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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2006.
 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 BANKING CORPORATION
  MICHIGAN
    
    38-2378932(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)328 S. Saginaw Street, Flint, Michigan
    
    48502(Address of Principal Executive Offices)
    
    (ZIP Code)
  Securities
registered pursuant to Section 12(b) of the Act: Common Stock,
no par value Preferred Stock Purchase Rights
 Securities
registered pursuant to Section 12(g) of the Act: none
 þ o
 o þ
 þ o
 þ
  þ o o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



CITIZENS BANKING CORPORATION
2006 Annual Report on Form 10-K
 TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    11Item 1B. Unresolved Staff Comments
    
    
    17Item 2. Properties
    
    
    17Item 3. Legal Proceedings
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18PART IIItem 5. Market for the Registrants Common Equity, Related Shareholder Matters and Issuer Purchases
of Equity Securities
    
    
    18Item 6. Selected Financial Data
    
    
    21Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Overview
    
    
    24Critical Accounting Policies
    
    
    26Recent Accounting Pronouncements
    
    
    30Recent Developments
    
    
    30Results of Operations
    
    
    32Financial Condition
    
    
    42Liquidity and Debt Capacity
    
    
    60Interest Rate Risk
    
    
    61Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    62Item 8. Financial Statements and Supplementary Data
    
    
    62Consolidated Balance Sheets
    
    
    63Consolidated Statements of Income
    
    
    64Consolidated Statements of Changes in Shareholders Equity
    
    
    65Consolidated Statements of Cash Flows
    
    
    66Notes to Consolidated Financial Statements
    
    
    67Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    112Item 9A. Controls and Procedures
    
    
    112Item 9B. Other Information
    
    
    115PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    115Item 11. Executive Compensation
    
    
    115Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder
Matters
    
    
    115Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    115Item 14.
Principal Accountant Fees and Services
    
    
    115PART IVItem 15.
Exhibits and  Financial Statement Schedules
    
    
    116SIGNATURES
    
    
    117EXHIBIT INDEX
    
    
    119Amended and Restated Bylaws as of December 29, 2006Employment Agreement - Jerry D. CampbellEmployment Agreement - Dana M. CluckeyEmployment Agreement - Thomas F. MenacherAmendment to the Stock Compensation Plan Restricted Stock AgreementSubsidiaries of the RegistrantConsent of Independent Registered Public AccountantsCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 1350Certification of CFO Pursuant to Section 1350
  2




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PART I
 
 ITEM 1. BUSINESS
 ® www.citizensonline.com
 GENERAL
   Total
    
    DatePrincipal
    
    Number of
    
    Assets
    
    Acquired /Subsidiary
    
    Office
    
    Offices
    
    (in millions)
    
    EstablishedCitizens Bank (a)
    
    Flint, MI
    
    
    170
    
    
    $
    7,505.2
    
    
    
    1871Republic Bank (a)
    
    Lansing, MI
    
    
    89
    
    
    
    5,420.2
    
    
    
    12/29/06F&M Bank  Iowa (a)
    
    Marshalltown, IA
    
    
    11
    
    
    
    412.1
    
    
    
    11/01/99Citizens Bank Wealth
Management, N.A.
    
    Flint, MI
    
    
    (b
    )
    
    
    (b
    )
    
    
    03/01/02
 
 (a)
    
    Consolidated totals include its non-bank subsidiaries.(b)
    
    Citizens Bank Wealth Management, N.A. conducts business at most Citizens Bank locations and
had total assets under administration of $2.7 billion at December 31, 2006.  3




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
    
    $154.9 million in cash
    
    $885.0 million in value from 32.7 million Citizens common shares valued for accounting
purposes at $27.03 per share; and
    
    the exchange of Republic unvested restricted stock and outstanding stock options and
warrants for Citizens restricted stock and stock options valued for accounting purposes at
$12.3 million.
  GEOGRAPHIC LOCATIONS
  PRINCIPAL SOURCES OF REVENUE
  Year Ended December 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004Interest and fees on loans
    
    $
    399,469
    
    
    $
    343,890
    
    
    $
    297,811Interest and dividends on investment securities, money market
investments, FHLB and Federal Reserve stock
    
    
    72,883
    
    
    
    79,359
    
    
    
    80,468Noninterest income
    
    
    90,627
    
    
    
    80,508
    
    
    
    91,458Total revenues from continuing operations
    
    $
    562,979
    
    
    $
    503,757
    
    
    $
    469,737
 LINES OF BUSINESS
  
    
    Commercial Banking Commercial Banking provides a full range of
lending, depository, and related financial services to
middle-market corporate, industrial, financial, small business,
government and leasing clients. Products and services offered
include commercial loans such as term loans, revolving credit
arrangements, and inventory and accounts receivable financing,
commercial mortgages, real estate construction lending, letters of
credit, and small business loans. Noncredit services for
commercial customers include deposit accounts, treasury
management, corporate cash management, international banking
services, advice and assistance in the placement of securities,
and financial planning.
    
    Consumer Banking- Consumer Banking includes consumer lending and
deposit gathering, small business lending, branch banking,
electronic banking and residential mortgage loan origination and
servicing. This line of business offers a variety of retail
financial products and services including direct and indirect
installment loans, debit and credit cards, home equity loans and
lines of credit, residential mortgage loans, deposit products,
fixed and variable annuities and
 4




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ATM network services. Consumer
loans are composed of automobile, personal, marine, and
recreational vehicle loans. Deposit products include checking,
savings, money market accounts, and certificates of deposit.
    
    Wealth Management- Wealth Management offers a broad array of
asset management, private banking, financial planning, estate
settlement and administration, credit and deposit products and
services. Trust and investment services include personal trust
and planning, investment management, estate settlement and
administration services. Retirement plan services focus on
investment management and fiduciary activities with special
emphasis on 401(k) plans. Brokerage and insurance delivers retail
mutual funds, other securities, variable and fixed annuities,
personal disability and life insurance products and discounted
brokerage services. Private banking provides credit, deposit and
asset management solutions for affluent clients.
   COMPETITION
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SUPERVISION AND REGULATION
 General
       6




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Payment of Dividends
    Capital Adequacy and Prompt Corrective Action
    
    
    prohibiting the payment of principal and interest on subordinated debt;
    
    prohibiting the holding company from making distributions without prior regulatory approval;
    
    placing limits on asset growth and restrictions on activities;
    
    placing additional restrictions on transactions with affiliates;
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
    
    restricting the interest rate the institution may pay on deposits;
    
    prohibiting the institution from accepting deposits from correspondent banks; and
    
    in the most severe cases, appointing a conservator or receiver for the institution.
    FDIC Insurance Assessments
    Interstate Banking
  8




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Transactions with Affiliates
  Loans to Insiders
  Community Reinvestment Act
   Fair Lending and Consumer Laws
   9




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Gramm-Leach-Bliley Act of 1999
      Anti-Money Laundering and the USA Patriot Act of 2001
  10




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ECONOMIC FACTORS AND MONETARY POLICY
  ENVIRONMENTAL MATTERS
  
 ITEM 1A. RISK FACTORS
  We face the risk that loan losses, including unanticipated loan losses due to changes in loan
portfolios, fraud and economic factors, will exceed the allowance for loan losses and that
additional increases in the allowance will be required which would cause our net income to decline
and could have a negative impact on our capital and financial position.
  
    
    the duration of the loan;
    
    credit risks of a particular borrower;
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
    
    changes in economic and industry conditions; and
    
    in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral.
   While we attempt to manage the risk from changes in market interest rates, interest rate risk
management techniques are not exact. In addition, we may not be able to economically hedge our
interest rate risk. A rapid or substantial increase or decrease in interest rates could adversely
affect our net interest income and results of operations.
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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 our loan portfolio and could reduce our customer base, level of deposits, and demand for
financial products such as loans.
  If we are unable to continue to attract core deposits or continue to obtain third party financing
on favorable terms, our cost of funds will increase, adversely affecting the ability to generate
the funds necessary for lending operations, reducing net interest margin and negatively affecting
results of operations.
   Increased competition with other financial institutions or an adverse change in our relationship
with a number of major customers could reduce our 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 we lend to customers who are less likely to pay in order to
maintain historical origination levels, we may not be able to maintain current loan quality levels.
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We are party to various lawsuits incidental to our 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 we are unable to
adequately invest in and implement new technology-driven products and services, we may not be able
to compete effectively, or the cost to provide products and services may increase significantly.
  Our business may be adversely affected by the highly regulated environment in which we operate. We
may be adversely affected by changes in banking or tax laws, regulations, and regulatory practices
at either the federal or state level. Such changes would affect our 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. Such changes may also result in the
imposition of additional costs.
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The products and services offered by the banking industry and customer expectations regarding them
are subject to change. We attempt 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 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 our results of operations and financial condition.
  Our business continuity plans or data security systems could prove to be inadequate, resulting in a
material interruption in, or disruption to, our business and a negative impact on the results of
operations.
  Our vendors could fail to fulfill their contractual obligations, resulting in a material
interruption in, or disruption to, our business and a negative impact on our results of operations.
   
    
    If an existing agreement expires or a certain service is discontinued by a vendor, then
we may not be able to continue to offer our customers the same breadth of products and our
operating results would likely suffer unless we are able to find an alternate supply of a
similar service.
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
    
    Agreements we may negotiate in the future may commit us to certain minimum spending
obligations. It is possible we will not be able to create the market demand to meet such
obligations.
    
    If market demand for our products increase suddenly, our current vendors might not be
able to fulfill our commercial needs, which would require us to seek new arrangements or
new sources of supply, and may result in substantial delays in meeting market demand.
    
    We may not be able to control or adequately monitor the quality of services we receive
from our vendors. Poor quality services could damage our reputation with our customers.
  Our potential inability to integrate acquired operations could have a negative effect on our
expenses and results of operations.
    We could face unanticipated environmental liabilities or costs related to real property owned or
acquired through foreclosure. Compliance with federal, state and local environmental laws and
regulations, including those related to investigation and clean-up of contaminated sites, could
have a negative effect on expenses and results of operations.
  As a bank holding company that conducts substantially all of our operations through our
subsidiaries, the ability of the Holding Company to pay dividends, repurchase our shares or to
repay our indebtedness depends upon the results of operations of our subsidiaries and their ability
to pay dividends to the Holding Company. Dividends paid by these subsidiaries are subject to
limits imposed by federal and state law.
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Our controls and procedures may fail or be circumvented which could have a material adverse effect
on our business, results of operations and financial condition.
  Our articles of incorporation, bylaws and shareholder rights agreement as well as certain banking
laws may have an anti-takeover effect.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
   17




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 ®
  Dividends
    
    
    Common StockDeclared
    
    
    Price Range
    
    
    ClosingPer Share
    
    
    High
    
    
    Low
    
    
    Price2006Fourth quarter
    
    $
    0.290
    
    
    $
    28.06
    
    
    $
    24.50
    
    
    $
    26.50Third quarter
    
    
    0.290
    
    
    
    27.04
    
    
    
    23.25
    
    
    
    26.26Second quarter
    
    
    0.290
    
    
    
    27.60
    
    
    
    23.71
    
    
    
    24.41First quarter
    
    
    0.285
    
    
    
    28.66
    
    
    
    25.62
    
    
    
    26.85Year
    
    $
    1.155
    
    
    $
    28.66
    
    
    $
    23.25
    
    
    $
    26.502005Fourth quarter
    
    $
    0.285
    
    
    $
    30.22
    
    
    $
    26.67
    
    
    $
    27.75Third quarter
    
    
    0.285
    
    
    
    32.15
    
    
    
    28.20
    
    
    
    28.40Second quarter
    
    
    0.285
    
    
    
    30.98
    
    
    
    26.35
    
    
    
    30.22First quarter
    
    
    0.285
    
    
    
    34.81
    
    
    
    29.02
    
    
    
    29.36Year
    
    $
    1.140
    
    
    $
    34.81
    
    
    $
    26.35
    
    
    $
    27.75
 Equity Compensation Plan Information
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Number of sharesremaining available forfuture issuance underNumber of shares to be
    
    
    Weighted-average
    
    
    equity compensationissued upon exercise of
    
    
    exercise price of
    
    
    plans (excluding sharesPlan Category
    
    outstanding options
    
    
    outstanding options
    
    
    reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
shareholders
    
    
    3,631,412
    
    
    $
    28.33
    
    
    
    3,831,773Equity compensation
plans not approved
by shareholders
    
    
    69,800
    (1)
    
    $
    16.66
    
    
    
    0Total(2)
    
    
    3,701,212
    
    
    $
    28.11
    
    
    
    3,831,773
 
 (1)
    
    Issued under the All-Employee Plan. Under this plan, on May 18, 2000, Citizens granted stock
options to all employees who did not receive grants under the then existing but since expired
Third Amended Stock Option Plan. Each full-time employee received options for 200 shares of
common stock and each part-time employee received options for 100 shares. The $16.66 exercise
price of the grant was the market price of the common stock on the grant date. The options
became exercisable three years after the date of grant. The options expire ten years from the
date of grant. Options for a total of 550,700 shares were granted of which options for 69,800
shares were outstanding as of December 31, 2006. The plan provides that no further grants may
be made under the plan.(2)
    
    In connection with the Republic merger,
Citizens assumed Republics active stock option plans and 1.1 million shares subject to option
grants previously awarded by Republic under those plans. Citizens has not made any awards and does
not intend to grant any additional awards under the former Republic
plans. The weighted average exercise price of the outstanding options
is $14.07 per share. Stock Performance Graph
  19




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KBW50
    
    S&P 500CRBC
    
    Index
    
    IndexDecember 31, 2001
    
    
    $100
    
    
    
    $100
    
    
    
    $100December 31, 2002
    
    
    $78
    
    
    
    $93
    
    
    
    $78December 31, 2003
    
    
    $108
    
    
    
    $125
    
    
    
    $100December 31, 2004
    
    
    $118
    
    
    
    $137
    
    
    
    $111December 31, 2005
    
    
    $99
    
    
    
    $139
    
    
    
    $117December 31, 2006
    
    
    $99
    
    
    
    $166
    
    
    
    $135
 Issuer Repurchases of Equity Securities
  Total Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares That May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    
    
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    The Plans or ProgramsPeriod
    
    Shares Purchased
    
    
    
    
    
    
    Per Share
    
    
    Programs
    
    
    (b)October 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,906,200November 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,906,200December 2006
    
    
    34,245
    (a)
    
    
    
    
    
    
    26.85
    
    
    
    
    
    
    
    1,906,200Total
    
    
    34,245
    
    
    
    
    
    
    
    26.85
    
    
    
    
    
    
    
    1,906,200
 
 (a)
    
    Shares re-purchased in connection with taxes due from employees as a result of the vesting of
certain share awards were not part of the repurchase program approved in October 2003.(b)
    
    In October 2003, the Board of Directors approved the repurchase of 3,000,000 shares of common
stock from time to time in the market. There is no expiration date for the repurchase
program. Citizens did not repurchase any shares of its stock under this program during the
fourth quarter of 2006. As of December 31, 2006, 1,906,200 shares remain to 20




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be purchased
under this program. The purchase of shares is subject to limitations that may be imposed by
applicable securities laws and regulations and NASDAQ rules. The timing of the purchases and
the number of shares to be bought at any one time depend on market conditions and Citizens
capital requirements. There can be no assurance that Citizens will repurchase the remaining
shares authorized to be repurchased, or that any additional repurchases will be authorized by
the board of directors. 
 ITEM 6. SELECTED FINANCIAL DATA
  21




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Five Year Summary of Selected Financial Data(in thousands, except per share data)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002For The YearNet interest income
    
    $
    263,120
    
    
    $
    275,749
    
    
    $
    271,698
    
    
    $
    280,705
    
    
    $
    294,545Provision for loan losses (1)
    
    
    11,265
    
    
    
    1,109
    
    
    
    21,609
    
    
    
    62,008
    
    
    
    117,331Noninterest income before securities gains (losses)(2)
    
    
    97,156
    
    
    
    89,435
    
    
    
    92,971
    
    
    
    92,952
    
    
    
    97,569Investment securities gains (losses)(3)
    
    
    (6,529
    )
    
    
    (8,927
    )
    
    
    (1,513
    )
    
    
    101
    
    
    
    2,338Noninterest expense(4)
    
    
    259,827
    
    
    
    243,042
    
    
    
    260,278
    
    
    
    228,866
    
    
    
    253,972Income tax provision (benefit) from continuing operations
    
    
    19,319
    
    
    
    31,581
    
    
    
    19,590
    
    
    
    18,375
    
    
    
    (1,346
    )Income from continuing operations
    
    
    63,336
    
    
    
    80,525
    
    
    
    61,679
    
    
    
    64,509
    
    
    
    24,495Discontinued operations (after tax)(5)
    
    
    
    
    
    
    
    
    
    
    14,418
    
    
    
    1,442
    
    
    
    543Net income
    
    
    63,336
    
    
    
    80,525
    
    
    
    76,097
    
    
    
    65,951
    
    
    
    25,038Cash dividends
    
    
    49,530
    
    
    
    49,311
    
    
    
    49,286
    
    
    
    49,476
    
    
    
    50,659Per Common Share DataIncome from continuing operations:Basic
    
    $
    1.48
    
    
    $
    1.87
    
    
    $
    1.43
    
    
    $
    1.49
    
    
    $
    0.55Diluted
    
    
    1.47
    
    
    
    1.85
    
    
    
    1.41
    
    
    
    1.48
    
    
    
    0.55Discontinued operations:Basic
    
    $
    
    
    
    $
    
    
    
    $
    0.33
    
    
    $
    0.03
    
    
    $
    0.01Diluted
    
    
    
    
    
    
    
    
    
    
    0.33
    
    
    
    0.03
    
    
    
    0.01Net income:Basic
    
    $
    1.48
    
    
    $
    1.87
    
    
    $
    1.76
    
    
    $
    1.52
    
    
    $
    0.56Diluted
    
    
    1.47
    
    
    
    1.85
    
    
    
    1.74
    
    
    
    1.51
    
    
    
    0.56Cash dividends
    
    
    1.155
    
    
    
    1.140
    
    
    
    1.140
    
    
    
    1.140
    
    
    
    1.130Book value, end of year
    
    
    20.58
    
    
    
    15.28
    
    
    
    15.13
    
    
    
    14.69
    
    
    
    14.88Market value, end of year
    
    
    26.50
    
    
    
    27.75
    
    
    
    34.35
    
    
    
    32.72
    
    
    
    24.78At Year End, Continuing OperationsAssets
    
    $
    14,008,351
    
    
    $
    7,751,883
    
    
    $
    7,706,033
    
    
    $
    7,544,903
    
    
    $
    7,320,958Portfolio loans (6)
    
    
    9,231,082
    
    
    
    5,616,119
    
    
    
    5,393,365
    
    
    
    5,164,416
    
    
    
    5,342,669Deposits
    
    
    8,698,061
    
    
    
    5,473,839
    
    
    
    5,299,760
    
    
    
    5,274,082
    
    
    
    5,740,867Long-term debt
    
    
    2,644,703
    
    
    
    1,006,109
    
    
    
    949,921
    
    
    
    936,859
    
    
    
    599,313Shareholders equity
    
    
    1,557,686
    
    
    
    656,463
    
    
    
    654,302
    
    
    
    635,162
    
    
    
    650,469At Year End, CombinedAssets
    
    $
    14,008,351
    
    
    $
    7,751,883
    
    
    $
    7,706,033
    
    
    $
    7,711,070
    
    
    $
    7,524,724Portfolio loans (6)
    
    
    9,231,082
    
    
    
    5,616,119
    
    
    
    5,393,365
    
    
    
    5,247,818
    
    
    
    5,437,795Deposits
    
    
    8,698,061
    
    
    
    5,473,839
    
    
    
    5,299,760
    
    
    
    5,442,267
    
    
    
    5,936,913Long-term debt
    
    
    2,644,703
    
    
    
    1,006,109
    
    
    
    949,921
    
    
    
    936,859
    
    
    
    599,313Shareholders equity
    
    
    1,557,686
    
    
    
    656,463
    
    
    
    654,302
    
    
    
    635,162
    
    
    
    650,469Average For The Year, Continuing OperationsAssets
    
    $
    7,706,465
    
    
    $
    7,777,818
    
    
    $
    7,585,479
    
    
    $
    7,510,870
    
    
    $
    7,360,405Earning assets
    
    
    7,250,843
    
    
    
    7,348,168
    
    
    
    7,164,365
    
    
    
    7,097,607
    
    
    
    6,959,160Portfolio loans (6)
    
    
    5,657,476
    
    
    
    5,493,280
    
    
    
    5,210,817
    
    
    
    5,140,450
    
    
    
    5,467,139Deposits
    
    
    5,587,967
    
    
    
    5,286,390
    
    
    
    5,277,670
    
    
    
    5,478,315
    
    
    
    5,720,200Interest-bearing deposits
    
    
    4,666,387
    
    
    
    4,355,337
    
    
    
    4,379,150
    
    
    
    4,626,593
    
    
    
    4,877,101Repurchase agreements and
other short-term borrowings
    
    
    374,088
    
    
    
    812,642
    
    
    
    653,442
    
    
    
    454,339
    
    
    
    242,614Long-term debt
    
    
    998,174
    
    
    
    938,478
    
    
    
    936,050
    
    
    
    861,704
    
    
    
    620,913Shareholders equity
    
    
    660,996
    
    
    
    653,004
    
    
    
    639,631
    
    
    
    632,060
    
    
    
    691,834Average For The Year, CombinedAssets
    
    $
    7,706,465
    
    
    $
    7,777,818
    
    
    $
    7,684,834
    
    
    $
    7,693,931
    
    
    $
    7,569,341Earning assets
    
    
    7,250,843
    
    
    
    7,348,168
    
    
    
    7,259,660
    
    
    
    7,272,887
    
    
    
    7,160,596Portfolio loans (6)
    
    
    5,657,476
    
    
    
    5,493,280
    
    
    
    5,259,303
    
    
    
    5,234,246
    
    
    
    5,569,432Deposits
    
    
    5,587,967
    
    
    
    5,286,390
    
    
    
    5,375,297
    
    
    
    5,665,533
    
    
    
    5,924,442Interest-bearing deposits
    
    
    4,666,387
    
    
    
    4,355,337
    
    
    
    4,460,391
    
    
    
    4,787,594
    
    
    
    5,054,743Repurchase agreements and
other short-term borrowings
    
    
    374,088
    
    
    
    812,642
    
    
    
    655,472
    
    
    
    458,673
    
    
    
    251,315Long-term debt
    
    
    998,174
    
    
    
    938,478
    
    
    
    936,049
    
    
    
    861,704
    
    
    
    620,913Shareholders equity
    
    
    660,996
    
    
    
    653,004
    
    
    
    639,631
    
    
    
    632,060
    
    
    
    691,834
 22




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##### Table of Contents



Five Year Summary of Selected Financial Data (Continued)(in thousands, except per share data)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Financial Ratios, Continuing OperationsReturn on average:Shareholders equity
    
    
    9.58
    %
    
    
    12.33
    %
    
    
    9.64
    %
    
    
    10.21
    %
    
    
    3.54
    %Earning assets
    
    
    0.87
    
    
    
    1.10
    
    
    
    0.86
    
    
    
    0.91
    
    
    
    0.35Assets
    
    
    0.82
    
    
    
    1.04
    
    
    
    0.81
    
    
    
    0.86
    
    
    
    0.33Average shareholders equity/avg. assets
    
    
    8.58
    
    
    
    8.40
    
    
    
    8.43
    
    
    
    8.42
    
    
    
    9.40Dividend payout ratio
    
    
    78.20
    
    
    
    61.24
    
    
    
    79.91
    
    
    
    76.70
    
    
    
    206.82Net interest margin (FTE)
    
    
    3.81
    
    
    
    3.94
    
    
    
    3.99
    
    
    
    4.17
    
    
    
    4.47Tier I leverage ratio (7)
    
    
    7.22
    
    
    
    7.98
    
    
    
    7.84
    
    
    
    7.45
    
    
    
    7.18Tier I risk-based capital ratio
    
    
    9.41
    
    
    
    9.94
    
    
    
    9.96
    
    
    
    9.80
    
    
    
    9.18Total risk-based capital ratio
    
    
    11.90
    
    
    
    13.22
    
    
    
    13.32
    
    
    
    13.23
    
    
    
    10.43Financial Ratios, CombinedReturn on average:Shareholders equity
    
    
    9.58
    %
    
    
    12.33
    %
    
    
    11.90
    %
    
    
    10.43
    %
    
    
    3.62
    %Earning assets
    
    
    0.87
    
    
    
    1.10
    
    
    
    1.05
    
    
    
    0.91
    
    
    
    0.35Assets
    
    
    0.82
    
    
    
    1.04
    
    
    
    0.99
    
    
    
    0.86
    
    
    
    0.33Average shareholders equity/avg. assets
    
    
    8.58
    
    
    
    8.40
    
    
    
    8.32
    
    
    
    8.22
    
    
    
    9.14Dividend payout ratio
    
    
    78.20
    
    
    
    61.24
    
    
    
    64.77
    
    
    
    75.02
    
    
    
    202.33Net interest margin (FTE)
    
    
    3.81
    
    
    
    3.94
    
    
    
    3.99
    
    
    
    4.15
    
    
    
    4.45Tier I leverage ratio (7)
    
    
    7.22
    
    
    
    7.98
    
    
    
    7.84
    
    
    
    7.45
    
    
    
    7.18Tier I risk-based capital ratio
    
    
    9.41
    
    
    
    9.94
    
    
    
    9.96
    
    
    
    9.80
    
    
    
    9.18Total risk-based capital ratio
    
    
    11.90
    
    
    
    13.22
    
    
    
    13.32
    
    
    
    13.23
    
    
    
    10.43
 
 (1)
    
    Provision for loan losses in 2005 includes a $9.1 million insurance settlement
relating to a claim for recovery of fraud losses suffered in connection with two loans made by the
Corporation and subsequently charged-off in 2002 and 2003.(2)
    
    Noninterest income includes, in 2005, a charge of $3.6 million related to a fair
value change in CD swap derivatives.(3)
    
    Investment securities gains (losses) includes a $7.2 million other-than-temporary
impairment charge related to the restructuring of the balance sheet as a result of the Republic
merger in 2006 and losses of $9.0 million on the sale of investment securities in 2005.(4)
    
    Noninterest expense includes, in 2006, restructuring and merger-related expenses of
$11.3 million related to the Republic merger. The year 2003 included a special charge credit of
$0.7 million related to accrual reversals primarily for employee benefits and severance.
Additionally, Citizens recorded special charges of $13.4 million in 2002 for restructurings and
other initiatives.(5)
    
    Discontinued operations in 2004 includes an after-tax gain of $12.8 million for the
sale of the Illinois bank subsidiary.(6)
    
    Balances exclude loans held for sale.(7)
    
    In 2006, the Tier I leverage ratio is calculated using ending assets instead of
average assets due to the Republic merger on December 29, 2006. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   23




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ForwardLooking
Statements
   
 OVERVIEW
 Nature
of Citizens Business
     24




---



##### Table of Contents



Performance
Summary
  Table 1. Three Year Summary of Net Income Components
    
    Year Ended December 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004Interest income
    
    $
    472,352
    
    
    $
    423,249
    
    
    $
    378,279Interest expense
    
    
    209,232
    
    
    
    147,500
    
    
    
    106,581Net interest income
    
    
    263,120
    
    
    
    275,749
    
    
    
    271,698Provision for loan losses (1)
    
    
    11,265
    
    
    
    1,109
    
    
    
    21,609Noninterest income (1)
    
    
    90,627
    
    
    
    80,508
    
    
    
    91,458Noninterest expense (1)
    
    
    259,827
    
    
    
    243,042
    
    
    
    260,278Income tax provision from continuing operations(1)
    
    
    19,319
    
    
    
    31,581
    
    
    
    19,590Income from continuing operations
    
    
    63,336
    
    
    
    80,525
    
    
    
    61,679Discontinued operations:Income from discontinued operations (net of income tax of $939)
    
    
    
    
    
    
    
    
    
    
    1,659Gain on sale of discontinued operations (including income tax benefit of $1,109)
    
    
    
    
    
    
    
    
    
    
    12,759Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    14,418Net income
    
    $
    63,336
    
    
    $
    80,525
    
    
    $
    76,097
 
 (1)Includes significant charges and/or gains as follows:Provision for loan losses (includes insurance settlement booked as recovery)
    
    $
    
    
    
    $
    9,125
    
    
    $
    Noninterest incomeLosses from sale of investment securities
    
    
    
    
    
    
    (8,976
    )
    
    
    Impairment writedowns on investment securities
    
    
    (7,163
    )
    
    
    
    
    
    
    Fair value change in CD swap derivatives
    
    
    (207
    )
    
    
    (3,604
    )
    
    
    Total losses and other charges recorded in noninterest income
    
    
    (7,370
    )
    
    
    (12,580
    )
    
    
    Noninterest expensePrepayment penalty on FHLB advances
    
    
    (1,755
    )
    
    
    
    
    
    
    (17,959
    )Restructuring and merger related expenses
    
    
    (11,324
    )
    
    
    
    
    
    
    Total charges recorded in noninterest expense
    
    
    (13,079
    )
    
    
    
    
    
    
    (17,959
    )Tax benefit
    
    
    7,157
    
    
    
    1,209
    
    
    
    6,286Net decrease to income
    
    $
    (13,292
    )
    
    $
    (2,246
    )
    
    $
    (11,673
    )
   
    
    Net interest income for 2006 decreased $12.6 million or 4.6% to $263.1 million compared
with 2005 while the net interest margin percentage decreased from 3.94% to 3.81% during the
same period. The margin compression was
 25




---



##### Table of Contents



due to funds migrating within the deposit
portfolio from lower cost savings and transaction accounts to higher cost savings and time
deposits, continued pricing pressure on loans, the continued effects of the interest rate
environment, and the issuance of $150.0 million of enhanced trust preferred securities,
partially offset by a shift in asset mix from investment securities to higher yielding
commercial loans.
    
    Total average earning assets for 2006 decreased $78.4 million or 1.1% to $7.3 billion,
which also contributed to the decline in net interest income in 2006. The decline in
average earning assets resulted from declines in the investment, loans held for sale and
consumer loan portfolios, partially offset by growth in the commercial, commercial real
estate and residential mortgage loan portfolios. The decrease in the investment portfolio
was the result of the fourth quarter of 2005 portfolio repositioning and maturing balances
not being fully reinvested. Total average deposits for 2006 increased $301.6 million or
5.7% to $5.6 billion. Time deposits increased $593.9 million or 32.7%, while core
deposits, which exclude time deposits, declined $292.4 million or 8.4% as a result of
clients migrating their funds into time deposits with higher yields and promotional rate
products within the market.
    
    The provision for loan losses increased $10.2 million over 2005 due to higher net
charge-offs, primarily caused by the inclusion of a $9.1 million insurance recovery
received in the fourth quarter of 2005. Total net charge-offs increased $9.4 million in
2006 to $16.3 million or 0.29% of average portfolio loans outstanding compared with $6.9
million or 0.13% for 2005, reflecting the $9.1 million insurance settlement recovery.
    
    Noninterest income increased $10.1 million or 12.6% to $90.6 million compared with 2005.
The increase was the result of higher service charges on deposit accounts, trust fees,
bankcard fees, fully recognizing the deferred gain of $2.9 million on the 2004 sale of the
former downtown Royal Oak, Michigan office during the first quarter of 2006 and two items
which occurred in 2005: a $3.6 million charge associated with the accounting treatment for
swaps
hedging brokered certificates of deposit and a $9.0 million net loss on the sale of
securities as a result of restructuring the investment portfolio during the fourth quarter
of 2005. The improvements were partially offset by a $7.2 million other-than-temporary
impairment charge (investment security loss) Citizens recorded in the fourth quarter of 2006
as it no longer had a positive intent to hold $317.3 million of its investment securities
portfolio to recovery in preparation for balance sheet restructuring associated with
completing the Republic merger, and by decreases in brokerage and investment fees and ATM
network user fees.
    
    Noninterest expense increased $16.8 million or 6.9% to $259.8 million compared with
2005. Increases in salaries and employee benefits, data processing services, telephone,
prepayment penalty on FHLB advances, restructuring and merger-related expenses and other
expenses were partially offset by decreases in professional services, advertising and
public relations, as well as stationery and supplies. Citizens recorded a $1.8 million
prepayment penalty on the retirement of FHLB debt and an $11.3 million charge in 2006 for
restructuring and merger-related expenses associated with the Republic merger.
    
    Income tax expense decreased $12.3 million or 38.8% to $19.3 million compared with 2005.
The decrease was due to lower pre-tax income for 2006 and a $1.3 million ($0.8 million
after-tax) expense as a result of reducing the deferred Wisconsin state income tax asset
during 2005. The 2006 effective tax rate was 23.37% compared with 28.17% for 2005. The
decrease in the effective rate was due to lower pre-tax income in 2006 while tax-exempt
income remained relatively unchanged from 2005.
 
 CRITICAL ACCOUNTING POLICIES
  26




---



##### Table of Contents



Allowance for Loan Losses
      27




---



##### Table of Contents



Pension and Postretirement Benefits
   28




---



##### Table of Contents



Derivative Financial Instruments and Hedge Accounting
   29




---



##### Table of Contents



Income
Tax Accounting
 
 RECENT ACCOUNTING PRONOUNCEMENTS
  
 RECENT DEVELOPMENTS
 Republic
Merger
 
    
    $154.9 million in cash
 
    
    $885.0 million in value from 32.7 million Citizens common shares
valued for accounting purposes at $27.03 per share; and
 
    
    the exchange of Republic unvested restricted stock and outstanding
stock options and warrants for Citizens restricted stock and stock
options valued for accounting purposes at $12.3 million.
  Pending
Branch Sale
 Enhanced
Trust Preferred Securities
 30




---



##### Table of Contents



Strategic Business Alliances for the Mortgage Operations, Secondary Marketing and Title Services
Functions
 Significant Developments in 2005 and 2004
 Insurance
Settlement
   Accounting for Derivative Instruments and Hedging Activities
  Securities Sale
  Illinois Bank Sale
  31




---



##### Table of Contents



Prepayment of FHLB Advances and Issuance of New FHLB Debt
  Replacement of Wealth Managements Broker/Dealer and Reorganization of the Golden Oak Funds
 Investment Center At Citizens Bank, Investment
Center at F&M Bank.
  Sale of Credit Card Portfolio
  
 RESULTS OF OPERATIONS
  NET INTEREST INCOME
  32




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##### Table of Contents



Table 2. Average Balances/Net Interest Income/Average Rates
 2006
    2005
    2004Year Ended December 31
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(in thousands)
    
    Balance
    
    
    Interest(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    2,862
    
    
    $
    119
    
    
    
    4.17
    %
    
    $
    2,348
    
    
    $
    56
    
    
    
    2.38
    %
    
    $
    2,088
    
    
    $
    12
    
    
    
    0.57
    %Investment securities (3):Taxable
    
    
    1,077,475
    
    
    
    48,950
    
    
    
    4.54
    
    
    
    1,321,154
    
    
    
    55,382
    
    
    
    4.19
    
    
    
    1,404,099
    
    
    
    56,408
    
    
    
    4.02Tax-exempt
    
    
    449,068
    
    
    
    21,113
    
    
    
    7.23
    
    
    
    426,811
    
    
    
    20,789
    
    
    
    7.49
    
    
    
    418,829
    
    
    
    20,662
    
    
    
    7.59FHLB and Federal Reserve stock
    
    
    56,700
    
    
    
    2,701
    
    
    
    4.76
    
    
    
    59,714
    
    
    
    3,132
    
    
    
    5.25
    
    
    
    66,391
    
    
    
    3,386
    
    
    
    5.10Portfolio Loans (4):Commercial
    
    
    1,727,232
    
    
    
    124,676
    
    
    
    7.35
    
    
    
    1,628,625
    
    
    
    98,030
    
    
    
    6.15
    
    
    
    1,597,667
    
    
    
    80,524
    
    
    
    5.17Commercial real estate
    
    
    1,447,789
    
    
    
    103,669
    
    
    
    7.16
    
    
    
    1,338,870
    
    
    
    85,102
    
    
    
    6.36
    
    
    
    1,239,169
    
    
    
    72,866
    
    
    
    5.88Residential mortgage loans
    
    
    540,737
    
    
    
    31,343
    
    
    
    5.80
    
    
    
    513,385
    
    
    
    28,611
    
    
    
    5.57
    
    
    
    487,634
    
    
    
    27,954
    
    
    
    5.73Direct consumer
    
    
    1,099,110
    
    
    
    82,804
    
    
    
    7.53
    
    
    
    1,171,567
    
    
    
    74,798
    
    
    
    6.38
    
    
    
    1,094,441
    
    
    
    61,454
    
    
    
    5.62Indirect consumer
    
    
    842,608
    
    
    
    56,032
    
    
    
    6.65
    
    
    
    840,833
    
    
    
    55,448
    
    
    
    6.59
    
    
    
    791,906
    
    
    
    53,231
    
    
    
    6.72Total portfolio loans
    
    
    5,657,476
    
    
    
    398,524
    
    
    
    7.09
    
    
    
    5,493,280
    
    
    
    341,989
    
    
    
    6.27
    
    
    
    5,210,817
    
    
    
    296,029
    
    
    
    5.72Loans held for sale
    
    
    16,378
    
    
    
    945
    
    
    
    5.77
    
    
    
    35,061
    
    
    
    1,901
    
    
    
    5.42
    
    
    
    32,646
    
    
    
    1,782
    
    
    
    5.46Total earning assets (3)
    
    
    7,259,959
    
    
    
    472,352
    
    
    
    6.70
    
    
    
    7,338,368
    
    
    
    423,249
    
    
    
    5.95
    
    
    
    7,134,870
    
    
    
    378,279
    
    
    
    5.49Nonearning AssetsCash and due from banks
    
    
    159,501
    
    
    
    
    
    
    
    
    
    
    
    158,826
    
    
    
    
    
    
    
    
    
    
    
    160,937Bank premises and equipment
    
    
    119,572
    
    
    
    
    
    
    
    
    
    
    
    121,277
    
    
    
    
    
    
    
    
    
    
    
    115,723Investment security
fair value adjustment
    
    
    (9,116
    )
    
    
    
    
    
    
    
    
    
    
    9,801
    
    
    
    
    
    
    
    
    
    
    
    29,495Other nonearning assets
    
    
    291,162
    
    
    
    
    
    
    
    
    
    
    
    269,471
    
    
    
    
    
    
    
    
    
    
    
    267,609Assets of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,355Allowance for loan losses
    
    
    (114,613
    )
    
    
    
    
    
    
    
    
    
    
    (119,925
    )
    
    
    
    
    
    
    
    
    
    
    (123,155
    )Total assets
    
    $
    7,706,465
    
    
    
    
    
    
    
    
    
    
    $
    7,777,818
    
    
    
    
    
    
    
    
    
    
    $
    7,684,834Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    
    779,803
    
    
    
    5,051
    
    
    
    0.65
    
    
    
    1,035,579
    
    
    
    6,968
    
    
    
    0.67
    
    
    
    1,264,941
    
    
    
    9,452
    
    
    
    0.75Savings deposits
    
    
    1,478,492
    
    
    
    38,848
    
    
    
    2.63
    
    
    
    1,505,604
    
    
    
    22,197
    
    
    
    1.47
    
    
    
    1,397,290
    
    
    
    10,862
    
    
    
    0.78Time deposits
    
    
    2,408,092
    
    
    
    103,233
    
    
    
    4.29
    
    
    
    1,814,154
    
    
    
    55,989
    
    
    
    3.09
    
    
    
    1,716,919
    
    
    
    43,075
    
    
    
    2.51Short-term borrowings
    
    
    374,088
    
    
    
    16,017
    
    
    
    4.28
    
    
    
    812,642
    
    
    
    25,929
    
    
    
    3.19
    
    
    
    653,442
    
    
    
    9,574
    
    
    
    1.47Long-term debt
    
    
    998,174
    
    
    
    46,083
    
    
    
    4.62
    
    
    
    938,478
    
    
    
    36,417
    
    
    
    3.88
    
    
    
    936,050
    
    
    
    33,618
    
    
    
    3.59Total interest-bearing
liabilities
    
    
    6,038,649
    
    
    
    209,232
    
    
    
    3.46
    
    
    
    6,106,457
    
    
    
    147,500
    
    
    
    2.42
    
    
    
    5,968,642
    
    
    
    106,581
    
    
    
    1.79Noninterest-Bearing Liabilities
and Shareholders EquityNoninterest-bearing demand
    
    
    921,580
    
    
    
    
    
    
    
    
    
    
    
    931,053
    
    
    
    
    
    
    
    
    
    
    
    898,520Other liabilities
    
    
    85,240
    
    
    
    
    
    
    
    
    
    
    
    87,304
    
    
    
    
    
    
    
    
    
    
    
    78,018Liabilities of discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,023Shareholders equity
    
    
    660,996
    
    
    
    
    
    
    
    
    
    
    
    653,004
    
    
    
    
    
    
    
    
    
    
    
    639,631Total liabilities and
shareholders equity
    
    $
    7,706,465
    
    
    
    
    
    
    
    
    
    
    $
    7,777,818
    
    
    
    
    
    
    
    
    
    
    $
    7,684,834Net Interest Income
    
    
    
    
    
    $
    263,120
    
    
    
    
    
    
    
    
    
    
    $
    275,749
    
    
    
    
    
    
    
    
    
    
    $
    271,698Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    3.24
    %
    
    
    
    
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    
    
    
    
    3.70
    %Contribution of noninterest
bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.57
    
    
    
    
    
    
    
    
    
    
    
    0.41
    
    
    
    
    
    
    
    
    
    
    
    0.29Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.81
    %
    
    
    
    
    
    
    
    
    
    
    3.94
    %
    
    
    
    
    
    
    
    
    
    
    3.99
    %
 
 (1)
    
    Interest income is shown on an unadjusted basis and therefore does not include
taxable equivalent adjustments.(2)
    
    Average rates include taxable equivalent adjustments to interest income of $13.7
million, $13.4 million, and $13.2 million for the years ended December 31, 2006, 2005, and
2004, 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.(5)
    
    The interest spread and net interest margin are presented on a taxable 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.   33




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34




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Table 3. Analysis of Changes in Interest Income and Interest Expense
 2006 Compared to 2005
    
    
    2005 Compared to 2004Increase (Decrease)
    
    
    
    
    
    
    Increase (Decrease)Year Ended December 31
    
    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
    
    $
    63
    
    
    $
    49
    
    
    $
    14
    
    
    $
    44
    
    
    $
    42
    
    
    $
    2Investment securities:Taxable
    
    
    (6,432
    )
    
    
    4,371
    
    
    
    (10,803
    )
    
    
    (1,026
    )
    
    
    2,390
    
    
    
    (3,416
    )Tax-exempt
    
    
    324
    
    
    
    (737
    )
    
    
    1,061
    
    
    
    127
    
    
    
    (264
    )
    
    
    391FHLB and Federal Reserve stock
    
    
    (431
    )
    
    
    (278
    )
    
    
    (153
    )
    
    
    (254
    )
    
    
    94
    
    
    
    (348
    )Loans:Commercial
    
    
    26,646
    
    
    
    20,435
    
    
    
    6,211
    
    
    
    17,506
    
    
    
    15,938
    
    
    
    1,568Commercial real estate
    
    
    18,567
    
    
    
    11,301
    
    
    
    7,266
    
    
    
    12,236
    
    
    
    6,238
    
    
    
    5,998Residential mortgage loans
    
    
    2,732
    
    
    
    1,173
    
    
    
    1,559
    
    
    
    657
    
    
    
    (792
    )
    
    
    1,449Direct consumer
    
    
    8,006
    
    
    
    12,845
    
    
    
    (4,839
    )
    
    
    13,344
    
    
    
    8,871
    
    
    
    4,473Indirect consumer
    
    
    584
    
    
    
    467
    
    
    
    117
    
    
    
    2,217
    
    
    
    (907
    )
    
    
    3,124Total portfolio loans
    
    
    56,535
    
    
    
    46,221
    
    
    
    10,314
    
    
    
    45,960
    
    
    
    29,348
    
    
    
    16,612Loans held for sale
    
    
    (956
    )
    
    
    115
    
    
    
    (1,071
    )
    
    
    119
    
    
    
    (12
    )
    
    
    131Total
    
    
    49,103
    
    
    
    49,741
    
    
    
    (638
    )
    
    
    44,970
    
    
    
    31,598
    
    
    
    13,372Interest Expense:Deposits:Interest-bearing demand
    
    
    (1,917
    )
    
    
    (252
    )
    
    
    (1,665
    )
    
    
    (2,484
    )
    
    
    (865
    )
    
    
    (1,619
    )Savings
    
    
    16,651
    
    
    
    17,058
    
    
    
    (407
    )
    
    
    11,335
    
    
    
    10,435
    
    
    
    900Time
    
    
    47,244
    
    
    
    25,655
    
    
    
    21,589
    
    
    
    12,914
    
    
    
    10,388
    
    
    
    2,526Short-term borrowings
    
    
    (9,912
    )
    
    
    7,010
    
    
    
    (16,922
    )
    
    
    16,355
    
    
    
    13,557
    
    
    
    2,798Long-term debt
    
    
    9,666
    
    
    
    7,239
    
    
    
    2,427
    
    
    
    2,799
    
    
    
    2,714
    
    
    
    85Total
    
    
    61,732
    
    
    
    56,710
    
    
    
    5,022
    
    
    
    40,919
    
    
    
    36,229
    
    
    
    4,690Net Interest Income
    
    $
    (12,629
    )
    
    $
    (6,969
    )
    
    $
    (5,660
    )
    
    $
    4,051
    
    
    $
    (4,631
    )
    
    $
    8,682
 
 (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. 2006 compared with 2005
    35




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2005 compared with 2004
     PROVISION FOR LOAN LOSSES
  2006 compared with 2005
   2005 compared with 2004
 36




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##### Table of Contents



NONINTEREST INCOME
  Noninterest Income
 Year Ended December 31,
    
    
    $ Change
    
    
    % Change(dollars in thousands)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2006-2005
    
    
    2005-2004
    
    
    2006-2005
    
    
    2005-2004Service charges on deposit accounts
    
    $
    37,709
    
    
    $
    35,409
    
    
    $
    34,618
    
    
    $
    2,300
    
    
    $
    791
    
    
    
    6.5
    %
    
    
    2.3
    %Trust fees
    
    
    19,465
    
    
    
    18,445
    
    
    
    17,854
    
    
    
    1,020
    
    
    
    591
    
    
    
    5.5
    
    
    
    3.3Mortgage and other loan income
    
    
    9,270
    
    
    
    8,983
    
    
    
    9,547
    
    
    
    287
    
    
    
    (564
    )
    
    
    3.2
    
    
    
    (5.9
    )Brokerage and investment fees
    
    
    6,995
    
    
    
    7,803
    
    
    
    7,710
    
    
    
    (808
    )
    
    
    93
    
    
    
    (10.4
    )
    
    
    1.2ATM network user fees
    
    
    4,011
    
    
    
    4,355
    
    
    
    3,361
    
    
    
    (344
    )
    
    
    994
    
    
    
    (7.9
    )
    
    
    29.6Bankcard fees
    
    
    4,567
    
    
    
    3,804
    
    
    
    3,415
    
    
    
    763
    
    
    
    389
    
    
    
    20.1
    
    
    
    11.4Investment securities gains (losses)
    
    
    (6,529
    )
    
    
    (8,927
    )
    
    
    (1,513
    )
    
    
    2,398
    
    
    
    (7,414
    )
    
    
    (26.9
    )
    
    NMFair value change in CD swap derivatives
    
    
    (207
    )
    
    
    (3,604
    )
    
    
    
    
    
    
    3,397
    
    
    
    (3,604
    )
    
    
    (94.3
    )
    
    
    Other
    
    
    15,346
    
    
    
    14,240
    
    
    
    16,466
    
    
    
    1,106
    
    
    
    (2,226
    )
    
    
    7.8
    
    
    
    (13.5
    )Total noninterest income
    
    $
    90,627
    
    
    $
    80,508
    
    
    $
    91,458
    
    
    $
    10,119
    
    
    $
    (10,950
    )
    
    
    12.6
    
    
    
    (12.0
    )
  2006 compared with 2005
    2005 compared with 2004
  37




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NONINTEREST EXPENSE
  Noninterest Expense
 Year Ended December 31,
    
    
    $ Change
    
    
    % Change(dollars in thousands)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2006-2005
    
    
    2005-2004
    
    
    2006-2005
    
    
    2005-2004Salaries and employee benefits
    
    $
    132,400
    
    
    $
    132,153
    
    
    $
    127,958
    
    
    $
    247
    
    
    $
    4,195
    
    
    
    0.2
    %
    
    
    3.3
    %Occupancy
    
    
    22,288
    
    
    
    22,131
    
    
    
    19,865
    
    
    
    157
    
    
    
    2,266
    
    
    
    0.7
    
    
    
    11.4Professional services
    
    
    15,344
    
    
    
    17,279
    
    
    
    16,095
    
    
    
    (1,935
    )
    
    
    1,184
    
    
    
    (11.2
    )
    
    
    7.4Equipment
    
    
    14,691
    
    
    
    14,634
    
    
    
    14,252
    
    
    
    57
    
    
    
    382
    
    
    
    0.4
    
    
    
    2.7Data processing services
    
    
    14,989
    
    
    
    13,800
    
    
    
    13,131
    
    
    
    1,189
    
    
    
    669
    
    
    
    8.6
    
    
    
    5.1Advertising and public relations
    
    
    5,881
    
    
    
    7,853
    
    
    
    9,126
    
    
    
    (1,972
    )
    
    
    (1,273
    )
    
    
    (25.1
    )
    
    
    (13.9
    )Postage and delivery
    
    
    6,095
    
    
    
    6,213
    
    
    
    6,411
    
    
    
    (118
    )
    
    
    (198
    )
    
    
    (1.9
    )
    
    
    (3.1
    )Telephone
    
    
    5,777
    
    
    
    5,481
    
    
    
    5,940
    
    
    
    296
    
    
    
    (459
    )
    
    
    5.4
    
    
    
    (7.7
    )Other loan expenses
    
    
    4,446
    
    
    
    2,655
    
    
    
    3,964
    
    
    
    1,791
    
    
    
    (1,309
    )
    
    
    67.5
    
    
    
    (33.0
    )Stationery and supplies
    
    
    2,530
    
    
    
    3,091
    
    
    
    3,707
    
    
    
    (561
    )
    
    
    (616
    )
    
    
    (18.1
    )
    
    
    (16.6
    )Intangible asset amortization
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,899
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prepayment penalty on FHLB advances
    
    
    1,755
    
    
    
    
    
    
    
    17,959
    
    
    
    1,755
    
    
    
    (17,959
    )
    
    
    
    
    
    
    (100.0
    )Restructuring and merger related expenses
    
    
    11,324
    
    
    
    
    
    
    
    
    
    
    
    11,324
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    19,408
    
    
    
    14,853
    
    
    
    18,971
    
    
    
    4,555
    
    
    
    (4,118
    )
    
    
    30.7
    
    
    
    (21.7
    )Total noninterest expense
    
    $
    259,827
    
    
    $
    243,042
    
    
    $
    260,278
    
    
    $
    16,785
    
    
    $
    (17,236
    )
    
    
    6.9
    
    
    
    (6.6
    )
 2006 compared with 2005
   38




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2005 compared with 2004
    39




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FEDERAL AND STATE INCOME TAXES
   LINE OF BUSINESS RESULTS
  Net Income(in thousands)
    
    2006
    
    
    2005
    
    
    2004Commercial Banking
    
    $
    39,916
    
    
    $
    44,704
    
    
    $
    35,260Consumer Banking
    
    
    40,169
    
    
    
    38,584
    
    
    
    30,439Wealth Management
    
    
    2,940
    
    
    
    2,343
    
    
    
    1,204Other
    
    
    (19,689
    )
    
    
    (5,106
    )
    
    
    (5,224
    )Income from continuing operations
    
    
    63,336
    
    
    
    80,525
    
    
    
    61,679Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    14,418Net income
    
    $
    63,336
    
    
    $
    80,525
    
    
    $
    76,097
 2006 compared with 2005
   40




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2005 compared with 2004
   41




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##### Table of Contents



FINANCIAL CONDITION
 SUMMARY
  2006
    
    
    2005
    
    
    2004Average total assets (in millions)
    
    $
    7,706.5
    
    
    $
    7,777.8
    
    
    $
    7,585.5Average short term borrowings (in millions)
    
    
    374.1
    
    
    
    812.6
    
    
    
    653.4Average long term debt (in millions)
    
    
    998.2
    
    
    
    938.5
    
    
    
    936.0Average earning assets as a percent of average assets
    
    
    94.1
    %
    
    
    94.5
    %
    
    
    94.4
    %Average investment securities and money market investments as a
percent of average earning assets
    
    
    21.7
    
    
    
    24.8
    
    
    
    26.8Average portfolio loans as a percent of average earning assets
    
    
    78.0
    
    
    
    74.8
    
    
    
    72.7Interest-bearing deposits as a percent of average interest-bearing liabilities
    
    
    77.3
    
    
    
    71.3
    
    
    
    73.4Ratio of average noninterest bearing deposits to average deposits
    
    
    16.5
    
    
    
    17.6
    
    
    
    17.0
  42




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##### Table of Contents



AVERAGE TOTAL ASSETS
  INVESTMENT SECURITIES AND MONEY MARKET INVESTMENTS
   Investment Securities
 December 31 (in thousands)
    
    2006
    
    
    2005
    
    
    2004Available for Sale:U.S. Treasury
    
    $
    39,854
    
    
    $
    
    
    
    $
    Federal agencies
    
    
    436,315
    
    
    
    310,408
    
    
    
    291,991Collaterized mortgage obligations
    
    
    791,739
    
    
    
    496,925
    
    
    
    615,765Mortgage-backed securities
    
    
    994,767
    
    
    
    315,253
    
    
    
    443,112State and municipal securities
    
    
    575,907
    
    
    
    378,235
    
    
    
    395,878Other securities
    
    
    874
    
    
    
    1,176
    
    
    
    388Total
    
    $
    2,839,456
    
    
    $
    1,501,997
    
    
    $
    1,747,134Held to Maturity:State and municipal securities
    
    $
    109,744
    
    
    $
    82,431
    
    
    $
    54,035Total Investments
    
    $
    2,949,200
    
    
    $
    1,584,428
    
    
    $
    1,801,169
    43




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44




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Table 4. Maturity Distribution of Investment Securities Portfolio
 Due Within
    
    
    One to
    
    
    Five to
    
    
    AfterOne Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Ten Years
    
    
    TotalEstimated
    
    
    
    
    
    
    
    
    
    
    Estimated
    
    
    
    
    
    
    
    
    
    
    Estimated
    
    
    
    
    
    
    
    
    
    
    Estimated
    
    
    
    
    
    
    
    
    
    
    EstimatedDecember 31, 2006
    
    Amort.
    
    
    Fair
    
    
    Avg.
    
    
    Amort.
    
    
    Fair
    
    
    Avg.
    
    
    Amort.
    
    
    Fair
    
    
    Avg.
    
    
    Amort.
    
    
    Fair
    
    
    Avg.
    
    
    Amort.
    
    
    Fair
    
    
    Avg.(in thousands)
    
    Cost
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    YieldSecurities Available for Sale:US Treasury
securities (2)
    
    $
    39,854
    
    
    $
    39,854
    
    
    
    4.66
    %
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    $
    
    
    
    
   
    %
    
    $
    39,854
    
    
    $
    39,854
    
    
    
    4.66
    %Federal agency
securities (2)
    
    
    117,779
    
    
    
    117,779
    
    
    
    4.83
    
    
    
    204,747
    
    
    
    204,383
    
    
    
    4.88
    
    
    
    94,755
    
    
    
    94,755
    
    
    
    5.46
    
    
    
    19,398
    
    
    
    19,398
    
    
    
    5.78
    
    
    
    436,679
    
    
    
    436,315
    
    
    
    5.03Collateralized mortgage
obligations (2)(3)
    
    
    112,715
    
    
    
    111,407
    
    
    
    3.95
    
    
    
    657,476
    
    
    
    656,128
    
    
    
    5.18
    
    
    
    24,073
    
    
    
    24,073
    
    
    
    5.51
    
    
    
    131
    
    
    
    131
    
    
    
    6.92
    
    
    
    794,395
    
    
    
    791,739
    
    
    
    5.02Mortgage-backed
securities (2)(3)
    
    
    107,073
    
    
    
    107,075
    
    
    
    4.69
    
    
    
    637,129
    
    
    
    633,994
    
    
    
    5.00
    
    
    
    142,098
    
    
    
    141,318
    
    
    
    5.22
    
    
    
    112,571
    
    
    
    112,380
    
    
    
    5.34
    
    
    
    998,871
    
    
    
    994,767
    
    
    
    5.03State and municipal
securities (1)(2)
    
    
    26,938
    
    
    
    27,114
    
    
    
    7.67
    
    
    
    129,786
    
    
    
    133,935
    
    
    
    7.07
    
    
    
    230,331
    
    
    
    234,629
    
    
    
    6.12
    
    
    
    179,175
    
    
    
    180,229
    
    
    
    6.06
    
    
    
    566,230
    
    
    
    575,907
    
    
    
    6.39Other
securities
    
    
    824
    
    
    
    824
    
    
    
    5.32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    50
    
    
    
    8.00
    
    
    
    835
    
    
    
    874
    
    
    
    5.35Total securities
available for sale
    
    $
    405,183
    
    
    $
    404,053
    
    
    
    4.72
    %
    
    $
    1,629,138
    
    
    $
    1,628,440
    
    
    
    5.22
    %
    
    $
    491,257
    
    
    $
    494,775
    
    
    
    5.70
    %
    
    $
    311,286
    
    
    $
    312,188
    
    
    
    5.78
    %
    
    $
    2,836,864
    
    
    $
    2,839,456
    
    
    
    5.29
    %Securities Held to Maturity:State and municipal
securities (1)(2)
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    1,610
    
    
    $
    1,586
    
    
    
    4.86
    %
    
    $
    10,327
    
    
    $
    10,411
    
    
    
    5.94
    %
    
    $
    97,807
    
    
    $
    98,286
    
    
    
    6.28
    %
    
    $
    109,744
    
    
    $
    110,283
    
    
    
    6.23
    %Total securities
held to maturity
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    1,610
    
    
    $
    1,586
    
    
    
    4.86
    %
    
    $
    10,327
    
    
    $
    10,411
    
    
    
    5.94
    %
    
    $
    97,807
    
    
    $
    98,286
    
    
    
    6.28
    %
    
    $
    109,744
    
    
    $
    110,283
    
    
    
    6.23
    %
 
 (1)
    
    Average yields on tax-exempt obligations have been computed on a tax
equivalent basis, based on a 35% federal tax rate.(2)
    
    Yields are based on amortized cost.(3)
    
    Maturity distributions for collateralized mortgage obligations
and mortgage-backed securities are based on estimated average lives.(4)
    
    This table excludes stock holdings of the Federal Home Loan
Bank and Federal Reserve. 45




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##### Table of Contents



LOAN PORTFOLIO
  Portfolio Loans
  Table 5. Portfolio Loans (1)
 (in millions)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Portfolio Loans Outstanding at December 31Commercial
    
    $
    2,004.9
    
    
    $
    1,688.1
    
    
    $
    1,633.8
    
    
    $
    1,645.4
    
    
    $
    1,848.1Commercial real estate
    
    
    2,442.5
    
    
    
    1,190.4
    
    
    
    1,153.0
    
    
    
    1,194.2
    
    
    
    1,212.3Real estate construction
    
    
    678.1
    
    
    
    211.7
    
    
    
    102.9
    
    
    
    89.9
    
    
    
    168.4Total commercial
    
    
    5,125.5
    
    
    
    3,090.2
    
    
    
    2,889.7
    
    
    
    2,929.5
    
    
    
    3,228.8Residential mortgage loans
    
    
    1,543.5
    
    
    
    539.8
    
    
    
    508.2
    
    
    
    492.7
    
    
    
    622.2Direct consumer
    
    
    1,721.4
    
    
    
    1,142.0
    
    
    
    1,169.6
    
    
    
    998.3
    
    
    
    835.7Indirect consumer
    
    
    840.6
    
    
    
    844.1
    
    
    
    825.9
    
    
    
    743.9
    
    
    
    656.0Total
    
    $
    9,231.0
    
    
    $
    5,616.1
    
    
    $
    5,393.4
    
    
    $
    5,164.4
    
    
    $
    5,342.7
 Commercial Portfolio Loan Maturities and Interest Rate Sensitivity at December 31, 2006
 Within
    
    
    One to
    
    
    AfterOne Year
    
    
    Five Years
    
    
    Five Years
    
    
    TotalCommercial
    
    $
    988.4
    
    
    $
    849.0
    
    
    $
    167.5
    
    
    $
    2,004.9Commercial real estate
    
    
    371.2
    
    
    
    1,745.8
    
    
    
    325.5
    
    
    
    2,442.5Real estate construction
    
    
    325.4
    
    
    
    308.9
    
    
    
    43.8
    
    
    
    678.1Total commercial
    
    $
    1,685.0
    
    
    $
    2,903.7
    
    
    $
    536.8
    
    
    $
    5,125.5Loans above:With floating interest rates
    
    $
    1,250.8
    
    
    $
    1,249.7
    
    
    $
    377.6
    
    
    $
    2,878.1With predetermined interest rates
    
    
    434.2
    
    
    
    1,653.9
    
    
    
    159.3
    
    
    
    2,247.4Total
    
    $
    1,685.0
    
    
    $
    2,903.6
    
    
    $
    536.9
    
    
    $
    5,125.5
 
 (1)
    
    Excludes mortgage loans held for sale  46




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##### Table of Contents



Credit Risk Management.
  Commercial.
   Commercial Real Estate.
 47




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##### Table of Contents



Real Estate Construction.
  Residential Mortgage Loans .
  Direct Consumer.
 48




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##### Table of Contents



Indirect Consumer.
  Loans Held for Sale.
 NONPERFORMING ASSETS
  49




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##### Table of Contents



Table 6. Nonperforming Assets and Past Due Loans
 December 31 (in thousands)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Nonperforming Loans(1)(2)(3)NonaccrualLess than 30 days past due
    
    $
    4,305
    
    
    $
    4,206
    
    
    $
    2,761
    
    
    $
    7,721
    
    
    $
    13,030From 30 to 89 days past due
    
    
    1,413
    
    
    
    1,136
    
    
    
    3,118
    
    
    
    4,450
    
    
    
    23,15790 or more days past due
    
    
    52,174
    
    
    
    26,798
    
    
    
    36,940
    
    
    
    55,606
    
    
    
    45,848Total
    
    
    57,892
    
    
    
    32,140
    
    
    
    42,819
    
    
    
    67,777
    
    
    
    82,03590 days past due and still accruing
    
    
    767
    
    
    
    238
    
    
    
    40
    
    
    
    345
    
    
    
    859Restructured (1)
    
    
    378
    
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    Total nonperforming portfolio loans
    
    
    59,037
    
    
    
    32,378
    
    
    
    42,901
    
    
    
    68,122
    
    
    
    82,894Nonperforming held for sale
    
    
    22,846
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Repossessed Assets Acquired
    
    
    20,165
    
    
    
    7,351
    
    
    
    7,946
    
    
    
    7,771
    
    
    
    7,918Total nonperforming assets
    
    $
    102,048
    
    
    $
    39,729
    
    
    $
    50,847
    
    
    $
    75,893
    
    
    $
    90,812Nonperforming assets as a percent of portfolio loans
plus other repossessed assets acquired
    
    
    1.10
    %
    
    
    0.71
    %
    
    
    0.94
    %
    
    
    1.47
    %
    
    
    1.70
    %Nonperforming assets as a percent of total assets
    
    
    0.73
    
    
    
    0.51
    
    
    
    0.66
    
    
    
    1.01
    
    
    
    1.24Nonperforming Loans by Type(4)Commercial
    
    $
    8,843
    
    
    $
    12,118
    
    
    $
    13,816
    
    
    $
    38,553
    
    
    $
    47,744Commercial real estate
    
    
    14,915
    
    
    
    5,068
    
    
    
    14,464
    
    
    
    15,943
    
    
    
    18,665Total commercial
    
    
    23,758
    
    
    
    17,186
    
    
    
    28,280
    
    
    
    54,496
    
    
    
    66,409Residential mortgage
    
    
    28,428
    
    
    
    8,412
    
    
    
    8,643
    
    
    
    9,161
    
    
    
    10,865Direct Consumer
    
    
    6,041
    
    
    
    4,326
    
    
    
    3,527
    
    
    
    3,215
    
    
    
    3,817Indirect Consumer
    
    
    810
    
    
    
    2,454
    
    
    
    2,451
    
    
    
    1,250
    
    
    
    1,803Total
    
    $
    59,037
    
    
    $
    32,378
    
    
    $
    42,901
    
    
    $
    68,122
    
    
    $
    82,894
 
 (1)
    
    Nonperforming loans include loans on which interest is not being recognized
(nonaccrual), those on which interest has been renegotiated to lower than market rates because of
the financial condition of the borrowers (restructured), and loans 90 days past due and still
accruing.(2)
    
    Gross interest income that would have been recorded in 2006 for nonaccrual and
restructured loans, as of December 31, 2006, assuming interest had been accrued throughout the year
in accordance with original terms was $2.1 million. The comparable 2005 and 2004 totals were $2.5
million, and $3.8 million, respectively. Interest collected on these loans and included in income
was $0.6 million in 2006, $0.6 million in 2005 and $2.0 million in 2004. Therefore, on a net
basis, total income foregone due to these loans was $1.5 million in 2006, $1.9 million in 2005 and
$1.8 million in 2004.(3)
    
    December 31, 2006 amounts include the following nonperforming asset balances
acquired in the Republic merger: Less than 30 days past due and non-acrual $0.6 million, From 30
to 89 days past due and non-accrual $1.0 million, 90 days or more past due and non-accrual $29.2
million, no 90 days or more past due and still accruing and no restructured loans, nonperforming
held for sale $21.6 million, and other repossessed assets acquired $12.6 million.(4)
    
    December 31, 2006 amounts include the following nonperforming asset balances
acquired in the Republic merger: Commercial $0.2 million, commercial real estate $8.4 million,
residential mortgage $19.4 million, direct consumer $2.6 million, indirect consumer $0.1 million.    50




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Valuation Reserve(in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Balances  December 31Impaired loans with valuation reserve
    
    $
    20,737
    
    
    $
    7,989
    
    
    $
    7,550
    
    

    $
    5,059Impaired loans with no valuation reserve
    
    
    21,641
    
    
    
    908
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    42,378
    
    
    $
    8,897
    
    
    $
    7,550
    
    
    $
    5,059Impaired loans on nonaccrual basis
    
    $
    11,321
    
    
    $
    4,728
    
    
    $
    2,104
    
    
    $
    2,747Impaired loans on accrual basis
    
    
    31,057
    
    
    
    4,169
    
    
    
    5,446
    
    
    
    2,312Total impaired loans
    
    $
    42,378
    
    
    $
    8,897
    
    
    $
    7,550
    
    
    $
    5,059Average balance for the year
    
    $
    19,871
    
    
    $
    24,398Interest income recognized for the year
    
    
    1,478
    
    
    
    1,057Cash collected applied to outstanding principal
    
    
    344
    
    
    
    393
 51




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ALLOWANCE FOR LOAN LOSSES
  Table 7. Summary of Loan Loss Experience
 Year Ended December 31 (dollars in thousands)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Allowance for loan losses  January 1
    
    $
    116,400
    
    
    $
    122,184
    
    
    $
    121,350
    
    
    $
    104,859
    
    
    $
    74,355Transfer to reserve for commitments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,327Provision for loan losses
    
    
    11,265
    
    
    
    1,109
    
    
    
    21,609
    
    
    
    62,008
    
    
    
    117,331Charge-offs:Commercial(3)
    
    
    7,294
    
    
    
    12,920
    
    
    
    24,582
    
    
    
    47,683
    
    
    
    80,076Residential mortgage
    
    
    1,640
    
    
    
    1,152
    
    
    
    1,060
    
    
    
    1,233
    
    
    
    2,027Direct consumer
    
    
    5,823
    
    
    
    5,290
    
    
    
    5,864
    
    
    
    6,414
    
    
    
    7,346Indirect consumer
    
    
    9,062
    
    
    
    9,485
    
    
    
    7,565
    
    
    
    9,243
    
    
    
    8,710Total charge-offs
    
    
    23,819
    
    
    
    28,847
    
    
    
    39,071
    
    
    
    64,573
    
    
    
    98,159Recoveries:Commercial(3)
    
    
    3,670
    
    
    
    17,721
    
    
    
    13,960
    
    
    
    14,094
    
    
    
    5,283Residential mortgage
    
    
    154
    
    
    
    69
    
    
    
    70
    
    
    
    35
    
    
    
    11Direct consumer
    
    
    1,389
    
    
    
    1,419
    
    
    
    1,669
    
    
    
    1,847
    
    
    
    1,660Indirect consumer
    
    
    2,342
    
    
    
    2,745
    
    
    
    2,597
    
    
    
    3,080
    
    
    
    3,051Total recoveries
    
    
    7,555
    
    
    
    21,954
    
    
    
    18,296
    
    
    
    19,056
    
    
    
    10,005Net charge-offs
    
    
    16,264
    
    
    
    6,893
    
    
    
    20,775
    
    
    
    45,517
    
    
    
    88,154Allowance of acquired bank
    
    
    57,703
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Allowance for loan losses  December 31
    
    $
    169,104
    
    
    $
    116,400
    
    
    $
    122,184
    
    
    $
    121,350
    
    
    $
    104,859Allowance for losses on lending-related
commitments  December 31(2) (4)
    
    $
    6,119
    
    
    $
    3,023
    
    
    $
    2,833
    
    
    $
    2,654
    
    
    $
    2,654Portfolio loans outstanding at year-end(1)
    
    $
    9,231,082
    
    
    $
    5,616,119
    
    
    $
    5,393,365
    
    
    $
    5,164,416
    
    
    $
    5,342,669Average portfolio loans outstanding(1)
    
    
    5,657,476
    
    
    
    5,493,280
    
    
    
    5,210,817
    
    
    
    5,140,450
    
    
    
    5,467,139Ratio of allowance for loan losses to
nonperforming loans
    
    
    286.44
    %
    
    
    359.50
    %
    
    
    284.80
    %
    
    
    178.14
    %
    
    
    126.50
    %Ratio of allowance for loan losses to
loans outstanding at year-end
    
    
    1.83
    
    
    
    2.07
    
    
    
    2.27
    
    
    
    2.35
    
    
    
    1.96Ratio of net loans charged off as a percentage
of average loans outstanding
    
    
    0.29
    
    
    
    0.13
    
    
    
    0.40
    
    
    
    0.89
    
    
    
    1.61
 
 (1)
    
    Balances exclude loans held for sale.(2)
    
    During the fourth quarter of 2003, Citizens reclassified $2.7 million from the
allowance for loan losses related to unfunded loan commitments to other liabilities. Prior period
amounts were restated to conform to the new presentation.(3)
    
    The Commercial category includes both commercial and commercial real estate loans.(4)
    
    December 31, 2006 reserve for loan commitments includes $3.1 million from the
Republic merger.   52




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53




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Table 8. Allocation of the Allowance for Loan Losses (1)
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofDecember 31
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total(dollars in millions)
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    LoansSpecific allocated allowance:Commercial (2)
    
    $
    7.6
    
    
    
    
    
    
    $
    5.1
    
    
    
    
    
    
    $
    15.3
    
    
    
    
    
    
    $
    18.0
    
    
    
    
    
    
    $
    18.6Risk allocated allowances:Commercial (2)
    
    
    94.8
    
    
    
    55.5
    %
    
    
    55.2
    
    
    
    55.1
    %
    
    
    59.2
    
    
    
    53.6
    %
    
    
    68.3
    
    
    
    56.7
    %
    
    
    62.0
    
    
    
    60.4
    %Residential mortgage
    
    
    15.1
    
    
    
    16.7
    
    
    
    6.3
    
    
    
    9.6
    
    
    
    6.2
    
    
    
    9.4
    
    
    
    4.7
    
    
    
    9.6
    
    
    
    2.3
    
    
    
    11.7Direct Consumer
    
    
    16.7
    
    
    
    18.7
    
    
    
    12.4
    
    
    
    20.3
    
    
    
    6.9
    
    
    
    21.7
    
    
    
    6.3
    
    
    
    19.3
    
    
    
    7.1
    
    
    
    15.6Indirect Consumer
    
    
    25.5
    
    
    
    9.1
    
    
    
    27.5
    
    
    
    15.0
    
    
    
    12.3
    
    
    
    15.3
    
    
    
    8.6
    
    
    
    14.4
    
    
    
    8.0
    
    
    
    12.3Total risk allocated
allowance
    
    
    152.1
    
    
    
    
    
    
    
    101.4
    
    
    
    
    
    
    
    84.6
    
    
    
    
    
    
    
    87.9
    
    
    
    
    
    
    
    79.4Total allocated
    
    
    159.7
    
    
    
    100.0
    %
    
    
    106.5
    
    
    
    100.0
    %
    
    
    99.9
    
    
    
    100.0
    %
    
    
    105.9
    
    
    
    100.0
    %
    
    
    98.0
    
    
    
    100.0
    %General valuation allowances
    
    
    9.4
    
    
    
    
    
    
    
    9.9
    
    
    
    
    
    
    
    22.3
    
    
    
    
    
    
    
    15.4
    
    
    
    
    
    
    
    6.8Total
    
    $
    169.1
    
    
    
    
    
    
    $
    116.4
    
    
    
    
    
    
    $
    122.2
    
    
    
    
    
    
    $
    121.3
    
    
    
    
    
    
    $
    104.8
 
 (1)
    
    The allocation of the allowance for loan losses in the above table is based
upon ranges of estimates and is not intended to imply either limitations on the usage of the
allowance or precision of the specific amounts. Citizens and its subsidiaries do not view the
allowance for loan losses as being divisible among the various categories of loans. The entire
allowance is
available to absorb any future losses without regard to the category or categories in which the
charged-off loans are classified.(2)
    
    The commercial category includes both commercial and commercial real estate loans. Specific Allocated Allowance.
 Risk Allocated Allowance.
 General Valuation Allowances.
  54




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DEPOSITS
  Table 9. Average Deposits
 2006
    
    
    2005
    
    
    2004Year Ended December 31
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateNoninterest-bearing demand
    
    $
    921,580
    
    
    
    
    %
    
    $
    931,053
    
    
    
    
    %
    
    $
    898,520
    
    
    
    
    %Interest-bearing demand
    
    
    779,803
    
    
    
    0.65
    
    
    
    1,035,579
    
    
    
    0.67
    
    
    
    1,264,941
    
    
    
    0.75Savings
    
    
    1,478,492
    
    
    
    2.63
    
    
    
    1,505,604
    
    
    
    1.47
    
    
    
    1,397,290
    
    
    
    0.78Time
    
    
    2,408,092
    
    
    
    4.29
    
    
    
    1,814,154
    
    
    
    3.09
    
    
    
    1,716,919
    
    
    
    2.51Total
    
    $
    5,587,967
    
    
    
    2.63
    
    
    $
    5,286,390
    
    
    
    1.61
    
    
    $
    5,277,670
    
    
    
    1.20
   Table 10. Maturity of Time Certificates of Deposit of $100,000 or More At December 31, 2006
 (in thousands)Three months or less
    
    $
    858,193After three but within six months
    
    
    433,672After six but within twelve months
    
    
    496,461After twelve months
    
    
    321,634Total
    
    $
    2,109,960
  BORROWED FUNDS
  55




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##### Table of Contents



CAPITAL RESOURCES
  Regulatory MinimumWell-
    
    December 31,Required
    
    Capitalized
    
    2006
    
    2005
    
    2004Risk based:Tier 1 capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    9.41
    %
    
    
    9.94
    %
    
    
    9.96
    %Total capital
    
    
    8.00
    
    
    
    10.00
    
    
    
    11.90
    
    
    
    13.22
    
    
    
    13.32Tier 1 Leverage (1)
    
    
    4.00
    
    
    
    5.00
    
    
    
    7.22
    
    
    
    7.98
    
    
    
    7.84
 
 (1)
    
    In 2006, the Tier 1 leverage ratio is calculated using ending assets instead of
average assets due to the Republic merger on December 29, 2006  56




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##### Table of Contents



CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
 Contractual Obligations
  Table 11. Contractual Obligations
 Minimum Payments Due by PeriodYear Ended December 31, 2006
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More than(in thousands)
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 yearsDeposits without stated maturities(1)(2)
    
    $
    4,430,391
    
    
    $
    4,430,391
    
    
    $
    
    
    
    $
    
    
    
    $
    Deposits with stated maturities(1)(2)
    
    
    4,274,946
    
    
    
    3,317,475
    
    
    
    745,330
    
    
    
    145,082
    
    
    
    67,059Federal Funds Purch and Short Term Repos(1)
    
    
    922,328
    
    
    
    922,328Other Short-term borrowings(1)
    
    
    16,551
    
    
    
    16,551Federal Home Loan Bank borrowings(1)( 2)
    
    
    1,698,621
    
    
    
    314,882
    
    
    
    553,112
    
    
    
    127,084
    
    
    
    703,543Other borrowed debt(1)(2)
    
    
    577,131
    
    
    
    80,550
    
    
    
    67,000
    
    
    
    30,000
    
    
    
    399,581Subordinated debt(1)(2)
    
    
    350,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350,000Purchase obligations
    
    
    38,003
    
    
    
    11,859
    
    
    
    16,021
    
    
    
    7,618
    
    
    
    2,505Operating leases and non-cancelable contracts
    
    
    30,122
    
    
    
    7,493
    
    
    
    9,195
    
    
    
    5,307
    
    
    
    8,127Total
    
    $
    12,338,093
    
    
    $
    9,101,529
    
    
    $
    1,390,658
    
    
    $
    315,091
    
    
    $
    1,530,815
 
 (1)
    
    In the banking industry, interest-bearing obligations are principally utilized to
fund interest-bearing assets. As such, interest charges on related contractual obligations were
excluded from reported amounts as the potential cash outflows would have corresponding cash inflows
from interest-bearing assets.(2)
    
    This schedule excludes all carrying value adjustments, such as purchase accounting
fair value adjustments, hedge accounting fair value adjustments, and unamortized premiums and
discounts, that will not affect future cash payments associated with the maturity of this debt.  Off-Balance Sheet Arrangements
  57




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58




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##### Table of Contents



Table 12. Off Balance Sheet Financial Instruments
 Expected Expiration Dates by PeriodTotal
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More than
    
    
    December 31,(in thousands)
    
    2006
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 years
    
    
    2005Financial instruments whose
contract amounts represent credit risk:Loan commitments to extend credit
    
    $
    2,559,121
    
    
    $
    1,402,202
    
    
    $
    480,986
    
    
    $
    222,403
    
    
    $
    453,530
    
    
    $
    1,762,259Standby letters of credit
    
    
    171,472
    
    
    
    51,214
    
    
    
    24,058
    
    
    
    32,636
    
    
    
    63,564
    
    
    
    56,296Commercial letters of credit
    
    
    194,834
    
    
    
    66,518
    
    
    
    109,774
    
    
    
    14,978
    
    
    
    3,564
    
    
    
    223,269Financial instruments subject to interest rate risk:Receive fixed and pay fixed swaps
    
    
    372,300
    
    
    
    235,300
    
    
    
    137,000
    
    
    
    
    
    
    
    
    
    
    
    654,000Customer initiated swaps and corresponding offsets
    
    
    378,590
    
    
    
    
    
    
    
    65,874
    
    
    
    208,416
    
    
    
    104,300
    
    
    
    233,104Residential mortgage loan applications
with agreed-upon rates
    
    
    29,875
    
    
    
    29,875
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,897Forward commitments to sell residential mortgage loans
    
    
    78,498
    
    
    
    78,498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,000Total
    
    $
    3,784,690
    
    
    $
    1,863,607
    
    
    $
    817,692
    
    
    $
    478,433
    
    
    $
    624,958
    
    
    $
    2,968,825
       59




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LIQUIDITY AND DEBT CAPACITY
        60




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##### Table of Contents



INTEREST RATE RISK
       61




---



##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 62




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##### Table of Contents



Consolidated Balance Sheets  Citizens Banking Corporation and Subsidiaries
 December 31,(in thousands, except share data)
    
    2006
    
    
    2005AssetsCash and due from banks
    
    $
    223,747
    
    
    $
    194,748Interest-bearing deposits with banks
    
    
    203
    
    
    
    380Investment Securities:Securities available for sale, at fair value
    
    
    2,839,456
    
    
    
    1,501,997Securities held to maturity, at amortized cost (fair value of $110,283
and $82,364, respectively)
    
    
    109,744
    
    
    
    82,431Total investment securities
    
    
    2,949,200
    
    
    
    1,584,428FHLB and Federal Reserve stock
    
    
    132,895
    
    
    
    55,911Portfolio loans:Commercial
    
    
    2,004,894
    
    
    
    1,688,079Commercial real estate
    
    
    3,120,613
    
    
    
    1,402,128Total commercial
    
    
    5,125,507
    
    
    
    3,090,207Residential mortgage loans
    
    
    1,543,533
    
    
    
    539,824Direct consumer
    
    
    1,721,410
    
    
    
    1,142,002Indirect consumer
    
    
    840,632
    
    
    
    844,086Total portfolio loans
    
    
    9,231,082
    
    
    
    5,616,119Less: Allowance for loan losses
    
    
    (169,104
    )
    
    
    (116,400
    )Net portfolio loans
    
    
    9,061,978
    
    
    
    5,499,719Loans held for sale
    
    
    172,842
    
    
    
    16,252Premises and equipment
    
    
    139,490
    
    
    
    121,730Goodwill
    
    
    781,635
    
    
    
    54,527Other intangible assets
    
    
    46,071
    
    
    
    11,133Bank owned life insurance
    
    
    206,851
    
    
    
    84,435Other assets
    
    
    293,439
    
    
    
    128,620Total assets
    
    $
    14,008,351
    
    
    $
    7,751,883LiabilitiesNoninterest-bearing deposits
    
    $
    1,223,113
    
    
    $
    969,074Interest-bearing demand deposits
    
    
    923,848
    
    
    
    891,313Savings deposits
    
    
    2,280,496
    
    
    
    1,437,024Time deposits
    
    
    4,270,604
    
    
    
    2,176,428Total
deposits
    
    
    8,698,061
    
    
    
    5,473,839Federal funds purchased and securities sold
under agreements to repurchase
    
    
    922,328
    
    
    
    505,879Other short-term borrowings
    
    
    16,551
    
    
    
    23,242Other liabilities
    
    
    169,022
    
    
    
    86,351Long-term debt
    
    
    2,644,703
    
    
    
    1,006,109Total liabilities
    
    
    12,450,665
    
    
    
    7,095,420Shareholders EquityPreferred stock  no par value:Authorized  5,000,000 shares; Issued  none
    
    
    
    
    
    
    Common stock  no par valueAuthorized  100,000,000 sharesIssued and outstanding - 75,675,944 at 12/31/06; 42,967,649 at 12/31/05
    
    
    980,772
    
    
    
    85,526Retained earnings
    
    
    584,289
    
    
    
    570,483Accumulated other comprehensive income
    
    
    (7,375
    )
    
    
    454Total shareholders equity
    
    
    1,557,686
    
    
    
    656,463Total liabilities and shareholders equity
    
    $
    14,008,351
    
    
    $
    7,751,883
  63




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##### Table of Contents



Consolidated Statements of Income  Citizens Banking Corporation and Subsidiaries
 (in thousands, except share data)
    
    2006
    
    
    2005
    
    
    2004Interest IncomeInterest and fees on loans
    
    $
    399,469
    
    
    $
    343,890
    
    
    $
    297,811Interest and dividends on investment securities:Taxable
    
    
    48,950
    
    
    
    55,382
    
    
    
    56,386Tax-exempt
    
    
    21,113
    
    
    
    20,789
    
    
    
    20,662Dividends on FHLB and Federal Reserve stock
    
    
    2,701
    
    
    
    3,132
    
    
    
    3,408Money market investments
    
    
    119
    
    
    
    56
    
    
    
    12Total interest income
    
    
    472,352
    
    
    
    423,249
    
    
    
    378,279Interest ExpenseDeposits
    
    
    147,132
    
    
    
    85,154
    
    
    
    63,389Short-term borrowings
    
    
    16,017
    
    
    
    25,929
    
    
    
    9,574Long-term debt
    
    
    46,083
    
    
    
    36,417
    
    
    
    33,618Total interest expense
    
    
    209,232
    
    
    
    147,500
    
    
    
    106,581Net Interest Income
    
    
    263,120
    
    
    
    275,749
    
    
    
    271,698Provision for loan losses
    
    
    11,265
    
    
    
    1,109
    
    
    
    21,609Net interest income after provision for loan losses
    
    
    251,855
    
    
    
    274,640
    
    
    
    250,089Noninterest IncomeService charges on deposit accounts
    
    
    37,709
    
    
    
    35,409
    
    
    
    34,618Trust fees
    
    
    19,465
    
    
    
    18,445
    
    
    
    17,854Mortgage and other loan income
    
    
    9,270
    
    
    
    8,983
    
    
    
    9,547Brokerage and investment fees
    
    
    6,995
    
    
    
    7,803
    
    
    
    7,710ATM network user fees
    
    
    4,011
    
    
    
    4,355
    
    
    
    3,361Bankcard fees
    
    
    4,567
    
    
    
    3,804
    
    
    
    3,415Fair value change in CD swap derivatives
    
    
    (207
    )
    
    
    (3,604
    )
    
    
    Other
    
    
    15,346
    
    
    
    14,240
    
    
    
    16,466Total fees and other income
    
    
    97,156
    
    
    
    89,435
    
    
    
    92,971Investment securities gains (losses)
    
    
    (6,529
    )
    
    
    (8,927
    )
    
    
    (1,513
    )Total noninterest income
    
    
    90,627
    
    
    
    80,508
    
    
    
    91,458Noninterest ExpenseSalaries and employee benefits
    
    
    132,400
    
    
    
    132,153
    
    
    
    127,958Occupancy
    
    
    22,288
    
    
    
    22,131
    
    
    
    19,865Professional services
    
    
    15,344
    
    
    
    17,279
    
    
    
    16,095Equipment
    
    
    14,691
    
    
    
    14,634
    
    
    
    14,252Data processing services
    
    
    14,989
    
    
    
    13,800
    
    
    
    13,131Advertising and public relations
    
    
    5,881
    
    
    
    7,853
    
    
    
    9,126Postage and delivery
    
    
    6,095
    
    
    
    6,213
    
    
    
    6,411Telephone
    
    
    5,777
    
    
    
    5,481
    
    
    
    5,940Other loan expenses
    
    
    4,446
    
    
    
    2,655
    
    
    
    3,964Stationery and supplies
    
    
    2,530
    
    
    
    3,091
    
    
    
    3,707Intangible asset amortization
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,899Prepayment penalty on FHLB advances
    
    
    1,755
    
    
    
    
    
    
    
    17,959Restructuring and merger related expenses
    
    
    11,324
    
    
    
    
    
    
    
    Other
    
    
    19,408
    
    
    
    14,853
    
    
    
    18,971Total noninterest expense
    
    
    259,827
    
    
    
    243,042
    
    
    
    260,278Income from Continuing Operations Before Income Taxes
    
    
    82,655
    
    
    
    112,106
    
    
    
    81,269Income tax provision
    
    
    19,319
    
    
    
    31,581
    
    
    
    19,590Income from Continuing Operations
    
    
    63,336
    
    
    
    80,525
    
    
    
    61,679Discontinued operations:Income from discontinued operations (net of income tax of $939)
    
    
    
    
    
    
    
    
    
    
    1,659Gain on sale of discontinued operations (including income tax benefit of $1,109)
    
    
    
    
    
    
    
    
    
    
    12,759Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    14,418Net Income
    
    $
    63,336
    
    
    $
    80,525
    
    
    $
    76,097Earnings Per Share from Continuing OperationsBasic
    
    $
    1.48
    
    
    $
    1.87
    
    
    $
    1.43Diluted
    
    
    1.47
    
    
    
    1.85
    
    
    
    1.41Earnings Per Share from Discontinued OperationsBasic
    
    $
    
    
    
    $
    
    
    
    $
    0.33Diluted
    
    
    
    
    
    
    
    
    
    
    0.33Net Income Per Common Share:Basic
    
    $
    1.48
    
    
    $
    1.87
    
    
    $
    1.76Diluted
    
    
    1.47
    
    
    
    1.85
    
    
    
    1.74Average Common Shares Outstanding:Basic
    
    
    42,913,180
    
    
    
    43,095,730
    
    
    
    43,266,228Diluted
    
    
    43,065,294
    
    
    
    43,412,247
    
    
    
    43,762,966
  64




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##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity
Citizens Banking Corporation and Subsidiaries
 AccumulatedOtherCommon Stock
    
    
    Retained
    
    
    Comprehensive(in thousands, except per share amounts)
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance at January 1, 2004
    
    
    43,242
    
    
    $
    100,314
    
    
    $
    512,045
    
    
    $
    22,803
    
    
    $
    635,162Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    76,097
    
    
    
    
    
    
    
    76,097Other comprehensive income:Net unrealized loss on securities available-for-sale,
net of tax effect of ($3,131)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,814
    )Less: Reclassification adjustment for net gains included
in net income, net of tax effect of $528
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    981Net change in unrealized gain on qualifying cash flow
hedges, net of tax effect of ($38)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )Minimum pension liability, net of tax effect of $51
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,809
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,288Proceeds from stock options exercised and restricted stock activity
    
    
    402
    
    
    
    8,267
    
    
    
    
    
    
    
    
    
    
    
    8,267Tax benefit on non-qualified stock options
    
    
    
    
    
    
    1,370
    
    
    
    
    
    
    
    
    
    
    
    1,370Net change in deferred compensation
    
    
    
    
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    193Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    272
    
    
    
    
    
    
    
    272Cash dividends declared on common shares  $1.140 per share
    
    
    
    
    
    
    
    
    
    
    (49,286
    )
    
    
    
    
    
    
    (49,286
    )Shares acquired for retirement
    
    
    (404
    )
    
    
    (12,964
    )
    
    
    
    
    
    
    
    
    
    
    (12,964
    )Balance at December 31, 2004
    
    
    43,240
    
    
    $
    97,180
    
    
    $
    539,128
    
    
    $
    17,994
    
    
    $
    654,302Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    80,525
    
    
    
    
    
    
    
    80,525Other comprehensive income:Net unrealized loss on securities available-for-sale,
net of tax effect of ($12,567)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,340
    )Less: Reclassification adjustment for net gains included
in net income, net of tax effect of $3,125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,802Net change in unrealized gain on qualifying cash flow
hedges, net of tax effect of $627
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,166Minimum pension liability, net of tax effect of ($629)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,168
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,540
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,985Proceeds from stock options exercised and restricted stock activity
    
    
    337
    
    
    
    5,061
    
    
    
    
    
    
    
    
    
    
    
    5,061Tax benefit on non-qualified stock options
    
    
    
    
    
    
    783
    
    
    
    
    
    
    
    
    
    
    
    783Net change in deferred compensation
    
    
    
    
    
    
    691
    
    
    
    
    
    
    
    
    
    
    
    691Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    141
    
    
    
    
    
    
    
    141Cash dividends declared on common shares  $1.140 per share
    
    
    
    
    
    
    
    
    
    
    (49,311
    )
    
    
    
    
    
    
    (49,311
    )Shares acquired for retirement
    
    
    (609
    )
    
    
    (18,189
    )
    
    
    
    
    
    
    
    
    
    
    (18,189
    )Balance at December 31, 2005
    
    
    42,968
    
    
    $
    85,526
    
    
    $
    570,483
    
    
    $
    454
    
    
    $
    656,463Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    63,336
    
    
    
    
    
    
    
    63,336Other comprehensive income:Net unrealized gain on securities available-for-sale,
net of tax effect of $866
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,609Less: Reclassification adjustment for net gains included
in net income, net of tax effect of ($21)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )Net change in unrealized gain on qualifying cash flow
hedges, net of tax effect of ($435)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (808
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    761Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,097Proceeds from stock options exercised and restricted stock activity
    
    
    304
    
    
    
    3,194
    
    
    
    
    
    
    
    
    
    
    
    3,194Recognition of stock-based compensation
    
    
    
    
    
    
    3,766
    
    
    
    
    
    
    
    
    
    
    
    3,766Cash dividends declared on common shares  $1.155 per share
    
    
    
    
    
    
    
    
    
    
    (49,530
    )
    
    
    
    
    
    
    (49,530
    )Common shares issued and stock options assumed due to Republic merger
    
    
    32,739
    
    
    
    897,234
    
    
    
    
    
    
    
    
    
    
    
    897,234Shares acquired for retirement
    
    
    (335
    )
    
    
    (8,948
    )
    
    
    
    
    
    
    
    
    
    
    (8,948
    )Adjustment to initially apply FASB 158, net of tax effect of ($4,626)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,590
    )
    
    
    (8,590
    )Balance at December 31, 2006
    


    75,676
    
    
    $
    980,772
    
    
    $
    584,289
    
    
    $
    (7,375
    )
    
    $
    1,557,686
  65




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##### Table of Contents



Consolidated Statements of Cash Flows
Citizens Banking Corporation and Subsidiaries


Year Ended December 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004Operating Activities:Net income
    
    $
    63,336
    
    
    $
    80,525
    
    
    $
    61,679Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    11,265
    
    
    
    1,109
    
    
    
    21,609Depreciation and amortization
    
    
    13,730
    
    
    
    14,005
    
    
    
    11,871Amortization of other intangibles
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,899Deferred income tax credit
    
    
    (1,252
    )
    
    
    (3,569
    )
    
    
    (417
    )Net amortization on investment securities
    
    
    83
    
    
    
    3,239
    
    
    
    8,708Investment securities losses
    
    
    6,529
    
    
    
    8,927
    
    
    
    1,513Loans originated for sale
    
    
    (249,806
    )
    
    
    (320,938
    )
    
    
    (397,280
    )Proceeds from sales of mortgage loans held for sale
    
    
    258,151
    
    
    
    337,473
    
    
    
    416,098Net gains from loan sales
    
    
    (4,349
    )
    
    
    (4,749
    )
    
    
    (4,757
    )Net loss on sale of other real estate
    
    
    439
    
    
    
    158
    
    
    
    124Recognition of stock-based compensation expense, net of tax
    
    
    2,448
    
    
    
    541
    
    
    
    302Other
    
    
    (31,577
    )
    
    
    (3,394
    )
    
    
    (19,421
    )Net cash provided by operating activities
    
    
    71,896
    
    
    
    116,226
    
    
    
    102,928Investing Activities:Net decrease in money market investments
    
    
    227
    
    
    
    1,389
    
    
    
    292Securities available-for-sale:Proceeds from sales
    
    
    114
    
    
    
    313,318
    
    
    
    77,829Proceeds from maturities and payments
    
    
    284,599
    
    
    
    374,676
    
    
    
    355,621Purchases
    
    
    (333,136
    )
    
    
    (470,513
    )
    
    
    (374,334
    )Securities held-to-maturity:Purchases
    
    
    (27,400
    )
    
    
    (28,407
    )
    
    
    (34,321
    )Proceeds from sales of other real estate
    
    
    5,711
    
    
    
    6,460
    
    
    
    10,050Proceeds from sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    26,250Net increase in loans and leases
    
    
    (95,322
    )
    
    
    (229,647
    )
    
    
    (249,723
    )Net increase in properties and equipment
    
    
    (7,614
    )
    
    
    (17,791
    )
    
    
    (19,812
    )Acquisition, net of cash received
    
    
    (105,148
    )
    
    
    
    
    
    
    Net cash used by investing activities
    
    
    (277,969
    )
    
    
    (50,515
    )
    
    
    (208,148
    )Financing Activities:Net (decrease) increase in demand and savings deposits
    
    
    (120,815
    )
    
    
    (390,036
    )
    
    
    304,660Net increase (decrease) in time deposits
    
    
    292,986
    
    
    
    564,115
    
    
    
    (278,982
    )Net increase (decrease) in short-term borrowings
    
    
    87,765
    
    
    
    (195,653
    )
    
    
    97,123Proceeds from issuance of long-term debt
    
    
    376,283
    
    
    
    275,000
    
    
    
    350,000Principal reductions in long-term debt
    
    
    (347,181
    )
    
    
    (215,715
    )
    
    
    (337,825
    )Cash dividends paid
    
    
    (49,530
    )
    
    
    (49,311
    )
    
    
    (49,286
    )Proceeds from stock options exercised and restricted stock activity
    
    
    3,194
    
    
    
    5,061
    
    
    
    8,267Tax benefit from share-based compensation
    
    
    1,318
    
    
    
    291
    
    
    
    163Shares acquired for retirement
    
    
    (8,948
    )
    
    
    (18,189
    )
    
    
    (12,964
    )Net cash provided (used) by financing activities
    
    
    235,072
    
    
    
    (24,437
    )
    
    
    81,156Cash flows of discontinued operations:Net cash provided by operating activities
    
    
    
    
    
    
    
    
    
    
    9,011Net cash provided by investing activities
    
    
    
    
    
    
    
    
    
    
    158,186Net cash used in financing activities
    
    
    
    
    
    
    
    
    
    
    (172,204
    )Net cash used in discontinued operations
    
    
    
    
    
    
    
    
    
    
    (5,007
    )Net increase (decrease) in cash and due from banks
    
    
    28,999
    
    
    
    41,274
    
    
    
    (29,071
    )Cash and cash equivalents at beginning of period, continuing operations
    
    
    194,748
    
    
    
    153,474
    
    
    
    177,538Cash and cash equivalents at beginning of period, discontinued operations
    
    
    
    
    
    
    
    
    
    
    5,007Cash and cash equivalents at beginning of period
    
    
    194,748
    
    
    
    153,474
    
    
    
    182,545Cash and cash equivalents at end of period, continuing operations
    
    
    223,747
    
    
    
    194,748
    
    
    
    153,474Cash and cash equivalents at end of period, discontinued operations
    
    
    
    
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    $
    223,747
    
    
    $
    194,748
    
    
    $
    153,474Supplemental Cash Flow Information:Interest paid from continuing operations
    
    $
    204,523
    
    
    $
    145,183
    
    
    $
    106,803Income taxes paid from continuing operations
    
    
    30,867
    
    
    
    30,363
    
    
    
    13,170Loans transferred to other real estate owned
    
    
    6,802
    
    
    
    5,533
    
    
    
    10,373Loans transferred to held-for-sale
    
    
    29,160
    
    
    
    
    
    
    
    Securitization of mortgage loans
    
    
    214,695
    
    
    
    
    
    
    
    Noncash investing and financing activities of business combination:Fair value of core deposit intangibles acquired
    
    
    37,837
    
    
    
    
    
    
    
    Goodwill recognized
    
    
    727,108
    
    
    
    
    
    
    
    Stock issued and options assumed due to Republic merger
    
    
    897,234
    
    
    
    
    
    
    
    Assets acquired in Republic merger
    
    
    5,418,403
    
    
    
    
    
    
    
    Liabilities assumed in Republic merger
    
    
    5,013,703
    
    
    
    
    
    
    
    




66



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##### Table of Contents



Citizens Banking Corporation
 
 Notes To Consolidated Financial Statements
 December 31, 2006, 2005, and 2004
  Note 1. Summary of Significant Accounting Policies
  Basis of Financial Statement Presentation
     67




---



##### Table of Contents



Business Combinations
  Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
  Investment Securities
  Loans
    68




---



##### Table of Contents



Allowance for Loan Losses
    Loans Held for Sale
   69




---



##### Table of Contents



Premises and Equipment
   Other Real Estate Owned
  Bank Owned Life Insurance
  Goodwill and Core Deposit Intangible Assets
  Mortgage Servicing Rights
  70




---



##### Table of Contents



Securitizations and Sales of Mortgage Loans
   Derivative Instruments
       71




---



##### Table of Contents



Stock-Based Compensation
       72




---



##### Table of Contents



(in thousands, except per share amounts)
    
    2005
    
    
    2004Net income, as reported
    
    $
    80,525
    
    
    $
    76,097Add: Stock-based employee compensation expense included in reported net income,
net of related tax effects
    
    
    541
    
    
    $
    302Less: Total stock-based employee compensation expense determined under fair value
method for all awards, net of related tax effects
    
    
    (6,095
    )
    
    
    (3,157
    )Pro forma Net Income
    
    $
    74,971
    
    
    $
    73,242Net income per shareBasic  as reported
    
    $
    1.87
    
    
    $
    1.76Basic  pro forma
    
    
    1.74
    
    
    
    1.69Diluted  as reported
    
    
    1.85
    
    
    
    1.74Diluted  pro forma
    
    
    1.72
    
    
    
    1.67
  Income Taxes
   Net Income per Share
  Cash and Cash Equivalents
  Reclassifications
  73




---



##### Table of Contents



Note 2. Recent Accounting Pronouncements
 Statements of Financial Accounting Standards (SFAS)
 SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R).
 SFAS No. 157, Fair Value Measurements.
 SFAS No. 156, Accounting for Servicing of Financial Assets.
 Financial Accounting Standards Board (FASB) Staff Positions and Interpretations
 FASB Staff Position (FSP) 115-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments
 FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB
Statement 109.
 74




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##### Table of Contents



Note 3. Recent Transactions
 Republic Merger
  
    
    $154.9 million in cash;
    
    $885.0 million in value from 32.7 million Citizens common shares
valued for accounting purposes at $27.03 per share; and
    
    the exchange of Republic unvested restricted stock and outstanding
stock options and warrants for Citizens restricted stock and stock
options valued for accounting purposes at $12.3 million.
  Pending Branch Sale
  Enhanced Trust Preferred Securities
  Strategic Business Alliances for the Mortgage Operations, Secondary Marketing and Title Services
Functions
  Note 4. Business Combinations
  75




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##### Table of Contents



(in thousands, except per share data)Purchase priceNumber of
shares of Citizens, common stock issued for
Republic Bancorp stock
    
    
    32,739Ten-day average of Citizens common stock price as
of December 28, 2006
    
    $
    27.03Total Stock Consideration
    
    
    
    
    
    $
    884,953Fair value of Republic stock options, warrants and restricted
stock converted to Citizens options and restricted stock
    
    
    
    
    
    
    12,281Total common and restricted stock issued and
stock options assumed
    
    
    
    
    
    
    897,234Cash consideration
    
    
    
    
    
    
    154,850Total stock and cash consideration
    
    
    
    
    
    
    1,052,084Acquisition costs:Direct costs of acquisition (net of tax)
    
    
    
    
    
    
    21,963Total purchase price and acquisition costs
    
    
    
    
    
    
    1,074,047Allocation of purchase priceRepublic shareholders equity
    
    $
    404,700Republic goodwill
    
    
    (1,215
    )Republic other intangibles
    
    
    (2,143
    )Adjustments to reflect assets acquired and liabilities assumed
at fair value:Securities
    
    
    (5,574
    )Loans and leases
    
    
    (90,965
    )Core deposit intangible
    
    
    37,837Other assets
    
    
    26,830Deposits
    
    
    4,255Short term debt
    
    
    (3,190
    )Other liabilities
    
    
    (2,244
    )Long term debt
    
    
    (21,352
    )Fair value of net assets acquired
    
    
    
    
    
    
    346,939Estimated goodwill resulting from the Republic merger
    
    
    
    
    
    $
    727,108
   76




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##### Table of Contents



Republic Bancorp, Inc.
 (in thousands)AssetsCash and due from banks
    
    $
    49,702Money market investments
    
    
    50Investment securities
    
    
    1,301,004Federal Home Loan Bank stock
    
    
    75,327Loans held for sale
    
    
    62,670Portfolio loans, net
    
    
    3,666,855Premises and equipment
    
    
    25,515Goodwill
    
    
    1,215Intangible assets
    
    
    2,143Other assets
    
    
    233,922Total assets
    
    $
    5,418,403LiabilitiesDeposits
    
    
    3,056,306Short-term borrowings
    
    
    318,803Other liabilities
    
    
    57,642Long-term debt
    
    
    1,580,952Total liabilities
    
    
    5,013,703Shareholders EquityTotal shareholders equity
    
    
    404,700Total liabilities and shareholders equity
    
    $
    5,418,403
  2006
    
    
    2005(in thousands, except per share data)
    
    Pro-Forma
    
    
    Pro-FormaNet interest income
    
    $
    410,640
    
    
    $
    435,720Provision for loan losses
    
    
    50,315
    
    
    
    6,909Net interest income after provision for loan losses
    
    
    360,325
    
    
    
    428,811Total noninterest income
    
    
    111,925
    
    
    
    123,812Total noninterest expense
    
    
    358,284
    
    
    
    342,463Income Before Income Taxes
    
    
    113,966
    
    
    
    210,160Income tax provision
    
    
    27,627
    
    
    
    60,600Net Income
    
    $
    86,339
    
    
    $
    149,560Per Common Share DataNet income Per Common Share:Basic
    
    $
    1.14
    
    
    $
    1.96Diluted
    
    
    1.14
    
    
    
    1.94Weighted Average Shares Outstanding During the PeriodBasic shares
    
    
    75,612
    
    
    
    76,490Diluted shares
    
    
    76,059
    
    
    
    77,168
 77




---



##### Table of Contents



Note 5. Business Restructuring and Other Merger-Related Charges
  December 31, 2006(in thousands)
    
    Restructuring Costs
    
    
    Merger Related Costs
    
    
    TotalsPersonnel
    
    $
    4,323
    
    
    $
    
    
    
    $
    4,323Facilities/Branches
    
    
    3,895
    
    
    
    
    
    
    
    3,895Systems/Other
    
    
    791
    
    
    
    2,315
    
    
    
    3,106Total charges
    
    $
    9,009
    
    
    $
    2,315
    
    
    $
    11,324
  Note 6. Investment Securities
  December 31, 2006
    
    
    December 31, 2005Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    436,679
    
    
    
    436,315
    
    
    
    1,044
    
    
    
    1,408
    
    
    
    309,681
    
    
    
    310,408
    
    
    
    2,046
    
    
    
    1,319Collateralized Mortgage Obligations
    
    
    794,395
    
    
    
    791,739
    
    
    
    242
    
    
    
    2,898
    
    
    
    503,626
    
    
    
    496,925
    
    
    
    219
    
    
    
    6,920Mortgage-backed
    
    
    998,871
    
    
    
    994,767
    
    
    
    393
    
    
    
    4,497
    
    
    
    322,587
    
    
    
    315,253
    
    
    
    767
    
    
    
    8,101State and municipal
    
    
    566,230
    
    
    
    575,907
    
    
    
    10,328
    
    
    
    651
    
    
    
    364,853
    
    
    
    378,235
    
    
    
    14,391
    
    
    
    1,009Other
    
    
    835
    
    
    
    874
    
    
    
    40
    
    
    
    1
    
    
    
    1,072
    
    
    
    1,176
    
    
    
    107
    
    
    
    3Total available for sale
    
    $
    2,836,864
    
    
    $
    2,839,456
    
    
    $
    12,047
    
    
    $
    9,455
    
    
    $
    1,501,819
    
    
    $
    1,501,997
    
    
    $
    17,530
    
    
    $
    17,352Held to Maturity:State and
municipalTotal held to maturity
    
    $
    109,744
    
    
    $
    110,283
    
    
    $
    905
    
    
    $
    366
    
    
    $
    82,431
    
    
    $
    82,364
    
    
    $
    590
    
    
    $
    657FHLB and Fed Reserve stock
    
    $
    132,895
    
    
    $
    132,895
    
    
    $
    
    
    
    $
    
    
    
    $
    55,911
    
    
    $
    55,911
    
    
    $
    
    
    
    $
    
  78




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##### Table of Contents



Within
    
    
    1 to 5
    
    
    5 to 10
    
    
    After 10
    
    
    
    
    
    
    WeightedAverage(in thousands)
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total
    
    
    YieldAvailable for Sale:U.S. Treasury
    
    $
    39,854
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    39,854
    
    
    
    4.66
    %Federal Agencies
    
    
    117,779
    
    
    
    204,747
    
    
    
    94,755
    
    
    
    19,398
    
    
    $
    436,679
    
    
    
    5.03Collateralized Mortgage Obligations
    
    
    112,715
    
    
    
    657,476
    
    
    
    24,073
    
    
    
    131
    
    
    
    794,395
    
    
    
    5.02Mortgage-backed Securities
    
    
    107,073
    
    
    
    637,129
    
    
    
    142,098
    
    
    
    112,571
    
    
    
    998,871
    
    
    
    5.03State and municipal
    
    
    26,938
    
    
    
    129,786
    
    
    
    230,331
    
    
    
    179,175
    
    
    
    566,230
    
    
    
    6.39Other
    
    
    824
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    835
    
    
    
    5.35Amortized Cost
    
    $
    405,183
    
    
    $
    1,629,138
    
    
    $
    491,257
    
    
    $
    311,286
    
    
    $
    2,836,864Fair Value
    
    $
    404,053
    
    
    $
    1,628,440
    
    
    $
    494,775
    
    
    $
    312,188
    
    
    $
    2,839,456Weighted Average Yield
    
    
    4.72
    %
    
    
    5.22
    %
    
    
    5.70
    %
    
    
    5.78
    %
    
    
    5.29
    %Held to Maturity:State and Municipal
    
    $
    
    
    
    $
    1,610
    
    
    $
    10,327
    
    
    $
    97,807
    
    
    $
    109,744
    
    
    
    6.23
    %Amortized Cost
    
    $
    
    
    
    $
    1,610
    
    
    $
    10,327
    
    
    $
    97,807
    
    
    $
    109,744Fair Value
    
    $
    
    
    
    $
    1,586
    
    
    $
    10,411
    
    
    $
    98,286
    
    
    $
    110,283Weighted Average Yield
    
    
    
    
    
    
    4.86
    %
    
    
    5.94
    %
    
    
    6.28
    %
    
    
    6.23
    %
  79




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##### Table of Contents



As of December 31, 2006
    
    Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair 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
 As of December 31, 2005
    
    Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Federal agencies:
    
    
    173,266
    
    
    
    1,319
    
    
    
    
    
    
    
    
    
    
    
    173,266
    
    
    
    1,319Collateralized Mortgage
Obligations
    
    
    219,459
    
    
    
    1,421
    
    
    
    257,390
    
    
    
    5,499
    
    
    
    476,849
    
    
    
    6,920Mortgage-backed
    
    
    100,786
    
    
    
    2,249
    
    
    
    183,209
    
    
    
    5,852
    
    
    
    283,995
    
    
    
    8,101State and municipal
    
    
    36,539
    
    
    
    658
    
    
    
    10,046
    
    
    
    351
    
    
    
    46,585
    
    
    
    1,009Other
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    3
    
    
    
    6
    
    
    
    3Total available for sale
    
    
    530,050
    
    
    
    5,647
    
    
    
    450,651
    
    
    
    11,705
    
    
    
    980,701
    
    
    
    17,352Held to Maturity:State and municipal
    
    
    41,471
    
    
    
    544
    
    
    
    3,660
    
    
    
    113
    
    
    
    45,131
    
    
    
    657Total held to maturity
    
    
    41,471
    
    
    
    544
    
    
    
    3,660
    
    
    
    113
    
    
    
    45,131
    
    
    
    657Total
    
    $
    571,521
    
    
    $
    6,191
    
    
    $
    454,311
    
    
    $
    11,818
    
    
    $
    1,025,832
    
    
    $
    18,009
   80




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##### Table of Contents



Year Ended December 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004Proceeds from sales
    
    $
    114
    
    
    $
    313,318
    
    
    $
    77,829Securities gains
    
    $
    634
    
    
    $
    49
    
    
    $
    639Securities losses
    
    
    (7,163
    )
    
    
    (8,976
    )
    
    
    (2,152
    )Net Loss
    
    $
    (6,529
    )
    
    $
    (8,927
    )
    
    $
    (1,513
    )
  Note 7. Loans, Nonperforming Assets, Allowance for Loan Losses, and Loans Held for Sale
    81




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##### Table of Contents



December 31,(in thousands)
    
    2006(1)
    
    
    2005Nonperforming loans:Nonaccrual
    
    $
    57,892
    
    
    $
    32,140Loans 90 days past due (still accruing)
    
    
    767
    
    
    
    238Restructured
    
    
    378
    
    
    
    Total nonperforming portfolio loans
    
    
    59,037
    
    
    
    32,378Nonperforming held for sale
    
    
    22,846
    
    
    
    Other real estate acquired
    
    
    18,347
    
    
    
    5,306Other non-real estate acquired
    
    
    1,818
    
    
    
    2,045Total nonperforming assets
    
    $
    102,048
    
    
    $
    39,729
 
 (1)
    
    December 31, 2006 amounts include the following nonperforming asset
balances acquired in the Republic merger: Nonaccrual $30.7 million, no loans 90 days or more
past due and still accruing, no restructured loans, nonperforming held for sale $21.6
million, other real estate $12.6 million, and no other assets acquired by repossession.  Year Ended December 31,(in thousands)
    
    2006(1)
    
    
    2005
    
    
    2004Interest income:At original contract rates
    
    $
    2,136
    
    
    $
    2,545
    
    
    $
    3,819As actually recognized
    
    
    615
    
    
    
    615
    
    
    
    2,035Interest foregone
    
    $
    1,521
    
    
    $
    1,930
    
    
    $
    1,784
 
 (1)
    
    2006 excludes the effect of the Republic merger.   Valuation Reserve(in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Balances  December 31Impaired loans with valuation reserve
    
    $
    20,737
    
    
    $
    7,989
    
    
    $
    7,550
    
    
    $
    5,059Impaired loans with no valuation reserve
    
    
    21,641
    
    
    
    908
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    42,378
    
    
    $
    8,897
    
    
    $
    7,550
    
    
    $
    5,059Impaired loans on nonaccrual basis
    
    $
    11,321
    
    
    $
    4,728
    
    
    $
    2,104
    
    
    $
    2,747Impaired loans on accrual basis
    
    
    31,057
    
    
    
    4,169
    
    
    
    5,446
    
    
    
    2,312Total impaired loans
    
    $
    42,378
    
    
    $
    8,897
    
    
    $
    7,550
    
    
    $
    5,059Average balance for the year
    
    $
    19,871
    
    
    $
    24,398Interest income recognized for the year
    
    
    1,478
    
    
    
    1,057Cash collected applied to outstanding principal
    
    
    344
    
    
    
    393
 82




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##### Table of Contents



(in thousands)
    
    2006
    
    
    2005
    
    
    2004Allowance for loan losses  January 1
    
    $
    116,400
    
    
    $
    122,184
    
    
    $
    121,350Provision for loan losses
    
    
    11,265
    
    
    
    1,109
    
    
    
    21,609Charge-offs
    
    
    (23,819
    )
    
    
    (28,847
    )
    
    
    (39,071
    )Recoveries
    
    
    7,555
    
    
    
    21,954
    
    
    
    18,296Net charge-offs
    
    
    (16,264
    )
    
    
    (6,893
    )
    
    
    (20,775
    )Allowance of acquired bank
    
    
    57,703
    
    
    
    
    
    
    
    Allowance for loan losses  December 31
    
    $
    169,104
    
    
    $
    116,400
    
    
    $
    122,184Allowance for losses on lending-related
commitments  December 31(1)
    
    $
    6,119
    
    
    $
    3,023
    
    
    $
    2,833
 
 (1)
    
    December 31, 2006 reserve for loan commitments includes $3.1 million acquired in the Republic merger. Loans Held for Sale.
 83




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##### Table of Contents



Note 8. Premises and Equipment
  December 31,(in thousands)
    
    2006
    
    
    2005Land
    
    $
    35,212
    
    
    $
    30,836Buildings
    
    
    164,612
    
    
    
    150,882Leasehold improvements
    
    
    9,371
    
    
    
    5,965Furniture and equipment
    
    
    124,202
    
    
    
    119,641333,397
    
    
    
    307,324Accumulated depreciation and amortization
    
    
    (193,907
    )
    
    
    (185,594
    )Total
    
    $
    139,490
    
    
    $
    121,730
  Note 9. Goodwill and Core Deposit Intangible Assets
  December 31,(in thousands)
    
    2006
    
    
    2005Commercial Banking
    
    $
    23,870
    
    
    $
    23,870Consumer Banking
    
    
    28,856
    
    
    
    28,856Wealth Management
    
    
    1,801
    
    
    
    1,801Republic Merger
    
    
    727,108
    
    
    
    Total Goodwill
    
    $
    781,635
    
    
    $
    54,527
   December 31,(in thousands)
    
    2006
    
    
    2005Core deposit intangibles
    
    $
    28,989
    
    
    $
    28,989Accumulated amortization
    
    
    (20,755
    )
    
    
    (17,856
    )Core deposit intangibles from Republic merger
    
    
    37,837
    
    
    
    Total core deposit intangibles
    
    $
    46,071
    
    
    $
    11,133
 84




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##### Table of Contents



(in thousands)
    
AmountYear ending December 31,2007
    
    $
    11,5342008
    
    
    9,1322009
    
    
    7,0362010
    
    
    3,9232011
    
    
    3,027Thereafter
    
    
    7,428Total
estimated amortization
    
    
    42,080Core deposit
intangibles associated with
divestitures (1)
    
    
    3,991Total
    
    $
    46,071
 
 (1)
        Core deposit intangible associated with branches committed to be divested and
expected to close during the 2nd quarter 2007.  Note 10. Deposits
  December 31,(in thousands)
    
    2006
    
    
    2005Noninterest-bearing demand
    
    $
    1,223,113
    
    
    $
    969,074Interest-bearing demand
    
    
    923,848
    
    
    
    891,313Savings
    
    
    2,280,496
    
    
    
    1,437,024Time deposits of $100,000 or more
    
    
    2,109,960
    
    
    
    1,092,411Other time deposits
    
    
    2,160,644
    
    
    
    1,084,017Total
    
    $
    8,698,061
    
    
    $
    5,473,839
  85




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##### Table of Contents



Note 11. Short-Term Borrowings
   (in thousands)
    
    2006(1)
    
    2005 (1)
    
    2004 (1)At December 31:Balance
    
    $
    922,328
    
    
    $
    505,879
    
    
    $
    671,660Weighted average interest rate paid
    
    
    5.06
    %
    
    
    4.13
    %
    
    
    2.19
    %During the year:Maximum outstanding at any month-end
    
    $
    922,328
    
    
    $
    964,524
    
    
    $
    803,186Daily average
    
    
    363,988
    
    
    
    802,554
    
    
    
    643,327Weighted average interest rate paid
    
    
    4.81
    %
    
    
    3.21
    %
    
    
    1.40
    %
 
 (1) All amounts exclude Treasury, Tax and Loan demand notes.  Note 12. Long-Term Debt
  December 31,(in thousands)
    
    2006
    
    
    2005Citizens (Parent only):Subordinated debt:5.75% Subordinate notes due February 2013
    
    $
    118,624
    
    
    $
    120,852Variable rate junior subordinated debenture maturing June 2033
    
    
    25,774
    
    
    
    25,7747.50% Junior subordinated debentures due September 2066
    
    
    150,010
    
    
    
    8.60% Junior subordinated debentures due December 2031
    
    
    51,546
    
    
    
    Subsidiaries:Federal Home Loan Bank advances
    
    
    1,715,132
    
    
    
    859,483Other borrowed funds
    
    
    583,617
    
    
    
    Total long-term debt
    
    $
    2,644,703
    
    
    $
    1,006,109
   86




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87




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##### Table of Contents



(in thousands)
    
    Parent
    
    
    Subsidiaries
    
    
    Consolidated2007
    
    $
    
    
    
    $
    395,432
    
    
    $
    395,4322008
    
    
    
    
    
    
    459,479
    
    
    
    459,4792009
    
    
    
    
    
    
    160,633
    
    
    
    160,6332010
    
    
    
    
    
    
    106,114
    
    
    
    106,1142011
    
    
    
    
    
    
    50,970
    
    
    
    50,970Over 5 Years
    
    
    350,000
    
    
    
    1,103,124
    
    
    
    1,453,124Total
    
    $
    350,000
    
    
    $
    2,275,752
    
    
    $
    2,625,752
 Note 13. Employee Benefit Plans
 Pension and postretirement Benefits
      88




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##### Table of Contents



At December 31, 2006Prior to Adopting
    
    Effect of Adopting
    
    As Reported at(in thousands)
    
    SFAS 158
    
    SFAS 158
    
    December 31, 2006Other assets
    
    $
    302,935
    
    
    $
    (9,496
    )
    
    $
    293,439Other liabilities
    
    
    168,979
    
    
    
    43
    
    
    
    169,022Accumulated other comprehensive income
    
    
    2,164
    
    
    
    (9,539
    )
    
    
    (7,375
    )
   89




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##### Table of Contents



Pension
    
    
    Supplemental
    
    
    PostretirementBenefits
    
    
    Pension Plan
    
    
    Benefits(in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Change in Benefit ObligationProjected benefit obligation, beginning of year
    
    $
    87,603
    
    
    $
    83,572
    
    
    $
    11,914
    
    
    $
    7,785
    
    
    $
    9,819
    
    
    $
    17,092Service cost
    
    
    3,649
    
    
    
    3,768
    
    
    
    842
    
    
    
    1,272
    
    
    
    4
    
    
    
    4Interest cost
    
    
    4,671
    
    
    
    4,676
    
    
    
    641
    
    
    
    520
    
    
    
    516
    
    
    
    535Participant contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229
    
    
    
    219Actuarial (gains) losses
    
    
    (2,179
    )
    
    
    2,920
    
    
    
    59
    
    
    
    2,835
    
    
    
    594
    
    
    
    (3,805
    )Plan amendments
    
    
    115
    
    
    
    
    
    
    
    1,742
    
    
    
    
    
    
    
    
    
    
    
    (2,869
    )Additional liability assumed through acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,286
    
    
    
    Curtailments
    
    
    (1,003
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    (7,996
    )
    
    
    (7,333
    )
    
    
    (515
    )
    
    
    (498
    )
    
    
    (1,222
    )
    
    
    (1,357
    )Projected benefit obligation, end of year
    
    $
    84,860
    
    
    $
    87,603
    
    
    $
    14,683
    
    
    $
    11,914
    
    
    $
    11,226
    
    
    $
    9,819Accumulated benefit obligation, end of year
    
    $
    84,860
    
    
    $
    86,120
    
    
    $
    11,649
    
    
    $
    10,260
    
    
    $
    11,226
    
    
    $
    9,819Change in Plan AssetsFair value of plan assets, beginning of year
    
    $
    89,109
    
    
    $
    86,938
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    9,914
    
    
    
    6,503
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employer contribution
    
    
    1,000
    
    
    
    3,001
    
    
    
    515
    
    
    
    498
    
    
    
    993
    
    
    
    1,138Participant contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229
    
    
    
    219Benefits paid
    
    
    (7,996
    )
    
    
    (7,333
    )
    
    
    (515
    )
    
    
    (498
    )
    
    
    (1,222
    )
    
    
    (1,357
    )Fair value of plan assets, end of year
    
    $
    92,027
    
    
    $
    89,109
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Reconciliation of Funded Status(Under)/Over funded status of plan
    
    $
    7,167
    
    
    $
    1,506
    
    
    $
    (14,683
    )
    
    $
    (11,914
    )
    
    $
    (11,226
    )
    
    $
    (9,819
    )Unrecognized:Prior service cost (benefit)
    
    
    
    
    
    
    1,288
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,621
    )Net actuarial (gain) loss
    
    
    
    
    
    
    19,335
    
    
    
    
    
    
    
    3,620
    
    
    
    
    
    
    
    (1,262
    )Adjustment to recognoze minimum liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,965
    )
    
    
    
    
    
    
    Net amount recognized in the
consolidated balance sheets
    
    $
    7,167
    
    
    $
    22,129
    
    
    $
    (14,683
    )
    
    $
    (10,259
    )
    
    $
    (11,226
    )
    
    $
    (13,702
    )
 90




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##### Table of Contents



Year Ended December 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004Defined Benefit Pension PlansService cost
    
    $
    3,649
    
    
    $
    3,768
    
    
    $
    3,615Interest cost
    
    
    4,671
    
    
    
    4,676
    
    
    
    4,743Expected return on plan assets
    
    
    (7,509
    )
    
    
    (7,018
    )
    
    
    (7,069
    )Curtailment loss
    
    
    1,097
    
    
    
    
    
    
    
    Amortization of unrecognized:Net transition asset
    
    
    
    
    
    
    (5
    )
    
    
    (10
    )Prior service cost
    
    
    191
    
    
    
    196
    
    
    
    193Net actuarial gain
    
    
    974
    
    
    
    1,181
    
    
    
    723Net pension cost
    
    
    3,073
    
    
    
    2,798
    
    
    
    2,195Supplemental Pension PlansService cost
    
    
    842
    
    
    $
    1,272
    
    
    
    635Interest cost
    
    
    641
    
    
    
    520
    
    
    
    429Amortization of unrecognized:Prior service cost
    
    
    
    
    
    
    
    
    
    
    1Net actuarial gain
    
    
    139
    
    
    
    87
    
    
    
    9Net pension cost
    
    
    1,622
    
    
    
    1,879
    
    
    
    1,074Postretirement Benefit PlansService cost
    
    
    4
    
    
    
    4
    
    
    
    8Interest cost
    
    
    516
    
    
    
    535
    
    
    
    998Amortization of unrecognized:Prior service cost
    
    
    (270
    )
    
    
    (271
    )
    
    
    (5
    )Net actuarial loss
    
    
    (27
    )
    
    
    (91
    )
    
    
    17Net postretirement benefit cost
    
    
    223
    
    
    
    177
    
    
    
    1,018Defined contribution retirement and 401(k) plansEmployer contributions
    
    
    3,273
    
    
    
    3,170
    
    
    
    3,158Total periodic benefit cost
    
    $
    8,191
    
    
    $
    8,024
    
    
    $
    7,445
  Pension
    
    
    Supplemental
    
    
    PostretirementBenefits
    
    
    Pension Plan
    
    
    BenefitsDecember 31,
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Assumptions used to compute projected benefit obligationDiscount rate
    
    
    5.75
    %
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.50
    %Rate of compensation increase
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    
    
    
    
    Assumptions used to compute net benefit costsDiscount rate
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.50
    %
    
    
    5.75
    %Expected return on plan assets
    
    8.50% to 8.75%
    
    
    8.75
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rate of compensation increase
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    
    
    
    
    
 91




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##### Table of Contents



Projected Benefit PaymentsDefinedBenefit
    
    Supplemental
    
    Postretirement(in thousands)
    
    Pension Plan
    
    Pension Plan
    
    Benefit Plan
    
    Total BenefitsYear Ended December 312007
    
    $
    5,138
    
    
    $
    515
    
    
    $
    1,020
    
    
    $
    6,6732008
    
    
    5,608
    
    
    
    503
    
    
    
    1,030
    
    
    
    7,1412009
    
    
    5,796
    
    
    
    491
    
    
    
    1,057
    
    
    
    7,3442010
    
    
    5,388
    
    
    
    478
    
    
    
    1,075
    
    
    
    6,9412011
    
    
    5,836
    
    
    
    11,960
    
    
    
    1,079
    
    
    
    18,8752012 to 2016
    
    
    29,364
    
    
    
    2,054
    
    
    
    5,012
    
    
    
    36,430
  Investment Policy and Strategy
 Target
    
    Percentage of Plan AssetsDecember 31,
    
    Allocation
    
    2006
    
    2005Asset Category:Equity securities
    
    
    70
    %
    
    
    69
    %
    
    
    69
    %Debt securities
    
    
    28
    
    
    
    26
    
    
    
    23Cash and Cash Equivalents
    
    
    2
    
    
    
    5
    
    
    
    8100
    %
    
    
    100
    %
    
    
    100
    %
   One Percentage
    
    One Percentage(in thousands)
    
    Point Increase
    
    Point DecreaseEffect on total of service and interest cost components
    
    $
    39
    
    
    $
    (35
    )Effect on the postretirement benefit obligation
    
    
    870
    
    
    
    (778
    )
 Defined Contribution Retirement and 401(k) Plans
 92




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##### Table of Contents



Note 14. Stock-Based Compensation
      Analysis of Stock-Based Compensation Expense
 Year Ended December 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004Stock Option Compensation
    
    $
    52
    
    
    $
    141
    
    
    $
    272Restricted Stock Compensation
    
    
    3,714
    
    
    
    691
    
    
    
    193Stock-based compensation expense before income taxes
    
    
    3,766
    
    
    
    832
    
    
    
    465Income tax benefit
    
    
    (1,318
    )
    
    
    (291
    )
    
    
    (163
    )Total stock-based compensation expense after income taxes
    
    $
    2,448
    
    
    $
    541
    
    
    $
    302
 93




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##### Table of Contents



Weighted Average Assumptions
    
    2006
    
    2005
    
    2004Dividend yield
    
    
    4.0
    %
    
    
    3.5
    %
    
    
    3.5
    %Expected volatility
    
    
    15.1
    %
    
    
    26.8
    %
    
    
    28.0
    %Risk-free interest rate
    
    
    4.72
    %
    
    
    3.80
    %
    
    
    3.78
    %Expected lives
    
    3 yrs
    
    1.5 yrs
    
    5 yrs
   OptionsWeighted
    
    
    
    
    
    
    (in thousands)Average
    
    
    Weighted Average
    
    
    AggregateExercise
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Price
    
    
    Contractual Term
    
    
    ValueOutstanding at January 1, 2004
    
    
    4,173,228
    
    
    $
    26.10Granted
    
    
    741,771
    
    
    
    30.16Exercised
    
    
    (397,994
    )
    
    
    20.75Forfeitures or Expirations
    
    
    (274,830
    )
    
    
    27.26Outstanding at December 31, 2004
    
    
    4,242,175
    
    
    $
    27.24
    
    
    6.9 yrs
    
    $
    30,538Granted
    
    
    344,007
    
    
    
    29.31Exercised
    
    
    (223,964
    )
    
    
    22.59Forfeitures or Expirations
    
    
    (444,327
    )
    
    
    25.19Outstanding at December 31, 2005
    
    
    3,917,891
    
    
    $
    27.91
    
    
    6.2 yrs
    
    $
    6,749Granted
    
    
    500
    
    
    
    25.98Share obligations assumed through merger
    
    
    1,074,488
    
    
    
    14.07Exercised
    
    
    (141,741
    )
    
    
    21.41Forfeitures or Expirations
    
    
    (75,438
    )
    
    
    30.32Outstanding at December 31, 2006
    
    
    4,775,700
    
    
    $
    24.95
    
    
    4.7 yrs
    
    $
    17,185Exercisable
    
    
    4,763,103
    
    
    $
    24.95
    
    
    4.7 yrs
    
    $
    17,171
  94




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##### Table of Contents



Weighted-Number of
    
    
    Average GrantShares
    
    
    Date Fair ValueOutstanding restricted stock at January 1, 2004
    
    
    23,862
    
    
    $
    29.44Granted
    
    
    3,666
    
    
    
    32.91Vested
    
    
    (6,466
    )
    
    
    32.18Forfeited
    
    
    
    
    
    
    Restricted stock at December 31, 2004
    
    
    21,062
    
    
    $
    29.20Granted
    
    
    120,485
    
    
    
    29.00Vested
    
    
    (5,733
    )
    
    
    32.08Forfeited
    
    
    (6,634
    )
    
    
    28.26Restricted stock at December 31, 2005
    
    
    129,180
    
    
    $
    28.93Granted
    
    
    205,042
    
    
    
    24.25Share obligations assumed through merger
    
    
    101,441
    
    
    
    26.86Vested
    
    
    (134,814
    )
    
    
    28.75Forfeited
    
    
    (7,762
    )
    
    
    25.03Restricted stock at December 31, 2006
    
    
    293,087
    
    
    $
    25.13
   Note 15. Income Taxes
  95




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##### Table of Contents



Year Ended December 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004Current tax expense from continuing operations:Federal
    
    $
    20,335
    
    
    $
    33,671
    
    
    $
    19,886State
    
    
    236
    
    
    
    1,479
    
    
    
    121Total current tax expense
    
    
    20,571
    
    
    
    35,150
    
    
    
    20,007Deferred tax benefit
    
    
    (1,252
    )
    
    
    (3,569
    )
    
    
    (417
    )Total income tax expense from continuing operations
    
    
    19,319
    
    
    
    31,581
    
    
    
    19,590Discontinued Operations tax benefit
    
    
    
    
    
    
    
    
    
    
    (170
    )Total income tax expense
    
    $
    19,319
    
    
    $
    31,581
    
    
    $
    19,420
  (in thousands)
    
    2006
    
    
    2005Deferred tax assets:Allowance for loan losses
    
    $
    60,823
    
    
    $
    41,675Accrued postemployment benefits other than pensions
    
    
    3,526
    
    
    
    4,906Deferred compensation
    
    
    12,279
    
    
    
    5,228Accrued expenses
    
    
    2,513
    
    
    
    2,930State net operating loss carryforwards
    
    
    1,113
    
    
    
    1,294Minimum pension liability
    
    
    5,313
    
    
    
    688Purchase accounting adjustments
    
    
    48,243
    
    
    
    Nonaccrual loan interest income
    
    
    1,456
    
    
    
    117Securities impairment
    
    
    2,541
    
    
    
    Other deferred tax assets
    
    
    3,234
    
    
    
    2,812Deferred tax assets
    
    
    141,041
    
    
    
    59,650Deferred tax liabilities:Pension
    
    
    7,098
    
    
    
    7,905Acquisition premium on loans
    
    
    5,759
    
    
    
    2,929Tax over book depreciation
    
    
    2,101
    
    
    
    1,640Basis difference in FHLB stock
    
    
    3,598
    
    
    
    1,940Purchase accounting adjustments
    
    
    7,074
    
    
    
    4,532Unrealized gains on securities and derivatives
    
    
    1,342
    
    
    
    933Mortgage Servicing Rights
    
    
    3,252
    
    
    
    Other deferred tax liabilities
    
    
    2,149
    
    
    
    1,505Deferred tax liabilities
    
    
    32,373
    
    
    
    21,384Net deferred tax assets
    
    $
    108,668
    
    
    $
    38,266
  Year Ended December 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004Tax at federal statutory rate applied to income before income taxes
    
    $
    28,929
    
    
    $
    39,237
    
    
    $
    28,444Increase (decrease) in taxes resulting from:Tax-exempt income
    
    
    (8,180
    )
    
    
    (8,015
    )
    
    
    (8,182
    )Other
    
    
    (1,430
    )
    
    
    359
    
    
    
    (672
    )Total income tax expense
    
    $
    19,319
    
    
    $
    31,581
    
    
    $
    19,590
 96




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##### Table of Contents



Note 16. Shareholders Equity and Earnings Per Share
  Year Ended December 31,(in thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2004Continuing OperationsNumerator:Numerator for basic and dilutive earnings per share 
income from continuing operations available to common shareholders
    
    $
    63,336
    
    
    $
    80,525
    
    
    $
    61,679Denominator:Denominator for basic earnings per share 
weighted average shares
    
    
    42,913
    
    
    
    43,096
    
    
    
    43,266Effect of dilutive securities  potential conversion
of employee stock options
    
    
    152
    
    
    
    316
    
    
    
    497Denominator for diluted earnings per share 
adjusted weighted-average shares and assumed conversions
    
    
    43,065
    
    
    
    43,412
    
    
    
    43,763Basic earnings per share
    
    $
    1.48
    
    
    $
    1.87
    
    
    $
    1.43Diluted earnings per share
    
    $
    1.47
    
    
    $
    1.85
    
    
    $
    1.41Discontinued OperationsNumerator:Numerator for basic and dilutive earnings per share 
income from discontinued operations available to common shareholders
    
    $
    
    
    
    $
    
    
    
    $
    14,418Denominator:Denominator for basic earnings per share 
weighted average shares
    
    
    
    
    
    
    43,096
    
    
    
    43,266Effect of dilutive securities  potential conversion
of employee stock options
    
    
    
    
    
    
    316
    
    
    
    497Denominator for diluted earnings per share 
adjusted weighted-average shares and assumed conversions
    
    
    
    
    
    
    43,412
    
    
    
    43,763Basic earnings per share
    
    $
    
    
    
    $
    
    
    
    $
    0.33Diluted earnings per share
    
    $
    
    
    
    $
    
    
    
    $
    0.33CombinedNumerator:Numerator for basic and dilutive earnings per share 
net income available to common shareholders
    
    $
    63,336
    
    
    $
    80,525
    
    
    $
    76,097Denominator:Denominator for basic earnings per share 
weighted average shares
    
    
    42,913
    
    
    
    43,096
    
    
    
    43,266Effect of dilutive securities  potential conversion
of employee stock options
    
    
    152
    
    
    
    316
    
    
    
    497Denominator for diluted earnings per share 
adjusted weighted-average shares and assumed conversions
    
    
    43,065
    
    
    
    43,412
    
    
    
    43,763Basic earnings per share
    
    $
    1.48
    
    
    $
    1.87
    
    
    $
    1.76Diluted earnings per share
    
    $
    1.47
    
    
    $
    1.85
    
    
    $
    1.74
  97




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Rights Agreement:
 Stock Repurchase Plans:
 Note 17. Lines of Business
   
    
    Commercial Banking Commercial Banking provides a full range of
lending, depository, and related financial services to
middle-market corporate, industrial, financial, small business,
government and leasing clients. Products and services offered
include commercial loans such as term loans, revolving credit
arrangements, inventory and accounts receivable financing,
commercial mortgages, real estate construction lending, letters of
credit, and small business loans. Noncredit services for
commercial customers include deposit accounts, treasury
management, corporate cash management, international banking
services, advice and assistance in the placement of securities,
and financial planning.
    
    Consumer Banking- Consumer Banking includes consumer lending and
deposit gathering, small business lending, branch banking,
electronic banking and residential mortgage loan origination and
servicing. This line of business offers a variety of retail
financial products and services including direct and indirect
installment loans, debit and credit cards, home equity loans and
lines of credit, residential mortgage loans, deposit products,
fixed and variable annuities and ATM network services. Consumer
loans are composed of automobile, personal, marine, and
recreational vehicle loans. Deposit products include checking,
savings, money market accounts, and certificates of deposit.
 98




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##### Table of Contents




    
    Wealth Management- Wealth Management offers a broad array of
asset management, private banking, financial planning, estate
settlement and administration, credit and deposit products and
services. Trust and investment services include personal trust
and planning, investment management, estate settlement and
administration services. Retirement plan services focus on
investment management and fiduciary activities with special
emphasis on 401(k) plans. Brokerage and insurance delivers retail
mutual funds, other securities, variable and fixed annuities,
personal disability and life insurance products and discounted
brokerage services. Private banking provides credit, deposit and
asset management solutions for affluent clients.
    
    Other The Other line of business includes activities that are
not directly attributable to one of the three principal lines of
business. Included in this category are the Holding Company;
Citizens Treasury unit, including the securities portfolio,
wholesale funding and asset liability management activities; inter-company eliminations; and the
economic impact of certain assets, capital and support functions not specifically identifiable
with the three primary lines of business.
  99




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Line of Business InformationCommercial
    
    
    Consumer
    
    
    Wealth(in thousands)
    
    Banking
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings Summary - 2006Net interest income (taxable equivalent)
    
    $
    124,513
    
    
    $
    141,444
    
    
    $
    1,108
    
    
    $
    9,772
    
    
    $
    276,837Provision for loan losses
    
    
    5,617
    
    
    
    5,599
    
    
    
    49
    
    
    
    
    
    
    
    11,265Net interest income after provision
    
    
    118,896
    
    
    
    135,845
    
    
    
    1,059
    
    
    
    9,772
    
    
    
    265,572Noninterest income
    
    
    14,372
    
    
    
    49,637
    
    
    
    26,957
    
    
    
    (339
    )
    
    
    90,627Noninterest expense
    
    
    71,620
    
    
    
    123,686
    
    
    
    23,472
    
    
    
    41,049
    
    
    
    259,827Income before income taxes
    
    
    61,648
    
    
    
    61,796
    
    
    
    4,544
    
    
    
    (31,616
    )
    
    
    96,372Income tax expense (taxable equivalent)
    
    
    21,732
    
    
    
    21,627
    
    
    
    1,604
    
    
    
    (11,927
    )
    
    
    33,036Net income
    
    $
    39,916
    
    
    $
    40,169
    
    
    $
    2,940
    
    
    $
    (19,689
    )
    
    $
    63,336Average
assets (in millions)
    
    $
    3,091
    
    
    $
    1,046
    
    
    $
    29
    
    
    $
    3,540
    
    
    $
    7,706Earnings Summary - 2005Net interest income (taxable equivalent)
    
    $
    121,616
    
    
    $
    150,512
    
    
    $
    975
    
    
    $
    16,038
    
    
    $
    289,141Provision for loan losses
    
    
    (6,406
    )
    
    
    7,523
    
    
    
    (8
    )
    
    
    
    
    
    
    1,109Net interest income after provision
    
    
    128,022
    
    
    
    142,989
    
    
    
    983
    
    
    
    16,038
    
    
    
    288,032Noninterest income
    
    
    12,798
    
    
    
    47,090
    
    
    
    25,637
    
    
    
    (5,017
    )
    
    
    80,508Noninterest expense
    
    
    71,801
    
    
    
    130,719
    
    
    
    22,986
    
    
    
    17,536
    
    
    
    243,042Income before income taxes
    
    
    69,019
    
    
    
    59,360
    
    
    
    3,634
    
    
    
    (6,515
    )
    
    
    125,498Income tax expense (taxable equivalent)
    
    
    24,315
    
    
    
    20,776
    
    
    
    1,291
    
    
    
    (1,409
    )
    
    
    44,973Net income
    
    $
    44,704
    
    
    $
    38,584
    
    
    $
    2,343
    
    
    $
    (5,106
    )
    
    $
    80,525Average
assets (in millions)
    
    $
    2,922
    
    
    $
    2,578
    
    
    $
    24
    
    
    $
    2,254
    
    
    $
    7,778Earnings Summary - 2004Net interest income (taxable equivalent)
    
    $
    115,669
    
    
    $
    148,463
    
    
    $
    776
    
    
    $
    20,022
    
    
    $
    284,930Provision for loan losses
    
    
    7,544
    
    
    
    14,072
    
    
    
    (7
    )
    
    
    
    
    
    
    21,609Net interest income after provision
    
    
    108,125
    
    
    
    134,391
    
    
    
    783
    
    
    
    20,022
    
    
    
    263,321Noninterest income
    
    
    13,614
    
    
    
    47,437
    
    
    
    24,078
    
    
    
    6,329
    
    
    
    91,458Noninterest expense
    
    
    67,279
    
    
    
    134,998
    
    
    
    22,982
    
    
    
    35,019
    
    
    
    260,278Income from continuing operations before income taxes
    
    
    54,460
    
    
    
    46,830
    
    
    
    1,879
    
    
    
    (8,668
    )
    
    
    94,501Income tax expense (taxable equivalent) from continuing
operations
    
    
    19,200
    
    
    
    16,391
    
    
    
    675
    
    
    
    (3,444
    )
    
    
    32,822Income from continuing operations
    
    
    35,260
    
    
    
    30,439
    
    
    
    1,204
    
    
    
    (5,224
    )
    
    
    61,679Income from discontinued operations (net of tax)
    
    
    1,040
    
    
    
    1,080
    
    
    
    44
    
    
    
    (505
    )
    
    
    1,659Gain from the sale of discontinued operations (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,759
    
    
    
    12,759Total income from discontinued operations (net of tax)
    
    
    1,040
    
    
    
    1,080
    
    
    
    44
    
    
    
    12,254
    
    
    
    14,418Net income
    
    $
    36,300
    
    
    $
    31,519
    
    
    $
    1,248
    
    
    $
    7,030
    
    
    $
    76,097Average
assets (in millions)
    
    $
    2,795
    
    
    $
    2,456
    
    
    $
    20
    
    
    $
    2,414
    
    
    $
    7,685
 Note 18. Commitments, Contingent Liabilities and Guarantees
 Commitments:
 100




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##### Table of Contents



December 31,
    
    
    December 31,(in thousands)
    
    2006
    
    
    2005Loan commitments and letters of credit:Commitments to extend credit
    
    $
    2,559,121
    
    
    $
    1,762,259Financial standby letters of credit
    
    
    146,863
    
    
    
    44,739Performance standby letters of credit
    
    
    24,609
    
    
    
    11,557Commercial letters of credit
    
    
    194,834
    
    
    
    223,269Total
    
    $
    2,925,427
    
    
    $
    2,041,824
  Contingent Liabilities:
 Contingent Guarantees:
 Purchase Obligations:
 Change in Control Agreements:
 Note 19. Derivatives and Hedging Activities
  101




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Derivative Financial Instruments:
    
    December 31,
    
    
    December 31,2006
    
    
    2005Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueReceive fixed swaps
    
    $
    268,300
    
    
    $
    (1,839
    )
    
    $
    530,000
    
    
    $
    (7,429
    )Pay fixed swaps
    
    
    104,000
    
    
    
    1,242
    
    
    
    124,000
    
    
    
    2,486Customer initiated swaps and corresponding offsets
    
    
    378,590
    
    
    
    
    
    
    
    233,104
    
    
    
    Interest rate lock commitments
    
    
    29,875
    
    
    
    (11
    )
    
    
    17,897
    
    
    
    37Forward mortgage loan contracts
    
    
    78,498
    
    
    
    257
    
    
    
    22,000
    
    
    
    (66
    )Total
    
    $
    859,263
    
    
    $
    (351
    )
    
    $
    927,001
    
    
    $
    (4,972
    )
 Derivative Classifications and Hedging Relationships:
    
    December 31,
    
    
    December 31,2006
    
    
    2005Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueDerivatives Designated as Cash Flow Hedges:Hedging repurchase agreements
    
    $
    104,000
    
    
    $
    1,242
    
    
    $
    124,000
    
    
    $
    2,486Derivatives Designated as Fair Value Hedges:Hedging time deposits
    
    
    95,000
    
    
    
    47
    
    
    
    25,000
    
    
    
    (10
    )Hedging long-term debt
    
    
    100,000
    
    
    
    (390
    )
    
    
    225,000
    
    
    
    (3,815
    )Derivatives Not Designated as Hedges:Receive fixed swaps
    
    
    73,300
    
    
    
    (1,496
    )
    
    
    280,000
    
    
    
    (3,604
    )Customer initiated swaps and corresponding offsets
    
    
    378,590
    
    
    
    
    
    
    
    233,104
    
    
    
    Total
    
    $
    750,890
    
    
    $
    (597
    )
    
    $
    887,104
    
    
    $
    (4,943
    )
  102




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##### Table of Contents



Maturities and Interest Rates Exchanged on Swaps:
 Mature During(dollars in thousands)
    
    2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    After 2011
    
    TotalReceive fixed swaps:Notional amount
    
    $
    131,300
    
    
    $
    137,000
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    268,300Receive fixed rate
    
    
    4.70
    %
    
    
    3.86
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    4.27
    %Pay variable rate
    
    
    4.60
    %
    
    
    4.88
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    4.74
    %Pay fixed swaps:Notional amount
    
    $
    104,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    104,000Pay fixed rate
    
    
    3.31
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    3.31
    %Receive variable rate
    
    
    5.37
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    5.37
    %
     Note 20. Fair Values of Financial Instruments
  103




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##### Table of Contents



December 31, 2006
    
    December 31, 2005Carrying
    
    Estimated
    
    Carrying
    
    Estimated(in millions)
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assets:Cash and money market investments
    
    $
    224.0
    
    
    $
    224.0
    
    
    $
    195.1
    
    
    $
    195.1Securities
    
    
    2,949.2
    
    
    
    2,949.7
    
    
    
    1,584.4
    
    
    
    1,584.4FHLB and Federal Reserve stock
    
    
    132.9
    
    
    
    132.9
    
    
    
    55.9
    
    
    
    55.9Loans held for sale
    
    
    172.8
    
    
    
    172.8
    
    
    
    16.3
    
    
    
    16.3Net loans
    
    
    9,062.0
    
    
    
    9,111.1
    
    
    
    5,499.7
    
    
    
    5,527.4Cash surrender value of life insurance policies
    
    
    206.9
    
    
    
    206.9
    
    
    
    84.4
    
    
    
    84.4Accrued interest receivable
    
    
    68.2
    
    
    
    68.2
    
    
    
    39.1
    
    
    
    39.1Financial liabilities:Deposits
    
    
    8,698.1
    
    
    
    8,677.6
    
    
    
    5,473.8
    
    
    
    5,455.7Short-term borrowings
    
    
    938.9
    
    
    
    938.9
    
    
    
    529.1
    
    
    
    529.1Long-term debt
    
    
    2,644.7
    
    
    
    2,654.3
    
    
    
    1,006.1
    
    
    
    1,006.1Accrued interest payable
    
    
    32.5
    
    
    
    32.5
    
    
    
    12.8
    
    
    
    12.8Off-balance sheet financial instrument liabilities:Credit-related
financial instruments
    
    
    1.8
    
    
    
    1.8
    
    
    
    1.3
    
    
    
    1.3Interest rate swap agreements
    
    
    (0.6
    )
    
    
    (0.6
    )
    
    
    (4.9
    )
    
    
    (4.9
    )Interest rate lock commitments
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Forward commitments to sell mortgage loans
    
    
    0.3
    
    
    
    0.3
    
    
    
    (0.1
    )
    
    
    (0.1
    )
  Investment Securities Available for Sale and Held to Maturity:
 Loans Held For Sale:
 Net Loans:
 104




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##### Table of Contents



Deposit Liabilities:
 Short-Term Borrowings:
 Long-Term Debt:
 Loan Commitments and Letters Of Credit:
 Interest Rate Swap Agreements:
 Interest Rate Lock Commitments and Forward Commitments to Sell Mortgages:
 105




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##### Table of Contents



Note 21. Regulatory Matters
        106




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##### Table of Contents



Risk Based Capital requirements
 For Capital
    
    To Be Well-CapitalizedUnder Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action Provisions(in thousands)
    
    Amount
    
    Ratio
    
    Amount
    
    
    
    
    
    Ratio
    
    Amount
    
    
    
    
    
    RatioCitizens Banking CorporationAs of December 31, 2006:Total Capital to risk weighted assets (1)
    
    $
    1,204,379
    
    
    
    11.9
    %
    
    $
    809,530
    
    
    
    3
    
    
    
    8.0
    %
    
    $
    1,011,913
    
    
    
    3
    
    
    
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    952,287
    
    
    
    9.4
    
    
    
    404,765
    
    
    
    3
    
    
    
    4.0
    
    
    
    607,148
    
    
    
    3
    
    
    
    6.0Tier 1 Leverage (4)
    
    
    952,287
    
    
    
    7.2
    
    
    
    527,464
    
    
    
    3
    
    
    
    4.0
    
    
    
    659,330
    
    
    
    3
    
    
    
    5.0As of December 31, 2005:Total Capital to risk weighted assets (1)
    
    $
    816,856
    
    
    
    13.2
    %
    
    $
    494,273
    
    
    
    3
    
    
    
    8.0
    %
    
    $
    617,843
    
    
    
    3
    
    
    
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    614,072
    
    
    
    9.9
    
    
    
    247,137
    
    
    
    3
    
    
    
    4.0
    
    
    
    370,706
    
    
    
    3
    
    
    
    6.0Tier 1 Leverage (2)
    
    
    614,072
    
    
    
    8.0
    
    
    
    307,661
    
    
    
    3
    
    
    
    4.0
    
    
    
    384,577
    
    
    
    3
    
    
    
    5.0Citizens BankAs of December 31, 2006:Total Capital to risk weighted assets (1)
    
    $
    705,595
    
    
    
    11.6
    %
    
    $
    487,337
    
    
    
    3
    
    
    
    8.0
    %
    
    $
    609,172
    
    
    
    3
    
    
    
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    629,005
    
    
    
    10.3
    
    
    
    243,669
    
    
    
    3
    
    
    
    4.0
    
    
    
    365,503
    
    
    
    3
    
    
    
    6.0Tier 1 Leverage (2)
    
    
    629,005
    
    
    
    8.6
    
    
    
    292,438
    
    
    
    3
    
    
    
    4.0
    
    
    
    365,548
    
    
    
    3
    
    
    
    5.0As of December 31, 2005:Total Capital to risk weighted assets (1)
    
    $
    704,148
    
    
    
    8.6
    %
    
    $
    473,453
    
    
    
    3
    
    
    
    8.0
    %
    
    $
    591,816
    
    
    
    3
    
    
    
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    629,667
    
    
    
    10.6
    
    
    
    236,726
    
    
    
    3
    
    
    
    4.0
    
    
    
    355,090
    
    
    
    3
    
    
    
    6.0Tier 1 Leverage (2)
    
    
    629,667
    
    
    
    11.9
    
    
    
    292,556
    
    
    
    3
    
    
    
    4.0
    
    
    
    365,695
    
    
    
    3
    
    
    
    5.0Republic Bank(3)As of December 31, 2006:Total Capital to risk weighted assets (1)
    
    $
    380,220
    
    
    
    10.2
    %
    
    $
    299,589
    
    
    
    3
    
    
    
    8.0
    %
    
    $
    374,486
    
    
    
    3
    
    
    
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    333,237
    
    
    
    8.9
    
    
    
    149,794
    
    
    
    3
    
    
    
    4.0
    
    
    
    224,691
    
    
    
    3
    
    
    
    6.0Tier 1 Leverage (4)
    
    
    333,237
    
    
    
    6.1
    
    
    
    217,349
    
    
    
    3
    
    
    
    4.0
    
    
    
    271,686
    
    
    
    3
    
    
    
    5.0
 
 (1)
    
    Total Capital is comprised of Tier 1 Capital, a portion of the allowance for loan
losses and qualifying subordinated debt. Tier 1 consists of total equity and trust preferred
securities less unrealized gains and losses accumulated in other comprehensive income, intangible
assets and adjustments related to the valuation of mortgage servicing assets.(2)
    
    Tier 1 Capital to quarterly average assets(3)
    
    Republic Bank was acquired December 29, 2006.(4)
    
    In 2006, the Tier 1 leverage ratio is calculated using ending assets instead of average assets
due to the Republic merger on December 29, 2006 107




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##### Table of Contents



Note 22. Citizens Banking Corporation (Parent Only) Statements
 Balance Sheets
Citizens Banking Corporation (Parent Only)
 December 31,(in thousands)
    
    2006
    
    
    2005AssetsCash
    
    $
    188
    
    
    $
    5Money market investments
    
    
    80,427
    
    
    
    65,359Investment securities
    
    
    50
    
    
    
    167Investment in subsidiaries  principally banks
    
    
    1,185,783
    
    
    
    744,016Goodwill  net
    
    
    655,890
    
    
    
    15Other assets
    
    
    47,821
    
    
    
    11,659Total assets
    
    $
    1,970,159
    
    
    $
    821,221Liabilities and Shareholders EquityLong-term debt
    
    $
    346,345
    
    
    $
    146,448Other liabilities
    
    
    66,128
    
    
    
    18,310Total liabilities
    
    
    412,473
    
    
    
    164,758Shareholders equity
    
    
    1,557,686
    
    
    
    656,463Total liabilities and shareholders equity
    
    $
    1,970,159
    
    
    $
    821,221
 Statements of Income
Citizens Banking Corporation (Parent Only)
 Year Ended December 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004IncomeDividends from subsidiaries  principally banks
    
    $
    70,900
    
    
    $
    63,200
    
    
    
    $49,000Interest from bank subsidiary
    
    
    4,429
    
    
    
    1,998
    
    
    
    839Service fees from bank subsidiaries
    
    
    13,277
    
    
    
    11,459
    
    
    
    11,076Other
    
    
    176
    
    
    
    299
    
    
    
    946aaaaaTotal
    
    
    88,782
    
    
    
    76,956
    
    
    
    61,861ExpensesInterest
    
    
    13,119
    
    
    
    7,766
    
    
    
    5,056Salaries and employee benefits
    
    
    17,621
    
    
    
    16,054
    
    
    
    12,443Service fees paid to bank subsidiaries
    
    
    2,768
    
    
    
    2,768
    
    
    
    2,782Restructuring and merger related expenses
    
    
    1,426
    
    
    
    
    
    
    
    Other noninterest expense
    
    
    1,596
    
    
    
    1,923
    
    
    
    1,976aaaaaTotal
    
    
    36,530
    
    
    
    28,511
    
    
    
    22,257aaaaaaaIncome before income taxes and
equity in undistributed earnings of subsidiaries
    
    
    52,252
    
    
    
    48,445
    
    
    
    39,604Income tax benefit (provision)
    
    
    6,959
    
    
    
    5,693
    
    
    
    4,977Equity in undistributed (dividends in excess of) earnings of subsidiaries
    
    
    4,125
    
    
    
    26,387
    
    
    
    17,098aaaaaIncome from continuing operations
    
    
    63,336
    
    
    
    80,525
    
    
    
    61,679Income from discontinued operations (net of income tax of $939)
    
    
    
    
    
    
    
    
    
    
    1,659Gain on sale of discontinued operations, including tax benefit of $1,109
    
    
    
    
    
    
    
    
    
    
    12,759Net Income
    
    $
    63,336
    
    
    $
    80,525
    
    
    
    $76,097
 108




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##### Table of Contents



Statements of Cash Flows  Citizens Banking Corporation (Parent Only)
 Year Ended December 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004Operating ActivitiesNet income
    
    $
    63,336
    
    
    $
    80,525
    
    
    $
    61,679Adjustments to reconcile net income to net cash
provided by operating activities:Amortization of stock-based compensation expense
    
    
    
    
    
    
    691
    
    
    
    193Recognition of stock-based compensation expense
    
    
    3,766
    
    
    
    141
    
    
    
    272Dividends in excess of (equity in undistributed) earnings of subsidiaries
    
    
    (4,125
    )
    
    
    (26,386
    )
    
    
    (17,098
    )Other
    
    
    (12,005
    )
    
    
    7,400
    
    
    
    (545
    )Net cash provided by operating activities
    
    
    50,972
    
    
    
    62,371
    
    
    
    44,501Investing ActivitiesNet decrease (increase) in money market investments
    
    
    9,040
    
    
    
    77
    
    
    
    (16,772
    )Proceeds from sales and maturities of investment securities
    
    
    107
    
    
    
    1
    
    
    
    4Purchases of investment securities
    
    
    
    
    
    
    (10
    )
    
    
    Proceeds from sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    26,250Acquisition, net of cash received
    
    
    (154,662
    )
    
    
    
    
    
    
    Net cash (used) provided by investing activities
    
    
    (145,515
    )
    
    
    68
    
    
    
    9,482Financing
ActivitiesProceeds from issuance of long-term debt
    
    
    150,010
    
    
    
    
    
    
    
    Cash dividends paid
    
    
    (49,530
    )
    
    
    (49,311
    )
    
    
    (49,286
    )Proceeds from stock options exercised and restricted stock activity
    
    
    3,194
    
    
    
    5,061
    
    
    
    8,267Shares acquired for retirement
    
    
    (8,948
    )
    
    
    (18,189
    )
    
    
    (12,964
    )Net cash provided (used) by financing activities
    
    
    94,726
    
    
    
    (62,439
    )
    
    
    (53,983
    )Net increase in cash
    
    
    183
    
    
    
    
    
    
    
    Cash at beginning of year
    
    
    5
    
    
    
    5
    
    
    
    5Cash at end of year
    
    $
    188
    
    
    $
    5
    
    
    $
    5
 109




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
       (ERNST & YUONG LLP)
 
 110




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##### Table of Contents



SELECTED QUARTERLY INFORMATION (unaudited)
 .
 Table 14. Selected Quarterly Information
 (in thousands except,
    
    2006
    
    
    2005per share data)
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    FirstInterest income
    
    $
    122,801
    
    
    $
    120,744
    
    
    $
    116,416
    
    
    $
    112,391
    
    
    $
    111,958
    
    
    $
    108,506
    
    
    $
    103,619
    
    
    $
    99,166Interest expense
    
    
    58,791
    
    
    
    55,099
    
    
    
    50,426
    
    
    
    44,916
    
    
    
    42,863
    
    
    
    38,864
    
    
    
    34,840
    
    
    
    30,933Net interest income
    
    
    64,010
    
    
    
    65,645
    
    
    
    65,990
    
    
    
    67,475
    
    
    
    69,095
    
    
    
    69,642
    
    
    
    68,779
    
    
    
    68,233Provision for loan losses (1)
    
    
    5,936
    
    
    
    1,190
    
    
    
    1,139
    
    
    
    3,000
    
    
    
    (7,287
    )
    
    
    4,000
    
    
    
    1,396
    
    
    
    3,000Noninterest income
before securities gains(2)
    
    
    24,358
    
    
    
    23,544
    
    
    
    23,691
    
    
    
    25,563
    
    
    
    19,930
    
    
    
    23,941
    
    
    
    23,109
    
    
    
    22,455Investment securities gains (losses) (3)
    
    
    (6,590
    )
    
    
    
    
    
    
    54
    
    
    
    7
    
    
    
    (8,970
    )
    
    
    
    
    
    
    37
    
    
    
    6Noninterest expense (4)
    
    
    78,788
    
    
    
    59,402
    
    
    
    60,065
    
    
    
    61,572
    
    
    
    60,901
    
    
    
    60,550
    
    
    
    60,990
    
    
    
    60,601Net income
    
    
    692
    
    
    
    20,981
    
    
    
    20,907
    
    
    
    20,756
    
    
    
    18,888
    
    
    
    20,992
    
    
    
    20,565
    
    
    
    20,080Per Share of Common Stock(5)Net income:Basic
    
    
    0.02
    
    
    
    0.49
    
    
    
    0.49
    
    
    
    0.49
    
    
    
    0.44
    
    
    
    0.49
    
    
    
    0.48
    
    
    
    0.46Diluted
    
    
    0.02
    
    
    
    0.49
    
    
    
    0.49
    
    
    
    0.48
    
    
    
    0.44
    
    
    
    0.48
    
    
    
    0.47
    
    
    
    0.46
 
 (1)
    
    Provision for loan losses includes, in the fourth quarter of 2005, a $9.1 million insurance settlement relating to a claim for recovery of fraud losses suffered in
connection with two loans made by the Corporation and subsequently charged-off in 2002 and 2003.(2)
    
    Noninterest income includes, in the fourth quarter of 2005, a charge of $3.6 million related to a fair value change in CD swap derivatives.(3)
    
    Investment securities gains (losses) includes, in the fourth quarter of 2006, a $7.2 million other-than-temporary impairment charge related to the restructuring of the
balance sheet as a result of the Republic merger and in the fourth quarter of 2005, losses of $9.0 million on sale of investment securities.(4)
    
    Noninterest expense includes, in the fourth quarter of 2006, restructuring and merger-related expenses of $11.3 million related to the Republic merger.(5)
    
    Citizens common stock is traded on NASDAQ (trading symbol: CRBC). As of February 1, 2007, there were approximately 33,500 shareholders of the Corporations common stock.  111




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure
Controls and Procedures
   Report
on Managements Assessment of Internal Control over Financial
Reporting
  
    
    Pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Corporation;
    
    Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the Corporation are being made only in
accordance with authorizations of management and the directors of the Corporation; and
    
    Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Corporations assets that could have a material
effect on the financial statements.
   112




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##### Table of Contents



-s- Charles D.Christy
    

-s- William R. HartmanCharles D. Christy
    
    William R. HartmanExecutive Vice President and Chief Financial Officer
    
    Chief Executive Officer
 Changes
in Internal Control over Financial Reporting
  113




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 To the Board of Directors and Shareholders of Citizens Banking Corporation
      .
  (ERNST & YOUNG LLP)
 
 114




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 Part III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  115




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##### Table of Contents



PART IV
 
 ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
   
 2.
    Financial Statement Schedules:
  3.
    Exhibits:
   At
the request of any shareholder, the Corporation will furnish any exhibit upon the payment of a fee of $.10 per page to cover the costs of furnishing the exhibit.
   116




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##### Table of Contents



SIGNATURES
  
 by /s/ William R. Hartman

William R. Hartman
    
    Date: February 27, 2007Chief Executive Officer
  Signature
    
    Capacity
    
    Date/s/ Charles D. Christy

Charles D. Christy
    
    Executive Vice President and
Chief Financial Officer
    
    February 27, 2007/s/ William R. Hartman

William R. Hartman
    
    Chief Executive Officer, and Director
    
    February 27, 2007/s/ Dana M. Cluckey

Dana M. Cluckey
    
    President and Chief Operating
Officer, and Director
    
    February 27, 2007/s/ Edward P. Abbott

Edward P. Abbott
    
    Director
    
    February 27, 2007/s/ Lizabeth A. Ardisana

Lizabeth A. Ardisana
    
    Director
    
    February 27, 2007/s/ George J. Butvilas

George J. Butvilas
    
    Director
    
    February 27, 2007/s/ Jerry D. Campbell

Jerry D. Campbell
    
    Chairman of the Board
    
    February 27, 2007/s/ Richard J. Dolinski

Richard J. Dolinski
    
    Director
    
    February 27, 2007/s/ Gary Hurand

Gary Hurand
    
    Director
    
    February 27, 2007
 117




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##### Table of Contents



SIGNATURES (continued)
 Signature
    
    Capacity
    
    Date/s/ Dennis J. Ibold

Dennis J. Ibold
    
    Director
    
    February 27, 2007/s/ Benjamin W. Laird

Benjamin W. Laird
    
    Director
    
    February 27, 2007/s/ Stephen J. Lazaroff

Stephen J. Lazaroff
    
    Director
    
    February 27, 2007/s/ William C. Shedd

William C. Shedd
    
    Director
    
    February 27, 2007/s/ Jeoffrey K. Stross

Jeoffrey K. Stross
    
    Director
    
    February 27, 2007/s/ Kendall B. Williams

Kendall B. Williams
    
    Director
    
    February 27, 2007/s/ James L. Wolohan

James L. Wolohan
    
    Director
    
    February 27, 2007/s/ Steven E. Zack

Steven E. Zack
    
    Director
    
    February 27, 2007
 118




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.
    
    Exhibit2.1
    
    Stock Purchase Agreement by and between Metropolitan Bank Group, Inc.,
and Citizens Banking Corporation, Parent of Citizens Bank  Illinois,
National Association, dated as of April 2, 2004 and Amendment No. 1 thereto,
dated August 4, 2004 (incorporated by reference from Exhibit 2.1 of
Citizens 2004 Second Quarter Report on Form 10-Q).2.2
    
    Agreement and Plan of Merger, dated as of June 26, 2006, by and between
Republic Bancorp. Inc, and Citizens Banking Corporation (incorporated by
reference from Exhibit 2.1 of Citizens Form 8-K filed June 29, 2006).3.1
    
    Restated Articles of Incorporation, as amended. (incorporated by
reference from Exhibit 3(a) of Citizens 2002 Second Quarter Report on Form
10-Q).3.2
    
    Amended and
Restated Bylaws as of December 29, 2006.4.1
    
    Rights Agreement, dated May 23, 2000, between Citizens and Citizens Bank,
as Rights Agent (incorporated by reference from Exhibit 4.1 of Citizens
Current Report on Form 8-K filed June 8, 2000).4.2
    
    Indenture, dated as of January 27, 2003 among Citizens Banking
Corporation and JP Morgan Chase Bank, as Trustee (filed as Exhibit 4.1 to
Citizens Banking Corporations registration statement on Form S-4,
registration no. 333-104472, and incorporated herein by reference).4.3
    
    Registration Rights Agreement, dated as of January 27, 2003 among
Citizens Banking Corporation and Morgan Stanley, Keefe, Bruyette & Woods,
Inc., Robert W. Baird & Co., Credit Suisse First Boston, Fahnestock & Co.
Inc., Howe Barnes Investments, Inc. and McDonald Investments, as Initial
Purchasers (filed as Exhibit 4.2 to Citizens Banking Corporations
registration statement on Form S-4, registration no. 333-104472, and
incorporated herein by reference).4.4
    
    Floating Rate Junior Subordinated Deferrable Interest Debentures dated as
of June 26, 2003 (incorporated by reference from Exhibit 4.1 of Citizens
2003 Second Quarter Report on Form 10-Q).4.5
    
    Form of Indenture between Republic Bancorp Inc. (Republic) and
Wilmington Trust Company for Republics 8.60% Subordinated Debentures due
2031 (filed as Exhibit (4)(e) of Republics registration statement on Form
S-3, registration no. 333-70062, and incorporated herein by reference).4.6
    
    Form of Republics 8.60% Subordinated Debenture due 2031 (filed as
Exhibit (4)(f) of Republics registration statement on Form S-3, registration
no. 333-70062, and incorporated herein by reference).4.7
    
    Certificate of Trust of Republic Capital Trust I, a subsidiary of
Republic (filed as Exhibit (4)(g) of Republics registration statement on
Form S-3, registration no. 333-70062, and incorporated herein by reference).
 119




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##### Table of Contents



EXHIBIT INDEX (continued)
 ExhibitNo.
    
    Exhibit4.8
    
    Trust Agreement of Republic Capital Trust I, a subsidiary of Republic
(filed as Exhibit (4)(h) of Republics registration statement on Form S-3,
registration no. 333-70062, and incorporated herein by reference).4.9
    
    Form of Amended and Restated Trust Agreement of Republic Capital Trust I,
a subsidiary of Republic (filed as Exhibit (4)(i) of Republics registration
statement on Form S-3, registration no. 333-70062, and incorporated herein by
reference).4.10
    
    Form of Trust Preferred Securities Certificate of Republic Capital Trust
I, a subsidiary of Republic (filed as Exhibit (4)(j) of Republics
registration statement on Form S-3, registration no. 333-70062, and
incorporated herein by reference).4.11
    
    Form of Agreement as to Expenses and Liabilities between Republic and
Republic Capital Trust I, a subsidiary of Republic (filed as Exhibit (4)(k)
of Republics registration statement on Form S-3, registration no. 333-70062,
and incorporated herein by reference).4.12
    
    Form of Trust Preferred Securities Guarantee Agreement between Republic
and Wilmington Trust Company (filed as Exhibit (4)(l) of Republics
registration statement on Form S-3, registration no. 333-70062, and
incorporated herein by reference).4.13
    
    Indenture, dated October 3, 2006, between Citizens Banking Corporation
and U.S. Bank National Association, as Trustee (incorporated by reference
from Exhibit 4.1 of Citizens Current Report on Form 8-K filed October 3,
2006).4.14
    
    First Supplemental Indenture, dated October 3, 2006, between Citizens
Banking Corporation and U.S. Bank National Association as Trustee
(incorporated by reference from Exhibit 4.2 of Citizens Current Report on
Form 8-K filed on October 3, 2006).4.15
    
    Amended and Restated Trust Agreement, dated October 3, 2006, among
Citizens Banking Corporation, U.S. Bank National Association, as Property
Trustee, U.S. Bank Trust National Association as Delaware Trustee, and
Administrative Trustees named therein (incorporated by reference from Exhibit
4.3 of Citizens Current Report on Form 8-K filed October 3, 2006).4.16
    
    Guarantee Agreement, dated October 3, 2006, between Citizens Banking
Corporation as Guarantor and U.S. Bank National Association as Guarantee
Trustee (incorporated by reference from Exhibit 4.6 of Citizens Current
Report on Form 8-K filed October 3, 2006).10.1*
    
    Citizens Banking Corporation Second Amended Stock Option Plan
(incorporated by reference from Exhibit 4 of Citizens registration statement
on Form S-8 filed May 5, 1992, Registration No. 33-47686).10.2*
    
    Citizens Banking Corporation Third Amended Stock Option Plan
(incorporated by reference from Exhibit 10(r) of Citizens 1997 Second Quarter
Report on Form 10-Q).10.3*
    
    First Amendment to Citizens Banking Corporation Third Amended Stock
Option Plan (incorporated by reference from Exhibit 10.2 of Citizens 2000
Second Quarter Report on Form 10-Q).10.4*
    
    Citizens Banking Corporation All-Employee Stock Option Plan
(incorporated by reference from Exhibit 99 of Citizens registration statement
on Form S-8 filed June 26, 2000, Registration No. 333-40100).10.5*
    
    Citizens Banking Corporation Stock Option Plan for Directors
(incorporated by reference from Exhibit 99 of Citizens registration statement
on Form S-8 filed July 21, 1995, Registration No. 33-61197).
 120




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##### Table of Contents



EXHIBIT INDEX (continued)
 ExhibitNo.
    
    Exhibit10.6*
    
    First Amendment to Citizens Banking Corporation Stock Option Plan for
Directors (incorporated by reference from Exhibit 10.3 of Citizens 2000
Second Quarter Report on Form 10-Q).10.7*
    
    Citizens Banking Corporation Stock Compensation Plan (incorporated by
reference from exhibit 10.13 of Citizens 2001 Annual Report on Form 10-K).10.8*
    
    Post Effective Amendment No. 1 to Form S-4 on Form S-8 pertaining to
F&M Bancorporation, Inc. 1993 Incentive Stock Option Plan and F&M
Bancorporation, Inc. 1993 Stock Option Plan for Non-employee Directors
(incorporated by reference to Form S-8 filed December 22, 1999, file number
333-86569).10.9*
    
    Citizens Banking Corporation Amended and Restated Section 401(k) Plan
(incorporated by reference from Exhibit 99.1 of Citizens registration
statement on Form S-8 filed August 2, 1996  Registration No. 333-09455).10.11*
    
    Citizens Banking Corporation Amended and Restated Directors Deferred
Compensation Plan (incorporated by reference from Exhibit 10.11 of Citizens
2002 Annual Report on Form 10-K).10.13
    
    Amended and Restated Declaration of Trust dated as of June 26, 2003 by
and among U.S. Bank National Association, as institutional Trustee, Citizens
Banking Corporation, as Sponsor, and William R. Hartman, Charles D. Christy
and Thomas W. Gallagher as Administrators (incorporated by reference from
Exhibit 10.1 of Citizens 2003 Second Quarter Report on Form 10-Q).10.14
    
    Placement Agreement, dated June 16, 2003, between Citizens, Citizens
Michigan Statutory Trust I, FTN Financial Capital Markets and Keefe Bruyette &
Woods, Inc. (incorporated by reference from Exhibit 10.2 of Citizens 2003
Second Quarter Report on Form 10-Q).10.15
    
    Guarantee Agreement dated as of June 26, 2003 by and between Citizens
Banking Corporation and U.S. Bank National Association (incorporated by
reference from Exhibit 10.3 of Citizens 2003 Second Quarter Report on Form
10-Q).10.16*
    
    Amended and Restated Employment Agreement by and between Citizens
Banking Corporation and William R. Hartman dated as of May 29, 2003
(incorporated by reference from Exhibit 10.4 of Citizens 2003 Second Quarter
Report on Form 10-Q).10.17*
    
    Form of Change in Control Agreement by and between Citizens Banking
Corporation and certain executive officers (incorporated by reference from
Exhibit 10.17 of Citizens 2003 Annual Report on Form 10-K).10.18*
    
    Change in Control Agreement, dated as of April 7, 2003, by and between
Citizens Banking Corporation and Randall J. Peterson (incorporated by
reference from Exhibit 10.18 of Citizens 2003 Annual Report on Form 10-K).10.19*
    
    Employment Agreement, dated as of June 26, 2006, by and between
Citizens Banking Corporation and William R. Hartman (incorporated by reference
from exhibit 99.1 of Citizens Current Report on Form 8-K filed June 29,
2006).10.20*
    
    Form of Nonqualified Stock Option Agreement for Nonemployee Directors
under the Citizens Banking Corporation Stock Compensation Plan (incorporated by
reference from Exhibit 10.20 of Citizens 2004 Third Quarter Report on Form
10-Q).10.21*
    
    Form of Nonqualified Stock Option Agreement for Employees under the
Citizens Banking Corporation Stock Compensation Plan (incorporated by reference
from Exhibit 10.21 of Citizens 2004 Third Quarter Report on Form 10-Q).
 121




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##### Table of Contents



EXHIBIT INDEX (continued)
 ExhibitNo.
    
    Exhibit10.22*
    
    Form of Restricted Stock Agreement under the Citizens Banking Corporation Stock Compensation Plan
(incorporated by reference from Exhibit 10.22 of Citizens 2004 Third Quarter Report on Form 10-Q).10.23*
    
    2005 Management Incentive Plan (incorporated by reference from Exhibit 10.19 of Citizens 2005
First Quarter Report on Form 10-Q)110.24*
    
    Form of Restricted Stock Agreement (Employee Version) (incorporated by reference from Exhibit
10.1 of the Companys Current Report on Form 8-K filed with the Commission on June 7, 2005).10.25*
    
    Form of Restricted Stock Agreement (Director Version) (incorporated by reference from Exhibit
10.2 of the Companys Current Report on Form 8-K filed with the Commission on June 7, 2005).10.26*
    
    Form of Stock Option Agreement (Employee Version) (incorporated by reference from Exhibit 10.3
of the Companys Current Report on Form 8-K filed with the Commission on June 7, 2005).10.27*
    
    Form of Stock Option Agreement (Director Version) (incorporated by reference from Exhibit 10.4
of the Companys Current Report on Form 8-K filed with the Commission on June 7, 2005).10.28*
    
    Form of Restricted Stock Agreement (Employee Version) (incorporated by reference from Exhibit
10.28 of Citizens 2006 Second Quarter Report on Form 10-Q).10.29*
    
    Form of Restricted Stock Agreement (Director Version) (incorporated by reference from Exhibit
10.29 of Citizens 2006 Second Quarter Report on Form 10-Q).10.30*
    
    2006 Management Incentive Plan (incorporated by reference from Exhibit 10.30 of Citizens 2006
Second Quarter Report on Form 10-Q)1.10.31*
    
    Retention Agreement with each of John D. Schwab, Clinton A. Sampson, and Randall J. Peterson,
dated August 16, 2006 (incorporated by reference from Exhibit 10.31 of Citizens 2006 Third Quarter
Report on Form 10-Q).10.32*
    
    Employment Agreement, dated as of June 26, 2006, by and between Citizens and Jerry D. Campbell.10.33*
    
    Employment Agreement, dated as of June 26, 2006, by and between Citizens and Dana M. Cluckey.10.34*
    
    Employment Agreement, dated as of November 3, 2006, by and between Citizens and Thomas F.
Menacher.10.35*
    
    Amendment to the Citizens Banking Corporation Stock Compensation Plan Restricted Stock Agreement,
dated as of February 21, 2007.21
    
    Subsidiaries of the Registrant23
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b)
under the Securities Exchange Act of 1934.
 122




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##### Table of Contents



EXHIBIT INDEX (continued)
 ExhibitNo.
    
    Exhibit32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b)
under the Securities Exchange Act of 1934.
 
 
 *
    
    Current management contracts or compensatory plans or arrangements.1
    
    Portions of this exhibit have been omitted pursuant to Citizens request to the
Secretary of the Securities and Exchange Commission for confidential treatment pursuant to rule
24b-2 under the Securities Exchange Act of 1934, as amended 123




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