##### 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 June 30, 2009
 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
    
    (I.R.S. Employerincorporation or organization)
    
    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
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer  o
(Do not check if smaller reporting company)
    
    Smaller reporting company o
 o þ
   Class
    
    Outstanding at July 31, 2009Common Stock, No Par Value
    
    126,254,560 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
    
    
    30Item 3   Quantitative and Qualitative Disclosures about Market Risk
    
    
    52Item 4   Controls and Procedures
    
    
    52Part II  Other InformationItem 1A   Risk Factors
    
    
    53Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    56Item 6   Exhibits
    
    
    57Signatures
    
    
    58Exhibit Index
    
    
    59EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



Consolidated Balance Sheets
Citizens Republic Bancorp and Subsidiaries
 June 30,
    
    
    December 31,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2008(unaudited)
    
    
    (Note 1)
    
    
    (unaudited)AssetsCash and due from banks
    
    $
    164,143
    
    
    $
    171,695
    
    
    $
    252,242Money market investments:Federal funds sold
    
    
    
    
    
    
    
    
    
    
    Money market investments
    
    
    560,695
    
    
    
    214,925
    
    
    
    183Investment Securities:Securities available for sale, at fair value
    
    
    2,194,238
    
    
    
    2,248,772
    
    
    
    1,986,166Securities held to maturity, at amortized cost
(fair value of $137,155, $137,846 and $136,423, respectively)
    
    
    137,080
    
    
    
    138,575
    
    
    
    138,435Total investment securities
    
    
    2,331,318
    
    
    
    2,387,347
    
    
    
    2,124,601FHLB and Federal Reserve stock
    
    
    156,277
    
    
    
    148,764
    
    
    
    148,838Portfolio loans:Commercial and industrial
    
    
    2,198,315
    
    
    
    2,602,334
    
    
    
    2,703,812Commercial real estate
    
    
    2,922,429
    
    
    
    2,964,721
    
    
    
    3,101,337Total commercial
    
    
    5,120,744
    
    
    
    5,567,055
    
    
    
    5,805,149Residential mortgage
    
    
    1,145,020
    
    
    
    1,262,841
    
    
    
    1,308,729Direct consumer
    
    
    1,351,513
    
    
    
    1,452,166
    
    
    
    1,502,302Indirect consumer
    
    
    808,311
    
    
    
    820,536
    
    
    
    832,836Total portfolio loans
    
    
    8,425,588
    
    
    
    9,102,598
    
    
    
    9,449,016Less: Allowance for loan losses
    
    
    (333,369
    )
    
    
    (255,321
    )
    
    
    (181,718
    )Net portfolio loans
    
    
    8,092,219
    
    
    
    8,847,277
    
    
    
    9,267,298Loans held for sale
    
    
    78,144
    
    
    
    91,362
    
    
    
    111,542Premises and equipment
    
    
    121,465
    
    
    
    124,217
    
    
    
    125,073Goodwill
    
    
    330,744
    
    
    
    597,218
    
    
    
    597,218Other intangible assets
    
    
    17,425
    
    
    
    21,414
    
    
    
    25,766Bank owned life insurance
    
    
    219,290
    
    
    
    218,333
    
    
    
    218,084Other assets
    
    
    216,628
    
    
    
    263,464
    
    
    
    299,173Total assets
    
    $
    12,288,348
    
    
    $
    13,086,016
    
    
    $
    13,170,018LiabilitiesNoninterest-bearing deposits
    
    $
    1,221,124
    
    
    $
    1,143,294
    
    
    $
    1,144,544Interest-bearing demand deposits
    
    
    977,530
    
    
    
    780,176
    
    
    
    763,983Savings deposits
    
    
    2,644,611
    
    
    
    2,504,320
    
    
    
    2,616,316Time deposits
    
    
    4,070,216
    
    
    
    4,624,616
    
    
    
    4,136,295Total deposits
    
    
    8,913,481
    
    
    
    9,052,406
    
    
    
    8,661,138Federal funds purchased and securities sold
under agreements to repurchase
    
    
    45,703
    
    
    
    65,015
    
    
    
    299,646Other short-term borrowings
    
    
    14,197
    
    
    
    10,377
    
    
    
    45,398Other liabilities
    
    
    153,142
    
    
    
    164,274
    
    
    
    119,860Long-term debt
    
    
    1,936,673
    
    
    
    2,192,623
    
    
    
    2,498,290Total liabilities
    
    
    11,063,196
    
    
    
    11,484,695
    
    
    
    11,624,332Shareholders EquityPreferred stock $50 par valueAuthorized 5,000,000 shares, Issued and outstanding  2,407,644 at 6/30/08
    
    
    
    
    
    
    
    
    
    
    114,161Preferred stock  no par valueAuthorized  5,000,000 shares; Issued and outstanding  300,000 at 6/30/09
and 12/31/08, redemption value of $300 million
    
    
    269,013
    
    
    
    266,088
    
    
    
    Common stock  no par valueAuthorized  150,000,000 shares; Issued and outstanding  126,257,801 at 6/30/09,
125,996,938 at 12/31/08, and 95,898,894 at 6/30/08
    
    
    1,215,021
    
    
    
    1,214,469
    
    
    
    1,052,738Retained (deficit) earnings
    
    
    (231,503
    )
    
    
    170,358
    
    
    
    384,867Accumulated other comprehensive loss
    
    
    (27,379
    )
    
    
    (49,594
    )
    
    
    (6,080
    )Total shareholders equity
    
    
    1,225,152
    
    
    
    1,601,321
    
    
    
    1,545,686Total liabilities and shareholders equity
    
    $
    12,288,348
    
    
    $
    13,086,016
    
    
    $
    13,170,018
  3




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##### Table of Contents



Consolidated Statements of Operations (Unaudited)
Citizens Republic Bancorp and Subsidiaries
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands, except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Interest IncomeInterest and fees on loans
    
    $
    114,481
    
    
    $
    146,179
    
    
    $
    233,672
    
    
    $
    303,180Interest and dividends on investment securities:Taxable
    
    
    20,068
    
    
    
    19,021
    
    
    
    41,980
    
    
    
    40,044Tax-exempt
    
    
    6,729
    
    
    
    7,280
    
    
    
    13,686
    
    
    
    14,650Dividends on FHLB and Federal Reserve stock
    
    
    529
    
    
    
    1,898
    
    
    
    1,895
    
    
    
    3,591Money market investments
    
    
    325
    
    
    
    16
    
    
    
    588
    
    
    
    46Total interest income
    
    
    142,132
    
    
    
    174,394
    
    
    
    291,821
    
    
    
    361,511Interest ExpenseDeposits
    
    
    42,288
    
    
    
    53,134
    
    
    
    89,428
    
    
    
    114,712Short-term borrowings
    
    
    53
    
    
    
    1,836
    
    
    
    147
    
    
    
    6,807Long-term debt
    
    
    24,190
    
    
    
    31,809
    
    
    
    49,699
    
    
    
    64,065Total interest expense
    
    
    66,531
    
    
    
    86,779
    
    
    
    139,274
    
    
    
    185,584Net Interest Income
    
    
    75,601
    
    
    
    87,615
    
    
    
    152,547
    
    
    
    175,927Provision for loan losses
    
    
    99,962
    
    
    
    74,480
    
    
    
    163,979
    
    
    
    105,099Net interest income after provision for loan losses
    
    
    (24,361
    )
    
    
    13,135
    
    
    
    (11,432
    )
    
    
    70,828Noninterest IncomeService charges on deposit accounts
    
    
    10,836
    
    
    
    12,036
    
    
    
    21,104
    
    
    
    23,502Trust fees
    
    
    3,464
    
    
    
    4,608
    
    
    
    6,883
    
    
    
    9,392Mortgage and other loan income
    
    
    3,715
    
    
    
    3,023
    
    
    
    6,794
    
    
    
    6,367Brokerage and investment fees
    
    
    1,450
    
    
    
    2,211
    
    
    
    2,777
    
    
    
    4,127ATM network user fees
    
    
    1,665
    
    
    
    1,677
    
    
    
    3,119
    
    
    
    3,090Bankcard fees
    
    
    2,093
    
    
    
    1,924
    
    
    
    3,987
    
    
    
    3,668Losses on loans held for sale
    
    
    (4,350
    )
    
    
    (2,248
    )
    
    
    (10,502
    )
    
    
    (2,247
    )Other income
    
    
    2,088
    
    
    
    3,827
    
    
    
    6,032
    
    
    
    10,084Total fees and other income
    
    
    20,961
    
    
    
    27,058
    
    
    
    40,194
    
    
    
    57,983Investment securities gains
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    Total noninterest income
    
    
    20,966
    
    
    
    27,058
    
    
    
    40,199
    
    
    
    57,983Noninterest ExpenseSalaries and employee benefits
    
    
    35,950
    
    
    
    39,046
    
    
    
    69,867
    
    
    
    81,271Occupancy
    
    
    6,762
    
    
    
    6,954
    
    
    
    14,685
    
    
    
    14,629Professional services
    
    
    2,783
    
    
    
    4,531
    
    
    
    5,919
    
    
    
    8,294Equipment
    
    
    3,049
    
    
    
    3,420
    
    
    
    5,899
    
    
    
    6,650Data processing services
    
    
    4,346
    
    
    
    4,233
    
    
    
    8,620
    
    
    
    8,537Advertising and public relations
    
    
    2,274
    
    
    
    1,458
    
    
    
    3,699
    
    
    
    3,296Postage and delivery
    
    
    1,526
    
    
    
    2,058
    
    
    
    3,101
    
    
    
    3,785Other loan expenses
    
    
    6,861
    
    
    
    3,448
    
    
    
    12,798
    
    
    
    5,259Other real estate (ORE) expenses
    
    
    4,417
    
    
    
    6,394
    
    
    
    12,777
    
    
    
    7,636Intangible asset amortization
    
    
    1,952
    
    
    
    2,333
    
    
    
    3,989
    
    
    
    4,780Goodwill impairment
    
    
    266,474
    
    
    
    178,089
    
    
    
    266,474
    
    
    
    178,089Other expense
    
    
    19,039
    
    
    
    9,264
    
    
    
    28,383
    
    
    
    15,564Total noninterest expense
    
    
    355,433
    
    
    
    261,228
    
    
    
    436,211
    
    
    
    337,790Loss Before Income Taxes
    
    
    (358,828
    )
    
    
    (221,035
    )
    
    
    (407,444
    )
    
    
    (208,979
    )Income tax benefit
    
    
    (11,415
    )
    
    
    (19,401
    )
    
    
    (14,882
    )
    
    
    (18,472
    )Net Loss
    
    
    (347,413
    )
    
    
    (201,634
    )
    
    
    (392,562
    )
    
    
    (190,507
    )Dividend on redeemable preferred stock
    
    
    (5,196
    )
    
    
    
    
    
    
    (9,299
    )
    
    
    Net Loss Attributable to Common Shareholders
    
    $
    (352,609
    )
    
    $
    (201,634
    )
    
    $
    (401,861
    )
    
    $
    (190,507
    )Net Loss Per Common Share:Basic
    
    $
    (2.79
    )
    
    $
    (2.51
    )
    
    $
    (3.18
    )
    
    $
    (2.44
    )Diluted
    
    
    (2.81
    )
    
    
    (2.53
    )
    
    
    (3.20
    )
    
    
    (2.46
    )Cash Dividends Declared Per Common Share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.29Average Common Shares Outstanding:Basic
    
    
    125,459
    
    
    
    79,689
    
    
    
    125,430
    
    
    
    77,469Diluted
    
    
    125,503
    
    
    
    79,700
    
    
    
    125,465
    
    
    
    77,486
  4




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##### Table of Contents



Consolidated
Statements of Changes in Shareholders Equity
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, 2008
    
    $
    266,088
    
    
    
    125,997
    
    
    $
    1,214,469
    
    
    $
    170,358
    
    
    $
    (49,594
    )
    
    $
    1,601,321Comprehensive loss, net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (392,562
    )
    
    
    
    
    
    
    (392,562
    )Other comprehensive income (loss):Net unrealized gain on securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,718Net change in unrealized loss on qualifying cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,999
    )Net change in unrecognized pension and post retirement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,504
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,215Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (370,347
    )Dividends on preferred stock
    
    
    2,925
    
    
    
    
    
    
    
    
    
    
    
    (9,299
    )
    
    
    
    
    
    
    (6,374
    )Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    615
    
    
    
    
    
    
    
    
    
    
    
    615Shares purchased for taxes
    
    
    
    
    
    
    (46
    )
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    (63
    )Balance  June 30, 2009
    
    $
    269,013
    
    
    
    126,258
    
    
    $
    1,215,021
    
    
    $
    (231,503
    )
    
    $
    (27,379
    )
    
    $
    1,225,152Balance at December 31, 2007
    
    $
    
    
    
    
    75,722
    
    
    $
    975,446
    
    
    $
    597,333
    
    
    $
    5,101
    
    
    $
    1,577,880Comprehensive loss, net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (190,507
    )
    
    
    
    
    
    
    (190,507
    )Other comprehensive income:Net unrealized loss on securities available for sale, net of
reclassification adjustment for net gains included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,448
    )Net change in unrealized loss on qualifying cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (733
    )Other comprehensive loss total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,181
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201,688
    )Proceeds from issuance of preferred stock (2,408 shares),
net of costs of $6,221
    
    
    114,161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,161Proceeds from issuance of common stock, net of costs of $4,094
    
    
    
    
    
    
    19,904
    
    
    
    75,524
    
    
    
    
    
    
    
    
    
    
    
    75,524Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    303
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    66Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,142
    
    
    
    
    
    
    
    
    
    
    
    2,142Cash dividends declared on common shares  $0.290 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,959
    )
    
    
    
    
    
    
    (21,959
    )Shares acquired for retirement and purchased for taxes
    
    
    
    
    
    
    (30
    )
    
    
    (440
    )
    
    
    
    
    
    
    
    
    
    
    (440
    )Balance  June 30, 2008
    
    $
    114,161
    
    
    
    95,899
    
    
    $
    1,052,738
    
    
    $
    384,867
    
    
    $
    (6,080
    )
    
    $
    1,545,686
  5




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##### Table of Contents



Consolidated Statements of Cash Flows
Citizens Republic Bancorp and Subsidiaries
 Six Months EndedJune 30,(in thousands)
    
    2009
    
    
    2008Operating Activities:Net loss
    
    $
    (392,562
    )
    
    $
    (190,507
    )Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    163,979
    
    
    
    105,099Goodwill impairment
    
    
    266,474
    
    
    
    178,089Depreciation and software amortization
    
    
    7,422
    
    
    
    5,921Amortization of intangibles
    
    
    3,989
    
    
    
    4,780Net increase in current and deferred income taxes
    
    
    (228
    )
    
    
    (8,490
    )Amortization and fair value adjustments of purchase accounting mark-to-market, net
    
    
    (5,272
    )
    
    
    (9,157
    )Fair value adjustment on loans held for sale and other real estate
    
    
    16,310
    
    
    
    7,315Discount accretion and amortization of issuance costs on long term debt
    
    
    605
    
    
    
    599Net accretion on investment securities
    
    
    (111
    )
    
    
    (3,291
    )Loans originated for sale
    
    
    (195,344
    )
    
    
    (182,062
    )Proceeds from loans held for sale
    
    
    197,534
    
    
    
    223,359Net gains from loan sales
    
    
    (4,273
    )
    
    
    (4,098
    )Net loss on other real estate
    
    
    412
    
    
    
    1,821Recognition of stock-based compensation
    
    
    615
    
    
    
    2,142Other
    
    
    5,824
    
    
    
    (1,183
    )Net cash provided by operating activities
    
    
    65,374
    
    
    
    130,337Investing Activities:Net increase in money market investments
    
    
    (345,770
    )
    
    
    (11
    )Securities available-for-sale:Proceeds from sales
    
    
    1,000
    
    
    
    Proceeds from maturities and payments
    
    
    390,504
    
    
    
    251,297Purchases
    
    
    (297,127
    )
    
    
    (117,258
    )Securities held-to-maturity:Proceeds from maturities and payments
    
    
    1,508
    
    
    
    1,505Purchases
    
    
    
    
    
    
    (11,637
    )Net decrease (increase) in loans and leases
    
    
    577,894
    
    
    
    (147,097
    )Proceeds from sales of other real estate
    
    
    17,397
    
    
    
    16,317Net increase in properties and equipment
    
    
    (4,670
    )
    
    
    (1,246
    )Net cash provided (used) by investing activities
    
    
    340,736
    
    
    
    (8,130
    )Financing Activities:Net increase in demand and savings deposits
    
    
    415,475
    
    
    
    394,175Net decrease in time deposits
    
    
    (555,181
    )
    
    
    (34,674
    )Net decrease in short-term borrowings
    
    
    (14,549
    )
    
    
    (197,014
    )Proceeds from issuance of long-term debt
    
    
    0
    
    
    
    525,000Principal reductions in long-term debt
    
    
    (252,970
    )
    
    
    (965,908
    )Net proceeds from issuance of common stock
    
    
    
    
    
    
    75,524Proceeds from issuance of preferred convertible stock
    
    
    
    
    
    
    114,161Cash dividends paid on common stock
    
    
    
    
    
    
    (21,959
    )Cash dividends paid on preferred stock
    
    
    (6,374
    )
    
    
    Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    66Shares acquired for retirement and purchased for taxes
    
    
    (63
    )
    
    
    (440
    )Net cash used by financing activities
    
    
    (413,662
    )
    
    
    (111,069
    )Net (decrease) increase in cash and due from banks
    
    
    (7,552
    )
    
    
    11,138Cash and due from banks at beginning of period
    
    
    171,695
    
    
    
    241,104Cash and due from banks at end of period
    
    $
    164,143
    
    
    $
    252,242Supplemental Cash Flow Information:Interest paid
    
    $
    143,049
    
    
    $
    191,786Income tax refund, net
    
    
    (14,654
    )
    
    
    (9,982
    )Loans transferred to other real estate
    
    
    18,511
    
    
    
    39,323Accretion on redeemable preferred stock
    
    
    2,925
    
    
    
    Loans held for sale transferred to other real estate
    
    
    8,290
    
    
    
    5,639Loans transferred to held for sale
    
    
    
    
    
    
    82,493
  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 (SFAS)
 SFAS 161 Disclosures about Derivative Instruments and Hedging Activities  An Amendment of FASB
Statement No. 133.
  7




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##### Table of Contents



FASB Staff Position (FSP) on SFAS No. 157-2.
 FSP Emerging Issues Task Force (EITF) 03-6-1 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities.
 FSP-SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments.
 FSP-SFAS 157-4 Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.
 FSP-SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments.
 Note 2. Pending Accounting Pronouncements
 SFAS No. 167 Amendments to FASB Interpretation No. 46(R ). Consolidation of Variable Interest Entities,
 8




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##### Table of Contents



SFAS No. 168 The FASB Accounting Standards Codification TM and the Hierarchy of
Generally Accepted Accounting Principles  A Replacement of FASB Statement No. 162. FASB Accounting Standards Codification TM 
 FSP SFAS 132(R)-1 , Employers Disclosures about Postretirement Benefit Plan Assets.
 Note 3. Investment Securities
  June 30, 2009
    
    
    December 31, 2008Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Gross Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Gross Unrealized(in thousands)
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    LossesAvailable for Sale:Federal Agencies
    
    $
    185,118
    
    
    $
    190,619
    
    
    $
    5,503
    
    
    $
    2
    
    
    $
    248,819
    
    
    $
    257,445
    
    
    $
    8,626
    
    
    $
    Collateralized Mortgage 
Obligations(1)
    
    
    471,670
    
    
    
    449,932
    
    
    
    6,124
    
    
    
    27,862
    
    
    
    528,626
    
    
    
    471,010
    
    
    
    4,147
    
    
    
    61,763Mortgage-backed(1)
    
    
    1,025,495
    
    
    
    1,053,027
    
    
    
    28,012
    
    
    
    480
    
    
    
    960,841
    
    
    
    973,961
    
    
    
    13,929
    
    
    
    809State and municipal
    
    
    490,022
    
    
    
    497,249
    
    
    
    9,460
    
    
    
    2,233
    
    
    
    531,625
    
    
    
    538,761
    
    
    
    10,990
    
    
    
    3,854Other
    
    
    3,412
    
    
    
    3,411
    
    
    
    
    
    
    
    1
    
    
    
    7,598
    
    
    
    7,595
    
    
    
    
    
    
    
    3Total available for sale
    
    $
    2,175,717
    
    
    $
    2,194,238
    
    
    $
    49,099
    
    
    $
    30,578
    
    
    $
    2,277,509
    
    
    $
    2,248,772
    
    
    $
    37,692
    
    
    $
    66,429Held to Maturity:State and municipalTotal held to maturity
    
    $
    137,080
    
    
    $
    137,155
    
    
    $
    1,573
    
    
    $
    1,498
    
    
    $
    138,575
    
    
    $
    137,846
    
    
    $
    1,708
    
    
    $
    2,437FHLB and Fed Reserve stock
    
    $
    156,277
    
    
    $
    156,277
    
    
    $
    
    
    
    $
    
    
    
    $
    148,764
    
    
    $
    148,764
    
    
    $
    
    
    
    $
    
 
 (1)
    
    All collateralized mortgage obligations and mortgage backed securities are comprised
of residential mortgages and contain no commercial mortgages.   9




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##### Table of Contents



As of June 30, 2009
    
    Amortized
    
    
    Estimated Fair(in thousands)
    
    Cost
    
    
    ValueAvailable for SaleFederal Agencies and State and MunicipalContractual maturity within one year
    
    $
    82,339
    
    
    $
    84,159After one year through five years
    
    
    258,562
    
    
    
    266,930After five years through ten years
    
    
    208,372
    
    
    
    212,113After ten years
    
    
    125,867
    
    
    
    124,666Subtotal
    
    
    675,140
    
    
    
    687,868Collateralized Mortgage Obligations and Mortgage-backed
    
    
    1,497,165
    
    
    
    1,502,959Other
    
    
    3,412
    
    
    
    3,411Total securities available for sale
    
    $
    2,175,717
    
    
    $
    2,194,238Held to MaturityState and MunicipalContractual maturity within one year
    
    $
    
    
    
    $
    After one year through five years
    
    
    3,916
    
    
    
    4,122After five years through ten years
    
    
    44,425
    
    
    
    44,995After ten years
    
    
    88,739
    
    
    
    88,038Total securities held to maturity
    
    $
    137,080
    
    
    $
    137,155
  As of June 30, 2009
 Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:Federal agencies
    
    $
    13,447
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    13,447
    
    
    $
    2Collateralized Mortgage Obligations
    
    
    10,473
    
    
    
    1,071
    
    
    
    197,896
    
    
    
    26,791
    
    
    
    208,369
    
    
    
    27,862Mortgage-backed
    
    
    44,216
    
    
    
    468
    
    
    
    530
    
    
    
    12
    
    
    
    44,746
    
    
    
    480State and municipal
    
    
    95,103
    
    
    
    1,646
    
    
    
    11,499
    
    
    
    587
    
    
    
    106,602
    
    
    
    2,233Other
    
    
    12
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    1Total available for sale
    
    
    163,251
    
    
    
    3,188
    
    
    
    209,925
    
    
    
    27,390
    
    
    
    373,176
    
    
    
    30,578Held to Maturity:State and municipal
    
    
    49,214
    
    
    
    1,028
    
    
    
    6,661
    
    
    
    470
    
    
    
    55,875
    
    
    
    1,498Total held to maturity
    
    
    49,214
    
    
    
    1,028
    
    
    
    6,661
    
    
    
    470
    
    
    
    55,875
    
    
    
    1,498Total
    
    $
    212,465
    
    
    $
    4,216
    
    
    $
    216,586
    
    
    $
    27,860
    
    
    $
    429,051
    
    
    $
    32,076As of December 31, 2008Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:Collateralized Mortgage Obligations
    
    $
    231,892
    
    
    $
    61,436
    
    
    $
    3,085
    
    
    $
    327
    
    
    $
    234,977
    
    
    $
    61,763Mortgage-backed
    
    
    74,081
    
    
    
    796
    
    
    
    421
    
    
    
    13
    
    
    
    74,502
    
    
    
    809State and municipal
    
    
    112,353
    
    
    
    3,688
    
    
    
    3,220
    
    
    
    166
    
    
    
    115,573
    
    
    
    3,854Other
    
    
    7
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    3Total available for sale
    
    
    418,333
    
    
    
    65,923
    
    
    
    6,726
    
    
    
    506
    
    
    
    425,059
    
    
    
    66,429Held to Maturity:State and municipal
    
    
    51,896
    
    
    
    1,967
    
    
    
    6,481
    
    
    
    470
    
    
    
    58,377
    
    
    
    2,437Total held to maturity
    
    
    51,896
    
    
    
    1,967
    
    
    
    6,481
    
    
    
    470
    
    
    
    58,377
    
    
    
    2,437Total
    
    $
    470,229
    
    
    $
    67,890
    
    
    $
    13,207
    
    
    $
    976
    
    
    $
    483,436
    
    
    $
    68,866
 10




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##### Table of Contents



11




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##### Table of Contents



Note 4. Allowance for Loan Losses and Impaired Loans
  Analysis of Allowance for Loan Losses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Allowance for loan losses  beginning of period
    
    $
    282,647
    
    
    $
    176,528
    
    
    $
    255,321
    
    
    $
    163,353Provision for loan losses
    
    
    99,962
    
    
    
    74,480
    
    
    
    163,979
    
    
    
    105,099Charge-offs:Commercial and industrial
    
    
    9,845
    
    
    
    921
    
    
    
    17,953
    
    
    
    1,966Commercial real estate
    
    
    31,645
    
    
    
    42,225
    
    
    
    50,622
    
    
    
    51,357Total commercial
    
    
    41,490
    
    
    
    43,146
    
    
    
    68,575
    
    
    
    53,323Residential mortgage
    
    
    2,161
    
    
    
    20,738
    
    
    
    2,965
    
    
    
    22,507Direct consumer
    
    
    6,826
    
    
    
    3,631
    
    
    
    11,533
    
    
    
    7,153Indirect consumer
    
    
    5,041
    
    
    
    3,525
    
    
    
    10,548
    
    
    
    6,666Charge-offs
    
    
    55,518
    
    
    
    71,040
    
    
    
    93,621
    
    
    
    89,649Recoveries:Commercial
    
    
    3,028
    
    
    
    302
    
    
    
    3,156
    
    
    
    444Commercial real estate
    
    
    2,316
    
    
    
    241
    
    
    
    2,720
    
    
    
    291Total commercial
    
    
    5,344
    
    
    
    543
    
    
    
    5,876
    
    
    
    735Residential mortgage
    
    
    4
    
    
    
    15
    
    
    
    7
    
    
    
    15Direct consumer
    
    
    325
    
    
    
    565
    
    
    
    659
    
    
    
    1,037Indirect consumer
    
    
    605
    
    
    
    627
    
    
    
    1,148
    
    
    
    1,128Recoveries
    
    
    6,278
    
    
    
    1,750
    
    
    
    7,690
    
    
    
    2,915Net charge-offs
    
    
    49,240
    
    
    
    69,290
    
    
    
    85,931
    
    
    
    86,734Allowance for loan losses  end of period
    
    $
    333,369
    
    
    $
    181,718
    
    
    $
    333,369
    
    
    $
    181,718
  Impaired Loan Information
 Balances
    
    
    Valuation ReserveJune 30,
    
    
    December 31,
    
    
    June 30,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008BalancesImpaired loans with valuation reserve
    
    $
    221,904
    
    
    $
    101,671
    
    
    $
    70,271
    
    
    $
    39,885Impaired loans with no valuation reserve
    
    
    125,444
    
    
    
    87,330
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    347,688
    
    
    $
    189,001
    
    
    $
    70,271
    
    
    $
    39,885Impaired loans on nonaccrual basis
    
    $
    345,566
    
    
    $
    189,001
    
    
    $
    70,271
    
    
    $
    39,885Impaired loans on accrual basis
    
    
    2,112
    
    
    
    
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    347,688
    
    
    $
    189,001
    
    
    $
    70,271
    
    
    $
    39,885
 12




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##### Table of Contents



Note 5. Goodwill
      13




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##### Table of Contents



Specialty
    
    
    Regional
    
    
    Wealth
    
    
    Total(in thousands)
    
    Commercial
    
    
    Banking
    
    
    Management
    
    
    GoodwillBalance at December 31, 2007
    
    $
    178,089
    
    
    $
    595,418
    
    
    $
    1,801
    
    
    $
    775,308Impairment Loss
    
    
    (178,089
    )
    
    
    
    
    
    
    
    
    
    
    (178,089
    )Tax Benefits on Share Based Payments
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Balance at December 31, 2008
    
    $
    
    
    
    $
    595,417
    
    
    $
    1,801
    
    
    $
    597,218Impairment Loss
    
    
    
    
    
    
    (266,474
    )
    
    
    
    
    
    
    (266,474
    )Balance at June 30, 2009
    
    $
    
    
    
    $
    328,943
    
    
    $
    1,801
    
    
    $
    330,744
 Note 6. Long-Term Debt
  June 30,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Citizens (Parent only):5.75% subordinated notes due February 2013
    
    $
    120,668
    
    
    $
    120,136Variable rate junior subordinated debenture due June 2033
    
    
    25,774
    
    
    
    25,7747.50% junior subordinated debentures due September 2066
    
    
    147,440
    
    
    
    146,927Subsidiaries:Federal Home Loan Bank advances
    
    
    1,538,089
    
    
    
    1,666,483Other borrowed funds
    
    
    104,702
    
    
    
    233,303Total long-term debt
    
    $
    1,936,673
    
    
    $
    2,192,623
  Note 7. Income Taxes
   Note 8. Accumulated Other Comprehensive Income
  14




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    (35,472
    )
    
    $
    14,083
    
    
    $
    (49,594
    )
    
    $
    5,101Net change in unrealized gain on securities for
the quarter, net of tax effect of $6,397 in
2009 and ($10,240) in 2008 and net unrealized
loss on securities for the six months period,
net of tax effect of $16,541 in 2009 and
($5,625) in 2008
    
    
    11,880
    
    
    
    (19,018
    )
    
    
    30,718
    
    
    
    (10,448
    )Net change in unrealized loss on cash flow
hedges for the quarter, net of tax effect of
($2,039) in 2009 and ($617) in 2008 and net
change in unrealized loss for the six month
period, net of tax effect of ($2,692) in 2009
and ($395) in 2008
    
    
    (3,787
    )
    
    
    (1,145
    )
    
    
    (4,999
    )
    
    
    (733
    )Net change in unrecognized pension and
postretirement costs, net of tax effect of
($1,887) in 2009
    
    
    
    
    
    
    
    
    
    
    (3,504
    )
    
    
    Accumulated other comprehensive loss, net of tax
    
    $
    (27,379
    )
    
    $
    (6,080
    )
    
    $
    (27,379
    )
    
    $
    (6,080
    )
  Note 9. Fair Values of Assets and Liabilities
       15




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##### Table of Contents



ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS
 Investment Securities Available for Sale.
  Derivative Financial Instruments.
 Deferred Compensation Assets.
  16




---



##### Table of Contents



June 30, 2009(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Investment Securities Available for Sale:Federal Agencies
    
    $
    190,619
    
    
    $
    
    
    
    $
    190,619
    
    
    $
    Collateralized Mortgage Obligations
    
    
    449,932
    
    
    
    
    
    
    
    449,932
    
    
    
    Mortgage-backed
    
    
    1,053,027
    
    
    
    
    
    
    
    1,053,027
    
    
    
    State and municipal
    
    
    497,249
    
    
    
    
    
    
    
    491,493
    
    
    
    5,756Other
    
    
    3,411
    
    
    
    
    
    
    
    3,095
    
    
    
    316Total Investment Securities Available for Sale
    
    
    2,194,238
    
    
    
    
    
    
    
    2,188,166
    
    
    
    6,072Other assetsDerivative Financial Instruments
    
    
    54,750
    
    
    
    
    
    
    
    54,750
    
    
    
    Deferred Compensation Assets
    
    
    10,996
    
    
    
    4,261
    
    
    
    6,735
    
    
    
    Total Other assets
    
    
    65,746
    
    
    
    4,261
    
    
    
    61,485
    
    
    
    Total Assets
    
    $
    2,259,984
    
    
    $
    4,261
    
    
    $
    2,249,651
    
    
    $
    6,072Other liabilitiesDerivative Financial Instruments
    
    $
    30,677
    
    
    $
    
    
    
    $
    30,677
    
    
    $
    Total Other Liabilities
    
    
    30,677
    
    
    
    
    
    
    
    30,677
    
    
    
    Total Liabilities
    
    $
    30,677
    
    
    $
    
    
    
    $
    30,677
    
    
    $
    
  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
    
    
    Unrealized
    
    
    Income (Pretax)
    
    
    Settlements, Net
    
    
    of Level 3
    
    
    PeriodThree Months Ended June 30, 2009Investment securities available for saleState and Municipal Securities
    
    $
    5,738
    
    
    $
    18
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,756Other Securities
    
    
    313
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316Total investment securities
available for sale
    
    $
    6,051
    
    
    $
    21
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,072Six Months Ended June 30, 2009Investment securities available for saleState and Municipal Securities
    
    $
    5,733
    
    
    $
    23
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,756Other Securities
    
    
    312
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316Total investment securities
available for sale
    
    $
    6,045
    
    
    $
    27
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,072
 ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS
 Impaired Loans.
 Loans Held for Sale.
 17




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##### Table of Contents



Goodwill.
  Other Real Estate.
 Repossessed Assets.
 Mortgage Servicing Rights
 Core Deposit Intangible.
  18




---



##### Table of Contents



June 30, 2009(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Impaired Loans (1)
    
    $
    172,126
    
    
    $
    
    
    
    $
    
    
    
    $
    172,126Commercial Loans Held For Sale (2)
    
    
    8,731
    
    
    
    
    
    
    
    
    
    
    
    8,731Goodwill (3)
    
    
    330,744
    
    
    
    
    
    
    
    
    
    
    
    330,744Other Real Estate (4)
    
    
    13,294
    
    
    
    
    
    
    
    
    
    
    
    13,294Repossessed Assets (5)
    
    
    3,012
    
    
    
    
    
    
    
    
    
    
    
    3,012Total Assets
    
    $
    527,907
    
    
    $
    
    
    
    $
    
    
    
    $
    527,907
 
 (1)
    
    Impaired Loans with an initial carrying value of $259.0 million were written
down to their fair value of $172.1 million.(2)
    
    Impaired Loans with an initial carrying value of $17.2 million were written down to
their fair value of $8.7 million.(3)
    
    Goodwill with an initial carrying value of $597.2 million was written down to its
fair value of $330.7 million.(4)
    
    ORE properties with an initial carrying value of $22.6 million were written down to
their fair value of $13.3 million.(5)
    
    Repossessed Assets with an initial carrying value of $5.5 million were written down
to their fair value of $3.0 million. FAIR VALUES OF FINANCIAL INSTRUMENTS
    19




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##### Table of Contents



June 30, 2009
    
    December 31, 2008Carrying
    
    Estimated
    
    Carrying
    
    Estimated(in thousands)
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assets:Cash and due from banks
    
    $
    164,143
    
    
    $
    164,143
    
    
    $
    171,695
    
    
    $
    171,695Money market investments
    
    
    560,695
    
    
    
    560,695
    
    
    
    214,925
    
    
    
    214,925Securities
    
    
    2,331,318
    
    
    
    2,331,393
    
    
    
    2,387,347
    
    
    
    2,386,618FHLB and Federal Reserve stock
    
    
    156,277
    
    
    
    156,277
    
    
    
    148,764
    
    
    
    148,764Net loans
    
    
    8,092,219
    
    
    
    7,229,712
    
    
    
    8,847,277
    
    
    
    7,821,728Loans held for sale
    
    
    78,144
    
    
    
    78,144
    
    
    
    91,362
    
    
    
    91,362Accrued interest receivable
    
    
    46,009
    
    
    
    46,009
    
    
    
    55,663
    
    
    
    55,663Financial liabilities:Deposits
    
    
    8,913,481
    
    
    
    8,966,858
    
    
    
    9,052,406
    
    
    
    9,103,392Short-term borrowings
    
    
    59,900
    
    
    
    59,900
    
    
    
    75,392
    
    
    
    75,392Long-term debt
    
    
    1,936,673
    
    
    
    1,942,455
    
    
    
    2,192,623
    
    
    
    2,248,060Accrued interest payable
    
    
    16,729
    
    
    
    16,729
    
    
    
    20,268
    
    
    
    20,268Financial instruments with off-balance sheet risk(1):Credit-related financial instruments(2)
    
    
    (807
    )
    
    
    (6,331
    )
    
    
    (521
    )
    
    
    (6,080
    )Interest rate swap agreements
    
    
    24,073
    
    
    
    24,073
    
    
    
    34,097
    
    
    
    34,097
 
 (1)
    
    Positive amounts represent assets, negative amounts represent liabilities.(2)
    
    The carrying amount for credit-related financial instruments is part of the total
carrying amount of net loans. It is shown here separately to disclose the estimated fair value,
which is not included in the net loans estimate of fair value.  Securities Held to Maturity:
 Net Loans:
 Deposit Liabilities:
 Short-Term Borrowings:
 Long-Term Debt:
 Credit-Related Financial Instruments:
 20




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##### Table of Contents



Note 10. Pension Benefit Cost
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Defined Benefit Pension PlansInterest cost
    
    $
    1,106
    
    
    $
    1,165
    
    
    $
    2,211
    
    
    $
    2,330Expected return on plan assets
    
    
    (1,570
    )
    
    
    (1,900
    )
    
    
    (3,140
    )
    
    
    (3,800
    )Amortization of unrecognized:Prior service cost
    
    
    8
    
    
    
    10
    
    
    
    15
    
    
    
    20Net actuarial loss
    
    
    335
    
    
    
    75
    
    
    
    670
    
    
    
    150Net pension cost
    
    $
    (121
    )
    
    $
    (650
    )
    
    $
    (244
    )
    
    $
    (1,300
    )Supplemental Pension PlansInterest cost
    
    $
    127
    
    
    $
    192
    
    
    $
    316
    
    
    $
    383Curtailment loss
    
    
    
    
    
    
    
    
    
    
    941
    
    
    
    Amortization of unrecognized:Prior service cost
    
    
    
    
    
    
    118
    
    
    
    
    
    
    
    235Net actuarial loss
    
    
    2
    
    
    
    5
    
    
    
    5
    
    
    
    10Net pension cost
    
    $
    129
    
    
    $
    315
    
    
    $
    1,262
    
    
    $
    628Postretirement Benefit PlansInterest cost
    
    $
    152
    
    
    $
    129
    
    
    $
    304
    
    
    $
    257Amortization of unrecognized:Prior service cost
    
    
    (67
    )
    
    
    (64
    )
    
    
    (134
    )
    
    
    (128
    )Net actuarial gain
    
    
    (8
    )
    
    
    (9
    )
    
    
    (16
    )
    
    
    (17
    )Net pension cost
    
    $
    77
    
    
    $
    56
    
    
    $
    154
    
    
    $
    112Defined contribution retirement and 401K PlansEmployer contributions
    
    $
    678
    
    
    $
    1,554
    
    
    $
    2,027
    
    
    $
    3,398Total periodic benefit cost
    
    $
    763
    
    
    $
    1,275
    
    
    $
    3,199
    
    
    $
    2,838
   Note 11. Stock-Based Compensation
  21




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Analysis of Stock-Based Compensation Expense
 Three Months Ended
 June 30,
    
    
    Six Months Ended 
June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Stock Option Compensation
    
    $
    3
    
    
    $
    9
    
    
    $
    7
    
    
    $
    17Restricted Stock Compensation
    
    
    887
    
    
    
    1,065
    
    
    
    608
    
    
    
    2,125Stock-based compensation expense before income taxes
    
    
    890
    
    
    
    1,074
    
    
    
    615
    
    
    
    2,142Income tax provision (benefit)
    
    
    (312
    )
    
    
    (376
    )
    
    
    (215
    )
    
    
    (750
    )Total stock-based compensation expense after income taxes
    
    $
    578
    
    
    $
    698
    
    
    $
    400
    
    
    $
    1,392
     Weighted-AverageNumber of
    
    Grant Date FairShares
    
    ValueOutstanding restricted stock at December 31, 2008
    
    
    609,032
    
    
    $
    14.43Granted
    
    
    384,818
    
    
    
    1.29Vested
    
    
    (198,811
    )
    
    
    14.52Forfeited
    
    
    (78,059
    )
    
    
    18.38Restricted stock at June 30, 2009
    
    
    716,980
    
    
    
    6.92
  Note 12. Shareholders Equity and Earnings Per Share
  22




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands, except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Basic and diluted earnings per share  net loss
    
    $
    (347,413
    )
    
    $
    (201,634
    )
    
    $
    (392,562
    )
    
    $
    (190,507
    )Dividend on redeemable preferred stock
    
    
    (5,196
    )
    
    
    
    
    
    
    (9,299
    )
    
    
    Net loss available to common shareholders
    
    
    (352,609
    )
    
    
    (201,634
    )
    
    
    (401,861
    )
    
    
    (190,507
    )Net loss allocated to participating securities
    
    
    (2,300
    )
    
    
    (1,434
    )
    
    
    (2,581
    )
    
    
    (1,287
    )Net loss allocated to common shareholders
    
    $
    (350,309
    )
    
    $
    (200,200
    )
    
    $
    (399,280
    )
    
    $
    (189,220
    )Weighted average shares outstanding
    
    
    126,283
    
    
    
    80,260
    
    
    
    126,241
    
    
    
    77,996Less: Participating securities included in weighted average shares outstanding
    
    
    (824
    )
    
    
    (571
    )
    
    
    (811
    )
    
    
    (527
    )Weighted average shares outstanding for basic earnings per common share
    
    
    125,459
    
    
    
    79,689
    
    
    
    125,430
    
    
    
    77,469Effect of dilutive securities  potential conversion of employee stock options and
restricted stock awards
    
    
    44
    
    
    
    11
    
    
    
    35
    
    
    
    17Weighted average shares outstanding for dilutive earnings per common share
    
    
    125,503
    
    
    
    79,700
    
    
    
    125,465
    
    
    
    77,486Basic earnings per common share
    
    $
    (2.79
    )
    
    $
    (2.51
    )
    
    $
    (3.18
    )
    
    $
    (2.44
    )Diluted earnings per common share
    
    $
    (2.81
    )
    
    $
    (2.53
    )
    
    $
    (3.20
    )
    
    $
    (2.46
    )
 Note 13. Lines of Business
  23




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##### Table of Contents



Line of Business Information
 Specialty
    
    
    Regional
    
    
    Wealth(in thousands)
    
    Commercial
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary  Three Months Ended June 30, 2009Net interest income (taxable equivalent)
    
    $
    14,928
    
    
    $
    68,085
    
    
    $
    146
    
    
    $
    (3,338
    )
    
    $
    79,821Provision for loan losses
    
    
    57,803
    
    
    
    22,074
    
    
    
    
    
    
    
    20,085
    
    
    
    99,962Net interest income after provision
    
    
    (42,875
    )
    
    
    46,011
    
    
    
    146
    
    
    
    (23,423
    )
    
    
    (20,141
    )Noninterest income
    
    
    (2,520
    )
    
    
    17,564
    
    
    
    4,914
    
    
    
    1,008
    
    
    
    20,966Noninterest expense
    
    
    4,943
    
    
    
    329,940
    
    
    
    4,383
    
    
    
    16,167
    
    
    
    355,433(Loss) Income before income taxes
    
    
    (50,338
    )
    
    
    (266,365
    )
    
    
    677
    
    
    
    (38,582
    )
    
    
    (354,608
    )Income tax (benefit) expense (taxable equivalent)
    
    
    (17,618
    )
    
    
    38
    
    
    
    237
    
    
    
    10,148
    
    
    
    (7,195
    )Net (loss) income
    
    $
    (32,720
    )
    
    $
    (266,403
    )
    
    $
    440
    
    
    $
    (48,730
    )
    
    $
    (347,413
    )Average assets(in millions)
    
    $
    1,698
    
    
    $
    5,387
    
    
    $
    11
    
    
    $
    5,678
    
    
    $
    12,774Earnings Summary  Three Months Ended June 30, 2008(1)Net interest income (taxable equivalent)
    
    $
    16,777
    
    
    $
    64,221
    
    
    $
    10
    
    
    $
    11,218
    
    
    $
    92,226Provision for loan losses
    
    
    29,763
    
    
    
    17,760
    
    
    
    
    
    
    
    26,957
    
    
    
    74,480Net interest income after provision
    
    
    (12,986
    )
    
    
    46,461
    
    
    
    10
    
    
    
    (15,739
    )
    
    
    17,746Noninterest income
    
    
    (2,006
    )
    
    
    19,437
    
    
    
    6,816
    
    
    
    2,811
    
    
    
    27,058Noninterest expense
    
    
    183,816
    
    
    
    56,589
    
    
    
    6,063
    
    
    
    14,760
    
    
    
    261,228(Loss) Income before income taxes
    
    
    (198,808
    )
    
    
    9,309
    
    
    
    763
    
    
    
    (27,688
    )
    
    
    (216,424
    )Income tax (benefit) expense (taxable equivalent)
    
    
    (7,251
    )
    
    
    3,257
    
    
    
    267
    
    
    
    (11,063
    )
    
    
    (14,790
    )Net (loss) income
    
    $
    (191,557
    )
    
    $
    6,052
    
    
    $
    496
    
    
    $
    (16,625
    )
    
    $
    (201,634
    )Average assets(in millions)
    
    $
    2,136
    
    
    $
    6,176
    
    
    $
    13
    
    
    $
    4,971
    
    
    $
    13,296
 
 (1)
    
    Certain amounts have been reclassified to conform to current year presentation. Line of Business Information
 Specialty
    
    
    Regional
    
    
    Wealth(in thousands)
    
    Commercial
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary  Six Months Ended June 30, 2009Net interest income (taxable equivalent)
    
    $
    30,078
    
    
    $
    135,171
    
    
    $
    265
    
    
    $
    (4,411
    )
    
    $
    161,103Provision for loan losses
    
    
    85,101
    
    
    
    46,159
    
    
    
    
    
    
    
    32,719
    
    
    
    163,979Net interest income after provision
    
    
    (55,023
    )
    
    
    89,012
    
    
    
    265
    
    
    
    (37,130
    )
    
    
    (2,876
    )Noninterest income
    
    
    (8,333
    )
    
    
    35,257
    
    
    
    9,654
    
    
    
    3,621
    
    
    
    40,199Noninterest expense
    
    
    9,315
    
    
    
    386,692
    
    
    
    8,448
    
    
    
    31,756
    
    
    
    436,211(Loss) Income before income taxes
    
    
    (72,671
    )
    
    
    (262,423
    )
    
    
    1,471
    
    
    
    (65,265
    )
    
    
    (398,888
    )Income tax (benefit) expense (taxable equivalent)
    
    
    (25,437
    )
    
    
    1,418
    
    
    
    515
    
    
    
    17,178
    
    
    
    (6,326
    )Net (loss) income
    
    $
    (47,234
    )
    
    $
    (263,841
    )
    
    $
    956
    
    
    $
    (82,443
    )
    
    $
    (392,562
    )Average assets(in millions)
    
    $
    1,730
    
    
    $
    5,498
    
    
    $
    11
    
    
    $
    5,687
    
    
    $
    12,926Earnings Summary  Six Months Ended June 30, 2008(1)Net interest income (taxable equivalent)
    
    $
    31,888
    
    
    $
    134,120
    
    
    $
    1
    
    
    $
    19,208
    
    
    $
    185,217Provision for loan losses
    
    
    47,855
    
    
    
    24,956
    
    
    
    
    
    
    
    32,288
    
    
    
    105,099Net interest income after provision
    
    
    (15,967
    )
    
    
    109,164
    
    
    
    1
    
    
    
    (13,080
    )
    
    
    80,118Noninterest income
    
    
    (1,753
    )
    
    
    38,958
    
    
    
    13,506
    
    
    
    7,272
    
    
    
    57,983Noninterest expense
    
    
    188,020
    
    
    
    111,879
    
    
    
    11,238
    
    
    
    26,653
    
    
    
    337,790(Loss) Income before income taxes
    
    
    (205,740
    )
    
    
    36,243
    
    
    
    2,269
    
    
    
    (32,461
    )
    
    
    (199,689
    )Income tax (benefit) expense (taxable equivalent)
    
    
    (9,678
    )
    
    
    12,685
    
    
    
    794
    
    
    
    (12,983
    )
    
    
    (9,182
    )Net (loss) income
    
    $
    (196,062
    )
    
    $
    23,558
    
    
    $
    1,475
    
    
    $
    (19,478
    )
    
    $
    (190,507
    )Average assets(in millions)
    
    $
    2,127
    
    
    $
    6,145
    
    
    $
    13
    
    
    $
    5,084
    
    
    $
    13,369
 
 (1)
    
    Certain amounts have been reclassified to conform to current year presentation. 24




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##### Table of Contents



Note 14. Commitments, Contingent Liabilities and Guarantees
   June 30,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Loan commitments and letters of credit:Commitments to extend credit
    
    $
    1,675,614
    
    
    $
    2,048,258Financial standby letters of credit
    
    
    248,459
    
    
    
    225,675Performance standby letters of credit
    
    
    20,558
    
    
    
    21,692Commercial letters of credit
    
    
    637
    
    
    
    Total loan commitments and letters of credit
    
    $
    1,945,268
    
    
    $
    2,295,625
  Note 15. Derivatives and Hedging Activities
 Risk Management Objective of Using Derivatives
  Fair Values of Derivative Instruments on the Balance Sheet
  25




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##### Table of Contents



Other Assets
    
    
    Other LiabilitiesLocation
    
    Fair Value
    
    
    Fair ValueJune 30,
    
    
    Dec 31,
    
    
    June 30,
    
    
    Dec 31,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Derivatives designated as hedging instruments under SFAS 133
Interest Rate Products
    
    $
    20,993
    
    
    $
    30,984
    
    
    $
    68
    
    
    $
    Derivatives notdesignated as hedging instruments under SFAS 133Interest Rate Products
    
    
    33,757
    
    
    
    47,950
    
    
    
    30,609
    
    
    
    44,837Total Derivatives
    
    $
    54,750
    
    
    $
    78,934
    
    
    $
    30,677
    
    
    $
    44,837
 Cash Flow Hedges of Interest Rate Risk
      26




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##### Table of Contents



Derivative Impact on OCI gain (loss)
    
    
    Derivative Ineffectiveness gain (loss)Location
    
    
    
    
    
    
    
    
    
    
    Location(in thousands)
    
    
    
    
    
    
    
    
    
    Reclassified
    
    
    Reclassified from Accumulated
    
    
    Recognized inDerivatives Relationship
    
    Recognized in OCI
    
    
    into Income
    
    
    OCI into Income
    
    
    Income
    
    
    AmountThree Months Ended
    
    
    
    
    
    
    Three Months Ended
    
    
    
    
    
    
    Three Months EndedJune 30,
    
    
    June 30,
    
    
    
    
    
    
    June 30,
    
    
    June 30,
    
    
    
    
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008Cash flow hedges:Interest Rate Products
    
    $
    (2,452
    )
    
    $
    (1,050
    )
    
    Interest income
    
    $
    3,386
    
    
    $
    657
    
    
    Other income
    
    $
    (73
    )
    
    $
    Other income
    
    
    
    
    
    
    Total
    
    $
    (2,452
    )
    
    $
    (1,050
    )
    
    
    
    
    
    $
    3,386
    
    
    $
    657
    
    
    
    
    
    
    $
    (73
    )
    
    $
    
 Derivative Impact on OCI gain (loss)
    
    
    Derivative Ineffectiveness gain (loss)Location
    
    
    
    
    
    
    
    
    
    
    Location(in thousands)
    
    
    
    
    
    
    
    
    
    Reclassified
    
    
    Reclassified from Accumulated
    
    
    Recognized inDerivatives Relationship
    
    Recognized in OCI
    
    
    into Income
    
    
    OCI into Income
    
    
    Income
    
    
    AmountSix Months Ended
    
    
    
    
    
    
    Six Months Ended
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    
    
    
    
    June 30,
    
    
    June 30,
    
    
    
    
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008Cash flow hedges:Interest Rate Products
    
    $
    (650
    )
    
    $
    (244
    )
    
    Interest income
    
    $
    6,820
    
    
    $
    830
    
    
    Other income
    
    $
    (152
    )
    
    $
    Other income
    
    
    244
    
    
    
    Total
    
    $
    (650
    )
    
    $
    (244
    )
    
    
    
    
    
    $
    7,064
    
    
    $
    830
    
    
    
    
    
    
    $
    (152
    )
    
    $
    
 Fair Value Hedges of Interest Rate Risk
    Derivative Contract Gain (Loss)
    
    Hedged Item Gain (Loss)Location in
    
    Three Months Ended
    
    Six Months Ended
    
    Location in
    
    Three Months Ended
    
    Six Months Ended(in thousands)
    
    Statement of
    
    June 30,
    
    June 30,
    
    June 30,
    
    June 30,
    
    Statement of
    
    June 30,
    
    June 30,
    
    June 30,
    
    June 30,Derivatives Relationship
    
    Operations
    
    2009
    
    2008
    
    2009
    
    2008
    
    Operations
    
    2009
    
    2008
    
    2009
    
    2008Fair value hedges:Interest Rate Products
    
    Interest expense
    
    $
    (2,929
    )
    
    $
    (1,092
    )
    
    $
    (2,616
    )
    
    $
    (854
    )
    
    Interest expense
    
    $
    3,667
    
    
    $
    1,092
    
    
    $
    5,587
    
    
    $
    854
 Non-designated Hedges
  27




---



##### Table of Contents



Amount of Gain or (Loss) Recognized in IncomeStatementLocation of Gain or
    
    Three Months Ended
    
    Six Months Ended(in thousands)
    
    (Loss) Recognized
    
    June 30,
    
    June 30,
    
    June 30,
    
    June 30,Derivative Relationship
    
    in Income Statement
    
    2009
    
    2008
    
    2009
    
    2008Derivatives Not
Designated as HedgesInterest Rate Products
    
    Other income
    
    $
    (583
    )
    
    $
    293
    
    
    $
    1,861
    
    
    $
    807
 Credit-Risk-Related Contingent Features
     Note 16. Subsequent Event
  28




---



##### Table of Contents



29




---



##### 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 EndedJune 30,
    
    March 31,
    
    December 31,
    
    September 30,
    
    June 30,2009
    
    2009
    
    2008
    
    2008
    
    2008Summary of Operations (thousands)Net interest income
    
    $
    75,601
    
    
    $
    76,946
    
    
    $
    85,687
    
    
    $
    87,318
    
    
    $
    87,615Provision for loan losses
    
    
    99,962
    
    
    
    64,017
    
    
    
    118,565
    
    
    
    58,390
    
    
    
    74,480Total fees and other income
    
    
    20,961
    
    
    
    19,233
    
    
    
    15,755
    
    
    
    28,005
    
    
    
    27,058Investment securities gains (losses)
    
    
    5
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    Noninterest expense (1)
    
    
    355,433
    
    
    
    80,778
    
    
    
    78,611
    
    
    
    74,301
    
    
    
    261,228Income tax provision (benefit)
    
    
    (11,415
    )
    
    
    (3,467
    )
    
    
    99,634
    
    
    
    (10,192
    )
    
    
    (19,401
    )Net loss (2)
    
    
    (347,413
    )
    
    
    (45,149
    )
    
    
    (195,369
    )
    
    
    (7,176
    )
    
    
    (201,634
    )Net loss attributable to common shareholders (3)
    
    
    (352,609
    )
    
    
    (49,252
    )
    
    
    (195,596
    )
    
    
    (18,913
    )
    
    
    (201,634
    )Taxable equivalent adjustment
    
    
    4,220
    
    
    
    4,337
    
    
    
    4,519
    
    
    
    4,593
    
    
    
    4,611Per Common Share DataBasic net loss
    
    $
    (2.79
    )
    
    $
    (0.39
    )
    
    $
    (1.55
    )
    
    $
    (0.20
    )
    
    $
    (2.51
    )Diluted net loss
    
    
    (2.81
    )
    
    
    (0.39
    )
    
    
    (1.56
    )
    
    
    (0.20
    )
    
    
    (2.53
    )Market value (end of period)
    
    
    0.71
    
    
    
    1.55
    
    
    
    2.98
    
    
    
    3.08
    
    
    
    2.82Common shareholders equity (end of period)
    
    
    7.57
    
    
    
    10.29
    
    
    
    10.60
    
    
    
    12.20
    
    
    
    14.93At Period End (millions)Assets
    
    $
    12,288
    
    
    $
    12,982
    
    
    $
    13,086
    
    
    $
    13,116
    
    
    $
    13,170Portfolio loans
    
    
    8,426
    
    
    
    8,754
    
    
    
    9,103
    
    
    
    9,378
    
    
    
    9,449Deposits
    
    
    8,913
    
    
    
    9,120
    
    
    
    9,052
    
    
    
    9,006
    
    
    
    8,661Shareholders equity
    
    
    1,225
    
    
    
    1,567
    
    
    
    1,601
    
    
    
    1,537
    
    
    
    1,546Average for the Quarter (millions)Assets
    
    $
    12,774
    
    
    $
    13,080
    
    
    $
    13,074
    
    
    $
    13,157
    
    
    $
    13,296Portfolio loans
    
    
    8,604
    
    
    
    8,908
    
    
    
    9,267
    
    
    
    9,456
    
    
    
    9,514Deposits
    
    
    8,995
    
    
    
    9,117
    
    
    
    8,998
    
    
    
    8,837
    
    
    
    8,604Shareholders equity
    
    
    1,557
    
    
    
    1,607
    
    
    
    1,559
    
    
    
    1,551
    
    
    
    1,546Ratios (annualized)Return on average assets
    
    
    (10.91
    )%
    
    
    (1.40
    )%
    
    
    (5.94
    )%
    
    
    (0.22
    )%
    
    
    (6.10
    )%Return on average shareholders equity
    
    
    (89.50
    )
    
    
    (11.40
    )
    
    
    (49.86
    )
    
    
    (1.84
    )
    
    
    (52.47
    )Average equity to average assets
    
    
    12.19
    
    
    
    12.28
    
    
    
    11.92
    
    
    
    11.79
    
    
    
    11.62Net interest margin (FTE) (4)
    
    
    2.73
    
    
    
    2.73
    
    
    
    3.03
    
    
    
    3.09
    
    
    
    3.11Efficiency ratio (5)
    
    
    88.27
    
    
    
    80.36
    
    
    
    74.19
    
    
    
    61.96
    
    
    
    69.70Net loans charged off to average portfolio loans
    
    
    2.30
    
    
    
    1.67
    
    
    
    3.48
    
    
    
    0.94
    
    
    
    2.93Allowance for loan losses to portfolio loans
    
    
    3.96
    
    
    
    3.23
    
    
    
    2.80
    
    
    
    2.32
    
    
    
    1.92Allowance for loan loss as a percent of nonperforming loans
    
    
    67.25
    
    
    
    65.94
    
    
    
    83.43
    
    
    
    94.13
    
    
    
    130.54Allowance for loan loss as a percent of nonperforming
assets
    
    
    55.13
    
    
    
    51.33
    
    
    
    58.13
    
    
    
    59.75
    
    
    
    63.55Nonperforming assets to portfolio loans plus ORAA (end of
period)
    
    
    7.13
    
    
    
    6.25
    
    
    
    4.79
    
    
    
    3.87
    
    
    
    3.01Nonperforming assets to total assets (end of period)
    
    
    4.92
    
    
    
    4.24
    
    
    
    3.36
    
    
    
    2.78
    
    
    
    2.17Leverage ratio
    
    
    8.68
    
    
    
    9.32
    
    
    
    9.66
    
    
    
    8.76
    
    
    
    8.71Tier 1 capital ratio
    
    
    11.81
    
    
    
    12.16
    
    
    
    12.21
    
    
    
    10.88
    
    
    
    10.80Total capital ratio
    
    
    13.91
    
    
    
    14.21
    
    
    
    14.49
    
    
    
    13.13
    
    
    
    13.03
 
 (1)
    
    Noninterest expense includes a goodwill impairment charge of $266.5 million and $178.1 million in the second quarter of 2009
and second quarter of 2008, respectively.(2)
    
    Net income (loss) includes a deferred tax valuation allowance of $136.6 million in the fourth quarter of 2008.(3)
    
    Net income (loss) attributable to common shareholders includes the following items: $5.2 million dividend to preferred
shareholders in the second quarter of 2009,
$4.1 milion dividend to preferred shareholders in the first quarter of 2009, $0.2 million accretion of redeemable preferred
stock in the fourth quarter of 2008
and $11.7 million deemed dividend to preferred shareholders in the third quarter of 2008.(4)
    
    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%.(5)
    
    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). 30




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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, 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 capital raising initiatives contemplate raising a significant amount of common
equity from private and/or government sources over the next six months and there is no
assurance that Citizens will be successful in its capital raising efforts.
 
    
    The Holding Company may not have sufficient resources to make capital contributions to its
bank subsidiaries when required by bank regulatory agencies, or when it might otherwise wish
to do so, in order to maintain their capital ratios at acceptable levels.
 
    
    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.
 
    
    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 its bank subsidiaries depends substantially on
developments in those economies.
 
    
    Difficult economic conditions have adversely affected the banking industry and financial
markets generally and may significantly affect Citizens business, financial condition, 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 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.
 
    
    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. If Citizens lends 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.
 31




---



##### Table of Contents




    
    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 and this could have a negative effect on
expenses and results of operations.
 
    
    Citizens may not realize its deferred income tax assets.
 
    
    The proposed Exchange Offers are likely to trigger an ownership change that will negatively
affect Citizens ability to utilize net operating and capital losses and other deferred tax
assets in the future.
 
    
    In order to maintain and strengthen its capital base, Citizens has determined to raise
additional capital in transactions that will likely be highly dilutive to its common
shareholders.
 
    
    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 the Nasdaq Global
Select Market (the Nasdaq GSM) and is delisted from trading on that market, the market price
of our 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.
 
    
    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, or in Citizens compliance with applicable regulations, may
adversely affect Citizens, including its ability to offer new products and services, obtain
financing, pay dividends from its subsidiaries to the holding company, attract deposits, make
loans at satisfactory spreads or engage in other business activities. Such changes 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 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 Citizens parent 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 parent company. Dividends paid by these subsidiaries are
subject to limits imposed by federal and state law.
 
    
    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 acquired operations 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.
 32




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##### Table of Contents



www.sec.gov
 Critical Accounting Policies
  Use of Non-GAAP Financial Measures
  33




---



##### Table of Contents



Non-GAAP Reconciliation
Citizens Republic Bancorp and Subsidiaries
 (dollars in thousands)
    
    2nd Qtr
 2009
    
    
    1st Qtr 
2009
    
    
    4th Qtr 
2008
    
    
    3rd Qtr 
2008
    
    
    2nd Qtr 
2008Net Interest Income (A)
    
    $
    75,601
    
    
    $
    76,946
    
    
    $
    85,687
    
    
    $
    87,318
    
    
    $
    87,615Taxable Equivalent Adjustment (B)
    
    
    4,220
    
    
    
    4,337
    
    
    
    4,519
    
    
    
    4,593
    
    
    
    4,611Noninterest Income (C)
    
    
    20,966
    
    
    
    19,233
    
    
    
    15,754
    
    
    
    28,005
    
    
    
    27,058Noninterest Expense (D)
    
    
    355,433
    
    
    
    80,778
    
    
    
    78,611
    
    
    
    74,301
    
    
    
    261,228Goodwill Impairment (E)
    
    
    266,474
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178,089Efficiency Ratio: (D-E)/(A+B+C)
    
    
    88.26
    %
    
    
    80.36
    %
    
    
    74.19
    %
    
    
    61.96
    %
    
    
    69.70
    %Ending Balances (millions)Assets
    
    $
    12,288
    
    
    $
    12,982
    
    
    $
    13,086
    
    
    $
    13,116
    
    
    $
    13,170Goodwill
    
    
    (331
    )
    
    
    (597
    )
    
    
    (597
    )
    
    
    (597
    )
    
    
    (597
    )Core deposit intangible assets
    
    
    (17
    )
    
    
    (19
    )
    
    
    (21
    )
    
    
    (24
    )
    
    
    (26
    )Deferred taxes
    
    
    6
    
    
    
    7
    
    
    
    7
    
    
    
    8
    
    
    
    9Tangible assets
    
    $
    11,946
    
    
    $
    12,373
    
    
    $
    12,475
    
    
    $
    12,503
    
    
    $
    12,556Equity
    
    $
    1,225
    
    
    $
    1,567
    
    
    $
    1,601
    
    
    $
    1,537
    
    
    $
    1,546Goodwill
    
    
    (331
    )
    
    
    (597
    )
    
    
    (597
    )
    
    
    (597
    )
    
    
    (597
    )Core deposit intangible assets
    
    
    (17
    )
    
    
    (19
    )
    
    
    (21
    )
    
    
    (24
    )
    
    
    (26
    )Deferred taxes
    
    
    6
    
    
    
    7
    
    
    
    7
    
    
    
    8
    
    
    
    9Tangible equity
    
    $
    883
    
    
    $
    958
    
    
    $
    990
    
    
    $
    924
    
    
    $
    932Tangible equity
    
    $
    883
    
    
    $
    958
    
    
    $
    990
    
    
    $
    924
    
    
    $
    932Preferred Stock
    
    
    (269
    )
    
    
    (268
    )
    
    
    (266
    )
    
    
    
    
    
    
    (114
    )Tangible common equity
    
    $
    614
    
    
    $
    690
    
    
    $
    724
    
    
    $
    924
    
    
    $
    818Equity to Assets
    
    
    9.97
    %
    
    
    12.07
    %
    
    
    12.24
    %
    
    
    11.72
    %
    
    
    11.74
    %Tangible Equity to Tangible Assets
    
    
    7.39
    
    
    
    7.74
    
    
    
    7.94
    
    
    
    7.39
    
    
    
    7.42Tangible Common Equity to
Tangible Assets
    
    
    5.14
    
    
    
    5.58
    
    
    
    5.80
    
    
    
    7.39
    
    
    
    6.51
  Results of Operations
 Summary
    34




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##### Table of Contents



RegulatoryMinimum
    
    
    
    
    
    
    
    
    
    
    
    
    
    Excess Capitalfor Well-
    
    
    
    
    
    
    
    
    
    
    
    
    
    over MinimumCapitalized
    
    6/30/09
    
    3/31/09
    
    12/31/08
    
    (in millions)Tier 1 capital ratio
    
    
    6.00
    %
    
    
    11.81
    %
    
    
    12.16
    %
    
    
    12.21
    %
    
    $
    530.7Total capital ratio
    
    
    10.00
    
    
    
    13.91
    
    
    
    14.21
    
    
    
    14.49
    
    
    
    357.2Tier 1 leverage ratio
    
    
    5.00
    
    
    
    8.68
    
    
    
    9.32
    
    
    
    9.66
    
    
    
    457.4Tangible equity to tangible assets
    
    
    
    
    
    
    7.39
    
    
    
    7.74
    
    
    
    7.94Tangible common equity to tangible assets
    
    
    
    
    
    
    5.14
    
    
    
    5.58
    
    
    
    5.80
 Net Interest Income and Net Interest Margin
  35




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##### Table of Contents



Average Balances/Net Interest Income/Average Rates
 2009
    
    
    2008Three Months Ended June 30,
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    521,644
    
    
    $
    325
    
    
    
    0.25
    %
    
    $
    2,379
    
    
    $
    16
    
    
    
    2.72
    %Investment securities
(3):Taxable
    
    
    1,716,468
    
    
    
    20,068
    
    
    
    4.68
    
    
    
    1,483,409
    
    
    
    19,021
    
    
    
    5.13Tax-exempt
    
    
    629,411
    
    
    
    6,729
    
    
    
    6.58
    
    
    
    670,792
    
    
    
    7,280
    
    
    
    6.68FHLB and Federal Reserve stock
    
    
    154,377
    
    
    
    529
    
    
    
    1.37
    
    
    
    148,838
    
    
    
    1,898
    
    
    
    5.12Portfolio Loans (4):Commercial and industrial
    
    
    2,300,885
    
    
    
    25,447
    
    
    
    4.53
    
    
    
    2,658,841
    
    
    
    35,985
    
    
    
    5.54Commercial real estate
    
    
    2,943,786
    
    
    
    39,318
    
    
    
    5.36
    
    
    
    3,159,286
    
    
    
    49,824
    
    
    
    6.35Residential mortgage
    
    
    1,177,791
    
    
    
    14,580
    
    
    
    4.95
    
    
    
    1,355,377
    
    
    
    20,804
    
    
    
    6.14Direct consumer
    
    
    1,378,223
    
    
    
    20,836
    
    
    
    6.06
    
    
    
    1,517,420
    
    
    
    25,203
    
    
    
    6.68Indirect consumer
    
    
    803,532
    
    
    
    13,535
    
    
    
    6.76
    
    
    
    823,530
    
    
    
    13,696
    
    
    
    6.69Total portfolio loans
    
    
    8,604,217
    
    
    
    113,716
    
    
    
    5.33
    
    
    
    9,514,454
    
    
    
    145,512
    
    
    
    6.18Loans held for sale
    
    
    84,654
    
    
    
    765
    
    
    
    3.62
    
    
    
    65,430
    
    
    
    667
    
    
    
    4.08Total earning assets
(3)
    
    
    11,710,771
    
    
    
    142,132
    
    
    
    5.01
    
    
    
    11,885,302
    
    
    
    174,394
    
    
    
    6.05Nonearning AssetsCash and due from banks
    
    
    158,977
    
    
    
    
    
    
    
    
    
    
    
    193,533Bank premises and equipment
    
    
    122,402
    
    
    
    
    
    
    
    
    
    
    
    126,311Investment security fair value
adjustment
    
    
    15,404
    
    
    
    
    
    
    
    
    
    
    
    19,097Other nonearning assets
    
    
    1,057,928
    
    
    
    
    
    
    
    
    
    
    
    1,249,579Allowance for loan losses
    
    
    (291,565
    )
    
    
    
    
    
    
    
    
    
    
    (177,441
    )Total assets
    
    $
    12,773,917
    
    
    
    
    
    
    
    
    
    
    $
    13,296,381Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    $
    927,698
    
    
    $
    1,077
    
    
    
    0.47
    %
    
    $
    769,241
    
    
    $
    1,261
    
    
    
    0.66
    %Savings deposits
    
    
    2,671,620
    
    
    
    5,302
    
    
    
    0.80
    
    
    
    2,645,759
    
    
    
    10,759
    
    
    
    1.64Time deposits
    
    
    4,188,303
    
    
    
    35,909
    
    
    
    3.44
    
    
    
    4,073,917
    
    
    
    41,114
    
    
    
    4.06Short-term borrowings
    
    
    59,086
    
    
    
    53
    
    
    
    0.36
    
    
    
    337,373
    
    
    
    1,836
    
    
    
    2.19Long-term debt
    
    
    1,999,435
    
    
    
    24,190
    
    
    
    4.85
    
    
    
    2,673,757
    
    
    
    31,809
    
    
    
    4.78Total interest-bearing
liabilities
    
    
    9,846,142
    
    
    
    66,531
    
    
    
    2.71
    
    
    
    10,500,047
    
    
    
    86,779
    
    
    
    3.32Noninterest-Bearing Liabilities
and
Shareholders EquityNoninterest-bearing demand
    
    
    1,207,641
    
    
    
    
    
    
    
    
    
    
    
    1,114,849Other liabilities
    
    
    163,266
    
    
    
    
    
    
    
    
    
    
    
    135,932Shareholders equity
    
    
    1,556,868
    
    
    
    
    
    
    
    
    
    
    
    1,545,553Total liabilities and
shareholders equity
    
    $
    12,773,917
    
    
    
    
    
    
    
    
    
    
    $
    13,296,381Net Interest Income
    
    
    
    
    
    $
    75,601
    
    
    
    
    
    
    
    
    
    
    $
    87,615Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.30
    %
    
    
    
    
    
    
    
    
    
    
    2.73
    %Contribution of noninterest
bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.43
    
    
    
    
    
    
    
    
    
    
    
    0.38Net Interest Margin
(5)(6)
    
    
    
    
    
    
    
    
    
    
    2.73
    %
    
    
    
    
    
    
    
    
    
    
    3.11
    %
 
 (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 $4.2 million and $4.6 million

for the three months ended June 30, 2009 and 2008, 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)
    
    Because noninterest-bearing funding sources, demand deposits, other liabilities and shareholders equity also support earning assets, the net interest
margin exceeds the interest spread. 36




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##### Table of Contents



Average Balances/Net Interest Income/Average Rates
 2009
    
    
    2008Six Months Ended June 30,
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    474,496
    
    
    $
    588
    
    
    
    0.25
    %
    
    $
    3,434
    
    
    $
    46
    
    
    
    2.68
    %Investment securities
(3):Taxable
    
    
    1,727,347
    
    
    
    41,980
    
    
    
    4.86
    
    
    
    1,506,082
    
    
    
    40,044
    
    
    
    5.32Tax-exempt
    
    
    640,542
    
    
    
    13,686
    
    
    
    6.57
    
    
    
    674,746
    
    
    
    14,650
    
    
    
    6.68FHLB and Federal Reserve stock
    
    
    151,586
    
    
    
    1,895
    
    
    
    2.51
    
    
    
    148,839
    
    
    
    3,591
    
    
    
    4.85Portfolio Loans (4):Commercial and industrial
    
    
    2,392,514
    
    
    
    53,375
    
    
    
    4.59
    
    
    
    2,611,432
    
    
    
    73,131
    
    
    
    5.73Commercial real estate
    
    
    2,943,964
    
    
    
    78,077
    
    
    
    5.35
    
    
    
    3,150,765
    
    
    
    103,711
    
    
    
    6.62Residential mortgage loans
    
    
    1,207,583
    
    
    
    31,530
    
    
    
    5.22
    
    
    
    1,386,545
    
    
    
    43,767
    
    
    
    6.31Direct consumer
    
    
    1,404,954
    
    
    
    42,378
    
    
    
    6.08
    
    
    
    1,535,383
    
    
    
    53,109
    
    
    
    6.96Indirect consumer
    
    
    806,263
    
    
    
    27,046
    
    
    
    6.76
    
    
    
    822,706
    
    
    
    27,565
    
    
    
    6.74Total portfolio loans
    
    
    8,755,278
    
    
    
    232,406
    
    
    
    5.37
    
    
    
    9,506,831
    
    
    
    301,283
    
    
    
    6.40Loans held for sale
    
    
    88,992
    
    
    
    1,266
    
    
    
    2.85
    
    
    
    69,744
    
    
    
    1,897
    
    
    
    5.44Total earning assets
(3)
    
    
    11,838,241
    
    
    
    291,821
    
    
    
    5.10
    
    
    
    11,909,676
    
    
    
    361,511
    
    
    
    6.25Nonearning AssetsCash and due from banks
    
    
    166,040
    
    
    
    
    
    
    
    
    
    
    
    199,318Bank premises and equipment
    
    
    122,984
    
    
    
    
    
    
    
    
    
    
    
    128,263Investment security fair value
adjustment
    
    
    4,527
    
    
    
    
    
    
    
    
    
    
    
    25,695Other nonearning assets
    
    
    1,070,573
    
    
    
    
    
    
    
    
    
    
    
    1,278,010Allowance for loan losses
    
    
    (276,110
    )
    
    
    
    
    
    
    
    
    
    
    (171,628
    )Total assets
    
    $
    12,926,255
    
    
    
    
    
    
    
    
    
    
    $
    13,369,334Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    $
    875,718
    
    
    $
    2,006
    
    
    
    0.46
    %
    
    $
    772,999
    
    
    $
    2,530
    
    
    
    0.66
    %Savings deposits
    
    
    2,634,437
    
    
    
    11,268
    
    
    
    0.86
    
    
    
    2,529,242
    
    
    
    25,008
    
    
    
    1.99Time deposits
    
    
    4,367,549
    
    
    
    76,154
    
    
    
    3.52
    
    
    
    4,105,737
    
    
    
    87,174
    
    
    
    4.27Short-term borrowings
    
    
    64,733
    
    
    
    147
    
    
    
    0.46
    
    
    
    485,014
    
    
    
    6,807
    
    
    
    2.82Long-term debt
    
    
    2,058,129
    
    
    
    49,699
    
    
    
    4.86
    
    
    
    2,669,559
    
    
    
    64,065
    
    
    
    4.82Total interest-bearing
liabilities
    
    
    10,000,566
    
    
    
    139,274
    
    
    
    2.81
    
    
    
    10,562,551
    
    
    
    185,584
    
    
    
    3.53Noninterest-Bearing Liabilities
and
Shareholders EquityNoninterest-bearing demand
    
    
    1,178,194
    
    
    
    
    
    
    
    
    
    
    
    1,102,552Other liabilities
    
    
    165,881
    
    
    
    
    
    
    
    
    
    
    
    142,135Shareholders equity
    
    
    1,581,614
    
    
    
    
    
    
    
    
    
    
    
    1,562,096Total liabilities and
shareholders equity
    
    $
    12,926,255
    
    
    
    
    
    
    
    
    
    
    $
    13,369,334Net Interest Income
    
    
    
    
    
    $
    152,547
    
    
    
    
    
    
    
    
    
    
    $
    175,927Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.29
    %
    
    
    
    
    
    
    
    
    
    
    2.72
    %Contribution of noninterest
bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.44
    
    
    
    
    
    
    
    
    
    
    
    0.40Net Interest Margin
(5)(6)
    
    
    
    
    
    
    
    
    
    
    2.73
    %
    
    
    
    
    
    
    
    
    
    
    3.12
    %
 
 (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 $8.6 million and $9.3 million

for the six months ended June 30, 2009 and 2008, 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)
    
    Because noninterest-bearing funding sources, demand deposits, other liabilities and shareholders equity also support earning assets, the net interest
margin exceeds the interest spread. 37




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##### Table of Contents



Analysis of Changes in Interest Income and Interest Expense
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,Increase (Decrease)
    
    
    
    
    
    
    Increase (Decrease)2009 compared with 2008
    
    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
    
    $
    309
    
    
    $
    (28
    )
    
    $
    337
    
    
    $
    542
    
    
    $
    (80
    )
    
    $
    622Investment securities:Taxable
    
    
    1,047
    
    
    
    (1,773
    )
    
    
    2,820
    
    
    
    1,936
    
    
    
    (3,628
    )
    
    
    5,564Tax-exempt
    
    
    (551
    )
    
    
    (107
    )
    
    
    (444
    )
    
    
    (964
    )
    
    
    (230
    )
    
    
    (734
    )FHLB and Federal Reserve stock
    
    
    (1,369
    )
    
    
    (1,437
    )
    
    
    68
    
    
    
    (1,696
    )
    
    
    (1,761
    )
    
    
    65Loans:Commercial and industrial
    
    
    (10,538
    )
    
    
    (6,069
    )
    
    
    (4,469
    )
    
    
    (19,756
    )
    
    
    (14,044
    )
    
    
    (5,712
    )Commercial real estate
    
    
    (10,506
    )
    
    
    (7,268
    )
    
    
    (3,238
    )
    
    
    (25,634
    )
    
    
    (19,228
    )
    
    
    (6,406
    )Residential mortgage loans
    
    
    (6,224
    )
    
    
    (3,711
    )
    
    
    (2,513
    )
    
    
    (12,237
    )
    
    
    (7,005
    )
    
    
    (5,232
    )Direct consumer
    
    
    (4,367
    )
    
    
    (2,160
    )
    
    
    (2,207
    )
    
    
    (10,731
    )
    
    
    (6,504
    )
    
    
    (4,227
    )Indirect consumer
    
    
    (161
    )
    
    
    174
    
    
    
    (335
    )
    
    
    (519
    )
    
    
    (38
    )
    
    
    (481
    )Total portfolio loans
    
    
    (31,796
    )
    
    
    (19,034
    )
    
    
    (12,762
    )
    
    
    (68,877
    )
    
    
    (46,819
    )
    
    
    (22,058
    )Loans held for sale
    
    
    98
    
    
    
    (82
    )
    
    
    180
    
    
    
    (631
    )
    
    
    (1,063
    )
    
    
    432Total
    
    
    (32,262
    )
    
    
    (22,461
    )
    
    
    (9,801
    )
    
    
    (69,690
    )
    
    
    (53,581
    )
    
    
    (16,109
    )Interest Expense on Interest-Bearing Liabilities:Deposits:Interest-bearing demand
    
    
    (184
    )
    
    
    (412
    )
    
    
    228
    
    
    
    (524
    )
    
    
    (832
    )
    
    
    308Savings
    
    
    (5,457
    )
    
    
    (5,561
    )
    
    
    104
    
    
    
    (13,740
    )
    
    
    (14,745
    )
    
    
    1,005Time
    
    
    (5,205
    )
    
    
    (6,332
    )
    
    
    1,127
    
    
    
    (11,020
    )
    
    
    (16,383
    )
    
    
    5,363Short-term borrowings
    
    
    (1,783
    )
    
    
    (897
    )
    
    
    (886
    )
    
    
    (6,660
    )
    
    
    (3,280
    )
    
    
    (3,380
    )Long-term debt
    
    
    (7,619
    )
    
    
    531
    
    
    
    (8,150
    )
    
    
    (14,366
    )
    
    
    224
    
    
    
    (14,590
    )Total
    
    
    (20,248
    )
    
    
    (12,671
    )
    
    
    (7,577
    )
    
    
    (46,310
    )
    
    
    (35,016
    )
    
    
    (11,294
    )Net Interest Income
    
    $
    (12,014
    )
    
    $
    (9,790
    )
    
    $
    (2,224
    )
    
    $
    (23,380
    )
    
    $
    (18,565
    )
    
    $
    (4,815
    )
 
 (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. 38




---



##### Table of Contents



Noninterest Income
  Noninterest Income
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    Change in 2009
    
    
    June 30,
    
    
    Change in 2009(dollars in thousands)
    
    2009
    
    
    2008
    
    
    Amount
    
    
    Percent
    
    
    2009
    
    
    2008
    
    
    Amount
    
    
    PercentService charges on deposit accounts
    
    $
    10,836
    
    
    $
    12,036
    
    
    $
    (1,200
    )
    
    
    (10.0
    )%
    
    $
    21,104
    
    
    $
    23,502
    
    
    $
    (2,398
    )
    
    
    (10.2
    )%Trust fees
    
    
    3,464
    
    
    
    4,608
    
    
    
    (1,144
    )
    
    
    (24.8
    )
    
    
    6,883
    
    
    
    9,392
    
    
    
    (2,509
    )
    
    
    (26.7
    )Mortgage and other loan income
    
    
    3,715
    
    
    
    3,023
    
    
    
    692
    
    
    
    22.9
    
    
    
    6,794
    
    
    
    6,367
    
    
    
    427
    
    
    
    6.7Brokerage and investment fees
    
    
    1,450
    
    
    
    2,211
    
    
    
    (761
    )
    
    
    (34.4
    )
    
    
    2,777
    
    
    
    4,127
    
    
    
    (1,350
    )
    
    
    (32.7
    )ATM network user fees
    
    
    1,665
    
    
    
    1,677
    
    
    
    (12
    )
    
    
    (0.7
    )
    
    
    3,119
    
    
    
    3,090
    
    
    
    29
    
    
    
    0.9Bankcard fees
    
    
    2,093
    
    
    
    1,924
    
    
    
    169
    
    
    
    8.8
    
    
    
    3,987
    
    
    
    3,668
    
    
    
    319
    
    
    
    8.7Losses on held or sale loans
    
    
    (4,350
    )
    
    
    (2,248
    )
    
    
    (2,102
    )
    
    
    93.5
    
    
    
    (10,502
    )
    
    
    (2,247
    )
    
    
    (8,255
    )
    
    
    367.4Other income
    
    
    2,088
    
    
    
    3,827
    
    
    
    (1,739
    )
    
    
    (45.4
    )
    
    
    6,032
    
    
    
    10,084
    
    
    
    (4,052
    )
    
    
    (40.2
    )Total fees and other income
    
    
    20,961
    
    
    
    27,058
    
    
    
    (6,097
    )
    
    
    (22.5
    )
    
    
    40,194
    
    
    
    57,983
    
    
    
    (17,789
    )
    
    
    (30.7
    )Investment securities gains
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    Total noninterest income
    
    $
    20,966
    
    
    $
    27,058
    
    
    $
    (6,092
    )
    
    
    (22.5
    )
    
    $
    40,199
    
    
    $
    57,983
    
    
    $
    (17,784
    )
    
    
    (30.7
    )
   Noninterest Expense
  39




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##### Table of Contents



Noninterest Expense
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    Change in 2009
    
    
    June 30,
    
    
    Change in 2009(dollars in thousands)
    
    2009
    
    
    2008
    
    
    Amount
    
    
    Percent
    
    
    2009
    
    
    2008
    
    
    Amount
    
    
    PercentSalaries and
employee benefits
    
    $
    35,950
    
    
    $
    39,046
    
    
    $
    (3,096
    )
    
    
    (7.9
    )%
    
    $
    69,867
    
    
    $
    81,271
    
    
    $
    (11,404
    )%
    
    
    (14.0
    )%Occupancy
    
    
    6,762
    
    
    
    6,954
    
    
    
    (192
    )
    
    
    (2.8
    )
    
    
    14,685
    
    
    
    14,629
    
    
    
    56
    
    
    
    0.4Professional
services
    
    
    2,783
    
    
    
    4,531
    
    
    
    (1,748
    )
    
    
    (38.6
    )
    
    
    5,919
    
    
    
    8,294
    
    
    
    (2,375
    )
    
    
    (28.6
    )Equipment
    
    
    3,049
    
    
    
    3,420
    
    
    
    (371
    )
    
    
    (10.8
    )
    
    
    5,899
    
    
    
    6,650
    
    
    
    (751
    )
    
    
    (11.3
    )Data processing
services
    
    
    4,346
    
    
    
    4,233
    
    
    
    113
    
    
    
    2.7
    
    
    
    8,620
    
    
    
    8,537
    
    
    
    83
    
    
    
    1.0Advertising and
public relations
    
    
    2,274
    
    
    
    1,458
    
    
    
    816
    
    
    
    56.0
    
    
    
    3,699
    
    
    
    3,296
    
    
    
    403
    
    
    
    12.2Postage and delivery
    
    
    1,526
    
    
    
    2,058
    
    
    
    (532
    )
    
    
    (25.9
    )
    
    
    3,101
    
    
    
    3,785
    
    
    
    (684
    )
    
    
    (18.1
    )Other loan expenses
    
    
    6,861
    
    
    
    3,448
    
    
    
    3,413
    
    
    
    99.0
    
    
    
    12,798
    
    
    
    5,259
    
    
    
    7,539
    
    
    
    143.3ORE expenses,
profits, and
losses, net
    
    
    4,417
    
    
    
    6,394
    
    
    
    (1,977
    )
    
    
    (30.9
    )
    
    
    12,777
    
    
    
    7,636
    
    
    
    5,141
    
    
    
    67.3Intangible asset
amortization
    
    
    1,952
    
    
    
    2,333
    
    
    
    (381
    )
    
    
    (16.3
    )
    
    
    3,989
    
    
    
    4,780
    
    
    
    (791
    )
    
    
    (16.5
    )Goodwill impairment
    
    
    266,474
    
    
    
    178,089
    
    
    
    88,385
    
    
    
    49.6
    
    
    
    266,474
    
    
    
    178,089
    
    
    
    88,385
    
    
    
    49.6Other expenses
    
    
    19,039
    
    
    
    9,264
    
    
    
    9,775
    
    
    
    105.5
    
    
    
    28,383
    
    
    
    15,564
    
    
    
    12,819
    
    
    
    82.4Total noninterest
expense
    
    $
    355,433
    
    
    $
    261,228
    
    
    $
    94,205
    
    
    
    36.1
    
    
    $
    436,211
    
    
    $
    337,790
    
    
    $
    98,421
    
    
    
    29.1
    Income Taxes
  Lines of Business Results
  40




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Specialty Commercial
    
    $
    (32,720
    )
    
    $
    (191,557
    )
    
    $
    (47,234
    )
    
    $
    (196,062
    )Regional Banking
    
    
    (266,403
    )
    
    
    6,052
    
    
    
    (263,841
    )
    
    
    23,558Wealth Management
    
    
    440
    
    
    
    496
    
    
    
    956
    
    
    
    1,475Other
    
    
    (48,730
    )
    
    
    (16,625
    )
    
    
    (82,443
    )
    
    
    (19,478
    )Net Income
    
    $
    (347,413
    )
    
    $
    (201,634
    )
    
    $
    (392,562
    )
    
    $
    (190,507
    )
 Specialty Commercial
  Regional Banking
  Wealth Management
  41




---



##### Table of Contents



Other
  Financial Condition
  Money Market Investments
  Investment Securities
  Portfolio Loans
   42




---



##### Table of Contents



Commercial Loan Portfolio
 Jun 30
    
    
    Mar 31
    
    
    Dec 31
    
    
    Sep 30
    
    
    Jun 30(in millions)
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008
    
    
    2008Land Hold
    
    $
    54.9
    
    
    $
    54.2
    
    
    $
    45.0
    
    
    $
    48.3
    
    
    $
    49.8Land Development
    
    
    123.1
    
    
    
    121.2
    
    
    
    132.7
    
    
    
    125.0
    
    
    
    128.2Construction
    
    
    230.4
    
    
    
    257.7
    
    
    
    263.5
    
    
    
    364.2
    
    
    
    344.1Income Producing
    
    
    1,534.5
    
    
    
    1,558.2
    
    
    
    1,556.2
    
    
    
    1,533.2
    
    
    
    1,569.9Owner-Occupied
    
    
    979.5
    
    
    
    953.0
    
    
    
    967.3
    
    
    
    999.6
    
    
    
    1,009.3Total Commercial Real Estate
    
    
    2,922.4
    
    
    
    2,944.3
    
    
    
    2,964.7
    
    
    
    3,070.3
    
    
    
    3,101.3Commercial and Industrial
    
    
    2,198.3
    
    
    
    2,394.4
    
    
    
    2,602.4
    
    
    
    2,703.7
    
    
    
    2,703.8Total Commercial Loans
    
    $
    5,120.7
    
    
    $
    5,338.7
    
    
    $
    5,567.1
    
    
    $
    5,774.0
    
    
    $
    5,805.1
    Credit Quality
   
    
    Delinquency Rates by Loan Portfolio  This table illustrates the 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  This table illustrates the commercial loans that, while still
accruing interest, may be at risk due to general economic conditions or changes in a
borrowers financial status.
 
    
    Nonperforming Assets  This table illustrates the 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.
 
    
    Net Charge-Offs  This table illustrates the portion of loans that have been charged-off
during each quarter.
 
    
    Analysis of Allowance for Loan Losses  This table illustrates the changes that result in
the period-end allowance for loan losses position.
 43




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##### Table of Contents



Delinquency Rates by Loan Portfolio
  Table 1  Delinquency Rates By Loan Portfolio
 Jun 30, 2009
    
    Mar 31, 2009
    
    Dec 31, 2008
    
    Sep 30, 2008
    
    Jun 30, 200830 to 89 days Past Due
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(dollars in millions)
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    3.5
    
    
    
    6.38
    %
    
    $
    3.7
    
    
    
    6.83
    %
    
    $
    3.9
    
    
    
    8.67
    %
    
    $
    7.3
    
    
    
    15.11
    %
    
    $
    9.3
    
    
    
    18.67
    %Land Development
    
    
    1.3
    
    
    
    1.06
    
    
    
    11.1
    
    
    
    9.16
    
    
    
    5.2
    
    
    
    3.92
    
    
    
    10.3
    
    
    
    8.24
    
    
    
    1.1
    
    
    
    0.86Construction
    
    
    1.7
    
    
    
    0.74
    
    
    
    16.7
    
    
    
    6.48
    
    
    
    27.3
    
    
    
    10.36
    
    
    
    26.1
    
    
    
    7.17
    
    
    
    11.9
    
    
    
    3.46Income Producing
    
    
    50.0
    
    
    
    3.26
    
    
    
    64.2
    
    
    
    4.12
    
    
    
    76.7
    
    
    
    4.93
    
    
    
    50.1
    
    
    
    3.27
    
    
    
    48.5
    
    
    
    3.09Owner-Occupied
    
    
    15.6
    
    
    
    1.59
    
    
    
    37.4
    
    
    
    3.92
    
    
    
    37.5
    
    
    
    3.88
    
    
    
    21.3
    
    
    
    2.13
    
    
    
    18.6
    
    
    
    1.84Total Commercial
Real Estate
    
    
    72.1
    
    
    
    2.47
    
    
    
    133.1
    
    
    
    4.52
    
    
    
    150.6
    
    
    
    5.08
    
    
    
    115.1
    
    
    
    3.75
    
    
    
    89.4
    
    
    
    2.88Commercial and
Industrial
    
    
    34.0
    
    
    
    1.55
    
    
    
    47.1
    
    
    
    1.97
    
    
    
    56.5
    
    
    
    2.17
    
    
    
    29.1
    
    
    
    1.08
    
    
    
    29.5
    
    
    
    1.09Total Commercial
Loans
    
    
    106.1
    
    
    
    2.07
    
    
    
    180.2
    
    
    
    3.38
    
    
    
    207.1
    
    
    
    3.72
    
    
    
    144.2
    
    
    
    2.50
    
    
    
    118.9
    
    
    
    2.05Residential Mortgage
    
    
    27.7
    
    
    
    2.42
    
    
    
    25.9
    
    
    
    2.14
    
    
    
    39.5
    
    
    
    3.13
    
    
    
    37.7
    
    
    
    2.95
    
    
    
    38.5
    
    
    
    2.94Direct Consumer
    
    
    23.3
    
    
    
    1.72
    
    
    
    20.4
    
    
    
    1.45
    
    
    
    25.5
    
    
    
    1.76
    
    
    
    19.5
    
    
    
    1.32
    
    
    
    18.4
    
    
    
    1.22Indirect Consumer
    
    
    14.6
    
    
    
    1.81
    
    
    
    14.7
    
    
    
    1.83
    
    
    
    18.5
    
    
    
    2.25
    
    
    
    13.6
    
    
    
    1.61
    
    
    
    14.4
    
    
    
    1.73Total Consumer
Loans
    
    
    65.6
    
    
    
    1.98
    
    
    
    61.0
    
    
    
    1.79
    
    
    
    83.5
    
    
    
    2.36
    
    
    
    70.8
    
    
    
    1.96
    
    
    
    71.3
    
    
    
    1.96Total Delinquent
Loans
    
    $
    171.7
    
    
    
    2.04
    %
    
    $
    241.2
    
    
    
    2.76
    %
    
    $
    290.6
    
    
    
    3.19
    %
    
    $
    215.0
    
    
    
    2.29
    %
    
    $
    190.2
    
    
    
    2.01
    %
  Commercial Watchlist
  Table 2  Commercial Watchlist
 Jun 30, 2009
    
    Mar 31, 2009
    
    Dec 31, 2008
    
    Sep 30, 2008
    
    Jun 30, 2008Accruing loans only
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(dollars in millions)
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    18.1
    
    
    
    32.97
    %
    
    $
    15.7
    
    
    
    28.97
    %
    
    $
    18.5
    
    
    
    41.11
    %
    
    $
    20.7
    
    
    
    42.86
    %
    
    $
    24.2
    
    
    
    48.59
    %Land Development
    
    
    83.6
    
    
    
    67.91
    
    
    
    62.4
    
    
    
    51.49
    
    
    
    49.3
    
    
    
    37.15
    
    
    
    51.8
    
    
    
    41.44
    
    
    
    47.5
    
    
    
    37.05Construction
    
    
    90.3
    
    
    
    39.19
    
    
    
    86.6
    
    
    
    33.60
    
    
    
    74.8
    
    
    
    28.39
    
    
    
    104.8
    
    
    
    28.78
    
    
    
    86.3
    
    
    
    25.08Income Producing
    
    
    458.9
    
    
    
    29.91
    
    
    
    421.9
    
    
    
    27.08
    
    
    
    401.0
    
    
    
    25.77
    
    
    
    290.3
    
    
    
    18.93
    
    
    
    239.3
    
    
    
    15.24Owner-Occupied
    
    
    274.4
    
    
    
    28.01
    
    
    
    224.2
    
    
    
    23.53
    
    
    
    178.4
    
    
    
    18.44
    
    
    
    167.0
    
    
    
    16.71
    
    
    
    161.8
    
    
    
    16.03Total Commercial
Real Estate
    
    
    925.3
    
    
    
    31.66
    
    
    
    810.8
    
    
    
    27.54
    
    
    
    722.0
    
    
    
    24.35
    
    
    
    634.6
    
    
    
    20.67
    
    
    
    559.1
    
    
    
    18.03Commercial and
Industrial
    
    
    532.9
    
    
    
    24.24
    
    
    
    479.7
    
    
    
    20.03
    
    
    
    436.8
    
    
    
    16.78
    
    
    
    431.2
    
    
    
    15.95
    
    
    
    432.5
    
    
    
    16.00Total Watchlist
Loans
    
    $
    1,458.2
    
    
    
    28.48
    %
    
    $
    1,290.5
    
    
    
    24.17
    %
    
    $
    1,158.8
    
    
    
    20.82
    %
    
    $
    1,065.8
    
    
    
    18.46
    %
    
    $
    991.6
    
    
    
    17.08
    %
  44




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##### Table of Contents



Nonperforming Assets
  Table 3  Nonperforming Assets
 Jun 30, 2009
    
    Mar 31, 2009
    
    Dec 31, 2008
    
    Sep 30, 2008
    
    Jun 30, 2008% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(dollars in millions)
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    13.1
    
    
    
    23.86
    %
    
    $
    12.0
    
    
    
    22.14
    %
    
    $
    10.4
    
    
    
    23.11
    %
    
    $
    11.0
    
    
    
    22.77
    %
    
    $
    3.4
    
    
    
    6.83
    %Land Development
    
    
    15.1
    
    
    
    12.27
    
    
    
    14.6
    
    
    
    12.05
    
    
    
    23.4
    
    
    
    17.63
    
    
    
    20.6
    
    
    
    16.48
    
    
    
    22.8
    
    
    
    17.78Construction
    
    
    36.0
    
    
    
    15.63
    
    
    
    26.5
    
    
    
    10.28
    
    
    
    18.3
    
    
    
    6.94
    
    
    
    25.7
    
    
    
    7.06
    
    
    
    12.6
    
    
    
    3.66Income Producing
    
    
    139.4
    
    
    
    9.08
    
    
    
    116.3
    
    
    
    7.46
    
    
    
    78.6
    
    
    
    5.05
    
    
    
    57.6
    
    
    
    3.76
    
    
    
    23.1
    
    
    
    1.47Owner-Occupied
    
    
    72.0
    
    
    
    7.35
    
    
    
    66.5
    
    
    
    6.98
    
    
    
    31.8
    
    
    
    3.29
    
    
    
    17.7
    
    
    
    1.77
    
    
    
    13.1
    
    
    
    1.30Total Commercial Real Estate
    
    
    275.6
    
    
    
    9.43
    
    
    
    235.9
    
    
    
    8.01
    
    
    
    162.5
    
    
    
    5.48
    
    
    
    132.6
    
    
    
    4.32
    
    
    
    75.0
    
    
    
    2.42Commercial and Industrial
    
    
    91.8
    
    
    
    4.18
    
    
    
    83.7
    
    
    
    3.50
    
    
    
    64.6
    
    
    
    2.48
    
    
    
    38.2
    
    
    
    1.41
    
    
    
    31.6
    
    
    
    1.17Total Nonaccruing Commercial Loans
    
    
    367.4
    
    
    
    7.17
    
    
    
    319.6
    
    
    
    5.99
    
    
    
    227.1
    
    
    
    4.08
    
    
    
    170.8
    
    
    
    2.96
    
    
    
    106.6
    
    
    
    1.84Residential Mortgage
    
    
    103.3
    
    
    
    9.02
    
    
    
    84.6
    
    
    
    7.00
    
    
    
    59.5
    
    
    
    4.71
    
    
    
    40.2
    
    
    
    3.14
    
    
    
    12.4
    
    
    
    0.95Direct Consumer
    
    
    20.3
    
    
    
    1.50
    
    
    
    21.0
    
    
    
    1.49
    
    
    
    15.1
    
    
    
    1.04
    
    
    
    16.3
    
    
    
    1.10
    
    
    
    16.3
    
    
    
    1.09Indirect Consumer
    
    
    1.4
    
    
    
    0.17
    
    
    
    2.0
    
    
    
    0.25
    
    
    
    2.6
    
    
    
    0.32
    
    
    
    2.1
    
    
    
    0.25
    
    
    
    1.4
    
    
    
    0.17Total Nonaccruing Consumer Loans
    
    
    125.0
    
    
    
    3.78
    
    
    
    107.6
    
    
    
    3.15
    
    
    
    77.2
    
    
    
    2.18
    
    
    
    58.6
    
    
    
    1.63
    
    
    
    30.1
    
    
    
    0.83Total Nonaccruing Loans
    
    
    492.4
    
    
    
    5.84
    
    
    
    427.2
    
    
    
    4.88
    
    
    
    304.3
    
    
    
    3.34
    
    
    
    229.4
    
    
    
    2.45
    
    
    
    136.7
    
    
    
    1.45Loans 90+ days still accruing
    
    
    0.8
    
    
    
    0.01
    
    
    
    1.0
    
    
    
    0.01
    
    
    
    1.5
    
    
    
    0.02
    
    
    
    1.6
    
    
    
    0.02
    
    
    
    2.2
    
    
    
    0.02Restructured loans
    
    
    2.5
    
    
    
    0.03
    
    
    
    0.4
    
    
    
    0.00
    
    
    
    0.2
    
    
    
    0.00
    
    
    
    0.3
    
    
    
    0.00
    
    
    
    0.3
    
    
    
    0.00Total Nonperforming Portfolio Loans
    
    
    495.7
    
    
    
    5.88
    %
    
    
    428.6
    
    
    
    4.90
    %
    
    
    306.0
    
    
    
    3.36
    %
    
    
    231.3
    
    
    
    2.47
    %
    
    
    139.2
    
    
    
    1.47
    %Nonperforming Held for Sale
    
    
    54.3
    
    
    
    
    
    
    
    64.6
    
    
    
    
    
    
    
    75.2
    
    
    
    
    
    
    
    86.6
    
    
    
    
    
    
    
    92.6Other Repossessed Assets Acquired
    
    
    54.7
    
    
    
    
    
    
    
    57.4
    
    
    
    
    
    
    
    58.0
    
    
    
    
    
    
    
    46.5
    
    
    
    
    
    
    
    54.1Total Nonperforming Assets
    
    $
    604.7
    
    
    
    
    
    
    $
    550.6
    
    
    
    
    
    
    $
    439.2
    
    
    
    
    
    
    $
    364.4
    
    
    
    
    
    
    $
    285.9
    Net Charge-Offs, Provision for Loan Losses, and Allowance for Loan Losses
  45




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Table 4  Net Charge-Offs
 Three Months EndedJun 30, 2009
    
    
    Mar 31, 2009
    
    
    Dec 31, 2008
    
    
    Sep 30, 2008
    
    
    Jun 30, 2008% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(dollars in millions)
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**Land Hold
    
    $
    0.6
    
    
    
    4.37
    %
    
    $
    
    
    
    
    
    %
    
    $
    4.6
    
    
    
    40.89
    %
    
    $
    1.7
    
    
    
    14.08
    %
    
    $
    0.7
    
    
    
    5.62
    %Land Development
    
    
    2.4
    
    
    
    7.80
    
    
    
    6.3
    
    
    
    20.79
    
    
    
    5.8
    
    
    
    17.48
    
    
    
    6.9
    
    
    
    22.08
    
    
    
    16.4
    
    
    
    51.17Construction
    
    
    5.8
    
    
    
    10.07
    
    
    
    2.0
    
    
    
    3.10
    
    
    
    10.7
    
    
    
    16.24
    
    
    
    0.5
    
    
    
    0.55
    
    
    
    13.8
    
    
    
    16.04Income Producing
    
    
    12.6
    
    
    
    3.28
    
    
    
    7.8
    
    
    
    2.00
    
    
    
    21.7
    
    
    
    5.58
    
    
    
    4.4
    
    
    
    1.15
    
    
    
    7.7
    
    
    
    1.96Owner-Occupied
    
    
    7.9
    
    
    
    3.23
    
    
    
    2.4
    
    
    
    1.01
    
    
    
    3.1
    
    
    
    1.28
    
    
    
    1.3
    
    
    
    0.52
    
    
    
    3.4
    
    
    
    1.35Total Commercial Real Estate
    
    
    29.3
    
    
    
    4.01
    
    
    
    18.5
    
    
    
    2.51
    
    
    
    45.9
    
    
    
    6.19
    
    
    
    14.8
    
    
    
    1.93
    
    
    
    42.0
    
    
    
    5.42Commercial and Industrial
    
    
    6.8
    
    
    
    1.24
    
    
    
    8.0
    
    
    
    1.34
    
    
    
    21.9
    
    
    
    3.37
    
    
    
    0.4
    
    
    
    0.06
    
    
    
    0.6
    
    
    
    0.09Total Commercial Loans
    
    
    36.1
    
    
    
    2.82
    
    
    
    26.5
    
    
    
    1.99
    
    
    
    67.8
    
    
    
    4.87
    
    
    
    15.2
    
    
    
    1.05
    
    
    
    42.6
    
    
    
    2.94Residential Mortgage
    
    
    2.2
    
    
    
    0.77
    
    
    
    0.8
    
    
    
    0.26
    
    
    
    1.6
    
    
    
    0.51
    
    
    
    0.5
    
    
    
    0.16
    
    
    
    20.7
    
    
    
    6.33Direct Consumer
    
    
    6.5
    
    
    
    1.92
    
    
    
    4.4
    
    
    
    1.25
    
    
    
    5.9
    
    
    
    1.63
    
    
    
    3.3
    
    
    
    0.89
    
    
    
    3.1
    
    
    
    0.83Indirect Consumer
    
    
    4.4
    
    
    
    2.18
    
    
    
    5.0
    
    
    
    2.49
    
    
    
    5.7
    
    
    
    2.78
    
    
    
    3.4
    
    
    
    1.61
    
    
    
    2.9
    
    
    
    1.39Total Consumer Loans
    
    
    13.1
    
    
    
    1.59
    
    
    
    10.2
    
    
    
    1.19
    
    
    
    13.2
    
    
    
    1.49
    
    
    
    7.2
    
    
    
    0.80
    
    
    
    26.7
    
    
    
    2.93Total Net Charge-offs
    
    $
    49.2
    
    
    
    2.30
    %
    
    $
    36.7
    
    
    
    1.67
    %
    
    $
    81.0
    
    
    
    3.48
    %
    
    $
    22.4
    
    
    
    0.94
    %
    
    $
    69.3
    
    
    
    2.93
    %
 
 **
    
    Represents an annualized rate.    Analysis of Allowance for Loan Losses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Allowance for loan losses  beginning of period
    
    $
    282,647
    
    
    $
    176,528
    
    
    $
    255,321
    
    
    $
    163,353Provision for loan losses
    
    
    99,962
    
    
    
    74,480
    
    
    
    163,979
    
    
    
    105,099Charge-offs
    
    
    55,518
    
    
    
    71,040
    
    
    
    93,621
    
    
    
    89,649Recoveries
    
    
    6,278
    
    
    
    1,750
    
    
    
    7,690
    
    
    
    2,915Net charge-offs
    
    
    49,240
    
    
    
    69,290
    
    
    
    85,931
    
    
    
    86,734Allowance for loan losses  end of period
    
    $
    333,369
    
    
    $
    181,718
    
    
    $
    333,369
    
    
    $
    181,718Portfolio loans outstanding at period end
    
    $
    8,425,588
    
    
    $
    9,449,016
    
    
    $
    8,425,588
    
    
    $
    9,449,016Average portfolio loans outstanding during period
    
    
    8,604,217
    
    
    
    9,514,454
    
    
    
    8,755,278
    
    
    
    9,506,831Allowance for loan losses as a percentage of portfolio loans
    
    
    3.96
    %
    
    
    1.92
    %
    
    
    3.96
    %
    
    
    1.92
    %Ratio of net charge-offs during period to average portfolio loans
(annualized)
    
    
    2.30
    
    
    
    2.93
    
    
    
    1.98
    
    
    
    1.83
  46




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Loans Held for Sale
  Goodwill
  Deposits
   Borrowed Funds
   Capital Resources
  47




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Capital Ratios
 Regulatory MinimumWell-
    
    June 30,
    
    December 31,
    
    June 30,Required
    
    Capitalized
    
    2009
    
    2008
    
    2008Risk based:Tier 1 capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    11.81
    %
    
    
    12.21
    %
    
    
    10.80
    %Total capital
    
    
    8.00
    
    
    
    10.00
    
    
    
    13.91
    
    
    
    14.49
    
    
    
    13.03Tier 1 leverage
    
    
    4.00
    
    
    
    5.00
    
    
    
    8.68
    
    
    
    9.66
    
    
    
    8.71
  www.sec.gov www.citizensbanking.com
   Contractual Obligations and Off-Balance Sheet Arrangements
  Liquidity and Liquidity Risk Management
  48




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Credit Ratings
 Moodys
    
    
    
    
    
    DominionStandard &
    
    Investor
    
    Fitch
    
    Bond RatingPoors
    
    Service
    
    Ratings
    
    ServiceCitizens Republic Bancorp
(Holding Company)Long-Term Debt
    
    BB-
    
    
    B2
    
    
    BBB-
    
    BBB (low)Short-Term Debt
    
    
    B
    
    
    Not Prime


    
    
    F3
    
    
    R-2 (low)Trust Preferred
    
    CCC+
    
    Caa2
    
    BB+
    
    BB (high)Citizens BankCertificate of Deposit
    
    
    
    
    
    
    Ba3
    
    
    BBB
    
    BBBF&M Bank-IowaCertificate of Deposit
    
    
    
    
    
    
    
    
    
    BBB
    
    BBB
  49




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Interest Rate Risk
    50




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51




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  52




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1A.
    
    Risk Factors
   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 its bank subsidiaries depends substantially on developments in those
economies.
  
    
    A substantial amount of Citizens lending business originates in Michigan. Of
Citizens total portfolio loans, approximately 70% are to borrowers located, or secured by
properties, in Michigan and approximately 10% are to borrowers located, or secured by
properties, in Ohio. According to the United States Department of Labors Bureau of Labor
Statistics, June 2009 seasonally adjusted unemployment rates in Michigan and Ohio were
15.2% and 11.1%, respectively. The Michigan and Ohio economies are among those
particularly affected by the recent bankruptcy filings of General Motors Corporation,
Chrysler LLC and a number of automobile parts suppliers. Michigans unemployment rate for
June 2009 was the highest of any state in the United States.
    
    Citizens ability to return to a positive net income is largely dependent upon its
future credit costs. Citizens loan portfolios  particularly its commercial real estate
and commercial and industrial loan portfolios, which have accounted for a disproportionate
amount of our loan loss provisions during the last 15 months  continue to be adversely
affected by economic conditions and the on-going correction in real estate prices in our
markets. A significant portion of Citizens commercial loan portfolio is classified as
nonperforming loans or watchlist loans. The latter are loans that have migrated within
Citizens loan rating system to a level that requires increased oversight (generally
consistent with the regulatory definition of special mention, substantial and doubtful
loans, including loans that are in nonperforming status). Citizens attempts to maintain
an appropriate allowance for loan losses to provide for potential losses in its loan
portfolios. In view of the weakness and uncertainties in the national and regional
economies in which Citizens operates and the inherent difficulty in predicting future
events, Citizens may find it necessary to continue to take loan loss provisions in future
periods in amounts that substantially exceed loan loss provisions in prior periods in
order to maintain its allowance for loan losses at a level it deems appropriate.
 The Holding Company may not have sufficient resources to make capital contributions to its bank
subsidiaries when required by bank regulatory agencies, or when Citizens might otherwise wish to do
so, in order to maintain their capital ratios at acceptable levels.
  53




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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, or in Citizens compliance with applicable regulations, may adversely affect
it, including its ability to offer new products and services, obtain financing, pay dividends from
its subsidiaries to the Holding Company, attract deposits, make loans at satisfactory spreads or
engage in other business activities. Such changes may also result in the imposition of additional
costs.
   If Citizens common stock fails to meet the listing requirements of the Nasdaq GSM and is delisted
from trading on the Nasdaq GSM, the market price of its common stock could be adversely affected.
  In order to maintain and strengthen Citizens capital base, Citizens has determined to raise
additional capital in transactions that will likely be highly dilutive to its common shareholders.
  54




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Citizens capital raising initiatives contemplate that it will raise a significant amount of common
equity from private and/or governmental sources over the next six months. Citizens may not succeed
in its capital raising efforts.
  www.financialstability.gov
   The Exchange Offers are likely to trigger an ownership change that will negatively affect Citizens
ability to utilize net operating loss and capital loss and other deferred tax assets in the future.
  55




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##### Table of Contents



Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 Total Number ofShares Purchased as
    
    
    Maximum Number ofPart of Publicly
    
    
    Shares That May YetTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    Be Purchased UnderPeriod
    
    Shares Purchased
    
    
    Per Share
    
    
    Programs
    
    
    The Plans or ProgramsApril 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,241,154May 2009
    
    
    30,214
    (a)
    
    $
    1.38
    
    
    
    
    
    
    
    1,241,154June 2009
    
    
    5,023
    (a)
    
    
    0.90
    
    
    
    
    
    
    
    1,241,154Total
    
    
    35,237
    
    
    $
    1.31
    
    
    
    
    
    
    
    1,241,154
 
 (a)
    
    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.  56




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Item 4. Submission of Matters to a Vote of Security Holders
  Director
    
    For
    
    Withheld
    
    % Votes ForGeorge J. Butvilas
    
    
    98,423,915
    
    
    
    7,158,839
    
    
    
    93.22
    %Robert S. Cubbin
    
    
    98,334,338
    
    
    
    7,248,416
    
    
    
    93.14
    %Benjamin W. Laird
    
    
    98,130,998
    
    
    
    7,451,756
    
    
    
    92.95
    %James L. Wolohan
    
    
    98,520,462
    
    
    
    7,062,292
    
    
    
    93.32
    %
 BrokerFor
    
    Against
    
    Abstain
    
    Non-VotesApprove the compensation of certain
executive officers.
    
    
    59,995,935
    
    
    
    8,387,258
    
    
    
    665,598
    
    
    
    36,533,962Ratify the selection of Ernst & Young LLP
    
    
    103,778,927
    
    
    
    1,520,420
    
    
    
    240,144
    
    
    
    
 
 Item 6. Exhibits
 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
 57




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SIGNATURES
   Date: August 7, 2009
    By:
    /s/ Charles D. ChristyCharles D. ChristyChief Financial Officer


(principal financial officer and duly authorized officer) 58




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10-Q EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    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
 59