Citizens Republic Bancorp (UNKNOWN:CRBC.DL) fourth-quarter earnings of $0.42 per share were bad enough to push the stock down nearly 1% in early trading this morning. But that earnings tally is in the past. What's really important about Citizens Republic's earnings was what they say about the future. And I think savvy investors are now looking at three reasons Citizens Republic is now an even better buy than before.
1. Improving asset quality
Citizens Republic had a rough few years following the financial crisis, at one point reporting 12 consecutive quarters of losses. However, investors that stuck with the bank as it rid itself of bad assets and grew its deposit base were rewarded when the bank returned to profitability this year, improving from what was a loss of $0.41 per share in 2011 to this year's $8.61 earnings per share. Granted, a full 80% of this income was related to a tax benefit recognized in the second quarter, but even the $1.79 per share of income excluding this benefit was pretty strong for the bank.
One thing that led the bank to this strong performance was the improvement of its assets over the past year. At the end of December 2011, the bank reported that 1.58% of its total loans -- nearly $87.4 million -- were nonperforming. Over the course of the year, this ratio was reduced to 1.12%, or $59 million in nonperforming loans. Though not as strong as some other banks, the improvement should give investors hope going forward as the bank prepares for its merger with FirstMerit (NASDAQ:FMER).
2. Trading below merger price
Its merger with FirstMerit is expected to be completed by the second quarter of this year, and the earning results from this morning could give new investors in the bank a bit of a bump when the sale executes around a valuation of $22.50 per share . With this ceiling already established, investors have a good indication of where the stock will be going over the next few months. For example, if investors were able to buy shares around $20, they could see a return of around 12.5% in a few months, perhaps making a short-term investment worthwhile.
3. Modest decline in net interest margin
Net interest margin has been one metric that has been examined closely in all bank earnings during the past week, with large declines impacting the share price negatively at banks. However, Citizens Republic saw a minimal decline in its net interest margin over the past year, declining a total of 12 basis points to a respectable 3.5%. Though a decline is unfortunate to see, the fact that the bank was able to keep the decline close to 10 basis points is pretty impressive, especially considering that Wells Fargo saw its net interest margin decline 33 basis points during the same period. Anytime you can beat one of the big banks in an important metric should be cause for celebration, and this small victory is no exception.
Foolish bottom line
With its time as an individual company coming to a close, it has been nice to follow the recovery of Citizens Republic over the past year, and its solid performance during that time should be a boost to FirstMerit once the acquisition is complete. The combined bank should be able to compete much more strongly with regional cousin Huntington Bancshares, and the pre-merger improvement of Citizens Republic could be the reason for that.
Fool contributor Robert Eberhard has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of FirstMerit, Huntington Bancshares, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.