Citizens Republic Bancorp, Inc (CRBC)

Q2 2011 Earnings Call

July 29, 2011 10:00 am ET


Lisa McNeely - Chief Financial Officer and Executive Vice President

Brian Boike - Senior Vice President, Treasurer, Senior Vice President of Citizens Bank and Treasurer of Citizens Bank

Mark Widawski - Chief Credit Officer, Executive Vice President, Chief Credit Officer of Citizens Bank and Executive Vice President of Citizens Bank

Kristine Brenner - Director of Investor Relations

Cathleen Nash - Chief Executive Officer, President, Director, Chief Executive Officer of Citizens Bank and President of Citizens Bank


Brett Scheiner - FBR Capital Markets & Co.

John Barber - Keefe, Bruyette, & Woods, Inc.

Terence McEvoy - Oppenheimer & Co. Inc.

Jason O’Donnell - Boenning and Scattergood, Inc.



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Good day, and welcome to the Citizens Republic Bancorp Second Quarter Conference Call. [Operator Instructions] And it is now my pleasure to hand the call over to Kristine Brenner. Please go ahead.

Kristine Brenner

Thank you and good morning. 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,

The format of our 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'd like to turn the call over to our President and Chief Executive Office, Cathy Nash.

Cathleen Nash

Thank you, Kristine. We are very pleased to announce our return to profitability this quarter. Our net income of $18.5 million or $0.46 per common share, included a $10 million income tax benefit. Pretax pre-provision results remain solid at $33 million, driven by a strong net interest margin of 3.56%. Additionally, our credit trends remain positive. Our near term delinquencies remained low at 1% of total loans. Total nonperforming assets decreased for the 7th consecutive quarter, and the new commercial inflows to NPL were less than $25 million. Last quarter inflows were $29 million.

Inflows haven't been this low since 2006, which is truly a reflection of our team's hard work. We recorded an $18 million provision for loan losses while our allowance for loan losses remained very strong at 3.7% of total loans and 167% of nonperforming loans.

I'll turn it over to Lisa and Mark to walk through the quarter in more detail, and then I'll wrap up the call. Lisa?

Lisa McNeely

Thanks, Cathy. As Cathy mentioned, we reported net income for the quarter of $18.5 million driven by improving credit trends, steady pretax pre-provision profits and a unique tax item. Pretax pre-provision profits remained strong at $33 million. The result of our intense focus on preserving fee income from services, managing expenses and optimizing net interest margin through product pricing discipline and balance sheet management.

Net interest margin increased 3 basis points over last quarter to 3.56%. Compared to the second quarter of last year, margin increased 21 basis points. This increase was primarily driven by strategies that focused on lowering funding cost and reducing levels of nonperforming loans. These efforts were partially offset by the effect of replacing declining performing loan balances with lower yielding investment securities and money market investments. Going forward, we expect our margin to remain stable.

Noninterest income was $23 million for the second quarter, essentially unchanged from the first quarter, and improved from the second quarter of last year. The improvement was caused by the net impact of gains and losses from sales of loans held for sale and investment securities.

Service and product-related fee income categories were stable, as a result of the efforts put forth by our branch bankers to proactively reach out to clients and ensure their product choices best meet their financial needs.

Noninterest expense was $69 million, which is a decrease of $12 million from the first quarter and a decrease of $8 million from the second quarter of last year. These decreases were primarily driven due to lower valuation write-downs on other real estate and lower credit-related workout cost.

Provision expense was $18 million for the quarter, which is a decline of 80% from last quarter. The lower provision expense reflects our improved credit metrics, and the result of our asset quality improvement initiatives. Going forward, our provision expense and reserve levels will reflect the reduced risk in our portfolios.

We recorded a $10 million income tax benefit this quarter. An unusual circumstance created the tax benefit. Year-to-date, we had an increase in the value of our available-for-sale securities portfolio, operating losses for tax purposes and a full valuation reserve on our DTA.

Taking a look at our balance sheet trends. Total loans at quarter end were $5.6 billion. This represents a modest decline from the first quarter of $77 million, which is the slowest pace of decline in over 11 quarters. The decline resulted from planned reductions in both our commercial and real estate -- residential real estate portfolios and resolutions of problem assets. The C&I portfolio was essentially flat, due to a meaningful increase in lending opportunities as a result of the hard work by our bankers across all of the C&I lending channels. The indirect portfolio grew by $46 million over the first quarter, which represents a second consecutive quarter of growth and an increase of 7% in balances over the second quarter of 2010.

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