FirstMerit Reports Fourth Quarter 2012 EPS of $0.35 Per Share

News provided by

FirstMerit Corporation

Jan 22, 2013, 07:30 ET

AKRON, Ohio, Jan. 22, 2013 /PRNewswire/ --

Quarterly Highlights include:

  • Sustained profitability: 55th consecutive quarter of profitability.
  • Continued organic growth:  Average commercial noncovered loan growth of $156.8 million, or 2.88%, from prior quarter; average core deposit growth of $109.1 million, or 1.08%, from prior quarter.
  • Superior credit quality: Nonperforming assets as a percent of noncovered period end loans plus other real estate declined to 0.57% from 0.77% in the prior quarter; net charge-offs to noncovered average loans decreased to 0.34% from 0.72% in the prior quarter.
  • Strong balance sheet:  Strong tangible common equity ratio at 8.16%.

FirstMerit Corporation (Nasdaq: FMER) reported fourth quarter 2012 net income of $38.2 million, or $0.35 per diluted share.  This compares with $35.0 million, or $0.32 per diluted share, for the third quarter 2012 and $30.5 million, or $0.28 per diluted share, for the fourth quarter 2011.  For the full year 2012, the Corporation reported net income of $134.1 million, or $1.22 per diluted share, compared with $119.6 million, or $1.10 per diluted share in 2011.

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

Returns on average common equity ("ROE") and average assets ("ROA") for the fourth quarter 2012 were 9.30% and 1.03%, respectively, compared with 8.60% and 0.94%, respectively, for the third quarter 2012 and 7.70% and 0.83% for the fourth quarter 2011. 

"Our ongoing commitment to sound banking fundamentals is reflected in our strong fourth quarter results. While the low-interest rate environment and slow economic recovery continue to challenge the banking industry, I am pleased to report that FirstMerit again performed well and grew our business. Reflecting this organic growth, total commercial loan production for the fourth quarter was up 65% over the year-ago quarter. Our strong asset quality continued to improve, with net charge-offs decreasing to 0.34% of average noncovered loans," said Paul G. Greig, chairman, president and CEO, FirstMerit Corporation.

"We continued to make progress on our efficiency initiative. In the fourth quarter, excluding costs related to the Citizens transaction and our investment portfolio repositioning, expenses came in below our target of $110 million. Our performance in the quarter demonstrates the financial strength and stability we look to bring to Michigan and Wisconsin once we receive regulatory and shareholder approval of our announced acquisition of Flint-based Citizens Republic Bancorp," Greig said.

Net interest margin was 3.58% for the fourth quarter 2012 compared with 3.66% for the third quarter 2012 and 3.85% for the fourth quarter 2011. Despite the Corporation's continued success in reducing deposit costs in the quarter through an improved mix of core deposits, downward pressure on earning asset yields were responsible for a compression in the net interest margin of 8 basis points compared with the third quarter of 2012.

Average noncovered loans during the fourth quarter 2012 increased $258.7 million, or 3.16%, compared with the third quarter 2012 and also increased $770.3 million, or 10.04%, compared with the fourth quarter 2011.  Average noncovered commercial loans increased $156.8 million, or 2.88%, compared with the prior quarter, and increased $551.0 million, or 10.91%, compared with the year ago quarter.

Average deposits were $11.6 billion during the fourth quarter 2012, an increase of $3.2 million, or 0.03%, compared with the third quarter 2012, and an increase of $178.5 million, or 1.56%, compared with the fourth quarter 2011.  During the fourth quarter 2012, average core deposits, which exclude time deposits, increased $109.1 million, or 1.08%, compared with the third quarter 2012 and $598.6 million, or 6.25%, compared with the fourth quarter 2011.  Average time deposits decreased $105.9 million, or 6.93%, and decreased $420.1 million, or 22.80%, respectively, over prior and year-ago quarters.  The Corporation continues to emphasize growth in lower cost deposit products and decrease its reliance on certificates of deposit accounts to support balance sheet growth.  For the fourth quarter 2012, average core deposits accounted for 87.73% of total average deposits, compared with 86.82% for the third quarter 2012 and 83.86% for the fourth quarter 2011.

Average investments decreased $6.8 million, or 0.18%, compared with the third quarter 2012 and increased $206.3 million, or 5.93% compared with the fourth quarter 2011.

Net interest income on a fully tax-equivalent ("FTE") basis was $119.1 million in the fourth quarter 2012 compared with $120.7 million in the third quarter 2012 and $123.6 million in the fourth quarter 2011. 

Noninterest income, excluding gains on securities transactions of $2.4 million, for the fourth quarter 2012 was $59.2 million, an increase of $4.9 million, or 8.93%, from the third quarter 2012 and an increase of $5.3 million, or 9.79%, from the fourth quarter 2011.  The increase in noninterest income in the fourth quarter of 2012 was mainly attributable to a $5.0 million gain on covered loans paid in full.

Other income, net of $2.4 million in securities gains, as a percentage of net revenue for the fourth quarter 2012 was 33.21% compared with 31.05% for third quarter 2012 and 30.38% for the fourth quarter 2011.  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 2012 was $112.2 million, an increase of $3.6 million, or 3.31%, from the third quarter 2012 and a decrease of $11.7 million, or 9.44%, from the fourth quarter 2011. Included in noninterest expense in the fourth quarter of 2012 were professional and legal fees of $1.0 million associated with the proposed acquisition of Citizens as well as $2.3 million of fees related to the early termination of Federal Home Loan Bank advances.  FDIC expense decreased $3.4 million from the prior year ago quarter.  Included in noninterest expense in the fourth quarter of 2011 was $4.9 million of fees related to the early termination of repurchase agreements and Federal Home Loan Bank advances as part of the Corporation's investment portfolio repositioning strategy and $1.3 million of expense related to an increase in the liability associated with the sale of the Corporation's Visa Class B shares in 2008. 

During the fourth quarter 2012, the Corporation reported an efficiency ratio of 62.65%, compared with 61.75% for the third quarter 2012 and 69.46% for the fourth quarter 2011.

Net noncovered charge-offs totaled $7.1 million, or 0.34% of average noncovered loans in the fourth quarter 2012,  compared with $14.9 million, or 0.72% of average noncovered loans, in the third quarter 2012 and $13.8 million, or 0.71% of average noncovered loans, in the fourth quarter 2011.  As a result of guidance from the Office of the Comptroller of the Currency ("OCC"), during the third quarter of 2012, $10.6 million of consumer loans were identified as troubled debt restructurings whereby the borrower's obligation to the Corporation has been discharged in bankruptcy and the borrower had not reaffirmed the debt.  These loans were reclassified from performing loans to nonaccrual status and consisted of $6.7 million of first mortgages, $1.0 million of junior liens and $2.9 million of automobile loans, and net loan charge-offs of $2.8 million were recognized in the third quarter of 2012.

Nonperforming assets totaled $50.2 million at December 31, 2012, a decrease of $13.8 million, or 21.59%, compared with September 30, 2012 and a decrease of $30.9 million, or 38.07%, compared with December 31, 2011. Nonperforming assets at December 31, 2012 represented 0.57% of period-end noncovered loans plus other real estate compared with 0.77% at September 30, 2012 and 1.04% at December 31, 2011.

The allowance for noncovered loan losses totaled $98.9 million at December 31, 2012.  At December 31, 2012, the allowance for noncovered loan losses was 1.13% of period-end noncovered loans compared with 1.19% at September 30, 2012 and 1.39% at December 31, 2011.  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 1.20% of period end noncovered loans at December 31, 2012, compared with 1.26% at September 30, 2012 and 1.47% at December 31, 2011.  The allowance for credit losses to nonperforming loans was 284.50% at December 31, 2012, compared with 208.11% at September 30, 2012 and 176.50% at December 31, 2011.

The Corporation's total assets at December 31, 2012 were $14.9 billion, an increase of $284.2 million, or 1.94%, compared with September 30, 2012 and an increase of $471.3 million, or 3.26%, compared with December 31, 2011. 

Total deposits were $11.8 billion at December 31, 2012, an increase of $227.0 million, or 1.97%, from September 30, 2012 and an increase of $327.8 million, or 2.87%, from December 31, 2011.  Core deposits totaled $10.4 billion at December 31, 2012, an increase of $328.7 million, or 3.27%, from September 30, 2012 and an increase of $695.6 million, or 7.18%, from December 31, 2011.

Shareholders' equity was $1.6 billion at December 31, 2012,  September 30, 2012, and December 31, 2011.  The Corporation maintained a strong capital position as tangible common equity to assets was 8.16% at December 31, 2012, compared with 8.18% at September 30, 2012 and 7.86% at December 31, 2011.  The common cash dividend per share paid in the fourth quarter 2012 was $0.16.

Fourth Quarter 2012 Conference Call

FirstMerit (Nasdaq: FMER) senior management will host an earnings conference call today at 11:00 a.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: 87347317. A replay of the conference call will be available at approximately 2:00 p.m. (Eastern Time) on January 22, 2013 through February 5, 2013 by dialing (855) 859-2056, and entering the PIN: 87347317.  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 $14.9 billion as of December 31, 2012 and 196 banking offices and 203 ATM locations in Ohio, Western Pennsylvania, and Chicago areas. 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 Corporation is required under generally accepted accounting principles to evaluate subsequent events through the filing of the its consolidated financial statements for the year ended December 31, 2012  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, 2012 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, the Corporation's ability to successfully complete the proposed acquisition of Citizens, 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.

Additional Information and Where to Find It

This document does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. In connection with the proposed merger between FirstMerit and Citizens, FirstMerit has filed with the U.S. Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4 that includes a preliminary joint proxy statement of FirstMerit and Citizens that also constitutes a prospectus of FirstMerit. FirstMerit and Citizens will deliver the definitive joint proxy statement/prospectus to their respective shareholders. FirstMerit and Citizens urge investors and shareholders to read the preliminary joint proxy statement/prospectus regarding the proposed merger and the definitive joint proxy statement/prospectus when it becomes available, as well as other documents filed with the SEC, because they will contain important information. You may obtain copies of all documents filed with the SEC regarding this transaction, free of charge, at the SEC's website (www.sec.gov). You may also obtain these documents, free of charge, from FirstMerit's website (www.firstmerit.com) under the heading "Investors" and then under the heading "Publications and Filings." You may also obtain these documents, free of charge, from Citizens' website (www.citizensbanking.com) under the tab "Investors" and then under the heading "Financial Documents" and then under the heading "SEC Filings."

Participants in the Merger Solicitation 

FirstMerit, Citizens, and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from FirstMerit and Citizens shareholders in favor of the merger and related matters. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of FirstMerit and Citizens shareholders in connection with the proposed merger are set forth in the preliminary joint proxy statement/prospectus. You can find information about FirstMerit's executive officers and directors in its definitive proxy statement filed with the SEC on March 8, 2012. You can find information about Citizens' executive officers and directors in its definitive proxy statement filed with the SEC on March 12, 2012. Additional information about FirstMerit's executive officers and directors and Citizens' executive officers and directors can be found in the above-referenced Registration Statement on Form S-4. You can obtain free copies of these documents from FirstMerit and Citizens using the contact information above.

FIRSTMERIT CORPORATION AND SUBSIDIARIES




Consolidated Financial Highlights




(Unaudited)

Quarters

(Dollars in thousands, except per share amounts)

2012

2012

2012

2012

2011

4th qtr

3rd qtr

2nd qtr

1st qtr

4th qtr

EARNINGS




Net interest income FTE (a)

$

119,130

$

120,741

$

121,689

$

121,428

$

123,598

Provision for noncovered loan losses

7,116

9,965

8,766

8,129

12,275

Provision for covered loan losses

5,146

6,214

3,430

5,932

2,773

Other income

61,652

54,925

55,301

51,726

59,737

Other expenses

112,181

108,587

119,077

113,768

123,874

FTE adjustment (a)

2,900

2,851

2,766

2,641

2,632

Net income

38,224

34,953

30,585

30,344

30,496

Diluted EPS

0.35

0.32

0.28

0.28

0.28

PERFORMANCE RATIOS




Return on average assets (ROA)

1.03

%

0.94

%

0.84

%

0.84

%

0.83

%

Return on average common equity (ROE)

9.30

%

8.60

%

7.69

%

7.72

%

7.70

%

Net interest margin FTE (a)

3.58

%

3.66

%

3.77

%

3.78

%

3.85

%

Efficiency ratio

62.65

%

61.75

%

67.21

%

65.52

%

69.46

%

Number of full-time equivalent employees

2,724

2,733

2,789

2,997

3,018

MARKET DATA




Book value per common share

$

15.00

$

14.82

$

14.60

$

14.51

$

14.33

Period-end common share market value

14.19

14.71

16.51

16.86

15.13

Market as a % of book

95

%

99

%

113

%

116

%

106

%

Cash dividends per common share

$

0.16

$

0.16

$

0.16

$

0.16

$

0.16

Common stock dividend payout ratio

45.71

%

50.00

%

57.14

%

57.14

%

57.14

%

Average basic common shares

109,652

109,645

109,562

109,211

109,249

Average diluted common shares

109,652

109,645

109,562

109,211

109,249

Period end common shares

109,649

109,653

109,641

109,187

109,251

Common shares repurchased

12

6

111

69

7

Common stock market capitalization

$

1,555,919

$

1,612,996

$

1,810,173

$

1,840,893

$

1,652,968

ASSET QUALITY (excluding covered loans)




Gross charge-offs

$

12,475

$

20,999

$

15,014

$

17,417

$

18,984

Net charge-offs

7,116

14,872

8,766

11,979

13,763

Allowance for noncovered loan losses

98,942

98,942

103,849

103,849

107,699

Reserve for unfunded lending commitments

5,433

5,760

5,666

5,410

6,373

Nonperforming assets (NPAs) (b)

50,224

64,055

61,080

67,933

81,094

Net charge-offs to average loans ratio (b)

0.34

%

0.72

%

0.44

%

0.62

%

0.71

%

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

1.13

%

1.19

%

1.28

%

1.32

%

1.39

%

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

1.20

%

1.26

%

1.35

%

1.39

%

1.47

%

NPAs to loans and other real estate (b)

0.57

%

0.77

%

0.75

%

0.86

%

1.04

%

Allowance for noncovered loan losses to nonperforming loans

269.69

%

196.66

%

222.44

%

194.97

%

166.64

%

Allowance for credit losses to nonperforming loans

284.50

%

208.11

%

234.57

%

205.13

%

176.50

%

CAPITAL & LIQUIDITY




Period-end tangible common equity to assets

8.16

%

8.18

%

8.01

%

7.86

%

7.86

%

Average equity to assets

11.12

%

10.97

%

10.98

%

10.91

%

10.75

%

Average equity to total loans (c)

17.37

%

17.46

%

17.57

%

17.50

%

17.40

%

Average total loans to deposits (c)

81.21

%

79.89

%

78.78

%

78.74

%

79.12

%

AVERAGE BALANCES




Assets

$

14,702,215

$

14,734,016

$

14,558,514

$

14,496,937

$

14,623,441

Deposits

11,595,085

11,591,931

11,555,283

11,472,021

11,416,546

Loans, excluding acquired loans (c)

8,389,223

8,121,083

7,857,840

7,677,963

7,520,400

Acquired loans, including covered loans (c)

1,026,574

1,139,568

1,245,246

1,355,086

1,512,123

Earning assets

13,246,693

13,119,473

12,986,988

12,935,184

12,747,868

Shareholders' equity

1,635,275

1,616,569

1,599,187

1,581,009

1,572,061

ENDING BALANCES




Assets

$

14,913,012

$

14,628,843

$

14,621,344

$

14,670,818

$

14,441,702

Deposits

11,759,425

11,532,426

11,615,841

11,648,165

11,431,609

Loans, excluding acquired loans (c)

8,677,501

8,260,426

8,031,998

7,764,058

7,635,776

Acquired loans, including covered loans (c)

959,549

1,099,052

1,187,203

1,306,165

1,404,644

Goodwill

460,044

460,044

460,044

460,044

460,044

Intangible assets

6,373

6,817

7,274

7,756

8,239

Earning assets

13,472,067

13,219,301

13,212,071

13,318,202

13,011,267

Total shareholders' equity

1,645,202

1,624,704

1,600,815

1,584,105

1,565,953

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) - Covered loans and other real estate from George Washington Savings Bank and Midwest Bank & Trust Company are excluded from the ratio of our allowance for loan and credit losses and NPAs. Nonperforming assets at December 31, 2012 and September 30, 2012 include $7.7 million and $10.6 million, respectively, of loans resulting from consumer loans classified as troubled debt restructurings where the borrower's obligation to the Corporation has been restructured in bankruptcy.

(c) - Excludes loss share receivable of $113.7 million, $131.9 million, $152.6 million, $171.1 million and $205.7 million as of December 31, 2012, September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011, respectively.

FIRSTMERIT CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS









(Dollars in thousands)

December 31,

(Unaudited, except December 31, 2011, which is derived from the audited financial statements)

2012

2011

ASSETS



Cash and due from banks

$

244,223

$

219,256

Interest-bearing deposits in banks

13,791

158,063


Total cash and cash equivalents

258,014

377,319

Investment securities:




Held-to-maturity

622,121

82,764


Available-for-sale

2,920,971

3,353,553


Other investments

140,717

140,726

Loans held for sale

23,683

30,077

Noncovered loans:




Commercial

5,866,489

5,107,747


Mortgage

445,211

413,664


Installment

1,328,258

1,263,665


Home equity

806,078

743,982


Credit card

146,387

146,356


Leases

139,236

73,530



Total noncovered loans

8,731,659

7,748,944



Allowance for noncovered loan losses

(98,942)

(107,699)



Net noncovered loans

8,632,717

7,641,245

Covered loans (includes loss share receivable of $113.7 million and $205.7 million at December 31, 2012 and 2011, respectively)

1,019,125

1,497,140



Allowance for covered loan losses

(43,255)

(36,417)



Net covered loans

975,870

1,460,723



Net loans

9,608,587

9,101,968

Premises and equipment, net

181,149

192,949

Goodwill

460,044

460,044

Intangible assets

6,373

8,239

Covered other real estate (includes loss share receivable of $.05 million and $1.3 million at December 31, 2012 and December 31, 2011, respectively)

59,855

54,505

Accrued interest receivable and other assets

631,498

639,558



Total assets

$

14,913,012

$

14,441,702

LIABILITIES AND SHAREHOLDERS' EQUITY



Deposits:




Noninterest-bearing

$

3,338,371

$

3,030,225


Interest-bearing

1,287,674

1,062,896


Savings and money market accounts

5,758,123

5,595,409


Certificates and other time deposits

1,375,257

1,743,079



Total deposits

11,759,425

11,431,609


Federal funds purchased and securities sold under agreements to repurchase

1,104,525

866,265


Wholesale borrowings

136,883

203,462


Accrued taxes, expenses, and other liabilities

266,977

374,413



Total liabilities

13,267,810

12,875,749


Shareholders' equity:





Preferred stock, without par value:





authorized and unissued 7,000,000 shares

—

—



Preferred stock, Series A, without par value:





designated 800,000 shares; none outstanding

—

—



Convertible preferred stock, Series B, without par value:





designated 220,000 shares; none outstanding

—

—



Common stock, without par value;  authorized 300,000,000 shares; issued: 2012 and 2011 - 115,121,731 shares

127,937

127,937



Capital surplus

475,979

479,882



Accumulated other comprehensive loss

(16,205)

(23,887)



Retained earnings

1,195,850

1,131,203



Treasury stock, at cost: 2012 - 5,472,915 shares; 2011 -  5,870,923 shares

(138,359)

(149,182)



Total shareholders' equity

1,645,202

1,565,953



Total liabilities and shareholders' equity

$

14,913,012

$

14,441,702







FIRSTMERIT CORPORATION AND SUBSIDIARIES




AVERAGE CONSOLIDATED BALANCE SHEETS





Quarterly Periods

(Unaudited)

December 31,

September 30,

June 30,

March 31,

December 31,

(Dollars in thousands)

2012

2012

2012

2012

2011

ASSETS




Cash and due from banks

$

238,366

$

440,231

$

410,533

$

378,736

$

621,899

Investment securities:




Held-to-maturity

620,154

337,685

127,769

90,664

89,166

Available-for-sale

2,925,938

3,215,203

3,429,411

3,459,439

3,231,195

Other investments

140,723

140,736

140,744

140,719

160,147

Loans held for sale

20,485

23,631

22,731

26,483

24,215

Noncovered loans:




Commercial

5,600,522

5,443,712

5,274,352

5,143,087

5,049,479

Residential Mortgage

443,542

437,123

431,752

421,648

405,329

Installment

1,331,131

1,293,054

1,263,013

1,261,122

1,267,952

Home equity

798,663

779,087

750,859

738,154

744,326

Credit card

145,050

143,948

142,311

143,794

145,560

Leases

125,300

88,583

78,862

73,644

61,267

Total noncovered loans

8,444,208

8,185,507

7,941,149

7,781,449

7,673,913

Covered loans and loss share receivable

1,095,185

1,216,711

1,325,184

1,436,430

1,569,232

Total loans

9,539,393

9,402,218

9,266,333

9,217,879

9,243,145

Less: allowance for loan losses

141,270

145,061

143,565

142,628

141,360

Net loans

9,398,123

9,257,157

9,122,768

9,075,251

9,101,785

Total earning assets

13,246,693

13,119,473

12,986,988

12,935,184

12,747,868

Premises and equipment, net

181,738

184,544

187,181

190,669

193,219

Accrued interest receivable and other assets

1,176,688

1,134,829

1,117,377

1,134,976

1,201,815

TOTAL ASSETS

$

14,702,215

$

14,734,016

$

14,558,514

$

14,496,937

$

14,623,441

LIABILITIES




Deposits:




Noninterest-bearing

$

3,306,444

$

3,236,703

$

3,144,183

$

3,036,590

$

3,013,543

Interest-bearing

1,122,796

1,080,841

1,060,771

1,066,132

991,456

Savings and money market accounts

5,743,599

5,746,210

5,732,007

5,675,052

5,569,213

Certificates and other time deposits

1,422,246

1,528,177

1,618,322

1,694,247

1,842,334

Total deposits

11,595,085

11,591,931

11,555,283

11,472,021

11,416,546

Federal funds purchased and securities sold under




agreements to repurchase

957,564

1,032,401

920,352

887,715

999,639

Wholesale borrowings

163,405

178,022

177,987

184,659

225,116

Total funds

12,716,054

12,802,354

12,653,622

12,544,395

12,641,301

Accrued taxes, expenses and other liabilities

350,886

315,093

305,705

371,533

410,079

Total liabilities

13,066,940

13,117,447

12,959,327

12,915,928

13,051,380

SHAREHOLDERS' EQUITY




Common stock

127,937

127,937

127,937

127,937

127,937

Capital surplus

474,532

472,820

473,650

481,856

479,257

Accumulated other comprehensive income (loss)

(17,666)

(14,627)

(18,363)

(19,862)

(15,198)

Retained earnings

1,188,641

1,168,649

1,156,324

1,140,953

1,129,392

Treasury stock

(138,169)

(138,210)

(140,361)

(149,875)

(149,327)

Total shareholders' equity

1,635,275

1,616,569

1,599,187

1,581,009

1,572,061

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

14,702,215

$

14,734,016

$

14,558,514

$

14,496,937

$

14,623,441






FIRSTMERIT CORPORATION AND SUBSIDIARIES






AVERAGE CONSOLIDATED BALANCE SHEETS

Fully Tax-equivalent Interest Rates and Interest Differential







Three months ended

Three months ended

December 31, 2012

December 31, 2011

(Unaudited)

Average


Average

Average


Average

(Dollars in thousands)

Balance

Interest

Rate

Balance

Interest

Rate

ASSETS










Cash and due from banks

$

238,366





$

621,899




Investment securities and federal funds sold:










U.S. treasury securities and U.S. government










agency obligations (taxable)

2,794,524

$

16,767

2.39

%

2,761,042

$

19,028

2.73

%

Obligations of states and political










subdivisions (tax exempt)

510,722

6,583

5.13

%

403,405

5,568

5.48

%

Other securities and federal funds sold

381,569

3,429

3.58

%

316,061

2,406

3.02

%

Total investment securities and federal










funds sold

3,686,815

26,779

2.89

%

3,480,508

27,002

3.08

%

Loans held for sale

20,485

199

3.86

%

24,215

266

4.36

%

Noncovered loans, covered loans and loss share










receivable

9,539,393

101,288

4.22

%

9,243,145

107,612

4.62

%

Total earning assets

13,246,693

128,266

3.85

%

12,747,868

134,880

4.20

%

Allowance for loan losses

(141,270)





(141,360)




Other assets

1,358,426





1,395,034




Total assets

$

14,702,215





$

14,623,441




LIABILITIES AND SHAREHOLDERS' EQUITY










Deposits:










Noninterest-bearing

$

3,306,444

—

—

$

3,013,543

—

—

Interest-bearing

1,122,796

261

0.09

%

991,456

237

0.09

%

Savings and money market accounts

5,743,599

5,261

0.36

%

5,569,213

5,998

0.43

%

Certificates and other time deposits

1,422,246

2,287

0.64

%

1,842,334

3,201

0.69

%

Total deposits

11,595,085

7,809

0.27

%

11,416,546

9,436

0.33

%

Securities sold under agreements to repurchase

957,564

303

0.13

%

999,639

512

0.20

%

Wholesale borrowings

163,405

1,024

2.49

%

225,116

1,334

2.35

%

Total interest bearing liabilities

9,409,610

9,136

0.39

%

9,627,758

11,282

0.46

%

Other liabilities

350,886





410,079



Shareholders' equity

1,635,275





1,572,061



Total liabilities and shareholders' equity

$

14,702,215





$

14,623,441



Net yield on earning assets

$

13,246,693

$

119,130

3.58

%

$

12,747,868

$

123,598

3.85

%

Interest rate spread



3.47

%




3.73

%












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.

FIRST MERIT CORPORATION AND SUBSIDIARIES







AVERAGE CONSOLIDATED BALANCE SHEETS

Fully Tax-equivalent Interest Rates and Interest Differential







Twelve months ended

Twelve months ended

December 31, 2012

December 31, 2011

(Unaudited)

Average


Average

Average


Average

(Dollars in thousands)

Balance

Interest

Rate

Balance

Interest

Rate

ASSETS










Cash and due from banks

$

366,815





$

562,133




Investment securities and federal funds sold:










U.S. treasury securities and U.S. government










agency obligations (taxable)

2,825,283

$

73,455

2.60

%

2,869,664

$

78,202

2.73

%

Obligations of states and political










subdivisions (tax exempt)

483,582

25,034

5.18

%

378,834

21,277

5.62

%

Other securities and federal funds sold

383,420

11,575

3.02

%

301,786

8,842

2.93

%

Total investment securities and federal










funds sold

3,692,285

110,064

2.98

%

3,550,284

108,321

3.05

%

Loans held for sale

23,326

960

4.12

%

22,467

1,045

4.65

%

Noncovered loans, covered loans and loss share










receivable

9,357,080

410,818

4.39

%

9,155,973

438,579

4.79

%

Total earning assets

13,072,691

521,842

3.99

%

12,728,724

547,945

4.30

%

Allowance for loan losses

(143,131)





(139,414)




Other assets

1,324,252





1,343,887




Total assets

$

14,620,627





$

14,495,330




LIABILITIES AND SHAREHOLDERS' EQUITY










Deposits:










Non-interest bearing

$

3,181,475

—

—

$

2,969,137

—

—

Interest bearing

1,082,740

987

0.09

%

893,062

816

0.09

%

Savings and money market accounts

5,724,330

20,563

0.36

%

5,320,392

28,171

0.53

%

Certificates and other time deposits

1,565,253

11,723

0.75

%

2,229,910

20,003

0.90

%

Total deposits

11,553,798

33,273

0.29

%

11,412,501

48,990

0.43

%

Securities sold under agreements to repurchase

949,756

1,157

0.12

%

925,803

3,344

0.36

%

Wholesale borrowings

175,989

4,423

2.51

%

298,835

6,295

2.11

%

Total interest bearing liabilities

9,498,068

38,853

0.41

%

9,668,002

58,629

0.61

%

Other liabilities

332,976





309,838




Shareholders' equity

1,608,108





1,548,353




Total liabilities and shareholders' equity

$

14,620,627





$

14,495,330




Net yield on earning assets

$

13,072,691

$

482,989

3.69

%

$

12,728,724

$

489,316

3.84

%

Interest rate spread



3.58

%




3.70

%

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 COMPREHENSIVE INCOME











(Unaudited)

Quarters ended

Twelve months ended

(Dollars in thousands except per share data)

December 31,

December 31,




2012

2011

2012

2011

Interest income:







Loans and loans held for sale

$

101,086

$

107,516

$

410,299

$

438,393

Investment securities:








Taxable

20,196

21,434

85,030

87,044


Tax-exempt

4,084

3,298

15,354

12,819


Total investment securities interest

24,280

24,732

100,384

99,863



Total interest income

125,366

132,248

510,683

538,256

Interest expense:







Deposits:








Interest-bearing

261

237

987

816


Savings and money market accounts

5,261

5,998

20,563

28,171


Certificates and other time deposits

2,287

3,201

11,723

20,003

Securities sold under agreements to repurchase

303

512

1,157

3,344

Wholesale borrowings

1,024

1,334

4,423

6,295


Total interest expense

9,136

11,282

38,853

58,629


Net interest income

116,230

120,966

471,830

479,627

Provision for noncovered loan losses

7,116

12,275

33,976

54,035

Provision for covered loan losses

5,146

2,773

20,722

20,353


Net interest income after provision for loan losses

103,968

105,918

417,132

405,239

Other income:







Trust department income

5,662

5,413

23,143

22,396

Service charges on deposits

14,247

15,622

57,737

64,082

Credit card fees

11,167

10,182

43,569

49,539

ATM and other service fees

3,432

3,920

14,792

13,701

Bank owned life insurance income

3,067

3,381

12,140

14,820

Investment services and insurance

2,147

1,844

8,990

8,228

Investment securities gains, net

2,425

5,790

3,786

11,081

Loan sales and servicing income

7,946

5,102

27,031

14,205

Other operating income

11,559

8,483

32,416

26,705


Total other income

61,652

59,737

223,604

224,757

Other expenses:







Salaries, wages, pension and employee benefits

61,560

62,546

245,192

240,362

Net occupancy expense

7,114

7,270

31,754

32,414

Equipment expense

7,398

7,234

29,243

27,959

Stationery, supplies and postage

2,162

2,719

8,800

10,691

Bankcard, loan processing and other costs

9,260

7,948

34,195

32,226

Professional services

6,119

5,763

23,480

23,229

Amortization of intangibles

444

543

1,866

2,172

FDIC insurance expense

1,738

5,119

10,753

17,306

Other operating expense

16,386

24,732

68,330

77,986


Total other expenses

112,181

123,874

453,613

464,345



Income before income tax expense

53,439

41,781

187,123

165,651

Income tax expense

15,215

11,285

53,017

46,093



Net income

$

38,224

$

30,496

$

134,106

$

119,558

Other comprehensive income, net of taxes







Changes in unrealized securities' holding gains and losses

$

(6,718)

$

1,317

$

4,154

$

26,205

Reclassification for realized securities' gains

(1,576)

(3,764)

(2,461)

(7,203)

Change in minimum pension liability

5,989

(16,786)

5,989

(16,786)

Total other comprehensive gain (loss), net of taxes

(2,305)

(19,233)

7,682

2,216


Comprehensive income

$

35,919

$

11,263

$

141,788

$

121,774

Net income applicable to common shares

$

38,224

$

30,496

$

134,106

$

119,558

Net income used in diluted EPS calculation

$

38,224

$

30,496

$

134,106

$

119,558

Weighted average number of common shares outstanding - basic

109,652

109,249

109,518

109,102

Weighted average number of common shares outstanding - diluted

109,652

109,249

109,518

109,102

Basic earnings per common share

$

0.35

$

0.28

$

1.22

$

1.10

Diluted earnings per common share

$

0.35

$

0.28

$

1.22

$

1.10

Dividend per common share

$

0.16

$

0.16

$

0.64

$

0.64











FIRSTMERIT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME---LINKED QUARTERS







Quarterly Results

(Unaudited)

2012

2012

2012

2012

2011

(Dollars in thousands, except share data)

4th qtr

3rd qtr

2nd qtr

1st qtr

4th qtr

Loans and loans held for sale

$

101,086

$

103,005

$

103,126

$

103,082

$

107,516

Investment securities

24,280

24,477

25,629

25,998

24,732

Total interest income

125,366

127,482

128,755

129,080

132,248

Interest on deposits:




Interest-bearing

261

243

236

247

237

Savings and money market accounts

5,261

5,166

5,033

5,103

5,998

Certificates and other time deposits

2,287

2,743

3,169

3,524

3,201

Securities sold under agreements to repurchase

303

310

276

268

512

Wholesale borrowings

1,024

1,130

1,118

1,151

1,334

Total interest expense

9,136

9,592

9,832

10,293

11,282

Net interest income

116,230

117,890

118,923

118,787

120,966

Provision for noncovered loan losses

7,116

9,965

8,766

8,129

12,275

Provision for covered loan losses

5,146

6,214

3,430

5,932

2,773

Net interest income after provision for loan losses

103,968

101,711

106,727

104,726

105,918

Other income:




Trust department income

5,662

6,124

5,730

5,627

5,413

Service charges on deposits

14,247

14,603

14,478

14,409

15,622

Credit card fees

11,167

11,006

11,216

10,180

10,182

ATM and other service fees

3,432

3,680

3,890

3,790

3,920

Bank owned life insurance income

3,067

3,094

2,923

3,056

3,381

Investment services and insurance

2,147

2,208

2,388

2,247

1,844

Investment securities gains, net

2,425

553

548

260

5,790

Loan sales and servicing income

7,946

7,255

5,139

6,691

5,102

Other operating income

11,559

6,402

8,989

5,466

8,483

Total other income

61,652

54,925

55,301

51,726

59,737

Other expenses:




Salaries, wages, pension and employee benefits

61,560

58,061

61,598

63,973

62,546

Net occupancy expense

7,114

8,077

7,971

8,592

7,270

Equipment expense

7,398

7,143

7,598

7,104

7,234

Stationery, supplies and postage

2,162

2,210

2,285

2,143

2,719

Bankcard, loan processing and other costs

9,260

8,424

8,858

7,653

7,948

Professional services

6,119

4,702

9,307

3,352

5,763

Amortization of intangibles

444

456

483

483

543

FDIC  insurance expense

1,738

1,832

3,463

3,720

5,119

Other operating expense

16,386

17,682

17,514

16,748

24,732

Total other expenses

112,181

108,587

119,077

113,768

123,874

Income before income tax expense

53,439

48,049

42,951

42,684

41,781

Income taxes

15,215

13,096

12,366

12,340

11,285

Net income

38,224

34,953

30,585

30,344

30,496

Other comprehensive income (loss), net of taxes

(2,305)

4,525

3,747

1,715

(19,233)

Comprehensive income

$

35,919

$

39,478

$

34,332

$

32,059

$

11,263

Net income applicable to common shares

$

38,224

$

34,953

$

30,585

$

30,344

$

30,496

Net income used in diluted EPS calculation

$

38,224

$

34,953

$

30,585

$

30,344

$

30,496

Weighted-average common shares - basic

109,652

109,645

109,562

109,211

109,249

Weighted-average common shares - diluted

109,652

109,645

109,562

109,211

109,249

Basic earnings per common share

$

0.35

$

0.32

$

0.28

$

0.28

$

0.28

Diluted earnings per common share

$

0.35

$

0.32

$

0.28

$

0.28

$

0.28






FIRSTMERIT CORPORATION AND SUBSIDIARIES



ASSET QUALITY INFORMATION (excluding Covered Assets)



















(Unaudited)

(Audited)

(Dollars in thousands, except ratios)

Quarterly Periods

Annual Period

December 31,

September 30,

June 30,

March 31,

December 31,

December 31,

Allowance for Credit Losses

2012

2012

2012

2012

2011

2011

Allowance for noncovered loan losses, beginning of period

$

98,942

$

103,849

$

103,849

$

107,699

$

109,187

$

114,690

Provision for noncovered loan losses

7,116

9,965

8,766

8,129

12,275

54,035

Charge-offs

12,475

20,999

15,014

17,417

18,984

82,768

Recoveries

5,359

6,127

6,248

5,438

5,221

21,742

Net charge-offs

7,116

14,872

8,766

11,979

13,763

61,026

Allowance for noncovered loan losses, end of period

$

98,942

$

98,942

$

103,849

$

103,849

$

107,699

$

107,699

Reserve for unfunded lending commitments,






beginning of period

$

5,760

$

5,666

$

5,410

$

6,373

$

6,360

$

8,849

Provision for (relief of) credit losses

(327)

94

256

(963)

13

(2,476)

Reserve for unfunded lending commitments,






end of period

$

5,433

$

5,760

$

5,666

$

5,410

$

6,373

$

6,373

Allowance for Credit Losses

$

104,375

$

104,702

$

109,515

$

109,259

$

114,072

$

114,072

Ratios (a)






Provision for loan losses to average loans

0.34

%

0.48

%

0.44

%

0.42

%

0.63

%

0.73

%

Net charge-offs to average loans

0.34

%

0.72

%

0.44

%

0.62

%

0.71

%

0.82

%

Allowance for loan losses to period-end loans

1.13

%

1.19

%

1.28

%

1.32

%

1.39

%

1.39

%

Allowance for credit losses to period-end loans

1.20

%

1.26

%

1.35

%

1.39

%

1.47

%

1.47

%

Allowance for loan losses to nonperforming loans

269.69

%

196.66

%

222.44

%

194.97

%

166.64

%

166.64

%

Allowance for credit losses to nonperforming loans

284.50

%

208.11

%

234.57

%

205.13

%

176.50

%

176.50

%

Asset Quality (a)






Impaired noncovered loans:






Nonaccrual

$

21,766

$

31,492

$

38,381

$

44,546

$

55,815

$

55,815

Other nonperforming loans:






Nonaccrual (b)

14,921

18,819

8,306

8,717

8,816

8,816

Total nonperforming loans

36,687

50,311

46,687

53,263

64,631

64,631

Other real estate ("ORE")

13,537

13,744

14,393

14,670

16,463

16,463

Total nonperforming assets ("NPAs")

$

50,224

$

64,055

$

61,080

$

67,933

$

81,094

$

81,094

NPAs to period-end loans + ORE

0.57

%

0.77

%

0.75

%

0.86

%

1.04

%

1.04

%

Accruing noncovered loans past due 90 days or more

$

9,417

$

9,691

$

6,545

$

9,261

$

11,376

$

11,376








(a) Excludes covered loans and related loss share receivable with a period end balance of $1.0 billion, $1.2 billion, $1.3 billion, $1.4 billion and $1.5 billion and covered ORE and related loss share receivable with a period end balance of $59.9 million, $56.8 million, $54.5 million, $56.4 million and $54.5 million at December 31, 2012, September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011, respectively.








(b) At December 31, 2012 and September 30, 2012, included are $7.7 million and $10.6 million, respectively, of consumer loans classified as troubled debt restructurings where the borrower's obligation to the Corporation has been restructured in bankruptcy.

FIRSTMERIT CORPORATION AND SUBSIDIARIES





NONINTEREST INCOME AND NONINTEREST EXPENSE DETAIL














(Unaudited)










(Dollars in thousands)













2012

2012

2012

2012

2011

QUARTERLY OTHER INCOME DETAIL

4th qtr

3rd qtr

2nd qtr

1st qtr

4th qtr

Trust department income

$

5,662

$

6,124

$

5,730

$

5,627

$

5,413

Service charges on deposits

14,247

14,603

14,478

14,409

15,622

Credit card fees

11,167

11,006

11,216

10,180

10,182

ATM and other service fees

3,432

3,680

3,890

3,790

3,920

Bank owned life insurance income

3,067

3,094

2,923

3,056

3,381

Investment services and insurance

2,147

2,208

2,388

2,247

1,844

Investment securities gains, net

2,425

553

548

260

5,790

Loan sales and servicing income

7,946

7,255

5,139

6,691

5,102

Other operating income

11,559

6,402

8,989

5,466

8,483

Total Other Income

$

61,652

$

54,925

$

55,301

$

51,726

$

59,737



2012

2012

2012

2012

2011

QUARTERLY OTHER EXPENSES DETAIL

4th qtr

3rd qtr

2nd qtr

1st qtr

4th qtr

Salaries, wages, pension and employee benefits

$

61,560

$

58,061

$

61,598

$

63,973

$

62,546

Net occupancy expense

7,114

8,077

7,971

8,592

7,270

Equipment expense

7,398

7,143

7,598

7,104

7,234

Taxes, other than income taxes

1,924

2,051

2,020

1,955

1,389

Stationery, supplies and postage

2,162

2,210

2,285

2,143

2,719

Bankcard, loan processing and other costs

9,260

8,424

8,858

7,653

7,948

Advertising

2,774

2,472

2,280

1,684

2,275

Professional services

6,119

4,702

9,307

3,352

5,763

Telephone

1,230

1,316

1,379

1,398

1,525

Amortization of intangibles

444

456

483

483

543

FDIC insurance expense

1,738

1,832

3,463

3,720

5,119

Other operating expense

10,458

11,843

11,835

11,711

19,543

Total Other Expenses

$

112,181

$

108,587

$

119,077

$

113,768

$

123,874

FIRSTMERIT CORPORATION AND SUBSIDIARIES


ALLOWANCE FOR NONCOVERED LOAN LOSSES - Net Charge-off Detail









(Unaudited)

Quarters ended

Year ended

(Dollars in thousands)

December 31,

December 31,

2012

2011

2012

2011

Allowance for noncovered loan losses - beginning of period

$

98,942

$

109,187

$

107,699

$

114,690

Loans charged off:






Commercial

5,081

7,418

28,648

31,943

Mortgage

533

1,033

3,964

4,819

Installment

3,588

5,635

18,029

25,839

Home equity

1,141

2,491

7,249

8,691

Credit cards

1,553

1,711

6,171

7,846

Leases

144

—

144

778

Overdrafts

435

696

1,700

2,852

Total

12,475

18,984

65,905

82,768

Recoveries:






Commercial

1,317

850

5,626

2,703

Mortgage

44

29

235

221

Installment

2,581

2,890

11,635

13,639

Home equity

725

730

2,819

1,985

Credit cards

555

475

2,138

2,264

Manufactured housing

9

56

59

119

Leases

—

2

38

37

Overdrafts

128

189

622

774

Total

5,359

5,221

23,172

21,742

Net charge-offs

7,116

13,763

42,733

61,026

Provision for noncovered loan losses

7,116

12,275

33,976

54,035

Allowance for noncovered loan losses-end of period

$

98,942

$

107,699

$

98,942

$

107,699








Average noncovered loans (a)

$

8,444,208

$

7,673,913

$

8,089,317

$

7,409,502

Ratio to average noncovered loans (a):






(Annualized) noncovered net charge-offs

0.34

%

0.71

%

0.53

%

0.82

%

Provision for noncovered loan losses

0.34

%

0.63

%

0.42

%

0.73

%

Noncovered Loans, period-end (a)

$

8,731,659

$

7,748,944

$

8,731,659

$

7,748,944








Allowance for credit losses (a):

$

104,375

$

114,072

$

104,375

$

114,072

To (annualized) net charge-offs

3.69

2.09

2.44

1.87

Allowance for noncovered loan losses (a):






To period-end noncovered loans

1.13

%

1.39

%

1.13

%

1.39

%

To (annualized) net noncovered charge-offs

3.50

1.97

2.32

1.76








(a) Excludes covered 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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