Citizens Republic Bancorp's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Citizens Republic Bancorp, Inc. (CRBC)

Q1 2012 Earnings Call

April 27, 2012 10:00 AM ET


Kristine Brenner – Director, IR

Cathleen Nash – President and CEO

Lisa McNeely – EVP and CFO

Mark Widawski – EVP and Chief Credit Officer

Brian Boike – SVP and Treasurer


Terry McEvoy – Oppenheimer & Company

John Barber – KBW

Matthew Schultheis – Boenning & Scattergood



Good day everyone, and welcome to today’s program. At this time, all participants are in a listen-only mode. Later you’ll have the opportunity to ask questions during the question-and-answer session. (Operator Instructions) I will be standing by should you need any assistance today.

It is now my pleasure to turn the conference over to Mrs. Kristine Brenner. Ma’am, go ahead.

Kristine Brenner

Thank you. Good morning, and welcome to the Citizens Republic Bancorp’s First 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 will 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 Nash

Thank you, Kristine. We are pleased to report our fourth consecutive quarterly profit. Net income attributable to common shareholders for the first quarter was $19 million or $0.47 per share. A substantial improvement in earnings was primarily due to significantly reduced credit costs, which are reflective of the continued improvements in our credit quality metrics.

Provision expense fell by 44% from last quarter. As we announced in our press release, we expect to reverse the valuation allowance against our deferred tax asset next quarter. Lisa will talk more about that in a moment.

Changes in our balance sheet continue to positively reflect our strategic focuses. We were able to improve our deposit mix and funding cost by growing core deposits 5% during the quarter and 9% over the last year. Time deposits are down 24% from last year as we continue to strategically reduce single service and brokered CDs.

Our strategic focus on C&I lending led to another strong quarter of growth in this line of businesses – in this line of business, excuse me, where balance is up over 7% compared to December. Compared to the first quarter of last year, C&I loans are up over 22%.

Our indirect loan originations were also strong with a portfolio up almost 6% compared to the first quarter of last year. Mark will provide more detail about this focus. Our commercial real estate and residential mortgage portfolios continue to decline as we had planned and discussed in previous calls.

I’ll now turn the call over to Lisa and Mark to talk through the quarter in more detail. Lisa?

Lisa McNeely

Thanks, Cathy. As Cathy mentioned, we reported net income attributable to common shareholders for the quarter of $19 million. Provision expense of $8 million in the first quarter was $6.6 million less than last quarter as our credit metrics continue to improve. As the risk profile of our loan portfolio continues to improve, we would expect our allowance for loan loss reserve coverage to continue to move into closer alignment with our peers over the coming quarters.

Net interest margin was 3.56% in the first quarter, down 6 basis points compared to last quarter and up 3 basis points from the first quarter of last year. As we’ve said in the past, we expected our margin to be pressured given the low interest rate environment and substantial competition for quality earning assets. We have been successful in mitigating the majority of that pressure by maintaining disciplined loan pricing, decreasing non-performing assets, and excess on-balance sheet liquidity, and reducing our cost of funds.

Since the first quarter of 2011, interest bearing deposit costs have been reduced by 29 basis points. Compared to the fourth quarter, we were able to reduce these costs by 8 basis points. Similarly, our overall cost of funds fell by 6 and 24 basis points over fourth quarter and first quarter of last year respectively.

The reductions in these costs are the result of our bankers’ continued focus on growing core deposits and consistently carrying out our client relationship pricing strategy. Non-interest income was consistent with last quarter at $24 million. Gains from loans held-for-sale offset decreases in service charges.

Service charge income was right in line with our expectations as first quarter transaction levels generally trend down from the fourth quarter. We had worked diligently to offset the negative regulatory impact on our fee income as our bankers work with clients to fully utilize our competitively priced products that meet our clients’ transaction needs. We continue to focus on services and products that help provide a stable base of fee income.

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