FirstMerit Reports Fourth Quarter 2009 EPS of $0.17 Per Share

Corporation announces:

- Increase in net interest margin to 3.64%

- 6.24% increase in average core deposits over prior quarter

- 21.98% increase in average core deposits over year ago quarter

- Increase in tangible common equity to 8.99%

- Increase in allowance for credit losses to 1.77% of period-end loans

Jan 26, 2010, 13:33 ET from FirstMerit Corporation

- Increase in net interest margin to 3.64%

- 6.24% increase in average core deposits over prior quarter

- 21.98% increase in average core deposits over year ago quarter

- Increase in tangible common equity to 8.99%

- Increase in allowance for credit losses to 1.77% of period-end loans

AKRON, Ohio, Jan. 26 /PRNewswire-FirstCall/ -- FirstMerit Corporation (Nasdaq: FMER) reported fourth quarter 2009 net income of $14.5 million, or $0.17 per diluted share.  This compares with $22.8 million, or $0.27 per diluted share, for the third quarter 2009 and $29.1 million, or $0.35 per diluted share, for the fourth quarter 2008.   For the full year 2009, the Corporation reported net income of $82.2 million, or $0.90 per diluted share, compared with $119.5 million, or $1.46 per diluted share in 2008.  

Returns on average common equity ("ROE") and average assets ("ROA") for the fourth quarter 2009 were 5.38% and 0.54%, respectively, compared with 8.69% and 0.85%, respectively, for the third quarter 2009 and 12.47% and 1.08% for the fourth quarter 2008.  ROE and ROA for the year ended December 31, 2009 were 8.09% and 0.76%, respectively, compared with 12.76% and 1.13%, respectively, for the year ended December 31, 2008.  

"We produced solid results in the fourth quarter and throughout all of 2009 despite persistent challenges in the economy.  Our financial performance is due to our commitment to sound banking fundamentals and appropriate risk management," said Paul G. Greig, chairman, president and CEO of FirstMerit Corporation.

"In the fourth quarter we grew our core deposits, further strengthened our tangible common equity and expanded our net interest margin. At year-end, FirstMerit maintained robust levels of liquidity, capital and reserves, setting us apart from our industry peers.   FirstMerit is well-positioned for the future, both in our existing Ohio and Pennsylvania footprint and in our new Chicago market with our upcoming purchase of 24 First Bank branches.  We remain on track to close this acquisition which includes $1.2 billion in deposits and a minimum of $315 million of performing loans in mid-February," Greig said.  

On December 16, 2009, the FirstMerit Bank acquired $102.0 million of asset based lending loans ("ABL loans") from First Bank Business Capital, Inc., a wholly owned subsidiary of First Bank pursuant to separate Purchase and Assumption agreement with First Bank Business Capital, Inc. also dated November 11, 2009.

Average loans during the fourth quarter of 2009 decreased $108.0 million, or 1.53%, compared with the third quarter of 2009 and also decreased $417.3 million, or 5.66%, compared with the fourth quarter of 2008.  Decreases against the respective periods were due to a reduction in both consumer and commercial demand for borrowing.   In the fourth quarter of 2009, average commercial loans decreased $46.9 million, or 1.14%, and $214.3 million, or 5.01%, compared with the third quarter of 2009 and fourth quarter of 2008, respectively.  Average consumer loans decreased $62.3 million, or 2.15%, and $194.8 million, or 6.78%, over the same periods.

Average deposits were $7.4 billion during the fourth quarter of 2009, up $13.1 million, or 0.18%, compared with the third quarter of 2009, and a decrease of $275.0 million, or 3.58%, compared with the fourth quarter of 2008.  For the fourth quarter 2009, average core deposits (which are defined as checking accounts, savings accounts and money market savings products) increased $344.1 million, or 6.24%, compared with the third quarter 2009 and $1.1 billion, or 21.98%, compared with the fourth quarter 2008.  Core deposits represented 79.16% of total average deposits, compared with 74.64% for the third quarter 2009 and 62.57% for the fourth quarter 2008.  The Corporation increased average core deposits for the ninth consecutive quarter.  Strategic retail and business marketing campaigns, primarily focused on new Reality Checking and Savings deposit products, drove the continued growth which began in the fourth quarter of 2007.

Average investments increased $20.8 million, or 0.76%, compared with the third quarter of 2009 and $248.3 million, or 9.93% compared with the fourth quarter of 2008.  The Corporation's investment portfolio yield decreased in the fourth quarter of 2009, to 4.35%, compared with 4.51% in the third quarter of 2009, and decreased from 5.01% in the fourth quarter of 2008, reflective of the declining interest rate environment.  

Net interest margin was 3.64% for the fourth quarter of 2009 compared with 3.61% for the third quarter of 2009 and 3.82% for the fourth quarter of 2008, marking a third consecutive quarter of net interest margin expansion.  The Corporation's success both migrating existing and attracting new depository accounts into its Reality Checking and Savings products continued to reduce funding costs and positively impact the net interest margin.  

Net interest income on a fully tax-equivalent ("FTE") basis was $89.2 million in the fourth quarter 2009 compared with $89.1 million in the third quarter of 2009 and $94.9 million in the fourth quarter of 2008.  Declining average loan balances in the fourth quarter of 2009 compared with the third quarter of 2009 offset net interest margin expansion during the quarter.

Noninterest income net of securities transactions for the fourth quarter of 2009 was $50.8 million, an increase of $2.1 million, or 4.37%, from the third quarter of 2009 and a decrease of $0.5 million, or 0.09%, from the fourth quarter of 2008.  In the fourth quarter of 2008 the Corporation recorded $5.8 million of other income from the sale of Class B Visa Inc. stock.  Noninterest income net of securities transactions as a percentage of net revenue for the fourth quarter of 2009 was 36.28% compared with 35.32% for third quarter of 2009 and 35.07% for the fourth quarter of 2008.  Net revenue is defined as net interest income, on an FTE basis, plus other income, less gains from securities sales.

Noninterest expense for the fourth quarter of 2009 was $94.9 million, an increase of $10.7 million, or 12.74%, from the third quarter of 2009 and an increase of $6.6 million, or 7.53%, from the fourth quarter of 2008.  The fourth quarter of 2009 noninterest expenses included $2.5 million of professional services related to due diligence and acquisition expense,  $1.3 million provision for unfunded lending commitments and $3.9 million related to the discontinuation of hedge accounting for a portfolio of interest rate swaps associated with fixed-rate commercial loans.   For the fourth quarter of 2009, the efficiency ratio was 67.74%, compared with 61.05% for the third quarter of 2009 and 60.34% for the fourth quarter of 2008.

Net charge-offs totaled $31.2 million, or 1.79% of average loans, in the fourth quarter of 2009 compared with $18.8 million, or 1.05% of average loans, in the third quarter 2009 and $15.2 million, or 0.82% of average loans, in the fourth quarter of 2008.  

Nonperforming assets totaled $101.0 million at December 31, 2009, an increase of $12.1 million, or 13.64%, compared with September 30, 2009. Nonperforming assets at December 31, 2009 represented 1.48% of period-end loans plus other real estate compared with 1.26% at September 30, 2009 and 0.77% million at December 31, 2008.

The allowance for loan losses totaled $115.1 million at December 31, 2009.   At December 31, 2009, the allowance for loan losses was 1.68% of period-end loans compared with 1.66% at September 30, 2009 and 1.40% at December 31, 2008.  The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments.  For comparative purposes the allowance for credit losses was 1.77% at December 31, 2009 compared with 1.72% at September 30, 2009 and 1.49% at December 31, 2008.  The allowance for credit losses to nonperforming loans was 131.82% at December 31, 2009, compared with 153.27% at September 30, 2009 and 211.38% at December 31, 2008.

The Corporation's total assets at December 31, 2009 were $10.5 billion, a decrease of $222.9 million, or 2.07%, compared with September 30, 2009 and a decrease of $561.5 million, or 5.06%, compared with December 31, 2008. Commercial loans decreased $286.2 million, or 6.58% and installment loans decreased $149.2 million or 9.48%, compared with December 31, 2008, contributing to the majority of asset declines over the prior year period.

Total deposits were $7.5 billion at December 31, 2009, an increase of $244.5 million, or 3.36%, from September 30, 2009 and an increase of $81.9 million, or 1.08%, from December 31, 2008.  Core deposits totaled $6.2 billion at December 31, 2009, an increase of $576.5 million, or 10.33%, from September 30, 2009 and an increase of $1.34 billion, or 27.80%, from December 31, 2008.

Shareholders' equity was $1.08 billion at December 31, 2009, compared with $1.06 billion at September 30, 2009, and $937.8 million at December 31, 2008.  The Corporation maintained a strong capital position as tangible common equity to assets was 8.99% at December 31, 2009, compared with 8.65% at September 30, 2009 and 7.27% at December 31, 2008.  The common cash dividend per share paid in the fourth quarter 2009 was $0.16.

Fourth Quarter 2009 Conference Call

FirstMerit (Nasdaq: FMER) senior management will host an earnings conference call on January 26, 2010 at 2:00 p.m. (Eastern Time) to provide an overview of fourth quarter results and highlights. To participate in the conference call, please dial (888) 693-3477 ten minutes before start time and provide the reservation number: 49626728. A replay of the conference call will be available at approximately 5:00 p.m. (Eastern Time) on January 26, 2010 through February 2, 2010 by dialing (800) 642-1687, and entering the PIN: 49626728.

About FirstMerit

FirstMerit Corporation is a diversified financial services company headquartered in Akron, Ohio, with assets of $10.5 billion as of December 31, 2009 and 158 banking offices and 172 ATMs in 25 Ohio and Western Pennsylvania counties. FirstMerit 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 Company is required under generally accepted accounting principles to evaluate subsequent events through the filing of the December 31, 2009 consolidated financial statements on Form 10-K.  As a result, the Corporation will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of December 31, 2009 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 Company, 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 Company's business, competitive pressures, changes in accounting, tax or regulatory practices or requirements and those risk factors detailed in the Company's periodic reports and registration statements filed with the Securities and Exchange Commission. The Company 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)

2009

2009

2009

2009

2008

4th Qtr

3rd Qtr

2nd Qtr

1st Qtr

4th Qtr

EARNINGS

Net interest income FTE (a)

$

89,171   

$

89,079   

$

88,806   

$

88,577   

$

94,855   

Provision for loan losses

29,960   

23,887   

26,521   

18,065   

16,986   

Other income

52,701   

51,567   

50,845   

55,188   

52,795   

Other expenses

94,885   

84,165   

90,564   

83,203   

88,240   

FTE adjustment (a)

1,793   

1,702   

1,691   

1,683   

1,617   

Net income

14,478   

22,763   

15,495   

29,434   

29,136   

Diluted EPS (b)

0.17   

0.27   

0.13   

0.33   

0.35   

PERFORMANCE RATIOS

Return on average assets (ROA)

0.54%

0.85%

0.57%

1.07%

1.08%

Return on average common equity (ROE)

5.38%

8.69%

6.27%

12.39%

12.47%

Net interest margin FTE (a)

3.64%

3.61%

3.56%

3.53%

3.82%

Efficiency ratio

67.74%

61.05%

65.34%

57.81%

60.34%

Number of full-time equivalent employees

2,495   

2,522   

2,540   

2,562   

2,575   

MARKET DATA

Book value/common share

$

12.36   

$

12.34   

$

11.99   

$

11.84   

$

11.58   

Period-end common share mkt value

20.14   

19.03   

17.00   

18.20   

20.59   

Market as a % of book

163%

154%

142%

154%

178%

Cash dividends/common share

$

0.16   

$

0.16   

$

0.16   

$

0.29   

$

0.29   

Common stock dividend payout ratio

94.12%

59.26%

84.21%

80.56%

82.86%

Average basic common shares (b)

86,149   

85,872   

84,123   

82,514   

82,193   

Average diluted common shares (b)

86,157   

85,880   

84,131   

82,523   

82,202   

Period end common shares

87,004   

85,869   

85,266   

81,417   

80,960   

Common shares repurchased

35   

13   

61   

45   

19   

Common stock market capitalization

$

1,752,261   

$

1,634,087   

$

1,449,522   

$

1,481,789   

$

1,666,966   

ASSET QUALITY

Gross charge-offs

$

34,232   

$

21,819   

$

24,726   

$

18,936   

$

17,932   

Net charge-offs

31,220   

18,757   

21,556   

15,565   

15,236   

Allowance for loan losses

115,092   

116,352   

111,222   

106,257   

103,757   

Reserve for unfunded lending commitments

5,751   

4,470   

6,054   

6,019   

6,588   

Nonperforming assets (NPAs)

101,001   

88,881   

73,351   

76,243   

57,526   

Net charge-offs/average loans ratio  *

1.79%

1.05%

1.19%

0.86%

0.82%

Allowance for loan losses/period-end loans *

1.68%

1.66%

1.56%

1.45%

1.40%

Allowance for credit losses/period-end loans *

1.77%

1.72%

1.64%

1.53%

1.49%

NPAs/loans and other real estate *

1.48%

1.26%

1.03%

1.04%

0.77%

Allowance for loan losses/nonperforming loans

125.55%

147.60%

175.17%

151.35%

198.76%

Allowance for credit losses/nonperforming loans

131.82%

153.27%

184.71%

159.93%

211.38%

CAPITAL & LIQUIDITY

Period-end tangible common equity to assets

8.99%

8.65%

8.36%

7.60%

7.27%

Average equity to assets

10.11%

9.77%

9.37%

9.66%

8.66%

Average equity to loans

15.37%

14.72%

14.07%

14.54%

12.62%

Average loans to deposits

93.94%

95.57%

95.17%

96.56%

96.01%

AVERAGE BALANCES

Assets

$

10,559,231   

$

10,629,359   

$

10,884,228   

$

11,115,042   

$

10,731,029   

Deposits

7,397,592   

7,384,507   

7,614,826   

7,644,118   

7,672,560   

Loans

6,948,985   

7,057,021   

7,246,752   

7,381,019   

7,366,246   

Earning assets

9,714,193   

9,802,810   

10,001,266   

10,189,233   

9,876,488   

Shareholders' equity

1,068,013   

1,038,824   

1,019,628   

1,073,276   

929,788   

ENDING BALANCES

Assets

$

10,538,487   

$

10,761,355   

$

10,696,962   

$

10,972,176   

$

11,100,026   

Deposits

7,515,796   

7,271,274   

7,451,220   

7,678,213   

7,597,679   

Loans

6,923,489   

7,029,648   

7,145,146   

7,350,763   

7,425,613   

Goodwill

139,598   

139,245   

139,245   

139,245   

139,245   

Intangible assets

1,158   

1,143   

1,229   

1,316   

1,403   

Earning assets

9,685,155   

9,793,244   

9,869,183   

10,108,403   

10,209,602   

Total shareholders' equity

1,075,050   

1,059,209   

1,022,647   

1,084,269   

937,843   

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.

* As required by current accounting guidance, the acquired ABL loans from First Bank Business Capital, Inc. were recorded at fair value with no carryover of the related allowances.  The ratios of our allowance for loan and credit losses do not include these loans.  The ABL loans were acquired on December 16, 2009.

FIRSTMERIT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited, except December 31, 2008, which is derived from the

December 31,

  audited financial statements)

2009

2008

ASSETS

 Cash and due from banks

$

161,033 

$

178,406 

 Investment securities

   Held-to-maturity

178,895 

158,273 

   Available-for-sale

2,565,943 

2,614,575 

 Loans held for sale

16,828 

11,141 

 Loans:

  Commercial loans

4,066,522 

4,352,730 

  Mortgage loans

463,416 

547,125 

  Installment loans

1,425,373 

1,574,587 

  Home equity loans

753,112 

733,832 

  Credit card loans

153,525 

149,745 

  Leases

61,541 

67,594 

    Total loans

6,923,489 

7,425,613 

 Less allowance for loan losses

(115,092)

(103,757)

Net loans

6,808,397 

7,321,856 

 Premises and equipment, net

125,205 

133,184 

 Goodwill

139,598 

139,245 

 Intangible assets

1,158 

1,403 

 Accrued interest receivable and other assets

541,430 

541,943 

     Total assets

$

10,538,487 

$

11,100,026 

LIABILITIES AND SHAREHOLDERS' EQUITY

 Deposits:

   Demand-non-interest bearing

$

2,069,921 

$

1,637,534 

   Demand-interest bearing

677,448 

666,615 

   Savings and money market accounts

3,408,109 

2,512,331 

   Certificates and other time deposits

1,360,318 

2,781,199 

      Total deposits

7,515,796 

7,597,679 

 Securities sold under agreements to repurchase

996,345 

921,390 

 Wholesale borrowings

740,105 

1,344,195 

 Accrued taxes, expenses, and other liabilities

211,191 

298,919 

    Total liabilities

9,463,437 

10,162,183 

 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

--- 

--- 

   Fixed-Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 liquidation preference; authorized and issued 125,000 shares

--- 

--- 

   Common stock, without par value:

     authorized 300,000,000 shares; issued 93,633,871 and 92,026,350 at December 31, 2009 and 2008, respectively

127,937 

127,937 

   Capital surplus

88,573 

94,802 

   Accumulated other comprehensive loss

(16,036)

(54,080)

   Retained earnings

1,043,625 

1,053,435 

   Treasury stock, at cost, 6,629,995 and 11,066,108 shares at December 31, 2009 and 2008, respectively

(169,049)

(284,251)

    Total shareholders' equity

1,075,050 

937,843 

Total liabilities and shareholders' equity

$

10,538,487 

$

11,100,026 

FIRSTMERIT CORPORATION AND SUBSIDIARIES

AVERAGE CONSOLIDATED BALANCE SHEETS

Quarterly Periods

(Unaudited)

(Dollars in thousands)

December 31,

September 30,

June 30,

March 31,

December 31,

2009

2009

2009

2009

2008

ASSETS

Cash and due from banks

$

167,608 

$

159,985 

$

194,381 

$

209,922 

$

192,804 

Investment securities

  Held-to-maturity

171,437 

160,084 

156,877 

161,217 

160,283 

  Available-for-sale

2,577,759 

2,568,348 

2,576,994 

2,623,732 

2,340,639 

Fed funds sold

17 

424 

Loans held for sale

16,007 

17,357 

20,643 

23,248 

8,896 

Loans:

 Commercial loans

4,058,851 

4,105,778 

4,263,114 

4,337,108 

4,273,123 

 Mortgage loans

472,829 

492,089 

513,982 

536,498 

555,713 

 Installment loans

1,449,091 

1,492,019 

1,512,929 

1,558,374 

1,596,053 

 Home equity loans

756,478 

758,353 

749,097 

736,956 

722,466 

 Credit card loans

151,233 

149,460 

146,589 

146,355 

150,133 

 Leases

60,503 

59,322 

61,041 

65,728 

68,758 

   Total loans

6,948,985 

7,057,021 

7,246,752 

7,381,019 

7,366,246 

Less allowance for loan losses

113,438 

111,073 

104,864 

102,533 

100,898 

   Net loans

6,835,547 

6,945,948 

7,141,888 

7,278,486 

7,265,348 

Total earning assets

9,714,193 

9,802,810 

10,001,266 

10,189,233 

9,876,488 

Premises and equipment, net

126,073 

127,096 

129,433 

132,156 

130,511 

Accrued interest receivable and other assets

664,795 

650,541 

664,012 

686,264 

632,124 

TOTAL ASSETS

$

10,559,231 

$

10,629,359 

$

10,884,228 

$

11,115,042 

$

10,731,029 

LIABILITIES

Deposits:

 Demand-non-interest bearing

$

2,028,977 

$

1,947,359 

$

1,891,792 

$

1,767,885 

$

1,607,901 

 Demand-interest bearing

651,381 

647,712 

671,235 

655,279 

658,208 

 Savings and money market accounts

3,175,825 

2,916,980 

2,810,155 

2,638,166 

2,534,702 

 Certificates and other time deposits

1,541,409 

1,872,456 

2,241,644 

2,582,788 

2,871,749 

   Total deposits

7,397,592 

7,384,507 

7,614,826 

7,644,118 

7,672,560 

Securities sold under agreements to repurchase

1,076,199 

1,087,875 

945,178 

941,112 

1,168,438 

Wholesale borrowings

762,023 

883,377 

1,019,786 

1,151,777 

766,358 

   Total funds

9,235,814 

9,355,759 

9,579,790 

9,737,007 

9,607,356 

Accrued taxes, expenses and other liabilities

255,404 

234,776 

284,810 

304,759 

193,885 

   Total liabilities

9,491,218 

9,590,535 

9,864,600 

10,041,766 

9,801,241 

SHAREHOLDERS' EQUITY

Preferred stock

27,850 

109,807 

Common stock

127,937 

127,937 

127,937 

127,937 

127,937 

Common stock warrant

2,820 

4,175 

Capital surplus

74,213 

55,732 

63,457 

86,872 

93,761 

Accumulated other comprehensive loss

(9,266)

(26,793)

(35,569)

(49,477)

(62,018)

Retained earnings

1,047,097 

1,050,359 

1,056,739 

1,069,948 

1,053,992 

Treasury stock

(171,968)

(168,411)

(223,606)

(275,986)

(283,884)

   Total shareholders' equity

1,068,013 

1,038,824 

1,019,628 

1,073,276 

929,788 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

10,559,231 

$

10,629,359 

$

10,884,228 

$

11,115,042 

$

10,731,029 

AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)    

Fully-tax Equivalent Interest Rates and Interest Differential

FIRSTMERIT CORPORATION AND SUBSIDIARIES

Three months ended

Three months ended

(Dollars in thousands)

December 31, 2009

December 31, 2008

Average

Average

Average

Average

Balance

Interest

Rate

Balance

Interest

Rate

ASSETS

Cash and due from banks

$

167,608   

$

192,804   

Investment securities and federal funds sold:

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

2,224,704   

23,348   

4.16%

1,971,257   

23,984   

4.84%

Obligations of states and political subdivisions (tax exempt)

331,098   

5,021   

6.02%

316,220   

4,804   

6.04%

Other securities and federal funds sold

193,399   

1,799   

3.69%

213,869   

2,720   

5.06%

Total investment securities and federal

funds sold

2,749,201   

30,168   

4.35%

2,501,346   

31,508   

5.01%

Loans held for sale

16,007   

204   

5.06%

8,896   

100   

4.47%

Loans

6,948,985   

81,762   

4.67%

7,366,246   

105,390   

5.69%

Total earning assets

9,714,193   

112,134   

4.58%

9,876,488   

136,998   

5.52%

Allowance for loan losses

(113,438)  

(100,898)  

Other assets

790,868   

762,635   

Total assets

$

10,559,231   

$

10,731,029   

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

Demand - non-interest bearing

$

2,028,977   

--   

--   

$

1,607,901   

--   

--   

Demand - interest bearing

651,381   

149   

0.09%

658,208   

370   

0.22%

Savings and money market accounts

3,175,825   

6,880   

0.86%

2,534,702   

6,764   

1.06%

Certificates and other time deposits

1,541,409   

8,413   

2.17%

2,871,749   

23,816   

3.30%

Total deposits

7,397,592   

15,442   

0.83%

7,672,560   

30,950   

1.60%

Securities sold under agreements to repurchase

1,076,199   

1,268   

0.47%

1,168,438   

3,752   

1.28%

Wholesale borrowings

762,023   

6,253   

3.26%

766,358   

7,441   

3.86%

Total interest bearing liabilities

7,206,837   

22,963   

1.26%

7,999,455   

42,143   

2.10%

Other liabilities

255,404   

193,885   

Shareholders' equity

1,068,013   

929,788   

Total liabilities and shareholders' equity

$

10,559,231   

$

10,731,029   

Net interest margin

$

9,714,193   

89,171   

3.64%

$

9,876,488   

94,855   

3.82%

Interest rate spread

3.32%

3.42%

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.

AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)    

Fully-tax Equivalent Interest Rates and Interest Differential

FIRSTMERIT CORPORATION AND SUBSIDIARIES

Twelve months ended

Twelve months ended

(Dollars in thousands)

December 31, 2009

December 31, 2008

Average

Average

Average

Average

Balance

Interest

Rate

Balance

Interest

Rate

ASSETS

Cash and due from banks

$

183,215   

$

177,089   

Investment securities and federal funds sold:

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

2,222,771   

97,871   

4.40%

1,985,026   

94,260   

4.75%

Obligations of states and political subdivisions (tax exempt)

321,919   

19,718   

6.13%

294,724   

17,910   

6.08%

Other securities and federal funds sold

204,272   

8,394   

4.11%

216,794   

11,326   

5.22%

Total investment securities and federal

2,748,962   

125,983   

4.58%

2,496,544   

123,496   

4.95%

funds sold

Loans held for sale

19,289   

1,032   

5.35%

29,419   

1,602   

5.45%

Loans

7,156,983   

339,381   

4.74%

7,203,946   

434,704   

6.03%

Total earning assets

9,925,234   

466,396   

4.70%

9,729,909   

559,802   

5.75%

Allowance for loan losses

(108,017)  

(96,714)  

Other assets

793,062   

739,158   

Total assets

$

10,793,494   

$

10,549,442   

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

Demand - non-interest bearing

$

1,910,171   

--   

--   

$

1,530,021   

--   

--   

Demand - interest bearing

656,367   

600   

0.09%

687,160   

2,514   

0.37%

Savings and money market accounts

2,886,842   

23,472   

0.81%

2,398,778   

29,839   

1.24%

Certificates and other time deposits

2,056,208   

54,610   

2.66%

2,801,623   

105,853   

3.78%

Total deposits

7,509,588   

78,682   

1.05%

7,417,582   

138,206   

1.86%

Securities sold under agreements to repurchase

1,013,167   

4,764   

0.47%

1,343,441   

31,857   

2.37%

Wholesale borrowings

952,979   

27,317   

2.87%

663,109   

27,574   

4.16%

Total interest bearing liabilities

7,565,563   

110,763   

1.46%

7,894,111   

197,637   

2.50%

Other liabilities

267,835   

189,222   

Shareholders' equity

1,049,925   

936,088   

Total liabilities and shareholders' equity

$

10,793,494   

$

10,549,442   

Net interest margin

$

9,925,234   

355,633   

3.58%

$

9,729,909   

362,165   

3.72%

Interest rate spread

3.24%

3.25%

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

Twelve months ended

(In thousands except per share data)

December 31,

December 31,

2009

2008

2009

2008

Interest income:

 Interest and fees on loans, including held for sale

$

81,907   

$

105,463   

$

340,236   

$

436,194   

 Interest and dividends on investment securities and federal funds sold

28,434   

29,918   

119,291   

117,632   

     Total interest income

110,341   

135,381   

459,527   

553,826   

Interest expense:

 Interest on deposits:

   Demand-interest bearing

149   

370   

600   

2,514   

   Savings and money market accounts

6,880   

6,764   

23,472   

29,839   

   Certificates and other time deposits

8,413   

23,816   

54,610   

105,853   

 Interest on securities sold under agreements to repurchase

1,268   

3,752   

4,764   

31,857   

 Interest on wholesale borrowings

6,253   

7,441   

27,317   

27,574   

    Total interest expense

22,963   

42,143   

110,763   

197,637   

    Net interest income

87,378   

93,238   

348,764   

356,189   

Provision for loan losses

29,960   

16,986   

98,433   

58,603   

    Net interest income after provision for loan losses

57,418   

76,252   

250,331   

297,586   

Other income:

 Trust department income

5,374   

5,291   

20,683   

22,127   

 Service charges on deposits

16,568   

15,450   

63,366   

62,862   

 Credit card fees

12,049   

11,667   

46,512   

47,054   

 ATM and other service fees

2,730   

2,613   

11,110   

10,894   

 Bank owned life insurance income

4,524   

2,451   

13,740   

12,008   

 Investment services and insurance

2,322   

1,949   

10,008   

10,503   

 Investment securities gains, net

1,934   

1,555   

6,037   

2,126   

 Loan sales and servicing income

2,947   

2,294   

12,954   

6,940   

 Gain on Visa Inc. redemption

-   

5,768   

-   

13,666   

 Gain on post medical retirement curtailment

-   

-   

9,543   

-   

 Other operating income

4,253   

3,757   

16,348   

13,256   

    Total other income

52,701   

52,795   

210,301   

201,436   

Other expenses:

 Salaries, wages, pension and employee benefits

45,748   

46,991   

175,906   

179,463   

 Net occupancy expense

5,631   

5,950   

24,099   

24,649   

 Equipment expense

6,445   

6,139   

24,301   

24,137   

 Stationery, supplies and postage

2,414   

2,458   

8,907   

9,372   

 Bankcard, loan processing and other costs

8,215   

7,359   

31,467   

29,456   

 Professional services

6,098   

3,261   

16,414   

11,695   

 Amortization of intangibles

87   

87   

347   

573   

 Other operating expense

20,247   

15,995   

71,376   

51,288   

    Total other expenses

94,885   

88,240   

352,817   

330,633   

        Income before federal income tax expense

15,234   

40,807   

107,815   

168,389   

Federal income tax expense

756   

11,671   

25,645   

48,904   

         Net income

$

14,478   

$

29,136   

$

82,170   

$

119,485   

Other comprehensive income, net of taxes

 Unrealized securities' holding gain (loss), net of taxes

$

(9,880)  

$

30,296   

$

38,994   

$

10,808   

 Unrealized hedging gain (loss), net of taxes

-   

209   

(94)  

1,342   

 Minimum pension liability adjustment, net of taxes

3,899   

(24,384)  

3,068   

(21,763)  

 Less: reclassification adjustment for securities' gain realized in net

     income, net of taxes

2,618   

1,011   

3,924   

1,382   

Total other comprehensive gain (loss), net of taxes

(8,599)  

5,110   

38,044   

(10,995)  

   Comprehensive income

$

5,879   

$

34,246   

$

120,214   

$

108,490   

Net income applicable to common shares

$

14,478   

$

29,136   

$

75,799   

$

119,485   

Net income used in diluted EPS calculation

$

14,478   

$

29,136   

$

75,799   

$

119,490   

Weighted average number of common shares outstanding - basic *

86,149   

82,193   

84,615   

82,060   

Weighted average number of common shares outstanding - diluted *

86,157   

82,202   

84,623   

82,097   

Basic earnings per share *

$

0.17   

$

0.35   

$

0.90   

$

1.46   

Diluted earnings per share *

$

0.17   

$

0.35   

$

0.90   

$

1.46   

Stock dividend per share

-   

-   

$

0.73%

-   

Dividend per share

$

0.16   

$

0.29   

$

0.77   

$

1.16   

* 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

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

(Unaudited)

Quarterly Results

(Dollars in thousands, except share data)

2009

2009

2009

2009

2008

4th Q

3rd Q

2nd Q

1st Q

4th Q

 Interest and fees on loans, including held for sale

$

81,907

$

84,283

$

86,247

$

87,799

$

105,463

 Interest and dividends - securities and federal funds sold

28,434

29,388

29,912

31,557

29,918

     Total interest income

110,341

113,671

116,159

119,356

135,381

 Interest on deposits:

   Demand-interest bearing

149

137

159

155

370

   Savings and money market accounts

6,880

5,763

5,452

5,377

6,764

   Certificates and other time deposits

8,413

12,284

15,325

18,588

23,816

    Securities sold under agreements to repurchase

1,268

1,286

1,211

999

3,752

   Wholesale borrowings

6,253

6,824

6,897

7,343

7,441

    Total interest expense

22,963

26,294

29,044

32,462

42,143

    Net interest income

87,378

87,377

87,115

86,894

93,238

Provision for loan losses

29,960

23,887

26,521

18,065

16,986

    Net interest income after provision for loan losses

57,418

63,490

60,594

68,829

76,252

Other income:

 Trust department income

5,374

5,081

5,438

4,790

5,291

 Service charges on deposits

16,568

16,782

15,853

14,163

15,450

 Credit card fees

12,049

11,711

11,668

11,084

11,667

 ATM and other service fees

2,730

2,935

2,839

2,606

2,613

 Bank owned life insurance income

4,524

3,216

2,985

3,015

2,451

 Investment services and insurance

2,322

2,498

2,270

2,918

1,949

 Investment securities gains, net

1,934

2,925

1,178

        -

1,555

 Loan sales and servicing income

2,947

3,881

3,791

2,335

2,294

 Gain on Visa Inc.

        -

        -

        -

        -

5,768

 Gain on post medical retirement curtailment

        -

        -

        -

9,543

        -

 Other operating income

4,253

2,538

4,823

4,734

3,757

    Total other income

52,701

51,567

50,845

55,188

52,795

Other expenses:

 Salaries, wages, pension and employee benefits

45,748

43,351

44,125

42,682

46,991

 Net occupancy expense

5,631

5,739

5,858

6,871

5,950

 Equipment expense

6,445

5,847

6,212

5,797

6,139

 Stationery, supplies and postage

2,414

2,167

2,051

2,275

2,458

 Bankcard, loan processing and other costs

8,215

7,548

7,862

7,842

7,359

 Professional services

6,098

3,980

2,856

3,480

3,261

 Amortization of intangibles

87

86

87

87

87

 Other operating expense

20,247

15,447

21,513

14,169

15,995

    Total other expenses

94,885

84,165

90,564

83,203

88,240

Income before income tax expense

15,234

30,892

20,875

40,814

40,807

Federal income taxes

756

8,129

5,380

11,380

11,671

   Net income

$

14,478

$

22,763

$

15,495

$

29,434

$

29,136

Other comprehensive income (loss), net of taxes

(8,599)

25,994

5,203

15,446

5,110

   Comprehensive income

$

5,879

$

48,757

$

20,698

$

44,880

$

34,246

Net income applicable to common shares

$

14,478

$

22,763

$

10,995

$

27,563

$

29,136

Adjusted net income used in diluted EPS calculation

$

14,478

$

22,763

$

10,995

$

27,563

$

29,136

Weighted-average common shares - basic *

86,149

85,872

84,123

82,514

82,193

Weighted-average common shares - diluted *

86,157

85,880

84,131

82,523

82,202

Basic net income per share *

   $

0.17

   $

0.27

   $

0.13

   $

0.33

   $

0.35

Diluted net income per share *

   $

0.17

   $

0.27

   $

0.13

   $

0.33

   $

0.35

* 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, 2008 annual period which is derived from the audited financial statements)

(Dollars in thousands, except ratios)