<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 June 30, 1999
-------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission file Number 0-10535
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CITIZENS BANKING CORPORATION
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(Exact name of registrant as specified in its charter)
MICHIGAN 38-2378932
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
328 S. Saginaw St., Flint, Michigan 48502
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(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 August 6, 1999
- --------------------------- -----------------------------
Common Stock, No Par Value 26,738,792 Shares
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Citizens Banking Corporation
Index to Form 10-Q
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Page
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PART I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements ................................ 3
Item 2 Management's Discussion and Analysis of Financial Condition
And Results of Operations ........................................ 10
Item 3. Quantitative and Qualitative Disclosure of Market Risk ........... 24
PART II OTHER INFORMATION
Item 1 Legal Proceedings ................................................ 24
Item 2 Changes in Securities ............................................ 24
Item 3 Defaults upon Senior Securities .................................. 24
Item 4 Submission of Matters to a Vote of Security Holders .............. 24
Item 5 Other Information ................................................ 25
Item 6 Exhibits and Reports on Form 8 K ................................. 25
SIGNATURES ......................................................................... 25
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
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CONSOLIDATED BALANCE SHEETS
CITIZENS BANKING CORPORATION AND SUBSIDIARIES
JUNE 30, December 31,
(in thousands) 1999 1998
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(UNAUDITED) (Note 1)
<S> <C> <C>
ASSETS
Cash and due from banks $ 170,194 $ 140,543
Money market investments:
Interest-bearing deposits with banks - 304
Term federal funds and other 9,933 25,935
---------- ----------
Total money market investments 9,933 26,239
Securities available-for-sale:
U.S. Treasury and federal agency securities 587,755 430,676
State and municipal securities 152,547 157,551
Other securities 27,084 25,302
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Total investment securities 767,386 613,529
Loans:
Commercial 1,652,771 1,594,113
Real estate construction 81,745 89,623
Real estate mortgage 708,964 741,358
Consumer 1,210,932 1,159,417
---------- ----------
Total loans 3,654,412 3,584,511
Less: Allowance for loan losses (46,551) (46,449)
---------- ----------
Net loans 3,607,861 3,538,062
Premises and equipment 81,216 78,248
Intangible assets 51,698 54,470
Other assets 69,704 50,318
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TOTAL ASSETS $4,757,992 $4,501,409
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 633,322 $ 636,059
Interest-bearing 3,068,571 3,128,297
---------- ----------
Total deposits 3,701,893 3,764,356
Federal funds purchased and securities sold
under agreements to repurchase 215,699 111,336
Other short-term borrowings 233,790 12,971
Other liabilities 52,737 40,727
Long-term debt 142,814 130,937
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Total liabilities 4,346,933 4,060,327
SHAREHOLDERS' EQUITY
Preferred stock - No par value - -
Common stock - No par value 78,294 117,525
Retained earnings 336,607 319,500
Accumulated other comprehensive income (3,842) 4,057
---------- ----------
Total shareholders' equity 411,059 441,082
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,757,992 $4,501,409
========== ==========
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</TABLE>
See notes to consolidated financial statements (unaudited).
3
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<TABLE>
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
CITIZENS BANKING CORPORATION AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except per share amounts) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $73,360 $75,465 $145,820 $151,140
Interest and dividends on investment securities:
Taxable 7,515 7,447 14,532 14,302
Nontaxable 1,797 1,921 3,667 3,844
Money market investments 160 637 893 1,391
------- ------- -------- --------
Total interest income 82,832 85,470 164,912 170,677
------- ------- -------- --------
INTEREST EXPENSE
Deposits 28,861 32,260 59,043 65,200
Short-term borrowings 1,961 1,576 3,062 3,057
Long-term debt 1,789 2,172 3,567 4,182
------- ------- ------- -------
Total interest expense 32,611 36,008 65,672 72,439
------- ------- ------- -------
NET INTEREST INCOME 50,221 49,462 99,240 98,238
Provision for loan losses 4,100 3,510 7,700 7,020
------- ------- ------- -------
Net interest income after provision for loan losses 46,121 45,952 91,540 91,218
------- ------- ------- -------
NONINTEREST INCOME
Trust fees 5,091 4,635 10,304 9,248
Service charges on deposit accounts 3,378 3,246 6,447 6,255
Bankcard fees 2,186 1,797 4,358 3,570
Mortgage and other loan income 885 806 1,978 1,335
Brokerage and investment fees 1,123 713 1,832 1,197
Cash management services 603 565 1,207 1,102
Investment securities gains (losses) 89 4 164 54
Premium on sale of deposits 8 --- 1,348 ---
Other 8,009 2,201 9,938 4,197
------- ------- ------- -------
Total noninterest income 21,372 13,967 37,576 26,958
------- ------- ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 21,591 20,802 42,615 41,199
Equipment 2,789 3,051 5,617 6,158
Occupancy 2,537 2,834 5,247 5,671
Intangible asset amortization 1,387 1,387 2,773 2,773
Bankcard fees 1,804 1,510 3,270 2,693
Stationery and supplies 762 910 1,679 1,920
Postage and delivery 1,076 1,123 2,190 2,212
Advertising and public relations 1,210 1,203 2,421 2,405
Data processing fees 1,870 1,361 3,642 2,301
Other 10,646 6,018 17,051 11,559
------- ------- ------- -------
Total noninterest expense 45,672 40,199 86,505 78,891
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 21,821 19,720 42,611 39,285
Income taxes 6,755 6,037 13,122 12,080
------- ------- ------- -------
NET INCOME $15,066 $13,683 $29,489 $27,205
======= ======= ======= =======
NET INCOME PER SHARE:
Basic $ 0.54 $ 0.49 $ 1.06 $ 0.97
Diluted 0.54 0.48 1.05 0.95
AVERAGE SHARES OUTSTANDING:
Basic 27,539 28,173 27,693 28,124
Diluted 27,973 28,799 28,186 28,773
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</TABLE>
See notes to consolidated financial statements (unaudited).
4
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<TABLE>
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
CITIZENS BANKING CORPORATION AND SUBSIDIARIES
Accumulated
Other
Common Retained Comprehensive
(in thousands except per share amounts) Stock Earnings Income Total
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<S> <C> <C> <C> <C>
BALANCE - JUNE 30, 1998 $121,460 $301,678 $ 3,645 $426,783
Net income 14,589 14,589
Net unrealized gain on securities available-for-sale,
net of tax effect 2,312 2,312
--------
Total comprehensive income 16,901
Exercise of stock options, net of
shares purchased 182 182
Shares acquired for exercise of stock options (3,154) (3,154)
Cash dividends - $0.21 per share (5,914) (5,914)
-------- -------- ------- --------
BALANCE - SEPTEMBER 30, 1998 118,488 310,353 5,957 434,798
Net income 14,991 14,991
Net unrealized loss on securities available-for-sale,
net of tax effect (1,900) (1,900)
--------
Total comprehensive income 13,091
Exercise of stock options, net of
shares purchased 771 771
Shares acquired for retirement (1,734) (1,734)
Cash dividends - $0.21 per share (5,844) (5,844)
-------- -------- ------- --------
BALANCE - DECEMBER 31, 1998 117,525 319,500 4,057 441,082
Net income 14,423 14,423
Net unrealized loss on securities available-for-sale,
net of tax effect (1,185) (1,185)
--------
Total comprehensive income 13,238
Exercise of stock options, net of
shares purchased 575 575
Shares acquired for retirement (20,158) (20,158)
Cash dividends - $0.21 per share (5,893) (5,893)
--------- -------- ------- --------
BALANCE - MARCH 31, 1999 97,942 328,030 2,872 428,844
Net income 15,066 15,066
Net unrealized loss on securities available-for-sale,
net of tax effect (6,714) (6,714)
--------
Total comprehensive income 8,352
Exercise of stock options, net of
shares purchased 1,331 1,331
Shares acquired for retirement (20,979) (20,979)
Cash dividends - $0.235 per share (6,489) (6,489)
--------- -------- ------- --------
BALANCE - JUNE 30, 1999 $ 78,294 $336,607 $(3,842) $411,059
========= ======== ======= ========
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See notes to consolidated financial statements (unaudited).
</TABLE>
5
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<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CITIZENS BANKING CORPORATION AND SUBSIDIARIES
Six Months Ended
June 30,
(in thousands) 1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 29,489 $ 27,205
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 7,700 7,020
Depreciation 4,702 4,163
Amortization of intangibles 2,773 2,773
Net amortization on investment securities 1,578 1,014
Investment securities gains (164) (54)
Other (3,123) (3,312)
--------- ---------
Net cash provided by operating activities 42,955 38,809
INVESTING ACTIVITIES:
Net decrease in money market investments 16,306 9,380
Securities available-for-sale:
Proceeds from sales 12,316 9,625
Proceeds from maturities 159,097 118,490
Purchases (338,837) (161,156)
Net (increase) decrease in loans (77,499) 39,138
Purchases of premises and equipment (7,670) (7,035)
--------- ---------
Net cash used by investing activities (236,287) 8,442
FINANCING ACTIVITIES:
Net decrease in demand and savings deposits (74,963) (4,087)
Net increase (decrease) in time deposits 12,500 (37,438)
Net increase (decrease) in short-term borrowings 325,182 (3,959)
Proceeds from issuance of long-term debt 12,000 60,000
Principal reductions in long-term debt (123) (37,554)
Cash dividends paid (12,382) (11,233)
Proceeds from stock options exercised 1,906 1,139
Shares acquired for retirement (41,137) 47
--------- ---------
Net cash provided by financing activities 222,983 (33,085)
--------- ---------
Net increase in cash and due from banks 29,651 14,166
Cash and due from banks at beginning of period 140,543 168,351
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Cash and due from banks at end of period $ 170,194 $ 182,517
========= =========
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</TABLE>
See notes to consolidated financial statements (unaudited).
6
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CITIZENS BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 six month
periods ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Corporation's 1998 Annual Report on Form
10-K.
NOTE 2. LINES OF BUSINESS INFORMATION
The Corporation is managed along the following business lines: Commercial
Banking, Retail Banking, Financial Services, and all other. Selected lines of
business segment information for the three and six month periods ended June
30, 1999 and 1998 is provided below. Total assets by business segment did not
change materially from that previously disclosed in the Corporation's 1998
Annual Report on Form 10-K. There are no significant intersegment revenues.
<TABLE>
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Commercial Retail Financial
(in thousands) Banking Banking Services Other Total
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<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY - THREE MONTHS ENDED JUNE 30, 1999
Net interest income (taxable equivalent) $18,103 $28,501 $ 359 $4,820 $51,783
Provision for loan losses 256 3,376 - 468 4,100
------- ------- ------ ------ -------
Net interest income after provision 17,847 25,125 359 4,352 47,683
Noninterest income 2,270 6,857 6,001 6,244 21,372
Noninterest expense 8,646 23,223 4,073 9,730 45,672
------- ------- ------ ------ -------
Income (loss) before income taxes 11,471 8,759 2,287 866 23,383
Income tax expense (taxable equivalent) 4,015 3,066 801 435 8,317
------- ------- ------ ------ -------
Net income (loss) $ 7,456 $ 5,693 $1,486 $ 431 $15,066
======= ======= ====== ====== =======
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EARNINGS SUMMARY - THREE MONTHS ENDED JUNE 30, 1998
Net interest income (taxable equivalent) $16,305 $29,865 $ 485 $4,270 $50,925
Provision for loan losses 1,135 2,478 - (103) 3,510
------- ------- ------ ------ -------
Net interest income after provision 15,170 27,387 485 4,373 47,415
Noninterest income 2,229 6,320 5,366 52 13,967
Noninterest expense 9,378 22,117 4,485 4,219 40,199
------- ------- ------ ------ -------
Income (loss) before income taxes 8,021 11,590 1,366 206 21,183
Income tax expense (taxable equivalent) 2,807 4,057 478 158 7,500
------- ------- ------ ------ -------
Net income (loss) $ 5,214 $ 7,533 $ 888 $ 48 $13,683
======= ======= ====== ====== =======
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</TABLE>
7
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<TABLE>
<CAPTION>
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Commercial Retail Financial
(in thousands) Banking Banking Services Other Total
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<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY - SIX MONTHS ENDED JUNE 30, 1999
Net interest income (taxable equivalent) $35,497 $57,148 $ 714 $ 9,058 $102,417
Provision for loan losses 650 8,464 - (1,414) 7,700
------- ------- ------- ------- --------
Net interest income after provision 34,847 48,684 714 10,472 94,717
Noninterest income 4,532 14,674 11,754 6,616 37,576
Noninterest expense 17,141 44,593 8,074 16,697 86,505
------- ------- ------- ------- --------
Income (loss) before income taxes 22,238 18,765 4,394 391 45,788
Income tax expense (taxable equivalent) 7,783 6,568 1,538 410 16,299
------- ------- ------- ------- --------
Net income (loss) $14,455 $12,197 $ 2,856 $ (19) $ 29,489
======= ======= ======= ======== ========
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EARNINGS SUMMARY - SIX MONTHS ENDED JUNE 30, 1998
Net interest income (taxable equivalent) $32,086 $60,803 $ 936 $ 7,322 $101,147
Provision for loan losses 1,502 6,045 - (527) 7,020
------- ------- ------- ------- --------
Net interest income after provision 30,584 54,758 936 7,849 94,127
Noninterest income 4,323 11,931 10,344 360 26,958
Noninterest expense 18,304 42,801 9,025 8,761 78,891
------- ------- ------- ------- --------
Income (loss) before income taxes 16,603 23,888 2,255 (552) 42,194
Income tax expense (taxable equivalent) 5,811 8,361 789 28 14,989
------- ------- ------- ------- --------
Net income (loss) $10,792 $15,527 $ 1,466 $ (580) $ 27,205
======= ======= ======= ======= ========
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</TABLE>
NOTE 3. PENDING ACQUISITIONS
On April 19, 1999, Citizens Banking Corporation and F&M Bancorporation, a bank
holding company headquartered in Wisconsin, announced the signing of a
definitive agreement whereby Citizens would acquire F&M in a stock-for-stock
merger transaction. Under the terms of the agreement, shareholders of F&M
will receive 1.303 shares of Citizens common stock for each outstanding common
share of F&M. Based on Citizens stock price as of June 30, 1999 of
approximately $30.00 per share, the transaction has an aggregate value of $630
million. The transaction will be accounted for as a pooling-of-interests. The
transaction is subject to approval by regulatory authorities and the
shareholders of both Citizens and F&M. The merger is expected to close in the
fourth quarter of 1999.
On June 9, 1999, Citizens Bank, a wholly owned subsidiary of Citizens Banking
Corporation, signed a definitive agreement with Bank One Corporation to
acquire seventeen branches located in northern lower Michigan. Under the terms
of the agreement, Citizens will assume approximately $390 million in deposits
and acquire approximately $80 million in loans. Citizens will pay a premium of
10.13% for core deposits, or approximately $36.7 million. The transaction is
subject to regulatory approval and is expected to close in the fourth quarter
of 1999.
8
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NOTE 4. EARNINGS PER SHARE
Net income per share is computed based on the weighted-average number of
shares outstanding, including the dilutive effect of stock options, as
follows:
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Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except per share amounts) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
NUMERATOR:
Numerator for basic and dilutive earnings per share -- $15,066 $13,683 $29,489 $27,205
net income available to common shareholders ======= ======= ======= =======
DENOMINATOR:
Denominator for basic earnings per share -- weighted 27,539 28,173 27,693 28,124
average shares
Effect of dilutive securities -- potential conversion of 434 626 493 649
employee stock options ------- ------- ------- -------
Denominator for diluted earnings per share -- adjusted 27,973 28,799 28,186 28,773
weighted-average shares and assumed conversions ======= ======= ======= =======
BASIC EARNINGS PER SHARE $ 0.54 $ 0.49 $ 1.06 $ 0.97
======= ======= ======= =======
DILUTED EARNINGS PER SHARE $ 0.54 $ 0.48 $ 1.05 $ 0.95
======= ======= ======= =======
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</TABLE>
During the second quarter of 1999, employees exercised stock options to acquire
155,761 shares at an average exercise price of $11.28 per share.
NOTE 5. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year financial statement presentation.
9
<PAGE> 10
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a review of the Corporation's performance for the three and
six-month periods ended June 30, 1999. This discussion should be read in
conjunction with the accompanying unaudited financial statements and notes
thereto appearing on pages 3 through 9 of this report and the Corporation's
1998 Annual Report on Form 10-K.
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SELECTED FINANCIAL DATA
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except per share data) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
FOR THE PERIOD
Interest income $82,832 $85,470 $ 164,912 $ 170,677
Net interest income 50,221 49,462 99,240 98,238
Provision for loan losses 4,100 3,510 7,700 7,020
Investment securities gains 89 4 164 54
Other noninterest income 21,283 13,963 37,412 26,904
Noninterest expense 45,672 40,199 86,505 78,891
Income taxes 6,755 6,037 13,122 12,080
Net income 15,066 13,683 29,489 27,205
Cash dividends 6,489 5,909 12,382 11,233
PER SHARE DATA
Basic net income $0.54 $0.49 $1.06 $0.97
Diluted net income 0.54 0.48 1.05 0.95
Cash dividends 0.235 0.21 0.445 0.40
Book value (end of period) --- --- 15.24 15.14
Market value (end of period close) --- --- 30.06 33.63
FINANCIAL RATIOS (ANNUALIZED)
Return on average shareholders' equity 14.18 % 13.03 % 13.84 % 13.16
Return on average assets 1.33 1.23 1.31 1.23
Net interest margin (taxable equivalent) 4.90 4.89 4.86 4.89
Net loan charge-offs to average loans 0.32 0.35 0.43 0.34
Average equity to average total assets 9.40 9.43 9.49 9.39
Nonperforming assets to loans plus other
repossessed assets acquired (end of period) --- --- 0.51 0.76
Nonperforming assets to total assets (end of period) --- --- 0.39 0.60
Percent
BALANCE SHEET TOTALS Change
At Period End (June 30) -------
Assets 7.3% $4,757,992 $4,435,922
Loans 4.5 3,654,412 3,496,506
Deposits 1.3 3,701,893 3,652,821
Shareholders' equity (3.7) 411,059 426,783
Average balances
Assets 2.0 4,529,109 4,442,184
Loans 1.7 3,566,931 3,506,450
Deposits 1.9 3,771,382 3,700,392
Shareholders' equity 3.1 429,791 416,985
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</TABLE>
10
<PAGE> 11
PERFORMANCE SUMMARY
Selected financial data as of June 30, 1999 and 1998 and for the three and six
month periods then ended are presented in the table on page 10. As shown,
earnings increased in both periods due to higher net interest income and
noninterest income. This improvement was partially offset by a slightly higher
provision for loan losses and increases in operating expense and income taxes.
Net interest income increased due to higher earning asset levels and lower cost
of interest bearing liabilities. Noninterest income reflects a premium of $1.3
million from the sale of branch deposits in the first quarter of 1999 and a $5.7
million gain on the sale of Magic Line, Inc. stock in June 1999. In addition, in
both the three and six month periods there was significant growth in trust fees,
bankcard fees, brokerage and investment fees. Noninterest expense increased in
both the three and six month periods ended June 30, 1999, reflecting a $4.0
million contribution in June 1999 to establish the Citizens Banking Corporation
charitable trust, as well as higher bankcard fees, professional services and new
data processing services and telecommunication costs associated with the
Corporation's information technology partnership with M&I Data Services (entered
into in the third quarter of 1997).
LINES OF BUSINESS REPORTING
The Corporation operates along three major business segments: Commercial
Banking, Retail Banking and Financial Services. For more information about each
line of business see Note 17 to the Corporation's 1998 Annual Report on Form
10-K and Note 2 of this Quarterly Report on Form 10Q. A summary of net income by
each business line is presented below.
<TABLE>
<CAPTION>
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Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Banking $7,456 $ 5,214 $14,455 $10,792
Retail Banking 5,693 7,533 12,197 15,527
Financial Services 1,486 888 2,856 1,466
Other 431 48 (19) (580)
------- ------- ------- -------
Total $15,066 $13,683 $29,489 $27,205
======= ======= ======= =======
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</TABLE>
The increase in commercial banking net income is due to growth in overall
commercial account relationships, including increased demand deposits, strong
loan growth and expanded cash management services. Retail banking net income
decreased as a result of lower interest income and a higher loan loss provision
associated with the indirect consumer lending portfolio offset, in part, by
higher mortgage banking revenues and improved pricing strategies on deposit
products. Financial services income improved due to growth in trust and
investment advisory services from enhanced pricing strategies, higher sales
volumes, increased brokerage activity and the introduction of new products and
services.
NET INTEREST INCOME
Net interest income and average balances and yields on major categories of
interest-earning assets and interest-bearing liabilities during the three and
six months of 1999 and 1998 are summarized on page 13 and 14. The effects of
changes in average market rates of interest ("rate") and average balances
("volume") are quantified in the table on page 12.
For the second quarter of 1999, favorable volume related variances offset, in
part, by unfavorable rate related variances resulted in an increase of $759,000
in net interest income, as compared to the same period in 1998. For the six
months ended June 30, 1999, favorable volume related variances partially offset
by unfavorable rate-related variances resulted in an increase in net interest
income of $1,002,000 as compared to the same period in 1998. The favorable
volume-related variances were primarily due to increased commercial loans
balances in both the three and six month periods. Unfavorable rate-related
variances resulted primarily from lower yields on all loan portfolios and
investment securities and were partially offset by lower cost of all interest
bearing liabilities, particularly savings and time deposits, for both the three
and six month periods.
Yields on earning assets decreased 37 basis points and 43 basis points for the
three and six month periods ended June 30, 1999, respectively, as compared to
the same periods in 1998. The change is due to lower yields on all major
categories of earning assets, particularly the commercial loan portfolio. The
change in the composition of assets and the overall higher level of earning
assets resulted in net volume related increases in interest income of $1,768,000
for the three month period ended June 30, 1999 and $2,827,000 for the six month
period ended June 30, 1999 as compared to the same periods in 1998.
The cost of interest-bearing liabilities decreased to 3.80% from 4.25% for the
three months ended June 30, 1999, as compared with the same period in 1998. For
the six months ended June 30, 1999 the cost of interest-bearing liabilities
decreased to 3.85% from 4.31% in 1998. The decreases in 1999 reflect the overall
lower interest rate environment as the cost of all categories of
interest-bearing deposits declined compared with the same period of 1998. The
cost of interest bearing liabilities also decreased as a result of decreases in
higher cost long term borrowings.
11
<PAGE> 12
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 1999, corresponding changes in funding costs would be
considered to limit 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".
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------- -------------------------------------------
1999 Compared with 1998 1999 Compared with 1998
------------------------------------------- -------------------------------------------
Increase (Decrease) Increase (Decrease)
Net Due to Change in Net Due to Change in
--------------------------- ----------------------------
(in thousands) Change (1) Rate Volume (2) Change (1) Rate Volume (2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Money market investments:
Time Deposits with banks $ --- $ --- $ --- $ --- $ (1) $ 1
Federal funds sold (489) (77) (412) (562) (182) (380)
Term federal funds sold
and other 12 (2) 14 65 (16) 81
Investment securities:
Taxable 68 (450) 518 230 (711) 941
Tax-exempt (124) (113) (11) (177) (231) 54
Loans (2,105) (3,764) 1,659 (5,321) (7,451) 2,130
------- ------- ------ ------- ------- ------
Total (2,638) (4,406) 1,768 (5,765) (8,592) 2,827
------- ------- ------ ------- ------- ------
INTEREST EXPENSE
Deposits:
Demand (113) (173) 60 (139) (272) 133
Savings (1,176) (1,453) 277 (2,541) (3,196) 655
Time (2,110) (1,896) (214) (3,477) (3,269) (208)
Short-term borrowings 385 (249) 634 5 (544) 549
Long-term debt (383) (18) (365) (615) (71) (544)
------- ------- ------ ------- ------- ------
Total (3,397) (3,789) 392 (6,767) (7,352) 585
------- ------- ------ ------- ------- ------
NET INTEREST INCOME $ 759 $(617) $1,376 $ 1,002 $(1,240) $2,242
======= ======= ====== ======= ======= ======
- ------------------------------------------------------------------------------------------------------------------------------
</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.
12
<PAGE> 13
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES/NET INTEREST INCOME/AVERAGE RATES
--------------------------------------------------------------------------------
1999 1998
----------------------------------------- ------------------------------------
Three Months Ended June 30 AVERAGE AVERAGE Average Average
(In Thousands) BALANCE INTEREST (1) RATE (2) Balance Interest Rate (2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Money market investments:
Interest earning deposits with banks $ 50 $ 1 4.84 % $ 23 $ 1 8.71 %
Federal funds sold 9,912 118 4.82 44,087 607 5.52
Term federal funds sold and other 4,271 41 3.85 2,803 29 4.14
Investment securities(3):
Taxable 498,008 7,515 6.04 461,885 7,447 6.45
Tax-exempt 142,010 1,797 7.83 145,664 1,921 8.16
Loans:
Commercial 1,678,650 33,295 8.09 1,455,475 30,944 8.64
Real estate 730,024 14,078 7.71 798,989 16,161 8.09
Consumer 1,172,088 25,987 8.89 1,257,017 28,360 9.05
---------- ------- ---- ---------- ------- ----
Total earning assets (3) 4,235,013 82,832 7.99 4,165,943 85,470 8.36
NONEARNING ASSETS
Cash and due from banks 155,460 153,941
Bank premises and equipment 80,452 71,647
Other nonearning assets 108,920 120,626
Allowance for loan losses (45,761) (46,949)
----------- ----------
Total assets $4,534,084 $4,465,208
========== ==========
INTEREST-BEARING LIABILITIES
Deposits:
Demand deposits 407,668 1,384 1.36 384,544 1,497 1.56
Savings deposits 1,026,198 5,867 2.29 1,032,020 7,043 2.74
Time deposits 1,695,082 21,610 5.11 1,694,892 23,720 5.61
Short-term borrowings 182,263 1,961 4.32 133,551 1,576 4.73
Long-term debt 132,004 1,789 5.44 150,660 2,172 5.78
---------- ------- ---------- -------
Total interest-bearing liabilities 3,443,215 32,611 3.80 3,395,667 36,008 4.25
------- -------
NONINTEREST-BEARING LIABILITIES AND
SHAREHOLDERS' EQUITY
Demand deposits 614,817 594,458
Other liabilities 49,834 53,939
Shareholders' equity 426,218 421,144
---------- ----------
Total liabilities and shareholders' equity $4,534,084 $4,465,208
========== ==========
NET INTEREST INCOME $50,221 $49,462
======= =======
NET INTEREST INCOME AS A PERCENT OF
EARNING ASSETS 4.90 % 4.89 %
- ------------------------------------------------------------------------------------------------------------------------------------
</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 $1,562 and $1,463 for the three
months ended June 30, 1999 and 1998, 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.
13
<PAGE> 14
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES/NET INTEREST INCOME/AVERAGE RATES
1999 1998
----------------------------------------- -----------------------------------
Six Months Ended June 30 AVERAGE AVERAGE Average Average
(In Thousands) BALANCE INTEREST (1) RATE (2) Balance Interest Rate (2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Money market investments:
Interest earning deposits with banks $ 61 $ 1 3.93 % $ 33 $ 1 7.55 %
Federal funds sold 32,214 763 4.78 48,227 1,325 5.54
Term federal funds sold and other 5,899 129 4.42 2,972 64 4.36
Investment securities (3):
Taxable 479,984 14,532 6.06 445,208 14,302 6.43
Tax-exempt 144,673 3,667 7.84 145,279 3,844 8.18
Loans:
Commercial 1,663,774 65,222 8.05 1,422,419 60,633 8.70
Real estate 743,251 29,158 7.85 797,253 32,551 8.17
Consumer 1,159,906 51,440 8.94 1,286,778 57,957 9.08
---------- -------- ---------- --------
Total earning assets(3) 4,229,762 164,912 7.99 4,148,169 170,677 8.41
NONEARNING ASSETS
Cash and due from banks 158,161 150,851
Bank premises and equipment 79,841 70,698
Other nonearning assets 106,952 119,108
Allowance for loan losses (45,607) (46,642)
---------- ----------
Total assets $4,529,109 $4,442,184
========== ==========
INTEREST-BEARING LIABILITIES
Deposits:
Demand deposits 406,362 2,829 1.40 380,298 2,968 1.57
Savings deposits 1,031,798 11,695 2.29 1,028,823 14,236 2.79
Time deposits 1,723,932 44,519 5.21 1,710,057 47,996 5.66
Short-term borrowings 149,496 3,062 4.13 128,829 3,057 4.79
Long-term debt 131,468 3,567 5.47 141,800 4,182 5.95
---------- ------- ---------- --------
Total interest-bearing liabilities 3,443,056 65,672 3.85 3,389,807 72,439 4.31
------ --------
NONINTEREST-BEARING LIABILITIES AND
SHAREHOLDERS' EQUITY
Demand deposits 609,290 581,214
Other liabilities 46,972 54,178
Shareholders' equity 429,791 416,985
---------- ----------
Total liabilities and shareholders' equity $4,529,109 $4,442,184
========== ==========
NET INTEREST INCOME $ 99,240 $ 98,238
========== ========
NET INTEREST INCOME AS A PERCENT OF
EARNING ASSETS 4.86 % 4.89 %
- --------------------------------------------------------------------------------------------------------------------------------
</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 $3,177 and $2,909 for the six
months ended June 30, 1999 and 1998, 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.
14
<PAGE> 15
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Management provides for possible loan losses by dividing the allowance into two
components, allocated and unallocated. The allocated component of the allowance
is based on expected losses from the analysis of specific loans and historical
loss experience for each category of loans. This analysis is performed
throughout the year and is updated based on actual experience and loan reviews.
The unallocated portion of the allowance is determined based on the
Corporation's assessment of general economic and conditions, the economic
conditions in the markets in which the Corporation operates, the level and
composition of nonperforming loans and other factors. This analysis involves a
higher degree of uncertainty and considers factors, which may not be reflected
in historical loss factors used to determine the allocated portion of the
allowance. A summary of loan loss experience during the three and six months
ended June 30, 1999 and 1998 is provided below. The provision for loan losses
increased $590,000 during the three months ended June 30, 1999, as compared with
the same period in 1998, and increased $680,000 in the first six months of 1999
versus the same period in 1998.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for loan losses - beginning of period $ 45,325 $ 46,480 $ 46,449 $ 45,911
Charge-offs 4,226 3,962 9,978 7,813
Recoveries 1,352 928 2,380 1,838
---------- ---------- ---------- ----------
Net charge-offs 2,874 3,034 7,598 5,975
Provision for loan losses 4,100 3,510 7,700 7,020
---------- ---------- ---------- ----------
Allowance for loan losses - end of period $ 46,551 $ 46,956 $ 46,551 $ 46,956
========== ========== ========== ==========
Loans outstanding at period end $3,654,412 $3,496,506 $3,654,412 $3,496,506
Average loans outstanding during period 3,580,761 3,511,481 3,566,931 3,506,450
Allowance for loan losses as a percentage of
loans outstanding at period end 1.27 % 1.34 % 1.27 % 1.34 %
Ratio of net charge-offs during period to
average loans outstanding (annualized) 0.32 0.35 0.43 0.34
Loan loss coverage (allowance as a multiple of
net charge-offs, annualized) 4.0 x 3.9 x 3.1 x 3.9
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The ratio of net loans charged off to average loans outstanding decreased three
basis points in the three month period ended June 30, 1999 and increased nine
basis points for the six months ended June 30, 1999, compared to the same
periods in 1998. The decrease in the second quarter of 1999 reflects a higher
level of recoveries in both the commercial and consumer loan portfolios. The
increase in the six month period of 1999 reflects higher charge-offs primarily
in the indirect consumer loan portfolio.
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 or 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 that may not be
performing as well as expected. Nonperforming loans are further discussed in the
section entitled "Nonperforming Assets."
15
<PAGE> 16
NONINTEREST INCOME
A summary of significant sources of noninterest income during the three and six
months ended June 30, 1999 and 1998 follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Percent
Change in 1999
Three Months Ended Six Months Ended ------------------------
June 30, June 30, Three Six
(in thousands) 1999 1998 1999 1998 Months Months
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trust fees $ 5,091 $4,635 $10,304 $ 9,248 9.8 11.4 %
Service charges on deposit accts 3,378 3,246 6,447 6,255 4.1 3.1
Bankcard fees 2,186 1,797 4,358 3,570 21.6 22.1
Brokerage and investment fees 1,123 713 1,832 1,197 57.5 53.0
Mortgage and other loan income 885 806 1,978 1,335 9.8 48.2
ATM network user fees 733 722 1,368 1,444 1.5 (5.3)
Cash management services 603 565 1,207 1,102 6.7 9.5
Title insurance fees 228 265 502 488 (14.0) 2.9
Investment securities gains 89 4 164 54 (1) 203.7
Premium on sale of deposits 8 --- 1,348 --- (1) (1)
Gain on sale of Magic Line stock 5,693 --- 5,693 --- (1) (1)
Other, net 1,355 1,214 2,375 2,265 11.6 4.9
------- ------- ------- -------
Total noninterest income $21,372 $13,967 $37,576 $26,958 53.0 39.4
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Not Meaningful
In March 1999, the Corporation recognized a premium of $1.3 million from the
sale of deposits of a branch office. In June 1999, the Corporation recognized a
gain of $5.7 million from the sale of its equity investment in MagicLine.
Excluding these non-recurring gains, noninterest income increased 12.3% and
18.3% for the three and six months ended June 30, 1999, respectively, as
compared to the same periods in the prior year. Nearly every category of
noninterest income was higher in 1999 than in 1998 for both the three and six
month periods ended June 30. The corporation experienced significant increases
in trust fees, bankcard fees, brokerage and investment fees, mortgage and other
loan income and cash management fees. ATM fees reflected only a slight increase
in the second quarter of 1.5%.
Higher fee income for personal and employee benefit trust services contributed
to the 9.8% and 11.4% increases in trust fees for the three and six months ended
June 30, 1999, respectively, as compared to the same periods in the prior year.
The increases were the result of improved pricing strategies, higher sales and
increased volumes of managed assets. Brokerage and investment fees increased
57.5% and 53.0% for the three and six month periods ended June 30, 1999,
respectively, as compared to the same periods in 1998. Higher brokerage and
investment fees were the result of increased sales efforts and the introduction
of new products and services.
Mortgage and other loan income increased 9.8% and 48.2% for the three and six
months ended June 30, 1999, respectively, as compared to the same periods in
1998. This increase reflects higher servicing release premiums on the sale of
residential mortgage loans into the secondary market and an increase in
commercial letter of credit fees. Cash management service fees increased 6.7%
and 9.5% for the three and six month periods ended June 30, 1999, respectively,
as compared to the same periods 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.
16
<PAGE> 17
NONINTEREST EXPENSE
Significant changes in noninterest expense during the three and six months ended
June 30, 1999 and 1998 is summarized in the table below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Percent
Change in 1999
Three Months Ended Six Months Ended ------------------------
June 30, June 30, Three Six
(in thousands) 1999 1998 1999 1998 Months Months
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $21,591 $20,802 $42,615 $41,199 3.8 % 3.4 %
Equipment 2,789 3,051 5,617 6,158 (8.6) (8.8)
Occupancy 2,537 2,834 5,247 5,671 (10.5) (7.5)
Intangible asset amortization 1,387 1,387 2,773 2,773 --- ---
Bankcard fees 1,804 1,510 3,270 2,693 19.5 21.4
Stationery and supplies 762 910 1,679 1,920 (16.3) (12.6)
Postage and delivery 1,076 1,123 2,190 2,212 (4.2) (1.0)
Advertising and public relations 1,210 1,203 2,421 2,405 0.6 0.7
Data processing services 1,870 1,361 3,642 2,301 37.4 58.3
Professional services 1,714 1,148 2,888 2,282 49.3 26.6
Other loan fees 938 825 1,903 1,586 13.7 20.0
Telephone 1,073 1,065 2,045 1,849 0.8 10.6
Charitable contributions 4,620 232 4,783 317 (1) (1)
Other, net 2,301 2,748 5,432 5,525 (16.3) (1.7)
------- ------- ------- -------
Total noninterest expense $45,672 $40,199 $86,505 $78,891 13.6 9.7
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Not Meaningful
SALARIES AND EMPLOYEE BENEFITS
Salaries and employee benefits expense increased 3.8% and 3.4% for the three and
six months ended June 30, 1999, respectively, as compared to the same period in
the prior year. The increases for the three and six month comparison were due to
higher incentive based compensation and normal merit increases partially offset
by lower staffing levels, due in part, to efficiencies resulting from the
information technology partnership with M&I Data Services.
Other noninterest expenses increased 24.1% and 16.4% for the three and six month
periods ended June 30, 1999 as compared to the same periods the prior year. The
increase in both the three and six month periods reflects a $4.0 million
contribution to establish the Citizens Banking Corporation Charitable Trust.
Data processing costs increased as a result of the new services and costs
associated with the Corporation's information technology partnership with M&I
Data Services. These increases were partially offset by related reductions in
personnel, equipment, occupancy, and stationery and supplies costs. Bankcard
fees increased due to higher transaction volume, increased costs for processing
services and enhanced loss prevention efforts. Professional services increased
due to increased consulting fees related to future revenue enhancing programs
and other services.
INCOME TAXES
Higher pre-tax earnings, partially offset by a higher level of tax exempt
interest income resulted in increased federal income tax expense for the three
and six month periods ended June 30, 1999, as compared to the same periods in
the prior year.
BALANCE SHEET
The Corporation had total assets of $4.758 billion as of June 30, 1999, an
increase of $256 million or 5.7% from $4.501 billion as of December 31, 1998.
Average earning assets comprised 93.4% of average total assets during the first
six months of 1999 and 1998.
INVESTMENT SECURITIES AND MONEY MARKET INVESTMENTS
Total average investments, including money market investments, comprised 15.7%
of average earning assets during the first half of 1999, compared with 15.5% for
the same period of 1998
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 borrower and industry groups with no significant
concentrations in any
17
<PAGE> 18
industry. Due to strong sales efforts and a relatively low interest rate
environment, the Corporation experienced greater loan demand with total average
loans increasing 1.7% in the first six months of 1999 as compared to the same
period in 1998. This growth occurred primarily within the commercial and
commercial real estate mortgage categories.
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. Cash collected on impaired nonaccrual loans is
applied to principle until collection of principle is no longer in doubt and
then to interest income. 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.
At June 30, 1999, loans considered to be impaired under the Statements totaled
$18.9 million (of which $8.2 million were on a nonaccrual basis). Included
within this amount was $5.1 million of impaired loans for which the related
allowance for loan losses was $1.5 million and $13.8 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 June 30,
1999 was approximately $15.2 million. For the quarter ended June 30, 1999, the
Corporation recognized interest income of $0.1 million. Approximately $0.2
million of cash collected on nonaccrual impaired loans was applied to loan
principal.
At June 30, 1998, loans considered to be impaired under the Statements totaled
$18.5 million (of which $13.2 million were on a nonaccrual basis). Included
within this amount was $8.0 million of impaired loans for which the related
allowance for loan losses was $2.0 million and $10.6 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 June 30,
1998 was approximately $18.7 million. For the quarter ended June 30, 1998, the
Corporation recognized interest income of approximately $0.3 million which
included $0.1 million of interest income recognized using the cash basis method
of income recognition.
The table below provides a summary of nonperforming assets as of June 30, 1999,
December 31, 1998 and June 30, 1998. Total nonperforming assets amounted to
$18.8 million as of June 30, 1999, compared with $24.3 million as of December
31, 1998 and $26.6 million as of June 30, 1998. During the first six months of
1999, several large nonaccrual commercial and commercial mortgage loans were
paid current or paid off. In addition, the Corporation charged off approximately
$5.7 million in indirect consumer loans. As a result, nonaccrual loans 90 or
more days past due at June 30, 1999 were down $4,739,000 or 26.1% from year-end
1998.
18
<PAGE> 19
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
JUNE 30, December 31, June 30,
(IN THOUSANDS) 1999 1998 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming Loans
Nonaccrual
Less than 30 days past due $ 1,356 $ 2,016 $ 4,032
From 30 to 89 days past due 1,569 1,641 1,947
90 or more days past due 13,395 18,134 17,398
------- ------- -------
Total 16,320 21,791 23,377
90 days past due and still accruing 1,055 801 441
Restructured 114 114 231
------- ------- -------
Total nonperforming loans 17,489 22,706 24,049
Other Repossessed Assets Acquired (ORAA) 1,299 1,547 2,548
------- ------- -------
Total nonperforming assets $18,788 $24,253 $26,597
======= ======= =======
Nonperforming assets as a percent of total loans plus ORAA 0.51 % 0.68 % 0.76 %
Nonperforming assets as a percent of total assets 0.39 0.54 0.60
- --------------------------------------------------------------------------------------------------------------------------
</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 June 30, 1999, such credits amounted to $18.8 million or 0.5% of
total loans, compared with $14.5 million or 0.4% at December 31, 1998 and $21.9
million or 0.6% as of June 30, 1998. 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
Average deposits increased 1.9% in the first six months of 1999 as compared to
the same period in 1998. Deposit growth was derived primarily from noninterest
and interest-bearing demand accounts which increased 4.8% and 6.9%,
respectively, from 1998 first half average balances. The increase is due to
growth in both commercial and retail accounts. The Corporation gathers deposits
primarily in its local markets and historically has not relied on brokered funds
to sustain liquidity. At June 30, 1999 and at year-end 1998, the Corporation had
approximately $15 million in brokered deposits as an alternative source of
funding. These deposits mature in July 2001. 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 increased to $149.5 million during the
first six months of 1999 compared with $128.8 million during the same period of
1998. Long-term debt accounted for $131.5 million or 3.8% of average
interest-bearing funds for the first six months of 1999, decreasing from $141.8
million or 4.2% of average interest-bearing funds for the same period in 1998.
At June 30, 1999, $200 million of the short term borrowings consist of Federal
Home Loan Bank advances that mature within the next six months. Proceeds from
these advances were used to support loan growth and fund purchases of
collateralized mortgage obligations in the Corporation's investment portfolio.
At June 30, 1999, $117.5 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 9 years. These borrowings are utilized to fund the
Corporation's loan growth.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133 Accounting for Derivative Instruments and Hedging Activities." In June
1999, the Financial Accounting Standards Board ("FASB") issued SFAS No. 137,
which delayed the effective date of the original statement. This statement
requires a company to recognize all derivatives as either assets or liabilities
in its balance sheet and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as a fair
value, cash flow, or foreign currency hedge. The accounting for changes in the
fair value of a derivative (i.e., gains and losses) depends on the intended use
of the derivative and the resulting designation. If the Corporation elects to
apply hedge accounting, it is required to establish at the inception of the
hedge the
19
<PAGE> 20
method it will use for assessing the effectiveness of the hedging derivative and
the measurement approach for determining the ineffective aspect of the hedge.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Corporation plans to adopt this Statement effective
January 1, 2001. Presently the Corporation does not utilize derivative or
related types of financial instruments except for Federal agency collateralized
mortgage obligations. Therefore, this Statement is not anticipated to have a
material impact on the Corporation.
IMPACT OF YEAR 2000
As is more fully described in the Corporation's 1998 Annual Report on Form 10-K,
the Corporation believes that it has completed its assessment of all
computer-based systems and applications and non-information technology systems
necessary for continued operations beyond December 31, 1999. The majority of
applications that are not Year 2000 compliant have been, or will be, upgraded or
replaced by new systems. The costs of new systems have been, or will be,
recorded as an asset and amortized. System assessment and conversion costs to
upgrade the remaining noncompliant systems are expensed as incurred. A
significant portion of the costs associated with making the remaining
applications not covered by new systems Year 2000 compliant do not represent
incremental costs to the Corporation, as they are covered under current
maintenance agreements or involve the redeployment of existing information
technology resources. Costs related to the year 2000 issue are funded through
operating cash flows. The Corporation estimates that it will spend less than
$3.0 million for its Year 2000 compliance efforts. Approximately $2.0 million to
$2.5 million of these expenditures is for new hardware and software and has or
will be capitalized. Year 2000 compliance costs expended through June 30, 1999
were approximately $1,200,000.
These estimates do not include the cost of the Corporation's previously planned
core application systems replacement, which were not accelerated due to the Year
2000 problem. M&I Data Services upgraded its systems to be Year 2000 compliant,
in the third quarter of 1998, and is currently processing the Corporation's core
applications on these compliant systems. Testing of these systems was completed
in the first quarter of 1999. The application systems run by M&I Data Services
represent approximately 70% of the Corporation's mission critical systems.
Currently, the Corporation's remediation, implementation and testing efforts are
at different phases of completion. Remediation, implementation and testing
activities are underway or completed on all of the Corporation's mission
critical information technology and non-information technology systems and
applications. For the Corporation's information technology exposures, to date
the remediation and implementation phase is 98% complete (100% of mission
critical applications and 98% of non-mission critical applications) and the
testing phase is 95% complete. The phases run concurrently for different
systems. Completion of the implementation and testing phases for all
significant information technology systems is expected by September 30, 1999.
The Corporation's exposure to non-information technology systems (i.e. systems
with date sensitive embedded technology requiring Year 2000 upgrades) relates
primarily to the Corporation's operating equipment and facilities (e.g.,
security access and alarm systems, elevators, heating and air conditioning
units, etc.). Completion of the implementation and testing of non-information
technology systems is expected by October 31, 1999.
The Corporation is also addressing the readiness of critical suppliers,
customers, governmental agencies and other third parties that provide services
to or receive services from the Corporation. Primarily, the Corporation is
surveying its suppliers and large customers to assess the extent to which the
Corporation is vulnerable to those third parties' failures to resolve their own
Year 2000 issues. The Corporation has received responses from the majority of
its third party vendors and suppliers, confirming that the third parties'
software systems are Year 2000 compliant or, if not compliant, that these third
parties have an action plan in place to have them compliant by mid 1999. The
testing of mission critical third party software systems is also in progress.
The Corporation is on schedule to have all testing of third party software
systems completed by September 30, 1999. The Corporation is continuing to seek
assurances that the systems of other companies on which the Corporation's
systems rely will be timely converted or modified. Failure of such entities, or
one of their suppliers or customers, to become compliant in a timely manner
could have an adverse effect on the Corporation's results of operations or
financial condition.
As a bank holding company, the Corporation is also exposed to the credit risk of
its loan customers ("borrowers"). To the extent that major borrowers fail to
adequately address Year 2000 issues, the credit worthiness of these borrowers
may deteriorate and adversely impact the Corporation's subsidiary banks. As a
result, the Corporation has identified material borrowers and has assessed these
borrowers' Year 2000 preparedness. The Year 2000 readiness of material
borrowers will be monitored periodically, to assess their Year 2000 compliance
and evaluate any further risk to the Corporation.
The Corporation has updated its contingency plans to address unforeseen Year
2000 issues and is currently in the process of validating these plans. These
contingency plans involve, among other actions, manual workarounds and
coordination of personnel and resources. The Corporation has determined that it
must rely primarily on its software vendors to remedy, in a timely manner, any
unforeseen situations of its mission critical systems. There can be no assurance
that any plans will fully mitigate all difficulties. Furthermore, there may be
certain mission critical third parties, such as utilities or telecommunication
companies, where alternative arrangements or other sources are limited or
unavailable.
20
<PAGE> 21
Management's assessment of the risks associated with the Year 2000 project is
unchanged from that described in the Corporation's 1998 Annual Report on Form
10-K. The anticipated costs and projected dates for completion of the
Corporation's Year 2000 project, was based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources and other factors. Other
unanticipated Year 2000 issues could arise and there can be no assurance that
these estimates will be achieved and actual results could differ from those
anticipated. These unanticipated issues may include, but are not limited to, the
ability to identify and correct all noncompliant systems and applications, the
ability of third parties to become Year 2000 compliant, the availability and
cost of trained personnel, the impact of Year 2000 on our clients and other
uncertainties.
The information above contains forward-looking statements, including, without
limitation, statements relating to the Corporation's plans, strategies,
objectives, expectation, intention, and adequate resources that are made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that forward-looking statements about
Year 2000 should be read in conjunction with the Corporation's disclosures under
the heading Forward Looking Information.
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).
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 JUNE 30, December 31, June 30,
Capitalized" 1999 1998 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk based capital:
Tier I 6.0 % 9.7 % 10.5 % 10.3 %
Total capital 10.0 10.9 11.8 11.6
Tier I leverage 5.0 8.1 8.7 8.3
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
COMMON AND PREFERRED STOCK
The Corporation maintains two stock repurchase plans. In May 1998, the
Corporation initiated a stock repurchase plan ("Plan I") that 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. In January
1999, the Corporation initiated a second stock repurchase plan ("Plan II") that
provides for the repurchase of up to 1,400,000 shares of its common stock
(approximately 5% of the outstanding shares) for general bank purposes. During
the second quarter of 1999 a total of 75,400 shares had been purchased under
Plan I at an average price of $31.30 per share. A total of 629,500 shares had
been acquired under Plan II at an average price of $29.58 per share during the
three months ended June 30, 1999. Shares of common stock in treasury are
accorded the treatment as if retired; however, such shares remain available for
reissue.
OTHER
Total shareholders' equity was $411.1 million or $15.24 per share as of June 30,
1999, compared with $441.1 million or $15.70 per share as of December 31, 1998
and $426.8 million or $15.14 per share as of June 30, 1998. The Corporation
21
<PAGE> 22
declared cash dividends of $0.235 per share during the second quarter of 1999,
an increase of 11.9% over the $0.21 per share declared during the same period in
1998.
LIQUIDITY AND DEBT CAPACITY
Management closely monitors the level of liquid assets available to meet ongoing
funding needs and to capitalize on opportunities for business expansion. 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 1999, the Corporation
has continued its strategy to operate at lower levels of liquidity and at a
higher loan to deposit ratio to improve its asset mix and thereby increase net
interest income. The Corporation has experienced no liquidity or operational
problems as a result of the current liquidity levels. These ratios are
summarized in the following table:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
KEY LIQUIDITY RATIOS
JUNE 30, December 31, June 30,
1999 1998 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average:
Loans to deposits 95.6 % 94.9 % 94.7 %
Liquid assets to volatile funding 38.4 46.0 43.9
Core funding to total funding 88.2 88.8 88.2
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The corporation manages liquidity to meet client cash flow needs while
maintaining funds available for loan and investment opportunities. 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 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 June 30, 1999 and
1998 is illustrated in the table below.
At June 30, 1999, the Corporation's rate sensitive assets were below rate
sensitive liabilities within the one-year time frame by $501.5 million. At June
30, 1998, rate sensitive assets exceeded rate sensitive liabilities in the
one-year time frame by 104.0 million. As of both dates, the Corporation's
interest rate risk position was well balanced in the less than one-year time
frame suggesting that net interest income may not be significantly impacted by
changes in interest rates over the following 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
changes. 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.
22
<PAGE> 23
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY
TOTAL
1-30 31-90 91-80(1) 181-365 WITHIN 1-5 Over
(dollars in millions) Days Days Days Days 1 YEAR Years 5 Years Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JUNE 30, 1999
RATE SENSITIVE ASSETS(3)
Loans $1,105.7 $ 124.0 $ 167.8 $ 289.4 $1,686.9 $1,480.3 $487.2 $3,654.4
Investment securities 22.6 24.7 43.5 64.7 155.5 316.1 295.8 767.4
Short-term investments 9.9 -- -- -- 9.9 -- -- 9.9
-------- ------- ------- ------- -------- -------- ------ --------
Total $1,138.2 $ 148.7 $ 211.3 $ 354.1 $1,852.3 $1,796.4 $783.0 $4,431.7
======== ======= ======= ======= ======== ======== ====== ========
RATE SENSITIVE LIABILITIES
Deposits(2) $ 276.0 $ 353.0 $ 396.9 $ 745.8 $1,771.7 $1,125.8 $171.1 $3,068.6
Short-term borrowings 249.5 -- 200.0 -- 449.5 -- -- 449.5
Long-term debt 12.0 92.6 15.0 13.0 132.6 10.1 0.1 142.8
-------- ------- ------- ------- -------- -------- ------ --------
$ 537.5 $ 445.6 $ 611.9 $ 758.8 $2,353.8 $1,135.9 $171.2 $3,660.9
======== ======= ======= ======= ======== ======== ====== ========
Period GAP(1) $ 600.7 $(296.6) $(400.6) $(404.7) $(501.5) $ 660.5 $611.8 $ 770.8
Cumulative GAP 600.7 303.8 (96.8) (501.5) 159.0 770.8
Cumulative GAP to Total
Assets 12.63% 6.39% (2.03)% (10.54)% (10.54)% 3.34% 16.20% 16.20%
Multiple of Rate Sensitive
Assets to Liabilities 2.12 0.33 0.35 0.47 0.79 1.58 4.57 1.21
- -----------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1998
RATE SENSITIVE ASSETS(3)
Loans $1,091.0 $ 150.8 $ 182.6 $ 335.2 $1,759.6 $1,311.2 $425.7 $3,496.5
Investment securities 50.0 26.3 64.6 103.8 244.7 214.0 148.4 607.1
Short-term investments 2.8 -- -- -- 2.8 -- -- 2.8
-------- ------- ------- ------- -------- -------- ------ --------
Total $1,143.8 $ 177.1 $ 247.2 $ 439.0 $2,007.1 $1,525.2 $574.1 $4,106.4
======== ======= ======= ======= ======== ======== ====== ========
RATE SENSITIVE LIABILITIES
Deposits(2) $ 234.6 $ 336.6 $ 374.0 $ 695.9 $1,641.1 $1,221.7 $181.9 $3,044.7
Short-term borrowings 170.9 -- -- -- 170.9 -- -- 170.9
Long-term debt -- 13.0 15.0 63.1 91.1 39.4 0.1 130.6
-------- ------- ------- ------- -------- -------- ------ --------
Total $ 405.5 $ 349.6 $ 389.0 $ 759.0 $1,903.1 $1,261.1 $182.0 $3,346.2
======== ======= ======= ======= ======== ======== ====== ========
Period GAP(1) $ 738.3 $(172.5) $(141.8) $(320.0) $ 104.0 $ 264.1 $392.1 $ 760.2
Cumulative GAP 738.3 565.8 424.0 104.0 368.1 760.2
Cumulative GAP to Total
Assets 16.64% 12.76% 9.56% 2.34 % 2.34% 8.30% 17.14% 17.14%
Multiple of Rate Sensitive
Assets to Liabilities 2.82 0.51 0.64 0.58 1.05 1.21 3.15 1.23
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) GAP is the excess of rate sensitive assets (liabilities).
(2) Includes interest bearing savings and demand deposits of $461 million and
$444 million in 1999 and 1998, respectively, in the less than one year
category, and $936 million and $948 million, respectively in the over one
year category, based on historical trends for those noncontractual maturity
deposit types, which reflects industry standards.
(3) Incorporates prepayment projects for certain assets which may shorten the
time frame for repricing or maturity compared to contractual runoff.
23
<PAGE> 24
FORWARD-LOOKING STATEMENTS
The foregoing disclosure contains "forward-looking statements" within the
meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934,
both as amended, with respect to expectations for future periods. These
forward-looking statements involved are subject to risk and uncertainties that
could cause actual results to differ. These risks and uncertainties include
unanticipated changes in the competitive environment and relationships with
third party vendors and clients and certain other factors discussed in this
report. Management believes that the expectations used in the forward-looking
statements are reasonable, however, actual results may vary significantly.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information concerning quantitative and qualitative disclosures about
market risk contained and incorporated by reference in Item 7A of the
Corporation's 1998 Annual Report on Form 10-K, is here incorporated by
reference.
The Corporation faces market risk to the extent that both earnings and the fair
value of its financial instruments are affected by changes in interest rates.
The Corporation manages this risk with static GAP analysis simulation modeling.
Throughout the second quarter of 1999, the results of these measurement
techniques were within the Corporation's policy guidelines. The Corporation
does not believe that there has been a material change in the Corporation's
primary market risk exposure (i.e., the categories of market risk to which the
Corporation is exposed and the particular markets that present the primary risk
of loss to the Corporation). As of the date of this Quarterly Report on Form
10-Q, the Corporation does not know of or expect there to be any material
change in the general nature of its primary market risk exposure in the near
term.
The methods by which the Corporation manages its primary market risk exposure,
as described in the sections of its 1998 Annual Report on Form 10-K incorporated
by reference in response to this item, have not changed materially during the
current year. As of the date of this Quarterly Report on Form 10-Q, the
Corporation does not expect to change those methods in the near term. However,
the Corporation may change those methods in the future to adapt to changes in
circumstances or to implement new techniques. In this discussion, "near term"
means a period of one year following the date of most recent balance sheet
contained in this report.
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 - None
24
<PAGE> 25
ITEM 5. OTHER INFORMATION-None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K
During the three month period ended June 30, 1999, a report on Form 8-K was
filed under Item 5, Other Events. The report, dated and filed April 27,
1999, announced an agreement to acquire F&M Bancorporation.
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 August 16, 1999 By /s/ John W. Ennest
------------------------ ----------------------------
John W. Ennest
Vice Chairman of the Board, Treasurer
and Chief Financial Officer
(Principal Financial Officer)
(Duly Authorized Signatory)
25
<PAGE> 26
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-1-1999 APR-1-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 170,194 170,194
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 9,933 9,933
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 767,386 767,386
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 3,654,412 3,654,412
<ALLOWANCE> 46,551 46,551
<TOTAL-ASSETS> 4,757,992 4,757,992
<DEPOSITS> 3,701,893 3,701,893
<SHORT-TERM> 449,489 449,489
<LIABILITIES-OTHER> 52,737 52,737
<LONG-TERM> 142,814 142,814
0 0
0 0
<COMMON> 78,294 78,294
<OTHER-SE> 332,765 332,765
<TOTAL-LIABILITIES-AND-EQUITY> 4,757,992 4,757,992
<INTEREST-LOAN> 145,820 73,360
<INTEREST-INVEST> 19,092 9,472
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 164,912 82,832
<INTEREST-DEPOSIT> 59,043 28,861
<INTEREST-EXPENSE> 65,672 32,611
<INTEREST-INCOME-NET> 99,240 50,221
<LOAN-LOSSES> 7,700 4,100
<SECURITIES-GAINS> 164 89
<EXPENSE-OTHER> 86,505 45,672
<INCOME-PRETAX> 42,611 21,821
<INCOME-PRE-EXTRAORDINARY> 29,489 15,066
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 29,489 15,066
<EPS-BASIC> 1.06 0.54
<EPS-DILUTED> 1.05 0.54
<YIELD-ACTUAL> 4.86 4.90
<LOANS-NON> 16,320 16,320
<LOANS-PAST> 1,055 1,055
<LOANS-TROUBLED> 114 114
<LOANS-PROBLEM> 18,766 18,766
<ALLOWANCE-OPEN> 46,449 45,325
<CHARGE-OFFS> 9,978 4,226
<RECOVERIES> 2,380 1,352
<ALLOWANCE-CLOSE> 46,551 46,551
<ALLOWANCE-DOMESTIC> 34,275 34,275
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 12,276 12,276
</TABLE>
