CBCF Citizens Banking

FLINT, Mich., Jan. 19 /PRNewswire-FirstCall/ -- Citizens Banking Corporation (NASDAQ:CBCF) announced net income of $18.9 million for the three months ended December 31, 2005. This represents a decrease of $2.1 million or 10.0% over the third quarter of 2005 net income of $21.0 million and a decrease of $1.4 million or 6.9% over the fourth quarter of 2004 net income of $20.3 million. Diluted net income per share was $0.44, compared with $0.48 for the third quarter of 2005 and $0.46 for the same quarter of last year. Annualized returns on average assets and average equity during the fourth quarter of 2005 were 0.97% and 11.46%, respectively, compared with 1.06% and 12.71% for the third quarter of 2005 and 1.05% and 12.43% for the fourth quarter of 2004. Net income for the year ended December 31, 2005 totaled $80.5 million or $1.85 per diluted share, which represents an increase in net income of $4.4 million or 5.8% and $0.11 per diluted share over the same period of 2004. "Our continued loan growth, noninterest-bearing deposit growth, and credit quality improvements enabled Citizens to report another quarter of strong results," stated William R. Hartman, chairman, president and CEO. "During 2005, we made progress throughout our company that will position us well for the challenges of 2006," continued Hartman. Key Highlights in the Quarter: * Net charge-offs decreased to a net recovery of $5.1 million in the fourth quarter of 2005 compared with net charge-offs of $5.3 million in the third quarter of 2005 and $4.6 million in the fourth quarter of 2004. The decreases were primarily due to the receipt of a $9.1 million settlement with one of the Corporation's previous insurers relating to a claim for recovery of fraud losses suffered in connection with two loans made by the Corporation which were subsequently charged-off in 2002 and 2003. The settlement was accounted for as a loan loss recovery. * Based on recent changes in the interpretation of Statement of Financial Accounting Standards 133, "Accounting for Derivative Instruments and Hedging Activities", Citizens incurred a pre-tax cumulative charge to noninterest income of $3.6 million as a result of determining that the swaps related to brokered certificates of deposit no longer qualify for hedge accounting. Despite this non-cash charge, Citizens believes that the underlying transactions still satisfy their intended economic purpose. * During the fourth quarter of 2005, Citizens incurred a $9.0 million net loss on the sale of securities as the result of restructuring the investment portfolio. The Corporation sold $322.4 million of investment securities and purchased $209.4 million of higher yielding securities. The remaining $104.0 million, after netting the $9.0 million loss, was used to pay down short-term borrowings. The Corporation also entered into a notional amount of $100.0 million in receive-fixed swaps. Including the impact of the swaps, this transaction shortened the duration of assets, reduced option risk and will have a beneficial impact on net interest margin and net interest income. * To help investors compare the results of the current periods with those of prior periods without the effect of the SFAS 133 charge, the insurance settlement and the net loss on the sale of securities in the fourth quarter of 2005, net income for the fourth quarter of 2005 would have been $21.2 million or $0.49 per diluted share. For the full year of 2005, net income would have been $82.8 million or $1.91 per diluted share, excluding the $3.6 million charge relating to the swaps on brokered CDs, the $9.1 million insurance settlement, and the $9.0 million net loss on the sale of securities (after-tax effect of $2.3 million, $5.9 million, and $(5.9) million, respectively). * Commercial and commercial real estate loans grew by $89.3 million or 3.0% from September 30, 2005 and $200.6 million or 6.9% from December 31, 2004. Our continued focus on the sales management process in traditional Michigan and Wisconsin markets produced growth of $48.7 million and $11.3 million, respectively, during the fourth quarter of 2005. Additionally, strong growth of $29.3 million continued to enhance our Southeast Michigan presence. * Noninterest-bearing deposit balances grew $29.5 million or 3.1% from September 30, 2005 and $70.3 million or 7.8% from December 31, 2004 due to continued steady growth in both retail and commercial accounts. * Nonperforming assets decreased $2.7 million or 6.4% from the third quarter to $39.9 million at December 31, 2005 and the nonperforming asset ratio improved to 0.71%, its lowest level in four years, from 0.76% at September 30, 2005. The decrease reflects reductions in nonperforming commercial and mortgage loans, which was partially offset by an increase in repossessed assets and nonperforming consumer loans. * Citizens incurred $2.3 million in strategic planning consulting services and advertising expense during the fourth quarter of 2005 related to the development and implementation of several initiatives targeted at developing corporate strategies to produce enhanced profitability and revenue momentum and enhancing information technology practices. Balance Sheet Citizens' total assets at December 31, 2005 were $7.8 billion, a decrease of $99.5 million or 1.3% compared with September 30, 2005 and an increase of $45.9 million or 0.6% from December 31, 2004. The decrease from September 30, 2005 was due to a decline in the investment portfolio as a result of the securities transactions in the fourth quarter of 2005, partially offset by an increase in commercial and commercial real estate loans. The increase over December 31, 2004 was due to growth in total portfolio loans, the effect of which was partially offset by a decline in the investment portfolio. Portfolio loans increased $46.8 million or 0.8% compared with September 30, 2005 and $222.8 million or 4.1% compared with December 31, 2004 primarily as a result of growth in commercial loans. Commercial and commercial real estate loans were $3.1 billion at December 31, 2005, an increase of $89.3 million or 3.0% compared with September 30, 2005 and $200.6 million or 6.9% from December 31, 2004. The improvements were a result of increased focus on the sales management process, new relationships in traditional Michigan and Wisconsin markets, and continued strong growth in the Southeast Michigan market, which were partially offset by a continued reduction of exposure on credits not meeting Citizens' risk parameters, including the third quarter 2005 nonperforming loan sale, and normal competitive pressures. Residential mortgage loans were $539.8 million at December 31, 2005, an increase of $7.9 million or 1.5% compared with September 30, 2005 and an increase of $31.6 million or 6.2% from December 31, 2004. The increases in the mortgage portfolio were primarily the result of retaining most new adjustable-rate mortgage (ARM) production, which is desirable for the bank to hold in the portfolio. Citizens continues to sell most new fixed rate production into the secondary market. Total consumer loans, which are comprised of direct and indirect loans, were $2.0 billion at December 31, 2005, a decrease of $50.3 million or 2.5% from September 30, 2005 and essentially unchanged from December 31, 2004. For the three month period ended December 31, 2005, direct consumer loans declined by $29.4 million or 2.5% and indirect consumer loans declined by $20.9 million or 2.4%, respectively, from September 30, 2005. The declines were primarily the result of weak consumer demand in Citizens' markets and seasonal interest in indirect products. Total deposits were $5.5 billion at December 31, 2005, an increase of $243.8 million or 4.7% from September 30, 2005 and an increase of $170.5 million or 3.2% from December 31, 2004. Core deposits, which exclude all time deposits, totaled $3.3 billion at December 31, 2005, a decrease of $50.9 million or 1.5% from September 30, 2005 and a decrease of $390.0 million or 10.6% from December 31, 2004. The decreases in core deposits were largely the result of clients migrating their funds into time deposits with higher yields and to promotional rate products within the market. Time deposits totaled $2.2 billion at December 31, 2005, an increase of $294.6 million or 15.7% compared with September 30, 2005 and an increase of $560.5 million or 34.8% from December 31, 2004. The increases in time deposits were partially due to an increase in brokered certificates of deposit, which is one of many wholesale funding alternatives used by Citizens. Other interest-bearing liabilities, which include federal funds purchased and securities sold under agreements to repurchase, other short-term borrowings, and long-term debt, were $1.5 billion at December 31, 2005, a decrease of $351.2 million or 18.6% from September 30, 2005 and a decrease of $139.5 million or 8.3% from December 31, 2004. The decreases were the result of fourth quarter of 2005 paydown of $104.0 million on short-term borrowings and Citizens' response to the aforementioned loan and deposit changes. Credit Quality Nonperforming assets totaled $39.9 million at December 31, 2005, a decrease of $2.7 million or 6.4% compared with September 30, 2005 and a decrease of $11.0 million or 21.6% compared with December 31, 2004. Nonperforming assets at September 30, 2005 and December 31, 2005 reflect a sale of nonperforming commercial loans with a balance of $6.7 million during the third quarter of 2005. Nonperforming assets at December 31, 2005 represented 0.71% of total loans plus other repossessed assets acquired compared with 0.76% at September 30, 2005 and 0.94% at December 31, 2004. Nonperforming commercial loan inflows increased to $10.6 million in the fourth quarter of 2005 compared with $9.9 million in the third quarter of 2005 and $18.4 million in the fourth quarter of 2004 while outflows totaled $13.8 million for the fourth quarter of 2005 compared with $17.3 million in the third quarter of 2005 and $18.9 million in the fourth quarter of 2004. Net charge-offs decreased to a net recovery of $5.1 million or (0.36)% of average portfolio loans in the fourth quarter of 2005 compared with $5.3 million or 0.38% of average portfolio loans in the third quarter of 2005 and $4.6 million or 0.35% of average portfolio loans in the fourth quarter of 2004. The decreases were primarily due to the $9.1 million insurance settlement, received in the fourth quarter of 2005 (described above under "Key Highlights in the Quarter"), which was accounted for as a loan loss recovery. The remaining $1.3 million reduction from the third quarter of 2005 was due to slightly higher commercial recoveries in the fourth quarter of 2005 and the remaining reduction of $0.5 million from the fourth quarter of 2004 was due to lower commercial real estate charge-offs, slightly offset by lower commercial recoveries in the fourth quarter of 2005. The provision for loan losses decreased to $(7.3) million in the fourth quarter of 2005 compared with $4.0 million in the third quarter of 2005 and $4.6 million in the fourth quarter of 2004. For the full year of 2005, the provision for loan losses was $1.1 million, compared with $21.1 million for the same period of 2004. The decreases were due to the receipt of the $9.1 million insurance settlement described above, a fourth quarter 2005 reduction in the reserve of $1.5 million related to a previous mortgage recourse transaction, and a continued improvement in the overall risk of the portfolio. As a result of the changes in net charge-offs and provision for loan losses, the allowance for loan losses totaled $116.4 million or 2.07% of portfolio loans at December 31, 2005, a decrease of $2.2 million and $5.8 million from September 30, 2005 and December 31, 2004, respectively. Based on seasonal business trends, the overall risk in the loan portfolio, and excluding the effect of the fourth quarter 2005 insurance settlement, for the first quarter of 2006 Citizens anticipates the provision expense will be consistent with or slightly lower than, and net charge-offs will be slightly higher than the fourth quarter of 2005. Net Interest Margin and Net Interest Income Net interest margin was 3.95% for the fourth quarter of 2005 compared with 3.93% for the third quarter of 2005 and 3.97% for the fourth quarter of 2004. The increase in net interest margin compared with the third quarter of 2005 resulted from an improvement in the yield on the investment portfolio, largely offset by shifts within the deposit portfolio from lower cost savings and transaction products to time deposits and continued pricing pressure on commercial loans. The improvement in investment portfolio yield was due to both a restructuring of the portfolio and the receipt of a $0.3 million prepayment penalty on a called security. The decrease in net interest margin compared with the fourth quarter of 2004 was due to shifts within the deposit portfolio from lower cost savings and transaction products to time deposits and continued pricing pressure on commercial loans, partially offset by a shift in asset mix from investment securities to higher yielding commercial loans and growth in noninterest-bearing sources of funds. For the full year 2005, net interest margin declined to 3.94% compared with 3.99% for the same period of 2004 as a result of the aforementioned factors. Net interest income was $69.1 million in the fourth quarter of 2005 compared with $69.6 million in the third quarter of 2005 and $68.5 million in the fourth quarter of 2004. The decrease in net interest income compared with the third quarter of 2005 was driven by a decline in earning assets, partially offset by a higher net interest margin. The decline in earning assets resulted from a reduction in investment portfolio balances. The increase in net interest income compared with the fourth quarter of 2004 resulted from an increase in earning assets, partially offset by a lower net interest margin. The increase in earning assets was driven by growth in consumer and commercial loans outpacing declines in the securities portfolio. Net interest income for the full year 2005 was $275.7 million, slightly up from $275.3 million in the same period of 2004. An increase in average earning assets of $108.5 million was substantially offset by the lower net interest margin. In the first quarter of 2006, Citizens anticipates net interest income will be slightly lower than the fourth quarter of 2005 as a result of anticipated margin compression, slightly lower investment portfolio balances and two less days in the quarter. Noninterest Income Noninterest income for the fourth quarter of 2005 was $11.0 million, a decrease of $13.0 million or 54.2% from the third quarter of 2005 and a decrease of $12.7 million or 53.7% from the fourth quarter of 2004. The decreases were primarily the result of a $3.6 million charge associated with the accounting treatment for swaps hedging brokered certificates of deposit (CDs) and a net loss on the sales of securities of $9.0 million in the fourth quarter of 2005. For the full year of 2005, noninterest income totaled $80.5 million, a decrease of $23.5 million or 22.6% from the $104.1 million in same period of 2004. The variance from the prior year was primarily the result of the third quarter 2004 $11.7 million gain on the sale of the Illinois bank, the aforementioned fourth quarter 2005 charge of $3.6 million, larger net losses in 2005 over 2004 on the sales of securities due to the aforementioned fourth quarter 2005 securities transactions, and lower mortgage, other loan income, and other income, partially offset by increases in trust fees, ATM network user fees, and bankcard fees. Deposit service charges for the fourth quarter of 2005 decreased $0.4 million or 4.1% to $9.0 million compared with the third quarter of 2005 and increased $0.1 million or 1.6% from the fourth quarter of 2004. The decrease from the third quarter of 2005 was the result of lower seasonal transaction activity. The increase from the fourth quarter of 2004 was the result of improved fee waiver management. For the full year of 2005, deposit service charges totaled $35.4 million, essentially unchanged from the same period of the prior year as the results of the fee waiver management efforts were substantially offset by reduced commercial deposit service charges due to higher customer earnings credits on commercial deposit balances. Trust fees for the fourth quarter of 2005 increased $0.4 million or 9.9% to $5.0 million compared with the third quarter of 2005 and $0.2 million or 4.1% from the fourth quarter of 2004. For the full year of 2005, trust fees totaled $18.4 million, an increase of $0.6 million or 3.3% from the same period of 2004. The increases were attributable to stronger financial markets, continued execution of the sales management process and improved pricing discipline, partially offset by attrition. Total trust assets under administration of $2.5 billion at December 31, 2005 were essentially unchanged from September 30, 2005 and decreased $149.6 million from December 31, 2004. The decline in trust assets from December 31, 2004 was due to the reduction of an institutional relationship and the exit of custody assets during 2005. The effect of these exits was partially offset by stronger financial markets at December 31, 2005 and continued growth in personal investment management. Mortgage and other loan income for the fourth quarter of 2005 decreased $0.4 million or 14.3% to $2.1 million compared with the third quarter of 2005 and decreased $0.5 million or 18.1% from the fourth quarter of 2004. The decreases reflect lower mortgage origination volume in the fourth quarter of 2005. For the full year of 2005, mortgage and other loan income totaled $9.0 million, a decrease of $0.6 million or 6.6% from the same period of the prior year. The decline was a result of lower mortgage origination in 2005 and lower letter of credit and home equity annual fees. Brokerage and investment fees for the fourth quarter of 2005 were essentially unchanged from the third quarter of 2005 at $1.9 million and increased $0.2 million or 12.2% compared with the fourth quarter of 2004. The increase from the fourth quarter of 2004 was due to improved consultative selling efforts coordinated between the Wealth Management and Consumer Banking lines of business. For the full year of 2005, brokerage and investment fees totaled $7.8 million, essentially unchanged from the same period of 2004. For the fourth quarter of 2005, all other noninterest income categories, which include ATM network user fees, bankcard fees, other income, fair value change in CD swap derivatives, and investment securities gains (losses), decreased $12.7 million to ($7.0) million from the third quarter of 2005 and decreased $12.8 million from the fourth quarter of 2004. The decreases were primarily the result of the aforementioned $3.6 million charge on the fair value change in CD swap derivatives and the $9.0 million net loss on the sales of securities during the fourth quarter of 2005. For the full year of 2005, all other noninterest income categories, totaled $9.9 million, a decrease of $23.7 million or 70.6% from the same period of 2004, which included the gain on the sale of the Illinois bank subsidiary. The decrease was largely the result of the aforementioned fair value change in CD swap derivatives and net loss on the sale of securities during the fourth quarter of 2005, the $11.7 million gain on the sale of the Illinois Bank during 2004, and net gains of $1.7 million from the sale of former branch and other bank premises during 2004. Based on recent changes in the interpretation of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", Citizens incurred a pre-tax cumulative charge of $3.6 million associated with the accounting treatment for swaps hedging brokered certificates of deposit. Since September 2003, Citizens has entered into interest rate swap agreements to hedge the interest rate risk inherent in certain of its CDs and as an alternative to short-term variable wholesale funding. From inception of the hedging program, Citizens has applied, in a manner consistent with industry practice, a method of fair value hedge accounting under SFAS 133 to account for the CD swap transactions that allowed Citizens to assume the effectiveness of such transactions using the 'short-cut method'. Citizens has recently concluded that the CD swap transactions did not qualify for this method in prior periods because the related CD broker placement fee was determined, in retrospect, to have caused the swap not to have a fair value of zero at inception (which is required under SFAS 133 to qualify for the 'short-cut method'). Although Citizens believes that the swaps would have qualified for hedge accounting under the 'long-haul method', hedge accounting under SFAS 133 is not allowed retrospectively because the hedge documentation required for the 'long-haul method' was not in place at the inception of the hedge. Citizens concluded that the impact of the SFAS 133 charge in each of the affected quarters was not material. As a result of these considerations, Citizens has recognized a cumulative charge in the fourth quarter of 2005. Although Citizens no longer applies hedge accounting to these transactions, they still satisfy their intended economic purpose. The SFAS 133 charge is a non-cash charge which is expected to be offset by income in future periods as the swaps mature. New fair value hedges on brokered CDs will conform to hedge accounting standards, as defined by SFAS 133, and are expected to be neutral to earnings. Excluding the effect of the fourth quarter 2005 fair value change in CD swap derivatives and the net loss on the sale of securities, Citizens anticipates total noninterest income in the first quarter of 2006 will be higher than the fourth quarter of 2005 due to a gain on the sale of a property, partially offset by lower seasonal activity in deposit service charges and lower mortgage volume. The overall impact of this gain may be mitigated by certain first quarter expenses relating to several strategic initiatives currently under review. Noninterest Expense Noninterest expense for the fourth quarter of 2005 was $60.9 million, essentially unchanged from the third quarter of 2005 and the fourth quarter of 2004. When compared with the third quarter of 2005, decreases in salaries and benefits and in other expenses were offset by increases in occupancy, professional services, data processing services, advertising and public relations expenses. When compared with the fourth quarter of 2004, decreases in equipment, advertising and public relations, other loan expenses, stationery and supplies and other expenses were offset by increases in salaries and benefits, occupancy, professional services, and data processing services. For the full year of 2005, noninterest expenses totaled $243.1 million, a decrease of $19.7 million or 7.5% from $262.8 million for the same period of 2004. This decrease is the result of the $18.0 million prepayment penalty on high cost Federal Home Loan Bank ("FHLB") debt incurred in the third quarter of 2004 and declines in advertising and public relations, other loan expense, and in other expenses, partially offset by increases in salaries and employee benefits, occupancy, and professional services. Salaries and employee benefits for the fourth quarter of 2005 decreased $1.7 million or 4.9% to $32.4 million compared with the third quarter of 2005 and increased $1.1 million or 3.4% compared with the fourth quarter of 2004. The decrease was the result of lower postretirement benefits due to plan amendments, lower medical expense as Citizens is self-funded, and a workers compensation refund. The increase over the fourth quarter of 2004 was the result of higher severance and incentive payouts, partially offset by lower postretirement benefits. Salary costs included $0.7 million in severance for the fourth quarter of 2005 and $0.4 million for the third quarter of 2005 as well as the fourth quarter of 2004. Citizens had 2,123 full time equivalent employees at December 31, 2005, down from 2,144 at September 30, 2005 and 2,215 at December 31, 2004. For the full year of 2005, salaries and employee benefits totaled $132.2 million, an increase of $3.1 million or 2.4% over the same period of 2004. The increase was the result of higher incentive payouts, higher employee benefit costs related to pension and insurance expenses, and personnel increases in Citizens' Southeast Michigan market, partially offset by a decrease in postretirement benefits. Occupancy costs for the fourth quarter of 2005 increased $0.4 million or 7.2% to $5.6 million compared with the third quarter of 2005. The increase was primarily a result of various small branch upgrade projects throughout Citizens' delivery network. Occupancy costs increased $0.6 million or 10.9% over the fourth quarter of 2004. For the full year of 2005, occupancy costs totaled $22.1 million, which represents a $1.9 million increase or 9.6% over the same period of 2004. These increases were largely the result of rent and depreciation expenses related to the new branches and regional hubs opened in Southeast Michigan throughout 2004 and 2005, and the Michigan and Wisconsin re-branding projects. Professional services for the fourth quarter of 2005 increased $0.3 million or 7.1% to $4.8 million compared with the third quarter of 2005 and increased $0.9 million or 23.7% compared with the fourth quarter of 2004. For the full year of 2005, professional services totaled $17.3 million, an increase of $1.0 million or 6.3% from the same period of 2004. The increases were primarily the result of higher consulting fees associated with several initiatives targeted at developing corporate strategies to produce enhanced profitability and revenue momentum, enhancing overall corporate risk management, ensuring accounting and regulatory compliance, and enhancing information technology practices. Equipment costs for the fourth quarter of 2005 increased $0.1 million or 4.2% to $3.3 million compared with the third quarter of 2005 and decreased $0.3 million or 8.7% compared with the fourth quarter of 2004. The increase over the third quarter of 2005 was related to higher software lease and equipment maintenance expenses. The decrease from the fourth quarter of 2004 was primarily due to lower equipment depreciation, equipment maintenance, and software maintenance expenses. For the full year of 2005, equipment costs totaled $14.6 million, an increase of $0.3 million or 1.8% over the same period of 2004. The increase was due to $1.5 million in additional depreciation during the second quarter of 2005 as a result of aligning the service life for these items with the current capitalization policy, partially offset by decreases in equipment maintenance and software maintenance. Advertising and public relations expense for the fourth quarter of 2005 increased $0.9 million or 49.7% to $2.6 million compared with the third quarter of 2005 and decreased $0.3 million or 11.6% compared with the fourth quarter of 2004. For the full year of 2005, advertising and public relations totaled $7.9 million, a decrease of $1.3 million or 14.5% from the same period of 2004. The increase over the third quarter of 2005 was the result of several product campaigns focused on creating deposit generation momentum for 2006. The decreases were the result of reduced advertising and marketing expenses associated with the Southeast Michigan initiative, partially offset by the fourth quarter 2005 deposit generation campaign. Other loan expenses for the fourth quarter of 2005 were essentially unchanged from the third quarter of 2005 at $0.7 million and decreased $0.2 million or 18.5% from the fourth quarter of 2004. The decrease was the result of lower provisioning to fund the reserve for unused loan commitments, which fluctuates with the amount of unadvanced customer lines of credit. For the full year of 2005, other loan expenses totaled $2.7 million, a decrease of $1.3 million or 33.4% from the same period of 2004. The decrease was primarily the result of lower consumer loan volumes and process improvements implemented in the consumer loan processing department during the third quarter of 2004. For the fourth quarter of 2005, all other noninterest expense categories, which include data processing services, postage and delivery, telephone, stationery and supplies, intangible asset amortization, and other expenses, increased $0.4 million or 3.7% to $11.6 million from the third quarter of 2005 and decreased $1.9 million or 14.3% from the fourth quarter of 2004. The increase from the third quarter of 2005 was the result of higher data processing services, travel and training, and expenses related to other real estate owned, slightly offset by a partial reversal of certain tax related reconciliation items incurred during 2004. The decrease from the fourth quarter of 2004 was primarily a result of the aforementioned reversal and a fourth quarter 2004 litigation settlement payment. For the full year of 2005, all other noninterest expense categories decreased $23.3 million or 33.5% to $46.4 million compared with the same period of 2004. The decrease was the result of the $18.0 million prepayment penalty on high cost FHLB debt and certain tax related reconciliation items incurred in the third quarter of 2004, the aforementioned fourth quarter 2004 litigation settlement payment, and reduced supply costs related to the 2005 implementation of an online procurement system that has improved expense management. Citizens anticipates that noninterest expenses for the first quarter of 2006 will be consistent with or slightly higher than the fourth quarter of 2005 due to an increase in stock-related compensation due to the implementation of a new accounting methodology (SFAS 123R) and other expenses, partially offset by a reduction in professional services, advertising and public relations expense. Income Tax Provision Income tax provision for the fourth quarter of 2005 was $7.6 million, a decrease of $0.5 million or 6.1% compared with the third quarter of 2005 and an increase of $1.4 million over the fourth quarter of 2004. The decrease from the third quarter of 2005 was due to lower pre-tax income, partially offset by an adjustment in the reserve for taxes payable. The increase over the fourth quarter of 2004 was due to higher pre-tax income and the aforementioned reserve adjustments. For the full year of 2005, income tax provision totaled $31.6 million, an increase of $12.2 million or 62.6% over the same period of 2004. The increase was attributable to higher pre-tax income, a $1.3 million ($0.8 million after-tax) reduction in the deferred Wisconsin state income tax asset and higher ongoing state taxes as a result of the April 2005 merger of the Michigan and Wisconsin bank charters and the third quarter 2004 tax benefit from the Illinois bank sale. The effective tax rate was 28.56% for the fourth quarter of 2005 compared with 27.70% for the third quarter of 2005 and 23.18% for the fourth quarter of 2004. On a full-year basis, the effective tax rate was 28.17% and 20.33% for 2005 and 2004, respectively. The increases were a result of the aforementioned Wisconsin deferred tax asset release, and higher state taxes, partially offset by the tax benefit generated from the Illinois bank sale. Citizens anticipates that the effective income tax rate for the first quarter of 2006 will be lower than the fourth quarter of 2005 due to the fourth quarter 2005 adjustment in the reserve for taxes payable. Other News Citizens Bank Establishes Business Credit Card Relationship On November 17, 2005, Citizens announced a partnership with GE Consumer Finance-Americas to offer charge cards to its business clients. The Productivity Card provides clients a tool to proactively monitor costs and provides them access to various suppliers. Citizens Names New Chief Technology Officer On December 27, 2005 Jerry Bettens joined Citizens as the new Chief Technology Officer. Prior to joining Citizens, Jerry headed the North American Region for Global Shared Services for ABN AMRO. Stock Repurchase Program During the fourth quarter of 2005, Citizens repurchased a total of 135,000 shares of its stock at an average price of $29.44. As of December 31, 2005 there are 2,241,200 shares remaining to be purchased under the program approved by the company's Board of Directors on October 16, 2003. Dividend Announcement The Board of Directors of Citizens Banking Corporation declared a cash dividend of $0.285 per share of common stock. The dividend is payable on February 9, 2006, to shareholders of record on January 31, 2006. Investor Conference Call William R. Hartman, chairman, president and CEO, Charles D. Christy, CFO, John D. Schwab, chief credit officer, and Martin E. Grunst, treasurer, will review the quarter's results in a conference call for investors and analysts beginning at 10:00 a.m. EST on Friday, January 20, 2006. A live audio Webcast is available at http://www.vcall.com/IC/CEPage.asp?ID=99714 . To participate in the conference call, please call the number below approximately 10 minutes prior to the scheduled conference time: US/Canada Dial-In Number: (877) 407-8031 International Dial-In Number: (201) 689-8031 Conference ID: 186297 Conference Name: "Citizens Banking Corporation 4th Quarter Earnings Conference Call". RSVP is not required. A playback of the conference call will be available after 12:00 p.m. EST through February 6, 2006, by dialing US/Canada Dial-In Number: (877) 660-6853 or International Dial-In Number: (201) 612-7415, Account Number: 286, Conference ID: 186297. Also, the call can be accessed via Citizens' Web site, through the Investor Relations section at http://www.citizensonline.com/ Corporate Profile Citizens Banking Corporation is a diversified financial services company providing a full range of commercial, consumer, mortgage banking, trust and financial planning services to a broad client base. Citizens operates 183 branch, private banking, and financial center locations and 187 ATMs throughout Michigan, Wisconsin, and Iowa. Safe Harbor Statement Discussions in this release that are not statements of historical fact (including statements that include terms such as "will" "may," "should," "believe," "expect," "anticipate," "estimate," "intend," and "plan") are forward-looking statements that involve risks and uncertainties, and Citizens' actual future results could materially differ from those discussed. Factors that could cause or contribute to such differences include, without limitation, adverse changes in Citizens' loan and lease portfolios and the resulting credit risk-related losses and expenses (including losses due to fraud, Michigan automobile-related industry changes and shortfalls, and other economic factors), Citizens' future lending and collections experience and the potential inadequacy of Citizens' loan loss reserves, interest rate fluctuations and the effects on net interest income of changes in Citizens' interest rate risk position, the potential inability to hedge certain risks economically, other adverse changes in economic or financial market conditions, the effects of terrorist attacks and potential attacks, Citizens' potential inability to continue to attract core deposits, Citizens' potential inability to continue to obtain third party financing on favorable terms, adverse changes in competition and pricing environments, Citizens' potential failure to maintain or improve loan quality levels and origination volume, unanticipated expenses and payments relating to litigation brought against Citizens from time to time, unanticipated technological changes that require major capital expenditures, adverse changes in applicable laws and regulatory requirements, the potential lack of market acceptance of Citizens' products and services, adverse changes in Citizens' relationship with major customers, changes in accounting and tax rules and interpretations that negatively impact results of operations or capital, the potential inadequacy of Citizens' business continuity plans, the potential failure of Citizens' external vendors to fulfill their contractual obligations to Citizens, Citizens' potential inability to integrate acquired operations, unanticipated environmental liabilities or costs, impairment of the ability of the banking subsidiaries to pay dividends to the holding company parent, Citizens' success in managing the risks involved in the foregoing, and other risks and uncertainties detailed from time to time in its filings with the Securities and Exchange Commission. Other factors not currently anticipated by management may also materially and adversely affect Citizens' results of operations. There can be no assurance that the future results will meet expectations. While Citizens believes that its forward-looking statements are reasonable, you should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. Citizens does not undertake, and expressly disclaims any obligation, to update or alter its statements whether as a result of new information, future events or otherwise, except as required by applicable law. (Financial highlights follow) Visit our Web site at http://www.citizensonline.com/ -------------------------------------------------------------------------- Consolidated Balance Sheets (Unaudited) Citizens Banking Corporation and Subsidiaries December 31, September 30, December 31, (in thousands) 2005 2005 2004 -------------------------------------------------------------------------- Assets Cash and due from banks $194,748 $184,135 $153,474 Interest-bearing deposits with banks 380 1,366 1,769 Investment Securities: Available-for-sale: U.S. Treasury and federal agency securities 1,122,306 1,283,574 1,348,199 State and municipal securities 378,235 381,914 395,878 Other securities 57,367 55,680 70,447 Held-to-maturity: State and municipal securities (fair value of $82,356, $75,333 and $54,749, respectively) 82,431 74,943 54,035 ----------- ---------- ----------- Total investment securities 1,640,339 1,796,111 1,868,559 Mortgage loans held for sale 16,252 29,847 28,038 Loans: Commercial 1,688,079 1,623,857 1,633,698 Commercial real estate 1,402,128 1,377,082 1,255,913 Residential mortgage loans 539,824 531,953 508,234 Direct consumer 1,142,002 1,171,388 1,169,618 Indirect consumer 844,086 864,994 825,902 ----------- ---------- ----------- Total loans 5,616,119 5,569,274 5,393,365 Less: Allowance for loan losses (116,400) (118,626) (122,184) ----------- ---------- ----------- Net loans 5,499,719 5,450,648 5,271,181 Premises and equipment 121,730 120,755 117,944 Goodwill 54,527 54,527 54,527 Other intangible assets 11,133 11,858 14,033 Bank owned life insurance 84,435 83,773 82,613 Other assets 128,620 118,330 113,895 ----------- ---------- ----------- Total assets $7,751,883 $7,851,350 $7,706,033 =========== ========== =========== Liabilities Noninterest-bearing deposits $969,074 $939,560 $898,820 Interest-bearing demand deposits 891,313 962,893 1,150,332 Savings deposits 1,437,024 1,445,838 1,638,295 Time deposits 2,176,428 1,878,180 1,612,313 ----------- ---------- ----------- Total deposits 5,473,839 5,226,471 5,299,760 Federal funds purchased and securities sold under agreements to repurchase 505,879 916,816 671,660 Other short-term borrowings 23,242 11,825 53,114 Other liabilities 86,351 83,553 77,276 Long-term debt 1,006,109 957,836 949,921 ----------- ---------- ----------- Total liabilities 7,095,420 7,196,501 7,051,731 Shareholders' Equity Preferred stock - no par value - - - Common stock - no par value 85,526 87,405 97,180 Retained earnings 570,483 563,597 539,128 Accumulated other comprehensive income 454 3,847 17,994 ----------- ---------- ----------- Total shareholders' equity 656,463 654,849 654,302 ----------- ---------- ----------- Total liabilities and shareholders' equity $7,751,883 $7,851,350 $7,706,033 =========== ========== =========== -------------------------------------------------------------------------- Consolidated Statements of Income (Unaudited) Citizens Banking Corporation and Subsidiaries Three Months Ended Twelve Months Ended December 31, December 31, (in thousands, except per share amounts) 2005 2004 2005 2004 -------------------------------------------------------------------------- Interest Income Interest and fees on loans $92,607 $77,290 $343,890 $300,539 Interest and dividends on investment securities: Taxable 14,002 14,726 58,514 61,501 Tax-exempt 5,336 5,150 20,789 20,916 Money market investments 13 4 56 12 -------- -------- --------- --------- Total interest income 111,958 97,170 423,249 382,968 -------- -------- --------- --------- Interest Expense Deposits 26,102 16,462 85,154 64,439 Short-term borrowings 7,081 3,813 25,929 9,584 Long-term debt 9,680 8,415 36,417 33,618 -------- -------- --------- --------- Total interest expense 42,863 28,690 147,500 107,641 -------- -------- --------- --------- Net Interest Income 69,095 68,480 275,749 275,327 Provision for loan losses (7,287) 4,609 1,109 21,094 -------- -------- --------- --------- Net interest income after provision for loan losses 76,382 63,871 274,640 254,233 -------- -------- --------- --------- Noninterest Income Service charges on deposit accounts 8,957 8,814 35,409 35,121 Trust fees 4,989 4,794 18,445 17,854 Mortgage and other loan income 2,099 2,562 8,983 9,615 Brokerage and investment fees 1,946 1,733 7,803 7,885 ATM network user fees 1,065 844 4,355 3,442 Bankcard fees 1,027 897 3,804 3,444 Gain on sale of Illinois bank subsidiary - - - 11,650 Fair value change in CD swap derivatives (3,604) - (3,604) - Other 3,451 4,000 14,240 16,549 -------- -------- --------- --------- Total fees and other income 19,930 23,644 89,435 105,560 Investment securities gains (losses) (8,970) 10 (8,927) (1,509) -------- -------- --------- --------- Total noninterest income 10,960 23,654 80,508 104,051 Noninterest Expense Salaries and employee benefits 32,391 31,320 132,153 129,093 Occupancy 5,631 5,077 22,131 20,200 Professional services 4,837 3,911 17,279 16,251 Equipment 3,263 3,575 14,634 14,371 Data processing services 3,744 3,074 13,800 13,352 Advertising and public relations 2,570 2,907 7,853 9,180 Postage and delivery 1,591 1,600 6,213 6,534 Telephone 1,333 1,502 5,481 6,030 Other loan expenses 686 840 2,655 3,984 Stationery and supplies 844 1,046 3,091 3,751 Intangible asset amortization 725 725 2,899 2,899 Prepayment penalty on FHLB advances - - - 17,959 Other 3,286 5,540 14,853 19,163 -------- -------- --------- --------- Total noninterest expense 60,901 61,117 243,042 262,767 -------- -------- --------- --------- Income Before Income Taxes 26,441 26,408 112,106 95,517 Income tax provision 7,553 6,122 31,581 19,420 -------- -------- --------- --------- Net Income $18,888 $20,286 $80,525 $76,097 -------- -------- --------- --------- Net Income Per Common Share: Basic $0.44 $0.47 $1.87 $1.76 Diluted 0.44 0.46 1.85 1.74 Cash Dividends Declared Per Common Share 0.285 0.285 1.140 1.140 Average Common Shares Outstanding: Basic 42,903 43,235 43,096 43,266 Diluted 43,131 43,798 43,412 43,763 -------------------------------------------------------------------------- Selected Quarterly Information Citizens Banking Corporation and Subsidiaries 4th Qtr 2005 3rd Qtr 2005 2nd Qtr 2005 -------------------------------------------------------------------------- Summary of Operations (thousands) Interest income $111,958 $108,506 $103,619 Interest expense 42,863 38,864 34,840 Net interest income 69,095 69,642 68,779 Provision for loan losses (7,287) 4,000 1,396 Net interest income after provision for loan losses 76,382 65,642 67,383 Total fees and other income 19,930 23,941 23,109 Investment securities gains (losses) (8,970) - 37 Noninterest expense 60,901 60,550 60,990 Income tax provision 7,553 8,041 8,974 Net income 18,888 20,992 20,565 Taxable equivalent adjustment 3,432 3,284 3,324 -------------------------------------------------------------------------- At Period End (millions) Total assets $7,752 $7,851 $7,826 Total earning assets 7,274 7,397 7,399 Total loans including held for sale 5,632 5,599 5,553 Total deposits 5,474 5,226 5,201 Total shareholders' equity 656 655 662 -------------------------------------------------------------------------- Average Balances (millions) Total assets $7,754 $7,821 $7,807 Total earning assets 7,311 7,393 7,386 Total loans including held for sale 5,604 5,572 5,510 Total deposits 5,305 5,239 5,254 Total shareholders' equity 654 655 654 Shareholders' equity / assets 8.43% 8.38% 8.37% -------------------------------------------------------------------------- Credit Quality Statistics (thousands) Nonaccrual loans $32,140 $35,527 $42,191 Loans 90 or more days past due and still accruing 385 92 2 Restructured loans - 13 32 --------- --------- --------- Total nonperforming loans 32,525 35,632 42,225 Other repossessed assets acquired (ORAA) 7,351 6,984 6,817 --------- --------- --------- Total nonperforming assets $39,876 $42,616 $49,042 --------- --------- --------- Allowance for loan losses $116,400 $118,626 $119,967 Allowance for loan losses as a percent of portfolio loans 2.07% 2.13% 2.17% Allowance for loan losses as a percent of nonperforming assets 291.90 278.36 244.62 Allowance for loan losses as a percent of nonperforming loans 357.88 332.92 284.11 Nonperforming assets as a percent of portfolio loans plus ORAA 0.71 0.76 0.89 Nonperforming assets as a percent of total assets 0.51 0.54 0.63 Net loans charged off as a percent of average portfolio loans (annualized) (0.36) 0.38 0.17 Net loans charged off (000) $(5,061) $5,341 $2,374 -------------------------------------------------------------------------- Per Common Share Data Net Income: Basic $0.44 $0.49 $0.48 Diluted 0.44 0.48 0.47 Dividends 0.285 0.285 0.285 Market Value: High $30.22 $32.15 $30.98 Low 26.67 28.20 26.35 Close 27.75 28.40 30.22 Book value 15.28 15.21 15.31 Shares outstanding, end of period (000) 42,968 43,044 43,261 -------------------------------------------------------------------------- Performance Ratios (annualized) Net interest margin (FTE) (1) 3.95% 3.93% 3.92% Return on average assets 0.97 1.06 1.06 Return on average shareholders' equity 11.46 12.71 12.62 Efficiency ratio (2) 65.87 62.51 64.06 -------------------------------------------------------------------------- 1st Qtr 2005 4th Qtr 2004 -------------------------------------------------------------------------- Summary of Operations (thousands) Interest income $99,166 $97,170 Interest expense 30,933 28,690 Net interest income 68,233 68,480 Provision for loan losses 3,000 4,609 Net interest income after provision for loan losses 65,233 63,871 Total fees and other income 22,455 23,644 Investment securities gains (losses) 6 10 Noninterest expense 60,601 61,117 Income tax provision 7,013 6,122 Net income 20,080 20,286 Taxable equivalent adjustment 3,353 3,324 -------------------------------------------------------------------------- At Period End (millions) Total assets $7,777 $7,706 Total earning assets 7,358 7,292 Total loans including held for sale 5,464 5,421 Total deposits 5,290 5,300 Total shareholders' equity 646 654 -------------------------------------------------------------------------- Average Balances (millions) Total assets $7,728 $7,661 Total earning assets 7,302 7,238 Total loans including held for sale 5,424 5,337 Total deposits 5,349 5,258 Total shareholders' equity 649 649 Shareholders' equity / assets 8.40% 8.48% -------------------------------------------------------------------------- Credit Quality Statistics (thousands) Nonaccrual loans $36,593 $42,819 Loans 90 or more days past due and still accruing 11 40 Restructured loans 42 42 --------- --------- Total nonperforming loans 36,646 42,901 Other repossessed assets acquired (ORAA) 7,118 7,946 --------- --------- Total nonperforming assets $43,764 $50,847 --------- --------- Allowance for loan losses $120,945 $122,184 Allowance for loan losses as a percent of portfolio loans 2.23% 2.27% Allowance for loan losses as a percent of nonperforming assets 276.36 240.30 Allowance for loan losses as a percent of nonperforming loans 330.04 284.80 Nonperforming assets as a percent of portfolio loans plus ORAA 0.80 0.94 Nonperforming assets as a percent of total assets 0.56 0.66 Net loans charged off as a percent of average portfolio loans (annualized) 0.32 0.35 Net loans charged off (000) $4,239 $4,609 -------------------------------------------------------------------------- Per Common Share Data Net Income: Basic $0.46 $0.47 Diluted 0.46 0.46 Dividends 0.285 0.285 Market Value: High $34.81 $35.43 Low 29.02 32.01 Close 29.36 34.35 Book value 14.95 15.13 Shares outstanding, end of period (000) 43,173 43,240 -------------------------------------------------------------------------- Performance Ratios (annualized) Net interest margin (FTE) (1) 3.96% 3.97% Return on average assets 1.05 1.05 Return on average shareholders' equity 12.54 12.43 Efficiency ratio (2) 64.44 64.21 -------------------------------------------------------------------------- (1) Net interest margin is presented on an annual basis, includes taxable equivalent adjustments to interest income and is based on a tax rate of 35%. (2) Efficiency Ratio = Noninterest expense/(Net interest income + Taxable equivalent adjustment + Total fees and other income). It measures how efficiently a bank spends its revenues. The fourth quarter of 2004 excludes a special charge recovery of $0.2 million. The efficiency ratio for the fourth quarter of 2004 would equal 64.03%, if this item was included in the calculation. ----------------------------------------------------------------------- Financial Summary and Comparison Twelve months ended Citizens Banking Corporation and Subsidiaries December 31, 2005 2004 % Change ----------------------------------------------------------------------- Summary of Operations (thousands) Interest income $423,249 $382,968 10.5% Interest expense 147,500 107,641 37.0 Net interest income 275,749 275,327 0.2 Provision for loan losses 1,109 21,094 (94.7) Net interest income after provision for loan losses 274,640 254,233 8.0 Total fees and other income 89,435 105,560 (15.3) Investment securities gains (losses) (8,927) (1,509) N/M Noninterest expense 243,042 262,767 (7.5) Income tax provision 31,581 19,420 62.6 Net income 80,525 76,097 5.8 ----------------------------------------------------------------------- At Period End (millions) Total assets $7,752 $7,706 0.6% Total earning assets 7,274 7,292 (0.2) Total loans including held for sale 5,632 5,421 3.9 Total deposits 5,474 5,300 3.3 Total shareholders' equity 656 654 0.3 ----------------------------------------------------------------------- Average Balances (millions) Total assets $7,778 $7,685 1.2% Total earning assets 7,348 7,260 1.2 Total loans including held for sale 5,528 5,292 4.5 Total deposits 5,286 5,375 (1.7) Total shareholders' equity 653 640 2.1 Shareholders' equity / assets 8.40% 8.32% 1.0 ----------------------------------------------------------------------- Per Common Share Data Net Income: Basic $1.87 $1.76 6.3% Diluted 1.85 1.74 6.3 Dividends 1.140 1.140 0.0 Market Value: High $34.81 $35.43 (1.7) Low 26.35 28.31 (6.9) Close 27.75 34.35 (19.2) Book value 15.28 15.13 1.0 Tangible book value 13.75 13.55 1.5 Shares outstanding, end of period (000) 42,968 43,240 (0.6) ----------------------------------------------------------------------- Performance Ratios (annualized) Net interest margin (FTE) (1) 3.94% 3.99% (1.3)% Return on average assets 1.04 0.99 5.1 Return on average shareholders' equity 12.33 11.90 3.6 Net loans charged off as a percent of average portfolio loans 0.13 0.40 (67.5) ----------------------------------------------------------------------- (1) Net interest margin is presented on an annual basis and includes taxable equivalent adjustments to interest income of $13.4 million and $13.4 million for the twelve months ended December 31, 2005 and 2004, respectively, based on a tax rate of 35%. N/M - not meaningful ----------------------------------------------------------------------- Noninterest Income and Noninterest Expense (Unaudited) Citizens Banking Corporation and Subsidiaries Three Months Ended ------------------------------------------- Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 (in thousands) 2005 2005 2005 2005 2004 ------------------------------------------------------------------------- NONINTEREST INCOME: Service charges on deposit accounts $8,957 $9,343 $8,822 $8,287 $8,814 Trust fees 4,989 4,541 4,503 4,412 4,794 Mortgage and other loan income 2,099 2,450 2,074 2,360 2,562 Brokerage and investment fees 1,946 1,974 2,284 1,599 1,733 ATM network user fees 1,065 1,194 1,223 873 844 Bankcard fees 1,027 976 961 840 897 Fair value change in CD swap derivative (3,604) - - - - Other income 3,451 3,463 3,242 4,084 4,000 ------- ------- ------- ------- ------- Total fees and other income 19,930 23,941 23,109 22,455 23,644 Investment securities gains (losses) (8,970) --- 37 6 10 ------- ------- ------- ------- ------- TOTAL NONINTEREST INCOME $10,960 $23,941 $23,146 $22,461 $23,654 ======= ======= ======= ======= ======= NONINTEREST EXPENSE: Salaries and employee benefits $32,391 $34,060 $32,351 $33,351 $31,320 Occupancy 5,631 5,255 5,685 5,560 5,077 Professional services 4,837 4,517 3,726 4,199 3,911 Equipment 3,263 3,133 4,937 3,301 3,575 Data processing services 3,744 3,188 3,499 3,369 3,074 Advertising and public relations 2,570 1,717 1,820 1,746 2,907 Postage and delivery 1,591 1,512 1,520 1,590 1,600 Telephone 1,333 1,242 1,465 1,441 1,502 Other loan expenses 686 720 874 375 840 Stationery and supplies 844 726 602 919 1,046 Intangible asset amortization 725 725 724 725 725 Other expense 3,286 3,755 3,787 4,025 5,540 ------- ------- ------- ------- ------- TOTAL NONINTEREST EXPENSE $60,901 $60,550 $60,990 $60,601 $61,117 ======= ======= ======= ======= ======= ------------------------------------------------------------------------- Average Balances, Yields and Rates Three Months Ended ------------------------------------------- December 31, 2005 September 30, 2005 ------------------------------------------- Average Average Average Average (in thousands) Balance Rate (1) Balance Rate (1) ------------------------------------------------------------------------- Earning Assets Money market investments $1,688 3.09 2,691 2.30 Investment securities (3): Taxable 1,271,730 4.40 1,381,469 4.30 Tax-exempt 436,445 7.52 428,534 7.34 Mortgage loans held for sale 29,545 5.48 40,836 5.18 Loans (4): Commercial 1,636,024 6.70 1,622,724 6.36 Commercial real estate 1,389,810 6.62 1,352,733 6.43 Residential mortgage loans 534,840 5.64 520,861 5.54 Direct consumer 1,158,271 6.89 1,178,476 6.46 Indirect consumer 855,945 6.62 856,207 6.58 --------- --------- Total portfolio loans 5,574,890 6.61 5,531,001 6.36 --------- --------- Total earning assets 7,314,298 6.27 7,384,531 6.02 Nonearning Assets Cash and due from banks 165,562 158,631 Bank premises and equipment 121,197 121,142 Investment security fair value adjustment (3,159) 8,321 Other nonearning assets 274,197 267,861 Allowance for loan losses (118,215) (119,695) ---------- ---------- Total assets $7,753,880 $7,820,791 ---------- ---------- Interest-Bearing Liabilities Deposits: Interest-bearing demand $904,447 0.64 $1,016,366 0.67 Savings deposits 1,414,788 1.84 1,471,878 1.55 Time deposits 2,036,321 3.52 1,810,928 3.16 Short-term borrowings 740,423 3.79 900,520 3.40 Long-term debt 957,596 4.02 942,624 3.92 --------- ---------- Total interest-bearing liabilities 6,053,575 2.81 6,142,316 2.51 Noninterest-Bearing Liabilities and Shareholders' Equity Noninterest-bearing demand 949,795 939,668 Other liabilities 96,857 83,671 Shareholders' equity 653,653 655,136 ---------- ---------- Total liabilities and shareholders' equity $7,753,880 $7,820,791 ---------- ---------- Interest Spread 3.46% 3.51% Contribution of noninterest bearing sources of funds 0.49 0.42 ------ ------ Net Interest Income as a Percent of Earning Assets 3.95% 3.93% -------------------------------------------------------------------------- (1) Average rates are presented on an annual basis and include taxable equivalent adjustments to interest income. (2) Certain amounts have been reclassified to conform with current year presentation. (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. Average Balances, Yields and Rates Three Months Ended ----------------------------- December 31, 2004 ----------------------------- Average Average (in thousands) Balance (2) Rate (1)(2) ------------------------------------------------------------------------ Earning Assets Money market investments 1,904 0.85 Investment securities (3): Taxable 1,446,836 4.07 Tax-exempt 421,523 7.52 Mortgage loans held for sale 25,242 5.48 Loans (4): Commercial 1,598,030 5.42 Commercial real estate 1,229,568 5.96 Residential mortgage loans 498,807 5.59 Direct consumer 1,151,932 5.68 Indirect consumer 833,599 6.63 ---------- Total portfolio loans 5,311,936 5.81 ---------- Total earning assets 7,207,441 5.56 Nonearning Assets Cash and due from banks 162,170 Bank premises and equipment 118,217 Investment security fair value adjustment 30,414 Other nonearning assets 266,123 Allowance for loan losses (122,934) ---------- Total assets $7,661,431 ---------- Interest-Bearing Liabilities Deposits: Interest-bearing demand $1,183,322 0.77 Savings deposits 1,534,662 1.03 Time deposits 1,608,388 2.52 Short-term borrowings 729,610 2.08 Long-term debt 946,588 3.54 ---------- Total interest-bearing liabilities 6,002,570 1.90 Noninterest-Bearing Liabilities and Shareholders' Equity Noninterest-bearing demand 931,622 Other liabilities 77,766 Shareholders' equity 649,473 ---------- Total liabilities and shareholders' equity $7,661,431 ---------- Interest Spread 3.66% Contribution of noninterest bearing sources of funds 0.31 ------ Net Interest Income as a Percent of Earning Assets 3.97% -------------------------------------------------------------------------- (1) Average rates are presented on an annual basis and include taxable equivalent adjustments to interest income. (2) Certain amounts have been reclassified to conform with current year presentation. (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. -------------------------------------------------------------------------- Average Balances, Yields and Rates Twelve Months Ended December 31, ------------------------------------------ 2005 2004 ------------------------------------------ Average Average Average Average (in thousands) Balance Rate (1) Balance (2) Rate (1)(2) -------------------------------------------------------------------------- Earning Assets Money market investments 2,348 2.38 2,095 0.57 Investment securities (3): Taxable 1,380,868 4.24 1,511,515 4.07 Tax-exempt 426,811 7.49 424,280 7.58 Mortgage loans held for sale 35,061 5.42 32,645 5.51 Loans (4): Commercial 1,628,625 6.15 1,613,919 5.18 Commercial real estate 1,338,870 6.36 1,255,490 5.88 Residential mortgage loans 513,385 5.57 489,951 5.73 Direct consumer 1,171,567 6.38 1,108,036 5.61 Indirect consumer 840,833 6.59 791,907 6.72 --------- --------- Total portfolio loans 5,493,280 6.27 5,259,303 5.72 --------- --------- Total earning assets 7,338,368 5.95 7,229,838 5.48 Nonearning Assets Cash and due from banks 158,826 163,646 Bank premises and equipment 121,277 117,334 Investment security fair value adjustment 9,801 29,822 Other nonearning assets 269,471 268,681 Allowance for loan losses (119,925) (124,487) ---------- ---------- Total assets $7,777,818 $7,684,834 ---------- ---------- Interest-Bearing Liabilities Deposits: Interest-bearing demand $1,035,579 0.67 $1,281,635 0.75 Savings deposits 1,505,604 1.47 1,425,369 0.77 Time deposits 1,814,154 3.09 1,753,387 2.50 Short-term borrowings 812,642 3.19 655,472 1.46 Long-term debt 938,478 3.88 936,049 3.59 ---------- ---------- Total interest-bearing liabilities 6,106,457 2.42 6,051,912 1.78 Noninterest-Bearing Liabilities and Shareholders' Equity Noninterest-bearing demand 931,053 914,906 Other liabilities 87,304 78,385 Shareholders' equity 653,004 639,631 ---------- ---------- Total liabilities and shareholders' equity $7,777,818 $7,684,834 ---------- ---------- Interest Spread 3.53% 3.70% Contribution of noninterest bearing sources of funds 0.41 0.29 ------ ------ Net Interest Income as a Percent of Earning Assets 3.94% 3.99% -------------------------------------------------------------------------- (1) Average rates are presented on an annual basis and include taxable equivalent adjustments to interest income. (2) Certain amounts have been reclassified to conform with current year presentation. (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. -------------------------------------------------------------------------- Nonperforming Assets Citizens Banking Corporation and Subsidiaries Three Months Ended -------------------------------------- Dec 31 Sep 30 Jun 30 (in thousands) 2005 2005 2005 ------------------------------------------------------------------------- Commercial(1) Commercial $11,880 $14,457 $17,903 Commercial real estate 5,068 5,720 9,692 ------- ------- ------- Total commercial 16,948 20,177 27,595 Consumer: Direct 4,326 4,459 3,726 Indirect 2,454 962 1,042 Residential mortgage 8,412 9,929 9,828 Loans 90 days or more past due and still accruing 385 92 2 Restructured loans - 13 32 ------- ------- ------- Total Nonperforming Loans 32,525 35,632 42,225 Other Repossessed Assets Acquired 7,351 6,984 6,817 ------- ------- ------- Total Nonperforming Assets $39,876 $42,616 $49,042 ======= ======= ======= ----------------------------------------------------------------------- (1)Changes in commercial nonperforming loans for the quarter (in millions): Inflows $10.6 $9.9 $21.1 Outflows (13.8) (17.3) (17.5) ------- ------- ------- Net change $(3.2) $(7.4) $3.6 ======= ======= ======= Nonperforming Assets Citizens Banking Corporation and Subsidiaries Three Months Ended ---------------------------- Mar 31 Dec 31 (in thousands) 2005 2004 ------------------------------------------------------------------------- Commercial(1) Commercial $12,991 $13,774 Commercial real estate 11,004 14,464 --------- --------- Total commercial 23,995 28,238 Consumer: Direct 3,474 3,518 Indirect 1,025 2,420 Residential mortgage 8,099 8,643 Loans 90 days or more past due and still accruing 11 40 Restructured loans 42 42 --------- --------- Total Nonperforming Loans 36,646 42,901 Other Repossessed Assets Acquired 7,118 7,946 --------- --------- Total Nonperforming Assets $43,764 $50,847 ========= ========= ------------------------------------------------------------------------- (1)Changes in commercial nonperforming loans for the quarter (in millions): Inflows $11.2 $18.4 Outflows (15.4) (18.9) ------- ------- Net change $(4.2) $(0.5) ======= ======= ------------------------------------------------------------------------- Summary of Loan Loss Experience Citizens Banking Corporation and Subsidiaries Three Months Ended ------------------------------------------------ Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 (in thousands) 2005 2005 2005 2005 2004 ------------------------------------------------------------------------- Allowance for loan losses - beginning of period $118,626 $119,967 $120,945 $122,184 $122,184 Provision for loan losses (7,287) 4,000 1,396 3,000 4,609 Charge-offs: Commercial 2,068 1,912 2,722 2,463 1,876 Commercial real estate 912 1,965 200 678 5,754 -------- -------- -------- -------- -------- Total commercial 2,980 3,877 2,922 3,141 7,630 Residential mortgage 519 182 127 324 238 Direct consumer 1,382 1,257 1,227 1,424 1,600 Indirect consumer 3,075 2,640 1,534 2,236 2,155 -------- -------- -------- -------- -------- Total charge-offs 7,956 7,956 5,810 7,125 11,623 -------- -------- -------- -------- -------- Recoveries: Commercial 11,914 1,334 2,117 1,162 5,459 Commercial real estate 28 232 227 707 609 -------- -------- -------- -------- -------- Total commercial 11,942 1,566 2,344 1,869 6,068 Residential mortgage 37 32 - - - Direct consumer 329 370 377 343 364 Indirect consumer 709 647 715 674 582 -------- -------- -------- -------- -------- Total recoveries 13,017 2,615 3,436 2,886 7,014 -------- -------- -------- -------- -------- Net charge-offs (5,061) 5,341 2,374 4,239 4,609 -------- -------- -------- -------- -------- Allowance for loan losses - end of period $116,400 $118,626 $119,967 $120,945 $122,184 -------- -------- -------- -------- -------- Reserve for loan commitments - end of period $3,023 $3,023 $2,868 $2,596 $2,833 -------- -------- -------- -------- -------- -------------------------------------------------------------------------- Three Months Ended December 31, 2005 -------------------------------------------------------------------------- Commercial Residential Direct Indirect Commercial real mortgage consumer consumer Total estate --------------------------------------------------------- Charge-offs: Michigan $1,711 $761 $294 $1,163 $3,075 $7,004 Wisconsin 348 151 142 205 - 846 Iowa 9 - 83 14 - 106 ---------- --------- --------- -------- ------ ------- Total charge-offs 2,068 912 519 1,382 3,075 7,956 ---------- --------- --------- -------- ------ ------- Recoveries: Michigan 11,196 28 18 254 709 12,205 Wisconsin 706 - - 44 - 750 Iowa 12 - 19 31 - 62 ---------- --------- --------- -------- ------ ------- Total recoveries 11,914 28 37 329 709 13,017 ---------- --------- --------- -------- ------ ------- Net charge-offs $(9,846) $884 $482 $1,053 $2,366 (5,061) ========== ========= ========= ======== ====== ======= -------------------------------------------------------------------------- Twelve Months Ended December 31, 2005 -------------------------------------------------------------------------- Commercial Residential Direct Indirect Commercial real mortgage consumer consumer Total estate --------------------------------------------------------- Charge-offs: Michigan $5,685 $2,682 $748 $4,288 $9,485 $22,888 Wisconsin 3,170 1,073 280 813 - 5,336 Iowa 310 - 124 189 - 623 ---------- --------- --------- -------- ------ ------- Total charge-offs 9,165 3,755 1,152 5,290 9,485 28,847 ---------- --------- --------- -------- ------ ------- Recoveries: Michigan 13,562 926 48 1,155 2,745 18,436 Wisconsin 2,774 268 2 177 - 3,221 Iowa 191 - 19 87 - 297 ---------- --------- --------- -------- ------ ------- Total recoveries 16,527 1,194 69 1,419 2,745 21,954 ---------- --------- --------- -------- ------ ------- Net charge-offs $(7,362) $2,561 $1,083 $3,871 $6,740 $6,893 ========== ========= ========= ======== ====== ======= -------------------------------------------------------------------------- (Logo: http://www.newscom.com/cgi-bin/prnh/20050421/DETH014LOGO ) First Call Analyst: FCMN Contact: http://www.newscom.com/cgi-bin/prnh/20050421/DETH014LOGO http://photoarchive.ap.org/ DATASOURCE: Citizens Banking Corporation CONTACT: Charles D. Christy, Chief Financial Officer, +1-810-237-4200, , or Kathleen Miller, Investor Relations, +1-810-257-2506, , both of Citizens Banking Corporation Web site: http://www.citizensonline.com/

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