##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 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 October 26, 2007Common Stock, No Par Value
    
    75,632,076 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
    
    
    44Item 4  Controls and Procedures
    
    
    44Part II  Other InformationItem 1A  Risk Factors
    
    
    45Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 6  Exhibits
    
    
    46Signatures
    
    
    47Exhibit Index
    
    
    48Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)Certification Pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b)
  2




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##### Table of Contents



Consolidated Balance Sheets  Citizens Republic Bancorp and Subsidiaries
 September 30,
    
    
    December 31,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2006(unaudited)
    
    
    (Note 1)
    
    
    (unaudited)AssetsCash and due from banks
    
    $
    224,683
    
    
    $
    223,747
    
    
    $
    151,591Money market investments
    
    
    5,193
    
    
    
    203
    
    
    
    165Investment Securities:Securities available for sale, at fair value
    
    
    2,177,516
    
    
    
    2,839,456
    
    
    
    1,379,240Securities held to maturity, at amortized cost
(fair value of $122,186, $110,283 and $104,397, respectively)
    
    
    122,610
    
    
    
    109,744
    
    
    
    102,667Total investment securities
    
    
    2,300,126
    
    
    
    2,949,200
    
    
    
    1,481,907FHLB and Federal Reserve stock
    
    
    142,107
    
    
    
    132,895
    
    
    
    58,193Portfolio loans:Commercial
    
    
    2,236,131
    
    
    
    2,004,894
    
    
    
    1,788,922Commercial real estate
    
    
    3,068,540
    
    
    
    3,120,613
    
    
    
    1,468,952Total commercial
    
    
    5,304,671
    
    
    
    5,125,507
    
    
    
    3,257,874Residential mortgage
    
    
    1,460,993
    
    
    
    1,543,533
    
    
    
    545,171Direct consumer
    
    
    1,602,126
    
    
    
    1,721,410
    
    
    
    1,090,757Indirect consumer
    
    
    851,436
    
    
    
    840,632
    
    
    
    859,573Total portfolio loans
    
    
    9,219,226
    
    
    
    9,231,082
    
    
    
    5,753,375Less: Allowance for loan losses
    
    
    (176,958
    )
    
    
    (169,104
    )
    
    
    (113,076
    )Net portfolio loans
    
    
    9,042,268
    
    
    
    9,061,978
    
    
    
    5,640,299Loans held for sale
    
    
    76,384
    
    
    
    172,842
    
    
    
    11,689Premises and equipment
    
    
    130,148
    
    
    
    139,490
    
    
    
    117,821Goodwill
    
    
    778,516
    
    
    
    781,635
    
    
    
    54,527Other intangible assets
    
    
    33,206
    
    
    
    46,071
    
    
    
    8,959Bank owned life insurance
    
    
    212,243
    
    
    
    206,851
    
    
    
    86,580Other assets
    
    
    278,275
    
    
    
    287,700
    
    
    
    135,803Total assets
    
    $
    13,223,149
    
    
    $
    14,002,612
    
    
    $
    7,747,534LiabilitiesNoninterest-bearing deposits
    
    $
    1,104,992
    
    
    $
    1,223,113
    
    
    $
    893,320Interest-bearing demand deposits
    
    
    795,950
    
    
    
    923,848
    
    
    
    739,895Savings deposits
    
    
    2,136,082
    
    
    
    2,280,496
    
    
    
    1,467,622Time deposits
    
    
    3,904,715
    
    
    
    4,270,604
    
    
    
    2,524,509Total deposits
    
    
    7,941,739
    
    
    
    8,698,061
    
    
    
    5,625,346Federal funds purchased and securities sold
under agreements to repurchase
    
    
    764,527
    
    
    
    922,328
    
    
    
    342,736Other short-term borrowings
    
    
    33,274
    
    
    
    16,551
    
    
    
    13,298Other liabilities
    
    
    120,968
    
    
    
    169,022
    
    
    
    73,752Long-term debt
    
    
    2,800,768
    
    
    
    2,638,964
    
    
    
    1,018,095Total liabilities
    
    
    11,661,276
    
    
    
    12,444,926
    
    
    
    7,073,227Shareholders EquityPreferred stock  no par valueAuthorized - 5,000,000 shares; Issued  none
    
    
    
    
    
    
    
    
    
    
    Common stock  no par valueAuthorized - 100,000,000 shares; Issued and outstanding - 75,633,669 at 9/30/07,
75,675,944 at 12/31/06, and 42,904,289 at 9/30/06
    
    
    973,619
    
    
    
    980,772
    
    
    
    79,730Retained earnings
    
    
    591,306
    
    
    
    584,289
    
    
    
    596,040Accumulated other comprehensive loss
    
    
    (3,052
    )
    
    
    (7,375
    )
    
    
    (1,463
    )Total shareholders equity
    
    
    1,561,873
    
    
    
    1,557,686
    
    
    
    674,307Total liabilities and shareholders equity
    
    $
    13,223,149
    
    
    $
    14,002,612
    
    
    $
    7,747,534
  3




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##### Table of Contents



Consolidated Statements of Income (Unaudited)  Citizens Republic Bancorp and Subsidiaries
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands, except per share amounts)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Interest IncomeInterest and fees on loans
    
    $
    171,650
    
    
    $
    102,871
    
    
    $
    514,814
    
    
    $
    294,415Interest and dividends on investment securities:Taxable
    
    
    21,238
    
    
    
    11,960
    
    
    
    67,337
    
    
    
    37,267Tax-exempt
    
    
    7,310
    
    
    
    5,278
    
    
    
    21,947
    
    
    
    15,854Dividends on FHLB and Federal Reserve stock
    
    
    1,603
    
    
    
    614
    
    
    
    4,736
    
    
    
    1,981Money market investments
    
    
    53
    
    
    
    21
    
    
    
    89
    
    
    
    34Total interest income
    
    
    201,854
    
    
    
    120,744
    
    
    
    608,923
    
    
    
    349,551Interest ExpenseDeposits
    
    
    64,380
    
    
    
    40,004
    
    
    
    195,015
    
    
    
    106,301Short-term borrowings
    
    
    5,439
    
    
    
    3,596
    
    
    
    25,504
    
    
    
    12,727Long-term debt
    
    
    37,162
    
    
    
    11,499
    
    
    
    98,413
    
    
    
    31,413Total interest expense
    
    
    106,981
    
    
    
    55,099
    
    
    
    318,932
    
    
    
    150,441Net Interest Income
    
    
    94,873
    
    
    
    65,645
    
    
    
    289,991
    
    
    
    199,110Provision for loan losses
    
    
    3,765
    
    
    
    1,190
    
    
    
    39,122
    
    
    
    5,329Net interest income after provision for loan losses
    
    
    91,108
    
    
    
    64,455
    
    
    
    250,869
    
    
    
    193,781Noninterest IncomeService charges on deposit accounts
    
    
    12,515
    
    
    
    9,674
    
    
    
    35,701
    
    
    
    28,070Trust fees
    
    
    4,973
    
    
    
    4,633
    
    
    
    14,931
    
    
    
    14,647Mortgage and other loan income
    
    
    2,939
    
    
    
    2,267
    
    
    
    13,334
    
    
    
    6,383Brokerage and investment fees
    
    
    2,141
    
    
    
    1,885
    
    
    
    5,872
    
    
    
    5,103ATM network user fees
    
    
    1,601
    
    
    
    988
    
    
    
    4,820
    
    
    
    2,993Bankcard fees
    
    
    1,695
    
    
    
    1,213
    
    
    
    4,318
    
    
    
    3,399Other income
    
    
    4,732
    
    
    
    2,884
    
    
    
    14,321
    
    
    
    12,203Total fees and other income
    
    
    30,596
    
    
    
    23,544
    
    
    
    93,297
    
    
    
    72,798Investment securities gains (losses)
    
    
    8
    
    
    
    
    
    
    
    (25
    )
    
    
    61Total noninterest income
    
    
    30,604
    
    
    
    23,544
    
    
    
    93,272
    
    
    
    72,859Noninterest ExpenseSalaries and employee benefits
    
    
    42,115
    
    
    
    32,569
    
    
    
    132,251
    
    
    
    97,515Occupancy
    
    
    7,377
    
    
    
    5,604
    
    
    
    23,363
    
    
    
    16,837Professional services
    
    
    5,096
    
    
    
    3,486
    
    
    
    13,599
    
    
    
    11,267Equipment
    
    
    3,227
    
    
    
    3,191
    
    
    
    10,793
    
    
    
    9,658Data processing services
    
    
    3,724
    
    
    
    3,779
    
    
    
    12,360
    
    
    
    11,232Advertising and public relations
    
    
    1,003
    
    
    
    1,211
    
    
    
    6,070
    
    
    
    4,179Postage and delivery
    
    
    1,777
    
    
    
    1,559
    
    
    
    5,937
    
    
    
    4,650Telephone
    
    
    2,155
    
    
    
    1,394
    
    
    
    5,937
    
    
    
    4,250Other loan expenses
    
    
    1,245
    
    
    
    1,407
    
    
    
    3,237
    
    
    
    3,040Stationery and supplies
    
    
    466
    
    
    
    653
    
    
    
    2,111
    
    
    
    2,011Intangible asset amortization
    
    
    2,803
    
    
    
    725
    
    
    
    8,875
    
    
    
    2,174Restructuring and merger-related expenses
    
    
    1,009
    
    
    
    
    
    
    
    8,603
    
    
    
    Other expense
    
    
    5,346
    
    
    
    3,824
    
    
    
    15,407
    
    
    
    14,226Total noninterest expense
    
    
    77,343
    
    
    
    59,402
    
    
    
    248,543
    
    
    
    181,039Income Before Income Taxes
    
    
    44,369
    
    
    
    28,597
    
    
    
    95,598
    
    
    
    85,601Income tax provision
    
    
    12,605
    
    
    
    7,616
    
    
    
    22,723
    
    
    
    22,957Net Income
    
    $
    31,764
    
    
    $
    20,981
    
    
    $
    72,875
    
    
    $
    62,644Net Income Per Common Share:Basic
    
    $
    0.42
    
    
    $
    0.49
    
    
    $
    0.97
    
    
    $
    1.47Diluted
    
    
    0.42
    
    
    
    0.49
    
    
    
    0.96
    
    
    
    1.46Cash Dividends Declared Per Common Share
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.870
    
    
    
    0.865Average Common Shares Outstanding:Basic
    
    
    75,353
    
    
    
    42,587
    
    
    
    75,391
    
    
    
    42,658Diluted
    
    
    75,501
    
    
    
    42,709
    
    
    
    75,688
    
    
    
    42,795
  4




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##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity (Unaudited)  Citizens Republic Bancorp and Subsidiaries
 AccumulatedOtherCommon Stock
    
    
    Retained
    
    
    Comprehensive(in thousands, except per share amounts)
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance at January 1, 2007
    
    
    75,676
    
    
    $
    980,772
    
    
    $
    584,289
    
    
    $
    (7,375
    )
    
    $
    1,557,686Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    72,875
    
    
    
    
    
    
    
    72,875Other comprehensive income:Net unrealized gain/(loss) on securities available-for-sale, net of
reclassification adjustment for net gains included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,120Net change in unrealized gain/(loss) on qualifying
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (797
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,323Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,198Proceeds from stock options exercised and restricted stock activity
    
    
    621
    
    
    
    3,934
    
    
    
    
    
    
    
    
    
    
    
    3,934Recognition of stock-based compensation
    
    
    
    
    
    
    2,427
    
    
    
    
    
    
    
    
    
    
    
    2,427Cash dividends declared on common shares  $0.870 per share
    
    
    
    
    
    
    
    
    
    
    (65,858
    )
    
    
    
    
    
    
    (65,858
    )Shares acquired for retirement
    
    
    (663
    )
    
    
    (13,514
    )
    
    
    
    
    
    
    
    
    
    
    (13,514
    )Balance  September 30, 2007
    
    
    75,634
    
    
    $
    973,619
    
    
    $
    591,306
    
    
    $
    (3,052
    )
    
    $
    1,561,873Balance at January 1, 2006
    
    
    42,968
    
    
    $
    85,526
    
    
    $
    570,483
    
    
    $
    454
    
    
    $
    656,463Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    62,644
    
    
    
    
    
    
    
    62,644Other comprehensive income:Net unrealized gain/(loss) on securities available-for-sale, net of
reclassification adjustment for net gains included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,406
    )Net change in unrealized gain/(loss) on qualifying
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (511
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,917
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,727Proceeds from stock options exercised and restricted stock activity
    
    
    71
    
    
    
    1,568
    
    
    
    
    
    
    
    
    
    
    
    1,568Recognition of stock-based compensation
    
    
    200
    
    
    
    1,584
    
    
    
    
    
    
    
    
    
    
    
    1,584Cash dividends declared on common shares  $0.865 per share
    
    
    
    
    
    
    
    
    
    
    (37,087
    )
    
    
    
    
    
    
    (37,087
    )Shares acquired for retirement
    
    
    (335
    )
    
    
    (8,948
    )
    
    
    
    
    
    
    
    
    
    
    (8,948
    )Balance  September 30, 2006
    
    
    42,904
    
    
    $
    79,730
    
    
    $
    596,040
    
    
    $
    (1,463
    )
    
    $
    674,307
  5




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##### Table of Contents



Consolidated Statements of Cash Flows (Unaudited)  Citizens Republic Bancorp and Subsidiaries
 Nine Months EndedSeptember 30,(in thousands)
    
    2007
    
    
    2006Operating Activities:Net income
    
    $
    72,875
    
    
    $
    62,644Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    39,122
    
    
    
    5,329Depreciation and software amortization
    
    
    10,094
    
    
    
    8,897Amortization of intangibles
    
    
    8,874
    
    
    
    2,174Amortization
and fair value adjustments of purchase accounting mark-to-market, net
    
    
    (35,636
    )
    
    
    Discount accretion and amortization of issuance costs on long term debt
    
    
    691
    
    
    
    Net (accretion) amortization on investment securities
    
    
    (3,306
    )
    
    
    152Investment securities losses (gains)
    
    
    25
    
    
    
    (61
    )Loans originated for sale
    
    
    (405,033
    )
    
    
    (170,352
    )Proceeds from sales of loans held for sale
    
    
    489,028
    
    
    
    177,662Net gains from loan sales
    
    
    (7,756
    )
    
    
    (2,747
    )Net (gain) loss on sale of other real estate
    
    
    (440
    )
    
    
    492Excess tax benefits from stock-based compensation arrangements
    
    
    
    
    
    
    (173
    )Recognition of stock-based compensation
    
    
    2,427
    
    
    
    1,584Other
    
    
    (60,587
    )
    
    
    (22,088
    )Net cash provided by operating activities
    
    
    110,378
    
    
    
    63,513Investing Activities:Net (increase) decrease in money market investments
    
    
    (4,990
    )
    
    
    215Securities available-for-sale:Proceeds from sales
    
    
    364,421
    
    
    
    114Proceeds from maturities and payments
    
    
    443,750
    
    
    
    200,647Purchases
    
    
    (144,280
    )
    
    
    (82,468
    )Securities held-to-maturity:Purchases
    
    
    (12,869
    )
    
    
    (20,308
    )Sale of branches, net of cash received
    
    
    (163,592
    )
    
    
    Net increase (decrease) in loans and leases
    
    
    1,494
    
    
    
    (145,909
    )Proceeds from sales of other real estate
    
    
    11,571
    
    
    
    2,756Net increase in properties and equipment
    
    
    (1,677
    )
    
    
    (4,988
    )Net cash provided (used) by investing activities
    
    
    493,828
    
    
    
    (49,941
    )Financing Activities:Net decrease in demand and savings deposits
    
    
    (189,529
    )
    
    
    (196,574
    )Net (decrease) increase in time deposits
    
    
    (370,863
    )
    
    
    348,081Net decrease in short-term borrowings
    
    
    (139,076
    )
    
    
    (173,087
    )Proceeds from issuance of long-term debt
    
    
    1,341,750
    
    
    
    225,453Principal reductions in long-term debt
    
    
    (1,170,114
    )
    
    
    (216,308
    )Cash dividends paid
    
    
    (65,858
    )
    
    
    (37,087
    )Proceeds from stock options exercised and restricted stock activity
    
    
    3,934
    
    
    
    1,568Excess tax benefits related to stock-based compensation arrangements
    
    
    
    
    
    
    173Shares acquired for retirement
    
    
    (13,514
    )
    
    
    (8,948
    )Net cash used by financing activities
    
    
    (603,270
    )
    
    
    (56,729
    )Net increase
(decrease) in cash and due from banks
    
    
    936
    
    
    
    (43,157
    )Cash and due from banks at beginning of period
    
    
    223,747
    
    
    
    194,748Cash and due from banks at end of period
    
    $
    224,683
    
    
    $
    151,591Supplemental Cash Flow Information:Loans transferred to other real estate owned
    
    $
    23,540
    
    
    $
    4,446
  6




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##### Table of Contents



Part I  Financial Information
 
 Item 1  Consolidated Financial Statements
 
 Notes to Consolidated Financial Statements (Unaudited)  Citizens Republic Bancorp, Inc. and Subsidiaries
 Note 1. Basis of Presentation and Accounting Policies
 www.citizensbanking.com
 Statements of Financial Accounting Standards
 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
    
    Nine Months EndedSeptember 30, 2006
    
    September 30, 2006Pro-forma
    
    Citizens historical
    
    Pro-forma
    
    Citizens historical(in thousands)
    
    combined
    
    without Republic
    
    combined
    
    without RepublicNet interest income
    
    $
    102,446
    
    
    $
    65,645
    
    
    $
    315,844
    
    
    $
    199,110Provision for loan losses
    
    
    3,640
    
    
    
    1,190
    
    
    
    10,929
    
    
    
    5,329Noninterest income
    
    
    33,233
    
    
    
    23,544
    
    
    
    97,261
    
    
    
    72,859Other noninterest expense
    
    
    78,114
    
    
    
    59,402
    
    
    
    238,734
    
    
    
    181,039Income before income taxes
    
    
    53,925
    
    
    
    28,597
    
    
    
    163,442
    
    
    
    85,601Net Income
    
    $
    38,484
    
    
    $
    20,981
    
    
    $
    116,043
    
    
    $
    62,644Net income per common share:Basic
    
    $
    0.51
    
    
    $
    0.49
    
    
    $
    1.54
    
    
    $
    1.47Diluted
    
    
    0.51
    
    
    
    0.49
    
    
    
    1.53
    
    
    
    1.46Weighted average shares outstanding during the period:Basic
    
    
    75,246
    
    
    
    42,587
    
    
    
    75,353
    
    
    
    42,658Diluted
    
    
    75,666
    
    
    
    42,709
    
    
    
    75,776
    
    
    
    42,795
  8




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##### Table of Contents



Balance
    
    
    Changes in 2007
    
    
    BalanceDecember 31,
    
    
    
    
    
    
    Cash
    
    
    Other
    
    
    September 30,(in thousands)
    
    2006
    
    
    Additions
    
    
    Payments
    
    
    Adjustments
    
    
    2007Personnel
    
    $
    4,323
    
    
    $
    2,384
    
    
    $
    (4,348
    )
    
    $
    
    
    
    $
    2,359Facilities/Branches
    
    
    3,895
    
    
    
    1,928
    
    
    
    (995
    )
    
    
    (32
    )
    
    
    4,796Systems/Other
    
    
    791
    
    
    
    384
    
    
    
    (1,138
    )
    
    
    
    
    
    
    37$
    9,009
    
    
    $
    4,696
    
    
    $
    (6,481
    )
    
    $
    (32
    )
    
    $
    7,192
   Balance
    
    
    Changes in 2007
    
    
    BalanceDecember 31,
    
    
    
    
    
    
    Cash
    
    
    Other
    
    
    September 30,(in thousands)
    
    2006
    
    
    Additions
    
    
    Payments
    
    
    Adjustments
    
    
    2007Personnel
    
    $
    17,603
    
    
    $
    1,778
    
    
    $
    (15,468
    )
    
    $
    (1,339
    )
    
    $
    2,574Professional
    
    
    7,621
    
    
    
    
    
    
    
    (6,603
    )
    
    
    (750
    )
    
    
    268Facilities/Branches
    
    
    2,205
    
    
    
    17
    
    
    
    (968
    )
    
    
    413
    
    
    
    1,667Systems/Other
    
    
    351
    
    
    
    60
    
    
    
    (411
    )
    
    
    
    
    
    
    27,780
    
    
    
    1,855
    
    
    
    (23,450
    )
    
    
    (1,676
    )
    
    
    4,509Other Transaction and
System Reserves
    
    
    9,088
    
    
    
    2,052
    
    
    
    (11,089
    )
    
    
    (6
    )
    
    
    45$
    36,868
    
    
    $
    3,907
    
    
    $
    (34,539
    )
    
    $
    (1,682
    )
    
    $
    4,554
   Note 4. Investment Securities
  September 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
    
    
    298,215
    
    
    
    301,146
    
    
    
    3,304
    
    
    
    373
    
    
    
    436,679
    
    
    
    436,315
    
    
    
    1,044
    
    
    
    1,408Collateralized Mortgage Obligations
    
    
    610,264
    
    
    
    611,369
    
    
    
    2,735
    
    
    
    1,630
    
    
    
    794,395
    
    
    
    791,739
    
    
    
    242
    
    
    
    2,898Mortgage-backed
    
    
    698,937
    
    
    
    698,909
    
    
    
    4,415
    
    
    
    4,443
    
    
    
    998,871
    
    
    
    994,767
    
    
    
    393
    
    
    
    4,497State and municipal
    
    
    559,222
    
    
    
    565,640
    
    
    
    8,329
    
    
    
    1,911
    
    
    
    566,230
    
    
    
    575,907
    
    
    
    10,328
    
    
    
    651Other
    
    
    407
    
    
    
    452
    
    
    
    45
    
    
    
    
    
    
    
    835
    
    
    
    874
    
    
    
    40
    
    
    
    1Total available for sale
    
    $
    2,167,045
    
    
    $
    2,177,516
    
    
    $
    18,828
    
    
    $
    8,357
    
    
    $
    2,836,864
    
    
    $
    2,839,456
    
    
    $
    12,047
    
    
    $
    9,455Held to Maturity:State and municipalTotal held to maturity
    
    $
    122,610
    
    
    $
    122,186
    
    
    $
    613
    
    
    $
    1,037
    
    
    $
    109,744
    
    
    $
    110,283
    
    
    $
    905
    
    
    $
    366FHLB and Fed Reserve stock
    
    $
    142,107
    
    
    $
    142,107
    
    
    $
    
    
    
    $
    
    
    
    $
    132,895
    
    
    $
    132,895
    
    
    $
    
    
    
    $
    
 9




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##### Table of Contents



As of September 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
    
    
    
    
    
    
    
    
    
    
    59,765
    
    
    
    373
    
    
    
    59,765
    
    
    
    373Collateralized Mortgage Obligations
    
    
    141,446
    
    
    
    728
    
    
    
    127,824
    
    
    
    902
    
    
    
    269,270
    
    
    
    1,630Mortgage-backed
    
    
    71,321
    
    
    
    534
    
    
    
    117,735
    
    
    
    3,909
    
    
    
    189,056
    
    
    
    4,443State and municipal
    
    
    155,939
    
    
    
    1,393
    
    
    
    18,909
    
    
    
    518
    
    
    
    174,848
    
    
    
    1,911Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total available for sale
    
    
    368,706
    
    
    
    2,655
    
    
    
    324,233
    
    
    
    5,702
    
    
    
    692,939
    
    
    
    8,357Held to Maturity:State and municipal
    
    
    56,945
    
    
    
    734
    
    
    
    15,808
    
    
    
    303
    
    
    
    72,753
    
    
    
    1,037Total held to maturity
    
    
    56,945
    
    
    
    734
    
    
    
    15,808
    
    
    
    303
    
    
    
    72,753
    
    
    
    1,037Total
    
    $
    425,651
    
    
    $
    3,389
    
    
    $
    340,041
    
    
    $
    6,005
    
    
    $
    765,692
    
    
    $
    9,394
 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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Allowance for loan losses  beginning of period
    
    $
    181,118
    
    
    $
    114,560
    
    
    $
    169,104
    
    
    $
    116,400Provision for loan losses
    
    
    3,765
    
    
    
    1,190
    
    
    
    39,122
    
    
    
    5,329Charge-offs:Commercial
    
    
    1,618
    
    
    
    597
    
    
    
    4,400
    
    
    
    2,372Commercial real estate
    
    
    1,270
    
    
    
    585
    
    
    
    15,975
    
    
    
    1,807Total commercial
    
    
    2,888
    
    
    
    1,182
    
    
    
    20,375
    
    
    
    4,179Residential mortgage
    
    
    1,602
    
    
    
    252
    
    
    
    3,128
    
    
    
    755Direct consumer
    
    
    3,188
    
    
    
    983
    
    
    
    8,301
    
    
    
    3,868Indirect consumer
    
    
    2,312
    
    
    
    1,840
    
    
    
    6,397
    
    
    
    6,244Charge-offs
    
    
    9,990
    
    
    
    4,257
    
    
    
    38,201
    
    
    
    15,046Recoveries:Commercial
    
    
    1,026
    
    
    
    543
    
    
    
    2,796
    
    
    
    2,719Commercial real estate
    
    
    100
    
    
    
    50
    
    
    
    814
    
    
    
    614Total commercial
    
    
    1,126
    
    
    
    593
    
    
    
    3,610
    
    
    
    3,333Residential mortgage
    
    
    1
    
    
    
    22
    
    
    
    108
    
    
    
    125Direct consumer
    
    
    500
    
    
    
    485
    
    
    
    1,353
    
    
    
    1,102Indirect consumer
    
    
    438
    
    
    
    483
    
    
    
    1,862
    
    
    
    1,833Recoveries
    
    
    2,065
    
    
    
    1,583
    
    
    
    6,933
    
    
    
    6,393Net charge-offs
    
    
    7,925
    
    
    
    2,674
    
    
    
    31,268
    
    
    
    8,653Allowance for loan losses  end of period
    
    $
    176,958
    
    
    $
    113,076
    
    
    $
    176,958
    
    
    $
    113,076
 Accounting by Creditors for
Impairment of a Loan,
 Impaired Loan Information
 Balances
    
    
    Valuation ReserveSeptember 30,
    
    
    December 31,
    
    
    September 30,
    
    
    September 30,
    
    
    December 31,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2006Balances -Impaired loans with valuation reserve
    
    $
    44,527
    
    
    $
    20,737
    
    
    $
    18,540
    
    
    $
    18,497
    
    
    $
    7,550
    
    
    $
    6,373Impaired loans with no valuation reserve
    
    
    20,943
    
    
    
    21,641
    
    
    
    465
    
    
    
    
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    65,470
    
    
    $
    42,378
    
    
    $
    19,005
    
    
    $
    18,497
    
    
    $
    7,550
    
    
    $
    6,373Impaired loans on nonaccrual basis
    
    $
    54,658
    
    
    $
    11,321
    
    
    $
    4,099
    
    
    $
    18,425
    
    
    $
    2,104
    
    
    $
    1,746Impaired loans on accrual basis
    
    
    10,812
    
    
    
    31,057
    
    
    
    14,906
    
    
    
    72
    
    
    
    5,446
    
    
    
    4,627Total impaired loans
    
    $
    65,470
    
    
    $
    42,378
    
    
    $
    19,005
    
    
    $
    18,497
    
    
    $
    7,550
    
    
    $
    6,373
  11




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##### Table of Contents



Note 6. Long-term Debt
  September 30,
    
    
    December 31,
    
    
    September 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
    
    
    118,883
    
    
    
    117,788
    
    
    
    118,474Variable rate junior subordinated debenture due June 2033
    
    
    25,702
    
    
    
    25,628
    
    
    
    24,7387.50% junior subordinated debentures due September 2066
    
    
    145,749
    
    
    
    145,254
    
    
    
    8.60% junior subordinated debentures due December 2031
    
    
    
    
    
    
    51,546
    
    
    
    Subsidiaries:Federal Home Loan Bank advances
    
    
    2,167,469
    
    
    
    1,715,132
    
    
    
    874,430Other borrowed funds
    
    
    292,965
    
    
    
    583,616
    
    
    
    453Total long-term debt
    
    $
    2,800,768
    
    
    $
    2,638,964
    
    
    $
    1,018,095
  Note 7. Income Taxes
    Jurisdiction
    
    Tax YearsFederal
    
    
    2004  2006Indiana
    
    
    2003  2006Wisconsin
    
    
    1999  2006Iowa
    
    
    1999  2006
  12




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##### Table of Contents



Note 8. Accumulated Other Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Balance at beginning of period
    
    $
    (20,674
    )
    
    $
    (16,542
    )
    
    $
    (7,375
    )
    
    $
    454Net unrealized gain on securities for the quarter, net of tax effect of
$9,608 in 2007 and $8,398 in 2006, and net unrealized gain (loss) on
securities for the nine month period, net of tax effect of $2,749 in 2007
and $(735) in 2006
    
    
    17,842
    
    
    
    15,596
    
    
    
    5,104
    
    
    
    (1,367
    )Less: Reclassification adjustment for net (gains) losses on securities
included in net income for the quarter, net of tax effect of $(3) in 2007,
and included in net income for the nine month period, net of tax effect
of $9 in 2007 and $(22) in 2006.
    
    
    (5
    )
    
    
    
    
    
    
    16
    
    
    
    (39
    )Net change in unrealized loss on cash flow hedges for the quarter, net
of tax effect of $
(115) in 2007 and $(278) in 2006, and net change in
unrealized loss for the nine month period, net of tax effect of $(429) in
2007 and $(275) in 2006.
    
    
    (215
    )
    
    
    (517
    )
    
    
    (797
    )
    
    
    (511
    )Accumulated other comprehensive income, net of tax
    
    $
    (3,052
    )
    
    $
    (1,463
    )
    
    $
    (3,052
    )
    
    $
    (1,463
    )
 13




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##### Table of Contents



Note 9. Pension Benefit Cost
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Defined Benefit Pension PlansService cost
    
    $
    
    
    
    $
    768
    
    
    $
    
    
    
    $
    2,819Interest cost
    
    
    1,265
    
    
    
    930
    
    
    
    3,640
    
    
    
    3,407Expected return on plan assets
    
    
    (1,956
    )
    
    
    (1,890
    )
    
    
    (5,869
    )
    
    
    (5,669
    )Amortization of unrecognized:Prior service cost
    
    
    3
    
    
    
    48
    
    
    
    8
    
    
    
    142Net actuarial loss
    
    
    133
    
    
    
    194
    
    
    
    383
    
    
    
    721Net pension cost
    
    $
    (555
    )
    
    $
    50
    
    
    $
    (1,838
    )
    
    $
    1,420Supplemental Pension PlansService cost
    
    $
    
    
    
    $
    210
    
    
    $
    
    
    
    $
    631Interest cost
    
    
    192
    
    
    
    160
    
    
    
    577
    
    
    
    481Amortization of unrecognized:Prior service cost
    
    
    42
    
    
    
    
    
    
    
    126
    
    
    
    Net actuarial loss
    
    
    32
    
    
    
    35
    
    
    
    98
    
    
    
    104Net pension cost
    
    $
    266
    
    
    $
    405
    
    
    $
    801
    
    
    $
    1,216Postretirement Benefit PlansService cost
    
    $
    1
    
    
    $
    1
    
    
    $
    3
    
    
    $
    4Interest cost
    
    
    124
    
    
    
    55
    
    
    
    372
    
    
    
    392Expected return on plan assets
Amortization of unrecognized:Prior service cost
    
    
    (67
    )
    
    
    (68
    )
    
    
    (202
    )
    
    
    (203
    )Net actuarial loss
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (21
    )Net pension cost
    
    $
    58
    
    
    $
    (15
    )
    
    $
    173
    
    
    $
    172Defined contribution retirement and 401K PlansEmployer contributions
    
    $
    1,746
    
    
    $
    909
    
    
    $
    4,380
    
    
    $
    2,318Total periodic benefit cost
    
    $
    1,515
    
    
    $
    1,349
    
    
    $
    3,516
    
    
    $
    5,126
 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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Stock Option Compensation
    
    $
    9
    
    
    $
    8
    
    
    $
    26
    
    
    $
    43Restricted Stock Compensation
    
    
    967
    
    
    
    763
    
    
    
    2,401
    
    
    
    1,541Stock-based compensation expense before income taxes
    
    
    976
    
    
    
    771
    
    
    
    2,427
    
    
    
    1,584Income tax benefit
    
    
    (342
    )
    
    
    (270
    )
    
    
    (849
    )
    
    
    (554
    )Total stock-based compensation expense after income
taxes
    
    $
    634
    
    
    $
    501
    
    
    $
    1,578
    
    
    $
    1,030
   15




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##### Table of Contents



OptionsWeighted
    
    
    WeightedAverage
    
    
    Average
    
    
    (in thousands)Number of
    
    
    Exercise
    
    
    Remaining
    
    
    AggregateShares
    
    
    Price
    
    
    Contractual Term
    
    
    Intrinsic ValueOutstanding at December 31, 2006
    
    
    4,775,700
    
    
    $
    24.95Granted
    
    
    
    
    
    
    Exercised
    
    
    (382,816
    )
    
    
    13.71Forfeitures or Expirations
    
    
    (200,522
    )
    
    
    28.28Outstanding at September 30, 2007
    
    
    4,192,362
    
    
    $
    25.82
    
    
    4.2 yrs
    
    $
    1,435Exercisable
    
    
    4,184,717
    
    
    $
    25.81
    
    
    4.2 yrs
    
    $
    1,435
    Weighted-AverageNumber of
    
    
    Grant Date FairShares
    
    
    ValueOutstanding restricted stock at December 31, 2006
    
    
    293,087
    
    
    $
    25.13Granted
    
    
    294,449
    
    
    
    19.13Vested
    
    
    (88,542
    )
    
    
    24.81Forfeited
    
    
    (30,599
    )
    
    
    25.81Restricted stock at September 30, 2007
    
    
    468,395
    
    
    $
    21.35
  16




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##### Table of Contents



Note 11. Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands, except per share amounts)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Basic and dilutive earnings per share  net income
available to common shareholders
    
    $
    31,764
    
    
    $
    20,981
    
    
    $
    72,875
    
    
    $
    62,644Denominator:Basic earnings per share  weighted average shares
    
    
    75,353
    
    
    
    42,587
    
    
    
    75,391
    
    
    
    42,658Effect of dilutive securities  potential conversion
of employee stock options
    
    
    148
    
    
    
    122
    
    
    
    297
    
    
    
    137Diluted earnings per share  adjusted
weighted-average
shares and assumed conversions
    
    
    75,501
    
    
    
    42,709
    
    
    
    75,688
    
    
    
    42,795Basic earnings per share
    
    $
    0.42
    
    
    $
    0.49
    
    
    $
    0.97
    
    
    $
    1.47Diluted earnings per share
    
    $
    0.42
    
    
    $
    0.49
    
    
    $
    0.96
    
    
    $
    1.46
 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 September 30, 2007Net interest income (taxable equivalent)
    
    $
    47,837
    
    
    $
    49,116
    
    
    $
    209
    
    
    $
    2,331
    
    
    $
    99,493Provision for loan losses
    
    
    (2,934
    )
    
    
    6,730
    
    
    
    (31
    )
    
    
    
    
    
    
    3,765Net interest income after provision
    
    
    50,771
    
    
    
    42,386
    
    
    
    240
    
    
    
    2,331
    
    
    
    95,728Noninterest income
    
    
    4,550
    
    
    
    16,336
    
    
    
    7,029
    
    
    
    2,689
    
    
    
    30,604Noninterest expense
    
    
    22,892
    
    
    
    40,579
    
    
    
    5,453
    
    
    
    8,419
    
    
    
    77,343Income before income taxes
    
    
    32,429
    
    
    
    18,143
    
    
    
    1,816
    
    
    
    (3,399
    )
    
    
    48,989Income tax expense (taxable equivalent)
    
    
    10,560
    
    
    
    6,350
    
    
    
    635
    
    
    
    (320
    )
    
    
    17,225Net income
    
    $
    21,869
    
    
    $
    11,793
    
    
    $
    1,181
    
    
    $
    (3,079
    )
    
    $
    31,764Average assets(in millions)
    
    $
    5,072
    
    
    $
    1,847
    
    
    $
    27
    
    
    $
    6,219
    
    
    $
    13,165Earnings Summary  Three Months Ended September 30,
2006(1)Net interest income (taxable equivalent)
    
    $
    30,959
    
    
    $
    35,743
    
    
    $
    256
    
    
    $
    2,100
    
    
    $
    69,058Provision for loan losses
    
    
    (2,574
    )
    
    
    3,764
    
    
    
    
    
    
    
    
    
    
    
    1,190Net interest income after provision
    
    
    33,533
    
    
    
    31,979
    
    
    
    256
    
    
    
    2,100
    
    
    
    67,868Noninterest income
    
    
    3,738
    
    
    
    12,057
    
    
    
    6,438
    
    
    
    1,311
    
    
    
    23,544Noninterest expense
    
    
    18,466
    
    
    
    30,002
    
    
    
    5,559
    
    
    
    5,375
    
    
    
    59,402Income before income taxes
    
    
    18,805
    
    
    
    14,034
    
    
    
    1,135
    
    
    
    (1,964
    )
    
    
    32,010Income tax expense (taxable equivalent)
    
    
    6,619
    
    
    
    4,912
    
    
    
    397
    
    
    
    (899
    )
    
    
    11,029Net income
    
    $
    12,186
    
    
    $
    9,122
    
    
    $
    738
    
    
    $
    (1,065
    )
    
    $
    20,981Average assets(in millions)
    
    $
    3,115
    
    
    $
    1,096
    
    
    $
    27
    
    
    $
    3,485
    
    
    $
    7,723
 Line of Business Information
 Commercial
    
    
    Consumer
    
    
    Wealth(in thousands)
    
    Banking
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary  Nine Months Ended September 30, 2007Net interest income (taxable equivalent)
    
    $
    143,218
    
    
    $
    144,247
    
    
    $
    614
    
    
    $
    15,786
    
    
    $
    303,865Provision for loan losses
    
    
    25,553
    
    
    
    13,566
    
    
    
    3
    
    
    
    
    
    
    
    39,122Net interest income after provision
    
    
    117,665
    
    
    
    130,681
    
    
    
    611
    
    
    
    15,786
    
    
    
    264,743Noninterest income
    
    
    13,435
    
    
    
    51,833
    
    
    
    20,439
    
    
    
    7,565
    
    
    
    93,272Noninterest expense
    
    
    64,494
    
    
    
    129,589
    
    
    
    17,023
    
    
    
    37,437
    
    
    
    248,543Income before income taxes
    
    
    66,606
    
    
    
    52,925
    
    
    
    4,027
    
    
    
    (14,086
    )
    
    
    109,472Income tax expense (taxable equivalent)
    
    
    23,312
    
    
    
    18,524
    
    
    
    1,409
    
    
    
    (6,648
    )
    
    
    36,597Net income
    
    $
    43,294
    
    
    $
    34,401
    
    
    $
    2,618
    
    
    $
    (7,438
    )
    
    $
    72,875Average assets(in millions)
    
    $
    5,054
    
    
    $
    1,984
    
    
    $
    27
    
    
    $
    6,260
    
    
    $
    13,325Earnings Summary  Nine Months Ended September 30,
2006(1)Net interest income (taxable equivalent)
    
    $
    92,281
    
    
    $
    106,075
    
    
    $
    905
    
    
    $
    10,062
    
    
    $
    209,323Provision for loan losses
    
    
    (2,228
    )
    
    
    7,557
    
    
    
    
    
    
    
    
    
    
    
    5,329Net interest income after provision
    
    
    94,509
    
    
    
    98,518
    
    
    
    905
    
    
    
    10,062
    
    
    
    203,994Noninterest income
    
    
    11,256
    
    
    
    38,074
    
    
    
    19,512
    
    
    
    4,017
    
    
    
    72,859Noninterest expense
    
    
    54,321
    
    
    
    93,084
    
    
    
    16,852
    
    
    
    16,782
    
    
    
    181,039Income before income taxes
    
    
    51,444
    
    
    
    43,508
    
    
    
    3,565
    
    
    
    (2,703
    )
    
    
    95,814Income tax expense (taxable equivalent)
    
    
    18,116
    
    
    
    15,228
    
    
    
    1,248
    
    
    
    (1,422
    )
    
    
    33,170Net income
    
    $
    33,328
    
    
    $
    28,280
    
    
    $
    2,317
    
    
    $
    (1,281
    )
    
    $
    62,644Average assets(in millions)
    
    $
    3,057
    
    
    $
    1,047
    
    
    $
    28
    
    
    $
    3,550
    
    
    $
    7,682
 Note 13. Commitments, Contingent Liabilities and Guarantees
  18




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##### Table of Contents



September 30,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Loan commitments and letters of credit:Commitments to extend credit
    
    $
    2,574,520
    
    
    $
    2,559,121Financial standby letters of credit
    
    
    112,396
    
    
    
    146,863Performance standby letters of credit
    
    
    26,630
    
    
    
    24,609Commercial letters of credit
    
    
    260,885
    
    
    
    194,834Total loan commitments and letters of credit
    
    $
    2,974,431
    
    
    $
    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:
 September 30, 2007
    
    
    December 31, 2006Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueReceive fixed swaps
    
    $
    235,000
    
    
    $
    223
    
    
    $
    268,300
    
    
    $
    (1,839
    )Pay fixed swaps
    
    
    24,000
    
    
    
    14
    
    
    
    104,000
    
    
    
    1,242Customer initiated swaps and corresponding offsets
    
    
    505,332
    
    
    
    
    
    
    
    378,590
    
    
    
    Interest rate lock commitments
    
    
    36,102
    
    
    
    (21
    )
    
    
    29,875
    
    
    
    (11
    )Forward mortgage loan contracts
    
    
    75,220
    
    
    
    (162
    )
    
    
    78,498
    
    
    
    257Total
    
    $
    875,654
    
    
    $
    54
    
    
    $
    859,263
    
    
    $
    (351
    )
 Derivative Classifications and Hedging Relationships:
 September 30, 2007
    
    
    December 31, 2006Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueDerivatives Designated as Cash Flow Hedges:Hedging repurchase agreements
    
    $
    24,000
    
    
    $
    14
    
    
    $
    104,000
    
    
    $
    1,242Derivatives Designated as Fair Value Hedges:Hedging time deposits
    
    
    85,000
    
    
    
    192
    
    
    
    95,000
    
    
    
    47Hedging long-term debt
    
    
    150,000
    
    
    
    31
    
    
    
    100,000
    
    
    
    (390
    )Derivatives Not Designated as Hedges:Receive fixed swaps
    
    
    
    
    
    
    
    
    
    
    73,300
    
    
    
    (1,496
    )Customer initiated swaps and corresponding offsets
    
    
    505,332
    
    
    
    
    
    
    
    378,590
    
    
    
    Total
    
    $
    764,332
    
    
    $
    237
    
    
    $
    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 EndedSeptember 30,
    
    June 30,
    
    March 31,
    
    December 31,
    
    September 30,2007
    
    2007
    
    2007
    
    2006
    
    2006Summary of Operations (thousands)Net interest income
    
    $
    94,873
    
    
    $
    96,777
    
    
    $
    98,341
    
    
    $
    64,010
    
    
    $
    65,645Provision for loan losses
    
    
    3,765
    
    
    
    31,857
    
    
    
    3,500
    
    
    
    5,936
    
    
    
    1,190Total fees and other income
    
    
    30,596
    
    
    
    31,278
    
    
    
    31,423
    
    
    
    24,931
    
    
    
    23,544Investment securities gains (losses) (1)
    
    
    8
    
    
    
    
    
    
    
    (33
    )
    
    
    (7,163
    )
    
    
    Noninterest expense (2)
    
    
    77,343
    
    
    
    87,490
    
    
    
    83,710
    
    
    
    78,788
    
    
    
    59,402Income tax provision
    
    
    12,605
    
    
    
    (911
    )
    
    
    11,029
    
    
    
    (3,638
    )
    
    
    7,616Net income
    
    
    31,764
    
    
    
    9,619
    
    
    
    31,492
    
    
    
    692
    
    
    
    20,981Taxable equivalent adjustment
    
    
    4,620
    
    
    
    4,629
    
    
    
    4,625
    
    
    
    3,505
    
    
    
    3,413Cash dividends
    
    
    21,934
    
    
    
    21,960
    
    
    
    21,964
    
    
    
    12,443
    
    
    
    12,435Per Common Share DataBasic net income
    
    $
    0.42
    
    
    $
    0.13
    
    
    $
    0.42
    
    
    $
    0.02
    
    
    $
    0.49Diluted net income
    
    
    0.42
    
    
    
    0.13
    
    
    
    0.41
    
    
    
    0.02
    
    
    
    0.49Cash dividends
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290
    
    
    
    0.290Market value (end of period)
    
    
    16.11
    
    
    
    18.30
    
    
    
    22.16
    
    
    
    26.50
    
    
    
    26.26Book value (end of period)
    
    
    20.65
    
    
    
    20.28
    
    
    
    20.78
    
    
    
    20.58
    
    
    
    15.72At Period End (millions)Assets
    
    $
    13,223
    
    
    $
    13,247
    
    
    $
    13,317
    
    
    $
    14,003
    
    
    $
    7,748Portfolio loans
    
    
    9,219
    
    
    
    9,216
    
    
    
    9,178
    
    
    
    9,231
    
    
    
    5,753Deposits
    
    
    7,942
    
    
    
    8,082
    
    
    
    8,461
    
    
    
    8,698
    
    
    
    5,625Shareholders equity
    
    
    1,562
    
    
    
    1,534
    
    
    
    1,572
    
    
    
    1,558
    
    
    
    674Average for the Quarter (millions)Assets
    
    $
    13,165
    
    
    $
    13,241
    
    
    $
    13,574
    
    
    $
    7,770
    
    
    $
    7,723Portfolio loans
    
    
    9,163
    
    
    
    9,170
    
    
    
    9,179
    
    
    
    5,762
    
    
    
    5,694Deposits
    
    
    8,049
    
    
    
    8,157
    
    
    
    8,525
    
    
    
    5,597
    
    
    
    5,680Shareholders equity
    
    
    1,536
    
    
    
    1,551
    
    
    
    1,552
    
    
    
    683
    
    
    
    659Ratios (annualized)Return on average assets
    
    
    0.96
    %
    
    
    0.29
    %
    
    
    0.94
    %
    
    
    0.04
    %
    
    
    1.08
    %Return on average shareholders equity
    
    
    8.20
    
    
    
    2.49
    
    
    
    8.23
    
    
    
    0.40
    
    
    
    12.63Average equity to average assets
    
    
    11.67
    
    
    
    11.72
    
    
    
    11.43
    
    
    
    8.79
    
    
    
    8.53Net interest margin (FTE) (3)
    
    
    3.39
    
    
    
    3.44
    
    
    
    3.44
    
    
    
    3.67
    
    
    
    3.78Efficiency ratio (4)
    
    
    59.45
    
    
    
    65.94
    
    
    
    62.29
    
    
    
    85.23
    
    
    
    64.15Net loans charged off to average portfolio loans
    
    
    0.34
    
    
    
    0.87
    
    
    
    0.15
    
    
    
    0.52
    
    
    
    0.19Allowance for loan losses to portfolio loans
    
    
    1.92
    
    
    
    1.97
    
    
    
    1.84
    
    
    
    1.83
    
    
    
    1.97Nonperforming assets to portfolio loans plus ORAA (end of period)
    
    
    2.06
    
    
    
    1.58
    
    
    
    1.25
    
    
    
    1.10
    
    
    
    0.69Nonperforming assets to total assets (end of period)
    
    
    1.44
    
    
    
    1.10
    
    
    
    0.86
    
    
    
    0.73
    
    
    
    0.52Leverage ratio (5)
    
    
    7.49
    
    
    
    7.33
    
    
    
    7.64
    
    
    
    7.22
    
    
    
    8.29Tier 1 capital ratio
    
    
    9.28
    
    
    
    9.09
    
    
    
    9.89
    
    
    
    9.41
    
    
    
    10.13Total capital ratio
    
    
    11.78
    
    
    
    11.59
    
    
    
    12.42
    
    
    
    11.90
    
    
    
    13.37
 (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 $1.0 million during the third quarter of 2007, $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 29, 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 and residential 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.
 22




---



##### Table of Contents




    
    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.
    
    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 September 30,
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    2,822
    
    
    $
    53
    
    
    
    7.44
    %
    
    $
    2,048
    
    
    $
    21
    
    
    
    4.08
    %Investment securities (3):Taxable
    
    
    1,650,012
    
    
    
    21,238
    
    
    
    5.15
    
    
    
    1,059,177
    
    
    
    11,960
    
    
    
    4.52Tax-exempt
    
    
    672,679
    
    
    
    7,310
    
    
    
    6.69
    
    
    
    449,364
    
    
    
    5,278
    
    
    
    7.23FHLB and Federal Reserve stock
    
    
    139,504
    
    
    
    1,603
    
    
    
    4.56
    
    
    
    56,782
    
    
    
    614
    
    
    
    4.30Portfolio Loans (4):Commercial
    
    
    2,135,927
    
    
    
    38,704
    
    
    
    7.31
    
    
    
    1,740,592
    
    
    
    32,523
    
    
    
    7.54Commercial real estate
    
    
    3,084,792
    
    
    
    60,203
    
    
    
    7.75
    
    
    
    1,458,104
    
    
    
    26,674
    
    
    
    7.26Residential mortgage
    
    
    1,472,544
    
    
    
    24,276
    
    
    
    6.59
    
    
    
    545,907
    
    
    
    7,852
    
    
    
    5.75Direct consumer
    
    
    1,617,340
    
    
    
    32,110
    
    
    
    7.88
    
    
    
    1,093,724
    
    
    
    21,213
    
    
    
    7.69Indirect consumer
    
    
    852,885
    
    
    
    14,511
    
    
    
    6.75
    
    
    
    855,229
    
    
    
    14,356
    
    
    
    6.66Total portfolio loans
    
    
    9,163,488
    
    
    
    169,804
    
    
    
    7.39
    
    
    
    5,693,556
    
    
    
    102,618
    
    
    
    7.20Loans held for sale
    
    
    79,333
    
    
    
    1,846
    
    
    
    9.18
    
    
    
    16,743
    
    
    
    253
    
    
    
    6.04Total earning assets (3)
    
    
    11,707,838
    
    
    
    201,854
    
    
    
    7.01
    
    
    
    7,277,670
    
    
    
    120,744
    
    
    
    6.78Nonearning AssetsCash and due from banks
    
    
    209,278
    
    
    
    
    
    
    
    
    
    
    
    165,403Bank premises and equipment
    
    
    132,459
    
    
    
    
    
    
    
    
    
    
    
    119,246Investment security fair value adjustment
    
    
    (5,393
    )
    
    
    
    
    
    
    
    
    
    
    (12,203
    )Other nonearning assets
    
    
    1,301,482
    
    
    
    
    
    
    
    
    
    
    
    287,431Allowance for loan losses
    
    
    (180,394
    )
    
    
    
    
    
    
    
    
    
    
    (114,302
    )Total assets
    
    $
    13,165,270
    
    
    
    
    
    
    
    
    
    
    $
    7,723,245Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    $
    811,955
    
    
    $
    1,325
    
    
    
    0.65
    %
    
    $
    753,412
    
    
    $
    1,219
    
    
    
    0.64
    %Savings deposits
    
    
    2,165,386
    
    
    
    16,384
    
    
    
    3.00
    
    
    
    1,511,956
    
    
    
    10,724
    
    
    
    2.81Time deposits
    
    
    3,928,215
    
    
    
    46,671
    
    
    
    4.71
    
    
    
    2,489,653
    
    
    
    28,061
    
    
    
    4.47Short-term borrowings
    
    
    465,980
    
    
    
    5,439
    
    
    
    4.63
    
    
    
    321,140
    
    
    
    3,596
    
    
    
    4.44Long-term debt
    
    
    2,982,035
    
    
    
    37,162
    
    
    
    4.95
    
    
    
    979,522
    
    
    
    11,499
    
    
    
    4.67Total interest-bearing liabilities
    
    
    10,353,571
    
    
    
    106,981
    
    
    
    4.10
    
    
    
    6,055,683
    
    
    
    55,099
    
    
    
    3.61Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,143,917
    
    
    
    
    
    
    
    
    
    
    
    925,004Other liabilities
    
    
    131,837
    
    
    
    
    
    
    
    
    
    
    
    83,749Shareholders equity
    
    
    1,535,945
    
    
    
    
    
    
    
    
    
    
    
    658,809Total liabilities and shareholders equity
    
    $
    13,165,270
    
    
    
    
    
    
    
    
    
    
    $
    7,723,245Net Interest Income
    
    
    
    
    
    $
    94,873
    
    
    
    
    
    
    
    
    
    
    $
    65,645Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.91
    %
    
    
    
    
    
    
    
    
    
    
    3.17
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.48
    
    
    
    
    
    
    
    
    
    
    
    0.61Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    3.78
    %
 
 (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 September 30, 2007
and 2006, respectively, based on a 35% tax rate.(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
    
    
    2006Nine Months Ended September 30,
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    2,150
    
    
    $
    89
    
    
    
    5.53
    %
    
    $
    1,703
    
    
    $
    34
    
    
    
    2.69
    %Investment securities (3):Taxable
    
    
    1,770,676
    
    
    
    67,337
    
    
    
    5.07
    
    
    
    1,095,624
    
    
    
    37,267
    
    
    
    4.54Tax-exempt
    
    
    670,504
    
    
    
    21,947
    
    
    
    6.71
    
    
    
    447,842
    
    
    
    15,854
    
    
    
    7.26FHLB and Federal Reserve stock
    
    
    135,122
    
    
    
    4,736
    
    
    
    4.68
    
    
    
    56,235
    
    
    
    1,981
    
    
    
    4.71Portfolio Loans (4):Commercial
    
    
    2,055,575
    
    
    
    113,988
    
    
    
    7.54
    
    
    
    1,697,656
    
    
    
    90,834
    
    
    
    7.28Commercial real estate
    
    
    3,112,813
    
    
    
    179,722
    
    
    
    7.72
    
    
    
    1,433,563
    
    
    
    75,996
    
    
    
    7.09Residential mortgage loans
    
    
    1,504,709
    
    
    
    74,947
    
    
    
    6.64
    
    
    
    544,065
    
    
    
    23,354
    
    
    
    5.72Direct consumer
    
    
    1,656,050
    
    
    
    97,239
    
    
    
    7.85
    
    
    
    1,106,930
    
    
    
    61,825
    
    
    
    7.47Indirect consumer
    
    
    841,640
    
    
    
    42,400
    
    
    
    6.74
    
    
    
    839,972
    
    
    
    41,621
    
    
    
    6.62Total portfolio loans
    
    
    9,170,787
    
    
    
    508,296
    
    
    
    7.44
    
    
    
    5,622,186
    
    
    
    293,630
    
    
    
    7.02Loans held for sale
    
    
    105,815
    
    
    
    6,518
    
    
    
    8.17
    
    
    
    18,191
    
    
    
    785
    
    
    
    5.75Total earning assets (3)
    
    
    11,855,054
    
    
    
    608,923
    
    
    
    7.02
    
    
    
    7,241,781
    
    
    
    349,551
    
    
    
    6.64Nonearning AssetsCash and due from banks
    
    
    195,503
    
    
    
    
    
    
    
    
    
    
    
    162,992Bank premises and equipment
    
    
    137,428
    
    
    
    
    
    
    
    
    
    
    
    120,407Investment security fair value adjustment
    
    
    (677
    )
    
    
    
    
    
    
    
    
    
    
    (11,377
    )Other nonearning assets
    
    
    1,310,611
    
    
    
    
    
    
    
    
    
    
    
    283,619Allowance for loan losses
    
    
    (172,711
    )
    
    
    
    
    
    
    
    
    
    
    (115,235
    )Total assets
    
    $
    13,325,208
    
    
    
    
    
    
    
    
    
    
    $
    7,682,187Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    $
    851,704
    
    
    $
    4,389
    
    
    
    0.69
    %
    
    $
    799,570
    
    
    $
    3,854
    
    
    
    0.64
    %Savings deposits
    
    
    2,202,134
    
    
    
    48,827
    
    
    
    2.96
    
    
    
    1,477,773
    
    
    
    28,154
    
    
    
    2.55Time deposits
    
    
    4,046,052
    
    
    
    141,799
    
    
    
    4.69
    
    
    
    2,386,736
    
    
    
    74,293
    
    
    
    4.16Short-term borrowings
    
    
    702,992
    
    
    
    25,504
    
    
    
    4.85
    
    
    
    399,412
    
    
    
    12,727
    
    
    
    4.26Long-term debt
    
    
    2,676,820
    
    
    
    98,413
    
    
    
    4.91
    
    
    
    958,992
    
    
    
    31,413
    
    
    
    4.38Total interest-bearing liabilities
    
    
    10,479,702
    
    
    
    318,932
    
    
    
    4.07
    
    
    
    6,022,483
    
    
    
    150,441
    
    
    
    3.34Noninterest-Bearing Liabilities and
Shareholders EquityNoninterest-bearing demand
    
    
    1,142,272
    
    
    
    
    
    
    
    
    
    
    
    920,992Other liabilities
    
    
    156,845
    
    
    
    
    
    
    
    
    
    
    
    85,182Shareholders equity
    
    
    1,546,389
    
    
    
    
    
    
    
    
    
    
    
    653,530Total liabilities and shareholders equity
    
    $
    13,325,208
    
    
    
    
    
    
    
    
    
    
    $
    7,682,187Net Interest Income
    
    
    
    
    
    $
    289,991
    
    
    
    
    
    
    
    
    
    
    $
    199,110Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.95
    %
    
    
    
    
    
    
    
    
    
    
    3.30
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.47
    
    
    
    
    
    
    
    
    
    
    
    0.56Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.42
    %
    
    
    
    
    
    
    
    
    
    
    3.86
    %
 
 (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 $13.9 million and
$10.2 million for the nine months ended September 30, 2007
and 2006,
respectively, based on a 35% tax rate.(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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28




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##### Table of Contents



Analysis of Changes in Interest Income and Interest Expense
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Increase (Decrease)
    
    
    
    
    
    
    Increase (Decrease)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
    
    $
    32
    
    
    $
    22
    
    
    $
    10
    
    
    $
    55
    
    
    $
    44
    
    
    $
    11Investment securities:Taxable
    
    
    9,278
    
    
    
    1,860
    
    
    
    7,418
    
    
    
    30,070
    
    
    
    4,834
    
    
    
    25,236Tax-exempt
    
    
    2,032
    
    
    
    (420
    )
    
    
    2,452
    
    
    
    6,093
    
    
    
    (1,273
    )
    
    
    7,366FHLB and Federal Reserve stock
    
    
    989
    
    
    
    41
    
    
    
    948
    
    
    
    2,755
    
    
    
    (10
    )
    
    
    2,765Loans:Commercial
    
    
    6,181
    
    
    
    (1,009
    )
    
    
    7,190
    
    
    
    23,154
    
    
    
    3,409
    
    
    
    19,745Commercial real estate
    
    
    33,529
    
    
    
    1,895
    
    
    
    31,634
    
    
    
    103,726
    
    
    
    7,333
    
    
    
    96,393Residential mortgage loans
    
    
    16,424
    
    
    
    1,302
    
    
    
    15,122
    
    
    
    51,593
    
    
    
    4,295
    
    
    
    47,298Direct consumer
    
    
    10,897
    
    
    
    513
    
    
    
    10,384
    
    
    
    35,414
    
    
    
    3,318
    
    
    
    32,096Indirect consumer
    
    
    155
    
    
    
    194
    
    
    
    (39
    )
    
    
    779
    
    
    
    696
    
    
    
    83Total portfolio loans
    
    
    67,186
    
    
    
    2,895
    
    
    
    64,291
    
    
    
    214,666
    
    
    
    19,051
    
    
    
    195,615Loans held for sale
    
    
    1,593
    
    
    
    201
    
    
    
    1,392
    
    
    
    5,733
    
    
    
    467
    
    
    
    5,266Total
    
    
    81,110
    
    
    
    4,599
    
    
    
    76,511
    
    
    
    259,372
    
    
    
    23,113
    
    
    
    236,259Interest Expense:Deposits:Interest-bearing demand
    
    
    106
    
    
    
    11
    
    
    
    95
    
    
    
    535
    
    
    
    275
    
    
    
    260Savings
    
    
    5,660
    
    
    
    757
    
    
    
    4,903
    
    
    
    20,673
    
    
    
    5,178
    
    
    
    15,495Time
    
    
    18,610
    
    
    
    1,594
    
    
    
    17,016
    
    
    
    67,506
    
    
    
    10,350
    
    
    
    57,156Short-term borrowings
    
    
    1,843
    
    
    
    158
    
    
    
    1,685
    
    
    
    12,777
    
    
    
    1,970
    
    
    
    10,807Long-term debt
    
    
    25,663
    
    
    
    750
    
    
    
    24,913
    
    
    
    67,000
    
    
    
    4,285
    
    
    
    62,715Total
    
    
    51,882
    
    
    
    3,270
    
    
    
    48,612
    
    
    
    168,491
    
    
    
    22,058
    
    
    
    146,433Net Interest Income
    
    $
    29,228
    
    
    $
    1,329
    
    
    $
    27,899
    
    
    $
    90,881
    
    
    $
    1,055
    
    
    $
    89,826
 
 (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
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Change in 2007
    
    
    September 30,
    
    
    Change in 2007(dollars in thousands)
    
    2007
    
    
    2006
    
    
    Amount
    
    
    Percent
    
    
    2007
    
    
    2006
    
    
    Amount
    
    
    PercentService charges on deposit accounts
    
    $
    12,515
    
    
    $
    9,674
    
    
    $
    2,841
    
    
    
    29.4
    %
    
    $
    35,701
    
    
    $
    28,070
    
    
    $
    7,631
    
    
    
    27.2
    %Trust fees
    
    
    4,973
    
    
    
    4,633
    
    
    
    340
    
    
    
    7.3
    
    
    
    14,931
    
    
    
    14,647
    
    
    
    284
    
    
    
    1.9Mortgage and other loan income
    
    
    2,939
    
    
    
    2,267
    
    
    
    672
    
    
    
    29.6
    
    
    
    13,334
    
    
    
    6,383
    
    
    
    6,951
    
    
    
    108.9Brokerage and investment fees
    
    
    2,141
    
    
    
    1,885
    
    
    
    256
    
    
    
    13.6
    
    
    
    5,872
    
    
    
    5,103
    
    
    
    769
    
    
    
    15.1ATM network user fees
    
    
    1,601
    
    
    
    988
    
    
    
    613
    
    
    
    62.1
    
    
    
    4,820
    
    
    
    2,993
    
    
    
    1,827
    
    
    
    61.0Bankcard fees
    
    
    1,695
    
    
    
    1,213
    
    
    
    482
    
    
    
    39.7
    
    
    
    4,318
    
    
    
    3,399
    
    
    
    919
    
    
    
    27.0Other income
    
    
    4,732
    
    
    
    2,884
    
    
    
    1,848
    
    
    
    64.1
    
    
    
    14,321
    
    
    
    12,203
    
    
    
    2,118
    
    
    
    17.4Total fees and other income
    
    
    30,596
    
    
    
    23,544
    
    
    
    7,052
    
    
    
    30.0
    
    
    
    93,297
    
    
    
    72,798
    
    
    
    20,499
    
    
    
    28.2Investment securities gains
    
    
    8
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    (25
    )
    
    
    61
    
    
    
    (86
    )
    
    
    (140.4
    )Total noninterest income
    
    $
    30,604
    
    
    $
    23,544
    
    
    $
    7,060
    
    
    
    30.0
    
    
    $
    93,272
    
    
    $
    72,859
    
    
    $
    20,413
    
    
    
    28.0
        30




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##### Table of Contents



Noninterest Expense
   Noninterest Expense
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Change in 2007
    
    
    September 30,
    
    
    Change in 2007(dollars in thousands)
    
    2007
    
    
    2006
    
    
    Amount
    
    
    Percent
    
    
    2007
    
    
    2006
    
    
    Amount
    
    
    PercentSalaries and employee benefits
    
    $
    42,115
    
    
    $
    32,569
    
    
    $
    9,546
    
    
    
    29.3
    %
    
    $
    132,251
    
    
    $
    97,515
    
    
    $
    34,736
    
    
    
    35.6
    %Occupancy
    
    
    7,377
    
    
    
    5,604
    
    
    
    1,773
    
    
    
    31.6
    
    
    
    23,363
    
    
    
    16,837
    
    
    
    6,526
    
    
    
    38.8Professional services
    
    
    5,096
    
    
    
    3,486
    
    
    
    1,610
    
    
    
    46.2
    
    
    
    13,599
    
    
    
    11,267
    
    
    
    2,332
    
    
    
    20.7Equipment
    
    
    3,227
    
    
    
    3,191
    
    
    
    36
    
    
    
    1.1
    
    
    
    10,793
    
    
    
    9,658
    
    
    
    1,135
    
    
    
    11.8Data processing services
    
    
    3,724
    
    
    
    3,779
    
    
    
    (55
    )
    
    
    (1.4
    )
    
    
    12,360
    
    
    
    11,232
    
    
    
    1,128
    
    
    
    10.0Advertising and public relations
    
    
    1,003
    
    
    
    1,211
    
    
    
    (208
    )
    
    
    (17.2
    )
    
    
    6,070
    
    
    
    4,179
    
    
    
    1,891
    
    
    
    45.2Postage and delivery
    
    
    1,777
    
    
    
    1,559
    
    
    
    218
    
    
    
    14.1
    
    
    
    5,937
    
    
    
    4,650
    
    
    
    1,287
    
    
    
    27.7Telephone
    
    
    2,155
    
    
    
    1,394
    
    
    
    761
    
    
    
    54.5
    
    
    
    5,937
    
    
    
    4,250
    
    
    
    1,687
    
    
    
    39.7Other loan expenses
    
    
    1,245
    
    
    
    1,407
    
    
    
    (162
    )
    
    
    (11.5
    )
    
    
    3,237
    
    
    
    3,040
    
    
    
    197
    
    
    
    6.5Stationery and supplies
    
    
    466
    
    
    
    653
    
    
    
    (187
    )
    
    
    (28.7
    )
    
    
    2,111
    
    
    
    2,011
    
    
    
    100
    
    
    
    4.9Intangible asset amortization
    
    
    2,803
    
    
    
    725
    
    
    
    2,078
    
    
    
    286.6
    
    
    
    8,875
    
    
    
    2,174
    
    
    
    6,701
    
    
    
    308.2Restructuring and merger-related expenses
    
    
    1,009
    
    
    
    
    
    
    
    1,009
    
    
    
    
    
    
    
    8,603
    
    
    
    
    
    
    
    8,603
    
    
    
    Other expenses
    
    
    5,346
    
    
    
    3,824
    
    
    
    1,522
    
    
    
    39.8
    
    
    
    15,407
    
    
    
    14,226
    
    
    
    1,181
    
    
    
    8.3Total noninterest expense
    
    $
    77,343
    
    
    $
    59,402
    
    
    $
    17,941
    
    
    
    30.2
    
    
    $
    248,543
    
    
    $
    181,039
    
    
    $
    67,504
    
    
    
    37.3
      31




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##### Table of Contents



Income Taxes
   Lines of Business Results
  32




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Commercial Banking
    
    $
    21,869
    
    
    $
    12,186
    
    
    $
    43,294
    
    
    $
    33,328Consumer Banking
    
    
    11,793
    
    
    
    9,122
    
    
    
    34,401
    
    
    
    28,280Wealth Management
    
    
    1,181
    
    
    
    738
    
    
    
    2,618
    
    
    
    2,317Other
    
    
    (3,079
    )
    
    
    (1,065
    )
    
    
    (7,438
    )
    
    
    (1,281
    )Net Income
    
    $
    31,764
    
    
    $
    20,981
    
    
    $
    72,875
    
    
    $
    62,644
 Commercial Banking
  Consumer Banking
  Wealth Management
  33




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##### Table of Contents



Other
  Financial Condition
  Investment Securities
  Portfolio Loans
   34




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##### Table of Contents



Commercial Loan Portfolio
 Sept 30,
    
    
    Dec 31,
    
    
    Sept 30,in millions
    
    2007
    
    
    2006
    
    
    2006*Land Hold
    
    $
    78.9
    
    
    $
    102.4
    
    
    $
    22.1Land Development
    
    
    161.0
    
    
    
    203.6
    
    
    
    65.7Construction
    
    
    376.3
    
    
    
    445.5
    
    
    
    135.3Income Producing
    
    
    1,338.8
    
    
    
    1,237.1
    
    
    
    501.4Owner-Occupied
    
    
    1,113.5
    
    
    
    1,132.0
    
    
    
    744.5Total Commercial Real Estate
    
    
    3,068.5
    
    
    
    3,120.6
    
    
    
    1,469.0Commercial and Industrial
    
    
    2,236.2
    
    
    
    2,004.9
    
    
    
    1,788.9Total Commercial Loans
    
    $
    5,304.7
    
    
    $
    5,125.5
    
    
    $
    3,257.9
 
 *
    
    Legacy Citizens only      35




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##### Table of Contents



Nonperforming Assets
  Nonperforming Assets
 September 30,
    
    
    December 31,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2006Nonperforming LoansCommercial
    
    $
    9,386
    
    
    $
    7,709
    
    
    $
    8,440Commercial real estate
    
    
    97,557
    
    
    
    14,915
    
    
    
    7,835Total commercial
    
    
    106,943
    
    
    
    22,624
    
    
    
    16,275Residential mortgage
    
    
    32,824
    
    
    
    28,428
    
    
    
    10,536Direct consumer
    
    
    10,926
    
    
    
    6,030
    
    
    
    3,972Indirect consumer
    
    
    1,806
    
    
    
    810
    
    
    
    781Total consumer
    
    
    12,732
    
    
    
    6,840
    
    
    
    4,753Total nonaccrual loans
    
    
    152,499
    
    
    
    57,892
    
    
    
    31,564Loans 90 days past due and still accruing
    
    
    1,923
    
    
    
    767
    
    
    
    303Restructured loans
    
    
    332
    
    
    
    378
    
    
    
    391Total nonperforming portfolio loans
    
    
    154,754
    
    
    
    59,037
    
    
    
    32,258Nonperforming held for sale
    
    
    5,846
    
    
    
    22,846
    
    
    
    Other Repossessed Assets Acquired (ORAA)
    
    
    30,395
    
    
    
    20,165
    
    
    
    7,767Total nonperforming assets
    
    $
    190,995
    
    
    $
    102,048
    
    
    $
    40,025Nonperforming assets as a percent of portfolio loans plus ORAA (1)
    
    
    2.06
    %
    
    
    1.10
    %
    
    
    0.69
    %Nonperforming assets as a percent of total assets
    
    
    1.44
    
    
    
    0.73
    
    
    
    0.52Allowance for loan loss as a percent of nonperforming loans
    
    
    114.35
    
    
    
    286.44
    
    
    
    350.54Allowance for loan loss as a percent of nonperforming assets
    
    
    92.65
    
    
    
    165.71
    
    
    
    282.51
 
 (1)
    
    Portfolio loans exclude mortgage loans held for sale.  36




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##### Table of Contents



Nonperforming Assets
 September 30, 2007
    
    
    December 31, 2006
    
    
    September 30, 2006*% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    3.0
    
    
    
    3.80
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %Land Development
    
    
    40.4
    
    
    
    25.09
    
    
    
    1.6
    
    
    
    0.79
    
    
    $
    1.5
    
    
    
    2.28Construction
    
    
    18.6
    
    
    
    4.94
    
    
    
    5.3
    
    
    
    1.19
    
    
    
    
    
    
    
    Income Producing
    
    
    26.5
    
    
    
    1.98
    
    
    
    0.5
    
    
    
    0.04
    
    
    
    1.2
    
    
    
    0.24Owner-Occupied
    
    
    9.0
    
    
    
    0.81
    
    
    
    7.5
    
    
    
    0.66
    
    
    
    5.2
    
    
    
    0.70Total Commercial Real Estate
    
    
    97.5
    
    
    
    3.18
    
    
    
    14.9
    
    
    
    0.48
    
    
    
    7.9
    
    
    
    0.54Commercial and Industrial
    
    
    9.4
    
    
    
    0.42
    
    
    
    7.7
    
    
    
    0.38
    
    
    
    8.4
    
    
    
    0.47Total Commercial Loans
    
    $
    106.9
    
    
    
    2.02
    %
    
    $
    22.6
    
    
    
    0.44
    %
    
    $
    16.3
    
    
    
    0.50
    %
 
 *
    
    Legacy Citizens only    Commercial Watchlist
 Accruing loans onlySeptember 30, 2007
    
    
    December 31, 2006
    
    
    September 30, 2006*% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    27.0
    
    
    
    34.22
    %
    
    $
    13.8
    
    
    
    13.48
    %
    
    $
    4.3
    
    
    
    19.46
    %Land Development
    
    
    52.3
    
    
    
    32.48
    
    
    
    50.3
    
    
    
    24.71
    
    
    
    1.7
    
    
    
    2.59Construction
    
    
    91.7
    
    
    
    24.37
    
    
    
    57.0
    
    
    
    12.79
    
    
    
    5.0
    
    
    
    3.70Income Producing
    
    
    173.8
    
    
    
    12.98
    
    
    
    143.0
    
    
    
    11.56
    
    
    
    44.2
    
    
    
    8.82Owner-Occupied
    
    
    213.0
    
    
    
    19.13
    
    
    
    202.9
    
    
    
    17.92
    
    
    
    107.8
    
    
    
    14.48Total Commercial Real Estate
    
    
    557.8
    
    
    
    18.18
    
    
    
    467.0
    
    
    
    14.97
    
    
    
    163.0
    
    
    
    11.10Commercial and Industrial
    
    
    362.4
    
    
    
    16.21
    
    
    
    319.5
    
    
    
    15.94
    
    
    
    226.2
    
    
    
    12.64Total Watchlist Loans
    
    $
    920.2
    
    
    
    17.35
    %
    
    $
    786.5
    
    
    
    15.34
    %
    
    $
    389.2
    
    
    
    11.95
    %
 
 *
    
    Legacy Citizens only  37




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##### Table of Contents



Delinquency Rates By Loan Portfolio
 30 to 89 days Past DueSeptember 30, 2007
    
    
    December 31, 2006
    
    
    September 30, 2006*% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    $
    
    
    Portfolio
    
    
    $
    
    
    Portfolio
    
    
    $
    
    
    PortfolioLand Hold
    
    $
    4.2
    
    
    
    5.32
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %Land Development
    
    
    18.4
    
    
    
    11.43
    
    
    
    1.1
    
    
    
    0.54
    
    
    
    1.6
    
    
    
    2.44Construction
    
    
    17.6
    
    
    
    4.68
    
    
    
    11.4
    
    
    
    2.56
    
    
    
    3.5
    
    
    
    2.59Income Producing
    
    
    31.2
    
    
    
    2.33
    
    
    
    6.4
    
    
    
    0.52
    
    
    
    2.6
    
    
    
    0.52Owner-Occupied
    
    
    10.8
    
    
    
    0.97
    
    
    
    12.5
    
    
    
    1.10
    
    
    
    12.0
    
    
    
    1.61Total Commercial Real Estate
    
    
    82.2
    
    
    
    2.68
    
    
    
    31.4
    
    
    
    1.01
    
    
    
    19.7
    
    
    
    1.34Commercial and Industrial
    
    
    22.0
    
    
    
    0.98
    
    
    
    16.8
    
    
    
    0.84
    
    
    
    23.7
    
    
    
    1.32Total Commercial Loans
    
    
    104.2
    
    
    
    1.96
    
    
    
    48.2
    
    
    
    0.94
    
    
    
    43.4
    
    
    
    1.33Residential Mortgage
    
    
    37.7
    
    
    
    2.58
    
    
    
    37.2
    
    
    
    2.41
    
    
    
    9.0
    
    
    
    1.65Direct Consumer
    
    
    21.5
    
    
    
    1.34
    
    
    
    22.4
    
    
    
    1.30
    
    
    
    10.3
    
    
    
    0.94Indirect Consumer
    
    
    14.7
    
    
    
    1.73
    
    
    
    14.8
    
    
    
    1.76
    
    
    
    12.7
    
    
    
    1.48Total Delinquent Loans
    
    $
    178.1
    
    
    
    1.93
    %
    
    $
    122.6
    
    
    
    1.33
    %
    
    $
    75.4
    
    
    
    1.31
    %
 
 *
    
    Legacy Citizens only  Provision and Allowance for Loan Losses
 Analysis of Allowance for Loan Losses
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Allowance for loan losses  beginning of period
    
    $
    181,118
    
    
    $
    114,560
    
    
    $
    169,104
    
    
    $
    116,400Provision for loan losses
    
    
    3,765
    
    
    
    1,190
    
    
    
    39,122
    
    
    
    5,329Charge-offs
    
    
    9,990
    
    
    
    4,257
    
    
    
    38,201
    
    
    
    15,046Recoveries
    
    
    2,065
    
    
    
    1,583
    
    
    
    6,933
    
    
    
    6,393Net charge-offs
    
    
    7,925
    
    
    
    2,674
    
    
    
    31,268
    
    
    
    8,653Allowance for loan losses  end of period
    
    $
    176,958
    
    
    $
    113,076
    
    
    $
    176,958
    
    
    $
    113,076Portfolio loans outstanding at period end (1)
    
    $
    9,219,226
    
    
    $
    5,753,375
    
    
    $
    $9,219,226
    
    
    $
    5,753,375Average portfolio loans outstanding during period (1)
    
    
    9,163,488
    
    
    
    5,693,556
    
    
    
    9,170,787
    
    
    
    5,622,186Allowance for loan losses as a percentage of portfolio loans
    
    
    1.92
    %
    
    
    1.97
    %
    
    
    1.92
    %
    
    
    1.97
    %Ratio of net charge-offs during period to average portfolio loans (annualize
    
    
    0.34
    
    
    
    0.19
    
    
    
    0.46
    
    
    
    0.21
 
 (1)   Balances exclude mortgage loans held for sale. 38




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##### Table of Contents



Net Charge-Offs
 Three Months EndedSeptember 30, 2007
    
    
    December 31, 2006*
    
    
    September 30, 2006*% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofin millions
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**
    
    
    $
    
    
    Portfolio**Land Hold
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %Land Development
    
    
    0.4
    
    
    
    0.99
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    0.1
    
    
    
    0.11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income Producing
    
    
    0.1
    
    
    
    0.03
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Owner-Occupied
    
    
    0.6
    
    
    
    0.22
    
    
    
    1.0
    
    
    
    0.35
    
    
    
    0.5
    
    
    
    0.27Total Commercial Real Estate
    
    
    1.2
    
    
    
    0.15
    
    
    
    1.0
    
    
    
    0.26
    
    
    
    0.5
    
    
    
    0.14Commercial and Industrial
    
    
    0.6
    
    
    
    0.12
    
    
    
    1.8
    
    
    
    0.40
    
    
    
    0.1
    
    
    
    0.02Total Commercial Loans
    
    
    1.8
    
    
    
    0.14
    
    
    
    2.8
    
    
    
    0.34
    
    
    
    0.6
    
    
    
    0.08Residential Mortgage
    
    
    1.6
    
    
    
    0.43
    
    
    
    0.9
    
    
    
    0.65
    
    
    
    0.2
    
    
    
    0.17Direct Consumer
    
    
    2.6
    
    
    
    0.63
    
    
    
    1.6
    
    
    
    0.59
    
    
    
    0.5
    
    
    
    0.18Indirect Consumer
    
    
    1.9
    
    
    
    0.89
    
    
    
    2.3
    
    
    
    1.09
    
    
    
    1.4
    
    
    
    0.65Total Net Charge-offs
    
    $
    7.9
    
    
    
    0.34
    %
    
    $
    7.6
    
    
    
    0.52
    %
    
    $
    2.7
    
    
    
    0.19
    %
 
 *
    
    Legacy Citizens only**
    
    Represents an annualized rate.     39




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##### Table of Contents



Loans Held for Sale
  Goodwill and Other Intangible Assets
  40




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##### Table of Contents



Deposits
   Borrowed Funds
    Capital Resources
  41




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##### Table of Contents



Capital Ratios
 Regulatory MinimumWell-
    
    September 30,
    
    December 31,
    
    September 30,Required
    

Capitalized
    
    2007
    
    2006
    
    2006Risk based:Tier 1 capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    9.28
    %
    
    
    9.41
    %
    
    
    10.13
    %Total capital
    
    
    8.00
    
    
    
    10.00
    
    
    
    11.79
    
    
    
    11.90
    
    
    
    13.37Tier 1 Leverage (1)
    
    
    4.00
    
    
    
    5.00
    
    
    
    7.49
    
    
    
    7.22
    
    
    
    8.29
 
 (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
     42




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##### Table of Contents



Interest Rate Risk
     43




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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
  44




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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
 Maximum Number ofTotal Number of
    
    
    Shares That May YetShares Purchased as
    
    
    Be Purchased UnderPart of Publicly

    
    
    The Plans orTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    ProgramsPeriod
    
    Shares Purchased
    
    
    Per Share
    
    
    Programs
    
    
    (a)July 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,351,154August 2007
    
    
    40,000
    
    
    
    18.14
    
    
    
    40,000
    
    
    
    1,311,154September 2007
    
    
    70,000
    
    
    
    17.45
    
    
    
    70,000
    
    
    
    1,241,154Total
    
    
    110,000
    
    
    
    17.70
    
    
    
    110,000
    
    
    
    1,241,154
 (R)
 45




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##### Table of Contents



Item 6. Exhibits
 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
 46




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##### Table of Contents



SIGNATURES
  CITIZENS REPUBLIC BANCORP, INC.Date: November 2, 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.
    
    Description31.1
    
    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
 48