Citizens Republic Bancorp, Inc CEO Discusses Q4 2010 Earnings Call Transcript

Citizens Republic Bancorp, Inc (CRBC)

Q4 2010 Earnings Call

January 28, 2011 10:00 am ET


Lisa McNeely - Chief Financial Officer and Executive Vice President

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.

Eileen Rooney - Keefe, Bruyette, & Woods, Inc.

Terence McEvoy - Oppenheimer & Co. Inc.



Good day, everyone, and welcome to the Fourth Quarter Conference Call. [Operator Instructions] It is now my pleasure to turn the conference over to Ms. Kristine Brenner. Please go ahead.

Kristine Brenner

Thank you, and good morning. Welcome to the Citizens Republic Bancorp Fourth Quarter Conference Call. This call is being recorded and a telephone replay will be available through February 4th. This call is also being simulcast live on our website,, where it will be archived for 90 days.

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

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 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 Officer, Cathy Nash. Cathy?

Cathleen Nash

Thank you, Kristine. Last quarter, we said we were going to aggressively pursue resolution of problem assets in our portfolio. We anticipated doing the bulk of that work over two quarters. Our fourth quarter results reflect the significant progress we've made as we resolved $466 million of problem assets in the quarter with charges of $159 million. Some other key facts for your consideration: our 30-89-day delinquencies are at their lowest level in four years; our watch list declined 25% in a year; non-performing assets are down 52% in the same timeframe; net interest margin expanded by 10 basis points to 3.42% this quarter and it's up 41 basis points on a year-to-date basis compared to last year.

Non-interest income reflected our strong efforts around Reg E implementation, as well as increases in key C-income categories during the past year. Lastly, we continue to maintain strong expense management while adding sales positions in the fourth quarter. Our pretax pre-provision profit came in at $32 million for the quarter.

I'll let Lisa and Mark talk about the details of the quarter, and I'll finish up with some concluding remarks. Lisa?

Lisa McNeely

Thanks, Cathy. The net loss for the quarter was $106 million, which is an increase over last quarter's net loss of $62 million. Increased provision expense reflecting our accelerated work and resolving problem assets was the primary reason for the increased loss over the prior quarter. Provision expense was a $131 million for the quarter compared to net charge-offs of $159 million. As we discussed last quarter, we expected to record about a year's worth of charge-offs over a couple of quarters as we executed our problem asset resolution plan. As you can see, we are about halfway there. We maintained a strong reserve position at the end of the year in anticipation of the remaining work to be completed in the first quarter of 2011.

You may have noticed, we added a table that's normally on our 10-Q to our press release on Page 7, which shows the allocation of the allowance between specific and risk allocated. As we completed the sales of NPLs that have specific reserves associated with them, the allowance was reduced accordingly. The risk-allocated allowance is driven by quantitative historical-looking models. As the risk profile of the portfolio improves, refracting resolution and the watch list, the level of reserves will trend downward.

This quarter, we bolstered the model-driven portion $29.5 million in anticipation of problem assets we have targeted for resolution. You can see this on the new table in the line titled Incremental Risk Allocated Allowance, CRE. The level of our reserves at the end of the fourth quarter are positioned to address the pending resolutions of problem assets to the first quarter. Our quantitative model was driven from historical data. With improving credit quality trends, the model will reflect a justifiable lower risk allocated reserve. Our reserve levels also reflect our conservative and prudent view of the markets we are in.

As we work through the continued resolution of problem assets, we expect the level of reserves to trend downward, reflecting the improving trends in non-performing assets, delinquent and watch list loans. Net interest margin was 3.42% for the fourth quarter, 10 basis points better than the third quarter. The increase was primarily the result of declining deposit cost. Margin was also positively impact by reduced cost of carrying non-performing loans and the repricing of fixed rate funding to lower rates. The increase was partially offset by lower reinvestment rates in our investment and loan portfolios. Going forward, we expect margin to improve slightly as a result of reduced cost related to carrying non-performing loans and reduction in non-balance sheet liquidity.

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