ITEM 1. BUSINESS
General Citizens Banking Corporation (Citizens) 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, 2000, Citizens had 2,997 full-time equivalent employees and directly or indirectly owned the following subsidiaries at year-end 2000.
(1) Consolidated totals of Citizens Bank include its non-bank subsidiaries: Citizens Commercial Leasing Corporation (CCLC) - 100% owned, CB Financial Services, Inc. - 100% owned, Citizens Bank Mortgage Corporation - 100% owned, Citizens Title Services - 100% owned, Citizens Service Company, Inc - 100% owned, and Citizens Bank Consumer Finance, LLC - 99% owned. All of the named subsidiaries are based in Flint, Michigan except for CCLC, which is based in Saginaw, Michigan. Citizens Service Company, Inc. owns the other 1% of Citizens Bank Consumer Finance, LLC. (2) Effective January 3, 2000, F&M Bancorporation, Inc. directly owned F&M Bank - Wisconsin, F&M Bank - Iowa, and F&M Bank - Minnesota. Previously, F&M Bancorporation, Inc directly owned two bank holding companies and eight banks in Wisconsin, all of which were either dissolved or consolidated into the new entities. (3) Consolidated totals of F&M Bank - Wisconsin include its wholly owned non-bank subsidiary, Pulaski Capital Corporation, based in the state of Nevada. (4) Consolidated totals of F&M Bank - Iowa include its wholly owned non-bank subsidiary, Security Bancservices, Inc., based in Marshalltown, Iowa.
Citizens' provides a full range of banking and financial services to individuals and businesses, including commercial and retail banking, consumer finance, asset management, trust services, and mortgage financing and servicing. Operations are primarily conducted through more than 200 banking offices and 241 ATM locations in Michigan, Illinois, Wisconsin, Iowa and Minnesota, as well as through 26 brokerage centers in Michigan, Illinois, Wisconsin, and Iowa.
Citizens Bank, a wholly owned bank subsidiary of Citizens, directly owns several non-bank subsidiaries as follows:
1. CB Financial Services, Inc. - a seller of life insurance and annuity products to clients subject to certain restrictions, 2. Citizens Bank Mortgage Corporation - a provider of mortgage financing and servicing to individuals and businesses, 3. Citizens Title Services, Inc. - an issuer of title insurance to buyers and sellers of residential and commercial mortgage properties including those occurring due to loan refinancing,
4. Citizens Commercial Leasing Company - a participant in high quality indirect lease participations, 5. Citizens Service Company, Inc - a holding company owning 1% of Citizens Bank Consumer Finance, LLC, and 6. Citizens Bank Consumer Finance, LLC - a partnership established to provide indirect consumer lending services to clients in Citizens markets.
Pulaski Capital Corporation, a wholly owned non-bank subsidiary of F&M Bank - Wisconsin organized and existing under the laws of the State of Nevada, holds and manages that bank's municipal investments. Security Bancservices, Inc, a wholly owned non-bank subsidiary of F&M Bank - Iowa, sells property and casualty insurance to clients in the Wisconsin and Iowa markets.
Mergers and Acquisitions On May 12, 2000, Citizens purchased three Jackson, Michigan offices of Great Lakes National Bank. The purchase added approximately $31 million in deposits for which Citizens paid a premium of $3.9 million. On October 8, 1999, Citizens acquired seventeen former Bank One offices located in the northern section of Michigan's Lower Peninsula. The purchase added approximately $88 million in loans and $442 million in deposits. Citizens paid a premium of $36.1 million or 10.13% on certain core deposits. These transactions were accounted for as purchases; accordingly, the financial statements include their results of operations only since the respective acquisition dates.
On November 1, 1999, Citizens expanded its primary market area to Wisconsin, Iowa, and Minnesota through merger with F&M Bancorporation, Inc. (F&M) headquartered in Kaukauna, Wisconsin. As part of the merger, Citizens issued 21.0 million shares of its common stock, based on a fixed exchange ratio of 1.303, for all of the outstanding shares of F&M. The merger was accounted for as a pooling of interests resulting in the restatement of all financial information presented.
Additional information regarding Citizens' mergers and acquisitions is incorporated by reference from Exhibit 13 on page 29 of such document under the caption, "Note 2. Mergers and Acquisitions".
Lines of Business The performance of Citizens is monitored by an internal profitability measurement system that provides line of business results and key performance measures. Citizens operates along the following business lines: Commercial Banking, Retail Banking, Financial Services, F&M, and all Other. Additional information regarding Citizens' business lines is incorporated herein by reference from Exhibit 13 on pages 5 and 6, and on pages 42 and 43 of such document under the captions, "Lines of Business Reporting" and "Note 18. Lines of Business", respectively.
Competition The financial services industry is highly competitive. The banking subsidiaries of Citizens 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 service organizations including savings and loan associations, finance companies, mortgage banking companies, brokerage firms, credit unions and other organizations. The non-banking subsidiaries compete with other companies in related industries including other leasing companies, title insurance companies, mortgage banking companies, insurance companies, consumer finance companies and other organizations.
Loans comprise 76.8% of Citizens' average assets and are made in the normal course of business to individuals, partnerships, municipalities and corporations. Credit is extended to clients within the commercial, commercial mortgage, real estate construction, real estate mortgage, consumer and lease financing categories. Consumer loans are primarily composed of automobile, personal, marine, recreational vehicle, home equity and bankcard loans and represent 24.8% of the 2000 average loan portfolio. Consumer loans originated follow strict corporate credit underwriting 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% or less. 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 on pages 15 to 17 and pages 32 and 33 of such document under the captions "Loans", "Nonperforming Assets", and "Note 6. Loans and Nonperforming Assets".
Mergers between and the expansion of financial institutions both within and outside of our primary Midwest banking markets 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. The affect of this legislation is further discussed under the caption "Supervision and Regulation".
On November 1, 1999, Citizens entered the Wisconsin, Iowa, and Minnesota markets through a merger with F&M. F&M, headquartered in Kaukauna, Wisconsin, included twenty subsidiary banks in Wisconsin, one subsidiary bank in Iowa, and one subsidiary bank in Minnesota. Most of the banks are located in small cities and rural areas that have diverse economies and a mix of manufacturing, service, retailing, and agricultural businesses. F&M has a dominant market position in many of the markets it serves, which we believe provides a competitive advantage. On January 3, 2000, the twenty Wisconsin bank charters were consolidated into one bank and in December 2000 the local boards of directors for the Wisconsin banks were consolidated into one regional board.
Other factors such as employee relations and environmental laws also impact Citizens' competitiveness. Presently, none of Citizens' employees are covered by collective bargaining agreements and Citizens maintains a favorable relationship with its employees. The impact of environmental laws is further discussed in "Item 3. Legal Proceedings" of this document.
Supervision and Regulation Citizens is a multi-bank holding company and, as such, is subject to supervision and regulation by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). The BHC Act requires Citizens to provide notice or obtain the prior approval of the Board of Governors of the Federal Reserve System to acquire or hold more than a 5% voting interest in any bank, restricts interstate banking activities and prescribes limitations on the non-banking activities of Citizens. The BHC Act allows interstate bank acquisitions anywhere in the country and interstate branching by acquisition and consolidation in those states that had not adopted out by January 1, 1997. The BHC Act restricts Citizens' non-banking activities to those which are determined by the Federal Reserve Board to be financial in nature, incidental to such financial activity, or complementary to a financial activity. The BHC does not place territorial restrictions on the activities of non-bank subsidiaries of bank holding
companies. Citizens banking subsidiaries are subject to limitations with respect to transactions with affiliates.
The enactment of the Graham-Leach-Bliley Act of 1999 (the "GLB Act") swept away large parts of a regulatory framework that had its origins in the Depression Era of the 1930s. On March 11, 2000, banks, other depository institutions, insurance companies and securities firms were allowed to enter into combinations that permit a single financial services organization to offer customers a more complete array of financial products and services. The GLB Act provides a new regulatory framework for regulation through the financial holding company, which has as its umbrella regulator the Federal Reserve Board. Functional regulation of the financial holding company's separately regulated subsidiaries is conducted by their primary functional regulator. The GLB Act makes "satisfactory" or higher Community Reinvestment Act compliance for insured depository institutions and their financial holding companies necessary in order for them to engage in new financial activities. The GLB Act provides a federal right to privacy of non-public personal information of individual customers. Citizens Banking Corporation and its subsidiaries are also subject to certain state laws that deal with the use and distribution of non-public personal information.
A substantial portion of Citizens' cash revenue is derived from dividends paid by its subsidiary banks. The dividends are subject to various legal and regulatory restrictions. Regulatory matters concerning payment of dividends to Citizens by its banking subsidiaries, capital adequacy guidelines for Citizens and 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 on pages 19 and 44 of such document under the captions, "Liquidity and Debt Capacity" and "Note 19 Regulatory Matters", respectively.
Citizens' subsidiary banks are subject to the provisions of the National Bank Act or the banking laws of their respective states. They are under the supervision of, and are subject to periodic examination by, the Comptroller of the Currency (OCC) or the respective state banking departments, and are subject to the rules and regulations of the OCC, Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC). Citizens Bank, F&M Bank - Wisconsin, F&M Bank - Iowa and F&M Bank - Minnesota are chartered by their respective states and are therefore subject to supervision, regulation and examination by the Michigan Office of Financial and Insurance Services, the Wisconsin Department of Financial Institutions, the Iowa Division of Banking and the Minnesota Department of Commerce, respectively, as well as the Federal Reserve Board. Citizens Bank - Illinois, N.A. is chartered under federal law and is subject to supervision, regulation and examination by the OCC. All of Citizens' subsidiary banks are subject to supervision and examination by the FDIC, as the FDIC, to the extent provided by the law, insures their deposits. In addition, all banks are members of the Federal Reserve System. Citizens' non-bank companies are supervised and examined by the Federal Reserve System.
Citizens' subsidiary banks are also subject to certain laws of each state in which such bank is located. Such state laws may restrict branching of banks within the state and acquisition or merger involving banks located in other states. Michigan, Illinois, Wisconsin, and Minnesota have all adopted nationwide reciprocal interstate banking.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) adopted in August 1989 provided for the acquisition of thrift institutions by bank holding companies (previously
only failing thrifts were permitted to be acquired), increased deposit insurance assessments for insured banks, redefined applicable capital standards for banks and thrifts, broadened the enforcement power of federal bank regulatory agencies, and required 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, imposed on banks relatively detailed standards and mandated 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. FDICIA established 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 also provides the FDIC with the authority to impose assessments on insured Bank Insurance Fund (BIF) member depository institutions to maintain the fund at the designated reserve ratio defined in FDICIA. In response to the BIF attaining the designated reserve ratio in 1995, FDIC assessments were effectively eliminated in 1996 for banks meeting the requirements of supervisory risk subgroup 1.A. "well capitalized". All of Citizens' subsidiaries have sufficient capital to maintain this designation (the FDIC's highest rating). In 2001, banks maintaining the "well capitalized" designation will again have no FDIC insurance premium requirements except for a special base assessment that applies to all commercial banks regardless of risk subgroup classification. Further regulatory changes could impact the amount and type of assessments paid by Citizens' subsidiary banks.
During 2000, the Securities and Exchange Commission issued Regulation FD that established affirmative disclosure requirements on public corporations such that material nonpublic information must be widely, rather than selectively, disseminated. Regulation FD is based on the premise that full and fair disclosure is the cornerstone of an efficient market system. Citizens is subject to Regulation FD. Through Regulation FD, the Securities and Exchange Commission seeks to encourage broad public disclosure in order to increase investor confidence in the integrity of the capital markets.
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 Citizens cannot be predicted.
Environmental Matters Citizens' primary exposure to environmental risk is through its trust services and its lending activities. In each instance, Citizens has policies and procedures in place to mitigate its environmental risk exposures. With respect to lending activities, environmental site assessments at the time of loan origination are mandated by Citizens 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, Citizens 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 accounts. Consequently Citizens 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.
ITEM 2. PROPERTIES Citizens' offices are located at One Citizens Banking Center, 328 South Saginaw Street, Flint, Michigan in the main office building of Citizens Bank, its largest bank subsidiary. Citizens' bank subsidiaries operate through 202 branch and financial banking offices. Of these, 41 are leased and the remaining are owned. Rent expense on the leased properties totaled $2,191,215 in 2000. The banking offices are located in various communities throughout the states of Michigan and Wisconsin, in parts of Iowa, in Dundas, Minnesota, and in the western suburbs of Chicago, Illinois. At certain Citizens Bank locations a portion of the office buildings are leased to tenants. Additional information related to the property and equipment owned or leased by Citizens and its subsidiaries is incorporated herein by reference from Exhibit 13 on page 34 under the caption "Note 8. Premises and Equipment" of such document.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS Citizens and its subsidiaries are parties to a number of lawsuits incidental to its business. Although litigation is subject to many uncertainties and the ultimate exposure with respect to many of these matters cannot be ascertained, management does not believe the ultimate outcome of these matters will have a materially adverse effect on the financial condition or the liquidity of Citizens.
From time to time, certain of Citizens' 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, a number of other PRPs have been 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. Citizens' management is not presently aware of any environmental liabilities that pose a reasonable possibility of future material impact on Citizens or its earnings. It is Citizens' 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of 2000 to a vote of security holders through the solicitation of proxies or otherwise.
PART II - --------------------------------------------------------------------------------
ITEM 5.
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 22 under the caption "Table 12. Selected Quarterly Information" of such document.
As of December 31, 2000, the approximate number of shareholders of the Registrant's common stock is 17,500. 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 are incorporated herein by reference from Exhibit 13 on page 44 under the caption "Note 19. Regulatory Matters" of such document.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated herein by reference from Exhibit 13 on page 3 under the caption "Table 1. Five Year Summary of Selected Financial Data" of such document.
ITEM 7.
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 4 through 23 of such document.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is incorporated by reference from Exhibit 13 on pages 19, 20, and 21 under the captions "Interest Rate Risk" and "Interest Rate Sensitivity" of such document.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements are incorporated herein by reference from Exhibit 13 on pages 24 through 49 of such document.
Supplementary data of Citizens' quarterly results of operations required by this item are incorporated herein by reference from Exhibit 13 on page 22 of such document under the caption "Table 12. Selected Quarterly Information".
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
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ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item appears in Citizens' proxy statement for its annual meeting of shareholders to be held April 17, 2000 ("2000 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 5 through 8 and on pages 11 through 12, respectively, of the 2000 Proxy Statement.
Regulation S-K Item 405 disclosure: Appears under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 23 of the 2000 Proxy Statement.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION The information required by this item appears under the caption "Compensation of Directors," on page 10 and under the captions "Executive Compensation", "Compensation and Human Resources Committee Report on Executive Compensation", "Shareholder Return", and "Compensation Committee Interlocks and Certain Transactions and Relationships" on pages 13 through 23 of the 2000 Proxy Statement, and is incorporated herein by reference.
ITEM 12.
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 pages 2 through 4 of the 2000 Proxy Statement, and is incorporated herein by reference.
ITEM 13.
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 pages 22 and 23 of the 2000 Proxy Statement, and is incorporated herein by reference.
PART IV - -------------------------------------------------------------------------------- ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements: The following consolidated financial statements of Citizens, Report of Ernst & Young LLP, Independent Auditors and Report of Wipfli Ullrich Bertelson LLP, Independent Auditors are incorporated by reference under Item 8 "Financial Statements and Supplementary Data" of this document: Consolidated Balance Sheets 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 Report of Wipfli Ullrich Bertelson 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 14 through 16 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, 2000.
(c) Exhibits: The "Exhibit Index" is filed herewith on pages 14 through 16 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.
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/Robert J. Vitito Date: March 19, 2001 - ---------------------------------------------- Robert J. Vitito Chairman, President 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.
CITIZENS BANKING CORPORATION 2000 Annual Report on Form 10-K
EXHIBIT INDEX (FILED AS PART OF THIS REPORT ON FORM 10-K)
N/A - not applicable, exhibit incorporated by reference.
(1) Exhibit included in the following pages of this Annual Report on Form 10-K.
All other Exhibits required to be filed with this Form are not applicable and have therefore been omitted.