<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 March 31, 1998
------------------------------
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
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2378932
-------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Citizens Banking Center, Flint, Michigan 48502
-------------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
(810) 766-7500
-------------------------------------------------------
(Registrant's telephone number, including area code)
None
-------------------------------------------------------
(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 April 30, 1998
--------------------------- -----------------------------
Common Stock, No Par Value 28,167,942 Shares
(This report contains 23 pages)
<PAGE> 2
Citizens Banking Corporation
Index to Form 10-Q
<TABLE>
<CAPTION>
Page
----
<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 1 - Legal Proceedings............................................... 21
Item 2 - Changes in Securities........................................... 21
Item 3 - Defaults Upon Senior Securities................................. 21
Item 4 - Submission of Matters to a Vote of Security Holders............. 21
Item 5 - Other Information............................................... 21
Item 6 - Exhibits and Reports on Form 8-K................................ 22
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CITIZENS BANKING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
MARCH 31, December 31,
(in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 167,126 $ 168,351
Money market investments:
Interest-bearing deposits with banks 58 246
Federal funds sold 110,000 --
Term federal funds and other 2,550 11,976
----------- -----------
Total money market investments 112,608 12,222
Securities available-for-sale:
U.S. Treasury and federal agency securities 405,028 390,046
State and municipal securities 162,762 166,877
Other securities 25,079 18,459
----------- -----------
Total investment securities 592,869 575,382
Loans:
Commercial 1,333,880 1,317,213
Real estate construction 61,095 71,035
Real estate mortgage 779,109 779,567
Consumer 1,280,268 1,336,120
Lease financing 31,976 37,684
----------- -----------
Total loans 3,486,328 3,541,619
Less: Allowance for loan losses (46,480) (45,911)
----------- -----------
Net loans 3,439,848 3,495,708
Premises and equipment 70,012 69,415
Intangible assets 58,629 60,016
Other assets 55,606 58,177
----------- -----------
TOTAL ASSETS $ 4,496,698 $ 4,439,271
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 583,878 $ 600,498
Interest-bearing 3,136,123 3,093,848
----------- -----------
Total deposits 3,720,001 3,694,346
Federal funds purchased and securities sold
under agreements to repurchase 112,300 141,713
Other short-term borrowings 21,587 33,153
Other liabilities 58,274 52,052
Long-term debt 165,709 108,165
----------- -----------
Total liabilities 4,077,871 4,029,429
SHAREHOLDERS' EQUITY
Preferred stock - No par value -- --
Common stock - No par value 121,413 120,274
Retained earnings 293,904 285,706
Other accumulated comprehensive net income 3,510 3,862
----------- -----------
Total shareholders' equity 418,827 409,842
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,496,698 $ 4,439,271
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
CITIZENS BANKING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(in thousands, except per share data) 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 75,675 $ 69,397
Interest and dividends on investment securities:
Taxable 6,855 8,301
Nontaxable 1,923 2,307
Money market investments 754 222
-------- --------
Total interest income 85,207 80,227
-------- --------
INTEREST EXPENSE
Deposits 32,940 30,669
Short-term borrowings 1,481 2,206
Long-term debt 2,010 1,471
-------- --------
Total interest expense 36,431 34,346
-------- --------
NET INTEREST INCOME 48,776 45,881
Provision for loan losses 3,510 3,210
-------- --------
Net interest income after provision for loan losses 45,266 42,671
-------- --------
NONINTEREST INCOME
Trust fees 4,613 3,974
Service charges on deposit accounts 3,009 2,958
Bankcard fees 1,773 1,654
Other loan income 529 295
Investment securities gains (losses) 50 (24)
Other 3,017 2,488
-------- --------
Total noninterest income 12,991 11,345
-------- --------
NONINTEREST EXPENSE
Salaries and employee benefits 20,397 20,258
Equipment 3,107 3,195
Occupancy 2,837 3,029
Intangible assets amortization 1,386 1,663
Bankcard fees 1,183 1,030
Stationery and supplies 1,010 1,092
Postage and delivery 1,089 1,109
Advertising and public relations 1,202 1,100
Other 6,481 6,141
-------- --------
Total noninterest expense 38,692 38,617
-------- --------
INCOME BEFORE INCOME TAXES 19,565 15,399
Income taxes 6,043 4,510
-------- --------
NET INCOME $ 13,522 $ 10,889
======== ========
NET INCOME PER SHARE:
Basic $ 0.48 $ 0.39
Diluted 0.47 0.39
AVERAGE SHARES OUTSTANDING:
Basic 28,076 27,780
Diluted 28,747 28,243
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CITIZENS BANKING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
(in thousands except per share amounts) Stock Earnings Income Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE - MARCH 31, 1997 $118,461 $279,806 $(3,519) $394,748
Net income 11,315 11,315
Net unrealized gain on securities available-for-sale,
net of tax effect 4,062 4,062
--------
Total comprehensive income 15,377
Exercise of stock options, net of
shares purchased 320 320
Cash dividends-$0.19 per share (4,094) (4,094)
-------- -------- ------- --------
BALANCE - JUNE 30, 1997 118,781 287,027 543 406,351
Net income (4,951) (4,951)
Net unrealized loss on securities available-for-sale,
net of tax effect 2,753 2,753
--------
Total comprehensive income (2,198)
Exercise of stock options, net of
shares purchased 250 250
Cash dividends-$0.19 per share (5,298) (5,298)
-------- -------- ------- --------
BALANCE - SEPTEMBER 30, 1997 119,031 276,778 3,296 399,105
Net income 14,255 14,255
Net unrealized gain on securities available-for-sale,
net of tax effect 566 566
--------
Total comprehensive income 14,821
Exercise of stock options, net of
shares purchased 1,243 1,243
Cash dividends-$0.19 per share (5,327) (5,327)
-------- -------- ------- --------
BALANCE - DECEMBER 31, 1997 120,274 285,706 3,862 409,842
Net income 13,522 13,522
Net unrealized gain on securities available-for-sale,
net of tax effect (352) (352)
--------
Total comprehensive income 13,170
Exercise of stock options, net of
shares purchased 1,139 1,139
Cash dividends-$0.19 per share (5,324) (5,324)
-------- -------- ------- --------
BALANCE - MARCH 31, 1998 $121,413 $293,904 $ 3,510 $418,827
======== ======== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CITIZENS BANKING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(in thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 13,522 $ 10,889
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 3,510 3,210
Depreciation 2,108 2,240
Amortization of intangibles 1,386 1,663
Net amortization on investment securities 407 284
Investment securities losses (gains) (50) 24
Other 8,983 (847)
--------- ---------
Net cash provided by operating activities 29,866 17,463
INVESTING ACTIVITIES:
Net decrease (increase) in money market investments (100,386) 4,918
Securities available-for-sale:
Proceeds from sales 9,625 11,977
Proceeds from maturities 60,387 25,075
Purchases (88,397) (50,163)
Net decrease (increase) in loans 52,350 (35,338)
Purchases of premises and equipment (2,705) (745)
--------- ---------
Net cash used by investing activities (69,126) (44,276)
FINANCING ACTIVITIES:
Net decrease in demand and savings deposits (21,564) (31,208)
Net increase in time deposits 47,219 62,796
Net decrease in short-term borrowings (40,979) (732)
Proceeds from issuance of long-term debt 60,000 --
Principal reductions in long-term debt (2,456) (12,950)
Cash dividends paid (5,324) (4,567)
Proceeds from stock options exercised 1,139 149
--------- ---------
Net cash provided by financing activities 38,035 13,488
--------- ---------
Net decrease in cash and due from banks (1,225) (13,325)
Cash and due from banks at beginning of period 168,351 182,039
--------- ---------
Cash and due from banks at end of period $ 167,126 $ 168,714
========= =========
</TABLE>
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 month period
ended March 31, 1998 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1998.
NOTE 2. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year financial statement presentation. All financial information presented
reflects the consolidated results of Citizens Banking Corporation and CB
Financial Corporation.
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-month period ended March 31, 1998. 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 1997
Annual Report on Form 10-K.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(in thousands, except per share data) 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE PERIOD
Interest income $ 85,207 $ 80,227
Net interest income 48,776 45,881
Provision for loan losses 3,510 3,210
Investment securities gains (losses) 50 (24)
Other noninterest income 12,941 11,369
Noninterest expense 38,692 38,617
Income taxes 6,043 4,510
Net income 13,522 10,889
Cash dividends 5,324 4,567
PER SHARE DATA
Basic net income $ 0.48 $ 0.39
Diluted net income 0.47 0.39
Cash dividends 0.19 0.17
Book value (end of period) 14.89 14.20
Market value (end of period close) 35.69 22.00
FINANCIAL RATIOS (ANNUALIZED)
Return on average:
Shareholders' equity 13.28% 11.21%
Assets 1.24 1.03
Net interest margin (Full taxable equivalent) 4.89 4.78
Net loan charge-offs to average loans 0.34 0.20
Average equity to average total assets 9.34 9.17
Nonperforming assets to loans plus other repossessed
assets acquired (end of period) 0.79 0.82
Nonperforming assets to total assets (end of period) 0.61 0.62
BALANCE SHEET TOTALS Percent
At Period End (March 31) Change
----------
Assets 3.9% $ 4,496,698 $ 4,328,178
Loans 6.8 3,486,328 3,263,543
Deposits 2.5 3,720,001 3,630,339
Shareholders' equity 6.1 418,827 394,748
Average balances
Assets 2.9 4,418,905 4,292,704
Loans 7.6 3,501,362 3,254,836
Deposits 3.4 3,694,808 3,574,124
Shareholders' equity 4.8 412,780 393,811
</TABLE>
8
<PAGE> 9
PERFORMANCE SUMMARY
Selected financial data as of March 31, 1998 and 1997 and for the three month
periods then ended are presented in the table on page 8. As shown, earnings
increased as a result of higher net interest and noninterest income. This
improvement was partially offset by a higher provision for loan losses and
slightly higher operating expenses. The earnings improvement reflects higher net
interest income due to strong loan growth and modest noninterest expense
increases due to cost savings derived from the 1997 merger with CB Financial
Corporation.
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 months
ended March 31, 1998 and 1997 are summarized on page 11. The effects of changes
in average market rates of interest ("rate") and average balances ("volume") are
quantified in the table below.
ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
<TABLE>
<CAPTION>
1998 Compared With 1997
-------------------------------------
Increase (Decrease)
Three Months Ended March 31 Due to Change in
Net ------------------------
(in thousands) Change(1) Rate(2) Volume
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Money market investments:
Time deposits with banks $ (1) $ 1 $ (2)
Federal funds sold 598 (4) 602
Term federal funds sold and other (65) (2) (63)
Investment securities:
Taxable (1,446) 308 (1,754)
Tax-exempt (384) (21) (363)
Loans 6,278 555 5,723
----------- ----------- -----------
Total 4,980 837 4,143
----------- ----------- -----------
INTEREST EXPENSE:
Deposits:
Demand (78) (17) (61)
Savings (78) 156 (234)
Time 2,427 468 1,959
Short-term borrowings (725) 89 (814)
Long-term debt 539 (99) 638
----------- ----------- -----------
Total 2,085 597 1,488
----------- ----------- -----------
NET INTEREST INCOME $ 2,895 $ 240 $ 2,655
=========== =========== ===========
</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 volume.
9
<PAGE> 10
Favorable volume and rate related variances in net interest income resulted in
an increase in net interest income of $2,895,000 for the three months ended
March 31, 1998 as compared to the same period in 1997. Overall, loan growth
partially offset by time deposit growth and increased long-term borrowings
accounted for the majority of the three month volume increases.
Yields on earning assets increased from 8.27% to 8.46% for the three months
ended March 31, 1998 as compared with the same period in 1997. The increase
resulted from higher yields on taxable investment securities, loans and a higher
concentration of loans to earning assets. Higher interest income on loans was
partially offset by reduced investment securities income as the corporation
continued to partially fund loan growth with these investment assets. These
changes resulted in $4,143,000 in volume related increases for interest income
when comparing the three months ended March 31, 1998 to the same period in 1997.
The cost of interest bearing liabilities increased from 4.21% to 4.36% for the
three months ended March 31, 1998 as compared with the same period in 1997. The
increase was the result of higher rates on short-term borrowings and time and
savings deposits as well as a continued shift in deposits from lower rate
savings and demand accounts to higher cost time deposit accounts. Increased
volumes for long-term debt also resulted in higher interest expense for the
three month period ended March 31, 1998 as compared to the same period in 1997.
Overall, favorable rate variances on earning assets and improved volumes of
higher yielding loans partially offset by increased costs on interest bearing
liabilities resulted in a higher net interest margin for the three month period
ended March 31, 1998 as compared to the same period in 1997.
Management continually monitors the Corporation's balance sheet to insulate net
interest income from significant swings caused by interest rate volatility. If
market rates change in 1998, corresponding changes in funding costs would be
considered to avoid any potential negative impact on net interest income. The
corporation's policies in this regard are further discussed in the section
titled "Interest Rate Risk".
10
<PAGE> 11
AVERAGE BALANCES/NET INTEREST INCOME/AVERAGE RATES
<TABLE>
<CAPTION>
1998 1997
---------------------------------- -------------------------------------
Three Months Ended March 31 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 $ 44 $ 1 5.53% $ 195 $ 2 4.26%
Federal funds sold 52,412 718 5.56 8,513 120 5.71
Term federal funds sold and other 3,142 35 4.56 8,082 100 5.03
Investment securities(3):
Taxable 428,346 6,855 6.42 546,678 8,301 6.10
Tax-exempt 144,890 1,923 8.21 173,284 2,307 8.24
Loans:
Commercial 1,357,729 29,078 8.78 1,238,965 26,401 8.73
Real estate 795,497 16,390 8.24 761,685 15,238 8.00
Consumer 1,313,436 29,597 9.13 1,209,115 26,967 9.04
Lease financing 34,700 610 7.03 45,071 791 7.02
------------ --------- -------- ---------- ------- ----
Total earning assets(3) 4,130,196 85,207 8.46 3,991,588 80,227 8.27
NONEARNING ASSETS
Cash and due from banks 147,727 145,823
Bank premises and equipment 69,738 74,443
Other nonearning assets 117,576 123,058
Allowance for loan losses (46,332) (42,208)
------------ ----------
Total assets $ 4,418,905 $4,292,704
============ ==========
INTEREST-BEARING LIABILITIES
Deposits:
Demand deposits $ 376,005 1,471 1.59 $ 390,683 1,549 1.61
Savings deposits 1,025,592 7,193 2.84 1,058,958 7,271 2.78
Time deposits 1,725,389 24,276 5.71 1,585,229 21,849 5.59
Short-term borrowings 124,055 1,481 4.84 188,870 2,206 4.74
Long-term debt 132,842 2,010 6.08 82,762 1,471 7.19
------------ --------- --------- ---------- ------- ----
Total interest-bearing liabilities 3,383,883 36,431 4.36 3,306,502 34,346 4.21
--------- -------
NONINTEREST-BEARING LIABILITIES AND
SHAREHOLDERS' EQUITY
Demand deposits 567,822 539,254
Other liabilities 54,420 53,137
Shareholders' equity 412,780 393,811
------------ ----------
Total liabilities and shareholders' equity $ 4,418,905 $4,292,704
============ ==========
NET INTEREST INCOME $ 48,776 $45,881
========= =======
NET INTEREST INCOME AS A PERCENT OF EARNING
ASSETS 4.89% 4.78%
</TABLE>
(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 $1,446 and $1,602 for the
three months ended March 31, 1998 and 1997, 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 months ended March 31, 1998 and
1997 is provided below. The provision for loan losses increased $300,000 during
the three months ended March 31, 1998, as compared with the same period in 1997.
The increased loan loss provision was due to higher net charge-offs and a desire
to maintain loan loss reserves at Citizens' historical loan loss coverage levels
amid high loan growth. The higher provisions in the first quarter of 1998 and
the previous quarters have increased the loan allowance by $2.7 million at March
31, 1998 as compared with the March 31, 1997 balance.
The ratio of net loans charged off to average loans outstanding increased
fourteen basis points for the three months ended March 31, 1998, as compared to
the same period in 1997. The change resulted from increased consumer loan
charge-off's due to higher bankruptcies and losses sustained on repossessed
assets.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(In thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses - beginning of period $ 45,911 $ 42,166
Charge-offs 3,851 2,571
Recoveries 910 968
---------- ---------
Net charge-offs 2,941 1,603
Provision for loan losses 3,510 3,210
---------- ---------
Allowance for loan losses - end of period $ 46,480 $ 43,773
========== =========
Loans outstanding at period end $3,486,328 $3,263,543
Average loans outstanding during period 3,501,362 3,254,836
Allowance for loan losses as a percentage of loans outstanding at period end 1.33% 1.34%
Ratio of net charge-offs during period to average loans outstanding (annualized) 0.34 0.20
Loan loss coverage (allowance as a multiple of net charge-offs, annualized) 4.0X 6.8x
</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 first three
months of 1998 and 1997 follows:
<TABLE>
<CAPTION>
NONINTEREST INCOME Three Months Ended
March 31, Changes in 1998
--------------------------
(in thousands) 1998 1997 Amount Percent
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust fees $ 4,613 $ 3,974 $ 639 16.1%
Service charges on deposit accounts 3,009 2,958 51 1.7
Bankcard fees 1,773 1,654 119 7.2
Brokerage and investment fees 484 455 29 6.4
Other loan income 529 295 234 79.3
ATM network user fees 722 517 205 39.8
Cash management services 537 472 65 13.8
Title insurance fees 223 -- 223 (1)
Investment securities gains (losses) 50 (24) 74 (1)
Other, net 1,051 1,044 7 0.7
---------- ---------- --------
Total noninterest income $ 12,991 $ 11,345 $ 1,646 14.5
========== ========== ========
</TABLE>
(1) Not meaningful
Noninterest income increased 14.5% for the three month period ended March 31,
1998 as compared to the same period in 1997. All categories of noninterest
income were higher in 1998 than in 1997, with significant increases in trust
fees, other loan income, ATM network user fees, cash management fees and title
insurance fees.
Increased trust fee income for personal and employee benefit trust services
attributed to a 16.1% increase for the three months ended March 31, 1998 as
compared to the same period in the prior year. The increase was the result of
improved pricing strategies and higher volumes of managed assets. Other loan
income increased 79.3% for the three months ended March 31, 1998 as compared to
the same period in 1997 due to increased sales of residential mortgage loans
into the secondary market. Higher mortgage loan volumes are the result of a more
favorable interest rate environment during the first quarter of 1998 as compared
to the same period in the prior year.
Improved pricing strategies resulted in higher ATM network user fees for the
three months ended March 31, 1998 as compared to the same period in the prior
year. A significant portion of the increase resulted from the June 1997
implementation of a convenience fee assessed to non-client users of the
Corporation's ATM network. Cash management services fees increased $65,000 for
the three months ended March 31, 1998 as compared to the same period in the
prior year. This increase is volume related as clients have responded to
enhanced investment options which include various money market mutual funds from
which the Corporation receives a management fee.
During the fourth quarter of 1997, the Corporation established Citizens Title
Services, Inc. a subsidiary of Citizens Bank. This new subsidiary provides title
insurance to buyers and sellers of residential and commercial mortgage
properties including those occurring due to loan refinancing. Income resulting
from the new subsidiary in the first quarter of 1998 was $223,000.
The 1998 and 1997 first quarter gains and losses on the sale of investment
securities resulted from the sale of certain securities to reposition the
investment portfolio based on the current rate environment.
13
<PAGE> 14
NONINTEREST EXPENSE
Significant changes in noninterest expense during the three months ended March
31, 1998 as compared with the same periods in 1997 is summarized in the table
below.
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
Three Months Ended Changes in 1998
March 31, ----------------------
(in thousands) 1998 1997 Amount Percent
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 20,397 $ 20,258 $ 139 0.7%
Equipment 3,107 3,195 (88) (2.8)
Occupancy 2,837 3,029 (192) (6.3)
Intangible asset amortization 1,386 1,663 (277) (16.7)
Bankcard fees 1,183 1,030 153 14.9
Stationery and supplies 1,010 1,092 (82) (7.5)
Postage and delivery 1,089 1,109 (20) (1.8)
Advertising and public relations 1,202 1,100 102 9.3
Taxes other than income taxes 392 839 (447) (53.3)
Data processing services 940 108 832 (1)
Consulting and other professional fees 728 672 56 8.3
Legal, audit and examination fees 406 639 (233) (36.5)
Other loan fees 761 781 (20) (2.6)
Other 3,254 3,102 152 4.9
---------- ---------- --------
Total noninterest expense $ 38,692 $ 38,617 $ 75 0.2
========== ========== ========
</TABLE>
(1) Not meaningful
Operating expenses were up a modest 0.2% for the three months ended March 31,
1998 as compared to the same period in 1997. The minimal increase in operating
expenses is primarily attributable to the operating efficiencies achieved from
the July 1, 1997 merger with CB Financial Corporation.
SALARIES AND EMPLOYEE BENEFITS
Salaries and employee benefits expense increased 0.7% for the three months ended
March 31, 1998 as compared to the same period in the prior year. The increase
for the three month comparison was due to higher incentive based compensation
and normal merit increases predominantly offset by lower staffing levels due to
efficiencies resulting from the CB Financial Corporation merger and the data
processing arrangement with M&I Data Services.
OTHER NONINTEREST EXPENSE
Other noninterest expenses decreased 0.3% for the three months ended March 31,
1998 as compared to the same period in the prior year. The most significant
decreases were attributable to occupancy, intangible asset amortization, taxes
other than income taxes and legal, audit and examination fees partially offset
by increased bankcard fee expenses and data processing services.
Occupancy and equipment cost declines are attributable to lower utility,
maintenance, repair and depreciation costs associated with improved energy
management techniques and the M&I Data Services partnership. Increases in
bankcard expenses resulted from higher volumes and costs associated with the
Corporation's outside provider for processing services and enhanced loss
prevention efforts. Intangible asset amortization expense declined due to the
third quarter 1997 write-down of goodwill and core deposit intangibles related
to previous acquisitions of CB Financial Corporation. Taxes, other than income
taxes declined due to lower business and intangible taxes for the first three
months of 1998 as compared with the same period in the prior year. Lower audit
and examination fees are the result of the economies of scale achieved from the
July 1, 1997 CB Financial Corporation merger.
14
<PAGE> 15
Data processing services provided by outside vendors increased $832,000 due to
costs associated with the third quarter 1997 strategic arrangement with M & I
Data Services of Milwaukee, Wisconsin, to maintain legacy information systems
and to provide the technological resources necessary to improve its competitive
position in a rapidly changing technological environment.
INCOME TAXES
Higher pre-tax earnings and a slightly lower level of tax-exempt interest income
resulted in increased federal income tax expense for the three months ended
March 31, 1998 as compared to the same period in the prior year.
BALANCE SHEET
The Corporation had total assets of $4.497 billion as of March 31, 1998, an
increase of $57.4 million or 1.3% from $4.439 billion as of December 31, 1997.
Average earning assets comprised 93.6% of average total assets during the first
three months of 1998 compared with 93.0% in the first three months of 1997.
INVESTMENT SECURITIES AND MONEY MARKET INVESTMENTS
Total average investments, including money market investments, comprised 15.2%
of average earning assets during the first three months of 1998, compared with
18.4% for the same period of 1997. Average money market investments increased to
1.3% of total average earning assets during the first three months of 1998, from
0.4% during the corresponding period of 1997.
LOANS
The Corporation extends credit primarily within the market areas of its two
banking subsidiaries located in Michigan and Illinois. The loan portfolio is
widely diversified by borrowers and industry groups with no significant
concentrations in any industry. As the economy continued to expand, the
Corporation experienced greater loan demand with total average loans increasing
7.6% in the first three months of 1998 as compared to the same period in 1997.
This growth occurred in all categories except lease financing.
NONPERFORMING ASSETS
Nonperforming assets consist of nonaccrual loans, restructured loans, loans 90
days past due and still accruing interest, and other real estate owned. Certain
of these loans, as defined below, are considered to be impaired. The Corporation
maintains policies and procedures to identify and monitor nonaccrual loans. A
loan is placed on nonaccrual status when there is doubt 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.
The following describes the Corporation's policy and related disclosures for
impaired loans. The Corporation establishes 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. In most instances, the impairment is measured based on
the fair value of the underlying collateral. Impairment may also be measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate. Interest income on impaired nonaccrual loans is
recorded on a cash basis. Interest income on all other impaired loans is
recognized on an accrual basis.
Certain of the Corporation's nonperforming loans included in the following table
are considered to be impaired. 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. The policy 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 in the following paragraphs.
15
<PAGE> 16
At March 31, 1998, loans considered to be impaired under the Statements totaled
$18.6 million (of which $12.1 million were on a nonaccrual basis). Included
within this amount was $8.5 million of impaired loans for which the related
allowance for loan losses was $2.0 million and $10.1 million 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 March 31,
1998 was approximately $16.8 million. For the quarter ended March 31, 1998, the
Corporation recognized interest income of $0.4 million which included $0.3
million of interest income recognized using the cash basis method of income
recognition.
At March 31, 1997, loans considered to be impaired under the Statements totalled
$18.0 million (of which $12.1 million were on a nonaccrual basis). Included
within this amount is $10.4 million of impaired loans for which the related
allowance for loan losses was $0.9 million and $7.6 million 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 March 31,
1997 was approximately $18.1 million. For the quarter ended March 31, 1997, the
Corporation recognized interest income of $0.5 million which included $0.3
million of interest income recognized using the cash basis method of income
recognition.
The table below provides a summary of nonperforming assets as of March 31, 1998,
December 31, 1997 and March 31, 1997. Total nonperforming assets amounted to
$27.6 million as of March 31, 1998, as compared with $25.0 million as of
December 31, 1997 and $26.9 million as of March 31, 1997. Nonperforming assets
as a percent of total assets are comparable for all three periods presented.
<TABLE>
<CAPTION>
Nonperforming Assets
MARCH 31, December 31, March 31,
(IN THOUSANDS) 1998 1997 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming Loans
Nonaccrual
Less than 30 days past due $ 5,201 $ 5,128 $ 5,255
From 30 to 89 days past due 2,978 2,021 1,059
90 or more days past due 14,717 12,840 14,797
--------------- ------------ ------------
Total 22,896 19,989 21,111
90 days past due and still accruing 568 1,185 1,477
Restructured 305 446 425
--------------- ------------ -------------
Total nonperforming loans 23,769 21,620 23,013
Other Repossessed Assets Acquired (ORAA) 3,866 3,348 3,899
--------------- ----------- -------------
Total nonperforming assets $ 27,635 $ 24,968 $ 26,912
=============== ============ =============
Nonperforming assets as a percent of total loans plus ORAA 0.79% 0.70% 0.82%
Nonperforming assets as a percent of total assets 0.61 0.56 0.62
</TABLE>
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 current in terms of principal and interest payments but,
in management's opinion, may deteriorate in quality if economic conditions
change. As of March 31, 1998 such credits amounted to $21.4 million or 0.6% of
total loans, compared with $22.0 million or 0.6% at December 31, 1997 and $15.4
million or 0.5% as of March 31, 1997. 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. The increase in potential
nonperforming loans for the period ending March 31, 1998 as compared to March
31, 1997 is primarily attributable to the application of Citizens' loan review
and classification criteria to the CB Financial Corporation loan portfolio
subsequent to the July 1, 1997 merger.
16
<PAGE> 17
DEPOSITS
Average deposits increased 3.4% in the first three months of 1998 as compared to
the same period in 1997. The shift in deposits from interest-bearing demand and
savings accounts to time accounts reflects changing customer liquidity
preferences and the desire for higher yields. The Corporation gathers deposits
primarily in its local markets and historically has not relied on brokered funds
to sustain liquidity. In the third quarter of 1997, the Corporation obtained
approximately $20.0 million in brokered deposits as an alternative source of
funding. The deposits mature in intervals over the next three years. The
Corporation will continue to evaluate the use of alternative funding sources
such as brokered deposits as funding needs change. Management continues to
promote relationship driven core deposit growth and stability through focused
marketing efforts and competitive pricing strategies.
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
On average, total short-term borrowings decreased to $124.1 million during the
first three months of 1998 compared with $188.9 million during the same period
of 1997. Long-term debt accounted for $132.8 million or 3.9% of average
interest-bearing funds for the first three months of 1998, increasing from $82.7
million or 2.5% for the same period in 1997. The shift in funding from
short-term borrowings to long-term debt reflects the relative attractiveness of
long term financing versus short-term borrowing in the current interest rate
environment. At March 31, 1998, $130 million of the long-term debt consists of
borrowings from the Federal Home Loan Bank by the Corporation's lead subsidiary
bank. The borrowings mature at different intervals over the next five years
except for $60 million which matures in 10 years. These borrowings are utilized
to fund the Corporation's loan growth.
NEW ACCOUNTING PRONOUNCEMENTS
In September 1996, the Financial Accounting Standards Board issued Statement No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities". In December 1996, the Financial Accounting
Standards Board issued Statement No. 127 which delayed the effective dates of
certain provisions of the original Statement. The Statements establish
accounting and reporting standards to assist in determining when to recognize or
derecognize financial assets and liabilities in the financial statements after a
transfer of financial assets has occurred. The Corporation has adopted the
Statements to the extent permitted in 1997 and has adopted the remaining
provisions effective January 1, 1998. The adoption did not have a material
effect on the Corporation.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131
"Disclosure about Segments of an Enterprise and Related Information". The
Statement changes the manner in which public companies report segment
information in annual reports and requires companies to report selected segment
information in interim financial reports. Public companies will be required to
report financial and descriptive information about the company's operating
segments. The Statement is effective for fiscal years beginning after December
15, 1997 with reclassification of the financial statements for earlier periods
required for comparative purposes. In the year of adoption, companies will not
be required to disclose interim period information. The Corporation plans to
adopt the Statement for year end 1998 reporting.
In February 1998, the Financial Accounting Standards Board issued Statement No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
The Statement will standardize pension and other post employee benefit
disclosures making them easier and less costly to prepare and more
understandable. The Statement will eliminate certain existing disclosures, but
adds new disclosures regarding the benefit obligation and changes in the fair
value of plan assets. The Statement is effective for fiscal years beginning
after December 31, 1997. The Statement will be adopted for year end 1998
reporting and is not expected to materially change the Corporation's annual
employee benefit disclosures.
17
<PAGE> 18
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs which utilize using two
digits rather than four digits to define years for computer calculations. Any
computer or electronic calculation recognizing a two digit date rather than a
four digit date may incur system failure or miscalculate information when using
a date after December 31, 1999, resulting in potentially serious impairment to
business operations. The Corporation began addressing the issue in 1996 with the
formation of a task force to identify Year 2000 related issues for any
electronic devices, such as mainframe and microcomputers, using two digits
rather than four digits for the year. The Corporation believes that it has
identified all Year 2000 noncompliant systems and devices and is working closely
with vendors and third party service providers to address solutions. Further,
during the fall of 1997, formal discussions were initiated with the
Corporation's significant commercial business clients to determine the extent to
which the client's computer systems are vulnerable to Year 2000 failure.
A significant portion of the Corporation's Year 2000 solution included the
strategic arrangement entered into with M&I Data Services in the third quarter
of 1997. The arrangement allows M&I Data Services' information technology
systems to replace most of the Corporation's current systems by the end of the
second quarter of 1998. M&I has warranted to the Corporation that all systems to
be replaced by M&I Data Services will be Year 2000 compliant by December 31,
1998.
The Corporation has not identified any noncompliant systems for which a solution
is not available and which would impair the Corporation's business operations.
All Year 2000 costs to date have not been material and are being expensed as
incurred. Anticipated future expenses are not expected to materially impair
future earnings. The Corporation anticipates that all material noncompliant
systems will be replaced and most testing completed by December 31, 1998, with
the remainder of the testing of the compliance measures to be completed in early
1999.
While the Corporation is not aware of any Year 2000 problems for which a
solution is not available, other unanticipated Year 2000 issues could arise and
there can be no assurance that actual results will be comparable to expected
results. These unanticipated issues may include the ability to identify and
correct all relevant computer codes, the availability and cost of trained
personnel, the impact of Year 2000 on our clients and other uncertainties.
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 allowance for loan losses limited
to 1.25% of risk-weighted assets). The first two 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 4.0%
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. It is the Corporation's
intention to maintain sufficient capital in each of its bank subsidiaries to
permit them to maintain a "well capitalized" designation (the FDIC's highest
rating).
18
<PAGE> 19
As summarized below, the Corporation's risk based capital levels were well in
excess of all regulatory standards.
<TABLE>
<CAPTION>
CAPITAL RATIOS Regulatory
Minimum
For "Well MARCH 31, December 31, March 31,
Capitalized" 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk Based Capital:
Tier I 6.0% 10.2% 9.8% 10.0%
Total capital 10.0 11.4 11.0 11.3
Tier I Leverage 5.0 8.2 8.0 7.7
</TABLE>
COMMON AND PREFERRED STOCK
The Corporation initiated a stock repurchase program in November 1987. Effective
January 27, 1997, the Corporation's stock repurchase program was formally
rescinded by its Board of Directors in conjunction with the agreement to acquire
CB Financial Corporation. Prior to the rescission, a total of 1,891,455 shares
had been purchased under this program at an average price of $10.56 per share.
On May 5, 1998, the Corporation announced the initiation of a stock repurchase
plan which provides for the repurchase of up to 600,000 shares of its stock on
the open market over the next 24 months. The shares will be utilized to satisfy
the Corporation's obligation to issue shares under its existing employee and
director stock option plans. The Corporation intends to acquire such shares in a
systematic pattern.
OTHER
Total shareholders' equity was $418.8 million or $14.89 per share as of March
31, 1998, compared with $409.8 million or $14.61 per share as of December 31,
1997 and $394.7 million or $14.20 per share as of March 31, 1997. The
Corporation declared cash dividends of $0.19 per share during the first three
months of 1998, an increase of 11.8% over the $0.17 per share declared during
the same period in 1997.
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: loans to deposits, core funding
(deposits plus a portion of repurchase agreements and long term debt less single
maturity certificates of deposits) to total funding (volatile funding plus core
funding) and liquid assets to volatile funding (interest bearing liabilities
plus noninterest bearing deposits less core funding). During 1997 and 1998, the
Corporation's strategy to operate at lower levels of liquid assets to volatile
funding and a higher loan to deposit ratio improved the asset mix, resulting in
increased net interest income. The Corporation experienced no liquidity or
operational problems as a result of the reduced liquidity levels. These ratios
are summarized in the following table:
<TABLE>
<CAPTION>
KEY LIQUIDITY RATIOS
MARCH 31, December 31, March 31,
1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Quarterly average:
Loans to deposits 94.8% 94.6% 91.1%
Liquid assets to volatile funding 46.1 35.4 41.4
Core funding to total funding 88.7 86.5 88.4
</TABLE>
The Corporation's quarterly average loan to deposit ratio increased to 94.8% for
the three months ended March 31, 1998 from 94.6% for the three months ended
December 31, 1997. The parent and the Corporation's lead subsidiary bank will
continue to service the scheduled principal and interest payments with cash flow
from operations. Management believes that the Corporation has sufficient
liquidity to meet presently known cash flow requirements arising from ongoing
business transactions.
19
<PAGE> 20
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 sufficient liquidity and minimize exposure to
significant changes in interest rates. This process includes monitoring
contractual and expected repricing of assets and liabilities as well as
forecasting earnings under different interest rate scenarios and balance sheet
structures. Generally, management seeks a structure that insulates net interest
income from large swings attributable to changes in market interest rates. The
Corporation's static interest rate sensitivity ("GAP") as of March 31, 1998 is
illustrated in the following table.
As shown, the Corporation's interest rate risk position is well balanced in the
less than one year time frame with rate sensitive assets above rate sensitive
liabilities by $269.4 million. This position suggests that the Corporation's net
interest income may not be significantly impacted by changes in interest rates
over the next 12 months. Management is continually reviewing its interest rate
risk position and modifying its strategies based on projections to minimize the
impact of future interest rate declines. While traditional GAP analysis does not
always incorporate adjustments for the magnitude or timing of noncontractual
repricing, this table does incorporate appropriate adjustments as indicated in
footnotes 2 and 3 to the table. Because of these and other inherent limitations
of any GAP analysis, management utilizes simulation modeling as its primary tool
to evaluate the impact of changes in interest rates and balance sheet
strategies. Management uses these simulations to develop strategies that can
limit interest rate risk and provide liquidity to meet client loan demand and
deposit preferences.
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
TOTAL
March 31, 1998 1-30 31-90 91-180 181-365 WITHIN 1-5 Over
(in millions) Days Days Days Days 1 YEAR Years 5 Years Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS(3)
Loans $ 1,065.1 $ 174.0 $ 248.4 $ 405.4 $ 1,892.9 $ 1,241.3 $ 352.1 $ 3,486.3
Investment securities 14.2 34.2 66.4 108.3 223.1 235.4 134.4 592.9
Short-term investments 112.6 -- -- -- 112.6 -- -- 112.6
------------ -------- ---------- -------- ---------- ---------- -------- ----------
Total $ 1,191.9 $ 208.2 $ 314.8 $ 513.7 $ 2,228.6 $ 1,476.7 $ 486.5 $ 4,191.8
============ ======== ========== ======== ========== ========== ======== ==========
RATE SENSITIVE LIABILITIES
Deposits(2) $ 295.2 $ 348.9 $ 429.0 $ 641.1 $ 1,714.2 $ 1,237.5 $ 184.4 $ 3,136.1
Short-term borrowings 133.9 -- -- -- 133.9 -- -- 133.9
Long-term debt 0.1 35.0 13.0 63.0 111.1 50.0 4.6 165.7
------------ -------- ---------- --------- ---------- ---------- -------- ----------
Total $ 429.2 $ 383.9 $ 442.0 $ 704.1 $ 1,959.2 $ 1,287.5 $ 189.0 $ 3,435.7
============ ======== ========== ======== ========== ========== ======== ==========
Period GAP(1) $ 762.7 $ (175.7) $ (127.2) $(190.4) $ 269.4 $ 189.2 $ 297.5 $ 756.1
Cumulative GAP 762.7 587.0 459.8 269.4 -- 458.6 756.1 --
Cumulative GAP to
Total Assets 16.96% 13.05% 10.22% 5.99% -- 10.20% 16.81% --
Multiple of Rate Sensitive
Assets to Liabilities 2.78 0.54 0.71 0.73 1.14 1.15 2.57 1.22
</TABLE>
(1) GAP is the excess of rate sensitive assets (liabilities).
(2) Includes interest bearing savings and demand deposits of $433 million
in the less than one year category, and $956 million in the over one
year category, based on historical trends for these noncontractual
maturity deposit types, which reflects industry standards.
(3) Incorporates prepayment projections for certain assets which may
shorten the time frame for repricing or maturity compared to
contractual runoff.
20
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS--None
ITEM 2. CHANGES IN SECURITIES--None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES--None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Proxies were solicited pursuant to Regulation 14 under the Securities Exchange
Act of 1934 to be voted at the annual meeting of shareholders of the Corporation
held on April 21, 1998. There was no solicitation in opposition to management's
nominees for directors as set forth in the Corporation's Proxy Statement dated
March 16, 1998 and all such nominees were elected.
The results were as follows with respect to each director nominee:
<TABLE>
<CAPTION>
Votes Against/ Shares Not Voted
Director Votes For Withheld or Abstentions
- -------------------------------- -------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Stephen J. Lazaroff 25,360,471 243,017 2,470,826
William F. Nelson, Jr. 25,354,960 254,039 2,470,826
William C. Shedd 25,370,548 222,863 2,470,826
James E. Truesdell, Jr. 25,354,580 254,799 2,470,826
Charles R. Weeks 25,369,242 225,714 2,470,826
Kendall B. Williams 25,378,908 206,143 2,470,826
</TABLE>
The results were as follows for the proposal to approve the amendment to Article
III of the Corporation's Restated Articles of Incorporation to increase the
total authorized common shares from 40,000,000 shares without par value to
100,000,000 shares without par value. Votes for: 22,299,504; Votes
against/withheld: 2,899,582; Shares not voted or abstentions: 2,848,221.
Total shares eligible to vote: 28,074,314
Broker non-votes included in non-voted shares above: 0
ITEM 5. OTHER INFORMATION--none
21
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule
(b) 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.
CITIZENS BANKING CORPORATION
Date May 8, 1998 By /s/ John W. Ennest
-------------------- ------------------------------
John W. Ennest
Vice Chairman of the Board,
Treasurer and Chief Financial
Officer
(Principal Financial Officer)
(Duly Authorized Signatory)
22
<PAGE> 23
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11 Statement re: computation of
per share earnings
27 Financial Data Schedule
<PAGE> 1
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
March 31,
(in thousands, except per share amounts) 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NUMERATOR:
Numerator for basic and dilutive earnings per share -- net income available to
common shareholders $ 13,522 $ 10,889
DENOMINATOR:
Denominator for basic earnings per share -- weighted average shares 28,076 27,780
Effect of dilutive securities -- potential conversion of employee stock options 671 463
----------- -----------
Denominator for diluted earnings per share -- adjusted weighted-average shares
and assumed conversions 28,747 28,243
=========== ===========
Basic earnings per share $ 0.48 $ 0.39
=========== ===========
Diluted earnings per share $ 0.47 $ 0.39
=========== ===========
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 167,126
<INT-BEARING-DEPOSITS> 58
<FED-FUNDS-SOLD> 112,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 592,869
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,486,328
<ALLOWANCE> 46,480
<TOTAL-ASSETS> 4,496,698
<DEPOSITS> 3,720,001
<SHORT-TERM> 133,887
<LIABILITIES-OTHER> 58,274
<LONG-TERM> 165,709
0
0
<COMMON> 121,413
<OTHER-SE> 297,414
<TOTAL-LIABILITIES-AND-EQUITY> 4,496,698
<INTEREST-LOAN> 75,675
<INTEREST-INVEST> 9,532
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 85,207
<INTEREST-DEPOSIT> 32,940
<INTEREST-EXPENSE> 36,431
<INTEREST-INCOME-NET> 48,776
<LOAN-LOSSES> 3,510
<SECURITIES-GAINS> 50
<EXPENSE-OTHER> 38,692
<INCOME-PRETAX> 19,565
<INCOME-PRE-EXTRAORDINARY> 13,522
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,522
<EPS-PRIMARY> .48
<EPS-DILUTED> .47
<YIELD-ACTUAL> 4.89
<LOANS-NON> 22,896
<LOANS-PAST> 568
<LOANS-TROUBLED> 305
<LOANS-PROBLEM> 21,400
<ALLOWANCE-OPEN> 45,911
<CHARGE-OFFS> 3,851
<RECOVERIES> 910
<ALLOWANCE-CLOSE> 46,480
<ALLOWANCE-DOMESTIC> 29,570
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 16,910
</TABLE>
