##### Table of Contents



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, 2007.
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the transition period from to
 Commission
File Number 001-33063
 CITIZENS REPUBLIC BANCORP, INC.
  MICHIGAN
    
    38-2378932(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)
 328 S. Saginaw Street, Flint, Michigan
    
    48502(Address of Principal Executive Offices)
    
    (ZIP Code)
  Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Exchange on Which RegisteredCommon Stock, no par value
    
    The NASDAQ Global Select Market®7.50% Trust Preferred Securities (issued by Citizens Funding Trust I)
    
    New York Stock ExchangePreferred Stock Purchase Rights
    
    The NASDAQ Global Select Market®
 Securities registered pursuant to Section 12(g) of the Act: none
 þ  o
 o  þ
 þ o
 þ
  Large accelerated filer
þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller Reporting company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



CITIZENS REPUBLIC BANCORP, INC.
2007 Annual Report on Form 10-K
 TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    11Item 1B.
    
    Unresolved Staff Comments
    
    
    18Item 2.
    
    Properties
    
    
    18Item 3.
    
    Legal Proceedings
    
    
    18Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    19PART IIItem 5.
    
    Market for the Registrants Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
    
    
    19Item 6.
    
    Selected Financial Data
    
    
    20Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Overview
    
    
    23Critical Accounting Policies
    
    
    25Recent Accounting Pronouncements
    
    
    30Recent Developments
    
    
    30Results of Operations
    
    
    32Financial Condition
    
    
    41Liquidity and Debt Capacity
    
    
    57Interest Rate Risk
    
    
    58Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    59Item 8.
    
    Financial Statements and Supplementary Data
    
    
    59Consolidated Balance Sheets
    
    
    60Consolidated Statements of Income
    
    
    61Consolidated Statements of Changes in Shareholders Equity
    
    
    62Consolidated Statements of Cash Flows
    
    
    63Notes to Consolidated Financial Statements
    
    
    64Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    107Item 9A.
    
    Controls and Procedures
    
    
    107Item 9B.
    
    Other Information
    
    
    110PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    110Item 11.
    
    Executive Compensation
    
    
    110Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    110Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    111Item 14.
    
    Principal Accounting Fees and Services
    
    
    111PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    112SIGNATURES
    
    
    
    
    113EXHIBIT INDEX

    
    
    
    115Amendment No. 1 to Rights AgreementForm of Amended and Restated Change in Control AgreementAmended and Restated Change in Control AgreementSupplemental Retirement Benefits PlanSubsidiaries of the RegistrantConsent of Independent Registered Public Accounting FirmCertification of Chief Executive Officer pursuant to Rule 13a-14(a)Certification of Chief Financial Officer pursuant to Rule 13a-14(a)Certification of Chief Executive Officer pursuant to Section 1350Certification of Chief Financial Officer pursuant to Section 1350
  2




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PART I
 
 ITEM 1. BUSINESS
 SM www.citizensbanking.com www.sec.gov
 GENERAL
   Total
    
    DatePrincipal
    
    Number of
    
    Assets
    
    Acquired /Subsidiary
    
    Office
    
    Offices
    
    (in millions)
    
    EstablishedCitizens Bank (a)
    
    Flint, MI
    
    
    227
    
    
    $
    12,494.4
    
    
    
    1871F&M Bank  Iowa (a)
    
    Marshalltown, IA
    
    
    11
    
    
    
    427.8
    
    
    
    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, 2007.  3




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GEOGRAPHIC LOCATIONS
  PRINCIPAL SOURCES OF REVENUE
  Year Ended December 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2005Interest and fees on loans
    
    $
    684,047
    
    
    $
    399,469
    
    
    $
    343,890Interest and dividends on investment securities, money
market investments, FHLB and Federal Reserve stock
    
    
    123,864
    
    
    
    72,883
    
    
    
    79,359Noninterest income
    
    
    122,568
    
    
    
    90,627
    
    
    
    80,508Total revenues
    
    $
    930,479
    
    
    $
    562,979
    
    
    $
    503,757
  LINES OF BUSINESS
  
    
    Specialty Commercial Specialty Commercial includes the commercial real estate, treasury
management, public funds, and asset-based lending teams. These groups provide a full range of
lending, depository, and related financial services to commercial real estate developers,
owners of multi-unit commercial properties, middle-market companies, local governments and
municipalities, and leasing clients. Products and services offered include commercial
mortgages, real estate construction lending, term loans, revolving credit arrangements,
inventory and accounts receivable financing, and letters of credit. Noncredit services for
these customers include deposit accounts, treasury management, corporate cash management,
international banking services, advice and assistance in the placement of securities, and
financial planning.
 
    
    Regional Banking Regional Banking includes the consumer, residential mortgage, commercial
and industrial, small business, and private banking teams. These groups provide a wide range
of lending, depository, and other related financial services to both businesses and individual
consumers. The products and services offered to consumer clients include: direct loans, home
equity loans and lines of credit, residential mortgage loans, checking, savings and money market accounts, debit and credit cards, ATM network
services,
 4




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certificates of deposit, and fixed and variable annuities, as well as private banking
services for affluent clients. The products and services offered to commercial clients include:
term loans, revolving credit arrangements, inventory and accounts receivable financing,
commercial mortgages, letters of credit, and small business loans. Noncredit services for
commercial clients include deposit accounts, treasury management, corporate cash management,
international banking services, advice and assistance in the placement of securities, and
financial planning.
 
    
    Wealth Management- Wealth Management offers a broad array of asset management, financial
planning, estate settlement and administration, credit and deposit products and services.
Trust and investment services include personal trust and planning, investment management,
estate settlement and administration services. Retirement plan services focus on investment
management and fiduciary activities with special emphasis on 401(k) plans. Brokerage and
insurance delivers retail mutual funds, other securities, variable and fixed annuities,
personal disability and life insurance products and discounted brokerage services.
   COMPETITION
     5




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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;
 7




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
    
    placing additional restrictions on transactions with affiliates;
 
    
    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
  11




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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;
 
    
    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, such as deterioration in commercial and residential real estate
values.
   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.
   12




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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.
   13




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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.
     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.
  14




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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 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 our Holding Company, attract
deposits, or make loans and leases at satisfactory spreads. Such changes may also result in the
imposition of additional costs.
  The products and services offered by the banking industry and customer expectations regarding them
are subject to change. 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.
  15




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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.
 
    
    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 increases 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.
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Events such as significant adverse changes in the business climate, adverse action by a regulator,
unanticipated changes in the competitive environment, and a decision to change our operations or
dispose of an operating unit could have a negative effect on the goodwill or other intangible
assets we recorded at the time of the Republic merger such that we may need to record an impairment
charge, which could result in a negative impact on our 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 our 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 our Holding Company. Dividends paid by these subsidiaries are subject to
limits imposed by federal and state law.
  17




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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 and bylaws as well as certain banking laws may have an anti-takeover
effect.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
   18




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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
 SM
  Dividends
    
    
    Common StockDeclared
    
    
    Price Range
    
    
    ClosingPer Share
    
    
    High
    
    
    Low
    
    
    Price2007Fourth quarter
    
    $
    0.290
    
    
    $
    17.37
    
    
    $
    13.00
    
    
    $
    14.51Third quarter
    
    
    0.290
    
    
    
    20.38
    
    
    
    15.01
    
    
    
    16.11Second quarter
    
    
    0.290
    
    
    
    22.50
    
    
    
    18.02
    
    
    
    18.30First quarter
    
    
    0.290
    
    
    
    26.95
    
    
    
    21.97
    
    
    
    22.16Year
    
    $
    1.160
    
    
    $
    26.95
    
    
    $
    13.00
    
    
    $
    14.512006Fourth 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
    
    
    $
    26.50
  Stock
Performance Graph
  19




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CRBC
    
    KBW 50
    
    S&P 50012/31/2002
    
    $
    100.0
    
    
    $
    100.0
    
    
    $
    100.012/31/2003
    
    
    137.7
    
    
    
    134.0
    
    
    
    128.612/31/2004
    
    
    149.7
    
    
    
    147.5
    
    
    
    142.612/31/2005
    
    
    125.8
    
    
    
    149.2
    
    
    
    149.612/31/2006
    
    
    125.5
    
    
    
    178.2
    
    
    
    173.112/31/2007
    
    
    73.4
    
    
    
    137.2
    
    
    182.6
 Issuer Repurchases of Equity Securities
  
 ITEM 6. SELECTED FINANCIAL DATA
  20




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Five
Year Summary of Selected Financial Data
 (in thousands, except per share data)
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003For The YearNet interest income
    
    $
    382,179
    
    
    $
    263,120
    
    
    $
    275,749
    
    
    $
    271,698
    
    
    $
    280,705Provision for loan losses (1)
    
    
    45,177
    
    
    
    11,265
    
    
    
    1,109
    
    
    
    21,609
    
    
    
    62,008Noninterest income before securities gains (losses)(2)
    
    
    122,593
    
    
    
    97,728
    
    
    
    89,435
    
    
    
    92,971
    
    
    
    92,952Investment securities gains (losses) (3)
    
    
    (25
    )
    
    
    (7,101
    )
    
    
    (8,927
    )
    
    
    (1,513
    )
    
    
    101Noninterest expense(4)
    
    
    327,423
    
    
    
    259,827
    
    
    
    243,042
    
    
    
    260,278
    
    
    
    228,866Income tax provision (benefit) from continuing operations
    
    
    31,305
    
    
    
    19,319
    
    
    
    31,581
    
    
    
    19,590
    
    
    
    18,375Income from continuing operations
    
    
    100,842
    
    
    
    63,336
    
    
    
    80,525
    
    
    
    61,679
    
    
    
    64,509Discontinued operations (after tax) (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,418
    
    
    
    1,442Net income
    
    
    100,842
    
    
    
    63,336
    
    
    
    80,525
    
    
    
    76,097
    
    
    
    65,951Cash dividends
    
    
    87,799
    
    
    
    49,530
    
    
    
    49,311
    
    
    
    49,286
    
    
    
    49,476Per Common Share DataIncome from continuing operations:Basic
    
    $
    1.34
    
    
    $
    1.48
    
    
    $
    1.87
    
    
    $
    1.43
    
    
    $
    1.49Diluted
    
    
    1.33
    
    
    
    1.47
    
    
    
    1.85
    
    
    
    1.41
    
    
    
    1.48Discontinued operations:Basic
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.33
    
    
    $
    0.03Diluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.33
    
    
    
    0.03Net income:Basic
    
    $
    1.34
    
    
    $
    1.48
    
    
    $
    1.87
    
    
    $
    1.76
    
    
    $
    1.52Diluted
    
    
    1.33
    
    
    
    1.47
    
    
    
    1.85
    
    
    
    1.74
    
    
    
    1.51Cash dividends
    
    
    1.160
    
    
    
    1.155
    
    
    
    1.140
    
    
    
    1.140
    
    
    
    1.140Book value, end of year
    
    
    20.84
    
    
    
    20.58
    
    
    
    15.28
    
    
    
    15.13
    
    
    
    14.69Tangible book value (6)
    
    
    10.20
    
    
    
    9.65
    
    
    
    13.75
    
    
    
    13.55
    
    
    
    13.03Market value, end of year
    
    
    14.51
    
    
    
    26.50
    
    
    
    27.75
    
    
    
    34.35
    
    
    
    32.72At Year End, Continuing OperationsAssets
    
    $
    13,505,983
    
    
    $
    14,002,612
    
    
    $
    7,750,688
    
    
    $
    7,704,633
    
    
    $
    7,543,304Portfolio loans (7)
    
    
    9,501,244
    
    
    
    9,231,082
    
    
    
    5,616,119
    
    
    
    5,393,365
    
    
    
    5,164,416Deposits
    
    
    8,301,925
    
    
    
    8,698,061
    
    
    
    5,473,839
    
    
    
    5,299,760
    
    
    
    5,274,082Long-term debt
    
    
    2,939,510
    
    
    
    2,638,964
    
    
    
    1,004,914
    
    
    
    948,521
    
    
    
    935,260Shareholders equity
    
    
    1,577,880
    
    
    
    1,557,686
    
    
    
    656,463
    
    
    
    654,302
    
    
    
    635,162At Year End, CombinedAssets
    
    $
    13,505,983
    
    
    $
    14,002,612
    
    
    $
    7,750,688
    
    
    $
    7,704,633
    
    
    $
    7,709,471Portfolio loans (7)
    
    
    9,501,244
    
    
    
    9,231,082
    
    
    
    5,616,119
    
    
    
    5,393,365
    
    
    
    5,247,818Deposits
    
    
    8,301,925
    
    
    
    8,698,061
    
    
    
    5,473,839
    
    
    
    5,299,760
    
    
    
    5,442,267Long-term debt
    
    
    2,939,510
    
    
    
    2,638,964
    
    
    
    1,004,914
    
    
    
    948,521
    
    
    
    935,260Shareholders equity
    
    
    1,577,880
    
    
    
    1,557,686
    
    
    
    656,463
    
    
    
    654,302
    
    
    
    635,162Average For The Year, Continuing OperationsAssets
    
    $
    13,320,121
    
    
    $
    7,704,231
    
    
    $
    7,776,522
    
    
    $
    7,583,979
    
    
    $
    7,509,573Earning assets
    
    
    11,851,100
    
    
    
    7,250,843
    
    
    
    7,348,168
    
    
    
    7,164,365
    
    
    
    7,097,607Portfolio loans (7)
    
    
    9,212,066
    
    
    
    5,657,476
    
    
    
    5,493,280
    
    
    
    5,210,817
    
    
    
    5,140,450Deposits
    
    
    8,168,893
    
    
    
    5,587,967
    
    
    
    5,286,390
    
    
    
    5,277,670
    
    
    
    5,478,315Interest-bearing deposits
    
    
    7,029,198
    
    
    
    4,666,387
    
    
    
    4,355,337
    
    
    
    4,379,150
    
    
    
    4,626,593Repurchase agreements and
other short-term borrowings
    
    
    721,086
    
    
    
    374,088
    
    
    
    812,642
    
    
    
    653,442
    
    
    
    454,339Long-term debt
    
    
    2,728,181
    
    
    
    995,940
    
    
    
    937,182
    
    
    
    934,550
    
    
    
    860,407Shareholders equity
    
    
    1,549,961
    
    
    
    660,996
    
    
    
    653,004
    
    
    
    639,631
    
    
    
    632,060Average For The Year, CombinedAssets
    
    $
    13,320,121
    
    
    $
    7,704,231
    
    
    $
    7,776,522
    
    
    $
    7,683,334
    
    
    $
    7,692,634Earning assets
    
    
    11,851,100
    
    
    
    7,250,843
    
    
    
    7,348,168
    
    
    
    7,259,660
    
    
    
    7,272,887Portfolio loans (7)
    
    
    9,212,066
    
    
    
    5,657,476
    
    
    
    5,493,280
    
    
    
    5,259,303
    
    
    
    5,234,246Deposits
    
    
    8,168,893
    
    
    
    5,587,967
    
    
    
    5,286,390
    
    
    
    5,375,297
    
    
    
    5,665,533Interest-bearing deposits
    
    
    7,029,198
    
    
    
    4,666,387
    
    
    
    4,355,337
    
    
    
    4,460,391
    
    
    
    4,787,594Repurchase agreements and
other short-term borrowings
    
    
    721,086
    
    
    
    374,088
    
    
    
    812,642
    
    
    
    655,472
    
    
    
    458,673Long-term debt
    
    
    2,728,181
    
    
    
    995,940
    
    
    
    937,182
    
    
    
    934,550
    
    
    
    860,407Shareholders equity
    
    
    1,549,961
    
    
    
    660,996
    
    
    
    653,004
    
    
    
    639,631
    
    
    
    632,060
 21




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##### Table of Contents



Five
Year Summary of Selected Financial Data (Continued)
 (in thousands, except per share data)
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Financial Ratios, Continuing OperationsReturn on average:Shareholders equity
    
    
    6.51
    %
    
    
    9.58
    %
    
    
    12.33
    %
    
    
    9.64
    %
    
    
    10.21
    %Earning assets
    
    
    0.85
    
    
    
    0.87
    
    
    
    1.10
    
    
    
    0.86
    
    
    
    0.91Assets
    
    
    0.76
    
    
    
    0.82
    
    
    
    1.04
    
    
    
    0.81
    
    
    
    0.86Average shareholders equity/avg. assets
    
    
    11.64
    
    
    
    8.58
    
    
    
    8.40
    
    
    
    8.43
    
    
    
    8.42Dividend payout ratio
    
    
    87.07
    
    
    
    78.20
    
    
    
    61.24
    
    
    
    79.91
    
    
    
    76.70Net interest margin (FTE) (8)
    
    
    3.38
    
    
    
    3.81
    
    
    
    3.94
    
    
    
    3.99
    
    
    
    4.17Tier I leverage ratio (9)
    
    
    7.53
    
    
    
    7.22
    
    
    
    7.98
    
    
    
    7.84
    
    
    
    7.45Tier I risk-based capital ratio
    
    
    9.18
    
    
    
    9.41
    
    
    
    9.94
    
    
    
    9.96
    
    
    
    9.80Total risk-based capital ratio
    
    
    11.66
    
    
    
    11.90
    
    
    
    13.22
    
    
    
    13.32
    
    
    
    13.23Financial Ratios, CombinedReturn on average:Shareholders equity
    
    
    6.51
    %
    
    
    9.58
    %
    
    
    12.33
    %
    
    
    11.90
    %
    
    
    10.43
    %Earning assets
    
    
    0.85
    
    
    
    0.87
    
    
    
    1.10
    
    
    
    1.05
    
    
    
    0.91Assets
    
    
    0.76
    
    
    
    0.82
    
    
    
    1.04
    
    
    
    0.99
    
    
    
    0.86Average shareholders equity/avg. assets
    
    
    11.64
    
    
    
    8.58
    
    
    
    8.40
    
    
    
    8.32
    
    
    
    8.22Dividend payout ratio
    
    
    87.07
    
    
    
    78.20
    
    
    
    61.24
    
    
    
    64.77
    
    
    
    75.02Net interest margin (FTE) (8)
    
    
    3.38
    
    
    
    3.81
    
    
    
    3.94
    
    
    
    3.99
    
    
    
    4.15Tier I leverage ratio (9)
    
    
    7.53
    
    
    
    7.22
    
    
    
    7.98
    
    
    
    7.84
    
    
    
    7.45Tier I risk-based capital ratio
    
    
    9.18
    
    
    
    9.41
    
    
    
    9.94
    
    
    
    9.96
    
    
    
    9.80Total risk-based capital ratio
    
    
    11.66
    
    
    
    11.90
    
    
    
    13.22
    
    
    
    13.32
    
    
    
    13.23
 
 (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 restructuring and merger-related expenses of $8.2 million in 2007 and $11.3 million in 2006 related to the Republc merger. The year 2003 includes a special charge credit of $0.7 million
related to accrual reversals primarily for employee benefits and severance.(5)
    
    Discontinued operations in 2004 includes an after-tax gain of $12.8 million for the sale of the Illinois bank subsidiary.(6)
    
    Tangible book value is an estimate of what a company would be worth if it was liquidated because it removes the effect of goodwill and intangible assets from the calculation. The formula uses ending balances and is
caculated as follows: (Shareholders equity  Goodwill  Intangible assets)/Shares outstanding(7)
    
    Balances exclude loans held for sale.(8)
    
    Net interest margin is presented on an annual basis and includes taxable equivalent adjustments to interest income of $18.5 million, $13.7 million, $13.4 million, $13.2 million and $13.3 million for the years ended
December 31, 2007, 2006, 2005, 2004 and 2003, respectively, based on a tax rate of 35%.(9)
    
    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
   22




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Forward-Looking Statements
   
 OVERVIEW
 Nature of Citizens Business
    23




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##### Table of Contents



Performance Summary
  Table 1. Three Year Summary of Net Income Components
 Year Ended December 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2005Interest income
    
    $
    807,911
    
    
    $
    472,352
    
    
    $
    423,249Interest expense
    
    
    425,732
    
    
    
    209,232
    
    
    
    147,500Net interest income
    
    
    382,179
    
    
    
    263,120
    
    
    
    275,749Provision for loan losses (1)
    
    
    45,177
    
    
    
    11,265
    
    
    
    1,109Noninterest income (1)
    
    
    122,568
    
    
    
    90,627
    
    
    
    80,508Noninterest expense (1)
    
    
    327,423
    
    
    
    259,827
    
    
    
    243,042Income tax provision(1)
    
    
    31,305
    
    
    
    19,319
    
    
    
    31,581Net income
    
    $
    100,842
    
    
    $
    63,336
    
    
    $
    80,525(1)Includes significant charges and/or gains as follows:Provision for loan losses
    
    $
    
    
    
    $
    
    
    
    $
    9,125Noninterest 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 gains and other charges recorded in noninterest income
    
    
    
    
    
    
    (7,370
    )
    
    
    (12,580
    )Noninterest expenseExpenses related to merger activities but not treated as
restructuring or merger-related
    
    
    (10,142
    )
    
    
    (6,322
    )Restructuring and merger related expenses
    
    
    (8,247
    )
    
    
    (11,324
    )
    
    
    Total charges recorded in noninterest expense
    
    
    (18,389
    )
    
    
    (17,646
    )
    
    
    Tax benefit (expense)
    
    
    6,436
    
    
    
    8,756
    
    
    
    1,209Net increase (decrease) to income
    
    $
    (11,953
    )
    
    $
    (16,260
    )
    
    $
    (2,246
    )
  24




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##### Table of Contents




    
    Net interest income for 2007 increased $119.1 million or 45.2% to $382.2 million compared
with 2006 while the net interest margin percentage decreased from 3.81% to 3.38% during the
same period. The increase in net interest income was the result of incorporating Republics
average earnings assets, partially offset by the lower net interest margin. The margin
compression was 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 and the continued effects of the interest rate environment, partially offset by a
shift in asset mix from investment securities to higher yielding commercial loans.
 
    
    The provision for loan losses increased $33.9 million over 2006 due to higher net
charge-offs as a result of the credit quality issues in the post-merger commercial real estate
loan portfolio. Total net charge-offs increased $34.7 million in 2007 to $50.9 million or
0.55% of average portfolio loans outstanding compared with $16.3 million or 0.29% for 2006.
The increase was primarily the result of incorporating the Republic loan portfolios and an
increase in commercial real estate charge-offs.
 
    
    Noninterest income increased $31.9 million or 35.2% to $122.6 million compared with 2006.
The increase was primarily due to incorporating Republic revenue, the effect of a $7.2 million
other-than-temporary impairment charge (investment security loss) in the fourth quarter of
2006, and, to a lesser extent, growth in legacy Citizens revenue stream, partially offset by
the effect of fully recognizing a deferred gain of $2.9 million on the 2004 sale of the former
downtown Royal Oak, Michigan office during the first quarter of 2006.
 
    
    Noninterest expense increased $67.6 million or 26.0% to $327.4 million compared with 2006.
The increase was primarily the result of incorporating Republic activity, $10.1 million in
additional expenses that are related to merger activities but not treated as restructuring or
merger-related, and, to a lesser extent, higher professional services and legacy Citizens data
processing services and telephone expenses, partially offset by lower restructuring and
merger-related expenses in 2007, the effects of five items in 2006: $2.0 million in
additional depreciation; $1.4 million for re-branding and customer communication, $1.1 million
net pension curtailment loss, $1.8 million prepayment penalty on FHLB debt and the effect of a
$1.5 million contribution to Citizens charitable foundation.
 
    
    Income tax expense increased $12.0 million or 62.0% to $31.3 million compared with 2006.
The increase was primarily due to higher pre-tax income for 2007. The 2007 effective tax rate
was 23.69% compared with
23.37% for 2006. The slight increase in the effective tax rate was because the ratio of
permanent favorable difference to pre-tax income is lower in 2007.
 
 CRITICAL ACCOUNTING POLICIES
  25




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Allowance for Loan Losses
      26




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Goodwill
   27




---



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
    
    selection of comparable publicly traded companies, based on location, size, and business
composition;
 
    
    selection of comparable acquisition transactions, based on location, size, business
composition, and date of the transaction;
 
    
    the discount rate applied to future earnings, based on an estimate of the cost of capital;
 
    
    the potential future earnings of the reporting unit;
 
    
    the relative weight given to the valuations derived by the three methods described.
     Pension and Postretirement Benefits
   28




---



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Derivative Financial Instruments and Hedge Accounting
  29




---



##### Table of Contents



Income Tax Accounting
  
 RECENT ACCOUNTING PRONOUNCEMENTS
  
 RECENT DEVELOPMENTS
 Branch Sale
  Strategic Business Alliances for the Mortgage Operations and Secondary Marketing Functions
   30




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##### Table of Contents



Significant Developments in 2006 and 2005
 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.
  Enhanced Trust Preferred Securities
  Insurance Settlement
   Accounting for Derivative Instruments and Hedging Activities
  Securities Sale
  31




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##### Table of Contents



RESULTS OF OPERATIONS
NET INTEREST INCOME
  Table 2. Average Balances/Net Interest Income/Average Rates
 2007
    
    
    2006
    
    
    2005Year 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
    
    $
    1,940
    
    
    $
    104
    
    
    
    5.37
    %
    
    $
    2,862
    
    
    $
    119
    
    
    
    4.17
    %
    
    $
    2,348
    
    
    $
    56
    
    
    
    2.38
    %Investment securities (3):Taxable
    
    
    1,726,042
    
    
    
    88,078
    
    
    
    5.10
    
    
    
    1,077,475
    
    
    
    48,950
    
    
    
    4.54
    
    
    
    1,321,154
    
    
    
    55,382
    
    
    
    4.19Tax-exempt
    
    
    671,753
    
    
    
    29,268
    
    
    
    6.70
    
    
    
    449,068
    
    
    
    21,113
    
    
    
    7.23
    
    
    
    426,811
    
    
    
    20,789
    
    
    
    7.49FHLB and Federal Reserve stock
    
    
    137,676
    
    
    
    6,414
    
    
    
    4.66
    
    
    
    56,700
    
    
    
    2,701
    
    
    
    4.76
    
    
    
    59,714
    
    
    
    3,132
    
    
    
    5.25Portfolio Loans (4):Commercial
    
    
    2,138,853
    
    
    
    155,182
    
    
    
    7.38
    
    
    
    1,727,232
    
    
    
    124,676
    
    
    
    7.35
    
    
    
    1,628,625
    
    
    
    98,030
    
    
    
    6.15Commercial real estate
    
    
    3,103,082
    
    
    
    238,240
    
    
    
    7.68
    
    
    
    1,447,789
    
    
    
    103,669
    
    
    
    7.16
    
    
    
    1,338,870
    
    
    
    85,102
    
    
    
    6.36Residential mortgage loans
    
    
    1,490,447
    
    
    
    98,678
    
    
    
    6.62
    
    
    
    540,737
    
    
    
    31,343
    
    
    
    5.80
    
    
    
    513,385
    
    
    
    28,611
    
    
    
    5.57Direct consumer
    
    
    1,638,084
    
    
    
    127,768
    
    
    
    7.80
    
    
    
    1,099,110
    
    
    
    82,804
    
    
    
    7.53
    
    
    
    1,171,567
    
    
    
    74,798
    
    
    
    6.38Indirect consumer
    
    
    841,600
    
    
    
    56,881
    
    
    
    6.76
    
    
    
    842,608
    
    
    
    56,032
    
    
    
    6.65
    
    
    
    840,833
    
    
    
    55,448
    
    
    
    6.59Total portfolio loans
    
    
    9,212,066
    
    
    
    676,749
    
    
    
    7.38
    
    
    
    5,657,476
    
    
    
    398,524
    
    
    
    7.09
    
    
    
    5,493,280
    
    
    
    341,989
    
    
    
    6.27Loans held for sale
    
    
    97,744
    
    
    
    7,298
    
    
    
    7.42
    
    
    
    16,378
    
    
    
    945
    
    
    
    5.77
    
    
    
    35,061
    
    
    
    1,901
    
    
    
    5.42Total earning assets (3)
    
    
    11,847,221
    
    
    
    807,911
    
    
    
    6.98
    
    
    
    7,259,959
    
    
    
    472,352
    
    
    
    6.70
    
    
    
    7,338,368
    
    
    
    423,249
    
    
    
    5.95Nonearning AssetsCash and due from banks
    
    
    198,908
    
    
    
    
    
    
    
    
    
    
    
    159,501
    
    
    
    
    
    
    
    
    
    
    
    158,826Bank premises and equipment
    
    
    136,135
    
    
    
    
    
    
    
    
    
    
    
    119,572
    
    
    
    
    
    
    
    
    
    
    
    121,277Investment security
fair value adjustment
    
    
    3,879
    
    
    
    
    
    
    
    
    
    
    
    (9,116
    )
    
    
    
    
    
    
    
    
    
    
    9,801Other nonearning assets
    
    
    1,307,126
    
    
    
    
    
    
    
    
    
    
    
    288,928
    
    
    
    
    
    
    
    
    
    
    
    268,175Allowance for loan losses
    
    
    (173,148
    )
    
    
    
    
    
    
    
    
    
    
    (114,613
    )
    
    
    
    
    
    
    
    
    
    
    (119,925
    )Total assets
    
    $
    13,320,121
    
    
    
    
    
    
    
    
    
    
    $
    7,704,231
    
    
    
    
    
    
    
    
    
    
    $
    7,776,522Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    
    831,983
    
    
    
    5,742
    
    
    
    0.69
    
    
    
    779,803
    
    
    
    5,051
    
    
    
    0.65
    
    
    
    1,035,579
    
    
    
    6,968
    
    
    
    0.67Savings deposits
    
    
    2,188,296
    
    
    
    63,942
    
    
    
    2.92
    
    
    
    1,478,492
    
    
    
    38,848
    
    
    
    2.63
    
    
    
    1,505,604
    
    
    
    22,197
    
    
    
    1.47Time deposits
    
    
    4,008,919
    
    
    
    187,510
    
    
    
    4.68
    
    
    
    2,408,092
    
    
    
    103,233
    
    
    
    4.29
    
    
    
    1,814,154
    
    
    
    55,989
    
    
    
    3.09Short-term borrowings
    
    
    721,086
    
    
    
    34,316
    
    
    
    4.76
    
    
    
    374,088
    
    
    
    16,017
    
    
    
    4.28
    
    
    
    812,642
    
    
    
    25,929
    
    
    
    3.19Long-term debt
    
    
    2,728,181
    
    
    
    134,222
    
    
    
    4.92
    
    
    
    995,940
    
    
    
    46,083
    
    
    
    4.63
    
    
    
    937,182
    
    
    
    36,417
    
    
    
    3.89Total interest-bearing
liabilities
    
    
    10,478,465
    
    
    
    425,732
    
    
    
    4.06
    
    
    
    6,036,415
    
    
    
    209,232
    
    
    
    3.47
    
    
    
    6,105,161
    
    
    
    147,500
    
    
    
    2.42Noninterest-Bearing Liabilities
and Shareholders EquityNoninterest-bearing demand
    
    
    1,139,695
    
    
    
    
    
    
    
    
    
    
    
    921,580
    
    
    
    
    
    
    
    
    
    
    
    931,053Other liabilities
    
    
    152,000
    
    
    
    
    
    
    
    
    
    
    
    85,240
    
    
    
    
    
    
    
    
    
    
    
    87,304Shareholders equity
    
    
    1,549,961
    
    
    
    
    
    
    
    
    
    
    
    660,996
    
    
    
    
    
    
    
    
    
    
    
    653,004Total liabilities and
shareholders equity
    
    $
    13,320,121
    
    
    
    
    
    
    
    
    
    
    $
    7,704,231
    
    
    
    
    
    
    
    
    
    
    $
    7,776,522Net Interest Income
    
    
    
    
    
    $
    382,179
    
    
    
    
    
    
    
    
    
    
    $
    263,120
    
    
    
    
    
    
    
    
    
    
    $
    275,749Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    2.92
    %
    
    
    
    
    
    
    
    
    
    
    3.23
    %
    
    
    
    
    
    
    
    
    
    
    3.53
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.46
    
    
    
    
    
    
    
    
    
    
    
    0.58
    
    
    
    
    
    
    
    
    
    
    
    0.41Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    
    
    
    
    3.81
    %
    
    
    
    
    
    
    
    
    
    
    3.94
    %
 
 (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 $18.5 million, $13.7 million, and
$13.4 million for the years ended December 31, 2007, 2006, and
2005 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 tax-equivalent basis.(6)
    
    Because noninterest-bearing funding sources, demand deposits, other liabilities and shareholders equity
also support earning assets, the net interest margin exceeds
the interest spread.  32




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33




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Table
3. Analysis of Changes in Interest Income and Interest Expense
 2007 Compared to 2006
    
    
    2006 Compared to 2005Increase (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
    
    $
    (15
    )
    
    $
    29
    
    
    $
    (44
    )
    
    $
    63
    
    
    $
    49
    
    
    $
    14Investment securities:Taxable
    
    
    39,128
    
    
    
    6,649
    
    
    
    32,479
    
    
    
    (6,432
    )
    
    
    4,371
    
    
    
    (10,803
    )Tax-exempt
    
    
    8,155
    
    
    
    (1,646
    )
    
    
    9,801
    
    
    
    324
    
    
    
    (737
    )
    
    
    1,061FHLB and Federal Reserve stock
    
    
    3,713
    
    
    
    (61
    )
    
    
    3,774
    
    
    
    (431
    )
    
    
    (278
    )
    
    
    (153
    )Loans:Commercial
    
    
    30,506
    
    
    
    645
    
    
    
    29,861
    
    
    
    26,646
    
    
    
    20,435
    
    
    
    6,211Commercial real estate
    
    
    134,571
    
    
    
    7,994
    
    
    
    126,577
    
    
    
    18,567
    
    
    
    11,301
    
    
    
    7,266Residential mortgage loans
    
    
    67,335
    
    
    
    5,044
    
    
    
    62,291
    
    
    
    2,732
    
    
    
    1,173
    
    
    
    1,559Direct consumer
    
    
    44,964
    
    
    
    3,021
    
    
    
    41,943
    
    
    
    8,006
    
    
    
    12,845
    
    
    
    (4,839
    )Indirect consumer
    
    
    849
    
    
    
    916
    
    
    
    (67
    )
    
    
    584
    
    
    
    467
    
    
    
    117Total portfolio loans
    
    
    278,225
    
    
    
    17,620
    
    
    
    260,605
    
    
    
    56,535
    
    
    
    46,221
    
    
    
    10,314Loans held for sale
    
    
    6,353
    
    
    
    355
    
    
    
    5,998
    
    
    
    (956
    )
    
    
    115
    
    
    
    (1,071
    )Total
    
    
    335,559
    
    
    
    22,946
    
    
    
    312,613
    
    
    
    49,103
    
    
    
    49,741
    
    
    
    (638
    )Interest Expense:Deposits:Interest-bearing demand
    
    
    691
    
    
    
    342
    
    
    
    349
    
    
    
    (1,917
    )
    
    
    (252
    )
    
    
    (1,665
    )Savings
    
    
    25,094
    
    
    
    4,749
    
    
    
    20,345
    
    
    
    16,651
    
    
    
    17,058
    
    
    
    (407
    )Time
    
    
    84,277
    
    
    
    10,154
    
    
    
    74,123
    
    
    
    47,244
    
    
    
    25,655
    
    
    
    21,589Short-term borrowings
    
    
    18,299
    
    
    
    1,963
    
    
    
    16,336
    
    
    
    (9,912
    )
    
    
    7,010
    
    
    
    (16,922
    )Long-term debt
    
    
    88,139
    
    
    
    3,094
    
    
    
    85,045
    
    
    
    9,666
    
    
    
    7,275
    
    
    
    2,391Total
    
    
    216,500
    
    
    
    20,302
    
    
    
    196,198
    
    
    
    61,732
    
    
    
    56,746
    
    
    
    4,986Net Interest Income
    
    $
    119,059
    
    
    $
    2,644
    
    
    $
    116,415
    
    
    $
    (12,629
    )
    
    $
    (7,005
    )
    
    $
    (5,624
    )
 
 (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. 2007 compared with 2006
     34




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##### Table of Contents



2006 compared with 2005
     PROVISION FOR LOAN LOSSES
  2007 compared with 2006
  2006 compared with 2005
  NONINTEREST INCOME
  35




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##### Table of Contents



Noninterest Income
 Year Ended December 31,
    
    
    $ Change
    
    
    % Change(dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007-2006
    
    
    2006-2005
    
    
    2007-2006
    
    
    2006-2005Service charges on deposit accounts
    
    $
    48,051
    
    
    $
    37,709
    
    
    $
    35,409
    
    
    $
    10,342
    
    
    $
    2,300
    
    
    
    27.4
    %
    
    
    6.5
    %Trust fees
    
    
    20,106
    
    
    
    19,465
    
    
    
    18,445
    
    
    
    641
    
    
    
    1,020
    
    
    
    3.3
    
    
    
    5.5Mortgage and other loan income
    
    
    15,513
    
    
    
    9,270
    
    
    
    8,983
    
    
    
    6,243
    
    
    
    287
    
    
    
    67.3
    
    
    
    3.2Brokerage and investment fees
    
    
    7,901
    
    
    
    6,995
    
    
    
    7,803
    
    
    
    906
    
    
    
    (808
    )
    
    
    12.9
    
    
    
    (10.4
    )ATM network user fees
    
    
    6,283
    
    
    
    4,011
    
    
    
    4,355
    
    
    
    2,272
    
    
    
    (344
    )
    
    
    56.7
    
    
    
    (7.9
    )Bankcard fees
    
    
    6,124
    
    
    
    4,567
    
    
    
    3,804
    
    
    
    1,557
    
    
    
    763
    
    
    
    34.1
    
    
    
    20.1Investment securities gains (losses)
    
    
    (25
    )
    
    
    (7,101
    )
    
    
    (8,927
    )
    
    
    7,076
    
    
    
    1,826
    
    
    
    (99.7
    )
    
    
    (20.5
    )Fair value change in CD swap
derivatives
    
    
    
    
    
    
    (207
    )
    
    
    (3,604
    )
    
    
    207
    
    
    
    3,397
    
    
    
    (100.0
    )
    
    
    (94.3
    )Other
    
    
    18,615
    
    
    
    15,918
    
    
    
    14,240
    
    
    
    2,697
    
    
    
    1,678
    
    
    
    16.9
    
    
    
    11.8Total noninterest income
    
    $
    122,568
    
    
    $
    90,627
    
    
    $
    80,508
    
    
    $
    31,941
    
    
    $
    10,119
    
    
    
    35.2
    
    
    
    12.6
 2007 compared with 2006
   2006 compared with 2005
   36




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##### Table of Contents



NONINTEREST EXPENSE
  Noninterest Expense
 Year Ended December 31,
    
    
    $ Change
    
    
    % Change(dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007-2006
    
    
    2006-2005
    
    
    2007-2006
    
    
    2006-2005Salaries and employee benefits
    
    $
    175,895
    
    
    $
    132,400
    
    
    $
    132,153
    
    
    $
    43,495
    
    
    $
    247
    
    
    
    32.9
    %
    
    
    0.2
    %Occupancy
    
    
    30,971
    
    
    
    22,288
    
    
    
    22,131
    
    
    
    8,683
    
    
    
    157
    
    
    
    39.0
    
    
    
    0.7Professional services
    
    
    18,031
    
    
    
    15,344
    
    
    
    17,279
    
    
    
    2,687
    
    
    
    (1,935
    )
    
    
    17.5
    
    
    
    (11.2
    )Equipment
    
    
    14,650
    
    
    
    14,691
    
    
    
    14,634
    
    
    
    (41
    )
    
    
    57
    
    
    
    (0.3
    )
    
    
    0.4Data processing services
    
    
    16,234
    
    
    
    14,989
    
    
    
    13,800
    
    
    
    1,245
    
    
    
    1,189
    
    
    
    8.3
    
    
    
    8.6Advertising and public relations
    
    
    7,282
    
    
    
    5,881
    
    
    
    7,853
    
    
    
    1,401
    
    
    
    (1,972
    )
    
    
    23.8
    
    
    
    (25.1
    )Postage and delivery
    
    
    7,800
    
    
    
    6,095
    
    
    
    6,213
    
    
    
    1,705
    
    
    
    (118
    )
    
    
    28.0
    
    
    
    (1.9
    )Telephone
    
    
    8,124
    
    
    
    5,777
    
    
    
    5,481
    
    
    
    2,347
    
    
    
    296
    
    
    
    40.6
    
    
    
    5.4Other loan expenses
    
    
    5,518
    
    
    
    4,446
    
    
    
    2,655
    
    
    
    1,072
    
    
    
    1,791
    
    
    
    24.1
    
    
    
    67.5Stationery and supplies
    
    
    2,700
    
    
    
    2,530
    
    
    
    3,091
    
    
    
    170
    
    
    
    (561
    )
    
    
    6.7
    
    
    
    (18.1
    )Intangible asset amortization
    
    
    11,534
    
    
    
    2,899
    
    
    
    2,899
    
    
    
    8,635
    
    
    
    
    
    
    
    297.9
    
    
    
    Restructuring and merger
related expenses
    
    
    8,247
    
    
    
    11,324
    
    
    
    
    
    
    
    (3,077
    )
    
    
    11,324
    
    
    
    (27.2
    )
    
    
    Other
    
    
    20,437
    
    
    
    21,163
    
    
    
    14,853
    
    
    
    (726
    )
    
    
    6,310
    
    
    
    (3.4
    )
    
    
    42.5Total noninterest expense
    
    $
    327,423
    
    
    $
    259,827
    
    
    $
    243,042
    
    
    $
    67,596
    
    
    $
    16,785
    
    
    
    26.0
    
    
    
    6.9
 2007 compared with 2006
   37




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##### Table of Contents



2006 compared with 2005
    FEDERAL AND STATE INCOME TAXES
  38




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##### Table of Contents



LINE OF BUSINESS RESULTS
  Net Income(in thousands)
    
    2007
    
    
    2006
    
    
    2005Specialty Commercial
    
    $
    27,666
    
    
    $
    3,719
    
    
    $
    2,492Regional Banking
    
    
    82,265
    
    
    
    68,352
    
    
    
    71,067Wealth Management
    
    
    3,327
    
    
    
    2,550
    
    
    
    2,050Other
    
    
    (12,416
    )
    
    
    (11,285
    )
    
    
    4,916Net income
    
    $
    100,842
    
    
    $
    63,336
    
    
    $
    80,525
 2007 compared with 2006
    39




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2006 compared with 2005
     40




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##### Table of Contents



FINANCIAL CONDITION
 SUMMARY
  2007
    
    2006
    
    2005Average total assets (in millions)
    
    $
    13,320.1
    
    
    $
    7,704.2
    
    
    $
    7,776.5Average short term borrowings (in millions)
    
    
    721.1
    
    
    
    374.1
    
    
    
    812.6Average long term debt (in millions)
    
    
    2,728.2
    
    
    
    995.9
    
    
    
    937.2Average earning assets as a percent of average assets
    
    
    89.0
    %
    
    
    94.1
    %
    
    
    94.5
    %Average investment securities and money market investments as a
percent of average earning assets
    
    
    21.4
    
    
    
    21.7
    
    
    
    24.8Average portfolio loans as a percent of average earning assets
    
    
    77.7
    
    
    
    78.0
    
    
    
    74.8Interest-bearing deposits as a percent of average
interest-bearing liabilities
    
    
    67.1
    
    
    
    77.3
    
    
    
    71.3Ratio of average noninterest bearing deposits to average deposits
    
    
    14.0
    
    
    
    16.5
    
    
    
    17.6
  AVERAGE TOTAL ASSETS
  INVESTMENT SECURITIES AND MONEY MARKET INVESTMENTS
   Investment Securities
 December 31 (in thousands)
    
    2007
    
    
    2006
    
    
    2005Available for Sale:U.S. Treasury
    
    $
    
    
    
    $
    39,854
    
    
    $
    Federal agencies
    
    
    304,074
    
    
    
    436,315
    
    
    
    310,408Collaterized mortgage obligations
    
    
    586,954
    
    
    
    791,739
    
    
    
    496,925Mortgage-backed securities
    
    
    670,565
    
    
    
    994,767
    
    
    
    315,253State and municipal securities
    
    
    569,466
    
    
    
    575,907
    
    
    
    378,235Other securities
    
    
    1,105
    
    
    
    874
    
    
    
    1,176Total
    
    $
    2,132,164
    
    
    $
    2,839,456
    
    
    $
    1,501,997Held to Maturity:State and municipal securities
    
    $
    129,126
    
    
    $
    109,744
    
    
    $
    82,431Total Investments
    
    $
    2,261,290
    
    
    $
    2,949,200
    
    
    $
    1,584,428
  41




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##### Table of Contents



Table 4. Maturity Distribution of Investment Securities Portfolio (1)
 Due Within
    
    
    One to
    
    
    Five to
    
    
    AfterOne Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Ten Years
    
    
    TotalDecember 31, 2007
    
    
    
    
    
    Avg.
    
    
    
    
    
    
    Avg.
    
    
    
    
    
    
    Avg.
    
    
    
    
    
    
    Avg.
    
    
    
    
    
    
    Avg.(in thousands)
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldSecurities Available for Sale:(2)US Treasury securities (3)
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %Federal Agency securities (3)
    
    
    5,049
    
    
    
    7.08
    
    
    
    248,993
    
    
    
    4.93
    
    
    
    50,032
    
    
    
    5.60
    
    
    
    
    
    
    
    
    
    
    
    304,074
    
    
    
    5.08Collateralized mortgage obligations (3)(4)
    
    
    90,013
    
    
    
    4.04
    
    
    
    496,862
    
    
    
    4.97
    
    
    
    3
    
    
    
    5.61
    
    
    
    76
    
    
    
    7.43
    
    
    
    586,954
    
    
    
    4.83Mortgage-backed securities (3)(4)
    
    
    9,844
    
    
    
    7.52
    
    
    
    303,735
    
    
    
    5.19
    
    
    
    320,583
    
    
    
    4.93
    
    
    
    36,403
    
    
    
    5.59
    
    
    
    670,565
    
    
    
    5.12State and municipal securities (3)(5)
    
    
    27,508
    
    
    
    7.88
    
    
    
    160,907
    
    
    
    7.44
    
    
    
    225,044
    
    
    
    6.46
    
    
    
    156,007
    
    
    
    6.17
    
    
    
    569,466
    
    
    
    6.72Other securitites
    
    
    1,054
    
    
    
    4.27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    8.00
    
    
    
    1,105
    
    
    
    4.32Total securitiesAvailable for Sale
    
    $
    133,468
    
    
    
    5.19
    %
    
    $
    1,210,497
    
    
    
    5.34
    %
    
    $
    595,662
    
    
    
    5.56
    %
    
    $
    192,537
    
    
    
    6.06
    %
    
    $
    2,132,164
    
    
    
    5.46
    %Securities Held to Maturity:(6)State and municipal securities (3)(5)
    
    $
    1,491
    
    
    
    5.22
    %
    
    $
    3,503
    
    
    
    5.94
    %
    
    $
    21,236
    
    
    
    6.09
    %
    
    $
    102,896
    
    
    
    6.30
    %
    
    
    129,126
    
    
    
    6.24
    %Total securitiesHeld to Maturity
    
    $
    1,491
    
    
    
    5.22
    %
    
    $
    3,503
    
    
    
    5.94
    %
    
    $
    21,236
    
    
    
    6.09
    %
    
    $
    102,896
    
    
    
    6.30
    %
    
    $
    129,126
    
    
    
    6.24
    %
 
 (1)
    
    This table excludes stock holdings of the Federal Home Loan Bank and Federal
Reserve.(2)
    
    Amount for Securities Available for Sale is the Estimated Fair Market Value(3)
    
    Yields are based on amortized cost.(4)
    
    Maturity distributions for collateralized mortgage obligations and mortgage-backed
securities are based on estimated average lives.(5)
    
    Average yields on tax-exempt obligations have been computed on a tax equivalent
basis, based on a 35% federal tax rate.(6)
    
    Amount for Securities Held to Maturity is the Amortized Cost   42




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##### Table of Contents



LOAN PORTFOLIO
   Table 5. Portfolio Loans (1)
 (in millions)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Portfolio Loans Outstanding at December 31Commercial
    
    $
    2,557.1
    
    
    $
    2,004.9
    
    
    $
    1,688.1
    
    
    $
    1,633.8
    
    
    $
    1,645.4Commercial real estate
    
    
    2,549.6
    
    
    
    2,442.5
    
    
    
    1,190.4
    
    
    
    1,153.0
    
    
    
    1,194.2Real estate construction
    
    
    547.6
    
    
    
    678.1
    
    
    
    211.7
    
    
    
    102.9
    
    
    
    89.9Total commercial
    
    
    5,654.3
    
    
    
    5,125.5
    
    
    
    3,090.2
    
    
    
    2,889.7
    
    
    
    2,929.5Residential mortgage loans
    
    
    1,445.2
    
    
    
    1,543.5
    
    
    
    539.8
    
    
    
    508.2
    
    
    
    492.7Direct consumer
    
    
    1,572.3
    
    
    
    1,721.4
    
    
    
    1,142.0
    
    
    
    1,169.6
    
    
    
    998.3Indirect consumer
    
    
    829.4
    
    
    
    840.6
    
    
    
    844.1
    
    
    
    825.9
    
    
    
    743.9Total
    
    $
    9,501.2
    
    
    $
    9,231.0
    
    
    $
    5,616.1
    
    
    $
    5,393.4
    
    
    $
    5,164.4
 Portfolio Loan Maturities and Interest Rate Sensitivity at December 31, 2007
 Within
    
    
    One to
    
    
    AfterOne Year
    
    
    Five Years
    
    
    Five Years
    
    
    TotalCommercial
    
    $
    1,438.2
    
    
    $
    926.7
    
    
    $
    192.2
    
    
    $
    2,557.1Commercial real estate
    
    
    558.0
    
    
    
    1,629.7
    
    
    
    361.9
    
    
    
    2,549.6Real estate construction
    
    
    321.0
    
    
    
    182.9
    
    
    
    43.7
    
    
    
    547.6Total commercial
    
    $
    2,317.2
    
    
    $
    2,739.3
    
    
    $
    597.8
    
    
    $
    5,654.3Loans above:With floating interest rates
    
    $
    1,506.4
    
    
    $
    1,180.4
    
    
    $
    395.6
    
    
    $
    3,082.4With predetermined interest rates
    
    
    810.8
    
    
    
    1,558.9
    
    
    
    202.2
    
    
    
    2,571.9Total
    
    $
    2,317.2
    
    
    $
    2,739.3
    
    
    $
    597.8
    
    
    $
    5,654.3
 
 (1)
    
    Excludes mortgage loans held for sale  Commercial.
 43




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##### Table of Contents



Commercial Real Estate.
   Real Estate Construction.
 44




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##### Table of Contents



Residential Mortgage Loans .
  Residential Mortgage Loan Originations
 (In thousands)
    
    2007
    
    
    2006Fixed Rate Mortgages
    
    $
    521,737
    
    
    $
    244,904Adjustable Rate Mortgages
    
    
    99,109
    
    
    
    63,156Construction Mortgages
    
    
    63,442
    
    
    
    33,742Total
    
    $
    684,288
    
    
    $
    341,802
  Residential Mortgage Loan Balances By Category
 December 31 (in thousands)
    
    2007
    
    
    2006Fixed Rate Mortgages
    
    $
    436,264
    
    
    $
    419,046Adjustable Rate Mortgages
    
    
    915,935
    
    
    
    990,102Construction Mortgages
    
    
    93,015
    
    
    
    134,385Total
    
    $
    1,445,214
    
    
    $
    1,543,533
 45




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##### Table of Contents



Direct Consumer.
   Indirect Consumer.
  LOANS HELD FOR SALE
  46




---



##### Table of Contents



CREDIT RISK MANAGEMENT
     NONPERFORMING ASSETS
  47




---



##### Table of Contents



Table 6. Nonperforming Assets and Past Due Loans
 December 31 (in thousands)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Nonperforming Loans(1)(2)(3)NonaccrualLess than 30 days past due
    
    $
    8,133
    
    
    $
    4,305
    
    
    $
    4,206
    
    
    $
    2,761
    
    
    $
    7,721From 30 to 89 days past due
    
    
    11,617
    
    
    
    1,413
    
    
    
    1,136
    
    
    
    3,118
    
    
    
    4,45090 or more days past due
    
    
    165,647
    
    
    
    52,174
    
    
    
    26,798
    
    
    
    36,940
    
    
    
    55,606Total
    
    
    185,397
    
    
    
    57,892
    
    
    
    32,140
    
    
    
    42,819
    
    
    
    67,77790 days past due and still accruing
    
    
    3,650
    
    
    
    767
    
    
    
    23
    
    
    
    840
    
    
    
    345Restructured
    
    
    315
    
    
    
    378
    
    
    
    
    
    
    
    42
    
    
    
    Total nonperforming portfolio loans
    
    
    189,362
    
    
    
    59,037
    
    
    
    32,378
    
    
    
    42,901
    
    
    
    68,122Nonperforming loans held for sale
    
    
    21,676
    
    
    
    22,846
    
    
    
    
    
    
    
    
    
    
    
    Other Repossessed Assets Acquired
    
    
    40,502
    
    
    
    20,165
    
    
    
    7,351
    
    
    
    7,946
    
    
    
    7,771Total nonperforming assets
    
    $
    251,540
    
    
    $
    102,048
    
    
    $
    39,729
    
    
    $
    50,847
    
    
    $
    75,893Nonperforming portfolio loans as a percent of
portfolio loans
    
    
    1.99
    %
    
    
    0.64
    %
    
    
    0.58
    %
    
    
    0.80
    %
    
    
    1.30
    %Nonperforming assets as a percent of portfolio loans
plus other repossessed assets acquired
    
    
    2.64
    
    
    
    1.10
    
    
    
    0.71
    
    
    
    0.94
    
    
    
    1.47Nonperforming assets as a percent of total assets
    
    
    1.86
    
    
    
    0.73
    
    
    
    0.51
    
    
    
    0.66
    
    
    
    0.98Nonperforming Loans by Type(4)Commercial
    
    $
    16,581
    
    
    $
    8,843
    
    
    $
    12,118
    
    
    $
    13,816
    
    
    $
    38,553Commercial real estate
    
    
    110,159
    
    
    
    14,915
    
    
    
    5,068
    
    
    
    14,464
    
    
    
    15,943Total commercial
    
    
    126,740
    
    
    
    23,758
    
    
    
    17,186
    
    
    
    28,280
    
    
    
    54,496Residential mortgage
    
    
    46,865
    
    
    
    28,428
    
    
    
    8,412
    
    
    
    8,643
    
    
    
    9,161Direct Consumer
    
    
    13,700
    
    
    
    6,041
    
    
    
    4,326
    
    
    
    3,527
    
    
    
    3,215Indirect Consumer
    
    
    2,057
    
    
    
    810
    
    
    
    2,454
    
    
    
    2,451
    
    
    
    1,250Total
    
    $
    189,362
    
    
    $
    59,037
    
    
    $
    32,378
    
    
    
    $42,901
    
    
    
    $68,122
 
 (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 2007 for nonaccrual and
restructured loans, as of December 31, 2007, assuming interest had been accrued throughout the year
in accordance with original terms was $11.9 million. The comparable 2006 and 2005 totals; which
only include legacy Citizens were $2.1 million, and $2.5 million, respectively. Interest collected
on these loans and included in income was $5.1 million in 2007, $0.6 million in 2006 and $0.6
million in 2005. Therefore, on a net basis, total income foregone due to these loans was $6.8
million in 2007, $1.5 million in 2006 and $1.9 million in 2005.(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 $0.9 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 loan 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. 48




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Valuation Reserve(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Balances  December 31Impaired loans with valuation reserve
    
    $
    33,651
    
    
    $
    20,737
    
    
    $
    17,769
    
    
    $
    7,550Impaired loans with no valuation reserve
    
    
    18,684
    
    
    
    21,641
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    52,335
    
    
    $
    42,378
    
    
    $
    17,769
    
    
    $
    7,550Impaired loans on nonaccrual basis
    
    $
    52,335
    
    
    $
    11,321
    
    
    $
    17,769
    
    
    $
    2,104Impaired loans on accrual basis
    
    
    
    
    
    
    31,057
    
    
    
    
    
    
    
    5,446Total impaired loans
    
    $
    52,335
    
    
    $
    42,378
    
    
    $
    17,769
    
    
    $
    7,550Average balance for the year
    
    $
    53,943
    
    
    $
    19,871Interest income recognized for the year
    
    
    
    
    
    
    1,478Cash collected applied to outstanding principal
    
    
    2,516
    
    
    
    344
 ALLOWANCE FOR LOAN LOSSES
  49




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Table 7. Summary of Loan Loss Experience
 Year Ended December 31 (dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Allowance for loan losses  January 1
    
    $
    169,104
    
    
    $
    116,400
    
    
    $
    122,184
    
    
    $
    121,350
    
    
    $
    104,859Provision for loan losses
    
    
    45,177
    
    
    
    11,265
    
    
    
    1,109
    
    
    
    21,609
    
    
    
    62,008Charge-offs:Commercial(1)
    
    
    33,317
    
    
    
    7,294
    
    
    
    12,920
    
    
    
    24,582
    
    
    
    47,683Residential mortgage
    
    
    5,141
    
    
    
    1,640
    
    
    
    1,152
    
    
    
    1,060
    
    
    
    1,233Direct consumer
    
    
    11,007
    
    
    
    5,823
    
    
    
    5,290
    
    
    
    5,864
    
    
    
    6,414Indirect consumer
    
    
    10,126
    
    
    
    9,062
    
    
    
    9,485
    
    
    
    7,565
    
    
    
    9,243Total charge-offs
    
    
    59,591
    
    
    
    23,819
    
    
    
    28,847
    
    
    
    39,071
    
    
    
    64,573Recoveries:Commercial(1)
    
    
    4,447
    
    
    
    3,670
    
    
    
    17,721
    
    
    
    13,960
    
    
    
    14,094Residential mortgage
    
    
    184
    
    
    
    154
    
    
    
    69
    
    
    
    70
    
    
    
    35Direct consumer
    
    
    1,723
    
    
    
    1,389
    
    
    
    1,419
    
    
    
    1,669
    
    
    
    1,847Indirect consumer
    
    
    2,309
    
    
    
    2,342
    
    
    
    2,745
    
    
    
    2,597
    
    
    
    3,080Total recoveries
    
    
    8,663
    
    
    
    7,555
    
    
    
    21,954
    
    
    
    18,296
    
    
    
    19,056Net charge-offs
    
    
    50,928
    
    
    
    16,264
    
    
    
    6,893
    
    
    
    20,775
    
    
    
    45,517Allowance of acquired bank
    
    
    
    
    
    
    57,703
    
    
    
    
    
    
    
    
    
    
    
    Allowance for loan losses  December 31
    
    $
    163,353
    
    
    $
    169,104
    
    
    $
    116,400
    
    
    $
    122,184
    
    
    $
    121,350Allowance for losses on lending-related
commitments  December 31
    
    $
    5,571
    
    
    $
    6,119
    
    
    $
    3,023
    
    
    $
    2,833
    
    
    $
    2,654Portfolio loans outstanding at year-end(2)
    
    $
    9,501,244
    
    
    $
    9,231,082
    
    
    $
    5,616,119
    
    
    $
    5,393,365
    
    
    $
    5,164,416Average portfolio loans outstanding(2)
    
    
    9,212,066
    
    
    
    5,657,476
    
    
    
    5,493,280
    
    
    
    5,210,817
    
    
    
    5,140,450Ratio of allowance for loan losses to
nonperforming loans
    
    
    86.27
    %
    
    
    286.44
    %
    
    
    359.50
    %
    
    
    284.80
    %
    
    
    178.14
    %Ratio of allowance for loan losses to
loans outstanding at year-end
    
    
    1.72
    
    
    
    1.83
    
    
    
    2.07
    
    
    
    2.27
    
    
    
    2.35Ratio of net loans charged off as a percentage
of average loans outstanding
    
    
    0.55
    
    
    
    0.29
    
    
    
    0.13
    
    
    
    0.40
    
    
    
    0.89
 
 (1)
    
    The Commercial category includes both commercial and commercial real estate loans.(2)
    
    Balances exclude mortgage loans held for sale.    50




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Table 8. Allocation of the Allowance for Loan Losses (1)
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003% 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)
    
    $
    17.8
    
    
    
    
    
    
    $
    7.6
    
    
    
    
    
    
    $
    5.1
    
    
    
    
    
    
    $
    15.3
    
    
    
    
    
    
    $
    18.0Risk allocated allowances:Commercial (2)
    
    
    85.4
    
    
    
    59.5
    %
    
    
    94.8
    
    
    
    55.5
    %
    
    
    55.2
    
    
    
    55.1
    %
    
    
    59.2
    
    
    
    53.6
    %
    
    
    68.3
    
    
    
    56.7
    %Residential mortgage
    
    
    14.2
    
    
    
    15.2
    
    
    
    15.1
    
    
    
    16.7
    
    
    
    6.3
    
    
    
    9.6
    
    
    
    6.2
    
    
    
    9.4
    
    
    
    4.7
    
    
    
    9.6Direct Consumer
    
    
    16.3
    
    
    
    16.6
    
    
    
    16.7
    
    
    
    18.7
    
    
    
    12.4
    
    
    
    20.3
    
    
    
    6.9
    
    
    
    21.7
    
    
    
    6.3
    
    
    
    19.3Indirect Consumer
    
    
    23.6
    
    
    
    8.7
    
    
    
    25.5
    
    
    
    9.1
    
    
    
    27.5
    
    
    
    15.0
    
    
    
    12.3
    
    
    
    15.3
    
    
    
    8.6
    
    
    
    14.4Total risk allocated
allowance
    
    
    139.5
    
    
    
    
    
    
    
    152.1
    
    
    
    
    
    
    
    101.4
    
    
    
    
    
    
    
    84.6
    
    
    
    
    
    
    
    87.9Total allocated
    
    
    157.3
    
    
    
    100.0
    %
    
    
    159.7
    
    
    
    100.0
    %
    
    
    106.5
    
    
    
    100.0
    %
    
    
    99.9
    
    
    
    100.0
    %
    
    
    105.9
    
    
    
    100.0
    %General valuation allowances
    
    
    6.1
    
    
    
    
    
    
    
    9.4
    
    
    
    
    
    
    
    9.9
    
    
    
    
    
    
    
    22.3
    
    
    
    
    
    
    
    15.4Total
    
    $
    163.4
    
    
    
    
    
    
    $
    169.1
    
    
    
    
    
    
    $
    116.4
    
    
    
    
    
    
    $
    122.2
    
    
    
    
    
    
    $
    121.3
 
 (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.
  51




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DEPOSITS
  Table 9. Average Deposits
 2007
    
    
    2006
    
    
    2005Year Ended December 31
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateNoninterest-bearing demand
    
    $
    1,139,695
    
    
    
    
    %
    
    $
    921,580
    
    
    
    
    %
    
    $
    931,053
    
    
    
    
    %Interest-bearing demand
    
    
    831,983
    
    
    
    0.69
    
    
    
    779,803
    
    
    
    0.65
    
    
    
    1,035,579
    
    
    
    0.67Savings
    
    
    2,188,296
    
    
    
    2.92
    
    
    
    1,478,492
    
    
    
    2.63
    
    
    
    1,505,604
    
    
    
    1.47Time
    
    
    4,008,919
    
    
    
    4.68
    
    
    
    2,408,092
    
    
    
    4.29
    
    
    
    1,814,154
    
    
    
    3.09Total
    
    $
    8,168,893
    
    
    
    3.15
    
    
    $
    5,587,967
    
    
    
    2.63
    
    
    $
    5,286,390
    
    
    
    1.61
   Table 10. Maturity of Time Certificates of Deposit of $100,000 or More At December 31, 2007
 (in thousands)Three months or less
    
    $
    823,946After three but within six months
    
    
    346,755After six but within twelve months
    
    
    423,115After twelve months
    
    
    589,129Total
    
    $
    2,182,945
  52




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BORROWED FUNDS
   CAPITAL RESOURCES
  Regulatory MinimumWell-
    
    December 31,Required
    
    Capitalized
    
    2007
    
    2006
    
    2005Risk based:Tier 1 capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    9.18
    %
    
    
    9.41
    %
    
    
    9.94
    %Total capital
    
    
    8.00
    
    
    
    10.00
    
    
    
    11.66
    
    
    
    11.90
    
    
    
    13.22Tier 1 Leverage (1)
    
    
    4.00
    
    
    
    5.00
    
    
    
    7.53
    
    
    
    7.22
    
    
    
    7.98
 
 (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   53




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CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
 Contractual Obligations
  Table 11. Contractual Obligations
 Minimum Payments Due by PeriodYear Ended December 31, 2007
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More than(in thousands)
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 yearsDeposits without stated maturities(1)(2)
    
    $
    4,133,850
    
    
    $
    4,133,850
    
    
    $
    
    
    
    $
    
    
    
    $
    Deposits with stated maturities(1)(2)
    
    
    4,168,494
    
    
    
    3,315,152
    
    
    
    556,206
    
    
    
    252,966
    
    
    
    44,170Federal Funds Purch and Short Term Repos(1)
    
    
    488,039
    
    
    
    488,039
    
    
    
    
    
    
    
    
    
    
    
    Other Short-term borrowings(1)
    
    
    54,128
    
    
    
    54,128
    
    
    
    
    
    
    
    
    
    
    
    Federal Home Loan Bank borrowings(1)( 2)
    
    
    2,333,739
    
    
    
    682,225
    
    
    
    1,119,468
    
    
    
    189,900
    
    
    
    342,146Other borrowed debt(1)(2)
    
    
    253,912
    
    
    
    20,670
    
    
    
    76,000
    
    
    
    
    
    
    
    157,242Subordinated debt(1)(2)
    
    
    350,000
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    300,000Purchase obligations
    
    
    24,802
    
    
    
    11,926
    
    
    
    8,879
    
    
    
    3,997
    
    
    
    Operating leases and non-cancelable contracts
    
    
    28,713
    
    
    
    6,542
    
    
    
    8,382
    
    
    
    5,490
    
    
    
    8,299Total
    
    $
    11,835,677
    
    
    $
    8,712,532
    
    
    $
    1,768,935
    
    
    $
    502,353
    
    
    $
    851,857
 
 (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
  54




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55




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Table 12. Off Balance Sheet Financial Instruments
 Expected Expiration Dates by PeriodDecember 31,
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More than
    
    
    December 31,(in thousands)
    
    2007
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 years
    
    
    2006Financial instruments whose
contract amounts represent credit risk:Loan commitments to extend credit
    
    $
    2,510,255
    
    
    $
    1,554,369
    
    
    $
    427,857
    
    
    $
    168,430
    
    
    $
    359,599
    
    
    $
    2,559,121Standby letters of credit
    
    
    128,473
    
    
    
    58,942
    
    
    
    33,712
    
    
    
    9,022
    
    
    
    26,797
    
    
    
    171,472Commercial letters of credit
    
    
    255,538
    
    
    
    104,400
    
    
    
    73,402
    
    
    
    57,387
    
    
    
    20,349
    
    
    
    194,834Financial instruments subject to interest rate risk:Receive fixed and pay fixed swaps
    
    
    300,000
    
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    372,300Customer initiated swaps and corresponding offsets
    
    
    713,290
    
    
    
    
    
    
    
    198,036
    
    
    
    312,542
    
    
    
    202,712
    
    
    
    378,590Residential mortgage loan applications
with agreed-upon rates
    
    
    24,808
    
    
    
    24,808
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,875Forward commitments to sell residential mortgage loans
    
    
    68,030
    
    
    
    68,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,498Total
    
    $
    4,000,394
    
    
    $
    2,110,549
    
    
    $
    733,007
    
    
    $
    547,381
    
    
    $
    609,457
    
    
    $
    3,784,690
      56




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##### Table of Contents



LIQUIDITY AND DEBT CAPACITY
      57




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##### Table of Contents



INTEREST RATE RISK
     58




---



##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 59




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##### Table of Contents



Consolidated Balance Sheets
Citizens Republic Bancorp and Subsidiaries
 December 31,(in thousands, except share amounts)
    
    2007
    
    
    2006AssetsCash and due from banks
    
    $
    241,104
    
    
    $
    223,747Interest-bearing deposits with banks
    
    
    172
    
    
    
    203Investment Securities:Securities available for sale, at fair value
    
    
    2,132,164
    
    
    
    2,839,456Securities held to maturity, at amortized cost
(fair value of $129,366 and $110,283, respectively)
    
    
    129,126
    
    
    
    109,744Total investment securities
    
    
    2,261,290
    
    
    
    2,949,200FHLB and Federal Reserve stock
    
    
    148,838
    
    
    
    132,895Portfolio loans:Commercial
    
    
    2,557,152
    
    
    
    2,004,894Commercial real estate
    
    
    3,097,196
    
    
    
    3,120,613Total commercial
    
    
    5,654,348
    
    
    
    5,125,507Residential mortgage loans
    
    
    1,445,214
    
    
    
    1,543,533Direct consumer
    
    
    1,572,329
    
    
    
    1,721,410Indirect consumer
    
    
    829,353
    
    
    
    840,632Total portfolio loans
    
    
    9,501,244
    
    
    
    9,231,082Less: Allowance for loan losses
    
    
    (163,353
    )
    
    
    (169,104
    )Net portfolio loans
    
    
    9,337,891
    
    
    
    9,061,978Loans held for sale
    
    
    75,832
    
    
    
    172,842Premises and equipment
    
    
    132,500
    
    
    
    139,490Goodwill
    
    
    775,308
    
    
    
    781,635Other intangible assets
    
    
    30,546
    
    
    
    46,071Bank owned life insurance
    
    
    214,321
    
    
    
    206,851Other assets
    
    
    288,181
    
    
    
    287,700Total assets
    
    $
    13,505,983
    
    
    $
    14,002,612LiabilitiesNoninterest-bearing deposits
    
    $
    1,125,966
    
    
    $
    1,223,113Interest-bearing demand deposits
    
    
    782,889
    
    
    
    923,848Savings deposits
    
    
    2,221,813
    
    
    
    2,280,496Time deposits
    
    
    4,171,257
    
    
    
    4,270,604Total deposits
    
    
    8,301,925
    
    
    
    8,698,061Federal funds purchased and securities sold
under agreements to repurchase
    
    
    488,039
    
    
    
    922,328Other short-term borrowings
    
    
    54,128
    
    
    
    16,551Other liabilities
    
    
    144,501
    
    
    
    169,022Long-term debt
    
    
    2,939,510
    
    
    
    2,638,964Total liabilities
    
    
    11,928,103
    
    
    
    12,444,926Shareholders EquityPreferred stock  no par value:Authorized - 5,000,000 shares; Issued  none
    
    
    
    
    
    
    Common stock  no par value:Authorized - 100,000,000 sharesIssued and outstanding - 75,722,115 at 12/31/07;
75,675,944 at 12/31/06
    
    
    975,446
    
    
    
    980,772Retained earnings
    
    
    597,333
    
    
    
    584,289Accumulated other comprehensive income
    
    
    5,101
    
    
    
    (7,375
    )Total shareholders equity
    
    
    1,577,880
    
    
    
    1,557,686Total liabilities and shareholders equity
    
    $
    13,505,983
    
    
    $
    14,002,612
  60




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##### Table of Contents



Consolidated Statements of Income
Citizens Republic Bancorp and Subsidiaries
 (in thousands, except share amounts)
    
    2007
    
    
    2006
    
    
    2005Interest IncomeInterest and fees on loans
    
    $
    684,047
    
    
    $
    399,469
    
    
    $
    343,890Interest and dividends on investment securities:Taxable
    
    
    88,078
    
    
    
    48,950
    
    
    
    55,382Tax-exempt
    
    
    29,268
    
    
    
    21,113
    
    
    
    20,789Dividends on FHLB and Federal Reserve stock
    
    
    6,414
    
    
    
    2,701
    
    
    
    3,132Money market investments
    
    
    104
    
    
    
    119
    
    
    
    56Total interest income
    
    
    807,911
    
    
    
    472,352
    
    
    
    423,249Interest ExpenseDeposits
    
    
    257,194
    
    
    
    147,132
    
    
    
    85,154Short-term borrowings
    
    
    34,316
    
    
    
    16,017
    
    
    
    25,929Long-term debt
    
    
    134,222
    
    
    
    46,083
    
    
    
    36,417Total interest expense
    
    
    425,732
    
    
    
    209,232
    
    
    
    147,500Net Interest Income
    
    
    382,179
    
    
    
    263,120
    
    
    
    275,749Provision for loan losses
    
    
    45,177
    
    
    
    11,265
    
    
    
    1,109Net interest income after provision for loan losses
    
    
    337,002
    
    
    
    251,855
    
    
    
    274,640Noninterest IncomeService charges on deposit accounts
    
    
    48,051
    
    
    
    37,709
    
    
    
    35,409Trust fees
    
    
    20,106
    
    
    
    19,465
    
    
    
    18,445Mortgage and other loan income
    
    
    15,513
    
    
    
    9,270
    
    
    
    8,983Brokerage and investment fees
    
    
    7,901
    
    
    
    6,995
    
    
    
    7,803ATM network user fees
    
    
    6,283
    
    
    
    4,011
    
    
    
    4,355Bankcard fees
    
    
    6,124
    
    
    
    4,567
    
    
    
    3,804Fair value change in CD swap derivatives
    
    
    
    
    
    
    (207
    )
    
    
    (3,604
    )Other
    
    
    18,615
    
    
    
    15,918
    
    
    
    14,240Total fees and other income
    
    
    122,593
    
    
    
    97,728
    
    
    
    89,435Investment securities losses
    
    
    (25
    )
    
    
    (7,101
    )
    
    
    (8,927
    )Total noninterest income
    
    
    122,568
    
    
    
    90,627
    
    
    
    80,508Noninterest ExpenseSalaries and employee benefits
    
    
    175,895
    
    
    
    132,400
    
    
    
    132,153Occupancy
    
    
    30,971
    
    
    
    22,288
    
    
    
    22,131Professional services
    
    
    18,031
    
    
    
    15,344
    
    
    
    17,279Equipment
    
    
    14,650
    
    
    
    14,691
    
    
    
    14,634Data processing services
    
    
    16,234
    
    
    
    14,989
    
    
    
    13,800Advertising and public relations
    
    
    7,282
    
    
    
    5,881
    
    
    
    7,853Postage and delivery
    
    
    7,800
    
    
    
    6,095
    
    
    
    6,213Telephone
    
    
    8,124
    
    
    
    5,777
    
    
    
    5,481Other loan expenses
    
    
    5,518
    
    
    
    4,446
    
    
    
    2,655Stationery and supplies
    
    
    2,700
    
    
    
    2,530
    
    
    
    3,091Intangible asset amortization
    
    
    11,534
    
    
    
    2,899
    
    
    
    2,899Restructuring and merger related expenses
    
    
    8,247
    
    
    
    11,324
    
    
    
    Other
    
    
    20,437
    
    
    
    21,163
    
    
    
    14,853Total noninterest expense
    
    
    327,423
    
    
    
    259,827
    
    
    
    243,042Income Before Income Taxes
    
    
    132,147
    
    
    
    82,655
    
    
    
    112,106Income tax provision
    
    
    31,305
    
    
    
    19,319
    
    
    
    31,581Net Income
    
    $
    100,842
    
    
    $
    63,336
    
    
    $
    80,525Net Income Per Common Share:Basic
    
    $
    1.34
    
    
    $
    1.48
    
    
    $
    1.87Diluted
    
    
    1.33
    
    
    
    1.47
    
    
    
    1.85Average Common Shares Outstanding:Basic
    
    
    75,339,430
    
    
    
    42,913,180
    
    
    
    43,095,730Diluted
    
    
    75,578,240
    
    
    
    43,065,294
    
    
    
    43,412,247
  61




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##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity
Citizens Republic Bancorp and Subsidiaries
 AccumulatedOtherCommon Stock
    
    
    Retained
    
    
    Comprehensive(in thousands, except per share amounts)
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance at 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 losses 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,985Exercise of stock options
    
    
    337
    
    
    
    5,061
    
    
    
    
    
    
    
    
    
    
    
    5,061Tax benefit on non-qualified stock options
    
    
    
    
    
    
    783
    
    
    
    
    
    
    
    
    
    
    
    783Restricted stock 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 loss 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  December 31, 2006
    
    
    75,676
    
    
    $
    980,772
    
    
    $
    584,289
    
    
    $
    (7,375
    )
    
    $
    1,557,686Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    100,842
    
    
    
    
    
    
    
    100,842Other comprehensive income:Net unrealized gain on securities available-for-sale,
net of tax effect of $5,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,991Less: Reclassification adjustment for net losses included
in net income, net of tax effect of $9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Net change in unrealized loss on qualifying cash flow
hedges, net of tax effect of ($451)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (838
    )Minimum pension liability, net of tax effect of $1,781
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,307Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,476Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113,318Proceeds from stock options exercised and restricted stock activity
    
    
    709
    
    
    
    4,833
    
    
    
    
    
    
    
    
    
    
    
    4,833Recognition of stock-based compensation
    
    
    
    
    
    
    3,355
    
    
    
    
    
    
    
    
    
    
    
    3,355Cash dividends declared on common shares  $1.160 per share
    
    
    
    
    
    
    
    
    
    
    (87,798
    )
    
    
    
    
    
    
    (87,798
    )Shares acquired for retirement
    
    
    (663
    )
    
    
    (13,514
    )
    
    
    
    
    
    
    
    
    
    
    (13,514
    )Balance  December 31, 2007
    
    
    75,722
    
    
    $
    975,446
    
    
    $
    597,333
    
    
    $
    5,101
    
    
    $
    1,577,880
  62




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##### Table of Contents



Consolidated Statements of Cash Flows
Citizens Republic Bancorp and Subsidiaries
 Year Ended December 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2005| | |Operating Activities:Net income
    
    $
    100,842
    
    
    $
    63,336
    
    
    $
    80,525Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    45,177
    
    
    
    11,265
    
    
    
    1,109Depreciation and software amortization
    
    
    13,108
    
    
    
    13,730
    
    
    
    14,005Amortization of intangibles
    
    
    11,534
    
    
    
    2,899
    
    
    
    2,899Deferred income tax (credit)
    
    
    20,241
    
    
    
    (1,252
    )
    
    
    (3,569
    )Amortization and fair value adjustments of purchase accounting mark to market, net
    
    
    (24,847
    )
    
    
    
    
    
    
    Discount accretion and amortization of issuance costs on long term debt
    
    
    978
    
    
    
    
    
    
    
    Net (accretion) amortization on investment securities
    
    
    (4,517
    )
    
    
    83
    
    
    
    3,239Investment securities losses
    
    
    25
    
    
    
    7,101
    
    
    
    8,927Loans originated for sale
    
    
    (504,672
    )
    
    
    (249,806
    )
    
    
    (320,938
    )Proceeds from sales of loans held for sale
    
    
    590,283
    
    
    
    258,151
    
    
    
    337,473Net gains from loan sales
    
    
    (9,036
    )
    
    
    (4,349
    )
    
    
    (4,749
    )Net (gain) loss on sale of other real estate
    
    
    (866
    )
    
    
    439
    
    
    
    158Excess tax benefits related to stock-based compensation arrangements
    
    
    
    
    
    
    (182
    )
    
    
    Recognition of stock-based compensation
    
    
    3,355
    
    
    
    3,766
    
    
    
    832Restructure and merger related
    
    
    (34,435
    )
    
    
    (8,925
    )
    
    
    Other
    
    
    (32,815
    )
    
    
    (23,224
    )
    
    
    (3,394
    )Net cash provided by operating activities
    
    
    174,355
    
    
    
    73,032
    
    
    
    116,517Investing Activities:Net decrease in money market investments
    
    
    31
    
    
    
    227
    
    
    
    1,389Securities available-for-sale:Proceeds from sales
    
    
    364,421
    
    
    
    114
    
    
    
    313,318Proceeds from maturities and payments
    
    
    521,453
    
    
    
    284,599
    
    
    
    374,676Purchases
    
    
    (174,633
    )
    
    
    (333,136
    )
    
    
    (470,513
    )Securities held-to-maturity:Purchases
    
    
    (19,387
    )
    
    
    (27,400
    )
    
    
    (28,407
    )Sale of branches, net of cash received
    
    
    (163,592
    )
    
    
    
    
    
    
    Net increase in loans and leases
    
    
    (301,630
    )
    
    
    (95,322
    )
    
    
    (229,647
    )Proceeds from sales of other real estate
    
    
    13,385
    
    
    
    5,711
    
    
    
    6,460Net increase in properties and equipment
    
    
    (7,043
    )
    
    
    (7,614
    )
    
    
    (17,791
    )Acquisition, net of cash received
    
    
    
    
    
    
    (105,148
    )
    
    
    Net cash provided (used) by investing activities
    
    
    233,005
    
    
    
    (277,969
    )
    
    
    (50,515
    )Financing Activities:Net decrease in demand and savings deposits
    
    
    (95,886
    )
    
    
    (120,815
    )
    
    
    (390,036
    )Net (decrease) increase in time deposits
    
    
    (97,431
    )
    
    
    292,986
    
    
    
    564,115Net (decrease) increase in short-term borrowings
    
    
    (396,420
    )
    
    
    87,765
    
    
    
    (195,653
    )Proceeds from issuance of long-term debt
    
    
    1,591,750
    
    
    
    376,283
    
    
    
    275,000Principal reductions in long-term debt
    
    
    (1,295,537
    )
    
    
    (347,181
    )
    
    
    (215,715
    )Cash dividends paid
    
    
    (87,798
    )
    
    
    (49,530
    )
    
    
    (49,311
    )Proceeds from stock options exercised and restricted stock activity
    
    
    4,833
    
    
    
    3,194
    
    
    
    5,061Excess tax benefits related to stock-based compensation arrangements
    
    
    
    
    
    
    182
    
    
    
    Shares acquired for retirement
    
    
    (13,514
    )
    
    
    (8,948
    )
    
    
    (18,189
    )Net cash (used) provided by financing activities
    
    
    (390,003
    )
    
    
    233,936
    
    
    
    (24,728
    )Net increase in cash and due from banks
    
    
    17,357
    
    
    
    28,999
    
    
    
    41,274Cash and due from banks at beginning of period
    
    
    223,747
    
    
    
    194,748
    
    
    
    153,474Cash and due from banks at end of period
    
    $
    241,104
    
    
    $
    223,747
    
    
    $
    194,748Supplemental Cash Flow Information:Interest paid
    
    $
    430,064
    
    
    $
    204,523
    
    
    $
    145,183Income taxes paid
    
    
    9,523
    
    
    
    30,867
    
    
    
    30,363Loans transferred to other real estate owned
    
    
    37,868
    
    
    
    6,802
    
    
    
    5,533Loans transferred to held-for-sale
    
    
    
    
    
    
    29,160
    
    
    
    Securitization of mortgage loans
    
    
    
    
    
    
    214,695
    
    
    
    Summary of Business Acquisition: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
    
    
    
    
  63




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##### Table of Contents



CITIZENS
REPUBLIC BANCORP, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2007, 2006, and 2005
  NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Basis
of Financial Statement Presentation
    64




---



##### Table of Contents



Business
Combinations
 Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
 Investment Securities
 Loans
  65




---



##### Table of Contents



Allowance for Loan Losses
   66




---



##### Table of Contents



Loans Held for Sale
  Premises and Equipment
  Other Real Estate Owned
 Bank Owned Life Insurance
 Goodwill and Core Deposit Intangible Assets
 67




---



##### Table of Contents



Mortgage Servicing Rights
 Securitizations and Sales of Mortgage Loans
  Derivative Instruments
 68




---



##### Table of Contents



Stock-Based Compensation
  69




---



##### Table of Contents



(in thousands, except per share amounts )
    
    2005Net income, as reported
    
    $
    80,525Add: Stock-based employee compensation expense included in reported net income,
net of related tax effects
    
    
    541Less: Total stock-based employee compensation expense determined under fair value
method for all awards, net of related tax effects
    
    
    (6,095
    )Pro forma Net Income
    
    $
    74,971Net income per shareBasic  as reported
    
    $
    1.87Basic  pro forma
    
    
    1.74Diluted  as reported
    
    
    1.85Diluted  pro forma
    
    
    1.72
  Income
Taxes
 70




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##### Table of Contents



Accounting for Uncertainty in Income Taxes
  Net
Income per Share
 Cash and Cash Equivalents
 Reclassifications
 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.
 71




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##### Table of Contents



SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. The Fair Value Option for Financial Assets and Liabilities
 Note 3. Recent Transactions
 Branch Sale
 Strategic Business Alliance for the Mortgage Operations and Secondary Marketing Functions
  Note 4. Business Combinations
   72




---



##### Table of Contents



2006(in thousands, except per share data)
    
    Pro-FormaNet interest income
    
    $
    413,916Provision for loan losses
    
    
    50,315Net interest income after provision for loan losses
    
    
    363,601Total noninterest income
    
    
    111,925Total noninterest expense
    
    
    359,786Income Before Income Taxes
    
    
    115,740Income tax provision
    
    
    28,248Net Income
    
    $
    87,492Per Common Share DataNet income Per Common Share:Basic
    
    $
    1.16Diluted
    
    
    1.15Weighted Average Shares Outstanding During the PeriodBasic shares
    
    
    75,612Diluted shares
    
    
    76,059
 Note 5. Business Restructuring and Other Merger-Related Charges
  Restructuring Reserve
    
    Balance
    
    
    Changes in 2007
    
    
    BalanceDecember 31,
    
    
    
    
    
    
    Cash
    
    
    Other
    
    
    December 31,(in thousands)
    
    2006
    
    
    Additions
    
    
    Payments
    
    
    Adjustments
    
    
    2007Personnel
    
    $
    4,323
    
    
    $
    2,151
    
    
    $
    (4,912
    )
    
    $
    
    
    
    $
    1,562Facilities/Branches
    
    
    3,895
    
    
    
    1,709
    
    
    
    (1,018
    )
    
    
    (3,029
    )
    
    
    1,557Systems/Other
    
    
    791
    
    
    
    384
    
    
    
    (1,175
    )
    
    
    
    
    
    
    Total
    
    $
    9,009
    
    
    $
    4,244
    
    
    $
    (7,105
    )
    
    $
    (3,029
    )
    
    $
    3,119
  73




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##### Table of Contents



Merger-related Reserves
    
    Balance
    
    
    Changes in 2007
    
    
    BalanceDecember 31,
    
    
    
    
    
    
    Cash
    
    
    Other
    
    
    December 31,(in thousands)
    
    2006
    
    
    Additions
    
    
    Payments
    
    
    Adjustments
    
    
    2007Personnel
    
    $
    17,603
    
    
    $
    1,743
    
    
    $
    (16,023
    )
    
    $
    (2,047
    )
    
    $
    1,276Professional
    
    
    7,621
    
    
    
    
    
    
    
    (6,603
    )
    
    
    (1,018
    )
    
    
    Facilities/Branches
    
    
    2,205
    
    
    
    20
    
    
    
    (1,280
    )
    
    
    415
    
    
    
    1,360Systems/Other
    
    
    351
    
    
    
    60
    
    
    
    (411
    )
    
    
    
    
    
    
    27,780
    
    
    
    1,823
    
    
    
    (24,317
    )
    
    
    (2,650
    )
    
    
    2,636Other Transaction and
System Reserves
    
    
    9,088
    
    
    
    2,180
    
    
    
    (11,260
    )
    
    
    4
    
    
    
    12Total
    
    $
    36,868
    
    
    $
    4,003
    
    
    $
    (35,577
    )
    
    $
    (2,646
    )
    
    $
    2,648
    Note 6. Investment Securities
  December 31, 2007
    
    
    December 31, 2006Amortized
    
    
    EstimatedFair
    
    
    Gross Unrealized
    
    
    Amortized
    
    
    EstimatedFair
    
    
    Gross Unrealized(in thousands)
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    LossesAvailable For Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    39,854
    
    
    $
    39,854
    
    
    $
    
    
    
    $
    Federal Agencies
    
    
    298,177
    
    
    
    304,074
    
    
    
    5,897
    
    
    
    
    
    
    
    436,679
    
    
    
    436,315
    
    
    
    1,044
    
    
    
    1,408Collateralized Mortgage Obligations
    
    
    587,355
    
    
    
    586,954
    
    
    
    2,278
    
    
    
    2,679
    
    
    
    794,395
    
    
    
    791,739
    
    
    
    242
    
    
    
    2,898Mortgage-backed
    
    
    667,504
    
    
    
    670,565
    
    
    
    5,707
    
    
    
    2,646
    
    
    
    998,871
    
    
    
    994,767
    
    
    
    393
    
    
    
    4,497State and municipal
    
    
    560,073
    
    
    
    569,466
    
    
    
    10,336
    
    
    
    943
    
    
    
    566,230
    
    
    
    575,907
    
    
    
    10,328
    
    
    
    651Other
    
    
    1,067
    
    
    
    1,105
    
    
    
    38
    
    
    
    
    
    
    
    835
    
    
    
    874
    
    
    
    40
    
    
    
    1Total available for sale
    
    $
    2,114,176
    
    
    $
    2,132,164
    
    
    $
    24,256
    
    
    $
    6,268
    
    
    $
    2,836,864
    
    
    $
    2,839,456
    
    
    $
    12,047
    
    
    $
    9,455Held to Maturity:State and municipalTotal held to maturity
    
    $
    129,126
    
    
    $
    129,366
    
    
    $
    978
    
    
    $
    738
    
    
    $
    109,744
    
    
    $
    110,283
    
    
    $
    905
    
    
    $
    366FHLB and Fed Reserve stock
    
    $
    148,838
    
    
    $
    148,838
    
    
    $
    
    
    
    $
    
    
    
    $
    132,895
    
    
    $
    132,895
    
    
    $
    
    
    
    $
    
  74




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##### Table of Contents



WeightedWithin
    
    
    1 to 5
    
    
    5 to 10
    
    
    After 10
    
    
    
    
    
    
    Average(in thousands)
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total
    
    
    YieldAvailable for Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    

    
    %Federal Agencies
    
    
    4,967
    
    
    
    244,374
    
    
    
    48,836
    
    
    
    
    
    
    $
    298,177
    
    
    
    5.08Collateralized Mortgage Obligations
    
    
    90,331
    
    
    
    496,944
    
    
    
    3
    
    
    
    77
    
    
    
    587,355
    
    
    
    4.83Mortgage-backed Securities
    
    
    9,843
    
    
    
    303,386
    
    
    
    317,972
    
    
    
    36,303
    
    
    
    667,504
    
    
    
    5.12State and municipal
    
    
    27,234
    
    
    
    156,107
    
    
    
    220,545
    
    
    
    156,187
    
    
    
    560,073
    
    
    
    6.72Other
    
    
    1,054
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    1,067
    
    
    
    4.32Amortized Cost
    
    $
    133,429
    
    
    $
    1,200,811
    
    
    $
    587,356
    
    
    $
    192,580
    
    
    $
    2,114,176Fair Value
    
    $
    133,468
    
    
    $
    1,210,497
    
    
    $
    595,662
    
    
    $
    192,537
    
    
    $
    2,132,164Weighted Average Yield
    
    
    5.19
    %
    
    
    5.34
    %
    
    
    5.56
    %
    
    
    6.06
    %
    
    
    5.46
    %Held to Maturity:State and Municipal
    
    $
    1,491
    
    
    $
    3,503
    
    
    $
    21,236
    
    
    $
    102,896
    
    
    $
    129,126
    
    
    
    6.24
    %Amortized Cost
    
    $
    1,491
    
    
    $
    3,503
    
    
    $
    21,236
    
    
    $
    102,896
    
    
    $
    129,126Fair Value
    
    $
    1,494
    
    
    $
    3,581
    
    
    $
    21,441
    
    
    $
    102,850
    
    
    $
    129,366Weighted Average Yield
    
    
    5.22
    %
    
    
    5.94
    %
    
    
    6.09
    %
    
    
    6.30
    %
    
    
    6.24
    %
  75




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##### Table of Contents



As of December 31, 2007
    
    Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Federal agencies:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Collateralized Mortgage Obligation
    
    
    212,274
    
    
    
    2,165
    
    
    
    67,253
    
    
    
    514
    
    
    
    279,527
    
    
    
    2,679Mortgage-backed
    
    
    33,102
    
    
    
    219
    
    
    
    115,712
    
    
    
    2,427
    
    
    
    148,814
    
    
    
    2,646State and municipal
    
    
    69,429
    
    
    
    625
    
    
    
    17,596
    
    
    
    318
    
    
    
    87,025
    
    
    
    943Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total available for sale
    
    
    314,805
    
    
    
    3,009
    
    
    
    200,561
    
    
    
    3,259
    
    
    
    515,366
    
    
    
    6,268Held to Maturity:State and municipal
    
    
    43,700
    
    
    
    536
    
    
    
    14,230
    
    
    
    202
    
    
    
    57,930
    
    
    
    738Total held to maturity
    
    
    43,700
    
    
    
    536
    
    
    
    14,230
    
    
    
    202
    
    
    
    57,930
    
    
    
    738Total
    
    $
    358,505
    
    
    $
    3,545
    
    
    $
    214,791
    
    
    $
    3,461
    
    
    $
    573,296
    
    
    $
    7,006
 As of December 31, 2006
    
    Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Federal agencies:
    
    
    129,466
    
    
    
    892
    
    
    
    129,864
    
    
    
    516
    
    
    
    259,330
    
    
    
    1,408Collateralized Mortgage Obligation
    
    
    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
   76




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##### Table of Contents



Year Ended December 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2005Proceeds from sales
    
    $
    364,421
    
    
    $
    114
    
    
    $
    313,318Securities gains
    
    $
    670
    
    
    $
    62
    
    
    $
    49Securities losses
    
    
    (695
    )
    
    
    (7,163
    )
    
    
    (8,976
    )Net Loss
    
    $
    (25
    )
    
    $
    (7,101
    )
    
    $
    (8,927
    )
 Note 7. Loans, Nonperforming Assets, Allowance for Loan Losses, and Loans Held for Sale
     77




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##### Table of Contents



December 31,(in thousands)
    
    2007
    
    
    2006Nonperforming loans:Nonaccrual
    
    $
    185,397
    
    
    $
    57,892Loans
90 days past due (still accruing)
    
    3,650

    
    
    767Restructured
    
    
    315
    
    
    
    378Total nonperforming portfolio loans
    
    189,362

    
    
    59,037Nonperforming held for sale
    
    
    21,676
    
    
    
    22,846Other real estate acquired
    
    
    38,234
    
    
    
    18,347Other non-real estate acquired
    
    
    2,268
    
    
    
    1,818Total nonperforming assets
    
    $
    251,540
    
    
    $
    102,048
   Year Ended December 31,(in thousands)
    
    2007
    
    
    2006 (1)
    
    
    2005 (1)Interest income:At original contract rates
    
    $
    13,557
    
    
    $
    2,136
    
    
    $
    2,545As actually recognized
    
    
    6,307
    
    
    
    615
    
    
    
    615Interest foregone
    
    $
    7,250
    
    
    $
    1,521
    
    
    $
    1,930
 
 (1)
    
    2006 and 2005 exclude the effect of the Republic merger.  Valuation Reserve(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Balances  December 31Impaired loans with valuation reserve
    
    $
    33,651
    
    
    $
    20,737
    
    
    $
    17,769
    
    
    $
    7,550Impaired loans with no valuation reserve
    
    
    18,684
    
    
    
    21,641
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    52,335
    
    
    $
    42,378
    
    
    $
    17,769
    
    
    $
    7,550Impaired loans on nonaccrual basis
    
    $
    52,335
    
    
    $
    11,321
    
    
    $
    17,769
    
    
    $
    2,104Impaired loans on accrual basis
    
    
    
    
    
    
    31,057
    
    
    
    
    
    
    
    5,446Total impaired loans
    
    $
    52,335
    
    
    $
    42,378
    
    
    $
    17,769
    
    
    $
    7,550Average balance for the year
    
    $
    53,943
    
    
    $
    19,871Interest income recognized for the year
    
    
    
    
    
    
    1,478Cash
collected applied to outstanding principal
    
    
    2,516
    
    
    
    344
  78




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##### Table of Contents



(in thousands)
    
    2007
    
    
    2006
    
    
    2005Allowance for loan losses  January 1
    
    $
    169,104
    
    
    $
    116,400
    
    
    $
    122,184Provision for loan losses
    
    
    45,177
    
    
    
    11,265
    
    
    
    1,109Charge-offs
    
    
    (59,591
    )
    
    
    (23,819
    )
    
    
    (28,847
    )Recoveries
    
    
    8,663
    
    
    
    7,555
    
    
    
    21,954Net charge-offs
    
    
    (50,928
    )
    
    
    (16,264
    )
    
    
    (6,893
    )Allowance of acquired bank
    
    
    
    
    
    
    57,703
    
    
    
    Allowance for loan losses  December 31
    
    $
    163,353
    
    
    $
    169,104
    
    
    $
    116,400Allowance
for losses on lending-related commitments  December 31
    
    $
    5,571
    
    
    $
    6,119
    
    
    $
    3,023
 Loans Held for Sale.
 Note 8. Premises and Equipment
  December 31,(in thousands)
    
    2007
    
    
    2006Land
    
    $
    32,657
    
    
    $
    35,212Buildings
    
    
    168,739
    
    
    
    164,612Leasehold improvements
    
    
    8,349
    
    
    
    9,371Furniture and equipment
    
    
    127,667
    
    
    
    124,202337,412
    
    
    
    333,397Accumulated depreciation and amortization
    
    (204,912)
    
    
    (193,907
    )Total
    
    $
    132,500
    
    
    $
    139,490
  79




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##### Table of Contents



(in millions)
    
    Amount2008
    
    $
    6.52009
    
    
    4.52010
    
    
    3.92011
    
    
    3.12012
    
    
    2.4After 2012
    
    
    8.3Total
    
    $
    28.7
 Note 9. Goodwill and Core Deposit Intangible Assets
  December 31,(in thousands)
    
    2007
    
    
    2006Specialty Commercial
    
    $
    178,089
    
    
    $
    179,653Regional Banking
    
    
    595,418
    
    
    
    600,181Wealth Management
    
    
    1,801
    
    
    
    1,801Total Goodwill
    
    $
    775,308
    
    
    $
    781,635
  December 31,(in thousands)
    
    2007
    
    
    2006Core deposit
intangibles
(1)
    
    $
    62,835
    
    
    $
    66,826Accumulated amortization
    
    
    (32,289
    )
    
    
    (20,755
    )Total other intangibles
    
    $
    30,546
    
    
    $
    46,071
 
 (1)
    
    $ 3,991,000 reduction in core
deposit intangibles due to
branch sale. See Note 3.  80




---



##### Table of Contents



(in
thousands)Year ending December 31,
    
    Amount2008
    
    $
    9,1322009
    
    
    7,0362010
    
    
    3,9232011
    
    
    3,0272012
    
    
    2,120Thereafter
    
    
    5,308Total
    
    $
    30,546
  Note 10. Deposits
  December 31,(in thousands)
    
    2007
    
    
    2006Noninterest-bearing demand
    
    $
    1,125,966
    
    
    $
    1,223,113Interest-bearing demand
    
    
    782,889
    
    
    
    923,848Savings
    
    
    2,221,813
    
    
    
    2,280,496Time deposits over $100,000
    
    
    2,182,945
    
    
    
    2,109,960Other time deposits
    
    
    1,988,312
    
    
    
    2,160,644Total
    
    $
    8,301,925
    
    
    $
    8,698,061
  (in millions)
    
    Amount2009
    
    $
    204.62010
    
    
    128.32011
    
    
    144.62012
    
    
    71.5After 2012
    
    
    40.0Total
    
    $
    589.0
 Note 11. Short-Term Borrowings
  81




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##### Table of Contents



(in thousands)
    
    2007
    
    2006
    
    2005At December 31:Balance
    
    $
    488,039
    
    
    $
    922,328
    
    
    $
    505,879Weighted average interest rate paid
    
    
    3.88
    %
    
    
    5.06
    %
    
    
    4.13
    %During the year:Maximum outstanding at any month-end
    
    $
    1,275,409
    
    
    $
    922,328
    
    
    $
    964,524Daily average
    
    
    654,120
    
    
    
    363,988
    
    
    
    802,554Weighted average interest rate paid
    
    
    4.91
    %
    
    
    4.81
    %
    
    
    3.21
    %Weighted average interest rate paid, including effects of swap
    
    
    4.71
    %
    
    
    4.26
    %
    
    
    3.20
    %
  Note 12. Long-Term Debt
  December 31,(in thousands)
    
    2007
    
    
    2006Citizens (Parent only):Variable rate promissary notes payable due May 1, 2011
    
    $
    50,000
    
    
    $
    Subordinated debt:5.75% subordinated notes due February 2013
    
    
    119,125
    
    
    
    117,788Variable rate junior subordinated debenture due June 2033
    
    
    25,726
    
    
    
    25,6287.50% junior subordinated debentures due September 2066
    
    
    145,971
    
    
    
    145,2548.60% junior subordinated debentures due December 2031
    
    
    
    
    
    
    51,546Subsidiaries:Federal Home Loan Bank advances
    
    
    2,344,636
    
    
    
    1,715,132Other borrowed funds
    
    
    254,052
    
    
    
    583,616Total long-term debt
    
    $
    2,939,510
    
    
    $
    2,638,964
  82




---



##### Table of Contents



83




---



##### Table of Contents



(in thousands)
    
    Parent
    
    
    Subsidiaries
    
    
    Consolidated2008
    
    $
    
    
    
    $
    703,242
    
    
    $
    703,2422009
    
    
    
    
    
    
    165,252
    
    
    
    165,2522010
    
    
    
    
    
    
    605,254
    
    
    
    605,2542011
    
    
    50,000
    
    
    
    425,022
    
    
    
    475,0222012
    
    
    
    
    
    
    189,424
    
    
    
    189,424Over 5 Years
    
    
    300,000
    
    
    
    499,787
    
    
    
    799,787Total
    
    $
    350,000
    
    
    $
    2,587,981
    
    
    $
    2,937,981
 Note 13. Employee Benefit Plans
 Pension and Postretirement Benefits
      84




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##### Table of Contents



Pension
    
    
    Supplemental
    
    
    PostretirementBenefits
    
    
    Pension Plan
    
    
    Benefits(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Change in Benefit ObligationProjected benefit obligation, beginning of
year
    
    $
    84,860
    
    
    $
    87,603
    
    
    $
    14,683
    
    
    $
    11,914
    
    
    $
    11,226
    
    
    $
    9,819Service cost
    
    
    
    
    
    
    3,649
    
    
    
    
    
    
    
    842
    
    
    
    1
    
    
    
    4Interest cost
    
    
    4,761
    
    
    
    4,671
    
    
    
    768
    
    
    
    641
    
    
    
    578
    
    
    
    516Participant contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    397
    
    
    
    229Actuarial (gains) losses
    
    
    (1,859
    )
    
    
    (2,179
    )
    
    
    (1,824
    )
    
    
    59
    
    
    
    (794
    )
    
    
    594Plan amendments
    
    
    
    
    
    
    115
    
    
    
    (163
    )
    
    
    1,742
    
    
    
    153
    
    
    
    Additional liability assumed through
acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,286Curtailments
    
    
    
    
    
    
    (1,003
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    (9,341
    )
    
    
    (7,996
    )
    
    
    (515
    )
    
    
    (515
    )
    
    
    (1,366
    )
    
    
    (1,222
    )Projected benefit obligation, end of year
    
    $
    78,421
    
    
    $
    84,860
    
    
    $
    12,949
    
    
    $
    14,683
    
    
    $
    10,195
    
    
    $
    11,226Accumulated benefit obligation, end of year
    
    $
    78,421
    
    
    $
    84,860
    
    
    $
    11,648
    
    
    $
    11,649
    
    
    $
    10,195
    
    
    $
    11,226Change in Plan AssetsFair value of plan assets, beginning of year
    
    $
    92,027
    
    
    $
    89,109
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    6,970
    
    
    
    9,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employer contribution
    
    
    
    
    
    
    1,000
    
    
    
    515
    
    
    
    515
    
    
    
    969
    
    
    
    993Participant contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    397
    
    
    
    229Benefits paid
    
    
    (9,341
    )
    
    
    (7,996
    )
    
    
    (515
    )
    
    
    (515
    )
    
    
    (1,366
    )
    
    
    (1,222
    )Fair value of plan assets, end of year
    
    $
    89,656
    
    
    $
    92,027
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Reconciliation of Funded Status(Under)/Over funded status of plan
    
    $
    11,236
    
    
    $
    7,167
    
    
    $
    (12,949
    )
    
    $
    (14,683
    )
    
    $
    (10,195
    )
    
    $
    (11,226
    )Net amount recognized in theconsolidated balance sheets
    
    $
    11,236
    
    
    $
    7,167
    
    
    $
    (12,949
    )
    
    $
    (14,683
    )
    
    $
    (10,195
    )
    
    $
    (11,226
    )
 85




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##### Table of Contents



Year Ended December 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2005Defined Benefit Pension PlansService cost
    
    $
    
    
    
    $
    3,649
    
    
    $
    3,768Interest cost
    
    
    4,761
    
    
    
    4,671
    
    
    
    4,676Expected return on plan assets
    
    
    (7,709
    )
    
    
    (7,509
    )
    
    
    (7,018
    )Settlement Charge related to lump sum payments
    
    
    832
    
    
    
    
    
    
    
    Curtailment loss
    
    
    
    
    
    
    1,097
    
    
    
    Amortization of unrecognized:Net transition asset
    
    
    
    
    
    
    
    
    
    
    (5
    )Prior service cost
    
    
    11
    
    
    
    191
    
    
    
    196Net actuarial loss
    
    
    499
    
    
    
    974
    
    
    
    1,181Net pension cost
    
    
    (1,606
    )
    
    
    3,073
    
    
    
    2,798Supplemental Pension PlansService cost
    
    $
    
    
    
    $
    842
    
    
    $
    1,272Interest cost
    
    
    768
    
    
    
    641
    
    
    
    520Amortization of unrecognized:Prior service cost
    
    
    167
    
    
    
    
    
    
    
    Net actuarial loss
    
    
    130
    
    
    
    139
    
    
    
    87Net pension cost
    
    
    1,065
    
    
    
    1,622
    
    
    
    1,879Postretirement Benefit PlansService cost
    
    $
    1
    
    
    $
    4
    
    
    $
    4Interest cost
    
    
    578
    
    
    
    516
    
    
    
    535Amortization of unrecognized:Prior service cost
    
    
    (256
    )
    
    
    (270
    )
    
    
    (271
    )Net actuarial gain
    
    
    (45
    )
    
    
    (27
    )
    
    
    (91
    )Net postretirement benefit cost
    
    
    278
    
    
    
    223
    
    
    
    177Defined contribution retirement and 401(k) plansEmployer contributions
    
    
    6,533
    
    
    
    3,273
    
    
    
    3,170Total periodic benefit cost
    
    $
    6,270
    
    
    $
    8,191
    
    
    $
    8,024
  86




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##### Table of Contents



Pension
    
    Supplemental
    
    PostretirementBenefits
    
    Pension Plan
    
    BenefitsDecember 31,
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006Assumptions used to compute projected benefit obligationDiscount rate
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    5.75
    %Rate of compensation increase
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    3.00
    %
    
    
    6.00
    %
    
    
    
    
    
    
    Assumptions used to compute net benefit costsDiscount rate
    
    
    5.75
    %
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.50
    %Expected return on plan assets
    
    
    8.75
    %
    
    8.50% to 8.75
%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rate of compensation increase
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    
    
    
    
    
  Projected Benefit PaymentsDefinedBenefit
    
    Supplemental
    
    Postretirement(in thousands)
    
    Pension Plan
    
    Pension Plan
    
    Benefit Plan
    
    Total BenefitsYear Ended December 312008
    
    $
    5,507
    
    
    $
    515
    
    
    $
    942
    
    
    $
    6,9642009
    
    
    5,757
    
    
    
    502
    
    
    
    969
    
    
    
    7,2282010
    
    
    5,133
    
    
    
    488
    
    
    
    989
    
    
    
    6,6102011
    
    
    5,538
    
    
    
    9,656
    
    
    
    1,001
    
    
    
    16,1952012
    
    
    5,540
    
    
    
    459
    
    
    
    1,006
    
    
    
    7,0052013 to 2017
    
    
    28,198
    
    
    
    1,988
    
    
    
    4,761
    
    
    
    34,947
  Investment Policy and Strategy
 Target
    
    Percentage of Plan AssetsDecember 31,
    
    Allocation
    
    2007
    
    2006Asset Category:Equity securities
    
    
    70
    %
    
    
    68
    %
    
    
    69
    %Debt securities
    
    
    28
    
    
    
    28
    
    
    
    26Cash and Cash Equivalents
    
    
    2
    
    
    
    4
    
    
    
    5100
    %
    
    
    100
    %
    
    
    100
    %
  87




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##### Table of Contents



One Percentage
    
    One Percentage(in thousands)
    
    Point Increase
    
    Point DecreaseEffect on total of service and interest cost components
    
    $
    38
    
    
    $
    (34
    )Effect on the postretirement benefit obligation
    
    
    702
    
    
    
    (632
    )
 Defined Contribution Retirement and 401(k) Plans
 Note 14. Stock-Based Compensation
     88




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##### Table of Contents



Analysis of Stock-Based Compensation ExpenseYear Ended December 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2005Stock Option Compensation
    
    $
    34
    
    
    $
    52
    
    
    $
    141Restricted Stock Compensation
    
    
    3,321
    
    
    
    3,714
    
    
    
    691Stock-based compensation expense before income taxes
    
    
    3,355
    
    
    
    3,766
    
    
    
    832Income tax benefit
    
    
    (1,174
    )
    
    
    (1,318
    )
    
    
    (291
    )Total stock-based compensation expense after income taxes
    
    $
    2,181
    
    
    $
    2,448
    
    
    $
    541
   Weighted Average Assumptions
    
    2007
    
    2006
    
    2005Dividend yield
    
    
    
    
    
    
    4.0
    %
    
    
    3.5
    %Expected volatility
    
    
    
    
    
    
    15.1
    %
    
    
    26.8
    %Risk-free interest rate
    
    
    
    
    
    
    4.72
    %
    
    
    3.80
    %Expected lives
    
    
    
    
    
    3 yrs
    
    1.5 yrs
   89




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##### Table of Contents



Options
    
    
    WeightedWeighted
    
    
    Average
    
    
    (in thousands)Average
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at January 1, 2005
    
    
    4,242,175
    
    
    $
    27.24Granted
    
    
    344,007
    
    
    
    29.31Exercised
    
    
    (223,964
    )
    
    
    22.59Forfeitures or Expirations
    
    
    (444,327
    )
    
    
    25.19Outstanding at December 31, 2005
    
    
    3,917,891
    
    
    $
    27.91Granted
    
    
    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
    
    
    $
    24.95Granted
    
    
    
    
    
    
    Exercised
    
    
    (452,863
    )
    
    
    13.57Forfeitures or Expirations
    
    
    (292,795
    )
    
    
    27.75Outstanding at December 31, 2007
    
    
    4,030,042
    
    
    $
    26.03
    
    
    4.1 yrs
    
    $
    461Exercisable
    
    
    4,023,814
    
    
    $
    26.02
    
    
    4.1 yrs
    
    $
    461
    90




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##### Table of Contents



Weighted-AverageNumber of
    
    
    Grant DateShares
    
    
    Fair ValueOutstanding restricted stock at January 1, 2005
    
    
    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
    
    
    $
    25.13Granted
    
    
    324,441
    
    
    
    19.38Vested
    
    
    (88,542
    )
    
    
    24.92Forfeited
    
    
    (42,144
    )
    
    
    25.27Restricted stock at December 31, 2007
    
    
    486,842
    
    
    $
    21.32
   Note 15. Income Taxes
 
 Year Ended December 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2005Current tax expense:Federal
    
    $
    10,913
    
    
    $
    20,335
    
    
    $
    33,671State
    
    
    151
    
    
    
    236
    
    
    
    1,479Total current tax expense
    
    
    11,064
    
    
    
    20,571
    
    
    
    35,150Deferred tax expense (benefit)
    
    
    20,241
    
    
    
    (1,252
    )
    
    
    (3,569
    )Total income tax expense
    
    $
    31,305
    
    
    $
    19,319
    
    
    $
    31,581
  91




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##### Table of Contents



(in thousands)
    
    2007
    
    
    2006Deferred tax assets:Allowance for loan losses
    
    $
    58,315
    
    
    $
    60,823Accrued postemployment benefits other than pensions
    
    
    4,370
    
    
    
    3,526Deferred compensation
    
    
    9,419
    
    
    
    12,279Accrued expenses
    
    
    5,309
    
    
    
    2,513State net operating loss carryforwards
    
    
    1,181
    
    
    
    1,113Tax credit carryforwards
    
    
    2,015Minimum pension liability
    
    
    3,533
    
    
    
    5,313Purchase accounting adjustments
    
    
    30,412
    
    
    
    48,243Nonaccrual loan interest income
    
    
    1,447
    
    
    
    1,456Securities impairment
    
    
    
    
    
    
    2,541Other deferred tax assets
    
    
    5,197
    
    
    
    3,234Deferred tax assets
    
    
    121,198
    
    
    
    141,041Deferred tax liabilities:Pension
    
    
    7,733
    
    
    
    7,098Acquisition premium on loans
    
    
    4,075
    
    
    
    5,759Tax over book depreciation
    
    
    3,243
    
    
    
    2,101Basis difference in FHLB stock
    
    
    3,621
    
    
    
    3,598Purchase accounting adjustments
    
    
    15,152
    
    
    
    7,074Unrealized gains on securities and derivatives
    
    
    6,279
    
    
    
    1,342Mortgage Servicing Rights
    
    
    1,109
    
    
    
    3,252Other deferred tax liabilities
    
    
    1,164
    
    
    
    2,149Deferred tax liabilities
    
    
    42,376
    
    
    
    32,373Net deferred tax assets
    
    $
    78,822
    
    
    $
    108,668
   Year Ended December 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2005Tax at federal statutory rate applied to income before income taxe $ 46,252$28,929 $39,237Tax at
federal statutory rate applied to income before income taxes
    
    $
    46,252
    
    
    $
    28,929
    
    
    $
    39,237Increase (decrease) in taxes resulting from:Tax-exempt income
    
    
    (10,694
    )
    
    
    (8,180
    )
    
    
    (8,015
    )Officers Life Insurance
    
    
    (2,934
    )
    
    
    (1,288
    )
    
    
    (1,246
    )Other
    
    
    (1,319
    )
    
    
    (142
    )
    
    
    1,605Total income tax expense
    
    $
    31,305
    
    
    $
    19,319
    
    
    $
    31,581
  92




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##### Table of Contents



(in thousands)
 Balance at January 1, 2007
    
    $
    6,786Additions based on tax positions related to the current year
    
    
    1,158Additions for tax positions of prior years
    
    
    1,244Reductions for tax positions of prior years
    
    
    (892
    )Reductions due to the statute of limitations
    
    
    (269
    )Settlements
    
    
    (934
    )Balance at December 31, 2007
    
    $
    7,093
     Jurisdiction
    
    Tax YearsFederal
    
    
    2004 - 2007Indiana
    
    
    2003 - 2007Wisconsin
    
    
    1999 - 2007Iowa
    
    
    2003 - 2007
 Note 16. Shareholders Equity and Earnings Per Share
  93




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##### Table of Contents



Year Ended December 31,(in thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2005Numerator:Numerator for basic and dilutive earnings per share 
net income available to common shareholders
    
    $
    100,842
    
    
    $
    63,336
    
    
    $
    80,525Denominator:Denominator for basic earnings per share 
weighted average shares
    
    
    75,339
    
    
    
    42,913
    
    
    
    43,096Effect of dilutive securities  potential conversion
of employee stock options and restricted stock awards
    
    
    239
    
    
    
    152
    
    
    
    316Denominator for diluted earnings per share 
adjusted weighted-average shares and assumed conversions
    
    
    75,578
    
    
    
    43,065
    
    
    
    43,412Basic earnings per share
    
    $
    1.34
    
    
    $
    1.48
    
    
    $
    1.87Diluted earnings per share
    
    $
    1.33
    
    
    $
    1.47
    
    
    $
    1.85
  Rights Agreement:
 Stock Repurchase Program:
 Note 17. Lines of Business
   
    
    Specialty Commercial Specialty Commercial includes the commercial real estate, treasury
management, public funds, and asset-based lending teams. These groups provide a full range of
lending, depository, and related financial services to commercial real estate developers,
owners of multi-unit commercial properties, middle-market companies, local governments and
municipalities, and leasing clients. Products and services offered include commercial
mortgages, real estate construction lending, term loans, revolving credit
 94




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##### Table of Contents




    
    Regional Banking- Regional Banking includes the consumer, residential mortgage, commercial
and industrial, small business, and private banking teams. These groups provide a wide range
of lending, depository, and
other related financial services to both businesses and individual consumers. The products and
services offered to consumer clients include: direct loans, home equity loans and lines of
credit, residential mortgage loans, checking, savings and money market accounts, debit and
credit cards, ATM network services, certificates of deposit, and fixed and variable annuities,
as well as private banking services for affluent clients. The products and services offered to
commercial and industrial clients include: term loans, revolving credit arrangements, inventory
and accounts receivable financing, commercial mortgages, letters of credit, and small business
loans. Noncredit services for commercial clients include deposit accounts, treasury management,
corporate cash management, international banking services, advice and assistance in the
placement of securities, and financial planning.
    
    Wealth Management- Wealth Management offers a broad array of asset management, financial
planning, estate settlement and administration, credit and deposit products and services.
Trust and investment services include personal trust and planning, investment management,
estate settlement and administration services. Retirement plan services focus on investment
management and fiduciary activities with special emphasis on 401(k) plans. Brokerage and
insurance delivers retail mutual funds, other securities, variable and fixed annuities,
personal disability and life insurance products and discounted brokerage services.
    
    Other The Other line of business includes activities that are not directly attributable
to one of the above are included in the Other business line. Included in this category are
the Holding Company; indirect consumer lending; shared services unit; Citizens treasury unit,
including the securities portfolio, short-term borrowing and asset/liability management
activities; inter-company eliminations; and the economic impact of certain assets, capital and
support functions not specifically identifiable with the three primary lines of business.
  95




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Line of business information
 Specialty
    
    
    Regional
    
    
    Wealth(In thousands)
    
    Commercial
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings summary - 2007Net interest income (taxable equivalent)
    
    $
    78,643
    
    
    $
    280,611
    
    
    $
    (45
    )
    
    $
    41,517
    
    
    $
    400,726Provision for loan losses
    
    
    18,190
    
    
    
    14,589
    
    
    
    
    
    
    
    12,398
    
    
    
    45,177Net interest income after provision
    
    
    60,453
    
    
    
    266,022
    
    
    
    (45
    )
    
    
    29,119
    
    
    
    355,549Noninterest income
    
    
    3,463
    
    
    
    79,918
    
    
    
    27,410
    
    
    
    11,777
    
    
    
    122,568Noninterest expense
    
    
    21,353
    
    
    
    219,378
    
    
    
    22,246
    
    
    
    64,446
    
    
    
    327,423Income before income taxes
    
    
    42,563
    
    
    
    126,562
    
    
    
    5,119
    
    
    
    (23,550
    )
    
    
    150,694Income tax expense (taxable equivalent)
    
    
    14,897
    
    
    
    44,297
    
    
    
    1,792
    
    
    
    (11,134
    )
    
    
    49,852Net income
    
    $
    27,666
    
    
    $
    82,265
    
    
    $
    3,327
    
    
    $
    (12,416
    )
    
    $
    100,842Average assets(in millions)
    
    $
    1,920
    
    
    $
    5,524
    
    
    $
    13
    
    
    $
    5,863
    
    
    $
    13,320Earnings summary - 2006Net interest income (taxable equivalent)
    
    $
    15,919
    
    
    $
    222,002
    
    
    $
    194
    
    
    $
    38,722
    
    
    $
    276,837Provision for loan losses
    
    
    302
    
    
    
    5,527
    
    
    
    
    
    
    
    5,436
    
    
    
    11,265Net interest income after provision
    
    
    15,617
    
    
    
    216,475
    
    
    
    194
    
    
    
    33,286
    
    
    
    265,572Noninterest income
    
    
    1,338
    
    
    
    64,136
    
    
    
    25,882
    
    
    
    (729
    )
    
    
    90,627Noninterest expense
    
    
    11,233
    
    
    
    175,453
    
    
    
    22,152
    
    
    
    50,989
    
    
    
    259,827Income before income taxes
    
    
    5,722
    
    
    
    105,158
    
    
    
    3,924
    
    
    
    (18,432
    )
    
    
    96,372Income tax expense (taxable equivalent)
    
    
    2,003
    
    
    
    36,806
    
    
    
    1,374
    
    
    
    (7,147
    )
    
    
    33,036Net income
    
    $
    3,719
    
    
    $
    68,352
    
    
    $
    2,550
    
    
    $
    (11,285
    )
    
    $
    63,336Average assets(in millions)
    
    $
    114
    
    
    $
    4,298
    
    
    $
    11
    
    
    $
    3,281
    
    
    $
    7,704Earnings summary - 2005Net interest income (taxable equivalent)
    
    $
    11,032
    
    
    $
    228,467
    
    
    $
    274
    
    
    $
    49,368
    
    
    $
    289,141Provision for loan losses
    
    
    (139
    )
    
    
    (4,303
    )
    
    
    
    
    
    
    5,551
    
    
    
    1,109Net interest income after provision
    
    
    11,171
    
    
    
    232,770
    
    
    
    274
    
    
    
    43,817
    
    
    
    288,032Noninterest income
    
    
    685
    
    
    
    61,457
    
    
    
    24,536
    
    
    
    (6,170
    )
    
    
    80,508Noninterest expense
    
    
    8,021
    
    
    
    184,893
    
    
    
    21,656
    
    
    
    28,472
    
    
    
    243,042Income before income taxes
    
    
    3,835
    
    
    
    109,334
    
    
    
    3,154
    
    
    
    9,175
    
    
    
    125,498Income tax expense (taxable equivalent)
    
    
    1,343
    
    
    
    38,267
    
    
    
    1,104
    
    
    
    4,259
    
    
    
    44,973Net income
    
    $
    2,492
    
    
    $
    71,067
    
    
    $
    2,050
    
    
    $
    4,916
    
    
    $
    80,525Average assets(in millions)
    
    $
    43
    
    
    $
    4,397
    
    
    $
    9
    
    
    $
    3,328
    
    
    $
    7,777
 Note 18. Commitments, Contingent Liabilities and Guarantees
 Commitments:
 96




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December 31,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Loan commitments and letters of credit:Commitments to extend credit
    
    $
    2,510,255
    
    
    $
    2,559,121Financial standby letters of credit
    
    
    101,229
    
    
    
    146,863Performance standby letters of credit
    
    
    27,244
    
    
    
    24,609Commercial letters of credit
    
    
    255,538
    
    
    
    194,834$
    2,894,266
    
    
    $
    2,925,427
  Contingent Liabilities and Guarantees:
    Purchase Obligations:
 97




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Change in Control Agreements:
 Note 19. Derivatives and Hedging Activities
    98




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##### Table of Contents



Derivative Financial Instruments:
 December 31,
    
    
    December 31,2007
    
    
    2006Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueReceive fixed swaps
    
    $
    300,000
    
    
    $
    1,574
    
    
    $
    268,300
    
    
    $
    (1,839
    )Pay fixed swaps
    
    
    
    
    
    
    
    
    
    
    104,000
    
    
    
    1,242Customer initiated swaps and corresponding offsets
    
    
    713,290
    
    
    
    
    
    
    
    378,590
    
    
    
    Interest rate lock commitments
    
    
    24,808
    
    
    
    199
    
    
    
    29,875
    
    
    
    (11
    )Forward mortgage loan contracts
    
    
    68,030
    
    
    
    (501
    )
    
    
    78,498
    
    
    
    257Total
    
    $
    1,106,128
    
    
    $
    1,272
    
    
    $
    859,263
    
    
    $
    (351
    )
 Derivative Classifications and Hedging Relationships:
 December 31,
    
    
    December 31,2007
    
    
    2006Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(dollars in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueDerivatives Designated as Cash Flow Hedges:Hedging repurchase agreements
    
    $
    
    
    
    $
    
    
    
    $
    104,000
    
    
    $
    1,242Prime Based Loan Hedges
    
    $
    100,000
    
    
    $
    (47
    )
    
    
    
    
    
    
    Derivatives Designated as Fair Value Hedges:Hedging time deposits
    
    
    50,000
    
    
    
    1,434
    
    
    
    95,000
    
    
    
    47Hedging long-term debt
    
    
    150,000
    
    
    
    187
    
    
    
    100,000
    
    
    
    (390
    )Derivatives Not Designated as Hedges:Receive fixed swaps
    
    
    
    
    
    
    
    
    
    
    73,300
    
    
    
    (1,496
    )Customer initiated swaps and corresponding offsets
    
    
    713,290
    
    
    
    
    
    
    
    378,590
    
    
    
    Total
    
    $
    1,013,290
    
    
    $
    1,574
    
    
    $
    750,890
    
    
    $
    (597
    )
    99




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Note 20. Fair Values of Financial Instruments
    100




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December 31, 2007
    
    December 31, 2006Carrying
    
    Estimated
    
    Carrying
    
    Estimated(in millions)
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assets:Cash and money market investments
    
    $
    241.3
    
    
    $
    241.3
    
    
    $
    224.0
    
    
    $
    224.0Securities
    
    
    2,261.3
    
    
    
    2,261.5
    
    
    
    2,949.2
    
    
    
    2,949.7FHLB and Federal Reserve stock
    
    
    148.8
    
    
    
    148.8
    
    
    
    132.9
    
    
    
    132.9Loans held for sale
    
    
    75.8
    
    
    
    75.8
    
    
    
    172.8
    
    
    
    172.8Net loans
    
    
    9,337.9
    
    
    
    9,580.0
    
    
    
    9,062.0
    
    
    
    9,111.1Cash surrender value of life insurance policies
    
    
    214.3
    
    
    
    214.3
    
    
    
    206.9
    
    
    
    206.9Accrued interest receivable
    
    
    68.9
    
    
    
    68.9
    
    
    
    68.2
    
    
    
    68.2Financial liabilities:Deposits
    
    
    8,301.9
    
    
    
    8,304.7
    
    
    
    8,698.1
    
    
    
    8,677.6Short-term borrowings
    
    
    542.2
    
    
    
    542.2
    
    
    
    938.9
    
    
    
    938.9Long-term debt
    
    
    2,939.5
    
    
    
    2,943.9
    
    
    
    2,639.0
    
    
    
    2,654.3Accrued interest payable
    
    
    28.3
    
    
    
    28.3
    
    
    
    32.5
    
    
    
    32.5Off-balance sheet financial instrument liabilities:Credit-related financial instruments
    
    
    1.8
    
    
    
    1.8
    
    
    
    1.8
    
    
    
    1.8Interest rate swap agreements
    
    
    1.6
    
    
    
    1.6
    
    
    
    (0.6
    )
    
    
    (0.6
    )Interest rate lock commitments
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.0
    
    
    
    0.0Forward commitments to sell mortgage loans
    
    
    (0.5
    )
    
    
    (0.5
    )
    
    
    0.3
    
    
    
    0.3
  Investment Securities Available for Sale and Held to Maturity:
 Loans Held For Sale:
 Net Loans:
 Deposit Liabilities:
 Short-Term Borrowings:
 Long-Term Debt:
 101




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##### Table of Contents



Loan Commitments and Letters Of Credit:
 Interest Rate Swap Agreements:
 Interest Rate Lock Commitments and Forward Commitments to Sell Mortgages:
 Note 21. Regulatory Matters
       102




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##### Table of Contents



Risk Based Capital Requirements
 To Be Well-CapitalizedFor Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action Provisions(in thousands)
    
    Amount
    
    Ratio
    
    Amount
    
    
    
    Ratio
    
    Amount
    
    
    
    RatioCitizens Republic BancorpAs of December 31, 2007:Total Capital to risk weighted assets (1)
    
    $
    1,195,576
    
    
    
    11.7
    %
    
    $
    820,625
    
    
    >
    
    
    8.0
    %
    
    $
    1,025,782
    
    
    >
    
    
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    941,851
    
    
    
    9.2
    
    
    
    410,313
    
    
    >
    
    
    4.0
    
    
    
    615,469
    
    
    >
    
    
    6.0Tier 1 Leverage (2)
    
    
    941,851
    
    
    
    7.5
    
    
    
    499,994
    
    
    >
    
    
    4.0
    
    
    
    624,993
    
    
    >
    
    
    5.0As of December 31, 2006:Total Capital to risk weighted assets (1)
    
    $
    1,204,379
    
    
    
    11.9
    %
    
    $
    809,530
    
    
    >
    
    
    8.0
    %
    
    $
    1,011,913
    
    
    >
    
    
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    952,287
    
    
    
    9.4
    
    
    
    404,765
    
    
    >
    
    
    4.0
    
    
    
    607,148
    
    
    >
    
    
    6.0Tier 1 Leverage (2)(3)
    
    
    952,287
    
    
    
    7.2
    
    
    
    527,464
    
    
    >
    
    
    4.0
    
    
    
    659,330
    
    
    >
    
    
    5.0Citizens BankAs of December 31, 2007Total Capital to risk weighted assets (1)
    
    $
    1,124,600
    
    
    
    11.2
    %
    
    $
    801,935
    
    
    >
    
    
    8.0
    %
    
    $
    1,002,419
    
    
    >
    
    
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    998,783
    
    
    
    10.0
    
    
    
    400,968
    
    
    >
    
    
    4.0
    
    
    
    601,451
    
    
    >
    
    
    6.0Tier 1 Leverage (2)
    
    
    998,783
    
    
    
    8.2
    
    
    
    485,987
    
    
    >
    
    
    4.0
    
    
    
    607,484
    
    
    >
    
    
    5.0As of December 31, 2006:Total Capital to risk weighted assets (1)
    
    $
    705,595
    
    
    
    11.6
    %
    
    $
    487,337
    
    
    >
    
    
    8.0
    %
    
    $
    609,172
    
    
    >
    
    
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    629,005
    
    
    
    10.3
    
    
    
    243,669
    
    
    >
    
    
    4.0
    
    
    
    365,503
    
    
    >
    
    
    6.0Tier 1 Leverage (2)(3)
    
    
    629,005
    
    
    
    8.6
    
    
    
    292,438
    
    
    >
    
    
    4.0
    
    
    
    365,548
    
    
    >
    
    
    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 Capital consists of total equity and trust
preferred securities less unrealized gains and losses accumulated in other comprehensive income,
certain intangible assets and adjustments related to the valuation of mortgage servicing assets.(2)
    
    Tier 1 Capital to quarterly average assets(3)
    
    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. 103




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Note 22. Citizens Republic Bancorp (Parent Only) Statements
 Balance Sheets
Citizens Republic Bancorp (Parent Only)
 December 31,(in thousands)
    
    2007
    
    
    2006AssetsCash
    
    $
    
    
    
    $
    188Money market investments
    
    
    73,839
    
    
    
    80,427Investment securities
    
    
    48
    
    
    
    50Investment in subsidiaries  principally banks
    
    
    1,207,890
    
    
    
    1,185,783Goodwill  net
    
    
    654,100
    
    
    
    655,890Other assets
    
    
    30,927
    
    
    
    42,082Total assets
    
    $
    1,966,804
    
    
    $
    1,964,420Liabilities and Shareholders EquityLong-term debt
    
    $
    340,822
    
    
    $
    340,606Other liabilities
    
    
    48,102
    
    
    
    66,128Total liabilities
    
    
    388,924
    
    
    
    406,734Shareholders equity
    
    
    1,577,880
    
    
    
    1,557,686Total liabilities and shareholders equity
    
    $
    1,966,804
    
    
    $
    1,964,420
 Statements of Income
Citizens Republic Bancorp (Parent Only)
 Year Ended December 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2005IncomeDividends from subsidiaries  principally banks
    
    $
    111,500
    
    
    $
    70,900
    
    
    $
    63,200Interest from bank subsidiary
    
    
    3,118
    
    
    
    4,429
    
    
    
    1,998Service fees from bank subsidiaries
    
    
    14,334
    
    
    
    13,277
    
    
    
    11,459Other
    
    
    (53
    )
    
    
    176
    
    
    
    299Total
    
    
    128,899
    
    
    
    88,782
    
    
    
    76,956ExpensesInterest
    
    
    25,637
    
    
    
    13,119
    
    
    
    7,766Salaries and employee benefits
    
    
    20,922
    
    
    
    17,621
    
    
    
    16,054Service fees paid to bank subsidiaries
    
    
    2,767
    
    
    
    2,768
    
    
    
    2,768Restructuring and merger related expenses
    
    
    270
    
    
    
    1,426
    
    
    
    Other noninterest expense
    
    
    2,231
    
    
    
    1,596
    
    
    
    1,923Total
    
    
    51,827
    
    
    
    36,530
    
    
    
    28,511Income before income taxes and
equity in undistributed earnings of subsidiaries
    
    
    77,072
    
    
    
    52,252
    
    
    
    48,445Income tax benefit (provision)
    
    
    12,650
    
    
    
    6,959
    
    
    
    5,693Equity in undistributed (dividends in excess of) earnings of subsidiaries
    
    
    11,120
    
    
    
    4,125
    
    
    
    26,387Net Income
    
    $
    100,842
    
    
    $
    63,336
    
    
    $
    80,525
 104




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Statements of Cash Flows
Citizens Republic Bancorp (Parent Only)
 Year Ended December 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2005| | |Operating ActivitiesNet income
    
    $
    100,842
    
    
    $
    63,336
    
    
    $
    80,525Adjustments to reconcile net income to net cash
provided by operating activities:Recognition of stock-based compensation expense
    
    
    3,355
    
    
    
    3,766
    
    
    
    832Dividends in excess of (equity in undistributed) earnings of subsidiaries
    
    
    (11,120
    )
    
    
    (4,125
    )
    
    
    (26,386
    )Excess tax benefits related to stock-based compensation arrangements
    
    
    
    
    
    
    (182
    )
    
    
    Other
    
    
    (3,130
    )
    
    
    (12,280
    )
    
    
    7,400Net cash (used in)/provided by operating activities
    
    
    89,947
    
    
    
    50,515
    
    
    
    62,371Investing ActivitiesNet (increase) decrease in money market investments
    
    
    6,588
    
    
    
    9,040
    
    
    
    77Proceeds from sales and maturities of investment securities
    
    
    
    
    
    
    107
    
    
    
    1Purchases of investment securities
    
    
    
    
    
    
    
    
    
    
    (10
    )Acquisition, net of cash received
    
    
    
    
    
    
    (154,662
    )
    
    
    Investments in and advances to subsidiaries
    
    
    1,546
    
    
    
    275
    
    
    
    Net cash provided by investing activities
    
    
    8,134
    
    
    
    (145,240
    )
    
    
    68Financing ActivitiesPrincipal reductions in long-term borrowings
    
    
    (51,790
    )
    
    
    
    
    
    
    Proceeds from long-term borrowings
    
    
    50,000
    
    
    
    150,010
    
    
    
    Cash dividends paid
    
    
    (87,798
    )
    
    
    (49,530
    )
    
    
    (49,311
    )Proceeds from stock options exercised
    
    
    4,833
    
    
    
    3,194
    
    
    
    5,061Excess tax benefits related to stock-based compensation arrangements
    
    
    
    
    
    
    182
    
    
    
    Shares acquired for retirement
    
    
    (13,514
    )
    
    
    (8,948
    )
    
    
    (18,189
    )Net cash used by financing activities
    
    
    (98,269
    )
    
    
    94,908
    
    
    
    (62,439
    )Net (decrease) increase in cash
    
    
    (188
    )
    
    
    183
    
    
    
    Cash and due from banks at beginning of year
    
    
    188
    
    
    
    5
    
    
    
    5Cash and due from banks at end of year
    
    $
    
    
    
    $
    188
    
    
    $
    5
 105




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Report of Independent Registered Public Accounting Firm
on Consolidated Financial Statements
 To the Board of Directors and the Shareholders of Citizens Republic Bancorp, Inc.
      
 
 106




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##### Table of Contents



SELECTED QUARTERLY INFORMATION (unaudited)
 .
 Table 14. Selected Quarterly Information
 (in thousands except,
    
    2007
    
    2006per share data)
    
    Fourth
    
    Third
    
    Second
    
    First
    
    Fourth
    
    Third
    
    Second
    
    FirstInterest Income
    
    $
    198,988
    
    
    $
    201,854
    
    
    $
    202,353
    
    
    $
    204,716
    
    
    $
    122,801
    
    
    $
    120,744
    
    
    $
    116,416
    
    
    $
    112,391Interest Expense
    
    
    106,799
    
    
    
    106,981
    
    
    
    105,576
    
    
    
    106,375
    
    
    
    58,791
    
    
    
    55,099
    
    
    
    50,426
    
    
    
    44,916Net interest income
    
    
    92,188
    
    
    
    94,873
    
    
    
    96,777
    
    
    
    98,341
    
    
    
    64,010
    
    
    
    65,645
    
    
    
    65,990
    
    
    
    67,475Provision for loan losses
    
    
    6,055
    
    
    
    3,765
    
    
    
    31,857
    
    
    
    3,500
    
    
    
    5,936
    
    
    
    1,190
    
    
    
    1,139
    
    
    
    3,000Total fees and other income
    
    
    29,296
    
    
    
    30,596
    
    
    
    31,278
    
    
    
    31,423
    
    
    
    24,930
    
    
    
    23,544
    
    
    
    23,691
    
    
    
    25,563Investment securities gains (losses) (1)
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    (33
    )
    
    
    (7,162
    )
    
    
    
    
    
    
    54
    
    
    
    7Noninterest expense (2)
    
    
    78,880
    
    
    
    77,343
    
    
    
    87,490
    
    
    
    83,710
    
    
    
    78,788
    
    
    
    59,402
    
    
    
    60,065
    
    
    
    61,572Net income
    
    
    27,967
    
    
    
    31,764
    
    
    
    9,619
    
    
    
    31,492
    
    
    
    692
    
    
    
    20,981
    
    
    
    20,907
    
    
    
    20,756Per Share of Common StockNet income:Basic
    
    
    0.37
    
    
    
    0.42
    
    
    
    0.13
    
    
    
    0.42
    
    
    
    0.02
    
    
    
    0.49
    
    
    
    0.49
    
    
    
    0.49Diluted
    
    
    0.37
    
    
    
    0.42
    
    
    
    0.13
    
    
    
    0.41
    
    
    
    0.02
    
    
    
    0.49
    
    
    
    0.49
    
    
    
    0.48
 
 (1)
    
    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.(2)
    
    Noninterest expense includes restructuring and merger related expenses of ($0.4) million in the
fourth quarter of 2007, $1.0 million in the third quarter of 2007, $3.4 million in the second
quarter of 2007, $4.2 million in the first quarter of 2007 and $11.3 million in the fourth quarter of 2006
related to the Republic merger.  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  107




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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.
    /s/ Charles D. Christy

Charles D. Christy
    
    /s/ William R. Hartman

William R. HartmanExecutive Vice President and Chief Financial Officer
    
    Chief Executive Officer
 Changes in Internal Control over Financial Reporting
 108




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
on Effectiveness of Internal Control Over Financial Reporting
 To the Board of Directors and the Shareholders of Citizens Republic Bancorp, Inc.
       
 
 109




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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
  Equity Compensation Plan Information
 110




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##### Table of Contents



Number of sharesremaining available forfuture issuance underNumber of shares to
    
    
    
    
    
    
    equity compensationbe issued upon
    
    
    Weighted-average
    
    
    plans (excludingexercise of
    
    
    exercise price of
    
    
    shares reflected inPlan Category
    
    outstanding options
    
    
    outstanding options
    
    
    column(a))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
shareholders
    
    
    3,366,281
    
    
    $
    28.29
    
    
    
    3,690,979Equity compensation
plans not approved
by shareholders
    
    
    62,600
    (1)
    
    $
    16.66
    
    
    
    0Total (2)
    
    
    3,428,881
    
    
    $
    28.08
    
    
    
    3,690,979
 (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 62,600
shares were outstanding as of December 31, 2007. 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 of which options for 601,161 shares were outstanding as of December 31, 2007. 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 $14.36 per
share.
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  111




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PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
   
      At the request of any shareholder, the Corporation will
furnish any exhibit upon the payment of a fee of $0.10 per page to cover the costs of
furnishing the exhibit.
   112




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SIGNATURES
  
 by /s/ William R. Hartman
 William
R. Hartman
    
    Date: February 28, 2008Chief Executive Officer
  Signature
    
    Capacity
    
    Date/s/ Charles D. Christy
    
    Executive Vice President and
    
    February 28, 2008Charles D. Christy
    
    Chief Financial Officer/s/ William R. Hartman
    
    Chief Executive Officer, and Chairman
    
    February 28, 2008William R. Hartman/s/ Edward P. Abbott
    
    Director
    
    February 28, 2008Edward P. Abbott/s/Lizabeth A. Ardisana
    
    Director
    
    February 28, 2008Lizabeth A. Ardisana/s/George J. Butvilas
    
    Director
    
    February 28, 2008George J. Butvilas/s/Jerry D. Campbell
    
    Director
    
    February 28, 2008Jerry D. Campbell/s/ Richard J. Dolinski
    
    Director
    
    February 28, 2008Richard J. Dolinski/s/ Howard J. Hulsman
    
    Director
    
    February 28, 2008Howard J. Hulsman/s/Gary Hurand
    
    Director
    
    February 28, 2008Gary Hurand
 113




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##### Table of Contents



SIGNATURES (continued)
 Signature
    
    Capacity
    
    Date/s/Dennis J. Ibold
    
    Director
    
    February 28, 2008Dennis J. Ibold/s/ Benjamin W. Laird
    
    Director
    
    February 28, 2008Benjamin W. Laird/s/ Stephen J. Lazaroff
    
    Director
    
    February 28, 2008Stephen J. Lazaroff/s/ William C. Shedd
    
    Director
    
    February 28, 2008William C. Shedd/s/ Jeoffrey K. Stross
    
    Director
    
    February 28, 2008Dr. Jeoffrey K. Stross/s/ Kendall B. Williams
    
    Director
    
    February 28, 2008Kendall B. Williams/s/ James L. Wolohan
    
    Director
    
    February 28, 2008James L. Wolohan/s/ Steven E. Zack
    
    Director
    
    February 28, 2008Steven E. Zack
 114




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EXHIBIT INDEX
  ExhibitNo.
    
    Exhibit2.2
    
    Agreement and Plan of Merger, dated as of June 26, 2006, by and between
Republic Bancorp. Inc, and Citizens Republic Bancorp, Inc. (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 3.1 of Citizens 2007 First Quarter Report on Form
10-Q).3.2
    
    Amended and Restated Bylaws dated as of January 24, 2008. (incorporated
by reference from Exhibit 3.1 of Citizens Form 8-K filed January 30, 2008).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 Republic Bancorp,
Inc. and JP Morgan Chase Bank, as Trustee (filed as Exhibit 4.1 to Citizens
Republic Bancorp, Inc.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 Republic Bancorp, Inc. 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 Republic Bancorp, Inc.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).4.8
    
    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)(i) 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 Republic Bancorp,
Inc. 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
Republic Bancorp, Inc. 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 Republic Bancorp, Inc., 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 Republic
Bancorp, Inc. 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).4.17
    
    Amendment No. 1 to Rights Agreement
dated December 19, 2007 between Citizens and Citizens Bank, as Rights
Agent.
 115




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EXHIBIT INDEX (continued)
 ExhibitNo.
    
    Exhibit10.1*
    
    Citizens Republic Bancorp, Inc. 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 Republic Bancorp, Inc. 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 Republic Bancorp, Inc. 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 Republic Bancorp, Inc. 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 Republic Bancorp, Inc. 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).10.6*
    
    First Amendment to Citizens Republic Bancorp, Inc. 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 Republic Bancorp, Inc. 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 Republic Bancorp, Inc. 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 Republic Bancorp, Inc. 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
Republic Bancorp, Inc., 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
Republic Bancorp, Inc. and U.S. Bank National Association (incorporated by
reference from Exhibit 10.3 of Citizens 2003 Second Quarter Report on Form 10-Q).
 116




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EXHIBIT INDEX (continued)
 ExhibitNo.
    
    Exhibit10.19*
    
    Employment Agreement, dated as of June 26, 2006, by and between Citizens Republic Bancorp, Inc. 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 Non-employee Directors
under the Citizens Republic Bancorp, Inc. 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 Republic Bancorp, Inc. Stock Compensation Plan (incorporated by
reference from Exhibit 10.21 of Citizens 2004 Third Quarter Report on Form
10-Q).10.22*
    
    Form of Restricted Stock Agreement under the Citizens Republic Bancorp, Inc. Stock
Compensation Plan (incorporated by reference from Exhibit 10.22 of Citizens 2004 Third Quarter
Report on Form 10-Q).10.24*
    
    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. (Incorporated by reference from Exhibit 10.32 of Citizens' 2006 Annual Report Form 10-K)10.33*
    
    Employment
Agreement, dated as of June 26, 2006, by and between Citizens
and Dana M. Cluckey. (Incorporated by reference from Exhibit 10.33 of Citizens'
2006 Annual Report Form 10-K)10.34*
    
    Employment Agreement, dated as of November 3, 2006, by and between Citizens and Thomas F.
Menacher. (Incorporated by reference from Exhibit 10.34 of Citizens'
2006 Annual Report Form 10-K)
 117




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EXHIBIT INDEX (continued)
 ExhibitNo.
    
    Exhibit10.36*
    
    Release and Settlement Agreement with Dana M. Cluckey, dated April 26, 2007 (incorporated by
reference from Exhibit 10.36 of Citizens 2007 First Quarter Report on Form 10-Q).10.37*
    
    Form of Restricted Stock Agreement (Employee Version as of May 2007) (incorporated by
reference from Exhibit 10.37 of Citizens 2007 Second Quarter Report on Form 10-Q).10.38*
    
    Form of Restricted Stock Agreement (Non-Employee Director Version as of May 2007)
(incorporated by reference from Exhibit 10.38 of Citizens 2007 Second Quarter Report on Form 10-Q).10.39*1
    
    2007 Management Incentive Plan (incorporated by reference from Exhibit 10.39 of
Citizens 2007 Second Quarter Report on Form 10-Q).10.40*
    
    Release and
Settlement Agreement with Thomas F. Menacher, dated May 17,
2007.(Incorporated by reference from Exhibit 10.40 of Citizens' 2007
Second Quarter Report on Form 10Q).10.41*
    
    Form of Amended and Restated Change in Control Agreement between Citizens Republic
Bancorp, Inc. and each of William R. Hartman, Charles D. Christy, Roy A. Eon, Thomas W. Gallagher, Martin E.
Grunst, Cathleen H. Nash, Clinton A. Sampson, and John D. Schwab, dated February 26, 2008.10.42*
    
    Amended and Restated Change in Control Agreement between Citizens Republic
Bancorp, Inc. and Randall J. Peterson, dated February 26, 2008.10.43*
    
    Supplemental Retirement Benefits Plan For William R. Hartman, dated September 19, 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 1934.32.2
    
    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 118




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119