<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended September 30, 1995
-----------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ____________
Commission file Number 0-10535
----------
CITIZENS BANKING CORPORATION
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Michigan 38-2378932
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Citizens Banking Center, Flint, Michigan 48502
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(Address of principal executive offices) (Zip Code)
</TABLE>
(810) 766-7500
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 6, 1995
- --------------------------- -------------------------------
Common Stock, No Par Value 14,298,451 Shares
(This report contains 21 pages)
<PAGE> 2
Citizens Banking Corporation
Index to Form 10-Q
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
- ------------------------------------------------------------------------------
Consolidated Balance Sheets (Unaudited)
Citizens Banking Corporation and Subsidiaries
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands) 1995 1994
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<S> <C> <C>
Assets
Cash and due from banks $ 139,081 $ 132,092
Money market investments:
Interest-bearing deposits with banks 76 20,135
Federal funds sold 52,530 60,000
Term federal funds and other 44,277 25,000
---------- ----------
Total money market investments 96,883 105,135
Securities available-for-sale:
U.S. Treasury and federal agency securities 355,750 331,001
State and municipal securities 222,162 226,424
Other securities 16,603 6,574
---------- ----------
Total investment securities 594,515 563,999
Loans:
Commercial loans 928,684 760,087
Real estate mortgage 452,659 391,117
Consumer installment 983,693 587,714
Lease Financing 59,074 77,303
---------- ----------
Total loans 2,424,110 1,816,221
Less: Allowance for loan losses (33,900) (24,714)
---------- ----------
Net loans 2,390,210 1,791,507
Premises and equipment 63,892 52,533
Cost-in-excess of assets acquired 69,414 15,830
Other assets 47,907 42,727
---------- ----------
Total assets $3,401,902 $2,703,823
========== ==========
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $458,942 $416,395
Interest-bearing 2,312,210 1,835,923
---------- ----------
Total deposits 2,771,152 2,252,318
Federal funds purchased and securities sold
under agreements to repurchase 138,092 125,581
Other short-term borrowings 33,111 20,850
Other liabilities 49,595 41,095
Long-term debt 123,340 5,249
---------- ----------
Total liabilities 3,115,290 2,445,093
Shareholders' Equity
Preferred stock - No par value --- ---
Common stock - No par value 90,445 89,243
Retained earnings 195,743 181,393
Net unrealized gain (loss) on securities available-for-sale,
net of tax 424 (11,906)
---------- ----------
Total shareholders' equity 286,612 258,730
---------- ----------
Total liabilities and shareholders' equity $3,401,902 $2,703,823
========== ==========
</TABLE>
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See notes to consolidated financial statements
3
<PAGE> 4
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Consolidated Statements of Income (Unaudited)
Citizens Banking Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $53,006 $36,779 $147,442 $106,664
Interest and dividends on investment securities:
Taxable 5,919 5,918 16,777 17,240
Nontaxable 2,339 2,602 7,144 8,014
Money market investments 1,515 550 5,485 1,235
------- ------- -------- --------
Total interest income 62,779 45,849 176,848 133,153
------- ------- -------- --------
Interest Expense
Deposits 23,448 14,109 64,116 41,300
Short-term borrowings 1,970 1,306 5,255 3,626
Long-term debt 2,316 119 5,518 358
------- ------- -------- --------
Total interest expense 27,734 15,534 74,889 45,284
------- ------- -------- --------
Net Interest Income 35,045 30,315 101,959 87,869
Provision for loan losses 1,504 1,355 4,504 3,771
------- ------- -------- --------
Net interest income after provision for loan losses 33,541 28,960 97,455 84,098
------- ------- -------- --------
Noninterest Income
Trust fees 2,974 2,421 8,473 7,316
Service charges on deposit accounts 2,506 2,121 7,256 6,400
Bankcard fees 1,304 2,120 3,824 5,441
Investment securities gains 15 (35) 119 153
Other 2,802 1,788 6,893 5,976
------- ------- -------- --------
Total noninterest income 9,601 8,415 26,565 25,286
------- ------- -------- --------
Noninterest Expense
Salaries and employee benefits 16,712 14,189 48,028 42,116
Equipment 2,536 2,199 7,294 6,369
Occupancy 2,282 2,053 6,590 5,997
FDIC insurance premiums 68 1,281 2,981 3,753
Bankcard fees 785 1,945 2,122 4,441
Stationery and supplies 898 691 2,602 2,005
Postage and delivery 891 574 2,317 1,819
Other 6,415 3,827 19,201 14,417
------- ------- -------- --------
Total noninterest expense 30,587 26,759 91,135 80,917
------- ------- -------- --------
Income before income taxes 12,555 10,616 32,885 28,467
Income taxes 3,571 2,871 9,048 7,287
------- ------- -------- --------
Net Income $ 8,984 $ 7,745 $ 23,837 $ 21,180
======= ======= ======== ========
Per Share:
Primary $ 0.62 $ 0.54 $ 1.64 $ 1.47
Fully Diluted $ 0.61 $ 0.54 $ 1.63 $ 1.46
======= ======= ======== ========
Average Shares Outstanding:
Primary 14,626 14,430 14,545 14,454
Fully Diluted 14,626 14,449 14,590 14,475
</TABLE>
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See notes to consolidated financial statements.
4
<PAGE> 5
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Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
Citizens Banking Corporation and Subsidiaries
<TABLE>
<CAPTION>
1995 1994
------------------------------------- -------
Third Second First Fourth
(in thousands) Quarter Quarter Quarter Quarter
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<S> <C> <C> <C> <C>
Common Stock
Balance, beginning of quarter $ 89,491 $ 89,303 $ 89,243 $ 89,202
Exercise of stock options, net of shares purchased 954 188 60 41
-------- -------- -------- --------
Balance, end of quarter 90,445 89,491 89,303 89,243
-------- -------- -------- --------
Retained Earnings
Balance, beginning of quarter 190,027 185,814 181,393 176,119
Net income 8,984 7,469 7,384 8,234
Cash dividends (3,268) (3,256) (2,963) (2,960)
-------- -------- -------- --------
Balance, end of quarter 195,743 190,027 185,814 181,393
-------- -------- -------- --------
Unrealized Gain (Loss) on Securities
Available-for-Sale
Balance, beginning of quarter (162) (5,546) (11,906) (7,516)
Net unrealized gain (loss), net of tax benefit 586 5,384 6,360 (4,390)
-------- -------- -------- --------
Balance, end of quarter 424 (162) (5,546) (11,906)
-------- -------- -------- --------
Total Shareholders' Equity $286,612 $279,356 $269,571 $258,730
======== ======== ======== ========
</TABLE>
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See notes to consolidated financial statements
5
<PAGE> 6
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Consolidated Statements of Cash Flows (Unaudited)
Citizens Banking Corporation and Subsidiaries
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(in thousands) 1995 1994
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<S> <C> <C>
Operating Activities:
Net income $ 23,837 $ 21,180
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 4,504 3,771
Depreciation and amortization 5,376 4,726
Amortization of goodwill and other intangibles 3,363 1,207
Net amortization on investment securities 2,215 2,342
Investment securities gains (119) (153)
Other (1,614) (9,671)
-------- --------
Net cash provided by operating activities 37,562 23,402
-------- --------
Investing Activities:
Net decrease in money market investments 31,352 10,993
Securities available-for-sale:
Proceeds from sales 6,883 189,876
Proceeds from maturities 110,977 124,248
Purchases (96,278) (307,737)
Net increase in loans and leases (81,803) (22,574)
Purchases of premises and equipment (5,432) (3,794)
Net cash used for acquisition of banks (59,434) ---
-------- --------
Net cash used by investing activities (93,735) (8,988)
-------- --------
Financing Activities:
Net increase (decrease) in demand and savings deposits (141,968) 7,605
Net increase in time deposits 120,116 17,431
Net decrease in short-term borrowings (20,236) (11,283)
Proceeds from issuance of long-term debt 115,000 ---
Principal reductions in long-term debt (1,465) (3,353)
Cash dividends paid (9,487) (8,597)
Proceeds from stock options exercised 1,202 1,561
Shares acquired for retirement --- (3,986)
-------- --------
Net cash provided by financing activities 63,162 (622)
-------- --------
Net increase in cash and due from banks 6,989 13,792
Cash and due from banks at beginning of period 132,092 113,303
-------- --------
Cash and due from banks at end of period $139,081 $127,095
======== ========
</TABLE>
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See notes to consolidated financial statements.
6
<PAGE> 7
Citizens Banking Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions for Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
and nine month periods ended September 30, 1995 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1995. For further information, refer to the consolidated financial
statements and notes thereto included in the Corporation's annual report on
Form 10-K for the year ended December 31, 1994.
NOTE 2. IMPAIRED LOANS
The Corporation adopted Financial Accounting Standards Board Statement
("SFAS") No. 114, "Accounting by creditors for Impairment of a Loan" and SFAS
118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition
and Disclosures" effective January 1, 1995. SFAS 114 requires creditors to
establish a valuation allowance for impaired loans. A loan is considered
impaired when management determines it is probable that all the principal and
interest due under the contractual terms of the loan will not be collected.
The impairment is measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. The adoption of the Statements did not have a material effect on
the Corporation's financial position or results of operations nor did it
result in additional provisions for loan losses as the Corporation has
historically established valuation allowances based on the fair value of
collateral securing an impaired loan. In addition, as permitted by SFAS 118,
interest income on impaired loans continues to be recognized in a manner
consistent with prior income recognition policies. For all impaired loans,
other than nonaccrual loans, interest income is recorded on an accrual basis.
Interest income on impaired nonaccrual loans is recognized on a cash basis.
NOTE 3. ACQUISITION OF BANKS
The 1995 results reflect seven months of operations for the four Michigan
affiliates of Banc One Corporation purchased at the close of business on
February 28, 1995. The transaction was accounted for as a purchase and the
four banks ( "acquired banks") were merged into Citizens Commercial and
Savings Bank headquartered in Flint, Michigan effective immediately after the
acquisition. Total assets acquired of $730 million included net loans of
$532 million, investment securities and money market investments of $57
million and deposits of $541 million. A preliminary cost-in-excess of the
fair value of identifiable net assets acquired was $57 million and is being
amortized over 15 years. The unaudited pro-forma combined operating results
of the Corporation and the four banks, assuming the acquisition was
consummated on January 1, 1993, are as follows:
<TABLE>
<CAPTION>
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(in thousands except per share amounts) 1994 1993
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<S> <C> <C>
Net interest income $137,532 $125,292
Net income 27,692 22,150
Net income per share:
Primary $1.91 $1.61
Fully diluted 1.91 1.61
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</TABLE>
Note 4. Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year financial statement presentation.
7
<PAGE> 8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations The following is a review of the Corporation's
performance during the three and nine month periods ended September 30, 1995.
This discussion should be read in conjunction with the accompanying unaudited
financial statements and notes thereto appearing on pages 3 through 7 of this
report and the Corporation's 1994 Annual Report on Form 10-K.
<TABLE>
<CAPTION>
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Selected Financial Data
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share data) 1995 1994 1995 1994
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<S> <C> <C> <C> <C>
For The Period
Interest income $ 62,779 $ 45,849 $ 176,848 $ 133,153
Net interest income 35,045 30,315 101,959 87,869
Provision for loan losses 1,504 1,355 4,504 3,771
Investment securities gains 15 (35) 119 153
Other noninterest income 9,586 8,450 26,446 25,133
Noninterest expense 30,587 26,759 91,135 80,917
Income taxes 3,571 2,871 9,048 7,287
Net income 8,984 7,745 23,837 21,180
Cash dividends 3,268 2,957 9,487 5,640
Per Share Data
Net income:
Primary $ 0.62 $ 0.54 $ 1.64 $ 1.47
Fully diluted 0.61 0.54 1.63 1.46
Cash dividends 0.23 0.21 0.67 0.61
Book value (end of period) -- -- 20.08 18.28
Market value (end of period close) -- -- 30.38 25.50
Financial Ratios (annualized)
Return on average:
Shareholders' equity 12.66% 11.97% 11.66% 11.04%
Earning assets 1.15 1.23 1.08 1.13
Assets 1.05 1.13 0.99 1.04
Net interest margin (FTE) 4.70 5.08 4.80 4.95
Net loan charge-offs to average loans 0.25 0.15 0.15 0.16
Average equity to average total assets 8.31 9.47 8.46 9.44
Nonperforming assets to loans plus other real estate
(end of period) -- -- 1.03 1.22
Nonperforming assets to total assets (end of period) -- -- 0.74 0.81
Balance Sheet Totals Percent
At Period End (September 30) Change
------
Assets 24.9 $3,401,902 $2,723,275
Loans 34.6 2,424,110 1,800,335
Deposits 22.0 2,771,152 2,271,594
Shareholders' equity 11.2 286,612 257,805
Average balances
Assets 18.9 3,229,748 2,716,888
Loans 25.8 2,258,932 1,795,938
Deposits 17.6 2,665,390 2,265,919
Shareholders' equity 6.6 273,223 256,460
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</TABLE>
8
<PAGE> 9
PERFORMANCE SUMMARY
Selected financial data as of September 30, 1995 and 1994 and for the three
and nine month periods then ended are presented in the table on page 8. As
shown, earnings increased in 1995 resulting from higher net interest income.
This improvement was offset in part by higher noninterest expense, provision
for loan losses and income taxes. The first nine months results reflect seven
months of operations for the four Michigan affiliates of Banc One Corporation
purchased at the close of business on February 28, 1995. The transaction was
accounted for as a purchase and the four banks ("acquired banks") were merged
into Citizens Commercial and Savings Bank headquartered in Flint, Michigan
effective immediately after the acquisition.
NET INTEREST INCOME
Net interest income and average balances and yields on major categories of
interest-earning assets and interest-bearing liabilities for the three and nine
months ended September 30, 1995 and 1994 are summarized on pages 10 and 11,
respectively. The effects of changes in average market rates of interest
("rate") and average balances ("volume") are quantified in the table below.
<TABLE>
<CAPTION>
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Analysis Of Changes In Interest Income And Interest Expense
Three Months Ended September 30 Nine Months Ended September 30
----------------------------------------------------------------------------------
1995 Compared With 1994 1995 Compared With 1994
----------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
Net -------------------- Net ----------------------
(in thousands) Change(1) Volume Rate(2) Change(1) Volume Rate(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Money market investments:
Time deposits with banks $ (14) $ (15) $ 1 $ 123 $ 38 $ 85
Federal funds sold 312 126 186 2,164 1,090 1,074
Term federal funds sold and
other 667 618 49 1,962 1,445 517
Investment securities
Taxable 2 (350) 352 (462) (1,936) 1,474
Tax-exempt (264) (392) 128 (870) (1,375) 505
Loans 16,228 12,267 3,961 40,778 28,045 12,733
------- ------- -------- ------- ------- -------
Total 16,931 12,254 4,677 43,695 27,307 16,388
------- ------- -------- ------- ------- -------
Interest Expense:
Deposits:
Demand 412 287 125 1,011 657 354
Savings 1,101 (60) 1,161 2,967 (382) 3,349
Time 7,826 3,843 3,983 18,837 8,965 9,872
Short-term borrowings 665 147 518 1,630 (4) 1,634
Long-term debt 2,197 1,650 547 5,160 3,351 1,809
------- ------- -------- ------- ------- -------
Total 12,201 5,867 6,334 29,605 12,587 17,018
------- ------- -------- ------- ------- -------
Net Interest Income $ 4,730 $ 6,387 $ (1,657) $14,090 $14,720 $ (630)
======= ======= ======== ======= ======= =======
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</TABLE>
(1) Changes are based on actual interest income and do not
reflect taxable equivalent adjustments.
(2) Rate/Volume variances are allocated to changes due to rate.
Favorable volume related variances in net interest income partially offset by
negative rate variances resulted in an increase in net interest income of
$4,730,000 for the three months ended September 30, 1995 as compared with the
same period in 1994. For the nine months ended September 30, 1995, net
interest income increased $14,090,000 compared with the same period of 1994.
$4,225,000 of the three month period increase and $7,682,000 of the nine month
period increase resulted from the February 28, 1995 acquisition of the four new
banks. Yields on earning assets increased from 7.54% to 8.24% and from 7.36%
to 8.18% for the three and nine months ended September 30, 1995 as compared with
the same periods of 1994 primarily due to the higher interest rate environment
in 1995 as compared with the same periods of 1994. Similarly, the cost of
interest bearing liabilities increased from 3.02% to 4.24% and from 2.96% to
4.07% for the three and nine months ended September 30, 1995 as compared with
the same periods in 1994. Higher time deposit rates and increases in long-term
debt borrowings to fund the February 28, 1995 bank acquisitions resulted in the
higher costs of interest bearing liabilities. The Corporation's policies
regarding changes in funding costs are discussed in the section titled "Interest
Rate Risk."
9
<PAGE> 10
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AVERAGE BALANCES/NET INTEREST INCOME/AVERAGE RATES
<TABLE>
<CAPTION>
1995 1994
Three Months Ended September 30 ------------------------------- ------------------------------
Average Average Average Average
(in thousands)
Balance Interest(1) Rate(2) Balance Interest(1) Rate(2)
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<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Money market investments:
Interest earning deposits with banks $ 74 $ 1 5.97% $ 1,303 $ 15 4.47%
Federal funds sold 55,242 841 6.04 44,630 529 4.71
Term federal funds sold and other 49,173 673 5.43 489 6 5.13
Investment securities(3)
Taxable 417,126 5,919 5.65 452,569 5,918 5.21
Nontaxable 172,195 2,339 8.40 202,896 2,602 7.94
Loans and leases
Commercial 933,316 21,118 9.09 757,873 15,303 8.16
Real estate 441,282 9,175 8.32 393,871 8,023 8.15
Consumer 974,829 21,727 8.85 582,368 12,092 8.24
Lease financing 59,711 986 6.60 75,216 1,361 7.24
---------- ------- ---- ---------- ------- ----
3,102,948 62,779 8.24 2,511,215 45,849 7.54
------- -------
Total earning assets(3)
NONEARNING ASSETS
Cash and due from banks 144,705 124,806
Bank premises and equipment 63,840 53,614
Other nonearning assets 114,346 49,645
Allowance for loan losses (34,194) (23,916)
---------- --------
$3,391,645 $2,715,364
========== ==========
Total assets
INTEREST-BEARING LIABILITIES
Deposits:
Demand deposits $316,530 1,501 1.88 $257,421 1,089 1.68
Savings deposits 920,281 6,577 2.84 912,986 5,476 2.38
Time deposits 1,077,213 15,370 5.66 719,188 7,544 4.16
Repurchase agreements and other short-term
borrowings 155,296 1,970 5.03 139,969 1,306 3.70
Long-term debt 123,329 2,316 7.45 8,294 119 5.69
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities 2,592,649 27,734 4.24 2,037,858 15,534 3.02
------- -------
NONINTEREST-BEARING LIABILITIES AND
SHAREHOLDERS'EQUITY
Demand deposits 466,115 379,374
Other liabilities 51,360 41,420
Shareholders' equity 281,521 256,712
---------- ----------
Total liabilities and shareholders' equity $3,391,645 $2,715,364
========== ==========
NET INTEREST INCOME $35,045 $30,315
======= =======
4.70% 5.08%
NET INTEREST INCOME AS A PERCENT OF EARNING ASSETS
</TABLE>
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(1) Interest income shown on actual basis and does not include taxable
equivalent adjustments.
(2) Average rates are presented on an annual basis and include taxable
equivalent adjustments to interest income of $1,500 and $1,671 for the
three months ended September 30, 1995 and 1994, respectively, based on a
tax rate of 35%.
(3) For presentation in this table, average balances and the corresponding
average rates for investment securities are based upon historical cost,
adjusted for amortization of premiums and accretion of discounts.
10
<PAGE> 11
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AVERAGE BALANCES/NET INTEREST INCOME/AVERAGE RATES
<TABLE>
<CAPTION>
1995 1994
Nine Months Ended September 30 ---------------------------------- ------------------------------
Average Average Average Average
(in thousands) Balance Interest(1) Rate(2) Balance Interest(1) Rate(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Money market investments:
Interest earning deposits with banks $ 4,708 $ 209 5.92% $ 3,275 $ 85 3.48%
Federal funds sold 72,829 3,284 6.03 36,895 1,120 4.06
Term federal funds sold and other 46,342 1,992 5.75 1,120 30 3.61
Investment securities(3):
Taxable 402,042 16,777 5.57 459,278 17,240 5.01
Nontaxable 176,499 7,144 8.35 212,933 8,014 7.77
Loans and leases:
Commercial 892,093 60,652 9.17 748,029 43,071 7.82
Real estate 427,825 26,532 8.27 401,633 24,478 8.13
Consumer 873,492 57,064 8.73 563,878 34,950 8.28
Lease financing 65,522 3,194 6.50 82,398 4,165 6.74
---------- ------- ---- ---------- -------- ----
Total earning assets(3) 2,961,352 176,848 8.18 2,509,439 133,153 7.36
------- --------
NONEARNING ASSETS
Cash and due from banks 140,788 124,943
Bank premises and equipment 61,355 53,845
Other nonearning assets 98,057 51,994
Allowance for loan losses (31,804) (23,333)
---------- ----------
Total assets $3,229,748 $2,716,888
========== ==========
INTEREST-BEARING LIABILITIES
Deposits:
Demand deposits $307,287 4,318 1.88 $ 258,401 3,306 1.71
Savings deposits 911,279 19,215 2.82 921,624 16,248 2.36
Time deposits 1,002,533 40,583 5.41 712,443 21,746 4.08
Repurchase agreements and other
short-term borrowings 142,634 5,255 4.93 142,827 3,626 3.39
Long-term debt 97,810 5,518 7.54 9,435 358 5.07
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities 2,461,543 74,889 4.07 2,044,730 45,284 2.96
------- -------
NONINTEREST-BEARING LIABILITIES AND
SHAREHOLDERS' EQUITY
Demand deposits 444,291 373,451
Other liabilities 50,691 42,247
Shareholders' equity 273,223 256,460
---------- ----------
Total liabilities and shareholders' $3,229,748 $2,716,888
equity ========== ==========
NET INTEREST INCOME $101,959 $87,869
======== =======
NET INTEREST INCOME AS A PERCENT OF EARNING 4.80% 4.95%
ASSETS
</TABLE>
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(1) Interest income shown on actual basis and does not include
taxable equivalent adjustments.
(2) Average rates are presented on an annual basis and include
taxable equivalent adjustments to interest income of $4,502
and $5,138 for the nine months ended September 30, 1995 and
1994, respectively, based on a tax rate of 35%.
(3) For presentation in this table, average balances and the
corresponding average rates for investment securities are
based upon historical cost, adjusted for amortization of
premiums and accretion of discounts.
11
<PAGE> 12
Provision and Allowance for Loan Losses
Management provides for possible loan losses at a rate considered appropriate
based on judgments regarding economic conditions, historical loss experience,
the size and composition of the loan portfolio, the amount and character of
nonperforming assets, estimated future net charge-offs and other factors. A
summary of loan loss experience during the three and nine months ended
September 30, 1995 and 1994 is provided below. The provision for loan losses
increased $149,000 during the three months and $733,000 during the nine months
ended September 30, 1995 compared with the same periods of 1994. The allowance
for loan losses increased $9,679,000 at September 30, 1995 compared to the
prior year, $7,235,000 of which is due to the beginning allowance of the
acquired banks. The increased provision and lower than expected charge-offs
accounted for the remaining increase.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Analysis Of Allowance For Loan Losses
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for loan losses - beginning of period $ 33,893 $ 23,524 $ 24,714 $ 22,547
Allowance of Acquired Banks --- --- 7,235 ---
Charge-offs 2,340 1,237 5,605 4,275
Recoveries 843 579 3,052 2,178
---------- ---------- ---------- ----------
Net charge-offs 1,497 658 2,553 2,097
Provision for loan losses 1,504 1,355 4,504 3,771
---------- ---------- ---------- ----------
Allowance for loan losses - end of period $ 33,900 $ 24,221 $ 33,900 $ 24,221
========== ========== ========== ==========
Loans outstanding at period end $2,424,110 $1,800,335 $2,424,110 $1,800,335
Average loans outstanding during period 2,409,138 1,809,328 2,258,932 1,795,938
Allowance for loan losses as a percentage of loans
outstanding at period end 1.40% 1.35% 1.40% 1.35%
Ratio of net charge-offs during period to average
loans outstanding (annualized) 0.25 0.15 0.15 0.16
Loan loss coverage (allowance as a multiple of net
charge-offs, annualized) 5.7 x 9.2 x 10.0 x 8.7 x
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation maintains formal policies and procedures to monitor and control
credit risk. The Corporation's loan portfolio has no significant
concentrations in any one industry nor any exposure to foreign loans. The
Corporation has generally not extended credit to finance highly leveraged
transactions nor does it intend to do so in the future. Based on present
information, management believes the allowance for loan losses is adequate to
meet known risks in the loan portfolio.
Employment levels and other economic conditions in the Corporation's local
markets may have a significant impact on the level of credit losses. Management
has identified and devotes appropriate attention to credits which may not be
performing as well as expected. Nonperforming loans are further discussed in
the section entitled "Nonperforming Assets."
12
<PAGE> 13
Noninterest Income
A summary of significant sources of noninterest income during the three and
nine months ended September 30, 1995 and 1994 follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest Income Three Months Ended Nine Months Ended Percent
September 30, September 30, Change in 1995
------------------
(in thousands) Three Nine
1995 1994 1995 1994 months months
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trust fees $2,974 $2,421 $8,473 $7,316 22.8% 15.8%
Service charges on deposit accounts 2,506 2,121 7,256 6,400 18.2 13.4
Bankcard fees 1,304 2,120 3,824 5,441 (38.5) (29.7)
Brokerage and investment fees 394 317 951 1,087 24.3 (12.5)
Other loan income 603 292 1,352 1,087 106.5 24.4
ATM network user fees 488 366 1,222 989 33.3 23.6
Cash management services 286 228 730 676 25.4 8.0
Safe deposit rentals 278 200 740 586 39.0 26.3
Investment securities gains 15 (35) 119 153 142.9 (22.2)
Other, net 753 385 1,898 1,551 95.6 22.3
------ ------ ------- -------
Total noninterest income $9,601 $8,415 $26,565 $25,286 14.1% 5.1%
====== ====== ======= =======
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Including the effects of the four acquired banks, noninterest income increased
14.1% and 5.1% for the three and nine months ended September 30, 1995 over the
same periods in 1994. Excluding the results of the four acquired banks,
bankcard fees declined 43.9% and 37.6% for the three and nine months ended
September 30, 1995 as compared to prior year, primarily due to the
discontinuance of the Travel Banking product line in early 1995 which provided
bankcard merchant fee income. Excluding results of the newly acquired banks,
brokerage and investment fees increased 19.2% in the three months ending
September 30, 1995, but decreased 15.6% for the nine months ended September 30,
1995, as compared with the same periods in 1994. The nine month variance is
primarily due to lower market penetration and a temporary reduction in staff
during the first half of 1995. Other loan income increased during the three and
nine months ended September 30, 1995, due to higher levels of gains on sales of
mortgages to the secondary market as compared to the same periods a year ago.
Excluding the impact of the acquired banks, ATM Network user fees increased
15.9% and 16.3% during the three and nine months ended September, 30 1995, as
compared to the same periods in the prior year, due to increased volumes. Safe
deposit income increased in the three and nine months ended September 30, 1995,
as compared to the same periods in 1994, resulting from additional income
generated by the acquired banks. Miscellaneous other income increased for the
three and nine months ended September 30, 1995 as compared to the same periods
in 1994, primarily due to the impact of the four acquired banks.
Excluding the results of the four acquired banks variances for the following
income categories were not significant; trust income increasing 2.6% and 2.9%
in the three and nine month periods, and service charges on deposits decreasing
in the three and nine month periods by 5.0%, and 6.8% as compared to the same
periods in the prior year.
13
<PAGE> 14
Noninterest Expense
Significant changes in noninterest expense during the three and nine months
ended September 30, 1995 compared with the same period of 1994 are summarized
in the table below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest Expense Three Months Ended Nine Months Ended Percent
September 30, September 30, Changes in 1995
------------------
Three Nine
(in thousands) 1995 1994 1995 1994 Months Months
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $16,712 $14,189 $48,028 $42,116 17.8% 14.0%
Equipment 2,536 2,199 7,294 6,369 15.3 14.5
Occupancy 2,282 2,053 6,590 5,997 11.2 9.9
FDIC insurance premiums 68 1,281 2,981 3,753 (94.7) (20.6)
Bankcard fees 785 1,945 2,122 4,441 (59.6) (52.2)
Stationery and supplies 898 691 2,602 2,005 30.0 29.8
Postage and delivery 891 574 2,317 1,819 55.2 27.4
Taxes other than income taxes 605 669 1,844 1,862 (9.6) (1.0)
Advertising and public relations 697 486 2,082 1,564 43.4 33.1
Legal, audit and examination fees 389 378 1,261 1,358 2.9 (7.1)
Other loan fees 502 325 1,327 993 54.5 33.6
Consulting and other professional 323 510 1,545 1,086 (36.7) 42.3
fees
Other, net 3,898 1,459 11,142 7,554 167.2 47.5
------- ------- ------- -------
Total noninterest expense $30,587 $26,759 $91,135 $80,917 14.3% 12.6%
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The three and nine months ended September 30, 1995 reflect an increase in
noninterest expense of 14.3% and 12.6%, respectively over the same periods in
1994. The increase in salaries and employee benefits in the three and nine
months ended September 30, 1995 compared with the same periods a year ago
primarily reflects the effects of the acquired banks. Excluding the results of
the acquired banks, salaries and employee benefits increased 2.2% and 1.4%
during the three and nine months ending September 30, 1995, compared to the
previous year. Cost savings attributable to staff reductions partially offset
the effects of normal merit increases and higher health insurance and other
benefit costs. Management anticipates that the ongoing consolidation of
operational functions throughout the Corporation including the newly acquired
banks will continue to mitigate the need to replace staff lost through normal
attrition.
Occupancy expense, excluding the results of the four acquired banks, reflects a
decrease in expense for the three and nine month periods of 7.6% and 4.7%,
respectively. Excluding the newly acquired banks, equipment and stationary and
supplies expense had only slight increases of 1.2% and 8.3% for the three
months and 3.5% and 7.2%, for nine months, respectively, as compared to the same
periods last year. The three months ended September 30, 1995 include a refund
of FDIC insurance premiums of $1,517,000. The FDIC approved a new rate
schedule for bank deposit insurance premiums, decreasing premiums for all
banks within the Corporation from $0.23 to $0.04 per $100 of insured deposits,
retroactive to June 1, 1995.
The decrease in bankcard processing expense is due to the discontinuance of the
Travel Banking product line in early 1995 which had previously generated
significant amounts of interchange and other bankcard expense. Postage and
delivery expense increased in the three and nine months ended September 30,
1995, due to one time acquisition related expenses and the impact of the
acquired banks. Excluding the results of the newly acquired banks, advertising
increased slightly in the three and nine month periods ending September 30, 1995
by 12.9% and 8.4%, respectively. Other loan fees increased due to expenses
associated with the acquired banks. Consulting and other professional services
increased 43.4% and 33.1% during the three and nine months compared to the same
period last year, primarily due to system integration and conversion costs
associated with the newly acquired banks. The system integration and
conversion process was completed in the third quarter of this year. Other
miscellaneous noninterest expense, increased for the three and nine months ended
September 30, 1995 as compared to the same period last year. The increase was
due to the amortization of the goodwill associated with the February 28, 1995
bank acquisitions and other normal recurring expense associated with the
acquired banks. Overall, noninterest expenses excluding the results of the
four acquired banks decreased 8.9% for the three months ended September 30, and
6.2% for the nine months ended September 30, as compared to 1994.
14
<PAGE> 15
Income Taxes
Federal income tax expense increased to $9,048,581 for nine months of 1995
from $7,287,219 during the same period of 1994, increasing 24.2%, resulting
from higher pre-tax earnings and a slightly lower level of tax-exempt interest
income.
Balance Sheet
The Corporation had total assets of $3,401,902,000 as of September 30, 1995, an
increase of $698,079,000 or 25.8% from $2,703,823,000 as of December 31, 1994.
The newly acquired banks accounted for $730,000,000 of the increase including
a preliminary cost-in-excess of the fair value of identifiable net assets
acquired of $ 57,025,000. Total earning assets amounted to $3,115,508,000 as
of September 30, 1995, compared with $2,505,560,000 for the same period in
1994, an increase of $ 609,948,000 or 24.3%. Average earning assets comprised
91.5% of average total assets during the first nine months of 1995 compared
with 92.2 % for the corresponding period in 1994. The 0.7% decline is
primarily the result of the cost-in-excess of the fair value of identifiable
net assets of the four banks acquired in the first quarter of 1995.
Investment Securities and Money Market Investments
Total average investments, including money market investments, comprised 23.8%
of average earning assets during the first nine months of 1995, compared with
28.5% for the same period of 1994. Average money market investment balances
increased to 4.2% of total average earning assets during the first nine months
of 1995 from 1.6% for same period of 1994. Overall, decreases in investment
securities and money market investments as a percent of earning assets resulted
from the newly acquired banks and the use of funds to support loan growth.
In December 1994, the Corporation adopted Financial Accounting Standards Board
Statement No. 119 "Disclosures about Derivative Financial Instruments and Fair
Value of Financial Instruments" ("FAS 119"). This Statement defines a
derivative as a future, forward, swap, option contract or other financial
instrument with similar characteristics. The Statement requires expanded
disclosures about these types of financial instruments. The Corporation does
not invest in derivatives or related types of financial instruments except for
Federal agency collaterized mortgage obligations and, therefore, the adoption
of this Statement did not have a material effect.
Loans and Leases
The Corporation extends credit primarily within the market areas of its seven
banking subsidiaries; six located in Michigan and one in Illinois. The loan
portfolio is widely diversified by borrowers and industry groups with no
significant concentrations in any industry. Total average loans increased
25.8% in the first nine months of 1995 compared with the same period in 1994
(2.5% excluding the purchase of the newly acquired banks). The real estate
mortgage loan portfolio decreased due to lower new loan volume and sale of
mortgages in 1995 while the commercial and consumer loan portfolios increased.
Nonperforming Assets
The Corporation adopted Financial Accounting Standards Board Statement ("SFAS")
No. 114, "Accounting by creditors for Impairment of a Loan" and SFAS 118,
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures" effective January 1, 1995. SFAS 114 requires creditors to
establish a valuation allowance for impaired loans. A loan is considered
impaired when management determines it is probable that all the principal and
interest due under the contractual terms of the loan will not be collected.
The impairment is measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. The adoption of the Statements did not have a material effect on
the Corporation's financial position or results of operations nor did it result
in additional provisions for loan losses as the Corporation has historically
established valuation allowances based on the fair value of collateral securing
an impaired loan. In addition, as permitted by SFAS 118, interest income on
impaired loans continues to be recognized in a manner consistent with prior
income recognition policies. For all impaired loans, other than nonaccrual
loans, interest income is recorded on an accrual basis. Interest income on
impaired nonaccrual loans is recognized on a cash basis.
The Corporation measures impairment on all large balance nonaccrual commercial
and commercial real estate loans. Certain large balance accruing loans rated
substandard or worse are also measured for impairment. In most instances,
impairment is measured based on the fair value of the underlying collateral.
Impairment losses are included in the provision for loan losses. SFAS 114 does
not apply to large groups of smaller balance homogeneous loans that are
collectively evaluated for impairment, except for those loans restructured
under a troubled debt restructuring. Loans collectively evaluated for
impairment include certain smaller balance commercial loans, consumer loans,
residential real estate loans, and credit card loans, and are not included in
the impaired loan data that follows.
15
<PAGE> 16
At September 30, 1995, loans considered to be impaired under the Statements
totalled $20,607,000 (of which $13,388,000 were on a nonaccrual basis).
Included within this amount is $6,637,000 of impaired loans for which the
related allowance for loan losses is $1,354,000 and $13,970,000 of impaired
loans for which the fair value exceeded the recorded investment in the loan.
The average recorded investment in impaired loans during the quarter ended
September 30, 1995 was approximately $19,706,000. For the quarter ended
September 30, 1995, the Corporation recognized interest income of $ 372,000
which included $182,000 of interest income recognized using the cash basis
method of income recognition.
Nonperforming assets consist of nonaccrual loans, restructured loans, loans 90
days past due and still accruing interest, and other real estate owned. The
Corporation changed its nonperforming asset policy in the third quarter of 1995
to include loans 90 days past due and still accruing in the nonperforming asset
category. Previously these loans were considered underperforming assets. All
nonperforming asset disclosures contained in this filing have been adjusted to
reflect this change. Certain of these loans, as defined above, are considered
to be impaired under the Statements. The Corporation maintains policies and
procedures to identify and monitor nonaccrual loans. A loan (including a loan
impaired under the Statements) is placed on nonaccrual status when there is
doubts regarding collection of principal or interest, or when principal or
interest is past due 90 days or more and the loan is not well secured and in
the process of collection. Interest accrued but not collected is reversed and
charged against income when the loan is placed on nonaccrual status.
Other real estate owned is comprised of property acquired through a foreclosure
proceeding or acceptance of a deed-in-lieu of foreclosure and loans classified
as in-substance foreclosure. In accordance with the Statements, a loan is
classified as in-substance foreclosure when the Corporation has taken
possession of the collateral regardless of whether formal foreclosure
proceedings take place. Loans previously classified as in-substance
foreclosure but for which the Corporation has not taken possession of the
collateral are classified in loans. In 1993, the Corporation amended its
disclosure policy for assets in-substance foreclosed to comply with new
regulatory guidelines. As a result, loans previously classified as
in-substance foreclosure but for which the Corporation had not taken possession
of the collateral were reclassified as nonaccrual real estate mortgage loans.
This reclassification did not impact the Corporation's financial condition or
results of operations.
The table on the following page provides a summary of nonperforming assets as
of September 30, 1995, December 31, 1994 and September 30, 1994. Total
nonperforming assets amounted to $25,066,000 as of September 30, 1995, compared
with $21,938,000 as of December 31, 1994 and $21,945,000 as of September 30,
1994. Overall, nonperforming assets increased from December 31, 1994 due to
the inclusion of the nonperforming assets of the acquired banks, but declined
as a percentage of total loans and assets.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Nonperforming Assets
September 30, December 31, September 30,
(in thousands) 1995 1994 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming Loans
Nonaccrual
Less than 30 days past due $5,248 $5,185 $4,946
From 30 to 89 days past due 1,574 1,405 289
90 or more days past due 15,628 11,566 12,541
------- ------- -------
Total 22,450 18,156 17,776
90 days past due and still accruing 109 1,253 1,457
Restructured 527 299 100
------- ------- -------
Total nonperforming loans 23,086 19,708 19,333
Other Real Estate Owned ("OREO") 1,980 2,230 2,612
------- ------- -------
Total nonperforming assets $25,066 $21,938 $21,945
======= ======= =======
Nonperforming assets as a percent of total loans plus OREO 1.03% 1.21% 1.22%
Nonperforming assets as a percent of total assets 0.74 0.81 0.81
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
Employment levels and other economic conditions in the Corporation's local
markets can impact the level and composition of nonperforming assets. In a
deteriorating or weak economy, higher levels of nonperforming assets,
charge-offs and provisions for loan losses could result which may adversely
impact the Corporation's results.
In addition to nonperforming loans, management identifies and closely monitors
other credits that are either current or less than 90 days past due in terms of
principal and interest payments but, in management's opinion, may deteriorate
in quality if economic conditions change. As of September 30, 1995 such
credits amounted to $14,122,000 or 0.6% of total loans, compared with
$15,257,000 or 0.8 % at December 31, 1994 and $20,564,000 or 1.1% as of
September 30, 1994. These loans are primarily commercial and commercial real
estate loans made in the normal course of business and do not represent a
concentration in any one industry.
Deposits
The Corporation gathers deposits primarily in its local markets and
historically has not relied on brokered funds to sustain liquidity. Average
deposits increased 17.6% in the first nine months of 1995 over the same period
in 1994 (decrease of 0.7% excluding the newly acquired banks). The shift in
customer preferences from savings deposits to time deposits reflects
changing customer liquidity preferences and the desire for higher interest
rates. Management seeks to maintain core deposit stability by offering
customers a wide range of deposit products at competitive rates.
Short-Term Borrowings And Long-Term Debt
On average, total short-term borrowings were relatively unchanged at
$142,634,000 during the first nine months of 1995 compared with $142,827,000
during the same period of 1994. To finance the acquisition of the acquired
banks, the Corporation's Parent company obtained a $115 million seven year
amortizing revolving credit facility. The revolving credit facility is
currently comprised of a $35 million two year bullet note and a $40 million
three year amortizing note at a blended fixed rate of 7.65%. The remaining $40
million outstanding has a variable interest rate based on the 3 month LIBOR
index. The debt agreement allows the Corporation to prepay the debt without
penalty subject to certain restrictions. The Parent company services the
debt's principal and interest payments with dividends from the subsidiary
banks. The agreement also requires the Corporation to maintain certain
financial covenants all of which the Corporation is in full compliance as of
September 30, 1995. In addition, long-term debt of $4,561,000 existing on the
acquisition date at the acquired banks was assumed by the Corporation as part
of the acquisition. The transaction resulted in average long-term debt
balances increasing to $97,810,000 during the first nine months of 1995 from
$9,435,000 for the same period of 1994.
New Accounting Statements
In March 1995 Financial Accounting Standards Board issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of". The Statement establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets. It also requires entities to review assets being
carried for potential impairment and to recognize the impairment loss if one
exists. The Statement is effective for years beginning after December 15,
1995. The Corporation will adopt the Statement effective January 1, 1996 and
the impact of adoption on the Corporation is not expected to be material.
In May 1995 Financial Accounting Standards Board issued Statement No. 122
"Accounting for Mortgage Servicing Rights". The Statement amends FASB
Statement No. 65 to require mortgage banking related companies to recognize as
a separate asset the rights to service mortgage loans for others regardless of
how those servicing rights are acquired. This may be through purchase or
origination of the mortgage loans. The Statement is effective for years
beginning after December 15, 1995. The Corporation will adopt the Statement by
January 1, 1996. The impact of adoption on the Corporation is not expected to
be material.
Capital Resources
Regulatory Capital Requirements
Bank holding companies, such as the Corporation, and their bank subsidiaries
are required by banking regulators to meet certain minimum levels of capital
adequacy. These are expressed in the form of certain ratios. Capital is
separated into Tier I capital (essentially common stockholders' equity less
goodwill) and Tier II capital (essentially the
17
<PAGE> 18
allowance for loan losses limited to 1.25% of risk-weighted assets). The
risk-based capital ratios, which are based on the degree of credit risk in the
company's assets, provide for weighting assets based on assigned risk factors
and include off-balance sheet items such as loan commitments and stand-by
letters of credit. The ratio of Tier I capital to risk- weighted assets must
be at least 4.0% and the ratio of Total capital (Tier 1 capital plus Tier 2
capital) to risk-weighted assets must be at least 8.0%. The capital leverage
ratio supplements the risk-based capital guidelines. Banks and bank holding
companies are required to maintain a minimum ratio of Tier 1 capital to
adjusted quarterly average total assets of 3.0%
The FDIC, the insurer of deposits in financial institutions, has adopted a
risk-based insurance premium system based in part on an institution's capital
adequacy. Under this system, a depository institution is classified into one
of three capital categories (well-capitalized, adequately capitalized or
undercapitalized) according to its risk-based capital and leverage ratios and
is required to pay successively higher premiums depending on its capital levels
and its supervisory rating by its primary regulator. All bank subsidiaries
within the Corporation maintain sufficient capital to maintain a "well
capitalized" designation (the FDIC's highest rating).
As summarized below, the Corporation's risk-based capital levels were well in
excess of all regulatory standards.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Ratios
Regulatory September 30, December 31, September 30,
Minimum 1995 1994 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk based capital:
Tier I 4.0% 8.7% 13.4% 13.2%
Total capital 8.0 10.0 14.7 14.4
Tier I leverage 3.0 6.5 9.5 9.2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Common and Preferred Stock
The Corporation maintains a stock repurchase program initiated in November
1987. During the first nine months of 1995, no shares were repurchased under
this program. As of September 30, 1995, a total of 1,132,470 shares have been
repurchased under this program at an average price per share of $14.31.
Other
Total shareholders' equity was $286,612,000 or $20.08 per share as of September
30, 1995, compared with $258,730,000 or $18.31 per share as of December 31,
1994 and $257,805,000 or $18.28 per share as of September 30, 1994. The
Corporation declared cash dividends of $0.67 per share during the first nine
months of 1995, an increase of 9.8% over the $0.61 per share declared during
the same period in 1994.
Liquidity And Debt Capacity
The level of liquid assets available to meet ongoing funding needs and to
capitalize on opportunities for business expansion is closely monitored by
management. It is management's intent to maintain adequate liquidity so that
sufficient funds are readily available at a reasonable cost. Various
techniques are used by the Corporation to measure liquidity, including ratio
analysis. Some ratios monitored by the Corporation include: average loans to
deposits; total liquid assets (including cash, U.S. Treasury securities and
short-term investments) to total deposits; and, total long- term debt to
equity. These ratios are summarized in the table below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Key Liquidity Ratios September 30, December 31, September 30,
1995 1994 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Quarterly average:
Loans to deposits 86.7% 80.0% 79.7%
Liquid assets to deposits 16.5 19.1 18.5
Total long-term debt to equity 43.0 2.0 2.9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
With the acquired banks, the Corporation's quarterly average loan to deposit
ratio increased to 86.7% at September 30, 1995 from 80.0% at December 31, 1994.
The acquisition was funded from the proceeds of a $115 million revolving
credit facility obtained by the Corporation's parent company. The funding
increased the long-term debt to equity ratio to 43.0% at September 30, 1995
from 2.0% at December 31, 1994. The parent will service the scheduled
principal and interest payments with dividends from the Corporation's
subsidiary banks. Management believes that the Corporation has sufficient
liquidity to meet presently known cash flow requirements arising from ongoing
business transactions.
Interest Rate Risk
Interest rate risk generally arises when the maturity or repricing structure of
the Corporation's assets and liabilities differs significantly.
Asset/liability management, which among other things addresses such risk, is
the process of developing, testing and implementing strategies that seek to
maximize net interest income, maintain liquidity and minimize exposure to
significant changes in interest rates. This process includes monitoring the
contractual and anticipated repricing of assets and liabilities as well as
simulating net interest income under a variety of economic assumptions and
balance sheet configurations. Generally, management seeks a structure that
insulates net interest income and capital from large swings caused by changes
in interest rates. The Corporation's static interest rate sensitivity ("GAP")
as of September 30, 1995 is illustrated in the following table. As shown, the
Corporation was in an "asset sensitive" position (had more rate sensitive
assets than rate sensitive liabilities) of $170 million within the one year
time frame. Because of the other inherent limitations of GAP analysis,
management also uses simulation modeling to evaluate the impact of changes in
interest rates and balance sheet configurations. Such simulations can be used
to develop strategies which can limit interest rate risk and provide adequate
liquidity.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Multiple of Rate
Rate Sensitive Rate Sensitive Sensitive Assets
(in millions) Assets Liabilities Period Gap to Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1995
Repricing or maturing:
Within 30 days $871 $355 $516 2.45 x
31-90 Days 123 244 (121) 0.50
91-180 Days 195 296 (101) 0.66
181-365 Days 352 476 (124) 0.74
------ ------ ----
Total within 1 year 1,541 1,371 170 1.12
1-5 Year 1,110 1,085 25 1.02
Over 5 years 457 151 306 3.03
------ ------ ----
Total $3,108 $2,607 $501 1.19
====== ====== ====
December 31, 1994
Total within 1 year 2,501 1,988 513 1.26
September 30, 1994
Total within 1 year 2,515 2,013 502 1.25
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
PART II - OTHER INFORMATION
Item 5. Other Information
On February 28, 1995 the Corporation completed the acquisition of the four
affiliate banks of Banc One Corporation in East Lansing, Fenton, Sturgis and
Ypsilanti Michigan in a cash transaction for $115 million. The four banks have
a combined asset base of $730 million and operate 21 branches. The banks were
merged into Citizens Commercial and Savings Bank headquartered in Flint,
Michigan, the Corporation's lead bank in the holding company.
On October 20, 1995, the Corporation announced the consolidation of its six
Michigan chartered banks into one bank called Citizens Bank. The consolidation
will further streamline operations and reduce certain costs but will retain
local management and the respective boards of directors. The consolidation is
subject to regulatory approval and is expected to be completed in the second
quarter of 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 3.Exhibits:
(11) Statement re: computation of per share earnings
(b) (27) Financial Data Schedule
(c) Reports on Form 8-K:
none
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
CITIZENS BANKING CORPORATION
Date November 10, 1995 By
---------------------- --------------------------------------------------------------------
John W. Ennest
Vice Chairman of the Board,
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
(Duly Authorized Signatory)
</TABLE>
20
<PAGE> 21
EXHIBIT INDEX
Exhibit
No. Description Page
- ------- ----------- ----
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule
<PAGE> 1
Form 10-Q
Exhibit 11
Statement re: Computation of Per Share Earnings
Net income per share is computed based on the weighted average number of
shares outstanding, including the dilutive effect of stock options, as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share amounts) 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME: $8,984 $ 7,745 $23,837 $21,180
====== ======= ======= =======
PRIMARY EARNINGS PER SHARE:
Actual average shares outstanding 14,238 14,088 14,181 14,088
Net effect of the assumed exercise of stock options--
based on the treasury stock method using
average market price for the period 388 342 364 366
------ ------- ------- -------
Pro forma average shares outstanding 4,626 14,430 14,545 14,454
====== ======= ======= =======
Net Income Per Share $ 0.62 $ 0.54 $ 1.64 $ 1.47
====== ======= ======= =======
FULLY DILUTED EARNINGS PER SHARE:
Actual average shares outstanding 14,238 14,088 14,181 14,088
Net effect of the assumed exercise of stock options
-- based on the treasury stock method using
higher of average or closing market price 388 361 409 387
------ ------- ------- --------
Pro forma average shares outstanding 14,626 14,449 14,590 14,475
====== ======= ======= ========
Net Income Per Share $ 0.61 $ 0.54 $ 1.63 $ 1.46
====== ======= ======= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 139,081
<INT-BEARING-DEPOSITS> 76
<FED-FUNDS-SOLD> 52,530
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 594,515
<INVESTMENTS-CARRYING> 0
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<LOANS> 2,424,110
<ALLOWANCE> 33,900
<TOTAL-ASSETS> 3,401,902
<DEPOSITS> 2,771,152
<SHORT-TERM> 171,203
<LIABILITIES-OTHER> 49,595
<LONG-TERM> 123,340
<COMMON> 90,445
0
0
<OTHER-SE> 196,167
<TOTAL-LIABILITIES-AND-EQUITY> 3,401,902
<INTEREST-LOAN> 53,006
<INTEREST-INVEST> 9,773
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 62,779
<INTEREST-DEPOSIT> 23,448
<INTEREST-EXPENSE> 27,734
<INTEREST-INCOME-NET> 35,045
<LOAN-LOSSES> 1,504
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 30,587
<INCOME-PRETAX> 12,555
<INCOME-PRE-EXTRAORDINARY> 8,984
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,984
<EPS-PRIMARY> .62
<EPS-DILUTED> .61
<YIELD-ACTUAL> 8.24
<LOANS-NON> 22,450
<LOANS-PAST> 109
<LOANS-TROUBLED> 527
<LOANS-PROBLEM> 14,122
<ALLOWANCE-OPEN> 33,893
<CHARGE-OFFS> 2,340
<RECOVERIES> 843
<ALLOWANCE-CLOSE> 33,900
<ALLOWANCE-DOMESTIC> 27,312
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,588
</TABLE>
