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

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.  

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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.

SOURCE FirstMerit Corporation