##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2010
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file Number 001-33063
 CITIZENS REPUBLIC BANCORP, INC.
  MICHIGAN
    
    38-2378932(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)328 S. Saginaw St., Flint, Michigan
    
    48502(Address of principal executive offices)
    
    (Zip Code)
  (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
   Class
    
    Outstanding at October 29, 2010Common Stock, No Par Value
    
    397,089,175 Shares




---



##### 



Citizens Republic Bancorp, Inc.
 PagePart I  Financial Information (unaudited)Item 1   Financial Statements (unaudited)Consolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statements of Changes in Shareholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2   Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    28Item 3   Quantitative and Qualitative Disclosures about Market Risk
    
    
    53Item 4   Controls and Procedures
    
    
    53Part II  Other InformationItem 1A   Risk Factors
    
    
    54Item 2   Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    55Item 3   Defaults Upon Senior Securities
    
    
    55Item 6   Exhibits
    
    
    56Signatures
    
    
    57Exhibit Index
    
    
    58EX-10.59EX-10.60EX-10.61EX-10.62EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



Consolidated
Balance Sheets (Unaudited)
 Citizens Republic Bancorp and Subsidiaries
 September 30,
    
    
    December 31,
    
    
    September 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2009AssetsCash and due from banks
    
    $
    142,025
    
    
    $
    156,093
    
    
    $
    156,608Money market investments
    
    
    530,169
    
    
    
    686,285
    
    
    
    512,289Investment Securities:Securities available for sale, at fair value
    
    
    2,258,452
    
    
    
    2,076,794
    
    
    
    2,075,004Securities held to maturity, at amortized cost
(fair value of $118,155, $116,368 and $120,396, respectively)
    
    
    112,029
    
    
    
    114,249
    
    
    
    114,249Total investment securities
    
    
    2,370,481
    
    
    
    2,191,043
    
    
    
    2,189,253FHLB and Federal Reserve stock
    
    
    157,304
    
    
    
    155,084
    
    
    
    155,084Portfolio loans:Commercial and industrial
    
    
    1,657,383
    
    
    
    1,921,755
    
    
    
    2,047,207Commercial real estate
    
    
    2,503,685
    
    
    
    2,811,539
    
    
    
    2,881,839Total commercial
    
    
    4,161,068
    
    
    
    4,733,294
    
    
    
    4,929,046Residential mortgage
    
    
    800,521
    
    
    
    1,025,248
    
    
    
    1,073,253Direct consumer
    
    
    1,091,704
    
    
    
    1,224,182
    
    
    
    1,269,207Indirect consumer
    
    
    834,712
    
    
    
    805,181
    
    
    
    825,316Total portfolio loans
    
    
    6,888,005
    
    
    
    7,787,905
    
    
    
    8,096,822Less: Allowance for loan losses
    
    
    (324,046
    )
    
    
    (338,940
    )
    
    
    (336,270
    )Net portfolio loans
    
    
    6,563,959
    
    
    
    7,448,965
    
    
    
    7,760,552Loans held for sale
    
    
    52,191
    
    
    
    80,219
    
    
    
    61,134Premises and equipment
    
    
    106,272
    
    
    
    110,703
    
    
    
    114,000Goodwill
    
    
    318,150
    
    
    
    318,150
    
    
    
    318,150Other intangible assets
    
    
    11,306
    
    
    
    14,378
    
    
    
    15,551Bank owned life insurance
    
    
    218,056
    
    
    
    220,190
    
    
    
    219,802Other assets
    
    
    168,991
    
    
    
    214,560
    
    
    
    214,924Assets of discontinued operations
    
    
    
    
    
    
    335,961
    
    
    
    354,429Total assets
    
    $
    10,638,904
    
    
    $
    11,931,631
    
    
    $
    12,071,776LiabilitiesNoninterest-bearing deposits
    
    $
    1,297,579
    
    
    $
    1,288,303
    
    
    $
    1,238,969Interest-bearing demand deposits
    
    
    947,126
    
    
    
    1,055,290
    
    
    
    1,147,363Savings deposits
    
    
    2,704,589
    
    
    
    2,460,114
    
    
    
    2,504,773Time deposits
    
    
    3,151,652
    
    
    
    3,697,056
    
    
    
    3,497,986Total deposits
    
    
    8,100,946
    
    
    
    8,500,763
    
    
    
    8,389,091Federal funds purchased and securities sold
under agreements to repurchase
    
    
    42,334
    
    
    
    32,900
    
    
    
    42,255Other short-term borrowings
    
    
    710
    
    
    
    6,900
    
    
    
    7,200Other liabilities
    
    
    152,531
    
    
    
    124,718
    
    
    
    143,560Long-term debt
    
    
    1,185,322
    
    
    
    1,512,987
    
    
    
    1,670,248Liabilities of discontinued operations
    
    
    
    
    
    
    422,327
    
    
    
    415,992Total liabilities
    
    
    9,481,843
    
    
    
    10,600,595
    
    
    
    10,668,346Shareholders EquityPreferred stock  no par valueAuthorized - 5,000,000 shares; Issued and outstanding - 300,000 at
9/30/10, 12/31/09, and 9/30/09, redemption value of $300 million
    
    
    276,676
    
    
    
    271,990
    
    
    
    270,487Common stock  no par valueAuthorized - 1,050,000,000 shares at 9/30/10,12/31/09, and 9/30/09;
Issued and outstanding - 397,070,684 at 9/30/10, 394,397,406 at 12/31/09
and 394,470,383 at 9/30/09
    
    
    1,431,314
    
    
    
    1,429,771
    
    
    
    1,429,657Retained deficit
    
    
    (566,543
    )
    
    
    (363,632
    )
    
    
    (293,650
    )Accumulated other comprehensive income (loss)
    
    
    15,614
    
    
    
    (7,093
    )
    
    
    (3,064
    )Total shareholders equity
    
    
    1,157,061
    
    
    
    1,331,036
    
    
    
    1,403,430Total liabilities and shareholders equity
    
    $
    10,638,904
    
    
    $
    11,931,631
    
    
    $
    12,071,776
  3




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##### Table of Contents



Consolidated Statements of Operations (Unaudited)
 Citizens Republic Bancorp and Subsidiaries
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands, except per share amounts)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Interest IncomeInterest and fees on loans
    
    $
    96,080
    
    
    $
    111,368
    
    
    $
    298,802
    
    
    $
    341,337Interest and dividends on investment securities:Taxable
    
    
    18,082
    
    
    
    17,773
    
    
    
    54,943
    
    
    
    56,463Tax-exempt
    
    
    3,514
    
    
    
    6,128
    
    
    
    12,731
    
    
    
    19,171Dividends on FHLB and Federal Reserve stock
    
    
    735
    
    
    
    1,587
    
    
    
    2,763
    
    
    
    3,466Money market investments
    
    
    350
    
    
    
    315
    
    
    
    1,181
    
    
    
    889Total interest income
    
    
    118,761
    
    
    
    137,171
    
    
    
    370,420
    
    
    
    421,326Interest ExpenseDeposits
    
    
    23,518
    
    
    
    34,668
    
    
    
    78,939
    
    
    
    119,484Short-term borrowings
    
    
    20
    
    
    
    29
    
    
    
    61
    
    
    
    160Long-term debt
    
    
    13,665
    
    
    
    23,461
    
    
    
    44,087
    
    
    
    73,145Total interest expense
    
    
    37,203
    
    
    
    58,158
    
    
    
    123,087
    
    
    
    192,789Net Interest Income
    
    
    81,558
    
    
    
    79,013
    
    
    
    247,333
    
    
    
    228,537Provision for loan losses
    
    
    89,617
    
    
    
    77,393
    
    
    
    261,586
    
    
    
    239,813Net interest (loss) income after provision for loan losses
    
    
    (8,059
    )
    
    
    1,620
    
    
    
    (14,253
    )
    
    
    (11,276
    )Noninterest IncomeService charges on deposit accounts
    
    
    10,609
    
    
    
    11,035
    
    
    
    30,264
    
    
    
    31,290Trust fees
    
    
    3,837
    
    
    
    3,853
    
    
    
    11,468
    
    
    
    10,573Mortgage and other loan income
    
    
    2,590
    
    
    
    3,182
    
    
    
    7,377
    
    
    
    9,837Brokerage and investment fees
    
    
    1,060
    
    
    
    1,473
    
    
    
    3,315
    
    
    
    4,133ATM network user fees
    
    
    1,864
    
    
    
    1,689
    
    
    
    5,232
    
    
    
    4,652Bankcard fees
    
    
    2,261
    
    
    
    1,972
    
    
    
    6,534
    
    
    
    5,835Net loss on loans held for sale
    
    
    (1,441
    )
    
    
    (860
    )
    
    
    (17,548
    )
    
    
    (11,362
    )Net loss on debt extinguishment
    
    
    
    
    
    
    (15,929
    )
    
    
    
    
    
    
    (15,929
    )Investment securities gains
    
    
    
    
    
    
    
    
    
    
    14,067
    
    
    
    5Other income
    
    
    5,176
    
    
    
    4,281
    
    
    
    9,922
    
    
    
    9,825Total noninterest income
    
    
    25,956
    
    
    
    10,696
    
    
    
    70,631
    
    
    
    48,859Noninterest ExpenseSalaries and employee benefits
    
    
    32,740
    
    
    
    37,394
    
    
    
    94,090
    
    
    
    105,377Occupancy
    
    
    6,529
    
    
    
    6,447
    
    
    
    20,129
    
    
    
    20,568Professional services
    
    
    2,737
    
    
    
    3,033
    
    
    
    7,605
    
    
    
    8,886Equipment
    
    
    3,076
    
    
    
    2,959
    
    
    
    9,127
    
    
    
    8,726Data processing services
    
    
    4,702
    
    
    
    4,461
    
    
    
    14,098
    
    
    
    12,920Advertising and public relations
    
    
    1,605
    
    
    
    1,878
    
    
    
    5,018
    
    
    
    5,562Postage and delivery
    
    
    1,187
    
    
    
    1,297
    
    
    
    3,496
    
    
    
    4,239Other loan expenses
    
    
    4,355
    
    
    
    6,271
    
    
    
    14,880
    
    
    
    18,922Losses on other real estate (ORE)
    
    
    1,967
    
    
    
    3,924
    
    
    
    12,508
    
    
    
    15,223ORE expenses
    
    
    1,327
    
    
    
    1,624
    
    
    
    3,317
    
    
    
    3,108Intangible asset amortization
    
    
    908
    
    
    
    1,874
    
    
    
    3,072
    
    
    
    5,863Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256,272Other expense
    
    
    13,607
    
    
    
    10,304
    
    
    
    42,513
    
    
    
    38,104Total noninterest expense
    
    
    74,740
    
    
    
    81,466
    
    
    
    229,853
    
    
    
    503,770Loss from Continuing Operations Before Income Taxes
    
    
    (56,843
    )
    
    
    (69,150
    )
    
    
    (173,475
    )
    
    
    (466,187
    )Income tax provision (benefit) from continuing operations
    
    
    5,628
    
    
    
    (11,747
    )
    
    
    9,475
    
    
    
    (26,326
    )Loss from Continuing Operations
    
    
    (62,471
    )
    
    
    (57,403
    )
    
    
    (182,950
    )
    
    
    (439,861
    )Discontinued operations:Income (loss) from discontinued operations (net of income tax)
    
    
    
    
    
    
    480
    
    
    
    (3,822
    )
    
    
    (9,624
    )Net Loss
    
    
    (62,471
    )
    
    
    (56,923
    )
    
    
    (186,772
    )
    
    
    (449,485
    )Dividend on redeemable preferred stock
    
    
    (5,451
    )
    
    
    (5,224
    )
    
    
    (16,139
    )
    
    
    (14,523
    )Net Loss Attributable to Common Shareholders
    
    $
    (67,922
    )
    
    $
    (62,147
    )
    
    $
    (202,911
    )
    
    $
    (464,008
    )Earnings (Loss) Per Share from Continuing OperationsBasic
    
    $
    (0.17
    )
    
    $
    (0.49
    )
    
    $
    (0.51
    )
    
    $
    (3.59
    )Diluted
    
    
    (0.17
    )
    
    
    (0.49
    )
    
    
    (0.51
    )
    
    
    (3.59
    )Earnings (Loss) Per Share from Discontinued OperationsBasic
    
    $
    
    
    
    $
    0.01
    
    
    $
    (0.01
    )
    
    $
    (0.08
    )Diluted
    
    
    
    
    
    
    0.01
    
    
    
    (0.01
    )
    
    
    (0.08
    )Net Loss Per Common Share:Basic
    
    $
    (0.17
    )
    
    $
    (0.48
    )
    
    $
    (0.52
    )
    
    $
    (3.67
    )Diluted
    
    
    (0.17
    )
    
    
    (0.48
    )
    
    
    (0.52
    )
    
    
    (3.67
    )Average Common Shares Outstanding:Basic
    
    
    394,021
    
    
    
    128,467
    
    
    
    393,880
    
    
    
    126,453Diluted
    
    
    394,021
    
    
    
    128,467
    
    
    
    393,880
    
    
    
    126,453
 4




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##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity (Unaudited)
 Citizens Republic Bancorp and Subsidiaries
 AccumulatedRetained
    
    
    OtherPreferred
    
    
    Common Stock
    
    
    Earnings
    
    
    Comprehensive(in thousands, except per share amounts)
    
    Stock
    
    
    Shares
    
    
    Amount
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    TotalBalance at December 31, 2009
    
    $
    271,990
    
    
    
    394,397
    
    
    $
    1,429,771
    
    
    $
    (363,632
    )
    
    $
    (7,093
    )
    
    $
    1,331,036Comprehensive loss, net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (186,772
    )
    
    
    
    
    
    
    (186,772
    )Other comprehensive income (loss):Net unrealized gain on securities available-for-sale,
net of tax effect of $810
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,693Net change in unrealized loss on qualifying cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,986
    )Net change in unrecognized pension and post retirement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,707Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (164,065
    )Accretion of preferred stock discount
    
    
    4,686
    
    
    
    
    
    
    
    
    
    
    
    (4,686
    )
    
    
    
    
    
    
    ---Accrued dividend on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,453
    )
    
    
    
    
    
    
    (11,453
    )Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    2,699
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ---Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,568
    
    
    
    
    
    
    
    
    
    
    
    1,568Shares purchased for taxes
    
    
    
    
    
    
    (25
    )
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    (25
    )Balance  September 30, 2010
    
    $
    276,676
    
    
    
    397,071
    
    
    $
    1,431,314
    
    
    $
    (566,543
    )
    
    $
    15,614
    
    
    $
    1,157,061Balance at December 31, 2008
    
    $
    266,088
    
    
    
    125,997
    
    
    $
    1,214,469
    
    
    $
    170,358
    
    
    $
    (49,594
    )
    
    $
    1,601,321Comprehensive loss, net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (449,485
    )
    
    
    
    
    
    
    (449,485
    )Other comprehensive income (loss):Net unrealized gain on securities available-for-sale,
net of tax effect of ($29,805)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,351Net change in unrealized loss on qualifying cash flow hedges,
net of tax effect of $2,863
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,317
    )Net change in unrecognized pension and post retirement costs,
net of tax effect of $1,887
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,504
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,530Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (402,955
    )Exchange of subordinated debt and trust preferred stock for common stock,
net of costs of $6,033
    
    
    
    
    
    
    268,216
    
    
    
    213,904
    
    
    
    
    
    
    
    
    
    
    
    213,904Dividends on redeemable preferred stock
    
    
    4,399
    
    
    
    
    
    
    
    
    
    
    
    (14,523
    )
    
    
    
    
    
    
    (10,124
    )Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    303
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,351
    
    
    
    
    
    
    
    
    
    
    
    1,351Shares purchased for taxes
    
    
    
    
    
    
    (46
    )
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    (67
    )Balance  September 30, 2009
    
    $
    270,487
    
    
    
    394,470
    
    
    $
    1,429,657
    
    
    $
    (293,650
    )
    
    $
    (3,064
    )
    
    $
    1,403,430
  5




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##### Table of Contents



Consolidated Statements of Cash Flows (Unaudited)
 Citizens Republic Bancorp and Subsidiaries
 Nine Months EndedSeptember 30,(in thousands)
    
    2010
    
    
    2009Operating Activities:Net loss
    
    $
    (186,772
    )
    
    $
    (449,485
    )Loss from discontinued operations, net of income tax
    
    
    (3,822
    )
    
    
    (9,624
    )Loss from continuing operations
    
    
    (182,950
    )
    
    
    (439,861
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Provision for loan losses
    
    
    261,586
    
    
    
    239,813Goodwill impairment
    
    
    
    
    
    
    256,272Depreciation and software amortization
    
    
    9,240
    
    
    
    9,042Amortization of intangibles
    
    
    3,072
    
    
    
    5,863Net decrease (increase) in current and deferred income taxes
    
    
    24,856
    
    
    
    (10,789
    )Amortization and fair value adjustments of purchase accounting mark-to-market, net
    
    
    (6,157
    )
    
    
    (7,586
    )Fair value adjustment on loans held for sale and other real estate
    
    
    13,399
    
    
    
    19,623Amortization of issuance costs on long term debt
    
    
    396
    
    
    
    913Net amortization on investment securities
    
    
    4,232
    
    
    
    132Net loss on debt extinguishment
    
    
    
    
    
    
    15,929Investment securities gains
    
    
    (14,067
    )
    
    
    (5
    )Loans originated for sale
    
    
    (117,372
    )
    
    
    (242,987
    )Proceeds from loans held for sale
    
    
    119,563
    
    
    
    256,503Net gains from loan sales
    
    
    (2,994
    )
    
    
    (5,716
    )Net loss on other real estate
    
    
    1,900
    
    
    
    1,103Recognition of stock-based compensation
    
    
    1,568
    
    
    
    1,351Discontinued operations, net
    
    
    17,750
    
    
    
    (1,281
    )Other
    
    
    25,103
    
    
    
    3,192Net cash provided by operating activities
    
    
    159,125
    
    
    
    101,511Investing Activities:Net decrease (increase) in money market investments
    
    
    156,116
    
    
    
    (306,686
    )Securities available-for-sale:Proceeds from sales
    
    
    412,402
    
    
    
    1,050Proceeds from maturities and payments
    
    
    684,996
    
    
    
    481,768Purchases
    
    
    (1,276,566
    )
    
    
    (382,357
    )Securities held-to-maturity:Proceeds from maturities and payments
    
    
    2,230
    
    
    
    1,508Net decrease in loans and leases
    
    
    613,282
    
    
    
    683,505Proceeds from sales of other real estate
    
    
    35,423
    
    
    
    26,258Net increase in properties and equipment
    
    
    (4,833
    )
    
    
    (5,737
    )Net proceeds from sale of discontinued operations
    
    
    35,369
    
    
    
    Discontinued operations, net
    
    
    312,402
    
    
    
    (3,235
    )Net cash provided by investing activities
    
    
    970,821
    
    
    
    496,074Financing Activities:Net increase in demand and savings deposits
    
    
    145,587
    
    
    
    627,812Net decrease in time deposits
    
    
    (545,821
    )
    
    
    (870,001
    )Net increase (decrease) in short-term borrowings
    
    
    3,245
    
    
    
    (15,036
    )Principal reductions in long-term debt
    
    
    (326,660
    )
    
    
    (318,208
    )Cash dividends paid on preferred stock
    
    
    
    
    
    
    (10,124
    )Shares acquired for retirement and purchased for taxes
    
    
    (25
    )
    
    
    (67
    )Discontinued operations, net
    
    
    (420,340
    )
    
    
    (18,852
    )Net cash used by financing activities
    
    
    (1,144,014
    )
    
    
    (604,476
    )Net decrease in cash and due from banks
    
    
    (14,068
    )
    
    
    (6,891
    )Cash and due from banks at beginning of period
    
    
    156,093
    
    
    
    163,499Cash and due from banks at end of period
    
    $
    142,025
    
    
    $
    156,608Supplemental Cash Flow Information:Interest paid
    
    $
    122,462
    
    
    $
    201,511Income tax refunds, net
    
    
    (16,214
    )
    
    
    (14,654
    )Supplemental Disclosures of noncash ItemsExchange of long-term debt for common stock
    
    
    
    
    
    
    204,008Exchange of subordinated debt and preferred stock for common stock
    
    
    
    
    
    
    (219,937
    )Loans transferred to other real estate owned
    
    
    25,061
    
    
    
    38,294Loans transferred to held for sale
    
    
    48,673
    
    
    
    Held for sale loans transferred to other real estate
    
    
    15,177
    
    
    
    10,247Accretion of preferred stock discount
    
    
    4,686
    
    
    
    4,399
  6




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##### Table of Contents



Part I  Financial Information
 
 Item 1
    
     Consolidated Financial Statements
 
 Notes to Consolidated Financial Statements (Unaudited)
 Citizens Republic Bancorp, Inc. and Subsidiaries
 Note 1. Basis of Presentation and Accounting Policies
 www.citizensbanking.com
  Discontinued Operations
  Written Agreement
  7




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##### Table of Contents



New Accounting Pronouncements
 The Financial Accounting Standards Board (FASB) Accounting Standards Codification (the
Codification or ASC)
 Accounting Standard Update (ASU)
 Statements of Financial Accounting Standards (SFAS)
 FASB ASU 2010-11, Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit
Derivatives
  FASB ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about
Fair Value Measurements
  SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (subsequently codified by ASU 2009-17,
Consolidations  Topic 810)
  SFAS No. 166, Accounting for Transfers of Financial Assets (subsequently codified by ASU 2009-16,
Transfers and Servicing  Topic 860)
  Note 2. Pending Accounting Pronouncements
 FASB ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses
  8




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##### Table of Contents



Note 3. Investment Securities
  September 30, 2010
    
    
    December 31, 2009Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Gross Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Gross Unrealized(in thousands)
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    LossesSecurities available for sale:Federal agencies
    
    $
    20,520
    
    
    $
    20,774
    
    
    $
    254
    
    
    $
    
    
    
    $
    135,793
    
    
    $
    138,644
    
    
    $
    2,851
    
    
    $
    Collateralized mortgage obligations
    
    
    579,877
    
    
    
    590,415
    
    
    
    13,485
    
    
    
    2,947
    
    
    
    393,143
    
    
    
    382,943
    
    
    
    5,138
    
    
    
    15,338Mortgage-backed
    
    
    1,383,663
    
    
    
    1,432,326
    
    
    
    48,868
    
    
    
    205
    
    
    
    1,061,015
    
    
    
    1,093,598
    
    
    
    33,791
    
    
    
    1,208State and municipal
    
    
    206,688
    
    
    
    213,580
    
    
    
    7,137
    
    
    
    245
    
    
    
    432,795
    
    
    
    443,663
    
    
    
    11,544
    
    
    
    676Other
    
    
    1,359
    
    
    
    1,357
    
    
    
    19
    
    
    
    21
    
    
    
    17,951
    
    
    
    17,946
    
    
    
    6
    
    
    
    11Total available for sale
    
    $
    2,192,107
    
    
    $
    2,258,452
    
    
    $
    69,763
    
    
    $
    3,418
    
    
    $
    2,040,697
    
    
    $
    2,076,794
    
    
    $
    53,330
    
    
    $
    17,233Securities held to maturity:State and municipalTotal held to maturity
    
    $
    112,029
    
    
    $
    118,155
    
    
    $
    6,143
    
    
    $
    17
    
    
    $
    114,249
    
    
    $
    116,368
    
    
    $
    2,531
    
    
    $
    412FHLB and Fed Reserve stock
    
    $
    157,304
    
    
    $
    157,304
    
    
    $
    
    
    
    $
    
    
    
    $
    155,084
    
    
    $
    155,084
    
    
    $
    
    
    
    $
    
   September 30, 2010Amortized
    
    
    Estimated Fair(in thousands)
    
    Cost
    
    
    ValueSecurities available for sale:Federal agencies and state and municipalContractual maturity within one year
    
    $
    47,810
    
    
    $
    48,419After one year through five years
    
    
    39,719
    
    
    
    40,947After five years through ten years
    
    
    80,056
    
    
    
    83,190After ten years
    
    
    59,623
    
    
    
    61,798Subtotal
    
    
    227,208
    
    
    
    234,354Collateralized mortgage obligations and mortgage-backed
    
    
    1,963,540
    
    
    
    2,022,741Other
    
    
    1,359
    
    
    
    1,357Total available for sale
    
    $
    2,192,107
    
    
    $
    2,258,452Securities held to maturity:State and municipalContractual maturity within one year
    
    $
    1,202
    
    
    $
    1,231After one year through five years
    
    
    1,717
    
    
    
    1,803After five years through ten years
    
    
    51,500
    
    
    
    54,782After ten years
    
    
    57,610
    
    
    
    60,339Total held to maturity
    
    $
    112,029
    
    
    $
    118,155
 9




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##### Table of Contents



Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalSeptember 30, 2010
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesSecurities available for sale:Collateralized mortgage
obligations
    
    $
    40,910
    
    
    $
    145
    
    
    $
    33,456
    
    
    $
    2,802
    
    
    $
    74,366
    
    
    $
    2,947Mortgage-backed
    
    
    42,761
    
    
    
    202
    
    
    
    138
    
    
    
    3
    
    
    
    42,899
    
    
    
    205State and municipal
    
    
    1,962
    
    
    
    7
    
    
    
    4,251
    
    
    
    238
    
    
    
    6,213
    
    
    
    245Other
    
    
    42
    
    
    
    1
    
    
    
    119
    
    
    
    20
    
    
    
    161
    
    
    
    21Total available for sale
    
    $
    85,675
    
    
    $
    355
    
    
    $
    37,964
    
    
    $
    3,063
    
    
    $
    123,639
    
    
    $
    3,418Securities held to maturity:State and municipalTotal held to maturity
    
    $
    1,761
    
    
    $
    17
    
    
    $
    
    
    
    $
    
    
    
    $
    1,761
    
    
    $
    17Total
    
    $
    87,436
    
    
    $
    372
    
    
    $
    37,964
    
    
    $
    3,063
    
    
    $
    125,400
    
    
    $
    3,435
  Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalDecember 31, 2009
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesSecurities available for sale:Collateralized mortgage
obligations
    
    $
    51,983
    
    
    $
    452
    
    
    $
    146,024
    
    
    $
    14,886
    
    
    $
    198,007
    
    
    $
    15,338Mortgage-backed
    
    
    109,134
    
    
    
    1,202
    
    
    
    251
    
    
    
    6
    
    
    
    109,385
    
    
    
    1,208State and municipal
    
    
    29,055
    
    
    
    401
    
    
    
    9,323
    
    
    
    275
    
    
    
    38,378
    
    
    
    676Other
    
    
    
    
    
    
    
    
    
    
    312
    
    
    
    11
    
    
    
    312
    
    
    
    11Total available for sale
    
    $
    190,172
    
    
    $
    2,055
    
    
    $
    155,910
    
    
    $
    15,178
    
    
    $
    346,082
    
    
    $
    17,233Securities held to maturity:State and municipalTotal held to maturity
    
    $
    16,778
    
    
    $
    284
    
    
    $
    1,438
    
    
    $
    128
    
    
    $
    18,216
    
    
    $
    412Total
    
    $
    206,950
    
    
    $
    2,339
    
    
    $
    157,348
    
    
    $
    15,306
    
    
    $
    364,298
    
    
    $
    17,645
  10




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##### Table of Contents



Note 4. Allowance for Loan Losses and Impaired Loans
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Allowance for loan losses  beginning of period
    
    $
    321,841
    
    
    $
    330,217
    
    
    $
    338,940
    
    
    $
    252,938Provision for loan losses
    
    
    89,617
    
    
    
    77,393
    
    
    
    261,586
    
    
    
    239,813Charge-offs:Commercial and industrial
    
    
    8,144
    
    
    
    21,141
    
    
    
    34,010
    
    
    
    39,094Commercial real estate
    
    
    45,910
    
    
    
    32,076
    
    
    
    113,069
    
    
    
    82,151Total commercial
    
    
    54,054
    
    
    
    53,217
    
    
    
    147,079
    
    
    
    121,245Residential mortgage
    
    
    23,353
    
    
    
    9,969
    
    
    
    104,787
    
    
    
    12,933Direct consumer
    
    
    10,256
    
    
    
    6,617
    
    
    
    23,691
    
    
    
    17,886Indirect consumer
    
    
    2,808
    
    
    
    3,812
    
    
    
    10,649
    
    
    
    14,360Charge-offs
    
    
    90,471
    
    
    
    73,615
    
    
    
    286,206
    
    
    
    166,424Recoveries:Commercial
    
    
    1,410
    
    
    
    995
    
    
    
    3,017
    
    
    
    4,142Commercial real estate
    
    
    579
    
    
    
    203
    
    
    
    2,727
    
    
    
    2,923Total commercial
    
    
    1,989
    
    
    
    1,198
    
    
    
    5,744
    
    
    
    7,065Residential mortgage
    
    
    15
    
    
    
    5
    
    
    
    678
    
    
    
    13Direct consumer
    
    
    452
    
    
    
    482
    
    
    
    1,290
    
    
    
    1,128Indirect consumer
    
    
    603
    
    
    
    590
    
    
    
    2,014
    
    
    
    1,737Recoveries
    
    
    3,059
    
    
    
    2,275
    
    
    
    9,726
    
    
    
    9,943Net charge-offs
    
    
    87,412
    
    
    
    71,340
    
    
    
    276,480
    
    
    
    156,481Allowance for loan losses  end of period
    
    $
    324,046
    
    
    $
    336,270
    
    
    $
    324,046
    
    
    $
    336,270
  11




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##### Table of Contents



Balances
    
    
    Allowance for Loan LossSeptember 30,
    
    
    December 31,
    
    
    September 30,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009BalancesImpaired loans with specific allocated allowance
    
    $
    184,229
    
    
    $
    162,962
    
    
    $
    60,854
    
    
    $
    52,840Impaired loans without specific allocated allowance
    
    
    95,677
    
    
    
    141,408
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    279,906
    
    
    $
    304,370
    
    
    $
    60,854
    
    
    $
    52,840Impaired loans on nonaccrual basis
    
    $
    279,743
    
    
    $
    304,370
    
    
    $
    60,823
    
    
    $
    52,840Impaired loans on accrual basis
    
    
    163
    
    
    
    
    
    
    
    31
    
    
    
    Total impaired loans
    
    $
    279,906
    
    
    $
    304,370
    
    
    $
    60,854
    
    
    $
    52,840
  Note 5. Goodwill
   (in thousands)
    
    Regional Banking
    
    
    Wealth Management
    
    
    Total GoodwillBalance at December 31, 2008
    
    $
    572,621
    
    
    $
    1,801
    
    
    $
    574,422Impairment Loss
    
    
    (256,272
    )
    
    
    
    
    
    
    (256,272
    )Balance at December 31, 2009 and
September 30, 2010
    
    $
    316,349
    
    
    $
    1,801
    
    
    $
    318,150
 Note 6. Long-Term Debt
  September 30,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009Citizens (Parent only):Subordinated debt:5.75% subordinated notes due February 2013
    
    $
    16,891
    
    
    $
    16,773Variable rate junior subordinated debenture due June 2033
    
    
    25,774
    
    
    
    25,7747.50% junior subordinated debentures due September 2066
    
    
    48,288
    
    
    
    48,010Subsidiaries:Federal Home Loan Bank advances
    
    
    990,168
    
    
    
    1,318,200Other borrowed funds
    
    
    104,201
    
    
    
    104,230Total long-term debt
    
    $
    1,185,322
    
    
    $
    1,512,987
 12




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##### Table of Contents



Note 7. Income Taxes
    Note 8. Accumulated Other Comprehensive Income (Loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    10,404
    
    
    $
    (27,379
    )
    
    $
    (7,093
    )
    
    $
    (49,594
    )Net unrealized gain on securities available for sale for the
quarter, net of tax effect of ($13,264) in 2009, and net
unrealized gain on securities for the nine months period,
net of tax effect of $810 in 2010 and ($29,805) in 2009
    
    
    7,107
    
    
    
    24,633
    
    
    
    11,626
    
    
    
    55,346Less: Reclassification adjustment for net gains on securities
included in net income for the quarter and year to date.
    
    
    
    
    
    
    
    
    
    
    14,067
    
    
    
    5Net change in unrealized loss on cash flow hedges for the
quarter, net of tax effect of $171 in 2009 and net change in
unrealized loss for the nine months period, net of tax effect of
$2,863 in 2009
    
    
    (1,897
    )
    
    
    (318
    )
    
    
    (2,986
    )
    
    
    (5,317
    )Net change in unrecognized pension and postretirement costs,
net of tax effect of $1,887 in 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,504
    )Accumulated other comprehensive income (loss), net of tax
    
    $
    15,614
    
    
    $
    (3,064
    )
    
    $
    15,614
    
    
    $
    (3,064
    )
  Note 9. Fair Values of Assets and Liabilities
   13




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##### Table of Contents



September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    Estimated(in thousands)
    
    Amount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueFinancial assets:Cash and due from banks
    
    $
    142,025
    
    
    $
    142,025
    
    
    $
    156,093
    
    
    $
    156,093Money market investments
    
    
    530,169
    
    
    
    530,169
    
    
    
    686,285
    
    
    
    686,285Securities available for sale
    
    
    2,258,452
    
    
    
    2,258,452
    
    
    
    2,076,794
    
    
    
    2,076,794Securities held to maturity
    
    
    112,029
    
    
    
    118,155
    
    
    
    114,249
    
    
    
    116,368FHLB and Federal Reserve stock
    
    
    157,304
    
    
    
    157,304
    
    
    
    155,084
    
    
    
    155,084Net portfolio loans
    
    
    6,563,959
    
    
    
    5,758,801
    
    
    
    7,448,965
    
    
    
    6,447,963Deferred compensation assets
    
    
    10,404
    
    
    
    10,404
    
    
    
    11,138
    
    
    
    11,138Loans held for sale
    
    
    52,191
    
    
    
    52,191
    
    
    
    80,219
    
    
    
    80,219Accrued interest receivable
    
    
    35,818
    
    
    
    35,818
    
    
    
    41,387
    
    
    
    41,387Financial liabilities:Deposits
    
    
    8,100,946
    
    
    
    8,153,657
    
    
    
    8,500,763
    
    
    
    8,534,799Short-term borrowings
    
    
    43,044
    
    
    
    43,044
    
    
    
    39,800
    
    
    
    39,800Long-term debt
    
    
    1,185,322
    
    
    
    1,249,608
    
    
    
    1,512,987
    
    
    
    1,565,649Accrued interest payable
    
    
    10,434
    
    
    
    10,434
    
    
    
    9,808
    
    
    
    9,808Financial instruments with off-balance sheet risk(1):Letters of credit(2)
    
    
    (1,036
    )
    
    
    (5,114
    )
    
    
    (913
    )
    
    
    (5,185
    )Derivative instruments
    
    
    10,283
    
    
    
    10,283
    
    
    
    17,959
    
    
    
    17,959
 
 (1)
    
    Positive amounts represent assets, whereas negative amounts represent liabilities.(2)
    
    The carrying amount for letters of credit is part of the total carrying amount of net loans. It is shown here separately
to disclose the estimated fair value which is based on a discounted cash flow method utilizing current market pricing. This amount is not included in the net loans estimate of fair value. 14




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##### Table of Contents



Securities Available for Sale.
  Securities Held to Maturity.
 FHLB and Federal Reserve Stock.
 Net Portfolio Loans.
 Deposits.
 Short-Term Borrowings.
 Long-Term Debt.
 Derivative Instruments.
 15




---



##### Table of Contents



Deferred Compensation Assets.
 Impaired Loans.
 Residential Mortgage Loans Held for Sale.
 Other Real Estate.
 Repossessed Assets.
  16




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##### Table of Contents



September 30, 2010(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Securities available for sale:Federal agencies
    
    $
    20,774
    
    
    $
    
    
    
    $
    20,774
    
    
    $
    Collateralized mortgage obligations
    
    
    590,415
    
    
    
    
    
    
    
    590,403
    
    
    
    12Mortgage-backed
    
    
    1,432,326
    
    
    
    
    
    
    
    1,432,326
    
    
    
    State and municipal
    
    
    213,580
    
    
    
    
    
    
    
    208,749
    
    
    
    4,831Other
    
    
    1,357
    
    
    
    
    
    
    
    1,024
    
    
    
    333Total available for sale
    
    
    2,258,452
    
    
    
    
    
    
    
    2,253,276
    
    
    
    5,176Other assets:Derivatives designated as hedging instruments
    
    
    10,363
    
    
    
    
    
    
    
    10,363
    
    
    
    Derivatives not designated as hedging instruments
    
    
    35,344
    
    
    
    
    
    
    
    35,344
    
    
    
    Deferred compensation assets
    
    
    10,404
    
    
    
    7,133
    
    
    
    3,271
    
    
    
    Total other assets
    
    
    56,111
    
    
    
    7,133
    
    
    
    48,978
    
    
    
    Total assets at fair value
    
    $
    2,314,563
    
    
    $
    7,133
    
    
    $
    2,302,254
    
    
    $
    5,176Other liabilities:Derivatives not designated as hedging instruments
    
    $
    35,424
    
    
    $
    
    
    
    $
    35,424
    
    
    $
    Total other liabilities
    
    
    35,424
    
    
    
    
    
    
    
    35,424
    
    
    
    Total liabilities at fair value
    
    $
    35,424
    
    
    $
    
    
    
    $
    35,424
    
    
    $
    
  Net Realized/Unrealized Gains (Losses)Recorded inBalance at
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Purchases, Sales
    
    
    Transfers In
    
    
    Balance atBeginning
    
    
    Recorded in Earnings
    
    
    Comprehensive
    
    
    Issuances and
    
    
    and /or Out
    
    
    End of(in thousands)
    
    of Period
    
    
    Realized(1)
    
    
    Unrealized
    
    
    Income (Pretax)
    
    
    Settlements, Net
    
    
    of Level 3
    
    
    PeriodThree Months Ended September 30, 2010Securities available for saleCollateralized mortgage obligations
    
    $
    12
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12State and municipal
    
    
    4,884
    
    
    
    33
    
    
    
    
    
    
    
    (12
    )
    
    
    (74
    )
    
    
    
    
    
    
    4,831Other
    
    
    329
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333Total available for sale
    
    $
    5,225
    
    
    $
    37
    
    
    $
    
    
    
    $
    (12
    )
    
    $
    (74
    )
    
    $
    
    
    
    $
    5,176Nine Months Ended September 30, 2010Securities available for saleCollateralized mortgage obligations
    
    $
    15
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (3
    )
    
    $
    
    
    
    $
    12State and municipal
    
    
    5,353
    
    
    
    128
    
    
    
    
    
    
    
    (18
    )
    
    
    (632
    )
    
    
    
    
    
    
    4,831Other
    
    
    323
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333Total available for sale
    
    $
    5,691
    
    
    $
    138
    
    
    $
    
    
    
    $
    (18
    )
    
    $
    (635
    )
    
    $
    
    
    
    $
    5,176
 
 (1)
    
    Recorded through Interest Income on the Consolidated Statement of Operations. 17




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##### Table of Contents



September 30, 2010
    
    Initial Carrying
    
    
    Fair Value(in thousands)
    
    Value
    
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Impaired loans
    
    $
    355,522
    
    
    $
    179,564
    
    
    $
    
    
    
    $
    
    
    
    $
    179,564Commercial loans held for sale
    
    
    26,996
    
    
    
    16,845
    
    
    
    
    
    
    
    
    
    
    
    16,845Residential mortgage loans held for sale
    
    
    39,052
    
    
    
    13,016
    
    
    
    
    
    
    
    
    
    
    
    13,016Other real estate
    
    
    18,486
    
    
    
    9,872
    
    
    
    
    
    
    
    
    
    
    
    9,872Repossessed assets
    
    
    3,326
    
    
    
    1,397
    
    
    
    
    
    
    
    
    
    
    
    1,397Total assets
    
    $
    443,382
    
    
    $
    220,694
    
    
    $
    
    
    
    $
    
    
    
    $
    220,694
 Note 10. Pension Benefit Cost
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Defined Benefit Pension PlansInterest cost
    
    $
    1,037
    
    
    $
    1,104
    
    
    $
    3,115
    
    
    $
    3,315Expected return on plan assets
    
    
    (1,200
    )
    
    
    (1,570
    )
    
    
    (3,600
    )
    
    
    (4,710
    )Amortization of unrecognized:Prior service cost
    
    
    8
    
    
    
    7
    
    
    
    22
    
    
    
    22Net actuarial loss
    
    
    555
    
    
    
    335
    
    
    
    1,666
    
    
    
    1,005Net pension cost
    
    
    400
    
    
    
    (124
    )
    
    
    1,203
    
    
    
    (368
    )Supplemental Pension PlansInterest cost
    
    
    187
    
    
    
    130
    
    
    
    563
    
    
    
    446Settlement charge related to lump sum payments
    
    
    
    
    
    
    455
    
    
    
    
    
    
    
    455Curtailment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    941Amortization of unrecognized:Net actuarial loss
    
    
    3
    
    
    
    4
    
    
    
    9
    
    
    
    10Net pension cost
    
    
    190
    
    
    
    589
    
    
    
    572
    
    
    
    1,852Postretirement Benefit PlansInterest cost
    
    
    152
    
    
    
    152
    
    
    
    455
    
    
    
    455Amortization of unrecognized:Prior service cost
    
    
    (67
    )
    
    
    (67
    )
    
    
    (201
    )
    
    
    (201
    )Net actuarial gain
    
    
    (8
    )
    
    
    (8
    )
    
    
    (24
    )
    
    
    (24
    )Net postretirement benefit cost
    
    
    77
    
    
    
    77
    
    
    
    230
    
    
    
    230Total pension and postretirement benefit cost
    
    
    667
    
    
    
    542
    
    
    
    2,005
    
    
    
    1,714Defined contribution retirement and 401K PlansEmployer contributions
    
    
    
    
    
    
    219
    
    
    
    
    
    
    
    2,190Total periodic benefit cost
    
    $
    667
    
    
    $
    761
    
    
    $
    2,005
    
    
    $
    3,904
  18




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##### Table of Contents



September 30, 2010(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Asset CategoryShort-term pooled money fund
    
    $
    456
    
    
    $
    
    
    
    $
    456
    
    
    $
    Equity securitiesLarge cap (1)
    
    
    17,679
    
    
    
    
    
    
    
    17,679
    
    
    
    Mid-cap
    
    
    4,572
    
    
    
    
    
    
    
    4,572
    
    
    
    Small-cap
    
    
    6,460
    
    
    
    
    
    
    
    6,460
    
    
    
    International equity
    
    
    9,960
    
    
    
    
    
    
    
    9,960
    
    
    
    Fixed income securitiesIntermediate term fixed (2)
    
    
    23,650
    
    
    
    
    
    
    
    23,650
    
    
    
    Total
    
    $
    62,777
    
    
    $
    
    
    
    $
    62,777
    
    
    $
    
 
 (1)
    
    This category is comprised of not actively managed low-cost equity index
funds that track the S&P 500 and Russell 1000.(2)
    
    This category represents investment grade bonds of U.S. issuers from diverse industries. Note 11. Stock-Based Compensation
   19




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Stock option compensation
    
    $
    
    
    
    $
    2
    
    
    $
    
    
    
    $
    9Restricted stock compensation and restricted stock unit compensation
    
    
    439
    
    
    
    735
    
    
    
    1,568
    
    
    
    1,342Stock-based compensation expense before income taxes
    
    
    439
    
    
    
    737
    
    
    
    1,568
    
    
    
    1,351Income tax benefit (1)
    
    
    (154
    )
    
    
    (258
    )
    
    
    (549
    )
    
    
    (473
    )Total stock-based compensation expense after income taxes
    
    $
    285
    
    
    $
    479
    
    
    $
    1,019
    
    
    $
    878
 
 (1)
    
    The income tax benefit is calculated based on the statutory rate. Due to
the fact that Citizens has a valuation allowance, the income tax benefit may not be realized.     Weighted-AverageNumber of
    
    
    Per Share GrantShares
    
    
    Date Fair ValueRestricted stock at December 31, 2009
    
    
    618,759
    
    
    $
    6.35Granted
    
    
    2,992,685
    
    
    
    1.18Vested
    
    
    (277,738
    )
    
    
    5.84Forfeited
    
    
    (276,426
    )
    
    
    1.91Restricted stock at September 30, 2010
    
    
    3,057,280
    
    
    $
    1.74
  Note 12. Shareholders Equity and Earnings Per Share
    20




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands, except per share amounts)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Loss from continuing operations
    
    $
    (62,471
    )
    
    $
    (57,403
    )
    
    $
    (182,950
    )
    
    $
    (439,861
    )Dividend on redeemable preferred stock
    
    
    (5,451
    )
    
    
    (5,224
    )
    
    
    (16,139
    )
    
    
    (14,523
    )Net loss from continuing operations available to common shareholders
    
    
    (67,922
    )
    
    
    (62,627
    )
    
    
    (199,089
    )
    
    
    (454,384
    )Income (loss) from discontinued operations (net of income tax)
    
    
    
    
    
    
    480
    
    
    
    (3,822
    )
    
    
    (9,624
    )Net loss attributable to common shareholders
    
    $
    (67,922
    )
    
    $
    (62,147
    )
    
    $
    (202,911
    )
    
    $
    (464,008
    )Denominator:Weighted average shares outstanding
    
    
    397,008
    
    
    
    129,170
    
    
    
    395,830
    
    
    
    127,231Less: participating securities included in weighted average shares outstanding
    
    
    (2,987
    )
    
    
    (703
    )
    
    
    (1,950
    )
    
    
    (778
    )Weighted average shares outstanding for basic and dilutive earnings per
common share
    
    
    394,021
    
    
    
    128,467
    
    
    
    393,880
    
    
    
    126,453Basic earnings (loss) per common share from continuing operations
    
    $
    (0.17
    )
    
    $
    (0.49
    )
    
    $
    (0.51
    )
    
    $
    (3.59
    )Diluted earnings (loss) per common share from continuing operations
    
    $
    (0.17
    )
    
    $
    (0.49
    )
    
    $
    (0.51
    )
    
    $
    (3.59
    )Basic earnings (loss) per common share from discontinued operations
    
    $
    
    
    
    $
    0.01
    
    
    $
    (0.01
    )
    
    $
    (0.08
    )Diluted earnings (loss) per common share from discontinued operations
    
    $
    
    
    
    $
    0.01
    
    
    $
    (0.01
    )
    
    $
    (0.08
    )Basic net loss per common share
    
    $
    (0.17
    )
    
    $
    (0.48
    )
    
    $
    (0.52
    )
    
    $
    (3.67
    )Diluted net loss per common share
    
    $
    (0.17
    )
    
    $
    (0.48
    )
    
    $
    (0.52
    )
    
    $
    (3.67
    )
 Note 13. Lines of Business
  21




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##### Table of Contents



Regional
    
    
    Specialty
    
    
    Specialty
    
    
    Wealth(in thousands)
    
    Banking
    
    
    Consumer
    
    
    Commercial
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary  Three Months Ended September 30, 2010Net interest income (taxable equivalent)
    
    $
    64,340
    
    
    $
    8,046
    
    
    $
    15,653
    
    
    $
    171
    
    
    $
    (4,280
    )
    
    $
    83,930Provision for loan losses
    
    
    39,939
    
    
    
    26,898
    
    
    
    22,780
    
    
    
    
    
    
    
    
    
    
    
    89,617Net interest loss after provision
    
    
    24,401
    
    
    
    (18,852
    )
    
    
    (7,127
    )
    
    
    171
    
    
    
    (4,280
    )
    
    
    (5,687
    )Noninterest income
    
    
    16,814
    
    
    
    (315
    )
    
    
    387
    
    
    
    5,190
    
    
    
    3,880
    
    
    
    25,956Noninterest expense
    
    
    52,524
    
    
    
    8,954
    
    
    
    3,891
    
    
    
    3,981
    
    
    
    5,390
    
    
    
    74,740(Loss) income from continuing operations before income taxes
    
    
    (11,309
    )
    
    
    (28,121
    )
    
    
    (10,631
    )
    
    
    1,380
    
    
    
    (5,790
    )
    
    
    (54,471
    )Income tax provision (benefit) (taxable equivalent)
    
    
    (3,958
    )
    
    
    (9,842
    )
    
    
    (3,721
    )
    
    
    483
    
    
    
    25,038
    
    
    
    8,000Net (loss) income from continuing operations
    
    $
    (7,351
    )
    
    $
    (18,279
    )
    
    $
    (6,910
    )
    
    $
    897
    
    
    $
    (30,828
    )
    
    $
    (62,471
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    (7,351
    )
    
    $
    (18,279
    )
    
    $
    (6,910
    )
    
    $
    897
    
    
    $
    (30,828
    )
    
    $
    (62,471
    )Average assets(in millions)
    
    $
    4,060
    
    
    $
    1,737
    
    
    $
    1,516
    
    
    $
    15
    
    
    $
    3,475
    
    
    $
    10,803Earnings Summary  Three Months Ended September 30, 2009Net interest income (taxable equivalent)
    
    $
    69,786
    
    
    $
    6,092
    
    
    $
    16,228
    
    
    $
    156
    
    
    $
    (9,504
    )
    
    $
    82,758Provision for loan losses
    
    
    27,646
    
    
    
    16,615
    
    
    
    33,132
    
    
    
    
    
    
    
    
    
    
    
    77,393Net interest income after provision
    
    
    42,140
    
    
    
    (10,523
    )
    
    
    (16,904
    )
    
    
    156
    
    
    
    (9,504
    )
    
    
    5,365Noninterest income
    
    
    18,886
    
    
    
    65
    
    
    
    (43
    )
    
    
    5,311
    
    
    
    (13,523
    )
    
    
    10,696Noninterest expense
    
    
    54,010
    
    
    
    10,651
    
    
    
    4,358
    
    
    
    4,069
    
    
    
    8,378
    
    
    
    81,466Income (loss) from continuing operations before income taxes
    
    
    7,016
    
    
    
    (21,109
    )
    
    
    (21,305
    )
    
    
    1,398
    
    
    
    (31,405
    )
    
    
    (65,405
    )Income tax provision (benefit) (taxable equivalent)
    
    
    2,456
    
    
    
    (7,388
    )
    
    
    (7,457
    )
    
    
    489
    
    
    
    3,898
    
    
    
    (8,002
    )Net income (loss) from continuing operations
    
    $
    4,560
    
    
    $
    (13,721
    )
    
    $
    (13,848
    )
    
    $
    909
    
    
    $
    (35,303
    )
    
    $
    (57,403
    )Income (loss) from discontinued operations
    
    
    645
    
    
    
    (33
    )
    
    
    
    
    
    
    37
    
    
    
    (169
    )
    
    
    480Net income (loss)
    
    $
    5,205
    
    
    $
    (13,754
    )
    
    $
    (13,848
    )
    
    $
    946
    
    
    $
    (35,472
    )
    
    $
    (56,923
    )Average assets(in millions)
    
    $
    4,898
    
    
    $
    2,194
    
    
    $
    1,523
    
    
    $
    11
    
    
    $
    3,503
    
    
    $
    12,129
  Regional
    
    
    Specialty
    
    
    Specialty
    
    
    Wealth(in thousands)
    
    Banking
    
    
    Consumer
    
    
    Commercial
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary  Nine Months Ended September 30, 2010Net interest income (taxable equivalent)
    
    $
    194,404
    
    
    $
    23,843
    
    
    $
    48,446
    
    
    $
    489
    
    
    $
    (11,514
    )
    
    $
    255,668Provision for loan losses
    
    
    82,042
    
    
    
    73,911
    
    
    
    105,633
    
    
    
    
    
    
    
    
    
    
    
    261,586Net interest loss after provision
    
    
    112,362
    
    
    
    (50,068
    )
    
    
    (57,187
    )
    
    
    489
    
    
    
    (11,514
    )
    
    
    (5,918
    )Noninterest income
    
    
    48,231
    
    
    
    (5,374
    )
    
    
    (7,669
    )
    
    
    15,131
    
    
    
    20,312
    
    
    
    70,631Noninterest expense
    
    
    156,996
    
    
    
    32,316
    
    
    
    12,567
    
    
    
    12,437
    
    
    
    15,537
    
    
    
    229,853Income (loss) from continuing operations before income taxes
    
    
    3,597
    
    
    
    (87,758
    )
    
    
    (77,423
    )
    
    
    3,183
    
    
    
    (6,739
    )
    
    
    (165,140
    )Income tax provision (benefit) (taxable equivalent)
    
    
    1,259
    
    
    
    (30,715
    )
    
    
    (27,098
    )
    
    
    1,114
    
    
    
    73,250
    
    
    
    17,810Net income (loss) from continuing operations
    
    $
    2,338
    
    
    $
    (57,043
    )
    
    $
    (50,325
    )
    
    $
    2,069
    
    
    $
    (79,989
    )
    
    $
    (182,950
    )Income (loss) from discontinued operations
    
    
    850
    
    
    
    (138
    )
    
    
    175
    
    
    
    102
    
    
    
    (4,811
    )
    
    
    (3,822
    )Net income (loss)
    
    $
    3,188
    
    
    $
    (57,181
    )
    
    $
    (50,150
    )
    
    $
    2,171
    
    
    $
    (84,800
    )
    
    $
    (186,772
    )Average assets(in millions)
    
    $
    4,279
    
    
    $
    1,795
    
    
    $
    1,603
    
    
    $
    14
    
    
    $
    3,629
    
    
    $
    11,320Earnings Summary  Nine Months Ended September 30, 2009Net interest income (taxable equivalent)
    
    $
    200,974
    
    
    $
    19,560
    
    
    $
    46,306
    
    
    $
    420
    
    
    $
    (26,871
    )
    
    $
    240,389Provision for loan losses
    
    
    80,684
    
    
    
    53,426
    
    
    
    105,703
    
    
    
    
    
    
    
    
    
    
    
    239,813Net interest income after provision
    
    
    120,290
    
    
    
    (33,866
    )
    
    
    (59,397
    )
    
    
    420
    
    
    
    (26,871
    )
    
    
    576Noninterest income
    
    
    52,393
    
    
    
    217
    
    
    
    (8,381
    )
    
    
    14,685
    
    
    
    (10,055
    )
    
    
    48,859Noninterest expense
    
    
    425,172
    
    
    
    33,570
    
    
    
    13,673
    
    
    
    12,361
    
    
    
    18,994
    
    
    
    503,770(Loss) income from continuing operations before income taxes
    
    
    (252,489
    )
    
    
    (67,219
    )
    
    
    (81,451
    )
    
    
    2,744
    
    
    
    (55,920
    )
    
    
    (454,335
    )Income tax provision (benefit) (taxable equivalent)
    
    
    (88,371
    )
    
    
    (23,527
    )
    
    
    (28,508
    )
    
    
    960
    
    
    
    124,972
    
    
    
    (14,474
    )Net (loss) income from continuing operations
    
    $
    (164,118
    )
    
    $
    (43,692
    )
    
    $
    (52,943
    )
    
    $
    1,784
    
    
    $
    (180,892
    )
    
    $
    (439,861
    )(Loss) income from discontinued operations
    
    
    (9,193
    )
    
    
    (81
    )
    
    
    
    
    
    
    156
    
    
    
    (506
    )
    
    
    (9,624
    )Net (loss) income
    
    $
    (173,311
    )
    
    $
    (43,773
    )
    
    $
    (52,943
    )
    
    $
    1,940
    
    
    $
    (181,398
    )
    
    $
    (449,485
    )Average assets(in millions)
    
    $
    5,289
    
    
    $
    2,232
    
    
    $
    1,622
    
    
    $
    11
    
    
    $
    3,503
    
    
    $
    12,657
  Note 14. Commitments, Contingent Liabilities and Guarantees
  22




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September 30,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009Loan commitments and letters of credit:Commitments to extend credit
    
    $
    995,147
    
    
    $
    1,334,690Financial standby letters of credit
    
    
    176,449
    
    
    
    228,483Performance standby letters of credit
    
    
    7,240
    
    
    
    7,523Commercial letters of credit
    
    
    30
    
    
    
    23Total loan commitments and letters of credit
    
    $
    1,178,866
    
    
    $
    1,570,719
  Note 15. Derivatives and Hedging Activities
 Risk Management Objective of Using Derivatives
  Fair Values of Derivative Instruments on the Consolidated Balance Sheets
  Other Assets
    
    
    Other LiabilitiesSeptember 30,
    
    
    December 31,
    
    
    September 30,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Derivatives designated as hedging instrumentsInterest rate products
    
    $
    10,363
    
    
    $
    17,279
    
    
    $
    
    
    
    $
    Derivatives notdesignated as hedging
instrumentsInterest rate products
    
    
    35,344
    
    
    
    29,775
    
    
    
    35,424
    
    
    
    29,095Total derivatives
    
    $
    45,707
    
    
    $
    47,054
    
    
    $
    35,424
    
    
    $
    29,095
 Cash Flow Hedges of Interest Rate Risk
  23




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24




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##### Table of Contents



Derivative Impact on OCI gain (loss)
    
    
    Derivative Ineffectiveness gain (loss)LocationDerivatives
    
    
    
    
    
    
    
    
    
    Reclassified in
    
    
    Reclassified from
    
    
    Location RecognizedRelationship
    
    
    
    
    
    
    
    
    
    Statement of
    
    
    Accumulated OCI into
    
    
    in Statement of(in thousands)
    
    Recognized in OCI
    
    
    Operations
    
    
    Statement of Operations
    
    
    Operations
    
    
    AmountThree Months Ended
    
    
    
    
    
    
    Three Months Ended
    
    
    
    
    
    
    Three Months EndedSeptember 30,
    
    
    
    
    
    
    September 30,
    
    
    
    
    
    
    September 30,2010
    
    
    2009
    
    
    
    
    
    
    2010
    
    
    2009
    
    
    
    
    
    
    2010
    
    
    2009Cash flow hedges:Interest rate products
    
    $
    624
    
    
    $
    2,785
    
    
    Interest income
    
    $
    1,476
    
    
    $
    3,252Other income
    
    
    1,045
    
    
    
    
    
    
    Other income
    
    $
    233
    
    
    $
    63Total
    
    $
    624
    
    
    $
    2,785
    
    
    
    
    
    
    $
    2,521
    
    
    $
    3,252
    
    
    
    
    
    
    $
    233
    
    
    $
    63
 Derivative Impact on OCI gain (loss)
    
    
    Derivative Ineffectiveness gain (loss)LocationDerivatives
    
    
    
    
    
    
    
    
    
    Reclassified in
    
    
    Reclassified from
    
    
    Location RecognizedRelationship
    
    
    
    
    
    
    
    
    
    Statement of
    
    
    Accumulated OCI into
    
    
    in Statement of(in thousands)
    
    Recognized in OCI
    
    
    Operations
    
    
    Statement of Operations
    
    
    Operations
    
    
    AmountNine Months Ended
    
    
    
    
    
    
    Nine Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    
    September 30,
    
    
    
    
    
    
    September 30,2010
    
    
    2009
    
    
    
    
    
    
    2010
    
    
    2009
    
    
    
    
    
    
    2010
    
    
    2009Cash flow hedges:Interest rate products
    
    $
    5,167
    
    
    $
    2,135
    
    
    Interest income
    
    $
    5,408
    
    
    $
    10,071Other income
    
    
    2,745
    
    
    
    244
    
    
    Other income
    
    $
    321
    
    
    $
    (89
    )Total
    
    $
    5,167
    
    
    $
    2,135
    
    
    
    
    
    
    $
    8,153
    
    
    $
    10,315
    
    
    
    
    
    
    $
    321
    
    
    $
    (89
    )
 Fair Value Hedges of Interest Rate Risk
    Derivative Contract (Loss) Gain
    
    
    Hedged Item Gain (Loss)Derivatives
    
    Location in
    
    
    Three Months Ended
    
    
    Nine Months Ended
    
    
    Location in
    
    
    Three Months Ended
    
    
    Nine Months EndedRelationship
    
    Statement of
    
    
    September 30,
    
    
    September 30,
    
    
    Statement of
    
    
    September 30,
    
    
    September 30,(in thousands)
    
    Operations
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Operations
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Fair value hedges:Interest rate products
    
    Interest expense
    
    $
    (740
    )
    
    $
    195
    
    
    $
    (1,513
    )
    
    $
    (2,421
    )
    
    Interest expense
    
    $
    2,033
    
    
    $
    1,257
    
    
    $
    6,278
    
    
    $
    6,844
 25




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##### Table of Contents



Non-designated Hedges
   Location of (Loss)
    
    
    Amount of (Loss) Gain Recognized in Statement of OperationsGain Recognized in
    
    
    Three Months Ended
    
    
    Nine Months EndedDerivatives Relationship
    
    Statement of
    
    
    September 30,
    
    
    September 30,(in thousands)
    
    Operations
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Derivatives notdesignated as hedgesInterest rate products
    
    Other income
    
    $
    (68
    )
    
    $
    (1,018
    )
    
    $
    (826
    )
    
    $
    843
 Credit-Risk-Related Contingent Features
     Note 16. Discontinued Operations
  26




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##### Table of Contents



December 31,(in thousands)
    
    2009AssetsCash and due from banks
    
    $
    7,045Money market investments
    
    
    19,878Investment securities
    
    
    171,115FHLB and Federal Reserve stock
    
    
    1,193Net portfolio loans
    
    
    114,523Loans held for sale
    
    
    241Goodwill
    
    
    12,594Other assets
    
    
    9,372Assets of discontinued operations
    
    $
    335,961LiabilitiesDeposits
    
    $
    408,577Short-term borrowings
    
    
    11,263Long-term debt
    
    
    500Other liabilities
    
    
    1,987Liabilities of discontinued operations
    
    $
    422,327
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Interest income
    
    $
    
    
    
    $
    3,875
    
    
    $
    4,409
    
    
    $
    11,542Interest expense
    
    
    
    
    
    
    2,002
    
    
    
    1,844
    
    
    
    6,645Net interest income
    
    
    
    
    
    
    1,873
    
    
    
    2,565
    
    
    
    4,897Provision for loan losses
    
    
    
    
    
    
    390
    
    
    
    608
    
    
    
    1,950Noninterest income
    
    
    
    
    
    
    1,145
    
    
    
    (3,258
    )
    
    
    3,181Noninterest expense
    
    
    
    
    
    
    2,148
    
    
    
    2,191
    
    
    
    16,055Income tax expense (benefit) from
discontinued operations
    
    
    
    
    
    
    
    
    
    
    330
    
    
    
    (303
    )Net income (loss) from discontinued operations
    
    $
    
    
    
    $
    480
    
    
    $
    (3,822
    )
    
    $
    (9,624
    )
   27




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##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations
 September 30,
    
    
    June 30,
    
    
    March 31,
    
    
    December 31,
    
    
    September 30,Selected Quarterly Information
    
    2010
    
    
    2010
    
    
    2010
    
    
    2009
    
    
    2009Summary of Operations (thousands)Net interest income
    
    $
    81,558
    
    
    $
    84,586
    
    
    $
    81,189
    
    
    $
    81,913
    
    
    $
    79,013Provision for loan losses
    
    
    89,617
    
    
    
    70,614
    
    
    
    101,355
    
    
    
    84,007
    
    
    
    77,393Noninterest income (1)
    
    
    25,956
    
    
    
    22,282
    
    
    
    22,393
    
    
    
    14,274
    
    
    
    10,696Noninterest expense
    
    
    74,740
    
    
    
    77,010
    
    
    
    78,103
    
    
    
    81,369
    
    
    
    81,466Income tax provision (benefit) from continuing operations
    
    
    5,628
    
    
    
    3,700
    
    
    
    147
    
    
    
    (3,307
    )
    
    
    (11,747
    )Net loss from continuing operations
    
    
    (62,471
    )
    
    
    (44,456
    )
    
    
    (76,023
    )
    
    
    (65,883
    )
    
    
    (57,403
    )Discontinued operations (after tax)
    
    
    
    
    
    
    5,151
    
    
    
    (8,973
    )
    
    
    1,155
    
    
    
    480Net loss
    
    
    (62,471
    )
    
    
    (39,305
    )
    
    
    (84,996
    )
    
    
    (64,729
    )
    
    
    (56,923
    )Net loss attributable to common shareholders (2)
    
    
    (67,922
    )
    
    
    (44,711
    )
    
    
    (90,278
    )
    
    
    (69,981
    )
    
    
    (62,147
    )Taxable equivalent adjustment, continuing operations
    
    
    2,372
    
    
    
    2,605
    
    
    
    3,357
    
    
    
    3,721
    
    
    
    3,745Taxable equivalent adjustment, combined
    
    
    2,372
    
    
    
    2,656
    
    
    
    3,556
    
    
    
    3,932
    
    
    
    3,961Per Common Share DataNet loss from continuing operations:Basic
    
    $
    (0.17
    )
    
    $
    (0.12
    )
    
    $
    (0.21
    )
    
    $
    (0.18
    )
    
    $
    (0.49
    )Diluted
    
    
    (0.17
    )
    
    
    (0.12
    )
    
    
    (0.21
    )
    
    
    (0.18
    )
    
    
    (0.49
    )Discontinued operations:Basic
    
    $
    
    
    
    $
    0.01
    
    
    $
    (0.02
    )
    
    $
    
    
    
    $
    0.01Diluted
    
    
    
    
    
    
    0.01
    
    
    
    (0.02
    )
    
    
    
    
    
    
    0.01Net loss:Basic
    
    $
    (0.17
    )
    
    $
    (0.11
    )
    
    $
    (0.23
    )
    
    $
    (0.18
    )
    
    $
    (0.48
    )Diluted
    
    
    (0.17
    )
    
    
    (0.11
    )
    
    
    (0.23
    )
    
    
    (0.18
    )
    
    
    (0.48
    )Common book value
    
    
    2.22
    
    
    
    2.37
    
    
    
    2.46
    
    
    
    2.69
    
    
    
    2.87Tangible book value
    
    
    2.08
    
    
    
    2.24
    
    
    
    2.28
    
    
    
    2.50
    
    
    
    2.68Tangible common book value
    
    
    1.39
    
    
    
    1.54
    
    
    
    1.59
    
    
    
    1.81
    
    
    
    1.99Shares outstanding, end of period (000)
    
    
    397,071
    
    
    
    396,979
    
    
    
    394,392
    
    
    
    394,397
    
    
    
    394,470At Period End, Continuing Operations (millions)Assets
    
    $
    10,639
    
    
    $
    10,834
    
    
    $
    11,328
    
    
    $
    11,596
    
    
    $
    11,717Earning assets
    
    
    9,932
    
    
    
    10,098
    
    
    
    10,595
    
    
    
    10,864
    
    
    
    10,964Portfolio loans
    
    
    6,888
    
    
    
    7,138
    
    
    
    7,439
    
    
    
    7,788
    
    
    
    8,097Allowance for loan losses
    
    
    324
    
    
    
    322
    
    
    
    322
    
    
    
    339
    
    
    
    336Deposits
    
    
    8,101
    
    
    
    8,222
    
    
    
    8,481
    
    
    
    8,501
    
    
    
    8,389Shareholders equity
    
    
    1,157
    
    
    
    1,218
    
    
    
    1,244
    
    
    
    1,331
    
    
    
    1,403At Period End, Combined (millions)Assets
    
    $
    10,639
    
    
    $
    10,834
    
    
    $
    11,652
    
    
    $
    11,932
    
    
    $
    12,072Earning assets
    
    
    9,932
    
    
    
    10,098
    
    
    
    10,890
    
    
    
    11,169
    
    
    
    11,284Portfolio loans
    
    
    6,888
    
    
    
    7,138
    
    
    
    7,543
    
    
    
    7,906
    
    
    
    8,217Allowance for loan losses
    
    
    324
    
    
    
    322
    
    
    
    326
    
    
    
    342
    
    
    
    340Deposits
    
    
    8,101
    
    
    
    8,222
    
    
    
    8,892
    
    
    
    8,909
    
    
    
    8,792Shareholders equity
    
    
    1,157
    
    
    
    1,218
    
    
    
    1,244
    
    
    
    1,331
    
    
    
    1,403Average for the Quarter, Continuing Operations (millions)Assets
    
    $
    10,803
    
    
    $
    11,156
    
    
    $
    11,575
    
    
    $
    11,616
    
    
    $
    11,773Earning assets
    
    
    10,065
    
    
    
    10,432
    
    
    
    10,839
    
    
    
    10,874
    
    
    
    11,041Portfolio loans
    
    
    7,059
    
    
    
    7,318
    
    
    
    7,654
    
    
    
    7,964
    
    
    
    8,191Allowance for loan losses
    
    
    322
    
    
    
    322
    
    
    
    336
    
    
    
    337
    
    
    
    331Deposits
    
    
    8,198
    
    
    
    8,431
    
    
    
    8,544
    
    
    
    8,353
    
    
    
    8,392Shareholders equity
    
    
    1,215
    
    
    
    1,239
    
    
    
    1,323
    
    
    
    1,392
    
    
    
    1,228Average for the Quarter, Combined (millions)Assets
    
    $
    10,803
    
    
    $
    11,267
    
    
    $
    11,903
    
    
    $
    11,966
    
    
    $
    12,129Earning assets
    
    
    10,065
    
    
    
    10,535
    
    
    
    11,135
    
    
    
    11,190
    
    
    
    11,365Portfolio loans
    
    
    7,059
    
    
    
    7,344
    
    
    
    7,768
    
    
    
    8,084
    
    
    
    8,311Allowance for loan losses
    
    
    322
    
    
    
    323
    
    
    
    339
    
    
    
    340
    
    
    
    334Deposits
    
    
    8,198
    
    
    
    8,535
    
    
    
    8,947
    
    
    
    8,762
    
    
    
    8,786Shareholders equity
    
    
    1,215
    
    
    
    1,239
    
    
    
    1,323
    
    
    
    1,392
    
    
    
    1,228Financial Ratios, Continuing Operations (annualized)Return on average assets
    
    
    (2.29
    )%
    
    
    (1.60
    )%
    
    
    (2.66
    )%
    
    
    (2.25
    )%
    
    
    (1.93
    )%Return on average shareholders equity
    
    
    (20.40
    )
    
    
    (14.40
    )
    
    
    (23.30
    )
    
    
    (18.77
    )
    
    
    (18.55
    )Average shareholders equity / average assets
    
    
    11.25
    
    
    
    11.10
    
    
    
    11.43
    
    
    
    11.99
    
    
    
    10.43Net interest margin (FTE) (3)
    
    
    3.32
    
    
    
    3.35
    
    
    
    3.14
    
    
    
    3.13
    
    
    
    2.99Efficiency ratio (non-GAAP) (4)
    
    
    68.02
    
    
    
    75.93
    
    
    
    77.39
    
    
    
    81.45
    
    
    
    87.17Allowance for loan losses as a percent of portfolio loans
    
    
    4.70
    
    
    
    4.51
    
    
    
    4.33
    
    
    
    4.35
    
    
    
    4.15Allowance for loan losses as a percent of nonperforming loans
    
    
    88.98
    
    
    
    83.67
    
    
    
    77.94
    
    
    
    71.43
    
    
    
    67.16Allowance for loan losses as a percent of nonperforming assets
    
    
    73.10
    
    
    
    68.11
    
    
    
    57.96
    
    
    
    57.05
    
    
    
    55.40Nonperforming loans as a percent of portfolio loans
    
    
    5.29
    
    
    
    5.39
    
    
    
    5.56
    
    
    
    6.09
    
    
    
    6.18Nonperforming assets as a percent of portfolio loans plus ORAA (5)
    
    
    6.35
    
    
    
    6.53
    
    
    
    7.32
    
    
    
    7.50
    
    
    
    7.38Nonperforming assets as a percent of total assets
    
    
    4.17
    
    
    
    4.36
    
    
    
    4.91
    
    
    
    5.12
    
    
    
    5.18Net loans charged off as a percent of average portfolio loans (annualized)
    
    
    4.91
    
    
    
    3.90
    
    
    
    6.25
    
    
    
    4.05
    
    
    
    3.46Financial Ratios, Combined (annualized)Return on average assets
    
    
    (2.29
    )%
    
    
    (1.40
    )%
    
    
    (2.90
    )%
    
    
    (2.15
    )%
    
    
    (1.86
    )%Return on average shareholders equity
    
    
    (20.40
    )
    
    
    (12.73
    )
    
    
    (26.05
    )
    
    
    (18.44
    )
    
    
    (18.40
    )Average shareholders equity / average assets
    
    
    11.25
    
    
    
    10.99
    
    
    
    11.11
    
    
    
    11.64
    
    
    
    10.12Net interest margin (FTE) (3)
    
    
    3.32
    
    
    
    3.34
    
    
    
    3.14
    
    
    
    3.13
    
    
    
    2.97Efficiency ratio (non-GAAP) (4)
    
    
    68.02
    
    
    
    71.75
    
    
    
    84.99
    
    
    
    80.58
    
    
    
    86.48Allowance for loan losses as a percent of portfolio loans
    
    
    4.70
    
    
    
    4.51
    
    
    
    4.32
    
    
    
    4.33
    
    
    
    4.13Allowance for loan losses as a percent of nonperforming loans
    
    
    88.98
    
    
    
    83.67
    
    
    
    78.61
    
    
    
    72.01
    
    
    
    67.74Allowance for loan losses as a percent of nonperforming assets
    
    
    73.10
    
    
    
    68.11
    
    
    
    58.48
    
    
    
    57.54
    
    
    
    55.87Nonperforming loans as a percent of portfolio loans
    
    
    5.29
    
    
    
    5.39
    
    
    
    5.49
    
    
    
    6.01
    
    
    
    6.10Nonperforming assets as a percent of portfolio loans plus ORAA (5)
    
    
    6.35
    
    
    
    6.53
    
    
    
    7.24
    
    
    
    7.40
    
    
    
    7.29Nonperforming assets as a percent of total assets
    
    
    4.17
    
    
    
    4.36
    
    
    
    4.78
    
    
    
    4.99
    
    
    
    5.04Net loans charged off as a percent of average portfolio loans (annualized)
    
    
    4.91
    
    
    
    3.89
    
    
    
    6.16
    
    
    
    4.00
    
    
    
    3.41Leverage ratio
    
    
    8.50
    
    
    
    8.72
    
    
    
    8.47
    
    
    
    9.21
    
    
    
    9.63Tier 1 capital ratio
    
    
    12.41
    
    
    
    12.79
    
    
    
    12.12
    
    
    
    12.52
    
    
    
    12.83Total capital ratio
    
    
    13.80
    
    
    
    14.17
    
    
    
    13.49
    
    
    
    13.93
    
    
    
    14.23
 (1)
    
    Noninterest income includes a gain on investment securities of $6.0 million in
the first quarter of 2010 and a net loss on debt extinguishment of $15.9 million in the third
quarter of 2009.(2)
    
    Net loss attributable to common shareholders includes the following non-cash items:
$5.4 million dividend to preferred shareholders in the third and first quarters of 2010, $5.3
million in the second quarter of 2010 and $5.2 million dividend in the third quarter of 2009.(3)
    
    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%.(4)
    
    The Efficiency Ratio measures how efficiently a bank spends its revenues. The
formula is: (Noninterest expense  Goodwill impairment)/(Net interest income +
taxable equivalent adjustment + Total fees and other income).(5)
    
    Includes loans held for sale. 28




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##### Table of Contents



Introduction
  Discontinued Operations
  Forward  Looking Statements
   
    
    Citizens faces the risk that loan losses, including unanticipated loan losses due to
changes in loan portfolios, fraud and economic factors, could exceed the allowance for loan
losses and that additional increases in the allowance will be required. Additions to the
allowance for loan losses would cause Citizens net income to decline and could have a
negative impact on its capital and financial position.
    
    Citizens core lending and other businesses continue to be adversely affected by the
historic weakness in the national and regional economies in which it operates, particularly
Michigan. Citizens ability to generate earnings and maintain regulatory capital ratios at
acceptable levels at the Holding Company and the bank subsidiaries depends substantially on
developments in those economies. Also, Citizens potential inability to comply with
applicable laws, regulations and regulatory policies or standards due to the effects of these
conditions on its results of operations and financial condition may result in heightened
regulatory scrutiny and require Citizens to take actions to protect depositors that are not in
the best interests of its shareholders.
    
    Citizens business may be adversely affected by the highly regulated environment in which
it operates. Changes in applicable laws, regulations, and regulatory practices (including the
impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and related
regulations) at either the federal or state level may result in the imposition of additional
costs or restrict Citizens ability to operate its business in the manner most beneficial to
its shareholders.
    
    While Citizens attempts to manage the risk from changes in market interest rates, interest
rate risk management techniques are not exact. In addition, Citizens may not be able to
economically hedge its interest rate risk. A rapid or substantial increase or decrease in
interest rates could adversely affect Citizens net interest income and results of operations.
    
    The negative economic effects caused by terrorist attacks, potential attacks and other
destabilizing events, would likely contribute to the deterioration of the quality of Citizens
loan portfolio and could reduce its customer base, its level of deposits, and demand for its
financial products such as loans.
    
    If Citizens is unable to continue to attract and retain core deposits, to obtain third
party financing on favorable terms, or to have access to interbank or other liquidity sources
(as a result of rating agency downgrades or other market factors), its cost of funds will
increase, adversely affecting its ability to generate the funds necessary for lending
operations, reducing net interest margin and negatively affecting its results of operations.
 29




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##### Table of Contents




    
    Increased competition with other financial institutions or an adverse change in Citizens
relationship with a number of major customers could reduce its net interest margin and net
income by decreasing the number and size of loans originated, the interest rates charged on
these loans and the fees charged for services to customers.
    
    Events such as significant adverse changes in the business climate, adverse action by a
regulator, unanticipated changes in the competitive environment, and a decision to change
Citizens operations or dispose of an operating unit could have a negative effect on its
goodwill or other intangible assets such that it may need to record an impairment charge,
which could have a material adverse impact on its results of operations.
    
    If the FDIC raises the assessment rate charged to its insured financial institutions,
Citizens FDIC insurance premium may increase, which could have a negative effect on expenses
and results of operations.
    
    Citizens may not realize its deferred income tax assets and certain built-in losses.
    
    Citizens stock price can be volatile.
    
    The trading volume in Citizens common stock is less than that of other larger financial
services companies.
    
    If Citizens common stock fails to meet the listing requirements of Nasdaq and is delisted
from trading on the Nasdaq, the market price of its common stock could be adversely affected.
    
    An investment in Citizens common stock is not an insured deposit.
    
    Citizens may be adversely affected by the soundness of other financial institutions.
    
    Citizens could face unanticipated environmental liabilities or costs related to real
property owned or acquired through foreclosure. Compliance with federal, state and local
environmental laws and regulations, including those related to investigation and clean-up of
contaminated sites, could have a negative effect on expenses and results of operations.
    
    Citizens is a party to various lawsuits incidental to its business. Litigation is subject
to many uncertainties such that the expenses and ultimate exposure with respect to many of
these matters cannot be ascertained.
    
    The financial services industry is undergoing rapid technological changes. If Citizens is
unable to adequately invest in and implement new technology-driven products and services, it
may not be able to compete effectively, or the cost to provide products and services may
increase significantly.
    
    The products and services offered by the banking industry and customer expectations
regarding them are subject to change. Citizens attempts to respond to perceived customer needs
and expectations by offering new products and services, which are often costly to develop and
market initially. A lack of market acceptance of these products and services would have a
negative effect on its financial condition and results of operations.
    
    As a bank holding company that conducts substantially all of its operations through its
subsidiaries, the ability of the Holding Company to pay dividends, repurchase its shares or to
repay its indebtedness depends upon the results of operations of its subsidiaries and their
ability to pay dividends to the Holding Company. Dividends paid by these subsidiaries are
subject to limits imposed by federal and state law and are restricted by a supervisory
agreement with its regulators.
    
    In order to maintain and strengthen its capital base, Citizens may need to raise additional
capital in transactions that may be highly dilutive to its common shareholders. If such
capital becomes needed, Citizens failure to raise additional capital could have serious
consequences for its business.
    
    The Holding Company may not have sufficient resources to make capital contributions to its
bank subsidiaries if required by bank regulatory agencies, or if it might otherwise wish to do
so, in order to maintain the bank subsidiaries capital ratios at acceptable levels.
    
    Citizens may not be able to attract and retain skilled people. If Citizens were to lose
key employees, it may experience a disruption in its relationship with certain customers.
    
    New accounting or tax pronouncements or interpretations may be issued by the accounting
profession, regulators or other government bodies which could change existing accounting
methods. Changes in accounting methods could negatively impact Citizens results of operations
and financial condition.
    
    Citizens business continuity plans or data security systems could prove to be inadequate,
resulting in a material interruption in, or disruption to, its business and a negative impact
on its results of operations.
    
    Citizens vendors could fail to fulfill their contractual obligations, resulting in a
material interruption in, or disruption to, its business and a negative impact on its results
of operations.
    
    Citizens potential inability to integrate companies it may acquire in the future could
have a negative effect on its expenses and results of operations.
    
    Citizens controls and procedures may fail or be circumvented which could have a material
adverse effect on its business, results of operations and financial condition.
    
    Citizens articles of incorporation and bylaws as well as certain banking laws may have an
anti-takeover effect.
    
    The recently enacted Dodd-Frank Act may adversely impact Citizens results of operations,
financial condition or liquidity.
 30




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##### Table of Contents



www.sec.gov
 Recent Legislative Developments
  
    
    Centralize responsibility for consumer financial protection by creating a new agency, the
Consumer Financial Protection Bureau, responsible for implementing, examining, and enforcing
compliance with federal consumer financial laws.
    
    Create the Financial Stability Oversight Council that will recommend to the Federal Reserve
increasingly strict rules for capital, leverage, liquidity, risk management and other
requirements as companies grow in size and complexity.
    
    Provide mortgage reform provisions regarding a customers ability to repay, restricting
variable-rate lending by requiring that the ability to repay variable-rate loans be determined
by using the maximum rate that will apply during the first five years of a variable-rate loan
term, and making more loans subject to provisions for higher cost loans, new disclosures, and
certain other revisions.
    
    Change the assessment base for federal deposit insurance from the amount of insured
deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of
the Deposit Insurance Fund (DIF), and increase the floor on the size of the DIF, which
generally will require an increase in the level of assessments for institutions with assets in
excess of $10 billion.
    
    Make permanent the $250,000 limit for federal deposit insurance and provide unlimited
federal deposit insurance until January 1, 2013 for non-interest bearing demand transaction
accounts at all insured depository institutions.
    
    Implement corporate governance revisions, including with regard to executive compensation
and proxy access by shareholders, that apply to all public companies, not just financial
institutions.
    
    Repeal the federal prohibitions on the payment of interest on demand deposits, thereby
permitting depository institutions to pay interest on business transaction and other accounts.
    
    Amend the Electronic Fund Transfer Act (EFTA) to, among other things, give the Federal
Reserve the authority to establish rules regarding interchange fees charged for electronic
debit transactions by payment card issuers having assets over $10 billion and to enforce a new
statutory requirement that such fees be reasonable and proportional to the actual cost of a
transaction to the issuer.
 Critical Accounting Policies
  31




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##### Table of Contents



Use of Non-GAAP Financial Measures
  Tangible Equity, Tangible Common Equity and Tier 1 Common Equity Ratios (non-GAAP financial
measures)
  32




---



##### Table of Contents



Pre-tax Pre-Provision Profit (non-GAAP financial measure)
    Net Interest Margin and Efficiency Ratio (non-GAAP financial measures)
  33




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##### Table of Contents



Non-GAAP Reconciliation
    
    September 30,
    
    
    June 30,
    
    
    March 31,
    
    
    December 31,
    
    
    September 30,(in thousands)
    
    2010
    
    
    2010
    
    
    2010
    
    
    2009
    
    
    2009Efficiency Ratio  Continuing OperationsNet interest income (A)
    
    $
    81,558
    
    
    $
    84,586
    
    
    $
    81,189
    
    
    $
    81,913
    
    
    $
    79,013Taxable equivalent adjustment (B)
    
    
    2,372
    
    
    
    2,605
    
    
    
    3,357
    
    
    
    3,721
    
    
    
    3,745Investment securities gain (C)
    
    
    
    
    
    
    8,051
    
    
    
    6,016
    
    
    
    
    
    
    
    Noninterest income (D)
    
    
    25,956
    
    
    
    22,282
    
    
    
    22,393
    
    
    
    14,274
    
    
    
    10,696Noninterest expense (E)
    
    
    74,740
    
    
    
    77,010
    
    
    
    78,103
    
    
    
    81,369
    
    
    
    81,466Efficiency ratio: E/(A+B-C+D)(non-GAAP)
    
    
    68.02
    %
    
    
    75.93
    %
    
    
    77.39
    %
    
    
    81.45
    %
    
    
    87.17
    %Efficiency Ratio  Combined OperationsNet interest income (A)
    
    $
    81,558
    
    
    $
    85,115
    
    
    $
    83,224
    
    
    $
    83,935
    
    
    $
    80,885Taxable equivalent adjustment (B)
    
    
    2,372
    
    
    
    2,656
    
    
    
    3,556
    
    
    
    3,932
    
    
    
    3,961Investment securities gain (C)
    
    
    
    
    
    
    8,051
    
    
    
    6,016
    
    
    
    
    
    
    
    Noninterest income (D)
    
    
    25,956
    
    
    
    28,275
    
    
    
    13,142
    
    
    
    15,381
    
    
    
    11,842Noninterest expense (E)
    
    
    74,740
    
    
    
    77,492
    
    
    
    79,811
    
    
    
    83,197
    
    
    
    83,614Efficiency ratio: E/(A+B-C+D)(non-GAAP)
    
    
    68.02
    %
    
    
    71.75
    %
    
    
    84.99
    %
    
    
    80.58
    %
    
    
    86.48
    %Ending Balances  Combined Operations (in millions)Tangible Common Equity to Tangible AssetsTotal assets
    
    $
    10,639
    
    
    $
    10,834
    
    
    $
    11,652
    
    
    $
    11,932
    
    
    $
    12,072Goodwill(1)
    
    
    (318
    )
    
    
    (318
    )
    
    
    (331
    )
    
    
    (331
    )
    
    
    (331
    )Other intangible assets
    
    
    (11
    )
    
    
    (12
    )
    
    
    (13
    )
    
    
    (14
    )
    
    
    (16
    )Tangible assets (non-GAAP)
    
    $
    10,310
    
    
    $
    10,504
    
    
    $
    11,308
    
    
    $
    11,587
    
    
    $
    11,725Total shareholders equity
    
    $
    1,157
    
    
    $
    1,218
    
    
    $
    1,244
    
    
    $
    1,331
    
    
    $
    1,403Goodwill(1)
    
    
    (318
    )
    
    
    (318
    )
    
    
    (331
    )
    
    
    (331
    )
    
    
    (331
    )Other intangible assets
    
    
    (11
    )
    
    
    (12
    )
    
    
    (13
    )
    
    
    (14
    )
    
    
    (16
    )Tangible equity (non-GAAP)
    
    $
    828
    
    
    $
    888
    
    
    $
    900
    
    
    $
    986
    
    
    $
    1,056Tangible equity
    
    $
    828
    
    
    $
    888
    
    
    $
    900
    
    
    $
    986
    
    
    $
    1,056Preferred stock
    
    
    (277
    )
    
    
    (275
    )
    
    
    (274
    )
    
    
    (272
    )
    
    
    (270
    )Tangible common equity (non-GAAP)
    
    $
    551
    
    
    $
    613
    
    
    $
    626
    
    
    $
    714
    
    
    $
    786Tier 1 Common EquityTotal shareholders equity
    
    $
    1,157
    
    
    $
    1,218
    
    
    $
    1,244
    
    
    $
    1,331
    
    
    $
    1,403Qualifying capital securities
    
    
    74
    
    
    
    74
    
    
    
    74
    
    
    
    74
    
    
    
    74Goodwill(1)
    
    
    (318
    )
    
    
    (318
    )
    
    
    (331
    )
    
    
    (331
    )
    
    
    (331
    )Accumulated other comprehensive (income) loss
    
    
    (16
    )
    
    
    (10
    )
    
    
    6
    
    
    
    7
    
    
    
    3Other intangible assets
    
    
    (11
    )
    
    
    (12
    )
    
    
    (13
    )
    
    
    (14
    )
    
    
    (16
    )Tier 1 capital (regulatory)
    
    $
    886
    
    
    $
    952
    
    
    $
    980
    
    
    $
    1,067
    
    
    $
    1,133Tier 1 capital (regulatory)
    
    $
    886
    
    
    $
    952
    
    
    $
    980
    
    
    $
    1,067
    
    
    $
    1,133Qualifying capital securities
    
    
    (74
    )
    
    
    (74
    )
    
    
    (74
    )
    
    
    (74
    )
    
    
    (74
    )Preferred stock
    
    
    (277
    )
    
    
    (275
    )
    
    
    (274
    )
    
    
    (272
    )
    
    
    (270
    )Total Tier 1 common equity (non-GAAP)
    
    $
    535
    
    
    $
    603
    
    
    $
    632
    
    
    $
    721
    
    
    $
    789Net risk-weighted assets (regulatory)
    
    $
    7,133
    
    
    $
    7,432
    
    
    $
    8,083
    
    
    $
    8,541
    
    
    $
    8,835Equity to assets
    
    
    10.88
    %
    
    
    11.24
    %
    
    
    10.68
    %
    
    
    11.16
    %
    
    
    11.63
    %Tier 1 common equity(non-GAAP)
    
    
    7.50
    
    
    
    8.10
    
    
    
    7.82
    
    
    
    8.47
    
    
    
    8.94Tangible equity to tangible assets(non-GAAP)
    
    
    8.03
    
    
    
    8.45
    
    
    
    7.96
    
    
    
    8.51
    
    
    
    9.01Tangible common equity to tangible assets(non-GAAP)
    
    
    5.34
    
    
    
    5.83
    
    
    
    5.54
    
    
    
    6.16
    
    
    
    6.71
 (1)
    
    Goodwill represents goodwill for Continuing Operations, as
shown on the balance sheet, and includes goodwill for Discontinued Operations
of $12.6 million in the first quarter of 2010, the fourth and third quarters of 2009. 34




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##### Table of Contents



Results of Operations
 Summary
   Three Months EndedPre-Tax Pre-Provision Profit(non-GAAP )
    
    September 30,
    
    
    June 30,

    
    
March 31,

    
    
    December 31,
    
    
    September 30,(in thousands)
    
    2010
    
    
    2010
    
    
    2010
    
    
    2009
    
    
    2009Loss from continuing operations
    
    $
    (62,471
    )
    
    $
    (44,456
    )
    
    $
    (76,023
    )
    
    $
    (65,883
    )
    
    $
    (57,403
    )Income tax provision (benefit) from continuing operations
    
    
    5,628
    
    
    
    3,700
    
    
    
    147
    
    
    
    (3,307
    )
    
    
    (11,747
    )Provision for loan losses
    
    
    89,617
    
    
    
    70,614
    
    
    
    101,355
    
    
    
    84,007
    
    
    
    77,393Net loss on debt extinguishment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,929Investment securities gains
    
    
    
    
    
    
    (8,051
    )
    
    
    (6,016
    )
    
    
    
    
    
    
    Fair-value adjustment on loans held for sale
    
    
    1,441
    
    
    
    8,405
    
    
    
    7,702
    
    
    
    8,724
    
    
    
    860Fair-value adjustment on ORE
    
    
    1,967
    
    
    
    3,778
    
    
    
    6,763
    
    
    
    8,089
    
    
    
    3,924Fair-value adjustment on bank owned life insurance (1)
    
    
    (159
    )
    
    
    280
    
    
    
    (83
    )
    
    
    (19
    )
    
    
    (360
    )Fair-value adjustment on swaps (1)
    
    
    202
    
    
    
    279
    
    
    
    836
    
    
    
    1,449
    
    
    
    1,018Pre-Tax Pre-Provision Profit(non-GAAP)
    
    $
    36,225
    
    
    $
    34,549
    
    
    $
    34,681
    
    
    $
    33,060
    
    
    $
    29,614
 
 (1)
    
    FVA amounts contained in line item Other income on Consolidated Statements of Operations     35




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##### Table of Contents



Net Interest Income and Net Interest Margin
  Average Balances/Net Interest Income/Average Rates
 Three Months EndedSeptember 30,2010
    
    
    2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(in thousands)
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    560,792
    
    
    $
    350
    
    
    
    0.25
    %
    
    $
    498,020
    
    
    $
    315
    
    
    
    0.25
    %Investment securities: (3)Taxable
    
    
    1,911,268
    
    
    
    18,082
    
    
    
    3.78
    
    
    
    1,556,222
    
    
    
    17,773
    
    
    
    4.57Tax-exempt
    
    
    321,256
    
    
    
    3,514
    
    
    
    6.73
    
    
    
    573,633
    
    
    
    6,128
    
    
    
    6.57FHLB and Federal Reserve stock
    
    
    157,304
    
    
    
    735
    
    
    
    1.86
    
    
    
    155,084
    
    
    
    1,587
    
    
    
    4.07Portfolio Loans: (4)Commercial and industrial
    
    
    1,685,249
    
    
    
    19,502
    
    
    
    4.70
    
    
    
    2,090,591
    
    
    
    24,827
    
    
    
    4.79Commercial real estate
    
    
    2,595,787
    
    
    
    34,912
    
    
    
    5.34
    
    
    
    2,884,486
    
    
    
    38,308
    
    
    
    5.27Residential mortgage
    
    
    839,455
    
    
    
    10,264
    
    
    
    4.89
    
    
    
    1,109,161
    
    
    
    13,601
    
    
    
    4.91Direct consumer
    
    
    1,112,768
    
    
    
    16,915
    
    
    
    6.03
    
    
    
    1,287,617
    
    
    
    19,618
    
    
    
    6.04Indirect consumer
    
    
    825,885
    
    
    
    14,191
    
    
    
    6.82
    
    
    
    819,409
    
    
    
    14,098
    
    
    
    6.83Total portfolio loans
    
    
    7,059,144
    
    
    
    95,784
    
    
    
    5.42
    
    
    
    8,191,264
    
    
    
    110,452
    
    
    
    5.38Loans held for sale (4)
    
    
    55,054
    
    
    
    296
    
    
    
    2.14
    
    
    
    66,905
    
    
    
    916
    
    
    
    5.44Total earning assets (3)
    
    
    10,064,818
    
    
    
    118,761
    
    
    
    4.79
    
    
    
    11,041,128
    
    
    
    137,171
    
    
    
    5.08Nonearning AssetsCash and due from banks
    
    
    154,119
    
    
    
    
    
    
    
    
    
    
    
    163,650Bank premises and equipment
    
    
    106,503
    
    
    
    
    
    
    
    
    
    
    
    114,573Investment security fair value adjustment
    
    
    65,693
    
    
    
    
    
    
    
    
    
    
    
    29,358Other nonearning assets
    
    
    733,974
    
    
    
    
    
    
    
    
    
    
    
    755,215Assets of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    355,982Allowance for loan losses
    
    
    (321,865
    )
    
    
    
    
    
    
    
    
    
    
    (331,394
    )Total assets
    
    $
    10,803,242
    
    
    
    
    
    
    
    
    
    
    $
    12,128,512Interest-Bearing LiabilitiesDeposits:Interest-bearing demand deposits
    
    $
    975,588
    
    
    
    634
    
    
    
    0.26
    
    
    $
    1,036,168
    
    
    
    1,111
    
    
    
    0.43Savings deposits
    
    
    2,591,083
    
    
    
    4,139
    
    
    
    0.63
    
    
    
    2,515,393
    
    
    
    4,365
    
    
    
    0.69Time deposits
    
    
    3,318,137
    
    
    
    18,745
    
    
    
    2.24
    
    
    
    3,625,344
    
    
    
    29,192
    
    
    
    3.19Short-term borrowings
    
    
    36,888
    
    
    
    20
    
    
    
    0.22
    
    
    
    48,798
    
    
    
    29
    
    
    
    0.24Long-term debt
    
    
    1,202,901
    
    
    
    13,665
    
    
    
    4.51
    
    
    
    1,899,992
    
    
    
    23,461
    
    
    
    4.91Total interest-bearing liabilities
    
    
    8,124,597
    
    
    
    37,203
    
    
    
    1.82
    
    
    
    9,125,695
    
    
    
    58,158
    
    
    
    2.53Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,312,957
    
    
    
    
    
    
    
    
    
    
    
    1,214,620Other liabilities
    
    
    150,601
    
    
    
    
    
    
    
    
    
    
    
    152,703Liabilities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    407,812Shareholders equity
    
    
    1,215,087
    
    
    
    
    
    
    
    
    
    
    
    1,227,682Total liabilities and shareholders equity
    
    $
    10,803,242
    
    
    
    
    
    
    
    
    
    
    $
    12,128,512Net Interest Income
    
    
    
    
    
    $
    81,558
    
    
    
    
    
    
    
    
    
    
    $
    79,013Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.97
    %
    
    
    
    
    
    
    
    
    
    
    2.55
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.35
    
    
    
    
    
    
    
    
    
    
    
    0.44Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.32
    %
    
    
    
    
    
    
    
    
    
    
    2.99
    %
 
 (1)
    
    Interest income is shown on actual basis and does not include taxable equivalent adjustments.(2)
    
    Average rates are presented on an annual basis and include taxable equivalent adjustments to interest income of $2.4 million and $3.7 million
for the three months ended September 30, 2010 and 2009, respectively, based on a tax rate of 35%.(3)
    
    For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted
for amortization of premiums and accretion of discounts.(4)
    
    Nonaccrual loans are included in average balances for each applicable loan category.(5)
    
    The interest spread and net interest margin are presented on a tax-equivalent basis.(6)
    
    Net interest margin exceeds the interest spread due to noninterest-bearing funding sources, demand deposits, other liabilities and shareholders equity
supporting earning assets. 36




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##### Table of Contents



Average Balances/Net Interest Income/Average Rates
 Nine Months EndedSeptember 30,2010
    
    
    2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(in thousands)
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    636,608
    
    
    $
    1,181
    
    
    
    0.25
    %
    
    $
    475,287
    
    
    $
    889
    
    
    
    0.25
    %Investment securities: (3)Taxable
    
    
    1,842,089
    
    
    
    54,943
    
    
    
    3.98
    
    
    
    1,575,309
    
    
    
    56,463
    
    
    
    4.78Tax-exempt
    
    
    388,018
    
    
    
    12,731
    
    
    
    6.73
    
    
    
    596,459
    
    
    
    19,171
    
    
    
    6.59FHLB and Federal Reserve stock
    
    
    156,337
    
    
    
    2,763
    
    
    
    2.36
    
    
    
    151,980
    
    
    
    3,466
    
    
    
    3.05Portfolio Loans: (4)Commercial and industrial
    
    
    1,777,721
    
    
    
    62,895
    
    
    
    4.84
    
    
    
    2,254,302
    
    
    
    76,803
    
    
    
    4.64Commercial real estate
    
    
    2,702,625
    
    
    
    106,889
    
    
    
    5.29
    
    
    
    2,912,501
    
    
    
    115,848
    
    
    
    5.32Residential mortgage loans
    
    
    897,468
    
    
    
    34,330
    
    
    
    5.10
    
    
    
    1,165,415
    
    
    
    44,753
    
    
    
    5.12Direct consumer
    
    
    1,155,622
    
    
    
    52,336
    
    
    
    6.06
    
    
    
    1,336,338
    
    
    
    60,616
    
    
    
    6.06Indirect consumer
    
    
    808,412
    
    
    
    41,314
    
    
    
    6.83
    
    
    
    810,693
    
    
    
    41,144
    
    
    
    6.79Total portfolio loans
    
    
    7,341,848
    
    
    
    297,764
    
    
    
    5.45
    
    
    
    8,479,249
    
    
    
    339,164
    
    
    
    5.37Loans held for sale (4)
    
    
    77,696
    
    
    
    1,038
    
    
    
    1.78
    
    
    
    81,172
    
    
    
    2,173
    
    
    
    3.57Total earning assets (3)
    
    
    10,442,596
    
    
    
    370,420
    
    
    
    4.85
    
    
    
    11,359,456
    
    
    
    421,326
    
    
    
    5.09Nonearning AssetsCash and due from banks
    
    
    168,855
    
    
    
    
    
    
    
    
    
    
    
    160,652Bank premises and equipment
    
    
    108,013
    
    
    
    
    
    
    
    
    
    
    
    115,630Investment security fair value adjustment
    
    
    51,330
    
    
    
    
    
    
    
    
    
    
    
    10,284Other nonearning assets
    
    
    731,006
    
    
    
    
    
    
    
    
    
    
    
    945,956Assets of discontinued operations
    
    
    145,217
    
    
    
    
    
    
    
    
    
    
    
    358,421Allowance for loan losses
    
    
    (326,552
    )
    
    
    
    
    
    
    
    
    
    
    (292,980
    )Total assets
    
    $
    11,320,465
    
    
    
    
    
    
    
    
    
    
    $
    12,657,419Interest-Bearing LiabilitiesDeposits:Interest-bearing demand deposits
    
    $
    1,031,670
    
    
    
    2,165
    
    
    
    0.28
    
    
    $
    897,810
    
    
    
    2,976
    
    
    
    0.44Savings deposits
    
    
    2,538,733
    
    
    
    12,521
    
    
    
    0.66
    
    
    
    2,538,990
    
    
    
    15,295
    
    
    
    0.81Time deposits
    
    
    3,529,895
    
    
    
    64,253
    
    
    
    2.43
    
    
    
    3,956,731
    
    
    
    101,213
    
    
    
    3.42Short-term borrowings
    
    
    35,110
    
    
    
    61
    
    
    
    0.23
    
    
    
    53,041
    
    
    
    160
    
    
    
    0.40Long-term debt
    
    
    1,321,642
    
    
    
    44,087
    
    
    
    4.46
    
    
    
    2,004,506
    
    
    
    73,145
    
    
    
    4.88Total interest-bearing liabilities
    
    
    8,457,050
    
    
    
    123,087
    
    
    
    1.95
    
    
    
    9,451,078
    
    
    
    192,789
    
    
    
    2.73Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,289,423
    
    
    
    
    
    
    
    
    
    
    
    1,168,779Other liabilities
    
    
    143,214
    
    
    
    
    
    
    
    
    
    
    
    159,463Liabilities of discontinued operations
    
    
    172,273
    
    
    
    
    
    
    
    
    
    
    
    415,758Shareholders equity
    
    
    1,258,505
    
    
    
    
    
    
    
    
    
    
    
    1,462,341Total liabilities and shareholders equity
    
    $
    11,320,465
    
    
    
    
    
    
    
    
    
    
    $
    12,657,419Net Interest Income
    
    
    
    
    
    $
    247,333
    
    
    
    
    
    
    
    
    
    
    $
    228,537Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.90
    %
    
    
    
    
    
    
    
    
    
    
    2.36
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.37
    
    
    
    
    
    
    
    
    
    
    
    0.47Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.27
    %
    
    
    
    
    
    
    
    
    
    
    2.83
    %
 
 (1)
    
    Interest income is shown on actual basis and does not include taxable equivalent adjustments.(2)
    
    Average rates are presented on an annual basis and include taxable equivalent adjustments to interest income of $8.3 million and $11.9 million
for the nine months ended September 30, 2010 and 2009, respectively, based on a tax rate of 35%.(3)
    
    For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted
for amortization of premiums and accretion of discounts.(4)
    
    Nonaccrual loans are included in average balances for each applicable loan category.(5)
    
    The interest spread and net interest margin are presented on a tax-equivalent basis.(6)
    
    Net interest margin exceeds the interest spread due to noninterest-bearing funding sources, demand deposits, other liabilities and shareholders equity
supporting earning assets.   37




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##### Table of Contents



Analysis of Changes in Interest Income and Interest Expense
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Increase (Decrease)
    
    
    
    
    
    
    Increase (Decrease)2010 compared with 2009
    
    Net
    
    
    Due to Change in
    
    
    Net
    
    
    Due to Change in(in thousands)
    
    Change(1)
    
    
    Rate (2)
    
    
    Volume(2)
    
    
    Change(1)
    
    
    Rate (2)
    
    
    Volume(2)Interest Income on Earning Assets:Money market investments
    
    $
    35
    
    
    $
    (4
    )
    
    $
    39
    
    
    $
    292
    
    
    $
    (7
    )
    
    $
    299Investment securities:Taxable
    
    
    309
    
    
    
    (3,349
    )
    
    
    3,658
    
    
    
    (1,520
    )
    
    
    (10,276
    )
    
    
    8,756Tax-exempt
    
    
    (2,614
    )
    
    
    143
    
    
    
    (2,757
    )
    
    
    (6,440
    )
    
    
    391
    
    
    
    (6,831
    )FHLB and Federal Reserve stock
    
    
    (852
    )
    
    
    (874
    )
    
    
    22
    
    
    
    (703
    )
    
    
    (800
    )
    
    
    97Loans:Commercial and industrial
    
    
    (5,325
    )
    
    
    (620
    )
    
    
    (4,705
    )
    
    
    (13,908
    )
    
    
    2,857
    
    
    
    (16,765
    )Commercial real estate
    
    
    (3,396
    )
    
    
    481
    
    
    
    (3,877
    )
    
    
    (8,959
    )
    
    
    (655
    )
    
    
    (8,304
    )Residential mortgage loans
    
    
    (3,337
    )
    
    
    (39
    )
    
    
    (3,298
    )
    
    
    (10,423
    )
    
    
    (173
    )
    
    
    (10,250
    )Direct consumer
    
    
    (2,703
    )
    
    
    (45
    )
    
    
    (2,658
    )
    
    
    (8,280
    )
    
    
    (96
    )
    
    
    (8,184
    )Indirect consumer
    
    
    93
    
    
    
    (18
    )
    
    
    111
    
    
    
    170
    
    
    
    286
    
    
    
    (116
    )Total portfolio loans
    
    
    (14,668
    )
    
    
    (241
    )
    
    
    (14,427
    )
    
    
    (41,400
    )
    
    
    2,219
    
    
    
    (43,619
    )Loans held for sale
    
    
    (620
    )
    
    
    (480
    )
    
    
    (140
    )
    
    
    (1,135
    )
    
    
    (1,046
    )
    
    
    (89
    )Total
    
    
    (18,410
    )
    
    
    (4,805
    )
    
    
    (13,605
    )
    
    
    (50,906
    )
    
    
    (9,519
    )
    
    
    (41,387
    )Interest Expense on Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    
    (477
    )
    
    
    (415
    )
    
    
    (62
    )
    
    
    (811
    )
    
    
    (1,208
    )
    
    
    397Savings deposits
    
    
    (226
    )
    
    
    (354
    )
    
    
    128
    
    
    
    (2,774
    )
    
    
    (2,772
    )
    
    
    (2
    )Time deposits
    
    
    (10,447
    )
    
    
    (8,137
    )
    
    
    (2,310
    )
    
    
    (36,960
    )
    
    
    (26,899
    )
    
    
    (10,061
    )Short-term borrowings
    
    
    (9
    )
    
    
    (2
    )
    
    
    (7
    )
    
    
    (99
    )
    
    
    (55
    )
    
    
    (44
    )Long-term debt
    
    
    (9,796
    )
    
    
    (1,754
    )
    
    
    (8,042
    )
    
    
    (29,058
    )
    
    
    (5,849
    )
    
    
    (23,209
    )Total
    
    
    (20,955
    )
    
    
    (10,662
    )
    
    
    (10,293
    )
    
    
    (69,702
    )
    
    
    (36,783
    )
    
    
    (32,919
    )Net Interest Income
    
    $
    2,545
    
    
    $
    5,857
    
    
    $
    (3,312
    )
    
    $
    18,796
    
    
    $
    27,264
    
    
    $
    (8,468
    )
 
 (1)
    
    Changes are based on actual interest income and do not reflect taxable equivalent adjustments.(2)
    
    The change in interest not solely due to changes in volume or rates has been allocated in proportion to the absolute dollar amounts of the change in each.  Noninterest Income
  38




---



##### Table of Contents



Noninterest Income
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Change in 2010
    
    
    September 30,
    
    
    Change in 2010(dollars in thousands)
    
    2010
    
    
    2009
    
    
    Amount
    
    
    Percent
    
    
    2010
    
    
    2009
    
    
    Amount
    
    
    PercentService charges on deposit accounts
    
    $
    10,609
    
    
    $
    11,035
    
    
    $
    (426
    )
    
    
    (3.9
    )%
    
    $
    30,264
    
    
    $
    31,290
    
    
    $
    (1,026
    )
    
    
    (3.3
    )%Trust fees
    
    
    3,837
    
    
    
    3,853
    
    
    
    (16
    )
    
    
    (0.4
    )
    
    
    11,468
    
    
    
    10,573
    
    
    
    895
    
    
    
    8.5Mortgage and other loan income
    
    
    2,590
    
    
    
    3,182
    
    
    
    (592
    )
    
    
    (18.6
    )
    
    
    7,377
    
    
    
    9,837
    
    
    
    (2,460
    )
    
    
    (25.0
    )Brokerage and investment fees
    
    
    1,060
    
    
    
    1,473
    
    
    
    (413
    )
    
    
    (28.0
    )
    
    
    3,315
    
    
    
    4,133
    
    
    
    (818
    )
    
    
    (19.8
    )ATM network user fees
    
    
    1,864
    
    
    
    1,689
    
    
    
    175
    
    
    
    10.4
    
    
    
    5,232
    
    
    
    4,652
    
    
    
    580
    
    
    
    12.5Bankcard fees
    
    
    2,261
    
    
    
    1,972
    
    
    
    289
    
    
    
    14.7
    
    
    
    6,534
    
    
    
    5,835
    
    
    
    699
    
    
    
    12.0Net loss on held for sale loans
    
    
    (1,441
    )
    
    
    (860
    )
    
    
    (581
    )
    
    
    (67.6
    )
    
    
    (17,548
    )
    
    
    (11,362
    )
    
    
    (6,186
    )
    
    
    (54.4
    )Net loss on debt extinguishment
    
    
    
    
    
    
    (15,929
    )
    
    
    15,929
    
    
    
    100.0
    
    
    
    
    
    
    
    (15,929
    )
    
    
    15,929
    
    
    
    100.0Investment securities gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/M
    
    
    
    14,067
    
    
    
    5
    
    
    
    14,062
    
    
    
    N/MOther income
    
    
    5,176
    
    
    
    4,281
    
    
    
    895
    
    
    
    20.9
    
    
    
    9,922
    
    
    
    9,825
    
    
    
    97
    
    
    
    1.0Total noninterest income
    
    $
    25,956
    
    
    $
    10,696
    
    
    $
    15,260
    
    
    
    142.7
    
    
    $
    70,631
    
    
    $
    48,859
    
    
    $
    21,772
    
    
    
    44.6
 
 N/M  Not Meaningful   Noninterest Expense
  Noninterest Expense
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Change in 2010
    
    
    September 30,
    
    
    Change in 2010(dollars in thousands)
    
    2010
    
    
    2009

    
    
    Amount


    
    
    Percent

    
        2010

    
    

    2009


    
    
    Amount

    
    

    PercentSalaries and employee benefits
    
    $
    32,740
    
    
    $
    37,394
    
    
    $
    (4,654
    )
    
    
    (12.4
    )%
    
    $
    94,090
    
    
    $
    105,377
    
    
    $
    (11,287
    )
    
    
    (10.7)
    %Occupancy
    
    
    6,529
    
    
    
    6,447
    
    
    
    82
    
    
    
    1.3
    
    
    
    20,129
    
    
    
    20,568
    
    
    
    (439
    )
    
    
    (2.1
    )Professional services
    
    
    2,737
    
    
    
    3,033
    
    
    
    (296
    )
    
    
    (9.7
    )
    
    
    7,605
    
    
    
    8,886
    
    
    
    (1,281
    )
    
    
    (14.4
    )Equipment
    
    
    3,076
    
    
    
    2,959
    
    
    
    117
    
    
    
    4.0
    
    
    
    9,127
    
    
    
    8,726
    
    
    
    401
    
    
    
    4.6Data processing services
    
    
    4,702
    
    
    
    4,461
    
    
    
    241
    
    
    
    5.4
    
    
    
    14,098
    
    
    
    12,920
    
    
    
    1,178
    
    
    
    9.1Advertising and public relations
    
    
    1,605
    
    
    
    1,878
    
    
    
    (273
    )
    
    
    (14.5
    )
    
    
    5,018
    
    
    
    5,562
    
    
    
    (544
    )
    
    
    (9.8
    )Postage and delivery
    
    
    1,187
    
    
    
    1,297
    
    
    
    (110
    )
    
    
    (8.5
    )
    
    
    3,496
    
    
    
    4,239
    
    
    
    (743
    )
    
    
    (17.5
    )Other loan expenses
    
    
    4,355
    
    
    
    6,271
    
    
    
    (1,916
    )
    
    
    (30.6
    )
    
    
    14,880
    
    
    
    18,922
    
    
    
    (4,042
    )
    
    
    (21.4
    )Losses on other real estate (ORE)
    
    
    1,967
    
    
    
    3,924
    
    
    
    (1,957
    )
    
    
    (49.9
    )
    
    
    12,508
    
    
    
    15,223
    
    
    
    (2,715
    )
    
    
    (17.8
    )ORE expenses
    
    
    1,327
    
    
    
    1,624
    
    
    
    (297
    )
    
    
    (18.3
    )
    
    
    3,317
    
    
    
    3,108
    
    
    
    209
    
    
    
    6.7Intangible asset amortization
    
    
    908
    
    
    
    1,874
    
    
    
    (966
    )
    
    
    (51.5
    )
    
    
    3,072
    
    
    
    5,863
    
    
    
    (2,791
    )
    
    
    (47.6
    )Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/M
    
    
    
    
    
    
    
    256,272
    
    
    
    (256,272
    )
    
    
    N/MOther expenses
    
    
    13,607
    
    
    
    10,304
    
    
    
    3,303
    
    
    
    32.1
    
    
    
    42,513
    
    
    
    38,104
    
    
    
    4,409
    
    
    
    11.6Total noninterest expense
    
    $
    74,740
    
    
    $
    81,466
    
    
    $
    (6,726
    )
    
    
    (8.3
    )
    
    $
    229,853
    
    
    $
    503,770
    
    
    $
    (273,917
    )
    
    
    (54.4
    )
 
 N/M  Not Meaningful  39




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##### Table of Contents



Income Taxes
   Discontinued Operations
  Lines of Business Results
    40




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##### Table of Contents



Financial Condition
  Money Market Investments
  Investment Securities
  Portfolio Loans
  41




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##### Table of Contents



Loan Portfolios
    
    September 30,
    
    
    June 30,
    
    
    March 31,
    
    
    December 31,
    
    
    September 30,(in millions)
    
    2010
    
    
    2010
    
    
    2010
    
    
    2009
    
    
    2009Land hold
    
    $
    37.1
    
    
    $
    37.8
    
    
    $
    39.3
    
    
    $
    35.9
    
    
    $
    52.0Land development
    
    
    73.8
    
    
    
    84.3
    
    
    
    101.0
    
    
    
    103.6
    
    
    
    124.5Construction
    
    
    155.4
    
    
    
    156.3
    
    
    
    164.4
    
    
    
    177.9
    
    
    
    214.8Income producing
    
    
    1,382.3
    
    
    
    1,481.7
    
    
    
    1,532.1
    
    
    
    1,514.0
    
    
    
    1,504.1Owner-occupied
    
    
    855.1
    
    
    
    886.1
    
    
    
    931.5
    
    
    
    980.1
    
    
    
    986.4Total commercial real estate
    
    
    2,503.7
    
    
    
    2,646.2
    
    
    
    2,768.3
    
    
    
    2,811.5
    
    
    
    2,881.8Commercial and industrial
    
    
    1,657.4
    
    
    
    1,686.8
    
    
    
    1,824.8
    
    
    
    1,921.8
    
    
    
    2,047.2Total commercial loans
    
    
    4,161.1
    
    
    
    4,333.0
    
    
    
    4,593.1
    
    
    
    4,733.3
    
    
    
    4,929.0Residential mortgage
    
    
    800.5
    
    
    
    858.9
    
    
    
    877.2
    
    
    
    1,025.2
    
    
    
    1,073.3Direct consumer
    
    
    1,091.7
    
    
    
    1,132.2
    
    
    
    1,174.7
    
    
    
    1,224.2
    
    
    
    1,269.2Indirect consumer
    
    
    834.7
    
    
    
    814.0
    
    
    
    794.2
    
    
    
    805.2
    
    
    
    825.3Total consumer loans
    
    
    2,726.9
    
    
    
    2,805.1
    
    
    
    2,846.1
    
    
    
    3,054.6
    
    
    
    3,167.8Total portfolio loans
    
    $
    6,888.0
    
    
    $
    7,138.1
    
    
    $
    7,439.2
    
    
    $
    7,787.9
    
    
    $
    8,096.8
  Underwriting
   42




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##### Table of Contents



43




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##### Table of Contents



Credit Quality
   
    
    Delinquency Rates by Loan Portfolio  Loans where the contractual payment is 30 to 89 days
past due and interest is still accruing. While these loans are actively worked to bring them
current, past due loan trends may be a leading indicator of potential future nonperforming
loans and charge-offs.
    
    Commercial Watchlist  Commercial loans that, while still accruing interest, Citizens
believes may be at risk due to general economic conditions or changes in a borrowers
financial status and therefore require increased oversight. Watchlist loans that are in
nonperforming status are included in the nonperforming assets table below.
    
    Nonperforming Assets  Loans that are in nonaccrual status, loans past due 90 days or more
on which interest is still accruing, restructured loans, nonperforming loans that are held for
sale, and other repossessed assets acquired. The commercial loans included in this table are
reviewed as part of the watchlist process in addition to the loans displayed in the commercial
watchlist table below.
    
    Net Charge-Offs  The portion of loans that have been charged-off during each quarter.
 Delinquency Rates By Loan Portfolio
    
    September 30, 2010
    
    
    June 30, 2010
    
    
    March 31, 2010
    
    
    December 31, 2009
    
    
    September 30, 200930 to 89 days past due
    
    
    
    
    
    % of
    
    

    
    
    
    

    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    

    % of(in millions)
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand hold
    
    $
    
    
    
    
    
    %
    
    $
    1.3
    
    
    
    3.34
    %
    
    $
    0.6
    
    
    
    1.64
    %
    
    $
    0.6
    
    
    
    1.56
    %
    
    $
    1.4
    
    
    
    2.61
    %Land development
    
    
    4.5
    
    
    
    6.04
    
    
    
    2.0
    
    
    
    2.43
    
    
    
    3.0
    
    
    
    3.00
    
    
    
    4.7
    
    
    
    4.56
    
    
    
    12.0
    
    
    
    9.67Construction
    
    
    2.4
    
    
    
    1.53
    
    
    
    6.4
    
    
    
    4.07
    
    
    
    0.9
    
    
    
    0.55
    
    
    
    1.7
    
    
    
    0.95
    
    
    
    12.1
    
    
    
    5.64Income producing
    
    
    35.2
    
    
    
    2.55
    
    
    
    22.9
    
    
    
    1.55
    
    
    
    51.7
    
    
    
    3.37
    
    
    
    40.8
    
    
    
    2.70
    
    
    
    44.9
    
    
    
    2.98Owner-occupied
    
    
    18.3
    
    
    
    2.14
    
    
    
    16.4
    
    
    
    1.85
    
    
    
    13.6
    
    
    
    1.46
    
    
    
    25.0
    
    
    
    2.55
    
    
    
    24.4
    
    
    
    2.47Total commercial real estate
    
    
    60.4
    
    
    
    2.41
    
    
    
    49.0
    
    
    
    1.85
    
    
    
    69.8
    
    
    
    2.52
    
    
    
    72.8
    
    
    
    2.59
    
    
    
    94.8
    
    
    
    3.29Commercial and industrial
    
    
    23.8
    
    
    
    1.43
    
    
    
    10.3
    
    
    
    0.61
    
    
    
    15.1
    
    
    
    0.83
    
    
    
    16.9
    
    
    
    0.88
    
    
    
    20.2
    
    
    
    0.98Total commercial loans
    
    
    84.2
    
    
    
    2.02
    
    
    
    59.3
    
    
    
    1.37
    
    
    
    84.9
    
    
    
    1.85
    
    
    
    89.7
    
    
    
    1.90
    
    
    
    115.0
    
    
    
    2.33Residential mortgage
    
    
    14.6
    
    
    
    1.82
    
    
    
    20.8
    
    
    
    2.42
    
    
    
    21.5
    
    
    
    2.45
    
    
    
    22.0
    
    
    
    2.14
    
    
    
    30.0
    
    
    
    2.80Direct consumer
    
    
    20.5
    
    
    
    1.88
    
    
    
    20.2
    
    
    
    1.79
    
    
    
    21.9
    
    
    
    1.86
    
    
    
    26.5
    
    
    
    2.16
    
    
    
    24.1
    
    
    
    1.90Indirect consumer
    
    
    12.2
    
    
    
    1.46
    
    
    
    11.4
    
    
    
    1.40
    
    
    
    14.8
    
    
    
    1.86
    
    
    
    16.3
    
    
    
    2.02
    
    
    
    16.3
    
    
    
    1.98Total consumer loans
    
    
    47.3
    
    
    
    1.73
    
    
    
    52.4
    
    
    
    1.87
    
    
    
    58.2
    
    
    
    2.05
    
    
    
    64.8
    
    
    
    2.12
    
    
    
    70.4
    
    
    
    2.22Total delinquent loans
    
    $
    131.5
    
    
    
    1.91
    
    
    $
    111.7
    
    
    
    1.57
    
    
    $
    143.1
    
    
    
    1.92
    
    
    $
    154.5
    
    
    
    1.98
    
    
    $
    185.4
    
    
    
    2.29
  44




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##### Table of Contents



Commercial Watchlist
    
    September 30, 2010
    
    
    June 30, 2010
    
    
    March 31, 2010
    
    
    December 31, 2009
    
    
    September 30, 2009Accruing loans only
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(in millions)
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand hold
    
    $
    27.6
    
    
    
    74.32
    %
    
    $
    27.8
    
    
    
    73.58
    %
    
    $
    29.0
    
    
    
    73.73
    %
    
    $
    24.8
    
    
    
    68.99
    %
    
    $
    29.0
    
    
    
    55.76
    %Land development
    
    
    45.4
    
    
    
    61.54
    
    
    
    40.5
    
    
    
    47.97
    
    
    
    50.4
    
    
    
    49.95
    
    
    
    86.7
    
    
    
    83.66
    
    
    
    92.1
    
    
    
    73.92Construction
    
    
    46.5
    
    
    
    29.90
    
    
    
    52.5
    
    
    
    33.61
    
    
    
    54.4
    
    
    
    33.07
    
    
    
    63.5
    
    
    
    35.68
    
    
    
    90.4
    
    
    
    42.10Income producing
    
    
    543.7
    
    
    
    39.33
    
    
    
    553.9
    
    
    
    37.38
    
    
    
    523.5
    
    
    
    34.17
    
    
    
    521.4
    
    
    
    34.44
    
    
    
    519.3
    
    
    
    34.52Owner-occupied
    
    
    225.7
    
    
    
    26.40
    
    
    
    224.1
    
    
    
    25.29
    
    
    
    237.0
    
    
    
    25.44
    
    
    
    247.2
    
    
    
    25.22
    
    
    
    277.2
    
    
    
    28.10Total commercial real estate
    
    
    888.9
    
    
    
    35.50
    
    
    
    898.8
    
    
    
    33.96
    
    
    
    894.3
    
    
    
    32.31
    
    
    
    943.6
    
    
    
    33.56
    
    
    
    1,008.0
    
    
    
    34.98Commercial and industrial
    
    
    432.8
    
    
    
    26.11
    
    
    
    445.5
    
    
    
    26.41
    
    
    
    484.7
    
    
    
    26.56
    
    
    
    473.0
    
    
    
    24.61
    
    
    
    508.0
    
    
    
    24.81Total watchlist loans
    
    $
    1,321.7
    
    
    
    31.76
    
    
    $
    1,344.3
    
    
    
    31.02
    
    
    $
    1,379.0
    
    
    
    30.02
    
    
    $
    1,416.6
    
    
    
    29.93
    
    
    $
    1,516.0
    
    
    
    30.76
  September 30, 2010
    
    
    June 30, 2010
    
    
    March 31, 2010
    
    
    December 31, 2009
    
    
    September 30, 2009Nonperforming Assets
    
    
    
    
    
    % of
    
    
    
    
    
    

    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    

    % of
    
    
    
    
    
    

    % of(in millions)
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand hold
    
    $
    5.6
    
    
    
    15.13
    %
    
    $
    5.2
    
    
    
    13.76
    %
    
    $
    4.9
    
    
    
    12.49
    %
    
    $
    4.8
    
    
    
    13.42
    %
    
    $
    13.3
    
    
    
    25.56
    %Land development
    
    
    16.0
    
    
    
    21.64
    
    
    
    22.3
    
    
    
    26.48
    
    
    
    27.1
    
    
    
    26.86
    
    
    
    1.0
    
    
    
    0.92
    
    
    
    13.7
    
    
    
    10.96Construction
    
    
    27.4
    
    
    
    17.65
    
    
    
    25.0
    
    
    
    15.99
    
    
    
    35.2
    
    
    
    21.39
    
    
    
    25.2
    
    
    
    14.19
    
    
    
    33.7
    
    
    
    15.70Income producing
    
    
    147.7
    
    
    
    10.69
    
    
    
    148.4
    
    
    
    10.02
    
    
    
    144.0
    
    
    
    9.40
    
    
    
    121.5
    
    
    
    8.02
    
    
    
    126.7
    
    
    
    8.42Owner-occupied
    
    
    63.3
    
    
    
    7.40
    
    
    
    59.5
    
    
    
    6.71
    
    
    
    89.0
    
    
    
    9.56
    
    
    
    83.4
    
    
    
    8.51
    
    
    
    70.1
    
    
    
    7.11Total commercial real estate
    
    
    260.0
    
    
    
    10.39
    
    
    
    260.4
    
    
    
    9.84
    
    
    
    300.2
    
    
    
    10.85
    
    
    
    235.9
    
    
    
    8.39
    
    
    
    257.5
    
    
    
    8.94Commercial and industrial
    
    
    61.5
    
    
    
    3.71
    
    
    
    67.0
    
    
    
    3.97
    
    
    
    69.7
    
    
    
    3.82
    
    
    
    84.0
    
    
    
    4.37
    
    
    
    111.5
    
    
    
    5.44Total nonaccruing commercial loans
    
    
    321.5
    
    
    
    7.73
    
    
    
    327.4
    
    
    
    7.56
    
    
    
    369.9
    
    
    
    8.05
    
    
    
    319.9
    
    
    
    6.76
    
    
    
    369.0
    
    
    
    7.49Residential mortgage
    
    
    16.9
    
    
    
    2.11
    
    
    
    31.0
    
    
    
    3.61
    
    
    
    17.6
    
    
    
    2.01
    
    
    
    125.1
    
    
    
    12.20
    
    
    
    106.0
    
    
    
    9.88Direct consumer
    
    
    15.5
    
    
    
    1.42
    
    
    
    18.7
    
    
    
    1.65
    
    
    
    16.5
    
    
    
    1.41
    
    
    
    21.3
    
    
    
    1.74
    
    
    
    21.4
    
    
    
    1.68Indirect consumer
    
    
    1.7
    
    
    
    0.20
    
    
    
    1.5
    
    
    
    0.18
    
    
    
    2.4
    
    
    
    0.30
    
    
    
    2.6
    
    
    
    0.33
    
    
    
    2.6
    
    
    
    0.31Total nonaccruing consumer loans
    
    
    34.1
    
    
    
    1.25
    
    
    
    51.2
    
    
    
    1.82
    
    
    
    36.5
    
    
    
    1.28
    
    
    
    149.0
    
    
    
    4.88
    
    
    
    130.0
    
    
    
    4.10Total nonaccruing loans
    
    
    355.6
    
    
    
    5.16
    
    
    
    378.6
    
    
    
    5.30
    
    
    
    406.4
    
    
    
    5.46
    
    
    
    468.9
    
    
    
    6.02
    
    
    
    499.0
    
    
    
    6.16Loans 90+ days still accruing
    
    
    1.6
    
    
    
    0.02
    
    
    
    1.5
    
    
    
    0.02
    
    
    
    2.4
    
    
    
    0.03
    
    
    
    3.0
    
    
    
    0.04
    
    
    
    0.6
    
    
    
    0.01Restructured loans still accruing
    
    
    7.0
    
    
    
    0.10
    
    
    
    4.6
    
    
    
    0.06
    
    
    
    4.8
    
    
    
    0.06
    
    
    
    2.6
    
    
    
    0.03
    
    
    
    1.1
    
    
    
    0.01Total nonperforming portfolio loans
    
    
    364.2
    
    
    
    5.29
    
    
    
    384.7
    
    
    
    5.39
    
    
    
    413.6
    
    
    
    5.56
    
    
    
    474.5
    
    
    
    6.09
    
    
    
    500.7
    
    
    
    6.18Nonperforming held for sale
    
    
    38.4
    
    
    
    
    
    
    
    44.0
    
    
    
    
    
    
    

    95.3
    
    
    
    

    
    
    

    65.2
    
    
    
    

    
    
    
    44.4Other repossessed assets acquired
    
    
    40.7
    
    
    
    
    
    
    
    43.9
    
    
    
    
    
    
    
    47.3
    
    
    
    

    
    
    
    54.4
    
    
    
    

    
    
    
    61.9Total nonperforming assets
    
    $
    443.3
    
    
    
    
    
    
    $
    472.6
    
    
    
    
    
    
    $
    556.2
    
    
    
    

    
    
    $
    594.1
    
    
    
    

    
    
    $
    607.0Commercial inflows
    
    $
    95.6
    
    
    
    
    
    
    $
    75.9
    
    
    
    
    
    
    $
    124.8
    
    
    
    
    
    
    $
    101.0
    
    
    
    
    
    
    $
    94.1Commercial outflows
    
    
    (101.5
    )
    
    
    
    
    
    
    (118.6
    )
    
    
    
    
    
    
    (74.8
    )
    
    
    
    
    
    
    (150.1
    )
    
    
    
    
    
    
    (92.3
    )Net change
    
    $
    (5.9
    )
    
    
    
    
    
    $
    (42.7
    )
    
    
    
    
    
    $
    50.0
    
    
    
    
    
    
    $
    (49.1
    )
    
    
    
    
    
    $
    1.8
 45




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##### Table of Contents



Net Charge-Offs
 Three Months EndedSeptember 30, 2010
    
    
    June 30, 2010
    
    
    March 31, 2010
    
    
    December 31, 2009
    
    
    September 30, 2009% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(in millions)
    
    $
    
    
    Portfolio*
    
    
    $
    
    
    Portfolio*
    
    
    $
    
    
    Portfolio*
    
    
    $
    
    
    Portfolio*
    
    
    $
    
    
    Portfolio*Land hold
    
    $
    0.3
    
    
    
    3.30
    %
    
    $
    0.4
    
    
    
    3.72
    %
    
    $
    
    
    
    
    
    %
    
    $
    5.6
    
    
    
    62.32
    %
    
    $
    0.5
    
    
    
    3.98
    %Land development
    
    
    9.0
    
    
    
    48.29
    
    
    
    9.8
    
    
    
    46.68
    
    
    
    0.1
    
    
    
    0.49
    
    
    
    9.7
    
    
    
    36.97
    
    
    
    1.4
    
    
    
    4.33Construction
    
    
    0.4
    
    
    
    1.10
    
    
    
    8.7
    
    
    
    22.23
    
    
    
    
    
    
    
    
    
    
    
    9.5
    
    
    
    21.21
    
    
    
    0.9
    
    
    
    1.62Income producing
    
    
    30.8
    
    
    
    8.85
    
    
    
    12.6
    
    
    
    3.41
    
    
    
    7.6
    
    
    
    2.01
    
    
    
    13.2
    
    
    
    3.45
    
    
    
    24.5
    
    
    
    6.47Owner-occupied
    
    
    4.8
    
    
    
    2.21
    
    
    
    18.9
    
    
    
    8.57
    
    
    
    6.9
    
    
    
    3.01
    
    
    
    2.5
    
    
    
    1.01
    
    
    
    4.6
    
    
    
    1.85Total commercial real estate
    
    
    45.3
    
    
    
    7.18
    
    
    
    50.4
    
    
    
    7.63
    
    
    
    14.6
    
    
    
    2.13
    
    
    
    40.5
    
    
    
    5.71
    
    
    
    31.9
    
    
    
    4.39Commercial and industrial
    
    
    6.8
    
    
    
    1.62
    
    
    
    11.4
    
    
    
    2.71
    
    
    
    12.9
    
    
    
    2.86
    
    
    
    22.4
    
    
    
    4.63
    
    
    
    20.1
    
    
    
    3.90Total commercial loans
    
    
    52.1
    
    
    
    4.97
    
    
    
    61.8
    
    
    
    5.72
    
    
    
    27.5
    
    
    
    2.43
    
    
    
    62.9
    
    
    
    5.27
    
    
    
    52.0
    
    
    
    4.19Residential mortgage
    
    
    23.3
    
    
    
    11.57
    
    
    
    0.6
    
    
    
    0.29
    
    
    
    80.1
    
    
    
    37.05
    
    
    
    6.0
    
    
    
    2.33
    
    
    
    10.0
    
    
    
    3.68Direct consumer
    
    
    9.8
    
    
    
    3.56
    
    
    
    5.5
    
    
    
    1.96
    
    
    
    7.1
    
    
    
    2.44
    
    
    
    6.1
    
    
    
    1.97
    
    
    
    6.1
    
    
    
    1.92Indirect consumer
    
    
    2.2
    
    
    
    1.05
    
    
    
    3.3
    
    
    
    1.61
    
    
    
    3.2
    
    
    
    1.63
    
    
    
    6.3
    
    
    
    3.10
    
    
    
    3.2
    
    
    
    1.55Total consumer loans
    
    
    35.3
    
    
    
    5.14
    
    
    
    9.4
    
    
    
    1.35
    
    
    
    90.4
    
    
    
    12.88
    
    
    
    18.4
    
    
    
    2.39
    
    
    
    19.3
    
    
    
    2.42Total net charge-offs
    
    $
    87.4
    
    
    
    4.91
    
    
    $
    71.2
    
    
    
    3.90
    
    
    $
    117.9
    
    
    
    6.25
    
    
    $
    81.3
    
    
    
    4.05
    
    
    $
    71.3
    
    
    
    3.46
 
 *
    
    Represents an annualized rate.   46




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##### Table of Contents



Analysis of Allowance for Loan Losses
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Allowance for loan losses  beginning of period
    
    $
    321,841
    
    
    $
    330,217
    
    
    $
    338,940
    
    
    $
    252,938Provision for loan losses
    
    
    89,617
    
    
    
    77,393
    
    
    
    261,586
    
    
    
    239,813Charge-offs
    
    
    90,471
    
    
    
    73,615
    
    
    
    286,206
    
    
    
    166,424Recoveries
    
    
    3,059
    
    
    
    2,275
    
    
    
    9,726
    
    
    
    9,943Net charge-offs
    
    
    87,412
    
    
    
    71,340
    
    
    
    276,480
    
    
    
    156,481Allowance for loan losses  end of period
    
    $
    324,046
    
    
    $
    336,270
    
    
    $
    324,046
    
    
    $
    336,270Portfolio loans outstanding at period end (1)
    
    $
    6,888,005
    
    
    $
    8,096,822
    
    
    $
    6,888,005
    
    
    $
    8,096,822Average portfolio loans outstanding during period (1)
    
    
    7,059,144
    
    
    
    8,191,264
    
    
    
    7,341,848
    
    
    
    8,479,249Allowance for loan losses as a percentage of portfolio loans
    
    
    4.70
    %
    
    
    4.15
    %
    
    
    4.70
    %
    
    
    4.15
    %Ratio of net charge-offs during period to average portfolio
loans (annualized)
    
    
    4.91
    
    
    
    3.46
    
    
    
    5.03
    
    
    
    2.47
 
 (1)
    
    Balances exclude mortgage loans held for sale.   47




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##### Table of Contents



Allocation of the Allowance for Loan Losses (1)
 September 30, 2010
    
    
    December 31, 2009
    
    
    September 30, 2009Allowance
    
    
    Related
    
    
    % of
    
    
    Allowance
    
    
    Related
    
    
    % of
    
    
    Allowance
    
    
    Related
    
    
    % of(in millions)
    
    Amount
    
    
    NPL(2)
    
    
    NPL
    
    
    Amount
    
    
    NPL(2)
    
    
    NPL
    
    
    Amount
    
    
    NPL(2)
    
    
    NPLSpecific allocated allowance:Commercial and industrial
    
    $
    11.2
    
    
    $
    44.3
    
    
    
    25.3
    %
    
    $
    16.3
    
    
    $
    65.2
    
    
    
    25.0
    %
    
    $
    32.4
    
    
    $
    93.8
    
    
    
    34.5
    %Commercial real estate
    
    
    48.7
    
    
    
    230.7
    
    
    
    21.1
    
    
    
    29.6
    
    
    
    208.3
    
    
    
    14.2
    
    
    
    31.3
    
    
    
    235.8
    
    
    
    13.3Residential mortgage
    
    
    1.0
    
    
    
    4.9
    
    
    
    19.9
    
    
    
    6.9
    
    
    
    30.9
    
    
    
    22.4
    
    
    
    1.8
    
    
    
    20.9
    
    
    
    8.6Total specific allocated
allowance
    
    
    60.9
    
    
    
    279.9
    
    
    
    21.7
    
    
    
    52.8
    
    
    
    304.4
    
    
    
    17.3
    
    
    
    65.5
    
    
    
    350.5
    
    
    
    18.7Risk allocated allowance:Commercial and industrial
    
    
    46.0
    
    
    
    18.8
    
    
    
    244.9
    
    
    
    40.2
    
    
    
    21.8
    
    
    
    184.4
    
    
    
    39.4
    
    
    
    18.3
    
    
    
    215.6Commercial real estate
    
    
    116.1
    
    
    
    31.8
    
    
    
    365.1
    
    
    
    116.4
    
    
    
    27.6
    
    
    
    421.9
    
    
    
    110.9
    
    
    
    21.7
    
    
    
    510.5Residential mortgage
    
    
    47.3
    
    
    
    15.6
    
    
    
    303.0
    
    
    
    50.6
    
    
    
    95.6
    
    
    
    53.0
    
    
    
    47.5
    
    
    
    87.4
    
    
    
    54.3Direct Consumer
    
    
    31.2
    
    
    
    16.4
    
    
    
    190.5
    
    
    
    33.0
    
    
    
    22.0
    
    
    
    149.7
    
    
    
    33.3
    
    
    
    20.3
    
    
    
    164.1Indirect Consumer
    
    
    17.4
    
    
    
    1.7
    
    
    
    N/M
    
    
    
    39.5
    
    
    
    3.1
    
    
    
    N/M
    
    
    
    39.7
    
    
    
    2.5
    
    
    
    N/MTotal risk allocated
allowance
    
    
    258.1
    
    
    
    84.3
    
    
    
    306.2
    
    
    
    279.7
    
    
    
    170.1
    
    
    
    164.4
    
    
    
    270.8
    
    
    
    150.2
    
    
    
    180.3Total
    
    
    318.9
    
    
    
    
    
    
    
    
    
    
    
    332.5
    
    
    
    
    
    
    
    
    
    
    
    336.3General valuation allowance
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    6.4
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    324.0
    
    
    $
    364.2
    
    
    
    89.0
    
    
    $
    338.9
    
    
    $
    474.5
    
    
    
    71.4
    
    
    $
    336.3
    
    
    $
    500.7
    
    
    
    67.2
 
 N/M  Not Meaningful(1)
    
    The allocation of the allowance for loan losses in the above table is based upon
ranges of estimates and is not intended to imply either limitations on the usage of the allowance
or precision of the specific amounts. Citizens does not view the allowance for loan losses as
being divisible among the various categories of loans. The entire allowance is available to absorb
any future losses without regard to the category or categories in which the charged-off loans are
classified.(2)
    
    Related NPL amounts in risk allocated allowances include restructured loans and
still accruing and loans 90+ days still accruing but classified as nonperforming. Total Allowance for Loan Losses.
   Specific Allocated Allowance.
 48




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##### Table of Contents



Risk Allocated Allowance.
 General Valuation Allowance.
 Loans Held for Sale
  Deposits
   Borrowed Funds
   Capital Resources
  49




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##### Table of Contents



Capital Ratios
 Regulatory
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ExcessMinimum for
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital overWell-
    
    
    September 30,
    
    
    December 31,
    
    
    September 30,
    
    
    MinimumCapitalized
    
    
    2010
    
    
    2009
    
    
    2009
    
    
    (in millions)Leverage ratio
    
    
    5.00
    %
    
    
    8.50
    %
    
    
    9.21
    %
    
    
    9.63
    %
    
    $
    364.8Tier 1 capital ratio
    
    
    6.00
    
    
    
    12.41
    
    
    
    12.52
    
    
    
    12.83
    
    
    
    457.5Total capital ratio
    
    
    10.00
    
    
    
    13.80
    
    
    
    13.93
    
    
    
    14.23
    
    
    
    271.2Tier 1 common equity (non-GAAP)
    
    
    
    
    
    
    7.50
    
    
    
    8.47
    
    
    
    8.94Tangible equity to tangible assets (non-GAAP)
    
    
    
    
    
    
    8.03
    
    
    
    8.51
    
    
    
    9.01Tangible common equity to tangible assets (non-GAAP)
    
    
    
    
    
    
    5.34
    
    
    
    6.16
    
    
    
    6.71
 Contractual Obligations and Off-Balance Sheet Arrangements
  Liquidity and Liquidity Risk Management
    50




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##### Table of Contents



Credit Ratings
 Moodys
    
    
    Fitch Ratings
    
    
    DBRS LtdCitizens Republic Bancorp
(Holding Company)Long-term Issuer
    
    B2 (ON)
    
    B- (ON)
    
    B (low) (WN)10/1/2009
    
    
    
    1/29/2010
    
    
    
    8/4/2010Short-term/Commercial Paper
    
    NP(ON)
    
    
    B
    
    
    R-5 (WN)10/1/2009
    
    
    
    1/29/2010
    
    
    
    8/4/2010Trust Preferred
    
    Caa2 (ON)
    
    
    C
    
    
    CCC (WN)1/28/2010
    
    
    
    1/29/2010
    
    
    
    8/4/2010Citizens BankCertificate of Deposit
    
    Ba3 (ON)
    
    
    B
    
    
    BB (low) (WN)10/1/2009
    
    
    
    1/29/2010
    
    
    
    8/4/2010
 
      51




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##### Table of Contents



Interest Rate Risk
      52




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   53




---



##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  The recently enacted Dodd-Frank Act may adversely impact Citizens results of operations, financial
condition or liquidity.
  54




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Total Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares That May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    The Plans or ProgramsPeriod
    
    Shares Purchased
    
    
    Per Share
    
    
    Programs
    
    
    (2)July 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,241,154August 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,241,154September 2010
    
    
    2,498
    (1)
    
    
    0.83
    
    
    
    
    
    
    
    1,241,154Total
    
    
    2,498
    
    
    $
    0.83
    
    
    
    
    
    
    
    1,241,154
 
 (1)
    
    Shares repurchased in connection with taxes due from employees as a result of the vesting of certain restricted share awards in accordance
with the related grant agreements. These repurchases were not part of the repurchase program approved in October 2003.(2)
    
    In October 2003, the Board of Directors approved the repurchase of 3,000,000 shares of common stock from time to time in the market.
There is no expiration date for the repurchase program. The repurchase of shares is generally prohibited, with certain exceptions, by the
CPP Letter Agreement while Treasury continues to hold the related
TARP Preferred Stock, by the Written Agreement and by the terms of
Citizens outstanding trust preferred securities, and is also subject to limitations that may be imposed by applicable securities laws and
regulations and the rules of NASDAQ. The timing of the purchases and the number of shares to be bought at any one time also depend on
market conditions and Citizens capital requirements. There can be no assurance that Citizens will repurchase the remaining shares
authorized to be repurchased.The stock repurchase program is discussed in more detail in Note 11 to the Consolidated Financial Statements. 
 Item 3. Defaults Upon Senior Securities
  55




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##### Table of Contents



Item 6. Exhibits
 10.57
    
    Citizens Republic Bancorp, Inc. Stock Compensation Plan (Amended, Restated and
Renamed Effective March 19, 2010) (Citizens Form 8-K filed on May 10, 2010)10.58
    
    Written Agreement by and among Citizens Republic Bancorp, Inc., Citizens Bank, the
Federal Reserve Bank of Chicago, and the Michigan Office of Financial and Insurance
Regulation, dated July 28, 2010 (Citizens Second Quarter 2010 Form 10-Q)10.59
    
    Form of Salary Stock Agreement with Cathleen H. Nash and Judith L. Klawinski (2010)10.60
    
    Form of Long-Term Incentive Restricted Stock Agreement with Cathleen H. Nash, Judith
L. Klawinski and Thomas C. Shafer relating to 2010 incentive award10.61
    
    Form of Long-Term Incentive Restricted Stock Unit Agreement with Thomas W. Gallagher
relating to 2010 incentive award10.62
    
    Form of Amended and Restated Change in Control Agreement with Cathleen H. Nash, Judith
L. Klawinski and Thomas W. Gallagher (2010)31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193432.1
    
    Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities
Exchange Act of 1934
 56




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##### Table of Contents



SIGNATURES
  CITIZENS REPUBLIC BANCORP, INC.Date: November 4, 2010
    By:
    /s/ Lisa T. McNeelyLisa T. McNeelyChief Financial Officer(principal financial officer and duly authorized officer) 57




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##### Table of Contents



10-Q EXHIBIT INDEX
 Exhibit No.
    
    Description10.57
    
    Citizens Republic Bancorp, Inc. Stock Compensation Plan (Amended, Restated and Renamed
Effective March 19, 2010) (Citizens Form 8-K filed on May 10, 2010)10.58
    
    Written Agreement by and among Citizens Republic Bancorp, Inc., Citizens Bank, the
Federal Reserve Bank of Chicago, and the Michigan Office of Financial and Insurance
Regulation, dated July 28, 2010 (Citizens Second Quarter 2010 Form 10-Q)10.59
    
    Form of Salary Stock Agreement with Cathleen H. Nash and Judith L. Klawinski (2010)10.60
    
    Form of Long-Term Incentive Restricted Stock Agreement with Cathleen H. Nash, Judith
L. Klawinski and Thomas C. Shafer relating to 2010 incentive award10.61
    
    Form of Long-Term Incentive Restricted Stock Unit Agreement with Thomas W. Gallagher
relating to 2010 incentive award10.62
    
    Form of Amended and Restated Change in Control Agreement with Cathleen H. Nash, Judith
L. Klawinski and Thomas W. Gallagher (2010)31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193432.1
    
    Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities
Exchange Act of 1934
 58