Citizens Republic Bancorp's (Nasdaq:CRBC) third-quarter earnings report shows that despite the various government bailouts announced to help stabilize the financial system, loan delinquencies are still accelerating in areas hard hit by the slowing economy.

Citizens Republic is the largest bank headquartered in Michigan with assets of $13.1 billion. The bank has 233 branches in Michigan, Ohio, Wisconsin, Iowa and Indiana. Michigan has been hit hard by the economic slowdown, and the state's unemployment rate in August hit 8.9%, according to the U.S. Department of Labor. The bank is also a large real estate lender and had $3 billion in commercial real estate (CRE) loans and $1.3 billion in residential mortgage loans outstanding September 30.

A Bad Quarter
Citizens Republic reported a loss of $7.2 million or 7 cents per share for Q3.

"Our third-quarter results clearly reflect the unprecedented market environment in which financial institutions are operating," said William R. Hartman, CEO, president and board chairman. "The current reversionary conditions have caused more rapid than anticipated credit deterioration in our loan portfolio, particularly in commercial real estate."

Citizens Republic's assets are still deteriorating as its borrowers fall behind and the Michigan economy gets weaker. The company reported a sequential increase in non-performing assets of $78.5 million to $364.4 million over the last quarter ending June 30. A concern is the five-quarter trend in non-performing assets, which the bank describes as "nonaccrual loans, loans past due over 90 days and still accruing interest, restructured loans, nonperforming held for sale and other repossessed assets acquired".

Non-Performing Assets Total NPAs as % of Total Assets
September 30, 2008 $364.4 2.78%
June 30, 2008 $285.6 2.17%
March 31, 2008 $326.6 2.41%
December 31, 2007 $251.5 1.86%
September 30, 2007 $191.0 1.44%

Another concern is the amount of loans 30-89 days past due. Loans in this category can be a precursor of loans that end up non-accruing. The total amount of delinquent loans at the end of the quarter was $215 million.

A Vigilant Bank
Citizens Republic also maintains a watch list of commercial loans. Current loans are listed after being flagged by the bank's commercial loan officers when they feel that borrowers' finances are deteriorating or general economic conditions are getting worse. Citizens Republic should be commended for being proactive in monitoring these loans, although the size of the watch list is a concern, totaling $1.06 billion at the end of the quarter, up from $992 million in the previous quarter.

Capital ratios are still strong at Citizens Republic. The bank's Tier 1 capital ratio was 10.85% at quarter's end, above the 6% regulatory minimum for an institution to be considered well capitalized. The total capital ratio was 13.1%, again significantly above the regulatory minimum of 10%. The bank was able to raise capital of $200 million in 2008 to boost its balance sheet.

Other banks with a high amount of non-performing assets include Corus Bankshares (Nasdaq:CORS) with $858 million and BankUnited Financial Corporation (Nasdaq:BKUNA) with $1.1 billion, or 7.73% of total assets. Millennium Bankshares Corporation (Nasdaq:MBVA) reported total non-performing loans of $16.1 million on June 30. This was 7.5% of total bank loans of $214.6 million.

Bottom Line
Citizens Republic's earnings release highlights the problems banks are still having as loan delinquencies continue to move higher.

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