FirstMerit Corporation Reports First Quarter 2011 EPS of $0.25 Per Share

AKRON, Ohio, April 26, 2011 /PRNewswire/ --

Quarterly Highlights include:

• 48th consecutive quarter of profitability
• Solid linked-quarter credit trends supported by $10.7 million, or 8.70%, decline in non-performing assets and $4.6 million, or 21.41%, decline in net charge-offs, to 0.99% of average loans
• Annualized average commercial loan growth of 9.86%
• Core deposit growth of $458.8 million
• Strong tangible common equity ratio at 7.50%

FirstMerit Corporation (Nasdaq: FMER) reported first quarter 2011 net income of $27.6 million, or $0.25 per diluted share.  This compares with $27.0 million, or $0.25 per diluted share, for the fourth quarter of 2010 and $15.4 million, or $0.18 per diluted share, for the first quarter 2010.  

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Returns on average common equity ("ROE") and average assets ("ROA") for the first quarter 2011 were 7.37% and 0.78%, respectively, compared with 7.04% and 0.74% for the fourth quarter of 2010 and 5.71% and 0.55% for the first quarter 2010.

"With our focus on disciplined credit management and underwriting, FirstMerit's credit metrics have been superior throughout the cycle and our performance in the first quarter of 2011 continues to benefit from strong credit quality," said Paul G. Greig, chairman, president and CEO of FirstMerit Corporation. "Our solid financial results this quarter are marked by a number of highlights, including lower net charge-offs and non-performing assets and continued growth in commercial loans and core deposits. Our success is built upon our proven super community bank model, reinforced by our strong, well-capitalized balance sheet."

Net interest margin was 4.00% for the first quarter of 2011 compared with 4.14% for the fourth quarter of 2010 and 3.72% for the first quarter of 2010.  The decline in net interest margin compared with the prior quarter was a result of declining average loan balances in the covered loan portfolio.  The decline in the covered loan portfolio is to be expected as there were no new acquisitions of loans subject to loss share agreements after the quarter ended June 30, 2010.  The covered loan portfolio will continue to decline, through payoffs, charge-offs, termination or expiration of loss share coverage, unless the Corporation acquires additional loans subject to loss share agreements in the future.  Expansion in the net interest margin compared with the year ago quarter was driven primarily by the increase in average earning assets as a result of the Midwest acquisition in the quarter ended June 30, 2011.

Average loans, not including covered loans, during the first quarter of 2011 increased $58.3 million, or 0.82%, compared with the fourth quarter of 2010 and increased $179.2 million, or 2.55%, compared with the first quarter of 2010. Compared with the first quarter of 2010, average commercial loans, not including covered loans, increased $356.1 million or 8.48%. Average covered loan balances including the indemnification asset were $1.9 billion, $2.0 billion, and $0.1 billion at March 31, 2011, December 31, 2010, and March 31, 2010, respectively.      

The overall mix of deposits improved in the quarter ended March 31, 2011.  Average deposits during the first quarter of 2011 decreased $68.6 million, or 0.60%, compared with the fourth quarter of 2010 and increased $3.0 billion, or 35.72%, compared with the first quarter of 2010. The increase year over year was primarily due to the additional deposits assumed in the Midwest acquisition in the quarter ended June 30, 2010.  During the first quarter of 2011, the Corporation increased its average core deposits, which excludes time deposits, by $309.7 million, or 3.69%, compared with the fourth quarter of 2010, and $2.2 billion, or 32.88%, compared with the first quarter of 2010.  Average time deposits decreased $378.3 million, or 12.60%, from the fourth quarter of 2010 and increased $0.8 million, or 46.03% from the first quarter of 2010.  The change in deposit mix over the prior quarter is due to the Corporation's strategy to retain the acquired depository customers and move them from certificate of deposit accounts into core deposit accounts.

Average investments during the first quarter of 2011 increased $181.7 million, or 5.61%, compared with the fourth quarter of 2010 and increased $502.1 million, or 17.21%, over the first quarter of 2010.  The increase in the first quarter of 2011 average investments, compared with the fourth quarter of 2010, is due to the purchase of $400.0 million of securities in the first quarter of 2011.

Net interest income on a fully tax-equivalent ("FTE") basis was $123.9 million in the first quarter 2011 compared with $130.0 million in the fourth quarter of 2010 and $92.3 million in the first quarter of 2010.  Compared with the fourth quarter of 2010, average earning assets increased $94.3 million, or 0.76%, and increased $2.5 billion, or 24.65%, compared to the first quarter of 2010.  

Noninterest income net of securities transactions for the first quarter of 2011 was $52.8 million, a decrease of $1.4 million, or 2.60%, from the fourth quarter of 2010 and an increase of $2.9 million, or 5.72%, from the first quarter of 2010.  

The decrease in other income for the first quarter of 2011 compared to the fourth quarter of 2010 was driven by lower mortgage revenue, including loan sales and servicing, down $4.2 million from the prior quarter.  In the fourth quarter of 2010, the Corporation experienced significantly high levels of fee income from loan sales and servicing related to increased origination activity in 2010.

Other income, net of securities gains, as a percentage of net revenue for the first quarter of 2011 was 29.86% compared with 29.42% for fourth quarter of 2010 and 35.08% for the first quarter of 2010.  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 2011 was $114.4 million, a decrease of $8.0 million, or 6.54%, from the fourth quarter of 2010 and an increase of $20.4 million, or 21.73%, from the first quarter of 2010.  For the three months ended March 31, 2011, increases in operating expenses compared to the first quarter of 2010 were primarily attributable to increased salary and benefits as a result of the three 2010 acquisitions.

During the first quarter of 2011, the Corporation reported an efficiency ratio of 64.46%, compared with 65.95% for the fourth quarter of 2010 and 65.93% for the first quarter of 2010.

Net charge-offs, excluding acquired loans, totaled $17.0 million, or 0.99% of average loans, excluding acquired loans, in the first quarter of 2011 compared with $21.7 million, or 1.25% of average loans, in the fourth quarter of 2010 and $22.8 million, or 1.36% of average loans, in the first quarter of 2010.

Nonperforming assets totaled $112.8 million at March 31, 2011, a decrease of $10.7 million compared with December 31, 2010 and a decrease of $10.6 million compared with March 31, 2010.  Nonperforming assets at March 31, 2011 represented 1.61% of period-end loans plus other real estate, excluding acquired loans, compared with 1.78% at December 31, 2010 and 1.80% at March 31, 2010.  

The allowance for noncovered loan losses, totaled $114.7 million at March 31, 2011 and December 31, 2010.  At March 31, 2011, the allowance for noncovered loan losses was 1.64% of period-end loans compared with 1.65% at December 31, 2010, and 1.72% at March 31, 2010.  The allowance for credit losses is the sum of the allowance for noncovered loan losses, and the reserve for unfunded lending commitments. For comparative purposes the allowance for credit losses was 1.74% of period-end loans, excluding acquired loans, at March 31, 2011, compared with 1.78% at December 31, 2010 and 1.82% at March 31, 2010.  The allowance for credit losses to nonperforming loans was 147.38% at March 31, 2011, compared with 118.01% at December 31, 2010 and 110.80% at March 31, 2010.

The Corporation's total assets at March 31, 2011 were $14.5 billion, an increase of $331.8 million, or 2.35%, compared with December 31, 2010 and an increase of $2.1 billion, or 17.38%, compared with March 31, 2010. Total loans, excluding acquired loans, did not significantly change compared with December 31, 2010 and March 31, 2010.  The increase in total assets compared with March 31, 2010, is attributed to the three 2010 acquisitions.

Total deposits were $11.4 billion at March 31, 2011, an increase of $127.9 million, or 1.14%, from December 31, 2010 and an increase of $2.0 billion, or 21.62%, from March 31, 2010.  The increase in total deposits over March 31, 2010 was driven primarily by deposits acquired in the Midwest acquisition in the quarter ended June 30, 2010.  Core deposits totaled $8.9 billion at March 31, 2011, an increase of $0.5 billion, or 5.42%, from December 31, 2010 and an increase of $1.9 billion, or 27.42%, from March 31, 2010.  The increase in core deposits over the prior quarter is due to the Corporation's strategy to retain acquired depository customers and move them from certificate of deposit accounts into core deposit products.  

Shareholders' equity was $1.5 billion at March 31, 2011 and December 31, 2010 compared with $1.2 billion at March 31, 2010.  The Corporation maintained a strong capital position as tangible common equity to assets was 7.50% at March 31, 2011, compared with 7.59% and 7.91% at December 31, 2010 and March 31, 2010, respectively.  The common dividend per share paid in the first quarter 2011 was $0.16.

Acquisitions and Integration

The three 2010 acquisitions of First Bank, George Washington and Midwest were considered business combinations and accounted for under FASB Accounting Standard Codification 805, Business Combinations (ASC 805).  All acquired assets and liabilities were recorded at their estimated fair values as of the date of acquisition and identifiable intangible assets were recorded at their estimated fair value. Estimated fair values of the acquired assets and liabilities of Midwest are considered preliminary and are subject to change up to one year after the acquisition date.  This one year measurement period allows for adjustments to the initial purchase entries if additional information relative to closing date fair values becomes available. The one year measurement period for the First Bank and George Washington acquisitions expired in the quarter ended March 31, 2011.   Material adjustments to acquisition date estimated fair values have been recorded in the period in which the acquisition occurred and, as a result, previously reported results are subject to change.  Certain reclassifications of prior periods' amounts may also be made to conform to the current period's presentation and would have no effect on previously reported net income amounts.  

During the quarter ended March 31, 2011, we obtained additional information that resulted in changes to certain acquisition-data fair value estimates relating to the Midwest acquisition.  These purchase accounting adjustments have resulted in a decrease to goodwill of approximately $19.1 million to $272.1 million as of June 30, 2010.  Prior period amounts appropriately reflect these adjustments.

First Quarter 2011 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 2011 results and highlights. To participate in the conference call, please dial (888) 693-3477 ten minutes before start time and provide the reservation number: 59604216. A replay of the conference call will be available at approximately 5:00 p.m. (Eastern Time) on April 26, 2011 through May 10, 2011 by dialing (800) 642-1687, and entering the PIN: 59604216.

About FirstMerit Corporation

FirstMerit Corporation is a diversified financial services company headquartered in Akron, Ohio, with assets of $14.5 billion as of March 31, 2011 and 207 banking offices and 220 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, 2011 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, 2011 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.