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Bank Woes: A little bank called Citizens ( CRBC) which fell by the wayside.....



June 23, 2008 – Comments (5) | RELATED TICKERS: CRBC.DL , FITB

Citizens Republic Bancorp(CRBC)


Lots of numbers ( I apologize)


Price/Book < 10% ( So, market thinks they are a gonner)


CAPITAL RAISED : 200 MM (6/11/2008)


Portfolio Loans


General Commercial :            2.65 BN

Comm Real Estate: 3.2 BN


Total Com : 5.82 BN


Res Mortgage : 1.39 BN

Direct Consumer ( Retail) : 1.53BN

Indirect ( Third-party Sourced) Consumer :  0.82 BN


Total Portfolio :  9.57 BN




Loan Loss Reserves             : 176.5 MM




Shreholder Equity :  $1.58 BN

With additional capital : $1.8 BN




Net Interest Income:  88 MM

Fee based Income   :  31 MM


Total                            119 MM


Net Income                   : 11 MM


Operating Cash Flow    : 6 MM


Loans Held for Sale: $48 MM





Charge Off ratio : 74 bps

LLR to loans: 184 bps

NPA to Portfolio loans : 339 bps


Tier 1 : 9.04

Tier II : 11.26


Net Interest Margin: 3.12% (3.44% Prior)


Portfolio Performance



Commercial Loan Portfolio                                      30-89 %         % onWatch            %NPA


Land Hold :                                          $62 MM     11%                 45%                 9%

Land Development:                           $159 MM     10%                 35%                 30%

Construction:                                        $371 MM     3%                18%                 14%

Income Producing (Rental Property):$1567 MM     2%                     14%                 2.6%

Owner Occupied                                 $1016 MM     2%               15%                 2.3%


Commercial Real Estate                   $3.2 BN       2.6%                    17%                 5.3%
(50% QonQ Growth)

Comm & Industrial                                  $2.65 BN       1.5%          15%                 0.8%


Res Mortgage :                                     1.39 BN       2.4%                                        3.3%

Direct Consumer ( Retail) :                         1.53BN         1.4%                                   0.9%

Indirect ( Third-party Sourced) Consumer : 0.82BN       1.6%                                       0.2%


Total Delinquent Loans                             190 MM     2%                          254MM (2.65%)


NPA Held for Sale                              23 MM

ORAA ( OREO)                                    51 MM


Total NPA                                           327 MM                                                     3.4%   


Net Charge Off ( Qtrly)                         $18 MM     Ann Rate 0.74 %


New post 10Q as per June 8k Filing


Commercial Real Estate                   $3.2 BN       2.6%                17%                 5.3%
( 50% QonQ Growth)





ACTION 1 : Move 131 MM to Held for Sale. Charge 38.5 MM ( 30% Writedown)

Reference Points: 5.3% NPA on CRE Assets = 168 MM.

Consequence: NPAs will go down by 131 MM Why are they doing this – my guess is moving them to For Sale status from the bank’s standpoint they feel the 30% upfront writedown is conservative and NOW THEY DO NOT HAVE TO HOLD CAPITAL against this.      


ACTION 2: $2.7 MM Charge on 30 MM of CRE Held for Sale.

Reference Points: NPA Held for Sale    23 MM

Consequence:  This is essentially a 10% MTM charge on what’s already on there – and looks like it went up from 23 MM to 30 MM in 3 months. Clearly CRBC management thinks this is a viable strategy – mark it down aggressively, rather than HOLD CAPITAL.


Folks, this is either a BOLD strategy  OR AN INEVITABLE ONE. ( Depends on your outlook) Otherwise one doesn’t do this often – they are willing to take the bet on a valuation charge – rather than having to jeopardize their capital situation. Essentially they are saying “ Forget earnings – I want the regulators off my back”


ACTION 3: $5.9 MM Charge on 38 MM of OREO

Reference Points: OREO  51 MM

Consequence:   Same as above (2). Also this doesn’t mean OREO decreased – they just recognized a on a piece ( 15% Charge off)




What’s the point of blogging about it and not computing :


From my earlier blog: HERE


Here’s the link to Everydayinvestor’s post : HERE



Ok   Changed NPA/LLR : ( LLR is relatively unchanged because this is a reclassification action) : 1.29%/1.87% = 69% HUGE Change from earlier when it was 144% ( Its essentially the inverse of the way they compute on the 8K)


We want to look at a peak loss exposure situation the condition of CRBC


So lets see what happens for say 1 year ( 4 Qtr)


You have obviously figured out CRBC’s pockets of disaster haven’t you: Land and Construction


Land Hold + Land Construction = $220 MM  With the NPA+Watch number (looks like about 70% of this book may be impaired – I am going worst case here) =  154 MM


General Construction =  371 MM : Assumption 50% impaired at peak = 185 MM


Net NPA from this source = 340 MM. They are moving additional 130 MM now  = Implies left with 210 MM.


Assume they need to take a  hit on 50% (% of age loans to move to loss from NPL status – ie what they did right now) of these loans and a 80%(20 cents to the dollar recovery) charge on them = 40% net charge ( Are you seeing a pattern here folks?) =  84 MM


You can assume 100% flowthru and a 40% charge on them ( which is what they are doing in the reclassification – and get to the same point, probabilities are a nice thing)


Income Producing ( ie Rental) + Occupied =2.5 BN . Assuming 50% of watchlist become NPA = 10% ( 7.5% +2.5% existing) = 250 MM. Assume 30% into loss and 50% writedown ( Numbers ARE lower – these are cash producing properties not land) = $38 MM


On Residential and Consumer – I am assuming 1.5%-2% annualized Charge-Off rate ( Look at their tables – this is appx 2x-3x current run-rate) Portfolio is $3.7 BN = $75 MM


So lets get this Net Potential Charges: 84 + 38 +75 ~=200 MM


Pieces missed: They would take possibly an additional 10-20% mark on the Held for Sale and OREO portfolio = 20% of 200 MM=$40 MM


Do I need to do anything else here. THEY RAISED 200 MM in CAPITAL. THEY HAVE 1.6 BN IN EQUITY. Their current


Tier Capital ratios are



Tier I:  10.6%

Tier II: 12.8%


OLD ( Pre Capital raising)


Tier 1 : 9.04

Tier II : 11.26


None of them are in jeopardy. They can pay thru the losses with the extra money – and Oh did I forget they have a NIM ( Net Interest Margin) of 3.14%/Qtr ie they have sustaining power till that number to completely wipe out revenues ( ie till there they make a loss – but its for SG&A etc.) …current charge of rate is 0.74%




Oh my god! You must be thinking I am pissed because I am sporting a 50+ point loss on CRBC on CAPS – well I really thought their ratios were not in jeopardy hence they wont raise any additional and market may not be harsh – poor me! But they did – good for them – they should have raised LLR earlier – but they seem to be better content with a low reserve but HIGH MTM writedown policy. They believe they can hold thru this market – or for a buyer – this would immediately reverse the charge if there’s a gain on sale ( Unlikely, more like a small incremental loss)


I do not think CRBC is going bankrupt. A lot of insiders don’t think so either now – post capital infusion – they are buying. Would I buy – I looked at some long options – I would have preferred a LEAP here – not available. They will sport losses clearly though – their ROA is 33 bps – based on the above they will easily eat thru it. And the Options provide only 3:1 leverage – so possibly better to buy the underlying.


I am seriously contemplating booking the loss in CAPS and re-thumbing CRBC if it touches $2. And I think maybe – 250 shares wont be a bad bet, would it?




If you are thinking ...I am this genious who is the guru on Bank stocks think again....please. I just did what my logic took me down the path. I have learnt ( and learning) market thinks differently - and there are lots of smart/er people in the market. There can be shocks and ticking time-bombs I know nothing about - all of this was from 10Qs - and that's what the company wants you to see. However, I am unbiased - I didnt even know of their existence -before they turned up on my regional banks screen.



Comments appreciated.

 P.S. I am mulling doing one on Fifth Third next. Mandrake66 considers it a goner – I respect his judgment. If you provide feedback – I’ll try to tackle that.

5 Comments – Post Your Own

#1) On June 23, 2008 at 10:18 PM, mandrake66 (72.65) wrote:

Don't put much faith in my judgment. It is usually backed up by nothing more than a blurb I read somewhere. Any research you do is more than I have done. When it comes to predicting the future, which is what investing is, I find information beyond a certain point to have diminishing, if not negative returns.

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#2) On June 23, 2008 at 11:25 PM, HighHopesInSD (< 20) wrote:

CRBC's EPS has been falling for the past 2 years and fell again in the most recent quarter.  Until EPS stops falling at least, I would not recommend investing in the company.  Just my two cents.  Good luck in whatever you do.

On FITB, according to Yahoo!, their payout ratio is 90%, their EPS is falling and their debt is rising.  This leads me to think that they will probably have to cut their dividend soon to preserve capital, which would probably cause a drop in the stock price.  Therefore, I wouldn't invest in this stock for at least another quarter to see if they can get their EPS rising, their debt falling or both.  Again, just my two cents.

Good luck in your investing.


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#3) On June 24, 2008 at 9:20 AM, EverydayInvestor (< 20) wrote:

Wow. This looks like a decent investment. The stock is basically a call option now (with maybe 500% upside). They could face 100% writedowns on their riskiest loans and still easily survive. I'd have to look at the quality of the other loans before saying for sure, though.


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#4) On June 24, 2008 at 9:43 AM, anchak (99.90) wrote:


Points well taken. As Michael ( Everyday) says....its a call option now and I agree with his assessment of it being a potential 5x bagger.

However, as you said ( and I mentioned - read my last paragraph on profitability) - CRBC has a falling Net Interest Margin and their Return on Assests (ROA) is only 33 bps. Their current loss rate is 74 bps. Based on the Q2 charges - the street prediction is a $1.20+/share LOSS. ( That's 10X of Q1 earnings). My calculations show they will continue to take losses - and their loss ratios will climb toward 150-200 bps - what does that tell you about profitability - ZILCH!

So unless there is a change in the gradient - of losses ie , I do not think they will get too much love from the street. But then again - I may be wrong.

On Fifth-Third, I am not leaning either way. Just a potential analysis to consider. I did my initial one - end of May/early June. I was convinced that their Capital Ratios were in jeopardy -  but since they have announced Capital raise and a dividend cut. You are probably betting they will completely eliminate.


Michael would love to hear  your opinion. Saw your PM - dont check my personal email often - will doublecheck and post something on your blog. 


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#5) On June 24, 2008 at 10:04 AM, EverydayInvestor (< 20) wrote:

Anchak - I'll be taking a look at CRBC over the next couple days. I won't have time to take much of a look at FITB or any other banks. I have parts to a new computer coming in today that I need to put together, plus I have my bread and butter trading to take care of.

For a company like CRBC, I don't think the losses matter much. As long as they remain solvent and don't lose more than 50% of their book value, they will be an acquisition candidate for a larger bank in a couple years at book value (creating potentially huge upside).

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