10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

or

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

For the transition period from              to             

Commission file Number 001-33063

CITIZENS REPUBLIC BANCORP, INC.

(Exact name of registrant as specified in its charter)

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

(810) 766-7500

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

Class	Outstanding at April 27, 2012
Common Stock, No Par Value	40,035,092 Shares

Citizens Republic Bancorp, Inc.

Index to Form 10-Q

	Page
Part I – Financial Information (unaudited)
Item 1 - Financial Statements (unaudited)
Consolidated Balance Sheets		3
Consolidated Statements of Operations		4
Consolidated Statements of Comprehensive Income		5
Consolidated Statements of Changes in Shareholders’ Equity		5
Consolidated Statements of Cash Flows		6
Notes to Consolidated Financial Statements		7
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		36
Item 3 - Quantitative and Qualitative Disclosures about Market Risk		60
Item 4 - Controls and Procedures		60
Part II – Other Information
Item 1 - Legal Proceedings		61
Item 1A - Risk Factors		61
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds		63
Item 3 - Defaults Upon Senior Securities		63
Item 6 - Exhibits		63
Signatures		64
Exhibit Index		65

2

Consolidated Balance Sheets (Unaudited)

Citizens Republic Bancorp, Inc.

(in thousands, except share amounts)	March 31, 2012			December 31, 2011			March 31, 2011
Assets
Cash and due from banks	$	145,240		$	153,418		$	136,638
Money market investments		300,174			313,632			495,562
Investment Securities:
Securities available for sale, at fair value		1,492,985			1,312,733			2,119,416
Securities held to maturity, at amortized cost (fair value of $1,422,253, $1,487,550 and $541,646, respectively)		1,374,449			1,444,054			547,449
Total investment securities		2,867,434			2,756,787			2,666,865
FHLB and Federal Reserve stock		117,943			117,943			143,873
Portfolio loans:
Commercial and industrial		1,657,140			1,543,529			1,353,167
Commercial real estate		1,487,059			1,544,361			1,794,284
Total commercial		3,144,199			3,087,890			3,147,451
Residential mortgage		611,166			637,245			727,304
Direct consumer		903,238			933,314			1,006,424
Indirect consumer		869,460			871,086			823,019
Total portfolio loans		5,528,063			5,529,535			5,704,198
Less: Allowance for loan losses		(153,007	)		(172,726	)		(224,117	)
Net portfolio loans		5,375,056			5,356,809			5,480,081
Loans held for sale		13,627			10,402			38,121
Premises and equipment		95,795			97,970			102,162
Goodwill		318,150			318,150			318,150
Other intangible assets		6,850			7,428			9,626
Bank owned life insurance		221,268			220,280			218,016
Other assets		115,809			110,030			115,019
Total assets	$	9,577,346		$	9,462,849		$	9,724,113
Liabilities
Noninterest-bearing deposits	$	1,692,865		$	1,614,311		$	1,413,920
Interest-bearing demand deposits		993,143			951,590			956,676
Savings deposits		2,771,150			2,627,665			2,646,851
Core deposits		5,457,158			5,193,566			5,017,447
Time deposits		2,033,204			2,201,375			2,674,058
Total deposits		7,490,362			7,394,941			7,691,505
Federal funds purchased and securities sold under agreements to repurchase		34,779			40,098			40,069
Other short-term borrowings		—			—			690
Other liabilities		153,987			154,088			139,819
Long-term debt		853,599			854,185			906,629
Total liabilities		8,532,727			8,443,312			8,778,712
Shareholders’ Equity
Preferred stock - no par value
Authorized - 5,000,000 shares; Issued and outstanding - 300,000 at 3/31/12, 12/31/11, and 3/31/11, redemption value of $300 million		286,901			285,114			279,955
Common stock - no par value
Authorized - 105,000,000 shares at 3/31/12,12/31/11, and 3/31/11; Issued and outstanding - 40,044,110 at 3/31/12, 40,049,198 at 12/31/11 and 39,696,255 at 3/31/11		1,435,327			1,434,803			1,432,271
Retained deficit		(675,654	)		(694,560	)		(752,547	)
Accumulated other comprehensive loss		(1,955	)		(5,820	)		(14,278	)
Total shareholders’ equity		1,044,619			1,019,537			945,401
Total liabilities and shareholders’ equity	$	9,577,346		$	9,462,849		$	9,724,113

See notes to consolidated financial statements

3

Consolidated Statements of Operations (Unaudited)

Citizens Republic Bancorp, Inc.

	Three Months Ended March 31,
(in thousands, except per share amounts)	2012			2011
Interest Income
Interest and fees on loans	$	74,879		$	80,711
Interest and dividends on investment securities:
Taxable		17,309			19,610
Tax-exempt		2,254			3,086
Dividends on FHLB and Federal Reserve stock		1,140			1,125
Money market investments		215			253
Total interest income		95,797			104,785
Interest Expense
Deposits		11,096			16,375
Short-term borrowings		18			18
Long-term debt		8,564			9,778
Total interest expense		19,678			26,171
Net Interest Income		76,119			78,614
Provision for loan losses		8,397			88,724
Net interest income (loss) after provision for loan losses		67,722			(10,110	)
Noninterest Income
Service charges on deposit accounts		8,985			9,429
Trust fees		3,602			3,923
Mortgage and other loan income		1,858			2,942
Brokerage and investment fees		1,324			1,108
ATM network user fees		1,808			1,755
Bankcard fees		2,457			2,238
Net gains (losses) on loans held for sale		916			(1,106	)
Investment securities gains (losses)		—			(383	)
Other income		3,290			3,237
Total noninterest income		24,240			23,143
Noninterest Expense
Salaries and employee benefits		33,298			31,018
Occupancy		6,696			7,562
Professional services		2,023			2,219
Equipment		3,303			3,052
Data processing services		4,048			4,352
Advertising and public relations		1,335			569
Postage and delivery		1,099			1,116
Other loan expenses		3,186			5,255
(Gains) losses on other real estate (ORE)		(385	)		9,122
ORE expenses		450			1,768
Intangible asset amortization		578			828
Other expense		11,470			14,795
Total noninterest expense		67,101			81,656
Income (Loss) before Income Taxes		24,861			(68,623	)
Income tax provision		—			55
Net Income (Loss)		24,861			(68,678	)
Dividend on redeemable preferred stock		(5,955	)		(5,627	)
Net Income (Loss) Attributable to Common Shareholders	$	18,906		$	(74,305	)
Net Income (Loss) Per Common Share:
Basic	$	0.47		$	(1.89	)
Diluted		0.47			(1.89	)
Average Common Shares Outstanding:
Basic		39,446			39,406
Diluted		39,446			39,406

See notes to consolidated financial statements.

4

Consolidated Statements of Comprehensive Income (Unaudited)

Citizens Republic Bancorp, Inc.

	Three Months Ended March 31,
(in thousands)	2012			2011
Net Income (Loss)	$	24,861		$	(68,678	)
Other comprehensive income
Unrealized gain on securities available for sale		5,818			7,480
Amortization of unrealized gain on securities transferred to held to maturity		(1,969	)		(62	)
Unrealized gain (loss) on qualifying cash flow hedges, net of change and reclassification		16			(1,540	)
Other comprehensive income, before income taxes		3,865			5,878
Income tax provision related to other comprehensive income items		—			—
Other comprehensive income		3,865			5,878
Comprehensive income (loss)	$	28,726		$	(62,800	)

See notes to consolidated financial statements

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

Citizens Republic Bancorp, Inc.

												Accumulated Other Comprehensive Income (Loss)
									Retained Earnings (Deficit)
	Preferred		Common Stock
(in thousands)	Stock		Shares			Amount									Total
Balance at December 31, 2011	$	285,114		40,049		$	1,434,803		$	(694,560	)	$	(5,820	)	$	1,019,537
Comprehensive income, net of tax:
Net Income										24,861						24,861
Other comprehensive income (loss):
Net unrealized gain on securities available-for-sale													5,818
Amortization of unrealized gain on securities transferred from available for sale to held to maturity													(1,969	)
Net change in unrealized gain on qualifying cash flow hedges													16
Other comprehensive income total																3,865
Total comprehensive income																28,726
Accretion of preferred stock discount		1,787								(1,787	)					—
Accrued dividend on redeemable preferred stock										(4,168	)					(4,168	)
Proceeds from restricted stock activity				1			—									—
Recognition of stock-based compensation							604									604
Shares purchased				(6	)		(80	)								(80	)
Balance - March 31, 2012	$	286,901		40,044		$	1,435,327		$	(675,654	)	$	(1,955	)	$	1,044,619
Balance at December 31, 2010	$	278,300		39,635		$	1,431,829		$	(678,242	)	$	(20,156	)	$	1,011,731
Comprehensive loss, net of tax:
Net loss										(68,678	)					(68,678	)
Other comprehensive income (loss):
Net unrealized gain on securities available-for-sale													7,480
Amortization of unrealized gain on securities transferred from available for sale to held to maturity													(62	)
Net change in unrealized gain on qualifying cash flow hedges													(1,540	)
Other comprehensive income total																5,878
Total comprehensive loss																(62,800	)
Accretion of preferred stock discount		1,655								(1,655	)					—
Accrued dividend on redeemable preferred stock										(3,972	)					(3,972	)
Proceeds from restricted stock activity				61			—									—
Recognition of stock-based compensation							443									443
Shares purchased				—			(1	)								(1	)
Balance - March 31, 2011	$	279,955		39,696		$	1,432,271		$	(752,547	)	$	(14,278	)	$	945,401

See notes to consolidated financial statements.

5

Consolidated Statements of Cash Flows (Unaudited)

Citizens Republic Bancorp, Inc.

	Three Months Ended March 31,
(in thousands)	2012			2011
Operating Activities:
Net income (loss)	$	24,861		$	(68,678	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		8,397			88,724
Net increase in current and deferred income taxes		—			55
Depreciation and amortization		2,745			2,844
Amortization of intangibles		578			828
Amortization and fair value adjustments of purchase accounting mark to market, net		(953	)		(1,504	)
Fair value adjustment on loans held for sale and other real estate		470			6,177
Net amortization on investment securities		9,208			4,109
Investment securities losses		—			383
Loans originated for sale		(42,626	)		(50,032	)
Proceeds from loans held for sale		41,147			61,706
Net gains from loan sales		(947	)		(1,446	)
Net (gains) losses on other real estate		(859	)		2,946
Recognition of stock-based compensation expense		604			443
Other		(12,993	)		(2,133	)
Net cash provided by operating activities		29,632			44,422
Investing Activities:
Net decrease (increase) in money market investments		13,458			(86,483	)
Securities available for sale:
Proceeds from sales		—			2,369
Proceeds from maturities and payments		94,151			167,857
Purchases		(272,205	)		(236,673	)
Securities held to maturity:
Proceeds from maturities and payments		64,016			8,552
Purchases		—			(81,621	)
Net (increase) decrease in loans and leases		(28,740	)		337,039
Proceeds from sales of other real estate		2,096			15,809
Net increase in properties and equipment		(569	)		(292	)
Net cash provided by (used in) investing activities		(127,793	)		126,557
Financing Activities:
Net increase (decrease) in deposits		95,421			(35,329	)
Net decrease in short-term borrowings		(5,319	)		(1,560	)
Principal reductions in long-term debt		(39	)		(125,036	)
Shares purchased		(80	)		(1	)
Net cash provided by (used in) financing activities		89,983			(161,926	)
Net (decrease) increase in cash and due from banks		(8,178	)		9,053
Cash and due from banks at beginning of period		153,418			127,585
Cash and due from banks at end of period	$	145,240		$	136,638
Supplemental Cash Flow Information:
Interest paid	$	19,284		$	25,531
Income tax refunds, net		—			3,000
Supplemental Disclosures of noncash items
Properties transferred to other real estate owned		—			1,347
Loans transferred to other real estate owned		1,769			4,469
Loans transferred to held for sale		2,000			75,696
Held for sale loans transferred to other real estate		—			184
Accretion of preferred stock discount		4,168			3,972
Accrued dividend on redeemable preferred stock		1,787			1,655

See notes to consolidated financial statements.

6

Part I – Financial Information

Item 1 – Consolidated Financial Statements

Notes to Consolidated Financial Statements (Unaudited)

Citizens Republic Bancorp, Inc.

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 months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. 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’ 2011 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’ 2011 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 $25.8 million in aggregate liquidation amounts outstanding, respectively, as of March 31, 2012. 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.

All prior year shares outstanding and per share calculations have been adjusted to reflect the 1-for-10 reverse stock split that became effective July 1, 2011.

New Accounting Pronouncements

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

FASB ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”

The amendments in this ASU defer the ASU 2011-05 requirement that companies present reclassification adjustments for each component of accumulated other comprehensive income (“AOCI”) in both net income and other comprehensive income (“OCI”) on the face of the financial statements. Companies are still required to present reclassifications out of AOCI on the face of the financial statements or disclose those amounts in the notes to the financial statements. This ASU also defers the requirement to report reclassification adjustments in interim periods. This ASU was adopted by Citizens in the first quarter of 2012.

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 assessment of qualitative factors to determine whether events and circumstances lead to the conclusion that it is necessary to

7

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. This ASU was adopted by Citizens in the first quarter of 2012. The adoption of the amendments did not 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 GAAP and International Financial Reporting Standards (“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 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 shareholders’ equity. Earnings per share would continue to be based on net income attributable to common shareholders. 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 OCI in their interim and annual financial statements. This ASU was adopted by Citizens in the first quarter of 2012, applied retrospectively. The adoption of the amendments did not have a material impact on Citizens’ financial condition, results of operations or liquidity; however, the adoption did 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 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. This ASU was adopted by Citizens in the first quarter of 2012, applied prospectively. The adoption of the amendments did not have a material impact on Citizens’ financial condition, results of operations or liquidity; however, the adoption did require additional 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. This ASU was adopted by Citizens in the first quarter of 2012 and applies prospectively to transactions or modifications of existing transactions that occur on or after January 1, 2012. The adoption of the amendments did not have a material impact on Citizens’ financial condition, results of operations or liquidity.

Pending Accounting Pronouncements

FASB ASU 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities”

The amendments in this ASU allow existing GAAP guidance for balance sheet offsetting, including industry-specific guidance. However, new disclosures are required to enable users of financial statements to understand significant quantitative differences in balance sheets prepared under GAAP and IFRS related to the offsetting of financial instruments. ASU 2011-11 is effective for Citizens in the first quarter of 2013, and will be applied retrospectively for all prior periods presented. Citizens does not expect the adoption of the amendments to have a material impact on Citizens’ financial condition, results of operations or liquidity.

8

Note 2. Investment Securities

The amortized cost, estimated fair value and gross unrealized gains and losses on investment securities follow.

	March 31, 2012								December 31, 2011
	Amortized Cost		Estimated Fair Value		Gross Unrealized				Amortized Cost		Estimated Fair Value		Gross Unrealized
(in thousands)					Gains		Losses						Gains		Losses
Securities available for sale:
Collateralized mortgage obligations	$	362,568	$	368,692	$	8,034	$	1,910	$	364,262	$	365,302	$	6,811	$	5,771
Mortgage-backed		965,124		1,005,600		40,844		368		784,476		823,852		39,408		32
State and municipal		111,888		118,413		6,636		111		116,411		123,308		7,019		122
Other		283		280		47		50		280		271		24		33
Total available for sale	$	1,439,863	$	1,492,985	$	55,561	$	2,439	$	1,265,429	$	1,312,733	$	53,262	$	5,958
Securities held to maturity:
Collateralized mortgage obligations(1)	$	336,809	$	344,007	$	7,198	$	—	$	350,160	$	356,031	$	5,871	$	—
Mortgage-backed(1)		934,396		967,564		33,172		4		988,930		1,018,765		29,883		48
State and municipal		103,244		110,682		7,438		—		104,964		112,754		7,836		46
Total held to maturity	$	1,374,449	$	1,422,253	$	47,808	$	4	$	1,444,054	$	1,487,550	$	43,590	$	94
FHLB and Federal Reserve stock	$	117,943	$	117,943	$	—	$	—	$	117,943	$	117,943	$	—	$	—

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

Securities with amortized cost of $636.5 million at March 31, 2012 and $665.8 million at December 31, 2011 were pledged to secure public deposits, repurchase agreements and other liabilities.

In June 2011, 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 had a total amortized cost of $924.6 million and a fair value of $943.1 million. The unrealized gain of $18.5 million is being 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.

9

The amortized cost and estimated fair value of debt securities by maturity are shown below.

	March 31, 2012
	Amortized		Estimated Fair
(in thousands)	Cost		Value
Securities available for sale:
State and municipal
Contractual maturity within one year	$	11,723	$	11,932
After one year through five years		15,464		16,074
After five years through ten years		57,301		60,972
After ten years		27,400		29,435
Subtotal		111,888		118,413
Collateralized mortgage obligations and mortgage-backed		1,327,692		1,374,292
Other		283		280
Total available for sale	$	1,439,863	$	1,492,985
Securities held to maturity:
State and municipal
Contractual maturity within one year	$	2,078	$	2,106
After one year through five years		7,613		8,111
After five years through ten years		59,975		63,919
After ten years		33,578		36,546
Subtotal		103,244		110,682
Collateralized mortgage obligations and mortgage-backed		1,271,205		1,311,571
Total held to maturity	$	1,374,449	$	1,422,253

A total of 41 securities had unrealized losses at March 31, 2012, compared with 45 securities as of December 31, 2011. These securities, with unrealized losses aggregated by investment category and length of time in a continuous unrealized loss position, are as follows.

	Less than 12 Months				More than 12 Months				Total
March 31, 2012 (in thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Securities available for sale:
Collateralized mortgage obligations	$	62,976	$	483	$	25,998	$	1,427	$	88,974	$	1,910
Mortgage-backed		120,292		368		119		—		120,411		368
State and municipal		251		1		972		110		1,223		111
Other		—		—		147		50		147		50
Total available for sale	$	183,519	$	852	$	27,236	$	1,587	$	210,755	$	2,439
Securities held to maturity:
Mortgage-backed	$	5,242	$	4	$	—	$	—	$	5,242	$	4
Total held to maturity	$	5,242	$	4	$	—	$	—	$	5,242	$	4

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	Less than 12 Months				More than 12 Months				Total
December 31, 2011 (in thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Securities available for sale:
Collateralized mortgage obligations	$	56,326	$	2,858	$	20,097	$	2,913	$	76,423	$	5,771
Mortgage-backed		26,016		31		122		1		26,138		32
State and municipal		1,191		27		1,062		95		2,253		122
Other		—		—		234		33		234		33
Total available for sale	$	83,533	$	2,916	$	21,515	$	3,042	$	105,048	$	5,958
Securities held to maturity:
Mortgage-backed	$	9,093	$	48	$	—	$	—	$	9,093	$	48
State and municipal		—		—		950		46		950		46
Total held to maturity	$	9,093	$	48	$	950	$	46	$	10,043	$	94

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 March 31, 2012, 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, 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 March 31, 2012, the whole loan CMOs had a market value of $89.0 million with gross unrealized losses of $1.9 million. Citizens performs a thorough credit review on a quarterly basis for the underlying mortgage collateral as well as the supporting credit enhancement and structure. The results of the March 31, 2012 credit review demonstrated no material degradation in the holdings.

Citizens has determined there is no other-than-temporary impairment at March 31, 2012.

Citizens maintains several nonqualified deferred compensation plans for its executive officers, senior management, and directors permitting the deferral of a portion of compensation. Citizens obligation under the plans represents an unsecured promise to pay benefits in the future. Changes in this obligation are recognized as salaries and employee benefits expense in the consolidated statements of operations. In the event of bankruptcy or insolvency, assets of the plans would be available to satisfy the claims of general creditors. Plan participants choose to receive a return on their account balances equal to the return on various investment options. The assets held by the plans as well as the corresponding obligations were $9.3 million and $8.5 million at March 31, 2012 and December 31, 2011, respectively. The assets of the plans are classified as trading securities and are carried at fair value within Other Assets in the consolidated balance sheets. Realized gains and losses along with changes in unrealized gains and losses from plan assets are recorded in Other Income in the consolidated statements of operations. Trading gains of $0.8 million and $0.5 million for the three months ended March 31, 2012 and 2011, respectively, were recognized during the period for trading securities as of the report date.

No security sales were completed during the first quarter of 2012. During the first quarter of 2011, Citizens completed sales of available for sale securities with an amortized cost of $2.8 million recording a net loss of $0.4 million.

11

Note 3. Loans

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 control 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. 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, in full, 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, 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, and the borrower has maintained the loan in a current status for a period of not less than 6 months. Nonperforming assets are comprised of nonaccrual loans, loans past due over 90 days and still accruing interest, nonperforming loans held for sale, and other repossessed assets acquired.

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

	March 31, 2012
(in thousands)	Loans Accruing 30-89 Days Past Due		Loans 90+ Days Past Due & Still Accruing		Non-Accruing Loans		Total Past Due Loans		Current Portfolio Loans		Total Portfolio Loans
Land hold	$	—	$	—	$	—	$	—	$	5,387	$	5,387
Land development		130		—		207		337		6,889		7,226
Construction		—		—		150		150		6,260		6,410
Income producing		1,447		—		18,566		20,013		857,448		877,461
Owner-occupied		5,177		—		20,716		25,893		564,682		590,575
Total commercial real estate		6,754		—		39,639		46,393		1,440,666		1,487,059
Commercial and industrial		368		156		7,673		8,197		1,356,289		1,364,486
Small business(1)		2,519		—		6,956		9,475		283,179		292,654
Total commercial		9,641		156		54,268		64,065		3,080,134		3,144,199
Residential mortgage		7,568		—		11,137		18,705		592,461		611,166
Direct consumer		14,002		8		8,895		22,905		880,333		903,238
Indirect consumer		8,780		—		1,074		9,854		859,606		869,460
Total consumer		30,350		8		21,106		51,464		2,332,400		2,383,864
Total financing receivables	$	39,991	$	164	$	75,374	$	115,529	$	5,412,534	$	5,528,063

⁽¹⁾  Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

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	December 31, 2011
(in thousands)	Loans Accruing 30-89 Days Past Due		Loans 90+ Days Past Due & Still Accruing		Non-Accruing Loans		Total Past Due Loans		Current Portfolio Loans		Total Portfolio Loans
Land hold	$	21	$	—	$	—	$	21	$	6,521	$	6,542
Land development		—		—		213		213		12,891		13,104
Construction		—		—		150		150		5,697		5,847
Income producing		2,508		—		21,171		23,679		890,076		913,755
Owner-occupied		2,345		—		23,798		26,143		578,970		605,113
Total commercial real estate		4,874		—		45,332		50,206		1,494,155		1,544,361
Commercial and industrial		212		766		10,633		11,611		1,235,180		1,246,791
Small business(1)		2,242		—		6,313		8,555		288,183		296,738
Total commercial		7,328		766		62,278		70,372		3,017,518		3,087,890
Residential mortgage		9,544		—		11,312		20,856		616,389		637,245
Direct consumer		17,810		4		12,115		29,929		903,385		933,314
Indirect consumer		13,067		—		953		14,020		857,066		871,086
Total consumer		40,421		4		24,380		64,805		2,376,840		2,441,645
Total financing receivables	$	47,749	$	770	$	86,658	$	135,177	$	5,394,358	$	5,529,535

⁽¹⁾  Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

	March 31, 2011
(in thousands)	Loans Accruing 30-89 Days Past Due		Loans 90+ Days Past Due & Still Accruing		Non-Accruing Loans		Total Past Due Loans		Current Portfolio Loans		Total Portfolio Loans
Land hold	$	509	$	—	$	1,154	$	1,663	$	15,610	$	17,273
Land development		—		—		78		78		22,666		22,744
Construction		—		—		395		395		22,902		23,297
Income producing		4,817		—		28,250		33,067		1,005,607		1,038,674
Owner-occupied		1,981		—		21,738		23,719		668,577		692,296
Total commercial real estate		7,307		—		51,615		58,922		1,735,362		1,794,284
Commercial and industrial		1,454		647		19,494		21,595		1,012,542		1,034,137
Small business(1)		4,723		—		6,291		11,014		308,016		319,030
Total commercial		13,484		647		77,400		91,531		3,055,920		3,147,451
Residential mortgage		10,279		—		30,385		40,664		686,640		727,304
Direct consumer		17,210		13		13,043		30,266		976,158		1,006,424
Indirect consumer		10,187		—		1,169		11,356		811,663		823,019
Total consumer		37,676		13		44,597		82,286		2,474,461		2,556,747
Total financing receivables	$	51,160	$	660	$	121,997	$	173,817	$	5,530,381	$	5,704,198

⁽¹⁾  Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

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.

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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. Commercial loans by risk category of class areas follow.

	March 31, 2012
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Land hold	$	2,281	$	782	$	2,324	$	—	$	5,387
Land development		6,672		216		338		—		7,226
Construction		4,769		1,172		469		—		6,410
Income producing		615,011		155,679		105,935		836		877,461
Owner-occupied		460,330		71,765		57,198		1,282		590,575
Total commercial real estate		1,089,063		229,614		166,264		2,118		1,487,059
Commercial and industrial		1,189,666		108,367		66,293		160		1,364,486
Small business(1)		247,240		21,494		23,581		339		292,654
Total commercial	$	2,525,969	$	359,475	$	256,138	$	2,617	$	3,144,199

⁽¹⁾  Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

	December 31, 2011
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Land hold	$	2,427	$	803	$	3,312	$	—	$	6,542
Land development		12,087		252		765		—		13,104
Construction		4,039		1,508		300		—		5,847
Income producing		633,855		164,756		112,458		2,686		913,755
Owner-occupied		475,604		66,576		61,429		1,504		605,113
Total commercial real estate		1,128,012		233,895		178,264		4,190		1,544,361
Commercial and industrial		1,059,316		113,126		74,307		42		1,246,791
Small business(1)		251,790		21,803		22,925		220		296,738
Total commercial	$	2,439,118	$	368,824	$	275,496	$	4,452	$	3,087,890

⁽¹⁾  Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

14

	March 31, 2011
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Land hold	$	3,533	$	8,382	$	5,336	$	22	$	17,273
Land development		12,823		682		9,239		—		22,744
Construction		18,385		4,635		238		39		23,297
Income producing		685,242		202,405		144,882		6,145		1,038,674
Owner-occupied		540,822		64,876		85,894		704		692,296
Total commercial real estate		1,260,805		280,980		245,589		6,910		1,794,284
Commercial and industrial		801,754		106,382		125,158		843		1,034,137
Small business(1)		268,790		24,814		25,061		365		319,030
Total commercial	$	2,331,349	$	412,176	$	395,808	$	8,118	$	3,147,451

⁽¹⁾  Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

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 and loans past due over 90 days and still accruing interest. The following table presents the recorded investment in residential and consumer loans based on payment activity.

	March 31, 2012
(in thousands)	Residential Mortgage		Direct Consumer		Indirect Consumer		Total Consumer Loans
Performing	$	600,029	$	894,335	$	868,386	$	2,362,750
Nonperforming		11,137		8,903		1,074		21,114
Total	$	611,166	$	903,238	$	869,460	$	2,383,864

	December 31, 2011
(in thousands)	Residential Mortgage		Direct Consumer		Indirect Consumer		Total Consumer Loans
Performing	$	625,933	$	921,195	$	870,133	$	2,417,261
Nonperforming		11,312		12,119		953		24,384
Total	$	637,245	$	933,314	$	871,086	$	2,441,645

	March 31, 2011
(in thousands)	Residential Mortgage		Direct Consumer		Indirect Consumer		Total Consumer Loans
Performing	$	696,919	$	993,368	$	821,850	$	2,512,137
Nonperforming		30,385		13,056		1,169		44,610
Total	$	727,304	$	1,006,424	$	823,019	$	2,556,747

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 Citizens’ 2011 Annual Report on Form 10-K.

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The activity within the allowance for loan losses is presented below.

	Three Months Ended March 31, 2012
(in thousands)	Allowance for Loan Losses  at December 31, 2011		Provision for Loan Losses			Charge-offs			Recoveries		Net charge-offs			Allowance for Loan Losses  at March 31, 2012
Commercial and industrial	$	14,044	$	594		$	(2,388	)	$	376	$	(2,012	)	$	12,626
Small business		12,230		1,846			(1,265	)		248		(1,017	)		13,059
Commercial real estate		63,999		(2,598	)		(8,997	)		2,493		(6,504	)		54,897
Total commercial		90,273		(158	)		(12,650	)		3,117		(9,533	)		80,582
Residential mortgage		36,460		(2,598	)		(5,210	)		134		(5,076	)		28,786
Direct consumer		33,020		12,615			(11,527	)		592		(10,935	)		34,700
Indirect consumer		12,973		(1,462	)		(3,251	)		679		(2,572	)		8,939
Total	$	172,726	$	8,397		$	(32,638	)	$	4,522	$	(28,116	)	$	153,007

	Three Months Ended March 31, 2011
(in thousands)	Allowance for Loan Losses  at December 31, 2010		Provision for Loan Losses		Charge-offs			Recoveries		Net charge-offs			Allowance for Loan Losses  at March 31, 2011
Commercial and industrial	$	26,619	$	17,635	$	(29,712	)	$	1,603	$	(28,109	)	$	16,145
Small business		16,334		1,495		(4,078	)		174		(3,904	)		13,925
Commercial real estate		156,623		56,425		(118,721	)		913		(117,808	)		95,240
Total commercial		199,576		75,555		(152,511	)		2,690		(149,821	)		125,310
Residential mortgage		47,623		7,679		(3,403	)		3		(3,400	)		51,902
Direct consumer		32,255		5,237		(6,468	)		972		(5,496	)		31,996
Indirect consumer		16,577		253		(2,472	)		551		(1,921	)		14,909
Total	$	296,031	$	88,724	$	(164,854	)	$	4,216	$	(160,638	)	$	224,117

A summary of the allowance for loan losses, segregated by portfolio segment follows.

	March 31, 2012
(in thousands)	Allowance for Loans Individually Evaluated for Impairment		Allowance for Loans Collectively Evaluated for Impairment		General Allowance		Total Allowance for Loan Losses
Commercial and industrial	$	159	$	12,292	$	175	$	12,626
Small business		35		12,499		525		13,059
Commercial real estate		2,154		51,443		1,300		54,897
Total commercial		2,348		76,234		2,000		80,582
Residential mortgage		3,201		25,585		—		28,786
Direct consumer		328		34,372		—		34,700
Indirect consumer		—		8,939		—		8,939
Total allowance for loan losses	$	5,877	$	145,130	$	2,000	$	153,007

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	March 31, 2012
(in thousands)	Recorded Investment of Loans Individually Evaluated for Impairment		Recorded Investment of Loans Collectively Evaluated for Impairment		Deferred (Fees)/Costs			Total Recorded Investment
Commercial and industrial	$	6,523	$	1,355,411	$	2,552		$	1,364,486
Small business (1)		687		291,752		215			292,654
Commercial real estate		53,325		1,435,400		(1,666	)		1,487,059
Total commercial		60,535		3,082,563		1,101			3,144,199
Residential mortgage		15,113		601,327		(5,274	)		611,166
Direct consumer		6,957		894,922		1,359			903,238
Indirect consumer		479		848,728		20,253			869,460
Total portfolio loans	$	83,084	$	5,427,540	$	17,439		$	5,528,063

⁽¹⁾ Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

	December 31, 2011
(in thousands)	Allowance for Loans Individually Evaluated for Impairment		Allowance for Loans Collectively Evaluated for Impairment		General Allowance		Total Allowance for Loan Losses
Commercial and industrial	$	42	$	13,302	$	700	$	14,044
Small business		—		11,730		500		12,230
Commercial real estate		4,110		58,589		1,300		63,999
Total commercial		4,152		83,621		2,500		90,273
Residential mortgage		2,837		33,623		—		36,460
Direct consumer		70		32,950		—		33,020
Indirect consumer		—		12,973		—		12,973
Total allowance for loan losses	$	7,059	$	163,167	$	2,500	$	172,726

	December 31, 2011
(in thousands)	Recorded Investment of Loans Individually Evaluated for Impairment		Recorded Investment of Loans Collectively Evaluated for Impairment		Deferred (Fees)/Costs			Total Recorded Investment
Commercial and industrial	$	8,842	$	1,245,902	$	(7,953	)	$	1,246,791
Small business (1)		557		295,972		209			296,738
Commercial real estate		57,562		1,488,657		(1,858	)		1,544,361
Total commercial		66,961		3,030,531		(9,602	)		3,087,890
Residential mortgage		15,140		623,779		(1,674	)		637,245
Direct consumer		4,607		928,930		(223	)		933,314
Indirect consumer		478		850,868		19,740			871,086
Total portfolio loans	$	87,186	$	5,434,108	$	8,241		$	5,529,535

⁽¹⁾ Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

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	March 31, 2011
(in thousands)	Allowance for Loans Individually Evaluated for Impairment		Allowance for Loans Collectively Evaluated for Impairment		General Allowance		Total Allowance for Loan Losses
Commercial and industrial	$	617	$	15,528	$	—	$	16,145
Small business		78		13,847		—		13,925
Commercial real estate		6,737		84,753		3,750		95,240
Total commercial		7,432		114,128		3,750		125,310
Residential mortgage		2,019		49,883		—		51,902
Direct consumer		184		31,812		—		31,996
Indirect consumer		—		14,909		—		14,909
Total allowance for loan losses	$	9,635	$	210,732	$	3,750	$	224,117

	March 31, 2011
(in thousands)	Recorded Investment of Loans Individually Evaluated for Impairment		Recorded Investment of Loans Collectively Evaluated for Impairment		Deferred (Fees)/Costs			Total Recorded Investment
Commercial and industrial	$	16,344	$	998,266	$	19,527		$	1,034,137
Small business (1)		1,398		317,448		184			319,030
Commercial real estate		48,112		1,749,446		(3,274	)		1,794,284
Total commercial		65,854		3,065,160		16,437			3,147,451
Residential mortgage		13,435		715,589		(1,720	)		727,304
Direct consumer		3,585		1,003,711		(872	)		1,006,424
Indirect consumer		470		805,318		17,231			823,019
Total portfolio loans	$	83,344	$	5,589,778	$	31,076		$	5,704,198

⁽¹⁾ Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

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 $0.7 million and $0.3 million of interest income on nonperforming loans for the three months ended March 31, 2012 and March 31, 2011, respectively. Had nonaccrual loans performed in accordance with their original contract terms, Citizens would have recognized additional interest income of approximately $2.0 million and $2.1 million for the three months ended March 31, 2012 and March 31, 2011, respectively. There were no significant commitments outstanding to lend additional funds to clients whose loans were classified as restructured at March 31, 2012.

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A summary of information regarding loans individually reviewed for impairment, segregated by class are set forth in the following table.

	March 31, 2012
											Average Recorded Investment
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment with No Specific Allowance		Recorded Investment with Specific Allowance		Total Recorded Investment		Specific Related Allowance		Quarter To Date
Nonaccrual loans (impaired)
Income producing	$	21,597	$	7,354	$	8,465	$	15,819	$	836	$	16,916
Owner-occupied		20,160		8,787		5,806		14,593		1,318		15,788
Total commercial real estate		41,757		16,141		14,271		30,412		2,154		32,704
Commercial and industrial		15,053		6,105		418		6,523		159		7,689
Small business		200		—		200		200		35		133
Total commercial		57,010		22,246		14,889		37,135		2,348		40,526
Residential mortgage		4,330		150		4,180		4,330		1,021		5,476
Direct consumer		918		318		600		918		82		1,033
Indirect consumer		479		479		—		479		—		478
Total consumer		5,727		947		4,780		5,727		1,103		6,987
Total nonaccrual loans (impaired)		62,737		23,193		19,669		42,862		3,451		47,513
Accrual loans (impaired)
Income producing		7,474		7,474		—		7,474		—		7,475
Owner-occupied		15,439		15,439		—		15,439		—		15,276
Total commercial real estate		22,913		22,913		—		22,913		—		22,751
Small business		487		487		—		487		—		489
Total commercial		23,400		23,400		—		23,400		—		23,240
Residential mortgage		10,783		2,469		8,314		10,783		2,180		9,650
Direct consumer		6,039		4,417		1,622		6,039		246		4,743
Total consumer		16,822		6,886		9,936		16,822		2,426		14,393
Total accrual loans (impaired)		40,222		30,286		9,936		40,222		2,426		37,633
Total impaired loans	$	102,959	$	53,479	$	29,605	$	83,084	$	5,877	$	85,146

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	December 31, 2011
											Average Recorded Investment
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment with No Specific Allowance		Recorded Investment with Specific Allowance		Total Recorded Investment		Specific Related Allowance		Quarter To Date		Year To Date
Nonaccrual loans (impaired)
Land hold	$	—	$	—	$	—	$	—	$	—	$	—	$	45
Land development		—		—		—		—		—		—		85
Construction		—		—		—		—		—		129		224
Income producing		23,394		9,163		8,838		18,001		2,686		18,989		19,516
Owner-occupied		22,338		13,276		3,694		16,970		1,424		19,267		17,069
Total commercial real estate		45,732		22,439		12,532		34,971		4,110		38,385		36,939
Commercial and industrial		17,197		8,196		646		8,842		42		10,215		12,499
Small business		131		66		—		66		—		66		269
Total commercial		63,060		30,701		13,178		43,879		4,152		48,666		49,707
Residential mortgage		6,610		587		6,023		6,610		1,346		9,075		10,592
Direct consumer		1,168		647		500		1,147		55		1,757		1,519
Indirect consumer		478		478		—		478		—		476		474
Total consumer		8,256		1,712		6,523		8,235		1,401		11,308		12,585
Total nonaccrual loans (impaired)		71,316		32,413		19,701		52,114		5,553		59,974		62,292
Accrual loans (impaired)
Income producing		7,476		7,476		—		7,476		—		7,497		7,524
Owner-occupied		15,115		15,115		—		15,115		—		9,125		6,166
Total commercial real estate		22,591		22,591		—		22,591		—		16,622		13,690
Small business		491		491		—		491		—		494		500
Total commercial		23,082		23,082		—		23,082		—		17,116		14,190
Residential mortgage		8,530		2,088		6,442		8,530		1,491		5,691		3,966
Direct consumer		3,460		3,360		100		3,460		15		2,854		2,570
Total consumer		11,990		5,448		6,542		11,990		1,506		8,545		6,536
Total accrual loans (impaired)		35,072		28,530		6,542		35,072		1,506		25,661		20,726
Total impaired loans	$	106,388	$	60,943	$	26,243	$	87,186	$	7,059	$	85,635	$	83,018

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	March 31, 2011
											Average Recorded Investment
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment with No Specific Allowance		Recorded Investment with Specific Allowance		Total Recorded Investment		Specific Related Allowance		Quarter to Date
Nonaccrual loans (impaired)
Land hold	$	553	$	—	$	183	$	183	$	22	$	1,105
Land development		—		—		—		—		—		1,356
Construction		471		238		—		238		—		3,539
Income producing		27,931		6,534		16,570		23,104		6,085		38,954
Owner-occupied		18,713		10,296		3,566		13,862		630		23,278
Total commercial real estate		47,668		17,068		20,319		37,387		6,737		68,232
Commercial and industrial		26,213		12,381		3,963		16,344		617		29,440
Small business		910		201		688		889		78		1,334
Total commercial		74,791		29,650		24,970		54,620		7,432		99,006
Residential mortgage		12,305		2,247		10,058		12,305		1,988		8,981
Direct consumer		1,374		254		1,048		1,302		114		1,431
Indirect consumer		470		470		—		470		—		470
Total consumer		14,149		2,971		11,106		14,077		2,102		10,882
Total nonaccrual loans (impaired)		88,940		32,621		36,076		68,697		9,534		109,888
Accrual loans (impaired)
Income producing		7,553		7,553		—		7,553		—		3,735
Owner-occupied		3,172		3,172		—		3,172		—		3,950
Total commercial real estate		10,725		10,725		—		10,725		—		7,685
Small business		509		509		—		509		—		252
Total commercial		11,234		11,234		—		11,234		—		7,937
Residential mortgage		1,130		968		162		1,130		31		1,498
Direct consumer		2,283		1,663		620		2,283		70		1,906
Total consumer		3,413		2,631		782		3,413		101		3,404
Total accrual loans (impaired)		14,647		13,865		782		14,647		101		11,341
Total impaired loans	$	103,587	$	46,486	$	36,858	$	83,344	$	9,635	$	121,229

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.

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 loss. At March 31, 2012 the majority of Citizens’ TDRs were on accrual status and are all were reported as impaired. 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, the loans remain classified as TDRs.

The recorded investment balance of TDRs approximated $30.1 million at March 31, 2012. TDRs of $17.9 million were on accrual status and TDRs of $12.2 million were on nonaccrual status at March 31, 2012. TDRs are evaluated separately in Citizens’ allowance for loan loss methodology based on the expected cash flows for or underlying collateral of loans in this status. At March 31, 2012, the allowance for loan losses included specific reserves of $3.5 million related to TDRs, which included $3.2 million related to mortgage TDRs and $0.3 million related to direct consumer TDRs. For the three months ended March 31, 2012, Citizens charged off $0.4 million for the portion of TDRs deemed to be uncollectible.

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The following table provides information on loans modified as a TDR in 2012.

	March 31, 2012
(in thousands)	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Coupon Rate
Commercial real estate		1	$	938	$	600		6.00	%
Residential mortgage		9		1,746		1,746		2.61
Direct consumer		38		2,802		2,723		4.42
Total portfolio loans		48	$	5,486	$	5,069		3.98

The following table provides information on how loans were modified as a TDR in 2012.

(in thousands)	March 31, 2012 Post-Modification Recorded Investment
Extended maturity	$	908
Interest rate adjustments		1,541
Combination of rate and maturity		1,856
Other (1)		764
Total	$	5,069

⁽¹⁾  Other includes convenant modification, forebearance and other concessions or combination of concessions that do not consist of interest rate adjustments and/or maturity extensions.

A TDR loan is considered to have a payment default when one or more payments is over 90 days past due. During the three months ended March 31, 2012 there was one loan with a balance of less than $0.1 million in payment default.

Note 5. Long-Term Debt

The components of long-term debt are presented below.

	March 31,		December 31,
(in thousands)	2012		2011
Citizens (Parent only):
Subordinated debt:
5.75% subordinated notes due February 2013	$	17,138	$	17,101
Variable rate junior subordinated debenture due June 2033		25,774		25,774
7.50% junior subordinated debentures due September 2066		48,677		48,677
Subsidiaries:
FHLB advances		657,871		658,484
Other borrowed funds		104,139		104,149
Total long-term debt	$	853,599	$	854,185

Citizens restructured $100.0 million of FHLB advances during the first quarter of 2012 resulting in the locking in of lower term funding rates. The average term was extended to 10.0 years from 3.6 years and the average interest rate

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on the restructured advances was reduced to 4.15% from 5.32%. During 2011, Citizens restructured $245.0 million in FHLB advances extending the average remaining term to 5.8 years from 3.3 years and reducing the average interest rate to 3.32% from 4.84%.

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 March 31, 2012 and December 31, 2011, the amount of the arrearage on the payments on the subordinated debentures associated with the trust preferred securities is $11.1 million and $9.8 million, respectively.

Note 6. Income Taxes

Citizens did not record any tax benefit or expense for the first quarter of 2012 as compared to a tax provision of $0.1 million for the same period in 2011. Although Citizens was profitable during the first quarter of 2012, the estimated utilization of a net operating loss carryforward resulted in no tax expense being recognized.

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 cannot 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 Citizens’ value.

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.

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The carrying amount, estimated fair values, and placement in the fair value hierarchy of Citizens’ financial instruments that are not measured at fair value follow.

		Fair Value			Fair Value			Fair Value		Fair Value		Fair Value
	March 31, 2012
	Carrying			Estimated			Fair Value Measurements
(in thousands)	Amount			Fair Value			Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	145,240		$	145,240		$	—	$	145,240	$	—
Money market investments		300,174			300,174			—		300,174		—
Securities held to maturity		1,374,449			1,422,253			—		1,422,253		—
FHLB and Federal Reserve stock		117,943			117,943			—		117,943		—
Net portfolio loans		5,375,056			5,154,357			—		—		5,154,357
Loans held for sale		13,627			13,627			—		8,566		5,061
Accrued interest receivable		32,945			32,945			—		32,945		—
Financial liabilities:
Deposits		7,490,362			7,522,608			—		7,522,608		—
Short-term borrowings		34,779			34,779			—		34,779		—
Long-term debt		853,599			927,334			50,449		876,885		—
Accrued interest payable		14,903			14,903			—		14,903		—
Financial instruments with off-balance sheet risk(1):
Letters of credit(2)		(739	)		(2,121	)		—		—		(2,121	)

⁽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.

		Fair Value			Fair Value			Fair Value		Fair Value		Fair Value
	December 31, 2011
	Carrying			Estimated			Fair Value Measurements
(in thousands)	Amount			Fair Value			Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	153,418		$	153,418		$	—	$	153,418	$	—
Money market investments		313,632			313,632			—		313,632		—
Securities held to maturity		1,444,054			1,487,550			—		1,487,550		—
FHLB and Federal Reserve stock		117,943			117,943			—		117,943		—
Net portfolio loans		5,356,809			5,101,446			—		—		5,101,446
Loans held for sale		10,402			10,402			—		6,140		4,262
Accrued interest receivable		31,390			31,390			—		31,390		—
Financial liabilities:
Deposits		7,394,941			7,424,427			—		7,424,427		—
Short-term borrowings		40,098			40,098			—		40,098		—
Long-term debt		854,185			927,533			45,931		881,602		—
Accrued interest payable		14,047			14,047			—		14,047		—
Financial instruments with off-balance sheet risk(1) :
Letters of credit(2)		(982	)		(2,808	)		—		—		(2,808	)

⁽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 of other financial instruments, regardless if the instrument is carried at fair value or not, are set forth below. There were no changes in the valuation methods used to estimate fair value during the period ended March 31, 2012.

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 financial 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. These providers utilize pricing models that vary by asset class and incorporate available trade, bid and other market information and for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the pricing applications apply available information as applicable through processes such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. In addition, Citizens uses model processes to assess interest rate impact and develop prepayment scenarios. The impact of unobservable inputs and proprietary models are not material to the determination of fair values of these securities. In obtaining such valuation information from third parties, Citizens has

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evaluated their valuation methodologies used to develop the fair values in order to determine whether such valuations are representative of the price at which a transaction would take place in current markets. Further, Citizens completes a comparison of the fair value estimates quarterly by validating the data received to date provided by a separate third party. In order to then evaluate reasonableness of the market data, Citizens also independently prices a sampling of securities using data from an independent source. Should Citizens find variances, the prices are then challenged and prices are adjusted accordingly. To date, there have been no significant findings or adjustments made by Citizens. 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 liquidity and credit premiums, 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.

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 March 31, 2012 and December 31, 2011, 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.

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Deferred Compensation Assets. Citizens has a portfolio of mutual fund investments classified as trading securities 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, 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 related to loss severity 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. Citizens measures impairment on all residential mortgage loans over 120 days past due.

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 similar loans and are classified as nonrecurring Level 2. The fair value of nonperforming residential mortgage loans is based on the fair value of the underlying collateral, net of estimated costs to sell, using market prices derived from indicative pricing models which utilize projected assumptions about loss severity Citizens believes potential investors would make 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, which are also subject to management adjustments for loss severity based on current market conditions and recent sales activity. 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. Commercial properties and former branch locations are carried at fair value at the time of acquisition based on the fair value of the underlying real property, net of estimated costs to sell. This is determined using market prices derived from appraisals, which are considered to be Level 2. However, certain assumptions and unobservable inputs related to loss severity are currently being used by appraisers and management, therefore, qualifying the assets as Level 3 in the fair value hierarchy. Residential real estate is recorded at the fair value of the underlying real 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 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 fair 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 fair value, net of estimated costs to sell, based on internally developed procedures. Citizens records repossessed assets as nonrecurring Level 3.

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

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

March 31, 2012
(in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale:
Collateralized mortgage obligations	$	368,692	$	—	$	368,685	$	7
Mortgage-backed		1,005,600		—		1,005,600		—
State and municipal		118,413		—		116,967		1,446
Other		280		—		47		233
Total available for sale		1,492,985		—		1,491,299		1,686
Other assets:
Derivatives designated as hedging instruments		3,489		—		3,489		—
Derivatives not designated as hedging instruments		15,460		—		15,460		—
Deferred compensation assets		9,264		7,524		1,740		—
Total other assets		28,213		7,524		20,689		—
Total	$	1,521,198	$	7,524	$	1,511,988	$	1,686
Other liabilities:
Derivatives designated as hedging instruments	$	1,684	$	—	$	1,684	$	—
Derivatives not designated as hedging instruments		15,926		—		15,926		—
Total	$	17,610	$	—	$	17,610	$	—

December 31, 2011
(in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale:
Collateralized mortgage obligations	$	365,302	$	—	$	365,294	$	8
Mortgage-backed		823,852		—		823,852		—
State and municipal		123,308		—		121,862		1,446
Other		271		—		38		233
Total available for sale		1,312,733		—		1,311,046		1,687
Other assets:
Derivatives designated as hedging instruments		3,791		—		3,791		—
Derivatives not designated as hedging instruments		17,088		—		17,088		—
Deferred compensation assets		8,477		6,791		1,686		—
Total other assets		29,356		6,791		22,565		—
Total	$	1,342,089	$	6,791	$	1,333,611	$	1,687
Other liabilities:
Derivatives designated as hedging instruments	$	2,317	$	—	$	2,317	$	—
Derivatives not designated as hedging instruments		17,614		—		17,614		—
Total	$	19,931	$	—	$	19,931	$	—

There were no transfers between levels within the fair value hierarchy nor were there any purchases, sales, or issuances during the three month period ended March 31, 2012. The following table presents the reconciliation of Level 3 assets held by Citizens.

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			Net Realized/Unrealized Gains (Losses)
	Balance at						Recorded in Other						Balance at
	Beginning		Recorded in Earnings				Comprehensive						End of
(in thousands)	of Period		Realized		Unrealized		Income (Pretax)			Settlements			Period
Three Months Ended March 31, 2012
Securities available for sale
Collateralized mortgage obligations	$	8	$	—	$	—	$	—		$	(1	)	$	7
State and municipal		1,446		9		—		(9	)		—			1,446
Other		233		3		—		(3	)		—			233
Total	$	1,687	$	12	$	—	$	(12	)	$	(1	)	$	1,686

The following table includes assets measured at fair value on a nonrecurring basis that have had a fair value adjustment.

March 31, 2012	Initial Carrying		Fair Value
(in thousands)	Value		Total		Level 1		Level 2		Level 3
Impaired loans	$	36,169	$	16,549	$	—	$	—	$	16,549
Residential mortgage loans held for sale		654		398		—		—		398
Other real estate		1,059		873		—		—		873
Repossessed assets		1,814		1,052		—		—		1,052
Total	$	39,696	$	18,872	$	—	$	—	$	18,872

The following table represents quantitative information about Level 3 fair value measurements.

(in thousands)	Fair Value at March 31, 2012		Valuation Technique(s)	Unobservable Input			Range (Weighted Average)
Securities available for sale:
Collateralized mortgage obligations		7	Cost		None	(1)		None
State and municipal		1,446	Discounted Cash Flow		Liquidity Premium			1.0% - 2.5% (2.2	%)
					Credit Premium			1.3% - 5.0% (4.2	%)
					Fail Rate			1.2% - 2.0% (1.8	%)
Other		233	Discounted Cash Flow		Liquidity Premium			2.0% - 2.5% (2.4	%)
					Credit Premium			2.8% - 5.5% (4.5	%)
					Fail Rate			1.2% - 1.5% (1.4	%)
Impaired loans		16,549	Comparative Sales		Loss Severity Discount			0% - 100% (60	%)
Residential mortgage loans held for sale		398	Comparative Sales		Loss Severity Discount			6% - 100% (39	%)
Other real estate		873	Comparative Sales		Loss Severity Discount			1% - 100% (18	%)
Repossessed assets		1,052	Comparative Sales		Loss Severity Discount			42% - 42% (42	%)

⁽¹⁾  Carrying value approximates fair value.

The significant unobservable inputs used in the fair value measurement of Citizens’ recurring level 3 securities are the liquidity and credit premiums and fail rate formula. A change in these inputs to a different amount would not result in a materially higher or lower fair value measurement.

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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 are presented below.

	Three Months Ended March 31,
(in thousands)	2012			2011
Defined Benefit Pension Plans
Interest cost	$	881		$	955
Expected return on plan assets		(1,055	)		(1,018	)
Amortization of unrecognized:
Prior service cost		8			8
Net actuarial loss		793			832
Net pension cost		627			777
Supplemental Pension Plans
Interest cost		182			189
Amortization of unrecognized:
Net actuarial loss		15			5
Net pension cost		197			194
Postretirement Benefit Plans
Interest cost		20			144
Amortization of unrecognized:
Prior service cost		(230	)		(72	)
Net actuarial gain		(45	)		(72	)
Net postretirement benefit cost		(255	)		—
Defined contribution retirement and 401K Plans
Employer contributions		465			—
Total periodic benefit cost	$	1,034		$	971

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 $2.7 million to the defined benefit pension plan during the first three months of 2012 and does not expect to make any additional contributions for the remainder of the year. During the first three months of 2012, Citizens contributed $0.1 million to the supplemental pension plans and anticipates that an additional $0.4 million of contributions will be made during the remaining nine months of the year. Citizens contributed $0.1 million to the postretirement benefit plan during the first three months of 2012 and anticipates making an additional $0.1 million in contributions for the remaining portion of the year. Citizens suspended the 401(k) matching funds and annual discretionary contributions during the third quarter of 2009. The Board of Directors approved the reinstatement of the 401(k) matching funds effective January 1, 2012. Contributions to the 401(k) savings plan will be matched 50% on the first 2% of salary deferred and 25% on the next 6% deferred.

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 March 31, 2012. 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.

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The estimated fair values of Citizens’ pension plan assets follows.

March 31, 2012
(in thousands)	Total		Level 1		Level 2		Level 3
Asset Category
Short-term pooled money fund	$	2,168	$	—	$	2,168	$	—
Equity securities
Large cap		20,016		—		20,016		—
Mid-cap		5,033		—		5,033		—
Small-cap		7,127		—		7,127		—
International equity		10,587		—		10,587		—
Fixed income securities
Intermediate term fixed		21,658		—		21,658		—
Total	$	66,589	$	—	$	66,589	$	—

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 March 31, 2012, Citizens had 1,178,516 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.

	Three Months Ended March 31,
(in thousands)	2012			2011
Restricted stock compensation and restricted stock unit compensation	$	649		$	486
Stock-based compensation expense before income taxes		649			486
Income tax benefit (1)		(227	)		(170	)
Total stock-based compensation expense after income taxes	$	422		$	316

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

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 March 31, 2012, $3.5 million of total unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted average period of 1.6 years.

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The following table summarizes restricted stock activity.

	Number of Shares			Weighted-Average Per Share Grant Date Fair Value
Restricted stock at December 31, 2011		825,969		$	9.27
Granted		4,086			13.62
Vested		(23,412	)		12.80
Forfeited		(10,952	)		11.16
Restricted stock at March 31, 2012(1)		795,691		$	9.16

⁽¹⁾ Includes $55,035 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 three months ended March 31, 2012 was $0.3 million.

Note 10. Earnings Per Common Share

Earnings per common share is computed using the two-class method. As of March 31, 2012, 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 2,979,297 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 March 31,
(in thousands, except per share amounts)	2012			2011
Numerator:
Income (loss)	$	24,861		$	(68,678	)
Dividend on redeemable preferred stock		(5,955	)		(5,627	)
Net income (loss) attributable to common shareholders		18,906			(74,305	)
Net income allocated to participating securities		381			—
Net income (loss) after allocation to participating securities	$	18,525		$	(74,305	)
Denominator:
Weighted average shares outstanding		40,257			39,730
Less: Participating securities included in weighted average shares outstanding		(811	)		(324	)
Weighted average shares outstanding for basic and dilutive earnings per common share		39,446			39,406
Basic net income (loss) per common share	$	0.47		$	(1.89	)
Diluted net income (loss) per common share		0.47			(1.89	)

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 $35.7 million and $31.5 million with the dividend payments on the Series A Preferred Stock as of March 31, 2012 and December 31, 2011, respectively. For additional information about the Series A Preferred Stock, see Note 14 to the Consolidated Financial Statements of Citizens’ 2011 Annual Report on Form 10-K.

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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 months ended March 31, 2012 and 2011 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 results of the company. There are no significant intersegmental revenues. For additional information about the business lines, see Note 15 to the Consolidated Financial Statements of Citizens’ 2011 Annual Report on Form 10-K.

	Regional			Specialty			Specialty			Wealth
(in thousands)	Banking			Consumer			Commercial			Mgmt		Other			Total
Earnings Summary - Three Months Ended March 31, 2012
Net interest income (taxable equivalent)	$	51,552		$	8,513		$	15,515		$	29	$	2,081		$	77,690
Provision for loan losses		16,041			(3,193	)		(4,451	)		—		—			8,397
Net interest loss after provision		35,511			11,706			19,966			29		2,081			69,293
Noninterest income		17,135			482			754			3,602		2,267			24,240
Noninterest expense		50,389			4,136			3,287			2,618		6,671			67,101
Income (loss) before income taxes		2,257			8,052			17,433			1,013		(2,323	)		26,432
Income tax expense (benefit) (taxable equivalent)		790			2,818			6,101			355		(8,493	)		1,571
Net income (loss)	$	1,467		$	5,234		$	11,332		$	658	$	6,170		$	24,861
Average assets (in millions)	$	3,044		$	1,560		$	1,192		$	21	$	3,704		$	9,521
Earnings Summary - Three Months Ended March 31, 2011
Net interest income (taxable equivalent)	$	56,052		$	9,066		$	9,962		$	143	$	5,493		$	80,716
Provision for loan losses		39,668			8,974			40,082			—		—			88,724
Net interest income after provision		16,384			92			(30,120	)		143		5,493			(8,008	)
Noninterest income		17,572			1,432			(1,557	)		3,923		1,773			23,143
Noninterest expense		55,922			4,859			5,588			2,343		12,944			81,656
Loss (income) before income taxes		(21,966	)		(3,335	)		(37,265	)		1,723		(5,678	)		(66,521	)
Income tax expense (benefit) (taxable equivalent)		(7,814	)		(1,167	)		(13,070	)		600		23,608			2,157
Net loss (income)	$	(14,152	)	$	(2,168	)	$	(24,195	)	$	1,123	$	(29,286	)	$	(68,678	)
Average assets (in millions)	$	3,487		$	1,645		$	1,125		$	17	$	3,625		$	9,899

Note 12. Commitments, Contingent Liabilities and Guarantees

In accordance with GAAP, 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. 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. 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.

	March 31,		December 31,
(in thousands)	2012		2011
Loan commitments and letters of credit:
Commitments to extend credit	$	926,741	$	932,435
Asset-based lending participations		125,454		151,194
Financial standby letters of credit		114,100		125,401
Performance standby letters of credit		1,781		3,571
Deferred standby letter of credit fees		866		1,123

At March 31, 2012 and December 31, 2011, a liability of $1.9 million was recorded for possible losses on commitments to extend credit. In accordance with applicable accounting standards related to guarantees, Citizens defers fees collected in connection with the issuance of standby letters of credit. The fees are then recognized in income proportionately over the life of the standby letter of credit agreement.

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Prior to June 2008, when Citizens sold its residential mortgage originations to several secondary market participants, it made various standard representations and warranties. The specific representations and warranties made by Citizens depended on the nature of the transaction and the requirements of the buyer. In the event of a breach of the representations and warranties, Citizens may be required to either repurchase the mortgage loans (generally at unpaid principal balance plus accrued interest) with the identified defects or indemnify the investor. For the three month period ended March 31, 2012 and 2011, Citizens repurchased $1.0 and $0.1 million of loans, respectively, pursuant to such provisions. Citizens recorded $1.9 million and $1.1 million for the three month periods ended March 31, 2012 and 2011, respectively, in Other Expense on the Consolidated Statements of Operations related to repurchasing or indemnifying such loans.

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.

	Other Assets				Other Liabilities
(in thousands)	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
Derivatives designated as hedging instruments
Interest rate products	$	3,489	$	3,791	$	1,684	$	2,317
Derivatives not designated as hedging instruments
Interest rate products		15,460		17,088		15,926		17,614
Total derivatives	$	18,949	$	20,879	$	17,610	$	19,931

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. Citizens had twelve interest rate caps and swaps with an aggregate notional amount of $385.0 million at March 31, 2012 and December 31, 2011 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 2012 and 2011, 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 months ended March 31, 2012 and 2011.

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 less than $0.1 million and $0.5 million for the three

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months ended March 31, 2012 and March 31, 2011, respectively, to earnings as a result of the hedged forecasted transactions becoming probable not to occur. During the next twelve months, Citizens estimates that $0.1 million will be reclassified as an increase to interest income and $2.2 million as an increase to interest expense.

The following tables summarize the impact of cash flow hedges on the unaudited Consolidated Financial Statements.

	Derivative Impact on OCI Gain (Loss)											Derivative Ineffectiveness Gain (Loss)
Derivatives Relationship (in thousands)	Recognized in OCI					Location Reclassified in Statement of Operations	Reclassified from Accumulated OCI into Statement of Operations					Location Recognized in Statement of Operations	Amount
	Three Months Ended March 31,						Three Months Ended March 31,						Three Months Ended March 31,
	2012			2011			2012			2011			2012		2011
Cash flow hedges:
						Interest income	$	320		$	1,046
Interest rate products	$	(247	)	$	18	Interest expense		(589	)		—
						Other income		6			513	Other income	$	—	$	—
Total	$	(247	)	$	18		$	(263	)	$	1,559		$	—	$	—

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 March 31, 2012 and December 31, 2011, Citizens did not have any transactions designated as fair value hedges.

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 March 31, 2012 Citizens did not recognize any gains in interest expense related to hedge ineffectiveness. Citizens recognized gains of $0.5 million during the three months ended March 31, 2011 in interest expense related to hedge ineffectiveness. Citizens recognized no net reduction to interest expense during the three months ended March 31, 2012. Citizens recognized a net reduction to interest expense of $0.6 million during the three months ended March 31, 2011, related to Citizens’ fair value hedges, which includes net settlements on the derivatives and any amortization adjustment in the basis of the hedged items.

The following table summarizes the impact of fair value hedges on the unaudited Consolidated Financial Statements.

	Derivative Contract (Loss) Gain						Hedged Item Gain (Loss)
Derivatives Relationship (in thousands)	Location in Statement of Operations	Three Months Ended March 31,					Location in Statement of Operations	Three Months Ended March 31,
		2012		2011				2012		2011
Fair value hedges:
Interest rate products	Interest expense	$	—	$	(990	)	Interest expense	$	—	$	1,460

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

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such transactions. As of March 31, 2012 and December 31, 2011, Citizens had 152 derivative transactions with an aggregate notional amount of $511.0 million and 156 derivative transactions with an aggregate notional amount of $527.4 million, respectively, related to this program.

The following table summarizes the impact of derivatives not designated as hedges on the unaudited Consolidated Financial Statements.

		Amount of (Loss) Gain Recognized in Statement  of Operations
Derivatives Relationship (in thousands)	Location of (Loss) Gain Recognized in Statement  of Operations	Three Months Ended March 31,
		2012		2011
Derivatives not designated as hedges - Interest rate products	Other income	$	61	$	(112	)

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 March 31, 2012, 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 $14.2 million. As of March 31, 2012, Citizens had minimum collateral posting requirements with its derivative counterparties resulting in assigned collateral of $20.8 million. As of March 31, 2012 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. As of March 31, 2012, the termination value approximated $0.4 million.

Citizens does not offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against recognized fair value amounts of derivatives executed with the same counterparty under a master netting agreement. Citizens has the right to reclaim collateral assigned of $20.8 million.

Note 14. Subsequent Events

On April 19, 2012, Citizens announced that, effective April 17, 2012, the Federal Reserve Bank of Chicago and the Michigan Office of Financial and Insurance Regulation have terminated their written agreement with Citizens, and its subsidiary, Citizens Bank dated July 28, 2010.

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

Selected Quarterly Information (Unaudited)

	Three Months Ended
(in thousands, except per share amounts)	March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011
Summary of Operations
Net interest income	$	76,119		$	78,049		$	78,841		$	77,606		$	78,614
Provision for loan losses		8,397			15,007			17,481			17,596			88,724
Noninterest income		24,240			24,363			24,427			23,325			23,143
Noninterest expense		67,101			66,640			65,411			69,444			81,656
Income tax provision (benefit)		—			2,521			(12,568	)		(10,266	)		55
Net income (loss)		24,861			18,244			32,944			24,157			(68,678	)
Net income (loss) attributable to common shareholders (1)		18,906			12,347			27,183			18,456			(74,305	)
Taxable equivalent adjustment		1,571			1,670			1,827			1,884			2,102
Per Common Share Data (2)
Net income (loss)
Basic	$	0.47		$	0.31		$	0.68		$	0.46		$	(1.89	)
Diluted		0.47			0.31			0.68			0.46			(1.89	)
Common book value		18.83			18.24			18.03			17.34			16.73
Tangible book value (non-GAAP)		17.88			17.24			16.96			16.22			15.53
Tangible common book value (non-GAAP)		10.75			10.16			9.92			9.22			8.49
Shares outstanding, end of period (3)		40,247,241			40,260,213			40,255,758			40,251,874			39,778,255
At Period End
Assets	$	9,577,346		$	9,462,849		$	9,600,188		$	9,495,630		$	9,724,113
Earning assets		8,774,119			8,680,995			8,824,183			8,755,838			9,009,704
Portfolio loans		5,528,063			5,529,535			5,672,327			5,627,637			5,704,198
Allowance for loan losses		153,007			172,726			190,354			206,292			224,117
Deposits		7,490,362			7,394,941			7,539,904			7,444,703			7,691,505
Long-term debt		853,599			854,185			855,670			881,112			906,629
Shareholders’ equity		1,044,619			1,019,537			1,009,143			979,722			945,401
Average for the Quarter
Assets	$	9,521,386		$	9,523,184		$	9,596,275		$	9,664,939		$	9,898,921
Earning assets		8,750,078			8,761,435			8,856,072			8,942,348			9,231,042
Portfolio loans		5,508,528			5,632,432			5,663,058			5,668,752			6,051,407
Allowance for loan losses		172,509			190,163			206,119			223,922			295,232
Deposits		7,441,693			7,452,137			7,546,615			7,605,707			7,729,960
Long-term debt		853,912			856,206			862,479			905,902			971,076
Shareholders’ equity		1,028,494			1,017,082			991,602			963,932			1,002,290
Financial Ratios (annualized)
Return on average assets		1.05	%		0.76	%		1.36	%		1.00	%		(2.81	) %
Return on average shareholders’ equity		9.72			7.12			13.18			10.05			(27.79	)
Average shareholders’ equity / average assets		10.80			10.68			10.33			9.97			10.13
Net interest margin (FTE) (4)		3.56			3.62			3.63			3.56			3.53
Efficiency ratio (non-GAAP)		65.20			61.39			59.89			63.85			67.09
Allowance for loan losses as a percent of portfolio loans		2.77			3.12			3.36			3.67			3.93
Allowance for loan losses as a percent of nonperforming loans(5)		202.56			197.56			190.09			185.90			182.72
Allowance for loan losses as a percent of nonperforming assets(5)		168.87			168.97			139.01			147.99			127.82
Nonperforming loans as a percent of portfolio loans(5)		1.37			1.58			1.77			1.97			2.15
Nonperforming assets as a percent of total loans plus ORAA(5)(6)		1.63			1.84			2.39			2.46			3.04
Nonperforming assets as a percent of total assets(5)		0.95			1.08			1.43			1.47			1.80
Ratio of net charge-offs during period to average portfolio loans		2.05			2.30			2.34			2.51			10.77
Leverage ratio		8.71			8.45			8.21			7.83			7.39
Tier 1 capital ratio		13.70			13.51			12.81			12.43			11.90
Total capital ratio		14.97			14.84			14.14			13.77			13.24

⁽¹⁾  Net income (loss) attributable to common shareholders includes a non-cash dividend to preferred shareholders of $6.0 million in the first quarter of 2012 and $5.9 million, $5.8 million, $5.7 million and $5.6 miliion in the fourth, third, second, and first quarters of 2011.

⁽²⁾  Per common share data, as well as number of shares, were adjusted to reflect the 1 for 10 reverse stock split effective 7/1/11.

⁽³⁾  Includes participating shares which are restricted stock units and restricted shares.

⁽⁴⁾  Net interest margin is presented on an annual basis, includes taxable equivalent adjustments to interest income and is based on a tax rate of 35%.

⁽⁵⁾  Nonperforming loans/assets exclude troubled debt restructurings (TDRs) that are on an accrual status and performing in accordance with their modified terms.

⁽⁶⁾  Other real estate assets acquired (“ORAA”) include loans held for sale.

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Introduction

The following presents management’s discussion and analysis of Citizens Republic Bancorp, Inc.’s financial condition and results of operations for the three months ended March 31, 2012. It should be read in conjunction with the unaudited Consolidated Financial Statements and Notes included elsewhere in this report and the audited Consolidated Financial Statements and Notes contained in Citizens’ 2011 Annual Report on Form 10-K. In addition, the following discussion and analysis should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Citizens’ 2011 Annual Report on Form 10-K, which contains important additional information that is necessary to understand Citizens and its financial condition and results of operations for the periods covered by this report. Unless the context indicates otherwise, all references in the discussion to “Citizens,” “the Corporation,” “we,” or “our,” refer to Citizens Republic Bancorp, Inc. and its subsidiary. References to the “Holding Company” refer solely to Citizens Republic Bancorp, Inc. References to the “Bank” refer solely to our banking subsidiary, Citizens Bank. All share and per share amounts have been adjusted to reflect the 1-for-10 reverse stock split that became effective July 1, 2011.

Forward – Looking Statements

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

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

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

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

• Citizens’ business may be adversely affected by the highly regulated environment in which it operates. Changes in applicable laws, regulations, and regulatory practices at either the federal or state level may result in the imposition of additional costs or restrict Citizens’ ability to operate its business in the manner most beneficial to its shareholders.

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

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

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

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• Increased competition with other financial institutions or an adverse change in Citizens’ relationship with a number of major customers could reduce its net interest margin and net income by decreasing the number and size of loans originated, the interest rates charged on these loans and the fees charged for services to customers.

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

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

• Citizens may not realize its deferred income tax assets and loss carryforwards.

• Citizens’ stock price can be volatile.

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

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

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

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

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

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

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

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

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

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

• The Standard & Poor’s downgrade in the U.S. government’s sovereign credit rating, and in the credit ratings of instruments issued, insured or guaranteed by certain related institutions, agencies and instrumentalities, creates risks to our net income, capital levels, financial condition and liquidity and causes uncertainties in general economic conditions that may adversely impact us.

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

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

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

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

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

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

These factors also include risks and uncertainties detailed from time to time in Citizens’ other filings with the Securities and Exchange Commission (“SEC”), such as the risk factors listed in “Item 1A, Risk Factors,” of Citizens’ 2011 Annual Report on Form 10-K and subsequent Forms 10-Q, which are available at the SEC’s web site www.sec.gov. Other factors not currently anticipated may also materially and adversely affect Citizens’ results of operations, cash flows, financial position, and prospects. There can be no assurance that future results will meet expectations. While Citizens believes that the forward-looking statements in this report are reasonable, the reader should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. Citizens does not undertake, and expressly disclaims any obligation to update or alter any statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Critical Accounting Policies

Citizens’ Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and follow general practices within the industry in which Citizens operates. Application of these principles requires management to make estimates, assumptions, and complex judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Actual results could differ significantly from those estimates. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates that are particularly susceptible to significant change include those relating to the allowance for loan losses, goodwill, fair value measurements, pension and postretirement benefits, and income taxes. Citizens believes that these estimates and the related policies are important to the portrayal of Citizens’ financial condition and results of operations. Therefore, management considers them to be critical accounting policies and discusses them directly with the Audit Committee of the Board of Directors. Citizens’ significant accounting policies are more fully described in Note 1 to the audited Consolidated Financial Statements contained in Citizens’ 2011 Annual Report on Form 10-K and the more significant assumptions and estimates made by management are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our 2011 Annual Report on Form 10-K. For additional information regarding updates during 2012, see Note 1 to the unaudited Consolidated Financial Statements in this report.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this report includes non-GAAP financial measures such as net interest margin, efficiency ratio, tangible equity to tangible assets ratio, tangible common equity to tangible assets ratio, Tier 1 common equity ratio and pre-tax pre-provision profit. Citizens believes these non-GAAP financial measures provide additional information that is useful to investors in understanding the underlying performance of Citizens, its business, and performance trends and, to a lesser degree, such measures may help facilitate

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performance comparisons with others in the banking industry. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Readers should be aware of these limitations and should be cautious as to their use of such measures. To mitigate these limitations, Citizens has procedures in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and to ensure that Citizens’ performance is properly reflected to facilitate consistent period-to-period comparisons. Although Citizens believes the non-GAAP financial measures disclosed in this report enhance investors’ understanding of its business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures.

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

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

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

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

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

Pre-tax pre-provision profit (“PTPP”), as defined by Citizens’ management represents total revenue (total net interest income and noninterest income) excluding any securities gains/losses, fair value adjustments on loans held for sale, interest rate swaps, and bank owned life insurance, less noninterest expense excluding any goodwill impairment charges, credit writedowns, fair value adjustments and special assessments. While certain of these items are an integral part of Citizens’ banking operations, in each case, the excluded items are items that management believes are particularly impacted by economic stress or significant changes in the credit cycle and are therefore likely to make it more difficult to understand our underlying performance trends and the ability of our banking operations to generate revenue. Net interest income, noninterest income and noninterest expense are all calculated in accordance with GAAP and are presented in the consolidated statements of operations. While noninterest income and noninterest expense are adjusted for the specific items listed above in the calculation of PTPP, these adjustments represent the excluded items in their entirety for each period presented to better facilitate period-to-period comparisons.

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Viewed together with Citizens’ GAAP results, PTPP provides management, investors, and others with a useful metric to evaluate and better understand trends in Citizens’ period-to-period earnings power and ability to generate capital to cover credit losses, in each case exclusive of the effects of the current and recent economic stress and the credit cycle. As recent results for the banking industry demonstrate, loan charge-offs, related credit provision, and credit writedowns can vary significantly from period to period, making a measure that helps isolate the impact of credit costs on profitability all the more important to investors. The “Credit Quality” section of this report discusses the quality of Citizens’ loan portfolio and the impact on Citizens’ earnings as reflected in the provision for loan losses.

A portion of the compensation awarded to Citizens’ Named Executive Officers and certain other management employees for their performance in 2011 and 2012 is measured against a PTPP performance target (as defined above) as Citizens believes that PTPP is a key measurement that helps keep revenue generation as a focus for its business and a particularly valuable measure during challenging credit cycles. Based on 2011 full year results, the total potential cash compensation award linked to PTPP was $0.8 million. Additionally, during 2011, approximately 186,500 shares of restricted stock were granted which have a two-year vesting period based partially on PTPP results and partially on net income. Based on 2012 full year results, the total potential cash compensation award linked to PTPP is $0.5 million, payable in early 2013. The grants are designed so that a portion of the compensation is based on net income while the remainder does not depend on management’s performance with regard to managing loan losses, securities impairments, and other asset impairments.

Like all non-GAAP metrics, PTPP’s usefulness is inherently limited. Because Citizens’ calculation of PTPP may differ from the calculation of similar measures used by other bank holding companies, PTPP should be used to determine and evaluate period to period trends in Citizens’ performance and in comparison to Citizens’ loan charge-offs, related credit provision, and credit writedowns, rather than in comparison to non-GAAP metrics used by other companies. In addition, investors should bear in mind that income tax expense (benefit), the provision for loan losses, and the other items excluded from revenues and expenses in the PTPP calculation are recurring and integral expenses to Citizens’ banking operations, and that these expenses will still accrue under GAAP, thereby reducing GAAP earnings and, ultimately, shareholders’ equity.

The following table displays the calculation of the efficiency ratio for the past five quarters and the calculation of the remainder of these non-GAAP measures other than pre-tax pre-provision profit, the calculation of which is set forth in the “Results of Operations – Summary” section, as of the end of each of those periods.

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Non-GAAP Reconciliation

(in thousands)	March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011
Efficiency Ratio (non-GAAP)
Net interest income (A)	$	76,119		$	78,049		$	78,841		$	77,606		$	78,614
Taxable equivalent adjustment (B)		1,571			1,670			1,827			1,884			2,102
Investment securities gain (losses) (C)		—			38			3			(993	)		(383	)
Noninterest income (D)		24,240			24,363			24,427			23,325			23,143
Noninterest expense (E)		67,101			66,640			65,411			69,444			81,656
(Gains) losses on ORE and ORE Expenses (F)		65			2,076			1,739			2,384			10,890
Intangible amortization (G)		578			688			732			778			828
Efficiency ratio: (E-F-G)/(A+B-C+D) (non-GAAP)		65.20	%		61.39	%		59.89	%		63.85	%		67.09	%
Tangible Common Equity to Tangible Assets (non-GAAP)
Total assets	$	9,577,346		$	9,462,849		$	9,600,188		$	9,495,630		$	9,724,113
Goodwill		(318,150	)		(318,150	)		(318,150	)		(318,150	)		(318,150	)
Other intangible assets		(6,850	)		(7,428	)		(8,116	)		(8,848	)		(9,626	)
Tangible assets (non-GAAP)	$	9,252,346		$	9,137,271		$	9,273,922		$	9,168,632		$	9,396,337
Total shareholders’ equity	$	1,044,619		$	1,019,537		$	1,009,143		$	979,722		$	945,401
Goodwill		(318,150	)		(318,150	)		(318,150	)		(318,150	)		(318,150	)
Other intangible assets		(6,850	)		(7,428	)		(8,116	)		(8,848	)		(9,626	)
Tangible equity (non-GAAP)	$	719,619		$	693,959		$	682,877		$	652,724		$	617,625
Tangible equity	$	719,619		$	693,959		$	682,877		$	652,724		$	617,625
Preferred stock		(286,901	)		(285,114	)		(283,360	)		(281,642	)		(279,955	)
Tangible common equity (non-GAAP)	$	432,718		$	408,845		$	399,517		$	371,082		$	337,670
Tier 1 Common Equity (non-GAAP)
Total shareholders’ equity	$	1,044,619		$	1,019,537		$	1,009,143		$	979,722		$	945,401
Qualifying capital securities		73,667			73,667			73,667			73,667			73,667
Goodwill		(318,150	)		(318,150	)		(318,150	)		(318,150	)		(318,150	)
Accumulated other comprehensive loss		1,955			5,820			1,075			923			14,278
Other intangible assets		(6,850	)		(7,428	)		(8,116	)		(8,848	)		(9,626	)
Tier 1 capital (regulatory)	$	795,241		$	773,446		$	757,619		$	727,314		$	705,570
Tier 1 capital (regulatory)	$	795,241		$	773,446		$	757,619		$	727,314		$	705,570
Qualifying capital securities		(73,667	)		(73,667	)		(73,667	)		(73,667	)		(73,667	)
Preferred stock		(286,901	)		(285,114	)		(283,360	)		(281,642	)		(279,955	)
Total Tier 1 common equity (non-GAAP)	$	434,673		$	414,665		$	400,592		$	372,005		$	351,948
Net risk-weighted assets (regulatory)	$	5,803,811		$	5,723,333		$	5,912,527		$	5,850,177		$	5,929,802
Equity to assets		10.91	%		10.77	%		10.51	%		10.32	%		9.72	%
Tier 1 common equity (non-GAAP)		7.49			7.24			6.77			6.36			5.93
Tangible equity to tangible assets (non-GAAP)		7.78			7.59			7.36			7.12			6.57
Tangible common equity to tangible assets (non-GAAP)		4.68			4.47			4.31			4.05			3.59

Recent Developments

On April 19, 2012, Citizens announced that, effective April 17, 2012, the Federal Reserve Bank of Chicago and the Michigan Office of Financial and Insurance Regulation have terminated their written agreement with Citizens, and its subsidiary, Citizens Bank dated July 28, 2010.

Results of Operations

Summary

Citizens reported net income of $24.9 million for the three months ended March 31, 2012, compared with a net loss of $68.7 million for the first quarter of 2011. After incorporating the $6.0 million accrued but unpaid dividend to the preferred shareholder, Citizens reported net income attributable to common shareholders of $18.9 million for the three months ended March 31, 2012, compared with a net loss of $74.3 million for the first quarter of 2011. Diluted net income per share was $0.47 for the first quarter of 2012, compared with a net loss of $1.89 for the first quarter of 2011.

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Key factors behind the results for the first quarter of 2012 compared with the first quarter of 2011 were:

• A decrease in provision for loan losses from 2011, which reflects the results of our focused efforts to improve asset quality and stabilized portfolio credit metrics as well as an overall decrease in loan balances.

• A decrease in noninterest expense from 2011, as losses on other real estate (“ORE”) were significantly lower due to the completion of the problem asset resolution initiatives in early 2011. Additionally, FDIC insurance costs decreased as we moved to the small bank pricing model. These decreases were partially offset by higher salaries and incentives costs.

• A decrease in net interest income from 2011, which was primarily the result of declining loan balances due to the resolution of problem assets, partially offset by the effects of a three basis point increase in net interest margin.

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

Pre-tax pre-provision profit (non-GAAP)

	Three Months Ended
(in thousands)	March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011
Net income (loss)	$	24,861		$	18,244		$	32,944		$	24,157		$	(68,678	)
Income tax provision (benefit)		—			2,521			(12,568	)		(10,266	)		55
Provision for loan losses		8,397			15,007			17,481			17,596			88,724
Net (gains) losses on loans held for sale		(916	)		217			(1,952	)		(1,179	)		1,106
Investment securities (gains) losses		—			(38	)		(3	)		993			383
(Gains) losses on other real estate (ORE)		(385	)		1,081			1,210			1,355			9,122
Fair-value adjustment on bank owned life insurance (1)		(205	)		(100	)		385			48			(100	)
Fair-value adjustment on swaps (1)		(61	)		(46	)		268			77			114
Pre-tax pre-provision profit (non-GAAP)	$	31,691		$	36,886		$	37,765		$	32,781		$	30,726

⁽¹⁾ Fair-value adjustment amounts contained in line item “Other income” on Consolidated Statements of Operations

The balance sheet grew modestly to $9.6 billion compared to December 31, 2011 as a result of core deposit growth. Core deposits were up $263.6 million or 5.1% over last quarter, reflecting our focus on generating and growing core deposit relationships. This growth in core deposits was deployed in investment securities. Time deposits at March 31, 2012 decreased $168.2 million or 7.6% from last quarter as we continue to strategically reduce high cost single service and brokered time deposits. Loan balances were essentially unchanged compared to last quarter as the growth in our C&I portfolio was offset by declines in our CRE, home equity and residential mortgage portfolios.

Citizens maintains a strong liquidity position, with on- and off-balance sheet liquidity sources and a stable funding base comprised of approximately 78% deposits, 9% long-term debt, 11% equity, and 2% short-term liabilities. Citizens also continues to maintain a strong capital position, and its regulatory capital ratios are above “well-capitalized” standards.

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Net Interest Income and Net Interest Margin

An analysis of net interest income, interest spread and net interest margin with average balances and related interest rates is presented below.

Average Balances/Net Interest Income/Average Rates

	Three Months Ended March 31,
	2012								2011
(in thousands)	Average Balance			Interest (1)		Average Rate  (2)			Average Balance			Interest (1)		Average Rate (2)
Earning Assets
Money market investments	$	349,652		$	215		0.25	%	$	416,756		$	253		0.25	%
Investment securities:(3)
Taxable		2,548,390			17,309		2.72			2,313,467			19,610		3.39
Tax-exempt		215,344			2,254		6.44			278,679			3,086		6.81
FHLB and Federal Reserve stock		117,942			1,140		3.88			143,873			1,125		3.16
Portfolio loans:(4)
Commercial and industrial		1,573,933			21,622		5.61			1,422,574			15,673		4.59
Commercial real estate		1,521,448			19,079		5.04			2,045,360			26,707		5.30
Residential mortgage		627,721			6,766		4.31			741,818			8,818		4.76
Direct consumer		920,030			13,482		5.89			1,024,979			15,463		6.12
Indirect consumer		865,396			13,814		6.42			816,676			13,681		6.79
Total portfolio loans		5,508,528			74,763		5.48			6,051,407			80,342		5.40
Loans held for sale(4)		10,222			116		4.54			26,860			369		5.50
Total earning assets(3)		8,750,078			95,797		4.47			9,231,042			104,785		4.67
Nonearning Assets
Cash and due from banks		143,008								143,957
Premises and equipment		96,986								104,399
Investment security fair value adjustment		49,832								32,229
Other nonearning assets		653,991								682,526
Assets of discontinued operations		—								—
Allowance for loan losses		(172,509	)							(295,232	)
Total assets	$	9,521,386							$	9,898,921
Interest-Bearing Liabilities
Deposits:
Interest-bearing demand deposits	$	973,664		$	408		0.17		$	951,770		$	548		0.23
Savings deposits		2,708,522			1,871		0.28			2,629,296			2,594		0.40
Time deposits		2,128,916			8,817		1.67			2,753,306			13,233		1.95
Short-term borrowings		38,683			18		0.19			41,187			18		0.18
Long-term debt		853,912			8,564		4.03			971,076			9,778		4.08
Total interest-bearing liabilities		6,703,697			19,678		1.18			7,346,635			26,171		1.44
Noninterest-Bearing Liabilities and Shareholders’ Equity
Noninterest-bearing demand		1,630,591								1,395,588
Other liabilities		158,604								154,408
Liabilities of discontinued operations		—								—
Shareholders’ equity		1,028,494								1,002,290
Total liabilities and shareholders’ equity	$	9,521,386							$	9,898,921
Interest Spread(5)				$	76,119		3.29	%				$	78,614		3.23	%
Contribution of noninterest bearing sources of funds							0.27								0.30
Net Interest Margin(5)(6)							3.56	%							3.53	%

⁽¹⁾  Interest income is shown on actual basis and does not include taxable equivalent adjustments.

⁽²⁾  Average rates are presented on an annual basis and include taxable equivalent adjustments to interest income of $1.6 million and $2.1 million for the three months ended March 31, 2012 and 2011, respectively, based on a tax rate of 35%.

⁽³⁾  For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.

⁽⁴⁾  Nonaccrual loans are included in average balances for each applicable loan category.

⁽⁵⁾  The interest spread and net interest margin are presented on a tax-equivalent basis.

⁽⁶⁾  Net interest margin exceeds the interest spread due to noninterest-bearing funding sources, demand deposits, other liabilities and shareholders’ equity supporting earning assets.

Net interest margin was 3.56% in the first quarter of 2012, a slight increase from the first quarter of last year. The increase was due to declining deposit costs, reducing reliance on high-cost funding, and lower levels of non-performing assets, partially offset by lower investment securities yields.

Net interest income was $76.1 million for the first quarter of 2012, a decrease of $2.5 million from the first quarter of last year. The decrease reflects a reduction in average earning assets.

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

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Analysis of Changes in Interest Income and Interest Expense

	Three Months Ended March 31,
				Increase (Decrease)
2012 compared with 2011	Net			Due to Change in
(in thousands)	Change(1)			Rate  (2)			Volume(2)
Interest Income on Earning Assets:
Money market investments	$	(38	)	$	—		$	(38	)
Investment securities:
Taxable		(2,301	)		(4,158	)		1,857
Tax-exempt		(832	)		(162	)		(670	)
FHLB and Federal Reserve stock		15			238			(223	)
Loans:
Commercial and industrial		5,949			4,099			1,850
Commercial real estate		(7,628	)		(1,261	)		(6,367	)
Residential mortgage loans		(2,052	)		(774	)		(1,278	)
Direct consumer		(1,981	)		(554	)		(1,427	)
Indirect consumer		133			(741	)		874
Total portfolio loans		(5,579	)		769			(6,348	)
Loans held for sale		(253	)		(55	)		(198	)
Total		(8,988	)		(3,368	)		(5,620	)
Interest Expense on Interest-Bearing Liabilities:
Deposits:
Interest-bearing demand deposits		(140	)		(153	)		13
Savings deposits		(723	)		(802	)		79
Time deposits		(4,416	)		(1,754	)		(2,662	)
Short-term borrowings		—			1			(1	)
Long-term debt		(1,214	)		(135	)		(1,079	)
Total		(6,493	)		(2,843	)		(3,650	)
Net Interest Income	$	(2,495	)	$	(525	)	$	(1,970	)

⁽¹⁾  Changes are based on actual interest income and do not reflect taxable equivalent adjustments.

⁽²⁾  The change in interest not solely due to changes in volume or rates has been allocated in proportion to the absolute dollar amounts of the change in each.

The decrease in net interest income in the three months ended March 31, 2012 from the comparable period of 2011 reflect rate and volume variances that were unfavorable in the aggregate. Our first quarter performance was a result of continued pressure on loan pricing that was not fully recouped by lower deposit pricing. The unfavorable volume variances were primarily due to the reduction in the loan portfolios, with the exception of commercial and industrial primarily as a result of the accelerated problem asset resolution initiative completed in early 2011. The effect of the net portfolio decrease was partially offset by an increase in the taxable investment securities portfolios and a decrease in time deposits and long term debt. The rate variances were primarily the result of lower reinvestment yields for investment securities, lower term interest rates, and a reduction in higher yielding average loan balances with lower yielding investments partially offset by borrowings repricing to lower rates as a result of lower market interest rates and reduced deposit price competition.

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Noninterest Income

The components of noninterest income are presented below.

Noninterest Income

	Three Months Ended March 31,					Change in 2012
(dollars in thousands)	2012		2011			Amount			Percent
Service charges on deposit accounts	$	8,985	$	9,429		$	(444	)		(4.7	)%
Trust fees		3,602		3,923			(321	)		(8.2	)
Mortgage and other loan income		1,858		2,942			(1,084	)		(36.8	)
Brokerage and investment fees		1,324		1,108			216			19.5
ATM network user fees		1,808		1,755			53			3.0
Bankcard fees		2,457		2,238			219			9.8
Net gains (losses) on loans held for sale		916		(1,106	)		2,022			182.9
Investment securities gains (losses)		—		(383	)		383			100.0
Other income		3,290		3,237			53			1.6
Total noninterest income	$	24,240	$	23,143		$	1,097			4.7

The increase in noninterest income reflects a net gain in loans held for sale and the absence of investment securities losses, partially offset by decreases in mortgage and other loan income, and service charges on deposit accounts. The net gains on loans held for sale were primarily the result of fewer writedowns to reflect fair value declines of the underlying collateral. In addition, Citizens recorded no sales on investment securities as compared to net losses in 2011. The decrease in mortgage and other loan income was the result of lower loan origination volume. The reduction in service charges on deposit accounts was directly related to the impact of regulatory changes resulting from the Dodd-Frank Act and guidance issued by the FDIC related to overdraft payment programs.

Noninterest Expense

The components of noninterest expense are presented below.

Noninterest Expense

	Three Months Ended March 31,					Change in 2012
(in thousands)	2012			2011		Amount			Percent
Salaries and employee benefits	$	33,298		$	31,018	$	2,280			7.4	%
Occupancy		6,696			7,562		(866	)		(11.5	)
Professional services		2,023			2,219		(196	)		(8.8	)
Equipment		3,303			3,052		251			8.2
Data processing services		4,048			4,352		(304	)		(7.0	)
Advertising and public relations		1,335			569		766			134.5
Postage and delivery		1,099			1,116		(17	)		(1.5	)
Other loan expenses		3,186			5,255		(2,069	)		(39.4	)
(Gains) losses on other real estate (ORE)		(385	)		9,122		(9,507	)		(104.2	)
ORE expenses		450			1,768		(1,318	)		(74.5	)
Intangible asset amortization		578			828		(250	)		(30.2	)
Other expenses		11,470			14,795		(3,325	)		(22.5	)
Total noninterest expense	$	67,101		$	81,656	$	(14,555	)		(17.8	)

The decrease in noninterest expense was primarily the result of gains on other real estate (ORE) compared to significant losses in 2011, lower other expense, and lower other loan expense as well as a net decline in most other noninterest expense categories offset by an increase in salaries and employee benefits. The losses on ORE in 2011 were incurred as a result of the problem asset resolution initiatives that were substantially completed during the first quarter of 2011. The net decrease in other expenses was directly related to lower FDIC premiums and lower fraud and other losses. Lower other loan expense was primarily the result of lower origination volume and lower foreclosure-related expenses. The increase in salaries and employee benefits was directly related to the reinstatement of employer contributions to the 401(k) plan and higher incentive costs.

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Income Taxes and Deferred Tax Asset

Citizens did not record any tax benefit or expense for the first quarter of 2012 as compared to a tax provision of $0.1 million for the same period in 2011. Although Citizens was profitable during the first quarter of 2012, the estimated utilization of a net operating loss carryforward resulted in no tax expense being recognized.

Based on an evaluation of the positive and negative evidence, we determined it was appropriate to establish a full valuation allowance on our deferred tax asset as of December 31, 2008. The deferred tax asset is reviewed on a quarterly basis and based on the analysis at March 31, 2012; Citizens continued to maintain a full valuation allowance.

The significant positive evidence in our analysis includes: improvements in profitability, capital levels, credit metrics, deposit mix, regulatory risk, and a stabilizing economy. The most significant negative evidence continues to be the historic losses suffered as a result of the financial crisis. As of March 31, 2012, we believe the negative evidence continues to outweigh the positive evidence. However, with continued positive performance of earnings and credit quality in the second quarter of 2012, we believe the positive evidence may outweigh the negative evidence and we may be able to fully restore the value of our deferred tax asset as of the end of that quarter. Such determination will be finalized upon completion of our June 30, 2012 analysis.

The reversal of the deferred tax asset valuation allowance would decrease the Company’s income tax expense and increase net income in the period of such reversal.

Line of Business Results

Citizens monitors financial performance using an internal profitability measurement system, which provides line of business results and key performance measures. Business line results are divided into five major business segments: Regional Banking, Specialty Consumer, Specialty Commercial, Wealth Management and Other. For additional information about each line of business, see Note 15 to the Consolidated Financial Statements of the Citizens’ 2011 Annual Report on Form 10-K and Note 11 to the unaudited Consolidated Financial Statements in this report.

Regional Banking recorded net income for the three months ended March 31, 2012 compared to a net loss in the same period of the prior year. The variance was primarily due to lower provision for loan losses and lower noninterest expense caused by Citizens’ accelerated problem asset resolution initiatives, which were substantially completed in the first quarter of 2011. This was partially offset by lower net interest income and higher taxes.

Specialty Consumer recorded net income for the three months ended March 31, 2012, as compared to a net loss in the same period of the prior year. The variance was a result of lower provision for loan losses, partially offset by higher income taxes which reflect the results of our focused efforts to improve asset quality and stabilize portfolio credit metrics as well as an overall decrease in loan balances.

Specialty Commercial recorded net income for the three months ended March 31, 2012, as compared to a net loss in the same period of the prior year. The improvement was a result of higher net interest income, lower provision for loan losses, higher noninterest income, and lower noninterest expense, partially offset by higher taxes in 2012. The higher net interest income is directly related to the increase in C&I lending. The lower provision expense was directly related to the accelerated problem asset resolution initiatives, which were substantially completed in the first quarter of 2011. The higher noninterest income was a result of fewer writedowns associated with loans held for sale. The decrease in noninterest expense reflected the improved asset quality of the portfolio.

Net income for Wealth Management for the three months ended March 31, 2012 decreased over the prior year primarily due to a decrease in noninterest income relating to trust fees and an increase in noninterest expense relating to an increase in salaries and employee benefits expense.

The Other line of business recorded net income for the three months ended March 31, 2012 as compared to a net loss for the same period of the prior year. This was primarily due to lower noninterest expense, and lower taxes, partially offset by lower net interest income. The decreases in noninterest expense were primarily the result of a decrease in FDIC insurance costs. Changes in income taxes reflect an allocation of 35% to all other lines of businesses in 2011 and 2012 with the remainder allocated to the Other line of business. The decreases in net

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interest income were primarily the result of the internal profitability methodology utilized at Citizens that insulates the other lines of business from interest-rate risk and assigns the risk to the asset/liability management function, which is a component of this segment.

Financial Condition

Total assets at March 31, 2012 were $9.6 billion, an increase of $114.5 million or 1.2% from December 31, 2011, as growth in core deposits was deployed into investment securities. As compared to March 31, 2011, total assets decreased by $146.8 million or 1.6% as growth in our C&I portfolio was offset by declines in our CRE, home equity, and residential mortgage portfolios.

Money Market Investments

Money market investments at March 31, 2012 totaled $300.2 million, a decrease of $13.5 million or 4.3% from December 31, 2011 and a decrease of $195.4 million or 39.4% from March 31, 2011. The decreases were primarily related to the use of funds to pay off maturing high cost funding and to purchase investment securities.

Investment Securities

Investment securities at March 31, 2012 totaled $2.9 billion, an increase of $110.6 million or 4.0% from December 31, 2011 and an increase of $200.6 million or 7.5% over March 31, 2011. Increases in investment securities reflect strategies to reinvest principal paydowns as well as excess cash.

Portfolio Loans

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

Loan Portfolios

(in thousands)	March 31, 2012		December 31, 2011		September 30, 2011		June 30, 2011		March 31, 2011
Land hold	$	5,387	$	6,542	$	6,818	$	7,426	$	17,273
Land development		7,226		13,104		22,232		22,507		22,744
Construction		6,410		5,847		5,410		8,111		23,297
Income producing		877,461		913,755		975,262		1,019,551		1,038,674
Owner-occupied		590,575		605,113		634,179		664,647		692,296
Total commercial real estate		1,487,059		1,544,361		1,643,901		1,722,242		1,794,284
Commercial and industrial		1,657,140		1,543,529		1,531,492		1,349,803		1,353,167
Total commercial		3,144,199		3,087,890		3,175,393		3,072,045		3,147,451
Residential mortgage		611,166		637,245		654,561		708,164		727,304
Direct consumer		903,238		933,314		954,831		978,319		1,006,424
Indirect consumer		869,460		871,086		887,542		869,109		823,019
Total consumer		2,383,864		2,441,645		2,496,934		2,555,592		2,556,747
Total portfolio loans	$	5,528,063	$	5,529,535	$	5,672,327	$	5,627,637	$	5,704,198

The decrease in total portfolio loans compared to December 31, 2011 reflects declines in most loan categories from paydowns as a result of normal client activity and charge-offs, partially offset by growth in our C&I portfolio.

Underwriting

Citizens’ Commercial Credit Policy and Underwriting Guidelines and Citizens’ Consumer Loan Credit Policy and Underwriting Guidelines (together, the “Underwriting Guidelines”) are written in a manner that is consistent with

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

The commercial Underwriting Guidelines outline product- and collateral-specific acceptable loan terms and conditions, including maximum loan to value ratios for real estate collateral, advance rates for non-real estate collateral, and debt service coverage. Acceptable credit management practices require that the borrower’s financial capacity to repay the loan be analyzed based on the most recent financial information as specified by the loan’s documented structure. It is Citizens’ general practice to obtain personal guarantees and underwrite the guarantor’s capacity to support the loan no less frequently than annually and more frequently if changes occur in the borrower’s capacity to repay or in the general economic conditions that might affect the borrower. Citizens’ Underwriting Guidelines for non-owner occupied commercial real estate loans delineate maximum terms, amortizations and loan to value ratios as well as minimum equity investments and debt service coverage ratios based on property type. Generally, at origination maximum loan terms are five years, maximum amortizations are 25 years, minimum equity requirements range from 10% to 25%, debt service coverage ratios range from 1.2 to 1.5 times and loan to value ratios range from 65% to 80%. Currently, new commercial land hold and land development loans are not being originated by Citizens. Citizens’ Real Estate Appraisal and Environmental Policy specifies the Bank’s requirements for obtaining appraisals from licensed or certified appraisers to assess the value of the underlying collateral. New variable rate commercial loans are underwritten at fully indexed rates. Additionally, variable rate commercial loan underwriting includes stress tests of the borrower’s debt service capabilities with higher than existing interest rates and fluctuations in the underlying cash flows available for repayment.

The consumer Underwriting Guidelines outline product- and collateral-specific loan terms and conditions, including maximum debt ratios and advance rates based on the borrower’s credit score. Residential mortgage loans are evaluated based on credit scores, debt-to-income ratios, and loan-to-collateral value ratios. They are predominately originated in accordance with underwriting standards set forth by the government-sponsored entities (“GSEs”) Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”) and Government National Mortgage Association (“GNMA”), which serve as the primary purchasers of loans sold in the secondary market by mortgage lenders. These underwriting standards generally require that the loans be collateralized by one-to-four family residential real estate. Automated underwriting engines deployed by a GSE are used to determine creditworthiness of the vast majority of borrowers. Maximum allowable loan-to-value (“LTV”)/combined loan-to-value (“CLTV”) on these loan products generally do not exceed 95% at origination. Citizens has not offered “no-doc/low doc” and “stated income/stated asset” loans since January 1, 2007 and does not have any of these loans in its residential mortgage portfolio. Sub-prime, initial teaser rate and negative amortization loans were originated on an exception basis prior to 2007 and have not been offered since January 1, 2007. At March 31, 2012, December 31, 2011 and March 31, 2011, the outstanding balance of these loans and the associated interest income was immaterial.

In June 2008, Citizens entered into a master sales agreement to sell its residential mortgage originations to its third-party servicer at a fixed rate with no recourse. Under this agreement, Citizens sells more than 90% of new mortgage origination, resulting in minimal new loans being retained in the residential mortgage portfolio. During 2011 and 2012, the amount of new mortgage loans underwritten to non-GSE standards, all of which are retained in the residential mortgage loan portfolio, was immaterial. Prior to June 2008, when Citizens sold its residential mortgage originations to several secondary market participants, it made various standard representations and warranties. The specific representations and warranties made by Citizens depended on the nature of the transaction and the requirements of the buyer. In the event of a breach of the representations and warranties, Citizens may be required to either repurchase the mortgage loans (generally at unpaid principal balance plus accrued interest) with the identified defects or indemnify the investor for losses resulting from the breach. During the first three months of 2012 and 2011, Citizens repurchased $1.0 million and $0.1 million of loans, respectively, pursuant to such provisions. Citizens estimates its exposure to losses from its obligation to repurchase previously sold loans based on the individual circumstances applicable to each loan submitted for potential repurchase by an investor, and as a result, Citizens maintains a liability included in Other Liabilities on the balance sheet for estimated losses on loans expected to be repurchased or on which indemnification is expected to be provided. Citizens recorded $1.9 million and $1.1 million in the first three months of 2012 and 2011, respectively in Other Expense on the Consolidated Statements of Operations related to repurchasing or indemnification obligations on such loans.

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Direct consumer loans include home equity loans, and direct installment loans to individuals used to purchase boats, recreational vehicles, automobiles and other personal items. Underwriting guidelines for these loans are heavily influenced by statutory requirements, which include, but are not limited to maximum loan-to-value ratios, credit scoring results, ability to service overall debt, and documentation requirements. Individual borrowers may be required to provide additional collateral or a satisfactory endorsement or guaranty from another person, depending on the creditworthiness of the borrower. Home equity loans consist of fully-indexed variable rate revolving lines of credit and fixed rate loans to consumers that are secured by residential real estate. Home equity loans are generally in a junior lien position and are originated through Citizens’ branches with cumulative loan-to-value ratios generally at or less than 80% of appraised collateral value. As of March 31, 2012, Citizens’ home equity portfolio totaled $737.3 million, and had an average loan size of $36,383 with an average refreshed FICO score of 739. As of March 31, 2012, other direct installment loans totaled $165.9 million and had an average loan size of $19,034 with an average refreshed FICO score of 723.

Indirect consumer loans are originated through our centralized underwriting group that has established relationships with certain dealers which meet Citizens’ underwriting guidelines and adhere to prudent business practices. The dealers are evaluated on their creditworthiness and business practices with performance monitored on an annual basis. The dealers refer customers to the centralized underwriting group, which utilizes a credit scoring model to supplement the underwriting process, and then complete the loans utilizing Citizens’ loan documents. As of March 31, 2012, indirect consumer loans had an average loan size of $23,313 with an average refreshed FICO score of 738.

Citizens maintains an independent loan review department that reviews the quality, trends, collectability, and collateral margins within the loan portfolio. The loan review department validates the credit risk profile on a regular basis by sampling loans using criteria such as loan size, delinquency status, loan officer coverage and other factors. This process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel. Results of these reviews are presented to management and to the Risk Committee of the Board of Directors.

Credit Quality

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

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

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

• Nonperforming Assets – Loans that are in nonaccrual status, loans past due 90 days or more on which interest is still accruing, nonperforming loans that are held for sale, and other repossessed assets acquired.

• Net Charge-Offs – The portion of loans that have been charged-off during each quarter, net of recoveries.

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Delinquency Rates By Loan Portfolio

	March 31, 2012					December 31, 2011					September 30, 2011					June 30, 2011					March 31, 2011
30 to 89 days past due (in thousands)	$		% of Portfolio			$		% of Portfolio			$		% of Portfolio			$		% of Portfolio			$		% of Portfolio
Land hold	$	—		—	%	$	21		0.3	%	$	—		—	%	$	571		7.69	%	$	509		2.95	%
Land development		130		1.81			—		—			216		0.97			—		—			—		—
Construction		—		—			—		—			—		—			1,722		21.23			—		—
Income producing		1,447		0.16			2,508		0.27			3,325		0.34			1,597		0.16			4,817		0.46
Owner-occupied		5,177		0.88			2,345		0.39			5,817		0.92			6,524		0.98			1,981		0.29
Total commercial real estate		6,754		0.45			4,874		0.32			9,358		0.57			10,414		0.60			7,307		0.41
Commercial and industrial		2,887		0.17			2,454		0.16			2,594		0.17			3,637		0.27			6,177		0.46
Total commercial		9,641		0.31			7,328		0.24			11,952		0.38			14,051		0.46			13,484		0.43
Residential mortgage		7,568		1.24			9,544		1.50			9,079		1.39			11,564		1.63			10,279		1.41
Direct consumer		14,002		1.55			17,810		1.91			18,629		1.95			20,393		2.08			17,210		1.71
Indirect consumer		8,780		1.01			13,067		1.50			9,898		1.12			10,681		1.23			10,187		1.24
Total consumer		30,350		1.27			40,421		1.66			37,606		1.51			42,638		1.67			37,676		1.47
Total delinquent loans	$	39,991		0.72		$	47,749		0.86		$	49,558		0.87		$	56,689		1.01		$	51,160		0.90

The decreases in total delinquencies as of March 31, 2012 compared to December 31, 2011 and March 31, 2011 were driven by the continued emphasis on proactively managing and resolving delinquent commercial and consumer loans and reflect the improving risk profile of the loan portfolio.

Loans are generally placed on nonaccrual status when there is substantial doubt regarding collection of principal or interest, in full, based on Citizens’ credit policies and practices or when principal or interest is past due in excess of 90 days. When a loan is placed on nonaccrual status, interest that is accrued but not collected is reversed and charged against income. Nonperforming assets are comprised of nonaccrual loans, loans past due over 90 days and still accruing interest, nonperforming loans held for sale, and other repossessed assets acquired. Although these assets have more than a normal risk of loss, they may not necessarily result in future losses. Nonperforming assets during the last five quarters are presented in the table below.

Nonperforming Assets

	March 31, 2012						December 31, 2011						September 30, 2011						June 30, 2011						March 31, 2011
(in thousands)	$			% of Portfolio			$			% of Portfolio			$			% of Portfolio			$			% of Portfolio			$			% of Portfolio
Land hold	$	—			—	%	$	—			—	%	$	167			2.45	%	$	167			2.25	%	$	1,154			6.68	%
Land development		207			2.87			213			1.62			12			0.05			379			1.68			78			0.35
Construction		150			2.34			150			2.57			257			4.76			559			6.89			395			1.70
Income producing		18,566			2.12			21,171			2.32			23,227			2.38			20,180			1.98			28,250			2.72
Owner-occupied		20,716			3.51			23,798			3.93			27,540			4.34			21,169			3.18			21,738			3.14
Total commercial real estate		39,639			2.67			45,332			2.94			51,203			3.11			42,454			2.47			51,615			2.88
Commercial and industrial		14,629			0.88			16,946			1.10			18,536			1.21			20,995			1.56			25,785			1.91
Total nonaccruing commercial		54,268			1.73			62,278			2.02			69,739			2.20			63,449			2.07			77,400			2.46
Residential mortgage		11,137			1.82			11,312			1.78			13,074			2.00			30,693			4.33			30,385			4.18
Direct consumer		8,895			0.98			12,115			1.30			14,704			1.54			13,944			1.43			13,043			1.30
Indirect consumer		1,074			0.12			953			0.11			1,256			0.14			1,281			0.15			1,169			0.14
Total nonaccruing consumer		21,106			0.89			24,380			1.00			29,034			1.16			45,918			1.80			44,597			1.74
Total nonaccruing loans		75,374			1.37			86,658			1.57			98,773			1.74			109,367			1.94			121,997			2.14
Loans 90+ days still accruing		164			—			770			0.01			1,368			0.02			1,604			0.03			660			0.01
Total nonperforming portfolio loans		75,538			1.37			87,428			1.58			100,141			1.77			110,971			1.97			122,657			2.15
Nonperforming held for sale		3,264						2,372						20,134						11,395						30,359
Other repossessed assets acquired		11,803						12,422						16,665						17,032						22,227
Total nonperforming assets	$	90,605					$	102,222					$	136,940					$	139,398					$	175,243
Restructured loans still accruing	$	17,911					$	32,347					$	12,206					$	12,682					$	12,714
Commercial inflows	$	14,027					$	13,269					$	23,901					$	24,370					$	29,486
Commercial outflows		(22,036	)					(20,730	)					(17,611	)					(38,321	)					(128,477	)
Net change	$	(8,009	)				$	(7,461	)				$	6,290					$	(13,951	)				$	(98,991	)

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The decrease in nonperforming assets from December 31, 2011 was related to proactively managing and resolving delinquent commercial and consumer loans and reflects the improving risk profile of the loan portfolio.

Some of the nonperforming loans included in the nonperforming asset table above are considered to be impaired. A loan is considered impaired when Citizens determines that it is probable that all of the contractual principal and interest due under the loan may not be collected. Citizens recognizes that, in the current economic environment, elevated levels of unemployment and depressed real estate values have resulted in many customers facing difficult financial situations. Distressed homeowners are identified and offered assistance. In order to avoid foreclosure, residential mortgage loans may be restructured for certain qualified borrowers who have the ability to make payments under the new terms of the loan. Citizens’ residential mortgage foreclosure abatement program includes several different options to modify contractual payments. Modified consumer and residential mortgage loans are considered troubled debt restructures (“TDRs”) when the debt restructure, for economic or legal reasons related to the borrower’s financial difficulties, results in a concession to the debtor that otherwise would not be considered by the bank. Citizens classifies TDRs as 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 March 31, 2012, the recorded investment balance of TDRs approximated $30.1 million, of which $17.9 million were on accrual status and $12.2 million were on nonaccrual status. Of this total, $22.5 million were consumer and residential TDRs that carried a total specific reserve of $3.5 million. 48.3% of the principal amount of these TDRs involved only a reduction in interest rate, 34.2% involved both reduced interest rate and term extensions and 17.5% involved only term extensions. See Note 4 to the unaudited Consolidated Financial Statements in this report for information on impaired loans.

Net Charge-Offs

	Three Months Ended
	March 31, 2012						December 31, 2011						September 30, 2011						June 30, 2011						March 31, 2011
(in thousands)	$			% of Portfolio*			$			% of Portfolio*			$			% of Portfolio*			$			% of Portfolio*			$		% of Portfolio*
Land hold	$	—			—	%	$	(33	)		(2.00	)%	$	—			—	%	$	4,719			N/M	%	$	4,942		N/M	%
Land development		(83	)		(4.64	)		3,079			93.21			43			0.76			38			0.68			4,439		79.15
Construction		(101	)		(6.33	)		(4	)		(0.24	)		(5	)		(0.34	)		(1	)		(0.04	)		5,578		97.09
Income producing		4,151			1.90			11,924			5.18			3,156			1.28			8,228			3.24			77,589		30.30
Owner-occupied		2,537			1.73			5,791			3.80			2,129			1.33			3,149			1.90			25,260		14.80
Total commercial real estate		6,504			1.76			20,757			5.33			5,323			1.28			16,133			3.76			117,808		26.63
Commercial and industrial		3,029			0.74			1,032			0.27			1,225			0.32			7,176			2.13			32,013		9.59
Total commercial		9,533			1.22			21,789			2.80			6,548			0.82			23,309			3.04			149,821		19.30
Residential mortgage		5,076			3.34			1,170			0.73			18,364			11.13			4,431			2.51			3,400		1.90
Direct consumer		10,935			4.87			6,930			2.95			5,710			2.37			5,605			2.30			5,496		2.21
Indirect consumer		2,572			1.19			2,746			1.25			2,797			1.25			2,076			0.96			1,921		0.95
Total consumer		18,583			3.14			10,846			1.76			26,871			4.27			12,112			1.90			10,817		1.72
Total net charge-offs	$	28,116			2.05		$	32,635			2.30		$	33,419			2.34		$	35,421			2.51		$	160,638		10.77

* Represents an annualized rate.

N/M - Not Meaningful

The decreases in net charge-offs compared to December 31, 2011 and March 31, 2011 reflect the continued stability and steady improvement in portfolio and economic trends. In addition, the decrease in net charge-offs from March 31, 2011 reflects the resolution of certain problem assets through bulk sale and individual workout efforts. These decreases were partially offset by an increase in consumer charge offs in the first quarter of 2012 as a result of charges related to applying consumer credit policy updates to the existing portfolio that are not expected to recur.

Nonperforming commercial and industrial and commercial real estate loans are generally charged off to the extent principal due exceeds the net realizable value of the collateral, with the charge-off occurring when the loss is reasonably quantifiable, but not later than when the loan becomes 180 days past due. Nonperforming residential mortgage loans are generally charged off to the extent principal exceeds the current appraised value less estimated costs to sell when the loan is 5 payments past due. Nonperforming direct and indirect consumer loans (open and closed end) are generally charged off to the extent principal exceeds the current appraised value less estimated costs to sell before the loan becomes 120 days past due.

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A summary of loan loss experience is provided below.

Analysis of Allowance for Loan Losses

	Three Months Ended March 31,
(in thousands)	2012			2011
Allowance for loan losses - beginning of period	$	172,726		$	296,031
Provision for loan losses		8,397			88,724
Charge-offs		32,638			164,854
Recoveries		4,522			4,216
Net charge-offs		28,116			160,638
Allowance for loan losses - end of period	$	153,007		$	224,117
Portfolio loans outstanding at period end (1)	$	5,528,063		$	5,704,198
Average portfolio loans outstanding during period (1)		5,508,528			6,051,407
Allowance for loan losses as a percentage of portfolio loans		2.77	%		3.93	%
Ratio of net charge-offs during period to average portfolio loans (annualized)		2.05			10.77

⁽¹⁾ Balances exclude loans held for sale.

The allowance for loan losses represents management’s estimate of an amount appropriate to provide for probable credit losses inherent in the loan portfolio as of the balance sheet date. To assess the appropriateness of the allowance for loan losses, an allocation methodology is applied that focuses on changes in the size and character of the loan portfolio, changes in the levels of impaired or other nonperforming loans, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions, underlying collateral, historical losses on each portfolio category and other qualitative and quantitative factors which could affect probable loan losses. The evaluation process is inherently subjective, as it requires estimates that may be susceptible to significant change and have the potential to affect net income materially. 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 formula-based risk allocated allowance for the remainder of the portfolio and a general valuation estimate. Management also considers overall portfolio indicators, including trends in historical charge-offs, a review of industry, geographic and portfolio performance, and other qualitative factors.

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

Allocation of the Allowance for Loan Losses⁽¹⁾

	March 31, 2012					December 31, 2011					March 31, 2011
(in thousands)	ALLL			Related NPL (2)		ALLL			Related NPL (2)		ALLL			Related NPL (2)
Specific allocated allowance:
Commercial and industrial	$	194		$	6,723	$	42		$	8,908	$	695		$	17,032
Commercial real estate		2,154			30,412		4,110			34,971		6,737			37,387
Residential mortgage		3,201			4,178		2,837			6,023		2,019			10,058
Direct consumer		328			600		70			500		184			1,048
Total specific allocated allowance		5,877			41,913		7,059			50,402		9,635			65,525
Risk allocated allowance:
Commercial and industrial		24,791			8,062		25,032			8,804		29,375			9,400
Commercial real estate		51,443			9,227		58,589			10,361		84,753			14,228
Total commercial		76,234			17,289		83,621			19,165		114,128			23,628
Residential mortgage		25,585			6,959		33,623			5,289		49,883			20,327
Direct consumer		34,372			8,303		32,950			11,619		31,812			12,008
Indirect consumer		8,939			1,074		12,973			953		14,909			1,169
Total risk allocated allowance		145,130			33,625		163,167			37,026		210,732			57,132
Total		151,007			75,538		170,226			87,428		220,367			122,657
General valuation allowances		2,000			—		2,500			—		3,750			—
Total	$	153,007		$	75,538	$	172,726		$	87,428	$	224,117		$	122,657
ALLL as a percentage of NPL
Specific allocated allowance:
Commercial and industrial		2.88	%				0.48	%				4.08	%
Commercial real estate		7.08					11.75					18.02
Residential mortgage		76.61					47.11					20.08
Direct consumer		54.70					13.95					17.57
Total specific allocated allowance		14.02					14.01					14.70
Risk allocated allowance:
Commercial and industrial		307.50					284.31					312.51
Commercial real estate		557.49					565.53					595.69
Total commercial		440.92					436.34					483.03
Residential mortgage		367.66					635.65					245.40
Direct consumer		413.97					283.59					264.91
Indirect consumer		832.62					N/M					N/M
Total risk allocated allowance		431.61					440.68					368.85
Total		202.56					197.56					182.72
ALLL as a percentage of portfolio loans (3)
Risk allocated allowance: (4)
Commercial and industrial		1.50					1.63					2.20
Commercial real estate		3.53					3.88					4.82
Total commercial		2.45					2.75					3.69
Residential mortgage		4.22					5.33					6.95
Direct consumer		3.81					3.53					3.16
Indirect consumer		1.03					1.49					1.81
Total risk allocated allowance		2.65					2.98					3.74
Total allowance		2.77					3.12					3.93

N/M - Not Meaningful

⁽¹⁾  The allocation of the allowance for loan losses in the above table is based upon ranges of estimates and is not intended to imply either limitations on the usage of the allowance or precision of the specific amounts. Citizens does not view the allowance for loan losses as being divisible among the various categories of loans. The entire allowance is available to absorb any future losses without regard to the category or categories in which the charged-off loans are classified.

⁽²⁾  Related nonperforming loans (“NPL”) amounts in risk allocated allowances include loans 90+ days past due and still accruing but classified as nonperforming. NPLs exclude troubled debt restructurings (TDRs) that are on an accrual status and performing in accordance with their modified terms.

⁽³⁾  The portfolio balance of the loans with a specific allocated allowance is equal to the related NPL for said loans.

⁽⁴⁾  Portfolio loans only include loan balances evaluated for risk allocated allowance.

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Total Allowance for Loan Losses. The decreases in the total allowance from March 31, 2011 was primarily the result of an overall decrease in loan balances, an improvement in risk mix of the commercial portfolio, and the stability in both portfolio and economic trends, as well as lower reserves identified for specific commercial loans. The decrease from December 31, 2011 reflects the continuing stability in both portfolio and economic trends.

The allowance as a percentage of nonperforming loans at March 31, 2012 increased from December 31, 2011 and March 31, 2011 primarily as a result of the allowance for loan losses declining at a slower pace than the decline in nonperforming loans. While nonperforming loans declined over both periods, other offsetting factors that affect the risk allocated allowance such as historical loss experience, the continued depressed values in the real estate market, and other credit metrics resulted in a higher proportionate allowance.

Based on current conditions and expectations, Citizens believes that the allowance for loan losses is appropriate to address the estimated loan losses inherent in the existing loan portfolio at March 31, 2012. After determining what Citizens believes is an appropriate allowance for loan losses based on the risk in the portfolio, the provision for loan losses is calculated as a result of the net effect of the quarterly change in the allowance for loan losses and the quarterly net charge-offs. The provision for loan losses was $8.4 million in the first quarter of 2012, compared with $88.7 million in the first quarter of 2011. The decrease in the provision was primarily due to the substantial completion of the accelerated problem asset resolution efforts during the first quarter of 2011.

Specific Allocated Allowance. The specific allocated allowance is based on probable losses on specific commercial and industrial or commercial real estate loans as well as impairment on TDR loans. The allowance allocated to nonperforming commercial loans is typically based on the underlying collateral’s appraised value, updated at least annually, less management’s estimates of cost to sell. Appraisals are obtained more frequently if changes in the property or market conditions warrant. Deterioration in individual asset values, underlying commercial loans, evidenced by refreshed appraisals, is reflected in the specific allocated allowance for commercial nonperforming loans.

The fair value of nonperforming residential mortgage loans is based on the underlying collateral’s value obtained through appraisals, updated at least semi-annually, less management’s estimates of cost to sell. The allowance allocated to restructured nonperforming loans is typically based on the present value of the expected future cash flows discounted at the loan’s effective interest rate.

The specific allocated allowance decreased both in amount and as a percentage of nonperforming loans from December 31, 2011 and March 31, 2011, primarily as a result of the improved mix of evaluated balances where the expected realizable value of the collateral provides sufficient coverage for the remaining outstanding balance.

Risk Allocated Allowance. The risk allocated allowance is comprised of several loan pool valuation allowances based on Citizens’ quantitative loan loss experience for similar loans with similar risk characteristics, including additional qualitative risks such as changes in asset quality; the experience, ability and effectiveness of Citizens’ lending management; the composition and concentrations of credit, changes in loss severity based on loan type, as well as other factors based upon the best judgment of management. The decrease in the risk allocated allowance from March 31, 2011 was primarily related to the decrease in the loan portfolio balances that are evaluated for this reserve. The decrease from December 31, 2011 reflects the continuing stability in both portfolio and economic trends. The risk allocated allowance did not decrease to the same extent as the portfolio balance. However, other factors that affect the risk allocated allowance, such as credit metrics, delinquencies and the depressed real estate market, made it appropriate in management’s judgment to maintain a higher proportionate allowance. The majority of the decline from March 31, 2011 relates to the improvement in credit quality of the remaining portfolio at March 31, 2012, as evidenced by the 28.5% decline in commercial loans past due 30-89 days and the 29.9% decline in nonaccruing commercial loans.

General Valuation Allowance. The general valuation allowance is used to calibrate for the current economic cycle Citizens is experiencing along with the impact of potential strategies or initiatives that may exhibit results that differ from historical trend experience. Recognizing the inherent imprecision of any loan loss allocation model, the incorporation of these impacts is intended to account for other incurred but not yet recognized losses that are not fully addressed in our other allowance categories.

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Loans Held for Sale

Loans held for sale at March 31, 2012 were $13.6 million, an increase of $3.2 million or 31.0% from December 31, 2011 and a decrease of $24.5 million or 64.3% from March 31, 2011. The increase from December 31, 2011 reflects an increase in the balance of mortgages originated for resale. The decrease from March 31, 2011 reflects declines due to customer paydowns, workout activities, sales, writedowns to reflect further fair value declines of the underlying collateral, and transfers to ORE.

Deposits

Total deposits at March 31, 2012 were $7.5 billion, an increase of $95.4 million or 1.3% from December 31, 2011 and a decrease of $201.1 million or 2.6% from March 31, 2011. Core deposits, which exclude all time deposits, totaled $5.5 billion at March 31, 2012, an increase of $263.6 million or 5.1% from December 31, 2011 and an increase of $439.7 million or 8.8% over March 31, 2011. The increases in core deposits were the result of a continued focus on core deposit gathering. Time deposits totaled $2.0 billion at March 31, 2012, a decrease of $168.2 million or 7.6% from December 31, 2011 and a decrease of $640.9 million or 24.0% from March 31, 2011. The decreases were primarily the result of strategic reductions in single service high cost retail time deposits and brokered time deposits.

Citizens primarily gathers deposits from the local markets it serves but has utilized brokered deposits from time to time when cost effective. Excluding brokered deposits, Citizens had $562.8 million in time deposits of $100,000 or more at March 31, 2012, compared with $614.6 million at December 31, 2011 and $747.3 million at March 31, 2011. Time deposits greater than $100,000 decreased primarily as a result of the strategic focus on growing relationship balances, which resulted in a reduction in single service high cost retail time deposits. At March 31, 2012, Citizens had $224.4 million in brokered deposits, compared with $248.7 million at December 31, 2011 and $306.0 million at March 31, 2011. Brokered deposit balances decreased as excess liquidity was used to pay off maturing balances. Citizens continues to promote relationship-driven core deposit growth and stability through focused marketing efforts and competitive pricing strategies.

Borrowed Funds

Short-term borrowings are comprised of federal funds purchased, securities sold under agreements to repurchase, and other short-term borrowings consisting primarily of treasury, tax and loan (“TT&L”) borrowings. Short-term borrowed funds at March 31, 2012 totaled $34.8 million, a decrease of $5.3 million or 13.3% from December 31, 2011 and a decrease of $6.0 million or 14.7% from March 31, 2011. The decreases reflect a reduction in short-term repurchase agreement balances.

Long-term debt consists of advances from the Federal Home Loan Bank (“FHLB”) to the Bank, debt issued by the Holding Company, and other borrowed funds. Long-term debt at March 31, 2012 totaled $853.6 million, essentially unchanged from December 31, 2011 and a decrease of $53.0 million or 5.9% from March 31, 2011. The decreases were primarily the result of using excess liquidity to pay down wholesale funding at its contractual maturity.

Capital Resources

Shareholders’ equity at March 31, 2012 totaled $1.0 billion, an increase of $25.1 million or 2.5% from December 31, 2011 and an increase of $99.2 million or 10.5% from March 31, 2011. Book value per common share at March 31, 2012, December 31, 2011, and March 31, 2011 was $18.83, $18.24, and $16.73, respectively.

As previously mentioned, with continued positive performance of earnings and credit quality in the second quarter of 2012, we believe we may be able to fully restore the value of our deferred tax asset as of the end of the second quarter. The reversal of the valuation allowance will decrease Citizens’ income tax expense and increase net income and capital in the period of such reversal. However, the Federal Reserve limits the amount of net deferred tax assets that can be included in Tier 1 capital. Deferred tax assets that are dependent upon future taxable income are limited to the lesser of: (i) the amount of such deferred tax assets that the Corporation expects to realize within one year based on our projected future taxable income for that period or (ii) 10% of the amount of the Corporation’s Tier 1 capital.

Citizens continues to maintain a strong capital position, and its regulatory capital ratios are above “well-capitalized” standards. Citizens’ capital ratios are presented below.

Capital Ratios

	Regulatory Minimum for “Well- Capitalized”			March 31, 2012			December 31, 2011			March 31, 2011
Leverage ratio		5.00	%		8.71	%		8.45	%		7.39	%
Tier 1 capital ratio		6.00			13.70			13.51			11.90
Total capital ratio		10.00			14.97			14.84			13.24
Tier 1 common equity (non-GAAP)					7.49			7.24			5.93
Tangible equity to tangible assets (non-GAAP)					7.78			7.59			6.57
Tangible common equity to tangible assets (non-GAAP)					4.68			4.47			3.59

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Contractual Obligations and Off-Balance Sheet Arrangements

Contractual obligations and off-balance sheet arrangements are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our 2011 Annual Report on Form 10-K. There have been no material changes to those obligations or arrangements outside the ordinary course of business since the most recent fiscal year end.

Liquidity and Liquidity Risk Management

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

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

Credit ratings by the nationally recognized statistical rating agencies are an important component of Citizens’ liquidity profile. Credit ratings relate Citizens’ ability to issue debt securities and the cost to borrow money, and should not be viewed as an indication of future stock performance or a recommendation to buy, sell, or hold securities. Among other factors, the credit ratings are based on financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of management, the liquidity of the balance sheet, the availability of a significant base of core deposits, and Citizens’ ability to access a broad array of wholesale funding sources. Adverse changes in these factors could result in a negative change in credit ratings and impact not only the ability to raise funds in the capital markets, but also the cost of these funds. Citizens’ credit ratings were downgraded by Moody’s Investor Service, Standard & Poor’s, Dominion Bond Rating Service, and Fitch Ratings throughout 2009 and 2010. During 2010, Standard & Poor’s and Dominion Bond Rating Service discontinued rating Citizens. In January of 2012, Fitch Ratings raised Citizens’ Long-term Issuer rating from CCC to B with a positive outlook. In February of 2012, Moody’s affirmed Citizens’ ratings and raised the long-term issuer rating outlook to stable. Ratings are subject to revision or withdrawal at any time and each rating should be evaluated independently of any other rating. The current credit ratings for the Holding Company and the Bank, the dates on which the ratings were last issued and the outlook watch status of the ratings are displayed in the following table. An explanation of these ratings may be obtained from the respective rating agency.

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Credit Ratings

	Moody’s		Fitch Ratings
Citizens Republic Bancorp (Holding Company)
Long-term Issuer		B2 (OS)		B (OP)
		2/8/2012		1/31/2012
Short-term/Commercial Paper		NP		B
		2/8/2012		1/31/2012
Trust Preferred		Caa2 (ON)		C
		1/28/2010		1/31/2012
Citizens Bank
Certificate of Deposit		Ba3 (OS)		B+
		2/8/2012		1/31/2012
Ratings Watch Action Legend: (WP) Watch Positive, (WN) Watch Negative, (WU) Watch Uncertain, (WR) Watch Removed, (OP) Outlook Positive, (ON) Outlook Negative, (OS) Outlook Stable, (OD) Outlook Developing

The primary sources of liquidity for the Holding Company are dividends from and returns on investment in its subsidiary and existing cash resources. Banking regulations limit the amount of dividends a financial institution may declare to a parent company in any calendar year. The Bank is subject to dividend limits under the laws of the state in which it is chartered and to the banking regulations previously discussed. Federal and national chartered financial institutions are generally allowed to make dividends or other capital distributions in an amount not exceeding the current calendar year’s net income, plus the retained net income of the preceding two years (which was negative during 2010 and 2011). Distributions in excess of this limit require prior regulatory approval. Since 2009, neither the Holding Company nor the Bank has paid any dividends. The ability to borrow funds on both a short-term and long-term basis and to sell equity securities provides an additional source of liquidity for the Holding Company. The Holding Company’s current cash available for use totaled $55.0 million as of March 31, 2012. Citizens monitors the relationship between cash obligations and available cash resources, and believes that the Holding Company has sufficient liquidity to meet its currently anticipated short and long-term needs.

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

Citizens maintains a strong liquidity position, with substantial on- and off-balance sheet liquidity sources and very stable funding base comprised of approximately 78% deposits, 9% long-term debt, 11% equity, and 2% short-term liabilities. Securities available for sale and money market investments can be sold for cash to provide additional liquidity, if necessary.

Since the first quarter of 2010, Citizens has deferred regularly scheduled quarterly interest payments on its outstanding junior subordinated debentures relating to its two trust preferred securities and to suspend quarterly cash dividend payments on its 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, in each case, as permitted by the underlying documentation. Deferral of these payments, which is permitted pursuant to the underlying documentation, preserves a total of $19.5 million of cash annually, although such amounts continue to accrue. Citizens evaluates the deferral of these payments periodically and, in consultation with and subject to prior approval by its regulators, will reinstate these payments when appropriate. As of March 31, 2012, the amount of the arrearage (including interest on missed dividends) on the dividend payments of the Series A Preferred Stock is $35.7 million and the amount of the arrearage (including interest on missed interest payments) on the subordinated debentures associated with the trust preferred securities is $11.1 million. The Holding Company is unable to pay common stock dividends or engage in common stock repurchases until the Series A Preferred Stock dividend payments and payments deferred under our trust preferred securities are no longer in arrears.

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Citizens’ long-term debt to equity ratio improved to 81.7% as of March 31, 2012 compared with 83.8% as of December 31, 2011, and 95.9% as of March 31, 2011. Changes in deposit obligations and short-term and long-term debt during the first quarter of 2012 are further discussed in the sections titled “Deposits” and “Borrowed Funds.” Citizens believes that it has sufficient liquidity to meet presently known short and long-term cash-flow requirements arising from ongoing business transactions.

Interest Rate Risk

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

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

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

Rate sensitive assets repricing within one year exceeded rate sensitive liabilities repricing within one year by $908 million or 9.5% of total assets as of March 31, 2012 compared with $843.0 million or 8.9% of total assets at December 31, 2011. These results incorporate the impact of off-balance sheet derivatives and reflect interest rates consistent with March 31, 2012 levels. Repricing gap analysis is limited in its ability to measure interest rate sensitivity, as embedded options can change the repricing characteristics of assets, liabilities, and off-balance sheet derivatives in different interest rate scenarios, thereby changing the repricing position from that outlined above. Further, basis risk is not captured by repricing gap analysis.

Citizens utilizes a net interest income simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model measures the impact to net interest income relative to a base case scenario of hypothetical changes in interest rates over the next 12 months. These simulations incorporate assumptions including prepayment speeds on various loan and investment assets, cash flows and maturities of financial instruments, market conditions, balance sheet growth and mix, pricing, client preferences, and Citizens’ financial capital plans. These assumptions are inherently uncertain and subject to fluctuation and revision in a dynamic environment and as a result the model cannot perfectly forecast net interest income nor exactly predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to the timing, magnitude, and frequency of balance sheet component and interest rate changes, and differences in client behavior, market conditions and management strategies, among other factors.

Net interest income simulations were performed as of March 31, 2012 to evaluate the impact of market rate changes on net interest income over the subsequent 12 months assuming expected changes in balance sheet composition over that time period. If market interest rates were to increase immediately by 100 or 200 basis points (a parallel and

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immediate shift of the yield curve) net interest income would be expected to increase by 0.8% and 1.2%, respectively, from what it would be if rates were to remain at March 31, 2012 levels. Net interest income simulation for 100 and 200 basis point parallel declines in market rates were not performed at March 31, 2012, as the results would not have been meaningful given the current levels of short-term market interest rates. These measurements represent similar exposure to rising interest rates as at December 31, 2011. Net interest income is not only affected by the level and direction of interest rates, but also by the shape of the yield curve, pricing spreads in relation to market rates, balance sheet growth, the mix of different types of assets and liabilities, and the timing of changes in these variables. Scenarios different from those outlined above, whether different by timing, level, or a combination of factors, could produce different results.

From time to time, derivative contracts are used to help manage or hedge exposure to interest rate risk and market value risk. Citizens enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Citizens’ derivative financial instruments are used to manage differences in the amount, timing, and duration of its known or expected cash receipts and expected cash payments principally related to certain variable-rate loan assets and fixed-rate borrowings. Citizens has agreements with its derivative counterparties that contain a provision where if Citizens defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then it could also be declared in default on its derivative obligations. Citizens also has agreements with certain of its derivative counterparties that contain a provision where if it fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and Citizens would be required to settle its obligations under the agreements. Citizens has agreements with certain of its derivative counterparties containing provisions that require its debt to maintain an investment grade credit rating from each of the major credit rating agencies. Although Citizens was not in compliance at March 31, 2012, the value required to be paid under these agreements at that date if the counterparties had exercised their rights to terminate was not material. Further discussion of derivative instruments is included in Note 13 to the unaudited Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There has been no material change in the information concerning quantitative and qualitative disclosures about market risk contained in Item 7A of Citizens’ 2011 Annual Report on Form 10-K, except as set forth in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate Risk” of this Form 10-Q.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

As of the end of the period covered by this report, Citizens performed an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

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

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

In the first quarter of 2012, putative class action litigation was filed against the Bank and the Corporation, in the United States District Court for the Eastern District of Michigan and in Genesee County Circuit Court in the State of Michigan, relating to the Bank’s practices in posting debit card transactions to customers’ deposit accounts. The class of plaintiffs, which purports to constitute substantially all of the Bank’s customers during the class period, alleges that the Bank improperly reordered debit card transactions from the highest amount to lowest amount before processing these transactions in order to generate unwarranted overdraft fees. Plaintiffs contend that the Bank should have processed such transactions in the chronological order they were authorized or from lowest to highest, and seek restitution for the fees they claim were wrongly charged as well as a declaratory judgment and attorney fees. Citizens has filed a motion to dismiss the first action filed in federal court. The state court action has been stayed, and the same lead plaintiff then filed suit in federal court, where Citizens intends to file a motion to dismiss. This litigation is still in its early stages and there can be no assurance that the outcome will not be adverse to Citizens. However, based on the information currently known, Citizens does not believe the resolution of this litigation will have a material adverse effect on its results of operations, cash flows or financial condition.

Item 1A. Risk Factors

On April 17, 2012, the Federal Reserve Bank of Chicago and the Michigan Office of Financial and Insurance Regulation terminated their written supervisory agreement with Citizens, and its subsidiary, Citizens Bank, dated July 28, 2010. The risk factors in Citizens’ 2011 Annual Report on Form 10-K contain a number of references to the risk related to the written agreement which are no longer relevant. These risk factors are amended and restated as set forth below. Other than such modifications, there have been no material changes to the risk factors set forth in Item 1A of Part I of Citizens’ 2011 Annual Report on Form 10-K. Those risk factors are not the only risks Citizens faces. Additional risks and uncertainties not currently known or that Citizens currently deems to be immaterial also may materially adversely impact Citizens’ business, financial condition, or results of operations.

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

While the Michigan economy is showing increasing signs of stability and we believe the national unemployment rate is set to resume trending downward, economic growth has been slow. With historic weaknesses in the economy nationally and particularly in our primary markets, and the effect of this weakness on unemployment rates and the value of real estate collateralizing many of our loans, we have incurred substantial losses in previous years and our capital levels have been adversely affected. These effects have, in turn, hampered our ability to comply with various standards and policies of our various banking regulators which are intended primarily for the protection of depositors and the FDIC, not shareholders or holders of subordinated debt or trust preferred securities. Any failure to comply with laws, regulations, or regulatory policies or standards could also result in heightened regulatory scrutiny and in further sanctions by regulatory agencies (such as a memorandum of understanding, a written supervisory agreement or a cease and desist order), civil money penalties and/or reputation damage. Any of these consequences could restrict our ability to operate or expand our business, could require us to raise additional capital, sell assets or take other actions on terms that are not advantageous to us or our shareholders and could have a material adverse effect on our business, financial condition, results of operations, and stock price.

Our business may be adversely affected by the highly regulated environment in which we operate. Changes in applicable laws, regulations, and regulatory practices at either the federal or state level may result in the imposition of additional costs or restrict our ability to operate our business in the manner most beneficial to our shareholders.

The banking industry is heavily regulated, and such regulations are intended primarily for the protection of depositors and the federal deposit insurance funds, not shareholders or holders of subordinated debt or trust preferred securities. As a bank holding company, the Holding Company is subject to regulation by the FRB.

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Citizens Bank is subject to federal regulation primarily by the FRB and is also subject to regulation by the OFIR. These regulations affect lending practices, capital structure, investment practices, dividend policy and growth. Citizens Bank also engages in providing investment management and insurance brokerage services, which industries are also heavily regulated on both a state and federal level.

Various legislative and regulatory initiatives have been introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any impending regulations, would have on our financial condition and results of operations. A change in statutes, regulations or regulatory policies applicable to us could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things, any of which could have a material effect on our business.

The Dodd-Frank Act has and will continue to significantly change bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.

The new Bureau of Consumer Financial Protection, created pursuant to the Dodd-Frank Act, has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. Additionally, the Bureau of Consumer Financial Protection has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets.

Proposals for further regulation of the financial services industry are continually being introduced in the Congress of the United States of America. The agencies regulating the financial services industry also periodically adopt changes to their regulations. It is possible that additional legislative proposals may be adopted or regulatory changes may be made that would have an adverse effect on our business.

In addition, changes in laws, regulations and regulatory practices affecting the financial services industry, such as those relating to the Dodd-Frank Act and Basel III, among others, could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could also result in heightened regulatory scrutiny and in sanctions by regulatory agencies (such as a memorandum of understanding, a written supervisory agreement or a cease and desist order), civil money penalties and/or reputation damage. Any of these consequences could restrict our ability to expand our business or could require us to raise additional capital or sell assets on terms that are not advantageous to us or our shareholders and could have a material adverse effect on our business, financial condition and results of operations. While we have policies and procedures designed to prevent any such violations, such violations may occur despite our best efforts.

As a bank holding company that conducts substantially all of our operations through our operating subsidiary, the ability of our Holding Company to pay dividends, repurchase our shares or to repay our indebtedness depends upon the results of operations of our subsidiary and its ability to pay dividends to our Holding Company. Dividends paid by the subsidiary are subject to limits imposed by federal and state law.

The Holding Company is a separate and distinct legal entity from our operating subsidiary, the Bank, and it receives substantially all of its revenue from dividends from the Bank and sales of our securities to investors. Dividends from the Bank are an important source of funds to pay dividends on common stock and interest and principal on debt. Various federal and state laws and regulations limit the amount of dividends that our subsidiary may pay to the Holding Company. Also, our Holding Company’s right to participate in a distribution of assets upon the Bank’s liquidation or reorganization is subject to the prior claims of the Bank’s creditors. If we are unable to pay dividends to our Holding Company, we may not be able to service debt, pay obligations or, should we have the ability to do so in the future, pay dividends on common stock.

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The Holding Company’s interest and preferred dividend payment obligations are approximately $20 million annually. In early 2010, we suspended the dividend payments on our trust preferred securities and on our TARP Preferred Stock issued to the Treasury, temporarily reducing our payment obligations to approximately $7 million annually, although these obligations continue to accrue. There can be no assurance that the Holding Company’s cash resources will be sufficient to fulfill its obligations.

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

Period	Total Number of Shares  Purchased (1)		Average Price Paid Per Share		Total Number of Shares  Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under The Plans or Programs (2)
January 2012		6,106	$	12.97		—		124,115
February 2012		—		—		—		124,115
March 2012		—		—		—		124,115
Total		6,106	$	12.97		—		124,115

⁽¹⁾ Shares repurchased in connection with taxes due from employees as a result of the vesting of certain restricted share awards in accordance with the related grant agreements. These repurchases were not part of the repurchase program approved in October 2003.

⁽²⁾ In October 2003, the Board of Directors approved the repurchase of 300,000 shares of common stock from time to time in the market. There is no expiration date for the repurchase program. The repurchase of shares is generally prohibited, with certain exceptions, by the CPP Letter Agreement while Treasury continues to hold the related Series A Preferred Stock, by the terms of Citizens’ outstanding trust preferred securities, and is also subject to limitations that may be imposed by applicable securities laws and regulations and the rules of NASDAQ. The timing of the purchases and the number of shares to be bought at any one time also depend on market conditions and Citizens’ capital requirements. There can be no assurance that Citizens will repurchase the remaining shares authorized to be repurchased.

Item 3. Defaults Upon Senior Securities

As previously disclosed, Citizens decided to defer regularly scheduled quarterly interest payments on its outstanding junior subordinated debentures relating to its two trust preferred securities and to suspend quarterly cash dividend payments on its Series A Preferred Stock. Therefore, Citizens is currently in arrears with the dividend payments on the Series A Preferred Stock and interest payments on the junior subordinated debentures as permitted by the related documentation. As of March 31, 2012, the amount of the arrearage (including interest on the dividend payments) on the dividend payments of the Series A Preferred Stock is $35.7 million and the amount of the arrearage (including interest on the interest payments) on the payments on the subordinated debt associated with the trust preferred securities is $11.1 million.

Item 6. Exhibits

The exhibits listed on the “Exhibit Index” of this report are filed herewith and are incorporated herein by reference.

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SIGNATURES

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

CITIZENS REPUBLIC BANCORP, INC.
Date:	May 3, 2012	By	/s/ Lisa T. McNeely
			Lisa T. McNeely
			Chief Financial Officer
			(principal financial officer and duly authorized officer)

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10-Q EXHIBIT INDEX

The following exhibits are filed as part of this report, or were previously filed and are incorporated herein by reference to the filing indicated. Exhibits not required for this report have been omitted. Citizens’ Commission file number is 001-33063.

Exhibit No.	Description
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1	Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities Exchange Act of 1934
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Changes in Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements tagged as blocks of text*

* As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Cathleen H. Nash, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Citizens Republic Bancorp, Inc. (“the registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

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

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

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

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

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

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

Date: May 3, 2012

/s/ Cathleen H. Nash

Cathleen H. Nash

Chief Executive Officer

66

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: May 3, 2012

/s/ Lisa T. McNeely

Lisa T. McNeely

Chief Financial Officer

67

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 March 31, 2012 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: May 3, 2012

/s/ Cathleen H. Nash

Cathleen H. Nash

Chief Executive Officer

/s/ Lisa T. McNeely

Lisa T. McNeely

Chief Financial Officer

68

XML

Investment Securities

3 Months Ended

Mar. 31, 2012

Investment Securities [Abstract]

Investment Securities

Note 2. Investment Securities

The amortized cost, estimated fair value and gross unrealized gains and losses on investment securities follow.

	March 31, 2012								December 31, 2011
	Amortized Cost		Estimated Fair Value		Gross Unrealized				Amortized Cost		Estimated Fair Value		Gross Unrealized
(in thousands)					Gains		Losses						Gains		Losses
Securities available for sale:
Collateralized mortgage obligations	$	362,568	$	368,692	$	8,034	$	1,910	$	364,262	$	365,302	$	6,811	$	5,771
Mortgage-backed		965,124		1,005,600		40,844		368		784,476		823,852		39,408		32
State and municipal		111,888		118,413		6,636		111		116,411		123,308		7,019		122
Other		283		280		47		50		280		271		24		33
Total available for sale	$	1,439,863	$	1,492,985	$	55,561	$	2,439	$	1,265,429	$	1,312,733	$	53,262	$	5,958
Securities held to maturity:
Collateralized mortgage obligations (1)	$	336,809	$	344,007	$	7,198	$	—	$	350,160	$	356,031	$	5,871	$	—
Mortgage-backed (1)		934,396		967,564		33,172		4		988,930		1,018,765		29,883		48
State and municipal		103,244		110,682		7,438		—		104,964		112,754		7,836		46
Total held to maturity	$	1,374,449	$	1,422,253	$	47,808	$	4	$	1,444,054	$	1,487,550	$	43,590	$	94
FHLB and Federal Reserve stock	$	117,943	$	117,943	$	—	$	—	$	117,943	$	117,943	$	—	$	—

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

Securities with amortized cost of $636.5 million at March 31, 2012 and $665.8 million at December 31, 2011 were pledged to secure public deposits, repurchase agreements and other liabilities.

In June 2011, 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 had a total amortized cost of $924.6 million and a fair value of $943.1 million. The unrealized gain of $18.5 million is being 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 are shown below.

	March 31, 2012
	Amortized		Estimated Fair
(in thousands)	Cost		Value
Securities available for sale:
State and municipal
Contractual maturity within one year	$	11,723	$	11,932
After one year through five years		15,464		16,074
After five years through ten years		57,301		60,972
After ten years		27,400		29,435
Subtotal		111,888		118,413
Collateralized mortgage obligations and mortgage-backed		1,327,692		1,374,292
Other		283		280
Total available for sale	$	1,439,863	$	1,492,985
Securities held to maturity:
State and municipal
Contractual maturity within one year	$	2,078	$	2,106
After one year through five years		7,613		8,111
After five years through ten years		59,975		63,919
After ten years		33,578		36,546
Subtotal		103,244		110,682
Collateralized mortgage obligations and mortgage-backed		1,271,205		1,311,571
Total held to maturity	$	1,374,449	$	1,422,253

A total of 41 securities had unrealized losses at March 31, 2012, compared with 45 securities as of December 31, 2011. These securities, with unrealized losses aggregated by investment category and length of time in a continuous unrealized loss position, are as follows.

	Less than 12 Months				More than 12 Months				Total
March 31, 2012 (in thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Securities available for sale:
Collateralized mortgage obligations	$	62,976	$	483	$	25,998	$	1,427	$	88,974	$	1,910
Mortgage-backed		120,292		368		119		—		120,411		368
State and municipal		251		1		972		110		1,223		111
Other		—		—		147		50		147		50
Total available for sale	$	183,519	$	852	$	27,236	$	1,587	$	210,755	$	2,439
Securities held to maturity:
Mortgage-backed	$	5,242	$	4	$	—	$	—	$	5,242	$	4
Total held to maturity	$	5,242	$	4	$	—	$	—	$	5,242	$	4

	Less than 12 Months				More than 12 Months				Total
December 31, 2011 (in thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Securities available for sale:
Collateralized mortgage obligations	$	56,326	$	2,858	$	20,097	$	2,913	$	76,423	$	5,771
Mortgage-backed		26,016		31		122		1		26,138		32
State and municipal		1,191		27		1,062		95		2,253		122
Other		—		—		234		33		234		33
Total available for sale	$	83,533	$	2,916	$	21,515	$	3,042	$	105,048	$	5,958
Securities held to maturity:
Mortgage-backed	$	9,093	$	48	$	—	$	—	$	9,093	$	48
State and municipal		—		—		950		46		950		46
Total held to maturity	$	9,093	$	48	$	950	$	46	$	10,043	$	94

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 March 31, 2012, 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, 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 March 31, 2012, the whole loan CMOs had a market value of $89.0 million with gross unrealized losses of $1.9 million. Citizens performs a thorough credit review on a quarterly basis for the underlying mortgage collateral as well as the supporting credit enhancement and structure. The results of the March 31, 2012 credit review demonstrated no material degradation in the holdings.

Citizens has determined there is no other-than-temporary impairment at March 31, 2012.

Citizens maintains several nonqualified deferred compensation plans for its executive officers, senior management, and directors permitting the deferral of a portion of compensation. Citizens obligation under the plans represents an unsecured promise to pay benefits in the future. Changes in this obligation are recognized as salaries and employee benefits expense in the consolidated statements of operations. In the event of bankruptcy or insolvency, assets of the plans would be available to satisfy the claims of general creditors. Plan participants choose to receive a return on their account balances equal to the return on various investment options. The assets held by the plans as well as the corresponding obligations were $9.3 million and $8.5 million at March 31, 2012 and December 31, 2011, respectively. The assets of the plans are classified as trading securities and are carried at fair value within Other Assets in the consolidated balance sheets. Realized gains and losses along with changes in unrealized gains and losses from plan assets are recorded in Other Income in the consolidated statements of operations. Trading gains of $0.8 million and $0.5 million for the three months ended March 31, 2012 and 2011, respectively, were recognized during the period for trading securities as of the report date.

No security sales were completed during the first quarter of 2012. During the first quarter of 2011, Citizens completed sales of available for sale securities with an amortized cost of $2.8 million recording a net loss of $0.4 million.

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Basis of Presentation and Accounting Policies

3 Months Ended

Mar. 31, 2012

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 months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. 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’ 2011 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’ 2011 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 $25.8 million in aggregate liquidation amounts outstanding, respectively, as of March 31, 2012. 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.

All prior year shares outstanding and per share calculations have been adjusted to reflect the 1-for-10 reverse stock split that became effective July 1, 2011.

New Accounting Pronouncements

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

FASB ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”

The amendments in this ASU defer the ASU 2011-05 requirement that companies present reclassification adjustments for each component of accumulated other comprehensive income (“AOCI”) in both net income and other comprehensive income (“OCI”) on the face of the financial statements. Companies are still required to present reclassifications out of AOCI on the face of the financial statements or disclose those amounts in the notes to the financial statements. This ASU also defers the requirement to report reclassification adjustments in interim periods. This ASU was adopted by Citizens in the first quarter of 2012.

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 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. This ASU was adopted by Citizens in the first quarter of 2012. The adoption of the amendments did not 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 GAAP and International Financial Reporting Standards (“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 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 shareholders’ equity. Earnings per share would continue to be based on net income attributable to common shareholders. 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 OCI in their interim and annual financial statements. This ASU was adopted by Citizens in the first quarter of 2012, applied retrospectively. The adoption of the amendments did not have a material impact on Citizens’ financial condition, results of operations or liquidity; however, the adoption did 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 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. This ASU was adopted by Citizens in the first quarter of 2012, applied prospectively. The adoption of the amendments did not have a material impact on Citizens’ financial condition, results of operations or liquidity; however, the adoption did require additional 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. This ASU was adopted by Citizens in the first quarter of 2012 and applies prospectively to transactions or modifications of existing transactions that occur on or after January 1, 2012. The adoption of the amendments did not have a material impact on Citizens’ financial condition, results of operations or liquidity.

Pending Accounting Pronouncements

FASB ASU 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities”

The amendments in this ASU allow existing GAAP guidance for balance sheet offsetting, including industry-specific guidance. However, new disclosures are required to enable users of financial statements to understand significant quantitative differences in balance sheets prepared under GAAP and IFRS related to the offsetting of financial instruments. ASU 2011-11 is effective for Citizens in the first quarter of 2013, and will be applied retrospectively for all prior periods presented. 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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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011	Mar. 31, 2011
Assets
Cash and due from banks	$ 145,240	$ 153,418	$ 136,638
Money market investments	300,174	313,632	495,562
Investment Securities:
Securities available for sale, at fair value	1,492,985	1,312,733	2,119,416
Securities held to maturity, at amortized cost (fair value of $1,422,253, $1,487,550 and $541,646, respectively)	1,374,449	1,444,054	547,449
Total investment securities	2,867,434	2,756,787	2,666,865
FHLB and Federal Reserve stock	117,943	117,943	143,873
Portfolio loans:
Commercial and industrial	1,657,140	1,543,529	1,353,167
Commercial real estate	1,487,059	1,544,361	1,794,284
Total commercial	3,144,199	3,087,890	3,147,451
Residential mortgage	611,166	637,245	727,304
Direct consumer	903,238	933,314	1,006,424
Indirect consumer	869,460	871,086	823,019
Total portfolio loans	5,528,063	5,529,535	5,704,198
Less: Allowance for loan losses	(153,007)	(172,726)	(224,117)
Net portfolio loans	5,375,056	5,356,809	5,480,081
Loans held for sale	13,627	10,402	38,121
Premises and equipment	95,795	97,970	102,162
Goodwill	318,150	318,150	318,150
Other intangible assets	6,850	7,428	9,626
Bank owned life insurance	221,268	220,280	218,016
Other assets	115,809	110,030	115,019
Total assets	9,577,346	9,462,849	9,724,113
Liabilities
Noninterest-bearing deposits	1,692,865	1,614,311	1,413,920
Interest-bearing demand deposits	993,143	951,590	956,676
Savings deposits	2,771,150	2,627,665	2,646,851
Core deposits	5,457,158	5,193,566	5,017,447
Time deposits	2,033,204	2,201,375	2,674,058
Total deposits	7,490,362	7,394,941	7,691,505
Federal funds purchased and securities sold under agreements to repurchase	34,779	40,098	40,069
Other short-term borrowings	0	0	690
Other liabilities	153,987	154,088	139,819
Long-term debt	853,599	854,185	906,629
Total liabilities	8,532,727	8,443,312	8,778,712
Shareholders' Equity
Preferred stock - no par value Authorized - 5,000,000 shares; Issued and outstanding - 300,000 at 3/31/12, 12/31/11, and 3/31/11, redemption value of $300 million	286,901	285,114	279,955
Common stock - no par value Authorized - 105,000,000 shares at 3/31/12,12/31/11, and 3/31/11; Issued and outstanding - 40,044,110 at 3/31/12, 40,049,198 at 12/31/11 and 39,696,255 at 3/31/11	1,435,327	1,434,803	1,432,271
Retained deficit	(675,654)	(694,560)	(752,547)
Accumulated other comprehensive loss	(1,955)	(5,820)	(14,278)
Total shareholders' equity	1,044,619	1,019,537	945,401
Total liabilities and shareholders' equity	$ 9,577,346	$ 9,462,849	$ 9,724,113

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (USD $) In Thousands, unless otherwise specified	Total	Preferred Stock	Common Stock	Retained Earnings (Deficit)	Accumulated Other Comprehensive Income (Loss)
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			39,635
Comprehensive loss (income), net of tax:
Net Income (Loss)	(68,678)			(68,678)
Other comprehensive income (loss):
Net unrealized gain on securities available-for-sale					7,480
Amortization of unrealized gain on securities transferred from available for sale to held to maturity	(62)				(62)
Net change in unrealized gain on qualifying cash flow hedges					(1,540)
Other comprehensive income total	5,878
Total Comprehensive income (loss)	(62,800)
Accretion of preferred stock discount		1,655		(1,655)
Accrued dividend on redeemable preferred stock	(3,972)			(3,972)
Proceeds from restricted stock activity, shares			61
Recognition of stock-based compensation	443		443
Shares purchased	(1)		(1)
Ending balance at Mar. 31, 2011	945,401	279,955	1,432,271	(752,547)	(14,278)
Ending balance, shares at Mar. 31, 2011			39,696
Beginning balance at Dec. 31, 2011	1,019,537	285,114	1,434,803	(694,560)	(5,820)
Beginning balance, shares at Dec. 31, 2011			40,049
Comprehensive loss (income), net of tax:
Net Income (Loss)	24,861			24,861
Other comprehensive income (loss):
Net unrealized gain on securities available-for-sale					5,818
Amortization of unrealized gain on securities transferred from available for sale to held to maturity	(1,969)				(1,969)
Net change in unrealized gain on qualifying cash flow hedges					16
Other comprehensive income total	3,865
Total Comprehensive income (loss)	28,726
Accretion of preferred stock discount		1,787		(1,787)
Accrued dividend on redeemable preferred stock	(4,168)			(4,168)
Proceeds from restricted stock activity, shares			1
Recognition of stock-based compensation	604		604
Shares purchased, shares			(6)
Shares purchased	(80)		(80)
Ending balance at Mar. 31, 2012	$ 1,044,619	$ 286,901	$ 1,435,327	$ (675,654)	$ (1,955)
Ending balance, shares at Mar. 31, 2012			40,044

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Operating Activities:
Net Income (Loss)	$ 24,861	$ (68,678)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses	8,397	88,724
Net increase in current and deferred income taxes		55
Depreciation and amortization	2,745	2,844
Amortization of intangibles	578	828
Amortization and fair value adjustments of purchase accounting mark to market, net	(953)	(1,504)
Fair value adjustment on loans held for sale and other real estate	470	6,177
Net amortization on investment securities	9,208	4,109
Investment securities losses		383
Loans originated for sale	(42,626)	(50,032)
Proceeds from loans held for sale	41,147	61,706
Net gains from loan sales	(947)	(1,446)
Net (gains) losses on other real estate	(859)	2,946
Recognition of stock-based compensation expense	604	443
Other	(12,993)	(2,133)
Net cash provided by operating activities	29,632	44,422
Investing Activities:
Net decrease (increase) in money market investments	13,458	(86,483)
Securities available for sale:
Proceeds from sales		2,369
Proceeds from maturities and payments	94,151	167,857
Purchases	(272,205)	(236,673)
Securities held to maturity:
Proceeds from maturities and payments	64,016	8,552
Purchases		(81,621)
Net (increase) decrease in loans and leases	(28,740)	337,039
Proceeds from sales of other real estate	2,096	15,809
Net increase in properties and equipment	(569)	(292)
Net cash provided by (used in) investing activities	(127,793)	126,557
Financing Activities:
Net increase (decrease) in deposits	95,421	(35,329)
Net decrease in short-term borrowings	(5,319)	(1,560)
Principal reductions in long-term debt	(39)	(125,036)
Shares purchased	(80)	(1)
Net cash provided by (used in) financing activities	89,983	(161,926)
Net (decrease) increase in cash and due from banks	(8,178)	9,053
Cash and due from banks at beginning of period	153,418	127,585
Cash and due from banks at end of period	145,240	136,638
Supplemental Cash Flow Information:
Interest paid	19,284	25,531
Income tax refunds, net		3,000
Supplemental Disclosures of noncash items
Properties transferred to other real estate owned		1,347
Loans transferred to other real estate owned	1,769	4,469
Loans transferred to held for sale	2,000	75,696
Held for sale loans transferred to other real estate		184
Accretion of preferred stock discount	4,168	3,972
Accrued dividend on redeemable preferred stock	$ 1,787	$ 1,655

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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)	Mar. 31, 2012	Dec. 31, 2011	Mar. 31, 2011
Consolidated Balance Sheets [Abstract]
Securities, fair value	$ 1,422,253,000	$ 1,487,550,000	$ 541,646,000
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	40,044,110	40,049,198	39,696,255
Common stock, shares outstanding	40,044,110	40,049,198	39,696,255

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Earnings Per Common Share

3 Months Ended

Mar. 31, 2012

Earnings Per Common Share [Abstract]

Earnings Per Common Share

Note 10. Earnings Per Common Share

Earnings per common share is computed using the two-class method. As of March 31, 2012, 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 2,979,297 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 March 31,
(in thousands, except per share amounts)	2012			2011
Numerator:
Income (loss)	$	24,861		$	(68,678	)
Dividend on redeemable preferred stock		(5,955	)		(5,627	)
Net income (loss) attributable to common shareholders		18,906			(74,305	)
Net income allocated to participating securities		381			—
Net income (loss) after allocation to participating securities	$	18,525		$	(74,305	)
Denominator:
Weighted average shares outstanding		40,257			39,730
Less: Participating securities included in weighted average shares outstanding		(811	)		(324	)
Weighted average shares outstanding for basic and dilutive earnings per common share		39,446			39,406
Basic net income (loss) per common share	$	0.47		$	(1.89	)
Diluted net income (loss) per common share		0.47			(1.89	)

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 $35.7 million and $31.5 million with the dividend payments on the Series A Preferred Stock as of March 31, 2012 and December 31, 2011, respectively. For additional information about the Series A Preferred Stock, see Note 14 to the Consolidated Financial Statements of Citizens’ 2011 Annual Report on Form 10-K.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2012	Apr. 27, 2012
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	Mar. 31, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		40,035,092

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Lines of Business

3 Months Ended

Mar. 31, 2012

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 months ended March 31, 2012 and 2011 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 result of the company. There are no significant intersegmental revenues. For additional information about the business lines, see Note 15 to the Consolidated Financial Statements of Citizens’ 2011 Annual Report on Form 10-K.

	Regional			Specialty			Specialty			Wealth
(in thousands)	Banking			Consumer			Commercial			Mgmt		Other			Total
Earnings Summary - Three Months Ended March 31, 2012
Net interest income (taxable equivalent)	$	51,552		$	8,513		$	15,515		$	29	$	2,081		$	77,690
Provision for loan losses		16,041			(3,193	)		(4,451	)		—		—			8,397
Net interest loss after provision		35,511			11,706			19,966			29		2,081			69,293
Noninterest income		17,135			482			754			3,602		2,267			24,240
Noninterest expense		50,389			4,136			3,287			2,618		6,671			67,101
Income (loss) before income taxes		2,257			8,052			17,433			1,013		(2,323	)		26,432
Income tax expense (benefit) (taxable equivalent)		790			2,818			6,101			355		(8,493	)		1,571
Net income (loss)	$	1,467		$	5,234		$	11,332		$	658	$	6,170		$	24,861
Average assets (in millions)	$	3,044		$	1,560		$	1,192		$	21	$	3,704		$	9,521
Earnings Summary - Three Months Ended March 31, 2011
Net interest income (taxable equivalent)	$	56,052		$	9,066		$	9,962		$	143	$	5,493		$	80,716
Provision for loan losses		39,668			8,974			40,082			—		—			88,724
Net interest income after provision		16,384			92			(30,120	)		143		5,493			(8,008	)
Noninterest income		17,572			1,432			(1,557	)		3,923		1,773			23,143
Noninterest expense		55,922			4,859			5,588			2,343		12,944			81,656
Loss (income) before income taxes		(21,966	)		(3,335	)		(37,265	)		1,723		(5,678	)		(66,521	)
Income tax expense (benefit) (taxable equivalent)		(7,814	)		(1,167	)		(13,070	)		600		23,608			2,157
Net loss (income)	$	(14,152	)	$	(2,168	)	$	(24,195	)	$	1,123	$	(29,286	)	$	(68,678	)
Average assets (in millions)	$	3,487		$	1,645		$	1,125		$	17	$	3,625		$	9,899

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Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Interest Income
Interest and fees on loans	$ 74,879	$ 80,711
Interest and dividends on investment securities:
Taxable	17,309	19,610
Tax-exempt	2,254	3,086
Dividends on FHLB and Federal Reserve stock	1,140	1,125
Money market investments	215	253
Total interest income	95,797	104,785
Interest Expense
Deposits	11,096	16,375
Short-term borrowings	18	18
Long-term debt	8,564	9,778
Total interest expense	19,678	26,171
Net Interest Income	76,119	78,614
Provision for loan losses	8,397	88,724
Net interest income (loss) after provision for loan losses	67,722	(10,110)
Noninterest Income
Service charges on deposit accounts	8,985	9,429
Trust fees	3,602	3,923
Mortgage and other loan income	1,858	2,942
Brokerage and investment fees	1,324	1,108
ATM network user fees	1,808	1,755
Bankcard fees	2,457	2,238
Net gains (losses) on loans held for sale	916	(1,106)
Investment securities gains (losses)		(383)
Other income	3,290	3,237
Total noninterest income	24,240	23,143
Noninterest Expense
Salaries and employee benefits	33,298	31,018
Occupancy	6,696	7,562
Professional services	2,023	2,219
Equipment	3,303	3,052
Data processing services	4,048	4,352
Advertising and public relations	1,335	569
Postage and delivery	1,099	1,116
Other loan expenses	3,186	5,255
(Gains) losses on other real estate (ORE)	(385)	9,122
ORE expenses	450	1,768
Intangible asset amortization	578	828
Other expense	11,470	14,795
Total noninterest expense	67,101	81,656
Income (Loss) before Income Taxes	24,861	(68,623)
Income tax provision		55
Net Income (Loss)	24,861	(68,678)
Dividend on redeemable preferred stock	(5,955)	(5,627)
Net Income (Loss) Attributable to Common Shareholders	$ 18,906	$ (74,305)
Net Income (Loss) Per Common Share:
Basic	$ 0.47	$ (1.89)
Diluted	$ 0.47	$ (1.89)
Average Common Shares Outstanding:
Basic	39,446	39,406
Diluted	39,446	39,406

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Long-Term Debt

3 Months Ended

Mar. 31, 2012

Long-Term Debt [Abstract]

Long-Term Debt

Note 5. Long-Term Debt

The components of long-term debt are presented below.

	March 31,		December 31,
(in thousands)	2012		2011
Citizens (Parent only):
Subordinated debt:
5.75% subordinated notes due February 2013	$	17,138	$	17,101
Variable rate junior subordinated debenture due June 2033		25,774		25,774
7.50% junior subordinated debentures due September 2066		48,677		48,677
Subsidiaries:
FHLB advances		657,871		658,484
Other borrowed funds		104,139		104,149
Total long-term debt	$	853,599	$	854,185

Citizens restructured $100.0 million of FHLB advances during the first quarter of 2012 resulting in the locking in of lower term funding rates. The average term was extended to 10.0 years from 3.6 years and the average interest rate on the restructured advances was reduced to 4.15% from 5.32%. During 2011, Citizens restructured $245.0 million in FHLB advances extending the average remaining term to 5.8 years from 3.3 years and reducing the average interest rate to 3.32% from 4.84%.

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 March 31, 2012 and December 31, 2011, the amount of the arrearage on the payments on the subordinated debentures associated with the trust preferred securities is $11.1 million and $9.8 million, respectively.

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Allowance for Loan Losses

3 Months Ended

Mar. 31, 2012

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 Citizens’ 2011 Annual Report on Form 10-K.

The activity within the allowance for loan losses is presented below.

	Three Months Ended March 31, 2012
(in thousands)	Allowance for Loan Losses  at December 31, 2011		Provision for Loan Losses			Charge-offs			Recoveries		Net charge-offs			Allowance for Loan Losses  at March 31, 2012
Commercial and industrial	$	14,044	$	594		$	(2,388	)	$	376	$	(2,012	)	$	12,626
Small business		12,230		1,846			(1,265	)		248		(1,017	)		13,059
Commercial real estate		63,999		(2,598	)		(8,997	)		2,493		(6,504	)		54,897
Total commercial		90,273		(158	)		(12,650	)		3,117		(9,533	)		80,582
Residential mortgage		36,460		(2,598	)		(5,210	)		134		(5,076	)		28,786
Direct consumer		33,020		12,615			(11,527	)		592		(10,935	)		34,700
Indirect consumer		12,973		(1,462	)		(3,251	)		679		(2,572	)		8,939
Total	$	172,726	$	8,397		$	(32,638	)	$	4,522	$	(28,116	)	$	153,007

	Three Months Ended March 31, 2011
(in thousands)	Allowance for Loan Losses  at December 31, 2010		Provision for Loan Losses		Charge-offs			Recoveries		Net charge-offs			Allowance for Loan Losses  at March 31, 2011
Commercial and industrial	$	26,619	$	17,635	$	(29,712	)	$	1,603	$	(28,109	)	$	16,145
Small business		16,334		1,495		(4,078	)		174		(3,904	)		13,925
Commercial real estate		156,623		56,425		(118,721	)		913		(117,808	)		95,240
Total commercial		199,576		75,555		(152,511	)		2,690		(149,821	)		125,310
Residential mortgage		47,623		7,679		(3,403	)		3		(3,400	)		51,902
Direct consumer		32,255		5,237		(6,468	)		972		(5,496	)		31,996
Indirect consumer		16,577		253		(2,472	)		551		(1,921	)		14,909
Total	$	296,031	$	88,724	$	(164,854	)	$	4,216	$	(160,638	)	$	224,117

A summary of the allowance for loan losses, segregated by portfolio segment follows.

	March 31, 2012
(in thousands)	Allowance for Loans Individually Evaluated for Impairment		Allowance for Loans Collectively Evaluated for Impairment		General Allowance		Total Allowance for Loan Losses
Commercial and industrial	$	159	$	12,292	$	175	$	12,626
Small business		35		12,499		525		13,059
Commercial real estate		2,154		51,443		1,300		54,897
Total commercial		2,348		76,234		2,000		80,582
Residential mortgage		3,201		25,585		—		28,786
Direct consumer		328		34,372		—		34,700
Indirect consumer		—		8,939		—		8,939
Total allowance for loan losses	$	5,877	$	145,130	$	2,000	$	153,007

	March 31, 2012
(in thousands)	Recorded Investment of Loans Individually Evaluated for Impairment		Recorded Investment of Loans Collectively Evaluated for Impairment		Deferred (Fees)/Costs			Total Recorded Investment
Commercial and industrial	$	6,523	$	1,355,411	$	2,552		$	1,364,486
Small business (1)		687		291,752		215			292,654
Commercial real estate		53,325		1,435,400		(1,666	)		1,487,059
Total commercial		60,535		3,082,563		1,101			3,144,199
Residential mortgage		15,113		601,327		(5,274	)		611,166
Direct consumer		6,957		894,922		1,359			903,238
Indirect consumer		479		848,728		20,253			869,460
Total portfolio loans	$	83,084	$	5,427,540	$	17,439		$	5,528,063

⁽¹⁾ Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

	December 31, 2011
(in thousands)	Allowance for Loans Individually Evaluated for Impairment		Allowance for Loans Collectively Evaluated for Impairment		General Allowance		Total Allowance for Loan Losses
Commercial and industrial	$	42	$	13,302	$	700	$	14,044
Small business		—		11,730		500		12,230
Commercial real estate		4,110		58,589		1,300		63,999
Total commercial		4,152		83,621		2,500		90,273
Residential mortgage		2,837		33,623		—		36,460
Direct consumer		70		32,950		—		33,020
Indirect consumer		—		12,973		—		12,973
Total allowance for loan losses	$	7,059	$	163,167	$	2,500	$	172,726

	December 31, 2011
(in thousands)	Recorded Investment of Loans Individually Evaluated for Impairment		Recorded Investment of Loans Collectively Evaluated for Impairment		Deferred (Fees)/Costs			Total Recorded Investment
Commercial and industrial	$	8,842	$	1,245,902	$	(7,953	)	$	1,246,791
Small business (1)		557		295,972		209			296,738
Commercial real estate		57,562		1,488,657		(1,858	)		1,544,361
Total commercial		66,961		3,030,531		(9,602	)		3,087,890
Residential mortgage		15,140		623,779		(1,674	)		637,245
Direct consumer		4,607		928,930		(223	)		933,314
Indirect consumer		478		850,868		19,740			871,086
Total portfolio loans	$	87,186	$	5,434,108	$	8,241		$	5,529,535

⁽¹⁾ Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

	March 31, 2011
(in thousands)	Allowance for Loans Individually Evaluated for Impairment		Allowance for Loans Collectively Evaluated for Impairment		General Allowance		Total Allowance for Loan Losses
Commercial and industrial	$	617	$	15,528	$	—	$	16,145
Small business		78		13,847		—		13,925
Commercial real estate		6,737		84,753		3,750		95,240
Total commercial		7,432		114,128		3,750		125,310
Residential mortgage		2,019		49,883		—		51,902
Direct consumer		184		31,812		—		31,996
Indirect consumer		—		14,909		—		14,909
Total allowance for loan losses	$	9,635	$	210,732	$	3,750	$	224,117

	March 31, 2011
(in thousands)	Recorded Investment of Loans Individually Evaluated for Impairment		Recorded Investment of Loans Collectively Evaluated for Impairment		Deferred (Fees)/Costs			Total Recorded Investment
Commercial and industrial	$	16,344	$	998,266	$	19,527		$	1,034,137
Small business (1)		1,398		317,448		184			319,030
Commercial real estate		48,112		1,749,446		(3,274	)		1,794,284
Total commercial		65,854		3,065,160		16,437			3,147,451
Residential mortgage		13,435		715,589		(1,720	)		727,304
Direct consumer		3,585		1,003,711		(872	)		1,006,424
Indirect consumer		470		805,318		17,231			823,019
Total portfolio loans	$	83,344	$	5,589,778	$	31,076		$	5,704,198

⁽¹⁾ Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

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 $0.7 million and $0.3 million of interest income on nonperforming loans for the three months ended March 31, 2012 and March 31, 2011, respectively. Had nonaccrual loans performed in accordance with their original contract terms, Citizens would have recognized additional interest income of approximately $2.0 million and $2.1 million for the three months ended March 31, 2012 and March 31, 2011, respectively. There were no significant commitments outstanding to lend additional funds to clients whose loans were classified as restructured at March 31, 2012.

A summary of information regarding loans individually reviewed for impairment, segregated by class are set forth in the following table.

	March 31, 2012
											Average Recorded Investment
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment with No Specific Allowance		Recorded Investment with Specific Allowance		Total Recorded Investment		Specific Related Allowance		Quarter To Date
Nonaccrual loans (impaired)
Income producing	$	21,597	$	7,354	$	8,465	$	15,819	$	836	$	16,916
Owner-occupied		20,160		8,787		5,806		14,593		1,318		15,788
Total commercial real estate		41,757		16,141		14,271		30,412		2,154		32,704
Commercial and industrial		15,053		6,105		418		6,523		159		7,689
Small business		200		—		200		200		35		133
Total commercial		57,010		22,246		14,889		37,135		2,348		40,526
Residential mortgage		4,330		150		4,180		4,330		1,021		5,476
Direct consumer		918		318		600		918		82		1,033
Indirect consumer		479		479		—		479		—		478
Total consumer		5,727		947		4,780		5,727		1,103		6,987
Total nonaccrual loans (impaired)		62,737		23,193		19,669		42,862		3,451		47,513
Accrual loans (impaired)
Income producing		7,474		7,474		—		7,474		—		7,475
Owner-occupied		15,439		15,439		—		15,439		—		15,276
Total commercial real estate		22,913		22,913		—		22,913		—		22,751
Small business		487		487		—		487		—		489
Total commercial		23,400		23,400		—		23,400		—		23,240
Residential mortgage		10,783		2,469		8,314		10,783		2,180		9,650
Direct consumer		6,039		4,417		1,622		6,039		246		4,743
Total consumer		16,822		6,886		9,936		16,822		2,426		14,393
Total accrual loans (impaired)		40,222		30,286		9,936		40,222		2,426		37,633
Total impaired loans	$	102,959	$	53,479	$	29,605	$	83,084	$	5,877	$	85,146

	December 31, 2011
											Average Recorded Investment
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment with No Specific Allowance		Recorded Investment with Specific Allowance		Total Recorded Investment		Specific Related Allowance		Quarter To Date		Year To Date
Nonaccrual loans (impaired)
Land hold	$	—	$	—	$	—	$	—	$	—	$	—	$	45
Land development		—		—		—		—		—		—		85
Construction		—		—		—		—		—		129		224
Income producing		23,394		9,163		8,838		18,001		2,686		18,989		19,516
Owner-occupied		22,338		13,276		3,694		16,970		1,424		19,267		17,069
Total commercial real estate		45,732		22,439		12,532		34,971		4,110		38,385		36,939
Commercial and industrial		17,197		8,196		646		8,842		42		10,215		12,499
Small business		131		66		—		66		—		66		269
Total commercial		63,060		30,701		13,178		43,879		4,152		48,666		49,707
Residential mortgage		6,610		587		6,023		6,610		1,346		9,075		10,592
Direct consumer		1,168		647		500		1,147		55		1,757		1,519
Indirect consumer		478		478		—		478		—		476		474
Total consumer		8,256		1,712		6,523		8,235		1,401		11,308		12,585
Total nonaccrual loans (impaired)		71,316		32,413		19,701		52,114		5,553		59,974		62,292
Accrual loans (impaired)
Income producing		7,476		7,476		—		7,476		—		7,497		7,524
Owner-occupied		15,115		15,115		—		15,115		—		9,125		6,166
Total commercial real estate		22,591		22,591		—		22,591		—		16,622		13,690
Small business		491		491		—		491		—		494		500
Total commercial		23,082		23,082		—		23,082		—		17,116		14,190
Residential mortgage		8,530		2,088		6,442		8,530		1,491		5,691		3,966
Direct consumer		3,460		3,360		100		3,460		15		2,854		2,570
Total consumer		11,990		5,448		6,542		11,990		1,506		8,545		6,536
Total accrual loans (impaired)		35,072		28,530		6,542		35,072		1,506		25,661		20,726
Total impaired loans	$	106,388	$	60,943	$	26,243	$	87,186	$	7,059	$	85,635	$	83,018

	March 31, 2011
											Average Recorded Investment
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment with No Specific Allowance		Recorded Investment with Specific Allowance		Total Recorded Investment		Specific Related Allowance		Quarter to Date
Nonaccrual loans (impaired)
Land hold	$	553	$	—	$	183	$	183	$	22	$	1,105
Land development		—		—		—		—		—		1,356
Construction		471		238		—		238		—		3,539
Income producing		27,931		6,534		16,570		23,104		6,085		38,954
Owner-occupied		18,713		10,296		3,566		13,862		630		23,278
Total commercial real estate		47,668		17,068		20,319		37,387		6,737		68,232
Commercial and industrial		26,213		12,381		3,963		16,344		617		29,440
Small business		910		201		688		889		78		1,334
Total commercial		74,791		29,650		24,970		54,620		7,432		99,006
Residential mortgage		12,305		2,247		10,058		12,305		1,988		8,981
Direct consumer		1,374		254		1,048		1,302		114		1,431
Indirect consumer		470		470		—		470		—		470
Total consumer		14,149		2,971		11,106		14,077		2,102		10,882
Total nonaccrual loans (impaired)		88,940		32,621		36,076		68,697		9,534		109,888
Accrual loans (impaired)
Income producing		7,553		7,553		—		7,553		—		3,735
Owner-occupied		3,172		3,172		—		3,172		—		3,950
Total commercial real estate		10,725		10,725		—		10,725		—		7,685
Small business		509		509		—		509		—		252
Total commercial		11,234		11,234		—		11,234		—		7,937
Residential mortgage		1,130		968		162		1,130		31		1,498
Direct consumer		2,283		1,663		620		2,283		70		1,906
Total consumer		3,413		2,631		782		3,413		101		3,404
Total accrual loans (impaired)		14,647		13,865		782		14,647		101		11,341
Total impaired loans	$	103,587	$	46,486	$	36,858	$	83,344	$	9,635	$	121,229

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.

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 loss. At March 31, 2012 the majority of Citizens’ TDRs were on accrual status and are all were reported as impaired. 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, the loans remain classified as TDRs.

The recorded investment balance of TDRs approximated $30.1 million at March 31, 2012. TDRs of $17.9 million were on accrual status and TDRs of $12.2 million were on nonaccrual status at March 31, 2012. TDRs are evaluated separately in Citizens’ allowance for loan loss methodology based on the expected cash flows or underlying collateral of for loans in this status. At March 31, 2012, the allowance for loan losses included specific reserves of $3.5 million related to TDRs, which included $3.2 million related to mortgage TDRs and $0.3 million related to direct consumer TDRs. For the three months ended March 31, 2012, Citizens charged off $0.4 million for the portion of TDRs deemed to be uncollectible.

The following table provides information on loans modified as a TDR in 2012.

	March 31, 2012
(in thousands)	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Coupon Rate
Commercial real estate		1	$	938	$	600		6.00	%
Residential mortgage		9		1,746		1,746		2.61
Direct consumer		38		2,802		2,723		4.42
Total portfolio loans		48	$	5,486	$	5,069		3.98

The following table provides information on how loans were modified as a TDR in 2012.

(in thousands)	March 31, 2012 Post-Modification Recorded Investment
Extended maturity	$	908
Interest rate adjustments		1,541
Combination of rate and maturity		1,856
Other (1)		764
Total	$	5,069

⁽¹⁾  Other includes convenant modification, forebearance and other concessions or combination of concessions that do not consist of interest rate adjustments and/or maturity extensions.

A TDR loan is considered to have a payment default when one or more payments is over 90 days past due. During the three months ended March 31, 2012 there was one loan with a balance of less than $0.1 million in payment default.

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Commitments, Contingent Liabilities and Guarantees

3 Months Ended

Mar. 31, 2012

Commitments, Contingent Liabilities and Guarantees [Abstract]

Commitments, Contingent Liabilities and Guarantees

Note 12. Commitments, Contingent Liabilities and Guarantees

In accordance with GAAP, 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. 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. 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.

	March 31,		December 31,
(in thousands)	2012		2011
Loan commitments and letters of credit:
Commitments to extend credit	$	926,741	$	932,435
Asset-based lending participations		125,454		151,194
Financial standby letters of credit		114,100		125,401
Performance standby letters of credit		1,781		3,571
Deferred standby letter of credit fees		866		1,123

At March 31, 2012 and December 31, 2011, a liability of $1.9 million was recorded for possible losses on commitments to extend credit. In accordance with applicable accounting standards related to guarantees, Citizens defers fees collected in connection with the issuance of standby letters of credit. The fees are then recognized in income proportionately over the life of the standby letter of credit agreement.

Prior to June 2008, when Citizens sold its residential mortgage originations to several secondary market participants, it made various standard representations and warranties. The specific representations and warranties made by Citizens depended on the nature of the transaction and the requirements of the buyer. In the event of a breach of the representations and warranties, Citizens may be required to either repurchase the mortgage loans (generally at unpaid principal balance plus accrued interest) with the identified defects or indemnify the investor. For the three month period ended March 31, 2012 and 2011, Citizens repurchased $1.0 and $0.1 million of loans, respectively, pursuant to such provisions. Citizens recorded $1.9 million and $1.1 million for the three month periods ended March 31, 2012 and 2011, respectively, in Other Expense on the Consolidated Statements of Operations related to repurchasing or indemnifying such loans.

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Pension Benefit Cost

3 Months Ended

Mar. 31, 2012

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 are presented below.

	Three Months Ended March 31,
(in thousands)	2012			2011
Defined Benefit Pension Plans
Interest cost	$	881		$	955
Expected return on plan assets		(1,055	)		(1,018	)
Amortization of unrecognized:
Prior service cost		8			8
Net actuarial loss		793			832
Net pension cost		627			777
Supplemental Pension Plans
Interest cost		182			189
Amortization of unrecognized:
Net actuarial loss		15			5
Net pension cost		197			194
Postretirement Benefit Plans
Interest cost		20			144
Amortization of unrecognized:
Prior service cost		(230	)		(72	)
Net actuarial gain		(45	)		(72	)
Net postretirement benefit cost		(255	)		—
Defined contribution retirement and 401K Plans
Employer contributions		465			—
Total periodic benefit cost	$	1,034		$	971

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 $2.7 million to the defined benefit pension plan during the first three months of 2012 and does not expect to make any additional contributions for the remainder of the year. During the first three months of 2012, Citizens contributed $0.1 million to the supplemental pension plans and anticipates that an additional $0.4 million of contributions will be made during the remaining nine months of the year. Citizens contributed $0.1 million to the postretirement benefit plan during the first three months of 2012 and anticipates making an additional $0.1 million in contributions for the remaining portion of the year. Citizens suspended the 401(k) matching funds and annual discretionary contributions during the third quarter of 2009. The Board of Directors approved the reinstatement of the 401(k) matching funds effective January 1, 2012. Contributions to the 401(k) savings plan will be matched 50% on the first 2% of salary deferred and 25% on the next 6% deferred.

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 March 31, 2012. 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 follows.

March 31, 2012
(in thousands)	Total		Level 1		Level 2		Level 3
Asset Category
Short-term pooled money fund	$	2,168	$	—	$	2,168	$	—
Equity securities
Large cap		20,016		—		20,016		—
Mid-cap		5,033		—		5,033		—
Small-cap		7,127		—		7,127		—
International equity		10,587		—		10,587		—
Fixed income securities
Intermediate term fixed		21,658		—		21,658		—
Total	$	66,589	$	—	$	66,589	$	—

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Income Taxes

3 Months Ended

Mar. 31, 2012

Income Taxes [Abstract]

Income Taxes

Note 6. Income Taxes

Citizens did not record any tax benefit or expense for the first quarter of 2012 as compared to a tax provision of $0.1 million for the same period in 2011. Although Citizens was profitable during the first quarter of 2012, the estimated utilization of a net operating loss carryforward resulted in no tax expense being recognized.

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Fair Values of Assets and Liabilities

3 Months Ended

Mar. 31, 2012

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 cannot 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 Citizens’ value.

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 carrying amount, estimated fair values, and placement in the fair value hierarchy of Citizens’ financial instruments that are not measured at fair value follow.

		Fair Value			Fair Value			Fair Value		Fair Value		Fair Value
	March 31, 2012
	Carrying			Estimated			Fair Value Measurements
(in thousands)	Amount			Fair Value			Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	145,240		$	145,240		$	—	$	145,240	$	—
Money market investments		300,174			300,174			—		300,174		—
Securities held to maturity		1,374,449			1,422,253			—		1,422,253		—
FHLB and Federal Reserve stock		117,943			117,943			—		117,943		—
Net portfolio loans		5,375,056			5,154,357			—		—		5,154,357
Loans held for sale		13,627			13,627			—		8,566		5,061
Accrued interest receivable		32,945			32,945			—		32,945		—
Financial liabilities:
Deposits		7,490,362			7,522,608			—		7,522,608		—
Short-term borrowings		34,779			34,779			—		34,779		—
Long-term debt		853,599			927,334			50,449		876,885		—
Accrued interest payable		14,903			14,903			—		14,903		—
Financial instruments with off-balance sheet risk (1):
Letters of credit (2)		(739	)		(2,121	)		—		—		(2,121	)

⁽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.

		Fair Value			Fair Value			Fair Value		Fair Value		Fair Value
	December 31, 2011
	Carrying			Estimated			Fair Value Measurements
(in thousands)	Amount			Fair Value			Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	153,418		$	153,418		$	—	$	153,418	$	—
Money market investments		313,632			313,632			—		313,632		—
Securities held to maturity		1,444,054			1,487,550			—		1,487,550		—
FHLB and Federal Reserve stock		117,943			117,943			—		117,943		—
Net portfolio loans		5,356,809			5,101,446			—		—		5,101,446
Loans held for sale		10,402			10,402			—		6,140		4,262
Accrued interest receivable		31,390			31,390			—		31,390		—
Financial liabilities:
Deposits		7,394,941			7,424,427			—		7,424,427		—
Short-term borrowings		40,098			40,098			—		40,098		—
Long-term debt		854,185			927,533			45,931		881,602		—
Accrued interest payable		14,047			14,047			—		14,047		—
Financial instruments with off-balance sheet risk (1) :
Letters of credit (2)		(982	)		(2,808	)		—		—		(2,808	)

The carrying amount approximates fair value for cash, money market investments, and accrued interest. The methods and assumptions used to estimate the fair value of other financial instruments, regardless if the instrument is carried at fair value or not, are set forth below. There were no changes in the valuation methods used to estimate fair value during the period ended March 31, 2012.

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 financial 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. These providers utilize pricing models that vary by asset class and incorporate available trade, bid and other market information and for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the pricing applications apply available information as applicable through processes such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. In addition, Citizens uses model processes to assess interest rate impact and develop prepayment scenarios. The impact of unobservable inputs and proprietary models are not material to the determination of fair values of these securities. 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 the price at which a transaction would take place in current markets. Further, Citizens completes a comparison of the fair value estimates quarterly by validating the data received to date provided by a separate third party. In order to then evaluate reasonableness of the market data, Citizens also independently prices a sampling of securities using data from an independent source. Should Citizens find variances, the prices are then challenged and prices are adjusted accordingly. To date, there have been no significant findings or adjustments made by Citizens. 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 liquidity and credit premiums, 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.

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 March 31, 2012 and December 31, 2011, 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 classified as trading securities 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, 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 related to loss severity 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. Citizens measures impairment on all residential mortgage loans over 120 days past due.

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 similar loans and are classified as nonrecurring Level 2. The fair value of nonperforming residential mortgage loans is based on the fair value of the underlying collateral, net of estimated costs to sell, using market prices derived from indicative pricing models which utilize projected assumptions about loss severity Citizens believes potential investors would make 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, which are also subject to management adjustments for loss severity based on current market conditions and recent sales activity. 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. Commercial properties and former branch locations are carried at fair value at the time of acquisition based on the fair value of the underlying real property, net of estimated costs to sell. This is determined using market prices derived from appraisals, which are considered to be Level 2. However, certain assumptions and unobservable inputs related to loss severity are currently being used by appraisers and management, therefore, qualifying the assets as Level 3 in the fair value hierarchy. Residential real estate is recorded at the fair value of the underlying real 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 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 fair 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 fair value, net of estimated costs to sell, based on internally developed procedures. Citizens records repossessed assets as nonrecurring Level 3.

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.

March 31, 2012
(in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale:
Collateralized mortgage obligations	$	368,692	$	—	$	368,685	$	7
Mortgage-backed		1,005,600		—		1,005,600		—
State and municipal		118,413		—		116,967		1,446
Other		280		—		47		233
Total available for sale		1,492,985		—		1,491,299		1,686
Other assets:
Derivatives designated as hedging instruments		3,489		—		3,489		—
Derivatives not designated as hedging instruments		15,460		—		15,460		—
Deferred compensation assets		9,264		7,524		1,740		—
Total other assets		28,213		7,524		20,689		—
Total	$	1,521,198	$	7,524	$	1,511,988	$	1,686
Other liabilities:
Derivatives designated as hedging instruments	$	1,684	$	—	$	1,684	$	—
Derivatives not designated as hedging instruments		15,926		—		15,926		—
Total	$	17,610	$	—	$	17,610	$	—

December 31, 2011
(in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale:
Collateralized mortgage obligations	$	365,302	$	—	$	365,294	$	8
Mortgage-backed		823,852		—		823,852		—
State and municipal		123,308		—		121,862		1,446
Other		271		—		38		233
Total available for sale		1,312,733		—		1,311,046		1,687
Other assets:
Derivatives designated as hedging instruments		3,791		—		3,791		—
Derivatives not designated as hedging instruments		17,088		—		17,088		—
Deferred compensation assets		8,477		6,791		1,686		—
Total other assets		29,356		6,791		22,565		—
Total	$	1,342,089	$	6,791	$	1,333,611	$	1,687
Other liabilities:
Derivatives designated as hedging instruments	$	2,317	$	—	$	2,317	$	—
Derivatives not designated as hedging instruments		17,614		—		17,614		—
Total	$	19,931	$	—	$	19,931	$	—

There were no transfers between levels within the fair value hierarchy nor were there any purchases, sales, or issuances during the three month period ended March 31, 2012. The following table presents the reconciliation of Level 3 assets held by Citizens.

			Net Realized/Unrealized Gains (Losses)
	Balance at						Recorded in Other						Balance at
	Beginning		Recorded in Earnings				Comprehensive						End of
(in thousands)	of Period		Realized		Unrealized		Income (Pretax)			Settlements			Period
Three Months Ended March 31, 2012
Securities available for sale
Collateralized mortgage obligations	$	8	$	—	$	—	$	—		$	(1	)	$	7
State and municipal		1,446		9		—		(9	)		—			1,446
Other		233		3		—		(3	)		—			233
Total	$	1,687	$	12	$	—	$	(12	)	$	(1	)	$	1,686

The following table includes assets measured at fair value on a nonrecurring basis that have had a fair value adjustment.

March 31, 2012	Initial Carrying		Fair Value
(in thousands)	Value		Total		Level 1		Level 2		Level 3
Impaired loans	$	36,169	$	16,549	$	—	$	—	$	16,549
Residential mortgage loans held for sale		654		398		—		—		398
Other real estate		1,059		873		—		—		873
Repossessed assets		1,814		1,052		—		—		1,052
Total	$	39,696	$	18,872	$	—	$	—	$	18,872

The following table represents quantitative information about Level 3 fair value measurements.

(in thousands)	Fair Value at March 31, 2012		Valuation Technique(s)	Unobservable Input			Range (Weighted Average)
Securities available for sale:
Collateralized mortgage obligations		7	Cost		None	(1)		None
State and municipal		1,446	Discounted Cash Flow		Liquidity Premium			1.0% - 2.5% (2.2	%)
					Credit Premium			1.3% - 5.0% (4.2	%)
					Fail Rate			1.2% - 2.0% (1.8	%)
Other		233	Discounted Cash Flow		Liquidity Premium			2.0% - 2.5% (2.4	%)
					Credit Premium			2.8% - 5.5% (4.5	%)
					Fail Rate			1.2% - 1.5% (1.4	%)
Impaired loans		16,549	Comparative Sales		Loss Severity Discount			0% - 100% (60	%)
Residential mortgage loans held for sale		398	Comparative Sales		Loss Severity Discount			6% - 100% (39	%)
Other real estate		873	Comparative Sales		Loss Severity Discount			1% - 100% (18	%)
Repossessed assets		1,052	Comparative Sales		Loss Severity Discount			42% - 42% (42	%)

⁽¹⁾  Carrying value approximates fair value.

The significant unobservable inputs used in the fair value measurement of Citizens’ recurring level 3 securities are the liquidity and credit premiums and fail rate formula. A change in these inputs to a different amount would not result in a materially higher or lower fair value measurement.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2012

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 March 31, 2012, Citizens had 1,178,516 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.

	Three Months Ended March 31,
(in thousands)	2012			2011
Restricted stock compensation and restricted stock unit compensation	$	649		$	486
Stock-based compensation expense before income taxes		649			486
Income tax benefit (1)		(227	)		(170	)
Total stock-based compensation expense after income taxes	$	422		$	316

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

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 March 31, 2012, $3.5 million of total unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted average period of 1.6 years.

The following table summarizes restricted stock activity.

	Number of Shares			Weighted-Average Per Share Grant Date Fair Value
Restricted stock at December 31, 2011		825,969		$	9.27
Granted		4,086			13.62
Vested		(23,412	)		12.80
Forfeited		(10,952	)		11.16
Restricted stock at March 31, 2012 (1)		795,691		$	9.16

⁽¹⁾ Includes $55,035 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 three months ended March 31, 2012 was $0.3 million.

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Subsequent Events

3 Months Ended

Mar. 31, 2012

Subsequent Events [Abstract]

Subsequent Events

Note 14. Subsequent Events

On April 19, 2012, Citizens announced that, effective April 17, 2012, the Federal Reserve Bank of Chicago and the Michigan Office of Financial and Insurance Regulation have terminated their written agreement with Citizens, and its subsidiary, Citizens Bank dated July 28, 2010.

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Consolidated Statements of Comprehensive Income [Abstract]
Net Income (Loss)	$ 24,861	$ (68,678)
Other comprehensive income
Unrealized gain on securities available for sale	5,818	7,480
Amortization of unrealized gain on securities transferred from available for sale to held to maturity	(1,969)	(62)
Unrealized gain (loss) on qualifying cash flow hedges, net of change and reclassification	16	(1,540)
Other comprehensive income, before income taxes	3,865	5,878
Income tax provision related to other comprehensive income items
Other comprehensive income	3,865	5,878
Comprehensive income (loss)	$ 28,726	$ (62,800)

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Loans

3 Months Ended

Mar. 31, 2012

Loans [Abstract]

Loans

Note 3. Loans

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 control 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. 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, in full, 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, 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, and the borrower has maintained the loan in a current status for a period of not less than 6 months. Nonperforming assets are comprised of nonaccrual loans, loans past due over 90 days and still accruing interest, nonperforming loans held for sale, and other repossessed assets acquired.

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

	March 31, 2012
(in thousands)	Loans Accruing 30-89 Days Past Due		Loans 90+ Days Past Due & Still Accruing		Non-Accruing Loans		Total Past Due Loans		Current Portfolio Loans		Total Portfolio Loans
Land hold	$	—	$	—	$	—	$	—	$	5,387	$	5,387
Land development		130		—		207		337		6,889		7,226
Construction		—		—		150		150		6,260		6,410
Income producing		1,447		—		18,566		20,013		857,448		877,461
Owner-occupied		5,177		—		20,716		25,893		564,682		590,575
Total commercial real estate		6,754		—		39,639		46,393		1,440,666		1,487,059
Commercial and industrial		368		156		7,673		8,197		1,356,289		1,364,486
Small business (1)		2,519		—		6,956		9,475		283,179		292,654
Total commercial		9,641		156		54,268		64,065		3,080,134		3,144,199
Residential mortgage		7,568		—		11,137		18,705		592,461		611,166
Direct consumer		14,002		8		8,895		22,905		880,333		903,238
Indirect consumer		8,780		—		1,074		9,854		859,606		869,460
Total consumer		30,350		8		21,106		51,464		2,332,400		2,383,864
Total financing receivables	$	39,991	$	164	$	75,374	$	115,529	$	5,412,534	$	5,528,063

⁽¹⁾  Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

	December 31, 2011
(in thousands)	Loans Accruing 30-89 Days Past Due		Loans 90+ Days Past Due & Still Accruing		Non-Accruing Loans		Total Past Due Loans		Current Portfolio Loans		Total Portfolio Loans
Land hold	$	21	$	—	$	—	$	21	$	6,521	$	6,542
Land development		—		—		213		213		12,891		13,104
Construction		—		—		150		150		5,697		5,847
Income producing		2,508		—		21,171		23,679		890,076		913,755
Owner-occupied		2,345		—		23,798		26,143		578,970		605,113
Total commercial real estate		4,874		—		45,332		50,206		1,494,155		1,544,361
Commercial and industrial		212		766		10,633		11,611		1,235,180		1,246,791
Small business (1)		2,242		—		6,313		8,555		288,183		296,738
Total commercial		7,328		766		62,278		70,372		3,017,518		3,087,890
Residential mortgage		9,544		—		11,312		20,856		616,389		637,245
Direct consumer		17,810		4		12,115		29,929		903,385		933,314
Indirect consumer		13,067		—		953		14,020		857,066		871,086
Total consumer		40,421		4		24,380		64,805		2,376,840		2,441,645
Total financing receivables	$	47,749	$	770	$	86,658	$	135,177	$	5,394,358	$	5,529,535

⁽¹⁾  Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

	March 31, 2011
(in thousands)	Loans Accruing 30-89 Days Past Due		Loans 90+ Days Past Due & Still Accruing		Non-Accruing Loans		Total Past Due Loans		Current Portfolio Loans		Total Portfolio Loans
Land hold	$	509	$	—	$	1,154	$	1,663	$	15,610	$	17,273
Land development		—		—		78		78		22,666		22,744
Construction		—		—		395		395		22,902		23,297
Income producing		4,817		—		28,250		33,067		1,005,607		1,038,674
Owner-occupied		1,981		—		21,738		23,719		668,577		692,296
Total commercial real estate		7,307		—		51,615		58,922		1,735,362		1,794,284
Commercial and industrial		1,454		647		19,494		21,595		1,012,542		1,034,137
Small business (1)		4,723		—		6,291		11,014		308,016		319,030
Total commercial		13,484		647		77,400		91,531		3,055,920		3,147,451
Residential mortgage		10,279		—		30,385		40,664		686,640		727,304
Direct consumer		17,210		13		13,043		30,266		976,158		1,006,424
Indirect consumer		10,187		—		1,169		11,356		811,663		823,019
Total consumer		37,676		13		44,597		82,286		2,474,461		2,556,747
Total financing receivables	$	51,160	$	660	$	121,997	$	173,817	$	5,530,381	$	5,704,198

⁽¹⁾  Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

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. Commercial loans by risk category of class areas follow.

	March 31, 2012
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Land hold	$	2,281	$	782	$	2,324	$	—	$	5,387
Land development		6,672		216		338		—		7,226
Construction		4,769		1,172		469		—		6,410
Income producing		615,011		155,679		105,935		836		877,461
Owner-occupied		460,330		71,765		57,198		1,282		590,575
Total commercial real estate		1,089,063		229,614		166,264		2,118		1,487,059
Commercial and industrial		1,189,666		108,367		66,293		160		1,364,486
Small business (1)		247,240		21,494		23,581		339		292,654
Total commercial	$	2,525,969	$	359,475	$	256,138	$	2,617	$	3,144,199

⁽¹⁾  Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

	December 31, 2011
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Land hold	$	2,427	$	803	$	3,312	$	—	$	6,542
Land development		12,087		252		765		—		13,104
Construction		4,039		1,508		300		—		5,847
Income producing		633,855		164,756		112,458		2,686		913,755
Owner-occupied		475,604		66,576		61,429		1,504		605,113
Total commercial real estate		1,128,012		233,895		178,264		4,190		1,544,361
Commercial and industrial		1,059,316		113,126		74,307		42		1,246,791
Small business (1)		251,790		21,803		22,925		220		296,738
Total commercial	$	2,439,118	$	368,824	$	275,496	$	4,452	$	3,087,890

⁽¹⁾  Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

	March 31, 2011
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Land hold	$	3,533	$	8,382	$	5,336	$	22	$	17,273
Land development		12,823		682		9,239		—		22,744
Construction		18,385		4,635		238		39		23,297
Income producing		685,242		202,405		144,882		6,145		1,038,674
Owner-occupied		540,822		64,876		85,894		704		692,296
Total commercial real estate		1,260,805		280,980		245,589		6,910		1,794,284
Commercial and industrial		801,754		106,382		125,158		843		1,034,137
Small business (1)		268,790		24,814		25,061		365		319,030
Total commercial	$	2,331,349	$	412,176	$	395,808	$	8,118	$	3,147,451

⁽¹⁾  Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

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 and loans past due over 90 days and still accruing interest. The following table presents the recorded investment in residential and consumer loans based on payment activity.

	March 31, 2012
(in thousands)	Residential Mortgage		Direct Consumer		Indirect Consumer		Total Consumer Loans
Performing	$	600,029	$	894,335	$	868,386	$	2,362,750
Nonperforming		11,137		8,903		1,074		21,114
Total	$	611,166	$	903,238	$	869,460	$	2,383,864

	December 31, 2011
(in thousands)	Residential Mortgage		Direct Consumer		Indirect Consumer		Total Consumer Loans
Performing	$	625,933	$	921,195	$	870,133	$	2,417,261
Nonperforming		11,312		12,119		953		24,384
Total	$	637,245	$	933,314	$	871,086	$	2,441,645

	March 31, 2011
(in thousands)	Residential Mortgage		Direct Consumer		Indirect Consumer		Total Consumer Loans
Performing	$	696,919	$	993,368	$	821,850	$	2,512,137
Nonperforming		30,385		13,056		1,169		44,610
Total	$	727,304	$	1,006,424	$	823,019	$	2,556,747

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Derivatives and Hedging Activities

3 Months Ended

Mar. 31, 2012

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.

	Other Assets				Other Liabilities
(in thousands)	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
Derivatives designated as hedging instruments
Interest rate products	$	3,489	$	3,791	$	1,684	$	2,317
Derivatives not designated as hedging instruments
Interest rate products		15,460		17,088		15,926		17,614
Total derivatives	$	18,949	$	20,879	$	17,610	$	19,931

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. Citizens had twelve interest rate caps and swaps with an aggregate notional amount of $385.0 million at March 31, 2012 and December 31, 2011 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 2012 and 2011, 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 months ended March 31, 2012 and 2011.

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 less than $0.1 million and $0.5 million for the three months ended March 31, 2012 and March 31, 2011, respectively, to earnings as a result of the hedged forecasted transactions becoming probable not to occur. During the next twelve months, Citizens estimates that $0.1 million will be reclassified as an increase to interest income and $2.2 million as an increase to interest expense.

The following tables summarize the impact of cash flow hedges on the unaudited Consolidated Financial Statements.

	Derivative Impact on OCI Gain (Loss)											Derivative Ineffectiveness Gain (Loss)
Derivatives Relationship (in thousands)	Recognized in OCI					Location Reclassified in Statement of Operations	Reclassified from Accumulated OCI into Statement of Operations					Location Recognized in Statement of Operations	Amount
	Three Months Ended March 31,						Three Months Ended March 31,						Three Months Ended March 31,
	2012			2011			2012			2011			2012		2011
Cash flow hedges:
						Interest income	$	320		$	1,046
Interest rate products	$	(247	)	$	18	Interest expense		(589	)		—
						Other income		6			513	Other income	$	—	$	—
Total	$	(247	)	$	18		$	(263	)	$	1,559		$	—	$	—

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 March 31, 2012 and December 31, 2011, Citizens did not have any transactions designated as fair value hedges.

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 March 31, 2012 Citizens did not recognize any gains in interest expense related to hedge ineffectiveness. Citizens recognized gains of $0.5 million during the three months ended March 31, 2011 in interest expense related to hedge ineffectiveness. Citizens recognized no net reduction to interest expense during the three months ended March 31, 2012. Citizens recognized a net reduction to interest expense of $0.6 million during the three months ended March 31, 2011, related to Citizens’ fair value hedges, which includes net settlements on the derivatives and any amortization adjustment in the basis of the hedged items.

The following table summarizes the impact of fair value hedges on the unaudited Consolidated Financial Statements.

	Derivative Contract (Loss) Gain						Hedged Item Gain (Loss)
Derivatives Relationship (in thousands)	Location in Statement of Operations	Three Months Ended March 31,					Location in Statement of Operations	Three Months Ended March 31,
		2012		2011				2012		2011
Fair value hedges:
Interest rate products	Interest expense	$	—	$	(990	)	Interest expense	$	—	$	1,460

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 March 31, 2012 and December 31, 2011, Citizens had 152 derivative transactions with an aggregate notional amount of $511.0 million and 156 derivative transactions with an aggregate notional amount of $527.4 million, respectively, related to this program.

The following table summarizes the impact of derivatives not designated as hedges on the unaudited Consolidated Financial Statements.

		Amount of (Loss) Gain Recognized in Statement  of Operations
Derivatives Relationship (in thousands)	Location of (Loss) Gain Recognized in Statement  of Operations	Three Months Ended March 31,
		2012		2011
Derivatives not designated as hedges - Interest rate products	Other income	$	61	$	(112	)

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 March 31, 2012, 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 $14.2 million. As of March 31, 2012, Citizens had minimum collateral posting requirements with its derivative counterparties resulting in assigned collateral of $20.8 million. As of March 31, 2012 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. As of March 31, 2012, the termination value approximated $0.4 million.

Citizens does not offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against recognized fair value amounts of derivatives executed with the same counterparty under a master netting agreement. Citizens has the right to reclaim collateral assigned of $20.8 million.