10-Q 1 k94778e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED MARCH 31, 2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2005 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 000-10535 CITIZENS BANKING CORPORATION -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MICHIGAN 38-2378932 ---------------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) 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) None ---------------------------------------------------- (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 [X] Yes [ ] No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 29, 2005 -------------------------- ----------------------------- Common Stock, No Par Value 43,174,192 Shares CITIZENS BANKING CORPORATION Index to Form 10-Q

Page ---- PART I - FINANCIAL INFORMATION Item 1 - Consolidated Financial Statements................................. 3 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 14 Item 3 - Quantitative and Qualitative Disclosures about Market Risk........ 31 Item 4 - Controls and Procedures........................................... 31 PART II - OTHER INFORMATION Item 2 -Unregistered Sales of Equity Securities and Use of Proceeds........ 32 Item 6 -Exhibits........................................................... 32 SIGNATURES...................................................................... 33 EXHIBIT INDEX................................................................... 34

2 PART I - FINANCIAL INFORMATION ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS CITIZENS BANKING CORPORATION AND SUBSIDIARIES

MARCH 31, December 31, March 31, (in thousands) 2005 2004 2004 ----------------------------------------------------------------------------- ----------- ----------- ----------- (Unaudited) (Note 1) (Unaudited) ASSETS Cash and due from banks $ 145,707 $ 153,474 $ 156,220 Interest-bearing deposits with banks 1,596 1,769 1,253 Investment Securities: Available-for-sale: U.S. Treasury and federal agency securities 1,377,766 1,348,199 1,500,376 State and municipal securities 386,515 395,878 432,869 Other securities 68,983 70,447 76,065 Held-to-maturity: State and municipal securities (fair value of $58,622, $54,749 and $30,172, respectively) 58,942 54,035 30,104 ----------- ----------- ----------- Total investment securities 1,892,206 1,868,559 2,039,414 Mortgage loans held for sale 34,627 28,038 33,155 Loans: Commercial 1,626,541 1,633,698 1,615,758 Commercial real estate 1,313,825 1,255,913 1,280,672 Residential mortgage loans 495,953 508,234 479,563 Direct consumer 1,173,234 1,169,618 1,084,277 Indirect consumer 820,289 825,902 743,691 ----------- ----------- ----------- Total loans 5,429,842 5,393,365 5,203,961 Less: Allowance for loan losses (120,945) (122,184) (123,703) ----------- ----------- ----------- Net loans 5,308,897 5,271,181 5,080,258 Premises and equipment 121,107 117,944 116,531 Goodwill 54,527 54,527 54,785 Other intangible assets 13,307 14,033 16,207 Bank owned life insurance 83,072 82,613 80,896 Other assets 121,690 113,895 113,702 ----------- ----------- ----------- TOTAL ASSETS $ 7,776,736 $ 7,706,033 $ 7,692,421 =========== =========== =========== LIABILITIES Noninterest-bearing deposits $ 891,849 $ 898,820 $ 891,342 Interest-bearing demand deposits 1,106,744 1,150,332 1,332,396 Savings deposits 1,578,058 1,638,295 1,334,244 Time deposits 1,712,883 1,612,313 1,902,950 ----------- ----------- ----------- Total deposits 5,289,534 5,299,760 5,460,932 Federal funds purchased and securities sold under agreements to repurchase 853,926 671,660 542,206 Other short-term borrowings 6,157 53,114 17,169 Other liabilities 79,656 77,276 76,843 Long-term debt 901,875 949,921 941,089 ----------- ----------- ----------- Total liabilities 7,131,148 7,051,731 7,038,239 SHAREHOLDERS' EQUITY Preferred stock - no par value --- --- --- Common stock - no par value 94,966 97,180 100,982 Retained earnings 546,882 539,128 517,143 Accumulated other comprehensive income 3,740 17,994 36,057 ----------- ----------- ----------- Total shareholders' equity 645,588 654,302 654,182 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,776,736 $ 7,706,033 $ 7,692,421 =========== =========== ===========

See notes to consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) CITIZENS BANKING CORPORATION AND SUBSIDIARIES

Three Months Ended March 31, (in thousands, except per share amounts) 2005 2004 ------------------------------------------------------- ------- ------- INTEREST INCOME Interest and fees on loans $79,272 $73,706 Interest and dividends on investment securities: Taxable 14,688 15,442 Tax-exempt 5,197 5,244 Money market investments 9 2 ------- ------- Total interest income 99,166 94,394 ------- ------- INTEREST EXPENSE Deposits 18,071 16,451 Short-term borrowings 4,441 1,272 Long-term debt 8,421 8,343 ------- ------- Total interest expense 30,933 26,066 ------- ------- NET INTEREST INCOME 68,233 68,328 Provision for loan losses 3,000 7,000 ------- ------- Net interest income after provision for loan losses 65,233 61,328 ------- ------- NONINTEREST INCOME Service charges on deposit accounts 8,287 8,042 Trust fees 4,412 4,310 Mortgage and other loan income 2,360 2,256 Brokerage and investment fees 1,599 1,782 Bankcard fees 840 783 Other 4,957 5,339 ------- ------- Total fees and other income 22,455 22,512 Investment securities gains 6 --- ------- ------- Total noninterest income 22,461 22,512 NONINTEREST EXPENSE Salaries and employee benefits 33,351 31,939 Occupancy 5,560 5,342 Professional services 4,199 3,928 Equipment 3,301 3,642 Data processing services 3,369 3,646 Advertising and public relations 1,746 2,145 Postage and delivery 1,590 1,556 Telephone 1,441 1,534 Other loan fees 375 1,129 Stationery and supplies 919 842 Intangible asset amortization 725 725 Other 4,025 4,106 ------- ------- Total noninterest expense 60,601 60,534 ------- ------- INCOME BEFORE INCOME TAXES 27,093 23,306 Income tax provision 7,013 5,863 ------- ------- NET INCOME $20,080 $17,443 ======= ======= NET INCOME PER SHARE: Basic $ 0.46 $ 0.40 Diluted 0.46 0.40 CASH DIVIDENDS DECLARED PER SHARE 0.285 0.285 AVERAGE SHARES OUTSTANDING: Basic 43,224 43,315 Diluted 43,646 43,860

See notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY CITIZENS BANKING CORPORATION AND SUBSIDIARIES

Accumulated Other Common Retained Comprehensive (in thousands, except per share amounts) Stock Earnings Income (Loss) Total --------------------------------------------------------------- --------- --------- ------------- --------- BALANCE - MARCH 31, 2004 $100,982 $517,143 $ 36,057 $654,182 Comprehensive income: Net income 18,722 18,722 Other comprehensive income: Net unrealized gain/(loss) on securities available-for-sale, net of tax effect of ($17,356) (32,232) Less: Reclassification adjustment for net losses included in net income, net of tax effect of $719 1,334 Net change in unrealized gain/(loss) on qualifying cash flow hedges, net of tax effect of ($175) (325) ------------ Other comprehensive income total (31,223) -------- Total comprehensive income (12,501) Exercise of stock options, net of shares purchased 477 477 Tax benefit on non-qualified stock options 1,045 1,045 Net change in deferred compensation, net of tax effect 71 71 Cash dividends - $0.285 per share (12,284) (12,284) Shares acquired for retirement (3,242) (3,242) -------- -------- ------------ -------- BALANCE - JUNE 30, 2004 99,333 523,581 4,834 627,748 Comprehensive income: Net income 19,646 19,646 Other comprehensive income: Net unrealized gain/(loss) on securities available-for-sale, net of tax effect of $8,944 16,610 Less: Reclassification adjustment for net gains included in net income, net of tax effect of ($187) (347) Net change in unrealized gain/(loss) on qualifying cash flow hedges, net of tax effect of ($83) (155) ------------ Other comprehensive income total 16,108 -------- Total comprehensive income 35,754 Exercise of stock options, net of shares purchased 1,662 1,662 Tax benefit on non-qualified stock options 325 325 Net change in deferred compensation, net of tax effect 46 46 Cash dividends - $0.285 per share (12,331) (12,331) Shares acquired for retirement (3,484) (3,484) -------- -------- ------------ -------- BALANCE - SEPTEMBER 30, 2004 97,882 530,896 20,942 649,720 Comprehensive income: Net income 20,286 20,286 Other comprehensive income: Net unrealized gain/(loss) on securities available-for-sale, net of tax effect of ($1,945) (3,613) Less: Reclassification adjustment for net gains included in net income, net of tax effect of ($4) (7) Net change in unrealized gain/(loss) on qualifying cash flow hedges, net of tax effect of $311 578 Minimum pension liability, net of tax effect of $51 94 ------------ Other comprehensive income total (2,948) -------- Total comprehensive income 17,338 Exercise of stock options, net of shares purchased 2,113 2,113 Net change in deferred compensation, net of tax effect 36 36 Recognition of stock-based compensation 272 272 Cash dividends - $0.285 per share (12,326) (12,326) Shares acquired for retirement (2,851) (2,851) -------- -------- ------------ -------- BALANCE - DECEMBER 31, 2004 97,180 539,128 17,994 654,302 Comprehensive income: Net income 20,080 20,080 Other comprehensive income: Net unrealized gain/(loss) on securities available-for-sale, net of tax effect of ($8,223) (15,271) Less: Reclassification adjustment for net gains included in net income, net of tax effect of ($2) (4) Net change in unrealized gain/(loss) on qualifying cash flow hedges, net of tax effect of $549 1,021 ------------ Other comprehensive income total (14,254) -------- Total comprehensive income 5,826 Exercise of stock options, net of shares purchased 374 374 Net change in deferred compensation, net of tax effect 30 30 Cash dividends - $0.285 per share (12,326) (12,326) Shares acquired for retirement (2,618) (2,618) -------- -------- ------------ -------- BALANCE - MARCH 31, 2005 $ 94,966 $546,882 $ 3,740 $645,588 -------- -------- ------------ --------

See notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS CITIZENS BANKING CORPORATION AND SUBSIDIARIES

THREE MONTHS ENDED MARCH 31, (in thousands) 2005 2004 ------------------------------------------------------------ --------- --------- OPERATING ACTIVITIES: Net income $ 20,080 $ 17,443 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 3,000 7,000 Depreciation and amortization 2,953 3,041 Amortization of goodwill and other intangibles 725 725 Net amortization on investment securities 1,455 2,767 Investment securities (gains) losses (6) --- Loans originated for sale (92,262) (91,580) Proceeds from sales of mortgage loans held for sale 87,120 102,007 Net gains from loan sales (1,447) (1,021) Stock-based compensation 30 40 Other 370 4,102 --------- --------- Net cash provided by operating activities 22,018 44,524 INVESTING ACTIVITIES: Net decrease in money market investments 173 819 Securities available-for-sale: Proceeds from sales --- 5,001 Proceeds from maturities and payments 116,207 104,315 Purchases (159,892) (135,545) Securities held-to-maturity: Purchases (4,911) (10,245) Net (increase) decrease in loans and leases (40,716) 37,015 Net increase in properties and equipment (6,116) (6,788) --------- --------- Net cash used by investing activities (95,255) (5,428) FINANCING ACTIVITIES: Net (decrease) increase in demand and savings deposits (110,795) 75,619 Net increase (decrease) in time deposits 100,570 (56,954) Net increase (decrease) in short-term borrowings 135,309 (72,295) Proceeds from issuance of long-term debt 25,000 --- Principal reductions in long-term debt (70,044) (74) Cash dividends paid (12,326) (12,345) Proceeds from stock options exercised 374 4,015 Shares acquired for retirement (2,618) (3,387) --------- --------- Net cash provided (used) by financing activities 65,470 (65,421) --------- --------- Net decrease in cash and due from banks (7,767) (26,325) Cash and due from banks at beginning of period 153,474 182,545 --------- --------- Cash and due from banks at end of period $ 145,707 $ 156,220 ========= =========

See notes to consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CITIZENS BANKING CORPORATION AND SUBSIDIARIES NOTE 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Citizens Banking Corporation ("Citizens") have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ended December 31, 2005. The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Citizens' 2004 Annual Report on Form 10-K. STOCK-BASED COMPENSATION: Citizens' stock-based compensation plans are accounted for based on the intrinsic value method set forth in Accounting Principles Board ("APB") Opinion 25, Accounting for Stock Issued to Employees, and related interpretations. Compensation expense for employee stock options is generally not recognized if the exercise price of the option equals or exceeds the fair value of the stock on the date of grant. Compensation expense for restricted share awards is ratably recognized over the period of service, usually the restricted period, based on the fair value of the stock on the date of grant. The following table illustrates the effect on net income and earnings per share if Citizens had applied the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") 123, Accounting for Stock-Based Compensation, to its stock option awards.

Three Months Ended March 31, (in thousands, except per share amounts) 2005 2004 ------------------------------------------------- ---------- ---------- Net income, as reported $ 20,080 $ 17,443 Less pro forma expense related to options granted (505) (615) ---------- ---------- Pro forma net income $ 19,575 $ 16,828 ========== ========== Net income per share: Basic - as reported $ 0.46 $ 0.40 Basic - pro forma 0.45 0.39 Diluted - as reported 0.46 0.40 Diluted - pro forma 0.45 0.38

The Corporation expects to adopt the provisions of SFAS No. 123R, "Share-Based Payment (Revised 2004)," on January 1, 2006. Among other things, SFAS 123R eliminates the ability to account for stock-based compensation using APB 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the date of the grant. The Corporation will transition to fair value based accounting for stock-based compensation using a modified version of prospective application ("modified prospective application"). Under modified prospective application, as it is applicable to the Corporation, SFAS 123R applies to new awards and to awards modified, repurchased, or cancelled after December 31, 2005. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered (generally referring to non-vested awards) that are outstanding as of January 1, 2006 must be recognized as the remaining requisite service is rendered during the period of and/or the periods after the adoption of SFAS 123R. The attribution of compensation cost for those earlier awards will be based on the same method and on the same grant-date fair values previously determined for the pro forma disclosures required for companies that did not adopt the fair value accounting method for stock-based employee compensation. Based on the stock-based compensation awards outstanding as of March 31, 2005 for which the requisite service is not expected to be fully rendered prior to January 1, 2006, the Corporation expects to recognize additional pre-tax, quarterly compensation cost of approximately $0.7 million beginning in the first quarter of 2006 as a result of the adoption of SFAS 123R. Future levels of compensation cost recognized related to stock-based compensation awards (including the aforementioned expected costs during the period of adoption) may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards. 7 NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS FASB INTERPRETATION NO. 47, "ACCOUNTING FOR CONDITIONAL ASSET RETIREMENT OBLIGATIONS" (FIN 47) - ISSUED MARCH 2005 FIN 47 is an interpretation of FASB Statement 143, Asset Retirement Obligations, which was issued in June 2001. The FASB issued FIN 47 to address diverse accounting practices that have developed with regard to the timing of liability recognition for legal obligations associated with the retirement of a tangible long-lived asset in which the timing or method of settlement are conditional on a future event that may or may not be within the control of the entity. According to FIN 47, uncertainty about the timing or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The new interpretation is not expected to have a material impact on Citizens' financial condition, results of operations, or liquidity. FSP 46(R)-5 - "IMPLICIT VARIABLE INTERESTS UNDER FASB INTERPRETATION NO. 46" (FIN 46R-REVISED DECEMBER 2003), "CONSOLIDATION OF VARIABLE INTERESTS ENTITIES" - ISSUED MARCH 3, 2005 The FSP requires a reporting enterprise to consider whether it holds an implicit variable interest in a variable interest entity (VIE) or potential VIE. The determination of whether an implicit variable interest exists should be based on whether the reporting enterprise may absorb variability of the VIE or potential VIE. The guidance in the FSP should be applied in the first reporting period beginning after March 3, 2005 in accordance with the transition provisions in FIN 46R. The new interpretation is not expected to have a material impact on Citizens' financial condition, results of operations, or liquidity. SFAS NO. 123R, "SHARE-BASED PAYMENT (REVISED 2004)." SFAS 123R establishes standards for the accounting for transactions in which an entity (i) exchanges its equity instruments for goods or services, or (ii) incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of the equity instruments. SFAS 123R eliminates the ability to account for stock-based compensation using APB 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the date of the grant. SFAS 123R was to be effective for the Corporation on July 1, 2005; however, the required implementation date was recently delayed until January 1, 2006 as a result of the SEC's adoption of a new rule that amends the compliance dates for this standard. Based on the stock-based compensation awards outstanding as of March 31, 2005 for which the requisite service is not expected to be fully rendered prior to January 1, 2006, the Corporation expects to recognize additional pre-tax, quarterly compensation cost of approximately $0.7 million beginning in the first quarter of 2006 as a result of the adoption of SFAS 123R. EMERGING ISSUES TASK FORCE ISSUES EMERGING ISSUES TASK FORCE (EITF) ISSUE 03-1, "THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS." EITF 03-1 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. FASB issued FSP 03-1-1 in September, 2004, which delayed the effective date for measurement and recognition guidance contained in paragraphs 10-20. Citizens continues to evaluate the impact of EITF 03-1. The amount of other-than-temporary impairment to be recognized, if any, will be dependent on management's intent and ability to hold investments until anticipated recovery, changes in interest rates, and the finalization of the proposed guidance by the FASB. At March 31, 2005, gross unrealized losses on securities were $21.0 million as compared to $6.3 million at December 31, 2004. AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS STATEMENTS OF POSITION SOP NO. 03-3, "ACCOUNTING FOR CERTAIN LOANS OR DEBT SECURITIES ACQUIRED IN A TRANSFER." SOP 03-3 requires acquired loans, including debt securities, to be recorded at the amount of the purchaser's initial investment and prohibits carrying over valuation allowances from the seller for those individually-evaluated loans that have evidence of deterioration in credit quality since origination, and it is probable all contractual cash flows on the loan will be unable to be collected. SOP 03-3 also requires the excess of all undiscounted cash flows expected to be collected at acquisition over the purchaser's initial investment to be recognized as interest income on a level-yield basis over the life of the loan. Subsequent increases in cash flows expected to be collected are recognized prospectively through an adjustment of the loan's yield over its remaining life, while subsequent decreases are recognized as impairment. Loans carried at fair value, mortgage loans held for sale, and loans to borrowers in good standing under revolving credit agreements are excluded from the scope of SOP 03-3. The guidance is effective for loans acquired in fiscal years beginning after December 15, 2004. The Corporation did not acquire any assets subject to SOP No. 03-3 during the first quarter of 2005. 8 NOTE 3. INVESTMENT SECURITIES The amortized cost, estimated fair value and gross unrealized gains and losses of investment securities follow:

MARCH 31, 2005 DECEMBER 31, 2004 ---------------------------------------- --------------------------------------- ESTIMATED GROSS UNREALIZED ESTIMATED GROSS UNREALIZED AMORTIZED FAIR ---------------- AMORTIZED FAIR ---------------- (in thousands) COST VALUE GAINS LOSSES COST VALUE GAINS LOSSES ---------------------------- ---------- ---------- ------- ------- ---------- ---------- ------- ------- AVAILABLE FOR SALE: U.S. Treasury $ --- $ --- $ --- $ --- $ --- $ --- $ --- $ --- Federal agencies: Mortgage-backed 1,073,758 1,059,520 2,066 16,304 1,057,401 1,056,207 4,245 5,439 Other 318,836 318,246 2,883 3,473 287,044 291,991 5,269 322 State and municipal 368,105 386,515 19,007 597 372,602 395,878 23,628 352 Mortgage and asset-backed 526 527 1 --- 2,633 2,669 37 1 Other 68,380 68,456 78 2 67,685 67,779 96 2 ---------- ---------- ------- ------- ---------- ---------- ------- ------ Total available for sale $1,829,605 $1,833,264 $24,035 $20,376 $1,787,365 $1,814,524 $33,275 $6,116 ========== ========== ======= ======= ========== ========== ======= ====== HELD TO MATURITY: State and municipal 58,942 58,622 338 658 54,035 54,749 849 135 ---------- ---------- ------- ------- ---------- ---------- ------- ------ Total held to maturity $ 58,942 $ 58,622 $ 338 $ 658 $ 54,035 $ 54,749 $ 849 $ 135 ========== ========== ======= ======= ========== ========== ======= ======

NOTE 4. OTHER INTANGIBLE ASSETS Citizens' other intangible assets as of March 31, 2005, December 31, 2004 and March 31, 2004 are shown in the table below.

MARCH 31, December 31, March 31, (in thousands) 2005 2004 2004 ------------------------------ --------- ------------ --------- Core deposit intangibles $ 28,989 $ 28,989 $ 28,989 Accumulated amortization 15,682 14,957 12,783 --------- ------------ --------- Net core deposit intangibles 13,307 14,032 16,206 Minimum pension liability --- 1 1 --------- ------------ --------- Total other intangibles $ 13,307 $ 14,033 $ 16,207 ========= ============ =========

The estimated annual amortization expense for core deposit intangibles is $2.9 million in each of the next four years and $1.6 million for the fifth year. NOTE 5. LINES OF BUSINESS INFORMATION Citizens is managed along the following business lines: Commercial Banking, Consumer Banking, Wealth Management, and Other. During the first quarter of 2005, Citizens implemented a new intercompany cost allocation system, which utilizes improved unit cost and statistical information for assigning operational costs from the Other business line to Commercial Banking, Consumer Banking, and Wealth Management. The implementation of this system included changes to the methodology used to allocate costs among lines of business. Prior period information has been restated to reflect this change. Selected line of business segment information, as adjusted, for the three months ended March 31, 2005 and 2004 is provided below. There are no significant intersegment revenues. 9 LINE OF BUSINESS INFORMATION

Commercial Consumer Wealth (in thousands) Banking Banking Mgmt Other Total ------------------------------------------------------- ---------- -------- ------- ------ ------- EARNINGS SUMMARY - THREE MONTHS ENDED MARCH 31, 2005 Net interest income (taxable equivalent) $ 28,643 $ 37,307 $ 216 $5,420 $71,586 Provision for loan losses 1,753 1,248 (1) --- 3,000 ---------- -------- ------- ------ ------- Net interest income after provision 26,890 36,059 217 5,420 68,586 Noninterest income 3,058 11,778 6,007 1,618 22,461 Noninterest expense 18,104 32,918 5,530 4,049 60,601 ---------- -------- ------- ------ ------- Income before income taxes 11,844 14,919 694 2,989 30,446 Income tax expense (taxable equivalent) 4,181 5,221 246 718 10,366 ---------- -------- ------- ------ ------- Net income $ 7,663 $ 9,698 $ 448 $2,271 $20,080 ========== ======== ======= ====== ======= AVERAGE ASSETS (IN MILLIONS) $ 2,858 $ 2,568 $ 22 $2,280 $ 7,728 ========== ======== ======= ====== ======= EARNINGS SUMMARY - THREE MONTHS ENDED MARCH 31, 2004(1) Net interest income (taxable equivalent) $ 28,898 $ 37,686 $ 189 $4,917 $71,690 Provision for loan losses 4,878 2,125 (3) --- 7,000 ---------- -------- ------- ------ ------- Net interest income after provision 24,020 35,561 192 4,917 64,690 Noninterest income 3,496 12,453 5,497 1,066 22,512 Noninterest expense 17,311 33,115 6,008 4,100 60,534 ---------- -------- ------- ------ ------- Income before income taxes 10,205 14,899 (319) 1,883 26,668 Income tax expense (taxable equivalent) 3,572 5,215 (111) 549 9,225 ---------- -------- ------- ------ ------- Net income $ 6,633 $ 9,684 $ (208) $1,334 $17,443 ========== ======== ======= ====== ======= AVERAGE ASSETS (IN MILLIONS) $ 2,844 $ 2,380 $ 17 $2,399 $ 7,640 ========== ======== ======= ====== =======

(1) Certain amounts have been reclassified to conform to current year presentation. NOTE 6. LONG-TERM DEBT The components of long-term debt as of March 31, 2005, December 31, 2004 and March 31, 2004 are presented below.

MARCH 31, December 31, March 31, (in thousands) 2005 2004 2004 ---------------------------------------------------- --------- ------------ --------- Federal Home Loan Bank advances $ 755,131 $ 800,161 $ 787,869 Subordinated debt: Notes maturing February 2013 120,948 123,948 127,365 Deferrable interest debenture maturing June 2033 25,774 25,774 25,774 Other borrowed funds 22 38 81 --------- ------------ --------- Total long-term debt $ 901,875 $ 949,921 $ 941,089 ========= ============ =========

10 NOTE 7. PENSION BENEFIT COST The components of pension expense for the three months ended March 31, 2005 and March 31, 2004 are presented below.

Three Months Ended March 31, (in thousands) 2005 2004 ------------------------------ ------- -------- DEFINED BENEFIT PENSION PLANS Service cost $ 1,198 $ 1,148 Interest cost 1,311 1,299 Expected return on plan assets (1,757) (1,770) Amortization of unrecognized: Net transition asset (1) (3) Prior service cost 49 58 Net actuarial loss 301 169 ------- ------- Net pension cost $ 1,101 $ 901 ======= =======

Citizens previously disclosed in Note 13 to the Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2004, that it expected to contribute approximately $0.5 million to the nonqualified supplemental benefit plans during 2005. As of March 31, 2005, $0.1 million of contributions have been made. Citizens anticipates that an additional $0.4 million of contributions will be made during the next three quarters of 2005. Returns from the financial markets affect current and future contributions. NOTE 8. DERIVATIVES AND HEDGING ACTIVITIES SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 138 and SFAS 149, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" (collectively referred to as "SFAS 133"), establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. Citizens designates its derivatives based upon criteria established by SFAS 133. For a derivative designated as a fair value hedge, the derivative is recorded at fair value on the consolidated balance sheet. Any difference between the fair value change of the hedge versus the fair value change of the hedged item is considered to be the "ineffective" portion of the hedge. The ineffectiveness of the hedge is recorded in current earnings. For a derivative designated as a cash flow hedge, the effective portion of the derivative's gain or loss is initially reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified into earnings when the hedged exposure affects earnings. Citizens may use derivative instruments to hedge the variability in interest payments or protect the value of certain assets and liabilities recorded in its balance sheet from changes in interest rates. Citizens uses interest rate contracts such as interest rate swaps to manage its interest rate risk. These contracts are designated as hedges of specific assets or liabilities. The net interest receivable or payable on swaps is accrued and recognized as an adjustment to the interest income or expense of the hedged asset or liability. The following table summarizes the derivative financial instruments held or issued by Citizens. 11 DERIVATIVE FINANCIAL INSTRUMENTS:

MARCH 31, 2005 December 31, 2004 ----------------- ----------------- NOTIONAL FAIR Notional Fair (dollars in thousands) AMOUNT VALUE Amount Value -------------------------------------------------- -------- ------- -------- ------- Received fixed Swaps $215,000 $(5,426) $185,000 $(1,134) Pay Fixed Swaps 124,000 2,264 104,000 693 Customer initiated swaps and corresponding offsets 146,674 --- 142,674 --- Interest rate lock commitments 28,825 186 17,165 108 Forward mortgage loan contracts 44,000 426 58,000 (68) -------- ------- -------- ------- TOTAL $558,499 $(2,550) $506,839 $ (401) ======== ======= ======== =======

DERIVATIVE CLASSIFICATIONS AND HEDGING RELATIONSHIPS:

MARCH 31, 2005 December 31, 2004 ----------------- ----------------- NOTIONAL FAIR Notional Fair (dollars in thousands) AMOUNT VALUE Amount Value -------------------------------------------- -------- ------- -------- ------- Derivatives Designated as Cash Flow Hedges: Hedging repurchase agreements $124,000 $ 2,264 $104,000 $ 693 Derivatives Designated as Fair Value Hedges: Hedging time deposits 90,000 (1,677) 60,000 (456) Hedging long-term debt 125,000 (3,749) 125,000 (678) Derivatives Not Designated as Hedges: Customer initiated swaps 146,674 --- 142,674 --- -------- ------- -------- ---=-- TOTAL $485,674 $(3,162) $431,674 $ (441) ======== ======= ======== ======

NOTE 9. EARNINGS PER SHARE Net income per share is computed based on the weighted-average number of shares outstanding, including the dilutive effect of stock options, as follows:

Three Months Ended March 31, (in thousands, except per share amounts) 2005 2004 ------------------------------------------------------- ------- ------- NUMERATOR: Basic and dilutive earnings per share -- net income available to common shareholders $20,080 $17,443 ======= ======= DENOMINATOR: Basic earnings per share -- weighted average shares 43,224 43,315 Effect of dilutive securities -- potential conversion of employee stock options 422 545 ------- ------- Diluted earnings per share -- adjusted weighted-average shares and assumed conversions 43,646 43,860 ======= ======= BASIC EARNINGS PER SHARE $ 0.46 $ 0.40 ======= ======= DILUTED EARNINGS PER SHARE $ 0.46 $ 0.40 ======= =======

During the first quarter of 2005, employees exercised stock options to acquire 19,264 shares at an average exercise price of $19.43 per share. 12 NOTE 10. COMMITMENTS, CONTINGENT LIABILITIES AND GUARANTEES The Consolidated Financial Statements do not reflect various loan commitments (unfunded loans and unused lines of credit) and letters of credit originated in the normal course of business. Loan commitments are made to accommodate the financial needs of clients. Generally, new loan commitments do not extend beyond 180 days prior to being funded and unused lines of credit are reviewed on a regular basis. Financial standby letters of credit guarantee future payment of client financial obligations to third parties. They are issued primarily for goods and services provided. Performance standby letters of credit are irrevocable guarantees to various beneficiaries for the performance of contractual obligations of the Corporation's clients. Commercial letters of credit may facilitate the shipment of goods and may also include direct pay letters of credit which afford our clients access to the public financing market. Standby letters of credit arrangements generally expire within one year and have essentially the same level of credit risk as extending loans to clients and are subject to Citizens' normal credit policies. Inasmuch as these arrangements have fixed expiration dates, most expire unfunded and do not necessarily represent future liquidity requirements. Appropriate collateral is obtained based on management's assessment of the client and may include receivables, inventories, real property and equipment. Amounts available to clients under loan commitments and standby letters of credit follow:

MARCH 31, December 31, (in thousands) 2005 2004 --------------------------------------- ---------- ------------ LOAN COMMITMENTS AND LETTERS OF CREDIT: Commitments to extend credit $1,559,931 $ 1,769,968 Financial standby letters of credit 42,322 41,356 Performance standby letters of credit 6,212 6,198 Commercial letters of credit 226,921 207,460 ---------- ------------ $1,835,386 $ 2,024,982 ========== ============

At March 31, 2005 and December 31, 2004, a liability of $2.6 million and $2.8 million, respectively, has been recorded for possible losses on commitments to extend credit. In accordance with FIN 45, at March 31, 2005 and December 31, 2004 a liability of $0.2 million and $0.8 million, respectively, has been recorded representing the value of the guarantee obligations associated with certain letters of credit. NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME The components of accumulated other comprehensive income, net of tax, for the three month period ended March 31, 2005 and 2004 are presented below.

Three Months Ended March 31, ------------------- (in thousands) 2005 2004 ------------------------------------------------------------------------------ -------- -------- Balance at beginning of period $ 17,994 $ 22,803 Net unrealized (loss) gain on securities for the quarter, net of tax effect of $(8,223) in 2005 and $7,227 in 2004 (15,271) 13,422 Less: Reclassification adjustment for net (gains) losses included in net income for the quarter, net of tax effect of $(2) in 2005 (4) --- Net change in unrealized gain (loss) on cash flow hedges for the quarter, net of tax effect of $549 in 2005 and $(90) in 2004 1,021 (168) -------- -------- Accumulated other comprehensive income, net of tax $ 3,740 $ 36,057 ======== ========

13 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SELECTED QUARTERLY INFORMATION CITIZENS BANKING CORPORATION AND SUBSIDIARIES

FOR THE QUARTER ENDED ------------------------------------------------------------ MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2005 2004 2004 2004 2004 ---------------------------------------------------------- --------- ------------ ------------- -------- --------- SUMMARY OF OPERATIONS (THOUSANDS) Interest income $ 99,166 $ 97,170 $ 96,029 $ 95,375 $94,394 Net interest income 68,233 68,480 69,301 69,218 68,328 Provision for loan losses 3,000 4,609 4,985 4,500 7,000 Total fees and other income 22,455 23,644 34,548 24,856 22,512 Investment securities gains (losses) 6 10 534 (2,053) --- Noninterest expense 60,601 61,117 78,973 62,143 60,534 Income tax provision 7,013 6,122 779 6,656 5,863 Net income 20,080 20,286 19,646 18,722 17,443 Taxable equivalent adjustment 3,353 3,324 3,350 3,356 3,362 Cash dividends 12,326 12,326 12,331 12,284 12,345 PER COMMON SHARE DATA Basic net income $ 0.46 $ 0.47 $ 0.46 $ 0.43 $ 0.40 Diluted net income 0.46 0.46 0.45 0.43 0.40 Cash dividends 0.285 0.285 0.285 0.285 0.285 Market value (end of period) 29.36 34.35 32.57 31.05 32.63 Book value (end of period) 14.95 15.13 15.03 14.51 15.09 AT PERIOD END (MILLIONS) Assets $ 7,777 $ 7,706 $ 7,659 $ 7,748 $ 7,692 Total loans including held for sale 5,464 5,421 5,319 5,327 5,237 Deposits 5,290 5,300 5,267 5,361 5,461 Shareholders' equity 646 654 650 628 654 AVERAGE FOR THE QUARTER (MILLIONS) Assets $ 7,728 $ 7,661 $ 7,669 $ 7,769 $ 7,640 Total loans including held for sale 5,424 5,337 5,289 5,312 5,229 Deposits 5,349 5,258 5,336 5,435 5,474 Shareholders' equity 649 649 637 628 644 RATIOS (ANNUALIZED) Return on average assets 1.05% 1.05% 1.02% 0.97% 0.92% Return on average shareholders' equity 12.54 12.43 12.27 12.00 10.89 Net interest margin (FTE)(1) 3.96 3.97 4.02 3.98 4.01 Efficiency ratio (2) 64.44 64.21 63.86 63.78 64.26 Net loans charged off to average portfolio loans 0.32 0.34 0.38 0.34 0.53 Allowance for loan losses to portfolio loans 2.23 2.27 2.30 2.34 2.38 Nonperforming assets to portfolio loans plus ORAA (end of 0.80 0.94 0.99 1.10 1.20 Nonperforming assets to total assets (end of period) 0.56 0.66 0.68 0.75 0.81 Average equity to average assets 8.40 8.48 8.31 8.08 8.43 Leverage ratio 7.83 7.84 7.71 7.52 7.61 Tier 1 capital ratio 9.97 9.96 10.18 10.00 10.07 Total capital ratio 13.32 13.32 13.61 13.42 13.53

(1) 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%. (2) Efficiency Ratio = Noninterest expense/(Net interest income + Taxable equivalent adjustment + Total fees and other income). It measures how efficiently a bank spends its revenues. The fourth quarter 2004 excludes a special charge recovery of $0.2 million and the third quarter 2004 excludes the gain on the of the Illinois Bank subsidiary of $11.7 million and a prepayment penalty on FHLB advances of $18.0 million. The efficiency ratio for the fourth and third quarters of 2004 would equal 64.03% and 73.67%, respectively, if these items were included in the calculation 14 INTRODUCTION The following commentary presents management's discussion and analysis of Citizens Banking Corporation's financial condition and results of operations for the three month period ended March 31, 2005. It should be read in conjunction with the unaudited Consolidated Financial Statements and Notes included elsewhere in this report and the audited Consolidated Financial Statements and Notes contained in the Corporation's 2004 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' 2004 Annual Report on Form 10-K, which contains important additional information that is necessary to understand the Corporation and its financial condition and results of operations for the periods covered by this report. Unless the context indicates otherwise, all references in the discussion to "Citizens" or the "Corporation" refer to Citizens Banking Corporation and its subsidiaries. References to the "Holding Company" refer solely to Citizens Banking Corporation. FORWARD-LOOKING STATEMENTS Discussions in this report that are not statements of historical fact (including statements that include terms such as "may," "should," "believe," "expect," "anticipate," "estimate," "intend," and "plan") are forward-looking statements that involve risks and uncertainties, and actual future results could materially differ from those discussed. Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detailed from time to time in the Holding Company's filings with the Securities and Exchange Commission, as well as the following. - Citizens faces the risk that loan losses, including unanticipated loan losses due to changes in loan portfolios, fraud and economic factors, will exceed the allowance for loan losses and that additional increases in the allowance will be required. Additions to the allowance would cause net income to decline and could have a negative impact on capital and financial position. - 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 net interest income and results of operations. - An economic downturn, and the negative economic effects caused by terrorist attacks, potential attacks and other destabilizing events, would likely contribute to the deterioration of the quality of the loan portfolio and could reduce Citizens' customer base, its level of deposits, and demand for financial products such as loans. - If Citizens is unable to continue to attract core deposits or to continue to obtain third party financing on favorable terms, its cost of funds will increase, adversely affecting the ability to generate the funds necessary for lending operations, reducing net interest margin and negatively affecting results of operations. - Increased competition with other financial institutions or an adverse change in Citizens' relationship with a number of major customers could reduce Citizens' net interest margin and net income by decreasing the number and size of loans originated, the interest rates charged on these loans and the fees charged for services to customers. If Citizens were to lend to customers who are less likely to pay in order to maintain historical origination levels, it may not be able to maintain current loan quality levels. - Citizens is a party to various lawsuits incidental to its business. Litigation is subject to many uncertainties such that the expenses and ultimate exposure with respect to many of these matters cannot be ascertained. - The financial services industry is undergoing rapid technological changes. If Citizens is unable to adequately invest in and implement new technology-driven products and services, it may not be able to compete effectively, or the cost to provide products and services may increase significantly. - Citizens' business may be adversely affected by the highly regulated environment in which it operates. Changes in banking or tax laws, regulations and regulatory practices at either the federal or state level may adversely affect the Corporation, including its ability to offer new products and services, obtain financing, dividend funds from the subsidiaries to the Holding Company, attract deposits, make loans and leases and achieve satisfactory spreads, and may also result in the imposition of additional costs. - The products and services offered by the banking industry and customer expectations regarding them are subject to change. Citizens attempts to respond to perceived customer needs and expectations by offering new products and services, such as new wealth management capabilities, which are often costly to develop and market initially. A 15 lack of market acceptance of these products and services would have a negative effect on Citizens' results of operations. - New accounting pronouncements 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 position. - Citizens' business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in or disruption to Citizens' business and a negative impact on the results of operations. - Citizens' vendors could fail to fulfill their contractual obligations, resulting in a material interruption in, or disruption to, its business and a negative impact on its results of operations. - Citizens potential inability to integrate acquired operations or complete any restructuring could have a negative effect on Citizens' expenses and results of operations. - 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 Citizens' expenses and results of operations. - As a bank holding company that conducts substantially all of its operations through its subsidiaries, the ability of the Holding Company to pay dividends, repurchase its shares or to repay its indebtedness depends upon the results of operations of its subsidiaries and their ability to pay dividends to the Holding Company. Dividends paid by these subsidiaries are subject to limits imposed by federal and state law. Other factors not currently anticipated may also materially and adversely affect Citizens' results of operations and financial position. There can be no assurance that future results will meet expectations. While the Corporation believes that the forward-looking statements in this Report are reasonable, the reader should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. Citizens does not undertake, and expressly disclaims any obligation, to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law. CRITICAL ACCOUNTING POLICIES Citizens' Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and follow general practices within the industry in which the Corporation operates. Application of these principles requires management to make estimates, assumptions, and complex judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments. Actual results could differ significantly from those estimates. Certain policies inherently have a greater reliance on the use of 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 the determination of the allowance for loan losses, the benefit obligation and net periodic pension expense for employee pension and postretirement benefit plans, derivative financial instruments and hedging activities, and income taxes. Citizens believes that these estimates and the related policies discussed below are important to the portrayal of the Corporation's financial condition and results. Therefore, management considers them to be critical accounting policies and discusses them directly with the Audit Committee of the Board of Directors. Citizens' significant accounting policies are more fully described in Note 1 to the audited Consolidated Financial Statements contained in the Corporation's 2004 Annual Report on Form 10-K and the more significant assumptions and estimates made by management are more fully described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in the Corporation's 2004 Annual Report on Form 10-K. There have been no material changes to those policies or the estimates made pursuant to those policies during the most recent quarter. 16 RESULTS OF OPERATIONS SUMMARY Citizens earned net income of $20.1 million or $0.46 per diluted share for the three months ended March 31, 2005, compared with $17.4 million or $0.40 per diluted share for the same quarter of 2004 and $20.3 million or $0.46 per diluted share for the fourth quarter of 2004. This represents an increase of $2.7 million or 15.1% compared with the first quarter of 2004 and a decrease of $0.2 million or 1.0% from the fourth quarter of 2004. Annualized returns on average assets and average equity for the first quarter of 2005 were 1.05% and 12.54%, respectively, compared with 0.92% and 10.89% for the first quarter of 2004 and 1.05% and 12.43% for the fourth quarter of 2004. Results of the first quarter of 2005 reflect continued improvement in credit quality, growth in commercial loans, seasonal activity in consumer loans, and minimal compression in the net interest margin. Net interest income, noninterest income, and noninterest expense for the quarter remained essentially unchanged from the same quarter last year. On a linked quarter basis, net interest income was relatively unchanged, total fees and other income was lower by $1.2 million, offset by lower provision for loan losses and lower noninterest expense of $0.5 million. The provision for loan losses decreased $4.0 million compared with the first quarter of 2004 and $1.6 million from the fourth quarter of 2004 due to a lower level of net charge-offs and reductions in the level of specific reserves. Citizens' total assets at March 31, 2005 were $7.8 billion, an increase of $70.7 million or 0.9% from December 31, 2004 and an increase of $84.3 million or 1.1% compared with March 31, 2004. These increases were due to growth in total portfolio loans, and were partially offset by a decline in the investment portfolio. Portfolio loans increased $36.5 million or 0.7% compared with December 31, 2004 and $225.9 million or 4.3% compared with March 31, 2004 as both consumer and commercial loans increased from the end of the first quarter of 2004 despite the $78.5 million reduction attributable to the Illinois Bank sale. NET INTEREST INCOME AND NET INTEREST MARGIN An analysis of net interest income, interest spread and net interest margin with average balances and related interest rates for the three months ended March 31, 2005 and 2004 is presented below. 17 AVERAGE BALANCES/NET INTEREST INCOME/AVERAGE RATES

2005 2004 ---------------------------------- ---------------------------------- Three Months Ended March 31, AVERAGE AVERAGE Average Average (in thousands) BALANCE INTEREST(1) RATE (2) Balance Interest(1) Rate (2) ---------------------------------------------------- ----------- ----------- -------- ---------- ----------- -------- EARNING ASSETS Money market investments $ 1,799 $ 9 2.01% $ 1,977 $ 2 0.48% Investment securities (3): Taxable 1,435,683 14,688 4.09 1,528,829 15,442 4.04 Tax-exempt 420,931 5,197 7.60 421,589 5,244 7.65 Mortgage loans held for sale 25,169 430 6.83 32,001 378 4.73 Portfolio Loans (4): Commercial 1,615,304 21,842 5.62 1,620,679 19,397 4.94 Commercial real estate 1,291,629 19,358 6.08 1,299,904 19,304 5.97 Residential mortgage loans 504,097 6,813 5.41 496,336 7,210 5.81 Direct consumer 1,167,894 17,363 6.03 1,040,542 14,750 5.70 Indirect consumer 820,291 13,466 6.66 739,210 12,667 6.89 ----------- ----------- ---------- --------- Total portfolio loans 5,399,215 78,842 5.96 5,196,671 73,328 5.71 ----------- ----------- ---------- --------- Total earning assets (3) 7,282,797 99,166 5.68 7,181,067 94,394 5.47 NONEARNING ASSETS Cash and due from banks 158,195 160,763 Bank premises and equipment 120,902 114,145 Investment security fair value adjustment 18,974 47,041 Other nonearning assets 268,861 262,892 Allowance for loan losses (121,267) (125,637) ----------- ---------- Total assets $ 7,728,462 $7,640,271 =========== ========== INTEREST-BEARING LIABILITIES Deposits: Interest-bearing demand $ 1,153,239 $ 2,001 0.70 $1,358,556 $ 2,471 0.73 Savings deposits 1,626,232 5,092 1.27 1,288,269 1,662 0.52 Time deposits 1,662,673 10,977 2.68 1,955,036 12,318 2.53 Short-term borrowings 717,971 4,441 2.51 508,252 1,272 1.01 Long-term debt 927,497 8,422 3.67 938,677 8,343 3.57 ----------- ----------- ---------- --------- Total interest-bearing liabilities 6,087,612 30,933 2.06 6,048,790 26,066 1.73 NONINTEREST-BEARING LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing demand 906,615 872,205 Other liabilities 84,766 75,111 Shareholders' equity 649,469 644,165 ----------- ---------- Total liabilities and shareholders' equity $ 7,728,462 $7,640,271 =========== ========== NET INTEREST INCOME $ 68,233 $ 68,328 =========== ========= INTEREST SPREAD (5) 3.62% 3.74% Contribution of noninterest bearing sources of funds 0.34 0.27 ---- ---- NET INTEREST MARGIN (5)(6) 3.96% 4.01% ==== ====

(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 $3.4 million and $3.4 million for the three months ended 2005 and 2004, 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) Because noninterest-bearing funding sources, demand deposits, other liabilities and shareholders' equity also support earning assets, the net interest margin exceeds the interest spread. 18 Net interest income was $68.2 million in the first quarter of 2005 compared with $68.3 million in the same quarter of 2004. The slight decrease compared with the first quarter of 2004 resulted from a lower net interest margin of five basis points. Most of the margin compression was offset by growth in earning assets of $101.7 million, with an expansion of the direct and indirect consumer loan portfolios outweighing a reduction in the size of the investment portfolio and the impact of the sale of the Illinois Bank. Net interest margin decreased to 3.96% in the first quarter of 2005 compared with 4.01% in the first quarter of 2004. The decrease in the net interest margin resulted from a more competitive environment and increases in the cost of funds outpacing increases in asset yields, which were slowed by residential mortgage loan yield declines and commercial loan pricing spread declines as Citizens continues to underwrite higher quality commercial loans with normal spreads replacing lower quality commercial loans with higher spreads. Increases in liability yields were due to growth in higher yielding deposit product balances and a higher cost of short term borrowing as the Federal Reserve continues to raise short term interest rates. The table below shows the effect of changes in average balances ("volume") and market rates of interest ("rate") on interest income, interest expense and net interest income for major categories of earning assets and interest-bearing liabilities. ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE

2005 COMPARED WITH 2004 ----------------------------- INCREASE (DECREASE) DUE TO CHANGE IN Three Months Ended March 31, NET ------------------ (in thousands) CHANGE(1) RATE (2) VOLUME(2) --------------------------------- -------- ------- -------- INTEREST INCOME: Money market investments $ 7 $ 7 $ --- Investment securities: Taxable (754) 197 (951) Tax-exempt (47) (39) (8) Mortgage loans held for sale 52 144 (92) Loans: Commercial 2,445 2,514 (69) Commercial real estate 54 228 (174) Residential mortgage loans (397) (508) 111 Direct consumer 2,613 857 1,756 Indirect consumer 799 (436) 1,235 -------- ------- -------- Total portfolio loans 5,514 2,655 2,859 -------- ------- -------- Total 4,772 2,964 1,808 -------- ------- -------- INTEREST EXPENSE: Deposits: Interest-bearing demand (470) (88) (382) Savings 3,430 2,901 529 Time (1,341) 661 (2,002) Short-term borrowings 3,169 2,479 690 Long-term debt 79 203 (124) -------- ------- -------- Total 4,867 6,156 (1,289) -------- ------- -------- NET INTEREST INCOME $ (95) $(3,192) $ 3,097 ======== ======= ========

(1)Changes are based on actual interest income and do not reflect taxable equivalent adjustments. (2)The change in interest not solely due to changes in volume or rates has been allocated in proportion to the absolute dollar amounts of the change in each. The decrease in net interest income for the three months ended March 31, 2005 compared with the same period of 2004 reflects rate variances which were generally unfavorable and volume variances which were generally favorable despite the impact of the sale of the Illinois Bank in August 2004. Unfavorable volume variances in the investment portfolio were the result of the Illinois Bank sale. Unfavorable volume variances in the commercial and commercial real estate portfolios were the result of the Illinois Bank sale, partially offset by growth during the most recent two quarters. In the residential mortgage and direct consumer loan portfolios, organic growth 19 more than offset the Illinois Bank sale impact. Growth in savings deposits and short-term borrowings partially offset declines in interest-bearing demand, time deposits, and long-term debt. Favorable rate variances were driven by short term market rate increases in most asset categories. For tax-exempt securities, residential mortgage, and indirect consumer loans, yields on maturing balances were higher than yields on new volume due to continued low long-term interest rates, which resulted in slightly lower portfolio yields. Unfavorable rate variances occurred in all liability categories with the exception of interest-bearing demand, which saw a small favorable rate variance. These unfavorable rate variances were the result of increases in market interest rates. In the second quarter of 2005, Citizens anticipates net interest income will be consistent with or slightly higher than the first quarter of 2005 as a result of more days in the quarter and continued loan growth, partially offset by anticipated margin compression. NONINTEREST INCOME Noninterest income for the first quarter of 2005 remained essentially unchanged from the first quarter of 2004 at $22.5 million. Increases in deposit service charges, trust fees, and mortgage fees were offset by decreases in brokerage and investment fees and other income. An analysis of the sources of noninterest income during the three months ended March 31, 2005 and 2004 is summarized in the table below. NONINTEREST INCOME

Three Months Ended March 31, Change in 2005 ---------------- --------------- (dollars in thousands) 2005 2004 Amount Percent ----------------------------------- ------- ------- ------ ------- Service charges on deposit accounts $ 8,287 $ 8,042 $ 245 3.1% Trust fees 4,412 4,310 102 2.4 Mortgage and other loan income 2,360 2,256 104 4.6 Brokerage and investment fees 1,599 1,782 (183) (10.3) Bankcard fees 840 783 57 7.3 Investment securities gains 6 --- 6 NM Other 4,957 5,339 (383) (7.2) ------- ------- ----- TOTAL NONINTEREST INCOME $22,461 $22,512 $ (51) (0.2) ======= ======= =====

N/M - Not Meaningful Deposit service charges for the first quarter of 2005 increased $0.2 million or 3.1% to $8.3 million compared with the first quarter of 2004. The increase was the result of initiatives implemented over the last seven quarters which improved fee waiver management and slight increases in certain fees. Trust fees increased $0.1 million or 2.4% to $4.4 million in the first quarter of 2005 compared with the first quarter of 2004 due to Citizens' sales management processes implemented during the first quarter of 2004 that focused on relationship management and new business development strategies. Total trust assets under administration decreased $268.3 million to $2.6 billion at March 31, 2005 compared with March 31, 2004. The decline in trust assets from March 31, 2004 was due to the reduction of a large institutional relationship in the second and fourth quarters of 2004 and the exit of unprofitable custody assets related to three relationships in the second quarter of 2004 and the first quarter of 2005. Mortgage and other loan income increased $0.1 million or 4.6% to $2.4 million in the first quarter of 2005 compared with the first quarter of 2004, reflecting an improvement in the execution of the secondary market sales. Brokerage and investment fees decreased $0.2 million or 10.3% to $1.6 million in the first quarter of 2005 compared with the first quarter of 2004 due to lower annuity sales. Other noninterest income decreased $0.4 million or 7.2% to $5.0 million for the first quarter of 2005 compared with the first quarter of 2004 due to gains recognized upon the sale of a former branch and other bank premises in the first quarter of 2004. Citizens anticipates total noninterest income in the second quarter will be consistent with or slightly lower than the first quarter of 2005 due to lower mortgage activity and anticipated seasonal improvement in service charges. 20 NONINTEREST EXPENSE Noninterest expense was essentially unchanged at $60.6 million in the first quarter of 2005 compared with $60.5 million in the first quarter of 2004. An analysis of the components of noninterest expense during the three months ended March 31, 2005 and 2004 is summarized in the table below. NONINTEREST EXPENSE

Three Months Ended March 31, Change in 2005 ---------------- ----------------- (dollars in thousands) 2005 2004 Amount Percent -------------------------------- ------- ------- ------- ------- Salaries and employee benefits $33,351 $31,939 $ 1,411 4.4% Occupancy 5,560 5,342 218 4.1 Professional services 4,199 3,928 271 6.9 Equipment 3,301 3,642 (341) (9.4) Data processing services 3,369 3,646 (277) (7.6) Advertising and public relations 1,746 2,145 (399) (18.6) Postage and delivery 1,590 1,556 34 2.2 Telephone 1,441 1,534 (93) (6.0) Other loan fees 375 1,129 (754) (66.8) Stationery and supplies 919 842 76 9.1 Intangible asset amortization 725 725 --- 0.0 Other 4,025 4,106 (80) (2.0) ------- ------- ------- TOTAL NONINTEREST EXPENSE $60,601 $60,534 $ 67 0.1 ======= ======= =======

Salaries and employee benefits increased $1.4 million or 4.4% to $33.4 million in the first quarter of 2005 compared with the first quarter of 2004. Despite recognizing $0.9 million in severance, salary costs continued to decline in the first quarter of 2005 as a result of reduced headcount. However, incentive expense increased during the current quarter due to the realignment of incentive compensation programs. Employee benefits increased due to higher retirement benefit costs and payroll taxes. Citizens had 2,175 full time equivalent employees at March 31, 2005, down from 2,302 at March 31, 2004. Occupancy costs increased $0.2 million or 4.1% to $5.6 million in the first quarter of 2005 compared with the first quarter of 2004. This increase was largely due to building rent and other expenses related to the opening of new branches and regional hubs in Southeast Michigan throughout 2004. Professional services expense increased $0.3 million or 6.9% to $4.2 million in the first quarter of 2005 compared with the first quarter of 2004. This increase was a result of expenses related to work performed in 2005 to complete the evaluation, documentation, and testing of internal controls and issuance of the related reports to comply with Sarbanes-Oxley Section 404. Equipment related costs decreased $0.3 million or 9.4% to $3.3 million for the first quarter of 2005 compared with the first quarter of 2004. This decrease was the result of lower equipment depreciation expense associated with the first quarter of 2004 change in Citizens' capitalization policy, along with reductions in software maintenance costs and spending on non-capital equipment. Data processing services decreased $0.3 million or 7.6% to $3.4 million for the first quarter of 2005 compared with the first quarter of 2004 due to contract savings negotiated in the third quarter of 2004 with Citizens' core processing provider. Advertising and public relations expense decreased $0.4 million or 18.6% to $1.7 million in the first quarter of 2005 compared with the first quarter of 2004. This decrease was largely due to advertising and marketing expenses incurred during the first quarter of 2004 to support Citizens' Southeast Michigan initiative. Other loan fee expense decreased $0.8 million or 66.8% to $0.4 million for the first quarter of 2005 compared with the first quarter of 2004. This decrease was largely the result of lower provisioning to fund the reserve for unused commitments, due to improved credit quality and higher line utilization in the first quarter of 2005, as well as lower loan processing costs. Other noninterest expenses, which include postage and delivery, telephone, stationery and supplies, intangible asset amortization, and other, were essentially unchanged at $8.7 million for the first quarter of 2005 compared with $8.8 million in the first quarter of 2004. 21 Citizens anticipates that noninterest expenses for the second quarter will be lower than the first quarter of 2005 due to anticipated reductions in benefits, incentives, and other expenses. INCOME TAXES Income tax provision was $7.0 million in the first quarter of 2005 compared with an income tax provision of $5.9 million during the same period in 2004. The effective tax rate, computed by dividing the provision for income taxes by income before taxes, was 25.9% for the first quarter of 2005 and 25.2% for the same period of 2004. The effective tax rate is lower than the statutory rate due to tax-exempt interest and other permanent income tax differences. The effective tax rate increased slightly in the first quarter of 2005 compared to the same quarter of 2004 due to a higher ratio of taxable income to total income. LINES OF BUSINESS RESULTS Citizens monitors financial performance using an internal profitability measurement system, which provides line of business results and key performance measures. Business line results are divided into four major business segments: Commercial Banking, Consumer Banking, Wealth Management and Other. For additional information about each line of business, see Note 20 to the Consolidated Financial Statements of the Corporation's 2004 Annual Report on Form 10-K and Note 5 to the unaudited Consolidated Financial Statements in this report. A summary of net income by each business line is presented below.

Three Months Ended March 31, ----------------- (in thousands) 2005 2004 ------------- ------- -------- Commercial Banking $ 7,663 $ 6,633 Consumer Banking 9,698 9,684 Wealth Management 448 (208) Other 2,271 1,334 ------- -------- Net Income $20,080 $ 17,443 ======= ========

COMMERCIAL BANKING The increase in net income for the three month period ended March 31, 2005 was due to a decrease in the provision for loan losses, partially offset by declines in net interest income and noninterest income and higher noninterest expenses. The reduction in the provision for loan losses reflects a decrease in the level of net charge-offs as well as a reduction in the level of specific reserves. Net interest income declined in the three month period ended March 31, 2005 as a result of lower average commercial loan balances due to lower demand for commercial credit, high repayment activity and continued reduction of exposure on credits not meeting Citizens' risk parameters partially offset by higher deposits. The decline in loans occurred in most markets with the exception of Southeast Michigan, which experienced strong growth. Noninterest income declined due to lower deposit service charges due to the rising rate environment, which resulted in higher customer earnings credits against commercial deposit service charges based on commercial deposit balances, and line of credit fees related to a change in accounting methodology. Noninterest expense increased due to higher incentive compensation, employee benefits and professional service fees, partially offset by lower deferred origination-related compensation, advertising and promotion, and loan fees. CONSUMER BANKING The slight increase in net income for the three months ended March 31, 2005 compared to the same period of the prior year was due to a reduction in noninterest expense and provision for loan losses. The improvement in noninterest expense and provision was mitigated by a decline in net interest income and noninterest income. Net interest income was lower as a result of a mortgage mix shift, causing some compression in margin that was mostly offset by growth in home equity and indirect products. Noninterest income was lower for the period ended March 31, 2005 compared with the first quarter of 2004 due to gains recognized upon the sale of former branch and other bank premises in the first quarter of 2004. Noninterest expense improved due to Citizens' continued focus on expense management. WEALTH MANAGEMENT The increase in net income for the three month period ended March 31, 2005 was due to an increase in net interest income and noninterest income and a decline in noninterest expense. Noninterest income increased due to higher trust fees, brokerage fees, a performance-related penalty of $0.3 million received from a third party vendor, and the amortization of an upfront payment received from a third party vendor. Trust fees increased due to Citizens' sales management processes implemented during the first quarter of 2004 that focused on relationship management and new business development 22 strategies. Brokerage income increased due to more business being referred-to financial consultants in Wealth Management from licensed personal bankers in Consumer Banking. Noninterest expense declined due to lower incentive compensation and professional services costs partially offset by a litigation settlement related to a trust account. The first quarter of 2004 included costs related to the implementation of the trust and investment accounting systems and operations with SEI Investments and the conversion of retirement services recordkeeping systems and operations to EPIC Advisors, Inc. OTHER Net income increased for the three month period ended March 31, 2005 as a result of higher net interest income and noninterest income, as well as a slight decrease in noninterest expense. Net interest income grew as a result of an increase in earning assets and a mix shift among liabilities from categories with a higher funding credit rates to ones with lower funding credit rates. The increase in noninterest income was due to higher payouts received from bank owned life insurance policies and a preference payment on Citizens' membership interest in the PULSE ATM network. FINANCIAL CONDITION Citizens' total assets at March 31, 2005 were $7.8 billion, an increase of $70.7 million or 0.9% from December 31, 2004 and an increase of $84.3 million or 1.1% compared with March 31, 2004. These increases were due to growth in total portfolio loans, which were partially offset by declines in the investment portfolio. Total deposits were $5.3 billion at March 31, 2005, essentially unchanged from December 31, 2004 and a decrease of $171.4 million or 3.1% compared with March 31, 2004. After considering the $155.3 million reduction in deposits as a result of the Illinois Bank sale, the decline in deposits since the first quarter of 2004 occurred largely within time deposits, reflecting Citizens' less aggressive pricing posture during the low interest rate environment. Additionally, Citizens experienced a shift of customer deposits from interest-bearing demand and time deposits to promotional rate savings products throughout the year. INVESTMENT SECURITIES AND MONEY MARKET INVESTMENTS Total average investments, including money market investments, comprised 25.5% of average earning assets during the first three months of 2005 compared with 26.0% for the fourth quarter of 2004 and 27.2% for the first three months of 2004. The decrease from both periods of 2004 was primarily a result of the sale of the Illinois Bank in the third quarter of 2004. PORTFOLIO LOANS Portfolio loans increased $36.5 million or 0.7% compared with December 31, 2004 and $225.9 million or 4.3% compared with March 31, 2004 as both consumer and commercial loans increased from the end of the first quarter of 2004 despite the $78.5 million reduction at the date of the Illinois Bank sale. Consumer loans, excluding mortgage loans, increased $165.6 million or 9.1% at March 31, 2005 compared with March 31, 2004 due to a well executed sales process and a number of successful sales campaigns. Total consumer loans, excluding mortgage loans, remained essentially unchanged from December 31, 2004 due to increased competition in home equity rates within our markets and seasonality in the indirect portfolio. Since March 31, 2004, direct consumer loans increased $89.0 million or 8.2% and indirect loans increased $76.6 million or 10.3% due to growth in the recreational vehicle and marine segments from continued emphasis on service and maintaining strong relationships with existing dealers. Portfolio mortgage loans were $496.0 million at March 31, 2005, a decrease of $12.3 million or 2.4% from December 31, 2004 and an increase of $16.4 million or 3.4% compared with March 31, 2004. The increase in the mortgage portfolio from the end of the first quarter of 2004 occurred due to slower refinance activity. Citizens continues to sell most new fixed rate production into the secondary market and to hold most new ARM volume. Closed mortgage loan volume declined to $108.5 million in the first quarter of 2005 compared with $132.9 million in the fourth quarter of 2004. The decrease in the mortgage portfolio from the end of the fourth quarter of 2004 was due to seasonally reduced activity in construction financing. Commercial and commercial real estate loans at March 31, 2005 increased $50.8 million or 1.8% from December 31, 2004 and $43.9 million or 1.5% compared with March 31, 2004. The increases were a result of continued strong growth in the Southeast Michigan market, increased focus on the sales management process and several new relationships in key Michigan and Wisconsin markets, which were partially offset by a continued reduction of exposure on credits not meeting Citizens' risk parameters. At March 31, 2005 and 2004, $46.9 million and $46.8 million, respectively, of residential real estate loans originated and subsequently sold in the secondary market were being serviced by Citizens. Capitalized servicing rights relating to the serviced loans were fully amortized in June 2003. 23 MORTGAGE LOANS HELD FOR SALE Mortgage loans held for sale were $34.6 million at March 31, 2005, up $6.6 million or 23.5% compared with December 31, 2004 and $1.5 million or 4.4% higher compared with March 31, 2004. These balances generally track the level of originations, as Citizens sells most fixed rate new residential mortgage loan production into the secondary market due to the long-term interest rate risk. Closed mortgage loan volume was $109 million in the first quarter of 2005 compared with $107 million in the first quarter of 2004. New mortgage loan production was spurred during the first quarter of 2005 by a strong refinance market as a result of the low interest rate environment. Average mortgage loans held for sale during the first three months of 2005 comprised 0.3% of average earning assets compared with 0.4% during the same period of 2004. Mortgage loans held for sale are accounted for on the lower of cost or market basis. PROVISION AND ALLOWANCE FOR LOAN LOSSES A summary of loan loss experience during the three months ended March 31, 2005 and 2004 is provided below. ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

Three Months Ended March 31, ----------------------- (in thousands) 2005 2004 -------------- ---------- ---------- Allowance for loan losses - beginning of period $ 122,184 $ 123,545 Provision for loan losses 3,000 7,000 Charge-offs: Commercial 2,463 5,921 Commercial real estate 678 1,151 ---------- ---------- Total commercial 3,141 7,072 Residential mortgage 324 193 Direct consumer 1,424 1,629 Indirect consumer 2,236 1,892 ---------- ---------- Total charge-offs 7,125 10,786 ---------- ---------- Recoveries: Commercial 1,162 2,350 Commercial real estate 707 432 ---------- ---------- Total commercial 1,869 2,782 Residential mortgage --- 13 Direct consumer 343 437 Indirect consumer 674 712 ---------- ---------- Total recoveries 2,886 3,944 ---------- ---------- Net charge-offs 4,239 6,842 ---------- ---------- Allowance for loan losses - end of period $ 120,945 $ 123,703 ========== ========== Portfolio loans outstanding at period end (1) $5,429,842 $5,203,961 Average portfolio loans outstanding during period (1) 5,399,215 5,196,671 Allowance for loan losses as a percentage of portfolio loans 2.23% 2.38% Ratio of net charge-offs during period to average portfolio loans (annualized) 0.32 0.53

(1) Balances exclude mortgage loans held for sale. Net charge-offs decreased to $4.2 million or 0.32% of average portfolio loans in the first quarter of 2005 compared with $6.8 million or 0.53% of average portfolio loans in the first quarter of 2004. The reduction in net charge-offs was primarily in the commercial portfolio, reflecting the ongoing, aggressive efforts to address problematic credits. The provision for loan losses decreased to $3.0 million in the first quarter of 2005 compared with $7.0 million in the first quarter of 2004. The reduction in the provision for loan losses reflects a decrease in the level of net charge-offs as well as a reduction in the level of specific reserves. 24 The allowance for loan losses represents management's estimate of an amount adequate to provide for probable credit losses inherent in the loan portfolio as of the balance sheet date. To assess the adequacy of the allowance for loan losses, an allocation methodology is applied that focuses on changes in the size and character of the loan portfolio, changes in the levels of impaired or other nonperforming loans, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions, underlying collateral, historical losses on each portfolio category and other qualitative and quantitative factors which could affect probable credit 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. While Citizens continues to enhance its loan loss allocation model and risk rating process, it has not substantially changed its overall approach in the determination of the allowance for loan losses in 2005. The Corporation's methodology for measuring the adequacy of the allowance relies on several key elements, which include specific allowances for identified problem loans, a formula-based risk allocated allowance for the remainder of the portfolio and a general valuation allowance that reflects the Corporation's evaluation of a number of other risk factors discussed below. This methodology is discussed in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" in Citizens' 2004 Annual Report on Form 10-K. The allowance for loan losses totaled $120.9 million or 2.23% of loans at March 31, 2005, a decrease of $1.2 million and $2.8 million from December 31, 2004 and March 31, 2004 respectively. At March 31, 2005, the allowance allocated to specific commercial and commercial real estate credits was $14.3 million compared with $15.3 million at December 31, 2004. The decrease was attributable to a number of the underlying credits being repaid. Criticized and classified credits subject to specific reserves were $38.1 million as of March 31, 2005 compared with $35.0 million at December 31, 2004. The total formula risk allocated allowance was relatively unchanged at $84.0 million as of March 31, 2005, compared with $84.6 million at December 31, 2004. The amount allocated to commercial and commercial real estate loans, including construction loans, increased to $61.4 million at March 31, 2005 compared with $59.2 million at December 31, 2004 due to increased balances in the loan portfolio. The risk allocated allowance for residential real estate loans decreased to $5.8 million at March 31, 2005 compared with $6.2 million at December 31, 2004, reflecting a lower loss allocation factor applied to the mortgage portfolio. The risk allocated allowance for consumer loans, excluding mortgage loans, decreased to $16.7 million at March 31, 2005 compared with $19.2 million at December 31, 2004, reflecting a lower loss allocation factor. The general valuation allowances remained relatively flat at $22.7 million at March 31, 2005, compared with $22.3 million at December 31, 2004. The general valuation allowances portion of the allowance is maintained to address the uncertainty relating to factors affecting the determination of potential losses inherent in the loan portfolio that may not have yet manifested themselves in the Corporation's specific allowances or in the historical loss factors used to determine the formula allowances, such as geographic expansion, the possible imprecision of internal risk-ratings within the portfolios, continued weak general economic and business conditions, uncertainties related to interpreting the Corporation's internal underwriting guidelines, illegal activities by customers, and changes in the composition of the Corporation's portfolio. The increase in the general valuation allowances resulted from additional uncertainty in the small business and home equity portfolios. The amount of the provision for loan losses is based on the Corporation's review of the historical credit loss experience and such factors that, in Citizens judgment, deserve consideration under existing economic conditions in estimating potential credit losses. While the Corporation considers the allowance for loan losses to be adequate based on information currently available, future adjustments to the allowance may be necessary due to changes in economic conditions, delinquencies or loss rates. Based on current business trends and continued improvement in nonperforming loans and the overall risk in the loan portfolio, Citizens anticipates net charge-offs and provision expense in the second quarter will be consistent with the first quarter of 2005. 25 NONPERFORMING ASSETS Nonperforming assets are comprised of nonaccrual loans, loans with restructured terms and repossessed assets that are mostly real estate related. Although these assets have more than a normal risk of loss, they will not necessarily result in a higher level of losses in the future. The table below provides a summary of nonperforming assets as of March 31, 2005, December 31, 2004 and March 31, 2004. NONPERFORMING ASSETS

MARCH 31, December 31, March 31, (in thousands) 2005 2004 2004 -------------- --------- ------------ --------- Nonperforming Loans Nonaccrual Commercial: Commercial $12,991 $13,774 $26,411 Commercial real estate 11,004 14,464 15,310 ------- ------- ------- Total commercial 23,995 28,238 41,721 Nonaccrual Consumer: Direct 3,474 3,518 3,471 Indirect 1,025 2,420 1,087 ------- ------- ------- Total consumer 4,499 5,938 4,558 Nonaccrual Mortgage: 8,099 8,643 8,286 ------- ------- ------- Total nonaccrual loans 36,593 42,819 54,565 Loans 90 days past due and still accruing 11 40 201 Restructured loans 42 42 52 ------- ------- ------- Total nonperforming loans 36,646 42,901 54,818 Other Repossessed Assets Acquired (ORAA) 7,118 7,946 7,592 ------- ------- ------- Total nonperforming assets $43,764 $50,847 $62,410 ======= ======= ======= Nonperforming assets as a percent of portfolio loans plus ORAA (1) 0.80% 0.94% 1.20% Nonperforming assets as a percent of total assets 0.56 0.66 0.81 Allowance for loan loss as a percent of nonperforming loans 330.04 284.80 225.66 Allowance for loan loss as a percent of nonperforming assets 276.36 240.30 198.21

(1) Portfolio loans exclude mortgage loans held for sale. Nonperforming assets totaled $43.8 million at March 31, 2005, a decrease of $7.1 million or 13.9% compared with December 31, 2004 and a decrease of $18.6 million or 29.9% compared with March 31, 2004. Nonperforming assets at March 31, 2005 represented 0.80% of portfolio loans plus other repossessed assets acquired compared with 0.94% at December 31, 2004 and 1.20% at March 31, 2004. Loans added to the commercial nonperforming loan category decreased to $11.2 million in the first quarter of 2005 compared with $11.7 million in the first quarter of 2004 and $18.4 million in the fourth quarter of 2004 while loans removed from that category totaled $15.4 million for the first quarter of 2005 compared with $25.1 million in the first quarter of 2004 and $18.9 million in the fourth quarter of 2004. In addition to loans classified as nonperforming, the Corporation carefully monitors other credits that are current in terms of principal and interest payments but that the Corporation believes may deteriorate in quality if economic conditions change. As of March 31, 2005, such loans amounted to $167.4 million, or 3.2% of total portfolio loans, compared with $155.6 million, or 2.9% of total portfolio loans as December 31, 2004 and 4.2% of total portfolio loans as of March 31, 2004. These loans are mostly commercial and commercial real estate loans made in the normal course of business and do not represent a concentration in any one industry or geographic location. 26 Some of the Corporation's nonperforming loans included in the nonperforming loan table above are considered to be impaired. A loan is considered impaired when Citizens determines that it is probable that all the principal and interest due under the loan may not be collected. In most instances, impairment is measured based on the fair value of the underlying collateral. Impairment may also be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. The Corporation maintains a valuation allowance for impaired loans as a part of the specific allocated allowance. Total loans considered impaired and their related reserve balances at March 31, 2005, December 31, 2004 and March 31, 2004 as well as their effect on interest income for the first quarter of 2005 and 2004 and fourth quarter of 2004 follows: IMPAIRED LOAN INFORMATION

Balances Valuation Reserve ------------------------------------ ----------------------------------- MARCH 31, December 31, March 31, MARCH 31, December 31, March 31, (in thousands) 2005 2004 2004 2005 2004 2004 -------------- ----------- ------------ --------- --------- ------------ --------- Balances - Impaired loans with valuation reserve $ 32,774 $ 27,118 $ 45,500 $ 13,478 $ 12,405 $ 16,413 Impaired loans with no valuation reserve 14,447 14,529 21,750 --- --- --- -------- -------- -------- -------- -------- -------- Total impaired loans $ 47,221 $ 41,647 $ 67,250 $ 13,478 $ 12,405 $ 16,413 ======== ======== ======== ======== ======== ======== Impaired loans on nonaccrual basis $ 23,995 $ 28,238 $ 41,772 $ 3,959 $ 6,372 $ 4,558 Impaired loans on accrual basis 23,226 13,409 25,478 9,519 6,033 11,855 -------- -------- -------- -------- -------- -------- Total impaired loans $ 47,221 $ 41,647 $ 67,250 $ 13,478 $ 12,405 $ 16,413 ======== ======== ======== ======== ======== ======== Average balance for the quarter $ 44,434 $ 45,021 $ 69,479 Interest income recognized for the quarter 266 238 292 Cash collected applied to outstanding principal 458 498 438

DEPOSITS Total deposits were $5.3 billion at March 31, 2005, essentially unchanged from December 31, 2004 and decreased $171.4 million or 3.1% compared with March 31, 2004. After considering the $155.3 million reduction in deposits as a result of the Illinois Bank sale, the decline in deposits since the first quarter of 2004 occurred largely within time deposits, reflecting Citizens' less aggressive pricing posture during the low interest rate environment. Additionally, Citizens experienced a shift of customer deposits from interest-bearing demand and time deposits to promotional rate savings products throughout the year. Core deposits, which exclude time deposits, totaled $3.6 billion at March 31, 2005, essentially unchanged from March 31, 2004 and representing a decrease of $110.8 million or 3.0% from December 31, 2004. The decrease in core deposits from the end of the fourth quarter of 2004 is largely the result of a decline in interest-bearing checking and promotional savings products as the higher rate environment is prompting clients to migrate their funds into time deposits with higher yields and to promotional rate products within the market. Time deposits totaled $1.7 billion at March 31, 2005, representing an increase of $100.6 million or 6.2% from December 31, 2004 and decrease of $190.1 million or 10.0% compared with March 31, 2004. Citizens gathers deposits primarily within local markets and have not traditionally relied on brokered or out of market purchased deposits for any significant portion of funding. At March 31, 2005, Citizens had approximately $153 million in brokered deposits, compared to $165 million at December 31, 2004 and $145 million at March 31, 2004. Citizens will continue to evaluate the use of alternative funding sources such as brokered deposits as funding needs change. In addition to brokered deposits, at March 31, 2005 Citizens had approximately $639 million of time deposits greater than $100,000, compared to $650 million at December 31, 2004 and $492 million at March 31, 2004. Time deposits greater than $100,000 consist of commercial, consumer and public fund deposits derived almost exclusively from local markets. In order to avoid use of these higher cost funding alternatives, Citizens continues to promote relationship-based 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, other bank borrowings, FHLB advances and Treasury Tax and Loan notes. As of March 31, 2005, short-term borrowings totaled $860.1 million, an increase of $135.3 million or 18.7% compared with December 31, 2004 and an increase of $300.7 million or 53.8% compared with March 31, 2004. For the three months ended March 31, 2005, average short-term borrowed funds totaled $717.9 million, an increase of $209.7 million, or 41.3% from the same period of 2004. The increase in short-term borrowings provided funding to support growth in portfolio loans and partially offset a decrease in average deposits. 27 Long-term debt consists almost entirely of advances from the FHLB to our subsidiary banks, and subordinated notes issued by our Holding Company. Average long-term debt for the first three months of 2005 was $927.5 million, a decrease of $11.2 million or 1.2% compared with the same period in 2004, and a decrease of $19.1 million or 2.0% compared to the fourth quarter of 2004. CAPITAL RESOURCES Citizens continues to maintain a strong capital position, which supports current needs and provides a sound foundation to support further expansion. The Corporation's regulatory capital ratios are consistently at or above the "well-capitalized" standards and all bank subsidiaries have sufficient capital to maintain a well capitalized designation. The Corporation's capital ratios as of March 31, 2005, December 31, 2004 and March 31, 2004 are presented below. CAPITAL RATIOS

Regulatory Minimum ------------------ "Well- MARCH 31, December 31, March 31, Capitalized" 2005 2004 2004 ------------------ --------- ------------ --------- Risk based: Tier 1 capital 6.00% 9.97% 9.96% 10.07% Total capital 10.00 13.32 13.32 13.53 Tier 1 leverage 5.00 7.83 7.84 7.61

Shareholders' equity at March 31, 2005 was $645.6 million, compared with $654.3 million at December 31, 2004 and $654.2 million as of March 31, 2004. Book value per common share at March 31, 2005, December 31, 2004 and March 31, 2004 was $14.95, $15.13 and $15.09, respectively. Citizens declared and paid cash dividends of $0.285 per share in the first quarter of 2005, the same as in the first quarter of 2004. During the first quarter of 2005, the Holding Company repurchased a total of 86,000 shares for $2.6 million. Information regarding the Corporation's share repurchase program is set forth later in this report under Part II, Item 2 "Unregistered Sales of Equity Securities and Use of Proceeds." CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS Contractual obligations and off-balance sheet arrangements are described in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Corporation's 2004 Annual Report on Form 10-K. There have been no material changes to those obligations or arrangements outside the ordinary course of business during the most recent quarter. LIQUIDITY AND DEBT CAPACITY 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. Citizens manages the liquidity of its Holding Company to pay dividends to shareholders, to service debt, to invest in subsidiaries, and to satisfy other operating requirements. It also manages the liquidity of its subsidiary banks to meet client cash flow needs while maintaining funds available for loan and investment opportunities. Citizens' subsidiary banks derive liquidity through core deposit growth, maturity of money market investments, and maturity and sale of investment securities and loans. Additionally, its subsidiary banks have access to financial market borrowing sources on an unsecured, as well as a collateralized basis, for both short-term and long-term purposes including, but not limited to, the Federal Reserve and Federal Home Loan Banks where the subsidiary banks are members. The primary sources of liquidity for the Holding Company are dividends from and returns on investments in its subsidiaries. Each of the banking subsidiaries are subject to dividend limits under the laws of the state in which they are chartered and, as member banks of the Federal Reserve System, are subject to the dividend limits of the Federal Reserve Board. The Federal Reserve Board allows a member bank to make dividends or other capital distributions in an amount not exceeding the current calendar year's net income, plus retained net income of the preceding two years. Distributions in excess of this limit require prior regulatory approval. As of April 1, 2005, the subsidiary banks are able to pay dividends of $74.0 million to the Holding Company without prior regulatory approval. An additional source of liquidity is the ability of the Holding Company to borrow funds on both a short-term and long-term basis. The Holding Company maintains a $60 million short-term revolving credit facility with three unaffiliated banks. As of March 31, 2005, there was no outstanding balance under this credit facility. The current facility will mature in August 2005 and is expected to be renewed at that time on substantially the same terms. The credit agreement also requires Citizens 28 to maintain certain covenants including covenants related to asset quality and capital levels. The Corporation was in full compliance with all debt covenants as of March 31, 2005. Citizens' Southeast Michigan branch expansion plan will pose a challenge to liquidity as both the capital investment and loan growth will require incremental funding. Management anticipates that through a combination of wholesale funding and deposit generation from both the new Southeast Michigan branches and the existing branch network, the Corporation will be able to fund all aspects of the expansion plan. In addition, the combined effect of the third quarter 2004 sale of the Illinois Bank, the prepayment of FHLB advances, and the replacement of the prepaid advances with lower rate borrowings had a neutral impact on liquidity. Citizens also has contingent letter of credit commitments that may impact liquidity. Since many of these commitments have historically expired without being drawn upon, the total amount of these commitments does not necessarily represent the Corporation's future cash requirements in connection with them. Further information on these commitments is presented in Note 10 to the Consolidated Financial Statements in this report. Citizens has sufficient liquidity and capital resources to meet presently known short-term and long-term cash flow requirements. Wholesale funding represents an important source of liquidity to the Corporation, and credit ratings affect the availability and cost of this funding. Citizens' credit ratings were reviewed and affirmed by Moody's Investor Service on January 27, 2005. On April 21, 2005, Dominion Bond Rating Service (DBRS) assigned ratings to Citizens of R-2 (high) for short-term instruments, BBB (high) for issuer and senior debt and BBB for subordinated debt. DBRS defines short-term debt rated R-2 (high) to be at the upper end of its adequate credit quality classification. Long-term debt rated BBB is defined as adequate credit quality. Long-term debt categories are denoted by the subcategories "high" and "low". The absence of a "high" or "low" designation indicates the rating is in the "middle" of the category. Credit ratings relate to the Corporation's ability to issue long-term debt and should not be viewed as an indication of future stock performance. INTEREST RATE RISK Interest rate risk arises when there is a mismatch in the timing of the repricing of assets and liabilities, typically as a result of option risk, which can alter the expected timing of repricing of certain assets or liabilities, or basis risk. Many assets and liabilities contain embedded options which allow customers, and entities associated with Citizens' investments and wholesale funding, to prepay loans or securities prior to maturity, or to withdraw or reprice deposits or other funding instruments prior to maturity. Basis risk occurs when assets and liabilities reprice at the same time but based on different market rates, and those market rates have changed by different amounts. Asset, liability, and off-balance sheet portfolios are monitored to ensure comprehensive management of interest rate risk. The asset/liability management process includes monitoring contractual and expected repricing of assets and liabilities as well as forecasting earnings under different interest rate scenarios and balance sheet structures with the objective of insulating net interest income from large swings attributable to changes in market interest rates. Citizens' static interest rate sensitivity (GAP) as of March 31, 2005 and 2004 is presented in the following table. 29 INTEREST RATE SENSITIVITY

TOTAL 0 - 3 4 - 6 7 - 12 WITHIN 1 - 5 Over (dollars in millions) Months Months Months 1 YEAR Years 5 Years Total --------------------- --------- ------- ------- --------- --------- -------- --------- MARCH 31, 2005 RATE SENSITIVE ASSETS(1) Portfolio loans (2) $ 2,626.3 $ 217.7 $ 364.2 $ 3,208.2 $ 1,868.9 $ 352.7 $ 5,429.8 Mortgage loans held for sale 34.6 --- --- 34.6 --- --- 34.6 Investment securities 65.6 38.2 86.1 189.9 1,147.4 554.9 1,892.2 Short-term investments 1.6 --- --- 1.6 --- --- 1.6 --------- ------- ------- --------- --------- -------- --------- Total $ 2,728.1 $ 255.9 $ 450.3 $ 3,434.3 $ 3,016.3 $ 907.6 $ 7,358.2 ========= ======= ======= ========= ========= ======== ========= RATE SENSITIVE LIABILITIES Deposits (3) $ 1,891.9 $ 244.9 $ 397.3 $ 2,534.1 $ 1,077.7 $ 785.9 $ 4,397.7 Other interest bearing liabilities 1,002.2 --- 0.7 1,002.9 579.3 179.8 1,762.0 --------- ------- ------- --------- --------- -------- --------- Total $ 2,894.1 $ 244.9 $ 398.0 $ 3,537.0 $ 1,657.0 $ 965.7 $ 6,159.7 ========= ======= ======= ========= ========= ======== ========= Derivatives $ 44.0 $(135.0) $ --- $ (91.0) $ (104.0) $ 195.0 $ --- ========= ======= ======= ========= ========= ======== ========= Period GAP (4) $ (122.0) $(124.0) $ 52.3 $ (193.7) $ 1,255.3 $ 136.9 $ 1,198.5 Cumulative GAP (122.0) (246.0) (193.7) 1,061.6 1,198.5 MARCH 31, 2004 RATE SENSITIVE ASSETS(1) Portfolio loans (2) $ 2,506.2 $ 257.9 $ 454.0 $ 3,218.1 $ 1,726.0 $ 259.8 $ 5,203.9 Mortgage loans held for sale 33.2 --- --- 33.2 --- --- 33.2 Investment securities 177.0 97.8 296.6 571.4 946.1 521.9 2,039.4 Short-term investments 2.1 --- --- 2.1 --- --- 2.1 --------- ------- ------- --------- --------- -------- --------- Total $ 2,718.5 $ 355.7 $ 750.6 $ 3,824.8 $ 2,672.1 $ 781.7 $ 7,278.6 ========= ======= ======= ========= ========= ======== ========= RATE SENSITIVE LIABILITIES Deposits (3) $ 1,261.1 $ 579.6 $ 755.4 $ 2,596.1 $ 1,744.0 $ 229.5 $ 4,569.6 Other interest bearing liabilities 559.6 25.0 120.8 705.4 358.8 436.3 1,500.5 --------- ------- ------- --------- --------- -------- --------- Total $ 1,820.7 $ 604.6 $ 876.2 $ 3,301.5 $ 2,102.8 $ 665.8 $ 6,070.1 ========= ======= ======= ========= ========= ======== ========= Derivatives $ (50.0) $(125.0) $ --- $ (175.0) $ 25.0 $ 150.0 $ --- ========= ======= ======= ========= ========= ======== ========= Period GAP (4) $ 847.8 $(373.9) $(125.6) $ 348.3 $ 594.3 $ 265.9 $ 1,208.5 Cumulative GAP 847.8 473.9 348.3 942.6 1,208.5

(1) Incorporates prepayment projections for certain assets which may shorten the time frame for repricing or maturity compared to contractual runoff. (2) Balances exclude mortgage loans held for sale. (3) Includes interest bearing savings and demand deposits without contractual maturities of $1.5 billion in the less than one year category and $1.2 billion in the over one year category as of March 31, 2005. The same amounts as of March 31, 2004 were $1.2 billion and $1.4 billion, respectively. These amounts reflect management's assumptions regarding deposit repricing behavior and tenor. (4) GAP is the excess of rate sensitive assets (liabilities). As shown, as of March 31, 2005 rate sensitive liabilities repricing within one year exceeded rate sensitive assets repricing within one year by $193.7 million or 2.6% of total assets, compared to rate sensitive assets repricing within one year exceeding rate sensitive liabilities repricing within one year by $348.3 million or 4.8% of total assets as of March 31, 2004. These results suggest an interest rate risk position which is not significantly mismatched. 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 hedges thereby changing the repricing position from that outlined above. Further, basis risk is not captured by repricing GAP analysis. Since no single risk measurement approach satisfies all management objectives, a combination of techniques is used, including income simulation, repricing gap analysis, and economic value of equity analysis. From time-to-time, derivative contracts are used to help manage or hedge exposure to interest rate risk and market value risk in conjunction with mortgage banking operations. These currently include interest rate swaps and forward mortgage loan sales. Interest rate swaps are contracts with a third party (the "counter-party") to exchange interest payment streams based upon an assumed principal amount (the "notional amount"). The notional amount is not advanced from the counter-party. Swap contracts are carried at fair value on the consolidated balance sheet with the fair value representing the net present 30 value of expected future cash receipts and payments based on market interest rates as of the balance sheet date. The fair values of the contracts change daily as market interest rates change. Holding residential mortgage loans for sale and committing to fund residential mortgage loan applications at specific rates exposes Citizens to market value risk caused by changes in interest rates during the period from rate commitment issuance until sale. To minimize this risk, Citizens enters into mandatory forward commitments to sell residential mortgage loans at the time a rate commitment is issued. These mandatory forward commitments are considered derivatives under SFAS 133. The practice of hedging market value risk with mandatory forward commitments has been effective and has not generated any material gains or losses. As of March 31, 2005, Citizens had forward commitments to sell mortgage loans of $44.0 million. Further discussion of derivative instruments is included in Note 8 to the Consolidated Financial Statements. Citizens uses income simulation modeling as its principal interest rate risk measurement technique. Key assumptions in the model include prepayment speeds on various loan and investment assets to determine customers' ability to pay on loans prior to the principal or due date or maturity date, cash flows and maturities of financial instruments, changes in market conditions, loan and deposit volumes, pricing, client preferences, and Citizens' financial capital plans. These assumptions are inherently uncertain, subject to fluctuation and revision in a dynamic environment and, as a result, the model cannot precisely estimate 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 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. Simulations were performed as of March 31, 2005 to evaluate the impact of market rate changes on net interest income over the following 12 months assuming expected levels of balance sheet growth over that time period. If market interest rates were to increase immediately by 100 or 200 basis points (a parallel and immediate shift along the yield curve) net interest income would be expected to decline by 0.6% and 1.9%, respectively, from what it would be if rates were to remain at March 31, 2005 levels. An immediate 100 basis point parallel decline in market rates would be expected to reduce net interest income over the following 12 months by 0.9% from what it would be if rates remain constant over the entire time period at March 31, 2005 levels. These results represent little change from prior year results. 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 or liabilities, and the timing of changes in these variables. A flattening of the yield curve would exacerbate the negative impact on net interest income. Scenarios different from those outlined above, whether different by only timing, level, or a combination of factors, could produce different results. 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' 2004 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. 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. 31 PART II - OTHER INFORMATION 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 (a) ------------- ---------------- ------------------ ------------------- --------------------- January 2005 --- --- --- 2,850,200 February 2005 15,000 31.28 15,000 2,835,200 March 2005 71,000 30.27 71,000 2,764,200 ------ ------ ------ --------- Total 86,000 30.45 86,000 2,764,200 ====== ====== ====== =========

(a) In October 2003, the Board of Directors approved the repurchase of 3,000,000 shares of common stock from time to time in the market. There is no expiration date for the repurchase program. As of March 31, 2005, 2,764,200 shares remain to be purchased under this program. The purchase of shares is subject to limitations that may be imposed by applicable securities laws and regulations and the rules of the Nasdaq Stock Market. The timing of the purchases and the number of shares to be bought at any one time depend on market conditions and Citizens' capital requirements. There can be no assurance that Citizens will repurchase the remaining shares authorized to be repurchased, or that any additional repurchases will be authorized by the Board of Directors. ITEM 6. EXHIBITS 10.19 * 2005 Management Incentive Plan 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act 32.1 Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities Exchange Act * Portions of this exhibit have been omitted pursuant to Citizens' request to the Secretary of the Securities and Exchange Commission for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 32 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 BANKING CORPORATION Date: May 6, 2005 By /s/ Charles D. Christy ---------------------------------------- Charles D. Christy Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer and duly authorized officer) 33 10-Q EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION ----------- ----------- 10.19 * 2005 Management Incentive Plan 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act 32.2 Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities Exchange Act

* Portions of this exhibit have been omitted pursuant to Citizens' request to the Secretary of the Securities and Exchange Commission for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 34