UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

Filed by the Registrant  x                            Filed by a Party other than the Registrant  ¨

Check the appropriate box:

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS, TO BE HELD APRIL 25, 2012

To the Shareholders of Citizens Republic Bancorp, Inc.:

Notice is hereby given that the annual meeting of shareholders of Citizens Republic Bancorp, Inc. (the “Corporation”) will be held at the Riverfront Banquet Center (located within Riverfront Residence Hall, which is located next to our headquarters), 1 Riverfront Center West, Flint, Michigan 48502 on Wednesday, April 25, 2012, at 10:00 a.m., local time, for the following purposes:

(1) To elect the nine (9) director nominees listed under “Election of Directors – Nominees For Election by Common Shareholders”;

(2) To elect the two (2) director nominees specified under “Election of Directors – Nominees for Election by the Holder of Series A Preferred”;

(3) To approve a nonbinding proposal to approve the compensation of certain of our executive officers;

(4) To ratify the selection of Ernst & Young LLP as our independent auditors for the fiscal year ending December 31, 2012; and

(5) To transact such other business as may properly come before the meeting or any adjournment or adjournments thereof.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE DIRECTORS NOMINATED IN THE ACCOMPANYING PROXY STATEMENT, FOR THE APPROVAL OF THE NONBINDING PROPOSAL APPROVING EXECUTIVE COMPENSATION AND FOR THE RATIFICATION OF OUR INDEPENDENT AUDITORS.

Shareholders of record of our common stock outstanding at the close of business on February 29, 2012 are entitled to notice of and to vote at the meeting.

You are invited to attend this meeting. Please date, sign and return your proxy promptly in the enclosed, stamped envelope whether or not you plan to be present at the meeting. In the alternative, you may vote via the Internet or by telephone by following the procedures set forth on the enclosed proxy card. You may still vote in person if you attend the meeting and are a shareholder of record or have a legal proxy from a shareholder of record.

By Order of the Board of Directors,

Thomas W. Gallagher

Executive Vice President,

General Counsel and Secretary

Flint, Michigan

March 12, 2012

Citizens Republic Bancorp, Inc.

328 South Saginaw Street

Flint, Michigan 48502

PROXY STATEMENT

Meeting Information

We are delivering this proxy statement to our shareholders in connection with the solicitation of proxies by our board of directors for our annual meeting of shareholders to be held on April 25, 2012 and any adjournments or postponements of the meeting. This proxy statement, the proxy and the notice of annual meeting of shareholders are being provided to our shareholders on or about March 12, 2012. The meeting will be held at the Riverfront Banquet Center (located inside Riverfront Residence Hall, which is located next to our headquarters), 1 Riverfront Center West, Flint, Michigan 48502. Directions to attend the meeting in person may be obtained by contacting Ms. Kristine Brenner, Director of Investor Relations, at 810-257-2506 or at www.citizensbanking.com/shareholdermeeting.

Voting Information

Record Date

Shareholders as of the close of business on February 29, 2012 will be entitled to be present and to vote at the meeting. Each share of our common stock is entitled to one vote on each matter to be voted upon at the meeting. On February 29, 2012, there were 40,051,942 shares of our common stock outstanding and entitled to vote and 300,000 shares of our Fixed Rate Cumulative Perpetual Preferred Stock, Series A, or Series A Preferred, outstanding. The holder of the Series A Preferred is not entitled to vote on the matters to be voted upon at the meeting other than the election of its two director-nominees pursuant to the terms of our articles of incorporation. There are no other classes of our stock entitled to vote at the meeting.

How to Vote

The board of directors requests that you execute and return the proxy promptly, whether or not you plan to attend the meeting.

If you are a common shareholder and hold your shares of our stock under your own name (also known as “record ownership”), you can vote your shares in one of the following manners:

We also have posted our proxy statement, proxy card, directions to our shareholder meeting and 2011 annual report to shareholders at www.citizensbanking.com/shareholdermeeting.

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Any vote by proxy, Internet or telephone may be revoked by you at any time before the meeting by (1) giving written notice of such revocation to the corporate secretary, (2) by executing another proxy or using the Internet or telephone voting procedures as of a date subsequent to the prior proxy or Internet or telephone vote, or (3) if you are a shareholder of record or have a legal proxy from a shareholder of record, by voting in person at the annual meeting. Shareholders who vote via the Internet or by telephone need not mail their proxy cards and doing so will revoke any prior vote or proxy.

If you own your shares in “street name” through a broker, bank or other nominee, you will receive a voting instruction form directly from them. Follow the instructions on the form they provide to have your shares voted by proxy. If you wish to attend the meeting and vote in person, you must obtain a proxy, executed in your favor, from the broker, bank or nominee to do so.

We will bear the cost of soliciting proxies, which will be solicited primarily by mail. We have retained Alliance Advisors, specialists in proxy solicitation, to solicit proxies from brokers, bank nominees, and other owners of our common stock at an anticipated cost of $7,000 plus certain out-of-pocket expenses. Proxies may also be solicited by our directors and employees personally, and by telephone, facsimile, or other means. No additional compensation will be paid to these individuals for proxy solicitation nor is it expected to result in more than a minimal cost to us. We may make arrangements directly with banks, brokerage houses, custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of our common stock held of record by them and to obtain authorization for the execution of proxies. We expect to reimburse these institutional holders for their reasonable expenses in connection with these activities.

Voting Requirements and Manner of Voting Proxies

The shares represented by properly executed proxies received by Internet, telephone or by mail will be voted in the manner specified, and where there are no instructions given, will be voted in favor of the director nominees and in favor of the other matters specified in this proxy statement.

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“Votes cast” includes only votes cast for or against a proposal or to withhold authority to vote for a director, and excludes abstentions and broker non-votes. Withheld votes, abstentions and broker non-votes are counted only for purposes of determining whether a quorum is present at the meeting. Broker non-votes and abstentions will not otherwise affect the vote on the matters listed in the proxy statement. “Broker non-votes” result when shareholders hold their shares in street name and do not provide voting instructions to their broker or other nominee for matters, such as the election of directors and the proposal to approve executive compensation, on which the broker or nominee does not have discretionary voting authority under applicable rules and will not be voted on any such proposal.

The persons named in the proxy to represent shareholders who are present by proxy at the meeting are Kristine Brenner and Christine Jaranowski.

Meeting Attendance

If you plan to attend the meeting and your shares of common stock are registered in your name, your admission ticket is either the top-half of your proxy card or your Notice Regarding the Availability of Proxy Materials. If you hold your shares in street name, you will need to bring with you a letter from your broker or nominee confirming your beneficial ownership of common stock as of the record date.

Important Notice Regarding Delivery of Annual Report and Proxy Statement

To reduce the expenses of delivering duplicate materials to our shareholders, we are taking advantage of householding rules that permit us to deliver only one set of proxy solicitation materials, our Annual Report for the fiscal year ended December 31, 2011, and the Notice Regarding the Availability of Proxy Materials to shareholders who share the same address, unless otherwise requested. Each shareholder retains a separate right to vote on all matters presented at the meeting.

If you share an address with another shareholder and have received only one set of materials, you may write or call us to request a separate copy of these materials at no cost to you. For future annual meetings, you may request separate materials or request that we only send one set of materials to you if you are receiving multiple copies by writing to us at sendmaterial@proxyvote.com, or calling us at 1-800-579-1639.

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All share and per share amounts in this proxy statement have been adjusted retroactively to reflect the 1-for-10 reverse stock split effective July 1, 2011.

SECURITY OWNERSHIP

Certain Beneficial Owners

The table below includes all of our shareholders that we know to beneficially own more than five percent of our common stock as of December 31, 2011, unless otherwise indicated.

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The Department of the Treasury, United States Department of the Treasury, 1500 Pennsylvania Avenue, NW, Washington D.C. 20220, holds all of the outstanding 300,000 shares of the Series A Preferred.

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Management

The following table reflects the beneficial ownership of our common stock as of March 7, 2012 by:

The information in the table has been obtained from these individuals and is reported in accordance with the applicable rules of the Securities and Exchange Commission, or Commission. Under these rules, a person is deemed to beneficially own stock if they have or share the power to vote or dispose of the stock or have the right to acquire the power to vote or dispose of the stock within the next 60 days. As a result, the amounts shown in the table do not necessarily reflect stock ownership for any purpose other than compliance with the Commission’s reporting requirements.

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The shares shown for Mr. Gallagher and Mr. Widawski do not include 16,875 and 26,250 restricted stock units, respectively, that have not yet vested and will not vest within the next 60 days.

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PROPOSAL 1 – ELECTION OF DIRECTORS

NOMINEES FOR ELECTION BY COMMON SHAREHOLDERS

The terms of all directors expire at the 2012 annual meeting of shareholders. The following nine nominees have been nominated for reelection by the common shareholders at the 2012 annual meeting of shareholders.

Mr. Dolinski will not be standing for reelection because he has reached the mandatory retirement age as set forth in our corporate governance guidelines. As a result, the number of directors on our board has been reduced from twelve to eleven effective immediately preceding the annual meeting of shareholders, with nine director positions being reserved to be filled by the holders of the Corporation’s common stock and two such positions being reserved to be filled by the U.S. Department of the Treasury, or Treasury, as the sole holder of the Series A Preferred. You may vote for no more than nine directors on your proxy card. The term for directors elected by the common shareholders at the 2012 annual meeting will expire at the 2013 annual meeting of shareholders and upon the election and qualification of their successors. If any of such nominees should be unable to serve, the board of directors may choose to nominate a replacement candidate. If the board of directors chooses to nominate a replacement candidate, then the proxies may be voted for the election of such other person or persons as the board of directors may recommend.

On the basis of information presently available to the board of directors, only the nine persons named above as nominees will be nominated for election as directors by the holders of the Corporation’s common stock.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR ELECTION BY THE COMMON SHAREHOLDERS LISTED BELOW.

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The name and age of each director-nominee for election by the common shareholders, his or her business experience, and the year each became a director, according to information furnished by such nominees, are set forth below. Each is a director of the Corporation and its subsidiary, Citizens Bank.

Lizabeth A. Ardisana, 60, has served on our board since 2004. Ms. Ardisana has been the Chief Executive Officer and owner of ASG Renaissance, a technical and communications firm since 1994. Ms. Ardisana has extensive management and marketing experience as the founder of her own business. With her demonstrated leadership skills, business expertise and entrepreneurial spirit, Ms. Ardisana provides valuable management and financial insight to the board.

George J. Butvilas, 66, has served on our board since 2006. He has been the President and Chief Executive Officer of Quincy Hill Advisors, LLC, a financial services industry consulting firm, from 2007 to the present. He has served as Chairman of the Michigan Technological University Foundation since 1996. He also served as Vice Chairman of Republic Bancorp Inc. from 1999 to 2006. In his 35 years of service in the banking industry, Mr. Butvilas has served as Chief Executive Officer of D&N Financial Corporation, a publicly traded bank holding company, for 9 years, and as a chief operating officer, commercial banker, community banker and director. Mr. Butvilas brings strong financial and risk management expertise to the board and as Chairman of the risk management committee because of his extensive expertise in the banking and financial services industry, as well as institutional knowledge regarding the Republic portion of our business.

Robert S. Cubbin, 54, has served on our board since 2008. Mr. Cubbin has been the President and Chief Executive Officer of Meadowbrook Insurance Group, Inc., a publicly traded risk management organization, specializing in specialty risk management solutions for agents, professional and trade associations, and small to medium-sized insureds, since May 2002 and has been a director since 1995. From February 1999 to May 2002, Mr. Cubbin served as the President and Chief Operating Officer of Meadowbrook Insurance Group, Inc. Mr. Cubbin joined Meadowbrook Insurance Group, Inc. in 1987 as Vice President and General Counsel. Mr. Cubbin’s public company background and his extensive skills and experience pertaining to risk, capital, and financial management enable him to assist the board in assessing risk and developing capital planning strategies, which are particularly relevant in today’s financial services industry and is an “audit committee financial expert” as defined by applicable Commission rules.

Gary J. Hurand, 65, has served on our board since 2006. Mr. Hurand has been the President of Dawn Donut Systems, Inc., a property development management company since 1988. Mr. Hurand, a successful business owner in the Michigan commercial real estate market, brings an entrepreneurial vision and valuable business and leadership skills to the board. Mr. Hurand also has public company board experience as a trustee of BRT Realty Trust for 20 years and as a director at Republic Bancorp Inc. for 16 years. With this background, Mr. Hurand provides the board with valuable insights regarding the current economic environment in Michigan.

Benjamin W. Laird, 62, has served on our board since 2001. Mr. Laird has been Of Counsel to the law firm of Godfrey & Kahn, S.C. since January 2008. He had been an attorney at Godfrey & Kahn, S.C. since 1985. Mr. Laird has also been a co-partner in Schoen-Laird Development, LLC, a real estate investment company since 1999. Mr. Laird has over 30 years of experience as an attorney practicing general business law representing large and small companies, including banks. Mr. Laird also has a long history of service on the board of directors of a paper converting machine company and various public and private financial institutions, which, together with his law practice, has given him valuable experience in corporate governance and oversight matters. As a Wisconsin resident and member of its business community, Mr. Laird provides a unique point of view with regard to our business in Wisconsin.

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Stephen J. Lazaroff, 58, has served as a director on our board since 1997. Mr. Lazaroff has been the President of Diversified Precision Products, Inc., a special cutting tool manufacturer serving the automotive and hydraulic fittings industry, for 20 years. Mr. Lazaroff brings strong leadership management abilities to the board. His professional experience as a small business owner and manager allows him to provide the board with a solid understanding of business opportunities and customer views. He also has significant financial and operational expertise, which gives him unique oversight capabilities.

Cathleen H. Nash, 49, has served on our board since 2009. Ms. Nash has served as our President and Chief Executive Officer since February 2009 and was formerly our Executive Vice President responsible for regional banking from August 2007 to February 2009, and Executive Vice President and Head of Consumer Banking from July 2006 to August 2007. She was the director of Branch Banking at SunTrust Corporation from September 2003 to June 2006. Ms. Nash, as our current President and Chief Executive Officer, brings to the board extensive knowledge regarding the financial services industry and the current operational, economic and regulatory environment in which we operate, allowing her to provide critical insight into operational requirements and strategic planning. In that position, she is also able to promote the flow of information between the board and management and provide management’s perspective on issues facing the board.

Kendall B. Williams, 59, has served on our board since 1992. Mr. Williams is an attorney and counselor with The Williams Firm, P.C., which was established in 1997. Mr. Williams has over 35 years of experience as an attorney specializing in employment and labor law, general civil litigation, corporate law and municipal law. This expertise allows him to bring a unique and informed point of view with regard to management and human resources issues to the board. Furthermore, Mr. Williams’ legal experience allows him to make valuable contributions with regard to risk management and corporate governance issues.

James L. Wolohan, 60, has served on our board since 1997 and as the Chairman of our board since 2009. Mr. Wolohan has been President of Wolohan Investments, LLC, a financial investment company since January 2008. He served as Chairman of Wolohan Capital Strategies, a real estate and financial investment company from April 2006 to December 2007. Mr. Wolohan was formerly the President and Chief Executive Officer of Wolohan Lumber Co., a retailer of lumber, building materials and home improvement products from June 1987 to March 2006 and also served as Chairman of its board of directors for nine years. Wolohan Lumber was a public company until November 2003. Mr. Wolohan’s experience with Wolohan Lumber Co. has provided him with valuable financial and management expertise, as well as leadership abilities that are valuable to the board. Because of these skills and his ability to communicate and encourage discussion, Mr. Wolohan served as our lead independent director for four years and, beginning in May 2009, as our Chairman. He also brings strong accounting and financial skills to our audit committee and board.

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NOMINEES FOR ELECTION BY HOLDER OF SERIES A PREFERRED

In September 2011, the Treasury, pursuant to the terms of the Series A Preferred, elected two directors to our board of directors as quarterly dividends have not been paid for more than six quarters. The Treasury has a right to elect such directors until all accrued and unpaid dividends have been paid. The Treasury has nominated Ms. Madeleine L. Champion and Mr. William M. Fenimore, Jr. for re-election. These two nominees are in addition to the nine nominees listed above and will be elected by a majority of the votes cast by the sole shareholder of the Series A Preferred, voting as a separate class. Holders of common stock will not have a right to vote on the election of these two nominees. The directors to be elected at this meeting by the Treasury will hold office until the next annual meeting and until their successors are elected and qualified, or until all dividends payable on all outstanding shares of the Series A Preferred have been declared and paid in full.

The name and age of each nominee to be elected by the holder of the Series A Preferred and his or her business experience are set forth below. Each is a director of the Corporation and its subsidiary, Citizens Bank and has served since September 2011.

Madeleine L. Champion, 67, is an international trade consultant for financial and non-financial institutions. She has more than 25 years of senior management experience in the banking industry and has served as President of the Bankers’ Association for Finance and Trade. Ms. Champion was Managing Director/Vice President of international banking for JPMorgan Chase Bank, N.A. from 2004 through 2008 and Managing Director of emerging markets/international financial institutions for Banc One Capital Markets, Inc. from 2001 to 2004. She has also served as Senior Vice President, international financial institutions for Bank One from 1998 to 2001 and as Senior Vice President and head of global marketing and financial institutions for Bank One from 1997 to 1998. Ms. Champion has also held senior management positions for international banking operations for CoreStates Bank and Fidelity Bank from 1982 through 1997. Ms. Champion is also a director of Fresh Del Monte Produce, Inc. where she has served as an independent director since 2009.

William M. Fenimore, Jr., 68, has more than 30 years of experience in the banking industry. His career included various senior management responsibilities with CoreStates Financial Corporation and its predecessor, where he worked for nearly 30 years. In 1994, he joined Meridian Bank where he served until 1996 as its group Executive Vice President, Chief Technology, and Strategic Planning Officer. He served from 1996 until 1999 as the Chief Executive Officer of Integrion Financial Network, an enterprise established by various large financial institutions to build and operate a common internet technology infrastructure to serve the e-commerce needs of financial services companies. From 2000 through 2003, Mr. Fenimore was President of Fenimore and Associates, a consulting company providing services in the areas of strategic positioning, organizational and financial structuring and strategic technology planning and operational management. In 2003, he became a managing partner at BridgeLink LLC, a Switzerland based firm providing capital raising and related advisory services to companies in the United States and Europe, where he served until 2011.

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Compensation Of Directors

In 2011, our non-employee directors were compensated as follows:

Directors may participate in our directors deferred compensation plan, which allows directors to elect to defer up to 100% of their retainer, meeting and committee fees. The investment options available under the directors deferred compensation plan are the same as those available under our 401(k) plan. As a general rule, amounts deferred and investment returns are required to be distributed no earlier than upon the director’s termination of all directorships with us and our subsidiary. No additional compensation or above market earnings are paid pursuant to this plan. Non-employee directors do not receive perquisites or other personal benefits for their service as a director. Directors who are also our employees do not receive any additional compensation for their service as a director.

The following table provides information regarding compensation that was paid to the individuals who served as our directors during 2011, other than Ms. Nash. As a Named Executive Officer, Ms. Nash’s compensation is included in the “Executive Compensation” section of this proxy statement.

DIRECTOR COMPENSATION

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Prior to 2008, as part of our standard non-employee director compensation arrangement, we made awards to our directors either in the form of restricted common shares or stock options. The table below sets forth for each director the number of options held as of December 31, 2011. All prior grants of restricted stock held by the directors have vested.

Since September 2002, we have maintained common stock ownership guidelines for our non-employee directors. The guidelines require our non-employee directors to own shares of our common stock with an aggregate fair value of at least five times the annual board retainer. In the event that any director does not possess such ownership level at the time of the annual organizational meeting, which immediately follows the annual meeting of shareholders, he or she will be required to take all or such portion of their annual retainer fee in restricted stock or restricted stock units until such time as the aforementioned stock ownership guidelines are achieved. In the event that a director shall terminate his or her directorship prior to the next annual organizational meeting of the board, he or she shall forfeit, on a pro rata basis, that portion of the annual retainer amount paid in restricted stock or restricted stock units. The corporate governance and nominating committee is responsible for monitoring compliance with these guidelines and receives periodic updates from management with regard to progress towards complying with the guidelines. The table below shows the stock ownership of our non-employee directors as of March 7, 2012.

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CORPORATE GOVERNANCE

General

We are governed by a board of directors and various committees of the board that meet throughout the year. Directors fulfill their responsibilities at board and committee meetings and also through telephone contact and other communications with the chairman, chief executive officer, and others regarding matters of concern and interest to the Corporation. In this portion of our proxy statement, we describe some of our key governance practices and related matters.

Meetings Of Directors And Committees Of The Board Of Directors

During 2011, our board of directors held seven meetings. All incumbent directors attended at least 75% of the total number of meetings of our board of directors and the number of meetings held by our committees on which they served during 2011.

We have several standing committees of our board of directors, including a compensation and human resources committee, a corporate governance and nominating committee, a risk management committee, and an audit committee. Our board of directors has adopted a charter for each of these committees. The charters are accessible on the Corporate Governance page of the Investor Relations Section of our website at www.citizensbanking.com. The audit committee and the risk management committee meet quarterly and on call when needed. The compensation and human resources committee and the corporate governance and nominating committee meet on call. Our board of directors has determined that, except for Ms. Nash, all of our directors, including all the committee members, are “independent directors” as defined in Marketplace Rule 5605 of The NASDAQ Stock Market, or NASDAQ.

The compensation and human resources committee, or Compensation Committee, met seven times during 2011 and is comprised of the following directors: Benjamin W. Laird, chairman; Lizabeth A. Ardisana, Robert S. Cubbin, and Stephen J. Lazaroff. The responsibilities of the committee include approval of all aspects of corporate executive compensation and oversight of our compensation and benefits plans.

The corporate governance and nominating committee met three times during 2011 and is comprised of the following directors: Stephen J. Lazaroff, chairman; Lizabeth A. Ardisana, Kendall B. Williams and James L. Wolohan. The responsibilities of the committee are:

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The committee uses a number of means to identify director candidates, including requesting recommendations from existing board members and others, hiring an independent search firm or consultant, and considering candidates submitted by shareholders. If the committee hires an independent search firm or consultant, such firm or consultant will provide the committee with the names of director candidates who meet criteria established by the committee. When evaluating a director candidate, the committee looks at the candidate’s qualifications in light of our needs at that time given the then current mix of director expertise. While the committee does not have a formal policy with regard to diversity, the committee believes that the board will function best when its members possess a broad range of backgrounds and expertise so that the board as a whole reflects diverse and complementary skills and viewpoints. For a description of procedures for submitting nominations to the committee, see “Corporate Governance – Shareholder Proposals” and “Corporate Governance – Shareholder Nomination of Director Candidates.”

The audit committee met ten times during 2011 and is comprised of the following directors: Robert S. Cubbin, chairman; Madeleine L. Champion, Gary J. Hurand, Benjamin W. Laird and James L. Wolohan. Ms. Champion was appointed to the audit committee in December 2011. Our board of directors has determined that each of the members of the committee is “independent,” as defined in the applicable NASDAQ and Commission rules for audit committee members. Our board of directors has also determined that Mr. Cubbin is an “audit committee financial expert” as defined by applicable Commission rules and that each of the audit committee members satisfies all other qualifications for audit committee members set forth in the applicable NASDAQ rules. The responsibilities of the committee are:

The risk management committee assists our board in overseeing our risk management practices, including our ability to assess and manage our risks related to credit, market, interest rate, liquidity, reputation, strategic, fiduciary, legal, compliance and operations. The committee met seven times during 2011 and is comprised of the following directors: George J. Butvilas, chairman; William J. Fenimore, Jr., Gary J. Hurand, Kendall B. Williams and James L. Wolohan. Mr. Fenimore was appointed to the risk management committee in December 2011. The responsibilities of the committee are:

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We have an enterprise risk management program overseen by our executive vice president and corporate risk officer, who reports directly to Ms. Nash and is responsible for identifying potential material risks and implementing appropriate controls to mitigate risks. Information is presented to the risk management committee at each meeting about the various risks facing us and key risk indicators are reviewed by the committee in detail. In addition, each of the other standing board committees considers risks within its areas of responsibility. For example, the audit committee considers financial risks including those related to internal controls and the annual financial audit and financial reporting. The compensation and human resources committee oversees the management of risks associated with our executive compensation plans and ensures that our compensation programs do not encourage excessive risk taking. The entire board of directors receives a monthly report of key risk indicators and is regularly informed at its meetings through committee reports. The board’s oversight role in this area has not affected its approach to the board’s leadership structure at least in part due to the level of direct communication between the board, its risk management and other committees and employees involved in risk management.

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Report Of The Audit Committee

In accordance with its written charter adopted by our board of directors, the audit committee assists the board of directors in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing and financial reporting practices.

The committee reviewed with the independent auditors, its judgments as to the quality, not just the acceptability, of our accounting principles and such other matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA Professional Standards, Vol. 1 AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. In addition, the Committee has discussed with the independent auditors the auditors’ independence from our management and our Corporation, including the matters in the letter from the auditors required by Public Company Accounting Oversight Board Rule 3526, Communication with Audit Committees Concerning Independence, and considered the compatibility of non-audit services with the auditors’ independence.

The audit committee reviewed and discussed our audited financial statements as of and for the year ended December 31, 2011 with management and the independent auditors.

Based on the above-mentioned review and discussions with management and the independent auditors, the audit committee recommended to our board of directors that our audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2011 for filing with the Securities and Exchange Commission. The audit committee also reappointed the independent auditors to serve as such for 2012.

By the Audit Committee of the Board of Directors:

Robert S. Cubbin, Chairman

Madeleine L. Champion

Gary J. Hurand

Benjamin W. Laird

James L. Wolohan

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Board Leadership Structure

Our board believes that it is the chief executive officer’s primary responsibility to run the Corporation and the chairman’s responsibility to run the board. In making its decision to appoint an independent chairman, our board considered the time that Ms. Nash would be required to devote to the chief executive officer position in the current economic environment. By having another director serve as chairman, Ms. Nash would be able to focus her entire energy on running the Corporation. We continue to believe this structure is best for the Corporation and our shareholders at this time. Mr. Wolohan was elected to serve again as the non-executive chairman by the independent members of our board in May 2011. Mr. Wolohan served as our lead independent director from 2005 until his appointment as non-executive chairman in May 2009, and has previously served as both a director and chair on other public company boards. The non-executive chairman position is reviewed each year at the annual organizational meeting of the board of directors.

Annual Meeting Attendance

We encourage all members of the board to attend the annual shareholders meetings but we have not adopted a formal policy requiring such attendance. All of the members of our board who were directors at the time of the 2011 annual meeting of shareholders attended that meeting, except for Mr. Butvilas.

Code of Ethics

We have a code of ethics that applies to all of our employees and directors. The code of ethics, as currently in effect (together with any amendments that may be adopted from time to time), is posted on the Corporate Governance page of the Investor Relations Section of our website at www.citizensbanking.com. In the future, to the extent any waiver is granted with respect to the code of ethics that requires disclosure under applicable Commission rules, we intend to post the waiver on the website at the address specified above.

Shareholder Proposals

Any proposal by a shareholder intended to be included in the proxy statement for the 2013 annual meeting must be received by Thomas W. Gallagher, the secretary of the Corporation, by the close of business on November 12, 2012. In addition to applicable rules of the Commission for inclusion of shareholder proposals in our proxy statement, our Bylaws provide that, in order for a shareholder proposal to be properly brought before the annual meeting, written notice of such proposal must be given by the shareholder to our corporate secretary, either by personal delivery or by United States mail, postage prepaid, not later than January 25, 2013, which is the 90^th day prior to the first anniversary of the 2012 annual meeting. If the annual meeting date is substantially advanced or delayed from the first anniversary of the 2012 annual meeting, then notice of the proposal must be given within 10 days after the first public disclosure of the date of such meeting in accordance with the procedures set forth in our Bylaws. We also expect the persons named as proxies for the 2012 annual meeting of shareholders to use their discretionary voting authority, to the extent permitted by law, with respect to any proposal properly presented at that meeting by a shareholder who does not provide us with written notice of the proposal during the period provided in our Bylaws.

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Shareholder Nomination of Director Candidates

Shareholders proposing director nominees for election at the 2013 annual meeting of shareholders must provide written notice of their intention, along with certain information regarding the proponent and the nominees as provided in our Bylaws, to our corporate secretary not later than the close of business on January 25, 2013, which is the 90^th day prior to the first anniversary of the 2012 annual meeting. If the 2013 annual meeting date is substantially advanced or delayed from the first anniversary of the 2012 annual meeting, then notice of their intention must be given within 10 days after the first public disclosure of the date of the annual meeting in accordance with the procedures set forth in our Bylaws. With respect to an election to be held at a special meeting of shareholders, such notice must be given by the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders. The corporate governance and nominating committee may seek additional biographical and background information from any candidate that must be received on a timely basis to be considered by the committee. The corporate governance and nominating committee reviews the qualifications of candidates submitted for nomination by shareholders and evaluates them using the same criteria used to evaluate candidates submitted by the board for nomination.

Shareholder Communications with the Board of Directors

Although we have not developed formal processes by which shareholders may communicate directly with directors, we believe that our informal process, by which any communication sent to our board of directors either generally or in care of the chief executive officer, corporate secretary or another corporate officer and forwarded to the addressee, has served the needs of both our board of directors and our shareholders.

The corporate governance and nominating committee will monitor this matter and may develop more specific procedures. Until any other procedures are developed and posted on the Corporate Governance page in the Investor Relations section of our website at www.citizensbanking.com, any communication to the board of directors may be mailed to the board, in care of our corporate secretary, at 328 South Saginaw Street, Flint, Michigan 48502. The mailing envelope should contain a clear notation indicating that the enclosed letter is a “Shareholder-Board Communication” or “Shareholder-Director Communication.” All such communications should identify the author as a shareholder and clearly state whether the intended recipients are all members of the board of directors or just certain specified individual directors. Our corporate secretary will make copies of all such communications and circulate them to the appropriate director or directors.

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Executive Officers

The following information is provided for those officers currently designated as executive officers by our board of directors.

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EXECUTIVE COMPENSATION

Compensation Discussion And Analysis

Executive Summary and Key Highlights of 2011 Executive Compensation Decisions

2011 was a pivotal year for us. After a prolonged period of losses, the second quarter of 2011 saw us return to profitability for the remainder of the year. This turnaround was primarily the result of management’s successful efforts to reduce problem assets and significantly improve our credit metrics. During 2011 our nonperforming assets decreased 64% and our delinquencies, as a percentage of the loan portfolio, dropped 45% from the end of 2010. In addition, our provision for loan loss expense for 2011 decreased 65% compared to the prior year. Our improved results were also driven by management’s continued focus on improving pre-tax, pre-provision profit, or PTPP, primarily through generating revenue and managing operating expenses. For a more detailed discussion of our financial and operating performance, see our 2011 Annual Report on Form 10-K.

In 2011, the Compensation Committee, and the board of directors made the following decisions with regard to executive compensation paid to the Named Executive Officers listed in the Summary Compensation Table:

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Overview of Compensation Philosophy and Program

Our compensation philosophy is to offer a competitive total compensation opportunity in order to attract, motivate and retain the talent needed during this challenging economic cycle. Our philosophy is supported by a program that motivates our executives to achieve strategic goals prudently and within acceptable risk tolerances while driving financial performance and generating long-term, sustainable shareholder value. While we remain committed to our philosophy, our ability to offer competitive total compensation opportunities and reward financial performance results that drive shareholder value is limited because of our participation in the CPP. Despite the CPP-related restrictions, we continue to seek new ways to reinforce our philosophy, and as a result placed additional performance restrictions on a portion of our long-term incentive grants and paid a portion of base salaries for certain Named Executive Officers in the form of common stock. The effect of our participation in the CPP on our executive compensation program is discussed in more detail in “Executive Compensation – Compensation Discussion and Analysis - Capital Purchase Program” below. Our compensation philosophy is based primarily on the following objectives:

Our executive compensation objectives are achieved primarily through four elements:

In making compensation decisions, the Compensation Committee considers each element of our compensation program individually and in relation to the total compensation of each executive officer. We believe that a significant portion of executive compensation should be in the form of performance-based annual and long-term incentive grants. We believe this pay mix emphasizes both a short-term and a long-term perspective that is directly tied to shareholder value. The performance-based portion of compensation recognizes the significance of our executive officers’ contributions towards our overall financial performance.

Decisions about compensation of our executive officers are made by the Compensation Committee, all of the members of which are “independent” as defined under applicable NASDAQ rules or by the board of directors at the recommendation of the Compensation Committee. To help with its decision making each year, the Compensation Committee generally hires its own independent compensation consultant, who reports directly to the Compensation Committee. The engagement with the Compensation Committee’s previous consultant Towers Watson ended in 2011 and Towers Watson played no significant role in advising the Compensation Committee during 2011. Beginning in June 2011, the Compensation Committee retained Pearl Meyer and Partners as its independent compensation consultant. In light of the overwhelming shareholder support for our executive compensation practices expressed at last year’s annual meeting through the advisory vote on compensation, the Compensation Committee maintained our existing compensation program and philosophy in 2011 but continues to review and evaluate executive compensation trends and practices and may modify the program or philosophy from time to time as it deems necessary or appropriate.

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For executive compensation decisions in May 2011, the Compensation Committee reviewed competitive market data for comparable executive positions prepared by our human resources department. These data generally compare total executive compensation and plan design for nationwide banking and financial services organizations and where necessary are adjusted to reflect our asset size in comparison to these organizations. While these data were reviewed and considered by the Compensation Committee as a reference point and market check in making executive compensation decisions and to provide perspective for developing competitive compensation opportunities, the Compensation Committee did not formally benchmark the compensation of individual executives to any particular amount or range based upon such data.

In July 2011, the Compensation Committee, based on the recommendation of Pearl Meyer and Partners, approved a revised peer group that will be used for purposes of 2012 compensation decisions and to benchmark compensation for some or all of the Named Executive Officers. The key considerations for peer group selection were industry and size, specifically financial service companies that are regional public commercial banks with assets from approximately half to two times our size. The result is a peer group of 24 banks, with the Corporation positioned at approximately the median. Banks in the peer group include:

The Compensation Committee now uses this peer group, in conjunction with broader financial industry surveys, including data using similarly sized financial institutions, as a reference for pay program decisions. More specifically, this peer group information will be used to provide perspective for developing competitive compensation opportunities, to examine the appropriateness of executive pay levels and practices, to assess the pay and performance relationship for executives and to review practices and trends as they relate to executive compensation programs.

We target our total direct compensation (which includes base salary, short-term incentive awards, and long-term incentive grants) for our executive officers to be at or around the market median. However, based on the data gathered by our human resources team in 2011, we believe our total targeted direct compensation for our Named Executive Officers in 2011 was below market and our actual realized compensation, which depends on our actual financial performance and the individual performance of our executive officers, has been significantly below the median level in recent years due to our financial performance challenges during that time.

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Individual Performance Assessments

Each year, our chief executive officer reviews the performance of the other executive officers and assigns a performance rating to each executive officer based on the financial performance of the line of business, the unique contributions made to us and our need for the executive’s expertise. Additionally, executives are evaluated on core competencies that are used to evaluate all of our staff members. Our chief executive officer reviews the performance ratings with the chair of the board of directors, who attends Compensation Committee meetings. Our chief executive officer then makes recommendations regarding the total compensation for the executive officers to the Compensation Committee. Following a discussion of our chief executive officer’s recommendations and a review of the competitive market data, the Compensation Committee either approves the recommendations or adjusts total compensation as appropriate in its subjective judgment.

Ms. Nash’s performance as the chief executive officer is evaluated each year by the board of directors. The chair of the board of directors and the chair of the Compensation Committee solicit feedback regarding Ms. Nash’s performance from peers and subordinates and meet with each of the other directors to evaluate Ms. Nash’s performance, based on the same core competencies and other factors on which our other executives are evaluated, as well as our financial performance. Ms. Nash also provides to the chair of the board of directors and the chair of the Compensation Committee a self-assessment of her performance. The chair of the board of directors and the chair of the Compensation Committee then prepare a performance review and summary to review with the board of directors. In making total compensation decisions regarding Ms. Nash, the Compensation Committee reviews the performance evaluation information, Ms. Nash’s self-assessment, the subordinate and peer review, the recommendation of the chair of the board and the chair of the Compensation Committee, the peer group data and the competitive market data, and makes a recommendation to our board of directors. After reviewing the information listed above in light of the Compensation Committee’s recommendation, the board of directors makes the final determination with regard to Ms. Nash’s total compensation.

Base Salary

We pay base salary as a fixed form of compensation to recognize our executive officers’ individual performance in their daily roles. In order to attract and retain high performing executive officers, we believe our base salaries must be competitive with base salaries paid by our competitors, and appropriately reflect each executive’s experience, performance and contribution. As a result, we typically use the previously discussed market data along with the results of annual performance evaluations to determine base salary levels.

2011 Base Salary Determinations

Our participation in the CPP limits our ability to provide incentive-based compensation, thereby placing greater focus on base salary as a means to provide fair and competitive pay. In May 2010, the Compensation Committee and the board of directors determined that base salary increases in the form of Stock Salary would further align our executives’ interests with those of our shareholders, as a portion of their compensation would be directly tied to an increase or decrease in the price of our stock, and granted to certain Named Executive Officers base salary increases in the form of Stock Salary that would continue for one year. Stock Salary is paid as part of each bi-weekly pay period for one year, with the number of shares determined by dividing the dollar amount of salary to be paid in stock for that pay period, net of applicable withholdings and deductions, by the reported closing price per share on the NASDAQ Capital Market on the pay date for such period. In accordance with CPP-related requirements, the Stock Salary so granted is fully earned and not forfeitable at the time of the grant. However, additional transfer restrictions on the shares do not lapse until the earliest to occur of the second anniversary of the grant date or the death, disability, retirement or termination of employment where severance benefits are paid. Named Executive Officers receiving Stock Salary have voting and dividend rights with respect to the restricted stock prior to the lapse of the transfer restrictions.

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As a result of the process described in “Executive Compensation – Compensation Discussion and Analysis – Individual Performance Assessment,” and for the same reasons for which the 2010 Stock Salary grants were made, the Compensation Committee and our board of directors renewed the Stock Salary grants in May 2011 for another year. Stock Salary will not continue to be paid after May 2012 without further action by the Compensation Committee. The Compensation Committee will determine at that time whether to renew or discontinue the Stock Salary grant or convert the Stock Salary to cash salary, in part or in its entirety.

Additionally, the Compensation Committee determined, based on the recommendation of Ms. Nash and taking into consideration competitive market data, that base salary increases in the form of cash were appropriate for Ms. McNeely, Mr. Widawski, Ms. Klawinski, and Mr. Gallagher in order to recognize their individual performance and maintain competitive salaries. Mr. Widawski’s base salary is somewhat higher than the median indicated by the competitive market data for his position, which the Compensation Committee believes is appropriate due to the importance of his role in managing our credit challenges during this economic cycle. Ms. McNeely’s, Ms. Klawinski’s and Mr. Gallagher’s salaries approximate the median indicated by the competitive market data for their positions.

The board of directors determined not to increase Ms. Nash’s base salary in May 2011 based on the recommendation of the Compensation Committee. The Compensation Committee, in anticipation of engaging a new compensation consultant and considering Ms. Nash’s salary increase in September 2010, preferred to have the benefit of an independent review of Ms. Nash’s base salary using refreshed and revised peer group data prior to making any recommendations regarding the adjustment of Ms. Nash’s base salary. Ultimately, the board of directors, based on the recommendation of the Compensation Committee, determined to postpone any review of her base salary until the normal evaluation cycle in 2012.

The table below sets forth the effect of the increases in base salaries in 2011.

Salaries for the Named Executive Officers are reflected in the salary column of the “Summary Compensation Table.”

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Management Incentive Plan

Our Management Incentive Plan, or MIP, compensates executives, in cash, for the achievement of predetermined individual and corporate performance goals.

In view of our performance during the last several years and consistent with compensation limitations applicable to CPP participants, our Named Executive Officers and our next ten most highly compensated employees have not participated in the MIP. Despite our improved financial performance, our Named Executive Officers will not participate in the MIP in 2012 due to the CPP-related restrictions.

Long-Term Incentive Compensation

2011 Long-Term Incentive Grants

We believe long-term equity based grants encourage a long-term focus with regard to our financial success, align our executives’ interests with those of our shareholders by linking a portion of executive compensation directly to the changes in stock price, and help support sound risk management practices as discussed in further detail in the “Executive Compensation – Compensation and Human Resources Committee Report” included below. Long-term equity awards are granted in the first part of the calendar year and are made under our Stock Compensation Plan.

With respect to grants of equity based compensation, as long as the preferred shares issued to Treasury under the CPP remain outstanding, we are limited in the amount of long-term restricted stock that may be paid to our Named Executive Officers and certain of our other most highly compensated employees. Long-term restricted stock grants cannot exceed one-third of the recipient’s total annual compensation, must have a minimum two-year vesting requirement, and will not become fully transferable while the Series A Preferred remain outstanding.

In May 2011, the Compensation Committee and the board of directors approved long-term incentive grants in the form of restricted stock and restricted stock units for our Named Executive Officers. In addition to the CPP-related restrictions noted above, forty percent of the long-term incentive grant made is subject to PTPP and net income performance conditions designed to motivate our executives to focus on our profitability. To further encourage retention, the remaining sixty percent of the grant will vest in one installment three years after the grant date, rather than the two years required by the CPP-related compensation limits. The Compensation Committee and board of directors determined to make the long-term equity grants to the Named Executive Officers in the maximum amount permitted under the CPP-related restrictions to maximize the motivational effect of the grants in view of the uniformly positive individual performance assessments and the additional performance-based conditions being imposed on a portion of the grants, and to keep pace, to the extent practical, with peer group incentive compensation opportunity. The 2011 long-term incentive grants made to our Named Executive Officers are listed in the table below.

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The performance-based portion of the grant is subject to the following performance requirements:

The PTPP performance target for 2011 was $109.2 million and the net income performance target for 2011 was ($43 Million). The PTPP performance target for 2012 is somewhat less than the 2011 PTPP actual performance. The net income performance target for 2012 approximates the aggregate net income (before the dividend on Series A Preferred) reported by the Corporation for the last three quarters of 2011. The target performance goals for both years are based on our internal budget goals and are reasonably attainable if we sustain our performance throughout 2012.

The two performance targets are separate and the attainment of one target will result in the percentage of the award attributable to the attained target being earned even if the other target is not attained. The payout threshold for the financial measures begins at achievement of 90% of each performance goal, and the maximum payout is capped at 125% of the PTPP goal and 110% for the net income goal. The grants are paid on a pro-rata basis if our performance lands between the threshold and the maximum. To the extent applicable, CPP-related restrictions may limit the number of restricted shares or restricted stock units the Named Executive Officers would receive. The table below shows how the grants would be earned at varying levels of performance.

Also, prior to the payout of the performance-based award, if our classified asset ratio, weighted classified asset ratio, or allowance coverage ratio indicate an unacceptable risk level, then the Compensation Committee has the discretion to reduce or eliminate any payout otherwise earned. The restricted stock or restricted stock units with respect to which these performance-based conditions have been satisfied will become earned and no longer forfeitable on May 18, 2013, but the shares will remain

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non-transferable as long as the CPP-related limitations are applicable. The restrictions as to the time-based portion of the award will lapse on May 18, 2014, the third anniversary of the grant date, if the Named Executive Officer remains employed by us, but the shares will remain non-transferable as long as the CPP-related compensation limitations are applicable.

PTPP represents total revenue (total net interest income and noninterest income) excluding any securities gains/losses, fair-value adjustments on loans held for sale, interest rate swaps, and bank owned life insurance, less noninterest expense excluding any goodwill impairment charges, credit writedowns, fair-value adjustments and special assessments, and is disclosed quarterly in our reports filed with the SEC. While certain of these items are an integral part of our banking operations, in each case, the excluded items are items that we believe are particularly impacted by economic stress or significant changes in the credit cycle and are therefore likely to make it more difficult to understand our underlying performance trends and the ability of our banking operations to generate revenue. The use of PTPP as a metric focuses the attention of our Named Executive Officers on improving PTPP, which the Compensation Committee believes is a key metric for our business, as it represents our ability to generate capital to cover credit losses and other credit related or impairment charges through the peak of a credit cycle. This underlying ability to generate capital directly impacts our long-term value and viability. Improving PTPP increases our long-term value and thus aligns the Named Executive Officers’ incentives with the creation of shareholder value. These awards are designed so that this portion of compensation does not depend on management’s performance with regard to managing loan losses, securities impairments, and other asset impairments.

Net income is calculated in accordance with generally accepted accounting principles. The Compensation Committee chose net income to encourage our executive officers to focus on returning to profitability.

Mr. Widawski and Mr. Gallagher received restricted stock units which are granted to those who are retirement eligible, because of the more favorable tax treatment. Mr. Widawski and Mr. Gallagher will receive a pro-rata portion of any unvested restricted stock units upon retirement, while other Named Executive Officers who retire with unvested restricted stock forfeit any unvested shares. Each restricted stock unit will be settled for one share of our common stock at the time the applicable restrictions lapse, with a portion of these shares withheld to satisfy income and employment tax withholding requirements. Holders of restricted stock units will have no voting or dividend rights prior to settlement of the units for shares of stock. Holders of restricted shares, however, will have voting and dividend rights with respect to those shares from the date of grant except to the extent such restricted shares are forfeited. The terms regarding forfeiture of these grants are described in more detail under “Executive Compensation – Other Potential Post-Employment Payments – Stock Compensation Plan.”

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Vesting of 2010 Long-Term Incentive Grant

In May 2010, the Compensation Committee approved long-term incentive grants of restricted stock or stock units with vesting for one-half of the grant based on our performance in 2010 and the other half based on our performance in 2011. The performance measures were based on PTPP (75%) and total provision expense (25%). To the extent any of the performance measures were achieved, the related portion of the grants would vest on May 4, 2012. The portion of any grant relating to a target that was not achieved would be forfeited. The table below sets forth the performance measures, weighting, thresholds and actual performance.

While the PTPP threshold was met in both years, we did not satisfy the 2010 or the 2011 threshold for total provision expense and so that portion of the award relating to that goal was forfeited. The table below shows the number of shares earned and forfeited in 2010 and 2011 in connection with this award.

Vesting of 2009 Incentive Award

In January 2009, the Compensation Committee approved long-term incentive grants to our Named Executive Officers (except for Ms. McNeely, who was not an executive officer at the time), which consisted of a cash component that would vest and be paid in three annual installments each January 29^th beginning in 2010 as long as the Named Executive Officer remains employed with us. The bonus column in the “Summary Compensation Table” reflects the January 2010 and January 2011 installments of the cash component of the 2009 award.

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The grant also included a long-term equity component which was earned upon the achievement of certain financial measures. Three years after the grant date, on January 29, 2012, the restrictions on the restricted shares lapsed because we reported net income (before dividend on Series A Preferred) in 2011 and our 2011 PTPP results improved over 2010 results. The table below shows the cash component and equity component of the 2009 award that vested in 2011 or was based on 2011 performance.

Retirement and Other Benefits

Qualified Plan

We maintain the Citizens Republic Bancorp Amended and Restated Cash Balance Pension Plan for Employees, or the Qualified Plan, which provides funded, tax-qualified retirement benefits up to the limits on compensation permitted under the Internal Revenue Code. The Qualified Plan is a cash balance pension plan that was frozen effective December 31, 2006. The accrual of future benefits under the Qualified Plan, other than the accrual of interest, has ceased so that pay and service after December 31, 2006 will not increase benefits payable under this plan although post-2006 service will count towards vesting requirements for benefits already accrued.

Benefits payable under the Qualified Plan are paid in the form of a lump sum or an equivalent annuity immediately following retirement and the attainment of age 55 with 3 years of service or prior to age 55 with at least 10 years of service. All of our Named Executive Officers earned an interest credit benefit under the Qualified Plan in 2011. As of the end of 2011, all of our Named Executive Officers have earned a vested interest in the Qualified Plan (completed at least 3 years of credited service). The present value of accumulated benefits under the Qualified Plan for each Named Executive Officer is disclosed in the “Pension Benefits” table and the change in those benefits during 2011 is disclosed in the “Summary Compensation Table.”

401(k) Plan

All of our Named Executive Officers participated in our 401(k) plan in 2011. Prior to August 2009, we matched up to 4% of eligible compensation per year. In 2009, the Compensation Committee, pursuant to a recommendation by Ms. Nash, eliminated the 401(k) matching benefit based in part on our corporate performance during the year and in an effort to accelerate our financial performance toward profitability. At the recommendation of Ms. Nash, the Compensation Committee has now determined that we will reinstate matching contributions of up to 2.5% of eligible compensation per year beginning January 1, 2012.

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For 2007 and 2008, we paid an annual non-elective contribution of 2.5% of eligible compensation to the 401(k) plan on behalf of each eligible employee, regardless of participation in the 401(k) plan. This non-elective contribution served as a vehicle to supplement retirement savings in the absence of an active pension plan. For 2009, the 401(k) Plan was amended to make the non-elective contribution discretionary. The Compensation Committee and the board determined that there would be no contribution for 2010 and 2011 in light of our corporate performance during the year and in an effort to accelerate our financial performance toward profitability.

Deferred Compensation Plan

Ms. Nash and Ms. Klawinski participate in our Deferred Compensation Plan for Executives, or Deferred Compensation Plan. Under our Deferred Compensation Plan, we may make matching contributions in the form of our common stock, not to exceed 30% in value of the participant’s own contribution. The Compensation Committee has the discretion to determine whether to make matching contributions and to date has not made any matching contributions under the Deferred Compensation Plan.

Executive Perquisites and Benefits

We have reimbursed our Named Executive Officers for initiation fees and annual dues, as applicable, for membership in country clubs. In 2011, in an effort to further manage our expenses, we did not reimburse our Named Executive Officers for country club dues and fees.

In compliance with the CPP, the Compensation Committee adopted an excessive or luxury expenditures policy, which prohibits excessive or luxury expenditures of our funds on entertainment or events, office or facility renovation, aviation or other transportation services, or other similar items, activities, or events, if such expenditures are not reasonable expenditures for staff development, reasonable performance incentives, or other similar measures conducted in the normal course of the operation of our business. The policy is accessible on the Corporate Governance page of the Investor Relations section of our website at www.citizensbanking.com.

Employment Agreements

In connection with Ms. Nash’s appointment as our president and chief executive officer, we entered into a letter agreement with Ms. Nash. The Compensation Committee proposed the initial terms based on market and peer group data and taking into account Ms. Nash’s relevant experience. The Compensation Committee negotiated the final terms of the letter agreement with Ms. Nash, which are designed to be competitive and motivate Ms. Nash to focus on our long-term growth and profitability. This agreement is described in more detail under “Executive Compensation – Other Potential Post-Employment Payments – Nash Letter Agreement.”

Employment Termination Severance Benefits

We provide our Named Executive Officers with severance benefits upon termination of employment in connection with a change in control of the Corporation and in certain other circumstances as deemed appropriate by the Compensation Committee. Each of our Named Executive Officers is

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entitled to benefits upon termination in connection with a change in control pursuant to our Amended and Restated Change in Control Agreement, or Change in Control Agreement. The Compensation Committee believes it is important to provide this protection in order to ensure our Named Executive Officers will remain engaged and committed to us during an acquisition of the Corporation or other transition in management. Each Change in Control Agreement provides for severance benefits in a lump sum payment equal to two times (or in the case of Ms. Nash three times) the Named Executive Officer’s annual base salary immediately prior to the change in control plus two times (three times in the case of Ms. Nash) the average of the annual bonuses paid to the Named Executive Officer in the last three full calendar years of employment under our MIP.

In addition, we may negotiate severance benefits with other individual executives upon termination in other circumstances when the Compensation Committee deems appropriate. Ms. Nash’s letter agreement provides that she will be entitled to two years of base salary plus outplacement services if her employment is terminated by the Corporation without cause that is not in connection with a change in control. These benefits and arrangements are described in detail under “Executive Compensation – Other Potential Post-Employment Payments.”

Due to our participation in the CPP, as long as the Series A Preferred remain outstanding, and also pursuant to the terms of our written supervisory agreement with the Federal Reserve Bank of Chicago and the State of Michigan Office of Financial and Insurance Regulation, we are generally not permitted to pay amounts to our Named Executive Officers and our next five highest paid employees for a change in control of the Corporation or their departure from the Corporation for any reason other than death or disability, except payments for services performed or benefits accrued and payments pursuant to qualified retirement plans or that are required by applicable law.

The written supervisory agreement requires us to comply with the restrictions on golden parachute payments under Part 359 of the Federal Deposit Insurance Corporation’s rules and regulations, which are similar to the CPP restrictions on golden parachute payments noted above. Under Part 359, we are prohibited from making payments to our Named Executive Officers that are payable due to their termination, with certain exceptions. We would generally be permitted to make payments made by reason of death or disability, mandated by state law or pursuant to:

Therefore, while we are subject to the written supervisory agreement, we would generally be prohibited from making payments to Ms. Nash pursuant to the terms of her letter agreement and to all of our Named Executive Officers that would otherwise be payable pursuant to the terms of our Change in Control Agreements with them.

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Capital Purchase Program

As long as the Series A Preferred remain outstanding, we are subject to various restrictions on our ability to compensate our senior executives, including the Named Executive Officers, imposed by the Emergency Economic Stabilization Act of 2008, or EESA, the American Recovery and Reinvestment Act, or ARRA, and the Treasury regulations issued thereunder. These restrictions on executive compensation significantly affect our executive compensation program, and include, among others:

Section 162(m) Compliance

Section 162(m) of the Internal Revenue Code of 1986, or the Code, restricts the ability of publicly traded companies such as ours to deduct executive compensation paid to each of our Named Executive Officers in excess of $1,000,000 in annual compensation. In years when the preferred shares issued to Treasury under the CPP are not outstanding, certain performance-based compensation is deductible, if it complies with various conditions described in Section 162(m). The Stock Compensation Plan and its predecessor plans contain provisions intended to allow certain performance-based pay to be deductible. However, while our CPP obligations are outstanding, the $1,000,000 annual federal compensation deduction is reduced to $500,000 and the performance-based compensation exemption is not applicable.

Our compensation program will result in payments from time to time that are subject to these restrictions on deductibility, but we do not believe the effect of these restrictions on us is currently material. While the Compensation Committee generally attempts to maximize tax deductibility of all

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compensation it believes that it may be appropriate to exceed the limitation on deductibility to ensure that executive officers are compensated in a manner that is consistent with our best interests, the best interests of our shareholders and our executive compensation philosophy and objectives, and we reserve the authority to approve non-deductible compensation in appropriate circumstances.

Stock Ownership Guidelines

Since September 2002, we have maintained common stock ownership guidelines for our executive officers. We believe that it is important for executive officers to own our common stock to ensure that their financial interests are directly aligned with those of our shareholders.

Under our stock ownership guidelines, the chief executive officer is required to hold 100,000 shares of our stock, and is provided a period of three years to attain such ownership level. The other Named Executive Officers whose base salaries are $250,000 or more are required to hold at least 30,000 shares of our common stock, and those Named Executive Officers whose base salaries are less than $250,000 are required to hold at least 10,000 shares of our common stock. The Named Executive Officers have five years from their date of appointment to attain such ownership.

Shares owned through our 401(k) plan, by the officer’s spouse or other family members, by controlled trusts, as Stock Salary, and unvested shares of restricted stock and restricted stock units, in addition to shares owned outright are included in the officer’s ownership for purposes of this guideline. The corporate governance and nominating committee is responsible for monitoring compliance with these guidelines and receives periodic updates from management with regard to progress towards complying with the guidelines. The table below shows the stock ownership of our Named Executive Officers as of March 7, 2012.

Executive Compensation Clawback Policy

Our general pay-for-performance philosophy means that we will not reward executive officers for performance if we discover that the applicable performance was due to the officer’s fraud or other misconduct. To implement this principle, our board of directors has adopted an Executive Compensation Clawback Policy to allow us in certain circumstances to recover bonus and incentive compensation paid to an executive officer. Under this policy, if the board subsequently determines that, as a result of the executive’s misconduct, we are required to materially restate all or a significant portion of our financial statements for the period for which the compensation was paid, we have the right to require that the executive officer reimburse us for the amount of any related bonus or incentive compensation received, forfeit any vested options or restricted stock, or cancel any related unvested restricted or deferred equity awards granted on the basis of having met or exceeded performance goals if, according to the restated financial statements, such goals were not in fact met or exceeded. In deciding whether to pursue the

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remedies provided in the policy, the board may consider all relevant facts, including whether the misconduct by the executive officer that caused or partially caused the need for the restatement was negligent, intentional, or gross misconduct. In addition to the remedies provided in this policy, we may dismiss or pursue other legal remedies against the executive officer.

In addition, to comply with the Treasury’s requirements with respect to the CPP, we are required to make cash or equity incentive compensation paid to Named Executive Officers and certain other highly compensated employees subject to recovery or “clawback” if the payments are based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria. Section 304 of the Sarbanes-Oxley Act of 2002 also contains a requirement that the chief executive officer and the chief financial officer forfeit any bonus, incentive-based compensation or equity-based compensation received and any profits from sales of our securities during the twelve month period following an accounting restatement due to our material non-compliance, as a result of misconduct, with any financial reporting requirement under the securities laws.

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Compensation And Human Resources Committee Report

In accordance with its written charter adopted by the board of directors, the Compensation Committee determines and implements compensation and benefit systems for our executive officers and other employees.

The Compensation Committee certifies that:

Risk Review and Assessment Process

As required by ARRA and the Treasury regulations promulgated thereunder, our compensation plans will be reviewed every six months by our Compensation Committee. Our senior risk officer will approve the certification of the plans by considering whether any compensation plans might promote unnecessary risk taking and threaten the value of the financial institution and encourage manipulation of reported earnings, specifically including the following:

Upon his certification of the plans, the senior risk officer presented his findings to the Compensation Committee. Based on a review of the above factors, the senior risk officer has determined that our compensation plans do not promote or encourage excessive or unnecessary risk taking or encourage the manipulation of reported earnings and his report and conclusion has obtained the consensus and approval of the Compensation Committee.

Below is a list of the Named Executive Officer compensation plans and other employee compensation plans reviewed by the Compensation Committee along with a discussion of the reasons why the compensation plans do not promote or encourage excessive or unnecessary risk taking or encourage the manipulation of reported earnings.

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Named Executive Officer Compensation Plans

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Other Employee Compensation Plans

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The Compensation Committee has reviewed and discussed with management the “Compensation Discussion and Analysis” section of this proxy statement, or CD&A, for the year ended December 31, 2011. Based on such review and discussion, the Compensation Committee recommended to the board of directors that the CD&A be included in this proxy statement and incorporated by reference in our Annual Report on Form 10-K for the year ended December 31, 2011.

By the Compensation Committee of the Board of Directors:

Benjamin W. Laird, Chairman

Lizabeth A. Ardisana

Robert S. Cubbin

Stephen J. Lazaroff

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Summary Compensation Table

The following table provides compensation information for the last three fiscal years for our chief executive officer, chief financial officer and the three other most highly paid executive officers who were serving as such at December 31, 2011. We refer to these individuals in this proxy statement as our Named Executive Officers. The material terms of plans and agreements pursuant to which certain items set forth below were paid are discussed elsewhere in “Executive Compensation.”