DBRS Downgrades Citizens Republic Bancorp’s Trust Preferreds; All Ratings Under Review Negative

DBRS has today downgraded the trust preferred ratings of Citizens Republic Bancorp, Inc. (Citizens or the Company). In addition, DBRS has placed all Citizens ratings Under Review with Negative Implications.

Today’s rating actions follow Citizens Q4 2009 operating results, which reflected a loss attributable to common shareholders of $70 million. The Company also announced the deferral of interest payments on its two trust preferred securities and suspended dividend payments on its TARP preferred shares. The one-notch downgrade of the trust preferred ratings is consistent with DBRS’s notching methodology for hybrid securities. DBRS notes that it does not view the exercising of the contractual right to defer or skip payments as equivalent to default. The downgrade for deferral on the trust preferred securities will remain as long as the quarterly payments are not being made.

The review reflects DBRS’s concerns that Citizens continues to struggle with steep asset quality erosion and sustained capital invasion. Continuous deterioration within the Company’s commercial portfolio has placed considerable pressure on Citizens’ capital. Although the deferral of interest payments on its trust preferred securities and suspension of TARP dividends will preserve $4.9 million per quarter, the actions will also further reduce Citizens financial flexibility and ability to further strengthen its capital position, in light of its low stock price and disrupted markets, in which it is difficult to sell assets.

The review will focus on Citizens’ asset quality, including the pace of losses, its franchise strength and prospective financial performance over the near term. In addition, the review will focus on Citizens’ capital adequacy and the rate of capital depletion. DBRS notes that the review may result in rating downgrades and the widening of notching between Citizens’ bank subsidiaries’ Senior Debt and Deposit ratings, which reflects the higher expected loss rates for senior debt holders relative to uninsured depositors to which the deposit rating applies.

Citizens’ ratings reflect its large CRE concentration, highly stressed Midwestern footprint, adequate liquidity, and well-established community banking and deposit franchise.

Note:
All figures are in U.S dollars unless otherwise noted.

The applicable methodologies are Rating Bank Preferred Shares and Equivalent Hybrids, published in June 2009 and the press release ‘DBRS clarifies its Approach to Rating Bank Subordinated Debt and Hybrid Instruments” published in December 2009; Global Methodology for Rating Banks and Banking Organisations, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.