FLINT, Mich., Jan. 18 /PRNewswire-FirstCall/ -- Citizens Republic
Bancorp (NASDAQ:CRBC) announced today net income of $0.7 million
for the three months ended December 31, 2006, which includes
restructuring and merger-related expenses associated with the
Republic Bancorp Inc. merger. This represents a decrease of $20.3
million from the third quarter of 2006 net income of $21.0 million
and a decrease of $18.2 million from the fourth quarter of 2005 net
income of $18.9 million. Diluted net income per share was $0.02, a
decrease from $0.49 for the third quarter of 2006 and a decrease
from $0.44 for the same quarter of last year. Annualized returns on
average assets and average equity during the fourth quarter of 2006
were 0.04% and 0.40%, respectively, compared with 1.08% and 12.63%
for the third quarter of 2006 and 0.97% and 11.46% for the same
quarter of 2005. Net income for the year ended December 31, 2006
totaled $63.3 million or $1.47 per diluted share, which represents
a decrease of $17.2 million or 21.3% in net income and a decrease
of $0.38 or 20.5% per diluted share from the same period of 2005.
Citizens Banking Corporation's ("Citizens") merger with Republic
Bancorp Inc. ("Republic") to create Citizens Republic Bancorp
("Citizens Republic") closed on December 29, 2006 and was accounted
for as a purchase. As a result, December 31, 2006 ending balances
incorporate all of Republic's assets and liabilities at estimated
fair market value. Due to the timing of the merger, average
balances and income and expense amounts for the fourth quarter and
the full year reflect only legacy Citizens results, including
Citizens' restructuring and merger-related expenses. All pre-merger
financial data include only legacy Citizens performance and do not
incorporate results of the former Republic. "We are pleased to
report solid results for the year given the challenges of the
Midwest economy and the banking industry," stated William R.
Hartman, chief executive officer. "We made good progress with
initiatives we implemented and grew loans, deposits, and fee income
while reducing nonperforming loans in the legacy Citizens franchise
during 2006. Our recently completed transformational merger with
Republic will position us well to improve revenue growth and
operating efficiency on a basis that is accretive to all
shareholders," continued Hartman. "The combined management team of
Citizens Republic is committed to growing customer relationships by
continuing to provide great service across our expanded franchise
and ensuring a smooth integration process by implementing the best
practices of both companies," commented Dana M. Cluckey, president
and chief operating officer. Key Merger Highlights in the Quarter:
- The transaction is valued at $13.91 per Republic share and
represents total consideration of $1.052 billion, based on
Citizens' average closing price of $27.03 for the ten trading day
period ended December 28, 2006. The aggregate consideration
consists of: - $154.9 million in cash; - $885.0 million in value
from 32.7 million Citizens shares valued for accounting purposes at
$27.03 per share; and - the exchange of Republic unvested
restricted stock, and outstanding stock options and warrants for
Citizens restricted stock and stock options valued for accounting
purposes at $12.3 million. - In conjunction with the approval of
the merger by the Federal Reserve Board of Governors on December
12, 2006, Citizens committed to divest seven Republic branches in
the Flint, Michigan banking market, with approximately $210 million
in deposits. On December 18, 2006, Citizens and Republic announced
that they signed a definitive agreement to sell these branches to
First Place Bank, a wholly owned subsidiary of First Place
Financial Corp., based in Warren, Ohio. This transaction is
expected to close in the second quarter of 2007. - Also on December
18, 2006, Citizens and Republic announced that due to their
overlapping markets, eighteen branches will be consolidated as a
result of the merger. The consolidation of these branches is
scheduled to be completed in the second quarter of 2007. - In
anticipation of the merger with Republic, Citizens completed a
number of transactions during the fourth quarter of 2006: - On
October 3, 2006, Citizens issued $150.0 million in enhanced trust
preferred securities, the proceeds of which were used to finance
the cash portion of the merger consideration and for general
corporate purposes. Until the merger on December 29, 2006, these
funds offset short-term borrowings, resulting in an incremental
impact to net interest income for the fourth quarter of 2006 of
$1.1 million. - Citizens securitized $214.7 million in fixed and
adjustable rate mortgage loans, converting them into
mortgage-backed securities that are accounted for as investment
securities. - Citizens recorded an other than temporary impairment
charge of $7.2 million as an investment security loss due to no
longer having a positive intent to hold $317.3 million of its
investment securities portfolio until recovery. This decision,
along with other planned balance sheet restructuring strategies,
will help Citizens Republic achieve market risk reduction
objectives and improve earnings quality. - Citizens retired $50.0
million of putable Federal Home Loan Bank ("FHLB") debt as a means
of reducing funding costs and improving interest rate risk. This
retirement resulted in a prepayment penalty of $1.8 million. -
Citizens recorded $2.0 million in additional depreciation as a
result of aligning the service life for previously acquired
equipment with the current capitalization policy. - Citizens
recorded a $1.1 million net curtailment loss as a result of
"freezing" its defined benefit pension plans, preserving prior
earned benefits, and replacing future accrual of benefits with
additional benefits under the defined contribution plan. - Citizens
incurred additional expenses of $1.4 million related to re-
branding of marketing materials, branch merchandising costs,
compensation, consulting, and other expenses. - As a result of the
merger on December 29, 2006, Citizens recorded restructuring and
merger-related expenses of $11.3 million and purchase accounting
adjustments to reflect Republic's assets and liabilities at their
respective estimated fair market values. - At the announcement of
the merger on June 27, 2006, Citizens Republic projected annual
cost savings of $28.0 million, of which 70% were anticipated for
2007 and 100% for 2008 and thereafter. Through the integration
process, the projected annual cost savings has increased to $31.0
million and will be phased-in according to the original
expectations. Other Key Performance Highlights in the Quarter: -
Total commercial loans for the fourth quarter of 2006 increased
$1.9 billion over the third quarter of 2006 and increased $2.0
billion over the fourth quarter of 2005. Republic's total
commercial loans at December 31, 2006 were $1.7 billion. Citizens
achieved the eighth consecutive quarter of growth in its legacy
portfolios as a result of strong origination volume in the
Wisconsin and Southeast Michigan markets and the Citizens Bank
Business Finance unit. - Citizens Bank Business Finance, Citizens'
asset-based lending unit, which was formed in the second quarter of
2006, funded approximately $145.0 million during 2006. - Net
charge-offs increased $4.9 million from the third quarter of 2006
and increased $12.7 million from the fourth quarter of 2005. The
large increase as compared with the fourth quarter of 2005 reflects
the $9.1 million insurance recovery received in the fourth quarter
of 2005. Gross charge-offs increased $4.5 million from the third
quarter of 2006 but only increased $0.8 million from the fourth
quarter of 2005 reflecting the seasonal patterns in consumer
charge-offs as well as lower recoveries experienced this quarter. -
Nonperforming loans totaled $60.4 million, an increase of $28.1
million from September 30, 2006. The amount reflects a decrease in
legacy Citizens nonperforming loans of $4.0 million and the
addition of Republic's nonperforming loans at December 31, 2006 of
$32.1 million. Citizens Republic's allowance for loan losses as a
percent of portfolio loans was 1.87% at December 31, 2006 resulting
in a ratio of 286.75% for the allowance for loan losses as a
percent of nonperforming loans. Balance Sheet In the following
discussion, all December 31, 2006 balance sheet amounts reflect
post-merger Citizens Republic balances, including Republic's
balances reflected at estimated fair market value. Balance sheet
amounts as of previous dates are from the legacy Citizens balance
sheets. Citizens Republic's total assets at December 31, 2006 were
$14.0 billion, an increase of $6.3 billion compared with September
30, 2006 and December 31, 2005. Total portfolio loans increased
$3.5 billion over September 30, 2006 and $3.6 billion over December
31, 2005. At December 31, 2006, the fair value of Republic's total
assets and portfolio loans were $5.5 billion and $3.5 billion,
respectively. Total portfolio loans increased primarily as a result
of the Republic merger and strong total commercial originations,
partially offset by declines in the direct consumer loan portfolio
due to weak consumer demand in most of Citizens' markets and the
aforementioned securitization of residential mortgage loans. Total
assets also increased by $764.2 million as a result of recording
purchase accounting adjustments to goodwill and other intangible
assets. Investment securities at December 31, 2006 increased $1.5
billion over September 30, 2006 to $2.9 billion and increased $1.4
billion over December 31, 2005. In addition to the $1.3 billion
impact related to Republic, the investment portfolio also reflects
an increase of $214.7 million in mortgage- backed securities as
Citizens converted fixed and adjustable rate mortgages from the
residential mortgage portfolio into securities. Prior to the fourth
quarter of 2006, total investment securities had been declining as
a result of using portfolio cash flow to reduce short-term
borrowings. Loans held for sale at December 31, 2006 were $172.8
million, an increase of $161.2 million over September 30, 2006 and
an increase of $156.6 million over December 31, 2005. This growth
included $159.4 million from Republic, comprised of both commercial
real estate and direct consumer loans, which were transferred from
the loan portfolio, and residential mortgage loans awaiting sale in
the secondary market. The commercial real estate loans were
transferred to loans held for sale to reflect the alignment with
Citizens' lending philosophies. The consumer loans were transferred
to loans held for sale as a result of the pending branch
divestitures. Total commercial loans at December 31, 2006 increased
$1.9 billion over September 30, 2006 to $5.1 billion and increased
$2.0 billion compared with December 31, 2005. In addition to the
$1.7 billion from Republic, these increases were a result of new
relationships in traditional Michigan and Wisconsin markets, solid
originations from the asset-based lending unit, and continued
strong growth in the Southeast Michigan market. Residential
mortgage loans at December 31, 2006 were $1.5 billion, an increase
of $1.0 billion over September 30, 2006 and December 31, 2005.
While Republic added $1.2 billion to the balance, Citizens' legacy
residential mortgage portfolio decreased as a result of the
aforementioned securitization and transfer of mortgage loans to the
investment securities portfolio. Total consumer loans, which are
comprised of direct and indirect loans, were $2.6 billion at
December 31, 2006, an increase of $0.6 billion over September 30,
2006 and December 31, 2005. Direct consumer loans, which include
direct installment, home equity, and other consumer loans,
increased $0.6 billion over September 30, 2006 and December 31,
2005, primarily as a result of the addition of the Republic
balances. Despite the increases in balances from the Republic
merger, legacy Citizens' balances continued to decline due to a
decrease in historically strong activity where consumers repay
their installment loans using home equity loans and due to weaker
consumer demand in Citizens' markets. Indirect consumer loans,
which are primarily marine and recreational vehicle loans,
decreased $18.9 million or 2.2% from September 30, 2006 as a result
of an anticipated seasonal decline in consumers' interest for
indirect products and was essentially unchanged from December 31,
2005. Goodwill at December 31, 2006 totaled $781.6 million, an
increase of $727.1 million over September 30, 2006 and December 31,
2005. Other intangible assets, which primarily represent a premium
on core deposits, totaled $46.1 million at December 31, 2006, an
increase of $37.1 million over September 30, 2006 and an increase
of $34.9 million over December 31, 2005. The increases were the
result of accounting for the Republic merger as a purchase, where
all assets and liabilities are recorded at their respective
estimated fair market values as of December 29, 2006. The premium
and discounts that resulted from the purchase accounting
adjustments to financial instruments are accreted/amortized to
income/expense over the estimated term of the respective assets and
liabilities, similar to the purchase of a bond at a premium or
discount. This results in a market yield in the income statement
for those assets and liabilities. Assuming a stable market
environment from the date of purchase, Citizens Republic would
expect that as these assets and liabilities mature, they could be
generally replaced with instruments of similar yields. Goodwill is
calculated as the net of the transaction consideration of $1.052
billion plus acquisition costs of $22.0 million, less the estimated
fair market value of Republic's net assets acquired of $322.3
million and core deposit intangibles (after-tax) of $24.6 million.
Total deposits at December 31, 2006 increased $3.1 billion over
September 30, 2006 to $8.7 billion and increased $3.2 billion over
December 31, 2005. Core deposits, which exclude all time deposits,
totaled $4.4 billion at December 31, 2006, an increase of $1.3
billion over September 30, 2006 and an increase of $1.1 billion
over December 31, 2005, primarily as a result of $3.1 billion in
Republic balances. While the legacy Citizens' markets experienced
slight growth during the fourth quarter of 2006, core deposit
balances at December 31, 2006 were lower than December 31, 2005 as
a result of clients migrating from lower cost savings and
transaction accounts into time deposits with higher yields
throughout the year. Time deposits totaled $4.3 billion at December
31, 2006, an increase of $1.7 billion over September 30, 2006 and
an increase of $2.1 billion over December 31, 2005. When compared
with September 30, 2006, the addition of $1.8 billion from Republic
was partially offset by a decrease of $65.3 million in brokered
certificates of deposit, which is one of many wholesale funding
alternatives used by Citizens Republic. In addition to the impact
of the Republic merger, the increase over December 31, 2005
included the result of clients migrating their funds from
lower-cost deposits and some new client growth. Other
interest-bearing liabilities, which include federal funds purchased
and securities sold under agreements to repurchase, other
short-term borrowings, and long-term debt, were $3.6 billion at
December 31, 2006, an increase of $2.2 billion over September 30,
2006 and an increase of $2.0 billion over December 31, 2005. In
addition to $1.9 billion from Republic, the increases were the
result of Citizens' issuance of $150.0 million in enhanced trust
preferred securities on October 3, 2006. The proceeds from the
offering were used to finance the cash portion of the merger
consideration and for general corporate purposes. As a result of
adopting Statement of Financial Accounting Standards No. 158,
"Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans-an amendment of FASB Statements No. 87, 88,
106, and 132(R)," Citizens recorded an after-tax charge to other
comprehensive income of $9.5 million. Net Interest Margin and Net
Interest Income In the following discussion of net interest margin
and net interest income, all amounts are legacy Citizens only due
to the timing of the Republic merger. Net interest margin was 3.67%
for the fourth quarter of 2006 compared with 3.78% for the third
quarter of 2006 and 3.95% for the fourth quarter of 2005. The
decreases were due to funds migrating within the deposit portfolio
from lower cost savings and transaction accounts to higher cost
savings and time deposits, continued pricing pressure on loans, the
continued effects of the interest rate environment, and the
aforementioned issuance of $150.0 million of enhanced trust
preferred securities, which accounted for six basis points of the
decline, partially offset by a shift in asset mix from investment
securities to higher yielding commercial loans. The decrease in net
interest margin compared with the fourth quarter of 2005 was
partially offset by the full quarter effect of the restructuring of
the investment portfolio and the pay down of short-term borrowings
during the fourth quarter of 2005. For the year ended December 31,
2006, net interest margin declined to 3.81% compared with 3.94% for
the same period of 2005 as a result of the aforementioned factors.
Net interest income was $64.0 million in the fourth quarter of 2006
compared with $65.6 million in the third quarter of 2006 and $69.1
million in the fourth quarter of 2005. The decrease in net interest
income compared with the third quarter of 2006 was driven by the
decline in the net interest margin, partially offset by an increase
in average earning assets of $36.2 million as growth in the
commercial and commercial real estate portfolios was partially
offset by declines in the investment securities, residential
mortgage and consumer portfolios. The decrease in net interest
income compared with the fourth quarter of 2005 resulted primarily
from the decline in the net interest margin. Average earning assets
decreased by $0.4 million from the fourth quarter of 2005 as
declines in investment portfolio balances, loans held for sale, and
residential mortgage and consumer loan portfolios, were
substantially offset by growth in the commercial and commercial
real estate loan portfolios. The decrease in the investment
portfolio was the result of the fourth quarter of 2005
restructuring and maturing balances not being fully reinvested. Net
interest income for the full year 2006 totaled $263.1 million,
compared with $275.7 million for 2005. The decrease was due to the
lower net interest margin and a decrease in average earning assets
of $78.4 million. The decline in average earning assets resulted
from declines in the investment, loans held for sale and consumer
loan portfolios, partially offset by growth in the commercial,
commercial real estate, and residential mortgage loan portfolios.
The decrease in the investment portfolio was the result of the
fourth quarter of 2005 repositioning and maturing balances not
being fully reinvested. Credit Quality In the following discussion,
all December 31, 2006 balance sheet amounts reflect post-merger
Citizens Republic balances, while all other amounts are legacy
Citizens only. Nonperforming assets totaled $103.4 million at
December 31, 2006, an increase of $63.4 million over September 30,
2006. The increase reflects $66.3 million related to the Republic
merger and a decrease of legacy Citizens' nonperforming assets of
$3.0 million or 7.5% from September 30, 2006. The legacy Citizens
decrease from September 30, 2006 reflects reductions in the
residential mortgage and total commercial nonperforming loans.
Nonperforming assets at December 31, 2006 represented 1.12% of
total loans plus other repossessed assets acquired compared with
0.69% at September 30, 2006 and 0.71% at December 31, 2005. For the
legacy Citizens portfolios only, at December 31, 2006 nonperforming
assets as a percent of total loans plus repossessed assets acquired
were 0.65%. The decrease from the fourth quarter of 2005 included
the effects of the second quarter 2006 sale of nonperforming
commercial loans with aggregate balances of $4.5 million. For the
legacy Citizens' portfolios only, nonperforming commercial loan
inflows increased to $7.9 million in the fourth quarter of 2006
compared with $7.5 million in the third quarter of 2006 and $10.6
million in the fourth quarter of 2005. Nonperforming commercial
loan outflows were $10.2 million for the fourth quarter of 2006
compared with $5.0 million in the third quarter of 2006 and $13.8
million in the fourth quarter of 2005. Net charge-offs increased to
$7.6 million or 0.52% of average portfolio loans in the fourth
quarter of 2006 compared with $2.7 million or 0.19% of average
portfolio loans in the third quarter of 2006 and $(5.1) million or
(0.36)% of average portfolio loans in the fourth quarter of 2005.
The increase from the third quarter 2006 was the result of an
anticipated seasonal increase in the indirect consumer charge-offs
and increases in the real estate related portfolios (commercial,
residential mortgage and home equity), reflecting deterioration
within the real estate related portfolios, and lower recoveries.
One commercial credit accounted for $1.0 million of the increase in
commercial charge-offs. The increase from the fourth quarter of
2005 was due to higher net charge-offs in most loan portfolios and
a $9.1 million insurance settlement received in the fourth quarter
of 2005, which was accounted for as a loan loss recovery. The
provision for loan losses was $5.9 million in the fourth quarter of
2006 compared with $1.2 million in the third quarter of 2006 and
$(7.3) million in the fourth quarter of 2005. The increase over the
third quarter of 2006 was due to a slight movement in the risk
position of the loan portfolio caused by an increase in watch
loans, recognized loan deterioration in the real estate related
portfolios, overall loan portfolio mix changes due to the
aforementioned residential mortgage securitization, and Citizens'
proactive credit philosophy. The increase over the fourth quarter
of 2005 provision reflected the aforementioned insurance settlement
and a fourth quarter of 2005 reduction in the reserve of $1.5
million related to a previous mortgage recourse transaction as well
as the aforementioned fourth quarter of 2006 risk changes. For the
full year of 2006, the provision for loans losses totaled $11.3
million, an increase of $10.2 million over the same period of 2005.
The increase was primarily the result of the aforementioned $9.1
million insurance settlement which was accounted for as a loan loss
recovery in the fourth quarter of 2005 and the aforementioned
fourth quarter of 2006 risk changes. As a result of the net effect
of higher loan portfolio balances as well as changes in net
charge-offs and the provision for loan losses, the allowance for
loan losses totaled $173.1 million or 1.87% of portfolio loans at
December 31, 2006. The allowance included an acquired allowance of
$61.7 million as a result of the Republic merger. Noninterest
Income Due to the timing of the Republic merger, the following
discussion of noninterest income reflects only legacy Citizens'
results. Noninterest income for the fourth quarter of 2006 was
$17.8 million, a decrease of $5.8 million or 24.5% from the third
quarter of 2006 and an increase of $6.8 million or 62.1% over the
fourth quarter of 2005. The decrease from the third quarter of 2006
was the result of a net loss on investment securities, partially
offset by increases in trust fees as well as mortgage and other
loan income. The increase from the fourth quarter of 2005 was the
result of increases in service charges on deposit accounts,
mortgage and other loan income, a $3.6 million charge in the fourth
quarter of 2005 associated with the accounting treatment for swaps
hedging brokered certificates of deposit (CDs), and a lower net
loss on the sales of securities, partially offset by decreases in
trust fees and other income. Citizens recorded an other than
temporary impairment charge of $7.2 million (investment security
loss) in the fourth quarter of 2006 as it no longer had a positive
intent to hold $317.3 million of its investment portfolio to
recovery in preparation for balance sheet restructuring associated
with completing the Republic merger. In the fourth quarter of 2005,
a net loss of $9.0 million was recorded on the sale of $322.4
million of securities as Citizens reduced investment portfolio
duration, prepayment option risk, and reliance on wholesale
borrowings. For the full year of 2006, noninterest income totaled
$90.6 million, an increase of $10.1 million or 12.6% over the same
period of 2005. The increase was the result of higher service
charges on deposit accounts, trust fees, bankcard fees, the
aforementioned fourth quarter of 2005 fair value charge on brokered
CDs, fully recognizing the deferred gain of $2.9 million on the
2004 sale of the former downtown Royal Oak, Michigan office during
the first quarter of 2006 and the aforementioned lower net losses
on the sales of securities. The impact of these factors was
partially offset by decreases in brokerage and investment fees, and
ATM network user fees. Service charges on deposit accounts for the
fourth quarter of 2006 were $9.6 million, essentially unchanged
from the third quarter of 2006 and an increase of $0.7 million or
7.6% over the fourth quarter of 2005. For the full year of 2006,
service charges on deposit accounts totaled $37.7 million, an
increase of $2.3 million or 6.5% over the same period of 2005. The
increases were the result of revenue enhancement initiatives
implemented in the first quarter of 2006. Trust fees for the fourth
quarter of 2006 were $4.8 million, an increase of $0.2 million or
4.0% over the third quarter of 2006 and a decrease of $0.2 million
or 3.4% from the fourth quarter of 2005. The increase over the
third quarter of 2006 was due to stronger financial markets. The
decrease from the fourth quarter of 2005 was due to lower mutual
fund fees and higher revenue in the fourth quarter of 2005 related
to the implementation of strategies to improve pricing discipline.
For the full year of 2006, trust fees totaled $19.5 million, an
increase of $1.0 million or 5.5% over the same period of 2005. The
increase was attributable to stronger financial markets, continued
execution of the sales management process and improved pricing
discipline, partially offset by attrition. Total trust assets under
administration were $2.7 billion at December 31, 2006, an increase
of $0.1 billion over September 30, 2006 and an increase of $0.2
billion over December 31, 2005. Mortgage and other loan income for
the fourth quarter of 2006 was $2.9 million, an increase of $0.6
million or 27.4% over the third quarter of 2006 and an increase of
$0.8 million or 37.6% over the fourth quarter of 2005. The
increases were due to the mid-2006 alliance with PHH Mortgage,
pursuant to which Citizens sells substantially all of its
origination volume to PHH Mortgage. For the full year of 2006,
mortgage and other loan income totaled $9.3 million, an increase of
$0.3 million or 3.2% over the same period of 2005. The increase
reflects the impact of the alliance with PHH Mortgage, partially
offset by the impact of an unfavorable rate environment since the
first quarter of 2005. Brokerage and investment fees for the fourth
quarter of 2006 were $1.9 million, essentially unchanged from the
third quarter of 2006 and the fourth quarter of 2005. For the full
year of 2006, brokerage and investment fees totaled $7.0 million, a
decrease of $0.8 million or 10.4% from the same period of 2005. The
decrease was the result of Citizens' strategy implemented in the
first quarter of 2006, which shifted a large portion of its
brokerage fee production from reliance on referrals from the branch
network and sales campaigns to its Investment Center financial
consultants. This change supports Citizens' strategy of growing
low-cost deposits, as its financial consultants increased their
focus on attracting funds from new sources outside of Citizens and
the branch network continued to improve on providing an enhanced
client experience. Over 90% of the brokerage and investment sales
generated in 2006 came from external sources. While initially slow
to transition, Citizens experienced strong performance from the
financial consultants during the last two quarters of 2006. For the
fourth quarter of 2006, all other noninterest income categories,
which include ATM network user fees, bankcard fees, fair value
change in CD swap derivatives, other income, and investment
securities gains (losses), totaled $(1.5) million, a decrease of
$6.6 million from the third quarter of 2006 and an increase of $5.6
million over the fourth quarter of 2005. The decrease from the
third quarter of 2006 was primarily the result of the
aforementioned net loss on the sales of securities of $7.2 million.
The increase over the fourth quarter of 2005 was primarily the
result of the aforementioned $3.6 million charge on the fair value
change in CD swap derivatives in the fourth quarter of 2005 and a
lower net loss on sales of securities in the fourth quarter of 2006
than in the fourth quarter of 2005, partially offset by lower title
insurance income as a result of closing Citizens' title company
during the third quarter of 2006 in conjunction with the PHH
Mortgage alliance and losses on the sale of several former branch
properties. For the full year of 2006, all other noninterest income
categories totaled $17.2 million, an increase of $7.3 million or
74.2% over the same period of 2005. The increase was primarily the
result of the aforementioned $2.9 million gain on the sale of the
former downtown Royal Oak, Michigan office, the aforementioned $3.6
million charge on the fair value change in CD swap derivatives in
2005, and the aforementioned net losses on sales of securities,
partially offset by the effects of the aforementioned closing of
the Citizens' title company and by the effects of three items
received in 2005: a performance-related penalty received from a
third party vendor, a preference payment on Citizens' membership
interest in the PULSE ATM network, and income recognized in
conjunction with a venture capital investment by the holding
company. Noninterest Expense Due to the timing of the Republic
merger, the following discussion of noninterest expense reflects
only legacy Citizens' results. Noninterest expense for the fourth
quarter of 2006 was $78.8 million, an increase of $19.4 million or
32.6% over the third quarter of 2006 and an increase of $17.9
million or 29.4% over the fourth quarter of 2005. The increase over
the third quarter of 2006 was the result of higher salaries and
employee benefits, professional services, equipment, advertising
and public relations, restructuring and merger-related expenses,
and other expense. The increase from the fourth quarter of 2005 was
the result of higher salaries and employee benefits, equipment,
other loan expenses, restructuring and merger- related expenses,
and other expense, partially offset by decreases in professional
services, as well as advertising and public relations. For the full
year of 2006, noninterest expense totaled $259.8 million, an
increase of $16.8 million or 6.9% from the same period of 2005 as
increases in salaries and employee benefits, data processing
services, telephone, restructuring and merger-related expenses and
other expense were partially offset by decreases in professional
services, advertising and public relations, as well as stationery
and supplies. The fourth quarter of 2006 includes $11.3 million in
restructuring and merger-related expenses associated with the
Republic merger. Please see the "Merger Update" section below for
further detail. Salaries and employee benefits for the fourth
quarter of 2006 were $34.9 million, an increase of $2.3 million or
7.1% over the third quarter of 2006 and an increase of $2.5 million
or 7.7% over the fourth quarter of 2005. The increase over the
third quarter of 2006 was the result of higher deferred
compensation expense and incentive compensation, as well as a $1.1
million curtailment charge as a result of changes to Citizens'
pension programs, partially offset by lower social security and
401(k) contributions as maximum contribution levels were met, lower
dental, employee post-retirement benefit expenses, and workers
compensation. The increase over the fourth quarter of 2005 was due
to the aforementioned items from the fourth quarter of 2006:
deferred compensation expense and pension curtailment as well as
the fourth quarter of 2005 reduction to the post-retirement expense
due to plan amendments. Salary costs included $0.1 million in
severance for the fourth quarter of 2006, $0.3 million in the third
quarter of 2006 and $0.7 million in the fourth quarter of 2005.
Citizens Republic had 2,940 full-time equivalent employees at
December 31, 2006. Citizens had 2,046 full-time equivalent
employees at December 31, 2006, compared with 2,070 at September
30, 2006 and 2,123 at December 31, 2005. For the full year of 2006,
salaries and employee benefits totaled $132.4 million, essentially
unchanged from the same period in 2005 as decreases in
hospitalization, social security and workers compensation were
substantially offset by increases in salary costs due to merit
increases awarded in 2006, higher stock-based compensation
resulting from a 2005 plan enhancement awarding primarily
restricted stock to employees, as well as the aforementioned $1.1
million pension curtailment charge in the fourth quarter of 2006.
Professional services for the fourth quarter of 2006 increased $0.6
million or 17.0% over the third quarter of 2006 to $4.1 million and
decreased $0.8 million or 15.7% from the fourth quarter of 2005.
The increase over the third quarter of 2006 was the result of
additional consulting expenses related to information technology
functions filling open staffing positions for routine operations
while existing staff focused on the merger and system integration
planning activities. For the full year of 2006, professional
services totaled $15.3 million, a decrease of $1.9 million or 11.2%
from the same period of last year. The decreases were the result of
several initiatives during late 2005 and early 2006 targeted at
developing corporate strategies to produce enhanced profitability
and revenue momentum, enhance overall corporate risk management and
ensure regulatory compliance. Equipment costs for the fourth
quarter of 2006 totaled $5.0 million, an increase of $1.8 million
over both the third quarter of 2006 and the fourth quarter of 2005.
The increases were the result of $2.0 million in additional
depreciation in the fourth quarter of 2006 as a result of aligning
the service life of previously acquired equipment with the current
capitalization policy. For the full year of 2006, equipment costs
totaled $14.7 million, essentially unchanged from the same period
in 2005. Data processing fees for the fourth quarter of 2006
totaled $3.8 million, essentially unchanged from the third quarter
of 2006 and the fourth quarter of 2005. For the full year of 2006,
data processing fees totaled $15.0 million, an increase of $1.2
million or 8.6% over the same period of 2005. The increase was the
result of implementing enhanced technology initiatives related to
customer online banking functionality in the fourth quarter of
2005. Advertising and public relations expense for the fourth
quarter of 2006 increased $0.5 million or 40.5% over the third
quarter of 2006 to $1.7 million and decreased $0.9 million or 33.8%
from the fourth quarter of 2005. The increase over the third
quarter of 2006 was the result of product campaigns initiated in
the third quarter of 2006 as well as market research and customer
communication related to the Republic merger. The decrease from the
fourth quarter of 2005 was the result of several product campaigns
focused on creating deposit generation during the fourth quarter of
2005, partially offset by the aforementioned market research and
customer communication in the fourth quarter of 2006 related to the
Republic merger. For the full year of 2006, advertising and public
relations expense totaled $5.9 million, a decrease of $2.0 million
or 25.1% from the same period of 2005. The decrease was the result
of an overall reduction in the amount of market-specific
advertising completed in 2006. Telephone expense for the fourth
quarter of 2006 totaled $1.5 million, an increase of $0.1 million
or 9.5% over the third quarter of 2006 and an increase of $0.2
million or 14.5% over the fourth quarter of 2005. For the full year
of 2006, telephone expense totaled $5.8 million, an increase of
$0.3 million or 5.4% over the same period of 2005. The increases
were the result of higher cell phone volume, higher usage charges
as a result of the acquisition of the previous provider, and more
audio conferences to bring the merger integration teams together.
Other loan expenses for the fourth quarter of 2006 totaled $1.4
million, essentially unchanged from the third quarter of 2006 and
an increase of $0.7 million over the fourth quarter of 2005. The
increase over the fourth quarter of 2005 was the result of higher
other mortgage processing fees due to the alliance with PHH
Mortgage, partially offset by lower expenses related to processing
commercial loans. For the full year of 2006, other loan expenses
totaled $4.4 million, an increase of $1.8 million or 67.5% over the
same period of 2005. The increase was the result of the
aforementioned alliance with PHH Mortgage and higher expenses
related to processing commercial loans, partially offset by lower
provisioning to fund the reserve for unused loan commitments, which
fluctuates with the amount of unadvanced customer lines of credit.
Stationery and supplies decreased $0.1 million or 20.5% from the
third quarter of 2006 to $0.5 million and decreased $0.3 million or
38.4% from the fourth quarter of 2005. For the full year of 2006,
stationery and supplies totaled $2.5 million, a decrease of $0.6
million or 18.1% from the same period of 2005. The decreases were
the result of utilizing an online procurement system that has
improved expense management. For the fourth quarter of 2006, all
other noninterest expense categories, which include occupancy,
postage and delivery, intangible asset amortization, restructuring
and merger-related expenses, and other expenses, increased $14.2
million over the third quarter of 2006 to $25.9 million and
increased $14.6 million over the fourth quarter of 2005. The
increases were primarily the result of several fourth quarter of
2006 items: $1.8 million prepayment penalty on the retirement of
FHLB debt, $11.3 million in restructuring and merger-related
expenses (see "Merger Update" below for detail), and $1.2 million
in non-credit related losses associated with litigation settlements
and write-downs on several former branch locations, partially
offset by lower occupancy and postage and delivery. For the full
year of 2006, all other noninterest expense categories totaled
$63.8 million, an increase of $17.7 million or 38.3% over the same
period of 2005. The increase was primarily the result of the
restructuring and merger-related expense as well as the first
quarter of 2006 $1.5 million contribution to Citizens' charitable
foundation; the second quarter of 2006 non-credit related losses
from a third party vendor contract and write downs of tax-credit
related investments in low income housing and community development
projects; and the aforementioned fourth quarter of 2006 items: FHLB
prepayment penalty, and non-credit related losses; and to a lesser
extent higher expenses related to other real-estate owned, travel,
and state taxes. These items were partially offset by a reduction
in other expenses associated with the aforementioned closing of the
Citizens' title company during 2006 and a foreign corporation fee
paid to the Wisconsin Department of Treasury as a result of merging
the Michigan and Wisconsin bank charters in April 2005. Income Tax
Provision Due to the timing of the Republic merger, the following
discussion of income tax provision reflects only legacy Citizens'
results. Income tax provision (benefit) for the fourth quarter of
2006 was ($3.6) million, a decrease of $11.3 million from the third
quarter 2006 and a decrease of $11.2 million from the fourth
quarter 2005. The decreases were due to lower pre-tax income in
fourth quarter of 2006. For the full year of 2006, income tax
expense totaled $19.3 million, a decrease of $12.3 million, or
38.8% compared with 2005. The decrease was due to lower pre-tax
income for 2006 and a $1.3 million ($0.8 million after-tax)
reduction in the deferred Wisconsin state income tax asset during
the second quarter of 2005 as a result of the merger of the
Michigan and Wisconsin bank charters. The effective tax rate for
2006 was 23.37% compared with 28.17% for 2005. Merger Update On
June 27, 2006, Citizens and Republic announced merger plans to
create the 45th largest bank holding company headquartered in the
United States. As a result of other pending mergers within the
industry, Citizens Republic is now projected to be the 42nd largest
bank holding company. The strategic rationale for establishing the
new Citizens Republic includes: - Dramatically improves scale and
footprint and should enhance franchise value and strategic options,
- Has the potential to create greater revenue synergy than most
bank mergers due to the complimentary aspect of the two
organizations, - Creates meaningful cost reduction opportunities, -
Strengthens management and market teams, - Will have manageable
execution risk, - Will be GAAP and cash accretive in 2007, and -
Should eliminate the need for continued costly de novo expansion in
Southeast Michigan. Citizens Republic provides a full complement of
commercial, commercial real estate, SBA, cash management, wealth
management, specialty lending products and services, comprehensive
consumer products and services, residential mortgages, and indirect
lending to its customers throughout the communities it serves.
After the aforementioned branch divestitures and branch
consolidations, Citizens Republic will have 245 offices and 287
ATMs in Michigan, Wisconsin, Ohio, Iowa, and Indiana, as well as
enhanced call center and internet banking capabilities. The
partnership increases the Southeast Michigan presence from 18
legacy Citizens locations to 32 locations after branch
consolidations, adds fourteen branch locations in Cleveland and
Akron, Ohio with $370.2 million in deposits, and places over 35% of
Citizens Republic's deposits in high-growth markets. The merger
also makes Citizens Republic the seventh largest bank operating in
Michigan with approximately 5% of the total deposits in Michigan.
Since the merger announcement on June 27, 2006, integration teams
were formed and met on a regular basis to prepare for the
post-merger integration. The teams have made numerous
recommendations to the merger executive committee regarding
strategic direction, process design, product and service design,
revenue synergies, branding, new organization charts, cost
synergies, and best practices; some of which have already been
implemented. An update on some of the key opportunities include: -
Annual cost savings are projected to be $31.0 million, an increase
of $3.0 million over the original projection of $28.0 million
identified on merger announcement date. Seventy percent of the cost
savings are expected to be realized in 2007 and 100% in 2008 and
thereafter. - As of the merger announcement date, restructuring and
merger-related costs were projected to be $87.0 million. Based on
recommendations from the merger integration teams and subsequently
identifying $8.5 million as fair market value adjustments to be
booked as part of purchase accounting, the projected costs have
been reduced to $67.5 million. The components follow: - Citizens
recorded $30.0 million in acquisition costs, $11.3 million in
restructuring and merger-related expenses, and $2.4 million in
additional expenses in the fourth quarter of 2006 - Assumed
liabilities from Republic were $10.3 million. - Citizens Republic
expects to book an additional $13.5 million in restructuring and
merger-related expenses and capital improvements during 2007. - As
discussed on the merger announcement date, Citizens Republic is
improving the interest rate risk and credit risk positions of the
new company. - Citizens and Republic planned to sell approximately
$1.0 billion in mortgage loans and securities, liquidate $1.0
billion in wholesale funding, and record $20.0 million in
credit-related adjustments. - Several transactions to de-leverage
the balance sheet were completed prior to December 29, 2006 in
anticipation of the merger. - Republic sold $489.5 million of fixed
rate mortgage loans, securitized $390.9 million of mortgages and
transferred them to the investment portfolio, sold $210.9 million
of investment securities, and retired $700.4 million of wholesale
liabilities. - Citizens securitized $214.7 million in mortgages and
transferred them to the investment portfolio - Citizens Republic
expects to complete the remainder of the transactions in the first
quarter of 2007. - Republic recorded certain credit-related
adjustments in the fourth quarter of 2006 that resulted in an
allowance for loan losses of $61.7 million. Additionally, $103.7
million of Republic commercial real estate loans were transferred
to loans held for sale to reflect alignment with Citizens' lending
philosophies. - Additional actions are also planned to capture the
significant revenue synergies created by joining the two
organizations. These revenue synergies were not included in any pro
forma analyses and also were not included in the GAAP and cash
accretion calculation. A number of the processes, practices,
products and services have already been implemented whereas many
are dependent upon the conversion of systems which are planned to
be completed by May 1, 2007. First Quarter 2007 Expectations As a
matter of corporate policy, Citizens Republic does not provide
quantitative guidance regarding its expected financial results or
the underlying components. It has instead provided qualitative
guidance on key components to aid investors and analysts. Due to
the timing of the recent Republic merger and the limited legacy
Republic financial data publicly available for the fourth quarter
of 2006, Citizens Republic has determined, in accordance with its
policy, that qualitative guidance alone for the first quarter of
2007 is unlikely to be useful. Therefore, Citizens Republic is
providing the following quantitative financial guidance for the
first quarter of 2007 only and intends to return to its policy of
providing only qualitative guidance in future quarters. - Net
interest income will include the effects of the Republic merger,
including purchase accounting effects and balance sheet
restructuring, as well as the impact of continued deposit mix
changes. Citizens Republic expects that the purchase accounting
effects will fully offset the impact of the balance sheet
restructuring and the funding cost of the cash component of the
merger consideration. Citizens Republic anticipates that the first
quarter of 2007 will result in a partial slowing of the previous
trends in net interest income due to the balance sheet
restructuring. However, the continuation of customers migrating
funds from lower yielding deposit products into higher yielding
deposit products will continue to result in further pressure on the
net interest margin and net interest income. Therefore, Citizens
Republic anticipates that net interest income will be in the range
of $96.0 million to $98.0 million. - Based on seasonal business
trends and the overall risk in the loan portfolio, Citizens
Republic anticipates net charge-offs and provision expense for the
first quarter of 2007 will be lower than the fourth quarter of
2006. It is expected that both metrics will be similar to the
combined third quarter of 2006 results for both banks due to the
fair market value adjustment of certain loans transferred to loans
held for sale. Therefore, Citizens Republic anticipates that net
charge- offs will be in the range of $4.0 million to $6.0 million
and provision expense will be in the range of $2.0 million to $4.0
million. - Total noninterest income for the first quarter of 2007
will be higher than the fourth quarter of 2006 primarily due to
incorporating noninterest income generated by the legacy Republic
locations and the impairment charge in the fourth quarter of 2006.
Citizens Republic anticipates that total noninterest income will be
in the range of $30.0 million to $32.0 million depending on the
degree of seasonal decreases in mortgage loan origination and the
degree of seasonal decreases in service charges on deposit accounts
historically experienced at the legacy Citizens. - Total
noninterest expense will include the effects of the Republic
merger, including restructuring and merger-related costs and
additional expenses that are related to merger activities but not
treated as restructuring or merger-related expenses and is expected
to be higher than the fourth quarter of 2006 primarily due to
incorporating expenses associated with legacy Republic locations.
Excluding the restructuring and merger-related costs and additional
expenses related to merger activities, Citizens Republic
anticipates that total noninterest expense will be in the range of
$75.0 million to $77.0 million primarily due to lower salaries and
employee benefits, partially offset by higher advertising and
public relations, professional services, other loan expenses, and
other losses. - The effective income tax rate for the first quarter
of 2007 will be higher than the fourth quarter of 2006 due to
incorporating legacy Republic tax effects. Therefore, the effective
tax rate is anticipated to be in the range of 28% to 29%. -
Citizens Republic anticipates that the diluted net income per share
before restructuring and merger-related expenses will be in the
range of $0.46 to $0.49. Other News Citizens Republic CEO to Open
Nasdaq Stock Market On January 24, 2007, William R. Hartman, chief
executive officer, will open the Nasdaq Stock Market to commemorate
the recent merger with Republic Bancorp Inc. This event will be
broadcast live at http://www.nasdaq.com/ beginning at 9:15am EST.
To view the event, please access the site at least fifteen minutes
in advance to download and install any necessary software. Stock
Repurchase Program In anticipation of the merger with Republic,
Citizens did not repurchase any shares of its stock during the
fourth quarter of 2006 under the stock repurchase program. As of
December 31, 2006, there were 1,906,200 shares remaining to be
purchased under the program approved by the company's Board of
Directors on October 16, 2003. Dividend Announcement The Board of
Directors of Citizens Republic Bancorp declared a cash dividend of
$0.29 per share of common stock. The dividend is payable on
February 8, 2007, to shareholders of record on February 1, 2007.
Analyst Conference Call William R. Hartman, CEO, Dana M. Cluckey,
COO, Charles D. Christy, CFO, John D. Schwab, chief credit officer,
Martin E. Grunst, treasurer, and Thomas F. Menacher, integration
manager will review the quarter's results in a conference call for
analysts and investors beginning at 10:00am EDT on Friday, January
19, 2007. A live audio webcast is available at
http://www.citizensonline.com/ through the Investor Relations page
or by calling (800)-896-8445 (conference ID: Citizens Republic). To
participate in the conference call, please connect approximately 10
minutes prior to the scheduled conference time: (800)-896- 8445.
The call will be archived for 90 days at
http://www.citizensonline.com/. In addition, a digital recording
will be available approximately two hours after the completion of
the conference call until January 26, 2007. To listen to the
replay, please dial (888) 219-1269. Corporate Profile Citizens
Republic Bancorp 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 Republic Bancorp serves communities in Michigan, Ohio,
Wisconsin, and Indiana as Citizens Bank and Republic Bank and in
Iowa as F&M Bank, with a total of 270 offices and 287 ATMs.
Citizens Republic Bancorp is the second-largest bank holding
company headquartered in Michigan with roots dating back to 1871.
Citizens Republic is the 42nd largest bank holding company
headquartered in the United States, with $14.0 billion in total
assets. More information about Citizens Republic Bancorp is
available at http://www.citizensonline.com/. Safe Harbor Statement
Discussions in this release that are not statements of historical
fact, including statements that include terms such as "will,"
"may," "should," "believe," "expect," "anticipate," "estimate,"
"project," "intend," and "plan," and statements about the benefits
of the merger, including future financial and operating results,
plans, objectives, expectations and intentions and other statements
that are not historical facts, are forward- looking statements that
involve risks and uncertainties. Any forward-looking statement is
not a guarantee of future performance and actual results could
differ materially from those contained in the forward-looking
information. Factors that could cause or contribute to such
differences include, without limitation, adverse changes in
Citizens Republic's loan and lease portfolios resulting in credit
risk-related losses and expenses (including losses due to fraud,
Michigan automobile-related industry changes and shortfalls, and
other economic factors) as well as additional increases in the
allowance for loan losses; fluctuations in market interest rates,
the effects on net interest income of changes in Citizens
Republic's interest rate risk position and the potential inability
to hedge interest rate risks economically; adverse changes in
economic or financial market conditions and the economic effects of
terrorist attacks and potential attacks; Citizens Republic's
potential inability to continue to attract core deposits; Citizens
Republic's potential inability to continue to obtain third party
financing on favorable terms; adverse changes in competition,
pricing environments or relationships with major customers;
unanticipated expenses and payments relating to litigation brought
against Citizens Republic from time to time; Citizens Republic's
potential inability to adequately invest in and implement products
and services in response to technological changes; adverse changes
in applicable laws and regulatory requirements; the potential lack
of market acceptance of Citizens Republic's products and services;
changes in accounting and tax rules and interpretations that
negatively impact results of operations or financial position; the
potential inadequacy of Citizens Republic's business continuity
plans or data security systems; the potential failure of Citizens
Republic's external vendors to fulfill their contractual
obligations to Citizens Republic; Citizens Republic's potential
inability to integrate acquired operations, including those
associated with the merger with Republic; unanticipated
environmental liabilities or costs; impairment of the ability of
the banking subsidiaries to pay dividends to the holding company
parent; the potential circumvention of Citizens Republic's controls
and procedures; Citizens Republic's success in managing the risks
involved in the foregoing; and other risks and uncertainties
detailed from time to time in its filings with the SEC, which are
available at the SEC's web site http://www.sec.gov/. Other factors
not currently anticipated may also materially and adversely affect
Citizens Republic's results of operations, cash flows and financial
position. There can be no assurance that future results will meet
expectations. While Citizens Republic 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 Republic 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. (Logo:
http://www.newscom.com/cgi-bin/prnh/20050421/DETH014LOGO)
http://www.newscom.com/cgi-bin/prnh/20050421/DETH014LOGO
http://photoarchive.ap.org/ DATASOURCE: Citizens Banking
Corporation CONTACT: Charles D. Christy, EVP & Chief Financial
Officer, +1-810-237-4200, or , or Kristine D. Brenner, Director of
Investor Relations, +1-810-257-2506, or , both of Citizens Republic
Bancorp Web site: http://www.citizensonline.com/
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