##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2007
 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 000-10535
 CITIZENS REPUBLIC BANCORP, INC.
  MICHIGAN
    
    38-2378932(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)328 S. Saginaw St., Flint, Michigan
    
    48502(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year,
 þ o
  þ o o
 o þ
   Class
    
    Outstanding at July 31, 2007Common Stock, No Par Value
    
    75,647,384 Shares




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##### 



Citizens Republic Bancorp, Inc.
 PagePart I  Financial Information (unaudited)Item 1 - Financial Statements (unaudited)Consolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    4Consolidated Statements of Changes in Shareholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2 - Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    21Item 3 - Quantitative and Qualitative Disclosures about Market Risk
    
    
    43Item 4 - Controls and Procedures
    
    
    43Part II  Other InformationItem 1A  Risk Factors
    
    
    44Item 2 -Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 4  Submission of Matters to a Vote of Security Holders
    
    
    45Item 5  Other Information
    
    
    45Item 6 - Exhibits
    
    
    46Signatures
    
    
    47Exhibit Index
    
    
    48Form of Restricted Stock AgreementForm of Restricted Stock Agreement2007 Management Incentive PlanCertification of Chief Executive OfficerCertification of Chief Financial OfficerSection 1350 Certification
  2




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##### Table of Contents



Consolidated Balance Sheets
 Citizens Republic Bancorp and Subsidiaries
 June 30,
    
    
    December 31,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2006(unaudited)
    
    
    (Note 1)
    
    
    (unaudited)AssetsCash and due from banks
    
    $
    213,469
    
    
    $
    223,747
    
    
    $
    205,117Interest-bearing deposits with banks
    
    
    144
    
    
    
    203
    
    
    
    1,478Investment Securities:Securities available for sale, at fair value
    
    
    2,217,549
    
    
    
    2,839,456
    
    
    
    1,408,615Securities held to maturity, at amortized cost
(fair value of $116,838, $110,283 and $94,559, respectively)
    
    
    117,939
    
    
    
    109,744
    
    
    
    96,789Total investment securities
    
    
    2,335,488
    
    
    
    2,949,200
    
    
    
    1,505,404FHLB and Federal Reserve stock
    
    
    132,895
    
    
    
    132,895
    
    
    
    55,235Portfolio loans:Commercial
    
    
    2,153,269
    
    
    
    2,004,894
    
    
    
    1,789,583Commercial real estate
    
    
    3,085,967
    
    
    
    3,120,613
    
    
    
    1,443,851Total commercial
    
    
    5,239,236
    
    
    
    5,125,507
    
    
    
    3,233,434Residential mortgage
    
    
    1,494,450
    
    
    
    1,543,533
    
    
    
    551,048Direct consumer
    
    
    1,636,026
    
    
    
    1,721,410
    
    
    
    1,099,146Indirect consumer
    
    
    846,252
    
    
    
    840,632
    
    
    
    844,411Total portfolio loans
    
    
    9,215,964
    
    
    
    9,231,082
    
    
    
    5,728,039Less: Allowance for loan losses
    
    
    (181,118
    )
    
    
    (169,104
    )
    
    
    (114,560
    )Net portfolio loans
    
    
    9,034,846
    
    
    
    9,061,978
    
    
    
    5,613,479Loans held for sale
    
    
    85,930
    
    
    
    172,842
    
    
    
    18,013Premises and equipment
    
    
    133,021
    
    
    
    139,490
    
    
    
    120,154Goodwill
    
    
    780,914
    
    
    
    781,635
    
    
    
    54,527Other intangible assets
    
    
    36,008
    
    
    
    46,071
    
    
    
    9,684Bank owned life insurance
    
    
    210,265
    
    
    
    206,851
    
    
    
    85,921Other assets
    
    
    283,839
    
    
    
    287,700
    
    
    
    144,069Total assets
    
    $
    13,246,819
    
    
    $
    14,002,612
    
    
    $
    7,813,081LiabilitiesNoninterest-bearing deposits
    
    $
    1,169,095
    
    
    $
    1,223,113
    
    
    $
    954,907Interest-bearing demand deposits
    
    
    807,605
    
    
    
    923,848
    
    
    
    744,744Savings deposits
    
    
    2,139,929
    
    
    
    2,280,496
    
    
    
    1,537,098Time deposits
    
    
    3,964,988
    
    
    
    4,270,604
    
    
    
    2,447,820Total deposits
    
    
    8,081,617
    
    
    
    8,698,061
    
    
    
    5,684,569Federal funds purchased and securities sold
under agreements to repurchase
    
    
    675,440
    
    
    
    922,328
    
    
    
    443,651Other short-term borrowings
    
    
    11,749
    
    
    
    16,551
    
    
    
    24,073Other liabilities
    
    
    135,262
    
    
    
    169,022
    
    
    
    78,881Long-term debt
    
    
    2,808,610
    
    
    
    2,638,964
    
    
    
    932,035Total liabilities
    
    
    11,712,678
    
    
    
    12,444,926
    
    
    
    7,163,209Shareholders EquityPreferred stock  no par valueAuthorized - 5,000,000 shares; Issued  none
    
    
    
    
    
    
    
    
    
    
    Common stock  no par valueAuthorized - 100,000,000 shares; Issued and outstanding - 75,642,232 at 6/30/07,
75,675,944 at 12/31/06, and 42,887,320 at 6/30/06
    
    
    973,339
    
    
    
    980,772
    
    
    
    78,920Retained earnings
    
    
    581,476
    
    
    
    584,289
    
    
    
    587,494Accumulated other comprehensive income
    
    
    (20,674
    )
    
    
    (7,375
    )
    
    
    (16,542
    )Total shareholders equity
    
    
    1,534,141
    
    
    
    1,557,686
    
    
    
    649,872Total liabilities and shareholders equity
    
    $
    13,246,819
    
    
    $
    14,002,612
    
    
    $
    7,813,081
  3




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##### Table of Contents



Consolidated Statements of Income (Unaudited)
 Citizens Republic Bancorp and Subsidiaries
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands, except per share amounts)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Interest IncomeInterest and fees on loans
    
    $
    171,320
    
    
    $
    98,093
    
    
    $
    343,164
    
    
    $
    191,544Interest and dividends on investment securities:Taxable
    
    
    22,308
    
    
    
    12,356
    
    
    
    46,099
    
    
    
    25,307Tax-exempt
    
    
    7,309
    
    
    
    5,259
    
    
    
    14,637
    
    
    
    10,576Dividends on FHLB and Federal Reserve stock
    
    
    1,397
    
    
    
    707
    
    
    
    3,133
    
    
    
    1,367Money market investments
    
    
    19
    
    
    
    1
    
    
    
    36
    
    
    
    13Total interest income
    
    
    202,353
    
    
    
    116,416
    
    
    
    407,069
    
    
    
    228,807Interest ExpenseDeposits
    
    
    64,201
    
    
    
    35,305
    
    
    
    130,635
    
    
    
    66,297Short-term borrowings
    
    
    9,064
    
    
    
    5,395
    
    
    
    20,065
    
    
    
    9,131Long-term debt
    
    
    32,311
    
    
    
    9,726
    
    
    
    61,251
    
    
    
    19,914Total interest expense
    
    
    105,576
    
    
    
    50,426
    
    
    
    211,951
    
    
    
    95,342Net Interest Income
    
    
    96,777
    
    
    
    65,990
    
    
    
    195,118
    
    
    
    133,465Provision for loan losses
    
    
    31,857
    
    
    
    1,139
    
    
    
    35,357
    
    
    
    4,139Net interest income after provision for loan losses
    
    
    64,920
    
    
    
    64,851
    
    
    
    159,761
    
    
    
    129,326Noninterest IncomeService charges on deposit accounts
    
    
    12,080
    
    
    
    9,521
    
    
    
    23,186
    
    
    
    18,396Trust fees
    
    
    5,003
    
    
    
    4,972
    
    
    
    9,958
    
    
    
    10,014Mortgage and other loan income
    
    
    4,258
    
    
    
    2,106
    
    
    
    10,395
    
    
    
    4,116Brokerage and investment fees
    
    
    2,182
    
    
    
    1,703
    
    
    
    3,731
    
    
    
    3,218ATM network user fees
    
    
    1,640
    
    
    
    1,018
    
    
    
    3,219
    
    
    
    2,005Bankcard fees
    
    
    1,443
    
    
    
    1,129
    
    
    
    2,623
    
    
    
    2,186Other income
    
    
    4,672
    
    
    
    3,242
    
    
    
    9,589
    
    
    
    9,319Total fees and other income
    
    
    31,278
    
    
    
    23,691
    
    
    
    62,701
    
    
    
    49,254Investment securities gains
    
    
    
    
    
    
    54
    
    
    
    (33
    )
    
    
    61Total noninterest income
    
    
    31,278
    
    
    
    23,745
    
    
    
    62,668
    
    
    
    49,315Noninterest ExpenseSalaries and employee benefits
    
    
    45,971
    
    
    
    32,690
    
    
    
    90,136
    
    
    
    64,946Occupancy
    
    
    8,076
    
    
    
    5,291
    
    
    
    15,986
    
    
    
    11,233Professional services
    
    
    4,351
    
    
    
    3,703
    
    
    
    8,503
    
    
    
    7,781Equipment
    
    
    3,655
    
    
    
    3,301
    
    
    
    7,566
    
    
    
    6,467Data processing services
    
    
    4,506
    
    
    
    3,714
    
    
    
    8,636
    
    
    
    7,453Advertising and public relations
    
    
    3,292
    
    
    
    934
    
    
    
    5,067
    
    
    
    2,968Postage and delivery
    
    
    2,196
    
    
    
    1,629
    
    
    
    4,160
    
    
    
    3,091Telephone
    
    
    1,718
    
    
    
    1,392
    
    
    
    3,782
    
    
    
    2,856Other loan expenses
    
    
    1,080
    
    
    
    1,217
    
    
    
    1,992
    
    
    
    1,633Stationery and supplies
    
    
    868
    
    
    
    631
    
    
    
    1,645
    
    
    
    1,358Intangible asset amortization
    
    
    2,954
    
    
    
    724
    
    
    
    6,072
    
    
    
    1,449Restructuring and merger-related expenses
    
    
    3,408
    
    
    
    
    
    
    
    7,594
    
    
    
    Other expense
    
    
    5,415
    
    
    
    4,839
    
    
    
    10,061
    
    
    
    10,402Total noninterest expense
    
    
    87,490
    
    
    
    60,065
    
    
    
    171,200
    
    
    
    121,637Income Before Income Taxes
    
    
    8,708
    
    
    
    28,531
    
    
    
    51,229
    
    
    
    57,004Income tax provision (benefit)
    
    
    (911
    )
    
    
    7,624
    
    
    
    10,118
    
    
    
    15,341Net Income
    
    $
    9,619
    
    
    $
    20,907
    
    
    $
    41,111
    
    
    $
    41,663Net Income Per Common Share:Basic
    
    $
    0.13
    
    
    $
    0.49
    
    
    $
    0.55
    
    
    $
    0.98Diluted
    
    
    0.13
    
    
    
    0.49
    
    
    
    0.54
    
    
    
    0.97Cash Dividends Declared Per Common Share
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.580
    
    
    
    0.575Average Common Shares Outstanding:Basic
    
    
    75,374
    
    
    
    42,606
    
    
    
    75,411
    
    
    
    42,694Diluted
    
    
    75,649
    
    
    
    42,738
    
    
    
    75,782
    
    
    
    42,839
  4




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##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity
 Citizens Republic Bancorp and Subsidiaries
 AccumulatedOtherCommon Stock
    
    
    Retained
    
    
    Comprehensive(in thousands, except per share amounts)
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance at January 1, 2007
    
    
    75,676
    
    
    $
    980,772
    
    
    $
    584,289
    
    
    $
    (7,375
    )
    
    $
    1,557,686Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    41,111
    
    
    
    
    
    
    
    41,111Other comprehensive income:Net unrealized loss on securities available-for-sale, net of
reclassification adjustment for net gains included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,717
    )Net change in unrealized loss on qualifying
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (582
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,299
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,812Proceeds from stock options exercised and restricted stock activity
    
    
    519
    
    
    
    2,682
    
    
    
    
    
    
    
    
    
    
    
    2,682Recognition of stock-based compensation
    
    
    
    
    
    
    1,451
    
    
    
    
    
    
    
    
    
    
    
    1,451Cash dividends declared on common shares  $0.580 per share
    
    
    
    
    
    
    
    
    
    
    (43,924
    )
    
    
    
    
    
    
    (43,924
    )Shares acquired for retirement
    
    
    (553
    )
    
    
    (11,566
    )
    
    
    
    
    
    
    
    
    
    
    (11,566
    )Balance  June 30, 2007
    
    
    75,642
    
    
    $
    973,339
    
    
    $
    581,476
    
    
    $
    (20,674
    )
    
    $
    1,534,141Balance at January 1, 2006
    
    
    42,968
    
    
    $
    85,526
    
    
    $
    570,483
    
    
    $
    454
    
    
    $
    656,463Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    41,663
    
    
    
    
    
    
    
    41,663Other comprehensive income:Net unrealized gain (loss) on securities available-for-sale, net of
reclassification adjustment for net gains included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,002
    )Net change in unrealized gain/(loss) on qualifying
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,996
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,667Proceeds from stock options exercised and restricted stock activity
    
    
    69
    
    
    
    1,529
    
    
    
    
    
    
    
    
    
    
    
    1,529Recognition of stock-based compensation
    
    
    185
    
    
    
    813
    
    
    
    
    
    
    
    
    
    
    
    813Cash dividends declared on common shares  $0.575 per share
    
    
    
    
    
    
    
    
    
    
    (24,652
    )
    
    
    
    
    
    
    (24,652
    )Shares acquired for retirement
    
    
    (335
    )
    
    
    (8,948
    )
    
    
    
    
    
    
    
    
    
    
    (8,948
    )Balance  June 30, 2006
    
    
    42,887
    
    
    $
    78,920
    
    
    $
    587,494
    
    
    $
    (16,542
    )
    
    $
    649,872
  5




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##### Table of Contents



Consolidated Statements of Cash Flows
 Citizens Republic Bancorp and Subsidiaries
 Six Months EndedJune 30,(in thousands)
    
    2007
    
    
    2006Operating Activities:Net income
    
    $
    41,111
    
    
    $
    41,663Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    35,357
    
    
    
    4,139Depreciation and software amortization
    
    
    7,120
    
    
    
    5,979Amortization of intangibles
    
    
    6,072
    
    
    
    1,449Amortization and fair value adjustments of purchase accounting mark-to-market, net
    
    
    (26,524
    )
    
    
    Discount accretion and amortization of issuance costs on long term debt
    
    
    404
    
    
    
    Net (accretion) amortization on investment securities
    
    
    (1,917
    )
    
    
    604Investment securities losses (gains)
    
    
    33
    
    
    
    (61
    )Loans originated for sale
    
    
    (277,346
    )
    
    
    (97,844
    )Proceeds from sales of loans held for sale
    
    
    346,962
    
    
    
    97,596Net gains from loan sales
    
    
    (6,028
    )
    
    
    (1,513
    )Net (gain) loss on sale of other real estate
    
    
    (555
    )
    
    
    354Excess tax benefits from stock-based compensation arrangements
    
    
    
    
    
    
    (168
    )Recognition of stock-based compensation, net of tax
    
    
    1,451
    
    
    
    813Other
    
    
    (38,973
    )
    
    
    (15,920
    )Net cash provided by operating activities
    
    
    87,167
    
    
    
    37,091Investing Activities:Net decrease (increase) in money market investments
    
    
    59
    
    
    
    (1,098
    )Securities available-for-sale:Proceeds from sales
    
    
    364,414
    
    
    
    113Proceeds from maturities and payments
    
    
    363,104
    
    
    
    125,688Purchases
    
    
    (122,615
    )
    
    
    (58,396
    )Securities held-to-maturity:Purchases
    
    
    (8,870
    )
    
    
    (14,406
    )Sale of branches, net of cash received
    
    
    (163,592
    )
    
    
    Net increase in loans and leases
    
    
    7,792
    
    
    
    (117,899
    )Proceeds from sales of other real estate
    
    
    7,577
    
    
    
    2,261Net increase in properties and equipment
    
    
    (1,577
    )
    
    
    (4,403
    )Net cash provided (used) by investing activities
    
    
    446,292
    
    
    
    (68,140
    )Financing Activities:Net decrease in demand and savings deposits
    
    
    (109,924
    )
    
    
    (60,662
    )Net (decrease) increase in time deposits
    
    
    (311,021
    )
    
    
    271,392Net decrease in short-term borrowings
    
    
    (249,771
    )
    
    
    (61,397
    )Proceeds from issuance of long-term debt
    
    
    1,050,000
    
    
    
    75,453Principal reductions in long-term debt
    
    
    (870,213
    )
    
    
    (151,297
    )Cash dividends paid
    
    
    (43,924
    )
    
    
    (24,652
    )Proceeds from stock options exercised and restricted stock activity
    
    
    2,682
    
    
    
    1,361Excess tax benefits related to stock-based compensation arrangements
    
    
    
    
    
    
    168Shares acquired for retirement
    
    
    (11,566
    )
    
    
    (8,948
    )Net cash (used) provided by financing activities
    
    
    (543,737
    )
    
    
    41,418Net (decrease) increase in cash and due from banks
    
    
    (10,278
    )
    
    
    10,369Cash and due from banks at beginning of period
    
    
    223,747
    
    
    
    194,748Cash and due from banks at end of period
    
    $
    213,469
    
    
    $
    205,117Supplemental Cash Flow Information:Loans transferred to other real estate owned
    
    $
    12,807
    
    
    $
    3,773
  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
  Statements of Financial Accounting Standards
 FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an Interpretation
of FASB Statement No. 109, Accounting for Income Taxes.
 Note 2. New Accounting Pronouncements
 Final FASB Statements
 SFAS No. 157, Fair Value Measurements.
 SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
 7




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##### Table of Contents



Note 3. Merger and Acquisition Activity
    Three Months Ended
    
    Six Months Ended(in thousands)
    
    June 30, 2006
    
    June 30, 2006Pro-forma
    
    Citizens historical
    
    Pro-forma
    
    Citizens historicalcombined
    
    without Republic
    
    combined
    
    without RepublicNet interest income
    
    $
    105,215
    
    
    $
    65,990
    
    
    $
    213,399
    
    
    $
    133,465Provision for loan losses
    
    
    2,889
    
    
    
    1,139
    
    
    
    7,289
    
    
    
    4,139Noninterest income
    
    
    31,141
    
    
    
    23,745
    
    
    
    64,029
    
    
    
    49,315Other noninterest expense
    
    
    78,837
    
    
    
    60,065
    
    
    
    160,619
    
    
    
    121,637Income before income taxes
    
    
    54,630
    
    
    
    28,531
    
    
    
    109,520
    
    
    
    57,004Net Income
    
    $
    38,743
    
    
    $
    20,907
    
    
    $
    77,561
    
    
    $
    41,663Net income per common share:Basic
    
    $
    0.51
    
    
    $
    0.49
    
    
    $
    1.03
    
    
    $
    0.98Diluted
    
    
    0.51
    
    
    
    0.49
    
    
    
    1.02
    
    
    
    0.97Weighted average shares
outstanding during the period:Basic
    
    
    75,248
    
    
    
    42,606
    
    
    
    75,408
    
    
    
    42,694Diluted
    
    
    75,636
    
    
    
    42,738
    
    
    
    75,832
    
    
    
    42,839
   Balance
    
    Changes in 2007December 31,
    
    
    
    
    
    cash
    
    
    other
    
    
    Balance(in thousands)
    
    2006
    
    new charges
    
    
    payments
    
    
    adjustments
    
    
    June 30, 2007Personnel
    
    $
    4,323
    
    $
    1,987
    
    
    $
    (2,547
    )
    
    $
    
    
    
    $
    3,763Facilities/Branches
    
    
    3,895
    
    
    1,900
    
    
    
    (840
    )
    
    
    (20
    )
    
    
    4,935Systems/Other
    
    
    791
    
    
    201
    
    
    
    (995
    )
    
    
    
    
    
    
    (3
    )$
    9,009
    
    $
    4,088
    
    
    $
    (4,382
    )
    
    $
    (20
    )
    
    $
    8,695
 8




---



##### Table of Contents



Balance
    
    

Changes in 2007December 31,
    
    
    
    
    
    
    cash
    
    
    other
    
    
    Balance(in thousands)
    
    2006
    
    
    new charges
    
    
    payments
    
    
    adjustments
    
    
    June 30, 2007Personnel
    
    $
    17,603
    
    
    $
    1,524
    
    
    $
    (11,441
    )
    
    $
    (1,397
    )
    
    $
    6,289Professional
    
    
    7,621
    
    
    
    
    
    
    
    (6,532
    )
    
    
    (750
    )
    
    
    339Facilities/Branches
    
    
    2,205
    
    
    
    17
    
    
    
    (648
    )
    
    
    413
    
    
    
    1,987Systems/Other
    
    
    351
    
    
    
    60
    
    
    
    (411
    )
    
    
    
    
    
    
    27,780
    
    
    
    1,601
    
    
    
    (19,032
    )
    
    
    (1,734
    )
    
    
    8,615Other Transaction and System Reserves
    
    
    9,088
    
    
    
    1,905
    
    
    
    (9,841
    )
    
    
    
    
    
    
    1,152$
    36,868
    
    
    $
    3,506
    
    
    $
    (28,873
    )
    
    $
    (1,734
    )
    
    $
    9,767
   Note 4. Investment Securities
  June 30, 2007
    
    
    December 31, 2006Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Gross Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Gross Unrealized(in thousands)
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    LossesAvailable For Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    39,854
    
    
    $
    39,854
    
    
    $
    
    
    
    $
    Federal Agencies
    
    
    298,259
    
    
    
    296,006
    
    
    
    652
    
    
    
    2,905
    
    
    
    436,679
    
    
    
    436,315
    
    
    
    1,044
    
    
    
    1,408Collateralized Mortgage Obligations
    
    
    644,978
    
    
    
    639,343
    
    
    
    915
    
    
    
    6,550
    
    
    
    794,395
    
    
    
    791,739
    
    
    
    242
    
    
    
    2,898Mortgage-backed
    
    
    727,093
    
    
    
    717,928
    
    
    
    771
    
    
    
    9,936
    
    
    
    998,871
    
    
    
    994,767
    
    
    
    393
    
    
    
    4,497State and municipal
    
    
    562,568
    
    
    
    562,484
    
    
    
    6,962
    
    
    
    7,046
    
    
    
    566,230
    
    
    
    575,907
    
    
    
    10,328
    
    
    
    651Other
    
    
    1,734
    
    
    
    1,788
    
    
    
    54
    
    
    
    
    
    
    
    835
    
    
    
    874
    
    
    
    40
    
    
    
    1Total available for sale
    
    $
    2,234,632
    
    
    $
    2,217,549
    
    
    $
    9,354
    
    
    $
    26,437
    
    
    $
    2,836,864
    
    
    $
    2,839,456
    
    
    $
    12,047
    
    
    $
    9,455Held to Maturity:State and municipalTotal held to maturity
    
    $
    117,939
    
    
    $
    116,838
    
    
    $
    204
    
    
    $
    1,305
    
    
    $
    109,744
    
    
    $
    110,283
    
    
    $
    905
    
    
    $
    366FHLB and Fed Reserve stock
    
    $
    132,895
    
    
    $
    132,895
    
    
    $
    
    
    
    $
    
    
    
    $
    132,895
    
    
    $
    132,895
    
    
    $
    
    
    
    $
    
  9




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##### Table of Contents



As of June 30, 2007
 Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Federal agencies
    
    
    200,817
    
    
    
    1,775
    
    
    
    59,104
    
    
    
    1,130
    
    
    
    259,921
    
    
    
    2,905Collateralized Mortgage Obligations
    
    
    364,084
    
    
    
    3,825
    
    
    
    180,687
    
    
    
    2,725
    
    
    
    544,771
    
    
    
    6,550Mortgage-backed
    
    
    404,805
    
    
    
    4,072
    
    
    
    121,192
    
    
    
    5,864
    
    
    
    525,997
    
    
    
    9,936State and municipal
    
    
    269,205
    
    
    
    6,359
    
    
    
    18,417
    
    
    
    687
    
    
    
    287,622
    
    
    
    7,046Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total available for sale
    
    
    1,238,911
    
    
    
    16,031
    
    
    
    379,400
    
    
    
    10,406
    
    
    
    1,618,311
    
    
    
    26,437Held to Maturity:State and municipal
    
    
    80,912
    
    
    
    910
    
    
    
    16,061
    
    
    
    395
    
    
    
    96,973
    
    
    
    1,305Total held to maturity
    
    
    80,912
    
    
    
    910
    
    
    
    16,061
    
    
    
    395
    
    
    
    96,973
    
    
    
    1,305Total
    
    $
    1,319,823
    
    
    $
    16,941
    
    
    $
    395,461
    
    
    $
    10,801
    
    
    $
    1,715,284
    
    
    $
    27,742
 As of December 31, 2006
 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:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Federal agencies
    
    
    129,466
    
    
    
    892
    
    
    
    129,864
    
    
    
    516
    
    
    
    259,330
    
    
    
    1,408Collateralized Mortgage Obligations
    
    
    166,655
    
    
    
    1,476
    
    
    
    91,594
    
    
    
    1,422
    
    
    
    258,249
    
    
    
    2,898Mortgage-backed
    
    
    202,468
    
    
    
    3,217
    
    
    
    40,629
    
    
    
    1,280
    
    
    
    243,097
    
    
    
    4,497State and municipal
    
    
    37,016
    
    
    
    345
    
    
    
    15,200
    
    
    
    306
    
    
    
    52,216
    
    
    
    651Other
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    1
    
    
    
    103
    
    
    
    1Total available for sale
    
    
    535,605
    
    
    
    5,930
    
    
    
    277,390
    
    
    
    3,525
    
    
    
    812,995
    
    
    
    9,455Held to Maturity:State and municipal
    
    
    33,278
    
    
    
    207
    
    
    
    10,252
    
    
    
    159
    
    
    
    43,530
    
    
    
    366Total held to maturity
    
    
    33,278
    
    
    
    207
    
    
    
    10,252
    
    
    
    159
    
    
    
    43,530
    
    
    
    366Total
    
    $
    568,883
    
    
    $
    6,137
    
    
    $
    287,642
    
    
    $
    3,684
    
    
    $
    856,525
    
    
    $
    9,821
  10




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##### Table of Contents



Note 5. Allowance for Loan Losses and Impaired Loans
  Analysis of Allowance for Loan Losses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Allowance for loan losses  beginning of period
    
    $
    169,239
    
    
    $
    115,423
    
    
    $
    169,104
    
    
    $
    116,400Provision for loan losses
    
    
    31,857
    
    
    
    1,139
    
    
    
    35,357
    
    
    
    4,139Charge-offs:Commercial
    
    
    2,419
    
    
    
    854
    
    
    
    2,782
    
    
    
    1,775Commercial real estate
    
    
    14,284
    
    
    
    606
    
    
    
    14,705
    
    
    
    1,223Total commercial
    
    
    16,703
    
    
    
    1,460
    
    
    
    17,487
    
    
    
    2,998Residential mortgage
    
    
    735
    
    
    
    305
    
    
    
    1,526
    
    
    
    502Direct consumer
    
    
    3,029
    
    
    
    1,216
    
    
    
    5,113
    
    
    
    2,885Indirect consumer
    
    
    1,868
    
    
    
    1,575
    
    
    
    4,085
    
    
    
    4,404Charge-offs
    
    
    22,335
    
    
    
    4,556
    
    
    
    28,211
    
    
    
    10,789Recoveries:Commercial
    
    
    640
    
    
    
    1,001
    
    
    
    1,770
    
    
    
    2,176Commercial real estate
    
    
    539
    
    
    
    485
    
    
    
    714
    
    
    
    564Total commercial
    
    
    1,179
    
    
    
    1,486
    
    
    
    2,484
    
    
    
    2,740Residential mortgage
    
    
    56
    
    
    
    48
    
    
    
    107
    
    
    
    102Direct consumer
    
    
    482
    
    
    
    332
    
    
    
    853
    
    
    
    618Indirect consumer
    
    
    640
    
    
    
    688
    
    
    
    1,424
    
    
    
    1,350Recoveries
    
    
    2,357
    
    
    
    2,554
    
    
    
    4,868
    
    
    
    4,810Net charge-offs
    
    
    19,978
    
    
    
    2,002
    
    
    
    23,343
    
    
    
    5,979Allowance for loan losses  end of period
    
    $
    181,118
    
    
    $
    114,560
    
    
    $
    181,118
    
    
    $
    114,560
 Accounting by
Creditors for Impairment of a Loan,
 Impaired Loan Information
 Balances
    
    
    Valuation ReserveJune 30,
    
    
    December 31,
    
    
    June 30,
    
    
    June 30,
    
    
    December 31,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2006Balances -Impaired loans with valuation reserve
    
    $
    32,624
    
    
    $
    20,737
    
    
    $
    13,649
    
    
    $
    12,036
    
    
    $
    7,550
    
    
    $
    6,093Impaired loans with no valuation reserve
    
    
    14,820
    
    
    
    21,641
    
    
    
    526
    
    
    
    
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    47,444
    
    
    $
    42,378
    
    
    $
    14,175
    
    
    $
    12,036
    
    
    $
    7,550
    
    
    $
    6,093Impaired loans on nonaccrual basis
    
    $
    27,920
    
    
    $
    11,321
    
    
    $
    3,884
    
    
    $
    7,020
    
    
    $
    2,104
    
    
    $
    2,220Impaired loans on accrual basis
    
    
    19,524
    
    
    
    31,057
    
    
    
    10,291
    
    
    
    5,016
    
    
    
    5,446
    
    
    
    3,873Total impaired loans
    
    $
    47,444
    
    
    $
    42,378
    
    
    $
    14,175
    
    
    $
    12,036
    
    
    $
    7,550
    
    
    $
    6,093
  11




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##### Table of Contents



Note 6. Long-term Debt
  June 30,
    
    
    December 31,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2006Citizens (Parent only):Variable rate promissary notes payable due May 1, 2011
    
    $
    50,000
    
    
    $
    
    
    
    $
    Subordinated debt:5.75% subordinated notes due February 2013
    
    
    118,268
    
    
    
    117,788
    
    
    
    117,456Variable rate junior subordinated debenture due June 2033
    
    
    25,677
    
    
    
    25,628
    
    
    
    24,6857.50% junior subordinated debentures due September 2066
    
    
    145,527
    
    
    
    145,254
    
    
    
    8.60% junior subordinated debentures due December 2031
    
    
    
    
    
    
    51,546
    
    
    
    Subsidiaries:Federal Home Loan Bank advances
    
    
    2,194,896
    
    
    
    1,715,132
    
    
    
    789,441Other borrowed funds
    
    
    274,242
    
    
    
    583,616
    
    
    
    453Total long-term debt
    
    $
    2,808,610
    
    
    $
    2,638,964
    
    
    $
    932,035
  Note 7. Income Taxes
      12




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##### Table of Contents



Jurisdiction
    
    Tax YearsFederal
    
    2003  2006Indiana
    
    2003  2006Wisconsin
    
    1999  2006Iowa
    
    1999  2006
 Note 8. Accumulated Other Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Balance at beginning of period
    
    $
    (150
    )
    
    $
    (7,777
    )
    
    $
    (7,375
    )
    
    $
    454Net unrealized loss on securities for the
quarter, net of tax effect of $(10,908) in 2007
and $(4,657) in 2006, and net unrealized loss on
securities for the six months period, net of tax
effect of $(6,859) in 2007 and $(9,134) in 2006
    
    
    (20,258
    )
    
    
    (8,648
    )
    
    
    (12,738
    )
    
    
    (16,963
    )Less: Reclassification adjustment for net
(gains) losses on securities included in net
income for the quarter, net of tax effect of
$(19) in 2006, and included in net income for
the six month period, net of tax effect of $12
in 2007 and $(21) in 2006.
    
    
    
    
    
    
    (35
    )
    
    
    21
    
    
    
    (39
    )Net change in unrealized (loss) gain on cash flow
hedges for the quarter, net of tax effect of
$(144) in 2007 and $(44) in 2006, and net change
in unrealized (loss) gain for the six month
period, net of tax effect of $(314) in 2007 and
$4 in 2006.
    
    
    (266
    )
    
    
    (82
    )
    
    
    (582
    )
    
    
    6Accumulated other comprehensive income, net of tax
    
    $
    (20,674
    )
    
    $
    (16,542
    )
    
    $
    (20,674
    )
    
    $
    (16,542
    )
 Note 9. Pension Benefit Cost
  13




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Defined Benefit Pension PlansService cost
    
    $
    
    
    
    
    1,035
    
    
    $
    
    
    
    
    2,050Interest cost
    
    
    1,187
    
    
    
    1,251
    
    
    
    2,375
    
    
    
    2,478Expected return on plan assets
    
    
    (1,956
    )
    
    
    (1,890
    )
    
    
    (3,913
    )
    
    
    (3,780
    )Amortization of unrecognized:Prior service cost
    
    
    3
    
    
    
    48
    
    
    
    6
    
    
    
    95Net actuarial loss
    
    
    125
    
    
    
    266
    
    
    
    250
    
    
    
    527Net pension cost
    
    $
    (641
    )
    
    $
    710
    
    
    $
    (1,282
    )
    
    $
    1,370Supplemental Pension PlansService cost
    
    $
    
    
    
    
    247
    
    
    $
    
    
    
    
    421Interest cost
    
    
    193
    
    
    
    176
    
    
    
    385
    
    
    
    321Amortization of unrecognized:Prior service cost
    
    
    42
    
    
    
    
    
    
    
    84
    
    
    
    Net actuarial loss
    
    
    33
    
    
    
    39
    
    
    
    65
    
    
    
    69Net pension cost
    
    $
    268
    
    
    $
    462
    
    
    $
    534
    
    
    $
    811Postretirement Benefit PlansService cost
    
    $
    1
    
    
    
    1
    
    
    $
    3
    
    
    
    3Interest cost
    
    
    160
    
    
    
    129
    
    
    
    320
    
    
    
    258Expected return on plan assetsAmortization of unrecognized:Prior service cost
    
    
    (67
    )
    
    
    (68
    )
    
    
    (135
    )
    
    
    (135
    )Net actuarial loss
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (14
    )Net pension cost
    
    $
    94
    
    
    $
    55
    
    
    $
    188
    
    
    $
    112Defined contribution retirement and 401K PlansEmployer contributions
    
    $
    1,394
    
    
    $
    724
    
    
    $
    3,031
    
    
    $
    1,730Total periodic benefit cost
    
    $
    1,115
    
    
    $
    1,951
    
    
    $
    2,471
    
    
    $
    4,023
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  An Amendment of
FASB Statements No. 87, 88, 106, and 132(R)
   14




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##### Table of Contents



Note 10. Stock-Based Compensation
    Analysis of Stock-Based Compensation Expense
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Stock Option Compensation
    
    $
    9
    
    
    $
    15
    
    
    $
    17
    
    
    $
    35Restricted Stock Compensation
    
    
    829
    
    
    
    389
    
    
    
    1,434
    
    
    
    778Stock-based compensation expense before income taxes
    
    
    838
    
    
    
    404
    
    
    
    1,451
    
    
    
    813Income tax benefit
    
    
    (294
    )
    
    
    (141
    )
    
    
    (508
    )
    
    
    (285
    )Total stock-based compensation expense after income taxes
    
    $
    544
    
    
    $
    263
    
    
    $
    943
    
    
    $
    528
   15




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##### Table of Contents



OptionsWeightedAverage
    
    
    Weighted Average
    
    
    (in thousands)Number of
    
    
    Exercise
    
    
    Remaining
    
    
    AggregateShares
    
    
    Price
    
    
    Contractual Term
    
    
    Intrinsic ValueOutstanding at December 31, 2006
    
    
    4,775,700
    
    
    $
    24.95Granted
    
    
    
    
    
    
    Exercised
    
    
    (296,385
    )
    
    
    13.48Forfeitures or Expirations
    
    
    (169,111
    )
    
    
    27.77Outstanding at June 30, 2007
    
    
    4,310,204
    
    
    $
    25.63
    
    
    4.5 yrs
    
    $
    3,568Exercisable
    
    
    4,301,915
    
    
    $
    25.62
    
    
    4.5 yrs
    
    $
    3,568
    Weighted-AverageNumber of
    
    
    Grant Date FairShares
    
    
    ValueOutstanding restricted stock at December 31, 2006
    
    
    293,087
    
    
    $
    25.13Granted
    
    
    270,029
    
    
    
    19.24Vested
    
    
    (87,084
    )
    
    
    24.82Forfeited
    
    
    (21,185
    )
    
    
    26.43Restricted stock at June 30, 2007
    
    
    454,847
    
    
    $
    21.61
  Note 11. Earnings Per Share
  16




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands, except per share amounts)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Basic and dilutive earnings per share  net income
available to common shareholders
    
    $
    9,619
    
    
    $
    20,907
    
    
    $
    41,111
    
    
    $
    41,663Denominator:Basic earnings per share  weighted average shares
    
    
    75,374
    
    
    
    42,606
    
    
    
    75,411
    
    
    
    42,694Effect of dilutive securities  potential conversion
of employee stock options
    
    
    275
    
    
    
    132
    
    
    
    371
    
    
    
    144Diluted earnings per share  adjusted weighted-average
shares and assumed conversions
    
    
    75,649
    
    
    
    42,738
    
    
    
    75,782
    
    
    
    42,839Basic earnings per share
    
    $
    0.13
    
    
    $
    0.49
    
    
    $
    0.55
    
    
    $
    0.98Diluted earnings per share
    
    $
    0.13
    
    
    $
    0.49
    
    
    $
    0.54
    
    
    $
    0.97
 Note 12. Lines of Business
  17




---



##### Table of Contents



Line of Business Information
 Commercial
    
    
    Consumer
    
    
    Wealth(in thousands)
    
    Banking
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary  Three Months Ended June 30, 2007Net interest income (taxable equivalent)
    
    $
    47,117
    
    
    $
    44,554
    
    
    $
    170
    
    
    $
    9,564
    
    
    $
    101,405Provision for loan losses
    
    
    27,403
    
    
    
    4,447
    
    
    
    7
    
    
    
    (0
    )
    
    
    31,857Net interest income after provision
    
    
    19,714
    
    
    
    40,107
    
    
    
    163
    
    
    
    9,564
    
    
    
    69,548Noninterest income
    
    
    4,219
    
    
    
    17,069
    
    
    
    7,136
    
    
    
    2,854
    
    
    
    31,278Noninterest expense
    
    
    19,448
    
    
    
    42,832
    
    
    
    5,787
    
    
    
    19,423
    
    
    
    87,490Income before income taxes
    
    
    4,485
    
    
    
    14,344
    
    
    
    1,512
    
    
    
    (7,005
    )
    
    
    13,336Income tax expense (taxable equivalent)
    
    
    1,570
    
    
    
    5,020
    
    
    
    480
    
    
    
    (3,353
    )
    
    
    3,717Net income
    
    $
    2,915
    
    
    $
    9,324
    
    
    $
    1,032
    
    
    $
    (3,652
    )
    
    $
    9,619Average assets(in millions)
    
    $
    5,024
    
    
    $
    1,681
    
    
    $
    26
    
    
    $
    6,510
    
    
    $
    13,241Earnings Summary  Three Months Ended June 30, 2006(1)Net interest income (taxable equivalent)
    
    $
    30,396
    
    
    $
    35,627
    
    
    $
    317
    
    
    $
    3,033
    
    
    $
    69,373Provision for loan losses
    
    
    (842
    )
    
    
    1,981
    
    
    
    
    
    
    
    
    
    
    
    1,139Net interest income after provision
    
    
    31,238
    
    
    
    33,646
    
    
    
    317
    
    
    
    3,033
    
    
    
    68,234Noninterest income
    
    
    3,768
    
    
    
    11,848
    
    
    
    6,570
    
    
    
    1,559
    
    
    
    23,745Noninterest expense
    
    
    17,703
    
    
    
    31,240
    
    
    
    5,803
    
    
    
    5,319
    
    
    
    60,065Income before income taxes
    
    
    17,303
    
    
    
    14,254
    
    
    
    1,084
    
    
    
    (727
    )
    
    
    31,914Income tax expense (taxable equivalent)
    
    
    6,093
    
    
    
    4,939
    
    
    
    383
    
    
    
    (408
    )
    
    
    11,007Net income
    
    $
    11,210
    
    
    $
    9,315
    
    
    $
    701
    
    
    $
    (319
    )
    
    $
    20,907Average assets(in millions)
    
    $
    3,048
    
    
    $
    1,033
    
    
    $
    30
    
    
    $
    3,559
    
    
    $
    7,670
 
 (1)
    
    Certain amounts have been reclassified to conform to current year presentation. Line of Business Information
 Commercial
    
    
    Consumer
    
    
    Wealth(in thousands)
    
    Banking
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary  Six Months Ended June 30, 2007Net interest income (taxable equivalent)
    
    $
    95,382
    
    
    $
    95,130
    
    
    $
    405
    
    
    $
    13,455
    
    
    $
    204,372Provision for loan losses
    
    
    28,488
    
    
    
    6,836
    
    
    
    35
    
    
    
    (2
    )
    
    
    35,357Net interest income after provision
    
    
    66,894
    
    
    
    88,294
    
    
    
    370
    
    
    
    13,457
    
    
    
    169,015Noninterest income
    
    
    8,885
    
    
    
    35,498
    
    
    
    13,409
    
    
    
    4,876
    
    
    
    62,668Noninterest expense
    
    
    41,603
    
    
    
    89,010
    
    
    
    11,569
    
    
    
    29,018
    
    
    
    171,200Income before income taxes
    
    
    34,176
    
    
    
    34,782
    
    
    
    2,210
    
    
    
    (10,685
    )
    
    
    60,483Income tax expense (taxable equivalent)
    
    
    11,962
    
    
    
    12,174
    
    
    
    783
    
    
    
    (5,547
    )
    
    
    19,372Net income
    
    $
    22,214
    
    
    $
    22,608
    
    
    $
    1,427
    
    
    $
    (5,138
    )
    
    $
    41,111Average assets(in millions)
    
    $
    5,044
    
    
    $
    2,054
    
    
    $
    27
    
    
    $
    6,282
    
    
    $
    13,407Earnings Summary  Six Months Ended June 30, 2006(1)Net interest income (taxable equivalent)
    
    $
    61,322
    
    
    $
    70,332
    
    
    $
    649
    
    
    $
    7,961
    
    
    $
    140,264Provision for loan losses
    
    
    346
    
    
    
    3,793
    
    
    
    0
    
    
    
    
    
    
    
    4,139Net interest income after provision
    
    
    60,976
    
    
    
    66,539
    
    
    
    649
    
    
    
    7,961
    
    
    
    136,125Noninterest income
    
    
    7,518
    
    
    
    26,017
    
    
    
    13,074
    
    
    
    2,706
    
    
    
    49,315Noninterest expense
    
    
    35,856
    
    
    
    63,081
    
    
    
    11,203
    
    
    
    11,497
    
    
    
    121,637Income before income taxes
    
    
    32,638
    
    
    
    29,475
    
    
    
    2,520
    
    
    
    (830
    )
    
    
    63,803Income tax expense (taxable equivalent)
    
    
    11,497
    
    
    
    10,272
    
    
    
    891
    
    
    
    (520
    )
    
    
    22,140Net income
    
    $
    21,141
    
    
    $
    19,203
    
    
    $
    1,629
    
    
    $
    (310
    )
    
    $
    41,663Average assets(in millions)
    
    $
    3,028
    
    
    $
    1,022
    
    
    $
    29
    
    
    $
    3,582
    
    
    $
    7,661
 
 (1)
    
    Certain amounts have been reclassified to conform to current year presentation. 18




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##### Table of Contents



Note 13. Commitments, Contingent Liabilities and Guarantees
   June 30,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Loan commitments and letters of credit:Commitments to extend credit
    
    $
    2,634,511
    
    
    $
    2,559,121Financial standby letters of credit
    
    
    115,990
    
    
    
    146,863Performance standby letters of credit
    
    
    26,991
    
    
    
    24,609Commercial letters of credit
    
    
    246,458
    
    
    
    194,834Total loan commitments and letters of credit
    
    $
    3,023,951
    
    
    $
    2,925,427
  Note 14. Derivatives and Hedging Activities
 Accounting for Derivative Instruments and Hedging
Activities, Accounting for Certain Derivative Instruments and Certain Hedging Activities
   19




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##### Table of Contents



Derivative Financial Instruments:
 June 30, 2007
    
    
    December 31, 2006Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueReceive fixed swaps
    
    $
    270,000
    
    
    $
    (386
    )
    
    $
    268,300
    
    
    $
    (1,839
    )Pay fixed swaps
    
    
    84,000
    
    
    
    345
    
    
    
    104,000
    
    
    
    1,242Customer initiated swaps and corresponding offsets
    
    
    480,748
    
    
    
    
    
    
    
    378,590
    
    
    
    Interest rate lock commitments
    
    
    46,205
    
    
    
    (66
    )
    
    
    29,875
    
    
    
    (11
    )Forward mortgage loan contracts
    
    
    85,639
    
    
    
    625
    
    
    
    78,498
    
    
    
    257Total
    
    $
    966,592
    
    
    $
    518
    
    
    $
    859,263
    
    
    $
    (351
    )
 Derivative Classifications and Hedging Relationships:
 June 30, 2007
    
    
    December 31, 2006Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueDerivatives Designated as Cash Flow Hedges:Hedging repurchase agreements
    
    $
    84,000
    
    
    $
    345
    
    
    $
    104,000
    
    
    $
    1,242Derivatives Designated as Fair Value Hedges:Hedging time deposits
    
    
    120,000
    
    
    
    (10
    )
    
    
    95,000
    
    
    
    47Hedging long-term debt
    
    
    150,000
    
    
    
    (376
    )
    
    
    100,000
    
    
    
    (390
    )Derivatives Not Designated as Hedges:Receive fixed swaps
    
    
    
    
    
    
    
    
    
    
    73,300
    
    
    
    (1,496
    )Customer initiated swaps and corresponding offsets
    
    
    480,748
    
    
    
    
    
    
    
    378,590
    
    
    
    Total
    
    $
    834,748
    
    
    $
    (41
    )
    
    $
    750,890
    
    
    $
    (597
    )
 20




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##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
 Selected Quarterly Information
Citizens Banking Corporation and Subsidiaries
 Three Months EndedJune 30,
    
    March 31,
    
    December 31,
    
    September 30,
    
    June 30,2007
    
    2007
    
    2006
    
    2006
    
    2006Summary of Operations (thousands)Net interest income
    
    $
    96,777
    
    
    $
    98,341
    
    
    $
    64,010
    
    
    $
    65,645
    
    
    $
    65,990Provision for loan losses
    
    
    31,857
    
    
    
    3,500
    
    
    
    5,936
    
    
    
    1,190
    
    
    
    1,139Total fees and other income
    
    
    31,278
    
    
    
    31,423
    
    
    
    24,931
    
    
    
    23,544
    
    
    
    23,691Investment securities gains (losses) (1)
    
    
    
    
    
    
    (33
    )
    
    
    (7,163
    )
    
    
    
    
    
    
    54Noninterest expense (2)
    
    
    87,490
    
    
    
    83,710
    
    
    
    78,788
    
    
    
    59,402
    
    
    
    60,065Income tax provision
    
    
    (911
    )
    
    
    11,029
    
    
    
    (3,638
    )
    
    
    7,616
    
    
    
    7,624Net income
    
    
    9,619
    
    
    
    31,492
    
    
    
    692
    
    
    
    20,981
    
    
    
    20,907Taxable equivalent adjustment
    
    
    4,629
    
    
    
    4,625
    
    
    
    3,505
    
    
    
    3,413
    
    
    
    3,383Cash dividends
    
    
    21,960
    
    
    
    21,964
    
    
    
    12,443
    
    
    
    12,435
    
    
    
    12,394Per Common Share DataBasic net income
    
    $
    0.13
    
    
    $
    0.42
    
    
    $
    0.02
    
    
    $
    0.49
    
    
    $
    0.49Diluted net income
    
    
    0.13
    
    
    
    0.41
    
    
    
    0.02
    
    
    
    0.49
    
    
    
    0.49Cash dividends
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290Market value (end of period)
    
    
    18.30
    
    
    
    22.16
    
    
    
    26.50
    
    
    
    26.26
    
    
    
    24.41Book value (end of period)
    
    
    20.28
    
    
    
    20.78
    
    
    
    20.58
    
    
    
    15.72
    
    
    
    15.15At Period End (millions)Assets
    
    $
    13,247
    
    
    $
    13,317
    
    
    $
    14,003
    
    
    $
    7,748
    
    
    $
    7,813Portfolio loans
    
    
    9,216
    
    
    
    9,178
    
    
    
    9,231
    
    
    
    5,753
    
    
    
    5,728Deposits
    
    
    8,082
    
    
    
    8,461
    
    
    
    8,698
    
    
    
    5,625
    
    
    
    5,685Shareholders equity
    
    
    1,534
    
    
    
    1,572
    
    
    
    1,558
    
    
    
    674
    
    
    
    650Average for the Quarter (millions)Assets
    
    $
    13,241
    
    
    $
    13,574
    
    
    $
    7,770
    
    
    $
    7,723
    
    
    $
    7,670Portfolio loans
    
    
    9,170
    
    
    
    9,179
    
    
    
    5,762
    
    
    
    5,694
    
    
    
    5,610Deposits
    
    
    8,157
    
    
    
    8,525
    
    
    
    5,597
    
    
    
    5,680
    
    
    
    5,560Shareholders equity
    
    
    1,551
    
    
    
    1,552
    
    
    
    683
    
    
    
    659
    
    
    
    647Ratios (annualized)Return on average assets
    
    
    0.29
    %
    
    
    0.94
    %
    
    
    0.04
    %
    
    
    1.08
    %
    
    
    1.09
    %Return on average shareholders equity
    
    
    2.49
    
    
    
    8.23
    
    
    
    0.40
    
    
    
    12.63
    
    
    
    12.96Average equity to average assets
    
    
    11.72
    
    
    
    11.43
    
    
    
    8.79
    
    
    
    8.53
    
    
    
    8.44Net interest margin (FTE) (3)
    
    
    3.44
    
    
    
    3.44
    
    
    
    3.67
    
    
    
    3.78
    
    
    
    3.84Efficiency ratio (4)
    
    
    65.94
    
    
    
    62.29
    
    
    
    85.23
    
    
    
    64.15
    
    
    
    64.54Net loans charged off to average portfolio loans
    
    
    0.87
    
    
    
    0.15
    
    
    
    0.52
    
    
    
    0.19
    
    
    
    0.14Allowance for loan losses to portfolio loans
    
    
    1.97
    
    
    
    1.84
    
    
    
    1.83
    
    
    
    1.97
    
    
    
    2.00Nonperforming assets to portfolio loans plus ORAA (end of period)
    
    
    1.58
    
    
    
    1.25
    
    
    
    1.10
    
    
    
    0.69
    
    
    
    0.61Nonperforming assets to total assets (end of period)
    
    
    1.10
    
    
    
    0.86
    
    
    
    0.73
    
    
    
    0.52
    
    
    
    0.44Leverage ratio (5)
    
    
    7.33
    
    
    
    7.64
    
    
    
    7.22
    
    
    
    8.29
    
    
    
    8.21Tier 1 capital ratio
    
    
    8.91
    
    
    
    9.89
    
    
    
    9.41
    
    
    
    10.13
    
    
    
    9.96Total capital ratio
    
    
    11.38
    
    
    
    12.42
    
    
    
    11.90
    
    
    
    13.37
    
    
    
    13.20
 
 (1)
    
    Investment securities gains (losses) includes a $7.2 million impairment charge
in the fourth quarter of 2006 related to the Republic merger.(2)
    
    Noninterest expense includes restructuring and merger related expenses of $3.4
million during the second quarter of 2007, $4.2 million during the first quarter of 2007 and $11.3
million during the fourth quarter of 2006 related to the Republic merger.(3)
    
    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%.(4)
    
    The Efficiency Ratio measures how efficiently a bank spends its revenues. The
formula is: Noninterest expense/(Net interest income + Taxable equivalent adjustment + Total fees
and other income).(5)
    
    The Tier I leverage ratio is calculated using ending assets instead of average
assets in the fourth quarter of 2006 due to the Republic merger on December 26, 2006. 21




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##### Table of Contents



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




---



##### Table of Contents



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




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##### Table of Contents



Results of Operations
 Financial Statement Impact as a Result of the Republic Merger
  Summary
        24




---



##### Table of Contents



Net Interest Income and Net Interest Margin
  25




---



##### Table of Contents



Average Balances/Net Interest Income/Average Rates
 2007
    
    
    2006Three Months Ended June 30,
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    2,765
    
    
    $
    19
    
    
    
    2.64
    %
    
    $
    1,373
    
    
    $
    1
    
    
    
    0.45
    %Investment securities (3):Taxable
    
    
    1,726,754
    
    
    
    22,308
    
    
    
    5.17
    
    
    
    1,103,031
    
    
    
    12,356
    
    
    
    4.48Tax-exempt
    
    
    668,647
    
    
    
    7,309
    
    
    
    6.73
    
    
    
    447,476
    
    
    
    5,259
    
    
    
    7.23FHLB and Federal Reserve stock
    
    
    132,895
    
    
    
    1,397
    
    
    
    4.22
    
    
    
    55,908
    
    
    
    707
    
    
    
    5.07Portfolio Loans (4):Commercial
    
    
    2,068,195
    
    
    
    38,065
    
    
    
    7.51
    
    
    
    1,704,447
    
    
    
    30,328
    
    
    
    7.26Commercial real estate
    
    
    3,100,675
    
    
    
    59,916
    
    
    
    7.76
    
    
    
    1,426,911
    
    
    
    25,337
    
    
    
    7.13Residential mortgage
    
    
    1,506,639
    
    
    
    25,111
    
    
    
    6.67
    
    
    
    544,526
    
    
    
    7,836
    
    
    
    5.76Direct consumer
    
    
    1,655,217
    
    
    
    32,409
    
    
    
    7.85
    
    
    
    1,103,024
    
    
    
    20,602
    
    
    
    7.49Indirect consumer
    
    
    838,899
    
    
    
    13,953
    
    
    
    6.67
    
    
    
    831,012
    
    
    
    13,689
    
    
    
    6.61Total portfolio loans
    
    
    9,169,625
    
    
    
    169,454
    
    
    
    7.44
    
    
    
    5,609,920
    
    
    
    97,792
    
    
    
    7.03Loans held for sale
    
    
    94,817
    
    
    
    1,866
    
    
    
    7.83
    
    
    
    21,680
    
    
    
    301
    
    
    
    5.54Total earning assets (3)
    
    
    11,795,503
    
    
    
    202,353
    
    
    
    7.03
    
    
    
    7,239,388
    
    
    
    116,416
    
    
    
    6.63Nonearning AssetsCash and due from banks
    
    
    188,244
    
    
    
    
    
    
    
    
    
    
    
    157,670Bank premises and equipment
    
    
    140,277
    
    
    
    
    
    
    
    
    
    
    
    120,650Investment security fair value adjustment
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    (18,523
    )Other nonearning assets
    
    
    1,286,255
    
    
    
    
    
    
    
    
    
    
    
    285,933Allowance for loan losses
    
    
    (169,830
    )
    
    
    
    
    
    
    
    
    
    
    (115,274
    )Total assets
    
    $
    13,240,749
    
    
    
    
    
    
    
    
    
    
    $
    7,669,844Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    $
    841,026
    
    
    $
    1,400
    
    
    
    0.67
    %
    
    $
    789,168
    
    
    $
    1,273
    
    
    
    0.65
    %Savings deposits
    
    
    2,170,649
    
    
    
    15,870
    
    
    
    2.93
    
    
    
    1,471,803
    
    
    
    9,457
    
    
    
    2.58Time deposits
    
    
    4,007,354
    
    
    
    46,931
    
    
    
    4.70
    
    
    
    2,386,346
    
    
    
    24,575
    
    
    
    4.13Short-term borrowings
    
    
    741,617
    
    
    
    9,064
    
    
    
    4.90
    
    
    
    487,549
    
    
    
    5,395
    
    
    
    4.44Long-term debt
    
    
    2,631,605
    
    
    
    32,311
    
    
    
    4.92
    
    
    
    893,941
    
    
    
    9,726
    
    
    
    4.36Total interest-bearing liabilities
    
    
    10,392,251
    
    
    
    105,576
    
    
    
    4.07
    
    
    
    6,028,807
    
    
    
    50,426
    
    
    
    3.35Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,138,134
    
    
    
    
    
    
    
    
    
    
    
    913,181Other liabilities
    
    
    159,015
    
    
    
    
    
    
    
    
    
    
    
    80,727Shareholders equity
    
    
    1,551,349
    
    
    
    
    
    
    
    
    
    
    
    647,129Total liabilities and shareholders equity
    
    $
    13,240,749
    
    
    
    
    
    
    
    
    
    
    $
    7,669,844Net Interest Income
    
    
    
    
    
    $
    96,777
    
    
    
    
    
    
    
    
    
    
    $
    65,990Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.96
    %
    
    
    
    
    
    
    
    
    
    
    3.28
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.48
    
    
    
    
    
    
    
    
    
    
    
    0.56Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.44
    %
    
    
    
    
    
    
    
    
    
    
    3.84
    %
 
 (1)
    
    Interest income is shown on actual basis and does not include taxable equivalent
adjustments.(2)
    
    Average rates are presented on an annual basis and include taxable equivalent
adjustments to interest income of $4.6 million and $3.4 million
for the three months ended June
30, 2007 and 2006, respectively, based on a tax rate of 35%.(3)
    
    For presentation in this table, average balances and the corresponding average
rates for investment securities are based upon historical cost, adjusted
for amortization of premiums and accretion of discounts.(4)
    
    Nonaccrual loans are included in average balances for each applicable loan
category.(5)
    
    The interest spread and net interest margin are presented on a tax-equivalent
basis.(6)
    
    Because noninterest-bearing funding sources, demand deposits, other liabilities and
shareholders equity also support earning assets, the net interest
margin exceeds the interest spread. 26




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##### Table of Contents



Average Balances/Net Interest Income/Average Rates
 2007
    
    
    2006Six Months Ended June 30,
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    1,808
    
    
    $
    36
    
    
    
    4.01
    %
    
    $
    1,528
    
    
    $
    13
    
    
    
    1.75
    %Investment securities (3):Taxable
    
    
    1,832,008
    
    
    
    46,099
    
    
    
    5.03
    
    
    
    1,114,149
    
    
    
    25,307
    
    
    
    4.54Tax-exempt
    
    
    669,399
    
    
    
    14,637
    
    
    
    6.73
    
    
    
    447,069
    
    
    
    10,576
    
    
    
    7.28FHLB and Federal Reserve stock
    
    
    132,895
    
    
    
    3,133
    
    
    
    4.75
    
    
    
    55,956
    
    
    
    1,367
    
    
    
    4.91Portfolio Loans (4):Commercial
    
    
    2,014,734
    
    
    
    75,284
    
    
    
    7.67
    
    
    
    1,675,832
    
    
    
    58,311
    
    
    
    7.14Commercial real estate
    
    
    3,127,056
    
    
    
    119,519
    
    
    
    7.71
    
    
    
    1,421,089
    
    
    
    49,322
    
    
    
    7.00Residential mortgage loans
    
    
    1,521,057
    
    
    
    50,671
    
    
    
    6.66
    
    
    
    542,966
    
    
    
    15,501
    
    
    
    5.71Direct consumer
    
    
    1,675,725
    
    
    
    65,129
    
    
    
    7.84
    
    
    
    1,113,643
    
    
    
    40,613
    
    
    
    7.35Indirect consumer
    
    
    835,925
    
    
    
    27,889
    
    
    
    6.73
    
    
    
    832,217
    
    
    
    27,265
    
    
    
    6.61Total portfolio loans
    
    
    9,174,497
    
    
    
    338,492
    
    
    
    7.46
    
    
    
    5,585,747
    
    
    
    191,012
    
    
    
    6.93Loans held for sale
    
    
    119,275
    
    
    
    4,672
    
    
    
    7.83
    
    
    
    19,090
    
    
    
    532
    
    
    
    5.58Total earning assets (3)
    
    
    11,929,882
    
    
    
    407,069
    
    
    
    7.02
    
    
    
    7,223,539
    
    
    
    228,807
    
    
    
    6.56Nonearning AssetsCash and due from banks
    
    
    188,502
    
    
    
    
    
    
    
    
    
    
    
    161,767Bank premises and equipment
    
    
    139,954
    
    
    
    
    
    
    
    
    
    
    
    120,997Investment security fair value adjustment
    
    
    1,719
    
    
    
    
    
    
    
    
    
    
    
    (10,956
    )Other nonearning assets
    
    
    1,315,251
    
    
    
    
    
    
    
    
    
    
    
    281,681Allowance for loan losses
    
    
    (168,806
    )
    
    
    
    
    
    
    
    
    
    
    (115,710
    )Total assets
    
    $
    13,406,502
    
    
    
    
    
    
    
    
    
    
    $
    7,661,318Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    $
    871,908
    
    
    $
    3,064
    
    
    
    0.71
    %
    
    $
    823,032
    
    
    $
    2,635
    
    
    
    0.65
    %Savings deposits
    
    
    2,220,812
    
    
    
    32,443
    
    
    
    2.95
    
    
    
    1,460,399
    
    
    
    17,430
    
    
    
    2.41Time deposits
    
    
    4,105,947
    
    
    
    95,128
    
    
    
    4.67
    
    
    
    2,334,424
    
    
    
    46,232
    
    
    
    3.99Short-term borrowings
    
    
    823,462
    
    
    
    20,065
    
    
    
    4.91
    
    
    
    439,197
    
    
    
    9,131
    
    
    
    4.19Long-term debt
    
    
    2,521,684
    
    
    
    61,251
    
    
    
    4.89
    
    
    
    948,556
    
    
    
    19,914
    
    
    
    4.23Total interest-bearing liabilities
    
    
    10,543,813
    
    
    
    211,951
    
    
    
    4.05
    
    
    
    6,005,608
    
    
    
    95,342
    
    
    
    3.20Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,141,435
    
    
    
    
    
    
    
    
    
    
    
    918,952Other liabilities
    
    
    169,556
    
    
    
    
    
    
    
    
    
    
    
    85,910Shareholders equity
    
    
    1,551,698
    
    
    
    
    
    
    
    
    
    
    
    650,848Total liabilities and shareholders equity
    
    $
    13,406,502
    
    
    
    
    
    
    
    
    
    
    $
    7,661,318Net Interest Income
    
    
    
    
    
    $
    195,118
    
    
    
    
    
    
    
    
    
    
    $
    133,465Interest Spread(5)
    
    
    
    
    

    
    
    

    
    2.97
    %
    
    
    
    
    
    
    
    

    
    3.36
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.47
    
    
    
    
    
    
    
    
    
    
    
    0.54Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.44
    %
    
    
    
    
    
    
    
    
    
    
    3.90
    %
 
 (1)
    
    Interest income is shown on actual basis and does not include taxable equivalent
adjustments.(2)
    
    Average rates are presented on an annual basis and include taxable equivalent
adjustments to interest income of $9.3 million and $6.8 million
 for the six months ended June 30,
2007 and 2006, respectively, based on a tax rate of 35%.(3)
    
    For presentation in this table, average balances and the corresponding average
rates for investment securities are based upon historical cost, adjusted
for amortization of premiums and accretion of discounts.(4)
    
    Nonaccrual loans are included in average balances for each
applicable loan category.(5)
    
    The interest spread and net interest margin are presented on a tax-equivalent
basis.(6)
    
    Because noninterest-bearing funding sources, demand deposits, other liabilities and
shareholders equity also support earning assets, the net interest
margin exceeds the interest spread. 27




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##### Table of Contents



28




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##### Table of Contents



Analysis of Changes in Interest Income and Interest Expense
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,Increase (Decrease)
    
    
    
    
    
    
    Increase (Decrease)2007 compared with 2006
    
    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:Money market investments
    
    
    18
    
    
    
    16
    
    
    
    2
    
    
    
    23
    
    
    
    20
    
    
    
    3Investment securities:Taxable
    
    
    9,952
    
    
    
    2,123
    
    
    
    7,829
    
    
    
    20,792
    
    
    
    2,980
    
    
    
    17,812Tax-exempt
    
    
    2,050
    
    
    
    (390
    )
    
    
    2,440
    
    
    
    4,061
    
    
    
    (853
    )
    
    
    4,914FHLB and Federal Reserve stock
    
    
    690
    
    
    
    (137
    )
    
    
    827
    
    
    
    1,766
    
    
    
    (49
    )
    
    
    1,815Loans:Commercial
    
    
    7,737
    
    
    
    1,073
    
    
    
    6,664
    
    
    
    16,973
    
    
    
    4,543
    
    
    
    12,430Commercial real estate
    
    
    34,579
    
    
    
    2,419
    
    
    
    32,160
    
    
    
    70,197
    
    
    
    5,460
    
    
    
    64,737Residential mortgage loans
    
    
    17,275
    
    
    
    1,420
    
    
    
    15,855
    
    
    
    35,170
    
    
    
    2,982
    
    
    
    32,188Direct consumer
    
    
    11,807
    
    
    
    1,039
    
    
    
    10,768
    
    
    
    24,516
    
    
    
    2,825
    
    
    
    21,691Indirect consumer
    
    
    264
    
    
    
    133
    
    
    
    131
    
    
    
    624
    
    
    
    502
    
    
    
    122Total portfolio loans
    
    
    71,662
    
    
    
    6,084
    
    
    
    65,578
    
    
    
    147,480
    
    
    
    16,312
    
    
    
    131,168Loans held for sale
    
    
    1,565
    
    
    
    172
    
    
    
    1,393
    
    
    
    4,140
    
    
    
    297
    
    
    
    3,843Total
    
    
    85,937
    
    
    
    7,868
    
    
    
    78,069
    
    
    
    178,262
    
    
    
    18,707
    
    
    
    159,555Interest Expense:Deposits:Interest-bearing demand
    
    
    127
    
    
    
    42
    
    
    
    85
    
    
    
    429
    
    
    
    267
    
    
    
    162Savings
    
    
    6,413
    
    
    
    1,443
    
    
    
    4,970
    
    
    
    15,013
    
    
    
    4,516
    
    
    
    10,497Time
    
    
    22,356
    
    
    
    3,757
    
    
    
    18,599
    
    
    
    48,896
    
    
    
    8,943
    
    
    
    39,953Short-term borrowings
    
    
    3,669
    
    
    
    613
    
    
    
    3,056
    
    
    
    10,934
    
    
    
    1,797
    
    
    
    9,137Long-term debt
    
    
    22,585
    
    
    
    1,401
    
    
    
    21,184
    
    
    
    41,337
    
    
    
    3,574
    
    
    
    37,763` Total
    
    
    55,150
    
    
    
    7,256
    
    
    
    47,894
    
    
    
    116,609
    
    
    
    19,097
    
    
    
    97,512Net Interest Income
    
    $
    30,787
    
    
    $
    612
    
    
    $
    30,175
    
    
    $
    61,653
    
    
    $
    (390
    )
    
    $
    62,043
 
 (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.     29




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Noninterest Income
  Noninterest Income
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    Change in 2007
    
    
    June 30,
    
    
    Change in 2007(dollars in thousands)
    
    2007
    
    
    2006
    
    
    Amount
    
    
    Percent
    
    
    2007
    
    
    2006
    
    
    Amount
    
    
    PercentService charges on deposit accounts
    
    $
    12,080
    
    
    $
    9,521
    
    
    $
    2,559
    
    
    
    26.9
    %
    
    $
    23,186
    
    
    $
    18,396
    
    
    $
    4,790
    
    
    
    26.0
    %Trust fees
    
    
    5,003
    
    
    
    4,972
    
    
    
    31
    
    
    
    0.6
    
    
    
    9,958
    
    
    
    10,014
    
    
    
    (56
    )
    
    
    (0.6
    )Mortgage and other loan income
    
    
    4,258
    
    
    
    2,106
    
    
    
    2,152
    
    
    
    102.1
    
    
    
    10,395
    
    
    
    4,116
    
    
    
    6,279
    
    
    
    152.6Brokerage and investment fees
    
    
    2,182
    
    
    
    1,703
    
    
    
    479
    
    
    
    28.1
    
    
    
    3,731
    
    
    
    3,218
    
    
    
    513
    
    
    
    15.9ATM network user fees
    
    
    1,640
    
    
    
    1,018
    
    
    
    622
    
    
    
    61.0
    
    
    
    3,219
    
    
    
    2,005
    
    
    
    1,214
    
    
    
    60.5Bankcard fees
    
    
    1,443
    
    
    
    1,129
    
    
    
    314
    
    
    
    27.9
    
    
    
    2,623
    
    
    
    2,186
    
    
    
    437
    
    
    
    20.0Other income
    
    
    4,672
    
    
    
    3,242
    
    
    
    1,430
    
    
    
    44.1
    
    
    
    9,589
    
    
    
    9,319
    
    
    
    270
    
    
    
    2.9Total fees and other income
    
    
    31,278
    
    
    
    23,691
    
    
    
    7,587
    
    
    
    32.0
    
    
    
    62,701
    
    
    
    49,254
    
    
    
    13,447
    
    
    
    27.3Investment securities gains
    
    
    
    
    
    
    54
    
    
    
    (54
    )
    
    
    (100.0
    )
    
    
    (33
    )
    
    
    61
    
    
    
    (94
    )
    
    
    (153.9
    )Total noninterest income
    
    $
    31,278
    
    
    $
    23,745
    
    
    $
    7,533
    
    
    
    31.7
    
    
    $
    62,668
    
    
    $
    49,315
    
    
    $
    13,353
    
    
    
    27.1
       30




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##### Table of Contents



Noninterest Expense
   Noninterest Expense
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    Change in 2007
    
    
    June 30,
    
    
    Change in 2007(dollars in thousands)
    
    2007
    
    
    2006
    
    
    Amount
    
    
    Percent
    
    
    2007
    
    
    2006
    
    
    Amount
    
    
    PercentSalaries and employee benefits
    
    $
    45,971
    
    
    $
    32,690
    
    
    $
    13,281
    
    
    
    40.6
    %
    
    $
    90,136
    
    
    $
    64,946
    
    
    $
    25,190
    
    
    
    38.8
    %Occupancy
    
    
    8,076
    
    
    
    5,291
    
    
    
    2,785
    
    
    
    52.7
    
    
    
    15,986
    
    
    
    11,233
    
    
    
    4,753
    
    
    
    42.3Professional services
    
    
    4,351
    
    
    
    3,703
    
    
    
    648
    
    
    
    17.5
    
    
    
    8,503
    
    
    
    7,781
    
    
    
    722
    
    
    
    9.3Equipment
    
    
    3,655
    
    
    
    3,301
    
    
    
    354
    
    
    
    10.7
    
    
    
    7,566
    
    
    
    6,467
    
    
    
    1,099
    
    
    
    17.0Data processing services
    
    
    4,506
    
    
    
    3,714
    
    
    
    792
    
    
    
    21.3
    
    
    
    8,636
    
    
    
    7,453
    
    
    
    1,183
    
    
    
    15.9Advertising and public relations
    
    
    3,292
    
    
    
    934
    
    
    
    2,358
    
    
    
    252.3
    
    
    
    5,067
    
    
    
    2,968
    
    
    
    2,099
    
    
    
    70.7Postage and delivery
    
    
    2,196
    
    
    
    1,629
    
    
    
    567
    
    
    
    34.8
    
    
    
    4,160
    
    
    
    3,091
    
    
    
    1,069
    
    
    
    34.6Telephone
    
    
    1,718
    
    
    
    1,392
    
    
    
    326
    
    
    
    23.4
    
    
    
    3,782
    
    
    
    2,856
    
    
    
    926
    
    
    
    32.4Other loan expenses
    
    
    1,080
    
    
    
    1,217
    
    
    
    (137
    )
    
    
    (11.3
    )
    
    
    1,992
    
    
    
    1,633
    
    
    
    359
    
    
    
    21.9Stationery and supplies
    
    
    868
    
    
    
    631
    
    
    
    237
    
    
    
    37.7
    
    
    
    1,645
    
    
    
    1,358
    
    
    
    287
    
    
    
    21.1Intangible asset amortization
    
    
    2,954
    
    
    
    724
    
    
    
    2,230
    
    
    
    307.7
    
    
    
    6,072
    
    
    
    1,449
    
    
    
    4,623
    
    
    
    319.0Restructuring and
merger-related expenses
    
    
    3,408
    
    
    
    
    
    
    
    3,408
    
    
    
    
    
    
    
    7,594
    
    
    
    
    
    
    
    7,594
    
    
    
    Other expenses
    
    
    5,415
    
    
    
    4,839
    
    
    
    576
    
    
    
    11.9
    
    
    
    10,061
    
    
    
    10,402
    
    
    
    (341
    )
    
    
    (3.3
    )Total noninterest expense
    
    $
    87,490
    
    
    $
    60,065
    
    
    $
    27,425
    
    
    
    45.7
    
    
    $
    171,200
    
    
    $
    121,637
    
    
    $
    49,563
    
    
    
    40.7
    31




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##### Table of Contents



Income Taxes
   Lines of Business Results
  32




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Commercial Banking
    
    $
    3,646
    
    
    $
    11,210
    
    
    $
    22,255
    
    
    $
    21,141Consumer Banking
    
    
    8,388
    
    
    
    9,315
    
    
    
    23,157
    
    
    
    19,203Wealth Management
    
    
    1,032
    
    
    
    701
    
    
    
    1,427
    
    
    
    1,629Other
    
    
    (3,447
    )
    
    
    (319
    )
    
    
    (5,728
    )
    
    
    (310
    )Net Income
    
    $
    9,619
    
    
    $
    20,907
    
    
    $
    41,111
    
    
    $
    41,663
 Commercial Banking
 
 Consumer Banking
 
 Wealth Management
  Other
  Financial Condition
  33




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##### Table of Contents



Investment Securities
  Portfolio Loans
   Commercial Loan Portfolio
 in millions
    
    June 30, 
2007
    
    
    December 31, 
2006
    
    
    June 30, 
2006Land Hold
    
    $
    81.6
    
    
    $
    102.4
    
    
    $
    23.1Land Development
    
    
    178.7
    
    
    
    203.6
    
    
    
    65.3Construction
    
    
    371.2
    
    
    
    445.5
    
    
    
    132.9Income Producing
    
    
    1,338.9
    
    
    
    1,237.1
    
    
    
    475.5Owner-Occupied
    
    
    1,115.6
    
    
    
    1,132.0
    
    
    
    747.0Total Commercial Real Estate
    
    
    3,086.0
    
    
    
    3,120.6
    
    
    
    1,443.8Commercial and Industrial
    
    
    2,153.2
    
    
    
    2,004.9
    
    
    
    1,789.6Total Commercial Loans
    
    $
    5,239.2
    
    
    $
    5,125.5
    
    
    $
    3,233.4
    34




---



##### Table of Contents



Nonperforming Assets
  Nonperforming Assets
 June 30,
    
    
    December 31,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2006Nonperforming LoansCommercial
    
    $
    8,563
    
    
    $
    7,709
    
    
    $
    8,795Commercial real estate
    
    
    60,797
    
    
    
    14,915
    
    
    
    4,956Total commercial
    
    
    69,360
    
    
    
    22,624
    
    
    
    13,751Residential mortgage
    
    
    36,130
    
    
    
    28,428
    
    
    
    8,179Direct consumer
    
    
    8,407
    
    
    
    6,030
    
    
    
    3,167Indirect consumer
    
    
    1,053
    
    
    
    810
    
    
    
    904Total consumer
    
    
    9,460
    
    
    
    6,840
    
    
    
    4,071Total nonaccrual loans
    
    
    114,950
    
    
    
    57,892
    
    
    
    26,001Loans 90 days past due and still accruing
    
    
    1,127
    
    
    
    767
    
    
    
    887Restructured loans
    
    
    348
    
    
    
    378
    
    
    
    406Total nonperforming portfolio loans
    
    
    116,425
    
    
    
    59,037
    
    
    
    27,294Nonperforming held for sale
    
    
    5,128
    
    
    
    22,846
    
    
    
    Other Repossessed Assets Acquired (ORAA)
    
    
    24,811
    
    
    
    20,165
    
    
    
    7,472Total nonperforming assets
    
    $
    146,364
    
    
    $
    102,048
    
    
    $
    34,766Nonperforming assets as a percent of portfolio loans plus ORAA (1)
    
    
    1.58
    %
    
    
    1.10
    %
    
    
    0.61
    %Nonperforming assets as a percent of total assets
    
    
    1.10
    
    
    
    0.73
    
    
    
    0.44Allowance for loan loss as a percent of nonperforming loans
    
    
    155.57
    
    
    
    286.44
    
    
    
    419.73Allowance for loan loss as a percent of nonperforming assets
    
    
    123.74
    
    
    
    165.71
    
    
    
    329.52
 
 (1)
    
    Portfolio loans exclude mortgage loans held for sale.  35




---



##### Table of Contents



Nonperforming Commercial Loans
 June 30, 2007
    
    
    December 31, 2006
    
    
    June 30, 2006in millions
    
    Balance
    
    
    % of Portfolio
    
    
    Balance
    
    
    % of Portfolio
    
    
    Balance
    
    
    % of PortfolioLand Hold
    
    $
    0.2
    
    
    
    0.25
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %Land Development
    
    
    17.7
    
    
    
    9.90
    
    
    
    1.6
    
    
    
    0.79
    
    
    
    
    
    
    
    Construction
    
    
    20.9
    
    
    
    5.63
    
    
    
    5.3
    
    
    
    1.19
    
    
    
    
    
    
    
    Income Producing
    
    
    14.8
    
    
    
    1.11
    
    
    
    0.5
    
    
    
    0.04
    
    
    
    1.0
    
    
    
    0.21Owner-Occupied
    
    
    7.2
    
    
    
    0.65
    
    
    
    7.5
    
    
    
    0.66
    
    
    
    4.0
    
    
    
    0.54Total Commercial Real
Estate
    
    
    60.8
    
    
    
    1.97
    
    
    
    14.9
    
    
    
    0.48
    
    
    
    5.0
    
    
    
    0.35Commercial and Industrial
    
    
    8.6
    
    
    
    0.40
    
    
    
    7.7
    
    
    
    0.38
    
    
    
    8.8
    
    
    
    0.49Total Commercial Loans
    
    $
    69.4
    
    
    
    1.32
    %
    
    $
    22.6
    
    
    
    0.44
    %
    
    $
    13.8
    
    
    
    0.43
    %
    Commercial Watchlist
 June 30, 2007
    
    
    December 31, 2006
    
    
    June 30, 2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    Balance
    
    
    Portfolio
    
    
    Balance
    
    
    Portfolio
    
    
    Balance
    
    
    PortfolioLand Hold
    
    $
    25.2
    
    
    
    30.88
    %
    
    $
    13.8
    
    
    
    13.48
    %
    
    $
    2.6
    
    
    
    11.26
    %Land Development
    
    
    73.0
    
    
    
    40.85
    
    
    
    50.3
    
    
    
    24.71
    
    
    
    0.4
    
    
    
    0.61Construction
    
    
    101.4
    
    
    
    27.32
    
    
    
    57.0
    
    
    
    12.79
    
    
    
    7.5
    
    
    
    5.64Income Producing
    
    
    161.0
    
    
    
    12.02
    
    
    
    143.0
    
    
    
    11.56
    
    
    
    49.1
    
    
    
    10.33Owner-Occupied
    
    
    219.4
    
    
    
    19.67
    
    
    
    202.9
    
    
    
    17.92
    
    
    
    105.4
    
    
    
    14.11Total Commercial Real Estate
    
    
    580.0
    
    
    
    18.79
    
    
    
    467.0
    
    
    
    14.97
    
    
    
    165.0
    
    
    
    11.43Commercial and Industrial
    
    
    359.8
    
    
    
    16.71
    
    
    
    319.5
    
    
    
    15.94
    
    
    
    195.0
    
    
    
    10.90Total Watchlist Loans
    
    $
    939.8
    
    
    
    17.94
    %
    
    $
    786.5
    
    
    
    15.34
    %
    
    $
    360.0
    
    
    
    11.13
    %
  36




---



##### Table of Contents



Delinquency Rates By Loan Portfolio
 June 30, 2007
    
    
    December 31, 2006
    
    
    June 30, 2006in millions
    
    Balance
    
    
    % of 
Portfolio
    
    
    Balance
    
    
    % of 
Portfolio
    
    
    Balance
    
    
    % of 
PortfolioLand Hold
    
    $
    2.9
    
    
    
    3.55
    %
    
    $
    
    
    
    
    
    %
    
    $
    3.3
    
    
    
    14.29
    %Land Development
    
    
    22.7
    
    
    
    12.70
    
    
    
    1.1
    
    
    
    0.54
    
    
    
    0.2
    
    
    
    0.31Construction
    
    
    11.1
    
    
    
    2.99
    
    
    
    11.4
    
    
    
    2.56
    
    
    
    4.3
    
    
    
    3.24Income Producing
    
    
    24.1
    
    
    
    1.80
    
    
    
    6.4
    
    
    
    0.52
    
    
    
    8.4
    
    
    
    1.76Owner-Occupied
    
    
    17.1
    
    
    
    1.54
    
    
    
    12.5
    
    
    
    1.10
    
    
    
    8.4
    
    
    
    1.13Total Commercial Real Estate
    
    
    77.9
    
    
    
    2.53
    
    
    
    31.4
    
    
    
    1.01
    
    
    
    24.6
    
    
    
    1.70Commercial and Industrial
    
    
    22.7
    
    
    
    1.05
    
    
    
    16.8
    
    
    
    0.84
    
    
    
    29.5
    
    
    
    1.65Total Commercial Loans
    
    
    100.6
    
    
    
    1.92
    
    
    
    48.2
    
    
    
    0.94
    
    
    
    54.1
    
    
    
    1.67Residential Mortgage
    
    
    38.5
    
    
    
    2.58
    
    
    
    37.2
    
    
    
    2.41
    
    
    
    7.9
    
    
    
    1.43Direct Consumer
    
    
    19.6
    
    
    
    1.20
    
    
    
    22.4
    
    
    
    1.30
    
    
    
    10.6
    
    
    
    0.96Indirect Consumer
    
    
    11.6
    
    
    
    1.37
    
    
    
    14.8
    
    
    
    1.76
    
    
    
    9.2
    
    
    
    1.09Total Delinquent Loans
    
    $
    170.3
    
    
    
    1.85
    %
    
    $
    122.6
    
    
    
    1.33
    %
    
    $
    81.8
    
    
    
    1.43
    %
  Provision and Allowance for Loan Losses
  37




---



##### Table of Contents



Analysis of Allowance for Loan Losses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Allowance for loan losses  beginning of period
    
    $
    169,239
    
    
    $
    115,423
    
    
    $
    169,104
    
    
    $
    116,400Provision for loan losses
    
    
    31,857
    
    
    
    1,139
    
    
    
    35,357
    
    
    
    4,139Charge-offs
    
    
    22,335
    
    
    
    4,556
    
    
    
    28,211
    
    
    
    10,789Recoveries
    
    
    2,357
    
    
    
    2,554
    
    
    
    4,868
    
    
    
    4,810Net charge-offs
    
    
    19,978
    
    
    
    2,002
    
    
    
    23,343
    
    
    
    5,979Allowance for loan losses  end of period
    
    $
    181,118
    
    
    $
    114,560
    
    
    $
    181,118
    
    
    $
    114,560Portfolio loans outstanding at period end (1)
    
    $
    9,215,964
    
    
    $
    5,728,039
    
    
    $
    9,215,964
    
    
    $
    5,728,039Average portfolio loans outstanding during period (1)
    
    
    9,169,625
    
    
    
    5,609,920
    
    
    
    9,174,497
    
    
    
    5,585,747Allowance for loan losses as a percentage of portfolio loans
    
    
    1.97
    %
    
    
    2.00
    %
    
    
    1.97
    %
    
    
    2.00
    %Ratio of net charge-offs during period to average portfolio loans (annualized)
    
    
    0.87
    
    
    
    0.14
    
    
    
    0.51
    
    
    
    0.22
 
 (1)
    
    Balances exclude mortgage loans held for sale.  Net Charge-Offs
 Three Months EndedJune 30, 2007
    
    
    December 31, 2006
    
    
    June 30, 2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    Balance
    
    
    Portfolio*
    
    
    Balance
    
    
    Portfolio*
    
    
    balance
    
    
    Portfolio*Land Hold
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %Land Development
    
    
    6.4
    
    
    
    14.33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    4.1
    
    
    
    4.43
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income Producing
    
    
    2.3
    
    
    
    0.69
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Owner-Occupied
    
    
    0.9
    
    
    
    0.32
    
    
    
    1.0
    
    
    
    0.35
    
    
    
    0.1
    
    
    
    0.06Total Commercial Real Estate
    
    
    13.7
    
    
    
    1.77
    
    
    
    1.0
    
    
    
    0.26
    
    
    
    0.1
    
    
    
    0.03Commercial and Industrial
    
    
    1.8
    
    
    
    0.35
    
    
    
    1.8
    
    
    
    0.40
    
    
    
    (0.1
    )
    
    
    (0.03
    )Total Commercial Loans
    
    
    15.5
    
    
    
    1.20
    
    
    
    2.8
    
    
    
    0.34
    
    
    
    (0.0
    )
    
    
    (0.00
    )Residential Mortgage
    
    
    0.7
    
    
    
    0.18
    
    
    
    0.9
    
    
    
    0.65
    
    
    
    0.3
    
    
    
    0.19Direct Consumer
    
    
    2.6
    
    
    
    0.63
    
    
    
    1.6
    
    
    
    0.59
    
    
    
    0.8
    
    
    
    0.29Indirect Consumer
    
    
    1.2
    
    
    
    0.59
    
    
    
    2.3
    
    
    
    1.09
    
    
    
    0.9
    
    
    
    0.43Total Net Charge-offs
    
    $
    20.0
    
    
    
    0.87
    %
    
    $
    7.6
    
    
    
    0.52
    %
    
    $
    2.0
    
    
    
    0.14
    %
 
 *
    
    Represents an annualized rate.   38




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##### Table of Contents



Loans Held for Sale
  39




---



##### Table of Contents



Goodwill and Other Intangible Assets
  Deposits
   Borrowed Funds
   40




---



##### Table of Contents



Capital Resources
  Capital Ratios
 Regulatory MinimumWell-
    
    June 30,
    
    December 31,
    
    June 30,Required
    
    Capitalized
    
    2007
    
    2006
    
    2006Risk based:Tier 1 capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    8.91
    %
    
    
    9.41
    %
    
    
    9.96
    %Total capital
    
    
    8.00
    
    
    
    10.00
    
    
    
    11.38
    
    
    
    11.90
    
    
    
    13.20Tier 1 Leverage (1)
    
    
    4.00
    
    
    
    5.00
    
    
    
    7.33
    
    
    
    7.22
    
    
    
    8.21
 
 (1)
    
    For December 31, 2006, the Tier 1 leverage ratio is calculated using ending assets instead
of average assets due to the Republic merger on December 29, 2006  Contractual Obligations and Off-Balance Sheet Arrangements
  Liquidity and Debt Capacity
    41




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Interest Rate Risk
     42




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  43




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Total Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares That May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    The Plans or ProgramsPeriod
    
    Shares Purchased
    
    
    Per Share
    
    
    Programs
    
    
    (a)April 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,701,154May 2007
    
    
    110,029
    (a)
    
    
    19.34
    
    
    
    110,000
    
    
    
    1,591,154June 2007
    
    
    255,633
    (a)
    
    
    19.49
    
    
    
    240,000
    
    
    
    1,351,154Total
    
    
    365,662
    
    
    
    19.44
    
    
    
    350,000
    
    
    
    1,351,154
 
 (a)
    
    Shares repurchased in connection with taxes due from employees as a result of the vesting
of certain share awards were not part of the repurchase program approved in October 2003 and
included 29 shares in May at a price of $20.71 per share and 15,633 shares in June at a price
of $18.56 per share.
 ®
 44




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  For
    
    Against
    
    Abstain
    
    Brokernon-votesAmend Articles of Incorporation
to change name to Citizens
Republic Bancorp, Inc.
    
    
    62,378,694
    
    
    
    915,353
    
    
    
    821,240
    
    
    
    0
 Director
    
    For
    
    Withheld
    
    % Votes ForRichard J. Dolinski
    
    
    61,199,383
    
    
    
    2,915,910
    
    
    
    80.77William R. Hartman
    
    
    61,601,707
    
    
    
    2,513,586
    
    
    
    81.30Gary J. Hurand
    
    
    62,191,423
    
    
    
    1,923,870
    
    
    
    82.08Dennis J. Ibold
    
    
    61,896,537
    
    
    
    2,218,757
    
    
    
    81.69Kendall B. Williams
    
    
    60,849,506
    
    
    
    3,265,788
    
    
    
    80.31
 
 Item 5. Other Information
     45




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##### Table of Contents



Item 6. Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation as amended on April 26, 2007
(incorporated by reference from Exhibit 3.1 of Citizens
First Quarter 2007 Report on
Form 10-Q)10.36
    
    Release and Settlement Agreement with Dana M. Cluckey, dated April 26, 2007
(incorporated by reference from Exhibit 10.36 of Citizens First Quarter 2007 Report on
Form 10-Q)10.37
    
    Form of Restricted Stock Agreement (Employee Version as of May 2007)10.38
    
    Form of Restricted Stock Agreement (Non-Employee Director Version as of May 2007)10.39
    
    2007 Management Incentive Plan*31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193432.1
    
    Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities
Exchange Act of 1934
 
 *
    
    Portions of this exhibit have been omitted pursuant to Citizens request to the
Secretary of the Securities and Exchange Commission for confidential treatment pursuant to
Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. 46




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##### Table of Contents



SIGNATURES
   Date: August 3, 2007
    By
    /s/ Charles D. ChristyCharles D. ChristyChief Financial Officer
(principal financial officer and duly authorized officer) 47




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##### Table of Contents



10-Q EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Articles of Incorporation as amended on April 26, 2007
(incorporated by reference from Exhibit 3.1 of Citizens
First Quarter 2007 Report on
Form 10-Q)10.36
    
    Release and Settlement Agreement with Dana M. Cluckey, dated April 26, 2007
(incorporated by reference from Exhibit 10.36 of Citizens
First Quarter 2007 Report on
Form 10-Q)10.37
    
    Form of Restricted Stock Agreement (Employee Version as of May 2007)10.38
    
    Form of Restricted Stock Agreement (Non-Employee Director Version as of May 2007)10.39
    
    2007 Management Incentive Plan*31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 193432.1
    
    Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities
Exchange Act of 1934
 
 *
    
    Portions of this exhibit have been omitted pursuant to Citizens request to the
Secretary of the Securities and Exchange Commission for confidential treatment pursuant to
Rule 24b-2 under the Securities and Exchange Act of 1934, as amended.  48