##### 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, 2005.
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file Number 000-10535
 CITIZENS BANKING CORPORATION
  MICHIGAN
    
    38-2378932(State or Other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)328 S. Saginaw Street, Flint, Michigan
    
    48502(Address of Principal Executive Offices)
    
    (ZIP Code)
  Securities registered pursuant to Section 12(b) of the Act: none
 Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value
 Preferred Stock Purchase Rights
 þ o
 o þ
 þ o
 þ
 þ o o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



CITIZENS BANKING CORPORATION
2005 Annual Report on Form 10-K
  
 TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    19Item 2. Properties
    
    
    19Item 3. Legal Proceedings
    
    
    19Item 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
    
    
    20Item 6. Selected Financial Data
    
    
    21Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Overview
    
    
    24Critical Accounting Policies
    
    
    27Recent Accounting Pronouncements
    
    
    30Recent Developments
    
    
    30Results of Operations
    
    
    32Financial Condition
    
    
    42Liquidity and Debt Capacity
    
    
    58Interest Rate Risk
    
    
    59Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    61Item 8. Financial Statements and Supplementary Data
    
    
    61Consolidated Balance Sheets
    
    
    62Consolidated Statements of Income
    
    
    63Consolidated Statements of Changes in Shareholders Equity
    
    
    64Consolidated Statements of Cash Flows
    
    
    65Notes to Consolidated Financial Statements
    
    
    66Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    108Item 9A. Controls and Procedures
    
    
    108Item 9B Other Information
    
    
    111PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    111Item 11. Executive Compensation
    
    
    111Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    111Item 13. Certain Relationships and Related Transactions
    
    
    111Item 14 Principal Accountant Fees and Services
    
    
    111PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    112SIGNATURES
    
    
    113EXHIBIT INDEX
    
    
    115Subsidiaries 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




---



##### Table of Contents



EXPLANATORY NOTE  RESTATEMENT
  (in thousands, except per share amounts)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Income from Continuing Operations Before Income Taxes
    
    $
    112,106
    
    
    $
    81,269
    
    
    $
    82,884Income tax provision
    
    
    31,581
    
    
    
    19,590
    
    
    
    18,375Income from Continuing Operations
    
    
    80,525
    
    
    
    61,679
    
    
    
    64,509Discontinued operationsIncome from discontinued operations (net of
income tax of $939 and $801)
    
    
    
    
    
    
    1,659
    
    
    
    1,442Gain on sale of discontinued operations
(including income tax benefit of $1,109)
    
    
    
    
    
    
    12,759
    
    
    
    Income from discontinued operations
    
    
    
    
    
    
    14,418
    
    
    
    1,442Net Income
    
    $
    80,525
    
    
    $
    76,097
    
    
    $
    65,951Earnings Per Share from Continuing OperationsBasic
    
    $
    1.87
    
    
    $
    1.43
    
    
    $
    1.49Diluted
    
    
    1.85
    
    
    
    1.41
    
    
    
    1.48Earnings Per Share from Discontinued OperationsBasic
    
    $
    
    
    
    $
    0.33
    
    
    $
    0.03Diluted
    
    
    
    
    
    
    0.33
    
    
    
    0.03Net Income Per Common ShareBasic
    
    $
    1.87
    
    
    $
    1.76
    
    
    $
    1.52Diluted
    
    
    1.85
    
    
    
    1.74
    
    
    
    1.51
 
 PART I
 
 ITEM 1. BUSINESS
 www.citizensonline.com
 GENERAL
  3




---



##### Table of Contents



Total
    
    DatePrincipal
    
    Number of
    
    Assets
    
    Acquired /Subsidiary
    
    Office
    
    Offices
    
    (in millions)
    
    EstablishedCitizens Bank (a)
    
    Flint, MI
    
    
    172
    
    
    $
    7,350.3
    
    
    
    01/01/82F&M Bank  Iowa (a)
    
    Marshalltown, IA
    
    
    11
    
    
    
    410.8
    
    
    
    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 $2.5 billion at December 31, 2005.
  GEOGRAPHIC LOCATIONS
  PRINCIPAL SOURCES OF REVENUE
  Year Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Interest and fees on loans
    
    $
    343,890
    
    
    $
    297,811
    
    
    $
    318,543Interest and dividends on investment securities
    
    
    79,303
    
    
    
    80,456
    
    
    
    79,068Other interest and noninterest income
    
    
    80,564
    
    
    
    91,470
    
    
    
    93,158Total revenues from continuing operations
    
    $
    503,757
    
    
    $
    469,737
    
    
    $
    490,769
 4




---



##### Table of Contents



LINES OF BUSINESS
  
    
    Commercial Banking Commercial Banking provides a full range of
lending, depository, and related financial services to
middle-market corporate, industrial, financial, small business,
government and leasing clients. Products and services offered
include commercial loans such as term loans, revolving credit
arrangements, and inventory and accounts receivable financing,
commercial mortgages, real estate construction lending, letters of
credit, and small business loans. Noncredit services for
commercial customers include deposit accounts, treasury
management, corporate cash management, international banking
services, advice and assistance in the placement of securities,
and financial planning.
 
    
    Consumer Banking- Consumer Banking includes consumer lending and
deposit gathering, small business lending, branch banking,
electronic banking and residential mortgage loan origination and
servicing. This line of business offers a variety of retail
financial products and services including direct and indirect
installment loans, debit and credit cards, home equity loans and
lines of credit, residential mortgage loans, deposit products,
fixed and variable annuities and ATM network services. Consumer
loans are composed of automobile, personal, marine, and
recreational vehicle loans. Deposit products include checking,
savings, money market accounts, and certificates of deposit.
 
    
    Wealth Management- Wealth Management offers a broad array of
asset management, private banking, financial planning, estate
settlement and administration, credit and deposit products and
services. Trust and investment services include personal trust
and planning, investment management, estate settlement and
administration services. Retirement plan services focus on
investment management and fiduciary activities with special
emphasis on 401(k) plans. Brokerage and insurance delivers retail
mutual funds, other securities, variable and fixed annuities,
personal disability and life insurance products and discounted
brokerage services. Private banking provides credit, deposit and
asset management solutions for affluent clients.
   COMPETITION
  5




---



##### Table of Contents



SUPERVISION AND REGULATION
 General
      6




---



##### Table of Contents



Payment of Dividends
    Capital Adequacy and Prompt Corrective Action
   7




---



##### Table of Contents




    
    prohibiting the payment of principal and interest on subordinated debt;
 
    
    prohibiting the holding company from making distributions without prior regulatory approval;
 
    
    placing limits on asset growth and restrictions on activities;
 
    
    placing additional restrictions on transactions with affiliates;
 
    
    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




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



ECONOMIC FACTORS AND MONETARY POLICY
  ENVIRONMENTAL MATTERS
  Directors and Executive Officers of the Holding Company
  Board of Directors
 Name
    
    OccupationWilliam R. Hartman
    
    Chairman of the Board, President and Chief Executive Officer,
Citizens Banking CorporationEdward P. Abbott
    
    President and Chief Executive Officer, Abbotts Meats, Inc.Lizabeth A. Ardisana
    
    Chief Executive Officer and Owner, ASG RenaissanceJoseph
P. Day
    
    President, Banner Engineering & Sales, Inc.Richard J. Dolinski
    
    President and Chief Executive Officer, Dolinski Associates, Inc. and
President, The Legacy Center for Student SuccessBenjamin
W. Laird
    
    Attorney at Law, Godfrey & Kahn, S.C.Stephen J. Lazaroff
    
    President, Diversified Precision Products, Inc.William C. Shedd
    
    Attorney at Law, Shedd, Frasier & Grossman, PLLCKendall B. Williams
    
    Attorney at Law, The Williams Firm, P.C.James L. Wolohan
    
    Chairman of the Board, President and CEO, Wolohan Lumber Company
 11




---



##### Table of Contents



Executive Officers
 Name
    
    TitleWilliam R. Hartman
    
    Chairman, President and Chief Executive OfficerMarilyn K. Allor
    
    Senior Vice President and Director of Human ResourcesCharles D. Christy
    
    Executive Vice President and Chief Financial OfficerRoy A. Eon
    
    Executive Vice President and Manager of Operations and TechnologySteven V. Figliuolo
    
    Executive Vice President and Corporate Risk OfficerThomas W. Gallagher
    
    General Counsel and SecretaryJames A. Hawking
    
    Senior Vice President and General AuditorWendy K. Hemingway
    
    Senior Vice President and Director of Commercial Products and SalesJudith L. Klawinski
    
    Senior Vice President and Head of Retail DeliveryJohn J. Owens
    
    Senior Vice President and Chief Marketing OfficerRandall J. Peterson
    
    Executive Vice President and Regional Chairman  Wisconsin and IowaJeffrey A. Powell
    
    Senior Vice President, Controller and Principal Accounting OfficerClinton A. Sampson
    
    Executive Vice President and Regional Chairman  MichiganJames A. Schmelter
    
    Executive Vice President for Wealth ManagementJohn D. Schwab
    
    Executive Vice President and Chief Credit Officer
 
 ITEM 1A. RISK FACTORS
  We face the risk that loan losses, including unanticipated loan losses due to changes in loan
portfolios, fraud and economic factors, will exceed the allowance for loan losses and that
additional increases in the allowance will be required which would cause our net income to decline
and could have a negative impact on our capital and financial position.
  
    
    the duration of the loan;
    
    credit risks of a particular borrower;
    
    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.
  12




---



##### Table of Contents



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.
    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.
  13




---



##### Table of Contents



If we are unable to continue to attract core deposits or continue to obtain third party financing
on favorable terms, our cost of funds will increase, adversely affecting the ability to generate
the funds necessary for lending operations, reducing net interest margin and negatively affecting
results of operations.
   Increased competition with other financial institutions or an adverse change in our relationship
with a number of major customers could reduce our net interest margin and net income by decreasing
the number and size of loans originated, the interest rates charged on these loans and the fees
charged for services to customers. If we lend to customers who are less likely to pay in order to
maintain historical origination levels, we may not be able to maintain current loan quality levels.
     14




---



##### Table of Contents



We are party to various lawsuits incidental to our business. Litigation is subject to many
uncertainties such that the expenses and ultimate exposure with respect to many of these matters
cannot be ascertained.
  The financial services industry is undergoing rapid technological changes. If we are unable to
adequately invest in and implement new technology-driven products and services, we may not be able
to compete effectively, or the cost to provide products and services may increase significantly.
  Our business may be adversely affected by the highly regulated environment in which we operate. We
may be adversely affected by changes in banking or tax laws, regulations, and regulatory practices
at either the federal or state level. Such changes would affect our ability to offer new products
and services, obtain financing, pay dividends from the subsidiaries to the Holding Company, attract
deposits, make loans and leases at satisfactory spreads. Such changes may also result in the
imposition of additional costs.
  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




---



##### Table of Contents



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 position.
  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 increase suddenly, our current vendors might not be
able to fulfill our commercial needs, which would require us to seek new arrangements or
new sources of supply, and may result in substantial delays in meeting market demand.
    
    We may not be able to control or adequately monitor the quality of services we receive
from our vendors. Poor quality services could damage our reputation with our customers.
 16




---



##### Table of Contents



Our potential inability to integrate acquired operations could have a negative effect on our
expenses and results of operations.
  We could face unanticipated environmental liabilities or costs related to real property owned or
acquired through foreclosure. Compliance with federal, state and local environmental laws and
regulations, including those related to investigation and clean-up of contaminated sites, could
have a negative effect on expenses and results of operations.
  As a bank holding company that conducts substantially all of our operations through our
subsidiaries, the ability of the Holding Company to pay dividends, repurchase our shares or to
repay our indebtedness depends upon the results of operations of our subsidiaries and their ability
to pay dividends to the Holding Company. Dividends paid by these subsidiaries are subject to
limits imposed by federal and state law.
  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.
  17




---



##### Table of Contents



Our articles of incorporation, bylaws and shareholder rights agreement as well as certain banking
laws may have an anti-takeover effect.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
   
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  18




---



##### Table of Contents



PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
    Equity Compensation Plan Information
  Number of sharesremaining available forfuture issuance underNumber of shares to be
    
    
    Weighted-average
    
    equity compensationissued upon exercise of
    
    
    exercise price of
    
    plans (excluding sharesPlan Category
    
    outstanding options
    
    
    outstanding options
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
shareholders
    
    
    3,833,991
    
    
    $
    28.16
    
    
    
    3,990,880Equity compensation
plans not approved
by shareholders
    
    
    83,900
    (1)
    
    $
    16.66
    
    
    
    0Total
    
    
    3,917,891
    
    
    $
    27.91
    
    
    
    3,990,880
 
 (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 83,900
shares were outstanding as of December 31, 2005. The plan provides that no further grants may
be made under the plan.
 19




---



##### Table of Contents



Issuer Repurchases of Equity Securities
 Total Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares that May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    The Plans or ProgramsPeriod
    
    Shares Purchased
    
    
    Per Share
    
    
    Programs
    
    
    (a)October 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,376,200November 2005
    
    
    75,000
    
    
    
    29.57
    
    
    
    75,000
    
    
    
    2,301,200December 2005
    
    
    60,000
    
    
    
    29.29
    
    
    
    60,000
    
    
    
    2,241,200Total
    
    
    135,000
    
    
    
    29.44
    
    
    
    135,000
    
    
    
    2,241,200
 
 (a)
    
    In October 2003, the Board approved the repurchase of up to 3,000,000 shares. There is
no expiration date for the repurchase program. The purchase of shares is subject to
limitations that may be imposed by applicable securities laws and regulations and the rules
of the Nasdaq Stock Market. The timing of the purchases and the number of shares to be
bought at any one time depend on market conditions and capital requirements. There can be
no assurance that Citizens will repurchase the remaining shares authorized to be
repurchased, or that any additional repurchases will be authorized by the Board of
Directors.
 
 ITEM 6. SELECTED FINANCIAL DATA
  20




---



##### Table of Contents



Five Year Summary of Selected Financial Data
 (in thousands, except per share data)
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)For The YearNet interest income
    
    $
    275,749
    
    
    $
    271,698
    
    
    $
    280,705
    
    
    $
    294,545
    
    
    $
    301,159Provision for loan losses (1)
    
    
    1,109
    
    
    
    21,609
    
    
    
    62,008
    
    
    
    117,331
    
    
    
    25,232Noninterest income before securities gains (losses) (2)
    
    
    89,435
    
    
    
    92,971
    
    
    
    92,952
    
    
    
    97,569
    
    
    
    109,724Investment securities gains (losses) (3)
    
    
    (8,927
    )
    
    
    (1,513
    )
    
    
    101
    
    
    
    2,338
    
    
    
    5,997Noninterest expense (4)
    
    
    243,042
    
    
    
    260,278
    
    
    
    228,866
    
    
    
    253,972
    
    
    
    244,845Income tax provision (benefit) from continuing operations
    
    
    31,581
    
    
    
    19,590
    
    
    
    18,375
    
    
    
    (1,346
    )
    
    
    42,451Income from continuing operations
    
    
    80,525
    
    
    
    61,679
    
    
    
    64,509
    
    
    
    24,495
    
    
    
    104,352Discontinued
operations (after tax) (5)
    
    
    
    
    
    
    14,418
    
    
    
    1,442
    
    
    
    543
    
    
    
    305Net income
    
    
    80,525
    
    
    
    76,097
    
    
    
    65,951
    
    
    
    25,038
    
    
    
    104,657Cash dividends
    
    
    49,311
    
    
    
    49,286
    
    
    
    49,476
    
    
    
    50,659
    
    
    
    50,158Per Common Share DataIncome from continuing operationsBasic
    
    $
    1.87
    
    
    $
    1.43
    
    
    $
    1.49
    
    
    $
    0.55
    
    
    $
    2.26Diluted
    
    
    1.85
    
    
    
    1.41
    
    
    
    1.48
    
    
    
    0.55
    
    
    
    2.24Discontinued operationsBasic
    
    $
    
    
    
    $
    0.33
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.01Diluted
    
    
    
    
    
    
    0.33
    
    
    
    0.03
    
    
    
    0.01
    
    
    
    0.01Net incomeBasic
    
    $
    1.87
    
    
    $
    1.76
    
    
    $
    1.52
    
    
    $
    0.56
    
    
    $
    2.27Diluted
    
    
    1.85
    
    
    
    1.74
    
    
    
    1.51
    
    
    
    0.56
    
    
    
    2.25Cash dividends
    
    
    1.140
    
    
    
    1.140
    
    
    
    1.140
    
    
    
    1.130
    
    
    
    1.085Book value, end of year
    
    
    15.28
    
    
    
    15.13
    
    
    
    14.69
    
    
    
    14.88
    
    
    
    15.47Market value, end of year
    
    
    27.75
    
    
    
    34.35
    
    
    
    32.72
    
    
    
    24.78
    
    
    
    32.88At Year End, Continuing OperationsAssets
    
    $
    7,751,883
    
    
    $
    7,706,033
    
    
    $
    7,544,903
    
    
    $
    7,320,958
    
    
    $
    7,494,272Portfolio loans (6)
    
    
    5,616,119
    
    
    
    5,393,365
    
    
    
    5,164,416
    
    
    
    5,342,669
    
    
    
    5,669,755Deposits
    
    
    5,473,839
    
    
    
    5,299,760
    
    
    
    5,274,082
    
    
    
    5,740,867
    
    
    
    5,758,953Long-term debt
    
    
    1,006,109
    
    
    
    949,921
    
    
    
    936,859
    
    
    
    599,313
    
    
    
    629,099Shareholders equity
    
    
    656,463
    
    
    
    654,302
    
    
    
    635,162
    
    
    
    650,469
    
    
    
    697,464At Year End, CombinedAssets
    
    $
    7,751,883
    
    
    $
    7,706,033
    
    
    $
    7,711,070
    
    
    $
    7,524,724
    
    
    $
    7,682,899Portfolio loans (6)
    
    
    5,616,119
    
    
    
    5,393,365
    
    
    
    5,247,818
    
    
    
    5,437,795
    
    
    
    5,777,954Deposits
    
    
    5,473,839
    
    
    
    5,299,760
    
    
    
    5,442,267
    
    
    
    5,936,913
    
    
    
    5,965,126Long-term debt
    
    
    1,006,109
    
    
    
    949,921
    
    
    
    936,859
    
    
    
    599,313
    
    
    
    629,099Shareholders equity
    
    
    656,463
    
    
    
    654,302
    
    
    
    635,162
    
    
    
    650,469
    
    
    
    697,464Average For The Year, Continuing OperationsAssets
    
    $
    7,777,818
    
    
    $
    7,585,479
    
    
    $
    7,510,870
    
    
    $
    7,360,405
    
    
    $
    7,731,553Earning assets
    
    
    7,348,168
    
    
    
    7,164,365
    
    
    
    7,097,607
    
    
    
    6,959,160
    
    
    
    7,316,131Portfolio loans (6)
    
    
    5,493,280
    
    
    
    5,210,817
    
    
    
    5,140,450
    
    
    
    5,467,139
    
    
    
    5,851,694Deposits
    
    
    5,286,390
    
    
    
    5,277,670
    
    
    
    5,478,315
    
    
    
    5,720,200
    
    
    
    5,802,258Interest-bearing deposits
    
    
    4,355,337
    
    
    
    4,379,150
    
    
    
    4,626,593
    
    
    
    4,877,101
    
    
    
    4,950,672Repurchase agreements and
other short-term borrowings
    
    
    812,642
    
    
    
    653,442
    
    
    
    454,339
    
    
    
    242,614
    
    
    
    528,525Long-term debt
    
    
    938,478
    
    
    
    936,050
    
    
    
    861,704
    
    
    
    620,913
    
    
    
    596,380Shareholders equity
    
    
    653,004
    
    
    
    639,631
    
    
    
    632,060
    
    
    
    691,834
    
    
    
    702,381Average For The Year, CombinedAssets
    
    $
    7,777,818
    
    
    $
    7,684,834
    
    
    $
    7,693,931
    
    
    $
    7,569,341
    
    
    $
    7,935,843Earning assets
    
    
    7,348,168
    
    
    
    7,259,660
    
    
    
    7,272,887
    
    
    
    7,160,596
    
    
    
    7,510,332Portfolio loans (6)
    
    
    5,493,280
    
    
    
    5,259,303
    
    
    
    5,234,246
    
    
    
    5,569,432
    
    
    
    5,983,971Deposits
    
    
    5,286,390
    
    
    
    5,375,297
    
    
    
    5,665,533
    
    
    
    5,924,442
    
    
    
    6,008,096Interest-bearing deposits
    
    
    4,355,337
    
    
    
    4,460,391
    
    
    
    4,787,594
    
    
    
    5,054,743
    
    
    
    5,126,928Repurchase agreements and
other short-term borrowings
    
    
    812,642
    
    
    
    655,472
    
    
    
    458,673
    
    
    
    251,315
    
    
    
    538,673Long-term debt
    
    
    938,478
    
    
    
    936,049
    
    
    
    861,704
    
    
    
    620,913
    
    
    
    596,380Shareholders equity
    
    
    653,004
    
    
    
    639,631
    
    
    
    632,060
    
    
    
    691,834
    
    
    
    702,381
 21




---



##### Table of Contents



Five Year Summary of Selected Financial Data (Continued)
 (in thousands, except per share data)
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)Financial Ratios, Continuing OperationsReturn on average:Shareholders equity
    
    
    12.33
    %
    
    
    9.64
    %
    
    
    10.21
    %
    
    
    3.54
    %
    
    
    14.86
    %Earning assets
    
    
    1.10
    
    
    
    0.86
    
    
    
    0.91
    
    
    
    0.35
    
    
    
    1.43Assets
    
    
    1.04
    
    
    
    0.81
    
    
    
    0.86
    
    
    
    0.33
    
    
    
    1.35Average shareholders equity/avg. assets
    
    
    8.40
    
    
    
    8.43
    
    
    
    8.42
    
    
    
    9.40
    
    
    
    9.08Dividend payout ratio
    
    
    61.24
    
    
    
    79.91
    
    
    
    76.70
    
    
    
    206.82
    
    
    
    48.07Net interest margin (FTE)
    
    
    3.94
    
    
    
    3.99
    
    
    
    4.17
    
    
    
    4.47
    
    
    
    4.34Tier I leverage ratio
    
    
    7.98
    
    
    
    7.84
    
    
    
    7.45
    
    
    
    7.18
    
    
    
    7.79Tier I risk-based capital ratio
    
    
    9.94
    
    
    
    9.96
    
    
    
    9.80
    
    
    
    9.18
    
    
    
    9.87Total risk-based capital ratio
    
    
    13.22
    
    
    
    13.32
    
    
    
    13.23
    
    
    
    10.43
    
    
    
    11.12Financial Ratios, CombinedReturn on average:Shareholders equity
    
    
    12.33
    %
    
    
    11.90
    %
    
    
    10.43
    %
    
    
    3.62
    %
    
    
    14.90
    %Earning assets
    
    
    1.10
    
    
    
    1.05
    
    
    
    0.91
    
    
    
    0.35
    
    
    
    1.39Assets
    
    
    1.04
    
    
    
    0.99
    
    
    
    0.86
    
    
    
    0.33
    
    
    
    1.32Average shareholders equity/avg. assets
    
    
    8.40
    
    
    
    8.32
    
    
    
    8.22
    
    
    
    9.14
    
    
    
    8.85Dividend payout ratio
    
    
    61.24
    
    
    
    64.77
    
    
    
    75.02
    
    
    
    202.33
    
    
    
    47.93Net interest margin (FTE)
    
    
    3.94
    
    
    
    3.99
    
    
    
    4.15
    
    
    
    4.45
    
    
    
    4.32Tier I leverage ratio
    
    
    7.98
    
    
    
    7.84
    
    
    
    7.45
    
    
    
    7.18
    
    
    
    7.79Tier I risk-based capital ratio
    
    
    9.94
    
    
    
    9.96
    
    
    
    9.80
    
    
    
    9.18
    
    
    
    9.87Total risk-based capital ratio
    
    
    13.22
    
    
    
    13.32
    
    
    
    13.23
    
    
    
    10.43
    
    
    
    11.12
 
 (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 in 2005 includes a charge of $3.6 million related to a fair
value change in CD swap derivatives.(3)
    
    Investment securities gains (losses) in 2005 includes losses of $9.0 million
on the sale of investment securities.(4)
    
    Citizens recorded special charges of $13.4 million in 2002 for restructurings and
other initiatives. Additionally, the year 2003 included a special charge credit of ($0.7 million)
related to accrual reversals primarily for employee benefits and severance, and professional fees.
The special charges and the related credit were included in noninterest expense. Noninterest
expense in 2004 included a $18.0 million prepayment penalty on the
prepayment of FHLB debt.(5)
    
    Discontinued operations in 2004 includes an after-tax gain of $12.8 million for the
sale of the Illinois bank subsidiary.(6)
    
    Balances exclude mortgage loans held for sale.
 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Change
in Presentation to Reflect Discontinued Operations
  22




---



##### Table of Contents



ForwardLooking Statements
   
 OVERVIEW
 Nature of Citizens Business
      23




---



##### Table of Contents



24




---



##### Table of Contents



Performance Summary
  Table 1. Three Year Summary of Net Income Components
 Year Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Interest income
    
    $
    423,249
    
    
    $
    378,279
    
    
    $
    397,716Interest expense
    
    
    147,500
    
    
    
    106,581
    
    
    
    117,011Net interest income
    
    
    275,749
    
    
    
    271,698
    
    
    
    280,705Provision for loan losses (1)
    
    
    1,109
    
    
    
    21,609
    
    
    
    62,008Noninterest income (1)
    
    
    80,508
    
    
    
    91,458
    
    
    
    93,053Noninterest expense (1)
    
    
    243,042
    
    
    
    260,278
    
    
    
    228,866Income tax provision from continuing operations(1)
    
    
    31,581
    
    
    
    19,590
    
    
    
    18,375Income from continuing operations
    
    
    80,525
    
    
    
    61,679
    
    
    
    64,509Discontinued operations:Income from discontinued operations (net of income tax of $939
and $801)
    
    
    
    
    
    
    1,659
    
    
    
    1,442Gain on sale of discontinued operations (including income tax
benefit of $1,109)
    
    
    
    
    
    
    12,759
    
    
    
    Income from discontinued operations
    
    
    
    
    
    
    14,418
    
    
    
    1,442Net income
    
    $
    80,525
    
    
    $
    76,097
    
    
    $
    65,951(1)Includes significant charges and/or gains as follows:Provision for loan losses
    
    $
    9,125
    
    
    $
    
    
    
    $
    Noninterest incomeLosses from sale of investment securities
    
    
    (8,976
    )
    
    
    
    
    
    
    Fair value change in CD swap derivatives
    
    
    (3,604
    )
    
    
    
    
    
    
    Total losses and other charges recorded in
noninterest income
    
    
    (12,580
    )
    
    
    
    
    
    
    Noninterest expensePrepayment penalty on FHLB advances
    
    
    
    
    
    
    (17,959
    )
    
    
    Tax benefit (expense)
    
    
    (1,209
    )
    
    
    6,286
    
    
    
    Net increase (decrease) to income
    
    $
    (2,246
    )
    
    $
    (11,673
    )
    
    $
    
   
    
    Net interest income for 2005 increased $4.1 million or 1.5% to $275.7 million compared
with the full year 2004 while the net interest margin percentage decreased from 3.99% to
3.94% during the same period. Interest income increased $45.0 million or 11.9% and
interest expense increased $40.9 million or 38.4%. The margin compression was due to
shifts within the deposit portfolio from lower cost savings and transaction products to
time deposits and continued pricing pressure on commercial loans, partially offset by
growth in earning assets of 2.9% due to higher loan balances, a shift in asset mix from
investment securities to higher yielding commercial loans and growth in noninterest-bearing
sources of funds.
    
    Total average earning assets for 2005 increased $203.5 million or 2.9% to $7.3 billion.
Average total portfolio loans increased $282.5 million or 5.4% to $5.5 billion, with the
growth in all loan categories partially offset by a decline in taxable investment
securities. Total average deposits remained relatively unchanged for 2005 at $5.3 billion.
A decrease in interest-bearing demand was substantially offset by increases in savings
deposits, time deposits, and
 25




---



##### Table of Contents



noninterest-bearing demand. Core deposits, which exclude time deposits, decreased by $88.5
million or 2.5% due to clients migrating their funds into time deposits with higher yields
and promotional rate products within the market.
    
    Loan loss provision expense decreased $20.5 million from 2004 due to lower net
charge-offs, a decline in nonperforming assets, fewer risk rating downgrades within the
commercial loan portfolio, and a fourth quarter 2005 reduction in the reserve of $1.5
million related to a previous mortgage recourse transaction. Total net charge-offs
decreased $13.9 million in 2005 to $6.9 million or 0.13% of average portfolio loans
outstanding compared to $20.8 million or 0.40% for 2004. The net charge-offs reflect a
recovery of $9.1 million as a result of an insurance settlement. The reduction in
nonperforming assets was the result of a sale of nonperforming commercial loans with a
balance of $6.7 million during the third quarter of 2005, aggressive collection efforts,
risk mitigation through reduction of exposure on credits not meeting Citizens risk
parameters and, to a lesser extent, continued charge-off of nonperforming loans.
Nonperforming assets decreased $11.0 million to $39.9 million or 0.71% of portfolio loans
plus other repossessed assets acquired (ORAA) at December 31, 2005.
    
    Noninterest income decreased $11.0 million or 12.0% to $80.5 million compared with the
full year of 2004. The decrease was the result of a $9.0 million net loss on the sale of
securities as a result of restructuring the investment portfolio during the fourth quarter
of 2005, a cumulative charge of $3.6 million on swaps related to brokered certificates
during the fourth quarter of 2005, and lower mortgage, other loan income and other income,
partially offset by increased service charges on deposit accounts, trust fees, ATM network
user fees, bankcard fees, and financial services.
    
    Noninterest expense decreased $17.2 million or 6.6% to $243.0 million compared with the
full year of 2004. The decrease was the result of the $18.0 million prepayment penalty on
$235.0 million of high cost Federal Home Loan Bank (FHLB) advances during the third
quarter of 2004, declines in advertising and public relations, other loan expenses, and
other expenses, partially offset by increases in salaries and employee benefits, occupancy,
and professional services.
    
    Income tax expense increased $12.0 million or 61.2% to $31.6 million compared with the
full year of 2004. The 2005 effective tax rate was 28.17% compared with the 2004 effective
tax rate of 24.11%. The increases were attributable to higher pre-tax income, a $1.3
million ($0.8 million after-tax) reduction in the deferred Wisconsin state income tax
asset, higher ongoing state taxes as a result of the April 2005 merger of the Michigan and
Wisconsin bank charters, and a fourth quarter 2005 adjustment in the reserve for taxes
payable.
 
 CRITICAL ACCOUNTING POLICIES
  Allowance for Loan Losses
  26




---



##### Table of Contents



27




---



##### Table of Contents



Pension and Postretirement Benefits
    28




---



##### Table of Contents



Derivative Financial Instruments and Hedge Accounting
   Income Tax Accounting
  
 RECENT ACCOUNTING PRONOUNCEMENTS
  
 RECENT DEVELOPMENTS
 Insurance
Settlement
   Accounting for Derivative Instruments and Hedging Activities
  29




---



##### Table of Contents



Securities Sale
  Southeast Michigan Initiative
  Significant Developments in 2004 and 2003
 Illinois Bank Sale
  Prepayment of FHLB Advances and Issuance of New FHLB Debt
  Replacement of Wealth Managements Broker/Dealer and Reorganization of the Golden Oak Funds
 Investment Center At Citizens Bank, Investment
Center at F&M Bank.
 30




---



##### Table of Contents



Sale of Credit Card Portfolio
  Wealth Management Strategic Alliances
  
 RESULTS OF OPERATIONS
 NET INTEREST INCOME
  31




---



##### Table of Contents



Table 2. Average Balances/Net Interest Income/Average Rates
 2005
    
    
    2004
    
    
    2003(Restated)
    
    
    
    
    
    
    
    
    
    
    (Restated)Year Ended December 31
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(in thousands)
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)
    
    
    Balance
    
    
    Interest (1)
    
    
    Rate (2)Earning AssetsMoney market investments
    
    $
    2,348
    
    
    $
    56
    
    
    
    2.38
    %
    
    $
    2,088
    
    
    $
    12
    
    
    
    0.57
    %
    
    $
    11,204
    
    
    $
    105
    
    
    
    0.94
    %Investment

securities (3):Taxable
    
    
    1,380,868
    
    
    
    58,514
    
    
    
    4.24
    
    
    
    1,470,490
    
    
    
    59,794
    
    
    
    4.07
    
    
    
    1,333,123
    
    
    
    58,944
    
    
    
    4.42Tax-exempt
    
    
    426,811
    
    
    
    20,789
    
    
    
    7.49
    
    
    
    418,829
    
    
    
    20,662
    
    
    
    7.59
    
    
    
    397,541
    
    
    
    20,124
    
    
    
    7.79Mortgage loans held for sale
    
    
    35,061
    
    
    
    1,901
    
    
    
    5.42
    
    
    
    32,646
    
    
    
    1,782
    
    
    
    5.46
    
    
    
    170,083
    
    
    
    8,568
    
    
    
    5.04Portfolio Loans (4):Commercial
    
    
    1,628,625
    
    
    
    98,030
    
    
    
    6.15
    
    
    
    1,597,667
    
    
    
    80,524
    
    
    
    5.17
    
    
    
    1,729,337
    
    
    
    87,219
    
    
    
    5.18Commercial real estate
    
    
    1,338,870
    
    
    
    85,102
    
    
    
    6.36
    
    
    
    1,239,169
    
    
    
    72,866
    
    
    
    5.88
    
    
    
    1,317,719
    
    
    
    82,787
    
    
    
    6.28Residential mortgage loans
    
    
    513,385
    
    
    
    28,611
    
    
    
    5.57
    
    
    
    487,634
    
    
    
    27,954
    
    
    
    5.73
    
    
    
    506,562
    
    
    
    32,036
    
    
    
    6.32Direct consumer
    
    
    1,171,567
    
    
    
    74,798
    
    
    
    6.38
    
    
    
    1,094,441
    
    
    
    61,454
    
    
    
    5.62
    
    
    
    898,499
    
    
    
    57,525
    
    
    
    6.40Indirect consumer
    
    
    840,833
    
    
    
    55,448
    
    
    
    6.59
    
    
    
    791,906
    
    
    
    53,231
    
    
    
    6.72
    
    
    
    688,333
    
    
    
    50,408
    
    
    
    7.32Total portfolio loans
    
    
    5,493,280
    
    
    
    341,989
    
    
    
    6.27
    
    
    
    5,210,817
    
    
    
    296,029
    
    
    
    5.72
    
    
    
    5,140,450
    
    
    
    309,975
    
    
    
    6.08Total earning assets (3)
    
    
    7,338,368
    
    
    
    423,249
    
    
    
    5.95
    
    
    
    7,134,870
    
    
    
    378,279
    
    
    
    5.49
    
    
    
    7,052,401
    
    
    
    397,716
    
    
    
    5.83Nonearning AssetsCash and due from banks
    
    
    158,826
    
    
    
    
    
    
    
    
    
    
    
    160,937
    
    
    
    
    
    
    
    
    
    
    
    165,778Bank premises and equipment
    
    
    121,277
    
    
    
    
    
    
    
    
    
    
    
    115,723
    
    
    
    
    
    
    
    
    
    
    
    111,059Investment security
fair value adjustment
    
    
    9,801
    
    
    
    
    
    
    
    
    
    
    
    29,495
    
    
    
    
    
    
    
    
    
    
    
    45,206Other nonearning assets
    
    
    269,471
    
    
    
    
    
    
    
    
    
    
    
    267,609
    
    
    
    
    
    
    
    
    
    
    
    255,348Assets of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,355
    
    
    
    
    
    
    
    
    
    
    
    183,061Allowance for loan losses
    
    
    (119,925
    )
    
    
    
    
    
    
    
    
    
    
    (123,155
    )
    
    
    
    
    
    
    
    
    
    
    (118,922
    )Total assets
    
    $
    7,777,818
    
    
    
    
    
    
    
    
    
    
    $
    7,684,834
    
    
    
    
    
    
    
    
    
    
    $
    7,693,931Interest-Bearing LiabilitiesDeposits:Interest-bearing demand
    
    
    1,035,579
    
    
    
    6,968
    
    
    
    0.67
    
    
    
    1,264,941
    
    
    
    9,452
    
    
    
    0.75
    
    
    
    1,284,903
    
    
    
    11,434
    
    
    
    0.89Savings deposits
    
    
    1,505,604
    
    
    
    22,197
    
    
    
    1.47
    
    
    
    1,397,290
    
    
    
    10,862
    
    
    
    0.78
    
    
    
    1,281,175
    
    
    
    8,633
    
    
    
    0.67Time deposits
    
    
    1,814,154
    
    
    
    55,989
    
    
    
    3.09
    
    
    
    1,716,919
    
    
    
    43,075
    
    
    
    2.51
    
    
    
    2,060,515
    
    
    
    60,701
    
    
    
    2.95Short-term borrowings
    
    
    812,642
    
    
    
    25,929
    
    
    
    3.19
    
    
    
    653,442
    
    
    
    9,574
    
    
    
    1.47
    
    
    
    454,339
    
    
    
    4,933
    
    
    
    1.09Long-term debt
    
    
    938,478
    
    
    
    36,417
    
    
    
    3.88
    
    
    
    936,050
    
    
    
    33,618
    
    
    
    3.59
    
    
    
    861,704
    
    
    
    31,310
    
    
    
    3.63Total interest-bearing
liabilities
    
    
    6,106,457
    
    
    
    147,500
    
    
    
    2.42
    
    
    
    5,968,642
    
    
    
    106,581
    
    
    
    1.79
    
    
    
    5,942,636
    
    
    
    117,011
    
    
    
    1.97Noninterest-Bearing Liabilities
and Shareholders EquityNoninterest-bearing demand
    
    
    931,053
    
    
    
    
    
    
    
    
    
    
    
    898,520
    
    
    
    
    
    
    
    
    
    
    
    851,722Other liabilities
    
    
    87,304
    
    
    
    
    
    
    
    
    
    
    
    78,018
    
    
    
    
    
    
    
    
    
    
    
    75,990Liabilities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,023
    
    
    
    
    
    
    
    
    
    
    
    191,523Shareholders equity
    
    
    653,004
    
    
    
    
    
    
    
    
    
    
    
    639,631
    
    
    
    
    
    
    
    
    
    
    
    632,060Total liabilities and
shareholders equity
    
    $
    7,777,818
    
    
    
    
    
    
    
    
    
    
    $
    7,684,834
    
    
    
    
    
    
    
    
    
    
    $
    7,693,931Net Interest Income
    
    
    
    
    
    $
    275,749
    
    
    
    
    
    
    
    
    
    
    $
    271,698
    
    
    
    
    
    
    
    
    
    
    $
    280,705Interest Spread(5)
    
    
    
    
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    
    
    
    
    3.70
    %    
    
    
    
    
    
    
    
    
    
    3.86
    %Contribution of noninterest bearing sources of funds
    
    
    
    
    
    
    
    
    
    
    0.41
    
    
    
    
    
    
    
    
    
    
    
    0.29
    
    
    
    
    
    
    
    
    
    
    
    0.31Net Interest Margin(5)(6)
    
    
    
    
    
    
    
    
    
    
    3.94
    %
    
    
    
    
    
    
    
    
    
    
    3.99
    %
    
    
    
    
    
    
    
    
    
    
    4.17
    %
 
 (1)
    
    Interest income is shown on an unadjusted basis and therefore does not include
taxable equivalent adjustments.(2)
    
    Average rates include taxable equivalent adjustments to interest income of $13.4
million, $13.2 million, and $13.3 million for the years ended December 31, 2005, 2004, 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
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




---



##### Table of Contents



Table 3. Analysis of Changes in Interest Income and Interest Expense
 2005 Compared to 2004
    
    
    2004 Compared to 2003 (Restated)Increase (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
    
    $
    44
    
    
    $
    42
    
    
    $
    2
    
    
    $
    (93
    )
    
    $
    (30
    )
    
    $
    (63
    )Investment securities:Taxable
    
    
    (1,280
    )
    
    
    2,455
    
    
    
    (3,735
    )
    
    
    850
    
    
    
    (4,949
    )
    
    
    5,799Tax-exempt
    
    
    127
    
    
    
    (264
    )
    
    
    391
    
    
    
    538
    
    
    
    (521
    )
    
    
    1,059Mortgage loans held for sale
    
    
    119
    
    
    
    (12
    )
    
    
    131
    
    
    
    (6,786
    )
    
    
    662
    
    
    
    (7,448
    )Loans:Commercial
    
    
    17,506
    
    
    
    15,938
    
    
    
    1,568
    
    
    
    (6,695
    )
    
    
    (287
    )
    
    
    (6,408
    )Commercial real estate
    
    
    12,236
    
    
    
    6,238
    
    
    
    5,998
    
    
    
    (9,921
    )
    
    
    (5,242
    )
    
    
    (4,679
    )Residential mortgage loans
    
    
    657
    
    
    
    (792
    )
    
    
    1,449
    
    
    
    (4,082
    )
    
    
    (2,917
    )
    
    
    (1,165
    )Direct consumer
    
    
    13,344
    
    
    
    8,871
    
    
    
    4,473
    
    
    
    3,929
    
    
    
    (7,737
    )
    
    
    11,666Indirect consumer
    
    
    2,217
    
    
    
    (907
    )
    
    
    3,124
    
    
    
    2,823
    
    
    
    (4,452
    )
    
    
    7,275Total portfolio loans
    
    
    45,960
    
    
    
    29,348
    
    
    
    16,612
    
    
    
    (13,946
    )
    
    
    (20,635
    )
    
    
    6,689Total
    
    
    44,970
    
    
    
    31,569
    
    
    
    13,401
    
    
    
    (19,437
    )
    
    
    (25,473
    )
    
    
    6,036Interest Expense:Deposits:Interest-bearing demand
    
    
    (2,484
    )
    
    
    (865
    )
    
    
    (1,619
    )
    
    
    (1,982
    )
    
    
    (1,810
    )
    
    
    (172
    )Savings
    
    
    11,335
    
    
    
    10,435
    
    
    
    900
    
    
    
    2,229
    
    
    
    1,393
    
    
    
    836Time
    
    
    12,914
    
    
    
    10,388
    
    
    
    2,526
    
    
    
    (17,626
    )
    
    
    (8,379
    )
    
    
    (9,247
    )Short-term borrowings
    
    
    16,355
    
    
    
    13,557
    
    
    
    2,798
    
    
    
    4,641
    
    
    
    2,050
    
    
    
    2,591Long-term debt
    
    
    2,799
    
    
    
    2,714
    
    
    
    85
    
    
    
    2,308
    
    
    
    (440
    )
    
    
    2,748Total
    
    
    40,919
    
    
    
    36,229
    
    
    
    4,690
    
    
    
    (10,430
    )
    
    
    (7,186
    )
    
    
    (3,244
    )Net Interest Income
    
    $
    4,051
    
    
    $
    (4,660
    )
    
    $
    8,711
    
    
    $
    (9,007
    )
    
    $
    (18,287
    )
    
    $
    9,280
 
 (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.
 2005 compared to 2004
  33




---



##### Table of Contents



2004 compared to 2003
     NONINTEREST INCOME
  34




---



##### Table of Contents



Noninterest Income
 Year Ended December 31,
    
    
    $ Change
    
    
    % Change(dollars in thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005-2004
    
    
    2004-2003
    
    
    2005-2004
    
    
    2004-2003(Restated)
    
    
    (Restated)Service charges on deposit accounts
    
    $
    35,409
    
    
    $
    34,618
    
    
    $
    29,074
    
    
    $
    791
    
    
    $
    5,544
    
    
    
    2.3
    %
    
    
    19.1
    %Trust fees
    
    
    18,445
    
    
    
    17,854
    
    
    
    17,527
    
    
    
    591
    
    
    
    327
    
    
    
    3.3
    
    
    
    1.9Mortgage and other loan income
    
    
    8,983
    
    
    
    9,547
    
    
    
    17,817
    
    
    
    (564
    )
    
    
    (8,270
    )
    
    
    (5.9
    )
    
    
    (46.4
    )Brokerage and investment fees
    
    
    7,803
    
    
    
    7,710
    
    
    
    7,375
    
    
    
    93
    
    
    
    335
    
    
    
    1.2
    
    
    
    4.5ATM network user fees
    
    
    4,355
    
    
    
    3,361
    
    
    
    3,384
    
    
    
    994
    
    
    
    (23
    )
    
    
    29.6
    
    
    
    (0.7
    )Bankcard fees
    
    
    3,804
    
    
    
    3,415
    
    
    
    3,008
    
    
    
    389
    
    
    
    407
    
    
    
    11.4
    
    
    
    13.5Financial services
    
    
    2,723
    
    
    
    2,357
    
    
    
    2,412
    
    
    
    366
    
    
    
    (55
    )
    
    
    15.5
    
    
    
    (2.3
    )Investment securities gains (losses)
    
    
    (8,927
    )
    
    
    (1,513
    )
    
    
    101
    
    
    
    (7,414
    )
    
    
    (1,614
    )
    
    NM
    
    
    
    Fair value change in CD swap derivatives
    
    
    (3,604
    )
    
    
    
    
    
    
    
    
    
    
    (3,604
    )
    
    
    
    
    
    
    
    
    
    NMOther
    
    
    11,517
    
    
    
    14,109
    
    
    
    12,355
    
    
    
    (2,592
    )
    
    
    1,754
    
    
    
    (18.4
    )
    
    
    14.2Total noninterest income
    
    $
    80,508
    
    
    $
    91,458
    
    
    $
    93,053
    
    
    $
    (10,950
    )
    
    $
    (1,595
    )
    
    
    (12.0
    )
    
    
    (1.7
    )
 
  2005 compared to 2004
    2004 compared to 2003
  35




---



##### Table of Contents



NONINTEREST EXPENSE
  Noninterest Expense
 Year Ended December 31,
    
    
    $ Change
    
    
    % Change(dollars in thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005-2004
    
    
    2004-2003
    
    
    2005-2004
    
    
    2004-2003(Restated)
    
    
    (Restated)Salaries and employee benefits
    
    $
    132,153
    
    
    $
    127,958
    
    
    $
    120,538
    
    
    $
    4,195
    
    
    $
    7,420
    
    
    
    3.3
    %
    
    
    6.2
    %Occupancy
    
    
    22,131
    
    
    
    19,865
    
    
    
    17,865
    
    
    
    2,266
    
    
    
    2,000
    
    
    
    11.4
    
    
    
    11.2Professional services
    
    
    17,279
    
    
    
    16,095
    
    
    
    17,307
    
    
    
    1,184
    
    
    
    (1,212
    )
    
    
    7.4
    
    
    
    (7.0
    )Equipment
    
    
    14,634
    
    
    
    14,252
    
    
    
    16,222
    
    
    
    382
    
    
    
    (1,970
    )
    
    
    2.7
    
    
    
    (12.1
    )Data processing services
    
    
    13,800
    
    
    
    13,131
    
    
    
    12,513
    
    
    
    669
    
    
    
    618
    
    
    
    5.1
    
    
    
    4.9Advertising and public relations
    
    
    7,853
    
    
    
    9,126
    
    
    
    5,663
    
    
    
    (1,273
    )
    
    
    3,463
    
    
    
    (13.9
    )
    
    
    61.2Postage and delivery
    
    
    6,213
    
    
    
    6,411
    
    
    
    6,711
    
    
    
    (198
    )
    
    
    (300
    )
    
    
    (3.1
    )
    
    
    (4.5
    )Telephone
    
    
    5,481
    
    
    
    5,940
    
    
    
    4,704
    
    
    
    (459
    )
    
    
    1,236
    
    
    
    (7.7
    )
    
    
    26.3Other loan expenses
    
    
    2,655
    
    
    
    3,964
    
    
    
    4,758
    
    
    
    (1,309
    )
    
    
    (794
    )
    
    
    (33.0
    )
    
    
    (16.7
    )Stationery and supplies
    
    
    3,091
    
    
    
    3,707
    
    
    
    3,444
    
    
    
    (616
    )
    
    
    263
    
    
    
    (16.6
    )
    
    
    7.6Intangible asset amortization
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,899
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prepayment penalty on FHLB advances
    
    
    
    
    
    
    17,959
    
    
    
    
    
    
    
    (17,959
    )
    
    
    17,959
    
    
    
    (100.0
    )
    
    
    100.0Other
    
    
    14,853
    
    
    
    18,971
    
    
    
    16,242
    
    
    
    (4,118
    )
    
    
    2,729
    
    
    
    (21.7
    )
    
    
    16.8Total noninterest expense
    
    $
    243,042
    
    
    $
    260,278
    
    
    $
    228,866
    
    
    $
    (17,236
    )
    
    $
    31,412
    
    
    
    (6.6
    )
    
    
    13.7
 2005 compared to 2004
    36




---



##### Table of Contents



2004 compared to 2003
          FEDERAL AND STATE INCOME TAXES
  37




---



##### Table of Contents



LINE OF BUSINESS RESULTS
  Net Income(in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Commercial Banking
    
    $
    43,840
    
    
    $
    34,141
    
    
    $
    18,664Consumer Banking
    
    
    39,762
    
    
    
    33,102
    
    
    
    32,653Wealth Management
    
    
    2,165
    
    
    
    1,028
    
    
    
    227Other
    
    
    (5,242
    )
    
    
    (6,592
    )
    
    
    12,965Income from continuing operations
    
    
    80,525
    
    
    
    61,679
    
    
    
    64,509Income from discontinued operations
    
    
    
    
    
    
    14,418
    
    
    
    1,442Net income
    
    $
    80,525
    
    
    $
    76,097
    
    
    $
    65,951
 2005 compared to 2004
    38




---



##### Table of Contents



2004 compared to 2003
    39




---



##### Table of Contents



SUBSEQUENT EVENTS
 Strategic Business Alliances for the Mortgage Operations, Secondary Marketing and Title
Services Functions
    Estimate
of Charges  2006First
    
    
    Second
    
    
    Third
    
    
    FourthMajor Cost Category
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    TotalEmployee Separation
    
    $
    0.2
    
    
    $
    0.2
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    0.4Other
    
    
    -0-
    
    
    
    -0-
    
    
    $
    0.1
    
    
    $
    0.2
    
    
    $
    0.3Total
    
    $
    0.2
    
    
    $
    0.2
    
    
    $
    0.1
    
    
    $
    0.2
    
    
    $
    0.7
  Consolidation of the Consumer and Commercial Loan Operations Functions
   Estimate
of Charges  2006First
    
    
    Second
    
    
    Third
    
    
    FourthMajor Cost Category
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    TotalEmployee Separation
    
    $
    0.2
    
    
    $
    0.1
    
    
    
    -0-
    
    
    $
    0.1
    
    
    $
    0.4Other
    
    $
    0.1
    
    
    $
    0.1
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    0.2Total
    
    $
    0.3
    
    
    $
    0.2
    
    
    
    -0-
    
    
    $
    0.1
    
    
    $
    0.6
  
 FINANCIAL CONDITION
 SUMMARY
  2005
    
    
    2004
    
    
    2003(Restated)
    
    (Restated)Average total assets (in millions)
    
    $
    7,777.8
    
    
    $
    7,585.5
    
    
    $
    7,510.9Average short term borrowings (in millions)
    
    
    812.6
    
    
    
    653.4
    
    
    
    454.3Average long term debt (in millions)
    
    
    938.5
    
    
    
    936.0
    
    
    
    861.7Average earning assets as a percent of average assets
    
    
    94.5
    %
    
    
    94.4
    %
    
    
    94.5
    %Average investment securities and money market investments as a
percent of average earning assets
    
    
    24.8
    
    
    
    26.8
    
    
    
    25.2Average portfolio loans as a percent of average earning assets
    
    
    74.8
    
    
    
    72.7
    
    
    
    72.4Interest-bearing deposits as a percent of average interest-bearing liabilities
    
    
    71.3
    
    
    
    73.4
    
    
    
    77.9Ratio of average noninterest bearing deposits to average deposits
    
    
    17.6
    
    
    
    17.0
    
    
    
    15.5
  AVERAGE TOTAL ASSETS
  INVESTMENT SECURITIES AND MONEY MARKET INVESTMENTS
   40




---



##### Table of Contents



Investment SecuritiesDecember 31 (in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)Available for Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    Federal agenciesMortgage-backed
    
    
    811,898
    
    
    
    1,056,208
    
    
    
    1,130,696Other agencies
    
    
    310,408
    
    
    
    291,991
    
    
    
    256,727State and municipalTaxable
    
    
    5,107
    
    
    
    4,698
    
    
    
    7,948Tax-exempt
    
    
    373,128
    
    
    
    391,180
    
    
    
    419,973Mortgage and asset-backed
    
    
    280
    
    
    
    2,669
    
    
    
    4,099Other securities
    
    
    1,176
    
    
    
    388
    
    
    
    6,021Total
    
    $
    1,501,997
    
    
    $
    1,747,134
    
    
    $
    1,825,464Held to Maturity:State and municipal  tax exempt
    
    $
    82,431
    
    
    $
    54,035
    
    
    $
    19,857Other Investments:FHLB and Federal Reserve stock
    
    $
    55,911
    
    
    $
    67,390
    
    
    $
    64,884Total Investments
    
    $
    1,640,339
    
    
    $
    1,868,559
    
    
    $
    1,910,205
       41




---



##### Table of Contents



Table 4. Maturities and Average Yields of Securities At December 31, 2005
 U.S. Treasury andFederal Agency(1)
    
    
    
    
    
    
    State and Municipal(1), (2)
    
    
    
    
    
    
    Other(1)
    
    
    
    
    
    
    Total(4)Amortized
    
    
    Fair
    
    
    
    
    
    
    Amortized
    
    
    Fair
    
    
    
    
    
    
    Amortized
    
    
    Fair
    
    
    
    
    
    
    Amortized
    
    
    Fair(in thousands)
    
    Cost
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    YieldAvailable for Sale:Due within one year
    
    $
    315,926
    
    
    $
    314,688
    
    
    
    4.64
    %
    
    $
    26,933
    
    
    $
    27,072
    
    
    
    7.92
    %
    
    $
    1,072
    
    
    $
    1,072
    
    
    
    4.17
    %
    
    $
    343,931
    
    
    $
    342,832
    
    
    
    4.90
    %One to five years
    
    
    702,145
    
    
    
    691,592
    
    
    
    4.62
    
    
    
    124,791
    
    
    
    130,467
    
    
    
    7.92
    
    
    
    3
    
    
    
    4
    
    
    
    5.88
    
    
    
    826,939
    
    
    
    822,063
    
    
    
    5.12Five to ten years
    
    
    92,583
    
    
    
    91,213
    
    
    
    4.73
    
    
    
    125,007
    
    
    
    130,218
    
    
    
    7.36
    
    
    
    
    
    
    
    
    
    
    
    0.00
    
    
    
    217,590
    
    
    
    221,431
    
    
    
    6.24After ten years
    
    
    24,960
    
    
    
    24,813
    
    
    
    4.98
    
    
    
    88,122
    
    
    
    90,478
    
    
    
    6.81
    
    
    
    277
    
    
    
    380
    
    
    
    5.80
    
    
    
    113,359
    
    
    
    115,671
    
    
    
    6.401,135,614
    
    
    
    1,122,306
    
    
    
    4.64
    
    
    
    364,853
    
    
    
    378,235
    
    
    
    7.46
    
    
    
    1,352
    
    
    
    1,456
    
    
    
    4.51
    
    
    $
    1,501,819
    
    
    $
    1,501,997
    
    
    
    5.33Average maturity(3)
    
    
    
    
    
    3.20
    yrs.
    
    
    
    
    
    
    
    
    
    6.73
    yrs.
    
    
    
    
    
    
    
    
    
    3.06
    yrs.
    
    
    
    
    
    
    
    
    
    4.06
    yrs.Held to Maturity:Due within one year
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    0.00
    %One to five years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.00Five to ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,008
    
    
    
    1,662
    
    
    
    5.52
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,008
    
    
    
    1,662
    
    
    
    5.52After ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,423
    
    
    
    80,702
    
    
    
    6.25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,423
    
    
    
    80,702
    
    
    
    6.2582,431
    
    
    
    82,364
    
    
    
    6.23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,431
    
    
    
    82,364
    
    
    
    6.23Average maturity(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    13.25
    yrs.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.25
    yrs.
 
 (1)
    
    Maturities for collateralized mortgage obligations, mortgage-backed securities, and asset-backed securities are based upon a weighted average life basis. Maturities for state and municipal
securities incorporate early call features, if applicable. Non-mortgage Federal Agency securities are based upon stated contractual maturity.(2)
    
    Yields are based on amortized cost and for state and municipal securities are calculated on a tax equivalent basis using a 35% tax rate.(3)
    
    Average maturity information excludes holdings of corporate stocks with no stated maturity.(4)
    
    This table excludes stock holdings of the Federal Home Loan Bank and Federal Reserve.  LOAN PORTFOLIO
  Portfolio Loans
  42




---



##### Table of Contents



Table 5. Portfolio Loans (1)
 (in millions)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Restated)
    
    (Restated)
    
    (Restated)Portfolio Loans Outstanding at December 31Commercial
    
    $
    1,688.1
    
    
    $
    1,633.8
    
    
    $
    1,645.4
    
    
    $
    1,848.1
    
    
    $
    1,949.2Commercial real estate
    
    
    1,190.4
    
    
    
    1,153.0
    
    
    
    1,194.2
    
    
    
    1,212.3
    
    
    
    1,230.5Real estate construction
    
    
    211.7
    
    
    
    102.9
    
    
    
    89.9
    
    
    
    168.4
    
    
    
    132.2Residential mortgage loans
    
    
    539.8
    
    
    
    508.2
    
    
    
    492.7
    
    
    
    622.2
    
    
    
    889.7Direct consumer
    
    
    1,142.0
    
    
    
    1,169.6
    
    
    
    998.3
    
    
    
    835.7
    
    
    
    794.7Indirect consumer
    
    
    844.1
    
    
    
    825.9
    
    
    
    743.9
    
    
    
    656.0
    
    
    
    673.5Total
    
    $
    5,616.1
    
    
    $
    5,393.4
    
    
    $
    5,164.4
    
    
    $
    5,342.7
    
    
    $
    5,669.8
 Portfolio Loan Maturities and Interest Rate Sensitivity at December 31, 2005
 Within
    
    
    One to
    
    
    AfterOne Year
    
    
    Five Years
    
    
    Five Years
    
    
    TotalCommercial
    
    $
    921.7
    
    
    $
    666.6
    
    
    $
    99.8
    
    
    $
    1,688.1Commercial real estate
    
    
    248.5
    
    
    
    885.1
    
    
    
    56.8
    
    
    
    1,190.4Real estate construction
    
    
    100.8
    
    
    
    100.3
    
    
    
    10.6
    
    
    
    211.7Total
    
    $
    1,271.0
    
    
    $
    1,652.0
    
    
    $
    167.2
    
    
    $
    3,090.2Loans above:With floating interest rates
    
    $
    907.2
    
    
    $
    665.0
    
    
    $
    96.2
    
    
    $
    1,668.4With predetermined interest rates
    
    
    363.8
    
    
    
    987.0
    
    
    
    71.0
    
    
    
    1,421.8Total
    
    $
    1,271.0
    
    
    $
    1,652.0
    
    
    $
    167.2
    
    
    $
    3,090.2
 
 (1)
    
    Excludes mortgage loans held for sale  Loan Origination/ Risk Management.
 43




---



##### Table of Contents



Commercial.
  Commercial Real Estate.
  Real Estate Construction.
 44




---



##### Table of Contents



Residential Mortgage Loans .
   Direct Consumer.
  Indirect Consumer.
 45




---



##### Table of Contents



Provision and Allowance for Loan Losses
 .
 46




---



##### Table of Contents



Table 6. Summary of Loan Loss Experience
 Year Ended December 31 (dollars in thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)Allowance for loan losses  January 1
    
    $
    122,184
    
    
    $
    121,350
    
    
    $
    104,859
    
    
    $
    74,355
    
    
    $
    73,211Transfer to reserve for commitments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,327
    
    
    
    560Provision for loan losses
    
    
    1,109
    
    
    
    21,609
    
    
    
    62,008
    
    
    
    117,331
    
    
    
    25,232Charge-offs:Commercial
(3)
    
    
    12,920
    
    
    
    24,582
    
    
    
    47,683
    
    
    
    80,076
    
    
    
    17,027Residential mortgage
    
    
    1,152
    
    
    
    1,060
    
    
    
    1,233
    
    
    
    2,027
    
    
    
    189Direct consumer
    
    
    5,290
    
    
    
    5,864
    
    
    
    6,414
    
    
    
    7,346
    
    
    
    6,565Indirect consumer
    
    
    9,485
    
    
    
    7,565
    
    
    
    9,243
    
    
    
    8,710
    
    
    
    7,512Total charge-offs
    
    
    28,847
    
    
    
    39,071
    
    
    
    64,573
    
    
    
    98,159
    
    
    
    31,293Recoveries:Commercial
(3)
    
    
    17,721
    
    
    
    13,960
    
    
    
    14,094
    
    
    
    5,283
    
    
    
    1,903Residential mortgage
    
    
    69
    
    
    
    70
    
    
    
    35
    
    
    
    11
    
    
    
    47Direct consumer
    
    
    1,419
    
    
    
    1,669
    
    
    
    1,847
    
    
    
    1,660
    
    
    
    1,516Indirect consumer
    
    
    2,745
    
    
    
    2,597
    
    
    
    3,080
    
    
    
    3,051
    
    
    
    3,179Total recoveries
    
    
    21,954
    
    
    
    18,296
    
    
    
    19,056
    
    
    
    10,005
    
    
    
    6,645Net charge-offs
    
    
    6,893
    
    
    
    20,775
    
    
    
    45,517
    
    
    
    88,154
    
    
    
    24,648Allowance for loan losses  December 31
    
    $
    116,400
    
    
    $
    122,184
    
    
    $
    121,350
    
    
    $
    104,859
    
    
    $
    74,355Allowance
for losses on lending-related commitments 
December 31(2)
    
    $
    3,023
    
    
    $
    2,833
    
    
    $
    2,654
    
    
    $
    2,654
    
    
    $
    3,981Portfolio
loans outstanding at year-end (1)
    
    $
    5,616,119
    
    
    $
    5,393,365
    
    
    $
    5,164,416
    
    
    $
    5,342,669
    
    
    $
    5,669,755Average
portfolio loans outstanding (1)
    
    
    5,493,280
    
    
    
    5,210,817
    
    
    
    5,140,450
    
    
    
    5,467,139
    
    
    
    5,851,694Ratio of allowance for loan losses to
loans outstanding at year-end
    
    
    2.07
    %
    
    
    2.27
    %
    
    
    2.35
    %
    
    
    1.96
    %
    
    
    1.31
    %Ratio of net loans charged off as a percentage
of average loans outstanding
    
    
    0.13
    
    
    
    0.40
    
    
    
    0.89
    
    
    
    1.61
    
    
    
    0.42
 
 (1)
    
    Balances exclude mortgage loans held for sale.(2)
    
    During the fourth quarter of 2003, Citizens reclassified $2.7 million from the allowance for loan losses related to unfunded loan commitments
liabilities. Prior period amounts were restated to conform to the new presentation.(3)
    
    The Commercial category includes both commercial and commercial real estate loans.    47




---



##### Table of Contents



48




---



##### Table of Contents



Table 7. Allocation of the Allowance for Loan Losses (1)
 2003
    
    
    2002
    
    
    20012005
    
    
    2004
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)% 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)
    
    $
    5.1
    
    
    
    
    
    
    $
    15.3
    
    
    
    
    
    
    $
    18.0
    
    
    
    
    
    
    $
    18.6
    
    
    
    
    
    
    $
    8.8Risk allocated allowances:Commercial (2)
    
    
    55.2
    
    
    
    55.1
    %
    
    
    59.2
    
    
    
    53.6
    %
    
    
    68.3
    
    
    
    56.7
    %
    
    
    62.0
    
    
    
    60.4
    %
    
    
    28.5
    
    
    
    58.4
    %Residential mortgage
    
    
    6.3
    
    
    
    9.6
    
    
    
    6.2
    
    
    
    9.4
    
    
    
    4.7
    
    
    
    9.6
    
    
    
    2.3
    
    
    
    11.7
    
    
    
    3.3
    
    
    
    15.7Direct Consumer
    
    
    12.4
    
    
    
    20.3
    
    
    
    6.9
    
    
    
    21.7
    
    
    
    6.3
    
    
    
    19.3
    
    
    
    7.1
    
    
    
    15.6
    
    
    
    6.9
    
    
    
    14.0Indirect Consumer
    
    
    27.5
    
    
    
    15.0
    
    
    
    12.3
    
    
    
    15.3
    
    
    
    8.6
    
    
    
    14.4
    
    
    
    8.0
    
    
    
    12.3
    
    
    
    8.6
    
    
    
    11.9Total risk allocated allowance
    
    
    101.4
    
    
    
    
    
    
    
    84.6
    
    
    
    
    
    
    
    87.9
    
    
    
    
    
    
    
    79.4
    
    
    
    
    
    
    
    47.3Total allocated
    
    
    106.5
    
    
    
    100.0
    %
    
    
    99.9
    
    
    
    100.0
    %
    
    
    105.9
    
    
    
    100.0
    %
    
    
    98.0
    
    
    
    100.0
    %
    
    
    56.1
    
    
    
    100.0
    %General valuation allowances
    
    
    9.9
    
    
    
    
    
    
    
    22.3
    
    
    
    
    
    
    
    15.4
    
    
    
    
    
    
    
    6.8
    
    
    
    
    
    
    
    18.2Total
    
    $
    116.4
    
    
    
    
    
    
    $
    122.2
    
    
    
    
    
    
    $
    121.3
    
    
    
    
    
    
    $
    104.8
    
    
    
    
    
    
    $
    74.3
 
 (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.
  49




---



##### Table of Contents



NONPERFORMING ASSETS
  Table 8. Nonperforming Assets and Past Due Loans
 December 31 (in thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Restated)
    
    (Restated)
    
    (Restated)Nonperforming Loans(1)(2)NonaccrualLess than 30 days past due
    
    $
    4,206
    
    
    $
    2,761
    
    
    $
    7,721
    
    
    $
    13,030
    
    
    $
    6,451From 30 to 89 days past due
    
    
    1,136
    
    
    
    3,118
    
    
    
    4,450
    
    
    
    23,157
    
    
    
    4,48790 or more days past due
    
    
    26,798
    
    
    
    36,940
    
    
    
    55,606
    
    
    
    45,848
    
    
    
    55,810Total
    
    
    32,140
    
    
    
    42,819
    
    
    
    67,777
    
    
    
    82,035
    
    
    
    66,74890 days past due and still accruing
    
    
    385
    
    
    
    40
    
    
    
    345
    
    
    
    859
    
    
    
    4,165Restructured (1)
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    337Total nonperforming loans
    
    
    32,525
    
    
    
    42,901
    
    
    
    68,122
    
    
    
    82,894
    
    
    
    71,250Other Repossessed Assets Acquired
    
    
    7,351
    
    
    
    7,946
    
    
    
    7,771
    
    
    
    7,918
    
    
    
    5,836Total nonperforming assets
    
    $
    39,876
    
    
    $
    50,847
    
    
    $
    75,893
    
    
    $
    90,812
    
    
    $
    77,086Nonperforming assets as a percent of portfolio loans
plus other repossessed assets acquired
    
    
    0.71
    %
    
    
    0.94
    %
    
    
    1.47
    %
    
    
    1.70
    %
    
    
    1.36
    %Nonperforming assets as a percent of total assets
    
    
    0.51
    
    
    
    0.66
    
    
    
    1.01
    
    
    
    1.24
    
    
    
    1.03Nonperforming Loans by TypeCommercial
    
    $
    12,265
    
    
    $
    13,816
    
    
    $
    38,553
    
    
    $
    47,744
    
    
    $
    34,925Commercial real estate
    
    
    5,068
    
    
    
    14,464
    
    
    
    15,943
    
    
    
    18,665
    
    
    
    11,052Residential mortgage
    
    
    8,412
    
    
    
    8,643
    
    
    
    9,161
    
    
    
    10,865
    
    
    
    17,293Direct Consumer
    
    
    4,326
    
    
    
    3,527
    
    
    
    3,215
    
    
    
    3,817
    
    
    
    5,098Indirect Consumer
    
    
    2,454
    
    
    
    2,451
    
    
    
    1,250
    
    
    
    1,803
    
    
    
    2,882Total
    
    $
    32,525
    
    
    $
    42,901
    
    
    $
    68,122
    
    
    $
    82,894
    
    
    $
    71,250
 
 (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 2005 for nonaccrual and restructured loans, as of December 31, 2005,
assuming interest had been accrued throughout the year in accordance with original terms was $2.5 million. The comparable 2004
and 2003 totals were $3.8 million, and $6.1 million, respectively. Interest collected on these loans and included in income was
$0.6 million in 2005, $2.0 million in 2004 and $3.9 million in 2003. Therefore, on a net basis, total income foregone due to
these loans was $1.9 million in 2005, $1.8 million in 2004 and $2.2 million in 2003.  50




---



##### Table of Contents



Impaired Loan Information
 Valuation Reserve(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Balances  December 31Impaired loans with valuation reserve
    
    $
    7,989
    
    
    $
    32,654
    
    
    $
    5,059
    
    
    $
    15,315Impaired loans with no valuation reserve
    
    
    908
    
    
    
    2,389
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    8,897
    
    
    $
    35,043
    
    
    $
    5,059
    
    
    $
    15,315Impaired loans on nonaccrual basis
    
    $
    4,728
    
    
    $
    13,010
    
    
    $
    2,747
    
    
    $
    4,541Impaired loans on accrual basis
    
    
    4,169
    
    
    
    22,033
    
    
    
    2,312
    
    
    
    10,774Total impaired loans
    
    $
    8,897
    
    
    $
    35,043
    
    
    $
    5,059
    
    
    $
    15,315Average balance for the year
    
    $
    24,398
    
    
    $
    54,023Interest income recognized for the year
    
    
    1,057
    
    
    
    2,144Cash collected applied to outstanding principal
    
    
    393
    
    
    
    788
 51




---



##### Table of Contents



DEPOSITS
  Table 9. Average Deposits
 2004
    
    
    20032005
    
    
    (Restated)
    
    
    (Restated)Year Ended December 31
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average(dollars in thousands)
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateNoninterest-bearing demand
    
    $
    931,053
    
    
    
    
    %
    
    $
    898,520
    
    
    
    
    %
    
    $
    851,722
    
    
    
    
    %Interest-bearing demand
    
    
    1,035,579
    
    
    
    0.67
    
    
    
    1,264,941
    
    
    
    0.75
    
    
    
    1,284,903
    
    
    
    0.89Savings
    
    
    1,505,604
    
    
    
    1.47
    
    
    
    1,397,290
    
    
    
    0.78
    
    
    
    1,281,175
    
    
    
    0.67Time
    
    
    1,814,154
    
    
    
    3.09
    
    
    
    1,716,919
    
    
    
    2.51
    
    
    
    2,060,515
    
    
    
    2.95Total
    
    $
    5,286,390
    
    
    
    1.61
    
    
    $
    5,277,670
    
    
    
    1.20
    
    
    $
    5,478,315
    
    
    
    1.47
   Table 10. Maturity of Time Certificates of Deposit of $100,000 or More At December 31, 2005
 (in thousands)Three months or less
    
    $
    427,679After three but within six months
    
    
    125,660After six but within twelve months
    
    
    314,124After twelve months
    
    
    224,948Total
    
    $
    1,092,411
  BORROWED FUNDS
  52




---



##### Table of Contents



CAPITAL RESOURCES
  Regulatory MinimumWell-
    
    December 31,Required
    
    Capitalized
    
    2005
    
    2004
    
    2003Risk based:Tier 1 capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    9.94
    %
    
    
    9.96
    %
    
    
    9.80
    %Total capital
    
    
    8.00
    
    
    
    10.00
    
    
    
    13.22
    
    
    
    13.32
    
    
    
    13.23Tier 1 leverage
    
    
    4.00
    
    
    
    5.00
    
    
    
    7.98
    
    
    
    7.84
    
    
    
    7.45
   53




---



##### Table of Contents



CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
 Contractual Obligations
  Table 11. Contractual Obligations
 Minimum Payments Due by PeriodYear Ended December 31, 2005
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More than(in thousands)
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 yearsDeposits with stated maturities
    
    $
    2,172,888
    
    
    $
    1,593,454
    
    
    $
    395,197
    
    
    $
    123,122
    
    
    $
    61,115Federal Home Loan Bank borrowings
    
    
    859,483
    
    
    
    255,927
    
    
    
    471,820
    
    
    
    27,623
    
    
    
    104,113Subordinated debt
    
    
    146,626
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,626Capital lease/mortgage debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    35,315
    
    
    
    11,689
    
    
    
    13,972
    
    
    
    5,629
    
    
    
    4,025Operating leases and non-cancelable contracts
    
    
    19,240
    
    
    
    3,594
    
    
    
    4,542
    
    
    
    3,367
    
    
    
    7,737Total
    
    $
    3,233,552
    
    
    $
    1,864,664
    
    
    $
    885,531
    
    
    $
    159,741
    
    
    $
    323,616
  Off-Balance Sheet Arrangements
     54




---



##### Table of Contents



Table 12. Off Balance Sheet Financial Instruments
 Expected Expiration Dates by PeriodTotal
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More than
    
    
    December 31,(in thousands)
    
    2005
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 years
    
    
    2004Financial instruments whose
contract amounts represent credit risk:Loan commitments to extend credit
    
    $
    1,762,259
    
    
    $
    1,118,354
    
    
    $
    163,115
    
    
    $
    18,906
    
    
    $
    461,884
    
    
    $
    1,769,968Standby letters of credit
    
    
    56,296
    
    
    
    43,505
    
    
    
    12,372
    
    
    
    419
    
    
    
    
    
    
    
    47,554Commercial letters of credit
    
    
    223,269
    
    
    
    22,451
    
    
    
    167,986
    
    
    
    29,268
    
    
    
    3,564
    
    
    
    207,460Financial instruments subject to interest rate risk:Receive fixed and pay fixed swaps
    
    
    654,000
    
    
    
    205,000
    
    
    
    214,000
    
    
    
    40,000
    
    
    
    195,000
    
    
    
    289,000Customer initiated swaps and corresponding offsets
    
    
    233,104
    
    
    
    
    
    
    
    
    
    
    
    182,086
    
    
    
    51,018
    
    
    
    142,674Residential mortgage loan applications
with agreed-upon rates
    
    
    17,897
    
    
    
    17,897
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,165Forward commitments to sell residential mortgage loans
    
    
    22,000
    
    
    
    22,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,000Total
    
    $
    2,968,825
    
    
    $
    1,429,207
    
    
    $
    557,473
    
    
    $
    270,679
    
    
    $
    711,466
    
    
    $
    2,531,821
   55




---



##### Table of Contents



LIQUIDITY AND DEBT CAPACITY
       56




---



##### Table of Contents



INTEREST RATE RISK
  57




---



##### Table of Contents



Table 13. Interest Rate Sensitivity
 Total0 - 3
    
    
    4 - 6
    
    
    7 - 12
    
    
    Within
    
    
    1 - 5
    
    
    Over(dollars in millions)
    
    Months
    
    
    Months
    
    
    Months
    
    
    1 Year
    
    
    Years
    
    
    5 Years
    
    
    TotalDecember 31, 2005Rate Sensitive Assets(1)Portfolio loans (2)
    
    $
    2,623.7
    
    
    $
    240.4
    
    
    $
    432.7
    
    
    $
    3,296.8
    
    
    $
    1,915.8
    
    
    $
    403.5
    
    
    $
    5,616.1Mortgage loans held for sale
    
    
    16.3
    
    
    
    
    
    
    
    
    
    
    
    16.3
    
    
    
    
    
    
    
    
    
    
    
    16.3Investment securities
    
    
    58.8
    
    
    
    67.1
    
    
    
    133.0
    
    
    
    258.9
    
    
    
    952.0
    
    
    
    429.4
    
    
    
    1,640.3Short-term investments
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1.5Total
    
    $
    2,700.3
    
    
    $
    307.5
    
    
    $
    565.7
    
    
    $
    3,573.5
    
    
    $
    2,867.8
    
    
    $
    832.9
    
    
    $
    7,274.2Rate Sensitive LiabilitiesDeposits (3)
    
    $
    1,503.7
    
    
    $
    357.9
    
    
    $
    813.4
    
    
    $
    2,675.0
    
    
    $
    1,037.3
    
    
    $
    792.5
    
    
    $
    4,504.8Other interest bearing liabilities
    
    
    525.3
    
    
    
    120.0
    
    
    
    135.9
    
    
    
    781.2
    
    
    
    549.4
    
    
    
    204.6
    
    
    
    1,535.2Total
    
    $
    2,029.0
    
    
    $
    477.9
    
    
    $
    949.3
    
    
    $
    3,456.2
    
    
    $
    1,586.7
    
    
    $
    997.1
    
    
    $
    6,040.0Derivatives
    
    $
    (396.0
    )
    
    $
    (15.0
    )
    
    $
    170.0
    
    
    $
    (241.0
    )
    
    $
    46.0
    
    
    $
    195.0
    
    
    $
    Period GAP (4)
    
    $
    275.3
    
    
    $
    (185.4
    )
    
    $
    (213.6
    )
    
    $
    (123.7
    )
    
    $
    1,327.1
    
    
    $
    30.8
    
    
    $
    1,234.2Cumulative GAP
    
    
    275.3
    
    
    
    89.9
    
    
    
    (123.7
    )
    
    
    
    
    
    
    1,203.4
    
    
    
    1,234.2December 31, 2004Rate Sensitive Assets(1)Portfolio
loans (2)
    
    $
    2,605.1
    
    
    $
    244.2
    
    
    $
    381.7
    
    
    $
    3,231.0
    
    
    $
    1,851.0
    
    
    $
    311.4
    
    
    $
    5,393.4Mortgage loans held for sale
    
    
    28.0
    
    
    
    
    
    
    
    
    
    
    
    28.0
    
    
    
    
    
    
    
    
    
    
    
    28.0Investment securities
    
    
    103.3
    
    
    
    85.0
    
    
    
    152.8
    
    
    
    341.1
    
    
    
    1,069.8
    
    
    
    457.7
    
    
    
    1,868.6Short-term investments
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    2.2Total
    
    $
    2,738.6
    
    
    $
    329.2
    
    
    $
    534.5
    
    
    $
    3,602.3
    
    
    $
    2,920.8
    
    
    $
    769.1
    
    
    $
    7,292.2Rate Sensitive LiabilitiesDeposits (3)
    
    $
    1,850.9
    
    
    $
    250.9
    
    
    $
    407.1
    
    
    $
    2,508.9
    
    
    $
    1,094.2
    
    
    $
    797.8
    
    
    $
    4,400.9Other interest bearing liabilities
    
    
    819.9
    
    
    
    145.0
    
    
    
    0.6
    
    
    
    965.5
    
    
    
    529.3
    
    
    
    179.9
    
    
    
    1,674.7Total
    
    $
    2,670.8
    
    
    $
    395.9
    
    
    $
    407.7
    
    
    $
    3,474.4
    
    
    $
    1,623.5
    
    
    $
    977.7
    
    
    $
    6,075.6Derivatives
    
    $
    (71.0
    )
    
    $
    (10.0
    )
    
    $
    
    
    
    $
    (81.0
    )
    
    $
    (94.0
    )
    
    $
    175.0
    
    
    $
    Period GAP (4)
    
    $
    (3.2
    )
    
    $
    (76.7
    )
    
    $
    126.8
    
    
    $
    46.9
    
    
    $
    1,203.3
    
    
    $
    (33.6
    )
    
    $
    1,216.6Cumulative GAP
    
    
    (3.2
    )
    
    
    (79.9
    )
    
    
    46.9
    
    
    
    
    
    
    
    1,250.2
    
    
    
    1,216.6
 
 (1)
    
    Incorporates prepayment projections for certain assets which
may shorten the time frame for repricing or maturity compared to
contractual runoff.(2)
    
    Balances exclude mortgage loans held for sale.(3)
    
    Includes interest bearing deposits without contractual maturities of $1.1 billion in the less than one year category and $1.3 over one year category as of December 31, 2005. The same amounts as of December 31, 2004 were $1.5 billion and $1.3 respectively. These amounts reflect managements assumptions regarding deposit repricing behavior and tenor.(4)
    
    GAP is the excess of rate sensitive assets (liabilities).   58




---



##### Table of Contents



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




---



##### Table of Contents



Consolidated Balance Sheets
 Citizens Banking Corporation and Subsidiaries
 December 31,(in thousands, except share amounts)
    
    2005
    
    
    2004AssetsCash and due from banks
    
    $
    194,748
    
    
    $
    153,474Interest-bearing deposits with banks
    
    
    380
    
    
    
    1,769Investment Securities:Available-for-sale: (amortized cost $1,501,819 in 2005;
$1,719,975 in 2004)U.S. Treasury and federal agency securities
    
    
    1,122,306
    
    
    
    1,348,199State and municipal securities
    
    
    378,235
    
    
    
    395,878Other securities
    
    
    1,456
    
    
    
    3,057Held-to-maturity:State and municipal securities (fair value of
$82,364 and $54,749, respectively)
    
    
    82,431
    
    
    
    54,035FHLB and Federal Reserve stock
    
    
    55,911
    
    
    
    67,390Total investment securities
    
    
    1,640,339
    
    
    
    1,868,559Mortgage loans held for sale
    
    
    16,252
    
    
    
    28,038Loans:Commercial
    
    
    1,688,079
    
    
    
    1,633,698Commercial real estate
    
    
    1,402,128
    
    
    
    1,255,913Residential mortgage loans
    
    
    539,824
    
    
    
    508,234Direct consumer
    
    
    1,142,002
    
    
    
    1,169,618Indirect consumer
    
    
    844,086
    
    
    
    825,902Total loans
    
    
    5,616,119
    
    
    
    5,393,365Less: Allowance for loan losses
    
    
    (116,400
    )
    
    
    (122,184
    )Net loans
    
    
    5,499,719
    
    
    
    5,271,181Premises and equipment
    
    
    121,730
    
    
    
    117,944Goodwill
    
    
    54,527
    
    
    
    54,527Other intangible assets
    
    
    11,133
    
    
    
    14,033Bank owned life insurance
    
    
    84,435
    
    
    
    82,613Other assets
    
    
    128,620
    
    
    
    113,895Total assets
    
    $
    7,751,883
    
    
    $
    7,706,033LiabilitiesNoninterest-bearing deposits
    
    $
    969,074
    
    
    $
    898,820Interest-bearing demand deposits
    
    
    891,313
    
    
    
    1,150,332Savings deposits
    
    
    1,437,024
    
    
    
    1,638,295Time deposits
    
    
    2,176,428
    
    
    
    1,612,313Total deposits
    
    
    5,473,839
    
    
    
    5,299,760Federal funds purchased and securities sold
under agreements to repurchase
    
    
    505,879
    
    
    
    671,660Other short-term borrowings
    
    
    23,242
    
    
    
    53,114Other liabilities
    
    
    86,351
    
    
    
    77,276Long-term debt
    
    
    1,006,109
    
    
    
    949,921Total liabilities
    
    
    7,095,420
    
    
    
    7,051,731Shareholders EquityPreferred stock  no par value:Authorized - 5,000,000 shares; Issued  none
    
    
    
    
    
    
    Common stock  no par valueAuthorized - 100,000,000 sharesIssued and outstanding - 42,967,649 in 2005; 43,239,628 in 2004
    
    
    85,526
    
    
    
    97,180Retained earnings
    
    
    570,483
    
    
    
    539,128Accumulated other comprehensive income
    
    
    454
    
    
    
    17,994Total shareholders equity
    
    
    656,463
    
    
    
    654,302Total liabilities and shareholders equity
    
    $
    7,751,883
    
    
    $
    7,706,033
 
  60




---



##### Table of Contents



Consolidated Statements of Income
 Citizens Banking Corporation and Subsidiaries
 (in thousands, except per share amounts)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Interest IncomeInterest and fees on loans
    
    $
    343,890
    
    
    $
    297,811
    
    
    $
    318,543Interest and dividends on investment securities:Taxable
    
    
    58,514
    
    
    
    59,794
    
    
    
    58,944Tax-exempt
    
    
    20,789
    
    
    
    20,662
    
    
    
    20,124Money market investments
    
    
    56
    
    
    
    12
    
    
    
    105Total interest income
    
    
    423,249
    
    
    
    378,279
    
    
    
    397,716Interest ExpenseDeposits
    
    
    85,154
    
    
    
    63,389
    
    
    
    80,768Short-term borrowings
    
    
    25,929
    
    
    
    9,574
    
    
    
    4,933Long-term debt
    
    
    36,417
    
    
    
    33,618
    
    
    
    31,310Total interest expense
    
    
    147,500
    
    
    
    106,581
    
    
    
    117,011Net Interest Income
    
    
    275,749
    
    
    
    271,698
    
    
    
    280,705Provision for loan losses
    
    
    1,109
    
    
    
    21,609
    
    
    
    62,008Net interest income after provision for loan losses
    
    
    274,640
    
    
    
    250,089
    
    
    
    218,697Noninterest IncomeService charges on deposit accounts
    
    
    35,409
    
    
    
    34,618
    
    
    
    29,074Trust fees
    
    
    18,445
    
    
    
    17,854
    
    
    
    17,527Mortgage and other loan income
    
    
    8,983
    
    
    
    9,547
    
    
    
    17,817Brokerage and investment fees
    
    
    7,803
    
    
    
    7,710
    
    
    
    7,375ATM network user fees
    
    
    4,355
    
    
    
    3,361
    
    
    
    3,384Bankcard fees
    
    
    3,804
    
    
    
    3,415
    
    
    
    3,008Fair value change in CD swap derivatives
    
    
    (3,604
    )
    
    
    
    
    
    
    Other
    
    
    14,240
    
    
    
    16,466
    
    
    
    14,767Total fees and other income
    
    
    89,435
    
    
    
    92,971
    
    
    
    92,952Investment securities gains (losses)
    
    
    (8,927
    )
    
    
    (1,513
    )
    
    
    101Total noninterest income
    
    
    80,508
    
    
    
    91,458
    
    
    
    93,053Noninterest ExpenseSalaries and employee benefits
    
    
    132,153
    
    
    
    127,958
    
    
    
    120,538Occupancy
    
    
    22,131
    
    
    
    19,865
    
    
    
    17,865Professional services
    
    
    17,279
    
    
    
    16,095
    
    
    
    17,307Equipment
    
    
    14,634
    
    
    
    14,252
    
    
    
    16,222Data processing services
    
    
    13,800
    
    
    
    13,131
    
    
    
    12,513Advertising and public relations
    
    
    7,853
    
    
    
    9,126
    
    
    
    5,663Postage and delivery
    
    
    6,213
    
    
    
    6,411
    
    
    
    6,711Telephone
    
    
    5,481
    
    
    
    5,940
    
    
    
    4,704Other loan expenses
    
    
    2,655
    
    
    
    3,964
    
    
    
    4,758Stationery and supplies
    
    
    3,091
    
    
    
    3,707
    
    
    
    3,444Intangible asset amortization
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,899Prepayment penalty on FHLB advances
    
    
    
    
    
    
    17,959
    
    
    
    Other
    
    
    14,853
    
    
    
    18,971
    
    
    
    16,242Total noninterest expense
    
    
    243,042
    
    
    
    260,278
    
    
    
    228,866Income from Continuing Operations Before Income Taxes
    
    
    112,106
    
    
    
    81,269
    
    
    
    82,884Income tax provision
    
    
    31,581
    
    
    
    19,590
    
    
    
    18,375Income from Continuing Operations
    
    
    80,525
    
    
    
    61,679
    
    
    
    64,509Discontinued operations:Income from discontinued operations (net of income tax of $939 and $801)
    
    
    
    
    
    
    1,659
    
    
    
    1,442Gain on sale of discontinued operations (including income tax benefit of $1,109)
    
    
    
    
    
    
    12,759
    
    
    
    Income from discontinued operations
    
    
    
    
    
    
    14,418
    
    
    
    1,442Net Income
    
    $
    80,525
    
    
    $
    76,097
    
    
    $
    65,951Earnings Per Share from Continuing OperationsBasic
    
    $
    1.87
    
    
    $
    1.43
    
    
    $
    1.49Diluted
    
    
    1.85
    
    
    
    1.41
    
    
    
    1.48Earnings Per Share from Discontinued OperationsBasic
    
    $
    
    
    
    $
    0.33
    
    
    $
    0.03Diluted
    
    
    
    
    
    
    0.33
    
    
    
    0.03Net Income Per Common Share:Basic
    
    $
    1.87
    
    
    $
    1.76
    
    
    $
    1.52Diluted
    
    
    1.85
    
    
    
    1.74
    
    
    
    1.51Average Common Shares Outstanding:Basic
    
    
    43,095,730
    
    
    
    43,266,228
    
    
    
    43,303,573Diluted
    
    
    43,412,247
    
    
    
    43,762,966
    
    
    
    43,609,148
 
  61




---



##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity
Citizens Banking Corporation and Subsidiaries
 AccumulatedOtherCommon Stock
    
    Retained
    
    
    Comprehensive(in thousands, except per share amounts)
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance at January 1, 2003
    
    
    43,702
    
    
    $
    112,253
    
    
    $
    495,570
    
    
    $
    42,646
    
    
    $
    650,469Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    65,951
    
    
    
    
    
    
    
    65,951Other comprehensive income:Net unrealized loss on securities available-for-sale,
net of tax effect of ($11,023)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,472
    )Less: Reclassification
adjustment for net
gains included
in net income, net of tax effect of $36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67
    )Net change in unrealized gain on qualifying cash flow
hedges, net of tax effect of $280
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    520Minimum pension liability, net of tax effect of $95
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,843
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,108Exercise of stock options
    
    
    350
    
    
    
    6,334
    
    
    
    
    
    
    
    
    
    
    
    6,334Tax benefit on non-qualified stock options
    
    
    
    
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    2,500Net change in deferred compensation, net of tax
    
    
    
    
    
    
    550
    
    
    
    
    
    
    
    
    
    
    
    550Cash dividends declared on common shares  $1.140 per share
    
    
    
    
    
    
    
    
    
    
    (49,476
    )
    
    
    
    
    
    
    (49,476
    )Shares acquired for retirement
    
    
    (810
    )
    
    
    (21,323
    )
    
    
    
    
    
    
    
    
    
    
    (21,323
    )Balance at December 31, 2003
    
    
    43,242
    
    
    $
    100,314
    
    
    $
    512,045
    
    
    $
    22,803
    
    
    $
    635,162Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    76,097
    
    
    
    
    
    
    
    76,097Other comprehensive income:Net unrealized loss on securities available-for-sale,
net of tax effect of ($3,131)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,814
    )Less: Reclassification
adjustment for net
gains included
in net income, net of tax effect of $528
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    981Net change in unrealized gain on qualifying cash flow
hedges, net of tax effect of ($38)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )Minimum pension liability, net of tax effect of $51
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,809
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,288Exercise of stock options
    
    
    402
    
    
    
    8,267
    
    
    
    
    
    
    
    
    
    
    
    8,267Tax benefit on non-qualified stock options
    
    
    
    
    
    
    1,370
    
    
    
    
    
    
    
    
    
    
    
    1,370Net change in deferred compensation, net of tax
    
    
    
    
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    193Recognition of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    272
    
    
    
    
    
    
    
    272Cash dividends declared on common shares   $1.140 per share
    
    
    
    
    
    
    
    
    
    
    (49,286
    )
    
    
    
    
    
    
    (49,286
    )Shares acquired for retirement
    
    
    (404
    )
    
    
    (12,964
    )
    
    
    
    
    
    
    
    
    
    
    (12,964
    )Balance  December 31, 2004
    
    
    43,240
    
    
    $
    97,180
    
    
    $
    539,128
    
    
    $
    17,994
    
    
    $
    654,302Comprehensive income, net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    80,525
    
    
    
    
    
    
    
    80,525Other comprehensive income:Net unrealized loss on securities available-for-sale,
net of tax effect of ($12,567)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,340
    )Less: Reclassification
adjustment for net
gains included
in net income, net of tax effect of $3,125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,802Net change in unrealized gain on qualifying cash flow
hedges, net of tax effect of $627
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,166Minimum pension liability, net of tax effect of ($629)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,168
    )Other comprehensive income total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,540
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,985Exercise of stock options
    
    
    337
    
    
    
    5,061
    
    
    
    
    
    
    
    
    
    
    
    5,061Tax benefit on non-qualified stock options
    
    
    
    
    
    
    783
    
    
    
    
    
    
    
    
    
    
    
    783Net change in deferred compensation, net of tax
    
    
    
    
    
    
    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  December 31, 2005
    
    
    42,968
    
    
    $
    85,526
    
    
    $
    570,483
    
    
    $
    454
    
    
    $
    656,463
 
  62




---



##### Table of Contents



Consolidated
Statements of Cash Flows
Citizens Banking Corporation and Subsidiaries
 Year Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Operating Activities:Income from continuing operations
    
    $
    80,525
    
    
    $
    61,679
    
    
    $
    64,509Adjustments to reconcile income from continuing operations to net cash provided by
operating activities:Provision for loan losses
    
    
    1,109
    
    
    
    21,609
    
    
    
    62,008Depreciation and amortization
    
    
    14,005
    
    
    
    11,871
    
    
    
    13,550Amortization of goodwill and other intangibles
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,899Deferred income tax (credit)
    
    
    (3,569
    )
    
    
    (417
    )
    
    
    1,619Net amortization on investment securities
    
    
    4,279
    
    
    
    8,708
    
    
    
    8,347Investment securities (gains) losses
    
    
    8,927
    
    
    
    1,513
    
    
    
    (101
    )Loans originated for sale
    
    
    (320,938
    )
    
    
    (397,280
    )
    
    
    (1,204,506
    )Proceeds from sales of mortgage loans held for sale
    
    
    337,473
    
    
    
    416,098
    
    
    
    1,326,152Net gains from loan sales
    
    
    (4,749
    )
    
    
    (4,757
    )
    
    
    (10,908
    )Net change in deferred compensation, net of tax effect
    
    
    691
    
    
    
    193
    
    
    
    550Recognition of Stock-based compensation expense
    
    
    141
    
    
    
    272
    
    
    
    Other
    
    
    3,224
    
    
    
    (9,247
    )
    
    
    1,042Net cash provided by operating activities from continuing operations
    
    
    124,017
    
    
    
    113,141
    
    
    
    265,161Investing Activities:Net decrease in money market investments
    
    
    1,389
    
    
    
    292
    
    
    
    69,268Securities available-for-sale:Proceeds from sales
    
    
    313,318
    
    
    
    77,829
    
    
    
    1,440Proceeds from maturities and payments
    
    
    373,636
    
    
    
    355,621
    
    
    
    681,442Purchases
    
    
    (470,513
    )
    
    
    (374,334
    )
    
    
    (1,251,698
    )Securities held-to-maturity:Purchases
    
    
    (28,407
    )
    
    
    (34,321
    )
    
    
    (19,714
    )Proceeds from sale of discontinued operations
    
    
    
    
    
    
    26,250
    
    
    
    Net (increase) decrease in loans and leases
    
    
    (229,647
    )
    
    
    (249,723
    )
    
    
    132,771Net increase in properties and equipment
    
    
    (17,791
    )
    
    
    (19,812
    )
    
    
    (8,885
    )Net cash used by investing activities from continuing operations
    
    
    (58,015
    )
    
    
    (218,198
    )
    
    
    (395,376
    )Financing Activities:Net (decrease) increase in demand and savings deposits
    
    
    (390,036
    )
    
    
    304,660
    
    
    
    (73,448
    )Net increase (decrease) in time deposits
    
    
    564,115
    
    
    
    (278,982
    )
    
    
    (393,337
    )Net increase (decrease) in short-term borrowings
    
    
    (195,653
    )
    
    
    97,123
    
    
    
    333,822Proceeds from issuance of long-term debt
    
    
    275,000
    
    
    
    350,000
    
    
    
    370,332Principal reductions in long-term debt
    
    
    (215,715
    )
    
    
    (337,825
    )
    
    
    (31,290
    )Cash dividends paid
    
    
    (49,311
    )
    
    
    (49,286
    )
    
    
    (49,476
    )Proceeds from stock options exercised
    
    
    5,061
    
    
    
    8,267
    
    
    
    6,334Shares acquired for retirement
    
    
    (18,189
    )
    
    
    (12,964
    )
    
    
    (21,323
    )Net cash provided (used) by financing activities from continuing operations
    
    
    (24,728
    )
    
    
    80,993
    
    
    
    141,614Cash flows of discontinued operations:Net cash provided by operating activities
    
    
    
    
    
    
    9,011
    
    
    
    1,411Net cash provided by investing activities
    
    
    
    
    
    
    158,186
    
    
    
    30,235Net cash used in financing activities
    
    
    
    
    
    
    (172,204
    )
    
    
    (32,364
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (5,007
    )
    
    
    (718
    )Increase (decrease) in cash and cash equivalents
    
    
    41,274
    
    
    
    (29,071
    )
    
    
    10,681Cash and cash equivalents at beginning of period, continuing operations
    
    
    153,474
    
    
    
    177,538
    
    
    
    166,139Cash and cash equivalents at beginning of period, discontinued operations
    
    
    
    
    
    
    5,007
    
    
    
    5,725Cash and cash equivalents at beginning of period
    
    
    153,474
    
    
    
    182,545
    
    
    
    171,864Cash and cash equivalents at end of period, continuing operations
    
    
    194,748
    
    
    
    153,474
    
    
    
    177,538Cash and cash equivalents at end of period, discontinued operations
    
    
    
    
    
    
    
    
    
    
    5,007Cash and cash equivalents at end of period
    
    
    194,748
    
    
    
    153,474
    
    
    
    182,545Supplemental Cash Flow Information:Interest paid from continuing operations
    
    $
    145,183
    
    
    $
    106,803
    
    
    $
    117,053Income taxes paid from continuing operations
    
    
    30,363
    
    
    
    13,170
    
    
    
    1,066
 
  63




---



##### Table of Contents



Citizens Banking Corporation
 
 Notes To Consolidated Financial Statements
 December 31, 2005, 2004, and 2003
  Note 1. Restatement of Financial Statements
    64




---



##### Table of Contents



(in thousands)
    
    2004
    
    
    2003Interest income
    
    $
    4,688
    
    
    $
    8,261Interest expense
    
    
    1,060
    
    
    
    2,708Net interest income
    
    
    3,628
    
    
    
    5,553Provision for loan losses
    
    
    (516
    )
    
    
    954Noninterest income before securities gains
    
    
    938
    
    
    
    1,764Investment securities gains
    
    
    4
    
    
    
    2Gain on sale of discontinued operations
    
    
    11,650
    
    
    
    0Noninterest expense
    
    
    2,488
    
    
    
    4,122Income from
discontinued operations before income tax
    
    
    14,248
    
    
    
    2,243Income tax (benefit)
    
    
    (170
    )
    
    
    801Income from
discontinued operations
    
    $
    14,418
    
    
    $
    1,442
 Note 2. Summary of Significant Accounting Policies
  Basis of Financial Statement Presentation
     65




---



##### Table of Contents



Business Combinations
  Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
  Investment Securities
  Loans
     66




---



##### Table of Contents



Mortgage Loans Held for Sale
   Allowance for Loan Losses
   Premises and Equipment
   67




---



##### Table of Contents



Other Real Estate Owned
  Bank Owned Life Insurance
  Goodwill and Other Intangible Assets
  Mortgage Servicing Rights
   Securitizations and Sales of Mortgage Loans
   68




---



##### Table of Contents



Derivative Instruments
       Stock-Based Compensation
   69




---



##### Table of Contents



Year Ended December 31,(in thousands, except per share amounts)
    
    2005
    
    
    2004
    
    
    2003Net income, as reported
    
    $
    80,525
    
    
    $
    76,097
    
    
    $
    65,951Less pro forma expense related to options granted
    
    
    5,554
    
    
    
    2,855
    
    
    
    2,261Pro forma net income
    
    $
    74,971
    
    
    $
    73,242
    
    
    $
    63,690Net income per share:Basic  as reported
    
    $
    1.87
    
    
    $
    1.76
    
    
    $
    1.52Basic  pro forma
    
    
    1.74
    
    
    
    1.69
    
    
    
    1.47Diluted  as reported
    
    
    1.85
    
    
    
    1.74
    
    
    
    1.51Diluted  pro forma
    
    
    1.72
    
    
    
    1.67
    
    
    
    1.46
  Income Taxes
   70




---



##### Table of Contents



Net Income per Share
  Cash and Cash Equivalents
  Reclassifications
  Note 3. Recent Accounting Pronouncements
 Statements of Financial Accounting Standards
 SFAS No. 154, Accounting Changes and Error Corrections, a Replacement of APB Opinion No. 20 and
FASB Statement No. 3
 SFAS No. 123R, Share-Based Payment (Revised 2004).
 Financial Accounting Standards Board (FASB) Staff Positions
 FASB Staff Position (FSP) 115-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments
 Note 4. Recent Transactions
 Insurance Settlement
  71




---



##### Table of Contents



Accounting for Derivative Instruments and Hedging Activities
  Securities Sale
  Consolidation of Charters
  Note5. Business Restructuring, Merger and Other Charges
   72




---



##### Table of Contents



Note 6. Investment Securities
  December 31, 2005
    
    
    December 31, 2004Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Gross Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Gross Unrealized(in thousands)
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    Gains
    
    
    LossesAvailable For Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Federal agencies:Mortgage-backed
    
    
    825,933
    
    
    
    811,898
    
    
    
    985
    
    
    
    15,020
    
    
    
    1,057,401
    
    
    
    1,056,208
    
    
    
    4,246
    
    
    
    5,439Other
    
    
    309,681
    
    
    
    310,408
    
    
    
    2,046
    
    
    
    1,319
    
    
    
    287,044
    
    
    
    291,991
    
    
    
    5,269
    
    
    
    322State and municipal
    
    
    364,853
    
    
    
    378,235
    
    
    
    14,391
    
    
    
    1,009
    
    
    
    372,602
    
    
    
    395,878
    
    
    
    23,628
    
    
    
    352Mortgage and asset-backed
    
    
    280
    
    
    
    280
    
    
    
    1
    
    
    
    1
    
    
    
    2,633
    
    
    
    2,669
    
    
    
    37
    
    
    
    1Other
    
    
    1,072
    
    
    
    1,176
    
    
    
    107
    
    
    
    3
    
    
    
    295
    
    
    
    388
    
    
    
    95
    
    
    
    2Total available for sale
    
    $
    1,501,819
    
    
    $
    1,501,997
    
    
    $
    17,530
    
    
    $
    17,352
    
    
    $
    1,719,975
    
    
    $
    1,747,134
    
    
    $
    33,275
    
    
    $
    6,116Held to Maturity:State and municipalTotal held to maturity
    
    $
    82,431
    
    
    $
    82,364
    
    
    $
    590
    
    
    $
    657
    
    
    $
    54,035
    
    
    $
    54,749
    
    
    $
    849
    
    
    $
    135Other Investment Securities:FHLB and Fed Reserve stockTotal Other Securities
    
    $
    55,911
    
    
    $
    55,911
    
    
    $
    
    
    
    $
    
    
    
    $
    67,390
    
    
    $
    67,390
    
    
    $
    
    
    
    $
    
  73




---



##### 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:Mortgage-backed
    
    
    296,016
    
    
    
    412,374
    
    
    
    92,583
    
    
    
    24,960
    
    
    $
    825,933
    
    
    
    4.54Other
    
    
    19,910
    
    
    
    289,771
    
    
    
    
    
    
    
    
    
    
    
    309,681
    
    
    
    4.90State and municipal
    
    
    26,933
    
    
    
    124,791
    
    
    
    125,007
    
    
    
    88,122
    
    
    
    364,853
    
    
    
    7.46Mortgage and asset-backed
    
    
    64
    
    
    
    3
    
    
    
    
    
    
    
    213
    
    
    
    280
    
    
    
    5.89Other
    
    
    1,008
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    1,072
    
    
    
    4.15Amortized Cost
    
    $
    343,931
    
    
    $
    826,939
    
    
    $
    217,590
    
    
    $
    113,359
    
    
    $
    1,501,819Fair Value
    
    $
    342,832
    
    
    $
    822,063
    
    
    $
    221,431
    
    
    $
    115,671
    
    
    $
    1,501,997Weighted Average Yield
    
    
    4.90
    %
    
    
    5.12
    %
    
    
    6.24
    %
    
    
    6.40
    %
    
    
    5.33
    %Held to Maturity:State and Municipal
    
    $
    
    
    
    $
    
    
    
    $
    2,008
    
    
    $
    80,423
    
    
    $
    82,431
    
    
    
    6.23
    %Amortized Cost
    
    $
    
    
    
    $
    
    
    
    $
    2,008
    
    
    $
    80,423
    
    
    $
    82,431Fair Value
    
    $
    
    
    
    $
    
    
    
    $
    1,662
    
    
    $
    80,702
    
    
    $
    82,364Weighted Average Yield
    
    
    
    
    
    
    
    
    
    
    5.52
    %
    
    
    6.25
    %
    
    
    6.23
    %
  74




---



##### Table of Contents



As of December 31, 2005
 Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Federal agencies:Mortgage-backed
    
    
    320,048
    
    
    
    3,669
    
    
    
    440,599
    
    
    
    11,351
    
    
    
    760,647
    
    
    
    15,020Other
    
    
    173,266
    
    
    
    1,319
    
    
    
    
    
    
    
    
    
    
    
    173,266
    
    
    
    1,319State and municipal
    
    
    36,539
    
    
    
    658
    
    
    
    10,046
    
    
    
    351
    
    
    
    46,585
    
    
    
    1,009Mortgage and asset-backed
    
    
    197
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    197
    
    
    
    1Other
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    3
    
    
    
    6
    
    
    
    3Total available for sale
    
    
    530,050
    
    
    
    5,647
    
    
    
    450,651
    
    
    
    11,705
    
    
    
    980,701
    
    
    
    17,352Held to Maturity:State and municipal
    
    
    41,471
    
    
    
    544
    
    
    
    3,660
    
    
    
    113
    
    
    
    45,131
    
    
    
    657Total held to maturity
    
    
    41,471
    
    
    
    544
    
    
    
    3,660
    
    
    
    113
    
    
    
    45,131
    
    
    
    657Total
    
    $
    571,521
    
    
    $
    6,191
    
    
    $
    454,311
    
    
    $
    11,818
    
    
    $
    1,025,832
    
    
    $
    18,009
 As
of December 31, 2004
 Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable For Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Federal agencies:Mortgage-backed
    
    
    263,928
    
    
    
    2,142
    
    
    
    381,676
    
    
    
    3,297
    
    
    
    645,604
    
    
    
    5,439Other
    
    
    43,271
    
    
    
    322
    
    
    
    
    
    
    
    
    
    
    
    43,271
    
    
    
    322State and municipal
    
    
    1,537
    
    
    
    23
    
    
    
    13,736
    
    
    
    329
    
    
    
    15,273
    
    
    
    352Mortgage and asset-backed
    
    
    153
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    153
    
    
    
    1Other
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    2
    
    
    
    9
    
    
    
    2Total available for sale
    
    
    308,889
    
    
    
    2,488
    
    
    
    395,421
    
    
    
    3,628
    
    
    
    704,310
    
    
    
    6,116Held to Maturity:State and municipal
    
    
    9,230
    
    
    
    126
    
    
    
    1,595
    
    
    
    9
    
    
    
    10,825
    
    
    
    135Total held to maturity
    
    
    9,230
    
    
    
    126
    
    
    
    1,595
    
    
    
    9
    
    
    
    10,825
    
    
    
    135Total
    
    $
    318,119
    
    
    $
    2,614
    
    
    $
    397,016
    
    
    $
    3,637
    
    
    $
    715,135
    
    
    $
    6,251
    75




---



##### Table of Contents



Year Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    (Restated)Securities gains
    
    $
    49
    
    
    $
    639
    
    
    $
    180Securities losses
    
    
    (8,976
    )
    
    
    (2,152
    )
    
    
    (79
    )Net (Loss) Gain
    
    $
    (8,927
    )
    
    $
    (1,513
    )
    
    $
    101
  Note 7. Loans and Nonperforming Assets
    December 31,(in thousands)
    
    2005
    
    
    2004Nonperforming loans:Nonaccrual
    
    $
    32,140
    
    
    $
    42,819Loans 90 days past due (still accruing)
    
    
    385
    
    
    
    40Restructured
    
    
    
    
    
    
    42Total nonperforming loans
    
    
    32,525
    
    
    
    42,901Other real estate
    
    
    5,306
    
    
    
    6,882Other assets acquired by repossession
    
    
    2,045
    
    
    
    1,064Total nonperforming assets
    
    $
    39,876
    
    
    $
    50,847
 76




---



##### Table of Contents



Year Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)Interest income:At original contract rates
    
    $
    2,545
    
    
    $
    3,819
    
    
    $
    6,071As actually recognized
    
    
    615
    
    
    
    2,035
    
    
    
    3,913Interest foregone
    
    $
    1,930
    
    
    $
    1,784
    
    
    $
    2,158
   Valuation Reserve(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Balances  December 31Impaired loans with valuation reserve
    
    $
    7,989
    
    
    $
    32,654
    
    
    $
    5,059
    
    
    $
    15,315Impaired loans with no valuation reserve
    
    
    908
    
    
    
    2,389
    
    
    
    
    
    
    
    Total impaired loans
    
    $
    8,897
    
    
    $
    35,043
    
    
    $
    5,059
    
    
    $
    15,315Impaired loans on nonaccrual basis
    
    $
    4,728
    
    
    $
    13,010
    
    
    $
    2,747
    
    
    $
    4,541Impaired loans on accrual basis
    
    
    4,169
    
    
    
    22,033
    
    
    
    2,312
    
    
    
    10,774Total impaired loans
    
    $
    8,897
    
    
    $
    35,043
    
    
    $
    5,059
    
    
    $
    15,315Average balance for the year
    
    $
    24,398
    
    
    $
    54,023Interest income recognized for the year
    
    
    1,057
    
    
    
    2,144Cash collected applied to outstanding principal
    
    
    393
    
    
    
    788
   Note 8. Goodwill and Other Intangible Assets
  77




---



##### Table of Contents



December 31,(in thousands)
    
    2005
    
    
    2004Commercial Banking
    
    $
    23,870
    
    
    $
    23,870Consumer Banking
    
    
    28,856
    
    
    
    28,856Wealth Management
    
    
    1,801
    
    
    
    1,801Other
    
    
    
    
    
    
    Total Goodwill
    
    $
    54,527
    
    
    $
    54,527
 December 31,(in thousands)
    
    2005
    
    
    2004Core deposit intangibles
    
    $
    28,989
    
    
    $
    28,989Accumulated amortization
    
    
    17,856
    
    
    
    14,957Net core deposit intangibles
    
    
    11,133
    
    
    
    14,032Minimum pension liability
    
    
    
    
    
    
    1Total other intangibles
    
    $
    11,133
    
    
    $
    14,033
  Note 9. Allowance for Loan Losses
  (in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    (Restated)Allowance for loan losses  January 1
    
    $
    122,184
    
    
    $
    121,350
    
    
    $
    104,859Provision for loan losses
    
    
    1,109
    
    
    
    21,609
    
    
    
    62,008Charge-offs
    
    
    (28,847
    )
    
    
    (39,071
    )
    
    
    (64,573
    )Recoveries
    
    
    21,954
    
    
    
    18,296
    
    
    
    19,056Net charge-offs
    
    
    (6,893
    )
    
    
    (20,775
    )
    
    
    (45,517
    )Allowance for loan losses  December 31
    
    $
    116,400
    
    
    $
    122,184
    
    
    $
    121,350Allowance for losses on lending-related commitments  December 31
    
    $
    3,023
    
    
    $
    2,833
    
    
    $
    2,654
 Note 10. Premises and Equipment
  78




---



##### Table of Contents



December 31,(in thousands)
    
    2005
    
    
    2004Land
    
    $
    30,836
    
    
    $
    20,362Buildings
    
    
    150,882
    
    
    
    148,299Leasehold improvements
    
    
    5,965
    
    
    
    6,642Furniture and equipment
    
    
    119,641
    
    
    
    117,464Total Cost of Premises & Equipment
    
    
    307,324
    
    
    
    292,767Accumulated depreciation and amortization
    
    
    (185,594
    )
    
    
    (174,823
    )Net Book Value of Premises & Equipment
    
    $
    121,730
    
    
    $
    117,944
  Note 11. Deposits
  December 31,(in thousands)
    
    2005
    
    
    2004Noninterest-bearing demand
    
    $
    969,074
    
    
    $
    898,820Interest-bearing demand
    
    
    891,313
    
    
    
    1,150,332Savings
    
    
    1,437,024
    
    
    
    1,638,295Time deposits over $100,000
    
    
    1,092,411
    
    
    
    650,145Other time deposits
    
    
    1,084,017
    
    
    
    962,168Total
    
    $
    5,473,839
    
    
    $
    5,299,760
  Note 12. Short-Term Borrowings
   79




---



##### Table of Contents



(in thousands)
    
    2005
    
    2004
    
    2003(Restated)
    
    (Restated)At December 31:Balance
    
    $
    505,879
    
    
    $
    671,660
    
    
    $
    586,131Weighted average interest rate paid
    
    
    4.13
    %
    
    
    2.19
    %
    
    
    1.01
    %During the year:Maximum outstanding at any month-end
    
    $
    964,524
    
    
    $
    803,186
    
    
    $
    660,401Daily average
    
    
    802,554
    
    
    
    643,327
    
    
    
    441,668Weighted average interest rate paid
    
    
    3.21
    %
    
    
    1.40
    %
    
    
    1.09
    %
  (in thousands)
    
    2004At December 31:Balance
    
    $
    25,000Weighted average interest rate paid
    
    
    2.41
    %During the year:Maximum outstanding at any month-end
    
    $
    25,000Daily average
    
    
    1,025Weighted average interest rate paid
    
    
    2.41
    %
  Note 13. Long-Term Debt
  December 31,(in thousands)
    
    2005
    
    
    2004Citizens (Parent only):Subordinated debt:Notes maturing February 2013
    
    $
    120,852
    
    
    $
    123,948Deferrable interest debenture maturing June 2033
    
    
    25,774
    
    
    
    25,774Subsidiaries:Federal Home Loan Bank advances
    
    
    859,483
    
    
    
    800,161Other borrowed funds
    
    
    
    
    
    
    38Total long-term debt
    
    $
    1,006,109
    
    
    $
    949,921
  80




---



##### Table of Contents



(in thousands)
    
    Parent
    
    
    Subsidiaries
    
    
    Consolidated2006
    
    $
    
    
    
    $
    255,927
    
    
    $
    255,9272007
    
    
    
    
    
    
    190,780
    
    
    
    190,7802008
    
    
    
    
    
    
    281,040
    
    
    
    281,0402009
    
    
    
    
    
    
    1,509
    
    
    
    1,5092010
    
    
    
    
    
    
    26,114
    
    
    
    26,114Over 5 Years
    
    
    146,626
    
    
    
    104,113
    
    
    
    250,739Total
    
    $
    146,626
    
    
    $
    859,483
    
    
    $
    1,006,109
 Note 14. Employee Benefit Plans
 Pension and Postretirement Benefits:
 81




---



##### Table of Contents



82




---



##### Table of Contents



Pension
    
    PostretirementBenefits
    
    Benefits(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Change in Benefit ObligationProjected benefit obligation, beginning of year
    
    $
    91,358
    
    
    
    84,947
    
    
    $
    17,092
    
    
    $
    18,754Service cost
    
    
    5,040
    
    
    
    4,249
    
    
    
    4
    
    
    
    8Interest cost
    
    
    5,196
    
    
    
    5,171
    
    
    
    535
    
    
    
    999Participant contribution
    
    
    
    
    
    
    
    
    
    
    219
    
    
    
    264Actuarial (gains) losses
    
    
    5,755
    
    
    
    5,026
    
    
    
    (3,805
    )
    
    
    (1,431
    )Plan amendments
    
    
    
    
    
    
    
    
    
    
    (2,869
    )
    
    
    Benefits paid
    
    
    (7,831
    )
    
    
    (8,035
    )
    
    
    (1,357
    )
    
    
    (1,502
    )Projected benefit obligation, end of year
    
    $
    99,518
    
    
    $
    91,358
    
    
    $
    9,819
    
    
    $
    17,092Accumulated benefit obligation, end of year
    
    $
    96,380
    
    
    $
    89,122
    
    
    $
    9,819
    
    
    $
    17,092Change in Plan AssetsFair value of plan assets, beginning of year
    
    $
    86,938
    
    
    $
    85,040
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    6,503
    
    
    
    8,257
    
    
    
    
    
    
    
    Employer contribution
    
    
    3,499
    
    
    
    1,676
    
    
    
    1,138
    
    
    
    1,238Participant contribution
    
    
    
    
    
    
    
    
    
    
    219
    
    
    
    264Benefits paid
    
    
    (7,831
    )
    
    
    (8,035
    )
    
    
    (1,357
    )
    
    
    (1,502
    )Fair value of plan assets, end of year
    
    $
    89,109
    
    
    $
    86,938
    
    
    $
    
    
    
    $
    Reconciliation of Funded Status(Under)/Over funded
    
    $
    (10,409
    )
    
    $
    (4,420
    )
    
    $
    (9,819
    )
    
    $
    (17,092
    )Unrecognized:Net transition asset
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    Prior service cost (benefit)
    
    
    1,289
    
    
    
    1,485
    
    
    
    (2,621
    )
    
    
    (23
    )Net actuarial (gain) loss
    
    
    22,955
    
    
    
    17,953
    
    
    
    (1,262
    )
    
    
    2,452Adjustment to recognize minimum liability
    
    
    (1,965
    )
    
    
    (168
    )
    
    
    
    
    
    
    Net amount recognized in the
consolidated balance sheets
    
    $
    11,870
    
    
    $
    14,845
    
    
    $
    (13,702
    )
    
    $
    (14,663
    )
 83




---



##### Table of Contents



Year Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003Defined Benefit Pension PlansService cost
    
    $
    5,040
    
    
    $
    4,250
    
    
    $
    4,124Interest cost
    
    
    5,196
    
    
    
    5,172
    
    
    
    5,095Expected return on plan assets
    
    
    (7,018
    )
    
    
    (7,069
    )
    
    
    (7,901
    )Amortization of unrecognized:Net transition asset
    
    
    (6
    )
    
    
    (10
    )
    
    
    (10
    )Prior service cost
    
    
    196
    
    
    
    194
    
    
    
    222Net actuarial gain
    
    
    1,269
    
    
    
    732
    
    
    
    61Net pension cost
    
    
    4,677
    
    
    
    3,269
    
    
    
    1,591Postretirement Benefit PlansService cost
    
    
    4
    
    
    
    8
    
    
    
    11Interest cost
    
    
    535
    
    
    
    998
    
    
    
    1,161Amortization of unrecognized:Prior service cost
    
    
    (271
    )
    
    
    (5
    )
    
    
    (4
    )Net actuarial loss
    
    
    (91
    )
    
    
    17
    
    
    
    146Net postretirement benefit cost
    
    
    177
    
    
    
    1,018
    
    
    
    1,314Defined
contribution retirement and 401(k) plansEmployer contributions
    
    
    3,170
    
    
    
    3,158
    
    
    
    3,033Total periodic benefit cost
    
    $
    8,024
    
    
    $
    7,445
    
    
    $
    5,938
  Pension
    
    PostretirementBenefits
    
    BenefitsDecember 31,
    
    2005
    
    2004
    
    2005
    
    2004Assumptions used to compute projected benefit obligationDiscount rate
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.50
    %
    
    
    5.75
    %Rate of compensation increase:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash balance defined benefit plans
    
    
    5.00
    %
    
    
    (1
    )Nonqualified supplemental benefit plans
    
    
    6.00
    %
    
    
    6.00
    %Assumptions used to compute net benefit costsDiscount rate
    
    
    5.75
    %
    
    
    6.25
    %
    
    
    5.75
    %
    
    
    6.25
    %Expected return on plan assets
    
    
    8.75
    
    
    
    8.75Rate of compensation increase:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash balance defined benefit plans
    
    
    5.00
    %
    
    
    (1
    )Nonqualified supplemental benefit plans
    
    
    6.00
    %
    
    
    6.00
    %
 
 (1) Scaled by age of plan participant  9.0% at age 24 or under declining to 4.0% at age 50 or older.   84




---



##### Table of Contents



Investment Policy and Strategy:
 Target
    
    Percentage of Plan AssetsDecember 31,
    
    Allocation
    
    2005
    
    2004Asset Category:Equity securities
    
    
    70
    
    
    
    69
    
    
    
    71
    %Debt securities
    
    
    29
    
    
    
    23
    
    
    
    26Cash and Cash Equivalents
    
    
    1
    
    
    
    8
    
    
    
    3100
    %
    
    
    100
    %
    
    
    100
    %
   One Percentage
    
    One Percentage(in thousands)
    
    Point Increase
    
    Point DecreaseEffect on total of service and interest cost components
    
    $
    36
    
    
    $
    (32
    )Effect on the postretirement benefit obligation
    
    
    688
    
    
    
    (616
    )
 Defined Contribution Retirement and 401(k) Plans
 Note 15. Income Taxes
  85




---



##### Table of Contents



Year Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    (Restated)Current tax expense from continuing operations:Federal
    
    $
    33,671
    
    
    $
    19,886
    
    
    $
    16,655State
    
    
    1,479
    
    
    
    121
    
    
    
    101Total current tax expense
    
    
    35,150
    
    
    
    20,007
    
    
    
    16,756Deferred tax expense (benefit)
    
    
    (3,569
    )
    
    
    (417
    )
    
    
    1,619Total income tax expense from continuing operations
    
    
    31,581
    
    
    
    19,590
    
    
    
    18,375Discontinued Operations tax expense (benefit)
    
    
    
    
    
    
    (170
    )
    
    
    801Total income tax expense
    
    $
    31,581
    
    
    $
    19,420
    
    
    $
    19,176
  (in thousands)
    
    2005
    
    
    2004Deferred tax assets:Allowance for loan losses
    
    $
    41,675
    
    
    $
    45,173Accrued postemployment benefits other than pensions
    
    
    4,906
    
    
    
    5,421Deferred compensation
    
    
    5,228
    
    
    
    4,703Accrued expenses
    
    
    2,930
    
    
    
    2,445State net operating loss carryforwards
    
    
    1,294
    
    
    
    2,080Minimum pension liability
    
    
    688
    
    
    
    59Other deferred tax assets
    
    
    2,929
    
    
    
    341Deferred tax assets
    
    
    59,650
    
    
    
    60,222Deferred tax liabilities:Pension
    
    
    7,905
    
    
    
    8,089Acquisition premium on loans
    
    
    2,929
    
    
    
    5,170Tax over book depreciation
    
    
    1,640
    
    
    
    4,570Basis difference in FHLB stock
    
    
    1,940
    
    
    
    2,921Purchase accounting adjustments
    
    
    4,532
    
    
    
    3,156Unrealized gains on securities and derivatives
    
    
    933
    
    
    
    9,748Other deferred tax liabilities
    
    
    1,505
    
    
    
    1,317Deferred tax liabilities
    
    
    21,384
    
    
    
    34,971Net deferred tax assets
    
    $
    38,266
    
    
    $
    25,251
 86




---



##### Table of Contents



Year Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    (Restated)Tax at federal statutory rate applied to income before income taxes
    
    $
    39,237
    
    
    $
    28,444
    
    
    $
    29,009Increase (decrease) in taxes resulting from:Tax-exempt income
    
    
    (8,015
    )
    
    
    (8,182
    )
    
    
    (9,145
    )Other
    
    
    359
    
    
    
    (672
    )
    
    
    (1,489
    )Total income tax expense
    
    $
    31,581
    
    
    $
    19,590
    
    
    $
    18,375
 Note 16. Earnings Per Share
  87




---



##### Table of Contents



Year Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    (Restated)Continuing OperationsNumerator:Numerator for basic and dilutive earnings per share 
income from continuing operations available to common shareholders
    
    $
    80,525
    
    
    $
    61,679
    
    
    $
    64,509Denominator:Denominator for basic earnings per share 
weighted average shares
    
    
    43,096
    
    
    
    43,266
    
    
    
    43,304Effect of dilutive securities  potential conversion
of employee stock options
    
    
    316
    
    
    
    497
    
    
    
    305Denominator for diluted earnings per share 
adjusted weighted-average shares and assumed conversions
    
    
    43,412
    
    
    
    43,763
    
    
    
    43,609Basic earnings per share
    
    $
    1.87
    
    
    $
    1.43
    
    
    $
    1.49Diluted earnings per share
    
    $
    1.85
    
    
    $
    1.41
    
    
    $
    1.48Discontinued OperationsNumerator:Numerator for basic and dilutive earnings per share 
income from discontinued operations available to common shareholders
    
    $
    
    
    
    $
    14,418
    
    
    $
    1,442Denominator:Denominator for basic earnings per share 
weighted average shares
    
    
    43,096
    
    
    
    43,266
    
    
    
    43,304Effect of dilutive securities  potential conversion
of employee stock options
    
    
    316
    
    
    
    497
    
    
    
    305Denominator for diluted earnings per share 
adjusted weighted-average shares and assumed conversions
    
    
    43,412
    
    
    
    43,763
    
    
    
    43,609Basic earnings per share
    
    $
    
    
    
    $
    0.33
    
    
    $
    0.03Diluted earnings per share
    
    $
    
    
    
    $
    0.33
    
    
    $
    0.03CombinedNumerator:Numerator for basic and dilutive earnings per share 
net income available to common shareholders
    
    $
    80,525
    
    
    $
    76,097
    
    
    $
    65,951Denominator:Denominator
for basic earnings per share  weighted average shares
    
    
    43,096
    
    
    
    43,266
    
    
    
    43,304Effect of dilutive securities  potential conversion
of employee stock options
    
    
    316
    
    
    
    497
    
    
    
    305Denominator for diluted earnings per share 
adjusted weighted-average shares and assumed conversions
    
    
    43,412
    
    
    
    43,763
    
    
    
    43,609Basic earnings per share
    
    $
    1.87
    
    
    $
    1.76
    
    
    $
    1.52Diluted earnings per share
    
    $
    1.85
    
    
    $
    1.74
    
    
    $
    1.51
  88




---



##### Table of Contents



Note 17. Shareholders Equity
 Rights Agreement:
 Stock Repurchase Plans:
 Stock Option Plan:
   Other Stock Options:
  89




---



##### Table of Contents



(in thousands, except per share amounts)
    
    2005
    
    
    2004
    
    
    2003Pro forma amounts:Net income, as reported
    
    $
    80,525
    
    
    $
    76,097
    
    
    $
    65,951Less pro forma expense related to options granted
    
    
    5,554
    
    
    
    2,855
    
    
    
    2,261Pro format net income
    
    $
    74,971
    
    
    $
    73,242
    
    
    $
    63,690Net income per share:Basic  as reported
    
    
    1.87
    
    
    
    1.76
    
    
    
    1.52Basic  pro forma
    
    
    1.74
    
    
    
    1.69
    
    
    
    1.47Diluted  as reported
    
    
    1.85
    
    
    
    1.74
    
    
    
    1.51Diluted  pro forma
    
    
    1.72
    
    
    
    1.67
    
    
    
    1.46Weighted-average assumptions:Dividend yield
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    3.5
    %Expected volatility
    
    
    26.8
    %
    
    
    28.0
    %
    
    
    28.0
    %Risk-free interest rate
    
    
    3.80
    %
    
    
    3.78
    %
    
    
    2.64
    %Expected lives
    
    
    1.5
    yrs.
    
    
    5
    yrs.
    
    
    5
    yrs.
   Options
    
    
    Option PriceAvailable
    
    
    
    
    
    
    Per Sharefor Grant
    
    
    Outstanding
    
    
    Range
    
    
    AverageJanuary 1, 2003
    
    
    6,098,300
    
    
    
    3,434,167
    
    
    
    11.75-36.31
    
    
    $
    25.28Granted
    
    
    (1,255,200
    )
    
    
    1,255,200
    
    
    
    23.10-33.66
    
    
    
    26.27Restricted Stock Granted
    
    
    (8,862
    )
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    (341,485
    )
    
    
    11.75-30.50
    
    
    
    18.55Canceled
    
    
    49,200
    
    
    
    (174,654
    )
    
    
    16.66-36.31
    
    
    
    25.90December 31, 2003
    
    
    4,883,438
    
    
    
    4,173,228
    
    
    
    15.10-35.63
    
    
    
    26.10Granted
    
    
    (741,771
    )
    
    
    741,771
    
    
    
    29.06-34.56
    
    
    
    30.16Restricted Stock Granted
    
    
    (3,666
    )
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    (397,994
    )
    
    
    15.10-32.60
    
    
    
    20.75Canceled
    
    
    140,480
    
    
    
    (274,830
    )
    
    
    16.66-35.63
    
    
    
    27.26December 31, 2004
    
    
    4,278,481
    
    
    
    4,242,175
    
    
    
    15.28-35.63
    
    
    $
    27.24Granted
    
    
    (344,007
    )
    
    
    344,007
    
    
    
    26.99-33.80
    
    
    
    29.31Restricted Stock Granted
    
    
    (117,735
    )
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    (223,964
    )
    
    
    15.28-30.50
    
    
    
    22.59Canceled
    
    
    174,141
    
    
    
    (444,327
    )
    
    
    16.66-35.63
    
    
    
    25.19December 31, 2005
    
    
    3,990,880
    
    
    
    3,917,891
    
    
    
    16.66-36.31
    
    
    $
    27.91
 90




---



##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    AverageRemaining
    
    
    Average
    
    
    
    
    
    
    ExerciseRange
    
    Amount
    
    
    Life
    
    
    Exercise Price
    
    
    Amount
    
    
    Price$16.66-25.00
    
    
    492,333
    
    
    3.8 years
    
    $
    19.01
    
    
    
    492,333
    
    
    $
    19.0125.01-29.00
    
    
    1,390,419
    
    
    
    6.8
    
    
    
    26.03
    
    
    
    1,358,678
    
    
    
    26.0419.01-36.31
    
    
    2,035,139
    
    
    
    6.3
    
    
    
    31.35
    
    
    
    2,028,319
    
    
    
    31.35$16.66-36.31
    
    
    3,917,891
    
    
    
    6.2
    
    
    
    27.91
    
    
    
    3,879,330
    
    
    
    27.92
 Note 18. Commitments, Contingent Liabilities and Guarantees
 Commitments:
  December 31,
    
    
    December 31,(in thousands)
    
    2005
    
    
    2004Loan commitments and letters of credit:Commitments to extend credit
    
    $
    1,762,259
    
    
    $
    1,769,968Financial standby letters of credit
    
    
    44,739
    
    
    
    41,356Performance standby letters of credit
    
    
    11,557
    
    
    
    6,198Commercial letters of credit
    
    
    223,269
    
    
    
    207,460Total loan commitments and letters of credit
    
    $
    2,041,824
    
    
    $
    2,024,982
  Contingent Liabilities:
 Contingent Guarantees:
 91




---



##### Table of Contents



Change in Control Agreements:
 Note 19. Derivatives and Hedging Activities
    92




---



##### Table of Contents



Derivative Financial Instruments:
 December 31,
    
    
    December 31,2005
    
    
    2004Notional
    
    Fair
    
    Notional
    
    Fair(dollars in thousands)
    
    Amount
    
    Value
    
    Amount
    
    ValueReceive fixed swaps
    
    $
    530,000
    
    
    $
    (7,429
    )
    
    $
    185,000
    
    
    $
    (1,134
    )Pay fixed swaps
    
    
    124,000
    
    
    
    2,486
    
    
    
    104,000
    
    
    
    693Customer initiated swaps and corresponding offsets
    
    
    233,104
    
    
    
    
    
    
    
    142,674
    
    
    
    Interest rate lock commitments
    
    
    17,897
    
    
    
    37
    
    
    
    17,165
    
    
    
    108Forward mortgage loan contracts
    
    
    22,000
    
    
    
    (66
    )
    
    
    58,000
    
    
    
    (68
    )Total
    
    $
    927,001
    
    
    $
    (4,972
    )
    
    $
    506,839
    
    
    $
    (401
    )
 Derivative Classifications and Hedging Relationships:
 December 31,
    
    
    December 31,2005
    
    
    2004Notional
    
    Fair
    
    Notional
    
    Fair(dollars in thousands)
    
    Amount
    
    Value
    
    Amount
    
    ValueDerivatives Designated as Cash Flow Hedges:Hedging repurchase agreements
    
    $
    124,000
    
    
    $
    2,486
    
    
    $
    104,000
    
    
    $
    693Derivatives Designated as Fair Value Hedges:Hedging time deposits
    
    
    25,000
    
    
    
    (10
    )
    
    
    60,000
    
    
    
    (456
    )Hedging long-term debt
    
    
    225,000
    
    
    
    (3,815
    )
    
    
    125,000
    
    
    
    (678
    )Derivatives Not Designated as Hedges:Receive fixed swaps
    
    
    280,000
    
    
    
    (3,604
    )
    
    
    
    
    
    
    Customer initiated swaps and corresponding offsets
    
    
    233,104
    
    
    
    
    
    
    
    142,674
    
    
    
    Total
    
    $
    887,104
    
    
    $
    (4,943
    )
    
    $
    431,674
    
    
    $
    (441
    )
  93




---



##### Table of Contents



Maturities and Interest Rates Exchanged on Swaps:
 Mature During(dollars in thousands)
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    After 2010
    
    TotalReceive fixed swaps:Notional amount
    
    $
    185,000
    
    
    $
    10,000
    
    
    $
    100,000
    
    
    $
    10,000
    
    
    $
    30,000
    
    
    $
    195,000
    
    
    $
    530,000Receive fixed rate
    
    
    4.18
    %
    
    
    4.10
    %
    
    
    4.10
    %
    
    
    4.00
    %
    
    
    4.57
    %
    
    
    4.56
    %
    
    
    4.32
    %Pay variable rate
    
    
    4.23
    %
    
    
    4.02
    %
    
    
    3.64
    %
    
    
    4.42
    %
    
    
    4.33
    %
    
    
    4.07
    %
    
    
    4.07
    %Pay fixed swaps:Notional amount
    
    $
    20,000
    
    
    $
    104,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    124,000Pay fixed rate
    
    
    2.86
    %
    
    
    3.31
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    3.24
    %Receive variable rate
    
    
    4.41
    %
    
    
    4.36
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    4.37
    %
     Note 20. Fair Values of Financial Instruments
   94




---



##### Table of Contents



December 31, 2005
    
    December 31, 2004Carrying
    
    Estimated
    
    Carrying
    
    Estimated(in millions)
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assets:Cash and money market investments
    
    $
    195.1
    
    
    $
    195.1
    
    
    $
    155.2
    
    
    $
    155.2Securities
    
    
    1,640.3
    
    
    
    1,640.3
    
    
    
    1,868.6
    
    
    
    1,869.3Mortgage loans held for sale
    
    
    16.3
    
    
    
    16.3
    
    
    
    28.0
    
    
    
    28.1Net loans
    
    
    5,499.7
    
    
    
    5,527.4
    
    
    
    5,271.2
    
    
    
    5,377.5Cash surrender value of life insurance policies
    
    
    84.4
    
    
    
    84.4
    
    
    
    82.6
    
    
    
    82.6Accrued interest receivable
    
    
    39.1
    
    
    
    39.1
    
    
    
    35.5
    
    
    
    35.5Financial liabilities:Deposits
    
    
    5,473.8
    
    
    
    5,455.7
    
    
    
    5,299.8
    
    
    
    5,292.3Short-term borrowings
    
    
    529.1
    
    
    
    529.1
    
    
    
    724.8
    
    
    
    724.7Long-term debt
    
    
    1,006.1
    
    
    
    1,006.1
    
    
    
    949.9
    
    
    
    960.2Accrued interest payable
    
    
    12.8
    
    
    
    12.8
    
    
    
    10.5
    
    
    
    10.5Off-balance sheet financial instrument liabilities:Loan commitments to extend credit
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    1.1Standby and commercial letters of credit
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Interest rate swap agreements
    
    
    
    
    
    
    (4.9
    )
    
    
    
    
    
    
    (0.4
    )Interest rate lock commitments
    
    
    
    
    
    
    0.0
    
    
    
    
    
    
    
    (0.0
    )Forward commitments to sell mortgage loans
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )
  Investment Securities Available for Sale and Held to Maturity:
 Mortgage Loans Held For Sale:
 Net Loans:
 Deposit Liabilities:
 95




---



##### Table of Contents



Short-Term Borrowings:
 Long-Term Debt:
 Loan Commitments and Letters Of Credit:
 Interest Rate Swap Agreements:
 Interest Rate Lock Commitments and Forward Commitments to Sell Mortgages:
 Note 21. Lines of Business
   
    
    Commercial Banking Commercial Banking provides a full range of
lending, depository, and related financial services to
middle-market corporate, industrial, financial, small business,
government and leasing clients. Products and services offered
include commercial loans such as term loans, revolving credit
arrangements, inventory and accounts receivable financing,
commercial mortgages, real estate construction lending, letters of
credit, and small business loans. Noncredit services for
commercial customers include deposit accounts, treasury
management, corporate cash management, international banking
services, advice and assistance in the placement of securities,
and financial planning.
    
    Consumer Banking Consumer Banking includes consumer lending and
deposit gathering, small business lending, branch banking,
electronic banking and residential mortgage loan origination and
servicing. This line of business offers a variety of retail
financial products and services including direct and indirect
installment loans, debit and credit cards, home equity loans and
lines of credit, residential mortgage loans, deposit products,
fixed and variable annuities and ATM network services. Consumer
loans are composed of automobile, personal, marine, and
recreational vehicle loans. Deposit products include checking,
savings, money market accounts, and certificates of deposit.
    
    Wealth Management Wealth Management offers a broad array of
asset management, private banking, financial planning, estate
settlement and administration, credit and deposit products and
services. Trust and investment services include personal trust
and planning, investment management, estate settlement and
administration services. Retirement plan services focus on
investment management and fiduciary activities with special
emphasis on 401(k) plans. Brokerage and insurance delivers retail
mutual funds, other securities, variable and fixed annuities,
personal disability and life insurance products and discounted
brokerage services. Private banking provides credit, deposit and
asset management solutions for affluent clients.
 96




---



##### Table of Contents




    
    Other The Other line of business includes activities that are
not directly attributable to one of the three principal lines of
business. Included in this category are the Holding Company;
Citizens Treasury unit, including the securities portfolio,
wholesale funding and asset liability management activities;
inter-company eliminations; and the economic impact of certain
assets, capital and support functions not specifically
identifiable with the three primary lines of business.
  97




---



##### Table of Contents



Line of Business Information
 Commercial
    
    
    Consumer
    
    
    Wealth(in thousands)
    
    Banking
    
    
    Banking
    
    
    Mgmt
    
    
    Other
    
    
    TotalEarnings
Summary  2005Net interest income (taxable equivalent)
    
    $
    121,653
    
    
    $
    151,255
    
    
    $
    975
    
    
    $
    15,258
    
    
    $
    289,141Provision for loan losses
    
    
    (6,406
    )
    
    
    7,522
    
    
    
    (7
    )
    
    
    
    
    
    
    1,109Net interest income after provision
    
    
    128,059
    
    
    
    143,733
    
    
    
    982
    
    
    
    15,258
    
    
    
    288,032Noninterest income
    
    
    12,816
    
    
    
    49,984
    
    
    
    24,587
    
    
    
    (6,879
    )
    
    
    80,508Noninterest expense
    
    
    73,185
    
    
    
    132,545
    
    
    
    22,209
    
    
    
    15,103
    
    
    
    243,042Income before income taxes
    
    
    67,690
    
    
    
    61,172
    
    
    
    3,360
    
    
    
    (6,724
    )
    
    
    125,498Income tax expense (taxable equivalent)
    
    
    23,850
    
    
    
    21,410
    
    
    
    1,195
    
    
    
    (1,482
    )
    
    
    44,973Net income
    
    $
    43,840
    
    
    $
    39,762
    
    
    $
    2,165
    
    
    $
    (5,242
    )
    
    $
    80,525Average
assets (in millions)
    
    $
    2,921
    
    
    $
    2,610
    
    
    $
    24
    
    
    $
    2,223
    
    
    $
    7,778Earnings
Summary  2004 (Restated)Net interest income (taxable equivalent)
    
    $
    115,675
    
    
    $
    149,608
    
    
    $
    811
    
    
    $
    18,836
    
    
    $
    284,930Provision for loan losses
    
    
    7,545
    
    
    
    14,072
    
    
    
    (8
    )
    
    
    
    
    
    
    21,609Net interest income after provision
    
    
    108,130
    
    
    
    135,536
    
    
    
    819
    
    
    
    18,836
    
    
    
    263,321Noninterest income
    
    
    13,620
    
    
    
    50,741
    
    
    
    23,074
    
    
    
    4,023
    
    
    
    91,458Noninterest expense
    
    
    69,012
    
    
    
    135,350
    
    
    
    22,285
    
    
    
    33,631
    
    
    
    260,278Income from continuing operations before income taxes
    
    
    52,738
    
    
    
    50,927
    
    
    
    1,608
    
    
    
    (10,772
    )
    
    
    94,501Income tax expense (taxable equivalent) from continuing operations
    
    
    18,597
    
    
    
    17,825
    
    
    
    580
    
    
    
    (4,180
    )
    
    
    32,822Income from continuing operations
    
    
    34,141
    
    
    
    33,102
    
    
    
    1,028
    
    
    
    (6,592
    )
    
    
    61,679Income from discontinued operations (net of tax)
    
    
    1,040
    
    
    
    1,080
    
    
    
    44
    
    
    
    (505
    )
    
    
    1,659Gain from the sale of discontinued operations (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,759
    
    
    
    12,759Total income from discontinued operations (net of tax)
    
    
    1,040
    
    
    
    1,080
    
    
    
    44
    
    
    
    12,254
    
    
    
    14,418Net income
    
    $
    35,181
    
    
    $
    34,182
    
    
    $
    1,072
    
    
    $
    5,662
    
    
    $
    76,097Average
assets (in millions)
    
    $
    2,795
    
    
    $
    2,492
    
    
    $
    19
    
    
    $
    2,379
    
    
    $
    7,685Earnings Summary  2003 (Restated)Net interest income (taxable equivalent)
    
    $
    121,488
    
    
    $
    150,100
    
    
    $
    308
    
    
    $
    22,066
    
    
    $
    293,962Provision for loan losses
    
    
    46,276
    
    
    
    15,733
    
    
    
    (1
    )
    
    
    
    
    
    
    62,008Net interest income after provision
    
    
    75,212
    
    
    
    134,367
    
    
    
    309
    
    
    
    22,066
    
    
    
    231,954Noninterest income
    
    
    14,505
    
    
    
    52,246
    
    
    
    21,836
    
    
    
    4,466
    
    
    
    93,053Noninterest expense
    
    
    59,496
    
    
    
    134,642
    
    
    
    21,736
    
    
    
    12,992
    
    
    
    228,866Income from continuing operations before income taxes
    
    
    30,221
    
    
    
    51,971
    
    
    
    409
    
    
    
    13,540
    
    
    
    96,141Income tax expense (taxable equivalent) from continuing operations
    
    
    11,557
    
    
    
    19,318
    
    
    
    182
    
    
    
    575
    
    
    
    31,632Income from continuing operations
    
    
    18,664
    
    
    
    32,653
    
    
    
    227
    
    
    
    12,965
    
    
    
    64,509Income from discontinued operations (net of tax)
    
    
    368
    
    
    
    1,803
    
    
    
    27
    
    
    
    (756
    )
    
    
    1,442Net income
    
    $
    19,032
    
    
    $
    34,456
    
    
    $
    254
    
    
    $
    12,209
    
    
    $
    65,951Average
assets(in millions)
    
    $
    3,035
    
    
    $
    2,416
    
    
    $
    8
    
    
    $
    2,235
    
    
    $
    7,694
 98




---



##### Table of Contents



Note 22. Regulatory Matters
      99




---



##### 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 Banking CorporationAs of December 31, 2005:Total Capital to risk weighted assets (1)
    
    $
    816,856
    
    
    
    13.2
    %
    
    $
    494,273
    
    
    3
    8.0
    %
    
    $
    617,843
    
    
    3
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    614,072
    
    
    
    9.9
    
    
    
    247,137
    
    
    3
    4.0
    
    
    
    370,706
    
    
    3
    6.0Tier 1 Leverage (2)
    
    
    614,072
    
    
    
    8.0
    
    
    
    307,661
    
    
    3
    4.0
    
    
    
    384,577
    
    
    3
    5.0As of December 31, 2004:Total Capital to risk weighted assets (1)
    
    $
    792,636
    
    
    
    13.3
    %
    
    $
    475,972
    
    
    3
    8.0
    %
    
    $
    594,965
    
    
    3
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    592,640
    
    
    
    10.0
    
    
    
    237,986
    
    
    3
    4.0
    
    
    
    356,979
    
    
    3
    6.0Tier 1 Leverage (2)
    
    
    592,640
    
    
    
    7.8
    
    
    
    302,481
    
    
    3
    4.0
    
    
    
    378,101
    
    
    3
    5.0Citizens BankAs of December 31, 2005:Total Capital to risk weighted assets (1)
    
    $
    704,148
    
    
    
    8.6
    %
    
    $
    473,453
    
    
    3
    8.0
    %
    
    $
    591,816
    
    
    3
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    629,667
    
    
    
    10.6
    
    
    
    236,726
    
    
    3
    4.0
    
    
    
    355,090
    
    
    3
    6.0Tier 1 Leverage (2)
    
    
    629,667
    
    
    
    11.9
    
    
    
    292,556
    
    
    3
    4.0
    
    
    
    365,695
    
    
    3
    5.0As of December 31, 2004:Total Capital to risk weighted assets (1)
    
    $
    480,968
    
    
    
    10.5
    %
    
    $
    367,485
    
    
    3
    8.0
    %
    
    $
    459,357
    
    
    3
    10.0
    %Tier 1 Capital to risk weighted assets (1)
    
    
    423,318
    
    
    
    9.2
    
    
    
    183,743
    
    
    3
    4.0
    
    
    
    275,614
    
    
    3
    6.0Tier 1 Leverage (2)
    
    
    423,318
    
    
    
    7.5
    
    
    
    225,975
    
    
    3
    4.0
    
    
    
    282,469
    
    
    3
    5.0
 
 (1) Total Capital is comprised of Tier 1 Capital, a portion of the allowance for loan losses and qualifying subordinated debt. Tier 1
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 100




---



##### Table of Contents



Note 23. Citizens Banking Corporation (Parent Only) Statements
 Balance Sheets
Citizens Banking Corporation (Parent Only)
 December 31,(in thousands)
    
    2005
    
    
    2004AssetsCash
    
    $
    5
    
    
    $
    5Money market investments
    
    
    65,359
    
    
    
    65,436Investment securities
    
    
    167
    
    
    
    113Investment in subsidiaries  principally banks
    
    
    744,016
    
    
    
    734,195Goodwill  net
    
    
    15
    
    
    
    Other assets
    
    
    11,659
    
    
    
    10,985Total assets
    
    $
    821,221
    
    
    $
    810,734Liabilities and Shareholders EquityLong-term debt
    
    $
    146,448
    
    
    $
    149,723Other liabilities
    
    
    18,310
    
    
    
    6,709Total liabilities
    
    
    164,758
    
    
    
    156,432Shareholders equity
    
    
    656,463
    
    
    
    654,302Total liabilities and shareholders equity
    
    $
    821,221
    
    
    $
    810,734
 Statements of Income
Citizens Banking Corporation (Parent Only)
 Year Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    (Restated)IncomeDividends from subsidiaries  principally banks
    
    $
    63,200
    
    
    $
    49,000
    
    
    $
    24,000Interest from bank subsidiary
    
    
    1,998
    
    
    
    839
    
    
    
    624Service fees from bank subsidiaries
    
    
    11,459
    
    
    
    11,076
    
    
    
    10,520Other
    
    
    299
    
    
    
    946
    
    
    
    687Total
    
    
    76,956
    
    
    
    61,861
    
    
    
    35,831ExpensesInterest
    
    
    7,766
    
    
    
    5,056
    
    
    
    4,054Salaries and employee benefits
    
    
    16,054
    
    
    
    12,443
    
    
    
    12,104Service fees paid to bank subsidiaries
    
    
    2,768
    
    
    
    2,782
    
    
    
    2,883Other noninterest expense
    
    
    1,923
    
    
    
    1,976
    
    
    
    1,717Total
    
    
    28,511
    
    
    
    22,257
    
    
    
    20,758Income before income taxes and
equity in undistributed earnings of subsidiaries
    
    
    48,445
    
    
    
    39,604
    
    
    
    15,073Income tax benefit
    
    
    5,693
    
    
    
    4,977
    
    
    
    4,508Equity in undistributed earnings of subsidiaries
    
    
    26,387
    
    
    
    17,098
    
    
    
    44,928Income from continuing operations
    
    
    80,525
    
    
    
    61,679
    
    
    
    64,509Income from
discontinued operations (net of income tax of $939 and $801)
    
    
    
    
    
    
    1,659
    
    
    
    1,442Gain on sale
of discontinued operations (including tax benefit of $1,109)
    
    
    
    
    
    
    12,759
    
    
    
    Net Income
    
    $
    80,525
    
    
    $
    76,097
    
    
    $
    65,951
 101




---



##### Table of Contents



Statements of Cash Flows
Citizens Banking Corporation (Parent Only)
 Year Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    (Restated)Operating ActivitiesNet income from continuing operations
    
    $
    80,525
    
    
    $
    61,679
    
    
    $
    64,509Adjustments to reconcile net income to net cash
provided by operating activities:Amortization of stock-based compensation expense
    
    
    691
    
    
    
    193
    
    
    
    350Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    200Recognition of stock-based compensation expense
    
    
    141
    
    
    
    272
    
    
    
    Dividends in excess of (equity in undistributed) earnings of subsidiaries
    
    
    (26,386
    )
    
    
    (17,098
    )
    
    
    (44,928
    )Other
    
    
    7,400
    
    
    
    (545
    )
    
    
    (5,538
    )Net cash provided by operating activities from continuing operations
    
    
    62,371
    
    
    
    44,501
    
    
    
    14,593Investing ActivitiesNet (increase) decrease in money market investments
    
    
    77
    
    
    
    (16,772
    )
    
    
    (45,498
    )Proceeds from sales and maturities of investment securities
    
    
    1
    
    
    
    4
    
    
    
    5Purchases of investment securities
    
    
    (10
    )
    
    
    
    
    
    
    Proceeds from sale of discontinued operations
    
    
    
    
    
    
    26,250
    
    
    
    Investments in and advances to subsidiaries
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Net cash provided (used) by investing activities from continuing operations
    
    
    68
    
    
    
    9,482
    
    
    
    (70,493
    )Financing ActivitiesPrincipal reductions in short-term borrowings
    
    
    
    
    
    
    
    
    
    
    (30,000
    )Proceeds from long-term borrowings
    
    
    
    
    
    
    
    
    
    
    150,365Cash dividends paid
    
    
    (49,311
    )
    
    
    (49,286
    )
    
    
    (49,476
    )Proceeds from stock options exercised
    
    
    5,062
    
    
    
    8,267
    
    
    
    6,334Shares acquired for retirement
    
    
    (18,190
    )
    
    
    (12,964
    )
    
    
    (21,323
    )Net cash used by financing activities from continuing operations
    
    
    (62,439
    )
    
    
    (53,983
    )
    
    
    55,900Net increase in cash
    
    
    
    
    
    
    
    
    
    
    Cash at beginning of year
    
    
    5
    
    
    
    5
    
    
    
    5Cash at end of year
    
    $
    5
    
    
    $
    5
    
    
    $
    5
 Note 24. Subsequent Events (unaudited)
 Strategic Business Alliances for the Mortgage Operations, Secondary Marketing and Title Services
Functions
  Consolidation of the Consumer and Commercial Loan Operations Functions
  102




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
       
 
 103




---



##### Table of Contents



SELECTED QUARTERLY INFORMATION (unaudited)
 .
 Table 14. Selected Quarterly Information
 (in thousands except,
    
    2005
    
    
    2004per share data)
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    First(Restated)
    
    
    (Restated)
    
    
    (Restated)Interest income
    
    $
    111,958
    
    
    $
    108,506
    
    
    $
    103,619
    
    
    $
    99,166
    
    
    $
    97,170
    
    
    $
    95,275
    
    
    $
    93,407
    
    
    $
    92,427Interest expense
    
    
    42,863
    
    
    
    38,864
    
    
    
    34,840
    
    
    
    30,933
    
    
    
    28,690
    
    
    
    26,566
    
    
    
    25,723
    
    
    
    25,602Net interest income
    
    
    69,095
    
    
    
    69,642
    
    
    
    68,779
    
    
    
    68,233
    
    
    
    68,480
    
    
    
    68,709
    
    
    
    67,684
    
    
    
    66,825Provision for loan losses (1)
    
    
    (7,287
    )
    
    
    4,000
    
    
    
    1,396
    
    
    
    3,000
    
    
    
    4,609
    
    
    
    6,506
    
    
    
    3,544
    
    
    
    6,950Noninterest income
before securities gains
    
    
    19,930
    
    
    
    23,941
    
    
    
    23,109
    
    
    
    22,455
    
    
    
    23,644
    
    
    
    22,746
    
    
    
    24,438
    
    
    
    22,143Investment securities gains (losses) (3)
    
    
    (8,970
    )
    
    
    
    
    
    
    37
    
    
    
    6
    
    
    
    10
    
    
    
    530
    
    
    
    (2,053
    )
    
    
    Noninterest expense (4)
    
    
    60,901
    
    
    
    60,550
    
    
    
    60,990
    
    
    
    60,601
    
    
    
    61,117
    
    
    
    78,433
    
    
    
    61,206
    
    
    
    59,522Net income (loss) from continuing operations
    
    
    18,888
    
    
    
    20,992
    
    
    
    20,565
    
    
    
    20,080
    
    
    
    20,286
    
    
    
    5,787
    
    
    
    18,686
    
    
    
    16,920Discontinued operations:Income from discontinued operations (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,100
    
    
    
    36
    
    
    
    523Gain on sale
of discontinued operations (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,759
    
    
    
    
    
    
    
    Total income
from discontinued operations (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,859
    
    
    
    36
    
    
    
    523Net income (loss)
    
    
    18,888
    
    
    
    20,992
    
    
    
    20,565
    
    
    
    20,080
    
    
    
    20,286
    
    
    
    19,646
    
    
    
    18,722
    
    
    
    17,443Discontinued operationsInterest income
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    754
    
    
    $
    1,968
    
    
    $
    1,967Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162
    
    
    
    434
    
    
    
    464Net interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    592
    
    
    
    1,534
    
    
    
    1,503Provision for loan losses (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,521
    )
    
    
    956
    
    
    
    50Noninterest income
before securities
gains (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,802
    
    
    
    418
    
    
    
    369Investment securities gains (losses) (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    Noninterest expense (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    540
    
    
    
    937
    
    
    
    1,012Net income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,859
    
    
    
    36
    
    
    
    523Per Share of Common StockIncome from continuing operations:Basic
    
    
    0.44
    
    
    
    0.49
    
    
    
    0.48
    
    
    
    0.46
    
    
    
    0.47
    
    
    
    0.14
    
    
    
    0.43
    
    
    
    0.39Diluted
    
    
    0.44
    
    
    
    0.48
    
    
    
    0.47
    
    
    
    0.46
    
    
    
    0.46
    
    
    
    0.13
    
    
    
    0.43
    
    
    
    0.39Income from discontinued operations:Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.32
    
    
    
    
    
    
    
    0.01Diluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.32
    
    
    
    
    
    
    
    0.01Net income (loss):Basic
    
    
    0.44
    
    
    
    0.49
    
    
    
    0.48
    
    
    
    0.46
    
    
    
    0.47
    
    
    
    0.46
    
    
    
    0.43
    
    
    
    0.40Diluted
    
    
    0.44
    
    
    
    0.48
    
    
    
    0.47
    
    
    
    0.46
    
    
    
    0.46
    
    
    
    0.45
    
    
    
    0.43
    
    
    
    0.40Cash dividends declared
    
    
    0.285
    
    
    
    0.285
    
    
    
    0.285
    
    
    
    0.285
    
    
    
    0.285
    
    
    
    0.285
    
    
    
    0.285
    
    
    
    0.285Market value:(5)High
    
    
    30.22
    
    
    
    32.15
    
    
    
    30.98
    
    
    
    34.81
    
    
    
    35.43
    
    
    
    33.36
    
    
    
    33.99
    
    
    
    34.00Low
    
    
    26.67
    
    
    
    28.20
    
    
    
    26.35
    
    
    
    29.02
    
    
    
    32.01
    
    
    
    29.42
    
    
    
    28.31
    
    
    
    31.55Close
    
    
    27.75
    
    
    
    28.40
    
    
    
    30.22
    
    
    
    29.36
    
    
    
    34.35
    
    
    
    32.57
    
    
    
    31.05
    
    
    
    32.63
 
 (1)
    
    Provision for loan losses includes, in the fourth quarter of 2005, a $9.1 million
insurance settlement relating to a claim for recovery of fraud losses suffered in connection with
two loans made by the Corporation and subsequently charged-off in 2002 and 2003.(2)
    
    Noninterest income includes, in the fourth quarter of 2005, a charge of $3.6
million related to a fair value change in CD swap derivatives.(3)
    
    Investment
securities gains (losses) includes, in the fourth quarter of 2005, losses of $9.0 million on sale
of investment securities.(4)
    
    Noninterest expense includes, in the third quarter of 2004, a prepayment penalty
of $18.0 million on the prepayment of FHLB debt.(5)
    
    Citizens Banking Corporation common stock is traded on the National
Market tier of the Nasdaq stock market (trading symbol: CBCF). At December 31,
2005, there were approximately 15,094 shareholders of the Corporations common stock. 104




---



##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Report on Managements Assessment of Internal Control over Financial Reporting
  
    
    Pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Corporation;
    
    Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the Corporation are
being made only in accordance with authorizations of management and the directors of the
Corporation; and
    
    Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Corporations assets that could have a material
effect on the financial statements.
   105




---



##### Table of Contents



(-s- Charles D. Christy)
    

(-s- William R. Hartman)Charles D. Christy
    
    William R. HartmanExecutive Vice President and Chief Financial Officer
    
    Chairman, President and Chief Executive Officer
 Changes in Internal Control over Financial Reporting
  106




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 The Board of Directors and Shareholders of Citizens Banking Corporation
     .
  
 
 107




---



##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 Part III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  108




---



##### Table of Contents



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 $.10 per page to cover the costs of
furnishing the exhibit.
   109




---



##### Table of Contents



SIGNATURES
  
 by
    
    /s/ William R. Hartman
    
    Date: March 10, 2006William R. HartmanChairman, President and Chief Executive Officer
  Signature
    
    Capacity
    
    Date/s/ Charles D. Christy
    
    Executive Vice President and Chief Financial Officer
    
    March 10, 2006Charles D. Christy/s/ William R. Hartman
    
    Chairman of the Board, President, Chief Executive Officer, and
Director
    
    March 10, 2006William R. Hartman/s/ Edward P. Abbott
    
    Director
    
    March 10, 2006Edward P. Abbott/s/ Lizabeth A. Ardisana
    
    Director
    
    March 10, 2006Lizabeth A. Ardisana/s/ Joseph P. Day
    
    Director
    
    March 10, 2006Joseph P. Day/s/ Richard J. Dolinski
    
    Director
    
    March 10, 2006Richard J. Dolinski/s/ Benjamin W. Laird
    
    Director
    
    March 10, 2006Benjamin W. Laird/s/ Stephen J. Lazaroff
    
    Director
    
    March 10, 2006Stephen J. Lazaroff/s/ William C. Shedd
    
    Director
    
    March 10, 2006William C. Shedd
 110




---



##### Table of Contents



SIGNATURES (continued)
 Signature
    
    Capacity
    
    Date/s/ Kendall B. Williams
    
    Director
    
    March 10, 2006Kendall B. Williams/s/ James L. Wolohan
    
    Director
    
    March 10, 2006James L. Wolohan
 111




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.
    
    Exhibit2.1
    
    Stock Purchase Agreement by and between Metropolitan Bank Group, Inc.,
and Citizens Banking Corporation, Parent of Citizens Bank  Illinois,
National Association, dated as of April 2, 2004 and Amendment No. 1 thereto,
dated August 4, 2004 (incorporated by reference from Exhibit 2.1 of
Citizens 2004 Second Quarter Report on Form 10-Q).3.1
    
    Restated Articles of Incorporation, as amended. (incorporated by
reference from Exhibit 3(a) of Citizens 2002 Second Quarter Report on Form
10-Q).3.2
    
    Amended and Restated Bylaws dated March 28, 2003 (incorporated by
reference from Exhibit 3.2 of Citizens December 31, 2002 Annual Report on
Form 10-K).4.1
    
    Rights Agreement, dated May 23, 2000, between Citizens and Citizens Bank,
as Rights Agent (incorporated by reference from Exhibit 4.1 of Citizens
Current Report on Form 8-K filed June 8, 2000).4.2
    
    Indenture, dated as of January 27, 2003 among Citizens Banking
Corporation and JP Morgan Chase Bank, as Trustee (filed as Exhibit 4.1 to
Citizens Banking Corporations registration statement on Form S-4,
registration no. 333-104472, and incorporated herein by reference).4.3
    
    Registration Rights Agreement, dated as of January 27, 2003 among
Citizens Banking Corporation and Morgan Stanley, Keefe, Bruyette & Woods,
Inc., Robert W. Baird & Co., Credit Suisse First Boston, Fahnestock & Co.
Inc., Howe Barnes Investments, Inc. and McDonald Investments, as Initial
Purchasers (filed as Exhibit 4.2 to Citizens Banking Corporations
registration statement on Form S-4, registration no. 333-104472, and
incorporated herein by reference).4.4
    
    Floating Rate Junior Subordinated Deferrable Interest Debentures dated as
of June 26, 2003 (incorporated by reference from Exhibit 4.1 of Citizens
2003 Second Quarter Report on Form 10-Q).10.1*
    
    Citizens Banking Corporation Second Amended Stock Option Plan
(incorporated by reference from Exhibit 4 of Citizens registration statement
on Form S-8 filed May 5, 1992, Registration No. 33-47686).10.2*
    
    Citizens Banking Corporation Third Amended Stock Option Plan
(incorporated by reference from Exhibit 10(r) of Citizens 1997 Second Quarter
Report on Form 10-Q).10.3*
    
    First Amendment to Citizens Banking Corporation Third Amended Stock
Option Plan (incorporated by reference from Exhibit 10.2 of Citizens 2000
Second Quarter Report on Form 10-Q).10.4*
    
    Citizens Banking Corporation All-Employee Stock Option Plan
(incorporated by reference from Exhibit 99 of Citizens registration statement
on Form S-8 filed June 26, 2000, Registration No. 333-40100).10.5*
    
    Citizens Banking Corporation Stock Option Plan for Directors
(incorporated by reference from Exhibit 99 of Citizens registration statement
on Form S-8 filed July 21, 1995, Registration No. 33-61197).10.6*
    
    First Amendment to Citizens Banking Corporation Stock Option Plan for
Directors (incorporated by reference from Exhibit 10.3 of Citizens 2000
Second Quarter Report on Form 10-Q).10.7*
    
    Citizens Banking Corporation Stock Compensation Plan (incorporated by
reference from exhibit 10.13 of Citizens 2001 Annual Report on Form 10-K).
 112




---



##### Table of Contents



EXHIBIT INDEX (continued)
 ExhibitNo.
    
    Exhibit10.8*
    
    Post Effective Amendment No. 1 to Form S-4 on Form S-8 pertaining to
F&M Bancorporation, Inc. 1993 Incentive Stock Option Plan and F&M
Bancorporation, Inc. 1993 Stock Option Plan for Non-employee Directors
(incorporated by reference to Form S-8 filed December 22, 1999, file number
333-86569).10.9*
    
    Citizens Banking Corporation Amended and Restated Section 401(k) Plan
(incorporated by reference from Exhibit 99.1 of Citizens registration
statement on Form S-8 filed August 2, 1996  Registration No. 333-09455).10.11*
    
    Citizens Banking Corporation Amended and Restated Directors Deferred
Compensation Plan (incorporated by reference from Exhibit 10.11 of Citizens
2002 Annual Report on Form 10-K).10.13
    
    Amended and Restated Declaration of Trust dated as of June 26, 2003 by
and among U.S. Bank National Association, as institutional Trustee, Citizens
Banking Corporation, as Sponsor, and William R. Hartman, Charles D. Christy
and Thomas W. Gallagher as Administrators (incorporated by reference from
Exhibit 10.1 of Citizens 2003 Second Quarter Report on Form 10-Q).10.14
    
    Placement Agreement, dated June 16, 2003, between Citizens, Citizens
Michigan Statutory Trust I, FTN Financial Capital Markets and Keefe Bruyette &
Woods, Inc. (incorporated by reference from Exhibit 10.2 of Citizens 2003
Second Quarter Report on Form 10-Q).10.15
    
    Guarantee Agreement dated as of June 26, 2003 by and between Citizens
Banking Corporation and U.S. Bank National Association (incorporated by
reference from Exhibit 10.3 of Citizens 2003 Second Quarter Report on Form
10-Q).10.16*
    
    Amended and Restated Employment Agreement by and between Citizens and
William R. Hartman dated as of May 29, 2003 (incorporated by reference from
Exhibit 10.4 of Citizens 2003 Second Quarter Report on Form 10-Q).10.17*
    
    Form of Change in Control Agreement by and between Citizens and certain
executive officers (incorporated by reference from Exhibit 10.17 of Citizens
2003 Annual Report on Form 10-K.)10.18*
    
    Change in Control Agreement, dated as of April 7, 2003, by and between
Citizens and Randall J. Peterson (incorporated by reference from Exhibit 10.18
of Citizens 2003 Annual Report on Form 10-K.)10.20*
    
    Form of Nonqualified Stock Option Agreement for Nonemployee Directors
under the Citizens Banking Corporation Stock Compensation Plan (incorporated by
reference from Exhibit 10.20 of Citizens 2004 Third Quarter Report on Form
10-Q).10.21*
    
    Form of Nonqualified Stock Option Agreement for Employees under the
Citizens Banking Corporation Stock Compensation Plan (incorporated by reference
from Exhibit 10.21 of Citizens 2004 Third Quarter Report on Form 10-Q).10.22*
    
    Form of Restricted Stock Agreement under the Citizens Banking
Corporation Stock Compensation Plan (incorporated by reference from Exhibit
10.22 of Citizens 2004 Third Quarter Report on Form 10-Q).10.23*
    
    2005 Management Incentive Plan (incorporated by reference from
Exhibit 10.19 of Citizens 2005 First Quarter Report on Form 10-Q1
 113




---



##### Table of Contents



EXHIBIT INDEX (continued)
 ExhibitNo.
    
    Exhibit10.24*
    
    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)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 114




---



##### Table of Contents



115