FirstMerit Reports Second Quarter 2015 EPS of $0.33 Per Share

News provided by

FirstMerit Corporation

Jul 28, 2015, 07:30 ET

AKRON, Ohio, July 28, 2015 /PRNewswire/ --

Quarterly Highlights include:

  • Profitability Sustained: 65th consecutive quarter of profitability.
  • Loan growth continued: Total loan growth of $214.2 million, or 1.38% from the prior quarter.
  • Credit quality remained solid: Net charge-offs to average originated loans of 0.20%.
  • Balance sheet remained strong: Strong tangible common equity ratio1 at 8.09%.

FirstMerit Corporation (Nasdaq: FMER) (the "Corporation") reported second quarter 2015 net income of $56.6 million, or $0.33 per diluted share. This compares with $57.1 million, or $0.33 per diluted share, for the first quarter 2015 and $59.5 million, or $0.35 per diluted share, for the second quarter 2014.

Returns on average common equity ("ROE") and average assets ("ROA") for the second quarter 2015 were 7.85% and 0.90%, respectively, compared with 8.08% and 0.93%, respectively, for the first quarter 2015 and 8.62% and 0.98%, respectively, for the second quarter 2014.

"Our financial performance this quarter reflected continuing execution of our productivity and profitability initiatives. During the quarter we produced solid loan growth and achieved operating expense levels within our longer term cost reduction goals. Our strong capital levels supported solid balance sheet expansion which was augmented by solid credit quality," said Paul Greig, Chairman, President and CEO of FirstMerit Corporation.

1 - See Non-GAAP Financial Measures section of this release for a reconciliation to financial measures as defined by GAAP.

Net Interest Income

Net interest income on a fully tax-equivalent ("TE")1 basis was $189.0 million in the second quarter 2015 compared with $189.6 million in the first quarter 2015 and $199.7 million in the second quarter 2014.

Net interest margin on TE basis1 was 3.39% for the second quarter 2015 compared with 3.48% for the first quarter 2015 and 3.75% for the second quarter 2014. Net interest margin compression in the second quarter, compared with the prior quarter, resulted from anticipated lower accretion from the acquired and FDIC acquired loan portfolios due to the continued decline in the loan balances and lower yields on the investment portfolio.

Average originated loans were $13.1 billion during the second quarter 2015, an increase of $403.2 million, or 3.18%, compared with the first quarter 2015, and an increase of $2.0 billion, or 18.04%, compared with the second quarter 2014. Average originated commercial loans increased $118.8 million, or 1.49%, compared with the prior quarter, and increased $913.6 million, or 12.72%, compared with the year-ago quarter.

Average deposits were $19.7 billion during the second quarter 2015, a decrease of $106.3 million, or 0.54%, compared with the first quarter 2015, and an increase of $185.9 million, or 0.95%, compared with the second quarter 2014. During the second quarter 2015, average core deposits, which exclude time deposits, decreased $86.3 million, or 0.49%, compared with the first quarter 2015 and increased $231.0 million, or 1.35%, compared with the second quarter 2014. Average time deposits decreased $20.0 million, or 0.87%, and decreased $45.1 million, or 1.93%, respectively, over the prior and year-ago quarters. For the second quarter 2015, average core deposits accounted for 88.37% of total average deposits, compared with 88.33% for the first quarter 2015 and 88.03% for the second quarter 2014.

Average investments increased $104.0 million, or 1.56%, compared with the first quarter 2015 and increased $116.7 million, or 1.75%, compared with the second quarter 2014.

Noninterest Income

Noninterest income, excluding gains and losses on securities transactions1, for the second quarter 2015 was $66.0 million, an increase of $0.5 million, or 0.80%, from the first quarter 2015 and a decrease of $6.5 million or 8.92% from the second quarter 2014. Included in noninterest income this quarter were costs of $1.8 million associated with branch closures.

Noninterest income, excluding net securities gains and losses, as a percentage of net revenue1 for the second quarter 2015 was 25.88% compared with 25.68% for first quarter 2015 and 26.63% for the second quarter 2014.

1 - See Non-GAAP Financial Measures section of this release for a reconciliation to financial measures as defined by GAAP.

Noninterest Expense

Noninterest expense for the second quarter 2015 was $161.7 million, an increase of $1.0 million, or 0.64%, from the first quarter 2015 and a decrease of $5.7 million, or 3.42%, from the second quarter 2014. The Corporation's efficiency ratio1 was 62.37% for the second quarter 2015, compared with 61.97% for the first quarter 2015 and 60.43% for the second quarter 2014.

The effective tax rate was 30.19% for the second quarter 2015 compared with 30.80% for the first quarter 2015 and 30.37% for the second quarter 2014.

Asset Quality (excluding acquired loans and covered assets)

Due to the impact of business combination accounting and protection against credit risk from FDIC loss sharing agreements, acquired loans and covered assets are excluded from the asset quality discussion to provide for improved comparability to prior periods and better perspective into asset quality trends. Acquired loans are recorded at fair value at the date of acquisition with no allowance brought forward in accordance with business combination accounting. Impaired acquired and covered loans are considered to be performing due to the application of the accretion method under the applicable accounting guidance.

Net charge-offs on originated loans totaled $6.7 million in the second quarter 2015, compared to $4.2 million in the first quarter 2015, and $6.2 million in the second quarter 2014. Net charge-offs on originated loans were 0.20% of average originated loans at June 30, 2015, compared to 0.13% at March 31, 2015 and 0.22% at June 30, 2014.

Nonperforming assets totaled $117.3 million at June 30, 2015, an increase of $48.7 million, or 70.99%, compared with March 31, 2015 and an increase of $56.4 million, or 92.56%, compared with June 30, 2014. Nonperforming assets at June 30, 2015 represented 0.87% of period-end originated loans plus noncovered other real estate compared with 0.53% at March 31, 2015 and 0.53% at June 30, 2014. The increase in nonperforming assets is primarily attributable to other real estate owned ("OREO") no longer covered by FDIC loss share agreements. Included in nonperforming assets as of June 30, 2015 were $42.0 million of OREO no longer covered by FDIC loss share agreements.

The allowance for originated loan losses totaled $101.7 million at June 30, 2015. At June 30, 2015, the allowance for originated loan losses was 0.76% of period-end originated loans, compared with 0.76% at March 31, 2015 and 0.80% at June 30, 2014. The allowance for originated loan losses at June 30, 2015 compared to March 31, 2015 increased by $4.1 million. The allowance for credit losses is the sum of the allowance for originated loan losses and the reserve for unfunded lending commitments. For comparative purposes, the allowance for credit losses was 0.79% of period end originated loans at June 30, 2015, compared with 0.79% at March 31, 2015 and 0.86% at June 30, 2014. The allowance for credit losses to nonperforming loans was 191.48% at June 30, 2015, compared with 221.06% at March 31, 2015 and 269.61% at June 30, 2014.

1 - See Non-GAAP Financial Measures section of this release for a reconciliation to financial measures as defined by GAAP.

Balance Sheet

The Corporation's total assets at June 30, 2015 were $25.3 billion, an increase of $178.9 million, or 0.71%, compared with March 31, 2015 and an increase of $732.6 million, or 2.98%, compared with June 30, 2014. Total gross loans (originated, acquired, and FDIC acquired) and total deposits were $15.7 billion and $19.7 billion, respectively, at June 30, 2015, $15.5 billion and $19.9 billion, respectively, at March 31, 2015 and $15.0 billion and $19.3 billion, respectively, at June 30, 2014. Core deposits totaled $17.4 billion at June 30, 2015, a decrease of $104.9 million, or 0.60%, from March 31, 2015 and an increase of $419.5 million, or 2.46%, from June 30, 2014.

Shareholders' equity was $2.9 billion, $2.9 billion and $2.8 billion as of June 30, 2015, March 31, 2015, and June 30, 2014. During the quarter, the Corporation repurchased 2.6 million common stock warrants issued by Citizens Republic Bancorp Inc. under the U.S. Treasury's Capital Purchase Program at a cost of $12.2 million which reduced tangible book value per share by $0.07. The Corporation maintained a strong capital position as tangible common equity1 to assets was 8.09% at June 30, 2015, compared with 8.14% at March 31, 2015 and 7.89% at June 30, 2014. The common share cash dividend paid in the second quarter 2015 was $0.16 per share.

On January 1, 2015, the Corporation became subject to the Basel III capital framework and standardized approach for calculating risk-weighted assets. At June 30, 2015, Basel III capital ratios on a transitional basis remain well in excess of applicable regulatory requirements, with a total risk-based capital ratio of 13.62%, and a common equity tier 1 risk-based capital ratio of 10.48%.

Non-GAAP Financial Measures

In addition to results presented in accordance with U.S. generally accepted accounting principles ("GAAP"), this news release contains certain non-GAAP financial information and performance measures. The Corporation's management uses these non-GAAP financial measures in their analysis of the Corporation's performance and the efficiency of its operations. Management believes that these non-GAAP financial measures provide a greater understanding of ongoing operations of the Corporation and enhance comparability of results with prior periods, and facilitate investors' assessments of business and performance trends in comparison to others in the financial services industry. The Corporation believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance. The Corporation's management believes that investors may use these non-GAAP financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the Corporation's underlying performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

The Corporation evaluates its net interest income on a fully taxable-equivalent basis, a non-GAAP financial measure. The Corporation believes managing the business with net interest income on a fully taxable- equivalent basis provides a more accurate picture of the interest margin for comparative purposes. Total revenue, net of interest expense, includes net interest income on a fully taxable-equivalent basis and noninterest income excluding gains and losses on the sale of securities. The Corporation views related ratios and analyses (i.e., efficiency ratios) on a fully taxable-equivalent basis. To derive the fully taxable-equivalent basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in income tax expense. For purposes of this calculation, the Corporation uses the federal statutory tax rate of 35 percent. This measure ensures comparability of net interest income arising from taxable and tax-exempt sources.

1 - See Non-GAAP Financial Measures section of this release for a reconciliation to financial measures as defined by GAAP.

The Corporation also evaluates its business based on the following ratios that utilize tangible equity, a non-GAAP financial measure. Tangible equity represents an adjusted shareholders' equity or common shareholders' equity amount which has been reduced by goodwill and intangible assets. Return on average tangible common shareholders' equity measures the Corporation's earnings contribution as a percentage of adjusted average common shareholders' equity. The tangible common equity ratio represents adjusted ending common shareholders' equity divided by total assets less goodwill and intangible assets. Return on average tangible shareholders' equity measures the Corporation's earnings contribution as a percentage of adjusted average total shareholders' equity. The tangible equity ratio represents adjusted ending shareholders' equity divided by total assets less goodwill and intangible assets. Tangible book value per common share represents adjusted ending common shareholders' equity divided by ending common shares outstanding. These measures are used to evaluate the Corporation's use of equity. In addition, profitability, relationship and investment models all use return on average tangible shareholders' equity as key measures to support our overall growth goals.

The following tables provide reconciliations of these non-GAAP measures to financial measures defined by GAAP.

Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis


Quarters

(unaudited)

2015

2015

2014

2014

2014

(Dollars in thousands)

2nd qtr

1st qtr

4th qtr

3rd qtr

2nd qtr

Net interest income (GAAP)

$       185,118

$       185,623

$       192,511

$       193,578

$       195,577

Plus:      Fully taxable-equivalent adjustment

3,900

3,931

3,998

4,066

4,089

Net interest income on a fully taxable-equivalent basis (non-GAAP)

189,018

189,554

196,509

197,644

199,666

Average earning assets

22,352,721

22,100,417

21,920,889

21,804,243

21,367,496

Net interest margin on a fully taxable-equivalent basis (non-GAAP)

3.39%

3.48%

3.56%

3.60%

3.75%

Reconciliation of noninterest income and noninterest expense to adjusted noninterest income and adjusted noninterest expense


Quarters

(unaudited)

2015

2015

2014

2014

2014

(Dollars in thousands)

2nd qtr

1st qtr

4th qtr

3rd qtr

2nd qtr

Noninterest expense (GAAP)

$       161,674

$       160,652

$       165,041

$       163,145

$       167,400

Less:      Intangible asset amortization

2,598

2,598

2,933

2,933

2,933

Adjusted noninterest expense (non-GAAP)

159,076

158,054

162,108

160,212

164,467

Noninterest income (GAAP)

66,582

65,847

71,960

69,733

72,560

Less:      Securities gains/(losses)

567

354

16

14

80

Adjusted noninterest income (non-GAAP)

66,015

65,493

71,944

69,719

72,480

Net interest income on a fully taxable-equivalent basis (non-GAAP)

189,018

189,554

196,509

197,644

199,666

Adjusted revenue (non-GAAP)

255,033

255,047

268,453

267,363

272,146

Efficiency ratio (non-GAAP)

62.37%

61.97%

60.39%

59.92%

60.43%

Reconciliation of shareholders' equity to tangible common equity, and total assets to tangible assets


Quarters

(Dollars in thousands, except per share amounts)

2015

2nd qtr

2015

1st qtr

2014

4th qtr

2014

3rd qtr

2014

2nd qtr

Shareholders' equity (GAAP)

$      2,887,957

$      2,888,786

$      2,834,281

$      2,820,431

$      2,791,738

Less:            Preferred stock

100,000

100,000

100,000

100,000

100,000

Common shareholders' equity (non-GAAP)

2,787,957

2,788,786

2,734,281

2,720,431

2,691,738

Less:            Intangible assets

65,824

68,422

71,020

73,953

76,886

Goodwill

741,740

741,740

741,740

741,740

741,740

Tangible common equity (non-GAAP)

1,980,393

1,978,624

1,921,521

1,904,738

1,873,112

Total assets (GAAP)

$    25,297,014

$    25,118,120

$    24,902,347

$    24,608,207

$    24,564,431

Less:         Intangible assets

65,824

68,422

71,020

73,953

76,886

Goodwill

741,740

741,740

741,740

741,740

741,740

Tangible assets (non-GAAP)

$    24,489,450

$    24,307,958

$    24,089,587

$    23,792,514

$    23,745,805

Period end common shares

165,773

165,453

165,390

165,384

165,393

Tangible book value per common share

$            11.95

$            11.96

$            11.62

$            11.52

$            11.33

Tangible common equity to tangible assets ratio (non-GAAP)

8.09%

8.14%

7.98%

8.01%

7.89%

Subsequent Events

The Corporation is required under GAAP to evaluate subsequent events through the filing of its consolidated financial statements for the quarter ended June 30, 2015 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, 2015 and will adjust amounts preliminarily reported, if necessary.

Second Quarter 2015 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 second 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: 82737799.

A replay of the conference call will be available at approximately 2:00 p.m. (Eastern Time) on July 28, 2015 through August 11, 2015 by dialing (855) 859-2056, and entering the PIN: 82737799. 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/about-us/investors/index.html; 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 approximately $25.3 billion as of June 30, 2015, and 367 banking offices and 399 ATM locations in Ohio, Michigan, Wisconsin, Illinois and Pennsylvania. FirstMerit provides a complete range of banking and other financial services to consumers and businesses through its core operations. Principal affiliates include: FirstMerit Bank, N.A. and FirstMerit Mortgage Corporation.

Forward-Looking Statements

This release contains forward-looking statements relating to present or future trends or factors affecting the banking industry, and specifically the financial condition and results of operations, including without limitation, statements relating to the earnings outlook of the Corporation, as well as its operations, markets and products. Actual results could differ materially from those indicated. Among the important factors that could cause results to differ materially are interest rate changes, continued softening in the economy, which could materially impact credit quality trends and the ability to generate loans, changes in the mix of the Corporation's business, competitive pressures, changes in accounting, tax or regulatory practices or requirements, and those risk factors detailed in the Corporation's periodic reports filed with the Securities and Exchange Commission. The Corporation undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this release.

FIRSTMERIT CORPORATION AND SUBSIDIARIES

Consolidated Financial Highlights

(Unaudited)

 

 

 

Quarters

(Dollars in thousands, except per share amounts)

2015

2015

2014

2014

2014

2nd qtr

1st qtr

4th qtr

3rd qtr

2nd qtr

EARNINGS




Net interest income TE (1)

$              189,018

$               189,554

$               196,509

$              197,644

$               199,666

TE adjustment (1)

3,900

3,931

3,998

4,066

4,089

Provision for originated loan losses

10,809

6,036

8,662

4,862

5,993

Provision for acquired loan losses

(952)

2,214

3,407

4,411

5,815

Provision/(recapture) for covered loan losses

(891)

(2)

1,228

(81)

3,445

Noninterest income

66,582

65,847

71,960

69,733

72,560

Noninterest expense

161,674

160,652

165,041

163,145

167,400

Net income

56,584

57,139

61,079

63,898

59,519

Diluted EPS (3)

0.33

0.33

0.36

0.37

0.35

PERFORMANCE RATIOS




Return on average assets (ROA)

0.90%

0.93%

0.98%

1.03%

0.98%

Return on average equity (ROE)

7.85%

8.08%

8.50%

9.03%

8.62%

Return on average tangible common equity (1)

11.44%

11.85%

12.52%

13.41%

12.92%

Net interest margin TE (1)

3.39%

3.48%

3.56%

3.60%

3.75%

Efficiency ratio (1)

62.37%

61.97%

60.39%

59.92%

60.43%

Number of full-time equivalent employees

4,017

4,103

4,273

4,302

4,392

MARKET DATA




Book value per common share

$                   17.42

$                   17.46

$                   17.14

$                   17.05

$                   16.88

Tangible book value per common share (1)

11.95

11.96

11.62

11.52

11.33

Period end common share market value

20.83

19.06

18.89

17.62

19.75

Market as a % of book

120%

109%

110%

103%

117%

Cash dividends per common share

$                     0.16

$                      0.16

$                      0.16

$                     0.16

$                      0.16

Common Stock dividend payout ratio

48.48%

48.48%

44.44%

43.24%

45.71%

Average basic common shares

165,736

165,411

165,395

165,389

165,335

Average diluted common shares

166,277

166,003

165,974

165,804

166,147

Period end common shares

165,773

165,453

165,390

165,384

165,393

Common shares repurchased

211

66

15

10

186

Common Stock market capitalization

$          3,453,052

$           3,153,534

$           3,124,217

$          2,914,066

$           3,266,512

ASSET QUALITY (excluding acquired, FDIC acquired loans and covered OREO) (2)




Gross charge-offs

$               11,298

$                  8,567

$                  9,205

$               11,410

$                11,148

Net charge-offs

6,672

4,187

3,849

5,929

6,159

Allowance for originated loan losses

101,682

97,545

95,696

90,883

91,950

Reserve for unfunded lending commitments

3,905

4,330

5,848

6,966

7,107

Nonperforming assets (NPAs)

117,311

68,606

55,038

63,119

60,922

Net charge-offs to average loans ratio

0.20%

0.13%

0.12%

0.20%

0.22%

Allowance for originated loan losses to period-end loans

0.76%

0.76%

0.77%

0.75%

0.80%

Allowance for credit losses to period-end loans

0.79%

0.79%

0.81%

0.81%

0.86%

NPAs to loans and other real estate

0.87%

0.53%

0.44%

0.52%

0.53%

Allowance for originated loan losses to nonperforming loans

184.40%

211.66%

276.44%

231.13%

250.27%

Allowance for credit losses to nonperforming loans

191.48%

221.06%

293.34%

248.85%

269.61%

CAPITAL & LIQUIDITY




Period end tangible common equity to assets (1)

8.09%

8.14%

7.98%

8.01%

7.89%

Average equity to assets

11.51%

11.51%

11.55%

11.42%

11.40%

Average equity to total loans

18.59%

18.60%

18.67%

18.58%

18.90%

Average total loans to deposits

79.06%

77.86%

78.47%

77.36%

75.15%

AVERAGE BALANCES




Assets

$        25,129,859

$         24,905,094

$         24,664,987

$        24,583,776

$         24,291,276

Deposits

19,682,662

19,788,925

19,450,647

19,531,800

19,496,795

Originated loans

13,092,972

12,689,791

12,306,171

11,814,314

11,092,101

Acquired loans, including FDIC acquired loans, less loss share receivable

2,468,035

2,717,884

2,956,867

3,295,547

3,558,810

Earning assets

22,352,721

22,100,417

21,920,889

21,804,243

21,367,496

Shareholders' equity

2,892,432

2,866,362

2,849,618

2,807,886

2,768,352

ENDING BALANCES




Assets

$        25,297,014

$         25,118,120

$         24,902,347

$        24,608,207

$         24,564,431

Deposits

19,673,850

19,925,595

19,504,665

19,366,911

19,298,396

Originated loans

13,355,912

12,856,037

12,493,812

12,071,759

11,467,193

Acquired loans, including FDIC acquired loans, less loss share receivable

2,337,378

2,614,847

2,810,302

3,139,521

3,458,453

Goodwill

741,740

741,740

741,740

741,740

741,740

Intangible assets

65,824

68,422

71,020

73,953

76,886

Earning assets

22,599,272

22,395,343

22,153,552

21,930,840

21,789,773

Total shareholders' equity

2,887,957

2,888,786

2,834,281

2,820,431

2,791,738

NOTES:

(1) Represents a non-GAAP financial measure. Refer to the Non-GAAP Financial Measures section of this press release for a reconciliation to GAAP financial measures.

(2) Due to the impact of business combination accounting and protection of FDIC loss sharing agreements, which provide considerable protection against credit risk, acquired and FDIC acquired loans and covered OREO are excluded from this table to provide for improved comparability to prior periods and better perspective into asset quality trends. George Washington and Midwest non-single family loss share agreements with the FDIC expired at March 31, 2015 and June 30, 2015, respectively. As of June 30, 2015, $95.9 million of FDIC acquired loans remained covered by single family loss share agreements, providing considerable protection against credit risk.

(3) Net income used to determine diluted EPS was reduced by the cash dividends payable on the Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series A of approximately $1.5 million in each of the quarters presented.

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

June 30,

December 31,

June 30,

(Unaudited, except December 31, 2014, which is derived from the audited financial statements)

2015

2014

2014

ASSETS


Cash and due from banks

$             472,848

$             480,998

$             523,027

Interest-bearing deposits in banks

114,741

216,426

119,543

Total cash and cash equivalents

587,589

697,424

642,570

Investment securities:


Held-to-maturity

2,787,513

2,903,609

3,052,118

Available-for-sale

3,838,509

3,545,288

3,478,420

Other investments

147,967

148,654

148,433

Loans held for sale

5,432

13,428

21,632

Loans

15,705,110

15,326,147

14,969,627

Allowance for loan losses

(148,259)

(143,649)

(142,036)

Net loans

15,556,851

15,182,498

14,827,591

Premises and equipment, net

313,819

332,297

315,770

Goodwill

741,740

741,740

741,740

Intangible assets

65,824

71,020

76,886

Covered other real estate

1,065

49,641

51,072

Accrued interest receivable and other assets

1,250,705

1,216,748

1,208,199

Total assets

$        25,297,014

$        24,902,347

$        24,564,431

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

Noninterest-bearing

 

 

 

$          5,725,850

 

 

 

$          5,786,662

 

 

 

$          5,525,484

Interest-bearing

3,304,969

3,028,888

3,028,479

Savings and money market accounts

8,418,716

8,399,612

8,476,096

Certificates and other time deposits

2,224,315

2,289,503

2,268,337

Total deposits

19,673,850

19,504,665

19,298,396

Federal funds purchased and securities sold under agreements to repurchase

1,519,250

1,272,591

1,218,855

Wholesale borrowings

366,074

428,071

649,021

Long-term debt

497,393

505,192

324,433

Accrued taxes, expenses, and other liabilities

352,490

357,547

281,988

Total liabilities

22,409,057

22,068,066

21,772,693

Shareholders' equity:


5.875% Non-Cumulative Perpetual Preferred stock, Series A, without par value: authorized 115,000 shares; 100,000 issued

 

100,000

 

100,000

 

100,000

Common stock warrant

—

3,000

3,000

Common Stock, without par value; authorized 300,000,000 shares; issued: June 30, 2015, December 31, 2014 and June 30, 2014 - 170,183,540 shares

 

127,937

 

127,937

 

127,937

Capital surplus

1,379,194

1,393,090

1,387,253

Accumulated other comprehensive loss

(67,621)

(71,892)

(39,507)

Retained earnings

1,462,859

1,404,717

1,335,371

Treasury stock, at cost: June 30, 2015 - 4,410,939; December 31, 2014 - 4,793,566 shares;
June 30, 2014 - 4,790,517 shares

 

(114,412)

 

(122,571)

 

(122,316)

 Total shareholders' equity

2,887,957

2,834,281

2,791,738

 Total liabilities and shareholders' equity

$        25,297,014

$        24,902,347

$        24,564,431

FIRSTMERIT CORPORATION AND SUBSIDIARIES

Period End Loans by Product Type

(Unaudited)

(In thousands)




As of June 30, 2015



FDIC Acquired

Originated Loans

Acquired Loans (1)

Loans (2)

Total Loans

Commercial

$              8,196,630

$                 877,598

$                 145,821

$              9,220,049

Mortgage

653,143

358,559

38,029

1,049,731

Installment

2,720,059

659,348

2,299

3,381,706

Home equity

1,180,802

200,179

55,545

1,436,526

Credit card

168,576

—

—

168,576

Leases

436,702

—

—

436,702

Subtotal

13,355,912

2,095,684

241,694

15,693,290

Loss share receivable

—

—

11,820

11,820

Total loans

13,355,912

2,095,684

253,514

15,705,110

Allowance for loan losses

(101,682)

(4,950)

(41,627)

(148,259)

Net loans

$             13,254,230

$            2,090,734

$               211,887

$             15,556,851








As of March 31, 2015



FDIC Acquired

Originated Loans

Acquired Loans (1)

Loans (2)

Total Loans

Commercial

$             8,031,892

$               1,011,170

$                 179,547

$              9,222,609

Mortgage

639,980

378,192

40,470

1,058,642

Installment

2,500,288

717,693

4,781

3,222,762

Home equity

1,134,238

217,824

65,170

1,417,232

Credit card

160,766

—

—

160,766

Leases

388,873

—

—

388,873

Subtotal

12,856,037

2,324,879

289,968

15,470,884

Loss share receivable

—

—

20,005

20,005

Total loans

12,856,037

2,324,879

309,973

15,490,889

Allowance for loan losses

(97,545)

(7,493)

(41,514)

(146,552)

Net loans

$             12,758,492

$            2,317,386

$               268,459

$             15,344,337








As of December 31, 2014



FDIC Acquired

Originated Loans

Acquired Loans (1)

Loans (2)

Total Loans

Commercial

$              7,830,085

$               1,086,899

$                 211,607

$              9,128,591

Mortgage

625,283

394,484

41,276

1,061,043

Installment

2,393,451

764,168

4,874

3,162,493

Home equity

1,110,336

233,629

73,365

1,417,330

Credit card

164,478

—

—

164,478

Leases

370,179

—

—

370,179

Subtotal

12,493,812

2,479,180

331,122

15,304,114

Loss share receivable

—

—

22,033

22,033

Total loans

12,493,812

2,479,180

353,155

15,326,147

Allowance for loan losses

(95,696)

(7,457)

(40,496)

(143,649)

Net loans

$             12,398,116

$            2,471,723

$               312,659

$             15,182,498








As of September 30, 2014



FDIC Acquired

Originated Loans

Acquired Loans (1)

Loans (2)

Total Loans

Commercial

$              7,626,166

$               1,272,244

$                 262,319

$              9,160,729

Mortgage

605,998

410,065

43,672

1,059,735

Installment

2,277,533

809,820

5,148

3,092,501

Home equity

1,062,013

252,975

83,278

1,398,266

Credit card

160,113

—

—

160,113

Leases

339,936

—

—

339,936

Subtotal

12,071,759

2,745,104

394,417

15,211,280

Loss share receivable

—

—

30,746

30,746

Total loans

12,071,759

2,745,104

425,163

15,242,026

Allowance for loan losses

(90,883)

(6,206)

(42,988)

(140,077)

Net loans

$             11,980,876

$            2,738,898

$               382,175

$             15,101,949








As of June 30, 2014



FDIC Acquired

Originated Loans

Acquired Loans (1)

Loans (2)

Total Loans

Commercial

$              7,365,499

$               1,457,903

$                 292,782

$              9,116,184

Mortgage

580,166

425,584

46,705

1,052,455

Installment

2,051,587

872,034

5,364

2,928,985

Home equity

998,179

268,266

89,815

1,356,260

Credit card

151,967

—

—

151,967

Leases

319,795

—

—

319,795

Subtotal

11,467,193

3,023,787

434,666

14,925,646

Loss share receivable

—

—

43,981

43,981

Total loans

11,467,193

3,023,787

478,647

14,969,627

Allowance for loan losses

(91,950)

(4,977)

(45,109)

(142,036)

Net loans

$             11,375,243

$            3,018,810

$               433,538

$             14,827,591

(1)  Loans assumed from Citizens.

(2)  Loans acquired in an FDIC-assisted transaction. Certain non-single family loss share agreements with the FDIC expired at March 31, 2015 and June 30, 2015. As of June 30, 2015, $95.9 million of FDIC acquired loans remained covered by single family loss share agreements, providing considerable protection against credit risk.

FIRSTMERIT CORPORATION AND SUBSIDIARIES
AVERAGE CONSOLIDATED BALANCE SHEETS



Three Months Ended

(Unaudited)

June 30,

March 31,

December 31,

September 30,

June 30,

(In thousands)

2015

2015

2014

2014

2014

ASSETS




Cash and cash equivalents

$         518,820

$         563,265

$         500,559

$         521,210

$         662,000

Investment securities:




Held-to-maturity

2,806,325

2,874,169

2,966,127

3,029,971

3,061,711

Available-for-sale

3,816,827

3,645,057

3,499,528

3,460,312

3,444,830

Other investments

148,577

148,532

148,636

148,427

148,440

Loans held for sale

3,631

5,478

16,708

17,433

10,196

Loans

15,577,361

15,427,181

15,289,890

15,148,100

14,702,319

Less: allowance for loan losses

146,558

144,363

138,540

140,026

146,368

Net loans

15,430,803

15,282,818

15,151,350

15,008,074

14,555,951

Total earning assets

22,352,721

22,100,417

21,920,889

21,804,243

21,367,496

Premises and equipment, net

320,492

322,431

321,187

317,366

323,175

Accrued interest receivable and other assets

2,084,384

2,063,344

2,060,892

2,080,983

2,084,973

TOTAL ASSETS

$    25,129,859

$    24,905,094

$     24,664,987

$    24,583,776

$    24,291,276






LIABILITIES




Deposits:




Noninterest-bearing

$      5,722,240

$      5,728,763

$      5,706,631

$      5,603,104

$      5,515,807

Interest-bearing

3,203,836

3,209,285

3,021,188

3,100,904

3,066,201

Savings and money market accounts

8,467,845

8,542,154

8,381,548

8,492,172

8,580,928

Certificates and other time deposits

2,288,741

2,308,723

2,341,280

2,335,620

2,333,859

Total deposits

19,682,662

19,788,925

19,450,647

19,531,800

19,496,795

Federal funds purchased and securities sold under




agreements to repurchase

1,285,920

1,024,863

1,241,948

1,182,507

1,024,598

Wholesale borrowings

393,379

350,991

450,587

438,941

373,213

Long-term debt

508,744

505,275

350,535

320,387

324,431

Total funds

21,870,705

21,670,054

21,493,717

21,473,635

21,219,037

Accrued taxes, expenses and other liabilities

366,722

368,678

321,652

302,255

303,887

Total liabilities

22,237,427

22,038,732

21,815,369

21,775,890

21,522,924

SHAREHOLDERS' EQUITY




Preferred stock

100,000

100,000

100,000

100,000

100,000

Common stock warrant

1,385

3,000

3,000

3,000

3,000

Common stock

127,937

127,937

127,937

127,937

127,937

Capital surplus

1,382,717

1,393,682

1,391,189

1,388,423

1,386,497

Accumulated other comprehensive loss

(51,571)

(58,025)

(38,827)

(41,963)

(44,952)

Retained earnings

1,447,195

1,422,067

1,388,661

1,352,867

1,319,515

Treasury stock

(115,231)

(122,299)

(122,342)

(122,378)

(123,645)

Total shareholders' equity

2,892,432

2,866,362

2,849,618

2,807,886

2,768,352

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 

$    25,129,859

$  24,905,094

$  24,664,987

$  24,583,776

$  24,291,276

FIRSTMERIT CORPORATION AND SUBSIDIARIES

Average Loans by Product Type

(Unaudited)

(In thousands)



Three Months Ended June 30, 2015



FDIC Acquired

Originated Loans

Acquired Loans (1)

Loans (2)

Total Loans

Commercial

$              8,098,653

$                 937,480

$                 162,217

$               9,198,350

Mortgage

647,418

367,871

39,438

1,054,727

Installment

2,618,297

688,465

3,823

3,310,585

Home equity

1,156,019

209,185

59,556

1,424,760

Credit card

164,201

—

—

164,201

Leases

408,384

—

—

408,384

Subtotal

13,092,972

2,203,001

265,034

15,561,007

Loss share receivable

—

—

16,354

16,354

Total loans

13,092,972

2,203,001

281,388

15,577,361

Less allowance for loan losses

98,529

7,434

40,595

146,558

Net loans

$             12,994,443

$            2,195,567

$               240,793

$             15,430,803








Three Months ended March 31, 2015



FDIC Acquired

Originated Loans

Acquired Loans (1)

Loans (2)

Total Loans

Commercial

$              7,979,901

$               1,053,601

$                 196,421

$               9,229,923

Mortgage

631,761

386,033

40,800

1,058,594

Installment

2,424,956

742,095

4,822

3,171,873

Home equity

1,122,988

224,444

69,668

1,417,100

Credit card

162,160

—

—

162,160

Leases

368,025

—

—

368,025

Subtotal

12,689,791

2,406,173

311,711

15,407,675

Loss share receivable

—

—

19,506

19,506

Total loans

12,689,791

2,406,173

331,217

15,427,181

Less allowance for loan losses

95,952

8,287

40,124

144,363

Net loans

$             12,593,839

$            2,397,886

$               291,093

$             15,282,818








Three Months Ended December 31, 2014



FDIC Acquired

Originated Loans

Acquired Loans (1)

Loans (2)

Total Loans

Commercial

$              7,734,881

$               1,170,536

$                 231,531

$               9,136,948

Mortgage

617,803

401,173

42,409

1,061,385

Installment

2,353,599

785,035

4,944

3,143,578

Home equity

1,087,123

242,878

78,361

1,408,362

Credit card

161,543

—

—

161,543

Leases

351,222

—

—

351,222

Subtotal

12,306,171

2,599,622

357,245

15,263,038

Loss share receivable

—

—

26,852

26,852

Total loans

12,306,171

2,599,622

384,097

15,289,890

Less allowance for loan losses

91,178

6,203

41,159

138,540

Net loans

$             12,214,993

$            2,593,419

$               342,938

$             15,151,350








Three Months Ended September 30, 2014



FDIC Acquired

Originated Loans

Acquired Loans (1)

Loans (2)

Total Loans

Commercial

$              7,534,848

$               1,373,103

$                 271,299

$               9,179,250

Mortgage

594,258

416,417

44,672

1,055,347

Installment

2,171,246

838,687

5,278

3,015,211

Home equity

1,030,256

259,867

86,224

1,376,347

Credit card

156,866

—

—

156,866

Leases

326,840

—

—

326,840

Subtotal

11,814,314

2,888,074

407,473

15,109,861

Loss share receivable

—

—

38,239

38,239

Total loans

11,814,314

2,888,074

445,712

15,148,100

Less allowance for loan losses

91,888

6,088

42,050

140,026

Net loans

$             11,722,426

$            2,881,986

$               403,662

$             15,008,074








Three Months Ended June 30, 2014



FDIC Acquired

Originated Loans

Acquired Loans (1)

Loans (2)

Total Loans

Commercial

$              7,185,060

$               1,492,139

$                 303,721

$               8,980,920

Mortgage

565,703

434,936

48,258

1,048,897

Installment

1,939,802

907,069

5,445

2,852,316

Home equity

969,592

275,387

91,855

1,336,834

Credit card

149,903

—

—

149,903

Leases

282,041

—

—

282,041

Subtotal

11,092,101

3,109,531

449,279

14,650,911

Loss share receivable

—

—

51,408

51,408

Total loans

11,092,101

3,109,531

500,687

14,702,319

Less allowance for loan losses

94,063

3,034

49,271

146,368

Net loans

$             10,998,038

$            3,106,497

$               451,416

$             14,555,951

(1) Loans assumed from Citizens. No allowance was brought forward on the date of acquisition in accordance with business combination accounting.

(2) Loans acquired in an FDIC-assisted transaction. Includes non-single family loans for which the loss share agreement expired on March 31, 2015 and June 30, 2015.

FIRSTMERIT CORPORATION AND SUBIDARIES  








AVERAGE CONSOLIDATED BALANCE SHEETS  








Fully Tax-equivalent Interest Rates and Interest Differential 











Three months ended

Three months ended

Three months ended

June 30, 2015

March 31, 2015

June 30, 2014










(Unaudited)  

Average

Average

Average

Average

Average

Average

(Dollars in thousands)  

Balance

Interest (1)  

Rate

Balance

Interest (1)  

Rate

Balance

Interest (1)  

Rate

ASSETS








Cash and cash equivalents

$      518,820

$     563,265

$     662,000

Investment securities and federal funds sold:








U.S. treasury securities and U.S.
government agency obligations (taxable)

 

5,452,598

 

$   27,098

 

1.99%

 

5,329,725

 

$   26,760

 

2.04%

 

5,303,645

 

$    26,751

 

2.02%

Obligations of states and political
subdivisions (tax exempt)

 

724,653

 

8,443

 

4.67%

 

733,157

 

9,147

 

5.06%

 

767,731

 

8,753

 

4.57%

Other securities and federal funds sold

594,478

5,077

3.43%

604,876

5,190

3.48%

583,605

5,501

3.78%

Total investment securities and federal funds sold

 

6,771,729

 

40,618

 

2.41%

 

6,667,758

 

41,097

 

2.50%

 

6,654,981

 

41,005

 

2.47%

Loans held for sale

3,631

46

5.08%

5,478

57

4.22%

10,196

89

3.51%

Loans, including loss share receivable (2)

15,577,361

162,610

4.19%

15,427,181

162,292

4.27%

14,702,319

173,320

4.73%

Total earning assets

22,352,721

$ 203,274

3.65%

22,100,417

$ 203,446

3.73%

21,367,496

$  214,414

4.02%

Total allowance for loan losses

(146,558)

(144,363)

(146,368)

Other assets

2,404,876

2,385,775

2,408,148

Total assets  

$ 25,129,859

$ 24,905,094

$ 24,291,276










LIABILITIES AND SHAREHOLDERS' EQUITY








Deposits:








Noninterest-bearing

$   5,722,240

$         —

—%

$  5,728,763

$         —

—%

$  5,515,807

$          —

—%

Interest-bearing

3,203,836

783

0.10%

3,209,285

767

0.10%

3,066,201

745

0.10%

Savings and money market accounts

8,467,845

5,588

0.26%

8,542,154

5,547

0.26%

8,580,928

5,477

0.26%

Certificates and other time deposits

2,288,741

2,510

0.44%

2,308,723

2,177

0.38%

2,333,859

3,009

0.52%

Total deposits

19,682,662

8,881

0.18%

19,788,925

8,491

0.17%

19,496,795

9,231

0.19%

Securities sold under agreements to repurchase

1,285,920

329

0.10%

1,024,863

243

0.10%

1,024,598

233

0.09%

Wholesale borrowings

393,379

2,351

2.40%

350,991

2,340

2.70%

373,213

1,391

1.49%

Long-term debt

508,744

2,695

2.12%

505,275

2,818

2.26%

324,431

3,893

4.81%

Total interest-bearing liabilities

16,148,465

14,256

0.35%

15,941,291

13,892

0.35%

15,703,230

14,748

0.38%

Other liabilities

366,722

368,678

303,887

Shareholders' equity

2,892,432

2,866,362

2,768,352

Total liabilities and shareholders' equity

$ 25,129,859

$ 24,905,094

$ 24,291,276

Net yield on earning assets

$ 22,352,721

$ 189,018

3.39%

$ 22,100,417

$ 189,554

3.48%

$ 21,367,496

$  199,666

3.75%

Interest rate spread

3.30%

3.38%

3.65%

(1)

The net yield on earning assets is calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal and/or state income taxes. As such, these tax-exempt securities typically yield lower returns than taxable securities. To provide more meaningful comparisons of net interest margins for all earning assets, net interest income on a taxable-equivalent basis is used in calculating net interest margin by increasing the interest earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under U.S. generally accepted accounting principles in the Consolidated Statements of Income. The taxable- equivalent adjustments to net interest income were $3.9 million, $3.9 million, and $4.1 million for the three months ended June 30, 2015, March 31, 2015, and June 30, 2014, respectively.

(2)

Nonaccrual loans have been included in the average balances.

FIRSTMERIT CORPORATION AND SUBIDARIES





AVERAGE CONSOLIDATED BALANCE SHEETS

Fully Tax-equivalent Interest Rates and Interest Differential





Six Months Ended

Six Months Ended

June 30, 2015

June 30, 2014

(Unaudited)

Average


Average

Average


Average

(Dollars in thousands)

Balance

Interest (1)

Rate

Balance

Interest (1)

Rate

ASSETS










Cash and cash equivalents

$

540,920





$

809,715




Investment securities and federal funds sold:










U.S. treasury securities and U.S. government agency obligations (taxable)

5,391,501

$

53,858

2.01

%

5,227,913

$

52,661

2.03

%

Obligations of states and political subdivisions (tax exempt)

728,882

17,590

4.87

%

753,880

17,365

4.65

%

Other securities and federal funds sold

599,648

10,267

3.45

%

588,457

11,614

3.98

%

Total investment securities and federal funds sold

6,720,031

81,715

2.45

%

6,570,250

81,640

2.51

%

Loans held for sale

4,550

103

4.56

%

8,510

148

3.52

%

Loans, including loss share receivable (2)

15,502,686

324,902

4.23

%

14,558,200

344,453

4.77

%

Total earning assets

22,227,267

$

406,720

3.69

%

21,136,960

$

426,241

4.07

%

Total allowance for loan losses

(145,467)





(142,649)




Other assets

2,393,014





2,412,433




Total assets

$

25,015,734





$

24,216,459




LIABILITIES AND SHAREHOLDERS' EQUITY







Deposits:










Noninterest-bearing

$

5,725,483

$

—

—

%

$

5,502,354

$

—

—

%

Interest-bearing

3,206,545

1,550

0.10

%

3,056,132

1,481

0.10

%

Savings and money market accounts

8,504,794

11,135

0.26

%

8,639,547

11,035

0.26

%

Certificates and other time deposits

2,298,677

4,687

0.41

%

2,368,231

5,473

0.47

%

Total deposits

19,735,499

17,372

0.18

%

19,566,264

17,989

0.19

%

Securities sold under agreements to repurchase

1,156,113

572

0.10

%

954,719

429

0.09

%

Wholesale borrowings

372,302

4,691

2.54

%

325,036

2,520

1.56

%

Long-term debt

505,125

5,513

2.20

%

324,430

7,783

4.84

%

Total interest-bearing liabilities

16,043,556

28,148

0.35

%

15,668,095

28,721

0.37

%

Other liabilities

367,226





295,124




Shareholders' equity

2,879,469





2,750,886




Total liabilities and shareholders' equity

$

25,015,734





$

24,216,459




Net yield on earning assets

$

22,227,267

$

378,572

3.43

%

$

21,136,960

$

397,520

3.79

%

Interest rate spread



3.34

%




3.70

%

(1)

The net yield on earning assets is calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is
completely or partially exempt from federal and/or state income taxes. As such, these tax-exempt securities typically yield lower returns than taxable securities. To provide more meaningful
comparisons of net interest margins for all earning assets, net interest income on a taxable-equivalent basis is used in calculating net interest margin by increasing the interest earned on
tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles in the
Consolidated Statements of Income.  The taxable-equivalent adjustments to net interest income were $7.8 million and $8.0 million for the six months ended June 30, 2015 and 2014, respectively.

(2)

Nonaccrual loans have been included in the average balances.

  

FIRSTMERIT CORPORATION AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF INCOME      







(In thousands, except per share amounts)    

Three Months Ended    

Six Months Ended

(Unaudited)  

June 30, 

June 30,   

2015

2014

2015

2014

Interest income:




Loans and loans held for sale

$           161,872

$           172,517

$          323,411

$            343,030

Investment securities:



Taxable

32,175

32,253

64,125

64,275

Tax-exempt

5,327

5,555

11,353

10,895

Total investment securities interest

37,502

37,808

75,478

75,170

Total interest income

199,374

210,325

398,889

418,200

Interest-bearing

783

745

1,550

1,481

Savings and money market accounts

5,588

5,477

11,135

11,035

Certificates and other time deposits

2,510

3,009

4,687

5,473

Federal funds purchased and securities sold under agreements to repurchase

329

233

572

429

Wholesale borrowings

2,351

1,391

4,691

2,520

Long-term debt

2,695

3,893

5,513

7,783

Total interest expense

14,256

14,748

28,148

28,721

Net interest income

185,118

195,577

370,741

389,479

Provision for loan losses

8,966

15,253

17,214

29,790

Net interest income after provision for loan losses

176,152

180,324

353,527

359,689

Noninterest income:

Trust department income

10,820

10,070

20,969

19,818

Service charges on deposits

16,704

18,528

32,372

35,176

Credit card fees

14,124

13,455

26,773

25,607

ATM and other service fees

6,345

5,996

12,444

11,816

Bank owned life insurance income

3,697

4,040

7,289

7,622

Investment services and insurance

3,871

3,852

7,575

7,368

Investment securities gains/(losses), net

567

80

921

136

Loan sales and servicing income

3,276

4,462

4,876

8,192

Other operating income

7,178

12,077

19,210

24,096

Total noninterest income

66,582

72,560

132,429

139,831

Noninterest expenses:



Salaries, wages, pension and employee benefits

86,020

89,465

176,546

178,478

Net occupancy expense

13,727

14,347

29,681

31,361

Equipment expense

12,592

12,267

23,617

24,178

Stationery, supplies and postage

3,370

3,990

6,898

8,097

Bankcard, loan processing and other costs

12,461

11,810

23,600

22,644

Professional services

5,358

4,745

9,368

10,103

Amortization of intangibles

2,598

2,933

5,196

5,869

FDIC insurance expense

5,077

5,533

10,244

11,504

Other operating expense

20,471

22,310

37,176

44,499

Total noninterest expenses

161,674

167,400

322,326

336,733

Income before income tax expense

81,060

85,484

163,630

162,787

Income tax expense

24,476

25,965

49,907

49,813

Net income

$            56,584

$             59,519

$          113,723

$            112,974

Less:    Net income allocated to participating shareholders

467

489

937

926

Preferred stock dividends

1,469

1,469

2,938

2,938

Net income attributable to common shareholders

$            54,648

$             57,561

$          109,848

$            109,110

Net income used in diluted EPS calculation

$            54,648

$             57,561

$          109,848

$            109,110

Weighted average number of common shares outstanding - basic

165,736

165,335

165,574

165,198

Weighted average number of common shares outstanding - diluted

166,277

166,147

166,089

166,052

Basic earnings per common share

$                0.33

$                 0.35

$                0.66

$                  0.66

Diluted earnings per common share

$                0.33

$                 0.35

$                0.66

$                  0.66

Cash dividends per common share

$                0.16

$                 0.16

$                0.32

$                  0.32

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Six Months Ended

(In thousands)

June 30, 2015

June 30, 2015

Pre-tax

Tax

After-tax

Pre-tax

Tax

After-tax

Net Income

$   81,060

$   24,476

$   56,584

$ 163,630

$   49,907

$ 113,723

Other comprehensive income/(loss)





Unrealized gains and losses on securities available for sale:





Changes in unrealized securities' holding gains/(losses)

(28,642)

(10,024)

(18,618)

5,475

1,916

3,559

Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for- sale into held-to-maturity

(575)

(203)

(372)

(1,079)

(378)

(701)

Net losses/(gains) realized on sale of securities reclassified to noninterest income

(567)

(198)

(369)

(921)

(322)

(599)

Net change in unrealized gains/(losses) on securities available for sale

(29,784)

(10,425)

(19,359)

3,475

1,216

2,259

Pension plans and other postretirement benefits:





Amortization of actuarial gain

1,138

399

739

2,276

797

1,479

Amortization of prior service cost reclassified to other noninterest expense

410

144

266

820

287

533

Net change from defined benefit pension plans

1,548

543

1,005

3,096

1,084

2,012

Total other comprehensive gains/(losses)

(28,236)

(9,882)

(18,354)

6,571

2,300

4,271

Comprehensive income

$   52,824

$   14,594

$   38,230

$ 170,201

$   52,207

$ 117,994






  (Unaudited)   

Three Months Ended  

Six Months Ended

(In thousands)

June 30, 2014

June 30, 2014

Pre-tax

Tax

After-tax

Pre-tax

Tax

After-tax

Net Income

$   85,484

$   25,965

$   59,519

$ 162,787

$   49,813

$ 112,974

Other comprehensive income/(loss)





Unrealized gains and losses on securities available for sale:





Changes in unrealized securities' holding gains/(losses)

22,456

7,860

14,596

40,500

14,175

26,325

Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for- sale into held-to-maturity

(494)

(173)

(321)

(988)

(346)

(642)

Net losses/(gains) realized on sale of securities reclassified to noninterest income

(80)

(28)

(52)

(136)

(48)

(88)

Net change in unrealized gains/(losses) on securities available for sale

21,882

7,659

14,223

39,376

13,781

25,595

Pension plans and other postretirement benefits:





Amortization of actuarial gain

1,631

571

1,060

1,631

571

1,060

Amortization of prior service cost reclassified to other noninterest expense

1,097

383

714

1,097

383

714

Net change from defined benefit pension plans

2,728

954

1,774

2,728

954

1,774

Total other comprehensive gains/(losses)

24,610

8,613

15,997

42,104

14,735

27,369

Comprehensive income

$ 110,094

$   34,578

$   75,516

$ 204,891

$   64,548

$ 140,343

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME---LINKED QUARTERS



Quarterly Results

(In thousands, except per share amounts)

2015

2015

2014

2014

2014

(Unaudited)

2nd qtr

1st qtr

4th qtr

3rd qtr

2nd qtr

Interest Income:




Loans and loans held for sale

$        161,872

$        161,539

$     168,650

$        170,648

$        172,517

Investment securities

37,502

37,976

37,451

37,549

37,808

Total interest income

199,374

199,515

206,101

208,197

210,325

Interest expense:

Deposits:




Interest-bearing

783

767

727

755

745

Savings and money market accounts

5,588

5,547

5,496

5,570

5,477

Certificates and other time deposits

2,510

2,177

2,525

2,846

3,009

Federal funds purchased and securities sold under agreements to repurchase

329

243

294

268

233

Wholesale borrowings

2,351

2,340

2,360

1,397

1,391

Long-term debt

2,695

2,818

2,188

3,783

3,893

Total interest expense

14,256

13,892

13,590

14,619

14,748

Net interest income

185,118

185,623

192,511

193,578

195,577

Provision for loan losses

8,966

8,248

13,297

9,192

15,253

Net interest income after provision for loan losses

176,152

177,375

179,214

184,386

180,324

Noninterest income:




Trust department income

10,820

10,149

9,831

10,300

10,070

Service charges on deposits

16,704

15,668

17,597

18,684

18,528

Credit card fees

14,124

12,649

13,305

13,754

13,455

ATM and other service fees

6,345

6,099

6,181

6,182

5,996

Bank owned life insurance income

3,697

3,592

7,337

4,218

4,040

Investment services and insurance

3,871

3,704

4,171

3,606

3,852

Investment securities gains/(losses), net

567

354

16

14

80

Loan sales and servicing income

3,276

1,600

3,112

4,740

4,462

Other operating income

7,178

12,032

10,410

8,235

12,077

Total noninterest income

66,582

65,847

71,960

69,733

72,560

Noninterest expenses:




Salaries, wages, pension and employee benefits

86,020

90,526

89,899

90,593

89,465

Net occupancy expense

13,727

15,954

14,188

13,887

14,347

Equipment expense

12,592

11,025

12,133

12,188

12,267

Stationery, supplies and postage

3,370

3,528

3,767

3,723

3,990

Bankcard, loan processing and other costs

12,461

11,139

11,830

11,151

11,810

Professional services

5,358

4,010

6,440

5,270

4,745

Amortization of intangibles

2,598

2,598

2,933

2,933

2,933

FDIC insurance expense

5,077

5,167

5,989

2,988

5,533

Other operating expense

20,471

16,705

17,862

20,412

22,310

Total noninterest expenses

161,674

160,652

165,041

163,145

167,400

Income before income tax expense

81,060

82,570

86,133

90,974

85,484

Income tax expense

24,476

25,431

25,054

27,076

25,965

Net income

56,584

57,139

61,079

63,898

59,519

Less: Net income allocated to participating shareholders

467

407

496

519

489

Preferred stock dividends

1,469

1,469

1,469

1,469

1,469

Net income attributable to common shareholders

$          54,648

$          55,263

$         59,114

$          61,910

$           57,561

Net income used in diluted EPS calculation

$          54,648

$          55,263

$         59,114

$          61,910

$           57,561

Weighted-average number of common shares outstanding - basic

165,736

165,411

165,395

165,389

165,335

Weighted-average number of common shares outstanding- diluted

166,277

166,003

165,974

165,804

166,147

Basic earnings per common share

$               0.33

$               0.33

$             0.36

$               0.37

$               0.35

Diluted earnings per common share

$               0.33

$               0.33

$             0.36

$               0.37

$               0.35

Cash dividends per common share

$               0.16

$               0.16

$             0.16

$               0.16

$               0.16

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NONINTEREST INCOME AND NONINTEREST EXPENSE DETAIL


(Unaudited)
(In thousands)

Noninterest income detail

2015
2nd qtr

2015
1st qtr

2014
4th qtr

2014
3rd qtr

2014
2nd qtr

Trust department income

$          10,820

$         10,149

$           9,831

$         10,300

$         10,070

Service charges on deposits

16,704

15,668

17,597

18,684

18,528

Credit card fees

14,124

12,649

13,305

13,754

13,455

ATM and other service fees

6,345

6,099

6,181

6,182

5,996

Bank owned life insurance income

3,697

3,592

7,337

4,218

4,040

Investment services and insurance

3,871

3,704

4,171

3,606

3,852

Investment securities gains/(losses), net

567

354

16

14

80

Loan sales and servicing income

3,276

1,600

3,112

4,740

4,462

Other operating income

7,178

12,032

10,410

8,235

12,077

Total Noninterest Income

$          66,582

$         65,847

$         71,960

$         69,733

$         72,560

2015

2015

2014

2014

2014

Noninterest expense detail

2nd qtr

1st qtr

4th qtr

3rd qtr

2nd qtr

Salaries and wages

$          67,485

$         71,914

$         71,638

$         71,769

$         69,892

Pension and employee benefits

18,535

18,612

18,261

18,824

19,573

Net occupancy expense

13,727

15,954

14,188

13,887

14,347

Equipment expense

12,592

11,025

12,133

12,188

12,267

Taxes, other than federal income taxes

2,032

2,014

1,661

1,286

2,576

Stationery, supplies and postage

3,370

3,528

3,767

3,723

3,990

Bankcard, loan processing and other costs

12,461

11,139

11,830

11,151

11,810

Advertising

3,103

2,747

3,586

3,942

3,801

Professional services

5,358

4,010

6,440

5,270

4,745

Telephone

2,599

2,574

2,779

2,831

2,857

Amortization of intangibles

2,598

2,598

2,933

2,933

2,933

FDIC insurance expense

5,077

5,167

5,989

2,988

5,533

Other operating expense

12,737

9,370

9,836

12,353

13,076

Total Noninterest Expense

$        161,674

$       160,652

$       165,041

$       163,145

$       167,400

FIRSTMERIT CORPORATION AND SUBSIDIARIES

ASSET QUALITY INFORMATION (excluding acquired loans, FDIC acquired loans, and covered OREO) (1)







(Unaudited)

(Dollars in thousands)

(Unaudited)
Quarterly Periods

(Audited)
Annual Period

June 30,

March 31,

December 31,

September 30,

June 30,

December 31,

Allowance for Credit Losses

2015

2015

2014

2014

2014

2014

Allowance for originated loan losses, beginning of period

$              97,545

$              95,696

$               90,883

$              91,950

$              92,116

$              96,484

Provision for originated loan losses

10,809

6,036

8,662

4,862

5,993

23,171

Charge-offs

11,298

8,567

9,205

11,410

11,148

44,923

Recoveries

4,626

4,380

5,356

5,481

4,989

20,964

Net charge-offs

6,672

4,187

3,849

5,929

6,159

23,959

Allowance for originated loan losses, end of period

$             101,682

$              97,545

$               95,696

$              90,883

$              91,950

$               95,696

Reserve for unfunded lending commitments,





beginning of period

$                 4,330

$                5,848

$                 6,966

$                7,107

$                7,481

$                 7,907

Provision for (relief of) credit losses

(425)

(1,518)

(1,118)

(141)

(374)

(2,059)

Reserve for unfunded lending commitments,





end of period

$                 3,905

$                4,330

$                 5,848

$                6,966

$                7,107

$                 5,848

Allowance for Credit Losses

$             105,587

$            101,875

$            101,544

$              97,849

$              99,057

$             101,544

Ratios





Provision for loan losses to average loans

0.33%

0.19%

0.28%

0.16%

0.22%

0.20%

Net charge-offs to average loans

0.20%

0.13%

0.12%

0.20%

0.22%

0.21%

Allowance for loan losses to period-end loans

0.76%

0.76%

0.77%

0.75%

0.80%

0.77%

Allowance for credit losses to period-end loans

0.79%

0.79%

0.81%

0.81%

0.86%

0.81%

Allowance for loan losses to nonperforming loans

184.40%

211.66%

276.44%

231.13%

250.27%

276.44%

Allowance for credit losses to nonperforming loans

191.48%

221.06%

293.34%

248.85%

269.61%

293.34%

Asset Quality





Impaired originated loans:





Commercial loans

$               37,889

$              28,478

$               17,147

$              22,347

$              21,072

$              17,147

Consumer loans

17,253

17,607

17,470

16,974

15,669

17,470

Total nonperforming loans

55,142

46,085

34,617

39,321

36,741

34,617

Other real estate owned ("OREO"), noncovered (2)

62,169

22,521

20,421

23,798

24,181

20,421

Total nonperforming assets ("NPAs") (2)

$            117,311

$              68,606

$               55,038

$              63,119

$              60,922

$              55,038

NPAs to period-end loans + noncovered OREO (2)

0.87%

0.53%

0.44%

0.52%

0.53%

0.44%

Accruing originated loans past due 90 days or more

$                 8,009

$                7,914

$               12,156

$                8,538

$              15,643

$              12,156

(1)

Due to the impact of business combination accounting and the protection afforded by FDIC loss sharing agreements, which provide considerable protection against credit risk, acquired
loans and FDIC acquired loans, and covered OREO are excluded from this table to provide for improved comparability to prior periods and better perspective into asset quality trends.
George Washington and Midwest non-single family loss share agreements with the FDIC expired at March 31, 2015 and June 30, 2015. As of June 30, 2015, $95.9 million of FDIC
acquired loans remained covered by single family loss share agreements, providing considerable protection against credit risk.

(2)

As of June 30, 2015, $42.0 million of OREO was no longer covered by a FDIC loss share agreement, and therefore, was included in NPAs. OREO that remains covered by FDIC loss share agreements has considerable protection against credit risk and is not reported as NPAs.

FIRSTMERIT CORPORATION AND SUBSIDIARIES

ALLOWANCE FOR ORIGINATED LOAN LOSSES - Net Charge-off Detail (excluding acquired and FDIC acquired loans) (1)




(Unaudited)

(Dollars in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Year Ended
December 31,

2015                    2014

2015                    2014

2014

Allowance for originated loan losses - beginning of period

$           97,545

$           92,116

$          95,696

$          96,484

$          96,484

Loans charged off:


Commercial

3,577

3,057

4,262

8,210

12,701

Mortgage

373

834

797

1,393

2,031

Installment

4,621

4,076

9,226

8,660

17,932

Home equity

971

1,204

1,882

2,042

4,831

Credit cards

1,209

1,311

2,661

2,766

4,604

Leases

—

—

—

—

—

Overdrafts

547

666

1,037

1,237

2,824

Total

11,298

11,148

19,865

24,308

44,923

Recoveries:




Commercial

448

404

773

1,433

4,332

Mortgage

89

67

124

105

318

Installment

2,716

2,728

5,584

5,466

10,513

Home equity

839

820

1,452

1,519

2,940

Credit cards

358

439

724

857

1,716

Manufactured housing

6

13

19

24

87

Leases

3

372

7

372

379

Overdrafts

167

146

323

351

679

Total

4,626

4,989

9,006

10,127

20,964

Net charge-offs

6,672

6,159

10,859

14,181

23,959

Provision for originated loan losses

10,809

5,993

16,845

9,647

23,171

Allowance for originated loan losses-end of period

$         101,682

$           91,950

$         101,682

$           91,950

$           95,696

Average originated loans

$    13,092,972

$    11,092,101

$    12,892,495

$    10,772,020

$    11,421,426

Ratio (annualized) to average originated loans:




Originated net charge-offs

0.20%

0.22%

0.17%

0.27%

0.21%

Provision for originated loan losses

0.33%

0.22%

0.26%

0.18%

0.20%

Originated Loans, period-end

$     13,355,912

$    11,467,193

$    13,355,912

$    11,467,193

$    12,493,812

Allowance for credit losses:

$          105,587

$           99,057

$         105,587

$           99,057

$         101,544

To (annualized) net charge-offs

3.95

4.01

4.82

3.46

4.24

Allowance for originated loan losses:




To period-end originated loans

0.76%

0.80%

0.76%

0.80%

0.77%

To (annualized) net originated charge-offs

3.80

3.72

4.64

3.22

3.99

(1)

Due to the impact of business combination accounting and protection of FDIC loss sharing agreements, which provide considerable protection against credit
risk, acquired and FDIC acquired loans are excluded from this table to provide for improved comparability to prior periods and better perspective into asset
quality trends. George Washington and Midwest non-single family loss share agreements with the FDIC expired at March 31, 2015 and June 30, 2015.
As of June 30, 2015, $95.9 million of FDIC acquired loans remained covered by single family loss share agreements, providing considerable protection
against credit risk.

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

Logo - http://photos.prnewswire.com/prnh/20070920/CLTU138LOGO

SOURCE FirstMerit Corporation

Related Links

http://www.firstmerit.com

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