##### 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 March 31, 2007
 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 000-10535
 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,
   þ o
  þ o o
  o þ
   Class
    
    Outstanding at April 30, 2007Common Stock, No Par Value
    
    75,708,583 Shares




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##### 



Citizens Republic Bancorp, Inc.
 PagePart I  Financial Information (unaudited)Item 1 - Financial Statements (unaudited)Consolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    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
    
    
    20Item 3 - Quantitative and Qualitative Disclosures about Market Risk
    
    
    37Item 4 - Controls and Procedures
    
    
    37Part II  Other InformationItem 1A  Risk Factors
    
    
    38Item 2 -Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 6 - Exhibits
    
    
    38Signatures
    
    
    39Exhibit Index
    
    
    40Amended and Restated Articles of IncorporationRelease and Settlement AgreementCertification of Chief Executive OfficerCertification of Chief Financial OfficerSection 1350 Certification
  2




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##### Table of Contents



Consolidated Balance Sheets
 Citizens Republic Bancorp and Subsidiaries
 March 31,
    
    
    December 31,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2006(unaudited)
    
    
    (Note 1)
    
    
    (unaudited)AssetsCash and due from banks
    
    $
    197,834
    
    
    $
    223,747
    
    
    $
    152,077Interest-bearing deposits with banks
    
    
    191
    
    
    
    203
    
    
    
    1,503Investment Securities:Securities available for sale, at fair value
    
    
    2,326,257
    
    
    
    2,839,456
    
    
    
    1,466,796Securities held to maturity, at amortized cost
(fair value of $113,294, $110,283 and $89,699, respectively)
    
    
    112,613
    
    
    
    109,744
    
    
    
    90,346Total investment securities
    
    
    2,438,870
    
    
    
    2,949,200
    
    
    
    1,557,142FHLB and Federal Reserve stock
    
    
    132,895
    
    
    
    132,895
    
    
    
    55,975Portfolio loans:Commercial
    
    
    1,993,672
    
    
    
    2,004,894
    
    
    
    1,688,970Commercial real estate
    
    
    3,157,185
    
    
    
    3,120,613
    
    
    
    1,418,596Total commercial
    
    
    5,150,857
    
    
    
    5,125,507
    
    
    
    3,107,566Residential mortgage
    
    
    1,518,198
    
    
    
    1,543,533
    
    
    
    549,116Direct consumer
    
    
    1,677,842
    
    
    
    1,721,410
    
    
    
    1,109,249Indirect consumer
    
    
    831,302
    
    
    
    840,632
    
    
    
    826,060Total portfolio loans
    
    
    9,178,199
    
    
    
    9,231,082
    
    
    
    5,591,991Less: Allowance for loan losses
    
    
    (169,239
    )
    
    
    (169,104
    )
    
    
    (115,423
    )Net portfolio loans
    
    
    9,008,960
    
    
    
    9,061,978
    
    
    
    5,476,568Loans held for sale
    
    
    103,922
    
    
    
    172,842
    
    
    
    13,399Premises and equipment
    
    
    141,689
    
    
    
    139,490
    
    
    
    120,719Goodwill
    
    
    780,021
    
    
    
    781,635
    
    
    
    54,527Other intangible assets
    
    
    42,953
    
    
    
    46,071
    
    
    
    10,408Bank owned life insurance
    
    
    208,801
    
    
    
    206,851
    
    
    
    85,142Other assets
    
    
    261,111
    
    
    
    287,700
    
    
    
    134,715Total assets
    
    $
    13,317,247
    
    
    $
    14,002,612
    
    
    $
    7,662,175LiabilitiesNoninterest-bearing deposits
    
    $
    1,146,673
    
    
    $
    1,223,113
    
    
    $
    899,850Interest-bearing demand deposits
    
    
    875,579
    
    
    
    923,848
    
    
    
    816,293Savings deposits
    
    
    2,263,659
    
    
    
    2,280,496
    
    
    
    1,452,638Time deposits
    
    
    4,174,995
    
    
    
    4,270,604
    
    
    
    2,355,206Total deposits
    
    
    8,460,906
    
    
    
    8,698,061
    
    
    
    5,523,987Federal funds purchased and securities sold
under agreements to repurchase
    
    
    453,230
    
    
    
    922,328
    
    
    
    401,702Other short-term borrowings
    
    
    4,565
    
    
    
    16,551
    
    
    
    852Other liabilities
    
    
    133,175
    
    
    
    169,022
    
    
    
    82,203Long-term debt
    
    
    2,693,459
    
    
    
    2,638,964
    
    
    
    1,001,887Total liabilities
    
    
    11,745,335
    
    
    
    12,444,926
    
    
    
    7,010,631Shareholders EquityPreferred stock  no par value
Authorized - 5,000,000 shares; Issued  none
    
    
    
    
    
    
    
    
    
    
    Common stock  no par value
Authorized - 100,000,000 shares; Issued and outstanding - 75,656,564 at 3/31/07,
75,675,944 at 12/31/05, and 42,769,821 at 3/31/06
    
    
    978,245
    
    
    
    980,772
    
    
    
    80,341Retained earnings
    
    
    593,817
    
    
    
    584,289
    
    
    
    578,980Accumulated other comprehensive loss
    
    
    (150
    )
    
    
    (7,375
    )
    
    
    (7,777
    )Total shareholders equity
    
    
    1,571,912
    
    
    
    1,557,686
    
    
    
    651,544Total liabilities and shareholders equity
    
    $
    13,317,247
    
    
    $
    14,002,612
    
    
    $
    7,662,175
  3




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##### Table of Contents



Consolidated Statements of Income (Unaudited)
Citizens Republic Bancorp and Subsidiaries
 Three Months EndedMarch 31,(in thousands, except per share amounts)
    
    2007
    
    
    2006Interest IncomeInterest and fees on loans
    
    $
    171,844
    
    
    $
    93,451Interest and dividends on investment securities:Taxable
    
    
    23,791
    
    
    
    12,951Tax-exempt
    
    
    7,328
    
    
    
    5,317Dividends on FHLB and Federal Reserve stock
    
    
    1,736
    
    
    
    660Money market investments
    
    
    17
    
    
    
    12Total interest income
    
    
    204,716
    
    
    
    112,391Interest ExpenseDeposits
    
    
    66,434
    
    
    
    30,992Short-term borrowings
    
    
    11,001
    
    
    
    3,736Long-term debt
    
    
    28,940
    
    
    
    10,188Total interest expense
    
    
    106,375
    
    
    
    44,916Net Interest Income
    
    
    98,341
    
    
    
    67,475Provision for loan losses
    
    
    3,500
    
    
    
    3,000Net interest income after provision for loan losses
    
    
    94,841
    
    
    
    64,475Noninterest IncomeService charges on deposit accounts
    
    
    11,106
    
    
    
    8,875Trust fees
    
    
    4,955
    
    
    
    5,042Mortgage and other loan income
    
    
    6,137
    
    
    
    2,010Brokerage and investment fees
    
    
    1,549
    
    
    
    1,515ATM network user fees
    
    
    1,579
    
    
    
    987Bankcard fees
    
    
    1,180
    
    
    
    1,057Fair value change in CD swap derivatives
    
    
    
    
    
    
    (207
    )Other income
    
    
    4,807
    
    
    
    6,284Total fees and other income
    
    
    31,313
    
    
    
    25,563Investment securities gains
    
    
    77
    
    
    
    7Total noninterest income
    
    
    31,390
    
    
    
    25,570Noninterest ExpenseSalaries and employee benefits
    
    
    44,165
    
    
    
    32,256Occupancy
    
    
    7,910
    
    
    
    5,942Professional services
    
    
    4,152
    
    
    
    4,078Equipment
    
    
    3,911
    
    
    
    3,166Data processing services
    
    
    4,130
    
    
    
    3,739Advertising and public relations
    
    
    1,775
    
    
    
    2,034Postage and delivery
    
    
    1,964
    
    
    
    1,462Telephone
    
    
    2,064
    
    
    
    1,464Other loan expenses
    
    
    912
    
    
    
    416Stationery and supplies
    
    
    777
    
    
    
    727Intangible asset amortization
    
    
    3,118
    
    
    
    725Restructuring and merger-related expenses
    
    
    4,186
    
    
    
    Other expense
    
    
    4,646
    
    
    
    5,563Total noninterest expense
    
    
    83,710
    
    
    
    61,572Income Before Income Taxes
    
    
    42,521
    
    
    
    28,473Income tax provision
    
    
    11,029
    
    
    
    7,717Net Income
    
    $
    31,492
    
    
    $
    20,756Net Income Per Common Share:Basic
    
    $
    0.42
    
    
    $
    0.49Diluted
    
    
    0.41
    
    
    
    0.48Cash Dividends Declared Per Common Share
    
    
    0.290
    
    
    
    0.285Average Common Shares Outstanding:Basic
    
    
    75,448
    
    
    
    42,784Diluted
    
    
    75,918
    
    
    
    42,941
  4




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##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity
 Citizens Republic Bancorp and Subsidiaries
 AccumulatedOtherCommon Stock
    
    
    Retained
    
    
    Comprehensive(in thousands, except per share amounts)
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance at January 1, 2007
    
    
    75,676
    
    
    $
    980,772
    
    
    $
    584,289
    
    
    $
    (7,375
    )
    
    $
    1,557,686Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    31,492
    
    
    
    
    
    
    
    31,492Other comprehensive income:Net unrealized gain/(loss) on securities available-for-sale, net of
reclassification adjustment for net gains included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,541Net change in unrealized gain/(loss) on qualifying
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (316
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,225Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,717Proceeds from stock options exercised and restricted stock activity
    
    
    184
    
    
    
    1,613
    
    
    
    
    
    
    
    
    
    
    
    1,613Recognition of stock-based compensation
    
    
    
    
    
    
    613
    
    
    
    
    
    
    
    
    
    
    
    613Cash dividends declared on common shares  $0.290 per share
    
    
    
    
    
    
    
    
    
    
    (21,964
    )
    
    
    
    
    
    
    (21,964
    )Shares acquired for retirement
    
    
    (203
    )
    
    
    (4,753
    )
    
    
    
    
    
    
    
    
    
    
    (4,753
    )Balance  March 31, 2007
    
    
    75,657
    
    
    $
    978,245
    
    
    $
    593,817
    
    
    $
    (150
    )
    
    $
    1,571,912Balance at January 1, 2006
    
    
    42,968
    
    
    $
    85,526
    
    
    $
    570,483
    
    
    $
    454
    
    
    $
    656,463Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    20,756
    
    
    
    
    
    
    
    20,756Other comprehensive income:Net unrealized gain/(loss) on securities available-for-sale, net of
reclassification adjustment for net gains included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,319
    )Net change in unrealized gain/(loss) on qualifying
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,231
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,525Proceeds from stock options exercised and restricted stock activity
    
    
    56
    
    
    
    1,256
    
    
    
    
    
    
    
    
    
    
    
    1,256Recognition of stock-based compensation
    
    
    1
    
    
    
    409
    
    
    
    
    
    
    
    
    
    
    
    409Cash dividends declared on common shares  $0.285 per share
    
    
    
    
    
    
    
    
    
    
    (12,259
    )
    
    
    
    
    
    
    (12,259
    )Shares acquired for retirement
    
    
    (255
    )
    
    
    (6,850
    )
    
    
    
    
    
    
    
    
    
    
    (6,850
    )Balance  March 31, 2006
    
    
    42,770
    
    
    $
    80,341
    
    
    $
    578,980
    
    
    $
    (7,777
    )
    
    $
    651,544
  5




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##### Table of Contents



Consolidated Statements of Cash Flows
 Citizens Republic Bancorp and Subsidiaries
 Three Months EndedMarch 31,(in thousands)
    
    2007
    
    
    2006Operating Activities:Net income
    
    $
    31,492
    
    
    $
    20,756Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    3,500
    
    
    
    3,000Depreciation and amortization
    
    
    3,775
    
    
    
    2,993Amortization of intangibles
    
    
    3,118
    
    
    
    725Amortization and fair value adjustments of purchase accounting mark-to-market, net
    
    
    (25,923
    )
    
    
    Discount accretion and amortization of issuance costs on long term debt
    
    
    120
    
    
    
    Net amortization on investment securities
    
    
    (718
    )
    
    
    207Investment securities gains
    
    
    (77
    )
    
    
    (7
    )Loans originated for sale
    
    
    (156,458
    )
    
    
    (41,452
    )Proceeds from sales of mortgage loans held for sale
    
    
    230,893
    
    
    
    45,097Net gains from mortgage loan sales
    
    
    (4,016
    )
    
    
    (792
    )Net (gain) loss on sale of other real estate
    
    
    (334
    )
    
    
    292Recognition of stock-based compensation, net of tax
    
    
    613
    
    
    
    409Other
    
    
    (16,724
    )
    
    
    (5,883
    )Net cash provided by operating activities
    
    
    69,261
    
    
    
    25,345Investing Activities:Net (increase) decrease in money market investments
    
    
    12
    
    
    
    (1,123
    )Securities available-for-sale:Proceeds from sales
    
    
    364,391
    
    
    
    Proceeds from maturities and payments
    
    
    225,355
    
    
    
    52,747Purchases
    
    
    (64,253
    )
    
    
    (30,578
    )Securities held-to-maturity:Purchases
    
    
    (2,876
    )
    
    
    (7,947
    )Net decrease in loans and leases
    
    
    56,098
    
    
    
    20,151Proceeds from sale of commercial and residential real estate loans
    
    
    5,140
    
    
    
    Proceeds from sales of other real estate
    
    
    3,611
    
    
    
    1,274Net increase in properties and equipment
    
    
    (5,973
    )
    
    
    (1,982
    )Net cash used by investing activities
    
    
    581,505
    
    
    
    32,542Financing Activities:Net decrease in demand and savings deposits
    
    
    (141,546
    )
    
    
    (128,630
    )Net (decrease) increase in time deposits
    
    
    (95,080
    )
    
    
    178,778Net decrease in short-term borrowings
    
    
    (479,248
    )
    
    
    (126,567
    )Proceeds from issuance of long-term debt
    
    
    750,000
    
    
    
    Principal reductions in long-term debt
    
    
    (685,701
    )
    
    
    (6,286
    )Cash dividends paid
    
    
    (21,964
    )
    
    
    (12,259
    )Proceeds from stock options exercised and restricted stock activity
    
    
    1,613
    
    
    
    1,256Shares acquired for retirement
    
    
    (4,753
    )
    
    
    (6,850
    )Net cash provided by financing activities
    
    
    (676,679
    )
    
    
    (100,558
    )Net decrease in cash and due from banks
    
    
    (25,913
    )
    
    
    (42,671
    )Cash and due from banks at beginning of period
    
    
    223,747
    
    
    
    194,748Cash and due from banks at end of period
    
    $
    197,834
    
    
    $
    152,077Supplemental Cash Flow Information:Loans transferred to other real estate owned
    
    $
    1,796
    
    
    $
    1,095
  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
 Statements of Financial Accounting Standards
 FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an Interpretation
of FASB Statement No. 109, Accounting for Income Taxes.
 Note 2. New Accounting Pronouncements
 Final FASB Statements
 SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
 Note 3. Merger and Acquisition Activity
   7




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##### Table of Contents



Three Months EndedMarch 31, 2006Pro-forma
    
    
    Citizens historical(in thousands)
    
    combined
    
    
    without RepublicNet interest income
    
    $
    108,185
    
    
    $
    67,475Provision for loan losses
    
    
    4,400
    
    
    
    3,000Noninterest income
    
    
    32,888
    
    
    
    25,570Other noninterest expense
    
    
    81,783
    
    
    
    61,572Income before income taxes
    
    
    54,890
    
    
    
    28,473Net Income
    
    $
    38,818
    
    
    $
    20,756Net income per common share:Basic
    
    $
    0.51
    
    
    $
    0.49Diluted
    
    
    0.51
    
    
    
    0.48Weighted average shares outstanding during the period:Basic
    
    
    75,571
    
    
    
    42,784Diluted
    
    
    76,030
    
    
    
    42,941
  Restructuring Reserve
    
    Balance
    
    
    Changes in 2007
    
    
    BalanceDecember 31,
    
    
    
    
    
    
    cash
    
    
    other
    
    
    March 31,(in thousands)
    
    2006
    
    
    new charges
    
    
    payments
    
    
    adjustments
    
    
    2007Personnel
    
    $
    4,323
    
    
    $
    2,353
    
    
    $
    (1,094
    )
    
    $
    
    
    
    $
    5,582Facilities/Branches
    
    
    3,895
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,895Systems/Other
    
    
    791
    
    
    
    474
    
    
    
    (478
    )
    
    
    
    
    
    
    787$
    9,009
    
    
    $
    2,827
    
    
    $
    (1,572
    )
    
    $
    
    
    
    $
    10,264
  8




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##### Table of Contents



Merger-related Reserve
    
    Balance
    
    
    Changes in 2007
    
    
    BalanceDecember 31,
    
    
    
    
    
    
    cash
    
    
    other
    
    
    March 31,(in thousands)
    
    2006
    
    
    new charges
    
    
    payments
    
    
    adjustments
    
    
    2007Personnel
    
    $
    17,603
    
    
    $
    1,296
    
    
    $
    (10,018
    )
    
    $
    (960
    )
    
    $
    7,921Professional
    
    
    7,667
    
    
    
    
    
    
    
    (7,641
    )
    
    
    
    
    
    
    26Facilities/Branches
    
    
    2,205
    
    
    
    3
    
    
    
    (30
    )
    
    
    15
    
    
    
    2,193Systems/Other
    
    
    351
    
    
    
    59
    
    
    
    (325
    )
    
    
    
    
    
    
    85$
    27,826
    
    
    $
    1,358
    
    
    $
    (18,014
    )
    
    $
    (945
    )
    
    $
    10,225
   Note 4. Investment Securities
  March 31, 2007
    
    
    December 31, 2006Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Gross Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Gross Unrealized(in thousands)
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    LossesAvailable For Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    39,854
    
    
    $
    39,854
    
    
    $
    
    
    
    $
    Federal Agencies
    
    
    314,109
    
    
    
    315,047
    
    
    
    1,845
    
    
    
    907
    
    
    
    436,679
    
    
    
    436,315
    
    
    
    1,044
    
    
    
    1,408Collateralized Mortgage Obligations
    
    
    662,430
    
    
    
    662,792
    
    
    
    2,393
    
    
    
    2,031
    
    
    
    794,395
    
    
    
    791,739
    
    
    
    242
    
    
    
    2,898Mortgage-backed
    
    
    762,563
    
    
    
    766,400
    
    
    
    7,708
    
    
    
    3,871
    
    
    
    998,871
    
    
    
    994,767
    
    
    
    393
    
    
    
    4,497State and municipal
    
    
    565,510
    
    
    
    574,527
    
    
    
    9,872
    
    
    
    855
    
    
    
    566,230
    
    
    
    575,907
    
    
    
    10,328
    
    
    
    651Other
    
    
    7,450
    
    
    
    7,491
    
    
    
    41
    
    
    
    
    
    
    
    835
    
    
    
    874
    
    
    
    40
    
    
    
    1Total available for sale
    
    $
    2,312,062
    
    
    $
    2,326,257
    
    
    $
    21,859
    
    
    $
    7,664
    
    
    $
    2,836,864
    
    
    $
    2,839,456
    
    
    $
    12,047
    
    
    $
    9,455Held to Maturity:State and municipalTotal held to maturity
    
    $
    112,613
    
    
    $
    113,294
    
    
    $
    1,017
    
    
    $
    336
    
    
    $
    109,744
    
    
    $
    110,283
    
    
    $
    905
    
    
    $
    366FHLB and Fed Reserve stock
    
    $
    132,895
    
    
    $
    132,895
    
    
    $
    
    
    
    $
    
    
    
    $
    132,895
    
    
    $
    132,895
    
    
    $
    
    
    
    $
    
  9




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##### Table of Contents



As of March 31, 2007
 Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Federal agencies
    
    
    70,163
    
    
    
    603
    
    
    
    25,185
    
    
    
    304
    
    
    
    95,348
    
    
    
    907Collateralized Mortgage Obligations
    
    
    162,786
    
    
    
    965
    
    
    
    79,818
    
    
    
    1,065
    
    
    
    242,604
    
    
    
    2,030Mortgage-backed
    
    
    139,932
    
    
    
    2,733
    
    
    
    42,122
    
    
    
    1,138
    
    
    
    182,054
    
    
    
    3,871State and municipal
    
    
    177,297
    
    
    
    503
    
    
    
    17,497
    
    
    
    352
    
    
    
    194,794
    
    
    
    855Other
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    1
    
    
    
    91
    
    
    
    1Total available for sale
    
    
    550,178
    
    
    
    4,804
    
    
    
    164,713
    
    
    
    2,860
    
    
    
    714,891
    
    
    
    7,664Held to Maturity:State and municipal
    
    
    27,850
    
    
    
    170
    
    
    
    12,832
    
    
    
    166
    
    
    
    40,682
    
    
    
    336Total held to maturity
    
    
    27,850
    
    
    
    170
    
    
    
    12,832
    
    
    
    166
    
    
    
    40,682
    
    
    
    336Total
    
    $
    578,028
    
    
    $
    4,974
    
    
    $
    177,545
    
    
    $
    3,026
    
    
    $
    755,573
    
    
    $
    8,000
 As of December 31, 2006
 Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Federal agencies
    
    
    129,466
    
    
    
    892
    
    
    
    129,864
    
    
    
    516
    
    
    
    259,330
    
    
    
    1,408Collateralized Mortgage Obligations
    
    
    166,655
    
    
    
    1,476
    
    
    
    91,594
    
    
    
    1,422
    
    
    
    258,249
    
    
    
    2,898Mortgage-backed
    
    
    202,468
    
    
    
    3,217
    
    
    
    40,629
    
    
    
    1,280
    
    
    
    243,097
    
    
    
    4,497State and municipal
    
    
    37,016
    
    
    
    345
    
    
    
    15,200
    
    
    
    306
    
    
    
    52,216
    
    
    
    651Other
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    1
    
    
    
    103
    
    
    
    1Total available for sale
    
    
    535,605
    
    
    
    5,930
    
    
    
    277,390
    
    
    
    3,525
    
    
    
    812,995
    
    
    
    9,455Held to Maturity:State and municipal
    
    
    33,278
    
    
    
    207
    
    
    
    10,252
    
    
    
    159
    
    
    
    43,530
    
    
    
    366Total held to maturity
    
    
    33,278
    
    
    
    207
    
    
    
    10,252
    
    
    
    159
    
    
    
    43,530
    
    
    
    366Total
    
    $
    568,883
    
    
    $
    6,137
    
    
    $
    287,642
    
    
    $
    3,684
    
    
    $
    856,525
    
    
    $
    9,821
  10




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##### Table of Contents



Note 5. Allowance for Loan Losses and Impaired Loans
  Analysis of Allowance for Loan Losses
 Three Months EndedMarch 31,(in thousands)
    
    2007
    
    
    2006Allowance for loan losses  beginning of period
    
    $
    169,104
    
    
    $
    116,400Provision for loan losses
    
    
    3,500
    
    
    
    3,000Charge-offs:Commercial
    
    
    363
    
    
    
    921Commercial real estate
    
    
    421
    
    
    
    616Total commercial
    
    
    784
    
    
    
    1,537Residential mortgage
    
    
    791
    
    
    
    198Direct consumer
    
    
    2,084
    
    
    
    1,669Indirect consumer
    
    
    2,217
    
    
    
    2,829Total charge-offs
    
    
    5,876
    
    
    
    6,233Recoveries:Commercial
    
    
    1,130
    
    
    
    1,175Commercial real estate
    
    
    175
    
    
    
    79Total commercial
    
    
    1,305
    
    
    
    1,254Residential mortgage
    
    
    51
    
    
    
    55Direct consumer
    
    
    371
    
    
    
    285Indirect consumer
    
    
    784
    
    
    
    662Total recoveries
    
    
    2,511
    
    
    
    2,256Net charge-offs
    
    
    3,365
    
    
    
    3,977Allowance for loan losses  end of period
    
    $
    169,239
    
    
    $
    115,423
 Accounting by
Creditors for Impairment of a Loan,
 Impaired Loan Information
 Balances
    
    
    Valuation ReserveMarch 31,
    
    
    December 31,
    
    
    March 31,
    
    
    March 31,
    
    
    December 31,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2006Balances -Impaired loans with valuation reserve
    
    $
    40,753
    
    
    $
    20,737
    
    
    $
    12,936
    
    
    $
    15,904
    
    
    $
    7,550
    
    
    $
    5,454Impaired loans with no valuation reserve
    
    
    9,777
    
    
    
    21,641
    
    
    
    2,592
    
    
    
    
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    50,530
    
    
    $
    42,378
    
    
    $
    15,528
    
    
    $
    15,904
    
    
    $
    7,550
    
    
    $
    5,454Impaired loans on nonaccrual basis
    
    $
    37,189
    
    
    $
    11,321
    
    
    $
    5,646
    
    
    $
    12,099
    
    
    $
    2,104
    
    
    $
    2,061Impaired loans on accrual basis
    
    
    13,341
    
    
    
    31,057
    
    
    
    9,882
    
    
    
    3,805
    
    
    
    5,446
    
    
    
    3,393Total impaired loans
    
    $
    50,530
    
    
    $
    42,378
    
    
    $
    15,528
    
    
    $
    15,904
    
    
    $
    7,550
    
    
    $
    5,454
 11




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##### Table of Contents



Note 6. Long-term Debt
  March 31,
    
    
    December 31,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2006Citizens (Parent only):Subordinated debt:5.75% subordinated notes due February 2013
    
    $
    118,243
    
    
    $
    117,788
    
    
    $
    116,880Variable rate junior subordinated debenture due June 2033
    
    
    25,653
    
    
    
    25,628
    
    
    
    25,5557.50% junior subordinated debentures due September 2066
    
    
    145,309
    
    
    
    145,254
    
    
    
    8.60% junior subordinated debentures due December 2031
    
    
    51,546
    
    
    
    51,546
    
    
    
    Subsidiaries:Federal Home Loan Bank advances
    
    
    1,980,826
    
    
    
    1,715,132
    
    
    
    859,452Other borrowed funds
    
    
    371,882
    
    
    
    583,616
    
    
    
    Total long-term debt
    
    $
    2,693,459
    
    
    $
    2,638,964
    
    
    $
    1,001,887
  Note 7. Income Taxes
    Jurisdiction
    
    Tax YearsFederal
    
    2003 - 2006Indiana
    
    2003 - 2006Wisconsin
    
    1999 - 2006Iowa
    
    1999 - 2006
  12




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##### Table of Contents



Note 8. Accumulated Other Comprehensive Income
  Three Months EndedMarch 31,(in thousands)
    
    2007
    
    
    2006Balance at beginning of period
    
    $
    (7,375
    )
    
    $
    454Net unrealized gain (loss) on securities for the
quarter, net of tax effect of $4,049 in 2007 and
$(4,477) in 2006
    
    
    7,520
    
    
    
    (8,315
    )Less: Reclassification adjustment for net
gains on securities included in net income for
the quarter, net of tax effect of $12 in 2007
and $(3) in 2006
    
    
    21
    
    
    
    (4
    )Net change in unrealized (loss) gain on cash flow
hedges for the quarter, net of tax effect of
$(170) in 2007 and $48 in 2006
    
    
    (316
    )
    
    
    88Accumulated other comprehensive income, net of tax
    
    $
    (150
    )
    
    $
    (7,777
    )
 Note 9. Pension Benefit Cost
  Three Months EndedMarch 31,(in thousands)
    
    2007
    
    
    2006Defined Benefit Pension PlansService cost
    
    $
    
    
    
    
    1,015Interest cost
    
    
    1,187
    
    
    
    1,226Expected return on plan assets
    
    
    (1,956
    )
    
    
    (1,890
    )Amortization of unrecognized:Prior service cost
    
    
    3
    
    
    
    48Net actuarial loss
    
    
    125
    
    
    
    261Net pension cost
    
    $
    (641
    )
    
    $
    660Supplemental Pension PlansService cost
    
    $
    
    
    
    
    174Interest cost
    
    
    192
    
    
    
    145Amortization of unrecognized:Prior service cost
    
    
    42
    
    
    
    Net actuarial loss
    
    
    32
    
    
    
    30Net pension cost
    
    $
    266
    
    
    $
    349Postretirement Benefit PlansService cost
    
    $
    1
    
    
    
    1Interest cost
    
    
    160
    
    
    
    129Expected return on plan assets
Amortization of unrecognized:Prior service cost
    
    
    (67
    )
    
    
    (68
    )Net actuarial loss
    
    
    
    
    
    
    (7
    )Net pension cost
    
    $
    94
    
    
    $
    55Defined contribution retirement and 401K PlansEmployer contributions
    
    $
    1,636
    
    
    $
    1,006Total periodic benefit cost
    
    $
    1,355
    
    
    $
    2,070
  13




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##### Table of Contents



Note 10. Stock-Based Compensation
    Analysis of Stock-Based Compensation Expense
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006Stock Option Compensation
    
    $
    8
    
    
    $
    19Restricted Stock Compensation
    
    
    605
    
    
    
    390Stock-based compensation expense before income taxes
    
    
    613
    
    
    
    409Income tax benefit
    
    
    (215
    )
    
    
    (143
    )Total stock-based compensation expense after income taxes
    
    $
    398
    
    
    $
    266
 14




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##### Table of Contents



OptionsWeightedAverage
    
    
    Weighted Average
    
    
    (in thousands)Exercise
    
    
    Remaining
    
    
    AggregateShares
    
    
    Price
    
    
    Contractual Term
    
    
    Intrinsic ValueOutstanding at December 31, 2006
    
    
    4,775,700
    
    
    $
    24.95Granted
    
    
    
    
    
    
    Exercised
    
    
    (188,674
    )
    
    
    13.41Forfeitures or Expirations
    
    
    (19,263
    )
    
    
    27.80Outstanding at March 31, 2007
    
    
    4,567,763
    
    
    $
    25.42
    
    
    4.5 yrs
    
    $
    8,405Exercisable
    
    
    4,556,200
    
    
    $
    25.42
    
    
    4.5 yrs
    
    $
    8,404
    Weighted-AverageNumber of
    
    
    Grant Date FairShares
    
    
    ValueOutstanding restricted stock at December 31, 2006
    
    
    293,087
    
    
    $
    25.13Granted
    
    
    2,700
    
    
    
    24.14Vested
    
    
    (30,282
    )
    
    
    24.67Forfeited
    
    
    (9,002
    )
    
    
    27.89Restricted stock at March 31, 2007
    
    
    256,503
    
    
    $
    24.87
  Note 11. Earnings Per Share
  15




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##### Table of Contents



Three Months EndedMarch 31,(in thousands, except per share amounts)
    
    2007
    
    
    2006Numerator:Basic and dilutive earnings per share  net income
available to common shareholders
    
    $
    31,492
    
    
    $
    20,756Denominator:Basic earnings per share  weighted average shares
    
    
    75,448
    
    
    
    42,784Effect of dilutive securities  potential conversion
of employee stock options
    
    
    470
    
    
    
    157Diluted earnings per share  adjusted weighted-average
shares and assumed conversions
    
    
    75,918
    
    
    
    42,941Basic earnings per share
    
    $
    0.42
    
    
    $
    0.49Diluted earnings per share
    
    $
    0.41
    
    
    $
    0.48
 Note 12. Lines of Business
  16




---



##### Table of Contents



Line of Business Information
 Commercial
    
    
    Consumer
    
    
    Wealth(in thousands)
    
    Banking
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary  Three Months Ended March 31, 2007Net interest income (taxable equivalent)
    
    $
    46,077
    
    
    $
    65,339
    
    
    $
    235
    
    
    $
    (8,684
    )
    
    $
    102,967Provision for loan losses
    
    
    1,084
    
    
    
    2,389
    
    
    
    27
    
    
    
    
    
    
    
    3,500Net interest income after provision
    
    
    44,993
    
    
    
    62,950
    
    
    
    208
    
    
    
    (8,684
    )
    
    
    99,467Noninterest income
    
    
    4,666
    
    
    
    17,700
    
    
    
    6,273
    
    
    
    2,751
    
    
    
    31,390Noninterest expense
    
    
    22,154
    
    
    
    44,331
    
    
    
    5,750
    
    
    
    11,475
    
    
    
    83,710Income before income taxes
    
    
    27,505
    
    
    
    36,319
    
    
    
    731
    
    
    
    (17,408
    )
    
    
    47,147Income tax expense (taxable equivalent)
    
    
    9,627
    
    
    
    12,711
    
    
    
    315
    
    
    
    (6,998
    )
    
    
    15,655Net income
    
    $
    17,878
    
    
    $
    23,608
    
    
    $
    416
    
    
    $
    (10,410
    )
    
    $
    31,492Average assets(in millions)
    
    $
    5,065
    
    
    $
    2,395
    
    
    $
    28
    
    
    $
    6,086
    
    
    $
    13,574Earnings Summary  Three Months Ended March 31, 2006(1)Net interest income (taxable equivalent)
    
    $
    30,926
    
    
    $
    35,654
    
    
    $
    332
    
    
    $
    3,979
    
    
    $
    70,891Provision for loan losses
    
    
    1,188
    
    
    
    1,812
    
    
    
    
    
    
    
    
    
    
    
    3,000Net interest income after provision
    
    
    29,738
    
    
    
    33,842
    
    
    
    332
    
    
    
    3,979
    
    
    
    67,891Noninterest income
    
    
    3,750
    
    
    
    13,728
    
    
    
    6,504
    
    
    
    1,588
    
    
    
    25,570Noninterest expense
    
    
    18,153
    
    
    
    31,264
    
    
    
    6,171
    
    
    
    5,984
    
    
    
    61,572Income before income taxes
    
    
    15,335
    
    
    
    16,306
    
    
    
    665
    
    
    
    (417
    )
    
    
    31,889Income tax expense (taxable equivalent)
    
    
    5,403
    
    
    
    5,713
    
    
    
    239
    
    
    
    (222
    )
    
    
    11,133Net income
    
    $
    9,932
    
    
    $
    10,593
    
    
    $
    426
    
    
    $
    (195
    )
    
    $
    20,756Average assets(in millions)
    
    $
    3,007
    
    
    $
    1,001
    
    
    $
    28
    
    
    $
    3,617
    
    
    $
    7,653
 
 (1)
    
    Certain amounts have been reclassified to conform to current year presentation. Note 13. Commitments, Contingent Liabilities and Guarantees
  17




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##### Table of Contents



March 31,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Loan commitments and letters of credit:Commitments to extend credit
    
    $
    2,554,130
    
    
    $
    2,559,121Financial standby letters of credit
    
    
    152,146
    
    
    
    146,863Performance standby letters of credit
    
    
    18,511
    
    
    
    24,609Commercial letters of credit
    
    
    187,811
    
    
    
    194,834Total loan commitments and letters of credit
    
    $
    2,912,598
    
    
    $
    2,925,427
  Note 14. Derivatives and Hedging Activities
 Accounting for Derivative Instruments and Hedging Activities, Accounting for Certain Derivative Instruments and Certain Hedging Activities
   18




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##### Table of Contents



Derivative Financial Instruments:
 March 31, 2007
    
    
    December 31, 2006Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueReceive fixed swaps
    
    $
    245,000
    
    
    $
    (150
    )
    
    $
    268,300
    
    
    $
    (1,839
    )Pay fixed swaps
    
    
    84,000
    
    
    
    746
    
    
    
    104,000
    
    
    
    1,242Customer initiated swaps and corresponding offsets
    
    
    411,596
    
    
    
    
    
    
    
    378,590
    
    
    
    Interest rate lock commitments
    
    
    30,090
    
    
    
    (37
    )
    
    
    29,875
    
    
    
    (11
    )Forward mortgage loan contracts
    
    
    46,420
    
    
    
    50
    
    
    
    78,498
    
    
    
    257Total
    
    $
    817,106
    
    
    $
    609
    
    
    $
    859,263
    
    
    $
    (351
    )
 Derivative Classifications and Hedging Relationships:
 March 31, 2007
    
    
    December 31, 2006Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueDerivatives Designated as Cash Flow Hedges:Hedging repurchase agreements
    
    $
    84,000
    
    
    $
    746
    
    
    $
    104,000
    
    
    $
    1,242Derivatives Designated as Fair Value Hedges:Hedging time deposits
    
    
    95,000
    
    
    
    22
    
    
    
    95,000
    
    
    
    47Hedging long-term debt
    
    
    150,000
    
    
    
    (172
    )
    
    
    100,000
    
    
    
    (390
    )Derivatives Not Designated as Hedges:Receive fixed swaps
    
    
    
    
    
    
    
    
    
    
    73,300
    
    
    
    (1,496
    )Customer initiated swaps and corresponding offsets
    
    
    411,596
    
    
    
    
    
    
    
    378,590
    
    
    
    Total
    
    $
    740,596
    
    
    $
    596
    
    
    $
    750,890
    
    
    $
    (597
    )
 Note 15. Subsequent Events
   19




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##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
 Selected Quarterly Information
Citizens Republic Bancorp and Subsidiaries
 Three Months EndedMarch 31,
    
    December 31,
    
    September 30,
    
    June 30,
    
    March 31,2007
    
    2006
    
    2006
    
    2006
    
    2006Summary of Operations (thousands)Net interest income
    
    
    98,341
    
    
    
    64,010
    
    
    
    65,645
    
    
    
    65,990
    
    
    
    67,475Provision for loan losses
    
    
    3,500
    
    
    
    5,936
    
    
    
    1,190
    
    
    
    1,139
    
    
    
    3,000Total fees and other income
    
    
    31,313
    
    
    
    24,358
    
    
    
    23,544
    
    
    
    23,691
    
    
    
    25,563Investment securities gains (losses) (1)
    
    
    77
    
    
    
    (6,590
    )
    
    
    
    
    
    
    54
    
    
    
    7Noninterest expense (2)
    
    
    83,710
    
    
    
    78,788
    
    
    
    59,402
    
    
    
    60,065
    
    
    
    61,572Income tax provision
    
    
    11,029
    
    
    
    (3,638
    )
    
    
    7,616
    
    
    
    7,624
    
    
    
    7,717Net income
    
    
    31,492
    
    
    
    692
    
    
    
    20,981
    
    
    
    20,907
    
    
    
    20,756Taxable equivalent adjustment
    
    
    4,625
    
    
    
    3,505
    
    
    
    3,413
    
    
    
    3,383
    
    
    
    3,416Cash dividends
    
    
    21,964
    
    
    
    12,443
    
    
    
    12,435
    
    
    
    12,394
    
    
    
    12,258Per Common Share DataBasic net income
    
    $
    0.42
    
    
    $
    0.02
    
    
    $
    0.49
    
    
    $
    0.49
    
    
    $
    0.49Diluted net income
    
    
    0.41
    
    
    
    0.02
    
    
    
    0.49
    
    
    
    0.49
    
    
    
    0.48Cash dividends
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.285Market value (end of period)
    
    
    22.16
    
    
    
    26.50
    
    
    
    26.26
    
    
    
    24.41
    
    
    
    26.85Book value (end of period)
    
    
    20.78
    
    
    
    20.58
    
    
    
    15.72
    
    
    
    15.15
    
    
    
    15.23At Period End (millions)Assets
    
    $
    13,317
    
    
    $
    14,003
    
    
    $
    7,748
    
    
    $
    7,813
    
    
    $
    7,662Portfolio loans
    
    
    9,178
    
    
    
    9,231
    
    
    
    5,753
    
    
    
    5,728
    
    
    
    5,592Deposits
    
    
    8,461
    
    
    
    8,698
    
    
    
    5,625
    
    
    
    5,685
    
    
    
    5,524Shareholders equity
    
    
    1,572
    
    
    
    1,558
    
    
    
    674
    
    
    
    650
    
    
    
    652Average for the Quarter (millions)Assets
    
    $
    13,574
    
    
    $
    7,770
    
    
    $
    7,723
    
    
    $
    7,670
    
    
    $
    7,653Portfolio loans
    
    
    9,179
    
    
    
    5,762
    
    
    
    5,694
    
    
    
    5,610
    
    
    
    5,561Deposits
    
    
    8,525
    
    
    
    5,597
    
    
    
    5,680
    
    
    
    5,560
    
    
    
    5,513Shareholders equity
    
    
    1,552
    
    
    
    683
    
    
    
    659
    
    
    
    647
    
    
    
    655Ratios (annualized)Return on average assets
    
    
    0.94
    %
    
    
    0.04
    %
    
    
    1.08
    %
    
    
    1.09
    %
    
    
    1.10
    %Return on average shareholders equity
    
    
    8.23
    
    
    
    0.40
    
    
    
    12.63
    
    
    
    12.96
    
    
    
    12.86Average equity to average assets
    
    
    11.43
    
    
    
    8.79
    
    
    
    8.53
    
    
    
    8.44
    
    
    
    8.55Net interest margin (FTE) (3)
    
    
    3.44
    
    
    
    3.67
    
    
    
    3.78
    
    
    
    3.84
    
    
    
    3.97Efficiency ratio (4)
    
    
    62.34
    
    
    
    85.76
    
    
    
    64.15
    
    
    
    64.54
    
    
    
    63.84Net loans charged off to average portfolio loans
    
    
    0.15
    
    
    
    0.52
    
    
    
    0.19
    
    
    
    0.14
    
    
    
    0.29Allowance for loan losses to portfolio loans
    
    
    1.84
    
    
    
    1.83
    
    
    
    1.97
    
    
    
    2.00
    
    
    
    2.06Nonperforming assets to portfolio loans plus ORAA (end of period)
    
    
    1.25
    
    
    
    1.10
    
    
    
    0.69
    
    
    
    0.61
    
    
    
    0.65Nonperforming assets to total assets (end of period)
    
    
    0.86
    
    
    
    0.73
    
    
    
    0.52
    
    
    
    0.44
    
    
    
    0.48Leverage ratio (5)
    
    
    7.64
    
    
    
    7.22
    
    
    
    8.29
    
    
    
    8.21
    
    
    
    8.14Tier 1 capital ratio
    
    
    9.89
    
    
    
    9.41
    
    
    
    10.13
    
    
    
    9.96
    
    
    
    10.09Total capital ratio
    
    
    12.42
    
    
    
    11.90
    
    
    
    13.37
    
    
    
    13.20
    
    
    
    13.39
 (1)
    
    Investment securities gains (losses) includes a $7.2 million impairment charge in the fourth quarter of 2006 related to the Republic merger.(2)
    
    Noninterest expense includes restructuring and merger related expenses of $4.2 during the first quarter of 2007 and $11.3 million related to the
Republic merger
during the fourth quarter of 2006.(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/(Net interest income + Taxable equivalent
adjustment + Total fees and other income).(5)
    
    The Tier I leverage ratio is calculated using ending assets instead of average assets in the fourth quarter of 2006 due to the Republic merger on
December 29, 2006 20




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##### Table of Contents



Introduction
  Forward  Looking Statements
  
    
    Citizens faces the risk that loan losses, including unanticipated loan losses due to
changes in loan portfolios, fraud and economic factors, will exceed the allowance for loan
losses and that additional increases in the allowance will be required. Additions to the
allowance would cause net income to decline and could have a negative impact on capital and
financial position.
    
    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 net interest income and results of
operations.
    
    An economic downturn, and the negative economic effects caused by terrorist attacks,
potential attacks and other destabilizing events, would likely contribute to the
deterioration of the quality of the loan portfolio and could reduce Citizens customer
base, its level of deposits, and demand for financial products such as loans.
    
    If Citizens is unable to continue to attract core deposits or continue to obtain third
party financing on favorable terms, its cost of funds will increase, adversely affecting
the ability to generate the funds necessary for lending operations, reducing net interest
margin and negatively affecting results of operations.
    
    If Citizens is unable to retain legacy loans and deposits of Republic Bancorp Inc.
(Republic) as a result of the conversion of Republics computer systems to Citizens
systems and as a result of branch consolidations, it may not have the ability to retain and
grow the Republic customer base and capture revenue synergies.
    
    Increased competition with other financial institutions or an adverse change in
Citizens relationship with a number of major customers could reduce Citizens 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. If Citizens
were to lend to customers who are less likely to pay in order to maintain historical
origination levels, it may not be able to maintain current loan quality levels.
    
    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.
    
    Citizens business may be adversely affected by the highly regulated environment in
which it operates. Changes in banking or tax laws, regulations and regulatory practices at
either the federal or state level may adversely affect the Corporation, including its
ability to offer new products and services, obtain financing, pay dividends from the
subsidiaries to the Holding Company, attract deposits, make loans and leases at
satisfactory spreads, and may also result in the imposition of additional costs.
    
    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
 21




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##### Table of Contents



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 Citizens
financial condition and results of operations.
    
    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 position.
    
    Citizens business continuity plans or data security systems could prove to be
inadequate, resulting in a material interruption in, or disruption to, Citizens business
and a negative impact on the 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 acquired operations could have a negative
effect on Citizens expenses and results of operations.
    
    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 Citizens expenses 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.
    
    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, by-laws and shareholder rights agreement, as well
as certain banking laws, may have an anti-takeover effect.
  Critical Accounting Policies
  Subsequent Events
  22




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##### Table of Contents



23




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##### Table of Contents



Results of Operations
 Financial Statement Impact as a Result of the Republic Merger
  Summary
     Net Interest Income and Net Interest Margin
  24




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##### Table of Contents



Average Balances/Net Interest Income/Average Rates
 2007
    
    
    2006Three Months Ended March 31,
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    840
    
    
    $
    17
    
    
    
    8.55
    %
    
    $
    1,684
    
    
    $
    12
    
    
    
    2.82
    %Investment securities (3):Taxable
    
    
    1,938,432
    
    
    
    23,791
    
    
    
    4.91
    
    
    
    1,125,391
    
    
    
    12,951
    
    
    
    4.60Tax-exempt
    
    
    670,159
    
    
    
    7,328
    
    
    
    6.73
    
    
    
    446,657
    
    
    
    5,317
    
    
    
    7.33FHLB and Federal Reserve stock
    
    
    132,895
    
    
    
    1,736
    
    
    
    5.23
    
    
    
    56,006
    
    
    
    660
    
    
    
    4.71Portfolio Loans (4):Commercial
    
    
    1,960,678
    
    
    
    37,219
    
    
    
    7.83
    
    
    
    1,646,899
    
    
    
    27,982
    
    
    
    7.02Commercial real estate
    
    
    3,153,730
    
    
    
    59,603
    
    
    
    7.67
    
    
    
    1,415,201
    
    
    
    23,985
    
    
    
    6.88Residential mortgage
    
    
    1,535,636
    
    
    
    25,560
    
    
    
    6.66
    
    
    
    541,390
    
    
    
    7,664
    
    
    
    5.66Direct consumer
    
    
    1,696,461
    
    
    
    32,720
    
    
    
    7.82
    
    
    
    1,124,379
    
    
    
    20,011
    
    
    
    7.22Indirect consumer
    
    
    832,917
    
    
    
    13,937
    
    
    
    6.79
    
    
    
    833,436
    
    
    
    13,577
    
    
    
    6.61Total portfolio loans
    
    
    9,179,422
    
    
    
    169,039
    
    
    
    7.48
    
    
    
    5,561,305
    
    
    
    93,219
    
    
    
    6.83Loans held for sale
    
    
    144,006
    
    
    
    2,805
    
    
    
    7.82
    
    
    
    16,471
    
    
    
    232
    
    
    
    5.64Total earning assets (3)
    
    
    12,065,754
    
    
    
    204,716
    
    
    
    7.01
    
    
    
    7,207,514
    
    
    
    112,391
    
    
    
    6.49Nonearning AssetsCash and due from banks
    
    
    188,763
    
    
    
    
    
    
    
    
    
    
    
    165,909Bank premises and equipment
    
    
    139,628
    
    
    
    
    
    
    
    
    
    
    
    121,348Investment security fair value adjustment
    
    
    3,154
    
    
    
    
    
    
    
    
    
    
    
    (3,305
    )Other nonearning assets
    
    
    1,344,570
    
    
    
    
    
    
    
    
    
    
    
    277,382Allowance for loan losses
    
    
    (167,771
    )
    
    
    
    
    
    
    
    
    
    
    (116,151
    )Total assets
    
    $
    13,574,098
    
    
    
    
    
    
    
    
    
    
    $
    7,652,697Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    $
    903,134
    
    
    $
    1,663
    
    
    
    0.75
    %
    
    $
    857,273
    
    
    $
    1,362
    
    
    
    0.64
    %Savings deposits
    
    
    2,271,532
    
    
    
    16,573
    
    
    
    2.96
    
    
    
    1,448,866
    
    
    
    7,973
    
    
    
    2.23Time deposits
    
    
    4,205,636
    
    
    
    48,198
    
    
    
    4.65
    
    
    
    2,281,926
    
    
    
    21,657
    
    
    
    3.85Short-term borrowings
    
    
    906,216
    
    
    
    11,001
    
    
    
    4.92
    
    
    
    390,307
    
    
    
    3,736
    
    
    
    3.88Long-term debt
    
    
    2,410,542
    
    
    
    28,940
    
    
    
    4.84
    
    
    
    1,003,780
    
    
    
    10,188
    
    
    
    4.10Total interest-bearing liabilities
    
    
    10,697,060
    
    
    
    106,375
    
    
    
    4.03
    
    
    
    5,982,152
    
    
    
    44,916
    
    
    
    3.04Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,144,773
    
    
    
    
    
    
    
    
    
    
    
    924,788Other liabilities
    
    
    180,214
    
    
    
    
    
    
    
    
    
    
    
    91,150Shareholders equity
    
    
    1,552,051
    
    
    
    
    
    
    
    
    
    
    
    654,607Total liabilities and shareholders equity
    
    $
    13,574,098
    
    
    
    
    
    
    
    
    
    
    $
    7,652,697Net Interest Income
    
    
    
    
    
    $
    98,341
    
    
    
    
    
    
    
    
    
    
    $
    67,475Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.98
    %
    
    
    
    
    
    
    
    
    
    
    3.45
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    0.46
    
    
    
    
    
    
    
    
    
    
    
    0.52Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.44
    %
    
    
    
    
    
    
    
    
    
    
    3.97
    %
 
 (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 $4.6 million and $3.4 million for the three months ended March
31, 2007 and 2006, 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, a 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)
    
    Because noninterest-bearing funding sources, demand deposits, other liabilities and
shareholders equity also support earning assets, the net int margin exceeds the interest spread.  25




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##### Table of Contents



Analysis of Changes in Interest Income and Interest Expense
 Three Months Ended March 31,Increase (Decrease)2007 compared with 2006
    
    Net
    
    
    Due to Change in(in thousands)
    
    Change(1)
    
    
    Rate(2)
    
    
    Volume(2)Interest Income:Money market investments
    
    
    5
    
    
    
    13
    
    
    
    (8
    )Investment securities:Taxable
    
    
    10,840
    
    
    
    914
    
    
    
    9,926Tax-exempt
    
    
    2,011
    
    
    
    (463
    )
    
    
    2,474FHLB and Federal Reserve stock
    
    
    1,076
    
    
    
    79
    
    
    
    997Loans:Commercial
    
    
    9,237
    
    
    
    3,519
    
    
    
    5,718Commercial real estate
    
    
    35,618
    
    
    
    3,052
    
    
    
    32,566Residential mortgage loans
    
    
    17,896
    
    
    
    1,563
    
    
    
    16,333Direct consumer
    
    
    12,709
    
    
    
    1,796
    
    
    
    10,913Indirect consumer
    
    
    360
    
    
    
    368
    
    
    
    (8
    )Total portfolio loans
    
    
    75,820
    
    
    
    10,298
    
    
    
    65,522Loans held for sale
    
    
    2,573
    
    
    
    121
    
    
    
    2,452Total
    
    
    92,325
    
    
    
    10,962
    
    
    
    81,363Interest Expense:Deposits:Interest-bearing demand
    
    
    301
    
    
    
    225
    
    
    
    76Savings
    
    
    8,600
    
    
    
    3,136
    
    
    
    5,464Time
    
    
    26,541
    
    
    
    5,243
    
    
    
    21,298Short-term borrowings
    
    
    7,265
    
    
    
    1,226
    
    
    
    6,039Long-term debt
    
    
    18,752
    
    
    
    2,164
    
    
    
    16,588Total
    
    
    61,459
    
    
    
    11,994
    
    
    
    49,465Net Interest Income
    
    $
    30,866
    
    
    $
    (1,032
    )
    
    $
    31,898
 
 (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.   26




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##### Table of Contents



Noninterest Income
  Noninterest Income
 Three Months EndedMarch 31,
    
    
    Change in 2007(dollars in thousands)
    
    2007
    
    
    2006
    
    
    Amount
    
    
    PercentService charges on deposit accounts
    
    $
    11,106
    
    
    $
    8,875
    
    
    $
    2,231
    
    
    
    25.1
    %Trust fees
    
    
    4,955
    
    
    
    5,042
    
    
    
    (87
    )
    
    
    (1.7
    )Mortgage and other loan income
    
    
    6,137
    
    
    
    2,010
    
    
    
    4,127
    
    
    
    205.4Brokerage and investment fees
    
    
    1,549
    
    
    
    1,515
    
    
    
    34
    
    
    
    2.2ATM network user fees
    
    
    1,579
    
    
    
    987
    
    
    
    592
    
    
    
    60.0Bankcard fees
    
    
    1,180
    
    
    
    1,057
    
    
    
    123
    
    
    
    11.6Fair value change in CD swap derivatives
    
    
    
    
    
    
    (207
    )
    
    
    207
    
    
    
    100.0Other income
    
    
    4,807
    
    
    
    6,284
    
    
    
    (1,477
    )
    
    
    (23.5
    )Total fees and other income
    
    
    31,313
    
    
    
    25,563
    
    
    
    5,750
    
    
    
    22.5Investment securities gains
    
    
    77
    
    
    
    7
    
    
    
    70
    
    
    
    952.8Total noninterest income
    
    $
    31,390
    
    
    $
    25,570
    
    
    $
    5,820
    
    
    
    22.8
      27




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##### Table of Contents



Noninterest Expense
  Noninterest Expense
 Three Months EndedMarch 31,
    
    
    Change in 2007(dollars in thousands)
    
    2007
    
    
    2006
    
    
    Amount
    
    
    PercentSalaries and employee benefits
    
    $
    44,165
    
    
    $
    32,256
    
    
    $
    11,909
    
    
    
    36.9
    %Occupancy
    
    
    7,910
    
    
    
    5,942
    
    
    
    1,968
    
    
    
    33.1Professional services
    
    
    4,152
    
    
    
    4,078
    
    
    
    74
    
    
    
    1.8Equipment
    
    
    3,911
    
    
    
    3,166
    
    
    
    745
    
    
    
    23.5Data processing services
    
    
    4,130
    
    
    
    3,739
    
    
    
    391
    
    
    
    10.5Advertising and public relations
    
    
    1,775
    
    
    
    2,034
    
    
    
    (259
    )
    
    
    (12.7
    )Postage and delivery
    
    
    1,964
    
    
    
    1,462
    
    
    
    502
    
    
    
    34.3Telephone
    
    
    2,064
    
    
    
    1,464
    
    
    
    600
    
    
    
    41.0Other loan expenses
    
    
    912
    
    
    
    416
    
    
    
    496
    
    
    
    119.2Stationery and supplies
    
    
    777
    
    
    
    727
    
    
    
    50
    
    
    
    6.8Intangible asset amortization
    
    
    3,118
    
    
    
    725
    
    
    
    2,393
    
    
    
    330.2Restructuring and merger-related expenses
    
    
    4,186
    
    
    
    
    
    
    
    4,186
    
    
    
    Other expenses
    
    
    4,646
    
    
    
    5,563
    
    
    
    (917
    )
    
    
    (16.5
    )Total noninterest expense
    
    $
    83,710
    
    
    $
    61,572
    
    
    $
    22,138
    
    
    
    36.0
        28




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##### Table of Contents



Income Taxes
    Lines of Business Results
  Three Months EndedMarch 31,(in thousands)
    
    2007
    
    
    2006Commercial Banking
    
    $
    17,878
    
    
    $
    9,932Consumer Banking
    
    
    23,608
    
    
    
    10,593Wealth Management
    
    
    416
    
    
    
    426Other
    
    
    (10,410
    )
    
    
    (195
    )Net Income
    
    $
    31,492
    
    
    $
    20,756
 Commercial Banking
  29




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##### Table of Contents



Consumer Banking
  Wealth Management
  Other
  Financial Condition
  Investment Securities
  Portfolio Loans
    30




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##### Table of Contents



Nonperforming Assets
  Nonperforming Assets
 March 31,
    
    
    December 31,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2006Nonperforming LoansCommercial
    
    $
    8,827
    
    
    $
    7,709
    
    
    $
    10,594Commercial real estate
    
    
    40,621
    
    
    
    14,915
    
    
    
    5,219Total commercial
    
    
    49,448
    
    
    
    22,624
    
    
    
    15,813Residential mortgage
    
    
    30,591
    
    
    
    28,428
    
    
    
    7,396Direct consumer
    
    
    8,166
    
    
    
    6,030
    
    
    
    3,911Indirect consumer
    
    
    595
    
    
    
    810
    
    
    
    569Total consumer
    
    
    8,761
    
    
    
    6,840
    
    
    
    4,480Total nonaccrual loans
    
    
    88,800
    
    
    
    57,892
    
    
    
    27,689Loans 90 days past due and still accruing
    
    
    1,388
    
    
    
    767
    
    
    
    547Restructured loans
    
    
    363
    
    
    
    378
    
    
    
    1,844Total nonperforming portfolio loans
    
    
    90,551
    
    
    
    59,037
    
    
    
    30,080Nonperforming held for sale
    
    
    4,630
    
    
    
    22,846
    
    
    
    Other Repossessed Assets Acquired (ORAA)
    
    
    19,482
    
    
    
    20,165
    
    
    
    6,397Total nonperforming assets
    
    $
    114,663
    
    
    $
    102,048
    
    
    $
    36,477Nonperforming assets as a percent of portfolio loans plus ORAA (1)
    
    
    1.25
    %
    
    
    1.10
    %
    
    
    0.65
    %Nonperforming assets as a percent of total assets
    
    
    0.86
    
    
    
    0.73
    
    
    
    0.48Allowance for loan loss as a percent of nonperforming loans
    
    
    186.90
    
    
    
    286.44
    
    
    
    383.72Allowance for loan loss as a percent of nonperforming assets
    
    
    147.60
    
    
    
    165.71
    
    
    
    316.43
 
 (1)
    
    Portfolio loans exclude mortgage loans held for sale.  31




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Provision and Allowance for Loan Losses
  Analysis of Allowance for Loan Losses
 Three Months EndedMarch 31,(in thousands)
    
    2007
    
    
    2006Allowance for loan losses  beginning of period
    
    $
    169,104
    
    
    $
    116,400Provision for loan losses
    
    
    3,500
    
    
    
    3,000Charge-offs
    
    
    5,876
    
    
    
    6,233Recoveries
    
    
    2,511
    
    
    
    2,256Net charge-offs
    
    
    3,365
    
    
    
    3,977Allowance for loan losses  end of period
    
    $
    169,239
    
    
    $
    115,423Portfolio loans outstanding at period end (1)
    
    $
    9,178,199
    
    
    $
    5,591,991Average portfolio loans outstanding during period (1)
    
    
    9,179,422
    
    
    
    5,561,305Allowance for loan losses as a percentage of portfolio loans
    
    
    1.84
    %
    
    
    2.06
    %Ratio of net charge-offs during period to average portfolio loans (annualized)
    
    
    0.15
    
    
    
    0.29
 
 (1)
    
    Balances exclude mortgage loans held for sale.   32




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##### Table of Contents



Loans Held for Sale
  Goodwill and Other Intangible Assets
  33




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##### Table of Contents



Deposits
   Borrowed Funds
   Capital Resources
  34




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##### Table of Contents



Capital Ratios
 Regulatory MinimumWell-
    
    March 31,
    
    December 31,
    
    March 31,Required
    
    Capitalized
    
    2007
    
    2006
    
    2006Risk based:Tier 1 capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    9.89
    %
    
    
    9.41
    %
    
    
    10.09
    %Total capital
    
    
    8.00
    
    
    
    10.00
    
    
    
    12.42
    
    
    
    11.90
    
    
    
    13.39Tier 1 Leverage (1)
    
    
    4.00
    
    
    
    5.00
    
    
    
    7.64
    
    
    
    7.22
    
    
    
    8.14
 
 (1)
    
    For December 31, 2006, the Tier 1 leverage ratio is calculated using ending assets instead of average assets due to the Republic merger on December 29, 2006  Contractual Obligations and Off-Balance Sheet Arrangements
  Liquidity and Debt Capacity
     35




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##### Table of Contents



Interest Rate Risk
      36




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  37




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 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
    
    (a)January 2007
    
    
    471
    (a)
    
    
    25.58
    
    
    
    
    
    
    
    1,906,200February 2007
    
    
    9,783
    (a)
    
    
    24.69
    
    
    
    
    
    
    
    1,906,200March 2007
    
    
    205,046
    
    
    
    22.97
    
    
    
    205,046
    
    
    
    1,701,154Total
    
    
    215,300
    
    
    
    23.05
    
    
    
    205,046
    
    
    
    1,701,154
 
 (a)
    
    Shares repurchased in connection with taxes due from employees as a result of the vesting of
certain share awards were not part of the repurchase program approved in October 2003. ®
 
 Item 6. Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation as amended on April 26, 200710.36
    
    Release and Settlement Agreement with Dana M. Cluckey, dated April 26, 2007.31.1
    
    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
 38




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##### Table of Contents



SIGNATURES
  CITIZENS REPUBLIC BANCORP, INC.Date: May 4, 2007
    By
    /s/ Charles D. ChristyCharles D. ChristyChief Financial Officer
(principal financial officer and duly authorized officer) 39




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##### Table of Contents



10-Q EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Articles of Incorporation as amended on April 26, 200710.36
    
    Release and Settlement ,Agreement with Dana M. Cluckey, dated April 26, 2007.31.1
    
    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
 40