##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2008
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the transition period from

to
 Commission
file Number 001-33063
 CITIZENS REPUBLIC BANCORP, INC.
   MICHIGAN
    
    38-2378932(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)328 S. Saginaw St., Flint, Michigan
    
    48502(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o(Do not check if smaller reporting company)
    
    Smaller reporting company o
 o þ
   Class
    
    Outstanding at April 25, 2008Common Stock, No Par Value
    
    75,753,337 Shares




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##### 



Citizens Republic Bancorp, Inc.
 PagePart I  Financial Information (unaudited)Item 1 - Financial Statements (unaudited)Consolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    4Consolidated Statements of Changes in Shareholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2 - Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    20Item 3 - Quantitative and Qualitative Disclosures about Market Risk
    
    
    38Item 4 - Controls and Procedures
    
    
    39Part II  Other InformationItem 1A  Risk Factors
    
    
    39Item 2 -Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 6 - Exhibits
    
    
    40Signatures
    
    
    41Exhibit Index
    
    
    42Certification of Chief Executive OfficerCertification of Chief Financial OfficerCertification Pursuant to 18 U.S.C. Section 1350
  2




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##### Table of Contents



Consolidated Balance Sheets
 Citizens Republic Bancorp and Subsidiaries
 March 31,
    
    
    December 31,
    
    
    March 31,(in thousands)
    
    2008
    
    
    2007
    
    
    2007(unaudited)
    
    
    (Note 1)
    
    
    (unaudited)AssetsCash and due from banks
    
    $
    222,677
    
    
    $
    241,104
    
    
    $
    197,834Money market investments:Federal funds sold
    
    
    20,000
    
    
    
    
    
    
    
    Interest-bearing deposits with banks
    
    
    2,488
    
    
    
    172
    
    
    
    191Total money market investments
    
    
    22,488
    
    
    
    172
    
    
    
    191Investment Securities:Securities available for sale, at fair value
    
    
    2,085,867
    
    
    
    2,132,164
    
    
    
    2,326,257Securities held to maturity, at amortized cost
(fair value of $134,233, $129,366 and $113,294, respectively)
    
    
    132,905
    
    
    
    129,126
    
    
    
    112,613Total investment securities
    
    
    2,218,772
    
    
    
    2,261,290
    
    
    
    2,438,870FHLB and Federal Reserve stock
    
    
    148,838
    
    
    
    148,838
    
    
    
    132,895Portfolio loans:Commercial
    
    
    2,653,799
    
    
    
    2,557,152
    
    
    
    1,993,672Commercial real estate
    
    
    3,174,384
    
    
    
    3,097,196
    
    
    
    3,157,185Total commercial
    
    
    5,828,183
    
    
    
    5,654,348
    
    
    
    5,150,857Residential mortgage
    
    
    1,393,801
    
    
    
    1,445,214
    
    
    
    1,518,198Direct consumer
    
    
    1,531,905
    
    
    
    1,572,329
    
    
    
    1,677,842Indirect consumer
    
    
    818,901
    
    
    
    829,353
    
    
    
    831,302Total portfolio loans
    
    
    9,572,790
    
    
    
    9,501,244
    
    
    
    9,178,199Less: Allowance for loan losses
    
    
    (176,528
    )
    
    
    (163,353
    )
    
    
    (169,239
    )Net portfolio loans
    
    
    9,396,262
    
    
    
    9,337,891
    
    
    
    9,008,960Loans held for sale
    
    
    81,537
    
    
    
    75,832
    
    
    
    103,922Premises and equipment
    
    
    127,329
    
    
    
    132,500
    
    
    
    141,689Goodwill
    
    
    775,308
    
    
    
    775,308
    
    
    
    780,021Other intangible assets
    
    
    28,099
    
    
    
    30,546
    
    
    
    42,953Bank owned life insurance
    
    
    216,336
    
    
    
    214,321
    
    
    
    208,801Other assets
    
    
    301,645
    
    
    
    288,181
    
    
    
    261,111Total assets
    
    $
    13,539,291
    
    
    $
    13,505,983
    
    
    $
    13,317,247LiabilitiesNoninterest-bearing deposits
    
    $
    1,113,773
    
    
    $
    1,125,966
    
    
    $
    1,146,673Interest-bearing demand deposits
    
    
    751,130
    
    
    
    782,889
    
    
    
    875,579Savings deposits
    
    
    2,592,214
    
    
    
    2,221,813
    
    
    
    2,263,659Time deposits
    
    
    4,029,860
    
    
    
    4,171,257
    
    
    
    4,174,995Total deposits
    
    
    8,486,977
    
    
    
    8,301,925
    
    
    
    8,460,906Federal funds purchased and securities sold
under agreements to repurchase
    
    
    503,430
    
    
    
    488,039
    
    
    
    453,230Other short-term borrowings
    
    
    36,859
    
    
    
    54,128
    
    
    
    4,565Other liabilities
    
    
    136,193
    
    
    
    144,501
    
    
    
    133,175Long-term debt
    
    
    2,798,802
    
    
    
    2,939,510
    
    
    
    2,693,459Total liabilities
    
    
    11,962,261
    
    
    
    11,928,103
    
    
    
    11,745,335Shareholders EquityPreferred
stock  no par valueAuthorized - 5,000,000 shares; Issued  none
    
    
    
    
    
    
    
    
    
    
    Common stock
 no par valueAuthorized - 100,000,000 shares; Issued and outstanding -
75,747,627 at 3/31/08,
75,722,115 at 12/31/07, and 75,656,564 at 3/31/07
    
    
    976,445
    
    
    
    975,446
    
    
    
    978,245Retained earnings
    
    
    586,502
    
    
    
    597,333
    
    
    
    593,817Accumulated other comprehensive income (loss)
    
    
    14,083
    
    
    
    5,101
    
    
    
    (150
    )Total shareholders equity
    
    
    1,577,030
    
    
    
    1,577,880
    
    
    
    1,571,912Total liabilities and shareholders equity
    
    $
    13,539,291
    
    
    $
    13,505,983
    
    
    $
    13,317,247
  3




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##### Table of Contents



Consolidated Statements of Income (Unaudited)
 Citizens Republic Bancorp and Subsidiaries
 Three Months EndedMarch 31,(in thousands, except per share amounts)
    
    2008
    
    
    2007Interest IncomeInterest and fees on loans
    
    $
    157,001
    
    
    $
    171,844Interest and dividends on investment securities:Taxable
    
    
    21,023
    
    
    
    23,791Tax-exempt
    
    
    7,370
    
    
    
    7,328Dividends on FHLB and Federal Reserve stock
    
    
    1,693
    
    
    
    1,736Money market investments
    
    
    30
    
    
    
    17Total interest income
    
    
    187,117
    
    
    
    204,716Interest ExpenseDeposits
    
    
    61,578
    
    
    
    66,434Short-term borrowings
    
    
    4,971
    
    
    
    11,001Long-term debt
    
    
    32,256
    
    
    
    28,940Total interest expense
    
    
    98,805
    
    
    
    106,375Net Interest Income
    
    
    88,312
    
    
    
    98,341Provision for loan losses
    
    
    30,619
    
    
    
    3,500Net interest income after provision for loan losses
    
    
    57,693
    
    
    
    94,841Noninterest IncomeService charges on deposit accounts
    
    
    11,466
    
    
    
    11,106Trust fees
    
    
    4,784
    
    
    
    4,955Mortgage and other loan income
    
    
    3,345
    
    
    
    6,137Brokerage and investment fees
    
    
    1,916
    
    
    
    1,549ATM network user fees
    
    
    1,413
    
    
    
    1,579Bankcard fees
    
    
    1,744
    
    
    
    1,180Other income
    
    
    6,257
    
    
    
    4,917Total fees and other income
    
    
    30,925
    
    
    
    31,423Investment securities gains (losses)
    
    
    
    
    
    
    (33
    )Total noninterest income
    
    
    30,925
    
    
    
    31,390Noninterest ExpenseSalaries and employee benefits
    
    
    42,225
    
    
    
    44,165Occupancy
    
    
    7,675
    
    
    
    7,910Professional services
    
    
    3,763
    
    
    
    4,152Equipment
    
    
    3,230
    
    
    
    3,911Data processing services
    
    
    4,304
    
    
    
    4,130Advertising and public relations
    
    
    1,838
    
    
    
    1,775Postage and delivery
    
    
    1,727
    
    
    
    1,964Telephone
    
    
    1,878
    
    
    
    2,064Other loan expenses
    
    
    1,811
    
    
    
    912Stationery and supplies
    
    
    477
    
    
    
    777Intangible asset amortization
    
    
    2,447
    
    
    
    3,118Restructuring and merger-related expenses
    
    
    
    
    
    
    4,186Other expense
    
    
    5,187
    
    
    
    4,646Total noninterest expense
    
    
    76,562
    
    
    
    83,710Income Before Income Taxes
    
    
    12,056
    
    
    
    42,521Income tax provision
    
    
    929
    
    
    
    11,029Net Income
    
    $
    11,127
    
    
    $
    31,492Net Income Per Common Share:Basic
    
    $
    0.15
    
    
    $
    0.42Diluted
    
    
    0.15
    
    
    
    0.41Cash Dividends Declared Per Common Share
    
    
    0.29
    
    
    
    0.29Average Common Shares Outstanding:Basic
    
    
    75,248
    
    
    
    75,448Diluted
    
    
    75,273
    
    
    
    75,918
  4




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##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity (Unaudited)
 Citizens Republic Bancorp and Subsidiaries
 AccumulatedOtherCommon Stock
    
    
    Retained
    
    
    Comprehensive(in thousands, except per share amounts)
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance at December 31, 2007
    
    
    75,722
    
    
    $
    975,446
    
    
    $
    597,333
    
    
    $
    5,101
    
    
    $
    1,577,880Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    11,127
    
    
    
    
    
    
    
    11,127Other comprehensive income:Net unrealized gain on securities available-for-sale, net of
reclassification adjustment for net gains included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,570Net change in unrealized gain on qualifying
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    412Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,982Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,109Proceeds from stock options exercised and restricted stock activity
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognition of stock-based compensation
    
    
    
    
    
    
    1,068
    
    
    
    
    
    
    
    
    
    
    
    1,068Cash dividends declared on common shares  $0.290 per share
    
    
    
    
    
    
    
    
    
    
    (21,958
    )
    
    
    
    
    
    
    (21,958
    )Shares acquired for retirement and purchased for taxes
    
    
    (5
    )
    
    
    (69
    )
    
    
    
    
    
    
    
    
    
    
    (69
    )Balance  March 31, 2008
    
    
    75,748
    
    
    $
    976,445
    
    
    $
    586,502
    
    
    $
    14,083
    
    
    $
    1,577,030Balance at December 31, 2006
    
    
    75,676
    
    
    $
    980,772
    
    
    $
    584,289
    
    
    $
    (7,375
    )
    
    $
    1,557,686Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    31,492
    
    
    
    
    
    
    
    31,492Other comprehensive income:Net unrealized gain on securities available-for-sale, net of
reclassification adjustment for net gains included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,541Net change in unrealized loss on qualifying
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (316
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,225Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,717Proceeds from stock options exercised and restricted stock activity
    
    
    194
    
    
    
    2,533
    
    
    
    
    
    
    
    
    
    
    
    2,533Recognition of stock-based compensation
    
    
    
    
    
    
    613
    
    
    
    
    
    
    
    
    
    
    
    613Cash dividends declared on common shares  $0.290 per share
    
    
    
    
    
    
    
    
    
    
    (21,964
    )
    
    
    
    
    
    
    (21,964
    )Shares acquired for retirement and purchased for taxes
    
    
    (213
    )
    
    
    (5,673
    )
    
    
    
    
    
    
    
    
    
    
    (5,673
    )Balance  March 31, 2007
    
    
    75,657
    
    
    $
    978,245
    
    
    $
    593,817
    
    
    $
    (150
    )
    
    $
    1,571,912
  5




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##### Table of Contents



Consolidated Statements
of Cash Flows (Unaudited)
 Citizens Republic Bancorp and Subsidiaries
 Three Months EndedMarch 31,(in thousands)
    
    2008
    
    
    2007Operating Activities:Net income
    
    $
    11,127
    
    
    $
    31,492Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    30,619
    
    
    
    3,500Depreciation and software amortization
    
    
    3,005
    
    
    
    3,775Amortization of intangibles
    
    
    2,447
    
    
    
    3,118Amortization and fair value adjustments of purchase accounting mark-to-market, net
    
    
    (5,556
    )
    
    
    (6,784
    )Discount accretion and amortization of issuance costs on long term debt
    
    
    304
    
    
    
    120Net accretion on investment securities
    
    
    (2,306
    )
    
    
    (718
    )Investment securities losses
    
    
    
    
    
    
    33Loans originated for sale
    
    
    (107,965
    )
    
    
    (156,458
    )Proceeds from sales of loans held for sale
    
    
    104,814
    
    
    
    230,893Net gains from loan sales
    
    
    (2,234
    )
    
    
    (3,572
    )Net loss (gain) on sale of other real estate
    
    
    937
    
    
    
    (335
    )Recognition of stock-based compensation
    
    
    1,068
    
    
    
    613Restructure and merger related
    
    
    (2,068
    )
    
    
    (25,168
    )Other
    
    
    (28,347
    )
    
    
    (11,195
    )Net cash provided by operating activities
    
    
    5,845
    
    
    
    69,314Investing Activities:Net (increase) decrease in money market investments
    
    
    (22,316
    )
    
    
    12Securities available-for-sale:Proceeds from sales
    
    
    
    
    
    
    364,391Proceeds from maturities, calls and payments
    
    
    144,339
    
    
    
    225,355Purchases
    
    
    (81,729
    )
    
    
    (64,253
    )Securities held-to-maturity:Purchases
    
    
    (5,076
    )
    
    
    (2,876
    )Proceeds from maturities, calls and payments
    
    
    475
    
    
    
    Net (increase) decrease in loans and leases
    
    
    (84,730
    )
    
    
    61,055Proceeds from sales of other real estate
    
    
    4,545
    
    
    
    3,741Net increase in properties and equipment
    
    
    (586
    )
    
    
    (5,973
    )Net cash (used) provided by investing activities
    
    
    (45,078
    )
    
    
    581,452Financing Activities:Net increase (decrease) in demand and savings deposits
    
    
    326,449
    
    
    
    (141,546
    )Net decrease in time deposits
    
    
    (141,110
    )
    
    
    (95,080
    )Net decrease in short-term borrowings
    
    
    (1,795
    )
    
    
    (479,248
    )Proceeds from issuance of long-term debt
    
    
    250,000
    
    
    
    750,000Principal reductions in long-term debt
    
    
    (390,711
    )
    
    
    (685,701
    )Cash dividends paid
    
    
    (21,958
    )
    
    
    (21,964
    )Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    2,533Shares
acquired for retirement and purchased for taxes
    
    
    (69
    )
    
    
    (5,673
    )Net cash provided (used) by financing activities
    
    
    20,806
    
    
    
    (676,679
    )Net decrease in cash and due from banks
    
    
    (18,427
    )
    
    
    (25,913
    )Cash and due from banks at beginning of period
    
    
    241,104
    
    
    
    223,747Cash and due from banks at end of period
    
    $
    222,677
    
    
    $
    197,834Supplemental Cash Flow Information:Loans transferred to other real estate owned
    
    $
    17,860
    
    
    $
    3,326
  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 No. 157, Fair Value Measurements.
  FASB Staff Position (FSP) on SFAS No. 157-2.
 SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
 7




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##### Table of Contents



Note 2. New Accounting Pronouncements
Final FASB Statements
 SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of
FASB Statement No. 133.
 Note 3. Merger and Acquisition Activity
  Restructuring Reserve
 Balance
    
    
    Changes in 2008
    
    
    BalanceDecember 31,
    
    
    Cash
    
    
    March 31,(in thousands)
    
    2007
    
    
    Payments
    
    
    2008Personnel
    
    $
    1,562
    
    
    $
    (501
    )
    
    $
    1,061Facilities/Branches
    
    
    1,557
    
    
    
    (26
    )
    
    
    1,531$
    3,119
    
    
    $
    (527
    )
    
    $
    2,592
  Merger-related Reserve
 Balance
    
    
    Changes in 2008
    
    
    BalanceDecember 31,
    
    
    Cash
    
    
    March 31,(in thousands)
    
    2007
    
    
    Payments
    
    
    2008Personnel
    
    $
    1,276
    
    
    $
    (1,253
    )
    
    $
    23Facilities/Branches
    
    
    1,360
    
    
    
    (276
    )
    
    
    1,0842,636
    
    
    
    (1,529
    )
    
    
    1,107Other Transaction and
System Reserves
    
    
    12
    
    
    
    (12
    )
    
    
    $
    2,648
    
    
    $
    (1,541
    )
    
    $
    1,107
 8




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##### Table of Contents



Note 4. Investment Securities
  March 31, 2008
    
    
    December 31, 2007Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Gross Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Gross Unrealized(in thousands)
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    LossesAvailable For Sale:Federal Agencies
    
    $
    250,178
    
    
    $
    259,271
    
    
    $
    9,093
    
    
    $
    
    
    
    $
    298,177
    
    
    $
    304,074
    
    
    $
    5,897
    
    
    $
    Collateralized Mortgage Obligations
    
    
    559,023
    
    
    
    556,962
    
    
    
    5,971
    
    
    
    8,032
    
    
    
    587,355
    
    
    
    586,954
    
    
    
    2,278
    
    
    
    2,679Mortgage-backed
    
    
    683,199
    
    
    
    692,476
    
    
    
    9,762
    
    
    
    485
    
    
    
    667,504
    
    
    
    670,565
    
    
    
    5,707
    
    
    
    2,646State and municipal
    
    
    551,017
    
    
    
    565,840
    
    
    
    15,259
    
    
    
    436
    
    
    
    560,073
    
    
    
    569,466
    
    
    
    10,336
    
    
    
    943Other
    
    
    11,277
    
    
    
    11,318
    
    
    
    41
    
    
    
    
    
    
    
    1,067
    
    
    
    1,105
    
    
    
    38
    
    
    
    Total available for sale
    
    $
    2,054,694
    
    
    $
    2,085,867
    
    
    $
    40,126
    
    
    $
    8,953
    
    
    $
    2,114,176
    
    
    $
    2,132,164
    
    
    $
    24,256
    
    
    $
    6,268Held to Maturity:State and municipalTotal held to maturity
    
    $
    132,905
    
    
    $
    134,233
    
    
    $
    1,881
    
    
    $
    553
    
    
    $
    129,126
    
    
    $
    129,366
    
    
    $
    978
    
    
    $
    738FHLB and Fed Reserve stock
    
    $
    148,838
    
    
    $
    148,838
    
    
    $
    
    
    
    $
    
    
    
    $
    148,838
    
    
    $
    148,838
    
    
    $
    
    
    
    $
    
  As of March 31, 2008
 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:Collateralized Mortgage Obligations
    
    $
    248,424
    
    
    $
    8,032
    
    
    $
    
    
    
    $
    
    
    
    $
    248,424
    
    
    $
    8,032Mortgage-backed
    
    
    37,816
    
    
    
    384
    
    
    
    62,914
    
    
    
    101
    
    
    
    100,730
    
    
    
    485State and municipal
    
    
    31,033
    
    
    
    374
    
    
    
    6,088
    
    
    
    62
    
    
    
    37,121
    
    
    
    436Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total available for sale
    
    
    317,273
    
    
    
    8,790
    
    
    
    69,002
    
    
    
    163
    
    
    
    386,275
    
    
    
    8,953Held to Maturity:State and municipal
    
    
    22,612
    
    
    
    483
    
    
    
    7,112
    
    
    
    70
    
    
    
    29,724
    
    
    
    553Total held to maturity
    
    
    22,612
    
    
    
    483
    
    
    
    7,112
    
    
    
    70
    
    
    
    29,724
    
    
    
    553Total
    
    $
    339,885
    
    
    $
    9,273
    
    
    $
    76,114
    
    
    $
    233
    
    
    $
    415,999
    
    
    $
    9,506
 As of December 31, 2007
 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:Collateralized Mortgage Obligations
    
    $
    212,274
    
    
    $
    2,165
    
    
    $
    67,253
    
    
    $
    514
    
    
    $
    279,527
    
    
    $
    2,679Mortgage-backed
    
    
    33,102
    
    
    
    219
    
    
    
    115,712
    
    
    
    2,427
    
    
    
    148,814
    
    
    
    2,646State and municipal
    
    
    69,429
    
    
    
    625
    
    
    
    17,596
    
    
    
    318
    
    
    
    87,025
    
    
    
    943Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total available for sale
    
    
    314,805
    
    
    
    3,009
    
    
    
    200,561
    
    
    
    3,259
    
    
    
    515,366
    
    
    
    6,268Held to Maturity:State and municipal
    
    
    43,700
    
    
    
    536
    
    
    
    14,230
    
    
    
    202
    
    
    
    57,930
    
    
    
    738Total held to maturity
    
    
    43,700
    
    
    
    536
    
    
    
    14,230
    
    
    
    202
    
    
    
    57,930
    
    
    
    738Total
    
    $
    358,505
    
    
    $
    3,545
    
    
    $
    214,791
    
    
    $
    3,461
    
    
    $
    573,296
    
    
    $
    7,006
 9




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##### Table of Contents



Note 5. Allowance for Loan Losses and Impaired Loans
  Analysis of Allowance for Loan Losses
 Three Months EndedMarch 31,(in thousands)
    
    2008
    
    
    2007Allowance for loan losses  beginning of period
    
    $
    163,353
    
    
    $
    169,104Provision for loan losses
    
    
    30,619
    
    
    
    3,500Charge-offs:Commercial
    
    
    1,045
    
    
    
    363Commercial real estate
    
    
    9,132
    
    
    
    421Total commercial
    
    
    10,177
    
    
    
    784Residential mortgage
    
    
    1,769
    
    
    
    791Direct consumer
    
    
    3,522
    
    
    
    2,084Indirect consumer
    
    
    3,141
    
    
    
    2,217Charge-offs
    
    
    18,609
    
    
    
    5,876Recoveries:Commercial
    
    
    142
    
    
    
    1,130Commercial real estate
    
    
    50
    
    
    
    175Total commercial
    
    
    192
    
    
    
    1,305Residential mortgage
    
    
    
    
    
    
    51Direct consumer
    
    
    472
    
    
    
    371Indirect consumer
    
    
    501
    
    
    
    784Recoveries
    
    
    1,165
    
    
    
    2,511Net charge-offs
    
    
    17,444
    
    
    
    3,365Allowance for loan losses  end of period
    
    $
    176,528
    
    
    $
    169,239
 Accounting by Creditors for Impairment of a Loan,
 10




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##### Table of Contents



Impaired Loan Information
 Balances
    
    
    Valuation ReserveMarch 31,
    
    
    December 31,
    
    
    March 31,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Balances -Impaired loans with valuation reserve
    
    $
    46,646
    
    
    $
    33,651
    
    
    $
    17,395
    
    
    $
    17,769Impaired loans with no valuation reserve
    
    
    22,191
    
    
    
    18,684
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    68,837
    
    
    $
    52,335
    
    
    $
    17,395
    
    
    $
    17,769Impaired loans on nonaccrual basis
    
    $
    68,837
    
    
    $
    52,335
    
    
    $
    17,395
    
    
    $
    17,769Impaired loans on accrual basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    68,837
    
    
    $
    52,335
    
    
    $
    17,395
    
    
    $
    17,769
  Note 6.
Long-term Debt
  March 31,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Citizens (Parent only):Variable rate promissary notes payable due May 1, 2010
    
    $
    50,000
    
    
    $
    50,000Subordinated debt:5.75% subordinated notes due February 2013
    
    
    119,373
    
    
    
    119,125Variable rate junior subordinated debenture due June 2033
    
    
    25,751
    
    
    
    25,7267.50% junior subordinated debentures due September 2066
    
    
    146,207
    
    
    
    145,971Subsidiaries:Federal Home Loan Bank advances
    
    
    2,219,126
    
    
    
    2,344,636Other borrowed funds
    
    
    238,345
    
    
    
    254,052Total long-term debt
    
    $
    2,798,802
    
    
    $
    2,939,510
  Note 7. Income Taxes
  11




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##### Table of Contents



Note 8. Accumulated Other Comprehensive Income
  Three Months EndedMarch 31,(in thousands)
    
    2008
    
    
    2007Balance at beginning of period
    
    $
    5,101
    
    
    $
    (7,375
    )Net unrealized gain on securities for the
quarter, net of tax effect of $4,615 in 2008 and
$4,049 in 2007
    
    
    8,570
    
    
    
    7,520Less: Reclassification adjustment for net
losses on securities included in net income
for the quarter, net of tax effect of $12 in
2007
    
    
    
    
    
    
    21Net change in unrealized gain (loss) on cash flow
hedges for the quarter, net of tax effect of $222
in 2008 and $(170) in 2007
    
    
    412
    
    
    
    (316
    )Accumulated other comprehensive income, net of tax
    
    $
    14,083
    
    
    $
    (150
    )
 Note 9. Fair Values of Assets and Liabilities
       12




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##### Table of Contents



ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS
 Securities Available for Sale.
 Derivative Financial Instruments.
 Deferred Compensation Assets.
  March 31, 2008(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Investment Securities Available for Sale
    
    $
    2,085,867
    
    
    $
    
    
    
    $
    2,085,867
    
    
    $
    Other assets (1)
    
    
    40,684
    
    
    
    10,698
    
    
    
    29,986
    
    
    
    Total Assets
    
    $
    2,126,551
    
    
    $
    10,698
    
    
    $
    2,115,853
    
    
    $
    Other liabilities (2)
    
    $
    22,562
    
    
    $
    
    
    
    $
    22,562
    
    
    $
    
 
 (1)
    
    Includes Derivative Financial Instruments and Deferred Compensation Assets.(2)
    
    Includes Derivative Financial Instruments. ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS
 Mortgage Servicing Rights
 Loans Held for Sale.
 13




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##### Table of Contents



Impaired Loans.
  March 31, 2008(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Loans (1)
    
    $
    44,747
    
    
    $
    
    
    
    $
    44,747
    
    
    $
    Loans Held For Sale(2)
    
    
    3,131
    
    
    
    
    
    
    
    3,131
    
    
    
    Total Assets
    
    $
    47,878
    
    
    $
    
    
    
    $
    47,878
    
    
    $
    
 
 (1)
    
    In accordance with the provisions of SFAS 114, Impaired Loans
with a carrying value of
$62.1 million were written down to their fair value of $44.7 million.(2)
    
    In accordance with the provisions of SFAS 144, Loans Held For
Sale with a carrying value
of $4.9 million, were written down to their fair value of $3.1 million. Note 10. Pension Benefit Cost
  14




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##### Table of Contents



Three Months EndedMarch 31,(in thousands)
    
    2008
    
    
    2007Defined Benefit Pension PlansInterest cost
    
    $
    1,165
    
    
    $
    1,187Expected return on plan assets
    
    
    (1,900
    )
    
    
    (1,956
    )Amortization of unrecognized:Prior service cost
    
    
    10
    
    
    
    3Net actuarial loss
    
    
    75
    
    
    
    125Net pension cost
    
    $
    (650
    )
    
    $
    (641
    )Supplemental Pension PlansInterest cost
    
    $
    190
    
    
    $
    192Amortization of unrecognized:Prior service cost
    
    
    118
    
    
    
    42Net actuarial loss
    
    
    5
    
    
    
    32Net pension cost
    
    $
    313
    
    
    $
    266Postretirement Benefit PlansService cost
    
    $
    
    
    
    $
    1Interest cost
    
    
    129
    
    
    
    160Amortization of unrecognized:Prior service cost
    
    
    (64
    )
    
    
    (67
    )Net actuarial gain
    
    
    (9
    )
    
    
    Net pension cost
    
    $
    56
    
    
    $
    94Defined contribution retirement and 401K PlansEmployer contributions
    
    $
    1,845
    
    
    $
    1,636Total periodic benefit cost
    
    $
    1,564
    
    
    $
    1,355
  Note 11. Stock-Based Compensation
   15




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##### Table of Contents



Analysis of Stock-Based Compensation Expense
 Three Months EndedMarch 31,(in thousands)
    
    2008
    
    
    2007Stock Option Compensation
    
    $
    8
    
    
    $
    8Restricted Stock Compensation
    
    
    1,060
    
    
    
    605Stock-based compensation expense before income taxes
    
    
    1,068
    
    
    
    613Income tax benefit
    
    
    (374
    )
    
    
    (215
    )Total stock-based compensation expense after income taxes
    
    $
    694
    
    
    $
    398
     Weighted-AverageNumber of
    
    Grant Date FairShares
    
    ValueOutstanding restricted stock at December 31, 2007
    
    
    486,842
    
    
    $
    21.32Granted
    
    
    30,976
    
    
    
    12.29Vested
    
    
    (20,054
    )
    
    
    26.86Forfeited
    
    
    (2,576
    )
    
    
    24.50Restricted stock at March 31, 2008
    
    
    495,188
    
    
    
    20.52
  Note 12. Earnings Per Share
  16




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##### Table of Contents



Three Months EndedMarch 31,(in thousands, except per share amounts)
    
    2008
    
    
    2007Numerator:Basic and dilutive earnings per share  net income
available to common shareholders
    
    $
    11,127
    
    
    $
    31,492Denominator:Basic earnings per share  weighted average shares
    
    
    75,248
    
    
    
    75,448Effect of dilutive securities  potential conversion
of employee stock options and restricted stock awards
    
    
    25
    
    
    
    470Diluted earnings per share  adjusted weighted-average
shares and assumed conversions
    
    
    75,273
    
    
    
    75,918Basic earnings per share
    
    $
    0.15
    
    
    $
    0.42Diluted earnings per share
    
    $
    0.15
    
    
    $
    0.41
 Note
13. Lines of Business
  Line of Business Information
 Specialty
    
    
    Regional
    
    
    Wealth(in thousands)
    
    Commercial
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary  Three Months Ended
March 31, 2008Net interest income (taxable equivalent)
    
    $
    17,740
    
    
    $
    67,269
    
    
    $
    (9
    )
    
    $
    7,991
    
    
    $
    92,991Provision for loan losses
    
    
    12,795
    
    
    
    6,994
    
    
    
    
    
    
    
    5,330
    
    
    
    25,119Net interest income after provision
    
    
    4,945
    
    
    
    60,275
    
    
    
    (9
    )
    
    
    2,661
    
    
    
    67,872Noninterest income
    
    
    508
    
    
    
    19,266
    
    
    
    6,690
    
    
    
    4,461
    
    
    
    30,925Noninterest expense
    
    
    5,196
    
    
    
    54,298
    
    
    
    5,175
    
    
    
    11,893
    
    
    
    76,562Income before income taxes
    
    
    257
    
    
    
    25,243
    
    
    
    1,506
    
    
    
    (4,771
    )
    
    
    22,235Income tax expense (taxable equivalent)
    
    
    (1,765
    )
    
    
    8,765
    
    
    
    528
    
    
    
    (820
    )
    
    
    6,708Net income
    
    $
    2,022
    
    
    $
    16,478
    
    
    $
    978
    
    
    $
    (3,951
    )
    
    $
    15,527Average assets
    
    $
    2,033
    
    
    $
    5,427
    
    
    $
    13
    
    
    $
    5,970
    
    
    $
    13,443Earnings Summary  Three Months Ended
March 31,(1)Net interest income (taxable equivalent)
    
    $
    21,223
    
    
    $
    72,784
    
    
    $
    17
    
    
    $
    8,943
    
    
    $
    102,967Provision for loan losses
    
    
    1,927
    
    
    
    (964
    )
    
    
    
    
    
    
    2,537
    
    
    
    3,500Net interest income after provision
    
    
    19,296
    
    
    
    73,748
    
    
    
    17
    
    
    
    6,406
    
    
    
    99,467Noninterest income
    
    
    1,311
    
    
    
    21,062
    
    
    
    6,250
    
    
    
    2,767
    
    
    
    31,390Noninterest expense
    
    
    6,504
    
    
    
    57,376
    
    
    
    5,606
    
    
    
    14,224
    
    
    
    83,710Income before income taxes
    
    
    14,103
    
    
    
    37,434
    
    
    
    661
    
    
    
    (5,051
    )
    
    
    47,147Income tax expense (taxable equivalent)
    
    
    4,936
    
    
    
    13,102
    
    
    
    232
    
    
    
    (2,615
    )
    
    
    15,655Net income
    
    $
    9,167
    
    
    $
    24,332
    
    
    $
    429
    
    
    $
    (2,436
    )
    
    $
    31,492Average
assets(in millions)
    
    $
    2,001
    
    
    $
    6,112
    
    
    $
    12
    
    
    $
    5,449
    
    
    $
    13,574
 
 (1)
    
    Certain amounts have been reclassified to conform to current year presentation. 17




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##### Table of Contents



Note
14. Commitments, Contingent Liabilities and Guarantees
   March 31,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Loan commitments and letters of credit:Commitments to extend credit
    
    $
    2,515,006
    
    
    $
    2,510,255Financial standby letters of credit
    
    
    110,509
    
    
    
    101,229Performance standby letters of credit
    
    
    26,831
    
    
    
    27,244Commercial letters of credit
    
    
    252,138
    
    
    
    255,538Total loan commitments and letters of credit
    
    $
    2,904,484
    
    
    $
    2,894,266
  Note
15. Derivatives and Hedging Activities
 Accounting for Derivative Instruments and Hedging Activities, Accounting for Certain Derivative Instruments and Certain Hedging Activities
   18




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##### Table of Contents



Derivative Financial Instruments:
 March 31, 2008
    
    
    December 31, 2007Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueReceive fixed swaps (1)
    
    $
    225,000
    
    
    $
    3,311
    
    
    $
    300,000
    
    
    $
    1,574Customer initiated swaps and corresponding offsets (2)
    
    
    955,831
    
    
    
    514
    
    
    
    713,290
    
    
    
    Interest rate lock commitments
    
    
    99,192
    
    
    
    1
    
    
    
    24,808
    
    
    
    199Forward mortgage loan contracts
    
    
    41,306
    
    
    
    160
    
    
    
    68,030
    
    
    
    (501
    )Total
    
    $
    1,321,329
    
    
    $
    3,986
    
    
    $
    1,106,128
    
    
    $
    1,272
 Derivative Classifications and Hedging Relationships:
 March 31, 2008
    
    
    December 31, 2007Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueDerivatives Designated as Cash Flow Hedges:Prime Based Loan Hedges (3)
    
    $
    100,000
    
    
    $
    693
    
    
    $
    100,000
    
    
    $
    (47
    )Derivatives Designated as Fair Value Hedges:Hedging time deposits (4)
    
    
    50,000
    
    
    
    2,251
    
    
    
    50,000
    
    
    
    1,434Hedging long-term debt (5)
    
    
    75,000
    
    
    
    367
    
    
    
    150,000
    
    
    
    187Derivatives Not Designated as Hedges:Customer initiated swaps and corresponding offsets (2)
    
    
    955,831
    
    
    
    514
    
    
    
    713,290
    
    
    
    Total
    
    $
    1,180,831
    
    
    $
    3,825
    
    
    $
    1,013,290
    
    
    $
    1,574
 
 (1)
    
    Fair value includes accrued interest of $2,056 and $1,191 for March 31, 2008 and
December 31, 2007, respectively(2)
    
    Fair value includes accrued interest of $0 and $0
for March 31, 2008 and December 31, 2007, respectively.(3)
    
    Fair value includes accrued interest of $107 and $0 for March 31. 2008 and December
31, 2007, respectively(4)
    
    Fair value includes accrued interest of $1,873 and $1,196 for March 31, 2008 and
December 31, 2007, respectively.(5)
    
    Fair value includes accrued interest of $76 and
($4,829) for March 31, 2008 and December 31, 2007, respectively. 19




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##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
 Selected Quarterly Information
Citizens Republic Bancorp and Subsidiaries
 Three Months EndedMarch 31,
    
    December 31,
    
    September 30,
    
    June 30,
    
    March 31,2008
    
    2007
    
    2007
    
    2007
    
    2007Summary of Operations (thousands)Net interest income
    
    $
    88,312
    
    
    $
    92,188
    
    
    $
    94,873
    
    
    $
    96,776
    
    
    $
    98,341Provision for loan losses
    
    
    30,619
    
    
    
    6,055
    
    
    
    3,765
    
    
    
    31,857
    
    
    
    3,500Total fees and other income
    
    
    30,925
    
    
    
    29,296
    
    
    
    30,596
    
    
    
    31,278
    
    
    
    31,423Investment securities gains (losses)
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    (33
    )Noninterest expense (1)
    
    
    76,562
    
    
    
    78,880
    
    
    
    77,343
    
    
    
    87,490
    
    
    
    83,710Income tax provision
    
    
    929
    
    
    
    8,582
    
    
    
    12,605
    
    
    
    (911
    )
    
    
    11,029Net income
    
    
    11,127
    
    
    
    27,967
    
    
    
    31,764
    
    
    
    9,619
    
    
    
    31,492Taxable equivalent adjustment
    
    
    4,679
    
    
    
    4,673
    
    
    
    4,620
    
    
    
    4,629
    
    
    
    4,625Cash dividends
    
    
    21,958
    
    
    
    21,941
    
    
    
    21,934
    
    
    
    21,960
    
    
    
    21,964Per Common Share DataBasic net income
    
    $
    0.15
    
    
    $
    0.37
    
    
    $
    0.42
    
    
    $
    0.13
    
    
    $
    0.42Diluted net income
    
    
    0.15
    
    
    
    0.37
    
    
    
    0.42
    
    
    
    0.13
    
    
    
    0.41Cash dividends
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290Market value (end of period)
    
    
    12.43
    
    
    
    14.51
    
    
    
    16.11
    
    
    
    18.30
    
    
    
    22.16Book value (end of period)
    
    
    20.82
    
    
    
    20.84
    
    
    
    20.65
    
    
    
    20.28
    
    
    
    20.78At Period End (millions)Assets
    
    $
    13,539
    
    
    $
    13,506
    
    
    $
    13,223
    
    
    $
    13,247
    
    
    $
    13,317Portfolio loans
    
    
    9,573
    
    
    
    9,501
    
    
    
    9,219
    
    
    
    9,216
    
    
    
    9,178Deposits
    
    
    8,487
    
    
    
    8,302
    
    
    
    7,942
    
    
    
    8,082
    
    
    
    8,461Shareholders equity
    
    
    1,577
    
    
    
    1,578
    
    
    
    1,562
    
    
    
    1,534
    
    
    
    1,572Average for the Quarter (millions)Assets
    
    $
    13,442
    
    
    $
    13,305
    
    
    $
    13,165
    
    
    $
    13,241
    
    
    $
    13,574Portfolio loans
    
    
    9,499
    
    
    
    9,335
    
    
    
    9,163
    
    
    
    9,170
    
    
    
    9,179Deposits
    
    
    8,417
    
    
    
    7,951
    
    
    
    8,049
    
    
    
    8,157
    
    
    
    8,525Shareholders equity
    
    
    1,579
    
    
    
    1,561
    
    
    
    1,536
    
    
    
    1,551
    
    
    
    1,552Ratios (annualized)Return on average assets
    
    
    0.33
    %
    
    
    0.83
    %
    
    
    0.96
    %
    
    
    0.29
    %
    
    
    0.94
    %Return on average shareholders equity
    
    
    2.83
    
    
    
    7.11
    
    
    
    8.20
    
    
    
    2.49
    
    
    
    8.23Average equity to average assets
    
    
    11.74
    
    
    
    11.73
    
    
    
    11.67
    
    
    
    11.72
    
    
    
    11.43Net interest margin (FTE) (2)
    
    
    3.12
    
    
    
    3.26
    
    
    
    3.39
    
    
    
    3.44
    
    
    
    3.44Efficiency ratio (3)
    
    
    61.79
    
    
    
    62.52
    
    
    
    59.45
    
    
    
    65.94
    
    
    
    62.29Net loans charged off to average portfolio
loans
    
    
    0.74
    
    
    
    0.84
    
    
    
    0.34
    
    
    
    0.87
    
    
    
    0.15Allowance for loan losses to portfolio loans
    
    
    1.84
    
    
    
    1.72
    
    
    
    1.92
    
    
    
    1.97
    
    
    
    1.84Nonperforming assets to portfolio loans
plus ORAA (end of period)
    
    
    3.39
    
    
    
    2.64
    
    
    
    2.06
    
    
    
    1.58
    
    
    
    1.25Nonperforming assets to total assets (end
of period)
    
    
    2.41
    
    
    
    1.86
    
    
    
    1.44
    
    
    
    1.10
    
    
    
    0.86Leverage ratio
    
    
    7.40
    
    
    
    7.53
    
    
    
    7.49
    
    
    
    7.33
    
    
    
    7.64Tier 1 capital ratio
    
    
    9.04
    
    
    
    9.18
    
    
    
    9.28
    
    
    
    9.09
    
    
    
    9.89Total capital ratio
    
    
    11.26
    
    
    
    11.66
    
    
    
    11.78
    
    
    
    11.59
    
    
    
    12.42
 (1)
    
    Noninterest expense includes restructuring and merger related expenses of ($0.4)
million in the fourth quarter of 2007, $1.0 million in the third quarter of 2007, $3.4 million in
the second quarter of 2007, and $4.2 million in the first quarter of 2007.(2)
    
    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%.(3)
    
    The Efficiency Ratio measures how efficiently a bank spends its revenues. The
formula is: Noninterest expense/(Net interest income + Taxable equivalent adjustment + Total fees
and other income). 20




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##### Table of Contents



Introduction
  Forward  Looking Statements
  
    
    Citizens faces the risk that loan losses, including unanticipated loan losses due to
changes in loan portfolios, fraud and economic factors, will exceed the allowance for loan
losses and that additional increases in the allowance will be required. Additions to the
allowance for loan losses would cause Citizens net income to decline and could have a
negative impact on Citizens capital and financial position.
    
    While Citizens attempts to manage the risk from changes in market interest rates,
interest rate risk management techniques are not exact. In addition, Citizens may not be
able to economically hedge its interest rate risk. A rapid or substantial increase or
decrease in interest rates could adversely affect Citizens net interest income and results
of operations.
    
    An economic downturn, and the negative economic effects caused by terrorist attacks,
potential attacks and other destabilizing events, would likely contribute to the
deterioration of the quality of the loan portfolio and could reduce Citizens customer
base, its level of deposits, and demand for financial products such as loans.
    
    If Citizens is unable to continue to attract core deposits or continue to obtain third
party financing on favorable terms, its cost of funds will increase, adversely affecting
the ability to generate the funds necessary for lending operations, reducing net interest
margin and negatively affecting results of operations.
    
    Increased competition with other financial institutions or an adverse change in
Citizens relationship with a number of major customers could reduce Citizens net interest
margin and net income by decreasing the number and size of loans originated, the interest
rates charged on these loans and the fees charged for services to customers. If Citizens
were to lend to customers who are less likely to pay in order to maintain historical
origination levels, it may not be able to maintain current loan quality levels.
    
    Citizens is a party to various lawsuits incidental to its business. Litigation is
subject to many uncertainties such that the expenses and ultimate exposure with respect to
many of these matters cannot be ascertained.
    
    The financial services industry is undergoing rapid technological changes. If Citizens
is unable to adequately invest in and implement new technology-driven products and
services, it may not be able to compete effectively, or the cost to provide products and
services may increase significantly.
    
    Citizens business may be adversely affected by the highly regulated environment in
which it operates. Changes in banking or tax laws, regulations and regulatory practices at
either the federal or state level may adversely affect the Corporation, including its
ability to offer new products and services, obtain financing, pay dividends from the
subsidiaries to the Holding Company, attract deposits or make loans and leases at
satisfactory spreads, and may also result in the imposition of additional costs.
 21




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##### Table of Contents




    
    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 Citizens financial condition and results of operations.
    
    New accounting or tax pronouncements or interpretations may be issued by the accounting
profession, regulators or other government bodies which could change existing accounting
methods. Changes in accounting methods could negatively impact Citizens results of
operations and financial position.
    
    Citizens business continuity plans or data security systems could prove to be
inadequate, resulting in a material interruption in, or disruption to, Citizens business
and a negative impact on 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 Citizens expenses and results of operations.
    
    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 the
goodwill or other intangible assets Citizens recorded at the time of the Republic merger
such that it may need to record an impairment charge, which could result in a negative
impact on results of operations.
    
    Citizens could face unanticipated environmental liabilities or costs related to real
property owned or acquired through foreclosure. Compliance with federal, state and local
environmental laws and regulations, including those related to investigation and clean-up
of contaminated sites, could have a negative effect on Citizens expenses and results of
operations.
    
    As a bank holding company that conducts substantially all of its operations through its
subsidiaries, the ability of the Holding Company to pay dividends, repurchase its shares or
to repay its indebtedness depends upon the results of operations of its subsidiaries and
their ability to pay dividends to the Holding Company. Dividends paid by these
subsidiaries are subject to limits imposed by federal and state law.
    
    Citizens controls and procedures may fail or be circumvented, which could have a
material adverse effect on its business, results of operations, and financial condition.
    
    Citizens articles of incorporation and bylaws as well as certain banking laws may have
an anti-takeover effect.
  Critical Accounting Policies
  22




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##### Table of Contents



Fair
Value Measurements
 Fair Value Measurements
 Results of Operations
 Summary
    Net
Interest Income and Net Interest Margin
  23




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##### Table of Contents



Average Balances/Net Interest Income/Average Rates
 2008
    
    
    2007Three Months Ended March 31,
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    4,490
    
    
    $
    30
    
    
    
    2.66
    %
    
    $
    840
    
    
    $
    17
    
    
    
    8.55
    %Investment securities (3):Taxable
    
    
    1,528,754
    
    
    
    21,023
    
    
    
    5.50
    
    
    
    1,938,432
    
    
    
    23,791
    
    
    
    4.91Tax-exempt
    
    
    678,699
    
    
    
    7,370
    
    
    
    6.68
    
    
    
    670,159
    
    
    
    7,328
    
    
    
    6.73FHLB and Federal Reserve stock
    
    
    148,840
    
    
    
    1,693
    
    
    
    4.57
    
    
    
    132,895
    
    
    
    1,736
    
    
    
    5.29Portfolio Loans (4):Commercial
    
    
    2,564,023
    
    
    
    37,146
    
    
    
    5.93
    
    
    
    1,960,678
    
    
    
    37,219
    
    
    
    7.83Commercial real estate
    
    
    3,142,244
    
    
    
    53,887
    
    
    
    6.90
    
    
    
    3,153,730
    
    
    
    59,603
    
    
    
    7.67Residential mortgage
    
    
    1,417,712
    
    
    
    22,963
    
    
    
    6.48
    
    
    
    1,535,636
    
    
    
    25,560
    
    
    
    6.66Direct consumer
    
    
    1,553,348
    
    
    
    27,906
    
    
    
    7.23
    
    
    
    1,696,461
    
    
    
    32,720
    
    
    
    7.82Indirect consumer
    
    
    821,882
    
    
    
    13,869
    
    
    
    6.79
    
    
    
    832,917
    
    
    
    13,937
    
    
    
    6.79Total portfolio loans
    
    
    9,499,209
    
    
    
    155,771
    
    
    
    6.62
    
    
    
    9,179,422
    
    
    
    169,039
    
    
    
    7.48Loans held for sale
    
    
    74,057
    
    
    
    1,230
    
    
    
    6.63
    
    
    
    144,006
    
    
    
    2,805
    
    
    
    7.82Total earning assets (3)
    
    
    11,934,049
    
    
    
    187,117
    
    
    
    6.45
    
    
    
    12,065,754
    
    
    
    204,716
    
    
    
    7.01Nonearning AssetsCash and due from banks
    
    
    205,102
    
    
    
    
    
    
    
    
    
    
    
    188,763Bank premises and equipment
    
    
    130,216
    
    
    
    
    
    
    
    
    
    
    
    139,628Investment security fair value adjustment
    
    
    32,294
    
    
    
    
    
    
    
    
    
    
    
    3,154Other nonearning assets
    
    
    1,306,441
    
    
    
    
    
    
    
    
    
    
    
    1,344,570Allowance for loan losses
    
    
    (165,815
    )
    
    
    
    
    
    
    
    
    
    
    (167,771
    )Total assets
    
    $
    13,442,287
    
    
    
    
    
    
    
    
    
    
    $
    13,574,098Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    $
    776,756
    
    
    $
    1,269
    
    
    
    0.66
    %
    
    $
    903,134
    
    
    $
    1,663
    
    
    
    0.75
    %Savings deposits
    
    
    2,412,725
    
    
    
    14,249
    
    
    
    2.38
    
    
    
    2,271,532
    
    
    
    16,573
    
    
    
    2.96Time deposits
    
    
    4,137,557
    
    
    
    46,060
    
    
    
    4.48
    
    
    
    4,205,636
    
    
    
    48,198
    
    
    
    4.65Short-term borrowings
    
    
    632,655
    
    
    
    4,971
    
    
    
    3.16
    
    
    
    906,216
    
    
    
    11,001
    
    
    
    4.92Long-term debt
    
    
    2,665,362
    
    
    
    32,256
    
    
    
    4.86
    
    
    
    2,410,542
    
    
    
    28,940
    
    
    
    4.84Total interest-bearing liabilities
    
    
    10,625,055
    
    
    
    98,805
    
    
    
    3.74
    
    
    
    10,697,060
    
    
    
    106,375
    
    
    
    4.03Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest -bearing demand
    
    
    1,090,255
    
    
    
    
    
    
    
    
    
    
    
    1,144,773Other liabilities
    
    
    148,339
    
    
    
    
    
    
    
    
    
    
    
    180,214Shareholders equity
    
    
    1,578,638
    
    
    
    
    
    
    
    
    
    
    
    1,552,051Total liabilities and shareholders equity
    
    $
    13,442,287
    
    
    
    
    
    
    
    
    
    
    $
    13,574,098Net Interest Income
    
    
    
    
    
    $
    88,312
    
    
    
    
    
    
    
    
    
    
    $
    98,341Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.71
    %
    
    
    
    
    
    
    
    
    
    
    2.98
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.41
    
    
    
    
    
    
    
    
    
    
    
    0.46Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.12
    %
    
    
    
    
    
    
    
    
    
    
    3.44
    %
 
 (1)
    
    Interest income is show n 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 $4.7 million and $4.6 for the three months ended March 31, 2008
and 2007, 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 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 margin exceeds the interest spread.  24




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##### Table of Contents



Analysis of Changes in Interest Income and Interest Expense
 Three Months Ended March 31,Increase (Decrease)2008 compared with 2007
    
    Net
    
    
    Due to Change in(in thousands)
    
    Change(1)
    
    
    Rate(2)
    
    
    Volume(2)Interest Income on Earning Assets:Money market investments
    
    $
    13
    
    
    $
    (18
    )
    
    $
    31Investment securities:Taxable
    
    
    (2,768
    )
    
    
    2,646
    
    
    
    (5,414
    )Tax-exempt
    
    
    42
    
    
    
    (51
    )
    
    
    93FHLB and Federal Reserve stock
    
    
    (43
    )
    
    
    (238
    )
    
    
    195Loans:Commercial
    
    
    (73
    )
    
    
    (10,253
    )
    
    
    10,180Commercial real estate
    
    
    (5,716
    )
    
    
    (5,522
    )
    
    
    (194
    )Residential mortgage loans
    
    
    (2,597
    )
    
    
    (673
    )
    
    
    (1,924
    )Direct consumer
    
    
    (4,814
    )
    
    
    (2,338
    )
    
    
    (2,476
    )Indirect consumer
    
    
    (68
    )
    
    
    (11
    )
    
    
    (57
    )Total portfolio loans
    
    
    (13,268
    )
    
    
    (18,797
    )
    
    
    5,529Loans held for sale
    
    
    (1,575
    )
    
    
    (367
    )
    
    
    (1,208
    )Total
    
    
    (17,599
    )
    
    
    (16,825
    )
    
    
    (774
    )Interest Expense on
Interest-Bearing Liabilities:Deposits:Interest-bearing demand
    
    
    (394
    )
    
    
    (185
    )
    
    
    (209
    )Savings
    
    
    (2,324
    )
    
    
    (3,351
    )
    
    
    1,027Time
    
    
    (2,138
    )
    
    
    (1,519
    )
    
    
    (619
    )Short-term borrowings
    
    
    (6,030
    )
    
    
    (3,296
    )
    
    
    (2,734
    )Long-term debt
    
    
    3,316
    
    
    
    (80
    )
    
    
    3,396Total
    
    
    (7,570
    )
    
    
    (8,431
    )
    
    
    861Net Interest Income
    
    $
    (10,029
    )
    
    $
    (8,394
    )
    
    $
    (1,635
    )
 
 (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. 25




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##### Table of Contents



Noninterest
Income
  Noninterest Income
 Three Months EndedMarch 31,
    
    
    Change in 2008(dollars in thousands)
    
    2008
    
    
    2007
    
    
    Amount
    
    
    PercentService charges on deposit accounts
    
    $
    11,466
    
    
    $
    11,106
    
    
    $
    360
    
    
    
    3.2
    %Trust fees
    
    
    4,784
    
    
    
    4,955
    
    
    
    (171
    )
    
    
    (3.5
    )Mortgage and other loan income
    
    
    3,345
    
    
    
    6,137
    
    
    
    (2,792
    )
    
    
    (45.5
    )Brokerage and investment fees
    
    
    1,916
    
    
    
    1,549
    
    
    
    367
    
    
    
    23.7ATM network user fees
    
    
    1,413
    
    
    
    1,579
    
    
    
    (166
    )
    
    
    (10.5
    )Bankcard fees
    
    
    1,744
    
    
    
    1,180
    
    
    
    564
    
    
    
    47.8Other income
    
    
    6,257
    
    
    
    4,917
    
    
    
    1,340
    
    
    
    27.3Total fees and other income
    
    
    30,925
    
    
    
    31,423
    
    
    
    (498
    )
    
    
    (1.6
    )Investment securities gains
    
    
    
    
    
    
    (33
    )
    
    
    33
    
    
    
    (100.0
    )Total noninterest income
    
    $
    30,925
    
    
    $
    31,390
    
    
    $
    (465
    )
    
    
    (1.5
    )
   26




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##### Table of Contents



Noninterest
Expense
  Noninterest Expense
 Three Months EndedMarch 31,
    
    
    Change in 2008(dollars in thousands)
    
    2008
    
    
    2007
    
    
    Amount
    
    
    PercentSalaries and employee benefits
    
    $
    42,225
    
    
    $
    44,165
    
    
    $
    (1,940
    )
    
    
    (4.4
    )%Occupancy
    
    
    7,675
    
    
    
    7,910
    
    
    
    (235
    )
    
    
    (3.0
    )Professional services
    
    
    3,763
    
    
    
    4,152
    
    
    
    (389
    )
    
    
    (9.4
    )Equipment
    
    
    3,230
    
    
    
    3,911
    
    
    
    (681
    )
    
    
    (17.4
    )Data processing services
    
    
    4,304
    
    
    
    4,130
    
    
    
    174
    
    
    
    4.2Advertising and public relations
    
    
    1,838
    
    
    
    1,775
    
    
    
    63
    
    
    
    3.5Postage and delivery
    
    
    1,727
    
    
    
    1,964
    
    
    
    (237
    )
    
    
    (12.1
    )Telephone
    
    
    1,878
    
    
    
    2,064
    
    
    
    (186
    )
    
    
    (9.0
    )Other loan expenses
    
    
    1,811
    
    
    
    912
    
    
    
    899
    
    
    
    98.6Stationery and supplies
    
    
    477
    
    
    
    777
    
    
    
    (300
    )
    
    
    (38.6
    )Intangible asset amortization
    
    
    2,447
    
    
    
    3,118
    
    
    
    (671
    )
    
    
    (21.5
    )Restructuring and merger-related expenses
    
    
    
    
    
    
    4,186
    
    
    
    (4,186
    )
    
    
    N/MOther expenses
    
    
    5,187
    
    
    
    4,646
    
    
    
    541
    
    
    
    11.6Total noninterest expense
    
    $
    76,562
    
    
    $
    83,710
    
    
    $
    (7,148
    )
    
    
    (8.5
    )
 
     Income
Taxes
  27




---



##### Table of Contents



Lines
of Business Results
  Three Months EndedMarch 31,(in thousands)
    
    2008
    
    
    2007Specialty Commercial
    
    $
    2,022
    
    
    $
    9,167Regional Banking
    
    
    16,478
    
    
    
    24,332Wealth Management
    
    
    978
    
    
    
    429Other
    
    
    (3,951
    )
    
    
    (2,436
    )Net Income
    
    $
    15,527
    
    
    $
    31,492
 Specialty
Commercial
  Regional
Banking
  Wealth
Management
  Other
  28




---



##### Table of Contents



Financial
Condition
  Investment
Securities
  Portfolio
Loans
   Commercial Loan Portfolio
 Mar 31,
    
    
    Dec 31,
    
    
    Sept 30,
    
    
    June 30,
    
    
    March 31,in millions
    
    2008
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007Land Hold
    
    $
    61.6
    
    
    $
    63.8
    
    
    $
    78.9
    
    
    $
    81.6
    
    
    $
    84.3Land Development
    
    
    159.2
    
    
    
    167.8
    
    
    
    161.0
    
    
    
    178.7
    
    
    
    187.6Construction
    
    
    370.7
    
    
    
    342.6
    
    
    
    376.3
    
    
    
    371.2
    
    
    
    455.9Income Producing
    
    
    1,567.3
    
    
    
    1,526.0
    
    
    
    1,338.8
    
    
    
    1,338.9
    
    
    
    1,351.7Owner-Occupied
    
    
    1,015.6
    
    
    
    997.0
    
    
    
    1,113.5
    
    
    
    1,115.6
    
    
    
    1,077.7Total Commercial Real Estate
    
    
    3,174.4
    
    
    
    3,097.2
    
    
    
    3,068.5
    
    
    
    3,086.0
    
    
    
    3,157.2Commercial and Industrial
    
    
    2,653.8
    
    
    
    2,557.1
    
    
    
    2,236.2
    
    
    
    2,153.2
    
    
    
    1,993.7Total Commercial Loans
    
    $
    5,828.2
    
    
    $
    5,654.3
    
    
    $
    5,304.7
    
    
    $
    5,239.2
    
    
    $
    5,150.9
    29




---



##### Table of Contents




    
    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 are identified
during the watchlist process which are still accruing interest but may be at risk due to
general economic conditions or changes in a borrowers financial status.
 
    
    Nonperforming Assets (3-quarter and 5-quarter versions)  These tables illustrate the
loans where the contractual payment is 90 days or more past due and interest is no longer
accruing, as well as loans that are held for sale and other repossessed assets acquired. The
commercial loans included in these tables are reviewed as part of the watchlist process in
addition to the loans displayed in the commercial watchlist table.
 
    
    Analysis of Allowance for Loan Losses  This table illustrates the changes that result in
the period-end allowance for loan losses position.
 
    
    Net Charge-Offs  This table illustrates the portion of loans that have been charged-off
during each quarter.Delinquency Rates by Loan Portfolio
  Delinquency Rates By Loan Portfolio
 March 31, 2008
    
    
    December 31, 2007
    
    
    September 30, 2007
    
    
    June 30, 2007
    
    
    March 31, 2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
        $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    6.6
    
    
    
    10.71
    %
    
    $
    4.6
    
    
    
    7.21
    %
    
    $
    4.2
    
    
    
    5.32
    %
    
    $
    2.9
    
    
    
    3.55
    %
    
    $
    1.8
    
    
    
    2.14
    %Land Development
    
    
    16.3
    
    
    
    10.24
    
    
    
    28.7
    
    
    
    17.10
    
    
    
    18.4
    
    
    
    11.43
    
    
    
    22.7
    
    
    
    12.70
    
    
    
    1.2
    
    
    
    0.64Construction
    
    
    10.5
    
    
    
    2.83
    
    
    
    31.7
    
    
    
    9.25
    
    
    
    17.6
    
    
    
    4.68
    
    
    
    11.1
    
    
    
    2.99
    
    
    
    7.9
    
    
    
    1.73Income Producing
    
    
    29.3
    
    
    
    1.87
    
    
    
    54.0
    
    
    
    3.54
    
    
    
    31.2
    
    
    
    2.33
    
    
    
    24.1
    
    
    
    1.80
    
    
    
    4.2
    
    
    
    0.31Owner-Occupied
    
    
    19.0
    
    
    
    1.87
    
    
    
    20.3
    
    
    
    2.04
    
    
    
    10.8
    
    
    
    0.97
    
    
    
    17.1
    
    
    
    1.54
    
    
    
    14.7
    
    
    
    1.36Total Commercial Real Estate
    
    
    81.7
    
    
    
    2.57
    
    
    
    139.3
    
    
    
    4.50
    
    
    
    82.2
    
    
    
    2.68
    
    
    
    77.9
    
    
    
    2.53
    
    
    
    29.8
    
    
    
    0.94Commercial and Industrial
    
    
    39.9
    
    
    
    1.50
    
    
    
    39.0
    
    
    
    1.53
    
    
    
    22.0
    
    
    
    0.98
    
    
    
    22.7
    
    
    
    1.05
    
    
    
    27.2
    
    
    
    1.36Total Commercial Loans
    
    
    121.6
    
    
    
    2.09
    
    
    
    178.3
    
    
    
    3.15
    
    
    
    104.2
    
    
    
    1.96
    
    
    
    100.6
    
    
    
    1.92
    
    
    
    57.0
    
    
    
    1.11Residential Mortgage
    
    
    33.5
    
    
    
    2.40
    
    
    
    46.4
    
    
    
    3.21
    
    
    
    37.7
    
    
    
    2.58
    
    
    
    38.5
    
    
    
    2.58
    
    
    
    30.3
    
    
    
    2.00Direct Consumer
    
    
    21.7
    
    
    
    1.42
    
    
    
    24.3
    
    
    
    1.55
    
    
    
    21.5
    
    
    
    1.34
    
    
    
    19.6
    
    
    
    1.20
    
    
    
    11.9
    
    
    
    0.71Indirect Consumer
    
    
    13.3
    
    
    
    1.62
    
    
    
    15.9
    
    
    
    1.92
    
    
    
    14.7
    
    
    
    1.73
    
    
    
    11.6
    
    
    
    1.37
    
    
    
    12.5
    
    
    
    1.50Total Delinquent Loans
    
    $
    190.1
    
    
    
    1.99
    %
    
    $
    264.9
    
    
    
    2.79
    %
    
    $
    178.1
    
    
    
    1.93
    %
    
    $
    170.3
    
    
    
    1.85
    %
    
    $
    111.7
    
    
    
    1.22
    %
  Commercial Watchlist
  30




---



##### Table of Contents



Commercial Watchlist
 March 31, 2008
    
    
    December 31, 2007
    
    
    September 30, 2007
    
    
    June 30, 2007
    
    
    March 31, 2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    27.7
    
    
    
    44.97
    %
    
    $
    27.1
    
    
    
    42.48
    %
    
    $
    27.0
    
    
    
    34.22
    %
    
    $
    25.2
    
    
    
    30.88
    %
    
    $
    29.3
    
    
    
    34.76
    %Land Development
    
    
    55.9
    
    
    
    35.11
    
    
    
    72.7
    
    
    
    43.33
    
    
    
    52.3
    
    
    
    32.48
    
    
    
    73.0
    
    
    
    40.85
    
    
    
    52.2
    
    
    
    27.83Construction
    
    
    66.7
    
    
    
    17.99
    
    
    
    90.1
    
    
    
    26.30
    
    
    
    91.7
    
    
    
    24.37
    
    
    
    101.4
    
    
    
    27.32
    
    
    
    79.5
    
    
    
    17.44Income Producing
    
    
    221.3
    
    
    
    14.12
    
    
    
    225.5
    
    
    
    14.78
    
    
    
    173.8
    
    
    
    12.98
    
    
    
    161.0
    
    
    
    12.02
    
    
    
    161.2
    
    
    
    11.93Owner-Occupied
    
    
    155.8
    
    
    
    15.34
    
    
    
    153.0
    
    
    
    15.35
    
    
    
    213.0
    
    
    
    19.13
    
    
    
    219.4
    
    
    
    19.67
    
    
    
    217.0
    
    
    
    20.14Total Commercial Real Estate
    
    
    527.4
    
    
    
    16.61
    
    
    
    568.4
    
    
    
    18.35
    
    
    
    557.8
    
    
    
    18.18
    
    
    
    580.0
    
    
    
    18.79
    
    
    
    539.2
    
    
    
    17.08Commercial and Industrial
    
    
    407.1
    
    
    
    15.34
    
    
    
    387.4
    
    
    
    15.15
    
    
    
    362.4
    
    
    
    16.21
    
    
    
    359.8
    
    
    
    16.71
    
    
    
    343.5
    
    
    
    17.23Total Watchlist Loans
    
    $
    934.5
    
    
    
    16.03
    %
    
    $
    955.8
    
    
    
    16.90
    %
    
    $
    920.2
    
    
    
    17.35
    %
    
    $
    939.8
    
    
    
    17.94
    %
    
    $
    882.7
    
    
    
    17.14
    %
  Nonperforming Assets
  31




---



##### Table of Contents



Nonperforming Assets
 March 31,
    
    
    December 31,
    
    
    March 31,(in thousands)
    
    2008
    
    
    2007
    
    
    2007Nonperforming LoansCommercial
    
    $
    20,268
    
    
    $
    12,659
    
    
    $
    8,827Commercial real estate
    
    
    167,836
    
    
    
    110,159
    
    
    
    40,621Total commercial
    
    
    188,104
    
    
    
    122,818
    
    
    
    49,448Residential mortgage
    
    
    45,796
    
    
    
    46,865
    
    
    
    30,591Direct consumer
    
    
    13,503
    
    
    
    13,657
    
    
    
    8,166Indirect consumer
    
    
    1,710
    
    
    
    2,057
    
    
    
    595Total consumer
    
    
    15,213
    
    
    
    15,714
    
    
    
    8,761Total nonaccrual loans
    
    
    249,113
    
    
    
    185,397
    
    
    
    88,800Loans 90 days past due and still accruing
    
    
    4,077
    
    
    
    3,650
    
    
    
    1,388Restructured loans
    
    
    300
    
    
    
    315
    
    
    
    363Total nonperforming portfolio loans
    
    
    253,490
    
    
    
    189,362
    
    
    
    90,551Nonperforming loans held for sale
    
    
    22,754
    
    
    
    21,676
    
    
    
    4,630Other Repossessed Assets Acquired (ORAA)
    
    
    50,350
    
    
    
    40,502
    
    
    
    19,482Total nonperforming assets
    
    $
    326,594
    
    
    $
    251,540
    
    
    $
    114,663Nonperforming assets as a percent of portfolio loans plus ORAA (1)
    
    
    3.39
    %
    
    
    2.64
    %
    
    
    1.25
    %Nonperforming assets as a percent of total assets
    
    
    2.41
    
    
    
    1.86
    
    
    
    0.86Allowance for loan loss as a percent of nonperforming loans
    
    
    69.64
    
    
    
    86.26
    
    
    
    186.90Allowance for loan loss as a percent of nonperforming assets
    
    
    54.05
    
    
    
    64.94
    
    
    
    147.60
 
 (1)
    
    Portfolio loans exclude mortgage loans held for sale.  32




---



##### Table of Contents



Nonperforming Assets
 March 31, 2008
    
    
    December 31, 2007
    
    
    September 30, 2007
    
    
    June 30, 2007
    
    
    March 31, 2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    5.5
    
    
    
    8.93
    %
    
    $
    4.5
    
    
    
    7.05
    %
    
    $
    3.0
    
    
    
    3.80
    %
    
    $
    0.2
    
    
    
    0.25
    %
    
    $
    0.1
    
    
    
    0.12
    %Land Development
    
    
    46.4
    
    
    
    29.15
    
    
    
    35.6
    
    
    
    21.22
    
    
    
    40.4
    
    
    
    25.09
    
    
    
    17.7
    
    
    
    9.90
    
    
    
    7.9
    
    
    
    4.21Construction
    
    
    51.9
    
    
    
    14.00
    
    
    
    28.8
    
    
    
    8.41
    
    
    
    18.6
    
    
    
    4.94
    
    
    
    20.9
    
    
    
    5.63
    
    
    
    8.9
    
    
    
    1.95Income Producing
    
    
    40.5
    
    
    
    2.58
    
    
    
    21.5
    
    
    
    1.41
    
    
    
    26.5
    
    
    
    1.98
    
    
    
    14.8
    
    
    
    1.11
    
    
    
    11.9
    
    
    
    0.88Owner-Occupied
    
    
    23.5
    
    
    
    2.31
    
    
    
    19.7
    
    
    
    1.98
    
    
    
    9.0
    
    
    
    0.81
    
    
    
    7.2
    
    
    
    0.65
    
    
    
    11.8
    
    
    
    1.09Total Commercial Real Estate
    
    
    167.8
    
    
    
    5.29
    
    
    
    110.1
    
    
    
    3.55
    
    
    
    97.5
    
    
    
    3.18
    
    
    
    60.8
    
    
    
    1.97
    
    
    
    40.6
    
    
    
    1.29Commercial and Industrial
    
    
    20.3
    
    
    
    0.76
    
    
    
    12.7
    
    
    
    0.50
    
    
    
    9.4
    
    
    
    0.42
    
    
    
    8.6
    
    
    
    0.40
    
    
    
    8.8
    
    
    
    0.44Total Commercial Loans
    
    
    188.1
    
    
    
    3.23
    
    
    
    122.8
    
    
    
    2.17
    
    
    
    106.9
    
    
    
    2.02
    
    
    
    69.4
    
    
    
    1.32
    
    
    
    49.4
    
    
    
    0.96Residential Mortgage
    
    
    45.8
    
    
    
    3.29
    
    
    
    46.9
    
    
    
    3.25
    
    
    
    32.8
    
    
    
    2.25
    
    
    
    35.4
    
    
    
    2.37
    
    
    
    30.6
    
    
    
    2.02Direct Consumer
    
    
    13.5
    
    
    
    0.88
    
    
    
    13.7
    
    
    
    0.87
    
    
    
    10.9
    
    
    
    0.68
    
    
    
    9.1
    
    
    
    0.56
    
    
    
    8.2
    
    
    
    0.49Indirect Consumer
    
    
    1.7
    
    
    
    0.21
    
    
    
    2.1
    
    
    
    0.25
    
    
    
    1.8
    
    
    
    0.21
    
    
    
    1.1
    
    
    
    0.13
    
    
    
    0.6
    
    
    
    0.07Loans 90+ days still
accruing and restructured
    
    
    4.4
    
    
    
    0.05
    
    
    
    3.9
    
    
    
    0.04
    
    
    
    2.4
    
    
    
    0.03
    
    
    
    1.4
    
    
    
    0.02
    
    
    
    1.8
    
    
    
    0.02Total Nonperforming Portfolio Loans
    
    
    253.5
    
    
    
    2.65
    %
    
    
    189.4
    
    
    
    1.99
    %
    
    
    154.8
    
    
    
    1.68
    %
    
    
    116.4
    
    
    
    1.26
    %
    
    
    90.6
    
    
    
    0.99
    %Nonperforming Loans Held for Sale
    
    
    22.8
    
    
    
    
    
    
    
    21.6
    
    
    
    
    
    
    
    5.8
    
    
    
    
    
    
    
    5.1
    
    
    
    
    
    
    
    4.6Other Repossessed Assets Acquired
    
    
    50.3
    
    
    
    
    
    
    
    40.5
    
    
    
    
    
    
    
    30.4
    
    
    
    
    
    
    
    24.9
    
    
    
    
    
    
    
    19.5Total Nonperforming Assets
    
    $
    326.6
    
    
    
    
    
    
    $
    251.5
    
    
    
    
    
    
    $
    191.0
    
    
    
    
    
    
    $
    146.4
    
    
    
    
    
    
    $
    114.7
  Allowance for Loan Losses, Provision for loan losses, and Net Charge-Offs
  Analysis of Allowance for Loan Losses
 Three Months EndedMarch 31,(in thousands)
    
    2008
    
    
    2007Allowance for loan losses  beginning of period
    
    $
    163,353
    
    
    $
    169,104Provision for loan losses
    
    
    30,619
    
    
    
    3,500Charge-offs
    
    
    18,609
    
    
    
    5,876Recoveries
    
    
    1,165
    
    
    
    2,511Net charge-offs
    
    
    17,444
    
    
    
    3,365Allowance for loan losses  end of period
    
    $
    176,528
    
    
    $
    169,239Portfolio loans outstanding at period end (1)
    
    $
    9,572,790
    
    
    $
    9,178,199Average portfolio loans outstanding during period (1)
    
    
    9,499,209
    
    
    
    9,179,422Allowance for loan losses as a percentage of portfolio loans
    
    
    1.84
    %
    
    
    1.84
    %Ratio of net charge-offs during period to average portfolio loans (annualized)
    
    
    0.74
    
    
    
    0.15
 
 (1)
    
    Balances exclude mortgage loans held for sale.  33




---



##### Table of Contents



Net Charge-Offs
 Three Months EndedMarch 31, 2008
    
    
    December 31, 2007
    
    
    September 30, 2007
    
    
    June 30, 2007
    
    
    March 31, 2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**Land Hold
    
    $
    0.5
    
    
    
    3.25
    %
    
    $
    0.4
    
    
    
    2.51
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %Land Development
    
    
    6.6
    
    
    
    16.58
    
    
    
    6.3
    
    
    
    15.02
    
    
    
    0.4
    
    
    
    0.99
    
    
    
    6.4
    
    
    
    14.33
    
    
    
    
    
    
    
    Construction
    
    
    1.2
    
    
    
    1.29
    
    
    
    1.8
    
    
    
    2.10
    
    
    
    0.1
    
    
    
    0.11
    
    
    
    4.1
    
    
    
    4.43
    
    
    
    0.3
    
    
    
    0.26Income Producing
    
    
    0.9
    
    
    
    0.23
    
    
    
    2.4
    
    
    
    0.63
    
    
    
    0.1
    
    
    
    0.03
    
    
    
    2.3
    
    
    
    0.69
    
    
    
    
    
    
    
    Owner-Occupied
    
    
    (0.1
    )
    
    
    (0.04
    )
    
    
    (0.2
    )
    
    
    (0.08
    )
    
    
    0.6
    
    
    
    0.22
    
    
    
    0.9
    
    
    
    0.32
    
    
    
    
    
    
    
    Total Commercial Real Estate
    
    
    9.1
    
    
    
    1.15
    
    
    
    10.7
    
    
    
    1.38
    
    
    
    1.2
    
    
    
    0.15
    
    
    
    13.7
    
    
    
    1.77
    
    
    
    0.3
    
    
    
    0.04Commercial and Industrial
    
    
    0.9
    
    
    
    0.14
    
    
    
    1.4
    
    
    
    0.27
    
    
    
    0.6
    
    
    
    0.12
    
    
    
    1.8
    
    
    
    0.35
    
    
    
    (0.8
    )
    
    
    (0.16
    )Total Commercial Loans
    
    
    10.0
    
    
    
    0.69
    
    
    
    12.1
    
    
    
    0.94
    
    
    
    1.8
    
    
    
    0.14
    
    
    
    15.5
    
    
    
    1.20
    
    
    
    (0.5
    )
    
    
    (0.04
    )Residential Mortgage
    
    
    1.8
    
    
    
    0.52
    
    
    
    2.0
    
    
    
    0.53
    
    
    
    1.6
    
    
    
    0.43
    
    
    
    0.7
    
    
    
    0.18
    
    
    
    0.8
    
    
    
    0.21Direct Consumer
    
    
    3.0
    
    
    
    0.79
    
    
    
    2.3
    
    
    
    0.56
    
    
    
    2.6
    
    
    
    0.63
    
    
    
    2.6
    
    
    
    0.63
    
    
    
    1.7
    
    
    
    0.41Indirect Consumer
    
    
    2.6
    
    
    
    1.27
    
    
    
    3.3
    
    
    
    1.57
    
    
    
    1.9
    
    
    
    0.89
    
    
    
    1.2
    
    
    
    0.59
    
    
    
    1.4
    
    
    
    0.67Total Net Charge-offs
    
    $
    17.4
    
    
    
    0.74
    %
    
    $
    19.7
    
    
    
    0.84
    %
    
    $
    7.9
    
    
    
    0.34
    %
    
    $
    20.0
    
    
    
    0.87
    %
    
    $
    3.4
    
    
    
    0.15
    %
 
 **
    
    Represents an annualized rate.    Loans Held for Sale
  34




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##### Table of Contents



Deposits
   Borrowed Funds
    Capital Resources
  35




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##### Table of Contents



Regulatory MinimumWell-
    
    
    March 31,
    
    
    December 31,
    
    
    March 31,Capital Ratios
    
    Required
    
    
    Capitalized
    
    
    2008
    
    
    2007
    
    
    2007Risk based:Tier 1 capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    9.04
    %
    
    
    9.18
    %
    
    
    9.89
    %Total capital
    
    
    8.00
    
    
    
    10.00
    
    
    
    11.26
    
    
    
    11.66
    
    
    
    12.42Tier 1 Leverage
    
    
    4.00
    
    
    
    5.00
    
    
    
    7.40
    
    
    
    7.53
    
    
    
    7.64
  Contractual Obligations and Off-Balance Sheet Arrangements
  Liquidity and Debt Capacity
     36




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##### Table of Contents



Interest Rate Risk
     37




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  38




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Total Number 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 ProgramsJanuary 2008
    
    
    5,139
    (a)
    
    
    12.26
    
    
    
    
    
    
    
    1,241,154February 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,241,154March 2008
    
    
    526
    (a)
    
    
    11.13
    
    
    
    
    
    
    
    1,241,154Total
    
    
    5,665
    
    
    
    12.16
    
    
    
    
    
    
    
    1,241,154
 (a)
    
    Shares repurchased in connection with taxes due from
employees as a result of the vesting of certain restricted share
awards were not part of the repurchase program approved in
October 2003. ®
 39




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##### Table of Contents



Item 6. Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation of Citizens Republic Bancorp, Inc.
effective as of April 29, 2008 (Incorporated by reference from Exhibit 3.1 of Citizens
Current Report on Form 8-K filed April 30, 2008)3.2
    
    Amended and Restated Bylaws of Citizens Republic Bancorp, Inc., effective as of January
24, 2008 (Incorporated by reference from Exhibit 3.1 of Citizens Current Report on Form
8-K filed January 30, 2008)10.41
    
    Form of Amended and Restated Change in Control Agreement between Citizens Republic
Bancorp, Inc. and each of William R. Hartman, Charles D. Christy, Roy A. Eon, Thomas W.
Gallagher, Martin E. Grunst, Cathleen H. Nash, Clinton A. Sampson, and John D. Schwab,
dated February 26, 2008 (Incorporated by reference from Exhibit 10.41 of Citizens 2007
Annual Report Form 10-K)10.42
    
    Amended and Restated Change in Control Agreement between Citizens Republic Bancorp,
Inc. and Randall J. Peterson, dated February 26, 2008 (Incorporated by reference from
Exhibit 10.42 of Citizens 2007 Annual Report Form 10-K)31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193432.1
    
    Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities
Exchange Act of 1934
 40




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##### Table of Contents



SIGNATURES
   Date: May 2, 2008
    By
    /s/ Charles D. ChristyCharles D. ChristyChief Financial Officer
(principal financial officer and duly authorized officer) 41




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##### Table of Contents



10-Q EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Articles of Incorporation of Citizens Republic Bancorp, Inc.
effective as of April 29, 2008 (Incorporated by reference from Exhibit 3.1 of Citizens
Current Report on Form 8-K filed April 30, 2008)3.2
    
    Amended and Restated Bylaws of Citizens Republic Bancorp, Inc., effective as of January
24, 2008 (Incorporated by reference from Exhibit 3.1 of Citizens Current Report on Form
8-K filed January 30, 2008)10.41
    
    Form of Amended and Restated Change in Control Agreement between Citizens Republic
Bancorp, Inc. and each of William R. Hartman, Charles D. Christy, Roy A. Eon, Thomas W.
Gallagher, Martin E. Grunst, Cathleen H. Nash, Clinton A. Sampson, and John D. Schwab,
dated February 26, 2008 (Incorporated by reference from Exhibit 10.41 of Citizens 2007
Annual Report Form 10-K)10.42
    
    Amended and Restated Change in Control Agreement between Citizens Republic Bancorp,
Inc. and Randall J. Peterson, dated February 26, 2008 (Incorporated by reference from
Exhibit 10.42 of Citizens 2007 Annual Report Form 10-K)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
 42