One Bank Throws in the Towel

Citizens Republic Bancorp (CRBC) is a large bank in Michigan, with deposits and loans all over the Upper Midwest States, and today it announced it was raising $200 million in capital to bolster its balance sheet. The bank also announced that it was transferring $131.4 million of non performing loans in its portfolio to "held for sale," on its balance sheet. The breakdown by category is:

Land Construction and Development - $59.2 million.
Other CRE - $26.8 million.
Residential Mortgage - $45.4 million.

According to the problem bank guide published by the Office of the Comptroller of the Currency, when loans are transferred to this category, "the transfer to the HFS account must be made at the lower of cost or fair value in the period in which the decision to sell is made."

The amounts written off, and the percent when the loans were marked to market was:

Land Construction and Development - $11.60 million, or 19.6%.
Other CRE - $6.50 million, or 24.3%.
Residential Mortgage - $20.40 million, or 44.9%.

The average writedown was 29.3%.

These writedowns reflect the reality of what is occurring out there, although many banks are reluctant to take this step and write down loans. When a bank delays doing this, it gives an artificial view of of a bank's capital position. I applaud CRBC for taking the actions they did. Many other banks will follow over the next year.

CRBC also gave a forecast for the balance of 2008 on credit losses. The bank estimated net charge offs at a range of $79.0 million at the low end, up to $163.0 million in a worst case stress scenario.

The stock has had a rough last year, as can be seen in the chart below.



Disclosure - I am short this stock.