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Press release from PR Newswire

Citizens Republic Bancorp Reports Solid Third Quarter Results

Thursday, October 25, 2012

Citizens Republic Bancorp Reports Solid Third Quarter Results16:05 EDT Thursday, October 25, 2012FLINT, Mich., Oct. 25, 2012 /PRNewswire/ -- Net income attributable to common shareholders was $15 million or $0.37 per share for the third quarter, which includes over $4 million in pre-tax merger-related expenses Credit metric trends reflect continued stability and improved performance across the loan portfolio Pre-tax, pre-provision profit remained strong at $33 million Announced agreement to merge with FirstMerit Corporation in a stock-for-stock transaction Citizens Republic Bancorp, Inc. (Nasdaq: CRBC) announced net income attributable to common shareholders of $14.9 million or $0.37 per diluted share for the three months ended September 30, 2012, compared to $297.1 million or $7.35 per diluted share for last quarter, and $27.2 million or $0.68 per diluted share for the third quarter of last year.  For the first nine months of this year, Citizens recorded net income attributable to common shareholders of $330.9 million or $8.19 per share compared to a net loss of $28.7 million or $0.73 per share for the same period of 2011.  Year to date 2012 results include a $275.5 million or $6.82 per share tax benefit related to the elimination of the valuation allowance against the deferred tax asset in the second quarter. "Last month we announced that we entered into a definitive merger agreement with FirstMerit Corporation.  We are excited about the transaction which creates a unique, contiguous, Midwest franchise of significant size and scale.  Until the transaction closes, we continue to successfully execute our strategic initiatives, driving our consistent earnings and organically growing our strong capital position," commented Cathleen Nash, president and chief executive officer.Balance SheetTotal assets increased modestly from last quarter. Increases in the investment securities portfolio and money market investments more than offset decreases in the loan portfolio.  Citizens continues to focus on C&I and consumer lending. Over the past year, growth within the C&I and indirect consumer portfolios helped to mitigate balance reductions in the commercial real estate and residential mortgage portfolios.  Total deposit balances grew slightly, as growth in low cost core deposit balances was partially offset by strategic reductions in more expensive single service and brokered time deposits. These initiatives have resulted in core deposit growth of 6% and a 23% reduction in time deposits compared to September 30, 2011.Capital Citizens continues to grow capital organically through earnings and maintains a strong capital position.Capital RatiosRegulatoryMinimum for "Well-September 30,June 30,September 30,Capitalized"201220122011Leverage ratio5.00%9.66%9.77%8.21%Tier 1 capital ratio6.0015.0914.7012.81Total capital ratio10.0016.3515.9614.14Tier 1 common equity (non-GAAP)8.838.506.77Tangible equity to tangible assets (non-GAAP)11.0010.827.36Tangible common equity to tangible assets (non-GAAP)7.917.734.31 Net Interest Income and Margin Net interest margin was 3.57% in the third quarter, a three basis point decrease from last quarter and a six basis point decrease from the third quarter of last year. The decreases were a result of the continued low interest rate environment and competitive pressures on our loan portfolio, partially offset by reduced funding costs.  Year to date, net interest margin increased one basis point over last year to 3.58%. Net interest income for the third quarter of 2012 was $75.8 million, consistent with last quarter and a decrease of $3.0 million from the third quarter of last year.  The decrease from the third quarter of last year reflects lower net interest margin and a reduction in average earning assets.  For the nine months ended September 30, 2012, net interest income decreased $7.5 million or 3% compared to the same period last year due to a reduction in average earning assets. Credit QualityCredit quality benefits from proactive credit management as well as returning economic stability. Total delinquencies decreased 3% from last quarter to $31.6 million and currently represent 0.58% of portfolio loans. Nonperforming assets were $86.2 million at the end of September 2012, an 8% decrease from the end of June 2012 and a decrease of 37% from September 30 of last year due to proactively managing and resolving delinquent commercial and consumer loans and improving the risk profile of the loan portfolio. Net charge-offs for the third quarter decreased to $19.2 million, compared to $22.2 million last quarter and $33.4 million in the third quarter of last year.  The provision for loan losses was $5.2 million in the third quarter, substantially the same as the second quarter of 2012.  The allowance for loan losses was $122.1 million or 2.25% of portfolio loans at September 30, 2012, compared to $136.1 million or 2.47% at the end of the prior quarter, and $190.4 million or 3.36% at the end of the third quarter last year. Noninterest Income and Expense Citizens' focus on services and products helps support a stable base of fee income.  Total noninterest income increased $1.4 million over last quarter and decreased $0.7 million compared to the third quarter last year.Service charges were consistent with the second quarter of 2012.  Service charges on deposit accounts were down 8% compared to the third quarter of last year primarily as a result of regulatory changes. Brokerage and investment fees were up 38% compared to last quarter and 54% compared to the third quarter of 2011 due to focused efforts to increase accounts and sales. Minimal losses on loans held for sale were realized this quarter compared to gains in prior periods. Other income increased compared to last quarter primarily due to higher unrealized gains on deferred compensation, which was offset in noninterest expense. Noninterest expense increased $5.7 million over last quarter and $6.6 million over the third quarter of last year, primarily due to merger-related expenses and ORE losses.Professional services increased compared to prior periods as a result of merger-related expenses of $4.4 million. Overall, credit costs remained consistent.  However, losses on ORE increased $1.1 million during the quarter primarily related to a writedown on a single commercial ORE property. Salaries and employee benefit costs increased compared to last quarter due to higher deferred compensation expense. Data processing services increased over prior periods as a negotiated reduction in expense expired. Year to date, noninterest expense decreased $11.0 million from 2011 as lower credit costs were partially offset by higher salaries and employee benefits and merger-related expenses.Income Taxes and Deferred Tax AssetCitizens recorded income tax expense of $1.3 million for the third quarter of 2012, compared to a benefit of $12.6 million for the third quarter of 2011.  For the first nine months of 2012, the income tax benefit totaled $275.5 million, compared with a benefit of $22.8 million for the same period of 2011.  The tax benefit for the three months ended September 30, 2011 was largely due to Citizens recording a receivable as a result of a revocation of a tax election.  The increase in tax benefit for the nine months ended September 30, 2012 was primarily the result of eliminating the valuation allowance against our deferred tax asset.   Conference CallCitizens' senior management will review the quarter's results in a conference call at 10:00 a.m. ET on Friday, October 26, 2012.  A live audio webcast is available on Citizens' investor relations page at or by calling (866) 952-1906 (conference ID: Citizens Republic).  To listen to the conference call, please connect approximately 10 minutes prior to the scheduled conference time.  A recording will be available approximately two hours after the completion of the conference call at, where it will be archived for 90 days.Use of Non-GAAP Financial Measures In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this release includes non-GAAP financial measures such as tangible equity to tangible assets ratio, tangible common equity to tangible assets ratio, Tier 1 common equity ratio, pre-tax pre-provision profit, net interest margin, the efficiency ratio, and adjusted earnings per share.  Citizens believes these non-GAAP financial measures provide additional information that is useful to investors in understanding the underlying performance of Citizens, its business and performance trends, and such measures help facilitate performance comparisons with others in the banking industry.  Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited.  Readers should be aware of these limitations and should be cautious as to their use of such measures.  To mitigate these limitations, Citizens has procedures in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety to ensure that Citizens' performance is properly reflected to facilitate consistent period-to-period comparisons.  Although Citizens believes the above non-GAAP financial measures disclosed in this release enhance investors' understanding of its business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures.  See our related Form 8-K for further discussion regarding these non-GAAP financial measures. Corporate ProfileCitizens Republic Bancorp, Inc. is a diversified financial services company providing a wide range of commercial, consumer, mortgage banking, trust and financial planning services to a broad client base.  Citizens serves communities in Michigan, Ohio, and Wisconsin with 219 offices and 249 ATMs.  Citizens is the largest bank holding company headquartered in Michigan with roots dating back to 1871 and is the 57th largest bank holding company headquartered in the United States.  More information about Citizens is available at  Safe Harbor Statement Discussions and statements in this release that are not statements of historical fact, including without limitation, statements that include terms such as "will," "may," "should," "believe," "expect," "anticipate," "estimate," "project," "intend," and "plan," and statements regarding Citizens' future financial and operating results, plans, objectives, expectations and intentions, are forward-looking statements that involve risks and uncertainties, many of which are beyond Citizens' control or are subject to change.  No forward-looking statement is a guarantee of future performance and actual results could differ materially.  Factors that could cause or contribute to actual results differing materially from Citizens' expectations include the risks and uncertainties detailed from time to time in Citizens' annual and quarterly filings with the SEC, which are available at the SEC's website  Other factors not currently anticipated may also materially and adversely affect Citizens' results of operations, cash flows, financial position and prospects.  There can be no assurance that future results will meet expectations.  While Citizens believes that the forward-looking statements in this release are reasonable, you should not place undue reliance on any forward-looking statement.  In addition, these statements speak only as of the date made.  Citizens does not undertake, and expressly disclaims, any obligation to update or alter any statements, whether as a result of new information, future events or otherwise, except as required by applicable law.  Consolidated Balance Sheets (Unaudited)Citizens Republic Bancorp, Inc.September 30,June 30,September 30,(in thousands)201220122011AssetsCash and due from banks$    162,705$     145,432$      147,418Money market investments223,818203,861283,018Investment Securities:    Securities available for sale, at fair value1,541,5671,480,2901,307,977    Securities held to maturity, at amortized cost      (fair value of $1,378,310, $1,349,429 and $1,491,048, respectively)1,313,5041,296,1641,454,873           Total investment securities2,855,0712,776,4542,762,850FHLB and Federal Reserve stock122,123122,123123,696Portfolio loans:    Commercial and industrial1,688,9961,711,4111,531,492    Commercial real estate1,335,6011,417,4091,643,901           Total commercial3,024,5973,128,8203,175,393    Residential mortgage570,295588,144654,561    Direct consumer865,777881,070954,831    Indirect consumer970,235923,714887,542           Total portfolio loans5,430,9045,521,7485,672,327    Less: Allowance for loan losses(122,125)(136,120)(190,354)           Net portfolio loans5,308,7795,385,6285,481,973Loans held for sale30,06214,51830,221Premises and equipment92,00593,64698,954Goodwill318,150318,150318,150Other intangible assets5,7926,3058,116Bank owned life insurance222,610221,965219,248Other assets383,675382,411126,544 Total assets$  9,724,790$  9,670,493$    9,600,188Liabilities Noninterest-bearing deposits$  1,854,715$  1,796,531$    1,621,451Interest-bearing demand deposits1,092,6791,025,305945,458Savings deposits2,574,6422,607,7182,652,267Core deposits5,522,0365,429,5545,219,176Time deposits1,780,9291,858,1552,320,728          Total deposits7,302,9657,287,7097,539,904Federal funds purchased and securities sold      under agreements to repurchase42,79639,16940,599Other short-term borrowings------640Other liabilities168,351154,718154,232Long-term debt852,481853,042855,670Total liabilities8,366,5938,334,6388,591,045Shareholders' EquityPreferred stock - no par value290,580288,723283,360Common stock - no par value1,436,9251,435,9201,433,765Retained deficit(363,659)(378,520)(706,907)Accumulated other comprehensive loss(5,649)(10,268)(1,075)Total shareholders' equity1,358,1971,335,8551,009,143  Total liabilities and shareholders' equity$  9,724,790$  9,670,493$    9,600,188  Consolidated Statements of Operations (Unaudited)Citizens Republic Bancorp, Inc.Three Months EndedNine Months EndedSeptember 30,September 30,(in thousands, except per share amounts)2012201120122011Interest Income   Interest and fees on loans$   73,376$   77,212$ 222,205$ 235,600   Interest and dividends on investment securities:      Taxable16,03420,50849,35660,664      Tax-exempt2,1572,6136,6108,412   Dividends on FHLB and Federal Reserve stock1,1969743,4873,143   Money market investments152168481670      Total interest income92,915101,475282,139308,489Interest Expense   Deposits8,77913,52829,24344,945   Short-term borrowings11204257   Long-term debt8,3209,08625,25128,426      Total interest expense17,11022,63454,53673,428Net Interest Income75,80578,841227,603235,061Provision for loan losses5,19517,48118,891123,801      Net interest income after provision for loan losses70,61061,360208,712111,260Noninterest Income   Service charges on deposit accounts9,55410,36227,89429,544   Trust fees3,6353,62210,81811,356   Mortgage and other loan income2,0282,0895,8396,915   Brokerage and investment fees1,8311,1884,4863,829   Card-based and other nondeposit fees4,4314,47513,14012,862   Net (losses) gains on loans held for sale(184)1,9527392,025   Investment securities gains (losses)---3---(1,373)   Other income2,4157367,3805,737      Total noninterest income23,71024,42770,29670,895Noninterest Expense   Salaries and employee benefits33,58930,28099,68792,563   Occupancy6,1296,12518,96519,734   Professional services6,8062,39411,2947,020   Equipment2,9372,9189,1448,811   Data processing services4,4273,82312,19612,422   Advertising and public relations1,8472,1794,8904,550   Postage and delivery1,1571,1423,3753,378   Other loan expenses3,1213,9419,57412,510   Losses on other real estate (ORE)9411,21038211,687   ORE expenses3235291,0393,326   Intangible asset amortization5137321,6362,338   Other expense10,26510,13833,31238,172      Total noninterest expense72,05565,411205,494216,511Income (Loss) before Income Taxes 22,26520,37673,514(34,356)Income tax provision (benefit)1,274(12,568)(275,514)(22,779)Net Income (Loss)20,99132,944349,028(11,577)Dividend on redeemable preferred stock(6,130)(5,761)(18,127)(17,088)Net Income (Loss) Attributable to Common Shareholders$   14,861$   27,183$ 330,901$  (28,665)Net Income (Loss) Per Common Share:   Basic$      0.37$      0.68$      8.19$     (0.73)   Diluted0.370.688.19(0.73)Average Common Shares Outstanding:    Basic39,48939,43339,46939,418   Diluted39,48939,43339,46939,418  Selected Quarterly Information (Unaudited)Three Months EndedSeptember 30,June 30,March 31,December 31,September 30,(in thousands, except per share amounts)20122012201220112011Summary of OperationsNet interest income$           75,805$      75,680$      76,119$        78,049$        78,841Provision for loan losses5,1955,2998,39715,00717,481Noninterest income23,71022,34524,24024,36324,427Noninterest expense72,05566,33967,10166,64065,411Income before income taxes22,26526,38724,86120,76520,376Income tax provision (benefit)(1)1,274(276,789)---2,521(12,568)Net income20,991303,17624,86118,24432,944Net income attributable to common shareholders (2)14,861297,13418,90612,34727,183Taxable equivalent adjustment1,5031,5321,5711,6701,827Per Common Share Data (3) Net income:      Basic$               0.37$          7.35$          0.47$            0.31$            0.68      Diluted 0.377.350.470.310.68Common book value26.3625.8518.8318.2418.03Tangible book value (non-GAAP)25.5324.9717.8817.2416.96Tangible common book value (non-GAAP)18.3617.8410.7510.169.92Shares outstanding, end of period (4)40,508,82340,504,63740,247,24140,260,21340,255,758At Period EndAssets$       9,724,790$  9,670,493$  9,577,346$    9,462,849$    9,600,188Earning assets8,600,7318,588,3438,774,1198,680,9958,824,183Portfolio loans5,430,9045,521,7485,528,0635,529,5355,672,327Allowance for loan losses122,125136,120153,007172,726190,354Deposits7,302,9657,287,7097,490,3627,394,9417,539,904Long-term debt852,481853,042853,599854,185855,670Shareholders' equity1,358,1971,335,8551,044,6191,019,5371,009,143Average for the QuarterAssets$       9,723,587$  9,429,050$  9,521,386$    9,523,184$    9,596,275Earning assets8,638,3908,622,0678,750,0788,761,4358,856,072Portfolio loans5,501,4005,517,7265,508,5285,632,4325,663,058Allowance for loan losses135,968152,154172,509190,163206,119Deposits7,323,7537,317,6537,441,6937,452,1377,546,615Long-term debt852,776853,333853,912856,206862,479Shareholders' equity1,345,8171,061,5191,028,4941,017,082991,602Financial Ratios (annualized)Return on average assets0.86%12.93%1.05%0.76%1.36%Return on average shareholders' equity6.20114.879.727.1213.18Average shareholders' equity / average assets13.8411.2610.8010.6810.33Net interest margin (FTE) (5)3.573.603.563.623.63Efficiency ratio (non-GAAP)(6)65.2065.9965.2061.3959.89Allowance for loan losses as a percent of portfolio loans2.252.472.773.123.36Allowance for loan losses as a percent of nonperforming loans(7)191.29161.53202.56197.56190.09Allowance for loan losses as a percent of nonperforming assets(7)141.69144.85168.87168.97139.01Nonperforming loans as a percent of portfolio loans(7)1.181.531.371.581.77Nonperforming assets as a percent of total loans plus ORAA(7)(8)1.581.691.631.842.39Nonperforming assets as a percent of total assets(7)0.890.970.951.081.43Ratio of net charge-offs during period to average portfolio loans1.391.622.052.302.34Leverage ratio9.669.778.718.458.21Tier 1 capital ratio15.0914.7013.7013.5112.81Total capital ratio16.3515.9614.9714.8414.14(1)Second quarter 2012 benefit is directly related to the restoration of the deferred tax asset.(2)Net income attributable to common shareholders includes a non-cash dividend to preferred shareholders of $6.0 million in the third, second, and first quarters of  2012 and $5.9 million, and $5.8 million in the fourth, and third quarters of 2011.(3) Earnings per share in the second quarter of 2012 includes a tax benefit of $6.85 per share related to restoring the deferred tax asset.(4)Includes participating shares which are restricted stock units and restricted shares.(5)Net interest margin is presented on an annual basis, includes taxable equivalent adjustments to interest income and is based on a tax rate of 35%.(6)Efficiency ratio (non-GAAP) is calculated as follows: (Noninterest expense-Losses on other real estate ("ORE")-ORE expenses-Intangible amortization-Merger related expenses)/(Net interest income+Taxable equivalent adjustment+Total noninterst income-Investment securities gains(losses)).(7)Nonperforming loans/assets exclude troubled debt restructurings (TDRs) that are on an accrual status and performing in accordance with their modified terms.(8)Other real estate assets acquired (ORAA) include loans held for sale. Loan Portfolios(in thousands)September 30, 2012June 30, 2012March 31, 2012December 31, 2011September 30, 2011Land hold$               4,984$              5,119$              5,387$               6,542$            6,818Land development7,5217,0067,22613,10422,232Construction6,6894,5916,4105,8475,410Income producing767,202803,546877,461913,755975,262Owner-occupied549,205597,147590,575605,113634,179  Total commercial real estate1,335,6011,417,4091,487,0591,544,3611,643,901Commercial and industrial1,688,9961,711,4111,657,1401,543,5291,531,492  Total commercial3,024,5973,128,8203,144,1993,087,8903,175,393Residential mortgage570,295588,144611,166637,245654,561Direct consumer865,777881,070903,238933,314954,831Indirect consumer970,235923,714869,460871,086887,542  Total consumer2,406,3072,392,9282,383,8642,441,6452,496,934Total portfolio loans$         5,430,904$       5,521,748$       5,528,063$         5,529,535$      5,672,327 Delinquency Rates By Loan PortfolioSeptember 30, 2012June 30, 2012March 31, 2012December 31, 2011September 30, 201130 to 89 days past due (in thousands)$% of Portfolio$% of Portfolio$% of Portfolio$% of Portfolio$% of PortfolioLand hold$          ------%$          ------%$          ------%$         210.32%$           ------%Land development------------1301.81------2160.97Construction------------------------------Income producing1,1040.141,5190.191,4470.162,5080.273,3250.34Owner-occupied4,5980.849360.165,1770.882,3450.395,8170.92  Total commercial real estate5,7020.432,4550.176,7540.454,8740.329,3580.57Commercial and industrial8800.051,5650.092,8870.172,4540.162,5940.17  Total commercial6,5820.224,0200.139,6410.317,3280.2411,9520.38Residential mortgage6,0291.067,7311.317,5681.249,5441.509,0791.39Direct consumer11,4351.3212,3961.4114,0021.5517,8101.9118,6291.95Indirect consumer7,5140.778,5040.928,7801.0113,0671.509,8981.12  Total consumer24,9781.0428,6311.2030,3501.2740,4211.6637,6061.51Total delinquent loans$   31,5600.58$   32,6510.59$   39,9910.72$   47,7490.86$     49,5580.87 Nonperforming Assets                              September 30, 2012June 30, 2012March 31, 2012December 31, 2011September 30, 2011(in thousands)$% of Portfolio$% of Portfolio$% of Portfolio$% of Portfolio$% of PortfolioLand hold$        3266.54%$        3266.37%$          ------%$          ------%$         1672.45%Land development30.0430.052072.872131.62120.05Construction------------1502.341502.572574.76Income producing12,9041.6819,4082.4218,5662.1221,1712.3223,2272.38Owner-occupied13,1462.3918,1873.0520,7163.5123,7983.9327,5404.34  Total commercial real estate26,3791.9837,9242.6839,6392.6745,3322.9451,2033.11Commercial and industrial9,1900.5421,6761.2714,6290.8816,9461.1018,5361.21  Total nonaccruing commercial35,5691.1859,6001.9054,2681.7362,2782.0269,7392.20Residential mortgage15,2712.6813,4742.2911,1371.8211,3121.7813,0742.00Direct consumer10,5521.229,2631.058,8950.9812,1151.3014,7041.54Indirect consumer2,3910.251,8750.201,0740.129530.111,2560.14  Total nonaccruing consumer28,2141.1724,6121.0321,1060.8924,3801.0029,0341.16    Total nonaccruing loans63,7831.1784,2121.5375,3741.3786,6581.5798,7731.74Loans 90+ days still accruing60---59---164---7700.011,3680.02  Total nonperforming portfolio loans63,8431.1884,2711.5375,5381.3787,4281.58100,1411.77Nonperforming held for sale16,6508873,2642,37220,134Other repossessed assets acquired5,7008,81711,80312,42216,665  Total nonperforming assets$   86,193$   93,975$   90,605$ 102,222$   136,940Restructured loans still accruing$   21,433$   18,187$   17,911$   32,347$     12,206Commercial inflows$     4,572$   23,828$   14,027$   13,269$     23,901Commercial outflows(28,603)(18,496)(22,037)(20,730)(17,611)Net change$  (24,031)$     5,332$    (8,010)$    (7,461)$      6,290Net Charge-OffsThree Months EndedSeptember 30, 2012June 30, 2012March 31, 2012December 31, 2011September 30, 2011(in thousands)$% of Portfolio*$% of Portfolio*$% of Portfolio*$% of Portfolio*$% of Portfolio*Land hold$          ------%$        (58)(4.58)%$          ------%$        (33)(2.00)%$           ------%Land development(8)(0.45)1005.76(83)(4.64)3,07993.21430.76Construction(21)(1.24)141.24(101)(6.33)(4)(0.24)(5)(0.34)Income producing2,5821.343,1001.554,1511.9011,9245.183,1561.28Owner-occupied1,8911.372,3841.612,5371.735,7913.802,1291.33  Total commercial real estate4,4441.325,5401.576,5041.7620,7575.335,3231.28Commercial and industrial5,3631.265,2491.233,0290.741,0320.271,2250.32  Total commercial9,8071.2910,7891.399,5331.2221,7892.806,5480.82Residential mortgage2,5151.753,5062.405,0763.341,1700.7318,36411.13Direct consumer4,7902.205,6662.5910,9354.876,9302.955,7102.37Indirect consumer2,0780.852,2250.972,5721.192,7461.252,7971.25  Total consumer9,3831.5511,3971.9218,5833.1410,8461.7626,8714.27  Total net charge-offs$   19,1901.39$   22,1861.62$   28,1162.05$   32,6352.30$     33,4192.34* Represents an annualized rate.  Summary of Loan Loss ExperienceThree Months Ended September 30,June 30,March 31,December 31,September 30,(in thousands)20122012201220112011Allowance for loan losses - beginning of period$        136,120$      153,007$      172,726$      190,354$      206,292Provision for loan losses5,1955,2998,39715,00717,481Charge-offs:Commercial and industrial4,5523,6672,3881,489994Small business1,0392,2711,2653991,132Commercial real estate5,4528,0938,99721,5815,860Total commercial11,04314,03112,65023,4707,986Residential mortgage3,2613,9725,2101,36618,369Direct consumer6,0677,16811,5277,5446,398Indirect consumer3,1723,1573,2513,2293,430Total charge-offs23,54328,32832,63835,60936,183Recoveries:Commercial and industrial108577376609721Small business120112248248180Commercial real estate1,0082,5532,493824537Total commercial1,2363,2423,1171,6811,438Residential mortgage7464661341975Direct consumer1,2771,502592613688Indirect consumer1,094932679483633Total recoveries4,3536,1424,5222,9742,764Net charge-offs19,19022,18628,11632,63533,419Allowance for loan losses - end of period$        122,125$      136,120$      153,007$      172,726$      190,354 Non-GAAP ReconciliationSeptember 30,June 30,March 31,December 31,September 30,(in thousands)20122012201220112011Efficiency Ratio (non-GAAP)Net interest income (A)$        75,805$      75,680$      76,119$       78,049$        78,841Taxable equivalent adjustment (B)1,5031,5321,5711,6701,827Investment securities gains (losses) (C)---------383Noninterest income (D)23,71022,34524,24024,36324,427Noninterest expense (E)72,05566,33967,10166,64065,411(Gains) losses on ORE and ORE expenses (F)1,26493652,0761,739Intangible amortization (G)513545578688732Merger-related expenses (H)4,411------------Efficiency ratio:  (E-F-G-H)/(A+B-C+D)(non-GAAP)65.20%65.99%65.20%61.39%59.89%Tangible Common Equity to Tangible Assets (non-GAAP)Total assets$   9,724,790$ 9,670,493$ 9,577,346$  9,462,849$    9,600,188Goodwill(318,150)(318,150)(318,150)(318,150)(318,150)Other intangible assets(5,792)(6,305)(6,850)(7,428)(8,116)Tangible assets (non-GAAP)$   9,400,848$ 9,346,038$ 9,252,346$  9,137,271$    9,273,922Total shareholders' equity$   1,358,197$ 1,335,855$ 1,044,619$  1,019,537$    1,009,143Goodwill(318,150)(318,150)(318,150)(318,150)(318,150)Other intangible assets(5,792)(6,305)(6,850)(7,428)(8,116)Tangible equity (non-GAAP)$   1,034,255$ 1,011,400$    719,619$     693,959$       682,877Tangible equity$   1,034,255$ 1,011,400$    719,619$     693,959$       682,877Preferred stock(290,580)(288,723)(286,901)(285,114)(283,360)Tangible common equity (non-GAAP)$      743,675$    722,677$    432,718$     408,845$       399,517Tier 1 Common Equity (non-GAAP)Total shareholders' equity$   1,358,197$ 1,335,855$ 1,044,619$  1,019,537$    1,009,143Qualifying capital securities73,66773,66773,66773,66773,667Goodwill(318,150)(318,150)(318,150)(318,150)(318,150)Accumulated other comprehensive loss5,64910,2681,9555,8201,075Disallowed deferred tax asset(235,461)(235,529)---------Other intangible assets(5,792)(6,305)(6,850)(7,428)(8,116)Tier 1 capital (regulatory)$      878,110$    859,806$    795,241$     773,446$       757,619Tier 1 capital (regulatory)$      878,110$    859,806$    795,241$     773,446$       757,619Qualifying capital securities(73,667)(73,667)(73,667)(73,667)(73,667)Preferred stock(290,580)(288,723)(286,901)(285,114)(283,360)Total Tier 1 common equity (non-GAAP)$      513,863$    497,416$    434,673$     414,665$       400,592Net risk-weighted assets (regulatory)$   5,821,748$ 5,851,871$ 5,803,811$  5,723,333$    5,912,527Equity to assets13.97%13.81%10.91%10.77%10.51%Tier 1 common equity(non-GAAP)8.838.507.497.246.77Tangible equity to tangible assets(non-GAAP)11.0010.827.787.597.36Tangible common equity to tangible assets(non-GAAP)7.917.734.684.474.31  Non-GAAP ReconciliationAdjusted earnings per shareNine Months EndedSeptember 30, (in thousands, except per share amounts)20122011Earnings per ShareDiluted net income (loss) per share$            8.19$           (0.73)Restoration of the deferred tax asset6.82---Diluted net income (loss) per share (non-GAAP)$            1.37$           (0.73)An itemized reconciliation between net income on a GAAP basis and net income excluding the benefit of restoring the deferred tax asset (non-GAAP) follows:Numerator:Net income (loss)$       349,028$       (11,577)Restoration of the deferred tax asset(275,484)---Net income (loss) (non-GAAP)73,544(11,577)Dividend on redeemable preferred stock(18,127)(17,088)Net income (loss) attributable to common shareholders (non-GAAP)55,417(28,665)Net income allocated to participating securities1,268---Net income (loss) after allocation to participating securities (non-GAAP)$        54,149$       (28,665)Denominator:Weighted average shares outstanding for basic and dilutive earnings per common share39,46939,418Basic net income (loss) per common share (non-GAAP)$            1.37$           (0.73)Diluted net income (loss) per common share (non-GAAP)1.37(0.73) Pre-tax pre-provision profit (non-GAAP)Three Months Ended (in thousands) September 30, 2012 June 30, 2012March 31, 2012December 31, 2011September 30, 2011Net income$        20,991$   303,176$    24,861$      18,244$        32,944Income tax provision (benefit)1,274(276,789)---2,521(12,568)Provision for loan losses5,1955,2998,39715,00717,481Net losses (gains) on loans held for sale184(6)(916)217(1,952)Investment securities (gains) losses---------(38)(3)Losses (gains) on other real estate (ORE)941(173)(385)1,0811,210Merger-related expenses(1)4,411------------Fair-value adjustment on bank owned life insurance(2)(31)118(205)(100)385Fair-value adjustment on swaps (2)8374(61)(46)268  Pre-tax pre-provision profit (non-GAAP)$        33,048$     31,699$    31,691$      36,886$        37,765(1)Merger-related expenses are contained in line item "Professional services" on Consolidated Statements of Operations.(2)Fair-value adjustment amounts contained in line item "Other income" on Consolidated Statements of Operations.  Noninterest Income and Noninterest ExpenseThree Months EndedSeptember 30,June 30,March 31,December 31,September 30,(in thousands)20122012201220112011Service charges on deposit accounts$              9,554$           9,355$           8,985$           9,724$         10,362Trust fees3,6353,5823,6023,7473,622Mortgage and other loan income2,0281,9521,8582,7052,089Brokerage and investment fees1,8311,3311,3241,2431,188Card-based and other nondeposit fees4,4314,4444,2654,3054,475Gains (losses) on loans held for sale(184)6916(217)1,952Investment securities gains---------383Other income2,4151,6753,2902,818736Total noninterest income$            23,710$         22,345$         24,240$         24,363$         24,427Salaries and employee benefits$            33,589$         32,801$         33,298$         30,952$         30,280Occupancy6,1296,1406,6966,3266,125Professional services(1)6,8062,4652,0232,3112,394Equipment2,9372,9043,3033,3262,918Data processing services4,4273,7214,0483,7093,823Advertising and public relations1,8471,7081,3351,2982,179Postage and delivery1,1571,1191,0991,1651,142Other loan expenses3,1213,2663,1863,4973,941Losses (gains) on other real estate (ORE)941(173)(385)1,0811,210ORE expenses323266450995529Intangible asset amortization513545578688732Other expense10,26511,57711,47011,29210,138Total noninterest expense$            72,055$         66,339$         67,101$         66,640$         65,411(1)Includes merger-related expenses of $4.4 million in the three months ended September 30, 2012.  Average Balances, Yields and RatesThree Months EndedSeptember 30, 2012June 30, 2012September 30, 2011AverageAverageAverageAverageAverageAverage(in thousands)BalanceRateBalanceRateBalanceRateEarning AssetsMoney market investments$              238,4920.25%$       184,6700.25%$       270,4220.25%Investment securities:Taxable2,557,7932.512,577,6462.482,536,9443.23Tax-exempt205,5726.46209,4216.46242,4946.63FHLB and Federal Reserve stock122,1233.90119,4133.87123,9063.13Portfolio loans:Commercial and industrial1,713,3825.421,665,6405.451,440,9685.24Commercial real estate1,382,8734.811,465,1355.041,678,9965.07Residential mortgage580,0024.36601,4394.36693,4944.45Direct consumer873,0575.81890,9575.88967,4436.00Indirect consumer952,0866.05894,5556.15882,1576.56Total portfolio loans5,501,4005.335,517,7265.405,663,0585.43Loans held for sale13,0103.4013,1913.4019,2484.44 Total earning assets8,638,3904.368,622,0674.428,856,0724.64Nonearning AssetsCash and due from banks145,961141,122147,044Premises and equipment92,77594,83699,835Investment security fair value adjustment54,80753,67246,558Other nonearning assets927,622669,507652,885Allowance for loan losses(135,968)(152,154)(206,119)Total assets$           9,723,587$    9,429,050$    9,596,275Interest-Bearing LiabilitiesDeposits:Interest-bearing demand deposits$           1,073,2940.13$       988,8840.14$       976,6370.21Savings deposits2,602,2160.202,677,5240.232,648,6400.33Time deposits1,825,1441.551,916,2941.572,380,3331.80Short-term borrowings45,9740.1037,1480.1343,4450.18Long-term debt852,7763.89853,3333.94862,4794.19Total interest-bearing liabilities6,399,4041.066,473,1831.106,911,5341.30Noninterest-Bearing Liabilities and  Shareholders' EquityNoninterest-bearing demand 1,823,0991,734,9511,541,005Other liabilities155,267159,397152,134Shareholders' equity1,345,8171,061,519991,602Total liabilities and shareholders' equity$           9,723,587$    9,429,050$    9,596,275Interest Spread3.29%3.32%3.34%Contribution of noninterest bearing sources of funds0.280.280.29Net Interest Margin3.57%3.60%3.63% Average Balances, Yields and RatesNine Months Ended September 30, 20122011AverageAverageAverageAverage(in thousands)BalanceRateBalanceRateEarning AssetsMoney market investments$       257,5350.25%$       362,9830.25%Investment securities:Taxable2,561,2622.572,432,2203.33Tax-exempt210,0966.45258,5246.67FHLB and Federal Reserve stock119,8343.88134,9983.11Portfolio loans:Commercial and industrial1,651,2135.491,404,0815.07Commercial real estate1,456,2174.971,828,8005.14Residential mortgage602,9704.35718,0394.68Direct consumer894,6035.86994,1856.06Indirect consumer904,1886.20847,8786.68Total portfolio loans5,509,1915.405,792,9835.44Loans held for sale12,1453.7226,7393.65 Total earning assets8,670,0634.429,008,4474.66Nonearning AssetsCash and due from banks143,373143,254Premises and equipment94,858101,846Investment security fair value adjustment52,77844,256Other nonearning assets751,020662,565Allowance for loan losses(153,480)(241,431)Total assets$    9,558,612$    9,718,937Interest-Bearing LiabilitiesDeposits:Interest-bearing demand deposits$    1,012,1710.15$       958,6340.22Savings deposits2,662,5330.242,633,2550.37Time deposits1,956,3041.602,564,0011.88Short-term borrowings40,6210.1441,9990.18Long-term debt853,3393.95912,7554.16Total interest-bearing liabilities6,524,9681.127,110,6441.38Noninterest-Bearing Liabilities and  Shareholders' EquityNoninterest-bearing demand 1,729,8891,470,866Other liabilities157,746151,525Shareholders' equity1,146,009985,902Total liabilities and shareholders' equity$    9,558,612$    9,718,937Interest Spread3.30%3.28%Contribution of noninterest bearing sources of funds0.280.29Net Interest Margin3.58%3.57%  SOURCE Citizens Republic Bancorp, Inc.For further information: Kristine D. Brenner, Director of Investor Relations, +1-810-257-2506,