DBRS Confirms Citizens Republic Bancorp at BBB (high) with Negative Trend

DBRS has today confirmed the ratings of Citizens Republic Bancorp (Citizens or the Company) and its related entities with a Negative trend, including the Company’s Issuer & Senior Debt at BBB (high) and Short-Term Instruments at R-1 (low). The rating action follows a detailed review of the Company’s operating results and financial fundamentals. All Negative trends were applied by DBRS on June 27, 2007, following the Company’s announcements that indicated material deterioration in the credit quality of its commercial real estate (CRE) portfolio.

Citizens’ ratings are based on its well-established community banking and deposit franchise, solid management team, good sales culture and positive momentum in its fee income-related businesses. The ratings also take into account the Company’s weak financial profile and elevated CRE exposure relative to its similarly rated peers. Moreover, Citizens is challenged by struggling credit quality and its economically challenged Midwest location.

DBRS notes that a return to prior asset quality performance, sustained improvement in core profitability, and robust organic loan and deposit growth could result in positive rating actions. On the other hand, continued asset quality pressures, a sustained deterioration in core profitability and or a material decline in core deposit shares could have negative rating implications.

The Company has a solid deposit franchise which was enhanced by the acquisition of Republic Bancorp, Inc. (Republic). Citizens enjoys a top-three market share position in 63% of the 178 cities in which it operates including a leading position in 54 cities. DBRS notes that the recent realignment of its management team by geographic regions may help the Company address its current credit quality and earnings challenges by focusing its efforts on individual markets.

After a number of years of low to flat growth, Citizens’ fee income increased 27% mainly from the Republic acquisition. Although fee income as a percentage of revenue remains below that of the Company’s peers, there is positive momentum in its wealth management and brokerage businesses as Citizens continues to leverage its diverse product knowledge into the Republic customer base. DBRS views the selective growth of fee income positively as it provides revenue diversification and a natural hedge against net interest income.

The Company’s profitability and capitalization continue to be below peer average due to restructuring initiatives in addition to merger and credit costs related to the Republic acquisition. In Q2 2007, Citizens announced outsized $30 million and $17 million increases in provisions and net charge-offs, respectively, related to the legacy Republic CRE portfolio. As a result, credit quality has significantly deteriorated following three years of sustained improvement. DBRS states that near-term improvement in asset quality is unlikely given the Michigan-dominated loan portfolio. The Company’s franchise is primarily in states which continue to have weak economic fundamentals, particularly Michigan which notably underperforms the U.S. averages in leading economic indicators such as employment, and housing. DBRS notes however, that Citizens’ strong reserve levels coupled with its extensive experience in working through asset quality issues may allow the Company to overcome its credit setbacks over time.

Citizens Republic Bancorp, a financial services company headquartered in Flint, Michigan, has 238 branches in the states of Michigan, Wisconsin, Ohio, Iowa and Indiana. The Company reported $13 billion in assets and $8 billion in deposits at September 30, 2007.

Note: All figures are in U.S. dollars unless otherwise noted.