##### 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, 2008
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file Number 001-33063
 CITIZENS REPUBLIC BANCORP, INC.
  MICHIGAN
    
    38-2378932(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)328 S. Saginaw St., Flint, Michigan
    
    48502(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year,
   þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ
   Class
    
    Outstanding at July 31, 2008Common Stock, No Par Value
    
    95,899,171 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
    
    
    21Item 3 - Quantitative and Qualitative Disclosures about Market Risk
    
    
    43Item 4 - Controls and Procedures
    
    
    43Part II  Other InformationItem 1A - Risk Factors
    
    
    44Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 4 - Submission of Matters to a Vote of Security Holders
    
    
    45Item 5 - Other Matters
    
    
    45Item 6 - Exhibits
    
    
    46Signatures
    
    
    47Exhibit Index
    
    
    48Amended and Restated Articles of Incorporation2008 Management Incentive PlanCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification Pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b)
  2




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##### Table of Contents



Consolidated Balance Sheets
 Citizens Republic Bancorp and Subsidiaries
 June 30,
    
    
    December 31,
    
    
    June 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2007(unaudited)
    
    
    (Note 1)
    
    
    (unaudited)AssetsCash and due from banks
    
    $
    252,242
    
    
    $
    241,104
    
    
    $
    213,469Interest-bearing deposits with banks
    
    
    183
    
    
    
    172
    
    
    
    144Investment Securities:Securities available for sale, at fair value
    
    
    1,986,166
    
    
    
    2,132,164
    
    
    
    2,217,549Securities held to maturity, at amortized cost
(fair value of $136,423, $129,366 and $116,838, respectively)
    
    
    138,435
    
    
    
    129,126
    
    
    
    117,939Total investment securities
    
    
    2,124,601
    
    
    
    2,261,290
    
    
    
    2,335,488FHLB and Federal Reserve stock
    
    
    148,838
    
    
    
    148,838
    
    
    
    132,895Portfolio loans:Commercial and industrial
    
    
    2,703,812
    
    
    
    2,557,152
    
    
    
    2,153,269Commercial real estate
    
    
    3,101,337
    
    
    
    3,097,196
    
    
    
    3,085,967Total commercial
    
    
    5,805,149
    
    
    
    5,654,348
    
    
    
    5,239,236Residential mortgage
    
    
    1,308,729
    
    
    
    1,445,214
    
    
    
    1,494,450Direct consumer
    
    
    1,502,302
    
    
    
    1,572,329
    
    
    
    1,636,026Indirect consumer
    
    
    832,836
    
    
    
    829,353
    
    
    
    846,252Total portfolio loans
    
    
    9,449,016
    
    
    
    9,501,244
    
    
    
    9,215,964Less: Allowance for loan losses
    
    
    (181,718
    )
    
    
    (163,353
    )
    
    
    (181,118
    )Net portfolio loans
    
    
    9,267,298
    
    
    
    9,337,891
    
    
    
    9,034,846Loans held for sale
    
    
    111,542
    
    
    
    75,832
    
    
    
    85,930Premises and equipment
    
    
    125,073
    
    
    
    132,500
    
    
    
    133,021Goodwill
    
    
    597,218
    
    
    
    775,308
    
    
    
    780,914Other intangible assets
    
    
    25,766
    
    
    
    30,546
    
    
    
    36,008Bank owned life insurance
    
    
    218,084
    
    
    
    214,321
    
    
    
    210,265Other assets
    
    
    299,173
    
    
    
    288,181
    
    
    
    283,839Total assets
    
    $
    13,170,018
    
    
    $
    13,505,983
    
    
    $
    13,246,819LiabilitiesNoninterest-bearing deposits
    
    $
    1,144,544
    
    
    $
    1,125,966
    
    
    $
    1,169,095Interest-bearing demand deposits
    
    
    763,983
    
    
    
    782,889
    
    
    
    807,605Savings deposits
    
    
    2,616,316
    
    
    
    2,221,813
    
    
    
    2,139,929Time deposits
    
    
    4,136,295
    
    
    
    4,171,257
    
    
    
    3,964,988Total deposits
    
    
    8,661,138
    
    
    
    8,301,925
    
    
    
    8,081,617Federal funds purchased and securities sold
under agreements to repurchase
    
    
    299,646
    
    
    
    488,039
    
    
    
    675,440Other short-term borrowings
    
    
    45,398
    
    
    
    54,128
    
    
    
    11,749Other liabilities
    
    
    119,860
    
    
    
    144,501
    
    
    
    135,262Long-term debt
    
    
    2,498,290
    
    
    
    2,939,510
    
    
    
    2,808,610Total liabilities
    
    
    11,624,332
    
    
    
    11,928,103
    
    
    
    11,712,678Shareholders EquityPreferred stock  $50 par valueAuthorized - 5,000,000 shares; Issued and outstanding - 2,407,644 at 6/30/08
    
    
    114,161
    
    
    
    
    
    
    
    Common stock  no par valueAuthorized - 100,000,000 shares; Issued and outstanding - 95,898,894 at 6/30/08,
75,722,115 at 12/31/07, and 75,642,232 at 6/30/07
    
    
    1,052,738
    
    
    
    975,446
    
    
    
    973,339Retained earnings
    
    
    384,867
    
    
    
    597,333
    
    
    
    581,476Accumulated other comprehensive income
    
    
    (6,080
    )
    
    
    5,101
    
    
    
    (20,674
    )Total shareholders equity
    
    
    1,545,686
    
    
    
    1,577,880
    
    
    
    1,534,141Total liabilities and shareholders equity
    
    $
    13,170,018
    
    
    $
    13,505,983
    
    
    $
    13,246,819
  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)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Interest IncomeInterest and fees on loans
    
    $
    146,179
    
    
    $
    171,320
    
    
    $
    303,180
    
    
    $
    343,164Interest and dividends on investment securities:Taxable
    
    
    19,021
    
    
    
    22,308
    
    
    
    40,044
    
    
    
    46,099Tax-exempt
    
    
    7,280
    
    
    
    7,309
    
    
    
    14,650
    
    
    
    14,637Dividends on FHLB and Federal Reserve stock
    
    
    1,898
    
    
    
    1,397
    
    
    
    3,591
    
    
    
    3,133Money market investments
    
    
    16
    
    
    
    19
    
    
    
    46
    
    
    
    36Total interest income
    
    
    174,394
    
    
    
    202,353
    
    
    
    361,511
    
    
    
    407,069Interest ExpenseDeposits
    
    
    53,134
    
    
    
    64,201
    
    
    
    114,712
    
    
    
    130,635Short-term borrowings
    
    
    1,836
    
    
    
    9,064
    
    
    
    6,807
    
    
    
    20,065Long-term debt
    
    
    31,809
    
    
    
    32,311
    
    
    
    64,065
    
    
    
    61,251Total interest expense
    
    
    86,779
    
    
    
    105,576
    
    
    
    185,584
    
    
    
    211,951Net Interest Income
    
    
    87,615
    
    
    
    96,777
    
    
    
    175,927
    
    
    
    195,118Provision for loan losses
    
    
    74,480
    
    
    
    31,857
    
    
    
    105,099
    
    
    
    35,357Net interest income after provision for loan losses
    
    
    13,135
    
    
    
    64,920
    
    
    
    70,828
    
    
    
    159,761Noninterest IncomeService charges on deposit accounts
    
    
    12,036
    
    
    
    12,080
    
    
    
    23,502
    
    
    
    23,186Trust fees
    
    
    4,608
    
    
    
    5,003
    
    
    
    9,392
    
    
    
    9,958Mortgage and other loan income
    
    
    3,023
    
    
    
    4,258
    
    
    
    6,367
    
    
    
    10,395Brokerage and investment fees
    
    
    2,211
    
    
    
    2,182
    
    
    
    4,127
    
    
    
    3,731ATM network user fees
    
    
    1,677
    
    
    
    1,640
    
    
    
    3,090
    
    
    
    3,219Bankcard fees
    
    
    1,924
    
    
    
    1,443
    
    
    
    3,668
    
    
    
    2,623Gains (losses) on held for sale loans
    
    
    (2,248
    )
    
    
    
    
    
    
    (2,247
    )
    
    
    Other income
    
    
    3,827
    
    
    
    4,672
    
    
    
    10,084
    
    
    
    9,589Total fees and other income
    
    
    27,058
    
    
    
    31,278
    
    
    
    57,983
    
    
    
    62,701Investment securities losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33
    )Total noninterest income
    
    
    27,058
    
    
    
    31,278
    
    
    
    57,983
    
    
    
    62,668Noninterest ExpenseSalaries and employee benefits
    
    
    39,046
    
    
    
    45,971
    
    
    
    81,271
    
    
    
    90,136Occupancy
    
    
    6,954
    
    
    
    8,076
    
    
    
    14,629
    
    
    
    15,986Professional services
    
    
    4,531
    
    
    
    4,351
    
    
    
    8,294
    
    
    
    8,503Equipment
    
    
    3,420
    
    
    
    3,655
    
    
    
    6,650
    
    
    
    7,566Data processing services
    
    
    4,233
    
    
    
    4,506
    
    
    
    8,537
    
    
    
    8,636Advertising and public relations
    
    
    1,458
    
    
    
    3,292
    
    
    
    3,296
    
    
    
    5,067Postage and delivery
    
    
    2,058
    
    
    
    2,196
    
    
    
    3,785
    
    
    
    4,160Other loan expenses
    
    
    3,448
    
    
    
    1,080
    
    
    
    5,259
    
    
    
    1,992ORE expenses, profits, and losses, net
    
    
    6,394
    
    
    
    135
    
    
    
    7,636
    
    
    
    34Intangible asset amortization
    
    
    2,333
    
    
    
    2,954
    
    
    
    4,780
    
    
    
    6,072Goodwill impairment
    
    
    178,089
    
    
    
    
    
    
    
    178,089
    
    
    
    Restructuring and merger-related expenses
    
    
    
    
    
    
    3,408
    
    
    
    
    
    
    
    7,594Other expense
    
    
    9,264
    
    
    
    7,866
    
    
    
    15,564
    
    
    
    15,454Total noninterest expense
    
    
    261,228
    
    
    
    87,490
    
    
    
    337,790
    
    
    
    171,200Income (Loss) Before Income Taxes
    
    
    (221,035
    )
    
    
    8,708
    
    
    
    (208,979
    )
    
    
    51,229Income tax provision (benefit)
    
    
    (19,401
    )
    
    
    (911
    )
    
    
    (18,472
    )
    
    
    10,118Net Income (Loss)
    
    $
    (201,634
    )
    
    $
    9,619
    
    
    $
    (190,507
    )
    
    $
    41,111Net Income (Loss) Per Common Share:Basic
    
    $
    (2.53
    )
    
    $
    0.13
    
    
    $
    (2.46
    )
    
    $
    0.55Diluted
    
    
    (2.53
    )
    
    
    0.13
    
    
    
    (2.46
    )
    
    
    0.54Cash Dividends Declared Per Common Share
    
    
    
    
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.580Average Common Shares Outstanding:Basic
    
    
    79,689
    
    
    
    75,374
    
    
    
    77,469
    
    
    
    75,411Diluted
    
    
    79,689
    
    
    
    75,649
    
    
    
    77,469
    
    
    
    75,782
  4




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##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity
 Citizens Republic Bancorp and Subsidiaries
 AccumulatedOtherPreferred
    
    
    Common Stock
    
    
    Retained
    
    
    Comprehensive(in thousands, except per share amounts)
    
    Stock
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance at December 31, 2007
    
    $
    
    
    
    
    75,722
    
    
    $
    975,446
    
    
    $
    597,333
    
    
    $
    5,101
    
    
    $
    1,577,880Comprehensive income, net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (190,507
    )
    
    
    
    
    
    
    (190,507
    )Other comprehensive income:Net unrealized loss on securities available-for-sale, net of
reclassification adjustment for net gains included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,448
    )Net change in unrealized loss on qualifying
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (733
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,181
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201,688
    )Proceeds from issuance of preferred stock (2,408 shares),
net of costs of $6,221
    
    
    114,161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,161Proceeds from issuance of common stock, net of costs of $4,094
    
    
    
    
    
    
    19,904
    
    
    
    75,524
    
    
    
    
    
    
    
    
    
    
    
    75,524Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    303
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    66Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,142
    
    
    
    
    
    
    
    
    
    
    
    2,142Cash dividends declared on common shares  $0.290 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,959
    )
    
    
    
    
    
    
    (21,959
    )Shares acquired for retirement and purchased for taxes
    
    
    
    
    
    
    (30
    )
    
    
    (440
    )
    
    
    
    
    
    
    
    
    
    
    (440
    )Balance  June 30, 2008
    
    $
    114,161
    
    
    
    95,899
    
    
    $
    1,052,738
    
    
    $
    384,867
    
    
    $
    (6,080
    )
    
    $
    1,545,686Balance at December 31, 2006
    
    $
    
    
    
    
    75,676
    
    
    $
    980,772
    
    
    $
    584,289
    
    
    $
    (7,375
    )
    
    $
    1,557,686Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,111
    
    
    
    
    
    
    
    41,111Other comprehensive income:Net unrealized loss on securities available-for-sale, net of
reclassification adjustment for net gains included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,717
    )Net change in unrealized loss on qualifying
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (582
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,299
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,812Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    545
    
    
    
    3,893
    
    
    
    
    
    
    
    
    
    
    
    3,893Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,451
    
    
    
    
    
    
    
    
    
    
    
    1,451Cash dividends declared on common shares  $0.580 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,924
    )
    
    
    
    
    
    
    (43,924
    )Shares acquired for retirement and purchased for taxes
    
    
    
    
    
    
    (579
    )
    
    
    (12,777
    )
    
    
    
    
    
    
    
    
    
    
    (12,777
    )Balance  June 30, 2007
    
    $
    
    
    
    
    75,642
    
    
    $
    973,339
    
    
    $
    581,476
    
    
    $
    (20,674
    )
    
    $
    1,534,141
  5




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##### Table of Contents



Consolidated Statements of Cash Flows
 Citizens Republic Bancorp and Subsidiaries
 Six Months EndedJune 30,(in thousands)
    
    2008
    
    
    2007Operating Activities:Net income
    
    $
    (190,507
    )
    
    $
    41,111Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    105,099
    
    
    
    35,357Goodwill impairment
    
    
    178,089
    
    
    
    Depreciation and software amortization
    
    
    5,921
    
    
    
    7,120Amortization of intangibles
    
    
    4,780
    
    
    
    6,072Amortization and fair value adjustments of purchase accounting mark-to-market, net
    
    
    (9,157
    )
    
    
    (11,007
    )Fair value
adjustment on loans held for sale and other real estate
    
    
    7,315
    
    
    
    Discount accretion and amortization of issuance costs on long term debt
    
    
    599
    
    
    
    404Net accretion on investment securities
    
    
    (3,291
    )
    
    
    (1,917
    )Investment securities losses
    
    
    
    
    
    
    33Loans originated for sale
    
    
    (182,062
    )
    
    
    (277,346
    )Proceeds from sales of loans held for sale
    
    
    223,359
    
    
    
    346,962Net gains from loan sales
    
    
    (4,098
    )
    
    
    (6,028
    )Net (gain) loss on other real estate
    
    
    1,821
    
    
    
    (555
    )Recognition of stock-based compensation
    
    
    2,142
    
    
    
    1,451Restructure and merger related reserve
    
    
    (2,715
    )
    
    
    (4,411
    )Other
    
    
    (6,958
    )
    
    
    (31,525
    )Net cash provided by operating activities
    
    
    130,337
    
    
    
    105,721Investing Activities:Net (increase) decrease in money market investments
    
    
    (11
    )
    
    
    59Securities available-for-sale:Proceeds from sales
    
    
    
    
    
    
    364,414Proceeds from maturities and payments
    
    
    251,297
    
    
    
    363,104Purchases
    
    
    (117,258
    )
    
    
    (122,615
    )Securities held-to-maturity:Proceeds from maturities and payments
    
    
    1,505
    
    
    
    Purchases
    
    
    (11,637
    )
    
    
    (8,870
    )Sale of branches, net of cash received
    
    
    
    
    
    
    (163,592
    )Net increase in loans and leases
    
    
    (147,097
    )
    
    
    (13,363
    )Proceeds from sales of other real estate
    
    
    16,317
    
    
    
    7,612Net increase in properties and equipment
    
    
    (1,246
    )
    
    
    (1,577
    )Net cash (used) provided by investing activities
    
    
    (8,130
    )
    
    
    425,172Financing Activities:Net increase (decrease) in demand and savings deposits
    
    
    394,175
    
    
    
    (109,924
    )Net decrease in time deposits
    
    
    (34,674
    )
    
    
    (306,754
    )Net decrease in short-term borrowings
    
    
    (197,014
    )
    
    
    (251,472
    )Proceeds from issuance of long-term debt
    
    
    525,000
    
    
    
    1,050,000Principal reductions in long-term debt
    
    
    (965,908
    )
    
    
    (870,213
    )Net proceeds from issuance of common stock
    
    
    75,524
    
    
    
    Net proceeds from issuance of preferred stock
    
    
    114,161
    
    
    
    Cash dividends paid on common stock
    
    
    (21,959
    )
    
    
    (43,924
    )Proceeds from stock options exercised and restricted stock activity
    
    
    66
    
    
    
    3,893Shares acquired for retirement and purchased for taxes
    
    
    (440
    )
    
    
    (12,777
    )Net cash used by financing activities
    
    
    (111,069
    )
    
    
    (541,171
    )Net increase (decrease) in cash and due from banks
    
    
    11,138
    
    
    
    (10,278
    )Cash and due from banks at beginning of period
    
    
    241,104
    
    
    
    223,747Cash and due from banks at end of period
    
    $
    252,242
    
    
    $
    213,469Supplemental Cash Flow Information:Loans transferred to other real estate owned
    
    $
    39,323
    
    
    $
    12,807Loans transferred to held for sale
    
    
    82,943
    
    
    
    Held for
sale loans transferred to other real estate
    
    
    5,639
    
    
    
    
  6




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##### Table of Contents



Part I  Financial Information
 
 Item 1  Consolidated Financial Statements
 Notes to Consolidated Financial Statements (Unaudited)
Citizens Republic Bancorp, Inc. and Subsidiaries
 Note 1. Basis of Presentation and Accounting Policies
 www.citizensbanking.com
 Statements of Financial Accounting Standards
 SFAS No. 157, Fair Value Measurements.
  FASB Staff Position (FSP) on SFAS No. 157-2.
 SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
 7




---



##### Table of Contents



Note 2. New Accounting Pronouncements
Final FASB Statements
 SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles,
 FASB Staff Positions (FSP)
 FSP SFAS 142-3, Determination of the Useful Life of Intangible Assets. Goodwill and Other Intangible Assets.
 Note 3. Merger and Acquisition Activity
  Restructuring Reserve
 Balance
    
    
    Changes in 2008
    
    
    BalanceDecember 31,
    
    
    Cash
    
    
    Other
    
    
    June 30,(in thousands)
    
    2007
    
    
    Payments
    
    
    Adjustments
    
    
    2008Personnel
    
    $
    1,562
    
    
    $
    (842
    )
    
    $
    (116
    )
    
    $
    604Facilities/Branches
    
    
    1,557
    
    
    
    (56
    )
    
    
    (14
    )
    
    
    1,487$
    3,119
    
    
    $
    (898
    )
    
    $
    (130
    )
    
    $
    2,091
   Merger-related Reserve
 Balance
    
    
    Changes in 2008
    
    
    BalanceDecember 31,
    
    
    Cash
    
    
    June 30,(in thousands)
    
    2007
    
    
    Payments
    
    
    2008Personnel
    
    $
    1,276
    
    
    $
    (1,276
    )
    
    $
    Facilities/Branches
    
    
    1,360
    
    
    
    (529
    )
    
    
    8312,636
    
    
    
    (1,805
    )
    
    
    831Other Transaction and
System Reserves
    
    
    12
    
    
    
    (12
    )
    
    
    $
    2,648
    
    
    $
    (1,817
    )
    
    $
    831
 8




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##### Table of Contents



Note 4. Investment Securities
  June 30, 2008
    
    
    December 31, 2007Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Gross Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Gross Unrealized(in thousands)
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    LossesAvailable For Sale:Federal Agencies
    
    $
    250,066
    
    
    $
    255,167
    
    
    $
    5,359
    
    
    $
    258
    
    
    $
    298,177
    
    
    $
    304,074
    
    
    $
    5,897
    
    
    $
    Collateralized Mortgage Obligations
    
    
    518,427
    
    
    
    509,439
    
    
    
    1,882
    
    
    
    10,870
    
    
    
    587,355
    
    
    
    586,954
    
    
    
    2,278
    
    
    
    2,679Mortgage-backed
    
    
    665,479
    
    
    
    667,214
    
    
    
    6,160
    
    
    
    4,425
    
    
    
    667,504
    
    
    
    670,565
    
    
    
    5,707
    
    
    
    2,646State and municipal
    
    
    541,152
    
    
    
    545,184
    
    
    
    7,972
    
    
    
    3,940
    
    
    
    560,073
    
    
    
    569,466
    
    
    
    10,336
    
    
    
    943Other
    
    
    9,127
    
    
    
    9,162
    
    
    
    35
    
    
    
    
    
    
    
    1,067
    
    
    
    1,105
    
    
    
    38
    
    
    
    Total available for sale
    
    $
    1,984,251
    
    
    $
    1,986,166
    
    
    $
    21,408
    
    
    $
    19,493
    
    
    $
    2,114,176
    
    
    $
    2,132,164
    
    
    $
    24,256
    
    
    $
    6,268Held to Maturity:State and municipalTotal held to maturity
    
    $
    138,435
    
    
    $
    136,423
    
    
    $
    399
    
    
    $
    2,411
    
    
    $
    129,126
    
    
    $
    129,366
    
    
    $
    978
    
    
    $
    738FHLB and Fed Reserve stock
    
    $
    148,838
    
    
    $
    148,838
    
    
    $
    
    
    
    $
    
    
    
    $
    148,838
    
    
    $
    148,838
    
    
    $
    
    
    
    $
    
  As of June 30, 2008
 Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:Federal agencies
    
    $
    14,742
    
    
    $
    258
    
    
    $
    
    
    
    $
    
    
    
    $
    14,742
    
    
    $
    258Collateralized Mortgage Obligations
    
    
    323,658
    
    
    
    10,870
    
    
    
    
    
    
    
    
    
    
    
    323,658
    
    
    
    10,870Mortgage-backed
    
    
    154,328
    
    
    
    3,233
    
    
    
    58,739
    
    
    
    1,192
    
    
    
    213,067
    
    
    
    4,425State and municipal
    
    
    199,021
    
    
    
    3,768
    
    
    
    4,150
    
    
    
    172
    
    
    
    203,171
    
    
    
    3,940Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total available for sale
    
    
    691,749
    
    
    
    18,129
    
    
    
    62,889
    
    
    
    1,364
    
    
    
    754,638
    
    
    
    19,493Held to Maturity:State and municipal
    
    
    95,176
    
    
    
    2,312
    
    
    
    2,804
    
    
    
    99
    
    
    
    97,980
    
    
    
    2,411Total held to maturity
    
    
    95,176
    
    
    
    2,312
    
    
    
    2,804
    
    
    
    99
    
    
    
    97,980
    
    
    
    2,411Total
    
    $
    786,925
    
    
    $
    20,441
    
    
    $
    65,693
    
    
    $
    1,463
    
    
    $
    852,618
    
    
    $
    21,904
 As of December 31, 2007
 Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:Collateralized Mortgage Obligations
    
    $
    212,274
    
    
    $
    2,165
    
    
    $
    67,253
    
    
    $
    514
    
    
    $
    279,527
    
    
    $
    2,679Mortgage-backed
    
    
    33,102
    
    
    
    219
    
    
    
    115,712
    
    
    
    2,427
    
    
    
    148,814
    
    
    
    2,646State and municipal
    
    
    69,429
    
    
    
    625
    
    
    
    17,596
    
    
    
    318
    
    
    
    87,025
    
    
    
    943Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total available for sale
    
    
    314,805
    
    
    
    3,009
    
    
    
    200,561
    
    
    
    3,259
    
    
    
    515,366
    
    
    
    6,268Held to Maturity:State and municipal
    
    
    43,700
    
    
    
    536
    
    
    
    14,230
    
    
    
    202
    
    
    
    57,930
    
    
    
    738Total held to maturity
    
    
    43,700
    
    
    
    536
    
    
    
    14,230
    
    
    
    202
    
    
    
    57,930
    
    
    
    738Total
    
    $
    358,505
    
    
    $
    3,545
    
    
    $
    214,791
    
    
    $
    3,461
    
    
    $
    573,296
    
    
    $
    7,006
 9




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##### Table of Contents



Note 5. Allowance for Loan Losses and Impaired Loans
  Analysis of Allowance for Loan Losses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Allowance for loan losses  beginning of period
    
    $
    176,528
    
    
    $
    169,239
    
    
    $
    163,353
    
    
    $
    169,104Provision for loan losses
    
    
    74,480
    
    
    
    31,857
    
    
    
    105,099
    
    
    
    35,357Charge-offs:Commercial
    
    
    921
    
    
    
    2,419
    
    
    
    1,966
    
    
    
    2,782Commercial real estate
    
    
    42,225
    
    
    
    14,284
    
    
    
    51,357
    
    
    
    14,705Total commercial
    
    
    43,146
    
    
    
    16,703
    
    
    
    53,323
    
    
    
    17,487Residential mortgage
    
    
    20,738
    
    
    
    735
    
    
    
    22,507
    
    
    
    1,526Direct consumer
    
    
    3,631
    
    
    
    3,029
    
    
    
    7,153
    
    
    
    5,113Indirect consumer
    
    
    3,525
    
    
    
    1,868
    
    
    
    6,666
    
    
    
    4,085Charge-offs
    
    
    71,040
    
    
    
    22,335
    
    
    
    89,649
    
    
    
    28,211Recoveries:Commercial
    
    
    302
    
    
    
    640
    
    
    
    444
    
    
    
    1,770Commercial real estate
    
    
    241
    
    
    
    539
    
    
    
    291
    
    
    
    714Total commercial
    
    
    543
    
    
    
    1,179
    
    
    
    735
    
    
    
    2,484Residential mortgage
    
    
    15
    
    
    
    56
    
    
    
    15
    
    
    
    107Direct consumer
    
    
    565
    
    
    
    482
    
    
    
    1,037
    
    
    
    853Indirect consumer
    
    
    627
    
    
    
    640
    
    
    
    1,128
    
    
    
    1,424Recoveries
    
    
    1,750
    
    
    
    2,357
    
    
    
    2,915
    
    
    
    4,868Net charge-offs
    
    
    69,290
    
    
    
    19,978
    
    
    
    86,734
    
    
    
    23,343Allowance for loan losses  end of period
    
    $
    181,718
    
    
    $
    181,118
    
    
    $
    181,718
    
    
    $
    181,118
 Accounting by Creditors for Impairment of a Loan,
 10




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##### Table of Contents



Impaired Loan Information
 Balances
    
    
    Valuation ReserveJune 30,
    
    
    December 31,
    
    
    June 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Balances -Impaired loans with valuation reserve
    
    $
    41,070
    
    
    $
    33,651
    
    
    $
    17,627
    
    
    $
    17,769Impaired loans with no valuation reserve
    
    
    18,202
    
    
    
    18,684
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    59,272
    
    
    $
    52,335
    
    
    $
    17,627
    
    
    $
    17,769Impaired loans on nonaccrual basis
    
    $
    59,148
    
    
    $
    52,335
    
    
    $
    17,503
    
    
    $
    17,769Impaired loans on accrual basis
    
    
    124
    
    
    
    
    
    
    
    124
    
    
    
    Total impaired loans
    
    $
    59,272
    
    
    $
    52,335
    
    
    $
    17,627
    
    
    $
    17,769
  Note 6. Goodwill
  June 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Specialty Commercial
    
    $
    
    
    
    $
    178,089Regional Banking
    
    
    595,417
    
    
    
    595,418Wealth Management
    
    
    1,801
    
    
    
    1,801Total Goodwill
    
    $
    597,218
    
    
    $
    775,308
  Note 7. Long-term Debt
  11




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##### Table of Contents



June 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Citizens (Parent only):Variable rate promissary notes payable due May 1, 2010
    
    $
    50,000
    
    
    $
    50,000Subordinated debt:5.75% subordinated notes due February 2013
    
    
    119,623
    
    
    
    119,125Variable rate junior subordinated debenture due June 2033
    
    
    25,767
    
    
    
    25,7267.50% junior subordinated debentures due September 2066
    
    
    146,444
    
    
    
    145,971Subsidiaries:Federal Home Loan Bank advances
    
    
    1,918,119
    
    
    
    2,344,636Other borrowed funds
    
    
    238,337
    
    
    
    254,052Total long-term debt
    
    $
    2,498,290
    
    
    $
    2,939,510
  Note 8. Income Taxes
  Note 9. Accumulated Other Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Balance at beginning of period
    
    $
    14,083
    
    
    $
    (150
    )
    
    $
    5,101
    
    
    $
    (7,375
    )Net unrealized loss on securities for the
quarter, net of tax effect of $(10,240) in 2008
and $(10,908) in 2007, and net unrealized loss on
securities for the six months period, net of tax
effect of $(5,625) in 2008 and $(6,859) in 2007
    
    
    (19,018
    )
    
    
    (20,258
    )
    
    
    (10,448
    )
    
    
    (12,738
    )Less: Reclassification adjustment for net
(gains) losses on securities included in net
income for the six month period, net of tax
effect of $12 in 2007.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Net change in unrealized (loss) gain on cash flow
hedges for the quarter, net of tax effect of
$(617) in 2008 and $(144) in 2007, and net change
in unrealized (loss) gain for the six month
period, net of tax effect of $(395) in 2008 and
$(314) in 2007.
    
    
    (1,145
    )
    
    
    (266
    )
    
    
    (733
    )
    
    
    (582
    )Accumulated other comprehensive income, net of tax
    
    $
    (6,080
    )
    
    $
    (20,674
    )
    
    $
    (6,080
    )
    
    $
    (20,674
    )
 12




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##### Table of Contents



Note 10. Fair Values of Assets and Liabilities
       ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS
 Investment Securities Available for Sale.
 Derivative Financial Instruments.
 Deferred Compensation Assets.
 13




---



##### Table of Contents



June 30, 2008(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Investment Securities Available for Sale
    
    $
    1,986,166
    
    
    $
    
    
    
    $
    1,986,166
    
    
    $
    Other assets (1)
    
    
    27,047
    
    
    
    10,612
    
    
    
    16,435
    
    
    
    Total Assets
    
    $
    2,013,213
    
    
    $
    10,612
    
    
    $
    2,002,601
    
    
    $
    Other liabilities (2)
    
    $
    12,976
    
    
    $
    
    
    
    $
    12,976
    
    
    $
    
 
 (1)
    
    Includes Derivative Financial Instruments and Deferred Compensation Assets.(2)
    
    Includes Derivative Financial Instruments. ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS
 Mortgage Servicing Rights
 Loans Held for Sale.
  Impaired Loans.
  14




---



##### Table of Contents



June 30, 2008(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Loans (1)
    
    $
    35,408
    
    
    $
    
    
    
    $
    
    
    
    $
    35,408Commercial Loans Held For Sale (2)
    
    
    48,497
    
    
    
    
    
    
    
    
    
    
    
    48,497Mortgage Loans Held For Sale (3)
    
    
    20,215
    
    
    
    
    
    
    
    
    
    
    
    20,215Total Assets
    
    $
    104,120
    
    
    $
    
    
    
    $
    
    
    
    $
    104,120
 
 (1)
    
    Impaired Loans with a carrying value of $60.9 million were written down to their
fair value of $35.4 million.(2)
    
    Impaired Loans with a carrying value of $76.7 million were written down to their
fair value of $48.5 million.(3)
    
    Nonperforming Mortgage Loans with a carrying value of $36.3 million were written
down to their fair value of $20.2 million. Note 11. Pension Benefit Cost
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Defined Benefit Pension PlansInterest cost
    
    $
    1,165
    
    
    $
    1,187
    
    
    $
    2,330
    
    
    $
    2,375Expected return on plan assets
    
    
    (1,900
    )
    
    
    (1,956
    )
    
    
    (3,800
    )
    
    
    (3,913
    )Amortization of unrecognized:Prior service cost
    
    
    10
    
    
    
    3
    
    
    
    20
    
    
    
    6Net actuarial loss
    
    
    75
    
    
    
    125
    
    
    
    150
    
    
    
    250Net pension cost
    
    $
    (650
    )
    
    $
    (641
    )
    
    $
    (1,300
    )
    
    $
    (1,282
    )Supplemental Pension PlansInterest cost
    
    $
    192
    
    
    $
    193
    
    
    $
    383
    
    
    $
    385Amortization of unrecognized:Prior service cost
    
    
    118
    
    
    
    42
    
    
    
    235
    
    
    
    84Net actuarial loss
    
    
    5
    
    
    
    33
    
    
    
    10
    
    
    
    65Net pension cost
    
    $
    315
    
    
    $
    268
    
    
    $
    628
    
    
    $
    534Postretirement Benefit PlansService cost
    
    $
    
    
    
    $
    1
    
    
    $
    
    
    
    $
    3Interest cost
    
    
    129
    
    
    
    160
    
    
    
    257
    
    
    
    320Amortization of unrecognized:Prior service cost
    
    
    (64
    )
    
    
    (67
    )
    
    
    (128
    )
    
    
    (135
    )Net actuarial gain
    
    
    (9
    )
    
    
    
    
    
    
    (17
    )
    
    
    Net pension cost
    
    $
    56
    
    
    $
    94
    
    
    $
    112
    
    
    $
    188Defined contribution retirement and 401K PlansEmployer contributions
    
    $
    1,554
    
    
    $
    1,394
    
    
    $
    3,398
    
    
    $
    3,031Total periodic benefit cost
    
    $
    1,275
    
    
    $
    1,115
    
    
    $
    2,838
    
    
    $
    2,471
  15




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##### Table of Contents



Note 12. Stock-Based Compensation
   Analysis of Stock-Based Compensation Expense
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Stock Option Compensation
    
    $
    9
    
    
    $
    9
    
    
    $
    17
    
    
    $
    17Restricted Stock Compensation
    
    
    1,065
    
    
    
    829
    
    
    
    2,125
    
    
    
    1,434Stock-based compensation expense before income taxes
    
    
    1,074
    
    
    
    838
    
    
    
    2,142
    
    
    
    1,451Income tax benefit
    
    
    (376
    )
    
    
    (294
    )
    
    
    (750
    )
    
    
    (508
    )Total stock-based compensation expense after income taxes
    
    $
    698
    
    
    $
    544
    
    
    $
    1,392
    
    
    $
    943
    Weighted-AverageNumber of
    
    
    Grant Date FairShares
    
    
    ValueOutstanding restricted stock at December 31, 2007
    
    
    486,842
    
    
    $
    21.32Granted
    
    
    311,745
    
    
    
    7.66Vested
    
    
    (160,491
    )
    
    
    21.88Forfeited
    
    
    (20,867
    )
    
    
    19.68Restricted stock at June 30, 2008
    
    
    617,229
    
    
    
    14.33
  16




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##### Table of Contents



Note 13. Shareholders Equity and Earnings Per Share
 th
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands, except per share amounts)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Basic and dilutive earnings per share 
net income (loss)
available to common shareholders
    
    $
    (201,634
    )
    
    $
    9,619
    
    
    $
    (190,507
    )
    
    $
    41,111Denominator:Basic earnings per share  weighted
average shares
    
    
    79,689
    
    
    
    75,374
    
    
    
    77,469
    
    
    
    75,411Effect of dilutive securities 
potential conversion of employee
stock options and restricted
stock awards
    
    
    
    
    
    
    275
    
    
    
    
    
    
    
    371Diluted earnings per share  adjusted
weighted-average shares and assumed
conversions
    
    
    79,689
    
    
    
    75,649
    
    
    
    77,469
    
    
    
    75,782Basic earnings per share
    
    $
    (2.53
    )
    
    $
    0.13
    
    
    $
    (2.46
    )
    
    $
    0.55Diluted earnings per share
    
    $
    (2.53
    )
    
    $
    0.13
    
    
    $
    (2.46
    )
    
    $
    0.54
 Note 14. Lines of Business
  17




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##### Table of Contents



Line of Business Information
 Specialty
    
    
    Regional
    
    
    Wealth(in thousands)
    
    Commercial
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary  Three Months Ended June 30, 2008Net interest income (taxable equivalent)
    
    $
    19,187
    
    
    $
    61,811
    
    
    $
    11
    
    
    $
    11,217
    
    
    $
    92,226Provision for loan losses
    
    
    30,037
    
    
    
    17,486
    
    
    
    
    
    
    
    26,957
    
    
    
    74,480Net interest income after provision
    
    
    (10,850
    )
    
    
    44,325
    
    
    
    11
    
    
    
    (15,740
    )
    
    
    17,746Noninterest income
    
    
    (1,695
    )
    
    
    19,126
    
    
    
    6,816
    
    
    
    2,811
    
    
    
    27,058Noninterest expense
    
    
    184,859
    
    
    
    55,545
    
    
    
    6,063
    
    
    
    14,761
    
    
    
    261,228Income before income taxes
    
    
    (197,404
    )
    
    
    7,906
    
    
    
    764
    
    
    
    (27,690
    )
    
    
    (216,424
    )Income tax expense (taxable equivalent)
    
    
    (6,760
    )
    
    
    2,767
    
    
    
    267
    
    
    
    (11,064
    )
    
    
    (14,790
    )Net income
    
    $
    (190,644
    )
    
    $
    5,139
    
    
    $
    497
    
    
    $
    (16,626
    )
    
    $
    (201,634
    )Average assets(in millions)
    
    $
    2,219
    
    
    $
    6,093
    
    
    $
    13
    
    
    $
    4,971
    
    
    $
    13,296Earnings Summary  Three Months Ended June 30, 2007(1)Net interest income (taxable equivalent)
    
    $
    19,645
    
    
    $
    66,176
    
    
    $
    (43
    )
    
    $
    15,627
    
    
    $
    101,405Provision for loan losses
    
    
    24,574
    
    
    
    7,169
    
    
    
    
    
    
    
    114
    
    
    
    31,857Net interest income after provision
    
    
    (4,929
    )
    
    
    59,007
    
    
    
    (43
    )
    
    
    15,513
    
    
    
    69,548Noninterest income
    
    
    878
    
    
    
    19,097
    
    
    
    7,116
    
    
    
    4,187
    
    
    
    31,278Noninterest expense
    
    
    3,957
    
    
    
    54,085
    
    
    
    5,623
    
    
    
    23,825
    
    
    
    87,490Income before income taxes
    
    
    (8,008
    )
    
    
    24,019
    
    
    
    1,450
    
    
    
    (4,125
    )
    
    
    13,336Income tax expense (taxable equivalent)
    
    
    (2,803
    )
    
    
    8,407
    
    
    
    508
    
    
    
    (2,395
    )
    
    
    3,717Net income
    
    $
    (5,205
    )
    
    $
    15,612
    
    
    $
    942
    
    
    $
    (1,730
    )
    
    $
    9,619Average assets(in millions)
    
    $
    1,895
    
    
    $
    5,558
    
    
    $
    13
    
    
    $
    5,775
    
    
    $
    13,241
 
 (1)
    
    Certain amounts have been reclassified to conform to current
year presentation. Line of Business Information
 Specialty
    
    
    Regional
    
    
    Wealth(in thousands)
    
    Commercial
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary  Six Months Ended June 30, 2008Net interest income (taxable equivalent)
    
    $
    36,928
    
    
    $
    129,081
    
    
    $
    1
    
    
    $
    19,208
    
    
    $
    185,218Provision for loan losses
    
    
    48,129
    
    
    
    24,683
    
    
    
    
    
    
    
    32,287
    
    
    
    105,099Net interest income after provision
    
    
    (11,201
    )
    
    
    104,398
    
    
    
    1
    
    
    
    (13,079
    )
    
    
    80,119Noninterest income
    
    
    (1,187
    )
    
    
    38,392
    
    
    
    13,506
    
    
    
    7,272
    
    
    
    57,983Noninterest expense
    
    
    190,056
    
    
    
    109,843
    
    
    
    11,238
    
    
    
    26,653
    
    
    
    337,790Income before income taxes
    
    
    (202,444
    )
    
    
    32,947
    
    
    
    2,269
    
    
    
    (32,460
    )
    
    
    (199,688
    )Income tax expense (taxable equivalent)
    
    
    (8,431
    )
    
    
    11,531
    
    
    
    794
    
    
    
    (13,075
    )
    
    
    (9,181
    )Net income
    
    $
    (194,013
    )
    
    $
    21,416
    
    
    $
    1,475
    
    
    $
    (19,385
    )
    
    $
    (190,507
    )Average assets(in millions)
    
    $
    2,214
    
    
    $
    6,057
    
    
    $
    13
    
    
    $
    5,085
    
    
    $
    13,369Earnings Summary  Six Months Ended June 30, 2007(1)Net interest income (taxable equivalent)
    
    $
    40,868
    
    
    $
    138,960
    
    
    $
    (26
    )
    
    $
    24,570
    
    
    $
    204,372Provision for loan losses
    
    
    26,501
    
    
    
    6,205
    
    
    
    
    
    
    
    2,651
    
    
    
    35,357Net interest income after provision
    
    
    14,367
    
    
    
    132,755
    
    
    
    (26
    )
    
    
    21,919
    
    
    
    169,015Noninterest income
    
    
    2,188
    
    
    
    40,159
    
    
    
    13,366
    
    
    
    6,955
    
    
    
    62,668Noninterest expense
    
    
    10,470
    
    
    
    111,452
    
    
    
    11,229
    
    
    
    38,049
    
    
    
    171,200Income before income taxes
    
    
    6,085
    
    
    
    61,462
    
    
    
    2,111
    
    
    
    (9,175
    )
    
    
    60,483Income tax expense (taxable equivalent)
    
    
    (2,130
    )
    
    
    21,512
    
    
    
    739
    
    
    
    (749
    )
    
    
    19,372Net income
    
    $
    8,215
    
    
    $
    39,950
    
    
    $
    1,372
    
    
    $
    (8,426
    )
    
    $
    41,111Average assets(in millions)
    
    $
    1,948
    
    
    $
    5,834
    
    
    $
    12
    
    
    $
    5,613
    
    
    $
    13,407
 
 (1)
    
    Certain amounts have been reclassified to conform to current year presentation. 18




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##### Table of Contents



Note 15. Commitments, Contingent Liabilities and Guarantees
   June 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Loan commitments and letters of credit:Commitments to extend credit
    
    $
    2,499,293
    
    
    $
    2,510,255Financial standby letters of credit
    
    
    129,114
    
    
    
    101,229Performance standby letters of credit
    
    
    24,737
    
    
    
    27,244Commercial letters of credit
    
    
    248,915
    
    
    
    255,538Total loan commitments and letters of credit
    
    $
    2,902,059
    
    
    $
    2,894,266
  Note 16. Derivatives and Hedging Activities
 Accounting for Derivative Instruments and Hedging Activities, Accounting for Certain Derivative Instruments and Certain Hedging Activities
   19




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##### Table of Contents



Derivative Financial Instruments:
 June 30, 2008
    
    
    December 31, 2007Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueReceive fixed swaps (1)
    
    $
    380,000
    
    
    $
    293
    
    
    $
    300,000
    
    
    $
    1,574Customer initiated swaps and
corresponding offsets
(2)
    
    
    1,010,301
    
    
    
    866
    
    
    
    713,290
    
    
    
    Interest rate lock commitments
    
    
    
    
    
    
    
    
    
    
    24,808
    
    
    
    199Forward mortgage loan contracts
    
    
    
    
    
    
    
    
    
    
    68,030
    
    
    
    (501
    )Total
    
    $
    1,390,301
    
    
    $
    1,159
    
    
    $
    1,106,128
    
    
    $
    1,272
 Derivative Classifications and Hedging Relationships:
 June 30, 2008
    
    
    December 31, 2007Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueDerivatives Designated as Cash Flow
Hedges:Prime Based Loan Hedges (3)
    
    $
    225,000
    
    
    $
    (864
    )
    
    $
    100,000
    
    
    $
    (47
    )Derivatives Designated as Fair Value
Hedges:Hedging time deposits (4)
    
    
    105,000
    
    
    
    1,105
    
    
    
    50,000
    
    
    
    1,434Hedging long-term debt (5)
    
    
    50,000
    
    
    
    52
    
    
    
    150,000
    
    
    
    187Derivatives Not Designated as Hedges:Customer initiated swaps and
corresponding offsets (2)
    
    
    1,010,301
    
    
    
    866
    
    
    
    713,290
    
    
    
    Total
    
    $
    1,390,301
    
    
    $
    1,159
    
    
    $
    1,013,290
    
    
    $
    1,574
 
 (1)
    
    Fair value includes accrued interest of $1,837 and $1,191 for June 30, 2008 and
December 31, 2007, respectively(2)
    
    Fair value includes accrued interest of $0 for both June 30, 2008 and December 31, 2007.(3)
    
    Fair value includes accrued interest of $257 and $0 for June 30. 2008 and December 31,
2007, respectively(4)
    
    Fair value includes accrued interest of $1,528 and $1,196 for June 30, 2008 and
December 31, 2007, respectively.(5)
    
    Fair value includes accrued interest of $52 and ($4,829) for June 30, 2008 and December
31, 2007, respectively. 20




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##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
 Selected Quarterly Information
Citizens Republic Bancorp and Subsidiaries
 Three Months EndedJune 30,
    
    March 31,
    
    December 31,
    
    September 30,
    
    June 30,2008
    
    2008
    
    2007
    
    2007
    
    2007Summary of Operations (thousands)Net interest income
    
    $
    87,615
    
    
    $
    88,312
    
    
    $
    92,188
    
    
    $
    94,873
    
    
    $
    96,777Provision for loan losses
    
    
    74,480
    
    
    
    30,619
    
    
    
    6,055
    
    
    
    3,765
    
    
    
    31,857Total fees and other income
    
    
    27,058
    
    
    
    30,925
    
    
    
    29,296
    
    
    
    30,596
    
    
    
    31,278Investment securities gains (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    Noninterest expense (1)
    
    
    261,228
    
    
    
    76,562
    
    
    
    78,880
    
    
    
    77,343
    
    
    
    87,490Income tax provision (benefit)
    
    
    (19,401
    )
    
    
    929
    
    
    
    8,582
    
    
    
    12,605
    
    
    
    (911
    )Net income (loss)
    
    
    (201,634
    )
    
    
    11,127
    
    
    
    27,967
    
    
    
    31,764
    
    
    
    9,619Taxable equivalent adjustment
    
    
    4,611
    
    
    
    4,679
    
    
    
    4,673
    
    
    
    4,620
    
    
    
    4,629Cash dividends
    
    
    
    
    
    
    21,959
    
    
    
    21,941
    
    
    
    21,934
    
    
    
    21,960Per Common Share DataBasic net income
    
    $
    (2.53
    )
    
    $
    0.15
    
    
    $
    0.37
    
    
    $
    0.42
    
    
    $
    0.13Diluted net income
    
    
    (2.53
    )
    
    
    0.15
    
    
    
    0.37
    
    
    
    0.42
    
    
    
    0.13Cash dividends
    
    
    
    
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290Market value (end of period)
    
    
    2.82
    
    
    
    12.43
    
    
    
    14.51
    
    
    
    16.11
    
    
    
    18.30Book value (end of period)
    
    
    16.12
    
    
    
    20.82
    
    
    
    20.84
    
    
    
    20.65
    
    
    
    20.28At Period End (millions)Assets
    
    $
    13,170
    
    
    $
    13,539
    
    
    $
    13,506
    
    
    $
    13,223
    
    
    $
    13,247Portfolio loans
    
    
    9,449
    
    
    
    9,573
    
    
    
    9,501
    
    
    
    9,219
    
    
    
    9,216Deposits
    
    
    8,661
    
    
    
    8,487
    
    
    
    8,302
    
    
    
    7,942
    
    
    
    8,082Shareholders equity
    
    
    1,546
    
    
    
    1,577
    
    
    
    1,578
    
    
    
    1,562
    
    
    
    1,534Average for the Quarter (millions)Assets
    
    $
    13,296
    
    
    $
    13,442
    
    
    $
    13,305
    
    
    $
    13,165
    
    
    $
    13,241Portfolio loans
    
    
    9,514
    
    
    
    9,499
    
    
    
    9,335
    
    
    
    9,163
    
    
    
    9,170Deposits
    
    
    8,604
    
    
    
    8,417
    
    
    
    7,951
    
    
    
    8,049
    
    
    
    8,157Shareholders equity
    
    
    1,546
    
    
    
    1,579
    
    
    
    1,561
    
    
    
    1,536
    
    
    
    1,551Ratios (annualized)Return on average assets
    
    
    (6.10
    )%
    
    
    0.33
     %
    
    
    0.83
    %
    
    
    0.96
     %
    
    
    0.29
    %Return on average shareholders equity
    
    
    (52.47
    )
    
    
    2.83
    
    
    
    7.11
    
    
    
    8.20
    
    
    
    2.49Average equity to average assets
    
    
    11.62
    
    
    
    11.74
    
    
    
    11.73
    
    
    
    11.67
    
    
    
    11.72Net interest margin (FTE) (2)
    
    
    3.11
    
    
    
    3.12
    
    
    
    3.26
    
    
    
    3.39
    
    
    
    3.44Efficiency ratio (3)
    
    
    219.00
    
    
    
    61.79
    
    
    
    62.52
    
    
    
    59.45
    
    
    
    65.94Net loans charged off to average portfolio loans
    
    
    2.93
    
    
    
    0.74
    
    
    
    0.84
    
    
    
    0.34
    
    
    
    0.87Allowance for loan losses to portfolio loans
    
    
    1.92
    
    
    
    1.84
    
    
    
    1.72
    
    
    
    1.92
    
    
    
    1.97Nonperforming assets to portfolio loans plus ORAA
(end of period)
    
    
    3.01
    
    
    
    3.39
    
    
    
    2.64
    
    
    
    2.06
    
    
    
    1.58Nonperforming assets to total assets (end of period)
    
    
    2.17
    
    
    
    2.41
    
    
    
    1.86
    
    
    
    1.44
    
    
    
    1.10Leverage ratio
    
    
    8.71
    
    
    
    7.40
    
    
    
    7.53
    
    
    
    7.49
    
    
    
    7.33Tier 1 capital ratio
    
    
    10.80
    
    
    
    9.04
    
    
    
    9.18
    
    
    
    9.28
    
    
    
    9.09Total capital ratio
    
    
    13.03
    
    
    
    11.26
    
    
    
    11.66
    
    
    
    11.78
    
    
    
    11.59
 
 (1)
    
    Noninterest expense includes a goodwill impairment charge of $178.1 million in the second quarter of 2008 and restructuring and merger related expenses
of ($0.4) million in the fourth quarter of 2007, $1.0 million in the third quarter of 2007, and $3.4 million in the second quarter of 2007.(2)
    
    Net interest margin is presented on an annual basis, includes taxable equivalent adjustments to interest income and is based on a tax rate of 35%.(3)
    
    The Efficiency Ratio measures how efficiently a bank spends its revenues. The formula is: Noninterest expense/(Net interest income + Taxable equivalent
adjustment + Total fees and other income). 21




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##### Table of Contents



Introduction
  Forward  Looking Statements
  
    
    Citizens faces the risk that loan losses, including unanticipated loan losses due to
changes in loan portfolios, fraud and economic factors, will exceed the allowance for loan
losses and that additional increases in the allowance will be required. Additions to the
allowance for loan losses would cause Citizens net income to decline and could have a
negative impact on Citizens capital and financial position.
    
    While Citizens attempts to manage the risk from changes in market interest rates,
interest rate risk management techniques are not exact. In addition, Citizens may not be
able to economically hedge its interest rate risk. A rapid or substantial increase or
decrease in interest rates could adversely affect Citizens net interest income and results
of operations.
    
    An economic downturn, and the negative economic effects caused by terrorist attacks,
potential attacks and other destabilizing events, would likely contribute to the
deterioration of the quality of the loan portfolio and could reduce Citizens customer
base, its level of deposits, and demand for financial products such as loans.
    
    If Citizens is unable to continue to attract and retain core deposits or continue to
obtain third party financing on favorable terms, its cost of funds will increase, adversely
affecting the ability to generate the funds necessary for lending operations, reducing net
interest margin and negatively affecting results of operations.
    
    Increased competition with other financial institutions or an adverse change in
Citizens relationship with a number of major customers could reduce Citizens net interest
margin and net income by decreasing the number and size of loans originated, the interest
rates charged on these loans and the fees charged for services to customers. If Citizens
were to lend to customers who are less likely to pay in order to maintain historical
origination levels, it may not be able to maintain current loan quality levels.
    
    Citizens is a party to various lawsuits incidental to its business. Litigation is
subject to many uncertainties such that the expenses and ultimate exposure with respect to
many of these matters cannot be ascertained.
    
    The financial services industry is undergoing rapid technological changes. If Citizens
is unable to adequately invest in and implement new technology-driven products and
services, it may not be able to compete effectively, or the cost to provide products and
services may increase significantly.
    
    Citizens business may be adversely affected by the highly regulated environment in
which it operates. Changes in banking or tax laws, regulations and regulatory practices at
either the federal or state level may adversely affect the Corporation, including its
ability to offer new products and services, obtain financing, pay dividends from the
subsidiaries to the Holding Company, attract deposits or make loans and leases at
satisfactory spreads, and may also result in the imposition of additional costs.
 22




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##### Table of Contents




    
    The products and services offered by the banking industry and customer expectations
regarding them are subject to change. Citizens attempts to respond to perceived customer
needs and expectations by offering new products and services, which are often costly to
develop and market initially. A lack of market acceptance of these products and services
would have a negative effect on Citizens financial condition and results of operations.
    
    New accounting or tax pronouncements or interpretations may be issued by the accounting
profession, regulators or other government bodies which could change existing accounting
methods. Changes in accounting methods could negatively impact Citizens results of
operations and financial position.
    
    Citizens business continuity plans or data security systems could prove to be
inadequate, resulting in a material interruption in, or disruption to, Citizens business
and a negative impact on its results of operations.
    
    Citizens vendors could fail to fulfill their contractual obligations, resulting in a
material interruption in, or disruption to, its business and a negative impact on its
results of operations.
    
    Citizens potential inability to integrate acquired operations could have a negative
effect on Citizens expenses and results of operations.
    
    Events such as significant adverse changes in the business climate, adverse action by a
regulator, unanticipated changes in the competitive environment, and a decision to change
Citizens operations or dispose of an operating unit could have a negative effect on the
goodwill or other intangible assets Citizens recorded at the time of the Republic merger
such that it may need to record an impairment charge, which could result in a negative
impact on results of operations.
    
    Citizens could face unanticipated environmental liabilities or costs related to real
property owned or acquired through foreclosure. Compliance with federal, state and local
environmental laws and regulations, including those related to investigation and clean-up
of contaminated sites, could have a negative effect on Citizens expenses and results of
operations.
    
    As a bank holding company that conducts substantially all of its operations through its
subsidiaries, the ability of the Holding Company to pay dividends, repurchase its shares or
to repay its indebtedness depends upon the results of operations of its subsidiaries and
their ability to pay dividends to the Holding Company. Dividends paid by these
subsidiaries are subject to limits imposed by federal and state law.
    
    Citizens controls and procedures may fail or be circumvented, which could have a
material adverse effect on its business, results of operations, and financial condition.
    
    Citizens articles of incorporation and bylaws as well as certain banking laws may have
an anti-takeover effect.
  Critical Accounting Policies
  23




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##### Table of Contents



Fair Value Measurements
 Fair Value Measurements
 Results of Operations
 Summary
     
    
    Citizens issued $79.6 million of common stock and $120.4 million of contingent
convertible perpetual non-cumulative preferred stock (net proceeds of $189.7 million) to
enhance its balance sheet.
    
    Citizens recorded a non-cash goodwill impairment charge of $178.1 million, which is not
tax deductible and has no impact on tangible equity or regulatory capital ratios or
Citizens overall liquidity position.
    
    Citizens recorded a non-cash credit writedown and fair-value adjustments that totaled
$42.4 million ($27.6 million after-tax). The writedown was comprised of three components:
 o
    
    Gross charge-offs of $35.1 million as a result of transferring $86.2
million of nonperforming commercial real estate and $41.7 million of nonperforming
residential mortgage loans to held for sale (HFS) status at an aggregate estimated
fair market value of $92.8 million;o
    
    Writedown of $2.3 million as a result of a fair-value adjustment
(recorded in noninterest income) on $29.8 million of commercial real estate loans
previously held for sale; and a
 24




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##### Table of Contents



o
    
    Writedown on Other Real Estate (ORE) of $5.0 million as a result of a
fair-value adjustment (recorded in noninterest expense) on $34.2 million of
commercial and residential repossessed assets.
  Net Interest Income and Net Interest Margin
  25




---



##### Table of Contents



Average Balances/Net Interest Income/Average Rates
 2008
    
    
    2007Three Months Ended June 30,
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    

Interest(1)
    
    

Rate(2)
    
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)Earning AssetsMoney market investments
    
    $
    2,379
    
    
    $
    16
    
    
    
    2.72
    %
    
    $
    2,765
    
    
    $
    19
    
    
    
    2.64
    %Investment securities (3):Taxable
    
    
    1,483,409
    
    
    
    19,021
    
    
    
    5.13
    
    
    
    1,726,754
    
    
    
    22,308
    
    
    
    5.17Tax-exempt
    
    
    670,792
    
    
    
    7,280
    
    
    
    6.68
    
    
    
    668,647
    
    
    
    7,309
    
    
    
    6.73FHLB and Federal Reserve stock
    
    
    148,838
    
    
    
    1,898
    
    
    
    5.12
    
    
    
    132,895
    
    
    
    1,397
    
    
    
    4.22Portfolio Loans (4):Commercial and industrial
    
    
    2,658,841
    
    
    
    35,985
    
    
    
    5.54
    
    
    
    2,068,195
    
    
    
    38,065
    
    
    
    7.51Commercial real estate
    
    
    3,159,286
    
    
    
    49,824
    
    
    
    6.35
    
    
    
    3,100,675
    
    
    
    59,916
    
    
    
    7.76Residential mortgage
    
    
    1,355,377
    
    
    
    20,804
    
    
    
    6.14
    
    
    
    1,506,639
    
    
    
    25,111
    
    
    
    6.67Direct consumer
    
    
    1,517,420
    
    
    
    25,203
    
    
    
    6.68
    
    
    
    1,655,217
    
    
    
    32,409
    
    
    
    7.85Indirect consumer
    
    
    823,530
    
    
    
    13,696
    
    
    
    6.69
    
    
    
    838,899
    
    
    
    13,953
    
    
    
    6.67Total portfolio loans
    
    
    9,514,454
    
    
    
    145,512
    
    
    
    6.18
    
    
    
    9,169,625
    
    
    
    169,454
    
    
    
    7.44Loans held for sale
    
    
    65,430
    
    
    
    667
    
    
    
    4.08
    
    
    
    94,817
    
    
    
    1,866
    
    
    
    7.89Total earning assets (3)
    
    
    11,885,302
    
    
    
    174,394
    
    
    
    6.05
    
    
    
    11,795,503
    
    
    
    202,353
    
    
    
    7.03Nonearning AssetsCash and due from banks
    
    
    193,533
    
    
    
    
    
    
    
    
    
    
    
    188,244Bank premises and equipment
    
    
    126,311
    
    
    
    
    
    
    
    
    
    
    
    140,277Investment security fair value adjustment
    
    
    19,097
    
    
    
    
    
    
    
    
    
    
    
    300Other nonearning assets
    
    
    1,249,579
    
    
    
    
    
    
    
    
    
    
    
    1,286,255Allowance for loan losses
    
    
    (177,441
    )
    
    
    
    
    
    
    
    
    
    
    (169,830
    )Total assets
    
    $
    13,296,381
    
    
    
    
    
    
    
    
    
    
    $
    13,240,749Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    $
    769,241
    
    
    $
    1,261
    
    
    
    0.66
    %
    
    $
    841,026
    
    
    $
    1,400
    
    
    
    0.67
    %Savings deposits
    
    
    2,645,759
    
    
    
    10,759
    
    
    
    1.64
    
    
    
    2,170,649
    
    
    
    15,870
    
    
    
    2.93Time deposits
    
    
    4,073,917
    
    
    
    41,114
    
    
    
    4.06
    
    
    
    4,007,354
    
    
    
    46,931
    
    
    
    4.70Short-term borrowings
    
    
    337,373
    
    
    
    1,836
    
    
    
    2.19
    
    
    
    741,617
    
    
    
    9,064
    
    
    
    4.90Long-term debt
    
    
    2,673,757
    
    
    
    31,809
    
    
    
    4.78
    
    
    
    2,631,605
    
    
    
    32,311
    
    
    
    4.92Total interest-bearing liabilities
    
    
    10,500,047
    
    
    
    86,779
    
    
    
    3.32
    
    
    
    10,392,251
    
    
    
    105,576
    
    
    
    4.07Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,114,849
    
    
    
    
    
    
    
    
    
    
    
    1,138,134Other liabilities
    
    
    135,932
    
    
    
    
    
    
    
    
    
    
    
    159,015Shareholders equity
    
    
    1,545,553
    
    
    
    
    
    
    
    
    
    
    
    1,551,349Total liabilities and shareholders equity
    
    $
    13,296,381
    
    
    
    
    
    
    
    
    
    
    $
    13,240,749Net Interest Income
    
    
    
    
    
    $
    87,615
    
    
    
    
    
    
    
    
    
    
    $
    96,777Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.73
    %
    
    
    
    
    
    
    
    
    
    
    2.96
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.38
    
    
    
    
    
    
    
    
    
    
    
    0.48Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.11
    %
    
    
    
    
    
    
    
    
    
    
    3.44
    %
 
 (1)
    
    Interest income is shown on actual basis and does not include taxable equivalent adjustments.(2)
    
    Average rates are presented on an annual basis and include taxable equivalent adjustments to
interest income of $4.6 million and $4.6 million for the three months ended June 30, 2008 and 2007,
respectively, based on a tax rate of 35%.(3)
    
    For presentation in this table, average balances and the corresponding average rates for
investment securities are based upon historical cost, adjusted for amortization of premiums and
accretion of discounts.(4)
    
    Nonaccrual loans are included in average balances for each applicable loan category.(5)
    
    The interest spread and net interest margin are presented on a tax-equivalent basis.(6)
    
    Because noninterest-bearing funding sources, demand deposits, other liabilities and
shareholders equity also support earning assets, the net interest margin exceeds the interest
spread. 26




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##### Table of Contents



Average Balances/Net Interest Income/Average Rates
 2008
    
    
    2007Six Months Ended June 30,
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    

Interest(1)
    
    

Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    3,434
    
    
    $
    46
    
    
    
    2.68
    %
    
    $
    1,808
    
    
    $
    36
    
    
    
    4.01
    %Investment securities (3):Taxable
    
    
    1,506,082
    
    
    
    40,044
    
    
    
    5.32
    
    
    
    1,832,008
    
    
    
    46,099
    
    
    
    5.03Tax-exempt
    
    
    674,746
    
    
    
    14,650
    
    
    
    6.68
    
    
    
    669,399
    
    
    
    14,637
    
    
    
    6.73FHLB and Federal Reserve stock
    
    
    148,839
    
    
    
    3,591
    
    
    
    4.85
    
    
    
    132,895
    
    
    
    3,133
    
    
    
    4.75Portfolio Loans (4):Commercial and industrial
    
    
    2,611,432
    
    
    
    73,131
    
    
    
    5.73
    
    
    
    2,014,734
    
    
    
    75,284
    
    
    
    7.67Commercial real estate
    
    
    3,150,765
    
    
    
    103,711
    
    
    
    6.62
    
    
    
    3,127,056
    
    
    
    119,519
    
    
    
    7.71Residential mortgage loans
    
    
    1,386,545
    
    
    
    43,767
    
    
    
    6.31
    
    
    
    1,521,057
    
    
    
    50,671
    
    
    
    6.66Direct consumer
    
    
    1,535,383
    
    
    
    53,109
    
    
    
    6.96
    
    
    
    1,675,725
    
    
    
    65,129
    
    
    
    7.84Indirect consumer
    
    
    822,706
    
    
    
    27,565
    
    
    
    6.74
    
    
    
    835,925
    
    
    
    27,889
    
    
    
    6.73Total portfolio loans
    
    
    9,506,831
    
    
    
    301,283
    
    
    
    6.40
    
    
    
    9,174,497
    
    
    
    338,492
    
    
    
    7.46Loans held for sale
    
    
    69,744
    
    
    
    1,897
    
    
    
    5.44
    
    
    
    119,275
    
    
    
    4,672
    
    
    
    7.88Total earning assets (3)
    
    
    11,909,676
    
    
    
    361,511
    
    
    
    6.25
    
    
    
    11,929,882
    
    
    
    407,069
    
    
    
    7.02Nonearning AssetsCash and due from banks
    
    
    199,318
    
    
    
    
    
    
    
    
    
    
    
    188,502Bank premises and equipment
    
    
    128,263
    
    
    
    
    
    
    
    
    
    
    
    139,954Investment security fair value adjustment
    
    
    25,695
    
    
    
    
    
    
    
    
    
    
    
    1,719Other nonearning assets
    
    
    1,278,010
    
    
    
    
    
    
    
    
    
    
    
    1,315,251Allowance for loan losses
    
    
    (171,628
    )
    
    
    
    
    
    
    
    
    
    
    (168,806
    )Total assets
    
    $
    13,369,334
    
    
    
    
    
    
    
    
    
    
    $
    13,406,502Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    $
    772,999
    
    
    $
    2,530
    
    
    
    0.66
    %
    
    $
    871,908
    
    
    $
    3,064
    
    
    
    0.71
    %Savings deposits
    
    
    2,529,242
    
    
    
    25,008
    
    
    
    1.99
    
    
    
    2,220,812
    
    
    
    32,443
    
    
    
    2.95Time deposits
    
    
    4,105,737
    
    
    
    87,174
    
    
    
    4.27
    
    
    
    4,105,947
    
    
    
    95,128
    
    
    
    4.67Short-term borrowings
    
    
    485,014
    
    
    
    6,807
    
    
    
    2.82
    
    
    
    823,462
    
    
    
    20,065
    
    
    
    4.91Long-term debt
    
    
    2,669,559
    
    
    
    64,065
    
    
    
    4.82
    
    
    
    2,521,684
    
    
    
    61,251
    
    
    
    4.89Total interest-bearing liabilities
    
    
    10,562,551
    
    
    
    185,584
    
    
    
    3.53
    
    
    
    10,543,813
    
    
    
    211,951
    
    
    
    4.05Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,102,552
    
    
    
    
    
    
    
    
    
    
    
    1,141,435Other liabilities
    
    
    142,135
    
    
    
    
    
    
    
    
    
    
    
    169,556Shareholders equity
    
    
    1,562,096
    
    
    
    
    
    
    
    
    
    
    
    1,551,698Total liabilities and shareholders equity
    
    $
    13,369,334
    
    
    
    
    
    
    
    
    
    
    $
    13,406,502Net Interest Income
    
    
    
    
    
    $
    175,927
    
    
    
    
    
    
    
    
    
    
    $
    195,118Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.72
    %
    
    
    
    
    
    
    
    
    
    
    2.97
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.40
    
    
    
    
    
    
    
    
    
    
    
    0.47Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.12
    %
    
    
    
    
    
    
    
    
    
    
    3.44
    %
 
 (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 $9.3 million and $9.3 million for the six
months ended June 30, 2008 and 2007, respectively, based on a tax rate of 35%.(3)
    
    For presentation in this table, average balances and the corresponding average
rates for investment securities are based upon historical cost, adjusted for amortization of
premiums and accretion of discounts.(4)
    
    Nonaccrual loans are included in average
balances for each applicable loan category.(5)
    
    The interest spread and net interest margin
are presented on a tax-equivalent basis.(6)
    
    Because noninterest-bearing funding sources, demand deposits, other
liabilities and shareholders equity also support earning assets, the net interest margin
exceeds the interest spread.  27




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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)2008 compared with 2007
    
    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
    
    $
    (2
    )
    
    $
    1
    
    
    $
    (3
    )
    
    $
    10
    
    
    $
    (15
    )
    
    $
    25Investment securities:Taxable
    
    
    (3,288
    )
    
    
    (167
    )
    
    
    (3,121
    )
    
    
    (6,055
    )
    
    
    2,499
    
    
    
    (8,554
    )Tax-exempt
    
    
    (28
    )
    
    
    (51
    )
    
    
    23
    
    
    
    14
    
    
    
    (102
    )
    
    
    116FHLB and Federal Reserve stock
    
    
    501
    
    
    
    321
    
    
    
    180
    
    
    
    458
    
    
    
    75
    
    
    
    383Loans:Commercial and industrial
    
    
    (2,079
    )
    
    
    (11,457
    )
    
    
    9,378
    
    
    
    (2,153
    )
    
    
    (21,550
    )
    
    
    19,397Commercial real estate
    
    
    (10,092
    )
    
    
    (11,205
    )
    
    
    1,113
    
    
    
    (15,808
    )
    
    
    (16,724
    )
    
    
    916Residential mortgage loans
    
    
    (4,307
    )
    
    
    (1,897
    )
    
    
    (2,410
    )
    
    
    (6,904
    )
    
    
    (2,571
    )
    
    
    (4,333
    )Direct consumer
    
    
    (7,206
    )
    
    
    (4,653
    )
    
    
    (2,553
    )
    
    
    (12,020
    )
    
    
    (6,897
    )
    
    
    (5,123
    )Indirect consumer
    
    
    (258
    )
    
    
    (2
    )
    
    
    (256
    )
    
    
    (324
    )
    
    
    49
    
    
    
    (373
    )Total portfolio loans
    
    
    (23,943
    )
    
    
    (29,214
    )
    
    
    5,272
    
    
    
    (37,209
    )
    
    
    (47,693
    )
    
    
    10,484Loans held for sale
    
    
    (1,198
    )
    
    
    (729
    )
    
    
    (469
    )
    
    
    (2,774
    )
    
    
    (1,175
    )
    
    
    (1,599
    )Total
    
    
    (27,959
    )
    
    
    (29,839
    )
    
    
    1,882
    
    
    
    (45,557
    )
    
    
    (46,411
    )
    
    
    855Interest Expense on Interest-Bearing Liabilities:Deposits:Interest-bearing demand
    
    
    (139
    )
    
    
    (21
    )
    
    
    (118
    )
    
    
    (534
    )
    
    
    (206
    )
    
    
    (328
    )Savings
    
    
    (5,110
    )
    
    
    (8,074
    )
    
    
    2,964
    
    
    
    (7,434
    )
    
    
    (11,531
    )
    
    
    4,097Time
    
    
    (5,817
    )
    
    
    (6,585
    )
    
    
    768
    
    
    
    (7,954
    )
    
    
    (7,949
    )
    
    
    (5
    )Short-term borrowings
    
    
    (7,230
    )
    
    
    (3,648
    )
    
    
    (3,582
    )
    
    
    (13,259
    )
    
    
    (6,754
    )
    
    
    (6,505
    )Long-term debt
    
    
    (502
    )
    
    
    (1,014
    )
    
    
    512
    
    
    
    2,814
    
    
    
    (878
    )
    
    
    3,692Total
    
    
    (18,798
    )
    
    
    (19,342
    )
    
    
    544
    
    
    
    (26,367
    )
    
    
    (27,318
    )
    
    
    951Net Interest Income
    
    $
    (9,160
    )
    
    $
    (10,497
    )
    
    $
    1,338
    
    
    $
    (19,191
    )
    
    $
    (19,093
    )
    
    $
    (96
    )
 
 (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. 28




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##### Table of Contents



Noninterest Income
  29




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##### Table of Contents



Noninterest Income
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    Change in 2008
    
    
    June 30,
    
    
    Change in 2008(dollars in thousands)
    
    2008
    
    
    2007
    
    
    Amount
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Amount
    
    
    PercentService charges on deposit accounts
    
    $
    12,036
    
    
    $
    12,080
    
    
    $
    (44
    )
    
    
    (0.4
    )%
    
    $
    23,502
    
    
    $
    23,186
    
    
    $
    316
    
    
    
    1.4
    %Trust fees
    
    
    4,608
    
    
    
    5,003
    
    
    
    (395
    )
    
    
    (7.9
    )
    
    
    9,392
    
    
    
    9,958
    
    
    
    (566
    )
    
    
    (5.7
    )Mortgage and other loan income
    
    
    3,023
    
    
    
    4,258
    
    
    
    (1,235
    )
    
    
    (29.0
    )
    
    
    6,367
    
    
    
    10,395
    
    
    
    (4,028
    )
    
    
    (38.8
    )Brokerage and investment fees
    
    
    2,211
    
    
    
    2,182
    
    
    
    29
    
    
    
    1.3
    
    
    
    4,127
    
    
    
    3,731
    
    
    
    396
    
    
    
    10.6ATM network user fees
    
    
    1,677
    
    
    
    1,640
    
    
    
    37
    
    
    
    2.3
    
    
    
    3,090
    
    
    
    3,219
    
    
    
    (129
    )
    
    
    (4.0
    )Bankcard fees
    
    
    1,924
    
    
    
    1,443
    
    
    
    481
    
    
    
    33.3
    
    
    
    3,668
    
    
    
    2,623
    
    
    
    1,045
    
    
    
    39.8Gains (losses) on held for sale loans
    
    
    (2,248
    )
    
    
    
    
    
    
    (2,248
    )
    
    
    
    
    
    
    (2,247
    )
    
    
    
    
    
    
    (2,247
    )
    
    
    N/MOther income
    
    
    3,827
    
    
    
    4,672
    
    
    
    (845
    )
    
    
    (18.1
    )
    
    
    10,084
    
    
    
    9,589
    
    
    
    495
    
    
    
    5.2Total fees and other income
    
    
    27,058
    
    
    
    31,278
    
    
    
    (4,220
    )
    
    
    (13.5
    )
    
    
    57,983
    
    
    
    62,701
    
    
    
    (4,718
    )
    
    
    (7.5
    )Investment securities gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    33
    
    
    
    (100.0
    )Total noninterest income
    
    $
    27,058
    
    
    $
    31,278
    
    
    $
    (4,220
    )
    
    
    (13.5
    )
    
    $
    57,983
    
    
    $
    62,668
    
    
    $
    (4,685
    )
    
    
    (7.5
    )
 
 N/M  Not Meaningful    Noninterest Expense
  30




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##### Table of Contents



Noninterest Expense
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    Change in 2008
    
    
    June 30,
    
    
    Change in 2008(dollars in thousands)
    
    2008
    
    
    2007
    
    
    Amount
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Amount
    
    
    PercentSalaries and employee benefits
    
    $
    39,046
    
    
    $
    45,971
    
    
    $
    (6,925
    )
    
    
    (15.1
    )%
    
    $
    81,271
    
    
    $
    90,136
    
    
    $
    (8,865
    )%
    
    
    (9.8
    )%Occupancy
    
    
    6,954
    
    
    
    8,076
    
    
    
    (1,122
    )
    
    
    (13.9
    )
    
    
    14,629
    
    
    
    15,986
    
    
    
    (1,357
    )
    
    
    (8.5
    )Professional services
    
    
    4,531
    
    
    
    4,351
    
    
    
    180
    
    
    
    4.1
    
    
    
    8,294
    
    
    
    8,503
    
    
    
    (209
    )
    
    
    (2.5
    )Equipment
    
    
    3,420
    
    
    
    3,655
    
    
    
    (235
    )
    
    
    (6.4
    )
    
    
    6,650
    
    
    
    7,566
    
    
    
    (916
    )
    
    
    (12.1
    )Data processing services
    
    
    4,233
    
    
    
    4,506
    
    
    
    (273
    )
    
    
    (6.1
    )
    
    
    8,537
    
    
    
    8,636
    
    
    
    (99
    )
    
    
    (1.1
    )Advertising and public relations
    
    
    1,458
    
    
    
    3,292
    
    
    
    (1,834
    )
    
    
    (55.7
    )
    
    
    3,296
    
    
    
    5,067
    
    
    
    (1,771
    )
    
    
    (35.0
    )Postage and delivery
    
    
    2,058
    
    
    
    2,196
    
    
    
    (138
    )
    
    
    (6.3
    )
    
    
    3,785
    
    
    
    4,160
    
    
    
    (375
    )
    
    
    (9.0
    )Other loan expenses
    
    
    3,448
    
    
    
    1,080
    
    
    
    2,368
    
    
    
    219.3
    
    
    
    5,259
    
    
    
    1,992
    
    
    
    3,267
    
    
    
    164.0ORE expenses, profits, and losses, net
    
    
    6,394
    
    
    
    135
    
    
    
    6,259
    
    
    
    N/M
    
    
    
    7,636
    
    
    
    34
    
    
    
    7,602
    
    
    
    N/MIntangible asset amortization
    
    
    2,333
    
    
    
    2,954
    
    
    
    (621
    )
    
    
    (21.0
    )
    
    
    4,780
    
    
    
    6,072
    
    
    
    (1,292
    )
    
    
    (21.3
    )Goodwill impairment
    
    
    178,089
    
    
    
    
    
    
    
    178,089
    
    
    
    
    
    
    
    178,089
    
    
    
    
    
    
    
    178,089
    
    
    
    Restructuring and merger-related expenses
    
    
    
    
    
    
    3,408
    
    
    
    (3,408
    )
    
    
    N/M
    
    
    
    
    
    
    
    7,594
    
    
    
    (7,594
    )
    
    
    N/MOther expenses
    
    
    9,264
    
    
    
    7,866
    
    
    
    1,398
    
    
    
    17.8
    
    
    
    15,564
    
    
    
    15,454
    
    
    
    110
    
    
    
    0.7Total noninterest expense
    
    $
    261,228
    
    
    $
    87,490
    
    
    $
    173,738
    
    
    
    198.6
    
    
    $
    337,790
    
    
    $
    171,200
    
    
    $
    166,590
    
    
    
    97.3
 
 N/M  Not Meaningful     Income Taxes
   31




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##### Table of Contents



Lines of Business Results
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Specialty Commercial
    
    $
    (190,644
    )
    
    $
    (5,205
    )
    
    $
    (194,013
    )
    
    $
    8,215Regional Banking
    
    
    5,139
    
    
    
    15,612
    
    
    
    21,416
    
    
    
    39,950Wealth Management
    
    
    497
    
    
    
    942
    
    
    
    1,475
    
    
    
    1,372Other
    
    
    (16,626
    )
    
    
    (1,730
    )
    
    
    (19,385
    )
    
    
    (8,426
    )Net Income
    
    $
    (201,634
    )
    
    $
    9,619
    
    
    $
    (190,507
    )
    
    $
    41,111
 Specialty Commercial
  Regional Banking
  Wealth Management
  32




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##### Table of Contents



Other
  Financial Condition
  Investment Securities
  Portfolio Loans
   Commercial Loan Portfolio
 June 30,
    
    
    Mar 31,
    
    
    Dec 31,
    
    
    Sept 30,
    
    
    June 30,in millions
    
    2008
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2007Land Hold
    
    $
    49.8
    
    
    $
    61.6
    
    
    $
    63.8
    
    
    $
    78.9
    
    
    $
    81.6Land Development
    
    
    128.2
    
    
    
    159.2
    
    
    
    167.8
    
    
    
    161.0
    
    
    
    178.7Construction
    
    
    344.1
    
    
    
    370.7
    
    
    
    342.6
    
    
    
    376.3
    
    
    
    371.2Income Producing
    
    
    1,569.9
    
    
    
    1,567.3
    
    
    
    1,526.0
    
    
    
    1,338.8
    
    
    
    1,338.9Owner-Occupied
    
    
    1,009.3
    
    
    
    1,015.6
    
    
    
    997.0
    
    
    
    1,113.5
    
    
    
    1,115.6Total Commercial Real Estate
    
    
    3,101.3
    
    
    
    3,174.4
    
    
    
    3,097.2
    
    
    
    3,068.5
    
    
    
    3,086.0Commercial and Industrial
    
    
    2,703.8
    
    
    
    2,653.8
    
    
    
    2,557.1
    
    
    
    2,236.2
    
    
    
    2,153.2Total Commercial Loans
    
    $
    5,805.1
    
    
    $
    5,828.2
    
    
    $
    5,654.3
    
    
    $
    5,304.7
    
    
    $
    5,239.2
  33




---



##### Table of Contents




    
    Delinquency Rates by Loan Portfolio  This table illustrates the loans where the
contractual payment is 30 to 89 days past due and interest is still accruing. While these
loans are actively worked to bring them current, past due loan trends may be a leading
indicator of potential future nonperforming loans and charge-offs.
 
    
    Commercial Watchlist  This table illustrates the commercial loans that, while still
accruing interest, may be at risk due to general economic conditions or changes in a
borrowers financial status.
 
    
    Nonperforming Assets (3-quarter and 5-quarter versions)  These tables illustrate the loans
that are in nonaccrual status, loans past due 90 days or more on which interest is still
accruing, nonperforming loans that are held for sale, and other repossessed assets acquired.
The commercial loans included in these tables are reviewed as part of the watchlist process in
addition to the loans displayed in the commercial watchlist table.
 
    
    Analysis of Allowance for Loan Losses  This table illustrates the changes that result in
the period-end allowance for loan losses position.
 
    
    Net Charge-Offs  This table illustrates the portion of loans that have been charged-off
during each quarter.
 34




---



##### Table of Contents



Delinquency Rates by Loan Portfolio
  Delinquency Rates By Loan Portfolio
 June 30, 2008
    
    
    March 31, 2008
    
    
    December 31, 2007
    
    
    September 30, 2007
    
    
    June 30, 2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    9.3
    
    
    
    18.67
    %
    
    $
    6.6
    
    
    
    10.71
    %
    
    $
    4.6
    
    
    
    7.21
    %
    
    $
    4.2
    
    
    
    5.32
    %
    
    $
    2.9
    
    
    
    3.55
    %Land Development
    
    
    1.1
    
    
    
    0.86
    
    
    
    16.3
    
    
    
    10.24
    
    
    
    28.7
    
    
    
    17.10
    
    
    
    18.4
    
    
    
    11.43
    
    
    
    22.7
    
    
    
    12.70Construction
    
    
    11.9
    
    
    
    3.46
    
    
    
    10.5
    
    
    
    2.83
    
    
    
    31.7
    
    
    
    9.25
    
    
    
    17.6
    
    
    
    4.68
    
    
    
    11.1
    
    
    
    2.99Income Producing
    
    
    48.5
    
    
    
    3.09
    
    
    
    29.3
    
    
    
    1.87
    
    
    
    54.0
    
    
    
    3.54
    
    
    
    31.2
    
    
    
    2.33
    
    
    
    24.1
    
    
    
    1.80Owner-Occupied
    
    
    18.6
    
    
    
    1.84
    
    
    
    19.0
    
    
    
    1.87
    
    
    
    20.3
    
    
    
    2.04
    
    
    
    10.8
    
    
    
    0.97
    
    
    
    17.1
    
    
    
    1.54Total Commercial Real Estate
    
    
    89.4
    
    
    
    2.88
    
    
    
    81.7
    
    
    
    2.57
    
    
    
    139.3
    
    
    
    4.50
    
    
    
    82.2
    
    
    
    2.68
    
    
    
    77.9
    
    
    
    2.53Commercial and Industrial
    
    
    29.5
    
    
    
    1.09
    
    
    
    39.9
    
    
    
    1.50
    
    
    
    39.0
    
    
    
    1.53
    
    
    
    22.0
    
    
    
    0.98
    
    
    
    22.7
    
    
    
    1.05Total Commercial Loans
    
    
    118.9
    
    
    
    2.05
    
    
    
    121.6
    
    
    
    2.09
    
    
    
    178.3
    
    
    
    3.15
    
    
    
    104.2
    
    
    
    1.96
    
    
    
    100.6
    
    
    
    1.92Residential Mortgage
    
    
    38.5
    
    
    
    2.94
    
    
    
    33.5
    
    
    
    2.40
    
    
    
    46.4
    
    
    
    3.21
    
    
    
    37.7
    
    
    
    2.58
    
    
    
    38.5
    
    
    
    2.58Direct Consumer
    
    
    18.4
    
    
    
    1.22
    
    
    
    21.7
    
    
    
    1.42
    
    
    
    24.3
    
    
    
    1.55
    
    
    
    21.5
    
    
    
    1.34
    
    
    
    19.6
    
    
    
    1.20Indirect Consumer
    
    
    14.4
    
    
    
    1.73
    
    
    
    13.3
    
    
    
    1.62
    
    
    
    15.9
    
    
    
    1.92
    
    
    
    14.7
    
    
    
    1.73
    
    
    
    11.6
    
    
    
    1.37Total Delinquent Loans
    
    $
    190.2
    
    
    
    2.01
    %
    
    $
    190.1
    
    
    
    1.99
    %
    
    $
    264.9
    
    
    
    2.79
    %
    
    $
    178.1
    
    
    
    1.93
    %
    
    $
    170.3
    
    
    
    1.85
    %
  Commercial Watchlist
  Commercial Watchlist
 June 30, 2008
    
    
    March 31, 2008
    
    
    December 31, 2007
    
    
    September 30, 2007
    
    
    June 30, 2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    24.2
    
    
    
    48.59
    %
    
    $
    27.7
    
    
    
    44.97
    %
    
    $
    27.1
    
    
    
    42.48
    %
    
    $
    27.0
    
    
    
    34.22
    %
    
    $
    25.2
    
    
    
    30.88
    %Land Development
    
    
    47.5
    
    
    
    37.05
    
    
    
    55.9
    
    
    
    35.11
    
    
    
    72.7
    
    
    
    43.33
    
    
    
    52.3
    
    
    
    32.48
    
    
    
    73.0
    
    
    
    40.85Construction
    
    
    86.3
    
    
    
    25.08
    
    
    
    66.7
    
    
    
    17.99
    
    
    
    90.1
    
    
    
    26.30
    
    
    
    91.7
    
    
    
    24.37
    
    
    
    101.4
    
    
    
    27.32Income Producing
    
    
    239.3
    
    
    
    15.24
    
    
    
    221.3
    
    
    
    14.12
    
    
    
    225.5
    
    
    
    14.78
    
    
    
    173.8
    
    
    
    12.98
    
    
    
    161.0
    
    
    
    12.02Owner-Occupied
    
    
    161.8
    
    
    
    16.03
    
    
    
    155.8
    
    
    
    15.34
    
    
    
    153.0
    
    
    
    15.35
    
    
    
    213.0
    
    
    
    19.13
    
    
    
    219.4
    
    
    
    19.67Total Commercial Real Estate
    
    
    559.1
    
    
    
    18.03
    
    
    
    527.4
    
    
    
    16.61
    
    
    
    568.4
    
    
    
    18.35
    
    
    
    557.8
    
    
    
    18.18
    
    
    
    580.0
    
    
    
    18.79Commercial and Industrial
    
    
    432.5
    
    
    
    16.00
    
    
    
    407.1
    
    
    
    15.34
    
    
    
    387.4
    
    
    
    15.15
    
    
    
    362.4
    
    
    
    16.21
    
    
    
    359.8
    
    
    
    16.71Total Watchlist Loans
    
    $
    991.6
    
    
    
    17.08
    %
    
    $
    934.5
    
    
    
    16.03
    %
    
    $
    955.8
    
    
    
    16.90
    %
    
    $
    920.2
    
    
    
    17.35
    %
    
    $
    939.8
    
    
    
    17.94
    %
  35




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##### Table of Contents



Nonperforming Assets
  Nonperforming Assets
 June 30,
    
    
    December 31,
    
    
    June 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2007Nonperforming LoansCommercial
    
    $
    31,599
    
    
    $
    12,659
    
    
    $
    8,563Commercial real estate
    
    
    75,082
    
    
    
    110,159
    
    
    
    60,797Total commercial
    
    
    106,681
    
    
    
    122,818
    
    
    
    69,360Residential mortgage
    
    
    12,414
    
    
    
    46,865
    
    
    
    35,397Direct consumer
    
    
    16,273
    
    
    
    13,657
    
    
    
    9,140Indirect consumer
    
    
    1,373
    
    
    
    2,057
    
    
    
    1,053Total consumer
    
    
    17,646
    
    
    
    15,714
    
    
    
    10,193Total nonaccrual loans
    
    
    136,741
    
    
    
    185,397
    
    
    
    114,950Loans 90 days past due and still accruing
    
    
    2,179
    
    
    
    3,650
    
    
    
    1,127Restructured loans
    
    
    285
    
    
    
    315
    
    
    
    348Total nonperforming portfolio loans
    
    
    139,205
    
    
    
    189,362
    
    
    
    116,425Nonperforming loans held for sale
    
    
    92,658
    
    
    
    21,676
    
    
    
    5,128Other Repossessed Assets Acquired (ORAA)
    
    
    54,066
    
    
    
    40,502
    
    
    
    24,811Total nonperforming assets
    
    $
    285,929
    
    
    $
    251,540
    
    
    $
    146,364Nonperforming assets as a percent of portfolio loans plus ORAA (1)
    
    
    3.01
    %
    
    
    2.64
    %
    
    
    1.58
    %Nonperforming assets as a percent of total assets
    
    
    2.17
    
    
    
    1.86
    
    
    
    1.10Allowance for loan loss as a percent of nonperforming loans
    
    
    130.54
    
    
    
    86.26
    
    
    
    155.57Allowance for loan loss as a percent of nonperforming assets
    
    
    63.55
    
    
    
    64.94
    
    
    
    123.74
 
 (1)
    
    Portfolio loans exclude mortgage loans held for sale.   36




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##### Table of Contents



Nonperforming Assets
 June 30, 2008
    
    
    March 31, 2008
    
    
    December 31, 2007
    
    
    September 30, 2007
    
    
    June 30, 2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    3.4
    
    
    
    6.83
    %
    
    $
    5.5
    
    
    
    8.93
    %
    
    $
    4.5
    
    
    
    7.05
    %
    
    $
    3.0
    
    
    
    3.80
    %
    
    $
    0.2
    
    
    
    0.25
    %Land Development
    
    
    22.8
    
    
    
    17.78
    
    
    
    46.4
    
    
    
    29.15
    
    
    
    35.6
    
    
    
    21.22
    
    
    
    40.4
    
    
    
    25.09
    
    
    
    17.7
    
    
    
    9.90Construction
    
    
    12.6
    
    
    
    3.66
    
    
    
    51.9
    
    
    
    14.00
    
    
    
    28.8
    
    
    
    8.41
    
    
    
    18.6
    
    
    
    4.94
    
    
    
    20.9
    
    
    
    5.63Income Producing
    
    
    23.1
    
    
    
    1.47
    
    
    
    40.5
    
    
    
    2.58
    
    
    
    21.5
    
    
    
    1.41
    
    
    
    26.5
    
    
    
    1.98
    
    
    
    14.8
    
    
    
    1.11Owner-Occupied
    
    
    13.2
    
    
    
    1.31
    
    
    
    23.5
    
    
    
    2.31
    
    
    
    19.7
    
    
    
    1.98
    
    
    
    9.0
    
    
    
    0.81
    
    
    
    7.2
    
    
    
    0.65Total Commercial Real Estate
    
    
    75.1
    
    
    
    2.42
    
    
    
    167.8
    
    
    
    5.29
    
    
    
    110.1
    
    
    
    3.55
    
    
    
    97.5
    
    
    
    3.18
    
    
    
    60.8
    
    
    
    1.97Commercial and Industrial
    
    
    31.6
    
    
    
    1.17
    
    
    
    20.3
    
    
    
    0.76
    
    
    
    12.7
    
    
    
    0.50
    
    
    
    9.4
    
    
    
    0.42
    
    
    
    8.6
    
    
    
    0.40Total Nonperforming Commercial Loans
    
    
    106.7
    
    
    
    1.84
    
    
    
    188.1
    
    
    
    3.23
    
    
    
    122.8
    
    
    
    2.17
    
    
    
    106.9
    
    
    
    2.02
    
    
    
    69.4
    
    
    
    1.32Residential Mortgage
    
    
    12.4
    
    
    
    0.95
    
    
    
    45.8
    
    
    
    3.29
    
    
    
    46.9
    
    
    
    3.25
    
    
    
    32.8
    
    
    
    2.25
    
    
    
    35.4
    
    
    
    2.37Direct Consumer
    
    
    16.3
    
    
    
    1.09
    
    
    
    13.5
    
    
    
    0.88
    
    
    
    13.7
    
    
    
    0.87
    
    
    
    10.9
    
    
    
    0.68
    
    
    
    9.1
    
    
    
    0.56Indirect Consumer
    
    
    1.4
    
    
    
    0.17
    
    
    
    1.7
    
    
    
    0.21
    
    
    
    2.1
    
    
    
    0.25
    
    
    
    1.8
    
    
    
    0.21
    
    
    
    1.1
    
    
    
    0.13Loans 90+ days still
accruing and restructured
    
    
    2.4
    
    
    
    0.03
    
    
    
    4.4
    
    
    
    0.05
    
    
    
    3.9
    
    
    
    0.04
    
    
    
    2.4
    
    
    
    0.03
    
    
    
    1.4
    
    
    
    0.02Total Nonperforming Portfolio Loans
    
    
    139.2
    
    
    
    1.47
    %
    
    
    253.5
    
    
    
    2.65
    %
    
    
    189.4
    
    
    
    1.99
    %
    
    
    154.8
    
    
    
    1.68
    %
    
    
    116.4
    
    
    
    1.26
    %Nonperforming Held for Sale
    
    
    92.6
    
    
    
    
    
    
    
    22.8
    
    
    
    
    
    
    
    21.6
    
    
    
    
    
    
    
    5.8
    
    
    
    
    
    
    
    5.1Other Repossessed Assets Acquired
    
    
    54.1
    
    
    
    
    
    
    
    50.3
    
    
    
    
    
    
    
    40.5
    
    
    
    
    
    
    
    30.4
    
    
    
    
    
    
    
    24.9Total Nonperforming Assets
    
    $
    285.9
    
    
    
    
    
    
    $
    326.6
    
    
    
    
    
    
    $
    251.5
    
    
    
    
    
    
    $
    191.0
    
    
    
    
    
    
    $
    146.4
  Allowance for Loan Losses, Provision for loan losses, and Net Charge-Offs
  Analysis of Allowance for Loan Losses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Allowance for loan losses  beginning of period
    
    $
    176,528
    
    
    $
    169,239
    
    
    $
    163,353
    
    
    $
    169,104Provision for loan losses
    
    
    74,480
    
    
    
    31,857
    
    
    
    105,099
    
    
    
    35,357Charge-offs
    
    
    71,040
    
    
    
    22,335
    
    
    
    89,649
    
    
    
    28,211Recoveries
    
    
    1,750
    
    
    
    2,357
    
    
    
    2,915
    
    
    
    4,868Net charge-offs
    
    
    69,290
    
    
    
    19,978
    
    
    
    86,734
    
    
    
    23,343Allowance for loan losses  end of period
    
    $
    181,718
    
    
    $
    181,118
    
    
    $
    181,718
    
    
    $
    181,118Portfolio loans outstanding at period end (1)
    
    $
    9,449,016
    
    
    $
    9,215,964
    
    
    $
    9,449,016
    
    
    $
    9,215,964Average portfolio loans outstanding during period (1)
    
    
    9,514,454
    
    
    
    9,169,625
    
    
    
    9,506,831
    
    
    
    9,174,497Allowance for loan losses as a percentage of portfolio loans
    
    
    1.92
    %
    
    
    1.97
    %
    
    
    1.92
    %
    
    
    1.97
    %Ratio of net charge-offs during period to average portfolio loans (annualized)
    
    
    2.93
    
    
    
    0.87
    
    
    
    1.83
    
    
    
    0.51
 
 (1)
    
    Balance exclude mortgage loans held for sale.  37




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##### Table of Contents



Net Charge-Offs
 Three Months EndedJune 30, 2008
    
    
    March 31, 2008
    
    
    December 31, 2007
    
    
    September 30, 2007
    
    
    June 30, 2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**Land Hold
    
    $
    0.7
    
    
    
    5.62
    %
    
    $
    0.5
    
    
    
    3.25
    %
    
    $
    0.4
    
    
    
    2.51
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
   
    %Land Development
    
    
    16.4
    
    
    
    51.17
    
    
    
    6.6
    
    
    
    16.58
    
    
    
    6.3
    
    
    
    15.02
    
    
    
    0.4
    
    
    
    0.99
    
    
    
    6.4
    
    
    
    14.33Construction
    
    
    13.8
    
    
    
    16.04
    
    
    
    1.2
    
    
    
    1.29
    
    
    
    1.8
    
    
    
    2.10
    
    
    
    0.1
    
    
    
    0.11
    
    
    
    4.1
    
    
    
    4.43Income Producing
    
    
    7.7
    
    
    
    1.96
    
    
    
    0.9
    
    
    
    0.23
    
    
    
    2.4
    
    
    
    0.63
    
    
    
    0.1
    
    
    
    0.03
    
    
    
    2.3
    
    
    
    0.69Owner-Occupied
    
    
    3.4
    
    
    
    1.35
    
    
    
    (0.1
    )
    
    
    (0.04
    )
    
    
    (0.2
    )
    
    
    (0.08
    )
    
    
    0.6
    
    
    
    0.22
    
    
    
    0.9
    
    
    
    0.32Total Commercial Real Estate
    
    
    42.0
    
    
    
    5.42
    
    
    
    9.1
    
    
    
    1.15
    
    
    
    10.7
    
    
    
    1.38
    
    
    
    1.2
    
    
    
    0.16
    
    
    
    13.7
    
    
    
    1.78Commercial and Industrial
    
    
    0.6
    
    
    
    0.09
    
    
    
    0.9
    
    
    
    0.14
    
    
    
    1.4
    
    
    
    0.22
    
    
    
    0.6
    
    
    
    0.11
    
    
    
    1.8
    
    
    
    0.33Total Commercial Loans
    
    
    42.6
    
    
    
    2.94
    
    
    
    10.0
    
    
    
    0.69
    
    
    
    12.1
    
    
    
    0.86
    
    
    
    1.8
    
    
    
    0.14
    
    
    
    15.5
    
    
    
    1.19Residential Mortgage
    
    
    20.7
    
    
    
    6.33
    
    
    
    1.8
    
    
    
    0.52
    
    
    
    2.0
    
    
    
    0.55
    
    
    
    1.6
    
    
    
    0.44
    
    
    
    0.7
    
    
    
    0.18Direct Consumer
    
    
    3.1
    
    
    
    0.83
    
    
    
    3.0
    
    
    
    0.79
    
    
    
    2.3
    
    
    
    0.59
    
    
    
    2.6
    
    
    
    0.65
    
    
    
    2.6
    
    
    
    0.64Indirect Consumer
    
    
    2.9
    
    
    
    1.39
    
    
    
    2.6
    
    
    
    1.27
    
    
    
    3.3
    
    
    
    1.59
    
    
    
    1.9
    
    
    
    0.88
    
    
    
    1.2
    
    
    
    0.58Total Net Charge-offs
    
    $
    69.3
    
    
    
    2.93
    %
    
    $
    17.4
    
    
    
    0.74
    %
    
    $
    19.7
    
    
    
    0.84
    %
    
    $
    7.9
    
    
    
    0.34
    %
    
    $
    20.0
    
    
    
    0.87
    %
 
 **
    
    Represents an annualized rate.     38




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##### Table of Contents



Loans Held for Sale
  Goodwill
  Deposits
   Borrowed Funds
  39




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##### Table of Contents



Capital Resources
  Capital Ratios
 Regulatory MinimumWell-
    
    June 30,
    
    December 31,
    
    June 30,Required
    
    Capitalized
    
    2008
    
    2007
    
    2007Risk based:Tier 1 capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    10.80
    %
    
    
    9.18
    %
    
    
    9.09
    %Total capital
    
    
    8.00
    
    
    
    10.00
    
    
    
    13.03
    
    
    
    11.66
    
    
    
    11.59Tier 1 Leverage
    
    
    4.00
    
    
    
    5.00
    
    
    
    8.71
    
    
    
    7.53
    
    
    
    7.33
   40




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##### Table of Contents



Contractual Obligations and Off-Balance Sheet Arrangements
  Liquidity and Debt Capacity
         41




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##### Table of Contents



Interest Rate Risk
       42




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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
   43




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Total Number ofShares Purchased as
    
    Maximum Number ofPart of Publicly
    
    Shares That May YetTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    Be Purchased UnderPeriod
    
    Shares Purchased
    
    Per Share
    
    Programs
    
    The Plans or ProgramsApril 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,241,154May 2008
    
    
    14,214
    (a)
    
    
    5.88
    
    
    
    
    
    
    
    1,241,154June 2008
    
    
    10,804
    (a)
    
    
    3.01
    
    
    
    
    
    
    
    1,241,154Total
    
    
    25,018
    
    
    
    4.65
    
    
    
    
    
    
    
    1,241,154
 
 (a)
    
    Shares repurchased in connection with taxes due from employees as a result of the vesting of
certain restricted share awards in accordance with the related grant agreements. These were
not part of the repurchase program approved in October 2003. ®
 44




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  Director
    
    For
    
    Withheld
    
    % Votes ForLizabeth A. Ardisana
    
    
    59,459,955
    
    
    
    5,712,742
    
    
    
    78.50Gary J. Hurand
    
    
    60,181,265
    
    
    
    4,991,433
    
    
    
    79.45Stephen J. Lazaroff
    
    
    60,096,368
    
    
    
    5,076,329
    
    
    
    79.34Steven E. Zack
    
    
    60,090,868
    
    
    
    5,081,830
    
    
    
    79.33
 BrokerFor
    
    Against
    
    Abstain
    
    Non-VotesApprove various amendments to the
Amended and Restated Articles of
Incorporation
    
    
    45,249,396
    
    
    
    4,252,767
    
    
    
    282,831
    
    
    
    15,387,705Ratify the selection of Ernst & Young LLP
    
    
    61,317,807
    
    
    
    3,612,124
    
    
    
    242,763
    
    
    
    
 
 Item 5. Other Information
     45




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##### Table of Contents



Item 6. Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation of Citizens Republic Bancorp, Inc., as
amended through June 11, 20084.18
    
    Specimen certificate representing the Series A Preferred Stock (incorporated by
reference from Exhibit 4.1 of Citizens Current Report on Form 8-K filed June 11, 2008)10.43
    
    2008 Management Incentive Plan*31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 193432.1
    
    Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities
Exchange Act of 1934
 
 *
    
    Portions of this exhibit have been omitted pursuant to Citizens request to the
Secretary of the Securities and Exchange Commission for confidential treatment pursuant to
Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. 46




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##### Table of Contents



SIGNATURES
   Date: August 6, 2008
    By

    /s/ Charles D. ChristyCharles D. ChristyChief Financial Officer
(principal financial officer and duly authorized officer) 47




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##### Table of Contents



10-Q EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Articles of Incorporation of Citizens Republic Bancorp, Inc., as
amended through June 11,
20084.18
    
    Specimen certificate representing the Series A Preferred Stock (incorporated by
reference from Exhibit 4.1 of Citizens Current Report on Form 8-K filed June 11, 2008)10.43
    
    2008 Management Incentive Plan*31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 193432.1
    
    Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities
Exchange Act of 1934
 
 *
    
    Portions of this exhibit have been omitted pursuant to Citizens request to the Secretary of
the Securities and Exchange Commission for confidential treatment pursuant to Rule 24b-2 under
the Securities and Exchange Act of 1934, as amended. 48