Citizens Republic Bancorp in Flint, Mich., is finding that capital counts for a lot.
The $12 billion-asset company has lost $853.4 million in the past year and a half, including $56.9 million in the third quarter. Its nonperforming assets are still elevated and slightly higher than they were three months ago, when analysts feared for its future.
But a debt exchange that raised $200 million of common equity Sept. 30 has brightened Citizens Republic's prospects considerably. So much so that analysts spent much of its conference call Friday asking how soon it might buy failed banks.
Executives shied away from answering that question, but expressed cautious optimism about the company's direction.
"The caution, of course, remains the Michigan economy and how this credit cycle unfolds," Charles D. Christy, Citizens Republic's chief financial officer, said in an interview. "It may be another two years before everything is worked out, but we are not feeding the monster at the same speed as we were before."
The debt-for-equity swap boosted Citizens Republic's tangible common equity ratio 160 basis points, to 6.74%.
"Seeing it on paper was incredibly comforting," said Terry McEvoy, an analyst with Oppenheimer & Co. McEvoy is one of the analysts who asked about bank-failure acquisitions on the call. Citizens Republic has experience working out soured assets after the 2006 purchase of Republic Bancorp Inc. in Ann Arbor, he said; three-quarters of the company's credit problems stem from that acquisition.
When asked why Citizens Republic would be a good acquirer for banks in Michigan today, McEvoy replied: "Who else is going to?"
Jason O'Donnell, an analyst with Boenning & Scattergood Inc., said that despite the third-quarter net loss, "I do think that this quarter represents a positive shift for the company. They have just as good a chance as anyone of getting through this crisis."
Another bright spot was the net interest margin, which expanded 24 basis points from the second quarter to 2.97%, though it was still 12 basis points lower than a year earlier.
The company was able to keep nonperforming assets relatively flat at $607 million in part through chargeoffs. Net chargeoffs totaled $71.4 million in the quarter, up 44% from the second quarter. It was the most aggressive chargeoff since the fourth quarter of 2008 when the company charged off $81 million.
Even so, the growth of nonperformers is slowing. The increase in nonperformers plus chargeoffs was $75 million in the quarter, down 27% from the second quarter.
Still, McEvoy said the company will likely have to find additional capital given its level of nonperformers and its unlikelihood of returning to profitability anytime soon.
Citizens Republic has said it wants to keep its tangible common equity ratio between 6.5% and 7.5%. The company said in June that it had applied to participate in the Treasury Department's Capital Assistance Program, which would allow it to convert a third of the $300 million it received from the Troubled Asset Relief Program into common equity, along with an additional $190 million infusion. Beyond saying the application was still pending, Christy declined to discuss the matter Friday.