##### 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 September 30, 2009
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition
period from
to
 Commission file Number 001-33063
 CITIZENS REPUBLIC BANCORP, INC.
  MICHIGAN
    
    38-2378932(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 328 S. Saginaw St., Flint, Michigan
    
    48502(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year,
  þ o
 o o
  Large accelerated filer o   
    Accelerated filer þ
    Non-accelerated filer o
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   Class
    
    Outstanding at October 30, 2009Common Stock, No Par Value
    
    394,452,570 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
    
    
    31Item 3   Quantitative and Qualitative Disclosures about Market Risk
    
    
    53Item 4   Controls and Procedures
    
    
    53Part II  Other InformationItem 1A   Risk Factors
    
    
    54Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    54Item 4   Submission of Matters to a Vote of Security Holders
    
    
    55Item 5   Other Information
    
    
    55Item 6   Exhibits
    
    
    55Signatures
    
    
    56Exhibit Index
    
    
    57EX-10.54EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



Consolidated Balance Sheets  Citizens Republic Bancorp and Subsidiaries
 September 30,
    
    
    December 31,
    
    
    September 30,(in thousands, except share amounts)
    
    2009
    
    
    2008
    
    
    2008(unaudited)
    
    
    (Note 1)
    
    
    (unaudited)AssetsCash and due from banks
    
    $
    164,537
    
    
    $
    171,695
    
    
    $
    268,944Money market investments
    
    
    533,540
    
    
    
    214,925
    
    
    
    2,568Investment Securities:Securities available for sale, at fair value
    
    
    2,235,323
    
    
    
    2,248,772
    
    
    
    2,018,958Securities held to maturity, at amortized cost

(fair value of $144,440; $137,846; and $134,367; respectively)
    
    
    137,087
    
    
    
    138,575
    
    
    
    139,574Total investment securities
    
    
    2,372,410
    
    
    
    2,387,347
    
    
    
    2,158,532FHLB and Federal Reserve stock
    
    
    156,278
    
    
    
    148,764
    
    
    
    148,768Portfolio loans:Commercial and industrial
    
    
    2,099,779
    
    
    
    2,602,334
    
    
    
    2,703,714Commercial real estate
    
    
    2,898,593
    
    
    
    2,964,721
    
    
    
    3,070,282Total commercial
    
    
    4,998,372
    
    
    
    5,567,055
    
    
    
    5,773,996Residential mortgage
    
    
    1,084,872
    
    
    
    1,262,841
    
    
    
    1,279,696Direct consumer
    
    
    1,308,279
    
    
    
    1,452,166
    
    
    
    1,481,380Indirect consumer
    
    
    825,316
    
    
    
    820,536
    
    
    
    843,126Total portfolio loans
    
    
    8,216,839
    
    
    
    9,102,598
    
    
    
    9,378,198Less: Allowance for loan losses
    
    
    (339,694
    )
    
    
    (255,321
    )
    
    
    (217,727
    )Net portfolio loans
    
    
    7,877,145
    
    
    
    8,847,277
    
    
    
    9,160,471Loans held for sale
    
    
    61,445
    
    
    
    91,362
    
    
    
    106,531Premises and equipment
    
    
    120,647
    
    
    
    124,217
    
    
    
    123,805Goodwill
    
    
    330,744
    
    
    
    597,218
    
    
    
    597,218Other intangible assets
    
    
    15,551
    
    
    
    21,414
    
    
    
    23,540Bank owned life insurance
    
    
    219,802
    
    
    
    218,333
    
    
    
    219,125Other assets
    
    
    219,677
    
    
    
    263,464
    
    
    
    306,449Total assets
    
    $
    12,071,776
    
    
    $
    13,086,016
    
    
    $
    13,115,951LiabilitiesNoninterest-bearing deposits
    
    $
    1,270,170
    
    
    $
    1,143,294
    
    
    $
    1,156,419Interest-bearing demand deposits
    
    
    1,199,559
    
    
    
    780,176
    
    
    
    768,466Savings deposits
    
    
    2,607,838
    
    
    
    2,504,320
    
    
    
    2,607,974Time deposits
    
    
    3,714,302
    
    
    
    4,624,616
    
    
    
    4,473,216Total deposits
    
    
    8,791,869
    
    
    
    9,052,406
    
    
    
    9,006,075Federal funds purchased and securities sold
under agreements to repurchase
    
    
    52,632
    
    
    
    64,072
    
    
    
    58,811Other short-term borrowings
    
    
    7,307
    
    
    
    10,377
    
    
    
    63,281Other liabilities
    
    
    145,790
    
    
    
    164,274
    
    
    
    102,391Long-term debt
    
    
    1,670,748
    
    
    
    2,193,566
    
    
    
    2,348,614Total liabilities
    
    
    10,668,346
    
    
    
    11,484,695
    
    
    
    11,579,172Shareholders EquityPreferred stock  no par valueAuthorized - 5,000,000 shares; Issued and outstanding - 300,000 at
9/30/09
and 300,000 at 12/31/08, redemption value of $300 million
    
    
    270,487
    
    
    
    266,088
    
    
    
    Common stock  no par valueAuthorized - 1,050,000,000 shares at 9/30/09, 150,000,000 shares at 
12/31/08 and 9/30/08; Issued and outstanding - 394,470,383 at
9/30/09,
125,996,938 at 12/31/08, and 126,016,618 at 9/30/08
    
    
    1,429,657
    
    
    
    1,214,469
    
    
    
    1,179,661Retained (deficit) earnings
    
    
    (293,650
    )
    
    
    170,358
    
    
    
    365,954Accumulated other comprehensive loss
    
    
    (3,064
    )
    
    
    (49,594
    )
    
    
    (8,836
    )Total shareholders equity
    
    
    1,403,430
    
    
    
    1,601,321
    
    
    
    1,536,779Total liabilities and shareholders equity
    
    $
    12,071,776
    
    
    $
    13,086,016
    
    
    $
    13,115,951
  3




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##### Table of Contents



Consolidated Statements of Operations (Unaudited)  Citizens Republic Bancorp and Subsidiaries
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands, except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Interest IncomeInterest and fees on loans
    
    $
    113,181
    
    
    $
    144,099
    
    
    $
    346,853
    
    
    $
    447,279Interest and dividends on investment
securities:Taxable
    
    
    19,493
    
    
    
    18,275
    
    
    
    61,473
    
    
    
    58,319Tax-exempt
    
    
    6,445
    
    
    
    7,272
    
    
    
    20,130
    
    
    
    21,922Dividends on FHLB and Federal Reserve
stock
    
    
    1,598
    
    
    
    1,917
    
    
    
    3,493
    
    
    
    5,508Money market investments
    
    
    329
    
    
    
    160
    
    
    
    918
    
    
    
    206Total interest income
    
    
    141,046
    
    
    
    171,723
    
    
    
    432,867
    
    
    
    533,234Interest ExpenseDeposits
    
    
    36,655
    
    
    
    53,001
    
    
    
    126,082
    
    
    
    167,713Short-term borrowings
    
    
    37
    
    
    
    1,087
    
    
    
    185
    
    
    
    8,002Long-term debt
    
    
    23,469
    
    
    
    30,317
    
    
    
    73,167
    
    
    
    94,274Total interest expense
    
    
    60,161
    
    
    
    84,405
    
    
    
    199,434
    
    
    
    269,989Net Interest Income
    
    
    80,885
    
    
    
    87,318
    
    
    
    233,433
    
    
    
    263,245Provision for loan losses
    
    
    77,783
    
    
    
    58,390
    
    
    
    241,763
    
    
    
    163,489Net interest income
(loss) after provision
for loan losses
    
    
    3,102
    
    
    
    28,928
    
    
    
    (8,330
    )
    
    
    99,756Noninterest IncomeService charges on deposit accounts
    
    
    11,524
    
    
    
    12,254
    
    
    
    32,628
    
    
    
    35,756Trust fees
    
    
    3,911
    
    
    
    4,513
    
    
    
    10,794
    
    
    
    13,905Mortgage and other loan income
    
    
    3,244
    
    
    
    3,269
    
    
    
    10,039
    
    
    
    9,636Brokerage and investment fees
    
    
    1,527
    
    
    
    1,376
    
    
    
    4,304
    
    
    
    5,503ATM network user fees
    
    
    1,775
    
    
    
    1,715
    
    
    
    4,894
    
    
    
    4,805Bankcard fees
    
    
    2,039
    
    
    
    1,874
    
    
    
    6,026
    
    
    
    5,542Losses on loans held for sale
    
    
    (859
    )
    
    
    (1,261
    )
    
    
    (11,362
    )
    
    
    (3,508
    )Net loss on debt extinguishment
    
    
    (15,929
    )
    
    
    
    
    
    
    (15,929
    )
    
    
    Other income
    
    
    4,610
    
    
    
    4,265
    
    
    
    10,642
    
    
    
    14,349Total fees and other income
    
    
    11,842
    
    
    
    28,005
    
    
    
    52,036
    
    
    
    85,988Investment securities gains
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    Total noninterest income
    
    
    11,842
    
    
    
    28,005
    
    
    
    52,041
    
    
    
    85,988Noninterest ExpenseSalaries and employee benefits
    
    
    38,461
    
    
    
    39,728
    
    
    
    108,328
    
    
    
    120,999Occupancy
    
    
    6,711
    
    
    
    6,749
    
    
    
    21,396
    
    
    
    21,378Professional services
    
    
    3,063
    
    
    
    3,246
    
    
    
    8,983
    
    
    
    11,540Equipment
    
    
    3,032
    
    
    
    3,160
    
    
    
    8,931
    
    
    
    9,810Data processing services
    
    
    4,542
    
    
    
    4,185
    
    
    
    13,163
    
    
    
    12,722Advertising and public relations
    
    
    1,885
    
    
    
    1,297
    
    
    
    5,583
    
    
    
    4,593Postage and delivery
    
    
    1,379
    
    
    
    1,626
    
    
    
    4,480
    
    
    
    5,411Other loan expenses
    
    
    6,496
    
    
    
    2,755
    
    
    
    19,293
    
    
    
    8,014Other real estate (ORE) expenses
    
    
    5,568
    
    
    
    1,825
    
    
    
    18,345
    
    
    
    9,461Intangible asset amortization
    
    
    1,874
    
    
    
    2,226
    
    
    
    5,863
    
    
    
    7,006Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    266,474
    
    
    
    178,089Other expense
    
    
    10,603
    
    
    
    7,504
    
    
    
    38,986
    
    
    
    23,068Total noninterest expense
    
    
    83,614
    
    
    
    74,301
    
    
    
    519,825
    
    
    
    412,091Loss Before Income Taxes
    
    
    (68,670
    )
    
    
    (17,368
    )
    
    
    (476,114
    )
    
    
    (226,347
    )Income tax benefit
    
    
    (11,747
    )
    
    
    (10,192
    )
    
    
    (26,629
    )
    
    
    (28,664
    )Net Loss
    
    
    (56,923
    )
    
    
    (7,176
    )
    
    
    (449,485
    )
    
    
    (197,683
    )Deemed dividend on convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividend on redeemable preferred stock
    
    
    (5,224
    )
    
    
    (11,737
    )
    
    
    (14,523
    )
    
    
    (11,737
    )Net Loss Attributable to Common Shareholders
    
    $
    (62,147
    )
    
    $
    (18,913
    )
    
    $
    (464,008
    )
    
    $
    (209,420
    )Net Loss Per Common Share:Basic
    
    $
    (0.48
    )
    
    $
    (0.20
    )
    
    $
    (3.65
    )
    
    $
    (2.49
    )Diluted
    
    
    (0.48
    )
    
    
    (0.20
    )
    
    
    (3.67
    )
    
    
    (2.50
    )Cash Dividends Declared Per Common Share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.29Average Common Shares Outstanding:Basic
    
    
    128,467
    
    
    
    95,937
    
    
    
    126,453
    
    
    
    83,670Diluted
    
    
    128,467
    
    
    
    95,941
    
    
    
    126,477
    
    
    
    83,683
  4




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##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity  Citizens Republic Bancorp and Subsidiaries
 AccumulatedRetained
    
    
    OtherPreferred
    
    
    Common Stock
    
    
    Earnings
    
    
    Comprehensive(in thousands, except per share amounts)
    
    Stock
    
    
    Shares
    
    
    Amount
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    TotalBalance at December 31, 2008
    
    $
    266,088
    
    
    
    125,997
    
    
    $
    1,214,469
    
    
    $
    170,358
    
    
    $
    (49,594
    )
    
    $
    1,601,321Comprehensive loss, net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (449,485
    )
    
    
    
    
    
    
    (449,485
    )Other comprehensive income (loss):Net unrealized gain on securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,351Net change in unrealized gain on qualifying cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,317
    )Net change in unrecognized pension and post retirement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,504
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,530Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (402,955
    )Exchange of
subordinated debt and trust preferred stock for common stock, net of costs of $6,033
    
    
    
    
    
    
    268,216
    
    
    
    213,904
    
    
    
    
    
    
    
    
    
    
    
    213,904Dividend on redeemable preferred stock
    
    
    4,399
    
    
    
    
    
    
    
    
    
    
    
    (14,523
    )
    
    
    
    
    
    
    (10,124
    )Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    303
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,351
    
    
    
    
    
    
    
    
    
    
    
    1,351Shares purchased for taxes
    
    
    
    
    
    
    (46
    )
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    (67
    )Balance  September 30, 2009
    
    $
    270,487
    
    
    
    394,470
    
    
    $
    1,429,657
    
    
    $
    (293,650
    )
    
    $
    (3,064
    )
    
    $
    1,403,430Balance at December 31, 2007
    
    $
    
    
    
    
    75,722
    
    
    $
    975,446
    
    
    $
    597,333
    
    
    $
    5,101
    
    
    $
    1,577,880Comprehensive loss, net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (197,683
    )
    
    
    
    
    
    
    (197,683
    )Other comprehensive income (loss):Net unrealized loss on securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,225
    )Net change
in unrealized loss on qualifying cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    288Other comprehensive loss total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,937
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (211,620
    )Proceeds
from issuance of preferred stock (2,408 shares),
net of costs of $6,221
    
    
    114,161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,161Deemed dividend on preferred stock to common stock
    
    
    11,737
    
    
    
    
    
    
    
    
    
    
    
    (11,737
    )
    
    
    
    
    
    
    Conversion of convertible preferred stock to common stock
    
    
    (125,898
    )
    
    
    30,096
    
    
    
    125,898
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from issuance of common stock, net of costs of $4,239
    
    
    
    
    
    
    19,904
    
    
    
    75,379
    
    
    
    
    
    
    
    
    
    
    
    75,379Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    326
    
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    67Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,315
    
    
    
    
    
    
    
    
    
    
    
    3,315Cash dividends declared on common shares  $0.290 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,959
    )
    
    
    
    
    
    
    (21,959
    )Shares acquired for retirement and purchased for taxes
    
    
    
    
    
    
    (31
    )
    
    
    (444
    )
    
    
    
    
    
    
    
    
    
    
    (444
    )Balance  September 30, 2008
    
    $
    
    
    
    
    126,017
    
    
    $
    1,179,661
    
    
    $
    365,954
    
    
    $
    (8,836
    )
    
    $
    1,536,779
  5




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##### Table of Contents



Consolidated Statements of Cash Flows  Citizens Republic Bancorp and Subsidiaries
 Nine Months EndedSeptember 30,(in thousands)
    
    2009
    
    
    2008Operating Activities:Net loss
    
    $
    (449,485
    )
    
    $
    (197,683
    )Adjustments
to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    241,763
    
    
    
    163,489Goodwill impairment
    
    
    266,474
    
    
    
    178,089Depreciation and software amortization
    
    
    11,298
    
    
    
    8,780Amortization of intangibles
    
    
    5,863
    
    
    
    7,006Net increase in current and deferred income taxes
    
    
    (11,975
    )
    
    
    (18,712
    )Amortization and fair value adjustments of purchase accounting mark-to-market, net
    
    
    (7,585
    )
    
    
    (12,511
    )Fair value adjustment on loans held for sale and other real estate
    
    
    19,623
    
    
    
    13,688Discount accretion and amortization of issuance costs on long term debt
    
    
    913
    
    
    
    890Net amortization on investment securities
    
    
    437
    
    
    
    (4,040
    )Net loss on debt extinguishment
    
    
    15,929
    
    
    
    Loans originated for sale
    
    
    (250,619
    )
    
    
    (240,359
    )Proceeds from loans held for sale
    
    
    264,282
    
    
    
    284,816Net gains from loan sales
    
    
    (5,915
    )
    
    
    (5,755
    )Net loss on other real estate
    
    
    1,103
    
    
    
    2,712Recognition of stock-based compensation
    
    
    1,351
    
    
    
    3,315Restructure and merger related reserve
    
    
    
    
    
    
    (3,096
    )Other
    
    
    (213
    )
    
    
    (22,041
    )Net cash provided by operating activities
    
    
    103,244
    
    
    
    158,588Investing Activities:Net increase in money market investments
    
    
    (318,615
    )
    
    
    (2,396
    )Securities available-for-sale:Proceeds from sales
    
    
    1,045
    
    
    
    Proceeds from maturities and payments
    
    
    507,332
    
    
    
    360,033Purchases
    
    
    (417,744
    )
    
    
    (263,777
    )Securities held-to-maturity:Proceeds from maturities and payments
    
    
    1,508
    
    
    
    1,505Purchases
    
    
    
    
    
    
    (12,777
    )Net decrease (increase) in loans and leases
    
    
    702,017
    
    
    
    (95,242
    )Proceeds from sales on other real estate
    
    
    26,258
    
    
    
    23,338Net increase in properties and equipment
    
    
    (7,728
    )
    
    
    (2,838
    )Net cash provided by investing activities
    
    
    494,073
    
    
    
    7,846Financing Activities:Net increase in demand and savings deposits
    
    
    649,777
    
    
    
    402,190Net (decrease) increase in time deposits
    
    
    (911,344
    )
    
    
    302,247Net decrease in short-term borrowings
    
    
    (14,509
    )
    
    
    (468,970
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    525,000Principal reductions in long-term debt
    
    
    (318,208
    )
    
    
    (1,066,265
    )Net proceeds from issuance of common stock
    
    
    
    
    
    
    75,379Net proceeds from issuance of preferred stock
    
    
    
    
    
    
    114,161Cash dividends paid on common stock
    
    
    
    
    
    
    (21,959
    )Cash dividends paid on preferred stock
    
    
    (10,124
    )
    
    
    Proceeds from stock options exercised and restricted stock activity
    
    
    
    
    
    
    67Shares acquired for retirement and purchased for taxes
    
    
    (67
    )
    
    
    (444
    )Net cash used by financing activities
    
    
    (604,475
    )
    
    
    (138,594
    )Net (decrease) increase in cash and due from banks
    
    
    (7,158
    )
    
    
    27,840Cash and due from banks at beginning of period
    
    
    171,695
    
    
    
    241,104Cash and due from banks at end of period
    
    $
    164,537
    
    
    $
    268,944Supplemental Cash Flow Information:Interest paid
    
    $
    190,514
    
    
    $
    262,620Income tax (refund) paid, net
    
    
    (14,654
    )
    
    
    9,952Exchange of long-term debt for common stock
    
    
    204,008
    
    
    
    Exchange of subordinated debt and preferred stock for common stock
    
    
    (219,937
    )
    
    
    Conversion of preferred stock to common stock
    
    
    
    
    
    
    125,898Accretion on redeemable preferred stock
    
    
    4,399
    
    
    
    11,737Loans transferred to held for sale
    
    
    
    
    
    
    82,943Loans transferred to other real estate
    
    
    38,294
    
    
    
    38,535Loans held for sale transferred to other real estate
    
    
    10,311
    
    
    
    7,757
  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
  The Financial Accounting Standards Board (FASB) Accounting Standards CodificationTM
(the Codification or ASC)
 FASB ASC Topic 105  Generally Accepted Accounting Principles, a replacement of FASB Statement No.
162 (formerly SFAS 168). TM 
 FASB ASC Topic 815 Derivatives and Hedging (formerly SFAS 161)
 7




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##### Table of Contents



FASB ASC Topic 820 Fair Value Measurements and Disclosures (formerly Staff Position (FSP) on
SFAS 157-2 and 157-4).
 FASB ASC Topic 260 Earnings Per Share (formerly FSP EITF 03-6-1).
 FASB ASC Topic 320 Investments Debt and Equity Securities (formerly FSP on SFAS 115-2 and SFAS
124-2).
 FASB ASC Topic 825 Financial Instruments (formerly FSP on SFAS 107-1 and Accounting Principles
Board 28-1).
 8




---



##### Table of Contents



Note 2. Pending Accounting Pronouncements
 FASB ASC Topic 810 Consolidation (formerly SFAS 167 Amendments to FASB Interpretation 46(R )).
 FASB ASC Topic 715 Compensation-Retirement Benefits (formerly FSP SFAS 132(R)-1)
 Note 3. Investment Securities
  September 30, 2009
    
    
    December 31, 2008Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Gross Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Gross Unrealized(in thousands)
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    LossesAvailable For Sale:Federal Agencies
    
    $
    175,904
    
    
    $
    180,577
    
    
    $
    4,673
    
    
    $
    
    
    
    $
    248,819
    
    
    $
    257,445
    
    
    $
    8,626
    
    
    $
    Collateralized Mortgage
Obligations
    
    
    446,041
    
    
    
    436,152
    
    
    
    7,420
    
    
    
    17,309
    
    
    
    528,626
    
    
    
    471,010
    
    
    
    4,147
    
    
    
    61,763Mortgage-backed Securities
    
    
    1,073,538
    
    
    
    1,115,453
    
    
    
    41,980
    
    
    
    65
    
    
    
    960,841
    
    
    
    973,961
    
    
    
    13,929
    
    
    
    809State and municipal
    
    
    469,991
    
    
    
    489,711
    
    
    
    19,871
    
    
    
    151
    
    
    
    531,625
    
    
    
    538,761
    
    
    
    10,990
    
    
    
    3,854Other
    
    
    13,431
    
    
    
    13,430
    
    
    
    
    
    
    
    1
    
    
    
    7,598
    
    
    
    7,595
    
    
    
    
    
    
    
    3Total
available for
sale
    
    $
    2,178,905
    
    
    $
    2,235,323
    
    
    $
    73,944
    
    
    $
    17,526
    
    
    $
    2,277,509
    
    
    $
    2,248,772
    
    
    $
    37,692
    
    
    $
    66,429Held to Maturity:State and municipal
    
    $
    137,087
    
    
    $
    144,440
    
    
    $
    7,427
    
    
    $
    74
    
    
    $
    138,575
    
    
    $
    137,846
    
    
    $
    1,708
    
    
    $
    2,437Total held to
maturity
    
    $
    137,087
    
    
    $
    144,440
    
    
    $
    7,427
    
    
    $
    74
    
    
    $
    138,575
    
    
    $
    137,846
    
    
    $
    1,708
    
    
    $
    2,437FHLB and Fed Reserve stock
    
    $
    156,278
    
    
    $
    156,278
    
    
    $
    
    
    
    $
    
    
    
    $
    148,764
    
    
    $
    148,764
    
    
    $
    
    
    
    $
    
 9




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##### Table of Contents



Amortized
    
    
    Estimated Fair(in thousands)
    
    Cost
    
    
    ValueAvailable for SaleFederal Agencies and State and MunicipalContractual maturity within one year
    
    $
    122,301
    
    
    $
    125,724After one year through five years
    
    
    206,132
    
    
    
    212,939After five years through ten years
    
    
    198,079
    
    
    
    206,546After ten years
    
    
    119,383
    
    
    
    125,079Subtotal
    
    
    645,895
    
    
    
    670,289Collateralized Mortgage Obligations and Mortgage-backed
    
    
    1,519,579
    
    
    
    1,551,605Other
    
    
    13,431
    
    
    
    13,430Total securities available for sale
    
    $
    2,178,905
    
    
    $
    2,235,323Held to MaturityState and MunicipalContractual maturity within one year
    
    $
    
    
    
    $
    After one year through five years
    
    
    3,910
    
    
    
    4,129After five years through ten years
    
    
    45,790
    
    
    
    48,244After ten years
    
    
    87,387
    
    
    
    92,067Total securities held to maturity
    
    $
    137,087
    
    
    $
    144,440
  As of September 30, 2009
 Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:Collateralized Mortgage Obligations
    
    $
    16,993
    
    
    $
    440
    
    
    $
    173,912
    
    
    $
    16,869
    
    
    $
    190,905
    
    
    $
    17,309Mortgage-backed
    
    
    6,912
    
    
    
    55
    
    
    
    286
    
    
    
    10
    
    
    
    7,198
    
    
    
    65State and municipal
    
    
    10,782
    
    
    
    108
    
    
    
    2,604
    
    
    
    43
    
    
    
    13,386
    
    
    
    151Other
    
    
    314
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    314
    
    
    
    1Total available for sale
    
    $
    35,001
    
    
    
    604
    
    
    
    176,802
    
    
    
    16,922
    
    
    
    211,803
    
    
    
    17,526Held to Maturity:State and municipal
    
    
    370
    
    
    
    19
    
    
    
    2,057
    
    
    
    55
    
    
    
    2,427
    
    
    
    74Total held to maturity
    
    
    370
    
    
    
    19
    
    
    
    2,057
    
    
    
    55
    
    
    
    2,427
    
    
    
    74Total
    
    $
    35,371
    
    
    $
    623
    
    
    $
    178,859
    
    
    $
    16,977
    
    
    $
    214,230
    
    
    $
    17,600
 10




---



##### Table of Contents



As of December 31, 2008
 Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:Collateralized Mortgage Obligations
    
    $
    231,892
    
    
    $
    61,436
    
    
    $
    3,085
    
    
    $
    327
    
    
    $
    234,977
    
    
    $
    61,763Mortgage-backed
    
    
    74,081
    
    
    
    796
    
    
    
    421
    
    
    
    13
    
    
    
    74,502
    
    
    
    809State and municipal
    
    
    112,353
    
    
    
    3,688
    
    
    
    3,220
    
    
    
    166
    
    
    
    115,573
    
    
    
    3,854Other
    
    
    7
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    3Total available for sale
    
    $
    418,333
    
    
    
    65,923
    
    
    
    6,726
    
    
    
    506
    
    
    
    425,059
    
    
    
    66,429Held to Maturity:State and municipal
    
    
    51,896
    
    
    
    1,967
    
    
    
    6,481
    
    
    
    470
    
    
    
    58,377
    
    
    
    2,437Total held to maturity
    
    
    51,896
    
    
    
    1,967
    
    
    
    6,481
    
    
    
    470
    
    
    
    58,377
    
    
    
    2,437Total
    
    $
    470,229
    
    
    $
    67,890
    
    
    $
    13,207
    
    
    $
    976
    
    
    $
    483,436
    
    
    $
    68,866
     11




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##### Table of Contents



Note 4. Allowance for Loan Losses and Impaired Loans
  Analysis of Allowance for Loan Losses
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Allowance for loan losses  beginning of period
    
    $
    333,369
    
    
    $
    181,718
    
    
    $
    255,321
    
    
    $
    163,353Provision for loan losses
    
    
    77,783
    
    
    
    58,390
    
    
    
    241,763
    
    
    
    163,489Charge-offs:Commercial and industrial
    
    
    21,141
    
    
    
    2,222
    
    
    
    39,094
    
    
    
    4,188Commercial real estate
    
    
    32,076
    
    
    
    15,063
    
    
    
    82,698
    
    
    
    66,420Total commercial
    
    
    53,217
    
    
    
    17,285
    
    
    
    121,792
    
    
    
    70,608Residential mortgage
    
    
    9,968
    
    
    
    497
    
    
    
    12,934
    
    
    
    23,004Direct consumer
    
    
    6,756
    
    
    
    3,603
    
    
    
    18,288
    
    
    
    10,756Indirect consumer
    
    
    3,812
    
    
    
    3,924
    
    
    
    14,360
    
    
    
    10,590Charge-offs
    
    
    73,753
    
    
    
    25,309
    
    
    
    167,374
    
    
    
    114,958Recoveries:Commercial
    
    
    1,000
    
    
    
    1,805
    
    
    
    4,156
    
    
    
    2,249Commercial real estate
    
    
    214
    
    
    
    274
    
    
    
    2,934
    
    
    
    565Total commercial
    
    
    1,214
    
    
    
    2,079
    
    
    
    7,090
    
    
    
    2,814Residential mortgage
    
    
    6
    
    
    
    12
    
    
    
    13
    
    
    
    27Direct consumer
    
    
    485
    
    
    
    304
    
    
    
    1,144
    
    
    
    1,341Indirect consumer
    
    
    590
    
    
    
    533
    
    
    
    1,737
    
    
    
    1,661Recoveries
    
    
    2,295
    
    
    
    2,928
    
    
    
    9,984
    
    
    
    5,843Net charge-offs
    
    
    71,458
    
    
    
    22,381
    
    
    
    157,390
    
    
    
    109,115Allowance for loan losses  end of period
    
    $
    339,694
    
    
    $
    217,727
    
    
    $
    339,694
    
    
    $
    217,727
  12




---



##### Table of Contents



Impaired Loan Information
 Balances
    
    
    Valuation ReserveSeptember 30,
    
    
    December 31,
    
    
    September 30,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008BalancesImpaired loans with valuation reserve
    
    $
    199,127
    
    
    $
    101,671
    
    
    $
    65,524
    
    
    $
    39,885Impaired loans with no valuation reserve
    
    
    151,326
    
    
    
    87,330
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    350,453
    
    
    $
    189,001
    
    
    $
    65,524
    
    
    $
    39,885Impaired loans on nonaccrual basis
    
    $
    349,312
    
    
    $
    189,001
    
    
    $
    65,524
    
    
    $
    39,885Impaired loans on accrual basis
    
    
    1,141
    
    
    
    
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    350,453
    
    
    $
    189,001
    
    
    $
    65,524
    
    
    $
    39,885
  Note 5. Goodwill
     13




---



##### Table of Contents



Specialty
    
    
    Regional
    
    
    Wealth
    
    
    Total(in thousands)
    
    Commercial
    
    
    Banking
    
    
    Management
    
    
    GoodwillBalance at December 31, 2007
    
    $
    178,089
    
    
    $
    595,418
    
    
    $
    1,801
    
    
    $
    775,308Impairment Loss
    
    
    (178,089
    )
    
    
    
    
    
    
    
    
    
    
    (178,089
    )Tax Benefits on Share Based
Payments
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Balance at December 31, 2008
    
    $
    
    
    
    $
    595,417
    
    
    $
    1,801
    
    
    $
    597,218Impairment Loss
    
    
    
    
    
    
    (266,474
    )
    
    
    
    
    
    
    (266,474
    )Balance at September 30, 2009
    
    $
    
    
    
    $
    328,943
    
    
    $
    1,801
    
    
    $
    330,744
 Note 6. Long-Term Debt
  September 30,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Citizens (Parent only):Subordinated debt:5.75% subordinated notes due February 2013
    
    $
    16,705
    
    
    $
    120,136Variable rate junior subordinated debenture due June 2033
    
    
    25,774
    
    
    
    25,7747.50% junior subordinated debentures due September 2066
    
    
    47,928
    
    
    
    146,927Subsidiaries:Federal Home Loan Bank advances
    
    
    1,476,101
    
    
    
    1,666,483Other borrowed funds
    
    
    104,240
    
    
    
    234,246Total long-term debt
    
    $
    1,670,748
    
    
    $
    2,193,566
  Note 7. Income Taxes
    14




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##### Table of Contents



Note 8. Accumulated Other Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    (27,379
    )
    
    $
    (6,080
    )
    
    $
    (49,594
    )
    
    $
    5,101Net change in unrealized gain
(loss) on securities available for
sale for the quarter, net of tax
effect of $13,264 in 2009 and
($2,034) in 2008 and net
unrealized gain (loss) on
securities available for sale for
the nine month period, net of tax
effect of $29,805 in 2009 and
($7,659) in 2008
    
    
    24,633
    
    
    
    (3,777
    )
    
    
    55,351
    
    
    
    (14,225
    )Net change in unrealized (loss)
gain on cash flow hedges for the
quarter, net of tax effect of
($171) in 2009 and $550 in 2008
and net change in unrealized
(loss) gain for the nine month
period, net of tax effect of
($2,863) in 2009 and $155 in 2008
    
    
    (318
    )
    
    
    1,021
    
    
    
    (5,317
    )
    
    
    288Net change in unrecognized pension
and postretirement costs, net of
tax effect of ($1,887) in 2009
    
    
    
    
    
    
    
    
    
    
    (3,504
    )
    
    
    Accumulated other comprehensive
loss, net of tax
    
    $
    (3,064
    )
    
    $
    (8,836
    )
    
    $
    (3,064
    )
    
    $
    (8,836
    )
  Note 9. Fair Values of Assets and Liabilities
      15




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##### Table of Contents



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




---



##### Table of Contents



September 30, 2009(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Investment Securities Available for Sale:Federal Agencies
    
    $
    180,577
    
    
    $
    
    
    
    $
    180,577
    
    
    $
    Collateralized Mortgage Obligations
    
    
    436,152
    
    
    
    
    
    
    
    436,135
    
    
    
    17Mortgage-backed
    
    
    1,115,453
    
    
    
    
    
    
    
    1,115,453
    
    
    
    State and Municipal
    
    
    489,711
    
    
    
    
    
    
    
    483,631
    
    
    
    6,080Other
    
    
    13,430
    
    
    
    
    
    
    
    13,112
    
    
    
    318Total Investment Securities Available for Sale
    
    
    2,235,323
    
    
    
    
    
    
    
    2,228,908
    
    
    
    6,415Other Assets:Derivative Financial Instruments
    
    
    55,894
    
    
    
    
    
    
    
    55,894
    
    
    
    Deferred Compensation Assets
    
    
    10,757
    
    
    
    6,965
    
    
    
    3,792
    
    
    
    Total Other Assets
    
    
    66,651
    
    
    
    6,965
    
    
    
    59,686
    
    
    
    Total Assets
    
    $
    2,301,974
    
    
    $
    6,965
    
    
    $
    2,288,594
    
    
    $
    6,415Other Liabilities:Derivative Financial Instruments
    
    $
    33,150
    
    
    $
    
    
    
    $
    33,150
    
    
    $
    Total Other Liabilities
    
    
    33,150
    
    
    
    
    
    
    
    33,150
    
    
    
    Total Liabilities
    
    $
    33,150
    
    
    $
    
    
    
    $
    33,150
    
    
    $
    
  Net Realized/Unrealized Gains (Losses)Recorded inBalance at
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Purchases, Sales
    
    
    Transfers
    
    
    Balance atBeginning
    
    
    Recorded in Earnings
    
    
    Comprehensive
    
    
    Issuances and
    
    
    In/(Out)
    
    
    End of(in thousands)
    
    of Period
    
    
    Realized
    
    
    Unrealized
    
    
    Income (Pre-tax)
    
    
    Settlements, Net
    
    
    of Level 3, Net
    
    
    PeriodThree Months Ended September 30, 2009Investment securities available for saleCollateralized Mortgage Obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    17
    
    
    $
    17State and Municipal
    
    
    5,756
    
    
    
    16
    
    
    
    
    
    
    
    (34
    )
    
    
    (45
    )
    
    
    387
    
    
    
    6,080Other Securities
    
    
    316
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318Total Investment SecuritiesAvailable for Sale
    
    $
    6,072
    
    
    $
    18
    
    
    $
    
    
    
    $
    (34
    )
    
    $
    (45
    )
    
    $
    404
    
    
    $
    6,415
 Net Realized/Unrealized Gains (Losses)Recorded inBalance at
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Purchases, Sales
    
    
    Transfers
    
    
    Balance atBeginning
    
    
    Recorded in Earnings
    
    
    Comprehensive
    
    
    Issuances and
    
    
    In/(Out)
    
    
    End of(in thousands)
    
    of Period
    
    
    Realized
    
    
    Unrealized
    
    
    Income (Pre-tax)
    
    
    Settlements, Net
    
    
    of Level 3, Net
    
    
    PeriodNine Months Ended September 30, 2009Investment securities available for saleCollateralized Mortgage Obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    17
    
    
    $
    17State and Municipal
    
    
    5,733
    
    
    
    39
    
    
    
    
    
    
    
    (34
    )
    
    
    (45
    )
    
    
    387
    
    
    
    6,080Other Securities
    
    
    312
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318Total Investment SecuritiesAvailable for Sale
    
    $
    6,045
    
    
    $
    45
    
    
    $
    
    
    
    $
    (34
    )
    
    $
    (45
    )
    
    $
    404
    
    
    $
    6,415
 ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS
 Impaired Loans.
 17




---



##### Table of Contents



Loans Held for Sale.
  Goodwill.
  Other Real Estate.
 Repossessed Assets.
 Mortgage Servicing Rights
 Core Deposit Intangible.
  18




---



##### Table of Contents



September 30, 2009(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Impaired Loans (1)
    
    $
    197,702
    
    
    $
    
    
    
    $
    
    
    
    $
    197,702Commercial Loans Held For Sale (2)
    
    
    8,381
    
    
    
    
    
    
    
    
    
    
    
    8,381Goodwill (3)
    
    
    330,744
    
    
    
    
    
    
    
    
    
    
    
    330,744Other Real Estate (4)
    
    
    12,236
    
    
    
    
    
    
    
    
    
    
    
    12,236Repossessed Assets (5)
    
    
    2,957
    
    
    
    
    
    
    
    
    
    
    
    2,957Total Assets
    
    $
    552,020
    
    
    $
    
    
    
    $
    
    
    
    $
    552,020
 
 (1)
    
    Impaired Loans with an initial carrying value of $351.2 million were written
down to their fair value of $197.7 million.(2)
    
    Commercial Loans Held for Sale with an initial carrying value of $18.1 million were
written down to their fair value of $8.4 million.(3)
    
    Goodwill with an initial carrying value of $597.2 million was written down to its
fair value of $330.7 million.(4)
    
    ORE properties with an initial carrying value of $23.1 million were written down to
their fair value of $12.2 million.(5)
    
    Repossessed Assets with an initial carrying value of $5.4 million were written down
to their fair value of $3.0 million. FAIR VALUES OF FINANCIAL INSTRUMENTS
    19




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##### Table of Contents



September 30, 2009
    
    December 31, 2008Carrying
    
    Estimated
    
    Carrying
    
    Estimated(in thousands)
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assets:Cash and due from banks
    
    $
    164,537
    
    
    $
    164,537
    
    
    $
    171,695
    
    
    $
    171,695Money market investments
    
    
    533,540
    
    
    
    533,540
    
    
    
    214,925
    
    
    
    214,925Securities
    
    
    2,372,410
    
    
    
    2,379,763
    
    
    
    2,387,347
    
    
    
    2,386,618FHLB and Federal Reserve stock
    
    
    156,278
    
    
    
    156,278
    
    
    
    148,764
    
    
    
    148,764Net loans
    
    
    7,877,145
    
    
    
    7,056,513
    
    
    
    8,847,277
    
    
    
    7,821,728Loans held for sale
    
    
    61,445
    
    
    
    61,445
    
    
    
    91,362
    
    
    
    91,362Accrued interest receivable
    
    
    46,687
    
    
    
    46,687
    
    
    
    55,663
    
    
    
    55,663Financial liabilities:Deposits
    
    
    8,791,869
    
    
    
    8,840,621
    
    
    
    9,052,406
    
    
    
    9,103,392Short-term borrowings
    
    
    59,939
    
    
    
    59,939
    
    
    
    74,449
    
    
    
    74,449Long-term debt
    
    
    1,670,748
    
    
    
    1,745,517
    
    
    
    2,193,566
    
    
    
    2,248,060Accrued interest payable
    
    
    11,584
    
    
    
    11,584
    
    
    
    20,268
    
    
    
    20,268Financial instruments with off-balance sheet risk(1):Credit-related financial instruments(2)
    
    
    (1,240
    )
    
    
    (6,140
    )
    
    
    (521
    )
    
    
    (6,080
    )Interest rate swap agreements
    
    
    22,744
    
    
    
    22,744
    
    
    
    34,097
    
    
    
    34,097
 
 (1)
    
    Positive amounts represent assets, negative amounts represent liabilities.(2)
    
    The carrying amount for credit-related financial instruments is part of the total
carrying amount of net loans. It is shown
here separately to disclose the estimated fair value, which is not included in the net loans
estimate of fair value.  Securities Held to Maturity:
 Net Loans:
 Deposit Liabilities:
 Short-Term Borrowings:
 Long-Term Debt:
 Credit-Related Financial Instruments:
 20




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##### Table of Contents



Note 10. Pension Benefit Cost
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Defined Benefit Pension PlansInterest cost
    
    $
    1,104
    
    
    $
    1,165
    
    
    
    3,315
    
    
    $
    3,495Expected return on plan assets
    
    
    (1,570
    )
    
    
    (1,900
    )
    
    
    (4,710
    )
    
    
    (5,700
    )Amortization of unrecognized:Prior service cost
    
    
    7
    
    
    
    10
    
    
    
    22
    
    
    
    30Net actuarial loss
    
    
    335
    
    
    
    75
    
    
    
    1,005
    
    
    
    225Net pension cost
    
    $
    (124
    )
    
    $
    (650
    )
    
    $
    (368
    )
    
    $
    (1,950
    )Supplemental Pension PlansInterest cost
    
    $
    130
    
    
    $
    190
    
    
    $
    446
    
    
    $
    573Settlement Charge related to lump sum payments
    
    
    455
    
    
    
    
    
    
    
    455
    
    
    
    Curtailment loss
    
    
    
    
    
    
    
    
    
    
    941
    
    
    
    Amortization of unrecognized:Prior service cost
    
    
    
    
    
    
    118
    
    
    
    
    
    
    
    353Net actuarial loss
    
    
    4
    
    
    
    5
    
    
    
    10
    
    
    
    15Net pension cost
    
    $
    589
    
    
    $
    313
    
    
    $
    1,852
    
    
    $
    941Postretirement Benefit PlansInterest cost
    
    $
    152
    
    
    $
    128
    
    
    $
    455
    
    
    $
    386Amortization of unrecognized:Prior service cost
    
    
    (67
    )
    
    
    (64
    )
    
    
    (201
    )
    
    
    (192
    )Net actuarial gain
    
    
    (8
    )
    
    
    (8
    )
    
    
    (24
    )
    
    
    (25
    )Net pension cost
    
    $
    77
    
    
    $
    56
    
    
    $
    230
    
    
    $
    169Defined contribution retirement and 401K PlansEmployer contributions
    
    $
    225
    
    
    $
    1,628
    
    
    $
    2,253
    
    
    $
    5,026Total periodic benefit cost
    
    $
    767
    
    
    $
    1,347
    
    
    $
    3,967
    
    
    $
    4,186
   Note 11. Stock-Based Compensation
  21




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedAnalysis of Stock-Based Compensation Expense
    
    September 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Stock Option Compensation
    
    $
    2
    
    
    $
    9
    
    
    $
    9
    
    
    $
    26Restricted Stock Compensation
    
    
    735
    
    
    
    1,164
    
    
    
    1,342
    
    
    
    3,289Stock-based compensation expense before income taxes
    
    
    737
    
    
    
    1,173
    
    
    
    1,351
    
    
    
    3,315Income tax benefit
    
    
    (258
    )
    
    
    (410
    )
    
    
    (473
    )
    
    
    (1,160
    )Total stock-based compensation expense after income taxes
    
    $
    479
    
    
    $
    763
    
    
    $
    878
    
    
    $
    2,155
     Weighted-AverageNumber of
    
    Grant Date FairShares
    
    ValueOutstanding restricted stock at December 31, 2008
    
    
    609,032
    
    
    $
    14.43Granted
    
    
    384,818
    
    
    
    1.29Vested
    
    
    (211,010
    )
    
    
    15.07Forfeited
    
    
    (81,208
    )
    
    
    17.95Restricted stock at September 30, 2009
    
    
    701,632
    
    
    
    6.62
  22




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##### Table of Contents



Note 12. Shareholders Equity and Earnings Per Share
     Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands, except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Basic and diluted earnings per share  net loss
    
    $
    (56,923
    )
    
    $
    (7,176
    )
    
    $
    (449,485
    )
    
    $
    (197,683
    )Dividend on redeemable preferred stock
    
    
    (5,224
    )
    
    
    (11,737
    )
    
    
    (14,523
    )
    
    
    (11,737
    )Net loss available to common shareholders
    
    
    (62,147
    )
    
    
    (18,913
    )
    
    
    (464,008
    )
    
    
    (209,420
    )Net loss allocated to participating securities
    
    
    (338
    )
    
    
    (122
    )
    
    
    (2,836
    )
    
    
    (1,389
    )Net loss allocated to common shareholders
    
    $
    (61,809
    )
    
    $
    (18,791
    )
    
    $
    (461,172
    )
    
    $
    (208,031
    )Weighted average shares outstanding
    
    
    129,170
    
    
    
    96,559
    
    
    
    127,231
    
    
    
    84,229Less: Participating securities included in weighted average shares outstanding
    
    
    (703
    )
    
    
    (622
    )
    
    
    (778
    )
    
    
    (559
    )Weighted average shares outstanding for basic earnings per common share
    
    
    128,467
    
    
    
    95,937
    
    
    
    126,453
    
    
    
    83,670Effect of dilutive securities  potential conversion of employee stock options and
restricted stock awards
    
    
    
    
    
    
    4
    
    
    
    24
    
    
    
    13Weighted average shares outstanding for dilutive earnings per common share
    
    
    128,467
    
    
    
    95,941
    
    
    
    126,477
    
    
    
    83,683Basic earnings per common share
    
    $
    (0.48
    )
    
    $
    (0.20
    )
    
    $
    (3.65
    )
    
    $
    (2.49
    )Diluted earnings per common share
    
    $
    (0.48
    )
    
    $
    (0.20
    )
    
    $
    (3.67
    )
    
    $
    (2.50
    )
 Note 13. Lines of Business
  
    
    Specialty Commercial Specialty Commercial includes the commercial real estate, public
funds, and asset-based lending teams. These groups provide a full range of lending,
depository, and related financial services to commercial real estate developers, owners of
multi-unit commercial properties, middle-market companies, local governments and
municipalities. Products and services offered include commercial mortgages, real
 23




---



##### Table of Contents



estate
construction lending, term loans, revolving credit arrangements, inventory and accounts
receivable financing, and letters of credit. Noncredit services for these customers include
deposit accounts, treasury management, corporate cash management, international banking
services, advice and assistance in the placement of securities, and financial planning.
 
    
    Regional Banking Regional Banking includes the consumer, residential mortgage, commercial
and industrial, small business, private banking and treasury management teams. These groups
provide a wide range of lending, depository, and other related financial services to both
businesses and individual consumers. The products and services offered to consumer clients
include: direct loans, home equity loans and lines of credit, residential mortgage loans,
checking, savings and money market accounts, debit and credit cards, ATM network services,
certificates of deposit, and fixed and variable annuities, as well as private banking services
for affluent clients. The products and services offered to commercial and industrial clients
include: term loans, revolving credit arrangements, inventory and accounts receivable
financing, commercial mortgages, letters of credit, and small business loans. Noncredit
services for commercial clients include deposit accounts, treasury management, corporate cash
management, international banking services, advice and assistance in the placement of
securities, and financial planning.
 
    
    Wealth Management Wealth Management offers a broad array of asset management, financial
planning, estate settlement and administration, credit and deposit products and services.
Trust and investment services include personal trust and planning, investment management,
estate settlement and administration services. Retirement plan services focus on investment
management and fiduciary activities with special
emphasis on 401(k) plans. Brokerage and insurance delivers retail mutual funds, other
securities, variable and fixed annuities, personal disability and life insurance products and
discounted brokerage services.
 
    
    Other The Other line of business includes activities that are not directly attributable
to one of the primary business lines. Included in this category are the Holding Company;
indirect consumer lending; shared services unit; Citizens treasury unit, including the
securities portfolio, short-term borrowing and asset/liability management activities;
inter-company eliminations; and the economic impact of certain assets, capital and support
functions not specifically identifiable with the three primary lines of business.
  24




---



##### Table of Contents



Line of Business Information  Earnings Summary
 Specialty
    
    
    Regional
    
    
    Wealth(in thousands)
    
    Commercial
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalThree Months Ended September 30, 2009Net interest income (taxable equivalent)
    
    $
    16,228
    
    
    $
    71,796
    
    
    $
    157
    
    
    $
    (3,335
    )
    
    $
    84,846Provision for loan losses
    
    
    39,382
    
    
    
    22,435
    
    
    
    
    
    
    
    15,966
    
    
    
    77,783Net interest income after provision
    
    
    (23,154
    )
    
    
    49,361
    
    
    
    157
    
    
    
    (19,301
    )
    
    
    7,063Noninterest income
    
    
    (43
    )
    
    
    19,909
    
    
    
    5,424
    
    
    
    (13,448
    )
    
    
    11,842Noninterest expense
    
    
    4,358
    
    
    
    56,904
    
    
    
    4,144
    
    
    
    18,208
    
    
    
    83,614Income before income taxes
    
    
    (27,555
    )
    
    
    12,366
    
    
    
    1,437
    
    
    
    (50,957
    )
    
    
    (64,709
    )Income tax expense (taxable equivalent)
    
    
    (9,644
    )
    
    
    4,328
    
    
    
    503
    
    
    
    (2,973
    )
    
    
    (7,786
    )Net (loss) income
    
    $
    (17,911
    )
    
    $
    8,038
    
    
    $
    934
    
    
    $
    (47,984
    )
    
    $
    (56,923
    )Average
assets (in millions)
    
    $
    1,593
    
    
    $
    4,914
    
    
    $
    12
    
    
    $
    5,610
    
    
    $
    12,129Three Months Ended September 30, 2008(1)Net interest income (taxable equivalent)
    
    $
    16,684
    
    
    $
    70,028
    
    
    $
    16
    
    
    $
    5,183
    
    
    $
    91,911Provision for loan losses
    
    
    47,190
    
    
    
    7,230
    
    
    
    
    
    
    
    3,970
    
    
    
    58,390Net interest income after provision
    
    
    (30,506
    )
    
    
    62,798
    
    
    
    16
    
    
    
    1,213
    
    
    
    33,521Noninterest income
    
    
    (844
    )
    
    
    20,327
    
    
    
    5,873
    
    
    
    2,649
    
    
    
    28,005Noninterest expense
    
    
    4,456
    
    
    
    55,816
    
    
    
    5,395
    
    
    
    8,634
    
    
    
    74,301Income before income taxes
    
    
    (35,806
    )
    
    
    27,309
    
    
    
    494
    
    
    
    (4,772
    )
    
    
    (12,775
    )Income tax expense (taxable equivalent)
    
    
    (12,532
    )
    
    
    9,558
    
    
    
    173
    
    
    
    (2,798
    )
    
    
    (5,599
    )Net (loss) income
    
    $
    (23,274
    )
    
    $
    17,751
    
    
    $
    321
    
    
    $
    (1,974
    )
    
    $
    (7,176
    )Average
assets (in millions)
    
    $
    2,007
    
    
    $
    6,038
    
    
    $
    12
    
    
    $
    5,100
    
    
    $
    13,157
 Specialty
    
    
    Regional
    
    
    Wealth(in thousands)
    
    Commercial
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalNine Months Ended September 30, 2009Net interest income (taxable equivalent)
    
    $
    46,307
    
    
    $
    206,967
    
    
    $
    423
    
    
    $
    (7,746
    )
    
    $
    245,951Provision for loan losses
    
    
    124,484
    
    
    
    68,594
    
    
    
    
    
    
    
    48,685
    
    
    
    241,763Net interest income after provision
    
    
    (78,177
    )
    
    
    138,373
    
    
    
    423
    
    
    
    (56,431
    )
    
    
    4,188Noninterest income
    
    
    (8,375
    )
    
    
    55,166
    
    
    
    15,077
    
    
    
    (9,827
    )
    
    
    52,041Noninterest expense
    
    
    13,672
    
    
    
    443,597
    
    
    
    12,592
    
    
    
    49,964
    
    
    
    519,825Income before income taxes
    
    
    (100,224
    )
    
    
    (250,058
    )
    
    
    2,908
    
    
    
    (116,222
    )
    
    
    (463,596
    )Income tax expense (taxable equivalent)
    
    
    (35,079
    )
    
    
    5,745
    
    
    
    1,017
    
    
    
    14,206
    
    
    
    (14,111
    )Net (loss) income
    
    $
    (65,145
    )
    
    $
    (255,803
    )
    
    $
    1,891
    
    
    $
    (130,428
    )
    
    $
    (449,485
    )Average
assets (in millions)
    
    $
    1,683
    
    
    $
    5,302
    
    
    $
    11
    
    
    $
    5,661
    
    
    $
    12,657Nine Months Ended September 30, 2008(1)Net interest income (taxable equivalent)
    
    $
    48,572
    
    
    $
    204,148
    
    
    $
    17
    
    
    $
    24,391
    
    
    $
    277,128Provision for loan losses
    
    
    95,046
    
    
    
    32,186
    
    
    
    
    
    
    
    36,257
    
    
    
    163,489Net interest income after provision
    
    
    (46,474
    )
    
    
    171,962
    
    
    
    17
    
    
    
    (11,866
    )
    
    
    113,639Noninterest income
    
    
    (2,598
    )
    
    
    59,286
    
    
    
    19,379
    
    
    
    9,921
    
    
    
    85,988Noninterest expense
    
    
    192,476
    
    
    
    167,694
    
    
    
    16,645
    
    
    
    35,276
    
    
    
    412,091Income before income taxes
    
    
    (241,548
    )
    
    
    63,554
    
    
    
    2,751
    
    
    
    (37,221
    )
    
    
    (212,464
    )Income tax expense (taxable equivalent)
    
    
    (22,210
    )
    
    
    22,244
    
    
    
    963
    
    
    
    (15,778
    )
    
    
    (14,781
    )Net (loss) income
    
    $
    (219,338
    )
    
    $
    41,310
    
    
    $
    1,788
    
    
    $
    (21,443
    )
    
    $
    (197,683
    )Average assets(in millions)
    
    $
    2,087
    
    
    $
    6,109
    
    
    $
    13
    
    
    $
    5,089
    
    
    $
    13,298
 
 (1)
    
    Certain amounts have been reclassified to conform to current year
presentation. 25




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##### Table of Contents



Note 14. Commitments, Contingent Liabilities and Guarantees
   September 30,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Loan commitments and letters of credit:Commitments to extend credit
    
    $
    1,544,185
    
    
    $
    2,048,258Financial standby letters of credit
    
    
    230,303
    
    
    
    225,675Performance standby letters of credit
    
    
    7,508
    
    
    
    21,692Total loan commitments and letters of credit
    
    $
    1,781,996
    
    
    $
    2,295,625
  Note 15. Derivatives and Hedging Activities
 Risk Management Objective of Using Derivatives
  Fair Values of Derivative Instruments on the Consolidated Balance Sheets
  26




---



##### Table of Contents



Location
    
    Other Assets
    
    
    Other LiabilitiesFair Value
    
    
    Fair ValueSept 30,
    
    
    Dec 31,
    
    
    Sept 30,
    
    
    Dec 31,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Derivatives designated as hedging instruments under FASB ASC 815
(formerly SFAS 133)Interest Rate Products
    
    $
    20,615
    
    
    $
    30,984
    
    
    $
    
    
    
    $
    Derivatives notdesignated as hedging instruments under FASB ASC 815Interest Rate Products
    
    
    35,279
    
    
    
    47,950
    
    
    
    33,150
    
    
    
    44,837Total Derivatives
    
    $
    55,894
    
    
    $
    78,934
    
    
    $
    33,150
    
    
    $
    44,837
 Cash Flow Hedges of Interest Rate Risk
      27




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##### Table of Contents



Derivative Impact on OCI gain (loss)
    
    
    Derivative Ineffectiveness gain (loss)Location
    
    
    
    
    
    
    
    
    
    
    Location(in thousands)
    
    
    
    
    
    
    
    
    
    Reclassified
    
    
    Reclassified from Accumulated
    
    
    Recognized inDerivatives Relationship
    
    Recognized in OCI
    
    
    into Income
    
    
    OCI into Income
    
    
    Income
    
    
    AmountThree Months Ended
    
    
    
    
    
    
    Three Months Ended
    
    
    
    
    
    
    Three Months EndedSept 30,
    
    
    Sept 30,
    
    
    
    
    
    
    Sept 30,
    
    
    Sept 30,
    
    
    
    
    
    
    Sept 30,
    
    
    Sept 30,2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008Cash flow hedges:Interest Rate Products
    
    $
    2,785
    
    
    $
    2,224
    
    
    Interest income
    
    $
    3,252
    
    
    $
    707
    
    
    Other income
    
    $
    63
    
    
    $
    Other income
    
    
    
    
    
    
    Total
    
    $
    2,785
    
    
    $
    2,224
    
    
    
    
    
    
    $
    3,252
    
    
    $
    707
    
    
    
    
    
    
    $
    63
    
    
    $
    
 Derivative Impact on OCI gain (loss)
    
    
    Derivative Ineffectiveness gain (loss)Location
    
    
    
    
    
    
    
    
    
    
    Location(in thousands)
    
    
    
    
    
    
    
    
    
    Reclassified
    
    
    Reclassified from Accumulated
    
    
    Recognized inDerivatives Relationship
    
    Recognized in OCI
    
    
    into Income
    
    
    OCI into Income
    
    
    Income
    
    
    AmountNine Months Ended
    
    
    
    
    
    
    Nine Months Ended
    
    
    
    
    
    
    Nine Months EndedSept 30,
    
    
    Sept 30,
    
    
    
    
    
    
    Sept 30,
    
    
    Sept 30,
    
    
    
    
    
    
    Sept 30,
    
    
    Sept 30,2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008Cash flow hedges:Interest Rate Products
    
    $
    2,135
    
    
    $
    1,980
    
    
    Interest income
    
    $
    10,071
    
    
    $
    1,536
    
    
    Other income
    
    $
    (89
    )
    
    $
    Other income
    
    
    244
    
    
    
    Total
    
    $
    2,135
    
    
    $
    1,980
    
    
    
    
    
    
    $
    10,315
    
    
    $
    1,536
    
    
    
    
    
    
    $
    (89
    )
    
    $
    
 Fair Value Hedges of Interest Rate Risk
    (in thousands)Derivative Contract Gain (Loss)
    
    Hedged Item Gain (Loss)Three Months Ended
    
    Nine Months Ended
    
    
    
    
    
    Three Months Ended
    
    Nine Months EndedLocation in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Location inStatement of
    
    Sept 30,
    
    Sept 30,
    
    Sept 30,
    
    Sept 30,
    
    Statement of
    
    Sept 30,
    
    Sept 30,
    
    Sept 30,
    
    Sept 30,Derivatives Relationship
    
    Operations
    
    2009
    
    2008
    
    2009
    
    2008
    
    Operations
    
    2009
    
    2008
    
    2009
    
    2008Fair value hedges:Interest Rate Products
    
    Interest expense
    
    $
    195
    
    
    $
    (1,253
    )
    
    $
    (2,421
    )
    
    $
    (2,107
    )
    
    Interest expense
    
    $
    1,257
    
    
    $
    1,253
    
    
    $
    6,844
    
    
    $
    2,107
 Non-designated Hedges
  28




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##### Table of Contents



Amount of (Loss) or Gain Recognized in Income(in thousands)
    
    
    
    
    
    StatementLocation of (Loss) or
    




    Three Months Ended
    
    Nine Months EndedGain Recognized in
    
    Sept 30,
    
    Sept 30,
    
    Sept 30,
    
    Sept 30,Derivative Relationship
    
    Income Statement
    
    2009
    
    2008
    
    2009
    
    2008Derivatives Not Designated
as HedgesInterest Rate Products
    
    Other income
    
    $
    (1,018
    )
    
    $
    2,894
    
    
    $
    843
    
    
    $
    3,701
 Credit-Risk-Related Contingent Features
    29




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##### Table of Contents



Note 16. Subsequent Event
  30




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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 EndedSeptember 30,
    
    June 30,
    
    March 31,
    
    December 31,
    
    September 30,2009
    
    2009
    
    2009
    
    2008
    
    2008Summary of Operations (thousands)Net interest income
    
    $
    80,885
    
    
    $
    75,601
    
    
    $
    76,946
    
    
    $
    85,687
    
    
    $
    87,318Provision for loan losses
    
    
    77,783
    
    
    
    99,962
    
    
    
    64,017
    
    
    
    118,565
    
    
    
    58,390Total fees and other income (1)
    
    
    11,842
    
    
    
    20,961
    
    
    
    19,233
    
    
    
    15,755
    
    
    
    28,005Investment securities gains (losses)
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    (1
    )
    
    
    Noninterest expense (2)
    
    
    83,614
    
    
    
    355,433
    
    
    
    80,778
    
    
    
    78,611
    
    
    
    74,301Income tax (benefit) provision
    
    
    (11,747
    )
    
    
    (11,415
    )
    
    
    (3,467
    )
    
    
    99,634
    
    
    
    (10,192
    )Net loss (3)
    
    
    (56,923
    )
    
    
    (347,413
    )
    
    
    (45,149
    )
    
    
    (195,369
    )
    
    
    (7,176
    )Net loss attributable to common shareholders (4)
    
    
    (62,147
    )
    
    
    (352,609
    )
    
    
    (49,252
    )
    
    
    (195,596
    )
    
    
    (18,913
    )Taxable equivalent adjustment
    
    
    3,961
    
    
    
    4,220
    
    
    
    4,337
    
    
    
    4,519
    
    
    
    4,593Per Common Share DataBasic net income
    
    $
    (0.48
    )
    
    $
    (2.79
    )
    
    $
    (0.39
    )
    
    $
    (1.55
    )
    
    $
    (0.20
    )Diluted net income
    
    
    (0.48
    )
    
    
    (2.81
    )
    
    
    (0.39
    )
    
    
    (1.56
    )
    
    
    (0.20
    )Market value (end of period)
    
    
    0.76
    
    
    
    0.71
    
    
    
    1.55
    
    
    
    2.98
    
    
    
    3.08Common book value per share (end of period)
    
    
    2.87
    
    
    
    7.57
    
    
    
    10.29
    
    
    
    10.60
    
    
    
    12.20Tangible book value per share (end of period)
    
    
    2.68
    
    
    
    6.95
    
    
    
    7.53
    
    
    
    7.80
    
    
    
    7.27At Period End (millions)Assets
    
    $
    12,072
    
    
    $
    12,288
    
    
    $
    12,982
    
    
    $
    13,086
    
    
    $
    13,116Portfolio loans
    
    
    8,217
    
    
    
    8,426
    
    
    
    8,754
    
    
    
    9,103
    
    
    
    9,378Deposits
    
    
    8,792
    
    
    
    8,913
    
    
    
    9,120
    
    
    
    9,052
    
    
    
    9,006Shareholders equity
    
    
    1,403
    
    
    
    1,225
    
    
    
    1,567
    
    
    
    1,601
    
    
    
    1,537Average for the Quarter (millions)Assets
    
    $
    12,129
    
    
    $
    12,774
    
    
    $
    13,080
    
    
    $
    13,074
    
    
    $
    13,157Portfolio loans
    
    
    8,311
    
    
    
    8,604
    
    
    
    8,908
    
    
    
    9,267
    
    
    
    9,456Deposits
    
    
    8,786
    
    
    
    8,995
    
    
    
    9,117
    
    
    
    8,998
    
    
    
    8,837Shareholders equity
    
    
    1,228
    
    
    
    1,557
    
    
    
    1,607
    
    
    
    1,559
    
    
    
    1,551Ratios (annualized)Return on average assets
    
    
    (1.86
    )%
    
    
    (10.91
    )%
    
    
    (1.40
    )%
    
    
    (5.94
    )%
    
    
    (0.22
    )%Return on average shareholders equity
    
    
    (18.40
    )
    
    
    (89.50
    )
    
    
    (11.40
    )
    
    
    (49.86
    )
    
    
    (1.84
    )Average equity to average assets
    
    
    10.12
    
    
    
    12.19
    
    
    
    12.28
    
    
    
    11.92
    
    
    
    11.79Net interest margin (FTE) (5)
    
    
    2.97
    
    
    
    2.73
    
    
    
    2.73
    
    
    
    3.03
    
    
    
    3.09Efficiency ratio (6)
    
    
    86.48
    
    
    
    88.26
    
    
    
    80.36
    
    
    
    74.19
    
    
    
    61.96Net loans charged off to average portfolio loans
    
    
    3.41
    
    
    
    2.30
    
    
    
    1.67
    
    
    
    3.48
    
    
    
    0.94Allowance for loan losses to portfolio loans
    
    
    4.13
    
    
    
    3.96
    
    
    
    3.23
    
    
    
    2.80
    
    
    
    2.32Allowance for loan loss as a percent of nonperforming loans
    
    
    67.74
    
    
    
    67.25
    
    
    
    65.94
    
    
    
    83.43
    
    
    
    94.13Allowance for loan loss as a percent of nonperforming assets
    
    
    55.87
    
    
    
    55.13
    
    
    
    51.33
    
    
    
    58.13
    
    
    
    59.75Nonperforming assets to portfolio loans plus ORAA (end of period)
    
    
    7.34
    
    
    
    7.13
    
    
    
    6.25
    
    
    
    4.79
    
    
    
    3.87Nonperforming assets to total assets (end of period)
    
    
    5.04
    
    
    
    4.92
    
    
    
    4.24
    
    
    
    3.36
    
    
    
    2.78Leverage ratio
    
    
    9.63
    
    
    
    8.68
    
    
    
    9.32
    
    
    
    9.66
    
    
    
    8.76Tier 1 capital ratio
    
    
    12.83
    
    
    
    11.81
    
    
    
    12.16
    
    
    
    12.21
    
    
    
    10.88Total capital ratio
    
    
    14.23
    
    
    
    13.91
    
    
    
    14.21
    
    
    
    14.49
    
    
    
    13.13
 
 (1)
    
    Total fees and other income includes a net loss on debt extinguishment of $15.9 million in the third quarter of 2009.(2)
    
    Noninterest expense includes a goodwill impairment charge of $266.5 million in the second quarter of 2009.(3)
    
    Net loss includes a deferred tax valuation allowance of $136.6 million in the fourth quarter of 2008.(4)
    
    Net loss attributable to common shareholders includes the following items: $5.2 million dividend to preferred shareholders in the third quarter of 2009,
and second quarter of 2009, respectively, $4.1 million dividend to preferred shareholders in the first quarter of 2009, $0.2 million accretion of redeemable preferred
stock in the fourth quarter of 2008 and $11.7 million deemed dividend to preferred shareholders in the third quarter of 2008.(5)
    
    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%.(6)
    
    The Efficiency Ratio measures how efficiently a bank spends
its revenues. The formula is: (Noninterest expense-Goodwill impairment)/(Net interest income + Taxable equivalent adjustment + Total fees and other income + Investment securities gains (losses)). 31




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##### Table of Contents



Introduction
  Forward  Looking Statements
   
    
    Citizens faces the risk that loan losses, including unanticipated loan losses due to
changes in loan portfolios, fraud and economic factors, could exceed the allowance for loan
losses and that additional increases in the allowance will be required. Additions to the
allowance for loan losses would cause Citizens net income to decline and could have a
negative impact on its capital and financial position.
    
    Citizens capital raising initiatives contemplate raising a significant amount of common
equity from private and/or government sources over the coming months and there is no assurance
that Citizens will be successful in its capital raising efforts.
    
    The Holding Company may not have sufficient resources to make capital contributions to its
bank subsidiaries when required by bank regulatory agencies, or when it might otherwise wish
to do so, in order to maintain their capital ratios at acceptable levels.
    
    While Citizens attempts to manage the risk from changes in market interest rates, interest
rate risk management techniques are not exact. In addition, Citizens may not be able to
economically hedge its interest rate risk. A rapid or substantial increase or decrease in
interest rates could adversely affect Citizens net interest income and results of operations.
    
    Citizens core lending and other businesses continue to be adversely affected by the
historic weakness in the national and regional economies in which it operates, particularly
Michigan. Citizens ability to generate earnings and maintain regulatory capital ratios at
acceptable levels at the Holding Company and its bank subsidiaries depends substantially on
developments in those economies.
    
    Difficult economic conditions have adversely affected the banking industry and financial
markets generally and may significantly affect Citizens business, financial condition, and
results of operations.
    
    An economic downturn, and the negative economic effects caused by terrorist attacks,
potential attacks and other destabilizing events, would likely contribute to the deterioration
of the quality of Citizens loan portfolio and could reduce its customer base, its level of
deposits, and demand for its financial products such as loans.
    
    If Citizens is unable to continue to attract and retain core deposits, to obtain third
party financing on favorable terms, or to have access to interbank or other liquidity sources
(as a result of rating agency downgrades or other market factors), its cost of funds will
increase, adversely affecting its ability to generate the funds necessary for lending
operations, reducing net interest margin and negatively affecting its results of operations.
    
    Increased competition with other financial institutions or an adverse change in Citizens
relationship with a number of major customers could reduce its net interest margin and net
income by decreasing the number and size of loans originated, the interest rates charged on
these loans and the fees charged for services to customers. If Citizens lends to customers who
are less likely to pay in order to maintain historical origination levels, it may not be able
to maintain current loan quality levels.
 32




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##### Table of Contents




    
    Events such as significant adverse changes in the business climate, adverse action by a
regulator, unanticipated changes in the competitive environment, and a decision to change
Citizens operations or dispose of an operating unit could have a negative effect on its
goodwill or other intangible assets such that it may need to record an impairment charge,
which could have a material adverse impact on its results of operations.
    
    If the FDIC raises the assessment rate charged to its insured financial institutions,
Citizens FDIC insurance premium may increase, which could have a negative effect on expenses
and results of operations.
    
    Citizens may not realize its deferred income tax assets, due in part to limitations imposed
as a result of the ownership change triggered by the recent Exchange Offers.
    
    In order to maintain and strengthen its capital base, Citizens has determined to raise
additional capital in transactions that will likely be highly dilutive to its common
shareholders.
    
    Citizens stock price can be volatile.
    
    The trading volume in Citizens common stock is less than that of other larger financial
services companies.
    
    If Citizens common stock fails to meet the listing requirements of the Nasdaq Global
Select Market (the Nasdaq GSM) and is delisted from trading on that market, the market price
of its common stock could be adversely affected and if Citizens stock is no longer traded on
any established exchange, an active trading market may not continue and adversely affect the
trading price of its stock.
    
    An investment in Citizens common stock is not an insured deposit.
    
    Citizens may be adversely affected by the soundness of other financial institutions.
    
    Citizens could face unanticipated environmental liabilities or costs related to real
property owned or acquired through foreclosure. Compliance with federal, state and local
environmental laws and regulations, including those related to investigation and clean-up of
contaminated sites, could have a negative effect on expenses and results of operations.
    
    Citizens is a party to various lawsuits incidental to its business. Litigation is subject
to many uncertainties such that the expenses and ultimate exposure with respect to many of
these matters cannot be ascertained.
    
    The financial services industry is undergoing rapid technological changes. If Citizens is
unable to adequately invest in and implement new technology-driven products and services, it
may not be able to compete effectively, or the cost to provide products and services may
increase significantly.
    
    Citizens business may be adversely affected by the highly regulated environment in which
it operates. Changes in banking or tax laws, regulations, and regulatory practices at either
the federal or state level, or in Citizens compliance with applicable regulations or other
requirements imposed by regulators, may adversely affect Citizens, including its ability to
offer new products and services, obtain financing, pay dividends from its subsidiaries to the
holding company, attract deposits, make loans at satisfactory spreads or engage in other
business activities. Such changes may also result in the imposition of additional costs.
    
    The products and services offered by the banking industry and customer expectations
regarding them are subject to change. Citizens attempts to respond to perceived customer needs
and expectations by offering new products and services, which are often costly to develop and
market initially. A lack of market acceptance of these products and services would have a
negative effect on its financial condition and results of operations.
    
    As a bank holding company that conducts substantially all of its operations through its
subsidiaries, the ability of Citizens parent company to pay dividends, repurchase its shares
or to repay its indebtedness depends upon the results of operations of its subsidiaries and
their ability to pay dividends to the parent company. Dividends paid by these subsidiaries are
subject to limits imposed by federal and state law.
    
    New accounting or tax pronouncements or interpretations may be issued by the accounting
profession, regulators or other government bodies which could change existing accounting
methods. Changes in accounting methods could negatively impact Citizens results of operations
and financial condition.
    
    Citizens business continuity plans or data security systems could prove to be inadequate,
resulting in a material interruption in, or disruption to, its business and a negative impact
on its results of operations.
    
    Citizens vendors could fail to fulfill their contractual obligations, resulting in a
material interruption in, or disruption to, its business and a negative impact on its results
of operations.
    
    Citizens potential inability to integrate acquired operations could have a negative effect
on its expenses and results of operations.
    
    Citizens controls and procedures may fail or be circumvented which could have a material
adverse effect on its business, results of operations and financial condition.
    
    Citizens articles of incorporation and bylaws as well as certain banking laws may have an
anti-takeover effect.
 33




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www.sec.gov
 Critical Accounting Policies
  Use of Non-GAAP Financial Measures
   34




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35




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##### Table of Contents



Non-GAAP Reconciliation  Citizens Republic Bancorp and Subsidiaries
 (dollars in thousands)
    
    Sep 30, 2009
    
    
    Jun 30, 2009
    
    
    Mar 31, 2009
    
    
    Dec 31, 2008
    
    
    Sep 30, 2008Net Interest Income (A)
    
    $
    80,885
    
    
    $
    75,601
    
    
    $
    76,946
    
    
    $
    85,687
    
    
    $
    87,318Taxable Equivalent Adjustment (B)
    
    
    3,961
    
    
    
    4,220
    
    
    
    4,337
    
    
    
    4,519
    
    
    
    4,593Noninterest Income (C)
    
    
    11,842
    
    
    
    20,966
    
    
    
    19,233
    
    
    
    15,754
    
    
    
    28,005Noninterest Expense (D)
    
    
    83,614
    
    
    
    355,433
    
    
    
    80,778
    
    
    
    78,611
    
    
    
    74,301Goodwill Impairment (E)
    
    
    
    
    
    
    266,474
    
    
    
    
    
    
    
    
    
    
    
    Efficiency Ratio: (D-E)/(A+B+C)
    
    
    86.48
    %
    
    
    88.26
    %
    
    
    80.36
    %
    
    
    74.19
    %
    
    
    61.96
    %Ending Balances (millions)Tangible Common Equity to Tangible AssetsTotal assets
    
    $
    12,072
    
    
    $
    12,288
    
    
    $
    12,982
    
    
    $
    13,086
    
    
    $
    13,116Goodwill
    
    
    (331
    )
    
    
    (331
    )
    
    
    (597
    )
    
    
    (597
    )
    
    
    (597
    )Other intangible assets
    
    
    (16
    )
    
    
    (17
    )
    
    
    (19
    )
    
    
    (21
    )
    
    
    (24
    )Deferred taxes
    
    
    5
    
    
    
    6
    
    
    
    7
    
    
    
    7
    
    
    
    8Tangible assets
    
    $
    11,730
    
    
    $
    11,946
    
    
    $
    12,373
    
    
    $
    12,475
    
    
    $
    12,503Total shareholders equity
    
    $
    1,403
    
    
    $
    1,225
    
    
    $
    1,567
    
    
    $
    1,601
    
    
    $
    1,537Goodwill
    
    
    (331
    )
    
    
    (331
    )
    
    
    (597
    )
    
    
    (597
    )
    
    
    (597
    )Other intangible assets
    
    
    (16
    )
    
    
    (17
    )
    
    
    (19
    )
    
    
    (21
    )
    
    
    (24
    )Deferred taxes
    
    
    5
    
    
    
    6
    
    
    
    7
    
    
    
    7
    
    
    
    8Tangible equity
    
    $
    1,061
    
    
    $
    883
    
    
    $
    958
    
    
    $
    990
    
    
    $
    924Tangible equity
    
    $
    1,061
    
    
    $
    883
    
    
    $
    958
    
    
    $
    990
    
    
    $
    924Preferred Stock
    
    
    (270
    )
    
    
    (269
    )
    
    
    (268
    )
    
    
    (266
    )
    
    
    Tangible common equity
    
    $
    791
    
    
    $
    614
    
    
    $
    690
    
    
    $
    724
    
    
    $
    924Tier 1 Common EquityTotal shareholders equity
    
    $
    1,403
    
    
    $
    1,225
    
    
    $
    1,567
    
    
    $
    1,601
    
    
    $
    1,537Qualifying capital securities
    
    
    74
    
    
    
    175
    
    
    
    175
    
    
    
    175
    
    
    
    175Goodwill
    
    
    (331
    )
    
    
    (331
    )
    
    
    (597
    )
    
    
    (597
    )
    
    
    (597
    )Accumulated other comprehensive loss
    
    
    3
    
    
    
    27
    
    
    
    35
    
    
    
    50
    
    
    
    9Other assets (1)
    
    
    (16
    )
    
    
    (17
    )
    
    
    (19
    )
    
    
    (21
    )
    
    
    (24
    )Tier 1 capital (regulatory)
    
    $
    1,133
    
    
    $
    1,079
    
    
    $
    1,161
    
    
    $
    1,208
    
    
    $
    1,100Tier 1 capital (regulatory)
    
    $
    1,133
    
    
    $
    1,079
    
    
    $
    1,161
    
    
    $
    1,208
    
    
    $
    1,100Qualifying capital securities
    
    
    (74
    )
    
    
    (175
    )
    
    
    (175
    )
    
    
    (175
    )
    
    
    (175
    )Preferred Stock
    
    
    (270
    )
    
    
    (269
    )
    
    
    (268
    )
    
    
    (266
    )
    
    
    Total Tier 1 common equity (non-GAAP)
    
    $
    789
    
    
    $
    635
    
    
    $
    718
    
    
    $
    767
    
    
    $
    925Net risk-weighted assets (regulatory) (1)
    
    $
    8,835
    
    
    $
    9,138
    
    
    $
    9,550
    
    
    $
    9,883
    
    
    $
    10,104Equity to Assets
    
    
    11.63
    %
    
    
    9.97
    %
    
    
    12.07
    %
    
    
    12.24
    %
    
    
    11.72
    %Tangible Equity to Tangible Assets
    
    
    9.06
    
    
    
    7.39
    
    
    
    7.74
    
    
    
    7.94
    
    
    
    7.39Tangible Common Equity to Tangible Assets
    
    
    6.75
    
    
    
    5.14
    
    
    
    5.58
    
    
    
    5.80
    
    
    
    7.39Tier 1 Common Equity
    
    
    8.94
    
    
    
    6.95
    
    
    
    7.52
    
    
    
    7.76
    
    
    
    9.15
 
 (1)
    
    Other assets deducted from Tier 1 capital and risk-weighted
assets consist of intangible assets (excluding goodwill)  Results of Operations
 Summary
  36




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37




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##### Table of Contents



RegulatoryMinimum for
    
    
    
    
    
    
    
    
    
    
    
    
    
    Excess CapitalWell-
    
    
    
    
    
    
    
    
    
    
    
    
    
    over MinimumCapitalized
    
    9/30/09
    
    6/30/09
    
    3/31/09
    
    (in millions)Tier 1 capital ratio
    
    
    6.00
    %
    
    
    12.83
    %
    
    
    11.81
    %
    
    
    12.16
    %
    
    $
    603.5Total capital ratio
    
    
    10.00
    
    
    
    14.23
    
    
    
    13.91
    
    
    
    14.21
    
    
    
    373.8Tier 1 leverage ratio
    
    
    5.00
    
    
    
    9.63
    
    
    
    8.68
    
    
    
    9.32
    
    
    
    545.0Tier 1 common equity ratio
    
    
    
    
    
    
    8.94
    
    
    
    6.95
    
    
    
    7.52Tangible equity to tangible assets
    
    
    
    
    
    
    9.06
    
    
    
    7.39
    
    
    
    7.74Tangible common equity to tangible assets
    
    
    
    
    
    
    6.75
    
    
    
    5.14
    
    
    
    5.58
 Net Interest Income and Net Interest Margin
  38




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##### Table of Contents



Average Balances/Net Interest Income/Average Rates
 2009
    
    
    2008Three Months Ended September 30,
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    520,021
    
    
    $
    329
    
    
    
    0.25
    %
    
    $
    31,955
    
    
    $
    160
    
    
    
    1.99
    %Investment securities (3):Taxable
    
    
    1,705,017
    
    
    
    19,493
    
    
    
    4.57
    
    
    
    1,435,883
    
    
    
    18,275
    
    
    
    5.09Tax-exempt
    
    
    605,709
    
    
    
    6,445
    
    
    
    6.55
    
    
    
    674,102
    
    
    
    7,272
    
    
    
    6.64FHLB and Federal Reserve stock
    
    
    156,278
    
    
    
    1,598
    
    
    
    4.07
    
    
    
    148,782
    
    
    
    1,917
    
    
    
    5.13Portfolio Loans (4):Commercial and industrial
    
    
    2,142,996
    
    
    
    25,553
    
    
    
    4.82
    
    
    
    2,738,993
    
    
    
    36,633
    
    
    
    5.42Commercial real estate
    
    
    2,899,786
    
    
    
    38,586
    
    
    
    5.28
    
    
    
    3,087,556
    
    
    
    48,698
    
    
    
    6.28Residential mortgage
    
    
    1,121,185
    
    
    
    13,776
    
    
    
    4.91
    
    
    
    1,294,952
    
    
    
    19,100
    
    
    
    5.90Direct consumer
    
    
    1,327,455
    
    
    
    20,247
    
    
    
    6.05
    
    
    
    1,491,328
    
    
    
    24,858
    
    
    
    6.63Indirect consumer
    
    
    819,409
    
    
    
    14,098
    
    
    
    6.83
    
    
    
    843,549
    
    
    
    14,260
    
    
    
    6.73Total portfolio loans
    
    
    8,310,831
    
    
    
    112,260
    
    
    
    5.39
    
    
    
    9,456,378
    
    
    
    143,549
    
    
    
    6.07Loans held for sale
    
    
    67,342
    
    
    
    921
    
    
    
    5.44
    
    
    
    110,377
    
    
    
    550
    
    
    
    1.99Total earning assets (3)
    
    
    11,365,198
    
    
    
    141,046
    
    
    
    5.07
    
    
    
    11,857,477
    
    
    
    171,723
    
    
    
    5.92Nonearning AssetsCash and due from banks
    
    
    169,806
    
    
    
    
    
    
    
    
    
    
    
    221,332Bank premises and equipment
    
    
    121,255
    
    
    
    
    
    
    
    
    
    
    
    124,343Investment security fair value adjustment
    
    
    34,395
    
    
    
    
    
    
    
    
    
    
    
    850Other nonearning assets
    
    
    772,327
    
    
    
    
    
    
    
    
    
    
    
    1,140,661Allowance for loan losses
    
    
    (334,469
    )
    
    
    
    
    
    
    
    
    
    
    (187,981
    )Total assets
    
    $
    12,128,512
    
    
    
    
    
    
    
    
    
    
    $
    13,156,682Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    $
    1,085,860
    
    
    $
    1,173
    
    
    
    0.43
    %
    
    $
    788,495
    
    
    $
    1,333
    
    
    
    0.67
    %Savings deposits
    
    
    2,601,632
    
    
    
    4,507
    
    
    
    0.69
    
    
    
    2,601,866
    
    
    
    10,414
    
    
    
    1.59Time deposits
    
    
    3,850,019
    
    
    
    30,975
    
    
    
    3.19
    
    
    
    4,300,715
    
    
    
    41,254
    
    
    
    3.82Short-term borrowings
    
    
    59,420
    
    
    
    37
    
    
    
    0.25
    
    
    
    225,910
    
    
    
    1,087
    
    
    
    1.91Long-term debt
    
    
    1,900,492
    
    
    
    23,469
    
    
    
    4.91
    
    
    
    2,421,584
    
    
    
    30,317
    
    
    
    4.99Total interest-bearing liabilities
    
    
    9,497,423
    
    
    
    60,161
    
    
    
    2.51
    
    
    
    10,338,570
    
    
    
    84,405
    
    
    
    3.25Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,248,434
    
    
    
    
    
    
    
    
    
    
    
    1,146,010Other liabilities
    
    
    154,973
    
    
    
    
    
    
    
    
    
    
    
    121,521Shareholders equity
    
    
    1,227,682
    
    
    
    
    
    
    
    
    
    
    
    1,550,581Total liabilities and shareholders equity
    
    $
    12,128,512
    
    
    
    
    
    
    
    
    
    
    $
    13,156,682Net Interest Income
    
    
    
    
    
    $
    80,885
    
    
    
    
    
    
    
    
    
    
    $
    87,318Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.56
    %
    
    
    
    
    
    
    
    
    
    
    2.67
    %Contribution
of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    0.41
    
    
    
    
    
    
    
    
    
    
    
    0.42Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    2.97
    %
    
    
    
    
    
    
    
    
    
    
    3.09
    %
 
 (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 $4.0 million and $4.6 million
for the three months ended September 30, 2009 and 2008, respectively, based on a tax rate of 35%.(3)
    
    For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted
for amortization of premiums and accretion of discounts.(4)
    
    Nonaccrual loans are included in average balances for each applicable loan category.(5)
    
    The interest spread and net interest margin are presented on a tax-equivalent basis.(6)
    
    Because noninterest-bearing funding sources, demand deposits, other liabilities and shareholders equity also support earning assets, the net interest
margin exceeds the interest spread. 39




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##### Table of Contents



Average Balances/Net Interest Income/Average Rates
 2009
    
    
    2008Nine Months Ended September 30,
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    489,838
    
    
    $
    918
    
    
    
    0.25
    %
    
    $
    13,011
    
    
    $
    206
    
    
    
    2.11
    %Investment securities (3):Taxable
    
    
    1,719,822
    
    
    
    61,473
    
    
    
    4.77
    
    
    
    1,482,512
    
    
    
    58,319
    
    
    
    5.25Tax-exempt
    
    
    628,803
    
    
    
    20,130
    
    
    
    6.57
    
    
    
    674,529
    
    
    
    21,922
    
    
    
    6.67FHLB and Federal Reserve stock
    
    
    153,167
    
    
    
    3,493
    
    
    
    3.05
    
    
    
    148,819
    
    
    
    5,508
    
    
    
    4.94Portfolio Loans (4):Commercial and industrial
    
    
    2,308,427
    
    
    
    78,928
    
    
    
    4.66
    
    
    
    2,654,263
    
    
    
    109,764
    
    
    
    5.62Commercial real estate
    
    
    2,929,076
    
    
    
    116,663
    
    
    
    5.33
    
    
    
    3,129,542
    
    
    
    152,409
    
    
    
    6.51Residential mortgage loans
    
    
    1,178,467
    
    
    
    45,306
    
    
    
    5.13
    
    
    
    1,355,791
    
    
    
    62,867
    
    
    
    6.18Direct consumer
    
    
    1,378,838
    
    
    
    62,625
    
    
    
    6.07
    
    
    
    1,520,591
    
    
    
    77,967
    
    
    
    6.85Indirect consumer
    
    
    810,693
    
    
    
    41,144
    
    
    
    6.79
    
    
    
    829,704
    
    
    
    41,825
    
    
    
    6.73Total portfolio loans
    
    
    8,605,501
    
    
    
    344,666
    
    
    
    5.38
    
    
    
    9,489,891
    
    
    
    444,832
    
    
    
    6.29Loans held for sale
    
    
    81,696
    
    
    
    2,187
    
    
    
    3.57
    
    
    
    83,387
    
    
    
    2,447
    
    
    
    3.91Total earning assets (3)
    
    
    11,678,827
    
    
    
    432,867
    
    
    
    5.09
    
    
    
    11,892,149
    
    
    
    533,234
    
    
    
    6.14Nonearning AssetsCash and due from banks
    
    
    167,309
    
    
    
    
    
    
    
    
    
    
    
    206,709Bank premises and equipment
    
    
    122,402
    
    
    
    
    
    
    
    
    
    
    
    126,947Investment security fair value adjustment
    
    
    14,593
    
    
    
    
    
    
    
    
    
    
    
    17,354Other nonearning assets
    
    
    970,065
    
    
    
    
    
    
    
    
    
    
    
    1,231,893Allowance for loan losses
    
    
    (295,777
    )
    
    
    
    
    
    
    
    
    
    
    (177,119
    )Total assets
    
    $
    12,657,419
    
    
    
    
    
    
    
    
    
    
    $
    13,297,933Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    $
    946,535
    
    
    $
    3,179
    
    
    
    0.45
    %
    
    $
    778,202
    
    
    $
    3,863
    
    
    
    0.66
    %Savings deposits
    
    
    2,623,382
    
    
    
    15,775
    
    
    
    0.80
    
    
    
    2,553,627
    
    
    
    35,423
    
    
    
    1.85Time deposits
    
    
    4,193,143
    
    
    
    107,128
    
    
    
    3.42
    
    
    
    4,171,204
    
    
    
    128,427
    
    
    
    4.11Short-term borrowings
    
    
    62,942
    
    
    
    185
    
    
    
    0.39
    
    
    
    397,331
    
    
    
    8,002
    
    
    
    2.69Long-term debt
    
    
    2,005,006
    
    
    
    73,167
    
    
    
    4.88
    
    
    
    2,586,982
    
    
    
    94,274
    
    
    
    4.87Total interest-bearing liabilities
    
    
    9,831,008
    
    
    
    199,434
    
    
    
    2.71
    
    
    
    10,487,346
    
    
    
    269,989
    
    
    
    3.44Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,201,865
    
    
    
    
    
    
    
    
    
    
    
    1,117,144Other liabilities
    
    
    162,205
    
    
    
    
    
    
    
    
    
    
    
    135,214Shareholders equity
    
    
    1,462,341
    
    
    
    
    
    
    
    
    
    
    
    1,558,229Total liabilities and shareholders equity
    
    $
    12,657,419
    
    
    
    
    
    
    
    
    
    
    $
    13,297,933Net Interest Income
    
    
    
    
    
    $
    233,433
    
    
    
    
    
    
    
    
    
    
    $
    263,245Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.38
    %
    
    
    
    
    
    
    
    
    
    
    2.70
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.43
    
    
    
    
    
    
    
    
    
    
    
    0.41Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    2.81
    %
    
    
    
    
    
    
    
    
    
    
    3.11
    %
 
 (1)
    
    Interest income is shown on actual basis and does not include taxable equivalent adjustments.(2)
    
    Average rates are presented on an annual basis and include taxable equivalent adjustments to interest income of $12.5 million and $13.9 million for the nine months ended September 30, 2009 and 2008, respectively, based on a tax rate of 35%.(3)
    
    For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.(4)
    
    Nonaccrual loans are included in average balances for each applicable loan category.(5)
    
    The interest spread and net interest margin are presented on a tax-equivalent basis.(6)
    
    Because noninterest-bearing funding sources, demand deposits, other liabilities and shareholders equity also support earning assets, the net interest margin exceeds the interest spread.   40




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##### Table of Contents



Analysis of Changes in Interest Income and Interest Expense
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Increase (Decrease)
    
    
    
    
    
    
    Increase (Decrease)2009 compared with 2008
    
    Net
    
    
    Due to Change in
    
    
    Net
    
    
    Due to Change in(in thousands)
    
    Change(1)
    
    
    Rate(2)
    
    
    Volume(2)
    
    
    Change(1)
    
    
    Rate(2)
    
    
    Volume(2)Interest Income on Earning Assets:Money market investments
    
    $
    169
    
    
    $
    (255
    )
    
    $
    424
    
    
    $
    712
    
    
    $
    (339
    )
    
    $
    1,051Investment securities:Taxable
    
    
    1,218
    
    
    
    (1,982
    )
    
    
    3,200
    
    
    
    3,154
    
    
    
    (5,638
    )
    
    
    8,792Tax-exempt
    
    
    (827
    )
    
    
    (98
    )
    
    
    (729
    )
    
    
    (1,792
    )
    
    
    (324
    )
    
    
    (1,468
    )FHLB and Federal Reserve stock
    
    
    (319
    )
    
    
    (412
    )
    
    
    93
    
    
    
    (2,015
    )
    
    
    (2,172
    )
    
    
    157Loans:Commercial and industrial
    
    
    (11,080
    )
    
    
    (3,686
    )
    
    
    (7,394
    )
    
    
    (30,836
    )
    
    
    (17,716
    )
    
    
    (13,120
    )Commercial real estate
    
    
    (10,112
    )
    
    
    (7,280
    )
    
    
    (2,832
    )
    
    
    (35,746
    )
    
    
    (26,548
    )
    
    
    (9,198
    )Residential mortgage loans
    
    
    (5,324
    )
    
    
    (2,952
    )
    
    
    (2,372
    )
    
    
    (17,561
    )
    
    
    (9,948
    )
    
    
    (7,613
    )Direct consumer
    
    
    (4,611
    )
    
    
    (2,010
    )
    
    
    (2,601
    )
    
    
    (15,342
    )
    
    
    (8,537
    )
    
    
    (6,805
    )Indirect consumer
    
    
    (162
    )
    
    
    251
    
    
    
    (413
    )
    
    
    (681
    )
    
    
    185
    
    
    
    (866
    )Total portfolio loans
    
    
    (31,289
    )
    
    
    (15,677
    )
    
    
    (15,612
    )
    
    
    (100,166
    )
    
    
    (62,564
    )
    
    
    (37,602
    )Loans held for sale
    
    
    371
    
    
    
    654
    
    
    
    (283
    )
    
    
    (260
    )
    
    
    (211
    )
    
    
    (49
    )Total
    
    
    (30,677
    )
    
    
    (17,770
    )
    
    
    (12,907
    )
    
    
    (100,367
    )
    
    
    (71,248
    )
    
    
    (29,119
    )Interest Expense on Interest-Bearing Liabilities:Deposits:Interest-bearing demand
    
    
    (160
    )
    
    
    (570
    )
    
    
    410
    
    
    
    (684
    )
    
    
    (1,416
    )
    
    
    732Savings
    
    
    (5,907
    )
    
    
    (5,906
    )
    
    
    (1
    )
    
    
    (19,648
    )
    
    
    (20,595
    )
    
    
    947Time
    
    
    (10,279
    )
    
    
    (6,230
    )
    
    
    (4,049
    )
    
    
    (21,299
    )
    
    
    (21,981
    )
    
    
    682Short-term borrowings
    
    
    (1,049
    )
    
    
    (568
    )
    
    
    (481
    )
    
    
    (7,817
    )
    
    
    (3,943
    )
    
    
    (3,874
    )Long-term debt
    
    
    (6,849
    )
    
    
    (409
    )
    
    
    (6,440
    )
    
    
    (21,107
    )
    
    
    (126
    )
    
    
    (20,981
    )Total
    
    
    (24,244
    )
    
    
    (13,683
    )
    
    
    (10,561
    )
    
    
    (70,555
    )
    
    
    (48,061
    )
    
    
    (22,494
    )Net Interest Income
    
    $
    (6,433
    )
    
    $
    (4,087
    )
    
    $
    (2,346
    )
    
    $
    (29,812
    )
    
    $
    (23,187
    )
    
    $
    (6,625
    )
 
 (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.   41




---



##### Table of Contents



Noninterest Income
  Noninterest Income
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Change in 2009
    
    
    September 30,
    
    
    Change in 2009(dollars in thousands)
    
    2009
    
    
    2008
    
    
    Amount
    
    
    Percent
    
    
    2009
    
    
    2008
    
    
    Amount
    
    
    PercentService charges on deposit accounts
    
    $
    11,524
    
    
    $
    12,254
    
    
    $
    (730
    )
    
    
    (6.0
    )%
    
    $
    32,628
    
    
    $
    35,756
    
    
    $
    (3,128
    )
    
    
    (8.7
    )%Trust fees
    
    
    3,911
    
    
    
    4,513
    
    
    
    (602
    )
    
    
    (13.3
    )
    
    
    10,794
    
    
    
    13,905
    
    
    
    (3,111
    )
    
    
    (22.4
    )Mortgage and other loan income
    
    
    3,244
    
    
    
    3,269
    
    
    
    (25
    )
    
    
    (0.8
    )
    
    
    10,039
    
    
    
    9,636
    
    
    
    403
    
    
    
    4.2Brokerage and investment fees
    
    
    1,527
    
    
    
    1,376
    
    
    
    151
    
    
    
    11.0
    
    
    
    4,304
    
    
    
    5,503
    
    
    
    (1,199
    )
    
    
    (21.8
    )ATM network user fees
    
    
    1,775
    
    
    
    1,715
    
    
    
    60
    
    
    
    3.5
    
    
    
    4,894
    
    
    
    4,805
    
    
    
    89
    
    
    
    1.9Bankcard fees
    
    
    2,039
    
    
    
    1,874
    
    
    
    165
    
    
    
    8.8
    
    
    
    6,026
    
    
    
    5,542
    
    
    
    484
    
    
    
    8.7Losses on held for sale loans
    
    
    (859
    )
    
    
    (1,261
    )
    
    
    402
    
    
    
    (31.9
    )
    
    
    (11,362
    )
    
    
    (3,508
    )
    
    
    (7,854
    )
    
    
    N/MNet loss on debt extinguishment
    
    
    (15,929
    )
    
    
    
    
    
    
    (15,929
    )
    
    
    N/M
    
    
    
    (15,929
    )
    
    
    
    
    
    
    (15,929
    )
    
    
    N/MOther income
    
    
    4,610
    
    
    
    4,265
    
    
    
    345
    
    
    
    8.1
    
    
    
    10,642
    
    
    
    14,349
    
    
    
    (3,707
    )
    
    
    (25.8
    )Total fees and other income
    
    
    11,842
    
    
    
    28,005
    
    
    
    (16,163
    )
    
    
    (57.7
    )
    
    
    52,036
    
    
    
    85,988
    
    
    
    (33,952
    )
    
    
    (39.5
    )Investment securities gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    N/MTotal noninterest income
    
    $
    11,842
    
    
    $
    28,005
    
    
    $
    (16,163
    )
    
    
    (57.7
    )
    
    $
    52,041
    
    
    $
    85,988
    
    
    $
    (33,947
    )
    
    
    (39.5
    )
 
    Noninterest Expense
  Noninterest Expense
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Change in 2009
    
    
    September 30,
    
    
    Change in 2009(dollars in thousands)
    
    2009
    
    
    2008
    
    
    Amount
    
    
    Percent
    
    
    2009
    
    
    2008
    
    
    Amount
    
    
    PercentSalaries and employee benefits
    
    $
    38,461
    
    
    $
    39,728
    
    
    $
    (1,267
    )
    
    
    (3.2
    )%
    
    $
    108,328
    
    
    $
    120,999
    
    
    $
    (12,671
    )
    
    
    (10.5
    )%Occupancy
    
    
    6,711
    
    
    
    6,749
    
    
    
    (38
    )
    
    
    (0.6
    )
    
    
    21,396
    
    
    
    21,378
    
    
    
    18
    
    
    
    0.1Professional services
    
    
    3,063
    
    
    
    3,246
    
    
    
    (183
    )
    
    
    (5.6
    )
    
    
    8,983
    
    
    
    11,540
    
    
    
    (2,557
    )
    
    
    (22.2
    )Equipment
    
    
    3,032
    
    
    
    3,160
    
    
    
    (128
    )
    
    
    (4.1
    )
    
    
    8,931
    
    
    
    9,810
    
    
    
    (879
    )
    
    
    (9.0
    )Data processing services
    
    
    4,542
    
    
    
    4,185
    
    
    
    357
    
    
    
    8.5
    
    
    
    13,163
    
    
    
    12,722
    
    
    
    441
    
    
    
    3.5Advertising and public relations
    
    
    1,885
    
    
    
    1,297
    
    
    
    588
    
    
    
    45.3
    
    
    
    5,583
    
    
    
    4,593
    
    
    
    990
    
    
    
    21.6Postage and delivery
    
    
    1,379
    
    
    
    1,626
    
    
    
    (247
    )
    
    
    (15.2
    )
    
    
    4,480
    
    
    
    5,411
    
    
    
    (931
    )
    
    
    (17.2
    )Other loan expenses
    
    
    6,496
    
    
    
    2,755
    
    
    
    3,741
    
    
    
    135.8
    
    
    
    19,293
    
    
    
    8,014
    
    
    
    11,279
    
    
    
    140.7Other real estate (ORE) expenses
    
    
    5,568
    
    
    
    1,825
    
    
    
    3,743
    
    
    
    205.1
    
    
    
    18,345
    
    
    
    9,461
    
    
    
    8,884
    
    
    
    93.9Intangible asset amortization
    
    
    1,874
    
    
    
    2,226
    
    
    
    (352
    )
    
    
    (15.8
    )
    
    
    5,863
    
    
    
    7,006
    
    
    
    (1,143
    )
    
    
    (16.3
    )Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/M
    
    
    
    266,474
    
    
    
    178,089
    
    
    
    88,385
    
    
    
    49.6Other expenses
    
    
    10,603
    
    
    
    7,504
    
    
    
    3,099
    
    
    
    41.3
    
    
    
    38,986
    
    
    
    23,068
    
    
    
    15,918
    
    
    
    69.0Total noninterest expense
    
    $
    83,614
    
    
    $
    74,301
    
    
    $
    9,313
    
    
    
    12.5
    
    
    $
    519,825
    
    
    $
    412,091
    
    
    $
    107,734
    
    
    
    26.1
 
  42




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##### Table of Contents



Income Taxes
  Lines of Business Results
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Specialty Commercial
    
    $
    (17,911
    )
    
    $
    (23,274
    )
    
    $
    (65,145
    )
    
    $
    (219,338
    )Regional Banking
    
    
    8,038
    
    
    
    17,751
    
    
    
    (255,803
    )
    
    
    41,310Wealth Management
    
    
    934
    
    
    
    321
    
    
    
    1,891
    
    
    
    1,788Other
    
    
    (47,984
    )
    
    
    (1,974
    )
    
    
    (130,428
    )
    
    
    (21,443
    )Net Loss
    
    $
    (56,923
    )
    
    $
    (7,176
    )
    
    $
    (449,485
    )
    
    $
    (197,683
    )
 Specialty Commercial
  43




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##### Table of Contents



Regional Banking
  Wealth Management
  Other
  Financial Condition
  Money Market Investments
  Investment Securities
  44




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##### Table of Contents



Portfolio Loans
   Loan Portfolios
 Sep 30,
    
    
    Jun 30,
    
    
    Mar 31,
    
    
    Dec 31,
    
    
    Sep 30,(in millions)
    
    2009
    
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008Land Hold
    
    $
    52.0
    
    
    $
    54.9
    
    
    $
    54.2
    
    
    $
    45.0
    
    
    $
    48.3Land Development
    
    
    129.7
    
    
    
    123.1
    
    
    
    121.2
    
    
    
    132.7
    
    
    
    125.0Construction
    
    
    214.8
    
    
    
    230.4
    
    
    
    257.7
    
    
    
    263.5
    
    
    
    364.2Income Producing
    
    
    1,509.7
    
    
    
    1,534.5
    
    
    
    1,558.2
    
    
    
    1,556.2
    
    
    
    1,533.2Owner-Occupied
    
    
    992.4
    
    
    
    979.5
    
    
    
    953.0
    
    
    
    967.3
    
    
    
    999.6Total Commercial Real Estate
    
    
    2,898.6
    
    
    
    2,922.4
    
    
    
    2,944.3
    
    
    
    2,964.7
    
    
    
    3,070.3Commercial and Industrial
    
    
    2,099.8
    
    
    
    2,198.3
    
    
    
    2,394.4
    
    
    
    2,602.4
    
    
    
    2,703.7Total Commercial Loans
    
    
    4,998.4
    
    
    
    5,120.7
    
    
    
    5,338.7
    
    
    
    5,567.1
    
    
    
    5,774.0Residential Mortgage
    
    
    1,084.8
    
    
    
    1,145.0
    
    
    
    1,208.0
    
    
    
    1,262.8
    
    
    
    1,279.7Direct Consumer
    
    
    1,308.3
    
    
    
    1,351.5
    
    
    
    1,405.6
    
    
    
    1,452.2
    
    
    
    1,481.4Indirect Consumer
    
    
    825.3
    
    
    
    808.3
    
    
    
    802.1
    
    
    
    820.5
    
    
    
    843.1Total Consumer Loans
    
    
    3,218.4
    
    
    
    3,304.8
    
    
    
    3,415.7
    
    
    
    3,535.5
    
    
    
    3,604.2Total Loans
    
    $
    8,216.8
    
    
    $
    8,425.5
    
    
    $
    8,754.4
    
    
    $
    9,102.6
    
    
    $
    9,378.2
    Credit Quality
  45




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##### 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, Citizens believes may be at risk due to general economic conditions or
changes in a borrowers financial status and therefore require increased oversight. Watchlist
loans that are in nonperforming status are included in the Nonperforming Assets table.
 
    
    Nonperforming Assets  This table illustrates the loans that are in nonaccrual status,
loans past due 90 days or more on which interest is still accruing, restructured loans,
nonperforming loans that are held for sale, and other repossessed assets acquired. The
commercial loans included in this table are reviewed as part of the watchlist process in
addition to the loans displayed in the commercial watchlist table.
 
    
    Net Charge-Offs  This table illustrates the portion of loans that have been charged-off
during each quarter.
 
    
    Analysis of Allowance for Loan Losses  This table illustrates the changes that result in
the period-end allowance for loan losses position.
 Delinquency Rates by Loan Portfolio
  Table 1  Delinquency Rates By Loan Portfolio
 30 to 89 days Past Due
    
    Sep 30, 2009
    
    
    Jun 30, 2009
    
    
    Mar 31, 2009
    
    
    Dec 31, 2008
    
    
    Sep 30, 2008% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(dollars in millions)
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    1.4
    
    
    
    2.61
    %
    
    $
    3.5
    
    
    
    6.38
    %
    
    $
    3.7
    
    
    
    6.83
    %
    
    $
    3.9
    
    
    
    8.67
    %
    
    $
    7.3
    
    
    
    15.11
    %Land Development
    
    
    12.0
    
    
    
    9.29
    
    
    
    1.3
    
    
    
    1.06
    
    
    
    11.1
    
    
    
    9.16
    
    
    
    5.2
    
    
    
    3.92
    
    
    
    10.3
    
    
    
    8.24Construction
    
    
    12.1
    
    
    
    5.64
    
    
    
    1.7
    
    
    
    0.74
    
    
    
    16.7
    
    
    
    6.48
    
    
    
    27.3
    
    
    
    10.36
    
    
    
    26.1
    
    
    
    7.17Income Producing
    
    
    44.9
    
    
    
    2.97
    
    
    
    50.0
    
    
    
    3.26
    
    
    
    64.2
    
    
    
    4.12
    
    
    
    76.7
    
    
    
    4.93
    
    
    
    50.1
    
    
    
    3.27Owner-Occupied
    
    
    24.4
    
    
    
    2.46
    
    
    
    15.6
    
    
    
    1.59
    
    
    
    37.4
    
    
    
    3.92
    
    
    
    37.5
    
    
    
    3.88
    
    
    
    21.3
    
    
    
    2.13Total Commercial Real Estate
    
    
    94.8
    
    
    
    3.27
    
    
    
    72.1
    
    
    
    2.47
    
    
    
    133.1
    
    
    
    4.52
    
    
    
    150.6
    
    
    
    5.08
    
    
    
    115.1
    
    
    
    3.75Commercial and Industrial
    
    
    20.2
    
    
    
    0.96
    
    
    
    34.0
    
    
    
    1.55
    
    
    
    47.1
    
    
    
    1.97
    
    
    
    56.5
    
    
    
    2.17
    
    
    
    29.1
    
    
    
    1.08Total Commercial Loans
    
    
    115.0
    
    
    
    2.30
    
    
    
    106.1
    
    
    
    2.07
    
    
    
    180.2
    
    
    
    3.38
    
    
    
    207.1
    
    
    
    3.72
    
    
    
    144.2
    
    
    
    2.50Residential Mortgage
    
    
    30.3
    
    
    
    2.80
    
    
    
    27.7
    
    
    
    2.42
    
    
    
    25.9
    
    
    
    2.14
    
    
    
    39.5
    
    
    
    3.13
    
    
    
    37.7
    
    
    
    2.95Direct Consumer
    
    
    24.5
    
    
    
    1.87
    
    
    
    23.3
    
    
    
    1.72
    
    
    
    20.4
    
    
    
    1.45
    
    
    
    25.5
    
    
    
    1.76
    
    
    
    19.5
    
    
    
    1.32Indirect Consumer
    
    
    16.3
    
    
    
    1.98
    
    
    
    14.6
    
    
    
    1.81
    
    
    
    14.7
    
    
    
    1.83
    
    
    
    18.5
    
    
    
    2.25
    
    
    
    13.6
    
    
    
    1.61Total Consumer Loans
    
    
    71.1
    
    
    
    2.21
    
    
    
    65.6
    
    
    
    1.98
    
    
    
    61.0
    
    
    
    1.79
    
    
    
    83.5
    
    
    
    2.36
    
    
    
    70.8
    
    
    
    1.96Total Delinquent Loans
    
    $
    186.1
    
    
    
    2.26
    %
    
    $
    171.7
    
    
    
    2.04
    %
    
    $
    241.2
    
    
    
    2.76
    %
    
    $
    290.6
    
    
    
    3.19
    %
    
    $
    215.0
    
    
    
    2.29
    %
  Commercial Watchlist
  46




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##### Table of Contents



Table 2  Commercial Watchlist
 Accruing loans only
    
    Sep 30, 2009
    
    
    Jun 30, 2009
    
    
    Mar 31, 2009
    
    
    Dec 31, 2008
    
    
    Sep 30, 2008% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(dollars in millions)
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    29.0
    
    
    
    55.76
    %
    
    $
    18.1
    
    
    
    32.97
    %
    
    $
    15.7
    
    
    
    28.97
    %
    
    $
    18.5
    
    
    
    41.11
    %
    
    $
    20.7
    
    
    
    42.86
    %Land Development
    
    
    93.6
    
    
    
    72.12
    
    
    
    83.6
    
    
    
    67.91
    
    
    
    62.4
    
    
    
    51.49
    
    
    
    49.3
    
    
    
    37.15
    
    
    
    51.8
    
    
    
    41.44Construction
    
    
    90.4
    
    
    
    42.10
    
    
    
    90.3
    
    
    
    39.19
    
    
    
    86.6
    
    
    
    33.60
    
    
    
    74.8
    
    
    
    28.39
    
    
    
    104.8
    
    
    
    28.78Income Producing
    
    
    519.6
    
    
    
    34.42
    
    
    
    458.9
    
    
    
    29.91
    
    
    
    421.9
    
    
    
    27.08
    
    
    
    401.0
    
    
    
    25.77
    
    
    
    290.3
    
    
    
    18.93Owner-Occupied
    
    
    277.3
    
    
    
    27.94
    
    
    
    274.4
    
    
    
    28.01
    
    
    
    224.2
    
    
    
    23.53
    
    
    
    178.4
    
    
    
    18.44
    
    
    
    167.0
    
    
    
    16.71Total Commercial Real Estate
    
    
    1,009.9
    
    
    
    34.84
    
    
    
    925.3
    
    
    
    31.66
    
    
    
    810.8
    
    
    
    27.54
    
    
    
    722.0
    
    
    
    24.35
    
    
    
    634.6
    
    
    
    20.67Commercial and Industrial
    
    
    510.3
    
    
    
    24.30
    
    
    
    532.9
    
    
    
    24.24
    
    
    
    479.7
    
    
    
    20.03
    
    
    
    436.8
    
    
    
    16.78
    
    
    
    431.2
    
    
    
    15.95Total Watchlist Loans
    
    $
    1,520.2
    
    
    
    30.41
    %
    
    $
    1,458.2
    
    
    
    28.48
    %
    
    $
    1,290.5
    
    
    
    24.17
    %
    
    $
    1,158.8
    
    
    
    20.82
    %
    
    $
    1,065.8
    
    
    
    18.46
    %
  Nonperforming Assets
  Table 3  Nonperforming Assets
 Sep 30, 2009
    
    
    Jun 30, 2009
    
    
    Mar 31, 2009
    
    
    Dec 31, 2008
    
    
    Sep 30, 2008% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(dollars in millions)
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    13.3
    
    
    
    25.56
    %
    
    $
    13.1
    
    
    
    23.86
    %
    
    $
    12.0
    
    
    
    22.14
    %
    
    $
    10.4
    
    
    
    23.11
    %
    
    $
    11.0
    
    
    
    22.77
    %Land Development
    
    
    13.7
    
    
    
    10.52
    
    
    
    15.1
    
    
    
    12.27
    
    
    
    14.6
    
    
    
    12.05
    
    
    
    23.4
    
    
    
    17.63
    
    
    
    20.6
    
    
    
    16.48Construction
    
    
    33.7
    
    
    
    15.70
    
    
    
    36.0
    
    
    
    15.63
    
    
    
    26.5
    
    
    
    10.28
    
    
    
    18.3
    
    
    
    6.94
    
    
    
    25.7
    
    
    
    7.06Income Producing
    
    
    126.7
    
    
    
    8.39
    
    
    
    139.4
    
    
    
    9.08
    
    
    
    116.3
    
    
    
    7.46
    
    
    
    78.6
    
    
    
    5.05
    
    
    
    57.6
    
    
    
    3.76Owner-Occupied
    
    
    70.2
    
    
    
    7.07
    
    
    
    72.0
    
    
    
    7.35
    
    
    
    66.5
    
    
    
    6.98
    
    
    
    31.8
    
    
    
    3.29
    
    
    
    17.7
    
    
    
    1.77Total Commercial Real Estate
    
    
    257.6
    
    
    
    8.89
    
    
    
    275.6
    
    
    
    9.43
    
    
    
    235.9
    
    
    
    8.01
    
    
    
    162.5
    
    
    
    5.48
    
    
    
    132.6
    
    
    
    4.32Commercial and Industrial
    
    
    111.5
    
    
    
    5.31
    
    
    
    91.8
    
    
    
    4.18
    
    
    
    83.7
    
    
    
    3.50
    
    
    
    64.6
    
    
    
    2.48
    
    
    
    38.2
    
    
    
    1.41Total Nonaccruing Commercial Loans
    
    
    369.1
    
    
    
    7.38
    
    
    
    367.4
    
    
    
    7.17
    
    
    
    319.6
    
    
    
    5.99
    
    
    
    227.1
    
    
    
    4.08
    
    
    
    170.8
    
    
    
    2.96Residential Mortgage
    
    
    106.5
    
    
    
    9.82
    
    
    
    103.3
    
    
    
    9.02
    
    
    
    84.6
    
    
    
    7.00
    
    
    
    59.5
    
    
    
    4.71
    
    
    
    40.2
    
    
    
    3.14Direct Consumer
    
    
    21.6
    
    
    
    1.65
    
    
    
    20.3
    
    
    
    1.50
    
    
    
    21.0
    
    
    
    1.49
    
    
    
    15.1
    
    
    
    1.04
    
    
    
    16.3
    
    
    
    1.10Indirect Consumer
    
    
    2.6
    
    
    
    0.31
    
    
    
    1.4
    
    
    
    0.17
    
    
    
    2.0
    
    
    
    0.25
    
    
    
    2.6
    
    
    
    0.32
    
    
    
    2.1
    
    
    
    0.25Total Nonaccruing Consumer Loans
    
    
    130.7
    
    
    
    4.06
    
    
    
    125.0
    
    
    
    3.78
    
    
    
    107.6
    
    
    
    3.15
    
    
    
    77.2
    
    
    
    2.18
    
    
    
    58.6
    
    
    
    1.63Total Nonaccruing Loans
    
    
    499.8
    
    
    
    6.08
    
    
    
    492.4
    
    
    
    5.84
    
    
    
    427.2
    
    
    
    4.88
    
    
    
    304.3
    
    
    
    3.34
    
    
    
    229.4
    
    
    
    2.45Loans 90+ days still accruing
    
    
    0.6
    
    
    
    0.01
    
    
    
    0.8
    
    
    
    0.01
    
    
    
    1.0
    
    
    
    0.01
    
    
    
    1.5
    
    
    
    0.02
    
    
    
    1.6
    
    
    
    0.02Restructured loans
    
    
    1.1
    
    
    
    0.01
    
    
    
    2.5
    
    
    
    0.03
    
    
    
    0.4
    
    
    
    0.00
    
    
    
    0.2
    
    
    
    0.00
    
    
    
    0.3
    
    
    
    0.00Total Nonperforming Portfolio Loans
    
    
    501.5
    
    
    
    6.10
    %
    
    
    495.7
    
    
    
    5.88
    %
    
    
    428.6
    
    
    
    4.90
    %
    
    
    306.0
    
    
    
    3.36
    %
    
    
    231.3
    
    
    
    2.47
    %Nonperforming Held for Sale
    
    
    44.5
    
    
    
    
    
    
    
    54.3
    
    
    
    
    
    
    
    64.6
    
    
    
    
    
    
    
    75.2
    
    
    
    
    
    
    
    86.6Other Repossessed Assets Acquired
    
    
    62.0
    
    
    
    
    
    
    
    54.7
    
    
    
    
    
    
    
    57.4
    
    
    
    
    
    
    
    58.0
    
    
    
    
    
    
    
    46.5Total Nonperforming Assets
    
    $
    608.0
    
    
    
    
    
    
    $
    604.7
    
    
    
    
    
    
    $
    550.6
    
    
    
    
    
    
    $
    439.2
    
    
    
    
    
    
    $
    364.4
    47




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##### Table of Contents



Net Charge-Offs, Provision for Loan Losses, and Allowance for Loan Losses
  Table 4  Net Charge-Offs
 Three Months EndedSep 30, 2009
    
    
    Jun 30, 2009
    
    
    Mar 31, 2009
    
    
    Dec 31, 2008
    
    
    Sep 30, 2008% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(dollars in millions)
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**Land Hold
    
    $
    0.5
    
    
    
    4.02
    %
    
    $
    0.6
    
    
    
    4.37
    %
    
    $
    
    
    
    
    
    %
    
    $
    4.6
    
    
    
    40.89
    %
    
    $
    1.7
    
    
    
    14.08
    %Land Development
    
    
    1.4
    
    
    
    4.19
    
    
    
    2.4
    
    
    
    7.80
    
    
    
    6.3
    
    
    
    20.79
    
    
    
    5.8
    
    
    
    17.48
    
    
    
    6.9
    
    
    
    22.08Construction
    
    
    0.9
    
    
    
    1.63
    
    
    
    5.8
    
    
    
    10.07
    
    
    
    2.0
    
    
    
    3.10
    
    
    
    10.7
    
    
    
    16.24
    
    
    
    0.5
    
    
    
    0.55Income Producing
    
    
    24.5
    
    
    
    6.50
    
    
    
    12.6
    
    
    
    3.28
    
    
    
    7.8
    
    
    
    2.00
    
    
    
    21.7
    
    
    
    5.58
    
    
    
    4.4
    
    
    
    1.15Owner-Occupied
    
    
    4.6
    
    
    
    1.85
    
    
    
    7.9
    
    
    
    3.23
    
    
    
    2.4
    
    
    
    1.01
    
    
    
    3.1
    
    
    
    1.28
    
    
    
    1.3
    
    
    
    0.52Total Commercial Real Estate
    
    
    31.9
    
    
    
    4.40
    
    
    
    29.3
    
    
    
    4.01
    
    
    
    18.5
    
    
    
    2.51
    
    
    
    45.9
    
    
    
    6.19
    
    
    
    14.8
    
    
    
    1.93Commercial and Industrial
    
    
    20.1
    
    
    
    3.84
    
    
    
    6.8
    
    
    
    1.24
    
    
    
    8.0
    
    
    
    1.34
    
    
    
    21.9
    
    
    
    3.37
    
    
    
    0.4
    
    
    
    0.06Total Commercial Loans
    
    
    52.0
    
    
    
    4.16
    
    
    
    36.1
    
    
    
    2.82
    
    
    
    26.5
    
    
    
    1.99
    
    
    
    67.8
    
    
    
    4.87
    
    
    
    15.2
    
    
    
    1.05Residential Mortgage
    
    
    10.0
    
    
    
    3.67
    
    
    
    2.2
    
    
    
    0.77
    
    
    
    0.8
    
    
    
    0.26
    
    
    
    1.6
    
    
    
    0.51
    
    
    
    0.5
    
    
    
    0.16Direct Consumer
    
    
    6.3
    
    
    
    1.92
    
    
    
    6.5
    
    
    
    1.92
    
    
    
    4.4
    
    
    
    1.25
    
    
    
    5.9
    
    
    
    1.63
    
    
    
    3.3
    
    
    
    0.89Indirect Consumer
    
    
    3.2
    
    
    
    1.56
    
    
    
    4.4
    
    
    
    2.18
    
    
    
    5.0
    
    
    
    2.49
    
    
    
    5.7
    
    
    
    2.78
    
    
    
    3.4
    
    
    
    1.61Total Consumer Loans
    
    
    19.5
    
    
    
    2.42
    
    
    
    13.1
    
    
    
    1.59
    
    
    
    10.2
    
    
    
    1.19
    
    
    
    13.2
    
    
    
    1.49
    
    
    
    7.2
    
    
    
    0.80Total Net Charge-offs
    
    $
    71.5
    
    
    
    3.41
    %
    
    $
    49.2
    
    
    
    2.30
    %
    
    $
    36.7
    
    
    
    1.67
    %
    
    $
    81.0
    
    
    
    3.48
    %
    
    $
    22.4
    
    
    
    0.94
    %
 
 **
    
    Represents an annualized rate.   Analysis of Allowance for Loan Losses
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Allowance for loan losses  beginning of period
    
    $
    333,369
    
    
    $
    181,718
    
    
    $
    255,321
    
    
    $
    163,353Provision for loan losses
    
    
    77,783
    
    
    
    58,390
    
    
    
    241,763
    
    
    
    163,489Charge-offs
    
    
    73,753
    
    
    
    25,309
    
    
    
    167,374
    
    
    
    114,958Recoveries
    
    
    2,295
    
    
    
    2,928
    
    
    
    9,984
    
    
    
    5,843Net charge-offs
    
    
    71,458
    
    
    
    22,381
    
    
    
    157,390
    
    
    
    109,115Allowance for loan losses  end of period
    
    $
    339,694
    
    
    $
    217,727
    
    
    $
    339,694
    
    
    $
    217,727Portfolio loans outstanding at period end (1)
    
    
    8,216,839
    
    
    $
    9,378,198
    
    
    $
    8,216,839
    
    
    $
    9,378,198Average portfolio loans outstanding during period (1)
    
    
    8,310,831
    
    
    
    9,456,378
    
    
    
    8,605,501
    
    
    
    9,489,891Allowance for loan losses as a percentage of portfolio loans
    
    
    4.13
    %
    
    
    2.32
    %
    
    
    4.13
    %
    
    
    2.32
    %Ratio of net charge-offs during period to average portfolio loans (annualized)
    
    
    3.41
    
    
    
    0.94
    
    
    
    2.45
    
    
    
    1.54
 
 (1)
    
    Balances exclude mortgage loans held for sale.   48




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##### Table of Contents



Loans Held for Sale
  Goodwill
  Deposits
   Borrowed Funds
   49




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##### Table of Contents



Capital Resources
  Capital Ratios
 Regulatory MinimumWell-
    
    September 30,
    
    December 31,
    
    September 30,Required
    
    Capitalized
    
    2009
    
    2008
    
    2008Risk based:Tier 1 capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    12.83
    %
    
    
    12.21
    %
    
    
    10.88
    %Total capital
    
    
    8.00
    
    
    
    10.00
    
    
    
    14.23
    
    
    
    14.49
    
    
    
    13.13Tier 1 leverage ratio
    
    
    4.00
    
    
    
    5.00
    
    
    
    9.63
    
    
    
    9.66
    
    
    
    8.76
    Contractual Obligations and Off-Balance Sheet Arrangements
  Liquidity and Liquidity Risk Management
   50




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##### Table of Contents



Credit Ratings
 Moodys
    
    
    
    
    
    DominionStandard &
    
    Investor
    
    Fitch
    
    Bond RatingPoors
    
    Service
    
    Ratings
    
    ServiceCitizens Republic Bancorp(Holding Company)Long-Term Debt
    
    BB-
    
    
    B2
    
    
    
    B+
    
    
    B (high)Short-Term Debt
    
    
    B
    
    
    Not Prime
    
    
    B
    
    
    
    R-4Trust Preferred
    
    CCC+
    
    Caa2
    
    CCC
    
    
    BCitizens BankCertificate of Deposit
    
    
    
    
    
    Ba3
    
    BB
    
    BBF&M Bank-IowaCertificate of Deposit
    
    
    
    
    
    
    
    
    
    BB
    
    BB
   51




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##### Table of Contents



Interest Rate Risk
     52




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##### Table of Contents



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




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##### Table of Contents



Changes in Internal Control over Financial Reporting
   PART II  OTHER INFORMATION
  Item 1A. Risk Factors
   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 ProgramsJuly 2009
    
    
    92
    (a)
    
    $
    0.54
    
    
    
    
    
    
    
    1,241,154August 2009
    
    
    166
    (a)
    
    
    0.81
    
    
    
    
    
    
    
    1,241,154September 2009
    
    
    172
    (a)
    
    
    0.68
    
    
    
    
    
    
    
    1,241,154Total
    
    
    430
    
    
    $
    0.70
    
    
    
    
    
    
    
    1,241,154
  (a)
    
    Shares repurchased in connection with taxes due from employees as a result of the vesting
of certain restricted share awards in accordance with the related grant agreements. These
repurchases were not part of the repurchase program approved in October 2003.  54




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
 BrokerFor
    
    Against
    
    Abstain
    
    Non-VotesThe Common Stock Proposal
    
    
    65,371,675
    
    
    
    14,390,542
    
    
    
    625,378
    
    
    
    The Debt Exchange Proposal
    
    
    66,869,137
    
    
    
    12,817,753
    
    
    
    634,118
    
    
    
    66,587The Adjournment Proposal
    
    
    59,981,412
    
    
    
    19,344,546
    
    
    
    995,048
    
    
    
    66,589
 
 Item 5. Other Information
  
 Item 6. Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation of Citizens Republic Bancorp, Inc., as
amended as of September 17, 20093.2
    
    Bylaws of Citizens Republic Bancorp, Inc., amended and restated as of September 24,
200910.54
    
    Form of Indemnification Agreement with Directors, dated as of September 24, 2009,
between Citizens Republic Bancorp, Inc. and each of Lisabeth A. Ardisana, George J.
Butvilas, Robert S. Cubbin, Richard J. Dolinski, Gary J. Hurand, Dennis J. Ibold, Benjamin
W. Laird, Stephen J. Lazaroff, Cathleen H. Nash, Kendall B. Williams, James L. Wolohan, and
Steven E. Zack31.1
    
    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
 55




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##### Table of Contents



SIGNATURES
  CITIZENS REPUBLIC BANCORP, INC.Date: November 5, 2009
    By
    /s/ Charles D. ChristyCharles D. ChristyChief Financial Officer(principal financial officer and
duly authorized officer) 56




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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 as of September 17, 2009 (filed as an exhibit to Citizens Form S-3 (File No.
333-162693) and incorporated herein by reference)3.2
    
    Bylaws of Citizens Republic Bancorp, Inc., amended and restated as of September 24,
2009 (filed as an exhibit to Citizens Form 8-K dated September 30, 2009 and incorporated
herein by reference)10.54
    
    Form of Indemnification Agreement with Directors, dated as of September 24, 2009,
between Citizens Republic Bancorp, Inc. and each of Lisabeth A. Ardisana, George J.
Butvilas, Robert S. Cubbin, Richard J. Dolinski, Gary J. Hurand, Dennis J. Ibold, Benjamin
W. Laird, Stephen J. Lazaroff, Cathleen H. Nash, Kendall B. Williams, James L. Wolohan, and
Steven E. Zack31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193432.1
    
    Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities
Exchange Act of 1934
 57