Citizens Republic Bancorp, Inc.




Q2 2010 Earnings Call Transcript

July 23, 2010 10:00 am ET


Kristine Brenner – Director, IR

Cathy Nash – President and CEO

Lisa McNeely – Interim CFO and SVP, Director of Financial Management and Credit Analytics

Mark Widawski – EVP and Chief Credit Officer


Greg Ketron – Citigroup Global Markets

Terry McEvoy – Oppenheimer & Co.

Thomas LeTrent – FBR Capital Markets

Eileen Rooney – Keefe Bruyette & Woods



Thank you for joining. It is now my pleasure to turn the program over to Kristine Brenner. Please go ahead.

Kristine Brenner

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Thank you and good morning, and welcome to the Citizens Republic Bancorp second quarter conference call. This call is being recorded and a telephone replay will be available through July 30. This call is also being simulcast live on our Web site, where it will be archived for 90 days.

I have with me today Cathy Nash, President and Chief Executive Officer; Lisa McNeely, Chief Financial Officer; and Mark Widawski, Chief Credit Officer, who all may have comments to share with you this morning. Brian Boike, our Treasurer is here to answer questions. After management concludes their prepared remarks, we will open the call up for questions from research analysts.

During this conference call, statements may be made that are not historical facts, such as those regarding Citizen’s 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’d turn the call over to our President and Chief Executive Officer, Cathy Nash. Cathy?

Cathy Nash

Thank you, Kristine. I appreciate those of you who have joined us on the call today. I’ll make some opening remarks and then Lisa will take us through the performance details, and Mark will cover the credit performance.

We are very pleased with our results this quarter, and I would like to review some highlights with you. First, our pretax preprovision profit remains solid. PPP was $34.5 million, which came in better than expected considering that our loan balance sheet is shrinking. Despite our shrinking loan portfolio with continued lack of creditworthy loan demand, we are still able to maintain solid performance of our core business. We expect that to remain in the $30 million range for the foreseeable future.

We continue to be challenged by a lack of creditworthy loan opportunities, new credit granted was down about $40 million last quarter, primarily in commercial; and direct lending showed expected seasonal increases.

Our net interest margin improved 21 basis points to 3.35% for the quarter. This was the fifth quarter in a row we saw improvement and it is our highest margin percentage since late 2007.

Overall, we continue to be pleased with our improved credit trends. Our delinquencies are down for the third straight quarter having peaked in the third quarter last year at 2.29%. Total delinquencies now stand at 1.57% at the quarter, down from 1.92%.

Our watch list has again declined this quarter in terms of absolute dollars, as a percent of loan portfolio was up slightly because our total loans declined.

Total nonperforming loans and nonperforming assets also decreased. Total nonperforming assets were $473 million at the end of June, down by $84 million from the end of March. This reduction includes the impact of the nonperforming residential mortgage loans that we mentioned last quarter. NPAs are down 22% from the second quarter of last year and also down 22% from the third quarter 2009 peak.

Overall, our results are consistent with the trends we've seen in the Michigan economy, which is about a year of continued stability in employment.

Our capital ratios were significantly enhanced this quarter. Our estimated Tier 1 capital ratio stands at 12.74% and total risk based capital is at 14.12%. Lisa will go through the details of that non-dilutive improvement.

Finally yesterday, we signed an agreement with our regulators. We are very pleased with the spirit of collaboration we've had with our regulators in drafting this agreement. As we announced back in February, we do not anticipate a compliance with any of the terms of the agreement will have a material impact on our operations. The agreement formalizes much work that was already underway in the bank.

We appreciate the many good conversations we've had with our regulators and look forward to continuing working with them as partners to ensure our financial soundness. Our results this quarter reflect our successful efforts in improving capital, earnings and asset quality, which are the key elements to maintaining that soundness. I remain committed and confident in our team's ability to continue to execute on our strategic initiative.

Now I'll turn the call over to Lisa McNeely, and she will walk us through the details of our results. Lisa?

Lisa McNeely

Thanks, Cathy. The net loss for the quarter was just over $44 million. Improvement over the net loss last quarter of $76 million was driven by a decrease in provision expense and an increase in net interest margin.

Our pretax provision profit was consistent with last quarter at just over $34 million and continues to be strong benefiting from our success in managing net interest margin, non-interest income, and non-interest expense.

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