Citizens Republic Bancorp Reports Solid Third Quarter Results

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FLINT, Mich., Oct. 25, 2012 /PRNewswire/ --

Net income attributable to common shareholders was $15 million or $0.37 per share for the third quarter, which includes over $4 million in pre-tax merger-related expenses
Credit metric trends reflect continued stability and improved performance across the loan portfolio
Pre-tax, pre-provision profit remained strong at $33 million
Announced agreement to merge with FirstMerit Corporation in a stock-for-stock transaction

Citizens Republic Bancorp, Inc. (Nasdaq: CRBC) announced net income attributable to common shareholders of $14.9 million or $0.37 per diluted share for the three months ended September 30, 2012, compared to $297.1 million or $7.35 per diluted share for last quarter, and $27.2 million or $0.68 per diluted share for the third quarter of last year. For the first nine months of this year, Citizens recorded net income attributable to common shareholders of $330.9 million or $8.19 per share compared to a net loss of $28.7 million or $0.73 per share for the same period of 2011. Year to date 2012 results include a $275.5 million or $6.82 per share tax benefit related to the elimination of the valuation allowance against the deferred tax asset in the second quarter.

"Last month we announced that we entered into a definitive merger agreement with FirstMerit Corporation. We are excited about the transaction which creates a unique, contiguous, Midwest franchise of significant size and scale. Until the transaction closes, we continue to successfully execute our strategic initiatives, driving our consistent earnings and organically growing our strong capital position," commented Cathleen Nash, president and chief executive officer.

Balance 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.


Capital Ratios	Regulatory Minimum for "Well-	September 30,	June 30,	September 30,
	Capitalized"	2012	2012	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.

Total delinquencies decreased 3% from last quarter to $31.6 million and currently represent 0.58% of portfolio loans.
Nonperforming assets were $86.2 million at the end of September 2012, an 8% decrease from the end of June 2012 and a decrease of 37% from September 30 of last year due to proactively managing and resolving delinquent commercial and consumer loans and improving the risk profile of the loan portfolio.
Net charge-offs for the third quarter decreased to $19.2 million, compared to $22.2 million last quarter and $33.4 million in the third quarter of last year. The provision for loan losses was $5.2 million in the third quarter, substantially the same as the second quarter of 2012.
The allowance for loan losses was $122.1 million or 2.25% of portfolio loans at September 30, 2012, compared to $136.1 million or 2.47% at the end of the prior quarter, and $190.4 million or 3.36% at the end of the third quarter last year.

Noninterest Income and Expense

Citizens' focus on services and products helps support a stable base of fee income. Total noninterest income increased $1.4 million over last quarter and decreased $0.7 million compared to the third quarter last year.

Service charges were consistent with the second quarter of 2012. Service charges on deposit accounts were down 8% compared to the third quarter of last year primarily as a result of regulatory changes.
Brokerage and investment fees were up 38% compared to last quarter and 54% compared to the third quarter of 2011 due to focused efforts to increase accounts and sales.
Minimal losses on loans held for sale were realized this quarter compared to gains in prior periods.
Other income increased compared to last quarter primarily due to higher unrealized gains on deferred compensation, which was offset in noninterest expense.

Noninterest expense increased $5.7 million over last quarter and $6.6 million over the third quarter of last year, primarily due to merger-related expenses and ORE losses.

Professional services increased compared to prior periods as a result of merger-related expenses of $4.4 million.
Overall, credit costs remained consistent. However, losses on ORE increased $1.1 million during the quarter primarily related to a writedown on a single commercial ORE property.
Salaries and employee benefit costs increased compared to last quarter due to higher deferred compensation expense.
Data processing services increased over prior periods as a negotiated reduction in expense expired.

Year to date, noninterest expense decreased $11.0 million from 2011 as lower credit costs were partially offset by higher salaries and employee benefits and merger-related expenses.

Income Taxes and Deferred Tax 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 may also materially and adversely affect Citizens' results of operations, cash flows, financial position and prospects. There can be no assurance that future results will meet expectations. While Citizens believes that the forward-looking statements in this release are reasonable, you should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. Citizens does not undertake, and expressly disclaims, any obligation to update or alter any statements, whether as a result of new information, future events or otherwise, except as required by applicable law.


Consolidated Balance Sheets (Unaudited)
Citizens Republic Bancorp, Inc.
			September 30,		June 30,		September 30,
(in thousands)		2012		2012		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


*Consolidated Statements of Operations (Unaudited)*
*Citizens Republic Bancorp, Inc.*	Three Months Ended	Nine Months Ended
	September 30,	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


*Selected Quarterly Information (Unaudited)*
			Three Months Ended
			September 30,		June 30,		March 31,		December 31,		September 30,
(in thousands, except per share amounts)	2012		2012		2012		2011		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.


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



*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.


*Summary of Loan Loss Experience*
						Three Months Ended
				September 30,		June 30,		March 31,		December 31,		September 30,
(in thousands)			2012		2012		2012		2011		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

*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


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.


*Noninterest Income and Noninterest Expense*	Three Months Ended
	September 30,	June 30,	March 31,	December 31,	September 30,
(in thousands)	2012	2012	2012	2011	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.

*Average Balances, Yields and Rates*
	Three Months Ended
	September 30, 2012		June 30, 2012		September 30, 2011
	Average	Average		Average	Average		Average	Average
(in thousands)	Balance	Rate		Balance	Rate		Balance	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	%



*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	%

SOURCE Citizens Republic Bancorp, Inc.

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