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FirstMerit Corporation Reports Second Quarter 2010 EPS of $0.32 Per Share

Quarterly Highlights include:

- 45th consecutive quarter of profitability

- Improved credit quality led by $13.5 million, or 10.98%, decline in nonperforming assets

- Maintained healthy capital levels of 7.34% at June 30, 2010, supported by completion of $320 million capital raise and consistent internal capital generation

- Continued successful execution of Chicago expansion strategy with Midwest Bank and Trust Company acquisition

FirstMerit Corporation. (PRNewsFoto/FirstMerit Corporation) (PRNewsFoto/)

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FirstMerit Corporation

Jul 27, 2010, 07:30 ET

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AKRON, Ohio, July 27 /PRNewswire-FirstCall/ -- FirstMerit Corporation (Nasdaq: FMER) reported second quarter 2010 net income of $31.5 million, or $0.32 per diluted share.  This compares with $18.8 million, or $0.21 per diluted share, for the first quarter 2010 and $15.5 million, or $0.13 per diluted share, for the second quarter 2009.  

(Logo:  http://photos.prnewswire.com/prnh/20070920/CLTU138LOGO )

(Logo:  http://www.newscom.com/cgi-bin/prnh/20070920/CLTU138LOGO )

Returns on average common equity ("ROE") and average assets ("ROA") for the second quarter 2010 were 9.61% and 0.94%, respectively, compared with 6.68% and 0.64% for the first quarter 2010 and 6.27% and 0.57% for the second quarter 2009.

"Our solid performance in the second quarter reflects our commitment to sound and fundamental banking practices," said Paul G. Greig, chairman, president and CEO of FirstMerit Corporation. "Through disciplined organic and acquisition-oriented strategies, continued diligence on expense management and focus on maintaining a fortified balance sheet we produced our 45th consecutive quarter of profitability and continue to build on our solid foundation of financial strength and stability."

On May 14, 2010, the Corporation acquired, through its subsidiary FirstMerit Bank, N.A., the banking operations of Chicago-based Midwest Bank and Trust Company, the subsidiary bank of Midwest Banc Holdings, Inc. through a purchase and assumption agreement with the Federal Deposit Insurance Corporation ("FDIC").   The Illinois Department of Financial and Professional Regulation, Division of Banking, declared Midwest Bank and Trust closed on May 14, 2010 and appointed the FDIC as receiver.  Including the effects of purchase accounting adjustments, FirstMerit Bank, N.A. acquired approximately $2.9 billion in assets and assumed $2.3 billion of the deposits of Midwest Bank and Trust Company. Midwest Bank had 26 branches located throughout the Chicago area.

"Our acquisition strategy for entering the growing Chicago market is on schedule and going very well," Greig said. "Not only did the Midwest Bank acquisition expand our scale in Chicago, both in balance sheet size and number of branches, it gives us a solid platform to reach our new customers where they live and work. We have successfully transitioned our First Bank and George Washington Savings Bank branches to the FirstMerit brand and look to convert the Midwest Bank branch network in September of this year."

Net interest margin was 4.04% for the second quarter of 2010 compared with 3.72% for the first quarter of 2010 and 3.56% for the second quarter of 2009.  The addition of Midwest Bank and Trust's balance sheet and 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.

In connection with the Midwest Bank acquisition, FirstMerit Bank, N.A., entered into a loss sharing agreement with the FDIC that collectively covers $2.3 billion of assets including one-to four-family residential mortgage loans, commercial real estate and commercial and industrial loans, and other real estate. FirstMerit Bank N.A., acquired other Midwest Bank 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. The FDIC will reimburse the Corporation for losses with respect to certain loans ("covered loans") and other real estate owned ("OREO") (collectively, "covered assets").

Average loans, not including covered loans, during the second quarter of 2010 increased $138.5 million, or 1.97%, compared with the first quarter of 2010 and decreased $85.8 million, or 1.18%, compared with the second quarter of 2009.

The decline in average balances compared with the second quarter of 2009 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.  At June 30, 2010, average covered loan balances including the indemnification asset were $1.3 billion.

Average deposits during the second quarter of 2010 increased $2.2 billion, or 26.43%, compared with the first quarter of 2010 and increased $2.9 billion, or 38.49%, compared with the second quarter of 2009. During the second quarter of 2010, the Corporation increased its average core deposits, which excludes time deposits, by $875.7 million, or 13.38%, compared with the first quarter of 2010, and $2.0 billion, or 38.08%, compared with the second quarter of 2009.

Average investments during the second quarter of 2010 increased $381.7 million, or 13.08%, compared with the first quarter of 2010 and increased $565.4 million, or 20.68%, over the second quarter of 2009.  Second quarter of 2010 average investments was impacted by $575.0 million of securities purchased late in the first quarter of 2010 as a result of the First Bank acquisition.

Net interest income on a fully tax-equivalent ("FTE") basis was $118.8 million in the second quarter 2010 compared with $92.3 million in the first quarter of 2010 and $88.8 million in the second quarter of 2009.  Compared with the first quarter of 2010, average earning assets increased $1.7 billion, or 16.95%, and increased $1.8 billion, or 17.83%, compared to the second quarter of 2009.  The addition of Midwest Bank and Trust's earning asset base and the incremental margin expansion off those assets was a primary driver of the increases over both periods.  Additionally, the Corporation continues to experience net interest margin expansion from successful execution of its core deposit gathering strategies.

Noninterest income net of securities transactions for the second quarter of 2010 was $52.6 million, a decrease of $2.5 million, or 4.60%, from the first quarter of 2010 and an increase of $2.9 million, or 5.82%, from the second quarter of 2009.  

The primary changes in other income for the 2010 second quarter as compared to the second quarter of 2009 were as follows: trust income was $5.6 million, an increase of 2.50% primarily due to advances in the equity markets; service charges on deposits were $17.7 million, an increase of 11.88% due to an increase in new accounts; credit card fees were $12.2 million, an increase of 4.92% attributable to the improvement in the economy.

Other income, net of securities gains, as a percentage of net revenue for the second quarter of 2010 was 30.67% compared with 37.37% for first quarter of 2010 and 35.87% for the second 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 second quarter of 2010 was $105.7 million, an increase of $11.7 million, or 12.46%, from the first quarter of 2010 and an increase of $15.2 million, or 16.74%, from the second quarter of 2009.  For the three months ended June 30, 2010, increases in operating expenses compared to the second quarter of 2009 were primarily attributable to increased salary and benefits, and professional services.  Onetime expenses associated with data processing conversions and related expenses for the acquisitions totaled $4.4 million.

During the second quarter of 2010, the Corporation reported an efficiency ratio of 61.30%, compared with 63.61% for the first quarter of 2010 and 65.34% for the second quarter of 2009.

Net charge-offs totaled $20.3 million, or 1.18% of average loans, excluding covered loans, in the second quarter of 2010 compared with $22.8 million, or 1.36% of average loans, in the first quarter 2010 and $21.6 million, or 1.19% of average loans, in the second quarter of 2009.

Nonperforming assets totaled $109.8 million at June 30, 2010, a decrease of $13.5 million compared with March 31, 2010 and an increase of $36.4 million compared with June 30, 2009.  Nonperforming assets at June 30, 2010 represented 1.62% of period-end loans plus other real estate, excluding covered loans, compared with 1.80% at March 31, 2010 and 1.03% at June 30, 2009.  

The allowance for loan losses, excluding covered loans, totaled $118.3 million at June 30, 2010, an increase of $0.3 million from March 31, 2010.  At June 30, 2010, the allowance for loan losses was 1.75% of period-end loans compared with 1.72% at March 31, 2010, and 1.68% at December 31, 2009.  The allowance for credit losses is the sum of the allowance for loan losses, excluding covered loans, and the reserve for unfunded lending commitments. For comparative purposes the allowance for credit losses was 1.84% of period-end loans, excluding covered loans, at June 30, 2010, compared with 1.82% at March 31, 2010 and 1.77% at December 31, 2009.  The allowance for credit losses to nonperforming loans was 126.31% at June 30, 2010, compared with 110.80% at March 31, 2010 and 131.82% at December 31, 2009.

The Corporation's total assets at June 30, 2010 were $14.5 billion, an increase of $2.2 billion inclusive of intangible assets, or 17.85%, compared with March 31, 2010 and an increase of $3.8 billion, or 35.77%, compared with June 30, 2009. Total loans, excluding covered loans, did not significantly change compared with March 31, 2010 and June 30, 2009.  

Total deposits were $11.5 billion at June 30, 2010, an increase of $2.1 billion, or 22.89%, from March 31, 2010 and an increase of $4.1 billion, or 54.54%, from June 30, 2009.  The increase over both periods was largely driven by the continuation of the Corporation's expansion strategy in Chicago.  Core deposits totaled $7.7 billion at June 30, 2010, an increase of $0.7 million, or 9.80%, from March 31, 2010 and an increase of $2.3 billion, or 42.90%, from June 30, 2009.

Shareholders' equity was $1.5 billion at June 30, 2010, compared with $1.2 billion at March 31, 2010 and $1.0 billion at June 30, 2009.  The Corporation maintained a strong capital position as tangible common equity to assets was 7.34% at June 30, 2010, compared with 7.93% and 8.36% at March 31, 2010 and June 30, 2009, respectively.  The common dividend per share paid in the second quarter 2010 was $0.16.

Mr. Greig said, "FirstMerit continues to maintain healthy capital levels and expects to generate additional internal capital over the next few quarters and will continue to seek to increase tangible capital ratios above those of peers and competitors. Building on this financial strength, we are working to enhance shareholder value."

On May 21, 2010, the Corporation announced that it closed and completed the sale of a total of 16,578,947 shares of common stock, no par value, to Credit Suisse Securities (USA) LLC, RBC Capital Market Corporation and Sandler O'Neil & Partners, L.P. at $19.00 per share in a public underwritten offering. The net proceeds from the offering were approximately $320.07 million after deducting underwriting discounts and commissions and the estimated expenses of the offering payable by the Corporation. The Corporation intends to use the net proceeds of the offering, which qualify as tangible common equity and Tier 1 capital, for general corporate purposes, including the contribution of all or substantially all of the net proceeds to the capital of FirstMerit Bank, N.A., which may use such amount for its general corporate purposes following the Midwest Bank acquisition.

Integration

On July 10, 2010, FirstMerit successfully completed the operational and technical migration of George Washington Savings Bank which the Corporation acquired from the FDIC on February, 19 2010.  FirstMerit expects to complete the conversion of Midwest Bank and Trust in September.  

Second 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 second 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: 86358126. A replay of the conference call will be available at approximately 5:00 p.m. (Eastern Time) on July 27, 2010 through August 10, 2010 by dialing (800) 642-1687, and entering the PIN: 86358126.

About FirstMerit Corporation

FirstMerit Corporation is a diversified financial services company headquartered in Akron, Ohio, with assets of $14.5 billion as of June 30, 2010 and 206 banking offices and 224 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 June 30, 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 June 30, 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.

FirstMerit Corporation

Analysts: Thomas O'Malley/Investor Relations Officer

Phone: 330.384.7109

Media Contact: Robert Townsend/Media Relations Officer

Phone: 330.384.7075

FIRSTMERIT CORPORATION AND SUBSIDIARIES











Consolidated Financial Highlights











(Unaudited)






Quarters





(Dollars in thousands)













2010


2010


2009


2009


2009

EARNINGS


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr

Net interest income FTE (a)

$

118,817

$

92,348

$

89,171

$

89,079

$

88,806

Provision for loan losses


20,633


25,493


29,960


23,887


26,521

Other income


53,209


55,091


52,701


51,567


50,845

Other expenses


105,723


94,013


94,885


84,165


90,564

FTE adjustment (a)


2,050


1,954


1,793


1,702


1,691

Net income


31,493


18,764


14,478


22,763


15,495

Diluted EPS (b)


0.32


0.21


0.17


0.27


0.13












PERFORMANCE RATIOS






















Return on average assets (ROA)


0.94%


0.67%


0.54%


0.85%


0.57%

Return on average common equity (ROE)


9.61%


6.96%


5.38%


8.69%


6.27%

Net interest margin FTE (a)


4.04%


3.72%


3.64%


3.61%


3.56%

Efficiency ratio


61.30%


63.61%


67.74%


61.05%


65.34%

Number of full-time equivalent employees


3,095


2,723


2,495


2,522


2,540












MARKET DATA






















Book value/common share

$

13.87

$

12.72

$

12.25

$

12.34

$

11.99

Period-end common share mkt value


17.13


21.57


20.14


19.03


17.00

Market as a % of book


124%


170%


164%


154%


142%

Cash dividends/common share

$

0.16

$

0.16

$

0.16

$

0.16

$

0.16

Common stock dividend payout ratio


48.48%


76.19%


94.12%


59.26%


123.08%

Average basic common shares (b)


98,968


87,771


86,149


85,872


84,123

Average diluted common shares (b)


98,969


87,777


86,157


85,880


84,131

Period end common shares


108,786


90,810


87,004


85,869


85,266

Common shares repurchased


46


115


35


13


61

Common stock market capitalization

$

1,863,504

$

1,958,772

$

1,752,261

$

1,634,087

$

1,449,522












ASSET QUALITY (excluding acquired loans)






















Gross charge-offs

$

25,428

$

26,195

$

34,232

$

21,819

$

24,726

Net charge-offs


20,290


22,779


31,220


18,757


21,556

Allowance for loan losses


118,343


117,806


115,092


116,352


111,222

Reserve for unfunded lending commitments


6,812


6,337


5,751


4,470


6,054

Nonperforming assets (NPAs) (c)


109,781


123,320


101,001


88,881


73,351

Net charge-offs/average loans ratio (c)


1.18%


1.36%


1.79%


1.05%


1.19%

Allowance for loan losses/period-end loans (c)


1.75%


1.72%


1.68%


1.66%


1.56%

Allowance for credit losses/period-end loans (c)


1.84%


1.82%


1.77%


1.72%


1.64%

NPAs/loans and other real estate (c)


1.62%


1.80%


1.48%


1.26%


1.03%

Allowance for loan losses/nonperforming loans


119.43%


105.14%


125.55%


147.60%


175.17%

Allowance for credit losses/nonperforming loans


126.31%


110.80%


131.82%


153.27%


184.71%












CAPITAL & LIQUIDITY






















Period-end tangible common equity to assets


7.34%


7.93%


8.89%


8.65%


8.36%

Average equity to assets


9.76%


9.63%


10.11%


9.77%


9.37%

Average equity to total loans (d)


15.91%


15.39%


15.37%


14.72%


14.07%

Average total loans to deposits


78.32%


85.18%


93.94%


95.57%


95.17%












AVERAGE BALANCES






















Assets

$

13,472,179

$

11,357,110

$

10,559,231

$

10,629,359

$

10,884,228

Deposits


10,545,482


8,340,796


7,397,592


7,384,507


7,614,826

Loans, excluding acquired loans (d)


6,810,582


6,812,647


6,932,566


7,057,021


7,246,752

Acquired loans, including covered loans (d)


1,449,140


291,651


16,419


-


-

Earning assets


11,784,967


10,076,565


9,714,193


9,802,810


10,001,266

Shareholders' equity


1,314,249


1,093,568


1,068,013


1,038,824


1,019,628












ENDING BALANCES






















Assets

$

14,522,825

$

12,323,448

$

10,539,902

$

10,761,355

$

10,696,962

Deposits


11,515,171


9,370,009


7,515,796


7,271,274


7,451,220

Loans, excluding acquired loans (d)


6,779,941


6,836,451


6,835,425


7,029,648


7,145,146

Acquired loans, including covered loans (d)


2,288,402


533,888


88,064


-


-

Goodwill


465,648


187,945


139,598


139,245


139,245

Intangible assets


12,422


5,659


1,158


1,143


1,229

Earning assets


12,697,914


10,791,443


9,685,155


9,793,244


9,869,183

Total shareholders' equity


1,508,719


1,155,353


1,065,627


1,059,209


1,022,647












NOTES:

(a) - Net interest income on a fully tax-equivalent ("FTE") basis restates interest on tax-exempt securities and loans as if such interest were subject to federal income tax at the statutory rate.  Net interest income on an FTE basis is not an accounting principle generally accepted in the United States of America.

(b) - Average outstanding shares and per share data restated to reflect the effect of stock dividends declared April 28, 2009 and August 20, 2009.

(c) - As required by current accounting guidance, the acquired loans and other real estate from First Bank, George Washington Savings Bank and Midwest Bank & Trust Company were recorded at fair value with no carryover of the related allowances.  The ratio of our allowance for loan and credit losses and NPAs do not include these loans and other real estate.

(d) - Excludes loss share receivable

FIRSTMERIT CORPORATION AND SUBSIDIARIES







CONSOLIDATED BALANCE SHEETS







(In thousands)







(Unaudited, except December 31, 2009, which is derived from the


June 30,


December 31,


June 30,

  audited financial statements)


2010


2009


2009








ASSETS







 Cash and due from banks

$

620,515

$

161,033

$

156,590

 Investment securities







   Held-to-maturity


65,160


50,686


27,549

   Available-for-sale


3,068,614


2,565,264


2,546,939

   Other investments


160,222


128,888


128,769

 Loans held for sale


24,733


16,828


20,780

Noncovered loans:







  Commercial loans


4,335,392


4,066,522


4,181,857

  Mortgage loans


430,550


463,416


503,890

  Installment loans


1,370,400


1,425,373


1,497,211

  Home equity loans


762,288


753,112


754,110

  Credit card loans


146,253


153,525


148,104

  Leases


58,555


61,541


59,974

    Total noncovered loans


7,103,438


6,923,489


7,145,146

 Covered loans (includes loss share receivable of $311 million)


2,275,747


-


-

    Total loans


9,379,185


6,923,489


7,145,146

    Less: allowance for loan losses


(118,343)


(115,092)


(111,222)

Net loans


9,260,842


6,808,397


7,033,924

 Premises and equipment, net


169,563


125,205


127,284

 Goodwill


465,648


139,598


139,245

 Intangible assets


12,422


1,158


1,229

 Other real estate covered by FDIC loss share


50,460


-


-

 Accrued interest receivable and other assets


624,646


542,845


514,653

     Total assets

$

14,522,825

$

10,539,902

$

10,696,962








LIABILITIES AND SHAREHOLDERS' EQUITY







 Deposits:







   Demand-non-interest bearing

$

2,621,994

$

2,069,921


1,885,087

   Demand-interest bearing


718,891


677,448


648,132

   Savings and money market accounts


4,353,579


3,408,109


2,851,236

   Certificates and other time deposits


3,820,707


1,360,318


2,066,765

      Total deposits


11,515,171


7,515,796


7,451,220








 Federal funds purchased and securities sold under agreements to repurchase


744,055


996,345


1,069,945

 Wholesale borrowings


474,963


740,105


924,438

 Accrued taxes, expenses, and other liabilities


279,917


222,029


228,712

    Total liabilities


13,014,106


9,474,275


9,674,315

 Commitments and contingencies







 Shareholders' equity:







   Preferred stock, without par value:







     authorized and unissued 7,000,000 shares


-


-


-

   Preferred stock, Series A, without par value:







     designated 800,000 shares; none outstanding


-


-


-

   Convertible preferred stock, Series B, without par value:







     designated 220,000 shares; none outstanding


-


-


-

   Common stock, without par value:







     authorized 300,000,000 shares; issued 115,121,731, 93,633,871 and







     92,026,350 at June 30, 2010, December 31, 2009 and







     June 30, 2009, respectively


127,937


127,937


127,937

   Capital surplus


483,958


88,573


45,674

   Accumulated other comprehensive loss


(4,517)


(25,459)


(33,431)

   Retained earnings


1,062,792


1,043,625


1,055,283

   Treasury stock, at cost, 6,335,809, 6,629,995 and 6,760,676







    shares at June 30, 2010, December 31, 2009 and June 30, 2009,







      respectively


(161,451)


(169,049)


(172,816)

    Total shareholders' equity


1,508,719


1,065,627


1,022,647

Total liabilities and shareholders' equity

$

14,522,825

$

10,539,902

$

10,696,962








FIRSTMERIT CORPORATION AND SUBSIDIARIES











AVERAGE CONSOLIDATED BALANCE SHEETS













 Quarterly Periods 

(Unaudited)











(Dollars in thousands)


June 30,


March 31,


December 31,


September 30,


June 30,



2010


2010


2009


2009


2009












ASSETS











Cash and due from banks

$

710,981

$

521,666

$

167,608

$

159,985

$

194,381

Investment securities











  Held-to-maturity


64,650


56,322


43,228


32,017


28,821

  Available-for-sale


3,088,011


2,731,639


2,577,759


2,568,348


2,576,994

  Other investments


146,620


129,658


128,214


128,067


128,056

Loans held for sale


18,827


14,538


16,007


17,357


20,643

Noncovered loans:











 Commercial loans


4,376,059


4,197,663


4,058,851


4,105,778


4,263,114

 Mortgage loans


438,243


454,525


472,829


492,089


513,982

 Installment loans


1,377,748


1,402,552


1,449,091


1,492,019


1,512,929

 Home equity loans


763,943


757,094


756,478


758,353


749,097

 Credit card loans


145,880


150,117


151,233


149,460


146,589

 Leases


59,049


60,430


60,503


59,322


61,041

   Total noncovered loans


7,160,922


7,022,381


6,948,985


7,057,021


7,246,752

Covered loans and loss share receivable


1,305,937


122,027


-


-


-

   Total loans


8,466,859


7,144,408


6,948,985


7,057,021


7,246,752

   Less: allowance for loan losses


116,639


115,031


113,438


111,073


104,864

   Net loans


8,350,220


7,029,377


6,835,547


6,945,948


7,141,888












Total earning assets


11,784,967


10,076,565


9,714,193


9,802,810


10,001,266












Premises and equipment, net


167,006


141,405


126,073


127,096


129,433

Accrued interest receivable and other assets


925,864


732,505


664,795


650,541


664,012












TOTAL ASSETS

$

13,472,179

$

11,357,110

$

10,559,231

$

10,629,359

$

10,884,228























LIABILITIES











Deposits:











 Demand-non-interest bearing

$

2,492,539

$

2,146,969

$

2,028,977

$

1,947,359

$

1,891,792

 Demand-interest bearing


698,261


687,233


651,381


647,712


671,235

 Savings and money market accounts


4,228,323


3,709,246


3,175,825


2,916,980


2,810,155

 Certificates and other time deposits


3,126,359


1,797,348


1,541,409


1,872,456


2,241,644












   Total deposits


10,545,482


8,340,796


7,397,592


7,384,507


7,614,826












Federal funds purchased and securities sold under











 agreements to repurchase


843,652


951,927


1,076,199


1,087,875


945,178

Wholesale borrowings


526,926


708,414


762,023


883,377


1,019,786












   Total funds


11,916,060


10,001,137


9,235,814


9,355,759


9,579,790

Accrued taxes, expenses and other liabilities


241,870


262,405


255,404


234,776


284,810












   Total liabilities


12,157,930


10,263,542


9,491,218


9,590,535


9,864,600












SHAREHOLDERS' EQUITY











Preferred stock


-


-


-


-


27,850

Common stock


127,937


127,937


127,937


127,937


127,937

Common stock warrant


-


-


-


-


2,820

Capital surplus


307,929


106,350


74,213


55,732


63,457

Accumulated other comprehensive loss


(15,913)


(20,593)


(9,266)


(26,793)


(35,569)

Retained earnings


1,057,754


1,049,774


1,047,097


1,050,359


1,056,739

Treasury stock


(163,458)


(169,900)


(171,968)


(168,411)


(223,606)












   Total shareholders' equity


1,314,249


1,093,568


1,068,013


1,038,824


1,019,628












TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

13,472,179

$

11,357,110

$

10,559,231

$

10,629,359

$

10,884,228

AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)    

Fully Tax-equivalent Interest Rates and Interest Differential







































FIRSTMERIT CORPORATION AND SUBSIDIARIES


Three months ended


Year ended


Three months ended




















(Dollars in thousands)


June 30, 2010


December 31, 2009


June 30, 2009






















Average




Average


Average




Average


Average




Average



Balance


Interest


Rate


Balance


Interest


Rate


Balance


Interest


Rate




















ASSETS



















Cash and due from banks

$

710,981





$

183,215





$

194,381





Investment securities and federal funds sold:



















U.S. Treasury securities and U.S. Government agency obligations (taxable)


2,736,884


23,462


3.44%


2,222,771


97,871


4.40%


2,205,221


24,455


4.45%

Obligations of states and political subdivisions (tax exempt)


349,424


5,184


5.95%


321,919


19,718


6.13%


316,703


4,910


6.22%

Other securities and federal funds sold


212,973


2,139


4.03%


204,272


8,394


4.11%


211,947


2,204


4.17%

Total investment securities and federal



















funds sold


3,299,281


30,785


3.74%


2,748,962


125,983


4.58%


2,733,871


31,569


4.63%




















Loans held for sale


18,827


239


5.09%


19,289


1,032


5.35%


20,643


277


5.38%

Noncovered loans, covered loans and loss share receivable


8,466,859


109,840


5.20%


7,156,983


339,381


4.74%


7,246,752


86,004


4.76%




















Total earning assets


11,784,967


140,864


4.79%


9,925,234


466,396


4.70%


10,001,266


117,850


4.73%




















Allowance for loan losses


(116,639)






(108,017)






(104,864)





Other assets


1,092,870






793,062






793,445
























Total assets

$

13,472,179





$

10,793,494





$

10,884,228
























LIABILITIES AND SHAREHOLDERS' EQUITY



















Deposits:



















Demand - non-interest bearing

$

2,492,539


--


--

$

1,910,171


--


--

$

1,891,792


--


--

Demand - interest bearing


698,261


149


0.09%


656,367


600


0.09%


671,235


159


0.10%

Savings and money market accounts


4,228,323


7,873


0.75%


2,886,842


23,472


0.81%


2,810,155


5,452


0.78%

Certificates and other time deposits


3,126,359


9,510


1.22%


2,056,208


54,610


2.66%


2,241,644


15,325


2.74%




















Total deposits


10,545,482


17,532


0.67%


7,509,588


78,682


1.05%


7,614,826


20,936


1.10%




















Securities sold under agreements to repurchase


843,652


1,404


0.67%


1,013,167


4,764


0.47%


945,178


1,211


0.51%

Wholesale borrowings


526,926


3,111


2.37%


952,979


27,317


2.87%


1,019,786


6,897


2.71%




















Total interest bearing liabilities


9,423,521


22,047


0.94%


7,565,563


110,763


1.46%


7,687,998


29,044


1.52%




















Other liabilities


241,870






267,835






284,810
























Shareholders' equity


1,314,249






1,049,925






1,019,628
























Total liabilities and shareholders' equity

$

13,472,179





$

10,793,494





$

10,884,228











































Net yield on earning assets

$

11,784,967


118,817


4.04%

$

9,925,234


355,633


3.58%

$

10,001,266


88,806


3.56%




















Interest rate spread






3.85%






3.24%






3.21%




















Note:  Interest income on tax-exempt securities and loans has been adjusted to a fully-taxable equivalent basis.  

         Nonaccrual loans have been included in the average balances.

FIRSTMERIT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME










(Unaudited)


Quarters ended


Six months ended

(In thousands except per share data)


June 30,


June 30,



2010


2009


2010


2009

Interest income:









 Interest and fees on loans, including held for sale

$

110,319

$

86,247


193,469


174,046

 Investment securities









    Taxable


25,602


26,659


50,472


54,954

    Tax-exempt


3,288


3,253


6,627


6,515

    Total investment securities interest


28,890


29,912


57,099


61,469

 Other earning assets


(395)


-


100


-

     Total interest income


138,814


116,159


250,668


235,515

Interest expense:









 Interest on deposits:









   Demand-interest bearing


149


159


301


314

   Savings and money market accounts


7,873


5,452


15,474


10,829

   Certificates and other time deposits


9,510


15,325


15,916


33,913

 Interest on securities sold under agreements to repurchase


1,404


1,211


2,531


2,210

 Interest on wholesale borrowings


3,111


6,897


9,285


14,240

    Total interest expense


22,047


29,044


43,507


61,506

    Net interest income


116,767


87,115


207,161


174,009

Provision for loan losses


20,633


26,521


46,126


44,586

    Net interest income after provision for loan losses


96,134


60,594


161,035


129,423

Other income:









 Trust department income


5,574


5,438


10,855


10,228

 Service charges on deposits


17,737


15,853


33,103


30,016

 Credit card fees


12,242


11,668


23,800


22,752

 ATM and other service fees


2,844


2,839


5,353


5,445

 Bank owned life insurance income


2,886


2,985


8,538


6,000

 Investment services and insurance


2,535


2,270


4,463


5,188

 Investment securities gains, net


651


1,178


651


1,178

 Loan sales and servicing income


2,975


3,791


6,212


6,126

 Gain on George Washington acquisition


-


-


6,232


-

 Gain on post medical retirement curtailment


-


-


-


9,543

 Other operating income


5,765


4,823


9,093


9,557

    Total other income


53,209


50,845


108,300


106,033

Other expenses:









 Salaries, wages, pension and employee benefits


51,899


44,125


100,055


86,807

 Net occupancy expense


7,680


5,858


14,820


12,729

 Equipment expense


6,735


6,212


12,785


12,009

 Stationery, supplies and postage


2,696


2,051


5,389


4,326

 Bankcard, loan processing and other costs


7,663


7,862


15,481


15,704

 Professional services


7,845


2,856


13,082


6,336

 Amortization of intangibles


669


87


903


174

 FDIC expense


4,416


8,496


8,181


11,052

 Other operating expense


16,120


13,017


29,040


24,630

    Total other expenses


105,723


90,564


199,736


173,767

        Income before federal income tax expense


43,620


20,875


69,599


61,689

Federal income tax expense


12,127


5,380


19,342


16,760

         Net income

$

31,493

$

15,495


50,257


44,929










Other comprehensive income, net of taxes









 Unrealized securities' holding gain, net of taxes

$

16,889

$

6,246


21,365


22,063

 Unrealized hedging loss, net of taxes


-


-


-


(94)

  Less: reclassification adjustment for securities' gain realized in









     income, net of taxes


423


766


423


766

 Minimum pension liability adjustment, net of taxes


-


(277)


-


(554)

Total other comprehensive gain, net of taxes


16,466


5,203


20,942


20,649

   Comprehensive income

$

47,959

$

20,698


71,199


65,578

Net income applicable to common shares

$

31,493

$

10,995


50,257


38,558

Net income used in diluted EPS calculation

$

31,493

$

10,995


50,257


38,558

Weighted average number of common shares outstanding - basic *


98,968


84,123


93,400


83,323

Weighted average number of common shares outstanding - diluted *


98,969


84,131


93,403


83,331

Basic earnings per share *

$

0.32

$

0.13


0.54


0.46

Diluted earnings per share *

$

0.32

$

0.13


0.54


0.46

Dividend per share

$

0.16

$

0.16


0.32


0.45










* Average outstanding shares and per share data as of June 30, 2009 are restated to reflect the effect of stock dividends declared April 28, 2009 and August 20, 2009.

FIRSTMERIT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME---LINKED QUARTERS












(Unaudited)


Quarterly Results

(Dollars in thousands, except share data)


2010


2010


2009


2009


2009



2nd Q


1st Q


4th Q


3rd Q


2nd Q












 Interest and fees on loans, including held for sale

$

110,319

$

83,150

$

81,907

$

84,283

$

86,247

 Interest and dividends - securities and federal funds sold


28,890


28,209


28,434


29,388


29,912

 Other earning assets


(395)


495


-


-


-

     Total interest income


138,814


111,854


110,341


113,671


116,159

 Interest on deposits:











   Demand-interest bearing


149


152


149


137


159

   Savings and money market accounts


7,873


7,601


6,880


5,763


5,452

   Certificates and other time deposits


9,510


6,406


8,413


12,284


15,325

    Securities sold under agreements to repurchase


1,404


1,127


1,268


1,286


1,211

   Wholesale borrowings


3,111


6,174


6,253


6,824


6,897

    Total interest expense


22,047


21,460


22,963


26,294


29,044

    Net interest income


116,767


90,394


87,378


87,377


87,115

Provision for loan losses


20,633


25,493


29,960


23,887


26,521

    Net interest income after provision for loan losses


96,134


64,901


57,418


63,490


60,594

Other income:











 Trust department income


5,574


5,281


5,374


5,081


5,438

 Service charges on deposits


17,737


15,366


16,568


16,782


15,853

 Credit card fees


12,242


11,558


12,049


11,711


11,668

 ATM and other service fees


2,844


2,509


2,730


2,935


2,839

 Bank owned life insurance income


2,886


5,652


4,524


3,216


2,985

 Investment services and insurance


2,535


1,928


2,322


2,498


2,270

 Investment securities gains, net


651


-


1,934


2,925


1,178

 Loan sales and servicing income


2,975


3,237


2,947


3,881


3,791

 Gain on George Washington acquisition


-


6,232


-


-


-

 Other operating income


5,765


3,328


4,253


2,538


4,823

    Total other income


53,209


55,091


52,701


51,567


50,845

Other expenses:











 Salaries, wages, pension and employee benefits


51,899


48,156


45,748


43,351


44,125

 Net occupancy expense


7,680


7,140


5,631


5,739


5,858

 Equipment expense


6,735


6,050


6,445


5,847


6,212

 Stationery, supplies and postage


2,696


2,693


2,414


2,167


2,051

 Bankcard, loan processing and other costs


7,663


7,818


8,215


7,548


7,862

 Professional services


7,845


5,237


6,098


3,980


2,856

 Amortization of intangibles


669


234


87


86


87

 FDIC expense


4,416


3,765


3,160


2,298


8,496

 Other operating expense


16,120


12,920


17,087


13,149


13,017

    Total other expenses


105,723


94,013


94,885


84,165


90,564

Income before income tax expense


43,620


25,979


15,234


30,892


20,875

Federal income taxes


12,127


7,215


756


8,129


5,380

   Net income

$

31,493

$

18,764

$

14,478

$

22,763

$

15,495

Other comprehensive income (loss), net of taxes


16,466


4,476


(18,022)


25,994


5,203

   Comprehensive income

$

47,959

$

23,240

$

(3,544)

$

48,757

$

20,698

Net income applicable to common shares

$

31,493

$

18,764

$

14,478

$

22,763

$

10,995

Adjusted net income used in diluted EPS calculation

$

31,493

$

18,764

$

14,478

$

22,763

$

10,995

Weighted-average common shares - basic *


98,968


87,771


86,149


85,872


84,123

Weighted-average common shares - diluted *


98,969


87,777


86,157


85,880


84,131












Basic net income per share *

   $

0.32

$

0.21

$

0.17

$

0.27

$

0.13












Diluted net income per share *

   $

0.32

$

0.21

$

0.17

$

0.27

$

0.13












* Average outstanding shares and per share data restated to reflect the effect of stock dividends declared April 28, 2009 and August 20, 2009.

FIRSTMERIT CORPORATION AND SUBSIDIARIES

ASSET QUALITY INFORMATION














(Unaudited, except December 31, 2009 annual period which













  is derived from the audited financial statements)













(Dollars in thousands, except ratios)















Quarterly Periods


Annual Period
















June 30


Mar 31


Dec 31


Sept 30


Jun 30


Dec 31

Allowance for Credit Losses


2010


2010


2009


2009


2009


2009














Allowance for loan losses, beginning of period

$

117,806

$

115,092

$

116,352

$

111,222

$

106,257

$

103,757

Provision for loan losses


20,633


25,493


29,960


23,887


26,521


98,433

Change in loss share receivable


194


-


-


-


-


-

Charge-offs


25,428


26,195


34,232


21,819


24,726


99,713

Recoveries


5,138


3,416


3,012


3,062


3,170


12,615

 Net charge-offs


20,290


22,779


31,220


18,757


21,556


87,098

Allowance for loan losses, end of period

$

118,343

$

117,806

$

115,092

$

116,352

$

111,222

$

115,092

Reserve for unfunded lending commitments,













  beginning of period

$

6,337

$

5,751

$

4,470

$

6,054

$

6,019

$

6,588

Provision for credit losses


475


586


1,281


(1,584)


35


(837)

Reserve for unfunded lending commitments,













  end of period

$

6,812

$

6,337

$

5,751

$

4,470

$

6,054

$

5,751














Allowance for Credit Losses

$

125,155

$

124,143

$

120,843

$

120,822

$

117,276

$

120,843














Ratios (a)


























Provision for loan losses as a % of average loans


1.22%


1.52%


1.71%


1.34%


1.47%


1.38%

Provision for credit losses as a % of average loans


0.03%


0.03%


0.07%


-0.09%


0.00%


-0.01%

Net charge-offs as a % of average loans


1.18%


1.36%


1.79%


1.05%


1.19%


1.22%

Allowance for loan losses as a % of period-end loans


1.75%


1.72%


1.68%


1.66%


1.56%


1.58%

Allowance for credit losses as a % of period-end loans


1.84%


1.82%


1.77%


1.72%


1.64%


1.66%

Allowance for loan losses as a % of nonperforming loans


119.43%


105.14%


125.55%


147.60%


175.17%


125.55%

Allowance for credit losses as a % of nonperforming loans


126.31%


110.80%


131.82%


153.27%


184.71%


131.82%



























Asset Quality (a)


























Impaired loans:













 Nonaccrual

$

84,535

$

94,798

$

74,033

$

63,357

$

48,563

$

74,033

Other nonperforming loans:













 Nonaccrual


14,394


17,245


17,639


15,474


14,929


17,639














Total nonperforming loans


98,929


112,043


91,672


78,831


63,492


91,672














Other real estate ("ORE")


10,852


11,277


9,329


10,050


9,859


9,329














Total nonperforming assets ("NPAs")

$

109,781

$

123,320

$

101,001

$

88,881

$

73,351

$

101,001














NPAs as % of period-end loans + ORE


1.62%


1.80%


1.48%


1.26%


1.03%


1.39%














Past due 90 days or more & accruing interest

$

36,932

$

21,099

$

35,025

$

27,764

$

22,129

$

35,025














(a) Excludes acquired loans and loss share receivable with a period end balance of $2.6 billion and $.6 million at June 30,2010 and March 31, 2010, respectively,  and ORE covered by an FDIC loss share with a period end balance of $50.5 million and $22.8 million at June 30, 2010 and March 31, 2010, respectively, which, as required by current accounting guidance, were recorded at fair value on the date of acquisition.  

FIRSTMERIT CORPORATION

NONINTEREST INCOME AND NONINTEREST EXPENSE DETAIL












(Unaudited)











(Dollars in thousands)













2010


2010


2009


2009


2009

QUARTERLY OTHER INCOME DETAIL


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr












Trust department income

$

5,574

$

5,281

$

5,374

$

5,081

$

5,438

Service charges on deposits


17,737


15,366


16,568


16,782


15,853

Credit card fees


12,242


11,558


12,049


11,711


11,668

ATM and other service fees


2,844


2,509


2,730


2,935


2,839

Bank owned life insurance income


2,886


5,652


4,524


3,216


2,985

Investment services and insurance


2,535


1,928


2,322


2,498


2,270

Investment securities gains, net


651


-


1,934


2,925


1,178

Loan sales and servicing income


2,975


3,237


2,947


3,881


3,791

Gain on George Washington acquisition


-


6,232


-


-


-

Other operating income


5,765


3,328


4,253


2,538


4,823












Total Other Income

$

53,209

$

55,091

$

52,701

$

51,567

$

50,845




































2010


2010


2009


2009


2009

QUARTERLY OTHER EXPENSES DETAIL


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr












Salaries, wages, pension and employee benefits

$

51,899

$

48,156

$

45,748

$

43,351

$

44,125

Net occupancy expense


7,680


7,140


5,631


5,739


5,858

Equipment expense


6,735


6,050


6,445


5,847


6,212

Taxes, other than federal income taxes


2,236


1,938


1,593


1,646


1,631

Stationery, supplies and postage


2,696


2,693


2,414


2,167


2,051

Bankcard, loan processing and other costs


7,663


7,818


8,215


7,548


7,862

Advertising


2,407


1,592


1,510


1,635


1,887

Professional services


7,845


5,237


6,098


3,980


2,856

Telephone


1,267


1,133


1,039


1,010


997

Amortization of intangibles


669


234


87


86


87

Hedge termination


-


-


3,877


-


-

FDIC expense


4,416


3,765


3,160


2,298


8,496

Other operating expense


10,210


8,257


9,068


8,858


8,502












Total Other Expenses

$

105,723

$

94,013

$

94,885

$

84,165

$

90,564

FIRSTMERIT CORPORATION AND SUBSIDIARIES

ALLOWANCE FOR LOAN LOSSES - Net Charge-off Detail












(Unaudited)











(Dollars in thousands)


Quarters ended


Year ended


Six months ended



June 30,


December 31,


June 30,



2010


2009


2009


2010


2009












Allowance for loan losses - beginning of period

$

117,806

$

106,257

$

103,757

$

115,092

$

103,757

Loans charged off:











 Commercial


7,183


10,130


39,685


16,078


14,684

 Mortgage


1,395


1,315


4,960


3,041


2,238

 Installment


8,430


7,487


31,622


17,235


15,925

 Home equity


2,761


1,497


7,200


4,831


3,032

 Credit cards


4,010


3,696


13,558


8,178


6,663

 Leases


617


3


97


637


3

 Overdrafts


812


598


2,591


1,403


1,117

 Covered loans


220


-


-


220


-

   Total


25,428


24,726


99,713


51,623


43,662

Recoveries:











 Commercial


430


207


890


802


431

 Mortgage


38


193


270


63


219

 Installment


3,081


2,022


8,329


5,098


4,423

 Home equity


444


111


494


701


196

 Credit cards


608


388


1,710


1,081


775

 Manufactured housing


55


32


171


86


85

 Leases


229


42


57


238


47

 Overdrafts


253


175


694


485


365

 Covered loans


-


-


-


-


-

   Total


5,138


3,170


12,615


8,554


6,541












Net charge-offs


20,290


21,556


87,098


43,069


37,121

Provision for loan losses


20,633


26,521


98,433


46,126


44,586

Change in loss share receivable


194


-


-


194


-

Allowance for loan losses - end of period

$

118,343

$

111,222

$

115,092

$

118,343

$

111,222












Average loans (a)

$

6,810,582

$

7,246,752

$

7,152,845

$

6,810,923

$

7,313,516

Ratio to average loans (a):











 (Annualized) net charge-offs


1.18%


1.19%


1.22%


1.27%


1.02%

 Provision for loan losses


1.22%


1.47%


1.38%


1.37%


1.23%

Loans, period-end (excluding acquired loans) (a)

$

6,779,941

$

7,145,146

$

6,835,425

$

6,779,941

$

7,145,146












Allowance for credit losses (a):

$

125,155

$

117,276

$

120,843

$

125,155

$

117,276

 As a multiple of (annualized) net charge-offs


1.55


1.36


1.39


1.45


1.57

Allowance for loan losses (a):











 As a percent of period-end loans


1.75%


1.56%


1.68%


1.75%


1.56%

 As a multiple of (annualized) net charge-offs


1.47


1.29


1.32


1.37


1.49












(a) Excludes acquired losses and loss share receivable.

SOURCE FirstMerit Corporation

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