10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2010

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission file Number 001-33063

CITIZENS REPUBLIC BANCORP, INC.

(Exact name of registrant as specified in its charter)

MICHIGAN	38-2378932
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
328 S. Saginaw St., Flint, Michigan	48502
(Address of principal executive offices)	(Zip Code)

(810) 766-7500

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one)

Large accelerated filer o Accelerated filer þ Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at October 29, 2010
Common Stock, No Par Value	397,089,175 Shares

Citizens Republic Bancorp, Inc.
Index to Form 10-Q

	Page
Part I – Financial Information (unaudited)
Item 1 — Financial Statements (unaudited)
Consolidated Balance Sheets	3
Consolidated Statements of Operations	4
Consolidated Statements of Changes in Shareholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3 — Quantitative and Qualitative Disclosures about Market Risk	53
Item 4 — Controls and Procedures	53
Part II – Other Information
Item 1A — Risk Factors	54
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3 — Defaults Upon Senior Securities	55
Item 6 — Exhibits	56
Signatures	57
Exhibit Index	58
EX-10.59
EX-10.60
EX-10.61
EX-10.62
EX-31.1
EX-31.2
EX-32.1

2

Consolidated Balance Sheets (Unaudited)

Citizens Republic Bancorp and Subsidiaries

	September 30,			December 31,			September 30,
(in thousands)	2010			2009			2009
Assets
Cash and due from banks	$	142,025		$	156,093		$	156,608
Money market investments		530,169			686,285			512,289
Investment Securities:
Securities available for sale, at fair value		2,258,452			2,076,794			2,075,004
Securities held to maturity, at amortized cost (fair value of $118,155, $116,368 and $120,396, respectively)		112,029			114,249			114,249
Total investment securities		2,370,481			2,191,043			2,189,253
FHLB and Federal Reserve stock		157,304			155,084			155,084
Portfolio loans:
Commercial and industrial		1,657,383			1,921,755			2,047,207
Commercial real estate		2,503,685			2,811,539			2,881,839
Total commercial		4,161,068			4,733,294			4,929,046
Residential mortgage		800,521			1,025,248			1,073,253
Direct consumer		1,091,704			1,224,182			1,269,207
Indirect consumer		834,712			805,181			825,316
Total portfolio loans		6,888,005			7,787,905			8,096,822
Less: Allowance for loan losses		(324,046	)		(338,940	)		(336,270	)
Net portfolio loans		6,563,959			7,448,965			7,760,552
Loans held for sale		52,191			80,219			61,134
Premises and equipment		106,272			110,703			114,000
Goodwill		318,150			318,150			318,150
Other intangible assets		11,306			14,378			15,551
Bank owned life insurance		218,056			220,190			219,802
Other assets		168,991			214,560			214,924
Assets of discontinued operations		—			335,961			354,429
Total assets	$	10,638,904		$	11,931,631		$	12,071,776
Liabilities
Noninterest-bearing deposits	$	1,297,579		$	1,288,303		$	1,238,969
Interest-bearing demand deposits		947,126			1,055,290			1,147,363
Savings deposits		2,704,589			2,460,114			2,504,773
Time deposits		3,151,652			3,697,056			3,497,986
Total deposits		8,100,946			8,500,763			8,389,091
Federal funds purchased and securities sold under agreements to repurchase		42,334			32,900			42,255
Other short-term borrowings		710			6,900			7,200
Other liabilities		152,531			124,718			143,560
Long-term debt		1,185,322			1,512,987			1,670,248
Liabilities of discontinued operations		—			422,327			415,992
Total liabilities		9,481,843			10,600,595			10,668,346
Shareholders’ Equity
Preferred stock — no par value
Authorized - 5,000,000 shares; Issued and outstanding - 300,000 at 9/30/10, 12/31/09, and 9/30/09, redemption value of $300 million		276,676			271,990			270,487
Common stock — no par value
Authorized - 1,050,000,000 shares at 9/30/10,12/31/09, and 9/30/09; Issued and outstanding - 397,070,684 at 9/30/10, 394,397,406 at 12/31/09 and 394,470,383 at 9/30/09		1,431,314			1,429,771			1,429,657
Retained deficit		(566,543	)		(363,632	)		(293,650	)
Accumulated other comprehensive income (loss)		15,614			(7,093	)		(3,064	)
Total shareholders’ equity		1,157,061			1,331,036			1,403,430
Total liabilities and shareholders’ equity	$	10,638,904		$	11,931,631		$	12,071,776

See notes to consolidated financial statements.

3

Consolidated Statements of Operations (Unaudited)

Citizens Republic Bancorp and Subsidiaries

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2010			2009			2010			2009
Interest Income
Interest and fees on loans	$	96,080		$	111,368		$	298,802		$	341,337
Interest and dividends on investment securities:
Taxable		18,082			17,773			54,943			56,463
Tax-exempt		3,514			6,128			12,731			19,171
Dividends on FHLB and Federal Reserve stock		735			1,587			2,763			3,466
Money market investments		350			315			1,181			889
Total interest income		118,761			137,171			370,420			421,326
Interest Expense
Deposits		23,518			34,668			78,939			119,484
Short-term borrowings		20			29			61			160
Long-term debt		13,665			23,461			44,087			73,145
Total interest expense		37,203			58,158			123,087			192,789
Net Interest Income		81,558			79,013			247,333			228,537
Provision for loan losses		89,617			77,393			261,586			239,813
Net interest (loss) income after provision for loan losses		(8,059	)		1,620			(14,253	)		(11,276	)
Noninterest Income
Service charges on deposit accounts		10,609			11,035			30,264			31,290
Trust fees		3,837			3,853			11,468			10,573
Mortgage and other loan income		2,590			3,182			7,377			9,837
Brokerage and investment fees		1,060			1,473			3,315			4,133
ATM network user fees		1,864			1,689			5,232			4,652
Bankcard fees		2,261			1,972			6,534			5,835
Net loss on loans held for sale		(1,441	)		(860	)		(17,548	)		(11,362	)
Net loss on debt extinguishment		—			(15,929	)		—			(15,929	)
Investment securities gains		—			—			14,067			5
Other income		5,176			4,281			9,922			9,825
Total noninterest income		25,956			10,696			70,631			48,859
Noninterest Expense
Salaries and employee benefits		32,740			37,394			94,090			105,377
Occupancy		6,529			6,447			20,129			20,568
Professional services		2,737			3,033			7,605			8,886
Equipment		3,076			2,959			9,127			8,726
Data processing services		4,702			4,461			14,098			12,920
Advertising and public relations		1,605			1,878			5,018			5,562
Postage and delivery		1,187			1,297			3,496			4,239
Other loan expenses		4,355			6,271			14,880			18,922
Losses on other real estate (ORE)		1,967			3,924			12,508			15,223
ORE expenses		1,327			1,624			3,317			3,108
Intangible asset amortization		908			1,874			3,072			5,863
Goodwill impairment		—			—			—			256,272
Other expense		13,607			10,304			42,513			38,104
Total noninterest expense		74,740			81,466			229,853			503,770
Loss from Continuing Operations Before Income Taxes		(56,843	)		(69,150	)		(173,475	)		(466,187	)
Income tax provision (benefit) from continuing operations		5,628			(11,747	)		9,475			(26,326	)
Loss from Continuing Operations		(62,471	)		(57,403	)		(182,950	)		(439,861	)
Discontinued operations:
Income (loss) from discontinued operations (net of income tax)		—			480			(3,822	)		(9,624	)
Net Loss		(62,471	)		(56,923	)		(186,772	)		(449,485	)
Dividend on redeemable preferred stock		(5,451	)		(5,224	)		(16,139	)		(14,523	)
Net Loss Attributable to Common Shareholders	$	(67,922	)	$	(62,147	)	$	(202,911	)	$	(464,008	)
Earnings (Loss) Per Share from Continuing Operations
Basic	$	(0.17	)	$	(0.49	)	$	(0.51	)	$	(3.59	)
Diluted		(0.17	)		(0.49	)		(0.51	)		(3.59	)
Earnings (Loss) Per Share from Discontinued Operations
Basic	$	—		$	0.01		$	(0.01	)	$	(0.08	)
Diluted		—			0.01			(0.01	)		(0.08	)
Net Loss Per Common Share:
Basic	$	(0.17	)	$	(0.48	)	$	(0.52	)	$	(3.67	)
Diluted		(0.17	)		(0.48	)		(0.52	)		(3.67	)
Average Common Shares Outstanding:
Basic		394,021			128,467			393,880			126,453
Diluted		394,021			128,467			393,880			126,453

4

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

Citizens Republic Bancorp and Subsidiaries

												Accumulated
									Retained			Other
	Preferred		Common Stock						Earnings			Comprehensive
(in thousands, except per share amounts)	Stock		Shares			Amount			(Deficit)			Income (Loss)			Total
Balance at December 31, 2009	$	271,990		394,397		$	1,429,771		$	(363,632	)	$	(7,093	)	$	1,331,036
Comprehensive loss, net of tax:
Net loss										(186,772	)					(186,772	)
Other comprehensive income (loss):
Net unrealized gain on securities available-for-sale, net of tax effect of $810													25,693
Net change in unrealized loss on qualifying cash flow hedges													(2,986	)
Net change in unrecognized pension and post retirement costs													—
Other comprehensive income total																22,707
Total comprehensive loss																(164,065	)
Accretion of preferred stock discount		4,686								(4,686	)					---
Accrued dividend on preferred stock										(11,453	)					(11,453	)
Proceeds from stock options exercised and restricted stock activity				2,699			—									---
Recognition of stock-based compensation							1,568									1,568
Shares purchased for taxes				(25	)		(25	)								(25	)
Balance — September 30, 2010	$	276,676		397,071		$	1,431,314		$	(566,543	)	$	15,614		$	1,157,061
Balance at December 31, 2008	$	266,088		125,997		$	1,214,469		$	170,358		$	(49,594	)	$	1,601,321
Comprehensive loss, net of tax:
Net loss										(449,485	)					(449,485	)
Other comprehensive income (loss):
Net unrealized gain on securities available-for-sale, net of tax effect of ($29,805)													55,351
Net change in unrealized loss on qualifying cash flow hedges, net of tax effect of $2,863													(5,317	)
Net change in unrecognized pension and post retirement costs, net of tax effect of $1,887													(3,504	)
Other comprehensive income total																46,530
Total comprehensive loss																(402,955	)
Exchange of subordinated debt and trust preferred stock for common stock, net of costs of $6,033				268,216			213,904									213,904
Dividends on redeemable preferred stock		4,399								(14,523	)					(10,124	)
Proceeds from stock options exercised and restricted stock activity				303			—									—
Recognition of stock-based compensation				—			1,351									1,351
Shares purchased for taxes				(46	)		(67	)								(67	)
Balance — September 30, 2009	$	270,487		394,470		$	1,429,657		$	(293,650	)	$	(3,064	)	$	1,403,430

See notes to consolidated financial statements.

5

Consolidated Statements of Cash Flows (Unaudited)

Citizens Republic Bancorp and Subsidiaries

	Nine Months Ended
	September 30,
(in thousands)	2010			2009
Operating Activities:
Net loss	$	(186,772	)	$	(449,485	)
Loss from discontinued operations, net of income tax		(3,822	)		(9,624	)
Loss from continuing operations		(182,950	)		(439,861	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses		261,586			239,813
Goodwill impairment		—			256,272
Depreciation and software amortization		9,240			9,042
Amortization of intangibles		3,072			5,863
Net decrease (increase) in current and deferred income taxes		24,856			(10,789	)
Amortization and fair value adjustments of purchase accounting mark-to-market, net		(6,157	)		(7,586	)
Fair value adjustment on loans held for sale and other real estate		13,399			19,623
Amortization of issuance costs on long term debt		396			913
Net amortization on investment securities		4,232			132
Net loss on debt extinguishment		—			15,929
Investment securities gains		(14,067	)		(5	)
Loans originated for sale		(117,372	)		(242,987	)
Proceeds from loans held for sale		119,563			256,503
Net gains from loan sales		(2,994	)		(5,716	)
Net loss on other real estate		1,900			1,103
Recognition of stock-based compensation		1,568			1,351
Discontinued operations, net		17,750			(1,281	)
Other		25,103			3,192
Net cash provided by operating activities		159,125			101,511
Investing Activities:
Net decrease (increase) in money market investments		156,116			(306,686	)
Securities available-for-sale:
Proceeds from sales		412,402			1,050
Proceeds from maturities and payments		684,996			481,768
Purchases		(1,276,566	)		(382,357	)
Securities held-to-maturity:
Proceeds from maturities and payments		2,230			1,508
Net decrease in loans and leases		613,282			683,505
Proceeds from sales of other real estate		35,423			26,258
Net increase in properties and equipment		(4,833	)		(5,737	)
Net proceeds from sale of discontinued operations		35,369			—
Discontinued operations, net		312,402			(3,235	)
Net cash provided by investing activities		970,821			496,074
Financing Activities:
Net increase in demand and savings deposits		145,587			627,812
Net decrease in time deposits		(545,821	)		(870,001	)
Net increase (decrease) in short-term borrowings		3,245			(15,036	)
Principal reductions in long-term debt		(326,660	)		(318,208	)
Cash dividends paid on preferred stock		—			(10,124	)
Shares acquired for retirement and purchased for taxes		(25	)		(67	)
Discontinued operations, net		(420,340	)		(18,852	)
Net cash used by financing activities		(1,144,014	)		(604,476	)
Net decrease in cash and due from banks		(14,068	)		(6,891	)
Cash and due from banks at beginning of period		156,093			163,499
Cash and due from banks at end of period	$	142,025		$	156,608
Supplemental Cash Flow Information:
Interest paid	$	122,462		$	201,511
Income tax refunds, net		(16,214	)		(14,654	)
Supplemental Disclosures of noncash Items
Exchange of long-term debt for common stock		—			204,008
Exchange of subordinated debt and preferred stock for common stock		—			(219,937	)
Loans transferred to other real estate owned		25,061			38,294
Loans transferred to held for sale		48,673			—
Held for sale loans transferred to other real estate		15,177			10,247
Accretion of preferred stock discount		4,686			4,399

See notes to consolidated financial statements.

6

Part I — Financial Information

Item 1 — Consolidated Financial Statements

Notes to Consolidated Financial Statements (Unaudited)

Citizens Republic Bancorp, Inc. and Subsidiaries

Note 1. Basis of Presentation and Accounting Policies

The accompanying unaudited consolidated financial statements of Citizens Republic Bancorp, Inc. (“Citizens” or the “Corporation”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. Certain amounts have been reclassified to conform with the current year presentation. Citizens’ significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in Citizens’ 2009 Annual Report on Form 10-K. For interim reporting purposes, Citizens follows the same basic accounting policies, as updated by the information contained in this report. For further information, refer to the consolidated financial statements and footnotes included in Citizens’ 2009 Annual Report on Form 10-K. Citizens maintains an internet website at www.citizensbanking.com where the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available without charge, as soon as reasonably practicable after Citizens files each such report with, or furnishes it to, the U.S. Securities and Exchange Commission (“SEC”). The information on Citizens’ website does not constitute a part of this report.

The Corporation has two active wholly owned trusts formed for the purpose of issuing securities which qualify as regulatory capital and are considered Variable Interest Entities (“VIEs”). The Corporation is not the primary beneficiary, and consequently, the trusts are not consolidated in the consolidated financial statements. Each of the two active trusts issued trust preferred securities to investors in 2006 and 2003, with respect to which there remain $48.3 million and $25.8 million in aggregate liquidation amounts outstanding, respectively. The gross proceeds from the issuances were used to purchase junior subordinated deferrable interest debentures issued by Citizens, which is the sole asset of each trust. The trust preferred securities held by these entities qualify as Tier 1 capital and are classified as “long-term debt” on the Consolidated Balance Sheets, with the associated interest expense recorded in “long-term debt” on the Consolidated Statements of Operations. The expected losses and residual returns of these entities are absorbed by the trust preferred security holders, and consequently the Corporation is not exposed to loss related to these VIEs.

Discontinued Operations

As a result of the sale of Citizens’ wholly-owned subsidiary, F&M Bank-Iowa (“F&M”) on April 23, 2010, the financial condition and operating results for this subsidiary have been segregated from the financial condition and operating results of Citizens’ continuing operations throughout this report and, as such, are presented as a discontinued operation. While all prior periods have been revised retrospectively to align with this treatment, these changes do not affect Citizens’ reported consolidated financial condition or operating results for any of the prior periods.

Written Agreement

Citizens and its wholly owned subsidiary, Citizens Bank (the “Bank”), entered into a written supervisory agreement (the “Written Agreement”) with the Federal Reserve Bank of Chicago (“FRBC”) and the Michigan Office of Financial and Insurance Regulation (“OFIR”) as a follow up to recently concluded examinations of the Bank. The Written Agreement was executed by the regulators on July 28, 2010 and announced by the regulators and posted on the Federal Reserve website on August 3, 2010. The Written Agreement formalizes steps that were in several cases already underway at Citizens and the Bank. Citizens and the Bank are committed to addressing and resolving the matters raised in the Written Agreement on a timely basis and maintaining the safety and soundness of the Bank. Citizens has complied with the requirements of the written agreement to date and is on target in meeting all other required deadlines included in the written agreement. Citizens does not currently anticipate that compliance with the Written Agreement will have a material adverse impact on its business, financial condition or results of operations.

7

New Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or “ASC”)

Accounting Standard Update (“ASU”)

Statements of Financial Accounting Standards (“SFAS”)

FASB ASU 2010-11, “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives”

This ASU clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. ASU 2010-11 was effective for Citizens beginning July 1, 2010. The adoption of ASU 2010-11 did not have a material impact on Citizens’ financial condition, results of operations or liquidity.

FASB ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements”

This ASU requires new disclosures and clarifies existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting, as well as clarify the requirements of existing disclosures. ASU 2010-06 was effective for Citizens beginning January 1, 2010, except for certain disclosure requirements which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASU 2010-06 did not have a significant impact on Citizens’ fair value disclosures.

SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (subsequently codified by ASU 2009-17, Consolidations — Topic 810)

This ASU replaces the quantitative-based risks and rewards calculation for determining which enterprise, if any, is the primary beneficiary and is required to consolidate a VIE with a qualitative approach focused on identifying which enterprise has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the entity. In addition, ASU 2009-17 requires continuous assessments of whether an enterprise is the primary beneficiary of a VIE and requires enhanced disclosures about an enterprise’s involvement with a VIE. ASU 2009-17 was effective January 1, 2010 for Citizens. The adoption did not have an impact on Citizens’ financial condition, results of operations, or liquidity.

SFAS No. 166, “Accounting for Transfers of Financial Assets” (subsequently codified by ASU 2009-16, Transfers and Servicing — Topic 860)

This ASU was issued in response to the FASB’s concerns about certain transfers of financial assets that should not qualify as sales. The most significant amendment resulting from this ASU consists of removing the concept of a qualifying special-purpose entity. It also changes the requirements for derecognizing financial assets, and requires additional disclosures as well as more information about transfers of financial assets, including securitization transactions, where entities have continuing exposure to the risks related to transferred financial assets. ASU 2009-16 was effective January 1, 2010 for Citizens. The adoption did not have an impact on Citizens’ financial condition, results of operations, or liquidity.

Note 2. Pending Accounting Pronouncements

FASB ASU 2010-20, “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”

This ASU requires new disclosures and clarifies existing disclosure requirements about an entity’s allowance for credit losses and credit quality of its financing receivables. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting, as well as clarify the requirements of existing disclosures. ASU 2010-20 is effective the first fiscal quarter ending after December 15, 2010, except for certain disclosure requirements about activity that occurs during a reporting period which are effective the first fiscal quarter beginning after December 15, 2010. Citizens does not expect the adoption of ASU 2010-20 to have a material impact on Citizens’ financial condition, results of operations or liquidity; however, the adoption will have a significant impact on Citizens’ credit disclosures.

8

Note 3. Investment Securities

The amortized cost, estimated fair value and gross unrealized gains and losses on investment securities as of September 30, 2010 and December 31, 2009 follow:

	September 30, 2010								December 31, 2009
			Estimated								Estimated
	Amortized		Fair		Gross Unrealized				Amortized		Fair		Gross Unrealized
(in thousands)	Cost		Value		Gains		Losses		Cost		Value		Gains		Losses
Securities available for sale:
Federal agencies	$	20,520	$	20,774	$	254	$	—	$	135,793	$	138,644	$	2,851	$	—
Collateralized mortgage obligations		579,877		590,415		13,485		2,947		393,143		382,943		5,138		15,338
Mortgage-backed		1,383,663		1,432,326		48,868		205		1,061,015		1,093,598		33,791		1,208
State and municipal		206,688		213,580		7,137		245		432,795		443,663		11,544		676
Other		1,359		1,357		19		21		17,951		17,946		6		11
Total available for sale	$	2,192,107	$	2,258,452	$	69,763	$	3,418	$	2,040,697	$	2,076,794	$	53,330	$	17,233
Securities held to maturity:
State and municipal
Total held to maturity	$	112,029	$	118,155	$	6,143	$	17	$	114,249	$	116,368	$	2,531	$	412
FHLB and Fed Reserve stock	$	157,304	$	157,304	$	—	$	—	$	155,084	$	155,084	$	—	$	—

Securities with amortized cost of $0.9 billion at September 30, 2010 and $1.1 billion at December 31, 2009 were pledged to secure public deposits, repurchase agreements and other liabilities. Except for obligations of the U.S. Government and its agencies, no holdings of securities of any single issuer exceeded 10% of consolidated shareholders equity at September 30, 2010 and December 31, 2009.

The amortized cost and estimated fair value of debt securities by maturity at September 30, 2010 are shown below. Maturities of mortgage-backed securities are based upon current industry prepayment schedules. Expected maturities may differ significantly from contractual maturities, as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2010
	Amortized		Estimated Fair
(in thousands)	Cost		Value
Securities available for sale:
Federal agencies and state and municipal
Contractual maturity within one year	$	47,810	$	48,419
After one year through five years		39,719		40,947
After five years through ten years		80,056		83,190
After ten years		59,623		61,798
Subtotal		227,208		234,354
Collateralized mortgage obligations and mortgage-backed		1,963,540		2,022,741
Other		1,359		1,357
Total available for sale	$	2,192,107	$	2,258,452
Securities held to maturity:
State and municipal
Contractual maturity within one year	$	1,202	$	1,231
After one year through five years		1,717		1,803
After five years through ten years		51,500		54,782
After ten years		57,610		60,339
Total held to maturity	$	112,029	$	118,155

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As of September 30, 2010, 53 securities had unrealized losses compared with 202 securities as of December 31, 2009. Securities with unrealized losses, categorized by length of time the security has been in an unrealized loss position, as of September 30, 2010 and December 31, 2009 are displayed in the following tables.

	Less than 12 Months				More than 12 Months				Total
September 30, 2010	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Securities available for sale:
Collateralized mortgage obligations	$	40,910	$	145	$	33,456	$	2,802	$	74,366	$	2,947
Mortgage-backed		42,761		202		138		3		42,899		205
State and municipal		1,962		7		4,251		238		6,213		245
Other		42		1		119		20		161		21
Total available for sale	$	85,675	$	355	$	37,964	$	3,063	$	123,639	$	3,418
Securities held to maturity:
State and municipal
Total held to maturity	$	1,761	$	17	$	—	$	—	$	1,761	$	17
Total	$	87,436	$	372	$	37,964	$	3,063	$	125,400	$	3,435

	Less than 12 Months				More than 12 Months				Total
December 31, 2009	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Securities available for sale:
Collateralized mortgage obligations	$	51,983	$	452	$	146,024	$	14,886	$	198,007	$	15,338
Mortgage-backed		109,134		1,202		251		6		109,385		1,208
State and municipal		29,055		401		9,323		275		38,378		676
Other		—		—		312		11		312		11
Total available for sale	$	190,172	$	2,055	$	155,910	$	15,178	$	346,082	$	17,233
Securities held to maturity:
State and municipal
Total held to maturity	$	16,778	$	284	$	1,438	$	128	$	18,216	$	412
Total	$	206,950	$	2,339	$	157,348	$	15,306	$	364,298	$	17,645

Citizens performs a review of securities with unrealized losses at each reporting period. Citizens assesses each holding to determine whether and when a security will recover in value, whether it intends to sell the security and whether it is more likely than not that Citizens will be required to sell the security before the value is recovered. In assessing the recovery of value, the key factors reviewed include the length of time and the extent the fair value has been less than the carrying cost, adverse conditions, if any, specifically related to the security, industry or geographic area, historical and implied volatility of the fair value of the security, credit quality factors affecting the issuer or the underlying collateral, payment structure of the security, payment history of the security, changes to the credit rating of the security, recoveries or declines in value subsequent to the balance sheet date or any other relevant factors. Evaluations are performed on a more frequent basis as the degree to which fair value is below carrying cost or the length of time that the fair value has been continuously below carrying cost increases. As of September 30, 2010, Citizens has concluded that all issuers have the ability to pay contractual cash flows. The unrealized losses displayed in the above tables are believed to be temporary and thus no impairment loss has been realized in the Consolidated Statement of Operations. Citizens has not decided to sell securities with any significant unrealized losses nor does Citizens believe it will be required to sell securities before the value is recovered, but may change its intent in response to significant, unanticipated changes in policies, regulations, statutory legislation or other aforementioned criteria.

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The collateralized mortgage obligations (“CMO”) sector includes securities where the underlying collateral consists of agency issued or whole loan mortgages. At September 30, 2010, the whole loan CMOs had a market value of $74.4 million with gross unrealized losses of $2.9 million. Citizens performs a thorough credit review on a quarterly basis for the underlying mortgage collateral as well as the supporting credit enhancement and structure. The results of the September 30, 2010 credit review demonstrated continued strength and no material degradation in the holdings.

Citizens has determined there is no other-than-temporary impairment at September 30, 2010.

For the nine months ended September 30, 2010, as part of its capital strategy Citizens sold $397.5 million of available for sale securities and recorded a net gain of $14.1 million. The proceeds from the sales were used to purchase GNMA securities which strengthened Citizens’ capital position by improving the risk profile of the investment portfolio. During the first nine months of 2009, Citizens completed security sales with proceeds of $1.0 million and recorded a gain of less than $0.1 million.

Note 4. Allowance for Loan Losses and Impaired Loans

A summary of loan loss experience during the three and nine months ended September 30, 2010 and 2009 is provided below.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2010		2009		2010		2009
Allowance for loan losses — beginning of period	$	321,841	$	330,217	$	338,940	$	252,938
Provision for loan losses		89,617		77,393		261,586		239,813
Charge-offs:
Commercial and industrial		8,144		21,141		34,010		39,094
Commercial real estate		45,910		32,076		113,069		82,151
Total commercial		54,054		53,217		147,079		121,245
Residential mortgage		23,353		9,969		104,787		12,933
Direct consumer		10,256		6,617		23,691		17,886
Indirect consumer		2,808		3,812		10,649		14,360
Charge-offs		90,471		73,615		286,206		166,424
Recoveries:
Commercial		1,410		995		3,017		4,142
Commercial real estate		579		203		2,727		2,923
Total commercial		1,989		1,198		5,744		7,065
Residential mortgage		15		5		678		13
Direct consumer		452		482		1,290		1,128
Indirect consumer		603		590		2,014		1,737
Recoveries		3,059		2,275		9,726		9,943
Net charge-offs		87,412		71,340		276,480		156,481
Allowance for loan losses — end of period	$	324,046	$	336,270	$	324,046	$	336,270

Nonperforming portfolio loans totaled $364.2 million at September 30, 2010 and $474.5 million at December 31, 2009. Some of Citizens’ nonperforming loans are considered to be impaired when Citizens has determined that it is probable that all of the principal and interest due under the original underwriting terms of the loan may not be collected. Cash collected on impaired nonaccrual loans is applied to outstanding principal. Total loans considered impaired and the allocated allowance for loan loss balances at September 30, 2010 and December 31, 2009 follow.

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	Balances				Allowance for Loan Loss
	September 30,		December 31,		September 30,		December 31,
(in thousands)	2010		2009		2010		2009
Balances
Impaired loans with specific allocated allowance	$	184,229	$	162,962	$	60,854	$	52,840
Impaired loans without specific allocated allowance		95,677		141,408		—		—
Total impaired loans	$	279,906	$	304,370	$	60,854	$	52,840
Impaired loans on nonaccrual basis	$	279,743	$	304,370	$	60,823	$	52,840
Impaired loans on accrual basis		163		—		31		—
Total impaired loans	$	279,906	$	304,370	$	60,854	$	52,840

The average balance of impaired loans for the three months ended September 30, 2010 was $282.7 million and $349.1 million for the three months ended September 30, 2009. Interest income recognized on impaired loans in both periods was immaterial. Cash collected and applied to outstanding principal during the three and nine months ended September 30, 2010 was $3.7 million and $8.7 million, respectively, compared with $4.7 million and $9.6 million for the three and nine months ended September 30, 2009, respectively.

Note 5. Goodwill

As a result of announcing the sale of F&M on January 29, 2010, Citizens performed an interim goodwill analysis during the first quarter of 2010 and concluded that there was no impairment. Goodwill was allocated to F&M based on the relative value of F&M’s regional banking equity compared with the total fair value of equity for the Regional Banking reporting unit. The analysis indicated that approximately 3.8% of the fair value of the Regional Banking unit resided in the Iowa franchise as of January 1, 2010. Therefore, Citizens allocated $12.6 million of goodwill to discontinued operations. Refer to Note 16 for additional information about discontinued operations.

A summary of goodwill associated with continuing operations allocated to the lines of business as of September 30, 2010 and December 31, 2009 follows:

(in thousands)	Regional Banking			Wealth Management		Total Goodwill
Balance at December 31, 2008	$	572,621		$	1,801	$	574,422
Impairment Loss		(256,272	)		—		(256,272	)
Balance at December 31, 2009 and September 30, 2010	$	316,349		$	1,801	$	318,150

Note 6. Long-Term Debt

The components of long-term debt as of September 30, 2010 and December 31, 2009 are presented below.

	September 30,		December 31,
(in thousands)	2010		2009
Citizens (Parent only):
Subordinated debt:
5.75% subordinated notes due February 2013	$	16,891	$	16,773
Variable rate junior subordinated debenture due June 2033		25,774		25,774
7.50% junior subordinated debentures due September 2066		48,288		48,010
Subsidiaries:
Federal Home Loan Bank advances		990,168		1,318,200
Other borrowed funds		104,201		104,230
Total long-term debt	$	1,185,322	$	1,512,987

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During the first quarter of 2010, Citizens decided to defer regularly scheduled quarterly interest payments on its outstanding junior subordinated debentures relating to its two trust preferred securities. While Citizens accrues for this obligation, it is currently in arrears with the interest payments on the junior subordinated debentures as permitted by the related documentation. As of September 30, 2010, the amount of the arrearage on the payments on the subordinated debt associated with the trust preferred securities is $3.7 million.

Note 7. Income Taxes

The income tax provision for the third quarter of 2010 was $5.6 million, compared with a benefit of $11.7 million for the third quarter of 2009. For the first nine months of 2010, the income tax provision totaled $9.5 million, compared with a benefit of $26.3 million for the same period of 2009.

The increases were primarily the result of lower pre-tax losses, the tax impact of changes in other comprehensive income and the provision for alternative minimum tax.

The effective tax rate for the third quarter of 2010 was (9.90)%, compared with 16.99% for the third quarter of 2009. For the first nine months of 2010, the effective tax rate was (5.46)%, compared with 5.65% for the same period of 2009. The effective tax rate includes adjustments for tax-exempt income and deferred tax asset valuation allowance.

Note 8. Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2010 and 2009 are presented below.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
Balance at beginning of period	$	10,404		$	(27,379	)	$	(7,093	)	$	(49,594	)
Net unrealized gain on securities available for sale for the quarter, net of tax effect of ($13,264) in 2009, and net unrealized gain on securities for the nine months period, net of tax effect of $810 in 2010 and ($29,805) in 2009		7,107			24,633			11,626			55,346
Less: Reclassification adjustment for net gains on securities included in net income for the quarter and year to date.		—			—			14,067			5
Net change in unrealized loss on cash flow hedges for the quarter, net of tax effect of $171 in 2009 and net change in unrealized loss for the nine months period, net of tax effect of $2,863 in 2009		(1,897	)		(318	)		(2,986	)		(5,317	)
Net change in unrecognized pension and postretirement costs, net of tax effect of $1,887 in 2009		—			—			—			(3,504	)
Accumulated other comprehensive income (loss), net of tax	$	15,614		$	(3,064	)	$	15,614		$	(3,064	)

The accumulated net unrealized gain on cash flow hedges was $10.1 million at September 30, 2010 and $13.1 million at December 31, 2009.

Note 9. Fair Values of Assets and Liabilities

Fair value estimates are intended to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Given that there is no active market for many of Citizens’ financial instruments, Citizens has made estimates using discounted cash flow or other valuation techniques. Inputs to these valuation methods are subjective in nature, involve uncertainties, and require significant judgment and therefore can not be determined with precision. Accordingly, the derived fair value estimates presented herein are not necessarily indicative of the amounts Citizens could realize in a current market exchange.

The fair value estimates are based on existing on- and off-balance sheet financial instruments and do not attempt to estimate the value of anticipated future business or the value of assets and liabilities that are not considered financial instruments. For example, Citizens has a substantial trust department that contributes net fee income annually. The

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trust department is not considered a financial instrument and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities that are not considered financial assets or liabilities include Citizens’ brokerage network, net deferred tax assets (and the related valuation reserves), and premises and equipment. In addition, tax ramifications related to the recognition of unrealized gains and losses such as those within the investment securities portfolio can have a significant effect on estimated fair values and have not been considered in the estimates. For these reasons, the aggregate fair value should not be considered an indication of the value of the Corporation.

Citizens groups assets and liabilities which are recorded at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest). A brief description of each level follows.

Level 1 — Valuation is based upon quoted prices for identical instruments in active markets.

Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 — Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates that market participants would use in pricing the asset or liability. Valuation techniques include the use of discounted cash flow models and similar techniques.

The estimated fair values of Citizens’ financial instruments follow.

	September 30, 2010						December 31, 2009
	Carrying			Estimated			Carrying			Estimated
(in thousands)	Amount			Fair Value			Amount			Fair Value
Financial assets:
Cash and due from banks	$	142,025		$	142,025		$	156,093		$	156,093
Money market investments		530,169			530,169			686,285			686,285
Securities available for sale		2,258,452			2,258,452			2,076,794			2,076,794
Securities held to maturity		112,029			118,155			114,249			116,368
FHLB and Federal Reserve stock		157,304			157,304			155,084			155,084
Net portfolio loans		6,563,959			5,758,801			7,448,965			6,447,963
Deferred compensation assets		10,404			10,404			11,138			11,138
Loans held for sale		52,191			52,191			80,219			80,219
Accrued interest receivable		35,818			35,818			41,387			41,387
Financial liabilities:
Deposits		8,100,946			8,153,657			8,500,763			8,534,799
Short-term borrowings		43,044			43,044			39,800			39,800
Long-term debt		1,185,322			1,249,608			1,512,987			1,565,649
Accrued interest payable		10,434			10,434			9,808			9,808
Financial instruments with off-balance sheet risk(1) :
Letters of credit(2)		(1,036	)		(5,114	)		(913	)		(5,185	)
Derivative instruments		10,283			10,283			17,959			17,959

(1)	Positive amounts represent assets, whereas negative amounts represent liabilities.
(2)	The carrying amount for letters of credit is part of the total carrying amount of net loans. It is shown here separately to disclose the estimated fair value which is based on a discounted cash flow method utilizing current market pricing. This amount is not included in the net loans estimate of fair value.

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The carrying amount approximates fair value for cash, money market investments, and accrued interest. The methods and assumptions used to estimate the fair value for other financial instruments are set forth below. There were no changes in the valuation methods used to estimate fair value during the three and nine month periods ended September 30, 2010.

Securities Available for Sale. Fair value measurement is based upon quoted prices for similar assets, if available, or matrix pricing models. Matrix pricing is a mathematical technique widely used in the banking industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. The securities in the available for sale portfolio are priced by independent providers. In obtaining such valuation information from third parties, Citizens has evaluated their valuation methodologies used to develop the fair values in order to determine whether such valuations are representative of an exit price in Citizens’ principal markets. Further, Citizens has developed an internal, independent price verification function that performs testing on valuations received from third parties. Citizens’ principal markets for its securities portfolios are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets.

Recurring Level 3 securities include auction rate securities issued by student-loan authorities and a taxable municipal Qualified Zone Academy Bond (“QZAB”). Due to the nature of the auction rate securities and the lack of a secondary market with active fair value indicators, Citizens used an income approach based on a discounted cash flow model utilizing significant unobservable inputs (Level 3) in the valuation process to estimate the transaction price between market participants for each group of securities as of the valuation date. The significant assumptions made in this modeling process included the discount rate, the term over which this discount rate would stabilize, and fail rate formulas utilizing assumed interest payments. Due to the current illiquid market for QZAB bonds, Citizens relies on models containing significant unobservable market-based inputs to determine the fair-value of these bonds. The primary unobservable pricing input was the assumption made regarding the ability for market participants to utilize the tax credits associated with this type of instrument.

Securities Held to Maturity. The fair value of securities classified as held to maturity are based upon quoted prices for similar assets, if available, or matrix pricing models.

FHLB and Federal Reserve Stock. The carrying amount of FHLB and Federal Reserve stock is used to approximate the fair value of these investments. These securities are not readily marketable, are recorded at cost (par value), and are evaluated for impairment based on the ultimate recoverability of the par value. Citizens considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. Citizens believes its investments in FHLB and Federal Reserve stock are ultimately recoverable at par.

Net Portfolio Loans. The fair value of loans and loan commitments is estimated based on discounted cash flows. The cash flows take into consideration current portfolio interest rates and repricing characteristics as well as assumptions relating to prepayment speeds. The discount rates take into consideration the current market interest rate environment, a credit risk component based on the credit characteristics of each loan portfolio, and a liquidity premium reflecting the liquidity or illiquidity of the market.

Deposits. The estimated fair value of demand deposits (e.g., noninterest and interest bearing demand, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are based on the discounted value of contractual cash flows at current interest rates. The estimated fair value of deposits does not take into account the value of Citizens’ long-term relationships with depositors, commonly known as core deposit intangibles, which are separate intangible assets, and not considered financial instruments.

Short-Term Borrowings. The carrying amounts of federal funds purchased, securities sold under agreement to repurchase and other short-term borrowings approximate their fair values because they frequently reprice to a market rate.

Long-Term Debt. The fair value is estimated using observable market prices and by discounting future cash flows using current interest rates for similar financial instruments.

Derivative Instruments. Substantially all derivative instruments held or issued by Citizens are traded in over-the-counter markets where quoted market prices are not readily available. Derivative instruments are priced by

15

independent providers using observable market assumptions with adjustments based on widely accepted valuation techniques. For those derivatives, Citizens measures fair value with models that use primarily market observable inputs, such as yield curves and option volatilities, and include the value associated with counterparty credit risk (credit valuation adjustments). Citizens assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions, and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives.

Deferred Compensation Assets. Citizens has a portfolio of mutual fund investments which hedge the deferred compensation liabilities for various employees, former employees and directors. These investments are traded on active exchanges with valuations obtained from readily available pricing sources for market transactions involving identical assets. Additionally, Citizens invests in a Guaranteed Income Fund which is valued based on similar assets in an active market.

Impaired Loans. A loan is considered to be impaired when it is probable that all of the principal and interest due under the original underwriting terms of the loan may not be collected. Impairment is typically measured based on the fair value of the underlying collateral. The fair value of the underlying collateral is determined, where possible, using market prices derived from appraisals or broker price opinions, which are considered to be Level 2. However, certain assumptions and unobservable inputs are currently being used by appraisers and brokers, therefore, qualifying the assets as Level 3 in the fair-value hierarchy. Citizens measures impairment on all nonaccrual commercial and industrial and commercial real estate loans for which it has established specific reserves as part of the specific allocated allowance component of the allowance for loan losses.

Residential Mortgage Loans Held for Sale. Residential mortgage loans held for sale are comprised of loans originated for sale in the ordinary course of business and selected nonperforming residential mortgage loans. The fair value of residential mortgage loans originated for sale in the secondary market is based on purchase commitments or quoted prices for the same or similar loans and are classified as nonrecurring Level 2. The fair value of nonperforming residential mortgage loans is based on the fair value of the underlying collateral, net of estimated costs to sell, using market prices derived from indicative pricing models which utilize projected assumptions potential investors would make and are classified as nonrecurring Level 3.

Other Real Estate. Other real estate (“ORE”) is comprised of commercial and residential real estate acquired through foreclosure proceedings or acceptance of a deed-in-lieu of foreclosure, and former branch locations. Commercial properties and former branch locations are carried at the lower of cost or market value at the time of acquisition based on the fair value of the underlying collateral, net of estimated costs to sell. This is determined using market prices derived from appraisals or broker price opinions, which are considered to be Level 2. However, certain assumptions and unobservable inputs are currently being used by appraisers and brokers, therefore, qualifying the assets as Level 3 in the fair value hierarchy. Residential real estate is recorded at the fair value of the underlying collateral, net of estimated costs to sell, using market prices derived from indicative pricing models which utilize projected assumptions Citizens believes potential investors would make, broker price opinions or appraisals, and are classified as nonrecurring Level 3. Losses arising from the initial acquisition of such properties are charged against the allowance for loan losses at the time of transfer. Subsequent valuation adjustments to reflect the lower of cost or market value, as well as gains and losses on disposal of these properties, are charged to other expenses as incurred. Citizens records ORE properties as nonrecurring Level 3.

Repossessed Assets. Repossessed assets consist of consumer assets acquired to satisfy the consumer’s outstanding delinquent debt. These assets consist of automobiles, boats, recreational vehicles and other personal items. These assets are carried at the lower of cost or market value, net of estimated costs to sell, based on internally developed procedures.

Some of the assets and liabilities discussed above are measured on a recurring basis while others are measured on a nonrecurring basis, with the determination based upon applicable existing accounting pronouncements. For example, investment securities available for sale, derivative instruments and deferred compensation assets are recorded at fair value on a recurring basis. Other assets, such as loans held for sale, impaired loans, other real estate, and repossessed assets are recorded at fair value on a nonrecurring basis. Goodwill and core deposit intangibles are measured for impairment on a nonrecurring basis and are written down when the value of the individual asset has declined.

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The following table presents the balances of assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2010.

September 30, 2010
(in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale:
Federal agencies	$	20,774	$	—	$	20,774	$	—
Collateralized mortgage obligations		590,415		—		590,403		12
Mortgage-backed		1,432,326		—		1,432,326		—
State and municipal		213,580		—		208,749		4,831
Other		1,357		—		1,024		333
Total available for sale		2,258,452		—		2,253,276		5,176
Other assets:
Derivatives designated as hedging instruments		10,363		—		10,363		—
Derivatives not designated as hedging instruments		35,344		—		35,344		—
Deferred compensation assets		10,404		7,133		3,271		—
Total other assets		56,111		7,133		48,978		—
Total assets at fair value	$	2,314,563	$	7,133	$	2,302,254	$	5,176
Other liabilities:
Derivatives not designated as hedging instruments	$	35,424	$	—	$	35,424	$	—
Total other liabilities		35,424		—		35,424		—
Total liabilities at fair value	$	35,424	$	—	$	35,424	$	—

There were no transfers between levels within the fair value hierarchy during the three and nine month periods ended September 30, 2010. The following table presents the reconciliation of Level 3 assets held by Citizens at September 30, 2010.

			Net Realized/Unrealized Gains (Losses)
							Recorded in
	Balance at						Other			Purchases, Sales			Transfers In		Balance at
	Beginning		Recorded in Earnings				Comprehensive			Issuances and			and /or Out		End of
(in thousands)	of Period		Realized (1)		Unrealized		Income (Pretax)			Settlements, Net			of Level 3		Period
Three Months Ended September 30, 2010
Securities available for sale
Collateralized mortgage obligations	$	12	$	—	$	—	$	—		$	—		$	—	$	12
State and municipal		4,884		33		—		(12	)		(74	)		—		4,831
Other		329		4		—		—			—			—		333
Total available for sale	$	5,225	$	37	$	—	$	(12	)	$	(74	)	$	—	$	5,176
Nine Months Ended September 30, 2010
Securities available for sale
Collateralized mortgage obligations	$	15	$	—	$	—	$	—		$	(3	)	$	—	$	12
State and municipal		5,353		128		—		(18	)		(632	)		—		4,831
Other		323		10		—		—			—			—		333
Total available for sale	$	5,691	$	138	$	—	$	(18	)	$	(635	)	$	—	$	5,176

⁽¹⁾ Recorded through Interest Income on the Consolidated Statement of Operations.

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The following table includes assets measured at fair value on a nonrecurring basis that have had a fair value adjustment as of September 30, 2010.

September 30, 2010	Initial Carrying		Fair Value
(in thousands)	Value		Total		Level 1		Level 2		Level 3
Impaired loans	$	355,522	$	179,564	$	—	$	—	$	179,564
Commercial loans held for sale		26,996		16,845		—		—		16,845
Residential mortgage loans held for sale		39,052		13,016		—		—		13,016
Other real estate		18,486		9,872		—		—		9,872
Repossessed assets		3,326		1,397		—		—		1,397
Total assets	$	443,382	$	220,694	$	—	$	—	$	220,694

Note 10. Pension Benefit Cost

Citizens recognizes the change in the funded status (i.e. the difference between the fair value of plan assets and the projected benefit obligations) of its pension plan as an adjustment to accumulated other comprehensive income, net of tax. This adjustment represents the unrecognized actuarial losses and unrecognized prior service costs. The components of pension expense for the three and nine months ended September 30, 2010 and 2009 are presented below.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
Defined Benefit Pension Plans
Interest cost	$	1,037		$	1,104		$	3,115		$	3,315
Expected return on plan assets		(1,200	)		(1,570	)		(3,600	)		(4,710	)
Amortization of unrecognized:
Prior service cost		8			7			22			22
Net actuarial loss		555			335			1,666			1,005
Net pension cost		400			(124	)		1,203			(368	)
Supplemental Pension Plans
Interest cost		187			130			563			446
Settlement charge related to lump sum payments		—			455			—			455
Curtailment loss		—			—			—			941
Amortization of unrecognized:
Net actuarial loss		3			4			9			10
Net pension cost		190			589			572			1,852
Postretirement Benefit Plans
Interest cost		152			152			455			455
Amortization of unrecognized:
Prior service cost		(67	)		(67	)		(201	)		(201	)
Net actuarial gain		(8	)		(8	)		(24	)		(24	)
Net postretirement benefit cost		77			77			230			230
Total pension and postretirement benefit cost		667			542			2,005			1,714
Defined contribution retirement and 401K Plans
Employer contributions		—			219			—			2,190
Total periodic benefit cost	$	667		$	761		$	2,005		$	3,904

Citizens maintains multiple employee benefit plans, including defined benefit pension, supplemental pension, postretirement healthcare, and defined contribution retirement 401(k) plans. Citizens did not make a cash contribution to the defined benefit pension plan during the first nine months of 2010 but reviews plan funding needs periodically and will make a contribution if appropriate. During the first nine months of 2010, Citizens contributed $0.4 million to

18

the supplemental pension plans and anticipates that an additional $0.1 million of contributions will be made during the remaining three months of the year. Citizens contributed $0.3 million to the postretirement benefit plan during the first nine months of 2010 and anticipates making an additional $0.1 million in contributions for the remaining portion of the year. Citizens suspended the 401(k) matching funds and annual discretionary contributions during the third quarter of 2009. During the first quarter of 2009, Citizens recognized a curtailment charge as a result of a reduction of the expected years of future service for the supplemental pension plan participants.

The pension plan assets for which Citizens determines fair value include short-term pooled money fund, equity, and fixed income securities, all of which fall into Level 2 in the fair value hierarchy at September 30, 2010. Citizens’ pension plan assets are invested solely in pooled separate account funds, which are managed by Prudential. The net asset values (“NAV”) are based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of units outstanding. The NAV’s unit price of the pooled separate accounts is not quoted on any market; however, the unit price is based on the underlying investments which are traded in an active market and are priced by independent providers. Citizens has evaluated their valuation methodologies used to develop the fair values in order to determine whether such valuations are representative of an exit price in Citizens’ principal markets. Further, Citizens has developed an internal, independent price verification function that performs annual testing on valuations received from third parties. There are no significant restrictions on Citizens’ ability to sell any of the investments in the pension plan.

The estimated fair values of Citizens’ pension plan assets at September 30, 2010 are as follows:

September 30, 2010
(in thousands)	Total		Level 1		Level 2		Level 3
Asset Category
Short-term pooled money fund	$	456	$	—	$	456	$	—
Equity securities
Large cap (1)		17,679		—		17,679		—
Mid-cap		4,572		—		4,572		—
Small-cap		6,460		—		6,460		—
International equity		9,960		—		9,960		—
Fixed income securities
Intermediate term fixed (2)		23,650		—		23,650		—
Total	$	62,777	$	—	$	62,777	$	—

(1)	This category is comprised of not actively managed low-cost equity index funds that track the S&P 500 and Russell 1000.
(2)	This category represents investment grade bonds of U.S. issuers from diverse industries.

Note 11. Stock-Based Compensation

Citizens has a stock-based compensation plan authorizing the granting of incentive and nonqualified stock options, nonvested stock awards (also known as restricted stock), restricted stock units, and performance awards to employees and non-employee directors. A plan amendment and restatement was approved by shareholders on May 4, 2010 that increased the number of shares reserved under the plan to 24,000,000, removed the 2,000,000 share sublimit for grants other than stock options and made various other changes. At September 30, 2010, Citizens had 16,365,274 shares of common stock reserved for future issuance under the current plan. The compensation cost for share based awards is recognized over the requisite service period of the award. The requisite service period is presumed to be the stated vesting period or the estimated time that will be required to satisfy any performance conditions. Restricted shares are included in outstanding stock totals, and are entitled to receive dividends and have voting rights. Restricted stock units have no voting or dividend rights but have dividend equivalent rights entitling them to additional shares at the time the units are settled for common stock.

The following table sets forth the total stock-based compensation expense resulting from stock options, restricted stock units, and restricted stock awards included in the Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009.

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	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
Stock option compensation	$	—		$	2		$	—		$	9
Restricted stock compensation and restricted stock unit compensation		439			735			1,568			1,342
Stock-based compensation expense before income taxes		439			737			1,568			1,351
Income tax benefit (1)		(154	)		(258	)		(549	)		(473	)
Total stock-based compensation expense after income taxes	$	285		$	479		$	1,019		$	878

⁽¹⁾ The income tax benefit is calculated based on the statutory rate. Due to the fact that Citizens has a valuation allowance, the income tax benefit may not be realized.

During the first quarter of 2009, a pre-tax expense reversal of $1.3 million was made to stock-based compensation as a result of actual forfeitures exceeding the estimated forfeiture rate for restricted stock.

There were no stock options granted or exercised for the three and nine months ended September 30, 2010 and 2009. New shares are issued when stock options are exercised. Citizens presents excess tax benefits from the exercise of stock options, if any, as financing cash inflows and as operating cash outflows on the Consolidated Statement of Cash Flows.

As of September 30, 2010, $3.2 million of total unrecognized compensation cost related to stock options and restricted stock is expected to be recognized over a weighted average period of 2.3 years.

The following table summarizes restricted stock activity for the nine months ended September 30, 2010.

				Weighted-Average
	Number of			Per Share Grant
	Shares			Date Fair Value
Restricted stock at December 31, 2009		618,759		$	6.35
Granted		2,992,685			1.18
Vested		(277,738	)		5.84
Forfeited		(276,426	)		1.91
Restricted stock at September 30, 2010		3,057,280		$	1.74

The total fair value of restricted stock vested during the nine months ended September 30, 2010 was $0.3 million.

Note 12. Shareholders’ Equity and Earnings Per Share

On September 30, 2009, Citizens completed the settlement of its exchange offers to issue common stock in exchange for its outstanding 5.75% Subordinated Notes due 2013 and outstanding 7.50% Enhanced Trust Preferred Securities of Citizens Funding Trust I (the “Exchange Offers”). In aggregate, 268.2 million shares at a fair value of $219.9 million ($0.82 per common share as of the expiration date of the Exchange Offers) were issued in exchange for long term debt with a carrying value of $204.0 million.

During the first quarter of 2010, Citizens decided to suspend quarterly cash dividend payments on its Series A Preferred Stock. While Citizens accrues for this obligation, it is currently in arrears in the amount of $11.5 million with the dividend payments on the Series A Preferred Stock as of September 30, 2010.

Earnings per common share is computed using the two-class method. As of September 30, 2010, potential common stock that would be generated from restrictions lapsing on unvested shares as well as additional shares issued through the exercise of stock options and warrants totaled 23,148,584 shares. As a result of being anti-dilutive, these shares were excluded from the computation of dilutive earnings per share. A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations follows.

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	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2010			2009			2010			2009
Numerator:
Loss from continuing operations	$	(62,471	)	$	(57,403	)	$	(182,950	)	$	(439,861	)
Dividend on redeemable preferred stock		(5,451	)		(5,224	)		(16,139	)		(14,523	)
Net loss from continuing operations available to common shareholders		(67,922	)		(62,627	)		(199,089	)		(454,384	)
Income (loss) from discontinued operations (net of income tax)		—			480			(3,822	)		(9,624	)
Net loss attributable to common shareholders	$	(67,922	)	$	(62,147	)	$	(202,911	)	$	(464,008	)
Denominator:
Weighted average shares outstanding		397,008			129,170			395,830			127,231
Less: participating securities included in weighted average shares outstanding		(2,987	)		(703	)		(1,950	)		(778	)
Weighted average shares outstanding for basic and dilutive earnings per common share		394,021			128,467			393,880			126,453
Basic earnings (loss) per common share from continuing operations	$	(0.17	)	$	(0.49	)	$	(0.51	)	$	(3.59	)
Diluted earnings (loss) per common share from continuing operations	$	(0.17	)	$	(0.49	)	$	(0.51	)	$	(3.59	)
Basic earnings (loss) per common share from discontinued operations	$	—		$	0.01		$	(0.01	)	$	(0.08	)
Diluted earnings (loss) per common share from discontinued operations	$	—		$	0.01		$	(0.01	)	$	(0.08	)
Basic net loss per common share	$	(0.17	)	$	(0.48	)	$	(0.52	)	$	(3.67	)
Diluted net loss per common share	$	(0.17	)	$	(0.48	)	$	(0.52	)	$	(3.67	)

Note 13. Lines of Business

Citizens is managed along the following business lines: Regional Banking, Specialty Consumer, Specialty Commercial, Wealth Management, and Other. Selected line of business information for the three and nine months ended September 30, 2010 and 2009 is provided below. Certain amounts have been reclassified to conform with the current year presentation. These reclassifications do not have a significant effect on any one line of business and do not change the totals for the Corporation. There are no significant intersegmental revenues.

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	Regional			Specialty			Specialty			Wealth
(in thousands)	Banking			Consumer			Commercial			Mgmt		Other			Total
Earnings Summary — Three Months Ended September 30, 2010
Net interest income (taxable equivalent)	$	64,340		$	8,046		$	15,653		$	171	$	(4,280	)	$	83,930
Provision for loan losses		39,939			26,898			22,780			—		—			89,617
Net interest loss after provision		24,401			(18,852	)		(7,127	)		171		(4,280	)		(5,687	)
Noninterest income		16,814			(315	)		387			5,190		3,880			25,956
Noninterest expense		52,524			8,954			3,891			3,981		5,390			74,740
(Loss) income from continuing operations before income taxes		(11,309	)		(28,121	)		(10,631	)		1,380		(5,790	)		(54,471	)
Income tax provision (benefit) (taxable equivalent)		(3,958	)		(9,842	)		(3,721	)		483		25,038			8,000
Net (loss) income from continuing operations	$	(7,351	)	$	(18,279	)	$	(6,910	)	$	897	$	(30,828	)	$	(62,471	)
Income from discontinued operations		—			—			—			—		—			—
Net (loss) income	$	(7,351	)	$	(18,279	)	$	(6,910	)	$	897	$	(30,828	)	$	(62,471	)
Average assets (in millions)	$	4,060		$	1,737		$	1,516		$	15	$	3,475		$	10,803
Earnings Summary — Three Months Ended September 30, 2009
Net interest income (taxable equivalent)	$	69,786		$	6,092		$	16,228		$	156	$	(9,504	)	$	82,758
Provision for loan losses		27,646			16,615			33,132			—		—			77,393
Net interest income after provision		42,140			(10,523	)		(16,904	)		156		(9,504	)		5,365
Noninterest income		18,886			65			(43	)		5,311		(13,523	)		10,696
Noninterest expense		54,010			10,651			4,358			4,069		8,378			81,466
Income (loss) from continuing operations before income taxes		7,016			(21,109	)		(21,305	)		1,398		(31,405	)		(65,405	)
Income tax provision (benefit) (taxable equivalent)		2,456			(7,388	)		(7,457	)		489		3,898			(8,002	)
Net income (loss) from continuing operations	$	4,560		$	(13,721	)	$	(13,848	)	$	909	$	(35,303	)	$	(57,403	)
Income (loss) from discontinued operations		645			(33	)		—			37		(169	)		480
Net income (loss)	$	5,205		$	(13,754	)	$	(13,848	)	$	946	$	(35,472	)	$	(56,923	)
Average assets (in millions)	$	4,898		$	2,194		$	1,523		$	11	$	3,503		$	12,129

Certain amounts have been reclassified to conform to current year presentation.

	Regional			Specialty			Specialty			Wealth
(in thousands)	Banking			Consumer			Commercial			Mgmt		Other			Total
Earnings Summary — Nine Months Ended September 30, 2010
Net interest income (taxable equivalent)	$	194,404		$	23,843		$	48,446		$	489	$	(11,514	)	$	255,668
Provision for loan losses		82,042			73,911			105,633			—		—			261,586
Net interest loss after provision		112,362			(50,068	)		(57,187	)		489		(11,514	)		(5,918	)
Noninterest income		48,231			(5,374	)		(7,669	)		15,131		20,312			70,631
Noninterest expense		156,996			32,316			12,567			12,437		15,537			229,853
Income (loss) from continuing operations before income taxes		3,597			(87,758	)		(77,423	)		3,183		(6,739	)		(165,140	)
Income tax provision (benefit) (taxable equivalent)		1,259			(30,715	)		(27,098	)		1,114		73,250			17,810
Net income (loss) from continuing operations	$	2,338		$	(57,043	)	$	(50,325	)	$	2,069	$	(79,989	)	$	(182,950	)
Income (loss) from discontinued operations		850			(138	)		175			102		(4,811	)		(3,822	)
Net income (loss)	$	3,188		$	(57,181	)	$	(50,150	)	$	2,171	$	(84,800	)	$	(186,772	)
Average assets (in millions)	$	4,279		$	1,795		$	1,603		$	14	$	3,629		$	11,320
Earnings Summary — Nine Months Ended September 30, 2009
Net interest income (taxable equivalent)	$	200,974		$	19,560		$	46,306		$	420	$	(26,871	)	$	240,389
Provision for loan losses		80,684			53,426			105,703			—		—			239,813
Net interest income after provision		120,290			(33,866	)		(59,397	)		420		(26,871	)		576
Noninterest income		52,393			217			(8,381	)		14,685		(10,055	)		48,859
Noninterest expense		425,172			33,570			13,673			12,361		18,994			503,770
(Loss) income from continuing operations before income taxes		(252,489	)		(67,219	)		(81,451	)		2,744		(55,920	)		(454,335	)
Income tax provision (benefit) (taxable equivalent)		(88,371	)		(23,527	)		(28,508	)		960		124,972			(14,474	)
Net (loss) income from continuing operations	$	(164,118	)	$	(43,692	)	$	(52,943	)	$	1,784	$	(180,892	)	$	(439,861	)
(Loss) income from discontinued operations		(9,193	)		(81	)		—			156		(506	)		(9,624	)
Net (loss) income	$	(173,311	)	$	(43,773	)	$	(52,943	)	$	1,940	$	(181,398	)	$	(449,485	)
Average assets (in millions)	$	5,289		$	2,232		$	1,622		$	11	$	3,503		$	12,657

Certain amounts have been reclassified to conform to current year presentation.

Note 14. Commitments, Contingent Liabilities and Guarantees

The Consolidated Financial Statements do not reflect various loan commitments (unfunded loans and unused lines of credit) and letters of credit originated in the normal course of business. Loan commitments are made to accommodate the financial needs of clients. Generally, new loan commitments do not extend beyond 90 days and unused lines of credit are reviewed at least annually. Letters of credit guarantee future payment of client financial obligations to third parties. They are normally issued for services provided or to facilitate the shipment of goods, and generally expire within one year. Both arrangements have essentially the same level of credit risk as that associated with extending loans to clients and are subject to Citizens’ normal credit policies. Inasmuch as these arrangements generally have fixed expiration dates or other termination clauses, most expire unfunded and do not necessarily represent future liquidity requirements. Collateral is obtained based on Citizens’ assessment of the client and may include receivables, inventories, real property and equipment.

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Amounts available to clients under loan commitments and standby letters of credit follow.

	September 30,		December 31,
(in thousands)	2010		2009
Loan commitments and letters of credit:
Commitments to extend credit	$	995,147	$	1,334,690
Financial standby letters of credit		176,449		228,483
Performance standby letters of credit		7,240		7,523
Commercial letters of credit		30		23
Total loan commitments and letters of credit	$	1,178,866	$	1,570,719

At September 30, 2010 and December 31, 2009, a liability of $1.9 million and $3.1 million, respectively, was recorded for possible losses on commitments to extend credit. A liability of $1.2 million and $1.1 million was recorded at September 30, 2010 and December 31, 2009, respectively, representing the value of the guarantee obligations associated with certain letters of credit, which are amortized into income over the life of the commitments. These balances are included in other liabilities on the Consolidated Balance Sheets.

Note 15. Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

Citizens is exposed to certain risks arising from both its business operations and economic conditions. Citizens manages economic risks, including interest rate, liquidity, and credit risk, primarily through the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, Citizens enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Citizens’ derivative financial instruments are used to manage differences in the amount, timing, and duration of its known or expected cash receipts and cash payments principally related to certain variable-rate loan assets and fixed-rate borrowings.

Fair Values of Derivative Instruments on the Consolidated Balance Sheets

The table below presents the fair value of Citizens’ derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009.

	Other Assets				Other Liabilities
	September 30,		December 31,		September 30,		December 31,
(in thousands)	2010		2009		2010		2009
Derivatives designated as hedging instruments
Interest rate products	$	10,363	$	17,279	$	—	$	—
Derivatives not designated as hedging instruments
Interest rate products		35,344		29,775		35,424		29,095
Total derivatives	$	45,707	$	47,054	$	35,424	$	29,095

Cash Flow Hedges of Interest Rate Risk

Citizens’ objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish this objective, Citizens primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for Citizens making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. As of September 30, 2010 and December 31, 2009, Citizens had 7 interest rate swaps with an aggregate notional amount of $285.0 million and 13 interest rate swaps with an aggregate notional amount of $460.0 million, respectively, that were designated as cash flow hedges of interest rate risk.

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The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended September 30, 2010, such derivatives were used to hedge the variable cash inflows associated with existing pools of prime and LIBOR-based loan assets. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Citizens recognized a gain of $0.2 million and $0.3 million for the three and nine months ended September 30, 2010, respectively, and a gain/(loss) of $0.1 million and ($0.1) million, respectively, for the three and nine months ended September 30, 2009 related to hedge ineffectiveness attributable to mismatches between the swap notional amounts and the aggregate principal amounts of the designated loan pools.

One swap failed during the first quarter of 2010 and was subsequently terminated in April 2010, one swap failed during the second quarter of 2010 and was subsequently terminated in June 2010 and one swap failed during the third quarter of 2010. In addition, two swaps failed to qualify for hedge accounting due to this mismatch during the fourth quarter of 2008 and were subsequently terminated in January 2009. Accordingly, the change in fair value of these swaps was recognized directly into earnings. Citizens recognized a gain of $0.2 million and $0.5 million for the three and nine months ended September 30, 2010, respectively, and a gain of $0.2 million and $0.3 million, respectively, for the three and nine months ended September 30, 2009 related to net settlements. The fair value of these swaps and their change in fair value during the three and nine months ended September 30, 2010 and 2009 are disclosed as “Derivatives Not Designated as Hedging Instruments” throughout this footnote.

Amounts reported in accumulated other comprehensive income related to derivatives are reclassified to interest income as interest payments are received on Citizens’ variable-rate assets. Citizens accelerated the reclassification of an unrealized gain in accumulated other comprehensive income of $1.0 million and $2.7 million for the three and nine months ended September 30, 2010, respectively, and $0.2 million for the nine months ended September 30, 2009 as a result of the hedged forecasted transactions becoming probable not to occur. Citizens did not accelerate any amounts from accumulated other comprehensive income for the three months ended September 30, 2009. During the next twelve months, Citizens estimates that $5.0 million will be reclassified as an increase to interest income.

The following tables summarize the impact of cash flow hedges on the Consolidated Financial Statements for the three and nine months ended September 30, 2010 and 2009.

24

	Derivative Impact on OCI gain (loss)									Derivative Ineffectiveness gain (loss)
					Location
Derivatives					Reclassified in	Reclassified from				Location Recognized
Relationship					Statement of	Accumulated OCI into				in Statement of
(in thousands)	Recognized in OCI				Operations	Statement of Operations				Operations	Amount
	Three Months Ended					Three Months Ended					Three Months Ended
	September 30,					September 30,					September 30,
	2010		2009			2010		2009			2010		2009
Cash flow hedges:
Interest rate products	$	624	$	2,785	Interest income	$	1,476	$	3,252
					Other income		1,045		—	Other income	$	233	$	63
Total	$	624	$	2,785		$	2,521	$	3,252		$	233	$	63

	Derivative Impact on OCI gain (loss)									Derivative Ineffectiveness gain (loss)
					Location
Derivatives					Reclassified in	Reclassified from				Location Recognized
Relationship					Statement of	Accumulated OCI into				in Statement of
(in thousands)	Recognized in OCI				Operations	Statement of Operations				Operations	Amount
	Nine Months Ended					Nine Months Ended					Nine Months Ended
	September 30,					September 30,					September 30,
	2010		2009			2010		2009			2010		2009
Cash flow hedges:
Interest rate products	$	5,167	$	2,135	Interest income	$	5,408	$	10,071
					Other income		2,745		244	Other income	$	321	$	(89	)
Total	$	5,167	$	2,135		$	8,153	$	10,315		$	321	$	(89	)

Fair Value Hedges of Interest Rate Risk

Citizens is exposed to changes in the fair value of certain of its fixed-rate obligations due to changes in LIBOR, the benchmark interest rate. Interest rate swaps designated as fair value hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for Citizens making variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. As of September 30, 2010 and December 31, 2009, Citizens had five fair value interest rate swaps with an aggregate notional balance of $295.0 million and 8 fair value interest rate swaps with an aggregate notional balance of $385.0 million, respectively.

For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. Citizens includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related derivatives. During the three and nine months ended September 30, 2010 and 2009, Citizens recognized gains of $1.3 million, $4.8 million, $1.5 million and $4.4 million, respectively, in interest expense related to hedge ineffectiveness. Citizens also recognized a net reduction to interest expense of $1.6 million and $2.3 million for the three months ended September 30, 2010 and 2009, respectively, and $5.7 million and $6.2 million for the nine months ended September 30, 2010 and 2009, respectively, related to Citizens’ fair value hedges, which includes net settlements on the derivatives, ineffectiveness and any amortization adjustment in the basis of the hedged items.

The following table summarizes the impact of fair value hedges on the Consolidated Financial Statements for the three and nine months ended September 30, 2010 and 2009.

	Derivative Contract (Loss) Gain												Hedged Item Gain (Loss)
Derivatives	Location in	Three Months Ended					Nine Months Ended						Location in	Three Months Ended				Nine Months Ended
Relationship	Statement of	September 30,					September 30,						Statement of	September 30,				September 30,
(in thousands)	Operations	2010			2009		2010			2009			Operations	2010		2009		2010		2009
Fair value hedges:
Interest rate products	Interest expense	$	(740	)	$	195	$	(1,513	)	$	(2,421	)	Interest expense	$	2,033	$	1,257	$	6,278	$	6,844

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Non-designated Hedges

Citizens does not use derivatives for trading or speculative purposes and does not use credit derivatives for any purpose. Derivatives not designated as hedges are used to manage Citizens’ exposure to interest rate movements and other identified risks but do not satisfy the conditions for hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly into earnings. Additionally, Citizens holds interest rate derivatives, including interest rate swaps and option products, resulting from a service Citizens provides to certain clients. Citizens executes interest rate derivatives with commercial banking clients to facilitate their respective risk management strategies. Those derivatives are simultaneously hedged by offsetting derivatives that Citizens executes with a third party, such that Citizens minimizes its net risk exposure resulting from such transactions. As of September 30, 2010 and December 31, 2009, Citizens had 255 derivative transactions with an aggregate notional amount of $856.5 million and 284 derivative transactions with an aggregate notional amount of $1.0 billion, respectively, related to this program.

The following table summarizes the impact of derivatives not designated as hedges on the Consolidated Financial Statements for the three and nine months ended September 30, 2010 and 2009.

	Location of (Loss)	Amount of (Loss) Gain Recognized in Statement of Operations
	Gain Recognized in	Three Months Ended						Nine Months Ended
Derivatives Relationship	Statement of	September 30,						September 30,
(in thousands)	Operations	2010			2009			2010			2009
Derivatives not designated as hedges
Interest rate products	Other income	$	(68	)	$	(1,018	)	$	(826	)	$	843

Credit-Risk-Related Contingent Features

Citizens has agreements with its derivative counterparties that contain a provision where if Citizens defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then it could also be declared in default on its derivative obligations. Citizens also has agreements with certain derivative counterparties that contain a provision where if it fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and Citizens would be required to settle its obligations under the agreements.

As of September 30, 2010, the fair value of derivatives in a net liability position with all counterparties, which includes accrued interest, but excludes any adjustment for non performance risk related to these agreements was $26.7 million. As of September 30, 2010, Citizens had minimum collateral posting with its derivative counterparties and assigned collateral of $25.0 million. If credit risk related contingent features underlying these agreements had been triggered as of September 30, 2010, Citizens would be required to pledge $1.7 million in additional collateral.

In addition, if Citizens’ credit rating is reduced below investment grade, then a termination event shall be deemed to have occurred with two of its counterparties and the counterparties shall have the right to terminate all affected transactions under the agreement. Citizens has breached these provisions with respect to a Moody’s rating below investment grade at August 6, 2009 and may be required to settle its obligations under the agreements at the termination value. Citizens may be required to pay additional amounts due in excess of amounts previously posted as collateral. As of September 30, 2010, the aforementioned termination value approximated $1.1 million.

Citizens does not offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against recognized fair value amounts of derivatives executed with the same counterparty under a master netting agreement. The Corporation has the right to reclaim collateral assigned of $25.0 million.

Note 16. Discontinued Operations

On January 29, 2010 Citizens entered into a stock purchase agreement with Great Western Bank whereby Great Western Bank agreed to acquire all of the stock of Citizens’ wholly owned subsidiary, F&M. F&M served markets with low growth potential outside of Citizens’ primary footprint and generated additional marketing costs to maintain the separate branding. Therefore, Citizens decided to sell F&M at a price which represented approximately 25 times

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F&M’s average earnings and 1.10 times its tangible book value. On April 23, 2010, Citizens completed the stock sale in exchange for $50.0 million in cash. As a result, the sale proceeds improved the Holding Company’s capital and liquidity positions in a manner that was non-dilutive to Citizens’ shareholders. Additionally, Citizens will not have a continuing cash flow from F&M. As of the transaction sale date, the assets and liabilities of F&M were removed from Citizens consolidated balance sheet. The assets and liabilities for the discontinued operations as of December 31, 2009 were as follows:

	December 31,
(in thousands)	2009
Assets
Cash and due from banks	$	7,045
Money market investments		19,878
Investment securities		171,115
FHLB and Federal Reserve stock		1,193
Net portfolio loans		114,523
Loans held for sale		241
Goodwill		12,594
Other assets		9,372
Assets of discontinued operations	$	335,961
Liabilities
Deposits	$	408,577
Short-term borrowings		11,263
Long-term debt		500
Other liabilities		1,987
Liabilities of discontinued operations	$	422,327

The operating results for the three and nine months ended September 30, 2010 and 2009 follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2010		2009		2010			2009
Interest income	$	—	$	3,875	$	4,409		$	11,542
Interest expense		—		2,002		1,844			6,645
Net interest income		—		1,873		2,565			4,897
Provision for loan losses		—		390		608			1,950
Noninterest income		—		1,145		(3,258	)		3,181
Noninterest expense		—		2,148		2,191			16,055
Income tax expense (benefit) from discontinued operations		—		—		330			(303	)
Net income (loss) from discontinued operations	$	—	$	480	$	(3,822	)	$	(9,624	)

In the second quarter of 2010 Citizens recognized an unrealized gain of $5.7 million associated with the F&M investment portfolio as of the transaction sale date. The loss from discontinued operations for the nine months ended September 30, 2009 included a $10.2 million goodwill impairment charge recorded in the second quarter of 2009.

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

	September 30,			June 30,			March 31,			December 31,			September 30,
Selected Quarterly Information	2010			2010			2010			2009			2009
Summary of Operations (thousands)
Net interest income	$	81,558		$	84,586		$	81,189		$	81,913		$	79,013
Provision for loan losses		89,617			70,614			101,355			84,007			77,393
Noninterest income (1)		25,956			22,282			22,393			14,274			10,696
Noninterest expense		74,740			77,010			78,103			81,369			81,466
Income tax provision (benefit) from continuing operations		5,628			3,700			147			(3,307	)		(11,747	)
Net loss from continuing operations		(62,471	)		(44,456	)		(76,023	)		(65,883	)		(57,403	)
Discontinued operations (after tax)		—			5,151			(8,973	)		1,155			480
Net loss		(62,471	)		(39,305	)		(84,996	)		(64,729	)		(56,923	)
Net loss attributable to common shareholders (2)		(67,922	)		(44,711	)		(90,278	)		(69,981	)		(62,147	)
Taxable equivalent adjustment, continuing operations		2,372			2,605			3,357			3,721			3,745
Taxable equivalent adjustment, combined		2,372			2,656			3,556			3,932			3,961
Per Common Share Data
Net loss from continuing operations:
Basic	$	(0.17	)	$	(0.12	)	$	(0.21	)	$	(0.18	)	$	(0.49	)
Diluted		(0.17	)		(0.12	)		(0.21	)		(0.18	)		(0.49	)
Discontinued operations:
Basic	$	—		$	0.01		$	(0.02	)	$	—		$	0.01
Diluted		—			0.01			(0.02	)		—			0.01
Net loss:
Basic	$	(0.17	)	$	(0.11	)	$	(0.23	)	$	(0.18	)	$	(0.48	)
Diluted		(0.17	)		(0.11	)		(0.23	)		(0.18	)		(0.48	)
Common book value		2.22			2.37			2.46			2.69			2.87
Tangible book value		2.08			2.24			2.28			2.50			2.68
Tangible common book value		1.39			1.54			1.59			1.81			1.99
Shares outstanding, end of period (000)		397,071			396,979			394,392			394,397			394,470
At Period End, Continuing Operations (millions)
Assets	$	10,639		$	10,834		$	11,328		$	11,596		$	11,717
Earning assets		9,932			10,098			10,595			10,864			10,964
Portfolio loans		6,888			7,138			7,439			7,788			8,097
Allowance for loan losses		324			322			322			339			336
Deposits		8,101			8,222			8,481			8,501			8,389
Shareholders’ equity		1,157			1,218			1,244			1,331			1,403
At Period End, Combined (millions)
Assets	$	10,639		$	10,834		$	11,652		$	11,932		$	12,072
Earning assets		9,932			10,098			10,890			11,169			11,284
Portfolio loans		6,888			7,138			7,543			7,906			8,217
Allowance for loan losses		324			322			326			342			340
Deposits		8,101			8,222			8,892			8,909			8,792
Shareholders’ equity		1,157			1,218			1,244			1,331			1,403
Average for the Quarter, Continuing Operations (millions)
Assets	$	10,803		$	11,156		$	11,575		$	11,616		$	11,773
Earning assets		10,065			10,432			10,839			10,874			11,041
Portfolio loans		7,059			7,318			7,654			7,964			8,191
Allowance for loan losses		322			322			336			337			331
Deposits		8,198			8,431			8,544			8,353			8,392
Shareholders’ equity		1,215			1,239			1,323			1,392			1,228
Average for the Quarter, Combined (millions)
Assets	$	10,803		$	11,267		$	11,903		$	11,966		$	12,129
Earning assets		10,065			10,535			11,135			11,190			11,365
Portfolio loans		7,059			7,344			7,768			8,084			8,311
Allowance for loan losses		322			323			339			340			334
Deposits		8,198			8,535			8,947			8,762			8,786
Shareholders’ equity		1,215			1,239			1,323			1,392			1,228
Financial Ratios, Continuing Operations (annualized)
Return on average assets		(2.29	)%		(1.60	)%		(2.66	)%		(2.25	)%		(1.93	)%
Return on average shareholders’ equity		(20.40	)		(14.40	)		(23.30	)		(18.77	)		(18.55	)
Average shareholders’ equity / average assets		11.25			11.10			11.43			11.99			10.43
Net interest margin (FTE) (3)		3.32			3.35			3.14			3.13			2.99
Efficiency ratio (non-GAAP) (4)		68.02			75.93			77.39			81.45			87.17
Allowance for loan losses as a percent of portfolio loans		4.70			4.51			4.33			4.35			4.15
Allowance for loan losses as a percent of nonperforming loans		88.98			83.67			77.94			71.43			67.16
Allowance for loan losses as a percent of nonperforming assets		73.10			68.11			57.96			57.05			55.40
Nonperforming loans as a percent of portfolio loans		5.29			5.39			5.56			6.09			6.18
Nonperforming assets as a percent of portfolio loans plus ORAA (5)		6.35			6.53			7.32			7.50			7.38
Nonperforming assets as a percent of total assets		4.17			4.36			4.91			5.12			5.18
Net loans charged off as a percent of average portfolio loans (annualized)		4.91			3.90			6.25			4.05			3.46
Financial Ratios, Combined (annualized)
Return on average assets		(2.29	)%		(1.40	)%		(2.90	)%		(2.15	)%		(1.86	)%
Return on average shareholders’ equity		(20.40	)		(12.73	)		(26.05	)		(18.44	)		(18.40	)
Average shareholders’ equity / average assets		11.25			10.99			11.11			11.64			10.12
Net interest margin (FTE) (3)		3.32			3.34			3.14			3.13			2.97
Efficiency ratio (non-GAAP) (4)		68.02			71.75			84.99			80.58			86.48
Allowance for loan losses as a percent of portfolio loans		4.70			4.51			4.32			4.33			4.13
Allowance for loan losses as a percent of nonperforming loans		88.98			83.67			78.61			72.01			67.74
Allowance for loan losses as a percent of nonperforming assets		73.10			68.11			58.48			57.54			55.87
Nonperforming loans as a percent of portfolio loans		5.29			5.39			5.49			6.01			6.10
Nonperforming assets as a percent of portfolio loans plus ORAA (5)		6.35			6.53			7.24			7.40			7.29
Nonperforming assets as a percent of total assets		4.17			4.36			4.78			4.99			5.04
Net loans charged off as a percent of average portfolio loans (annualized)		4.91			3.89			6.16			4.00			3.41
Leverage ratio		8.50			8.72			8.47			9.21			9.63
Tier 1 capital ratio		12.41			12.79			12.12			12.52			12.83
Total capital ratio		13.80			14.17			13.49			13.93			14.23

(1)	Noninterest income includes a gain on investment securities of $6.0 million in the first quarter of 2010 and a net loss on debt extinguishment of $15.9 million in the third quarter of 2009.
(2)	Net loss attributable to common shareholders includes the following non-cash items: $5.4 million dividend to preferred shareholders in the third and first quarters of 2010, $5.3 million in the second quarter of 2010 and $5.2 million dividend in the third quarter of 2009.
(3)	Net interest margin is presented on an annual basis, includes taxable equivalent adjustments to interest income and is based on a tax rate of 35%.
(4)	The Efficiency Ratio measures how efficiently a bank spends its revenues. The formula is: (Noninterest expense — Goodwill impairment)/(Net interest income + taxable equivalent adjustment + Total fees and other income).
(5)	Includes loans held for sale.

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Introduction

The following presents management’s discussion and analysis of Citizens Republic Bancorp, Inc.’s financial condition and results of operations for the three and nine months ended September 30, 2010. It should be read in conjunction with the unaudited Consolidated Financial Statements and Notes included elsewhere in this report and the audited Consolidated Financial Statements and Notes contained in the Corporation’s 2009 Annual Report on Form 10-K. In addition, the following discussion and analysis should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Citizens’ 2009 Annual Report on Form 10-K, which contains important additional information that is necessary to understand the Corporation and its financial condition and results of operations for the periods covered by this report. Unless the context indicates otherwise, all references in the discussion to “Citizens” or the “Corporation” refer to Citizens Republic Bancorp, Inc. and its subsidiaries. References to the “Holding Company” refer solely to Citizens Republic Bancorp, Inc.

Discontinued Operations

As a result of the sale of Citizens’ wholly-owned subsidiary, F&M Bank-Iowa (“F&M”) on April 23, 2010, the financial condition and operating results for this subsidiary have been segregated from the financial condition and operating results of Citizens’ continuing operations throughout this report and, as such, are presented as a discontinued operation. While all prior periods have been revised retrospectively to align with this treatment, these changes do not affect Citizens’ reported consolidated financial condition or operating results for any of the prior periods.

Forward — Looking Statements

Discussions and statements in this report that are not statements of historical fact, including without limitation statements that include terms such as “will,” “may,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “project,” “intend,” and “plan,” and statements regarding Citizens’ future financial and operating results, plans, objectives, expectations and intentions, are forward-looking statements that involve risks and uncertainties, many of which are beyond Citizens’ control or are subject to change. No forward-looking statement is a guarantee of future performance and actual results could differ materially.

Factors that could cause or contribute to such differences include, without limitation, the following:

• Citizens faces the risk that loan losses, including unanticipated loan losses due to changes in loan portfolios, fraud and economic factors, could exceed the allowance for loan losses and that additional increases in the allowance will be required. Additions to the allowance for loan losses would cause Citizens’ net income to decline and could have a negative impact on its capital and financial position.

• Citizens’ core lending and other businesses continue to be adversely affected by the historic weakness in the national and regional economies in which it operates, particularly Michigan. Citizens’ ability to generate earnings and maintain regulatory capital ratios at acceptable levels at the Holding Company and the bank subsidiaries depends substantially on developments in those economies. Also, Citizens’ potential inability to comply with applicable laws, regulations and regulatory policies or standards due to the effects of these conditions on its results of operations and financial condition may result in heightened regulatory scrutiny and require Citizens to take actions to protect depositors that are not in the best interests of its shareholders.

• Citizens’ business may be adversely affected by the highly regulated environment in which it operates. Changes in applicable laws, regulations, and regulatory practices (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulations) at either the federal or state level may result in the imposition of additional costs or restrict Citizens’ ability to operate its business in the manner most beneficial to its shareholders.

• While Citizens attempts to manage the risk from changes in market interest rates, interest rate risk management techniques are not exact. In addition, Citizens may not be able to economically hedge its interest rate risk. A rapid or substantial increase or decrease in interest rates could adversely affect Citizens’ net interest income and results of operations.

• The negative economic effects caused by terrorist attacks, potential attacks and other destabilizing events, would likely contribute to the deterioration of the quality of Citizens’ loan portfolio and could reduce its customer base, its level of deposits, and demand for its financial products such as loans.

• If Citizens is unable to continue to attract and retain core deposits, to obtain third party financing on favorable terms, or to have access to interbank or other liquidity sources (as a result of rating agency downgrades or other market factors), its cost of funds will increase, adversely affecting its ability to generate the funds necessary for lending operations, reducing net interest margin and negatively affecting its results of operations.

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• Increased competition with other financial institutions or an adverse change in Citizens’ relationship with a number of major customers could reduce its 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.

• Events such as significant adverse changes in the business climate, adverse action by a regulator, unanticipated changes in the competitive environment, and a decision to change Citizens’ operations or dispose of an operating unit could have a negative effect on its goodwill or other intangible assets such that it may need to record an impairment charge, which could have a material adverse impact on its results of operations.

• If the FDIC raises the assessment rate charged to its insured financial institutions, Citizens’ FDIC insurance premium may increase, which could have a negative effect on expenses and results of operations.

• Citizens may not realize its deferred income tax assets and certain built-in losses.

• Citizens’ stock price can be volatile.

• The trading volume in Citizens’ common stock is less than that of other larger financial services companies.

• If Citizens’ common stock fails to meet the listing requirements of Nasdaq and is delisted from trading on the Nasdaq, the market price of its common stock could be adversely affected.

• An investment in Citizens’ common stock is not an insured deposit.

• Citizens may be adversely affected by the soundness of other financial institutions.

• Citizens could face unanticipated environmental liabilities or costs related to real property owned or acquired through foreclosure. Compliance with federal, state and local environmental laws and regulations, including those related to investigation and clean-up of contaminated sites, could have a negative effect on expenses and results of operations.

• Citizens is a party to various lawsuits incidental to its business. Litigation is subject to many uncertainties such that the expenses and ultimate exposure with respect to many of these matters cannot be ascertained.

• The financial services industry is undergoing rapid technological changes. If Citizens is unable to adequately invest in and implement new technology-driven products and services, it may not be able to compete effectively, or the cost to provide products and services may increase significantly.

• The products and services offered by the banking industry and customer expectations regarding them are subject to change. Citizens attempts to respond to perceived customer needs and expectations by offering new products and services, which are often costly to develop and market initially. A lack of market acceptance of these products and services would have a negative effect on its financial condition and results of operations.

• As a bank holding company that conducts substantially all of its operations through its subsidiaries, the ability of the Holding Company to pay dividends, repurchase its shares or to repay its indebtedness depends upon the results of operations of its subsidiaries and their ability to pay dividends to the Holding Company. Dividends paid by these subsidiaries are subject to limits imposed by federal and state law and are restricted by a supervisory agreement with its regulators.

• In order to maintain and strengthen its capital base, Citizens may need to raise additional capital in transactions that may be highly dilutive to its common shareholders. If such capital becomes needed, Citizens’ failure to raise additional capital could have serious consequences for its business.

• The Holding Company may not have sufficient resources to make capital contributions to its bank subsidiaries if required by bank regulatory agencies, or if it might otherwise wish to do so, in order to maintain the bank subsidiaries’ capital ratios at acceptable levels.

• Citizens may not be able to attract and retain skilled people. If Citizens were to lose key employees, it may experience a disruption in its relationship with certain customers.

• New accounting or tax pronouncements or interpretations may be issued by the accounting profession, regulators or other government bodies which could change existing accounting methods. Changes in accounting methods could negatively impact Citizens’ results of operations and financial condition.

• Citizens’ business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in, or disruption to, its business and a negative impact on its results of operations.

• Citizens’ vendors could fail to fulfill their contractual obligations, resulting in a material interruption in, or disruption to, its business and a negative impact on its results of operations.

• Citizens’ potential inability to integrate companies it may acquire in the future could have a negative effect on its expenses and results of operations.

• Citizens’ controls and procedures may fail or be circumvented which could have a material adverse effect on its business, results of operations and financial condition.

• Citizens’ articles of incorporation and bylaws as well as certain banking laws may have an anti-takeover effect.

• The recently enacted Dodd-Frank Act may adversely impact Citizens’ results of operations, financial condition or liquidity.

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These factors also include risks and uncertainties detailed from time to time in Citizens’ other filings with the Securities and Exchange Commission (“SEC”), such as the risk factors listed in “Item 1A, Risk Factors,” of Citizens’ 2009 Annual Report on Form 10-K and subsequent Forms 10-Q (including this Form 10-Q), which are available at the SEC’s web site www.sec.gov. Other factors not currently anticipated may also materially and adversely affect Citizens’ results of operations, cash flows, financial position and prospects. There can be no assurance that future results will meet expectations. While Citizens believes that the forward-looking statements in this report are reasonable, the reader should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. Citizens does not undertake, and expressly disclaims any obligation to update or alter any statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Recent Legislative Developments

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act will likely result in dramatic changes across the financial regulatory system, some of which become effective immediately and some of which will not become effective until various future dates. Implementation of the Dodd-Frank Act will require many new rules to be made by various federal regulatory agencies over the next several years. Uncertainty remains until final rulemaking is complete as to the ultimate impact of the Dodd-Frank Act, which could have a material adverse impact either on the financial services industry as a whole, or on Citizens’ business, results of operations, and financial condition. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits, and interchange fees could increase the costs associated with deposits and place limitations on certain revenues those deposits may generate. The Dodd-Frank Act includes provisions that, among other things, will:

• Centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, responsible for implementing, examining, and enforcing compliance with federal consumer financial laws.

• Create the Financial Stability Oversight Council that will recommend to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity.

• Provide mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring that the ability to repay variable-rate loans be determined by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions.

• Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of the Deposit Insurance Fund (“DIF”), and increase the floor on the size of the DIF, which generally will require an increase in the level of assessments for institutions with assets in excess of $10 billion.

• Make permanent the $250,000 limit for federal deposit insurance and provide unlimited federal deposit insurance until January 1, 2013 for non-interest bearing demand transaction accounts at all insured depository institutions.

• Implement corporate governance revisions, including with regard to executive compensation and proxy access by shareholders, that apply to all public companies, not just financial institutions.

• Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts.

• Amend the Electronic Fund Transfer Act (“EFTA”) to, among other things, give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.

Critical Accounting Policies

Citizens’ Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and follow general practices within the industry in which the Corporation operates. Application of these principles requires management to make estimates, assumptions, and complex judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments. Actual results could differ significantly from those estimates. Certain policies inherently have a greater reliance on the use of

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estimates, assumptions, and judgments and as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates that are particularly susceptible to significant change include those relating to the allowance for loan losses, goodwill, fair value measurements, pension and postretirement benefits, income taxes, and derivative financial instruments and hedging activities. Citizens believes that these estimates and the related policies are important to the portrayal of the Corporation’s financial condition and results of operations. Therefore, management considers them to be critical accounting policies and discusses them directly with the Audit Committee of the Board of Directors. Citizens’ significant accounting policies are more fully described in Note 1 to the audited Consolidated Financial Statements contained in the Corporation’s 2009 Annual Report on Form 10-K and the more significant assumptions and estimates made by management are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in the Corporation’s 2009 Annual Report on Form 10-K. For additional information regarding updates during 2010, see Notes 1 and 2 to the unaudited Consolidated Financial Statements in this report.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this report includes non-GAAP financial measures such as tangible equity to tangible assets ratio, tangible common equity to tangible assets ratio, Tier 1 common equity ratio, pre-tax pre-provision profit, net interest margin, and the efficiency ratio. Citizens believes these non-GAAP financial measures provide additional information that is useful to investors in understanding the underlying performance of Citizens, its business, and performance trends and such measures help facilitate performance comparisons with others in the banking industry. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Readers should be aware of these limitations and should be cautious as to their use of such measures. To mitigate these limitations, Citizens has procedures in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and to ensure that Citizens’ performance is properly reflected to facilitate consistent period-to-period comparisons. Although Citizens believes the above non-GAAP financial measures disclosed in this report enhance investors’ understanding of its business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures.

Tangible Equity, Tangible Common Equity and Tier 1 Common Equity Ratios (non-GAAP financial measures)

Citizens believes the exclusion of goodwill and other intangible assets to create “tangible assets” and “tangible equity” facilitates the comparison of results for ongoing business operations. Citizens’ management internally assesses the company’s performance based, in part, on these non-GAAP financial measures. The tangible common equity ratio and Tier 1 common equity ratio have become a focus of some investors and management believes that these ratios may assist investors in analyzing Citizens’ capital position absent the effects of intangible assets and preferred stock. Because tangible common equity and Tier 1 common equity are not formally defined by GAAP or codified in the federal banking regulations, these measures are considered to be non-GAAP financial measures. Because analysts and banking regulators may assess Citizens’ capital adequacy using tangible common equity and Tier 1 common equity, Citizens believes that it is useful to provide investors the ability to assess its capital adequacy on the same bases. Tier 1 common equity is often expressed as a percentage of net risk-weighted assets. Under the risk-based capital framework, a bank’s balance sheet assets and credit equivalent amounts of off-balance sheet items are assigned to one of four broad risk categories. The aggregated dollar amount in each category is then multiplied by the risk weight assigned to that category. The resulting weighted values from each of the four categories are added together and this sum is the risk-weighted assets total that, as adjusted, comprises the denominator of certain risk-based capital ratios. Tier 1 capital is then divided by this denominator (net risk-weighted assets) to determine the Tier 1 capital ratio. Adjustments are made to Tier 1 capital to arrive at Tier 1 common equity as shown in the Non-GAAP Reconciliation Table below. The amounts disclosed as net risk-weighted assets are calculated consistent with banking regulatory requirements.

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Pre-tax Pre-Provision Profit (non-GAAP financial measure)

Pre-tax pre-provision profit (“PTPP”), as defined by management, represents total revenue (total net interest income and noninterest income) excluding any securities gains/losses, and fair-value adjustments on loans held for sale, interest rate swaps, or bank owned life insurance, less noninterest expense excluding any goodwill impairment charges, credit writedowns, fair-value adjustments and special assessments. Net interest income, noninterest income and noninterest expense are all calculated in accordance with GAAP and are presented in the consolidated statement of operations. While noninterest income and noninterest expense are adjusted for the specific items listed above, these adjustments represent the excluded items in their entirety.

While Citizens acknowledges that the income tax expense (benefit), the provision for loan losses, and the excluded items identified above are recurring expenses, Citizens believes that PTPP is a useful financial measure as it enables investors and others to assess its earnings power irrespective of where it is relative to the credit cycle. Presenting PTPP provides investors with information to better understand Citizens’ ability to generate sufficient capital to cover credit losses and other credit-related and/or impairment charges through the peak of the credit cycle. As recent results for the banking industry demonstrate, loan charge-offs, related credit provision, and credit writedowns can vary significantly from period to period, making a measure that helps isolate the impact of credit costs on profitability all the more important to investors. The “Credit Quality” section of this report isolates the challenges and issues related to the credit quality of Citizens’ loan portfolio and their impact on Citizens’ earnings as reflected in the provision for loan losses.

Additionally, a portion of the compensation awarded to Citizens’ Named Executive Officers and certain other management employees for their performance in 2009 and 2010 is measured against a PTPP performance target (as defined above) as Citizens believes that PTPP is a key value driver for its business and a particularly valuable measure during challenging credit cycles. Based on 2009 full-year results, the total cash compensation award linked to PTPP was $0.1 million. Additionally during 2009, approximately 234,000 shares of restricted stock were granted, which vest only if both the PTPP performance condition and the net income performance condition are met. Based on 2010 full year results, the total potential cash compensation award linked to PTPP is $0.8 million, payable in early 2011. Additionally, during 2010, approximately 785,000 shares of restricted stock and restricted stock units were granted which have a two-year vesting period based on PTPP results. The 2010 grants are designed so that this portion of compensation does not depend on management’s performance with regard to managing loan losses, securities impairments, and other asset impairments.

Net Interest Margin and Efficiency Ratio (non-GAAP financial measures)

In accordance with industry standards, certain designated net interest income amounts are presented on a taxable equivalent basis, including the calculation of net interest margin and the efficiency ratio. Citizens believes the presentation of net interest margin on a taxable equivalent basis using a 35% effective tax rate allows comparability of net interest margin with industry peers by eliminating the effect of the differences in portfolios attributable to the proportion represented by both taxable and tax-exempt investments. See the Selected Quarterly Information Table, the Non-GAAP Reconciliation Table, and the Average Balances/Net Interest Income/Average Rates Table later in this report for additional information.

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Non-GAAP Reconciliation	September 30,			June 30,			March 31,			December 31,			September 30,
(in thousands)	2010			2010			2010			2009			2009
Efficiency Ratio — Continuing Operations
Net interest income (A)	$	81,558		$	84,586		$	81,189		$	81,913		$	79,013
Taxable equivalent adjustment (B)		2,372			2,605			3,357			3,721			3,745
Investment securities gain (C)		—			8,051			6,016			—			—
Noninterest income (D)		25,956			22,282			22,393			14,274			10,696
Noninterest expense (E)		74,740			77,010			78,103			81,369			81,466
Efficiency ratio: E/(A+B-C+D) (non-GAAP)		68.02	%		75.93	%		77.39	%		81.45	%		87.17	%
Efficiency Ratio — Combined Operations
Net interest income (A)	$	81,558		$	85,115		$	83,224		$	83,935		$	80,885
Taxable equivalent adjustment (B)		2,372			2,656			3,556			3,932			3,961
Investment securities gain (C)		—			8,051			6,016			—			—
Noninterest income (D)		25,956			28,275			13,142			15,381			11,842
Noninterest expense (E)		74,740			77,492			79,811			83,197			83,614
Efficiency ratio: E/(A+B-C+D) (non-GAAP)		68.02	%		71.75	%		84.99	%		80.58	%		86.48	%
Ending Balances — Combined Operations (in millions)
Tangible Common Equity to Tangible Assets
Total assets	$	10,639		$	10,834		$	11,652		$	11,932		$	12,072
Goodwill(1)		(318	)		(318	)		(331	)		(331	)		(331	)
Other intangible assets		(11	)		(12	)		(13	)		(14	)		(16	)
Tangible assets (non-GAAP)	$	10,310		$	10,504		$	11,308		$	11,587		$	11,725
Total shareholders’ equity	$	1,157		$	1,218		$	1,244		$	1,331		$	1,403
Goodwill(1)		(318	)		(318	)		(331	)		(331	)		(331	)
Other intangible assets		(11	)		(12	)		(13	)		(14	)		(16	)
Tangible equity (non-GAAP)	$	828		$	888		$	900		$	986		$	1,056
Tangible equity	$	828		$	888		$	900		$	986		$	1,056
Preferred stock		(277	)		(275	)		(274	)		(272	)		(270	)
Tangible common equity (non-GAAP)	$	551		$	613		$	626		$	714		$	786
Tier 1 Common Equity
Total shareholders’ equity	$	1,157		$	1,218		$	1,244		$	1,331		$	1,403
Qualifying capital securities		74			74			74			74			74
Goodwill(1)		(318	)		(318	)		(331	)		(331	)		(331	)
Accumulated other comprehensive (income) loss		(16	)		(10	)		6			7			3
Other intangible assets		(11	)		(12	)		(13	)		(14	)		(16	)
Tier 1 capital (regulatory)	$	886		$	952		$	980		$	1,067		$	1,133
Tier 1 capital (regulatory)	$	886		$	952		$	980		$	1,067		$	1,133
Qualifying capital securities		(74	)		(74	)		(74	)		(74	)		(74	)
Preferred stock		(277	)		(275	)		(274	)		(272	)		(270	)
Total Tier 1 common equity (non-GAAP)	$	535		$	603		$	632		$	721		$	789
Net risk-weighted assets (regulatory)	$	7,133		$	7,432		$	8,083		$	8,541		$	8,835
Equity to assets		10.88	%		11.24	%		10.68	%		11.16	%		11.63	%
Tier 1 common equity (non-GAAP)		7.50			8.10			7.82			8.47			8.94
Tangible equity to tangible assets (non-GAAP)		8.03			8.45			7.96			8.51			9.01
Tangible common equity to tangible assets (non-GAAP)		5.34			5.83			5.54			6.16			6.71

⁽¹⁾ Goodwill represents goodwill for Continuing Operations, as shown on the balance sheet, and includes goodwill for Discontinued Operations of $12.6 million in the first quarter of 2010, the fourth and third quarters of 2009.

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Results of Operations

Summary

Citizens reported a net loss from continuing operations of $62.5 million for the three months ended September 30, 2010, compared with net loss of $57.4 million for the third quarter of 2009. After incorporating the $5.5 million accrued but unpaid dividend to the preferred shareholder, Citizens reported a net loss attributable to common shareholders of $67.9 million for the three months ended September 30, 2010, compared with $62.1 million for the third quarter of 2009. Results for the third quarter of 2009 included net income from discontinued operations of $0.5 million. Diluted net loss from continuing operations per share was $0.17, compared with $0.49 for the third quarter of 2009. The diluted net loss per share was based on average shares outstanding of 394.0 million and 128.5 million at September 30, 2010 and September 30, 2009 respectively. For the nine months ended September 30, 2010, Citizens recorded a net loss from continuing operations of $183.0 million compared with a net loss from continuing operations of $439.9 million for the same period of 2009.

The following table displays pre-tax pre-provision profit (non-GAAP) for each of the last five quarters.

				Three Months Ended
Pre-Tax Pre-Provision Profit(non-GAAP )	September 30,			June 30,			March 31,			December 31,			September 30,
(in thousands)	2010			2010			2010			2009			2009
Loss from continuing operations	$	(62,471	)	$	(44,456	)	$	(76,023	)	$	(65,883	)	$	(57,403	)
Income tax provision (benefit) from continuing operations		5,628			3,700			147			(3,307	)		(11,747	)
Provision for loan losses		89,617			70,614			101,355			84,007			77,393
Net loss on debt extinguishment		—			—			—			—			15,929
Investment securities gains		—			(8,051	)		(6,016	)		—			—
Fair-value adjustment on loans held for sale		1,441			8,405			7,702			8,724			860
Fair-value adjustment on ORE		1,967			3,778			6,763			8,089			3,924
Fair-value adjustment on bank owned life insurance (1)		(159	)		280			(83	)		(19	)		(360	)
Fair-value adjustment on swaps (1)		202			279			836			1,449			1,018
Pre-Tax Pre-Provision Profit (non-GAAP)	$	36,225		$	34,549		$	34,681		$	33,060		$	29,614

⁽¹⁾ FVA amounts contained in line item “Other income” on Consolidated Statements of Operations

Total assets at September 30, 2010 were $10.6 billion, a decrease of $1.3 billion or 10.8% from December 31, 2009 and a decrease of $1.4 billion or 11.9% from September 30, 2009. The declines were primarily due to the sale of F&M during the second quarter of 2010 as well as a reduction in total portfolio loans as a result of lower customer demand, customer loan paydowns and loan charge-offs. Total deposits at September 30, 2010 were $8.1 billion, a decrease of $399.8 million or 4.7% from December 31, 2009 and a decrease of $288.1 million or 3.4% from September 30, 2009. The decreases were primarily the result of planned reductions in brokered time deposits.

Citizens also maintains a strong liquidity position, with substantial on- and off-balance sheet liquidity sources and a stable funding base comprised of approximately 76% deposits, 11% long-term debt, 11% equity, and 2% short-term liabilities. Citizens maintains a strong capital position, and its regulatory capital ratios are above “well-capitalized” standards.

During the fourth quarter of 2010, Citizens will begin an initiative to accelerate the reduction of certain problem asset classes. The purpose of the initiative is to reduce the current level of these assets and bring more clarity to our credit outlook, and reduce volatility in Citizens’ results in the long term. Although the initiative may increase credit-related costs in the near term, Citizens is not able to predict with certainty how much these costs may increase or how long it will take to fully execute the initiative.

As previously reported in Citizens’ Form 10-Q for the quarter ended June 30, 2010, Citizens and its wholly owned subsidiary, Citizens Bank (the “Bank”), entered into a written supervisory agreement (the “Written Agreement”) with the Federal Reserve Bank of Chicago (“FRBC”) and the Michigan Office of Financial and Insurance Regulation (“OFIR”) as a follow up to recently concluded examinations of the Bank. The Written Agreement was executed by the regulators on July 28, 2010 and announced by the regulators and posted on the Federal Reserve website on August 3, 2010. The Written Agreement formalizes steps that were in several cases already underway at Citizens and the Bank. Citizens and the Bank are committed to addressing and resolving the matters raised in the Written Agreement on a timely basis and maintaining the safety and soundness of the Bank. Citizens has complied with the requirements of the written agreement to date and is on target in meeting all other required deadlines included in the written

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agreement. Citizens does not currently anticipate that compliance with the Written Agreement will have a material adverse impact on its business, financial condition or results of operations.

Net Interest Income and Net Interest Margin

An analysis of net interest income, interest spread and net interest margin with average balances and related interest rates for the three and nine months ended September 30, 2010 and 2009 is presented below.

Average Balances/Net Interest Income/Average Rates

	Three Months Ended
	September 30,
	2010								2009
	Average					Average			Average					Average
(in thousands)	Balance			Interest(1)		Rate(2)			Balance			Interest (1)		Rate (2)
Earning Assets
Money market investments	$	560,792		$	350		0.25	%	$	498,020		$	315		0.25	%
Investment securities: (3)
Taxable		1,911,268			18,082		3.78			1,556,222			17,773		4.57
Tax-exempt		321,256			3,514		6.73			573,633			6,128		6.57
FHLB and Federal Reserve stock		157,304			735		1.86			155,084			1,587		4.07
Portfolio Loans: (4)
Commercial and industrial		1,685,249			19,502		4.70			2,090,591			24,827		4.79
Commercial real estate		2,595,787			34,912		5.34			2,884,486			38,308		5.27
Residential mortgage		839,455			10,264		4.89			1,109,161			13,601		4.91
Direct consumer		1,112,768			16,915		6.03			1,287,617			19,618		6.04
Indirect consumer		825,885			14,191		6.82			819,409			14,098		6.83
Total portfolio loans		7,059,144			95,784		5.42			8,191,264			110,452		5.38
Loans held for sale (4)		55,054			296		2.14			66,905			916		5.44
Total earning assets (3)		10,064,818			118,761		4.79			11,041,128			137,171		5.08
Nonearning Assets
Cash and due from banks		154,119								163,650
Bank premises and equipment		106,503								114,573
Investment security fair value adjustment		65,693								29,358
Other nonearning assets		733,974								755,215
Assets of discontinued operations		—								355,982
Allowance for loan losses		(321,865	)							(331,394	)
Total assets	$	10,803,242							$	12,128,512
Interest-Bearing Liabilities
Deposits:
Interest-bearing demand deposits	$	975,588			634		0.26		$	1,036,168			1,111		0.43
Savings deposits		2,591,083			4,139		0.63			2,515,393			4,365		0.69
Time deposits		3,318,137			18,745		2.24			3,625,344			29,192		3.19
Short-term borrowings		36,888			20		0.22			48,798			29		0.24
Long-term debt		1,202,901			13,665		4.51			1,899,992			23,461		4.91
Total interest-bearing liabilities		8,124,597			37,203		1.82			9,125,695			58,158		2.53
Noninterest-Bearing Liabilities and Shareholders’ Equity
Noninterest-bearing demand		1,312,957								1,214,620
Other liabilities		150,601								152,703
Liabilities of discontinued operations		—								407,812
Shareholders’ equity		1,215,087								1,227,682
Total liabilities and shareholders’ equity	$	10,803,242							$	12,128,512
Net Interest Income				$	81,558							$	79,013
Interest Spread (5)							2.97	%							2.55	%
Contribution of noninterest bearing sources of funds							0.35								0.44
Net Interest Margin (5)(6)							3.32	%							2.99	%

(1)	Interest income is shown on actual basis and does not include taxable equivalent adjustments.
(2)	Average rates are presented on an annual basis and include taxable equivalent adjustments to interest income of $2.4 million and $3.7 million for the three months ended September 30, 2010 and 2009, respectively, based on a tax rate of 35%.
(3)	For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(4)	Nonaccrual loans are included in average balances for each applicable loan category.
(5)	The interest spread and net interest margin are presented on a tax-equivalent basis.
(6)	Net interest margin exceeds the interest spread due to noninterest-bearing funding sources, demand deposits, other liabilities and shareholders’ equity supporting earning assets.

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Average Balances/Net Interest Income/Average Rates

	Nine Months Ended
	September 30,
	2010								2009
	Average					Average			Average					Average
(in thousands)	Balance			Interest (1)		Rate (2)			Balance			Interest (1)		Rate (2)
Earning Assets
Money market investments	$	636,608		$	1,181		0.25	%	$	475,287		$	889		0.25	%
Investment securities: (3)
Taxable		1,842,089			54,943		3.98			1,575,309			56,463		4.78
Tax-exempt		388,018			12,731		6.73			596,459			19,171		6.59
FHLB and Federal Reserve stock		156,337			2,763		2.36			151,980			3,466		3.05
Portfolio Loans: (4)
Commercial and industrial		1,777,721			62,895		4.84			2,254,302			76,803		4.64
Commercial real estate		2,702,625			106,889		5.29			2,912,501			115,848		5.32
Residential mortgage loans		897,468			34,330		5.10			1,165,415			44,753		5.12
Direct consumer		1,155,622			52,336		6.06			1,336,338			60,616		6.06
Indirect consumer		808,412			41,314		6.83			810,693			41,144		6.79
Total portfolio loans		7,341,848			297,764		5.45			8,479,249			339,164		5.37
Loans held for sale (4)		77,696			1,038		1.78			81,172			2,173		3.57
Total earning assets (3)		10,442,596			370,420		4.85			11,359,456			421,326		5.09
Nonearning Assets
Cash and due from banks		168,855								160,652
Bank premises and equipment		108,013								115,630
Investment security fair value adjustment		51,330								10,284
Other nonearning assets		731,006								945,956
Assets of discontinued operations		145,217								358,421
Allowance for loan losses		(326,552	)							(292,980	)
Total assets	$	11,320,465							$	12,657,419
Interest-Bearing Liabilities
Deposits:
Interest-bearing demand deposits	$	1,031,670			2,165		0.28		$	897,810			2,976		0.44
Savings deposits		2,538,733			12,521		0.66			2,538,990			15,295		0.81
Time deposits		3,529,895			64,253		2.43			3,956,731			101,213		3.42
Short-term borrowings		35,110			61		0.23			53,041			160		0.40
Long-term debt		1,321,642			44,087		4.46			2,004,506			73,145		4.88
Total interest-bearing liabilities		8,457,050			123,087		1.95			9,451,078			192,789		2.73
Noninterest-Bearing Liabilities and Shareholders’ Equity
Noninterest-bearing demand		1,289,423								1,168,779
Other liabilities		143,214								159,463
Liabilities of discontinued operations		172,273								415,758
Shareholders’ equity		1,258,505								1,462,341
Total liabilities and shareholders’ equity	$	11,320,465							$	12,657,419
Net Interest Income				$	247,333							$	228,537
Interest Spread (5)							2.90	%							2.36	%
Contribution of noninterest bearing sources of funds							0.37								0.47
Net Interest Margin (5)(6)							3.27	%							2.83	%

(1)	Interest income is shown on actual basis and does not include taxable equivalent adjustments.
(2)	Average rates are presented on an annual basis and include taxable equivalent adjustments to interest income of $8.3 million and $11.9 million for the nine months ended September 30, 2010 and 2009, respectively, based on a tax rate of 35%.
(3)	For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(4)	Nonaccrual loans are included in average balances for each applicable loan category.
(5)	The interest spread and net interest margin are presented on a tax-equivalent basis.
(6)	Net interest margin exceeds the interest spread due to noninterest-bearing funding sources, demand deposits, other liabilities and shareholders’ equity supporting earning assets.

The increases in net interest margin in the three and nine months ended September 30, 2010 over the comparable periods of 2009 were primarily the result of expanding commercial and consumer loan spreads, declining deposit costs, and lower interest expense on long-term debt due to the exchange offers completed in the third quarter of 2009. The increases were partially offset by the effect of replacing the declining loan balances with lower-yielding investment securities and money market investments and the movement of loans to non-performing status.

The increases in net interest income in the three and nine months ended September 30, 2010 over the comparable periods of 2009 were primarily the result of the higher net interest margin, partially offset by decreases in average earning assets. The decreases in average earning assets were due to lower loan demand in the current Midwest economic environment, partially offset by increases in investment securities and money market investments.

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The table below shows changes in interest income, interest expense and net interest income due to rate and volume variances for major categories of earning assets and interest-bearing liabilities.

Analysis of Changes in Interest Income and Interest Expense

	Three Months Ended September 30,									Nine Months Ended September 30,
				Increase (Decrease)									Increase (Decrease)
2010 compared with 2009	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 on Earning Assets:
Money market investments	$	35		$	(4	)	$	39		$	292		$	(7	)	$	299
Investment securities:
Taxable		309			(3,349	)		3,658			(1,520	)		(10,276	)		8,756
Tax-exempt		(2,614	)		143			(2,757	)		(6,440	)		391			(6,831	)
FHLB and Federal Reserve stock		(852	)		(874	)		22			(703	)		(800	)		97
Loans:
Commercial and industrial		(5,325	)		(620	)		(4,705	)		(13,908	)		2,857			(16,765	)
Commercial real estate		(3,396	)		481			(3,877	)		(8,959	)		(655	)		(8,304	)
Residential mortgage loans		(3,337	)		(39	)		(3,298	)		(10,423	)		(173	)		(10,250	)
Direct consumer		(2,703	)		(45	)		(2,658	)		(8,280	)		(96	)		(8,184	)
Indirect consumer		93			(18	)		111			170			286			(116	)
Total portfolio loans		(14,668	)		(241	)		(14,427	)		(41,400	)		2,219			(43,619	)
Loans held for sale		(620	)		(480	)		(140	)		(1,135	)		(1,046	)		(89	)
Total		(18,410	)		(4,805	)		(13,605	)		(50,906	)		(9,519	)		(41,387	)
Interest Expense on Interest-Bearing Liabilities:
Deposits:
Interest-bearing demand deposits		(477	)		(415	)		(62	)		(811	)		(1,208	)		397
Savings deposits		(226	)		(354	)		128			(2,774	)		(2,772	)		(2	)
Time deposits		(10,447	)		(8,137	)		(2,310	)		(36,960	)		(26,899	)		(10,061	)
Short-term borrowings		(9	)		(2	)		(7	)		(99	)		(55	)		(44	)
Long-term debt		(9,796	)		(1,754	)		(8,042	)		(29,058	)		(5,849	)		(23,209	)
Total		(20,955	)		(10,662	)		(10,293	)		(69,702	)		(36,783	)		(32,919	)
Net Interest Income	$	2,545		$	5,857		$	(3,312	)	$	18,796		$	27,264		$	(8,468	)

(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.

The increases in net interest income in the three and nine months ended September 30, 2010 over the comparable periods of 2009 reflect rate variances that were favorable in the aggregate, partially offset by volume variances that were unfavorable in the aggregate. The rate variances were primarily the result of declining deposit costs due to reduced price competition and time deposits repricing at lower rates and lower interest expense on long-term debt due to the exchange offers completed in the third quarter of 2009, as well as expanding commercial and consumer loan spreads. The unfavorable volume variance was primarily due to lower customer demand from credit worthy clients in all loan categories, partially offset by the effect of the exchange offers completed in the third quarter of 2009 and lower time deposits due to planned reductions in brokered time deposits.

Noninterest Income

The components of noninterest income for the three and nine months ended September 30, 2010 and 2009 are presented below.

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Noninterest Income

	Three Months Ended												Nine Months Ended
	September 30,						Change in 2010						September 30,						Change in 2010
(dollars in thousands)	2010			2009			Amount			Percent			2010			2009			Amount			Percent
Service charges on deposit accounts	$	10,609		$	11,035		$	(426	)		(3.9	)%	$	30,264		$	31,290		$	(1,026	)		(3.3	)%
Trust fees		3,837			3,853			(16	)		(0.4	)		11,468			10,573			895			8.5
Mortgage and other loan income		2,590			3,182			(592	)		(18.6	)		7,377			9,837			(2,460	)		(25.0	)
Brokerage and investment fees		1,060			1,473			(413	)		(28.0	)		3,315			4,133			(818	)		(19.8	)
ATM network user fees		1,864			1,689			175			10.4			5,232			4,652			580			12.5
Bankcard fees		2,261			1,972			289			14.7			6,534			5,835			699			12.0
Net loss on held for sale loans		(1,441	)		(860	)		(581	)		(67.6	)		(17,548	)		(11,362	)		(6,186	)		(54.4	)
Net loss on debt extinguishment		—			(15,929	)		15,929			100.0			—			(15,929	)		15,929			100.0
Investment securities gains		—			—			—			N/M			14,067			5			14,062			N/M
Other income		5,176			4,281			895			20.9			9,922			9,825			97			1.0
Total noninterest income	$	25,956		$	10,696		$	15,260			142.7		$	70,631		$	48,859		$	21,772			44.6

N/M — Not Meaningful

The increase in noninterest income in the third quarter of 2010 over the third quarter of 2009 was primarily a result of the net loss on the extinguishment of debt in connection with the exchange offers completed on September 30, 2009.

The increase in noninterest income in the nine months ended September 30, 2010 over the comparable period of 2009 was primarily due to higher gains on investment securities as well as the aforementioned net loss on debt extinguishment, partially offset by higher losses on loans held for sale and lower mortgage and other loan income. The increase in losses on loans held for sale was primarily the result of additional writedowns to reflect fair-value declines for the underlying collateral in 2010. The decrease in mortgage and other loan income was primarily the result of lower residential mortgage origination volume.

Noninterest Expense

The components of noninterest expense for the three and nine months ended September 30, 2010 and 2009 are presented below.

Noninterest Expense

	Three Months Ended										Nine Months Ended
	September 30,				Change in 2010						September 30,				Change in 2010
(dollars in thousands)	2010		2009		Amount			Percent			2010		2009		Amount			Percent
Salaries and employee benefits	$	32,740	$	37,394	$	(4,654	)		(12.4	)%	$	94,090	$	105,377	$	(11,287	)		(10.7)	%
Occupancy		6,529		6,447		82			1.3			20,129		20,568		(439	)		(2.1	)
Professional services		2,737		3,033		(296	)		(9.7	)		7,605		8,886		(1,281	)		(14.4	)
Equipment		3,076		2,959		117			4.0			9,127		8,726		401			4.6
Data processing services		4,702		4,461		241			5.4			14,098		12,920		1,178			9.1
Advertising and public relations		1,605		1,878		(273	)		(14.5	)		5,018		5,562		(544	)		(9.8	)
Postage and delivery		1,187		1,297		(110	)		(8.5	)		3,496		4,239		(743	)		(17.5	)
Other loan expenses		4,355		6,271		(1,916	)		(30.6	)		14,880		18,922		(4,042	)		(21.4	)
Losses on other real estate (ORE)		1,967		3,924		(1,957	)		(49.9	)		12,508		15,223		(2,715	)		(17.8	)
ORE expenses		1,327		1,624		(297	)		(18.3	)		3,317		3,108		209			6.7
Intangible asset amortization		908		1,874		(966	)		(51.5	)		3,072		5,863		(2,791	)		(47.6	)
Goodwill impairment		—		—		—			N/M			—		256,272		(256,272	)		N/M
Other expenses		13,607		10,304		3,303			32.1			42,513		38,104		4,409			11.6
Total noninterest expense	$	74,740	$	81,466	$	(6,726	)		(8.3	)	$	229,853	$	503,770	$	(273,917	)		(54.4	)

N/M — Not Meaningful

The decrease in noninterest expense in the third quarter of 2010 from the third quarter of 2009 was primarily the result of lower salaries and benefits expense, lower losses on other real estate, lower other loan expenses, and lower intangible asset amortization, partially offset by increases in other expenses. The decrease in salaries and benefits was primarily due to a drop in severance expense, staffing reductions, and suspending contributions to the 401(k) in the third quarter of 2009, partially offset by an increase in deferred compensation liabilities. The decline in losses on other real estate was primarily the result of additional writedowns to reflect fair-value declines for the underlying

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collateral compared to the third quarter of 2009. The decrease in loan expenses was primarily the result of lower foreclosure expenses associated with repossessing collateral underlying commercial and residential real estate loans. The decline in intangible asset amortization is directly related to fully amortized core deposit assets during the second quarter of 2009. Other expense increased primarily due to higher FDIC insurance.

The decrease in noninterest expense in the nine months ended September 30, 2010 from the comparable period of 2009 was primarily the result of the goodwill impairment charge in the second quarter of 2009, lower salaries and employee benefits, lower professional services, lower other loan expenses, lower losses on other real estate and lower intangible asset amortization, partially offset by an increase in other expense and in data processing expenses. The decline in salaries and employee benefits was primarily due to lower staffing levels and suspending employer contributions to the 401(k) plan in the third quarter of 2009. The decline in professional services was primarily the result of various expense management initiatives implemented throughout the Corporation. Lower other loan expense was primarily the result of lower origination volume and foreclosure-related expenses. The decline in losses on other real estate was primarily the result of lower writedowns compared to 2009 to reflect fair-value declines for the underlying collateral. The decrease in intangible asset amortization is directly related to fully amortized core deposit assets during the second quarter of 2009. Other expense increased primarily due to higher overall FDIC insurance. The increase in data processing is directly related to costs associated with a 2009 system conversion.

Citizens had 2,039 full-time equivalent employees at September 30, 2010 compared with 2,101 at September 30, 2009.

Income Taxes

The income tax provision for the third quarter of 2010 was $5.6 million, compared with a benefit of $11.7 million for the third quarter of 2009. For the first nine months of 2010, the income tax provision totaled $9.5 million, compared with a benefit of $26.3 million for the same period of 2009. The increases were primarily the result of lower pre-tax losses, the tax impact of changes in other comprehensive income and the provision for alternative minimum tax.

The effective tax rate for the third quarter of 2010 was (9.90)%, compared with 16.99% for the third quarter of 2009. For the first nine months of 2010, the effective tax rate was (5.46)%, compared with 5.65% for the same period of 2009. The effective tax rate includes adjustments for tax-exempt income and deferred tax asset valuation allowance.

Discontinued Operations

For the first nine months of 2010, the net loss from discontinued operations was $3.8 million compared with a net loss of $9.6 million for the same period of 2009. The loss from discontinued operations for the nine months ended September 30, 2010 included a net loss of $4.5 million related to the sale of F&M. During the first quarter of 2010, the carrying value of F&M’s equity exceeded the contractual sales price, therefore Citizens recorded a $10.2 million loss to mark the assets (primarily loans) and liabilities being sold to fair-value, less cost to sell. In the second quarter of 2010 Citizens recognized an unrealized gain of $5.7 million associated with the F&M investment portfolio as of the transaction sale date. The loss from discontinued operations for the nine months ended September 30, 2009 was primarily the result of a $10.2 million goodwill impairment charge recorded in the second quarter of 2009.

Lines of Business Results

Citizens monitors financial performance using an internal profitability measurement system, which provides line of business results and key performance measures. Business line results are divided into five major business segments: Regional Banking, Specialty Consumer, Specialty Commercial, Wealth Management and Other. For additional information about each line of business, see Note 15 to the Consolidated Financial Statements of the Corporation’s 2009 Annual Report on Form 10-K and Note 13 to the unaudited Consolidated Financial Statements in this report.

Net income for Regional Banking for the three month period of 2010 decreased as compared with the same period of the prior year primarily due to lower net interest income and higher provision for loan losses. The variances were the result of declining balances in the loan portfolio, and continuing stress in the commercial and industrial portfolio. Net income for the nine month period of 2010 increased as compared with the same period of the prior year primarily due to the aforementioned goodwill impairment charge in the second quarter of 2009, offset by an increase in income tax expense in 2010.

Net losses for Specialty Consumer for the three and nine months ended September 30, 2010 increased as compared with the same period of the prior year primarily due to an increase in the provision for loan losses, partially offset by an increase in net interest income. The variance in the provision was the result of the credit writedowns during the

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first and third quarters of 2010 associated with nonperforming residential mortgage loans. The increase in net interest income was a result of higher net interest margin and to a lesser extent slightly higher average balances in the indirect loan portfolio.

Net losses for Specialty Commercial for the third quarter of 2010 decreased as compared with the same period of the prior year primarily due to a decrease in the provision for loan losses. The provision for loan losses decreased primarily as a result of the stabilizing trend in credit metrics for these loans at September 30, 2010. Net losses for Specialty Commercial for the first nine months of 2010 decreased as compared with the same period of the prior year primarily due to an increase in net interest income. The increase in net interest income was the result of enhanced pricing on the commercial real estate loan portfolio.

Net income for Wealth Management for the three and nine month periods of 2010 was essentially unchanged from the same periods of 2009.

Net losses for the Other line of business for the three and nine month periods of 2010 decreased as compared with the same periods of 2009 primarily as a result of higher net interest income and higher noninterest income. The increase in net interest income was primarily the result of the internal profitability methodology utilized at Citizens that insulates the other lines of business from interest-rate risk and assigns the risk to the asset/liability management function, which is a component of this segment. The increase in noninterest income was primarily the result of the aforementioned net gain on investment securities sales. In addition, income tax provision was lower for the nine months ended September 30, 2010 as compared to the same period of 2009. The income tax provision decreased primarily due to changes in categories of income such as other comprehensive income.

Financial Condition

Total assets at September 30, 2010 were $10.6 billion, a decrease of $1.3 billion or 10.8% from December 31, 2009 and a decrease of $1.4 billion or 11.9% from September 30, 2009. Declines were primarily due to the sale of F&M during the second quarter of 2010 as well as a reduction in total portfolio loans as a result of lower customer demand, customer loan paydowns and loan charge-offs.

Money Market Investments

Money market investments at September 30, 2010 totaled $530.2 million, a decrease of $156.1 million or 22.7% from December 31, 2009 and an increase of $17.9 million or 3.5% over September 30, 2009. The decrease from December 31, 2009 was primarily the result of using money market investments to payoff maturing wholesale funding.

Investment Securities

Investment securities at September 30, 2010 totaled $2.4 billion, an increase of $179.4 million or 8.2% from December 31, 2009 and an increase of $181.2 million or 8.3% over September 30, 2009. Increases in investment securities were largely due to reinvesting a portion of the loan portfolio paydowns.

Portfolio Loans

The following definitions are provided to clarify the types of loans included in each of the commercial real estate segments identified in the table below. Land hold loans are secured by undeveloped land which has been acquired for future development. Land development loans are secured by land being developed in terms of infrastructure improvements to create finished marketable lots for commercial or residential construction. Construction loans are secured by commercial, retail and residential real estate in the construction phase with the intent to be sold or become an income producing property. Income producing loans are secured by non-owner occupied real estate leased to one or more tenants. Owner occupied loans are secured by real estate occupied by the owner.

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Loan Portfolios	September 30,		June 30,		March 31,		December 31,		September 30,
(in millions)	2010		2010		2010		2009		2009
Land hold	$	37.1	$	37.8	$	39.3	$	35.9	$	52.0
Land development		73.8		84.3		101.0		103.6		124.5
Construction		155.4		156.3		164.4		177.9		214.8
Income producing		1,382.3		1,481.7		1,532.1		1,514.0		1,504.1
Owner-occupied		855.1		886.1		931.5		980.1		986.4
Total commercial real estate		2,503.7		2,646.2		2,768.3		2,811.5		2,881.8
Commercial and industrial		1,657.4		1,686.8		1,824.8		1,921.8		2,047.2
Total commercial loans		4,161.1		4,333.0		4,593.1		4,733.3		4,929.0
Residential mortgage		800.5		858.9		877.2		1,025.2		1,073.3
Direct consumer		1,091.7		1,132.2		1,174.7		1,224.2		1,269.2
Indirect consumer		834.7		814.0		794.2		805.2		825.3
Total consumer loans		2,726.9		2,805.1		2,846.1		3,054.6		3,167.8
Total portfolio loans	$	6,888.0	$	7,138.1	$	7,439.2	$	7,787.9	$	8,096.8

The decreases in total commercial loans from December 31, 2009 and September 30, 2009 were primarily the result of lower customer demand from credit-worthy clients, paydowns as a result of normal client activity, and charge-offs. Also contributing to the decrease from September 30, 2009 was the transfer of nonperforming land hold, land development, and construction loans to loans held for sale during the fourth quarter of 2009. The declines in residential mortgage loans from December 31, 2009 and September 30, 2009 were primarily the result of transferring nonperforming residential mortgage loans to loans held for sale at the end of the first and third quarters of 2010, paydowns from normal client activity, and charge-offs. More than 90% of new mortgage originations are sold into the secondary market, resulting in minimal new loans being retained in the residential mortgage portfolio. The decreases in direct consumer loans, which are primarily home equity loans, were due to lower consumer demand. Indirect consumer loans, which are primarily marine and recreational vehicle loans, fluctuate throughout the year due to seasonal demand. After taking this fluctuation into account, the indirect consumer loan portfolio is essentially unchanged from December 31, 2009 and September 30, 2009. The increase from September 30, 2009 is directly related to an increase in volume.

Underwriting

Citizens’ Commercial Credit Policy and Underwriting Guidelines and Citizens’ Consumer Loan Credit Policy and Underwriting Guidelines (together, the “Underwriting Guidelines”) are written in a manner that is consistent with prudent banking practices and regulatory guidance applicable to each loan product. Citizens’ Underwriting Guidelines outline loan requirements and structuring parameters to determine the borrower’s financial capacity to repay under the terms of the loan and evaluate the collateral pledged to secure the loan and are designed to provide an adequate margin of safety for full collection of both principal and interest, within contractual terms. The Underwriting Guidelines provide the framework to determine that the borrower has the financial capacity to fully repay the loan, structurally mitigate credit risks and monitor the loan’s credit performance over the term of the loan. Additionally, the Underwriting Guidelines are updated periodically in response to market and economic conditions and are reviewed by the Risk Management Committee of the Board as well as Citizens’ full Board of Directors.

The commercial Underwriting Guidelines outline product- and collateral-specific acceptable loan terms and conditions, including maximum loan to value ratios for real estate collateral, advance rates for non-real estate collateral, and debt service coverage. Acceptable credit management practices require that the borrower’s financial capacity to repay the loan be analyzed based on the most recent financial information as specified by the loan’s documented structure. It is Citizens’ general practice to obtain personal guarantees and underwrite the guarantor’s capacity to support the loan no less frequently than annually, and more frequently if changes occur in the borrower’s capacity to repay or in general economic conditions that might affect the borrower. Citizens’ Underwriting Guidelines for non-owner occupied commercial real estate loans delineates maximum terms, amortizations and loan to value ratios as well as minimum equity investments and debt service coverage ratios based on property type. Generally, maximum loan terms are five years, maximum amortizations are twenty five years, minimum equity requirements range from 10% to 25%, debt

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service coverage ratios range from 1.2 to 1.5 times and loan to value ratios range from 65% to 80%. Currently, new commercial land and land development loans are not being originated by Citizens. Citizens’ Real Estate Appraisal and Environmental Policy specifies the bank’s requirements for obtaining appraisals from licensed or certified appraisers to assess the value of the underlying collateral. New variable rate commercial loans are underwritten at fully indexed rates. Additionally, variable rate commercial loan underwriting includes stress tests of the borrower’s debt service capabilities with higher than existing interest rates and fluctuations in the underlying cash flows available for repayment.

The consumer Underwriting Guidelines outline product- and collateral-specific loan terms and conditions, including maximum debt ratios and advance rates based on the borrower’s credit score. Residential mortgage loans are evaluated based on credit scores, debt-to-income ratios and loan-to-collateral value ratios. They are predominately originated in accordance with underwriting standards set forth by the government-sponsored entities (“GSE”), Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”) and Government National Mortgage Association (“GNMA”), who serve as the primary purchasers of loans sold in the secondary market by mortgage lenders. These underwriting standards generally require that the loans be collateralized by one-to-four family residential real estate. Automated underwriting engines deployed by a GSE are used to determine creditworthiness of the vast majority of borrowers. Maximum allowable loan-to-value (“LTV”)/combined loan-to-value (“CLTV”) on these loan products generally do not exceed 95% at origination. Citizens has not offered “no-doc/low doc” and “stated income/stated asset” loans since January 1, 2007 and does not have any of these loans in its residential mortgage portfolio. Sub-prime, initial teaser rate and negative amortization loans were originated on an exception basis prior to 2007 and have not been offered since January 1, 2007. At September 30, 2010 and December 31, 2009, the outstanding balance of these loans was $1.9 million or 0.2% and $4.0 million or 0.4% of the total residential mortgage portfolio, respectively. The interest income associated with these loans was immaterial. In June 2008, Citizens entered into a master sales agreement to sell its residential mortgage originations to its third-party servicer at a fixed rate with no recourse. Under this agreement, Citizens sells more than 90% of new mortgage origination, resulting in minimal new loans being retained in the residential mortgage portfolio. During 2010, new mortgage loans underwritten to non-GSE standards, all of which are retained in the residential mortgage loan portfolio, were immaterial. Prior to June 2008, when Citizens sold its residential mortgage originations to several secondary market participants, it made various standard representations and warranties. The specific representations and warranties made by Citizens depended on the nature of the transaction and the requirements of the buyer. In the event of a breach of the representations and warranties, Citizens may be required to either repurchase the mortgage loans (generally at unpaid principal balance plus accrued interest) with the identified defects or indemnify the investor. During the first nine months of 2010 and 2009, Citizens repurchased $2.1 million and $2.3 million of loans, respectively, pursuant to such provisions. Citizens estimates its exposure to losses from its obligation to repurchase previously sold loans based on the individual circumstances applicable to each loan submitted for potential repurchase by an investor, and as a result, Citizens maintains a liability included in Other Liabilities on the balance sheet for estimated losses on loans expected to be repurchased or on which indemnification is expected to be provided. Citizens recorded $2.5 million and $1.5 million in the first nine months of 2010 and 2009, respectively in Other Expense on the Consolidated Statements of Operations related to repurchasing or indemnifying such loans.

Direct consumer loans include home equity loans, and direct installment loans to individuals used to purchase boats, recreational vehicles, automobiles, and other personal items. Underwriting guidelines for these loans are heavily influenced by statutory requirements, which include, but are not limited to maximum loan-to-value ratios, credit scoring results, ability to service overall debt, and documentation requirements. Individual borrowers may be required to provide additional collateral or a satisfactory endorsement or guaranty from another person, depending on the creditworthiness of the borrower. Home equity loans consist of fully-indexed variable rate revolving lines of credit and fixed rate loans to consumers that are secured by residential real estate. Home equity loans are generally in a junior lien position and are originated through Citizens’ branches with cumulative loan-to-value ratios less than 80% of appraised collateral value. As of September 30, 2010, Citizens’ home equity portfolio totaled $895.0 million, and had an average loan size of $37,200 with average refreshed FICO score of 738. As of September 30, 2010, other direct installment loans totaled $196.7 million and had an average loan size of $18,600 with an average refreshed FICO score of 715.

Indirect consumer loans are originated mainly within Citizens’ markets and through its centralized underwriting group that has established relationships with certain dealers which meet Citizens’ underwriting guidelines and adhere to prudent business practices. The dealers are evaluated on their creditworthiness and business practices with performance monitored on an annual basis. The dealers refer customers to the centralized underwriting group, which utilizes a credit scoring model to supplement the underwriting process, and then complete the loans utilizing Citizens’

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loan documents. As of September 30, 2010, indirect consumer loans had an average loan size of $22,700 with an average refreshed FICO score of 732.

Citizens maintains an independent Loan Review Department that reviews the quality, trends, collectibility and collateral margins within the loan portfolio. The Loan Review and Audit Departments each perform periodic independent reviews of all loan portfolios to validate the credit risk profile for adherence to the Underwriting Guidelines by sampling loans using criteria such as loan size, delinquency status, loan officer coverage and other factors. This process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel. Results of these reviews are presented to management and to the Risk Committee of the Board of Directors.

Credit Quality

The quality of Citizens’ loan portfolio is impacted by numerous factors, including the economic environment in the markets in which Citizens operates. Citizens carefully monitors its loans in an effort to identify and mitigate any potential credit quality issues and losses in a proactive manner. Citizens performs quarterly reviews of the non-watch commercial credit portfolio focusing on industry segments and asset classes that have or may be expected to experience stress due to economic conditions. This process seeks to validate each such credit’s risk rating, underwriting structure and exposure management under current and stressed economic scenarios while strengthening these relationships and improving communication with these clients.

The following tables represent four qualitative aspects of the loan portfolio that illustrate the overall level of quality and risk inherent in the loan portfolio.

• Delinquency Rates by Loan Portfolio — Loans where the contractual payment is 30 to 89 days past due and interest is still accruing. While these loans are actively worked to bring them current, past due loan trends may be a leading indicator of potential future nonperforming loans and charge-offs.

• Commercial Watchlist — Commercial loans that, while still accruing interest, Citizens believes may be at risk due to general economic conditions or changes in a borrower’s financial status and therefore require increased oversight. Watchlist loans that are in nonperforming status are included in the nonperforming assets table below.

• Nonperforming Assets — Loans that are in nonaccrual status, loans past due 90 days or more on which interest is still accruing, restructured loans, nonperforming loans that are held for sale, and other repossessed assets acquired. The commercial loans included in this table are reviewed as part of the watchlist process in addition to the loans displayed in the commercial watchlist table below.

• Net Charge-Offs — The portion of loans that have been charged-off during each quarter.

Delinquency Rates By Loan Portfolio	September 30, 2010					June 30, 2010					March 31, 2010					December 31, 2009					September 30, 2009
30 to 89 days past due			% of					% of					% of					% of					% of
(in millions)	$		Portfolio			$		Portfolio			$		Portfolio			$		Portfolio			$		Portfolio
Land hold	$	—		—	%	$	1.3		3.34	%	$	0.6		1.64	%	$	0.6		1.56	%	$	1.4		2.61	%
Land development		4.5		6.04			2.0		2.43			3.0		3.00			4.7		4.56			12.0		9.67
Construction		2.4		1.53			6.4		4.07			0.9		0.55			1.7		0.95			12.1		5.64
Income producing		35.2		2.55			22.9		1.55			51.7		3.37			40.8		2.70			44.9		2.98
Owner-occupied		18.3		2.14			16.4		1.85			13.6		1.46			25.0		2.55			24.4		2.47
Total commercial real estate		60.4		2.41			49.0		1.85			69.8		2.52			72.8		2.59			94.8		3.29
Commercial and industrial		23.8		1.43			10.3		0.61			15.1		0.83			16.9		0.88			20.2		0.98
Total commercial loans		84.2		2.02			59.3		1.37			84.9		1.85			89.7		1.90			115.0		2.33
Residential mortgage		14.6		1.82			20.8		2.42			21.5		2.45			22.0		2.14			30.0		2.80
Direct consumer		20.5		1.88			20.2		1.79			21.9		1.86			26.5		2.16			24.1		1.90
Indirect consumer		12.2		1.46			11.4		1.40			14.8		1.86			16.3		2.02			16.3		1.98
Total consumer loans		47.3		1.73			52.4		1.87			58.2		2.05			64.8		2.12			70.4		2.22
Total delinquent loans	$	131.5		1.91		$	111.7		1.57		$	143.1		1.92		$	154.5		1.98		$	185.4		2.29

The decreases in total delinquencies as of September 30, 2010 compared to December 31, 2009 and September 30, 2009 were primarily the result of continued emphasis on proactively managing delinquent loans. The increase over June 30, 2010 was essentially due to several large loans totaling $29.4 million that became delinquent in the third quarter of 2010, primarily due to the timing of the note renewals.

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As part of its overall credit underwriting and review process and loss mitigation strategy, Citizens carefully monitors commercial and commercial real estate credits that are current in terms of principal and interest payments but may deteriorate in quality as economic conditions decline. Commercial relationship officers monitor their clients’ financial condition and initiate changes in loan ratings based on their findings. Loans that have migrated within the loan rating system to a level that requires increased oversight are considered watchlist loans (generally consistent with the regulatory definition of special mention, substandard, and doubtful loans) and include loans that are accruing or nonperforming (included in the other tables in this section). Citizens utilizes the watchlist process as a proactive credit risk management practice to help mitigate the migration of commercial loans to nonperforming status and potential loss. Once a loan is placed on the watchlist, it is reviewed quarterly by the chief credit officer, senior credit officers, senior market managers, and commercial relationship officers to assess cash flows, collateral valuations, guarantor liquidity, and other pertinent trends. During these meetings, action plans are implemented or reviewed to address emerging problem loans or to remove loans from the portfolio. Additionally, loans viewed as substandard or doubtful are transferred to Citizens’ special loans or small business workout groups and are subjected to more intensive monitoring and workout activity.

Commercial Watchlist	September 30, 2010					June 30, 2010					March 31, 2010					December 31, 2009					September 30, 2009
Accruing loans only			% of					% of					% of					% of					% of
(in millions)	$		Portfolio			$		Portfolio			$		Portfolio			$		Portfolio			$		Portfolio
Land hold	$	27.6		74.32	%	$	27.8		73.58	%	$	29.0		73.73	%	$	24.8		68.99	%	$	29.0		55.76	%
Land development		45.4		61.54			40.5		47.97			50.4		49.95			86.7		83.66			92.1		73.92
Construction		46.5		29.90			52.5		33.61			54.4		33.07			63.5		35.68			90.4		42.10
Income producing		543.7		39.33			553.9		37.38			523.5		34.17			521.4		34.44			519.3		34.52
Owner-occupied		225.7		26.40			224.1		25.29			237.0		25.44			247.2		25.22			277.2		28.10
Total commercial real estate		888.9		35.50			898.8		33.96			894.3		32.31			943.6		33.56			1,008.0		34.98
Commercial and industrial		432.8		26.11			445.5		26.41			484.7		26.56			473.0		24.61			508.0		24.81
Total watchlist loans	$	1,321.7		31.76		$	1,344.3		31.02		$	1,379.0		30.02		$	1,416.6		29.93		$	1,516.0		30.76

Watchlist credits declined $94.9 million from December 31, 2009, in line with the activity seen throughout 2010. Year over year resolution activities have reduced the level of watchlist credits by $194.3 million.

	September 30, 2010						June 30, 2010						March 31, 2010						December 31, 2009						September 30, 2009
Nonperforming Assets				% of						% of						% of						% of						% of
(in millions)	$			Portfolio			$			Portfolio			$			Portfolio			$			Portfolio			$			Portfolio
Land hold	$	5.6			15.13	%	$	5.2			13.76	%	$	4.9			12.49	%	$	4.8			13.42	%	$	13.3			25.56	%
Land development		16.0			21.64			22.3			26.48			27.1			26.86			1.0			0.92			13.7			10.96
Construction		27.4			17.65			25.0			15.99			35.2			21.39			25.2			14.19			33.7			15.70
Income producing		147.7			10.69			148.4			10.02			144.0			9.40			121.5			8.02			126.7			8.42
Owner-occupied		63.3			7.40			59.5			6.71			89.0			9.56			83.4			8.51			70.1			7.11
Total commercial real estate		260.0			10.39			260.4			9.84			300.2			10.85			235.9			8.39			257.5			8.94
Commercial and industrial		61.5			3.71			67.0			3.97			69.7			3.82			84.0			4.37			111.5			5.44
Total nonaccruing commercial loans		321.5			7.73			327.4			7.56			369.9			8.05			319.9			6.76			369.0			7.49
Residential mortgage		16.9			2.11			31.0			3.61			17.6			2.01			125.1			12.20			106.0			9.88
Direct consumer		15.5			1.42			18.7			1.65			16.5			1.41			21.3			1.74			21.4			1.68
Indirect consumer		1.7			0.20			1.5			0.18			2.4			0.30			2.6			0.33			2.6			0.31
Total nonaccruing consumer loans		34.1			1.25			51.2			1.82			36.5			1.28			149.0			4.88			130.0			4.10
Total nonaccruing loans		355.6			5.16			378.6			5.30			406.4			5.46			468.9			6.02			499.0			6.16
Loans 90+ days still accruing		1.6			0.02			1.5			0.02			2.4			0.03			3.0			0.04			0.6			0.01
Restructured loans still accruing		7.0			0.10			4.6			0.06			4.8			0.06			2.6			0.03			1.1			0.01
Total nonperforming portfolio loans		364.2			5.29			384.7			5.39			413.6			5.56			474.5			6.09			500.7			6.18
Nonperforming held for sale		38.4						44.0						95.3						65.2						44.4
Other repossessed assets acquired		40.7						43.9						47.3						54.4						61.9
Total nonperforming assets	$	443.3					$	472.6					$	556.2					$	594.1					$	607.0
Commercial inflows	$	95.6					$	75.9					$	124.8					$	101.0					$	94.1
Commercial outflows		(101.5	)					(118.6	)					(74.8	)					(150.1	)					(92.3	)
Net change	$	(5.9	)				$	(42.7	)				$	50.0					$	(49.1	)				$	1.8

45

The decrease in nonperforming assets from December 31, 2009 and September 30, 2009 was primarily the result of the aforementioned bulk loan sale of certain residential mortgage assets during the second quarter of 2010 and charge-offs related to the movement of nonperforming residential mortgage loans to held for sale in the third quarter of 2010, as well as a general decline in most asset categories as Citizens continued to proactively manage these assets.

The third quarter 2010 outflows included $12.8 million in loans that returned to accruing status, $33.2 million in loan payoffs and paydowns, $50.8 million in charged-off loans, and $4.7 million transferred to other repossessed assets acquired.

Some of the nonperforming loans included in the nonperforming asset table above are considered to be impaired. A loan is considered impaired when Citizens determines that it is probable that all the contractual principal and interest due under the loan may not be collected. Citizens recognizes that, in the current economic environment, elevated levels of unemployment and depressed real estate values have resulted in many customers facing difficult financial situations. Distressed homeowners are identified and offered assistance. In order to avoid foreclosure, residential mortgage loans may be restructured for certain qualified borrowers who have the ability to make payments under the new terms of the loan. Citizens’ residential mortgage foreclosure abatement program includes several different options to modify contractual payments. Modified consumer and residential mortgage loans are considered troubled debt restructures (“TDRs”) when the debt restructure, for economic or legal reasons related to the borrower’s financial difficulties, results in a concession to the debtor that otherwise would not be considered by the bank. Citizens classifies TDRs as nonperforming loans unless the loan qualified for accruing status at the time of the restructure, or the loan has performed according to the new contractual terms for at least 12 months. To qualify for accruing status at the time of the restructure, the original loan must have been less than 90 days past due at the time of the restructure and the modification must not have resulted in an impairment. At September 30, 2010, Citizens had $9.6 million of TDRs, 44.9% of which involved both reduced interest rate and term extensions, 5.7% reduced the interest rate and 49.4% received term extensions only. Of the total TDRs, $4.9 million are considered impaired and carry a specific allocated reserve and $4.7 million do not carry a specific allocated reserve. See Note 4 to the unaudited Consolidated Financial Statements in this report for information on impaired loans.

Net Charge-Offs

											Three Months Ended
	September 30, 2010					June 30, 2010					March 31, 2010					December 31, 2009					September 30, 2009
			% of					% of					% of					% of					% of
(in millions)	$		Portfolio*			$		Portfolio*			$		Portfolio*			$		Portfolio*			$		Portfolio*
Land hold	$	0.3		3.30	%	$	0.4		3.72	%	$	—		—	%	$	5.6		62.32	%	$	0.5		3.98	%
Land development		9.0		48.29			9.8		46.68			0.1		0.49			9.7		36.97			1.4		4.33
Construction		0.4		1.10			8.7		22.23			—		—			9.5		21.21			0.9		1.62
Income producing		30.8		8.85			12.6		3.41			7.6		2.01			13.2		3.45			24.5		6.47
Owner-occupied		4.8		2.21			18.9		8.57			6.9		3.01			2.5		1.01			4.6		1.85
Total commercial real estate		45.3		7.18			50.4		7.63			14.6		2.13			40.5		5.71			31.9		4.39
Commercial and industrial		6.8		1.62			11.4		2.71			12.9		2.86			22.4		4.63			20.1		3.90
Total commercial loans		52.1		4.97			61.8		5.72			27.5		2.43			62.9		5.27			52.0		4.19
Residential mortgage		23.3		11.57			0.6		0.29			80.1		37.05			6.0		2.33			10.0		3.68
Direct consumer		9.8		3.56			5.5		1.96			7.1		2.44			6.1		1.97			6.1		1.92
Indirect consumer		2.2		1.05			3.3		1.61			3.2		1.63			6.3		3.10			3.2		1.55
Total consumer loans		35.3		5.14			9.4		1.35			90.4		12.88			18.4		2.39			19.3		2.42
Total net charge-offs	$	87.4		4.91		$	71.2		3.90		$	117.9		6.25		$	81.3		4.05		$	71.3		3.46

* Represents an annualized rate.

The increases in net charge-offs compared to the quarters ended December 31, 2009 and September 30, 2009 were primarily the result of $18.8 million in charge-offs related to the transfer of certain nonperforming residential mortgage loans to held for sale during the third quarter of 2010.

Nonperforming commercial and industrial and commercial real estate loans are generally charged off to the extent principal due exceeds the net realizable value of the collateral, with the charge-off occurring when the loss is reasonably quantifiable, but not later than when the loan becomes 180 days past due. Nonperforming residential mortgage loans are generally charged off to the extent principal exceeds the current appraised value less estimated costs to sell when the loan becomes 180 days past due. Nonperforming direct and indirect consumer loans (open and closed end) are generally charged off before the loan becomes 120 days past due.

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A summary of loan loss experience during the three and nine months ended September 30, 2010 and 2009 is provided below.

Analysis of Allowance for Loan Losses

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
Allowance for loan losses — beginning of period	$	321,841		$	330,217		$	338,940		$	252,938
Provision for loan losses		89,617			77,393			261,586			239,813
Charge-offs		90,471			73,615			286,206			166,424
Recoveries		3,059			2,275			9,726			9,943
Net charge-offs		87,412			71,340			276,480			156,481
Allowance for loan losses — end of period	$	324,046		$	336,270		$	324,046		$	336,270
Portfolio loans outstanding at period end (1)	$	6,888,005		$	8,096,822		$	6,888,005		$	8,096,822
Average portfolio loans outstanding during period (1)		7,059,144			8,191,264			7,341,848			8,479,249
Allowance for loan losses as a percentage of portfolio loans		4.70	%		4.15	%		4.70	%		4.15	%
Ratio of net charge-offs during period to average portfolio loans (annualized)		4.91			3.46			5.03			2.47

⁽¹⁾ Balances exclude mortgage loans held for sale.

The allowance for loan losses represents management’s estimate of an amount adequate to provide for probable credit losses inherent in the loan portfolio as of the balance sheet date. To assess the adequacy of the allowance for loan losses, an allocation methodology is applied that focuses on changes in the size and character of the loan portfolio, changes in the levels of impaired or other nonperforming loans, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions, underlying collateral, historical losses on each portfolio category and other qualitative and quantitative factors which could affect probable loan losses. General deterioration in real estate values is one of the factors considered when establishing valuation allowances in the allowance for loan losses. The evaluation process is inherently subjective, as it requires estimates that may be susceptible to significant change and have the potential to affect net income materially. During the third quarter of 2010, we further refined our allocation methodology which had virtually no impact on total allowance for loan losses. The methodology used for measuring the adequacy of the allowance relies on several key elements, which include specific allowances for identified impaired loans, a formula-based risk-allocated allowance for the remainder of the portfolio and a general valuation allowance calculation. Management also considers overall portfolio indicators, including trends in historical charge-offs, a review of industry, geographic and portfolio performance, and other qualitative factors.

The table below summarizes the allocation of the allowance for loan losses for specific allocated, risk allocated, and general valuation allowances by loan type and the proportion of total nonperforming portfolio loans represented by each loan type.

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Allocation of the Allowance for Loan Losses⁽¹⁾

	September 30, 2010							December 31, 2009							September 30, 2009
	Allowance		Related		% of			Allowance		Related		% of			Allowance		Related		% of
(in millions)	Amount		NPL(2)		NPL			Amount		NPL(2)		NPL			Amount		NPL(2)		NPL
Specific allocated allowance:
Commercial and industrial	$	11.2	$	44.3		25.3	%	$	16.3	$	65.2		25.0	%	$	32.4	$	93.8		34.5	%
Commercial real estate		48.7		230.7		21.1			29.6		208.3		14.2			31.3		235.8		13.3
Residential mortgage		1.0		4.9		19.9			6.9		30.9		22.4			1.8		20.9		8.6
Total specific allocated allowance		60.9		279.9		21.7			52.8		304.4		17.3			65.5		350.5		18.7
Risk allocated allowance:
Commercial and industrial		46.0		18.8		244.9			40.2		21.8		184.4			39.4		18.3		215.6
Commercial real estate		116.1		31.8		365.1			116.4		27.6		421.9			110.9		21.7		510.5
Residential mortgage		47.3		15.6		303.0			50.6		95.6		53.0			47.5		87.4		54.3
Direct Consumer		31.2		16.4		190.5			33.0		22.0		149.7			33.3		20.3		164.1
Indirect Consumer		17.4		1.7		N/M			39.5		3.1		N/M			39.7		2.5		N/M
Total risk allocated allowance		258.1		84.3		306.2			279.7		170.1		164.4			270.8		150.2		180.3
Total		318.9							332.5							336.3
General valuation allowance		5.1							6.4							—
Total	$	324.0	$	364.2		89.0		$	338.9	$	474.5		71.4		$	336.3	$	500.7		67.2

N/M — Not Meaningful
(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 does 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)	Related NPL amounts in risk allocated allowances include restructured loans and still accruing and loans 90+ days still accruing but classified as nonperforming.

Total Allowance for Loan Losses. The decreases in the total allowance from December 31, 2009 and September 30, 2009 were primarily the result of stabilizing credit metrics associated with continued declines in delinquent loans and commercial watchlist loans, as well as the reduction in nonperforming residential mortgage loans due to the aforementioned transfer to loans held for sale during the first and third quarters of 2010. Partially offsetting these items was an increase in the loss migration rates as a result of increased charge-off experience since September 30, 2009.

The allowance as a percentage of nonperforming loans at September 30, 2010 increased from December 31, 2009 and September 30, 2009 primarily as a result of loss reserves having remained relatively stable while nonperforming loans declined 23.2% and 27.3%, respectively. While nonperforming loans declined over both periods of 2009, other factors that affect risk allocated allowance such as credit metrics, delinquencies and the depressed real estate market made it appropriate to maintain the allowance at this level.

Based on current conditions and expectations, Citizens believes that the allowance for loan losses is adequate to address the estimated loan losses inherent in the existing loan portfolio at September 30, 2010. After determining what Citizens believes is an adequate allowance for loan losses based on the risk in the portfolio, the provision for loan losses is calculated as a result of the net effect of the quarterly change in the allowance for loan losses and the quarterly net charge-offs. The increases in the provision for loan losses were primarily due to the aforementioned movement of residential mortgage loans to loans held for sale during the first and third quarter of 2010.

Specific Allocated Allowance. The specific allocated allowance is based on probable losses on specific commercial and industrial or commercial real estate loans as well as impairment on restructured residential mortgage loans (TDRs). The allowance allocated to nonperforming commercial loans is typically based on the underlying collateral’s appraised value, updated at least annually, less management’s estimates of cost to sell. Appraisals are obtained more frequently if changes in the property or market conditions warrant. Deterioration in individual asset values evidenced by these appraisals is then reflected in the specific allocated allowance. The allowance allocated to restructured nonperforming residential loans is typically based on the present value of the expected future cash flows discounted at the loan’s effective interest rate. The increase in the specific allocated allowance, both in amount and as a percentage of nonperforming loans from December 31, 2009 and September 30, 2009 was primarily the result of decline in the fair value of the underlying collateral.

48

Risk Allocated Allowance. The risk allocated allowance is comprised of several loan pool valuation allowances determined based on Citizens’ quantitative loan loss experience for similar loans with similar risk characteristics, including additional qualitative risks such as changes in asset quality; the experience, ability and effectiveness of Citizens’ lending management; the composition and concentrations of credit, changes in loss severity based on loan type, as well as other factors based upon the best judgment of management. The decrease in the risk allocated allowance from December 31, 2009 and September 30, 2009 is primarily related to the decrease in the loan portfolio balances that are evaluated for this reserve.

General Valuation Allowance. The general valuation allowance is based on existing regional and local economic factors, a macroeconomic adjustment factor used to calibrate for the current economic cycle the Corporation is experiencing, and other judgmental factors. These factors could have a potentially negative impact on credit quality. Recognizing the inherent imprecision of any loan loss allocation model, management believes that the general valuation allowance at September 30, 2010 appropriately reflects probable inherent but undetected losses in the portfolio.

Loans Held for Sale

Loans held for sale at September 30, 2010 were $52.2 million, a decrease of $28.0 million or 34.9% from December 31, 2009 and a decrease of $8.9 million or 14.6% from September 30, 2009. The decreases reflect declines due to customer paydowns, workout activities, writedowns to reflect further fair-value declines for the underlying collateral, and transfers to ORE. This was partially offset by the decision to transfer nonperforming residential mortgage loans to loans held for sale during the third quarter, which remain outstanding at September 30, 2010.

Deposits

Total deposits at September 30, 2010 were $8.1 billion, a decrease of $399.8 million or 4.7% from December 31, 2009 and a decrease of $288.1 million or 3.4% from September 30, 2009. Core deposits, which exclude all time deposits, totaled $4.9 billion at September 30, 2010, an increase of $145.6 million or 3.0% over December 31, 2009 and essentially unchanged from September 30, 2009. The increase over December 31, 2009 was primarily the result of retail customers shifting balances from time deposits to savings accounts throughout 2010. Time deposits totaled $3.2 billion at September 30, 2010, a decrease of $545.4 million or 14.8% from December 31, 2009 and a decrease of $346.3 million or 9.9% from September 30, 2009. The decreases were primarily the result of the shift in retail balances and a strategic reduction in brokered time deposits.

Citizens gathers deposits from the local markets it serves and has used brokered deposits from time to time when cost effective. Citizens had $859.5 million in time deposits of $100,000 or more at September 30, 2010, compared with $931.5 million at December 31, 2009 and $974.2 million at September 30, 2009. Time deposits greater than $100,000 decreased primarily as a result of a shift in funding mix from customer time deposits to core deposits. At September 30, 2010, Citizens had $488.1 million in brokered deposits, compared with $835.5 million at December 31, 2009 and $527.6 million at September 30, 2009. The volatility in brokered deposit balances reflects strategies to optimize corporate funding costs and liquidity. Citizens continues to promote relationship-driven core deposit growth and stability through focused marketing efforts and competitive pricing strategies.

Borrowed Funds

Short-term borrowings are comprised of federal funds purchased, securities sold under agreements to repurchase, and other short-term borrowings consisting primarily of treasury, tax and loan (“TT&L”) borrowings. Short-term borrowed funds at September 30, 2010 totaled $43.0 million, an increase of $3.2 million or 8.2% from December 31, 2009 and a decrease of $6.4 million or 13.0% from September 30, 2009. The increase from December 31, 2009 reflects higher short-term repurchase agreements, while the decrease from September 30, 2009 reflects lower TT&L balances.

Long-term debt consists of advances from the Federal Home Loan Bank (“FHLB”) to Citizens’ subsidiary banks, debt issued by the Holding Company, and other borrowed funds. Long-term debt at September 30, 2010 totaled $1.2 billion, a decrease of $327.7 million or 21.7% from December 31, 2009 and a decrease of $484.9 million or 29.0% from September 30, 2009. The decreases were primarily the result of paying down FHLB debt at its contractual maturity as part of a strategic reduction in securitized funding.

Capital Resources

Shareholders’ equity at September 30, 2010 totaled $1.2 billion, a decrease of $174.0 million or 13.1% from December 31, 2009 and a decrease of $246.4 million or 17.6% from September 30, 2009. The decreases were

49

primarily the result of net losses incurred. Book value per common share at September 30, 2010, December 31, 2009, and September 30, 2009 was $2.22, $2.69, and $2.87, respectively.

Citizens continues to maintain a strong capital position, and its regulatory capital ratios are above “well-capitalized” standards. The Corporation’s capital ratios as of September 30, 2010, December 31, 2009 and September 30, 2009 are presented below.

Capital Ratios

	Regulatory												Excess
	Minimum for												Capital over
	“Well-			September 30,			December 31,			September 30,			Minimum
	Capitalized”			2010			2009			2009			(in millions)
Leverage ratio		5.00	%		8.50	%		9.21	%		9.63	%	$	364.8
Tier 1 capital ratio		6.00			12.41			12.52			12.83			457.5
Total capital ratio		10.00			13.80			13.93			14.23			271.2
Tier 1 common equity (non-GAAP)					7.50			8.47			8.94
Tangible equity to tangible assets (non-GAAP)					8.03			8.51			9.01
Tangible common equity to tangible assets (non-GAAP)					5.34			6.16			6.71

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual obligations and off-balance sheet arrangements are described in “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the Corporation’s 2009 Annual Report on Form 10-K. There have been no material changes to those obligations or arrangements outside the ordinary course of business since the most recent fiscal year end.

Liquidity and Liquidity Risk Management

Citizens monitors and manages its liquidity position so that funds will be available at a reasonable cost to meet financial commitments, to finance business expansion and to take advantage of unforeseen opportunities. Liquidity management involves projecting funding requirements and maintaining sufficient capacity to meet those needs and accommodate fluctuations in asset and liability levels due to changes in business operations or unanticipated events. Sources of liquidity include deposits and other customer-based funding, and wholesale market funding.

Citizens manages liquidity at two levels. The first level is at the Holding Company, which owns the banking subsidiaries. The second level is at the banking subsidiaries. The management of liquidity at both levels is essential because the Holding Company and banking subsidiaries have different funding needs and sources, and are subject to certain regulatory guidelines and requirements. The Asset Liability Committee is responsible for establishing a liquidity policy, approving operating and contingency procedures and monitoring liquidity on an ongoing basis. In order to maintain adequate liquidity through a wide range of potential operating environments and market conditions, Citizens conducts liquidity management and business activities in a manner designed to preserve and enhance funding stability, flexibility and diversity of funding sources. Key components of this operating strategy include a strong focus on customer-based funding, maximizing secured borrowing capacity, maintaining relationships with wholesale market funding providers, and maintaining the ability to liquidate certain assets if conditions warrant.

Credit ratings by the nationally recognized statistical rating agencies are an important component of Citizens’ liquidity profile. Credit ratings relate to the Corporation’s ability to issue debt securities and the cost to borrow money, and should not be viewed as an indication of future stock performance or a recommendation to buy, sell, or hold securities. Among other factors, the credit ratings are based on financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of management, the liquidity of the balance sheet, the availability of a significant base of core deposits, and Citizens’ ability to access a broad array of wholesale funding sources. Adverse changes in these factors could result in a negative change in credit ratings and impact not only the ability to raise funds in the capital markets, but also the cost of these funds. Citizens’ credit rating was downgraded by Moody’s Investor Service, Dominion Bond Rating Service, and Fitch Ratings throughout 2009. During 2010, at Citizens’ request, Standard & Poor’s has discontinued rating Citizens. Dominion Bond Rating Service lowered Citizens’ credit rating in the second quarter of 2010. Ratings are subject to revision or withdrawal at any time and each rating should be evaluated independently of any other rating. The current credit ratings for the Holding Company and its subsidiary banks, the dates on which the ratings were last issued and the outlook watch status of the ratings are displayed in the following table.

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Credit Ratings

	Moody’s		Fitch Ratings		DBRS Ltd
Citizens Republic Bancorp (Holding Company)
Long-term Issuer	B2 (ON)		B- (ON)		B (low) (WN)
		10/1/2009		1/29/2010		8/4/2010
Short-term/Commercial Paper	NP(ON)			B	R-5 (WN)
		10/1/2009		1/29/2010		8/4/2010
Trust Preferred	Caa2 (ON)			C	CCC (WN)
		1/28/2010		1/29/2010		8/4/2010
Citizens Bank
Certificate of Deposit	Ba3 (ON)			B	BB (low) (WN)
		10/1/2009		1/29/2010		8/4/2010

Ratings Watch Action Legend: (WP) Watch Positive, (WN) Watch Negative, (WU) Watch Uncertain, (WR) Watch Removed, (OP) Outlook Positive, (ON) Outlook Negative, (OS) Outlook Stable, (OD) Outlook Developing

The primary sources of liquidity for the Holding Company are dividends from and returns on investment in its subsidiaries and existing cash resources. Banking regulations limit the amount of dividends a financial institution may declare to a parent company in any calendar year. Each of the banking subsidiaries is subject to dividend limits under the laws of the state in which it is chartered and to the banking regulations mentioned above. Federal and national chartered financial institutions are allowed to make dividends or other capital distributions in an amount not exceeding the current calendar year’s net income, plus retained net income of the preceding two years. Distributions in excess of this limit require prior regulatory approval. The Written Agreement requires prior regulatory approval for any dividend declared by Citizens Bank or the Holding Company. Since 2009, neither the Holding Company nor any of its subsidiaries has paid any dividends. As of October 1, 2010, CB Wealth Management Bank, N.A. had the capacity to pay dividends of $5.4 million to the Holding Company without prior regulatory approval. The ability to borrow funds on both a short-term and long-term basis and to sell equity securities provides an additional source of liquidity for the Holding Company. Citizens’ parent company cash totaled $64.8 million as of September 30, 2010. Citizens monitors the relationship between cash obligations and available cash resources, and believes that the Holding Company has sufficient liquidity to meet its currently anticipated short and long-term needs. Since January 1, 2009, the Holding Company contributed $174.0 million to Citizens Bank to bolster capital levels at the bank, including $100.0 million during the third quarter of 2010.

The primary source of liquidity for the banking subsidiaries is customer deposits raised through the branch offices. Additional sources are wholesale borrowing, unencumbered or unpledged investment securities, access to secured borrowing at the Federal Reserve Bank of Chicago and the Federal Home Loan Bank of Indianapolis and contributions of capital from the Holding Company.

Citizens maintains a strong liquidity position due to its on-balance sheet liquidity sources and very stable funding base comprised of approximately 76% deposits, 11% long-term debt, 11% equity, and 2% short-term liabilities. Citizens’ loan-to-deposit ratio, another measure of liquidity, continues to improve with levels of 85.0%, 91.6%, and 96.5% at September 30, 2010, December 31, 2009, and September 30, 2009 respectively. Securities available-for-sale and money market investments can be sold for cash to provide additional liquidity, if necessary.

In the fall of 2008, the Board of Directors of the Federal Deposit Insurance Corporation (“FDIC”) initiated the Temporary Liquidity Guarantee Program which, among other things, provided full FDIC deposit insurance coverage on noninterest-bearing transaction accounts and certain interest-bearing transaction accounts paying less than 0.5% interest per annum through its Transaction Account Guarantee Program (“TAGP”). Participation in TAGP was voluntary and if a depository institution joined the program in the fall of 2008 it was committed to the program through December 31, 2009 with subsequent voluntary extensions in six-month intervals. While Citizens joined the TAGP at its inception, due to its significant liquidity levels and the cost of continued participation, Citizens opted-out of the TAGP as of July 1, 2010. Citizens’ clients will continue to receive standard deposit insurance coverage through the FDIC’s general deposit insurance fund, which covers deposit balances up to $250,000 per depositor.

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In light of the net losses over the last several quarters, Citizens determined during the first quarter of 2010, in consultation with the Federal Reserve Bank of Chicago as required by regulatory policy, to defer regularly scheduled quarterly interest payments on its outstanding junior subordinated debentures relating to its two trust preferred securities and to suspend quarterly cash dividend payments on its Series A Preferred Stock. In addition, as of July 28, 2010, the Written Agreement now prohibits such payments without prior regulatory approval. Deferral of these payments, which is permitted pursuant to the underlying documentation, preserves a total of $4.9 million of cash each quarter, although such amounts will continue to accrue. Citizens reevaluates the deferral of these payments periodically and, in consultation with and subject to prior approval by its regulators, will reinstate these payments when appropriate.

The Corporation’s long-term debt to equity ratio was 102.4% as of September 30, 2010 compared with 113.7% at December 31, 2009 and 119.0% at September 30, 2009. Changes in deposit obligations and short-term and long-term debt during the third quarter of 2010 are further discussed in the sections titled “Deposits” and “Borrowed Funds.” The Corporation believes that it has sufficient liquidity to meet presently known short and long-term cash-flow requirements arising from ongoing business transactions.

Interest Rate Risk

Interest rate risk refers to the risk of loss arising from changes in market interest rates. The risk of loss can be assessed by examining the potential for adverse changes in fair values, cash flows, and future earnings resulting from changes in market interest rates. Interest rate risk on Citizens’ balance sheet consists of reprice, option, and basis risks. Reprice risk results from differences in the maturity or repricing timing of asset and liability portfolios. Option risk arises from embedded options present in many financial instruments such as loan prepayment options, deposit early withdrawal options, and interest rate options. These options allow certain of Citizens’ customers and counterparties of the investment and wholesale funding portfolios the opportunity to benefit when market interest rates change, which typically results in higher costs or lower revenues for the Corporation. Basis risk results when assets and liabilities reprice at the same time but based on different market rates or indices, which can change by different amounts, resulting in a narrowing of profit spread.

The asset/liability management process seeks to insulate net interest income from large fluctuations attributable to changes in market interest rates and to maximize net interest income within acceptable levels of risk through periods of changing interest rates. Accordingly, the Corporation’s interest rate sensitivity is monitored on an ongoing basis by its Asset Liability Committee, which oversees interest rate risk management and establishes risk measures, limits, and policy guidelines. A combination of complementary techniques is used to measure interest rate risk exposure, the distribution of risk, the level of risk over time, and the exposure to changes in certain interest rate relationships. These measures include static repricing gap analysis, simulation of earnings, and estimates of economic value of equity.

Static repricing gap analysis provides a measurement of reprice risk on the Corporation’s balance sheet as of a point in time. This measurement is accomplished through stratification of the Corporation’s rate sensitive assets and liabilities into repricing periods. The sums of assets and liabilities maturing or repricing in each of these periods are compared for mismatches within each time segment. Core deposits lacking contractual maturities or repricing frequencies are placed into repricing and maturity periods based upon historical experience. Repricing periods for assets include the effects of expected prepayments on cash flows.

Rate sensitive assets repricing within one year exceeded rate sensitive liabilities repricing within one year by $1.1 billion or 10.4% of total assets as of September 30, 2010 compared with $845.7 million or 7.4% of total assets at December 31, 2009. These results incorporate the impact of off-balance sheet derivatives and reflect interest rates consistent with September 30, 2010 levels. Repricing gap analysis is limited in its ability to measure interest rate sensitivity, as embedded options can change the repricing characteristics of assets, liabilities, and off-balance sheet derivatives in different interest rate scenarios, thereby changing the repricing position from that outlined above. Further, basis risk is not captured by repricing gap analysis.

Citizens utilizes a net interest income simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model measures the impact to net interest income relative to a base case scenario of hypothetical fluctuations in interest rates over the next 12 months. These simulations incorporate assumptions including prepayment speeds on various loan and investment assets, cash flows and maturities of financial instruments, market conditions, balance sheet growth and mix, pricing, client preferences,

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and Citizens’ financial capital plans. These assumptions are inherently uncertain and subject to fluctuation and revision in a dynamic environment and as a result the model cannot perfectly forecast net interest income nor exactly predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to the timing, magnitude, and frequency of balance sheet component and interest rate changes, and differences in client behavior, market conditions and management strategies, among other factors.

Net interest income simulations were performed as of September 30, 2010 to evaluate the impact of market rate changes on net interest income over the subsequent 12 months assuming expected changes in balance sheet composition over that time period. If market interest rates were to increase immediately by 100 or 200 basis points (a parallel and immediate shift of the yield curve) net interest income would be expected to increase by 0.5% and 1.2%, respectively, from what it would be if rates were to remain at September 30, 2010 levels. Net interest income simulation for 100 and 200 basis point parallel declines in market rates were not performed at September 30, 2010, as the results would not have been meaningful given the current levels of short-term market interest rates. These measurements represent similar exposure to rising interest rates as at December 31, 2009. Net interest income is not only affected by the level and direction of interest rates, but also by the shape of the yield curve, pricing spreads in relation to market rates, balance sheet growth, the mix of different types of assets and liabilities, and the timing of changes in these variables. Scenarios different from those outlined above, whether different by timing, level, or a combination of factors, could produce different results.

From time to time, derivative contracts are used to help manage or hedge exposure to interest rate risk and market value risk. Citizens enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Citizens’ derivative financial instruments are used to manage differences in the amount, timing, and duration of its known or expected cash receipts and expected cash payments principally related to certain variable-rate loan assets and fixed-rate borrowings. Citizens has agreements with its derivative counterparties that contain a provision where if Citizens defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then it could also be declared in default on its derivative obligations. Citizens also has agreements with certain of its derivative counterparties that contain a provision where if it fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and Citizens would be required to settle its obligations under the agreements. Citizens has agreements with certain of its derivative counterparties containing provisions that require its debt to maintain an investment grade credit rating from each of the major credit rating agencies. Further discussion of derivative instruments is included in Note 15 to the unaudited Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There has been no material change in the information concerning quantitative and qualitative disclosures about market risk contained in Item 7A of Citizens’ 2009 Annual Report on Form 10-K, except as set forth in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk” of this Form 10-Q.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rule 13a-15 of the Securities Exchange Act of 1934, that are designed to cause the material information required to be disclosed by Citizens in the reports it files or submits under the Securities Exchange Act of 1934 to be recorded, processed, summarized, and reported to the extent applicable within the time periods required by the Securities and Exchange Commission’s rules and forms. In designing and evaluating the disclosure controls and procedures, management recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been detected.

As of the end of the period covered by this report, Citizens performed an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-15 of the Securities

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Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

No changes were made to the Corporation’s internal control over financial reporting (as defined in Rule 13a-15 under the Securities Exchange Act of 1934) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1A. Risk Factors

Other than as previously updated in Citizens’ Forms 10-Q for the quarters ended March 31 and June 30, 2010, and as set forth below, there have been no material changes to the risk factors set forth in Item 1A of Part I of Citizens’ 2009 Annual Report on Form 10-K. These risk factors are not the only risks Citizens faces. Additional risks and uncertainties not currently known or that Citizens currently deems to be immaterial also may materially adversely impact Citizens’ business, financial condition, or results of operations.

The recently enacted Dodd-Frank Act may adversely impact Citizens’ results of operations, financial condition or liquidity.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), was signed into law. The Dodd-Frank Act represents the comprehensive overhaul of the financial services industry within the United States, establishes the new Federal Bureau of Consumer Financial Protection, and requires the bureau and other federal agencies to implement many new and significant rules and regulations. These rules and regulations, as well as the self-implementing provisions of the statute could have adverse implications on the financial industry, the competitive environment and our ability to conduct business. Citizens, as well as the broader financial services industry, has begun to assess the potential impact of the Dodd-Frank Act on its business and operations, but at this early stage, the likely impact cannot be ascertained with any degree of certainty. However, it is likely that compliance with these new laws and regulations will result in additional costs, which could be significant, and may adversely impact Citizens’ results of operations, financial condition or liquidity.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

						Total Number of		Maximum Number of
						Shares Purchased as		Shares That May Yet
						Part of Publicly		Be Purchased Under
	Total Number of			Average Price Paid		Announced Plans or		The Plans or Programs
Period	Shares Purchased			Per Share		Programs		(2)
July 2010		—		$	—		—		1,241,154
August 2010		—			—		—		1,241,154
September 2010		2,498	(1)		0.83		—		1,241,154
Total		2,498		$	0.83		—		1,241,154

(1)	Shares repurchased in connection with taxes due from employees as a result of the vesting of certain restricted share awards in accordance with the related grant agreements. These repurchases were not part of the repurchase program approved in October 2003.
(2)	In October 2003, the Board of Directors approved the repurchase of 3,000,000 shares of common stock from time to time in the market. There is no expiration date for the repurchase program. The repurchase of shares is generally prohibited, with certain exceptions, by the CPP Letter Agreement while Treasury continues to hold the related TARP Preferred Stock, by the Written Agreement and by the terms of Citizens’ outstanding trust preferred securities, and is also subject to limitations that may be imposed by applicable securities laws and regulations and the rules of NASDAQ. The timing of the purchases and the number of shares to be bought at any one time also depend on market conditions and Citizens’ capital requirements. There can be no assurance that Citizens will repurchase the remaining shares authorized to be repurchased.
	The stock repurchase program is discussed in more detail in Note 11 to the Consolidated Financial Statements.

Item 3. Defaults Upon Senior Securities

As previously disclosed, Citizens decided to defer regularly scheduled quarterly interest payments on its outstanding junior subordinated debentures relating to its two trust preferred securities and to suspend quarterly cash dividend payments on its Series A Preferred Stock. Therefore, Citizens is currently in arrears with the dividend payments on the Series A Preferred Stock and interest payments on the junior subordinated debentures as permitted by the related documentation. As of September 30, 2010, the amount of the arrearage on the dividend payments of the Series A Preferred Stock is $11.3 million and the amount of the arrearage on the payments on the subordinated debt associated with the trust preferred securities is $3.7 million. Under the terms of the Written Agreement, Citizens is prohibited from making these interest and dividend payments without consent of the appropriate regulatory agency.

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Item 6. Exhibits

10.57	Citizens Republic Bancorp, Inc. Stock Compensation Plan (Amended, Restated and Renamed Effective March 19, 2010) (Citizens’ Form 8-K filed on May 10, 2010)
10.58	Written Agreement by and among Citizens Republic Bancorp, Inc., Citizens Bank, the Federal Reserve Bank of Chicago, and the Michigan Office of Financial and Insurance Regulation, dated July 28, 2010 (Citizens’ Second Quarter 2010 Form 10-Q)
10.59	Form of Salary Stock Agreement with Cathleen H. Nash and Judith L. Klawinski (2010)
10.60	Form of Long-Term Incentive Restricted Stock Agreement with Cathleen H. Nash, Judith L. Klawinski and Thomas C. Shafer relating to 2010 incentive award
10.61	Form of Long-Term Incentive Restricted Stock Unit Agreement with Thomas W. Gallagher relating to 2010 incentive award
10.62	Form of Amended and Restated Change in Control Agreement with Cathleen H. Nash, Judith L. Klawinski and Thomas W. Gallagher (2010)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1	Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities Exchange Act of 1934

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CITIZENS REPUBLIC BANCORP, INC.
Date: November 4, 2010	By:	/s/ Lisa T. McNeely
		Lisa T. McNeely
		Chief Financial Officer (principal financial officer and duly authorized officer)

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10-Q EXHIBIT INDEX

Exhibit No.	Description
10.57	Citizens Republic Bancorp, Inc. Stock Compensation Plan (Amended, Restated and Renamed Effective March 19, 2010) (Citizens’ Form 8-K filed on May 10, 2010)
10.58	Written Agreement by and among Citizens Republic Bancorp, Inc., Citizens Bank, the Federal Reserve Bank of Chicago, and the Michigan Office of Financial and Insurance Regulation, dated July 28, 2010 (Citizens’ Second Quarter 2010 Form 10-Q)
10.59	Form of Salary Stock Agreement with Cathleen H. Nash and Judith L. Klawinski (2010)
10.60	Form of Long-Term Incentive Restricted Stock Agreement with Cathleen H. Nash, Judith L. Klawinski and Thomas C. Shafer relating to 2010 incentive award
10.61	Form of Long-Term Incentive Restricted Stock Unit Agreement with Thomas W. Gallagher relating to 2010 incentive award
10.62	Form of Amended and Restated Change in Control Agreement with Cathleen H. Nash, Judith L. Klawinski and Thomas W. Gallagher (2010)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1	Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities Exchange Act of 1934

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EX-10.59

EXHIBIT 10.59

SALARY STOCK AGREEMENT

     THIS SALARY STOCK AGREEMENT (the “Agreement”) is made as of the       day of                     ,                     , by and between Citizens Republic Bancorp, Inc. (the “Company”) and the undersigned grantee (the “Grantee”), pursuant to the Citizens Republic Bancorp, Inc. Stock Compensation Plan (the “Plan”). Capitalized terms not defined in this Agreement shall have the meanings respectively ascribed to them in the Plan.

     WHEREAS, prior to the Grant Date, the Company received funding under the U. S. Treasury’s Capital Purchase Program and became subject to the Troubled Asset Relief Program and certain associated compensation restrictions under the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009, and rules, regulations, programs and interpretations promulgated thereunder, including the Standards for Compensation and Corporate Governance and Interim Final Rule, as they may be amended from time to time (in the aggregate, “TARP”), and this award is subject to such compensation restrictions;

     WHEREAS, the Committee has determined that a percentage of Grantee’s 2010 salary increase shall be paid in the form of Restricted Stock under the Plan, net of applicable withholdings.

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed between the parties as follows:

     1. Salary Stock Award. Subject to the terms and conditions hereof and of the Plan, $_______ (the “Total Salary Shares Amount”), representing _______% of the Grantee’s 2010 salary increase, shall be paid from the Plan in the form of fully Vested Restricted Stock, subject to the transfer restrictions set forth below (the “Salary Shares”), net of applicable withholdings.

     2. Grant Terms. The Salary Shares shall be issued in 26 periodic installments, corresponding to the Company’s bi-weekly payroll dates, commencing May 20, 2010, each payroll date individually constituting a Grant Date. The number of Salary Shares to be issued on a payroll date shall be determined by dividing the Total Salary Shares Amount by 26, subtracting minimum applicable tax withholdings (such result being referred to as the “Bi-Weekly Amount”), and dividing the Bi-Weekly amount by the Fair Market Value as of the Grant Date. Applicable tax withholdings shall be remitted by the Company to the appropriate taxing authorities in cash. If any fractional share results from the calculation, the number of shares issued shall be rounded down to the nearest whole number and the fraction shall be disregarded.

     3. Restrictions on Transfer. (a) Salary Shares shall not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated prior to the close of business on the earlier of the Grantee’s (i) death, (ii) Disability, (iii) retirement or (iv) termination of employment that would entitle Grantee to severance payments pursuant to the provisions of the Company’s Severance Pay Plan, as in effect from time to time (the “Severance Pay Plan”), or (v) May 4, 2012, at which time the transfer restrictions on the Salary Shares provided herein shall lapse, and the shares shall be freely transferable. For purposes of this Agreement, notwithstanding the definition in the Plan, “retirement” shall mean Grantee’s cessation of employment for reasons other than Cause following the later of Grantee’s 55^th birthday and completion of five years of employment with the Company or an Affiliate. Further, all transfer restrictions shall lapse in the event of a Change in Control. In the event of Grantee’s separation from service for reasons other than those described in this paragraph, the shares shall remain subject to the restrictions set forth in this Section 3. Grantee’s right to future grants under this Agreement shall immediately terminate upon separation from service, except that Grantee shall be entitled to receive a final grant of Salary Shares with respect to compensation that had accrued as of the separation date but had not been paid.

     (b) Until the lapse of the transfer restrictions described in Section 3 on any Salary Shares, any certificate evidencing such Salary Shares shall carry the following restrictive legend:

The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary or by operation of law, is subject to certain restrictions on transfer set forth in the Citizens Republic Bancorp, Inc. Stock Compensation Plan (the “Plan”), rules and administrative guidelines adopted pursuant to such Plan and an Agreement dated as of May 4, 2010. A copy of the Plan, such rules and such Agreement may be obtained from the Secretary of Citizens Republic Bancorp, Inc.

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     (c) The Company reserves the right to place stop transfer instructions on shares which are subject to the restrictions described in Section 3 of this Agreement. Grantee shall be entitled to removal of such legend and stop transfer instructions at the time or times provided by, and in accordance with, Section 10.3 of the Plan.

     4. Clawback. Grantee acknowledges that Salary Shares received pursuant to this Agreement are subject to all applicable clawback policies of the Company, including but not limited to recovery or “clawback” by the Company if the lapse of restrictions on Salary Shares violates TARP. Grantee acknowledges that this Agreement may be amended as necessary to comply with the requirements and/or limitations under TARP or any other federal requirements, which could include cancellation of all or a portion of the Salary Shares.

     5. Code Section 409A. It is intended that this Agreement and the Salary Shares granted hereunder shall be exempt from or in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). If Salary Shares become subject to taxation under Code Section 409A, Grantee agrees that the Company, without the consent of Grantee, may modify this Agreement to the extent and in a manner that the Company deems necessary or advisable or shall take such other action or actions, including an amendment or action with retroactive effect, which the Company deems appropriate to keep the Salary Shares from being subject to Code Section 409A or to amend the Agreement to comply with Code Section 409A.

     6. Non-Assignability of Agreement. The rights to receive Salary Shares under this Agreement shall not be transferable. No purported assignment or transfer of this Agreement, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the purported assignee or transferee any interest or right whatsoever.

     7. Rights as Shareholder. Grantee shall be considered the record owner of the Salary Shares and shall have all the rights of a shareholder (including voting and dividend rights) with respect to the Salary Shares commencing on the Grant Date. Notwithstanding the foregoing, if any dividends or distributions are paid in shares of Common Stock while the transfer restrictions imposed by Section 3 are in effect, the shares received in connection with such dividend or other distribution shall be subject to the same restrictions on transferability as the Salary Shares with respect to which they were paid.

     8. Withholding. No later than the date as of which a portion of the Total Salary Shares Amount first becomes includible in the gross income of Grantee for federal income tax purposes, Grantee authorizes the Company to withhold from such portion to satisfy any associated income and employment tax withholding obligations prior to issuing Salary Shares in connection with such portion. If Grantee is no longer employed by the Company at the time any applicable taxes are due and must be remitted by the Company, Grantee agrees to pay applicable taxes to the Company.

     9. Notices. Every notice relating to this Agreement shall be in writing and if given by mail shall be given by registered or certified mail with return receipt requested. All notices to the Company shall be delivered to the Secretary of the Company at the Company’s headquarters. All notices by the Company to Grantee shall be delivered to Grantee personally or addressed to Grantee at Grantee’s last residence address as then contained in the records of the Company or such other address as Grantee may designate. Either party by notice to the other may designate a different address to which notices shall be addressed. Any notice given by the Company to Grantee at Grantee’s last designated address shall be effective to bind any other person who shall acquire rights hereunder.

     10. Governing Law. This Agreement (a) shall be governed by and construed in accordance with the laws of the State of Michigan without giving effect to conflict of laws, and (b) is not valid unless it has been signed by Grantee and the Company.

     11. Provisions of Plan Controlling. The provisions of this Agreement are subject to the terms and provisions of the Plan. Except to the extent expressly provided in this Agreement and permitted by the Plan, in the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall control. Capitalized terms used in this Agreement but not otherwise defined shall have the meaning ascribed to them in the Plan.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

GRANTEE	CITIZENS REPUBLIC BANCORP, INC.
	By:
		Its:

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Appendix to Salary Stock Agreement

The form of this Agreement was used in connection with the May 4, 2010 grant of shares of Company common stock as payment of base salary in the amounts listed to the following Named Executive Officers.

Name of Executive Officer	Dollar Amount of Grant
Cathleen H. Nash	$	200,000
Judith L. Klawinski	$	40,000

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EX-10.60

EXHIBIT 10.60

LONG-TERM INCENTIVE RESTRICTED STOCK AGREEMENT

     THIS LONG-TERM INCENTIVE RESTRICTED STOCK AGREEMENT (the “Award Agreement”) is made the                      day of                     ,                      (the “Grant Date”), by and between Citizens Republic Bancorp, Inc. (the “Company”) and the undersigned (the “Grantee”), pursuant to the Citizens Republic Bancorp, Inc. Stock Compensation Plan (the “Plan”). Capitalized terms not defined in this Award Agreement shall have the meanings respectively ascribed to them in the Plan.

     WHEREAS, the Company desires to encourage Grantee to make greater efforts on behalf of the Company and its Affiliates to achieve the Company’s long-term business plans and objectives and to further identify the interests of Grantee with the interests of the Company’s shareholders;

     WHEREAS, the Company desires to grant this long-term restricted stock Award to Grantee pursuant to the Plan; and

     WHEREAS, prior to the Grant Date, the Company received funding under the U. S. Treasury’s Capital Purchase Program and became subject to the Troubled Asset Relief Program (“TARP”) and certain compensation restrictions under the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009, and rules, regulations, programs and interpretations promulgated thereunder, including the TARP Standards for Compensation and Corporate Governance, Interim Final Rule, as it may be amended from time to time, and this Award is subject to such compensation restrictions;

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed between the parties as follows:

     1. Grant of Restricted Stock Award. Subject to the terms and conditions hereof, including without limitation the restrictions set forth in this Agreement, the Company hereby grants to Grantee a total of ________ shares of the Company’s Common Stock, 50% of which shall be performance-based (“Performance-Based”) and 50% of which shall be time-based (“Time-Based”), subject to the restrictions described below.

     2. Performance-Based Shares Subject to Award.

          (a) Fifty percent (50%) of the Performance-Based portion of the Award (______ shares) is subject to the Company’s attainment of the designated Pre-Tax, Pre-Provision Income target for fiscal year 2010 (75% weighting), and the Company’s attainment of the designated Total Provision Expense for fiscal year 2010 (25% weighting). The two targets are separate, and the attainment of one target but not both will not preclude payment of the percentage of restricted shares attributable to the attained target, subject to satisfaction of the vesting and lapse restrictions described herein. Restricted shares attributable to a Section 2(a) target that is not attained automatically shall be forfeited as of the last day of the Company’s 2010 fiscal year. The percentage of restricted shares attributable to an attained target under the Section 2(a) portion of the Award shall 100% vest on the second anniversary of the Grant Date if the Grantee has been continuously employed with the Company or an Affiliate between the Grant Date and the second anniversary of the Grant Date. Provided; however, that the restricted shares subject to Section 2(a) of the Award shall not be transferred, pledged, assigned or otherwise alienated or hypothecated until the later of the vesting date and the date(s) on which the restricted shares are no longer subject to the TARP limitations set forth in Section 4 below, at which time the restrictions on the Section 2(a) shares shall lapse, and the associated number of shares shall be freely transferable, which may occur in installments, if so required by Section 4.

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          (b) Fifty percent (50%) of the Performance-Based portion of the Award (________ shares) is subject to the Company’s attainment of the designated Pre-Tax, Pre-Provision Income target for fiscal year 2011 (75% weighting), and the Company’s attainment of the designated Total Provision Expense for fiscal year 2011 (25% weighting). The two targets are separate, and the attainment of one target but not both will not preclude payment of the percentage of restricted shares attributable to the attained target, subject to satisfaction of the vesting and lapse restrictions. Restricted shares attributable to a Section 2(b) target that is not attained automatically shall be forfeited as of the last day of the Company’s 2011 fiscal year. The percentage of restricted shares attributable to an attained target under the Section 2(b) portion of the Award shall 100% vest on the second anniversary of the Grant Date if the Grantee has been continuously employed with the Company or an Affiliate between the Grant Date and the second anniversary of the Grant Date. Provided; however, that the restricted shares subject to Section 2(b) of the Award shall not be transferred, pledged, assigned, or otherwise alienated or hypothecated until the later of the vesting date and the date(s) on which the restricted shares are no longer subject to the TARP limitations set forth in Section 4 below, at which time the restrictions on the Section 2(b) shares shall lapse, and the associated number of shares shall be freely transferable, which may occur in installments, if so required by Section 4.

     3. Time-Based Shares Subject to Award. The shares subject to the Section 3 Time-Based portion of the Award (                     shares) shall 100% vest on the third anniversary of the Grant Date if Grantee has been continuously employed with the Company or an Affiliate between the Grant Date and the third anniversary of the Grant Date. Provided; however, that the shares shall not be transferred, pledged, assigned, or otherwise alienated or hypothecated until the later of the vesting date and the date(s) on which the shares are no longer subject to the TARP limitations in Section 4 below, at which time the restrictions on the Section 3 shares shall lapse, and the associated number of shares shall be freely transferable, which may occur in installments, if so required by Section 4.

     4. Additional TARP Restrictions.

     Notwithstanding the vesting terms described above (or in any other employment or severance agreement), the restricted shares subject to the Award shall not become freely transferable earlier than the following schedule (except as necessary to reflect a merger or acquisition of the Company):

     (a) 25% of the restricted shares subject to the Award at the time the Company repays 25% of the aggregate financial assistance received by the Company under TARP;

     (b) An additional 25% of the restricted shares subject to the Award at the time the Company repays 50% of the aggregate financial assistance received by the Company under TARP;

     (c) An additional 25% of the restricted shares subject to the Award at the time the Company repays 75% of the aggregate financial assistance received by the Company under TARP; and

     (d) An additional 25% of the restricted shares at the time the Company repays 100% of the aggregate financial assistance received by the Company under TARP.

     5. Lapse of Restricted Period.

          (a) Subject to compliance with Sections 6 and 7, restrictions on shares subject to the Award shall be deemed to lapse at the close of business on the later of the vesting date and the date on which the restricted shares are no longer subject to the TARP limitations set forth in Section 4. Notwithstanding the foregoing, in the event of Grantee’s (i) death, (ii) Disability, (iii) retirement or (iv) termination of employment that would entitle Grantee to severance payments pursuant to the provisions of the Company’s Severance Pay Plan, as in effect from time to time (the “Severance Pay Plan”), the outstanding Time-Based restricted shares, and the Performance-Based restricted shares that have satisfied the Company’s performance targets but are not vested, shall vest based on the number of months that have lapsed in the vesting period. For purposes of this Agreement, notwithstanding the

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definition in the Plan document, “retirement” shall mean Grantee’s cessation of employment for reasons other than Cause following the later of Grantee’s 55^th birthday and completion of five years of employment with the Company or an Affiliate. All outstanding restricted shares shall 100% vest in the event of a Change in Control. Upon the later of the vesting date and the date(s) on which such restricted shares are no longer subject to the TARP limitations in Section 4, the associated number of shares shall be freely transferable. If Grantee’s employment with the Company or its Affiliates terminates prior to full vesting other than under the circumstances described in this Section 5, any portion of the Award that has not vested at the time of such termination shall be forfeited.

     (b) Until the lapse of all applicable restrictions described in Sections 2 through 5 on shares subject to this Award, any certificate evidencing the shares subject to the Award shall carry the following restrictive legend:

The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary or by operation of law, is subject to certain restrictions on transfer set forth in the Citizens Republic Bancorp Stock Compensation Plan (the “Plan”), rules and administrative guidelines adopted pursuant to such Plan and an Agreement dated May 4, 2010. A copy of the Plan, such rules and such Agreement may be obtained from the Secretary of Citizens Republic Bancorp, Inc.

     (c) The Company reserves the right to place stop transfer instructions on shares which are subject to the restrictions described in Sections 2(a), 2(b) and 3 of this Agreement. Grantee shall be entitled to removal of such legend and stop transfer instructions at the time or times provided by, and in accordance with, Section 10.3 of the Plan.

     6. Restrictive Covenants.

     As consideration for the grant of this Award, Grantee agrees to comply with and be bound by the following restrictive covenants:

     (a) Non-Disclosure of Confidential Information. All “Confidential Information” concerning Company and its customers shall be kept strictly confidential and shall not be disclosed by Grantee to any third parties or used by Grantee in a manner contrary to Company’s interests at any time without the prior consent of Company, except as required by law. “Confidential Information” includes customer and client lists and all customer, technical, business, marketing, financial, systems and personnel information from whatever source, the disclosure of which might be contrary to the interests of Company, excluding information which is or becomes publicly available other than by Grantee’s acts or omissions. All Confidential Information and all other property of Company will be returned to Company on or before the date Grantee’s active status terminates, and Grantee will not retain any copies in any form.

     (b) Non-Solicitation of Employees and Customers. During Grantee’s employment and for a period of one year following Grantee’s termination of employment for any reason, including retirement, Grantee shall not, without the prior written consent of Company:

          (i) on his/her own behalf or on behalf of any third party, whether directly or indirectly, hire or employ, attempt to hire or employ, or solicit, encourage or induce to leave employment with Company or to accept employment elsewhere than Company, any person who was employed by Company at any time during the 18-month period beginning six months prior to the termination of Grantee’s employment and ending one year after such termination.

          (ii) on his/her own behalf or on behalf of any third party, whether directly or indirectly, provide, sell, market or endeavor to provide, sell or market any Competing Services to any Restricted Customers (as such terms are defined below), or otherwise solicit or communicate with any Restricted Customers for the purpose of selling or providing any Competing Services. “Competing

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Services” means any products or services that are similar to or competitive with the products and services sold or offered by Company. “Restricted Customers” means any of Company’s current, former, or prospective customers to whom Grantee provided services, with whom Grantee had business contact on behalf of Company, with respect to whom Grantee has confidential information, or with whom Grantee had any responsibilities during the last two years of Grantee’s employment with Company.

     (c) Non-disparagement. During Grantee’s employment and following Grantee’s termination of employment for any reason, including retirement, Grantee shall not publicly or privately make disparaging comments with respect to Company or it’s management in general and specifically with respect to any of Company’s personnel, operations, products, policies or practices.

     (d) Non-Competition. During Grantee’s employment and for a period of one year following Grantee’s termination of employment for any reason, including retirement, Grantee shall not, without the prior written consent of Company, become employed by (including self-employment) or otherwise provide services to or on behalf of any person or entity whose business competes with Company where both:

          (i) Grantee will be called to perform the same or substantially similar functions to those which Grantee performed while employed by Company during the one-year period prior to the termination of Grantee’s employment, and

          (ii) Grantee will, by virtue of the new business relationship, be acting in a manner which is or may reasonably be expected to be prejudicial to or in conflict with the interests of Company, as determined in the reasonable discretion of the Chief Executive Officer of Company or the Chief Executive Officer’s designee.

The restrictions set forth in this paragraph 6(d) shall not apply following a termination of Grantee’s employment that would entitle Grantee to severance payments pursuant to the provisions of the Company’s Severance Pay Plan.

     (e) Subsequent Assistance. Following Grantee’s termination of employment for any reason, (other than death and in certain instances, Disability) Grantee shall furnish such reasonable subsequent assistance requested by Company that is deemed material to the transition of responsibilities from Grantee to his or her successor.

     (f) Reformation. If any portion of these restrictive covenants is found to be unenforceable, any court of competent jurisdiction may reform the restrictions as to time, geographical area or scope to the extent required to make the provision enforceable under applicable law.

     (g) Disclosure of Information. Grantee hereby agrees that he/she shall provide Company with any information reasonably requested to determine compliance with these restrictive covenants and authorizes Company to disclose the covenants and the remedies for their violation to any third party who might be affected thereby, including Grantee’s prospective employer.

     (h) Cancellation and Other Remedies. If Grantee violates the restrictive covenants described in Sections 6(a) through 6(e) above:

          (i) all shares subject to this long-term restricted stock Award that are subject to restriction shall be forfeited immediately,

          (ii) all shares that were covered by this grant and that became free of restrictions within the period beginning one year prior to the termination of Grantee’s employment, net of any taxes withheld (whether withheld in cash or shares), shall be canceled immediately for no consideration, and

          (iii) Grantee shall be required to reimburse Company in an amount equal to any gain realized by Grantee (determined as of the sale date) with respect to the sale of any shares originally

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covered by this long-term restricted stock Award within the period beginning one year prior to the termination of Grantee’s employment and ending six (6) months after the termination of Grantee’s employment, net of any taxes withheld (whether withheld in cash or shares).

     Grantee acknowledges that a violation or attempted violation on his or her part of the restrictive covenants set forth in Sections 6(a) relating to disclosure of Confidential Information, 6(b) relating to solicitation of Company’s employees and customers and 6(c) relating to the making of disparaging comments concerning Company shall cause immediate and irreparable damage to Company, and therefore agrees that Company shall be entitled as a matter of right to an injunction from any court of competent jurisdiction restraining any violation or further violation of such terms, such right to an injunction, however, shall be cumulative and in addition to whatever other remedies Company may have under law or equity. With respect to any violation of the restrictive covenants set forth in Sections 6(d) relating to noncompetition and 6(e) relating to subsequent assistance, the right to injunctive relief shall not apply and only the remedies set forth in sub-sections 6(h)(i), (ii) and (iii) shall be available to Company. In any action or proceeding by Company to enforce these restrictive covenants where Company is the prevailing party, Company shall be entitled to recover from Grantee its reasonable attorneys’ fees and expenses incurred in such action or proceeding.

     7. Clawback. Grantee acknowledges that this Award is subject to all applicable clawback policies of the Company, including but not limited to recovery or “clawback” by the Company if the lapse of restrictions on shares subject to the Award is or was based on materially inaccurate financial statements or violates TARP or the rules, regulations and/or government guidance issued thereunder. Grantee acknowledges that this Award Agreement may be amended as necessary to comply with the requirements and/or limitations under TARP or any other federal requirements, which could include revocation of all or a portion of the Award.

     8. Code Section 409A. It is intended that this Award Agreement and shares granted pursuant to the Award shall be exempt from or in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). If shares subject to the Award become subject to taxation under Code Section 409A, Grantee agrees that the Company, without the consent of Grantee, may modify this Award Agreement to the extent and in a manner that the Company deems necessary or advisable or shall take such other action or actions, including an amendment or action with retroactive effect, which the Company deems appropriate to keep the Award from being subject to Code Section 409A or to amend the Award to comply with Code Section 409A.

     9. Non-Assignability of Award. The Award hereby granted shall not be transferable. No purported assignment or transfer of this Award, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the purported assignee or transferee any interest or right whatsoever. For the avoidance of doubt, the parties acknowledge that this Section 9 applies to the Award itself, not to the shares subject to the Award, and that the transferability of the shares subject to the Award shall be governed by Sections 2 through 7 of this Agreement.

     10. Adjustments. In the event of any stock dividend, reclassification, subdivision or combination, or similar transaction affecting the shares covered by this Award, the rights of Grantee are subject to adjustment as provided in Section 9.1 of the Plan to the extent deemed necessary by the Committee.

     11. Rights as Shareholder. During the Restricted Period, Grantee shall be considered the record owner of the shares subject to this long-term restricted stock Award and shall have all the rights of a shareholder (including voting and dividend rights) with respect to the shares subject to the Award commencing on the Grant Date. Notwithstanding the foregoing, if any dividends or distributions are paid in shares of Common Stock during the Restricted Period, the dividend or other distribution in shares shall be subject to the same restrictions on transferability as the shares of restricted stock with respect to which they were paid.

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     12. Withholding. No later than the date as of which an amount first becomes includible in the gross income of Grantee for federal income tax purposes with respect to any shares subject to this Award, Grantee shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, all federal, state and local income and employment taxes that are required by applicable laws and regulations to be withheld with respect to such amount. Grantee authorizes the Company to withhold from his or her compensation, including withholding from Grantee’s shares subject to the Award, to satisfy any income and employment tax withholding obligations in connection with the Award. If Grantee is no longer employed by the Company at the time any applicable taxes are due and must be remitted by the Company, Grantee agrees to pay applicable taxes to the Company, and the Company may delay removal of the restrictive legend until proper payment of such taxes has been made by Grantee. Grantee may satisfy such obligations under this Section 12 by any method authorized under Section 10.5 of the Plan.

     13. Notices. Every notice relating to this Award Agreement shall be in writing and if given by mail shall be given by registered or certified mail with return receipt requested. All notices to the Company shall be delivered to the Secretary of the Company at the Company’s headquarters. All notices by the Company to Grantee shall be delivered to Grantee personally or addressed to Grantee at Grantee’s last residence address as then contained in the records of the Company or such other address as Grantee may designate. Either party by notice to the other may designate a different address to which notices shall be addressed. Any notice given by the Company to Grantee at Grantee’s last designated address shall be effective to bind any other person who shall acquire rights hereunder.

     14. Governing Law. This Award Agreement (a) shall be governed by and construed in accordance with the laws of the State of Michigan without giving effect to conflict of laws, and (b) is not valid unless it has been signed by Grantee and the Company.

     15. Provisions of Plan Controlling. Except as provided in Sections 2, 4, 5, 6 and 7 of this Agreement, the provisions hereof are subject to the terms and provisions of the Plan. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall control except with regard to Sections 2, 4, 5, 6 and 7.

     16. Acceptance of Agreement. This Agreement must be accepted by Grantee on the Solium web site no later than the close of business on June 4, 2010. In the event that this Award Agreement is not accepted by Grantee pursuant to the procedures set forth on the Solium web site, the Common Stock granted hereunder shall be canceled immediately and Grantee shall forfeit all rights hereunder.

     IN WITNESS WHEREOF, the parties hereto have executed this Award Agreement as of the day and year first above written.

GRANTEE	CITIZENS REPUBLIC BANCORP, INC.
	By:

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Appendix to Long-Term Incentive Restricted Stock Agreement

The form of this Agreement was used in connection with the May 4, 2010 grant of Company restricted stock in the amounts listed to the following Named Executive Officers.

Name of Executive Officer	Number of Shares of Restricted Stock
Cathleen H. Nash		327,868
Judith L. Klawinski		118,852
Thomas C. Shafer		121,942

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EX-10.61

EXHIBIT 10.61

LONG-TERM INCENTIVE RESTRICTED STOCK UNIT AGREEMENT

     THIS LONG-TERM INCENTIVE RESTRICTED STOCK UNIT AGREEMENT (the “Award Agreement”) is made the __ day of _____, ____ (the “Grant Date”), by and between Citizens Republic Bancorp, Inc. (the “Company”) and the undersigned (the “Grantee”), pursuant to the Citizens Republic Bancorp, Inc. Stock Compensation Plan (the “Plan”). Capitalized terms not defined in this Award Agreement shall have the meanings respectively ascribed to them in the Plan.

     WHEREAS, the Company desires to encourage Grantee to make greater efforts on behalf of the Company and its Affiliates to achieve the Company’s long-term business plans and objectives and to further identify the interests of Grantee with the interests of the Company’s shareholders;

     WHEREAS, the Company desires to grant this long-term restricted stock unit (“RSU”) Award to Grantee pursuant to the Plan; and

     WHEREAS, prior to the Grant Date, the Company received funding under the U. S. Treasury’s Capital Purchase Program and became subject to the Troubled Asset Relief Program (“TARP”) and certain compensation restrictions under the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009, and rules, regulations, programs and interpretations promulgated thereunder, including the TARP Standards for Compensation and Corporate Governance, Interim Final Rule, as it may be amended from time to time, and this Award is subject to such compensation restrictions;

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed between the parties as follows:

     1. Grant of Restricted Stock Unit Award. Subject to the terms and conditions hereof, including without limitation the restrictions set forth in this Agreement, the Company hereby grants to Grantee a total of ________ RSUs to receive one share of the Company’s Common Stock for each RSU at the time the applicable restrictions lapse, less any shares withheld to satisfy income and employment tax withholding requirements. Fifty percent (50%) of the RSUs shall be performance-based (“Performance-Based”) and 50% shall be time-based (“Time-Based”), subject to the restrictions described below.

     2. Performance-Based RSUs Subject to Award.

          (a) Fifty percent (50%) of the Performance-Based portion of the Award (______ RSUs) is subject to the Company’s attainment of the designated Pre-Tax, Pre-Provision Income target for fiscal year 2010 (75% weighting), and the Company’s attainment of the designated Total Provision Expense for fiscal year 2010 (25% weighting). The two targets are separate, and the attainment of one target but not both will not preclude payment of the percentage of RSUs attributable to the attained target, subject to satisfaction of the vesting and lapse restrictions described herein. RSUs attributable to a Section 2(a) target that is not attained automatically shall be forfeited as of the last day of the Company’s 2010 fiscal year. The percentage of RSUs attributable to an attained target under the Section 2(a) portion of the Award shall 100% vest on the second anniversary of the Grant Date if the Grantee has been continuously employed with the Company or an Affiliate between the Grant Date and the second anniversary of the Grant Date. Provided; however, that the RSUs subject to Section 2(a) of the Award shall not be transferred, pledged, assigned or otherwise alienated or hypothecated until the later of the vesting date and the date(s) on which the RSUs are no longer subject to the TARP limitations set forth in Section 4 below, at which time the restrictions on the Section 2(a) RSUs shall lapse, and the associated

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number of RSUs shall be settled in freely transferable shares of the Company’s Common Stock, which may occur in installments, if so required by Section 4.

          (b) Fifty percent (50%) of the Performance-Based portion of the Award (________ RSUs) is subject to the Company’s attainment of the designated Pre-Tax, Pre-Provision Income target for fiscal year 2011 (75% weighting), and the Company’s attainment of the designated Total Provision Expense for fiscal year 2011 (25% weighting). The two targets are separate, and the attainment of one target but not both will not preclude payment of the percentage of RSUs attributable to the attained target, subject to satisfaction of the vesting and lapse restrictions. RSUs attributable to a Section 2(b) target that is not attained automatically shall be forfeited as of the last day of the Company’s 2011 fiscal year. The percentage of RSUs attributable to an attained target under the Section 2(b) portion of the Award shall 100% vest on the second anniversary of the Grant Date if the Grantee has been continuously employed with the Company or an Affiliate between the Grant Date and the second anniversary of the Grant Date. Provided; however, that the RSUs subject to Section 2(b) of the Award shall not be transferred, pledged, assigned, or otherwise alienated or hypothecated until the later of the vesting date and the date(s) on which the RSUs are no longer subject to the TARP limitations set forth in Section 4 below, at which time the restrictions on the Section 2(b) RSUs shall lapse, and the associated number of RSUs shall be settled in freely transferable shares of the Company’s Common Stock, which may occur in installments, if so required by Section 4.

     3. Time-Based RSUs Subject to Award. The RSUs subject to the Section 3 Time-Based portion of the Award (__________ RSUs) shall 100% vest on the third anniversary of the Grant Date if Grantee has been continuously employed with the Company or an Affiliate between the Grant Date and the third anniversary of the Grant Date. Provided; however, that the RSUs shall not be transferred, pledged, assigned, or otherwise alienated or hypothecated until the later of the vesting date and the date(s) on which the RSUs are no longer subject to the TARP limitations in Section 4 below, at which time the restrictions on the Section 3 RSUs shall lapse, and the associated number of RSUs shall be settled in freely transferable shares of the Company’s Common Stock, which may occur in installments, if so required by Section 4.

     4. Additional TARP Restrictions.

     Notwithstanding the vesting terms described above (or in any other employment or severance agreement), the RSUs subject to the Award shall not be settled in freely transferable shares of the Company’s Common Stock earlier than the following schedule (except as necessary to reflect a merger or acquisition of the Company):

          (a) 25% of the RSUs subject to the Award at the time the Company repays 25% of the aggregate financial assistance received by the Company under TARP;

          (b) An additional 25% of the RSUs subject to the Award at the time the Company repays 50% of the aggregate financial assistance received by the Company under TARP;

          (c) An additional 25% of the RSUs subject to the Award at the time the Company repays 75% of the aggregate financial assistance received by the Company under TARP; and

          (d) An additional 25% of the RSUs at the time the Company repays 100% of the aggregate financial assistance received by the Company under TARP.

     5. Lapse of Restricted Period.

          (a) Subject to compliance with Sections 6 and 7, restrictions on RSUs subject to the Award shall be deemed to lapse at the close of business on the later of the vesting date and the date on which the RSUs are no longer subject to the TARP limitations set forth in Section 4. Notwithstanding the foregoing, in the event of Grantee’s (i) death, (ii) Disability, (iii) retirement or (iv) termination of

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employment that would entitle Grantee to severance payments pursuant to the provisions of the Company’s Severance Pay Plan, as in effect from time to time (the “Severance Pay Plan”), the outstanding Time-Based RSUs, and the Performance-Based RSUs that have satisfied the Company’s performance targets but are not vested, shall vest based on the number of months that have lapsed in the vesting period. For purposes of this Agreement, notwithstanding the definition in the Plan document, “retirement” shall mean Grantee’s cessation of employment for reasons other than Cause following the later of Grantee’s 55^th birthday and completion of five years of employment with the Company or an Affiliate. All outstanding RSUs shall 100% vest in the event of a Change in Control. Upon the later of the vesting date and the date(s) on which such RSUs are no longer subject to the TARP limitations in Section 4, the associated number of RSUs shall be settled in freely transferable shares of the Company’s Common Stock. If Grantee’s employment with the Company or its Affiliates terminates prior to full vesting other than under the circumstances described in this Section 5, any portion of the Award that has not vested at the time of such termination shall be forfeited.

          (b) Until the lapse of all applicable restrictions described in Sections 2 through 5 on RSUs subject to this Award, any certificate evidencing the shares subject to the Award shall carry the following restrictive legend:

The sale or other transfer of the restricted stock units represented by this certificate, whether voluntary, involuntary or by operation of law, is subject to certain restrictions on transfer set forth in the Citizens Republic Bancorp Stock Compensation Plan (the “Plan”), rules and administrative guidelines adopted pursuant to such Plan and an Agreement dated May 4, 2010. A copy of the Plan, such rules and such Agreement may be obtained from the Secretary of Citizens Republic Bancorp, Inc.

          (c) The Company reserves the right to place stop transfer instructions on the RSUs which are subject to the restrictions described in Sections 2(a), 2(b) and 3 of this Agreement. Grantee shall be entitled to removal of such legend and stop transfer instructions at the time or times provided by, and in accordance with, Section 10.3 of the Plan.

     6. Restrictive Covenants.

          As consideration for the grant of this Award, Grantee agrees to comply with and be bound by the following restrictive covenants:

          (a) Non-Disclosure of Confidential Information. All “Confidential Information” concerning Company and its customers shall be kept strictly confidential and shall not be disclosed by Grantee to any third parties or used by Grantee in a manner contrary to Company’s interests at any time without the prior consent of Company, except as required by law. “Confidential Information” includes customer and client lists and all customer, technical, business, marketing, financial, systems and personnel information from whatever source, the disclosure of which might be contrary to the interests of Company, excluding information which is or becomes publicly available other than by Grantee’s acts or omissions. All Confidential Information and all other property of Company will be returned to Company on or before the date Grantee’s active status terminates, and Grantee will not retain any copies in any form.

          (b) Non-Solicitation of Employees and Customers. During Grantee’s employment and for a period of one year following Grantee’s termination of employment for any reason, including retirement, Grantee shall not, without the prior written consent of Company:

               (i) on his/her own behalf or on behalf of any third party, whether directly or indirectly, hire or employ, attempt to hire or employ, or solicit, encourage or induce to leave employment with Company or to accept employment elsewhere than Company, any person who was employed by Company at any time during the 18-month period beginning six months prior to the termination of Grantee’s employment and ending one year after such termination.

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               (ii) on his/her own behalf or on behalf of any third party, whether directly or indirectly, provide, sell, market or endeavor to provide, sell or market any Competing Services to any Restricted Customers (as such terms are defined below), or otherwise solicit or communicate with any Restricted Customers for the purpose of selling or providing any Competing Services. “Competing Services” means any products or services that are similar to or competitive with the products and services sold or offered by Company. “Restricted Customers” means any of Company’s current, former, or prospective customers to whom Grantee provided services, with whom Grantee had business contact on behalf of Company, with respect to whom Grantee has confidential information, or with whom Grantee had any responsibilities during the last two years of Grantee’s employment with Company.

          (c) Non-disparagement. During Grantee’s employment and following Grantee’s termination of employment for any reason, including retirement, Grantee shall not publicly or privately make disparaging comments with respect to Company or it’s management in general and specifically with respect to any of Company’s personnel, operations, products, policies or practices.

          (d) Non-Competition. During Grantee’s employment and for a period of one year following Grantee’s termination of employment for any reason, including retirement, Grantee shall not, without the prior written consent of Company, become employed by (including self-employment) or otherwise provide services to or on behalf of any person or entity whose business competes with Company where both:

               (i) Grantee will be called to perform the same or substantially similar functions to those which Grantee performed while employed by Company during the one-year period prior to the termination of Grantee’s employment, and

               (ii) Grantee will, by virtue of the new business relationship, be acting in a manner which is or may reasonably be expected to be prejudicial to or in conflict with the interests of Company, as determined in the reasonable discretion of the Chief Executive Officer of Company or the Chief Executive Officer’s designee.

The restrictions set forth in this paragraph 6(d) shall not apply following a termination of Grantee’s employment that would entitle Grantee to severance payments pursuant to the provisions of the Company’s Severance Pay Plan.

          (e) Subsequent Assistance. Following Grantee’s termination of employment for any reason, (other than death and in certain instances, Disability) Grantee shall furnish such reasonable subsequent assistance requested by Company that is deemed material to the transition of responsibilities from Grantee to his or her successor.

          (f) Reformation. If any portion of these restrictive covenants is found to be unenforceable, any court of competent jurisdiction may reform the restrictions as to time, geographical area or scope to the extent required to make the provision enforceable under applicable law.

          (g) Disclosure of Information. Grantee hereby agrees that he/she shall provide Company with any information reasonably requested to determine compliance with these restrictive covenants and authorizes Company to disclose the covenants and the remedies for their violation to any third party who might be affected thereby, including Grantee’s prospective employer.

          (h) Cancellation and Other Remedies. If Grantee violates the restrictive covenants described in Sections 6(a) through 6(e) above:

               (i) all RSUs subject to this Award that are subject to restriction shall be forfeited immediately,

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               (ii) all RSUs that were covered by this grant and were settled in freely transferable shares of Company Common Stock within the period beginning one year prior to the termination of Grantee’s employment, net of any taxes withheld (whether withheld in cash or shares), shall be canceled immediately for no consideration, and

               (iii) Grantee shall be required to reimburse Company in an amount equal to any gain realized by Grantee (determined as of the sale date) with respect to the sale of any shares originally granted as RSUs pursuant to this Award within the period beginning one year prior to the termination of Grantee’s employment and ending six (6) months after the termination of Grantee’s employment, net of any taxes withheld (whether withheld in cash or shares).

          Grantee acknowledges that a violation or attempted violation on his or her part of the restrictive covenants set forth in Sections 6(a) relating to disclosure of Confidential Information, 6(b) relating to solicitation of Company’s employees and customers and 6(c) relating to the making of disparaging comments concerning Company shall cause immediate and irreparable damage to Company, and therefore agrees that Company shall be entitled as a matter of right to an injunction from any court of competent jurisdiction restraining any violation or further violation of such terms, such right to an injunction, however, shall be cumulative and in addition to whatever other remedies Company may have under law or equity. With respect to any violation of the restrictive covenants set forth in Sections 6(d) relating to noncompetition and 6(e) relating to subsequent assistance, the right to injunctive relief shall not apply and only the remedies set forth in sub-sections 6(h)(i), (ii) and (iii) shall be available to Company. In any action or proceeding by Company to enforce these restrictive covenants where Company is the prevailing party, Company shall be entitled to recover from Grantee its reasonable attorneys’ fees and expenses incurred in such action or proceeding.

     7. Clawback. Grantee acknowledges that this Award is subject to all applicable clawback policies of the Company, including but not limited to recovery or “clawback” by the Company if the lapse of restrictions on RSUs subject to the Award is or was based on materially inaccurate financial statements or violates TARP or the rules, regulations and/or government guidance issued thereunder. Grantee acknowledges that this Award Agreement may be amended as necessary to comply with the requirements and/or limitations under TARP or any other federal requirements, which could include revocation of all or a portion of the Award.

     8. Code Section 409A and TARP. It is intended that this Award Agreement and RSUs granted pursuant to the Award shall be exempt from or in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). If RSUs subject to the Award become subject to taxation under Code Section 409A, Grantee agrees that the Company, without the consent of Grantee, may modify this Award Agreement to the extent and in a manner that the Company deems necessary or advisable or shall take such other action or actions, including an amendment or action with retroactive effect, which the Company deems appropriate to keep the Award from being subject to Code Section 409A or to amend the Award to comply with Code Section 409A.

     9. Non-Assignability of Award.

     (a) The Award hereby granted shall not be transferable. No purported assignment or transfer of this Award, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the purported assignee or transferee any interest or right whatsoever. For the avoidance of doubt, the parties acknowledge that this Section 9 applies to the Award itself, not to the RSUs or settlement of the RSUs in shares of the Company’s Common Stock, and that the transferability of the RSUs subject to the Award and the settlement of the RSUs in shares of the Company’s Common Stock shall be governed by Sections 2 through 7 of this Agreement.

     (b) This Award is subject to TARP and in accordance with the Preamble to the Interim Final Rule, is intended to satisfy the short-term deferral rule under Code Section 409A, and pursuant to the Preamble intends that settlement of the Award shall not be treated as a payment outside of the short-term deferral rule if the settlement is made promptly following the first date on which the payment could be

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made without violating TARP and the agreement between the Company as the TARP recipient and the U.S. Department of Treasury.

     10. Adjustments. In the event of any stock dividend, reclassification, subdivision or combination, or similar transaction affecting the RSUs covered by this Award, the rights of Grantee are subject to adjustment as provided in Section 9.1 of the Plan to the extent deemed necessary by the Committee.

     11. No Shareholder Rights. During the Restricted Period, Grantee shall not be considered the record owner of the shares subject to this RSU Award and shall have no rights of a shareholder (including no voting and dividend rights) with respect to the shares subject to the Award. Notwithstanding the foregoing, if Grantee’s RSUs are settled into freely transferable shares of Company Common Stock, at the time of settlement, Grantee shall receive payment in accordance with Section 4.6 of the Plan for dividend equivalents on the number of shares settled that had paid dividends during the Restricted Period.

     12. Withholding. No later than the date as of which an amount first becomes includible in the gross income of Grantee for federal income tax purposes with respect to any RSUs subject to this Award, Grantee shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, all federal, state and local income and employment taxes that are required by applicable laws and regulations to be withheld with respect to such amount. Grantee authorizes the Company to withhold from his or her compensation, including withholding from Grantee’s Award, to satisfy any income and employment tax withholding obligations in connection with the Award. If Grantee is no longer employed by the Company at the time any applicable taxes are due and must be remitted by the Company, Grantee agrees to pay applicable taxes to the Company, and the Company may delay removal of the restrictive legend until proper payment of such taxes has been made by Grantee. Grantee may satisfy such obligations under this Section 12 by any method authorized under Section 10.5 of the Plan.

     13. Notices. Every notice relating to this Award Agreement shall be in writing and if given by mail shall be given by registered or certified mail with return receipt requested. All notices to the Company shall be delivered to the Secretary of the Company at the Company’s headquarters. All notices by the Company to Grantee shall be delivered to Grantee personally or addressed to Grantee at Grantee’s last residence address as then contained in the records of the Company or such other address as Grantee may designate. Either party by notice to the other may designate a different address to which notices shall be addressed. Any notice given by the Company to Grantee at Grantee’s last designated address shall be effective to bind any other person who shall acquire rights hereunder.

     14. Governing Law. This Award Agreement (a) shall be governed by and construed in accordance with the laws of the State of Michigan without giving effect to conflict of laws, and (b) is not valid unless it has been signed by Grantee and the Company.

     15. Provisions of Plan Controlling. Except as provided in Sections 2, 4, 6 and 7 of this Agreement, the provisions hereof are subject to the terms and provisions of the Plan, and in the event of any conflict between the provisions of this Agreement and the Plan , the provisions of the Plan shall control, except with regard to Sections 2, 4, 5, 6 and 7.

     16. Acceptance of Agreement. This Agreement must be accepted by Grantee on the Solium web site no later than the close of business on June 4, 2010. In the event that this Award Agreement is not accepted by Grantee pursuant to the procedures set forth on the Solium web site, the RSUs granted hereunder shall be canceled immediately and Grantee shall forfeit all rights hereunder.

     IN WITNESS WHEREOF, the parties hereto have executed this Award Agreement as of the day and year first above written.

GRANTEE CITIZENS REPUBLIC BANCORP, INC.

_______________________ By: ______________________ 

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Appendix to Long-Term Incentive Restricted Stock Unit Agreement

The form of this Agreement was used in connection with the May 4, 2010 grant of Company restricted stock units in the amount listed to the following Named Executive Officer.

Name of Executive Officer	Number of Restricted Stock Units
Thomas W. Gallagher		104,476

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EX-10.62

EXHIBIT 10.62

AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT

          This Amended and Restated Change in Control Agreement (“Agreement”) is made by and between Citizens Republic Bancorp, Inc., a Michigan corporation (“Corporation”), and _________________________ (“Executive”). The effective date of this Agreement shall be _________________.

          The Executive and the Corporation are parties to that certain Amended and Restated Change in Control Agreement, dated as of _____________________ (the “Prior Agreement”). The Corporation now desires to restate the Prior Agreement to reflect changes promulgated by the compensation and human resources committee of the board of directors of the Corporation designed to place structure around the overall change in control program of the Corporation and to provide consistency in terms of the level of benefits offered in accordance with the level of positions within the Corporation that are eligible to participate in the program.

          The Executive agrees to such changes and reduction in benefits including, but not limited to, any reduction in the Severance Payment as provided for in the Prior Agreement in consideration of, as the case may be (i) the agreement of the Corporation to increase Executive’s base salary, (ii) the granting of a short term or long term incentive award to Executive, or (iii) the continuance of Executive’s employment with the Corporation (or a subsidiary thereof) following the termination of Executive’s employment from his or her previous position with the Corporation.

          The Corporation anticipates the valuable services that the Executive will render on behalf of the Corporation and its subsidiary banks throughout this Agreement and is desirous of having some assurance that the Executive will continue as an employee and that, in the event of a possible Change in Control of the Corporation, the Executive will be able to perform the Executive’s duties without undue concern for the Executive’s personal financial well-being; and

     The Executive is willing to serve as an employee of the Corporation under such circumstances.

     Accordingly, the Corporation and the Executive agree as follows:

1. In order to protect the Executive against the possible consequences of a Change in Control of the Corporation, as defined in paragraph 2 of this Agreement, and thereby to induce the Executive to serve as an officer of the Corporation or a subsidiary bank the Corporation agrees that if (a) there is such a Change in Control of the Corporation and (b) the Executive experiences a “separation from service” from the Corporation or a subsidiary thereof within the meaning of Code Section 409A (a “Separation from Service”) under the circumstances described in paragraph 3 of this Agreement, then:

     A. (1) The Corporation shall pay the Executive a lump sum amount in cash equal to the sum of (a) _____ times the Executive’s annual base salary immediately prior to the Change in Control (or if higher, the annual base salary on the date the Executive’s employment is terminated) and (b) _____ times the average of the annual bonuses paid to the Executive in the last three full calendar years of employment under the Citizens Republic Bancorp, Inc. Management Incentive Plan (“MIP”) or such comparable plan in which Executive may have participated (such amount, the “Severance Payment”). In the event that Executive has not participated in the MIP or comparable plan (either because he or she was not employed by the Corporation or otherwise) for 3 full calendar years, then the above referenced bonus amount shall be determined by averaging the annual bonuses paid to the Executive for the actual number of full calendar years worked during such 3 calendar year period and for such calendar year(s) where the Executive did not complete the full calendar year of employment with the Corporation, then the average percent paid out to participants in the MIP or comparable plan multiplied by the Executive’s individual participation rate shall be utilized to determine the amount for such year(s).

               (2) The Severance Payment shall be payable within 60 days following the date of the Executive’s Separation from Service, provided that, except as provided with respect to an Anticipatory Termination (as defined in paragraph 3 below), in the event that the Executive is a “specified employee” within the meaning of Code Section 409A (with such classification to be determined in accordance with the methodology established by the applicable employer) (a “Specified Employee”) as of the date of the Executive’s Separation from Service, the Severance Payment shall instead be paid, with interest on any delayed payment at the applicable federal rate provided for in Code Section 7872(f)(2)(A) (“Interest”), on the

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earlier of the first business day (a) of the seventh month following the Executive’s Separation from Service, or (b) the Executive’s death following Separation from Service (the “409A Payment Date”).

               (3) Notwithstanding the foregoing, in the event of an Anticipatory Termination, the Severance Payment shall be paid as follows: (i) if such Change in Control is a “change in control event” within the meaning of Code Section 409A, (A) except as provided in clause (i)(B), on the date of such Change in Control, or (B) if the Executive is a Specified Employee as of the date of the Executive’s Separation from Service, on the 409A Payment Date, and (ii) if such Change in Control is not a “change in control event” within the meaning of Code Section 409A, (A) except as provided in clause (ii)(B), on the first business day following the three-month anniversary of the date of such Anticipatory Termination, or (B) if the Executive is a Specified Employee as of the date of the Executive’s Separation from Service, on the 409A Payment Date. Interest with respect to the period, if any, from the date of the Change in Control until the actual date of payment shall be paid on the Severance Payment made in connection with an Anticipatory Termination.

               (4) Notwithstanding the foregoing, on the first anniversary of the effective date of this Agreement, the Severance Payment provided for in paragraph 1.A(1) shall be reduced from two times base salary plus two times bonus to one times base salary and one times bonus.

               B. The Executive shall continue to be covered, at the Corporation’s cost, by the medical and dental benefit plans that are in effect on the date of the Executive’s Separation from Service and that cover executive employees, for a period of _________ (___) months (the “Benefit Continuation Period”) after the Executive’s Separation from Service; provided, however, that such medical and dental benefits provided during the Benefit Continuation Period shall be provided in such a manner that such benefits (and the costs and premiums thereof) are excluded from the Executive’s income for federal income tax purposes and, if the Corporation reasonably determines that providing continued coverage under one or more of its health care benefit plans contemplated herein could be taxable to the Executive, the Corporation shall provide such benefits at the level required hereby through the purchase of individual insurance coverage; provided, however, that if during such time period the Executive should enter into other employment providing comparable benefits, the Executive’s participation in such plans of the Corporation shall cease.

               C. If the Executive was furnished with a club membership, that membership (as it relates to the Executive) shall terminate as of the Executive’s Separation from Service, and the Corporation either shall transfer or terminate the membership in accordance with the by-laws and/or rules and procedures of the applicable club; provided, however, that the Executive shall incur no new club fees following Separation from Service and also shall have no further financial liability for new obligations thereunder.

               D. All stock options and restricted stock previously granted by the Corporation to the Executive, whether or not then exercisable, shall become immediately vested and exercisable.

               E. For a period of one year following Executive’s Separation from Service, the Executive shall be entitled to outplacement services provided by an outplacement service provider designated by the Corporation. The cost of providing the outplacement services shall be borne solely by the Corporation, and shall be equal to the lesser of (i) 10% of the Executive’s annual base salary immediately prior to the Change in Control (or, if higher, the Executive’s annual base salary as of the date of the Executive’s Separation from Service) and (ii) $20,000.

               F. If the payment of any of the foregoing amounts or benefits (when added to any other payments or benefits provided to the Executive in the nature of compensation) will result in the payment of an excess parachute payment as that term is defined in Code Section 280G, then in such event, the amount of the payment shall be decreased to the maximum amount that could be paid without the payment being deemed an excess parachute payment.

2. For purposes of this Agreement, a “Change in Control” shall mean:

               A. The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule l3d-3 promulgated under the Exchange Act) of 20% or more of either (1) the then outstanding shares of common stock of the Corporation (the “Outstanding Corporation Common Stock”) or (2) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the “Outstanding Corporation Voting Securities”); provided, however, that for purposes of

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this subparagraph A, the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Corporation, (ii) any acquisition by the Corporation, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of subparagraph C of this paragraph 2; or

          B. Individuals who, as of the date hereof, constitute the Board of Directors of the Corporation (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Corporation in which such person is named as a nominee for director, without written objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or contests by or on behalf of a person other than the Board of Directors of the Corporation; or

          C. Consummation of a reorganization, merger, share exchange with another corporation pursuant to Michigan Compiled Laws Section 450.1702, or consolidation, sale or other disposition of all or substantially all of the assets of the Corporation (a “Business Combination”), in each case, unless, following such Business Combination: (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 65% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be; (2) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from the Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board immediately prior to the time of the execution of the initial agreement, or of the action of the Board of Directors of the Corporation, providing for such Business Combination; or

          D. Approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation.

3. Executive’s Separation from Service shall be as described in this paragraph 3 if the Separation from Service results from the Executive’s termination of employment at any time within 3 months prior to (such termination of employment, an “Anticipatory Termination”), on the date of, or within 24 months after a Change in Control of the Corporation as defined in paragraph 2 of this Agreement either by (a) involuntary dismissal by the Corporation; or (b) the Executive’s constructive termination as described in the following sentences of this paragraph 3. If (i) there is a significant reduction in the scope of the Executive’s authority or in the extent of the Executive’s powers, functions, duties or responsibilities, or (ii) the Executive’s annual rate of compensation is reduced or fringe benefits, including relocation benefits, are not provided to the Executive on a basis commensurate with other executives of the Corporation and its subsidiary banks, or (iii) there are changes in the Executive’s responsibilities for the Corporation which require moving the Executive’s job location to a location outside of the lower peninsula of the State of Michigan, then the Executive shall be entitled to give written notice thereof to the Board of Directors of the Corporation. If within 60 days following such notice, the Executive and the Board of Directors of the Corporation do not resolve the Executive’s concerns to the satisfaction of the Executive (the Executive’s satisfaction or dissatisfaction to be communicated to the Board of Directors of the Corporation in writing within such 60 days), the Executive’s employment shall be deemed to be constructively terminated at the end of such 60-day period, provided that Executive in fact experiences a Separation from Service.

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4. The specific arrangements referred to above are not intended to exclude the Executive’s participation in other benefits available to executive personnel of the Corporation generally or to preclude other compensation or benefits as may be authorized by the Corporation’s Board of Directors from time to time provided however, Executive shall not be eligible to receive any benefits under the Corporation’s Severance Pay Plan if Executive receives the severance amount and other benefits under this Agreement.

5. As partial consideration for the above, the Executive agrees not to disclose any confidential information about the Corporation and its operation to which the Executive was privy during the course of the Executive’s employment by the Corporation. Further, the Executive agrees not to accept employment or consult for or otherwise assist any competitor of the Corporation for a period of _____ months following the Executive’s Separation from Service. For purposes of the foregoing, “competitor” means any financial institution that conducts business from any location within 50 miles of any location at which the Corporation or any subsidiary bank had an office on the day immediately prior to the day on which the Change in Control of the Corporation occurred.

6. This Agreement shall be binding upon and shall inure to the benefit of the respective successors, assigns, legal representatives and heirs to the parties.

7. Any payment or delivery required under this agreement shall be subject to all requirements of the law with regard to withholding, filing, making of reports and the like, and the Corporation shall use its best efforts to satisfy promptly all such requirements.

8. Notwithstanding anything contained herein to the contrary, this Agreement shall be terminated and no benefits to the Executive shall be payable if, subsequent to the effective date of this Agreement, the Executive accepts a new position within the Corporation that is not eligible to participate in the Corporation’s change in control program at the time Executive accepts such position or if, at any time, the Executive shall resign voluntarily (other than as provided in paragraph 3), become incapacitated, voluntarily take another position requiring a substantial portion of the Executive’s time, or die. This Agreement also shall terminate upon termination for cause of the Executive’s employment as an officer of the Corporation or any subsidiary bank by the Incumbent Board. For purposes of the foregoing, “termination for cause” means termination due to the Executive’s conviction of a felony, a determination that the Executive is guilty of sexual harassment of another employee, the Executive’s proven embezzlement from the Corporation or a subsidiary bank, the Executive’s gross misconduct or incompetence, the Executive’s disclosure of confidential information of the Corporation or intentional assistance of a competitor of the Corporation (as defined in paragraph 5), or any other activity of the Executive which has or may have a material adverse effect on the finances or business reputation of the Corporation or a subsidiary bank.

9. Any and all disputes, controversies or claims arising out of or in connection with or relating to this Agreement or any breach or alleged breach thereof shall, upon the request of either party, be submitted to and settled by arbitration in the State of Michigan pursuant to the Voluntary Labor Arbitration Rules, then in effect, of the American Arbitration Association (or at any other place or under any other form of arbitration mutually acceptable to the parties involved). The parties hereto specifically agree to arbitrate with the other party in a proceeding with regard to all issues and disputes, and to permit pre-hearing discovery in the time and manner provided by the then applicable Federal Rules of Civil Procedure. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. Notice of the demand for arbitration shall be filed, in writing, with the other party to this Agreement and with the American Arbitration Association. The demand for arbitration shall be made within a reasonable time after the claim, dispute, or other matter in question arose where the party asserting the claim should reasonably have been aware of the same, but in no event later than the applicable Michigan or federal statute of limitations. The arbitrator shall have no power to add to, subtract from, or alter the terms of this Agreement, and shall render a written decision setting forth findings and conclusions only as to the claims or disputes at issue. Any award by the arbitrator shall be final and conclusive upon the parties, and a judgement thereon may be entered in the highest court for the forum, state or federal, having jurisdiction. All expenses of the arbitration process shall be borne by the Corporation. The Corporation shall reimburse the Executive for the reasonable fees of legal counsel as incurred (within ten days following the Corporation’s receipt of an invoice from the Executive), at any time from the effective date of this Agreement through the Executive’s remaining lifetime (or, if longer, through the 20^th anniversary of the effective date of this Agreement) in connection with arbitrating the enforcement of any of the Executive’s rights under this Agreement. However, in no event shall the Executive be entitled to retain any fees so reimbursed if the claim brought by the Executive against the Corporation is in the arbitrator’s sole determination frivolous or was brought in bad faith, and the Corporation will be entitled to seek repayment from the Executive for such fees after such determination by the arbitrator. In order

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to comply with Code Section 409A, in no event shall the payments by the Corporation under this paragraph 9 be made later than the end of the calendar year next following the calendar year in which such fees and expenses were incurred, provided, that the Executive shall have submitted an invoice for such fees and expenses at least ten days before the end of the calendar year next following the calendar year in which such fees and expenses were incurred. The amount of such legal fees and expenses that the Corporation is obligated to pay in any given calendar year shall not affect the legal fees and expenses that the Corporation is obligated to pay in any other calendar year, and the Executive’s right to have the Corporation pay such legal fees and expenses may not be liquidated or exchanged for any other benefit.

10. The Corporation may, in consultation with the Executive, modify the Agreement, in the least restrictive manner necessary and without any diminution in the value of the payments to the Executive, in order to cause the provisions of the Agreement to comply with or be exempt from the requirements of Code Section 409A, so as to avoid the imposition of taxes and penalties on the Executive pursuant to Code Section 409A. If benefits or payments under this Agreement must be delayed or reduced to comply with the Emerging Economic Stabilization Act of 2008, as amended (the “Act”), the Corporation, in consultation with the Executive, shall modify the Agreement in the least restrictive manner necessary to comply with the Act.

11. The invalidity or unenforceability of any provision of this Agreement shall not affect the enforceability or validity of any other provision hereof.

12. This Agreement constitutes the entire agreement of the parties with respect to the subject matter addressed in this Agreement. This Agreement replaces and supercedes in the entirety any previous change in control agreement between Executive and the Corporation, including the Prior Agreement. This Agreement may be amended only in a written document signed by both the Corporation and the Executive.

13. This Agreement shall be governed by the laws of the State of Michigan.

CITIZENS REPUBLIC BANCORP, INC.	EXECUTIVE
By:

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Cathleen H. Nash, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Citizens Republic Bancorp, Inc. (“the registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2010

/s/ Cathleen H. Nash  

Cathleen H. Nash 

Chief Executive Officer  

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Lisa T. McNeely, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Citizens Republic Bancorp, Inc. (“the registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2010

/s/ Lisa T. McNeely  

Lisa T. McNeely 

Chief Financial Officer 

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AND RULE 13A-14(B) UNDER THE SECURITIES EXCHANGE ACT OF 1934

In connection with the Quarterly Report of Citizens Republic Bancorp, Inc. (“Citizens”) on Form 10-Q for the period ending September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Cathleen H. Nash, Chief Executive Officer of Citizens, and Lisa T. McNeely, Chief Financial Officer of Citizens, certify, pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) under the Securities Exchange Act of 1934, that:

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Citizens.

Date: November 4, 2010

/s/ Cathleen H. Nash  

Cathleen H. Nash 

Chief Executive Officer 

/s/ Lisa T. McNeely  

Lisa T. McNeely 

Chief Financial Officer