-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EtZmhMNZRMf1gkVp0mys01+EZxdbVgFeNOkWpLvQ4nrMH6zwSgJUEXHKsPT2LLHg fK2OILqLp5fk/ZRGQ60YPw== 0000950124-96-001447.txt : 19960402 0000950124-96-001447.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950124-96-001447 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIZENS BANKING CORP CENTRAL INDEX KEY: 0000351077 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 382378932 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-10535 FILM NUMBER: 96542041 BUSINESS ADDRESS: STREET 1: ONE CITIZENS BANKING CTR CITY: FLINT STATE: MI ZIP: 48502 BUSINESS PHONE: 8102572500 MAIL ADDRESS: STREET 1: 1 CITIZENS BANKING CENTER CITY: FLINT STATE: MI ZIP: 48502 10-K405 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1995 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] 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, 328 S. Saginaw Street, Flint, Michigan 48502 - ---------------------------------------- ---------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (810) 766-7500 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock - No Par Value - -------------------------------------------------------------------------------- (Title of class) 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 ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $414,453,000 as of March 18, 1996. The number of shares outstanding of the registrant's Common Stock (No par value) was 14,363,835 as of March 18, 1996. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Citizens Banking Corporation Proxy Statement for its annual meeting of shareholders to be held April 16, 1996 are incorporated by reference into Part III. (Exhibit Index - Pages 13 through 14) Page 1 of 115 2 CITIZENS BANKING CORPORATION 1995 Annual Report on Form 10-K TABLE OF CONTENTS
Page ---- PART I Item 1. Business ........................................................... 3 Item 2. Properties ......................................................... 7 Item 3. Legal Proceedings .................................................. 7 Item 4. Submission of Matters To a Vote of Security Holders ................ 7 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ................................... 8 Item 6. Selected Financial Data ............................................ 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................................... 8 Item 8. Financial Statements and Supplementary Data ........................ 8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................................... 8 PART III Item 10. Directors and Executive Officers of Registrant .................... 9 Item 11. Executive Compensation ............................................. 9 Item 12. Security Ownership of Certain Beneficial Owners and Management ..... 9 Item 13. Certain Relationships and Related Transactions ..................... 9 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ... 10 SIGNATURES .................................................................... 11 EXHIBIT INDEX ................................................................. 13
2 3 PART I - ------------------------------------------------------------------------------- ITEM 1. BUSINESS. General Citizens Banking Corporation ("Corporation") was organized January 1, 1982. It is a multibank holding company registered under the Bank Holding Company Act of 1956, as amended, and is incorporated in the State of Michigan. On December 31, 1995, the Corporation directly or indirectly owned seven banking subsidiaries and one nonbanking subsidiary and had 1907 full-time equivalent employees. Additional information related to the subsidiaries at year-end 1995 is provided below.
Total Principal Number Assets Date Subsidiary Office of Offices (in millions) Acquired - ------------------------------------------------------------------------------------------------------------ Citizens Commercial & Savings Bank Flint, MI 50 $2,055.7(1) 01/01/1982 Grayling State Bank Grayling, MI 3 82.7 07/02/1984 State Bank of Standish Standish, MI 5 109.4 12/31/1984 Second National Bank of Saginaw Saginaw, MI 18 709.5 12/18/1985 Second National Bank of Bay City Bay City, MI 7 166.0 12/18/1985 Commercial National Bank of Berwyn Berwyn, IL 3 244.1 05/01/1987 National Bank of Royal Oak Royal Oak, MI 6 175.0 10/01/1993
(1) Consolidated totals of Citizens Commercial & Savings Bank ("CCSB" and its wholly owned nonbank subsidiary, Citizens Commercial Leasing Corporation ("CCLC")). Ownership of CCLC was transferred to CCSB from the Corporation on January 31, 1991. The Corporation's subsidiary banks are full service commercial banks offering a variety of financial services to corporate, commercial, correspondent and individual bank customers. These services include commercial, mortgage and consumer lending, demand and time deposits, trust services, investment services, safe deposit facilities, and other financial products and services. The bank subsidiaries are wholly owned by the Corporation and operate through 92 banking offices. The offices are located along the Interstate 75 corridor within the State of Michigan from northern and western suburban Detroit to the greater Grayling/Gaylord areas. Expansion through the acquisition of the four Michigan affiliates of Banc One Corporation purchased at the close of business on February 28, 1995 established a new market presence in the central and southwest Michigan areas. The transaction was accounted for as a purchase and the four banks ("acquired banks") were merged into Citizens Commercial & Savings Bank headquartered in Flint, Michigan effective immediately after the acquisition. Total assets acquired of $670 million included net loans of $532 million and investment securities and money market investments of $57 million. The three banking offices in Illinois are located in the suburban market of Chicago. Citizens Commercial Leasing Corporation, a wholly owned nonbank subsidiary of Citizens Commercial & Savings Bank, engages in direct lease financing of office, medical and other equipment, and participates in high quality indirect lease participations. CCLC's office is located in the main office building of Citizens Commercial & Savings Bank. 3 4 Competition The financial services industry is highly competitive. The banking subsidiaries compete with other commercial banks, many of which are subsidiaries of other bank holding companies, for loans, deposits, trust accounts and other business on the basis of interest rates, fees, convenience and quality of service. They also actively compete with a variety of other financial services organizations including savings and loan associations, finance companies, mortgage banking companies, brokerage firms, credit unions and other organizations. The nonbank subsidiary competes directly with other leasing companies. Loans comprise 70.2% of the Corporation's average assets and are made in the normal course of business to individuals, partnerships, municipalities and corporations. Credit is extended to customers within the commercial, commercial mortgage, real estate construction, real estate mortgage, consumer installment and lease financing categories. Consumer installment loans are primarily composed of automobile, personal, marine, home equity and bankcard loans and represent 39.1% of the 1995 average loan portfolio. Consumer installment loans originated follow strict Corporate credit screening procedures. Real estate mortgage loan extensions are primarily first liens on one to four family structures and unless insured by a private mortgage insurance company typically have traditional loan to appraisal ratios of 80%. Commercial and commercial mortgage loan originations generally do not rely on the performance of the real estate market to generate funds for repayment and do not represent a concentration in any one industry or company. Additional information on the composition of the loan portfolio and the related nonperforming assets is incorporated herein by reference from Exhibit 13 of this document on pages 66 to 70 under the captions "Loans and Leases" and "Nonperforming Assets". Mergers between and the expansion of financial institutions both within and outside of our primary markets of Michigan and Illinois have provided significant competitive pressure in those markets. In addition, the passage of federal interstate banking legislation has expanded the banking market and heightened competitive forces. In October 1995, the Corporation announced the consolidation of its six Michigan chartered banks into one bank called Citizens Bank. The consolidation, expected to occur in June 1996, will further streamline operations and reduce certain costs but will retain local management and respective boards of directors. Also in 1995, the Corporation announced its Process Improvement Project, a series of productivity initiatives designed to incorporate the use of "best practices" throughout the Corporation. The Corporation expects to achieve financial benefits as a result of these initiatives. Other factors such as employee relations and environmental laws also impact the Corporation's competitiveness. Presently, none of the Corporation's employees are covered by collective bargaining agreements and the Corporation's maintains a favorable relationship with it's employees. The impact of environmental laws is further discussed in "Item 3. Legal Proceedings" of this document. Supervision and Regulation Citizens Banking Corporation is subject to supervision and regulation by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the "Act"). The Act requires the Corporation to obtain the prior approval of the Board of Governors of the Federal Reserve System for bank acquisitions, limits the acquisition of shares of out-of-state banking organizations unless permitted by state law and prescribes limitations on the nonbanking activities of the Corporation. As a bank holding company, the Corporation and its subsidiaries are able only to conduct the business of banking and activities so closely related to banking or managing 4 5 or controlling banks as to be a proper incident thereto. The Corporation's subsidiary banks are subject to various regulatory authorities. Three of the banks are chartered by the State of Michigan and are subject to supervision, regulation and examination by the Financial Institutions Bureau of the State of Michigan. The other four banks are chartered under federal law and are subject to supervision, regulation and examination by the Comptroller of the Currency. All seven banks are subject to supervision and examination by the Federal Deposit Insurance Corporation ("FDIC"), as their deposits are insured by the FDIC to the extent provided by the law. All but one bank are members of the Federal Reserve System. The Corporation's nonbank company is supervised and examined by the Federal Reserve System. Certain regulatory matters concerning capital adequacy guidelines for the Corporation and its banking subsidiaries, limitations on the payment of dividends to the Corporation by its banking subsidiaries and maintenance of minimum average reserve balances by the banking subsidiaries with the Federal Reserve Bank are incorporated herein by reference from Exhibit 13 of this document on pages 71 and 90 under the captions, "Liquidity and Debt Capacity" and "Note 16. Regulatory Matters". As previously discussed, the Corporation announced the consolidation of its six Michigan chartered banks into one bank called Citizens Bank. The consolidation will further streamline operations and reduce certain costs but will retain local management and respective boards of directors. The consolidation is subject to regulatory approval and is expected to be completed in June 1996. This consolidation will likely result in maintaining additional non-interest bearing deposits with the Federal Reserve Bank and may favorably impact the ability of the surviving entity to pay dividends to the Parent company without regulatory approval. The surviving bank charter in Michigan "Citizens Bank" will be a state chartered member of the Federal Reserve System. The 1994 passage of the federal Riegle-Neal Interstate Banking and Branching Efficiency Act allows states the ability to enact legislation permitting interstate branching but have no choice in opting out of provisions related to interstate banking. The effect of the interstate banking provisions do not impact Michigan or neighboring states since these states have previously passed legislation allowing bank holding companies to own bank affiliates in multiple states. On November 29, 1995 the Michigan legislature passed Public Act 202 permitting interstate branching. This law allows a bank the ability to establish branches outside of the State of Michigan provided that state adopts similar legislation. However, since Citizens is headquartered in Michigan and currently has only one subsidiary outside of the state this does not significantly affect the Corporation. The Corporation may be impacted as states adjacent to Michigan pass similar legislation. The impact of this is not expected to significantly affect the Corporation's strategic plan, except to allow potentially greater consolidation benefits if the Corporation acquires banks outside of Michigan. On December 29, 1994 the State of Michigan amended the State's Banking Code of 1969 to allow banks to engage in the insurance business and to own an insurance agency. Although the National Bank Holding Company Act prohibits the holding company from direct ownership of an insurance agency, banks within the holding company may now do so. In the first quarter of 1996, the Corporation's lead bank Citizens Commercial & Savings Bank established a "de novo" insurance agency, Lakeshore Insurance. Through this subsidiary, the Corporation will sell life insurance and annuity products to customers subject to certain restrictions. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") adopted in August 1989 has significantly affected financial institutions. Key provisions of 5 6 FIRREA provide for the acquisition of thrift institutions by bank holding companies (previously only failing thrifts were permitted to be acquired), increase deposit insurance assessments for insured banks, redefine applicable capital standards for banks and thrifts, broaden the enforcement power of federal bank regulatory agencies, and require that any FDIC-insured depository institution be held liable for any loss incurred by the FDIC in connection with the default of any commonly controlled FDIC-insured depository institution or any assistance provided by the FDIC to any such institution in danger of default. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), signed into law on December 19, 1991, imposes on banks relatively detailed standards and mandates the development of additional regulations governing nearly every aspect of the operations and management of banks, in addition to many aspects of bank holding companies. Some of the major provisions contained in FDICIA includes recapitalization of the Bank Insurance Fund ("BIF"), a risk-based insurance premium assessment system, a capital-based supervision system that links supervisory intervention to the deterioration of a bank's capital level, new auditing and accounting and examination requirements, and mandated standards for bank lending and operation. FDICIA provides the FDIC with the authority to impose assessments on insured BIF member depository institutions to maintain the fund at the designated reserve ratio defined in FDICIA. In response to the BIF obtaining the designed reserve ratio, 1995 FDIC assessments were reduced from 23 cents to 4 cents per $100 of deposits for banks meeting the requirements of supervisory risk subgroup 1.A. "well capitalized". All seven of the Corporation's subsidiaries have sufficient captial to maintain a "well capitalized" designation, (the FDIC's highest rating). On December 11, 1995, the FDIC amended the assessment rate schedule to reduce assessments on deposits for banks within supervisory risk subgroup 1.A. "well capitalized" to zero effective for the first semiannual assessment schedule in 1996. Further regulatory changes could impact the amount and type of assessments paid by the Corporation's subsidiary banks. Monetary Policy The monetary and fiscal policies of regulatory authorities, including the Federal Reserve System, strongly influence the banking industry. Through open market securities transactions, variations in the discount rate and the establishment of reserve requirements, the Board of Governors of the Federal Reserve System exerts considerable influence on interest rates and the supply of money and credit. The effect of these measures on future business and earnings of the Corporation cannot be predicted. Environmental Matters The Corporation's primary exposure to environmental risk is through its provision of trust services and its lending activities. In each instance, the Corporation has policies and procedures in place to mitigate its environmental risk exposures to the fullest extent possible. With respect to lending activities, environmental site assessments at the time of loan origination are mandated by the Corporation to confirm collateral quality as to commercial real estate parcels posing higher than normal potential for environmental impact, as determined by reference to present and past uses of the subject property and adjacent sites. Environmental assessments are also mandated prior to any foreclosure activity involving non-residential real estate collateral. In the case of trust services, the Corporation utilizes various types of environmental transaction screening to identify actual and potential risks arising from any proposed holding of non-residential real estate for trust 6 7 accounts. Consequently the Corporation does not anticipate any material effect on capital expenditures, earnings or the competitive position of itself or any of its subsidiaries with regard to compliance with federal, state or local environmental protection laws or regulations. Additional information is provided in the "Item 3. Legal Proceedings" section of this document. ITEM 2. PROPERTIES The Corporation's offices are located at One Citizens Banking Center, 328 South Saginaw Street, Flint, Michigan in the main office building of Citizens Commercial & Savings Bank, its largest bank subsidiary. The Corporation's subsidiaries operate through 92 banking offices. Of these, 22 are leased, three are owned by the banks involved but on leased land, and the remaining are owned. Rent expense on the leased properties, net of sublease payments of $55,000, totaled $917,000 in 1995. The banking offices are located in various communities throughout the State of Michigan and in the Chicago suburbs of Berwyn, Cicero and Elk Grove, Illinois. Some portions of the main office buildings of Citizens Commercial & Savings Bank and Second National Bank of Saginaw are leased to tenants. Additional information related to the property and equipment owned or leased by the Corporation and its subsidiaries is incorporated herein by reference from Exhibit 13 on page 83 under the caption "Note 6. Premises and Equipment" of this document. ITEM 3. LEGAL PROCEEDINGS. From time to time, certain of the Corporation's subsidiaries are notified by applicable environmental regulatory agencies, pursuant to State or Federal environmental statutes or regulations, that they may be potentially responsible parties ("PRPs") for environmental contamination on or emanating from properties currently or formerly owned. Typically, exact costs of remediating the contamination cannot be fully determined at the time of initial notification. While, as PRPs, these subsidiaries are potentially liable for the costs of remediation, in most cases, there are a number of other PRPs identified as being jointly and severally liable for remediation costs. Additionally, in certain cases, statutory defenses to liability for remediation costs may be asserted based on the subsidiaries' status as lending institutions that acquired ownership of the contaminated property through foreclosure. The Corporation's management is not presently aware of any environmental liabilities which pose a reasonable possibility of future material impact on the Corporation or its earnings. It is the Corporation's policy to establish and accrue appropriate reserves for all such identified exposures during the accounting period in which a loss is deemed to be probable and the amount is determinable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted during the fourth quarter of 1995 to a vote of security holders through the solicitation of proxies or otherwise. 7 8 PART II - -------------------------------------------------------------------------------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER'S MATTERS. The information required by this item is incorporated herein by reference from Exhibit 13 on page 73 under the caption "Table 13. Selected Quarterly Information" of this document. The approximate number of shareholders of the Registrant's common stock is 6,700 as of December 31, 1995. This number includes an estimate for individual participants in the security positions of certain shareholders of record. Restrictions on the Registrant's ability to pay dividends is incorporated herein by reference from Exhibit 13 on page 90 under the caption "Note 16. Regulatory Matters" of this document. ITEM 6. SELECTED FINANCIAL DATA. The information required by this item is incorporated herein by reference from Exhibit 13 on page 57 under the caption "Table 1. Selected Financial Data" of this document. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's Discussion and Analysis of Financial Condition and Results of Operations required by this item is incorporated herein by reference from Exhibit 13 on pages 57 through 74 of this document. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Financial Statements are incorporated herein by reference from Exhibit 13 on pages 75 through 93 of this document. Supplementary data of the Corporation's quarterly results of operations required by this item are incorporated herein by reference from Exhibit 13 on page 73 of this document under the caption "Table 13. Selected Quarterly Information". ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 8 9 PART III - -------------------------------------------------------------------------------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item appears in the Corporation's proxy statement for its annual meeting of shareholders to be held April 16, 1996 ("1995 Proxy Statement"), and is incorporated herein by reference as follows: Regulation S-K Item 401 disclosures: Appear under the captions "Election of Directors" and "Executive Officers" on pages 4 through 7 and on pages 10 through 13, respectively, of the 1995 Proxy Statement. Regulation S-K Item 405 disclosure: Appears under the caption "Securities Transactions Reporting" on page 23 of the 1995 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item appears under the caption "Compensation of Directors," on page 9 and under the captions "Executive Compensation", "Compensation and Benefits Committee Report on Executive Compensation", "Shareholder Return", and "Compensation Committee Interlocks and Certain Transactions and Relationships" on pages 14 through 23 of the Corporation's 1995 Proxy Statement, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item appears under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" on page 2 and on pages 3 and 4, respectively, of the Corporation's 1995 Proxy Statement, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item appears under the caption "Compensation Committee Interlocks and Certain Transactions and Relationships" on page 23 of the Corporation's 1995 Proxy Statement, and is incorporated herein by reference. 9 10 PART IV - -------------------------------------------------------------------------------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements: The following consolidated financial statements of the Corporation and Report of Ernst & Young LLP, Independent Auditors are incorporated by reference under Item 8 "Financial Statements and Supplementary Data" of this document: Consolidated Balance Sheet Consolidated Statements of Income Consolidated Statements of Changes in Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors 2. Financial Statement Schedules: All schedules are omitted -- see Item 14(d) below. 3. Exhibits: The exhibits listed on the "Exhibit Index" on pages 13 through 14 of this report are filed herewith and are incorporated herein by reference. (b) Reports on Form 8-K No reports of Form 8-K were filed for the quarter ended December 31, 1995. (c) Exhibits: The "Exhibit Index" is filed herewith on pages 13 through 14 of this report and is incorporated herein by reference. (d) Financial Statement Schedules: All financial statement schedules normally required by Article 9 of Regulation S-X are omitted since they are either not applicable or the required information is shown in the consolidated financial statements or notes thereto. 10 11 Signatures - -------------------------------------------------------------------------------- Pursuant to the requirements of Section 13 or 15(d) 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 (Registrant) by /s/Charles R. Weeks Date: March 25, 1996 Charles R. Weeks Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date - ---------------------- ------------------------------- --------------- /s/Charles R. Weeks Chairman of the Board, March 25, 1996 - --------------------------- Chief Executive Officer and Charles R. Weeks Director /s/Robert J. Vitito President, Chief Administrative March 25, 1996 - --------------------------- Officer and Director Robert J. Vitito /s/John W. Ennest Vice Chairman of the Board, March 25, 1996 - --------------------------- Chief Financial Officer, John W. Ennest Treasurer and Director /s/Edward P. Abbott Director March 25, 1996 - --------------------------- Edward P. Abbott /s/Hugo E. Braun, Jr. Director March 25, 1996 - --------------------------- Hugo E. Braun, Jr. /s/Jonathan E. Burroughs II Director March 25, 1996 - --------------------------- Jonathan E. Burroughs II 11 12 Signature Capacity Date - -------------------------- --------------------- -------------- /s/Joseph P. Day Director March 25, 1996 - --------------------------- Joseph P. Day /s/Lawrence O. Erickson Director March 25, 1996 - --------------------------- Lawrence O. Erickson /s/Victor E. George Director March 25, 1996 - --------------------------- Victor E. George /s/William J. Hank Director March 25, 1996 - --------------------------- William J. Hank /s/George H. Kossaras Director March 25, 1996 - --------------------------- George H. Kossaras /s/Patricia L. Learman Director March 25, 1996 - --------------------------- Patricia L. Learman /s/William F. Nelson, Jr. Director March 25, 1996 - --------------------------- William F. Nelson, Jr. /s/Paul A. Rowley Director March 25, 1996 - --------------------------- Paul A. Rowley /s/William C. Shedd Director March 25, 1996 - --------------------------- William C. Shedd /s/David A. Thomas, Jr. Vice Chairman of the Board March 25, 1996 - --------------------------- and Director David A. Thomas, Jr. /s/James E. Truesdell, Jr. Director March 25, 1996 - --------------------------- James E. Truesdell, Jr. /s/Kendall B. Williams Director March 25, 1996 - --------------------------- Kendall B. Williams 12 13 CITIZENS BANKING CORPORATION 1995 Annual Report on Form 10-K EXHIBIT INDEX (FILED AS PART OF THIS REPORT ON FORM 10-K)
Exhibit Form 10-K No. Exhibit Page No. ------- -------------------------------------------------------------- --------- 3(a) Restated Articles of Incorporation, as amended. 15-53 3(b) Amended and Restated Bylaws. (incorporated by reference from Exhibit 3(d) of the Corporation's 1994 Annual Report on Form 10-K, file number 0-10535). N/A 4 Rights Agreement, dated July 20, 1990, between the Corporation and Citizens Commercial & Savings Bank, as Rights Agent (incorporated by reference from Exhibit 4(a) of the Corporation's Report on Form 8-K filed July 26, 1990, file number 0-10535). N/A 10(a) Citizens Banking Corporation Stock Option Plan and Citizens Banking Corporation First Amended Stock Option Plan (incorporated by reference from Exhibit 4(a) of the Corporation's registration statement on Form S-8 filed November 26, 1986 as amended April 21, 1987--Registration No. 33-10007). N/A 10(b) Citizens Banking Corporation Amended and Restated Section 401(k) Plan. (incorporated by reference from Exhibit 4a of the Corporation's registration statement on Form S-8 filed April 26, 1989--Registration No. 33-28354). N/A 10(c) Citizens Banking Corporation Second Amended Stock Option Plan. (incorporated by reference from Exhibit 4 of the Corporation's registration statement on Form S-8 filed May 5, 1992-- Registration No. 33-47686). N/A 10(d) Composite form of "Performance Partnership Program Grant Agreement" executed between the Corporation and certain executive officers of the Corporation pursuant to the Corporation's Second Amended Stock Option Plan (incorporated by reference from Exhibit 10(d) of the Corporation's 1992 Annual Report on Form 10-K, file number 0-10535). N/A 10(e) Composite form of "Stock Option Agreement" executed between the Corporation and certain executive officers of the Corporation pursuant to the Corporation's Second Amended Stock Option Plan (incorporated by reference from Exhibit 10(e) of the Corporation's 1992 Annual Report on Form 10-K, file number 0-10535). N/A 10(f) Grant Agreement For Charles R. Weeks executed between the Corporation and Charles R. Weeks pursuant to the Corporation's Second Amended Stock Option Plan (incorporated by reference from Exhibit 10(f) of the Corporation's 1992 Annual Report on Form 10-K, file number 0-10535). N/A
13 14
Exhibit EXHIBIT INDEX (continued) Form 10-K No. Exhibit Page No. ------- -------------------------------------------------------------- --------- 10(g) Citizens Banking Corporation Management Incentive Compensation Program (incorporated by reference from pages 19 and 20 of the Corporation's Proxy Statement for its 1995 Annual Meeting of Shareholders under the caption "Management Incentive Plan" file number 0-10535). N/A 10(h) Citizens Banking Corporation Amended and Restated Director's Deferred Compensation Plan. (incorporated by reference from Exhibit 10(h) of the Corporation's 1994 Annual Report on Form 10-K, file number 0-10535). N/A 10(i) Deferred Compensation Agreement for Charles R. Weeks, as amended, and related Citizens Banking Corporation Deferred Benefits Trust Agreement. (incorporated by reference from Exhibit 10(d) of the Corporation's 1989 Annual Report on Form 10-K, file number 0-10535). N/A 10(j) Citizens Banking Corporation Supplemental Retirement Benefits Plan for Charles R. Weeks, as amended. (incorporated by reference from Exhibit 10(e) of the Corporation's 1989 Annual Report on Form 10-K, file number 0-10535). N/A 10(k) Citizens Commercial & Savings Bank Supplemental Retirement Benefits Plan for David A. Thomas Jr. (incorporated by reference from Exhibit 10(f) of the Corporation's 1990 Annual Report on Form 10-K, file number 0-10535). N/A 10(l) Citizens Banking Corporation Stock Option Plan for Directors (incorporated by reference from Exhibit 99 of the Corporation's registration statement on Form S-8 filed July 21, 1995--Registration No. 33-61197). N/A 11 Computation of Per Share Earnings 54 13 Citizens Banking Corporation 1995 Annual Report (except as to portions expressly incorporated herein, said Annual Report is included only for information) 55-93 21 Subsidiaries of the Corporation 94 23 Consents of Independent Accountants 95 27 Financial Data Schedule 96 99 1995 Annual Report on Form 11-K for the Citizens Banking Corporation Amended and Restated Section 401(k) Plan 97-115
N/A - not applicable, exhibit incorporated by reference. All other Exhibits required to be filed with this Form are not applicable and have therefore been omitted. 14 EX-3.A 2 EXHIBIT 3(A) 1 FORM 10K Exhibit 3(a) RESTATED ARTICLES OF INCORPORATION OF CITIZENS BANKING CORPORATION The present name of the Corporation is Citizens Banking Corporation. The original Articles of Incorporation of the Corporation were filed on November 10, 1980. These Restated Articles of Incorporation were duly adopted by the Shareholders on April 19, 1988 in accordance with Section 642 of the Business Corporation Act of Michigan. ARTICLE I The name of the Corporation is CITIZENS BANKING CORPORATION. ARTICLE II The purpose or purposes for which the Corporation is organized is to engage in any activity within the purposes for which a Corporation may be organized under the Business Corporation Act of Michigan, and specifically, but not in limitation of the foregoing, to be a bank holding company under the Bank Holding Company Act of 1956, as amended, and to engage in, or acquire an interest in other companies which engage in, activities closely related to banking as such activities are defined by the Board of Governors of the Federal Reserve System. ARTICLE III The total authorized capital stock is: Common shares 12,000,000 Par Value $10.00 per share Preferred shares 3,000,000 No Par Value 15 2 ARTICLE IV (A) A statement of all or any of the relative rights, preferences and limitations of the common shares is as follows: (1) Any distribution of profits of the Corporation voted by the directors as dividends payable in cash, or in shares of the Corporation, or in other securities of the Corporation or in other securities, shall be distributed to the shareholders in proportion to their ownership of the shares of the Corporation. (2) Each shareholder shall have one vote per share in elections of directors and on any other matters properly coming up at shareholders' meetings for action by shareholders. (3) Voting in elections of directors shall not be cumulative. (4) Shareholders shall not have preemptive rights to subscribe for or purchase any authorized but unissued shares of the Corporation or any other securities or rights to be issued by the Corporation. (5) In the event of liquidation of the assets of the Corporation after payment of all of its debts, the remainder of such assets shall be distributed to the shareholders in proportion to their ownership of the shares of the Corporation. (B) The relative rights, preferences and limitations of the preferred shares shall be determined as follows: The board of directors is empowered to determine the stated value per share thereof and to divide and redivide said preferred shares into classes and series and to designate and redesignate the rights, preferences and limitations of each class or series. ARTICLE V The address of the initial registered office is: Number One Citizens Banking Center Flint, Michigan 48502 The name of the initial resident agent at the registered office is: R. Thomas Carley 16 3 ARTICLE VI The business and affairs of the Corporation shall be managed by or under the direction of a board of directors consisting of not less than ten nor more than twenty-five directors, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the board of directors elected and serving. The directors shall be divided into three classes, designated Class I, Class II, and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire board of directors. At the 1986 annual meeting of shareholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of shareholders beginning in 1987, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the board of directors that results from an increase in the number of directors may be filled by a majority of the board of directors elected and serving, and any other vacancy occurring in the board of directors may be filled by a majority of the directors elected and serving, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preferred stock issued by the corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of these articles of incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this article VI unless expressly provided by such terms. Any amendment, change or repeal of this article VI or any other amendment or change of this article of incorporation which will have the effect of modifying or permitting circumvention of this article VI, shall require the favorable vote, at a meeting of the shareholders of the Corporation, of the holders of at least two thirds of the then outstanding shares of capital stock of the Corporation entitled to vote; provided, however, that such two thirds vote shall not be required for any such amendment, change or repeal recommended to shareholders by the affirmative vote of not less than three-fourths of the board of directors then in office, and such amendment, change, or repeal so recommended shall require only the vote, if any, required under the applicable provision of the Business Corporation Act of Michigan. 17 4 ARTICLE VII The directors shall have the power to make, alter, amend, change, add to or repeal the bylaws of the Corporation not inconsistent with the provisions of these articles of incorporation. The affirmative vote of the holders of not less than two thirds of the outstanding shares of capital stock of the Corporation entitled to vote shall be required for the approval and adoption of any amendment, alteration, change, addition to or repeal of article II, section 3; article III, section 11 and article III section 12 of the bylaws of the Corporation proposed by any shareholder of the Corporation. Any amendment, change or repeal of this article VII, or any other amendment of these articles of incorporation which will have the effect of modifying or permitting circumvention of this article VII, shall require the favorable vote, at a meeting of the shareholders of the Corporation, of the holders of at least two thirds of the then outstanding shares of capital stock of the Corporation entitled to vote; provided, however, that such two thirds vote shall not be required for any such amendment, change or repeal recommended to shareholders by the affirmative vote of not less than three-fourths of the board of directors, and such amendment, change, or repeal so recommended shall require only the vote, if any, required under the applicable provision of the Business Corporation Act of Michigan. ARTICLE VIII Any action required or permitted to be taken at any annual or special meeting of shareholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of not less than two thirds of the outstanding shares of capital stock of the Corporation entitled to vote. Any amendment, change or repeal of this article VIII, or any other amendment of these articles of incorporation which will have the effect of modifying or permitting circumvention of this article VIII, shall require the favorable vote, at a meeting of the shareholders of the Corporation, of the holders of at least two thirds of the then outstanding shares of capital stock of the Corporation entitled to vote; provided, however, that such two thirds vote shall not be required for, any such amendment, change or repeal recommended to shareholders by the affirmative vote of not less than three-fourths of the board of directors elected and serving, and such amendment, change, or repeal so recommended shall require only the vote, if any, required under the applicable provision of the Business Corporation Act of Michigan. 18 5 ARTICLE IX The affirmative vote of (a) the holders of not less than two thirds of the outstanding shares of capital stock of the corporation entitled to vote and (b) the holders of not less than a majority of the outstanding shares of capital stock of the corporation entitled to vote excluding for purposes of determining the affirmative vote required by this clause (b) all such shares of which a "Related Person" (as hereinafter defined) shall be a "Beneficial Owner" (as hereinafter defined), shall be required for the approval or authorization of any "Business Combination" (as hereinafter defined) involving a Related Person; provided, however, that the foregoing voting requirements set forth in clauses (a) and (b) above shall not be applicable, and the provisions of Michigan law relating to the percentage of shareholder approval, if any, shall apply to any such Business Combination if: A. The "Continuing Directors" of the corporation (as hereinafter defined) by a three-fourths vote thereof have expressly approved the Business Combination either in advance of or subsequent to the acquisition of outstanding shares of capital stock of the Corporation that caused the Related Person to become a Related Person; or B. If each of the following conditions are satisfied: 1. The aggregate amount of the cash and the fair market value of the property, securities or other consideration to be received per share of any class or series of capital stock of the corporation in the Business Combination by holders of such capital stock of the corporation, other than the Related Person involved in the Business Combination, is not less than the "Highest Per Share Price" or the "Highest Equivalent Price" (as these terms are hereinafter defined), paid or to be paid by the Related Person in acquiring any of such class or series of the capital stock of the corporation outside of such Business Combination; and 2. A proxy statement complying with the requirements of the Securities Exchange Act of 1934, as amended, shall have been mailed to all shareholders of the Corporation for the purpose of soliciting shareholder approval of the Business Combination. The proxy statement shall contain at the front thereof, in a prominent place, the position of the Continuing Directors as to the advisability (or inadvisability) of the Business Combination and, if deemed advisable by a majority of the Continuing Directors, the opinion of an investment banking firm selected by the Continuing Directors as to the fairness of the terms of the Business Combination, from the point of view of the holders of the outstanding shares of capital stock of the corporation other than any Related Person. 19 6 For purposes of this Article IX: 1. The term "Business Combination" means (i) any merger, consolidation or share exchange of the corporation or any of its subsidiaries into or with any member of any Related Person, in each case irrespective of which corporation or company is the surviving entity; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with any member of any Related Person (in a single transaction or a series of related transactions) of all or a Substantial Part (as hereinafter defined) of the assets of the Corporation (including without limitation any securities of a subsidiary) or a Substantial Part of the assets of any of its subsidiaries; (iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the corporation or to or with any of its subsidiaries (in a single transaction or series of related transactions) of all or a Substantial Part of the assets of any member of any Related Person; (iv) the issuance or transfer of any securities of the Corporation or any of its subsidiaries by the corporation or any of its subsidiaries to any member of any Related Person (other than an issuance or transfer of securities which is effected on a pro rata basis to all shareholders of the Corporation); (v) the acquisition by the Corporation or any of its subsidiaries of any securities of any member of any Related Person; and (vi) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination. 2. The term "Related Person" shall mean any individual, corporation, partnership or other person or entity, including any member of a "group" (as defined in section 13(d)(3)) of the Securities Exchange Act of 1934 as in effect at the date of the adoption of this article by the shareholders of the corporation; such act and such rules and regulations promulgated thereunder, collectively and as so in effect, being hereinafter referred to as the "Exchange Act"), and any "Affiliate" or "Associate" (as defined in Rule 12b-2 of the Exchange Act) of any such individual, corporation, partnership or other person or entity which, as of the record date for the determination of shareholders entitled to notice of and to vote on any Business Combination, or immediately prior to the consummation of such transaction, together with their Affiliates and Associates, are "Beneficial Owners" (as defined in Rule 13d-3 of the Exchange Act) in the aggregate of ten percent or more of the outstanding shares of any class or series of capital stock of the Corporation. 3. The term "Substantial Part" shall mean more than 10% of the fair market value, as determined by three-fourths of the Continuing Directors, of the total consolidated assets of the corporation and its subsidiaries taken as a whole, as of the end of its most recent fiscal year ending prior to the time the determination is being made. 20 7 4. For the purposes of subparagraph B. 1. of paragraph one of this article IX, the term "other consideration to be received" shall include, without limitation, common stock or other capital stock of the Corporation retained by shareholders of the Corporation other than Related Persons or parties to such Business Combination in the event of a Business Combination in which the corporation is the surviving corporation. 5. The term "Continuing Directors" shall mean a director who either (i) was a member of the board of directors of the Corporation immediately prior to the time that the Related Person involved in a Business Combination became a Related Person, or (ii) has been designated (before his or her initial election as director) as a Continuing Director by a majority of the then Continuing Directors. 6. A "Related Person" shall be deemed to have acquired a share of the capital stock of the Corporation at the time when such Related Person became a Beneficial Owner thereof. With respect to the shares owned by Affiliates, Associates or other persons whose ownership is aggregated with that of a Related Person under the foregoing definition of Related Person, if the price paid by such Related Person for such shares is not determinable by the Continuing Directors, such price shall be deemed to be the higher of (a) the price paid upon the acquisition thereof by the Affiliate, Associate, or other person or (b) the market price of the shares in question at the time when the Related Person became a Beneficial Owner thereof. 7. The terms "Highest Per Share Price" and "Highest Equivalent Price" as used in this article IX shall mean the following: If there is only one class of capital stock of the Corporation issued and outstanding, the Highest Per Share Price shall mean the highest price that can be determined to have been paid or to have been agreed to be paid, by the Related Person for any share or shares of that class of capital stock within the two year period immediately prior to the announcement date of the proposed Business Combination or in the transaction in which the shareholder became a Related Person, whichever is higher. If there is more than one class of capital stock of the Corporation issued and outstanding, the Highest Equivalent Price shall mean with respect to each class and series of capital stock of the Corporation, the amount determined by three-fourths of the Continuing Directors, on whatever basis they believe is appropriate, to be the highest per share price equivalent for each such class or series to have been paid or to have been agreed to be paid by the Related Person within the two year period immediately prior to the announcement date of the proposed Business Combination or in the transaction in which the shareholder became a Related Person, whichever is higher. The Highest Per Share Price and the Highest Equivalent Price shall also include any brokerage commissions, transfer taxes and soliciting dealers' fees paid by the Related Person with respect to the shares of capital stock of the corporation acquired by the Related Person. 21 8 The board of directors of the Corporation shall have the power and duty to determine for the purposes of this article IX on the basis of information then known to it, (i) whether any person is an Affiliate or Associate of another person, (ii) whether any proposed sale, lease, exchange or other disposition of part of the properties or assets of the Corporation involves a Substantial Part of the properties or assets of the Corporation, and (iii) the value of the Highest Per Share Price and Highest Equivalent Price. Any such reasonable determination by the board of directors shall be conclusive and binding for all purposes of this article IX. Any amendment, change or repeal of this article IX, or any other amendment of this Restated Certificate of Incorporation which will have the effect of modifying or permitting circumvention of this article IX, shall require the favorable vote, at a meeting of the shareholders of the Corporation, of (a) the holders of at least two thirds of the then outstanding shares of capital stock of the Corporation entitled to vote and (b) a majority of the outstanding shares of capital stock of the corporation entitled to vote of which a Related Person is not a Beneficial Owner; provided, however, that this paragraph shall not apply to, and such two thirds and majority vote shall not be required for, any such amendment, change or repeal recommended to shareholders by the affirmative vote of not less than three-fourths of the Continuing Directors, and such amendment, change, or repeal so recommended shall require only the vote, if any, required under the applicable provision of the Business Corporation Act of Michigan. This article IX shall not be applicable to the Corporation effective on the date on which the board of directors of the Corporation elects by resolution to become subject, and so long as the Corporation remains subject, in whole or in part, as to specifically identified or unidentified interested shareholders (as defined in Chapter 7A) of the Corporation, to the voting requirements of Section 780 of Chapter 7A of the Business Corporation Act of the State of Michigan ("Chapter 7A"). If for any reason the provisions of Chapter 7A are not applicable to the Corporation after the board of directors have elected to have the Corporation become subject thereto, then, in such event, article IX shall be effective and applicable to the Corporation. ARTICLE X (a) No director of the Corporation shall be personally liable to the Corporation or to its shareholders for monetary damages for breach of the director's fiduciary duty except for liability (i) for a breach of the director's duty of loyalty to the Corporation or its shareholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) for a violation of Section 551(1) of the Business Corporation Act of Michigan; (iv) for a transaction from which the director derived an improper personal benefit, or (v) for an act or omission occurring before March 1, 1987. 22 9 (b) The indemnification or advancement of expenses provided by law is not exclusive of other rights to which a person seeking indemnification or advancement of expenses may be entitled under these articles of incorporation, the bylaws of the Corporation or a contractual agreement. IN WITNESS WHEREOF Citizens Banking Corporation has caused these Restated Articles of Incorporation to be signed by Charles R. Weeks, its President and Chief Executive Officer, and attested by R. Thomas Carley, its Executive Vice President and Secretary, on this 19th day of April, A.D. 1988. Charles R. Weeks ------------------------- Charles R. Weeks President and Chief Executive Officer ATTESTED By: R. Thomas Carley -------------------------- R. Thomas Carley Executive Vice President and Secretary (SEAL) 23 10 OPT IN CONTROL SHARE ACQUISITION STATUTE no fee MICHIGAN DEPARTMENT OF COMMERCE -- CORPORATION AND SECURITIES BUREAU - ----------------------------------------------------------------------------- (FOR BUREAU USE ONLY) Date Received FILED OCT 26, 1988 OCT 26 1988 Administrator MICHIGAN DEPARTMENT OF COMMERCE Corporation & Securities Bureau efc 10-31-88 - ----------------------------------------------------------------------------- ELECTION PURSUANT TO SECTION 2 OF ACT NO. 58 of the PUBLIC ACTS OF 1988 - ------------------------------------------------------------------------------ 1. The present name of the corporation is: CITIZENS BANKING CORPORATION 2. The corporation identification number (CID) assigned by the Bureau is: 031-208 3. The location of its registered office is: One Citizens Banking Center Flint, Michigan 48502 ----------------------------------------------- ---------- (Street Address) (City) (ZIP Code) - ------------------------------------------------------------------------------ Citizens Banking Corporation, hereby files with the Department of Commerce, pursuant to Section 2 of Act No. 58 of the Public Acts of 1988, the following resolution adopted by the Board of Directors of the Corporation on October 21, 1988. RESOLVED, that the Board of Directors of Citizens Banking Corporation, a Michigan corporation that is an "issuing public corporation" as defined in Section 793 of the Michigan Business Corporation Act, hereby elects, pursuant to Section 2 of Act No. 58 of the Public Acts of 1988, to have such Act apply to the Company effective as of October 31, 1988. CITIZENS BANKING CORPORATION By: R. Thomas Carley ----------------------------------------- R. Thomas Carley Executive Vice President and Secretary ----------------------------------------- (Title and Name) 24 11 CHANGE IN REGISTERED AGENT NOTE: THE FOLLOWING ANNUAL REPORT HAS BEEN INCLUDED WITHIN THE RECORD FOR THIS CORPORATION DUE TO THE FILING OF A CHANGE OF REGISTERED OFFICE AND/OR RESIDENT AGENT ON THE ANNUAL REPORT. THE PRESENCE OF THIS REPORT IN NO WAY IMPLIES THAT THE REPORT ITSELF, OTHER THAN THE INFORMATION RELATED TO THE CHANGE OF REGISTERED OFFICE AND/OR RESIDENT AGENT, HAS BEEN ACCEPTED BY THE CORPORATION AND SECURITIES BUREAU. 25 12 C&S-2500 (REV. 8-88) MICHIGAN DEPARTMENT OF COMMERCE FOR BUREAU USE ONLY 891B#4874 0329 P-MAR $15.00 891B#4874 0329 ORG&FI $5.00 1989 MICHIGAN ANNUAL REPORT -- PROFIT CORPORATIONS (Please read instructions before completing form) This report shall be filed by all profit corporations before May 16, 1989 showing the corporate condition at the close of business on December 31 or upon the date of the close of the latest fiscal year next preceding the time for filing. ONLY those corporations incorporated or admitted after December 31, 1988 and before May 15, 1989 are exempt from filing. The report is required in accordance with the provisions of Section 911, Act 284, Public Acts of 1972, as amended. Penalties may be assessed under the Act for failure to file. - -------------------------------------------------------------------------------- This Report Must Report of Condition on Corporation be Filed before MAY 16, 1989 DECEMBER 31, 1988 or ________ Number 031208 - -------------------------------------------------------------------------------- 1. Corporate Name - -------------------------------------------------------------------------------- CITIZENS BANKING CORPORATION 7 NUMBER ONE CITIZENS BANKING CTR 8 FLINT, MI 48502 9 - -------------------------------------------------------------------------------- 2. Resident Agent - do not 4. Federal Employer No. 5. Term of Existence alter preprinted information 382378932 PERPETUAL in this item or item 3. R. THOMAS CARLEY - -------------------------------------------------------------------------------- 3. Registered Office Address 6. Incorporation Date 7. State of Incorporation in Michigan - No., Street, 11/10/1980 MI City, Zip ------------------------------------------------ NUMBER ONE CITIZENS BANKING 8. Date of Admittance 9. Act Under Which CTR, FLINT 48502 (Foreign Corp.) Incorporated (If other than 1931, P.A. 327 or 1972, P.A. 284) - -------------------------------------------------------------------------------- 10. (DOMESTIC CORPORATIONS ONLY) COMPLETE THIS SECTION ONLY IF THE RESIDENT AGENT IN ITEM 2 OR THE REGISTERED OFFICE IN ITEM 3 HAS CHANGED. FOREIGN CORPORATIONS MUST USE FORM C&S 562. - -------------------------------------------------------------------------------- a. The name of the successor resident agent is: Thomas W. Gallagher b. The address of the registered office is changed to: _____________________________________________________, Michigan ____________ (Street Address) (City) (ZIP Code) c. The mailing address of the registered office if different than 10b. is: _____________________________________________________, Michigan ____________ (Address) (City) (ZIP Code) ADD $5.00 TO THE $15.00 ANNUAL REPORT FILING FEE IF THIS SECTION IS COMPLETED FILED BY DEPARTMENT APR 7 '89 - -------------------------------------------------------------------------------- 11. Principal business office, and, if different, principal place of business in Michigan: Same as Item 1. 12. Nature and type of business in which corporation is engaged: Bank holding company 13. a. Name of parent corporation: None b. List any subsidiary corporations: See attached list of subsidiaries - -------------------------------------------------------------------------------- 14. Corporate Stock Report -- Total Authorized Capital Stock (Not merely outstanding) - --------------------------------------------------------------------------------
a. Shares With No. of Shares Authorized Par-Value Total Authorized Amount Amount Par-Value With Par-Value Per Share Capital Subscribed Paid-In COMMON 12,000,000 $10.000 $120000000.000 $ $68,693,380 - ------------------------------------------------------------------------------------------------------------------------ $ $ - ------------------------------------------------------------------------------------------------------------------------ $ $ - ------------------------------------------------------------------------------------------------------------------------ $ $ - ------------------------------------------------------------------------------------------------------------------------ b. Shares Without No. of Shares Authorized Stated Value No. of Shares Amount Amount Par-Value Without Par Value Per Share Subscribed or Issued Subscribed Paid-In PFD. 300,000 $0.100 $ $ -0- - ------------------------------------------------------------------------------------------------------------------------ $ $ - ------------------------------------------------------------------------------------------------------------------------
MAR 29, 1989 26 13 15. The following is a statement of assets and liabilities as shown by the books of the corporation on December 31, 1988 or (close of fiscal year next preceding May 15, 1989) listed separately as to property within and without Michigan. The balance sheet of a Michigan corporation must be the same balance sheet as furnished to shareholders.
WITHIN WITHOUT ASSETS TOTAL MICHIGAN MICHIGAN LIABILITIES AND EQUITY - --------------------------------------------------------------------------------------------------------------------- Cash Notes and Accounts Payable, Trade Notes and Accounts Receivable Notes and Accounts Payable, Other Inventories Accrued Expenses Prepaid Expenses Long Term Indebtedness Non-current Notes and Reserves and Contingent Accounts Receivable See attached Consolidated Liabilities Land Balance Sheet Deferred Income Tax Depreciable Assets Machinery and Equipment Furniture and Fixtures Buildings Stockholders Equity Other Common Stock (par value) Preferred Stock (par value) No Par Value Stock Less Depreciation (stated value) Net Depreciable Assets Additional Paid-In Capital Investments Retained Earnings (deficit) Investments in Subsidiaries Other Other Investments Total Stockholders Equity Other Assets TOTAL ASSETS TOTAL LIABILITIES & EQUITY - ---------------------------------------------------------------------------------------------------------------------
16. Corporate Officers and Directors
- --------------------------------------------------------------------------------------------------------------------- OFFICE NAME, STREET & NUMBER, CITY, STATE & ZIP CODE - --------------------------------------------------------------------------------------------------------------------- President See attached list of officers - --------------------------------------------------------------------------------------------------------------------- If Different than President Secretary Treasurer Vice-President - --------------------------------------------------------------------------------------------------------------------- If Different than Officers Director See attached list of directors Director Director Director - ---------------------------------------------------------------------------------------------------------------------
17. Is 51% or more of this corporation owned and controlled by woman/women? / / Yes / / No (A response to this question is voluntary and will be used for statistical purposes only). 18. The corporation states that the address of its registered office and the address of the business office of its resident agent are identical. Any changes were authorized by resolution duly adopted by its board of directors. After filing, this report is open to reasonable inspection by the public pursuant to Section 915, Act 284, Public Acts of 1972, as amended. Signed this 28th day of March, 1989. By Thomas W. Gallagher ------------------------------------------- (Signature of Authorized Officer or Agent)* Thomas W. Gallagher Vice President, General Counsel & Secretary -------------------------------------------- (Type or print Name and Title) *If Item 10 has been completed, this report must be signed by the president, vice-president, chairperson, vice-chairperson, secretary or assistant secretary of the corporation. Filing Fee $15.00 (without change of agent or registered office) Filing Fee $20.00 (with change of agent or registered office in Item 10) MAKE REMITTANCE PAYABLE TO: "STATE OF MICHIGAN" RETURN TO: DEPARTMENT OF COMMERCE CORPORATION AND SECURITIES BUREAU CORPORATION DIVISION 6546 MERCANTILE WAY P.O. BOX 30057 LANSING, MICHIGAN 48909 27 14 "RIGHTS PLAN" CERTIFICATE OF DESIGNATIONS C&S-515 (10/89) 904EH5497 0727 ORG&FI $10.00 - ----------------------------------------------------------------------------- MICHIGAN DEPARTMENT OF COMMERCE -- CORPORATION AND SECURITIES BUREAU - ----------------------------------------------------------------------------- (FOR BUREAU USE ONLY) Date Received FILED JUL 26, 1990 JUL 26 1990 Administrator MICHIGAN DEPARTMENT OF COMMERCE Corporation & Securities Bureau - ----------------------------------------------------------------------------- CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION FOR USE BY DOMESTIC CORPORATIONS (Please read information and instructions on last page) Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate: - ------------------------------------------------------------------------------ 1. The present name of the corporation is: CITIZENS BANKING CORPORATION 2. The corporation identification number (CID) assigned by the Bureau is: 031-208 3. The location of its registered office is: One Citizens Banking Center Flint, Michigan 48502 ----------------------------------------------- ---------- (Street Address) (City) (ZIP Code) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 4. Article IV of the Articles of Incorporation is hereby amended to read as follows: SEE ATTACHED FOR ADDITIONAL PROVISIONS TO ARTICLE IV - ------------------------------------------------------------------------------ 28 15 5. COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR TRUSTEES; OTHERWISE, COMPLETE SECTION (b) a. / / The foregoing amendment to the Articles of Incorporation was duly adopted on the_______day of_________, 19___, in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the board of directors or trustees. Signed this _______day of ________________, 19 _____. - ---------------------------------- ------------------------------------ (Signature) (Signature) - ---------------------------------- ------------------------------------ (Type or Print Name) (Type or Print Name) - ---------------------------------- ------------------------------------ (Signature) (Signature) - ---------------------------------- ------------------------------------ (Type or Print Name) (Type or Print Name) b. / / The foregoing amendment to the Articles of Incorporation was duly adopted on the 20th day of July, 1990. The amendment: (check one of the following) / / was duly adopted in accordance with Section 611(2) of the Act by the vote of the shareholders if a profit corporation, or by the vote of the shareholders or members if a nonprofit corporation, or by the vote of the directors if a nonprofit corporation organized on a nonstock directorship basis. The necessary votes were cast in favor of the amendment. / / was duly adopted by the written consent of all the directors pursuant to Section 525 of the Act and the corporation is a nonprofit corporation organized on a nonstock directorship basis. / / was duly adopted by the written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407 (1) and (2) of the Act if a nonprofit corporation, and Section 407 (1) of the Act if a profit corporation. Written notice to shareholders or members who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.) / / was duly adopted by the written consent of all the shareholders or members entitled to vote in accordance with Section 407 (3) of the Act if a non-profit corporation, and Section 407 (2) of the Act if a profit corporation. /X/ was duly adopted by a majority of the Directors pursuant to and as permitted by Article IV of the Corporation's Amended and Restated Articles of Incorporation Signed this 20th day of July, 1990 By Thomas W. Gallagher ---------------------------------------------- (Only signature of: President, Vice-President, Chairperson and Vice-Chairperson) Thomas W. Gallagher, Vice President, General Counsel & Secretary ------------------------------------------------ (Type or Print Name) (Type or Print Title) 29 16 C&S-515 DOCUMENT WILL BE RETURNED TO NAME AND MAILING ADDRESS INDICATED IN THE BOX BELOW. Include name, street and number (or P.O. box), city, state and ZIP code. Mark A. Metz Dykema Gossett 35th Floor 400 Renaissance Center Detroit, Michigan 48243 Name of person or organization remitting fees: Citizens Banking Corporation - ---------------------------- Preparer's name and business telephone number: - ---------------------------- Mark A. Metz - ---------------------------- (313) 568-5434 INFORMATION AND INSTRUCTIONS 1. The amendment cannot be filed until this form, or a comparable document, is submitted. 2. Submit one original copy of this document. Upon filing, a microfilm copy will be prepared for the records of the Corporation and Securities Bureau. The original copy will be returned to the address appearing in the box above as evidence of filing. Since this document must be microfilmed, it is important that the filing be legible. Documents with poor black and white contrast, or otherwise illegible, will be rejected. 3. This document is to be used pursuant to the provisions of section 631 of the Act for the purpose of amending the articles of incorporation of a domestic profit or nonprofit corporation. Do not use this form for restated articles. A nonprofit corporation is one incorporated to carry out any lawful purpose or purposes not involving pecuniary profit or gain for its directors, officers, shareholders, or members. A nonprofit corporation formed on a nonstock directorship basis, as authorized by Section 302 of the Act, may or may not have members, but if it has members, the members are not entitled to vote. 4. Item 2 -- Enter the identification number previously assigned by the Bureau. If this number is unknown, leave it blank. 5. Item 4 -- The article being amended must be set forth in its entirety. However, if the article being amended is divided into separately identifiable sections, only the sections being amended need be included. 6. This document is effective on the date approved and filed by the Bureau. A later effective date, no more than 90 days after the date of delivery, may be stated. 7. If the amendment is adopted before the first meeting of the board of directors, item 5(a) must be completed and signed in ink by a majority of the incorporators if more than one listed in Article V of the Articles of Incorporation if a profit corporation, and all the incorporators if a non-profit corporation. If the amendment is otherwise adopted, item 5(b) must be completed and signed in ink by the president, vice-president, chairperson or vice-chairperson of the corporation. 8. FEE: (Make remittance payable to the State of Michigan. Include corporation name and CID Number on check or money order) ........................................................$10.00 Franchise fee for profit corporations (payable only if authorized shares have increased): each additional 20,000 authorized shares or portion thereof .....$30.00 9. Mail form and fee to: Michigan Department of Commerce Corporation and Securities Bureau Corporation Division P.O. Box 30054 6546 Mercantile Way Lansing, MI 48909 Telephone: (517) 334-6302 30 17 CERTIFICATE OF DESIGNATIONS ESTABLISHING AND DESIGNATING THE SERIES AND FIXING AND DETERMINING THE RELATIVE RIGHTS AND PREFERENCES OF THE SERIES A PREFERRED STOCK OF CITIZENS BANKING CORPORATION Pursuant to Section 302(4) of the Michigan Business Corporation Act --------------------------------- Citizens Banking Corporation, a Michigan corporation, hereby certifies that the following resolution was duly adopted by the Board of Directors of the Corporation at a meeting duly called and held on July 20, 1990, pursuant to authority conferred upon the Board of Directors by the provisions of the Amended and Restated Articles of Incorporation, and that the complete text of such resolution is as follows: RESOLVED: That pursuant to the authority vested in the Board of Directors in accordance with the provisions of its Amended and Restated Articles of Incorporation, a series of preferred stock of the Company be and it hereby is created, and that the determination of the terms and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as set forth below, and that the Amended and Restated Articles of Incorporation of the Company be and hereby are amended by adopting a Certificate of Designations containing the terms and conditions contained in Exhibit A to the Rights Agreement. Exhibit A to the Rights Agreement There is hereby established a series of serial preferred stock to which the following provisions shall be applicable: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Preferred Stock" (the "Preferred Stock") and the number of shares constituting the Preferred Stock shall be 200,000. Such number of shares may be increased or decreased by resolution of the Board of Directors (hereinafter called the "Board of Directors" or the "Board") of Citizens Banking Corporation, (the "Company"); provided, that no decrease shall reduce the number of shares of Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Preferred Stock. 31 18 Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of preferred stock of the Company (or any similar stock) ranking prior and superior to the Preferred Stock with respect to dividends, the holders of shares of Preferred Stock, in preference to the holders of Common Stock, par value $10.00 per share (the "Common Stock"), of the Company, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Preferred Stock. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. A-2 32 19 (B) The Company shall declare a dividend or distribution on the Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Preferred Stock shall entitle the holder thereof to one hundred votes on all matters submitted to a vote of the shareholders of the Company. A-3 33 20 (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of shareholders of the Company. (C) Except as set forth herein, or as otherwise provided by law, holders of Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Preferred Stock outstanding shall have been paid in full, the Company shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Preferred Stock, except dividends paid ratably on the Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Preferred Stock; or A-4 34 21 (iv) redeem or purchase or otherwise acquire for consideration any shares of Preferred Stock, or any shares of stock ranking on a parity with the Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock subject to the conditions and restrictions on issuance set forth herein, in the Amended and Restated Articles of Incorporation or in any other Certificate of Designations creating a series of preferred stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Preferred Stock unless, prior thereto, the holders of shares of Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Preferred Stock, except distributions made ratably on the Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the A-5 35 22 Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Preferred Stock shall not be redeemable. Section 9. Rank. The Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Company's preferred stock. Section 10. Amendment. The Amended and Restated Articles of Incorporation of the Company shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Preferred Stock, voting together as a single class. A-6 36 23 IN WITNESS WHEREOF, the Company has caused this Certificate to be executed as of this 20th day of July, 1990. CITIZENS BANKING CORPORATION By: Thomas W. Gallagher Thomas W. Gallagher, Vice President,General Counsel and Secretary A-7 37 24 AMENDMENT TO INCREASE AUTHORIZED STOCK C&S 515 (Rev. 2-92) MICHIGAN DEPARTMENT OF COMMERCE -- CORPORATION AND SECURITIES BUREAU - ----------------------------------------------------------------------------- Date Received (FOR BUREAU USE ONLY) MAY 1 1992 FILED - --------------------------------------- JUN 03 1992 Name Thomas W. Gallagher Citizens Banking Corporation Administrator - --------------------------------------- MICHIGAN DEPARTMENT OF COMMERCE Address One Citizens Banking Center Corporation and Securities Bureau - --------------------------------------- City Flint State MI ZIP Code 48502 EFFECTIVE DATE: - ----------------------------------------------------------------------------- DOCUMENT WILL BE RETURNED TO NAME AND ADDRESS INDICATED ABOVE CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION FOR USE BY DOMESTIC CORPORATIONS (Please read information and instructions on last page) Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate: - ------------------------------------------------------------------------------ 1. The present name of the corporation is: CITIZENS BANKING CORPORATION 2. The corporation identification number (CID) assigned by the Bureau is: 031-208 3. The location of its registered office is: One Citizens Banking Center Flint, Michigan 48502 ----------------------------------------------- ---------- (Street Address) (City) (ZIP Code) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 4. Article III of the Articles of Incorporation is hereby amended to read as follows: The total authorized capital stock is: Common shares 20,000,000 No Par Value Preferred shares 5,000,000 No Par Value - ------------------------------------------------------------------------------ 38 25 5. COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR TRUSTEES; OTHERWISE, COMPLETE SECTION (b) a. / / The foregoing amendment to the Articles of Incorporation was duly adopted on the day of , 19 , in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the board of directors or trustees. - ---------------------------------- ------------------------------------ (Signature) (Signature) - ---------------------------------- ------------------------------------ (Type or Print Name) (Type or Print Name) - ---------------------------------- ------------------------------------ (Signature) (Signature) - ---------------------------------- ------------------------------------ (Type or Print Name) (Type or Print Name) b. / / The foregoing amendment to the Articles of Incorporation was duly adopted on the 21st day of April, 1992. The amendment: (check one of the following) /X/ was duly adopted in accordance with Section 611(2) of the Act by the vote of the shareholders if a profit corporation, or by the vote of the shareholders or members if a nonprofit corporation, or by the vote of the directors if a nonprofit corporation organized on a nonstock directorship basis. The necessary votes were cast in favor of the amendment. / / was duly adopted by the written consent of all the directors pursuant to Section 525 of the Act and the corporation is a nonprofit corporation organized on a nonstock directorship basis. / / was duly adopted by the written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407 (1) and (2) of the Act if a nonprofit corporation, and Section 407 (1) of the Act if a profit corporation. Written notice to shareholders or member who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.) / / was duly adopted by the written consent of all the shareholders or members entitled to vote in accordance with Section 407 (3) of the Act if a non-profit corporation, and Section 407 (2) of the Act if a profit corporation. Signed this 28th day of April, 1992 By Thomas W. Gallagher ---------------------------------------------- (Only signature of: President, Vice-President, Chairperson and Vice-Chairperson) Thomas W. Gallagher Vice President, General Counsel & Secretary ------------------------------------------------ (Type or Print Name) (Type or Print Title) 39 26 CERTIFICATE OF MERGER "ROYAL BANK GROUP" C&S 550 (6-92) MICHIGAN DEPARTMENT OF COMMERCE -- CORPORATION AND SECURITIES BUREAU - ----------------------------------------------------------------------------- Date Received (FOR BUREAU USE ONLY) OCT 1 1993 FILED - ---------------------------------------- Name OCT 01 1993 Thomas W. Gallagher - ---------------------------------------- Citizens Banking Corporation Administrator MICHIGAN DEPARTMENT OF COMMERCE Address One Citizens Banking Center Corporation & Securities Bureau - ---------------------------------------- City State ZIP Code Flint, Michigan 48502-2401 EFFECTIVE DATE: - ----------------------------------------------------------------------------- DOCUMENT WILL BE RETURNED TO NAME AND ADDRESS INDICATED ABOVE CERTIFICATE OF MERGER/CONSOLIDATION FOR USE BY DOMESTIC OR FOREIGN CORPORATIONS (Please read information and instructions on last page) Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), and/or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporations execute the following Certificate: - ------------------------------------------------------------------------------ 1. The Plan of Merger (Consolidation) is as follows: a. The name of each constituent corporation and its corporation identification number is: Citizens Banking Corporation 031-208 ------------------------------------------------------------------------ Royal Bank Group, Inc. 353-204 ------------------------------------------------------------------------ b. The name of the surviving (new) corporation and its corporation identification number is: Citizens Banking Corporation 031-208 ------------------------------------------------------------------------ c. For each constituent stock corporation, state:
Designation and number of outstanding Indicate class or Indicate class or shares in each class series of shares series entitled Name of corporation or series entitled to vote to vote as a class Citizens Banking 13,102,053 Common Stock Common Stock Corporation shares of Common Stock Royal Bank Group, Inc. 574,871 Common Stock Common Stock shares of Common Stock
If the number of shares is subject to change prior to the effective date of the merger or consolidation, the manner in which the change may occur is as follows: - ------------------------------------------------------------------------------ 40 27 d. For each constituent nonstock corporation (i) If it is organized on a membership basis, state (a) the name of the corporation, (b) a description of its members, and (c) the number, classification and voting rights of its members. (ii) If it is organized on a directorship basis, state (a) the name of the corporation, (b) a description of the organization of its board, and (c) the number, classification and voting rights of its directors. e. The terms and conditions of the proposed merger (consolidation), including the manner and basis of converting the shares of, or membership or other interests in, each constituent corporation into shares, bonds, or other securities of, or membership or other interest in, the surviving (consolidated) corporation, or into cash or other consideration, are as follows: See Articles I and II (attached hereto as an Exhibit A) of the Agreement and Plan of Merger dated May 18, 1993 (the "Agreement") between Citizens Banking Corporation ("Citizens") and Royal Bank Group, Inc. ("Royal"). The Conversion Number referred to in Section 2.1 of the Agreement, as adjusted in accordance with Sections 2.1(c) and 2.1(e) of the Agreement, is 1.885 of validly issued, fully paid and nonassessable shares of Common Stock of Citizens. A copy of the Agreement will be furnished by Citizens on request and without cost to any shareholder of Royal or Citizens. f. If a consolidation, the Articles of Incorporation of the consolidated corporation are attached to this Certificate and are incorporated herein. If a merger, the amendments to the Articles, or a restatement of the Articles, of the surviving corporation to be effected by the merger are as follows: g. Other provisions with respect to the merger (consolidation) are as follows: - ------------------------------------------------------------------------------ 2. (Complete for any foreign corporation only) This merger (consolidation) is permitted by the laws of the state of ____________ the jurisdiction under which ________________________________ (name of foreign corporation) is organized and the plan of merger (consolidation) was adopted and approved by such corporation pursuant to and in accordance with the laws of that jurisdiction. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 3. (Complete only if an effective date is desired other than the date of filing. This date must be no more than 90 days after receipt of this document in this office). The merger (consolidation) shall be effective on the ________day of __________________, 19__. - ------------------------------------------------------------------------------ 41 28 4. (Complete applicable section for each constituent corporation) a. (For domestic profit corporations only) The plan of merger was approved by the unanimous consent of the incorporators of __________________________________________________, which has not commenced business, has not issued any shares, and has not elected a Board of Directors. (Incorporators must sign on this page of the Certificate.) b. (For profit corporations involved in a merger only) The plan of merger was approved by the Board of Directors of Citizens Banking Corporation, the surviving corporation, without the approval of the shareholders of that corporation in accordance with Section 701 of the Act. c. (For profit corporations only) The plan of merger was adopted by the Board of Directors of Royal Bank Group, Inc. and was approved by the shareholders of that corporation in accordance with Section 703a. d. (For nonprofit corporations only) The plan of merger or consolidation was adopted by the Board of Directors (i) (Complete if organized upon a stock or membership basis) of _______________________________________________ and was approved by the shareholders or members of that corporation in accordance with Sections 701 and 703(1) and (2), or pursuant to Section 407 by written consent and written notice, if required. (ii) (Complete if organized upon a directorship basis) of _____________________________________________ in accordance with Section 703(3). - -------------------------------------------------------------------------------- Sign this area for item 4(a). Signed this _____________ day of ____________________________, 19______. ______________________________________ _____________________________________ ______________________________________ _____________________________________ Sign this area for items 4(b), 4(c), or 4(d). Signed this 30th day of September, 1993. CITIZENS BANKING CORPORATION By Charles R. Weeks --------------------------------------- (Only signature of: President, Vice- President, Chairperson or Vice- Chairperson) Charles R. Weeks, President ----------------------------------------- (Type or Print Name and Title) Signed this 30th day of September, 1993. ROYAL BANK GROUP, INC. ----------------------------------------- (Name of Corporation) By Edward B. LeFevre -------------------------------------- (Only signature of: President, Vice- President, Chairperson or Vice- Chairperson) Edward B. LeFevre, President ------------------------------------------ (Type or Print Name and Title) 42 29 EXHIBIT A ARTICLE I THE MERGER 1.1 Effective Time of the Merger. Subject to the provisions of this Agreement, a certificate of merger (the "Certificate of Merger") shall be duly filed by Citizens and Royal with the Michigan Department of Commerce pursuant to the Michigan Business Corporation Act (the "MBCA") as soon as practicable on or after the Closing Date (as defined in Section 1.2). The Merger shall become effective upon the filing of the Certificate of Merger with the Michigan Department of Commerce or at such time thereafter as Citizens and Royal may agree in writing to provide in the Certificate of Merger (the "Effective Time"). 1.2 Closing. Subject to the terms and conditions hereof, the closing of the Merger (the "Closing") will take place at a time and date to be specified by the parties, which shall be the first day which is (a) the last business day of a month and (b) at least two business days after the satisfaction or waiver (subject to applicable law) of the latest to occur of the conditions set forth in Sections 6.1 and 6.2(c) hereof (the "Closing Date"), at the offices of Dykema Gossett, 505 N. Woodward Avenue, Bloomfield Hills, Michigan, unless another time, date or place is agreed to in writing by the parties hereto. 1.3 Effects of the Merger. (a) At the Effective Time, (i) the separate existence of Royal shall cease and Royal shall be merged with and into Citizens, (ii) the Articles of Incorporation of Citizens, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation until duly amended in accordance with applicable law, and (iii) the Bylaws of Citizens, as in effect 43 30 immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until amended in accordance with applicable law. (b) As used in this Agreement, the term "Constituent Corporations" shall mean Citizens and Royal and the term "Surviving Corporation" shall mean Citizens. (c) At and after the Effective Time, the Merger will have the effects set forth in Section 724(l) of the MBCA. ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES 2.1 Effect on Capital Stock. (a) Conversion of Royal Common Stock At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Royal Common Stock, subject to Sections 2.1(d) and 2.2(e), each issued and outstanding share of Common Stock of Royal, par value $10 per share ("Royal Common Stock"), shall be converted into 2.0072 (the "Conversion Number") validly issued, fully paid and nonassessable shares of Common Stock of Citizens, without par value per share ("Citizens Common Stock"), subject to adjustment as hereinafter provided in Sections 2.1(c) and 2.1(e), and subject to the right of each Record Holder (as defined in Section 2.2(b) hereof) to elect to receive cash, in lieu of the shares of Citizens Common Stock to which such Record Holder is entitled, as provided in Section 2.1(d) hereof. All such shares of Royal Common Stock shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each certificate ("Certificate") previously representing any such shares shall thereafter represent the right to receive (i) the whole shares of Citizens Common Stock, (ii) the cash, if any, that the Record Holder of such shares shall have elected to receive pursuant to Section 2.1(d), and (iii) cash in lieu of any fractional share into which such Royal Common Stock has been converted pursuant to this Section 2.1(a). Certificates representing shares of Royal Common Stock shall be exchanged for certificates representing whole shares of Citizens Common Stock and cash, if any, as herein provided, upon the surrender of such Certificates in accordance with Section 2.2, without any interest thereon. In the event that, subsequent to the date of this Agreement but prior to the Effective Time, the outstanding shares of Citizens Common Stock shall have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities through a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar change in Citizens' capitalization, then an appropriate and proportionate adjustment shall be made to the Conversion Number. (b) Citizens Common Stock. Each share of Citizens Common Stock issued and outstanding at the Effective Time shall continue to be issued and outstanding. 2 44 31 (c) Adjustment of Conversion Number. The Conversion Number shall be adjusted as follows: The Conversion Number is based on a value of $19.50 per share of Citizens Common Stock. If the Average Price Per Share (as defined in Section 2.2(e) hereof) of Citizens Common Stock is greater than $19.50, the Conversion Number shall be adjusted downward to the number obtained by multiplying the Conversion Number by a fraction the numerator of which is $19.50 and the denominator is the Average Price Per Share but not more than $21. If the Average Price Per Share is less than $19.50, the Conversion Number shall be adjusted upward to the number obtained by multiplying the Conversion Number by a fraction the numerator of which is $19.50 and the denominator is the Average Price Per Share but not less than $18. (d) Right to Elect to Receive Cash. Each Record Holder shall have the right to receive cash rather than the shares of Citizens Common Stock that such Record Holder is entitled to receive under Section 2.1(a), provided, however, that the aggregate amount of cash to be paid to all Record Holders pursuant to such election shall not exceed $3,400,000 (the "Cash Fund"). If the aggregate amount of cash payable to Record Holders as shown by their elections would exceed the Cash Fund, the Cash Fund shall be allocated among such Record Holders who have elected cash, pro rata on the basis of their holdings of Royal Common Stock as of the Effective Time and for which such Holders have submitted valid elections, and certificates shall be issued to each such Holder for the balance of the shares of Citizens Common Stock to which such Holder is entitled. The amount of cash to be paid in lieu of shares of Citizens Common Stock shall be determined on the basis of $19.50 per share of Citizens Common Stock. Any Record Holder wishing to receive cash in accordance with this Section 2.1(d) shall deliver to the Exchange Agent, no later than 20 calendar days after the Effective Time, a duly completed election form as provided by the Exchange Agent. Record Holders who do not make such an election shall be entitled to receive only shares of Citizens Common Stock. (e) Additional Merger Consideration. In addition to the shares of Citizens Common Stock and cash, if any, into which each issued and outstanding share of Royal Common Stock is converted pursuant to Sections 2.1(a) and (d), each such share of Royal Common Stock outstanding as of the Effective Time also shall be converted into a fraction of a share of Citizens Common Stock determined (i) by dividing the "Adjusted 1993 Net Income" of Royal, as determined pursuant to Section 2.1(g) or (h), as the case may be, by the Average Price Per Share and (ii) dividing the resulting number by the total number of shares of Royal Common Stock outstanding as of the Effective Time. The resulting fraction shall be added to the Conversion Number determined under Section 2.1(a) after the Conversion Number has been adjusted for any adjustment required by Section 2.1(c). (f) Definition of "Adjusted 1993 Net Income" of Royal. The Adjusted 1993 Net Income of Royal shall mean the excess, if any, of the Total Stockholders' Equity as shown in the Estimated Financial Statements or Closing Financial Statements, as the case may be, as hereinafter provided, of Royal as of the Closing Date over $13,456,000 (which is the Total Stockholders' Equity as shown in the audited Consolidated Balance Sheet of Royal as of December 31, 1992) attributable to the consolidated net income of Royal for the period 3 45 32 January 1, 1993 to the Closing Date, subject to the following adjustments: (i) all of Royal's costs incurred in connection with the transactions contemplated hereby, including, without limitation, legal and accounting costs, costs of financial advisers, and Royal's share of the costs of Independent Accountants, if any, under Section 2.1(h), shall be deducted to the extent not deducted by Royal as an operating expense for the period prior to the Closing Date, and (ii) the effect of extraordinary items shall be eliminated; such extraordinary items shall include, without limitation, recognition of gains or losses upon sale of investment securities (other than the gain of $333,421 realized upon the sale of U.S. Treasury Notes on January 25, 1993, which gain shall not be excluded in the determination of the Adjusted 1993 Net Income), adoption of new accounting principles such as SFAS #106 and #109, gains or losses from disposal of significant lines of business or business assets, and other extraordinary items that have a material impact upon Adjusted 1993 Net Income. (g) Estimated Financial Statements. Approximately 30 days before the anticipated Closing Date, Royal shall prepare an estimated consolidated statement of income for the period January 1, 1993 through the Closing Date and an estimated consolidated balance sheet as of the Closing Date (the "Estimated Financial Statements"). Such Estimated Financial Statements shall be prepared in accordance with generally accepted accounting principles on a basis consistent with Royal's audited consolidated financial statements for 1992. The Estimated Financial Statements shall not reflect any adjustment requested by Citizens pursuant to Section 5.7 of this Agreement. Such Estimated Financial Statements shall take into consideration financial results of Royal as reported in its Form 1O-Q's and its internally prepared monthly financial statements. Royal shall submit such Estimated Financial Statements to Citizens for review. Royal shall meet with Citizens and its accountants at the request of Citizens and shall provide all information requested by Citizens with respect to the Estimated Financial Statements. If Citizens and Royal each is willing to accept the Estimated Financial Statements for purposes of determining the additional Merger consideration described in Section 2.1(e), each of them shall sign a certificate to which a copy of the Estimated Financial Statements is attached acknowledging acceptance of the Estimated Financial Statements as so prepared and setting forth the amount of Adjusted 1993 Net Income of Royal, the fraction, if any, to be added to the Conversion Number, the determination of such fraction, and the Conversion Number as adjusted for such fraction. Such Estimated Financial Statements shall be binding on Citizens and Royal, and shall not be subject to renegotiation or challenge thereafter except for manifest error or a breach by Royal of any of its representations, warranties, covenants or agreements hereunder, which error or breach becomes known prior to the Effective Time. (h) Reviewed Financial Statements. If Citizens and Royal cannot agree on the Estimated Financial Statements as set forth in Section 2.1(g), then Royal shall prepare a consolidated statement of income for the period January 1, 1993 through the Closing Date and a consolidated balance sheet as of the Closing Date (the "Closing Financial Statements"), as promptly as possible following the Closing. Such Closing Financial Statements shall be prepared in accordance with the requirements of Sections 2.1(f) and 2.1(g) and shall be reviewed by McEndarffer, Hoke & Bernhard, Royal's independent public accountants ("Royal's Accountants"). Royal's Accountants shall cooperate 4 46 33 fully with Ernst & Young, Citizens' independent public accountants ("Citizens' Accountants") while the review is in progress to facilitate the timely review of the Closing Financial Statements by Citizens' Accountants. Citizens, Citizens' Accountants, Royal, and Royal's Accountants each shall have the right to review, at such party's expense, any of Citizens' Accountants' and Royal's Accountants' working papers relating to the preparation or review, as the case may be, of the Closing Financial Statements. Within 15 days after the reviewed Closing Financial Statements are delivered to Citizens by Royal, Citizens shall advise Royal in writing that it either (i) accepts the Closing Financial Statements or (ii) does not accept them. If Citizens accepts the Closing Financial Statements, Citizens and Royal shall then prepare and execute a certificate as described in Section 2.1(g). If Citizens does not accept the Closing Financial Statements, Citizens shall set forth in reasonable detail the basis for its refusal to accept the Closing Financial Statements. Citizens and Royal shall use their best efforts to resolve the disagreement within 30 days. If Citizens and Royal fail to resolve their disagreement within such 30-day period, then within seven days following the expiration of such 30-day period a "Big Six" accounting firm (other than Ernst & Young) shall be designated in writing by Royal, or if Royal shall fail to designate such accounting firm in writing within such seven-day period, Citizens shall be entitled to make such designation. Alternatively, Citizens and Royal may agree upon any other accounting firm within the initial seven-day period (the "Independent Accountants"). The Independent Accountants shall make the final determination with respect to such disagreement regarding the Closing Financial Statements and shall determine the amount of the additional Merger consideration under Section 2.1(e). The fees and expenses of such firm in making such determination shall be borne 50% by Citizens and 50% by Royal. The decision of the Independent Accountants shall be addressed to each of Citizens and Royal and shall be final and binding upon Citizens and Royal. Promptly after the additional Merger consideration has been determined, Citizens shall cause the Exchange Agent (as defined in Section 2.2(a)) to notify the Record Holders of the amount of the additional Merger consideration and to pay such consideration to those Record Holders who have complied with the exchange procedures of Section 2.2. Record Holders who have elected to receive payment in cash pursuant to Section 2.1(d) shall be paid the additional Merger consideration to which they are entitled in cash, regardless of whether the Cash Fund contains any or sufficient cash to make such payments. 2.2 Exchange of Certificates. (a) Exchange Agent. As of the Effective Time, Citizens shall deposit with Citizens Commercial & Savings Bank ("Citizens Bank"), a wholly-owned Subsidiary (as hereafter defined) of Citizens (the "Exchange Agent"), for the benefit of the holders of shares of Royal Common Stock, for exchange in accordance with this Article II, certificates representing the shares of Citizens Common Stock, cash in lieu of such shares, and the cash in lieu of fractional shares (such cash and certificates for shares of Citizens Common Stock, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund") to be issued and paid,pursuant to this Article II in exchange for outstanding shares of Royal Common Stock. If the additional Merger consideration provided by Section 2.1(e) has not been determined as of the 5 47 34 Effective Time, then as soon as such additional Merger consideration is determined, Citizens shall deposit with the Exchange Agent certificates for the shares of Citizens Common Stock into which shares of Royal Common Stock are converted pursuant to Section 2.1(e) and cash to be paid in lieu of such shares. (b) Exchange Procedures. Promptly after the Effective Time, Citizens shall cause the Exchange Agent to mail to each holder of record of a Certificate or Certificates ("Record Holder") (i) a letter of transmittal which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form as Citizens and Royal may reasonably specify and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Citizens Common Stock, electing to receive cash, if any, in accordance with Section 2.1(d), and cash in lieu of fractional shares. Upon surrender of a Certificate for cancellation to the Exchange Agent together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing the number of whole shares of Citizens Common Stock, if any, and/or cash, if any, to which such Holder is entitled under Section 2.1, and unpaid dividends and distributions, if any, which such holder has the right to receive in respect of the Certificate surrendered pursuant to the provisions of this Article II, and the Certificate so surrendered shall forthwith be cancelled. No interest will be paid or accrued on any cash payable to the Record Holder, nor on unpaid dividends and distributions, if any, payable to holders of Certificates. In the event of a transfer of ownership of Royal Common Stock which is not registered in the transfer records of Royal, the shares of Citizens Common Stock and cash to which the Record Holder of such Royal Common Stock is entitled may be issued and paid to such a transferee if the Certificate representing such Royal Common Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. (c) Distributions with Respect to Unexchanged Shares; Voting. Whenever a dividend or other distribution is declared by Citizens on the Citizens Common Stock, the record date for which is at or after the Effective Time, the declaration shall include dividends or other distributions on all shares issuable pursuant to this Agreement, provided that no dividends or other distributions declared or made with respect to the Citizens Common Stock shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Citizens Common Stock represented thereby until the holder of such Certificate shall surrender such Certificate in accordance with this Article II. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the holder of the Certificates representing whole shares of Citizens Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of Citizens Common Stock and not paid, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time 6 48 35 but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Citizens Common Stock. Holders of unsurrendered Certificates shall be entitled to vote after the Effective Time at any meeting of Citizens stockholders the number of whole shares of Citizens Common Stock represented by such Certificates, regardless of whether such holders have exchanged their Certificates. (d) Transfers. After the Effective Time, there shall be no transfers on the stock transfer books of Royal of the shares of Royal Common Stock which were outstanding immediately prior to the Effective Time. If after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be cancelled and exchanged for the shares of Citizens Common Stock, if any, and/or cash, if any, deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Article II. Certificates surrendered for exchange by any person constituting an "affiliate" of Royal for purposes of Rule 145(c) under the Securities Act of 1933, as amended (the "Securities Act"), shall not be exchanged until Citizens has received a written agreement from such person as provided in Section 6.2(j). (e) Fractional Shares. No fractional shares of Citizens Common Stock shall be issued pursuant hereto. In lieu of the issuance of any fractional share of Citizens Common Stock pursuant to Section 2.1(a) or 2.1(h), cash adjustments will be paid to holders in respect of any fractional share of Citizens Common Stock that would otherwise be issuable, and the amount of such cash adjustment shall be equal to such fractional proportion of the "Average Price Per Share" of a share of Citizens Common Stock. The "Average Price Per Share" of a share of Citizens Common Stock shall be the average of the high and low prices thereof as reported on the National Market System of NASDAQ (as reported by The Wall Street Journal or, if not reported thereby, another authoritative source) over the ten business days on which the stock is traded immediately preceding the day of the Effective Time. The Average Price shall be adjusted as follows for any dividend, stock split or distribution on Citizens Common Stock for which the "ex-dividend" or "ex-distribution" date occurs during the ten trading days immediately preceding the Effective Time: (i) if the record date for such dividend, stock split or distribution occurs prior to the Effective Time, the NASDAQ average prices of Citizens Common Stock on the days in such 10-day period prior to the "ex-dividend" or "ex-distribution" date shall, for purposes of determining the Average Price Per Share, be reduced by the amount or value of the dividend or cash distribution, or appropriately adjusted for the effect of any stock split or other distribution; and (ii) if the record date for such dividend, stock split or distribution occurs on or after the Effective Time, the price of Citizens Common Stock on the "ex-dividend" or "ex-distribution" date, and on subsequent days in such 10-day period, shall, for purposes of determining the Average Price Per Share, be increased by the amount or value of the dividend or cash distribution, or appropriately adjusted for the effect of any stock split or other distribution. (f) Termination of Exchange Fund. Any portion of the Exchange Fund (including the proceeds of any investments thereof and any Citizens Common 7 49 36 Stock) that remains unclaimed by the shareholders of Royal for six months after the Effective Time shall be paid to Citizens. Any shareholders of Royal who have not theretofore complied with this Article II shall thereafter look only to Citizens for payment of their shares of Citizens Common Stock, cash in lieu of fractional shares and unpaid dividends and distributions on the Citizens Common Stock deliverable in respect of each share of Royal Common Stock such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. Notwithstanding the foregoing, none of Citizens, the Exchange Agent or any other person shall be liable to any former holder of shares of Royal Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. (g) No Liability. In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Citizens, the posting by such person of a bond in such amount as Citizens may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the shares of Citizens Common Stock, if any, and/or cash, if any, deliverable in respect thereof pursuant to this Agreement. 8 50 37 INCREASE IN AUTHORIZED STOCK C&S 515 (Rev. 8/93) MICHIGAN DEPARTMENT OF COMMERCE -- CORPORATION AND SECURITIES BUREAU - ----------------------------------------------------------------------------- Date Received Adjusted per Tom Gallagher. (FOR BUREAU USE ONLY) MAY 12 1995 FILED - ---------------------------------------- MAY 15, 1995 Name Thomas W. Gallagher, Senior Vice President, General Counsel & Secretary Administrator - ---------------------------------------- MICHIGAN DEPARTMENT OF COMMERCE Address One Citizens Banking Center CORPORATION AND SECURITIES BUREAU 328 S. Saginaw St. - ---------------------------------------- City Flint, State MI Zip Code 48502-9985 EFFECTIVE DATE: - ----------------------------------------------------------------------------- DOCUMENT WILL BE RETURNED TO THE NAME AND ADDRESS YOU ENTER ABOVE CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION FOR USE BY DOMESTIC CORPORATIONS (Please read information and instructions on the last page) Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate: - ------------------------------------------------------------------------------ 1. The present name of the corporation is: CITIZENS BANKING CORPORATION 2. The identification number assigned by the Bureau is: 031-208 3. The location of the registered office is: One Citizens Banking Center, Flint, Michigan 48502-9985 ----------------------------------------------- ---------- (Street Address) (City) (ZIP Code) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 4. Article III of the Articles of Incorporation is hereby amended to read as follows: The total authorized capital stock is: 1. Common shares: 40,000,000 shares, no par value 2. Preferred shares: 5,000,000 shares, no par value - ------------------------------------------------------------------------------ 51 38 5. COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR TRUSTEES; OTHERWISE, COMPLETE SECTION (b). DO NOT COMPLETE BOTH. a. / / The foregoing amendment to the Articles of Incorporation was duly adopted on the day of , 19 , in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees. Signed this ________ day of ________, 19__. - ---------------------------------- ------------------------------------ (Signature) (Signature) - ---------------------------------- ------------------------------------ (Type or Print Name) (Type or Print Name) - ---------------------------------- ------------------------------------ (Signature) (Signature) - ---------------------------------- ------------------------------------ (Type or Print Name) (Type or Print Name) b. /x/ The foregoing amendment to the Articles of Incorporation was duly adopted on the 18th day of April, 1995. The amendment: (check one of the following) /X/ was duly adopted in accordance with Section 611(2) of the Act by the vote of the shareholders if a profit corporation, or by the vote of the shareholders or members if a nonprofit corporation, or by the vote of the directors if a nonprofit corporation organized on a nonstock directorship basis. The necessary votes were cast in favor of the amendment. / / was duly adopted by the written consent of all directors pursuant to Section 525 of the Act and the corporation is a nonprofit corporation organized on a nonstock directorship basis. / / was duly adopted by the written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407(1) and (2) of the Act if a nonprofit corporation, or Section 407(1) of the Act if a profit corporation. Written notice to shareholders who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.) / / was duly adopted by the written consent of all the shareholders or members entitled to vote in accordance with Section 407(3) of the Act if a non profit corporation, or Section 407(2) of the Act if a profit corporation. Signed this 10th day of May, 1995 By Thomas W. Gallagher ---------------------------------------------- (Only Signature of President, Vice-President, Chairperso, or Vice-Chairperson) Thomas W. Gallagher Senior Vice President, General Counsel & Secretary ------------------------------------------------ (Type or Print Name) (Type or Print Name) 52 39 C&S 515 Name of person or organization remitting fees: CITIZENS BANKING CORPORATION One Citizens Banking Center 328 S. Saginaw St. Flint, MI 48502-9985 Preparer's name and business telephone number: Thomas W. Gallagher Senior Vice President, General Counsel & Secretary (810) 766-7788 INFORMATION AND INSTRUCTIONS 1. The amendment cannot be filed until this form, or a comparable document, is submitted. 2. Submit one original of this document. Upon filing, the document will be added to the records of the Corporation and Securities Bureau. The original will be returned to the address appearing in the box on the front as evidence of filing. Since this document will be maintained on optical disk media, it is important that the filing be legible. Documents with poor black and white contrast, or otherwise illegible, will be rejected. 3. This document is to be used pursuant to the provisions of section 631 of the Act for the purpose of amending the articles of incorporation of a domestic profit Corporation or nonprofit corporation. Do not use this form for restated articles. A nonprofit corporation is one incorporated to carry out any lawful purpose or purposes not involving pecuniary profit or gain for its directors, officers, shareholders, or members. A nonprofit corporation formed on a nonstock directorship basis, as authorized by Section 302 of the Act, may or may not have members, but if it has members, the members are not entitled to vote. 4. Item 2 -- Enter the identification number previously assigned by the Bureau. If this number is unknown, leave it blank. 5. Item 4 -- The article being amended must be set forth in its entirety. However, if the article being amended is divided into separately identifiable sections, only the sections being amended need be included. 6. This document is effective on the date endorsed "filed" by the Bureau. A later effective date, no more than 90 days after the date of delivery, may be stated as a additional article. 7. If the amendment is adopted before the first meeting of the board of directors, item 5(a) must be completed and signed in ink by a majority of the incorporators if more than one listed in Article V of the Articles of Incorporation if a profit corporation, and all the incorporators if a nonprofit corporation. If the amendment is otherwise adopted, Item 5(b) must be completed and signed in ink by the president, vice-president, chairperson or vice-chairperson of the corporation. 8. FEES: Make remittance payable to the State of Michigan. Include corporation name and identification number on check or money order.
NONREFUNDABLE FEE............................................................$10.00 TOTAL MINIMUM FEE............................................................$10.00 ADDITIONAL FEES DUE FOR INCREASED AUTHORIZED SHARES OF PROFIT CORPORATIONS ARE: each additional 20,000 authorized shares or portion thereof ......$30.00 maximum fee for first 10,000,000 authorized shares.............$5,000.00 each additional 20,000 authorized shares or portion thereof in excess of 10,000,000 shares.....................................$30.00 maximum fee per filing for authorized shares in excess of 10,000,000 shares..........................................$200,000.00
9. Mail form and fee to: The office is located at: Michigan Department of Commerce 6546 Mercantile Way Corporation and Securities Bureau Lansing, MI 48910 Corporation Division Telephone: (517) 334-6302 P.O. Box 30054 Lansing, MI 48909-7554 53 EX-11 3 EXHIBIT 11 1 FORM 10K 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:
- ---------------------------------------------------------------------- Year Ended December 31, (in thousands, except per share amounts) 1995 1994 1993 - ---------------------------------------------------------------------- NET INCOME: $33,596 $29,414 $25,770 ======= ======= ======= PRIMARY EARNINGS PER SHARE: Actual average shares outstanding 14,213 14,096 13,351 Net effect of the assumed exercise of stock options -- based on the treasury stock method using average market price for the period 362 367 373 ------- ------- ------- Pro forma average shares outstanding 14,575 14,463 13,724 ======= ======= ======= Net Income Per Common Share: $ 2.31 $ 2.03 $ 1.88 ======= ======= ======= FULLY DILUTED EARNINGS PER SHARE: Actual average shares outstanding 14,213 14,096 13,351 Net effect of the assumed exercise of stock options -- based on the treasury stock method using year end market price 399 416 438 ------- ------- ------- Pro forma average shares outstanding 14,612 14,512 13,789 ======= ======= ======= Net Income Per Common Share: $ 2.30 $ 2.03 $ 1.87 ======= ======= =======
54 EX-13 4 EXHIBIT 13 1 FORM 10K EXHIBIT 13 CITIZENS BANKING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS AND CONSOLIDATED FINANCIAL STATEMENTS 55 2 TABLE OF CONTENTS I. Financial Review including Management's Discussion and Analysis ............ 57 Selected Financial Data ....................... 57 Performance Summary ........................... 58 Net Interest Income ........................... 58 Provision and Allowance for Loan Losses ....... 61 Noninterest Income and Expense ................ 62 Balance Sheet Review .......................... 65 Liquidity and Debt Capacity, Interest Rate Risk and Impact of Inflation ...................... 71 Year Ended December 31, 1994 Compared with 1993 ........................... 74 II. Consolidated Financial Statements ................. 75 Consolidated Balance Sheets ................... 76 Consolidated Statements of Income ............. 77 Consolidated Statements of Changes in Shareholders' Equity ...................... 78 Consolidated Statements of Cash Flow .......... 79 III. Notes to Consolidated Financial Statements ........ 80 IV. Report of Independent Auditors .................... 92 V. Report of Management .............................. 93
56 3 TABLE 1. SELECTED FINANCIAL DATA
(in thousands except per share data) 1995(4) 1994 1993(2) 1992(1) 1991 - ----------------------------------------------------------------------------------------------------------------- FOR THE YEAR Net interest income $137,495 $118,400 $104,334 $99,975 $99,231 Provision for loan losses 6,441 5,303 5,597 6,251 6,086 Investment securities gains (losses) 198 157 763 (17) 19 Noninterest income 36,236 33,697 30,452 27,082 26,509 Noninterest expense 121,087 107,245 97,268 92,555 93,509 Income taxes 12,805 10,292 6,914 4,765 5,089 Income before cumulative effect of change in accounting principle 33,596 29,414 25,770 23,469 21,075 Net income 33,596 29,414 25,770 10,564 21,075 Cash dividends 12,770 11,557 9,937 9,027 8,427 PER COMMON SHARE DATA Primary: Income before cumulative effect of change in accounting principle $2.31 $2.03 $1.88 $1.77 $1.60 Net income 2.31 2.03 1.88 0.79 1.60 Fully diluted: Income before cumulative effect of change in accounting principle 2.30 2.03 1.87 1.75 1.60 Net income 2.30 2.03 1.87 0.79 1.60 Cash dividends 0.900 0.820 0.745 0.690 0.645 Book value, end of year 20.73 18.31 18.08 16.73 16.68 Market value, end of year 29.75 27.75 25.00 19.25 13.88 AT YEAR END Assets $3,463,922 $2,703,823 $2,714,112 $2,498,934 $2,492,584 Loans 2,428,513 1,816,221 1,780,180 1,557,423 1,536,461 Deposits 2,864,701 2,252,318 2,246,750 2,086,144 2,064,024 Long-term debt 105,411 5,249 10,865 15,093 20,405 Shareholders' equity 297,186 258,730 255,163 219,276 218,183 AVERAGE FOR THE YEAR Assets $3,279,646 $2,710,747 $2,535,068 $2,472,245 $2,449,897 Earning assets 3,002,753 2,500,215 2,348,691 2,290,884 2,276,390 Loans 2,302,414 1,797,153 1,643,327 1,539,332 1,545,108 Deposits 2,702,346 2,262,182 2,109,269 2,061,613 2,035,156 Interest-bearing deposits 2,250,711 1,882,451 1,783,718 1,769,078 1,759,965 Repurchase agreements and other short-term borrowings 146,000 141,230 138,375 135,624 143,012 Long-term debt 102,813 8,667 13,112 16,965 29,726 Shareholders' equity 277,597 256,607 231,160 210,193 210,931 FINANCIAL RATIOS Return on average:(3) Shareholders' equity 12.10% 11.46% 11.15% 11.17% 9.99% Earning assets 1.12 1.18 1.10 1.02 0.93 Assets 1.02 1.09 1.02 0.95 0.86 Average shareholders' equity/ave. assets 8.46 9.47 9.12 8.50 8.61 Dividend payout ratio(3) 38.01 39.29 38.56 38.46 39.99 Net interest margin (FTE) 4.77 4.99 4.74 4.71 4.67 Tier I leverage 6.65 9.52 8.90 8.57 8.48 Risk-based capital (fully phased-in guidelines): Tier I capital 8.79 13.44 13.12 12.73 13.11 Total capital 10.04 14.69 14.36 13.90 14.35
- -------------------------------------------------------------------------------- (1) 1992 income and income per common share were affected by nonrecurring items. Nonrecurring items included restructuring expenses related to the leasing subsidiary, employee benefit costs related to adopting the accrual method of accounting for retiree benefits and a curtailment gain resulting from modification of retiree benefit plans. If the nonrecurring items had been excluded from the results of operations for 1992, income before cumulative effect of change in accounting principle would have been reduced by $1.152 million or $0.08 per fully diluted share. (2) The year 1993 reflects the acquisition of National Bank of Royal Oak ("NBRO"), accounted for as a purchase, and includes NBRO'S results of operations and financial results subsequent to its October 1, 1993 acquisition date. (3) Based on income before cumulative effect of change in accounting principle. (4) The year 1995 reflects the acquisition of the Michigan affiliates of Banc One Corporation accounted for as a purchase, and includes the related results of operations and financial results subsequent to the February 28, 1995 acquisition date. 57 4 PERFORMANCE SUMMARY The following discussion provides a more comprehensive review of the Corporation's operating results and financial condition than could be obtained from reading the Consolidated Financial Statements alone. Citizens Banking Corporation earned $33,596,000 or $2.30 per fully diluted share during 1995 compared with $29,414,000 or $2.03 per share in 1994. Net income was up $4,182,000 or $0.27 per fully diluted share over the prior year and reflected a 14.2% increase in net income. This marked the Corporation's thirteenth consecutive year of increased net operating income and eighth consecutive year of record earnings. The Corporation's 1995 results reflect ten months of operations for the four Michigan affiliates of Banc One Corporation purchased at the close of business on February 28, 1995. The transaction was accounted for as a purchase and the four banks ("acquired banks") were merged into Citizens Commercial & Savings Bank headquartered in Flint, Michigan effective immediately after the acquisition. Total assets acquired of $670 million included net loans of $532 million and investment securities and money market investments of $57 million. Cost-in-excess of the fair value of identifiable net assets acquired ("intangible assets") of $59.2 million and is being amortized over 15 years. Return on average assets was 1.02% in 1995, a decrease from 1.09% in 1994. The decline in the Corporation's return on assets is primarily attributable to additional interest expense, intangible asset amortization costs and nonrecurring systems conversions costs associated with the acquired banks. Systems integration and conversion of the acquired banks to Citizens' corporate systems was completed in the second and third quarters of 1995, and as a result the acquisition was accretive to earnings in the fourth quarter. Return on average equity improved to 12.10% in 1995 compared with 11.46% last year. Average shareholders' equity was $277.6 million or 8.46% of total average assets for 1995 compared with $256.6 million or 9.46% for 1994. The Corporation's risk-based capital levels exceeded all regulatory requirements. An analysis of changes in major income statement components in 1995 from 1994 is presented below. Overall, the increase in net income reflects improvement in net interest income and noninterest income, offset, in part, by increases in noninterest expense and income taxes. Higher levels of earning assets, primarily loans and leases, resulted in higher net interest income. Additional data on the Corporation's performance during the past five years appears in Table 1.
- ----------------------------------------------------------------------------- Year Ended December 31, Changes in 1995 ------------------------ ------------------- (in thousands) 1995 1994 Amount Percent - ----------------------------------------------------------------------------- Interest income $240,600 $179,989 $60,611 33.7% Interest expense 103,105 61,589 41,516 67.4 -------- -------- ------- Net interest income 137,495 118,400 19,095 16.1 Provision for loan losses 6,441 5,303 1,138 21.5 Noninterest income 36,434 33,854 2,580 7.6 Noninterest expense 121,087 107,245 13,842 12.9 Income taxes 12,805 10,292 2,513 24.4 -------- -------- ------- Net income $ 33,596 $ 29,414 $ 4,182 14.2 ======== ======== =======
NET INTEREST INCOME The largest segment of the Corporation's operating income is net interest income, which is the sum of interest and certain fees derived from earning assets minus interest paid on deposits and other funding sources. Net interest income is impacted by changes in the volume and mix of earning assets and funding sources, market rates of interest, demand for loans and the availability of deposits. Other factors, such as Federal Reserve Board monetary policy and changes in tax laws, may also have an impact on changes in net interest income from one period to another. Average balances and rates on major categories of interest-earning assets and interest-bearing liabilities during the past three years appear in Table 2. Total average earning assets were 19.9% higher during 1995 compared with 1994 primarily due to the purchase of the acquired banks. The composition of average earning assets changed in 1995 as total average loans increased $505 million to 76.7% of average earning assets from 71.9% in 1994. Average investment securities including money market investments represented 23.3% of average earning assets in 1995 compared with 28.1% in 1994. Total average interest-bearing liability balances increased 58 5 TABLE 2. AVERAGE BALANCES/NET INTEREST INCOME/AVERAGE RATES
1995 1994 1993 ------------------------------ ------------------------------ ------------------------------ Year Ended December 31 AVERAGE AVERAGE Average Average Average Average (in millions) BALANCE INTEREST(1) RATE(2) Balance Interest(1) Rate(2) Balance Interest(1) Rate(2) - --------------------------------------------------------------------------------------------------------------------------------- EARNING ASSETS Money market investments: Time deposits with banks $ 4.9 $ 0.3 5.87% $ 5.4 $ 0.2 4.65% $ 12.8 $ 0.4 3.30% Federal funds sold 74.1 4.4 6.01 43.0 1.9 4.46 46.5 1.4 3.04 Term federal funds sold and other 47.2 2.7 5.69 5.1 0.3 5.21 8.3 0.3 3.64 Investment securities(3): Taxable 402.1 22.5 5.60 447.9 22.7 5.07 393.9 19.6 4.96 Nontaxable 175.4 9.4 8.30 208.1 10.6 7.86 243.9 11.7 7.31 Loans(4): Commercial 902.4 81.9 9.17 756.2 59.7 8.01 657.8 48.4 7.51 Real estate 436.1 36.2 8.29 389.7 31.8 8.16 388.8 32.7 8.40 Consumer installment 900.1 79.0 8.78 569.4 47.3 8.30 503.1 45.2 8.99 Lease financing 63.8 4.2 6.55 81.9 5.5 6.71 93.6 6.7 7.16 -------- ------ -------- ------ -------- ------ Total earning assets(3) 3,006.1 240.6 8.20 2,506.7 180.0 7.45 2,348.7 166.4 7.39 NONEARNING ASSETS Cash and due from banks 141.6 124.3 109.7 Premises and equipment 61.9 53.6 49.4 Other assets 102.4 49.8 47.9 Allowance for loan losses (32.4) (23.7) (20.6) -------- -------- -------- Total assets $3,279.6 $2,710.7 $2,535.1 ======== ======== ======== INTEREST-BEARING LIABILITIES Deposits: Interest-bearing demand $ 309.4 5.8 1.87 $ 256.1 4.4 1.71 $ 238.5 5.0 2.08 Savings 909.7 25.6 2.82 909.4 21.7 2.39 832.4 21.3 2.56 Time 1,031.6 56.8 5.50 717.0 29.9 4.17 712.8 31.0 4.35 Short-term borrowings 146.0 7.2 4.95 141.2 5.1 3.62 138.4 4.2 3.04 Long-term debt 102.8 7.7 7.52 8.7 0.5 5.24 13.1 0.6 4.74 -------- ------ -------- ------ -------- ------ Total interest-bearing liabilities 2,499.5 103.1 4.12 2,032.4 61.6 3.03 1,935.2 62.1 3.21 NONINTEREST-BEARING LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits 451.6 379.7 325.6 Other liabilities 50.9 42.0 43.1 Shareholders' equity 277.6 256.6 231.2 -------- -------- -------- Total liabilities and shareholders' equity $3,279.6 $2,710.7 $2,535.1 ======== ======== ======== NET INTEREST INCOME $137.5 $118.4 $104.3 ====== ====== ====== NET INTEREST INCOME AS A PERCENT OF EARNING ASSETS 4.77% 4.99% 4.74%
(1) Interest income is shown on an unadjusted basis and therefore does not include taxable equivalent adjustments. (2) Average rates include taxable equivalent adjustments to interest income of $5,983,000, $6,684,000 and $7,003,000 for the years ended December 31, 1995, 1994, and 1993, respectively, based on a 35% tax rate. (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. (4) Nonaccrual loans are included in average balances. 59 6 23.0% in 1995 compared to 1994, while average noninterest-bearing deposit balances increased 18.9%. The average yield on earning assets improved 75 basis points to 8.20% in 1995. Yields increased in all categories of earning assets except lease financing, in response to the higher interest rate environment. The cost of interest-bearing liabilities increased 109 basis points to 4.12% in 1995 from 3.03% in 1994. This increase was attributable to $115 million of long term debt incurred to fund the first quarter 1995 acquisition and higher deposit costs, primarily from savings and time accounts. Long-term debt comprised 3.4% of total funding sources during 1995, compared with 0.4% in 1994. Additionally, the weighted average rate on all long-term debt increased to 7.52% in 1995 from 5.24% in 1994. The increased costs on interest bearing liabilities more than offset increased yields on earning assets causing the interest spread on earning assets (the difference between the average yield on earning assets and the average rate on interest-bearing liabilities) to decrease from 4.42% in 1994 to 4.08% in 1995. As a result, net interest margin decreased from 4.99% in 1994, to 4.77% in 1995, a 22 basis point decline. The effect on net interest income of changes in average balances ("volume") and yields and rates ("rate") are quantified in Table 3. As shown, net interest income improved in 1995 due to volume-related increases primarily attributable to the February 28, 1995 acquisition which provided $16.6 million of the volume related increase. Higher costs of interest-bearing liabilities offset the effects of increased asset yields resulting in unfavorable rate related variances of $2.0 million. In the latter part of 1995 and again in early 1996, the Federal Reserve Board lowered the federal funds rate. As a result money market interest rates declined and the Corporation lowered it's prime lending rate. Management continually monitors the Corporation's balance sheet to insulate net interest income from significant swings caused by interest rate volatility. If market rates continue to decrease in 1996, corresponding changes in funding costs would be considered to avoid a negative impact on net interest income. The Corporation's policies in this regard are further discussed in the section titled "Interest Rate Risk". TABLE 3. ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
1995 COMPARED TO 1994 1994 Compared to 1993 --------------------------------- --------------------------------- INCREASE (DECREASE) Increase (Decrease) DUE TO CHANGE IN Due to Change in Year Ended December 31 NET -------------------- Net -------------------- (in millions) CHANGE(1) RATE (2) VOLUME Change(1) Rate (2) Volume - ----------------------------------------------------------------------------------------------------- INTEREST INCOME: Money market investments: Time deposits with banks $0.1 $0.1 $(0.0) $(0.2) $--- $(0.2) Federal funds sold 2.5 1.1 1.4 0.5 0.6 (0.1) Term federal funds sold 2.4 0.2 2.2 0.0 0.1 (0.1) Investment securities: Taxable (0.2) 1.8 (2.0) 3.1 0.9 2.2 Tax-exempt (1.2) 0.5 (1.7) (1.1) 0.8 (1.9) Loans 57.0 16.2 40.8 11.3 (1.9) 13.2 ---- ---- ---- ---- ----- ---- Total 60.6 19.9 40.7 13.6 0.5 13.1 ---- ---- ---- ---- ----- ---- INTEREST EXPENSE: Deposits: Demand 1.4 0.4 1.0 (0.6) (0.9) 0.3 Savings 3.9 4.1 (0.2) 0.4 (1.9) 2.3 Time 26.9 13.2 13.7 (1.1) (1.6) 0.5 Short-term borrowings 2.1 1.9 0.2 0.9 0.8 0.1 Long-term debt 7.2 2.3 4.9 (0.1) 0.1 (0.2) ---- ---- ---- ---- ----- ---- Total 41.5 21.9 19.6 (0.5) (3.5) 3.0 ---- ---- ---- ---- ----- ---- NET INTEREST INCOME $19.1 $(2.0) $21.1 $14.1 $4.0 $10.1 ===== ===== ===== ===== ==== =====
(1) Changes are based on actual interest income and do not reflect taxable equivalent adjustments. (2) Rate/Volume variances are allocated to changes due to rate. 60 7 PROVISION AND ALLOWANCE FOR LOAN LOSSES Management provides for possible loan losses at a level determined adequate based upon judgements regarding historical loss experience, the financial condition of borrowers, the size and composition of the loan portfolio, the level and composition of nonperforming loans, estimated future net charge-offs, present and anticipated economic conditions and other factors. A summary of the Corporation's loan loss experience from 1991 through 1995 appears in Table 4. Management increased the provision for loan losses in 1995 by $1.1 million from 1994, primarily due to the acquisition of the four banks. Net loan charge-offs were 0.16% of average loans in 1995, down from 0.17% in 1994 and below peer group levels. The ability to cover loan charge-offs improved during the year as the ratio of the allowance for loan losses to net loans charged off increased to 9.6 times at December 31, 1995 compared with 7.9 times as of December 31, 1994. At year end, the allowance for loan losses was $34.8 million or 1.43% of total loans, up $10.1 million from 1.36% at December 31, 1994. The increase is attributable to a higher loan loss provision in 1995 as compared to 1994 and the addition of the $7.2 million allowance of the acquired banks. Gross charge-offs increased $1.8 million, or 29.6% from 1994, partially due to charge-offs related to the acquired banks. Recoveries on loans previously charged off increased 44.5% compared to the prior year, resulting in a slight decline in the ratio of net charge-offs to average loans outstanding. The ratio of net charge-offs to average loans for each of the loan portfolios except commercial decreased compared with the prior year as follows: commercial (0.16% versus 0.06%), mortgage (0.01% versus 0.02%), consumer (0.14% versus 0.27%) and leasing (0.70% versus 1.22%). The Corporation maintains formal policies and procedures to control and monitor credit risk. Management believes the allowance for loan losses is adequate to meet presently known credit risks in the loan portfolio. The Corporation's loan portfolio has no significant concentrations in any one industry nor any exposure in foreign loans. TABLE 4. SUMMARY OF LOAN LOSS EXPERIENCE
Year Ended December 31 (in thousands) 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------- Allowance for loan losses - January 1 $24,714 $22,547 $19,404 $19,759 $19,448 Allowance of acquired banks 7,235 --- 1,642 --- --- Provision for loan losses 6,441 5,303 5,597 6,251 6,086 CHARGE-OFFS: Commercial 2,971 1,869 2,629 2,781 2,125 Real estate(1) 69 72 403 946 668 Consumer installment 4,362 3,020 3,182 4,169 4,667 Lease financing 519 1,153 182 803 251 ---------- ---------- ---------- ---------- ---------- Total charge-offs 7,921 6,114 6,396 8,699 7,711 ---------- ---------- ---------- ---------- ---------- RECOVERIES: Commercial 1,534 1,390 673 601 431 Real estate(1) 22 4 177 10 41 Consumer installment 2,675 1,510 1,362 1,474 1,464 Lease financing 71 74 88 8 --- ---------- ---------- ---------- ---------- ---------- Total recoveries 4,302 2,978 2,300 2,093 1,936 ---------- ---------- ---------- ---------- ---------- Net charge-offs 3,619 3,136 4,096 6,606 5,775 ---------- ---------- ---------- ---------- ---------- Allowance for loan losses - December 31 $34,771 $24,714 $22,547 $19,404 $19,759 ========== ========== ========== ========== ========== Loans outstanding at year-end $2,428,513 $1,816,221 $1,780,180 $1,557,423 $1,536,461 Average loans outstanding 2,302,414 1,797,153 1,643,327 1,539,332 1,545,108 Ratio of allowance for loan losses to loans outstanding at year-end 1.43% 1.36% 1.27% 1.25% 1.29% Ratio of net loans charged off as a percentage of average loans outstanding 0.16% 0.17% 0.25% 0.43% 0.37%
(1) 1995 and 1994 commercial real estate loan balances and related charge-offs and recoveries are reflected in the commercial loan category. Previous years' balances have not been reclassified. 61 8 The Corporation has generally not extended credit to finance highly leveraged transactions nor does it intend to do so in the future. Employment levels and other economic conditions in the Corporation's local markets may have a significant impact on the level of credit losses. Management continues to identify and devote attention to credits that may not be performing as well as expected. Nonperforming loans are further discussed in the section titled "Nonperforming Assets". NONINTEREST INCOME Noninterest income accounted for 20.9% of total operating income or 1.1% of average assets in 1995, decreasing from 22.2% or 1.3%, respectively, in 1994. The decline was primarily the result of discontinuing the Travel Banking product line in early 1995, which provided bankcard merchant fee income. This decrease was more than offset by reductions in associated operating expenses, including interchange and other bankcard expenses. Excluding the effects of the Travel Banking product line and the newly acquired banks, 1995 noninterest income increased by 2.7% over 1994 levels. An analysis of the components of noninterest income is on the following page. Excluding the results of the acquired banks, trust income increased $246,000 or 2.5%. The largest increases occurred in employee benefit trust services. The Corporation offers comprehensive trust services to its customers including investment management services in the personal trust, institutional and employee benefit plan market segments. Deposit service charges increased 12.7% including the results of the newly acquired banks. Brokerage and investment fees decreased $196,000, or 13.8%, excluding the impact of the acquired banks. The decrease in brokerage and investment fees is due to lower market penetration and a temporary reduction in staff during the first half of 1995. Other loan income increased $615,000 from 1994, primarily attributable to premiums on the sale of student loans and loan servicing income from the operations of the acquired banks. Net gains on sale of mortgages were $327,000 in 1995 compared with $255,000 in 1994. The direction and magnitude of changes in market interest rates, as well as the volume of originated mortgages retained, may affect future levels of income for this category. Excluding the acquired banks, other loan income increased $25,900 or 2.0% in 1995 as compared to 1994. ATM fees increased $222,000, or 16.9%, excluding the impact of the acquired banks, due to increased volumes. Increases in cash management services, safe deposit and the other fees resulted primarily from the acquired banks. The Corporation realized net gains on sales of investment securities of $198,000 during 1995 compared with net gains of $157,000 during 1994. As presented in Note 3 to the Consolidated Financial Statements, gross realized gains on sales of investment securities amounted to $202,000 in 1995 while gross realized losses amounted to $4,000. The comparable amounts in 1994 were $326,000 and $169,000, respectively. Proceeds from sales of investment securities during 1995 totaled $7.0 million or 1.2% of total average security holdings compared with $190.3 million or 29.3% in 1994. The 1994 and 1995 net gains resulted from the sale of certain securities to reposition the investment portfolio based on the current rate environment. Effective January 1, 1994, the Corporation adopted Financial Accounting Standards Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). This Statement requires the Corporation to classify securities into one of three categories based on its intent and ability to hold the investment to maturity. These categories include: held-to-maturity (securities that the Corporation has the positive intent and ability to hold to maturity), trading (securities bought and held principally for the purpose of selling in the near future) and available-for-sale (securities not classified in either of the two other categories). At adoption, the Corporation classified all of its investment portfolio into the available-for-sale category. Securities classified as available-for-sale are recorded at fair value with unrealized gains or losses reported as a separate component of shareholders' equity. Adoption increased shareholders' equity on January 1, 1994 by $6.6 million. The Corporation's policies with respect to the classification of investments in debt and equity securities are further discussed in the section titled "Investment Securities and Money Market Investments" and in Note 1 to the Consolidated Financial Statements. 62 9
- --------------------------------------------------------------------------------------------------- NONINTEREST INCOME Year Ended December 31, Changes in 1995 ---------------------- ------------------- (in thousands) 1995 1994 Amount Percent - --------------------------------------------------------------------------------------------------- Trust fees $11,314 $9,697 $1,617 16.7% Service charges on deposit accounts 9,717 8,618 1,099 12.7 Bankcard fees 5,635 7,694 (2,059) (26.8) Brokerage and investment fees 1,277 1,392 (115) (8.3) Other loan income 1,925 1,310 615 46.9 ATM network user fees 1,665 1,311 354 27.0 Cash management services 1,038 916 122 13.3 Safe deposit rentals 1,012 797 215 27.0 Investment securities gains 198 157 41 26.1 Other 2,653 1,962 691 35.2 ------- ------- ------ Total noninterest income $36,434 $33,854 $2,580 7.6 ======= ======= ======
- --------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE Year Ended December 31, Changes in 1995 ---------------------- ------------------- (in thousands) 1995 1994 Amount Percent - --------------------------------------------------------------------------------------------------- Salaries and employee benefits $ 64,357 $ 55,722 $ 8,635 15.5% Equipment 9,709 8,505 1,204 14.2 Occupancy 9,000 8,050 950 11.8 Intangible asset amortization 4,687 1,602 3,085 192.6 FDIC insurance premiums 3,250 5,050 (1,800) (35.6) Bankcard fees 3,418 6,095 (2,677) (43.9) Stationery and supplies 3,570 2,762 808 29.3 Postage and delivery 3,189 2,359 830 35.2 Advertising and public relations 2,386 1,717 669 39.0 Taxes, other than income taxes 2,448 2,519 (71) (2.8) Consulting and other professional fees 1,782 1,632 150 9.2 Legal, audit and examination fees 1,762 1,729 33 1.9 Loan and credit charges 1,860 1,290 570 44.2 Other 9,669 8,213 1,456 17.7 -------- -------- ------- Total noninterest expense $121,087 $107,245 $13,842 12.9 ======== ======== =======
63 10 NONINTEREST EXPENSE The major components of noninterest expense are summarized on the previous page. Excluding the effects of the acquired banks, noninterest expense decreased $4,143,100, or 3.9% in 1995, from 1994 primarily due to a reduction in the FDIC insurance assessments paid by the Corporation's banks for the last seven months of 1995 and the discontinuance of the Travel Banking product line. SALARIES AND BENEFITS Compensation is the Corporation's largest noninterest expense. Excluding the impact of the acquired banks, total compensation expense increased 0.2% to $55,815,000 from $55,722,000 in 1994. This modest increase was primarily due to continued health care benefit cost containment and declines in the number of full-time equivalent employees, offset in part by higher incentive compensation and merit increases. The reduction in staff occurred through normal attrition. The consolidation of various business units and supporting functions throughout the Corporation continues to enhance productivity and mitigate the need to replace staff lost through attrition. In June 1996, the Michigan subsidiaries of the Corporation will collapse their respective charters and subsequently operate as one bank called Citizens Bank. This change will consolidate remaining operational areas and systems and allow for standardization of products and services offered throughout the Corporation's market area. Management anticipates further productivity gains through these operational consolidations and standardization of products and services. OTHER NONINTEREST EXPENSES FDIC insurance assessments decreased by $1,800,000, or 35.6% in 1995 as compared to 1994. The decline resulted from a new rate schedule implemented by the FDIC partially offset by an increase in the Corporation's deposit base due to the purchase of the acquired banks. As a result of the new rate schedule, deposit insurance assessments decreased from 23 cents to 4 cents per $100 of insured deposits for all banks within the Corporation beginning in June 1995. Excluding the impact of the acquired banks, occupancy expense declined $326,000, or 4.0% and equipment expense increased $119,000 or 1.4% compared to the previous year. Intangible asset amortization increased $3,085,000 in 1995 compared with 1994 as a result of the February 28, 1995 acquisition which added $59.2 million to the Corporation's cost-in-excess of the fair value of identifiable net assets acquired. Stationery and supplies, postage and delivery, advertising and public relations and consulting and other professional fee expenses reflect increases related to the ongoing costs associated with the acquired banks as well as one time acquisition and conversion costs. During the second and third quarters of 1995, the Corporation completed all system integration and conversions for the acquired banks to operate within Citizens' corporate systems. This conversion allowed the Corporation to realize cost savings from the consolidated operating systems beginning in the fourth quarter of 1995. Excluding the impact of the acquired banks, bankcard processing expense declined $2,882,000 or 50.3% as compared to 1994, primarily due to the discontinuance of the Travel Banking product line in early 1995 which had previously generated significant amounts of interchange and other bankcard expense. Other loan fees and the "other" component of noninterest expense increased due to expense associated with the acquired banks. FEDERAL INCOME TAXES Income tax expense was $12,805,000 in 1995, an increase of 24.4% over the 1994 total of $10,292,000. The increase was due to higher pre-tax earnings and lower tax-exempt interest income in 1995 as compared to 1994. 64 11 BALANCE SHEET Proper management of the volume and composition of the Corporation's earning assets and funding sources is essential for ensuring strong and consistent earnings performance, maintaining adequate liquidity and limiting exposure to risks caused by changing market conditions. The Corporation's investment security portfolio is structured to provide a source of liquidity through maturities and generate an income stream with relatively low levels of principal risk. The Corporation does not engage in active securities trading. Loans comprise the largest component of earning assets and presently are the Corporation's highest yielding assets. Customer deposits are the primary source of funding for earning assets while short-term debt and other managed sources of funds are utilized as market conditions and liquidity needs change. The Corporation's total assets averaged $3.280 billion for 1995, up $569 million from 1994, primarily due to the purchase of the acquired banks at the close of business on February 28, 1995. The ratio of average earning assets to total average assets during 1995 was 91.6%, compared to 92.2% for 1994. The slight decline reflects an increase in intangible asset balances resulting from the acquisition. Average loans and leases comprised 70.2% of total assets during 1995, up from 66.3% in 1994. The ratio of average noninterest-bearing deposits to total deposits remained unchanged from 1994. Interest-bearing deposits comprised 90.0% of total average interest-bearing liabilities during 1995, down from 92.6% in 1994. Average long-term debt increased $94 million to 4.1% of average interest-bearing liabilities as a result of the acquisition. INVESTMENT SECURITIES AND MONEY MARKET INVESTMENTS Total investment securities, including money market investments, comprised 23.3% of total average earning assets in 1995, down from 28.1% in 1994. The decrease in investment securities occurred as proceeds from maturities were used to fund loan growth and maintain liquidity. A summary of average investment security balances during 1995 and 1994 follows:
- ---------------------------------------------------------------------------------- INVESTMENT SECURITIES Average Balances(1) Changes in 1995 --------------------- ------------------- Year Ended December 31 (in thousands) 1995 1994 Amount Percent - ---------------------------------------------------------------------------------- U.S. Treasury $206,253 $233,681 $ (27,428) (11.7)% Federal agencies: Mortgage-backed 76,324 94,836 (18,512) (19.5) Other 59,945 49,096 10,849 22.1 State and municipal: Taxable 42,033 53,977 (11,944) (22.1) Tax-exempt 177,392 210,472 (33,080) (15.7) Other 12,201 7,525 4,676 62.1 -------- -------- --------- Total $574,148 $649,587 $ (75,439) (11.6) ======== ======== =========
(1) Average balances reflect the estimated fair value of investment securities Average total investment in U.S. Treasury securities comprised 35.9 % of average total investment securities during 1995, decreasing slightly from 36.0% in 1994. Average Federal agency mortgage-backed securities, primarily collateralized mortgage obligations ("CMO's"), decreased 19.5% in 1995 as proceeds from principal repayments were reinvested in other securities and money market investments and utilized to fund loan growth. The Corporation continues to invest in U.S. Treasury and Federal agency securities which offer increased creditworthiness and liquidity compared with privately issued CMO's. Total state and municipal securities comprised 38.2% of total average investment securities during 1995 compared with 40.7% in 1994. Average tax-exempt state and municipal securities decreased 15.7% from 1994. Purchases of these securities remain dependent on the Corporation's capacity for tax-exempt income. Other securities consisting of Federal Reserve stock, privately issued CMO's and asset backed securities increased 62.1% primarily due to securities acquired as part of the February 28, 1995 acquisition. 65 12 Money market investments, primarily federal funds sold and term federal funds sold, averaged $126.2 million in 1995, up 136.0% from $53.5 million in 1994. The amount of funds invested in these assets is based on the present and anticipated interest rate environment, liquidity needs and other economic factors. The Corporation's present policies with respect to the classification of investments in debt and equity securities are discussed in Note 1 to the Consolidated Financial Statements. An analysis of investment securities at year-end for each of the last three years is presented in Table 5. TABLE 5. ANALYSIS OF INVESTMENT SECURITIES
U.S. Treasury and Federal Agency(1) State and Municipal(2) Other(1) Total -------------------------- -------------------------- ------------------------- ------------------------- Amortized Fair Amortized Fair Amortized Fair Amortized Fair (in millions) Cost Value Yield Cost Value Yield Cost Value Yield Cost Value Yield - ---------------------------------------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE: MATURITIES AT DECEMBER 31, 1995 DUE WITHIN ONE YEAR $169.4 $186.1 5.47% $44.0 $43.6 6.97% $2.8 $2.9 6.37% $216.2 $232.6 5.78% ONE TO FIVE YEARS 174.8 159.0 5.78 87.2 90.0 8.50 1.0 1.0 7.74 263.0 250.0 6.69 FIVE TO TEN YEARS 1.2 1.2 7.91 45.7 47.0 8.25 0.4 0.4 7.81 47.3 48.6 8.23 AFTER TEN YEARS 0.2 0.2 8.36 32.2 32.9 8.38 6.6 6.6 6.21 39.0 39.7 8.02 ------ ------ ----- ----- ---- ---- ------ ------ TOTAL $345.6 $346.5 5.63 $209.1 $213.5 8.11 $10.8 $10.9 6.45 $565.5 $570.9 6.56 ====== ====== ====== ====== ===== ===== ====== ====== AVERAGE MATURITY 1.39 yrs. 4.31 yrs. 1.76 yrs. 2.94 yrs. At December 31, 1994 Total $346.8 $331.0 5.27% $229.0 $226.4 7.89% $6.5 $6.6 6.67% $582.3 $564.0 6.32% ====== ====== ====== ====== ==== ==== ====== ====== Average maturity 2.00 yrs. 4.34 yrs. 3.53 yrs. 2.94 yrs. Held-to-maturity: At December 31, 1993 Total $361.7 $363.0 4.79% $279.4 $287.8 7.35% $9.2 $9.6 5.52% $650.3 $660.4 5.90% ====== ====== ====== ====== ==== ==== ====== ====== Average maturity 2.32 yrs. 3.48 yrs. 1.60 yrs. 2.81 yrs.
(1) Maturities for FNMA & GNMA mortgage participation securities, collateralized mortgage obligations and asset-backed securities are based upon projections of independent cash flow models. (2) Yields for state and municipal securities are calculated on a tax equivalent basis using a 35% tax rate. As of December 31, 1995, the estimated aggregate fair value of the Corporation's investment securities portfolio was $5.4 million above amortized cost. At December 31, 1995 gross unrealized gains were $6.9 million and gross unrealized losses were $1.5 million. A summary of estimated fair values and unrealized gains and losses for the major components of the investment securities portfolio is provided in Note 3 to the Consolidated Financial Statements. In December 1994, the Corporation adopted Financial Accounting Standards Board Statement No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments" ("SFAS 119"). This Statement defines a derivative as a future, forward, swap, option contract or other financial instrument with similar characteristics. The Statement requires expanded disclosures about these types of financial instruments. The Corporation does not invest in derivatives or related types of financial instruments except for Federal agency collateralized mortgage obligations and, therefore, the adoption of this Statement did not have a material effect. The Corporation's policy only allows the purchase of collateralized mortgage obligations that are composed of mortgage backed securities issued by a Federal Agency. Any CMO's purchased are in early tranches with short average lives. These tranches are classified in the Planned Amortization Class and have well-defined prepayment assumptions (Super PAC's). The Corporation's CMO's are periodically tested to ensure compliance with guidelines established by the Federal Financial Institutions Examination Council. LOANS AND LEASES The Corporation extends credit primarily within the local markets of its seven bank subsidiaries. These natural geographic concentrations extend along the Interstate 75 corridor within the State of Michigan from northern suburban Detroit to the greater Grayling/Gaylord area, as well as the western suburban market of Chicago, Illinois. During 1995, the Corporation expanded its market presence 66 13 with the purchase of the acquired banks. These new locations in East Lansing, Fenton, Sturgis and Ypsilanti give the Corporation opportunities within the western suburban Detroit, central and southwestern Michigan market areas. The Corporation's loan portfolio is widely diversified by borrowers with no concentration within a single industry that exceeds 10% of total loans. The Corporation's loan portfolio balances are summarized in Table 6. Total average loans and leases comprised 76.7% of total average earning assets during 1995 compared with 71.9% during 1994. As the economy continued to expand in 1995, the Corporation experienced greater loan demand with total average loans increasing 28.1% (3.0% excluding the acquired banks). This growth occurred in all major loan categories except the lease financing portfolio. The majority of loan growth occurred as a result of the February 28, 1995 acquisition. Consumer installment loans represent the most significant component of the acquired banks' loan portfolio. Increased demand for business loans in the Corporation's local markets and improved economic conditions modestly expanded the commercial and commercial real estate loan portfolio 19.3% (3.4% excluding the acquired banks) in 1995 from 1994 levels. Average consumer loan balances increased to $900.1 million in 1995 from $569.4 million, or 58.1% (7.0% excluding the acquired banks). Average mortgage loan balances increased $46.4 million or 11.9% in 1995, from $389.7 million in 1994 (1.9% excluding the acquired banks). In May 1995, Financial Accounting Standards Board issued Statement No. 122 "Accounting for Mortgage Servicing Rights". The Statement amends FASB Statement No. 65 to require mortgage banking related companies to recognize as a separate asset the rights to service mortgage loans for others regardless of how those servicing rights are acquired. This may be through purchase or origination of the mortgage loans. The Statement is effective for years beginning after December 15, 1995. The Corporation will adopt the Statement January 1, 1996. The impact of adoption on the Corporation is not expected to be material. TABLE 6. LOAN PORTFOLIO
1995 1994 1993 1992 1991 ---------------- ---------------- ---------------- ---------------- ---------------- December 31 (in millions) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent - -------------------------------------------------------------------------------------------------------------------------- Commercial $566.9 23.3% $461.9 25.4% $426.9 24.0% $398.7 25.6% $404.4 26.4% Commercial real estate 339.0 14.0 286.4 15.8 286.6 16.1 247.3 15.9 260.4 16.9 Real estate-construction 34.0 1.4 24.9 1.4 38.3 2.2 23.4 1.5 13.7 0.9 Real estate-mortgage 457.8 18.9 384.4 21.2 398.1 22.3 336.8 21.6 353.3 23.0 Consumer installment 970.7 40.0 581.3 32.0 534.7 30.0 471.4 30.3 457.2 29.7 Lease financing 60.1 2.4 77.3 4.3 95.6 5.4 79.8 5.1 47.5 3.1 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total $2,428.5 100.0% $1,816.2 100.0% $1,780.2 100.0% $1,557.4 100.0% $1,536.5 100.0% ======== ===== ======== ===== ======== ===== ======== ===== ======== =====
NONPERFORMING ASSETS A five year history of nonperforming assets is presented in Table 7. Total nonperforming assets, comprised of nonaccrual loans, loans 90 days past due and still accruing, restructured loans and other real estate, amounted to $21.1 million as of December 31, 1995, a decrease of 3.7% from the year-end 1994 total of $21.9 million. Nonperforming loans as a percentage of total loans declined significantly to 0.81% at December 31, 1995 from 1.09% on December 31, 1995, a decrease of 25.7%. The decline resulted from the Corporation's continued management of loan portfolio quality and favorable economic conditions. In addition, during 1995 consumer installment loan balances (which historically contain lower levels of nonperforming loans) grew at a faster rate than other segments of the portfolio, reflecting the retail orientation of the acquired banks. The consumer installment portfolio is composed of automobile, personal, marine, home equity and bankcard loans of which automobile and home equity comprise 66.7% of the 1995 average balances. One to four family residential home loans comprise the majority of the real estate mortgage balances. The Corporation's commercial real estate portfolio represents 14.0% of total loans at December 31, 1995 compared to 15.8% at year end 1994. Within this portfolio, nonperforming loans represented 16.4% of total nonperforming loans at December 31, 1995 compared with 18.7% at December 31, 1994. Management believes the risk of loss on such nonaccrual loans is significantly less than the total principal balance, due to the nature of the underlying collateral. These loans are generally for owner-occupied properties and do not rely on the performance of the real estate market to generate funds for repayment. The Corporation maintains formal policies and procedures to control and monitor credit risk within these portfolios. Based upon present information, management believes the allowance for loan losses is adequate to meet presently known credit risks. 67 14 TABLE 7. NONPERFORMING ASSETS AND PAST DUE LOANS
December 31 (in thousands) 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------------------------- NONPERFORMING LOANS(1),(2) Nonaccrual(3) Less than 30 days past due $ 4,783 $ 5,185 $ 2,518 $ 3,247 $ 1,696 From 30 to 89 days past due 784 1,405 938 1,781 2,168 90 or more days past due 13,057 11,566 17,815 15,731 20,846 ------- -------- -------- -------- -------- Total 18,624 18,156 21,271 20,759 24,710 90 days past due and still accruing(5) 432 1,253 155 1,206 1,196 Restructured(1) 494 299 238 382 547 ------- -------- -------- -------- -------- Total nonperforming loans 19,550 19,708 21,664 22,347 26,453 OTHER REAL ESTATE(3) 1,568 2,230 2,185 4,333 4,214 ------- -------- -------- -------- -------- Total nonperforming assets $21,118 $21,938 $23,849 $26,680 $30,667 ======= ======== ======== ======== ======== Nonperforming loans as a percent of total loans 0.81% 1.09% 1.22% 1.44% 1.72% Nonperforming assets as a percent of total loans plus other real estate 0.87 1.21 1.34 1.71 1.99 NONPERFORMING LOANS BY TYPE Commercial $13,059 $15,741 $13,034 $10,874 $11,831 Real estate(3)(4) 2,543 1,224 5,232 8,940 12,149 Consumer installment 2,600 1,174 1,574 1,503 1,981 Lease financing 1,348 1,569 1,824 1,030 492 ------- -------- -------- -------- -------- Total $19,550 $19,708 $21,664 $22,347 $26,453 ======= ======== ======== ======== ========
(1) Nonperforming loans include loans on which interest is being recognized only upon receipt (nonaccrual), those on which interest has been renegotiated to lower than market rates because of the financial condition of the borrowers (restructured), and loans 90 days past due and still accruing. (2) Gross interest income that would have been recorded in 1995 for nonaccrual and restructured loans, as of December 31, 1995, assuming interest had been accrued throughout the year in accordance with original terms was $2.509 million. The comparable 1994 and 1993 totals were $1.879 million, and $1.589 million, respectively. Interest collected on these loans and included in income was $1.427 million in 1995, $1.128 million in 1994 and $0.697 million in 1993. Therefore, on a net basis, total income foregone due to these loans was $1.082 million in 1995, $0.751 million in 1994 and $0.892 million in 1993. (3) Assets in-substance foreclosed previously reported as other real estate were reclassified as nonaccrual loans in the fourth quarter of 1993. Assets in-substance foreclosed totaled $0 at December 31, 1995; $0.021 million at December 31, 1994; $1.720 million at December 31, 1993; $2.983 million at December 31, 1992 and $4.302 million at December 31, 1991. (4) 1995 and 1994 nonperforming commercial real estate loan balances have been reclassified into the nonperforming commercial loan category. Previous years' balances have not been reclassified. (5) In 1995, loans 90 days past due and still accruing were reclassified as nonperforming loans. All prior year information was restated. The Corporation changed its nonperforming asset policy in the third quarter of 1995 to include loans 90 days past due and still accruing in the nonperforming asset category. Previously these loans were considered underperforming assets. All nonperforming asset disclosures have been adjusted to reflect this change. The change did not materially impact the percentage of nonperforming loans to total loans. The level and composition of nonperforming assets are affected by economic conditions in the Corporation's local markets. Nonperforming assets, charge-offs and provisions for loan losses tend to decline in a strong economy and increase in a weak economy, potentially impacting the Corporation's results. In addition to nonperforming loans, management carefully 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 December 31, 1995, such loans amounted to $10.8 million or 0.5% of total loans compared with $15.3 million or 0.8% of total loans as of December 31, 1994. These loans are primarily commercial and commercial real estate loans made in the normal course of business and do not represent a concentration in any one industry. Collectively, these loans and the nonperforming assets in Table 7 represent 1.32% of total loans as of December 31, 1995 compared with 2.0% as of December 31, 1994. 68 15 TABLE 8. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
Amount Allocated by Loan Category -------------------------------------------------- December 31 (in millions) 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------- Commercial $11.2 $10.6 $6.0 $6.9 $7.9 Real estate-construction 0.1 0.1 0.2 0.1 0.2 Real estate-mortgage(1) 1.1 1.0 3.2 3.2 3.0 Consumer installment 13.2 7.0 6.6 5.7 5.2 Lease financing 1.2 1.2 1.1 1.0 0.4 ----- ----- ----- ----- ----- Total allocated 26.8 19.9 17.1 16.9 16.7 Unallocated 8.0 4.8 5.4 2.5 3.1 ----- ----- ----- ----- ----- Total $34.8 $24.7 $22.5 $19.4 $19.8 ===== ===== ===== ===== =====
The allocations of the allowance for loan losses in the above table are based upon ranges of estimates and are not intended to imply either limitations on the usage of the allowance or precision of the specific amounts. The Corporation and its subsidiaries do not view the allowance for loan losses as being divisible among the various categories of loans. The entire allowance is available to absorb any future losses without regard to the category or categories in which the charged-off loans are classified. (1) 1995 and 1994 commercial real estate loan allowance allocations are reflected in the commercial loan category. Prior years' allowance allocations have not been reclassified. The Corporation adopted Financial Accounting Standards Board Statement ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures" effective January 1, 1995. SFAS 114 requires creditors to establish a valuation allowance for impaired loans. A loan is considered impaired when management determines it is probable that all the principal and interest due under the contractual terms of the loan will not be collected. The impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. The adoption of the Statements did not have a material effect on the Corporation's financial position or results of operations, nor did it result in additional provisions for loan losses as the Corporation has historically established valuation allowances based on the fair value of collateral securing an impaired loan. In addition, as permitted by SFAS 118, interest income on impaired loans continues to be recognized in a manner consistent with prior income recognition policies. For all impaired loans, other than nonaccrual loans, interest income is recorded on an accrual basis. Interest income on impaired nonaccrual loans is recognized on a cash basis. Certain of the Corporation's nonperforming loans included in Table 7 are considered to be impaired under the Statements. The Corporation measures impairment on all large balance nonaccrual commercial and commercial real estate loans. Certain large balance accruing loans rated substandard or worse are also measured for impairment. In most instances, impairment is measured based on the fair value of the underlying collateral. Impairment losses are included in the provision for loan losses. SFAS 114 does not apply to large groups of smaller balance homogeneous loans that are collectively evaluated for impairment, except for those loans restructured under a troubled debt restructuring. Loans collectively evaluated for impairment include certain smaller balance commercial loans, consumer loans, residential real estate loans, and credit card loans, and are not included in the impaired loan data in the following paragraph. At December 31, 1995, loans considered to be impaired under the Statements totaled $16.6 million (of which $10.1 million were on a nonaccrual basis). Included within this amount is $4.7 million of impaired loans for which the related allowance for loan losses is $0.8 million and $11.9 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 year ended December 31, 1995 was approximately $19.9 million. For the year ended December 31, 1995, the Corporation recognized interest income of $1.5 million which included $0.8 million of interest income recognized using the cash basis method of income recognition. The Corporation maintains policies and procedures to identify and monitor nonaccrual loans. A loan (including a loan impaired under the Statements) is placed on nonaccrual status when there is 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. Other real estate owned is comprised of property acquired through a foreclosure proceeding or acceptance of 69 16 a deed-in-lieu of foreclosure and loans classified as in-substance foreclosure. In accordance with the Statements, a loan is classified as in-substance foreclosure when the Corporation has taken possession of the collateral regardless of whether formal foreclosure proceedings take place. Loans previously classified as in-substance foreclosure but for which the Corporation has not taken possession of the collateral are classified in loans. Therefore, these Statements had no effect in 1995 since the Corporation's policy on in-substance foreclosed assets had been previously amended in 1993 to comply with new regulatory guidelines. During 1995, each of the Corporation's banking subsidiaries received a normally scheduled examination by its governing regulatory agency. There was no material reclassification of assets as nonperforming resulting from these examinations. TABLE 9. AVERAGE DEPOSITS
1995 1994 1993 ------------------ ----------------- ----------------- AVERAGE AVERAGE Average Average Average Average Year Ended December 31 (in millions) BALANCE RATE Balance Rate Balance Rate - ---------------------------------------------------------------------------------------------------- Noninterest-bearing demand $451.6 --- $379.7 --- $325.6 --- Interest-bearing demand 309.4 1.87% 256.1 1.71% 238.5 2.08% Savings 909.7 2.82 909.4 2.39 832.4 2.56 Time 1,031.6 5.50 717.0 4.17 712.8 4.35 -------- -------- -------- Total $2,702.3 3.26 $2,262.2 2.48 $2,109.3 2.72 ======== ======== ========
DEPOSITS The Corporation's average deposit balances and rates for the past three years are summarized in Table 9. Total average deposits were 19.5% higher in 1995 compared with 1994, due to the acquired banks. The Corporation experienced increases in all deposit categories. As a result of customer preferences, deposits continued shifting from savings to time deposits during 1995, with savings balances remaining virtually unchanged despite the effect of the acquired banks. Noninterest-bearing demand accounts accounted for 16.7% of total average deposits during 1995, unchanged from 1994. As of December 31, 1995, certificates of deposits of $100,000 or more comprised approximately 7.6% of total deposits compared with 5.0% as of December 31, 1994. The maturities of these deposits are summarized in Table 10. TABLE 10. MATURITY OF TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
December 31, (in millions) 1995 - ------------------------------------------------------------ Three months or less $102.4 After three but within six months 49.5 After six but within twelve months 42.2 After twelve months 25.1 ------ Total $219.2 ======
The Corporation gathers deposits primarily from the local markets of its banking subsidiaries and does not rely on brokered deposits. Management continues to promote core deposit growth and stability through focused marketing efforts and competitive pricing strategies. BORROWED FUNDS Total short-term borrowings, primarily federal funds purchased, securities sold under agreements to repurchase and Treasury Tax and Loan notes, averaged $146.0 million or 5.8% of total average interest-bearing liabilities during 1995 compared with $141.2 million or 6.9% during 1994. Long-term debt accounted for $102.8 million or 4.1% of average interest-bearing funds during 1995, increasing from $8.7 million or 0.4% in 1994. To finance the acquisition of the acquired banks, the Corporation's Parent company obtained a $115 million seven year amortizing revolving credit facility. $75 million of the revolving credit facility is currently priced at a fixed rate of 7.65%. Of this amount, $16.5 million reprices in March 1996, $51.5 million in March 1997 and $7 million in March 1998. The remaining $23.5 million outstanding has an interest rate based on a LIBOR index. The debt agreement allows the Corporation to prepay the debt without penalty subject to certain restrictions. The Parent company services the debt's principal and interest payments with dividends from the subsidiary banks. The agreement also requires the Corporation to maintain certain financial covenants. The Corporation is in full compliance with all debt covenants as of December 31, 1995. In addition, $4.6 million of long-term debt of the acquired banks was assumed by the Corporation as part of the acquisition. A summary of long-term debt balances as of December 31, 1995 and 1994 appears in Note 9 to the Consolidated Financial Statements. 70 17 CAPITAL RESOURCES Management closely monitors capital levels to provide for current and future business needs and to comply with regulatory requirements. All bank subsidiaries within the Corporation have sufficient capital to maintain a "well capitalized" designation, (the FDIC's highest rating). As summarized below, the Corporation's capital ratios were in excess of regulatory requirements.
- -------------------------------------------------------------- Regulatory Minimum ---------------------- December 31, "Well ------------------- Required Capitalized" 1995 1994 1993 - -------------------------------------------------------------- Risk based: Tier I capital 4.00% 6.00% 8.79% 13.44% 13.12% Total capital 8.00 10.00 10.04 14.69 14.36 Tier I leverage 3.00 5.00 6.65 9.52 8.90
The Corporation declared cash dividends of $0.90 per share in 1995, an increase of 9.8% over 1994 dividends of $0.82 per share. Citizens Banking Corporation or its predecessor, Citizens Commercial & Savings Bank, have paid dividends every year since 1892 except for several years during the depression of the 1930's. The Corporation maintains a stock repurchase program initiated in November 1987. During 1995, no shares were purchased under this program. A total of 1,132,470 shares have been purchased under this program at an average price of $14.31 per share. LIQUIDITY AND DEBT CAPACITY The liquidity position of the Corporation is monitored for each subsidiary and the Parent company to ensure that funds are available at a reasonable cost to meet financial commitments and to finance business expansion. The Corporation's subsidiary banks derive liquidity primarily through core deposit growth and maturity of money market investments, investment securities and loans. Additionally, the Corporation's subsidiary banks have access to market borrowing sources on an unsecured, as well as a collateralized basis, for short-term purposes. Management has not had to rely on borrowings from the Federal Reserve or the sale of investment securities to meet liquidity requirements. Another source of liquidity is the ability of the Corporation's Parent company to borrow funds on both a short-term and long-term basis. Various techniques are used by the Corporation to measure liquidity, including ratio analysis. Some ratios monitored by the Corporation include: loans to deposits; short-term investments to volatile liabilities (including short-term debt and large denomination certificates of deposit); and liquid assets (cash, U.S. Treasury securities and short-term investments) to total deposits. The ratios are summarized below for the last three years.
- -------------------------------------------------------------- December 31 1995 1994 1993 - -------------------------------------------------------------- Average loans to deposits 85.2% 80.0% 78.0% Short-term investments to volatile liabilities 41.0 40.7 33.7 Liquid assets to total deposits 18.2 19.7 18.6
The subsidiary banks manage liquidity to meet customer cash flow needs while maintaining funds available for investment opportunities. As discussed in Note 16 to the Consolidated Financial Statements, the Federal Reserve Bank requires the Corporation's banking subsidiaries to maintain certain noninterest-bearing deposits. The balances averaged $41.2 million and $36.2 million during 1995 and 1994, respectively. The liquidity of the Parent company is managed to provide funds to pay dividends to shareholders, service debt, invest in subsidiaries and to satisfy other operating requirements. The Parent company's primary source of liquidity is dividends from its subsidiaries. During 1995, the Parent company received $24.4 million in dividends from subsidiaries and paid $12.8 million in dividends to its shareholders. As discussed in Note 16 to the Consolidated Financial Statements, $23.2 million was available as of January 1, 1996 for payment to the Parent company as dividends by the Corporation's banking subsidiaries without further regulatory approval. Amounts earned by subsidiaries in 1996 may also become available for such dividend payments. Additional amounts may be available for payment subject to regulatory approval. On October 20, 1995, the Corporation announced the consolidation of its six Michigan chartered banks into one bank called Citizens Bank. The consolidation will further streamline operations and reduce certain costs but will retain local management and respective boards of directors. The consolidation is subject to regulatory approval and is expected to be completed in June 1996. This consolidation will likely result in maintaining additional non-interest bearing deposits with the Federal Reserve Bank and may favorably impact the ability of the surviving entity to pay dividends to the Parent company without further regulatory approval. The Corporation's long-term debt to equity ratio was 35.5% as of December 31, 1995 compared with 2.0% as of December 31, 1994. Increases in long-term debt during 1995 are discussed in the section titled "Borrowed Funds". Management believes that the Corporation has sufficient liquidity to meet presently known cash flow requirements arising from ongoing business transactions. 71 18 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. Table 11 depicts the Corporation's asset/liability static sensitivity ("GAP") as of December 31, 1995. TABLE 11. INTEREST RATE SENSITIVITY
TOTAL December 31, 1995 1-30 31-90 91-180 181-365 WITHIN 1-5 Over (in millions) Days Days Days Days 1 YEAR Years 5 Years Total - ----------------------------------------------------------------------------------------------------------------------------- RATE SENSITIVE ASSETS Loans and leases $755.8 $95.0 $153.2 $236.0 $1,240.0 $848.8 $339.7 $2,428.5 Investment securities 13.9 60.7 77.2 80.8 232.6 250.0 88.3 570.9 Short-term investments 104.8 45.0 --- --- 149.8 --- --- 149.8 ------ ------ ------ ------ -------- -------- ------ -------- Total $874.5 $200.7 $230.4 $316.8 $1,622.4 $1,098.8 $428.0 $3,149.2 ====== ====== ====== ====== ======== ======== ====== ======== RATE SENSITIVE LIABILITIES Deposits (2) $170.6 $236.5 $301.8 $521.3 $1,230.2 $982.5 $145.8 $2,358.6 Short-term borrowings 146.0 --- --- --- 146.0 --- --- 146.0 Long-term debt 2.5 20.0 20.1 --- 42.6 58.5 4.4 105.4 ------ ------ ------ ------ -------- -------- ------ -------- Total $319.1 $256.5 $321.9 $521.3 $1,418.8 $1,041.0 $150.2 $2,610.0 ====== ====== ====== ====== ======== ======== ====== ======== Period GAP (1) $555.4 $(55.8) $(91.5) $(204.5) $203.6 $57.8 $277.8 $539.2 Cumulative GAP 555.4 499.6 408.1 203.6 261.4 539.2 Cumulative GAP to Total Assets 16.03% 14.42% 11.78% 5.88% 5.88% 7.55% 15.57% 15.57% Multiple of Rate Senitive Assets to Liabilities 2.74 0.78 0.72 0.61 1.14 1.06 2.85 1.21
(1) GAP is the excess of rate sensitive assets (liabilities). (2) Includes interest bearing savings and demand deposits of $394 million in the less than one year category and $832 million in the over one year category. This runoff is based on historical trends, which reflects industry standards. As shown, the Corporation had an asset sensitive position (more rate sensitive assets than rate sensitive liabilities) of $203.6 million within the one-year time frame. This position suggests that the Corporation has the potential to earn higher net interest income during the next twelve months if market interest rates were to rise. Conversely, if interest rates continue to decline, the Corporation may experience a decrease in net interest income. However, 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. Traditional GAP analysis does not, however, incorporate adjustments for the magnitude or timing of noncontractual repricing. Because of these and other inherent limitations of GAP analysis, management also utilizes simulation modeling 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 customer loan demand and deposit preferences. 72 19 TABLE 12. LOAN MATURITIES AND INTEREST RATE SENSITIVITY
Due Within One to After December 31 (in millions) One Year Five Years Five Years Total - ------------------------------------------------------------------------------------------------------------------------------------ Commercial $453.8 $395.0 $57.1 $905.9 Real estate-construction 24.4 9.3 0.3 34.0 ------ ------ ----- ------ Total $478.2 $404.3 $57.4 $939.9 ====== ====== ===== ====== Loans above: With floating interest rates $330.8 $181.8 $38.4 $551.0 With predetermined interest rates 147.4 222.5 19.0 388.9 ------ ------ ----- ------ Total $478.2 $404.3 $57.4 $939.9 ====== ====== ===== ======
TABLE 13. SELECTED QUARTERLY INFORMATION
1995 1994 ------------------------------------------- ------------------------------------------- (in thousands except per share data) FOURTH THIRD SECOND FIRST Fourth Third Second First ------- ----- ------ ----- -------- ------ ------- ---------- Interest income $63,752 $62,779 $62,248 $51,821 $46,836 $45,849 $44,529 $42,775 Net interest income 35,536 35,045 35,361 31,553 30,531 30,315 29,559 27,995 Provision for loan losses 1,937 1,504 1,580 1,420 1,532 1,355 1,358 1,058 Investment securities gains (losses) 79 15 13 91 4 (35) 9 179 Noninterest income 9,790 9,586 8,889 7,971 8,564 8,450 8,369 8,314 Noninterest expense 29,952 30,587 32,468 28,080 26,328 26,759 26,701 27,457 Net income 9,759 8,984 7,469 7,384 8,234 7,745 7,226 6,209 PER SHARE OF COMMON STOCK Net income: Primary 0.67 0.62 0.51 0.51 0.56 0.54 0.50 0.43 Fully diluted 0.67 0.61 0.51 0.51 0.56 0.54 0.50 0.43 Cash dividends declared 0.23 0.23 0.23 0.21 0.21 0.21 0.21 0.19 Market value:(1) High 32.50 33.25 31.00 27.00 29.00 26.75 26.00 26.00 Low 29.00 29.25 25.25 24.94 25.25 22.00 22.75 22.75 Close 29.75 30.38 29.75 26.50 27.75 25.50 24.50 22.75
(1) Citizens Banking Corporation common stock is traded in the over-the-counter market (NASDAQ trading symbol: CBCF). At December 31, 1995, there were approximately 6,700 shareholders of the Corporation's common stock. IMPACT OF INFLATION Substantially all of the assets and liabilities of a financial institution are monetary. Therefore, inflation generally has a less significant impact on financial institutions than fluctuations in market interest rates. Inflation can lead to accelerated growth in noninterest expenses, which can adversely impact results of operations. Additionally, inflation may impact the rate of deposit growth and necessitate increased growth in equity to maintain a strong capital position. Management believes the most significant impact on financial results is the Corporation's ability to respond to changes in interest rates. 73 20 YEAR ENDED DECEMBER 31, 1994 COMPARED WITH 1993 Citizens Banking Corporation earned $29,414,000 or $2.03 per fully diluted share during 1994 compared with $25,770,000 or $1.88 per share in 1993. 1994 reflected a 14.1% increase in net income as compared with 1993. Return on assets improved 6.9% from 1.02% in 1993 to 1.09% in 1994. Overall, the increase in net income in 1994 reflects improvement in net interest income, noninterest income and a reduction in the provision for loan losses offset, in part, by increases in noninterest expense and income taxes. The October 1, 1993 acquisition of National Bank of Royal Oak ("NBRO") by the Corporation affects the comparison between 1994 and 1993. The acquisition was accounted for as a purchase and, accordingly, the Corporation's net income reflects three months of financial results for 1993 and a full year for 1994. Net interest income for 1994 was $118,400,000, an increase of 13.5% over 1993 net interest income of $104,334,000. This increase resulted from a higher level of earning assets, primarily due to the acquisition of NBRO. Yields on assets increased slightly between 1994 and 1993. However, rates paid on funding sources continued to decline in 1994. As a result, the net interest margin increased to 4.99% in 1994, a 25 basis point improvement over 1993. The provision for loan losses decreased to $5,303,000 in 1994 compared with $5,597,000 in 1993 as a result of lower net loan charge-offs and improved economic conditions. Net loan charge-offs were 0.17% of average total loans in 1994, down from 0.25% in 1993. As of December 31, 1994, the ratio of the allowance for loan losses to net charge-offs improved to 7.9 times compared with 5.5 times as of December 31, 1993. Noninterest income in 1994 increased $2,639,000 or 8.5% over the 1993 levels. This increase resulted from the NBRO acquisition and higher trust fee income and bankcard fee income. 1994 results for NBRO reflect $3,623,000 of noninterest income for merchant discount and other bankcard fee income primarily from the Travel Banking product line. Other loan income declined $345,000 in 1994 compared with 1993, the result of lower gains on the sale of mortgage loans into the secondary market and lower mortgage servicing fees. The Corporation also realized net gains on the sale of securities of $157,000 during 1994 compared with $763,000 in 1993. Noninterest expense was up $9,977,000 or 10.3% in 1994 of which $9,205,000 resulted from the acquisition of NBRO. Compensation expense, excluding NBRO decreased 0.4% in 1994 compared with 1993. This decline was primarily due to continued health care cost containment and a reduction in the number of full-time equivalent employees through normal attrition. Excluding NBRO, consulting fees increased 12.3% in 1994 compared with 1993 due to Corporate automation and reengineering project costs. Excluding the results of NBRO, bankcard interchange fees increased because of higher merchant transaction levels. Interchange and other bankcard fees for NBRO totaled $3,797,000 in 1994 versus $911,000 in 1993. These fees primarily reflect the Travel Banking product line transactions. In 1994 NBRO also incurred a one-time charge of $1,500,000 related to the Travel Banking product line. Subsequent to 1994, this product line was discontinued. Income tax expense for 1994 increased 48.9% compared with 1993. This increase resulted from higher pretax earnings combined with lower tax-exempt interest income. The adoption of Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes" by the Corporation effective January 1, 1993 had no material effect on the results of operations or financial position of the Corporation. The Corporation had total average assets of $2.711 billion in 1994, up from 1993 average assets of $2.535 billion, primarily due to the acquisition of NBRO. Average loans and leases comprised 71.9% of total earning assets in 1994, up from 70.0% in 1993. Much of this growth occurred in the consumer and commercial loan portfolios due to improved economic conditions and the acquisition of NBRO. Average money market investment balances, primarily federal funds sold and Eurodollar time deposits were virtually unchanged from 1993 levels. As discussed in Note 1 to the Consolidated Financial Statements, the Corporation adopted SFAS 115 and classified all of its investment portfolio in the available-for-sale category as of January 1, 1994. Total average deposits were 7.2% higher in 1994 compared with 1993, primarily due to the acquisition of NBRO. The Corporation experienced increases in all deposit categories. As a result of customer preferences, deposit balances continued to shift from time to savings and demand accounts in 1994 as noted by average time deposits remaining nearly unchanged despite the NBRO acquisition. Average short-term borrowings, comprised primarily of securities sold under agreements to repurchase, decreased slightly to 6.9% of average interest-bearing liabilities in 1994 compared with 7.1% in 1993. Average long-term debt balances declined to $8.7 million in 1994 from $13.1 million in 1993 due to scheduled principal payments. Average shareholders' equity was $256.6 million at December 31, 1994, an 11.0% increase over the 1993 average of $231.2 million. 74 21 CONSOLIDATED BALANCE SHEETS CITIZENS BANKING CORPORATION AND SUBSIDIARIES
December 31, (in thousands except share amounts) 1995 1994 - ------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks $ 172,754 $ 132,092 Money market investments: Interest-bearing deposits with banks 10,090 20,135 Federal funds sold 50,000 60,000 Term federal funds sold and other 89,744 25,000 ----------- --------- Total money market investments 149,834 105,135 Investment securities available-for-sale (amortized cost $565,547 in 1995; $582,316 in 1994) 570,912 563,999 Loans: Commercial loans 905,947 748,318 Real estate - construction 33,984 24,947 Real estate - mortgage 457,758 384,401 Consumer installment 970,755 581,252 Lease financing 60,069 77,303 ----------- ---------- Total loans 2,428,513 1,816,221 Less: Allowance for loan losses (34,771) (24,714) ----------- ---------- Net loans 2,393,742 1,791,507 Premises and equipment 63,147 52,533 Intangible assets 70,385 15,830 Other assets 43,148 42,727 ----------- ---------- TOTAL ASSETS $3,463,922 $2,703,823 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing deposits $ 506,116 $ 416,395 Interest-bearing deposits 2,358,585 1,835,923 ---------- ---------- Total deposits 2,864,701 2,252,318 Federal funds purchased and securities sold under agreements to repurchase 130,556 125,581 Other short-term borrowings 15,468 20,850 Other liabilities 50,600 41,095 Long-term debt 105,411 5,249 ---------- ---------- Total liabilities 3,166,736 2,445,093 SHAREHOLDERS' EQUITY Preferred stock - no par value: Authorized - 5,000,000 shares Issued - none --- --- Common stock - no par value: Authorized - 40,000,000 shares Issued and outstanding - 14,333,920 in 1995; 14,128,368 in 1994 91,480 89,243 Retained earnings 202,219 181,393 Net unrealized gain (loss) on securities available-for-sale, 3,487 (11,906) netof tax ---------- ---------- Total shareholders' equity 297,186 258,730 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,463,922 $2,703,823 ========== ==========
See Notes to Consolidated Financial Statements. 75 22 CONSOLIDATED STATEMENTS OF INCOME CITIZENS BANKING CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, (in thousands except share amounts) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $201,242 $144,263 $133,029 Interest and dividends on investment securities: Taxable 22,531 22,725 19,555 Nontaxable 9,403 10,568 11,731 Money market investments 7,424 2,433 2,137 ---------- ---------- ---------- Total interest income 240,600 179,989 166,452 ---------- ---------- ---------- INTEREST EXPENSE Deposits 88,157 56,020 57,294 Short-term borrowings 7,221 5,115 4,203 Long-term debt 7,727 454 621 ---------- ---------- ---------- Total interest expense 103,105 61,589 62,118 ---------- ---------- ---------- NET INTEREST INCOME 137,495 118,400 104,334 Provision for loan losses 6,441 5,303 5,597 ---------- ---------- ---------- Net interest income after provision for loan losses 131,054 113,097 98,737 ---------- ---------- ---------- NONINTEREST INCOME Trust fees 11,314 9,697 9,162 Service charges on deposit accounts 9,717 8,619 7,934 Bankcard fees 5,635 7,694 4,631 Investment securities gains 198 157 763 Other 9,570 7,687 8,725 ---------- ---------- ---------- Total noninterest income 36,434 33,854 31,215 ---------- ---------- ---------- NONINTEREST EXPENSE Salaries and employee benefits 64,357 55,722 53,177 Equipment 9,709 8,505 7,616 Occupancy 9,000 8,050 7,073 FDIC insurance premiums 3,250 5,050 4,714 Bankcard fees 3,418 6,095 2,847 Stationery and supplies 3,570 2,762 2,527 Postage and delivery 3,189 2,359 2,279 Other 24,594 18,702 17,035 ---------- ---------- ---------- Total noninterest expense 121,087 107,245 97,268 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 46,401 39,706 32,684 Income taxes 12,805 10,292 6,914 ---------- ---------- ---------- NET INCOME $33,596 $29,414 $25,770 ========== ========== ========== Net Income Per Share: Primary $2.31 $2.03 $1.88 Fully diluted $2.30 $2.03 $1.87 Average shares outstanding: Primary 14,574,871 14,463,068 13,724,319 Fully diluted 14,611,736 14,511,706 13,789,302
See Notes to Consolidated Financial Statements. 76 23 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY CITIZENS BANKING CORPORATION AND SUBSIDIARIES
Retained Unrealized (in thousands except share amounts) Common Stock Earnings Gain(Loss) Total - ---------------------------------------------------------------------------------------------------------- BALANCE - JANUARY 1, 1993 $71,573 $147,703 $ --- $219,276 Net income 25,770 25,770 Exercise of stock options, net of shares purchased 828 828 Cash dividends-$0.745 per share (9,937) (9,937) Shares acquired for retirement (3,254) (3,254) Acquisition of subsidiary bank (1,073,053 shares issued) 22,480 22,480 ------- -------- ------- -------- BALANCE - DECEMBER 31, 1993 91,627 163,536 --- 255,163 Net income 29,414 29,414 Exercise of stock options, net of shares purchased 1,602 1,602 Cash dividends-$0.820 per share (11,557) (11,557) Shares acquired for retirement (3,986) (3,986) Effect on January 1, 1994 of change in accounting for investment securities, net of deferred tax of $3,544 6,582 6,582 Net unrealized loss on securities available-for-sale,net of tax effect of $9,955 (18,488) (18,488) ------- -------- ------- -------- BALANCE - DECEMBER 31, 1994 89,243 181,393 (11,906) 258,730 Net income 33,596 33,596 Exercise of stock options, net of shares purchased 2,237 2,237 Cash dividends-$0.900 per share (12,770) (12,770) Net unrealized gain on securities available-for-sale, net of tax effect of $8,289 15,393 5,393 ------- -------- ------- -------- BALANCE - DECEMBER 31, 1995 $91,480 $202,219 $ 3,487 $297,186 ======= ======== ======= ========
See Notes to Consolidated Financial Statements. 77 24 CONSOLIDATED STATEMENTS OF CASH FLOWS CITIZENS BANKING CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, (in thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $33,596 $29,414 $25,770 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 6,441 5,303 5,597 Depreciation 7,272 6,228 5,480 Amortization of goodwill and other intangibles 4,687 1,602 1,017 Deferred income taxes (credit) 184 (171) 487 Net amortization on investment securities 3,019 3,232 9,459 Investment securities gains (198) (157) (763) Other 21 (2,260) 5,458 --------- ------- ------- Net cash provided by operating activities 55,022 43,191 52,505 --------- ------- ------- INVESTING ACTIVITIES: Net (increase) decrease in money market investments (21,599) (19,035) 6,831 Securities available-for-sale: Proceeds from sale 6,980 190,275 --- Proceeds from maturity 172,975 187,561 --- Purchase (130,782) (312,969) --- Securities held to maturity: Proceeds from sale --- --- 78,095 Proceeds from maturity --- --- 348,209 Purchase --- --- (379,245) Net increase in loans and leases (87,272) (39,177) (99,591) Purchases of premises and equipment (6,583) (4,772) (4,785) Net cash provided by (used for) acquisition of subsidiary (59,434) --- 8,412 -------- ------- -------- Net cash provided (used) by investing activities (125,715) 1,883 (42,074) -------- ------- -------- FINANCING ACTIVITIES: Net increase (decrease) in demand and savings deposits (81,726) (29,513) 557,114 Net increase (decrease) in time deposits 153,423 35,081 (577,045) Net increase (decrease) in short-term borrowings (45,415) (12,296) 18,164 Proceeds from issuance of long-term debt 115,000 --- --- Principal reductions in long-term debt (19,394) (5,616) (4,428) Cash dividends paid (12,770) (11,557) (9,937) Proceeds from stock options exercised 2,237 1,602 828 Shares acquired for retirement --- (3,986) (3,254) ---------- --------- --------- Net cash provided (used) by financing activities 111,355 (26,285) (18,558) ---------- --------- --------- Net increase (decrease) in cash and due from banks 40,662 18,789 (8,127) Cash and due from banks at beginning of year 132,092 113,303 121,430 ---------- --------- --------- Cash and due from banks at end of year $172,754 $132,092 $113,303 ========== ========= ========= Supplemental Cash Flow Information: Interest paid $95,267 $61,257 $63,104 Income taxes paid 12,580 10,235 6,661
See Notes to Consolidated Financial Statements. 78 25 NOTE 1. SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Citizens Banking Corporation ("Corporation") and its subsidiaries conform to generally accepted accounting principles. Management makes estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. The following describes the Corporation's policies: CONSOLIDATION The Consolidated Financial Statements include the accounts of the Corporation and its subsidiaries after elimination of all material intercompany transactions and accounts. INVESTMENT SECURITIES Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" requires securities to be classified as held-to-maturity, available-for-sale or trading. Only those securities classified as held-to-maturity are reported at amortized cost, with those available-for-sale and trading reported at fair value with unrealized gains and losses included in shareholders' equity or income, respectively. The Corporation adopted this Statement effective January 1, 1994 and classified all of its investment portfolio in the available-for-sale category. Prior to adoption, all securities were classified in a single portfolio accounted for at amortized cost. In the event that an investment security is sold, the adjusted cost of the specific security sold is used to compute the applicable gain or loss. See also Note 3. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained at a level considered by management to be adequate to absorb losses inherent in the loan portfolio. Management's evaluation is based on a continuing review of the loan portfolio and includes consideration of actual loss experience, the financial condition of borrowers, the size and composition of the loan portfolio, current and anticipated economic conditions and other pertinent factors. The allowance is increased by the provision charged to income and recoveries of loans previously charged off and reduced by loans charged off. The Corporation adopted Financial Accounting Standards Board Statement ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures" effective January 1, 1995. The statements require creditors to establish a valuation allowance for impaired loans. A loan is considered impaired when management determines it is probable that all the principal and interest due under the contractual terms of the loan will not be collected. The impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. Prior to 1995, the allowance for loan losses related to these loans was based on the undiscounted cash flows or the fair value of the collateral for collateral dependent loans. PREMISES AND EQUIPMENT Premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed principally on a straight-line basis and are charged to expense over the lesser of the estimated useful life of the assets or lease term. Maintenance and repairs as well as gains and losses on dispositions are charged to expense as incurred. OTHER REAL ESTATE Other real estate includes properties acquired in satisfaction of a debt. These properties are carried at the lower of cost or fair value, net of estimated costs to sell, based upon current appraised value. Losses arising from the acquisition of such properties are charged against the allowance for loan losses. Subsequent valuation adjustments and gains or losses on disposal of these properties are charged to other expenses as incurred. INTANGIBLE ASSETS Goodwill, the unamortized cost of acquiring subsidiaries in excess of the fair value of identifiable net assets at the date acquired, is amortized on a straight line basis over 15 years. The carrying amount of goodwill is reviewed if the facts and information supporting the initially recorded amount changes. If the review indicates that impairment may exist, the current carrying amount is reduced by the estimated shortfall. INCOME TAXES The Corporation and its subsidiaries file a consolidated federal income tax return. Income tax expense is based on income as reported in the Consolidated Statements of income. When income and expenses are recognized 79 26 in different periods for tax purposes, applicable deferred taxes are provided in the Consolidated Financial Statements. LOAN INTEREST AND FEE INCOME Interest on loans is generally accrued and credited to income based upon the principal amount outstanding. Loans are placed on nonaccrual status when collectibility of principal or interest is considered doubtful, or payment of principal or interest is past due 90 days or more and the loan is not well secured and in the process of collection. When these loans (including a loan impaired under SFAS 114) are placed on nonaccrual status, all interest previously accrued but unpaid is reversed against current year interest income. Interest payments received on nonaccrual loans are credited to income if future collection of principal is probable. Loans are normally restored to accrual status when interest and principal payments are current and it is believed that the financial condition of the borrower has improved to the extent that future principal and interest payments will be met on a timely basis. Loan origination fee income, net of direct origination costs and certain incremental direct costs, is deferred and amortized as a yield adjustment over the estimated term of the related loans by methods that approximate the level yield method. Loan fees on unused commitments and fees related to loans sold are recognized currently as other income. NET INCOME PER SHARE Primary and fully diluted net income per share are computed based on the weighted average number of shares outstanding in each period and dilutive common stock equivalents outstanding in each period. Common stock equivalents consist of common stock issuable under the assumed exercise of stock options granted under the Corporation's stock option plans, using the treasury stock method. The weighted average number of shares has been adjusted for a two-for-one stock split effected in the form of a dividend paid May 12, 1993 to shareholders of record on April 30, 1993. CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks. NOTE 2. ACQUISITIONS At the close of business on February 28, 1995, the Corporation purchased the four Michigan affiliates of Banc One Corporation, located in East Lansing, Fenton, Sturgis and Ypsilanti, for $115 million in cash. The transaction was accounted for as a purchase and the four banks ("acquired banks") were merged into Citizens Commercial & Savings Bank headquartered in Flint, Michigan effective immediately after the acquisition. Total assets acquired of $670 million included net loans of $532 million, investment securities and money market investments of $57 million and deposits of $541 million. Cost-in-excess of the fair value of identifiable net assets acquired was $59.2 million and is being amortized over 15 years. The 1995 results reflect ten months of operations for the four acquired banks. The unaudited pro-forma combined operating results of the Corporation and the four banks, assuming the acquisition was consummated on January 1, 1994, are as follows:
- ----------------------------------------- (in thousands except per share amounts) 1995 1994 - ----------------------------------------- Net interest income $142,091 $137,532 Net income 35,679 27,692 Net income per share: Primary $2.45 $1.91 Fully diluted 2.44 1.91 - -----------------------------------------
On October 1, 1993, the Corporation purchased Royal Bank Group, Inc. and its subsidiary, National Bank of Royal Oak ("NBRO"), which is located in Oakland County, Michigan. All of the outstanding common shares of Royal Bank Group, Inc. were exchanged for 1,073,053 shares of common stock of the Corporation and $207,000 in cash. Concurrent with the acquisition, Royal Bank Group, Inc. was dissolved and its subsidiary, NBRO, transferred to the Corporation. Total assets acquired of $208 million included net loans of $126 million, investment securities and money market investments of $53 million, and deposits of $181 million. The acquisition was accounted for as a purchase and, accordingly, the Consolidated Financial Statements include NBRO's results of operations from the date of acquisition. Cost in excess of the fair value of identifiable net assets acquired was $9.7 million and is being amortized over 15 years. 80 27 NOTE 3. INVESTMENT SECURITIES The amortized cost, estimated fair value and gross unrealized gains and losses of investment securities follow:
- --------------------------------------------------------------------------------------------------------------------- December 31, 1995 December 31, 1994 --------------------------------------------- ------------------------------------------- Estimated Gross Gross Estimated Gross Gross Amortized Fair Unrealized Unrealized Amortized Fair Unrealized Unrealized (in thousands) Cost Value Gains Losses Cost Value Gains Losses - --------------------------------------------------------------------------------------------------------------------- U.S. Treasury $197,872 $198,462 $958 $367 $222,910 $211,965 $1 $10,946 Federal agencies: Mortgage-backed 77,349 77,477 471 343 82,980 79,476 14 3,518 Other 70,436 70,546 135 25 40,867 39,542 --- 1,325 State and municipal 209,068 213,491 5,183 760 229,055 226,423 2,998 5,630 Mortgage and asset-backed 4,090 4,149 58 --- 2,021 2,040 19 --- Other 6,732 6,787 55 --- 4,483 4,553 71 1 -------- -------- ------ ------ -------- -------- ------ ------- Total $565,547 $570,912 $6,860 $1,495 $582,316 $563,999 $3,103 $21,420 ======== ======== ====== ====== ======== ======== ====== =======
The amortized cost and approximate fair value of debt securities at December 31, 1995, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to prepayment or early call privileges of the borrower.
- ----------------------------------------------------------- Estimated Amortized Fair (in thousands) Cost Value - ----------------------------------------------------------- Due within one year $162,630 $178,796 One to five years 237,092 224,026 Five to ten years 45,729 47,065 After ten years 32,185 32,872 -------- -------- 477,636 482,759 Equity securities 6,472 6,527 Mortgage and asset-backed securities 81,439 81,626 -------- -------- Total $565,547 $570,912 ======== ========
Sales of investment securities resulted in realized gains and losses as follows:
- ----------------------------------------------- Year Ended December 31, (in thousands) 1995 1994 1993 - ----------------------------------------------- Securities gains $202 $326 $773 Securities losses (4) (169) (10) ---- ---- ---- Net gain $198 $157 $763 ==== ==== ====
Effective January 1, 1994, the Corporation adopted Financial Accounting Standards Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The Statement requires the Corporation to classify securities into one of three categories based on its intent and ability to hold the investments. These categories include: held-to-maturity (securities that the Corporation has the positive intent and ability to hold to maturity), trading (securities bought and held principally for the purpose of selling in the near future) and available-for-sale (securities not classified in either of the two other categories). At adoption the Corporation classified all of its investment portfolio in the available-for-sale category. Securities classified as available-for-sale are recorded at fair value with the unrealized gain or loss reported as a separate component of shareholders' equity. Adoption increased shareholders' equity on January 1, 1994 by $6.6 million after deferred taxes of $3.5 million. In December 1994, the Corporation adopted Financial Accounting Standards Board Statement No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments" ("SFAS 119"). This Statement defines a derivative as a future, forward, swap, option contract, or other financial instrument with similar characteristics. The Statement requires expanded disclosures about these types of financial instruments. The Corporation does not invest in derivatives or related types of financial instruments except for Federal agency collateralized mortgage obligations and, therefore, the adoption of the Statement did not have a material effect. The Corporation's policy only allows the purchase of collateralized mortgage obligations that are composed of mortgage backed securities issued by a Federal Agency. Any CMO's purchased are in early tranches with short average lives. These tranches are classified in the Planned Amortization Class and have well-defined prepayment assumptions (Super PAC's). The Corporation's CMO's are periodically tested to ensure compliance with guidelines established by the Federal Financial Institutions Examination Council. Securities with amortized cost of $278.2 million at December 31, 1995, and $260.5 million at December 31, 1994, were pledged to secure public deposits, repurchase agreements, and other liabilities. Except for obligations of the U.S. Government and its agencies, no holdings of securities of any single issuer exceeded 10% of consolidated shareholders' equity at December 31, 1995 or 1994. 81 28 NOTE 4. LOANS AND NONPERFORMING ASSETS The Corporation extends credit primarily within the local markets of its seven bank subsidiaries. These natural geographic concentrations extend along the Interstate 75 corridor within the State of Michigan from northern suburban Detroit to the greater Grayling/Gaylord area, as well as the western suburban market of Chicago, Illinois. During 1995, the Corporation expanded its market presence into East Lansing, Fenton, Sturgis and Ypsilanti. This expands the Corporation's opportunities within the western Detroit, central and southwestern Michigan market areas. The Corporation has limited its credit risk by establishing guidelines to review its aggregate outstanding commitments and loans to particular borrowers, industries and geographic areas. Collateral is secured based on the nature of the credit and management's credit assessment of the customer. The loan portfolio is widely diversified by borrowers and industry groups with no single concentration exceeding 10% of total loans. The Corporation has no loans to foreign countries and generally does not participate in large national loan syndications or highly leveraged transactions. Most of the Corporation's commercial real estate loans consist of mortgages on owner-occupied properties. Those borrowers are involved in business activities other than real estate, and the sources of repayment are not dependent on the performance of the real estate market. The Corporation changed its nonperforming asset policy in the third quarter of 1995 to include loans 90 days past due and still accruing in the nonperforming asset category. Previously these loans were considered underperforming assets. All nonperforming asset disclosures have been adjusted to reflect this change. A summary of nonperforming assets follows:
- --------------------------------------------------------------- December 31, (in thousands) 1995 1994 - --------------------------------------------------------------- Nonperforming loans: Nonaccrual $18,624 $18,156 Loans 90 days past due (still accruing) 432 1,253 Restructured 494 299 ------ ------ Total nonperforming loans 19,550 19,708 Other real estate 1,568 2,230 ------ ------ Total nonperforming assets $21,118 $21,938 ====== ======
The effect of nonperforming loans on interest income follows:
- ---------------------------------------------------------------- Year Ended December 31, (in thousands) 1995 1994 1993 - ---------------------------------------------------------------- Interest income: At original contract rates $2,509 $1,879 $1,589 As actually recognized 1,427 1,128 697 ------ ------ ------ Interest foregone $1,082 $ 751 $ 892 ====== ====== ======
There are no significant commitments outstanding to lend additional funds to customers whose loans were classified as nonaccrual or restructured at December 31, 1995. At December 31, 1995, loans considered to be impaired totaled $16.6 million (of which $10.1 million were on a nonaccrual basis). Included within this amount is $4.7 million of impaired loans for which the related allowance for loan losses is $0.8 million and $11.9 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 year ended December 31, 1995 was approximately $19.9 million. For the year ended December 31, 1995, the Corporation recognized interest income of $1.5 million which included $0.8 million of interest income recognized using the cash basis method of income recognition. Certain directors and executive officers of the Corporation and its significant subsidiaries, including their families and entities in which they have 10% or more ownership, were customers of the banking subsidiaries. Total loans to these customers aggregated $11.2 million and $12.4 million at December 31, 1995 and 1994, respectively. During 1995, new loans of $13.0 million were made and repayments totaled $14.2 million. All such loans were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those for comparable transactions with unrelated parties and did not involve more than normal risk of collectibility. NOTE 5. ALLOWANCE FOR LOAN LOSSES A summary of changes in the allowance for loan losses follows:
- ---------------------------------------------------------------- Year Ended December 31, (in thousands) 1995 1994 1993 - ---------------------------------------------------------------- Balance - January 1 $24,714 $22,547 $19,404 Allowance of acquired banks 7,235 --- 1,642 Provision for loan losses 6,441 5,303 5,597 Charge-offs (7,921) (6,114) (6,396) Recoveries 4,302 2,978 2,300 ------- ------- ------- Net charge-offs (3,619) (3,136) (4,096) ------- ------- ------- Balance - December 31 $34,771 $24,714 $22,547 ======= ======= =======
82 29 NOTE 6. PREMISES AND EQUIPMENT A summary of premises and equipment follows:
- ------------------------------------------------------------------ December 31, (in thousands) 1995 1994 - ------------------------------------------------------------------ Land $ 10,792 $ 8,229 Buildings 71,363 59,608 Leasehold improvements 3,391 2,664 Furniture and equipment 63,843 53,430 -------- -------- 149,389 123,931 Accumulated depreciation and amortization (86,242) (71,398) -------- -------- Total $ 63,147 $ 52,533 ======== ========
Certain branch facilities and computer equipment are leased under various operating leases. Total rental expense, including expenses related to these operating leases, was $2.1 million in 1995; $1.8 million in 1994; and $1.6 million in 1993. Future minimum rental commitments under noncancelable operating leases, net of sublease payments, are as follows at December 31, 1995: $1.0 million in 1996; $0.8 million in 1997; $0.7 million in 1998; $0.7 million in 1999; and $0.6 million in 2000, and $1.5 million after 2000. NOTE 7. DEPOSITS A summary of deposits follows:
- -------------------------------------------------------------------- (in thousands) 1995 1994 - -------------------------------------------------------------------- Noninterest-bearing demand $ 506,116 $ 416,395 Interest-bearing demand 318,390 252,816 Savings 907,691 843,975 Time deposits over $100,000 219,158 111,930 Other time deposits 913,346 627,202 ---------- ---------- Total $2,864,701 $2,252,318 ========== ==========
NOTE 8. SHORT-TERM BORROWINGS Short-term borrowings consist primarily of federal funds purchased and securities sold under agreements to repurchase. Federal funds purchased are overnight borrowings from other financial institutions. Securities sold under agreements to repurchase are secured transactions done principally with customers and generally mature within thirty days. Other short-term borrowed funds consist of demand notes to the U.S. Treasury. Information relating to federal funds purchased and securities sold under agreements to repurchase follows:
- ------------------------------------------------------------ (in thousands) 1995 1994 1993 - ------------------------------------------------------------ At December 31: Balance $130,556 $125,581 $116,777 Weighted average interest rate paid 4.74% 4.39% 2.91% During the year: Maximum outstanding at any month-end $146,429 $129,846 $137,067 Daily average 128,141 120,356 116,624 Weighted average interest rate paid 4.83% 3.63% 3.08%
NOTE 9. LONG-TERM DEBT A summary of long-term debt follows:
- ------------------------------------------------------------------ December 31, (in thousands) 1995 1994 - ------------------------------------------------------------------ Citizens Banking Corporation (Parent only): Floating rate term notes: Maturing March 1995 --- $ 1,200 Maturing October 1997 $ 2,500 3,750 Revolving credit facility: Maturing December 2001 98,378 --- -------- -------- Total 100,878 4,950 Subsidiaries: Subordinated debt 4,057 --- Nonrecourse lease financing 36 99 Other 440 200 -------- -------- Total 4,533 299 -------- -------- Total long-term debt $105,411 $ 5,249 ======== ========
The floating rate term note maturing in October 1997 is payable in equal annual principal payments through October 1997. Interest is payable quarterly at a rate selected by the Corporation from certain indices available under the agreement. At December 31, 1995, the rate was 5.28%. To finance the acquisition of the acquired banks, the Corporation's Parent company obtained a $115 million seven year amortizing revolving credit facility. The revolving credit facility, maturing December 2001, is payable in annual payments of $16.5 million with a final payment of $16 million. The revolving credit facility is currently comprised of $75 million at a fixed rate of 7.65%. Of this amount, $16.5 million reprices in March 1996, $51.5 million in March 1997 and $7 million in March 1998. The remaining $23.5 million outstanding has an interest rate based on a LIBOR index. Currently $20 million is priced at a rate of 6.24% and $3.5 million is priced at a rate of 6.36%. Interest is payable quarterly. The 83 30 Parent company services the debt's principal and interest payments with dividends from the subsidiary banks. The agreement also requires the Corporation to maintain certain financial covenants. The Corporation is in full compliance with all debt covenents as of December 31, 1995. The subordinated debt was assumed by the Corporation as part of the acquisition. The total subordinated debt is payable on April 15, 2003. Interest is payable semiannually at a fixed rate of 6.72%. Other subsidiary debt also assumed as part of the acquisition consists of an EDC mortgage due April 1, 2002. Interest is payable monthly at an interest rate of 75% of the prime rate. Nonrecourse lease financing represents borrowings from unaffiliated lenders against future lease payments. In the event of default by a lessee, the lender has security in the underlying leased equipment and has no further recourse against the Corporation. On December 31, 1995, nonrecourse lease financing notes were at fixed rates of interest of 9.75% and were amortized with equal monthly payments. Maturities of long-term debt during the next five years follow:
- ---------------------------------------------------- (in thousands) Parent Subsidiaries Consolidated - ---------------------------------------------------- 1996 $17,694 $146 $17,840 1997 17,694 0 17,694 1998 16,490 0 16,490 1999 16,500 0 16,500 2000 16,500 0 16,500 Over 5 Years 16,000 4,387 20,387 -------- ------ -------- Total $100,878 $4,533 $105,411
NOTE 10. EMPLOYEE BENEFIT PLANS The Corporation and its subsidiaries have various employee benefit plans. Costs of various benefit arrangements charged to operations each year follow:
- -------------------------------------------------------------------- Year Ended December 31, (in thousands) 1995 1994 1993 - -------------------------------------------------------------------- Defined benefit pension plans: Qualified plan - funded: Service Cost $1,541 $1,534 $1,367 Interest cost 2,339 2,188 2,214 Actual return on plan assets (6,825) 281 (3,311) Net amortization and deferral 2,783 (4,014) (438) ------ ------ ------- Net income (162) (11) (168) ------ ------ ------- Supplemental plans - unfunded: Service cost 103 105 89 Interest cost 119 106 97 Net amortization and deferral 38 58 38 ------ ------ ------- Net cost 260 269 224 Net pension cost 98 258 56 Defined contribution 401(k) plan 1,738 1,431 1,340 ------ ------ ------- Total benefit cost $1,836 $1,689 $1,396 ====== ====== =======
PENSION PLANS The Corporation maintains a qualified defined benefit plan covering substantially all full-time employees. Under the plan, benefits are based on the employee's length of service and average compensation during the highest consecutive 60 month period out of the final 120 months preceding retirement. The Corporation's funding policy is to contribute annually an amount sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional amounts as the Corporation may determine to be appropriate. Contributions are intended to provide for benefits attributed to past service and for benefits expected to be earned in the future. The funded status and amounts recognized in the Corporation's Consolidated Balance Sheets for the qualified defined benefit plan follow:
- ----------------------------------------------------------------------------- December 31, (in thousands) 1995 1994 - ----------------------------------------------------------------------------- Actuarial present value of benefit obligation: Vested benefits $21,281 $21,517 Nonvested benefits 623 628 ------- ------- Accumulated benefit obligation 21,904 22,145 Effect of projected future compensation levels 12,257 5,997 ------- ------- Projected benefit obligation 34,161 28,142 Plan assets at fair value, primarily listed stocks and bonds, corporate obligations and money market and mutual funds 41,483 35,638 ------- ------- Plan assets in excess of projected benefit obligation 7,322 7,496 Unrecognized net gain (6,001) (6,611) Unrecognized prior service cost 115 133 Unrecognized net asset at transition being recognized over 16 years (1,125) (1,326) ------- ------- Prepaid (accrued) pension cost recognized in the Consolidated Balance Sheets $ 311 $ (308) ======= =======
Actuarial assumptions used in determining the benefit obligation at December 31 were:
- --------------------------------------------------------- 1995 1994 1993 - --------------------------------------------------------- Weighted average discount rate 7.75% 8.50% 7.75% Rate of increase in future compensation levels (1) (1) (1) Long-term rate of return 9.00 9.00 9.00
(1) Scaled by age of plan participant - 9.00% at age 24 or under declining to 4.00% at age 50 or older The Corporation also maintains unfunded supplemental benefit plans, which are nonqualified plans providing certain officers with defined pension benefits in excess of limits imposed by Federal tax law. At December 31, 1995, the projected benefit obligation for these plans totaled $1.7 million, of which $113,000 was subject to later amortization. The remaining $1.6 million is included in other liabilities in the accompanying Consolidated Balance Sheets. 84 31 At December 31, 1994, the projected benefit obligation for these plans totaled $1.4 million of which $74,000 was subject to later amortization. The remaining $1.3 million is included in other liabilities in the accompanying Consolidated Balance Sheets. DEFINED CONTRIBUTION PLAN The Corporation maintains a defined contribution 401(k) savings plan covering substantially all full-time employees. Under the plan, employee contributions are partially matched by the Corporation. Effective January 1, 1993, the employer matching contribution was increased to 75 percent of the first 6% (100 percent of the first 3% plus 50 percent of the next 3%) of each eligible employee's base salary contributed to the plan. In addition, one third of these matching contributions are used to fund a postretirement medical savings account established within the plan for each contributing employee. POSTEMPLOYMENT BENEFITS Effective January 1, 1994, the Corporation adopted Financial Accounting Standards Board Statement No. 112, "Employers' Accounting for Postemployment Benefits." It requires, under certain circumstances, accrual of the estimated cost of benefits provided to former or inactive employees after employment but before retirement. Such benefits (referred to as postemployment benefits) include, but are not limited to, salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits, job training and counseling, and continuation of benefits such as health care and life insurance coverage. The unrecorded liability for these accrued benefits at adoption and at year-end 1994 and 1995 was not material. NOTE 11. POSTRETIREMENT BENEFIT PLAN The Corporation maintains an unfunded postretirement defined benefit plan offering medical and life insurance benefits. This plan, as amended effective January 1, 1993, provides postretirement medical benefits at certain subsidiaries to full-time employees who retire at normal retirement age, have attained age 50 prior to January 1, 1993 and have at least 15 years of credited service under the Corporation's defined benefit pension plan. This plan is subject to a vesting schedule, is contributory and contains other cost-sharing features such as deductibles and coinsurance. Retirees not meeting the above eligibility requirements may participate in the medical benefit provided by the plan, as amended, at their own cost. Those retired prior to January 1, 1993 receive benefits provided by the plan prior to its amendment. That plan includes dental care, has some contribution requirements, and has less restrictive eligibility requirements. Under either plan, life insurance is provided to all retirees on a reducing basis for 5 years. The following table presents the plan's unfunded status reconciled with amounts recognized in the Corporation's Consolidated Balance Sheets at December 31:
- ------------------------------------------------------------- (in thousands) 1995 1994 - ------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $(10,073) $ (9,116) Fully eligible plan participants --- (14) Other active plan participants (218) (827) -------- -------- Total unfunded obligation (10,291) (9,957) Unrecognized net gain (2,878) (3,313) Unrecognized prior service cost (2,200) (2,655) -------- -------- Accrued postretirement benefit cost $(15,369) $(15,925) ======== ======== - -------------------------------------------------------------
Net periodic postretirement benefit cost includes the following components:
- -------------------------------------------------------------------- Year Ended December 31, (in thousands) 1995 1994 1993 - -------------------------------------------------------------------- Service cost $10 $48 $44 Interest cost 761 896 914 Net amortization and deferral (643) (455) (516) ---- ---- ---- Net periodic postretirement benefit cost $128 $489 $442 ==== ==== ==== - --------------------------------------------------------------------
The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.75% and 8.50% at December 31, 1995 and 1994, respectively. The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is 9% for 1996 (10% for 1995) and is assumed to decrease 1% annually to 5% by the year 2000 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percent in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 and 1994 by $1.0 million, and $1.1 million, respectively, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1995 by $84,000. 85 32 NOTE 12. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation's deferred tax assets and liabilities as of December 31, 1995 and 1994 follow:
- ----------------------------------------------------- (in thousands) 1995 1994 - ----------------------------------------------------- Deferred tax assets: Allowance for loan losses $12,091 $8,511 Net unrealized losses on securities --- 6,411 Accrued postemployment benefits other than pensions 5,379 5,574 Other deferred tax assets 3,472 3,523 ------- ------ Total deferred tax assets 20,942 24,019 ------- ------ Deferred tax liabilities: Acquisition premium on loans 2,076 1,119 Tax over book depreciation 1,965 1,972 Net unrealized gains on securities 1,878 --- Other deferred tax liabilities 3,661 1,774 ------- ------ Total deferred tax liabilities 9,580 4,865 ------- ------ Net deferred tax assets $11,362 $19,154 ======= ======= - -----------------------------------------------------
Income tax expense (benefit) consists of the following:
- -------------------------------------------------------------- Year Ended December 31, (in thousands) 1995 1994 1993 - -------------------------------------------------------------- Currently payable $12,732 $10,463 $6,426 Deferred taxes (credit) 73 (171) 768 Effect of tax rate change on deferred taxes --- --- (280) ------- ------- ------ Total income tax expense $12,805 $10,292 $6,914 ======= ======= ====== - --------------------------------------------------------------
A reconciliation of income tax expense to the amount computed by applying the Federal statutory rate of 35% to income before income taxes follows: - -------------------------------------------------------------------- Year Ended December 31, (in thousands) 1995 1994 1993 - -------------------------------------------------------------------- Tax at Federal statutory rate applied to income before income taxes $16,240 $13,897 $11,439 Increase (decrease) in taxes resulting from: Tax-exempt interest (3,539) (4,045) (4,371) Other 104 440 (154) ------- ------- ------ Total income tax expense $12,805 $10,292 $6,914 ======= ======= ====== - --------------------------------------------------------------------
NOTE 13. SHAREHOLDERS' EQUITY In April, 1993, the Corporation declared a two-for-one stock split effected in the form of a dividend paid May 12, 1993 to shareholders of record April 30, 1993. All share and per share amounts have been restated to give effect to the split. SHAREHOLDERS' RIGHTS PLAN The Corporation's Shareholders' Rights Plan is designed to provide certain assurances that all shareholders are treated fairly in connection with certain types of business transactions involving an attempt to acquire controlling interest in the Corporation. Under the plan, one right attaches to each outstanding share of common stock and represents the right to purchase from the Corporation 1/100 of a share of a new series of preferred stock at the initial exercise price of $37.50. The rights become exercisable only if a person or group without Board approval announces an intention to acquire 15% or more of the Corporation's outstanding common stock or makes a tender offer for that amount of stock. Upon the occurrence of such an event, the right "flips in" and becomes the right to purchase one share of common stock of the Corporation or the surviving company at 50% of the market price. These rights are redeemable by the Board for $0.01 per right and expire July 20, 2000. The rights will cause substantial dilution to a person or entity attempting to acquire the Corporation without conditioning the offer on the rights being redeemed by the Board. STOCK REPURCHASE PLAN The Corporation maintains a stock repurchase program initiated in November 1987. At year end 1995, this program, which has been expanded several times, allowed for the repurchase of 1,600,000 shares. As of December 31, 1995, a total of 1,132,470 shares have been repurchased under the program at an average price of $14.31 per share. These shares were reissued in connection with a purchase acquisition in October 1993 and the Corporation's stock option plan. In 1994, shares of common stock in treasury were accorded the treatment as if retired; however, such shares remain available for reissue. Such treatment was made retroactively to January 1, 1993 in the Consolidated Financial Statements. 86 33 STOCK OPTION PLAN The Corporation's stock option plan, as amended and restated in April 1992, authorizes the granting of incentive and nonqualified stock options, tandem stock appreciation rights, restricted stock and performance share grants to key employees. Aggregate grants under the plan may not exceed 2,000,000 shares within any five year period and are limited annually to 3% of the Corporation's outstanding common stock as of the first day of the year, plus any unused shares that first become available for grants in the prior year. Stock options outstanding under the plan were granted at a price not less than the fair market value of the shares on the date of grant. Replacement options may be granted upon exercise of a nonqualified stock option by payment of the exercise price with shares of the Corporation's common stock. A replacement option provides the employee with a new option to purchase the number of shares surrendered at an option price equal to the fair market value of the Corporation's common stock on the date the underlying nonqualified stock option is exercised. During 1995, 1994 and 1993, 168,927, 114,398 and 76,417 shares, respectively, were surrendered by employees for payment to the Corporation for stock option exercises for which an equal number of replacement options were granted. Options may be granted until January 16, 2002. The options terminate ten years from the date of grant and are exercisable beginning six months from the date of grant or for certain options, granted since April 1992, are exercisable subject to a pre-determined option vesting schedule based on achievement of certain return on average asset targets. Canceled or expired options become available for future grants. The Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock Based Compensation" in October 1995 and is effective for 1996 financial statements. The Corporation does not intend to adopt the recognition provisions of the Statement but will continue accounting for stock options in accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock issued to Employees" as permitted by the new Statement. Therefore, adoption will not materially impact the Corporation. A summary of stock option transactions under the plan for 1993, 1994 and 1995 follows:
- -------------------------------------------------------------------------------- Options Option Price ---------------------- ---------------------- Available Per Share for Grant Outstanding Range Average - -------------------------------------------------------------------------------- January 1, 1993 233,662 1,253,326 $9.875-18.315 $14.41 Authorized 393,093 --- --- --- Granted (141,214) 141,214 19.125-26.000 22.39 Exercised --- (145,456) 9.875-21.630 15.94 -------- --------- ------------- ------ December 31, 1993 485,541 1,249,084 9.875-26.000 15.13 Authorized 331,000 --- --- --- Granted (172,098) 172,098 23.250-27.250 25.40 Exercised --- (291,502) 9.875-21.630 15.35 Canceled 3,025 (3,025) 17.655-21.630 19.26 -------- --------- ------------- ------ December 31, 1994 647,468 1,126,655 9.875-27.250 16.63 Authorized 137,463 --- --- --- Granted (388,227) 388,227 26.000-30.813 27.22 Exercised --- (374,479) 9.875-26.375 17.68 Canceled 5,530 (5,530) 21.630-26.000 25.60 -------- --------- ------------- ------ December 31, 1995 402,234 1,134,873 9.875-30.813 19.86 ======== =========== Exercisable - December 31, 1995 867,357 9.875-29.938 17.51 ===========
NOTE 14. COMMITMENTS AND CONTINGENT LIABILITIES The Consolidated Financial Statements do not reflect various loan commitments (unfunded loans and unused lines of credit) and letters of credit originated in the normal course of business. Loan commitments are made to accommodate the financial needs of customers. Generally, new loan commitments do not extend beyond 90 days and unused lines of credit are reviewed at least annually. Letters of credit guarantee future payment of customer financial obligations to third parties. They are issued primarily for services provided or to facilitate the shipment of goods, and generally expire within one year. 87 34 Both arrangements have essentially the same level of credit risk as that associated with extending loans to customers and are subject to the Corporation's normal credit policies. Inasmuch as these arrangements generally have fixed expiration dates or other termination clauses, most expire unfunded and do not necessarily represent future liquidity requirements. Collateral is obtained based on management's assessment of the customer and may include receivables, inventories, real property and equipment. Amounts available to customers under loan commitments and letters of credit follow:
- -------------------------------------------------- December 31, (in thousands) 1995 1994 - -------------------------------------------------- Loan commitments: Commercial $ 735,513 $466,391 Real estate-construction 19,675 20,882 Real estate-mortgage 17,850 3,993 Credit card and home equity credit lines 281,233 189,483 Other consumer installment 11,323 12,171 ---------- -------- Total $1,065,594 $692,920 ========== ======== Standby letters of credit $ 42,981 $ 16,858 Commercial letters of credit 3,257 5,786 - --------------------------------------------------
The Corporation and its subsidiaries are parties to litigation arising in the ordinary course of business. Management believes that the aggregate liability, if any, resulting from these proceedings would not have a material effect on the Corporation's consolidated financial position. NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Financial Accounting Standards Board Statement No. 107, "Disclosure About Fair Value of Financial Instruments" ("SFAS 107"). Where quoted market prices are not available, as is the case for a significant portion of the Corporation's financial instruments, the fair values are based on estimates using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the derived fair value estimates presented herein cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts the Corporation could realize in a current market exchange. In addition, the fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the Corporation has a substantial trust department that contributes net fee income annually. The trust department is not considered a financial instrument and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities that are not considered financial assets or liabilities include the Corporation's mortgage servicing operation, brokerage network, net deferred tax asset, premises and equipment, goodwill and deposit based intangibles. In addition, tax ramifications related to the realization of unrealized gains and losses such as those within the investment securities portfolio can also have a significant effect on estimated fair values and have not been considered in the estimates. Accordingly, the aggregate fair value amounts do not represent the underlying value of the Corporation. The estimated fair values of the Corporation's financial instruments follow:
- --------------------------------------------------------------------------------------------------- December 31, 1995 December 31, 1994 --------------------- ----------------------- Carrying Estimated Carrying Estimated (in thousands) Amount Fair Value Amount Fair Value - --------------------------------------------------------------------------------------------------- Financial assets: Cash and money market investments $ 322,588 $ 322,600 $ 237,227 $ 237,700 Investment securities 570,912 570,900 563,999 564,000 Net loans(1) 2,333,799 2,360,400 1,714,244 1,705,000 Financial liabilities: Deposits 2,864,701 2,874,000 2,252,318 2,253,000 Short-term borrowings 146,024 146,000 146,431 146,400 Long-term debt 105,411 106,600 5,249 5,300 Off-balance sheet financial instrument liabilities: Loan commitments --- 1,224 --- 814 Standby and commercial letters of credit --- 231 --- 113 - ---------------------------------------------------------------------------------------------------
(1) Excludes lease financing which for purposes of SFAS 107 disclosure is not considered a financial instrument. 88 35 The various methods and assumptions used by the Corporation in estimating fair value for its financial instruments are set forth below: CASH AND MONEY MARKET INVESTMENTS The carrying amounts reported in the balance sheet for cash and money market investments approximate those assets' fair values because they mature within six months and do not present unanticipated credit concerns. INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED AND ASSET-BACKED SECURITIES) The carrying amounts reported in the balance sheet for investment securities approximate those assets' fair values as all investment securities are being classified in the available-for-sale category. SFAS 115 requires securities carried in the available-for-sale category to be carried at fair value. See Note 3. The fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. LOANS RECEIVABLE Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, commercial real estate, residential mortgage, credit card, and other consumer. Each loan category is further segmented into fixed and variable-rate interest types and for certain categories by performing and nonperforming. For performing variable-rate loans that reprice frequently (within six months) and with no significant change in credit risk, fair values are based on carrying values. Similarly, for credit card loans with no significant credit concerns and average interest rates approximating current market origination rates, the carrying amount is a reasonable estimate of fair value. Fair values of other loans (e.g., fixed-rate commercial, commercial real estate, residential mortgage and other consumer loans) are estimated by discounting the future cash flows using interest rates currently being offered by the Corporation for loans with similar terms and remaining maturities ("new loan rates"). Management believes the risk factor embedded in the new loan rates adequately represents the credit risk within the portfolios. Fair values for nonperforming loans are estimated after giving consideration to credit risk and estimated cash flows and discount rates based on available market and specific borrower information. The carrying amount of accrued interest for all loan types approximates its fair value. DEPOSIT LIABILITIES Under SFAS 107, the fair value of demand deposits (e.g., interest and noninterest checking, passbook savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for certificates of similar remaining maturities. SHORT-TERM BORROWINGS The carrying amounts of federal funds purchased, securities sold under agreement to repurchase and other short-term borrowings approximate their fair values. LONG-TERM DEBT The carrying value of the Corporation's variable-rate long-term debt approximates its fair value. The fair value of its fixed-rate long-term debt (other than deposits) is estimated using discounted cash flow analyses, based on the Corporation's current incremental borrowing rates for similar types of borrowings arrangements. LOAN COMMITMENTS AND LETTERS OF CREDIT The fair value of loan commitments and letter of credit guarantees is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. 89 36 NOTE 16. REGULATORY MATTERS The Federal Reserve Bank requires the Corporation's banking subsidiaries to maintain certain noninterest-bearing deposits. These reserve balances vary depending upon the level of customer deposits in the subsidiary banks. During 1995 and 1994, the average reserve balances were $41.2 million and $36.2 million, respectively. The bank subsidiaries are also subject to limitations under banking laws on extensions of credit to members of the affiliate group and on dividends that can be paid to the Corporation. Generally extensions of credit are limited to 10% to any one affiliate and 20% in aggregate to all affiliates of a subsidiary bank's capital and surplus (net assets) as defined. Unless prior regulatory approval is obtained, dividends declared in any calendar year may not exceed the retained net profit, as defined, of that year plus the retained net profit of the preceding two years. At January 1, 1996, the bank subsidiaries could distribute to the Corporation approximately $23.2 million in dividends without regulatory approval. Their 1996 net income will also become available for such dividends. NOTE 17. CITIZENS BANKING CORPORATION (PARENT ONLY) STATEMENTS Condensed financial statements of Citizens Banking Corporation (Parent Only) follow: BALANCE SHEETS CITIZENS BANKING CORPORATION (PARENT ONLY)
December 31, (in thousands) 1995 1994 - ----------------------------------------------------------------- ASSETS: Cash $ 5 $ 4 Interest-bearing deposit with subsidiary bank 30,000 --- Money market investments 14,544 14,511 Loans - commercial paper --- 5,000 Investment securities 218 5,331 Investment in bank subsidiaries 348,676 234,324 Goodwill - net 5,041 5,837 Other assets 4,890 2,900 -------- -------- TOTAL ASSETS $403,374 $267,907 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: Long-term debt $100,878 $ 4,950 Other liabilities 5,310 4,227 -------- -------- Total liabilities 106,188 9,177 Shareholders' equity 297,186 258,730 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $403,374 $267,907 ======== ========
90 37 STATEMENTS OF INCOME CITIZENS BANKING CORPORATION (PARENT ONLY)
Year Ended December 31, (in thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------- INCOME Dividends from subsidiaries - principally banks $24,388 $24,211 $20,841 Interest from subsidiaries 1,413 150 183 Other 1,605 646 392 ------- ------- ------- Total 27,406 25,007 21,416 ------- ------- ------- EXPENSES Interest 7,374 371 425 Amortization of goodwill 796 856 908 Salaries and employee benefits 764 780 2,028 Service fees paid to subsidiaries 1,054 879 1,401 Other noninterest expense 949 1,564 855 ------- ------- ------ Total 10,937 4,450 5,617 ------- ------- ------ Income before income taxes and equity in undistributed earnings of subsidiaries 16,469 20,557 15,799 Income tax benefit 3,195 809 1,501 Equity in undistributed earnings of subsidiaries - principally banks 13,932 8,048 8,470 ------- ------- ------ NET INCOME $33,596 $29,414 $25,770 ======= ======= =======
STATEMENTS OF CASH FLOWS CITIZENS BANKING CORPORATION (PARENT ONLY)
Year Ended December 31, (in thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $33,596 $29,414 $25,770 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of goodwill 796 856 908 Equity in undistributed earnings of subsidiaries (13,932) (8,048) (8,470) Other (967) 1,658 (326) --------- ----- ------ Net cash provided by operating activities 19,493 23,880 17,882 INVESTING ACTIVITIES Net increase in interest-bearing deposit at subsidiary bank (30,000) --- --- Net (increase) decrease in money market investments (33) 1,410 2,790 Purchases of investment securities --- (18,646) (3,043) Proceeds from maturities of investment securities 5,146 16,748 328 Net (increase) decrease in loans 5,000 (5,000) --- Purchase of and capital contributions to subsidiaries (85,000) --- (2,996) --------- -------- ------ Net cash used by investing activities (104,887) (5,488) (2,921) --------- -------- -------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt 115,000 --- --- Principal reductions in long-term debt (19,072) (4,450) (2,600) Cash dividends paid (12,770) (11,557) (9,937) Proceeds from stock options exercised 2,237 1,602 828 Shares acquired for retirement --- (3,986) (3,254) -------- ------- ------- Net cash provided (used) by financing activities 85,395 (18,391) (14,963) -------- ------- ------- Net increase (decrease) in cash 1 1 (2) Cash at beginning of year 4 3 5 -------- ------- ------- Cash at end of year $ 5 $ 4 $ 3 ======== ======== =======
91 38 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS BOARD OF DIRECTORS CITIZENS BANKING CORPORATION We have audited the accompanying consolidated balance sheets of Citizens Banking Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Citizens Banking Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Ernst & Young LLP Detroit, Michigan January 18, 1996 92 39 REPORT OF MANAGEMENT MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation of the consolidated financial statements and all other financial information appearing in this Annual Report. The Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles. SYSTEM OF INTERNAL CONTROLS The Corporation maintains a system of internal controls designed to provide reasonable assurance that assets are safe-guarded and that the financial records are reliable for preparing Consolidated Financial Statements. The selection and training of qualified personnel and the establishment and communication of accounting and administrative policies and procedures are elements of this control system. The effectiveness of the internal control system is monitored by a program of internal audit and by independent certified public accountants ("independent auditors"). Management recognizes that the cost of a system of internal controls should not exceed the benefits derived and that there are inherent limitations to be considered in the potential effectiveness of any system. Management believes the Corporation's system provides the appropriate balance between costs of controls and the related benefits. AUDIT COMMITTEE OF THE BOARD The Audit Committee of the Board of Directors, comprised entirely of outside directors, recommends the independent auditors who are engaged upon approval by the Board of Directors. The committee meets regularly with the internal auditor and the independent auditors to review timing and scope of audits and review audit reports. The internal auditor and the independent auditors have free access to the Audit Committee. INDEPENDENT AUDITORS The Consolidated Financial Statements in this Annual Report have been audited by the Corporation's independent auditors, Ernst & Young LLP, for the purpose of determining that the Consolidated Financial Statements are free of material misstatement. Their audit considered the Corporation's internal control structure to the extent necessary to determine the scope of their auditing procedures. John W. Ennest Charles R. Weeks John W. Ennest Charles R. Weeks Vice Chairman, Chairman Chief Financial Officer and Treasurer and Chief Executive Officer 93 EX-21 5 EXHIBIT 21 1 FORM 10-K EXHIBIT 21 SUBSIDIARIES OF CITIZENS BANKING CORPORATION
Jurisdiction or Incorporation of Organization ---------------- Direct Bank Subsidiaries (all wholly owned) Citizens Commercial & Savings Bank Michigan Grayling State Bank Michigan State Bank of Standish Michigan Second National Bank of Saginaw National Association Second National Bank of Bay City National Association Commercial National Bank of Berwyn National Association National Bank of Royal Oak National Association Indirect Nonbank Subsidiary Citizens Commercial Leasing Corporation Michigan (wholly owned by Citizens Commercial & Savings Bank)
94 EX-23 6 EXHIBIT 23 1 FORM 10-K EXHIBIT 23 CONSENTS OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in (1) the Registration Statement (Form S-8 No. 33-28354 dated April 26, 1989), pertaining to the Citizens Banking Corporation Amended and Restated Section 401(k) Plan; (2) the Registration Statement (Form S-8 No. 33-10007 dated November 26, 1986) pertaining to the Citizens Banking Corporation Stock Option Plan and the Citizens Banking Corporation First Amended Stock Option Plan; (3) the Registration Statement (Form S-8 No. 33-47686 dated May 5, 1992) pertaining to the Citizens Banking Corporation Second Amended Stock Option Plan; and (4) the Registration Statement (Form S-8 No. 33-61197 dated July 21, 1995) pertaining to the Citizens Banking Corporation Stock Option Plan for Directors in the related Prospectus of our report dated January 18, 1996, with respect to the consolidated financial statements of Citizens Banking Corporation included in the annual report (Form 10-K) for the year ended December 31, 1995. We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-28354 dated April 26, 1989) pertaining to the Citizens Banking Corporation Amended and Restated Section 401(k) Plan and in the related Prospectus of our report dated February 23, 1996, with respect to the financial statements and schedules of the Citizens Banking Corporation Amended and Restated Section 401(k) Plan included in the annual report (Form 10-K) for the year ended December 31, 1995. Ernst & Young LLP Detroit, Michigan March 26, 1996 95 EX-27 7 EXHIBIT 27
9 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 172,754 10 50,000 0 570,912 0 0 2,428,513 34,771 3,463,922 2,864,701 146,024 50,600 105,411 0 0 91,480 205,706 3,463,922 201,242 39,358 0 240,600 88,157 103,105 137,495 6,441 198 121,087 46,401 33,596 0 0 33,596 2.31 2.30 8.20 18,624 432 494 10,827 24,714 7,921 4,302 34,771 26,777 0 7,994
EX-99 8 EXHIBIT 99 1 FORM 10-K EXHIBIT 99 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K [x] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year end December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to ----------------------------- ------------------ Commission file Number 0-10535 ------------ A. Full title of the plan and the address of the plan, if different from that of the issuer named below: CITIZENS BANKING CORPORATION AMENDED AND RESTATED SECTION 401(k) PLAN B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: CITIZENS BANKING CORPORATION One Citizens Banking Center 328 South Saginaw Street Flint, Michigan 48502 REQUIRED INFORMATION 97 2 Financial Statements and Other Financial Information Citizens Banking Corporation Amended and Restated Section 401(k) Plan Years ended December 31, 1995, 1994 and 1993 with Report of Independent Auditors [ERNST & YOUNG LLP] 98 3 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Financial Statements and Other Financial Information December 31, 1995 CONTENTS Report of Independent Auditors ........................... 100 Financial Statements and Schedule Statement of Assets Available for Plan Benefits .......... 102 Statement of Changes in Assets Available for Plan Benefits 104 Notes to Financial Statements ............................ 107 Schedule of Assets Held for Investment ................... 112 Other Financial Information Schedule of Reportable Transactions ...................... 114 99 4 [ERNST & YOUNG LLP LETTERHEAD] Report of Independent Auditors Administrative Committee Citizens Banking Corporation Amended and Restated Section 401(k) Plan We have audited the accompanying statements of assets available for plan benefits of the Citizens Banking Corporation Amended and Restated Section 401(k) Plan as of December 31, 1995 and 1994, and the related statements of changes in assets available for plan benefits for each of the three years in the period ended December 31, 1995 and the related schedule of assets held for investment for the year ended December 31, 1995. These financial statements and schedule are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and schedule referred to above present fairly, in all material respects, the assets available for plan benefits of the Plan at December 31, 1995 and 1994, and the changes in its assets available for plan benefits for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Further, it is our opinion that the schedule referred to above presents fairly, in all material respects, the information set forth therein for the year ended December 31, 1995 in compliance with the applicable accounting regulations of the Securities and Exchange Commission. 100 5 Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental Schedule of Reportable Transactions for the year ended December 31, 1995 is presented for purposes of complying with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, and is not a required part of the financial statements. The supplemental schedule has been subjected to the auditing procedures applied in our audit of the 1995 financial statements and, in our opinion, is fairly stated in all material respects in relation to the 1995 financial statements taken as a whole. ERNST & YOUNG LLP February 22, 1996 101 6 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Statement of Assets Available for Plan Benefits December 31, 1995
401(K) PARTICIPANT - DIRECTED INVESTMENT FUNDS ----------------------------------------------- CITIZENS INTERMEDIATE BANKING INCOME EQUITY CORPORATION BALANCED FUND FUND STOCK FUND ----------------------------------------------------- ASSETS Investments at fair value (cost--$49,340,204): Marketable: Common stocks: Citizens Banking Corporation $30,038,813 $ 1,481,550 Mutual funds $7,108,817 $12,880,201 13,827,847 U.S. Government securities 911,250 51,378 Corporate bonds and notes 38,508 Money market account 210,013 58,765 134,285 1,454,869 ------------------------------------------------------ Total investments 8,230,080 12,938,966 30,173,098 16,859,152 Receivables: Loans to participants Accrued income 54,601 64,425 312 250,315 ------------------------------------------------------ 54,601 64,425 312 250,315 Cash 9,346 16,949 45,558 8,202 ------------------------------------------------------ Assets available for plan benefits $8,294,027 $13,020,340 $30,218,968 $17,112,669 ====================================================== 401(K) PARTICIPANT - DIRECTED INVESTMENT FUNDS ------------------------------------------------ MONEY MARKET PARTICIPANT FUND LOAN FUND TOTAL ------------------------------------------------ ASSETS Investments at fair value (cost--$49,340,204): Marketable: Common stocks: Citizens Banking Corporation $ 31,520,363 Mutual funds 33,816,866 U.S. Government securities 962,627 Corporate bonds and notes 38,508 Money market account $ 472,788 2,330,720 ------------------------------------------------ Total investments 472,788 68,669,084 Receivables: Loans to participants $ 3,344,257 3,344,257 Accrued income 2,155 371,808 ------------------------------------------------ 2,155 3,344,257 3,716,065 Cash 1,395 81,450 ------------------------------------------------ Assets available for plan benefits $ 476,338 $ 3,344,257 $ 72,466,599 ================================================
See accompanying notes. 102 7 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Statement of Assets Available for Plan Benefits December 31, 1994
401(K) PARTICIPANT - DIRECTED INVESTMENT FUNDS ---------------------------------------------------------- CITIZENS INTERMEDIATE BANKING MONEY INCOME EQUITY CORPORATION BALANCED MARKET PARTICIPANT FUND FUND STOCK FUND FUND LOAN FUND TOTAL ---------------------------------------------------------------------------------- ASSETS Investments at fair value (cost--$43,750,621): Marketable: Common stocks: Domestic: Citizens Banking Corporation $25,841,993 $ 1,381,950 $27,223,943 Other 2,143,260 2,143,260 Foreign 85,268 85,268 Mutual funds $4,252,022 $8,860,626 10,580,492 23,693,140 U.S. Government securities 1,880,882 80,637 1,961,519 Corporate bonds and notes 499,965 50,749 550,714 Money market account 911,644 97,929 119,815 794,983 $234,195 2,158,566 Commerical paper 50,000 50,000 ---------------------------------------------------------------------------------- Total investments 7,544,513 8,958,555 25,961,808 15,167,339 234,195 57,866,410 Receivables: Loans to participants $3,285,617 3,285,617 Accrued income 78,074 118,750 489 167,016 1,087 365,416 Other receivables 2,669 3,585 9,642 1,810 168 17,874 ---------------------------------------------------------------------------------- 80,743 122,335 10,131 168,826 1,255 3,285,617 3,668,907 Cash 11,410 (11,409) (666) (101,118) (101,783) ---------------------------------------------------------------------------------- Assets available for plan benefits $7,636,666 $9,069,481 $25,971,273 $15,235,047 $235,450 $3,285,617 $61,433,534 ==================================================================================
See accompanying notes. 103 8 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Statement of Changes in Assets Available for Plan Benefits Year ended December 31, 1995
401(K) PARTICIPANT - DIRECTED INVESTMENT FUNDS ----------------------------------------------------------- CITIZENS INTERMEDIATE BANKING MONEY INCOME EQUITY CORPORATION BALANCED MARKET PARTICIPANT FUND FUND STOCK FUND FUND LOAN FUND TOTAL ----------------------------------------------------------------------------------------- ADDITIONS Investment income: Dividends: Citizens Banking Corporation $ 862,527 $ 44,820 $ 862,527 Other $ 344,448 $ 1,023,703 931,796 2,344,767 Interest income 122,597 6,004 9,779 40,373 $ 17,856 $ 277,975 474,584 ----------------------------------------------------------------------------------------- Total investment income 467,045 1,029,707 872,306 1,016,989 17,856 277,975 3,681,878 Contributions: Employer 258,391 438,912 829,509 187,379 31,335 1,745,526 Employee 435,127 828,556 1,679,571 425,983 64,759 43,260 3,477,256 ----------------------------------------------------------------------------------------- 693,518 1,267,468 2,509,080 613,362 96,094 43,260 5,222,782 ----------------------------------------------------------------------------------------- 1,160,563 2,291,175 3,381,386 1,630,351 113,950 321,235 8,904,660 DEDUCTIONS Benefit payments to participants (566,942) (731,615) (1,541,002) (978,682) (67,543) (3,885,784) Other - Transfers (net) (373,458) 524,924 480,169 (563,521) 194,481 (262,595) - ----------------------------------------------------------------------------------------- 220,163 2,090,484 2,320,553 88,148 240,888 58,640 5,018,876 Net realized and unrealized appreciation (depreciation) in fair value of investments: Realized (5,094) 163 (19,539) 825,568 801,098 Unrealized 442,292 1,860,212 1,946,681 963,906 5,213,091 ----------------------------------------------------------------------------------------- 437,198 1,860,375 1,927,142 1,789,474 6,014,189 ----------------------------------------------------------------------------------------- Net increase 657,361 3,950,859 4,247,695 1,877,622 240,888 58,640 11,033,065 Assets available for plan benefits at beginning of year 7,636,666 9,069,481 25,971,273 15,235,047 235,450 3,285,617 61,433,534 ----------------------------------------------------------------------------------------- Assets available for plan benefits at end of year $8,294,027 $13,020,340 $30,218,968 $17,112,669 $476,338 $3,344,257 $72,466,599 ========================================================================================
See accompanying notes. 104 9
Citizens Banking Corporation Amended and Restated Section 401(k) Plan Statement of Changes in Assets Available for Plan Benefits Year ended December 31, 1994 401(K) PARTICIPANT - DIRECTED INVESTMENT FUNDS ------------------------------------------------------------- CITIZENS INTERMEDIATE BANKING INCOME EQUITY CORPORATION BALANCED FUND FUND STOCK FUND ------------------------------------------------------------- ADDITIONS Investment income: Dividends: Citizens Banking Corporation $ 732,805 $ 40,836 Other $ 172,499 $ 514,282 567,159 Interest income 275,943 4,696 6,412 47,838 ------------------------------------------------------------- Total investment income 448,442 518,978 739,217 655,833 Contributions: Employer 287,921 361,659 644,404 150,437 Employee 469,480 690,692 1,212,503 310,799 ------------------------------------------------------------- 757,401 1,052,351 1,856,907 461,236 ------------------------------------------------------------- 1,205,843 1,571,329 2,596,124 1,117,069 DEDUCTIONS Benefit payments to participants (1,196,578) (593,605) (2,047,184) (1,854,565) Other Transfers (net) (557,316) 224,284 591,424 (510,535) ------------------------------------------------------------- (548,051) 1,202,008 1,140,364 (1,248,031) Net realized and unrealized appreciation (depreciation) in fair value of investments: Realized 12,834 (115,797) 305,838 Unrealized (288,458) (427,383) 2,566,954 (881,146) ------------------------------------------------------------- (288,458) (414,549) 2,451,157 (575,308) ------------------------------------------------------------- Net increase (decrease) (836,509) 787,459 3,591,521 (1,823,339) Assets available for plan benefits at beginning of year 8,473,175 8,282,022 22,379,752 17,058,386 ------------------------------------------------------------- Assets available for plan benefits at end of year $ 7,636,666 $ 9,069,481 $25,971,273 $ 15,235,047 ============================================================= MONEY MARKET PARTICIPANT FUND LOAN FUND TOTAL -------------------------------------------- ADDITIONS Investment income: Dividends: Citizens Banking Corporation $ 773,641 Other 1,253,940 Interest income $ 5,330 $ 257,685 597,904 -------------------------------------------- Total investment income 5,330 257,685 2,625,485 Contributions: Employer 8,226 1,452,647 Employee 16,408 2,699,882 -------------------------------------------- 24,634 4,152,529 -------------------------------------------- 29,964 257,685 6,778,014 DEDUCTIONS Benefit payments to participants (733) (24,901) (5,717,566) Other (128,102) (128,102) Transfers (net) 153,521 98,622 - -------------------------------------------- 182,752 203,304 932,346 Net realized and unrealized appreciation (depreciation) in fair value of investments: Realized 202,875 Unrealized 969,967 -------------------------------------------- 1,172,842 -------------------------------------------- Net increase (decrease) 182,752 203,304 2,105,188 Assets available for plan benefits at beginning of year 52,698 3,082,313 59,328,346 -------------------------------------------- Assets available for plan benefits at end of year $ 234,450 $3,285,617 $61,433,534 ============================================ See accompanying notes.
105 10 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Statement of Changes in Assets Available for Plan Benefits Year ended December 31, 1993
401(K) PARTICIPANT - DIRECTED INVESTMENT FUNDS ------------------------------------------------------------------------------------------- CITIZENS INTERMEDIATE BANKING MONEY INCOME EQUITY CORPORATION BALANCED MARKET FUND FUND STOCK FUND FUND ------------------------------------------------------------------------------------------- ADDITIONS Investment income: Dividends: Citizens Banking Corporation $ 618,519 $ 37,101 Other $ 5,891 $ 670,781 470,548 Interest income 564,557 4,847 6,257 608,185 $ 387 ------------------------------------------------------------------------------------------- Total investment income 570,448 675,628 624,776 1,115,834 387 Contributions: Employer 373,569 335,082 517,944 129,518 573 Employee 611,270 614,319 931,765 259,749 762 ------------------------------------------------------------------------------------------- 984,839 949,401 1,449,709 389,267 1,335 ------------------------------------------------------------------------------------------- 1,555,287 1,625,029 2,074,485 1,505,101 1,722 DEDUCTIONS Benefit payments to participants (1,533,129) (594,056) (1,067,022) (2,464,760) Other Transfers (net) (894,117) 504,544 820,303 1,922,663 50,976 ------------------------------------------------------------------------------------------- (871,959) 1,535,517 1,827,766 963,004 52,698 Net realized and unrealized appreciation (depreciation) in fair value of investments: Realized (11,907) 290,111 39,928 1,641,639 Unrealized 6,396 280,447 4,664,481 (892,221) ------------------------------------------------------------------------------------------- (5,511) 570,558 4,704,409 749,418 ------------------------------------------------------------------------------------------- Net increase (decrease) (877,470) 2,105,075 6,532,175 1,712,422 52,698 Assets available for plan benefits at beginning of year 9,350,645 6,175,947 15,847,577 15,345,964 - ------------------------------------------------------------------------------------------- Assets available for plan benefits at end of year $ 8,473,175 $8,282,022 $22,379,752 $17,058,386 $52,698 =========================================================================================== CNBB PROFIT SHARING PARTICIPANT FUND LOAN FUND TOTAL ------------------------------------------------------ ADDITIONS Investment income: Dividends: Citizens Banking Corporation $ 655,620 Other $ 29,903 1,177,123 Interest income 38,527 $ 227,622 1,450,382 ------------------------------------------------------ Total investment income 68,430 227,622 3,283,125 Contributions: Employer 1,356,686 Employee 2,417,865 ------------------------------------------------------ 3,774,551 ------------------------------------------------------ 68,430 227,622 7,057,676 DEDUCTIONS Benefit payments to participants (26,740) (34,289) (5,719,996 Other (126,183) (126,183 Transfers (net) (2,482,610) 78,241 - ------------------------------------------------------ (2,440,920) 145,391 1,211,497 Net realized and unrealized appreciation (depreciation) in fair value of investments: Realized (3,250) 1,956,521 Unrealized (259,625) 3,799,478 ------------------------------------------------------ (262,875) 5,755,999 ------------------------------------------------------ Net increase (decrease) (2,703,795) 145,391 6,967,496 Assets available for plan benefits at beginning of year 2,703,795 2,936,922 52,360,850 ------------------------------------------------------ Assets available for plan benefits at end of year $ - $ 3,082,313 $ 59,328,346 ======================================================
See accompanying notes. 106 11 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Notes to Financial Statements December 31, 1995 1. SIGNIFICANT ACCOUNTING POLICIES VALUATION OF INVESTMENTS Marketable investments are stated at aggregate fair value. Securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the Plan year. Investments traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the average of the last reported bid and ask prices. Loans to participants represent qualifying interest-bearing loans from individual accounts that are valued at the amount of outstanding principal. Unrealized appreciation or depreciation in the aggregate fair value of investments represents the change in the difference between aggregate fair value and the cost of investments. The realized gain or loss on sale of investments is the difference between the proceeds received and the specific cost of investments sold. Such amounts are different than the related amounts reported on Form 5500 which are computed as the difference between the proceeds received and the fair value at the beginning of the year as prescribed by the Department of Labor regulations. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 107 12 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Notes to Financial Statements (continued) 2. DESCRIPTION OF THE PLAN The Citizens Banking Corporation Amended and Restated Section 401(k) Plan (Plan) is a defined contribution plan which includes a 401(k) salary deferral feature. The Plan covers substantially all employees of Citizens Banking Corporation (Corporation) and its banking subsidiaries including salaried employees and hourly employees with over 1,000 hours of credited service. At December 31, 1995 there were 1637 participants in the Plan. Participants may contribute on a before-tax basis up to 15% of their annual base compensation (not to exceed $9,240 for 1995) and on an after-tax basis up to 10% of their base compensation. Participants may direct their contributions into either an intermediate income, equity, balanced, money market or Citizens Banking Corporation stock fund and may elect to change the percentage directed to each fund quarterly. During 1993, the fixed income fund was renamed the intermediate income fund and a new fund, the money market fund was opened. Participants were subsequently allowed to direct contributions into each of these funds. Furthermore, on October 1, 1993, the assets of the CNBB profit sharing fund were transferred to the balanced fund. All participant contributions are fully vested. Under the Plan, the participating subsidiaries can also make employer matching cont ributions of 100% on the first 3% and 50% on the next 3% of a participant's base compensation (excluding bonuses, overtime and fringe benefits actually paid for the year) such that the maximum employer matching contributions for any such participant will be 4.5% of a participant's base compensation. In addition, a retiree medical savings account was established for each participant. One third of the employer matching contribution is automatically directed into this account. Employees may not borrow against any monies residing in the account. These matching contributions are fully vested after three years of service or upon normal or early retirement, death or disability. All administrative costs of the plan are paid by the Corporation. The Corporation has the right under the Plan to discontinue such annual contributions. Citizens Banking Corporation has the right to terminate the Plan at any time. In the event of a termination of the Plan, the net assets of the Plan are to be set aside for the payment of vested benefits. 108 13 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Notes to Financial Statements (continued) 3. INVESTMENTS The Plan's investments are administered by the Citizens Commercial & Savings Bank Trust Department. During each of the three years in the period ended December 31, 1995, the Plan's investments (including investment bought, sold as well as held during the year) appreciated (depreciated) in fair value by $6,014,189, $1,172,842, and $5,755,999 as follows:
NET APPRECIATION (DEPRECIATION) FAIR VALUE IN FAIR VALUE AT END COST AT END DURING YEAR OF YEAR OF YEAR ------------------------------------------- YEAR ENDED DECEMBER 31, 1995 Fair value as determined by quoted market price: Common stocks: Domestic: Citizens Banking Corporation $2,026,742 $31,520,363 $14,899,489 Other 649,235 Mutual funds 3,304,475 33,816,866 31,065,247 U.S. Government securities 29,690 962,627 1,006,240 Corporate bonds and notes 4,047 38,508 38,508 Money market account -- 2,330,720 2,330,720 ------------------------------------ $6,014,189 $68,669,084 $49,340,204 ==================================== YEAR ENDED DECEMBER 31, 1994 Fair value as determined by quoted market price: Common stocks: Domestic: Citizens Banking Corporation $2,588,106 $27,223,943 $12,649,351 Other (166,422) 2,143,260 2,174,102 Foreign 275 85,268 84,993 Mutual funds (1,145,864) 23,693,140 24,038,114 U.S. Government securities (89,897) 1,961,519 2,041,609 Corporate bonds and notes (13,356) 550,714 553,886 Money market account -- 2,158,566 2,158,566 Commercial paper -- 50,000 50,000 ------------------------------------ $1,172,842 $57,866,410 $43,750,621 ====================================
109 14 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Notes to Financial Statements (continued) 3. INVESTMENTS (CONTINUED)
NET APPRECIATION (DEPRECIATION) FAIR VALUE IN FAIR VALUE AT END COST AT END DURING YEAR OF YEAR OF YEAR ---------------------------------------- YEAR ENDED DECEMBER 31, 1993 Fair value as determined by quoted market price: Common stocks: Citizens Banking Corporation $ 4,990,759 $23,499,150 $11,628,461 Other 677,213 23,034,682 21,776,539 U.S. Government securities 43,871 2,078,396 2,068,908 Corporate bonds and notes 44,156 693,034 685,532 Money market account -- 2,619,837 2,619,837 ------------------------------------- 5,755,999 51,925,099 38,779,277 Fair value determined by the Plan Administration Committee: Insurance contract -- 4,007,083 4,007,083 ------------------------------------- $ 5,755,999 $55,932,182 $42,786,360 ===================================== YEAR ENDED DECEMBER 31 ------------------------------------- 1995 1994 1993 ------------------------------------- Realized gain: Proceeds on disposition $30,489,733 $38,837,787 $60,635,798 Cost 29,688,635 38,634,912 58,679,277 ------------------------------------- 801,098 202,875 1,956,521 Unrealized gain 5,213,091 969,967 3,799,478 ------------------------------------- $ 6,014,189 $ 1,172,842 $ 5,755,999 =====================================
110 15 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Notes to Financial Statements (continued) 3. INVESTMENTS (CONTINUED) The fair value of individual investments that represent 5% or more of the plan's assets are as follows: DECEMBER 31 1995 1994 ------------------------- Citizens Banking Corporation, 1,059,508 and 981,043 shares of common stock in 1995 and 1994, respectively $31,520,363 $27,223,943 Frank Russell Quantitative Equity 3,731,203 Frank Russell Diversified Equity 3,721,086 Golden Oak FDS Intermediate Income Fund 12,622,801 9,365,103 Harbor International Fund 5,363,484 4,046,439
During 1993, the Plan began investing certain fund assets in the Golden Oak series of mutual funds. Citizens Commercial & Savings Bank, a subsidiary of Citizens Banking Corporation, serves as the investment advisor to these funds. The mutual fund portfolios were established pursuant to the provisions of the Investment Company Act of 1940. Investments within these portfolios were made in accordance with the applicable Department of Labor rules and regulations concerning the investment of qualified plan assets into mutual funds wherein the investment advisor to the portfolio is a party-in-interest with respect to the plan. 4. INCOME TAX STATUS The Internal Revenue Service ruled August 2, 1995 that the Plan qualifies under Section 401(a) of the Internal Revenue Code (IRC) and, therefore, the related trust is not subject to tax under present income tax law. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Administrative Committee is not aware of any course of action or series of events that have occurred that might adversely affect the Plan's qualified status. 5. BENEFIT PAYABLE Assets available for plan benefits include amounts allocated for approved distributions. Such balances amounted to $1,830,003 and $506,835 at December 31, 1995 and 1994, respectively. The accompanying statement of assets available for plan benefits as of December 31, 1995 and 1994 has been restated to eliminate the liability for such distribution. Previously, such account balances were shown as liabilities of the Plan. Such amounts are shown as a liability on the Plan's Form 5500. 111 16 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Schedule of Assets Held for Investment December 31, 1995
DESCRIPTION OF INVESTMENT INCLUDING IDENTIFY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST, LESSOR OR SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE COST FAIR VALUE - ----------------------------------------------------------------------------------------------------------------------------------- MARKETABLE Common stocks: Citizens Banking Corp.* 1,059,508 shares $14,899,489 $31,520,363 ----------------------------------- Total common stock (46% of net assets) 14,899,489 31,520,363 Mutual Funds: Golden Oak Diversified Growth Funds* 115,632 units 1,161,037 1,141,287 Golden Oak Intermediate Income Fund* 1,247,312 units 12,444,216 12,622,801 Columbia Special Fund Income 27,886 units 607,037 597,886 Harbor International Fund 192,654 units 4,178,795 5,636,484 Harbor Capital Appreciation Fund 54,101 units 1,250,000 1,227,560 Heartland Value Fund 11,839 units 345,000 330,911 MAS Funds Value Portfolio 93,326 units 1,328,000 1,290,704 Frank Russell Quantitative Fund 121,300 units 3,057,394 3,731,203 Frank Russell Diversified Fund 96,326 units 3,359,861 3,731,203 Frank Russell Special Growth Fund 56,685 units 1,818,868 2,220,353 Scudder Investment Trust Growth & Income 62,953 units 1,278,000 1,273,533 Twentieth Century Investors Ultra Fund 11,339 units 237,040 296,057 ----------------------------------- Total Mutual Funds (49.2% of net assets) 31,065,247 33,816,866
112 17 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Schedule of Assets Held for Investment (continued)
DESCRIPTION OF INVESTMENT INCLUDING IDENTITY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST, LESSOR OR SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE COST FAIR VALUE - ----------------------------------------------------------------------------------------------------------------- MARKETABLE (CONTINUED) U.S. Government Securities: Federal National Mortgage Association $49,944 principal amount, 9.131%, due June 1, 2019 $ 50,412 $ 51,377 U.S. Treasury Note $900,000 principal amount, 7.25%, due August 31, 1996 955,828 911,250 ---------------------------- Total U.S. Government Securities (14% of net assets) 1,006,240 962,627 Corporate Bonds and Notes: Money Store FHA Title $38,508 principal amount, 8.45%, due April 20, 2007 38,508 38,508 ---------------------------- Total Corporate Bonds and Notes (.05% of net assets) 38,508 38,508 Money Market Accounts: Golden Oak Prime Obligation Class A (3.4% of net assets) $2,330,720 principal amount 2,330,720 2,330,720 ---------------------------- Total Investments $49,340,204 $68,669,084 ============================
*Party-in-interest to the Plan. See accompanying notes 113 18 OTHER FINANCIAL INFORMATION 114 19 Citizens Banking Corporation Amended and Restated Section 401(k) Plan Schedule of Reportable Transactions Year ended December 31, 1995
CURRENT VALUE OF ASSET ON PURCHASE SELLING COST TRANSACTION NET IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE OF ASSET DATE (LOSS) - ------------------------------------------------------------------------------------------------------------------------------------ iii) A series of transactions with respect to the same issue which amount in the aggregate to more than 5% of the current value of total plan assets: Citizens Banking 115 purchases, 163,273 shares Corporation purchased $4,651,402 $ - $ 4,651,402 $ 4,651,402 62 sales, 58,495 shares sold 1,604,837 1,623,812 1,604,837 $(18,975) Golden Oak FDS Intermediate 9 purchases, 305,874 units Income purchased 2,970,350 - 2,970,350 2,970,350 Fund 3 sales, 51,680 units sold $ 16,000 536,074 516,000 (20,074) Golden Oak FDS Prime Obligation 630 purchases, 17,410,695 units purchased 17,410,695 - 17,410,695 17,410,695 Money Market-- Class A 202 sales, 17,238,541 units sold 17,238,541 17,238,541 17,238,541
Commssions and fees related to purchases and sales of investments are included in the cost of the investment or proceeds from the sale. There were no transactions reportable under categories i) ii) or iv). 115 -----END PRIVACY-ENHANCED MESSAGE-----