Exhibit 99.1

 

FOR IMMEDIATE RELEASE

CONTACT

Kristine D. Brenner

Director of Investor Relations

(810) 257-2506

kristine.brenner@citizensbanking.com

Citizens Republic Bancorp Reports Solid Third Quarter Results

 

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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

 

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Credit metric trends reflect continued stability and improved performance across the loan portfolio

 

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Pre-tax, pre-provision profit remained strong at $33 million

 

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Announced agreement to merge with FirstMerit Corporation in a stock-for-stock transaction

FLINT, MICHIGAN, October 25, 2012—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 Sheet

Total 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.

 

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Capital Ratios

 

		Regulatory Minimum for “Well- Capitalized”				September 30, 2012				June 30, 2012				September 30, 2011
Leverage ratio			5.00	%			9.66	%			9.77	%			8.21	%
Tier 1 capital ratio			6.00				15.09				14.70				12.81
Total capital ratio			10.00				16.35				15.96				14.14
Tier 1 common equity (non-GAAP)							8.83				8.50				6.77
Tangible equity to tangible assets (non-GAAP)							11.00				10.82				7.36
Tangible common equity to tangible assets (non-GAAP)							7.91				7.73				4.31

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 Quality

Credit quality benefits from proactive credit management as well as returning economic stability.

 

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Total delinquencies decreased 3% from last quarter to $31.6 million and currently represent 0.58% of portfolio loans.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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Minimal losses on loans held for sale were realized this quarter compared to gains in prior periods.

 

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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.

 

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Professional services increased compared to prior periods as a result of merger-related expenses of $4.4 million.

 

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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.

 

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Salaries and employee benefit costs increased compared to last quarter due to higher deferred compensation expense.

 

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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 Asset

Citizens 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 Call

Citizens’ 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 www.citizensbanking.com 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 www.citizensbanking.com, 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 Profile

Citizens 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 57^th largest bank holding company headquartered in the United States. More information about Citizens is available at www.citizensbanking.com.

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 www.sec.gov. Other factors not currently anticipated

 

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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.

 

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Consolidated Balance Sheets (Unaudited)

Citizens Republic Bancorp, Inc.

 

(in thousands)		September 30, 2012				June 30, 2012				September 30, 2011
Assets
Cash and due from banks		$	162,705			$	145,432			$	147,418
Money market investments			223,818				203,861				283,018
Investment Securities:
Securities available for sale, at fair value			1,541,567				1,480,290				1,307,977
Securities held to maturity, at amortized cost (fair value of $1,378,310, $1,349,429 and $1,491,048, respectively)			1,313,504				1,296,164				1,454,873
Total investment securities			2,855,071				2,776,454				2,762,850
FHLB and Federal Reserve stock			122,123				122,123				123,696
Portfolio loans:
Commercial and industrial			1,688,996				1,711,411				1,531,492
Commercial real estate			1,335,601				1,417,409				1,643,901
Total commercial			3,024,597				3,128,820				3,175,393
Residential mortgage			570,295				588,144				654,561
Direct consumer			865,777				881,070				954,831
Indirect consumer			970,235				923,714				887,542
Total portfolio loans			5,430,904				5,521,748				5,672,327
Less: Allowance for loan losses			(122,125	)			(136,120	)			(190,354	)
Net portfolio loans			5,308,779				5,385,628				5,481,973
Loans held for sale			30,062				14,518				30,221
Premises and equipment			92,005				93,646				98,954
Goodwill			318,150				318,150				318,150
Other intangible assets			5,792				6,305				8,116
Bank owned life insurance			222,610				221,965				219,248
Other assets			383,675				382,411				126,544
Total assets		$	9,724,790			$	9,670,493			$	9,600,188
Liabilities
Noninterest-bearing deposits		$	1,854,715			$	1,796,531			$	1,621,451
Interest-bearing demand deposits			1,092,679				1,025,305				945,458
Savings deposits			2,574,642				2,607,718				2,652,267
Core deposits			5,522,036				5,429,554				5,219,176
Time deposits			1,780,929				1,858,155				2,320,728
Total deposits			7,302,965				7,287,709				7,539,904
Federal funds purchased and securities sold under agreements to repurchase			42,796				39,169				40,599
Other short-term borrowings			—				—				640
Other liabilities			168,351				154,718				154,232
Long-term debt			852,481				853,042				855,670
Total liabilities			8,366,593				8,334,638				8,591,045
Shareholders’ Equity
Preferred stock - no par value			290,580				288,723				283,360
Common stock - no par value			1,436,925				1,435,920				1,433,765
Retained deficit			(363,659	)			(378,520	)			(706,907	)
Accumulated other comprehensive loss			(5,649	)			(10,268	)			(1,075	)
Total shareholders’ equity			1,358,197				1,335,855				1,009,143
Total liabilities and shareholders’ equity		$	9,724,790			$	9,670,493			$	9,600,188

 

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Consolidated Statements of Operations (Unaudited)

Citizens Republic Bancorp, Inc.

 

		Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands, except per share amounts)		2012				2011				2012				2011
Interest Income
Interest and fees on loans		$	73,376			$	77,212			$	222,205			$	235,600
Interest and dividends on investment securities:
Taxable			16,034				20,508				49,356				60,664
Tax-exempt			2,157				2,613				6,610				8,412
Dividends on FHLB and Federal Reserve stock			1,196				974				3,487				3,143
Money market investments			152				168				481				670
Total interest income			92,915				101,475				282,139				308,489
Interest Expense
Deposits			8,779				13,528				29,243				44,945
Short-term borrowings			11				20				42				57
Long-term debt			8,320				9,086				25,251				28,426
Total interest expense			17,110				22,634				54,536				73,428
Net Interest Income			75,805				78,841				227,603				235,061
Provision for loan losses			5,195				17,481				18,891				123,801
Net interest income after provision for loan losses			70,610				61,360				208,712				111,260
Noninterest Income
Service charges on deposit accounts			9,554				10,362				27,894				29,544
Trust fees			3,635				3,622				10,818				11,356
Mortgage and other loan income			2,028				2,089				5,839				6,915
Brokerage and investment fees			1,831				1,188				4,486				3,829
Card-based and other nondeposit fees			4,431				4,475				13,140				12,862
Net (losses) gains on loans held for sale			(184	)			1,952				739				2,025
Investment securities gains (losses)			—				3				—				(1,373	)
Other income			2,415				736				7,380				5,737
Total noninterest income			23,710				24,427				70,296				70,895
Noninterest Expense
Salaries and employee benefits			33,589				30,280				99,687				92,563
Occupancy			6,129				6,125				18,965				19,734
Professional services			6,806				2,394				11,294				7,020
Equipment			2,937				2,918				9,144				8,811
Data processing services			4,427				3,823				12,196				12,422
Advertising and public relations			1,847				2,179				4,890				4,550
Postage and delivery			1,157				1,142				3,375				3,378
Other loan expenses			3,121				3,941				9,574				12,510
Losses on other real estate (ORE)			941				1,210				382				11,687
ORE expenses			323				529				1,039				3,326
Intangible asset amortization			513				732				1,636				2,338
Other expense			10,265				10,138				33,312				38,172
Total noninterest expense			72,055				65,411				205,494				216,511
Income (Loss) before Income Taxes			22,265				20,376				73,514				(34,356	)
Income tax provision (benefit)			1,274				(12,568	)			(275,514	)			(22,779	)
Net Income (Loss)			20,991				32,944				349,028				(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	)
Diluted			0.37				0.68				8.19				(0.73	)
Average Common Shares Outstanding:
Basic			39,489				39,433				39,469				39,418
Diluted			39,489				39,433				39,469				39,418

 

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Selected Quarterly Information (Unaudited)

 

(in thousands, except per share amounts)		Three Months Ended
		September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011				September 30, 2011
Summary of Operations
Net interest income		$	75,805			$	75,680			$	76,119			$	78,049			$	78,841
Provision for loan losses			5,195				5,299				8,397				15,007				17,481
Noninterest income			23,710				22,345				24,240				24,363				24,427
Noninterest expense			72,055				66,339				67,101				66,640				65,411
Income before income taxes			22,265				26,387				24,861				20,765				20,376
Income tax provision (benefit)(1)			1,274				(276,789	)			—				2,521				(12,568	)
Net income			20,991				303,176				24,861				18,244				32,944
Net income attributable to common shareholders (2)			14,861				297,134				18,906				12,347				27,183
Taxable equivalent adjustment			1,503				1,532				1,571				1,670				1,827
Per Common Share Data (3)
Net income:
Basic		$	0.37			$	7.35			$	0.47			$	0.31			$	0.68
Diluted			0.37				7.35				0.47				0.31				0.68
Common book value			26.36				25.85				18.83				18.24				18.03
Tangible book value (non-GAAP)			25.53				24.97				17.88				17.24				16.96
Tangible common book value (non-GAAP)			18.36				17.84				10.75				10.16				9.92
Shares outstanding, end of period (4)			40,508,823				40,504,637				40,247,241				40,260,213				40,255,758
At Period End
Assets		$	9,724,790			$	9,670,493			$	9,577,346			$	9,462,849			$	9,600,188
Earning assets			8,600,731				8,588,343				8,774,119				8,680,995				8,824,183
Portfolio loans			5,430,904				5,521,748				5,528,063				5,529,535				5,672,327
Allowance for loan losses			122,125				136,120				153,007				172,726				190,354
Deposits			7,302,965				7,287,709				7,490,362				7,394,941				7,539,904
Long-term debt			852,481				853,042				853,599				854,185				855,670
Shareholders’ equity			1,358,197				1,335,855				1,044,619				1,019,537				1,009,143
Average for the Quarter
Assets		$	9,723,587			$	9,429,050			$	9,521,386			$	9,523,184			$	9,596,275
Earning assets			8,638,390				8,622,067				8,750,078				8,761,435				8,856,072
Portfolio loans			5,501,400				5,517,726				5,508,528				5,632,432				5,663,058
Allowance for loan losses			135,968				152,154				172,509				190,163				206,119
Deposits			7,323,753				7,317,653				7,441,693				7,452,137				7,546,615
Long-term debt			852,776				853,333				853,912				856,206				862,479
Shareholders’ equity			1,345,817				1,061,519				1,028,494				1,017,082				991,602
Financial Ratios (annualized)
Return on average assets			0.86	%			12.93	%			1.05	%			0.76	%			1.36	%
Return on average shareholders’ equity			6.20				114.87				9.72				7.12				13.18
Average shareholders’ equity / average assets			13.84				11.26				10.80				10.68				10.33
Net interest margin (FTE) (5)			3.57				3.60				3.56				3.62				3.63
Efficiency ratio (non-GAAP)(6)			65.20				65.99				65.20				61.39				59.89
Allowance for loan losses as a percent of portfolio loans			2.25				2.47				2.77				3.12				3.36
Allowance for loan losses as a percent of nonperforming loans(7)			191.29				161.53				202.56				197.56				190.09
Allowance for loan losses as a percent of nonperforming assets(7)			141.69				144.85				168.87				168.97				139.01
Nonperforming loans as a percent of portfolio loans(7)			1.18				1.53				1.37				1.58				1.77
Nonperforming assets as a percent of total loans plus ORAA(7)(8)			1.58				1.69				1.63				1.84				2.39
Nonperforming assets as a percent of total assets(7)			0.89				0.97				0.95				1.08				1.43
Ratio of net charge-offs during period to average portfolio loans			1.39				1.62				2.05				2.30				2.34
Leverage ratio			9.66				9.77				8.71				8.45				8.21
Tier 1 capital ratio			15.09				14.70				13.70				13.51				12.81
Total capital ratio			16.35				15.96				14.97				14.84				14.14

 

(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.

 

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Loan Portfolios

 

(in thousands)		September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011				September 30, 2011
Land hold		$	4,984			$	5,119			$	5,387			$	6,542			$	6,818
Land development			7,521				7,006				7,226				13,104				22,232
Construction			6,689				4,591				6,410				5,847				5,410
Income producing			767,202				803,546				877,461				913,755				975,262
Owner-occupied			549,205				597,147				590,575				605,113				634,179
Total commercial real estate			1,335,601				1,417,409				1,487,059				1,544,361				1,643,901
Commercial and industrial			1,688,996				1,711,411				1,657,140				1,543,529				1,531,492
Total commercial			3,024,597				3,128,820				3,144,199				3,087,890				3,175,393
Residential mortgage			570,295				588,144				611,166				637,245				654,561
Direct consumer			865,777				881,070				903,238				933,314				954,831
Indirect consumer			970,235				923,714				869,460				871,086				887,542
Total consumer			2,406,307				2,392,928				2,383,864				2,441,645				2,496,934
Total portfolio loans		$	5,430,904			$	5,521,748			$	5,528,063			$	5,529,535			$	5,672,327

Delinquency Rates By Loan Portfolio

 

		September 30, 2012								June 30, 2012								March 31, 2012								December 31, 2011								September 30, 2011
30 to 89 days past due (in thousands)		$				% of Portfolio				$				% of Portfolio				$				% of Portfolio				$				% of Portfolio				$				% of Portfolio
Land hold		$	—				—	%		$	—				—	%		$	—				—	%		$	21				0.32	%		$	—				—	%
Land development			—				—				—				—				130				1.81				—				—				216				0.97
Construction			—				—				—				—				—				—				—				—				—				—
Income producing			1,104				0.14				1,519				0.19				1,447				0.16				2,508				0.27				3,325				0.34
Owner-occupied			4,598				0.84				936				0.16				5,177				0.88				2,345				0.39				5,817				0.92
Total commercial real estate			5,702				0.43				2,455				0.17				6,754				0.45				4,874				0.32				9,358				0.57
Commercial and industrial			880				0.05				1,565				0.09				2,887				0.17				2,454				0.16				2,594				0.17
Total commercial			6,582				0.22				4,020				0.13				9,641				0.31				7,328				0.24				11,952				0.38
Residential mortgage			6,029				1.06				7,731				1.31				7,568				1.24				9,544				1.50				9,079				1.39
Direct consumer			11,435				1.32				12,396				1.41				14,002				1.55				17,810				1.91				18,629				1.95
Indirect consumer			7,514				0.77				8,504				0.92				8,780				1.01				13,067				1.50				9,898				1.12
Total consumer			24,978				1.04				28,631				1.20				30,350				1.27				40,421				1.66				37,606				1.51
Total delinquent loans		$	31,560				0.58			$	32,651				0.59			$	39,991				0.72			$	47,749				0.86			$	49,558				0.87

 

8

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Nonperforming Assets

 

		September 30, 2012								June 30, 2012								March 31, 2012								December 31, 2011								September 30, 2011
(in thousands)		$				% of Portfolio				$				% of Portfolio				$				% of Portfolio				$				% of Portfolio				$				% of Portfolio
Land hold		$	326				6.54	%		$	326				6.37	%		$	—				—	%		$	—				—	%		$	167				2.45	%
Land development			3				0.04				3				0.05				207				2.87				213				1.62				12				0.05
Construction			—				—				—				—				150				2.34				150				2.57				257				4.76
Income producing			12,904				1.68				19,408				2.42				18,566				2.12				21,171				2.32				23,227				2.38
Owner-occupied			13,146				2.39				18,187				3.05				20,716				3.51				23,798				3.93				27,540				4.34
Total commercial real estate			26,379				1.98				37,924				2.68				39,639				2.67				45,332				2.94				51,203				3.11
Commercial and industrial			9,190				0.54				21,676				1.27				14,629				0.88				16,946				1.10				18,536				1.21
Total nonaccruing commercial			35,569				1.18				59,600				1.90				54,268				1.73				62,278				2.02				69,739				2.20
Residential mortgage			15,271				2.68				13,474				2.29				11,137				1.82				11,312				1.78				13,074				2.00
Direct consumer			10,552				1.22				9,263				1.05				8,895				0.98				12,115				1.30				14,704				1.54
Indirect consumer			2,391				0.25				1,875				0.20				1,074				0.12				953				0.11				1,256				0.14
Total nonaccruing consumer			28,214				1.17				24,612				1.03				21,106				0.89				24,380				1.00				29,034				1.16
Total nonaccruing loans			63,783				1.17				84,212				1.53				75,374				1.37				86,658				1.57				98,773				1.74
Loans 90+ days still accruing			60				—				59				—				164				—				770				0.01				1,368				0.02
Total nonperforming portfolio loans			63,843				1.18				84,271				1.53				75,538				1.37				87,428				1.58				100,141				1.77
Nonperforming held for sale			16,650								887								3,264								2,372								20,134
Other repossessed assets acquired			5,700								8,817								11,803								12,422								16,665
Total nonperforming assets		$	86,193							$	93,975							$	90,605							$	102,222							$	136,940
Restructured loans still accruing		$	21,433							$	18,187							$	17,911							$	32,347							$	12,206
Commercial inflows		$	4,572							$	23,828							$	14,027							$	13,269							$	23,901
Commercial outflows			(28,603	)							(18,496	)							(22,037	)							(20,730	)							(17,611	)
Net change		$	(24,031	)						$	5,332							$	(8,010	)						$	(7,461	)						$	6,290

Net Charge-Offs

 

		Three Months Ended
		September 30, 2012								June 30, 2012								March 31, 2012								December 31, 2011								September 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	)			100				5.76				(83	)			(4.64	)			3,079				93.21				43				0.76
Construction			(21	)			(1.24	)			14				1.24				(101	)			(6.33	)			(4	)			(0.24	)			(5	)			(0.34	)
Income producing			2,582				1.34				3,100				1.55				4,151				1.90				11,924				5.18				3,156				1.28
Owner-occupied			1,891				1.37				2,384				1.61				2,537				1.73				5,791				3.80				2,129				1.33
Total commercial real estate			4,444				1.32				5,540				1.57				6,504				1.76				20,757				5.33				5,323				1.28
Commercial and industrial			5,363				1.26				5,249				1.23				3,029				0.74				1,032				0.27				1,225				0.32
Total commercial			9,807				1.29				10,789				1.39				9,533				1.22				21,789				2.80				6,548				0.82
Residential mortgage			2,515				1.75				3,506				2.40				5,076				3.34				1,170				0.73				18,364				11.13
Direct consumer			4,790				2.20				5,666				2.59				10,935				4.87				6,930				2.95				5,710				2.37
Indirect consumer			2,078				0.85				2,225				0.97				2,572				1.19				2,746				1.25				2,797				1.25
Total consumer			9,383				1.55				11,397				1.92				18,583				3.14				10,846				1.76				26,871				4.27
Total net charge-offs		$	19,190				1.39			$	22,186				1.62			$	28,116				2.05			$	32,635				2.30			$	33,419				2.34

 

*	Represents an annualized rate.

 

9

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Summary of Loan Loss Experience

 

(in thousands)		Three Months Ended
		September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011				September 30, 2011
Allowance for loan losses—beginning of period		$	136,120			$	153,007			$	172,726			$	190,354			$	206,292
Provision for loan losses			5,195				5,299				8,397				15,007				17,481
Charge-offs:
Commercial and industrial			4,552				3,667				2,388				1,489				994
Small business			1,039				2,271				1,265				399				1,132
Commercial real estate			5,452				8,093				8,997				21,581				5,860
Total commercial			11,043				14,031				12,650				23,470				7,986
Residential mortgage			3,261				3,972				5,210				1,366				18,369
Direct consumer			6,067				7,168				11,527				7,544				6,398
Indirect consumer			3,172				3,157				3,251				3,229				3,430
Total charge-offs			23,543				28,328				32,638				35,609				36,183
Recoveries:
Commercial and industrial			108				577				376				609				721
Small business			120				112				248				248				180
Commercial real estate			1,008				2,553				2,493				824				537
Total commercial			1,236				3,242				3,117				1,681				1,438
Residential mortgage			746				466				134				197				5
Direct consumer			1,277				1,502				592				613				688
Indirect consumer			1,094				932				679				483				633
Total recoveries			4,353				6,142				4,522				2,974				2,764
Net charge-offs			19,190				22,186				28,116				32,635				33,419
Allowance for loan losses—end of period		$	122,125			$	136,120			$	153,007			$	172,726			$	190,354

 

10

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Non-GAAP Reconciliation

 

		September 30,				June 30,				March 31,				December 31,				September 30,
(in thousands)		2012				2012				2012				2011				2011
Efficiency Ratio (non-GAAP)
Net interest income (A)		$	75,805			$	75,680			$	76,119			$	78,049			$	78,841
Taxable equivalent adjustment (B)			1,503				1,532				1,571				1,670				1,827
Investment securities gains (losses) (C)			—				—				—				38				3
Noninterest income (D)			23,710				22,345				24,240				24,363				24,427
Noninterest expense (E)			72,055				66,339				67,101				66,640				65,411
(Gains) losses on ORE and ORE expenses (F)			1,264				93				65				2,076				1,739
Intangible amortization (G)			513				545				578				688				732
Merger-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			$	9,600,188
Goodwill			(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			$	9,273,922
Total shareholders’ equity		$	1,358,197			$	1,335,855			$	1,044,619			$	1,019,537			$	1,009,143
Goodwill			(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			$	682,877
Tangible equity		$	1,034,255			$	1,011,400			$	719,619			$	693,959			$	682,877
Preferred stock			(290,580	)			(288,723	)			(286,901	)			(285,114	)			(283,360	)
Tangible common equity (non-GAAP)		$	743,675			$	722,677			$	432,718			$	408,845			$	399,517
Tier 1 Common Equity (non-GAAP)
Total shareholders' equity		$	1,358,197			$	1,335,855			$	1,044,619			$	1,019,537			$	1,009,143
Qualifying capital securities			73,667				73,667				73,667				73,667				73,667
Goodwill			(318,150	)			(318,150	)			(318,150	)			(318,150	)			(318,150	)
Accumulated other comprehensive loss			5,649				10,268				1,955				5,820				1,075
Disallowed 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			$	757,619
Tier 1 capital (regulatory)		$	878,110			$	859,806			$	795,241			$	773,446			$	757,619
Qualifying 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			$	400,592
Net risk-weighted assets (regulatory)		$	5,821,748			$	5,851,871			$	5,803,811			$	5,723,333			$	5,912,527
Equity to assets			13.97	%			13.81	%			10.91	%			10.77	%			10.51	%
Tier 1 common equity (non-GAAP)			8.83				8.50				7.49				7.24				6.77
Tangible equity to tangible assets (non-GAAP)			11.00				10.82				7.78				7.59				7.36
Tangible common equity to tangible assets (non-GAAP)			7.91				7.73				4.68				4.47				4.31

 

11

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Non-GAAP Reconciliation

Adjusted earnings per share

 

		Nine Months Ended September 30,
(in thousands, except per share amounts)		2012				2011
Earnings per Share
Diluted net income (loss) per share		$	8.19			$	(0.73	)
Restoration of the deferred tax asset			6.82				—
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 securities			1,268				—
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 share			39,469				39,418
Basic 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, 2012				March 31, 2012				December 31, 2011				September 30, 2011
Net income		$	20,991			$	303,176			$	24,861			$	18,244			$	32,944
Income tax provision (benefit)			1,274				(276,789	)			—				2,521				(12,568	)
Provision for loan losses			5,195				5,299				8,397				15,007				17,481
Net losses (gains) on loans held for sale			184				(6	)			(916	)			217				(1,952	)
Investment securities (gains) losses			—				—				—				(38	)			(3	)
Losses (gains) on other real estate (ORE)			941				(173	)			(385	)			1,081				1,210
Merger-related expenses(1)			4,411				—				—				—				—
Fair-value adjustment on bank owned life insurance(2)			(31	)			118				(205	)			(100	)			385
Fair-value adjustment on swaps (2)			83				74				(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.

 

12

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Noninterest Income and Noninterest Expense

 

(in thousands)		Three Months Ended
		September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011				September 30, 2011
Service charges on deposit accounts		$	9,554			$	9,355			$	8,985			$	9,724			$	10,362
Trust fees			3,635				3,582				3,602				3,747				3,622
Mortgage and other loan income			2,028				1,952				1,858				2,705				2,089
Brokerage and investment fees			1,831				1,331				1,324				1,243				1,188
Card-based and other nondeposit fees			4,431				4,444				4,265				4,305				4,475
Gains (losses) on loans held for sale			(184	)			6				916				(217	)			1,952
Investment securities gains			—				—				—				38				3
Other income			2,415				1,675				3,290				2,818				736
Total noninterest income		$	23,710			$	22,345			$	24,240			$	24,363			$	24,427
Salaries and employee benefits		$	33,589			$	32,801			$	33,298			$	30,952			$	30,280
Occupancy			6,129				6,140				6,696				6,326				6,125
Professional services(1)			6,806				2,465				2,023				2,311				2,394
Equipment			2,937				2,904				3,303				3,326				2,918
Data processing services			4,427				3,721				4,048				3,709				3,823
Advertising and public relations			1,847				1,708				1,335				1,298				2,179
Postage and delivery			1,157				1,119				1,099				1,165				1,142
Other loan expenses			3,121				3,266				3,186				3,497				3,941
Losses (gains) on other real estate (ORE)			941				(173	)			(385	)			1,081				1,210
ORE expenses			323				266				450				995				529
Intangible asset amortization			513				545				578				688				732
Other expense			10,265				11,577				11,470				11,292				10,138
Total 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.

 

13

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Average Balances, Yields and Rates

 

										Three Months Ended
		September 30, 2012								June 30, 2012								September 30, 2011
(in thousands)		Average Balance				Average Rate				Average Balance				Average Rate				Average Balance				Average Rate
Earning Assets
Money market investments		$	238,492				0.25	%		$	184,670				0.25	%		$	270,422				0.25	%
Investment securities:
Taxable			2,557,793				2.51				2,577,646				2.48				2,536,944				3.23
Tax-exempt			205,572				6.46				209,421				6.46				242,494				6.63
FHLB and Federal Reserve stock			122,123				3.90				119,413				3.87				123,906				3.13
Portfolio loans:
Commercial and industrial			1,713,382				5.42				1,665,640				5.45				1,440,968				5.24
Commercial real estate			1,382,873				4.81				1,465,135				5.04				1,678,996				5.07
Residential mortgage			580,002				4.36				601,439				4.36				693,494				4.45
Direct consumer			873,057				5.81				890,957				5.88				967,443				6.00
Indirect consumer			952,086				6.05				894,555				6.15				882,157				6.56
Total portfolio loans			5,501,400				5.33				5,517,726				5.40				5,663,058				5.43
Loans held for sale			13,010				3.40				13,191				3.40				19,248				4.44
Total earning assets			8,638,390				4.36				8,622,067				4.42				8,856,072				4.64
Nonearning Assets
Cash and due from banks			145,961								141,122								147,044
Premises and equipment			92,775								94,836								99,835
Investment security fair value adjustment			54,807								53,672								46,558
Other nonearning assets			927,622								669,507								652,885
Allowance for loan losses			(135,968	)							(152,154	)							(206,119	)
Total assets		$	9,723,587							$	9,429,050							$	9,596,275
Interest-Bearing Liabilities
Deposits:
Interest-bearing demand deposits		$	1,073,294				0.13			$	988,884				0.14			$	976,637				0.21
Savings deposits			2,602,216				0.20				2,677,524				0.23				2,648,640				0.33
Time deposits			1,825,144				1.55				1,916,294				1.57				2,380,333				1.80
Short-term borrowings			45,974				0.10				37,148				0.13				43,445				0.18
Long-term debt			852,776				3.89				853,333				3.94				862,479				4.19
Total interest-bearing liabilities			6,399,404				1.06				6,473,183				1.10				6,911,534				1.30
Noninterest-Bearing Liabilities and Shareholders’ Equity
Noninterest-bearing demand			1,823,099								1,734,951								1,541,005
Other liabilities			155,267								159,397								152,134
Shareholders’ equity			1,345,817								1,061,519								991,602
Total liabilities and shareholders’ equity		$	9,723,587							$	9,429,050							$	9,596,275
Interest Spread							3.29	%							3.32	%							3.34	%
Contribution of noninterest bearing sources of funds							0.28								0.28								0.29
Net Interest Margin							3.57	%							3.60	%							3.63	%

 

14

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Average Balances, Yields and Rates

 

		Nine Months Ended
		September 30,
		2012								2011
		Average				Average				Average				Average
(in thousands)		Balance				Rate				Balance				Rate
Earning Assets
Money market investments		$	257,535				0.25	%		$	362,983				0.25	%
Investment securities:
Taxable			2,561,262				2.57				2,432,220				3.33
Tax-exempt			210,096				6.45				258,524				6.67
FHLB and Federal Reserve stock			119,834				3.88				134,998				3.11
Portfolio loans:
Commercial and industrial			1,651,213				5.49				1,404,081				5.07
Commercial real estate			1,456,217				4.97				1,828,800				5.14
Residential mortgage			602,970				4.35				718,039				4.68
Direct consumer			894,603				5.86				994,185				6.06
Indirect consumer			904,188				6.20				847,878				6.68
Total portfolio loans			5,509,191				5.40				5,792,983				5.44
Loans held for sale			12,145				3.72				26,739				3.65
Total earning assets			8,670,063				4.42				9,008,447				4.66
Nonearning Assets
Cash and due from banks			143,373								143,254
Premises and equipment			94,858								101,846
Investment security fair value adjustment			52,778								44,256
Other nonearning assets			751,020								662,565
Allowance for loan losses			(153,480	)							(241,431	)
Total assets		$	9,558,612							$	9,718,937
Interest-Bearing Liabilities
Deposits:
Interest-bearing demand deposits		$	1,012,171				0.15			$	958,634				0.22
Savings deposits			2,662,533				0.24				2,633,255				0.37
Time deposits			1,956,304				1.60				2,564,001				1.88
Short-term borrowings			40,621				0.14				41,999				0.18
Long-term debt			853,339				3.95				912,755				4.16
Total interest-bearing liabilities			6,524,968				1.12				7,110,644				1.38
Noninterest-Bearing Liabilities and Shareholders’ Equity
Noninterest-bearing demand			1,729,889								1,470,866
Other liabilities			157,746								151,525
Shareholders’ equity			1,146,009								985,902
Total liabilities and shareholders’ equity		$	9,558,612							$	9,718,937
Interest Spread							3.30	%							3.28	%
Contribution of noninterest bearing sources of funds							0.28								0.29
Net Interest Margin							3.58	%							3.57	%

 

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