##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2010
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from                      to
 Commission file Number 001-33063
 CITIZENS REPUBLIC BANCORP, INC.
  MICHIGAN
    
    38-2378932(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 328 S. Saginaw St., Flint, Michigan
    
    48502(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year,
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   Class
    
    Outstanding at July 30, 2010Common Stock, No Par Value
    
    396,993,697 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 Operations
    
    
    4Consolidated Statements of Changes in Shareholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2   Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3   Quantitative and Qualitative Disclosures about Market Risk
    
    
    53Item 4   Controls and Procedures
    
    
    53Part II  Other InformationItem 1A   Risk Factors
    
    
    54Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    57Item 3   Defaults Upon Senior Securities
    
    
    57Item 5   Other Information
    
    
    57Item 6   Exhibits
    
    
    59Signatures
    
    
    60Exhibit Index
    
    
    61EX-10.45EX-10.58EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



Consolidated Balance Sheets (Unaudited)
 Citizens Republic Bancorp and Subsidiaries
 June 30,
    
    
    December 31,
    
    
    June 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2009(unaudited)
    
    
    (Note 1)
    
    
    (unaudited)AssetsCash and due from banks
    
    $
    148,084
    
    
    $
    156,093
    
    
    $
    158,573Money market investments
    
    
    621,071
    
    
    
    686,285
    
    
    
    544,573Investment Securities:Securities available for sale, at fair value
    
    
    2,071,208
    
    
    
    2,076,794
    
    
    
    2,027,607Securities held to maturity, at amortized cost
(fair value of $115,832, $116,368 and $114,295, respectively)
    
    
    112,734
    
    
    
    114,249
    
    
    
    114,248Total investment securities
    
    
    2,183,942
    
    
    
    2,191,043
    
    
    
    2,141,855FHLB and Federal Reserve stock
    
    
    157,304
    
    
    
    155,084
    
    
    
    155,084Portfolio loans:Commercial and industrial
    
    
    1,686,769
    
    
    
    1,921,755
    
    
    
    2,145,481Commercial real estate
    
    
    2,646,241
    
    
    
    2,811,539
    
    
    
    2,905,795Total commercial
    
    
    4,333,010
    
    
    
    4,733,294
    
    
    
    5,051,276Residential mortgage
    
    
    858,920
    
    
    
    1,025,248
    
    
    
    1,132,236Direct consumer
    
    
    1,132,147
    
    
    
    1,224,182
    
    
    
    1,310,248Indirect consumer
    
    
    814,038
    
    
    
    805,181
    
    
    
    808,311Total portfolio loans
    
    
    7,138,115
    
    
    
    7,787,905
    
    
    
    8,302,071Less: Allowance for loan losses
    
    
    (321,841
    )
    
    
    (338,940
    )
    
    
    (330,217
    )Net portfolio loans
    
    
    6,816,274
    
    
    
    7,448,965
    
    
    
    7,971,854Loans held for sale
    
    
    57,245
    
    
    
    80,219
    
    
    
    77,084Premises and equipment
    
    
    107,405
    
    
    
    110,703
    
    
    
    114,742Goodwill
    
    
    318,150
    
    
    
    318,150
    
    
    
    318,150Other intangible assets
    
    
    12,214
    
    
    
    14,378
    
    
    
    17,425Bank owned life insurance
    
    
    217,113
    
    
    
    220,190
    
    
    
    219,290Other assets
    
    
    195,073
    
    
    
    214,560
    
    
    
    212,179Assets of discontinued operations
    
    
    
    
    
    
    335,961
    
    
    
    357,539Total assets
    
    $
    10,833,875
    
    
    $
    11,931,631
    
    
    $
    12,288,348LiabilitiesNoninterest-bearing deposits
    
    $
    1,269,905
    
    
    $
    1,288,303
    
    
    $
    1,193,870Interest-bearing demand deposits
    
    
    998,676
    
    
    
    1,055,290
    
    
    
    928,221Savings deposits
    
    
    2,526,972
    
    
    
    2,460,114
    
    
    
    2,563,638Time deposits
    
    
    3,426,769
    
    
    
    3,697,056
    
    
    
    3,840,817Total deposits
    
    
    8,222,322
    
    
    
    8,500,763
    
    
    
    8,526,546Federal funds purchased and securities sold
under agreements to repurchase
    
    
    30,082
    
    
    
    32,900
    
    
    
    35,745Other short-term borrowings
    
    
    700
    
    
    
    6,900
    
    
    
    13,829Other liabilities
    
    
    151,880
    
    
    
    124,718
    
    
    
    150,680Long-term debt
    
    
    1,211,147
    
    
    
    1,512,987
    
    
    
    1,936,173Liabilities of discontinued operations
    
    
    
    
    
    
    422,327
    
    
    
    400,223Total liabilities
    
    
    9,616,131
    
    
    
    10,600,595
    
    
    
    11,063,196Shareholders EquityPreferred stock  no par valueAuthorized - 5,000,000 shares; Issued and outstanding - 300,000 at
6/30/10, 12/31/09, and 6/30/09, redemption value of $300 million
    
    
    275,084
    
    
    
    271,990
    
    
    
    269,013Common stock  no par valueAuthorized - 1,050,000,000 shares at 6/30/10 and 12/31/09,
150,000,000 shares at 6/30/09; Issued and outstanding - 396,979,124 at
6/30/10, 394,397,406 at 12/31/09, and 126,257,801 at 6/30/09
    
    
    1,430,877
    
    
    
    1,429,771
    
    
    
    1,215,021Retained deficit
    
    
    (498,621
    )
    
    
    (363,632
    )
    
    
    (231,503
    )Accumulated other comprehensive income (loss)
    
    
    10,404
    
    
    
    (7,093
    )
    
    
    (27,379
    )Total shareholders equity
    
    
    1,217,744
    
    
    
    1,331,036
    
    
    
    1,225,152Total liabilities and shareholders equity
    
    $
    10,833,875
    
    
    $
    11,931,631
    
    
    $
    12,288,348
  3




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##### Table of Contents



Consolidated Statements of Operations (Unaudited)
 Citizens Republic Bancorp and Subsidiaries
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands, except per share amounts)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Interest IncomeInterest and fees on loans
    
    $
    100,980
    
    
    $
    112,684
    
    
    $
    202,722
    
    
    $
    229,969Interest and dividends on investment securities:Taxable
    
    
    18,600
    
    
    
    18,398
    
    
    
    36,861
    
    
    
    38,690Tax-exempt
    
    
    3,932
    
    
    
    6,407
    
    
    
    9,217
    
    
    
    13,043Dividends on FHLB and Federal Reserve stock
    
    
    1,026
    
    
    
    519
    
    
    
    2,028
    
    
    
    1,879Money market investments
    
    
    407
    
    
    
    316
    
    
    
    831
    
    
    
    574Total interest income
    
    
    124,945
    
    
    
    138,324
    
    
    
    251,659
    
    
    
    284,155Interest ExpenseDeposits
    
    
    25,910
    
    
    
    40,051
    
    
    
    55,421
    
    
    
    84,816Short-term borrowings
    
    
    17
    
    
    
    47
    
    
    
    41
    
    
    
    131Long-term debt
    
    
    14,432
    
    
    
    24,183
    
    
    
    30,422
    
    
    
    49,684Total interest expense
    
    
    40,359
    
    
    
    64,281
    
    
    
    85,884
    
    
    
    134,631Net Interest Income
    
    
    84,586
    
    
    
    74,043
    
    
    
    165,775
    
    
    
    149,524Provision for loan losses
    
    
    70,614
    
    
    
    98,935
    
    
    
    171,969
    
    
    
    162,420Net interest income (loss) after provision for loan losses
    
    
    13,972
    
    
    
    (24,892
    )
    
    
    (6,194
    )
    
    
    (12,896
    )Noninterest IncomeService charges on deposit accounts
    
    
    9,971
    
    
    
    10,399
    
    
    
    19,655
    
    
    
    20,255Trust fees
    
    
    3,836
    
    
    
    3,402
    
    
    
    7,631
    
    
    
    6,720Mortgage and other loan income
    
    
    2,198
    
    
    
    3,612
    
    
    
    4,787
    
    
    
    6,655Brokerage and investment fees
    
    
    1,322
    
    
    
    1,365
    
    
    
    2,255
    
    
    
    2,660ATM network user fees
    
    
    1,771
    
    
    
    1,578
    
    
    
    3,368
    
    
    
    2,963Bankcard fees
    
    
    2,266
    
    
    
    2,029
    
    
    
    4,273
    
    
    
    3,863Losses on loans held for sale
    
    
    (8,405
    )
    
    
    (4,350
    )
    
    
    (16,107
    )
    
    
    (10,502
    )Investment securities gains
    
    
    8,051
    
    
    
    5
    
    
    
    14,067
    
    
    
    5Other income
    
    
    1,272
    
    
    
    1,858
    
    
    
    4,746
    
    
    
    5,544Total noninterest income
    
    
    22,282
    
    
    
    19,898
    
    
    
    44,675
    
    
    
    38,163Noninterest ExpenseSalaries and employee benefits
    
    
    31,403
    
    
    
    34,953
    
    
    
    61,350
    
    
    
    67,983Occupancy
    
    
    6,139
    
    
    
    6,529
    
    
    
    13,600
    
    
    
    14,121Professional services
    
    
    2,615
    
    
    
    2,760
    
    
    
    4,868
    
    
    
    5,853Equipment
    
    
    2,979
    
    
    
    2,983
    
    
    
    6,051
    
    
    
    5,767Data processing services
    
    
    4,767
    
    
    
    4,265
    
    
    
    9,396
    
    
    
    8,459Advertising and public relations
    
    
    2,116
    
    
    
    2,266
    
    
    
    3,413
    
    
    
    3,684Postage and delivery
    
    
    1,295
    
    
    
    1,451
    
    
    
    2,309
    
    
    
    2,942Other loan expenses
    
    
    4,551
    
    
    
    6,789
    
    
    
    10,525
    
    
    
    12,651Other real estate (ORE) expenses
    
    
    4,578
    
    
    
    4,418
    
    
    
    12,531
    
    
    
    12,783Intangible asset amortization
    
    
    1,034
    
    
    
    1,952
    
    
    
    2,164
    
    
    
    3,989Goodwill impairment
    
    
    
    
    
    
    256,272
    
    
    
    
    
    
    
    256,272Other expense
    
    
    15,533
    
    
    
    18,610
    
    
    
    28,906
    
    
    
    27,800Total noninterest expense
    
    
    77,010
    
    
    
    343,248
    
    
    
    155,113
    
    
    
    422,304Loss from Continuing Operations Before Income Taxes
    
    
    (40,756
    )
    
    
    (348,242
    )
    
    
    (116,632
    )
    
    
    (397,037
    )Income tax expense (benefit) from continuing operations
    
    
    3,700
    
    
    
    (11,326
    )
    
    
    3,847
    
    
    
    (14,579
    )Loss from Continuing Operations
    
    
    (44,456
    )
    
    
    (336,916
    )
    
    
    (120,479
    )
    
    
    (382,458
    )Discontinued Operations:Income (loss) from discontinued operations (net of income tax)
    
    
    5,151
    
    
    
    (10,497
    )
    
    
    (3,822
    )
    
    
    (10,104
    )Net Loss
    
    
    (39,305
    )
    
    
    (347,413
    )
    
    
    (124,301
    )
    
    
    (392,562
    )Dividend on redeemable preferred stock
    
    
    (5,406
    )
    
    
    (5,196
    )
    
    
    (10,688
    )
    
    
    (9,299
    )Net Loss Attributable to Common Shareholders
    
    $
    (44,711
    )
    
    $
    (352,609
    )
    
    $
    (134,989
    )
    
    $
    (401,861
    )Earnings Per Share from Continuing OperationsBasic
    
    $
    (0.12
    )
    
    $
    (2.73
    )
    
    $
    (0.33
    )
    
    $
    (3.12
    )Diluted
    
    
    (0.12
    )
    
    
    (2.73
    )
    
    
    (0.33
    )
    
    
    (3.12
    )Earnings Per Share from Discontinued OperationsBasic
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    (0.01
    )
    
    $
    (0.08
    )Diluted
    
    
    0.01
    
    
    
    (0.08
    )
    
    
    (0.01
    )
    
    
    (0.08
    )Net Loss Per Common Share:Basic
    
    $
    (0.11
    )
    
    $
    (2.81
    )
    
    $
    (0.34
    )
    
    $
    (3.20
    )Diluted
    
    
    (0.11
    )
    
    
    (2.81
    )
    
    
    (0.34
    )
    
    
    (3.20
    )Average Common Shares Outstanding:Basic
    
    
    393,837
    
    
    
    125,459
    
    
    
    393,808
    
    
    
    125,430Diluted
    
    
    393,837
    
    
    
    125,459
    
    
    
    393,808
    
    
    
    125,430
  4




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##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity (Unaudited)
 Citizens Republic Bancorp and Subsidiaries
 AccumulatedRetained
    
    
    OtherPreferred
    
    
    Common Stock
    
    
    Earnings
    
    
    Comprehensive(in thousands, except per share amounts)
    
    Stock
    
    
    Shares
    
    
    Amount
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    TotalBalance at December 31, 2009
    
    $
    271,990
    
    
    
    394,397
    
    
    $
    1,429,771
    
    
    $
    (363,632
    )
    
    $
    (7,093
    )
    
    $
    1,331,036Comprehensive loss, net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (124,301
    )
    
    
    
    
    
    
    (124,301
    )Other comprehensive income (loss):Net unrealized gain on securities available-for-sale,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,587net of tax effect of $810Net change in unrealized loss on qualifying cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,090
    )Net change in unrecognized pension and post retirement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,497Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (106,804
    )Accrued dividend on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,594
    )
    
    
    
    
    
    
    (7,594
    )Accretion of preferred stock discount
    
    
    3,094
    
    
    
    
    
    
    
    
    
    
    
    (3,094
    )
    
    
    
    
    
    
    Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    2,605
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,129
    
    
    
    
    
    
    
    
    
    
    
    1,129Shares purchased for taxes
    
    
    
    
    
    
    (23
    )
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    (23
    )Balance  June 30, 2010
    
    $
    275,084
    
    
    
    396,979
    
    
    $
    1,430,877
    
    
    $
    (498,621
    )
    
    $
    10,404
    
    
    $
    1,217,744Balance at December 31, 2008
    
    $
    266,088
    
    
    
    125,997
    
    
    $
    1,214,469
    
    
    $
    170,358
    
    
    $
    (49,594
    )
    
    $
    1,601,321Comprehensive loss, net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (392,562
    )
    
    
    
    
    
    
    (392,562
    )Other comprehensive income (loss):Net unrealized gain on securities available-for-sale,
net of tax effect of ($16,541)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,718Net change in unrealized loss on qualifying cash flow hedges,
net of tax effect of $2,692
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,999
    )Net change in unrecognized pension and post retirement costs,
net of tax efffect of $1,887
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,504
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,215Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (370,347
    )Dividends on preferred stock
    
    
    2,925
    
    
    
    
    
    
    
    
    
    
    
    (9,299
    )
    
    
    
    
    
    
    (6,374
    )Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    615
    
    
    
    
    
    
    
    
    
    
    
    615Shares purchased for taxes
    
    
    
    
    
    
    (46
    )
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    (63
    )Balance  June 30, 2009
    
    $
    269,013
    
    
    
    126,258
    
    
    $
    1,215,021
    
    
    $
    (231,503
    )
    
    $
    (27,379
    )
    
    $
    1,225,152
  5




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##### Table of Contents



Consolidated Statements of Cash Flows (Unaudited)
 Citizens Republic Bancorp and Subsidiaries
 Six Months EndedJune 30,(in thousands)
    
    2010
    
    
    2009Operating Activities:Net loss
    
    $
    (124,301
    )
    
    $
    (392,562
    )Loss from discontinued operations (net of income tax)
    
    
    (3,822
    )
    
    
    (10,104
    )Loss from continuing operations
    
    
    (120,479
    )
    
    
    (382,458
    )Adjustments to reconcile net loss to net cash used for operating activities:Provision for loan losses
    
    
    171,969
    
    
    
    162,420Goodwill impairment
    
    
    
    
    
    
    256,272Depreciation and software amortization
    
    
    6,033
    
    
    
    6,010Amortization of intangibles
    
    
    2,164
    
    
    
    3,989Net decrease in current and deferred income taxes
    
    
    2,849
    
    
    
    4,306Amortization and fair value adjustments of purchase accounting mark-to-market, net
    
    
    (4,569
    )
    
    
    (5,272
    )Fair value adjustment on loans held for sale and other real estate
    
    
    10,787
    
    
    
    16,310Amortization of issuance costs on long term debt
    
    
    263
    
    
    
    605Net amortization (accretion) on investment securities
    
    
    1,811
    
    
    
    (322
    )Investment securities gains
    
    
    (14,067
    )
    
    
    (5
    )Loans originated for sale
    
    
    (72,764
    )
    
    
    (189,344
    )Proceeds from loans held for sale
    
    
    75,601
    
    
    
    192,184Net gains from loan sales
    
    
    (1,777
    )
    
    
    (4,135
    )Net loss on other real estate
    
    
    2,545
    
    
    
    412Recognition of stock-based compensation
    
    
    1,129
    
    
    
    615Discontinued operations, net
    
    
    17,750
    
    
    
    1,170Other
    
    
    28,591
    
    
    
    4,001Net cash provided by operating activities
    
    
    107,836
    
    
    
    66,758Investing Activities:Net decrease (increase) in money market investments
    
    
    65,214
    
    
    
    (338,969
    )Securities available-for-sale:Proceeds from sales
    
    
    412,402
    
    
    
    1,005Proceeds from maturities and payments
    
    
    475,311
    
    
    
    373,564Purchases
    
    
    (884,318
    )
    
    
    (262,812
    )Securities held-to-maturity:Proceeds from maturities and payments
    
    
    1,520
    
    
    
    1,508Net decrease in loans and leases
    
    
    451,851
    
    
    
    562,778Proceeds from sales of other real estate
    
    
    26,440
    
    
    
    17,397Net increase in properties and equipment
    
    
    (2,735
    )
    
    
    (3,447
    )Net proceeds from sale of discontinued operations
    
    
    35,369
    
    
    
    Discontinued operations, net
    
    
    312,402
    
    
    
    (9,044
    )Net cash provided by investing activities
    
    
    893,456
    
    
    
    341,980Financing Activities:Net (decrease) increase in demand and savings deposits
    
    
    (8,154
    )
    
    
    422,435Net decrease in time deposits
    
    
    (270,592
    )
    
    
    (526,920
    )Net decrease in short-term borrowings
    
    
    (9,018
    )
    
    
    (14,917
    )Principal reductions in long-term debt
    
    
    (301,174
    )
    
    
    (252,971
    )Cash dividends paid on preferred stock
    
    
    
    
    
    
    (6,374
    )Shares acquired for retirement and purchased for taxes
    
    
    (23
    )
    
    
    (63
    )Discontinued operations, net
    
    
    (420,340
    )
    
    
    (34,854
    )Net cash used by financing activities
    
    
    (1,009,301
    )
    
    
    (413,664
    )Net decrease in cash and due from banks
    
    
    (8,009
    )
    
    
    (4,926
    )Cash and due from banks at beginning of period
    
    
    156,093
    
    
    
    163,499Cash and due from banks at end of period
    
    $
    148,084
    
    
    $
    158,573Supplemental Cash Flow Information:Interest paid
    
    $
    (85,601
    )
    
    $
    (138,365
    )Income tax (refund) paid, net
    
    
    165
    
    
    
    (14,654
    )Loans transferred to other real estate owned
    
    
    18,094
    
    
    
    26,736Loans transferred to held for sale
    
    
    40,641
    
    
    
    Held for sale loans transferred to other real estate
    
    
    12,941
    
    
    
    8,290Dividend on redeemable preferred stock
    
    
    3,094
    
    
    
    2,925
  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
   Discontinued Operations
  New Accounting Pronouncements
 The Financial Accounting Standards Board (FASB) Accounting Standards Codification (the
Codification or ASC)
 Accounting Standards Update (ASU)
 Statements of Financial Accounting Standards (SFAS)
 FASB ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about
Fair Value Measurements
  7




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##### Table of Contents



SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (subsequently codified by ASU 2009-17,
Consolidations  Topic 810)
  SFAS No. 166, Accounting for Transfers of Financial Assets (subsequently codified by ASU 2009-16,
Transfers and Servicing  Topic 860)
  Note 2. Pending Accounting Pronouncements
 FASB ASU 2010-11, Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit
Derivatives
  FASB ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses
  Note 3. Investment Securities
  8




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##### Table of Contents



June 30, 2010
    
    
    December 31, 2009Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Gross Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Gross Unrealized(in thousands)
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    LossesSecurities available for sale:Federal agencies
    
    $
    70,501
    
    
    $
    71,447
    
    
    $
    946
    
    
    $
    
    
    
    $
    135,793
    
    
    $
    138,644
    
    
    $
    2,851
    
    
    $
    Collateralized mortgage obligations
    
    
    477,852
    
    
    
    483,714
    
    
    
    9,978
    
    
    
    4,116
    
    
    
    393,143
    
    
    
    382,943
    
    
    
    5,138
    
    
    
    15,338Mortgage-backed
    
    
    1,237,045
    
    
    
    1,284,370
    
    
    
    47,330
    
    
    
    5
    
    
    
    1,061,015
    
    
    
    1,093,598
    
    
    
    33,791
    
    
    
    1,208State and municipal
    
    
    226,019
    
    
    
    231,131
    
    
    
    5,639
    
    
    
    527
    
    
    
    432,795
    
    
    
    443,663
    
    
    
    11,544
    
    
    
    676Other
    
    
    554
    
    
    
    546
    
    
    
    11
    
    
    
    19
    
    
    
    17,951
    
    
    
    17,946
    
    
    
    6
    
    
    
    11Total available for sale
    
    $
    2,011,971
    
    
    $
    2,071,208
    
    
    $
    63,904
    
    
    $
    4,667
    
    
    $
    2,040,697
    
    
    $
    2,076,794
    
    
    $
    53,330
    
    
    $
    17,233Securities held to maturity:State and municipalTotal held to maturity
    
    $
    112,734
    
    
    $
    115,832
    
    
    $
    3,258
    
    
    $
    160
    
    
    $
    114,249
    
    
    $
    116,368
    
    
    $
    2,531
    
    
    $
    412FHLB and Fed Reserve stock
    
    $
    157,304
    
    
    $
    157,304
    
    
    $
    
    
    
    $
    
    
    
    $
    155,084
    
    
    $
    155,084
    
    
    $
    
    
    
    $
    
   June 30, 2010
    
    Amortized
    
    
    Estimated Fair(in thousands)
    
    Cost
    
    
    ValueSecurities available for sale:Federal agencies and state and municipalContractual maturity within one year
    
    $
    107,734
    
    
    $
    109,297After one year through five years
    
    
    43,284
    
    
    
    44,591After five years through ten years
    
    
    81,583
    
    
    
    83,945After ten years
    
    
    63,919
    
    
    
    64,745Subtotal
    
    
    296,520
    
    
    
    302,578Collateralized mortgage obligations and mortgage-backed
    
    
    1,714,897
    
    
    
    1,768,084Other
    
    
    554
    
    
    
    546Total available for sale
    
    $
    2,011,971
    
    
    $
    2,071,208Securities held to maturity:State and municipalContractual maturity within one year
    
    $
    1,203
    
    
    $
    1,244After one year through five years
    
    
    1,720
    
    
    
    1,284After five years through ten years
    
    
    50,483
    
    
    
    52,831After ten years
    
    
    59,328
    
    
    
    60,473Total held to maturity
    
    $
    112,734
    
    
    $
    115,832
  9




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##### Table of Contents



Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalJune 30, 2010
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesSecurities available for sale:Collateralized mortgage obligations
    
    $
    22,968
    
    
    $
    293
    
    
    $
    64,607
    
    
    $
    3,823
    
    
    $
    87,575
    
    
    $
    4,116Mortgage-backed
    
    
    
    
    
    
    
    
    
    
    235
    
    
    
    5
    
    
    
    235
    
    
    
    5State and municipal
    
    
    11,911
    
    
    
    183
    
    
    
    6,359
    
    
    
    344
    
    
    
    18,270
    
    
    
    527Other
    
    
    42
    
    
    
    1
    
    
    
    119
    
    
    
    18
    
    
    
    161
    
    
    
    19Total available for sale
    
    $
    34,921
    
    
    $
    477
    
    
    $
    71,320
    
    
    $
    4,190
    
    
    $
    106,241
    
    
    $
    4,667Securities held to maturity:State and municipalTotal held to maturity
    
    $
    7,545
    
    
    $
    90
    
    
    $
    1,516
    
    
    $
    70
    
    
    $
    9,061
    
    
    $
    160Total
    
    $
    42,466
    
    
    $
    567
    
    
    $
    72,836
    
    
    $
    4,260
    
    
    $
    115,302
    
    
    $
    4,827
 Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalDecember 31, 2009
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesSecurities available for sale:Collateralized mortgage obligations
    
    $
    51,983
    
    
    $
    452
    
    
    $
    146,024
    
    
    $
    14,886
    
    
    $
    198,007
    
    
    $
    15,338Mortgage-backed
    
    
    109,134
    
    
    
    1,202
    
    
    
    251
    
    
    
    6
    
    
    
    109,385
    
    
    
    1,208State and municipal
    
    
    29,055
    
    
    
    401
    
    
    
    9,323
    
    
    
    275
    
    
    
    38,378
    
    
    
    676Other
    
    
    
    
    
    
    
    
    
    
    312
    
    
    
    11
    
    
    
    312
    
    
    
    11Total available for sale
    
    $
    190,172
    
    
    $
    2,055
    
    
    $
    155,910
    
    
    $
    15,178
    
    
    $
    346,082
    
    
    $
    17,233Securities held to maturity:State and municipalTotal held to maturity
    
    $
    16,778
    
    
    $
    284
    
    
    $
    1,438
    
    
    $
    128
    
    
    $
    18,216
    
    
    $
    412Total
    
    $
    206,950
    
    
    $
    2,339
    
    
    $
    157,348
    
    
    $
    15,306
    
    
    $
    364,298
    
    
    $
    17,645
   10




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##### Table of Contents



Note 4. Allowance for Loan Losses and Impaired Loans
  Analysis of Allowance for Loan Losses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Allowance for loan losses  beginning of period
    
    $
    322,377
    
    
    $
    279,838
    
    
    $
    338,940
    
    
    $
    252,938Provision for loan losses
    
    
    70,614
    
    
    
    98,935
    
    
    
    171,969
    
    
    
    162,420Charge-offs:Commercial and industrial
    
    
    12,341
    
    
    
    9,845
    
    
    
    25,866
    
    
    
    17,953Commercial real estate
    
    
    51,183
    
    
    
    31,098
    
    
    
    67,160
    
    
    
    50,075Total commercial
    
    
    63,524
    
    
    
    40,943
    
    
    
    93,026
    
    
    
    68,028Residential mortgage
    
    
    705
    
    
    
    2,160
    
    
    
    81,434
    
    
    
    2,964Direct consumer
    
    
    5,907
    
    
    
    6,678
    
    
    
    13,434
    
    
    
    11,269Indirect consumer
    
    
    4,028
    
    
    
    5,040
    
    
    
    7,841
    
    
    
    10,547Charge-offs
    
    
    74,164
    
    
    
    54,821
    
    
    
    195,735
    
    
    
    92,808Recoveries:Commercial
    
    
    937
    
    
    
    3,023
    
    
    
    1,606
    
    
    
    3,147Commercial real estate
    
    
    829
    
    
    
    2,316
    
    
    
    2,148
    
    
    
    2,719Total commercial
    
    
    1,766
    
    
    
    5,339
    
    
    
    3,754
    
    
    
    5,866Residential mortgage
    
    
    80
    
    
    
    4
    
    
    
    663
    
    
    
    7Direct consumer
    
    
    386
    
    
    
    317
    
    
    
    839
    
    
    
    646Indirect consumer
    
    
    782
    
    
    
    605
    
    
    
    1,411
    
    
    
    1,148Recoveries
    
    
    3,014
    
    
    
    6,265
    
    
    
    6,667
    
    
    
    7,667Net charge-offs
    
    
    71,150
    
    
    
    48,556
    
    
    
    189,068
    
    
    
    85,141Allowance for loan losses  end of period
    
    $
    321,841
    
    
    $
    330,217
    
    
    $
    321,841
    
    
    $
    330,217
  11




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##### Table of Contents



Balances
    
    
    Allowance for Loan LossJune 30,
    
    
    December 31,
    
    
    June 30,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009BalancesImpaired loans with specific allocated allowance
    
    $
    197,151
    
    
    $
    162,962
    
    
    $
    73,319
    
    
    $
    52,840Impaired loans without specific allocated allowance
    
    
    88,335
    
    
    
    141,408
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    285,486
    
    
    $
    304,370
    
    
    $
    73,319
    
    
    $
    52,840Impaired loans on nonaccrual basis
    
    $
    284,927
    
    
    $
    304,370
    
    
    $
    73,242
    
    
    $
    52,840Impaired loans on accrual basis
    
    
    559
    
    
    
    
    
    
    
    77
    
    
    
    Total impaired loans
    
    $
    285,486
    
    
    $
    304,370
    
    
    $
    73,319
    
    
    $
    52,840
  Note 5. Goodwill
   (in thousands)
    
    Regional Banking
    
    
    Wealth Management
    
    
    Total GoodwillBalance at December 31, 2008
    
    $
    572,621
    
    
    $
    1,801
    
    
    $
    574,422Impairment Loss
    
    
    (256,272
    )
    
    
    
    
    
    
    (256,272
    )Balance at December 31, 2009 and
June 30, 2010
    
    $
    316,349
    
    
    $
    1,801
    
    
    $
    318,150
 Note 6. Long-Term Debt
  June 30,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009Citizens (Parent only):Subordinated debt:5.75% subordinated notes due February 2013
    
    $
    16,851
    
    
    $
    16,773Variable rate junior subordinated debenture due June 2033
    
    
    25,774
    
    
    
    25,7747.50% junior subordinated debentures due September 2066
    
    
    48,195
    
    
    
    48,010Subsidiaries:Federal Home Loan Bank advances
    
    
    1,016,116
    
    
    
    1,318,200Other borrowed funds
    
    
    104,211
    
    
    
    104,230Total long-term debt
    
    $
    1,211,147
    
    
    $
    1,512,987
 12




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##### Table of Contents



Note 7. Income Taxes
    Note 8. Accumulated Other Comprehensive Income (Loss)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    (5,491
    )
    
    $
    (35,472
    )
    
    $
    (7,093
    )
    
    $
    (49,594
    )Net unrealized gain on securities available for sale for the
quarter, net of tax effect of $810 in 2010 and ($6,397) in 2009,
and net unrealized gain on securities for the six months period,
net of tax effect of $810 in 2010 and ($16,541) in 2009.
    
    
    8,237
    
    
    
    11,875
    
    
    
    4,520
    
    
    
    30,713Less: Reclassification adjustment for net gains on securities
included in net income for the quarter and year to date.
    
    
    8,051
    
    
    
    5
    
    
    
    14,067
    
    
    
    5Net change in unrealized loss on cash flow hedges for the
quarter, net of tax effect of $2,039 in 2009 and net change in
unrealized loss for the six months period, net of tax effect of
$2,692 in 2009.
    
    
    (393
    )
    
    
    (3,787
    )
    
    
    (1,090
    )
    
    
    (4,999
    )Net change in unrecognized pension and postretirement costs,
net of tax effect of $1,887 in 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,504
    )Accumulated
other comprehensive income (loss), net of tax
    
    $
    10,404
    
    
    $
    (27,379
    )
    
    $
    10,404
    
    
    $
    (27,379
    )
  Note 9. Fair Values of Assets and Liabilities
   13




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##### Table of Contents



June 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    Estimated(in thousands)
    
    Amount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueFinancial assets:Cash and due from banks
    
    $
    148,084
    
    
    $
    148,084
    
    
    $
    156,093
    
    
    $
    156,093Money market investments
    
    
    621,071
    
    
    
    621,071
    
    
    
    686,285
    
    
    
    686,285Securities available for sale
    
    
    2,071,208
    
    
    
    2,071,208
    
    
    
    2,076,794
    
    
    
    2,076,794Securities held to maturity
    
    
    112,734
    
    
    
    115,832
    
    
    
    114,249
    
    
    
    116,368FHLB and Federal Reserve stock
    
    
    157,304
    
    
    
    157,304
    
    
    
    155,084
    
    
    
    155,084Net portfolio loans
    
    
    6,816,274
    
    
    
    6,010,385
    
    
    
    7,448,965
    
    
    
    6,447,963Deferred compensation assets
    
    
    9,800
    
    
    
    9,800
    
    
    
    11,138
    
    
    
    11,138Loans held for sale
    
    
    57,245
    
    
    
    57,245
    
    
    
    80,219
    
    
    
    80,219Accrued interest receivable
    
    
    36,865
    
    
    
    36,865
    
    
    
    41,387
    
    
    
    41,387Financial liabilities:Deposits
    
    
    8,222,322
    
    
    
    8,260,015
    
    
    
    8,500,763
    
    
    
    8,534,799Short-term borrowings
    
    
    30,782
    
    
    
    30,782
    
    
    
    39,800
    
    
    
    39,800Long-term debt
    
    
    1,211,147
    
    
    
    1,272,284
    
    
    
    1,512,987
    
    
    
    1,565,649Accrued interest payable
    
    
    10,091
    
    
    
    10,091
    
    
    
    9,808
    
    
    
    9,808Financial instruments with off-balance sheet risk(1):Letters of credit(2)
    
    
    (952
    )
    
    
    (5,536
    )
    
    
    (913
    )
    
    
    (5,185
    )Derivative instruments
    
    
    14,113
    
    
    
    14,113
    
    
    
    17,959
    
    
    
    17,959
 
 (1)
    
    Positive amounts represent assets, whereas negative amounts represent
liabilities.(2)
    
    The carrying amount for letters of credit is part of the total carrying amount of
net loans. It is shown here separately to disclose the estimated fair value which is based on a discounted cash flow method utilizing
current market pricing. This amount is not included in the net loans estimate of fair value. 14




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



June 30, 2010(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Securities available for sale:Federal agencies
    
    $
    71,447
    
    
    $
    
    
    
    $
    71,447
    
    
    $
    Collateralized mortgage obligations
    
    
    483,714
    
    
    
    
    
    
    
    483,702
    
    
    
    12Mortgage-backed
    
    
    1,284,370
    
    
    
    
    
    
    
    1,284,370
    
    
    
    State and municipal
    
    
    231,131
    
    
    
    
    
    
    
    226,247
    
    
    
    4,884Other
    
    
    546
    
    
    
    
    
    
    
    217
    
    
    
    329Total available for sale
    
    
    2,071,208
    
    
    
    
    
    
    
    2,065,983
    
    
    
    5,225Other assets:Derivatives designated as hedging instruments
    
    
    14,561
    
    
    
    
    
    
    
    14,561
    
    
    
    Derivatives not designated as hedging instruments
    
    
    33,385
    
    
    
    
    
    
    
    33,385
    
    
    
    Deferred compensation assets
    
    
    9,800
    
    
    
    6,444
    
    
    
    3,356
    
    
    
    Total other assets
    
    
    57,746
    
    
    
    6,444
    
    
    
    51,302
    
    
    
    Total assets at fair value
    
    $
    2,128,954
    
    
    $
    6,444
    
    
    $
    2,117,285
    
    
    $
    5,225Other liabilities:Derivatives not designated as hedging instruments
    
    $
    33,833
    
    
    $
    
    
    
    $
    33,833
    
    
    $
    Total other liabilities
    
    
    33,833
    
    
    
    
    
    
    
    33,833
    
    
    
    Total liabilities at fair value
    
    $
    33,833
    
    
    $
    
    
    
    $
    33,833
    
    
    $
    
  Net Realized/Unrealized Gains (Losses)Recorded inBalance at
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Purchases, Sales
    
    
    Transfers In
    
    
    Balance atBeginning
    
    
    Recorded in Earnings
    
    
    Comprehensive
    
    
    Issuances and
    
    
    and /or Out
    
    
    End of(in thousands)
    
    of Period
    
    
    Realized (1)
    
    
    Unrealized
    
    
    Income (Pretax)
    
    
    Settlements, Net
    
    
    of Level 3
    
    
    PeriodThree Months Ended June 30, 2010Securities available for saleCollateralized
mortgage
obligations
    
    $
    14
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    
    
    
    $
    12State and municipal
    
    
    5,231
    
    
    
    75
    
    
    
    
    
    
    
    (30
    )
    
    
    (392
    )
    
    
    
    
    
    
    4,884Other
    
    
    326
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329Total available for sale
    
    $
    5,571
    
    
    $
    78
    
    
    $
    
    
    
    $
    (30
    )
    
    $
    (394
    )
    
    $
    
    
    
    $
    5,225Six Months Ended June 30, 2010Securities available for saleCollateralized
mortgage
obligations
    
    $
    15
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (3
    )
    
    $
    
    
    
    $
    12State and municipal
    
    
    5,353
    
    
    
    95
    
    
    
    
    
    
    
    (5
    )
    
    
    (559
    )
    
    
    
    
    
    
    4,884Other
    
    
    323
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329Total available for sale
    
    $
    5,691
    
    
    $
    101
    
    
    $
    
    
    
    $
    (5
    )
    
    $
    (562
    )
    
    $
    
    
    
    $
    5,225
 
 (1)
    
    Recorded through Interest Income on the Statement of Operations.  17




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##### Table of Contents



June 30, 2010
    
    Initial Carrying
    
    
    Fair Value(in thousands)
    
    Value
    
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Impaired loans
    
    $
    292,921
    
    
    $
    155,621
    
    
    $
    
    
    
    $
    
    
    
    $
    155,621Commercial loans held for sale
    
    
    21,805
    
    
    
    13,976
    
    
    
    
    
    
    
    
    
    
    
    13,976Residential mortgage loans held for sale
    
    
    14,894
    
    
    
    4,959
    
    
    
    
    
    
    
    
    
    
    
    4,959Other real estate
    
    
    18,479
    
    
    
    10,409
    
    
    
    
    
    
    
    
    
    
    
    10,409Repossessed assets
    
    
    3,905
    
    
    
    1,640
    
    
    
    
    
    
    
    
    
    
    
    1,640Total assets
    
    $
    352,004
    
    
    $
    186,605
    
    
    $
    
    
    
    $
    
    
    
    $
    186,605
 Note 10. Pension Benefit Cost
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Defined Benefit Pension PlansInterest cost
    
    $
    1,037
    
    
    $
    1,106
    
    
    $
    2,077
    
    
    $
    2,211Expected return on plan assets
    
    
    (1,200
    )
    
    
    (1,570
    )
    
    
    (2,400
    )
    
    
    (3,140
    )Amortization of unrecognized:Prior service cost
    
    
    8
    
    
    
    8
    
    
    
    15
    
    
    
    15Net actuarial loss
    
    
    555
    
    
    
    335
    
    
    
    1,111
    
    
    
    670Net pension cost
    
    
    400
    
    
    
    (121
    )
    
    
    803
    
    
    
    (244
    )Supplemental Pension PlansInterest cost
    
    
    187
    
    
    
    127
    
    
    
    375
    
    
    
    316Curtailment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    941Amortization of unrecognized:Net actuarial loss
    
    
    3
    
    
    
    2
    
    
    
    6
    
    
    
    5Net pension cost
    
    
    190
    
    
    
    129
    
    
    
    381
    
    
    
    1,262Postretirement Benefit PlansInterest cost
    
    
    152
    
    
    
    152
    
    
    
    304
    
    
    
    304Amortization of unrecognized:Prior service cost
    
    
    (67
    )
    
    
    (67
    )
    
    
    (134
    )
    
    
    (134
    )Net actuarial gain
    
    
    (8
    )
    
    
    (8
    )
    
    
    (16
    )
    
    
    (16
    )Net postretirement benefit cost
    
    
    77
    
    
    
    77
    
    
    
    154
    
    
    
    154Total pension and postretirement benefit cost
    
    
    667
    
    
    
    85
    
    
    
    1,338
    
    
    
    1,172Defined contribution retirement and 401K
PlansEmployer contributions
    
    
    
    
    
    
    666
    
    
    
    
    
    
    
    1,971Total periodic benefit cost
    
    $
    667
    
    
    $
    751
    
    
    $
    1,338
    
    
    $
    3,143
  18




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##### Table of Contents



June 30, 2010(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Asset CategoryShort-term pooled money fund
    
    $
    2,199
    
    
    $
    
    
    
    $
    2,199
    
    
    $
    Equity securitiesLarge cap (1)
    
    
    15,969
    
    
    
    
    
    
    
    15,969
    
    
    
    Mid-cap
    
    
    3,993
    
    
    
    
    
    
    
    3,993
    
    
    
    Small-cap
    
    
    5,877
    
    
    
    
    
    
    
    5,877
    
    
    
    International equity
    
    
    8,435
    
    
    
    
    
    
    
    8,435
    
    
    
    Fixed income securitiesIntermediate term fixed (2)
    
    
    22,983
    
    
    
    
    
    
    
    22,983
    
    
    
    Total
    
    $
    59,456
    
    
    $
    
    
    
    $
    59,456
    
    
    $
    
 
 (1)
    
    This category is comprised of not actively managed low-cost equity index funds that track the S&P 500 and
Russell 1000.(2)
    
    This category represents investment grade bonds of U.S.
issuers from diverse industries. Note 11. Stock-Based Compensation
   19




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Stock option compensation
    
    $
    
    
    
    $
    3
    
    
    $
    
    
    
    $
    7Restricted stock compensation
    
    
    627
    
    
    
    887
    
    
    
    1,129
    
    
    
    608Stock-based compensation expense before income taxes
    
    
    627
    
    
    
    890
    
    
    
    1,129
    
    
    
    615Income tax benefit (1)
    
    
    (219
    )
    
    
    (312
    )
    
    
    (395
    )
    
    
    (215
    )Total stock-based compensation expense after income taxes
    
    $
    408
    
    
    $
    578
    
    
    $
    734
    
    
    $
    400
 
 (1)
    
    The income tax benefit is calculated based on the statutory rate. Due to the fact that
Citizens has a valuation allowance, the income tax benefit may not be realized.     Weighted-AveragePer Share GrantNumber of Shares
    
    
    Date Fair ValueRestricted stock at December 31, 2009
    
    
    618,759
    
    
    $
    6.35Granted
    
    
    2,738,540
    
    
    
    1.22Vested
    
    
    (263,417
    )
    
    
    5.34Forfeited
    
    
    (133,843
    )
    
    
    2.47Restricted stock at June 30, 2010
    
    
    2,960,039
    
    
    $
    1.87
  Note 12. Shareholders Equity and Earnings Per Share
    20




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands, except per share amounts)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Loss from continuing operations
    
    $
    (44,456
    )
    
    $
    (336,916
    )
    
    $
    (120,479
    )
    
    $
    (382,458
    )Dividend on redeemable preferred stock
    
    
    (5,406
    )
    
    
    (5,196
    )
    
    
    (10,688
    )
    
    
    (9,299
    )Net loss from continuing operations available to common shareholders
    
    
    (49,862
    )
    
    
    (342,112
    )
    
    
    (131,167
    )
    
    
    (391,757
    )Income (loss) from discontinued operations (net of income tax)
    
    
    5,151
    
    
    
    (10,497
    )
    
    
    (3,822
    )
    
    
    (10,104
    )Net loss attributable to common shareholders
    
    $
    (44,711
    )
    
    $
    (352,609
    )
    
    $
    (134,989
    )
    
    $
    (401,861
    )Denominator:Weighted average shares outstanding
    
    
    396,061
    
    
    
    126,283
    
    
    
    395,232
    
    
    
    126,241Less: participating securities included in weighted average shares outstanding
    
    
    (2,224
    )
    
    
    (824
    )
    
    
    (1,424
    )
    
    
    (811
    )Weighted average shares outstanding for basic and dilutive earnings per
common share
    
    
    393,837
    
    
    
    125,459
    
    
    
    393,808
    
    
    
    125,430Basic earnings per common share from continuing operations
    
    $
    (0.12
    )
    
    $
    (2.73
    )
    
    $
    (0.33
    )
    
    $
    (3.12
    )Diluted earnings per common share from continuing operations
    
    $
    (0.12
    )
    
    $
    (2.73
    )
    
    $
    (0.33
    )
    
    $
    (3.12
    )Basic earnings per common share from discontinued operations
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    (0.01
    )
    
    $
    (0.08
    )Diluted earnings per common share from discontinued operations
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    (0.01
    )
    
    $
    (0.08
    )Basic net loss per common share
    
    $
    (0.11
    )
    
    $
    (2.81
    )
    
    $
    (0.34
    )
    
    $
    (3.20
    )Diluted net loss per common share
    
    $
    (0.11
    )
    
    $
    (2.81
    )
    
    $
    (0.34
    )
    
    $
    (3.20
    )
 Note 13. Lines of Business
  21




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##### Table of Contents



Regional
    
    
    Specialty
    
    Specialty
    
    Wealth(in thousands)
    
    Banking
    
    
    Consumer
    
    Commercial
    
    Mgmt
    
    Other
    
    TotalEarnings Summary  Three Months Ended June 30, 2010Net interest income (taxable equivalent)
    
    $
    66,057
    
    
    $
    8,306
    
    
    $
    16,316
    
    
    $
    163
    
    
    $
    (3,651
    )
    
    $
    87,191Provision for loan losses
    
    
    19,035
    
    
    
    11,026
    
    
    
    40,553
    
    
    
    
    
    
    
    
    
    
    
    70,614Net interest income after provision
    
    
    47,022
    
    
    
    (2,720
    )
    
    
    (24,237
    )
    
    
    163
    
    
    
    (3,651
    )
    
    
    16,577Noninterest income
    
    
    15,871
    
    
    
    (4,036
    )
    
    
    (3,049
    )
    
    
    5,158
    
    
    
    8,338
    
    
    
    22,282Noninterest expense
    
    
    52,336
    
    
    
    10,119
    
    
    
    4,394
    
    
    
    4,488
    
    
    
    5,673
    
    
    
    77,010Income (loss) from continuing operations before income taxes
    
    
    10,557
    
    
    
    (16,875
    )
    
    
    (31,680
    )
    
    
    833
    
    
    
    (986
    )
    
    
    (38,151
    )Income tax expense (taxable equivalent)
    
    
    3,695
    
    
    
    (5,906
    )
    
    
    (11,088
    )
    
    
    291
    
    
    
    19,313
    
    
    
    6,305Net income (loss) from continuing operations
    
    
    6,862
    
    
    
    (10,969
    )
    
    
    (20,592
    )
    
    
    542
    
    
    
    (20,299
    )
    
    
    (44,456
    )(Loss) income from discontinued operations
    
    
    (134
    )
    
    
    (49
    )
    
    
    13
    
    
    
    22
    
    
    
    5,299
    
    
    
    5,151Net income (loss)
    
    $
    6,728
    
    
    $
    (11,018
    )
    
    $
    (20,579
    )
    
    $
    564
    
    
    $
    (15,000
    )
    
    $
    (39,305
    )Average assets(in millions)
    
    $
    4,269
    
    
    $
    1,787
    
    
    $
    1,596
    
    
    $
    14
    
    
    $
    3,601
    
    
    $
    11,267Earnings Summary  Three Months Ended June 30, 2009Net interest income (taxable equivalent)
    
    $
    66,117
    
    
    $
    6,493
    
    
    $
    14,928
    
    
    $
    145
    
    
    $
    (9,643
    )
    
    $
    78,040Provision for loan losses
    
    
    30,354
    
    
    
    21,742
    
    
    
    46,839
    
    
    
    
    
    
    
    
    
    
    
    98,935Net interest loss after provision
    
    
    35,763
    
    
    
    (15,249
    )
    
    
    (31,911
    )
    
    
    145
    
    
    
    (9,643
    )
    
    
    (20,895
    )Noninterest income
    
    
    16,640
    
    
    
    60
    
    
    
    (2,558
    )
    
    
    4,767
    
    
    
    989
    
    
    
    19,898Noninterest expense
    
    
    316,954
    
    
    
    9,687
    
    
    
    4,943
    
    
    
    4,301
    
    
    
    7,363
    
    
    
    343,248(Loss) income from continuing operations before income taxes
    
    
    (264,551
    )
    
    
    (24,876
    )
    
    
    (39,412
    )
    
    
    611
    
    
    
    (16,017
    )
    
    
    (344,245
    )Income tax benefit (taxable equivalent)
    
    
    (92,593
    )
    
    
    (8,707
    )
    
    
    (13,794
    )
    
    
    214
    
    
    
    107,551
    
    
    
    (7,329
    )Net (loss) income from continuing operations
    
    
    (171,958
    )
    
    
    (16,169
    )
    
    
    (25,618
    )
    
    
    397
    
    
    
    (123,568
    )
    
    
    (336,916
    )(Loss) income from discontinued operations
    
    
    (10,287
    )
    
    
    (21
    )
    
    
    
    
    
    
    63
    
    
    
    (252
    )
    
    
    (10,497
    )Net (loss) income
    
    $
    (182,245
    )
    
    $
    (16,190
    )
    
    $
    (25,618
    )
    
    $
    460
    
    
    $
    (123,820
    )
    
    $
    (347,413
    )Average assets(in millions)
    
    $
    5,369
    
    
    $
    2,223
    
    
    $
    1,642
    
    
    $
    11
    
    
    $
    3,529
    
    
    $
    12,774
 
 (1)
    
    Certain amounts have been reclassified to conform to current year presentation. Regional
    
    
    Specialty
    
    
    Specialty
    
    
    Wealth(in thousands)
    
    Banking
    
    
    Consumer
    
    
    Commercial
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary  Six Months Ended June 30, 2010Net interest income (taxable equivalent)
    
    $
    130,064
    
    
    $
    15,797
    
    
    $
    32,793
    
    
    $
    318
    
    
    $
    (7,234
    )
    
    $
    171,738Provision for loan losses
    
    
    42,102
    
    
    
    47,014
    
    
    
    82,853
    
    
    
    
    
    
    
    
    
    
    
    171,969Net interest loss after provision
    
    
    87,962
    
    
    
    (31,217
    )
    
    
    (50,060
    )
    
    
    318
    
    
    
    (7,234
    )
    
    
    (231
    )Noninterest income
    
    
    31,416
    
    
    
    (5,059
    )
    
    
    (8,056
    )
    
    
    9,941
    
    
    
    16,433
    
    
    
    44,675Noninterest expense
    
    
    104,473
    
    
    
    23,361
    
    
    
    8,676
    
    
    
    8,456
    
    
    
    10,147
    
    
    
    155,113Income (loss) from continuing operations before income taxes
    
    
    14,905
    
    
    
    (59,637
    )
    
    
    (66,792
    )
    
    
    1,803
    
    
    
    (948
    )
    
    
    (110,669
    )Income tax expense (taxable equivalent)
    
    
    5,217
    
    
    
    (20,873
    )
    
    
    (23,377
    )
    
    
    631
    
    
    
    48,212
    
    
    
    9,810Net income (loss) from continuing operations
    
    
    9,688
    
    
    
    (38,764
    )
    
    
    (43,415
    )
    
    
    1,172
    
    
    
    (49,160
    )
    
    
    (120,479
    )Income (loss) from discontinued operations
    
    
    850
    
    
    
    (138
    )
    
    
    175
    
    
    
    102
    
    
    
    (4,811
    )
    
    
    (3,822
    )Net income (loss)
    
    $
    10,538
    
    
    $
    (38,902
    )
    
    $
    (43,240
    )
    
    $
    1,274
    
    
    $
    (53,971
    )
    
    $
    (124,301
    )Average assets(in millions)
    
    $
    4,390
    
    
    $
    1,824
    
    
    $
    1,647
    
    
    $
    14
    
    
    $
    3,708
    
    
    $
    11,583Earnings Summary  Six Months Ended June 30, 2009Net interest income (taxable equivalent)
    
    $
    131,188
    
    
    $
    13,468
    
    
    $
    30,078
    
    
    $
    264
    
    
    $
    (17,366
    )
    
    $
    157,632Provision for loan losses
    
    
    53,037
    
    
    
    36,812
    
    
    
    72,571
    
    
    
    
    
    
    
    
    
    
    
    162,420Net interest loss after provision
    
    
    78,151
    
    
    
    (23,344
    )
    
    
    (42,493
    )
    
    
    264
    
    
    
    (17,366
    )
    
    
    (4,788
    )Noninterest income
    
    
    33,507
    
    
    
    152
    
    
    
    (8,337
    )
    
    
    9,374
    
    
    
    3,467
    
    
    
    38,163Noninterest expense
    
    
    371,163
    
    
    
    22,919
    
    
    
    9,315
    
    
    
    8,291
    
    
    
    10,616
    
    
    
    422,304(Loss) income from continuing operations before income taxes
    
    
    (259,505
    )
    
    
    (46,111
    )
    
    
    (60,145
    )
    
    
    1,347
    
    
    
    (24,515
    )
    
    
    (388,929
    )Income tax benefit (taxable equivalent)
    
    
    (90,827
    )
    
    
    (16,138
    )
    
    
    (21,051
    )
    
    
    472
    
    
    
    121,073
    
    
    
    (6,471
    )Net (loss) income from continuing operations
    
    
    (168,678
    )
    
    
    (29,973
    )
    
    
    (39,094
    )
    
    
    875
    
    
    
    (145,588
    )
    
    
    (382,458
    )(Loss) income from discontinued operations
    
    
    (9,839
    )
    
    
    (47
    )
    
    
    
    
    
    
    118
    
    
    
    (336
    )
    
    
    (10,104
    )Net (loss) income
    
    $
    (178,517
    )
    
    $
    (30,020
    )
    
    $
    (39,094
    )
    
    $
    993
    
    
    $
    (145,924
    )
    
    $
    (392,562
    )Average assets(in millions)
    
    $
    5,483
    
    
    $
    2,252
    
    
    $
    1,676
    
    
    $
    11
    
    
    $
    3,504
    
    
    $
    12,926
 
 (1)
    
    Certain amounts have been reclassified to conform to current year presentation. Note 14. Commitments, Contingent Liabilities and Guarantees
   22




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##### Table of Contents



June 30,
    
    December 31,(in thousands)
    
    2010
    
    2009Loan commitments and letters of credit:Commitments to extend credit
    
    $
    1,170,476
    
    
    $
    1,334,690Financial standby letters of credit
    
    
    190,148
    
    
    
    228,483Performance standby letters of credit
    
    
    7,539
    
    
    
    7,523Commercial letters of credit
    
    
    118
    
    
    
    23Total loan commitments and letters of credit
    
    $
    1,368,280
    
    
    $
    1,570,719
  Note 15. Derivatives and Hedging Activities
 Risk Management Objective of Using Derivatives
  Fair Values of Derivative Instruments on the Consolidated Balance Sheets
  Other Assets
    
    
    Other LiabilitiesJune 30,
    
    
    December 31,
    
    
    June 30,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Derivatives designated as hedging instruments Interest rate products
    
    $
    14,561
    
    
    $
    17,279
    
    
    $
    
    
    
    $
    Derivatives notdesignated as hedging
instruments Interest rate products
    
    
    33,385
    
    
    
    29,775
    
    
    
    33,833
    
    
    
    29,095Total derivatives
    
    $
    47,946
    
    
    $
    47,054
    
    
    $
    33,833
    
    
    $
    29,095
 Cash Flow Hedges of Interest Rate Risk
  23




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24




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##### Table of Contents



Derivative Impact on OCI gain (loss)
    
    
    Derivative Ineffectiveness gain (loss)Location
    
    
    
    
    
    
    
    
    
    
    LocationReclassified
    
    
    Reclassified from
    
    
    RecognizedDerivatives Relationship
    
    
    
    
    
    
    
    
    
    in Statement
    
    
    Accumulated OCI into
    
    
    in Statement(in thousands)
    
    Recognized in OCI
    
    
    of Operations
    
    
    Statement of Operations
    
    
    of Operations
    
    
    AmountThree Months Ended
    
    
    
    
    
    
    Three Months Ended
    
    
    
    
    
    
    Three Months EndedJune 30,
    
    
    
    
    
    
    June 30,
    
    
    
    
    
    
    June 30,2010
    
    
    2009
    
    
    
    
    
    
    2010
    
    
    2009
    
    
    
    
    
    
    2010
    
    
    2009Cash flow hedges:Interest rate products
    
    $
    1,989
    
    
    $
    (2,452
    )
    
    Interest income
    
    $
    1,880
    
    
    $
    3,386Other income
    
    
    501
    
    
    
    
    
    
    Other income
    
    $
    88
    
    
    $
    (73
    )Total
    
    $
    1,989
    
    
    $
    (2,452
    )
    
    
    
    
    
    $
    2,381
    
    
    $
    3,386
    
    
    
    
    
    
    $
    88
    
    
    $
    (73
    )
 Derivative Impact on OCI gain (loss)
    
    
    Derivative Ineffectiveness gain (loss)Location
    
    
    
    
    
    
    
    
    
    
    LocationReclassified
    
    
    Reclassified from
    
    
    RecognizedDerivatives Relationship
    
    
    
    
    
    
    
    
    
    in Statement
    
    
    Accumulated OCI into
    
    
    in Statement(in thousands)
    
    Recognized in OCI
    
    
    of Operations
    
    
    Statement of Operations
    
    
    of Operations
    
    
    AmountSix Months Ended
    
    
    
    
    
    
    Six Months Ended
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    
    
    
    
    June 30,
    
    
    
    
    
    
    June 30,2010
    
    
    2009
    
    
    
    
    
    
    2010
    
    
    2009
    
    
    
    
    
    
    2010
    
    
    2009Cash flow hedges:Interest rate products
    
    $
    4,543
    
    
    $
    (650
    )
    
    Interest income
    
    $
    3,932
    
    
    $
    6,820Other income
    
    
    1,701
    
    
    
    244
    
    
    Other income
    
    $
    88
    
    
    $
    (152
    )Total
    
    $
    4,543
    
    
    $
    (650
    )
    
    
    
    
    
    $
    5,633
    
    
    $
    7,064
    
    
    
    
    
    
    $
    88
    
    
    $
    (152
    )
 Fair Value Hedges of Interest Rate Risk
    Derivative Contract (Loss) Gain
    
    
    Hedged Item Gain (Loss)Location in
    
    
    Three Months Ended
    
    
    Six Months Ended
    
    
    Location in
    
    
    Three Months Ended
    
    
    Six Months EndedDerivatives Relationship
    
    Statement of
    
    
    June 30,
    
    
    June 30,
    
    
    Statement of
    
    
    June 30,
    
    
    June 30,(in thousands)
    
    Operations
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Operations
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Fair value hedges:Interest rate products
    
    Interest expense
    
    $
    (862
    )
    
    $
    (2,929
    )
    
    $
    (773
    )
    
    $
    (2,616
    )
    
    Interest expense
    
    $
    2,722
    
    
    $
    3,667
    
    
    $
    4,245
    
    
    $
    5,587
 25




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##### Table of Contents



Non-designated Hedges
   Amount of (Loss) Gain Recognized inStatement of OperationsLocation of (Loss) Gain
    
    
    Three Months Ended
    
    
    Six Months EndedDerivatives Relationship
    
    Recognized in Statement
    
    
    June 30,
    
    
    June 30,(in thousands)
    
    of Operations
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Derivatives notdesignated as hedgesInterest rate products
    
    Other income
    
    $
    (267
    )
    
    $
    (583
    )
    
    $
    (758
    )
    
    $
    1,861
 Credit-Risk-Related Contingent Features
     Note 16. Discontinued Operations
  26




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##### Table of Contents



December 31,(in thousands)
    
    2009AssetsCash and due from banks
    
    $
    7,045Money market investments
    
    
    19,878Investment securities
    
    
    171,115FHLB and Federal Reserve stock
    
    
    1,193Net portfolio loans
    
    
    114,523Loans held for sale
    
    
    241Goodwill
    
    
    12,594Other assets
    
    
    9,372Assets of discontinued operations
    
    $
    335,961LiabilitiesDeposits
    
    $
    408,577Short-term borrowings
    
    
    11,263Long-term debt
    
    
    500Other liabilities
    
    
    1,987Liabilities of discontinued operations
    
    $
    422,327
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Interest income
    
    $
    915
    
    
    $
    3,809
    
    
    $
    4,409
    
    
    $
    7,667Interest expense
    
    
    385
    
    
    
    2,251
    
    
    
    1,844
    
    
    
    4,643Net interest income
    
    
    530
    
    
    
    1,558
    
    
    
    2,565
    
    
    
    3,024Provision for loan losses
    
    
    560
    
    
    
    1,027
    
    
    
    608
    
    
    
    1,560Noninterest income
    
    
    5,993
    
    
    
    1,069
    
    
    
    (3,258
    )
    
    
    2,037Noninterest expense
    
    
    482
    
    
    
    12,186
    
    
    
    2,191
    
    
    
    13,908Income tax expense (benefit) from discontinued operations
    
    
    330
    
    
    
    (89
    )
    
    
    330
    
    
    
    (303
    )Net income (loss) from discontinued operations
    
    $
    5,151
    
    
    $
    (10,497
    )
    
    $
    (3,822
    )
    
    $
    (10,104
    )
  27




---



##### Table of Contents



Item 2   Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Selected Quarterly Information (Unaudited)
Citizens Republic Bancorp and Subsidiaries
 June 30,
    
    
    March 31,
    
    
    December 31,
    
    
    September 30,
    
    
    June 30,2010
    
    
    2010
    
    
    2009
    
    
    2009
    
    
    2009Summary of Operations (thousands)Net interest income
    
    $
    84,586
    
    
    $
    81,189
    
    
    $
    81,913
    
    
    $
    79,012
    
    
    $
    74,043Provision for loan losses
    
    
    70,614
    
    
    
    101,355
    
    
    
    84,007
    
    
    
    77,393
    
    
    
    98,935Noninterest income (1)
    
    
    22,282
    
    
    
    22,393
    
    
    
    14,274
    
    
    
    10,696
    
    
    
    19,898Noninterest expense (2)
    
    
    77,010
    
    
    
    78,103
    
    
    
    81,369
    
    
    
    81,466
    
    
    
    343,248Income tax expense (benefit) from continuing operations
    
    
    3,700
    
    
    
    147
    
    
    
    (3,307
    )
    
    
    (11,747
    )
    
    
    (11,326
    )Loss from continuing operations
    
    
    (44,456
    )
    
    
    (76,023
    )
    
    
    (65,883
    )
    
    
    (57,403
    )
    
    
    (336,916
    )Income (loss) from discontinued operations (net of income tax)
    
    
    5,151
    
    
    
    (8,973
    )
    
    
    1,155
    
    
    
    480
    
    
    
    (10,497
    )Net loss
    
    
    (39,305
    )
    
    
    (84,996
    )
    
    
    (64,729
    )
    
    
    (56,923
    )
    
    
    (347,413
    )Net loss attributable to common shareholders (3)
    
    
    (44,711
    )
    
    
    (90,278
    )
    
    
    (69,981
    )
    
    
    (62,147
    )
    
    
    (352,609
    )Taxable equivalent adjustment, continuing operations
    
    
    2,605
    
    
    
    3,357
    
    
    
    3,721
    
    
    
    3,745
    
    
    
    3,997Taxable equivalent adjustment, combined
    
    
    2,656
    
    
    
    3,556
    
    
    
    3,932
    
    
    
    3,961
    
    
    
    4,220Per Common Share DataNet loss from continuing operations:Basic
    
    $
    (0.12
    )
    
    $
    (0.21
    )
    
    $
    (0.18
    )
    
    $
    (0.49
    )
    
    $
    (2.73
    )Diluted
    
    
    (0.12
    )
    
    
    (0.21
    )
    
    
    (0.18
    )
    
    
    (0.49
    )
    
    
    (2.73
    )Discontinued operations:Basic
    
    $
    0.01
    
    
    $
    (0.02
    )
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    (0.08
    )Diluted
    
    
    0.01
    
    
    
    (0.02
    )
    
    
    0.00
    
    
    
    0.01
    
    
    
    (0.08
    )Net loss:Basic
    
    $
    (0.11
    )
    
    $
    (0.23
    )
    
    $
    (0.18
    )
    
    $
    (0.48
    )
    
    $
    (2.81
    )Diluted
    
    
    (0.11
    )
    
    
    (0.23
    )
    
    
    (0.18
    )
    
    
    (0.48
    )
    
    
    (2.81
    )Common book value
    
    
    2.37
    
    
    
    2.46
    
    
    
    2.69
    
    
    
    2.87
    
    
    
    7.57Tangible book value
    
    
    2.24
    
    
    
    2.28
    
    
    
    2.50
    
    
    
    2.68
    
    
    
    6.95Tangible common book value
    
    
    1.54
    
    
    
    1.59
    
    
    
    1.81
    
    
    
    1.99
    
    
    
    4.82Shares outstanding, end of period (000)
    
    
    396,979
    
    
    
    394,392
    
    
    
    394,397
    
    
    
    394,470
    
    
    
    126,258At Period End, Continuing Operations (millions)Assets
    
    $
    10,834
    
    
    $
    11,328
    
    
    $
    11,596
    
    
    $
    11,717
    
    
    $
    11,931Earning assets
    
    
    10,098
    
    
    
    10,595
    
    
    
    10,864
    
    
    
    10,964
    
    
    
    11,207Portfolio loans
    
    
    7,138
    
    
    
    7,439
    
    
    
    7,788
    
    
    
    8,097
    
    
    
    8,302Allowance for loan losses
    
    
    322
    
    
    
    322
    
    
    
    339
    
    
    
    336
    
    
    
    330Deposits
    
    
    8,222
    
    
    
    8,481
    
    
    
    8,501
    
    
    
    8,389
    
    
    
    8,527Shareholders equity
    
    
    1,218
    
    
    
    1,244
    
    
    
    1,331
    
    
    
    1,403
    
    
    
    1,225At Period End, Combined (millions)Assets
    
    $
    10,834
    
    
    $
    11,652
    
    
    $
    11,932
    
    
    $
    12,072
    
    
    $
    12,288Earning assets
    
    
    10,098
    
    
    
    10,890
    
    
    
    11,169
    
    
    
    11,284
    
    
    
    11,534Portfolio loans
    
    
    7,138
    
    
    
    7,543
    
    
    
    7,906
    
    
    
    8,217
    
    
    
    8,426Allowance for loan losses
    
    
    322
    
    
    
    326
    
    
    
    342
    
    
    
    340
    
    
    
    333Deposits
    
    
    8,222
    
    
    
    8,892
    
    
    
    8,909
    
    
    
    8,792
    
    
    
    8,913Shareholders equity
    
    
    1,218
    
    
    
    1,244
    
    
    
    1,331
    
    
    
    1,403
    
    
    
    1,225Average for the Quarter, Continuing Operations (millions)Assets
    
    $
    11,156
    
    
    $
    11,575
    
    
    $
    11,616
    
    
    $
    11,773
    
    
    $
    12,407Earning assets
    
    
    10,432
    
    
    
    10,839
    
    
    
    10,874
    
    
    
    11,041
    
    
    
    11,387Portfolio loans
    
    
    7,318
    
    
    
    7,654
    
    
    
    7,964
    
    
    
    8,191
    
    
    
    8,478Allowance for loan losses
    
    
    322
    
    
    
    336
    
    
    
    337
    
    
    
    331
    
    
    
    289Deposits
    
    
    8,431
    
    
    
    8,544
    
    
    
    8,353
    
    
    
    8,392
    
    
    
    8,590Shareholders equity
    
    
    1,239
    
    
    
    1,323
    
    
    
    1,392
    
    
    
    1,228
    
    
    
    1,557Average for the Quarter, Combined (millions)Assets
    
    $
    11,267
    
    
    $
    11,903
    
    
    $
    11,966
    
    
    $
    12,129
    
    
    $
    12,774Earning assets
    
    
    10,535
    
    
    
    11,135
    
    
    
    11,190
    
    
    
    11,365
    
    
    
    11,711Portfolio loans
    
    
    7,344
    
    
    
    7,768
    
    
    
    8,084
    
    
    
    8,311
    
    
    
    8,604Allowance for loan losses
    
    
    323
    
    
    
    339
    
    
    
    340
    
    
    
    334
    
    
    
    292Deposits
    
    
    8,535
    
    
    
    8,947
    
    
    
    8,762
    
    
    
    8,786
    
    
    
    8,995Shareholders equity
    
    
    1,239
    
    
    
    1,323
    
    
    
    1,392
    
    
    
    1,228
    
    
    
    1,557Financial Ratios, Continuing Operations (annualized)Return on average assets
    
    
    (1.60)
    %
    
    
    (2.66
    )%
    
    
    (2.25
    )%
    
    
    (1.93
    )%
    
    
    (10.89
    )%Return on average shareholders equity
    
    
    (14.40
    )
    
    
    (23.30
    )
    
    
    (18.77
    )
    
    
    (18.55
    )
    
    
    (86.80
    )Average shareholders equity / average assets
    
    
    11.10
    
    
    
    11.43
    
    
    
    11.99
    
    
    
    10.43
    
    
    
    12.55Net interest margin (FTE) (4)
    
    
    3.35
    
    
    
    3.14
    
    
    
    3.13
    
    
    
    2.99
    
    
    
    2.75Efficiency ratio (non-GAAP) (5)
    
    
    75.93
    
    
    
    77.39
    
    
    
    81.45
    
    
    
    87.17
    
    
    
    88.81Allowance for loan losses as a percent of portfolio loans
    
    
    4.51
    
    
    
    4.33
    
    
    
    4.35
    
    
    
    4.15
    
    
    
    3.98Allowance for loan losses as a percent of nonperforming loans
    
    
    83.67
    
    
    
    77.94
    
    
    
    71.43
    
    
    
    67.16
    
    
    
    66.80Allowance for loan losses as a percent of nonperforming assets
    
    
    68.11
    
    
    
    57.96
    
    
    
    57.05
    
    
    
    55.40
    
    
    
    54.75Nonperforming loans as a percent of portfolio loans
    
    
    5.39
    
    
    
    5.56
    
    
    
    6.09
    
    
    
    6.18
    
    
    
    5.95Nonperforming assets as a percent of total loans plus ORAA(6)
    
    
    6.53
    
    
    
    7.32
    
    
    
    7.50
    
    
    
    7.38
    
    
    
    7.15Nonperforming assets as a percent of total assets
    
    
    4.36
    
    
    
    4.91
    
    
    
    5.12
    
    
    
    5.18
    
    
    
    5.05Net loans charged off as a percent of average portfolio loans (annualized)
    
    
    3.90
    
    
    
    6.25
    
    
    
    4.05
    
    
    
    3.46
    
    
    
    2.30Financial Ratios, Combined (annualized)Return on average assets
    
    
    (1.40)
    %
    
    
    (2.90
    )%
    
    
    (2.15
    )%
    
    
    (1.86
    )%
    
    
    (10.91)
    %Return on average shareholders equity
    
    
    (12.73
    )
    
    
    (26.05
    )
    
    
    (18.44
    )
    
    
    (18.40
    )
    
    
    (89.50
    )Average shareholders equity / average assets
    
    
    10.99
    
    
    
    11.11
    
    
    
    11.64
    
    
    
    10.12
    
    
    
    12.19Net interest margin (FTE) (4)
    
    
    3.34
    
    
    
    3.14
    
    
    
    3.13
    
    
    
    2.97
    
    
    
    2.73Efficiency ratio (non-GAAP) (5)
    
    
    71.75
    
    
    
    84.99
    
    
    
    80.58
    
    
    
    86.48
    
    
    
    88.27Allowance for loan losses as a percent of portfolio loans
    
    
    4.51
    
    
    
    4.32
    
    
    
    4.33
    
    
    
    4.13
    
    
    
    3.96Allowance for loan losses as a percent of nonperforming loans
    
    
    83.67
    
    
    
    78.61
    
    
    
    72.01
    
    
    
    67.74
    
    
    
    67.25Allowance for loan losses as a percent of nonperforming assets
    
    
    68.11
    
    
    
    58.48
    
    
    
    57.54
    
    
    
    55.87
    
    
    
    55.13Nonperforming loans as a percent of portfolio loans
    
    
    5.39
    
    
    
    5.49
    
    
    
    6.01
    
    
    
    6.10
    
    
    
    5.88Nonperforming assets as a percent of total loans plus ORAA(6)
    
    
    6.53
    
    
    
    7.24
    
    
    
    7.40
    
    
    
    7.29
    
    
    
    7.07Nonperforming assets as a percent of total assets
    
    
    4.36
    
    
    
    4.78
    
    
    
    4.99
    
    
    
    5.04
    
    
    
    4.92Net loans charged off as a percent of average portfolio loans (annualized)
    
    
    3.89
    
    
    
    6.16
    
    
    
    4.00
    
    
    
    3.41
    
    
    
    2.30Leverage ratio
    
    
    8.72
    
    
    
    8.47
    
    
    
    9.21
    
    
    
    9.63
    
    
    
    8.68Tier 1 capital ratio
    
    
    12.79
    
    
    
    12.12
    
    
    
    12.52
    
    
    
    12.83
    
    
    
    11.81Total capital ratio
    
    
    14.17
    
    
    
    13.49
    
    
    
    13.93
    
    
    
    14.23
    
    
    
    13.91
 
 (1)
    
    Noninterest income includes a gain on investment securities of $8.1 million and $6.0 million in the first and second quarter of 2010, respectively and a net loss on debt
extinguishment of $15.9 million in the third quarter of 2009.(2)
    
    Noninterest expense includes a goodwill impairment charge of $256.3 million in the second quarter of 2009.(3)
    
    Net loss attributable to common shareholders includes the following non-cash items: $5.4 million and $5.3 million dividend to preferred shareholders in the first and second
quarter of 2010, respectively and $5.2 million in the fourth, third and second quarters of 2009.(4)
    
    Net interest margin is presented on an annual basis, includes taxable equivalent adjustments to interest income and is based on a tax rate of 35%.(5)
    
    The Efficiency Ratio measures how efficiently a bank spends its revenues. The formula is: (Noninterest expense  Goodwill impairment)/(Net interest income +
taxable equivalent adjustment + Total noninterest income  Securities gains(losses)).(6)
    
    Includes loans held for sale. 28




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##### Table of Contents



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




---



##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



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




---



##### Table of Contents



Net
Interest Margin and Efficiency Ratio (non-GAAP financial measures)
  33




---



##### Table of Contents



Non-GAAP Reconciliation (Unaudited)
Citizens Republic Bancorp and Subsidiaries
 June 30,
    
    
    March 31,
    
    
    December 31,
    
    
    September 30,
    
    
    June 30,(in thousands)
    
    2010
    
    
    2010
    
    
    2009
    
    
    2009
    
    
    2009Efficiency Ratio  Continuing OperationsNet interest income (A)
    
    $
    84,586
    
    
    $
    81,189
    
    
    $
    81,913
    
    
    $
    79,012
    
    
    $
    74,043Taxable equivalent adjustment (B)
    
    
    2,605
    
    
    
    3,357
    
    
    
    3,721
    
    
    
    3,745
    
    
    
    3,997Securities gain (C)
    
    
    8,051
    
    
    
    6,016
    
    
    
    
    
    
    
    
    
    
    
    5Noninterest income (D)
    
    
    22,282
    
    
    
    22,393
    
    
    
    14,274
    
    
    
    10,696
    
    
    
    19,898Noninterest expense (E)
    
    
    77,010
    
    
    
    78,103
    
    
    
    81,369
    
    
    
    81,466
    
    
    
    343,248Goodwill impairment (F)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256,272Efficiency ratio: (E-F)/(A+B-C+D)(non-GAAP)
    
    
    75.93
    %
    
    
    77.39
    %
    
    
    81.45
    %
    
    
    87.17
    %
    
    
    88.81
    %Efficiency Ratio  Combined OperationsNet interest income (A)
    
    $
    85,115
    
    
    $
    83,224
    
    
    $
    83,935
    
    
    $
    80,885
    
    
    $
    75,601Taxable equivalent adjustment (B)
    
    
    2,656
    
    
    
    3,556
    
    
    
    3,932
    
    
    
    3,961
    
    
    
    4,220Securities gain (C)
    
    
    8,051
    
    
    
    6,016
    
    
    
    
    
    
    
    
    
    
    
    5Noninterest income (D)
    
    
    28,275
    
    
    
    13,142
    
    
    
    15,381
    
    
    
    11,842
    
    
    
    20,966Noninterest expense (E)
    
    
    77,492
    
    
    
    79,811
    
    
    
    83,197
    
    
    
    83,614
    
    
    
    355,433Goodwill impairment (F)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266,474Efficiency ratio: (E-F)/(A+B-C+D)(non-GAAP)
    
    
    71.75
    %
    
    
    84.99
    %
    
    
    80.58
    %
    
    
    86.48
    %
    
    
    88.27
    %Ending Balances  Combined Operations (in millions)Tangible Common Equity to Tangible AssetsTotal assets
    
    $
    10,834
    
    
    $
    11,652
    
    
    $
    11,932
    
    
    $
    12,072
    
    
    $
    12,288Goodwill(1)
    
    
    (318
    )
    
    
    (331
    )
    
    
    (331
    )
    
    
    (331
    )
    
    
    (331
    )Other intangible assets
    
    
    (12
    )
    
    
    (13
    )
    
    
    (14
    )
    
    
    (16
    )
    
    
    (17
    )Tangible assets (non-GAAP)
    
    $
    10,504
    
    
    $
    11,308
    
    
    $
    11,587
    
    
    $
    11,725
    
    
    $
    11,940Total shareholders equity
    
    $
    1,218
    
    
    $
    1,244
    
    
    $
    1,331
    
    
    $
    1,403
    
    
    $
    1,225Goodwill(1)
    
    
    (318
    )
    
    
    (331
    )
    
    
    (331
    )
    
    
    (331
    )
    
    
    (331
    )Other intangible assets
    
    
    (12
    )
    
    
    (13
    )
    
    
    (14
    )
    
    
    (16
    )
    
    
    (17
    )Tangible equity (non-GAAP)
    
    $
    888
    
    
    $
    900
    
    
    $
    986
    
    
    $
    1,056
    
    
    $
    877Tangible equity
    
    $
    888
    
    
    $
    900
    
    
    $
    986
    
    
    $
    1,056
    
    
    $
    877Preferred stock
    
    
    (275
    )
    
    
    (274
    )
    
    
    (272
    )
    
    
    (270
    )
    
    
    (269
    )Tangible common equity (non-GAAP)
    
    $
    613
    
    
    $
    626
    
    
    $
    714
    
    
    $
    786
    
    
    $
    608Tier 1 Common EquityTotal shareholders equity
    
    $
    1,218
    
    
    $
    1,244
    
    
    $
    1,331
    
    
    $
    1,403
    
    
    $
    1,225Qualifying capital securities
    
    
    74
    
    
    
    74
    
    
    
    74
    
    
    
    74
    
    
    
    175Goodwill(1)
    
    
    (318
    )
    
    
    (331
    )
    
    
    (331
    )
    
    
    (331
    )
    
    
    (331
    )Accumulated other comprehensive (income) loss
    
    
    (10
    )
    
    
    6
    
    
    
    7
    
    
    
    3
    
    
    
    27Other intangible assets
    
    
    (12
    )
    
    
    (13
    )
    
    
    (14
    )
    
    
    (16
    )
    
    
    (17
    )Tier 1 capital (regulatory)
    
    $
    952
    
    
    $
    980
    
    
    $
    1,067
    
    
    $
    1,133
    
    
    $
    1,079Tier 1 capital (regulatory)
    
    $
    952
    
    
    $
    980
    
    
    $
    1,067
    
    
    $
    1,133
    
    
    $
    1,079Qualifying capital securities
    
    
    (74
    )
    
    
    (74
    )
    
    
    (74
    )
    
    
    (74
    )
    
    
    (175
    )Preferred stock
    
    
    (275
    )
    
    
    (274
    )
    
    
    (272
    )
    
    
    (270
    )
    
    
    (269
    )Total Tier 1 common equity (non-GAAP)
    
    $
    603
    
    
    $
    632
    
    
    $
    721
    
    
    $
    789
    
    
    $
    635Net risk-weighted assets (regulatory)
    
    $
    7,432
    
    
    $
    8,083
    
    
    $
    8,541
    
    
    $
    8,835
    
    
    $
    9,138Equity to assets
    
    
    11.24
    %
    
    
    10.68
    %
    
    
    11.16
    %
    
    
    11.63
    %
    
    
    9.97
    %Tier 1 common equity(non-GAAP)
    
    
    8.10
    
    
    
    7.82
    
    
    
    8.47
    
    
    
    8.94
    
    
    
    6.95Tangible equity to tangible assets(non-GAAP)
    
    
    8.45
    
    
    
    7.96
    
    
    
    8.51
    
    
    
    9.01
    
    
    
    7.34Tangible common equity to tangible assets(non-GAAP)
    
    
    5.83
    
    
    
    5.54
    
    
    
    6.16
    
    
    
    6.71
    
    
    
    5.09
 
 (1)
    
    Goodwill represents goodwill for Continuing Operations, as shown on the balance
sheet, and goodwill for Discontinued Operations of $12.6 million in the first quarter
of 2010, the fourth, third and second quarters of 2009. 34




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##### Table of Contents



Results of Operations
 Summary
   Pre-Tax Pre-Provision Profit
 Three Months EndedJune 30,
    
    
    March 31,
    
    
    December 31,
    
    
    September 30,
    
    
    June 30,(in thousands)
    
    2010
    
    
    2010
    
    
    2009
    
    
    2009
    
    
    2009Loss from continuing operations
    
    $
    (44,456
    )
    
    $
    (76,023
    )
    
    $
    (65,883
    )
    
    $
    (57,403
    )
    
    $
    (336,916
    )Income tax expense (benefit) from continuing operations
    
    
    3,700
    
    
    
    147
    
    
    
    (3,307
    )
    
    
    (11,747
    )
    
    
    (11,326
    )Provision for loan losses
    
    
    70,614
    
    
    
    101,355
    
    
    
    84,007
    
    
    
    77,393
    
    
    
    98,935Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256,272Net loss on debt extinguishment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,929
    
    
    
    Investment securities gains
    
    
    (8,051
    )
    
    
    (6,016
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )FDIC special assessment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,351Fair-value adjustment on loans held for sale
    
    
    8,405
    
    
    
    7,702
    
    
    
    8,724
    
    
    
    860
    
    
    
    4,350Fair-value adjustment on ORE
    
    
    3,778
    
    
    
    6,763
    
    
    
    8,089
    
    
    
    3,925
    
    
    
    3,308Fair-value adjustment on bank owned life insurance
    
    
    280
    
    
    
    (83
    )
    
    
    (19
    )
    
    
    (360
    )
    
    
    Fair-value adjustment on swaps
    
    
    279
    
    
    
    836
    
    
    
    1,449
    
    
    
    1,018
    
    
    
    583Pre-Tax Pre-Provision Profit(non-GAAP)
    
    $
    34,549
    
    
    $
    34,681
    
    
    $
    33,060
    
    
    $
    29,615
    
    
    $
    20,552
    Subsequent Events
 Citizens Receives Written Supervisory Agreement from Banking Regulators
  35




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##### Table of Contents



Net Interest Income and Net Interest Margin
  Average Balances/Net Interest Income/Average Rates
 Three Months EndedJune 30,2010
    
    
    2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    654,502
    
    
    $
    407
    
    
    
    0.25
    %
    
    $
    506,755
    
    
    $
    316
    
    
    
    0.25
    %Investment securities: (3)Taxable
    
    
    1,856,490
    
    
    
    18,600
    
    
    
    4.01
    
    
    
    1,567,411
    
    
    
    18,398
    
    
    
    4.70Tax-exempt
    
    
    351,717
    
    
    
    3,932
    
    
    
    6.88
    
    
    
    597,010
    
    
    
    6,407
    
    
    
    6.60FHLB and Federal Reserve stock
    
    
    156,597
    
    
    
    1,026
    
    
    
    2.62
    
    
    
    153,189
    
    
    
    519
    
    
    
    1.36Portfolio Loans: (4)Commercial and industrial
    
    
    1,775,054
    
    
    
    21,347
    
    
    
    4.93
    
    
    
    2,248,057
    
    
    
    24,785
    
    
    
    4.51Commercial real estate
    
    
    2,722,843
    
    
    
    35,928
    
    
    
    5.29
    
    
    
    2,926,653
    
    
    
    39,046
    
    
    
    5.36Residential mortgage
    
    
    865,732
    
    
    
    12,245
    
    
    
    5.66
    
    
    
    1,164,468
    
    
    
    14,393
    
    
    
    4.94Direct consumer
    
    
    1,153,278
    
    
    
    17,500
    
    
    
    6.09
    
    
    
    1,335,643
    
    
    
    20,166
    
    
    
    6.06Indirect consumer
    
    
    801,556
    
    
    
    13,614
    
    
    
    6.81
    
    
    
    803,532
    
    
    
    13,535
    
    
    
    6.76Total portfolio loans
    
    
    7,318,463
    
    
    
    100,634
    
    
    
    5.54
    
    
    
    8,478,353
    
    
    
    111,925
    
    
    
    5.32Loans held for sale (4)
    
    
    94,381
    
    
    
    346
    
    
    
    1.47
    
    
    
    83,921
    
    
    
    759
    
    
    
    3.62Total earning assets (3)
    
    
    10,432,150
    
    
    
    124,945
    
    
    
    4.90
    
    
    
    11,386,639
    
    
    
    138,324
    
    
    
    5.01Nonearning AssetsCash and due from banks
    
    
    143,924
    
    
    
    
    
    
    
    
    
    
    
    152,299Bank premises and equipment
    
    
    107,874
    
    
    
    
    
    
    
    
    
    
    
    115,633Investment security fair value adjustment
    
    
    45,580
    
    
    
    
    
    
    
    
    
    
    
    11,202Other nonearning assets
    
    
    748,626
    
    
    
    
    
    
    
    
    
    
    
    1,030,040Assets of discontinued operations
    
    
    110,881
    
    
    
    
    
    
    
    
    
    
    
    366,798Allowance for loan losses
    
    
    (321,976
    )
    
    
    
    
    
    
    
    
    
    
    (288,694
    )Total assets
    
    $
    11,267,059
    
    
    
    
    
    
    
    
    
    
    $
    12,773,917Interest-Bearing LiabilitiesDeposits:Interest-bearing demand deposits
    
    $
    1,044,580
    
    
    
    716
    
    
    
    0.28
    
    
    $
    878,379
    
    
    
    1,004
    
    
    
    0.46Savings deposits
    
    
    2,533,846
    
    
    
    4,167
    
    
    
    0.66
    
    
    
    2,583,088
    
    
    
    5,138
    
    
    
    0.80Time deposits
    
    
    3,566,321
    
    
    
    21,027
    
    
    
    2.36
    
    
    
    3,952,994
    
    
    
    33,909
    
    
    
    3.44Short-term borrowings
    
    
    31,897
    
    
    
    17
    
    
    
    0.21
    
    
    
    50,602
    
    
    
    47
    
    
    
    0.37Long-term debt
    
    
    1,314,991
    
    
    
    14,432
    
    
    
    4.40
    
    
    
    1,998,935
    
    
    
    24,183
    
    
    
    4.85Total interest-bearing liabilities
    
    
    8,491,635
    
    
    
    40,359
    
    
    
    1.91
    
    
    
    9,463,998
    
    
    
    64,281
    
    
    
    2.72Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,286,243
    
    
    
    
    
    
    
    
    
    
    
    1,175,714Other liabilities
    
    
    144,354
    
    
    
    
    
    
    
    
    
    
    
    160,814Liabilities of discontinued operations
    
    
    106,227
    
    
    
    
    
    
    
    
    
    
    
    416,523Shareholders equity
    
    
    1,238,600
    
    
    
    
    
    
    
    
    
    
    
    1,556,868Total liabilities and shareholders equity
    
    $
    11,267,059
    
    
    
    
    
    
    
    
    
    
    $
    12,773,917Net Interest Income
    
    
    
    
    
    $
    84,586
    
    
    
    
    
    
    
    
    
    
    $
    74,043Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.99
    %
    
    
    
    
    
    
    
    
    
    
    2.29
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.36
    
    
    
    
    
    
    
    
    
    
    
    0.46Net Interest Margin  Continuing Operations(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.35
    %
    
    
    
    
    
    
    
    
    
    
    2.75
    %
 
 (1)
    
    Interest income is shown on actual basis and does not include taxable equivalent
adjustments.(2)
    
    Average rates are presented on an annual basis and include taxable
equivalent adjustments to interest income of $2.6 million and $4.0 million for the three
months ended June 30, 2010 and 2009, respectively, based on a tax rate of 35%.(3)
    
    For presentation in this table, average balances and the corresponding
average rates for investment securities are based upon historical cost, adjusted for
amortization of premiums and accretion of discounts.(4)
    
    Nonaccrual loans are included in average
balances for each applicable loan category.(5)
    
    The interest spread and net interest margin are presented on
a tax-equivalent basis.(6)
    
    Net interest margin exceeds the interest spread due to noninterest-bearing
funding sources, demand deposits, other liabilities and shareholders equity supporting
earnings assets. 36




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##### Table of Contents



Average Balances/Net Interest Income/Average Rates
 Six Months EndedJune 30,2010
    
    
    2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    675,144
    
    
    $
    831
    
    
    
    0.25
    %
    
    $
    463,732
    
    
    $
    574
    
    
    
    0.25
    %Investment securities: (3)Taxable
    
    
    1,806,926
    
    
    
    36,861
    
    
    
    4.08
    
    
    
    1,585,011
    
    
    
    38,690
    
    
    
    4.88Tax-exempt
    
    
    421,953
    
    
    
    9,217
    
    
    
    6.72
    
    
    
    608,062
    
    
    
    13,043
    
    
    
    6.60FHLB and Federal Reserve stock
    
    
    155,845
    
    
    
    2,028
    
    
    
    2.62
    
    
    
    150,402
    
    
    
    1,879
    
    
    
    2.51Portfolio Loans: (4)Commercial and industrial
    
    
    1,824,723
    
    
    
    43,394
    
    
    
    4.90
    
    
    
    2,337,515
    
    
    
    51,976
    
    
    
    4.57Commercial real estate
    
    
    2,756,930
    
    
    
    71,977
    
    
    
    5.27
    
    
    
    2,926,740
    
    
    
    77,540
    
    
    
    5.35Residential mortgage loans
    
    
    926,955
    
    
    
    24,065
    
    
    
    5.19
    
    
    
    1,194,007
    
    
    
    31,152
    
    
    
    5.22Direct consumer
    
    
    1,177,404
    
    
    
    35,421
    
    
    
    6.07
    
    
    
    1,361,103
    
    
    
    40,999
    
    
    
    6.07Indirect consumer
    
    
    799,530
    
    
    
    27,123
    
    
    
    6.84
    
    
    
    806,263
    
    
    
    27,046
    
    
    
    6.76Total portfolio loans
    
    
    7,485,542
    
    
    
    201,980
    
    
    
    5.46
    
    
    
    8,625,628
    
    
    
    228,713
    
    
    
    5.37Loans held for sale (4)
    
    
    89,205
    
    
    
    742
    
    
    
    1.67
    
    
    
    88,423
    
    
    
    1,256
    
    
    
    2.85Total earning assets (3)
    
    
    10,634,615
    
    
    
    251,659
    
    
    
    4.87
    
    
    
    11,521,258
    
    
    
    284,155
    
    
    
    5.10Nonearning AssetsCash and due from banks
    
    
    176,345
    
    
    
    
    
    
    
    
    
    
    
    159,128Bank premises and equipment
    
    
    108,780
    
    
    
    
    
    
    
    
    
    
    
    116,168Investment security fair value adjustment
    
    
    44,029
    
    
    
    
    
    
    
    
    
    
    
    588Other nonearning assets
    
    
    729,498
    
    
    
    
    
    
    
    
    
    
    
    1,042,907Assets of discontinued operations
    
    
    219,029
    
    
    
    
    
    
    
    
    
    
    
    359,660Allowance for loan losses
    
    
    (328,934
    )
    
    
    
    
    
    
    
    
    
    
    (273,454
    )Total assets
    
    $
    11,583,362
    
    
    
    
    
    
    
    
    
    
    $
    12,926,255Interest-Bearing LiabilitiesDeposits:Interest-bearing demand deposits
    
    $
    1,060,175
    
    
    
    1,530
    
    
    
    0.29
    
    
    $
    827,485
    
    
    
    1,865
    
    
    
    0.45Savings deposits
    
    
    2,512,123
    
    
    
    8,382
    
    
    
    0.67
    
    
    
    2,550,984
    
    
    
    10,930
    
    
    
    0.86Time deposits
    
    
    3,637,529
    
    
    
    45,509
    
    
    
    2.52
    
    
    
    4,125,170
    
    
    
    72,021
    
    
    
    3.52Short-term borrowings
    
    
    34,207
    
    
    
    41
    
    
    
    0.24
    
    
    
    55,197
    
    
    
    131
    
    
    
    0.48Long-term debt
    
    
    1,381,997
    
    
    
    30,422
    
    
    
    4.44
    
    
    
    2,057,629
    
    
    
    49,684
    
    
    
    4.86Total interest-bearing liabilities
    
    
    8,626,031
    
    
    
    85,884
    
    
    
    2.01
    
    
    
    9,616,465
    
    
    
    134,631
    
    
    
    2.82Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,277,461
    
    
    
    
    
    
    
    
    
    
    
    1,145,480Other liabilities
    
    
    139,459
    
    
    
    
    
    
    
    
    
    
    
    162,899Liabilities of discontinued operations
    
    
    259,837
    
    
    
    
    
    
    
    
    
    
    
    419,797Shareholders equity
    
    
    1,280,574
    
    
    
    
    
    
    
    
    
    
    
    1,581,614Total liabilities and shareholders equity
    
    $
    11,583,362
    
    
    
    
    
    
    
    
    
    
    $
    12,926,255Net Interest Income
    
    
    
    
    
    $
    165,775
    
    
    
    
    
    
    
    
    
    
    $
    149,524Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    2.28
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.38
    
    
    
    
    
    
    
    
    
    
    
    0.47Net Interest Margin  Continuing Operations(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.24
    %
    
    
    
    
    
    
    
    
    
    
    2.75
    %
 
 (1)
    
    Interest income is shown on actual basis and does not include taxable equivalent
adjustments.(2)
    
    Average rates are presented on an annual basis and include taxable
equivalent adjustments to interest income of $6.0 million and $8.1 million for the six
months ended June 30, 2010 and 2009, respectively, based on a tax rate of 35%.(3)
    
    For presentation in this table, average balances and the corresponding average
rates for investment securities are based upon historical cost, adjusted for amortization of
premiums and accretion of discounts.(4)
    
    Nonaccrual loans are included in average
balances for each applicable loan category.(5)
    
The interest spread and net interest margin are presented on a
tax-equivalent basis.(6)
    
    Net interest margin exceeds the interest spread due to noninterest-bearing
funding sources, demand deposits, other liabilities and shareholders equity supporting
earning assets.   37




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##### Table of Contents



Analysis of Changes in Interest Income and Interest Expense
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,Increase (Decrease)
    
    
    
    
    
    
    Increase (Decrease)2010 compared with 2009
    
    Net
    
    
    Due to Change in
    
    
    Net
    
    
    Due to Change in(in thousands)
    
    Change(1)
    
    
    Rate (2)
    
    
    Volume(2)
    
    
    Change(1)
    
    
    Rate (2)
    
    
    Volume(2)Interest Income on Earning Assets:Money market investments
    
    $
    91
    
    
    $
    (1
    )
    
    $
    92
    
    
    $
    257
    
    
    $
    (5
    )
    
    $
    262Investment securities:Taxable
    
    
    202
    
    
    
    (2,914
    )
    
    
    3,116
    
    
    
    (1,829
    )
    
    
    (6,836
    )
    
    
    5,007Tax-exempt
    
    
    (2,475
    )
    
    
    257
    
    
    
    (2,732
    )
    
    
    (3,826
    )
    
    
    235
    
    
    
    (4,061
    )FHLB and Federal Reserve stock
    
    
    507
    
    
    
    495
    
    
    
    12
    
    
    
    149
    
    
    
    80
    
    
    
    69Loans:Commercial and industrial
    
    
    (3,438
    )
    
    
    2,108
    
    
    
    (5,546
    )
    
    
    (8,582
    )
    
    
    3,319
    
    
    
    (11,901
    )Commercial real estate
    
    
    (3,118
    )
    
    
    (425
    )
    
    
    (2,693
    )
    
    
    (5,563
    )
    
    
    (1,278
    )
    
    
    (4,285
    )Residential mortgage loans
    
    
    (2,148
    )
    
    
    1,885
    
    
    
    (4,033
    )
    
    
    (7,087
    )
    
    
    (153
    )
    
    
    (6,934
    )Direct consumer
    
    
    (2,666
    )
    
    
    101
    
    
    
    (2,767
    )
    
    
    (5,578
    )
    
    
    (160
    )
    
    
    (5,418
    )Indirect consumer
    
    
    79
    
    
    
    112
    
    
    
    (33
    )
    
    
    77
    
    
    
    268
    
    
    
    (191
    )Total portfolio loans
    
    
    (11,291
    )
    
    
    3,781
    
    
    
    (15,072
    )
    
    
    (26,733
    )
    
    
    1,996
    
    
    
    (28,729
    )Loans held for sale
    
    
    (413
    )
    
    
    (498
    )
    
    
    85
    
    
    
    (514
    )
    
    
    (525
    )
    
    
    11Total
    
    
    (13,379
    )
    
    
    1,120
    
    
    
    (14,499
    )
    
    
    (32,496
    )
    
    
    (5,055
    )
    
    
    (27,441
    )Interest Expense on Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    
    (288
    )
    
    
    (454
    )
    
    
    166
    
    
    
    (335
    )
    
    
    (779
    )
    
    
    444Savings deposits
    
    
    (971
    )
    
    
    (875
    )
    
    
    (96
    )
    
    
    (2,548
    )
    
    
    (2,386
    )
    
    
    (162
    )Time deposits
    
    
    (12,882
    )
    
    
    (9,812
    )
    
    
    (3,070
    )
    
    
    (26,512
    )
    
    
    (18,761
    )
    
    
    (7,751
    )Short-term borrowings
    
    
    (30
    )
    
    
    (16
    )
    
    
    (14
    )
    
    
    (90
    )
    
    
    (51
    )
    
    
    (39
    )Long-term debt
    
    
    (9,751
    )
    
    
    (2,081
    )
    
    
    (7,670
    )
    
    
    (19,262
    )
    
    
    (4,183
    )
    
    
    (15,079
    )Total
    
    
    (23,922
    )
    
    
    (13,238
    )
    
    
    (10,684
    )
    
    
    (48,747
    )
    
    
    (26,160
    )
    
    
    (22,587
    )Net Interest Income
    
    $
    10,543
    
    
    $
    14,358
    
    
    $
    (3,815
    )
    
    $
    16,251
    
    
    $
    21,105
    
    
    $
    (4,854
    )
 
 (1)
    
    Changes are based on actual interest income and do not reflect taxable equivalent adjustments.(2)
    
    The change in interest not solely due to changes in volume or rates has been allocated in proportion to the absolute dollar amounts of the change in each.  Noninterest Income
  38




---



##### Table of Contents



Noninterest Income
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    Change in 2010
    
    
    June 30,
    
    
    Change in 2010(in thousands)
    
    2010
    
    
    2009
    
    
    Amount
    
    
    Percent
    
    
    2010
    
    
    2009
    
    
    Amount
    
    
    PercentService charges on deposit
accounts
    
    $
    9,971
    
    
    $
    10,399
    
    
    $
    (428
    )
    
    
    (4.1)
    %
    
    $
    19,655
    
    
    $
    20,255
    
    
    $
    (600
    )
    
    
    (3.0
    )%Trust fees
    
    
    3,836
    
    
    
    3,402
    
    
    
    434
    
    
    
    12.8
    
    
    
    7,631
    
    
    
    6,720
    
    
    
    911
    
    
    
    13.6Mortgage and other loan income
    
    
    2,198
    
    
    
    3,612
    
    
    
    (1,414
    )
    
    
    (39.1
    )
    
    
    4,787
    
    
    
    6,655
    
    
    
    (1,868
    )
    
    
    (28.1
    )Brokerage and investment fees
    
    
    1,322
    
    
    
    1,365
    
    
    
    (43
    )
    
    
    (3.2
    )
    
    
    2,255
    
    
    
    2,660
    
    
    
    (405
    )
    
    
    (15.2
    )ATM network user fees
    
    
    1,771
    
    
    
    1,578
    
    
    
    193
    
    
    
    12.2
    
    
    
    3,368
    
    
    
    2,963
    
    
    
    405
    
    
    
    13.7Bankcard fees
    
    
    2,266
    
    
    
    2,029
    
    
    
    237
    
    
    
    11.7
    
    
    
    4,273
    
    
    
    3,863
    
    
    
    410
    
    
    
    10.6Losses on held for sale loans
    
    
    (8,405
    )
    
    
    (4,350
    )
    
    
    (4,055
    )
    
    
    93.2
    
    
    
    (16,107
    )
    
    
    (10,502
    )
    
    
    (5,605
    )
    
    
    53.4Investment securities gains
    
    
    8,051
    
    
    
    5
    
    
    
    8,046
    
    
    
    N/M
    
    
    
    14,067
    
    
    
    5
    
    
    
    14,062
    
    
    
    N/MOther income
    
    
    1,272
    
    
    
    1,858
    
    
    
    (586
    )
    
    
    (31.5
    )
    
    
    4,746
    
    
    
    5,544
    
    
    
    (798
    )
    
    
    (14.4
    )Total noninterest income
    
    $
    22,282
    
    
    $
    19,898
    
    
    $
    2,384
    
    
    
    12.0
    
    
    $
    44,675
    
    
    $
    38,163
    
    
    $
    6,512
    
    
    
    17.1
 
    Noninterest Expense
  Noninterest Expense
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    Change in 2010
    
    
    June 30,
    
    
    Change in 2010(in thousands)
    
    2010
    
    
    2009
    
    
    Amount
    
    
    Percent
    
    
    2010
    
    
    2009
    
    
    Amount
    
    
    Percent| | | | | | | |Salaries and employee benefits
    
    $
    31,403
    
    
    $
    34,953
    
    
    $
    (3,550
    )
    
    
    (10.2)
    %
    
    $
    61,350
    
    
    $
    67,983
    
    
    $
    (6,633
    )
    
    
    (9.8)
    %Occupancy
    
    
    6,139
    
    
    
    6,529
    
    
    
    (390
    )
    
    
    (6.0
    )
    
    
    13,600
    
    
    
    14,121
    
    
    
    (521
    )
    
    
    (3.7
    )Professional services
    
    
    2,615
    
    
    
    2,760
    
    
    
    (145
    )
    
    
    (5.3
    )
    
    
    4,868
    
    
    
    5,853
    
    
    
    (985
    )
    
    
    (16.8
    )Equipment
    
    
    2,979
    
    
    
    2,983
    
    
    
    (4
    )
    
    
    (0.1
    )
    
    
    6,051
    
    
    
    5,767
    
    
    
    284
    
    
    
    4.9Data processing services
    
    
    4,767
    
    
    
    4,265
    
    
    
    502
    
    
    
    11.8
    
    
    
    9,396
    
    
    
    8,459
    
    
    
    937
    
    
    
    11.1Advertising and public relations
    
    
    2,116
    
    
    
    2,266
    
    
    
    (150
    )
    
    
    (6.6
    )
    
    
    3,413
    
    
    
    3,684
    
    
    
    (271
    )
    
    
    (7.4
    )Postage and delivery
    
    
    1,295
    
    
    
    1,451
    
    
    
    (156
    )
    
    
    (10.8
    )
    
    
    2,309
    
    
    
    2,942
    
    
    
    (633
    )
    
    
    (21.5
    )Other loan expenses
    
    
    4,551
    
    
    
    6,789
    
    
    
    (2,238
    )
    
    
    (33.0
    )
    
    
    10,525
    
    
    
    12,651
    
    
    
    (2,126
    )
    
    
    (16.8
    )Other real estate (ORE) expenses
    
    
    4,578
    
    
    
    4,418
    
    
    
    160
    
    
    
    3.6
    
    
    
    12,531
    
    
    
    12,783
    
    
    
    (252
    )
    
    
    (2.0
    )Intangible asset amortization
    
    
    1,034
    
    
    
    1,952
    
    
    
    (918
    )
    
    
    (47.0
    )
    
    
    2,164
    
    
    
    3,989
    
    
    
    (1,825
    )
    
    
    (45.8
    )Goodwill impairment
    
    
    
    
    
    
    256,272
    
    
    
    (256,272
    )
    
    
    N/M
    
    
    
    
    
    
    
    256,272
    
    
    
    (256,272
    )
    
    
    N/MOther expenses
    
    
    15,533
    
    
    
    18,610
    
    
    
    (3,077
    )
    
    
    (16.5
    )
    
    
    28,906
    
    
    
    27,800
    
    
    
    1,106
    
    
    
    4.0Total noninterest expense
    
    $
    77,010
    
    
    $
    343,248
    
    
    $
    (266,238
    )
    
    
    (77.6
    )
    
    $
    155,113
    
    
    $
    422,304
    
    
    $
    (267,191
    )
    
    
    (63.3
    )
 
    39




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##### Table of Contents



Income Taxes
   Discontinued Operations
  Lines of Business Results
     40




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##### Table of Contents



Financial Condition
  Money Market Investments
  Investment Securities
  Portfolio Loans
  41




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##### Table of Contents



Loan Portfolios(in millions)
    
    June 30, 2010
    
    
    March 31, 2010
    
    
    December 31, 2009
    
    
    September 30, 2009
    
    
    June 30, 2009Land hold
    
    $
    37.8
    
    
    $
    39.3
    
    
    $
    35.9
    
    
    $
    52.0
    
    
    $
    54.9Land development
    
    
    84.3
    
    
    
    101.0
    
    
    
    103.6
    
    
    
    124.5
    
    
    
    117.8Construction
    
    
    156.3
    
    
    
    164.4
    
    
    
    177.9
    
    
    
    214.8
    
    
    
    229.5Income producing
    
    
    1,481.7
    
    
    
    1,532.1
    
    
    
    1,514.0
    
    
    
    1,504.1
    
    
    
    1,530.8Owner-occupied
    
    
    886.1
    
    
    
    931.5
    
    
    
    980.1
    
    
    
    986.4
    
    
    
    972.8Total commercial real estate
    
    
    2,646.2
    
    
    
    2,768.3
    
    
    
    2,811.5
    
    
    
    2,881.8
    
    
    
    2,905.8Commercial and industrial
    
    
    1,686.8
    
    
    
    1,824.8
    
    
    
    1,921.8
    
    
    
    2,047.2
    
    
    
    2,145.5Total commercial loans
    
    
    4,333.0
    
    
    
    4,593.1
    
    
    
    4,733.3
    
    
    
    4,929.0
    
    
    
    5,051.3Residential mortgage
    
    
    858.9
    
    
    
    877.2
    
    
    
    1,025.2
    
    
    
    1,073.3
    
    
    
    1,132.2Direct consumer
    
    
    1,132.2
    
    
    
    1,174.7
    
    
    
    1,224.2
    
    
    
    1,269.2
    
    
    
    1,310.3Indirect consumer
    
    
    814.0
    
    
    
    794.2
    
    
    
    805.2
    
    
    
    825.3
    
    
    
    808.3Total consumer loans
    
    
    2,805.1
    
    
    
    2,846.1
    
    
    
    3,054.6
    
    
    
    3,167.8
    
    
    
    3,250.8Total loans
    
    $
    7,138.1
    
    
    $
    7,439.2
    
    
    $
    7,787.9
    
    
    $
    8,096.8
    
    
    $
    8,302.1
  Underwriting
   42




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##### Table of Contents



43




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##### Table of Contents



Credit Quality
   
    
    Delinquency Rates by Loan Portfolio  Loans where the contractual payment is 30 to 89 days
past due and interest is still accruing. While these loans are actively worked to bring them
current, past due loan trends may be a leading indicator of potential future nonperforming
loans and charge-offs.
 
    
    Commercial Watchlist  Commercial loans that, while still accruing interest, Citizens
believes may be at risk due to general economic conditions or changes in a borrowers
financial status and therefore require increased oversight. Watchlist loans that are in
nonperforming status are included in the nonperforming assets table below.
 
    
    Nonperforming Assets  Loans that are in nonaccrual status, loans past due 90 days or more
on which interest is still accruing, restructured loans, nonperforming loans that are held for
sale, and other repossessed assets acquired. The commercial loans included in this table are
reviewed as part of the watchlist process in addition to the loans displayed in the commercial
watchlist table below.
 
    
    Net Charge-Offs  The portion of loans that have been charged-off during each quarter.
 Delinquency Rates By Loan Portfolio
    
    June 30, 2010
    
    
    March 31, 2010
    
    
    December 31, 2009
    
    
    September 30, 2009
    
    
    June 30, 200930 to 89 days past due(in millions)
    
    $
    
    
    % of Portfolio
    
    
    $
    
    
    % of Portfolio
    
    
    $
    
    
    % of Portfolio
    
    
    $
    
    
    % of Portfolio
    
    
    $
    
    
    % of PortfolioLand hold
    
    $
    1.3
    
    
    
    3.34
    %
    
    $
    0.6
    
    
    
    1.64
    %
    
    $
    0.6
    
    
    
    1.56
    %
    
    $
    1.4
    
    
    
    2.61
    %
    
    $
    3.5
    
    
    
    6.38
    %Land development
    
    
    2.0
    
    
    
    2.43
    
    
    
    3.0
    
    
    
    3.00
    
    
    
    4.7
    
    
    
    4.56
    
    
    
    12.0
    
    
    
    9.67
    
    
    
    1.3
    
    
    
    1.10Construction
    
    
    6.4
    
    
    
    4.07
    
    
    
    0.9
    
    
    
    0.55
    
    
    
    1.7
    
    
    
    0.95
    
    
    
    12.1
    
    
    
    5.64
    
    
    
    1.7
    
    
    
    0.74Income producing
    
    
    22.9
    
    
    
    1.55
    
    
    
    51.7
    
    
    
    3.37
    
    
    
    40.8
    
    
    
    2.70
    
    
    
    44.9
    
    
    
    2.98
    
    
    
    50.0
    
    
    
    3.27Owner-occupied
    
    
    16.4
    
    
    
    1.85
    
    
    
    13.6
    
    
    
    1.46
    
    
    
    25.0
    
    
    
    2.55
    
    
    
    24.4
    
    
    
    2.47
    
    
    
    15.6
    
    
    
    1.60Total commercial real estate
    
    
    49.0
    
    
    
    1.85
    
    
    
    69.8
    
    
    
    2.52
    
    
    
    72.8
    
    
    
    2.59
    
    
    
    94.8
    
    
    
    3.29
    
    
    
    72.1
    
    
    
    2.48Commercial and industrial
    
    
    10.3
    
    
    
    0.61
    
    
    
    15.1
    
    
    
    0.83
    
    
    
    16.9
    
    
    
    0.88
    
    
    
    20.2
    
    
    
    0.98
    
    
    
    34.0
    
    
    
    1.58Total commercial loans
    
    
    59.3
    
    
    
    1.37
    
    
    
    84.9
    
    
    
    1.85
    
    
    
    89.7
    
    
    
    1.90
    
    
    
    115.0
    
    
    
    2.33
    
    
    
    106.1
    
    
    
    2.10Residential mortgage
    
    
    20.8
    
    
    
    2.42
    
    
    
    21.5
    
    
    
    2.45
    
    
    
    22.0
    
    
    
    2.14
    
    
    
    30.0
    
    
    
    2.80
    
    
    
    27.7
    
    
    
    2.45Direct consumer
    
    
    20.2
    
    
    
    1.79
    
    
    
    21.9
    
    
    
    1.86
    
    
    
    26.5
    
    
    
    2.16
    
    
    
    24.1
    
    
    
    1.90
    
    
    
    22.8
    
    
    
    1.74Indirect consumer
    
    
    11.4
    
    
    
    1.40
    
    
    
    14.8
    
    
    
    1.86
    
    
    
    16.3
    
    
    
    2.02
    
    
    
    16.3
    
    
    
    1.98
    
    
    
    14.6
    
    
    
    1.81Total consumer loans
    
    
    52.4
    
    
    
    1.87
    
    
    
    58.2
    
    
    
    2.05
    
    
    
    64.8
    
    
    
    2.12
    
    
    
    70.4
    
    
    
    2.22
    
    
    
    65.1
    
    
    
    2.00Total delinquent loans
    
    $
    111.7
    
    
    
    1.57
    
    
    $
    143.1
    
    
    
    1.92
    
    
    $
    154.5
    
    
    
    1.98
    
    
    $
    185.4
    
    
    
    2.29
    
    
    $
    171.2
    
    
    
    2.06
   44




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##### Table of Contents



Commercial WatchlistAccruing loans only
    
    June 30, 2010
    
    
    March 31, 2010
    
    
    December 31, 2009
    
    
    September 30, 2009
    
    
    June 30, 2009(in millions)
    
    $
    
    
    % of Portfolio
    
    
    $
    
    
    % of Portfolio
    
    
    $
    
    
    % of Portfolio
    
    
    $
    
    
    % of Portfolio
    
    
    $
    
    
    % of PortfolioLand hold
    
    $
    27.8
    
    
    
    73.58
    %
    
    $
    29.0
    
    
    
    73.73
    %
    
    $
    24.8
    
    
    
    68.99
    %
    
    $
    29.0
    
    
    
    55.76
    %
    
    $
    18.1
    
    
    
    32.97
    %Land development
    
    
    40.5
    
    
    
    47.97
    
    
    
    50.4
    
    
    
    49.95
    
    
    
    86.7
    
    
    
    83.66
    
    
    
    92.1
    
    
    
    73.92
    
    
    
    82.0
    
    
    
    69.64Construction
    
    
    52.5
    
    
    
    33.61
    
    
    
    54.4
    
    
    
    33.07
    
    
    
    63.5
    
    
    
    35.68
    
    
    
    90.4
    
    
    
    42.10
    
    
    
    90.3
    
    
    
    39.35Income producing
    
    
    553.9
    
    
    
    37.38
    
    
    
    523.5
    
    
    
    34.17
    
    
    
    521.4
    
    
    
    34.44
    
    
    
    519.3
    
    
    
    34.52
    
    
    
    458.6
    
    
    
    29.96Owner-occupied
    
    
    224.1
    
    
    
    25.29
    
    
    
    237.0
    
    
    
    25.44
    
    
    
    247.2
    
    
    
    25.22
    
    
    
    277.2
    
    
    
    28.10
    
    
    
    274.4
    
    
    
    28.21Total commercial real estate
    
    
    898.8
    
    
    
    33.96
    
    
    
    894.3
    
    
    
    32.31
    
    
    
    943.6
    
    
    
    33.56
    
    
    
    1,008.0
    
    
    
    34.98
    
    
    
    923.4
    
    
    
    31.78Commercial and industrial
    
    
    445.5
    
    
    
    26.41
    
    
    
    484.7
    
    
    
    26.56
    
    
    
    473.0
    
    
    
    24.61
    
    
    
    508.0
    
    
    
    24.81
    
    
    
    530.3
    
    
    
    24.72Total watchlist loans
    
    $
    1,344.3
    
    
    
    31.02
    
    
    $
    1,379.0
    
    
    
    30.02
    
    
    $
    1,416.6
    
    
    
    29.93
    
    
    $
    1,516.0
    
    
    
    30.76
    
    
    $
    1,453.7
    
    
    
    28.78
  Nonperforming Assets
    
    June 30, 2010
    
    
    March 31, 2010
    
    
    December 31, 2009
    
    
    September 30, 2009
    
    
    June 30, 2009(in millions)
    
    $
    
    
    % of Portfolio
    
    
    $
    
    
    % of Portfolio
    
    
    $
    
    
    % of Portfolio
    
    
    $
    
    
    % of Portfolio
    
    
    $
    
    
    % of PortfolioLand hold
    
    $
    5.2
    
    
    
    13.76
    %
    
    $
    4.9
    
    
    
    12.49
    %
    
    $
    4.8
    
    
    
    13.42
    %
    
    $
    13.3
    
    
    
    25.56
    %
    
    $
    13.1
    
    
    
    23.86
    %Land development
    
    
    22.3
    
    
    
    26.48
    
    
    
    27.1
    
    
    
    26.86
    
    
    
    1.0
    
    
    
    0.92
    
    
    
    13.7
    
    
    
    10.96
    
    
    
    15.1
    
    
    
    12.82Construction
    
    
    25.0
    
    
    
    15.99
    
    
    
    35.2
    
    
    
    21.39
    
    
    
    25.2
    
    
    
    14.19
    
    
    
    33.7
    
    
    
    15.70
    
    
    
    36.0
    
    
    
    15.69Income producing
    
    
    148.4
    
    
    
    10.02
    
    
    
    144.0
    
    
    
    9.40
    
    
    
    121.5
    
    
    
    8.02
    
    
    
    126.7
    
    
    
    8.42
    
    
    
    139.4
    
    
    
    9.11Owner-occupied
    
    
    59.5
    
    
    
    6.71
    
    
    
    89.0
    
    
    
    9.56
    
    
    
    83.4
    
    
    
    8.51
    
    
    
    70.1
    
    
    
    7.11
    
    
    
    71.3
    
    
    
    7.33Total commercial real estate
    
    
    260.4
    
    
    
    9.84
    
    
    
    300.2
    
    
    
    10.85
    
    
    
    235.9
    
    
    
    8.39
    
    
    
    257.5
    
    
    
    8.94
    
    
    
    274.9
    
    
    
    9.46Commercial and industrial
    
    
    67.0
    
    
    
    3.97
    
    
    
    69.7
    
    
    
    3.82
    
    
    
    84.0
    
    
    
    4.37
    
    
    
    111.5
    
    
    
    5.44
    
    
    
    91.8
    
    
    
    4.28Total nonaccruing commercial loans
    
    
    327.4
    
    
    
    7.56
    
    
    
    369.9
    
    
    
    8.05
    
    
    
    319.9
    
    
    
    6.76
    
    
    
    369.0
    
    
    
    7.49
    
    
    
    366.7
    
    
    
    7.26Residential mortgage
    
    
    31.0
    
    
    
    3.61
    
    
    
    17.6
    
    
    
    2.01
    
    
    
    125.1
    
    
    
    12.20
    
    
    
    106.0
    
    
    
    9.88
    
    
    
    102.7
    
    
    
    9.07Direct consumer
    
    
    18.7
    
    
    
    1.65
    
    
    
    16.5
    
    
    
    1.41
    
    
    
    21.3
    
    
    
    1.74
    
    
    
    21.4
    
    
    
    1.68
    
    
    
    20.2
    
    
    
    1.54Indirect consumer
    
    
    1.5
    
    
    
    0.18
    
    
    
    2.4
    
    
    
    0.30
    
    
    
    2.6
    
    
    
    0.33
    
    
    
    2.6
    
    
    
    0.31
    
    
    
    1.4
    
    
    
    0.17Total nonaccruing consumer loans
    
    
    51.2
    
    
    
    1.82
    
    
    
    36.5
    
    
    
    1.28
    
    
    
    149.0
    
    
    
    4.88
    
    
    
    130.0
    
    
    
    4.10
    
    
    
    124.3
    
    
    
    3.82Total nonaccruing loans
    
    
    378.6
    
    
    
    5.30
    
    
    
    406.4
    
    
    
    5.46
    
    
    
    468.9
    
    
    
    6.02
    
    
    
    499.0
    
    
    
    6.16
    
    
    
    491.0
    
    
    
    5.91Loans 90+ days still accruing
    
    
    1.5
    
    
    
    0.02
    
    
    
    2.4
    
    
    
    0.03
    
    
    
    3.0
    
    
    
    0.04
    
    
    
    0.6
    
    
    
    0.01
    
    
    
    0.8
    
    
    
    0.01Restructured loans and still accruing
    
    
    4.6
    
    
    
    0.06
    
    
    
    4.8
    
    
    
    0.06
    
    
    
    2.6
    
    
    
    0.03
    
    
    
    1.1
    
    
    
    0.01
    
    
    
    2.5
    
    
    
    0.03Total nonperforming portfolio loans
    
    
    384.7
    
    
    
    5.39
    
    
    
    413.6
    
    
    
    5.56
    
    
    
    474.5
    
    
    
    6.09
    
    
    
    500.7
    
    
    
    6.18
    
    
    
    494.3
    
    
    
    5.95Nonperforming held for sale
    
    
    44.0
    
    
    
    
    
    
    
    95.3
    
    
    
    
    
    
    
    65.2
    
    
    
    
    
    
    
    44.4
    
    
    
    
    
    
    
    54.2Other repossessed assets acquired
    
    
    43.9
    
    
    
    
    
    
    
    47.3
    
    
    
    
    
    
    
    54.4
    
    
    
    
    
    
    
    61.9
    
    
    
    
    
    
    
    54.6Total nonperforming assets
    
    $
    472.6
    
    
    
    
    
    
    $
    556.2
    
    
    
    
    
    
    $
    594.1
    
    
    
    
    
    
    $
    607.0
    
    
    
    
    
    
    $
    603.1Commercial inflows
    
    $
    75.9
    
    
    
    
    
    
    $
    124.8
    
    
    
    
    
    
    $
    101.0
    
    
    
    
    
    
    $
    94.1
    
    
    
    
    
    
    $
    133.4Commercial outflows
    
    
    (118.6
    )
    
    
    
    
    
    
    (74.8
    )
    
    
    
    
    
    
    (150.1
    )
    
    
    
    
    
    
    (92.3
    )
    
    
    
    
    
    
    (85.9
    )Net change
    
    $
    (42.7
    )
    
    
    
    
    
    $
    50.0
    
    
    
    
    
    
    $
    (49.1
    )
    
    
    
    
    
    $
    1.8
    
    
    
    
    
    
    $
    47.5
  45




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##### Table of Contents



Three Months EndedNet Charge-Offs
    
    June 30, 2010
    
    
    March 31, 2010
    
    
    December 31, 2009
    
    
    September 30, 2009
    
    
    June 30, 2009(in millions)
    
    $
    
    
    % of Portfolio*
    
    
    $
    
    
    % of Portfolio*
    
    
    $
    
    
    % of Portfolio*
    
    
    $
    
    
    % of Portfolio*
    
    
    $
    
    
    % of Portfolio*Land hold
    
    $
    0.4
    
    
    
    3.72
    %
    
    $
    
    
    
    
    
    %
    
    $
    5.6
    
    
    
    62.32
    %
    
    $
    0.5
    
    
    
    3.98
    %
    
    $
    0.6
    
    
    
    4.38
    %Land development
    
    
    9.8
    
    
    
    46.68
    
    
    
    0.1
    
    
    
    0.49
    
    
    
    9.7
    
    
    
    36.97
    
    
    
    1.4
    
    
    
    4.33
    
    
    
    2.4
    
    
    
    8.17Construction
    
    
    8.7
    
    
    
    22.23
    
    
    
    
    
    
    
    
    
    
    
    9.5
    
    
    
    21.21
    
    
    
    0.9
    
    
    
    1.62
    
    
    
    5.8
    
    
    
    10.14Income producing
    
    
    12.6
    
    
    
    3.41
    
    
    
    7.6
    
    
    
    2.01
    
    
    
    13.2
    
    
    
    3.45
    
    
    
    24.5
    
    
    
    6.47
    
    
    
    12.6
    
    
    
    3.30Owner-occupied
    
    
    18.9
    
    
    
    8.57
    
    
    
    6.9
    
    
    
    3.01
    
    
    
    2.5
    
    
    
    1.01
    
    
    
    4.6
    
    
    
    1.85
    
    
    
    7.4
    
    
    
    3.03Total commercial real estate
    
    
    50.4
    
    
    
    7.63
    
    
    
    14.6
    
    
    
    2.13
    
    
    
    40.5
    
    
    
    5.71
    
    
    
    31.9
    
    
    
    4.39
    
    
    
    28.8
    
    
    
    3.97Commercial and industrial
    
    
    11.4
    
    
    
    2.71
    
    
    
    12.9
    
    
    
    2.86
    
    
    
    22.4
    
    
    
    4.63
    
    
    
    20.1
    
    
    
    3.90
    
    
    
    6.8
    
    
    
    1.27Total commercial loans
    
    
    61.8
    
    
    
    5.72
    
    
    
    27.5
    
    
    
    2.43
    
    
    
    62.9
    
    
    
    5.27
    
    
    
    52.0
    
    
    
    4.19
    
    
    
    35.6
    
    
    
    2.82Residential mortgage
    
    
    0.6
    
    
    
    0.29
    
    
    
    80.1
    
    
    
    37.05
    
    
    
    6.0
    
    
    
    2.33
    
    
    
    10.0
    
    
    
    3.68
    
    
    
    2.2
    
    
    
    0.78Direct consumer
    
    
    5.5
    
    
    
    1.96
    
    
    
    7.1
    
    
    
    2.44
    
    
    
    6.1
    
    
    
    1.97
    
    
    
    6.1
    
    
    
    1.92
    
    
    
    6.4
    
    
    
    1.95Indirect consumer
    
    
    3.3
    
    
    
    1.61
    
    
    
    3.2
    
    
    
    1.63
    
    
    
    6.3
    
    
    
    3.10
    
    
    
    3.2
    
    
    
    1.55
    
    
    
    4.4
    
    
    
    2.18Total consumer loans
    
    
    9.4
    
    
    
    1.35
    
    
    
    90.4
    
    
    
    12.88
    
    
    
    18.4
    
    
    
    2.39
    
    
    
    19.3
    
    
    
    2.42
    
    
    
    13.0
    
    
    
    1.60Total net charge-offs
    
    $
    71.2
    
    
    
    3.90
    
    
    $
    117.9
    
    
    
    6.25
    
    
    $
    81.3
    
    
    
    4.05
    
    
    $
    71.3
    
    
    
    3.46
    
    
    $
    48.6
    
    
    
    2.30
 
 *
    
    Represents an annualized rate.   46




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##### Table of Contents



Analysis of Allowance for Loan Losses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Allowance for loan losses  beginning of period
    
    $
    322,377
    
    
    $
    279,838
    
    
    $
    338,940
    
    
    $
    252,938Provision for loan losses
    
    
    70,614
    
    
    
    98,935
    
    
    
    171,969
    
    
    
    162,420Charge-offs
    
    
    74,164
    
    
    
    54,821
    
    
    
    195,735
    
    
    
    92,808Recoveries
    
    
    3,014
    
    
    
    6,265
    
    
    
    6,667
    
    
    
    7,667Net charge-offs
    
    
    71,150
    
    
    
    48,556
    
    
    
    189,068
    
    
    
    85,141Allowance for loan losses  end of period
    
    $
    321,841
    
    
    $
    330,217
    
    
    $
    321,841
    
    
    $
    330,217Portfolio loans outstanding at period end (1)
    
    $
    7,138,115
    
    
    $
    8,302,071
    
    
    $
    7,138,115
    
    
    $
    8,302,071Average portfolio loans outstanding during period (1)
    
    
    7,318,463
    
    
    
    8,478,353
    
    
    
    7,485,542
    
    
    
    8,625,628Allowance for loan losses as a percentage of portfolio loans
    
    
    4.51
    %
    
    
    3.98
    %
    
    
    4.51
    %
    
    
    3.98
    %Ratio of net charge-offs during period to average portfolio
loans (annualized)
    
    
    3.90
    
    
    
    2.30
    
    
    
    5.09
    
    
    
    1.99
 
 (1)
    
    Balances exclude mortgage loans held for sale.Total Allowance for Loan Losses.The decrease was primarily the result of stabilizing credit
metrics associated with continued declines in delinquent loans and commercial watchlist loans, as
well as the reduction in nonperforming residential mortgage loans due to the aforementioned
transfer to loans held for sale during the first quarter of 2010. Partially offsetting these items
was an increase in the loss migration rates as a result of increased charge-off experience since
June 30, 2009 and an increase in the allowance allocated to specific loans due to continued
declines in the fair value of the underlying collateral.   47




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Allocation of the Allowance for Loan Losses (1)
 June 30, 2010
    
    
    December 31, 2009
    
    
    June 30, 2009Allowance
    
    
    Related
    
    
    % of
    
    
    Allowance
    
    
    Related
    
    
    % of
    
    
    Allowance
    
    
    Related
    
    
    % of(in millions)
    
    Amount
    
    
    NPL(2)
    
    
    NPL
    
    
    Amount
    
    
    NPL(2)
    
    
    NPL
    
    
    Amount
    
    
    NPL(2)
    
    
    NPLSpecific allocated allowance:Commercial and industrial
    
    $
    11.0
    
    
    $
    47.6
    
    
    
    23.1
    %
    
    $
    16.3
    
    
    
    65.2
    
    
    
    25.0
    %
    
    $
    25.4
    
    
    $
    78.3
    
    
    
    32.4
    %Commercial real estate
    
    
    60.8
    
    
    
    230.5
    
    
    
    26.4
    
    
    
    29.6
    
    
    
    208.3
    
    
    
    14.2
    
    
    
    43.6
    
    
    
    254.5
    
    
    
    17.1Residential mortgage
    
    
    1.5
    
    
    
    7.4
    
    
    
    20.3
    
    
    
    6.9
    
    
    
    30.9
    
    
    
    22.4
    
    
    
    1.3
    
    
    
    14.9
    
    
    
    9.0Total specific allocated
allowance
    
    
    73.3
    
    
    
    285.5
    
    
    
    25.7
    
    
    
    52.8
    
    
    
    304.4
    
    
    
    17.3
    
    
    
    70.3
    
    
    
    347.7
    
    
    
    20.2Risk allocated allowances:Commercial and industrial
    
    
    33.9
    
    
    
    20.9
    
    
    
    162.5
    
    
    
    40.2
    
    
    
    21.8
    
    
    
    184.4
    
    
    
    33.5
    
    
    
    14.3
    
    
    
    234.9Commercial real estate
    
    
    111.7
    
    
    
    29.9
    
    
    
    373.2
    
    
    
    116.4
    
    
    
    27.6
    
    
    
    421.9
    
    
    
    104.4
    
    
    
    20.4
    
    
    
    510.9Residential mortgage
    
    
    23.4
    
    
    
    26.4
    
    
    
    88.6
    
    
    
    50.6
    
    
    
    95.6
    
    
    
    53.0
    
    
    
    44.8
    
    
    
    90.3
    
    
    
    49.6Direct Consumer
    
    
    36.2
    
    
    
    20.0
    
    
    
    181.1
    
    
    
    33.0
    
    
    
    22.0
    
    
    
    149.7
    
    
    
    33.2
    
    
    
    20.2
    
    
    
    164.4Indirect Consumer
    
    
    37.3
    
    
    
    2.0
    
    
    
    N/M
    
    
    
    39.5
    
    
    
    3.1
    
    
    
    N/M
    
    
    
    39.0
    
    
    
    1.4
    
    
    
    N/MTotal risk allocated
allowance
    
    
    242.5
    
    
    
    99.2
    
    
    
    244.5
    
    
    
    279.7
    
    
    
    170.1
    
    
    
    164.4
    
    
    
    254.9
    
    
    
    146.6
    
    
    
    173.9Total allocated
    
    
    315.8
    
    
    
    
    
    
    
    
    
    
    
    332.5
    
    
    
    
    
    
    
    
    
    
    
    325.2General valuation allowances
    
    
    6.0
    
    
    
    
    
    
    
    
    
    
    
    6.4
    
    
    
    
    
    
    
    
    
    
    
    5.0Total
    
    $
    321.8
    
    
    $
    384.7
    
    
    
    83.7
    
    
    $
    338.9
    
    
    $
    474.5
    
    
    
    71.4
    
    
    $
    330.2
    
    
    $
    494.3
    
    
    
    66.8
 
 N/M
    
     Not Meaningful(1)
    
    The allocation of the allowance for loan losses in the above table is based upon
ranges of estimates and is not intended to imply either limitations on the usage of the allowance
or precision of the specific amounts. Citizens and its subsidiaries do not view the allowance for
loan losses as being divisible among the various categories of loans. The entire allowance is
available to absorb any future losses without regard to the category or categories in which the
charged-off loans are classified.(2)
    
    Related NPL amounts in risk allocated allowances include restructured loans and
still accruing and loans 90+ days still accruing but classified as nonperforming. Specific Allocated Allowance.
 Risk Allocated Allowance.
 General Valuation Allowances.
 48




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Loans Held for Sale
  Deposits
   Borrowed Funds
   Capital Resources
  49




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Regulatory Minimum
    
    
    
    
    
    
    
    
    
    
    
    
    
    Excess Capital overfor
    
    June 30,
    
    December 31,
    
    June 30,
    
    MinimumCapital Ratios
    
    Well-Capitalized
    
    2010
    
    2009
    
    2009
    
    (in millions)Leverage ratio
    
    
    5.00
    %
    
    
    8.72
    %
    
    
    9.21
    %
    
    
    8.68
    %
    
    $
    405.8Tier 1 capital ratio
    
    
    6.00
    
    
    
    12.79
    
    
    
    12.52
    
    
    
    11.81
    
    
    
    504.6Total capital ratio
    
    
    10.00
    
    
    
    14.17
    
    
    
    13.93
    
    
    
    13.91
    
    
    
    310.0Tier 1 common equity ratio (non-GAAP)
    
    
    
    
    
    
    8.10
    
    
    
    8.47
    
    
    
    6.95Tangible equity to tangible assets (non-GAAP)
    
    
    
    
    
    
    8.45
    
    
    
    8.51
    
    
    
    7.34Tangible common equity to tangible assets (non-GAAP)
    
    
    
    
    
    
    5.83
    
    
    
    6.16
    
    
    
    5.09
 Contractual Obligations and Off-Balance Sheet Arrangements
  Liquidity and Liquidity Risk Management
    50




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##### Table of Contents



Credit Ratings
 Moodys
    
    
    Fitch Ratings
    
    
    DBRS LtdCitizens Republic Bancorp
(Holding Company)Long-term Issuer
    
    B2 (ON)
    
    B- (ON)
    
    B (low) (WN)10/1/2009
    
    
    
    1/29/2010
    
    
    
    5/25/2010Short-term/Commercial Paper
    
    NP (ON)
    
    
    B
    
    
    R-5 (WN)10/1/2009
    
    
    
    1/29/2010
    
    
    
    5/25/2010Trust Preferred
    
    Caa2 (ON)
    
    
    C
    
    
    CCC (WN)1/28/2010
    
    
    
    1/29/2010
    
    
    
    5/25/2010Citizens BankCertificate of Deposit
    
    Ba3 (ON)
    
    
    B
    
    
    BB (low) (WN)10/1/2009
    
    
    
    1/29/2010
    
    
    
    5/25/2010
      51




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Interest Rate Risk
     52




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##### Table of Contents



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




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
   Our core lending and other businesses continue to be adversely affected by the historic weakness in
the national and regional economies in which we operate, particularly Michigan. Our ability to
generate earnings and maintain regulatory capital ratios at acceptable levels at our Holding
Company and the bank subsidiaries depends substantially on developments in those economies. Also,
our potential inability to comply with applicable laws, regulations and regulatory policies or
standards due to the effects of these conditions on our results of operations and financial
condition may result in heightened regulatory scrutiny and require us to take actions to protect
depositors that are not in the best interests of our shareholders.
  
    
    A substantial amount of our lending business originates in Michigan. Of our total
portfolio loans, approximately 70% are to borrowers located, or secured by properties, in
Michigan and approximately 10% are to borrowers located, or secured by properties, in Ohio.
These states have been severely and disproportionately affected by the economic downturn in
general, and by the bankruptcy filings of General Motors Corporation, Chrysler LLC and a
number of automobile parts suppliers in particular. Unemployment rates in these states have
been substantially higher than the national average and real estate collateral values have
fallen significantly.
    
    Our ability to return to a positive net income is largely dependent upon our future credit
costs. Our loan portfolios-particularly our commercial real estate and residential mortgage
loan portfolios, which have accounted for a disproportionate amount of our loan loss
provisions since the fourth quarter of 2008-continue to be adversely affected by economic
conditions and the ongoing correction in real estate prices in our markets. A significant
portion of our commercial loan portfolio is classified as nonperforming loans or watchlist
loans. The latter are loans that have migrated within our loan rating system to a level that
requires increased oversight. We attempt to maintain an appropriate allowance for loan losses
to provide for potential losses in our loan portfolios. In view of the weakness and
uncertainties in the national and regional economies in which we operate and the inherent
difficulty in predicting future events, we may find it necessary to continue to take loan loss
provisions in future
 54




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##### Table of Contents



periods in amounts that substantially exceed loan loss provisions in prior periods in order to
maintain our allowance for loan losses at a level we deem appropriate.
    As a bank holding company that conducts substantially all of our operations through our
subsidiaries, the ability of our Holding Company to pay dividends, repurchase our shares or to
repay our indebtedness depends upon the results of operations of our subsidiaries and their ability
to pay dividends to our Holding Company. Dividends paid by these subsidiaries are subject to
limits imposed by federal and state law and will be restricted by a supervisory agreement with our
regulators.
  55




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##### Table of Contents



If our common stock fails to meet the listing requirements of Nasdaq and is delisted from trading
on the Nasdaq, the market price of our common stock could be adversely affected.
  56




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Total Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares That May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    The Plans or ProgramsPeriod
    
    Shares Purchased
    
    
    Per Share
    
    
    Programs
    
    
    (2)April 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,241,154May 2010
    
    
    23,235
    (1)
    
    
    1.06
    
    
    
    
    
    
    
    1,241,154June 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,241,154Total
    
    
    23,235
    
    
    $
    1.06
    
    
    
    
    
    
    
    1,241,154
 
 (1)
    
    Shares repurchased in connection with taxes due from employees as a result of the
vesting of certain restricted share awards in accordance with the related grant agreements. These
repurchases were not part of the repurchase program approved in October 2003.(2)
    
    In October 2003, the Board of Directors approved the repurchase of 3,000,000 shares
of common stock from time to time in the market. There is no expiration date for the repurchase
program. The repurchase of shares is generally prohibited, with certain exceptions, by the CPP
Letter Agreement while Treasury continues to hold the related TARP Preferred Stock and by the terms
of Citizens outstanding trust preferred securities, and is also subject to limitations that may be
imposed by applicable securities laws and regulations and the rules of NASDAQ. The timing of the
purchases and the number of shares to be bought at any one time also depend on market conditions
and Citizens capital requirements. There can be no assurance that Citizens will repurchase the
remaining shares authorized to be repurchased.  
 Item 3. Defaults Upon Senior Securities
  
 Item 5. Other Information
 Citizens Receives Written Supervisory Agreement from Banking Regulators
   
    
    management staffing needs,
    
    credit risk management practices,
    
    credit administration,
    
    the Banks position on ORE and certain significant loans that are more than 90 days
past due,
    
    allowance for loan losses,
 57




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##### Table of Contents




    
    capital under current conditions and contingency funding under adverse scenarios,
    
    operating results,
    
    liquidity position management, and
    
    interest rate management practices.
  
    
    paying dividends,
    
    paying interest or principal on subordinated debentures or trust preferred
securities,
    
    transferring funds from the Bank to Citizens,
    
    incurring, increasing or guaranteeing debt, and
    
    purchasing or redeeming any shares of its stock.
     Appointment of Chief Financial Officer
  58




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##### Table of Contents



Item 6. Exhibits
 10.45
    
    2008 Management Incentive Plan10.58
    
    Written Agreement by and among Citizens Republic Bancorp, Inc., Citizens Bank, the
Federal Reserve Bank of Chicago, and the Michigan Office of Financial and Insurance
Regulation, dated July 28, 201031.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193432.1
    
    Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities
Exchange Act of 1934
 59




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##### Table of Contents



SIGNATURES
   Date: August 5, 2010
    By
    /s/ Lisa T. McNeelyLisa T. McNeelyChief Financial Officer 
(principal financial officer and duly authorized officer) 60




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10-Q EXHIBIT INDEX Exhibit No.
    
    Description10.45
    
    2008 Management Incentive Plan10.58
    
    Written Agreement by and among Citizens Republic Bancorp, Inc., Citizens Bank, the
Federal Reserve Bank of Chicago, and the Michigan Office of Financial and Insurance
Regulation, dated July 28, 201031.1
    
    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
 61