.45 65.94
--------------------------------------------------------------------------
(1) Noninterest expense includes a goodwill impairment charge of $178.1
million in the second quarter of 2008 and restructuring and merger
related expenses of ($0.4) million in the fourth quarter of 2007, $1.0
million in the third quarter of 2007, and $3.4 million in the second
quarter of 2007.
(2) 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%.
(3) The Efficiency Ratio measures how efficiently a bank spends its
revenues. The formula is: Noninterest expense/(Net interest income +
Taxable equivalent adjustment + Total fees and other income).
Financial Summary and Comparison
Citizens Republic Bancorp and Subsidiaries
Six months ended
June 30,
2008 2007 % Change
------------------------------------------------------------------------
Summary of Operations (thousands)
Net interest income $175,927 $195,118 (9.8)%
Provision for loan losses 105,099 35,357 197.3
Total fees and other income 57,983 62,701 (7.5)
Investment securities (losses) gains --- (33) (100.0)
Noninterest expense (1) 337,790 171,200 97.3
Income tax provision (benefit) (18,472) 10,118 (282.6)
Net income (loss) (190,507) 41,111 (563.4)
Cash dividends 21,958 43,924 (50.0)
------------------------------------------------------------------------
Per Common Share Data
Net Income:
Basic $(2.46) $0.55 (547.3)%
Diluted (2.46) 0.54 (555.6)
Dividends 0.290 0.580 (50.0)
Market Value:
High $14.74 $26.95 (45.3)
Low 2.67 18.02 (85.2)
Close 2.82 18.30 (84.6)
Book value 16.12 20.28 (20.5)
Tangible book value 9.62 9.48 1.5
Common shares outstanding, end of
period (000) 95,899 75,642 26.8
------------------------------------------------------------------------
At Period End (millions)
Assets $13,170 $13,247 (0.6)%
Portfolio loans 9,449 9,216 2.5
Deposits 8,661 8,082 7.2
Shareholders' equity 1,546 1,534 0.8
------------------------------------------------------------------------
Average Balances (millions)
Assets $13,369 $13,407 (0.3)%
Portfolio loans 9,507 9,174 3.6
Deposits 8,511 8,340 2.0
Shareholders' equity 1,562 1,552 0.7
------------------------------------------------------------------------
Performance Ratios (annualized)
Return on average assets (2.87)% 0.62 % (562.9)%
Return on average shareholders' equity (24.53) 5.34 (559.4)
Average shareholders' equity / average
assets 11.68 11.57 1.0
Net interest margin (FTE) (2) 3.12 3.44 (9.3)
Efficiency ratio (3) 138.89 64.10 116.7
Net loans charged off as a percent of
average portfolio loans 1.83 0.51 258.8
------------------------------------------------------------------------
(1) Noninterest expense includes a goodwill impairment charge of $178.1
million in 2008 and restructuring and merger related expenses of $7.6
million in 2007.
(2) Net interest margin is presented on an annual basis and includes
taxable equivalent adjustments to interest income of $9.3 million and
$9.3 million for the six months ended June 30, 2008 and 2007,
respectively, based on a tax rate of 35%.
(3) The Efficiency Ratio measures how efficiently a bank spends its
revenues. The formula is: Noninterest expense/(Net interest income +
Taxable equivalent adjustment + Total fees and other income).
Non-GAAP Reconciliation
Citizens Republic Bancorp and Subsidiaries
2nd Qtr 2008 1st Qtr 2008 4th Qtr 2007
--------------------------------------------------------------------------
Summary of Core Operations (thousands)
Net income (loss) $(201,634) $11,127 $27,967
Add back: Restructuring and merger
related expenses (net of tax
effect)(1) --- --- (231)
Add back: Amortization of core
deposit intangibles (net of tax
effect)(2) 1,516 1,591 1,729
Add back: Goodwill impairment 178,089 --- ---
---------- ---------- ----------
Core operating earnings (loss) $(22,029) $12,718 $29,465
---------- ---------- ----------
Noninterest expense $261,228 $76,562 $78,880
Subtract: Restructuring and merger
related expenses --- --- 356
Subtract: Amortization of core
deposit intangibles (2,333) (2,447) (2,659)
Subtract: Goodwill impairment (178,089) --- ---
---------- ---------- ----------
Core operating expenses $80,806 $74,115 $76,577
---------- ---------- ----------
--------------------------------------------------------------------------
Average Balances (millions)
Average assets $13,296 $13,442 $13,305
Goodwill (713) (775) (777)
Core deposit intangible assets (27) (29) (32)
Deferred taxes 9 10 11
---------- ---------- ----------
Average tangible assets $12,565 $12,648 $12,507
---------- ---------- ----------
Average equity $1,546 $1,579 $1,561
Goodwill (713) (775) (777)
Core deposit intangible assets (27) (29) (32)
Deferred taxes 9 10 11
---------- ---------- ----------
Average tangible equity $815 $785 $763
---------- ---------- ----------
--------------------------------------------------------------------------
Performance Ratios (annualized)
Earnings (loss) per share - basic $(2.53) $0.15 $0.37
Add back: Restructuring and merger
related expenses (net of tax
effect)(1) --- --- (0.00)
Add back: Amortization of core
deposit intangibles (net of tax
effect)(2) 0.02 0.02 0.02
Add back: Goodwill impairment 2.23 --- ---
---------- ---------- ----------
Core operating earnings (loss) per
share - basic $(0.28) $0.17 $0.39
---------- ---------- ----------
Earnings (loss) per share - diluted $(2.53) $0.15 $0.37
Add back: Restructuring and merger
related expenses (net of tax
effect)(1) --- --- (0.00)
Add back: Amortization of core
deposit intangibles (net of tax
effect)(2) 0.02 0.02 0.02
Add back: Goodwill impairment 2.23 --- ---
---------- ---------- ----------
Core operating earnings (loss) per
share - diluted $(0.28) $0.17 $0.39
---------- ---------- ----------
Efficiency ratio 219.00 % 61.79 % 62.52 %
Subtract: Effects of restructuring
and merger related expenses - - 0.28
Subtract: Effects of core deposit
intangibles amortization (1.96) (1.98) (2.10)
Subtract: Effects of goodwill
impairment (149.30) 0.00 0.00
---------- ---------- ----------
Core efficiency ratio 67.74 % 59.81 % 60.70 %
---------- ---------- ----------
Core operating earnings
(loss)/average tangible assets (0.71)% 0.40 % 0.93 %
Core operating earnings
(loss)/average tangible equity (10.87) 6.52 15.32
--------------------------------------------------------------------------
3rd Qtr 2007 2nd Qtr 2007
--------------------------------------------------------------------------
Summary of Core Operations (thousands)
Net income (loss) $31,764 $9,619
Add back: Restructuring and merger
related expenses (net of tax
effect)(1) 656 2,215
Add back: Amortization of core
deposit intangibles (net of tax
effect)(2) 1,821 1,920
Add back: Goodwill impairment --- ---
---------- ----------
Core operating earnings (loss) $34,241 $13,754
---------- ----------
Noninterest expense $77,343 $87,490
Subtract: Restructuring and merger
related expenses (1,009) (3,408)
Subtract: Amortization of core
deposit intangibles (2,803) (2,954)
Subtract: Goodwill impairment --- ---
---------- ----------
Core operating expenses $73,531 $81,128
---------- ----------
--------------------------------------------------------------------------
Average Balances (millions)
Average assets $13,165 $13,241
Goodwill (781) (780)
Core deposit intangible assets (34) (38)
Deferred taxes 12 13
---------- ----------
Average tangible assets $12,362 $12,436
---------- ----------
Average equity $1,536 $1,551
Goodwill (781) (780)
Core deposit intangible assets (34) (38)
Deferred taxes 12 13
---------- ----------
Average tangible equity $733 $746
---------- ----------
--------------------------------------------------------------------------
Performance Ratios (annualized)
Earnings (loss) per share - basic $0.42 $0.13
Add back: Restructuring and merger
related expenses (net of tax
effect)(1) 0.01 0.03
Add back: Amortization of core
deposit intangibles (net of tax
effect)(2) 0.02 0.02
Add back: Goodwill impairment --- ---
---------- ----------
Core operating earnings (loss) per
share - basic $0.45 $0.18
---------- ----------
Earnings (loss) per share - diluted $0.42 $0.13
Add back: Restructuring and merger
related expenses (net of tax
effect)(1) 0.01 0.03
Add back: Amortization of core
deposit intangibles (net of tax
effect)(2) 0.02 0.02
Add back: Goodwill impairment --- ---
---------- ----------
Core operating earnings (loss) per
share - diluted $0.45 $0.18
---------- ----------
Efficiency ratio 59.45 % 65.94 %
Subtract: Effects of restructuring
and merger related expenses (0.78) (2.57)
Subtract: Effects of core deposit
intangibles amortization (2.15) (2.23)
Subtract: Effects of goodwill impairment 0.00 0.00
---------- ----------
Core efficiency ratio 56.52 % 61.14 %
---------- ----------
Core operating earnings
(loss)/average tangible assets 1.10 % 0.44 %
Core operating earnings
(loss)/average tangible equity 18.55 7.39
--------------------------------------------------------------------------
(1) Tax effect of ($125), $353, and $1,193 for the 4th, 3rd, and 2nd
quarters of 2007, respectively.
(2) Tax effect of $817 and $856 for 2nd and 1st quarters of 2008,
respectively, and $930, $982, and $1,034 for the 4th, 3rd, and 2nd
quarters of 2007, respectively.
Noninterest Income and Noninterest Expense (Unaudited)
Citizens Republic Bancorp and Subsidiaries
Three Months Ended
--------------------------------------------
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in thousands) 2008 2008 2007 2007 2007
-------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit
accounts $12,036 $11,466 $12,350 $12,515 $12,080
Trust fees 4,608 4,784 5,175 4,973 5,003
Mortgage and other loan
income 3,023 3,344 2,687 2,939 4,258
Brokerage and investment
fees 2,211 1,916 2,029 2,141 2,182
ATM network user fees 1,677 1,413 1,463 1,601 1,640
Bankcard fees 1,924 1,744 1,806 1,695 1,443
Profit and loss on HFS loans (2,248) 1 (508) --- ---
Other income 3,827 6,257 4,294 4,732 4,672
------- ------- ------- ------- -------
Total fees and other
income 27,058 30,925 29,296 30,596 31,278
Investment securities gains
(losses) --- --- --- 8 ---
------- ------- ------- ------- -------
TOTAL NONINTEREST INCOME $27,058 $30,925 $29,296 $30,604 $31,278
------- ------- ------- ------- -------
NONINTEREST EXPENSE:
Salaries and employee
benefits $39,046 $42,225 $43,644 $42,115 $45,971
Occupancy 6,954 7,675 7,608 7,377 8,076
Professional services 4,531 3,763 4,432 5,096 4,351
Equipment 3,420 3,230 3,857 3,227 3,655
Data processing services 4,233 4,304 3,874 3,724 4,506
Advertising and public
relations 1,458 1,838 1,212 1,003 3,292
Postage and delivery 2,058 1,727 1,863 1,777 2,196
Other loan expenses 3,448 1,811 2,281 1,245 1,080
ORE expenses, profits, and
losses, net 6,394 1,242 (69) 360 135
Intangible asset
amortization 2,333 2,447 2,659 2,803 2,954
Goodwill impairment 178,089 --- --- --- ---
Restructuring and merger-
related expenses --- --- (356) 1,009 3,408
Other expense 9,264 6,300 7,875 7,607 7,866
------- ------- ------- ------- -------
TOTAL NONINTEREST EXPENSE $261,228 $76,562 $78,880 $77,343 $87,490
------- ------- ------- ------- -------
-------------------------------------------------------------------------
Average Balances, Yields and Rates
Three Months Ended
-------------------------
June 30, 2008
-------------------------
Average Average
(dollars in thousands) Balance Rate
-------------------------------------------------------------------------
Earning Assets
Money market investments $2,379 2.72 %
Investment securities:
Taxable 1,483,409 5.13
Tax-exempt 670,792 6.68
FHLB and Federal Reserve stock 148,838 5.12
Portfolio loans
Commercial and industrial 2,658,841 5.54
Commercial real estate 3,159,286 6.35
Residential mortgage 1,355,377 6.14
Direct consumer 1,517,420 6.68
Indirect consumer 823,530 6.69
-----------
Total portfolio loans 9,514,454 6.18
Loans held for sale 65,430 4.08
-----------
Total earning assets 11,885,302 6.05
Nonearning Assets
Cash and due from banks 193,533
Bank premises and equipment 126,311
Investment security fair value
adjustment 19,097
Other nonearning assets 1,249,579
Allowance for loan losses (177,441)
-----------
Total assets $13,296,381
-----------
Interest-Bearing Liabilities
Deposits:
Interest-bearing demand $769,241 0.66 %
Savings deposits 2,645,759 1.64
Time deposits 4,073,917 4.06
Short-term borrowings 337,373 2.19
Long-term debt 2,673,757 4.78
-----------
Total interest-bearing
liabilities 10,500,047 3.32
Noninterest-Bearing Liabilities and
Shareholders' Equity
Noninterest-bearing demand 1,114,849
Other liabilities 135,932
Shareholders' equity 1,545,553
-----------
Total liabilities and
shareholders' equity $13,296,381
-----------
Interest Spread 2.73 %
Contribution of noninterest bearing
sources of funds 0.38
----
Net Interest Margin 3.11 %
-------------------------------------------------------------------------
Three Months Ended
-------------------------
March 31, 2008
-------------------------
Average Average
(dollars in thousands) Balance Rate
-------------------------------------------------------------------------
Earning Assets
Money market investments $4,490 2.66 %
Investment securities:
Taxable 1,528,754 5.50
Tax-exempt 678,699 6.68
FHLB and Federal Reserve stock 148,840 4.57
Portfolio loans
Commercial and industrial 2,564,023 5.93
Commercial real estate 3,142,244 6.90
Residential mortgage 1,417,712 6.48
Direct consumer 1,553,348 7.23
Indirect consumer 821,882 6.79
-----------
Total portfolio loans 9,499,209 6.62
Loans held for sale 74,057 6.65
-----------
Total earning assets 11,934,049 6.45
Nonearning Assets
Cash and due from banks 205,102
Bank premises and equipment 130,216
Investment security fair value
adjustment 32,294
Other nonearning assets 1,306,441
Allowance for loan losses (165,815)
-----------
Total assets $13,442,287
-----------
Interest-Bearing Liabilities
Deposits:
Interest-bearing demand $776,756 0.66 %
Savings deposits 2,412,725 2.38
Time deposits 4,137,557 4.48
Short-term borrowings 632,655 3.16
Long-term debt 2,665,362 4.86
-----------
Total interest-bearing liabilities 10,625,055 3.74
Noninterest-Bearing Liabilities and
Shareholders' Equity
Noninterest-bearing demand 1,090,255
Other liabilities 148,339
Shareholders' equity 1,578,638
-----------
Total liabilities and shareholders'
equity $13,442,287
-----------
Interest Spread 2.71 %
Contribution of noninterest bearing
sources of funds 0.41
----
Net Interest Margin 3.12 %
-------------------------------------------------------------------------
Three Months Ended
-------------------------
June 30, 2007
-------------------------
Average Average
(dollars in thousands) Balance Rate
-------------------------------------------------------------------------
Earning Assets
Money market investments $2,765 2.64 %
Investment securities:
Taxable 1,726,754 5.17
Tax-exempt 668,647 6.73
FHLB and Federal Reserve stock 132,895 4.22
Portfolio loans
Commercial and industrial 2,068,195 7.51
Commercial real estate 3,100,675 7.76
Residential mortgage 1,506,639 6.67
Direct consumer 1,655,217 7.85
Indirect consumer 838,899 6.67
-----------
Total portfolio loans 9,169,625 7.44
Loans held for sale 94,817 7.89
-----------
Total earning assets 11,795,503 7.03
Nonearning Assets
Cash and due from banks 188,244
Bank premises and equipment 140,277
Investment security fair value adjustment 300
Other nonearning assets 1,286,255
Allowance for loan losses (169,830)
-----------
Total assets $13,240,749
-----------
Interest-Bearing Liabilities
Deposits:
Interest-bearing demand $841,026 0.67 %
Savings deposits 2,170,649 2.93
Time deposits 4,007,354 4.70
Short-term borrowings 741,617 4.90
Long-term debt 2,631,605 4.92
-----------
Total interest-bearing liabilities 10,392,251 4.07
Noninterest-Bearing Liabilities and
Shareholders' Equity
Noninterest-bearing demand 1,138,134
Other liabilities 159,015
Shareholders' equity 1,551,349
-----------
Total liabilities and shareholders'
equity $13,240,749
-----------
Interest Spread 2.96 %
Contribution of noninterest bearing
sources of funds 0.48
----
Net Interest Margin 3.44 %
-------------------------------------------------------------------------
Average Balances, Yields and Rates
Six Months Ended June 30,
--------------------------------------
2008 2007
--------------------------------------
Average Average Average Average
(dollars in thousands) Balance Rate Balance Rate
-------------------------------------------------------------------------
Earning Assets
Money market investments $3,434 2.68 % $1,808 4.01 %
Investment securities
Taxable 1,506,082 5.32 1,832,008 5.03
Tax-exempt 674,746 6.68 669,399 6.73
FHLB and Federal Reserve stock 148,839 4.85 132,895 4.75
Portfolio loans
Commercial and industrial 2,611,432 5.73 2,014,734 7.67
Commercial real estate 3,150,765 6.62 3,127,056 7.71
Residential mortgage 1,386,545 6.31 1,521,057 6.66
Direct consumer 1,535,383 6.96 1,675,725 7.84
Indirect consumer 822,706 6.74 835,925 6.73
----------- -----------
Total portfolio loans 9,506,831 6.40 9,174,497 7.46
Loans held for sale 69,744 5.44 119,275 7.88
----------- -----------
Total earning assets 11,909,676 6.25 11,929,882 7.02
Nonearning Assets
Cash and due from banks 199,318 188,502
Bank premises and equipment 128,263 139,954
Investment security fair value
adjustment 25,695 1,719
Other nonearning assets 1,278,010 1,315,251
Allowance for loan losses (171,628) (168,806)
----------- -----------
Total assets $13,369,334 $13,406,502
----------- -----------
Interest-Bearing Liabilities
Deposits:
Interest-bearing demand $772,999 0.66 % $871,908 0.71 %
Savings deposits 2,529,242 1.99 2,220,812 2.95
Time deposits 4,105,737 4.27 4,105,947 4.67
Short-term borrowings 485,014 2.82 823,462 4.91
Long-term debt 2,669,559 4.82 2,521,684 4.89
----------- -----------
Total interest-bearing
liabilities 10,562,551 3.53 10,543,813 4.05
Noninterest-Bearing Liabilities
and Shareholders' Equity
Noninterest-bearing demand 1,102,552 1,141,435
Other liabilities 142,135 169,556
Shareholders' equity 1,562,096 1,551,698
----------- -----------
Total liabilities and
shareholders' equity $13,369,334 $13,406,502
----------- -----------
Interest Spread 2.72 % 2.97 %
Contribution of noninterest
bearing sources of funds 0.40 0.47
---- ----
Net Interest Margin 3.12 % 3.44 %
--------------------------------------------------- 
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