FirstMerit Corporation Reports First Quarter 2010 EPS of $0.21 Per Share

AKRON, Ohio, May 4 /PRNewswire-FirstCall/ -- FirstMerit Corporation (Nasdaq: FMER) reported first quarter 2010 net income of $18.0 million, or $0.21 per diluted share.  This compares with $14.5 million, or $0.17 per diluted share, for the fourth quarter 2009 and $29.4 million, or $0.33 per diluted share, for the first quarter 2009.  

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Returns on average common equity ("ROE") and average assets ("ROA") for the first quarter 2010 were 6.68% and 0.64%, respectively, compared with 5.38% and 0.54% for the fourth quarter 2009 and 12.39% and 1.07% for the first quarter 2009.  

"FirstMerit reported solid results in the first quarter.  Our 44th consecutive quarter of profitability in a continually challenging economy reflects FirstMerit's financial strength and stability, which provides us a solid platform with which to pursue strategic growth opportunities," said Paul G. Greig, chairman, president and CEO of FirstMerit Corporation. "This quarter we demonstrated good performance on many fronts, including a 10th straight quarter of core deposit growth, continued net interest margin expansion and a decrease in net charge-offs.  To facilitate future profitable growth, we added $80.0 million of tangible common equity to our strong balance sheet during the quarter with execution of an at-the-market stock offering in March."

In the first quarter of 2010, The Corporation completed two strategic acquisitions in the Chicago area: 24 branches of First Bank and certain assets and substantially all of the deposits of the 4-branch George Washington Savings Bank.

Net interest margin was 3.72% for the first quarter of 2010 compared with 3.64% for the fourth quarter of 2009 and 3.53% for the first quarter of 2009.  The Corporation's continued emphasis on core deposit gathering and shifting deposit mix away from higher-priced certificate of deposit products drove the expansion over both time periods.

Average loans during the first quarter of 2010 increased $150.5 million, or 2.16%, compared with the fourth quarter of 2009 and decreased $281.5 million, or 3.81%, compared with the first quarter of 2009. Excluding $286.8 million in average loan balances related to the aforementioned Chicago bank acquisitions, average loans decreased $119.9 million, or 1.73%, compared with the fourth quarter of 2009 and decreased $568.4 million, or 7.70% compared with the first quarter of 2009.  The decrease in average balances reflects a reduced level of commercial and consumer credit demand and the focus on debt reduction by The Corporation's business and retail customer base.

Average deposits during the first quarter of 2010 increased $943.2 million, or 12.75%, compared with the fourth quarter of 2009 and increased $696.7 million, or 9.11%, compared with the first quarter of 2009. During the first quarter of 2010 the Corporation increased its average core deposits, which excludes time deposits, by $687.3 million, or 11.74%, compared with the fourth quarter of 2009, and $1.5 billion, or 29.28%, compared with the first quarter of 2009.  Acquisitions represent $706.5 million of average deposit growth and $275.5 million of average core deposit growth in the first quarter of 2010.

Average investments during the first quarter of 2010 increased $168.4 million, or 6.13%, compared with the fourth quarter of 2009 and increased $132.7 million, or 4.76%, over the first quarter of 2009.

Net interest income on a fully tax-equivalent ("FTE") basis was $92.3 million in the first quarter 2010 compared with $89.2 million in the fourth quarter of 2009 and $88.6 million in the first quarter of 2009.  Compared with the fourth quarter of 2009, average earning assets increased $366.7 million, or 3.77% and decreased $108.4 million or 1.06% compared to the first quarter of 2009.  

Noninterest income net of securities transactions for the first quarter of 2010 was $53.9 million, an increase of $3.2 million, or 6.27%, from the fourth quarter of 2009 and a decrease of $1.2 million, or 2.25%, from the first quarter of 2009 which included $9.5 million due to curtailment of the postretirement medical benefit plan for active employees.  Included in noninterest income in the first quarter 2010 was a $5.1 million ($3.3 million after-tax) gain related to the George Washington Savings Bank acquisition.

The primary changes in other income for the 2010 first quarter as compared to the first quarter of 2009 were as follows: trust income was $5.3 million, an increase of 10.25% primarily due to advances in the equity markets; service charges on deposits were $15.4 million, an increase of 8.49% due to an increase in new accounts; credit card fees were $11.6 million, an increase of 4.28% attributable to the improvement in the economy; loan sales and servicing income was $3.2 million, an increase of 38.63%, primarily attributable to refinancing in the current low rate mortgage market environment; bank owned life insurance income was $5.7 million, an increase of $2.6 million attributable to realized policy proceeds.  A separate line item was added in the attached schedules for the $5.1 million gain on the acquisition of George Washington Savings Bank, while separately stated in the first quarter of 2009 was the $9.5 million gain due to curtailment of the postretirement medical benefit plan.

Other income, net of securities gains, as a percentage of net revenue for the first quarter of 2010 was 36.88% compared with 36.28% for fourth quarter of 2009 and 38.39% for the first quarter of 2009.  Net revenue is defined as net interest income, on a FTE basis, plus other income, less gains from securities sales.

Noninterest expense for the first quarter of 2010 was $94.0 million, a decrease of $0.9 million, or 0.92%, from the fourth quarter of 2009 and an increase of $10.8 million, or 12.99%, from the first quarter of 2009.  For the three months ended March 31, 2010, increases in operating expenses compared to the first quarter 2009 were primarily attributable to increased salary and benefits, professional services and FDIC expense.  Onetime expenses associated with data processing conversions and related expenses for the acquisitions totaled $2.7 million.

During the first quarter of 2010, the Corporation reported an efficiency ratio of 64.10%, compared with 67.74% for the fourth quarter of 2009 and 57.81% for the first quarter of 2009.

Net charge-offs totaled $22.8 million, or 1.36% of average loans, in the first quarter of 2010 compared with $31.2 million, or 1.79% of average loans, in the fourth quarter 2009 and $15.6 million, or 0.86% of average loans, in the first quarter of 2009.

Nonperforming assets totaled $123.3 million at March 31, 2010, an increase of $22.3 million compared with December 31, 2009 and an increase of $47.1 million compared with March 31, 2009.  Nonperforming assets at March 31, 2010 represented 1.80% of period-end loans plus other real estate compared with 1.48% at December 31, 2009 and 1.04% at March 31, 2009.  

The allowance for loan losses totaled $117.8 million at March 31, 2010, an increase of $2.7 million from December 31, 2009.  At March 31, 2010, the allowance for loan losses was 1.72% of period-end loans compared with 1.68% at December 31, 2009 and 1.45% at March 31, 2009.  The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments. For comparative purposes the allowance for credit losses was 1.82% of period-end loans at March 31, 2010, compared with 1.77% at December 31, 2009 and 1.53% at March 31, 2009.  The allowance for credit losses to nonperforming loans was 110.80% at March 31, 2010, compared with 131.82% at December 31, 2009 and 159.93% at March 31, 2009.

The Corporation's total assets at March 31, 2010 were $12.3 billion, an increase of $1.8 billion inclusive of intangible assets, or 16.92%, compared with December 31, 2009 and an increase of $1.4 billion, or 12.32%, compared with March 31, 2009. Total loans increased $436.3 million, or 6.30%, compared with December 31, 2009 and increased $9.0 million, or 0.12%, over March 31, 2009.  

Total deposits were $9.4 billion at March 31, 2010, an increase of $1.9 billion, or 24.67%, from December 31, 2009 and an increase of $1.7 billion, or 22.03%, from March 31, 2009.  The increase compared with March 31, 2009 was driven by both an overall increase in savings and demand deposits and the acquisitions of the First Bank branches and George Washington Savings Bank.  Core deposits totaled $7.0 billion at March 31, 2010, an increase of $852.4 million, or 13.85%, from December 31, 2009 and an increase of $1.7 billion, or 32.70%, from March 31, 2009.

Shareholders' equity was $1,155.4 million at March 31, 2010, compared with $1,065.6 million at December 31, 2009 and $1,084.3 million at March 31, 2009.  The Corporation maintained a strong capital position as tangible common equity to assets was 7.93% at March 31, 2010, compared with 8.89% and 7.60% at December 31, 2009 and March 31, 2009, respectively.  The common dividend per share paid in the first quarter 2010 was $0.16.

During the first quarter of 2010, the Corporation raised $80.0 million in common equity through a Distribution Agency Agreement with Credit Suisse Securities (USA) LLC pursuant to which the Corporation, from time to time, offered and sold shares of the Corporation's common stock. Sales of the Common Shares were made by means of ordinary brokers' transactions on the Nasdaq Global Select Market at market prices, in block transaction or as otherwise agreed with Credit Suisse. During this time, 3.9 million shares were sold at an average market value of $20.58 per share, net of broker's fees.

Mr. Greig said, "FirstMerit is committed to maintaining a strong capital position. While the health of our institution positions us to explore opportunities for profitable growth, it is vital that we are well-capitalized in order to maintain and grow our already strong balance sheet and produce results that generate value for our shareholders."

Acquisitions

In the first quarter of 2010, The Corporation completed two strategic acquisitions.   On February 19, 2010, FirstMerit Bank, N.A., completed the acquisition of certain assets and the transfer of certain liabilities with respect to 24 branches of First Bank located in the greater Chicago, Illinois, area.  Excluding the purchase accounting adjustments, the acquisition included the assumption of approximately $1.2 billion in deposits and the purchase of $328.9 million of loans and certain other assets of First Bank associated with the acquired branch locations.  All of the loans in the acquired portfolio were performing and pass-grade credits.  This acquisition was accounted for under the acquisition method in accordance with ASC 805.

Also, on February 19, 2010, the Corporation acquired, through its subsidiary FirstMerit Bank, N.A., certain assets and assumed substantially all of the deposits and liabilities of George Washington Savings Bank ("George Washington") through a purchase and assumptions agreement with the Federal Deposit Insurance Corporation ("FDIC").  The Illinois Department of financial and Professional Regulation, Division of Banking, declared George Washington closed on February 19, 2010 and appointed the FDIC as receiver.  Excluding the effects of purchase accounting adjustments, FirstMerit Bank, N.A. acquired approximately $403.8 million in assets and assumed $398.3 million of the deposits of George Washington.

In connection with the George Washington acquisition, FirstMerit Bank, N.A., entered into a loss sharing agreement with the FDIC that collectively cover $325.1 million of assets including single family residential mortgage loans, commercial real estate and commercial and industrial loans, and other real estate. FirstMerit Bank N.A., acquired other George Washington assets that are not covered by the loss sharing agreement with the FDIC including investment securities purchased at fair market value and other tangible assets.

First Quarter 2010 Conference Call

FirstMerit Corporation senior management will host an earnings conference call today at 2:00 p.m. (Eastern Time) to provide an overview of first quarter 2010 results and highlights. To participate in the conference call, please dial (888) 693-3477 ten minutes before start time and provide the reservation number: 67919832. A replay of the conference call will be available at approximately 5:00 p.m. (Eastern Time) on May 4, 2010 through May 11, 2010 by dialing (800) 642-1687, and entering the PIN: 67919832.

About FirstMerit Corporation

FirstMerit Corporation is a diversified financial services company headquartered in Akron, Ohio, with assets of $12.3 billion as of March 31, 2010 and 183 banking offices and 204 ATMs in Ohio, Western Pennsylvania and the Chicago area. FirstMerit Corporation provides a complete range of banking and other financial services to consumers and businesses through its core operations. Principal wholly-owned subsidiaries include: FirstMerit Bank, N.A., FirstMerit Mortgage Corporation, FirstMerit Title Agency, Ltd., and FirstMerit Community Development Corporation.

Subsequent Events

The Corporation is required under generally accepted accounting principles to evaluate subsequent events through the filing of the March 31, 2010 consolidated financial statements on Form 10-Q.  As a result, the Corporation will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of March 31, 2010 and will adjust amounts preliminarily reported, if necessary.

Forward-Looking Statement

This release contains forward-looking statements relating to present or future trends or factors affecting the banking industry, and specifically the financial condition and results of operations, including without limitation, statements relating to the earnings outlook of the Corporation, as well as its operations, markets and products. Actual results could differ materially from those indicated. Among the important factors that could cause results to differ materially are interest rate changes, continued softening in the economy, which could materially impact credit quality trends and the ability to generate loans, changes in the mix of the Corporation's business, competitive pressures, changes in accounting, tax or regulatory practices or requirements and those risk factors detailed in the Corporation's periodic reports and registration statements filed with the Securities and Exchange Commission. The Corporation undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this release.

SOURCE FirstMerit Corporation