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 September 30, 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 October 26, 2012
Common Stock, No Par Value	40,499,647 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		6
Consolidated Statements of Cash Flows		7
Notes to Consolidated Financial Statements		8
Item  2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
Item 3 – Quantitative and Qualitative Disclosures about Market Risk		66
Item 4 – Controls and Procedures		66
Part II – Other Information
Item 1 – Legal Proceedings		66
Item 1A – Risk Factors		67
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		70
Item 3 – Defaults Upon Senior Securities		70
Item 6 – Exhibits		70
Signatures		71
Exhibit Index		72

2

Consolidated Balance Sheets (Unaudited)

Citizens Republic Bancorp, Inc.

	September 30,			December 31,			September 30,
(in thousands)	2012			2011			2011
Assets
Cash and due from banks	$	162,705		$	153,418		$	147,418
Money market investments		223,818			313,632			283,018
Investment Securities:
Securities available for sale, at fair value		1,541,567			1,312,733			1,307,977
Securities held to maturity, at amortized cost (fair value of $1,378,310, $1,487,550 and $1,491,048, respectively)		1,313,504			1,444,054			1,454,873
Total investment securities		2,855,071			2,756,787			2,762,850
FHLB and Federal Reserve stock		122,123			117,943			123,696
Portfolio loans:
Commercial and industrial		1,688,996			1,543,529			1,531,492
Commercial real estate		1,335,601			1,544,361			1,643,901
Total commercial		3,024,597			3,087,890			3,175,393
Residential mortgage		570,295			637,245			654,561
Direct consumer		865,777			933,314			954,831
Indirect consumer		970,235			871,086			887,542
Total portfolio loans		5,430,904			5,529,535			5,672,327
Less: Allowance for loan losses		(122,125	)		(172,726	)		(190,354	)
Net portfolio loans		5,308,779			5,356,809			5,481,973
Loans held for sale		30,062			10,402			30,221
Premises and equipment		92,005			97,970			98,954
Goodwill		318,150			318,150			318,150
Other intangible assets		5,792			7,428			8,116
Bank owned life insurance		222,610			220,280			219,248
Other assets		383,675			110,030			126,544
Total assets	$	9,724,790		$	9,462,849		$	9,600,188
Liabilities
Noninterest-bearing deposits	$	1,854,715		$	1,614,311		$	1,621,451
Interest-bearing demand deposits		1,092,679			951,590			945,458
Savings deposits		2,574,642			2,627,665			2,652,267
Core deposits		5,522,036			5,193,566			5,219,176
Time deposits		1,780,929			2,201,375			2,320,728
Total deposits		7,302,965			7,394,941			7,539,904
Federal funds purchased and securities sold under agreements to repurchase		42,796			40,098			40,599
Other short-term borrowings		—			—			640
Other liabilities		168,351			154,088			154,232
Long-term debt		852,481			854,185			855,670
Total liabilities		8,366,593			8,443,312			8,591,045
Shareholders’ Equity
Preferred stock - no par value Authorized - 5,000,000 shares; Issued and outstanding - 300,000 at 9/30/12, 12/31/11, and 9/30/11, redemption value of $300 million		290,580			285,114			283,360
Common stock - no par value Authorized - 105,000,000 shares at 9/30/12,12/31/11, and 9/30/11; Issued and outstanding - 40,178,907 at 9/30/12, 40,049,198 at 12/31/11 and 40,034,943 at 9/30/11		1,436,925			1,434,803			1,433,765
Retained deficit		(363,659	)		(694,560	)		(706,907	)
Accumulated other comprehensive loss		(5,649	)		(5,820	)		(1,075	)
Total shareholders’ equity		1,358,197			1,019,537			1,009,143
Total liabilities and shareholders’ equity	$	9,724,790		$	9,462,849		$	9,600,188

See notes to consolidated financial statements.

3

Consolidated Statements of Operations (Unaudited)

Citizens Republic Bancorp, Inc.

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share amounts)	2012			2011			2012			2011
Interest Income
Interest and fees on loans	$	73,376		$	77,212		$	222,205		$	235,600
Interest and dividends on investment securities:
Taxable		16,034			20,508			49,356			60,664
Tax-exempt		2,157			2,613			6,610			8,412
Dividends on FHLB and Federal Reserve stock		1,196			974			3,487			3,143
Money market investments		152			168			481			670
Total interest income		92,915			101,475			282,139			308,489
Interest Expense
Deposits		8,779			13,528			29,243			44,945
Short-term borrowings		11			20			42			57
Long-term debt		8,320			9,086			25,251			28,426
Total interest expense		17,110			22,634			54,536			73,428
Net Interest Income		75,805			78,841			227,603			235,061
Provision for loan losses		5,195			17,481			18,891			123,801
Net interest income after provision for loan losses		70,610			61,360			208,712			111,260
Noninterest Income
Service charges on deposit accounts		9,554			10,362			27,894			29,544
Trust fees		3,635			3,622			10,818			11,356
Mortgage and other loan income		2,028			2,089			5,839			6,915
Brokerage and investment fees		1,831			1,188			4,486			3,829
Card-based and other nondeposit fees		4,431			4,475			13,140			12,862
Net (losses) gains on loans held for sale		(184	)		1,952			739			2,025
Investment securities gains (losses)		—			3			—			(1,373	)
Other income		2,415			736			7,380			5,737
Total noninterest income		23,710			24,427			70,296			70,895
Noninterest Expense
Salaries and employee benefits		33,589			30,280			99,687			92,563
Occupancy		6,129			6,125			18,965			19,734
Professional services		6,806			2,394			11,294			7,020
Equipment		2,937			2,918			9,144			8,811
Data processing services		4,427			3,823			12,196			12,422
Advertising and public relations		1,847			2,179			4,890			4,550
Postage and delivery		1,157			1,142			3,375			3,378
Other loan expenses		3,121			3,941			9,574			12,510
Losses on other real estate (ORE)		941			1,210			382			11,687
ORE expenses		323			529			1,039			3,326
Intangible asset amortization		513			732			1,636			2,338
Other expense		10,265			10,138			33,312			38,172
Total noninterest expense		72,055			65,411			205,494			216,511
Income (Loss) before Income Taxes		22,265			20,376			73,514			(34,356	)
Income tax provision (benefit)		1,274			(12,568	)		(275,514	)		(22,779	)
Net Income (Loss)		20,991			32,944			349,028			(11,577	)
Dividend on redeemable preferred stock		(6,130	)		(5,761	)		(18,127	)		(17,088	)
Net Income (Loss) Attributable to Common Shareholders	$	14,861		$	27,183		$	330,901		$	(28,665	)
Net Income (Loss) Per Common Share:
Basic	$	0.37		$	0.68		$	8.19		$	(0.73	)
Diluted		0.37			0.68			8.19			(0.73	)
Average Common Shares Outstanding:
Basic		39,489			39,433			39,469			39,418
Diluted		39,489			39,433			39,469			39,418

See notes to consolidated financial statements.

4

Consolidated Statements of Comprehensive Income (Unaudited)

Citizens Republic Bancorp, Inc.

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2012			2011			2012			2011
Net Income (Loss)	$	20,991		$	32,944		$	349,028		$	(11,577	)
Other comprehensive income
Unrealized gain on securities available for sale		10,887			2,817			13,944			15,120
Reclassification adjustment for net (gain) loss on securities included in net income		—			(3	)		—			1,373
Unrealized gain on securities transferred from available for sale to held to maturity		—			—			—			18,510
Amortization of unrealized gain on securities transferred to held to maturity		(1,715	)		(1,675	)		(5,571	)		(1,887	)
Unrealized loss on qualifying cash flow hedges, net of change and reclassifications		(2,065	)		(1,428	)		(8,110	)		(3,816	)
Other comprehensive income (loss), before income taxes		7,107			(289	)		263			29,300
Income tax provision (benefit) related to other comprehensive income items		2,488			(137	)		92			10,219
Other comprehensive income (loss)		4,619			(152	)		171			19,081
Comprehensive income	$	25,610		$	32,792		$	349,199		$	7,504

See notes to consolidated financial statements

5

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

Citizens Republic Bancorp, Inc.

	Preferred		Common Stock						Retained Earnings			Accumulated Other Comprehensive
(in thousands)	Stock		Shares			Amount			(Deficit)			Income (Loss)			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										349,028						349,028
Other comprehensive income, net of tax effect of ($92)													171			171
Total comprehensive income																349,199
Accretion of preferred stock discount		5,466								(5,466	)					—
Accrued dividend on redeemable preferred stock										(12,661	)					(12,661	)
Proceeds from restricted stock activity				155			—									—
Recognition of stock-based compensation							2,558									2,558
Shares purchased				(25	)		(436	)								(436	)
Balance at September 30, 2012	$	290,580		40,179		$	1,436,925		$	(363,659	)	$	(5,649	)	$	1,358,197
Balance at December 31, 2010	$	278,300		39,635		$	1,431,829		$	(678,242	)	$	(20,156	)	$	1,011,731
Comprehensive income, net of tax:
Net loss										(11,577	)					(11,577	)
Other comprehensive income, net of tax effect of ($10,219)													19,081			19,081
Total comprehensive income																7,504
Accretion of preferred stock discount		5,060								(5,060	)					—
Accrued dividend on redeemable preferred stock										(12,028	)					(12,028	)
Proceeds from restricted stock activity				401			—									—
Recognition of stock-based compensation							1,950									1,950
Shares purchased				(1	)		(14	)								(14	)
Balance at September 30, 2011	$	283,360		40,035		$	1,433,765		$	(706,907	)	$	(1,075	)	$	1,009,143

See notes to consolidated financial statements.

6

Consolidated Statements of Cash Flows (unaudited)

Citizens Republic Bancorp, Inc.

	Nine Months Ended September 30,
(in thousands)	2012			2011
Operating Activities:
Net income (loss)	$	349,028		$	(11,577	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		18,891			123,801
Net (increase) decrease in current and deferred income taxes		(284,786	)		(12,559	)
Depreciation and amortization		7,591			8,495
Amortization of intangibles		1,636			2,338
Amortization and fair value adjustments of purchase accounting mark to market, net		(2,897	)		(3,782	)
Fair value adjustment on loans held for sale and other real estate		2,116			7,766
Net amortization on investment securities		28,505			14,959
Investment securities losses		—			1,373
Loans originated for sale		(142,883	)		(115,998	)
Proceeds from loans held for sale		140,525			127,027
Net gains from loan sales		(3,317	)		(4,516	)
Net (gains) losses on other real estate		(1,738	)		3,863
Recognition of stock-based compensation expense		2,558			1,950
Other		(9,091	)		(13,394	)
Net cash provided by operating activities		106,138			129,746
Investing Activities:
Net decrease in money market investments		89,814			126,061
Securities available for sale:
Proceeds from sales		2,500			11,744
Proceeds from maturities and payments		291,999			402,623
Purchases		(525,031	)		(569,472	)
Securities held to maturity:
Proceeds from maturities and payments		205,253			51,452
Purchases		(91,746	)		(95,987	)
Net decrease in loans and leases		11,956			301,862
Proceeds from sales of other real estate		9,796			27,612
Net increase in properties and equipment		(1,626	)		(2,736	)
Net cash (used in) provided by investing activities		(7,085	)		253,159
Financing Activities:
Net decrease in deposits		(91,976	)		(186,930	)
Net increase (decrease) in short-term borrowings		2,698			(1,080	)
Principal reductions in long-term debt		(52	)		(175,048	)
Shares purchased		(436	)		(14	)
Net cash used in financing activities		(89,766	)		(363,072	)
Net increase in cash and due from banks		9,287			19,833
Cash and due from banks at beginning of period		153,418			127,585
Cash and due from banks at end of period	$	162,705		$	147,418
Supplemental Cash Flow Information:
Interest paid	$	53,082		$	71,665
Income tax paid, net		7,600			3,000
Supplemental Disclosures of noncash items
Securities transferred to held to maturity from available for sale		—			943,092
Properties transferred to other real estate owned		—			1,347
Loans transferred to other real estate owned		4,614			11,932
Loans transferred to held for sale		24,048			90,481
Held for sale loans transferred to other real estate		—			522
Accretion of preferred stock discount		5,466			5,060
Accrued dividend on redeemable preferred stock		12,661			12,028

See notes to consolidated financial statements.

7

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”, the “Company,” or the “Corporation”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 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. 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.

New Accounting Pronouncements

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

FASB ASU 2012-02, “Intangibles—Goodwill and Other (Topic 350)—Testing Indefinite-Lived Intangible Assets for Impairment”

The objective of the amendments in this update is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles—Goodwill and Other—General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. This ASU was adopted by Citizens in the third quarter of 2012. The adoption of the amendments did not have a material impact on Citizens’ financial condition, results of operations or liquidity.

8

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.

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.

9

Note 2. Investment Securities

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

	September 30, 2012								December 31, 2011
			Estimated								Estimated
	Amortized		Fair		Gross Unrealized				Amortized		Fair		Gross Unrealized
(in thousands)	Cost		Value		Gains		Losses		Cost		Value		Gains		Losses
Securities available for sale:
Collateralized mortgage obligations	$	404,391	$	411,731	$	7,857	$	517	$	364,262	$	365,302	$	6,811	$	5,771
Mortgage-backed		971,546		1,018,853		47,307		—		784,476		823,852		39,408		32
State and municipal		104,093		110,696		6,620		17		116,411		123,308		7,019		122
Other		289		287		51		53		280		271		24		33
Total available for sale	$	1,480,319	$	1,541,567	$	61,835	$	587	$	1,265,429	$	1,312,733	$	53,262	$	5,958
Securities held to maturity:
Collateralized mortgage obligations(1)	$	304,462	$	313,835	$	9,373	$	—	$	350,160	$	356,031	$	5,871	$	—
Mortgage-backed(1)		907,361		955,140		47,779		—		988,930		1,018,765		29,883		48
State and municipal		101,681		109,335		7,654		—		104,964		112,754		7,836		46
Total held to maturity	$	1,313,504	$	1,378,310	$	64,806	$	—	$	1,444,054	$	1,487,550	$	43,590	$	94

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

Securities with amortized cost of $560.1 million at September 30, 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.

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

	September 30, 2012
	Amortized		Estimated Fair
(in thousands)	Cost		Value
Securities available for sale:
State and municipal
Contractual maturity within one year	$	14,591	$	14,804
After one year through five years		14,785		15,410
After five years through ten years		57,915		62,130
After ten years		16,802		18,352
Subtotal		104,093		110,696
Collateralized mortgage obligations and mortgage-backed		1,375,937		1,430,584
Other		289		287
Total available for sale	$	1,480,319	$	1,541,567
Securities held to maturity:
State and municipal
Contractual maturity within one year	$	3,560	$	3,660
After one year through five years		21,656		23,081
After five years through ten years		51,300		54,771
After ten years		25,165		27,823
Subtotal		101,681		109,335
Collateralized mortgage obligations and mortgage-backed		1,211,823		1,268,975
Total held to maturity	$	1,313,504	$	1,378,310

A total of 16 securities had unrealized losses at September 30, 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
September 30, 2012	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Securities available for sale:
Collateralized mortgage obligations	$	44,532	$	137	$	9,693	$	380	$	54,225	$	517
State and municipal		303		1		233		16		536		17
Other		—		—		149		53		149		53
Total available for sale	$	44,835	$	138	$	10,075	$	449	$	54,910	$	587

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	Less than 12 Months				More than 12 Months				Total
December 31, 2011	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Securities available for sale:
Collateralized mortgage obligations	$	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 September 30, 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 September 30, 2012, the whole loan CMOs had a market value of $54.2 million with gross unrealized losses of $0.5 million. Citizens performs a thorough credit review on a quarterly basis for the underlying mortgage collateral as well as the supporting credit enhancement and structure. The results of the September 30, 2012 credit review demonstrated no material degradation in the holdings.

Citizens has determined there is no other-than-temporary impairment at September 30, 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 $8.8 million and $8.5 million at September 30, 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 and unrealized gains and losses from plan assets are recorded in Other Income in the Consolidated Statements of Operations. Realized gains of $1.0 million and realized losses of $0.6 million for the nine months ended September 30, 2012 and 2011, respectively, were recognized during the period for trading assets as of the report date.

No security sales were completed during 2012. During the third quarter of 2011, Citizens completed sales of available for sale securities with an amortized cost of $3.9 million, recording a net loss of less than $0.1 million. Citizens completed sales of available for sale securities with an amortized cost of $13.1 million during the first nine months ended September 30, 2011, recording a net loss of $1.4 million.

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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.

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 six 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.

	September 30, 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	$	—	$	—	$	326	$	326	$	4,658	$	4,984
Land development		—		—		3		3		7,518		7,521
Construction		—		—		—		—		6,689		6,689
Income producing		1,104		—		12,904		14,008		753,194		767,202
Owner-occupied		4,598		—		13,146		17,744		531,461		549,205
Total commercial real estate		5,702		—		26,379		32,081		1,303,520		1,335,601
Commercial and industrial		253		57		3,139		3,449		1,413,103		1,416,552
Small business(1)		627		—		6,051		6,678		265,766		272,444
Total commercial		6,582		57		35,569		42,208		2,982,389		3,024,597
Residential mortgage		6,029		—		15,271		21,300		548,995		570,295
Direct consumer		11,435		3		10,552		21,990		843,787		865,777
Indirect consumer		7,514		—		2,391		9,905		960,330		970,235
Total consumer		24,978		3		28,214		53,195		2,353,112		2,406,307
Total financing receivables	$	31,560	$	60	$	63,783	$	95,403	$	5,335,501	$	5,430,904

⁽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.
	September 30, 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	$	—	$	—	$	167	$	167	$	6,651	$	6,818
Land development		216		—		12		228		22,004		22,232
Construction		—		—		257		257		5,153		5,410
Income producing		3,325		—		23,227		26,552		948,710		975,262
Owner-occupied		5,817		—		27,540		33,357		600,822		634,179
Total commercial real estate		9,358		—		51,203		60,561		1,583,340		1,643,901
Commercial and industrial		1,055		1,344		13,603		16,002		1,215,363		1,231,365
Small business(1)		1,539		—		4,933		6,472		293,655		300,127
Total commercial		11,952		1,344		69,739		83,035		3,092,358		3,175,393
Residential mortgage		9,079		—		13,074		22,153		632,408		654,561
Direct consumer		18,629		24		14,704		33,357		921,474		954,831
Indirect consumer		9,898		—		1,256		11,154		876,388		887,542
Total consumer		37,606		24		29,034		66,664		2,430,270		2,496,934
Total financing receivables	$	49,558	$	1,368	$	98,773	$	149,699	$	5,522,628	$	5,672,327

⁽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.

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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 are considered to be pass rated loans. Commercial loans by risk category of class follow.

	September 30, 2012
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Land hold	$	2,021	$	745	$	2,218	$	—	$	4,984
Land development		7,174		144		203		—		7,521
Construction		6,689		—		—		—		6,689
Income producing		541,963		131,769		93,204		266		767,202
Owner-occupied		445,623		58,424		45,071		87		549,205
Total commercial real estate		1,003,470		191,082		140,696		353		1,335,601
Commercial and industrial		1,266,471		111,694		38,191		196		1,416,552
Small business(1)		236,974		14,975		20,432		63		272,444
Total commercial	$	2,506,915	$	317,751	$	199,319	$	612	$	3,024,597
(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.
	September 30, 2011
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Land hold	$	2,548	$	820	$	3,450	$	—	$	6,818
Land development		12,397		295		9,540		—		22,232
Construction		3,304		1,525		577		4		5,410
Income producing		627,636		182,762		163,238		1,626		975,262
Owner-occupied		504,172		47,759		77,649		4,599		634,179
Total commercial real estate		1,150,057		233,161		254,454		6,229		1,643,901
Commercial and industrial		1,051,254		99,868		79,944		299		1,231,365
Small business(1)		255,237		23,113		21,623		154		300,127
Total commercial	$	2,456,548	$	356,142	$	356,021	$	6,682	$	3,175,393
(1)        Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

15

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.

	September 30, 2012
(in thousands)	Residential Mortgage		Direct Consumer		Indirect Consumer		Total Consumer Loans
Performing	$	555,024	$	855,222	$	967,844	$	2,378,090
Nonperforming		15,271		10,555		2,391		28,217
Total	$	570,295	$	865,777	$	970,235	$	2,406,307
	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
	September 30, 2011
(in thousands)	Residential Mortgage		Direct Consumer		Indirect Consumer		Total Consumer Loans
Performing	$	641,487	$	940,103	$	886,286	$	2,467,876
Nonperforming		13,074		14,728		1,256		29,058
Total	$	654,561	$	954,831	$	887,542	$	2,496,934

Note 4. Allowance for Loan Losses

The allowance for loan losses is a reserve established through a provision for 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 September 30, 2012
(in thousands)	Allowance for Loan Losses  at June 30, 2012		Provision for Loan Losses			Charge-offs			Recoveries		Net charge-offs			Allowance for Loan Losses  at September 30, 2012
Commercial and industrial	$	8,900	$	5,525		$	(4,552	)	$	108	$	(4,444	)	$	9,981
Small business		9,702		673			(1,039	)		120		(919	)		9,456
Commercial real estate		48,567		(5,222	)		(5,452	)		1,008		(4,444	)		38,901
Total commercial		67,169		976			(11,043	)		1,236		(9,807	)		58,338
Residential mortgage		27,686		1,957			(3,261	)		746		(2,515	)		27,128
Direct consumer		31,736		263			(6,067	)		1,277		(4,790	)		27,209
Indirect consumer		9,529		1,999			(3,172	)		1,094		(2,078	)		9,450
Total	$	136,120	$	5,195		$	(23,543	)	$	4,353	$	(19,190	)	$	122,125

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	Three Months Ended September 30, 2011
(in thousands)	Allowance for Loan Losses at June 30, 2011		Provision for Loan Losses			Charge-offs			Recoveries		Net charge-offs			Allowance for Loan Losses at September 30, 2011
Commercial and industrial	$	17,618	$	(4,122	)	$	(994	)	$	721	$	(273	)	$	13,223
Small business		12,933		(1,161	)		(1,132	)		180		(952	)		10,820
Commercial real estate		83,627		(1,065	)		(5,860	)		537		(5,323	)		77,239
Total commercial		114,178		(6,348	)		(7,986	)		1,438		(6,548	)		101,282
Residential mortgage		43,925		11,856			(18,369	)		5		(18,364	)		37,417
Direct consumer		32,688		10,888			(6,398	)		688		(5,710	)		37,866
Indirect consumer		15,501		1,085			(3,430	)		633		(2,797	)		13,789
Total	$	206,292	$	17,481		$	(36,183	)	$	2,764	$	(33,419	)	$	190,354
	Nine Months Ended September 30, 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 September 30, 2012
Commercial and industrial	$	14,044	$	5,482		$	(10,607	)	$	1,062	$	(9,545	)	$	9,981
Small business		12,230		1,321			(4,575	)		480		(4,095	)		9,456
Commercial real estate		63,999		(8,609	)		(22,542	)		6,053		(16,489	)		38,901
Total commercial		90,273		(1,806	)		(37,724	)		7,595		(30,129	)		58,338
Residential mortgage		36,460		1,765			(12,443	)		1,346		(11,097	)		27,128
Direct consumer		33,020		15,580			(24,762	)		3,371		(21,391	)		27,209
Indirect consumer		12,973		3,352			(9,580	)		2,705		(6,875	)		9,450
Total	$	172,726	$	18,891		$	(84,509	)	$	15,017	$	(69,492	)	$	122,125
	Nine Months Ended September 30, 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 September 30, 2011
Commercial and industrial	$	26,619	$	18,478		$	(34,722	)	$	2,848	$	(31,874	)	$	13,223
Small business		16,334		3,026			(9,063	)		523		(8,540	)		10,820
Commercial real estate		156,623		59,880			(140,952	)		1,688		(139,264	)		77,239
Total commercial		199,576		81,384			(184,737	)		5,059		(179,678	)		101,282
Residential mortgage		47,623		15,989			(26,431	)		236		(26,195	)		37,417
Direct consumer		32,255		22,422			(19,388	)		2,577		(16,811	)		37,866
Indirect consumer		16,577		4,006			(8,541	)		1,747		(6,794	)		13,789
Total	$	296,031	$	123,801		$	(239,097	)	$	9,619	$	(229,478	)	$	190,354

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

	September 30, 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	$	195	$	9,619	$	167		$	9,981
Small business		—		9,295		161			9,456
Commercial real estate		402		37,843		656			38,901
Total commercial		597		56,757		984			58,338
Residential mortgage		3,724		23,005		399			27,128
Direct consumer		428		26,325		456			27,209
Indirect consumer		—		9,289		161			9,450
Total allowance for loan losses	$	4,749	$	115,376	$	2,000		$	122,125
	September 30, 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	$	2,360	$	1,419,537	$	(5,345	)	$	1,416,552
Small business (1)		188		271,981		275			272,444
Commercial real estate		35,806		1,300,963		(1,168	)		1,335,601
Total commercial		38,354		2,992,481		(6,238	)		3,024,597
Residential mortgage		17,036		553,551		(292	)		570,295
Direct consumer		7,897		855,504		2,376			865,777
Indirect consumer		—		945,098		25,137			970,235
Total portfolio loans	$	63,287	$	5,346,634	$	20,983		$	5,430,904

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

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	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.

	September 30, 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	$	96	$	13,127	$	—	$	13,223
Small business		3		10,817		—		10,820
Commercial real estate		6,148		67,091		4,000		77,239
Total commercial		6,247		91,035		4,000		101,282
Residential mortgage		2,540		34,877		—		37,417
Direct consumer		184		37,682		—		37,866
Indirect consumer		—		13,789		—		13,789
Total allowance for loan losses	$	8,971	$	177,383	$	4,000	$	190,354

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	September 30, 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	$	11,588	$	1,219,532	$	245		$	1,231,365
Small business (1)		562		299,361		204			300,127
Commercial real estate		52,452		1,593,357		(1,908	)		1,643,901
Total commercial		64,602		3,112,250		(1,459	)		3,175,393
Residential mortgage		14,392		640,891		(722	)		654,561
Direct consumer		4,615		950,813		(597	)		954,831
Indirect consumer		474		866,996		20,072			887,542
Total portfolio loans	$	84,083	$	5,570,950	$	17,294		$	5,672,327

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

Impaired loans. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. 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 interest income on nonperforming loans of $0.4 million and $1.9 million for the three and nine months ended September 30, 2012, respectively, and $0.3 million and $1.9 million for the three and nine months ended September 30, 2011, respectively. Had nonaccrual loans performed in accordance with their original contract terms, Citizens would have recognized additional interest income of approximately $1.7 million and $2.7 million for the three and nine months ended September 30, 2012, respectively, and approximately $1.6 million and $3.6 million for the three and nine months ended September 30, 2011, respectively. There were no significant commitments outstanding to lend additional funds to clients whose loans were classified as restructured at September 30, 2012, December 31, 2011, or September 30, 2011.

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

	September 30, 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		Year To Date
Nonaccrual loans (impaired)
Income producing	$	17,333	$	10,644	$	657	$	11,301	$	267	$	14,356	$	15,636
Owner-occupied		13,547		7,149		1,664		8,813		129		11,025		13,406
Total commercial real estate		30,880		17,793		2,321		20,114		396		25,381		29,042
Commercial and industrial		10,941		1,623		736		2,359		195		8,296		7,993
Small business		193		188		—		188		—		191		162
Total commercial		42,014		19,604		3,057		22,661		591		33,868		37,197
Residential mortgage		3,762		230		3,532		3,762		814		4,065		4,770
Direct consumer		1,183		301		882		1,183		82		1,158		1,096
Indirect consumer		—		—		—		—		—		—		239
Total consumer		4,945		531		4,414		4,945		896		5,223		6,105
Total nonaccrual loans (impaired)		46,959		20,135		7,471		27,606		1,487		39,091		43,302
Accrual loans (impaired)
Income producing		873		—		873		873		3		439		3,957
Owner-occupied		14,820		14,176		644		14,820		3		15,098		15,188
Total commercial real estate		15,693		14,176		1,517		15,693		6		15,537		19,145
Small business		—		—		—		—		—		—		244
Total commercial		15,693		14,176		1,517		15,693		6		15,537		19,389
Residential mortgage		13,275		2,707		10,568		13,275		2,910		12,019		10,835
Direct consumer		6,713		4,478		2,235		6,713		346		6,782		5,762
Total consumer		19,988		7,185		12,803		19,988		3,256		18,801		16,597
Total accrual loans (impaired)		35,681		21,361		14,320		35,681		3,262		34,338		35,986
Total impaired loans	$	82,640	$	41,496	$	21,791	$	63,287	$	4,749	$	73,429	$	79,288
	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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	September 30, 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	$	—	$	—	$	—	$	—	$	—	$	—	$	551
Land development		—		—		—		—		—		169		761
Construction		491		93		164		257		4		329		1,930
Income producing		27,646		12,432		7,545		19,977		1,626		18,513		28,706
Owner-occupied		24,955		10,384		11,181		21,565		4,518		18,697		20,981
Total commercial real estate		53,092		22,909		18,890		41,799		6,148		37,708		52,929
Commercial and industrial		20,099		10,689		899		11,588		96		12,448		20,920
Small business		131		—		65		65		3		65		698
Total commercial		73,322		33,598		19,854		53,452		6,247		50,221		74,547
Residential mortgage		13,381		1,841		11,540		13,381		2,509		13,749		11,371
Direct consumer		2,471		844		1,524		2,368		169		1,831		1,632
Indirect consumer		474		474		—		474		—		474		472
Total consumer		16,326		3,159		13,064		16,223		2,678		16,054		13,475
Total nonaccrual loans (impaired)		89,648		36,757		32,918		69,675		8,925		66,275		88,022
Accrual loans (impaired)
Income producing		7,519		7,519		—		7,519		—		7,533		5,639
Owner-occupied		3,134		3,134		—		3,134		—		3,144		3,546
Total commercial real estate		10,653		10,653		—		10,653		—		10,677		9,185
Small business		497		497		—		497		—		500		376
Total commercial		11,150		11,150		—		11,150		—		11,177		9,561
Residential mortgage		1,011		850		161		1,011		31		1,068		1,283
Direct consumer		2,247		2,147		100		2,247		15		2,262		2,084
Total consumer		3,258		2,997		261		3,258		46		3,330		3,367
Total accrual loans (impaired)		14,408		14,147		261		14,408		46		14,507		12,928
Total impaired loans	$	104,056	$	50,904	$	33,179	$	84,083	$	8,971	$	80,782	$	100,950

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 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 September 30, 2012 the majority of Citizens’ TDRs were on accrual status and 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 $27.8 million at September 30, 2012. TDRs of $21.4 million were on accrual status and TDRs of $6.4 million were on nonaccrual status at September 30, 2012. TDRs are evaluated separately in Citizens’ allowance for loan loss methodology based on the expected cash flows or underlying collateral of loans in this status. At September 30, 2012, the allowance for loan losses included specific reserves of $4.2 million related to TDRs, which included $3.7 million related to mortgage TDRs and $0.5 million related to direct consumer TDRs, compared to $2.7 million of specific reserves related to TDRs at September 30, 2011, which included $2.5 million related to mortgage TDRs and $0.2 million related to direct consumer TDRs . Citizens charged off $0.4 million and $1.1 million for the three and nine months ended September 30, 2012, respectively, and $2.1 million and $6.0 million for the three and nine months ended September 30, 2011, respectively, for the portion of TDRs deemed to be uncollectible.

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

	Three Months Ended September 30,
	2012									2011
(in thousands)	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Average Coupon Rate			Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Average Coupon Rate
Residential mortgage		15	$	2,399	$	2,399		2.91	%		10	$	2,265	$	2,411		2.25	%
Direct consumer		5		360		360		3.39			1		331		336		5.10
Total portfolio loans		20	$	2,759	$	2,759		2.97			11	$	2,596	$	2,747		2.60
	Nine Months Ended September 30,
	2012									2011
(in thousands)	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Average Coupon Rate			Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Average Coupon Rate
Commercial and industrial		2	$	1,839	$	1,500		6.50	%		2	$	1,807	$	1,807		6.45	%
Commercial real estate		—		—		—		—			2		11,988		8,283		7.42
Total commercial		2		1,839		1,500		6.50			4		13,795		10,090		7.25
Residential mortgage		29		4,732		4,732		2.69			32		8,092		8,365		2.76
Direct consumer		57		4,163		4,082		4.30			7		1,599		1,605		6.34
Total portfolio loans		88	$	10,734	$	10,314		3.88			43	$	23,486	$	20,060		5.30

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2012		2011		2012		2011
Post Modification Recorded Investment
Extended maturity	$	493	$	—	$	2,486	$	2,202
Interest rate adjustments		679		2,215		3,304		6,989
Combination of rate and maturity		1,562		532		3,735		10,869
Other (1)		25		—		789		—
Total	$	2,759	$	2,747	$	10,314	$	20,060

⁽¹⁾  Other includes covenant 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. At September 30, 2012, there were three loans of approximately $0.3 million modified as a TDR within the last twelve months that were in payment default.

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Note 5. Long-Term Debt

The components of long-term debt are presented below.

(in thousands)	September 30, 2012		December 31, 2011
Citizens (Parent only):
Subordinated debt:
5.75% subordinated notes due February 2013	$	17,214	$	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		656,700		658,484
Other borrowed funds		104,116		104,149
Total long-term debt	$	852,481	$	854,185

Citizens restructured $350.0 million of FHLB advances during the first nine months of 2012, extending the average remaining term on these advances to 9.0 years from 3.2 years and reducing the average interest rate to 2.55% from 3.50%. Throughout 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 September 30, 2012 and December 31, 2011, the amount of the arrearage on the payments on the subordinated debentures associated with the trust preferred securities is $13.8 million and $9.8 million, respectively.

Note 6. Income Taxes

Citizens recorded income tax expense of $1.3 million for the third quarter of 2012, compared to a benefit of $12.6 million for the third quarter of 2011. The tax benefit in 2011 was largely due to Citizens recording a receivable as a result of a revocation of a tax election. For the first nine months of 2012, the income tax benefit totaled $275.5 million, compared with a benefit of $22.8 million for the same period of 2011. The increase in the tax benefit for 2012 was primarily the result of eliminating the valuation allowance against the deferred tax asset. The deferred tax asset is reviewed on a quarterly basis and based on the analysis of positive and negative evidence at June 30, 2012, including the Company’s return to profitability over the past five quarters, no deferred tax asset valuation allowance was deemed necessary as of June 30, 2012. As a result, the deferred tax asset valuation allowance was reversed in the second quarter of 2012. As of September 30, 2012, the recorded balance of the deferred tax asset was $268.3 million, reported in Other Assets on the Consolidated Balance Sheets.

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’

24

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

	September 30, 2012
	Carrying		Estimated		Fair Value Measurements
(in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	162,705	$	162,705	$	—	$	162,705	$	—
Money market investments		223,818		223,818		—		223,818		—
Securities held to maturity		1,313,504		1,378,310		—		1,378,310		—
FHLB and Federal Reserve stock		122,123		122,123		—		122,123		—
Net portfolio loans		5,308,779		5,163,239		—		—		5,163,239
Loans held for sale		30,062		30,062		—		11,815		18,247
Accrued interest receivable		32,088		32,088		—		32,088		—
Financial liabilities:
Deposits		7,302,965		7,324,879		—		7,324,879		—
Short-term borrowings		42,796		42,796		—		42,796		—
Long-term debt		852,481		933,690		56,952		876,738		—
Accrued interest payable		16,900		16,900		—		16,900		—
	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		—

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The carrying amount approximates fair value for cash, money market investments, and accrued interest. The methods and assumptions used to estimate the fair value 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 September 30, 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 September 30, 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.

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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 supported by a group annuity insurance contract issued by Prudential Retirement Insurance and Annuity Company. The investment is recorded at contract value and, based on the nature of the fund, generally approximates fair value. The Guaranteed Income Fund has no maturity date and is secured only by Prudential’s general account. Therefore, the Guaranteed Income Fund is recorded as recurring Level 3.

Impaired Loans. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. 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

27

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 below carrying value.

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

September 30, 2012
(in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale:
Collateralized mortgage obligations	$	411,731	$	—	$	411,725	$	6
Mortgage-backed		1,018,853		—		1,018,853		—
State and municipal		110,696		—		109,988		708
Other		287		—		54		233
Total available for sale		1,541,567		—		1,540,620		947
Other assets:
Derivatives designated as hedging instruments		1,217		—		1,217		—
Derivatives not designated as hedging instruments		14,898		—		14,898		—
Deferred compensation assets		8,796		6,915		—		1,881
Total other assets		24,911		6,915		16,115		1,881
Total	$	1,566,478	$	6,915	$	1,556,735	$	2,828
Other liabilities:
Derivatives designated as hedging instruments	$	7,515	$	—	$	7,515	$	—
Derivatives not designated as hedging instruments		15,521		—		15,521		—
Total	$	23,036	$	—	$	23,036	$	—

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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		20,879		1,686
Total	$	1,342,089	$	6,791	$	1,331,925	$	3,373
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 and nine month periods ended September 30, 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 (1)		Unrealized		Income (Pretax)			Purchases		Sales			Settlements			Period
Three Months Ended September 30, 2012
Securities available for sale
Collateralized mortgage obligations	$	6	$	—	$	—	$	—		$	—	$	—		$	—		$	6
State and municipal		1,447		612		—		99			—		—			(1,450	)		708
Other		233		3		—		(3	)		—		—			—			233
Deferred compensation assets		1,851		—		—		—			538		(508	)		—			1,881
Total	$	3,537	$	615	$	—	$	96		$	538	$	(508	)	$	(1,450	)	$	2,828
Nine Months Ended September 30, 2012
Securities available for sale
Collateralized mortgage obligations	$	8	$	—	$	—	$	—		$	—	$	—		$	(2	)	$	6
State and municipal		1,446		628		—		84			—		—			(1,450	)		708
Other		233		10		—		(10	)		—		—			—			233
Deferred compensation assets		1,686		—		—		—			825		(630	)		—			1,881
Total	$	3,373	$	638	$	—	$	74		$	825	$	(630	)	$	(1,452	)	$	2,828

⁽¹⁾ Net realized gains and losses recorded in earnings include discount accretions.

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

September 30, 2012	Initial Carrying		Fair Value
(in thousands)	Value		Total		Level 1		Level 2		Level 3
Impaired loans	$	78,200	$	31,101	$	—	$	—	$	31,101
Commercial loans held for sale		36		—		—		—		—
Residential mortgage loans held for sale		708		214		—		—		214
Other real estate		3,764		2,244		—		—		2,244
Repossessed assets		2,566		1,412		—		—		1,412
Total	$	85,274	$	34,971	$	—	$	—	$	34,971

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

(in thousands)	Fair Value at September 30, 2012		Valuation Technique	Unobservable Input	Range (Weighted Average)
Securities available for sale:
Collateralized mortgage obligations	$	6	Cost	None  (1)		None
State and municipal		708	Discounted Cash Flow	Liquidity Premium		1.0% - 1.5% (1.4%	)
				Credit Premium		1.3% - 2.7% (2.3%	)
				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%	)
Deferred compensation assets		1,881	Contract Value	None  (2)		None
Impaired loans		31,101	Comparative Sales	Loss Severity Discount		0% - 100% (65%	)
Residential mortgage loans held for sale		214	Comparative Sales	Loss Severity Discount		6% - 100% (70%	)
Other real estate		2,244	Comparative Sales	Loss Severity Discount		2% - 100% (40%	)
Repossessed assets		1,412	Comparative Sales	Loss Severity Discount		45% - 45% (45%	)

⁽¹⁾  Carrying value approximates fair value.

⁽²⁾  Contract 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 material change in fair value.

Note 8. Pension Benefit Cost

Effective December 31, 2006, Citizens’ defined benefit pension plan was “frozen,” preserving prior earned benefits but discontinuing the accrual of further benefits. 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. The components of retirement benefit cost are presented below.

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	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2012			2011			2012			2011
Defined benefit pension plans
Interest cost	$	847		$	955		$	2,610		$	2,865
Expected return on plan assets		(1,055	)		(1,018	)		(3,165	)		(3,053	)
Amortization of unrecognized:
Prior service cost		8			8			23			23
Net actuarial loss		761			833			2,346			2,498
Net pension cost		561			778			1,814			2,333
Supplemental pension plans
Interest cost		11			189			221			567
Amortization of unrecognized:
Net actuarial loss		6			5			29			14
Net pension cost		17			194			250			581
Postretirement benefit plans
Interest cost		19			(43	)		59			245
Amortization of unrecognized:
Prior service cost		(229	)		(107	)		(688	)		(251	)
Net actuarial gain		(45	)		37			(135	)		(107	)
Net postretirement benefit cost		(255	)		(113	)		(764	)		(113	)
Defined contribution retirement and 401(k) plans
Employer contributions		403			—			1,341			—
Total periodic benefit cost	$	726		$	859		$	2,641		$	2,801

Citizens maintains multiple employee benefit plans, including defined benefit pension, supplemental pension, postretirement healthcare, and defined contribution retirement 401(k). Citizens made a cash contribution of $2.7 million to the defined benefit pension plan during the first nine months of 2012 and does not expect to make an additional contribution for the remainder of the year. During the first nine months of 2012, Citizens contributed $0.4 million to the supplemental pension plans and anticipates that an additional $0.1 million of contributions will be made during the remaining three months of the year. Citizens contributed $0.1 million to the postretirement benefit plan during the first nine 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 September 30, 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.

September 30, 2012
(in thousands)	Total		Level 1		Level 2		Level 3
Asset Category
Short-term pooled money fund	$	2,880	$	—	$	2,880	$	—
Equity securities
Large cap		19,005		—		19,005		—
Mid-cap		4,639		—		4,639		—
Small-cap		6,631		—		6,631		—
International equity		9,967		—		9,967		—
Fixed income securities
Intermediate term fixed		22,105		—		22,105		—
Total	$	65,227	$	—	$	65,227	$	—

Note 9. Stock-Based Compensation

Citizens has a stock-based compensation plan authorizing the granting of incentive and nonqualified stock options, nonvested stock awards (also known as restricted stock), restricted stock units, and performance awards to employees and non-employee directors. At September 30, 2012, Citizens had 934,192 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 recognized 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 September 30,						Nine Months Ended September 30,
(in thousands)	2012			2011			2012			2011
Restricted stock compensation and restricted stock unit compensation	$	1,100		$	713		$	2,717		$	2,079
Income tax benefit		(385	)		(250	)		(951	)		(728	)
Total stock-based compensation expense after income taxes	$	715		$	463		$	1,766		$	1,351

New shares are issued when stock options are exercised. Citizens presents excess tax benefits from the exercise of stock options, if any, as financing cash inflows and as operating cash outflows on the Consolidated Statements of Cash Flows.

As of September 30, 2012, $6.5 million of total unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted average period of 1.8 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		299,788			16.85
Vested		(81,299	)		11.33
Forfeited		(26,127	)		11.59
Restricted stock at September 30, 2012 (1)		1,018,331		$	11.28

⁽¹⁾  Includes 75,814 vested shares under restriction prohibiting sale until conditions are met, including two years from grant date and certain TARP payments are made.

The total fair value of restricted stock vested during the nine months ended September 30, 2012 was $1.3 million.

Note 10. Earnings Per Common Share

Earnings per common share is computed using the two-class method. As of September 30, 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 2,919,231 shares. As a result of being anti-dilutive, these shares were excluded from the computation of dilutive earnings per share. A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations follows.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2012			2011			2012			2011
Numerator:
Net Income (loss)	$	20,991		$	32,944		$	349,028		$	(11,577	)
Dividend on redeemable preferred stock		(6,130	)		(5,761	)		(18,127	)		(17,088	)
Net income (loss) attributable to common shareholders		14,861			27,183			330,901			(28,665	)
Net income allocated to participating securities		374			553			7,571			—
Net income (loss) after allocation to participating securities	$	14,487		$	26,630		$	323,330		$	(28,665	)
Denominator:
Weighted average shares outstanding		40,507			40,251			40,393			39,997
Less: participating securities included in weighted average shares outstanding		(1,018	)		(818	)		(924	)		(579	)
Weighted average shares outstanding for basic and dilutive earnings per common share		39,489			39,433			39,469			39,418
Basic net income (loss) per common share	$	0.37		$	0.68		$	8.19		$	(0.73	)
Diluted net income (loss) per common share		0.37			0.68			8.19			(0.73	)

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 $44.2 million and $31.5 million with the dividend payments on the Series A Preferred Stock as of September 30, 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.

Note 11. Lines of Business

Citizens is managed along the following business lines: Regional Banking, Specialty Consumer, Specialty Commercial, Wealth Management, and Other. Selected line of business information for the three and nine months

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ended September 30, 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.

(in thousands)	Regional Banking			Specialty Consumer			Specialty Commercial			Wealth Mgmt		Other			Total
Earnings Summary - Three Months Ended September 30, 2012
Net interest income (taxable equivalent)	$	53,366		$	8,985		$	16,622		$	29	$	(1,694	)	$	77,308
Provision for loan losses		5,692			4,045			(4,542	)		—		—			5,195
Net interest income (loss) after provision		47,674			4,940			21,164			29		(1,694	)		72,113
Noninterest income		17,817			179			531			3,635		1,548			23,710
Noninterest expense		50,555			4,092			3,104			2,394		11,910			72,055
Income (loss) before income taxes		14,936			1,027			18,591			1,270		(12,056	)		23,768
Income tax expense (benefit) (taxable equivalent)		5,228			359			6,507			445		(9,762	)		2,777
Net income (loss)	$	9,708		$	668		$	12,084		$	825	$	(2,294	)	$	20,991
Average assets (in millions)	$	2,989		$	1,600		$	1,244		$	22	$	3,869		$	9,724
Earnings Summary - Three Months Ended September 30, 2011
Net interest income (taxable equivalent)	$	53,340		$	9,962		$	12,917		$	125	$	4,323		$	80,667
Provision for loan losses		5,292			15,267			(3,078	)		—		—			17,481
Net interest income (loss) after provision		48,048			(5,305	)		15,995			125		4,323			63,186
Noninterest income		18,662			59			2,262			3,620		(176	)		24,427
Noninterest expense		53,429			4,010			3,329			2,567		2,076			65,411
Income (loss) before income taxes		13,281			(9,256	)		14,928			1,178		2,071			22,202
Income tax expense (benefit) (taxable equivalent)		4,649			(3,240	)		5,224			412		(17,787	)		(10,742	)
Net income (loss)	$	8,632		$	(6,016	)	$	9,704		$	766	$	19,858		$	32,944
Average assets (in millions)	$	3,196		$	1,650		$	1,041		$	18	$	3,691		$	9,596
(in thousands)	Regional Banking			Specialty Consumer			Specialty Commercial			Wealth Mgmt		Other			Total
Earnings Summary - Nine Months Ended September 30, 2012
Net interest income (taxable equivalent)	$	156,909		$	25,882		$	48,670		$	87	$	661		$	232,209
Provision for loan losses		24,024			6,666			(11,799	)		—		—			18,891
Net interest income after provision		132,885			19,216			60,469			87		661			213,318
Noninterest income		52,512			546			1,914			10,819		4,505			70,296
Noninterest expense		151,905			12,692			9,573			7,377		23,947			205,494
Income (loss) before income taxes		33,492			7,070			52,810			3,529		(18,781	)		78,120
Income tax expense (benefit) (taxable equivalent)		11,722			2,475			18,484			1,235		(304,824	)		(270,908	)
Net income	$	21,770		$	4,595		$	34,326		$	2,294	$	286,043		$	349,028
Average assets (in millions)	$	3,016		$	1,576		$	1,225		$	22	$	3,720		$	9,559
Earnings Summary - Nine Months Ended September 30, 2011
Net interest income (taxable equivalent)	$	162,701		$	28,132		$	34,247		$	423	$	15,370		$	240,873
Provision for loan losses		56,710			26,533			40,558			—		—			123,801
Net interest income (loss) after provision		105,991			1,599			(6,311	)		423		15,370			117,072
Noninterest income		53,208			1,716			3,181			11,355		1,435			70,895
Noninterest expense		164,598			13,997			12,100			7,226		18,590			216,511
Income (loss) before income taxes		(5,399	)		(10,682	)		(15,230	)		4,552		(1,785	)		(28,544	)
Income tax expense (benefit) (taxable equivalent)		(1,890	)		(3,739	)		(5,331	)		1,593		(7,600	)		(16,967	)
Net income (loss)	$	(3,509	)	$	(6,943	)	$	(9,899	)	$	2,959	$	5,815		$	(11,577	)
Average assets (in millions)	$	3,324		$	1,645		$	1,055		$	18	$	3,677		$	9,719

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

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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.

(in thousands)	September 30, 2012		December 31, 2011
Loan commitments and letters of credit:
Commitments to extend credit	$	943,985	$	932,435
Asset-based lending participations		86,467		151,194
Financial standby letters of credit		109,611		125,401
Performance standby letters of credit		1,756		3,571
Deferred standby letter of credit fees		601		1,123

At September 30, 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 periods ended September 30, 2012 and 2011, Citizens repurchased $2.3 million and $1.0 million of loans, respectively, pursuant to such provisions. Citizens recorded $1.3 million and $0.5 million for the three month periods ended September 30, 2012 and 2011, respectively, in Other Expense on the Consolidated Statements of Operations related to repurchasing or indemnifying such loans. For the nine month periods ended September 30, 2012 and 2011, Citizens repurchased $4.7 million and $1.5 million of loans, respectively, pursuant to such provisions. Citizens recorded $4.9 million and $3.5 million for the nine month periods ended September 30, 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. When entering into an interest rate swap, Citizens and a counterparty agree to exchange cash flows based on a specified notional amount multiplied by an interest rate. Typically Citizens will pay a fixed rate and receive a floating rate (or vice versa), though paying one floating rate and receiving another is possible. In all cases the underlying notional amount is not exchanged. When Citizens purchases an interest rate cap, it receives variable-rate amounts from a counterparty if a specific interest rate index rises above the strike rate on the contract in exchange for an upfront premium.

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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)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Derivatives designated as hedging instruments
Interest rate products	$	1,217	$	3,791	$	7,515	$	2,317
Derivatives not designated as hedging instruments
Interest rate products		14,898		17,088		15,521		17,614
Total derivatives	$	16,115	$	20,879	$	23,036	$	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. Citizens had twelve interest rate caps and swaps with an aggregate notional amount of $385.0 million at September 30, 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 and nine months ended September 30, 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 for the nine months ended September 30, 2012 and $0.2 million and $0.7 million for the three and nine months ended September 30, 2011, respectively, to earnings as a result of the hedged forecasted transactions becoming probable not to occur. There was no reclassification of unrealized gains accelerated for the three months ended September 30, 2012. During the next twelve months, Citizens estimates that there will be no derivatives reclassified as an increase to interest income and $2.6 million as an increase to interest expense.

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

	Derivative Impact on OCI Gain (Loss)
Derivatives Relationship (in thousands)	Recognized in OCI						Location Reclassified in Statement of Operations	Reclassified from Accumulated OCI into Statement of Operations
	Three Months Ended September 30,							Three Months Ended September 30,
	2012			2011				2012			2011
Cash flow hedges:							Interest income	$	34		$	547
Interest rate products	$	(2,665	)	$	(697	)	Interest expense		(634	)		—
							Other income		—			182
Total	$	(2,665	)	$	(697	)		$	(600	)	$	729
	Derivative Impact on OCI Gain (Loss)
Derivatives Relationship (in thousands)	Recognized in OCI						Location Reclassified in Statement of Operations	Reclassified from Accumulated OCI into Statement of Operations
	Nine Months Ended September 30,							Nine Months Ended September 30,
	2012			2011				2012			2011
Cash flow hedges:							Interest income	$	406		$	2,418
Interest rate products	$	(9,541	)	$	(680	)	Interest expense		(1,843	)		—
							Other income		6			717
Total	$	(9,541	)	$	(680	)		$	(1,431	)	$	3,135

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. At September 30, 2012, Citizens had no derivatives 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 in the Statements of Operations as the offsetting loss or gain on the related derivatives. During the three and nine months ended September 30, 2012 and the three months ended September 30, 2011, Citizens did not recognize any gains in interest expense related to hedge ineffectiveness. Citizens recognized gains of $0.7 million in interest expense related to hedge ineffectiveness for the nine months ended September 30, 2011. Citizens recognized no net reduction to interest expense during the three and nine months ended September 30, 2012 and the three months ended September 30, 2011. Citizens recognized a net reduction to interest expense of $0.4 million during the nine months ended September 30, 2011, which includes net settlements of the derivatives and any amortization adjustment in the basis of the hedged item. In addition, during the three and nine months ended September 30, 2012 and September 30, 2011, Citizens recognized a net reduction to interest expense of $0.1 million, $0.4 million, $0.2 million and $0.6 million, respectively, related to the amortization adjustment of the basis in the hedged items that were in a hedging relationship with hedges that were terminated.

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

	Derivative Contract (Loss) Gain							Hedged Item Gain (Loss)
Derivatives Relationship (in thousands)	Location in Statement of Operations		Three Months Ended September 30,					Location in Statement of Operations		Three Months Ended September 30,
			2012		2011					2012		2011
Fair value hedges:
Interest rate products		Interest expense	$	—	$	—			Interest expense	$	—	$	—
	Derivative Contract (Loss) Gain							Hedged Item Gain (Loss)
	Location in Statement of Operations		Nine Months Ended September 30,					Location in Statement of Operations		Nine Months Ended September 30,
Derivatives Relationship (in thousands)			2012		2011					2012		2011
Fair value hedges:
Interest rate products		Interest expense	$	—	$	(1,107	)		Interest expense	$	—	$	1,818

Derivatives Not Designated as Hedges. Citizens does not use derivatives for trading or speculative purposes and does not use credit derivatives for any purpose. Derivatives not designated as hedges are used to manage Citizens’ exposure to interest rate movements and other identified risks but do not satisfy the conditions for hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly into earnings. Additionally, Citizens holds interest rate derivatives, including interest rate swaps and option products, resulting from a service Citizens provides to certain clients. Citizens executes interest rate derivatives with commercial banking clients to facilitate their respective risk management strategies. Those derivatives are simultaneously hedged by offsetting derivatives that Citizens executes with a third party, such that Citizens minimizes its net risk exposure resulting from such transactions. As of September 30, 2012 and December 31, 2011, Citizens had 140 derivative transactions with an aggregate notional amount of $501.3 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 Consolidated Financial Statements.

		Amount of (Loss) Gain Recognized in Statement of Operations
Derivatives Relationship	Location of (Loss) Gain Recognized in Statement of Operations	Three Months Ended September 30,
(in thousands)		2012			2011
Derivatives not designated as hedges - Interest rate products	Other income	$	(83	)	$	(268	)
		Amount of (Loss) Gain
Derivatives Relationship	Location of (Loss) Gain Recognized in Statement of Operations	Nine Months Ended September 30,
(in thousands)		2012			2011
Derivatives not designated as hedges - Interest rate products	Other income	$	(96	)	$	(458	)

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.

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As of September 30, 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 $21.8 million. As of September 30, 2012, Citizens had minimum collateral posting requirements with its derivative counterparties resulting in assigned collateral of $30.6 million. As of September 30, 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 September 30, 2012, the termination value approximated $5.6 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 $30.6 million.

Note 14. Regulatory Matters

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.

Note 15. Business Combination

On September 13, 2012, Citizens and FirstMerit Corporation (“FirstMerit”) announced the signing of a definitive agreement under which FirstMerit will acquire Citizens in a stock-for-stock merger transaction. Under the terms of the agreement, Citizens’ shareholders will receive a fixed 1.37 shares of FirstMerit common stock in exchange for each share of Citizens’ common stock.

Subject to receipt of requisite approvals, FirstMerit also expects to repay Citizens’ approximately $345 million of TARP preferred stock, which includes $45 million of estimated deferred dividends, held by the U.S. Treasury at closing. The merger has been unanimously approved by the Boards of Directors of both Citizens and FirstMerit and is subject to customary closing conditions, including receipt of regulatory approvals and approval by both companies’ shareholders. In the third quarter of 2012, Citizens recorded $4.4 million of merger-related expenses in professional services. The transaction is expected to close in the second quarter of 2013.

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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
	September 30,			June 30,			March 31,			December 31,			September 30,
(in thousands, except per share amounts)	2012			2012			2012			2011			2011
Summary of Operations
Net interest income	$	75,805		$	75,680		$	76,119		$	78,049		$	78,841
Provision for loan losses		5,195			5,299			8,397			15,007			17,481
Noninterest income		23,710			22,345			24,240			24,363			24,427
Noninterest expense		72,055			66,339			67,101			66,640			65,411
Income before income taxes		22,265			26,387			24,861			20,765			20,376
Income tax provision (benefit) (1)		1,274			(276,789	)		—			2,521			(12,568	)
Net income		20,991			303,176			24,861			18,244			32,944
Net income attributable to common shareholders (2)		14,861			297,134			18,906			12,347			27,183
Taxable equivalent adjustment		1,503			1,532			1,571			1,670			1,827
Per Common Share Data (3)
Net income:
Basic	$	0.37		$	7.35		$	0.47		$	0.31		$	0.68
Diluted		0.37			7.35			0.47			0.31			0.68
Common book value		26.36			25.85			18.83			18.24			18.03
Tangible book value (non-GAAP)		25.53			24.97			17.88			17.24			16.96
Tangible common book value (non-GAAP)		18.36			17.84			10.75			10.16			9.92
Shares outstanding, end of period (4)		40,508,823			40,504,637			40,247,241			40,260,213			40,255,758
At Period End
Assets	$	9,724,790		$	9,670,493		$	9,577,346		$	9,462,849		$	9,600,188
Earning assets		8,600,731			8,588,343			8,774,119			8,680,995			8,824,183
Portfolio loans		5,430,904			5,521,748			5,528,063			5,529,535			5,672,327
Allowance for loan losses		122,125			136,120			153,007			172,726			190,354
Deposits		7,302,965			7,287,709			7,490,362			7,394,941			7,539,904
Long-term debt		852,481			853,042			853,599			854,185			855,670
Shareholders’ equity		1,358,197			1,335,855			1,044,619			1,019,537			1,009,143
Average for the Quarter
Assets	$	9,723,587		$	9,429,050		$	9,521,386		$	9,523,184		$	9,596,275
Earning assets		8,638,390			8,622,067			8,750,078			8,761,435			8,856,072
Portfolio loans		5,501,400			5,517,726			5,508,528			5,632,432			5,663,058
Allowance for loan losses		135,968			152,154			172,509			190,163			206,119
Deposits		7,323,753			7,317,653			7,441,693			7,452,137			7,546,615
Long-term debt		852,776			853,333			853,912			856,206			862,479
Shareholders’ equity		1,345,817			1,061,519			1,028,494			1,017,082			991,602
Financial Ratios (annualized)
Return on average assets		0.86	%		12.93	%		1.05	%		0.76	%		1.36	%
Return on average shareholders’ equity		6.20			114.87			9.72			7.12			13.18
Average shareholders’ equity / average assets		13.84			11.26			10.80			10.68			10.33
Net interest margin (FTE) (5)		3.57			3.60			3.56			3.62			3.63
Efficiency ratio (non-GAAP) (6)		65.20			65.99			65.20			61.39			59.89
Allowance for loan losses as a percent of portfolio loans		2.25			2.47			2.77			3.12			3.36
Allowance for loan losses as a percent of nonperforming loans(7)		191.29			161.53			202.56			197.56			190.09
Allowance for loan losses as a percent of nonperforming assets(7)		141.69			144.85			168.87			168.97			139.01
Nonperforming loans as a percent of portfolio loans(7)		1.18			1.53			1.37			1.58			1.77
Nonperforming assets as a percent of total loans plus ORAA(7)(8)		1.58			1.69			1.63			1.84			2.39
Nonperforming assets as a percent of total assets(7)		0.89			0.97			0.95			1.08			1.43
Ratio of net charge-offs during period to average portfolio loans		1.39			1.62			2.05			2.30			2.34
Leverage ratio		9.66			9.77			8.71			8.45			8.21
Tier 1 capital ratio		15.09			14.70			13.70			13.51			12.81
Total capital ratio		16.35			15.96			14.97			14.84			14.14

⁽¹⁾  Second quarter 2012 benefit is directly related to the restoration of the deferred tax asset.

⁽²⁾  Net income attributable to common shareholders includes a non-cash dividend to preferred shareholders of $6.0 million in the third, second, and first quarters of 2012 and $5.9 million, and $5.8 million in the fourth and third quarters of 2011.

⁽³⁾ Earnings per share in the second quarter of 2012 includes a tax benefit of $6.85 per share related to restoring the deferred tax asset.

⁽⁴⁾  Includes participating shares which are restricted stock units and restricted shares.

⁽⁵⁾  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%.

⁽⁶⁾  Efficiency ratio (non-GAAP) is calculated as follows: (Noninterest expense-Losses on other real estate (“ORE”)-ORE expenses-Intangible amortization-Merger related expenses)/(Net interest income+Taxable equivalent adjustment+Total noninterest income-Investment securities gains(losses)).

⁽⁷⁾  Nonperforming loans/assets exclude troubled debt restructurings (TDRs) that are on an accrual status and performing in accordance with their modified terms.

⁽⁸⁾  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 and nine months ended September 30, 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 Company,” “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.

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, or 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. 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.

• Citizens will be subject to contractual restrictions and business uncertainties while the FirstMerit merger is pending.

• The merger is subject to certain closing conditions that, if not satisfied or waived, will result in the merger not being completed. Failure to complete the merger with FirstMerit could negatively affect our business.

• The merger is subject to the receipt of consents and approvals from governmental entities that may impose conditions that could have an adverse effect on the combined company following the merger.

• Citizens cannot be sure of the market value of the merger consideration that its common shareholders will receive as a result of the announced merger with FirstMerit.

• Citizens may fail to realize all of the anticipated benefits of the merger.

• The merger agreement limits Citizens’ ability to pursue an alternative acquisition proposal and requires Citizens to pay a termination fee of $37.5 million under limited circumstances relating to alternative acquisition proposals.

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 website www.sec.gov. Other factors not currently anticipated may also materially and adversely affect Citizens’ results of operations, cash flows, financial position, and prospects. There can be no assurance that future results will meet expectations. While Citizens believes that the forward-looking statements in this report are reasonable, the reader should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. Citizens does not undertake, and expressly disclaims any obligation to update or alter any statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Recent Developments

On September 13, 2012, Citizens and FirstMerit Corporation (“FirstMerit”) announced the signing of a definitive agreement under which FirstMerit will acquire Citizens in a stock-for-stock merger transaction. Under the terms of the agreement, Citizens’ shareholders will receive a fixed 1.37 shares of FirstMerit common stock in exchange for each share of Citizens’ common stock.

Subject to receipt of requisite approvals, FirstMerit is also required to repay Citizens’ approximately $345 million of TARP preferred stock, which includes $45 million of estimated deferred dividends, held by the U.S. Treasury at closing. The merger has been unanimously approved by the Boards of Directors of both Citizens and FirstMerit and is subject to customary closing conditions, including receipt of regulatory approvals and approval by both companies’ shareholders. The transaction is expected to close in the second quarter of 2013. For additional information, please refer to the Merger Agreement that was filed by Citizens with the SEC as an Exhibit to Form 8-K on September 14, 2012.

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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 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

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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, merger-related expenses, 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.

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 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 $1.3 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.

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The following tables display 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. The quantitative reconciliation of adjusted net income attributable to common shareholders to GAAP net income attributable to common shareholders is provided for the three and nine months ending September 30, 2012 and 2011, respectively.

Non-GAAP Reconciliation

(in thousands)	September 30, 2012			June 30, 2012			March 31, 2012			December 31, 2011			September 30, 2011
Efficiency Ratio (non-GAAP)
Net interest income (A)	$	75,805		$	75,680		$	76,119		$	78,049		$	78,841
Taxable equivalent adjustment (B)		1,503			1,532			1,571			1,670			1,827
Investment securities gains (losses) (C)		—			—			—			38			3
Noninterest income (D)		23,710			22,345			24,240			24,363			24,427
Noninterest expense (E)		72,055			66,339			67,101			66,640			65,411
(Gains) losses on ORE and ORE expenses (F)		1,264			93			65			2,076			1,739
Intangible amortization (G)		513			545			578			688			732
Merger-related expenses (H)		4,411			—			—			—			—
Efficiency ratio: (E-F-G-H)/(A+B-C+D) (non-GAAP)		65.20	%		65.99	%		65.20	%		61.39	%		59.89	%
Tangible Common Equity to Tangible Assets (non-GAAP)
Total assets	$	9,724,790		$	9,670,493		$	9,577,346		$	9,462,849		$	9,600,188
Goodwill		(318,150	)		(318,150	)		(318,150	)		(318,150	)		(318,150	)
Other intangible assets		(5,792	)		(6,305	)		(6,850	)		(7,428	)		(8,116	)
Tangible assets (non-GAAP)	$	9,400,848		$	9,346,038		$	9,252,346		$	9,137,271		$	9,273,922
Total shareholders’ equity	$	1,358,197		$	1,335,855		$	1,044,619		$	1,019,537		$	1,009,143
Goodwill		(318,150	)		(318,150	)		(318,150	)		(318,150	)		(318,150	)
Other intangible assets		(5,792	)		(6,305	)		(6,850	)		(7,428	)		(8,116	)
Tangible equity (non-GAAP)	$	1,034,255		$	1,011,400		$	719,619		$	693,959		$	682,877
Tangible equity	$	1,034,255		$	1,011,400		$	719,619		$	693,959		$	682,877
Preferred stock		(290,580	)		(288,723	)		(286,901	)		(285,114	)		(283,360	)
Tangible common equity (non-GAAP)	$	743,675		$	722,677		$	432,718		$	408,845		$	399,517
Tier 1 Common Equity (non-GAAP)
Total shareholders’ equity	$	1,358,197		$	1,335,855		$	1,044,619		$	1,019,537		$	1,009,143
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		5,649			10,268			1,955			5,820			1,075
Disallowed deferred tax asset		(235,461	)		(235,529	)		—			—			—
Other intangible assets		(5,792	)		(6,305	)		(6,850	)		(7,428	)		(8,116	)
Tier 1 capital (regulatory)	$	878,110		$	859,806		$	795,241		$	773,446		$	757,619
Tier 1 capital (regulatory)	$	878,110		$	859,806		$	795,241		$	773,446		$	757,619
Qualifying capital securities		(73,667	)		(73,667	)		(73,667	)		(73,667	)		(73,667	)
Preferred stock		(290,580	)		(288,723	)		(286,901	)		(285,114	)		(283,360	)
Total Tier 1 common equity (non-GAAP)	$	513,863		$	497,416		$	434,673		$	414,665		$	400,592
Net risk-weighted assets (regulatory)	$	5,821,748		$	5,851,871		$	5,803,811		$	5,723,333		$	5,912,527
Equity to assets		13.97	%		13.81	%		10.91	%		10.77	%		10.51	%
Tier 1 common equity (non-GAAP)		8.83			8.50			7.49			7.24			6.77
Tangible equity to tangible assets (non-GAAP)		11.00			10.82			7.78			7.59			7.36
Tangible common equity to tangible assets (non-GAAP)		7.91			7.73			4.68			4.47			4.31

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Non-GAAP Reconciliation

Adjusted earnings per share

	Nine Months Ended September 30,
(in thousands, except per share amounts)	2012		2011
Earnings per Share
Diluted net income (loss) per share	$	8.19	$	(0.73	)
Restoration of the deferred tax asset		6.82		—
Diluted net income (loss) per share (non-GAAP)	$	1.37	$	(0.73	)

An itemized reconciliation between net income on a GAAP basis and net income excluding the benefit of restoring the deferred tax asset (non-GAAP) follows:

Numerator:
Net income (loss)	$	349,028		$	(11,577	)
Restoration of the deferred tax asset		(275,484	)		—
Net income (loss) (non-GAAP)		73,544			(11,577	)
Dividend on redeemable preferred stock		(18,127	)		(17,088	)
Net income (loss) attributable to common shareholders (non-GAAP)		55,417			(28,665	)
Net income allocated to participating securities		1,268			—
Net income (loss) after allocation to participating securities (non-GAAP)	$	54,149		$	(28,665	)
Denominator:
Weighted average shares outstanding for basic and dilutive earnings per common share		39,469			39,418
Basic net income (loss) per common share (non-GAAP)	$	1.37		$	(0.73	)
Diluted net income (loss) per common share (non-GAAP)		1.37			(0.73	)

Results of Operations

Summary

Citizens reported net income of $21.0 million for the three months ended September 30, 2012, compared to $32.9 million for the third quarter of 2011. After incorporating the $6.1 million accrued but unpaid dividend to the preferred shareholder, Citizens reported net income attributable to common shareholders of $14.9 million for the three months ended September 30, 2012, compared to $27.2 million for the third quarter of 2011. Diluted net income per share was $0.37 for the third quarter of 2012, compared to $0.68 for the third quarter of 2011. For the nine months ended September 30, 2012, Citizens recorded net income attributable to common shareholders of $330.9 million, compared with a net loss attributable to common shareholders of $28.7 million for the same period of 2011. Year to date 2012 results include $275.5 million or $6.82 per share tax benefit related to the restoration of the company’s deferred tax asset in the second quarter of 2012.

Key factors behind the results for the third quarter of 2012 compared with the third quarter of 2011 follow.

• An income tax expense of $1.3 million for the third quarter of 2012 compared to a $12.6 million tax benefit in the third quarter of 2011. The tax benefit in 2011 was largely due to Citizens recording a receivable as a result of a revocation of a tax election.

• 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.

• An increase in noninterest expense from 2011 as a result of $4.4 million in merger-related expenses, higher salaries, incentives and costs related to the reinstatement of the employer matching in the 401(k) plan, and higher data processing services.

• A decrease in net interest income from 2011 reflecting lower net interest margin and a reduction in average earning assets.

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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)	September 30, 2012			June 30, 2012			March 31, 2012			December 31, 2011			September 30, 2011
Net income	$	20,991		$	303,176		$	24,861		$	18,244		$	32,944
Income tax provision (benefit)		1,274			(276,789	)		—			2,521			(12,568	)
Provision for loan losses		5,195			5,299			8,397			15,007			17,481
Net losses (gains) on loans held for sale		184			(6	)		(916	)		217			(1,952	)
Investment securities (gains) losses		—			—			—			(38	)		(3	)
Losses (gains) on other real estate (ORE)		941			(173	)		(385	)		1,081			1,210
Merger-related expenses(1)		4,411			—			—			—			—
Fair-value adjustment on bank owned life insurance(2)		(31	)		118			(205	)		(100	)		385
Fair-value adjustment on swaps (2)		83			74			(61	)		(46	)		268
Pre-tax pre-provision profit (non-GAAP)	$	33,048		$	31,699		$	31,691		$	36,886		$	37,765

⁽¹⁾  Merger-related expenses are contained in line item “Professional services” on Consolidated Statements of Operations.

⁽²⁾  Fair-value adjustment amounts contained in line item “Other income” on Consolidated Statements of Operations.

The balance sheet grew $261.9 million to $9.7 billion compared to December 31, 2011 as a result of restoring the deferred tax asset in the second quarter of 2012. Core deposits were up $328.5 million or 6.3% over December 31, 2011, reflecting our focus on generating and growing core deposit relationships. Time deposits at September 30, 2012 decreased $420.4 million or 19.1% from the end of last year as we continue to strategically reduce high cost single service and brokered time deposits. Loan balances were essentially unchanged as the growth in our C&I and indirect portfolios was offset by declines in our CRE, residential mortgage, and direct portfolios.

Compared to September 30, 2011, the balance sheet grew $124.6 million as a result of restoring the deferred tax asset. Core deposits were up $302.9 million or 5.8% compared to September 2011, reflecting our focus on generating and growing core deposit relationships. This growth in core deposits was utilized to reduce reliance on more expensive time deposits. Time deposits at September 30, 2012 decreased $539.8 million or 23.3% from last September as we continue to strategically reduce high cost single service and brokered time deposits. Loan balances declined as the growth in our C&I and indirect portfolios was more than offset by declines in our CRE, direct, and residential mortgage portfolios. The decline in our loan portfolio was more than offset by reductions in the allowance for loan losses and the restoration of the deferred tax asset.

Citizens maintains a strong liquidity position, with on- and off-balance sheet liquidity sources and a stable funding base comprised of approximately 75% deposits, 9% long-term debt, 14% 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.

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.

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Average Balances/Net Interest Income/Average Rates

	Three Months Ended
	September 30,
	2012								2011
	Average					Average			Average					Average
(in thousands)	Balance			Interest (1)		Rate (2)			Balance			Interest (1)		Rate (2)
Earning Assets
Money market investments	$	238,492		$	152		0.25	%	$	270,422		$	168		0.25	%
Investment securities(3):
Taxable		2,557,793			16,034		2.51			2,536,944			20,508		3.23
Tax-exempt		205,572			2,157		6.46			242,494			2,613		6.63
FHLB and Federal Reserve stock		122,123			1,196		3.90			123,906			974		3.13
Portfolio loans (4):
Commercial and industrial		1,713,382			23,000		5.42			1,440,968			18,599		5.24
Commercial real estate		1,382,873			16,720		4.81			1,678,996			21,445		5.07
Residential mortgage		580,002			6,326		4.36			693,494			7,723		4.45
Direct consumer		873,057			12,741		5.81			967,443			14,634		6.00
Indirect consumer		952,086			14,478		6.05			882,157			14,597		6.56
Total portfolio loans		5,501,400			73,265		5.33			5,663,058			76,998		5.43
Loans held for sale (4)		13,010			111		3.40			19,248			214		4.44
Total earning assets		8,638,390			92,915		4.36			8,856,072			101,475		4.64
Nonearning Assets
Cash and due from banks		145,961								147,044
Premises and equipment		92,775								99,835
Investment security fair value adjustment		54,807								46,558
Other nonearning assets		927,622								652,885
Allowance for loan losses		(135,968	)							(206,119	)
Total assets	$	9,723,587							$	9,596,275
Interest-Bearing Liabilities
Deposits:
Interest-bearing demand deposits	$	1,073,294		$	348		0.13		$	976,637		$	510		0.21
Savings deposits		2,602,216			1,314		0.20			2,648,640			2,206		0.33
Time deposits		1,825,144			7,117		1.55			2,380,333			10,812		1.80
Short-term borrowings		45,974			11		0.10			43,445			20		0.18
Long-term debt		852,776			8,320		3.89			862,479			9,086		4.19
Total interest-bearing liabilities		6,399,404			17,110		1.06			6,911,534			22,634		1.30
Noninterest-Bearing Liabilities and Shareholders’ Equity
Noninterest-bearing demand		1,823,099								1,541,005
Other liabilities		155,267								152,134
Shareholders’ equity		1,345,817								991,602
Total liabilities and shareholders’ equity	$	9,723,587							$	9,596,275
Interest Spread (5)				$	75,805		3.29	%				$	78,841		3.34	%
Contribution of noninterest bearing sources of funds							0.28								0.29
Net Interest Margin (5)(6)							3.57	%							3.63	%

⁽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 $1.5 million and $1.8 million, for the three months ended September 30, 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.

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Average Balances/Net Interest Income/Average Rates

	Nine Months Ended
	September 30,
	2012								2011
	Average					Average			Average					Average
(in thousands)	Balance			Interest (1)		Rate (2)			Balance			Interest (1)		Rate (2)
Earning Assets
Money market investments	$	257,535		$	481		0.25	%	$	362,983		$	670		0.25	%
Investment securities(3):
Taxable		2,561,262			49,356		2.57			2,432,220			60,664		3.33
Tax-exempt		210,096			6,610		6.45			258,524			8,412		6.67
FHLB and Federal Reserve stock		119,834			3,487		3.88			134,998			3,143		3.11
Portfolio loans (4):
Commercial and industrial		1,651,213			66,833		5.49			1,404,081			51,955		5.07
Commercial real estate		1,456,217			54,143		4.97			1,828,800			70,348		5.14
Residential mortgage		602,970			19,650		4.35			718,039			25,177		4.68
Direct consumer		894,603			39,259		5.86			994,185			45,055		6.06
Indirect consumer		904,188			41,981		6.20			847,878			42,335		6.68
Total portfolio loans		5,509,191			221,866		5.40			5,792,983			234,870		5.44
Loans held for sale (4)		12,145			339		3.72			26,739			730		3.65
Total earning assets		8,670,063			282,139		4.42			9,008,447			308,489		4.66
Nonearning Assets
Cash and due from banks		143,373								143,254
Premises and equipment		94,858								101,846
Investment security fair value adjustment		52,778								44,256
Other nonearning assets		751,020								662,565
Allowance for loan losses		(153,480	)							(241,431	)
Total assets	$	9,558,612							$	9,718,937
Interest-Bearing Liabilities
Deposits:
Interest-bearing demand deposits	$	1,012,171		$	1,105		0.15		$	958,634		$	1,602		0.22
Savings deposits		2,662,533			4,722		0.24			2,633,255			7,224		0.37
Time deposits		1,956,304			23,416		1.60			2,564,001			36,119		1.88
Short-term borrowings		40,621			42		0.14			41,999			57		0.18
Long-term debt		853,339			25,251		3.95			912,755			28,426		4.16
Total interest-bearing liabilities		6,524,968			54,536		1.12			7,110,644			73,428		1.38
Noninterest-Bearing Liabilities and Shareholders’ Equity
Noninterest-bearing demand		1,729,889								1,470,866
Other liabilities		157,746								151,525
Shareholders’ equity		1,146,009								985,902
Total liabilities and shareholders’ equity	$	9,558,612							$	9,718,937
Interest Spread (5)				$	227,603		3.30	%				$	235,061		3.28	%
Contribution of noninterest bearing sources of funds							0.28								0.29
Net Interest Margin (5)(6)							3.58	%							3.57	%

⁽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 $4.6 million and $5.8 million, for the nine months ended 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.

The decrease in net interest margin in the three months ended September 30, 2012 from the comparable period of 2011 was a result of the continued low interest rate environment and competitive pressures on our loan portfolio, partially offset by reduced funding costs. The increase in net interest margin for the nine months ended September 30, 2012 over the comparable periods of 2011 was a result of efforts to reduce funding costs by improving deposit mix, carefully managing deposit rates, reducing reliance on brokered time deposits, and reducing costs on long term debt by extending maturities. The benefits from these initiatives were offset by lower investment securities and loan portfolio yields due to the continued low interest rate environment and competitive pressures.

The decrease in net interest income in the three months ended September 30, 2012 from the comparable periods of 2011 reflects lower net interest margin and a reduction in average earnings assets. For the nine months ended September 30, 2012, net interest income decreased compared to the same period last year due to a reduction in average earnings 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 September 30,									Nine Months Ended September 30,
				Increase (Decrease)									Increase (Decrease)
2012 compared with 2011	Net			Due to Change in						Net			Due to Change in
(in thousands)	Change(1)			Rate (2)			Volume(2)			Change(1)			Rate (2)			Volume(2)
Interest Income on Earning Assets:
Money market investments	$	(16	)	$	4		$	(20	)	$	(189	)	$	5		$	(194	)
Investment securities:
Taxable		(4,474	)		(4,641	)		167			(11,308	)		(14,388	)		3,080
Tax-exempt		(456	)		(67	)		(389	)		(1,802	)		(271	)		(1,531	)
FHLB and Federal Reserve stock		222			236			(14	)		344			724			(380	)
Loans:
Commercial and industrial		4,401			769			3,632			14,878			5,040			9,838
Commercial real estate		(4,725	)		(1,098	)		(3,627	)		(16,205	)		(2,496	)		(13,709	)
Residential mortgage loans		(1,397	)		(156	)		(1,241	)		(5,527	)		(1,690	)		(3,837	)
Direct consumer		(1,893	)		(502	)		(1,391	)		(5,796	)		(1,511	)		(4,285	)
Indirect consumer		(119	)		(1,230	)		1,111			(354	)		(3,146	)		2,792
Total portfolio loans		(3,733	)		(2,217	)		(1,516	)		(13,004	)		(3,803	)		(9,201	)
Loans held for sale		(103	)		(43	)		(60	)		(391	)		16			(407	)
Total		(8,560	)		(6,728	)		(1,832	)		(26,350	)		(17,717	)		(8,633	)
Interest Expense on Interest-Bearing Liabilities:
Deposits:
Interest-bearing demand deposits		(162	)		(209	)		47			(497	)		(583	)		86
Savings deposits		(892	)		(854	)		(38	)		(2,502	)		(2,582	)		80
Time Deposits		(3,695	)		(1,395	)		(2,300	)		(12,703	)		(5,003	)		(7,700	)
Short-term borrowings		(9	)		(10	)		1			(15	)		(13	)		(2	)
Long-term debt		(766	)		(665	)		(101	)		(3,175	)		(1,432	)		(1,743	)
Total		(5,524	)		(3,133	)		(2,391	)		(18,892	)		(9,613	)		(9,279	)
Net Interest Income	$	(3,036	)	$	(3,595	)	$	559		$	(7,458	)	$	(8,104	)	$	646

⁽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 decreases in net interest income in the three and nine months ended September 30, 2012 from the comparable periods of 2011 reflect rate variances that were unfavorable in the aggregate and volume variances that were favorable in the aggregate. The rate variances were the result of the low interest rate environment, with unfavorable rate variances on assets partially offset by favorable rate variances on liabilities. Volume variances were favorable in the aggregate, as reductions in time deposits and long-term debt balances and an increase in investment securities balances were partially offset by a reduction in total portfolio loan balances.

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Noninterest Income

The components of noninterest income are presented below.

Noninterest Income

	Three Months Ended September 30,					Change in 2012						Nine Months Ended September 30,					Change in 2012
(dollars in thousands)	2012			2011		Amount			Percent			2012		2011			Amount			Percent
Service charges on deposit accounts	$	9,554		$	10,362	$	(808	)		(7.8	)%	$	27,894	$	29,544		$	(1,650	)		(5.6	)%
Trust fees		3,635			3,622		13			0.4			10,818		11,356			(538	)		(4.7	)
Mortgage and other loan income		2,028			2,089		(61	)		(2.9	)		5,839		6,915			(1,076	)		(15.6	)
Brokerage and investment fees		1,831			1,188		643			54.1			4,486		3,829			657			17.2
Card-based and other nondeposit fees		4,431			4,475		(44	)		(1.0	)		13,140		12,862			278			2.2
Net (losses) gains on loans held for sale		(184	)		1,952		(2,136	)		(109.4	)		739		2,025			(1,286	)		(63.5	)
Investment securities gains (losses)		—			3		(3	)		(100.0	)		—		(1,373	)		1,373			100.0
Other income		2,415			736		1,679			228.1			7,380		5,737			1,643			28.6
Total noninterest income	$	23,710		$	24,427	$	(717	)		(2.9	)	$	70,296	$	70,895		$	(599	)		(0.8	)

The decrease in noninterest income in the third quarter of 2012 from the third quarter of 2011 reflects net losses on loans held for sale and, to a lesser extent, decreases in service charges on deposit accounts, partially offset by increases in other income and in brokerage and investment fees. The net losses on loans held for sale were primarily the result of increased writedowns in the third quarter of 2012. 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. The increase in other income was due to unrealized gains in deferred compensation. The increase in brokerage and investment fees were due to focused efforts to increase accounts and sales.

Noninterest income for the nine months ended September 30, 2012 changed by less than 1% from the comparable period of 2011 as increases in other income and the absence of investment securities losses were offset by decreases in service charges on deposit accounts, gains on loans held for sale, and mortgage and other loan income. Increases in other income were due primarily to unrealized gains in deferred compensation. In addition, Citizens recorded no sales of investment securities in 2012 as compared to net losses on sales of investment securities in 2011. 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. The decrease in gains on loans held for sale was due primarily to increased writedowns in the third quarter of 2012. The reduced mortgage and other loan income was primarily due to lower commitment fees.

Noninterest Expense

The components of noninterest expense are presented below.

Noninterest Expense

	Three Months Ended September 30,				Change in 2012						Nine Months Ended September 30,				Change in 2012
(in thousands)	2012		2011		Amount			Percent			2012		2011		Amount			Percent
Salaries and employee benefits	$	33,589	$	30,280	$	3,309			10.9	%	$	99,687	$	92,563	$	7,124			7.7	%
Occupancy		6,129		6,125		4			0.1			18,965		19,734		(769	)		(3.9	)
Professional services(1)		6,806		2,394		4,412			184.3			11,294		7,020		4,274			60.9
Equipment		2,937		2,918		19			0.7			9,144		8,811		333			3.8
Data processing services		4,427		3,823		604			15.8			12,196		12,422		(226	)		(1.8	)
Advertising and public relations		1,847		2,179		(332	)		(15.2	)		4,890		4,550		340			7.5
Postage and delivery		1,157		1,142		15			1.3			3,375		3,378		(3	)		(0.1	)
Other loan expenses		3,121		3,941		(820	)		(20.8	)		9,574		12,510		(2,936	)		(23.5	)
Losses on other real estate (ORE)		941		1,210		(269	)		(22.2	)		382		11,687		(11,305	)		(96.7	)
ORE expenses		323		529		(206	)		(38.9	)		1,039		3,326		(2,287	)		(68.8	)
Intangible asset amortization		513		732		(219	)		(29.9	)		1,636		2,338		(702	)		(30.0	)
Other expenses		10,265		10,138		127			1.3			33,312		38,172		(4,860	)		(12.7	)
Total noninterest expense	$	72,055	$	65,411	$	6,644			10.2		$	205,494	$	216,511	$	(11,017	)		(5.1	)

⁽¹⁾  Includes merger-related expenses of $4.4 million in the third quarter of 2012.

The increase in noninterest expense in the third quarter of 2012 from the third quarter of 2011 was primarily the result of increases in professional services, salaries and employee benefits, and data processing services, partially offset by a decrease in other loan expenses. The increase in professional services expense was due to merger-related costs. The increase in salaries and employee benefits was primarily due to an increase in base and incentive compensation

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driven by improved production levels and expenses directly related to the reinstatement of employer contributions to the 401(k) plan in 2012. Data processing services increased as a negotiated reduction in expense expired. The decrease in other expenses was related to lower FDIC premiums.

The decrease in noninterest expense from the nine month period ending September 30, 2011 was primarily the result of decreases in losses on other real estate (ORE), lower other expenses, and lower other loan expense and ORE expenses, partially offset by an increase in professional services and in salaries and employee benefits. The losses on ORE and higher ORE expenses 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. Lower other loan expense was primarily the result of lower origination volume and lower foreclosure-related expenses. Professional services expense increased due to merger-related expenses. The increase in salaries and employee benefits was primarily due to increased base and incentive compensation driven by improved production levels and expenses directly related to the reinstatement of employer contributions to the 401(k) plan.

Income Taxes and Deferred Tax Asset

Citizens recorded income tax expense of $1.3 million for the third quarter of 2012, compared to a benefit of $12.6 million for the third quarter of 2011. For the first nine months of 2012, the income tax benefit totaled $275.5 million, compared with a benefit of $22.8 million for the same period of 2011. The tax expense this quarter reflects the tax impact on the positive variance between our current view on earnings for the year compared to our forecast at the time the valuation allowance was eliminated against our deferred tax asset. The tax benefit for the three months ended September 30, 2011 was largely due to Citizens recording a receivable as a result of a revocation of a tax election. The increase in tax benefit for the nine months ended September 30, 2012 was primarily the result of eliminating the valuation allowance against our deferred tax asset. As of September 30, 2012, the recorded balance of the net deferred tax asset was $268.3 million, reported in Other Assets on the Consolidated Balance Sheets.

Based on an evaluation of the then-available positive and negative evidence, Citizens 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 of positive and negative evidence at June 30, 2012, the positive evidence outweighed the negative evidence and therefore Citizens determined that a deferred tax asset valuation allowance was no longer necessary. The significant positive evidence in our analysis included: five consecutive quarters of profitability, termination of the written agreement with our primary regulators, improved capital levels, solid credit metrics, strong deposit mix, reduced regulatory risk, and a stabilizing economy. As a result of this analysis, the deferred tax asset valuation allowance was reversed in the second quarter of 2012.

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.

Net income for Regional Banking increased for the three months ended September 30, 2012 compared to the same period of the prior year due to lower noninterest expense, partially offset by lower noninterest income. The lower noninterest expense reflects lower FDIC premiums. The lower noninterest income reflects the reduction in service charges on deposit accounts. For the nine months ended September 30, 2012, Regional Banking recorded net income compared to a net loss for the same period of the prior year. The variance for the nine months ended September 30, 2012 was primarily due to lower provision for loan losses and lower noninterest expense as a result of the substantial completion of Citizens’ accelerated problem asset resolution initiatives in early 2011. The variances were partially offset by higher income tax expense.

Specialty Consumer recorded net income for the three and nine months ended September 30, 2012, compared to net losses for the same periods of the prior year. The variance for the three months ended September 30, 2012 was a result of lower provision for loan losses, partially offset by lower net interest income and higher income taxes. The variance for the nine months ended September 30, 2012 was a result of lower provision for loan losses and noninterest expense, partially offset by lower net interest income, lower noninterest income and higher taxes. The lower provision for loan losses for the three and nine months ended September 30, 2012 and the lower noninterest expense for the nine months ended September 30, 2012 reflect the results of our focused efforts to improve asset

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quality and stabilize portfolio credit metrics as well as an overall decrease in loan balances. The lower net interest income for both periods was a result of the continued low interest rate environment and competitive pressures on our loan portfolio as well as decreases in loan balances. The lower noninterest income for the nine months ended September 30, 2012 was a result of lower gains on loans held for sale in the residential mortgage portfolio.

Net income for Specialty Commercial increased for the three and nine months ended September 30, 2012, compared to the same periods of the prior year. These improvements were a result of higher net interest income and lower provision for loan losses, partially offset by lower noninterest income and higher taxes in 2012. The higher net interest income is directly related to the increase in C&I lending. The lower provision for loan losses reflects the results of our focused efforts to improve asset quality and stabilize portfolio credit metrics. The lower noninterest income reflects lower gains in the held for sale portfolio.

Net income for Wealth Management for the three months ended September 30, 2012 increased slightly over the prior year primarily due to a decrease in noninterest expenses. Net income decreased for the nine months ended September 30, 2012 primarily as a result of lower trust revenues.

The Other line of business recorded a net loss for the three months ended September 30, 2012 as compared to net income for the prior year. The decrease was a result of lower net interest income and lower tax benefit. The lower net interest income is 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. Changes in income taxes reflect an allocation of 35% to all other lines of business in 2011 and 2012 with the remainder allocated to the Other line of business. Net income for the nine months ended September 30, 2012 increased for the Other line of business as compared to the same period of the prior year. The increase was directly related to the elimination of the valuation allowance on the deferred tax asset. These increases were partially offset by the decrease in net interest income mentioned above.

Financial Condition

Total assets at September 30, 2012 were $9.7 billion, an increase of $261.9 million or 2.8% over December 31, 2011 and $124.6 million or 1.3% over September 30, 2011 as a result of restoring the deferred tax asset.

Money Market Investments

Money market investments at September 30, 2012 totaled $223.8 million, a decrease of $89.8 million or 28.6% from December 31, 2011 and $59.2 million or 20.9% from September 30, 2011 primarily related to the use of funds to pay off maturing high cost funding.

Investment Securities

Investment securities at September 30, 2012 totaled $2.9 billion, an increase of $98.3 million or 3.6% over December 31, 2011 and $92.2 million or 3.3% from September 30, 2011. The increases were largely due to reinvesting a portion of the loan portfolio paydowns.

Portfolio Loans

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

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Loan Portfolios

(in thousands)	September 30, 2012		June 30, 2012		March 31, 2012		December 31, 2011		September 30, 2011
Land hold	$	4,984	$	5,119	$	5,387	$	6,542	$	6,818
Land development		7,521		7,006		7,226		13,104		22,232
Construction		6,689		4,591		6,410		5,847		5,410
Income producing		767,202		803,546		877,461		913,755		975,262
Owner-occupied		549,205		597,147		590,575		605,113		634,179
Total commercial real estate		1,335,601		1,417,409		1,487,059		1,544,361		1,643,901
Commercial and industrial		1,688,996		1,711,411		1,657,140		1,543,529		1,531,492
Total commercial		3,024,597		3,128,820		3,144,199		3,087,890		3,175,393
Residential mortgage		570,295		588,144		611,166		637,245		654,561
Direct consumer		865,777		881,070		903,238		933,314		954,831
Indirect consumer		970,235		923,714		869,460		871,086		887,542
Total consumer		2,406,307		2,392,928		2,383,864		2,441,645		2,496,934
Total portfolio loans	$	5,430,904	$	5,521,748	$	5,528,063	$	5,529,535	$	5,672,327

Total portfolio loans were down slightly from December 31, 2011 as the growth in our C&I and indirect portfolios was offset by declines in our CRE, direct and residential mortgage portfolios.

Underwriting

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

The commercial Underwriting Guidelines outline product- and collateral-specific acceptable loan terms and conditions, including maximum loan to value ratios for real estate collateral, advance rates for non-real estate collateral, and debt service coverage. Acceptable credit management practices require that the borrower’s financial capacity to repay the loan be analyzed based on the most recent financial information as specified by the loan’s documented structure. It is Citizens’ general practice to obtain personal guarantees and underwrite the guarantor’s capacity to support the loan no less frequently than annually and more frequently if changes occur in the borrower’s capacity to repay or in 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%. 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-

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to-four family residential real estate. Automated underwriting engines deployed by a GSE are used to determine creditworthiness of the vast majority of borrowers. Maximum allowable loan-to-value (“LTV”)/combined loan-to-value (“CLTV”) on these loan products generally do not exceed 95% at origination. Citizens has not offered “no-doc/low doc” and “stated income/stated asset” loans since January 1, 2007 and does not have any of these loans in its residential mortgage portfolio. Sub-prime, initial teaser rate and negative amortization loans were originated on an exception basis prior to 2007 and have not been offered since January 1, 2007. At September 30, 2012, December 31, 2011 and September 30, 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 nine months of 2012 and 2011, Citizens repurchased $4.7 million and $1.5 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 $4.9 million and $3.5 million in the first nine months of 2012 and 2011, respectively, in Other Expense on the Consolidated Statements of Operations related to repurchasing or indemnifying such loans.

Direct consumer loans include home equity loans, and direct installment loans to individuals used to purchase boats, recreational vehicles, automobiles and other personal items. Underwriting guidelines for these loans are heavily influenced by statutory requirements, which include, but are not limited to maximum loan-to-value ratios, credit scoring results, ability to service overall debt, and documentation requirements. Individual borrowers may be required to provide additional collateral or a satisfactory endorsement or guaranty from another person, depending on the creditworthiness of the borrower. Home equity loans consist of fully-indexed variable rate revolving lines of credit and fixed rate loans to consumers that are secured by residential real estate. Home equity loans are generally in a junior lien position and are originated through Citizens’ branches with cumulative loan-to-value ratios generally at or less than 80% of appraised collateral value. As of September 30, 2012, Citizens’ home equity portfolio totaled $699.5 million, and had an average loan size of $36,004 with an average refreshed FICO score of 741. As of September 30, 2012, other direct installment loans totaled $166.3 million and had an average loan size of $19,679 with an average refreshed FICO score of 727.

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 September 30, 2012, indirect consumer loans had an average loan size of $24,175 with an average refreshed FICO score of 741.

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-

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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.

Delinquency Rates By Loan Portfolio

	September 30, 2012					June 30, 2012					March 31, 2012					December 31, 2011					September 30, 2011
30 to 89 days past due (in thousands)	$		% of Portfolio			$		% of Portfolio			$		% of Portfolio			$		% of Portfolio			$		% of Portfolio
Land hold	$	—		—	%	$	—		—	%	$	—		—	%	$	21		0.32	%	$	—		—	%
Land development		—		—			—		—			130		1.81			—		—			216		0.97
Construction		—		—			—		—			—		—			—		—			—		—
Income producing		1,104		0.14			1,519		0.19			1,447		0.16			2,508		0.27			3,325		0.34
Owner-occupied		4,598		0.84			936		0.16			5,177		0.88			2,345		0.39			5,817		0.92
Total commercial real estate		5,702		0.43			2,455		0.17			6,754		0.45			4,874		0.32			9,358		0.57
Commercial and industrial		880		0.05			1,565		0.09			2,887		0.17			2,454		0.16			2,594		0.17
Total commercial		6,582		0.22			4,020		0.13			9,641		0.31			7,328		0.24			11,952		0.38
Residential mortgage		6,029		1.06			7,731		1.31			7,568		1.24			9,544		1.50			9,079		1.39
Direct consumer		11,435		1.32			12,396		1.41			14,002		1.55			17,810		1.91			18,629		1.95
Indirect consumer		7,514		0.77			8,504		0.92			8,780		1.01			13,067		1.50			9,898		1.12
Total consumer		24,978		1.04			28,631		1.20			30,350		1.27			40,421		1.66			37,606		1.51
Total delinquent loans	$	31,560		0.58		$	32,651		0.59		$	39,991		0.72		$	47,749		0.86		$	49,558		0.87

The decreases in total delinquencies as of September 30, 2012 compared to December 31, 2011 and September 30, 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.

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Nonperforming Assets

	September 30, 2012						June 30, 2012						March 31, 2012						December 31, 2011						September 30, 2011
(in thousands)	$			% of Portfolio			$			% of Portfolio			$			% of Portfolio			$			% of Portfolio			$			% of Portfolio
Land hold	$	326			6.54	%	$	326			6.37	%	$	—			—	%	$	—			—	%	$	167			2.45	%
Land development		3			0.04			3			0.05			207			2.87			213			1.62			12			0.05
Construction		—			—			—			—			150			2.34			150			2.57			257			4.76
Income producing		12,904			1.68			19,408			2.42			18,566			2.12			21,171			2.32			23,227			2.38
Owner-occupied		13,146			2.39			18,187			3.05			20,716			3.51			23,798			3.93			27,540			4.34
Total commercial real estate		26,379			1.98			37,924			2.68			39,639			2.67			45,332			2.94			51,203			3.11
Commercial and industrial		9,190			0.54			21,676			1.27			14,629			0.88			16,946			1.10			18,536			1.21
Total nonaccruing commercial		35,569			1.18			59,600			1.90			54,268			1.73			62,278			2.02			69,739			2.20
Residential mortgage		15,271			2.68			13,474			2.29			11,137			1.82			11,312			1.78			13,074			2.00
Direct consumer		10,552			1.22			9,263			1.05			8,895			0.98			12,115			1.30			14,704			1.54
Indirect consumer		2,391			0.25			1,875			0.20			1,074			0.12			953			0.11			1,256			0.14
Total nonaccruing consumer		28,214			1.17			24,612			1.03			21,106			0.89			24,380			1.00			29,034			1.16
Total nonaccruing loans		63,783			1.17			84,212			1.53			75,374			1.37			86,658			1.57			98,773			1.74
Loans 90+ days still accruing		60			—			59			—			164			—			770			0.01			1,368			0.02
Total nonperforming portfolio loans		63,843			1.18			84,271			1.53			75,538			1.37			87,428			1.58			100,141			1.77
Nonperforming held for sale		16,650						887						3,264						2,372						20,134
Other repossessed assets acquired		5,700						8,817						11,803						12,422						16,665
Total nonperforming assets	$	86,193					$	93,975					$	90,605					$	102,222					$	136,940
Restructured loans still accruing	$	21,433					$	18,187					$	17,911					$	32,347					$	12,206
Commercial inflows	$	4,572					$	23,828					$	14,027					$	13,269					$	23,901
Commercial outflows		(28,603	)					(18,496	)					(22,037	)					(20,730	)					(17,611	)
Net change	$	(24,031	)				$	5,332					$	(8,010	)				$	(7,461	)				$	6,290

The decreases from December 31, 2011 and September 30, 2011 were 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 impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. 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 restructurings (“TDRs”) when the debt modification, 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 restructuring, 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 restructuring, the original loan must have been less than 90 days past due at the time of the restructuring and the modification must not have resulted in an impairment. At September 30, 2012, the recorded investment balance of TDRs approximated $27.8 million, of which $21.4 million were on accrual status and $6.4 million were on nonaccrual status. Of this total, $24.9 million were consumer and residential TDRs that carried a total specific reserve of $4.2 million. Of these TDRs, 44.7% involved only a reduction in interest rate, 41.9% involved both reduced interest rate and term extensions and 13.4% involved only term extensions. See Note 4 to the unaudited Consolidated Financial Statements in this report for information on impaired loans.

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Net Charge-Offs

	Three Months Ended
	September 30, 2012						June 30, 2012						March 31, 2012						December 31, 2011						September 30, 2011
(in thousands)	$			% of Portfolio*			$			% of Portfolio*			$			% of Portfolio*			$			% of Portfolio*			$			% of Portfolio*
Land hold	$	—			—	%	$	(58	)		(4.58	)%	$	—			—	%	$	(33	)		(2.00	)%	$	—			—	%
Land development		(8	)		(0.45	)		100			5.76			(83	)		(4.64	)		3,079			93.21			43			0.76
Construction		(21	)		(1.24	)		14			1.24			(101	)		(6.33	)		(4	)		(0.24	)		(5	)		(0.34	)
Income producing		2,582			1.34			3,100			1.55			4,151			1.90			11,924			5.18			3,156			1.28
Owner-occupied		1,891			1.37			2,384			1.61			2,537			1.73			5,791			3.80			2,129			1.33
Total commercial real estate		4,444			1.32			5,540			1.57			6,504			1.76			20,757			5.33			5,323			1.28
Commercial and industrial		5,363			1.26			5,249			1.23			3,029			0.74			1,032			0.27			1,225			0.32
Total commercial		9,807			1.29			10,789			1.39			9,533			1.22			21,789			2.80			6,548			0.82
Residential mortgage		2,515			1.75			3,506			2.40			5,076			3.34			1,170			0.73			18,364			11.13
Direct consumer		4,790			2.20			5,666			2.59			10,935			4.87			6,930			2.95			5,710			2.37
Indirect consumer		2,078			0.85			2,225			0.97			2,572			1.19			2,746			1.25			2,797			1.25
Total consumer		9,383			1.55			11,397			1.92			18,583			3.14			10,846			1.76			26,871			4.27
Total net charge-offs	$	19,190			1.39		$	22,186			1.62		$	28,116			2.05		$	32,635			2.30		$	33,419			2.34

* Represents an annualized rate.

The decreases in net charge-offs compared to December 31, 2011 and September 30, 2011 reflect the continued stability and steady improvement in portfolio and economic trends.

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 probable, 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 five 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.

A summary of loan loss experience is provided below.

Analysis of Allowance for Loan Losses

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2012			2011			2012			2011
Allowance for loan losses - beginning of period	$	136,120		$	206,292		$	172,726		$	296,031
Provision for loan losses		5,195			17,481			18,891			123,801
Charge-offs		23,543			36,183			84,509			239,097
Recoveries		4,353			2,764			15,017			9,619
Net charge-offs		19,190			33,419			69,492			229,478
Allowance for loan losses - end of period	$	122,125		$	190,354		$	122,125		$	190,354
Portfolio loans outstanding at period end (1)	$	5,430,904		$	5,672,327		$	5,430,904		$	5,672,327
Average portfolio loans outstanding during period (1)		5,501,400			5,663,058			5,509,191			5,792,983
Allowance for loan losses as a percentage of portfolio loans		2.25	%		3.36	%		2.25	%		3.36	%
Ratio of net charge-offs during period to average portfolio loans (annualized)		1.39			2.34			1.68			5.30

⁽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 incurred 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⁾

	September 30, 2012					December 31, 2011					September 30, 2011
				Related					Related					Related
(in thousands)	ALLL			NPL (2)		ALLL			NPL (2)		ALLL			NPL (2)
Specific allocated allowance:
Commercial and industrial	$	195		$	2,547	$	42		$	8,908	$	99		$	11,653
Commercial real estate		402			20,113		4,110			34,071		6,148			41,799
Residential mortgage		3,724			3,762		2,837			6,610		2,540			12,595
Direct consumer		428			1,183		70			1,147		184			2,367
Indirect consumer		—			—		—			478		—			474
Total specific allocated allowance		4,749			27,605		7,059			51,214		8,971			68,888
Risk allocated allowance:
Commercial and industrial		18,914			6,700		25,032			8,804		23,944			8,227
Commercial real estate		37,843			6,266		58,589			11,261		67,091			9,404
Total commercial		56,757			12,966		83,621			20,065		91,035			17,631
Residential mortgage		23,005			11,509		33,623			4,702		34,877			480
Direct consumer		26,325			9,372		32,950			10,972		37,682			12,360
Indirect consumer		9,289			2,391		12,973			475		13,789			782
Total risk allocated allowance		115,376			36,238		163,167			36,214		177,383			31,253
Total		120,125			63,843		170,226			87,428		186,354			100,141
General valuation allowances		2,000			—		2,500			—		4,000			—
Total	$	122,125		$	63,843	$	172,726		$	87,428	$	190,354		$	100,141
ALLL as a percentage of NPL
Specific allocated allowance:
Commercial and industrial		7.68	%				0.48	%				0.85	%
Commercial real estate		2.00					12.06					14.71
Residential mortgage		99.00					42.93					20.17
Direct consumer		36.12					6.08					7.78
Total specific allocated allowance		17.20					13.78					13.02
Risk allocated allowance:
Commercial and industrial		282.30					284.31					291.04
Commercial real estate		603.99					520.33					713.46
Total commercial		437.75					416.76					516.34
Residential mortgage		199.89					N/M					N/M
Direct consumer		280.90					300.31					304.86
Indirect consumer		388.44					N/M					N/M
Total risk allocated allowance		318.39					450.55					567.58
Total		191.29					197.56					190.09
ALLL as a percentage of portfolio loans (3)
Risk allocated allowance: (4)
Commercial and industrial		1.12					1.63					1.58
Commercial real estate		2.88					3.88					4.19
Total commercial		1.89					2.75					2.92
Residential mortgage		4.06					5.33					5.43
Direct consumer		3.04					3.53					3.96
Indirect consumer		0.96					1.49					1.55
Total risk allocated allowance		2.14					2.98					3.17
Total allowance		2.25					3.12					3.36

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 and the allowance as a percentage of nonperforming loans from December 31, 2011 and September 30, 2011 were 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.

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 September 30, 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 $5.2 million in the third quarter of 2012, compared with $17.5 million in the third quarter of 2011. The decrease in the provision was primarily due to the previously mentioned improvements in credit quality and decline in loan balances, which resulted in a decline in the required allowance for loan losses.

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 from December 31, 2011 and September 30, 2011, primarily as a result of the improved mix of evaluated balances where the estimated fair value of the collateral provides sufficient coverage for the remaining outstanding balance. As a percentage of nonperforming loans, the specific allocated allowance increased from December 31, 2011 and September 30, 2011 as a result of an increase in the allowance related to accruing TDRs and a overall reduction in related nonperforming loans.

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 from December 31, 2011 and September 30, 2011 reflects the continuing stability in both portfolio and economic trends. The majority of the decline from September 30, 2011 relates to the improvement in credit quality of the remaining portfolio at September 30, 2012, as evidenced by the 44.9% decline in commercial loans past due 30-89 days and the 49.0% decline in nonaccruing 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.

Loans Held for Sale

Loans held for sale at September 30, 2012 were $30.1 million, an increase of $19.7 million from December 31, 2011 and essentially unchanged from September 30, 2011. The increase from December 31, 2011 was primarily related to the inflow of two commercial relationships into held for sale.

Deposits

Total deposits at September 30, 2012 were $7.3 billion, a decrease of $92.0 million or 1.2% from December 31, 2011 and a decrease of $236.9 million or 3.1% from September 30, 2011. Core deposits, which exclude all time deposits, totaled $5.5 billion at September 30, 2012, an increase of $328.5 million or 6.3% from December 31, 2011 and an

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increase of $302.9 million or 5.8% over September 30, 2011. The increases in core deposits were the result of a continued focus on core deposit gathering. Time deposits totaled $1.8 billion at September 30, 2012, a decrease of $420.4 million or 19.1% from December 31, 2011 and a decrease of $539.8 million or 23.3% from September 30, 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 $516.5 million in time deposits of $100,000 or more at September 30, 2012, compared with $614.6 million at December 31, 2011 and $652.2 million at September 30, 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 September 30, 2012, Citizens had $129.8 million in brokered deposits, compared with $248.7 million at December 31, 2011 and $261.5 million at September 30, 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 September 30, 2012 totaled $42.8 million, an increase of $2.7 million or 6.7% from December 31, 2011 and an increase of $1.6 million or 3.8% from September 30, 2011. The increases reflect higher 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 September 30, 2012 remained essentially unchanged from December 31, 2011 and September 30, 2011 at $852.5 million.

Capital Resources

Shareholders’ equity at September 30, 2012 totaled $1.4 billion, an increase of $338.7 million or 33.2% from December 31, 2011 and an increase of $349.1 million or 34.6% from September 30, 2011, in each case primarily as a result of the elimination of the valuation allowance on the deferred tax asset. Book value per common share at September 30, 2012, December 31, 2011, and September 30, 2011 was $26.36, $18.24, and $18.03, respectively.

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”			September 30, 2012			December 31, 2011			September 30, 2011
Leverage ratio		5.00	%		9.66	%		8.45	%		8.21	%
Tier 1 capital ratio		6.00			15.09			13.51			12.81
Total capital ratio		10.00			16.35			14.84			14.14
Tier 1 common equity (non-GAAP)					8.83			7.24			6.77
Tangible equity to tangible assets (non-GAAP)					11.00			7.59			7.36
Tangible common equity to tangible assets (non-GAAP)					7.91			4.47			4.31

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.

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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 could impact 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 throughout 2009 and 2010. 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. Following the September 13, 2012 announcement of the pending merger with FirstMerit, both Moody’s and Fitch raised Citizens’ rating outlook to watch positive. 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.

Credit Ratings

	Moody’s	Fitch Ratings
Citizens Republic Bancorp (Holding Company)
Long-term Issuer	B2 (WP)	B (WP)
	9/13/2012	9/17/2012
Short-term/Commercial Paper	NP(WP)	B(WP)
	9/13/2012	9/17/2012
Trust Preferred	Caa2 (WP)	C(WP)
	9/13/2012	9/17/2012
Citizens Bank
Certificate of Deposit	Ba3 (WP) 9/13/2012	B+(WP) 9/17/2012
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

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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 $57.0 million as of September 30, 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 a very stable funding base comprised of approximately 75% deposits, 9% long-term debt, 14% 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 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, 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 September 30, 2012, the amount of the arrearage (including interest on missed dividends) on the dividend payments of the Series A Preferred Stock is $44.2 million and the amount accrued (including interest on missed interest payments) on the subordinated debentures associated with the trust preferred securities is $13.8 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.

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.

Citizens’ long-term debt to equity ratio improved to 62.8% as of September 30, 2012 compared with 83.8% as of December 31, 2011, and 84.8% as of September 30, 2011. Changes in deposit obligations and short-term and long-term debt during the second 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

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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 $1.1 billion or 10.9% of total assets as of September 30, 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 September 30, 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 September 30, 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 immediate shift of the yield curve) net interest income would be expected to increase by 0.9% and 2.1%, respectively, from what it would be if rates were to remain at September 30, 2012 levels. Net interest income simulation for 100 and 200 basis point parallel declines in market rates were not performed at September 30, 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

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at September 30, 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.

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. The state court action was stayed, and the same lead plaintiff then filed suit in federal court. During the second quarter of 2012, the two federal cases were consolidated into one case pending in the United States District Court for the Eastern District of Michigan under the caption Jane Simpson, et al. v. Citizens Bank, U.S. District Court Case No. 2:12-cv-10267, while the state court action was dismissed. Citizens has filed a motion to dismiss the consolidated federal action, which motion is currently pending. 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.

Between September 17, 2012 and October 5, 2012, six purported shareholders of Citizens filed purported class action lawsuits in the Circuit Court of Genesee County, Michigan captioned Hilary Coyne, individually and on behalf of all

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others similarly situated v. Citizens Republic Bancorp, Inc., et al, Case No. 12-99027-CK; Vladimir Gusinsky Living Trust, individually and on behalf of all others similarly situated v. Citizens Republic Bancorp, Inc., et al, Case No. 12-99035-CK; Cecily Hoogerhyde, individually and on behalf of all others similarly situated v. Citizens Republic Bancorp, Inc., et al, Case No. 12-99052-CZ; Michael Decker, individually and on behalf of all others similarly situated v. Citizens Republic Bancorp, Inc., et al, Case No. 12-99099-CZ; Robert Block, individually and on behalf of all others similarly situated v. Citizens Republic Bancorp, Inc., et al, Case No. 12-99098-CZ, and Blair Cole, individually and on behalf of all others similarly situated v. Citizens Republic Bancorp, Inc., et al, Case No. 12-99150-CK. These lawsuits name as defendants Citizens, each of the current members of Citizens’ Board of Directors (the “Director Defendants”) and FirstMerit. The complaints allege that the Director Defendants breached their fiduciary duties by failing to obtain the best available price in connection with the Merger, by not utilizing a proper process to evaluate the Merger and by agreeing to protective devices that ensure that no entity other than FirstMerit will seek to acquire Citizens. They also allege that FirstMerit and, in some cases Citizens, aided and abetted those alleged breaches of fiduciary duty. The complaints seek declaratory and injunctive relief to prevent the consummation of the Merger, rescissory damages and other equitable relief. Citizens believes the claims asserted are without merit and intends to vigorously defend against these suits.

Item 1A. Risk Factors

For information regarding risk factors affecting Citizens, see “Risk Factors” in Item 1A of Part I of Citizens’ 2011 Annual Report on Form 10-K, as updated by Item 1A of part II of Citizens’ Quarterly Reports on Form 10-Q for each of the quarters ended March 31, 2012 and June 30, 2012. These risk factors are not the only risks Citizens faces. Additional risks and uncertainties not currently known or that Citizens currently deems to be immaterial also may materially adversely impact Citizens’ business, financial condition, and results of operations.

The risk factor entitled “We are party to various lawsuits incidental to our business. Litigation is subject to many uncertainties such that the expenses and ultimate exposure with respect to many of these matters cannot be ascertained.” is amended and restated to read as follows:

We are party to various lawsuits. Litigation is subject to many uncertainties such that the expenses and ultimate exposure with respect to many of these matters cannot be ascertained.

From time to time, customers, shareholders and others make claims and take legal action against us and our directors. Whether these claims and legal actions are legitimate or unfounded, if such claims and legal actions are not resolved in our favor they may result in significant financial liability to us (directly or as a result of our indemnification obligations), adversely affect the market’s perception of us and our products and services and impact customer demand for our products and services. Any financial liability or reputation damage could have a material adverse effect on our business, financial condition and results of operations.

As a result of the execution of the merger agreement with FirstMerit Corporation, the following risk factors are added:

We will be subject to contractual restrictions and business uncertainties while the FirstMerit merger is pending.

Our merger agreement with FirstMerit restricts us from operating our business other than in the ordinary course, and prohibits us from taking specified actions without FirstMerit’s consent until the merger occurs. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the merger. In addition, uncertainty about the effect of the FirstMerit merger on our staff members and clients may have an adverse effect on our business. We may have difficulty retaining staff members while the merger is pending, as certain staff members may experience uncertainty about their future roles with FirstMerit. In addition, the uncertainty caused by the pending merger could cause our clients and business associates to seek to change their existing business relationships with us. These uncertainties may impair our ability to attract, retain, and motivate key personnel and retain and grow our client base until we complete the merger.

The merger is subject to certain closing conditions that, if not satisfied or waived, will result in the merger not being completed. Failure to complete the merger with FirstMerit could negatively affect our business.

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The merger is subject to customary conditions to closing, including the receipt of required regulatory approvals, approval of the holders of Citizens’ preferred stock and common stock and consent of the FDIC under certain agreements with FirstMerit. If any condition to the merger is not satisfied or, where permitted, waived, the merger will not be completed and the merger agreement would be terminated. In addition, FirstMerit or Citizens may terminate the merger agreement under certain circumstances even if the merger is approved by their shareholders.

Another of the conditions to the closing of the merger is that no order, injunction (whether temporary, preliminary or permanent) or ruling issued by a court or governmental authority of competent jurisdiction that prohibits the completion of the merger shall be in effect. Citizens, its directors and FirstMerit are named as defendants in purported class action litigation brought by Citizens shareholders challenging the proposed merger and seeking, among other things, to enjoin completion of the merger. If the plaintiffs are successful in obtaining an injunction prohibiting the completion of the merger, then such injunction may prevent the merger from being completed, or from being completed within the expected timeframe.

If the merger agreement with FirstMerit is terminated, there may be various adverse consequences. For example, our business may have been impacted adversely by the failure to pursue other beneficial opportunities due to contractual restrictions in the merger agreement and the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. In addition, we have incurred substantial expenses in connection with the negotiation and signing of the merger agreement and in anticipation of the completion of the merger. Also, the market price of our common stock could decline if the merger agreement is terminated to the extent that the current market price reflects a market assumption that the merger with FirstMerit will be completed. In addition, termination of our agreement with FirstMerit could result in downgrades by the credit rating agencies or adverse regulatory actions which could compromise our business.

The merger is subject to the receipt of consents and approvals from governmental entities that may impose conditions that could have an adverse effect on the combined company following the merger.

Before the merger may be completed, various approvals or consents must be obtained from regulatory authorities. These regulatory authorities may impose conditions on the completion of the merger or require changes to the terms of the merger. Such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of the combined company following the merger, any of which might have an adverse effect on the combined company following the merger.

We cannot be sure of the market value of the merger consideration that our common shareholders will receive as a result of the announced merger with FirstMerit.

Upon completion of the merger, each share of our common stock will be converted into merger consideration consisting of 1.37 shares of FirstMerit common stock. The market value of the merger consideration will vary from the closing price of FirstMerit common stock on the date we announced the merger, on the date that the proxy statement/prospectus is mailed to our shareholders, on the date of the special meeting of our shareholders, on the date we complete the merger and thereafter. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in our respective businesses, operations and prospects, and regulatory considerations. Many of these factors are beyond our control. Any change in the market price of FirstMerit common stock prior to completion of the merger will affect the market value of the merger consideration that our shareholders will receive upon completion of the merger, and there will be no adjustment to the merger consideration for changes in the market price of either shares of FirstMerit common stock or shares of our common stock. Accordingly, at the time of the special meeting, our shareholders will not know or be able to calculate the market value of the merger consideration they would receive upon completion of the merger.

Further, the businesses of FirstMerit and Citizens differ in important respects and, accordingly, the results of operations of the combined company and the market price of the combined company’s shares of common stock may be affected by factors different from those currently affecting the independent results of operations of FirstMerit and Citizens.

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We may fail to realize all of the anticipated benefits of the merger.

The success of the merger will depend, in part, on FirstMerit’s ability to realize anticipated cost savings and to combine the businesses of FirstMerit and Citizens in a manner that permits growth opportunities to be realized and does not materially disrupt the existing customer relationships of Citizens nor result in decreased revenues due to any loss of customers. However, to realize these anticipated benefits, the businesses of FirstMerit and Citizens must be successfully combined. If the combined company is not able to achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

Citizens has operated and, until the completion of the merger, will continue to operate, independently. The anticipated cost savings from the merger are largely expected to derive from the absorption by FirstMerit of many of our back-office and other duplicative administrative functions. It is possible that the integration process could result in the loss of key employees who may then receive severance benefits, the disruption of each company’s ongoing business that adversely affects our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger. Integration efforts between the two companies will also divert management attention and resources and could result in deposit attrition or other adverse operational results. A failure to successfully navigate the complicated integration process could have an adverse effect on Citizens during the pre-merger transition period and on the combined company following the merger.

Another expected benefit from the merger is an expected increase in the revenues of the combined company from anticipated sales of FirstMerit’s wide variety of financial products, and from increased lending out of the combined company’s larger capital base. An inability to successfully market FirstMerit’s products to Citizens’ customer base could cause the earnings of the combined company to be less than anticipated.

The merger agreement limits Citizens’ ability to pursue an alternative acquisition proposal and requires Citizens to pay a termination fee of $37.5 million under limited circumstances relating to alternative acquisition proposals.

The merger agreement prohibits FirstMerit and Citizens from soliciting, initiating or encouraging certain alternative acquisition proposals with any third party, subject to exceptions set forth in the merger agreement. The merger agreement also provides for the payment by FirstMerit or Citizens of a termination fee in the amount of $37.5 million in the event that the other party terminates the merger agreement for certain reasons. These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of Citizens from considering or proposing such an acquisition.

Other than the foregoing and as set forth in Citizens’ Quarterly Reports on Form 10-Q for each of the periods ended March 31, 2012 and June 30, 2012, there have been no material changes to the risk factors set forth in Item 1A of Citizens’ Form 10-K for the fiscal year ended December 31, 2011.

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

					Total Number of		Maximum Number of
					Shares Purchased as		Shares That May Yet
					Part of Publicly		Be Purchased Under
	Total Number of		Average Price Paid		Announced Plans or		The Plans or Programs
Period	Shares Purchased		Per Share		Programs		(1)
July 2012		—	$	—		—		124,115
August 2012		—		—		—		124,115
September 2012		—		—		—		124,115
Total		—	$	—		—		124,115

⁽¹⁾  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 September 30, 2012, the amount of the arrearage (including interest on the dividend payments) on the dividend payments of the Series A Preferred Stock is $44.2 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 $13.8 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: November 1, 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
2.4	Agreement and Plan of Merger, dated September 12, 2012, by and between FirstMerit Corporation and Citizens Republic Bancorp, Inc. (Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the Securities and Exchange Commission upon request) (Citizens’ Form 8-K filed September 14, 2012).
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 *

* 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.

72

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Cathleen H. Nash, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: November 1, 2012

/s/ Cathleen H. Nash

Cathleen H. Nash

Chief Executive Officer

73

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Lisa T. McNeely, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: November 1, 2012

/s/ Lisa T. McNeely

Lisa T. McNeely

Chief Financial Officer

74

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AND RULE 13A-14(B) UNDER THE SECURITIES EXCHANGE ACT OF 1934

In connection with the Quarterly Report of Citizens Republic Bancorp, Inc. (“Citizens”) on Form 10-Q for the period ending September 30, 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: November 1, 2012

/s/ Cathleen H. Nash

Cathleen H. Nash

Chief Executive Officer

/s/ Lisa T. McNeely

Lisa T. McNeely

Chief Financial Officer

75

XML

Investment Securities (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Estimated fair values and unrealized losses of investment securities
Less than 12 Months, Estimated Fair Value, Securities available for sale	$ 44,835	$ 83,533
More than 12 Months, Estimated Fair Value, Securities available for sale	10,075	21,515
Total, Estimated Fair Value, Securities available for sale	54,910	105,048
Less than 12 Months, Unrealized Losses, Securities available for sale	138	2,916
More than 12 Months, Unrealized Losses, Securities available for sale	449	3,042
Total, Unrealized Losses, Securities available for sale	587	5,958
Less than 12 Months, Estimated Fair Value, Securities held to maturity		9,093
More than 12 Months, Estimated Fair Value, Securities held to maturity		950
Total, Estimated Fair Value, Securities held to maturity		10,043
Less than 12 Months, Unrealized Losses, Securities held to maturity		48
More than 12 Months, Unrealized Losses, Securities held to maturity		46
Total, Unrealized Losses, Securities held to maturity		94
Collateralized mortgage obligations [Member]
Estimated fair values and unrealized losses of investment securities
Less than 12 Months, Estimated Fair Value, Securities available for sale	44,532	56,326
More than 12 Months, Estimated Fair Value, Securities available for sale	9,693	20,097
Total, Estimated Fair Value, Securities available for sale	54,225	76,423
Less than 12 Months, Unrealized Losses, Securities available for sale	137	2,858
More than 12 Months, Unrealized Losses, Securities available for sale	380	2,913
Total, Unrealized Losses, Securities available for sale	517	5,771
Mortgage-backed [Member]
Estimated fair values and unrealized losses of investment securities
Less than 12 Months, Estimated Fair Value, Securities available for sale		26,016
More than 12 Months, Estimated Fair Value, Securities available for sale		122
Total, Estimated Fair Value, Securities available for sale		26,138
Less than 12 Months, Unrealized Losses, Securities available for sale		31
More than 12 Months, Unrealized Losses, Securities available for sale		1
Total, Unrealized Losses, Securities available for sale		32
Less than 12 Months, Estimated Fair Value, Securities held to maturity		9,093
Total, Estimated Fair Value, Securities held to maturity		9,093
Less than 12 Months, Unrealized Losses, Securities held to maturity		48
Total, Unrealized Losses, Securities held to maturity		48
State and municipal [Member]
Estimated fair values and unrealized losses of investment securities
Less than 12 Months, Estimated Fair Value, Securities available for sale	303	1,191
More than 12 Months, Estimated Fair Value, Securities available for sale	233	1,062
Total, Estimated Fair Value, Securities available for sale	536	2,253
Less than 12 Months, Unrealized Losses, Securities available for sale	1	27
More than 12 Months, Unrealized Losses, Securities available for sale	16	95
Total, Unrealized Losses, Securities available for sale	17	122
More than 12 Months, Estimated Fair Value, Securities held to maturity		950
Total, Estimated Fair Value, Securities held to maturity		950
More than 12 Months, Unrealized Losses, Securities held to maturity		46
Total, Unrealized Losses, Securities held to maturity		46
Other [Member]
Estimated fair values and unrealized losses of investment securities
More than 12 Months, Estimated Fair Value, Securities available for sale	149	234
Total, Estimated Fair Value, Securities available for sale	149	234
More than 12 Months, Unrealized Losses, Securities available for sale	53	33
Total, Unrealized Losses, Securities available for sale	$ 53	$ 33

XML

Fair Values of Assets and Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Dec. 31, 2010
Financial assets:
Cash and due from banks	$ 162,705	$ 153,418	$ 147,418	$ 127,585
Money market investments	223,818	313,632	283,018
Securities held to maturity	1,313,504	1,444,054	1,454,873
FHLB and Federal Reserve stock	122,123	117,943	123,696
Net portfolio loans	5,308,779	5,356,809	5,481,973
Loans held for sale	30,062	10,402	30,221
Financial liabilities:
Deposits	7,302,965	7,394,941	7,539,904
Long-term debt	852,481	854,185	855,670
Citizens [Member] | Level 1 [Member]
Financial assets:
Cash and due from banks
Money market investments
Securities held to maturity
FHLB and Federal Reserve stock
Net portfolio loans
Loans held for sale
Accrued interest receivable
Financial liabilities:
Deposits
Short-term borrowings
Long-term debt	56,952	45,931
Accrued interest payable
Citizens [Member] | Level 2 [Member]
Financial assets:
Cash and due from banks	162,705	153,418
Money market investments	223,818	313,632
Securities held to maturity	1,378,310	1,487,550
FHLB and Federal Reserve stock	122,123	117,943
Net portfolio loans
Loans held for sale	11,815	6,140
Accrued interest receivable	32,088	31,390
Financial liabilities:
Deposits	7,324,879	7,424,427
Short-term borrowings	42,796	40,098
Long-term debt	876,738	881,602
Accrued interest payable	16,900	14,047
Citizens [Member] | Level 3 [Member]
Financial assets:
Cash and due from banks
Money market investments
Securities held to maturity
FHLB and Federal Reserve stock
Net portfolio loans	5,163,239	5,101,446
Loans held for sale	18,247	4,262
Accrued interest receivable
Financial liabilities:
Deposits
Short-term borrowings
Long-term debt
Accrued interest payable
Citizens [Member] | Carrying Amount [Member]
Financial assets:
Cash and due from banks	162,705	153,418
Money market investments	223,818	313,632
Securities held to maturity	1,313,504	1,444,054
FHLB and Federal Reserve stock	122,123	117,943
Net portfolio loans	5,308,779	5,356,809
Loans held for sale	30,062	10,402
Accrued interest receivable	32,088	31,390
Financial liabilities:
Deposits	7,302,965	7,394,941
Short-term borrowings	42,796	40,098
Long-term debt	852,481	854,185
Accrued interest payable	16,900	14,047
Citizens [Member] | Estimated Fair Value [Member]
Financial assets:
Cash and due from banks	162,705	153,418
Money market investments	223,818	313,632
Securities held to maturity	1,378,310	1,487,550
FHLB and Federal Reserve stock	122,123	117,943
Net portfolio loans	5,163,239	5,101,446
Loans held for sale	30,062	10,402
Accrued interest receivable	32,088	31,390
Financial liabilities:
Deposits	7,324,879	7,424,427
Short-term borrowings	42,796	40,098
Long-term debt	933,690	927,533
Accrued interest payable	$ 16,900	$ 14,047

XML

Allowance for Loan Losses (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012 Loan	Sep. 30, 2011 Loan Rate	Sep. 30, 2012 Loan	Sep. 30, 2011 Loan
Loans modified as TDR
Number of Loans	20	11	88	43
Pre-Modification Outstanding Recorded Investment	$ 2,759	$ 2,596	$ 10,734	$ 23,486
Post-Modification Outstanding Recorded Investment	2,759	2,747	10,314	20,060
Average Coupon Rate	2.97%	2.60%	3.88%	5.30%
Commercial and industrial [Member]
Loans modified as TDR
Number of Loans			2	2
Pre-Modification Outstanding Recorded Investment			1,839	1,807
Post-Modification Outstanding Recorded Investment			1,500	1,807
Average Coupon Rate			6.50%	6.45%
Commercial real estate [Member]
Loans modified as TDR
Number of Loans				2
Pre-Modification Outstanding Recorded Investment				11,988
Post-Modification Outstanding Recorded Investment				8,283
Average Coupon Rate				7.42%
Total commercial [Member]
Loans modified as TDR
Number of Loans			2	4
Pre-Modification Outstanding Recorded Investment			1,839	13,795
Post-Modification Outstanding Recorded Investment			1,500	10,090
Average Coupon Rate			6.50%	7.25%
Residential mortgage [Member]
Loans modified as TDR
Number of Loans	15	10	29	32
Pre-Modification Outstanding Recorded Investment	2,399	2,265	4,732	8,092
Post-Modification Outstanding Recorded Investment	2,399	2,411	4,732	8,365
Average Coupon Rate	2.91%	2.25%	2.69%	2.76%
Direct consumer [Member]
Loans modified as TDR
Number of Loans	5	1	57	7
Pre-Modification Outstanding Recorded Investment	360	331	4,163	1,599
Post-Modification Outstanding Recorded Investment	$ 360	$ 336	$ 4,082	$ 1,605
Average Coupon Rate	3.39%	5.10%	4.30%	6.34%

XML

Derivatives and Hedging Activities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Other Assets [Member]
Fair value of Company's derivative financial instruments and their classification on Consolidated Balance Sheets
Derivative Assets	$ 16,115	$ 20,879
Other Liabilities [Member]
Fair value of Company's derivative financial instruments and their classification on Consolidated Balance Sheets
Derivative Liabilities	23,036	19,931
Interest rate products [Member] | Other Assets [Member] | Derivatives designated as hedging instruments [Member]
Fair value of Company's derivative financial instruments and their classification on Consolidated Balance Sheets
Derivative Assets	1,217	3,791
Interest rate products [Member] | Other Assets [Member] | Derivatives not designated as hedges [Member]
Fair value of Company's derivative financial instruments and their classification on Consolidated Balance Sheets
Derivative Assets	14,898	17,088
Interest rate products [Member] | Other Liabilities [Member] | Derivatives designated as hedging instruments [Member]
Fair value of Company's derivative financial instruments and their classification on Consolidated Balance Sheets
Derivative Liabilities	7,515	2,317
Interest rate products [Member] | Other Liabilities [Member] | Derivatives not designated as hedges [Member]
Fair value of Company's derivative financial instruments and their classification on Consolidated Balance Sheets
Derivative Liabilities	$ 15,521	$ 17,614

XML

Fair Values of Assets and Liabilities (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair value measurements recurring [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	$ 1,541,567	$ 1,312,733
Total other assets	24,911	29,356
Total	1,566,478	1,342,089
Total other liabilities	23,036	19,931
Fair value measurements recurring [Member] | Level 1 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets	6,915	6,791
Total	6,915	6,791
Total other liabilities
Fair value measurements recurring [Member] | Level 2 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets	16,115	20,879
Total	1,556,735	1,331,925
Total other liabilities	23,036	19,931
Fair value measurements recurring [Member] | Level 3 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets	1,881	1,686
Total	2,828	3,373
Total other liabilities
Collateralized mortgage obligations [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	54,200
Deferred compensation assets [Member] | Fair value measurements recurring [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets	8,796	8,477
Deferred compensation assets [Member] | Fair value measurements recurring [Member] | Level 1 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets	6,915	6,791
Deferred compensation assets [Member] | Fair value measurements recurring [Member] | Level 2 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets
Deferred compensation assets [Member] | Fair value measurements recurring [Member] | Level 3 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets	1,881	1,686
Derivatives not designated as hedging instruments [Member] | Fair value measurements recurring [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets	14,898	17,088
Total other liabilities	15,521	17,614
Derivatives not designated as hedging instruments [Member] | Fair value measurements recurring [Member] | Level 1 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets
Total other liabilities
Derivatives not designated as hedging instruments [Member] | Fair value measurements recurring [Member] | Level 2 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets	14,898	17,088
Total other liabilities	15,521	17,614
Derivatives not designated as hedging instruments [Member] | Fair value measurements recurring [Member] | Level 3 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets
Total other liabilities
Derivatives designated as hedging instruments [Member] | Fair value measurements recurring [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets	1,217	3,791
Total other liabilities	7,515	2,317
Derivatives designated as hedging instruments [Member] | Fair value measurements recurring [Member] | Level 1 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets
Total other liabilities
Derivatives designated as hedging instruments [Member] | Fair value measurements recurring [Member] | Level 2 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets	1,217	3,791
Total other liabilities	7,515	2,317
Derivatives designated as hedging instruments [Member] | Fair value measurements recurring [Member] | Level 3 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total other assets
Total other liabilities
Securities available for sale [Member] | Fair value measurements recurring [Member] | Level 1 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale
Securities available for sale [Member] | Fair value measurements recurring [Member] | Level 2 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	1,540,620	1,311,046
Securities available for sale [Member] | Fair value measurements recurring [Member] | Level 3 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	947	1,687
Securities available for sale [Member] | Collateralized mortgage obligations [Member] | Fair value measurements recurring [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	411,731	365,302
Securities available for sale [Member] | Collateralized mortgage obligations [Member] | Fair value measurements recurring [Member] | Level 1 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale
Securities available for sale [Member] | Collateralized mortgage obligations [Member] | Fair value measurements recurring [Member] | Level 2 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	411,725	365,294
Securities available for sale [Member] | Collateralized mortgage obligations [Member] | Fair value measurements recurring [Member] | Level 3 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	6	8
Securities available for sale [Member] | Mortgage-backed [Member] | Fair value measurements recurring [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	1,018,853	823,852
Securities available for sale [Member] | Mortgage-backed [Member] | Fair value measurements recurring [Member] | Level 1 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale
Securities available for sale [Member] | Mortgage-backed [Member] | Fair value measurements recurring [Member] | Level 2 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	1,018,853	823,852
Securities available for sale [Member] | Mortgage-backed [Member] | Fair value measurements recurring [Member] | Level 3 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale
Securities available for sale [Member] | State and municipal [Member] | Fair value measurements recurring [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	110,696	123,308
Securities available for sale [Member] | State and municipal [Member] | Fair value measurements recurring [Member] | Level 1 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale
Securities available for sale [Member] | State and municipal [Member] | Fair value measurements recurring [Member] | Level 2 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	109,988	121,862
Securities available for sale [Member] | State and municipal [Member] | Fair value measurements recurring [Member] | Level 3 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	708	1,446
Securities available for sale [Member] | Other [Member] | Fair value measurements recurring [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	287	271
Securities available for sale [Member] | Other [Member] | Fair value measurements recurring [Member] | Level 1 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale
Securities available for sale [Member] | Other [Member] | Fair value measurements recurring [Member] | Level 2 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	54	38
Securities available for sale [Member] | Other [Member] | Fair value measurements recurring [Member] | Level 3 [Member]
Balances of assets and liabilities measured at fair value on a recurring basis
Total available for sale	$ 233	$ 233

XML

Allowance for Loan Losses (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2010
Allowance for loan losses, segregated by portfolio segment
Allowance for Loans Individually Evaluated for Impairment	$ 4,749		$ 7,059	$ 8,971
Allowance for Loans Collectively Evaluated for Impairment	115,376		163,167	177,383
General Allowance	2,000		2,500	4,000
Total Allowance for Loan Losses	122,125	136,120	172,726	190,354	206,292	296,031
Recorded Investment of Loans Individually Evaluated for Impairment	63,287		87,186	84,083
Recorded Investment of Loans Collectively Evaluated for Impairment	5,346,634		5,434,108	5,570,950
Deferred (Fees)/Costs	20,983		8,241	17,294
Total Recorded Investment	5,430,904		5,529,535	5,672,327
Commercial and industrial [Member]
Allowance for loan losses, segregated by portfolio segment
Allowance for Loans Individually Evaluated for Impairment	195		42	96
Allowance for Loans Collectively Evaluated for Impairment	9,619		13,302	13,127
General Allowance	167		700
Total Allowance for Loan Losses	9,981	8,900	14,044	13,223	17,618	26,619
Recorded Investment of Loans Individually Evaluated for Impairment	2,360		8,842	11,588
Recorded Investment of Loans Collectively Evaluated for Impairment	1,419,537		1,245,902	1,219,532
Deferred (Fees)/Costs	(5,345)		(7,953)	245
Total Recorded Investment	1,416,552		1,246,791	1,231,365
Small business [Member]
Allowance for loan losses, segregated by portfolio segment
Allowance for Loans Individually Evaluated for Impairment				3
Allowance for Loans Collectively Evaluated for Impairment	9,295		11,730	10,817
General Allowance	161		500
Total Allowance for Loan Losses	9,456	9,702	12,230	10,820	12,933	16,334
Recorded Investment of Loans Individually Evaluated for Impairment	188		557	562
Recorded Investment of Loans Collectively Evaluated for Impairment	271,981		295,972	299,361
Deferred (Fees)/Costs	275		209	204
Total Recorded Investment	272,444		296,738	300,127
Commercial real estate [Member]
Allowance for loan losses, segregated by portfolio segment
Allowance for Loans Individually Evaluated for Impairment	402		4,110	6,148
Allowance for Loans Collectively Evaluated for Impairment	37,843		58,589	67,091
General Allowance	656		1,300	4,000
Total Allowance for Loan Losses	38,901	48,567	63,999	77,239	83,627	156,623
Recorded Investment of Loans Individually Evaluated for Impairment	35,806		57,562	52,452
Recorded Investment of Loans Collectively Evaluated for Impairment	1,300,963		1,488,657	1,593,357
Deferred (Fees)/Costs	(1,168)		(1,858)	(1,908)
Total Recorded Investment	1,335,601		1,544,361	1,643,901
Total commercial [Member]
Allowance for loan losses, segregated by portfolio segment
Allowance for Loans Individually Evaluated for Impairment	597		4,152	6,247
Allowance for Loans Collectively Evaluated for Impairment	56,757		83,621	91,035
General Allowance	984		2,500	4,000
Total Allowance for Loan Losses	58,338	67,169	90,273	101,282	114,178	199,576
Recorded Investment of Loans Individually Evaluated for Impairment	38,354		66,961	64,602
Recorded Investment of Loans Collectively Evaluated for Impairment	2,992,481		3,030,531	3,112,250
Deferred (Fees)/Costs	(6,238)		(9,602)	(1,459)
Total Recorded Investment	3,024,597		3,087,890	3,175,393
Residential mortgage [Member]
Allowance for loan losses, segregated by portfolio segment
Allowance for Loans Individually Evaluated for Impairment	3,724		2,837	2,540
Allowance for Loans Collectively Evaluated for Impairment	23,005		33,623	34,877
General Allowance	399
Total Allowance for Loan Losses	27,128	27,686	36,460	37,417	43,925	47,623
Recorded Investment of Loans Individually Evaluated for Impairment	17,306		15,140	14,392
Recorded Investment of Loans Collectively Evaluated for Impairment	553,551		623,779	640,891
Deferred (Fees)/Costs	(292)		(1,674)	(722)
Total Recorded Investment	570,295		637,245	654,561
Direct consumer [Member]
Allowance for loan losses, segregated by portfolio segment
Allowance for Loans Individually Evaluated for Impairment	428		70	184
Allowance for Loans Collectively Evaluated for Impairment	26,325		32,950	37,682
General Allowance	456
Total Allowance for Loan Losses	27,209	31,736	33,020	37,866	32,688	32,255
Recorded Investment of Loans Individually Evaluated for Impairment	7,897		4,607	4,615
Recorded Investment of Loans Collectively Evaluated for Impairment	855,504		928,930	950,813
Deferred (Fees)/Costs	2,376		(223)	(597)
Total Recorded Investment	865,777		933,314	954,831
Indirect consumer [Member]
Allowance for loan losses, segregated by portfolio segment
Allowance for Loans Individually Evaluated for Impairment
Allowance for Loans Collectively Evaluated for Impairment	9,289		12,973	13,789
General Allowance	161
Total Allowance for Loan Losses	9,450	9,529	12,973	13,789	15,501	16,577
Recorded Investment of Loans Individually Evaluated for Impairment			478	474
Recorded Investment of Loans Collectively Evaluated for Impairment	945,098		850,868	866,996
Deferred (Fees)/Costs	25,137		19,740	20,072
Total Recorded Investment	$ 970,235		$ 871,086	$ 887,542

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Lines of Business (Tables)

9 Months Ended

Sep. 30, 2012

Lines of Business [Abstract]

Line of business information

Selected line of business information for the three and nine months ended September 30, 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.

(in thousands)	Regional Banking			Specialty Consumer			Specialty Commercial			Wealth Mgmt		Other			Total
Earnings Summary - Three Months Ended September 30, 2012
Net interest income (taxable equivalent)	$	53,366		$	8,985		$	16,622		$	29	$	(1,694	)	$	77,308
Provision for loan losses		5,692			4,045			(4,542	)		—		—			5,195
Net interest income (loss) after provision		47,674			4,940			21,164			29		(1,694	)		72,113
Noninterest income		17,817			179			531			3,635		1,548			23,710
Noninterest expense		50,555			4,092			3,104			2,394		11,910			72,055
Income (loss) before income taxes		14,936			1,027			18,591			1,270		(12,056	)		23,768
Income tax expense (benefit) (taxable equivalent)		5,228			359			6,507			445		(9,762	)		2,777
Net income (loss)	$	9,708		$	668		$	12,084		$	825	$	(2,294	)	$	20,991
Average assets (in millions)	$	2,989		$	1,600		$	1,244		$	22	$	3,869		$	9,724
Earnings Summary - Three Months Ended September 30, 2011
Net interest income (taxable equivalent)	$	53,340		$	9,962		$	12,917		$	125	$	4,323		$	80,667
Provision for loan losses		5,292			15,267			(3,078	)		—		—			17,481
Net interest income (loss) after provision		48,048			(5,305	)		15,995			125		4,323			63,186
Noninterest income		18,662			59			2,262			3,620		(176	)		24,427
Noninterest expense		53,429			4,010			3,329			2,567		2,076			65,411
Income (loss) before income taxes		13,281			(9,256	)		14,928			1,178		2,071			22,202
Income tax expense (benefit) (taxable equivalent)		4,649			(3,240	)		5,224			412		(17,787	)		(10,742	)
Net income (loss)	$	8,632		$	(6,016	)	$	9,704		$	766	$	19,858		$	32,944
Average assets (in millions)	$	3,196		$	1,650		$	1,041		$	18	$	3,691		$	9,596
(in thousands)	Regional Banking			Specialty Consumer			Specialty Commercial			Wealth Mgmt		Other			Total
Earnings Summary - Nine Months Ended September 30, 2012
Net interest income (taxable equivalent)	$	156,909		$	25,882		$	48,670		$	87	$	661		$	232,209
Provision for loan losses		24,024			6,666			(11,799	)		—		—			18,891
Net interest income after provision		132,885			19,216			60,469			87		661			213,318
Noninterest income		52,512			546			1,914			10,819		4,505			70,296
Noninterest expense		151,905			12,692			9,573			7,377		23,947			205,494
Income (loss) before income taxes		33,492			7,070			52,810			3,529		(18,781	)		78,120
Income tax expense (benefit) (taxable equivalent)		11,722			2,475			18,484			1,235		(304,824	)		(270,908	)
Net income	$	21,770		$	4,595		$	34,326		$	2,294	$	286,043		$	349,028
Average assets (in millions)	$	3,016		$	1,576		$	1,225		$	22	$	3,720		$	9,559
Earnings Summary - Nine Months Ended September 30, 2011
Net interest income (taxable equivalent)	$	162,701		$	28,132		$	34,247		$	423	$	15,370		$	240,873
Provision for loan losses		56,710			26,533			40,558			—		—			123,801
Net interest income (loss) after provision		105,991			1,599			(6,311	)		423		15,370			117,072
Noninterest income		53,208			1,716			3,181			11,355		1,435			70,895
Noninterest expense		164,598			13,997			12,100			7,226		18,590			216,511
Income (loss) before income taxes		(5,399	)		(10,682	)		(15,230	)		4,552		(1,785	)		(28,544	)
Income tax expense (benefit) (taxable equivalent)		(1,890	)		(3,739	)		(5,331	)		1,593		(7,600	)		(16,967	)
Net income (loss)	$	(3,509	)	$	(6,943	)	$	(9,899	)	$	2,959	$	5,815		$	(11,577	)
Average assets (in millions)	$	3,324		$	1,645		$	1,055		$	18	$	3,677		$	9,719

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Derivatives and Hedging Activities (Details 3) (Derivatives not designated as hedges [Member], Interest rate products [Member], Other income [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Derivatives not designated as hedges [Member] | Interest rate products [Member] | Other income [Member]
Summary of impact of derivatives not designated as hedges
Amount of (Loss) Gain Recognized in Statement of Operations	$ (83)	$ (268)	$ (96)	$ (458)

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Fair Values of Assets and Liabilities (Details 3) (Fair Value Measurements Nonrecurring [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Reconciliation of Level 3 assets
Impaired loans	$ 31,101
Commercial loans held for sale
Residential mortgage loans held for sale	214
Other real estate	2,244
Repossessed assets	1,412
Total	34,971
Level 1 [Member]
Reconciliation of Level 3 assets
Impaired loans
Commercial loans held for sale
Residential mortgage loans held for sale
Other real estate
Repossessed assets
Total
Level 2 [Member]
Reconciliation of Level 3 assets
Impaired loans
Commercial loans held for sale
Residential mortgage loans held for sale
Other real estate
Repossessed assets
Total
Level 3 [Member]
Reconciliation of Level 3 assets
Impaired loans	31,101
Commercial loans held for sale
Residential mortgage loans held for sale	214
Other real estate	2,244
Repossessed assets	1,412
Total	34,971
Initial Carrying Value [Member]
Reconciliation of Level 3 assets
Impaired loans	78,200
Commercial loans held for sale	36
Residential mortgage loans held for sale	708
Other real estate	3,764
Repossessed assets	2,566
Total	$ 85,274

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Derivatives and Hedging Activities (Details 1) (Cash flow hedges [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Schedule of derivative instruments cash flow hedges gain (loss) in statement of financial performance
Recognized in OCI	$ (2,665)	$ (697)	$ (9,541)	$ (680)
Reclassified from Accumulated OCI into Statement of Operations	(600)	729	(1,431)	3,135
Interest income [Member]
Schedule of derivative instruments cash flow hedges gain (loss) in statement of financial performance
Reclassified from Accumulated OCI into Statement of Operations	34	547	406	2,418
Interest expense [Member]
Schedule of derivative instruments cash flow hedges gain (loss) in statement of financial performance
Reclassified from Accumulated OCI into Statement of Operations	(634)		(1,843)
Other income [Member]
Schedule of derivative instruments cash flow hedges gain (loss) in statement of financial performance
Reclassified from Accumulated OCI into Statement of Operations		182	6	717
Interest rate products [Member]
Schedule of derivative instruments cash flow hedges gain (loss) in statement of financial performance
Recognized in OCI	$ (2,665)	$ (697)	$ (9,541)	$ (680)

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Investment Securities (Tables)

9 Months Ended

Sep. 30, 2012

Investment Securities [Abstract]

Amortized cost, estimated fair value and gross unrealized gains and losses on investment securities

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

	September 30, 2012								December 31, 2011
			Estimated								Estimated
	Amortized		Fair		Gross Unrealized				Amortized		Fair		Gross Unrealized
(in thousands)	Cost		Value		Gains		Losses		Cost		Value		Gains		Losses
Securities available for sale:
Collateralized mortgage obligations	$	404,391	$	411,731	$	7,857	$	517	$	364,262	$	365,302	$	6,811	$	5,771
Mortgage-backed		971,546		1,018,853		47,307		—		784,476		823,852		39,408		32
State and municipal		104,093		110,696		6,620		17		116,411		123,308		7,019		122
Other		289		287		51		53		280		271		24		33
Total available for sale	$	1,480,319	$	1,541,567	$	61,835	$	587	$	1,265,429	$	1,312,733	$	53,262	$	5,958
Securities held to maturity:
Collateralized mortgage obligations (1)	$	304,462	$	313,835	$	9,373	$	—	$	350,160	$	356,031	$	5,871	$	—
Mortgage-backed (1)		907,361		955,140		47,779		—		988,930		1,018,765		29,883		48
State and municipal		101,681		109,335		7,654		—		104,964		112,754		7,836		46
Total held to maturity	$	1,313,504	$	1,378,310	$	64,806	$	—	$	1,444,054	$	1,487,550	$	43,590	$	94

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

Amortized cost and estimated fair value of debt securities by maturity

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

	September 30, 2012
	Amortized		Estimated Fair
(in thousands)	Cost		Value
Securities available for sale:
State and municipal
Contractual maturity within one year	$	14,591	$	14,804
After one year through five years		14,785		15,410
After five years through ten years		57,915		62,130
After ten years		16,802		18,352
Subtotal		104,093		110,696
Collateralized mortgage obligations and mortgage-backed		1,375,937		1,430,584
Other		289		287
Total available for sale	$	1,480,319	$	1,541,567
Securities held to maturity:
State and municipal
Contractual maturity within one year	$	3,560	$	3,660
After one year through five years		21,656		23,081
After five years through ten years		51,300		54,771
After ten years		25,165		27,823
Subtotal		101,681		109,335
Collateralized mortgage obligations and mortgage-backed		1,211,823		1,268,975
Total held to maturity	$	1,313,504	$	1,378,310

Estimated fair values and unrealized losses of investment securities

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
September 30, 2012	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Securities available for sale:
Collateralized mortgage obligations	$	44,532	$	137	$	9,693	$	380	$	54,225	$	517
State and municipal		303		1		233		16		536		17
Other		—		—		149		53		149		53
Total available for sale	$	44,835	$	138	$	10,075	$	449	$	54,910	$	587

	Less than 12 Months				More than 12 Months				Total
December 31, 2011	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Securities available for sale:
Collateralized mortgage obligations	$	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

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Allowance for Loan Losses (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012 Loan	Sep. 30, 2011 Loan	Sep. 30, 2012 Loan	Sep. 30, 2011 Loan	Dec. 31, 2011
Allowance for Loan Losses (Textual) [Abstract]
Interest income from nonperforming loans	$ 400,000	$ 300,000	$ 1,900,000	$ 1,900,000
Additional interest income recognized on nonaccrual loans performed	1,700,000	1,600,000	2,700,000	3,600,000
Recorded investment	27,800,000		27,800,000
TDRs deemed to be uncollectible	400,000	2,100,000	1,100,000	6,000,000
Period of default loan payments			Over 90 days
Number of loans for default payment			3
Default of loans payment			300,000
Number of Loans	20	11	88	43
Significant commitment outstanding	0	0	0	0	0
Allowance for loan losses included specific reserves	4,749,000	8,971,000	4,749,000	8,971,000	7,059,000
Troubled Debt Restructurings non accruing loans classification period			6 months
Nonaccrual loans (impaired) [Member]
Allowance for Loan Losses (Textual) [Abstract]
Recorded investment	6,400,000		6,400,000
Allowance for loan losses included specific reserves	1,487,000	8,925,000	1,487,000	8,925,000	5,553,000
Accrual loans (impaired) [Member]
Allowance for Loan Losses (Textual) [Abstract]
Recorded investment	21,400,000		21,400,000
Allowance for loan losses included specific reserves	3,262,000	46,000	3,262,000	46,000	1,506,000
TDR [Member]
Allowance for Loan Losses (Textual) [Abstract]
Number of Loans			2	4
Allowance for loan losses included specific reserves	4,200,000	2,700,000	4,200,000	2,700,000
Residential mortgage [Member]
Allowance for Loan Losses (Textual) [Abstract]
Number of Loans	15	10	29	32
Allowance for loan losses included specific reserves	3,700,000	2,500,000	3,700,000	2,500,000
Direct consumer [Member]
Allowance for Loan Losses (Textual) [Abstract]
Number of Loans	5	1	57	7
Allowance for loan losses included specific reserves	$ 500,000	$ 200,000	$ 500,000	$ 200,000

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Loans (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Risk category of commercial loans by class
Commercial loans	$ 3,024,597	$ 3,087,890	$ 3,175,393
Land hold [Member]
Risk category of commercial loans by class
Commercial loans	4,984	6,542	6,818
Land hold [Member] | Pass [Member]
Risk category of commercial loans by class
Commercial loans	2,021	2,427	2,548
Land hold [Member] | Special Mention [Member]
Risk category of commercial loans by class
Commercial loans	745	803	820
Land hold [Member] | Substandard [Member]
Risk category of commercial loans by class
Commercial loans	2,218	3,312	3,450
Land hold [Member] | Doubtful [Member]
Risk category of commercial loans by class
Commercial loans
Land development [Member]
Risk category of commercial loans by class
Commercial loans	7,521	13,104	22,232
Land development [Member] | Pass [Member]
Risk category of commercial loans by class
Commercial loans	7,174	12,087	12,397
Land development [Member] | Special Mention [Member]
Risk category of commercial loans by class
Commercial loans	144	252	295
Land development [Member] | Substandard [Member]
Risk category of commercial loans by class
Commercial loans	203	765	9,540
Land development [Member] | Doubtful [Member]
Risk category of commercial loans by class
Commercial loans
Construction [Member]
Risk category of commercial loans by class
Commercial loans	6,689	5,847	5,410
Construction [Member] | Pass [Member]
Risk category of commercial loans by class
Commercial loans	6,689	4,039	3,304
Construction [Member] | Special Mention [Member]
Risk category of commercial loans by class
Commercial loans		1,508	1,525
Construction [Member] | Substandard [Member]
Risk category of commercial loans by class
Commercial loans		300	577
Construction [Member] | Doubtful [Member]
Risk category of commercial loans by class
Commercial loans			4
Income producing [Member]
Risk category of commercial loans by class
Commercial loans	767,202	913,755	975,262
Income producing [Member] | Pass [Member]
Risk category of commercial loans by class
Commercial loans	541,963	633,855	627,636
Income producing [Member] | Special Mention [Member]
Risk category of commercial loans by class
Commercial loans	131,769	164,756	182,762
Income producing [Member] | Substandard [Member]
Risk category of commercial loans by class
Commercial loans	93,204	112,458	163,238
Income producing [Member] | Doubtful [Member]
Risk category of commercial loans by class
Commercial loans	266	2,686	1,626
Owner-occupied [Member]
Risk category of commercial loans by class
Commercial loans	549,205	605,113	634,179
Owner-occupied [Member] | Pass [Member]
Risk category of commercial loans by class
Commercial loans	445,623	475,604	504,172
Owner-occupied [Member] | Special Mention [Member]
Risk category of commercial loans by class
Commercial loans	58,424	66,576	47,759
Owner-occupied [Member] | Substandard [Member]
Risk category of commercial loans by class
Commercial loans	45,071	61,429	77,649
Owner-occupied [Member] | Doubtful [Member]
Risk category of commercial loans by class
Commercial loans	87	1,504	4,599
Total commercial real estate [Member]
Risk category of commercial loans by class
Commercial loans	1,335,601	1,544,361	1,643,901
Total commercial real estate [Member] | Pass [Member]
Risk category of commercial loans by class
Commercial loans	1,003,470	1,128,012	1,150,057
Total commercial real estate [Member] | Special Mention [Member]
Risk category of commercial loans by class
Commercial loans	191,082	233,895	233,161
Total commercial real estate [Member] | Substandard [Member]
Risk category of commercial loans by class
Commercial loans	140,696	178,264	254,454
Total commercial real estate [Member] | Doubtful [Member]
Risk category of commercial loans by class
Commercial loans	353	4,190	6,229
Commercial and industrial [Member]
Risk category of commercial loans by class
Commercial loans	1,416,552	1,246,791	1,231,365
Commercial and industrial [Member] | Pass [Member]
Risk category of commercial loans by class
Commercial loans	1,266,471	1,059,316	1,051,254
Commercial and industrial [Member] | Special Mention [Member]
Risk category of commercial loans by class
Commercial loans	111,694	113,126	99,868
Commercial and industrial [Member] | Substandard [Member]
Risk category of commercial loans by class
Commercial loans	38,191	74,307	79,944
Commercial and industrial [Member] | Doubtful [Member]
Risk category of commercial loans by class
Commercial loans	196	42	299
Small business [Member]
Risk category of commercial loans by class
Commercial loans	272,444	296,738	300,127
Small business [Member] | Pass [Member]
Risk category of commercial loans by class
Commercial loans	236,974	251,790	255,237
Small business [Member] | Special Mention [Member]
Risk category of commercial loans by class
Commercial loans	14,975	21,803	23,113
Small business [Member] | Substandard [Member]
Risk category of commercial loans by class
Commercial loans	20,432	22,925	21,623
Small business [Member] | Doubtful [Member]
Risk category of commercial loans by class
Commercial loans	63	220	154
Total commercial [Member]
Risk category of commercial loans by class
Commercial loans	3,024,597	3,087,890	3,175,393
Total commercial [Member] | Pass [Member]
Risk category of commercial loans by class
Commercial loans	2,506,915	2,439,118	2,456,548
Total commercial [Member] | Special Mention [Member]
Risk category of commercial loans by class
Commercial loans	317,751	368,824	356,142
Total commercial [Member] | Substandard [Member]
Risk category of commercial loans by class
Commercial loans	199,319	275,496	356,021
Total commercial [Member] | Doubtful [Member]
Risk category of commercial loans by class
Commercial loans	$ 612	$ 4,452	$ 6,682

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Business Combination (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Business Combination (Textual) [Abstract]
Number of Share Issued To Citizen Share Holder		1.37
Repayment of Preferred stock of acquiree company		$ 345
Deferred Preferred share dividend		45
Merger-related expenses in professional services	$ 4.4

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Investment Securities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011
Securities available for sale:
Securities available for sale, Amortized Cost	$ 1,480,319		$ 1,265,429		$ 924,600
Securities available for sale, Estimated Fair Value	1,541,567		1,312,733	1,307,977
Securities available for sale, Gross Unrealized Gains	61,835		53,262
Securities available for sale, Gross Unrealized Losses	(587)		(5,958)
Securities held to maturity:
Securities held to maturity, Amortized Cost	1,313,504		1,444,054
Securities held to maturity, Estimated Fair Value	1,378,310		1,487,550
Securities held to maturity, Gross Unrealized Gains	64,806		43,590
Securities held to maturity, Gross Unrealized Losses			(94)
Collateralized mortgage obligations [Member]
Securities available for sale:
Securities available for sale, Amortized Cost	404,391		364,262
Securities available for sale, Estimated Fair Value	411,731		365,302
Securities available for sale, Gross Unrealized Gains	7,857		6,811
Securities available for sale, Gross Unrealized Losses	(517)		(5,771)
Securities held to maturity:
Securities held to maturity, Amortized Cost	304,462		350,160
Securities held to maturity, Estimated Fair Value	313,835		356,031
Securities held to maturity, Gross Unrealized Gains	9,373		5,871
Securities held to maturity, Gross Unrealized Losses
Mortgage-backed [Member]
Securities available for sale:
Securities available for sale, Amortized Cost	971,546		784,476
Securities available for sale, Estimated Fair Value	1,018,853		823,852
Securities available for sale, Gross Unrealized Gains	47,307		39,408
Securities available for sale, Gross Unrealized Losses			(32)
Securities held to maturity:
Securities held to maturity, Amortized Cost	907,361		988,930
Securities held to maturity, Estimated Fair Value	955,140		1,018,765
Securities held to maturity, Gross Unrealized Gains	47,779		29,883
Securities held to maturity, Gross Unrealized Losses			(48)
State and municipal [Member]
Securities available for sale:
Securities available for sale, Amortized Cost	104,093		116,411
Securities available for sale, Estimated Fair Value	110,696		123,308
Securities available for sale, Gross Unrealized Gains	6,620		7,019
Securities available for sale, Gross Unrealized Losses	(17)		(122)
Securities held to maturity:
Securities held to maturity, Amortized Cost	101,681		104,964
Securities held to maturity, Estimated Fair Value	109,335		112,754
Securities held to maturity, Gross Unrealized Gains	7,654		7,836
Securities held to maturity, Gross Unrealized Losses			(46)
Other [Member]
Securities available for sale:
Securities available for sale, Amortized Cost	289		280
Securities available for sale, Estimated Fair Value	287		271
Securities available for sale, Gross Unrealized Gains	51		24
Securities available for sale, Gross Unrealized Losses	$ (53)		$ (33)

XML

Long-Term Debt (Details Textual) (USD $) In Millions, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Long-Term Debt (Textual) [Abstract]
Number of trust preferred securities having deferred interest payments on outstanding junior subordinated debentures	2
Arrears on payments of subordinated debt associated with trust preferred securities	13.8	9.8
Restructuring of FHLB advances	350.0	245.0
Maximum [Member]
Debt Instrument [Line Items]
Average term of advances extended	9 years	5 years 9 months 18 days
Average interest rate	3.50%	4.84%
Minimum [Member]
Debt Instrument [Line Items]
Average term of advances extended	3 years 2 months 12 days	3 years 3 months 18 days
Average interest rate	2.55%	3.32%

XML

Lines of Business (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Line of business information
Net interest income (taxable equivalent)	$ 75,805,000	$ 78,841,000	$ 227,603,000	$ 235,061,000
Provision for loan losses	5,195,000	17,481,000	18,891,000	123,801,000
Net interest income (loss) after provision	70,610,000	61,360,000	208,712,000	111,260,000
Noninterest income	23,710,000	24,427,000	70,296,000	70,895,000
Noninterest expense	72,055,000	65,411,000	205,494,000	216,511,000
Income (loss) before income taxes	22,265,000	20,376,000	73,514,000	(34,356,000)
Income tax expense (benefit) (taxable equivalent)	1,274,000	(12,568,000)	(275,514,000)	(22,779,000)
Net income (loss)	20,991,000	32,944,000	349,028,000	(11,577,000)
Average assets	9,724,000,000	9,596,000,000	9,559,000,000	9,719,000,000
Regional Banking [Member]
Line of business information
Net interest income (taxable equivalent)	53,366,000	53,340,000	156,909,000	162,701,000
Provision for loan losses	5,692,000	5,292,000	24,024,000	56,710,000
Net interest income (loss) after provision	47,674,000	48,048,000	132,885,000	105,991,000
Noninterest income	17,817,000	18,662,000	52,512,000	53,208,000
Noninterest expense	50,555,000	53,429,000	151,905,000	164,598,000
Income (loss) before income taxes	14,936,000	13,281,000	33,492,000	(5,399,000)
Income tax expense (benefit) (taxable equivalent)	5,228,000	4,649,000	11,722,000	(1,890,000)
Net income (loss)	9,708,000	8,632,000	21,770,000	(3,509,000)
Average assets	2,989,000,000	3,196,000,000	3,016,000,000	3,324,000,000
Specialty Consumer [Member]
Line of business information
Net interest income (taxable equivalent)	8,985,000	9,962,000	25,882,000	28,132,000
Provision for loan losses	4,045,000	15,267,000	6,666,000	26,533,000
Net interest income (loss) after provision	4,940,000	(5,305,000)	19,216,000	1,599,000
Noninterest income	179,000	59,000	546,000	1,716,000
Noninterest expense	4,092,000	4,010,000	12,692,000	13,997,000
Income (loss) before income taxes	1,027,000	(9,256,000)	7,070,000	(10,682,000)
Income tax expense (benefit) (taxable equivalent)	359,000	(3,240,000)	2,475,000	(3,739,000)
Net income (loss)	668,000	(6,016,000)	4,595,000	(6,943,000)
Average assets	1,600,000,000	1,650,000,000	1,576,000,000	1,645,000,000
Specialty Commercial [Member]
Line of business information
Net interest income (taxable equivalent)	16,622,000	12,917,000	48,670,000	34,247,000
Provision for loan losses	(4,542,000)	(3,078,000)	(11,799,000)	40,558,000
Net interest income (loss) after provision	21,164,000	15,995,000	60,469,000	(6,311,000)
Noninterest income	531,000	2,262,000	1,914,000	3,181,000
Noninterest expense	3,104,000	3,329,000	9,573,000	12,100,000
Income (loss) before income taxes	18,591,000	14,928,000	52,810,000	(15,230,000)
Income tax expense (benefit) (taxable equivalent)	6,507,000	5,224,000	18,484,000	(5,331,000)
Net income (loss)	12,084,000	9,704,000	34,326,000	(9,899,000)
Average assets	1,244,000,000	1,041,000,000	1,225,000,000	1,055,000,000
Wealth Mgmt [Member]
Line of business information
Net interest income (taxable equivalent)	29,000	125,000	87,000	423,000
Provision for loan losses
Net interest income (loss) after provision	29,000	125,000	87,000	423,000
Noninterest income	3,635,000	3,620,000	10,819,000	11,355,000
Noninterest expense	2,394,000	2,567,000	7,377,000	7,226,000
Income (loss) before income taxes	1,270,000	1,178,000	3,529,000	4,552,000
Income tax expense (benefit) (taxable equivalent)	445,000	412,000	1,235,000	1,593,000
Net income (loss)	825,000	766,000	2,294,000	2,959,000
Average assets	22,000,000	18,000,000	22,000,000	18,000,000
Other [Member]
Line of business information
Net interest income (taxable equivalent)	(1,694,000)	4,323,000	661,000	15,370,000
Provision for loan losses
Net interest income (loss) after provision	(1,694,000)	4,323,000	661,000	15,370,000
Noninterest income	1,548,000	(176,000)	4,505,000	1,435,000
Noninterest expense	11,910,000	2,076,000	23,947,000	18,590,000
Income (loss) before income taxes	(12,056,000)	2,071,000	(18,781,000)	(1,785,000)
Income tax expense (benefit) (taxable equivalent)	(9,762,000)	(17,787,000)	(304,824,000)	(7,600,000)
Net income (loss)	(2,294,000)	19,858,000	286,043,000	5,815,000
Average assets	$ 3,869,000,000	$ 3,691,000,000	$ 3,720,000,000	$ 3,677,000,000

XML

Pension Benefit Cost (Details Textual) (USD $)	9 Months Ended
	Sep. 30, 2012
Pension Benefit Cost (Textual) [Abstract]
Percentage of matching contribution level 1	50.00%
Percentage of Employer contribution level 1	2.00%
Percentage of matching contribution level 2	25.00%
Percentage of Employer contribution level 2	6.00%
Defined benefit pension plans [Member]
Pension Benefit Cost (Textual) [Abstract]
Employer contributions	2,700,000
Supplemental pension plans [Member]
Pension Benefit Cost (Textual) [Abstract]
Employer contributions	400,000
Estimated contribution to defined benefit pension plan	100,000
Postretirement benefit plans [Member]
Pension Benefit Cost (Textual) [Abstract]
Employer contributions	100,000
Estimated contribution to defined benefit pension plan	100,000

XML

Allowance for Loan Losses (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended			9 Months Ended		12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	$ 82,640	$ 106,388	$ 104,056	$ 82,640	$ 104,056	$ 106,388
Recorded Investment with No Specific Allowance	41,496	60,943	50,904	41,496	50,904	60,943
Recorded Investment with Specific Allowance	21,791	26,243	33,179	21,791	33,179	26,243
Total Recorded Investment	63,287	87,186	84,083	63,287	84,083	87,186
Specific Related Allowance	4,749	7,059	8,971	4,749	8,971	7,059
Average Recorded Investment	73,429	85,635	80,782	79,288	100,950	83,018
Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	46,959	71,316	89,648	46,959	89,648	71,316
Recorded Investment with No Specific Allowance	20,135	32,413	36,757	20,135	36,757	32,413
Recorded Investment with Specific Allowance	7,471	19,701	32,918	7,471	32,918	19,701
Total Recorded Investment	27,606	52,114	69,675	27,606	69,675	52,114
Specific Related Allowance	1,487	5,553	8,925	1,487	8,925	5,553
Average Recorded Investment	39,091	59,974	66,275	43,302	88,022	62,292
Accrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	35,681	35,072	14,408	35,681	14,408	35,072
Recorded Investment with No Specific Allowance	21,361	28,530	14,147	21,361	14,147	28,530
Recorded Investment with Specific Allowance	14,320	6,542	261	14,320	261	6,542
Total Recorded Investment	35,681	35,072	14,408	35,681	14,408	35,072
Specific Related Allowance	3,262	1,506	46	3,262	46	1,506
Average Recorded Investment	34,338	25,661	14,507	35,986	12,928	20,726
Land hold [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance
Recorded Investment with No Specific Allowance
Recorded Investment with Specific Allowance
Total Recorded Investment
Specific Related Allowance
Average Recorded Investment					551	45
Land development [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance
Recorded Investment with No Specific Allowance
Recorded Investment with Specific Allowance
Total Recorded Investment
Specific Related Allowance
Average Recorded Investment			169		761	85
Construction [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance			491		491
Recorded Investment with No Specific Allowance			93		93
Recorded Investment with Specific Allowance			164		164
Total Recorded Investment			257		257
Specific Related Allowance			4		4
Average Recorded Investment		129	329		1,930	224
Income producing [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	17,333	23,394	27,646	17,333	27,646	23,394
Recorded Investment with No Specific Allowance	10,644	9,163	12,432	10,644	12,432	9,163
Recorded Investment with Specific Allowance	657	8,838	7,545	657	7,545	8,838
Total Recorded Investment	11,301	18,001	19,977	11,301	19,977	18,001
Specific Related Allowance	267	2,686	1,626	267	1,626	2,686
Average Recorded Investment	14,356	18,989	18,513	15,636	28,706	19,516
Income producing [Member] | Accrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	873	7,476	7,519	873	7,519	7,476
Recorded Investment with No Specific Allowance		7,476	7,519		7,519	7,476
Recorded Investment with Specific Allowance	873			873
Total Recorded Investment	873	7,476	7,519	873	7,519	7,476
Specific Related Allowance	3			3
Average Recorded Investment	439	7,497	7,533	3,957	5,639	7,524
Owner-occupied [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	13,547	22,338	24,955	13,547	24,955	22,338
Recorded Investment with No Specific Allowance	7,149	13,276	10,384	7,149	10,384	13,276
Recorded Investment with Specific Allowance	1,664	3,694	11,181	1,664	11,181	3,694
Total Recorded Investment	8,813	16,970	21,565	8,813	21,565	16,970
Specific Related Allowance	129	1,424	4,518	129	4,518	1,424
Average Recorded Investment	11,025	19,267	18,697	13,406	20,981	17,069
Owner-occupied [Member] | Accrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	14,820	15,115	3,134	14,820	3,134	15,115
Recorded Investment with No Specific Allowance	14,176	15,115	3,134	14,176	3,134	15,115
Recorded Investment with Specific Allowance	644			644
Total Recorded Investment	14,820	15,115	3,134	14,820	3,134	15,115
Specific Related Allowance	3			3
Average Recorded Investment	15,098	9,125	3,144	15,188	3,546	6,166
Total commercial real estate [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	30,880	45,732	53,092	30,880	53,092	45,732
Recorded Investment with No Specific Allowance	17,793	22,439	22,909	17,793	22,909	22,439
Recorded Investment with Specific Allowance	2,321	12,532	18,890	2,321	18,890	12,532
Total Recorded Investment	20,114	34,971	41,799	20,114	41,799	34,971
Specific Related Allowance	396	4,110	6,148	396	6,148	4,110
Average Recorded Investment	25,381	38,385	37,708	29,042	52,929	36,939
Total commercial real estate [Member] | Accrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	15,693	22,591	10,653	15,693	10,653	22,591
Recorded Investment with No Specific Allowance	14,176	22,591	10,653	14,176	10,653	22,591
Recorded Investment with Specific Allowance	1,517			1,517
Total Recorded Investment	15,693	22,591	10,653	15,693	10,653	22,591
Specific Related Allowance	6			6
Average Recorded Investment	15,537	16,622	10,677	19,145	9,185	13,690
Commercial and industrial [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	10,941	17,197	20,099	10,941	20,099	17,197
Recorded Investment with No Specific Allowance	1,623	8,196	10,689	1,623	10,689	8,196
Recorded Investment with Specific Allowance	736	646	899	736	899	646
Total Recorded Investment	2,359	8,842	11,588	2,359	11,588	8,842
Specific Related Allowance	195	42	96	195	96	42
Average Recorded Investment	8,296	10,215	12,448	7,993	20,920	12,499
Small business [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	193	131	131	193	131	131
Recorded Investment with No Specific Allowance	188	66		188		66
Recorded Investment with Specific Allowance			65		65
Total Recorded Investment	188	66	65	188	65	66
Specific Related Allowance			3		3
Average Recorded Investment	191	66	65	162	698	269
Small business [Member] | Accrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance		491	497		497	491
Recorded Investment with No Specific Allowance		491	497		497	491
Recorded Investment with Specific Allowance
Total Recorded Investment		491	497		497	491
Specific Related Allowance
Average Recorded Investment		494	500	244	376	500
Total commercial [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	42,014	63,060	73,322	42,014	73,322	63,060
Recorded Investment with No Specific Allowance	19,604	30,701	33,598	19,604	33,598	30,701
Recorded Investment with Specific Allowance	3,057	13,178	19,854	3,057	19,854	13,178
Total Recorded Investment	22,661	43,879	53,452	22,661	53,452	43,879
Specific Related Allowance	591	4,152	6,247	591	6,247	4,152
Average Recorded Investment	33,868	48,666	50,221	37,197	74,547	49,707
Total commercial [Member] | Accrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	15,693	23,082	11,150	15,693	11,150	23,082
Recorded Investment with No Specific Allowance	14,176	23,082	11,150	14,176	11,150	23,082
Recorded Investment with Specific Allowance	1,517			1,517
Total Recorded Investment	15,693	23,082	11,150	15,693	11,150	23,082
Specific Related Allowance	6			6
Average Recorded Investment	15,537	17,116	11,177	19,389	9,561	14,190
Residential mortgage [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	3,762	6,610	13,381	3,762	13,381	6,610
Recorded Investment with No Specific Allowance	230	587	1,841	230	1,841	587
Recorded Investment with Specific Allowance	3,532	6,023	11,540	3,532	11,540	6,023
Total Recorded Investment	3,762	6,610	13,381	3,762	13,381	6,610
Specific Related Allowance	814	1,346	2,509	814	2,509	1,346
Average Recorded Investment	4,065	9,075	13,749	4,770	11,371	10,592
Residential mortgage [Member] | Accrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	13,275	8,530	1,011	13,275	1,011	8,530
Recorded Investment with No Specific Allowance	2,707	2,088	850	2,707	850	2,088
Recorded Investment with Specific Allowance	10,568	6,442	161	10,568	161	6,442
Total Recorded Investment	13,275	8,530	1,011	13,275	1,011	8,530
Specific Related Allowance	2,910	1,491	31	2,910	31	1,491
Average Recorded Investment	12,019	5,691	1,068	10,835	1,283	3,966
Direct consumer [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	1,183	1,168	2,471	1,183	2,471	1,168
Recorded Investment with No Specific Allowance	301	647	844	301	844	647
Recorded Investment with Specific Allowance	882	500	1,524	882	1,524	500
Total Recorded Investment	1,183	1,147	2,368	1,183	2,368	1,147
Specific Related Allowance	82	55	169	82	169	55
Average Recorded Investment	1,158	1,757	1,831	1,096	1,632	1,519
Direct consumer [Member] | Accrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	6,713	3,460	2,247	6,713	2,247	3,460
Recorded Investment with No Specific Allowance	4,478	3,360	2,147	4,478	2,147	3,360
Recorded Investment with Specific Allowance	2,235	100	100	2,235	100	100
Total Recorded Investment	6,713	3,460	2,247	6,713	2,247	3,460
Specific Related Allowance	346	15	15	346	15	15
Average Recorded Investment	6,782	2,854	2,262	5,762	2,084	2,570
Indirect consumer [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance		478	474		474	478
Recorded Investment with No Specific Allowance		478	474		474	478
Recorded Investment with Specific Allowance
Total Recorded Investment		478	474		474	478
Specific Related Allowance
Average Recorded Investment		476	474	239	472	474
Total consumer [Member] | Nonaccrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	4,945	8,256	16,326	4,945	16,326	8,256
Recorded Investment with No Specific Allowance	531	1,712	3,159	531	3,159	1,712
Recorded Investment with Specific Allowance	4,414	6,523	13,064	4,414	13,064	6,523
Total Recorded Investment	4,945	8,235	16,223	4,945	16,223	8,235
Specific Related Allowance	896	1,401	2,678	896	2,678	1,401
Average Recorded Investment	5,223	11,308	16,054	6,105	13,475	12,585
Total consumer [Member] | Accrual loans (impaired) [Member]
Loans individually reviewed for impairment
Unpaid Contractual Principal Balance	19,988	11,990	3,258	19,988	3,258	11,990
Recorded Investment with No Specific Allowance	7,185	5,448	2,997	7,185	2,997	5,448
Recorded Investment with Specific Allowance	12,803	6,542	261	12,803	261	6,542
Total Recorded Investment	19,988	11,990	3,258	19,988	3,258	11,990
Specific Related Allowance	3,256	1,506	46	3,256	46	1,506
Average Recorded Investment	$ 18,801	$ 8,545	$ 3,330	$ 16,597	$ 3,367	$ 6,536

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Basis of Presentation and Accounting Policies

9 Months Ended

Sep. 30, 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”, the “Company,” or the “Corporation”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 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. 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.

New Accounting Pronouncements

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

FASB ASU 2012-02, “Intangibles—Goodwill and Other (Topic 350)—Testing Indefinite-Lived Intangible Assets for Impairment”

The objective of the amendments in this update is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles—Goodwill and Other—General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. This ASU was adopted by Citizens in the third 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 2011-12, “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.

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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Stock-Based Compensation (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Stock-based compensation expense
Income tax benefit	$ (385)	$ (250)	$ (951)	$ (728)
Total stock-based compensation expense after income taxes	715	463	1,766	1,351
Restricted stock compensation and restricted stock unit compensation [Member]
Stock-based compensation expense
Stock-based compensation expense before income taxes	$ 1,100	$ 713	$ 2,717	$ 2,079

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Loans (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Recorded investment in residential and consumer loans
Consumer loans	$ 2,406,307	$ 2,441,645	$ 2,496,934
Performing [Member]
Recorded investment in residential and consumer loans
Consumer loans	2,378,090	2,417,261	2,467,876
Nonperforming [Member]
Recorded investment in residential and consumer loans
Consumer loans	28,217	24,384	29,058
Residential Mortgage [Member]
Recorded investment in residential and consumer loans
Consumer loans	570,295	637,245	654,561
Residential Mortgage [Member] | Performing [Member]
Recorded investment in residential and consumer loans
Consumer loans	555,024	625,933	641,487
Residential Mortgage [Member] | Nonperforming [Member]
Recorded investment in residential and consumer loans
Consumer loans	15,271	11,312	13,074
Direct Consumer [Member]
Recorded investment in residential and consumer loans
Consumer loans	865,777	933,314	954,831
Direct Consumer [Member] | Performing [Member]
Recorded investment in residential and consumer loans
Consumer loans	855,222	921,195	940,103
Direct Consumer [Member] | Nonperforming [Member]
Recorded investment in residential and consumer loans
Consumer loans	10,555	12,119	14,728
Indirect Consumer [Member]
Recorded investment in residential and consumer loans
Consumer loans	970,235	871,086	887,542
Indirect Consumer [Member] | Performing [Member]
Recorded investment in residential and consumer loans
Consumer loans	967,844	870,133	886,286
Indirect Consumer [Member] | Nonperforming [Member]
Recorded investment in residential and consumer loans
Consumer loans	$ 2,391	$ 953	$ 1,256

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Fair Values of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2012

Fair Values of Assets and Liabilities [Abstract]

Estimated fair values of financial instruments

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

	September 30, 2012
	Carrying		Estimated		Fair Value Measurements
(in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	162,705	$	162,705	$	—	$	162,705	$	—
Money market investments		223,818		223,818		—		223,818		—
Securities held to maturity		1,313,504		1,378,310		—		1,378,310		—
FHLB and Federal Reserve stock		122,123		122,123		—		122,123		—
Net portfolio loans		5,308,779		5,163,239		—		—		5,163,239
Loans held for sale		30,062		30,062		—		11,815		18,247
Accrued interest receivable		32,088		32,088		—		32,088		—
Financial liabilities:
Deposits		7,302,965		7,324,879		—		7,324,879		—
Short-term borrowings		42,796		42,796		—		42,796		—
Long-term debt		852,481		933,690		56,952		876,738		—
Accrued interest payable		16,900		16,900		—		16,900		—
	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		—

Balances of assets and liabilities measured at fair value on a recurring basis

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

September 30, 2012
(in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale:
Collateralized mortgage obligations	$	411,731	$	—	$	411,725	$	6
Mortgage-backed		1,018,853		—		1,018,853		—
State and municipal		110,696		—		109,988		708
Other		287		—		54		233
Total available for sale		1,541,567		—		1,540,620		947
Other assets:
Derivatives designated as hedging instruments		1,217		—		1,217		—
Derivatives not designated as hedging instruments		14,898		—		14,898		—
Deferred compensation assets		8,796		6,915		—		1,881
Total other assets		24,911		6,915		16,115		1,881
Total	$	1,566,478	$	6,915	$	1,556,735	$	2,828
Other liabilities:
Derivatives designated as hedging instruments	$	7,515	$	—	$	7,515	$	—
Derivatives not designated as hedging instruments		15,521		—		15,521		—
Total	$	23,036	$	—	$	23,036	$	—

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		20,879		1,686
Total	$	1,342,089	$	6,791	$	1,331,925	$	3,373
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	$	—

Reconciliation of Level 3 assets

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 (1)		Unrealized		Income (Pretax)			Purchases		Sales			Settlements			Period
Three Months Ended September 30, 2012
Securities available for sale
Collateralized mortgage obligations	$	6	$	—	$	—	$	—		$	—	$	—		$	—		$	6
State and municipal		1,447		612		—		99			—		—			(1,450	)		708
Other		233		3		—		(3	)		—		—			—			233
Deferred compensation assets		1,851		—		—		—			538		(508	)		—			1,881
Total	$	3,537	$	615	$	—	$	96		$	538	$	(508	)	$	(1,450	)	$	2,828
Nine Months Ended September 30, 2012
Securities available for sale
Collateralized mortgage obligations	$	8	$	—	$	—	$	—		$	—	$	—		$	(2	)	$	6
State and municipal		1,446		628		—		84			—		—			(1,450	)		708
Other		233		10		—		(10	)		—		—			—			233
Deferred compensation assets		1,686		—		—		—			825		(630	)		—			1,881
Total	$	3,373	$	638	$	—	$	74		$	825	$	(630	)	$	(1,452	)	$	2,828

⁽¹⁾ Net realized gains and losses recorded in earnings include discount accretions.

Quantitative information about Level 3 fair value measurements

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

September 30, 2012	Initial Carrying		Fair Value
(in thousands)	Value		Total		Level 1		Level 2		Level 3
Impaired loans	$	78,200	$	31,101	$	—	$	—	$	31,101
Commercial loans held for sale		36		—		—		—		—
Residential mortgage loans held for sale		708		214		—		—		214
Other real estate		3,764		2,244		—		—		2,244
Repossessed assets		2,566		1,412		—		—		1,412
Total	$	85,274	$	34,971	$	—	$	—	$	34,971

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

(in thousands)	Fair Value at September 30, 2012		Valuation Technique	Unobservable Input	Range (Weighted Average)
Securities available for sale:
Collateralized mortgage obligations	$	6	Cost	None  (1)		None
State and municipal		708	Discounted Cash Flow	Liquidity Premium		1.0% - 1.5% (1.4%	)
				Credit Premium		1.3% - 2.7% (2.3%	)
				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%	)
Deferred compensation assets		1,881	Contract Value	None  (2)		None
Impaired loans		31,101	Comparative Sales	Loss Severity Discount		0% - 100% (65%	)
Residential mortgage loans held for sale		214	Comparative Sales	Loss Severity Discount		6% - 100% (70%	)
Other real estate		2,244	Comparative Sales	Loss Severity Discount		2% - 100% (40%	)
Repossessed assets		1,412	Comparative Sales	Loss Severity Discount		45% - 45% (45%	)

⁽¹⁾  Carrying value approximates fair value.

⁽²⁾  Contract value approximates fair value.

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Long-Term Debt (Tables)

9 Months Ended

Sep. 30, 2012

Long-Term Debt [Abstract]

Components of long-term debt

The components of long-term debt are presented below.

(in thousands)	September 30, 2012		December 31, 2011
Citizens (Parent only):
Subordinated debt:
5.75% subordinated notes due February 2013	$	17,214	$	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		656,700		658,484
Other borrowed funds		104,116		104,149
Total long-term debt	$	852,481	$	854,185

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Fair Values of Assets and Liabilities (Details 2) (Securities available for sale [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Reconciliation of Level 3 assets
Balance at Beginning of Period	$ 3,537	$ 3,373
Net Realized Gains (Losses) Recorded in Earnings	615	638
Net Unrealized Gains (Losses) Recorded in Earnings
Net Realized/Unrealized Gains (Losses) Recorded in Other Comprehensive Income (Pretax)	96	74
Purchases	538	825
Sales	(508)	(630)
Settlements	(1,450)	(1,452)
Balance at End of Period	2,828	2,828
Collateralized mortgage obligations [Member]
Reconciliation of Level 3 assets
Balance at Beginning of Period	6	8
Net Realized Gains (Losses) Recorded in Earnings
Net Unrealized Gains (Losses) Recorded in Earnings
Net Realized/Unrealized Gains (Losses) Recorded in Other Comprehensive Income (Pretax)
Purchases
Sales
Settlements		(2)
Balance at End of Period	6	6
State and municipal [Member]
Reconciliation of Level 3 assets
Balance at Beginning of Period	1,447	1,446
Net Realized Gains (Losses) Recorded in Earnings	612	628
Net Unrealized Gains (Losses) Recorded in Earnings
Net Realized/Unrealized Gains (Losses) Recorded in Other Comprehensive Income (Pretax)	99	84
Purchases
Sales
Settlements	(1,450)	(1,450)
Balance at End of Period	708	708
Other [Member]
Reconciliation of Level 3 assets
Balance at Beginning of Period	233	233
Net Realized Gains (Losses) Recorded in Earnings	3	10
Net Unrealized Gains (Losses) Recorded in Earnings
Net Realized/Unrealized Gains (Losses) Recorded in Other Comprehensive Income (Pretax)	(3)	(10)
Purchases
Sales
Settlements
Balance at End of Period	233	233
Deferred compensation assets [Member]
Reconciliation of Level 3 assets
Balance at Beginning of Period	1,851	1,686
Net Realized Gains (Losses) Recorded in Earnings
Net Unrealized Gains (Losses) Recorded in Earnings
Net Realized/Unrealized Gains (Losses) Recorded in Other Comprehensive Income (Pretax)
Purchases	538	825
Sales	(508)	(630)
Settlements
Balance at End of Period	$ 1,881	$ 1,881

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Loans (Details Textual) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Loans (Textual) [Abstract]
Minimum amount of outstanding loans for credit risk analysis	$ 0.5
Principal or interest is past due days	90 days
Nonperforming assets are comprised of nonaccrual loans, loans past due days	90 days

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Pension Benefit Cost (Tables)

9 Months Ended

Sep. 30, 2012

Pension Benefit Cost [Abstract]

Components of retirement benefit cost

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2012			2011			2012			2011
Defined benefit pension plans
Interest cost	$	847		$	955		$	2,610		$	2,865
Expected return on plan assets		(1,055	)		(1,018	)		(3,165	)		(3,053	)
Amortization of unrecognized:
Prior service cost		8			8			23			23
Net actuarial loss		761			833			2,346			2,498
Net pension cost		561			778			1,814			2,333
Supplemental pension plans
Interest cost		11			189			221			567
Amortization of unrecognized:
Net actuarial loss		6			5			29			14
Net pension cost		17			194			250			581
Postretirement benefit plans
Interest cost		19			(43	)		59			245
Amortization of unrecognized:
Prior service cost		(229	)		(107	)		(688	)		(251	)
Net actuarial gain		(45	)		37			(135	)		(107	)
Net postretirement benefit cost		(255	)		(113	)		(764	)		(113	)
Defined contribution retirement and 401(k) plans
Employer contributions		403			—			1,341			—
Total periodic benefit cost	$	726		$	859		$	2,641		$	2,801

Estimated fair values of Citizens' pension plan assets

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

September 30, 2012
(in thousands)	Total		Level 1		Level 2		Level 3
Asset Category
Short-term pooled money fund	$	2,880	$	—	$	2,880	$	—
Equity securities
Large cap		19,005		—		19,005		—
Mid-cap		4,639		—		4,639		—
Small-cap		6,631		—		6,631		—
International equity		9,967		—		9,967		—
Fixed income securities
Intermediate term fixed		22,105		—		22,105		—
Total	$	65,227	$	—	$	65,227	$	—

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Stock-Based Compensation [Abstract]

Stock-based compensation expense

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 September 30,						Nine Months Ended September 30,
(in thousands)	2012			2011			2012			2011
Restricted stock compensation and restricted stock unit compensation	$	1,100		$	713		$	2,717		$	2,079
Income tax benefit		(385	)		(250	)		(951	)		(728	)
Total stock-based compensation expense after income taxes	$	715		$	463		$	1,766		$	1,351

Summary of restricted stock activity

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		299,788			16.85
Vested		(81,299	)		11.33
Forfeited		(26,127	)		11.59
Restricted stock at September 30, 2012 (1)		1,018,331		$	11.28

⁽¹⁾  Includes 75,814 vested shares under restriction prohibiting sale until conditions are met, including two years from grant date and certain TARP payments are made.

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Operating Activities:
Net income (loss)	$ 349,028	$ (11,577)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses	18,891	123,801
Net (increase) decrease in current and deferred income taxes	(284,786)	(12,559)
Depreciation and amortization	7,591	8,495
Amortization of intangibles	1,636	2,338
Amortization and fair value adjustments of purchase accounting mark to market, net	(2,897)	(3,782)
Fair value adjustment on loans held for sale and other real estate	2,116	7,766
Net amortization on investment securities	28,505	14,959
Investment securities losses		1,373
Loans originated for sale	(142,883)	(115,998)
Proceeds from loans held for sale	140,525	127,027
Net gains from loan sales	(3,317)	(4,516)
Net (gains) losses on other real estate	(1,738)	3,863
Recognition of stock-based compensation expense	2,558	1,950
Other	(9,091)	(13,394)
Net cash provided by operating activities	106,138	129,746
Investing Activities:
Net decrease in money market investments	89,814	126,061
Securities available for sale:
Proceeds from sales	2,500	11,744
Proceeds from maturities and payments	291,999	402,623
Purchases	(525,031)	(569,472)
Securities held to maturity:
Proceeds from maturities and payments	205,253	51,452
Purchases	(91,746)	(95,987)
Net decrease in loans and leases	11,956	301,862
Proceeds from sales of other real estate	9,796	27,612
Net increase in properties and equipment	(1,626)	(2,736)
Net cash (used in) provided by investing activities	(7,085)	253,159
Financing Activities:
Net decrease in deposits	(91,976)	(186,930)
Net increase (decrease) in short-term borrowings	2,698	(1,080)
Principal reductions in long-term debt	(52)	(175,048)
Shares purchased	(436)	(14)
Net cash used in financing activities	(89,766)	(363,072)
Net increase in cash and due from banks	9,287	19,833
Cash and due from banks at beginning of period	153,418	127,585
Cash and due from banks at end of period	162,705	147,418
Supplemental Cash Flow Information:
Interest paid	53,082	71,665
Income tax paid, net	7,600	3,000
Supplemental Disclosures of noncash items
Securities transferred to held to maturity from available for sale		943,092
Properties transferred to other real estate owned		1,347
Loans transferred to other real estate owned	4,614	11,932
Loans transferred to held for sale	24,048	90,481
Held for sale loans transferred to other real estate		522
Accretion of preferred stock discount	5,466	5,060
Accrued dividend on redeemable preferred stock	$ 12,661	$ 12,028

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Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Common Share [Abstract]

Reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations

A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations follows.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2012			2011			2012			2011
Numerator:
Net Income (loss)	$	20,991		$	32,944		$	349,028		$	(11,577	)
Dividend on redeemable preferred stock		(6,130	)		(5,761	)		(18,127	)		(17,088	)
Net income (loss) attributable to common shareholders		14,861			27,183			330,901			(28,665	)
Net income allocated to participating securities		374			553			7,571			—
Net income (loss) after allocation to participating securities	$	14,487		$	26,630		$	323,330		$	(28,665	)
Denominator:
Weighted average shares outstanding		40,507			40,251			40,393			39,997
Less: participating securities included in weighted average shares outstanding		(1,018	)		(818	)		(924	)		(579	)
Weighted average shares outstanding for basic and dilutive earnings per common share		39,489			39,433			39,469			39,418
Basic net income (loss) per common share	$	0.37		$	0.68		$	8.19		$	(0.73	)
Diluted net income (loss) per common share		0.37			0.68			8.19			(0.73	)

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Investment Securities (Details Textual) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2012 Securities	Sep. 30, 2011	Dec. 31, 2011 Securities	Jun. 30, 2011
Fair Value, Investments, Entities that Calculate Net Asset Value Per Share [Line Items]
Gross unrealized losses of collateralized mortgage obligations		$ (587,000)		$ (5,958,000)
Investment Securities (Textual) [Abstract]
Amortized cost of securities pledged		560,100,000		665,800,000
Amortized cost of securities transferred		1,480,319,000		1,265,429,000	924,600,000
Fair value of securities transferred					943,100,000
Unrealized gain on securities transferred		18,500,000
Number of securities with unrealized losses		16		45
Other-than-temporary impairment		0
Assets held by the plans as well as the corresponding obligations		8,800,000		8,500,000
Trading gains		1,000,000	600,000
Amortized cost of available for sale securities sold	3,900,000		13,100,000
Net loss on sales of available for sale securities with amortized cost	100,000		1,400,000
Securities sold during the period		0
Collateralized Mortgage Obligations [Member]
Fair Value, Investments, Entities that Calculate Net Asset Value Per Share [Line Items]
Market value of collateralized mortgage obligations		54,200,000
Gross unrealized losses of collateralized mortgage obligations		(517,000)		(5,771,000)
Investment Securities (Textual) [Abstract]
Amortized cost of securities transferred		$ 404,391,000		$ 364,262,000

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Income Taxes (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Taxes (Textual) [Abstract]
Income tax provision (benefit)	$ 1,274,000	$ (12,568,000)	$ (275,514,000)	$ (22,779,000)
Recorded balance of the deferred tax asset	$ 268,300,000		$ 268,300,000

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Derivatives and Hedging Activities (Details 2) (Interest expense [Member], Interest rate products [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest expense [Member] | Interest rate products [Member]
Schedule of derivative instruments fair value hedges gain (loss) in statement of financial performance
Derivative Contract (Loss) Gain				$ (1,107)
Hedged Item Gain (Loss)				$ 1,818

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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Assets
Cash and due from banks	$ 162,705	$ 153,418	$ 147,418
Money market investments	223,818	313,632	283,018
Investment Securities:
Securities available for sale, at fair value	1,541,567	1,312,733	1,307,977
Securities held to maturity, at amortized cost (fair value of $1378310, $1,487,550 and $1,491,048, respectively)	1,313,504	1,444,054	1,454,873
Total investment securities	2,855,071	2,756,787	2,762,850
FHLB and Federal Reserve stock	122,123	117,943	123,696
Portfolio loans:
Commercial and industrial	1,688,996	1,543,529	1,531,492
Commercial real estate	1,335,601	1,544,361	1,643,901
Total commercial	3,024,597	3,087,890	3,175,393
Residential mortgage	570,295	637,245	654,561
Direct consumer	865,777	933,314	954,831
Indirect consumer	970,235	871,086	887,542
Total portfolio loans	5,430,904	5,529,535	5,672,327
Less: Allowance for loan losses	(122,125)	(172,726)	(190,354)
Net portfolio loans	5,308,779	5,356,809	5,481,973
Loans held for sale	30,062	10,402	30,221
Premises and equipment	92,005	97,970	98,954
Goodwill	318,150	318,150	318,150
Other intangible assets	5,792	7,428	8,116
Bank owned life insurance	222,610	220,280	219,248
Other assets	383,675	110,030	126,544
Total assets	9,724,790	9,462,849	9,600,188
Liabilities
Noninterest-bearing deposits	1,854,715	1,614,311	1,621,451
Interest-bearing demand deposits	1,092,679	951,590	945,458
Savings deposits	2,574,642	2,627,665	2,652,267
Core deposits	5,522,036	5,193,566	5,219,176
Time deposits	1,780,929	2,201,375	2,320,728
Total deposits	7,302,965	7,394,941	7,539,904
Federal funds purchased and securities sold under agreements to repurchase	42,796	40,098	40,599
Other short-term borrowings			640
Other liabilities	168,351	154,088	154,232
Long-term debt	852,481	854,185	855,670
Total liabilities	8,366,593	8,443,312	8,591,045
Shareholders' Equity
Preferred stock - no par value Authorized - 5,000,000 shares; Issued and outstanding - 300,000 at 9/30/12, 12/31/11, and 9/30/11, redemption value of $300 million	290,580	285,114	283,360
Common stock - no par value Authorized - 105,000,000 shares at 9/30/12,12/31/11, and 9/30/11; Issued and outstanding - 300000 at 9/30/12, 40,049,198 at 12/31/11 and 40034943 at 9/30/11	1,436,925	1,434,803	1,433,765
Retained deficit	(363,659)	(694,560)	(706,907)
Accumulated other comprehensive loss	(5,649)	(5,820)	(1,075)
Total shareholders' equity	1,358,197	1,019,537	1,009,143
Total liabilities and shareholders' equity	$ 9,724,790	$ 9,462,849	$ 9,600,188

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Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Allowance for Loan Losses
Allowance for Loan Losses, Beginning Balance	$ 136,120	$ 206,292	$ 172,726	$ 296,031
Provision for Loan Losses	5,195	17,481	18,891	123,801
Charge-offs	(23,543)	(36,183)	(84,509)	(239,097)
Recoveries	4,353	2,764	15,017	9,619
Net charge-offs	(19,190)	(33,419)	(69,492)	(229,478)
Allowance for Loan Losses, Ending Balance	122,125	190,354	122,125	190,354
Commercial and industrial [Member]
Allowance for Loan Losses
Allowance for Loan Losses, Beginning Balance	8,900	17,618	14,044	26,619
Provision for Loan Losses	5,525	(4,122)	5,482	18,478
Charge-offs	(4,552)	(994)	(10,607)	(34,722)
Recoveries	108	721	1,062	2,848
Net charge-offs	(4,444)	(273)	(9,545)	(31,874)
Allowance for Loan Losses, Ending Balance	9,981	13,223	9,981	13,223
Small business [Member]
Allowance for Loan Losses
Allowance for Loan Losses, Beginning Balance	9,702	12,933	12,230	16,334
Provision for Loan Losses	673	(1,161)	1,321	3,026
Charge-offs	(1,039)	(1,132)	(4,575)	(9,063)
Recoveries	120	180	480	523
Net charge-offs	(919)	(952)	(4,095)	(8,540)
Allowance for Loan Losses, Ending Balance	9,456	10,820	9,456	10,820
Commercial real estate [Member]
Allowance for Loan Losses
Allowance for Loan Losses, Beginning Balance	48,567	83,627	63,999	156,623
Provision for Loan Losses	(5,222)	(1,065)	(8,609)	59,880
Charge-offs	(5,452)	(5,860)	(22,542)	(140,952)
Recoveries	1,008	537	6,053	1,688
Net charge-offs	(4,444)	(5,323)	(16,489)	(139,264)
Allowance for Loan Losses, Ending Balance	38,901	77,239	38,901	77,239
Total commercial [Member]
Allowance for Loan Losses
Allowance for Loan Losses, Beginning Balance	67,169	114,178	90,273	199,576
Provision for Loan Losses	976	(6,348)	(1,806)	81,384
Charge-offs	(11,043)	(7,986)	(37,724)	(184,737)
Recoveries	1,236	1,438	7,595	5,059
Net charge-offs	(9,807)	(6,548)	(30,129)	(179,678)
Allowance for Loan Losses, Ending Balance	58,338	101,282	58,338	101,282
Residential mortgage [Member]
Allowance for Loan Losses
Allowance for Loan Losses, Beginning Balance	27,686	43,925	36,460	47,623
Provision for Loan Losses	1,957	11,856	1,765	15,989
Charge-offs	(3,261)	(18,369)	(12,443)	(26,431)
Recoveries	746	5	1,346	236
Net charge-offs	(2,515)	(18,364)	(11,097)	(26,195)
Allowance for Loan Losses, Ending Balance	27,128	37,417	27,128	37,417
Direct consumer [Member]
Allowance for Loan Losses
Allowance for Loan Losses, Beginning Balance	31,736	32,688	33,020	32,255
Provision for Loan Losses	263	10,888	15,580	22,422
Charge-offs	(6,067)	(6,398)	(24,762)	(19,388)
Recoveries	1,277	688	3,371	2,577
Net charge-offs	(4,790)	(5,710)	(21,391)	(16,811)
Allowance for Loan Losses, Ending Balance	27,209	37,866	27,209	37,866
Indirect consumer [Member]
Allowance for Loan Losses
Allowance for Loan Losses, Beginning Balance	9,529	15,501	12,973	16,577
Provision for Loan Losses	1,999	1,085	3,352	4,006
Charge-offs	(3,172)	(3,430)	(9,580)	(8,541)
Recoveries	1,094	633	2,705	1,747
Net charge-offs	(2,078)	(2,797)	(6,875)	(6,794)
Allowance for Loan Losses, Ending Balance	$ 9,450	$ 13,789	$ 9,450	$ 13,789

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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, net of tax:
Net income	(11,577)			(11,577)
Other comprehensive income (loss), net of tax effect	19,081				19,081
Comprehensive income	7,504
Accretion of preferred stock discount		5,060		(5,060)
Accrued dividend on redeemable preferred stock	(12,028)			(12,028)
Proceeds from restricted stock activity, shares			401
Recognition of stock-based compensation	1,950		1,950
Shares purchased	(14)		(14)
Shares purchased, shares			(1)
Ending balance at Sep. 30, 2011	1,009,143	283,360	1,433,765	(706,907)	(1,075)
Ending balance, shares at Sep. 30, 2011			40,035
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, net of tax:
Net income	349,028			349,028
Other comprehensive income (loss), net of tax effect	171				171
Comprehensive income	349,199
Accretion of preferred stock discount		5,466		(5,466)
Accrued dividend on redeemable preferred stock	(12,661)			(12,661)
Proceeds from restricted stock activity, shares			155
Recognition of stock-based compensation	2,558		2,558
Shares purchased	(436)		(436)
Shares purchased, shares	(25)
Ending balance at Sep. 30, 2012	$ 1,358,197	$ 290,580	$ 1,436,925	$ (363,659)	$ (5,649)
Ending balance, shares at Sep. 30, 2012			40,179

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Pension Benefit Cost (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Amortization of unrecognized:
Net pension cost	$ 726	$ 859	$ 2,641	$ 2,801
Defined benefit pension plans [Member]
Components of retirement benefit cost
Interest cost	847	955	2,610	2,865
Expected return on plan assets	(1,055)	(1,018)	(3,165)	(3,053)
Amortization of unrecognized:
Amortization of unrecognized, Prior service cost	8	8	23	23
Amortization of unrecognized, Net actuarial cost	(761)	(833)	(2,346)	(2,498)
Employer contributions			2,700
Net pension cost	561	778	1,814	2,333
Supplemental pension plans [Member]
Components of retirement benefit cost
Interest cost	11	189	221	567
Amortization of unrecognized:
Amortization of unrecognized, Net actuarial cost	6	5	29	14
Employer contributions			400
Net pension cost	17	194	250	581
Postretirement benefit plans [Member]
Components of retirement benefit cost
Interest cost	19	(43)	59	245
Amortization of unrecognized:
Amortization of unrecognized, Prior service cost	(229)	(107)	(688)	(251)
Amortization of unrecognized, Net actuarial cost	(45)	37	(135)	(107)
Employer contributions			100
Net pension cost	(255)	(113)	(764)	(113)
Defined contribution retirement and 401(K) Plans [Member]
Amortization of unrecognized:
Employer contributions	$ 403		$ 1,341

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Derivatives and Hedging Activities (Tables)

9 Months Ended

Sep. 30, 2012

Derivatives and Hedging Activities [Abstract]

Fair value of Company's derivative financial instruments and their classification on Consolidated Balance Sheets

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)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Derivatives designated as hedging instruments
Interest rate products	$	1,217	$	3,791	$	7,515	$	2,317
Derivatives not designated as hedging instruments
Interest rate products		14,898		17,088		15,521		17,614
Total derivatives	$	16,115	$	20,879	$	23,036	$	19,931

Schedule of derivative instruments cash flow hedges gain (loss) in statement of financial performance

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

	Derivative Impact on OCI Gain (Loss)
Derivatives Relationship (in thousands)	Recognized in OCI						Location Reclassified in Statement of Operations	Reclassified from Accumulated OCI into Statement of Operations
	Three Months Ended September 30,							Three Months Ended September 30,
	2012			2011				2012			2011
Cash flow hedges:							Interest income	$	34		$	547
Interest rate products	$	(2,665	)	$	(697	)	Interest expense		(634	)		—
							Other income		—			182
Total	$	(2,665	)	$	(697	)		$	(600	)	$	729
	Derivative Impact on OCI Gain (Loss)
Derivatives Relationship (in thousands)	Recognized in OCI						Location Reclassified in Statement of Operations	Reclassified from Accumulated OCI into Statement of Operations
	Nine Months Ended September 30,							Nine Months Ended September 30,
	2012			2011				2012			2011
Cash flow hedges:							Interest income	$	406		$	2,418
Interest rate products	$	(9,541	)	$	(680	)	Interest expense		(1,843	)		—
							Other income		6			717
Total	$	(9,541	)	$	(680	)		$	(1,431	)	$	3,135

Schedule of derivative instruments fair value hedges gain (loss) in statement of financial performance

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

	Derivative Contract (Loss) Gain							Hedged Item Gain (Loss)
Derivatives Relationship (in thousands)	Location in Statement of Operations		Three Months Ended September 30,					Location in Statement of Operations		Three Months Ended September 30,
			2012		2011					2012		2011
Fair value hedges:
Interest rate products		Interest expense	$	—	$	—			Interest expense	$	—	$	—
	Derivative Contract (Loss) Gain							Hedged Item Gain (Loss)
	Location in Statement of Operations		Nine Months Ended September 30,					Location in Statement of Operations		Nine Months Ended September 30,
Derivatives Relationship (in thousands)			2012		2011					2012		2011
Fair value hedges:
Interest rate products		Interest expense	$	—	$	(1,107	)		Interest expense	$	—	$	1,818

Schedule of other derivatives not designated as hedging instruments statements of financial performance

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

		Amount of (Loss) Gain Recognized in Statement of Operations
Derivatives Relationship	Location of (Loss) Gain Recognized in Statement of Operations	Three Months Ended September 30,
(in thousands)		2012			2011
Derivatives not designated as hedges - Interest rate products	Other income	$	(83	)	$	(268	)
		Amount of (Loss) Gain
Derivatives Relationship	Location of (Loss) Gain Recognized in Statement of Operations	Nine Months Ended September 30,
(in thousands)		2012			2011
Derivatives not designated as hedges - Interest rate products	Other income	$	(96	)	$	(458	)

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Earnings Per Common Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Numerator:
Net Income (Loss)	$ 20,991	$ 32,944	$ 349,028	$ (11,577)
Dividend on redeemable preferred stock	(6,130)	(5,761)	(18,127)	(17,088)
Net income (loss) attributable to common shareholders	14,861	27,183	330,901	(28,665)
Net income allocated to participating securities	374	553	7,571
Net income (loss) after allocation to participating securities	$ 14,487	$ 26,630	$ 323,330	$ (28,665)
Denominator:
Weighted average shares outstanding	40,507	40,251	40,393	39,997
Less: Participating securities included in weighted average shares outstanding	(1,018)	(818)	(924)	(579)
Weighted average shares outstanding for basic and dilutive earnings per common share	39,489	39,433	39,469	39,418
Basic net income (loss) per common share	$ 0.37	$ 0.68	$ 8.19	$ (0.73)
Diluted net income (loss) per common share	$ 0.37	$ 0.68	$ 8.19	$ (0.73)

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Regulatory Matters

9 Months Ended

Sep. 30, 2012

Regulatory Matters [Abstract]

Regulatory Matters

Note 14. Regulatory Matters

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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Disclosure - Basis of Presentation and Accounting Policies (Details)	9 Months Ended
	Sep. 30, 2012 Trust
Basis of Presentation and Accounting Policies (Textual) [Abstract]
Number of wholly owned active trust formed to issue securities	2
Likelihood of impairment	50.00%

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Basis of Presentation and Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Basis of Presentation and Accounting Policies [Abstract]

Comprehensive Income

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.

Intangibles-Goodwill and Other

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.

Fair Value Measurement

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.

Transfers and Servicing

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.

Balance Sheet

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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Commitments, Contingent Liabilities and Guarantees (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Commitments to extend credit [Member]
Summary of amounts available to clients under loan commitments and standby letters of credit
Total Loan commitments and letters of credit	$ 943,985	$ 932,435
Asset-based lending participations [Member]
Summary of amounts available to clients under loan commitments and standby letters of credit
Total Loan commitments and letters of credit	86,467	151,194
Financial standby letters of credit [Member]
Summary of amounts available to clients under loan commitments and standby letters of credit
Total Loan commitments and letters of credit	109,611	125,401
Performance standby letters of credit [Member]
Summary of amounts available to clients under loan commitments and standby letters of credit
Total Loan commitments and letters of credit	1,756	3,571
Deferred standby letter of credit fees [Member]
Summary of amounts available to clients under loan commitments and standby letters of credit
Total Loan commitments and letters of credit	$ 601	$ 1,123

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parenthetical) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Consolidated Statements of Changes in Shareholders' Equity [Abstract]
Tax effect	$ (92)	$ 10,219

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Consolidated Balance Sheets (Parenthetical) (Unaudited) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Consolidated Balance Sheets [Abstract]
Securities, fair value	$ 1,378,310,000	$ 1,487,550,000	$ 1,491,048,000
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	40,178,907	40,049,198	40,034,943
Common stock, shares outstanding	40,178,907	40,049,198	40,034,943

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Stock-Based Compensation

9 Months Ended

Sep. 30, 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 September 30, 2012, Citizens had 934,192 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 recognized 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 September 30,						Nine Months Ended September 30,
(in thousands)	2012			2011			2012			2011
Restricted stock compensation and restricted stock unit compensation	$	1,100		$	713		$	2,717		$	2,079
Income tax benefit		(385	)		(250	)		(951	)		(728	)
Total stock-based compensation expense after income taxes	$	715		$	463		$	1,766		$	1,351

New shares are issued when stock options are exercised. Citizens presents excess tax benefits from the exercise of stock options, if any, as financing cash inflows and as operating cash outflows on the Consolidated Statements of Cash Flows.

As of September 30, 2012, $6.5 million of total unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted average period of 1.8 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		299,788			16.85
Vested		(81,299	)		11.33
Forfeited		(26,127	)		11.59
Restricted stock at September 30, 2012 (1)		1,018,331		$	11.28

⁽¹⁾  Includes 75,814 vested shares under restriction prohibiting sale until conditions are met, including two years from grant date and certain TARP payments are made.

The total fair value of restricted stock vested during the nine months ended September 30, 2012 was $1.3 million.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 26, 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	Sep. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		40,499,647

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Earnings Per Common Share

9 Months Ended

Sep. 30, 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 September 30, 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 2,919,231 shares. As a result of being anti-dilutive, these shares were excluded from the computation of dilutive earnings per share. A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations follows.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2012			2011			2012			2011
Numerator:
Net Income (loss)	$	20,991		$	32,944		$	349,028		$	(11,577	)
Dividend on redeemable preferred stock		(6,130	)		(5,761	)		(18,127	)		(17,088	)
Net income (loss) attributable to common shareholders		14,861			27,183			330,901			(28,665	)
Net income allocated to participating securities		374			553			7,571			—
Net income (loss) after allocation to participating securities	$	14,487		$	26,630		$	323,330		$	(28,665	)
Denominator:
Weighted average shares outstanding		40,507			40,251			40,393			39,997
Less: participating securities included in weighted average shares outstanding		(1,018	)		(818	)		(924	)		(579	)
Weighted average shares outstanding for basic and dilutive earnings per common share		39,489			39,433			39,469			39,418
Basic net income (loss) per common share	$	0.37		$	0.68		$	8.19		$	(0.73	)
Diluted net income (loss) per common share		0.37			0.68			8.19			(0.73	)

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 $44.2 million and $31.5 million with the dividend payments on the Series A Preferred Stock as of September 30, 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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Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest Income
Interest and fees on loans	$ 73,376	$ 77,212	$ 222,205	$ 235,600
Interest and dividends on investment securities:
Taxable	16,034	20,508	49,356	60,664
Tax-exempt	2,157	2,613	6,610	8,412
Dividends on FHLB and Federal Reserve stock	1,196	974	3,487	3,143
Money market investments	152	168	481	670
Total interest income	92,915	101,475	282,139	308,489
Interest Expense
Deposits	8,779	13,528	29,243	44,945
Short-term borrowings	11	20	42	57
Long-term debt	8,320	9,086	25,251	28,426
Total interest expense	17,110	22,634	54,536	73,428
Net Interest Income	75,805	78,841	227,603	235,061
Provision for loan losses	5,195	17,481	18,891	123,801
Net interest income after provision for loan losses	70,610	61,360	208,712	111,260
Noninterest Income
Service charges on deposit accounts	9,554	10,362	27,894	29,544
Trust fees	3,635	3,622	10,818	11,356
Mortgage and other loan income	2,028	2,089	5,839	6,915
Brokerage and investment fees	1,831	1,188	4,486	3,829
Card-based and other nondeposit fees	4,431	4,475	13,140	12,862
Net (losses) gains on loans held for sale	(184)	1,952	739	2,025
Investment securities gains (losses)		3		(1,373)
Other income	2,415	736	7,380	5,737
Total noninterest income	23,710	24,427	70,296	70,895
Noninterest Expense
Salaries and employee benefits	33,589	30,280	99,687	92,563
Occupancy	6,129	6,125	18,965	19,734
Professional services	6,806	2,394	11,294	7,020
Equipment	2,937	2,918	9,144	8,811
Data processing services	4,427	3,823	12,196	12,422
Advertising and public relations	1,847	2,179	4,890	4,550
Postage and delivery	1,157	1,142	3,375	3,378
Other loan expenses	3,121	3,941	9,574	12,510
Losses on other real estate (ORE)	941	1,210	382	11,687
ORE expenses	323	529	1,039	3,326
Intangible asset amortization	513	732	1,636	2,338
Other expense	10,265	10,138	33,312	38,172
Total noninterest expense	72,055	65,411	205,494	216,511
Income (Loss) before Income Taxes	22,265	20,376	73,514	(34,356)
Income tax provision (benefit)	1,274	(12,568)	(275,514)	(22,779)
Net Income (Loss)	20,991	32,944	349,028	(11,577)
Dividend on redeemable preferred stock	(6,130)	(5,761)	(18,127)	(17,088)
Net Income (Loss) Attributable to Common Shareholders	$ 14,861	$ 27,183	$ 330,901	$ (28,665)
Net Income (Loss) Per Common Share:
Basic	$ 0.37	$ 0.68	$ 8.19	$ (0.73)
Diluted	$ 0.37	$ 0.68	$ 8.19	$ (0.73)
Average Common Shares Outstanding:
Basic	39,489	39,433	39,469	39,418
Diluted	39,489	39,433	39,469	39,418

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Allowance for Loan Losses

9 Months Ended

Sep. 30, 2012

Loans/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 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 September 30, 2012
(in thousands)	Allowance for Loan Losses  at June 30, 2012		Provision for Loan Losses			Charge-offs			Recoveries		Net charge-offs			Allowance for Loan Losses  at September 30, 2012
Commercial and industrial	$	8,900	$	5,525		$	(4,552	)	$	108	$	(4,444	)	$	9,981
Small business		9,702		673			(1,039	)		120		(919	)		9,456
Commercial real estate		48,567		(5,222	)		(5,452	)		1,008		(4,444	)		38,901
Total commercial		67,169		976			(11,043	)		1,236		(9,807	)		58,338
Residential mortgage		27,686		1,957			(3,261	)		746		(2,515	)		27,128
Direct consumer		31,736		263			(6,067	)		1,277		(4,790	)		27,209
Indirect consumer		9,529		1,999			(3,172	)		1,094		(2,078	)		9,450
Total	$	136,120	$	5,195		$	(23,543	)	$	4,353	$	(19,190	)	$	122,125

	Three Months Ended September 30, 2011
(in thousands)	Allowance for Loan Losses at June 30, 2011		Provision for Loan Losses			Charge-offs			Recoveries		Net charge-offs			Allowance for Loan Losses at September 30, 2011
Commercial and industrial	$	17,618	$	(4,122	)	$	(994	)	$	721	$	(273	)	$	13,223
Small business		12,933		(1,161	)		(1,132	)		180		(952	)		10,820
Commercial real estate		83,627		(1,065	)		(5,860	)		537		(5,323	)		77,239
Total commercial		114,178		(6,348	)		(7,986	)		1,438		(6,548	)		101,282
Residential mortgage		43,925		11,856			(18,369	)		5		(18,364	)		37,417
Direct consumer		32,688		10,888			(6,398	)		688		(5,710	)		37,866
Indirect consumer		15,501		1,085			(3,430	)		633		(2,797	)		13,789
Total	$	206,292	$	17,481		$	(36,183	)	$	2,764	$	(33,419	)	$	190,354
	Nine Months Ended September 30, 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 September 30, 2012
Commercial and industrial	$	14,044	$	5,482		$	(10,607	)	$	1,062	$	(9,545	)	$	9,981
Small business		12,230		1,321			(4,575	)		480		(4,095	)		9,456
Commercial real estate		63,999		(8,609	)		(22,542	)		6,053		(16,489	)		38,901
Total commercial		90,273		(1,806	)		(37,724	)		7,595		(30,129	)		58,338
Residential mortgage		36,460		1,765			(12,443	)		1,346		(11,097	)		27,128
Direct consumer		33,020		15,580			(24,762	)		3,371		(21,391	)		27,209
Indirect consumer		12,973		3,352			(9,580	)		2,705		(6,875	)		9,450
Total	$	172,726	$	18,891		$	(84,509	)	$	15,017	$	(69,492	)	$	122,125
	Nine Months Ended September 30, 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 September 30, 2011
Commercial and industrial	$	26,619	$	18,478		$	(34,722	)	$	2,848	$	(31,874	)	$	13,223
Small business		16,334		3,026			(9,063	)		523		(8,540	)		10,820
Commercial real estate		156,623		59,880			(140,952	)		1,688		(139,264	)		77,239
Total commercial		199,576		81,384			(184,737	)		5,059		(179,678	)		101,282
Residential mortgage		47,623		15,989			(26,431	)		236		(26,195	)		37,417
Direct consumer		32,255		22,422			(19,388	)		2,577		(16,811	)		37,866
Indirect consumer		16,577		4,006			(8,541	)		1,747		(6,794	)		13,789
Total	$	296,031	$	123,801		$	(239,097	)	$	9,619	$	(229,478	)	$	190,354

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

	September 30, 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	$	195	$	9,619	$	167		$	9,981
Small business		—		9,295		161			9,456
Commercial real estate		402		37,843		656			38,901
Total commercial		597		56,757		984			58,338
Residential mortgage		3,724		23,005		399			27,128
Direct consumer		428		26,325		456			27,209
Indirect consumer		—		9,289		161			9,450
Total allowance for loan losses	$	4,749	$	115,376	$	2,000		$	122,125
	September 30, 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	$	2,360	$	1,419,537	$	(5,345	)	$	1,416,552
Small business (1)		188		271,981		275			272,444
Commercial real estate		35,806		1,300,963		(1,168	)		1,335,601
Total commercial		38,354		2,992,481		(6,238	)		3,024,597
Residential mortgage		17,036		553,551		(292	)		570,295
Direct consumer		7,897		855,504		2,376			865,777
Indirect consumer		—		945,098		25,137			970,235
Total portfolio loans	$	63,287	$	5,346,634	$	20,983		$	5,430,904

⁽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.

	September 30, 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	$	96	$	13,127	$	—	$	13,223
Small business		3		10,817		—		10,820
Commercial real estate		6,148		67,091		4,000		77,239
Total commercial		6,247		91,035		4,000		101,282
Residential mortgage		2,540		34,877		—		37,417
Direct consumer		184		37,682		—		37,866
Indirect consumer		—		13,789		—		13,789
Total allowance for loan losses	$	8,971	$	177,383	$	4,000	$	190,354

	September 30, 2011
(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	$	11,588	$	1,219,532	$	245		$	1,231,365
Small business (1)		562		299,361		204			300,127
Commercial real estate		52,452		1,593,357		(1,908	)		1,643,901
Total commercial		64,602		3,112,250		(1,459	)		3,175,393
Residential mortgage		14,392		640,891		(722	)		654,561
Direct consumer		4,615		950,813		(597	)		954,831
Indirect consumer		474		866,996		20,072			887,542
Total portfolio loans	$	84,083	$	5,570,950	$	17,294		$	5,672,327

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

Impaired loans. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. 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 interest income on nonperforming loans of $0.4 million and $1.9 million for the three and nine months ended September 30, 2012, respectively, and $0.3 million and $1.9 million for the three and nine months ended September 30, 2011, respectively. Had nonaccrual loans performed in accordance with their original contract terms, Citizens would have recognized additional interest income of approximately $1.7 million and $2.7 million for the three and nine months ended September 30, 2012, respectively, and approximately $1.6 million and $3.6 million for the three and nine months ended September 30, 2011, respectively. There were no significant commitments outstanding to lend additional funds to clients whose loans were classified as restructured at September 30, 2012, December 31, 2011, or September 30, 2011.

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

	September 30, 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		Year To Date
Nonaccrual loans (impaired)
Income producing	$	17,333	$	10,644	$	657	$	11,301	$	267	$	14,356	$	15,636
Owner-occupied		13,547		7,149		1,664		8,813		129		11,025		13,406
Total commercial real estate		30,880		17,793		2,321		20,114		396		25,381		29,042
Commercial and industrial		10,941		1,623		736		2,359		195		8,296		7,993
Small business		193		188		—		188		—		191		162
Total commercial		42,014		19,604		3,057		22,661		591		33,868		37,197
Residential mortgage		3,762		230		3,532		3,762		814		4,065		4,770
Direct consumer		1,183		301		882		1,183		82		1,158		1,096
Indirect consumer		—		—		—		—		—		—		239
Total consumer		4,945		531		4,414		4,945		896		5,223		6,105
Total nonaccrual loans (impaired)		46,959		20,135		7,471		27,606		1,487		39,091		43,302
Accrual loans (impaired)
Income producing		873		—		873		873		3		439		3,957
Owner-occupied		14,820		14,176		644		14,820		3		15,098		15,188
Total commercial real estate		15,693		14,176		1,517		15,693		6		15,537		19,145
Small business		—		—		—		—		—		—		244
Total commercial		15,693		14,176		1,517		15,693		6		15,537		19,389
Residential mortgage		13,275		2,707		10,568		13,275		2,910		12,019		10,835
Direct consumer		6,713		4,478		2,235		6,713		346		6,782		5,762
Total consumer		19,988		7,185		12,803		19,988		3,256		18,801		16,597
Total accrual loans (impaired)		35,681		21,361		14,320		35,681		3,262		34,338		35,986
Total impaired loans	$	82,640	$	41,496	$	21,791	$	63,287	$	4,749	$	73,429	$	79,288
	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

	September 30, 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	$	—	$	—	$	—	$	—	$	—	$	—	$	551
Land development		—		—		—		—		—		169		761
Construction		491		93		164		257		4		329		1,930
Income producing		27,646		12,432		7,545		19,977		1,626		18,513		28,706
Owner-occupied		24,955		10,384		11,181		21,565		4,518		18,697		20,981
Total commercial real estate		53,092		22,909		18,890		41,799		6,148		37,708		52,929
Commercial and industrial		20,099		10,689		899		11,588		96		12,448		20,920
Small business		131		—		65		65		3		65		698
Total commercial		73,322		33,598		19,854		53,452		6,247		50,221		74,547
Residential mortgage		13,381		1,841		11,540		13,381		2,509		13,749		11,371
Direct consumer		2,471		844		1,524		2,368		169		1,831		1,632
Indirect consumer		474		474		—		474		—		474		472
Total consumer		16,326		3,159		13,064		16,223		2,678		16,054		13,475
Total nonaccrual loans (impaired)		89,648		36,757		32,918		69,675		8,925		66,275		88,022
Accrual loans (impaired)
Income producing		7,519		7,519		—		7,519		—		7,533		5,639
Owner-occupied		3,134		3,134		—		3,134		—		3,144		3,546
Total commercial real estate		10,653		10,653		—		10,653		—		10,677		9,185
Small business		497		497		—		497		—		500		376
Total commercial		11,150		11,150		—		11,150		—		11,177		9,561
Residential mortgage		1,011		850		161		1,011		31		1,068		1,283
Direct consumer		2,247		2,147		100		2,247		15		2,262		2,084
Total consumer		3,258		2,997		261		3,258		46		3,330		3,367
Total accrual loans (impaired)		14,408		14,147		261		14,408		46		14,507		12,928
Total impaired loans	$	104,056	$	50,904	$	33,179	$	84,083	$	8,971	$	80,782	$	100,950

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 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 September 30, 2012 the majority of Citizens’ TDRs were on accrual status and 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 $27.8 million at September 30, 2012. TDRs of $21.4 million were on accrual status and TDRs of $6.4 million were on nonaccrual status at September 30, 2012. TDRs are evaluated separately in Citizens’ allowance for loan loss methodology based on the expected cash flows or underlying collateral of loans in this status. At September 30, 2012, the allowance for loan losses included specific reserves of $4.2 million related to TDRs, which included $3.7 million related to mortgage TDRs and $0.5 million related to direct consumer TDRs, compared to $2.7 million of specific reserves related to TDRs at September 30, 2011, which included $2.5 million related to mortgage TDRs and $0.2 million related to direct consumer TDRs . Citizens charged off $0.4 million and $1.1 million for the three and nine months ended September 30, 2012, respectively, and $2.1 million and $6.0 million for the three and nine months ended September 30, 2011, respectively, for the portion of TDRs deemed to be uncollectible.

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

	Three Months Ended September 30,
	2012									2011
(in thousands)	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Average Coupon Rate			Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Average Coupon Rate
Residential mortgage		15	$	2,399	$	2,399		2.91	%		10	$	2,265	$	2,411		2.25	%
Direct consumer		5		360		360		3.39			1		331		336		5.10
Total portfolio loans		20	$	2,759	$	2,759		2.97			11	$	2,596	$	2,747		2.60
	Nine Months Ended September 30,
	2012									2011
(in thousands)	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Average Coupon Rate			Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Average Coupon Rate
Commercial and industrial		2	$	1,839	$	1,500		6.50	%		2	$	1,807	$	1,807		6.45	%
Commercial real estate		—		—		—		—			2		11,988		8,283		7.42
Total commercial		2		1,839		1,500		6.50			4		13,795		10,090		7.25
Residential mortgage		29		4,732		4,732		2.69			32		8,092		8,365		2.76
Direct consumer		57		4,163		4,082		4.30			7		1,599		1,605		6.34
Total portfolio loans		88	$	10,734	$	10,314		3.88			43	$	23,486	$	20,060		5.30

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2012		2011		2012		2011
Post Modification Recorded Investment
Extended maturity	$	493	$	—	$	2,486	$	2,202
Interest rate adjustments		679		2,215		3,304		6,989
Combination of rate and maturity		1,562		532		3,735		10,869
Other (1)		25		—		789		—
Total	$	2,759	$	2,747	$	10,314	$	20,060

⁽¹⁾  Other includes covenant 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. At September 30, 2012, there were three loans of approximately $0.3 million modified as a TDR within the last twelve months that were in payment default.

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Loans

9 Months Ended

Sep. 30, 2012

Loans/Allowance for Loan Losses [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.

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 six 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.

	September 30, 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	$	—	$	—	$	326	$	326	$	4,658	$	4,984
Land development		—		—		3		3		7,518		7,521
Construction		—		—		—		—		6,689		6,689
Income producing		1,104		—		12,904		14,008		753,194		767,202
Owner-occupied		4,598		—		13,146		17,744		531,461		549,205
Total commercial real estate		5,702		—		26,379		32,081		1,303,520		1,335,601
Commercial and industrial		253		57		3,139		3,449		1,413,103		1,416,552
Small business (1)		627		—		6,051		6,678		265,766		272,444
Total commercial		6,582		57		35,569		42,208		2,982,389		3,024,597
Residential mortgage		6,029		—		15,271		21,300		548,995		570,295
Direct consumer		11,435		3		10,552		21,990		843,787		865,777
Indirect consumer		7,514		—		2,391		9,905		960,330		970,235
Total consumer		24,978		3		28,214		53,195		2,353,112		2,406,307
Total financing receivables	$	31,560	$	60	$	63,783	$	95,403	$	5,335,501	$	5,430,904

⁽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.
	September 30, 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	$	—	$	—	$	167	$	167	$	6,651	$	6,818
Land development		216		—		12		228		22,004		22,232
Construction		—		—		257		257		5,153		5,410
Income producing		3,325		—		23,227		26,552		948,710		975,262
Owner-occupied		5,817		—		27,540		33,357		600,822		634,179
Total commercial real estate		9,358		—		51,203		60,561		1,583,340		1,643,901
Commercial and industrial		1,055		1,344		13,603		16,002		1,215,363		1,231,365
Small business (1)		1,539		—		4,933		6,472		293,655		300,127
Total commercial		11,952		1,344		69,739		83,035		3,092,358		3,175,393
Residential mortgage		9,079		—		13,074		22,153		632,408		654,561
Direct consumer		18,629		24		14,704		33,357		921,474		954,831
Indirect consumer		9,898		—		1,256		11,154		876,388		887,542
Total consumer		37,606		24		29,034		66,664		2,430,270		2,496,934
Total financing receivables	$	49,558	$	1,368	$	98,773	$	149,699	$	5,522,628	$	5,672,327

⁽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 are considered to be pass rated loans. Commercial loans by risk category of class follow.

	September 30, 2012
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Land hold	$	2,021	$	745	$	2,218	$	—	$	4,984
Land development		7,174		144		203		—		7,521
Construction		6,689		—		—		—		6,689
Income producing		541,963		131,769		93,204		266		767,202
Owner-occupied		445,623		58,424		45,071		87		549,205
Total commercial real estate		1,003,470		191,082		140,696		353		1,335,601
Commercial and industrial		1,266,471		111,694		38,191		196		1,416,552
Small business (1)		236,974		14,975		20,432		63		272,444
Total commercial	$	2,506,915	$	317,751	$	199,319	$	612	$	3,024,597
(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.
	September 30, 2011
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Land hold	$	2,548	$	820	$	3,450	$	—	$	6,818
Land development		12,397		295		9,540		—		22,232
Construction		3,304		1,525		577		4		5,410
Income producing		627,636		182,762		163,238		1,626		975,262
Owner-occupied		504,172		47,759		77,649		4,599		634,179
Total commercial real estate		1,150,057		233,161		254,454		6,229		1,643,901
Commercial and industrial		1,051,254		99,868		79,944		299		1,231,365
Small business (1)		255,237		23,113		21,623		154		300,127
Total commercial	$	2,456,548	$	356,142	$	356,021	$	6,682	$	3,175,393
(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.

	September 30, 2012
(in thousands)	Residential Mortgage		Direct Consumer		Indirect Consumer		Total Consumer Loans
Performing	$	555,024	$	855,222	$	967,844	$	2,378,090
Nonperforming		15,271		10,555		2,391		28,217
Total	$	570,295	$	865,777	$	970,235	$	2,406,307
	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
	September 30, 2011
(in thousands)	Residential Mortgage		Direct Consumer		Indirect Consumer		Total Consumer Loans
Performing	$	641,487	$	940,103	$	886,286	$	2,467,876
Nonperforming		13,074		14,728		1,256		29,058
Total	$	654,561	$	954,831	$	887,542	$	2,496,934

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Business Combination

9 Months Ended

Sep. 30, 2012

Business Combination [Abstract]

Business Combination

Note 15. Business Combination

On September 13, 2012, Citizens and FirstMerit Corporation (“FirstMerit”) announced the signing of a definitive agreement under which FirstMerit will acquire Citizens in a stock-for-stock merger transaction. Under the terms of the agreement, Citizens’ shareholders will receive a fixed 1.37 shares of FirstMerit common stock in exchange for each share of Citizens’ common stock.

Subject to receipt of requisite approvals, FirstMerit also expects to repay Citizens’ approximately $345 million of TARP preferred stock, which includes $45 million of estimated deferred dividends, held by the U.S. Treasury at closing. The merger has been unanimously approved by the Boards of Directors of both Citizens and FirstMerit and is subject to customary closing conditions, including receipt of regulatory approvals and approval by both companies’ shareholders. In the third quarter of 2012, Citizens recorded $4.4 million of merger-related expenses in professional services. The transaction is expected to close in the second quarter of 2013.

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Lines of Business

9 Months Ended

Sep. 30, 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 and nine months ended September 30, 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.

(in thousands)	Regional Banking			Specialty Consumer			Specialty Commercial			Wealth Mgmt		Other			Total
Earnings Summary - Three Months Ended September 30, 2012
Net interest income (taxable equivalent)	$	53,366		$	8,985		$	16,622		$	29	$	(1,694	)	$	77,308
Provision for loan losses		5,692			4,045			(4,542	)		—		—			5,195
Net interest income (loss) after provision		47,674			4,940			21,164			29		(1,694	)		72,113
Noninterest income		17,817			179			531			3,635		1,548			23,710
Noninterest expense		50,555			4,092			3,104			2,394		11,910			72,055
Income (loss) before income taxes		14,936			1,027			18,591			1,270		(12,056	)		23,768
Income tax expense (benefit) (taxable equivalent)		5,228			359			6,507			445		(9,762	)		2,777
Net income (loss)	$	9,708		$	668		$	12,084		$	825	$	(2,294	)	$	20,991
Average assets (in millions)	$	2,989		$	1,600		$	1,244		$	22	$	3,869		$	9,724
Earnings Summary - Three Months Ended September 30, 2011
Net interest income (taxable equivalent)	$	53,340		$	9,962		$	12,917		$	125	$	4,323		$	80,667
Provision for loan losses		5,292			15,267			(3,078	)		—		—			17,481
Net interest income (loss) after provision		48,048			(5,305	)		15,995			125		4,323			63,186
Noninterest income		18,662			59			2,262			3,620		(176	)		24,427
Noninterest expense		53,429			4,010			3,329			2,567		2,076			65,411
Income (loss) before income taxes		13,281			(9,256	)		14,928			1,178		2,071			22,202
Income tax expense (benefit) (taxable equivalent)		4,649			(3,240	)		5,224			412		(17,787	)		(10,742	)
Net income (loss)	$	8,632		$	(6,016	)	$	9,704		$	766	$	19,858		$	32,944
Average assets (in millions)	$	3,196		$	1,650		$	1,041		$	18	$	3,691		$	9,596
(in thousands)	Regional Banking			Specialty Consumer			Specialty Commercial			Wealth Mgmt		Other			Total
Earnings Summary - Nine Months Ended September 30, 2012
Net interest income (taxable equivalent)	$	156,909		$	25,882		$	48,670		$	87	$	661		$	232,209
Provision for loan losses		24,024			6,666			(11,799	)		—		—			18,891
Net interest income after provision		132,885			19,216			60,469			87		661			213,318
Noninterest income		52,512			546			1,914			10,819		4,505			70,296
Noninterest expense		151,905			12,692			9,573			7,377		23,947			205,494
Income (loss) before income taxes		33,492			7,070			52,810			3,529		(18,781	)		78,120
Income tax expense (benefit) (taxable equivalent)		11,722			2,475			18,484			1,235		(304,824	)		(270,908	)
Net income	$	21,770		$	4,595		$	34,326		$	2,294	$	286,043		$	349,028
Average assets (in millions)	$	3,016		$	1,576		$	1,225		$	22	$	3,720		$	9,559
Earnings Summary - Nine Months Ended September 30, 2011
Net interest income (taxable equivalent)	$	162,701		$	28,132		$	34,247		$	423	$	15,370		$	240,873
Provision for loan losses		56,710			26,533			40,558			—		—			123,801
Net interest income (loss) after provision		105,991			1,599			(6,311	)		423		15,370			117,072
Noninterest income		53,208			1,716			3,181			11,355		1,435			70,895
Noninterest expense		164,598			13,997			12,100			7,226		18,590			216,511
Income (loss) before income taxes		(5,399	)		(10,682	)		(15,230	)		4,552		(1,785	)		(28,544	)
Income tax expense (benefit) (taxable equivalent)		(1,890	)		(3,739	)		(5,331	)		1,593		(7,600	)		(16,967	)
Net income (loss)	$	(3,509	)	$	(6,943	)	$	(9,899	)	$	2,959	$	5,815		$	(11,577	)
Average assets (in millions)	$	3,324		$	1,645		$	1,055		$	18	$	3,677		$	9,719

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Fair Values of Assets and Liabilities

9 Months Ended

Sep. 30, 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 into 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 value, and placement in the fair value hierarchy of Citizens’ financial instruments that are not measured at fair value follow.

	September 30, 2012
	Carrying		Estimated		Fair Value Measurements
(in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	162,705	$	162,705	$	—	$	162,705	$	—
Money market investments		223,818		223,818		—		223,818		—
Securities held to maturity		1,313,504		1,378,310		—		1,378,310		—
FHLB and Federal Reserve stock		122,123		122,123		—		122,123		—
Net portfolio loans		5,308,779		5,163,239		—		—		5,163,239
Loans held for sale		30,062		30,062		—		11,815		18,247
Accrued interest receivable		32,088		32,088		—		32,088		—
Financial liabilities:
Deposits		7,302,965		7,324,879		—		7,324,879		—
Short-term borrowings		42,796		42,796		—		42,796		—
Long-term debt		852,481		933,690		56,952		876,738		—
Accrued interest payable		16,900		16,900		—		16,900		—
	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		—

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 September 30, 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 September 30, 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 supported by a group annuity insurance contract issued by Prudential Retirement Insurance and Annuity Company. The investment is recorded at contract value and, based on the nature of the fund, generally approximates fair value. The Guaranteed Income Fund has no maturity date and is secured only by Prudential’s general account. Therefore, the Guaranteed Income Fund is recorded as recurring Level 3.

Impaired Loans. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. 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 below carrying value.

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

September 30, 2012
(in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale:
Collateralized mortgage obligations	$	411,731	$	—	$	411,725	$	6
Mortgage-backed		1,018,853		—		1,018,853		—
State and municipal		110,696		—		109,988		708
Other		287		—		54		233
Total available for sale		1,541,567		—		1,540,620		947
Other assets:
Derivatives designated as hedging instruments		1,217		—		1,217		—
Derivatives not designated as hedging instruments		14,898		—		14,898		—
Deferred compensation assets		8,796		6,915		—		1,881
Total other assets		24,911		6,915		16,115		1,881
Total	$	1,566,478	$	6,915	$	1,556,735	$	2,828
Other liabilities:
Derivatives designated as hedging instruments	$	7,515	$	—	$	7,515	$	—
Derivatives not designated as hedging instruments		15,521		—		15,521		—
Total	$	23,036	$	—	$	23,036	$	—

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		20,879		1,686
Total	$	1,342,089	$	6,791	$	1,331,925	$	3,373
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 and nine month periods ended September 30, 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 (1)		Unrealized		Income (Pretax)			Purchases		Sales			Settlements			Period
Three Months Ended September 30, 2012
Securities available for sale
Collateralized mortgage obligations	$	6	$	—	$	—	$	—		$	—	$	—		$	—		$	6
State and municipal		1,447		612		—		99			—		—			(1,450	)		708
Other		233		3		—		(3	)		—		—			—			233
Deferred compensation assets		1,851		—		—		—			538		(508	)		—			1,881
Total	$	3,537	$	615	$	—	$	96		$	538	$	(508	)	$	(1,450	)	$	2,828
Nine Months Ended September 30, 2012
Securities available for sale
Collateralized mortgage obligations	$	8	$	—	$	—	$	—		$	—	$	—		$	(2	)	$	6
State and municipal		1,446		628		—		84			—		—			(1,450	)		708
Other		233		10		—		(10	)		—		—			—			233
Deferred compensation assets		1,686		—		—		—			825		(630	)		—			1,881
Total	$	3,373	$	638	$	—	$	74		$	825	$	(630	)	$	(1,452	)	$	2,828

⁽¹⁾ Net realized gains and losses recorded in earnings include discount accretions.

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

September 30, 2012	Initial Carrying		Fair Value
(in thousands)	Value		Total		Level 1		Level 2		Level 3
Impaired loans	$	78,200	$	31,101	$	—	$	—	$	31,101
Commercial loans held for sale		36		—		—		—		—
Residential mortgage loans held for sale		708		214		—		—		214
Other real estate		3,764		2,244		—		—		2,244
Repossessed assets		2,566		1,412		—		—		1,412
Total	$	85,274	$	34,971	$	—	$	—	$	34,971

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

(in thousands)	Fair Value at September 30, 2012		Valuation Technique	Unobservable Input	Range (Weighted Average)
Securities available for sale:
Collateralized mortgage obligations	$	6	Cost	None  (1)		None
State and municipal		708	Discounted Cash Flow	Liquidity Premium		1.0% - 1.5% (1.4%	)
				Credit Premium		1.3% - 2.7% (2.3%	)
				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%	)
Deferred compensation assets		1,881	Contract Value	None  (2)		None
Impaired loans		31,101	Comparative Sales	Loss Severity Discount		0% - 100% (65%	)
Residential mortgage loans held for sale		214	Comparative Sales	Loss Severity Discount		6% - 100% (70%	)
Other real estate		2,244	Comparative Sales	Loss Severity Discount		2% - 100% (40%	)
Repossessed assets		1,412	Comparative Sales	Loss Severity Discount		45% - 45% (45%	)

⁽¹⁾  Carrying value approximates fair value.

⁽²⁾  Contract 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 material change in fair value.

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Pension Benefit Cost (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Estimated fair values of Citizens' pension plan assets
Total	$ 65,227
Level 1 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Level 2 [Member]
Estimated fair values of Citizens' pension plan assets
Total	65,227
Level 3 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Short-term pooled money fund [Member]
Estimated fair values of Citizens' pension plan assets
Total	2,880
Short-term pooled money fund [Member] | Level 1 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Short-term pooled money fund [Member] | Level 2 [Member]
Estimated fair values of Citizens' pension plan assets
Total	2,880
Short-term pooled money fund [Member] | Level 3 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Equity Securities Large cap [Member]
Estimated fair values of Citizens' pension plan assets
Total	19,005
Equity Securities Large cap [Member] | Level 1 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Equity Securities Large cap [Member] | Level 2 [Member]
Estimated fair values of Citizens' pension plan assets
Total	19,005
Equity Securities Large cap [Member] | Level 3 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Equity Securities Mid-cap [Member]
Estimated fair values of Citizens' pension plan assets
Total	4,639
Equity Securities Mid-cap [Member] | Level 1 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Equity Securities Mid-cap [Member] | Level 2 [Member]
Estimated fair values of Citizens' pension plan assets
Total	4,639
Equity Securities Mid-cap [Member] | Level 3 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Equity Securities Small-cap [Member]
Estimated fair values of Citizens' pension plan assets
Total	6,631
Equity Securities Small-cap [Member] | Level 1 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Equity Securities Small-cap [Member] | Level 2 [Member]
Estimated fair values of Citizens' pension plan assets
Total	6,631
Equity Securities Small-cap [Member] | Level 3 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Equity Securities International equity [Member]
Estimated fair values of Citizens' pension plan assets
Total	9,967
Equity Securities International equity [Member] | Level 1 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Equity Securities International equity [Member] | Level 2 [Member]
Estimated fair values of Citizens' pension plan assets
Total	9,967
Equity Securities International equity [Member] | Level 3 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Fixed income securities, Intermediate term fixed [Member]
Estimated fair values of Citizens' pension plan assets
Total	22,105
Fixed income securities, Intermediate term fixed [Member] | Level 1 [Member]
Estimated fair values of Citizens' pension plan assets
Total
Fixed income securities, Intermediate term fixed [Member] | Level 2 [Member]
Estimated fair values of Citizens' pension plan assets
Total	22,105
Fixed income securities, Intermediate term fixed [Member] | Level 3 [Member]
Estimated fair values of Citizens' pension plan assets
Total

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Long-Term Debt

9 Months Ended

Sep. 30, 2012

Long-Term Debt [Abstract]

Long-Term Debt

Note 5. Long-Term Debt

The components of long-term debt are presented below.

(in thousands)	September 30, 2012		December 31, 2011
Citizens (Parent only):
Subordinated debt:
5.75% subordinated notes due February 2013	$	17,214	$	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		656,700		658,484
Other borrowed funds		104,116		104,149
Total long-term debt	$	852,481	$	854,185

Citizens restructured $350.0 million of FHLB advances during the first nine months of 2012, extending the average remaining term on these advances to 9.0 years from 3.2 years and reducing the average interest rate to 2.55% from 3.50%. Throughout 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 September 30, 2012 and December 31, 2011, the amount of the arrearage on the payments on the subordinated debentures associated with the trust preferred securities is $13.8 million and $9.8 million, respectively.

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Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes [Abstract]

Income Taxes

Note 6. Income Taxes

Citizens recorded income tax expense of $1.3 million for the third quarter of 2012, compared to a benefit of $12.6 million for the third quarter of 2011. The tax benefit in 2011 was largely due to Citizens recording a receivable as a result of a revocation of a tax election. For the first nine months of 2012, the income tax benefit totaled $275.5 million, compared with a benefit of $22.8 million for the same period of 2011. The increase in the tax benefit for 2012 was primarily the result of eliminating the valuation allowance against the deferred tax asset. The deferred tax asset is reviewed on a quarterly basis and based on the analysis of positive and negative evidence at June 30, 2012, including the Company’s return to profitability over the past five quarters, no deferred tax asset valuation allowance was deemed necessary as of June 30, 2012. As a result, the deferred tax asset valuation allowance was reversed in the second quarter of 2012. As of September 30, 2012, the recorded balance of the deferred tax asset was $268.3 million, reported in Other Assets on the Consolidated Balance Sheets.

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Pension Benefit Cost

9 Months Ended

Sep. 30, 2012

Pension Benefit Cost [Abstract]

Pension Benefit Cost

Note 8. Pension Benefit Cost

Effective December 31, 2006, Citizens’ defined benefit pension plan was “frozen,” preserving prior earned benefits but discontinuing the accrual of further benefits. 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. The components of retirement benefit cost are presented below.

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2012			2011			2012			2011
Defined benefit pension plans
Interest cost	$	847		$	955		$	2,610		$	2,865
Expected return on plan assets		(1,055	)		(1,018	)		(3,165	)		(3,053	)
Amortization of unrecognized:
Prior service cost		8			8			23			23
Net actuarial loss		761			833			2,346			2,498
Net pension cost		561			778			1,814			2,333
Supplemental pension plans
Interest cost		11			189			221			567
Amortization of unrecognized:
Net actuarial loss		6			5			29			14
Net pension cost		17			194			250			581
Postretirement benefit plans
Interest cost		19			(43	)		59			245
Amortization of unrecognized:
Prior service cost		(229	)		(107	)		(688	)		(251	)
Net actuarial gain		(45	)		37			(135	)		(107	)
Net postretirement benefit cost		(255	)		(113	)		(764	)		(113	)
Defined contribution retirement and 401(k) plans
Employer contributions		403			—			1,341			—
Total periodic benefit cost	$	726		$	859		$	2,641		$	2,801

Citizens maintains multiple employee benefit plans, including defined benefit pension, supplemental pension, postretirement healthcare, and defined contribution retirement 401(k). Citizens made a cash contribution of $2.7 million to the defined benefit pension plan during the first nine months of 2012 and does not expect to make an additional contribution for the remainder of the year. During the first nine months of 2012, Citizens contributed $0.4 million to the supplemental pension plans and anticipates that an additional $0.1 million of contributions will be made during the remaining three months of the year. Citizens contributed $0.1 million to the postretirement benefit plan during the first nine 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 September 30, 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.

September 30, 2012
(in thousands)	Total		Level 1		Level 2		Level 3
Asset Category
Short-term pooled money fund	$	2,880	$	—	$	2,880	$	—
Equity securities
Large cap		19,005		—		19,005		—
Mid-cap		4,639		—		4,639		—
Small-cap		6,631		—		6,631		—
International equity		9,967		—		9,967		—
Fixed income securities
Intermediate term fixed		22,105		—		22,105		—
Total	$	65,227	$	—	$	65,227	$	—

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Stock-Based Compensation (Details Textual) (USD $) In Millions, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Stock-Based Compensation (Textual) [Abstract]
Common stock reserved for future issuance	934,192
Total unrecognized compensation cost related to restricted stock	$ 6.5
Total unrecognized compensation cost related to restricted stock, weighted average period of recognition	1 year 9 months 18 days
Restricted vested shares under restriction prohibiting sale	75,814
Period of vested shares under restriction prohibiting sale	2 years
Total fair value of restricted stock vested	$ 1.3

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Earnings Per Common Share (Details Textual) (USD $) In Millions, except Share data, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Earnings Per Common Share (Textual) [Abstract]
Arrear amount of dividend payment on the Series A Preferred Stock	$ 44.2	$ 31.5
Additional shares issued through exercise of stock options and warrants	2,919,231

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Stock-Based Compensation (Details 1) (Restricted Stock [Member], USD $)	9 Months Ended
	Sep. 30, 2012
Restricted Stock [Member]
Summary of restricted stock activity
Number of Shares, Beginning Balance	825,969
Number of Shares, Granted	299,788
Number of Shares, Vested	(81,299)
Number of Shares, Forfeited	(26,127)
Number of Shares, Ending Balance	1,018,331
Weighted-Average Per Share Grant Date Fair Value, Beginning Balance	$ 9.27
Weighted-Average Per Share Grant Date Fair Value, Granted	$ 16.85
Weighted-Average Per Share Grant Date Fair Value, Vested	$ 11.33
Weighted-Average Per Share Grant Date Fair Value, Forfeited	$ 11.59
Weighted-Average Per Share Grant Date Fair Value, Ending Balance	$ 11.28

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Commitments, Contingent Liabilities and Guarantees (Tables)

9 Months Ended

Sep. 30, 2012

Commitments, Contingent Liabilities and Guarantees [Abstract]

Summary of amounts available to clients under loan commitments and standby letters of credit

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

(in thousands)	September 30, 2012		December 31, 2011
Loan commitments and letters of credit:
Commitments to extend credit	$	943,985	$	932,435
Asset-based lending participations		86,467		151,194
Financial standby letters of credit		109,611		125,401
Performance standby letters of credit		1,756		3,571
Deferred standby letter of credit fees		601		1,123

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Long-Term Debt (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Components of long-term debt
Total long-term debt	$ 852,481	$ 854,185	$ 855,670
Citizens [Member] | 5.75% subordinated notes due February 2013 [Member]
Components of long-term debt
Total long-term debt	17,214	17,101
Citizens [Member] | Variable rate junior subordinated debenture due June 2033 [Member]
Components of long-term debt
Total long-term debt	25,774	25,774
Citizens [Member] | 7.50% junior subordinated debentures due September 2066 [Member]
Components of long-term debt
Total long-term debt	48,677	48,677
Subsidiaries [Member] | FHLB advances [Member]
Components of long-term debt
Total long-term debt	656,700	658,484
Subsidiaries [Member] | Other borrowed funds [Member]
Components of long-term debt
Total long-term debt	$ 104,116	$ 104,149

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Derivatives and Hedging Activities

9 Months Ended

Sep. 30, 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. When entering into an interest rate swap, Citizens and a counterparty agree to exchange cash flows based on a specified notional amount multiplied by an interest rate. Typically Citizens will pay a fixed rate and receive a floating rate (or vice versa), though paying one floating rate and receiving another is possible. In all cases the underlying notional amount is not exchanged. When Citizens purchases an interest rate cap, it receives variable-rate amounts from a counterparty if a specific interest rate index rises above the strike rate on the contract in exchange for an upfront premium.

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)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Derivatives designated as hedging instruments
Interest rate products	$	1,217	$	3,791	$	7,515	$	2,317
Derivatives not designated as hedging instruments
Interest rate products		14,898		17,088		15,521		17,614
Total derivatives	$	16,115	$	20,879	$	23,036	$	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. Citizens had twelve interest rate caps and swaps with an aggregate notional amount of $385.0 million at September 30, 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 and nine months ended September 30, 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 for the nine months ended September 30, 2012 and $0.2 million and $0.7 million for the three and nine months ended September 30, 2011, respectively, to earnings as a result of the hedged forecasted transactions becoming probable not to occur. There was no reclassification of unrealized gains accelerated for the three months ended September 30, 2012. During the next twelve months, Citizens estimates that there will be no derivatives reclassified as an increase to interest income and $2.6 million as an increase to interest expense.

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

	Derivative Impact on OCI Gain (Loss)
Derivatives Relationship (in thousands)	Recognized in OCI						Location Reclassified in Statement of Operations	Reclassified from Accumulated OCI into Statement of Operations
	Three Months Ended September 30,							Three Months Ended September 30,
	2012			2011				2012			2011
Cash flow hedges:							Interest income	$	34		$	547
Interest rate products	$	(2,665	)	$	(697	)	Interest expense		(634	)		—
							Other income		—			182
Total	$	(2,665	)	$	(697	)		$	(600	)	$	729
	Derivative Impact on OCI Gain (Loss)
Derivatives Relationship (in thousands)	Recognized in OCI						Location Reclassified in Statement of Operations	Reclassified from Accumulated OCI into Statement of Operations
	Nine Months Ended September 30,							Nine Months Ended September 30,
	2012			2011				2012			2011
Cash flow hedges:							Interest income	$	406		$	2,418
Interest rate products	$	(9,541	)	$	(680	)	Interest expense		(1,843	)		—
							Other income		6			717
Total	$	(9,541	)	$	(680	)		$	(1,431	)	$	3,135

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. At September 30, 2012, Citizens had no derivatives 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 in the Statements of Operations as the offsetting loss or gain on the related derivatives. During the three and nine months ended September 30, 2012 and the three months ended September 30, 2011, Citizens did not recognize any gains in interest expense related to hedge ineffectiveness. Citizens recognized gains of $0.7 million in interest expense related to hedge ineffectiveness for the nine months ended September 30, 2011. Citizens recognized no net reduction to interest expense during the three and nine months ended September 30, 2012 and the three months ended September 30, 2011. Citizens recognized a net reduction to interest expense of $0.4 million during the nine months ended September 30, 2011, which includes net settlements of the derivatives and any amortization adjustment in the basis of the hedged item. In addition, during the three and nine months ended September 30, 2012 and September 30, 2011, Citizens recognized a net reduction to interest expense of $0.1 million, $0.4 million, $0.2 million and $0.6 million, respectively, related to the amortization adjustment of the basis in the hedged items that were in a hedging relationship with hedges that were terminated.

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

	Derivative Contract (Loss) Gain							Hedged Item Gain (Loss)
Derivatives Relationship (in thousands)	Location in Statement of Operations		Three Months Ended September 30,					Location in Statement of Operations		Three Months Ended September 30,
			2012		2011					2012		2011
Fair value hedges:
Interest rate products		Interest expense	$	—	$	—			Interest expense	$	—	$	—
	Derivative Contract (Loss) Gain							Hedged Item Gain (Loss)
	Location in Statement of Operations		Nine Months Ended September 30,					Location in Statement of Operations		Nine Months Ended September 30,
Derivatives Relationship (in thousands)			2012		2011					2012		2011
Fair value hedges:
Interest rate products		Interest expense	$	—	$	(1,107	)		Interest expense	$	—	$	1,818

Derivatives Not Designated as Hedges. Citizens does not use derivatives for trading or speculative purposes and does not use credit derivatives for any purpose. Derivatives not designated as hedges are used to manage Citizens’ exposure to interest rate movements and other identified risks but do not satisfy the conditions for hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly into earnings. Additionally, Citizens holds interest rate derivatives, including interest rate swaps and option products, resulting from a service Citizens provides to certain clients. Citizens executes interest rate derivatives with commercial banking clients to facilitate their respective risk management strategies. Those derivatives are simultaneously hedged by offsetting derivatives that Citizens executes with a third party, such that Citizens minimizes its net risk exposure resulting from such transactions. As of September 30, 2012 and December 31, 2011, Citizens had 140 derivative transactions with an aggregate notional amount of $501.3 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 Consolidated Financial Statements.

		Amount of (Loss) Gain Recognized in Statement of Operations
Derivatives Relationship	Location of (Loss) Gain Recognized in Statement of Operations	Three Months Ended September 30,
(in thousands)		2012			2011
Derivatives not designated as hedges - Interest rate products	Other income	$	(83	)	$	(268	)
		Amount of (Loss) Gain
Derivatives Relationship	Location of (Loss) Gain Recognized in Statement of Operations	Nine Months Ended September 30,
(in thousands)		2012			2011
Derivatives not designated as hedges - Interest rate products	Other income	$	(96	)	$	(458	)

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

As of September 30, 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 $21.8 million. As of September 30, 2012, Citizens had minimum collateral posting requirements with its derivative counterparties resulting in assigned collateral of $30.6 million. As of September 30, 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 September 30, 2012, the termination value approximated $5.6 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 $30.6 million.

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Loans (Tables)

9 Months Ended

Sep. 30, 2012

Loans/Allowance for Loan Losses [Abstract]

Age analysis of financing receivables

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.

	September 30, 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	$	—	$	—	$	326	$	326	$	4,658	$	4,984
Land development		—		—		3		3		7,518		7,521
Construction		—		—		—		—		6,689		6,689
Income producing		1,104		—		12,904		14,008		753,194		767,202
Owner-occupied		4,598		—		13,146		17,744		531,461		549,205
Total commercial real estate		5,702		—		26,379		32,081		1,303,520		1,335,601
Commercial and industrial		253		57		3,139		3,449		1,413,103		1,416,552
Small business (1)		627		—		6,051		6,678		265,766		272,444
Total commercial		6,582		57		35,569		42,208		2,982,389		3,024,597
Residential mortgage		6,029		—		15,271		21,300		548,995		570,295
Direct consumer		11,435		3		10,552		21,990		843,787		865,777
Indirect consumer		7,514		—		2,391		9,905		960,330		970,235
Total consumer		24,978		3		28,214		53,195		2,353,112		2,406,307
Total financing receivables	$	31,560	$	60	$	63,783	$	95,403	$	5,335,501	$	5,430,904

⁽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.
	September 30, 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	$	—	$	—	$	167	$	167	$	6,651	$	6,818
Land development		216		—		12		228		22,004		22,232
Construction		—		—		257		257		5,153		5,410
Income producing		3,325		—		23,227		26,552		948,710		975,262
Owner-occupied		5,817		—		27,540		33,357		600,822		634,179
Total commercial real estate		9,358		—		51,203		60,561		1,583,340		1,643,901
Commercial and industrial		1,055		1,344		13,603		16,002		1,215,363		1,231,365
Small business (1)		1,539		—		4,933		6,472		293,655		300,127
Total commercial		11,952		1,344		69,739		83,035		3,092,358		3,175,393
Residential mortgage		9,079		—		13,074		22,153		632,408		654,561
Direct consumer		18,629		24		14,704		33,357		921,474		954,831
Indirect consumer		9,898		—		1,256		11,154		876,388		887,542
Total consumer		37,606		24		29,034		66,664		2,430,270		2,496,934
Total financing receivables	$	49,558	$	1,368	$	98,773	$	149,699	$	5,522,628	$	5,672,327

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

Risk category of commercial loans by class

Loans not meeting the criteria above are considered to be pass rated loans. Commercial loans by risk category of class follow.

	September 30, 2012
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Land hold	$	2,021	$	745	$	2,218	$	—	$	4,984
Land development		7,174		144		203		—		7,521
Construction		6,689		—		—		—		6,689
Income producing		541,963		131,769		93,204		266		767,202
Owner-occupied		445,623		58,424		45,071		87		549,205
Total commercial real estate		1,003,470		191,082		140,696		353		1,335,601
Commercial and industrial		1,266,471		111,694		38,191		196		1,416,552
Small business (1)		236,974		14,975		20,432		63		272,444
Total commercial	$	2,506,915	$	317,751	$	199,319	$	612	$	3,024,597
(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.
	September 30, 2011
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Land hold	$	2,548	$	820	$	3,450	$	—	$	6,818
Land development		12,397		295		9,540		—		22,232
Construction		3,304		1,525		577		4		5,410
Income producing		627,636		182,762		163,238		1,626		975,262
Owner-occupied		504,172		47,759		77,649		4,599		634,179
Total commercial real estate		1,150,057		233,161		254,454		6,229		1,643,901
Commercial and industrial		1,051,254		99,868		79,944		299		1,231,365
Small business (1)		255,237		23,113		21,623		154		300,127
Total commercial	$	2,456,548	$	356,142	$	356,021	$	6,682	$	3,175,393
(1)        Amounts contained in “Commercial and industrial” on Consolidated Balance Sheets.

Recorded investment in loans, segregated by portfolio segment

The following table presents the recorded investment in residential and consumer loans based on payment activity.

	September 30, 2012
(in thousands)	Residential Mortgage		Direct Consumer		Indirect Consumer		Total Consumer Loans
Performing	$	555,024	$	855,222	$	967,844	$	2,378,090
Nonperforming		15,271		10,555		2,391		28,217
Total	$	570,295	$	865,777	$	970,235	$	2,406,307
	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
	September 30, 2011
(in thousands)	Residential Mortgage		Direct Consumer		Indirect Consumer		Total Consumer Loans
Performing	$	641,487	$	940,103	$	886,286	$	2,467,876
Nonperforming		13,074		14,728		1,256		29,058
Total	$	654,561	$	954,831	$	887,542	$	2,496,934

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Allowance for Loan Losses (Details 4) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Information on how loans were modified as TDR
Extended maturity	$ 493		$ 2,486	$ 2,202
Interest rate adjustments	679	2,215	3,304	6,989
Combination of rate and maturity	1,562	532	3,735	10,869
Other (1)	25		789
Total	$ 2,759	$ 2,747	$ 10,314	$ 20,060

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Loans (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due	$ 31,560	$ 47,749	$ 49,558
Loans 90+ Days Past Due & Still Accruing	60	770	1,368
Non-Accruing Loans	63,783	86,658	98,773
Total Past Due Loans	95,403	135,177	149,699
Current Portfolio Loans	5,335,501	5,394,358	5,522,628
Total Portfolio Loans	5,430,904	5,529,535	5,672,327
Land hold [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due		21
Loans 90+ Days Past Due & Still Accruing
Non-Accruing Loans	326		167
Total Past Due Loans	326	21	167
Current Portfolio Loans	4,658	6,521	6,651
Total Portfolio Loans	4,984	6,542	6,818
Land development [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due			216
Loans 90+ Days Past Due & Still Accruing
Non-Accruing Loans	3	213	12
Total Past Due Loans	3	213	228
Current Portfolio Loans	7,518	12,891	22,004
Total Portfolio Loans	7,521	13,104	22,232
Construction [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due
Loans 90+ Days Past Due & Still Accruing
Non-Accruing Loans		150	257
Total Past Due Loans		150	257
Current Portfolio Loans	6,689	5,697	5,153
Total Portfolio Loans	6,689	5,847	5,410
Income producing [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due	1,104	2,508	3,325
Loans 90+ Days Past Due & Still Accruing
Non-Accruing Loans	12,904	21,171	23,227
Total Past Due Loans	14,008	23,679	26,552
Current Portfolio Loans	753,194	890,076	948,710
Total Portfolio Loans	767,202	913,755	975,262
Owner-occupied [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due	4,598	2,345	5,817
Loans 90+ Days Past Due & Still Accruing
Non-Accruing Loans	13,146	23,798	27,540
Total Past Due Loans	17,744	26,143	33,357
Current Portfolio Loans	531,461	578,970	600,822
Total Portfolio Loans	549,205	605,113	634,179
Total commercial real estate [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due	5,702	4,874	9,358
Loans 90+ Days Past Due & Still Accruing
Non-Accruing Loans	26,379	45,332	51,203
Total Past Due Loans	32,081	50,206	60,561
Current Portfolio Loans	1,303,520	1,494,155	1,583,340
Total Portfolio Loans	1,335,601	1,544,361	1,643,901
Commercial and industrial [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due	253	212	1,055
Loans 90+ Days Past Due & Still Accruing	57	766	1,344
Non-Accruing Loans	3,139	10,633	13,603
Total Past Due Loans	3,449	11,611	16,002
Current Portfolio Loans	1,413,103	1,235,180	1,215,363
Total Portfolio Loans	1,416,552	1,246,791	1,231,365
Small business [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due	627	2,242	1,539
Loans 90+ Days Past Due & Still Accruing
Non-Accruing Loans	6,051	6,313	4,933
Total Past Due Loans	6,678	8,555	6,472
Current Portfolio Loans	265,766	288,183	293,655
Total Portfolio Loans	272,444	296,738	300,127
Total commercial [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due	6,582	7,328	11,952
Loans 90+ Days Past Due & Still Accruing	57	766	1,344
Non-Accruing Loans	35,569	62,278	69,739
Total Past Due Loans	42,208	70,372	83,035
Current Portfolio Loans	2,982,389	3,017,518	3,092,358
Total Portfolio Loans	3,024,597	3,087,890	3,175,393
Residential mortgage [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due	6,029	9,544	9,079
Loans 90+ Days Past Due & Still Accruing
Non-Accruing Loans	15,271	11,312	13,074
Total Past Due Loans	21,300	20,856	22,153
Current Portfolio Loans	548,995	616,389	632,408
Total Portfolio Loans	570,295	637,245	654,561
Direct consumer [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due	11,435	17,810	18,629
Loans 90+ Days Past Due & Still Accruing	3	4	24
Non-Accruing Loans	10,552	12,115	14,704
Total Past Due Loans	21,990	29,929	33,357
Current Portfolio Loans	843,787	903,385	921,474
Total Portfolio Loans	865,777	933,314	954,831
Indirect consumer [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due	7,514	13,067	9,898
Loans 90+ Days Past Due & Still Accruing
Non-Accruing Loans	2,391	953	1,256
Total Past Due Loans	9,905	14,020	11,154
Current Portfolio Loans	960,330	857,066	876,388
Total Portfolio Loans	970,235	871,086	887,542
Total consumer [Member]
Age analysis of financing receivables
Loans Accruing 30-89 Days Past Due	24,978	40,421	37,606
Loans 90+ Days Past Due & Still Accruing	3	4	24
Non-Accruing Loans	28,214	24,380	29,034
Total Past Due Loans	53,195	64,805	66,664
Current Portfolio Loans	2,353,112	2,376,840	2,430,270
Total Portfolio Loans	$ 2,406,307	$ 2,441,645	$ 2,496,934

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Consolidated Statements of Comprehensive Income [Abstract]
Net Income (Loss)	$ 20,991	$ 32,944	$ 349,028	$ (11,577)
Other comprehensive income
Unrealized gain on securities available for sale	10,887	2,817	13,944	15,120
Reclassification adjustment for net (gain) loss on securities included in net income		(3)		1,373
Unrealized gain on securities transferred from available for sale to held to maturity				18,510
Amortization of unrealized gain on securities transferred to held to maturity	(1,715)	(1,675)	(5,571)	(1,887)
Unrealized loss on qualifying cash flow hedges, net of change and reclassifications	(2,065)	(1,428)	(8,110)	(3,816)
Other comprehensive income (loss), before income taxes	7,107	(289)	263	29,300
Income tax provision (benefit) related to other comprehensive income items	2,488	(137)	92	10,219
Other comprehensive income (loss)	4,619	(152)	171	19,081
Comprehensive income	$ 25,610	$ 32,792	$ 349,199	$ 7,504

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Investment Securities

9 Months Ended

Sep. 30, 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.

	September 30, 2012								December 31, 2011
			Estimated								Estimated
	Amortized		Fair		Gross Unrealized				Amortized		Fair		Gross Unrealized
(in thousands)	Cost		Value		Gains		Losses		Cost		Value		Gains		Losses
Securities available for sale:
Collateralized mortgage obligations	$	404,391	$	411,731	$	7,857	$	517	$	364,262	$	365,302	$	6,811	$	5,771
Mortgage-backed		971,546		1,018,853		47,307		—		784,476		823,852		39,408		32
State and municipal		104,093		110,696		6,620		17		116,411		123,308		7,019		122
Other		289		287		51		53		280		271		24		33
Total available for sale	$	1,480,319	$	1,541,567	$	61,835	$	587	$	1,265,429	$	1,312,733	$	53,262	$	5,958
Securities held to maturity:
Collateralized mortgage obligations (1)	$	304,462	$	313,835	$	9,373	$	—	$	350,160	$	356,031	$	5,871	$	—
Mortgage-backed (1)		907,361		955,140		47,779		—		988,930		1,018,765		29,883		48
State and municipal		101,681		109,335		7,654		—		104,964		112,754		7,836		46
Total held to maturity	$	1,313,504	$	1,378,310	$	64,806	$	—	$	1,444,054	$	1,487,550	$	43,590	$	94

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

Securities with amortized cost of $560.1 million at September 30, 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.

	September 30, 2012
	Amortized		Estimated Fair
(in thousands)	Cost		Value
Securities available for sale:
State and municipal
Contractual maturity within one year	$	14,591	$	14,804
After one year through five years		14,785		15,410
After five years through ten years		57,915		62,130
After ten years		16,802		18,352
Subtotal		104,093		110,696
Collateralized mortgage obligations and mortgage-backed		1,375,937		1,430,584
Other		289		287
Total available for sale	$	1,480,319	$	1,541,567
Securities held to maturity:
State and municipal
Contractual maturity within one year	$	3,560	$	3,660
After one year through five years		21,656		23,081
After five years through ten years		51,300		54,771
After ten years		25,165		27,823
Subtotal		101,681		109,335
Collateralized mortgage obligations and mortgage-backed		1,211,823		1,268,975
Total held to maturity	$	1,313,504	$	1,378,310

A total of 16 securities had unrealized losses at September 30, 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
September 30, 2012	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Securities available for sale:
Collateralized mortgage obligations	$	44,532	$	137	$	9,693	$	380	$	54,225	$	517
State and municipal		303		1		233		16		536		17
Other		—		—		149		53		149		53
Total available for sale	$	44,835	$	138	$	10,075	$	449	$	54,910	$	587

	Less than 12 Months				More than 12 Months				Total
December 31, 2011	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Securities available for sale:
Collateralized mortgage obligations	$	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 September 30, 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 September 30, 2012, the whole loan CMOs had a market value of $54.2 million with gross unrealized losses of $0.5 million. Citizens performs a thorough credit review on a quarterly basis for the underlying mortgage collateral as well as the supporting credit enhancement and structure. The results of the September 30, 2012 credit review demonstrated no material degradation in the holdings.

Citizens has determined there is no other-than-temporary impairment at September 30, 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 $8.8 million and $8.5 million at September 30, 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 and unrealized gains and losses from plan assets are recorded in Other Income in the Consolidated Statements of Operations. Realized gains of $1.0 million and realized losses of $0.6 million for the nine months ended September 30, 2012 and 2011, respectively, were recognized during the period for trading assets as of the report date.

No security sales were completed during 2012. During the third quarter of 2011, Citizens completed sales of available for sale securities with an amortized cost of $3.9 million, recording a net loss of less than $0.1 million. Citizens completed sales of available for sale securities with an amortized cost of $13.1 million during the first nine months ended September 30, 2011, recording a net loss of $1.4 million.

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Fair Values of Assets and Liabilities (Details 4) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Quantitative information about Level 3 fair value measurements
Deferred compensation assets	$ 1,881
Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Collateralized mortgage obligations	6
State and municipal	708
Collateralized mortgage obligations, Valuation Technique	Cost
Deferred compensation assets, Valuation Technique	Contract Value
State and municipal, Liquidity Premium [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
State and municipal, Valuation Technique	Discounted Cash Flow
Unobservable Input, Weighted Average	1.40%
State and municipal, Liquidity Premium [Member] | Maximum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	1.50%
State and municipal, Liquidity Premium [Member] | Minimum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	1.00%
State and municipal, Credit Premium [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	2.30%
State and municipal, Credit Premium [Member] | Maximum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	2.70%
State and municipal, Credit Premium [Member] | Minimum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	1.30%
State and municipal, Fail Rate [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	1.80%
State and municipal, Fail Rate [Member] | Maximum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	2.00%
State and municipal, Fail Rate [Member] | Minimum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	1.20%
Other, Liquidity Premium [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Other	233
Other, Valuation Technique	Discounted Cash Flow
Unobservable Input, Weighted Average	2.40%
Other, Liquidity Premium [Member] | Maximum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	2.50%
Other, Liquidity Premium [Member] | Minimum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	2.00%
Other, Credit Premium [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	4.50%
Other, Credit Premium [Member] | Maximum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	5.50%
Other, Credit Premium [Member] | Minimum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	2.80%
Other, Fail Rate [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	1.40%
Other, Fail Rate [Member] | Maximum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	1.50%
Other, Fail Rate [Member] | Minimum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	1.20%
Impaired loans, Loss Severity Discount [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Impaired loans	31,101
Impaired loans, Valuation Technique	Comparative Sales
Unobservable Input, Weighted Average	65.00%
Impaired loans, Loss Severity Discount [Member] | Maximum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	100.00%
Impaired loans, Loss Severity Discount [Member] | Minimum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	0.00%
Residential mortgage loans held for sale, Loss Severity Discount [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Residential mortgage loans held for sale	214
Residential mortgage loans held for sale, Valuation Technique	Comparative Sales
Unobservable Input, Weighted Average	70.00%
Residential mortgage loans held for sale, Loss Severity Discount [Member] | Maximum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	100.00%
Residential mortgage loans held for sale, Loss Severity Discount [Member] | Minimum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	6.00%
Other real assets, Loss Severity Discount [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Other real estate	2,244
Other real estate, Valuation Technique	Comparative Sales
Unobservable Input, Weighted Average	40.00%
Other real assets, Loss Severity Discount [Member] | Maximum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	100.00%
Other real assets, Loss Severity Discount [Member] | Minimum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	2.00%
Repossessed assets, Loss Severity Discount [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Repossessed assets	$ 1,412
Repossessed assets, Valuation Technique	Comparative Sales
Unobservable Input, Weighted Average	45.00%
Repossessed assets, Loss Severity Discount [Member] | Maximum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	45.00%
Repossessed assets, Loss Severity Discount [Member] | Minimum [Member] | Level 3 Fair Value Measurements [Member]
Quantitative information about Level 3 fair value measurements
Unobservable Input, Weighted Average	45.00%

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Commitments, Contingent Liabilities and Guarantees (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Commitments, Contingent Liabilities and Guarantees (Textual) [Abstract]
Loss contingency, estimate of possible loss	$ 1.9		$ 1.9		$ 1.9
Repurchase of loans	2.3	1.0	4.7	1.5
Interest included in Other Expense	$ 1.3	$ 0.5	$ 4.9	$ 3.5

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Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2012

Loans/Allowance for Loan Losses [Abstract]

Allowance for loan losses

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

	Three Months Ended September 30, 2012
(in thousands)	Allowance for Loan Losses  at June 30, 2012		Provision for Loan Losses			Charge-offs			Recoveries		Net charge-offs			Allowance for Loan Losses  at September 30, 2012
Commercial and industrial	$	8,900	$	5,525		$	(4,552	)	$	108	$	(4,444	)	$	9,981
Small business		9,702		673			(1,039	)		120		(919	)		9,456
Commercial real estate		48,567		(5,222	)		(5,452	)		1,008		(4,444	)		38,901
Total commercial		67,169		976			(11,043	)		1,236		(9,807	)		58,338
Residential mortgage		27,686		1,957			(3,261	)		746		(2,515	)		27,128
Direct consumer		31,736		263			(6,067	)		1,277		(4,790	)		27,209
Indirect consumer		9,529		1,999			(3,172	)		1,094		(2,078	)		9,450
Total	$	136,120	$	5,195		$	(23,543	)	$	4,353	$	(19,190	)	$	122,125

	Three Months Ended September 30, 2011
(in thousands)	Allowance for Loan Losses at June 30, 2011		Provision for Loan Losses			Charge-offs			Recoveries		Net charge-offs			Allowance for Loan Losses at September 30, 2011
Commercial and industrial	$	17,618	$	(4,122	)	$	(994	)	$	721	$	(273	)	$	13,223
Small business		12,933		(1,161	)		(1,132	)		180		(952	)		10,820
Commercial real estate		83,627		(1,065	)		(5,860	)		537		(5,323	)		77,239
Total commercial		114,178		(6,348	)		(7,986	)		1,438		(6,548	)		101,282
Residential mortgage		43,925		11,856			(18,369	)		5		(18,364	)		37,417
Direct consumer		32,688		10,888			(6,398	)		688		(5,710	)		37,866
Indirect consumer		15,501		1,085			(3,430	)		633		(2,797	)		13,789
Total	$	206,292	$	17,481		$	(36,183	)	$	2,764	$	(33,419	)	$	190,354
	Nine Months Ended September 30, 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 September 30, 2012
Commercial and industrial	$	14,044	$	5,482		$	(10,607	)	$	1,062	$	(9,545	)	$	9,981
Small business		12,230		1,321			(4,575	)		480		(4,095	)		9,456
Commercial real estate		63,999		(8,609	)		(22,542	)		6,053		(16,489	)		38,901
Total commercial		90,273		(1,806	)		(37,724	)		7,595		(30,129	)		58,338
Residential mortgage		36,460		1,765			(12,443	)		1,346		(11,097	)		27,128
Direct consumer		33,020		15,580			(24,762	)		3,371		(21,391	)		27,209
Indirect consumer		12,973		3,352			(9,580	)		2,705		(6,875	)		9,450
Total	$	172,726	$	18,891		$	(84,509	)	$	15,017	$	(69,492	)	$	122,125
	Nine Months Ended September 30, 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 September 30, 2011
Commercial and industrial	$	26,619	$	18,478		$	(34,722	)	$	2,848	$	(31,874	)	$	13,223
Small business		16,334		3,026			(9,063	)		523		(8,540	)		10,820
Commercial real estate		156,623		59,880			(140,952	)		1,688		(139,264	)		77,239
Total commercial		199,576		81,384			(184,737	)		5,059		(179,678	)		101,282
Residential mortgage		47,623		15,989			(26,431	)		236		(26,195	)		37,417
Direct consumer		32,255		22,422			(19,388	)		2,577		(16,811	)		37,866
Indirect consumer		16,577		4,006			(8,541	)		1,747		(6,794	)		13,789
Total	$	296,031	$	123,801		$	(239,097	)	$	9,619	$	(229,478	)	$	190,354

Allowance for loan losses, segregated by portfolio segment

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

	September 30, 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	$	195	$	9,619	$	167	$	9,981
Small business		—		9,295		161		9,456
Commercial real estate		402		37,843		656		38,901
Total commercial		597		56,757		984		58,338
Residential mortgage		3,724		23,005		399		27,128
Direct consumer		428		26,325		456		27,209
Indirect consumer		—		9,289		161		9,450
Total allowance for loan losses	$	4,749	$	115,376	$	2,000	$	122,125

	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

	September 30, 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	$	96	$	13,127	$	—	$	13,223
Small business		3		10,817		—		10,820
Commercial real estate		6,148		67,091		4,000		77,239
Total commercial		6,247		91,035		4,000		101,282
Residential mortgage		2,540		34,877		—		37,417
Direct consumer		184		37,682		—		37,866
Indirect consumer		—		13,789		—		13,789
Total allowance for loan losses	$	8,971	$	177,383	$	4,000	$	190,354

Recorded investment in residential and consumer loans

	September 30, 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	$	2,360	$	1,419,537	$	(5,345	)	$	1,416,552
Small business (1)		188		271,981		275			272,444
Commercial real estate		35,806		1,300,963		(1,168	)		1,335,601
Total commercial		38,354		2,992,481		(6,238	)		3,024,597
Residential mortgage		17,036		553,551		(292	)		570,295
Direct consumer		7,897		855,504		2,376			865,777
Indirect consumer		—		945,098		25,137			970,235
Total portfolio loans	$	63,287	$	5,346,634	$	20,983		$	5,430,904

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

	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.

	September 30, 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	$	11,588	$	1,219,532	$	245		$	1,231,365
Small business (1)		562		299,361		204			300,127
Commercial real estate		52,452		1,593,357		(1,908	)		1,643,901
Total commercial		64,602		3,112,250		(1,459	)		3,175,393
Residential mortgage		14,392		640,891		(722	)		654,561
Direct consumer		4,615		950,813		(597	)		954,831
Indirect consumer		474		866,996		20,072			887,542
Total portfolio loans	$	84,083	$	5,570,950	$	17,294		$	5,672,327

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

Loans individually reviewed for impairment

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

	September 30, 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		Year To Date
Nonaccrual loans (impaired)
Income producing	$	17,333	$	10,644	$	657	$	11,301	$	267	$	14,356	$	15,636
Owner-occupied		13,547		7,149		1,664		8,813		129		11,025		13,406
Total commercial real estate		30,880		17,793		2,321		20,114		396		25,381		29,042
Commercial and industrial		10,941		1,623		736		2,359		195		8,296		7,993
Small business		193		188		—		188		—		191		162
Total commercial		42,014		19,604		3,057		22,661		591		33,868		37,197
Residential mortgage		3,762		230		3,532		3,762		814		4,065		4,770
Direct consumer		1,183		301		882		1,183		82		1,158		1,096
Indirect consumer		—		—		—		—		—		—		239
Total consumer		4,945		531		4,414		4,945		896		5,223		6,105
Total nonaccrual loans (impaired)		46,959		20,135		7,471		27,606		1,487		39,091		43,302
Accrual loans (impaired)
Income producing		873		—		873		873		3		439		3,957
Owner-occupied		14,820		14,176		644		14,820		3		15,098		15,188
Total commercial real estate		15,693		14,176		1,517		15,693		6		15,537		19,145
Small business		—		—		—		—		—		—		244
Total commercial		15,693		14,176		1,517		15,693		6		15,537		19,389
Residential mortgage		13,275		2,707		10,568		13,275		2,910		12,019		10,835
Direct consumer		6,713		4,478		2,235		6,713		346		6,782		5,762
Total consumer		19,988		7,185		12,803		19,988		3,256		18,801		16,597
Total accrual loans (impaired)		35,681		21,361		14,320		35,681		3,262		34,338		35,986
Total impaired loans	$	82,640	$	41,496	$	21,791	$	63,287	$	4,749	$	73,429	$	79,288
	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

	September 30, 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	$	—	$	—	$	—	$	—	$	—	$	—	$	551
Land development		—		—		—		—		—		169		761
Construction		491		93		164		257		4		329		1,930
Income producing		27,646		12,432		7,545		19,977		1,626		18,513		28,706
Owner-occupied		24,955		10,384		11,181		21,565		4,518		18,697		20,981
Total commercial real estate		53,092		22,909		18,890		41,799		6,148		37,708		52,929
Commercial and industrial		20,099		10,689		899		11,588		96		12,448		20,920
Small business		131		—		65		65		3		65		698
Total commercial		73,322		33,598		19,854		53,452		6,247		50,221		74,547
Residential mortgage		13,381		1,841		11,540		13,381		2,509		13,749		11,371
Direct consumer		2,471		844		1,524		2,368		169		1,831		1,632
Indirect consumer		474		474		—		474		—		474		472
Total consumer		16,326		3,159		13,064		16,223		2,678		16,054		13,475
Total nonaccrual loans (impaired)		89,648		36,757		32,918		69,675		8,925		66,275		88,022
Accrual loans (impaired)
Income producing		7,519		7,519		—		7,519		—		7,533		5,639
Owner-occupied		3,134		3,134		—		3,134		—		3,144		3,546
Total commercial real estate		10,653		10,653		—		10,653		—		10,677		9,185
Small business		497		497		—		497		—		500		376
Total commercial		11,150		11,150		—		11,150		—		11,177		9,561
Residential mortgage		1,011		850		161		1,011		31		1,068		1,283
Direct consumer		2,247		2,147		100		2,247		15		2,262		2,084
Total consumer		3,258		2,997		261		3,258		46		3,330		3,367
Total accrual loans (impaired)		14,408		14,147		261		14,408		46		14,507		12,928
Total impaired loans	$	104,056	$	50,904	$	33,179	$	84,083	$	8,971	$	80,782	$	100,950

Loans modified as TDR

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

	Three Months Ended September 30,
	2012									2011
(in thousands)	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Average Coupon Rate			Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Average Coupon Rate
Residential mortgage		15	$	2,399	$	2,399		2.91	%		10	$	2,265	$	2,411		2.25	%
Direct consumer		5		360		360		3.39			1		331		336		5.10
Total portfolio loans		20	$	2,759	$	2,759		2.97			11	$	2,596	$	2,747		2.60
	Nine Months Ended September 30,
	2012									2011
(in thousands)	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Average Coupon Rate			Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Average Coupon Rate
Commercial and industrial		2	$	1,839	$	1,500		6.50	%		2	$	1,807	$	1,807		6.45	%
Commercial real estate		—		—		—		—			2		11,988		8,283		7.42
Total commercial		2		1,839		1,500		6.50			4		13,795		10,090		7.25
Residential mortgage		29		4,732		4,732		2.69			32		8,092		8,365		2.76
Direct consumer		57		4,163		4,082		4.30			7		1,599		1,605		6.34
Total portfolio loans		88	$	10,734	$	10,314		3.88			43	$	23,486	$	20,060		5.30

Information on how loans were modified as TDR

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2012		2011		2012		2011
Post Modification Recorded Investment
Extended maturity	$	493	$	—	$	2,486	$	2,202
Interest rate adjustments		679		2,215		3,304		6,989
Combination of rate and maturity		1,562		532		3,735		10,869
Other (1)		25		—		789		—
Total	$	2,759	$	2,747	$	10,314	$	20,060

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

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Derivatives and Hedging Activities (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012 Contract	Sep. 30, 2011	Sep. 30, 2012 Contract	Sep. 30, 2011	Dec. 31, 2011 Contract
Derivatives and Hedging Activities (Textual) [Abstract]
Derivative instruments gain recognized in income ineffective portion	$ 0	$ 0	$ 0	$ 0
Estimated increase to interest income during the next twelve months	0		0
Estimated increase to interest expense during the next twelve months			2,600,000
Number of derivative transactions	140		140		156
Aggregate notional amount	501,300,000		501,300,000		527,400,000
Derivative liability, fair value, net	21,800,000		21,800,000
Collateral posted, aggregate fair value	30,600,000		30,600,000
Additional collateral required to pledge to derivative counterparty	0		0
Termination value to derivative counterparty	5,600,000		5,600,000
Right to reclaim collateral assigned	30,600,000		30,600,000
Net deduction to interest expense related to amortization adjustment with hedge relationship	0	0	0	400,000
Cash flow hedges [Member]
Derivatives and Hedging Activities (Textual) [Abstract]
Number of derivative instruments designated as hedging instruments	12		12
Notional amount of interest rate derivative	385,000,000		385,000,000		385,000,000
Reclassification of unrealized gains in accumulated other comprehensive income	(600,000)	729,000	(1,431,000)	3,135,000
Fair value hedges [Member]
Derivatives and Hedging Activities (Textual) [Abstract]
Number of derivative instruments designated as hedging instruments	0		0
Reclassification of unrealized gains in accumulated other comprehensive income	0	200,000	100,000	700,000
Change in fair value of the derivatives in earnings	0	0	0	700,000
Net deduction to interest expense related to amortization adjustment with hedge relationship	$ 100,000	$ 200,000	$ 400,000	$ 600,000

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Investment Securities (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Securities available for sale:
Securities available for sale, Amortized Cost	$ 1,480,319
Securities available for sale, Estimated Fair Value	1,541,567
Securities held to maturity:
Securities held to maturity, Amortized Cost	1,313,504
Securities held to maturity, Estimated Fair Value	1,378,310	1,487,550
State and municipal [Member]
Securities available for sale:
Contractual maturity within one year, Amortized Cost	14,591
After one year through five years, Amortized Cost	14,785
After five years through ten years, Amortized Cost	57,915
After ten years, Amortized Cost	16,802
Securities available for sale, Amortized Cost	104,093
Contractual maturity within one year, Estimated Fair Value	14,804
After one year through five years, Estimated Fair Value	15,410
After five years through ten years, Estimated Fair Value	62,130
After ten years, Estimated Fair Value	18,352
Securities available for sale, Estimated Fair Value	110,696
Securities held to maturity:
Contractual maturity within one year, Amortized Cost	3,560
After one year through five years, Amortized Cost	21,656
After five years through ten years, Amortized Cost	51,300
After ten years, Amortized Cost	25,165
Securities held to maturity, Amortized Cost	101,681
Contractual maturity within one year, Estimated Fair Value	3,660
After one year through five years, Estimated Fair Value	23,081
After five years through ten years, Estimated Fair Value	54,771
After ten years, Estimated Fair Value	27,823
Securities held to maturity, Estimated Fair Value	109,335	112,754
Collateralized mortgage obligations and mortgage-backed [Member]
Securities available for sale:
Securities available for sale, Amortized Cost	1,375,937
Securities available for sale, Estimated Fair Value	1,430,584
Securities held to maturity:
Securities held to maturity, Amortized Cost	1,211,823
Securities held to maturity, Estimated Fair Value	1,268,975
Other [Member]
Securities available for sale:
Securities available for sale, Amortized Cost	289
Securities available for sale, Estimated Fair Value	$ 287

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Commitments, Contingent Liabilities and Guarantees

9 Months Ended

Sep. 30, 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.

(in thousands)	September 30, 2012		December 31, 2011
Loan commitments and letters of credit:
Commitments to extend credit	$	943,985	$	932,435
Asset-based lending participations		86,467		151,194
Financial standby letters of credit		109,611		125,401
Performance standby letters of credit		1,756		3,571
Deferred standby letter of credit fees		601		1,123

At September 30, 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 periods ended September 30, 2012 and 2011, Citizens repurchased $2.3 million and $1.0 million of loans, respectively, pursuant to such provisions. Citizens recorded $1.3 million and $0.5 million for the three month periods ended September 30, 2012 and 2011, respectively, in Other Expense on the Consolidated Statements of Operations related to repurchasing or indemnifying such loans. For the nine month periods ended September 30, 2012 and 2011, Citizens repurchased $4.7 million and $1.5 million of loans, respectively, pursuant to such provisions. Citizens recorded $4.9 million and $3.5 million for the nine month periods ended September 30, 2012 and 2011, respectively, in Other Expense on the Consolidated Statements of Operations related to repurchasing or indemnifying such loans.