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, 2011

/s/ Cathleen H. Nash  

Cathleen H. Nash  

Chief Executive Officer 

68

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, 2011

/s/ Lisa T. McNeely  

Lisa T. McNeely 

Chief Financial Officer 

69

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, 2011 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, 2011

/s/ Cathleen H. Nash  

Cathleen H. Nash  

Chief Executive Officer 

/s/ Lisa T. McNeely  

Lisa T. McNeely  

Chief Financial Officer 

70

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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)	Sep. 30, 2011	Dec. 31, 2010	Sep. 30, 2010
Investment Securities:
Securities, fair value	$ 1,491,048,000	$ 469,421,000	$ 118,155,000
Shareholders' Equity
Preferred stock, no par value
Preferred stock, shares authorized	5,000,000	5,000,000	5,000,000
Preferred stock, shares issued	300,000	300,000	300,000
Preferred stock, shares outstanding	300,000	300,000	300,000
Preferred stock, redemption value	$ 300,000,000	$ 300,000,000	$ 300,000,000
Common stock, no par value
Common stock, shares authorized	105,000,000	105,000,000	105,000,000
Common stock, shares issued	40,034,943	39,716,714	39,707,068
Common stock, shares outstanding	40,034,943	39,716,714	39,707,068

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Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Interest Income
Interest and fees on loans	$ 77,212	$ 96,080	$ 235,600	$ 298,802
Interest and dividends on investment securities:
Taxable	20,508	18,082	60,664	54,943
Tax-exempt	2,613	3,514	8,412	12,731
Dividends on FHLB and Federal Reserve stock	974	735	3,143	2,763
Money market investments	168	350	670	1,181
Total interest income	101,475	118,761	308,489	370,420
Interest Expense
Deposits	13,528	23,518	44,945	78,939
Short-term borrowings	20	20	57	61
Long-term debt	9,086	13,665	28,426	44,087
Total interest expense	22,634	37,203	73,428	123,087
Net Interest Income	78,841	81,558	235,061	247,333
Provision for loan losses	17,481	89,617	123,801	261,586
Net interest income (loss) after provision for loan losses	61,360	(8,059)	111,260	(14,253)
Noninterest Income
Service charges on deposit accounts	10,362	10,609	29,544	30,264
Trust fees	3,622	3,837	11,356	11,468
Mortgage and other loan income	2,089	2,590	6,915	7,377
Brokerage and investment fees	1,188	1,060	3,829	3,315
ATM network user fees	1,993	1,864	5,674	5,232
Bankcard fees	2,482	2,261	7,188	6,534
Net gains (losses) on loans held for sale	1,952	(1,441)	2,025	(17,548)
Investment securities gains (losses)	3		(1,373)	14,067
Other income	736	5,176	5,737	9,922
Total noninterest income	24,427	25,956	70,895	70,631
Noninterest Expense
Salaries and employee benefits	30,280	32,740	92,563	94,090
Occupancy	6,125	6,529	19,734	20,129
Professional services	2,394	2,737	7,020	7,605
Equipment	2,918	3,076	8,811	9,127
Data processing services	3,823	4,702	12,422	14,098
Advertising and public relations	2,179	1,605	4,550	5,018
Postage and delivery	1,142	1,187	3,378	3,496
Other loan expenses	3,941	4,355	12,510	14,880
Losses on other real estate (ORE)	1,210	1,967	11,687	12,508
ORE expenses	529	1,327	3,326	3,317
Intangible asset amortization	732	908	2,338	3,072
Other expense	10,138	13,607	38,172	42,513
Total noninterest expense	65,411	74,740	216,511	229,853
Income (Loss) from Continuing Operations Before Income Taxes	20,376	(56,843)	(34,356)	(173,475)
Income tax (benefit) provision from continuing operations	(12,568)	5,628	(22,779)	9,475
Income (Loss) from Continuing Operations	32,944	(62,471)	(11,577)	(182,950)
Discontinued operations:
Loss from discontinued operations (net of income tax)				(3,822)
Net Income (Loss)	32,944	(62,471)	(11,577)	(186,772)
Dividend on redeemable preferred stock	(5,761)	(5,451)	(17,088)	(16,139)
Net Income (Loss) Attributable to Common Shareholders	$ 27,183	$ (67,922)	$ (28,665)	$ (202,911)
Income (Loss) Per Share from Continuing Operations
Basic	$ 0.68	$ (1.72)	$ (0.73)	$ (5.05)
Diluted	$ 0.68	$ (1.72)	$ (0.73)	$ (5.05)
Loss Per Share from Discontinued Operations
Basic				$ (0.10)
Diluted				$ (0.10)
Net Income (Loss) Per Common Share:
Basic	$ 0.68	$ (1.72)	$ (0.73)	$ (5.15)
Diluted	$ 0.68	$ (1.72)	$ (0.73)	$ (5.15)
Average Common Shares Outstanding:
Basic	39,433	39,402	39,418	39,388
Diluted	39,433	39,402	39,418	39,388

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Document and Entity Information (USD $)	9 Months Ended
	Sep. 30, 2011	Oct. 27, 2011	Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	CITIZENS REPUBLIC BANCORP, INC.
Entity Central Index Key	0000351077
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 334,391,933
Entity Common Stock, Shares Outstanding		40,258,402

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Long-Term Debt

9 Months Ended

Sep. 30, 2011

Long-Term Debt [Abstract]

Long-Term Debt

Note 5. Long-Term Debt

The components of long-term debt as of September 30, 2011 and December 31, 2010 are presented below.

	September 30,		December 31,
(in thousands)	2011		2010
Citizens (Parent only):
Subordinated debt:
5.75% subordinated notes due February 2013	$	17,058	$	16,932
Variable rate junior subordinated debenture due June 2033		25,774		25,774
7.50% junior subordinated debentures due September 2066		48,677		48,382
Subsidiaries:
FHLB advances		660,001		837,410
Other borrowed funds		104,160		104,191
Total long-term debt	$	855,670	$	1,032,689

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 as contractually permitted. As of September 30, 2011 and December 31, 2010, the amount of the arrearage on the payments on the subordinated debentures associated with the trust preferred securities is $8.5 million and $4.9 million, respectively.

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Shareholders' Equity and Earnings Per Share

9 Months Ended

Sep. 30, 2011

Shareholders' Equity and Earnings Per Share [Abstract]

Shareholders' Equity and Earnings Per Share

Note 10. Shareholders’ Equity and Earnings Per Share

Earnings per common share is computed using the two-class method. As of September 30, 2011, 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 2,759,980 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.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2011			2010			2011			2010
Numerator:
Income (loss) from continuing operations	$	32,944		$	(62,471	)	$	(11,577	)	$	(182,950	)
Loss from discontinued operations (net of income tax)		—			—			—			(3,822	)
Net income (loss)		32,944			(62,471	)		(11,577	)		(186,772	)
Dividend on redeemable preferred stock		(5,761	)		(5,451	)		(17,088	)		(16,139	)
Net income (loss) attributable to common shareholders		27,183			(67,922	)		(28,665	)	$	(202,911	)
Net income allocated to participating securities		553			—			—			—
Net income (loss) from continuing operations after allocation to participating securities	$	26,630		$	(67,922	)	$	(28,665	)	$	(202,911	)
Denominator:
Weighted average shares outstanding		40,251			39,701			39,997			39,583
Less: Participating securities included in weighted average shares outstanding		(818	)		(299	)		(579	)		(195	)
Weighted average shares outstanding for basic and dilutive earnings per common share		39,433			39,402			39,418			39,388
Basic income (loss) per common share from continuing operations	$	0.68		$	(1.72	)	$	(0.73	)	$	(5.05	)
Diluted income (loss) per common share from continuing operations		0.68			(1.72	)		(0.73	)		(5.05	)
Basic loss per common share from discontinued operations	$	—		$	—		$	—		$	(0.10	)
Diluted loss per common share from discontinued operations		—			—			—			(0.10	)
Basic net income (loss) per common share	$	0.68		$	(1.72	)	$	(0.73	)	$	(5.15	)
Diluted net income (loss) per common share		0.68			(1.72	)		(0.73	)		(5.15	)

On June 14, 2011, Citizens announced a 1-for-10 reverse stock split of Citizens common stock effective after the close of trading on July 1, 2011. Citizens common stock began trading on a split adjusted basis on The NASDAQ Capital Market at the opening of trading on July 5, 2011. All share and per share amounts herein reflect the 1-for-10 reverse stock split.

In connection with the reverse stock split, stockholders received one new share of common stock for every ten shares held at the effective time. The reverse stock split reduced the number of shares of outstanding common stock from approximately 397.8 million to 39.8 million. The number of authorized shares of common stock was reduced from 1.05 billion to 105.0 million. Proportional adjustments were made to Citizens’ outstanding options, warrants and other securities entitling their holders to purchase or receive shares of Citizens common stock so that the reverse stock split did not materially affect any of the rights of holders of those securities. The number of shares available under Citizens’ equity-based plans was also proportionately reduced.

During the first quarter of 2010, Citizens suspended quarterly cash dividend payments on its fixed-rate cumulative perpetual preferred stock, Series A Preferred Stock, issued to and owned by the U.S. Department of the Treasury as part of the Treasury’s Capital Purchase Program. Citizens has both the intent and ability in the future to pay these dividends and therefore accrues for this obligation. Citizens is currently in arrears in the amount of $27.4 million and $15.4 million with the dividend payments on the Series A Preferred Stock as of September 30, 2011 and December 31, 2010, respectively. For additional information about the Series A Preferred Stock, see Note 14 to the Consolidated Financial Statements of the Corporation’s 2010 Annual Report on Form 10-K.

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Basis of Presentation and Accounting Policies

9 Months Ended

Sep. 30, 2011

Basis of Presentation and Accounting Policies [Abstract]

Basis of Presentation and Accounting Policies

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, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. 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’ 2010 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’ 2010 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 $48.7 million and $28.5 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

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 Bank — Iowa (“F&M”). On April 23, 2010, Citizens completed the stock sale in exchange for $50.0 million in cash. Citizens has no 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 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.

New Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or “ASC”)
Accounting Standard Update (“ASU”) FASB ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring”

The amendments in this ASU clarify which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. The amendments to Topic 310 clarify the guidance on a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. ASU 2011-02 is effective for Citizens in the third quarter of 2011. The adoption of these disclosures did not have a material impact on Citizens’ financial condition, results of operations or liquidity.

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

The portion of this ASU effective for the current reporting period includes new disclosures about activity that occurs during a reporting period. The activity-based disclosures required by ASU 2010-20 were effective for Citizens in the first quarter of 2011. The adoption of these disclosures 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”

The portion of this ASU effective for the current reporting period includes new disclosures about purchases, sales, issuances, and settlements in the roll-forward of activity in Level 3 fair value measurements. The roll-forward disclosures required by ASU 2010-06 were effective for Citizens in the first quarter of 2011. The adoption of these disclosures did not have a material impact on Citizens’ financial condition, results of operations or liquidity.

Pending Accounting Pronouncements

FASB ASU 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment”

The amendments in this ASU are intended to simplify goodwill impairment testing by permitting the assessment of qualitative factors to determine whether events and circumstances lead to the conclusion that it is necessary to perform the two-step goodwill impairment test currently required under Topic 350. Entities will not be required to calculate the fair value of a reporting unit unless they conclude that it is more likely than not that the unit’s carrying value is greater than its fair value based on an assessment of events and circumstances; however, they may bypass the qualitative assessment during any reporting period. The amendment also provides examples of events and circumstances that entities should consider. ASU 2011-08 is effective for Citizens in the first quarter of 2012, although early adoption is permitted. Citizens does not expect the adoption of the amendments to have a material impact on Citizens’ financial condition, results of operations or liquidity.

FASB ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”

The amendments in this ASU will result in more converged guidance on how comprehensive income is presented under US GAAP and IFRS, although some differences remain. The new guidance gives companies two choices of how to present items of net income, items of other comprehensive income (OCI) and total comprehensive income: They can create one continuous statement of comprehensive income or two separate consecutive statements. Companies will no longer be allowed to present OCI only in the statement of stockholders’ equity. Earnings per share would continue to be based on net income. Although existing guidance related to items that must be presented in OCI has not changed, companies will be required to display reclassification adjustments for each component of OCI in both net income and OCI. Also, companies will need to present the components of other comprehensive income in their interim and annual financial statements. ASU 2011-05 will be applied retrospectively and is effective for Citizens in the first quarter of 2012. Citizens does not expect the adoption of the amendments to have a material impact on Citizens’ financial condition, results of operations or liquidity; however, the adoption will have an impact on Citizens’ presentation of comprehensive income.

FASB ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”

The ASU amends the fair value measurement and disclosure guidance in Topic 820 to converge US GAAP and IFRS requirements for measuring amounts at fair value as well as disclosures about these measurements. Many of the amendments clarify existing concepts and are generally not expected to result in significant changes to how Citizens applies the fair value principles. ASU 2011-04 will be applied prospectively and is effective for Citizens in the first quarter of 2012. Citizens does not expect the adoption of the amendments to have a material impact on Citizens’ financial condition, results of operations or liquidity; however, the adoption may have an impact on Citizens’ fair value disclosures.

FASB ASU 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements”

The amendments in this ASU are intended to improve the accounting for repurchase agreements by removing from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets. ASU 2011-03 is effective for Citizens in the first quarter of 2012 and will be applied prospectively to transactions or modifications of existing transactions that occur on or after January 1, 2012. Citizens does not expect the adoption of the amendments to have a material impact on Citizens’ financial condition, results of operations or liquidity.

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Fair Values of Assets and Liabilities

9 Months Ended

Sep. 30, 2011

Fair Values of Assets and Liabilities [Abstract]

Fair Values of Assets and Liabilities

Note 7. 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 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, 2011						December 31, 2010
	Carrying			Estimated			Carrying			Estimated
(in thousands)	Amount			Fair Value			Amount			Fair Value
Financial assets:
Cash and due from banks	$	147,418		$	147,418		$	127,585		$	127,585
Money market investments		283,018			283,018			409,079			409,079
Securities available for sale		1,307,977			1,307,977			2,049,528			2,049,528
Securities held to maturity		1,454,873			1,491,048			474,832			469,421
FHLB and Federal Reserve stock		123,696			123,696			143,873			143,873
Net portfolio loans		5,481,973			5,176,873			5,920,571			5,157,339
Deferred compensation assets		7,842			7,842			10,951			10,951
Loans held for sale		30,221			30,221			40,347			40,347
Accrued interest receivable		31,869			31,869			33,310			33,310
Financial liabilities:
Deposits		7,539,904			7,573,329			7,726,834			7,778,461
Short-term borrowings		41,239			41,239			42,319			42,319
Long-term debt		855,670			916,936			1,032,689			1,071,250
Accrued interest payable		12,663			12,663			10,901			10,901
Financial instruments with off-balance sheet risk(1) :
Letters of credit(2)		(568	)		(3,428	)		(1,357	)		(4,980	)
Derivative instruments		4,190			4,190			1,862			1,862

(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.

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 period ended September 30, 2011.

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. This process is essentially the same as the valuation methodologies and price verification functions used for securities available for sale.

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 using exit-value rates at September 30, 2011 and December 31, 2010, weighted for varying maturity dates. 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. If an entry-value rate was used to estimate fair value of loans and loan commitments, the disclosed fair value would have been higher for the periods presented.

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 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. Fair value may also be measured using the present value of expected future cash flows discounted at the loan’s effective interest rate. Since certain assumptions and unobservable inputs are currently being used in both techniques, impaired loans are recorded 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.

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, 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.

Commercial loans held for sale are comprised primarily of loans identified for sale that are recorded at the lower of carrying amount or market value based on appraisals of the underlying collateral, adjusted based on management’s judgment due to current market conditions. Fair value may also be measured using the present value of expected future cash flows discounted at the loan’s effective interest rate. Citizens records commercial loans held for sale 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 property, 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 property, 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 noninterest expense 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.

The following table presents the balances of assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2011.

September 30, 2011
(in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale:
Collateralized mortgage obligations	$	367,097	$	—	$	367,088	$	9
Mortgage-backed		806,049		—		806,049		—
State and municipal		134,528		—		132,307		2,221
Other		303		—		70		233
Total available for sale		1,307,977		—		1,305,514		2,463
Other assets:
Derivatives designated as hedging instruments		4,762		—		4,762		—
Derivatives not designated as hedging instruments		21,834		—		21,834		—
Deferred compensation assets		7,842		6,178		1,664		—
Total other assets		34,438		6,178		28,260		—
Total	$	1,342,415	$	6,178	$	1,333,774	$	2,463
Other liabilities:
Derivatives not designated as hedging instruments	$	22,406	$	—	$	22,406	$	—
Total	$	22,406	$	—	$	22,406	$	—

There were no transfers between levels within the fair value hierarchy nor were there any purchases, sales, or issuances during the three and nine month period ended September 30, 2011. The following table presents the reconciliation of Level 3 assets held by Citizens at September 30, 2011.

			Net Realized/Unrealized Gains (Losses)
							Recorded in
	Balance at						Other						Balance at
	Beginning		Recorded in Earnings				Comprehensive						End of
(in thousands)	of Period		Realized		Unrealized		Income (Pretax)			Settlements			Period
Three Months Ended September 30, 2011
Securities available for sale
Collateralized mortgage obligations	$	9	$	—	$	—	$	—		$	—		$	9
State and municipal		3,691		141		—		(56	)		(1,555	)		2,221
Other		261		3		—		(31	)		—			233
Total	$	3,961	$	144	$	—	$	(87	)	$	(1,555	)	$	2,463
Nine Months Ended September 30, 2011
Securities available for sale
Collateralized mortgage obligations	$	11	$	—	$	—	$	—		$	(2	)	$	9
State and municipal		3,812		202		—		(88	)		(1,705	)		2,221
Other		336		16		—		(31	)		(88	)		233
Total	$	4,159	$	218	$	—	$	(119	)	$	(1,795	)	$	2,463

The following table includes assets measured at fair value on a nonrecurring basis that have had a fair value adjustment as of September 30, 2011.

September 30, 2011	Initial Carrying		Fair Value
(in thousands)	Value		Total		Level 1		Level 2		Level 3
Impaired loans	$	216,582	$	31,991	$	—	$	—	$	31,991
Commercial loans held for sale		6,891		2,931		—		—		2,931
Residential mortgage loans held for sale		39,944		11,962		—		—		11,962
Other real estate		11,111		3,247		—		—		3,247
Repossessed assets		5,255		2,680		—		—		2,680
Total	$	279,783	$	52,811	$	—	$	—	$	52,811

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Commitments, Contingent Liabilities and Guarantees

9 Months Ended

Sep. 30, 2011

Commitments, Contingent Liabilities and Guarantees [Abstract]

Commitments, Contingent Liabilities and Guarantees

Note 12. Commitments, Contingent Liabilities and Guarantees

The unaudited 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.

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

	September 30,		December 31,
(in thousands)	2011		2010
Loan commitments and letters of credit:
Commitments to extend credit	$	952,915	$	953,340
Financial standby letters of credit		145,785		164,640
Performance standby letters of credit		6,436		7,015
Total loan commitments and letters of credit	$	1,105,136	$	1,124,995

Commitments outstanding to extend credit include home equity credit lines which totaled $345.8 million and $376.2 million at September 30, 2011 and December 31, 2010, respectively.

At September 30, 2011 and December 31, 2010, a liability of $1.9 million was recorded for possible losses on commitments to extend credit. A liability of $0.7 million and $1.5 million was recorded at September 30, 2011 and December 31, 2010, respectively, representing the deferred revenue 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.

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Pension Benefit Cost

9 Months Ended

Sep. 30, 2011

Pension Benefit Cost [Abstract]

Pension Benefit Cost

Note 8. 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 retirement plans as an adjustment to accumulated other comprehensive income, net of tax. This adjustment represents the unrecognized actuarial losses and unrecognized prior service costs. Effective December 31, 2006, Citizens’ defined benefit pension plan was “frozen,” preserving prior earned benefits but discontinuing the accrual of further benefits. The components of retirement benefit cost for the three and nine months ended September 30, 2011 and 2010 are presented below.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2011			2010			2011			2010
Defined Benefit Pension Plans
Interest cost	$	955		$	1,037		$	2,865		$	3,115
Expected return on plan assets		(1,018	)		(1,200	)		(3,053	)		(3,600	)
Amortization of unrecognized:
Prior service cost		8			8			23			22
Net actuarial loss		833			555			2,498			1,666
Net pension cost		778			400			2,333			1,203
Supplemental Pension Plans
Interest cost		189			187			567			563
Amortization of unrecognized:
Net actuarial loss		5			3			14			9
Net pension cost		194			190			581			572
Postretirement Benefit Plans
Interest cost		(43	)		152			245			455
Amortization of unrecognized:
Prior service cost		(107	)		(67	)		(251	)		(201	)
Net actuarial gain		37			(8	)		(107	)		(24	)
Net postretirement benefit cost		(113	)		77			(113	)		230
Total periodic benefit cost	$	859		$	667		$	2,801		$	2,005

Citizens maintains multiple employee benefit plans, including defined benefit pension, supplemental pension, postretirement healthcare, and defined contribution retirement 401(k) plans. Citizens made a cash contribution of $0.2 million to the defined benefit pension plan during the first nine months of 2011 and expects to make a contribution of $0.5 million during the remaining three months of the year. During the first nine months of 2011, Citizens contributed $0.4 million to 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 $0.6 million to the postretirement benefit plan during the first nine months of 2011 and anticipates making an additional $0.2 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. As of July 29, 2011 the Board of Directors has tentatively approved the reinstatement of the 401(k) matching funds effective January 1, 2012.

The pension plan assets for which Citizens determines fair value include a 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, 2011. 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, 2011 are as follows:

September 30, 2011
(in thousands)	Total		Level 1		Level 2		Level 3
Asset Category
Short-term pooled money fund	$	1,200	$	—	$	1,200	$	—
Equity securities
Large-cap		15,812		—		15,812		—
Mid-cap		3,644		—		3,644		—
Small-cap		5,023		—		5,023		—
International equity		8,029		—		8,029		—
Fixed income securities
Intermediate term fixed		23,354		—		23,354		—
Total	$	57,062	$	—	$	57,062	$	—

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Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

Note 6. Income Taxes

The income tax benefit for the third quarter of 2011 was $12.6 million, compared with a provision of $5.6 million for the third quarter of 2010. For the first nine months of 2011, the income tax benefit totaled $22.8 million, compared with a provision of $9.5 million for the same period of 2010.

The income tax benefit for the third quarter of 2011 was largely due to Citizens recording a receivable as a result of a revocation of a tax election. For the nine months ended September 30, 2011, the variances were also the result of lower year to date pre-tax losses, changes in other comprehensive income and a reduction of the alternative minimum tax. Generally, the calculation for the income tax benefit for continuing operations does not consider the tax effects of changes in OCI, which is a component of shareholders’ equity on the balance sheet. However, an exception is provided in certain circumstances, such as when there is a pre-tax loss from continuing operations and income in other components. In such a case, pre-tax income from other categories (such as changes in OCI) is included in the calculation of the tax benefit for the current year. For 2011, this resulted in an increase to the income tax benefit.

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parenthetical) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Tax on unrealized gain on securities available for sale	$ (5,737)	$ 810
Tax on unrealized gain on securities transferred held to maturity	(6,479)
Tax on amortization of unrealized gain on securities	660
Tax on unrealized loss on cash flow hedges	1,336
Accumulated Other Comprehensive Income (Loss)
Tax on unrealized gain on securities available for sale	(5,737)	810
Tax on unrealized gain on securities transferred held to maturity	(6,479)
Tax on amortization of unrealized gain on securities	660
Tax on unrealized loss on cash flow hedges	$ 1,336

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Investment Securities

9 Months Ended

Sep. 30, 2011

Investment Securities [Abstract]

Investment Securities

Note 2. Investment Securities

The amortized cost, estimated fair value and gross unrealized gains and losses on investment securities as of September 30, 2011 and December 31, 2010 follow:

	September 30, 2011								December 31, 2010
			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	$	—	$	—	$	—	$	—	$	5,510	$	5,557	$	47	$	—
Collateralized mortgage obligations		364,940		367,097		7,366		5,209		596,308		599,264		8,181		5,225
Mortgage-backed		766,042		806,049		40,009		2		1,232,571		1,259,131		30,661		4,101
State and municipal		128,759		134,528		5,944		175		181,719		183,584		3,188		1,323
Other		308		303		40		45		1,985		1,992		45		38
Total available for sale	$	1,260,049	$	1,307,977	$	53,359	$	5,431	$	2,018,093	$	2,049,528	$	42,122	$	10,687
Securities held to maturity:
Collateralized mortgage obligations(1)	$	362,710	$	366,710	$	4,333	$	333	$	—	$	—	$	—	$	—
Mortgage-backed(1)		985,599		1,011,317		25,802		84		363,427		356,652		—		6,775
State and municipal		106,564		113,021		6,531		74		111,405		112,769		2,269		905
Total held to maturity	$	1,454,873	$	1,491,048	$	36,666	$	491	$	474,832	$	469,421	$	2,269	$	7,680
FHLB and Federal Reserve stock	$	123,696	$	123,696	$	—	$	—	$	143,873	$	143,873	$	—	$	—

⁽¹⁾ Amortized cost includes adjustments for the unamortized portion of unrealized gains on securities transferred from available for sale.

Securities with amortized cost of $704.3 million at September 30, 2011 and $825.1 million at December 31, 2010 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, 2011 and December 31, 2010.

In June 2011 and December 2010, Citizens transferred certain mortgage-backed securities from the available for sale to the held to maturity category in accordance with Topic 320 “Investments-Debt and Equity Securities.” Management determined that it had the positive intent and ability to hold these investments to maturity. The securities transferred in June 2011 had a total amortized cost of $924.6 million and a fair value of $943.1 million. The securities transferred in December 2010 had a total amortized cost of $179.2 million and a fair value of $181.8 million. The unrealized gain of $18.5 million in June 2011 and $2.6 million in December 2010 will be amortized over the remaining life of the securities as an adjustment of the yield, offset against the amortization of the unrealized gain maintained in accumulated other comprehensive income.

The amortized cost and estimated fair value of debt securities by maturity at September 30, 2011 are shown below.

	September 30, 2011
	Amortized		Estimated Fair
(in thousands)	Cost		Value
Securities available for sale:
State and municipal
Contractual maturity within one year	$	9,998	$	10,076
After one year through five years		20,255		21,010
After five years through ten years		65,519		68,636
After ten years		32,987		34,806
Subtotal		128,759		134,528
Collateralized mortgage obligations and mortgage-backed		1,130,982		1,173,146
Other		308		303
Total available for sale	$	1,260,049	$	1,307,977
Securities held to maturity:
State and municipal
Contractual maturity within one year	$	1,827	$	1,838
After one year through five years		2,810		2,989
After five years through ten years		62,574		66,300
After ten years		39,353		41,894
Subtotal		106,564		113,021
Collateralized mortgage obligations and mortgage-backed		1,348,309		1,378,027
Total held to maturity	$	1,454,873	$	1,491,048

As of September 30, 2011, 59 securities had unrealized losses compared with 229 securities as of December 31, 2010. Securities with unrealized losses, categorized by length of time the security has been in an unrealized loss position, as of September 30, 2011 and December 31, 2010 are displayed in the following tables.

	Less than 12 Months				More than 12 Months				Total
September 30, 2011	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Securities available for sale:
Collateralized mortgage obligations	$	53,884	$	2,711	$	13,596	$	2,498	$	67,480	$	5,209
Mortgage-backed		33		—		125		2		158		2
State and municipal		910		51		1,227		124		2,137		175
Other		45		1		102		44		147		45
Total available for sale	$	54,872	$	2,763	$	15,050	$	2,668	$	69,922	$	5,431
Securities held to maturity:
Collateralized mortgage obligations	$	115,863	$	333	$	—	$	—	$	115,863	$	333
Mortgage-backed		10,488		84		—		—		10,488		84
State and municipal		421		2		923		72		1,344		74
Total held to maturity	$	126,772	$	419	$	923	$	72	$	127,695	$	491

	Less than 12 Months				More than 12 Months				Total
December 31, 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	$	151,618	$	2,417	$	25,726	$	2,808	$	177,344	$	5,225
Mortgage-backed		293,745		4,098		135		3		293,880		4,101
State and municipal		41,580		1,138		3,289		185		44,869		1,323
Other		—		—		102		38		102		38
Total available for sale	$	486,943	$	7,653	$	29,252	$	3,034	$	516,195	$	10,687
Securities held to maturity:
Mortgage-backed	$	356,652	$	6,775	$	—	$	—	$	356,652	$	6,775
State and municipal		32,082		905		—		—		32,082		905
Total held to maturity	$	388,734	$	7,680	$	—	$	—	$	388,734	$	7,680

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, 2011, 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 Statements 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 previously mentioned criteria.

The collateralized mortgage obligations (“CMO”) sector includes securities where the underlying collateral consists of agency issued or whole loan mortgages. At September 30, 2011, the whole loan CMOs had a market value of $183.3 million with gross unrealized losses of $5.5 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, 2011 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, 2011.

In accordance with Citizens policy regarding security downgrades, Citizens sold $3.9 million of available for sale securities and recorded a net loss of less than $0.1 million during the third quarter of 2011. No security sales were completed during the third quarter of 2010. Citizens completed sales of available for sale securities with an amortized cost of $13.1 million and $397.5 million, during the nine months ended September 30, 2011 and 2010 recording a net loss of $1.4 million and a net gain of $14.1 million, respectively.

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Loans and Loans Held for Sale

9 Months Ended

Sep. 30, 2011

Loans and Loans Held for Sale [Abstract]

Loans and Loans Held for Sale

Note 3. Loans and Loans Held for Sale

Citizens has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Citizens seeks to limit its credit risk by using established guidelines to review its aggregate outstanding commitments and loans to particular borrowers, industries, and geographic areas. Collateral is secured based on the nature of the credit and management’s credit assessment of the customer. Total portfolio loans outstanding are recorded net of unearned income, unamortized premiums and discounts, deferred loan fees and costs, and fair value adjustments.

The majority of Citizens’ commercial real estate loans consist of mortgages on non-owner occupied properties. Those borrowers are involved in real estate business activities and the sources of repayment are dependent on the performance of the real estate market. In such cases, Citizens generally requires the borrower to have a proven record of success and to meet Citizens’ underwriting criteria for this type of credit risk. Citizens does not have a concentration in any single industry that exceeds 10% of total loans.

The quality of Citizens loan portfolios is assessed as a function of net loan losses, levels of nonperforming loans and delinquencies, and credit quality ratings. These credit quality ratings are an important part of the overall credit risk management process and evaluation of the allowance for loan losses (see Note 4 — Allowance for Loan Losses).

Past Due Loans, Nonaccrual Loans and Nonperforming Assets. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are generally placed on nonaccrual status when the collection of principal or interest is considered doubtful or payment of principal or interest is past due 90 days or more. When loans are placed on nonaccrual status, all interest previously accrued but unpaid is reversed against current year interest income. Cash collected on nonaccrual loans is generally applied to outstanding principal. Loans are normally restored to accrual status if and when interest and principal payments are current and it is believed that the financial condition of the borrower has improved to the extent that future principal and interest payments will be met on a timely basis.

The following tables provide a summary of loans by portfolio type, including the delinquency status of those loans that continue to accrue interest and those loans that are nonaccrual.

	September 30, 2011
	Loans		Loans 90+
	Accruing		Days Past						Current
	30-89 Days		Due & Still		Non-Accruing		Total Past Due		Portfolio		Total Portfolio
(in thousands)	Past Due		Accruing		Loans		Loans		Loans		Loans
Land hold	$	—	$	—	$	167	$	167	$	6,651	$	6,818
Land development		216		—		12		228		22,004		22,232
Construction		—		—		257		257		5,153		5,410
Income producing		3,325		—		23,227		26,552		948,710		975,262
Owner-occupied		5,817		—		27,540		33,357		600,822		634,179
Total commercial real estate		9,358		—		51,203		60,561		1,583,340		1,643,901
Commercial and industrial		1,055		1,368		13,603		16,026		1,215,339		1,231,365
Small business		1,539		—		4,933		6,472		293,655		300,127
Total commercial		11,952		1,368		69,739		83,059		3,092,334		3,175,393
Residential mortgage		9,079		—		13,074		22,153		632,408		654,561
Direct consumer		18,629		—		14,704		33,333		921,498		954,831
Indirect consumer		9,898		—		1,256		11,154		876,388		887,542
Total consumer		37,606		—		29,034		66,640		2,430,294		2,496,934
Total financing receivables	$	49,558	$	1,368	$	98,773	$	149,699	$	5,522,628	$	5,672,327

	December 31, 2010
	Loans		Loans 90+
	Accruing		Days Past						Current
	30-89 Days		Due & Still		Non-Accruing		Total Past Due		Portfolio		Total Portfolio
(in thousands)	Past Due		Accruing		Loans		Loans		Loans		Loans
Land hold	$	2,233	$	—	$	3,250	$	5,483	$	22,776	$	28,259
Land development		216		—		3,070		3,286		31,514		34,800
Construction		464		—		7,472		7,936		95,751		103,687
Income producing		20,643		—		62,021		82,664		1,088,318		1,170,982
Owner-occupied		14,705		—		42,826		57,531		725,476		783,007
Total commercial real estate		38,261		—		118,639		156,900		1,963,835		2,120,735
Commercial and industrial		5,801		1,573		47,508		54,882		1,085,645		1,140,527
Small business		3,257		—		10,244		13,501		320,199		333,700
Total commercial		47,319		1,573		176,391		225,283		3,369,679		3,594,962
Residential mortgage		15,389		—		22,076		37,465		718,780		756,245
Direct consumer		22,379		—		12,562		34,941		1,010,589		1,045,530
Indirect consumer		13,287		—		1,279		14,566		805,299		819,865
Total consumer		51,055		—		35,917		86,972		2,534,668		2,621,640
Total financing receivables	$	98,374	$	1,573	$	212,308	$	312,255	$	5,904,347	$	6,216,602

Credit Quality Indicators. Citizens categorizes commercial loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Citizens analyzes commercial loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $0.5 million and non-homogeneous loans, such as commercial and industrial and commercial real estate loans. Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with Citizens’ credit policy. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation for full value, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Commercial loans considered doubtful are evaluated for impairment as part of the specific allocated allowance.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of September 30, 2011 and December 31, 2010, the risk category of commercial loans by class follows.

	September 30, 2011
			Special
(in thousands)	Pass		Mention		Substandard		Doubtful		Total
Land hold	$	2,548	$	820	$	3,450	$	—	$	6,818
Land development		12,397		295		9,540		—		22,232
Construction		3,304		1,525		577		4		5,410
Income producing		627,636		182,762		163,238		1,626		975,262
Owner-occupied		504,172		47,759		77,649		4,599		634,179
Total commercial real estate		1,150,057		233,161		254,454		6,229		1,643,901
Commercial and industrial		1,051,254		99,868		79,944		299		1,231,365
Small business		255,237		23,113		21,623		154		300,127
Total commercial	$	2,456,548	$	356,142	$	356,021	$	6,682	$	3,175,393

	December 31, 2010
			Special
(in thousands)	Pass		Mention		Substandard		Doubtful		Total
Land hold	$	3,611	$	10,126	$	12,803	$	1,719	$	28,259
Land development		13,057		693		20,209		841		34,800
Construction		62,981		18,809		20,253		1,644		103,687
Income producing		664,151		198,323		296,771		11,737		1,170,982
Owner-occupied		550,074		81,133		143,928		7,872		783,007
Total commercial real estate		1,293,874		309,084		493,964		23,813		2,120,735
Commercial and industrial		799,823		140,099		191,144		9,461		1,140,527
Small business		280,697		23,483		28,994		526		333,700
Total commercial	$	2,374,394	$	472,666	$	714,102	$	33,800	$	3,594,962

For residential and consumer loans, Citizens evaluates credit quality based on the aging status of the loan and by payment activity. Performing loans are considered to have a lower risk of loss and are on accruing status. Nonperforming loans are comprised of nonaccrual loans, loans past due over 90 days and still accruing interest, and restructured loans. The following table presents the recorded investment in residential and consumer loans based on payment activity as of September 30, 2011 and December 31, 2010.

	September 30, 2011
	Residential		Direct		Indirect		Total Consumer
(in thousands)	Mortgage		Consumer		Consumer		Loans
Performing	$	640,476	$	937,879	$	886,286	$	2,464,641
Nonperforming		14,085		16,952		1,256		32,293
Total	$	654,561	$	954,831	$	887,542	$	2,496,934

	December 31, 2010
	Residential		Direct		Indirect		Total Consumer
(in thousands)	Mortgage		Consumer		Consumer		Loans
Performing	$	732,309	$	1,031,430	$	818,586	$	2,582,325
Nonperforming		23,936		14,100		1,279		39,315
Total	$	756,245	$	1,045,530	$	819,865	$	2,621,640

Loans Held for Sale. Loans held for sale are comprised of commercial real estate and residential mortgage loans. Loans held for sale were $30.2 million at September 30, 2011, as compared to $40.3 million at December 31, 2010. During the first nine months of 2011, $90.5 million in portfolio loans were transferred to held for sale. At September 30, 2011 $73.1 million had been subsequently sold and $17.4 million remained in held for sale.

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Lines of Business

9 Months Ended

Sep. 30, 2011

Lines of Business [Abstract]

Lines of Business

Note 11. 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, 2011 and 2010 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 total for the Corporation. There are no significant intersegmental revenues. For additional information about the business lines, see Note 15 to the Consolidated Financial Statements of the Corporation’s 2010 Annual Report on Form 10-K.

	Regional			Specialty			Specialty			Wealth
(in thousands)	Banking			Consumer			Commercial			Mgmt		Other			Total
Earnings Summary — Three Months Ended September 30, 2011
Net interest income (taxable equivalent)	$	53,340		$	9,963		$	12,916		$	125	$	4,323		$	80,667
Provision for loan losses		5,292			15,267			(3,078	)		—		—			17,481
Net interest income (loss) after provision		48,048			(5,304	)		15,994			125		4,323			63,186
Noninterest income		18,662			59			2,262			3,620		(176	)		24,427
Noninterest expense		53,279			4,010			3,329			2,567		2,226			65,411
Income (loss) from continuing operations before income taxes		13,431			(9,255	)		14,927			1,178		1,921			22,202
Income tax provision (benefit) (taxable equivalent)		4,701			(3,240	)		5,224			413		(17,840	)		(10,742	)
Net income (loss)	$	8,730		$	(6,015	)	$	9,703		$	765	$	19,761		$	32,944
Average assets (in millions)	$	3,196		$	1,650		$	1,041		$	18	$	3,691		$	9,596
Earnings Summary — Three Months Ended September 30, 2010
Net interest income (taxable equivalent)	$	63,829		$	8,871		$	15,653		$	162	$	(4,585	)	$	83,930
Provision for loan losses		38,440			28,397			22,780			—		—			89,617
Net interest income (loss) after provision		25,389			(19,526	)		(7,127	)		162		(4,585	)		(5,687	)
Noninterest income		18,362			(563	)		387			3,838		3,932			25,956
Noninterest expense		51,854			3,980			3,891			2,935		12,080			74,740
(Loss) income from continuing operations before income taxes		(8,103	)		(24,069	)		(10,631	)		1,065		(12,733	)		(54,471	)
Income tax (benefit) provision (taxable equivalent)		(2,837	)		(8,424	)		(3,721	)		373		22,609			8,000
Net (loss) income	$	(5,266	)	$	(15,645	)	$	(6,910	)	$	692	$	(35,342	)	$	(62,471	)
Average assets (in millions)	$	3,987		$	1,772		$	1,516		$	15	$	3,513		$	10,803

	Regional			Specialty			Specialty			Wealth
(in thousands)	Banking			Consumer			Commercial			Mgmt		Other			Total
Earnings Summary — Nine Months Ended September 30, 2011
Net interest income (taxable equivalent)	$	162,701		$	28,131		$	34,247		$	423	$	15,371		$	240,873
Provision for loan losses		56,711			26,534			40,556			—		—			123,801
Net interest income (loss) after provision		105,990			1,597			(6,309	)		423		15,371			117,072
Noninterest income		53,207			1,716			3,181			11,355		1,436			70,895
Noninterest expense		164,155			13,992			12,099			7,226		19,039			216,511
(Loss) income from continuing operations before income taxes		(4,958	)		(10,679	)		(15,227	)		4,552		(2,232	)		(28,544	)
Income tax (benefit) provision (taxable equivalent)		(1,736	)		(3,736	)		(5,330	)		1,593		(7,758	)		(16,967	)
Net (loss) income	$	(3,222	)	$	(6,943	)	$	(9,897	)	$	2,959	$	5,526		$	(11,577	)
Average assets (in millions)	$	3,324		$	1,645		$	1,055		$	18	$	3,677		$	9,719
Earnings Summary — Nine Months Ended September 30, 2010
Net interest income (taxable equivalent)	$	192,922		$	26,250		$	48,446		$	461	$	(12,411	)	$	255,668
Provision for loan losses		79,614			76,339			105,633			—		—			261,586
Net interest income (loss) after provision		113,308			(50,089	)		(57,187	)		461		(12,411	)		(5,918	)
Noninterest income		52,043			(5,718	)		(7,669	)		11,524		20,451			70,631
Noninterest expense		156,699			14,222			12,567			9,373		36,992			229,853
Income (loss) from continuing operations before income taxes		8,652			(70,029	)		(77,423	)		2,612		(28,952	)		(165,140	)
Income tax provision (benefit) (taxable equivalent)		3,028			(24,511	)		(27,098	)		915		65,476			17,810
Net income (loss) from continuing operations		5,624			(45,518	)		(50,325	)		1,697		(94,428	)		(182,950	)
Income (loss) from discontinued operations		858			(130	)		175			95		(4,820	)		(3,822	)
Net income (loss)	$	6,482		$	(45,648	)	$	(50,150	)	$	1,792	$	(99,248	)	$	(186,772	)
Average assets (in millions)	$	4,198		$	1,839		$	1,603		$	14	$	3,666		$	11,320

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Allowance for Loan Losses

9 Months Ended

Sep. 30, 2011

Allowance for Loan Losses [Abstract]

Allowance for Loan Losses

Note 4. Allowance for Loan Losses

The allowance for loan losses is a reserve established through a provision for possible loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The methodology used for measuring the appropriateness of the allowance for loan losses relies on several key elements, which include specific allowances for identified impaired loans, a risk-allocated allowance for the remainder of the portfolio and a general valuation allowance estimate. For additional information regarding Citizens policies and methodology used to estimate the allowance for loan losses, see Note 1 to the Consolidated Financial Statements of the Corporation’s 2010 Annual Report on Form 10-K.

A summary of the allowance for loan losses, segregated by portfolio segment, as of September 30, 2011 and December 31, 2010 was as follows:

	For the three months ended September 30, 2011
	Allowance for													Allowance for
	Loan Losses at		Provision for											Loan Losses at
(in thousands)	June 30, 2011		Loan Losses			Charge-offs			Recoveries		Net charge-offs			September 30, 2011
Commercial and industrial	$	17,618		(4,122	)	$	(994	)	$	721	$	(273	)	$	13,223
Small business		12,933		(1,161	)		(1,132	)		180		(952	)		10,820
Commercial real estate		83,627		(1,065	)		(5,860	)		537		(5,323	)		77,239
Total commercial		114,178		(6,348	)		(7,986	)		1,438		(6,548	)		101,282
Residential mortgage		43,925		11,856			(18,369	)		5		(18,364	)		37,417
Direct consumer		32,688		10,888			(6,398	)		688		(5,710	)		37,866
Indirect consumer		15,501		1,085			(3,430	)		633		(2,797	)		13,789
Total	$	206,292	$	17,481		$	(36,183	)	$	2,764	$	(33,419	)	$	190,354

	For the nine months ended September 30, 2011
	Allowance for												Allowance for
	Loan Losses at		Provision for										Loan Losses at
(in thousands)	December 31, 2010		Loan Losses		Charge-offs			Recoveries		Net charge-offs			September 30, 2011
Commercial and industrial	$	26,619	$	18,478	$	(34,722	)	$	2,848	$	(31,874	)	$	13,223
Small business		16,334		3,026		(9,063	)		523		(8,540	)		10,820
Commercial real estate		156,623		59,880		(140,952	)		1,688		(139,264	)		77,239
Total commercial		199,576		81,384		(184,737	)		5,059		(179,678	)		101,282
Residential mortgage		47,623		15,989		(26,431	)		236		(26,195	)		37,417
Direct consumer		32,255		22,422		(19,388	)		2,577		(16,811	)		37,866
Indirect consumer		16,577		4,006		(8,541	)		1,747		(6,794	)		13,789
Total	$	296,031	$	123,801	$	(239,097	)	$	9,619	$	(229,478	)	$	190,354

The activity within the allowance for loan losses, for the three and nine months ended September 30, 2011 is presented below.

	September 30, 2011
	Allowance for		Allowance for
	Loans Individually		Loans Collectively				Total
	Evaluated for		Evaluated for		Unallocated		Allowance for
(in thousands)	Impairment		Impairment		Allowance		Loan Losses
Commercial and industrial	$	96	$	13,127	$	—	$	13,223
Small business		3		10,817		—		10,820
Commercial real estate		6,148		67,091		4,000		77,239
Total commercial		6,247		91,035		4,000		101,282
Residential mortgage		2,540		34,877		—		37,417
Direct consumer		184		37,682		—		37,866
Indirect consumer		—		13,789		—		13,789
Total allowance for loan losses	$	8,971	$	177,383	$	4,000	$	190,354

	September 30, 2011
	Recorded Investment		Recorded Investment
	of Loans Individually		of Loans Collectively					Total
	Evaluated for		Evaluated for		Unearned			Recorded
(in thousands)	Impairment		Impairment		(Fees)/Costs			Investment
Commercial and industrial	$	11,588	$	1,219,532	$	245		$	1,231,365
Small business		65		299,858		204			300,127
Commercial real estate		41,799		1,604,010		(1,908	)		1,643,901
Total commercial		53,452		3,123,400		(1,459	)		3,175,393
Residential mortgage		11,701		643,582		(722	)		654,561
Direct consumer		1,624		953,804		(597	)		954,831
Indirect consumer		—		867,470		20,072			887,542
Total portfolio loans	$	66,777	$	5,588,256	$	17,294		$	5,672,327

	December 31, 2010
	Allowance for		Allowance for
	Loans Individually		Loans Collectively				Total
	Evaluated for		Evaluated for		Unallocated		Allowance for
(in thousands)	Impairment		Impairment		Allowance		Loan Losses
Commercial and industrial	$	9,298	$	17,321	$	—	$	26,619
Small business		173		16,161		—		16,334
Commercial real estate		23,519		128,604		4,500		156,623
Total commercial		32,990		162,086		4,500		199,576
Residential mortgage		1,110		46,513		—		47,623
Direct consumer		130		32,125		—		32,255
Indirect consumer		—		16,577		—		16,577
Total allowance for loan losses	$	34,230	$	257,301	$	4,500	$	296,031

	December 31, 2010
	Recorded Investment		Recorded Investment
	of Loans Individually		of Loans Collectively					Total
	Evaluated for		Evaluated for		Unearned			Recorded
(in thousands)	Impairment		Impairment		(Fees)/Costs			Investment
Commercial and industrial	$	42,251	$	1,085,404	$	12,872		$	1,140,527
Small business		1,254		332,267		179			333,700
Commercial real estate		98,408		2,024,321		(1,994	)		2,120,735
Total commercial		141,913		3,441,992		11,057			3,594,962
Residential mortgage		5,358		749,368		1,519			756,245
Direct consumer		1,175		1,047,286		(2,931	)		1,045,530
Indirect consumer		—		802,894		16,971			819,865
Total portfolio loans	$	148,446	$	6,041,540	$	26,616		$	6,216,602

Impaired loans. 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. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Citizens recognized $0.3 million and $1.9 million of interest income on nonperforming loans for the three and nine months ended September 30, 2011, respectively. Had nonaccrual loans performed in accordance with their original contract terms, the Corporation would have recognized additional interest income of approximately $1.6 million and $3.6 million for the three and nine months ended September 30, 2011, respectively. There were no significant commitments outstanding to lend additional funds to clients whose loans were classified as restructured at September 30, 2011.

A summary of information regarding loans individually reviewed for impairment, segregated by class, as of September 30, 2011 and December 31, 2010, are set forth in the following table.

	September 30, 2011
											Average Recorded Investment
	Unpaid		Recorded
	Contractual		Investment with		Recorded				Specific
	Principal		No Specific		Investment with		Total Recorded		Related		Quarter To
(in thousands)	Balance		Allowance		Specific Allowance		Investment		Allowance		Date		Year To Date
Nonaccrual loans (impaired)
Land hold	$	—	$	—	$	—	$	—	$	—	$	—	$	1,003
Land development		—		—		—		—		—		170		1,341
Construction		491		93		164		257		4		329		3,513
Income producing		27,646		12,432		7,545		19,977		1,626		18,506		37,219
Owner-occupied		24,955		10,384		11,181		21,565		4,518		18,681		27,027
Total commercial real estate		53,092		22,909		18,890		41,799		6,148		37,686		70,103
Commercial and industrial		20,099		10,689		899		11,588		96		12,452		26,920
Small business		131		—		65		65		3		66		660
Total commercial		73,322		33,598		19,854		53,452		6,247		50,204		97,683
Residential mortgage		11,540		—		11,540		11,540		2,509		11,752		8,368
Direct consumer		1,627		—		1,524		1,524		169		1,279		1,299
Total consumer		13,167		—		13,064		13,064		2,678		13,031		9,667
Total nonaccrual loans (impaired)		86,489		33,598		32,918		66,516		8,925		63,235		107,350
Accrual loans (impaired)
Residential mortgage		161		—		161		161		31		161		161
Direct consumer		100		—		100		100		15		360		101
Total accrual loans (impaired)		261		—		261		261		46		521		262
Total impaired loans	$	86,750	$	33,598	$	33,179	$	66,777	$	8,971	$	63,756	$	107,612

	December 31, 2010
											Average
											Recorded
											Investment
	Unpaid		Recorded
	Contractual		Investment with		Recorded				Specific
	Principal		No Specific		Investment with		Total Recorded		Related		Quarter To
(in thousands)	Balance		Allowance		Specific Allowance		Investment		Allowance		Date
Nonaccrual loans (impaired)
Land hold	$	2,007	$	—	$	2,007	$	2,007	$	1,719	$	2,882
Land development		5,954		1,224		1,458		2,682		842		16,526
Construction		9,151		—		6,769		6,769		1,413		22,752
Income producing		76,310		21,315		33,145		54,460		11,759		112,214
Owner-occupied		39,018		13,153		19,337		32,490		7,786		50,976
Total commercial real estate		132,440		35,692		62,716		98,408		23,519		205,350
Commercial and industrial		51,300		9,357		32,894		42,251		9,298		45,521
Small business		1,272		445		809		1,254		173		714
Total commercial		185,012		45,494		96,419		141,913		32,990		251,585
Residential mortgage		5,196		—		5,196		5,196		1,079		5,129
Direct consumer		1,127		—		1,074		1,074		115		1,107
Total consumer		6,323		—		6,270		6,270		1,194		6,236
Total nonaccrual loans (impaired)		191,335		45,494		102,689		148,183		34,184		257,821
Accrual loans (impaired)
Residential mortgage		162		—		162		162		31		163
Direct consumer		101		—		101		101		15		26
Total accrual loans (impaired)		263		—		263		263		46		189
Total impaired loans	$	191,598	$	45,494	$	102,952	$	148,446	$	34,230	$	258,010

Troubled Debt Restructurings. A modified loan is considered a Troubled Debt Restructuring (“TDR”) when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made that would not otherwise be considered for a borrower with similar credit characteristics. While commercial loan modifications vary depending on circumstances, the most common types of modifications for residential and consumer loans include below market rate reductions and/or maturity extensions, and generally do not include forgiveness of principal balances. Modified terms are dependent upon the financial position and needs of the individual borrower Citizens does not employ modification programs for temporary or trial periods, all modifications are permanent. The modified loan does not revert back to its original terms, even if the modified loan agreement is violated. If the modification agreement is violated, the loan is handled by the special loans group for resolution, which may result in foreclosure.

Citizens classifies TDRs as nonaccruing 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 six 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, 2011 the majority of Citizens’ TDRs are on nonaccrual status and are reported as impaired. Impaired and TDR classifications may be removed if the borrower demonstrates compliance with the modified terms and the restructuring agreement specifies a market rate of interest equal to that which would be provided to a borrower with similar credit at the time of restructuring. Otherwise, TDRs are classified as impaired loans and TDRs for the remaining life of the loan.

The recorded investment balance of TDRs approximated $35.5 million at September 30, 2011. $12.2 million of TDRs were on accrual status and $23.3 million of TDRs were on nonaccrual status at September 30, 2011. TDRs are evaluated separately in Citizens’ allowance for loan loss methodology based on the expected cash flows for loans in this status. At September 30, 2011, the allowance for loan losses included specific reserves of $2.1 million which included $2.5 million related to mortgage TDRs and $0.2 million related to direct consumer TDRs. For the three and nine months ended September 30, 2011, Citizens charged off $2.1 million and $6.0 million, respectively, for the portion of TDRs deemed to be uncollectible.

The following table provides information on loans modified as a TDR during the three and nine months ended September 30, 2011.

			Three Months Ended September 30, 2011
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded		Coupon
(in thousands)	of Loans		Investment		Investment		Rate
Residential mortgage		10	$	2,265	$	2,411		2.3	%
Direct consumer		1		331		336		5.1
Total portfolio loans		11	$	2,596	$	2,747		2.6

			Nine Months Ended September 30, 2011
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded		Coupon
(in thousands)	of Loans		Investment		Investment		Rate
Commercial and industrial		2	$	1,807	$	1,807		6.5	%
Commercial real estate		2		11,988		8,283		7.4
Total commercial		4		13,795		10,090		7.2
Residential mortgage		32		8,092		8,365		2.8
Direct consumer		7		1,599		1,605		6.3
Total portfolio loans		43	$	23,486	$	20,060		5.3

The following table provides information on how loans were modified as a TDR during the three and nine months ended September 30, 2011.

	Three Months Ended
	September 30, 2011
	Recorded
(in thousands)	Investment
Interest rate adjustments	$	2,215
Combination of rate and maturity		532
Total	$	2,747

	Nine Months Ended
	September 30, 2011
	Recorded
(in thousands)	Investment
|
Extended maturity	$	2,202
Interest rate adjustments		6,989
Combination of rate and maturity		10,689
Total	$	20,060

A TDR loan is considered to have a payment default when one or more payments is over 90 days past due. During the nine months ended September 30, 2011 there were two loans of approximately $0.4 million in payment default.

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (USD $) In Thousands	Total	Preferred Stock	Common Stock	Retained Earnings (Deficit)	Accumulated Other Comprehensive Income (Loss)
Beginning balance at Dec. 31, 2009	$ 1,331,036	$ 271,990	$ 1,429,771	$ (363,632)	$ (7,093)
Beginning balance, shares at Dec. 31, 2009			39,440
Comprehensive income (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 and ($5,737) for 2010 and 2011 respectively					25,693
Net change in unrealized loss on qualifying cash flow hedges, net of tax effect of none and $1,336 for 2010 and 2011 respectively					(2,986)
Net change in unrecognized pension and post retirement costs					0
Other comprehensive income total	22,707
Total comprehensive income (loss)	(164,065)
Accretion of preferred stock discount		4,686		(4,686)
Accrued dividend on preferred redeemable stock	(11,453)			(11,453)
Proceeds from stock options exercised and restricted stock activity			270
Recognition of stock-based compensation	1,568		1,568
Shares purchased for taxes, shares			(3)
Shares purchased for taxes	(25)		(25)
Ending balance at Sep. 30, 2010	1,157,061	276,676	1,431,314	(566,543)	15,614
Ending balance, shares at Sep. 30, 2010			39,707
Beginning balance at Dec. 31, 2010	1,011,731	278,300	1,431,829	(678,242)	(20,156)
Beginning balance, shares at Dec. 31, 2010			39,717
Comprehensive income (loss), net of tax:
Net loss	(11,577)			(11,577)
Other comprehensive income (loss):
Net unrealized gain on securities available for sale, net of tax effect of $810 and ($5,737) for 2010 and 2011 respectively					10,756
Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax effect of ($6,479)					12,032
Amortization of unrealized gain on securities transferred to held to maturity, net of tax effect of $660					(1,227)
Net change in unrealized loss on qualifying cash flow hedges, net of tax effect of none and $1,336 for 2010 and 2011 respectively					(2,480)
Other comprehensive income total	19,081
Total comprehensive income (loss)	7,504
Accretion of preferred stock discount		5,060		(5,060)
Accrued dividend on preferred redeemable stock	(12,028)			(12,028)
Proceeds from stock options exercised and restricted stock activity			320
Recognition of stock-based compensation	1,950		1,950
Shares purchased for taxes, shares			(1)
Shares purchased for taxes	(14)		(14)
Ending balance at Sep. 30, 2011	$ 1,009,143	$ 283,360	$ 1,433,765	$ (706,907)	$ (1,075)
Ending balance, shares at Sep. 30, 2011			40,035

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Operating Activities:
Net loss	$ (11,577)	$ (186,772)
Less: Loss from discontinued operations, net of income tax		(3,822)
Loss from continuing operations	(11,577)	(182,950)
Adjustments to reconcile loss to net cash provided by operating activities:
Provision for loan losses	123,801	261,586
Net (decrease) increase in current and deferred income taxes	(12,559)	24,856
Depreciation and amortization	8,495	9,240
Amortization of intangibles	2,338	3,072
Amortization and fair value adjustments of purchase accounting mark to market, net	(3,782)	(6,157)
Fair value adjustment on loans held for sale and other real estate	7,766	13,399
Net amortization on investment securities	14,959	4,232
Investment securities losses (gains)	1,373	(14,067)
Loans originated for sale	(115,998)	(117,372)
Proceeds from loans held for sale	127,027	119,563
Net gains from loan sales	(4,516)	(2,994)
Net loss on other real estate	3,863	1,900
Recognition of stock-based compensation expense	1,950	1,568
Other	(13,394)	25,499
Discontinued operations, net		17,750
Net cash provided by operating activities	129,746	159,125
Investing Activities:
Net decrease in money market investments	126,061	156,116
Securities available for sale:
Proceeds from sales	11,744	412,402
Proceeds from maturities and payments	402,623	684,996
Purchases	(569,472)	(1,276,566)
Securities held-to-maturity:
Proceeds from maturities and payments	51,452	2,230
Purchases	(95,987)
Net decrease in loans and leases	301,862	613,282
Proceeds from sales of other real estate	27,612	35,423
Net increase in properties and equipment	(2,736)	(4,833)
Proceeds from sale of discontinued operations, net		35,369
Discontinued operations, net		312,402
Net cash provided by investing activities	253,159	970,821
Financing Activities:
Net increase in demand and savings deposits	345,090	145,587
Net decrease in time deposits	(532,020)	(545,821)
Net (decrease) increase in short-term borrowings	(1,080)	3,245
Principal reductions in long-term debt	(175,048)	(326,660)
Shares acquired for retirement and purchased for taxes	(14)	(25)
Discontinued operations, net		(420,340)
Net cash used by financing activities	(363,072)	(1,144,014)
Net increase (decrease) in cash and due from banks	19,833	(14,068)
Cash and due from banks at beginning of period, continuing operations	127,585	149,049
Cash and due from banks at beginning of period, discontinued operations		7,044
Cash and due from banks at beginning of period	127,585	156,093
Cash and due from banks at end of period	147,418	142,025
Supplemental Cash Flow Information:
Interest paid	71,665	122,462
Income tax paid, net of refunds	3,000	(16,214)
Supplemental Disclosures of noncash items
Securities transferred to held to maturity from available for sale	943,092
Properties transferred to other real estate owned	1,347
Loans transferred to other real estate owned	11,932	25,061
Loans transferred to held for sale	90,481	48,673
Held for sale loans transferred to other real estate owned	522	15,177
Accretion of preferred stock discount	5,060	4,686
Accrued dividend on redeemable preferred stock	$ 12,028	$ 11,453

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 9. 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. At September 30, 2011, Citizens had 1,149,631 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. There have been no options granted since 2006 and no amortized costs associated with stock options since 2009.

The following table sets forth the total stock-based compensation expense resulting from restricted stock units and restricted stock awards included in the Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2011			2010			2011			2010
Restricted stock compensation and restricted stock unit compensation	$	713		$	439		$	2,079		$	1,568
Stock-based compensation expense before income taxes		713			439			2,079			1,568
Income tax benefit (1)		(250	)		(154	)		(728	)		(549	)
Total stock-based compensation expense after income taxes	$	463		$	285		$	1,351		$	1,019

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

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 Statements of Cash Flows.

As of September 30, 2011, $4.7 million of total unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted average period of 2.0 years.

The following table summarizes restricted stock activity for the nine months ended September 30, 2011.

				Weighted-Average
	Number of			Per Share Grant
(in thousands)	Shares			Date Fair Value
Restricted stock shares and units at December 31, 2010		311,000		$	13.30
Granted		582,933			8.03
Vested		(33,697	)		22.23
Forfeited		(37,575	)		11.90
Restricted stock shares and units at September 30, 2011 (1)		822,661		$	9.26

⁽¹⁾ Includes 43,719 vested shares under restriction prohibiting sale until conditions are met, including two years from grant date and certain TARP payments are made.

The total fair value of restricted stock vested during the nine months ended September 30, 2011 was $0.3 million.

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Derivatives and Hedging Activities

9 Months Ended

Sep. 30, 2011

Derivatives and Hedging Activities [Abstract]

Derivatives and Hedging Activities

Note 13. 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 and floating rate liabilities.

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, 2011 and December 31, 2010.

	Other Assets				Other Liabilities
	September 30,		December 31,		September 30,		December 31,
(in thousands)	2011		2010		2011		2010
Derivatives designated as hedging instruments Interest rate products	$	4,762	$	1,976	$	—	$	—
Derivatives not designated as hedging instruments Interest rate products		21,834		26,409		22,406		26,523
Total derivatives	$	26,596	$	28,385	$	22,406	$	26,523

Cash Flow Hedges of Interest Rate Risk

Citizens’ objective in using cash flow hedges is to add stability to net interest income through managing its income exposure to changes in market interest rates. To accomplish this objective, Citizens uses interest rate swaps and caps 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. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium. As of September 30, 2011 and December 31, 2010, Citizens had five interest rate caps with an aggregate notional amount of $200.0 million and three interest rate swaps with an aggregate notional amount of $160.0 million, respectively, that were designated as cash flow hedges of interest rate risk.

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 2011 and 2010, such derivatives were used to hedge the variable cash inflows and outflows associated with existing pools of prime and LIBOR-based loan assets and liabilities. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. No hedge ineffectiveness was recognized during the three and nine months ended September 30, 2011. Citizens recognized gains of $0.2 million and $0.3 million for the three and nine months ended September 30, 2010, respectively, related to hedge ineffectiveness attributable to mismatches between the swap notional amounts and the aggregate principal amounts of the designated loan pools.

In addition, one swap failed to qualify for hedge accounting due to a mismatch between the swap notional and the aggregate principal amount of the designated loan pool during the first quarter of 2010 and was subsequently terminated in April 2010. Accordingly, the change in fair value of this swap during the period from failure through termination was recognized directly in earnings. The fair value of this swap at September 30, 2010 and the change in fair value during the nine months ended September 30, 2010 are disclosed under the section entitled “Derivatives Not Designated as Hedging Instruments” in 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 unrealized gains in accumulated other comprehensive income of $0.2 million and $0.7 million for the three and nine months ended September 30, 2011, respectively, and $1.0 million and $2.7 million for the three and nine months ended September 30, 2010, respectively, to earnings as a result of the hedged forecasted transactions becoming probable not to occur. During the next twelve months, Citizens estimates that $0.8 million will be reclassified as an increase to interest income and $0.1 million as an increase to interest expense.

The following tables summarize the impact of cash flow hedges on the unaudited Consolidated Financial Statements for the three and nine months ended September 30, 2011 and 2010.

	Derivative Impact on OCI Gain (Loss)										Derivative Ineffectiveness Gain (Loss)
						Location					Location
						Reclassified in	Reclassified from				Recognized in
Derivatives Relationship						Statement of	Accumulated OCI into				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,
	2011			2010			2011		2010			2011		2010
Cash flow hedges:
Interest rate products	$	(697	)	$	624	Interest income	$	547	$	1,476
						Other income		182		1,045	Other income	$	—	$	233
Total	$	(697	)	$	624		$	729	$	2,521		$	—	$	233

	Derivative Impact on OCI Gain (Loss)										Derivative Ineffectiveness Gain (Loss)
						Location					Location
						Reclassified in	Reclassified from				Recognized in
Derivatives Relationship						Statement of	Accumulated OCI into				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,
	2011			2010			2011		2010			2011		2010
Cash flow hedges:
Interest rate products	$	(680	)	$	5,167	Interest income	$	2,418	$	5,408
						Other income		717		2,745	Other income	$	—	$	321
Total	$	(680	)	$	5,167		$	3,135	$	8,153		$	—	$	321

Fair Value Hedges of Interest Rate Risk

Citizens is exposed to changes in the fair value of certain of its fixed-rate assets and liabilities due to changes in market interest rates. Citizens utilizes derivatives designated as fair value hedges to mitigate this market value risk. 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, 2011, Citizens did not have any transactions designated as fair value hedges. As of December 31, 2010, Citizens had four fair value interest rate swaps with an aggregate notional balance of $170.0 million.

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 months ended September 30, 2011 Citizens did not recognize any gains in interest expense related to hedge ineffectiveness. Citizens recognized gains of $1.3 million during the three months ended September 30, 2010 and $0.7 million and $4.8 million during the nine months ended September 30, 2011 and 2010, respectively, in interest expense related to hedge ineffectiveness. Citizens recognized no net reduction to interest expense during the three months ended September 30, 2011. Citizens recognized a net reduction to interest expense of $0.3 million during the three months ended September 30, 2010, and $0.4 million and $0.9 million during the nine months ended September 30, 2011 and 2010, respectively, related to Citizens’ fair value hedges, which includes net settlements on the derivatives and any amortization adjustment in the basis of the hedged items. In addition, during the three and nine months ended September 30, 2011, Citizens recognized a net reduction to interest expense of $0.2 million and $0.6 million, respectively, related to the amortization adjustment of the basis in the hedged items that were in a hedging relationship with hedges that were terminated.

The following table summarizes the impact of fair value hedges on the unaudited Consolidated Financial Statements for the three and nine months ended September 30, 2011 and 2010.

	Derivative Contract (Loss) Gain						Hedged Item Gain (Loss)
	Location in	Three Months Ended					Location in	Three Months Ended
Derivatives Relationship	Statement of	September 30,					Statement of	September 30,
(in thousands)	Operations	2011		2010			Operations	2011		2010
Fair value hedges:
Interest rate products	Interest expense	$	—	$	(740	)	Interest expense	$	—	$	2,033

	Derivative Contract (Loss) Gain							Hedged Item Gain (Loss)
	Location in	Nine Months Ended						Location in	Nine Months Ended
Derivatives Relationship	Statement of	September 30,						Statement of	September 30,
(in thousands)	Operations	2011			2010			Operations	2011		2010
Fair value hedges:
Interest rate products	Interest expense	$	(1,107	)	$	(1,513	)	Interest expense	$	1,818	$	6,278

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, 2011 and December 31, 2010, Citizens had 170 derivative transactions with an aggregate notional amount of $629.4 million and 230 derivative transactions with an aggregate notional amount of $765.5 million, respectively, related to this program.

The following table summarizes the impact of derivatives not designated as hedges on the unaudited Consolidated Financial Statements for the three and nine months ended September 30, 2011 and 2010.

		Amount of (Loss) Gain
		Recognized in Statement of
		Operations
	Location of (Loss) Gain	Three Months Ended
Derivatives Relationship	Recognized in Statement of	September 30,
(in thousands)	Operations	2011			2010
Derivatives not designated as hedges — Interest rate products	Other income	$	(268	)	$	(68	)

		Amount of (Loss) Gain
	Location of (Loss) Gain	Nine Months Ended
Derivatives Relationship	Recognized in Statement of	September 30,
(in thousands)	Operations	2011			2010
Derivatives not designated as hedges — Interest rate products	Other income	$	(458	)	$	(826	)

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, 2011, the fair value of derivatives in a net liability position with all counterparties, which includes accrued interest, but excludes any adjustment for nonperformance risk related to these agreements was $18.7 million. As of September 30, 2011, Citizens had minimum collateral posting requirements with its derivative counterparties resulting in assigned collateral of $21.2 million. As of September 30, 2011 no circumstances could have been triggered to require Citizens to pledge additional collateral.

In addition, if Citizens’ credit rating is reduced below investment grade, then a termination event is deemed to have occurred with one of its counterparties and the counterparty has the right to terminate all affected transactions under the related 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 agreement at the termination value. Citizens may be required to pay additional amounts due in excess of amounts previously posted as collateral. However, as of September 30, 2011 no additional amount would have been required.

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. Citizens has the right to reclaim collateral assigned of $21.2 million.

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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010	Sep. 30, 2010
Assets
Cash and due from banks	$ 147,418	$ 127,585	$ 142,025
Money market investments	283,018	409,079	530,169
Investment Securities:
Securities available for sale, at fair value	1,307,977	2,049,528	2,258,452
Securities held to maturity, at amortized cost (fair value of $1,491,048, $469,421 and $118,155, respectively)	1,454,873	474,832	112,029
Total investment securities	2,762,850	2,524,360	2,370,481
FHLB and Federal Reserve stock	123,696	143,873	157,304
Portfolio loans:
Commercial and industrial	1,531,492	1,474,227	1,657,383
Commercial real estate	1,643,901	2,120,735	2,503,685
Total commercial	3,175,393	3,594,962	4,161,068
Residential mortgage	654,561	756,245	800,521
Direct consumer	954,831	1,045,530	1,091,704
Indirect consumer	887,542	819,865	834,712
Total portfolio loans	5,672,327	6,216,602	6,888,005
Less: Allowance for loan losses	(190,354)	(296,031)	(324,046)
Net portfolio loans	5,481,973	5,920,571	6,563,959
Loans held for sale	30,221	40,347	52,191
Premises and equipment	98,954	104,714	106,272
Goodwill	318,150	318,150	318,150
Other intangible assets	8,116	10,454	11,306
Bank owned life insurance	219,248	217,757	218,056
Other assets	126,544	148,755	168,991
Total assets	9,600,188	9,965,645	10,638,904
Liabilities
Noninterest-bearing deposits	1,621,451	1,325,383	1,297,579
Interest-bearing demand deposits	945,458	947,953	947,126
Savings deposits	2,652,267	2,600,750	2,704,589
Core deposits	5,219,176	4,874,086	4,949,294
Time deposits	2,320,728	2,852,748	3,151,652
Total deposits	7,539,904	7,726,834	8,100,946
Federal funds purchased and securities sold under agreements to repurchase	40,599	41,699	42,334
Other short-term borrowings	640	620	710
Other liabilities	154,232	152,072	152,531
Long-term debt	855,670	1,032,689	1,185,322
Total liabilities	8,591,045	8,953,914	9,481,843
Shareholders' Equity
Preferred stock - no par value Authorized - 5,000,000 shares; Issued and outstanding - 300,000 at 9/30/11, 12/31/10, and 9/30/10, redemption value of $300 million	283,360	278,300	276,676
Common stock - no par value Authorized - 105,000,000 shares at 9/30/11,12/31/10, and 9/30/10; Issued and outstanding - 40,034,943 at 9/30/11, 39,716,714 at 12/31/10 and 39,707,068 at 9/30/10	1,433,765	1,431,829	1,431,314
Retained deficit	(706,907)	(678,242)	(566,543)
Accumulated other comprehensive (loss) income	(1,075)	(20,156)	15,614
Total shareholders' equity	1,009,143	1,011,731	1,157,061
Total liabilities and shareholders' equity	$ 9,600,188	$ 9,965,645	$ 10,638,904