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FirstMerit Corporation Reports Third Quarter 2011 EPS of $0.29 Per Share

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

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FirstMerit Corporation

Oct 25, 2011, 07:30 ET

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AKRON, Ohio, Oct. 25, 2011 /PRNewswire/ --

Quarterly Highlights include:

  • 50th consecutive quarter of profitability
  • Solid linked-quarter credit trends supported by $9.4 million, or 9.44%, decline in non-performing assets and $1.0 million, or 6.63%, decline in net charge-offs to 0.79% of average loans from prior quarter
  • Average commercial loan growth of $ 210.5  million, or 4.51%, from prior quarter
  • Average core deposit growth of $246.6 million, or 2.71%, from prior quarter
  • Strong tangible common equity ratio at 7.75%

FirstMerit Corporation (Nasdaq: FMER) reported third quarter 2011 net income of $31.7 million, or $0.29 per diluted share.  This compares with $29.8 million, or $0.27 per diluted share, for the second quarter of 2011 and $29.0 million, or $0.27 per diluted share, for the third quarter 2010.  

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

Returns on average common equity ("ROE") and average assets ("ROA") for the third quarter 2011 were 8.02% and 0.86%, respectively, compared with 7.78% and 0.82% for the second quarter of 2011 and 7.60% and 0.79% for the third quarter 2010.

"Our third quarter results reflect exceptional performance in challenging times," said Paul G. Greig, Chairman, President and CEO of FirstMerit Corporation. "Commercial loan production was strong throughout our franchise, increasing 61% over the year-ago quarter. The drivers of our results are intact: sustained risk management processes, industry-leading customer service and sufficient liquidity to be an active lender.  Our tangible common equity ratio of 7.75% at quarter-end supports a robust balance sheet.

"I'm pleased with another quarter of significant commercial loan growth across our footprint.  We are winning market share and growing organically in each of our key markets," Mr. Greig added. "Even as the economy continues to struggle, we are building shareholder value through our dedication to sound banking principles."

Net interest margin was 3.74% for the third quarter of 2011 compared with 3.77% for the second quarter of 2011 and 3.96% for the third quarter of 2010.  The decline in net interest margin in both periods was due to continued pressure on earning asset yields which migrated lower in the quarter. Lower yields on new loan originations and reinvestment rates on security cash flows below historical averages are attributable to the current interest rate environment.  The Corporation again this quarter lowered average deposit costs compared to the prior and year-ago quarters primarily due to its success in increasing the composition of core deposits, which offset additional pressure to the net interest margin.

Average loans, not including covered loans, during the third quarter of 2011 increased $210.2 million, or 2.89%, compared with the second quarter of 2011 and $394.7 million, or 5.57%, compared with the third quarter of 2010.  The average loan growth during the third quarter of 2011 was driven entirely by commercial loans, which increased $ 210.5 million, or 4.51%, compared with the second quarter of 2011 and increased $539.4 million, or 12.44%, compared with the third quarter of 2010.  Average covered loan balances including the indemnification asset were $1.7 billion, $1.8 billion, and $2.2 billion at September 30, 2011, June 30, 2011, and September 30, 2010, respectively.  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.

Average deposits during the third quarter of 2011 decreased $17.1 million, or 0.15%, compared with the second quarter of 2011 and increased $21.9 million, or 0.19%, compared with the third quarter of 2010. During the third quarter of 2011, the Corporation increased its average core deposits, which excludes time deposits, by $246.6 million, or 2.71%, compared with the second quarter of 2011, and $1.3 billion, or 15.53%, compared with the third quarter of 2010.  Average time deposits decreased $263.6 million, or 11.16%, from the second quarter of 2011 and decreased $1.2 billion, or 37.03%, from the third quarter of 2010.

Average investments during the third quarter of 2011 increased $53.3 million, or 1.47%, compared with the second quarter of 2011 and increased $405.1 million, or 12.38%, over the third quarter of 2010.  

Net interest income on a fully tax-equivalent ("FTE") basis was $121.5 million in the third quarter 2011 compared with $119.5 million in the second quarter of 2011 and $125.5 million in the third quarter of 2010.  Compared with the second quarter of 2011, average earning assets increased $153.8 million, or 1.21%, and increased $298.6 million, or 2.37%, compared to the third quarter of 2010.  

Noninterest income, net of securities transactions, for the third quarter of 2011 was $56.4 million, an increase of $5.8 million, or 11.40%, from the second quarter of 2011 and an increase of $1.3 million, or 2.35%, from the third quarter of 2010.  

Other income was $60.8 million for the third quarter of 2011, an increase of $9.3 million, or 18.06% from the second quarter of 2011 and an increase of $5.7 million or 10.34% from the third quarter of 2010.  Activity in the quarter included net realized gains on the sale of investment securities of $4.4 million, offset by $3.3 million of MSR impairment which is reported as part of loan sales and servicing income. Service charges on deposits increased $2.1 million and ATM and other service fees increased $0.7 million, compared to the second quarter of 2011 due to recent product introductions and pricing.  Included in other operating income is an increase of $2.1 million in the fair value of interest rate lock commitments from an increase in the mortgage pipeline and $2.7 million from gains on covered loans paid in full.

Other income, net of securities gains, as a percentage of net revenue for the third quarter of 2011 was 31.69% compared with 29.75% for second quarter of 2011 and 30.50% for the third 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 third quarter of 2011 was $116.0 million, an increase of $5.9 million, or 5.35%, from the second quarter of 2011 and a decrease of $4.7 million, or 3.91%, from the third quarter of 2010.  Increases in noninterest expense compared with the second quarter of 2011 included a $4.5 million increase in salaries, wages, pension and employee benefits and a $1.5 million increase in other operating expense related to OREO and loan workout expense.

During the third quarter of 2011, the Corporation reported an efficiency ratio of 64.87%, compared with 64.39% for the second quarter of 2011 and 66.26% for the third quarter of 2010.

Net charge-offs, excluding acquired loans, totaled $14.6 million, or 0.79% of average loans, excluding acquired loans, in the third quarter of 2011 compared with $15.6 million, or 0.89% of average loans, in the second quarter of 2011 and $19.9 million, or 1.17% of average loans, in the third quarter of 2010.  Provision for credit losses approximated net charge-offs in the third quarter of 2011 as compared to the prior linked quarter in which provision was less than net charge-offs by $5.5 million and third quarter of 2010 in which provision was less than net charge-offs by $1.8 million.

Nonperforming assets totaled $90.4 million at September 30, 2011, a decrease of $9.5 million compared with June 30, 2011 and a decrease of $24.9 million compared with September 30, 2010.  Nonperforming assets at September 30, 2011 represented 1.21% of period-end loans plus other real estate, excluding acquired loans, compared with 1.38% at June 30, 2011 and 1.70% at September 30, 2010.  

The allowance for noncovered loan losses, totaled $109.2 million at September 30, 2011 and June 30, 2011  and $116.5 million at September 30, 2010.  At September 30, 2011, the allowance for noncovered loan losses was 1.46% of period-end loans compared with 1.51% at June 30, 2011, and 1.72% at September 30, 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 1.55% of period-end loans, excluding acquired loans, at September 30, 2011, compared with 1.59% at June 30, 2011 and 1.84% at September 30, 2010.  The allowance for credit losses to nonperforming loans was 169.42% at September 30, 2011, compared with 158.30% at June 30, 2011 and 118.49% at September 30, 2010.

The Corporation's total assets inclusive of intangible assets at September 30, 2011 were $14.7 billion, an increase of $340.7 million, or 2.37%, compared with June 30, 2011 and an increase of $334.2 million, or 2.33%, compared with September 30, 2010.

Total deposits were $11.4 billion at September 30, 2011, an increase of $55.2 million, or 0.49%, from June 30, 2011 and an increase of $124.7 million, or 1.11%, from September 30, 2010.  Core deposits totaled $9.5 billion at September 30, 2011, an increase of $360.6 million, or 3.97%, from June 30, 2011 and an increase of $1.4 billion, or 17.23%, from September 30, 2010.  

Shareholders' equity was $1.6 billion at September 30, 2011, compared with $1.6 billion at June 30, 2011 and $1.5 billion at September 30, 2010.  The Corporation maintained a strong capital position as tangible common equity to assets was 7.75% at September 30, 2011, compared with 7.79% and 7.54% at June 30, 2011 and September 30, 2010, respectively.  The common dividend per share paid in the third 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.  As of June 30, 2011, the one-year measurement period expired for all three acquisitions.  During the one-year measurement period, material adjustments to acquisition date estimated fair values were recorded in the period in which the acquisition occurred and, as a result, previously reported results may have changed.  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.  

Third Quarter 2011 Conference Call

FirstMerit Corporation senior management will host an earnings conference call today at 11:00 a.m. (Eastern Time) to provide an overview of third 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: 14854484. A replay of the conference call will be available at approximately 2:00 p.m. (Eastern Time) on October 25, 2011 through November 8, 2011 by dialing (855) 859-2056, and entering the PIN: 14854484.  The Corporation will provide a slide presentation, which management will speak to during the conference call. A copy of the presentation will be available at https://www.firstmerit.com/personal/investors.aspx; click on the Presentations link to access the slide presentation.

About FirstMerit Corporation

FirstMerit Corporation is a diversified financial services company headquartered in Akron, Ohio, with assets of $14.7 billion as of September 30, 2011 and 207 banking locations and 222 ATM locations 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 September 30, 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 September 30, 2011 and will adjust amounts preliminarily reported, if necessary.

Forward-Looking Statements

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 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 AND SUBSIDIARIES

Consolidated Financial Highlights

(Unaudited)











(Dollars in thousands)






Quarters







2011


2011


2011


2010


2010

EARNINGS


3rd Qtr


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr

Net interest income FTE (a)

$

121,537

$

119,484

$

123,940

$

129,971

$

125,514

Provision for noncovered loan losses


14,604


10,138


17,018


19,816


18,108

Provision for covered loan losses


4,768


7,481


5,331


3,572


593

Other income


60,772


51,491


52,756


54,311


55,135

Other expenses


115,957


110,068


114,445


122,452


120,670

FTE adjustment (a)


2,145


2,041


2,116


2,107


2,021

Net income


31,737


29,763


27,560


27,030


28,996

Diluted EPS


0.29


0.27


0.25


0.25


0.27












PERFORMANCE RATIOS











Return on average assets (ROA)


0.86%


0.82%


0.78%


0.74%


0.79%

Return on average common equity (ROE)


8.02%


7.78%


7.37%


7.04%


7.60%

Net interest margin FTE (a)


3.74%


3.77%


4.00%


4.14%


3.96%

Efficiency ratio


64.87%


64.39%


64.46%


65.95%


66.26%

Number of full-time equivalent employees


3,016


3,028


3,056


3,058


3,093












MARKET DATA











Book value/common share

$

14.38

$

14.19

$

13.98

$

13.86

$

13.95

Period-end common share mkt value


11.36


16.51


17.07


19.79


18.32

Market as a % of book


79%


116%


122%


143%


131%

Cash dividends/common share

$

0.16

$

0.16

$

0.16

$

0.16

$

0.16

Common stock dividend payout ratio


55.17%


59.26%


64.00%


64.41%


60.03%

Average basic common shares


109,245


109,138


108,769


108,807


108,793

Average diluted common shares


109,246


109,139


108,770


108,808


108,794

Period end common shares


109,247


109,241


108,734


108,817


108,803

Common shares repurchased


10


45


91


9


4

Common stock market capitalization

$

1,241,046

$

1,803,569

$

1,856,089

$

2,153,479

$

1,993,276












ASSET QUALITY (excluding acquired loans)











Gross charge-offs

$

20,014

$

20,958

$

22,812

$

27,553

$

25,817

Net charge-offs


14,604


15,641


17,018


21,654


19,923

Allowance for loan losses noncovered


109,187


109,187


114,690


114,690


116,528

Reserve for unfunded lending commitments


6,360


5,799


7,202


8,849


7,864

Nonperforming assets (NPAs) (b)


90,416


99,846


112,759


123,502


115,267

Net charge-offs/average loans ratio (b)


0.79%


0.89%


0.99%


1.25%


1.17%

Allowance for loan losses noncovered/period-end loans (b)


1.46%


1.51%


1.64%


1.65%


1.72%

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


1.55%


1.59%


1.74%


1.78%


1.84%

NPAs/loans and other real estate (b)


1.21%


1.38%


1.61%


1.78%


1.70%

Allowance for loan losses noncovered/nonperforming loans


160.00%


150.31%


138.67%


109.56%


111.00%

Allowance for credit losses/nonperforming loans


169.31%


158.30%


147.38%


118.01%


118.49%












CAPITAL & LIQUIDITY











Period-end tangible common equity to assets


7.75%


7.79%


7.50%


7.59%


7.54%

Average equity to assets


10.75%


10.59%


10.62%


10.51%


10.38%

Average equity to total loans (c)


17.55%


17.36%


17.14%


17.15%


16.93%

Average total loans to deposits (c)


78.18%


77.05%


78.14%


78.00%


78.25%












AVERAGE BALANCES











Assets

$

14,610,628

$

14,481,208

$

14,270,871

$

14,493,060

$

14,587,126

Deposits


11,447,682


11,464,738


11,319,809


11,388,423


11,425,740

Loans, excluding acquired loans (c)


7,298,446


7,080,109


6,963,389


6,868,222


6,781,123

Acquired loans, including covered loans (c)


1,651,559


1,753,942


1,881,540


2,014,361


2,160,075

Earning assets


12,878,105


12,724,269


12,560,913


12,466,629


12,579,486

Shareholders' equity


1,570,411


1,533,855


1,516,227


1,523,078


1,513,527












ENDING BALANCES











Assets

$

14,688,278

$

14,347,557

$

14,466,509

$

14,134,714

$

14,354,086

Deposits


11,396,121


11,340,939


11,395,946


11,268,006


11,271,416

Loans, excluding acquired loans (c)


7,453,612


7,216,015


6,989,973


6,937,142


6,776,098

Acquired loans, including covered loans (c)


1,604,707


1,707,887


1,800,525


1,953,093


2,117,505

Goodwill


460,044


460,044


460,044


460,044


460,044

Intangible assets


8,782


9,325


9,868


10,411


11,416

Earning assets


12,769,183


12,926,211


12,659,414


12,427,936


12,507,979

Total shareholders' equity


1,570,654


1,550,387


1,519,957


1,507,715


1,517,892












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) - 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.

(c) - Excludes loss share receivable of $220.5 million, $239.4 million, $266.0 million, $288.6 million and $342.3 million as of September 30, 2011, June 30, 2011, March 31, 2011, December 31, 2010, and September 30, 2010, respectively.

FIRSTMERIT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)







(Unaudited, except December 31, 2010, which is derived from the


September 30,


December 31,


September 30,


audited financial statements)


2011


2010


2010









ASSETS








Cash and due from banks

$

202,886

$

157,415

$

180,990


Interest bearing-deposits in banks


116,059


365,698


469,779



Total cash and cash equivalents


318,945


523,113


650,769


Investment securities









Held-to-maturity


92,214


59,962


61,818



Available-for-sale


3,198,046


2,987,040


3,027,436



Other investments


160,793


160,752


160,753


Loans held for sale


39,340


41,340


25,542


Noncovered loans:









Commercial loans


5,018,857


4,527,497


4,344,784



Mortgage loans


397,309


403,843


414,728



Installment loans


1,271,327


1,308,860


1,349,964



Home equity loans


743,377


749,378


760,816



Credit card loans


142,710


149,506


144,734



Leases


57,992


63,004


64,009




Total noncovered loans


7,631,572


7,202,088


7,079,035




Allowance for noncovered loan losses


(109,187)


(114,690)


(116,528)




Net noncovered loans


7,522,385


7,087,398


6,962,507



Covered loans (includes loss share receivable of $220.5 million,  $288.6 million and
$342.3 million at September 30, 2011, December 31, 2010 and September 30, 2010, respectively.)


1,647,218


1,976,754


2,156,832




Allowance for covered loan losses


(34,603)


(13,733)


(3,437)




Net covered loans


1,612,615


1,963,021


2,153,395




Net loans


9,135,000


9,050,419


9,115,902



Premises and equipment, net


193,075


197,866


194,757



Goodwill


460,044


460,044


460,044



Intangible assets


8,782


10,411


11,416



Other real estate covered by FDIC loss share


61,890


54,710


53,526



Accrued interest receivable and other assets


1,020,149


589,057


592,123




Total assets

$

14,688,278

$

14,134,714

$

14,354,086











LIABILITIES AND SHAREHOLDERS' EQUITY








Deposits:









Demand-non-interest bearing

$

2,971,555

$

2,790,550

$

2,658,458



Demand-interest bearing


967,574


868,404


847,284



Savings and money market accounts


5,513,472


4,811,784


4,557,702



Certificates and other time deposits


1,943,520


2,797,268


3,207,972




Total deposits


11,396,121


11,268,006


11,271,416













Federal funds purchased and securities sold under agreements to repurchase


987,030


777,585


897,755



Wholesale borrowings


248,006


326,007


391,914



Accrued taxes, expenses, and other liabilities


486,467


255,401


275,109




Total liabilities


13,117,624


12,626,999


12,836,194



Commitments and contingencies









Shareholders' equity










Common stock, without par value:










   authorized 300,000,000 shares; issued 115,121,731, 115,121,731 and 115,121,731










   at September 30, 2011, December 31, 2010 and September 30, 2010, respectively


127,937


127,937


127,937




Capital surplus


478,738


485,567


484,770




Accumulated other comprehensive loss


(4,654)


(26,103)


(4,915)




Retained earnings


1,118,027


1,080,900


1,071,147




Treasury stock, at cost, 5,874,748, 6,305,218 and 6,318,452










   shares at September 30, 2011, December 31, 2010 and September 30, 2010, respectively


(149,394)


(160,586)


(161,047)




Total shareholders' equity


1,570,654


1,507,715


1,517,892

Total liabilities and shareholders' equity

$

14,688,278

$

14,134,714

$

14,354,086

FIRSTMERIT CORPORATION AND SUBSIDIARIES

AVERAGE CONSOLIDATED BALANCE SHEETS

(Unaudited)



(Dollars in thousands)


Quarterly Periods



September 30,


June 30,


March 31,


December 31,


September 30,



2011


2011


2011


2010


2010












ASSETS











Cash and cash equivalents

$

517,150

$

588,487

$

520,602

$

809,828

$

821,713

Investment securities











  Held-to-maturity


85,664


79,012


64,212


64,287


63,364

  Available-for-sale


3,429,631


3,382,943


3,194,751


3,012,983


3,049,056

  Other investments


160,799


160,811


160,752


160,756


158,591

Loans held for sale


24,524


18,512


22,574


39,174


21,659

Noncovered loans:











 Commercial loans


4,876,034


4,665,550


4,553,777


4,445,691


4,336,631

 Mortgage loans


399,228


398,702


403,758


403,334


421,087

 Installment loans


1,264,868


1,270,589


1,294,156


1,331,130


1,363,248

 Home equity loans


741,497


736,117


741,596


754,270


762,626

 Credit card loans


144,796


143,528


146,526


146,744


146,863

 Leases


56,909


58,607


61,768


62,115


58,223

   Total noncovered loans


7,483,332


7,273,093


7,201,581


7,143,284


7,088,678

Covered loans and loss share receivable


1,694,155


1,809,898


1,917,043


2,046,145


2,198,138

   Total loans


9,177,487


9,082,991


9,118,624


9,189,429


9,286,816

   Less: total allowance for loan losses


138,441


143,721


134,064


119,924


113,062

   Net loans


9,039,046


8,939,270


8,984,560


9,069,505


9,173,754












Total earning assets


12,878,105


12,724,269


12,560,913


12,466,629


12,579,486












Premises and equipment, net


192,218


192,584


195,296


195,915


172,712

Accrued interest receivable and other assets


1,161,596


1,119,589


1,128,124


1,140,612


1,126,277












TOTAL ASSETS

$

14,610,628

$

14,481,208

$

14,270,871

$

14,493,060

$

14,587,126























LIABILITIES











Deposits:











 Demand-non-interest bearing

$

2,988,521

$

2,998,090

$

2,874,884

$

2,816,850

$

2,730,483

 Demand-interest bearing


913,252


824,125


841,545


857,960


858,168

 Savings and money market accounts


5,446,351


5,279,353


4,978,773


4,710,682


4,502,779

 Certificates and other time deposits


2,099,558


2,363,170


2,624,607


3,002,931


3,334,311












   Total deposits


11,447,682


11,464,738


11,319,809


11,388,423


11,425,741












Federal funds purchased and securities sold under











 agreements to repurchase


969,020


884,244


848,169


904,163


928,607

Wholesale borrowings


320,691


325,057


325,296


368,397


443,890












   Total funds


12,737,393


12,674,039


12,493,274


12,660,983


12,798,238

Accrued taxes, expenses and other liabilities


302,824


273,314


261,370


308,999


275,361












   Total liabilities


13,040,217


12,947,353


12,754,644


12,969,982


13,073,599












SHAREHOLDERS' EQUITY











Common stock


127,937


127,937


127,937


127,937


127,937

Capital surplus


477,864


479,078


486,907


485,126


484,197

Accumulated other comprehensive loss


(2,211)


(16,402)


(26,703)


(9,867)


(2,332)

Retained earnings


1,116,207


1,095,270


1,089,554


1,080,809


1,065,001

Treasury stock


(149,386)


(152,028)


(161,468)


(160,927)


(161,276)












   Total shareholders' equity


1,570,411


1,533,855


1,516,227


1,523,078


1,513,527












TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

14,610,628

$

14,481,208

$

14,270,871

$

14,493,060

$

14,587,126

AVERAGE CONSOLIDATED BALANCE SHEETS

Fully Tax-equivalent Interest Rates and Interest Differential

(Unaudited)



















(Dollars in thousands)








































Three months ended


Year ended


Three months ended






















September 30, 2011


December 31, 2010


September 30, 2010






















Average




Average


Average




Average


Average




Average



Balance


Interest


Rate


Balance


Interest


Rate


Balance


Interest


Rate




















ASSETS



















Cash and cash equivalents

$

517,150





$

728,723





$

821,713





Investment securities and federal funds sold:



















    U.S. Treasury securities and U.S. Government



















         agency obligations (taxable)


2,974,656


19,864


2.65%


2,554,538


87,019


3.41%


2,609,406


21,364


3.25%

    Obligations of states and political subdivisions (tax exempt)


385,055


5,022


5.17%


348,832


20,505


5.88%


346,380


4,848


5.55%

    Other securities and federal funds sold


316,383


2,084


2.61%


300,700


8,508


2.83%


315,225


2,197


2.77%

         Total investment securities and federal



















          funds sold


3,676,094


26,970


2.91%


3,204,070


116,032


3.62%


3,271,011


28,409


3.45%




















Loans held for sale


24,524


284


4.59%


23,612


1,162


4.92%


21,659


269


4.93%

Noncovered loans, covered loans and loss share



















    receivable


9,177,487


108,444


4.69%


8,529,303


433,308


5.08%


9,286,816


118,680


5.07%




















         Total earning assets


12,878,105


135,698


4.18%


11,756,985


550,502


4.68%


12,579,486


147,358


4.65%




















Total allowance for loan losses


(138,441)






(116,118)






(113,062)





Other assets


1,353,814






1,154,761






1,298,989
























         Total assets

$

14,610,628





$

13,524,351





$

14,587,126
























LIABILITIES AND SHAREHOLDERS' EQUITY



















Deposits:



















    Demand - non-interest bearing

$

2,988,521


--


--

$

2,550,849


--


--

$

2,730,483


--


--

    Demand - interest bearing


913,252


218


0.09%


794,497


751


0.09%


858,168


223


0.10%

    Savings and money market accounts


5,446,351


6,929


0.50%


4,303,815


31,912


0.74%


4,502,779


8,212


0.72%

    Certificates and other time deposits


2,099,558


4,370


0.83%


2,801,270


32,713


1.17%


3,334,311


9,702


1.15%




















         Total deposits


11,447,682


11,517


0.40%


10,450,431


65,376


0.63%


11,425,741


18,137


0.63%




















Securities sold under agreements to repurchase


969,020


977


0.40%


907,015


4,477


0.49%


928,607


984


0.42%

Wholesale borrowings


320,691


1,669


2.06%


510,799


13,998


2.74%


443,890


2,725


2.44%




















         Total interest bearing liabilities


9,748,872


14,163


0.58%


9,317,396


83,851


0.90%


10,067,755


21,846


0.86%




















Other liabilities


302,824






340,485






275,361
























Shareholders' equity


1,570,411






1,315,621






1,513,527
























         Total liabilities and shareholders' equity

$

14,610,628





$

13,524,351





$

14,587,126











































Net yield on earning assets

$

12,878,105


121,535


3.74%

$

11,756,985


466,651


3.97%

$

12,579,486


125,512


3.96%




















Interest rate spread






3.60%






3.78%






3.79%




















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)












(Dollars and shares in thousands, except per share data)


Quarters ended



Nine months ended



September 30,



September 30,






2011



2010



2011



2010

Interest income:













Interest and fees on loans, including held for sale

$

108,417


$

118,543


$

330,877


$

312,112


Investment securities














Taxable


21,949



23,560



65,610



74,032



Tax-exempt


3,189



3,234



9,521



9,861



Total investment securities interest


25,138



26,794



75,131



83,893




Total interest income


133,555



145,337



406,008



396,005

Interest expense:













Interest on deposits:














Demand-interest bearing


218



252



579



553



Savings and money market accounts


6,929



8,294



22,172



23,768



Certificates and other time deposits


4,370



9,588



16,803



25,504


Interest on securities sold under agreements to repurchase


977



986



2,832



3,517


Interest on wholesale borrowings


1,669



2,724



4,963



12,009



Total interest expense


14,163



21,844



47,349



65,351



Net interest income


119,392



123,493



358,659



330,654

Provision for noncovered loan losses


14,604



18,108



41,760



63,967

Provision for covered loan losses


4,768



593



17,580



860



Net interest income after provision for loan losses


100,020



104,792



299,319



265,827

Other income:













Trust department income


5,607



5,469



16,983



16,324


Service charges on deposits


17,838



16,859



48,460



49,962


Credit card fees


13,640



12,532



39,357



36,332


ATM and other service fees


3,801



2,996



9,781



8,349


Bank owned life insurance income


3,182



3,219



11,439



11,757


Investment services and insurance


1,965



2,688



6,384



7,151


Investment securities gains, net


4,402



58



5,291



709


Loan sales and servicing income


1,036



4,006



8,657



10,218


Gain on George Washington acquisition


-



-



-



1,041


Other operating income


9,301



7,308



18,667



16,401



Total other income


60,772



55,135



165,019



158,244

Other expenses:













 Salaries, wages, pension and employee benefits


61,232



58,930



177,815



158,985


 Net occupancy expense


8,464



8,608



25,144



23,428


 Equipment expense


7,073



7,330



20,725



20,115


 Stationery, supplies and postage


2,517



2,865



7,972



8,254


 Bankcard, loan processing and other costs


8,449



8,281



24,278



23,762


 Professional services


5,732



8,544



17,466



21,626


 Amortization of intangibles


543



1,006



1,629



1,909


 FDIC expense


3,240



5,267



12,187



13,448


 Other operating expense


18,707



19,839



53,254



48,879



Total other expenses


115,957



120,670



340,470



320,406




Income before income tax expense


44,835



39,257



123,868



103,665

Income tax expense


13,098



10,261



34,808



27,786




Net income

$

31,737


$

28,996


$

89,060


$

75,879
















Other comprehensive income, net of taxes













Unrealized securities' holding gains (losses), net of taxes

$

7,353


$

(360)


$

24,889


$

21,005


Less: reclassification adjustment for securities' gain realized in














income, net of taxes


2,862



38



3,440



461


Total other comprehensive gains (losses), net of taxes


4,491



(398)



21,449



20,544



Comprehensive income

$

36,228


$

28,598


$

110,509


$

96,423


Net income applicable to common shares

$

31,737


$

28,996


$

89,060


$

75,879


Net income used in diluted EPS calculation

$

31,737


$

28,996


$

89,060


$

75,879

Weighted average number of common shares outstanding - basic


109,245



108,793



109,052



98,588

Weighted average number of common shares outstanding - diluted


109,246



108,794



109,053



98,590

Basic earnings per share

$

0.29


$

0.27


$

0.82


$

0.77

Diluted earnings per share

$

0.29


$

0.27


$

0.82


$

0.77

Dividend per share

$

0.16


$

0.16


$

0.48


$

0.48

FIRSTMERIT CORPORATION AND SUBSIDIARIES  

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

(Unaudited)











(Dollars and shares in thousands, except per share data)













Quarterly Results



2011


2011


2011


2010


2010



3rd Qtr


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr












Interest and fees on loans, including held for sale

$

108,417

$

107,904

$

114,555

$

121,651

$

118,543

Interest and dividends - securities and federal funds sold


25,138


25,313


24,680


24,714


26,794

         Total interest income


133,555


133,217


139,235


146,365


145,337

Interest on deposits:











    Demand-interest bearing


218


177


184


198


252

    Savings and money market accounts


6,929


7,398


7,845


8,145


8,294

    Certificates and other time deposits


4,370


5,606


6,827


7,209


9,588

    Securities sold under agreements to repurchase


977


940


915


960


986

    Wholesale borrowings


1,669


1,653


1,640


1,989


2,724

         Total interest expense


14,163


15,774


17,411


18,501


21,844

         Net interest income


119,392


117,443


121,824


127,864


123,493

Provision for noncovered loan losses


14,604


10,138


17,018


19,816


18,108

Provision for covered loan losses


4,768


7,481


5,331


3,572


593

    Net interest income after provision for loan losses


100,020


99,824


99,475


104,476


104,792

Other income:











    Trust department income


5,607


5,863


5,514


5,627


5,469

    Service charges on deposits


17,838


15,712


14,910


15,938


16,859

    Credit card fees


13,640


13,510


12,207


12,678


12,532

    ATM and other service fees


3,801


3,063


2,917


2,910


2,996

    Bank owned life insurance income


3,182


3,015


5,241


3,192


3,219

    Investment services and insurance


1,965


1,972


2,447


2,300


2,688

    Investment securities gains, net


4,402


889


0


146


58

    Loan sales and servicing income


1,036


2,609


5,012


9,221


4,006

   Other operating income


9,301


4,858


4,508


2,299


7,308

         Total other income


60,772


51,491


52,756


54,311


55,135

Other expenses:











    Salaries, wages, pension and employee benefits


61,232


56,713


59,871


62,331


58,930

    Net occupancy expense


8,464


8,086


8,594


9,236


8,608

    Equipment expense


7,073


6,816


6,836


7,549


7,330

    Stationery, supplies and postage


2,517


2,750


2,705


3,183


2,865

    Bankcard, loan processing and other costs


8,449


8,266


7,562


7,810


8,281

    Professional services


5,732


5,940


5,793


7,731


8,544

    Amortization of intangibles


543


543


543


1,006


1,006

    FDIC expense


3,240


4,581


4,366


4,342


5,267

    Other operating expense


18,707


16,373


18,175


19,264


19,839

         Total other expenses


115,957


110,068


114,445


122,452


120,670

              Income before income tax expense


44,835


41,247


37,786


36,335


39,257

Income taxes


13,098


11,484


10,226


9,305


10,261

             Net income

$

31,737

$

29,763

$

27,560

$

27,030

$

28,996

Other comprehensive income (loss), net of taxes


4,491


16,620


338


(21,188)


(398)

        Comprehensive income

$

36,228

$

46,383

$

27,898

$

5,842

$

28,598

Net income applicable to common shares

$

31,737

$

29,763

$

27,560

$

27,030

$

28,996

Adjusted net income used in diluted EPS calculation

$

31,737

$

29,763

$

27,560

$

27,030

$

28,996

Weighted-average common shares outstanding - basic


109,245


109,138


108,769


108,807


108,793

Weighted-average common shares outstanding - diluted


109,246


109,139


108,770


108,808


108,794












Basic net income per share

$

0.29

$

0.27

$

0.25

$

0.25

$

0.27












Diluted net income per share

$

0.29

$

0.27

$

0.25

$

0.25

$

0.27

FIRSTMERIT CORPORATION AND SUBSIDIARIES

ASSET QUALITY INFORMATION (Excluding Acquired Assets)














(Unaudited, except December 31, 2010 annual period













 which is derived from the audited financial statements)













(In thousands, except ratios)















Quarterly Periods


Annual Period
















September 30,


June 30,


March 31,


December 31,


September 30,


December 31,

Allowance for Credit Losses


2011


2011


2011


2010


2010


2010














Allowance for noncovered loan losses, beginning of period

$

109,187

$

114,690

$

114,690

$

116,528

$

118,343

$

115,092

Provision for noncovered loan losses


14,604


10,138


17,018


19,816


18,108


83,783

Charge-offs


20,014


20,958


22,812


27,553


25,817


104,532

Recoveries


5,410


5,317


5,794


5,899


5,894


20,347

 Net charge-offs


14,604


15,641


17,018


21,654


19,923


84,185

Allowance for noncovered loan losses, end of period

$

109,187

$

109,187

$

114,690

$

114,690

$

116,528

$

114,690

Reserve for unfunded lending commitments,













  beginning of period

$

5,799

$

7,202

$

8,849

$

7,864

$

6,812

$

5,751

Provision for / (relief of) credit losses


561


(1,403)


(1,647)


985


1,052


3,098

Reserve for unfunded lending commitments,













  end of period

$

6,360

$

5,799

$

7,202

$

8,849

$

7,864

$

8,849














Allowance for Credit Losses

$

115,547

$

114,986

$

121,892

$

123,539

$

124,392

$

123,539














Ratios (a)


























Provision for loan losses as a % of average loans


0.79%


0.57%


0.99%


1.14%


1.06%


1.23%

Provision for / (relief of) credit losses as a % of average loans


0.03%


-0.08%


-0.10%


0.06%


0.06%


0.05%

Net charge-offs as a % of average loans


0.79%


0.89%


0.99%


1.25%


1.17%


1.23%

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


1.46%


1.51%


1.64%


1.65%


1.72%


1.65%

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


1.55%


1.59%


1.74%


1.78%


1.84%


1.78%

Allowance for loan losses as a % of nonperforming loans


160.00%


150.31%


138.67%


109.56%


111.00%


109.56%

Allowance for credit losses as a % of nonperforming loans


169.31%


158.30%


147.38%


118.01%


118.49%


118.01%



























Asset Quality (a)


























Impaired loans:













 Nonaccrual

$

59,928

$

63,688

$

71,246

$

89,828

$

91,646

$

89,828

Other nonperforming loans:













 Nonaccrual


8,275


8,951


11,460


14,859


13,331


14,859














Total nonperforming loans


68,203


72,639


82,706


104,687


104,977


104,687














Other real estate ("ORE")


22,172


27,207


30,053


18,815


10,290


18,815














Total nonperforming assets ("NPAs")

$

90,375

$

99,846

$

112,759

$

123,502

$

115,267

$

123,502














NPAs as % of period-end loans + ORE


1.21%


1.38%


1.61%


1.78%


1.70%


1.78%














Past due 90 days or more & accruing interest

$

6,268

$

10,424

$

5,652

$

22,017

$

36,895

$

22,017














(a) Excludes acquired loans and loss share receivable with a period end balance of $1.6 billion, $1.7 billion, $2.1 billion, $2.3 billion, and $2.5 billion and ORE covered by an FDIC loss share with a period end balance of $61.9 million, $58.5 million, $58.7 million, $54.7 million and $53.5 million at September 30, 2011, June 30, 2011, March 31, 2011, December 31, 2010 and September 30, 2010, respectively, which, as required by current accounting guidance, were recorded at fair value on the date of acquisition.

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

NONINTEREST INCOME AND NONINTEREST EXPENSE DETAIL

(Unaudited)











(In thousands)
























2011


2011


2011


2010


2010

QUARTERLY OTHER INCOME DETAIL


3rd Qtr


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr












Trust department income

$

5,607

$

5,863

$

5,514

$

5,627

$

5,469

Service charges on deposits


17,838


15,712


14,910


15,938


16,859

Credit card fees


13,640


13,510


12,207


12,678


12,532

ATM and other service fees


3,801


3,063


2,917


2,910


2,996

Bank owned life insurance income


3,182


3,015


5,241


3,192


3,219

Investment services and insurance


1,965


1,972


2,447


2,300


2,688

Investment securities gains, net


4,402


889


0


146


58

Loan sales and servicing income


1,036


2,609


5,012


9,221


4,006

Other operating income


9,301


4,858


4,508


2,299


7,308












Total Other Income

$

60,772

$

51,491

$

52,756

$

54,311

$

55,135

























2011


2011


2011


2010


2010

QUARTERLY OTHER EXPENSES DETAIL


3rd Qtr


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr












Salaries, wages, pension and employee benefits

$

61,232

$

56,713

$

59,871

$

62,331

$

58,930

Net occupancy expense


8,464


8,086


8,594


9,236


8,608

Equipment expense


7,073


6,816


6,836


7,549


7,330

Taxes, other than federal income taxes


1,507


922


1,960


2,021


1,680

Stationery, supplies and postage


2,517


2,750


2,705


3,183


2,865

Bankcard, loan processing and other costs


8,449


8,266


7,562


7,810


8,281

Advertising


2,391


2,287


2,384


3,094


2,488

Professional services


5,732


5,940


5,793


7,731


8,544

Telephone


1,570


1,462


1,486


1,579


1,561

Amortization of intangibles


543


543


543


1,006


1,006

FDIC expense


3,240


4,581


4,366


4,342


5,267

Other operating expense


13,239


11,702


12,345


12,570


14,110












Total Other Expenses

$

115,957

$

110,068

$

114,445

$

122,452

$

120,670

FIRSTMERIT CORPORATION AND SUBSIDIARIES

ALLOWANCE FOR NONCOVERED LOAN LOSSES - Net Charge-off Detail



(Unaudited)











(Dollars in thousands)













Quarters ended


Year ended


Nine months ended



September 30,


December 31,


September 30,



2011


2010


2010


2011


2010












Allowance for noncovered loan losses - beginning of period

$

109,187

$

118,343

$

115,092

$

114,690

$

115,092

Loans charged off:











 Commercial


8,382


10,704


39,766


24,525


26,541

 Mortgage


771


1,153


5,156


3,786


4,194

 Installment


5,911


8,154


34,054


20,204


25,389

 Home equity


1,929


1,923


7,912


6,200


6,754

 Credit cards


1,520


2,902


13,577


6,135


11,080

 Leases


651


55


896


778


692

 Overdrafts


850


926


3,171


2,156


2,329

   Total


20,014


25,817


104,532


63,784


76,979

Recoveries:











 Commercial


717


503


1,952


1,853


1,305

 Mortgage


74


138


263


192


201

 Installment


3,361


3,946


13,047


10,749


9,044

 Home equity


466


481


1,599


1,255


1,182

 Credit cards


585


600


2,199


1,789


1,681

 Manufactured housing


14


36


156


63


122

 Leases


1


2


267


35


240

 Overdrafts


192


188


864


585


673

   Total


5,410


5,894


20,347


16,521


14,448












Net charge-offs


14,604


19,923


84,185


47,263


62,531

Provision for noncovered loan losses


14,604


18,108


83,783


41,760


63,967

Allowance for noncovered loan losses - end of period

$

109,187

$

116,528

$

114,690

$

109,187

$

116,528












Average loans (a)

$

7,298,446

$

6,781,123

$

6,818,962

$

7,115,222

$

6,802,363

Ratio to average loans (a):











 (Annualized) net charge-offs


0.79%


1.17%


1.23%


0.89%


1.23%

 (Annualized) provision for loan losses


0.79%


1.06%


1.23%


0.78%


1.26%

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

$

7,453,612

$

6,776,098

$

6,937,142

$

7,453,612

$

6,776,098





0






0

Allowance for credit losses (a):

$

115,547

$

124,392

$

123,539

$

115,547

$

124,392

 As a multiple of (annualized) net charge-offs


1.99


1.57


1.47


1.83


1.49

Allowance for loan losses (a):











 As a percent of period-end loans


1.46%


1.72%


1.65%


1.46%


1.72%

 As a multiple of (annualized) net charge-offs


1.88


1.47


1.36


1.73


1.39












(a) Excludes acquired loans and loss share receivable.

FirstMerit Corporation
Analysts: Thomas O’Malley/Investor Relations Officer
Phone: 330.384.7109
Media Contact: Robert Townsend/Media Relations Officer
Phone: 330.384.7075

SOURCE FirstMerit Corporation

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