Citizens Republic Bancorp, Inc (CRBC)
Q2 2012 Earnings Call
July 27, 2012 10:00 am ET
Kristine D. Brenner - Director of Investor Relations
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Cathleen H. Nash - Chief Executive Officer, President, Director, Chief Executive Officer of Citizens Bank, President of Citizens Bank and Director of Citizens Bank
Lisa T. McNeely - Chief Financial Officer, Executive Vice President, Chief Financial Officer of Citizens Bank and Executive Vice President of Citizens Bank
Mark W. Widawski - Chief Credit Officer, Executive Vice President, Chief Credit Officer of Citizens Bank and Executive Vice President of Citizens Bank
Brian D. J. Boike - Senior Vice President, Treasurer, Senior Vice President of Citizens Bank and Treasurer of Citizens Bank
Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division
John Barber - Keefe, Bruyette, & Woods, Inc., Research Division
Good day, and welcome to the Citizens Republic Bancorp Second Quarter Conference Call. [Operator Instructions] It is now my pleasure to turn the conference over to Ms. Kristine Brenner. Please go ahead.
Kristine D. Brenner
Thank you. Good morning, and welcome to the Citizens Republic Bancorp Second Quarter Conference Call. This call is being recorded and will be archived for 90 days on the Investor Relations page on our website, www.citizensbanking.com.
The format of the call today will be Cathy Nash, President and Chief Executive Officer, providing highlights for the quarter; Lisa McNeely, Chief Financial Officer; and Mark Widawski, Chief Credit Officer, will provide details of the quarter. Cathy Nash will share some concluding remarks, then we'll open the line up for questions from research analysts; and Brian Boike, our Treasurer, is also here to answer questions.
During this conference call, statements may be made that are not historical facts, such as those regarding Citizens’ future financial and operating results, plans, objectives, expectations and intentions. Such forward-looking statements are subject to risks and uncertainties, which include but are not limited to, those discussed in Citizens’ annual and quarterly reports filed with the SEC.
Forward-looking statements are not guarantees of future performance and actual results could differ materially. These forward-looking statements reflect management’s judgment as of today, and we expressly disclaim any obligation to update or revise information contained in these statements in the future.
Now I'll turn the call over to our President and Chief Executive Officer, Cathy Nash. Cathy?
Cathleen H. Nash
Thank you, Kristine. We are very pleased to report another quarter of strong results that reflect our continued success in executing on key strategic initiatives. We achieved another important milestone this quarter with the reversal of the valuation against our deferred tax asset or DTA. We were able to restore the DTA due to the strong financial condition of our bank and expectations that we will be able to fully utilize the asset in the future.
Net income attributable to common shareholders for the second quarter was $297 million or $7.35 per share, which includes the $277 million tax benefit from restoring the DTA. Excluding that tax benefit, we reported continued solid results with net income of $20 million or $0.50 per share for the quarter and pretax pre-provisioned profit of $32 million.
Our continued improvements in credit quality metrics led to reduced credit cost again this quarter with provision expense dropping by 37% compared to last quarter. Net interest margin expanded 4 basis points compared to last quarter, reflecting our success in executing our strategic balance sheet initiative. And Lisa will talk more about that in just a moment.
Core deposit balances increased 9% over last year and continued to represent an important component of our total funding. Core deposits now fund 56% of our balance sheet compared to 42% 2.5 years ago. Time deposits are down 24% from last year as we continue to strategically reduce high cost, single service and broker time deposits.
Our strategic focus on C&I and consumer lending led to another quarter of growth in these lines of business. Today, C&I and consumer loans make up 64% of our loan portfolio, up from 62% last quarter and 57% a year ago. Compared to the second quarter of last year, C&I balances have increased 27%, and Indirect portfolio balances are up over 6%.
As anticipated, income-producing commercial real estate and residential mortgage loan balances continued to decline. Now I'll turn the call over to Lisa and Mark to talk through the details -- the quarter in more detail for you. Lisa?
Lisa T. McNeely
Thanks, Cathy. As Cathy mentioned, we reported net income attributable to common shareholders for the quarter of $297 million, which includes a $277 million tax benefit from eliminating the valuation allowance against our deferred tax asset. Provision expense was $5 million in the second quarter, reflecting continued improvement in our credit metrics. The allowance as a percentage of the portfolio loans was 2.47% at the end of the quarter. With continued improvement in the risk profile of our loan portfolio, we would expect this ratio to gradually move into closer alignment with our peers throughout the remainder of the year.
Net interest margin was 3.6% in the second quarter, up 4 basis points compared to last quarter and the second quarter of last year. In this environment of low interest rates and increased competition for quality earning assets, we have expected the net interest income and margin to be pressured. This quarter, and for the last several quarters, we have been successful in executing balance sheet strategies to mitigate that pressure.
The balance sheet tactics we've utilized included emphasis on growing low-cost core deposits, reducing reliance on wholesale and other high-cost funding, carefully managing deposit pricing through a relationship pricing strategy, restructuring long-term debt to reduce cost while extending maturity and remaining diligent on loan pricing. Our overall cost of funds was down 8 basis points compared to last quarter and 30 basis points compared to the second quarter of 2011.