10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2010
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number: 0-10161

(Exact name of registrant as specified in its charter)

Ohio	34-1339938
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
III Cascade Plaza, 7th Floor, Akron Ohio	44308
(Address of principal executive offices)	(Zip Code)

(330) 996-6300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Name of each exchange on which registered
Common Stock, without par value	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o     No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

As of June 30, 2010, the aggregate market value of the registrant’s common stock (the only common equity of the registrant) held by non-affiliates of the registrant was $1,863,502,844 based on the closing sale price as reported on the NASDAQ Global Select Market.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class	Outstanding at February 4, 2011
Common Stock, no par value	115,121,731 shares

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
Proxy Statement for the Annual Meeting of Shareholders to be held on April 20, 2011 (Proxy Statement)	Part III

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS.
	ITEM 1A. RISK FACTORS.
	ITEM 1B. UNRESOLVED STAFF COMMENTS.
	ITEM 2. PROPERTIES.
	ITEM 3. LEGAL PROCEEDINGS.
	ITEM 4. (REMOVED AND RESERVED).
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
	ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA FIRSTMERIT CORPORATION AND SUBSIDIARIES
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEARS 2010, 2009 AND 2008.
CHANGES IN NET INTEREST INCOME- FULLY TAX-EQUIVALENT RATE/VOLUME ANALYSIS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
	ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
MANAGEMENT’S REPORT OF INTERNAL CONTROL OVER FINANCIAL REPORTING
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
	ITEM 9A. CONTROLS AND PROCEDURES.
	ITEM 9B. OTHER INFORMATION.
PART III
	ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
	ITEM 11. EXECUTIVE COMPENSATION.
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
	ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
	ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
SIGNATURES
Exhibit Index
EX-10.22
EX-10.23
EX-10.50
EX-10.51
EX-10.52
EX-21
EX-23
EX-24
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I

ITEM 1.   BUSINESS.

OVERVIEW

FirstMerit Corporation (“FirstMerit,” the “Corporation”, “we,” “our,” “ours,” and “us”), is a $14.1 billion bank holding company organized in 1981 under the laws of the State of Ohio and registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). FirstMerit’s principal business consists of owning and supervising its affiliates. Although FirstMerit directs the overall policies of its affiliates, including lending practices and financial resources, most day-to-day affairs are managed by their respective officers. The principal executive offices of FirstMerit are located at III Cascade Plaza, Akron, Ohio 44308, and its telephone number is (330) 996-6300.

At December 31, 2010, FirstMerit Bank, N.A. (“FirstMerit Bank”), the Corporation’s principal subsidiary, operated a network of 207 full service banking offices and 220 automated teller machines. Its offices span a total of 24 counties in Ohio (including Ashland, Ashtabula, Crawford, Cuyahoga, Delaware, Erie, Fairfield, Franklin, Geauga, Holmes, Huron, Knox, Lake, Lorain, Lucas, Madison, Medina, Portage, Richland, Seneca, Stark, Summit, Wayne and Wood Counties), 6 counties in Illinois (including Cook, DuPage, Kane, Lake, McHenry, and Will), and Lawrence County in Pennsylvania. In its principal market in Northeastern Ohio, FirstMerit serves nearly 682,527 households and businesses in the 16th largest consolidated metropolitan statistical area in the United States by population (which combines the primary metropolitan statistical areas for Cleveland-Elyria-Mentor, Akron, and Ashtabula Ohio). After integration of three acquisitions in 2010, FirstMerit now operates 47 branches in the Chicago, Illinois area, which is the third largest metropolitan statistical area in the United States by population (the Chicago-Naperville-Joliet, IL-IN-WI area) with a population of over 9 million. FirstMerit and its direct and indirect subsidiaries had 3,058 employees at December 31, 2010.

OPERATIONS AND SUBSIDIARIES

FirstMerit operates primarily as a line of business banking organization through its subsidiaries, providing a wide range of banking, fiduciary, financial, insurance and investment services to corporate, institutional and individual customers throughout Ohio, Western Pennsylvania and Chicago, Illinois.

The Corporation manages its operations through the following primary lines of business: Commercial, Retail, Wealth and Other. A description of each of these lines of business and performance data is provided in Note 15 (Segment Information) to the consolidated financial statements.

Banking services are primarily provided by FirstMerit’s national banking subsidiary, FirstMerit Bank. FirstMerit Bank also operates a trust department, which offers wealth management and trust services. The majority of its customers are comprised of consumers and small and medium size businesses. FirstMerit Bank is not engaged in lending outside the continental United States and is not dependent upon any one significant customer or specific industry.

FirstMerit’s non-banking direct and indirect subsidiaries provide insurance sales services, credit life, credit accident and health insurance, securities brokerage services, equipment lease financing and other financial services.

FirstMerit Bank is the parent corporation of 21 wholly-owned subsidiaries, a complete list of which is set forth in Exhibit 21 to this Annual Report on Form 10-K. The following are certain of the principal operating subsidiaries of FirstMerit Bank:

•  FirstMerit Mortgage Corporation, located in Canton, Ohio, which provides mortgage loan servicing for itself and FirstMerit Bank;

•  FirstMerit Equipment Finance Company, Inc., which provides commercial lease financing and related services;

•  FirstMerit Financial Services, Inc., which provides professional investment services and a variety of brokerage products to customers;

•  FirstMerit Advisors, Inc., which provides certain financial planning services to customers of FirstMerit Bank and other FirstMerit subsidiaries;

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•  CPHCSUB, LLC and CREPD, LLC, each of which hold distressed commercial and construction properties, received through the loan foreclosure process;

•  FirstMerit Insurance Group, Inc., a life insurance and financial consulting firm;

•  FirstMerit Insurance Agency, Inc., a insurance agency licensed to sell life insurance products and annuities; and

•  FirstMerit Title Agency, Ltd., a insurance agency providing complete title insurance services.

Securities trading had been a brokered program in conjunction with third-party providers from 1999 through 2009; however, beginning in October 2009, FirstMerit internalized its broker dealer services through FirstMerit Financial Services, Inc., which allows investment services and solutions to be provided locally while building operational efficiencies.

Several bank subsidiaries, including CPHCSUB, LLC and CREPD, LLC, hold distressed commercial and construction properties, received through the loan foreclosure process. These properties are held as other real estate owned (“OREO”) while being managed and remarketed for sale. The assets held as OREO for these two subsidiaries were $2.4 million and $5.8 million, respectively at December 31, 2010, as compared to $2.8 million and $1.2 million, respectively, at December 31, 2009.

Although FirstMerit is a corporate entity legally separate and distinct from its affiliates, bank holding companies such as FirstMerit, which are subject to the BHCA, are expected to act as a source of financial strength for their subsidiary banks. The principal source of FirstMerit’s income is dividends from its subsidiaries. There are certain regulatory restrictions on the extent to which financial institution subsidiaries can pay dividends or otherwise supply funds to FirstMerit. Additional information regarding FirstMerit’s business is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations located in Item 7 of this Annual Report on Form 10-K.

ACQUISITIONS AND OTHER TRANSACTIONS

During 2010, FirstMerit Bank integrated the following acquisitions, which established a Chicago, Illinois footprint for the Corporation consisting of 47 branch locations:

•  On February 19, 2010, FirstMerit Bank completed the acquisition of certain assets and the transfer of certain liabilities with respect to 24 branches of First Bank located in the greater Chicago, Illinois area. The acquisition included the assumption of approximately $1.2 billion in deposits and the purchase of $328.5 million of loans and certain other assets of First Bank associated with the acquired branch locations.

•  Also on February 19, 2010, FirstMerit Bank entered into a purchase and assumption agreement with loss share arrangements with the Federal Deposit Insurance Corporation (the “FDIC”), as receiver of George Washington Savings Bank (“George Washington”), to acquire certain assets and assume substantially all of the deposits and certain liabilities in a whole-bank acquisition of George Washington, a full service Illinois-chartered savings bank headquartered in Orland Park, Illinois. FirstMerit Bank received a cash payment from the FDIC of approximately $40.2 million to assume the net liabilities which included loans with a fair value of approximately $177.8 million and deposits with a fair value of approximately $400.7 million. Subsequent to the date of acquisition, FirstMerit Bank purchased three of the former George Washington branches, including the furniture, fixtures and equipment within these branches, for a combined purchase price of $4.3 million.

•  On May 14, 2010, FirstMerit Bank entered into a purchase and assumption agreement with loss share arrangements with the FDIC, as receiver of Midwest Bank and Trust Company (“Midwest”), to acquire substantially all of the loans and certain other assets and assume substantially all of the deposits and certain liabilities in a whole-bank acquisition of Midwest, a full-service commercial bank located in the greater Chicago, Illinois area. FirstMerit Bank made a cash payment to the FDIC of approximately $227.5 million to assume the net assets, which included loans with a fair value of approximately $1.8 billion and deposits with a fair value of approximately $2.3 billion. Subsequent to the date of acquisition, FirstMerit Bank purchased ten of the former Midwest branches, including the furniture, fixtures and equipment within these branches, for a combined purchase price of $25.1 million.

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FirstMerit continues to consider from time to time possible acquisitions of other financial institutions and financial services companies. FirstMerit also may periodically acquire branches and deposits in its principal markets. FirstMerit’s strategy for growth includes strengthening market share in its existing markets, expanding into complementary markets and broadening its product offerings. The consideration paid in such transactions may be in the form of cash, debt or FirstMerit stock. The nature and amount of such consideration will be based on reasonable growth and savings assumptions and thorough analyses of the effect on long and short-term strategic and financial results.

COMPETITION

The financial services industry remains highly competitive. FirstMerit and its subsidiaries compete with other local, regional and national providers of financial services such as other bank holding companies, commercial banks, savings associations, credit unions, consumer and commercial finance companies, equipment leasing companies, mortgage banking companies, investment brokers and other brokerage institutions, money market and mutual funds and insurance companies. Financial institution competitors in FirstMerit’s primary markets include PNC Financial Services Group, Inc., KeyCorp, Huntington Bancshares, Inc., Fifth Third Bancorp, U.S. Bancorp, Harris Bankcorp, Inc., MB Financial, Inc., Private Bancorp, Inc., Wintrust Financial Corporation, JP Morgan Chase & Co., and Wells Fargo & Company.

Mergers between financial institutions within and outside of Ohio continue to add competitive pressure. FirstMerit competes in its markets by offering high quality personal services at competitive prices in connection with its super community banking model.

PROMPT FILINGS

This Annual Report on Form 10-K has been posted on the Corporation’s website, www.firstmerit.com, on the date of filing with the Securities and Exchange Commission (the “SEC”), and the Corporation intends to post all future filings of its reports on Forms 10-K, 10-Q and 8-K on its website on the date of filing with the SEC in accordance with the prompt notice requirements.

REGULATION AND SUPERVISION

Introduction

FirstMerit, its national banking subsidiary FirstMerit Bank, and many of its nonbanking subsidiaries are subject to extensive regulation by federal and state legislatures and agencies. The regulation of bank holding companies and their subsidiaries is intended primarily for the protection of depositors, borrowers, other customers, the federal deposit insurance fund (the “DIF”) and the banking system as a whole and not for the protection of our security holders. This intensive regulatory environment, among other things, may restrict our ability to diversify into certain areas of financial services, acquire depository institutions in certain markets or pay dividends on our capital stock. It also may require FirstMerit to provide financial support to its banking and other subsidiary, maintain capital balances in excess of those desired by management and pay higher deposit insurance premiums as a result of the deterioration in the financial condition of depository institutions in general.

Significant aspects of the laws and regulations which apply to FirstMerit and its subsidiaries are described below. These descriptions are qualified in their entirety by reference to the full text of the applicable statutes, legislation, regulations and policies, as they may be amended or revised by Congress or state legislatures and federal or state regulatory agencies, as the case may be. Such statutes, regulations and policies are continually under review and are subject to change at any time, particularly in the current economic and regulatory environment. Changes in applicable statutes, legislation, regulations and policies may have a material adverse effect on FirstMerit and its business.

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The Dodd-Frank Act

The “Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010” (the “Dodd-Frank Act”), was signed into law on July 21, 2010, and effected sweeping financial regulatory reforms, including the following:

•  Creates the Consumer Financial Protection Bureau as a new agency to centralize responsibility for consumer financial protection, including implementing, examining and enforcing compliance with federal consumer financial laws;

•  Repeals federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;

•  Amends the Electronic Fund Transfer Act (“EFTA”) to, among other things, give the Board of Governors of the Federal Reserve System (the “Federal Reserve”) authority to establish rules regulating interchange fees charged for electronic debit transactions by payment card issuers having assets over $10.0 billion, such as FirstMerit Bank, and enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer;

•  Restricts federal law preemption of state laws for subsidiaries and affiliates of national banks;

•  Extends application to most bank holding companies of the same leverage and risk-based capital requirements that apply to insured depository institutions, which, among other things, will disallow treatment of trust preferred securities as Tier 1 capital;

•  Requires the Office of the Comptroller of the Currency (the “OCC”) to make its capital requirements for national banks countercyclical so they increase during economic expansions and decrease during economic contractions;

•  Requires bank holding companies and banks both to be well-capitalized and well-managed in order to acquire banks located outside their home state;

•  Changes the federal deposit insurance assessment base from the amount of insured deposits to consolidated assets less tangible capital, eliminated the maximum size of the DIF, and increases the minimum size of the DIF;

•  Imposes comprehensive regulation of the over-the-counter derivatives market, including certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses within that institution;

•  Requires large, publicly-traded bank holding companies to create a risk committee responsible for the oversight of enterprise risk management (FirstMerit already has risk committees of its management and Board of Directors);

•  Implements corporate governance revisions applicable to all public companies (not just financial institutions), concerning matters relating to executive compensation structuring and disclosure and proxy access by shareholders;

•  Permanently adopts the $250,000 limit for federal deposit insurance coverage of applicable deposits, and provides unlimited federal deposit insurance coverage through December 31, 2012 for non-interest bearing demand transaction accounts at all insured depository institutions;

•  Restricts the ability of banks to sponsor or invest in private equity or hedge funds; and

•  Increases authority of the Federal Reserve to examine national banks such as FirstMerit Bank and its non-bank subsidiaries.

Many aspects of the Dodd-Frank Act are subject to further rulemaking and will therefore continue to develop over several years. This makes it extremely difficult to assess currently the overall financial impact the Dodd-Frank Act will have on FirstMerit, its customers and the financial industry. However, the legislative provisions that affect the payment of interest on demand deposits and assessment of interchange fees are likely to increase the costs associated with deposits as well as place limitations on certain revenues those deposits may generate (for more information, see

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Item 1A, Risk Factors — “Pending regulation relating to debit card interchange fees may have a material adverse effect on our business, financial condition and results of operations”). Provisions in the legislation affecting capital requirements could require us to seek other sources of capital in the future. Some of the rules that have been proposed and, in some cases, adopted, under the Dodd-Frank Act are discussed further below, along with other regulatory matters affecting FirstMerit and FirstMerit Bank.

Regulatory Agencies

Bank Holding Company.  FirstMerit, as a bank holding company, is subject to regulation under the BHCA and to inspection, examination and supervision by the Federal Reserve Board under the BHCA.

Subsidiary Bank.  FirstMerit Bank is subject to regulation and examination primarily by the OCC and secondarily by the FDIC, and during 2011, subject to regulation by the new Consumer Financial Protection Bureau.

Nonbank Subsidiaries.  Many of FirstMerit’s nonbank subsidiaries also are subject to regulation by the Federal Reserve Board and other applicable federal and state agencies. FirstMerit’s broker-dealer and investment advisory subsidiaries are regulated by the SEC, the Financial Industry Regulatory Authority (“FINRA”), and state securities regulators, which require education and licensing of advisors, require reporting and impose business conduct rules, as well as certain disclosure and regulatory requirements of the Investment Advisors Act of 1940, as administered by the SEC. FirstMerit’s insurance subsidiaries are subject to regulation by applicable state insurance regulatory agencies, which require education and licensing of agencies and individual agents, require reports and impose business conduct rules. Other nonbank subsidiaries of FirstMerit are subject to the laws and regulations of both the federal government and the various states in which they conduct business.

SEC and NASDAQ.  FirstMerit is also under the jurisdiction of the SEC and certain state securities commissions for matters relating to the offering and sale of its securities. FirstMerit is subject to disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC. FirstMerit is listed on The NASDAQ Global Select Market (“NASDAQ”) under the trading symbol “FMER,” and is subject to the rules and listing requirements of NASDAQ.

Bank Holding Company Regulation

As a bank holding company, FirstMerit’s activities are subject to extensive regulation by the Federal Reserve Board under the BHCA. Generally, the BHCA limits the business of bank holding companies to banking, managing or controlling banks and other activities that the Federal Reserve Board has determined to be so closely related to banking as to be a proper incident thereto. FirstMerit is required to file periodic reports with the Federal Reserve Board and such additional information as the Federal Reserve Board may require, and is subject to examinations by the Federal Reserve Board.

The Federal Reserve Board also has extensive enforcement authority over bank holding companies, including, among other things, the ability to:

•  assess civil money penalties;

•  issue cease and desist or removal orders;

•  require that a bank holding company divest subsidiaries (including its subsidiary banks); and

•  in general, initiate enforcement actions for violations of laws and regulations and unsafe or unsound practices and order the cessation of any activity that it has reasonable grounds to believe constitutes a serious risk to the financial soundness, safety or stability of an institution or its subsidiaries.

Under Federal Reserve Board policy, a bank holding company is expected to serve as a source of financial and managerial strength to each subsidiary bank and to commit resources to support those subsidiary banks. Under this policy, the Federal Reserve Board may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to the holding company’s shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound practice. The Dodd-Frank Act codified this policy as a statutory requirement.

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The BHCA requires prior approval by the Federal Reserve Board for a bank holding company to directly or indirectly acquire more than a 5.0% voting interest in any bank or its parent holding company. Factors taken into consideration in making such a determination include the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-

acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves.

The BHCA also governs interstate banking and restricts the nonbanking activities of FirstMerit to those determined by the Federal Reserve Board to be financial in nature, or incidental or complementary to such financial activity, without regard to territorial restrictions. Transactions among FirstMerit Bank and its affiliates are also subject to certain limitations and restrictions of the Federal Reserve Board, as described more fully below under “Dividends and Transactions with Affiliates.”

A qualifying bank holding company may elect to become a financial holding company and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature and not otherwise permissible for a bank holding company. FirstMerit has not elected to seek financial holding company status.

Dividends and Transactions with Affiliates

FirstMerit is a legal entity separate and distinct from FirstMerit Bank and its other subsidiaries. FirstMerit’s principal source of funds to pay dividends on its common shares and service its debt is dividends from FirstMerit Bank and its other subsidiaries. Various federal and state statutory provisions and regulations limit the amount of dividends that FirstMerit Bank may pay to FirstMerit without regulatory approval, including requirements to maintain adequate capital above regulatory minimums (as discussed further below under “Capital Requirements”). FirstMerit Bank generally may not, without prior regulatory approval, pay a dividend in an amount greater than its undivided profits after deducting statutory bad debt in excess of the bank’s allowance for loan losses. In addition, the prior approval of the OCC is required for the payment of a dividend if the total of all dividends declared in a calendar year would exceed the total of its net income for the year combined with its retained net income for the two preceding years. If, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice, such authority may require, after notice and hearing, that such bank cease and desist from such practice. Depending on the financial condition of the bank, the applicable regulatory authority might deem the bank to be engaged in an unsafe or unsound practice if the bank were to pay dividends. The Federal Reserve Board and the OCC have issued policy statements that provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings. In addition, given the current financial and economic environment, the Federal Reserve Board has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong. Thus, the ability of FirstMerit to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines.

FirstMerit Bank is subject to restrictions under federal law that limit the transfer of funds or other items of value to FirstMerit and its nonbanking subsidiaries, including affiliates, whether in the form of loans and other extensions of credit, investments and asset purchases, or as other transactions involving the transfer of value from a subsidiary to an affiliate or for the benefit of an affiliate. These regulations limit the types and amounts of transactions (including loans due and extensions of credit from bank subsidiaries) that may take place and generally require those transactions to be on an arm’s-length basis. These regulations generally require that any “covered transaction” by FirstMerit Bank (or its subsidiaries) with an affiliate must be secured by designated amounts of specified collateral and must be limited, as to any one of the Corporation or its non-bank subsidiaries, to 10.0% of FirstMerit Bank’s capital stock and surplus, and, as to the Corporation and all non-bank subsidiaries in the aggregate, to 20.0% of FirstMerit Bank’s capital stock and surplus. The Dodd-Frank Act significantly expands the coverage and scope of the limitations on affiliate transactions within a banking organization. Starting in July 2011, the 10.0% of capital limit on covered transactions will begin to apply to financial subsidiaries. “Covered transactions” are generally defined by statute to include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve Board) from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.

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Capital loans from FirstMerit to FirstMerit Bank are subordinate in right of payment to deposits and certain other indebtedness of FirstMerit Bank. In the event of FirstMerit’s bankruptcy, any commitment by FirstMerit to a federal bank regulatory agency to maintain the capital of FirstMerit Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

The Federal Deposit Insurance Act provides that, in the event of the “liquidation or other resolution” of an insured depository institution such as FirstMerit Bank, the insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, nondeposit creditors, including FirstMerit, with respect to any extensions of credit they have made to such insured depository institution.

Regulation of Nationally-Chartered Banks

As a national banking association, FirstMerit Bank is subject to regulation under the National Banking Act and is periodically examined by the OCC. OCC regulations govern permissible activities, capital requirements, dividend limitations, investments, loans and other matters. Furthermore, FirstMerit Bank is subject, as a member bank, to certain rules and regulations of the Federal Reserve Board, many of which restrict activities and prescribe documentation to protect consumers. Under the Bank Merger Act, the prior approval of the OCC is required for a national bank to merge with, or purchase the assets or assume the deposits of, another bank. In reviewing applications to approve merger and other acquisition transactions, the OCC and other bank regulatory authorities may include among their considerations the competitive effect and public benefits of the transactions, the capital position of the combined organization, the applicant’s performance under the Community Reinvestment Act, and fair housing laws, and the effectiveness of the entities in restricting money laundering activities.

FirstMerit Bank is also an insured institution as a member of the DIF. As a result, it is subject to regulation and deposit insurance assessments by the FDIC (described more fully below under “Deposit Insurance”). In addition, the establishment of branches by FirstMerit Bank is subject to prior approval of the OCC. The OCC has the authority to impose sanctions on FirstMerit Bank and, under certain circumstances, may place FirstMerit Bank into receivership.

Beginning in 2011, FirstMerit Bank will also be subject to regulation by the new Consumer Financial Protection Bureau under the Federal Reserve Bureau, which shall have centralized responsibility for consumer financial protection, including implementing, examining and enforcing compliance with federal consumer financial laws.

Capital Requirements

The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies. and the OCC and the FDIC have adopted risk-based capital guidelines for national banks and state non-member banks, respectively. The guidelines provide a systematic analytical framework which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy, and minimizes disincentives to holding liquid, low-risk assets. Capital levels as measured by these standards are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.

The minimum guideline for the ratio of total capital to risk-weighted assets (including certain off-balance sheet items such as standby letters of credit) is 8.0%. At least half of the minimum total risk-based capital ratio (4.0%) must be composed of common shareholders’ equity, minority interests in certain equity accounts of consolidated subsidiaries and a limited amount of qualifying preferred stock and qualified trust preferred securities (although the Tier 1 capital treatment of trust preferred securities is revoked under the Dodd-Frank Act), less goodwill and certain other intangible assets, including the unrealized net gains and losses, after applicable taxes, on available-for-sale securities carried at fair value (commonly known as “Tier 1” risk-based capital). The remainder of total risk-based capital (commonly known as “Tier 2” risk-based capital) may consist of certain amounts of hybrid capital instruments, mandatory convertible debt, subordinated debt, preferred stock not qualifying as Tier 1 capital, loan and lease loss allowance and net unrealized gains on certain available-for-sale equity securities, all subject to limitations established by the guidelines.

Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of four risk weights (0.0%, 20.0%, 50.0% and 100.0%) is applied to different

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balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Federal Reserve Board has also established minimum leverage ratio guidelines for bank holding companies. The Federal Reserve Board guidelines provide for a minimum ratio of Tier 1 capital to average assets (excluding the loan and lease loss allowance, goodwill and certain other intangibles), or “leverage ratio,” of 3.0% for bank holding companies that meet certain criteria, including having the highest regulatory rating, and 4.0% for all other bank holding companies. The guidelines further provide that bank holding companies experiencing growth through acquisitions or otherwise, or under other warranted circumstances, will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. The OCC and the FDIC have each also adopted minimum leverage ratio guidelines for national banks and for state non-member banks, respectively. Neither FirstMerit nor FirstMerit Bank has been advised that any specific heightened minimum capital ratio guidelines are applicable to either of them.

The Federal Reserve Board’s review of certain bank holding company transactions is affected by whether the applying bank holding company is “well-capitalized.” To be deemed “well-capitalized,” the bank holding company must have a Tier 1 risk-based capital ratio of at least 6.0% and a total risk-based capital ratio of at least 10.0%, and must not be subject to any written agreement, order, capital directive or prompt corrective action directive issued by the Federal Reserve Board to meet and maintain a specific capital level for any capital measure. FirstMerit’s capital ratios meet the requirements to be deemed “well capitalized” under the Federal Reserve Board’s guidelines. See Note 20 (Regulatory Matters) to the consolidated financial statements.

The federal banking agencies have established a system of prompt corrective action to resolve certain of the problems of undercapitalized institutions. This system is based on five capital level categories for insured depository institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.”

The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a bank’s capital level. For example, the banking agencies must appoint a receiver or conservator for a bank within 90 days after it becomes “critically undercapitalized” unless the bank’s primary regulator determines, with the concurrence of the FDIC, that other action would better achieve regulatory purposes. Banking operations otherwise may be significantly affected depending on a bank’s capital category. For example, a bank that is not “well capitalized” generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market, and the holding company of any undercapitalized depository institution must guarantee, in part, specific aspects of the bank’s capital plan for the plan to be acceptable.

In order to be “well-capitalized,” a bank must have total risk-based capital of at least 10.0%, Tier 1 risk-based capital of at least 6.0% and a leverage ratio of at least 5.0%, and the bank must not be subject to any written agreement, order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. FirstMerit’s management believes that FirstMerit Bank meets the requirements to be deemed “well capitalized” according to the guidelines described above. See Note 20 (Regulatory Matters) to the consolidated financial statements.

Federal law permits the OCC to order the pro rata assessment of shareholders of a national bank whose capital stock has become impaired, by losses or otherwise, to relieve a deficiency in such national bank’s capital stock. This statute also provides for the enforcement of any such pro rata assessment of shareholders of such national bank to cover such impairment of capital stock by sale, to the extent necessary, of the capital stock owned by any assessed shareholder failing to pay the assessment. As the sole shareholder of FirstMerit Bank, FirstMerit is subject to such provisions.

The risk-based capital guidelines adopted by the federal banking agencies are based on the “International Convergence of Capital Measurement and Capital Standards” (Basel I), published by the Basel Committee on Banking Supervision (the “Basel Committee”) in 1988. In 2004, the Basel Committee published a new, more risk-sensitive capital adequacy framework (Basel II) for large, internationally active banking organizations. In December 2007, the federal banking agencies issued final rules making the implementation of certain parts of Basel II mandatory for any bank that has consolidated total assets of at least $250 billion (excluding certain assets) or has consolidated on-balance sheet foreign exposure of at least $10 billion, and making it voluntary for other banks.

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In response to concerns regarding the complexity and cost associated with implementing the Basel II rules, the federal banking agencies issued a notice of proposed rulemaking in July 2008 that would have revised the existing risk-based capital framework for banks not subject to the Basel II rules. The proposed rules would allow banks other than the large Basel II banks to elect to adopt the new risk weighting methodologies set forth in the proposed rules or remain subject to the existing risk-based capital rules. FirstMerit will not be required to implement Basel II. Until the final rules for the non-Basel II banks are adopted by the federal banking agencies, FirstMerit is unable to predict whether and when its subsidiary banks will adopt the new capital guidelines. Comments on the proposed rules were due to the federal banking agencies in October 2008, but no definitive final rules have been issued.

The Dodd-Frank Act requires the Federal Reserve Board, the OCC and the FDIC to adopt regulations imposing minimum Basel I-based capital requirements in cases where the Basel II-based capital requirements and any changes in capital regulations resulting from Basel III (see below) otherwise would permit lower requirements. In December 2010, the Federal Reserve Board, the OCC and the FDIC issued a joint notice of proposed rulemaking that would implement this requirement.

In December 2010, the Basel Committee released a final framework for strengthening international capital and liquidity regulation (Basel III). When implemented by the federal banking agencies and fully phased-in, Basel III will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. The Basel III final capital framework , among other things, (i) introduces as a new capital measure of “Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consist of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) defines CET1 narrowly by requiring that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expands the scope of the adjustments as compared to existing regulations.

When fully phased in on January 1, 2019, Basel III will require banks to maintain (i) as a newly adopted international standard, a minimum ratio of CET1 to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, which will effectively result in a minimum ratio of CET1 to risk-weighted assets of 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% on full implementation), (iii) a minimum ratio of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation) and (iv) as a newly adopted international standard, a minimum leverage ratio of 3.0%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter). When implementation of the Basel III final framework is scheduled to commence on January 1, 2013, banks will be required to maintain 3.5% CET1 to risk-weighted assets, 4.5% Tier 1 capital to risk-weighted assets, and 8.0% Total capital to risk-weighted assets.

Basel III also provides for a “countercyclical capital buffer,” generally imposed when federal regulatory agencies determine that excess aggregate credit growth becomes associated with a buildup of systemic risk, that would be in addition to the capital conservation buffer in the range of 0.0% to 2.5% when fully implemented, potentially resulting in total buffers of 2.5% to 5.0%. The countercyclical capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum, but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when applicable) will have constraints imposed on their dividends, equity repurchases and compensation, based on the amount of the shortfall.

The Basel III final framework provides for a number of new deductions from and adjustments to CET1, including the deduction of mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities if any one such category exceeds 10.0% of CET1 or if all such categories in the aggregate exceed 15.0% of CET1. Implementation of the deductions and other adjustments to CET1 will be phased-in on a pro-rata basis over a five-year period beginning on January 1, 2014. Implementation of the capital conservation buffer will begin on January 1, 2016 at 0.625% and be phased in over a four-year period (increasing each subsequent January 1 by the same amount until it reaches 2.50% on January 1, 2019).

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Regulations by the federal banking agencies implementing Basel III are expected to be proposed in mid-2011, with adoption of final implementing regulations in mid-2012. Notwithstanding its release of the Basel III framework as a final framework, the Basel Committee is considering further amendments to Basel III, including imposition of additional capital surcharges on globally systemically important financial institutions. In addition to Basel III, the Dodd-Frank Act requires or permits federal banking agencies to adopt regulations affecting capital requirements in a number of respects, including potentially more stringent capital requirements for systemically important financial institutions. Accordingly, the regulations ultimately applicable to the Corporation may differ substantially from the currently published final Basel III framework. Requirements of higher capital levels or higher levels of liquid assets could adversely impact the Corporation’s net income and return on equity.

Deposit Insurance

Substantially all of the deposits of FirstMerit Bank are insured up to applicable limits by the DIF of the FDIC, and FirstMerit Bank is assessed deposit insurance premiums to maintain the DIF. Insurance premiums for each insured institution are determined based upon the institution’s capital level and supervisory rating provided to the FDIC by the institution’s primary federal regulator and other information by the FDIC to be relevant to the risk posed to the DIF by the institution. The assessment rate determined by considering such information is then applied to the amount of the institution’s deposits to determine the institution’s insurance premium. An increase in the assessment rate could have a material adverse effect on the earnings of the affected institution, depending on the amount of the increase.

Over the past several years, the economic environment has caused high levels of bank failures, which dramatically increased FDIC resolution costs and depleted the DIF. In order to maintain a strong funding position and reserve ratio of the DIF as required by law, the FDIC issued a final rule in December 2008 that increased assessment rates uniformly by 7 basis points (7 cents for every $100 of deposits) beginning with the first quarter of 2009. Additional changes, beginning April 1, 2009, were to require institutions in the highest risk category to pay a larger share of premiums by factoring in rate adjustments based on secured liabilities and unsecured debt levels.

The Emergency Economic Stabilization Act of 2008 (“EESA”) instituted two temporary programs effective through December 31, 2009 to further insure customer deposits at FDIC-member banks: deposit accounts were insured up to $250,000 per customer (up from $100,000) and noninterest-bearing transactional accounts were fully insured (unlimited coverage). The Dodd-Frank Act made permanent the $250,000 per customer insurance limit for deposit accounts, and in November 2010, the FDIC issued a final rule under the Dodd-Frank Act that continued temporary unlimited coverage for noninterest-bearing transaction accounts. The separate coverage for noninterest-bearing transaction accounts became effective on December 31, 2010 and terminates on December 31, 2012.

In May 2009, the FDIC issued a final rule which levied a special assessment applicable to all insured depository institutions totaling 5 basis points of each institution’s total assets less Tier 1 capital as of June 30, 2009, which was collected on September 30, 2009 in the amount of $4.9 million from FirstMerit Bank.

In November 2009, the FDIC adopted a final rule requiring insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The prepaid assessments for these periods were collected on December 30, 2009, along with the regular quarterly risk-based deposit insurance assessment for the third quarter of 2009. For the fourth quarter of 2009 and for all of 2010, the prepaid assessment rate was based on each institution’s total base assessment rate in effect on September 30, 2009, adjusted to assume a 5.0% annualized deposit growth rate; for the 2011 and 2012 periods the computation was adjusted by an additional 3 basis points increase in the assessment rate. The three-year prepayment for FirstMerit determined as of September 30, 2009, totaled $43.9 million. As of December 31, 2010, $18.6 million of this prepayment has been recognized as expense by the Corporation.

In October 2010, the FDIC adopted a new DIF restoration plan to ensure that the fund reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act. Under the new restoration plan, the FDIC will forego the uniform increase of 3 basis points in initial assessment rates scheduled to take place on January 1, 2011 and will maintain the current schedule of assessment rates for all depository institutions. At the current expense rate, it is anticipated that the Corporation’s remaining prepayment of $25.3 million, as of December 31, 2010, will provide for six quarters of assessments. At least semi-annually during the five-year DIF restoration period, the FDIC will update its loss and income projections for the fund and, if needed, will increase or decrease assessment rates.

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In November 2010, the FDIC issued a notice of proposed rulemaking to change the deposit insurance assessment base from total domestic deposits to average total assets minus average tangible equity, as required by the Dodd-Frank Act, to be effective April 1, 2011. The FDIC also issued a notice of proposed rulemaking to revise the deposit insurance assessment system for large institutions. The FDIC proposes to create a two scorecard system, one for most large institutions such as FirstMerit Bank that have more than $10 billion in assets, and another for “highly complex” institutions that have over $50 billion in assets and are fully-owned by a parent with over $500 billion in assets. Each scorecard would have a performance score and a loss-severity score that would be combined to produce a total score between 30 and 90, which would be translated into an initial assessment rate based on a scale with disproportionately higher rates for higher scores. In calculating these scores, the FDIC would continue to utilize supervisory ratings, would introduce certain new financial measures to assess an institution’s ability to withstand asset-related stress and funding-related stress, and would eliminate the use of risk categories and long-term debt issuer ratings. The FDIC would also be able to make discretionary upward or downward adjustments of up to 15 points to the total score, based on significant risk factors not adequately addressed by the scorecard.

For large institutions, including FirstMerit Bank, the initial base assessment rate would range from 5 to 35 annual basis points. After the effect of potential base-rate adjustments, the total base assessment rate could range from 2.5 to 45 annual basis points. The potential adjustments to an institution’s initial base assessment rate include (i) a potential decrease of up to 5 basis points for certain long-term unsecured debt, and (ii) a potential increase of up to 10 basis points for brokered deposits in excess of 10.0% of domestic deposits. As the DIF reserve ratio grows, the rate schedule will be adjusted downward. Additionally, the proposed rule includes a new adjustment for depository institution debt under which an institution would pay an additional premium equal to 50 basis points on every dollar of long-term unsecured debt held that was issued by another insured depository institution.

All FDIC-insured depository institutions must pay an additional quarterly assessment, based on deposit levels, to provide funds for the payment of interest on bonds issued by the Financing Corporation (“FICO”), a federal corporation chartered under the authority of the Federal Housing Finance Board. The FICO bonds were issued to capitalize the Federal Savings and Loan Insurance Corporation. The FICO assessments are adjusted quarterly to reflect changes in the assessment bases of the FDIC’s insurance funds and do not vary regardless of a depository institution’s capitalization or supervisory evaluations. FirstMerit’s FICO assessments average $1.0 million annually.

Insurance of deposits may be terminated by the FDIC upon a finding that the insured institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition enacted or imposed by the institution’s regulatory agency.

Total FDIC insurance expense for FirstMerit was $17.8 million, $16.5 million and $1.3 million in 2010, 2009 and 2008, respectively. FirstMerit is generally unable to control or predict the amount of premiums that it must pay for FDIC insurance. Continuing changes in the DIF assessment rates could have a material adverse effect on FirstMerit’s earnings and its ability to continue to pay dividends on common shares at the current rate or at all.

Fiscal and Monetary Policies

FirstMerit’s business and earnings are affected significantly by the fiscal and monetary policies of the federal government and its agencies. FirstMerit is particularly affected by the policies of the Federal Reserve Board, which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the Federal Reserve are (a) conducting open market operations in United States government securities, (b) changing the discount rates of borrowings of depository institutions, (c) imposing or changing reserve requirements against depository institutions’ deposits, and (d) imposing or changing reserve requirements against certain borrowing by banks and their affiliates. These methods are used in varying degrees and combinations to affect directly the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that reason alone, the policies of the Federal Reserve Board have a material effect on the earnings of FirstMerit.

Privacy Provisions of Gramm-Leach-Bliley Act

Under the Gramm-Leach-Bliley Act of 1999, federal banking regulators were required to adopt rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party.

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Anti-Money Laundering and the USA Patriot Act

The USA Patriot Act of 2001 and its related regulations require insured depository institutions, broker-dealers and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. The statute and its regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution. In addition, federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering policies, procedures and controls of the applicants.

EESA and ARRA

In response to the ongoing financial crisis affecting the banking system and financial markets, EESA was signed into law in October 2008 and established the Treasury’s Troubled Assets Relief Program (“TARP”). As part of TARP, the Treasury established the Capital Purchase Program (“CPP”) to provide up to $700 billion of funding to eligible financial institutions through the purchase of mortgages, mortgage-backed securities, capital stock and other financial instruments for the purpose of stabilizing and providing liquidity to the U.S. financial markets. On January 9, 2009, FirstMerit completed the sale to the Treasury of $125.0 million of newly issued FirstMerit non-voting preferred shares as part of the CPP and a warrant to purchase 952,260 FirstMerit common shares at an exercise price of $19.69 per share. The American Recovery and Reinvestment Act of 2009 (“ARRA”), more commonly known as the economic stimulus or economic recovery package, was signed into law in February 2009. ARRA included a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposed certain new executive compensation and corporate expenditure limits on all current and future TARP recipients until the institution has repaid the Treasury. On April 22, 2009, FirstMerit completed the repurchase from the Treasury of all $125.0 million of the non-voting preferred shares, and on May 27, 2009, FirstMerit completed the repurchase of the warrant held by the Treasury. FirstMerit is therefore no longer subject to the compensation and expenditure limits or other rules applicable to TARP recipients.

Corporate Governance

The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) effected broad reforms to areas of corporate governance and financial reporting for public companies under the jurisdiction of the SEC. Significant additional corporate governance and financial reporting reforms have since been implemented by NASDAQ, and apply to FirstMerit. FirstMerit’s corporate governance policies include an Audit Committee Charter, a Compensation Committee Charter, Corporate Governance Guidelines, a Corporate Governance and Nominating Committee Charter, and a Code of Business Conduct and Ethics. The Board of Directors reviews FirstMerit’s corporate governance practices on a continuing basis. These and other corporate governance policies have been provided previously to shareholders and are available, along with other information on FirstMerit’s corporate governance practices, on the FirstMerit website at www.firstmerit.com.

As directed by Section 302(a) of the Sarbanes-Oxley Act, FirstMerit’s chief executive officer and chief financial officer are each required to certify that FirstMerit’s Quarterly and Annual Reports do not contain any untrue statement of a material fact. The rules have several requirements, including having these officers certify that: they are responsible for establishing, maintaining, and regularly evaluating the effectiveness of FirstMerit’s internal controls, they have made certain disclosures about FirstMerit’s internal controls to its auditors and the audit committee of the Board of Directors, and they have included information in FirstMerit’s Quarterly and Annual Reports about their evaluation and whether there have been significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation.

The Dodd-Frank Act contains significant corporate governance measures, some of which are applicable to all public companies while others apply only to financial institutions, and many of which are not yet fully implemented. For example, the Dodd-Frank Act authorized the SEC to adopt rules giving certain shareholders access to the company’s proxy for purposes of nominating director candidates, although implementation of such rules has been

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stayed pending the outcome of current litigation. Also, the Federal Reserve is required under the Dodd-Frank Act to issue regulations requiring each publicly-traded bank holding with total consolidated assets of not less than $10 billion, such as the Corporation, to establish a risk committee responsible for the oversight of the enterprise-wide risk management practices of the bank holding company. Such risk committees will be required to include such number of independent directors as the Federal Reserve may determine to be appropriate, based on the nature of operations, size of assets and other appropriate criteria, and include at least one risk management expert having experience in identifying, assessing and managing risk exposures of large, complex firms. FirstMerit already has a risk committee of management and a risk committee of its board of directors, and intends to adapt those committees to comply with the requirements developed under Dodd-Frank. The Federal Reserve is required to issue final rules implementing the risk committee by July 21, 2012 and such rules must take effect by October 21, 2012, subject to an extension by up to six months by the Secretary of the Treasury. Many of the other Dodd-Frank corporate governance provisions involve executive and incentive compensation practices and annual disclosures relating thereto, certain of which are summarized under “Executive and Incentive Compensation” below.

Executive and Incentive Compensation

In June 2010, the Federal Reserve, OCC and FDIC issued joint interagency guidance on incentive compensation policies (the “Joint Guidance”) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. This principles-based guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should: (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks; (ii) be compatible with effective internal controls and risk management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

Pursuant to the Joint Guidance, the Federal Reserve will review, as part of a regular, risk-focused examination process, the incentive compensation arrangements of financial institutions such as FirstMerit. Such reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination and deficiencies will be incorporated into the institution’s supervisory ratings, which can affect the institution’s ability to make acquisitions and take other actions. Enforcement actions may be taken against an institution if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and prompt and effective measures are not being taken to correct the deficiencies.

On February 7, 2011, federal banking regulatory agencies jointly issued proposed rules on Incentive-Based Compensation Arrangements under applicable provisions of the Dodd-Frank Act (the “Proposed Rules”). The Proposed Rules generally apply to financial institution with $1.0 billion or more in assets that maintain incentive-based compensation arrangements for certain covered employees. The Proposed Rules: (i) prohibit covered financial institutions from maintaining incentive-based compensation arrangements that encourage covered persons to expose the institution to inappropriate risk by providing the covered person with “excessive” compensation; (ii) prohibit covered financial institutions from establishing or maintaining incentive-based compensation arrangements for covered persons that encourage inappropriate risks that could lead to a material financial loss; (iii) require covered financial institutions to maintain policies and procedures appropriate to their size, complexity and use of incentive-based compensation to help ensure compliance with the Proposed Rules; and (iv) require covered financial institutions to provide enhanced disclosure to regulators regarding their incentive-based compensation arrangements for covered persons within 90 days following the end of the fiscal year. There is a 45-day public comment period on the Proposed Rules, and the final rules will become effective six months after final guidance is published in the Federal Register.

Public companies will also be required, once stock exchanges impose additional listing requirements under the Dodd-Frank Act, to implement “clawback” procedures for incentive compensation payments and to disclose the details of the procedures which allow recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating a restatement due to material noncompliance with financial reporting requirements. This clawback policy is intended to apply to compensation paid within a three year look-back window of the restatement and would cover all executives who received incentive awards.

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The Dodd-Frank Act also provides shareholders the opportunity to cast a non-binding vote on executive compensation practices, imposes new executive compensation disclosure requirements, and contains additional considerations of the independence of compensation advisors.

Future Legislation

Various and significant legislation affecting financial institutions and the financial industry is from time to time introduced in Congress, as evidenced by the sweeping reforms in the Dodd-Frank Act adopted in 2010. Such legislation may continue to change banking statutes and the operating environment of FirstMerit and its subsidiaries in substantial and unpredictable ways, and could significantly increase or decrease our costs of doing business, limit or expand permissible activities or affect the competitive balance among financial institutions. With the enactment of the Dodd-Frank Act and the continuing implementation of final rules and regulations thereunder, the nature and extent of future legislative and regulatory changes affecting financial institutions remains very unpredictable.

ITEM 1A.   RISK FACTORS.

Our business could be impacted by any of the risks noted below; although, such risks are not the only risks that we face. Additional risks that are not presently known or that we presently deem to be immaterial could also have a material, adverse impact on our business, financial condition or results of operations.

Risks Relating to Economic and Market Conditions

Difficult market conditions and economic trends may adversely affect our industry and our business.

Beginning in the latter half of 2007 through mid-2009, the United States economy was in recession, with business activity across a wide range of industries and regions greatly reduced. Although economic conditions show improvement, certain sectors of the United States economy, such as real estate, remain weak and unemployment rates, specifically in Ohio, Illinois and Pennsylvania, remain high. Local governments and many businesses still face serious difficulties due to lower consumer spending and the lack of liquidity in the credit markets.

Market conditions over the past three years have also led to the failure and merger of a number of financial institutions. These failures, as well as projected future failures, have had a significant negative impact on the capitalization levels and of the deposit insurance fund of the FDIC, which has led to a significant increase in deposit insurance premiums paid by financial institutions and pervasive regulatory modifications.

Our success depends, to a certain extent, upon economic and political conditions, local and national, as well as governmental monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, money supply and other factors beyond our control may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings and our capital. Because we have a significant amount of real estate loans, additional decreases in the value of real estate collateral securing the payment of such loans may result in significant credit losses, which could result in increased delinquencies, foreclosures and customer bankruptcies, any of which could have a material adverse effect on our operating results. Adverse changes in the economy may also have a negative effect on the ability of our borrowers, including those involving commercial real estate, to make timely repayments of their loans, which would have an adverse impact on our earnings and cash flows.

As a result of the challenges presented by current economic conditions, we continue to face the following risks:

•  increased regulation of our industry, including heightened legal standards and operational requirements, which will likely increase our costs and may limit our ability to pursue business opportunities;

•  further disruptions in the capital markets or other events, including actions by rating agencies and deteriorating investor expectations, which may result in an inability to borrow on favorable terms or at all from other financial institutions; and

•  increased competition among financial services companies due to the consolidation of certain competing financial institutions and the conversion of certain investment banks to bank holding companies, which may adversely affect our ability to market our products and services.

Overall, while economic and market conditions have improved in the United States and in our primary geographic markets, there can be no assurance that this improvement will continue.

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Changes in the general economic conditions and real estate valuations in our primary market areas could adversely impact our results of operations, financial condition and cash flows.

A majority of the lending and deposit gathering activities made by our subsidiaries are to individuals and businesses in Ohio, Western Pennsylvania and Chicago, Illinois and our success depends in part on the general economic conditions of these areas. Real estate values in Ohio, Illinois and Pennsylvania have been negatively impacted during the recent economic disruption and recessionary environment. Additional adverse changes in the regional and general economic conditions could reduce our growth rate, impair our ability to collect payments on loans, increase delinquencies, increase problem assets and foreclosures, increase claims and lawsuits, increase devaluations recognized within our real estate portfolio, decrease the demand for our products and services and decrease the value of collateral for loans, especially real estate values, which could have a material adverse effect on our financial condition, results of operations and cash flows.

We are subject to interest rate risk.

Our primary source of income is net interest income, which is the difference between the interest income generated by our interest-earning assets (consisting primarily of loans and, to a lesser extent, securities) and the interest expense generated by our interest-bearing liabilities (consisting primarily of deposits and wholesale borrowings).

The level of net interest income is primarily a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee (the “FOMC”) of the Federal Reserve and market interest rates.

The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates, the level of which is driven by the FOMC. However, the yields generated by our loans and securities are typically driven by intermediate-term (i.e., five-year) interest rates, which are set by the market and generally vary from day to day. The level of net interest income is therefore influenced by movements in such interest rates, and the pace at which such movements occur. If the interest rates on our interest-bearing liabilities increase at a faster pace than the interest rates on our interest-earning assets, the result could be a reduction in net interest income and with it, a reduction in our earnings. Our net interest income and earnings would be similarly impacted were the interest rates on our interest-earning assets to decline more quickly than the interest rates on our interest-bearing liabilities.

In addition, such changes in interest rates could affect our ability to originate loans and attract and retain deposits, the fair values of our securities and other financial assets, the fair values of our liabilities and the average lives of our loan and securities portfolios.

Changes in interest rates could also have an effect on the level of loan refinancing activity which, in turn, would impact the amount of prepayment penalty income we receive on our multi-family and commercial real estate (“CRE”) loans. As prepayment penalties are recorded as interest income, the extent to which they increase or decrease during any given period could have a significant impact on the level of net interest income and net income we generate during that time.

In addition, changes in interest rates could have an effect on the slope of the yield curve. A flat to inverted yield curve could cause our net interest income and net interest margin to contract, which could have a material adverse effect on our net income and cash flows, and the value of our assets.

The strength and stability of other financial institutions may adversely affect our business.

The actions and commercial soundness of other financial institutions could affect our ability to engage in routine funding transactions. Financial services to institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to different industries and counterparties, and execute transactions with various counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of

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default of its counterparty or client. In addition, our credit risk may increase when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. Any such losses could materially and adversely affect our results of operations.

Problems encountered by financial institutions larger or similar to us could adversely affect financial markets generally and have indirect adverse effects on our financial condition and results of operations.

The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading, clearing or other relationships between the institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This is sometimes referred to as “systemic risk” and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which we and our subsidiaries interact on a daily basis, and therefore could adversely affect our business.

Risks Related to Our Business

We are subject to credit risk.

Our business strategy emphasizes the origination of multi-family loans and, to a lesser extent, CRE loans, which are generally larger, and have higher risk-adjusted returns and shorter maturities than one- to four-family mortgage loans. Our credit risk would ordinarily be expected to increase with the growth of these loan portfolios.

Multi-family and CRE properties are generally believed to involve a greater degree of credit risk than one- to four-family mortgage loans. In addition, payments on multi-family and CRE loans generally depend on the income produced by the underlying properties which, in turn, depends on their successful operation and management. Accordingly, the ability of our borrowers to repay these loans may be impacted by adverse conditions in the local real estate market and the local economy. While we seek to minimize these risks through our underwriting policies, which generally require that such loans be qualified on the basis of the collateral property’s cash flows, appraised value, and debt service coverage ratio, among other factors; there can be no assurance that our underwriting policies will protect us from credit-related losses or delinquencies.

We cannot guarantee that our record of asset quality will be maintained in future periods. Although we were not, and are not, involved in subprime or Alt-A lending, the lingering ramifications of the subprime lending crisis and the resulting turmoil in the financial and capital markets have been far-reaching, with real estate values declining and unemployment and bankruptcies rising throughout the nation, including the regions we serve. The ability of our borrowers to repay their loans could be adversely impacted by the significant change in market conditions, which not only could result in our experiencing an increase in charge-offs, but also could necessitate our increasing our provision for loan losses. Either of these events would have an adverse impact on our results of operations were they to occur.

Our business depends significantly on general economic conditions in Ohio, Western Pennsylvania, and Chicago, Illinois. Accordingly, the ability of our borrowers to repay their loans, and the value of the collateral securing such loans, may be significantly affected by economic conditions in the regions we serve or by changes in the local real estate markets. A significant decline in general economic conditions caused by inflation, recession, unemployment, acts of terrorism, or other factors beyond our control could therefore have an adverse effect on our financial condition and results of operations. In addition, because multi-family and CRE loans represent the majority of our loans outstanding, a decline in tenant occupancy or in rents due to such factors or for other reasons could adversely impact the ability of our borrowers to repay their loans on a timely basis, which could have a negative impact on our results of operations.

We are subject to certain risks in connection with the level of our allowance for loan losses.

A variety of factors could cause our borrowers to default on their loan payments and the collateral securing such loans to be insufficient to repay any remaining indebtedness. In such an event, we could experience significant loan losses, which could have a material adverse effect on our financial condition and results of operations.

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In the process of originating a loan, we make various assumptions and judgments about the ability of the borrower to repay it, based on, among other factors: (i) the cash flows produced by the building, property or business; (ii) the value of the real estate or other assets serving as collateral; and (iii) the creditworthiness of the borrower.

We also establish an allowance for loan losses through an assessment of probable losses in each of our loan portfolios. Several factors are considered in this process, including: (i) the level of defaulted loans at the close of each quarter; (ii) recent trends in loan performance; (iii) historical levels of loan losses; (iv) the factors underlying such loan losses and loan defaults; (v) projected default rates and loss severities; (vi) internal risk ratings; (vii) loan size; (viii) economic, industry, and environmental factors; and (ix) impairment losses on individual loans. If our assumptions and judgments regarding such matters prove to be incorrect, our allowance for loan losses might not be sufficient, and additional loan loss provisions might need to be made. Depending on the amount of such loan loss provisions, the adverse impact on our earnings could be material.

In addition, as we continue to grow our loan portfolio, it may be necessary to increase the allowance for loan losses by making additional provisions, which would adversely impact our operating results. Furthermore, bank regulators may require us to make a provision for loan losses or otherwise recognize further loan charge-offs following their periodic review of our loan portfolio, our underwriting procedures and our loan loss allowance. Any increase in our allowance for loan losses or loan charge-offs as required by such regulatory authorities could have a material adverse effect on our financial condition and results of operations. Additional information regarding our allowance for loan losses is included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the sections captioned “Allowance for Loan Losses and Unfunded Lending Commitments” and “Allowance for Credit Losses.”

Increases in FDIC insurance premiums may have a material adverse effect on our earnings.

The FDIC maintains the DIF to resolve the cost of bank failures. The DIF is funded by fees assessed on insured depository institutions, including FirstMerit Bank. In November 2010, the FDIC issued a notice of proposed rulemaking to substantially modify the manner by which fee assessments are determined, including changing the deposit insurance assessment base from total domestic deposits to average total assets minus average tangible equity, as required by the Dodd-Frank Act. Final rules regarding proposed changes to the manner and method of DIF fee assessments are expected to be effective April 1, 2011. We cannot provide any assurance as to the effect of any proposed change in DIF assessment rate, should such a change occur, as such changes are dependent upon a variety of factors, some of which are beyond our control. Increases in DIF assessment rates may materially adversely affect our results of operations and our ability to continue to pay dividends on our common shares at the current rate or at all. Additional information regarding the FDIC’s proposed changes to DIF assessment rates is provided in Item 1. Business, in the section captioned “Regulation and Supervision — Deposit Insurance.”

Impending changes to rules relating to debit card interchange fees may have a material adverse effect on our business, results of operations and financial condition.

Pursuant to Section 1075 of the Dodd-Frank Act (the “Durbin Interchange Amendment”), the Federal Reserve Board has been granted the authority to issue rules relating to debit card interchange fees, network exclusivity and transaction routing. Specifically, the Durbin Interchange Amendment directs the Federal Reserve Board to establish standards for assessing whether the amount of any interchange fee that an issuer receives or charges with respect to a debit card transaction is “reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” The Durbin Interchange Amendment directs the Federal Reserve Board to consider, when prescribing regulations, the functional similarity between debit card transactions and check transactions and to distinguish between the incremental cost incurred by the issuer for the issuer’s role in the authorization, clearance, and settlement of a particular debit transaction, which shall be considered in setting the standard, and other costs incurred by an issuer that are not specific to a particular debit transaction, which shall not be considered in setting the standard. As an issuer of debit cards and receiver of interchange fees, our revenue on interchange fees may decrease as a result of the level of fees the Federal Reserve deems “reasonable and proportional” which it establishes regulation standards on the amount of interchange fees that can be charged. On December 16, 2010, the Federal Reserve Board approved release of draft rules for comment pertaining to the Durbin Interchange Amendment and final rules are expected to be

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published in April, 2011 and taking effect in July, 2011. We have estimated that our revenues may decrease by $8.5 million in 2011 after these new rules take effect.

The recent repeal of federal prohibitions on payment of interest on demand deposits could increase our interest expense.

All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the Dodd-Frank Act. As a result, beginning on July 21, 2011, financial institutions could commence offering interest on demand deposits to compete for clients. We do not yet know what interest rates other institutions may offer. Our interest expense will increase and our net interest margin will decrease if we begin offering interest on demand deposits to attract new customers or maintain current customers, which could have a material adverse effect on our business, financial condition and results of operation.

Our business strategy includes significant growth plans. Our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

During 2010, we undertook three significant acquisitions, which established a Chicago footprint consisting of 47 branch locations. We intend to continue pursuing a profitable growth strategy both within our existing markets and in new markets. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in significant growth stages of development. We cannot guarantee that we will be able to expand our market presence in our existing markets or successfully enter new markets or that any such expansion will not adversely affect our results of operations, even if only on a short-term basis. Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations and could adversely affect our ability to successfully implement our business strategy. Also, if we grow more slowly than anticipated or fail to successfully integrate newly acquired operations, our operating results could be materially adversely affected.

Our ability to grow successfully will depend on a variety of factors, including the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market areas and our ability to integrate acquisitions and manage our growth. While we believe we have the management resources and internal systems in place to successfully manage future growth, there can be no assurance that growth opportunities will be available or, if available, that growth will be successfully managed.

We may experience difficulties in integrating acquired assets and expanding our operations into new geographic areas and markets.

The market areas in Chicago, Illinois served by the assets and branches we acquired during 2010 are areas in which we previously did not conduct significant banking activities. Our ability to compete effectively in these new markets will depend on our ability to understand the local market and competitive dynamics and identify and retain key employees who know these markets. We may also encounter obstacles when incorporating the acquired operations with our operations and management.

We face risks with respect to future expansion.

We may acquire other financial institutions or parts of those institutions in the future and we may engage in de novo branch expansion. We may also consider and enter into new lines of business or offer new products or services. Acquisitions and mergers involve a number of expenses and risks, including:

•  the time and costs associated with identifying and evaluating potential acquisitions and merger targets;

•  the estimates and judgments used to evaluate credit, operations, management and market risks with respect to the target institution may not be accurate;

•  the time and costs of evaluating new markets, hiring experienced local management and opening new offices, and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion;

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•  our ability to finance an acquisition and possible dilution to our existing shareholders;

•  the diversion of our management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining businesses;

•  entry into new markets;

•  the introduction of new products and services into our business;

•  the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and

•  the risk of loss of key employees and customers.

We may incur substantial costs to expand, and we can give no assurance such expansion will result in the levels of profits we seek. There can be no assurance that integration efforts for any future mergers or acquisitions will be successful. Also, we may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to our current shareholders. There is no assurance that, following any future mergers or acquisitions, our integration efforts will be successful or that, after giving effect to the acquisition, we will achieve profits comparable to or better than our historical experience.

We face significant competition for loans and deposits.

We face significant competition for loans and deposits from other banks and financial institutions, both within and beyond our local marketplace. Within our region, we compete with commercial banks, savings banks, credit unions, and investment banks for deposits, and with the same financial institutions and others (including mortgage brokers, finance companies, mutual funds, insurance companies, and brokerage houses) for loans. We also compete with companies that solicit loans and deposits over the Internet.

Many of our competitors (including money center, national, and superregional banks) have substantially greater resources and higher lending limits than we do, and may offer certain products and services that we do not offer. Because our profitability stems largely from our ability to attract deposits and originate loans, our continued ability to compete for depositors and borrowers is critical to our success.

Our success as a competitor depends on a number of factors, including, but not limited to: (i) our ability to develop, maintain, and build upon long-term relationships with our customers by providing them with convenience, in the form of multiple branch locations and extended hours of service; (ii) access, in the form of alternative delivery channels, such as online banking, banking by phone, and ATMs; (iii) a broad and diverse selection of products and services; (iv) interest rates and service fees that compare favorably with those of our competitors; and (v) skilled and knowledgeable personnel to assist our customers with their financial needs. External factors that may impact our ability to compete include changes in local economic conditions and real estate values, changes in interest rates and the consolidation of banks and thrifts within our marketplace.

We are subject to certain risks with respect to liquidity.

“Liquidity” refers to our ability to generate sufficient cash flows to support our operations and to fulfill our obligations, including commitments to originate loans, to repay our wholesale borrowings and other liabilities and to satisfy the withdrawal of deposits by our customers.

Our primary source of liquidity is our core deposit base, which is raised through our retail branch system. Core deposits comprised approximately 75.2% of total deposits at December 31, 2010. Additional available unused wholesale sources of liquidity include advances from the Federal Home Loan Bank of Cincinnati, issuances through dealers in the capital markets and access to certificates of deposit issued through brokers. Liquidity is further provided by unencumbered, or unpledged, investment securities that totaled $1.0 billion at December 31, 2010. An inability to raise funds through deposits, borrowings, the sale or pledging as collateral of loans and other assets could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could negatively affect our access to liquidity sources include a decrease in the level of our business activity due to a market

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downturn or negative regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as severe disruption of the financial markets or negative news and expectations about the prospects for the financial services industry as a whole, as evidenced by recent turmoil in the domestic and worldwide credit markets.

We depend upon the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information provided to us by customers and counterparties, including financial statements and other financial information. We may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a business, we may assume that the customer’s audited financial statements conform with accounting principles generally accepted in the United States and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We may also rely on the audit report covering those financial statements. Our financial condition and results of operations could be negatively impacted to the extent we rely on financial statements that do not comply with generally accepted accounting principles or that are materially misleading, or on other financial information that is inaccurate or incomplete.

Derivative transactions may expose us to unexpected risk and potential losses.

We are party to a number of derivative transactions. Many of these derivative instruments are individually negotiated and non-standardized, which can make exiting, transferring or settling the position difficult. We carry borrowings which contain embedded derivatives. These borrowing arrangements require that we deliver underlying securities to the counterparty as collateral. If market interest rates were to decline, we may be required to deliver more securities to the counterparty. We are dependent on the creditworthiness of the counterparties and are therefore susceptible to credit and operational risk in these situations.

Derivative contracts and other transactions entered into with third parties are not always confirmed by the counterparties on a timely basis. While the transaction remains unconfirmed, we are subject to heightened credit and operational risk and, in the event of a default, may find it more difficult to enforce the contract. In addition, as new and more complex derivative products are created, covering a wider array of underlying credit and other instruments, disputes about the terms of the underlying contracts could arise, which could impair our ability to effectively manage our risk exposures from these products and subject us to increased costs. Any regulatory effort to create an exchange or trading platform for credit derivatives and other over-the-counter derivative contracts, or a market shift toward standardized derivatives, could reduce the risk associated with such transactions, but under certain circumstances could also limit our ability to develop derivatives that best suit the needs of our clients and ourselves and adversely affect our profitability. In addition, comprehensive regulation of the over-the-counter derivatives market to be implemented under the Dodd-Frank Act may adversely affect our treatment of these transactions.

We are subject to examinations and challenges by tax authorities.

In the normal course of business, we, as well as our subsidiaries, are routinely subject to examinations from federal and state tax authorities regarding the amount of taxes due in connection with investments we have made and the businesses in which we have engaged. Recently, federal and state tax authorities have become increasingly aggressive in challenging tax positions taken by financial institutions. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property and income tax issues, including tax base, apportionment and tax credit planning. The challenges made by tax authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in our favor, they could have a material adverse effect on our financial condition and results of operations.

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Loss of key employees may disrupt relationships with certain customers.

Our business is primarily relationship-driven in that many of our key employees have extensive customer relationships. Loss of a key employee with such customer relationships may lead to the loss of business if the customers were to follow that employee to a competitor. While we believe our relationship with our key producers is good, we cannot guarantee that all of our key personnel will remain with our organization. Loss of such key personnel, should they enter into an employment relationship with one of our competitors, could result in the loss of some of our customers.

Impairment of goodwill or other intangible assets could require charges to earnings, which could result in a negative impact on our results of operations.

Under current accounting standards, goodwill and certain other intangible assets with indeterminate lives are no longer amortized but, instead, are assessed for impairment periodically or when impairment indicators are present. Assessment of goodwill and such other intangible assets could result in circumstances where the applicable intangible asset is deemed to be impaired for accounting purposes. Under such circumstances, the intangible asset’s impairment would be reflected as a charge to earnings in the period during which such impairment is identified.

We may be exposed to liability under non-solicitation agreements to which one or more of our employees may be a party to with certain of our competitors.

From time to time, we may hire employees who may be parties to non-solicitation or non-competition agreements with one or more of our competitors. Although we expect that all such employees will comply with the terms of their non-solicitation agreements, it is possible that if customers of our competitors choose to move their business to us, or employees of our competitor seek employment with us, even without any action on the part of any employee bound by any such agreement, that one or more of our competitors may choose to bring a claim against us and our employee.

Unauthorized disclosure of sensitive or confidential client or customer information, whether through a breach of our computer systems or otherwise, could severely harm our business.

As part of our business we collect, process, and retain sensitive and confidential client and customer information. Despite the security measures we have in place, our facilities and systems, and those of our third party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information, whether by us or by our vendors, could severely damage our reputation, expose us to the risks of litigation and liability, disrupt our operations and have a material adverse effect on our business.

We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. As we experience loan losses, additional capital may need to be infused. In addition, we may elect to raise additional capital to support our business or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital. Our ability to raise additional capital will depend on our financial performance, conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control. Accordingly, there can be no assurance that we can raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.

The primary source of our income from which we pay dividends is the receipt of dividends from FirstMerit Bank, which is subject to regulatory restrictions on its payment of dividends.

The availability of dividends from FirstMerit Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of FirstMerit Bank and other factors, that the OCC could assert that payment of dividends or other payments is an unsafe or unsound practice. In addition, the payment of dividends by other

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subsidiaries is also subject to the laws of the subsidiary’s state of incorporation. Our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event that FirstMerit Bank was unable to pay dividends to us, we in turn would likely have to reduce or stop paying dividends on our common shares. Our failure to pay dividends on our common shares could have a material adverse effect on the market price of our common shares. Additional information regarding dividend restrictions is provided in Item 1. Business in the section captioned “Regulation and Supervision — Dividends and Transactions with Affiliates.”

Our organizational documents, state laws and regulated industry may discourage a third party from acquiring us by means of a tender offer, proxy contest or otherwise.

Certain provisions of our amended and restated articles of incorporation and amended and restated code of regulations, certain laws of the State of Ohio, and certain aspects of the BHCA and other governing statutes and regulations, may have the effect of discouraging a tender offer or other takeover attempt not previously approved by our Board of Directors.

Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing parties to complete financial transactions that historically have involved banks at one or both ends of the transaction. For example, consumers can now pay bills and transfer funds directly without banks. The process of eliminating banks as intermediaries, known as disintermediation, could result in the loss of fee income, as well as the loss of customer deposits and income generated from those deposits.

Our business may be adversely impacted by acts of war or terrorism.

Acts of war or terrorism could have a significant adverse impact on our ability to conduct our business. Such events could affect the ability of our borrowers to repay their loans, could impair the value of the collateral securing our loans, and could cause significant property damage, thus increasing our expenses and/or reducing our revenues. In addition, such events could affect the ability of our depositors to maintain their deposits. Although we have established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on our business which, in turn, could have a material adverse effect on our financial condition and results of operations.

We are subject to certain risks in connection with our use of technology.

Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger, our deposits, and our loans. While we have established policies and procedures to prevent or limit the impact of systems failures, interruptions, and security breaches, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, any compromise of our security systems could deter customers from using our web site and our online banking service, both of which involve the transmission of confidential information. Although we rely on commonly used security and processing systems to provide the security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from compromises or breaches of security.

In addition, we outsource certain of our data processing to certain third-party providers. If our third-party providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately process and account for customer transactions could be affected, and our business operations could be adversely impacted. Threats to information security also exist in the processing of customer information through various other vendors and their personnel. The occurrence of any systems failure, interruption, or breach of security could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to civil litigation and possible financial liability. Any of these occurrences could have a material adverse effect on our financial condition and results of operations.

Moreover, the provision of financial products and services has become increasingly technology-driven. Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on our ability to keep pace with technological advances and to invest in new technology as it becomes available. Many of our competitors have greater resources to invest in technology than we do and may be better equipped to market new

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technology-driven products and services. The ability to keep pace with technological change is important, and the failure to do so on our part could have a material adverse impact on our business and therefore on our financial condition and results of operations.

Risks Related to the Legal and Regulatory Environment

Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.

The policies of the Federal Reserve Board impact us significantly. The Federal Reserve Board regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Such policies determine to a significant extent our cost of funds for lending and investing. Changes in Federal Reserve Board policies are beyond our control and are difficult to predict. Federal Reserve Board policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the Federal Reserve Board could reduce the demand for a borrower’s products and services. This could adversely affect the borrower’s earnings and ability to repay its loan, which could have a material adverse effect on our financial condition and results of operations.

The enactment of new legislation and increased regulatory oversight may significantly affect our financial condition.

The financial services industry is extensively regulated. FirstMerit Bank is subject to extensive regulation, supervision and examination by the OCC and the FDIC. As a holding company, we also are subject to regulation and oversight by the Federal Reserve Board. Federal and state regulation of financial institutions is designed primarily to protect the deposit insurance funds and consumers, and not to benefit our shareholders. Such regulations can at times impose significant limitations on our operations. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution’s allowance for loan losses. Proposals to change the laws governing financial institutions are frequently raised in Congress and before bank regulatory authorities, as evidenced by the enactment of the Dodd-Frank Act in 2010. Substantial regulatory and legislation initiatives, including a comprehensive overhaul of the financial regulatory system in the United States, could materially affect our business, and the nature and scope of future major changes and their effects are impossible to determine. Moreover, it is impossible to predict the ultimate form newly proposed legislation might take or how it might affect us.

The recently enacted Dodd-Frank Act may adversely impact our results of operations, financial condition or liquidity.

On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry within the United States. There are a number of reform provisions that are likely to significantly impact the ways in which banks and bank holding companies, including us and FirstMerit Bank, do business. For example, the Dodd-Frank Act changes the assessment base for federal deposit insurance premiums by modifying the deposit insurance assessment base calculation to equal a depository institution’s consolidated assets less tangible capital and permanently increases the standard maximum amount of deposit insurance per customer to $250,000 and non-interest bearing transaction accounts will have unlimited deposit insurance through January 1, 2013. The Dodd-Frank Act creates the Consumer Financial Protection Bureau as a new agency empowered to promulgate new and revise existing consumer protection regulations which may limit certain consumer fees or otherwise significantly change fee practices. The Dodd-Frank Act also imposes more stringent capital requirements on bank holding companies by, among other things, imposing leverage ratios on bank holding companies and prohibiting new trust preferred issuances from counting as Tier I capital. The Dodd-Frank Act also repeals the federal prohibition on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts. Other significant changes from provisions of the Dodd-Frank Act include, but are not limited to: (i) changes to rules relating to debit card interchange fees; (ii) new comprehensive regulation of the over-the counter derivatives market; (iii) reform related to the regulation of credit rating agencies; (iv) restrictions on the ability

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of banks to sponsor or invest in private equity or hedge funds; and (v) the implementation of a number of new corporate governance provisions, including, but not limited to, requiring companies to “claw back” incentive compensation under certain circumstances, providing shareholders the opportunity to cast a non-binding vote on executive compensation, new executive compensation disclosure requirements and considerations regarding the independence of compensation advisors.

Many provisions of the Dodd-Frank Act will not be implemented immediately and will require interpretation and rule making by federal regulators. We are closely monitoring all relevant sections of the Dodd-Frank Act to ensure continued compliance with laws and regulations. While the ultimate effect of the Dodd-Frank Act on us cannot currently be determined, the law and its implementing rules and regulations are likely to result in increased compliance costs and fees paid to regulators, along with possible restrictions on our operations, all of which may have a material adverse affect on our operating results and financial condition.

Our results of operations, financial condition or liquidity may be adversely impacted by issues arising in foreclosure practices, including delays in the foreclosure process, related to certain industry deficiencies, as well as potential losses in connection with actual or projected repurchases and indemnification payments related to mortgages sold into the secondary market.

Recent announcements of deficiencies in foreclosure documentation by several large seller/servicer financial institutions have raised various concerns relating to mortgage foreclosure practices in the United States. A group of state attorneys general and state bank and mortgage regulators in all 50 states and the District of Columbia is currently reviewing foreclosure practices and a number of mortgage sellers/servicers have temporarily suspended foreclosure proceedings in some or all states in which they do business in order to evaluate their foreclosure practices and underlying documentation.

The integrity of the foreclosure process is important to our business, as an originator and servicer of residential mortgages. As a result of our continued focus of concentrating our lending efforts in our primary markets in Ohio, Illinois and Pennsylvania, as well as servicing loans for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), we do not anticipate suspending any of its foreclosure activities. During the third quarter of 2010, we reviewed our foreclosure procedures and concluded they are generally conservative in nature and do not present the significant documentation deficiencies underlying other industry foreclosure problems. Nevertheless, we could face delays and challenges in the foreclosure process arising from claims relating to industry practices generally, which could adversely affect recoveries and our financial results, whether through increased expenses of litigation and property maintenance, deteriorating values of underlying mortgaged properties or unsuccessful litigation results generally.

In addition, in connection with the origination and sale of residential mortgages into the secondary market, we make certain representations and warranties, which, if breached, may require us to repurchase such loans, substitute other loans or indemnify the purchasers of such loans for actual losses incurred in respect of such loans. Although we believe that our mortgage documentation and procedures have been appropriate and are generally conservative in nature, it is possible that we will receive repurchase requests in the future and we may not be able to reach favorable settlements with respect to such requests. It is therefore possible that we may increase our reserves or may sustain losses associated with such loan repurchases and indemnification payments.

Environmental liability associated with commercial lending could have a material adverse effect on our business, financial condition and results of operations.

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. In addition, we own and operate certain properties that may be subject to similar environmental liability risks.

Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental

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liability. Although we have policies and procedures requiring the performance of an environmental site assessment before initiating any foreclosure action on real property, these assessments may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

We have been and will continue to be the subject of litigation which could result in legal liability and damage to our business and reputation.

From time to time, we may be subject to claims or legal action from customers, employees and/or others. Financial institutions like FirstMerit are facing a growing number of significant class actions, including those based on the manner of calculation of interest on loans and the assessment of overdraft fees. Past, present and future litigation have included or could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding our business. These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Like other large financial institutions, we are also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial legal liability or significant regulatory action against us could materially adversely affect our business, financial condition or results of operations and/or cause significant reputational harm to our business. Additional information regarding litigation is included in Note 18 (Commitments and Contingencies) to the consolidated financial statements and in Item 3. Legal Proceedings.

ITEM 1B.   UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.   PROPERTIES.

FirstMerit Corporation

FirstMerit’s executive offices and certain holding company operational facilities, totaling approximately 108,230 square feet, are located in a seven-story office building at III Cascade in downtown Akron, Ohio owned by FirstMerit Bank. The building is the subject of a ground lease with the City of Akron as the lessor of the land.

The facilities owned or leased by FirstMerit and its subsidiaries are considered by management to be adequate, and neither the location nor unexpired term of any lease is considered material to the business of FirstMerit.

FirstMerit Bank

FirstMerit Bank operates 207 branches which include 156 branches in Ohio, 47 branches in Chicago, Illinois and 4 branches in Western Pennsylvania. The principal executive offices of FirstMerit Bank are located in a 28-story office building at 106 South Main Street, Akron, Ohio, which is owned by FirstMerit Bank. FirstMerit Bank Akron is the principal tenant of the building, occupying approximately 146,000 square feet of the building. The remaining portion is leased to tenants unrelated to FirstMerit Bank. The properties occupied by 129 of FirstMerit Bank’s other branches are owned by FirstMerit Bank, while the properties occupied by its remaining 77 branches are leased with various expiration dates. FirstMerit Mortgage Corporation, FirstMerit Title Agency, Ltd., and certain of FirstMerit Bank’s loan operation and documentation preparation activities are conducted in owned space in Canton, Ohio. There is no mortgage debt owing on any of the above property owned by FirstMerit Bank. FirstMerit Bank also owns automated teller machines, on-line teller terminals and other computers and related equipment for use in its business.

FirstMerit Bank also owns 15.5 acres near downtown Akron, on which FirstMerit’s primary Operations Center is located. The Operations Center is occupied and operated by FirstMerit Services Division, an operating division of FirstMerit Bank. The Operations Center primarily provides computer and communications technology-based services to FirstMerit and its subsidiaries, and also markets its services to non-affiliated institutions. There is no mortgage debt owing on the Operations Center property. In connection with its Operations Center, the Services Division has a disaster recovery center at a remote site on leased property, and leases additional space for activities related to its operations.

25

ITEM 3.   LEGAL PROCEEDINGS.

In the normal course of business, FirstMerit and its subsidiaries are at all times subject to pending and threatened legal actions, some for which the relief or damages sought are substantial. Although FirstMerit is not able to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, Management believes that based on the information currently available the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the results of operations or stockholders’ equity of the Corporation. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations in a particular future period as the time and amount of any resolution of such actions and its relationship to the future results of operations are not known.

Reserves are established for legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, including almost all of the class action lawsuits, it is not possible to determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case a reserve will not be recognized until that time.

Overdraft Litigation

Commencing in December 2010, two separate lawsuits were filed in the Summit County Court of Common Pleas and the Lake County Court of Common Plea against FirstMerit Corporation and its subsidiary FirstMerit Bank, N.A.. The complaints were brought as putative class actions on behalf of Ohio residents who maintained a checking account at FirstMerit Bank and who incurred one or more overdraft fees as a result of the alleged re-sequencing of debit transactions. The complaints seek actual damages, disgorgement of overdraft fees, punitive damages, interest, injunctive relief and attorney fees.

365/360 Interest Litigation

In August 2008 a lawsuit was filed in the Cuyahoga County Court of Common Pleas against FirstMerit Bank, N.A. The breach of contract complaint was brought as a putative class action on behalf of Ohio commercial borrowers who had allegedly had the interest they owed calculated improperly by using the 365/360 method. The complaint seeks actual damages, interest, injunctive relief and attorney fees.

Schneider Litigation

Commencing in May 2006, two lawsuits were filed in the Cuyahoga County Court of Common Pleas against FirstMerit Bank, N.A. One complaint was filed by the receiver for FirstMerit Bank customers Alan and Joanne Schneider, and the other complaint was filed by alleged defrauded investors of the Schneiders seeking to represent a class of persons who invested in promissory notes offered by the Schneiders. The allegations against FirstMerit Bank arise out of Alan Schneider’s business checking account at FirstMerit Bank into which investors’ checks were deposited and from which certain investors received payments. The complaints seek, among other things, actual damages, treble damages, punitive damages, interest, rescission and attorney fees. On January 14, 2011, a third-party complaint was filed by FirstMerit Bank against its insurers in the receiver’s lawsuit. By opinion dated February 10, 2011 the Cuyahoga County Court of Appeals reversed the trial court’s decision certifying an investor class in the case brought by the alleged defrauded investors.

Based on information currently available, consultation with counsel, available insurance coverage and established reserves, Management believes that the eventual outcome of all claims against the Corporation and its subsidiaries will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position or results of operations. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations for a particular period.

ITEM 4.   (REMOVED AND RESERVED).

26

EXECUTIVE OFFICERS OF THE REGISTRANT

The following persons were the executive officers of FirstMerit as of December 31, 2010. Unless otherwise stated, each listed position was held on January 1, 2006.

			Date Appointed
Name	Age		To FirstMerit		Position and Business Experience
Paul G. Greig		55		05/18/06	President and Chief Executive Officer of FirstMerit and of FirstMerit Bank since May 18, 2006; Chairman of FirstMerit Bank since January 1, 2007; previously President and Chief Executive Officer of Charter One Bank-Illinois.
Terrence E. Bichsel		62		09/16/99	Executive Vice President and Chief Financial Officer of FirstMerit and FirstMerit Bank.
Kenneth A. Dorsett		56		09/10/07	Executive Vice President, Wealth Management Services since September 10, 2007; previously President and Chief Executive Officer of Everest Advisors, Inc.
David G. Goodall		45		11/19/09	Executive Vice President, Commercial Banking since November 11, 2009; previously was President and Chief Executive Officer of National City Business Credit, Inc.
Chistopher J. Maurer		61		05/22/99	Executive Vice President Human Resources.
William P. Richgels		60		05/01/07	Executive Vice President, Chief Credit Officer since May 1, 2007; previously Senior Vice President and Senior Credit Officer of JPMorganChase.
N. James Brocklehurst		45		07/07/10	Executive Vice President, Retail, since July 7, 2010; previously Senior Vice President, Retail Banking of FirstMerit.
Larry A. Shoff		54		09/01/99	Executive Vice President and Chief Information Officer of FirstMerit and FirstMerit Bank.
Judith A. Steiner		49		07/01/08	Executive Vice President, Secretary and General Counsel of FirstMerit since July 1, 2008; previously Senior Vice President, Assistant Counsel, Assistant Secretary and AML/BSA Officer of FirstMerit.

27

PART II

ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

FirstMerit’s common shares are quoted on the NASDAQ under the trading symbol “FMER”. The following table contains bid and cash dividend information for FirstMerit common Shares for the two most recent fiscal years:

Stock Performance and Dividends (1)

					Per Share
	Bids				Dividend		Book
Quarter Ending	High		Low		Rate		Value(2)
03-31-09		20.71		12.45		0.29		11.84
06-30-09		21.10		16.25		0.16		11.99
09-30-09		20.47		16.18		0.16		12.34
12-31-09		21.62		17.93		0.16		12.25
03-31-10		23.47		19.55		0.16		12.69
06-30-10		24.43		17.04		0.16		13.87
09-30-10		20.22		16.55		0.16		13.95
12-31-10		20.32		16.60		0.16		13.86

(1)	This table sets forth the high and low bid quotations and dividend rates for FirstMerit for each quarterly period presented. These quotations are furnished by the National Quotations Bureau Incorporated and represent prices between dealers, do not included retail markup, markdowns, or commissions, and may not represent actual transaction prices.
(2)	Based upon number of shares outstanding at the end of each quarter.

On February 4, 2011, there were 7,564 shareholders of record of FirstMerit common shares.

The following table provides information with respect to purchases FirstMerit made of its shares of common shares during the fourth quarter of the 2010 fiscal year.

					Total Number of		Maximum
					Shares Purchased		Number of Shares
					as Part of Publicly		that May Yet be
	Total Number of		Average Price		Announced Plans		Purchased Under
	Shares Purchased(1)		Paid per Share		or Programs(2)		Plans or Programs(2)
Balance as of September 30, 2010								396,272
October 1, 2010 — October 31, 2010		3,854	$	22.06		—		396,272
November 1, 2010 — November 30, 2010		2,731		22.15		—		396,272
December 1, 2010 — December 31, 2010		2,631		22.28		—		396,272
Balance as of December 31, 2010		9,216	$	22.15		—		396,272

(1)

Reflects 9,216 common shares purchased as a result of either: (1) delivery by the option holder with respect to the exercise of stock options; (2) shares withheld to pay income taxes or other tax liabilities associated with vested restricted common shares; or (3) shares returned upon the resignation of the restricted shareholder. No shares were purchased under the program referred to in note (2) to this table during the fourth quarter of 2010.

(2)

On January 19, 2006, the Board of Directors authorized the repurchase of up to 3 million shares (the “New Repurchase Plan”). The New Repurchase Plan, which has no expiration date, superseded all other repurchase programs, including that authorized by the Board of Directors on July 15, 2004.

28

ITEM 6.   SELECTED FINANCIAL DATA.

SELECTED FINANCIAL DATA

FIRSTMERIT CORPORATION AND SUBSIDIARIES

	Years ended December 31,
	2010			2009			2008			2007			2006
				(Dollars in thousands except per share data)
Results of Operations
Interest income	$	542,370		$	459,527		$	553,826		$	636,994		$	603,841
Conversion to fully-tax equivalent		8,132			6,869			5,976			5,494			2,919
Interest income*		550,502			466,396			559,802			642,488			606,760
Interest expense		83,851			110,763			197,637			299,448			263,468
Net interest income*		466,651			355,633			362,165			343,040			343,292
Provision for noncovered loan losses		83,783			98,433			58,603			30,835			76,112
Provision for covered loan losses		4,432			—			—			—			—
Net interest income after provision for loan losses*		378,436			257,200			303,562			312,205			267,180
Other income		212,556			210,301			201,436			196,923			195,148
Other expenses		442,860			352,817			330,633			330,226			328,087
Income before federal income taxes*		148,132			114,684			174,365			178,902			134,241
Federal income taxes		37,091			25,645			48,904			50,381			36,376
Fully-tax equivalent adjustment		8,132			6,869			5,976			5,494			2,919
Federal income taxes*		45,223			32,514			54,880			55,875			39,295
Net income	$	102,909		$	82,170		$	119,485		$	123,027		$	94,946
Per share:
Basic net income**	$	1.02		$	0.90		$	1.46		$	1.51		$	1.17
Diluted net income**	$	1.02		$	0.90		$	1.46		$	1.51		$	1.16
Cash dividends	$	0.64		$	0.77		$	1.16		$	1.16		$	1.14
Performance Ratios
Return on total assets		0.76	%		0.76	%		1.13	%		1.19	%		0.94	%
Return on common shareholders’ equity		7.82	%		8.09	%		12.76	%		14.05	%		10.67	%
Net interest margin — tax-equivalent basis		3.97	%		3.58	%		3.72	%		3.62	%		3.71	%
Efficiency ratio		64.85	%		62.95	%		58.78	%		61.12	%		60.77	%
Book value per common share	$	13.86		$	12.25		$	11.58		$	11.24		$	10.56
Average shareholders’ equity to total average assets		9.73	%		9.73	%		8.87	%		8.48	%		8.79	%
Dividend payout ratio		62.92	%		85.56	%		79.45	%		76.82	%		98.28	%
Balance Sheet Data
Total assets (at year end)	$	14,136,908		$	10,539,902		$	11,100,026		$	10,400,666		$	10,298,702
Long-term debt (at year end)		326,007			740,105			1,344,195			203,755			213,821
Daily averages:
Total assets	$	13,522,782		$	10,793,494		$	10,549,442		$	10,318,788		$	10,130,015
Earning assets		11,756,985			9,925,234			9,729,909			9,482,759			9,261,292
Deposits and other funds		11,868,245			9,475,734			9,424,132			9,252,166			9,072,820
Shareholders’ equity		1,315,621			1,049,925			936,088			875,526			889,929

*	Fully tax-equivalent basis
**	Average outstanding shares and per share data restated to reflect the effect of stock dividends declared April 28, 2009 and August 20, 2009.

29

ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEARS 2010, 2009 AND 2008.

The following commentary presents a discussion and analysis of the Corporation’s financial condition and results of operations by its management (“Management”). The review highlights the principal factors affecting earnings and the significant changes in balance sheet items for the years 2010, 2009 and 2008. Financial information for prior years is presented when appropriate. The objective of this financial review is to enhance the reader’s understanding of the accompanying tables and charts, the consolidated financial statements, notes to financial statements, and financial statistics appearing elsewhere in this Annual Report on Form 10-K. Where applicable, this discussion also reflects Management’s insights of known events and trends that have or may reasonably be expected to have a material effect on the Corporation’s operations and financial condition.

HIGHLIGHTS OF 2010 PERFORMANCE

Earnings Summary

FirstMerit Corporation reported fourth quarter 2010 net income of $27.0 million, or $0.25 per diluted share. This compares with $29.0 million, or $0.27 per diluted share, for the third quarter 2010 and $14.5 million, or $0.17 per diluted share, for the fourth quarter 2009. For the full year 2010, the Corporation reported net income of $102.9 million, or $1.02 per diluted share, compared with $82.2 million, or $0.90 per diluted share in 2009.

Returns on average common equity (“ROE”) and average assets (“ROA”) for the fourth quarter 2010 were 7.04% and 0.74%, respectively, compared with 7.60% and 0.79%, respectively, for the third quarter 2010 and 5.38% and 0.54%, respectively, for the fourth quarter 2009. ROE and ROA for the year ended December 31, 2010 were 7.82% and 0.76% respectively, compared with 8.09% and 0.76%, respectively, for the year ended December 31, 2009.

Net interest margin was 4.14% for the fourth quarter of 2010 compared with 3.96% for the third quarter of 2010 and 3.64% for the fourth quarter of 2009. Expansion in the net interest margin from both the prior and year-ago quarters was driven primarily by increased loan volume and lower certificate of deposit product balances. The Corporation continues to successfully execute its strategy of increasing core deposits while shifting the deposit mix away from high-cost certificate of deposit products. Lower yields on average investment securities compared with both prior and year-ago quarters partly offset the respective, 18 and 50 basis point expansion in net interest margin over those periods. During the quarter, the Corporation reinvested maturing securities into shorter-duration investments to maintain balance sheet liquidity.

Average loans, not including covered loans, during the fourth quarter of 2010 increased $54.6 million, or 0.77%, compared with the third quarter of 2010 and also increased $194.3 million, or 2.80%, compared with the fourth quarter of 2009. Average commercial loans, not including covered loans, drove the growth over both time periods, increasing $109.1 million, or 2.51%, compared with the prior quarter, and $386.8 million, or 9.53%, compared with the fourth quarter of 2009. Average covered loan balances including the indemnification assets were $2.0 billion during the fourth quarter of 2010.

Average deposits were $11.4 billion during the fourth quarter of 2010, down $37.3 million, or 0.33%, compared with the third quarter of 2010, and up $4.0 billion, or 53.95%, compared with the fourth quarter of 2009. During the fourth quarter 2010, average core deposits, which exclude time deposits, increased $294.1 million, or 3.63%, compared with the third quarter 2010 and $2.5 billion, or 43.19%, compared with the fourth quarter 2009. Average time deposits decreased $331.4 million, or 9.94%, and increased $1.5 billion, or 94.8%, respectively, over prior and year-ago quarters, demonstrating the Corporation’s success in shifting the deposit mix and lowering funding costs.

Average investments decreased $33.0 million, or 1.01%, compared with the third quarter of 2010 and increased $488.8 million, or 17.78% compared with the fourth quarter of 2009. The increase in the fourth quarter of 2010 average investments compared with the year-ago quarter is due to the purchase of $575.0 million of securities in the first quarter of 2010 as a result of the First Bank acquisition.

Net interest income on a fully tax-equivalent (“FTE”) basis was $130.0 million in the fourth quarter 2010 compared with $125.5 million in the third quarter of 2010 and $89.2 million in the fourth quarter of 2009.

30

Noninterest income net of securities transactions for the fourth quarter of 2010 was $54.2 million, a decrease of $0.9 million, or 1.66%, from the third quarter of 2010 and an increase of $3.4 million, or 6.69%, from the fourth quarter of 2009.

Other income, net of securities gains, as a percentage of net revenue for the fourth quarter of 2010 was 29.42% compared with 30.50% for third quarter of 2010 and 36.28% for the fourth quarter of 2009. Net revenue is defined as net interest income, on an FTE basis, plus other income, less gains from securities sales.

Noninterest expense for the fourth quarter of 2010 was $122.5 million, an increase of $1.8 million, or 1.48%, from the third quarter of 2010 and an increase of $27.6 million, or 29.05%, from the fourth quarter of 2009. One-time expenses associated with data processing conversions and related expenses for acquisitions totaled $3.7 million in the fourth quarter of 2010.

During the fourth quarter of 2010, the Corporation reported an efficiency ratio of 65.95%, compared with 66.26% for the third quarter of 2010 and 67.74% for the fourth quarter of 2009.

Net charge-offs totaled $21.7 million, or 1.25% of average loans in the fourth quarter of 2010, excluding acquired loans, compared with $19.9 million, or 1.17% of average loans, in the third quarter 2010 and $31.2 million, or 1.79% of average loans, in the fourth quarter of 2009.

Nonperforming assets totaled $123.5 million at December 31, 2010, an increase of $8.2 million, or 7.14%, compared with September 30, 2010. Nonperforming assets at December 31, 2010 represented 1.78% of period-end loans plus other real estate compared with 1.70% at September 30, 2010 and 1.48% at December 31, 2009.

The allowance for noncovered loan losses totaled $114.7 million at December 31, 2010. At December 31, 2010, the allowance for noncovered loan losses was 1.65% of period-end loans compared with 1.72% at September 30, 2010 and 1.68% at December 31, 2009. 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 1.78% at December 31, 2010 compared with 1.84% at September 30, 2010 and 1.77% at December 31, 2009. The allowance for credit losses to nonperforming loans was 118.01% at December 31, 2010, compared with 118.49% at September 30, 2010 and 131.82% at December 31, 2009.

The Corporation’s total assets at December 31, 2010 were $14.1 billion, a decrease of $216.6 million, or 1.51%, compared with September 30, 2010 and an increase of $3.6 billion, or 34.13%, compared with December 31, 2009. The primary increase in total assets compared with December 31, 2009 is attributed to the three 2010 acquisitions that increased total loans, including a loss share receivable of $288.6 million, by $2.8 billion as of December 31, 2010.

Total deposits were $11.3 billion at December 31, 2010, a decrease of $3.4 million, or 0.03%, from September 30, 2010 and an increase of $3.8 billion, or 49.92%, from December 31, 2009. The increase in total deposits over December 31, 2009 was driven by the Corporation’s expansion strategy in Chicago. Core deposits totaled $8.5 billion at December 31, 2010, an increase of $407.3 million, or 5.05% from September 30, 2010 and an increase of $2.3 billion, or 37.61%, from December 31, 2009. Deposit retention rates for the three acquired Chicago institutions at December 31, 2010, are as follows: First Bank, 94.9%; George Washington, 96.8%; and Midwest, 91.1% (excluding brokered certificate of deposits, Certificate of Deposit Account Registry Services balances and internet certificate of deposits).

Shareholders’ equity was $1.51 billion at December 31, 2010, compared with $1.52 billion at September 30, 2010, and $1.07 billion at December 31, 2009. The Corporation maintained a strong capital position as tangible common equity to assets was 7.46% at December 31, 2010, compared with 7.41% at September 30, 2010 and 8.89% at December 31, 2009. The common cash dividend per share paid in the fourth quarter 2010 was $0.16.

Line of Business Results

The Corporation manages its operations through the following primary lines of business: Commercial, Retail, Wealth and Other. Note 15 (Segment Information) to the consolidated financial statements provides performance data for these lines of business.

31

AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)
Fully Tax-equivalent Interest Rates and Interest Differential

FIRSTMERIT CORPORATION AND SUBSIDIARIES

	Twelve months ended								Twelve months ended								Twelve months ended
	December 31, 2010								December 31, 2009								December 31, 2008
	Average					Average			Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	728,723								183,215								177,089
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)		2,554,538			87,019		3.41	%		2,222,771			97,871		4.40	%		1,985,026			94,260		4.75	%
Obligations of states and political subdivisions (tax exempt)		348,832			20,505		5.88	%		321,919			19,718		6.13	%		294,724			17,910		6.08	%
Other securities and federal funds sold		300,700			8,508		2.83	%		204,272			8,394		4.11	%		216,794			11,326		5.22	%
Total investment securities and federal funds sold		3,204,070			116,032		3.62	%		2,748,962			125,983		4.58	%		2,496,544			123,496		4.95	%
Loans held for sale		23,612			1,162		4.92	%		19,289			1,032		5.35	%		29,419			1,602		5.45	%
Noncovered loans, covered loans and loss share receivable		8,529,303			433,308		5.08	%		7,156,983			339,381		4.74	%		7,203,946			434,704		6.03	%
Total earning assets		11,756,985			550,502		4.68	%		9,925,234			466,396		4.70	%		9,729,909			559,802		5.75	%
Allowance for loan losses		(116,118	)							(108,017	)							(96,714	)
Other assets		1,153,192								793,918								739,158
Total assets	$	13,522,782								10,794,350								10,549,442
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand — non-interest bearing	$	2,550,849			—		—			1,910,171			—		—			1,530,021			—		—
Demand — interest bearing		794,497			751		0.09	%		656,367			600		0.09	%		687,160			2,514		0.37	%
Savings and money market accounts		4,303,815			31,912		0.74	%		2,886,842			23,472		0.81	%		2,398,778			29,839		1.24	%
Certificates and other time deposits		2,801,270			32,713		1.17	%		2,056,208			54,610		2.66	%		2,801,623			105,853		3.78	%
Total deposits		10,450,431			65,376		0.63	%		7,509,588			78,682		1.05	%		7,417,582			138,206		1.86	%
Securities sold under agreements to repurchase		907,015			4,477		0.49	%		1,013,167			4,764		0.47	%		1,343,441			31,857		2.37	%
Wholesale borrowings		510,799			13,998		2.74	%		952,979			27,317		2.87	%		663,109			27,574		4.16	%
Total interest bearing liabilities		9,317,396			83,851		0.90	%		7,565,563			110,763		1.46	%		7,894,111			197,637		2.50	%
Other liabilities		338,916								267,835								189,222
Shareholders’ equity		1,315,621								1,049,925								936,088
Total liabilities and shareholders’ equity	$	13,522,782								10,793,494								10,549,442
Net yield on earning assets	$	11,756,985			466,651		3.97	%		9,925,234			355,633		3.58	%		9,729,909			362,165		3.72	%
Interest rate spread							3.78	%							3.24	%							3.25	%

Note:  Interest income on tax-exempt securities and loans has been adjusted to a fully-taxable equivalent basis. Nonaccrual loans have been included in the average balances.

32

RESULTS OF OPERATIONS

Net Interest Income

Net interest income, the Corporation’s principal source of earnings, is the difference between interest income generated by earning assets (primarily loans and investment securities) and interest paid on interest-bearing funds (namely customer deposits and wholesale borrowings). Net interest income is affected by market interest rates on both earning assets and interest bearing liabilities, the level of earning assets being funded by interest bearing liabilities, noninterest-bearing liabilities, the mix of funding between interest bearing liabilities, noninterest-bearing liabilities and equity, and the growth in earning assets.

Net interest income for the year ended December 31, 2010 was $458.5 million compared to $348.8 million for year ended December 31, 2009 and $356.2 million for the year ended December 31, 2008. For the purpose of this remaining discussion, net interest income is presented on a FTE basis, to provide a comparison among all types of interest earning assets. That is, interest on tax-free securities and tax-exempt loans has been restated as if such interest were taxed at the statutory federal income tax rate of 35% adjusted for the non-deductible portion of interest expense incurred to acquire the tax-free assets. Net interest income presented on a FTE basis is a financial measure that is calculated and presented other than in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and is widely used by financial services organizations. Therefore, Management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons. The FTE adjustment for full year 2010 was $8.1 million compared with $6.9 million in 2009 and $6.0 million in 2008.

Net interest income presented on an FTE basis increased $111.1 million or 31.2% to $466.7 million in 2010 compared to $355.6 million in 2009 and $362.2 million in 2008.

The impact of changes in the volume of interest-earning assets and interest-bearing liabilities and interest rates on net interest income is illustrated in the following table.

CHANGES IN NET INTEREST INCOME- FULLY TAX-EQUIVALENT RATE/VOLUME ANALYSIS

	Years ended December 31,
	2010 and 2009									2009 and 2008
	Increase (Decrease) In Interest									Increase (Decrease) In Interest
	Income/Expense									Income/Expense
				Yield/									Yield/
	Volume			Rate			Total			Volume			Rate			Total
	( In thousands)
INTEREST INCOME
Investment securities and federal funds sold:
Taxable	$	16,856			(27,594	)		(10,738	)		10,292			(9,613	)		679
Tax-exempt		1,603			(816	)		787			1,665			143			1,808
Loans held for sale		218			(88	)		130			(542	)		(28	)		(570	)
Loans		68,458			25,469			93,927			(2,816	)		(92,507	)		(95,323	)
Total interest income		87,135			(3,029	)		84,106			8,599			(102,005	)		(93,406	)
INTEREST EXPENSE
Interest on deposits:
Demand-interest bearing		130			21			151			(108	)		(1,806	)		(1,914	)
Savings and money market accounts		10,661			(2,221	)		8,440			5,293			(11,660	)		(6,367	)
Certificates and other time deposits (“CDs”)		15,434			(37,331	)		(21,897	)		(24,211	)		(27,032	)		(51,243	)
Securities sold under agreements to repurchase		(516	)		229			(287	)		(6,358	)		(20,735	)		(27,093	)
Wholesale borrowings		(12,166	)		(1,153	)		(13,319	)		9,865			(10,122	)		(257	)
Total interest expense		13,543			(40,455	)		(26,912	)		(15,519	)		(71,355	)		(86,874	)
Net interest income	$	73,592			37,426			111,018			24,118			(30,650	)		(6,532	)

Note:  Rate/volume variances are allocated on the basis of absolute value of the change in each.

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The net interest margin is calculated by dividing net interest income FTE by average earning assets. As with net interest income, the net interest margin is affected by the level and mix of earning assets, the proportion of earning assets funded by non-interest bearing liabilities, and the interest rate spread. In addition, the net interest margin is impacted by changes in federal income tax rates and regulations as they affect the tax-equivalent adjustment.

	Year ended December 31,
	2010			2009			2008
	(Dollars in thousands)
Net interest income	$	458,519			348,764			356,189
Tax equivalent adjustment		8,132			6,869			5,976
Net interest income — FTE	$	466,651			355,633			362,165
Average earning assets	$	11,756,985			9,925,234			9,729,909
Net interest margin		3.97	%		3.58	%		3.72	%

The average yield on earning assets decreased slightly from 4.70% in 2009 to 4.68% in 2010 decreasing interest income by $3.0 million. Higher outstanding balances on total average earning assets in 2010 caused interest income to increase $87.1 million from year-ago levels. Average balances for investment securities were up from last year increasing interest income by $18.5 million, and lower rates earned on the securities decreased interest income by $28.4 million. Average loans outstanding, up from last year, increased 2010 interest income by $68.7 million and higher yields earned on the loans, increased 2010 loan interest income by $25.4 million. The average yield on earning assets decreased 105 basis points from 5.75% in 2008 to 4.70% in 2009 decreasing interest income by $102.0 million. Higher outstanding balances on total average earning assets in 2009 caused interest income to increase $8.6 million from 2008 levels. At December 31, 2009, average balances for investment securities were up from 2008 increasing interest income by $12.0 million, while lower rates earned on the securities also decreased interest income by $9.5 million. Average loans outstanding, down from 2008, decreased 2009 interest income by $3.4 million while lower yields earned on the loans also decreased 2009 loan interest $92.5 million.

The cost of funds for the year as a percentage of average earning assets decreased 40 basis points from 1.12% in 2009 to 0.71% in 2010. The cost of funds for the year as a percentage of average earning assets decreased 92 basis points from 2.03% in 2008 to 1.12% in 2009. The drop in interest rates was the primary factor in these decreases.

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Other Income

Excluding investment securities gains, other income totaled $211.7 million in 2010, an increase of $7.4 million or 3.62% from 2009 and an increase of $12.4 million or 6.22% from 2008. Other income as a percentage of net revenue (FTE net interest income plus other income, less gains from securities) was 31.21% compared to 36.49% in 2009. Explanations for the most significant changes in the components of other income are discussed immediately after the following table.

	Year ended December 31,
	2010		2009		2008
	(In thousands)
Trust department income	$	21,951		20,683		22,127
Service charges on deposits		65,900		63,366		62,862
Credit card fees		49,010		46,512		47,054
ATM and other service fees		11,259		11,110		10,894
Bank owned life insurance income		14,949		13,740		12,008
Investment services and life insurance		9,451		10,008		10,503
Investment securities gains, net		855		6,037		2,126
Loan sales and servicing income		19,440		12,954		6,940
Gain on Visa Inc.		—		—		13,666
Gain on George Washington acquisition		1,041		—		—
Gain on post medical retirement curtailment		—		9,543		—
Other operating income		18,700		16,348		13,256
	$	212,556		210,301		201,436

Trust department income increased by 6.13%, up $1.3 million in 2010 after an increase of 6.53%, or $1.4 million in 2009 over 2008. Service charges on deposits increased by $2.5 million or 4.00% in 2010, and were up slightly $0.5 million or 0.80% in 2009 versus 2008. The increase in service charges on deposits in 2010 is primarily due to the addition of deposit accounts in the Chicago, Illinois area. Credit card fees increased $2.5 million or 5.37% in 2010 due to an improving economy and increased card usage, and decreased $0.5 million or 1.15% in 2009 over 2008 due to decreased volumes during an uncertain economy. ATM and other service charge fees have increased $0.1 million or 1.34% in 2010 and increased $0.2 or 1.98% in 2009 over 2008 due to increased levels of volume. Bank owned life insurance income increased $1.2 million or 8.80% compared to 2009 and increased $1.7 million or 14.42% over 2008 due to proceeds received from death benefit. During 2010, net gains on investment securities sold was $0.9 million, as compared to $6.0 million in 2009 and $2.1 million in 2008. Loan sales and servicing income increased $6.5 million or 50.07% in 2010 after an increase of $6.0 million or 86.66% in 2009 over 2008. This increase was primarily due to mortgage volume increases due to refinancings and an improving housing market. A $1.0 million gain was recognized from the acquisition of George Washington in the first quarter 2010. During the first quarter of 2009, the Corporation recorded $9.5 million due to the curtailment of the postretirement medical plan for active employees. During the fourth quarter of 2008, the Corporation recorded a gain of $5.8 million from the sale of Class B Visa, Inc. stock; this followed a $7.9 million gain from the partial redemption of the shares in the first quarter of 2008.

Federal Income Taxes

Federal income tax expense totaled $37.1 million in 2010 compared to $25.6 million in 2009 and $48.9 million in 2008. The effective federal income tax rate for the year ended December 31, 2010 was 26.49%, compared to 23.79% and 29.04% for the year ended December 31, 2009 and 2008, respectively. Tax reserves have been specifically estimated for potential at-risk items. Further federal income tax information is contained in Note 11 (Income Taxes) to the consolidated financial statements.

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Other Expenses

Other expenses were $442.9 million in 2010 compared to $352.8 million in 2009 and $330.6 million in 2008, an increase of $90.1 million or 25.54% over 2009 and an increase of $22.2 million or 6.72% over 2008.

	Years ended December 31,
	2010		2009		2008
	(In thousands)
Salaries and wages	$	170,839	$	132,643	$	133,091
Pension and employee benefits		50,477		43,263		46,372
Net occupancy expense		32,665		24,099		24,649
Equipment expense		27,664		24,301		24,137
Taxes, other than federal income taxes		7,875		6,496		6,580
Stationery, supplies and postage		11,438		8,907		9,372
Bankcard, loan processing, and other costs		31,572		31,467		29,456
Advertising		9,581		7,003		9,494
Professional services		29,357		16,414		11,695
Telephone		5,540		4,060		3,947
Amortization of intangibles		2,914		347		573
Hedge termination		—		3,877		—
FDIC expense		17,790		16,510		1,265
Other operating expense		45,148		33,430		30,002
	$	442,860	$	352,817	$	330,633

Salaries and wages were $170.8 million in 2010, an increase of $38.2 million or 28.80% over 2009, as compared to a slight decrease in salaries and wages from 2008 to 2009 of $0.4 million or 0.34%. The increase in 2010 is due primarily to the addition of employees resulting from the 2010 acquisitions. Pension and employee benefit expenses were $50.5 million in 2010, an increase of $7.2 million or 16.67% from 2009, primarily due to an expanded employee base. Note 12 (Benefit Plans) to the consolidated financial statements more fully describes the changes in pension and postretirement medical expenses. Net occupancy expenses increased $8.6 million, or 35.5%, to $32.7 million in 2010 due to an increase in real estate taxes, building depreciation, and rent expense associated with properties acquired in the 2010 acquisitions. Professional services expenses increased $12.9 million or 78.85% in 2010 over 2009 primarily due to the 2010 acquisitions and due diligence activities. FDIC expense increased $1.3 million, or 7.7%, in 2010 over the prior year mainly due to an increased deposit base resulting from the 2010 acquisitions. The FDIC increased assessments during 2009 which resulted in additional FDIC insurance expense of $15.2 million over 2008.

Other expense increased $13.3 million, or 24.2%, in 2010 as a result of additional telephone, communication, and travel expenses of $7.4 million associated with the 2010 acquisitions, and an increase of $4.0 million in managed asset costs. Other expense in 2009 included $3.9 million related to the discontinuation of hedge accounting for a portfolio of interest rate swaps associated with fixed-rate commercial loans. In December 2009, the Corporation corrected an error in hedge accounting for a portfolio of interest rate swaps associated with fixed-rate commercial loans recorded in prior periods. The Corporation assessed the materiality of the error in accordance with Staff Accounting Bulletin (“SAB”) No. 108 and concluded the error was not material, either individually or in the aggregate, to the results of operations of any prior period or for the year ending December 31, 2009, to trends for those periods affected, or to a fair presentation of the Corporation’s financial statements for those periods. Accordingly, results for prior periods have not been restated. Instead, the Corporation increased other expenses and reduced the commercial loans balance by $3.9 million to correct this error in the fourth quarter of 2009. In addition, this portfolio of interest rate swaps was terminated in January 2010.

The efficiency ratio for 2010 was 64.85% compared to 62.95% in 2009 and 58.78% in 2008. The “lower is better” efficiency ratio indicates the percentage of operating costs that are used to generate each dollar of net revenue — that is during 2010, 64.85 cents were spent to generate each $1 of net revenue. Net revenue is defined as net interest income, on an FTE basis, plus other income less gains from the sales of securities.

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FINANCIAL CONDITION

Acquisitions

On February 19, 2010, FirstMerit Bank completed the acquisition of certain assets and the transfer of certain liabilities with respect to 24 branches of First Bank located in the Chicago, Illinois, area. FirstMerit Bank acquired assets with an acquisition date fair value of approximately $1.2 billion, including $275.6 million of loans, and $42.0 million of premises and equipment, and assumed $1.2 billion of deposits. The Bank received cash of $832.5 million to assume the net liabilities. FirstMerit Bank recorded a core deposit intangible asset of $3.2 million and goodwill of $48.3 million.

On February 19, 2010, FirstMerit Bank entered into a purchase and assumption agreement with loss share with the FDIC, as receiver of George Washington, to acquire deposits, loans, and certain other liabilities and certain assets in a whole-bank acquisition of George Washington. FirstMerit Bank acquired assets with a fair value of approximately $369.3 million, including $177.8 million of loans, $15.4 million of investment securities, $58.0 million of cash and due from banks, $11.5 million in other real estate owned, and $408.4 million in liabilities, including $400.7 million of deposits. FirstMerit Bank recorded a core deposit intangible asset of $1.0 million and received a cash payment from the FDIC of approximately $40.2 million. The loans and other real estate owned acquired are covered by loss share agreements between FirstMerit Bank and the FDIC which afford FirstMerit Bank significant protection against future losses. As part of the agreements, FirstMerit Bank has recorded a loss share receivable from the FDIC that represents the estimated fair value of the FDIC’s portion of the losses that are expected to be incurred and reimbursed to FirstMerit Bank. The loss share receivable associated with the acquired covered loans was $88.7 million as of the date acquisition and is classified as part of covered loans in the consolidated balance sheets. The loss share receivable associated with the acquired other real estate owned was $11.3 million as of the date acquisition and is classified as part of other real estate covered by FDIC loss share in the consolidated balance sheets. The transaction resulted in a gain on acquisition of $1.0 million, which is included in noninterest income in the consolidated statements of income and comprehensive income. On July 10, 2010, the Corporation successfully completed the operational and technical migration of George Washington.

On May 14, 2010, FirstMerit Bank entered into a purchase and assumption agreement with loss share with the FDIC, as receiver of Midwest, to acquire substantially all of the loans and certain other assets and assume substantially all of the deposits and certain liabilities in a whole-bank acquisition of Midwest. FirstMerit Bank acquired assets with a fair value of approximately $3.0 billion, including $1.8 billion of loans, $564.2 million of investment securities, $279.4 million of cash and due from banks, $26.2 million in other real estate owned, and $3.0 billion in liabilities, including $2.3 billion of deposits. FirstMerit Bank recorded a core deposit intangible asset of $7.4 million and has made a cash payment to the FDIC of approximately $227.5 million. The loans and other real estate owned acquired are covered by loss share agreements between FirstMerit Bank and the FDIC which afford FirstMerit Bank significant protection against future losses. As part of the agreements, FirstMerit Bank has recorded a loss share receivable from the FDIC that represents the estimated fair value of the FDIC’s portion of the losses that are expected to be incurred and reimbursed to FirstMerit Bank. The loss share receivable associated with the acquired covered loans was $236.8 million as of the date acquisition and is classified as part of covered loans in the consolidated balance sheets. The loss share receivable associated with the acquired other real estate owned was $2.2 million as of the date acquisition and is classified as part of other real estate covered by FDIC loss share in the consolidated balance sheets. The transaction resulted in goodwill of $272.5 million. On October 9, 2010, the Corporation successfully completed the operational and technical migration of Midwest.

The First Bank, George Washington and Midwest acquisitions were considered business combinations whereby all acquired assets and liabilities were recorded at their estimated fair values as of the date of acquisition and identifiable intangible assets were recorded at their estimated fair value. Estimated fair values are considered preliminary and are subject to change up to one year after the acquisition date. This allows for adjustments to the initial purchase entries if additional information relative to closing date fair values becomes available, and the Corporation continues to analyze its estimates of the fair values of the assets acquired and the liabilities assumed. Material adjustments to acquisition date estimated fair values are recorded in the period in which the acquisition occurred and, as a result, previously reported results are subject to change. Certain reclassifications of prior periods’ amounts may also be made to conform to the current period’s presentation and would have no effect on previously reported net income amounts.

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During the year ended December 31, 2010, additional information was obtained that resulted in changes to certain acquisition-data fair value estimates relating to both the George Washington and Midwest acquisitions. The purchase accounting adjustments for the George Washington acquisition resulted in the recognition of a bargain purchase gain of $1.0 million, $0.7 million net of tax, in the quarter ended March 31, 2010, which is reflected in the consolidated statements of income and comprehensive income. The purchase accounting adjustments reduced the bargain purchase gain originally reported by $4.0 million. The purchase accounting adjustments for the Midwest acquisition resulted in an increase of approximately $18.7 million to the goodwill recorded for the Midwest acquisition in the quarter ended June 30, 2010, which is reflected in the consolidated balance sheets. See Note 2 (Business Combinations) in the notes to consolidated financial statements for additional information related to the details of these transactions.

Investment Securities

At December 31, 2010, the securities portfolio totaled $3.2 billion compared to $2.7 billion at December 31, 2009. Available-for-sale securities were $3.0 billion at December 31, 2010 compared to $2.6 billion at December 31, 2009. Available-for-sale securities are held primarily for liquidity, interest rate risk management and long-term yield enhancement. Accordingly, the Corporation’s investment policy is to invest in securities with low credit risk, such as U.S. Treasury securities, U.S. Government agency obligations, state and political obligations and mortgage-backed securities (“MBSs”).

Held-to-maturity securities totaled $60.0 million at December 31, 2010 compared to $50.7 million at December 31, 2009 and consist principally of securities issued by state and political subdivisions.

Other investments totaled $160.8 million at December 31, 2010 compared to $128.9 million at December 31, 2009 and consisted primarily of include Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock. The increase of $31.9 million from December 31, 2009 was a result of the FHLB and FRB stock acquired in the George Washington and Midwest acquisitions.

Net unrealized gains were $53.4 million at December 31, 2010, compared to $55.1 million at December 31, 2009.

The Corporation conducts a regular assessment of its investment securities to determine whether any securities are other-than-temporarily impaired. Only the credit portion of other-than-temporary impairment (“OTTI”) is recognized in current earnings for those securities where there is no intent to sell or it is more likely than not the Corporation would not be required to sell the security prior to expected recovery. The remaining portion of OTTI is to be included in accumulated other comprehensive loss, net of income tax.

Gross unrealized losses of $21.3 million as of December 31, 2010, compared to $21.6 million at December 31, 2009 were concentrated within trust preferred securities held in the investment portfolio. The Corporation holds eight, single issuer, trust preferred securities. Such investments are less than 2% of the fair value of the entire investment portfolio. None of the bank issuers have deferred paying dividends on their issued trust preferred shares in which the Corporation is invested. The fair values of these investments have been impacted by market conditions which have caused risk premiums to increase resulting in the decline in the fair value of the Corporation’s trust preferred securities.

Further detail of the composition of the securities portfolio and discussion of the results of the most recent OTTI assessment are in Note 3 (Investment Securities) to the consolidated financial statements.

Loans

Loans acquired under loss share agreements with the FDIC (“Loss Share Agreements”) include the amounts of expected reimbursements from the FDIC under these agreements and are presented as “covered loans” below. Loans not subject to Loss Share Agreements are presented below as “noncovered loans”. Acquired loans are initially measured at fair value as of the acquisition date. Fair value measurements include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value; therefore, an allowance for loan losses is not recorded at the acquisition date. Total noncovered loans

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outstanding at year-end 2010 increased $278.6 million or 4.0% to $7.2 billion compared to $6.9 billion one year ago. This increase was driven primarily by higher commercial loans which increased 11.34% in 2010 due to the Corporation’s expansion into the Chicago, Illinois area resulting in $180.0 million of new commercial loan production. This growth was also attributable to increases in asset-based lending as well as new business within the capital markets and healthcare lines of business. While the Corporation is adding new commercial loans in both its core Ohio and newer Chicago, Illinois markets, low credit line utilization by existing customers is mitigating new loan production with respect to the overall portfolio balances.

Single-family mortgage loans are originated by Firstmerit Bank and then sold into the secondary mortgage market or held in portfolio. Low interest rates during 2010 resulted in an increase in mortgage loan originations and refinancings; however, due to the continuing downturn in the housing market there was an overall decrease of 12.86% in balances retained in portfolio.

Outstanding home equity loan balances decreased $3.7 million or 0.50% from 2009 and installment loans decreased $116.5 million or 8.17% reflecting the on-going economic downturn.

Credit card loans were down $4.0 million or 2.62% from 2009.

The following table breaks down outstanding loans by category. There is no predominant concentration of loans in any particular industry or group of industries.

	At December 31,
	2010		2009		2008		2007		2006
	(In thousands)
Commercial loans	$	4,527,497	$	4,066,522	$	4,352,730	$	3,906,448	$	3,694,121
Mortgage loans		403,843		463,416		547,125		577,219		608,008
Installment loans		1,308,860		1,425,373		1,574,587		1,598,832		1,619,747
Home equity loans		749,378		753,112		733,832		691,922		731,473
Credit card loans		149,506		153,525		149,745		153,732		147,553
Leases		63,004		61,541		67,594		73,733		77,971
Total noncovered loans		7,202,088		6,923,489		7,425,613		7,001,886		6,878,873
Less allowance for noncovered loan losses		114,690		115,092		103,757		94,205		91,342
Net noncovered loans		7,087,398		6,808,397		7,321,856		6,907,681		6,787,531
Covered loans		1,976,754		—		—		—		—
Less allowance for covered loan losses		13,733		—		—		—		—
Net covered loans		1,963,021		—		—		—		—
Net loans	$	9,050,419	$	6,808,397	$	7,321,856	$	6,907,681	$	6,787,531

The Corporation evaluates acquired loans for impairment in accordance with the provisions of ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). Acquired loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable all contractually required payments will not be collected. Expected cash flows at the purchase date in excess of the fair value of acquired impaired loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. The present value of any decreases in expected cash flows after the purchase date is recognized as a provision for loans losses net of any expected reimbursement under any Loss Share Agreements. Revolving loans, including lines of credit and credit cards loans, and leases are excluded from acquired impaired loan accounting.

A loss share receivable is recorded at the acquisition date which represents the estimated fair value of reimbursement the Corporation expects to receive under any Loss Share Agreements. The fair value measurement reflects counterparty credit risk and other uncertainties. The loss share receivable continues to be

39

measured on the same basis as the related indemnified loans. Deterioration in the credit quality of the loans (recorded as an adjustment to the allowance for covered loan losses) would immediately increase the basis of the loss share receivable, with the offset recorded through the consolidated statement of income and comprehensive income. Increases in the credit quality or cash flows of loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the basis of the loss share receivable, with such decrease being accreted into income over 1) the same period or 2) the life of the Loss Share Agreements, whichever is shorter. Loss assumptions used in the basis of the loss share receivable are consistent with the loss assumptions used to measure the related Covered Loans.

All loans acquired in the First Bank acquisition were performing as of the date of acquisition and, therefore, the difference between the fair value and the outstanding balance of these loans is being accreted to interest income over the remaining term of the loans.

The Bank acquired $177.8 million and $1.8 billion of loans in conjunction with the FDIC-assisted acquisitions of George Washington and Midwest, respectively. All loans acquired in the George Washington and Midwest acquisitions were acquired under Loss Share Agreements. The Corporation has elected to account for all loans acquired in the George Washington and Midwest acquisitions as impaired loans under ASC 310-30 (“Acquired Impaired Loans”) except for $162.6 million of acquired loans with revolving privileges, which are outside the scope of this guidance, and which are being accounted for in accordance with ASC 310 (“Acquired Non-Impaired Loans”). Interest income, through accretion of the difference between the carrying amount of the Acquired Impaired Loans and the expected cash flows, is recognized on all Acquired Impaired Loans. The difference between the fair value of the Acquired Non-Impaired Loans and their outstanding balances is being accreted to interest income over the remaining period the revolving lines are in effect.

The following table provides a maturity of both non-covered and covered loans, excluding the loss share receivable.

	At December 31, 2010
	Commercial		Mortgage		Installment		Home equity		Credit card
	loans		loans		loans		loans		loans		Leases
	(In thousands)
Due in one year or less	$	1,939,206	$	149,761	$	434,755	$	298,326	$	98,680	$	28,367
Due after one year but within five years		3,710,753		292,222		753,475		587,245		50,365		32,351
Due after five years		269,612		59,329		131,245		51,798		461		2,286
Total	$	5,919,571	$	501,312	$	1,319,475	$	937,369	$	149,506	$	63,004
Loans due after one year with interest at a predetermined fixed rate	$	2,242,288		206,501		882,870		199,439		12,769		34,637
Loans due after one year with interest at a floating rate		1,738,077		145,050		1,850		439,604		38,057		—
Total	$	3,980,365	$	351,551	$	884,720	$	639,043	$	50,826	$	34,637

Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

The Corporation maintains what Management believes is an adequate allowance for loan losses. The Corporation and FirstMerit Bank regularly analyze the adequacy of their allowance through ongoing review of trends in risk ratings, delinquencies, nonperforming assets, charge-offs, economic conditions, and changes in the composition of the loan portfolio. Notes 1 (Summary of Significant Accounting Policies) and 4 (Loans and

40

Allowance for Loan Losses) to the consolidated financial statements provide detailed information regarding the Corporation’s credit policies and practices.

The Corporation uses a vendor based loss migration model to forecast losses for commercial loans. The model creates loss estimates using twelve-month (monthly rolling) vintages and calculates cumulative three years loss rates within two different scenarios. One scenario uses five year historical performance data while the other one uses two year historical data. The calculated rate is the average cumulative expected loss of the two and five year data set. As a result, this approach lends more weight to the more recent performance.

Management also considers internal and external factors such as economic conditions, loan management practices, portfolio monitoring, and other risks, collectively known as qualitative factors or Q-factors, to estimate credit losses in the loan portfolio. Q-factors are used to reflect changes in the portfolio’s collectability characteristics not captured by historical loss data.

Acquired loans are recorded at acquisition date at their acquisition date fair values, and, therefore, are excluded from the calculation of loan loss reserves as of the acquisition date. To the extent there is a decrease in the present value of cash flows from Acquired Impaired Loans after the date of acquisition, the Corporation records an allowance for loan losses, net of expected reimbursement under any Loss Share Agreements. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets. During the year ended December 31, 2010, the Corporation increased its allowance for covered loan losses to $13.7 million to reserve for estimated additional losses on certain Acquired Impaired Loans. The increase in the allowance was recorded by a charge to the provision for covered loan losses of $27.2 million and an increase of $22.8 million in the loss share receivable for the portion of the losses recoverable under the Loss Share Agreements.

For acquired loans that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value. Subsequent to the purchase date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans, however, the Corporation records a provision for loan losses only when the required allowance, net of any expected reimbursement under any Loss Share Agreements, exceeds any remaining credit discounts. The Corporation did not recognize a provision for loan losses on any Acquired Non-Impaired Loans in the year ended December 31, 2010.

At December 31, 2010 the allowance for loan losses was $114.7 million or 1.65% of loans outstanding, compared to $115.1 million or 1.68% at year-end 2009. The allowance equaled 109.56% of nonperforming loans at year-end 2010 compared to 125.55% at year-end 2009. During 2008 additional reserves were established to address identified risks associated with the slowdown in the housing markets and the decline in residential and commercial real estate values. These reserves totaled $13.4 million at year-end 2010 and $19.1 million at year-end 2009. The increase in the additional allocation augmented the increase in the calculated loss migration analysis as the loans were downgraded during 2010. Nonperforming assets have increased by $22.5 million over 2009 primarily attributable to the declining economic conditions.

Net charge-offs were $84.2 million in 2010 compared to $87.1 million in 2009 and $49.1 million in 2008. As a percentage of average loans outstanding, net charge-offs and allowance for loans held for sale equaled 1.23% in 2010, 1.22% in 2009 and 0.68% in 2008. Losses are charged against the allowance for loan losses as soon as they are identified.

The allowance for unfunded lending commitments at December 31, 2010, 2009 and 2008 was $8.8 million, $5.8 million and $6.6 million, respectively. The allowance for credit losses, which includes both the allowance for loan losses and the reserve for unfunded lending commitments, amounted to $123.5 million at year-end 2010, $120.8 million at year-end 2009 and $110.3 million at year-end 2008.

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A five-year summary of activity follows:

	Years Ended December 31,
	2010			2009			2008			2007			2006
	(Dollars in thousands)
Allowance for noncovered loan losses at January 1,	$	115,092		$	103,757		$	94,205		$	91,342		$	90,661
Noncovered loans charged off:
Commercial		39,766			39,685			16,318			7,856			32,628
Mortgage		5,156			4,960			4,696			5,026			1,670
Installment		34,054			31,622			24,740			18,343			20,682
Home equity		7,912			7,200			4,153			4,151			3,847
Credit cards		13,577			13,558			9,821			8,497			8,294
Leases		896			97			26			41			3,607
Overdrafts		3,171			2,591			2,634			234			—
Total		104,532			99,713			62,388			44,148			70,728
Noncovered Recoveries:
Commercial		1,952			890			2,388			4,351			3,734
Mortgage		263			270			76			44			142
Installment		13,047			8,329			7,071			8,021			10,340
Home equity		1,599			494			851			1,265			1,293
Credit cards		2,199			1,710			1,831			1,842			2,123
Manufactured housing		156			171			247			323			451
Leases		267			57			104			286			303
Overdrafts		864			694			769			44			—
Total		20,347			12,615			13,337			16,176			18,386
Net charge-offs		84,185			87,098			49,051			27,972			52,342
Allowance related to loans held for sale/sold		—			—			—			—			(23,089	)
Provision for noncovered loan losses		83,783			98,433			58,603			30,835			76,112
Allowance for noncovered loan losses at December 31,	$	114,690		$	115,092		$	103,757		$	94,205		$	91,342
Average loans outstanding*	$	6,818,962		$	7,156,983		$	7,203,946		$	6,971,464		$	6,798,338
Ratio to average loans: *
Net charge-offs		1.23	%		1.22	%		0.68	%		0.40	%		0.77	%
Net charge-offs and allowance related to loans held for sale/sold		1.23	%		1.22	%		0.68	%		0.40	%		1.11	%
Provision for noncovered loan losses		1.23	%		1.38	%		0.81	%		0.44	%		1.12	%
Loans outstanding at end of year*	$	6,937,142		$	6,923,489		$	7,425,613		$	7,001,886		$	6,878,873
Allowance for noncovered loan losses: *
As a percent of loans outstanding at end of year		1.65	%		1.68	%		1.40	%		1.35	%		1.33	%
As a multiple of net charge-offs		1.36			1.32			2.12			3.37			1.75
As a multiple of net charge-offs and allowance related to loans sold		1.36			1.32			2.12			3.37			1.21

* Excludes acquired loans and loss share receivable.

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Asset Quality

Making a loan to earn an interest spread inherently includes taking the risk of not being repaid. Successful management of credit risk requires making good underwriting decisions, carefully administering the loan portfolio and diligently collecting delinquent accounts.

The Corporation’s Credit Policy Division manages credit risk by establishing common credit policies for its subsidiaries, participating in approval of their largest loans, conducting reviews of their loan portfolios, providing them with centralized consumer underwriting, collections and loan operations services, and overseeing their loan workouts. Notes 1 (Summary of Significant Accounting Policies) and 4 (Loans and Allowance for Loan Losses) to the consolidated financial statements, provide detailed information regarding the Corporation’s credit policies and practices.

The Corporation’s objective is to minimize losses from its commercial lending activities and to maintain consumer losses at acceptable levels that are stable and consistent with growth and profitability objectives.

Nonperforming Loans are defined as follows:

•  Nonaccrual loans on which interest is no longer accrued because its collection is doubtful.

•  Restructured loans on which, due to deterioration in the borrower’s financial condition, the original terms have been modified in favor of the borrower or either principal or interest has been forgiven.

Nonperforming Assets are defined as follows:

•  Nonaccrual loans on which interest is no longer accrued because its collection is doubtful.

•  Restructured loans on which, due to deterioration in the borrower’s financial condition, the original terms have been modified in favor of the borrower or either principal or interest has been forgiven.

•  Other real estate (ORE) acquired through foreclosure in satisfaction of a loan.

	Years Ended December 31,
	2010			2009			2008			2007			2006
	(Dollars in thousands)
Nonperforming loans:
Nonaccrual	$	104,687		$	91,672		$	52,202		$	31,433		$	54,362
ORE		18,815			9,329			5,324			5,829			9,815
Total nonperforming assets	$	123,502		$	101,001		$	57,526		$	37,262		$	64,177
Loans past due 90 days or more accruing interest	$	22,017		$	35,025		$	23,928		$	11,702		$	16,860
Total nonperforming assets as a percentage of total loans and ORE		1.78	%		1.48	%		0.77	%		0.53	%		0.93	%

During 2010 the economic conditions in our markets continued to be challenging. Total nonperforming assets increased $22.5 million from December 31, 2009 to $123.5 million as of December 31, 2010 as a result of as a result of foreclosed properties the previously secured loan balances. The increase in ORE assets reflected the overall duration of the economic slowdown. Foreclosed property from a single borrower accounted for $5.6 million of the year over year increase. Commercial nonperforming loans increased $15.8 million from 2009. Approximately 32.0% of commercial nonperforming loans are concentrated within the multifamily and housing construction real estate portfolios. Management expects nonperforming loans and ORE balances to remain elevated reflecting post economic stress, however, Management expects that inflows will slow over the course of 2011.

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Residential developers and homebuilders have been the most adversely affected, with the significant decrease of buyers resulting from a combination of the restriction of available credit and economic pressure impacting the consumer. Consumers continue to be under pressure due to high debt levels, limited refinance opportunities, increased cost of living and increasing unemployment.

In 2010 nonperforming assets, other real estate includes $0.8 million of vacant land no longer considered for branch expansion and in 2009 other real estate includes $1.0 million of vacant land no longer considered for branch expansion and executive relocation properties both of which are not related to loan portfolios.

During 2010 and 2009, total nonperforming loans earned $20.8 thousand and $51.8 thousand, respectively, in interest income. Had they been paid in accordance with the payment terms in force prior to being considered impaired, on nonaccrual status, or restructured, such loans would have earned $15.7 million and $5.5 million in interest income for the years ended December 31, 2010 and 2009, respectively.

In addition to nonperforming loans and loans 90 day past due and still accruing interest, Management identified potential problem commercial loans (classified as substandard and doubtful) totaling $243.6 million at year-end 2010 and $260.1 million at year-end 2009. These loans are closely monitored for any further deterioration in the borrowers’ financial condition and for the borrowers’ ability to comply with terms of the loans.

The following table is a nonaccrual commercial loan flow analysis:

	Quarter Ended
	December 31,			September 30,			June 30,			March 31,			December 31,
	2010			2010			2010			2010			2009
	(In thousands)
Nonaccrual commercial loans beginning of period	$	91,646		$	84,535		$	94,798		$	74,033		$	63,357
Credit Actions:
New		20,385			19,625			4,419			31,211			34,612
Loan and lease losses		(5,750	)		(6,381	)		(6,071	)		(5,367	)		(5,272	)
Charged down		(7,679	)		(4,139	)		(1,730	)		(3,567	)		(12,710	)
Return to accruing status		(1,829	)		(200	)		(1,575	)		(672	)		(478	)
Payments		(6,945	)		(1,795	)		(5,306	)		(840	)		(5,476	)
Sales		—			—			—			—			—
Nonaccrual commercial loans end of period	$	89,828		$	91,646		$	84,535		$	94,798		$	74,033

Excludes acquired loans

In certain circumstances, the Corporation may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or modification of the adjustable rate provisions of the loan that would otherwise not be considered. Concessionary modifications are classified as troubled debt restructurings (“TDRs”) unless the modification is short-term, or does not include any provision other than extension of maturity date. TDRs accrue interest if the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles.

Our TDR portfolio, excluding Covered Loans, is predominately composed of consumer installment loans, first and second lien residential mortgages and home equity lines of credit which total, in aggregate, $34.1 million or 71.0% of our total TDR portfolio as of December 31, 2010. We restructure residential mortgages in a variety of ways to help our clients remain in their homes and to mitigate the potential for additional losses. The primary restructuring methods being offered to our residential clients are reductions in interest rates and extensions in terms. Modifications of mortgages retained in portfolio are handled using proprietary modification guidelines, or the FDIC’s Modification Program for residential first mortgages covered by Loss Share Agreements. The Corporation participates in the

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U.S. Treasury’s Home Affordable Modification Program for originated mortgages sold to and serviced for Fannie Mae and Freddie Mac.

In addition, the Corporation has also modified certain loans according to provisions in Loss Share Agreements. Losses associated with modifications on these loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under the Loss Share Agreements.

Acquired loans restructured after acquisition are not considered TDRs for purposes of the Corporation’s accounting and disclosure if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools.

Deposits, Securities Sold Under Agreements to Repurchase and Wholesale Borrowings

Average deposits for 2010 totaled $10.5 billion compared to $7.5 billion in 2009. The increase in total deposits over prior year was driven by the Corporation’s expansion strategy in Chicago which resulted in the acquisition of $3.9 billion of deposits in the first half of 2010. The Corporation’s strategy has been to retain these acquired depository customers and move them from certificate of deposit accounts into core deposit products. Deposit retention rates for the three acquired Chicago institutions at December 31, 2010 are as follows: First Bank, 94.9%; George Washington, 96.8%; and Midwest 91.1% (excluding brokered certificate of deposits, certificate of deposit account registry services balances and internet certificate of deposits).

The following table provides additional information about the Corporation’s deposit products and their respective rates over the past three years.

	At December 31 ,
	2010					2009					2008
	Average		Average			Average		Average			Average		Average
	Balance		Rate			Balance		Rate			Balance		Rate
	(Dollars in thousands)
Demand deposits- noninterest-bearing	$	2,550,849		0	%	$	1,910,171		0	%	$	1,530,021		0	%
Demand deposits- interest-bearing		794,497		0.09	%		656,367		0.09	%		687,160		0.37	%
Savings and money market accounts		4,303,815		0.74	%		2,886,842		0.81	%		2,398,778		1.24	%
Certificates and other time deposits		2,801,270		1.17	%		2,056,208		2.66	%		2,801,623		3.78	%
Total customer deposits		10,450,431		0.63	%		7,509,588		1.05	%		7,417,582		1.86	%
Securities sold under agreements to repurchase		907,015		0.49	%		1,013,167		0.47	%		1,343,441		2.37	%
Wholesale borrowings		510,799		2.74	%		952,979		2.87	%		663,109		4.16	%
Total funds	$	11,868,245				$	9,475,734				$	9,424,132

Total average demand deposits comprised 32.01% of average deposits in 2010 compared to 34.18% in 2009 and 29.89% in 2008. Savings accounts, including money market products, made up 41.18% of average deposits in 2010 compared to 38.44% in 2009 and 32.34% in 2008. CDs made up 26.81% of average deposits in 2010, 27.38% in 2009 and 37.77% in 2008.

The average cost of deposits, securities sold under agreements to repurchase and wholesale borrowings was down 46 basis points compared to one year ago, or 0.90% in 2010 due to a drop in interest rates and the continued disruption in the capital markets.

The following table summarizes CDs in amounts of $100 thousand or more as of year-end 2010, by time remaining until maturity.

Time until maturity:	Amount
	(In thousands)
Under 3 months	$	287,369
3 to 6 months		137,084
6 to 12 months		300,139
Over 12 months		212,319
	$	936,911

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Capital Resources

The capital management objectives of the Corporation are to provide capital sufficient to cover the risks inherent in the Corporation’s businesses, to maintain excess capital to well-capitalized standards and to assure ready access to the capital markets.

Shareholder’s Equity

Shareholders’ equity was $1.5 billion at December 31, 2010, compared with $1.1 billion at December 31, 2009. As of December 31, 2010, the annual common share dividend was $0.64. The market price ranges of the Corporation’s common shares and dividends by quarter for each of the last two years is shown in Item 5, Market For Registrant’s Common Equity And Related Stockholder Matters And Issuer Purchases Of Equity Securities of this Report.

Capital Availability

On January 9, 2009, the Corporation completed the sale to the Treasury of $125.0 million of newly issued FirstMerit non-voting preferred shares as part of the TARP Capital Purchase Program. FirstMerit issued and sold to the Treasury for an aggregate purchase price of $125.0 million in cash (1) 125,000 shares of FirstMerit’s Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value and having a liquidation preference of $1,000 per share, and (2) a warrant to purchase 952,260 FirstMerit common shares, each without par value, at an exercise price of $19.69 per share.

On April 22, 2009, the Corporation repurchased all 125,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A for $126.2 million which included all accrued and unpaid dividends as well as the unamortized discount on the preferred stock.

On May 27, 2009, the Corporation completed the repurchase of the warrant held by the Treasury. The Corporation paid $5.0 million to the Treasury to repurchase the warrant.

The Corporation has Distribution Agency Agreements pursuant to which the Corporation, from time to time, may offer and sell common shares of the Corporation’s common stock. As of December 31, 2009, the Corporation had sold 4.3 million shares with an average value of $18.98 per share. The Corporation sold an additional 3.9 million shares with an average value of $20.91 per share during the year ended December 31, 2010.

During the quarter ended June 30, 2010, the Corporation closed and completed a sale of a total of 17,600,160 common shares, no par value, at $19.00 per share in a public underwritten offering. The net proceeds from the offering were approximately $320.1 million after deducting underwriting discounts, commissions and expenses of the offering.

Capital Adequacy

Capital adequacy is an important indicator of financial stability and performance. The Corporation maintained a strong capital position with tangible common equity to assets of 7.46% at December 31, 2010, compared with 8.89% at December 31, 2009.

Financial institutions are subject to a strict uniform system of capital-based regulations. Under this system, there are five different categories of capitalization, with “prompt corrective actions” and significant operational restrictions imposed on institutions that are capital deficient under the categories. The five categories are: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

To be considered well capitalized an institution must have a total risk-based capital ratio of at least 10%, a Tier 1 capital ratio of at least 6%, a leverage capital ratio of at least 5%, and must not be subject to any order or directive requiring the institution to improve its capital level. An adequately capitalized institution has a total risk-based capital ratio of at least 8%, a Tier I capital ratio of at least 4% and a leverage capital ratio of at least 4%. Institutions with lower capital levels are deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized, depending on their actual capital levels. The appropriate federal regulatory agency may also downgrade an institution to the next lower capital category upon a determination that the institution is in an unsafe or unsound practice. Institutions are required to monitor closely their capital levels and to notify their appropriate regulatory agency of any basis for a change in capital category.

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The George Washington and Midwest FDIC-assisted acquisitions resulted in the recognition of FDIC indemnification assets, which represents the fair value of estimated future payments by the FDIC to the Corporation for losses on covered assets. The FDIC indemnification asset, as well as covered assets, are risk-weighted at 20% for regulatory capital requirement purposes.

At year-end 2010 the Corporation, on a consolidated basis, as well as FirstMerit Bank, exceeded the minimum capital levels of the well capitalized category.

	At December 31,
	2010				2009				2008
	(Dollars in thousands)
Consolidated
Total equity	$	1,507,715	10.67	%	$	1,065,627	10.11	%	$	937,843	8.45	%
Common equity		1,507,715	10.67	%		1,065,627	10.11	%		937,843	8.45	%
Tangible common equity(a)		1,018,205	7.46	%		924,871	8.89	%		797,195	7.27	%
Tier 1 capital(b)		1,042,412	11.36	%		971,013	12.09	%		870,870	10.19	%
Total risk-based capital(c)		1,157,375	12.61	%		1,071,682	13.34	%		1,007,679	11.80	%
Leverage(d)		1,042,412	7.49	%		971,013	9.39	%		870,870	8.19	%

	At December 31,
	2010				2009				2008
Bank Only
Total equity	$	1,421,123	10.06	%	$	946,626	9.00	%	$	744,535	6.72	%
Common equity		1,421,123	10.06	%		946,626	9.00	%		744,535	6.72	%
Tangible common equity(a)		931,613	6.83	%		806,223	7.77	%		603,887	5.52	%
Tier 1 capital(b)		951,511	10.39	%		826,517	10.31	%		762,634	8.95	%
Total risk-based capital(c)		1,061,981	11.59	%		922,919	11.51	%		895,703	10.51	%
Leverage(d)		951,511	6.78	%		826,517	8.00	%		762,634	7.18	%

a)	Common equity less all intangibles; computed as a ratio to total assets less intangible assets.
b)	Shareholders’ equity less goodwill; computed as a ratio to risk-adjusted assets, as defined in the 1992 risk-based capital guidelines.
c)	Tier 1 capital plus qualifying loan loss allowance, computed as a ratio to risk adjusted assets as defined in the 1992 risk-based capital guidelines.
d)	Tier 1 capital computed as a ratio to the latest quarter’s average assets less goodwill.

RISK MANAGEMENT

Market Risk Management

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. When the value of an instrument is tied to such external factors, the holder faces “market risk.” The Corporation is primarily exposed to interest rate risk as a result of offering a wide array of financial products to its customers.

Interest rate risk management

Changes in market interest rates may result in changes in the fair market value of the Corporation’s financial instruments, cash flows, and net interest income. The Corporation seeks to achieve consistent growth in net interest income and capital while managing volatility arising from shifts in market interest rates. The Asset and Liability Committee (“ALCO”) oversees market risk management, establishing risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital. According to these policies, responsibility for measuring and the management of interest rate risk resides in the Corporate Treasury function.

Interest rate risk on the Corporation’s balance sheets consists of reprice, option, and basis risks. Reprice risk results from differences in the maturity, or repricing, of asset and liability portfolios. Option risk arises from “embedded options” present in the investment portfolio and in many financial instruments such as loan prepayment options, deposit early withdrawal options, and interest rate options. These options allow customers opportunities to benefit when market interest rates change, which typically results in higher costs or lower revenue for the Corporation.

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Basis risk refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in a narrowing of profit spread on an earning asset or liability. Basis risk is also present in administered rate liabilities, such as interest-bearing checking accounts, savings accounts and money market accounts where historical pricing relationships to market rates may change due to the level or directional change in market interest rates.

The interest rate risk position is measured and monitored using risk management tools, including earnings simulation modeling and economic value of equity sensitivity analysis, which capture both near-term and long-term interest rate risk exposures. Combining the results from these separate risk measurement processes allows a reasonably comprehensive view of short-term and long-term interest rate risk in the Corporation.

Net interest income simulation analysis.  Earnings simulation involves forecasting net interest earnings under a variety of scenarios including changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates. The sensitivity of net interest income to changes in interest rates is measured using numerous interest rate scenarios including shocks, gradual ramps, curve flattening, curve steepening as well as forecasts of likely interest rates scenarios.

Presented below is the Corporation’s interest rate risk profile as of December 31, 2010 and 2009:

	Immediate Change in Rates and Resulting Percentage
	Increase/(Decrease) in Net Interest Income:
	− 100 basis		+ 100 basis			+ 200 basis			+ 300 basis
	points		points			points			points
December 31, 2010		*		2.79	%		5.44	%		7.36	%
December 31, 2009		*		1.07	%		1.56	%		1.64	%

* Modeling for the decrease in 100 basis points scenario has been suspended due to the current rate environment.

Modeling the sensitivity of net interest earnings to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. To the extent that actual performance is different than what was assumed, actual net interest earnings sensitivity may be different than projected. The assumptions used in the models are Management’s best estimate based on studies conducted by the ALCO department. The ALCO department uses a data-warehouse to study interest rate risk at a transactional level and uses various ad-hoc reports to refine assumptions continuously. Assumptions and methodologies regarding administered rate liabilities (e.g., savings, money market and interest-bearing checking accounts), balance trends, and repricing relationships reflect management’s best estimate of expected behavior and these assumptions are reviewed regularly.

Economic value of equity modeling.  The Corporation also has longer-term interest rate risk exposure, which may not be appropriately measured by earnings sensitivity analysis. ALCO uses economic value of equity (“EVE”) sensitivity analysis to study the impact of long-term cash flows on earnings and capital. EVE involves discounting present values of all cash flows of on balance sheet and off balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents the Corporation’s economic value of equity. The analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base-case measurement and its sensitivity to shifts in the yield curve allow management to measure longer-term repricing and option risk in the balance sheet.

Presented below is the Corporation’s EVE profile as of December 31, 2010 and 2009:

	Immediate Change in Rates and Resulting Percentage
	Increase/(Decrease) in EVE:
	− 100 basis		+ 100 basis			+ 200 basis			+ 300 basis
	points		points			points			points
December 31, 2010		*		4.40	%		5.93	%		7.11	%
December 31, 2009		*		3.00	%		2.80	%		3.22	%

* Modeling for the decrease in 100 basis points scenario has been suspended due to the current rate environment.

Management reviews and takes appropriate action if this analysis indicates that the Corporation’s EVE will change by more than 5% in response to an immediate 100 basis point increase in interest rates or EVE will change by

48

more than 15% in response to an immediate 200 basis point increase or decrease in interest rates. The Corporation is operating within these guidelines.

Interest rate sensitivity analysis.  The Corporation analyzes the historical sensitivity of its interest bearing transaction accounts to determine the portion that it classifies as interest rate sensitive versus the portion classified over one year. The following analysis divides interest bearing assets and liabilities into maturity categories and measures the “GAP” between maturing assets and liabilities in each category. The analysis shows that assets maturing within one year exceed liabilities maturing within the same period by $3.8 billion. Focusing on estimated repricing activity within one year, the Corporation was in an asset sensitive position at December 31, 2010 as illustrated in the following table.

	1- 30		31-60			61-90			91-180		181-365		Over 1
	Days		Days			Days			Days		Days		Year			Total
	(In thousands)
Interest Earning Assets:
Loans and leases	$	4,983,861	$	144,883		$	145,959		$	420,509	$	639,634	$	2,885,335		$	9,220,181
Investment securities and federal funds sold		208,291		84,275			267,909			266,963		459,630		1,920,685			3,207,753
Total Interest Earning Assets		5,192,152		229,158			413,868			687,472		1,099,264		4,806,020			12,427,934
Interest Bearing Liabilities:
Demand — interest bearing		54,031		50,252			161,100			—		—		603,021			868,404
Savings and money market accounts		197,031		199,267			339,377			2,997		—		4,073,112			4,811,784
Certificate and other time deposits		320,183		231,735			189,571			401,133		903,504		751,141			2,797,267
Securities sold under agreements to repurchase		702,585		50,000			—			—		—		25,000			777,585
Wholesale borrowings		38		70			—			114		—		325,784			326,006
Total Interest Bearing Liabilities		1,273,868		531,324			690,048			404,244		903,504		5,778,058			9,581,046
Total GAP	$	3,918,284	$	(302,166	)	$	(276,180	)	$	283,228	$	195,760	$	(972,038	)	$	2,846,888
Cumulative GAP	$	3,918,284	$	3,616,118		$	3,339,938		$	3,623,166	$	3,818,926	$	2,846,888

Management of interest rate exposure.  Management uses the results of its various simulation analyses to formulate strategies to achieve desired risk profile within the parameters of the Corporation’s capital and liquidity guidelines. Specifically, Management actively manages interest rate risk positions by using derivatives predominately in the form of interest rate swaps, which modify the interest rate characteristics of certain assets and liabilities. For more information about how the Corporation uses interest rate swaps to manage its balance sheet, see Note 1 (Summary of Significant Accounting Policies) and Note 17 (Derivatives and Hedging Activities) to the consolidated financial statements.

Liquidity Risk Management

Liquidity risk is the possibility of the Corporation being unable to meet current and future financial obligations as they come due at a reasonable cost. Liquidity is managed to ensure stable, reliable and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. The Corporation considers core earnings, strong capital ratios and credit quality essential for maintaining high credit ratings, which allow the Corporation cost-effective access to market-based liquidity. The Corporation relies on a large, stable core deposit base and a diversified base of wholesale funding sources to manage liquidity risk.

The Treasury Group is responsible for identifying, measuring and monitoring the Corporation’s liquidity profile. The position is evaluated daily, weekly and monthly by analyzing the composition of all funding sources, reviewing projected liquidity commitments by future months and identifying sources and uses of funds. Liquidity measures are reported monthly to ALCO and the Board of Directors in accordance with policies approved by the Board of Directors. The Treasury Group also prepares a contingency funding plan that assesses liquidity needs that may arise from certain stress events. Furthermore, the company utilizes a cash flow measurement approach to liquidity management and models the demand and supply for funds under multiple (stress) scenarios. The net result is then compared with the contingent sources for funds, which can also be altered via the model, to ensure sufficient funds are available. The

49

overall management of the Corporation’s liquidity position is then integrated into retail deposit pricing policies to ensure a stable core deposit base.

The Corporation’s primary source of liquidity is its core deposit base, raised through its retail branch system. Core deposits comprised approximately 75.2% of total deposits at December 31, 2010. The Corporation also has available unused wholesale sources of liquidity, including advances from the FHLB of Cincinnati, issuance through dealers in the capital markets and access to certificates of deposit issued through brokers. Liquidity is further provided by unencumbered, or unpledged, investment securities that totaled $1.0 billion at December 31, 2010.

The Corporation’s liquidity could be adversely affected by both direct and indirect circumstances. An example of a direct event would be a downgrade in the Corporation’s public credit rating by a rating agency due to factors such as deterioration in asset quality, a large charge to earnings, a decline in profitability or other financial measures, or a significant merger or acquisition. Examples of indirect events unrelated to the Corporation that could have an effect on its access to liquidity would be terrorism or war, natural disasters, political events, or the default or bankruptcy of a major corporation, mutual fund or hedge fund. Similarly, market speculation or rumors about the Corporation or the banking industry in general may adversely affect the cost and availability of normal funding sources.

The Corporation’s liquidity contingency plan outlines the process for addressing a liquidity crisis. The plan provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and responsibilities for effectively managing liquidity through a problem period.

Parent Company Liquidity — The Corporation manages its liquidity principally through dividends from FirstMerit Bank. The Corporation has sufficient liquidity to service its debt; support customary corporate operations and activities (including acquisitions) at a reasonable cost, in a timely manner and without adverse consequences; as well as pay dividends to shareholders.

During the year ended December 31, 2010, FirstMerit Bank paid $20.0 million in dividends to FirstMerit. As of December 31, 2010, FirstMerit Bank had an additional $158.6 million available to pay dividends without regulatory approval.

Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to applicable limitations under federal and Ohio law, and will be dependent upon our results of operations, financial condition, contractual restrictions and other factors deemed relevant by our Board of Directors. Additional information regarding dividend restrictions is included in the section captioned “Regulation and Supervision — Dividends and Transactions with Affiliates” in Item 1. Business.

Recent Market and Regulatory Developments.  In response to the national and international economic recession, and in efforts to stabilize and strengthen the financial markets and banking industries, the United States Congress and governmental agencies have taken a number of significant actions over the past several years, including the passage of legislation and implementation of a number of programs. The most recent of these actions was the passage into law, on July 21, 2010, of the Dodd-Frank Act. The Dodd-Frank Act is the most comprehensive change to banking laws and the financial regulatory environment since the Great Depression of the 1930s. The Dodd-Frank Act affects almost every aspect of the nation’s financial services industry and mandates change in several key areas, including regulation and compliance (both with respect to financial institutions and systematically important nonbank financial companies), securities regulation, executive compensation, regulation of derivatives, corporate governance, and consumer protection.

In this respect, it is noteworthy that preemptive rights heretofore granted to national banking associations by the OCC under the National Bank Act will be diminished with respect to consumer financial laws and regulations. Thus, Congress has authorized states to enact their own substantive protections and to allow state attorneys general to initiate civil actions to enforce federal consumer protections. In this respect, the Corporation will be subject to regulation by the new Consumer Financial Protection Bureau under the Board of Governors of the Federal Reserve System. The Bureau will consolidate enforcement currently undertaken by myriad financial regulatory agencies, and will have substantial power to define the rights of consumers and responsibilities of providers, including the Corporation.

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In addition, among many other legislative changes that the Corporation will assess, the Corporation will (1) experience a new assessment model from the FDIC based on assets, not deposits, (2) be subject to enhanced executive compensation and corporate governance requirements, and (3) be able, for the first time to offer interest on business transaction and other accounts.

The extent to which the Dodd-Frank Act and initiatives thereunder will succeed in addressing the credit markets or otherwise result in an improvement in the national economy is not yet known. In addition, because most aspects of this legislation will be subject to intensive agency rulemaking and subsequent public comment prior to implementation over the next six to 18 months, it is difficult to predict at this time the ultimate effect of the Dodd-Frank Act on the Corporation. It is likely, however, that the Corporation’s expenses will increase as a result of the new compliance requirements.

Various legislation affecting financial institutions and the financial industry will likely continue to be introduced in Congress, and such legislation may further change banking statutes and the operating environment of the Corporation and its subsidiaries in substantial and unpredictable ways, and could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance depending on whether any of this potential legislation will be enacted, and if enacted, the effect that it or any implementing regulations, would have n the financial condition or results of operations of the Corporation or any of its subsidiaries. With the enactment of the Dodd-Frank Act, ARRA and EESA, the nature and extent of future legislative and regulatory changes affecting financial institutions remain very unpredictable at this time.

To the extent that the previous information describes statutory and regulatory provisions applicable to the Corporation or its subsidiaries, it is qualified in its entirety by reference to the full text of those provisions or agreement. Also, such statutes, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies and are subject to change at any time, particularly in the current economic and regulatory environment. Any such change in statutes, regulations or regulatory policies applicable to the Corporation could have a material effect on the business of the Corporation. For additional information on regulatory developments, refer to Item 1. Business, Regulation and Supervision.

Contractual Obligations, Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

Contractual Obligations

The Corporation has various contractual obligations which are recorded as liabilities in its consolidated financial statements. The following table summarizes the Corporation’s significant obligations at December 31, 2010 and the future periods in which such obligations are expected to be settled in cash. Additional details regarding these obligations are provided in the footnotes to the consolidated financial statements, as referenced in the table:

			Payments Due in
	Financial
	Statement
	Note				One Year		One to		Three to		Over Five
	Reference		Total		or Less		Three Years		Five Years		Years
	(In thousands)
Deposits without a stated maturity(a)			$	8,470,738		8,470,738		—		—		—
Consumer and brokered certificates of deposits(a)				2,797,268		2,032,720		680,878		59,621		24,049
Federal funds purchased and security repurchase agreements		10		777,585		702,585		50,000		25,000		—
Long-term debt		10		326,007		120,053		51,602		117,466		36,886
Operating leases(b)		18		38,567		7,330		12,048		8,419		10,770
Capital lease obligations(c)		18		—		—		—		—		—
Purchase obligations(c)		18		—		—		—		—		—
Reserves for uncertain tax positions(d)		11		1,780		1,780		—		—		—
Total			$	12,411,945		11,335,206		794,528		210,506		71,705

(a)	Excludes interest.
(b)	The Corporation’s operating lease obligations represent commitments under noncancelable operating leases on branch facilities.
(c)	There were no material purchase or capital lease obligations outstanding at December 31, 2010.
(d)	Gross unrecognized income tax benefits, see Footnote 11 for further discussion.

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Commitments and Off-Balance Sheet Arrangements

The following table details the amounts and expected maturities of significant commitments and off-balance sheet arrangements as of December 31, 2010. Additionally details of these commitments are provided in the footnotes to the consolidated financial statements, as referenced in the following table:

			Payments Due in
	Financial
	Statement
	Note				One Year		One to		Three to		Over Five
	Reference		Total		or Less		Three Years		Five Years		Years
	(In thousands)
Commitments to extend credit(e)		18	$	3,563,050		1,661,385		868,926		662,358		370,381
Standby letters of credit		18		143,247		88,436		48,605		6,181		25
Loans sold with recourse		18		60,418		—		13		952		59,453
Postretirement benefits(f)		12		14,049		2,114		3,869		3,243		4,823
Total			$	3,780,763		1,751,935		921,412		672,734		434,682

(e)	Commitments to extend credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.
(f)	The postretirement benefit payments represent actuarially determined future benefits to eligible plan participants. Accounting standards require that the liability be recorded at net present value while the future payments contained in this table have not been discounted.

Critical Accounting Policies

The Corporation’s consolidated financial statements are prepared in conformity with U.S. GAAP and follow general practices within the financial services industry in which it operates. All accounting policies are important, and all policies described in Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements provide a greater understanding of how the Corporation’s financial performance is recorded and reported.

Some accounting policies are more likely than others to have a significant effect on the Corporation’s financial results and to expose those results to potentially greater volatility. The policies require Management to exercise judgment and make certain assumptions and estimates that affect amounts reported in the financial statements. These assumptions and estimates are based on information available as of the date of the financial statements.

Management relies heavily on the use of judgment, assumptions and estimates to make a number of core decisions, including accounting for the allowance for loan losses, income taxes, derivative instruments and hedging activities, and assets and liabilities that involve valuation methodologies. A brief discussion of each of these areas follows.

Acquired Loans.  Loans acquired are initially recorded at their acquisition date fair values. The carryover of an allowance for loan losses is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, interest rate risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Acquired loans are evaluated for impairment and are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected. In the assessment of credit quality, numerous assumptions, interpretations and judgments must be made, based on internal and third-party credit quality information and ultimately the determination as to the probability that all contractual cash flows will not be able to be collected. This is a point in time assessment and inherently subjective due to the nature of the available information and judgment involved.

Expected cash flows at the purchase date in excess of the fair value of acquired impaired loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. The present value of any decreases in expected cash flows after the purchase date is recognized as a provision for loans losses net of expected reimbursement under any Loss Share Agreements. Revolving

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loans, including lines of credit and credit cards loans, and leases are excluded from acquired impaired loan accounting.

For acquired loans that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value. Subsequent to the purchase date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans, however, the Corporation records a provision for loan losses only when the required allowance, net of expected reimbursement under any Loss Share Agreements exceeds any remaining credit discounts.

A loss share receivable is recorded at the acquisition date which represents the estimated fair value of reimbursement the Corporation expects to receive from the FDIC for incurred losses on certain Covered Loans. The fair value measurement reflects counterparty credit risk and other uncertainties. The loss share receivable continues to be measured on the same basis as the related indemnified loans. Deterioration in the credit quality of the loans (recorded as an adjustment to the allowance for covered loan losses) would immediately increase the basis of the loss share receivable, with the offset recorded through the consolidated statement of income and comprehensive income. Increases in the credit quality or cash flows of loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the basis of the loss share receivable, with such decrease being accreted into income over 1) the same period or 2) the life of the loss share agreements, whichever is shorter. Loss assumptions used in the basis of the loss share receivable are consistent with the loss assumptions used to measure the related Covered Loans.

Due to the accounting requirements of acquired loans, certain trends and credit statistics may be impacted if such loans are included. The Corporation believes that excluding the acquired loans from the presentation of such statistics is more meaningful and representative of its ongoing operations and credit quality.

Allowance for Loan Losses.  As explained in Note 1 (Summary of Significant Accounting Policies) and Note 4 (Loans and Allowance for Loan Losses) to the consolidated financial statements, the allowance for loan losses represents Management’s estimate of probable credit losses inherent in the loan portfolio. Management estimates credit losses based on individual loans determined to be impaired and on all other loans grouped based on similar risk characteristics. This estimate is based on the current economy’s impact on the timing and expected amounts of future cash flows on impaired loans as well as historical loss experience associated with homogeneous pools of loans. Management also considers internal and external factors such as economic conditions, loan management practices, portfolio monitoring, and other risks, collectively known as qualitative factors or Q-factors, to estimate credit losses in the loan portfolio.

Management’s estimate of the allowance for the commercial portfolio could be affected by risk rating upgrades or downgrades as a result of fluctuations in the general economy, developments within a particular industry, or changes in an individual credit due to factors particular to that credit such as competition, management or business performance. A reasonably possible scenario would be an estimated 10% migration of lower risk-related pass credits to criticized status which could increase the inherent losses by $31.7 million.

For the consumer portfolio, where individual products are reviewed on a group basis or in loan pools, losses can be affected by such things as collateral value, loss severity, the economy, and other uncontrollable factors. The consumer portfolio is largely comprised of loans that are secured by primary residences and home equity lines and loans. A 10 basis point increase in the estimated loss rates on the residential mortgage and home equity line and loan portfolios would increase the inherent losses by $1.1 million. The remaining consumer portfolio inherent loss analysis includes reasonably possible scenarios with estimated loss rates increasing by 25 basis points, which would change the related inherent losses by $3.6 million.

Additionally the estimate of the allowance for loan losses for the entire portfolio may change due to modifications in the mix and level of loan balances outstanding and general economic conditions as evidenced by changes in interest rates, unemployment rates, bankruptcy filings, used car prices and real estate values. While no one factor is dominant, each has the ability to result in actual loan losses which differ from originally estimated amounts.

The information presented above demonstrates the sensitivity of the allowance to key assumptions. This sensitivity analysis does not reflect an expected outcome.

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Income Taxes.  Management evaluates and assesses the relative risks and appropriate tax treatment of transactions after considering statutes, regulations, judicial precedent and other information and maintains tax accruals consistent with its evaluation of these relative risks. Changes to the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations being conducted by taxing authorities and changes to statutory, judicial and regulatory guidance that impact the relative risks of tax positions. These changes, when they occur, can affect deferred taxes and accrued taxes as well as the current period’s income tax expense and can be material to the Corporation’s operating results for any particular reporting period.

Note 11 (Income Taxes) to the consolidated financial statements provides an analysis of the Corporation’s income taxes.

Derivative instruments and hedging activities.  In various aspects of its business, the Corporation uses derivative financial instruments to modify exposures to changes in interest rates and market prices for other financial instruments. Derivative instruments are required to be carried at fair value on the balance sheet with changes in the fair value recorded directly in earnings. To qualify for and maintain hedge accounting, the Corporation must meet formal documentation and effectiveness evaluation requirements both at the hedge’s inception and on an ongoing basis. The application of the hedge accounting policy requires strict adherence to documentation and effectiveness testing requirements, judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings, and measurement of changes in the fair value of hedged items. If in the future derivative financial instruments used by the Corporation no longer qualify for hedge accounting, the impact on the consolidated results of operations and reported earnings could be significant. When hedge accounting is discontinued, the Corporation would continue to carry the derivative on the balance sheet at its fair value; however, for a cash flow derivative, changes in its fair value would be recorded in earnings instead of through other comprehensive income, and for a fair value derivative, the changes in fair value of the hedged asset or liability would no longer be recorded through earnings. See also Note 1 (Summary of Significant Accounting Policies) and Note 17 (Derivative and Hedging Activities) to the consolidated financial statements.

Valuation Measurements.  Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable active markets for the items being valued. Investment securities, residential mortgage loans held for sale and derivatives are carried at fair value, which requires key judgments affecting how fair value for such assets and liabilities is determined. In addition, the outcomes of valuations have a direct bearing on the carrying amounts of goodwill, mortgage servicing rights, and pension and other postretirement benefit obligations. To determine the values of these assets and liabilities, as well as the extent to which related assets may be impaired, Management makes assumptions and estimates related to discount rates, asset returns, prepayment rates and other factors. The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect the Corporation’s results of operations.

Fair Value Measurement

The Corporation uses fair value measurements to record certain assets and liabilities at fair value and determine fair value disclosures. Additional information regarding fair value measurement is included in Note 16 (Fair Value Measurement) to the consolidated financial statements.

Goodwill

Goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired. The Corporation is required to evaluate goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Corporation has elected to test for goodwill impairment as of November 30th of each year. The valuation and testing methodologies used in the Corporation’s analysis of goodwill impairment are summarized in Note 1 (Summary of Significant Accounting Policies) under the heading “Goodwill and Intangible Assets” to the consolidated financial statements. The first step in testing for goodwill impairment is to determine the fair value of each reporting unit. The Corporation’s reporting units for purposes of this testing are its major lines of business, Commercial, Retail and Wealth. Fair values of reporting units are estimated using a discounted cash flow analysis derived from internal earnings forecasts. The primary assumptions Management uses include earnings forecasts for five years, terminal

54

values based on future growth rates, and discount rates that reflect the range of the Corporation’s market capitalization and a control premium. Management believes that the estimates and assumptions used in the goodwill impairment analysis for its reporting units are reasonable; however, if actual results and market conditions differ from the assumptions or estimates used, the fair value of each reporting unit could change in the future. The second step of impairment testing is necessary only if the carrying amount of either reporting unit exceeds its fair value, suggesting goodwill impairment. In such a case, the Corporation would estimate a hypothetical purchase price for the reporting unit (representing the unit’s fair value) and then compare that hypothetical purchase price with the fair value of the unit’s net assets (excluding goodwill). Any excess of the estimated purchase price over the fair value of the reporting unit’s net assets represents the implied fair value of goodwill. An impairment loss would be recognized as a charge to earnings if the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of goodwill. Based on the Corporation’s analysis performed in the fourth quarter, the fair value of each reporting unit exceeded its carrying amount.

Mortgage Servicing Rights

When the Corporation sells mortgage loans in the secondary market, it may retain the right to service the loans sold in exchange for a servicing fee that is collected over the life of the loan as the payments are received from the borrower. Such amounts are initially capitalized as mortgage servicing rights on the consolidated balance sheets at current fair value. Mortgage servicing rights are remeasured at each subsequent reporting date using the amortization method. Under the amortization method, mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing income. Amortization is recorded in loan sales and servicing income. At each reporting period, mortgage servicing rights are assessed for impairment based on fair value of those rights.

The fair value of mortgage servicing rights typically rises as market interest rates increase and declines as market interest rates decrease; however, the extent to which this occurs depends in part on (1) the magnitude of changes in market interest rates, and (2) the differential between the then current market interest rates for mortgage loans and the mortgage interest rates included in the mortgage-servicing portfolio. Since sales of mortgage servicing rights tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of mortgage servicing rights. As such, like other participants in the mortgage banking business, the Corporation determines the fair value by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates, and other assumptions. The Corporation utilizes a third party vendor to perform the modeling to estimate the fair value of its mortgage servicing rights. The Corporation reviews the estimated fair values and assumptions used by the third party in the model on a quarterly basis. The Corporation also compares the estimates of fair value and assumptions to recent market activity and against its own experience.

Additional information pertaining to the accounting for mortgage servicing rights is included in Note 6 (Mortgage Servicing Rights and Mortgage Servicing Activity) to the consolidated financial statements.

Pension and Other Postretirement Benefits

The Corporation sponsors several qualified and nonqualified pension and other postretirement benefit plans for certain of its employees. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plans. Key factors include assumptions about the expected rates of return on plan assets, discount rates, and health care cost trend rates, as determined by the Corporation, within certain guidelines. The Corporation considers market conditions, including changes in investment returns and interest rates, in making these assumptions.

The Corporation’s pension administrative committee (“Committee”) has developed a “Statement of Investment Policies and Objectives” (“Statement”) to assist FirstMerit and the investment managers of the pension plan in effectively supervising and managing the assets of the pension plan. The investment philosophy contained in the Statement sets the investment time horizon as long term and the risk tolerance level as slightly above average while requiring diversification among several asset classes and securities. Without sacrificing returns, or increasing risk, the Statement recommends a limited number of investment manager relationships and permits both separate accounts and commingled investments vehicles. Based on the demographics, actuarial/funding situation, business and financial

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characteristics and risk preference, the Statement defines that the pension fund as a total return investor return and accordingly current income is not a key goal of the plan.

The pension asset allocation policy has set guidelines based on the plan’s objectives, characteristics of the pension liabilities, industry practices, the current market environment, and practical investment issues. The Committee has decided to investment in traditional (i.e., publicly traded securities) and not alternative asset classes (e.g., private equity, hedge funds, real estate, etc.) at this time.

Assumed discount rates reflect the time value of money as of the measurement date in determining the present value of future cash outflows for pension and postretirement benefit payments. The objective of setting a discount rate is to establish an obligation for postretirement benefits equivalent to an amount that, if invested in high-quality fixed income securities, would provide the necessary future cash flows to pay the pension and postretirement benefits when due. Assumed discount rates are reevaluated at each measurement date. If the general level of interest rates rises or declines, the assumed discount rates will change in a similar manner.

The method used to estimate the discount rate can be changed if facts and circumstances indicate that a different method would result in a better estimate of the discount rate. As of December 31, 2010 cash flows specific to each plan along with the Hewitt Top Quartile yield curve (“Hewitt Yield Curve”) were used by the Corporation as the basis for estimating the discount rate. The Hewitt Yield Curve provides the best estimate of cash flows from investment in high-quality fixed income securities to be used to pay the Corporation’s pension and postretirement benefits when due.

The primary assumptions used in determining the Corporation’s pension and postretirement benefit obligations and related expenses are presented in Note 12 (Benefit Plans) to the consolidated financial statements. The actuarial assumptions used by the Corporation may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. While the Corporation believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions might materially affect the Corporation’s financial position or results of operations.

Forward-Looking Statements — Safe Harbor Statement

Information in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section within this Annual Report on Form 10-K, which is not historical or factual in nature, and which relates to expectations for future shifts in loan portfolio to consumer and commercial loans, increase in core deposits base, allowance for loan losses, demands for the Corporation’s services and products, future services and products to be offered, increased numbers of customers, and like items, constitute forward-looking statements that involve a number of risks and uncertainties. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements: general economic conditions, including their impact on capital expenditures; business conditions in the banking industry; the regulatory environment; rapidly changing technology and evolving banking industry standards; competitive factors, including increased competition with regional and national financial institutions; new service and product offerings by competitors and price pressures; and like items.

The Corporation cautions that any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of FirstMerit in this report, in other reports and filings, in press releases and in oral statements, involve risks and uncertainties and are subject to change based upon the factors listed above and like items. Actual results could differ materially from those expressed or implied, and therefore the forward-looking statements should be considered in light of these factors. The Corporation may from time to time issue other forward-looking statements.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See the information presented in the “Market Risk Management” section at pages 58-60 under Item 7 of this Annual Report.

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ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

CONSOLIDATED BALANCE SHEETS

FIRSTMERIT CORPORATION AND SUBSIDIARIES

	December 31,
	2010			2009
	(In thousands)
ASSETS
Cash and due from banks	$	523,113		$	161,033
Investment securities
Held-to-maturity		59,962			50,686
Available-for-sale		2,987,040			2,565,264
Other investments		160,752			128,888
Loans held for sale		41,340			16,828
Noncovered loans:
Commercial loans		4,527,497			4,066,522
Mortgage loans		403,843			463,416
Installment loans		1,308,860			1,425,373
Home equity loans		749,378			753,112
Credit card loans		149,506			153,525
Leases		63,004			61,541
Total noncovered loans		7,202,088			6,923,489
Allowance for noncovered loan losses		(114,690	)		(115,092	)
Net noncovered loans		7,087,398			6,808,397
Covered loans (includes loss share receivable of $289 million)		1,976,754			—
Allowance for covered loan losses		(13,733	)		—
Net covered loans		1,963,021			—
Net loans		9,050,419			6,808,397
Premises and equipment, net		197,866			125,205
Goodwill		479,099			139,598
Intangible assets		10,411			1,158
Other real estate covered by FDIC loss share		54,710			—
Accrued interest receivable and other assets		572,196			542,845
Total assets	$	14,136,908		$	10,539,902
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand-non-interest bearing	$	2,790,550		$	2,069,921
Demand-interest bearing		868,404			677,448
Savings and money market accounts		4,811,784			3,408,109
Certificates and other time deposits		2,797,268			1,360,318
Total deposits		11,268,006			7,515,796
Federal funds purchased and securities sold under agreements to repurchase		777,585			996,345
Wholesale borrowings		326,007			740,105
Accrued taxes, expenses and other liabilities		257,595			222,029
Total liabilities		12,629,193			9,474,275
Commitments and contingencies
Shareholders’ equity:
Preferred stock, without par value: authorized and unissued 7,000,000 shares		—			—
Preferred stock, Series A, without par value: designated 800,000 shares; none outstanding		—			—
Convertible preferred stock, Series B, without par value: designated 220,000 shares; none outstanding		—			—
Common stock, without par value; authorized 300,000,000 shares; issued 115,121,731 and 93,633,871 at December 31, 2010 and 2009, respectively		127,937			127,937
Capital surplus		485,567			88,573
Accumulated other comprehensive loss		(26,103	)		(25,459	)
Retained earnings		1,080,900			1,043,625
Treasury stock, at cost, 6,305,218 and 6,629,995 shares, at December 31, 2010 and 2009, respectively		(160,586	)		(169,049	)
Total shareholders’ equity		1,507,715			1,065,627
Total liabilities and shareholders’ equity	$	14,136,908		$	10,539,902

The accompanying notes are an integral part of the consolidated financial statements.

57

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FIRSTMERIT CORPORATION AND SUBSIDIARIES

	Years Ended December 31,
	2010			2009			2008
	(In thousands except per share data)
Interest income:
Interest and fees on loans, including loans held for sale	$	433,763		$	340,236		$	436,194
Investment securities
Taxable		95,527			106,265			105,507
Tax-exempt		13,080			13,026			12,125
Total investment securities interest		108,607			119,291			117,632
Total interest income		542,370			459,527			553,826
Interest expense:
Interest on deposits:
Demand-interest bearing		751			600			2,514
Savings and money market accounts		31,912			23,472			29,839
Certificates and other time deposits		32,713			54,610			105,853
Interest on securities sold under agreements to repurchase		4,477			4,764			31,857
Interest on wholesale borrowings		13,998			27,317			27,574
Total interest expense		83,851			110,763			197,637
Net interest income		458,519			348,764			356,189
Provision for noncovered loan losses		83,783			98,433			58,603
Provision for covered loan losses		4,432			—			—
Net interest income after provision for loan losses		370,304			250,331			297,586
Other income:
Trust department income		21,951			20,683			22,127
Service charges on deposits		65,900			63,366			62,862
Credit card fees		49,010			46,512			47,054
ATM and other service fees		11,259			11,110			10,894
Bank owned life insurance income		14,949			13,740			12,008
Investment services and insurance		9,451			10,008			10,503
Investment securities gains, net		855			6,037			2,126
Loan sales and servicing income		19,440			12,954			6,940
Gain on Visa Inc.		—			—			13,666
Gain on George Washington acquisition		1,041			—			—
Gain on post medical retirement curtailment		—			9,543			—
Other operating income		18,700			16,348			13,256
Total other income		212,556			210,301			201,436
Other expenses:
Salaries, wages, pension and employee benefits		221,316			175,906			179,463
Net occupancy expense		32,665			24,099			24,649
Equipment expense		27,664			24,301			24,137
Stationery, supplies and postage		11,438			8,907			9,372
Bankcard, loan processing and other costs		31,572			31,467			29,456
Professional services		29,357			16,414			11,695
Amortization of intangibles		2,914			347			573
FDIC expense		17,790			16,510			1,265
Other operating expense		68,144			54,866			50,023
Total other expenses		442,860			352,817			330,633
Income before federal income taxes		140,000			107,815			168,389
Federal income taxes		37,091			25,645			48,904
Net income		102,909			82,170			119,485
Other comprehensive income (loss), net of taxes:
Unrealized securities’ holding gain (loss), net of taxes		(555	)		38,994			10,808
Unrealized hedging gain (loss), net of taxes		—			(94	)		1,342
Minimum pension liability adjustment, net of taxes during period		467			(6,355	)		(21,763	)
Less: reclassification adjustment for securities’ gains realized in net income, net of taxes		556			3,924			1,382
Total other comprehensive gain (loss), net of taxes		(644	)		28,621			(10,995	)
Comprehensive income	$	102,265		$	110,791		$	108,490
Net income applicable to common shares	$	102,909		$	75,799		$	119,485
Net income used in diluted EPS calculation	$	102,909		$	75,799		$	119,490
Weighted average number of common shares outstanding — basic		101,163			84,678			82,060
Weighted average number of common shares outstanding — diluted		101,165			84,686			82,097
Basic earnings per share*	$	1.02		$	0.90		$	1.46
Diluted earnings per share*	$	1.02		$	0.90		$	1.46
Stock dividend per share		—			0.73	%		—
Dividend per share	$	0.64		$	0.77		$	1.16

The accompanying notes are an integral part of the consolidated financial statements.

58

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FIRSTMERIT CORPORATION AND SUBSIDIARIES

												Accumulated
						Common						Other									Total
	Preferred			Common		Stock			Capital			Comprehensive			Retained			Treasury			Shareholders’
	Stock			Stock		Warrant			Surplus			Income (Loss)			Earnings			Stock			Equity
Balance at December 31, 2007	$	—		$	127,937	$	—		$	100,028		$	(43,085	)	$	1,027,775		$	(295,678	)	$	916,977
Net income		—			—		—			—			—			119,485			—			119,485
Cash dividends — common stock ($1.16 per share)		—			—		—			—			—			(93,825	)		—			(93,825	)
Options exercised (126,359 shares)		—			—		—			(966	)		—			—			3,041			2,075
Nonvested (restricted) shares granted (409,903 shares)		—			—		—			(10,183	)		—			—			10,186			3
Debentures converted (2,841 shares)		—			—		—			(38	)		—			—			63			25
Restricted stock activity (61,329 shares)		—			—		—			584			—			—			(1,331	)		(747	)
Deferred compensation trust (29,013 shares)		—			—		—			532			—			—			(532	)		—
Share-based compensation		—			—		—			4,845			—			—			—			4,845
Net unrealized gains on investment securities, net of taxes		—			—		—			—			9,426			—			—			9,426
Unrealized hedging loss, net of taxes		—			—		—			—			1,342			—			—			1,342
Minimum pension liability adjustment, net of taxes		—			—		—			—			(21,763	)		—			—			(21,763	)
Balance at December 31, 2008	$	—		$	127,937	$	—		$	94,802		$	(54,080	)	$	1,053,435		$	(284,251	)	$	937,843
Net income		—			—		—			—			—			82,170			—			82,170
Cash dividends — preferred stock		—			—		—			—			—			(1,789	)		—			(1,789	)
Cash dividends — common stock ($0.77 per share)		—			—		—			—			—			(63,891	)		—			(63,891	)
Stock dividend		—			—		—			5,765			—			(21,718	)		15,953			—
Options exercised (156,445 shares)		—			—		—			(1,022	)		—			—			3,961			2,939
Nonvested (restricted) shares granted (554,258 shares)		—			—		—			(13,590	)		—			—			13,587			(3	)
Restricted stock activity (153,923 shares)		—			—		—			1,285			—			—			(3,043	)		(1,758	)
Deferred compensation trust (22,730 shares)		—			—		—			(227	)		—			—			227			—
Share-based compensation		—			—		—			7,429			—			—			—			7,429
Issuance of common stock (3,267,751 shares)		—			—		—			(4,991	)		—			—			84,517			79,526
Issuance of Fixed-Rate Cumulative Perpetual Preferred Stock		120,622			—		4,582			(435	)		—			(204	)		—			124,565
Redemption of Fixed-Rate Cumulative Perpetual Preferred Stock		(120,622	)		—		—			—			—			(4,378	)		—			(125,000	)
Repurchase of warrants		—			—		(4,582	)		(443	)		—			—			—			(5,025	)
Net unrealized gains on investment securities, net of taxes		—			—		—			—			35,070			—			—			35,070
Unrealized hedging gain, net of taxes		—			—		—			—			(94	)		—			—			(94	)
Minimum pension liability adjustment, net of taxes		—			—		—			—			(6,355	)		—			—			(6,355	)
Balance at December 31, 2009	$	—		$	127,937	$	—		$	88,573		$	(25,459	)	$	1,043,625		$	(169,049	)	$	1,065,627
Net income		—			—		—			—			—			102,909			—			102,909
Cash dividends — common stock ($0.64 per share)		—			—		—			—			—			(65,634	)		—			(65,634	)
Options exercised (48,365 shares)		—			—		—			(330	)		—			—			1,156			826
Nonvested (restricted) shares granted (451,205 shares)		—			—		—			(10,973	)		—			—			10,973			—
Restricted stock activity (174,793 shares)		—			—		—			1,227			—			—			(3,861	)		(2,634	)
Deferred compensation trust (8,779 shares)		—			—		—			(195	)		—			—			195			—
Share-based compensation		—			—		—			7,247			—			—			—			7,247
Issuance of common stock (21,487,860 shares)		—			—		—			400,018			—			—			—			400,018
Net unrealized gains on investment securities, net of taxes		—			—		—			—			(1,111	)		—			—			(1,111	)
Minimum pension liability adjustment, net of taxes		—			—		—			—			467			—			—			467
Balance at December 31, 2010	$	—		$	127,937	$	—		$	485,567		$	(26,103	)	$	1,080,900		$	(160,586	)	$	1,507,715

The accompanying notes are an integral part of the consolidated financial statements.

59

CONSOLIDATED STATEMENTS OF CASH FLOWS

FIRSTMERIT CORPORATION AND SUBSIDIARIES

	Years Ended December 31,
	2010			2009			2008
	(In thousands)
Operating Activities
Net income	$	102,909		$	82,170		$	119,485
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		88,215			98,433			58,603
Depreciation and amortization		22,088			19,495			18,711
Benefit attributable to FDIC loss share		22,751			—			—
Accretion of acquired loans		(97,471	)		—			—
Accretion of income for lease financing		(2,583	)		(3,432	)		(4,034	)
Amortization of investment securities premiums, net		11,573			5,144			1,041
Post medical retirement curtailment		—			(9,543	)		—
Gain on acquisition		(1,041	)		—			—
Gains on sales of investment securities, net		(855	)		(6,037	)		(2,126	)
Originations of loans held for sale		(583,121	)		(511,416	)		(287,803	)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary markets		566,668			509,683			291,401
(Gains) losses on sales of loans, net		(8,059	)		(3,954	)		923
Amortization of intangible assets		2,914			347			573
Net change in assets and liabilities
(Increase) decrease in interest receivable		(1,729	)		3,207			6,309
Decrease in interest payable		(4,776	)		(17,682	)		(12,529	)
(Increase) decrease in other real estate		(9,486	)		(4,005	)		505
Increase (decrease) in deferred federal income taxes		28,306			7,117			(11,248	)
Decrease (increase) in other prepaid assets		27,509			(44,560	)		1,767
(Decrease) increase in accounts payable		(7,893	)		(18,802	)		5,439
Increase in bank owned life insurance		(10,615	)		(10,655	)		(12,007	)
Other decreases (increases)		1,571			(5,575	)		19,617
NET CASH PROVIDED BY OPERATING ACTIVITIES		146,875			89,935			194,627
Investing Activities
Dispositions of investment securities:
Available-for-sale — sales		552,078			286,946			171,392
Available-for-sale — maturities		967,364			658,771			532,115
Purchases of investment securities available-for-sale		(1,426,731	)		(833,503	)		(987,937	)
Purchases of ABL loans		—			(92,885	)		—
Net decrease (increase) in loans and leases, except sales		341,195			485,898			(395,555	)
Purchases of premises and equipment		(52,571	)		(11,609	)		(21,873	)
Sales of premises and equipment		7			93			447
Net cash acquired from acquisitions		969,767			—			—
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES		1,351,109			493,711			(701,411	)
Financing Activities
Net increase in demand accounts		373,745			443,220			93,703
Net increase in savings and money market accounts		569,533			895,778			217,184
Net decrease in certificates and other time deposits		(1,055,856	)		(1,420,881	)		(44,947	)
Net (decrease) increase in securities sold under agreements to repurchase		(941,805	)		74,955			(334,690	)
Net (decrease) increase in wholesale borrowings		(414,098	)		(604,090	)		639,074
Proceeds from issuance of preferred stock		—			125,000			—
Repurchase of preferred stock		—			(125,000	)		—
Repurchase of common stock warrant		—			(5,025	)		—
Proceeds from issuance of common stock		400,018			79,526			—
Cash dividends — preferred		—			(1,789	)		—
Cash dividends — common		(65,634	)		(63,891	)		(93,825	)
Purchase of treasury shares		(2,633	)		(1,758	)		(747	)
Proceeds from exercise of stock options, conversion of debentures or conversion of preferred stock		826			2,936			2,103
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES		(1,135,904	)		(601,019	)		477,855
Increase (decrease) in cash and cash equivalents		362,080			(17,373	)		(28,929	)
Cash and cash equivalents at beginning of year		161,033			178,406			207,335
Cash and cash equivalents at end of year	$	523,113		$	161,033		$	178,406
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized	$	55,492		$	62,727		$	102,111
Federal income taxes	$	21,508		$	21,699		$	53,603

The accompanying notes are an integral part of the consolidated financial statements.

60

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(Dollars in thousands)

FirstMerit Corporation and subsidiaries is a diversified financial services company headquartered in Akron, Ohio with 207 banking offices in the Ohio, Western Pennsylvania, and Chicago, Illinois areas. The Corporation provides a complete range of banking and other financial services to consumers and businesses through its core operations.

1.   Summary of Significant Accounting Policies

The accounting and reporting policies of FirstMerit Corporation and its subsidiaries (the “Corporation”) conform to generally accepted accounting principles in the United States of America (“U.S. GAAP”) and to general practices within the financial services industry. Effective July 1, 2009, the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) became the single source of authoritative nongovernmental U.S. GAAP. Other than resolving certain minor inconsistencies in current U.S. GAAP, the ASC is not intended to change U.S. GAAP, but rather to make it easier to review and research U.S. GAAP applicable to a particular transaction or specific accounting issue. Technical references to U.S. GAAP included in these notes to the consolidated financial statements are provided under the new ASC structure.

In preparing these consolidated financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users, or filed with the Securities and Exchange Commission (“SEC”). In accordance with applicable accounting standards, all material subsequent events have been either recognized in the financial statements or disclosed in the notes to the financial statements. The consolidated financial statements of the Corporation as of December 31, 2010 and 2009 are not necessarily indicative of the results that may be achieved for any future period.

The following is a description of the Corporation’s significant accounting policies.

(a) Principles of Consolidation

The consolidated financial statements of the Corporation include the accounts of FirstMerit Corporation (the “Parent Company”) and its subsidiaries: FirstMerit Bank, N.A. (the “Bank”), Citizens Savings Corporation of Stark County, FirstMerit Capital Trust I, FirstMerit Community Development Corporation, FirstMerit Risk Management, Inc., and FMT, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

(b) Use of Estimates

The preparation of financial statements are in conformity with U.S. GAAP and prevailing practices within the financial services industry. Management must make certain estimates and assumptions that affect the amounts reported in the financial statements and related notes. If these estimates prove to be inaccurate, actual results could differ from those reported.

(c) Business Combinations

Assets acquired and liabilities assumed in a business combination are accounted for at fair value on the date of acquisition. Costs related to the acquisition are expensed as incurred.

(d) Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, cash due from banks and checks in the process of collection.

61

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

(e) Investment Securities

Debt securities are classified as held-to-maturity when the Corporation has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Securities are classified as available-for-sale when the Corporation intends to hold the securities for an indefinite period of time for purposes of liquidity, interest rate risk management and long-term yield enhancement. Securities available-for-sale are stated at fair value, with unrealized gains and losses, net of tax, reported as a separate component of other comprehensive income (loss) in shareholder’s equity.

Declines in the fair value of held-to-maturity and available-for-sale securities below their amortized cost that are deemed to be other than temporary are included in earnings as realized losses to the extent such losses are due to credit losses or Management has plans to dispose of the security. If the Corporation intends to sell the security in an unrealized loss position or it is more likely than not that the Corporation will be required to sell the security in an unrealized loss position before recovery of its amortized cost, the impairment is deemed to be other than temporary. If the Corporation does not intend to sell the security or it is more likely than not that the Corporation will not be required to sell the security before recovery of its amortized cost, the impairment associated with any credit loss is recognized in earnings. Any impairment relating to other factors, such as liquidity conditions in the market or changes in market interest rates, is recorded in accumulated other comprehensive income (loss). Equity securities are evaluated to determine whether the unrealized loss is expected to be recoverable based on whether evidence exists to support a realizable value equal to or greater than the amortized cost. If it is probable that the Corporation will not recover the amortized cost basis, taking into consideration the estimated recovery period and its ability to hold the equity security until recovery, an other than temporary loss is recognized in earnings.

The amortization of premiums, accretion of discounts, interest and dividends are included in interest and dividends on investment securities and federal funds sold. Realized gains or losses on the sales of investment securities are based on amortized cost of the security sold using the specific identification method.

Other investments include FHLB and FRB stock. FHLB and FRB stock are carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. Cash and stock dividends received on the stock are reported as interest income.

(f) Loans and Loan Income

Loans originated for investment are stated at their principal amount outstanding adjusted for charge-offs, the allowance for loan losses, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the “simple-interest” method based on the principal balance outstanding. Interest is not accrued on loans where collectability is uncertain. Accrued interest is presented separately in the balance sheet, except for accrued interest on credit card loans, which is included in the outstanding loan balance. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.

(g) Loans Held for Sale

Loans originated for sale are included in loans held for sale in the consolidated financial statements. Effective August 1, 2008, the Corporation elected the fair value option, on a prospective basis, for newly originated conforming fixed-rate and adjustable-rate first mortgage loans held for sale. Prior to this, residential mortgage loans had been recorded at the lower of cost or fair value. Changes in the fair value of these loans are recognized in income. For mortgage loans originated for sale for which the fair value option is elected, loan origination fees are recorded when earned and related direct loan origination costs are recognized when incurred. Upon their sale, differences between carrying value and sales proceeds realized are recorded to loan sales and servicing income.

62

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The details of the fair value election for residential mortgage loans held for sale and a discussion of the valuation methodology applied to the Corporation’s loans held for sale are described in Note 16 (Fair Value Measurement).

(h) Nonperforming Loans

With the exception of certain commercial, credit card and mortgage loans, loans and leases on which payments are past due for 90 days are placed on nonaccrual status, unless those loans are in the process of collection and, in Management’s opinion, are fully secured. Credit card loans on which payments are past due for 120 days are placed on nonaccrual status. Interest on mortgage loans is accrued until Management deems it uncollectible based upon the specific identification method. Loans are generally written off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, terms, and other factors. When a loan is placed on nonaccrual status, interest deemed uncollectible which had been accrued in prior years is charged against the allowance for loan losses and interest deemed uncollectible accrued in the current year is reversed against interest income. Payments subsequently received on nonaccrual loans are generally applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable. This generally requires a sustained period of timely principal and interest payments.

Under the Corporation’s credit policies and practices, individually impaired loans include all nonaccrual and restructured commercial, agricultural, construction, and commercial real estate loans, but exclude certain aggregated consumer loans, mortgage loans, and leases classified as nonaccrual. Loan impairment for all loans is measured based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, at the observable market price of the loan, or the fair value of the collateral for certain collateral dependent loans.

Restructured loans are those on which concessions in terms have been made as a result of deterioration in a borrower’s financial condition. In general, the modification or restructuring of a debt constitutes a troubled debt restructuring if the Corporation for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the borrower that the Corporation would not otherwise consider under current market conditions. Debt restructurings or loan modifications for a borrower do not necessarily constitute troubled debt restructurings. Troubled debt restructurings do not necessarily result in nonaccrual loans. Specific allowances for loan losses are established for certain consumer, commercial and commercial real estate loans whose terms have been modified in a TDR.

Acquired loans restructured after acquisition are not considered TDRs for purposes of the Corporation’s accounting and disclosure if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools.

(i) Allowance for Loan Losses

The allowance for loan losses is Management’s estimate of the amount of probable credit losses inherent in the loan portfolio at the balance sheet date. Management estimates credit losses based on individual loans determined to be impaired and on all other loans grouped based on similar risk characteristics. Management also considers internal and external factors such as economic conditions, loan management practices, portfolio monitoring, and other risks, collectively known as qualitative factors or Q-factors, to estimate credit losses in the loan portfolio. Q-factors are used to reflect changes in the portfolio’s collectability characteristics not captured by historical loss data.

The Corporation’s historical loss component is the most significant of the allowance for loan losses components and is based on historical loss experience by credit-risk grade (for commercial loan pools) and payment status (for mortgage and consumer loan pools). Loans are pooled based on similar risk characteristics supported by observable data. The historical loss experience component of the allowance for loan losses represents the results of migration analysis of historical net charge-offs for portfolios of loans (including groups of commercial loans within each credit-risk grade and groups of consumer loans by payment status). For measuring loss exposure in a pool of loans, the

63

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

historical net charge-off or migration experience is utilized to estimate expected losses to be realized from the pool of loans.

Individual commercial loans are assigned credit-risk grades based on an internal assessment of conditions that affect a borrower’s ability to meet its contractual obligation under the loan agreement. The assessment process includes reviewing a borrower’s current financial information, historical payment experience, credit documentation, public information, and other information specific to each individual borrower. Certain commercial loans are reviewed on an annual, quarterly or rotational basis or as Management becomes aware of information affecting a borrower’s ability to fulfill its obligation.

The credit-risk grading process for commercial loans is summarized as follows:

“Pass” Loans (Grades 1, 2, 3, 4) are not considered a greater than normal credit risk. Generally, the borrowers have the apparent ability to satisfy obligations to the bank, and the Corporation anticipates insignificant uncollectible amounts based on its individual loan review.

“Special-Mention” Loans (Grade 5) are commercial loans that have identified potential weaknesses that deserve Management’s close attention. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the institution’s credit position.

“Substandard” Loans (Grade 6) are inadequately protected by the current financial condition and paying capacity of the obligor or by any collateral pledged. Loans so classified have a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt pursuant to the contractual principal and interest terms. Such loans are characterized by the distinct possibility that the Corporation may sustain some loss if the deficiencies are not corrected.

“Doubtful” Loans (Grade 7) have all the weaknesses inherent in those classified as substandard, with the added characteristic that existing facts, conditions, and values make collection or liquidation in full highly improbable. Such loans are currently managed separately to determine the highest recovery alternatives.

If a nonperforming, substandard loan has an outstanding balance of $0.3 million or greater or if a doubtful loan has an outstanding balance of $0.1 million or greater, as determined by the Corporation’s credit-risk grading process, further analysis is performed to determine the probable loss content and assign a specific allowance to the loan, if deemed appropriate. The allowance for loan losses relating to originated loans that have become impaired is based on either expected cash flows discounted using the original effective interest rate, the observable market price, or the fair value of the collateral for certain collateral dependent loans. To the extent credit deterioration occurs on purchased loans after the date of acquisition, the Corporation records an allowance for loan losses, net of any expected reimbursement under any loss sharing agreements with the FDIC.

Increases to the allowance for loan losses are made by charges to the provision for loan losses. Loans deemed uncollectible are charged against the allowance for loan losses. Recoveries of previously charged-off amounts are credited to the allowance for loan losses.

The provision for loan losses charged to operating expenses is determined based on Management’s evaluation of the loan portfolio and the adequacy of the allowance for loan losses under current economic conditions and such other factors, which, in Management’s judgment, require current recognition.

The Corporation also assesses the credit risk associated with off-balance sheet loan commitments and letters of credit. The liability for off-balance sheet credit exposure related to loan commitments and other credit guarantees is included in other liabilities.

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(Dollars in thousands)

(j) Acquired Loans, Covered Loans and Related Loss Share Receivable

Acquired loans (non-impaired and impaired) are initially measured at fair value as of the acquisition date. Fair value measurements include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value, therefore, an allowance for loan losses is not recorded at the acquisition date.

In determining the acquisition date fair value of acquired impaired loans, and in subsequent accounting, the Corporation generally aggregates purchased consumer loans and certain smaller balance commercial loans into pools of loans with common risk characteristics, while accounting for larger balance commercial loans individually. Expected cash flows at the purchase date in excess of the fair value of loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. The present value of any decreases in expected cash flows after the purchase date is recognized as a provision for loans losses net of any expected reimbursement under any loss sharing agreements with the FDIC (“Loss Share Agreements”). Revolving loans, including lines of credit and credit cards loans, and leases are excluded from acquired impaired loan accounting.

For acquired loans that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value. Subsequent to the purchase date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans, however, the Corporation records a provision for loan losses only when the required allowance, net of any expected reimbursement under any Loss Share Agreements exceeds any remaining credit discounts. The remaining differences between the purchase price and the unpaid principal balance at the date of acquisition are recorded in interest income over the life of the loans.

Loans acquired in FDIC assisted transactions and covered under Loss Share Agreements are referred to as Covered Loans. Covered Loans are recorded at fair value at the date of acquisition exclusive of the Loss Share Agreements. No allowance for loan losses related to Covered Loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk.

A loss share receivable is recorded at the acquisition date which represents the estimated fair value of reimbursement the Corporation expects to receive from the FDIC for incurred losses on certain Covered Loans. The fair value measurement reflects counterparty credit risk and other uncertainties. The loss share receivable continues to be measured on the same basis as the related indemnified loans. Deterioration in the credit quality of the loans (recorded as an adjustment to the allowance for covered loan losses) would immediately increase the basis of the loss sharer receivable, with the offset recorded through the consolidated statement of income and comprehensive income. Increases in the credit quality or cash flows of loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the basis of the loss share receivable, with such decrease being accreted into income over 1) the same period or 2) the life of the loss share agreements, whichever is shorter. Loss assumptions used in the basis of the loss share receivable are consistent with the loss assumptions used to measure the related Covered Loans.

Upon the determination of an incurred loss the loss share receivable will be reduced by the amount owed by the FDIC. A corresponding, claim receivable is recorded in accrued interest receivable and other assets on the consolidated balance sheet until cash is received from the FDIC. For further discussion of the Corporation’s acquisitions and loan accounting, see Note 2 (Business Combinations) and Note 4 (Loans and Allowance for Loan Losses).

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(k) Equipment Lease Financing

The Corporation leases equipment to customers on both a direct and leveraged lease basis. The net investment in financing leases includes the aggregate amount of lease payments to be received and the estimated residual values of the equipment, less unearned income and non-recourse debt pertaining to leveraged leases. Income from lease financing is recognized over the lives of the leases on an approximate level rate of return on the unrecovered investment. The residual value represents the estimated fair value of the leased asset at the end of the lease term. Unguaranteed residual values of leased assets are reviewed at least annually for impairment. Declines in residual values judged to be other-than-temporary are recognized in earnings in the period such determinations are made.

(l) Mortgage Servicing Rights

The Corporation periodically sells residential real estate loans while retaining the obligation to perform the servicing of such loans. Whenever the Corporation undertakes an obligation to service such loans, Management assesses whether a servicing asset or liability should be recognized. A servicing asset is recognized whenever the compensation for servicing is expected to exceed current market servicing prices. Likewise, a servicing liability would be recognized in the event that servicing fees to be received are not expected to adequately compensate the Corporation for its expected cost. Servicing assets associated with retained mortgage servicing rights are presented within other assets on the balance sheet. The Corporation does not presently have any servicing liabilities.

All separately recognized servicing assets and liabilities are initially valued at fair value. Mortgage servicing rights do not trade in an active open market with readily observable market prices. Although sales of mortgage servicing rights do occur, the exact terms and conditions may not be available. As a result, mortgage servicing rights are established and valued at fair value estimated using discounted cash flow modeling techniques which require management to make assumptions regarding future net servicing income, adjusted for such factors as net servicing income, discount rate and prepayments. The primary assumptions used in determining the current fair value of the Corporation’s mortgage servicing rights as well as a sensitivity analysis are presented in Note 6 (Mortgage Servicing Rights).

Servicing assets and liabilities are remeasured at each subsequent reporting date using one of two methods: amortization over the servicing period or measurement at fair value. The Corporation has elected to subsequently remeasure servicing assets using the amortization method. Under the amortization method, servicing assets or liabilities are amortized in proportion to, and over the period of, estimated net servicing income. Amortization is recorded in loan sales and servicing income.

At each reporting period, mortgage servicing rights are assessed for impairment based on fair value of those rights on a stratum-by-stratum basis. The Corporation stratifies its servicing rights portfolio into tranches based on loan type and interest rate, the predominant risk characteristics of the underlying loans. Any impairment is recognized through a valuation allowance for each impaired stratum through a charge to income. Increases in the fair value of impaired mortgage servicing rights are recognized only up to the amount of the previously recognized valuation allowance.

The Corporation also reviews mortgage servicing rights for other-than-temporary impairment each quarter and recognizes a direct write-down when the recoverability of a recorded allowance for impairment is determined to be remote. Unlike an allowance for impairment, a direct write-down permanently reduces the unamortized cost of the mortgage servicing right and the allowance for impairment.

The Corporation generally records loan administration fees for servicing loans for investors on the accrual basis of accounting. Servicing fees and late fees related to delinquent loan payments are also recorded on the accrual basis of accounting.

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(Dollars in thousands)

(m) Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on the straight-line and declining-balance methods over the estimated useful lives of the assets. Amortization of leasehold improvements is computed on the straight-line method based on related lease terms or the estimated useful lives of the assets, whichever is shorter.

(n) Goodwill and Intangible Assets

Goodwill represents the amount by which the cost of net assets acquired in a business combination exceeds their fair value. Other intangible assets represent the present value of the future stream of income to be derived from the purchase of core deposits. Other intangible assets are amortized on a straight-line basis over their estimated useful lives. Goodwill and other intangible assets deemed to have indefinite lives are not amortized.

Goodwill is evaluated for impairment on an annual basis at November 30th of each year or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Corporation’s reporting units for purposes of this testing are its major lines of business: Commercial, Retail, and Wealth. The goodwill impairment test is a two-step process that requires management to make judgments in determining what assumptions to use in the calculation. The first step in impairment testing is to estimate the fair value of each reporting unit based on valuation techniques including a discounted cash flow model with revenue and profit forecasts and comparing those estimated fair values with the carrying values, which includes the allocated goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill impairment may be indicated and a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires the Corporation to allocate fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to its corresponding carrying value. An impairment loss would be recognized as a charge to earnings to the extent the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of goodwill.

(o) Other Real Estate Owned

Other real estate owned is included in other assets in the consolidated balance sheets and is comprised of property acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure, and loans classified as in-substance foreclosure. Other real estate owned is recorded at the lower of the recorded investment in the loan at the time of transfer or the fair value of the underlying property collateral, less estimated selling costs. Any write-down in the carrying value of a property at the time of acquisition is charged to the allowance for loan losses. Any subsequent write-downs to reflect current fair market value, as well as gains and losses on disposition and revenues and expenses incurred in maintaining such properties, are treated as period costs. Other real estate owned also includes bank premises formerly but no longer used for banking. Banking premises are transferred at the lower of carrying value or estimated fair value, less estimated selling costs.

(p) Derivative Instruments and Hedging Activities

The Corporation uses interest rate swaps, interest rate lock commitments and forward contracts sold to hedge interest rate risk for asset and liability management purposes. All derivatives are recorded as either other assets or other liabilities at fair value. Credit risk associated with derivatives is reflected in the fair values recorded for those positions. Accounting for changes in fair value (i.e., gains or losses) of derivatives differs depending on whether the derivative has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. For derivatives that are not designated as hedging instruments, the gain or loss is recognized immediately in other operating income. A derivative that is designated and qualifies as a hedging instrument must be designated a

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(Dollars in thousands)

fair value hedge, a cash flow hedge or a hedge of a net investment in a foreign operation. The Corporation does not have any derivatives that hedge net investments in foreign operations.

Effectiveness measures the extent to which changes in the fair value of a derivative instrument offset changes in the fair value of the hedged item. If the relationship between the change in the fair value of the derivative instrument and the fair value of the hedged item falls within a range considered to be the industry norm, the hedge is considered “highly effective” and qualifies for hedge accounting. A hedge is “ineffective” if the offsetting difference between the fair values falls outside the acceptable range.

A fair value hedge is used to limit exposure to changes in the fair value of existing assets, liabilities and firm commitments caused by changes in interest rates or other economic factors. The Corporation recognizes the gain or loss on these derivatives, as well as the related gain or loss on the underlying hedged item, in earnings during the period in which the fair value changes. If a hedge is perfectly effective, the change in the fair value of the hedged item will be offset, resulting in no net effect on earnings.

A cash flow hedge is used to minimize the variability of future cash flows that is caused by changes in interest rates or other economic factors. The effective portion of a gain or loss on any cash flow hedge is reported as a component of “accumulated other comprehensive income (loss)” and reclassified into other operating income in the same period or periods that the hedged transaction affects earnings. Any ineffective portion of the derivative gain or loss is recognized in other operating income during the current period.

In December 2009, the Corporation corrected an error in hedge accounting for a portfolio of interest rate swaps associated with fixed-rate commercial loans recorded in prior periods. The Corporation assessed the materiality of the error in accordance with Staff Accounting Bulletin (“SAB”) No. 108 and concluded the error was not material, either individually or in the aggregate, to the results of operations of any prior period or for the year ending December 31, 2009, to trends for those periods affected, or to a fair presentation of the Corporation’s financial statements for those periods. Accordingly, results for prior periods have not been restated. Instead, the Corporation increased other expenses and reduced the commercial loans balance by $3.9 million to correct this error in the fourth quarter of 2009. In addition, this portfolio of interest rate swaps was terminated in January 2010.

The Corporation enters into commitments to originate loans whereby the interest rate on the prospective loan is determined prior to funding (“rate lock commitments”). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with any related fees received from potential borrowers, are recorded at fair value as derivative assets or liabilities, with changes in fair value recorded in net gain or loss on sale of mortgage loans.

(q) Federal Income Taxes

The Corporation follows the asset and liability method of accounting for income taxes. Deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect of a change in tax rates is recognized in income in the period of the enactment date. Additional information regarding income taxes is included in Note 11 (Income Taxes).

(r) Treasury Stock

Treasury stock is accounted for using the cost method in which reacquired shares reduce outstanding common stock and capital surplus.

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(Dollars in thousands)

(s) Per Share Data

Basic earnings per share is computed by dividing net income less preferred stock dividends by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income plus interest on convertible bonds by the weighted average number of common shares plus common stock equivalents computed using the Treasury Share method. All earnings per share disclosures appearing in these financial statements, related notes and management’s discussion and analysis, are computed assuming dilution unless otherwise indicated. The Corporation’s earnings per share calculations are illustrated in Note 19 (Earnings per Share).

(t) Trust Department Assets and Income

Property held by the Corporation in a fiduciary or other capacity for trust customers is not included in the accompanying consolidated financial statements, since such items are not assets of the Corporation. Trust department income is reported on the accrual basis of accounting.

(u) Share-Based Compensation

The Corporation’s stock based compensation plans are described in detail in Note 13 (Share-Based Compensation). Compensation expense is recognized at fair value for stock options and unvested (restricted) stock awards issued to employees. A Black Scholes model is utilized to estimate the fair value of stock options, while the market price of the Corporation’s common shares at the date of grant is used to estimate the fair value of unvested (restricted) stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period for stock option awards and as the unvested period for nonvested (restricted) stock awards. Certain of the Corporation’s share-based awards contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Corporation recognizes compensation expense for awards with graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

(v) Pension and Other Postretirement Plans

The overfunded or underfunded status of defined benefit plans are recognized as an asset or liability, respectively, in the statements of financial position. Changes in the funded status are recognized as a component of comprehensive income in the year in which the changes occur.

(w) Fair Value Measurement

Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants. It represents an exit price at the measurement date. Market participants are buyers and sellers, who are independent, knowledgeable, and willing and able to transact in the principal (or most advantageous) market for the asset or liability being measured. Current market conditions, including imbalances between supply and demand, are considered in determining fair value. The Corporation values its assets and liabilities in the principal market where it sells the particular asset or transfers the liability with the greatest volume and level of activity. In the absence of a principal market, the valuation is based on the most advantageous market for the asset or liability (i.e., the market where the asset could be sold or the liability transferred at a price that maximizes the amount to be received for the asset or minimizes the amount to be paid to transfer the liability).

In measuring the fair value of an asset, the Corporation assumes the highest and best use of the asset by a market participant to maximize the value of the asset, and does not consider the intended use of the asset.

When measuring the fair value of a liability, the Corporation assumes that the nonperformance risk associated with the liability is the same before and after the transfer. Nonperformance risk is the risk that an obligation will not be satisfied and encompasses not only the Corporation’s own credit risk (i.e., the risk that the Corporation will fail to meet

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(Dollars in thousands)

its obligation), but also other risks such as settlement risk. The Corporation considers the effect of its own credit risk on the fair value for any period in which fair value is measured.

There are three acceptable valuation techniques that can be used to measure fair value: the market approach, the income approach and the cost approach. Selection of the appropriate technique for valuing a particular asset or liability takes into consideration the exit market, the nature of the asset or liability being valued, and how a market participant would value the same asset or liability. Ultimately, determination of the appropriate valuation method requires significant judgment, and sufficient knowledge and expertise are required to apply the valuation techniques.

Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability using one of the three valuation techniques. Inputs can be observable or unobservable. Observable inputs are those assumptions which market participants would use in pricing the particular asset or liability. These inputs are based on market data and are obtained from a source independent of the Corporation. Unobservable inputs are assumptions based on the Corporation’s own information or estimate of assumptions used by market participants in pricing the asset or liability. Unobservable inputs are based on the best and most current information available on the measurement date. All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy which gives the highest ranking to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest ranking to unobservable inputs (Level 3). Fair values for assets or liabilities classified as Level 2 are based on one or a combination of the following factors: (i) quoted prices for similar assets; (ii) observable inputs for the asset or liability, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Corporation considers an input to be significant if it drives 10% or more of the total fair value of a particular asset or liability.

Assets and liabilities are considered to be fair valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly or quarterly). Recurring valuation occurs at a minimum on the measurement date. Assets and liabilities are considered to be fair valued on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements which require assets or liabilities to be assessed for impairment or recorded at the lower of cost or fair value. The fair value of assets or liabilities transferred in or out of Level 3 is measured on the transfer date, with any additional changes in fair value subsequent to the transfer considered to be realized or unrealized gains or losses. Additional information regarding fair value measurements is provided in Note 16 (Fair Value Measurement).

(x) Reclassifications

Certain reclassifications of prior years’ amounts have been made to conform to current year presentation. Such reclassifications had no effect on net earnings.

(y) Recently Adopted and Issued Accounting Standards

The following section discusses new accounting policies that were adopted by the Corporation during 2010 and the expected impact of accounting standards recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations, or liquidity, the impacts are discussed in the applicable notes to the consolidated financial statements as referenced below.

In June 2009, the FASB issued Statement of Financial Accounting Standard (“SFAS”) 166, Accounting for Transfers of Financial Assets — An Amendment of FASB Statement No. 140, which has been codified into ASC 860, Transfers and Servicing (“ASC 860”). This guidance removes the concept of a qualifying special-purpose entity from existing U.S. GAAP and removes the exception from applying the accounting and reporting standards within ASC 810,

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Consolidation (“ASC 810”), to qualifying special purpose entities. This guidance also establishes conditions for accounting and reporting of a transfer of a portion of a financial asset, modifies the asset sale/derecognition criteria, and changes how retained interests are initially measured. This guidance is expected to provide greater transparency about transfers of financial assets and a transferor’s continuing involvement, if any, with the transferred assets. This guidance was effective for the Corporation as of January 1, 2010 and it did not have a material effect on the Corporation’s financial condition and results of operations.

In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation No. 46(R), which was codified in ASC 810. This guidance removes the scope exception for qualifying special-purpose entities, contains new criteria for determining the primary beneficiary of a variable interest entity and increases the frequency of required reassessments to determine whether an entity is the primary beneficiary of a variable interest entity. Enhanced disclosures are also required. This guidance was effective for the Corporation January 1, 2010 and it did not have a material effect on the Corporation’s financial condition and results of operations.

FASB ASU 2010-06, Improving Disclosures about Fair Value Measurements.  ASU 2010-06 amends ASC 820 to require additional disclosures regarding fair value measurements. Specifically, the ASU requires disclosure of the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers; the reasons for any transfers in or out of Level 3; and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, the ASU also amends ASC 820 to clarify certain existing disclosure requirements. For example, the ASU clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities. Previously separate fair value disclosures were required for each major category of assets and liabilities. ASU 2010-06 also clarifies the requirement to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. Except for the requirement to disclose information about purchases, sales, issuances, and settlements in the reconciliation of recurring Level 3 measurements on a gross basis, these disclosures are effective and are incorporated into Note 16 (Fair Value Measurement). The requirement to separately disclose purchases, sales, issuances, and settlements of recurring Level 3 measurements becomes effective for the Corporation for the quarter ended March 31, 2011.

FASB ASU 2010-18, Effect of a Loan Modification When the Loan Is Part of a Pool That is Accounted for as a Single Asset.  ASU 2010-18 addresses whether a loan that is within a pool of loans acquired with deteriorated credit quality and accounted for as a single asset should be removed from the pool if the loan is modified in such a way that it would constitute a troubled debt restructuring. Prior to this guidance, accounting practices differed among entities, with some removing loans from the pool and others not removing them. This guidance clarifies that when a loan within a pool is modified, the loan should not be removed from the pool even if the modification of the loan would otherwise be considered a troubled debt restructuring. Under this guidance, entities will continue to be required to consider whether a pool of acquired loans is impaired if the expected cash flows for the pool change. The effect of a restructuring and whether impairment has occurred will have to be considered in the context of the accounting for the pool of loans as a whole. The guidance in the ASU is effective for loan modifications occurring in the first interim or annual period ending on or after July 15, 2010, and is to be prospectively applied. There was no material impact to the Corporation as a result of the adoption of this guidance for the year ended December 31, 2010.

FASB ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  ASU 2010-20 requires new qualitative and quantitative disclosures on the allowance for credit losses, credit quality, impaired loans, modifications and nonaccrual and past due financing receivables. The guidance requires that an entity provide disclosures facilitating financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables (i.e., loans), how the risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. These required disclosures are to be presented on a disaggregated basis at the portfolio segment and the class of financing receivable level. The majority of the additional disclosures (relating to period end balances) are effective for the

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Corporation as of December 31, 2010 and are incorporated into Note 4 (Loans and Allowance for Loan Losses). Specific items regarding activity that occurred before the issuance of this accounting guidance, such as the allowance rollforward and modification disclosures will be required for the Corporation as of January 1, 2011.

2.   Business Combinations

Asset Based Loans

On December 16, 2009, the Bank acquired $102.0 million in outstanding asset based lending loans (“ABL Loans”), as well as the staff to service and build new business, from First Bank Business Capital, Inc., (“FBBC”) for $93.2 million in cash. FBBC is a wholly owned subsidiary of First Bank, a Missouri state chartered bank.

The ABL Loans and a non-compete agreement acquired were recorded at their fair values of $92.7 million and $0.1 million, respectively, on the date of acquisition. The Bank recorded goodwill of $0.4 million relating to the ABL Loans and non-compete agreements acquired. Additional information can be found in Note 4 (Loans) and Note 5 (Goodwill and Intangible Assets).

First Bank Branches

On February 19, 2010, the Bank completed the acquisition of certain assets and the assumption of certain liabilities with respect to 24 branches of First Bank located in the greater Chicago, Illinois area. The Bank recognized approximately $3.4 million of acquisition related expenses relative to First Bank during the year ended December 31, 2010. These costs were expensed as incurred and are included in the line item entitled professional services in the accompanying consolidated statements of income and comprehensive income.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The Bank received cash of $832.5 million to assume the net liabilities.

	Acquired		Fair Value			As Recorded by
	Book Value		Adjustments			FirstMerit Bank, N.A.
Assets
Cash and due from banks	$	3,725	$	—		$	3,725
Loans		301,236		(25,624	)		275,612
Premises and equipment		22,992		18,963			41,955
Goodwill		—		48,347			48,347
Core deposit intangible		—		3,154			3,154
Other assets		941		3,115			4,056
Total assets acquired	$	328,894	$	47,955		$	376,849
Liabilities
Deposits	$	1,199,279	$	7,134		$	1,206,413
Accrued expenses and other liabilities		4,192		(1,271	)		2,921
Total liabilities assumed	$	1,203,471	$	5,863		$	1,209,334

All loans acquired in the First Bank acquisition were performing as of the date of acquisition. The difference between the fair value and the outstanding balance of the purchased loans is being accreted to interest income over the remaining term of the loans in accordance with ASC 310, Receivables (“ASC 310”). Additional information can be found in Note 4 (Loans and Allowance for Loan Losses) and Note 5 (Goodwill and Intangible Assets).

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George Washington Savings Bank — FDIC Assisted Acquisition

On February 19, 2010, the Bank entered into a purchase and assumption agreement with a loss share arrangement with the FDIC, as receiver of George Washington, the subsidiary of George Washington Savings Bancorp, to acquire certain assets and assume substantially all of the deposits and certain liabilities in a whole-bank acquisition of George Washington, a full service Illinois-chartered savings bank headquartered in Orland Park, Illinois. The Bank received a cash payment from the FDIC of approximately $40.2 million to assume the net liabilities.

The FDIC granted the Bank the option to purchase at appraised value the premises, furniture, fixtures and equipment of George Washington and assume the leases associated with these certain branches. The Bank exercised its option during the second quarter of 2010 and purchased three of the former George Washington branches, including the furniture, fixtures and equipment within these branches, for a combined purchase price of $4.3 million.

The loans and other real estate (collectively referred to as “Covered Assets”) acquired are covered by a Loss Share Agreement between the Bank and the FDIC which affords the Bank significant protection against future losses. The acquired loans covered under the Loss Share Agreements, including the amounts of expected reimbursements from the FDIC under these agreements, are reported in loans in the accompanying consolidated balance sheets and are referred to as “Covered Loans”. New loans made after the date of the transaction are not covered by the provisions of the Loss Share Agreements. The Bank acquired other assets that are not covered by the Loss Share Agreements, including investment securities purchased at fair market value and other tangible assets.

Pursuant to the terms of the Loss Share Agreements, the FDIC is obligated to reimburse the Bank for 80% of losses of up to $172.0 million with respect to the Covered Assets and will reimburse the Bank for 95% of losses that exceed $172.0 million. Under the Loss Share Agreements, the Bank will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid the Bank 80% reimbursement and for 95% of recoveries with respect to losses for which the FDIC paid the Bank 95% reimbursement. The Loss Share Agreements applicable to single family residential mortgage loans provides for FDIC loss sharing and Bank reimbursement to the FDIC for ten years. The Loss Share Agreements applicable to commercial loans provides for FDIC loss sharing for five years and Bank reimbursement to the FDIC for eight years.

The reimbursable losses from the FDIC are based on the pre-acquisition book value of the Covered Assets, as determined by the FDIC at the date of the transaction, the contractual balance of acquired unfunded commitments, and certain future net direct costs incurred in the collection and settlement process. The amount that the Bank realizes on these assets could differ materially from the carrying value that will be reflected in any financial statements, based upon the timing and amount of collections and recoveries on the Covered Assets in future periods.

At the date of the transaction, the estimated fair value of the Covered Loans was $177.8 million and the expected reimbursement for losses to be incurred by the Bank on these Covered Loans was $88.7 million. At the date of the transaction, the estimated fair value of the covered other real estate was $11.5 million and the expected reimbursement for losses to be incurred by the Bank on this covered other real estate was $11.3 million. These estimated fair values reflect the additional information that the Corporation obtained during the quarters ended June 30 and September 30, 2010 which resulted in changes to certain fair value estimates made as of the acquisition date. After considering this additional information, the estimated fair value of the Covered Loans increased by $6.3 million, the FDIC loss share receivable on the Covered Loans decreased by $7.5 million and other liabilities increased $5.2 million as of February 19, 2010 from that originally reported in the quarter ended March 31, 2010. These revised estimates resulted in a decrease of $4.0 million to the bargain purchase gain, which was recognized in the quarter ended March 31, 2010, and which is included in noninterest income in the accompanying consolidated statements of income and comprehensive income for the year ended December 31, 2010.

In accordance with the Loss Share Agreements, on April 14, 2020, (the “George Washington True-Up Measurement Date”), the Bank has agreed to pay to the FDIC 50% of the excess, if any, of (1) 20% of the stated threshold

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FIRSTMERIT CORPORATION AND SUBSIDARIES

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(Dollars in thousands)

($172.0 million) less (2) the sum of (A) 25% of the asset discount ($47.0 million) received in connection with the George Washington acquisition plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). For purposes of the above calculation, cumulative shared-loss payments means (i) the aggregate of all of the payments made or payable to the Bank minus (ii) the aggregate of all of the payments made or payable to the FDIC. The cumulative servicing amount means the sum of the Period Servicing Amounts (as defined in the Loss Share Agreements) for every consecutive twelve-month period prior to and ending on the George Washington True-Up Measurement Date. As of the date of acquisition, the true-up liability was estimated to be $5.2 million and is recorded in accrued taxes, expenses and other liabilities on the accompanying consolidated balance sheets. During the quarter ended December 31, 2010, the true-up liability was reduced to $4.7 million resulting from the re-estimation of the cumulative loss share payments and cumulative servicing amount. Additional information can be found in Note 16 (Fair Value Measurement).

The purchased assets and liabilities assumed were recorded at their estimated fair values on the date of acquisition. The estimated fair value of assets acquired, intangible assets and the cash payment received from the FDIC exceeded the estimated fair value of the liabilities assumed, resulting in a bargain purchase gain of $1.0 million, or $0.7 million net of tax. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Material adjustments to acquisition date estimated fair values are recorded in the period in which the acquisition occurred and, as a result, previously recorded results are subject to change. Certain reclassifications of prior periods’ amount may also be made to conform to the current period’s presentation and would have no effect on previously reported net income amounts.

Additionally, the Bank and the FDIC are engaged in on-going discussions that may impact which assets and liabilities are ultimately acquired or assumed by the Bank and/or the purchase price. Further, the tax treatment of FDIC assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date.

The Bank recognized $4.7 million in acquisition related expenses relative to George Washington in the year ended December 31, 2010. These costs were expensed as incurred and are included in the line item entitled professional services in the accompanying consolidated statements of income and comprehensive income.

The operating results of the Corporation for the year ended December 31, 2010 include the operating results from the date of the transaction produced by the acquisition. Due to the significant fair value adjustments recorded, as well as the nature of the Loss Share Agreements in place, George Washington’s historical results are not believed to be relevant to the Corporation’s results, and thus no pro forma information is presented.

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(Dollars in thousands)

The book and fair values of the acquired assets and liabilities, including all purchase accounting adjustments recorded in the year ended December 31, 2010, are presented in the following table.

	As Recorded		Fair Value			As Recorded by
	by FDIC		Adjustments			FirstMerit Bank, N.A.
Assets
Cash and due from banks	$	57,984	$	—		$	57,984
Investment securities		15,410		—			15,410
Covered loans
Commercial loan		254,492		(117,879	)		136,613
Mortgage loan		27,218		(2,860	)		24,358
Installment loan		24,078		(7,298	)		16,780
Total covered loans		305,788		(128,037	)		177,751
Loss share receivable — loans		—		88,694			88,694
Total covered loans and loss share receivable		305,788		(39,343	)		266,445
Core deposit intangible		—		962			962
Covered other real estate		19,021		(7,561	)		11,460
Loss share receivable — other real estate		—		11,339			11,339
Other assets		5,680		—			5,680
Total assets acquired	$	403,883	$	(34,603	)	$	369,280
Liabilities
Deposits
Noninterest-bearing deposit accounts	$	54,242	$	—		$	54,242
Savings deposits		62,737		—			62,737
Time deposits		278,755		4,921			283,676
Total deposits		395,734		4,921			400,655
Accrued expenses and other liabilities		2,569		5,191			7,760
Total liabilities assumed	$	398,303	$	10,112		$	408,415

Midwest Bank and Trust Company — FDIC Assisted Acquisition

On May 14, 2010, the Bank entered into a purchase and assumption agreement with a loss share arrangement with the FDIC, as receiver of Midwest, a wholly owned subsidiary of Midwest Banc Holdings, Inc., to acquire substantially all of the loans and certain other assets and assume substantially all of the deposits and certain liabilities in a whole-bank acquisition of Midwest, a full-service commercial bank located in the greater Chicago, Illinois area. The Bank made a cash payment to the FDIC of approximately $227.5 million to assume the net assets.

The FDIC granted the Bank the option to purchase at appraised value the premises, furniture, fixtures and equipment of Midwest and assume the leases associated with these branches. The Bank exercised its option

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FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

during the third quarter of 2010 and purchased ten of the former Midwest branches, including the furniture, fixtures and equipment within these branches, for a combined purchase price of $25.1 million.

The loans and other real estate acquired are covered by Loss Share Agreements between the Bank and the FDIC which affords the Bank significant protection against future losses. New loans made after the date of the transaction are not covered by the provisions of the Loss Share Agreements. The Bank acquired other assets that are not covered by the Loss Share Agreements, including investment securities purchased at fair market value and other tangible assets.

Pursuant to the terms of the Loss Share Agreements, the FDIC’s obligation to reimburse the Bank for losses with respect to Covered Assets begins with the first dollar of loss incurred. The FDIC will reimburse the Bank for 80% of losses with respect to Covered Assets. The Bank will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC has reimbursed the Bank. The Loss Share Agreement applicable to single-family residential mortgage loans provides for FDIC loss sharing and Bank reimbursement to the FDIC for ten years. The Loss Share Agreement applicable to Covered Assets other than single-family residential mortgage loans provides for FDIC loss sharing for five years and Bank reimbursement to the FDIC for eight years.

The reimbursable losses from the FDIC are based on the pre-acquisition book value of the Covered Assets, as determined by the FDIC at the date of the transaction, the contractual balance of acquired unfunded commitments, and certain future net direct costs incurred in the collection and settlement process. The amount that the Bank realizes on these assets could differ materially from the carrying value that will be reflected in any financial statements, based upon the timing and amount of collections and recoveries on the Covered Assets in future periods.

At the date of the transaction, the estimated fair value of the Covered Loans was $1.8 billion and the expected reimbursement for losses to be incurred by the Bank on the acquired loans was $260.7 million. The expected reimbursement for losses on these Covered Loans is included with covered loans on the accompanying consolidated balance sheets. At the date of the transaction, the estimated fair value of the covered other real estate was $26.2 million and the expected reimbursement for losses to be incurred by the Bank on this covered other real estate was $2.2 million. The expected reimbursement for losses on this covered other real estate is included with other real estate covered by FDIC loss share on the accompanying consolidated balance sheets. These estimated fair values reflect the additional information that the Corporation obtained during the quarter ended December 31, 2010 which resulted in changes to certain fair value estimates made as of the acquisition date. After considering this additional information, the estimated fair value of the Covered Loans decreased by $39.4 million, the FDIC loss share receivable on the Covered Loans increased by $23.9 million, accrued interest decreased by $5.4 million, and other liabilities decreased by $2.3 million as of May 14, 2010 from that originally reported in the quarter ended June 30, 2010. These revised estimates resulted in an increase of goodwill by $18.7 million to $291.2 million, which was recognized in the quarter ended June 30, 2010 and which is reflected in the accompanying December 31, 2010 consolidated balance sheets.

In accordance with the Loss Share Agreements, on July 15, 2020 (the “Midwest True-Up Measurement Date”), the Bank has agreed to pay to the FDIC half of the amount, if positive, calculated as: (1) 20% of the intrinsic loss estimate of the FDIC (approximately $152 million); minus (2) the sum of (A) 25% of the asset premium paid in connection with the Midwest acquisition (approximately $20 million), plus (B) 25% of the Cumulative Shared-Loss Payments (as defined below) plus (C) the Cumulative Servicing Amount (as defined below). For the purposes of the above calculation, Cumulative Shared-Loss Payments means: (i) the aggregate of all of the payments made or payable to FirstMerit Bank; minus (ii) the aggregate of all of the payments made or payable to the FDIC. Cumulative Servicing Amount means the Period Servicing Amounts (as defined in the loss sharing agreements) for every consecutive twelve-month period prior to and ending on the Midwest True-Up Measurement Date. As of the date of acquisition, the true-up liability was estimated to be $6.3 million and is recorded in accrued taxes, expenses and other liabilities on the accompanying consolidated balance sheets. During the quarter ended December 31, 2010, the true-up liability was

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FIRSTMERIT CORPORATION AND SUBSIDARIES

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(Dollars in thousands)

increased to $7.4 million resulting from the re-estimation of the cumulative loss share payments and cumulative servicing amount. Additional information can be found in Note 16 (Fair Value Measurement).

The acquisitions of the net assets of Midwest constituted a business combination and, accordingly, were recorded at their estimated fair values on the date of acquisition. The estimated fair value of the liabilities assumed and cash payment made to the FDIC exceeded the revised fair value of assets acquired, resulting in recognition of goodwill of $291.2 million. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Material adjustments to acquisition date estimated fair values are recorded in the period in which the acquisition occurred and, as a result, previously recorded results are subject to change. Certain reclassifications of prior periods’ amount may also be made to conform to the current period’s presentation and would have no effect on previously reported net income amounts.

Additionally, the Bank and the FDIC are engaged in on-going discussions that may impact which assets and liabilities are ultimately acquired or assumed by the Bank and/or the purchase price. Further, the tax treatment of FDIC assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date.

Additional information can be found in Note 4 (Loans and Allowance for Loan Losses) and Note 5 (Goodwill and Intangible Assets).

The Bank recognized $7.1 million in acquisition related expenses relative to Midwest during the year ended December 31, 2010. These costs were expensed as incurred and are included in the line item entitled professional services in the accompanying consolidated statements of income and comprehensive income.

The operating results of the Corporation for the year ended December 31, 2010 include the operating results from the date of the transaction produced by the acquisition. Due to the significant fair value adjustments recorded, as well as the nature of the Loss Share Agreements in place, Midwest’s historical results are not believed to be relevant to the Corporation’s results, and thus no pro forma information is presented.

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FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The book and fair values of the acquired assets and liabilities, including all purchase accounting adjustments recorded in the year ended December 31, 2010, are presented in the following table.

	As Recorded			Fair Value			As Recorded by
	by FDIC			Adjustments			FirstMerit Bank, N.A.
Assets
Cash and due from banks	$	279,352		$	—		$	279,352
Investment securities		565,210			(977	)		564,233
Commercial loans		1,840,001			(317,526	)		1,522,475
Consumer loans		312,131			(53,742	)		258,389
Total covered loans		2,152,132			(371,268	)		1,780,864
Allowance for loan losses		(5,465	)		5,465			—
Accrued interest		5,436			(5,436	)		—
Loss share receivable — loans		—			260,730			260,730
Total covered loans and loss share receivable		2,152,103			(110,509	)		2,041,594
Core deposit intangible		—			7,433			7,433
Covered other real estate		27,320			(1,165	)		26,155
Loss share receivable — other real estate		—			2,196			2,196
Goodwill		—			291,153			291,153
Other assets		9,838			—			9,838
Total assets acquired	$	3,033,823		$	188,131		$	3,221,954
Liabilities
Deposits
Savings deposits	$	748,681		$	—		$	748,681
Time deposits		1,499,913			9,125			1,509,038
Total deposits		2,248,594			9,125			2,257,719
Borrowings		639,804			83,241			723,045
FDIC liability		—			6,256			6,256
Accrued expenses and other liabilities		7,395			—			7,395
Total liabilities assumed	$	2,895,793		$	98,622		$	2,994,415

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(Dollars in thousands)

3.   Investment Securities

The following tables provide the amortized cost and fair value for the major categories of held-to-maturity and available-for-sale securities. Held-to-maturity securities are carried at amortized cost, which reflects historical cost, adjusted for amortization of premiums and accretion of discounts. Available-for-sale securities are carried at fair value with net unrealized gains or losses reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.

	December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities available for sale
Debt securities
U.S. government agencies	$	399,122	$	703	$	(194	)	$	399,631
U.S States and political subdivisions		296,327		3,537		(2,119	)		297,745
Residential mortgage-backed securities:
U.S. government agencies		1,343,021		52,230		(547	)		1,394,704
Residential collateralized mortgage obligations:
U.S. government agencies		814,774		18,223		(2,306	)		830,691
Non-agency		15,018		—		—			15,018
Corporate debt securities		61,435		—		(16,106	)		45,329
Total debt securities		2,929,697		74,693		(21,272	)		2,983,118
Marketable equity securities		3,922		—		—			3,922
Total securities available for sale	$	2,933,619	$	74,693	$	(21,272	)	$	2,987,040
Securities held to maturity
Debt securities
U.S States and political subdivisions	$	59,962	$	—	$	—		$	59,962
Total securities held to maturity	$	59,962	$	—	$	—		$	59,962

	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities available for sale
Debt securities
U.S. government agencies	$	32,029	$	—	$	(132	)	$	31,897
U.S States and political subdivisions		289,529		4,984		(394	)		294,119
Residential mortgage-backed securities:
U.S. government agencies		1,557,754		55,325		(1,852	)		1,611,227
Residential collateralized mortgage obligations:
U.S. government agencies		566,151		16,394		(238	)		582,307
Non-agency		22		—		—			22
Corporate debt securities		61,385		—		(18,957	)		42,428
Total debt securities		2,506,870		76,703		(21,573	)		2,562,000
Marketable equity securities		3,264		—		—			3,264
Total securities available for sale	$	2,510,134	$	76,703	$	(21,573	)	$	2,565,264
Securities held to maturity
Debt securities
U.S States and political subdivisions	$	50,686	$	—	$	—		$	50,686
Total securities held to maturity	$	50,686	$	—	$	—		$	50,686

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FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

FRB and FHLB stock constitute the majority of other investments on the consolidated balance sheets.

	December 31,
	2010		2009
FRB stock	$	20,725	$	9,064
FHLB stock		139,398		119,145
Other		629		679
Total other investments	$	160,752	$	128,888

FRB and FHLB stock is classified as a restricted investment, carried at cost and valued based on the ultimate recoverability of par value. The $11.7 million increase in FRB stock from December 31, 2009 is a result of the acquisition of FRB stock in the Midwest acquisition. The $20.3 million increase in FHLB stock is a result of the acquired FHLB Chicago stock of $17.0 million in the Midwest acquisition and $3.3 million in the George Washington acquisition. Cash and stock dividends received on the stock are reported as interest income. There are no identified events or changes in circumstances that may have a significant adverse effect on these investments carried at cost.

The carrying value of investment securities pledged to secure trust and public deposits, other obligations and for purposes required or permitted by law amounted to $2.2 billion and $2.0 billion at December 31, 2010 and 2009, respectively.

Realized Gains and Losses

The following table presents the proceeds from sales of available-for-sale securities and the gross realized gains and losses on the sales of those securities that have been included in earnings as a result of those sales. Gains or losses on the sales of available-for-sale securities are recognized upon sale and are determined using the specific identification method.

	Year Ended December 31,
	2010			2009		2008
Proceeds	$	552,078		$	286,946	$	171,392
Realized gains	$	1,810		$	6,037	$	2,354
Realized losses		(955	)		—		(228	)
Net securities gains	$	855		$	6,037	$	2,126

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FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Gross Unrealized Losses and Fair Value

The following table presents the gross unrealized losses and fair value of securities in the securities available-for-sale portfolio by length of time that individual securities in each category had been in a continuous loss position.

	December 31, 2010
	Less than 12 months							12 months or longer							Total
						Number							Number
			Unrealized			impaired				Unrealized			impaired				Unrealized
Securities available for sale	Fair Value		Losses			securities		Fair Value		Losses			securities		Fair Value		Losses
Debt securities
U.S government agencies	$	109,238	$	(194	)		8	$	—	$	—			—	$	109,238	$	(194	)
U.S States and political subdivisions		105,530		(2,095	)		164		665		(24	)		1		106,195		(2,119	)
Residential mortgage-backed securities:
U.S. government agencies		67,474		(544	)		7		195		(3	)		1		67,669		(547	)
Residential collateralized mortgage obligations:
U.S. government agencies		188,264		(2,306	)		17		—		—			—		188,264		(2,306	)
Corporate debt securities		—		—			—		45,329		(16,106	)		8		45,329		(16,106	)
Total temporarily impaired securities	$	470,506	$	(5,139	)		196	$	46,189	$	(16,133	)		10	$	516,695	$	(21,272	)

	December 31, 2009
	Less than 12 months							12 months or longer							Total
						Number of							Number of
			Unrealized			impaired				Unrealized			impaired				Unrealized
Securities available for sale	Fair Value		Losses			securities		Fair Value		Losses			securities		Fair Value		Losses
Debt securities
U.S. government agencies	$	31,897	$	(132	)		3	$	—	$	—			—	$	31,897	$	(132	)
U.S. States and political subdivisions		39,059		(394	)		65		—		—			—		39,059		(394	)
Residential mortgage-backed securities:
U.S. government agencies		216,014		(1,849	)		15		271		(3	)		2		216,285		(1,852	)
Residential collateralized mortgage obligations:
U.S. government agencies		68,513		(238	)		6		—		—			—		68,513		(238	)
Non-agency		5		—			1		—		—			—		5		—
Corporate debt securities		—		—			—		42,428		(18,957	)		8		42,428		(18,957	)
Total temporarily impaired securities	$	355,488		(2,613	)		90	$	42,699	$	(18,960	)		10	$	398,187	$	(21,573	)

At least quarterly the Corporation conducts a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if other than temporary impairment (“OTTI”) exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Under the current OTTI accounting model for debt securities, an OTTI loss must be recognized for a debt security in an unrealized loss position if the Corporation intends to sell the security or it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis. In this situation, the amount of loss recognized in income is equal to the difference between the fair value and the amortized cost basis of the security. Even if the Corporation does not expect to sell the security, the Corporation must evaluate the expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in income. The portion of the unrealized loss relating to other factors, such as liquidity conditions in the market or changes in market interest rates, is recorded in other comprehensive income. Equity securities are also evaluated to determine whether the unrealized loss is expected to be recoverable based on whether evidence exists to support a realizable value equal to or greater than the amortized cost basis. If it is probable that the Corporation will not recover the amortized cost basis, taking into consideration the estimated recovery period and its ability to hold the equity security until recovery, OTTI is recognized.

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FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The security-level assessment is performed on each security, regardless of the classification of the security as available for sale or held to maturity. The assessments are based on the nature of the securities, the financial condition of the issuer, the extent and duration of the securities, the extent and duration of the loss and the intent and whether Management intends to sell or it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis, which may be maturity. For those securities for which the assessment shows the Corporation will recover the entire cost basis, Management does not intend to sell these securities and it is not more likely than not that the Corporation will be required to sell them before the anticipated recovery of the amortized cost basis, the gross unrealized losses are recognized in other comprehensive income, net of tax.

As of December 31, 2010, gross unrealized losses are concentrated within corporate debt securities which is composed of eight, single issuer, trust preferred securities with stated maturities. Such investments are less than 2% of the fair value of the entire investment portfolio. None of the corporate issuers have deferred paying dividends on their issued trust preferred shares in which the Corporation is invested. The fair values of these investments have been impacted by the recent market conditions which have caused risk premiums to increase, resulting in a significant decline in the fair value of the trust preferred securities. Management believes the Corporation will fully recover the cost of these securities and it does not intend to sell these securities and it is not more likely than not that it will be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, Management concluded that these securities were not other-than-temporarily impaired at December 31, 2010 and has recognized the total amount of the impairment in other comprehensive income, net of tax.

Contractual Maturity of Debt Securities

The following table shows the remaining contractual maturities and contractual yields of debt securities held-to-maturity and available-for-sale as of December 31, 2010. Estimated lives on mortgage-backed securities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

							Residential			Residential			Residential
							mortgage			collateralized			collateralized
							backed			mortgage			mortgage
							securities			obligations -			obligations -
	U.S.			U.S. States			U.S.			U.S.			non U.S.			Corporate						Weighted
	Government			and political			Government			Government			Government			debt						Average
	Agencies			subdivisions			Agencies			Agencies			Agencies			securities			Total			Yield
Securities Available for Sale
Remaining maturity:
One year or less	$	290,078		$	16,808		$	5,453		$	60,555		$	—		$	—		$	372,894			1.60	%
Over one year through five years		109,553			16,422			1,371,554			748,119			15,018			—			2,260,666			3.18	%
Over five years through ten years		—			100,349			17,697			22,017			—			—			140,063			4.96	%
Over ten years		—			164,166			—			—			—			45,329			209,495			4.75	%
Fair Value	$	399,631		$	297,745		$	1,394,704		$	830,691		$	15,018		$	45,329		$	2,983,118			3.20	%
Amortized Cost	$	399,122		$	296,327		$	1,343,021		$	814,774		$	15,018		$	61,435		$	2,929,697
Weighted-Average Yield		0.78	%		5.90	%		3.69	%		2.79	%		0.85	%		1.01	%		3.20	%
Weighted-Average Maturity		0.8			9.5			3.1			2.6			3.5			16.8			3.6
Securities Held to Maturity
Remaining maturity:
One year or less	$	—		$	—		$	11,297		$	—		$	—		$	—		$	11,297			4.37	%
Over one year through five years		—			—			9,969			—			—			—			9,969			4.37	%
Over five years through ten years		—			—			3,822			—			—			—			3,822			4.37	%
Over ten years		—			—			34,874			—			—			—			34,874			7.33	%
Fair Value	$	—		$	—		$	59,962		$	—		$	—		$	—		$	59,962			6.09	%
Amortized Cost	$	—		$	—		$	59,962		$	—		$	—		$	—		$	59,962
Weighted-Average Yield		0.00	%		0.00	%		6.09	%		0.00	%		0.00	%		0.00	%		6.09	%
Weighted-Average Maturity		—			—			9.7			—			—			—			9.7

82

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

4.   Loans and Allowance for Loan Losses

Total non-covered and covered loans outstanding are as follows:

	As of December 31,
	2010			2009
Commercial loans	$	4,527,497		$	4,066,522
Mortgage loans		403,843			463,416
Installment loans		1,308,860			1,425,373
Home equity loans		749,378			753,112
Credit card loans		149,506			153,525
Leases		63,004			61,541
Total non-covered loans		7,202,088			6,923,489
Less allowance for noncovered loan losses		(114,690	)		(115,092	)
Net non-covered loans		7,087,398			6,808,397
Covered loans		1,976,754			—
Less allowance for covered loan losses		(13,733	)		—
Net covered loans		1,963,021			—
Net loans	$	9,050,419		$	6,808,397

Originated loans are presented net of deferred loan origination fees and costs which amounted to $3.6 million and $0.3 million at December 31, 2010 and 2009, respectively. Acquired loans, including Covered Loans, are recorded at fair value as of the date of purchase with no allowance for loan loss. As discussed in Note 2 (Business Combinations), the Bank acquired loans of $275.6 million on February 19, 2010 in its acquisition of the First Bank branches, and $177.8 million on February 19, 2010 and $1.8 billion on May 14, 2010 in conjunction with the FDIC-assisted acquisitions of George Washington and Midwest, respectively. The loans that were acquired in these FDIC-assisted transactions are covered by Loss Share Agreements which afford the Bank significant loss protection. Loans covered under Loss Share Agreements, including the amounts of expected reimbursements from the FDIC under these agreements, are reported as covered loans in the accompanying consolidated balance sheets. The Bank and the FDIC are engaged in on-going discussions that may impact which assets and liabilities are ultimately acquired or assumed by the Bank and/or the purchase price.

The Corporation makes loans to officers on the same terms and conditions as made available to all employees and to directors on substantially the same terms and conditions as transactions with other parties. An analysis of loan activity with related parties for the years ended December 31, 2010, 2009 and 2008 is summarized as follows:

	Years Ended December 31,
	2010			2009			2008
Aggregate amount at beginning of year	$	20,126		$	22,005		$	18,833
Additions (deductions)
New loans		6,115			3,504			6,839
Repayments		(7,171	)		(4,808	)		(3,639	)
Changes in directors and their affiliations		(3,347	)		(575	)		(28	)
Aggregate amount at end of year	$	15,723		$	20,126		$	22,005

Acquired Loans

The Corporation evaluates acquired loans for impairment in accordance with the provisions of ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). Acquired loans are considered

83

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

impaired if there is evidence of credit deterioration since origination and if it is probable all contractually required payments will not be collected. Acquired impaired loans are not classified as nonperforming assets at December 31, 2010 as the loans are considered to be performing under ASC 310-30.

All loans acquired in the First Bank acquisition were performing as of the date of acquisition and, therefore, the difference between the fair value and the outstanding principal balance of these loans is being accreted to interest income over the remaining term of the loans.

The Corporation has elected to account for all loans acquired in the George Washington and Midwest acquisitions as impaired loans under ASC 310-30 (“Acquired Impaired Loans”) except for $162.6 million of acquired loans with revolving privileges, which are outside the scope of this guidance, and which are being accounted for in accordance with ASC 310 (“Acquired Non-Impaired Loans”). Interest income, through accretion of the difference between the carrying amount of the Acquired Impaired Loans and the expected cash flows, is recognized on all Acquired Impaired Loans. The difference between the fair value of the Acquired Non-Impaired Loans and their outstanding balances is being accreted to interest income over the remaining period the revolving lines are in effect.

The following is a summary of the Covered Loans acquired in the George Washington and Midwest acquisitions during 2010 as of the dates of acquisition:

	Acquired			Acquired			Total
	Impaired			Non-Impaired			Acquired
	Loans			Loans			Loans
Contractually required principal and interest at acquisition	$	2,677,639		$	238,784		$	2,916,423
Nonaccretable difference (expected losses and foregone interest)		(622,294	)		(51,509	)		(673,803	)
Cash flows expected to be collected at acquisition		2,055,344			187,275			2,242,619
Accretable yield		(260,751	)		(24,637	)		(285,388	)
Fair value of acquired loans at acquisition	$	1,794,593		$	162,638		$	1,957,231

The outstanding balance, including contractual principal, interest, fees and penalties, of all Acquired Impaired Loans was $2.1 billion as of December 31, 2010.

The excess of an Acquired Impaired Loan’s cash flows expected to be collected over the initial investment in the loan is represented by the accretable yield. An Acquired Impaired Loan’s contractually required payments in excess of the amount of its cash flows expected to be collected is represented by its nonaccretable balance. The nonaccretable balance represents expected credit impairment on an Acquired Impaired Loan and is only recognized in income if payments exceed its recorded fair value. The majority of the nonaccretable balance on Acquired Impaired Loans is expected to be received through Loss Share Agreements and is recorded as part of covered loans in the accompanying consolidated balance sheet.

Over the life of the Acquired Impaired Loans, the Corporation continues to estimate cash flows expected to be collected, which includes the effects of estimated prepayments. The Corporation assesses impairment of Acquired Impaired Loans at each balance sheet date by comparing the net present value of updated cash flows (discounted by the effective yield calculated at the end of the previous accounting period) to the recorded book value. For any increases in cash flows expected to be collected, the Corporation adjusts the amount of accretable yield recognized on a prospective basis over the Acquired Impaired Loan’s or pool’s remaining life. To the extent impairment exists, an allowance for loan loss is established through a charge to provision for loan loss.

84

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Changes in the carrying amount of accretable yield for Acquired Impaired Loans were as follows for the year ended December 31, 2010:

	Year Ended
	December 31, 2010
				Carrying
	Accretable			Amount of
	Yield			Loans
Balance at date of acquisition	$	260,751		$	1,794,593
Accretion		(83,782	)		83,782
Net Reclassifications from non-accretable to accretable		50,683			—
Payments received, net		—			(365,558	)
Balance at end of period	$	227,652		$	1,512,817

Allowance for Loan Losses

Transactions in the allowance for noncovered loan losses for the years ended December 31, 2010, 2009, and 2008 are summarized as follows:

	Years Ended December 31,
Allowance for Noncovered Loan Losses	2010			2009			2008
Balance at January 1,	$	115,092		$	103,757		$	94,205
Additions (deductions):
Provision for loan losses		83,783			98,433			58,603
Loans charged off		(104,532	)		(99,713	)		(62,388	)
Recoveries of loans previously charged off		20,347			12,615			13,337
Balance at December 31,	$	114,690		$	115,092		$	103,757

To the extent there is a decrease in the present value of cash flows from Acquired Impaired Loans after the date of acquisition, the Corporation records an allowance for loan losses, net of expected reimbursement under any Loss Share Agreements. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets. During the year ended December 31, 2010, the Corporation increased its allowance for covered loan losses to $13.7 million to reserve for estimated additional losses on certain Acquired Impaired Loans. The increase in the allowance was recorded by a charge to the provision for covered loan losses of $27.2 million and an increase of $22.8 million in the loss share receivable for the portion of the losses recoverable under the Loss Share Agreements.

To the extent there is credit deterioration in Acquired Non-Impaired Loans after the date of acquisition, the Corporation records a provision for loan losses only when the required allowance, net of expected reimbursement under any Loss Share Agreements, exceeds any remaining credit discount. The Corporation did not recognize a provision for loan losses on any Acquired Non-Impaired Loans in the year ended December 31, 2010.

85

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The activity within the allowance for loan loss for covered loans for the year ended December 31, 2010 is shown in the following table:

	Year Ended
Allowance for Covered Loan Losses	December 31, 2010
Balance at beginning of the period	$	—
Provision for loan losses before benefit attributable to FDIC loss share agreements		27,184
Benefit attributable to FDIC loss share agreements		(22,752	)
Net provision for loan losses		4,432
Increase in indemnification asset		22,752
Loans charged-off		(13,451	)
Balance at end of the period	$	13,733

The reserve for unfunded lending commitments, included in accrued taxes, expenses and other liabilities in the consolidated balance sheets, is presented below:

	Years Ended December 31,
Reserve for Unfunded Lending Commitments	2010		2009			2008
Balance at January 1,	$	5,751	$	6,588		$	7,394
Provision for credit losses (benefit)		3,098		(837	)		(806	)
Balance at December 31,	$	8,849	$	5,751		$	6,588

Credit Quality Disclosures

At December 31, 2010, 2009 and 2008, the investment in nonaccrual (non-covered) loans was $104.7 million, $91.7 million and $52.2 million, respectively. At December 31, 2010, 2009 and 2008, loans past due 90 or more and accruing interest was $22.0 million, $35.0 million and $23.9 million, respectively. The following table shows an aging analysis of legacy loans, acquired (non-covered) loans, and covered loans as of December 31, 2010.

Legacy Loans

As of December 31, 2010
													³ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		³ 90		Past Due		Current		Loans		Accruing		Loans
Commercial
C&I	$	5,280	$	7,592	$	12,553	$	25,425	$	1,960,404	$	1,985,829	$	4,730	$	8,368
CRE		10,801		3,832		58,977		73,610		1,953,710		2,027,320		1,908		65,096
Construction		1,490		1,777		18,639		21,906		255,253		277,159		2,795		16,364
Leases		—		—		—		—		63,004		63,004		—		—
Consumer
Installment		14,486		4,491		7,059		26,036		1,279,307		1,305,343		1,929		3,724
Home Equity Lines		2,500		755		744		3,999		722,351		726,350		744		72
Credit Cards		1,570		975		1,337		3,882		145,624		149,506		371		966
Residential Mortgages		10,574		1,665		14,815		27,054		375,022		402,076		8,768		10,004
Total	$	46,701	$	21,087	$	114,124	$	181,912	$	6,754,675	$	6,936,587	$	21,207	$	104,594

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FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Acquired Loans (Noncovered)

													³ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		³ 90		Past Due		Current		Loans		Accruing		Loans
Commercial
C&I	$	1,939	$	511	$	703	$	3,153	$	92,995	$	96,148	$	703	$	—
CRE		493		16,650		38		17,181		123,860		141,041		38		—
Consumer
Installment		40		16		23		79		3,438		3,517		23		—
Home Equity Lines		105		24		46		175		22,853		23,028		46		—
Residential Mortgages		65		—		—		65		1,702		1,767		—		93
Total	$	2,642	$	17,201	$	810	$	20,653	$	244,848	$	265,501	$	810	$	93

Covered Loans

													³ 90 Days
	Days Past Due						Total				Total		Past Due and	Nonaccrual
	30-59		60-89		³ 90		Past Due		Current		Loans		Accruing(*)	Loans(*)
Commercial
C&I	$	6,402	$	3,383	$	82,035	$	91,820	$	209,408	$	301,228
CRE		33,624		19,274		240,128		293,026		877,281		1,170,307
Construction		3,157		3,561		121,656		128,374		41,384		169,758
Consumer
Installment		2,560		1,891		140		4,591		39,630		44,221
Home Equity Lines		1,476		738		443		2,657		183,277		185,934
Residential Mortgages		16,408		3,971		13,498		33,877		71,429		105,306
Total	$	63,627	$	32,818	$	457,900	$	554,769	$	1,422,409	$	1,976,754

* Acquired impaired loans were not classified as nonperforming assets at December 31, 2010 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired impaired loans.

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FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Noncovered loans individually evaluated for impairment and restructured noncovered loans are shown in the following table as of December 31, 2010.

			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment		Balance		Allowance		Investment
Loans with no related allowance
Commercial
C&I	$	12,172	$	15,045	$	—	$	12,816
CRE		34,003		40,619		—		35,238
Construction		10,120		14,710		—		10,833
Consumer
Installment		17,146		17,164		—		17,313
Home equity line		1,747		1,747		—		1,764
Credit card		3,081		3,081		—		2,926
Residential mortgages		1,992		2,765		—		2,027
Loans with a related allowance
Commercial
C&I	$	—	$	—	$	—	$	—
CRE		30,792		37,767		3,852		33,172
Construction		7,585		11,423		1,588		8,928
Consumer
Installment		—		—		—		—
Home equity line		—		—		—		—
Credit card		—		—		—		—
Residential mortgages		9,705		9,776		741		9,713
Total
Commercial	$	94,672	$	119,564	$	5,440	$	100,987
Consumer		33,671		34,533		741		33,743
Total loans	$	128,343	$	154,097	$	6,181	$	134,730

Interest income recognized on impaired loans during 2010, 2009 and 2008 was not material.

The Corporation has also modified certain loans according to provisions in Loss Share Agreements. Losses associated with modifications on these loans are generally eligible for reimbursement under the Loss Share Agreements. Acquired loans restructured after acquisition date are not considered TDRs for purposes of the Corporation’s accounting and disclosure if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools. As of December 31, 2010, TDRs on acquired impaired loans were $37.2 million.

88

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Credit quality indicators as they relate to non-covered and covered loans as of December 31, 2010 are presented in the following tables.

Legacy Loans

As of December 31, 2010
	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	66,802	$	13,387	$	3,301	$	8,069
Grade 2		64,740		4,462		6,700		—
Grade 3		260,351		278,274		39,986		11,414
Grade 4		1,438,738		1,439,321		182,853		42,258
Grade 4w		38,192		47,299		6,096		952
Grade 5		61,284		87,155		8,055		311
Grade 6		55,720		157,422		30,168		—
Grade 7		2		—		—		—
Grade 8		—		—		—		—
	$	1,985,829	$	2,027,320	$	277,159	$	63,004

	Consumer
			Home				Residential
	Installment		Equity Lines		Credit Cards		Mortgages
Current	$	1,279,307	$	722,351	$	145,624	$	375,022
30-59 Days Past Due		14,486		2,500		1,570		10,574
60-89 Days Past Due		4,491		755		975		1,665
³ 90 Days Past Due		7,059		744		1,337		14,815
	$	1,305,343	$	726,350	$	149,506	$	402,076

Acquired Loans (Noncovered)

	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	—	$	—	$	—	$	—
Grade 2		—		—		—		—
Grade 3		451		5,934		—		—
Grade 4		94,850		105,903		—		—
Grade 4w		542		27,710		—		—
Grade 5		5		—		—		—
Grade 6		300		1,494		—		—
Grade 7		—		—		—		—
Grade 8		—		—		—		—
	$	96,148	$	141,041	$	—	$	—

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

	Consumer
			Home				Residential
	Installment		Equity Lines		Credit Cards		Mortgages
Current	$	3,438	$	22,853	$	—	$	1,702
30-59 Days Past Due		40		105		—		65
60-89 Days Past Due		16		24		—		—
³ 90 Days Past Due		23		46		—		—
	$	3,517	$	23,028	$	—	$	1,767

Covered Loans

	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	745	$	—	$	—	$	—
Grade 2		—		—		—		—
Grade 3		3,539		1,537		—		—
Grade 4		122,984		412,927		6,175		—
Grade 4w		6,937		81,613		—		—
Grade 5		73,942		254,156		4,723		—
Grade 6		78,160		364,680		101,415		—
Grade 7		14,921		55,394		57,445		—
Grade 8		—		—		—		—
	$	301,228	$	1,170,307	$	169,758	$	—

	Consumer
			Home				Residential
	Installment		Equity Lines		Credit Cards		Mortgages
Current	$	39,630	$	183,277	$	—	$	71,429
30-59 Days Past Due		2,560		1,476		—		16,408
60-89 Days Past Due		1,891		738		—		3,971
³ 90 Days Past Due		140		443		—		13,498
	$	44,221	$	185,934	$	—	$	105,306

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FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

5.   Goodwill and Other Intangible Assets

Goodwill

Changes to the carrying amount of goodwill not subject to amortization for the years ended December 31, 2010 and 2009 are provided in the following table.

	Commercial		Retail		Wealth		Total
Balance at December 31, 2008	$	73,474	$	59,038	$	6,733	$	139,245
Goodwill acquired:
ABL loans		353		—		—		353
Balance at December 31, 2009		73,827		59,038		6,733		139,598
Goodwill acquired:
First Bank branches		46,414		1,933		—		48,347
Midwest		283,002		5,532		2,620		291,154
Balance at December 31, 2010	$	403,243	$	66,503	$	9,353	$	479,099

The acquisitions resulting in the acquired goodwill are more fully described in Note 2 (Business Combinations).

The Corporation expects $43.5 million of the $48.3 million of goodwill acquired in the First Bank branches acquisition and all of the goodwill acquired in the Midwest acquisition to be deductible for tax purposes.

The Company performed the required annual impairment tests of goodwill as of November 30, 2010. The Corporation’s annual impairment test did not indicate impairment at any of its reporting units. It is possible that a future conclusion could be reached that all or a portion of the Corporation’s goodwill may be impaired, in which case a non-cash charge for the amount of such impairment would be recorded in earnings.

Other Intangible Assets

The following tables show the gross carrying amount and the amount of accumulated amortization of intangible assets subject to amortization.

	December 31, 2010
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Core deposit intangibles	$	16,760	$	(6,871	)	$	9,889
Non-compete covenant		102		(25	)		77
Lease intangible		617		(172	)		445
	$	17,479	$	(7,068	)	$	10,411

	December 31, 2009
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Core deposit intangibles	$	5,210	$	(4,154	)	$	1,056
Non-compete covenant		102		—			102
	$	5,312	$	(4,154	)	$	1,158

As a result of the ABL Loan acquisition on December 15, 2009, a non-compete asset was recognized at its acquisition date fair value of $0.1 million. This non-compete asset will be amortized on an accelerated basis over its estimated useful life of four years.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

As a result of the acquisition of the First Bank branches on February 19, 2010, a core deposit intangible asset was recognized at its acquisition date fair value of $3.2 million and a lease intangible asset was recognized at its acquisition date fair value of $0.6 million. The core deposit intangible asset will be amortized on an accelerated basis over its useful life of ten years, and the lease intangible asset will be amortized over the remaining weighted average lease terms.

A core deposit intangible asset with an acquisition date fair value of $1.0 million was recognized as a result of the George Washington acquisition on February 19, 2010. The core deposit intangible asset will be amortized on an accelerated basis over its useful life of ten years.

A core deposit intangible asset with an acquisition date fair value of $7.4 million was recognized as a result of the Midwest acquisition on May 14, 2010. The core deposit intangible asset will be amortized on an accelerated basis over its useful life of ten years.

These acquisitions are more fully described in Note 2 (Business Combinations).

Amortization expense for intangible assets was $2.9 million for 2010, and $0.3 million in 2009 and $0.6 million in 2008.

The following table shows the estimated future amortization expense for intangible assets subject to amortization as of December 31, 2010.

For the years ended:

December 31, 2011	$	2,171
December 31, 2012		1,867
December 31, 2013		1,226
December 31, 2014		1,073
December 31, 2015		984
	$	7,321

6.   Mortgage Servicing Rights and Mortgage Servicing Activity

The Corporation serviced for third parties approximately $2.1 billion of residential mortgage loans at December 31, 2010 and $2.0 billion at December 31, 2009. Loan servicing fees, not including valuation changes included in loan sales and servicing income, were $5.1 million for the year ended December 31, 2010 and $5.0 million for each of the years ended December 31, 2009, and 2008.

Servicing rights are presented within other assets on the accompanying consolidated balance sheets. The retained servicing rights are initially valued at fair value. Since mortgage servicing rights do not trade in an active market with readily observable prices, the Corporation relies primarily on a discounted cash flow analysis model to estimate the fair value of its mortgage servicing rights. Additional information can be found in Note 16 (Fair Value Measurement). Mortgage servicing rights are subsequently measured using the amortization method. Accordingly, the mortgage servicing rights are amortized over the period of, and in proportion to, the estimated net servicing income and is recorded in loan sales and servicing income.

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(Dollars in thousands)

Changes in the carrying amount of mortgage servicing rights are as follows:

	Years Ended December 31,
	2010			2009			2008
Balance at beginning of period	$	20,784		$	18,778		$	19,354
Addition of mortgage servicing rights		4,966			4,862			3,047
Amortization		(4,433	)		(3,641	)		(2,838	)
Changes in allowance for impairment		—			785			(785	)
Balance at end of period	$	21,317		$	20,784		$	18,778
Fair value at end of period	$	21,579		$	22,241		$	18,803

On a quarterly basis, the Corporation assesses its capitalized servicing rights for impairment based on their current fair value. For purposes of the impairment, the servicing rights are disaggregated based on loan type and interest rate which are the predominant risk characteristics of the underlying loans. A valuation allowance is established through a charge to earnings to the extent the amortized cost of the mortgage servicing rights exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for the stratification, the valuation is reduced through a recovery to earnings. No valuation allowances were required as of December 31, 2010 and 2009. As of December 31, 2008, a valuation allowance of $0.8 million had been established. No permanent impairment losses were written off against the allowance during the years ended December 31, 2010, 2009, and 2008.

Key economic assumptions and the sensitivity of the current fair value of the mortgage servicing rights related to immediate 10% and 25% adverse changes in those assumptions at December 31, 2010 are presented in the following table below. These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in the fair value based on 10% variation in the prepayment speed assumption generally cannot be extrapolated because the relationship of the change in the prepayment speed assumption to the change in fair value may not be linear. Also, in the below table, the effect of a variation in the discount rate assumption on the fair value of the mortgage servicing rights is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in prepayment speed estimates could result in changes in the discount rates), which might magnify or counteract the sensitivities.

Prepayment speed assumption (annual CPR)		9.5	%
Decrease in fair value from 10% adverse change	$	782
Decrease in fair value from 25% adverse change		1,873
Discount rate assumption		9.7	%
Decrease in fair value from 100 basis point adverse change	$	720
Decrease in fair value from 200 basis point adverse change		1,390
Expected weighted-average life (in months)		102.7

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(Dollars in thousands)

The following table shows the estimated future amortization for mortgage servicing rights at December 31, 2010:

Years Ended December 31,
2011	$	3,084
2012		2,857
2013		2,485
2014		2,138
2015		1,823
more than 5 years		8,930
	$	21,317

7.   Restrictions on Cash and Dividends

The average balance on deposit with the FRB or other governing bodies to satisfy reserve requirements amounted to $6.2 million and $2.3 million during 2010 and 2009, respectively. The level of this balance is based upon amounts and types of customers’ deposits held by the banking subsidiary of the Corporation. In addition, deposits are maintained with other banks at levels determined by Management based upon the volumes of activity and prevailing interest rates to compensate for check-clearing, safekeeping, collection and other bank services performed by these banks. At December 31, 2010, cash and due from banks included $3.0 million deposited with the FRB and other banks for these reasons.

Dividends paid by the subsidiaries are the principal source of funds to enable the payment of dividends by the Corporation to its shareholders. These payments by the subsidiaries in 2010 were restricted, by the regulatory agencies, principally to the total of 2010 net income plus undistributed net income of the previous two calendar years. Regulatory approval must be obtained for the payment of dividends of any greater amount.

8.   Premises and Equipment

The components of premises and equipment are as follows:

	At December 31,				Estimated
	2010		2009		useful lives
Land	$	46,807	$	23,114		—
Buildings		197,582		146,772		10-35 yrs
Equipment		118,893		103,405		3-15 yrs
Leasehold improvements		20,660		19,893		1-20 yrs
Software		59,669		56,242		3-7 yrs
		443,611		349,426
Less accumulated depreciation and amortization		245,745		224,221
	$	197,866	$	125,205

Amounts included in other expenses on the accompanying consolidated statements of income and comprehensive income for depreciation and amortization aggregated $22.1 million, $19.5 million and $18.7 million for the years ended 2010, 2009, and 2008, respectively.

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(Dollars in thousands)

9.   Certificates and Other Time Deposits

The aggregate amounts of certificates and other time deposits of $100 thousand and over at December 31, 2010 and 2009 were $936.9 million and $362.3 million, respectively. Interest expense on these certificates and time deposits amounted to $14.1 million, $13.3 million and $43.8 million in 2010, 2009, and 2008, respectively.

10.   Federal Funds Purchased and Securities Sold under Agreements to Repurchase and Wholesale Borrowings

The following table presents the components of federal funds purchased and securities sold under agreements to repurchase and wholesale borrowings:

	As of December 31,
	2010		2009
Federal funds purchased and securities sold under agreements to repurchase	$	777,585	$	996,345
Wholesale borrowings
Bank notes	$	—	$	140,579
FHLB advances		325,560		576,732
Capital securities		—		22,296
Other		447		498
Total wholesale borrowings	$	326,007	$	740,105

Selected financial statement information pertaining to the securities sold under agreements to repurchase and wholesale borrowings is as follows:

	As of December 31,
	2010			2009			2008
Federal funds purchased and securities sold under agreements to repurchase
Average balance during the year	$	907,015		$	1,013,167		$	1,343,441
Weighted-average annual interest rate during the year		0.49	%		0.47	%		2.37	%
Maximum month-end balance	$	1,034,200		$	1,350,475		$	1,603,335
Wholesale borrowings
Average balance during the year	$	510,790		$	952,979		$	663,109
Weighted-average annual interest rate during the year		2.74	%		2.87	%		4.16	%
Maximum month-end balance	$	716,091		$	1,159,181		$	1,344,195

The respective terms of the wholesale borrowings are as follows:

Bank Notes.  During 2000, the Corporation issued $150.0 million of subordinated bank notes under a debt agreement. The notes bore interest at 8.625% and matured on April 1, 2010.

FHLB Advances.  FHLB advances outstanding as of December 31, 2010 include $288.8 million with maturities less than five years and $36.7 million with maturities over five years. The FHLB advances have interest rates that range from 1.09% to 7.15% as of December 31, 2010. FHLB advances were secured by real estate loans totaling $4.6 billion at December 31, 2010 and $3.8 billion at December 31, 2009.

Capital Securities.  In connection with the 1999 merger of Signal Corp., the Corporation assumed the FirstMerit Capital Trust I (the “Trust”), formerly Signal Capital Trust I, a guarantee of Series B 8.67% trust preferred securities

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(Dollars in thousands)

(“Capital Securities”), as well as 8.67% junior subordinate deferrable interest debentures (“Debentures”) which were issued in connection with the sale of the Capital Securities by the Trust. In the quarter ended June 30, 2010, the Corporation voluntarily redeemed all of its outstanding Capital Securities and repaid in full all of the outstanding Debentures.

Lines of Credit.  As of December 31, 2010, the Corporation has two lines of credit with financial institutions. The terms of each line of credit are described as follows:

The Corporation had a $15.0 million line of credit with a financial institution with no outstanding balance as of December 31, 2010 and 2009. The line carries two interest rate options: one month LIBOR plus 200 basis points; or the greater of the prime lending rate of the financial institution or the Federal Funds Open Rate plus 50 basis points.

The Corporation had a $15.0 million line of credit with a financial institution with no outstanding balance as of December 31, 2010 and 2009. The line carries two interest rate options: one month LIBOR plus 175 basis points; or the greater of the prime lending rate of the financial institution and the sum of the Federal Funds Open Rate plus 50 basis points or the sum of the daily LIBOR Rate plus 100 basis points.

Contractual Maturities

The following table illustrates the contractual maturities of the Corporation’s federal funds purchased and securities sold under agreements to repurchase and wholesale borrowings at December 31, 2010:

	One Year		One to		Three to		Over Five
	or Less		Three Years		Five Years		Years		Total
Federal funds purchased and securities sold under agreements to repurchase	$	702,585	$	50,000	$	25,000	$	—	$	777,585
Wholesale Borrowings
FHLB advances	$	120,000	$	51,485	$	117,336	$	36,739	$	325,560
Other		53		116		131		147		447
Total wholesale borrowings	$	120,053	$	51,601	$	117,467	$	36,886	$	326,007

The following table provides further detail of the maturities of federal funds purchased and securities sold under agreements to repurchase at December 31, 2010:

Overnight	$	702,585
Up to thirty days		—
Thirty day to ninety days		—
Over ninety days		75,000
	$	777,585

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

11.   Income Taxes

Income tax expense is comprised of the following:

	Years Ended December 31,
	2010		2009		2008
Taxes currently payable
Federal	$	5,188	$	18,291	$	60,512
State		1,460		237		—
Deferred (benefit) expense		30,443		7,117		(11,248	)
	$	37,091	$	25,645	$	48,904

The actual income tax rate differs from the statutory tax rate as shown in the following table:

	Years Ended December 31,
	2010			2009			2008
Statutory rate		35.00	%		35.00	%		35.00	%
Increase (decrease) in rate due to:
Interest on tax-exempt securities and tax-free loans, net		(3.36	)		(4.09	)		(2.29	)
Bank owned life insurance		(3.94	)		(4.65	)		(2.65	)
State income tax (net)		0.68			0.15			—
Tax credits		(2.37	)		(1.97	)		(1.06	)
ESOP Dividends		(0.29	)		(0.49	)		(0.51	)
Non-deductible meals and entertainment		0.30			0.28			0.19
Other		0.47			0.44			0.36
Effective tax rates		26.49	%		23.79	%		29.04	%

Income tax expense as reflected in the previous table excludes net worth-based taxes, which are assessed in lieu of income tax in Ohio, Pennsylvania and Missouri. These taxes are $7.6 million, $6.1 million and $6.4 million in 2010, 2009, and 2008, respectively, and are recorded in other operating expense in the accompanying consolidated statements of income and comprehensive income.

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(Dollars in thousands)

Principal components of the Corporation’s net deferred tax asset are summarized as follows:

	Years Ended
	December 31,
	2010			2009
Deferred tax assets:
Allowance for credit losses	$	43,959		$	42,719
Employee benefits		34,692			38,303
REMIC		7,263			7,497
Acquired liabilities		7,380			—
Core deposit intangible		649			—
Other		35			667
		93,978			89,186
Deferred tax liabilities:
Leased assets and depreciation		(3,381	)		(6,859	)
Acquired loans		(50,112	)		—
Available for sale securities		(18,697	)		(19,296	)
FHLB stock		(25,577	)		(25,577	)
Loan fees and expenses		(6,757	)		(6,179	)
Goodwill		7,645			(6,216	)
		(96,879	)		(64,127	)
Total net deferred tax asset (liability)	$	(2,901	)	$	25,059

The period change in deferred taxes recorded both directly to capital and as a part of the income tax expense can be summarized as follows:

	Years Ended
	December 31,
	2010			2009
Deferred tax changes reflected in other comprehensive income	$	(346	)	$	15,411
Deferred tax changes reflected in Federal income tax expense		30,443			7,117
Deferred tax changes reflected in acquired net assets		(2,137	)		—
Net change in deferred taxes	$	27,960		$	22,528

Income tax benefits are recognized in the financial statements for a tax position only if it is considered “more likely than not” of being sustained on audit based solely on the technical merits of the income tax position. If the recognition criteria are met, the amount of income tax benefits to be recognized is measured based on the largest income tax benefit that is more than 50 percent likely to be realized on ultimate resolution of the tax position.

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(Dollars in thousands)

A reconciliation of the change in the reserve for uncertain tax positions is as follows:

							Gross
				Accrued			Unrecognized
	Federal and			Interest and			Income Tax
	State Tax			Penalties			Benefits
Balance at January 1, 2010	$	1,034		$	622		$	1,656
Additions for tax provisions related to current year		23			—			23
Additions for tax provisions related to prior year		(36	)		877			841
Reduction for tax positions related to prior tax years		(42	)		(698	)		(740	)
Balance at December 31, 2010	$	979		$	801		$	1,780
Components of Reserve:
Potential non-deductible compensation	$	—		$	—		$	—
Potential adjustment to non-deductible interest expense		100			13			113
Timing of the accrual for interest on nonperforming assets		—			540			540
State income tax exposure		879			248			1,127
Balance at December 31, 2010	$	979		$	801		$	1,780

The Corporation recognized accrued interest and penalties, as appropriate, related to unrecognized tax benefits (“UTBs)”, in the effective tax rate. The balance of accrued interest and penalties at the reporting periods is presented in the table above. The reserve of uncertain tax positions is recorded in accrued taxes, expenses and other liabilities on the consolidated balance sheets.

The Corporation and its subsidiaries are routinely examined by various taxing authorities. With few exceptions, the Corporation is no longer subject to federal, state and local tax examinations by tax authorities for years before 2007. The expiration of statutes of limitation for various jurisdictions is expected to reduce the UTB balance by approximately $0.5 million within the next twelve months. Management anticipates that the UTB balance will increase by $0.5 million as a result of the 2010 tax filings in the next twelve months. If the total amount of UTBs were recognized the effective tax rate would decrease by 128 basis points to 25.22% at December 31, 2010.

Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to uncertain income tax positions. During 2008, federal statutes were changed to allow ordinary loss treatment on the sale of applicable preferred stock. This change eliminated a potential 2008 UTB. As a participant in Treasury’s Capital Purchase Program, an additional portion of senior executive’s compensation was not deductible in 2009. As of December 31, 2010, Management had identified no other potential Treasury regulations or legislative initiatives that could have a significant impact on the UTB balance within the next twelve months.

12.   Benefit Plans

Pension plans.  The Corporation has a defined benefit pension plan which covers employees vested in the pension plan as of December 31, 2006. On May 18, 2006, the Corporation’s Board of Directors approved freezing the defined benefit pension plan for non-vested employees and closed it to new entrants after December 31, 2006. In general, benefits are based on years of service and the employee’s compensation. The Corporation’s funding policy is to contribute annually the maximum amount that can be deducted for federal income tax reporting purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. The Corporation made a $20.0 million and $10.0 million contribution to the qualified pension plan during 2010 and 2009, respectively; however, no contribution was made during 2008. Management anticipates contributing $10.0 million to the qualified pension plan during 2011.

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(Dollars in thousands)

A supplemental non-qualified, non-funded pension plan for certain officers is also maintained and is being provided for by charges to earnings sufficient to meet the projected benefit obligation. The pension cost for this plan is based on substantially the same actuarial methods and economic assumptions as those used for the defined benefit pension plan.

Postretirement medical and life insurance plan.  The Corporation also sponsors a benefit plan which provides postretirement medical and life insurance for retired employees. Effective January 1, 1993, the plan was changed to limit the Corporation’s medical contribution to 200% of the 1993 level for employees who retire after January 1, 1993. The Corporation reserves the right to terminate or amend the plan at any time.

Effective March 1, 2009, the Corporation discontinued the subsidy for retiree medical for current eligible active employees. Eligible employees who retired on or prior to March 1, 2009, were offered subsidized retiree medical coverage until age 65. Employees who retire after March 1, 2009 will not receive a Corporation subsidy toward retiree medical coverage. The elimination of Corporation subsidized retiree medical coverage resulted in an accounting curtailment gain of $10.2 million.

The cost of postretirement benefits expected to be provided to current and future retirees is accrued over those employees’ service periods. In addition to recognizing the cost of benefits for the current period, recognition is being provided for the cost of benefits earned in prior service periods (the transition obligation).

Other employee benefits.  FirstMerit’s Amended and Restated Executive Deferred Compensation Plan allows participating executives to elect to receive incentive compensation payable with respect to any year in whole shares of common stock or cash, to elect to defer receipt of any incentive compensation otherwise payable with respect to any year in increments of 1%. An account is maintained in the name of each participant and is credited with cash or shares of common stock equal to the number of shares that could have been purchased with the amount of any compensation so deferred, at the closing price of the common stock on the day as of which the stock account is so credited. The deferred compensation liability at December 31, 2010 and 2009 was $9.9 million and $10.1 million, respectively, and is included in accrued taxes, expenses and other liabilities on the accompanying consolidated balance sheets.

Savings plans.  The Corporation maintains a savings plan under Section 401(k) of the Internal Revenue Code, covering substantially all full-time and part-time employees beginning in the quarter following three months of continuous employment. The savings plan was approved for non-vested employees in the defined benefit pension plan and new hires as of January 1, 2007. Through the year ended December 31, 2008, employee contributions were partially matched by the Corporation in an amount equal to 50% of each employee’s voluntary pretax contribution up to 6% of each employee’s eligible compensation and in an amount equal to 50% of each employee’s voluntary pretax contributions up to 3% of each employee’s eligible compensation. Matching contributions vest in accordance with plan specifications. Effective January 1, 2009, the Corporation suspended its matching contribution to the savings plan. The Corporation did not make a contribution to the savings plan during 2010 and 2009. Contributions made by the Corporation to the savings plan were $4.2 million for 2008.

The Corporation maintains a qualified defined contribution plan known as Retirement Investment Plan (“RIP”). This plan was established January 1, 2007 for any employee that was not vested in the defined benefit plan on December 31, 2006. All new hires after January 1, 2007 became eligible for the RIP. To be eligible for the annual contribution, an employee must be actively employed on December 31 and eligible to participate in the 401(k) plan (date of hire and age 21 on or before July 1, 2007). The Corporation made a $2.5 million, $1.8 million and $1.4 million contribution to the RIP for the years ended December 31, 2010, 2009 and 2008, respectively.

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(Dollars in thousands)

Actuarial assumptions.  The expected long-term rate of return was estimated using market benchmarks for equities and bonds applied to the plan’s target asset allocation and expected duration of benefit payments. The Corporation’s pension plan weighted-average allocations at measurement dates by asset category are as follows:

	Percentage of
	Plan Assets on
	Measurement Date
	December 31,
Asset Category	2010			2009
Cash and domestic money market funds		4.39	%		2.93	%
U.S. Treasury obligations		2.97	%		3.44	%
U.S. Government agencies		3.33	%		4.68	%
Corporate bonds		5.38	%		6.45	%
Common stocks		24.56	%		27.21	%
Equity mutual funds		23.26	%		40.85	%
Fixed income mutual funds		19.84	%		14.44	%
Foreign mutual funds		16.27	%		—
		100.00	%		100.00	%

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The Corporation’s asset allocation strategy favors equities, with a target allocation of approximately 65% equity securities. The asset allocation policy is as below:

Asset Class	Target			Range
Large Cap U.S. Equity		35.00	%		25%-40%
Small/Mid Cap U.S. Equity		15.00	%		5%-20%
International Equity		15.00	%		10%-20%
Total Equity		65.00	%		50%-75%
Fixed Income		35.00	%		30%-50%
Cash Equivalents		0.00	%		0%-10%
		100.00	%

The Corporation uses historic plan asset returns combined with current market conditions to estimate the rate of return. The expected rate of return on plan assets is a long-term assumption and generally does not change annually. The expected return on equities was computed using a valuation framework, which projected future returns based on current equity valuations rather than historical returns. Due to active management of the plan’s assets, the return on the plan equity investments historically has exceeded market averages. Management estimated the rate by which the plan assets would outperform the market in the future based on historical experience adjusted for changes in asset allocation and expectations for overall future returns on equities compared to past periods.

The discount rate reflects the market rate for high-quality fixed income debt instruments, that is rated double-A or higher by a recognized ratings agency, on the Corporation’s annual measurement date and is subject to change each year. The discount rate is selected on data specific to the Corporation’s plans and employee population. During 2010, the Corporation used a discount rate of 5.60% in the pension liability valuation, a decrease of 38 basis points from the 2009 discount rate.

The average rate of compensation increase for the qualified pension plans was 5.22% in 2010 and 2009. The average rate of compensation increase for the supplemental executive retirement nonqualified pension plan was 3.75% in 2010 and 2009.

For measurement purposes, the assumed annual rate increase in the per capita cost of non-Medicare covered health care benefits was 9.0% in 2010, decreased gradually to 5.0% in 2014, and Medicare covered health care benefits was 13.0%, decreased gradually to 5.0% in 2018. Increasing or decreasing the assumed health care cost trend rate by one percentage point each future year would not have a material impact on net postretirement benefit cost or obligations.

Additional information on the assumptions used to value the pension liability is included in Critical Accounting Policies within Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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(Dollars in thousands)

The actuarial assumptions used in the defined benefit qualified and nonqualified pension plans and the postretirement medical and life insurance benefit plan were as follows:

Weighted-average assumptions	Pension Benefits									Postretirement Benefits
as of 12/31 measurement date	2010			2009			2008			2010			2009			2008
Discount Rate		5.60	%		5.98	%		6.86	%		4.43	%		4.94	%		6.93	%
Long-term rate of return on assets		8.25	%		8.50	%		8.50	%		—			—			—
Rate of compensation increase		3.75 - 5.22%			3.75% - 5.22%			3.75% - 5.22%			—			—			—
Medical trend rates — non-medicare risk Pre-65		—			—			—			9.0% to 5.0%			7.0% to 5.0%			7.5% to 5.0%
Medical trend rates — non-medicare risk Post-65		—			—			—			13.0% to 5.0%			9.0% to 5.0%			7.5% to 5.0%
Prescription Drugs		—			—			—			9.0% to 5.0%			9.0% to 5.0%			9.5% to 5.0%
Medical trend rates — medicare risk HMO Post-65		—			—			—			13.0% to 5.0%			9.0% to 5.0%			9.5% to 5.0%

The components of net periodic pension and postretirement benefits are:

	Pension Benefits									Postretirement Benefits
	2010			2009			2008			2010		2009			2008
Service cost	$	5,919		$	5,290		$	5,419		$	61	$	173		$	994
Interest cost		11,200			11,003			10,319			959		1,412			1,771
Expected return on assets		(12,059	)		(11,222	)		(11,688	)		—		—			—
Prior service costs		394			392			115			—		(90	)		(406	)
Cumulative net loss		5,708			3,031			2,983			15		63			211
Curtailment gain		—			—			—			—		(10,239	)		—
Adjustment for measurement date change
Prior service cost/(credit)		—			—			44			—		—			(135	)
Actuarial loss		—			—			994			—		—			71
Net periodic pension/postretirement cost (benefit)	$	11,161		$	8,494		$	8,186		$	1,034	$	(8,681	)	$	2,506

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(Dollars in thousands)

The following table sets forth the plans’ funded status and amounts recognized in the Corporation’s consolidated financial statements.

	Pension Benefits						Postretirement Benefits
	2010			2009			2010			2009
Projected Benefit Obligation
(PBO), beginning of year	$	193,359		$	163,625		$	19,675		$	29,221
Service cost		5,919			5,290			61			173
Interest cost		11,200			11,003			959			1,412
Plan Amendments		—			1,315			—			—
Participant contributions		—			—			509			612
Actuarial gain		8,512			22,033			955			482
Benefits paid		(7,807	)		(9,907	)		(2,216	)		(2,254	)
Curtailment gain		—			—			—			(9,971	)
PBO, end of year	$	211,183		$	193,359		$	19,942		$	19,675
Change in Plan Assets
Fair Value of Plan Assets, beginning of year	$	122,800		$	99,860		$	—		$	—
Actual return on plan assets		16,129			21,868			—			—
Participant contributions		—			—			509			612
Employer contributions		21,268			10,978			1,708			1,642
Benefits paid		(7,807	)		(9,907	)		(2,216	)		(2,254	)
Fair Value of Plan Assets, end of year	$	152,390		$	122,799		$	—		$	—
Funded Status	$	(58,793	)	$	(70,560	)	$	(19,942	)	$	(19,675	)
Prior service costs		2,303			2,696			—			—
Cumulative net loss		86,381			87,647			3,161			2,220
Prepaid (accrued) pension/postretirement cost	$	29,891		$	19,783		$	(16,782	)	$	(17,455	)
Amounts recognized in the statement of financial condition consist of:
Accrued benefit liability		(58,793	)		(70,560	)		(19,942	)		(19,675	)
Intangible asset		—			—			—			—
Accumulated other comprehensive income		88,684			90,343			3,161			2,220
Net amount recognized	$	29,891		$	19,783		$	(16,782	)	$	(17,455	)

Accumulated Benefit Obligation (“ABO”) for the Corporation’s pension plan was $190.8 million and $172.7 million for the years ended December 31, 2010 and 2009, respectively. Information for those pension plans that had an ABO in excess of plan assets is as follows:

	Pension Benefits				Postretirement Benefits
	2010		2009		2010		2009
Aggregate projected benefit obligation	$	211,183	$	193,359		n/a		n/a
Aggregate accumulated benefit obligation		190,828		172,656		n/a		n/a
Aggregate fair value of plan assets		152,390		122,799		n/a		n/a

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 introduced a prescription drug benefit under Medicare, and provides a federal subsidy to sponsors of retiree healthcare benefit plans that offer “actuarially equivalent” prescription drug coverage to retirees. For the years ended December 31, 2010, 2009 and 2008 these subsidies did not have a material effect on our APBO and net postretirement benefit cost.

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(Dollars in thousands)

At December 31, 2010, the projected benefit payments for the pension plans and the postretirement benefit plan, which reflect expected future service, as appropriate, totaled $14.0 million and $2.4 million in 2011, $13.7 million and $2.3 million in 2012, $12.9 million and $2.2 million in 2013, $13.0 million and $2.0 million in 2014, $12.7 million and $1.9 million in 2015, and $68.0 million and $6.5 million in years 2016 through 2020, respectively. The projected payments were calculated using the same assumptions as those used to calculate the benefit obligations in the preceding tables.

Amounts recognized in accumulated other comprehensive loss consist of:

	Pension Benefits				Postretirement Benefits
	2010		2009		2010		2009
Prior service cost	$	2,303	$	2,696	$	—	$	—
Cumulative net loss		86,381		87,647		3,161		2,220
Total amount recognized	$	88,684	$	90,343	$	3,161	$	2,220

Unrecognized Actuarial Gains and Losses.  Actuarial gains and losses are changes in measures of the plan assets or benefit obligations that occur during a period because of differences between actual experience and assumptions, or that occur as a result of changes in one or more actuarial assumptions. Actuarial gains and losses can arise from differences between the expected and actual return on plan assets, from changes in the benefit obligation due to changes in discount rates, from changes in assumptions about future compensation increases, health care cost trend rates, or other factors.

Net unrecognized actuarial gains or losses and prior service costs are recognized as an adjustment to accumulated other comprehensive income, net of tax, in the period they arise and, subsequently, recognized as a component of net periodic benefit cost over the average remaining service period of the active employees.

The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost (credit) during the next fiscal year are as follows:

	Pension		Postretirement		Total
Prior service cost	$	393	$	—	$	393
Cumulative net loss		7,120		113		7,233

The following is a description of the valuation methodologies used to measure assets held by the pension plans at fair value.

•  Domestic and foreign money market funds:  Valued at the closing net asset value (NAV) of shares held by the pension plans at year end as reported on the active market on which the money market funds are traded.

•  United States government securities:  Valued at the closing price reported in the active market in which the individual security is traded.

•  United States government agency issues and corporate bonds:  Valued using independent evaluated prices which are based on observable inputs, such as available trade information, spreads, bids and offers, and United States Treasury curves.

•  Common stocks:  Valued at the closing price reported on the active market on which the individual securities are traded.

•  Registered equity, fixed income and foreign mutual funds:  Valued at the NAV of shares held by the pension plans at year end as reported on the active market on which the mutual funds are traded. Exchange-traded mutual funds are valued at the closing price on the exchange or system where the security is principally traded.

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(Dollars in thousands)

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Corporation believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of financial instruments could result in a different fair value measurement at the reporting date.

The following table sets forth by level, within the fair value hierarchy, the pension plans’ assets at fair value as of December 31, 2010:

	Level 1		Level 2		Level 3		Total
Domestic money market funds	$	6,696	$	—	$	—	$	6,696
United States government securities		—		4,526		—		4,526
United States government agency issues		—		5,077		—		5,077
Corporate bonds		—		8,195		—		8,195
Common stocks		37,426		—		—		37,426
Equity mutual funds		35,450		—		—		35,450
Fixed income mutual funds		30,233		—		—		30,233
Foreign mutual funds		24,787		—		—		24,787
Total assets at fair value	$	134,592	$	17,798	$	—	$	152,390

13.   Share-Based Compensation

The Corporation’s 1999, 2002 and 2006 Stock and Equity Plans (the “Plans”) provide stock options and restricted stock awards to certain key employees (and to all full-time employees in the case of the 1999, 2002 and 2006 Plans) for up to 6,122,727 common shares of the Corporation. In addition, the 2002 and 2006 Plans provide for the granting of non-qualified stock options and nonvested (restricted) shares to certain non-employee directors of the Corporation. Outstanding options under these Plans are generally not exercisable for twelve months from date of grant. The total share-based compensation expense recognized during the years ended December 31, 2010, 2009, and 2008 was $7.3 million, $7.3 million, and $4.5 million, respectively, and the related tax benefit thereto was $2.5 million, $2.6 million, and $1.6 million, respectively. Share-based compensation expense related to awards granted to employees as well as awards granted to directors is recorded in salaries, wages, pension and employee benefits in the accompanying consolidated statements of income and comprehensive income.

Certain of the Corporation’s share-based award grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Corporation has elected to recognize compensation expense for awards with graded vesting schedule on a straight-line basis over the requisite service period for the entire award. Compensation expense is recognized based on the estimated number of stock options and awards for which service is to be rendered. Upon stock option exercise or stock unit conversion, it is the policy of the Corporation to issue shares from treasury stock.

In accordance with the Corporation’s stock option and nonvested (restricted) shares plans, employee participants that are 55 or older and have 15 years of service are eligible to retire. At retirement, all unvested awards continue to vest. Prior to the Plans’ amendments during 2007, which eliminated post retirement vesting, all unvested awards at the time of retirement continued to vest. The Corporation accelerates the recognition of compensation costs for share-based awards granted to retirement-eligible employees prior and employees who become retirement-eligible is granted or modified, the compensation cost of these awards is recognized over the period up to the date the employee first becomes eligible to retire.

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(Dollars in thousands)

Stock Option Awards

Options under these Plans are granted with an exercise price equal to the market price of the Corporation’s stock at the date of grant; those option awards generally vest based on 3 years of continuous service and have a 10 year contractual term. Options granted as incentive stock options must be exercised within ten years and options granted as non-qualified stock options have terms established by the Compensation Committee of the Board and approved by the non-employee directors of the Board. Upon termination, options are cancelable within defined periods based upon the reason for termination of employment.

The Black-Scholes option pricing model was used to estimate the fair market value of the options at the date of grant. This model was originally developed for use in estimating the fair value of traded options which have different characteristics from the Corporation’s employee stock options. Because of these differences, the Black-Scholes model is not a perfect indicator of value of an employee stock option, but it is commonly used for this purpose.

A summary of stock option activity under the Plans as of December 31, 2010 and 2009, and changes during the years then ended is as follows:

						Weighted-Average		Aggregate
				Weighted-Average		Remaining		InstrinsicValue
Options	Shares (000’s)			Exercise Price		Contractual Term		(000’s)
Outstanding at January 1, 2009		6,109		$	25.54
Granted		—			—
Shares from stock dividend		68			—
Exercised		(154	)		18.78
Forfeited		(1	)		24.28
Expired		(1,472	)		26.15
Outstanding at December 31, 2009		4,550		$	25.35		2.92	$	402
Granted		—			—
Exercised		(48	)		17.18
Forfeited		—			—
Expired		(210	)		25.14
Outstanding at December 31, 2010		4,292		$	25.29		2.01	$	70
Exercisable at December 31, 2009		4,542		$	25.36		2.92	$	402
Exercisable at December 31, 2010		4,292		$	25.29		2.01	$	70

There were no options granted in the years ended December 31, 2010 and 2009. The total intrinsic value of options exercised during the years ended December 31, 2010 and 2009 was $0.2 million and $0.3 million, respectively. Cash received from options exercised under all share-based payment arrangement for the years ended December 31, 2010 and 2009 was $0.8 million and $2.9 million, respectively. The actual tax benefit realized for the tax deduction from option exercise of the share-based payment arrangements totaled $0.1 million for the years ended December 31, 2010 and December 31, 2009.

In June and September 2009, the Corporation issued a $0.13 stock dividend. The Corporation’s Plan includes an antidilution feature designed to equalize the fair value of the award as a result of an equity restructuring such as the stock dividend. The number of shares available for purchase and the option price were adjusted proportionately by the Board of Directors which resulted in 68,000 additional shares outstanding in 2009. No stock dividends were issued in 2010.

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(Dollars in thousands)

The Corporation has a policy of repurchasing shares on the open market to satisfy share option exercises. The Corporation repurchased 2.6 million common shares in the first quarter of 2006 which was adequate to cover option exercises for the full years 2010, 2009, and 2008.

At December 31, 2010, there was no unrecognized compensation costs related to stock options granted to be realized under the Plans. At December 31, 2009 the amount of unrecognized compensation cost was not material to the accompanying consolidated financial statements.

Nonvested Stock Awards

The market price of the Corporation’s common shares at the date of grant is used to estimate the fair value of nonvested (restricted) stock awards. A summary of the status of the Corporation’s nonvested shares as of December 31, 2010 and 2009 and changes during the years then ended, is as follows:

				Weighted-Average
				Grant Date
Nonvested (restricted) Shares	Shares (000’s)			Fair Value
Nonvested at January 1, 2009		678		$	20.61
Granted		554			16.53
Vested		(328	)		21.18
Forfeited or expired		(54	)		18.34
Nonvested at December 31, 2009		850		$	17.88
Granted		451			22.85
Vested		(382	)		18.32
Forfeited or expired		(48	)		19.35
Nonvested at December 31, 2010		871		$	20.17

As of December 31, 2010 and 2009, there was $5.2 million and $4.3 million, respectively, of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of 1.60 years for the year ended December 31, 2010 and 1.62 years for the year ended December 31, 2009. The total fair value of shares vested during the year ended December 31, 2010 and 2009 was $8.1 million and $5.7 million, respectively.

ASC 718, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards (“ASC 718”), applies to entities that have share-based payment arrangements that entitle employees to receive dividends or dividend equivalents on equity-classified nonvested shares when those dividends or dividend equivalents are charged to retained earnings and result in an income tax deduction. Entities that have share-based payment arrangements that fall within the scope of ASC 718 are required to increase capital surplus for a realized income tax benefit associated with dividends or dividend equivalents paid to employees for equity classified nonvested equity awards.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

14.   Parent Company

Condensed financial information of FirstMerit Corporation (Parent Company only) is as follows:

Condensed Balance Sheets

	As of December 31,
	2010		2009
Assets:
Cash and due from banks	$	9,648	$	26,002
Investment securities		1,340		1,295
Loans to subsidiaries		57,326		128,550
Investment in subsidiaries, at equity in underlying value of their net assets		1,431,239		957,774
Other assets		11,381		9,466
Total Assets	$	1,510,934	$	1,123,087
Liabilities and Shareholders’ Equity:
Wholesale borrowings	$	—	$	52,393
Accrued and other liabilities		3,219		5,067
Shareholders’ equity		1,507,715		1,065,627
Total Liabilities and Shareholders’ Equity	$	1,510,934	$	1,123,087

Condensed Statements of Income

	Years Ended December 31,
	2010			2009			2008
Income:
Cash dividends from subsidiaries	$	22,720		$	31,125		$	112,591
Other income		1,502			2,881			2,708
		24,222			34,006			115,299
Interest and other expenses		10,387			12,065			10,761
Income before federal income tax benefit and equity in undistributed income of subsidiaries		13,835			21,941			104,538
Federal income tax benefit		(2,267	)		(3,336	)		(2,250	)
		16,102			25,277			106,788
Equity in undistributed income of subsidiaries		86,807			56,893			12,697
Net income	$	102,909		$	82,170		$	119,485

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Condensed Statements of Cash Flows

	Years Ended December 31,
	2010			2009			2008
Operating activities:
Net income	$	102,909		$	82,170		$	119,485
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed (income) loss of subsidiaries		(86,807	)		(56,893	)		(12,697	)
Increase in Federal income tax payable		(2,042	)		3,893			4,291
Other		(175	)		(391	)		2,177
Net cash provided by operating activities		13,885			28,779			113,256
Investing activities:
Loans to subsidiaries		(242,327	)		(318,000	)		(186,500	)
Repayment of loans to subsidiaries		313,550			293,000			173,500
Payments for investments in and advances to subsidiaries		(381,600	)		(350	)		—
Purchases of investment securities		(45	)		(46	)		(59	)
Net cash used by investing activities		(310,422	)		(25,396	)		(13,059	)
Financing activities:
Conversion of subordinated debt		—			—			(366	)
Proceeds from short-term borrowings		—			—			1,000
Repayment of short-term borrowings		(52,393	)		(47	)		(2,511	)
Proceeds from issuance of preferred stock		—			125,000			—
Repurchase of preferred stock		—			(125,000	)		—
Repurchase of common stock warrant		—			(5,025	)		—
Proceeds from issuance of common stock		400,018			79,526			—
Cash dividends-preferred		—			(1,789	)		—
Cash dividends-common stock		(65,634	)		(63,891	)		(93,825	)
Proceeds from exercise of stock options		826			2,936			2,103
Purchase of treasury shares		(2,634	)		(1,758	)		(747	)
Net cash provided (used) by financing activities		280,183			9,952			(94,346	)
Net increase in cash and cash equivalents		(16,354	)		13,335			5,851
Cash and cash equivalents at beginning of year		26,002			12,667			6,816
Cash and cash equivalents at end of year	$	9,648		$	26,002		$	12,667

15.   Segment Information

Management monitors the Corporation’s results by an internal performance measurement system, which provides lines of business results and key performance measures. The profitability measurement system is based on internal management methodologies designed to produce consistent results and reflect the underlying economics of the businesses. The development and application of these methodologies is a dynamic process. Accordingly, these measurement tools and assumptions may be revised periodically to reflect methodological, product, and/or management organizational changes. Further, these tools measure financial results that support the strategic objectives and internal organizational structure of the Corporation. Consequently, the information presented is not necessarily comparable with similar information for other financial institutions.

A description of each business, selected financial performance, and the methodologies used to measure financial performance are presented below.

•  Commercial — The commercial line of business provides a full range of lending, depository, and related financial services to middle-market corporate, industrial, financial, business banking (formerly known as

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(Dollars in thousands)

small business), public entities, and leasing clients. Commercial also includes personal business from commercial loan clients in coordination with the Wealth Management segment. Products and services offered include commercial term loans, revolving credit arrangements, asset-based lending, leasing, commercial mortgages, real estate construction lending, letters of credit, cash management services and other depository products.

•  Retail — The retail line of business includes consumer lending and deposit gathering, residential mortgage loan origination and servicing, and branch-based small business banking (formerly known as the “micro business” line). Retail offers a variety of retail financial products and services including consumer direct and indirect installment loans, debit and credit cards, debit gift cards, residential mortgage loans, home equity loans and lines of credit, deposit products, fixed and variable annuities and ATM network services. Deposit products include checking, savings, money market accounts and certificates of deposit.

•  Wealth — The wealth line of business offers a broad array of asset management, private banking, financial planning, estate settlement and administration, credit and deposit products and services. Trust and investment services include personal trust and planning, investment management, estate settlement and administration services. Retirement plan services focus on investment management and fiduciary activities. Brokerage and insurance delivers retail mutual funds, other securities, variable and fixed annuities, personal disability and life insurance products and brokerage services. Private banking provides credit, deposit and asset management solutions for affluent clients.

•  Other — The other line of business includes activities that are not directly attributable to one of the three principal lines of business. Included in the Other category are the parent company, eliminations companies, community development operations, the treasury group, which includes the securities portfolio, wholesale funding and asset liability management activities, and the economic impact of certain assets, capital and support function not specifically identifiable with the three primary lines of business.

The accounting policies of the lines of businesses are the same as those of the Corporation described in Note 1 (Summary of Significant Accounting Policies). Funds transfer pricing is used in the determination of net interest income by assigning a cost for funds used or credit for funds provided to assets and liabilities within each business unit. Assets and liabilities are match-funded based on their maturity, prepayment and/or repricing characteristics. As a result the three primary lines of business are generally insulated from changes in interest rates. Changes in net interest income due to changes in rates are reported in Other by the Treasury Group. Capital has been allocated on an economic risk basis. Loans and lines of credit have been allocated capital based upon their respective credit risk. Asset management holdings in the Wealth segment have been allocated capital based upon their respective market risk related to assets under management. Normal business operating risk has been allocated to each line of business by the level of noninterest expense. Mismatch between asset and liability cash flow as well as interest rate risk for mortgage servicing rights and the origination business franchise value have been allocated capital based upon their respective asset/liability management risk. The provision for loan loss is allocated based upon the actual net charge-offs of each respective line of business, adjusted for loan growth and changes in risk profile. Noninterest income and expenses directly attributable to a line of business are assigned to that line of business. Expenses for centrally provided services are allocated to the business line by various activity based cost formulas.

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(Dollars in thousands)

The Corporation’s business is conducted solely in the United States of America. The following tables present a summary of financial results as of and for the years ended December 31, 2010, 2009, and 2008:

										FirstMerit
December 31, 2010	Commercial		Retail		Wealth		Other			Consolidated
Operations:
Net interest income	$	250,597	$	214,118	$	19,548	$	(25,744	)	$	458,519
Provision for loan losses		54,065		36,249		2,668		(4,767	)		88,215
Other income		46,876		114,497		32,596		18,587			212,556
Other expenses		110,261		224,334		39,604		68,661			442,860
Net income		86,545		44,220		6,416		(34,272	)		102,909
Averages :
Assets	$	5,404,883	$	2,983,395	$	278,143	$	4,856,361		$	13,522,782
Loans		5,394,135		2,698,502		266,522		170,144			8,529,303
Earnings assets		5,456,316		2,742,696		266,835		3,291,138			11,756,985
Deposits		2,516,201		7,015,468		578,876		339,886			10,450,431
Economic Capital		308,547		223,304		36,881		746,889			1,315,621

										FirstMerit
December 31, 2009	Commercial		Retail		Wealth		Other			Consolidated
Operations:
Net interest income	$	154,504	$	188,491	$	17,846	$	(12,077	)	$	348,764
Provision for loan losses		24,110		60,780		8,085		5,458			98,433
Other income		41,344		104,212		32,342		32,403			210,301
Other expenses		92,470		194,848		37,838		27,661			352,817
Net income		51,524		24,098		2,771		3,777			82,170
Averages :
Assets	$	4,071,785	$	2,864,636	$	306,690	$	3,550,383		$	10,793,494
Loans		4,101,451		2,685,133		297,589		72,810			7,156,983
Earnings assets		4,135,791		2,712,068		297,589		2,779,786			9,925,234
Deposits		1,934,036		4,708,554		533,039		333,959			7,509,588
Economic Capital		258,925		188,586		42,796		559,618			1,049,925

										FirstMerit
December 31, 2008	Commercial		Retail		Wealth		Other			Consolidated
Operations:
Net interest income	$	156,403	$	190,455	$	16,614	$	(7,283	)	$	356,189
Provision for loan losses		19,990		37,962		1,056		(405	)		58,603
Other income		40,516		113,995		33,855		13,070			201,436
Other expenses		89,808		191,027		36,589		13,209			330,633
Net income		56,628		49,049		8,336		5,472			119,485
Averages :
Assets	$	4,015,407	$	2,931,259	$	311,435	$	3,291,341		$	10,549,442
Loans		4,042,370		2,796,399		306,406		58,771			7,203,946
Earnings assets		4,076,392		2,832,885		306,406		2,514,226			9,729,909
Deposits		1,937,237		4,620,774		458,711		400,860			7,417,582
Economic Capital		241,663		192,114		41,937		460,374			936,088

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

16.   Fair Value Measurement

As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market or most advantageous market for the asset or liability. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, management determines the fair value of the Corporation’s assets and liabilities using valuation models or third-party pricing services. Both of these approaches rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on management’s judgment, assumptions and estimates related to credit quality, liquidity, interest rates and other relevant inputs.

U.S. GAAP establishes a three-level valuation hierarchy for determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy, highest ranking to lowest, are as follow:

•  Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

•  Level 2 — Valuations of assets and liabilities traded in less active dealer or broker markets. Valuations include quoted prices for similar assets and liabilities traded in the same market; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

•  Level 3 — Valuations based on unobservable inputs significant to the overall fair value measurement.

The level in the fair value hierarchy ascribed to a fair value measurement in its entirety is based on the lowest level input that is significant to the overall fair value measurement.

Financial Instruments Measured at Fair Value

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis at December 31, 2010:

	Level 1		Level 2		Level 3		Total
Available-for-sale securities	$	3,922	$	2,922,774	$	60,344	$	2,987,040
Residential loans held for sale		—		—		41,340		41,340
Derivative assets		—		47,764		—		47,764
Total assets at fair value on a recurring basis	$	3,922	$	2,970,538	$	101,684	$	3,076,144
Derivative liabilities	$	—	$	72,824	$	—	$	72,824
True up liability		—		—		12,061		12,061
Total liabilities at fair value on a recurring basis	$	—	$	72,824	$	12,061	$	84,885

Note:  There were no significant transfers between Levels 1 and 2 of the hierarchy during the year ended December 31, 2010.

Available-for-sale securities.  When quoted prices are available in an active market, securities are valued using the quoted price and are classified as Level 1. The quoted prices are not adjusted. Level 1 instruments include money market mutual funds.

For certain available-for sale securities, the Corporation obtains fair value measurements from an independent third party pricing service or independent brokers. The detail by level is shown in the table below.

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(Dollars in thousands)

			Level 2				Level 3
			Independent				Independent
	# Issues		Pricing Service		# Issues		Broker Quotes
U.S. government agencies		27	$	399,631		—	$	—
U.S States and political subdivisions		479		297,745		—		—
Residential mortgage-backed securities:
U.S. government agencies		188		1,394,704		—		—
Residential collateralized mortgage obligations:
U.S. government agencies		90		830,691		1		—
Non-agency		1		3		2		15,015
Corporate debt securities		—		—		8		45,329
		785	$	2,922,774		11	$	60,344

Available-for-sale securities classified as Level 2 are valued using the prices obtained from an independent pricing service. The prices are not adjusted. The independent pricing service uses industry-standard models to price U.S. Government agencies and MBSs that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. For collateralized mortgage securities, depending on the characteristics of a given tranche, a volatility driven multidimensional static model or Option-Adjusted Spread model is generally used. Substantially all assumptions used by the independent pricing service are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. On a quarterly basis, the Corporation obtains from the independent pricing service the inputs used to value a sample of securities held in portfolio. The Corporation reviews these inputs to ensure the appropriate classification, within the fair value hierarchy, is ascribed to a fair value measurement in its entirety. In addition, all fair value measurement are reviewed to determine the reasonableness of the measurement relative to changes in observable market data and market information received from outside market participants and analysts.

Available-for-sale securities classified as level 3 securities are primarily single issuer trust preferred securities. These trust preferred securities, which represent less than 2% of the portfolio at fair value, are valued based on the average of two non-binding broker quotes. Since these securities are thinly traded, the Corporation has determined that the using an average of two non-binding broker quotes is a more conservative valuation methodology. The non-binding nature of the pricing results in a classification as Level 3.

Loans held for sale.  Effective August 1, 2008, the Corporation elected to account for residential mortgage loans originated subsequent to such date at fair value. Previously, these residential loans had been recorded at the lower of cost or market value. These loans are regularly traded in active markets through programs offered by the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal National Mortgage Association (“FNMA”), and observable pricing information is available from market participants. The prices are adjusted as necessary to include any embedded servicing value in the loans and to take into consideration the specific characteristics of certain loans. These adjustments represent unobservable inputs to the valuation but are not considered significant to the fair value of the loans. Accordingly, residential real estate loans held for sale are classified as Level 2.

Derivatives.  The Corporation’s derivatives include interest rate swaps and written loan commitments and forward sales contracts related to residential mortgage loan origination activity. Valuations for interest rate swaps are derived from third party models whose significant inputs are readily observable market parameters, primarily yield curves, with appropriate adjustments for liquidity and credit risk. These fair value measurements are classified as

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(Dollars in thousands)

Level 2. The fair values of written loan commitments and forward sales contracts on the associated loans are based on quoted prices for similar loans in the secondary market, consistent with the valuation of residential mortgage loans held for sale. Expected net future cash flows related to loan servicing activities are included in the fair value measurement of written loan commitments. A written loan commitment does not bind the potential borrower to entering into the loan, nor does it guarantee that the Corporation will approve the potential borrower for the loan. Therefore, when determining fair value, the Corporation makes estimates of expected “fallout” (locked pipeline loans not expected to close), using models, which consider cumulative historical fallout rates and other factors. Fallout can occur for a variety of reasons including falling rate environments when a borrower will abandon a fixed rate loan commitment at one lender and enter into a new lower fixed rate loan commitment at another, when a borrower is not approved as an acceptable credit by the lender, or for a variety of other non-economic reasons. Fallout is not a significant input to the fair value of the written loan commitments in their entirety. These measurements are classified as Level 2.

Derivative assets are typically secured through securities with financial counterparties or cross collateralization with a borrowing customer. Derivative liabilities are typically secured through the Corporation pledging securities to financial counterparties or, in the case of a borrowing customer, by the right of setoff. The Corporation considers factors such as the likelihood of default by itself and its counterparties, right of setoff, and remaining maturities in determining the appropriate fair value adjustments. All derivative counterparties approved by the Corporation’s Asset and Liability Committee are regularly reviewed, and appropriate business action is taken to adjust the exposure to certain counterparties, as necessary. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of marketable collateral securing the position. This approach used to estimate impacted exposures to counterparties is also used by the Corporation to estimate its own credit risk on derivative liability positions. To date, no material losses due to counterparty’s inability to pay any uncollateralized position have been incurred. There was no significant change in value of derivative assets and liabilities attributed to credit risk for the year ended December 31, 2010.

True-up liability.  In connection with the George Washington and Midwest acquisitions, the Bank has agreed to pay the FDIC should the estimated losses on the acquired loan portfolios as well as servicing fees earned on the acquired loan portfolios not meet the loss thresholds specified in the purchase agreements. The determination of the true-up liability is specified in the purchase agreements and is payable to the FDIC on April 14, 2020 for the George Washington acquisition and on July 15, 2020 for the Midwest acquisition. The value of the true-up liability is discounted to reflect the uncertainty in the timing and payment of the true-up liability by the Bank. As of December 31, 2010, the estimated fair value of the George Washington true-up liability was $4.7 million and the Midwest true-up liability was $7.4 million.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2010 are summarized as follows:

											Total declines
			Total		Purchases, sales				Fair Value		in fair value
	Fair Value		unrealized		issuances				Year ended		included in current
	January 1, 2010		gains/(losses)(a)		settlements, net		Transfers		December 31, 2010		period earnings
Available for sale securities	$	42,447	$	17,897	$	—	$	—	$	60,344	$	—
True up liability	$	—	$	—	$	11,447	$	—	$	12,061	$	(614	)

(a) Reported in other comprehensive income (loss)

Certain financial assets and liabilities are measured at fair value on a nonrecurring basis. Generally, nonrecurring valuations are the result of applying accounting standards that require assets or liabilities to be assessed for

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(Dollars in thousands)

impairment, or recorded at the lower-of-cost or fair value. The following table presents the balances of assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2010:

	Level 1		Level 2		Level 3		Total
Mortgage servicing rights	$	—	$	—	$	21,579	$	21,579
Impaired and nonaccrual loans		—		—		140,990		140,990
Other property(1)		—		—		22,974		22,974
Other real estate covered by Loss Share Agreements		—		—		59,132		59,132
Total assets at fair value on a nonrecurring basis	$	—		—	$	244,675	$	244,675

(1) Represents the fair value, and related change in the value, of foreclosed real estate and other collateral owned by the Corporation during the period.

Mortgage Servicing Rights.  The Corporation carries its mortgage servicing rights at lower of cost or fair value, and therefore, can be subject to fair value measurements on a nonrecurring basis. Since sales of mortgage servicing rights tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of mortgage servicing rights. As such, like other participants in the mortgage banking business, the Corporation relies primarily on a discounted cash flow model, incorporating assumptions about loan prepayment rates, discount rates, servicing costs and other economic factors, to estimate the fair value of its mortgage servicing rights. Since the valuation model uses significant unobservable inputs, the Corporation classifies mortgage servicing rights as Level 3.

The Corporation utilizes a third party vendor to perform the modeling to estimate the fair value of its mortgage servicing rights. The Corporation reviews the estimated fair values and assumptions used by the third party in the model on a quarterly basis. The Corporation also compares the estimates of fair value and assumptions to recent market activity and against its own experience.

Impaired and nonaccrual loans.  Fair value adjustments for these items typically occur when there is evidence of impairment. Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. The Corporation measures fair value based on the value of the collateral securing the loans. Collateral may be in the form of real estate or personal property including equipment and inventory. The vast majority of the collateral is real estate. The value of the collateral is determined based on internal estimates as well as third party appraisals or price opinions. These measurements were classified as Level 3.

Other Property.  Other property includes foreclosed assets and properties securing residential and commercial loans. Assets acquired through, or in lieu of, loan foreclosures are recorded initially at the lower of the loan balance or fair value, less estimated selling costs, upon the date of foreclosure. Fair value is based upon appraisals or third-party price opinions and, accordingly, considered a Level 3 classification. Subsequent to foreclosure, valuations are updated periodically, and the assets may be marked down further, reflecting a new carrying amount.

Disclosures about Fair Value of Financial Instruments

The carrying amount and fair value of the Corporation’s financial instruments are shown below.

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(Dollars in thousands)

The following methods and assumptions were used to estimate the fair values of each class of financial instrument presented:

	At December 31,
	2010				2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Investment securities	$	3,154,333	$	3,207,754	$	2,689,706	$	2,744,838
Net noncovered loans		7,087,398		6,716,214		6,808,397		6,362,674
Net covered loans and loss share receivable		1,963,021		1,963,021		—		—
Loan held for sale		41,340		41,340		16,828		16,828
Cash and due from banks		523,113		523,113		161,033		161,033
Accrued interest receivable		41,830		41,830		39,274		39,274
Mortgage servicing rights		21,317		21,579		20,784		22,241
Derivative assets		47,764		47,764		28,120		28,120
Financial liabilities:
Deposits	$	11,268,006	$	11,275,440	$	7,515,796	$	7,519,604
Federal funds purchased and securities sold under agreements to repurchase		777,585		782,668		996,345		998,645
Wholesale borrowings		326,007		329,465		740,105		745,213
Accrued interest payable		6,560		6,560		11,336		11,336
Derivative liabilities		72,824		72,824		58,486		58,486
True up liability		12,061		12,061		—		—

Investment Securities — See Financial Instruments Measured at Fair Value above.

Net noncovered loans — The loan portfolio was segmented based on loan type and repricing characteristics. Carrying values are used to estimate fair values of variable rate loans. A discounted cash flow method was used to estimate the fair value of fixed-rate loans. Discounting was based on the contractual cash flows, and discount rates are based on the year-end yield curve plus a spread that reflects current pricing on loans with similar characteristics. If applicable, prepayment assumptions are factored into the fair value determination based on historical experience and current economic conditions.

Covered loans — Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable loans. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows.

Loss share receivable — This loss sharing asset is measured separately from the related covered assets as it is not contractually embedded in the covered assets and is not transferrable with the covered assets should the Bank choose to dispose of them. Fair value was estimated using projected cash flows related to the loss sharing agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These cash flows were discounted to reflect the uncertainty of the timing and receipt from the FDIC.

Loans held for sale — The majority of loans held for sale are residential mortgage loans which are recorded at fair value. All other loans held for sale are recorded at the lower of cost or market, less costs to sell. See Financial Instruments Measured at Fair Value above.

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(Dollars in thousands)

Cash and due from banks — The carrying amount is considered a reasonable estimate of fair value.

Accrued interest receivable — The carrying amount is considered a reasonable estimate of fair value.

Mortgage servicing rights — See Financial Instruments Measured at Fair Value above.

Deposits — The estimated fair value of deposits with no stated maturity, which includes demand deposits, money market accounts and other savings accounts, are established at carrying value because of the customers’ ability to withdraw funds immediately. A discounted cash flow method is used to estimate the fair value of fixed rate time deposits. Discounting was based on the contractual cash flows and the current rates at which similar deposits with similar remaining maturities would be issued.

Federal funds purchased and securities sold under agreements to repurchase and wholesale borrowings — The carrying amount of variable rate borrowings including federal funds purchased is considered to be their fair value. Quoted market prices or the discounted cash flow method was used to estimate the fair value of the Corporation’s long-term debt. Discounting was based on the contractual cash flows and the current rate at which debt with similar terms could be issued.

Accrued interest payable — The carrying amount is considered a reasonable estimate of fair value.

Derivative assets and liabilities — See Financial Instruments Measured at Fair Value above.

True-up liability — See Financial Instruments Measured at Fair Value above.

Financial instruments recorded at Fair Value

The Corporation may elect to report most financial instruments and certain other items at fair value on an instrument-by-instrument basis with changes in fair value reported in net income. This election can be made at the acquisition of an eligible financial asset, financial liability or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once an election is made.

Effective August 1, 2008, the Corporation elected to fair value newly originated conforming fixed-rate and adjustable-rate first mortgage loans held for sale. Previously, these loans had been recorded at the lower of cost or market value. The election of the fair value option aligns the accounting for these loans with the related hedges. It also eliminates the requirements of hedge accounting under U.S. GAAP. The fair value option was not elected for loans held for investment.

The following table reflects the differences, as of December 31, 2010, between the fair value carrying amount of residential mortgages held for sale and the aggregate unpaid principal amount the Corporation is contractually entitled to receive at maturity. None of these loans were 90 days or more past due, nor were any on nonaccrual status.

					Fair Value
					Carrying Amount
	Fair Value		Aggregate Unpaid		Less Aggregate
	Carrying Amount		Principal		Unpaid Principal
Loans held for sale reported at fair value	$	41,340	$	41,024	$	316

Interest income on loans held for sale is accrued on the principal outstanding primarily using the “simple-interest” method.

Loans held for sale are measured at fair value with changes in fair value recognized in current earnings. The change in fair value included in earnings for the year ended December 31, 2010 was $166.9 thousand.

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(Dollars in thousands)

17.   Derivatives and Hedging Activities

The Corporation, through its mortgage banking and risk management operations, is party to various derivative instruments that are used for asset and liability management and customers’ financing needs. Derivative instruments are contracts between two or more parties that have a notional amount and underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index or other component. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the market value of the derivative contract. Derivative assets and liabilities are recorded at fair value on the balance sheet and do not take into account the effects of master netting agreements. Master netting agreements allow the Corporation to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable.

The predominant derivative and hedging activities include interest rate swaps and certain mortgage banking activities. Generally, these instruments help the Corporation manage exposure to market risk, and meet customer financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors, such as interest rates, market-driven rates and prices or other economic factors. Foreign exchange contracts are entered into to accommodate the needs of customers.

Derivatives Designated in Hedge Relationships

The Corporation uses interest rate swaps to modify its exposure to interest rate risk. For example, the Corporation employs fair value hedging strategies to convert specific fixed-rate loans into variable-rate instruments. Gains or losses on the derivative instrument as well as the offsetting gains or losses on the hedged item attributable to the hedged risk are recognized in the same line item associated with the hedged item in current earnings. The Corporation also employs cash flow hedging strategies to effectively convert certain floating-rate liabilities into fixed-rate instruments. The effective portion of the gains or losses on the derivative instrument is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. The remaining gains or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, are recognized in the current earnings.

At December 31, 2010 and 2009, the notional or contractual amounts and fair value of the Corporation’s derivatives designated in hedge relationships were as follows:

Asset Derivatives

Liability Derivatives

December 31, 2010

December 31, 2009

December 31, 2010

December 31, 2009

Notional/

Notional/

Notional/

Notional/

Contract

Fair

Contract

Fair

Contract

Fair

Contract

Fair

Amount

Value(a)

Amount

Value(a)

Amount

Value(b)

Amount

Value(b)

Interest rate swaps:

Fair value hedges

$

6,920

$

—

$

1,452

$

—

$

303,933

$

28,550

$

398,895

$

27,769

(a)	Included in Other Assets on the Consolidated Balance Sheet
(b)	Included in Other Liabilities on the Consolidated Balance Sheet

Through the Corporation’s Fixed Rate Advantage Program (“FRAP Program”) a customer received a fixed interest rate commercial loan and the Corporation subsequently converted that fixed rate loan to a variable rate instrument over the term of the loan by entering into an interest rate swap with a dealer counterparty. The Corporation receives a fixed rate payment from the customer on the loan and pays the equivalent amount to the dealer counterparty on the swap in exchange for a variable rate payment based on the one month London Inter-Bank Offered Rate

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(Dollars in thousands)

(“LIBOR”) index. These interest rate swaps are designated as fair value hedges. Through application of the “short cut method of accounting”, there is an assumption that the hedges are effective. The Corporation discontinued originating interest rate swaps under the FRAP program in February 2008 and subsequently began a new interest rate swap program for commercial loan customers, termed the Back-to-Back Program.

The Corporation entered into Federal Funds interest rate swaps to lock in a fixed rate to offset the risk of future fluctuations in the variable interest rate on Federal Funds borrowings. The Corporation entered into a swap with the counterparty during which time the Corporation paid a fixed rate and received a floating rate based on the current effective Federal Funds rate. The Corporation then borrowed Federal Funds in an amount equal to at least the outstanding notional amount of the swap(s) which resulted in the Corporation being left with a fixed rate instrument. These instruments were designated as cash flow hedges. The last Federal Funds interest rate swap matured in the quarter ended March 31, 2009, and there were no Federal Funds interest rate swaps outstanding as of December 31, 2010.

For the years ended December 31, 2010, 2009, and 2008, the amount of the hedge effectiveness on cash flow hedges recognized in OCI and reclassified from OCI into other income as well as the amount of hedge ineffectiveness recognized in other income was as follows:

Year ended

December 31, 2010

December 31, 2009

December 31, 2008

Gain/(Loss)

Gain/(Loss)

Gain/(Loss)

Gain/(Loss)

Gain/(Loss)

Gain/(Loss)

Gain/(Loss)

Gain/(Loss)

Gain/(Loss)

Recognized in

Reclassified

Recognized in

Recognized in

Reclassified

Recognized in

Recognized in

Reclassified

Recognized in

OCI on

from

OCI on

OCI on

from

OCI on

OCI on

from

OCI on

Derivative

Accumulated

Derivative

Derivative

Accumulated

Derivative

Derivative

Accumulated

Derivative

(Effective

OCI into

(Ineffective

(Effective

OCI into

(Ineffective

(Effective

OCI into

(Ineffective

Portion)

Income

Portion)

Portion)

Income

Portion)

Portion)

Income

Portion)

Interest rate swaps

$

—

$

—

$

—

$

—

$

692

$

328

$

94

$

(974

)

$

601

Derivatives Not Designated in Hedge Relationships

As of December 31, 2010 and 2009, the notional or contractual amounts and fair value of the Corporation’s derivatives not designated in hedge relationships were as follows:

	Asset Derivatives								Liability Derivatives
	December 31, 2010				December 31, 2009				December 31, 2010				December 31, 2009
	Notional/				Notional/				Notional/				Notional/
	Contract		Fair		Contract		Fair		Contract		Fair		Contract		Fair
	Amount		Value(a)		Amount		Value(a)		Amount		Value(a)		Amount		Value(a)
Interest rate swaps	$	774,623	$	44,270	$	639,285	$	26,840	$	774,623	$	44,270	$	686,947	$	30,717
Mortgage loan commitments		118,119		1,384		55,023		396		—		—		—		—
Forward sales contracts		113,426		2,106		67,085		884		—		—		—		—
Foreign Exchange		3,733		4		—		—		3,733		4		—		—
Credit contracts		—		—		—		—		44,983		—		62,458		—
Other		—		—		—		—		14,622		—		18,171		—
Total	$	1,009,901	$	47,764	$	761,393	$	28,120	$	837,961	$	44,274	$	767,576	$	30,717

(a)	Included in Other Assets on the Consolidated Balance Sheet
(b)	Included in Other Liabilities on the Consolidated Balance Sheet

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(Dollars in thousands)

Interest Rate Swaps.  In 2008, the Corporation implemented the Back-to-Back Program, which is an interest rate swap program for commercial loan customers. The Back-to-Back Program provides the customer with a fixed rate loan while creating a variable rate asset for the Corporation through the customer entering into an interest rate swap with the Corporation on terms that match the loan. The Corporation offsets its risk exposure by entering into an offsetting interest rate swap with a dealer counterparty. These swaps do not qualify as designated hedges, therefore, each swap is accounted for as a standalone derivative.

The Corporation had other interest rate swaps associated with fixed rate commercial loans with a notional value of $47.7 million as of December 31, 2009. These swaps were accounted for as standalone derivatives. This portfolio of interest rate swaps was terminated in January 2010.

Mortgage banking.  In the normal course of business, the Corporation sells originated mortgage loans into the secondary mortgage loan markets. During the period of loan origination and prior to the sale of the loans in the secondary market, the Corporation has exposure to movements in interest rates associated with mortgage loans that are in the “mortgage pipeline” and the “mortgage warehouse”. A pipeline loan is one in which the Corporation has entered into a written mortgage loan commitment with a potential borrower that will be held for resale. Once a mortgage loan is closed and funded, it is included within the mortgage warehouse of loans awaiting sale and delivery into the secondary market.

Written loan commitments that relate to the origination of mortgage loans that will be held for resale are considered free-standing derivatives and do not qualify for hedge accounting. Written loan commitments generally have a term of up to 60 days before the closing of the loan. The loan commitment does not bind the potential borrower to entering into the loan, nor does it guarantee that the Corporation will approve the potential borrower for the loan. Therefore, when determining fair value, the Corporation makes estimates of expected “fallout” (loan commitments not expected to close), using models, which consider cumulative historical fallout rates and other factors. Fallout can occur for a variety of reasons including falling rate environments when a borrower will abandon an interest rate lock loan commitment at one lender and enter into a new lower interest rate lock loan commitment at another, when a borrower is not approved as an acceptable credit by the lender, or for a variety of other non-economic reasons. In addition, expected net future cash flows related to loan servicing activities are included in the fair value measurement of a written loan commitment.

Written loan commitments in which the borrower has locked in an interest rate results in market risk to the Corporation to the extent market interest rates change from the rate quoted to the borrower. The Corporation economically hedges the risk of changing interest rates associated with its interest rate lock commitments by entering into forward sales contracts.

The Corporation’s warehouse (mortgage loans held for sale) is subject to changes in fair value, due to fluctuations in interest rates from the loan’s closing date through the date of sale of the loan into the secondary market. Typically, the fair value of the warehouse declines in value when interest rates increase and rises in value when interest rates decrease. To mitigate this risk, the Corporation enters into forward sales contracts on a significant portion of the warehouse to provide an economic hedge against those changes in fair value.

Effective August 1, 2008, the Corporation elected to fair value, on a prospective basis, newly originated conforming fixed-rate and adjustable-rate first mortgage warehouse loans. Prior to this election, all warehouse loans were carried at the lower of cost or market and a hedging program was utilized on its mortgage loans held for sale to gain protection for the changes in fair value of the mortgage loans held for sale and the forward sales contracts. As such, both the mortgage loans held for sale and the forward sales contracts were recorded at fair value with ineffective changes in value recorded in current earnings as Loan sales and servicing income. Upon the Corporation’s election to prospectively account for substantially all of its mortgage loan warehouse products at fair value it discontinued the application of designated hedging relationships for new originations.

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(Dollars in thousands)

The Corporation periodically enters into derivative contracts by purchasing To Be Announced (“TBA”) Securities which are utilized as economic hedges of its MSRs to minimize the effects of loss of value of MSRs associated with increase prepayment activity that generally results from declining interest rates. In a rising interest rate environment, the value of the MSRs generally will increase while the value of the hedge instruments will decline. The hedges are economic hedges only, and are terminated and reestablished as needed to respond to changes in market conditions. There were no outstanding TBA Securities contracts as of December 31, 2010 and 2009.

Credit contracts.  Prior to implementation of the Back-to-Back Program, certain of the Corporation’s commercial loan customers entered into interest rate swaps with unaffiliated dealer counterparties. The Corporation entered into swap participations with these dealer counterparties whereby the Corporation guaranteed payment in the event that the counterparty experienced a loss on the interest rate swap due to a failure to pay by the Corporation’s commercial loan customer. The Corporation simultaneously entered into reimbursement agreements with the commercial loan customers obligating the customers to reimburse the Corporation for any payments it makes under the swap participations. The Corporation monitors its payment risk on its swap participations by monitoring the creditworthiness of its commercial loan customers, which is based on the normal credit review process the Corporation would have performed had it entered into these derivative instruments directly with the commercial loan customers. At December 31, 2010, the remaining terms on these swap participation agreements generally ranged from less than one year to eight years. The Corporation’s maximum estimated exposure to written swap participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on interest rate curve simulations and assuming 100% default by all obligors on the maximum values, was approximately $3.7 million as of December 31, 2010. The fair values of the written swap participations were not material at December 31, 2010 and 2009.

Gains and losses recognized in income on non-designated hedging instruments for the years ended December 31, 2010, 2009 and 2008 are as follows:

		Amount of Gain/(Loss) Recognized
	Location of Gain/(Loss)	Income on Derivative
Derivatives not	Recognized	in Income on Derivatives
designated as hedging	in Income on	Year Ended December 31,
instruments	Derivative	2010			2009			2008
Interest rate swaps	Other expense	$	—		$	(3,877	)	$	—
Mortgage loan commitments	Other income		987			(195	)		591
Forward sales contracts	Other income		1,222			1,401			(517	)
TBA Securities	Other income		—			(4,451	)		2,051
Credit contracts	Other income		—			—			—
Other	Other expense		(678	)		(600	)		—
Total		$	1,531		$	(7,722	)	$	2,125

Counterparty Credit Risk

Like other financial instruments, derivatives contain an element of “credit risk” — the possibility that the Corporation will incur a loss because a counterparty, which may be a bank, a broker-dealer or a customer, fails to meet its contractual obligations. This risk is measured as the expected positive replacement value of contracts. All derivative contracts may be executed only with exchanges or counterparties approved by the Corporation’s Asset and Liability Committee, and only within the Corporation’s Board of Directors Credit Committee approved credit exposure limits. Where contracts have been created for customers, the Corporation enters into derivatives with dealers to offset its risk exposure. To manage the credit exposure to exchanges and counterparties, the Corporation generally enters into bilateral collateral agreements using standard forms published by the International Swaps and Derivatives

122

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Association. These agreements are to include thresholds of credit exposure or the maximum amount of unsecured credit exposure which the Corporation is willing to assume. Beyond the threshold levels, collateral in the form of securities made available from the investment portfolio or other forms of collateral acceptable under the bilateral collateral agreements are provided. The threshold levels for each counterparty are established by the Corporation’s Asset and Liability Committee. The Corporation generally posts collateral in the form of highly rated Government Agency issued bonds or MBSs. Collateral posted against derivative liabilities was $81.5 million and $70.0 million as of December 31, 2010 and 2009, respectively.

18.   Commitments and Contingencies

Obligations Under Non-cancelable Leases

The Corporation is obligated under various non-cancelable operating leases on branch offices. Minimum future rental payments under non-cancelable operating leases at December 31, 2010 are as follows:

	Lease
Years Ended December 31,	Commitments
2011	$	7,330
2012		6,557
2013		5,491
2014		4,568
2015		3,851
2016-2028		10,770
	$	38,567

Commitments to Extend Credit

Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition established in the contract. Loan commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance sheets. Additional information is provided in Note 17 (Derivatives and Hedging Activities). Commitments generally are extended at the then prevailing interest rates, have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements. Loan commitments involve credit risk not reflected on the balance sheet. The Corporation mitigates exposure to credit risk with internal controls that guide how applications for credit are reviewed and approved, how credit limits are established and, when necessary, how demands for collateral are made. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Management evaluates the creditworthiness of each prospective borrower on a case-by-case basis and, when appropriate, adjusts the allowance for probable credit losses inherent in all commitments. The allowance for unfunded lending commitments at December 31, 2010 was $8.8 million. Additional information pertaining to this allowance is included in Note 4 (Loans and Allowance for Loan Losses) and under the heading “Allowance for Loan Losses and Reserve for Unfunded Lending Commitments” within Management’s Discussion and Analysis of Financial Condition and Results of Operation of this report.

The following table shows the remaining contractual amount of each class of commitments to extend credit as of December 31, 2010 and 2009. This amount represents the Corporation’s maximum exposure to loss if the customer

123

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

were to draw upon the full amount of the commitment and subsequently default on payment for the total amount of the then outstanding loan.

	At December 31,
	2010		2009
Loan Commitments
Commercial	$	1,911,514	$	1,397,045
Consumer		1,651,536		1,596,834
Total loan commitments	$	3,563,050	$	2,993,879

Guarantees

The Corporation is a guarantor in certain agreements with third parties. The following table shows the types of guarantees the Corporation had outstanding as of December 31, 2010 and 2009.

	At December 31,
	2010		2009
Financial guarantees
Standby letters of credit	$	143,247	$	156,374
Loans sold with recourse		60,418		60,068
Total financial guarantees	$	203,665	$	216,442

Standby letters of credit obligate the Corporation to pay a specified third party when a customer fails to repay an outstanding loan or debt instrument, or fails to perform some contractual nonfinancial obligation. The credit risk involved in issuing letters of credit is essentially the same as involved in extending loan facilities to customers. Collateral held varies, but may include marketable securities, equipment and real estate. Any amounts drawn under standby letters of credit are treated as loans; they bear interest and pose the same credit risk to the Corporation as a loan. Except for short-term guarantees of $88.4 million at December 31, 2010, the remaining guarantees extend in varying amounts through 2015.

In recourse arrangements, the Corporation accepts 100% recourse. By accepting 100% recourse, the Corporation is assuming the entire risk of loss due to borrower default. The Corporation uses the same credit policies originating loans which will be sold with recourse as it does for any other type of loan. The Corporation’s exposure to credit loss, if the borrower completely failed to perform and if the collateral or other forms of credit enhancement all prove to be of no value, is represented by the notional amount less any allowance for possible loan losses. The allowance for loan loss associated with loans sold with recourse was $2.8 million and $3.0 million as of December 31, 2010 and 2009, respectively, and is included in the accrued taxes, expenses, and other liabilities on the consolidated balance sheets.

During the current year, the Corporation entered into a commitment to fund $5.0 million in a small business investment company partnership. The Corporation expects to fund this amount during 2011.

Litigation

In the normal course of business, the Corporation is at all times subject to pending and threatened legal actions, some for which the relief or damages sought are substantial. Although the Corporation is not able to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, Management believes that based on the information currently available, available insurance coverage and established reserves the outcome of such actions, individually, or in the aggregate, will not have a material adverse effect on the Corporation’s financial

124

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

condition. However, it is possible that the ultimate resolution of these matters, if unfavorable, may materially affect the Corporation’s financial condition for a future period.

Reserves are established for legal claims under ASC Topic 450, Contingencies, when losses associated with the claims are judged to be probable, and such losses can be reasonably estimated. In many lawsuits and arbitrations, including the majority of class action lawsuits, it is not possible to determine whether a liability has been incurred or to estimate the amount of that liability until the case is close to resolution. For additional information on litigation, contingent liabilities and guarantees, refer to Item 3. Legal Proceedings.

19.   Shareholders’ Equity

Capital Transactions

On January 9, 2009, the Corporation completed the sale to the Treasury of $125.0 million of newly issued FirstMerit non-voting preferred shares as part of the TARP Capital Purchase Program. FirstMerit issued and sold to the Treasury for an aggregate purchase price of $125.0 million in cash (1) 125,000 shares of FirstMerit’s Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value and having a liquidation preference of $1,000 per share, and (2) a warrant to purchase 952,260 FirstMerit common shares, each without par value, at an exercise price of $19.69 per share.

On April 22, 2009, the Corporation repurchased all 125,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A for $126.2 million which included all accrued and unpaid dividends as well as the unamortized discount on the preferred stock. On May 27, 2009, the Corporation completed the repurchase of the warrant held by the Treasury. The Corporation paid $5.0 million to the Treasury to repurchase the warrant.

The Corporation has Distribution Agency Agreements pursuant to which the Corporation, from time to time, may offer and sell shares of the Corporation’s common stock. The Corporation sold 4.3 million shares with an average value of $18.98 per share during the year ended December 31, 2009. The Corporation sold an additional 3.9 million shares with an average value of $20.91 per share during the year ended December 31, 2010.

During the quarter ended June 30, 2010, the Corporation closed and completed the sale of a total of 17,600,160 shares of common stock, no par value, at $19.00 per share in a public underwritten offering. The net proceeds from the offering were approximately $320.1 million after deducting underwriting discounts and commissions and the estimated expenses of the offering payable by the Corporation.

125

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Earnings per Share

The reconciliation between basic and diluted earnings per share is presented as follows:

	Years Ended December 31,
	2010		2009		2008
Basic EPS:
Net income	$	102,909	$	82,170	$	119,485
Less: preferred dividend		—		6,167		—
Less: accretion of preferred stock discount		—		204		—
Net income available to common shareholders	$	102,909	$	75,799	$	119,485
Average common shares outstanding*		101,163		84,678		82,060
Basic net income per share*	$	1.02	$	0.90	$	1.46
Diluted EPS:
Income available to common shareholders	$	102,909	$	75,799	$	119,485
Add: interest expense on convertible bonds, net of tax		—		—		5
Income used in diluted earnings per share calculation	$	102,909	$	75,799	$	119,490
Average common shares outstanding*		101,163		84,678		82,060
Add: common stock equivalents:
Stock option plans		2		8		24
Convertible debentures/preferred securities		—		—		14
Average common and common stock equivalent shares outstanding*		101,165		84,686		82,097
Diluted net income per share*	$	1.02	$	0.90	$	1.46

* Average common shares outstanding and per share data as of December 31, 2008 have been restated to reflect the effect of stock dividends declared April 28, 2009 and August 20, 2009.

For the years ended December 31, 2010, 2009, and 2008, options to purchase 4.4 million shares, 4.9 million shares and 6.4 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were antidilutive.

20.   Regulatory Matters

The Corporation is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also subject to quantitative judgments by regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. At December 31, 2010 and 2009, Management believes the Corporation meets all capital adequacy requirements to which it is subject. The capital terms used in this note to the consolidated financial

126

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

statements are defined in the regulations as well as in the “Capital Resources” section of Management’s Discussion and Analysis of financial condition and results of operations.

At December 31, 2010 and 2009, the most recent notification from the OCC categorized FirstMerit Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized FirstMerit Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. In management’s opinion, there are no conditions or events since the OCC’s notification that have changed First Merit Bank’s categorization as “well capitalized.”

Consolidated

	Actual						Adequately Capitalized:						Well Capitalized:
As of December 31, 2010	Amount		Ratio				Amount		Ratio				Amount		Ratio
Total Capital
(to Risk Weighted Assets)	$	1,157,375		12.61	%	>	$	733,977		8.00	%	>	$	917,471		10.00	%
Tier I Capital
(to Risk Weighted Assets)	$	1,042,412		11.36	%	>	$	366,988		4.00	%	>	$	550,483		6.00	%
Tier I Capital
(to Average Assets)	$	1,042,412		7.49	%	>	$	556,865		4.00	%	>	$	696,082		5.00	%

Consolidated

	Actual						Adequately Capitalized:						Well Capitalized:
As of December 31, 2009	Amount		Ratio				Amount		Ratio				Amount		Ratio
Total Capital
(to Risk Weighted Assets)	$	1,071,682		13.34	%	>	$	642,670		8.00	%	>	$	803,337		10.00	%
Tier I Capital
(to Risk Weighted Assets)	$	971,013		12.09	%	>	$	321,335		4.00	%	>	$	482,002		6.00	%
Tier I Capital
(to Average Assets)	$	971,013		9.39	%	>	$	413,842		4.00	%	>	$	517,303		5.00	%

Bank Only

	Actual						Adequately Capitalized:						Well Capitalized:
As of December 31, 2010	Amount		Ratio				Amount		Ratio				Amount		Ratio
Total Capital
(to Risk Weighted Assets)	$	1,061,981		11.59	%	>	$	732,783		8.00	%	>	$	915,979		10.00	%
Tier I Capital
(to Risk Weighted Assets)	$	951,511		10.39	%	>	$	366,392		4.00	%	>	$	549,587		6.00	%
Tier I Capital
(to Average Assets)	$	951,511		6.78	%	>	$	561,769		4.00	%	>	$	702,712		5.00	%

127

FIRSTMERIT CORPORATION AND SUBSIDARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Bank Only

	Actual						Adequately Capitalized:						Well Capitalized:
As of December 31, 2009	Amount		Ratio				Amount		Ratio				Amount		Ratio
Total Capital
(to Risk Weighted Assets)	$	922,919		11.51	%	>	$	641,231		8.00	%	>	$	801,539		10.00	%
Tier I Capital
(to Risk Weighted Assets)	$	826,517		10.31	%	>	$	320,615		4.00	%	>	$	480,923		6.00	%
Tier I Capital
(to Average Assets)	$	826,517		8.00	%	>	$	413,040		4.00	%	>	$	516,300		5.00	%

21.   Subsequent Events (unaudited)

In preparing these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users, or filed with the Securities and Exchange Commission. In accordance with applicable accounting standards, all material subsequent events have been either recognized in the financial statements or disclosed in the notes to the financial statements.

22.   Quarterly Financial Data (Unaudited)

Quarterly financial and per share data for the years ended 2010 and 2009 are summarized as follows:

		Quarters
		First		Second		Third		Fourth
Total interest income	2010	$	111,854	$	138,814	$	145,337	$	146,365
	2009	$	119,356	$	116,159	$	113,671	$	110,341
Total interest expense	2010	$	21,460	$	22,047	$	21,844	$	18,501
	2009	$	32,462	$	29,044	$	26,294	$	22,963
Net interest income	2010	$	90,394	$	116,767	$	123,493	$	127,864
	2009	$	86,894	$	87,115	$	87,377	$	87,378
Provision for noncovered loan losses	2010	$	25,493	$	20,366	$	18,108	$	19,816
	2009	$	18,065	$	26,521	$	23,887	$	29,960
Provision for covered loan losses	2010	$	—	$	267	$	593	$	3,572
	2009	$	—	$	—	$	—	$	—
Net income*	2010	$	15,390	$	31,493	$	28,996	$	27,030
	2009	$	29,434	$	15,495	$	22,763	$	14,478
Net income per basic share **	2010	$	0.18	$	0.32	$	0.27	$	0.25
	2009	$	0.33	$	0.13	$	0.27	$	0.17
Net income per diluted share **	2010	$	0.18	$	0.32	$	0.27	$	0.25
	2009	$	0.33	$	0.13	$	0.27	$	0.17

*	Net income restated to reflect purchase accounting adjustments which decreased the bargain purchase gain recognized on the George Washington acquisition to $1.0 million in the quarter ended March 31, 2010.
**	Per share data restated to reflect the effect of stock dividends declared April 28 and August 20, 2009.

128

MANAGEMENT’S REPORT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

FirstMerit Corporation is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements and related notes included in this annual report. The consolidated financial statements and notes included in this annual report have been prepared in conformity with accounting principles generally accepted in the United States necessarily include some amounts that are based on Management’s best estimates and judgments. The Management of FirstMerit Corporation is responsible for establishing and maintaining adequate internal controls over financial reporting that are designed to produce reliable financial statements in conformity with accounting principles generally accepted in the United States of America. FirstMerit Corporation’s system of internal control over financial reporting contains self-monitoring mechanisms, and compliance is tested and evaluated through internal audits. Our internal auditors monitor the operation of the internal control system and report findings and recommendations to management and the Audit Committee of the Board of Directors. Actions are taken to correct potential deficiencies as they are identified. The Audit Committee, consisting entirely of directors who are independent under the listing standards of the NASDAQ Stock Market, meets with management, the internal auditors and the independent registered public accounting firm, reviews audit plans and results, and reviews management’s actions in discharging its responsibilities for accounting, financial reporting and internal controls.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed FirstMerit Corporation’s system of internal control over financial reporting as of December 31, 2010, in relation to criteria for effective internal control over financial reporting as described in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organization of the Treadway Commission. Based on this assessment, Management concludes that, as of December 31, 2010, its system of internal control over financial reporting met those criteria and was effective.

The effectiveness of FirstMerit Corporation’s internal control over financial reporting as of December 31, 2010 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears herein.

PAUL G. GREIG	TERRENCE E. BICHSEL
Chairman and Chief	Executive Vice President and
Executive Officer	Chief Financial Officer

129

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

FirstMerit Corporation

We have audited the accompanying consolidated balance sheets of FirstMerit Corporation and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of FirstMerit Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FirstMerit Corporation and subsidiaries as of December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FirstMerit Corporation’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2011 expressed an unqualified opinion thereon.

Akron, Ohio

February 25, 2011

130

Report of Independent Registered Public Accounting Firm
on Internal Control over Financial Reporting

Shareholders and Board of Directors

FirstMerit Corporation

We have audited FirstMerit Corporation’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). FirstMerit Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, FirstMerit Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of FirstMerit Corporation and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010 and our report dated February 25, 2011 expressed an unqualified opinion thereon.

Akron, Ohio

February 25, 2011

131

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not Applicable.

ITEM 9A.   CONTROLS AND PROCEDURES.

Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of December 31, 2010, an evaluation was performed under the supervision and with the participation of Management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, Management concluded that disclosure controls and procedures as of December 31, 2010 were effective in ensuring material information required to be disclosed in this Annual Report on Form 10-K was recorded, processed, summarized, and reported on a timely basis. Additionally, there were no changes in the Corporation’s internal control over financial reporting.

Management’s responsibilities related to establishing and maintaining effective disclosure controls and procedures include maintaining effective internal controls over financial reporting that are designed to produce reliable financial statements in accordance with U.S. GAAP. As disclosed in the Report on Management’s Assessment of Internal Control Over Financial Reporting on page 105 of this Annual Report on Form 10-K, Management assessed the Corporation’s system of internal control over financial reporting as of December 31, 2010, in relation to criteria for effective internal control over financial reporting as described in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, Management believes that, as of December 31, 2010, its system of internal control over financial reporting met those criteria and is effective.

There have been no significant changes in the Corporation’s internal controls or in other factors that could significantly affect internal controls subsequent to December 31, 2010.

ITEM 9B.   OTHER INFORMATION.

Not Applicable.

PART III

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors, Executive Officers and Persons Nominated or Chosen to Become Directors or Executive Officers

The information required by Item 401 of Regulation S-K concerning the directors of FirstMerit and the nominees for re-election as directors of FirstMerit at the Annual Meeting of Shareholders to be held on April 20, 2011 (the “2011 Annual Meeting”) is incorporated herein by reference from the disclosure to be included under the caption “Proposal 1 — Election of Directors” in FirstMerit’s definitive proxy statement relating to the 2011 Annual Meeting to be filed with the SEC (“FirstMerit’s 2011 Proxy Statement”).

The information required by Item 401 of Regulation S-K concerning the executive officers of FirstMerit is incorporated herein by reference from the disclosure provided under the caption “Executive Officers of the Registrant” included in Part I of this Annual Report on Form 10-K.

Compliance with Section 16(a) of the Exchange Act

The information required by Item 405 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in FirstMerit’s 2011 Proxy Statement.

132

Committee Charters: Code of Business Conduct and Ethics

FirstMerit has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that covers all employees, including its principal executive, financial and accounting officers, and is posted on FirstMerit’s website www.firstmerit.com. In the event of any amendment to, or waiver from, a provision of the Code of Ethics that applies to its principal executive, financial or accounting officers, FirstMerit intends to disclose such amendment or waiver on its website.

Procedures for Recommending Directors Nominees

Information concerning the procedures by which shareholders of FirstMerit may recommend nominees to FirstMerit’s Board of Directors is incorporated herein by reference from the disclosure to be included under the caption “Director Nominations” in FirstMerit’s 2011 Proxy Statement. These procedures have not materially changed from those described in FirstMerit’s definitive proxy materials for the 2010 Annual Meeting of Shareholders held on April 21, 2010.

Audit Committee

The information required by Items 407(d)(5) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Committees of the Board of Directors — Audit Committee” in FirstMerit’s 2011 Proxy Statement.

ITEM 11.   EXECUTIVE COMPENSATION.

The information required by Item 402 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the captions “Compensation Discussion and Analysis” and “Executive Compensation and Other Information” in FirstMerit’s 2011 Proxy Statement.

The information required by Item 407(e)(4) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the captions “Compensation Interlocks and Insider Participation” in FirstMerit’s 2011 Proxy Statement.

The information required by Item 407(e)(5) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “The Compensation Report” in FirstMerit’s 2011 Proxy Statement.

133

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by Item 403 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Beneficial Ownership of Management and Certain Beneficial Owners” in FirstMerit’s 2011 Proxy Statement.

Equity Compensation Plan Information

	Number of
	Securities to be
	Issued upon		Weighted Average		Number of
	Exercise of		Exercise Price of		Securities
	Outstanding		Outstanding		available for grant
	Options, Warrants		Options, Warrants		for Options,
	and Rights		and Rights		Warrants and Rights
Plan category	(a)		(b)		(c)
Equity Compensation Plans Approved by Security Holders
1999		1,769,628		26.23		—
2002		1,992,925		24.98		—
2002D		90,306		23.27		—
2006		369,590		23.64		1,830,265
2006D		70,013		21.72		—
Total		4,292,462				1,830,265

Equity Compensation Plans Not Approved by Security Holders

None.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by Item 404 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Certain Relationships and Related Transactions” in FirstMerit’s 2011 Proxy Statement.

The information required by Item 407(a) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “The Board of Directors — Independence” in FirstMerit’s 2011 Proxy Statement.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item 14 is incorporated herein by reference from the disclosure to be included under the captions “Independent Registered Public Accounting Firm Fees” and “Pre-Approval of Fees” in FirstMerit’s 2011 Proxy Statement.

134

PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES

(a)(1) The following Financial Statements appear in Part II of this Report:

Consolidated Balance Sheets as of December 31, 2010 and 2009;

Consolidated Statements of Income for Years ended December 31, 2010, 2009, and 2008;

Consolidated Statements of Changes in Shareholders’ Equity for Years ended December 31, 2010, 2009, and 2008;

Consolidated Statements of Cash Flows for Years ended December 31, 2010, 2009, and 2008;

Notes to Consolidated Financial Statements for Years ended December 31, 2010, 2009, and 2008;

Report of Management on Internal Control Over Financial Reporting; and

Reports of Independent Registered Public Accounting Firms.

(a)(2) Financial Statement Schedules

All schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes which appear in Part II of this Report.

(a)(3) See the Exhibit Index which follows the signature page.

(b) See the Exhibit Index which follows the signature page.

(c) See subparagraph (a)(2) above.

135

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Akron, State of Ohio, on the 25^th day of February, 2010.

FIRSTMERIT CORPORATION

By:  /s/  Paul G. Greig

Paul G. Greig, Chairman and Chief Executive

Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/  Paul G. Greig Paul G. Greig Chairman, Chief Executive Officer and Director (principal executive officer)	/s/  Terrence E. Bichsel Terrence E. Bichsel Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer)
/s/  Steven H. Baer* Steven H. Baer Director	/s/  R. Cary Blair* R. Cary Blair Director
/s/  Karen S. Belden* Karen S. Belden Director	/s/  Robert W. Briggs* Robert W. Briggs Director
/s/  John C. Blickle* John C. Blickle Director	/s/  Gina D. France* Gina D. France Director
/s/  Richard Colella* Richard Colella Director	/s/  J. Michael Hochschwender* J. Michael Hochschwender Director
/s/  Terry L. Haines* Terry L. Haines Director	/s/  Philip A. Lloyd, II* Philip A. Lloyd, II Director
/s/  Clifford J. Isroff* Clifford J. Isroff Director	/s/  Richard N. Seaman* Richard N. Seaman Director

*The undersigned, by signing his name hereto, does hereby sign and execute this Annual Report on Form 10-K on behalf of each of the indicated directors of FirstMerit Corporation pursuant to a Power of Attorney executed by each such director and filed with this Annual Report on Form 10-K.

J. Bret Treier, Attorney-in-Fact

Dated: February 25, 2011

136

Exhibit Index

Exhibit
Number			Description
	3	.1	Second Amended and Restated Articles of Incorporation of FirstMerit Corporation, as amended (incorporated by reference from Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 filed by FirstMerit Corporation on May 10, 2010).
	3	.2	Second Amended and Restated Code of Regulations of FirstMerit Corporation as amended (incorporated by reference from Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 filed by FirstMerit Corporation on May 10, 2010).
	10	.1	Credit Agreement between FirstMerit and Citibank, N.A. (incorporated by reference from Exhibit 99.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on December 7, 2006).
	10	.2*	Amended and Restated 1999 Stock Plan (incorporated by reference from Exhibit 10.5 to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2000 filed by FirstMerit Corporation on April 30, 2001).
	10	.3*	First Amendment to the Amended and Restated 1999 Stock Plan (incorporated by reference from Exhibit 10.5 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.4*	Amended and Restated 2002 Stock Plan (incorporated by reference from Exhibit 10.6 to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2003 filed by FirstMerit Corporation on April 30, 2004).
	10	.5*	First Amendment to the Amended and Restated 2002 Stock Plan (incorporated by reference from Exhibit 10.7 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.6*	Amended and Restated 2006 Equity Plan (incorporated by reference from Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2, 2008).
	10	.7*	First Amendment to the Amended and Restated 2006 Equity Plan (incorporated by reference from Exhibit 10.9 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.8*	Amended and Restated Executive Deferred Compensation Plan (incorporated by reference from Exhibit 10.10 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.9*	Amended and Restated Director Deferred Compensation Plan (incorporated by reference from Exhibit 10.11 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.10*	Amended and Restated Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10.12 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.11*	Form of Amended and Restated Membership Agreement with respect to the Executive Supplemental Retirement Plan (incorporated by reference from Exhibit 10.39 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998 filed by FirstMerit Corporation on March 22, 1999).
	10	.12*	2008 Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10.14 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.13*	Amendment to the Supplemental Executive retirement plan (incorporated by reference from Exhibit 10.15 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.14*	Amended and Restated Unfunded Supplemental Benefit Plan (incorporated by reference from Exhibit 10.16 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.15*	2008 Excess Benefit Plan (incorporated by reference from Exhibit 10.18 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).

Exhibit
Number			Description
	10	.16*	First Amendment to the 2008 Excess Benefit Plan (incorporated by reference from Exhibit 10.19 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.17*	Executive Life Insurance Program Summary (incorporated by reference from Exhibit 10.20 to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2001 filed by FirstMerit Corporation on April 30, 2002).
	10	.18*	Long-Term Disability Benefit Summary (incorporated by reference from Exhibit 10.21 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.19*	Director Compensation Summary (incorporated by reference from Exhibit 10.22 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.20*	Form of Amended and Restated Change in Control Termination Agreement (Tier 1) (incorporated by reference from Exhibit 10.23 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.21*	Form of Amended and Restated Change in Control Termination Agreement (Tier 1/2008 SERP) (incorporated by reference from Exhibit 10.24 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.22*	Form of Amended and Restated Displacement Agreement (Tier 1) (filed herewith).
	10	.23*	Form of Displacement Agreement (Tier 1/2008 SERP) (filed herewith).
	10	.24*	Amended and Restated Employment Agreement by and between FirstMerit Corporation and Paul G. Greig (incorporated by reference from Exhibit 10.27 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.25*	Amended and Restated Change in Control Termination Agreement (Greig) (incorporated by reference from Exhibit 10.28 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.26*	Amended and Restated Displacement Agreement (Greig) (incorporated by reference from Exhibit 10.29 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed by FirstMerit Corporation on February 18, 2009).
	10	.27*	Form of Director Initial Restricted Stock Award Agreement (incorporated by reference from Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2, 2008).
	10	.28*	Form of Director Annual Restricted Stock Award Agreement (incorporated by reference from Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2, 2008).
	10	.29*	Form of Employee Restricted Stock Award Agreement (Change in Control) (incorporated by reference from Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2, 2008).
	10	.30*	Form of Employee Restricted Stock Award Agreement (no Change in Control) (incorporated by reference from Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2, 2008).
	10	.31*	Form of Director Nonqualified Stock Option Award Agreement (incorporated by reference from Exhibit 10.6 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2, 2008).
	10	.32*	Form of Employee Nonqualified Stock Option Award Agreement (Change in Control) (incorporated by reference from Exhibit 10.7 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2 2008).
	10	.33*	Form of Employee Nonqualified Stock Option Award Agreement (no Change in Control) (incorporated by reference from Exhibit 10.8 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2, 2008).
	10	.34	Credit Agreement by and between FirstMerit Corporation and SunTrust Bank (incorporated by reference from Exhibit 10.39 to the Annual Report on Form 10-K filed by FirstMerit Corporation on February 18, 2009).

Exhibit
Number			Description
	10	.35	First Amendment to the Credit Agreement between FirstMerit Corporation and SunTrust Bank (incorporated by reference from Exhibit 10.40 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.36	Line of Credit Letter Agreement between FirstMerit Corporation and PNC Bank, N.A. (incorporated by reference from Exhibit 10.41 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.37	Committed Line of Credit Note between FirstMerit Corporation and PNC Bank, N.A. (incorporated by reference from Exhibit 10.42 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
	10	.38	Repurchase Letter Agreement dated April 22, 2009, between FirstMerit and the United States Department of the Treasury (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on April 23, 2009).
	10	.39	Distribution Agency Agreement dated May 6, 2009, between FirstMerit and Credit Suisse Securities (USA) LLC (incorporated by reference from Exhibit 99.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on May 6, 2009).
	10	.40	Warrant Repurchase Letter Agreement dated May 27, 2009, between FirstMerit and the United States Department of the Treasury (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC by FirstMerit Corporation on May 27, 2009).
	10	.41	Purchase and Assumption Agreement dated November 11, 2009, between FirstMerit Bank, N.A. and First Bank (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC by FirstMerit Corporation on November 12, 2009).
	10	.42	Purchase and Assumption Agreement Whole Bank All Deposits, among the Federal Deposit Insurance Corporation, receiver of George Washington Savings Bank, Orland Park, Illinois, the Federal Deposit Insurance Corporation and FirstMerit Bank, N.A., dated as of February 19, 2010 (incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 22, 2010).
	10	.43*	FirstMerit Corporation 2010 Retention Bonus Plan (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 22, 2010).
	10	.44	Distribution Agency Agreement, dated March 3, 2010, between FirstMerit Corporation and Credit Suisse Securities (USA) LLC (incorporated by reference from Exhibit 99.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on March 3, 2010).
	10	.45	Distribution Agency Agreement, dated March 3, 2010, between FirstMerit Corporation and RBC Capital Markets Corporation (incorporated by reference from Exhibit 99.2 to the Current Report on Form 8-K filed by FirstMerit Corporation on March 3, 2010).
	10	.46	Purchase and Assumption Agreement Whole Bank All Deposits, among the Federal Deposit Insurance Corporation, receiver of Midwest Bank and Trust Company, Elmwood Park, Illinois, the Federal Deposit Insurance Corporation and FirstMerit Bank, N.A., dated as of May 14, 2010. (incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on May 17, 2010).
	10	.47	FirstMerit Bank Cash-Settled Value Appreciation Instrument, dated May 14, 2010 (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on May 17, 2010).
	10	.48*	FirstMerit Corporation Amended and Restated Executive Cash Incentive Plan (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on May 17, 2010).
	10	.50*	Form of Director Annual Restricted Stock Award (filed herewith).
	10	.51*	Form of Employee Restricted Stock Award (Change in Control) (filed herewith).
	10	.52*	Form of Employee Restricted Stock Award (no Change in Control) (filed herewith).
	21		Subsidiaries of FirstMerit (filed herewith).
	23		Consent of Ernst & Young LLP (filed herewith).
	24		Power of Attorney (filed herewith).
	31	.1	Rule 13a-14(a)/Section 302 Certification of Paul G. Greig, Chairman, President and Chief Executive Officer of FirstMerit (filed herewith).
	31	.2	Rule 13a-14(a)/Section 302 Certification of Terrence E. Bichsel, Executive Vice President and Chief Financial Officer of FirstMerit (filed herewith).

Exhibit
Number			Description
	32	.1	Rule 13a-14(b)/Section 906 Certification of Paul G. Greig, Chairman, President and Chief Executive Officer of FirstMerit (filed herewith).
	32	.2	Rule 13a-14(b)/Section 906 Certification of Terrence E. Bichsel, Executive Vice President and Chief Financial Officer of FirstMerit (filed herewith).
	101	.1	The following financial information from FirstMerit Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income and Comprehensive Income; (iii) the Consolidated Statements of Changes in Shareholders’ Equity; (iv) the Consolidated Statements of Cash Flows; and (iv) Notes to Consolidated Financial Statements, tagged as blocks of text.

EX-10.22

Exhibit 10.22

FIRSTMERIT CORPORATION
AMENDED AND RESTATED
DISPLACEMENT AGREEMENT
(TIER I)

     THIS AGREEMENT (“Agreement”) originally was effective [insert date] (“Effective Date”), by and between FirstMerit Corporation, an Ohio corporation (the “Company”), and [insert executive name], the executive employee who has executed this Agreement (“Employee”). Effective as of this ___ day of ____________, 20___, the parties hereby amend and restate the Agreement as set forth herein.

RECITALS:

     A. The Employee serves as an executive and is considered a key corporate officer of the Company or one of its affiliates.

     B. The Board of Directors of the Company (“Board”) has determined that the interests of the Company’s shareholders will be best served by ensuring that key corporate officers will adhere to the policies of the Board and senior management with respect to any merger, acquisition or like transaction that does not result or involve a Change in Control of the Company.

     C. The Board has also determined that it is in the best interests of the shareholders to promote stability among key officers and employees, particularly during the period leading up to and after a merger, acquisition or like transaction.

     D. Employee and the Company may have previously entered into a Displacement Agreement, which agreement is being replaced in its entirety by this Agreement and may also enter into a Change in Control Termination Agreement which protects Employee in the circumstances of a termination of employment following a Change in Control of the Company. If an event (or a series of events) creates an entitlement under both the Change in Control Termination Agreement and this Agreement, the Employee will not be entitled to be paid benefits under both this Agreement and the Change in Control Termination Agreement but will be entitled to a benefit under this Agreement or under the Change in Control Termination Agreement, whichever produces the largest after-tax benefit to the Employee.

     E. The parties desire to amend the Agreement for the purpose of complying with Section 409A of the Internal Revenue Code of 1986, as amended (“Code”) and to make other changes, all as set forth herein.

     IN CONSIDERATION OF THE FOREGOING, the mutual covenants hereinafter contained and other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Employee agree as follows:

     1. Duties of Employee. In exchange for the compensation and benefits described in this Agreement, the Employee agrees to discharge the obligations described in paragraph 9 and, consistent with his or her duties to shareholders and other legal obligations, Employee shall support the position of the Board and

the Company’s senior management and shall take any action reasonably requested by the Board and the Company’s senior management with respect to any merger, acquisition or like transaction not involving a Change in Control of the Company. The Employee agrees (on his/her own behalf and in behalf of his/her heirs, assigns and beneficiaries) that the compensation and benefits described in this Agreement are adequate consideration for the obligations assumed in this Agreement.

     2. Displacement and Change in Control.

          (a) The term “Displacement” shall mean a merger, acquisition or like transaction where no Change in Control of the Company has occurred.

     (b) The term “Change in Control” shall mean the occurrence of the earliest to occur of any one of the following events on or after the Effective Date and while in the employ of the Company or any Subsidiary (as defined below) before a Change in Control or, after a Change in Control, the Change Entity or any Related Entity (each as defined below), and shall occur on the date that:

          (a) The individuals who, on April 19, 2000, constituted the Board (the “Incumbent Directors”) are replaced during any 12-month period by directors whose appointment or election was not endorsed by a majority of the members of the Incumbent Board before the date of appointment or election;

          (b) Any “person” (as such term is defined in Section 409A of the Code) or more than one person acting as a “group” (as such term is defined in Section 409A of the Code) acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company;

          (c) Any “person” (as such term is defined in Section 409A of the Code) or more than one person acting as a “group” (as such term is defined in Section 409A of the Code) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company; provided, however, that the event described in this paragraph (c) shall not be deemed to be a Change in Control for purposes of this paragraph (c) by virtue of any of the following acquisitions:

          (i) by the Company or any Subsidiary (i.e., any entity related to the Company through common ownership as determined under Sections 414 or 1563 of the Code);

          (ii) by or through any employee benefit plan sponsored or maintained by the Company or any Subsidiary and described (or intended to be described) in Section 401(a) of the Code;

          (iii) directly through an equity compensation plan maintained by the Company or any Subsidiary, including a program described in Section 423 of the Code;

          (iv) by any underwriter temporarily holding securities pursuant to an offering of such securities;

          (v) by any entity or “person” (including a “group” as contemplated by Sections 13(d)(3) and 14(d)(2) of the Exchange Act) with respect to which that acquirer has filed SEC Schedule 13G indicating that the securities were not acquired and are not held for the purpose of or with the effect of changing or influencing, directly or indirectly, the Company’s management or policies (regardless of whether such acquisition of securities is considered to constitute the acquisition of control under the Bank Holding Company Act of 1956 pursuant to Regulation Y promulgated thereunder), unless and until that entity or person files SEC Schedule 13D, at which point this exception will not apply to outstanding securities eligible to vote for the election of the Board (“Company Voting Securities”), including those previously subject to an SEC Schedule 13G filing; or

          (vi) pursuant to a Non-Control Transaction (as defined in paragraph (d)).

          (d) The date of the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company’s shareholders, whether with respect to such transaction or the issuance of securities in connection with the transaction (a “Business Combination”) that results in an event described in subparagraphs (a), (b) or (c) or (f), unless immediately following such Business Combination:

          (i) more than 50% of the total voting power of (A) the corporation resulting from such Business Combination (the “Surviving Entity”), or (B) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors (“Total Voting Power”) of the Surviving Entity (the “Parent Entity”), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination; and

          (ii) at least a majority of the members of the board of directors of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) following the consummation of the Business Combination were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination

          Any Business Combination which satisfies all of the criteria specified in (d)(i) and (d)(ii) shall be deemed to be a “Non-Control Transaction”);

          (e) The date that the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company resulting in any of the events described in subparagraphs (a), (b) or (c) or (f); or

          (f) The date that any one person (as defined in Section 409A of the Code) or more than one person acting as a group (as defined in Section 409A of the Code), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all assets of the Company immediately before such acquisition or acquisitions; provided, however, that for

purposes of determining whether a Change in Control has occurred pursuant to this subparagraph (f), any transfer described in Treasury Regulation §1.409A-3(i)(5)(vii)(B) shall be disregarded.

          The foregoing definition of Change in Control shall be construed consistent with the definition of “change in control event” in Section 409A of the Code.

     Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person or group acquires beneficial ownership of more than 30% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if within the 12-month period after such acquisition by the Company such person or persons becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person or persons by more than one percent, a Change in Control of the Company shall then occur.

     For purposes of this Agreement, the entity resulting from a Displacement (including, if appropriate, the Company) or succeeding to the Company’s interest in connection with a Displacement is referred to as the “Displacement.”

     If more than one event that constitutes a Displacement occurs during a Protection Period, the Employee shall be entitled to the amount that equals the largest after-tax amount generated by any of the Displacements.

     If one or more events generate a payment under both this Agreement and the Change in Control Termination Agreement, the Employee will be entitled only to the benefit described in this Agreement or in the Change in Control Termination Agreement, whichever provides the highest after-tax value to the Employee, but will not be entitled to amounts under both agreements.

     Notwithstanding any other provision of this Agreement, the Employee will not be entitled to any amount under this Agreement if he/she acted in concert with any person or group (as defined above) to effect a Displacement, other than at the specific direction of the Board and in his/her capacity as an employee of the Company or any Subsidiary.

     3. Company’s Right to Terminate. The entity with which the Employee has a direct employment relationship (“Employer”) may terminate the Employee’s employment at any time during the term of this Agreement, subject to the terms of this Agreement and the obligation to provide the amounts stated herein if due. For purposes of this Agreement, any reference to the Employee’s “termination” or “termination of employment” (or any form thereof) shall mean the Employee’s “separation from service”, within the meaning of Section 409A of the Code, from the Employer and all entities that, along with the Employer would be treated as a single employer under Sections 414(b) and (c) of the Code.

     4. Termination in Connection With a Displacement. In the event of termination of employment from the Company or any Subsidiary after a Displacement, the Displacement Entity or any Related Entity (including an involuntary termination while the employee is absent from active employment pending determination of Disability under the procedures described in paragraph 4(a)) within the Protection Period (i.e., the period beginning on the date of the Displacement, even if that period begins before the Effective Date, and ending on the last day of the number of calendar months specified in Item 10 on Exhibit A beginning coincident

with or immediately after a Displacement), the Employee shall be entitled to the benefits provided in paragraph 6 unless such termination is because of the Employee’s death or determination of Disability (as described in paragraph 4(a)), for Cause, or by the Employee other than for Good Reason.

          (a) Disability. The term “Disability” shall mean termination because of Total and Permanent Disability as defined in the Long-Term Disability Plan in effect at any time during the Protection Period in which the Employee is or was participating when the condition began (or, if the Employee is or was not participating in a Long-Term Disability Plan when the condition begins, as defined under any long-term disability program in effect at any time during the Protection Period). If the Employee is deemed Disabled, his date of termination will be the end of any period prescribed under the long-term disability plan for determining eligibility for long term disability benefits and any termination occurring before that date will not be a termination for Disability. Also, any adjustment to the Employee’s compensation, job duties or other circumstances of employment during the period his Disability is being established will not constitute a basis for “Good Reason” under paragraph 4(c).

          (b) Cause. The term “Cause” shall mean one or more of the following acts of the Employee:

          (i) any act of fraud, intentional misrepresentation, embezzlement, misappropriation or conversion by the Employee of the assets or business opportunities of the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any entity related through common ownership (as determined under Sections 414 and 1563 of the Code) to the Displacement Entity (“Related Entity”);

          (ii) conviction of the Employee of (or plea by the Employee of guilty to) a felony (or a misdemeanor that originally was charged as a felony but was reduced to a misdemeanor as part of a plea bargain) or intentional and repeated violations by the Employee of the Employer’s written policies or procedures;

          (iii) disclosure, other than through mere inadvertence, to unauthorized persons of any Confidential Information (as defined below);

          (iv) intentional breach of any contract with or violation of any legal obligation owed to the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity;

          (v) dishonesty relating to the duties owed by the Employee to the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity;

          (vi) the Employee’s (x) willful and continued refusal to substantially perform assigned duties (other than any refusal resulting from sickness or illness or while suffering from an incapacity due to physical or mental illness, including a condition that does or may result in a Disability, or attributable to an event that constitutes Good Reason, as defined in paragraph (c)), (y) willful engagement in gross misconduct materially and demonstrably injurious to the Company or any Subsidiary before a

Displacement or, after a Displacement, the Displacement Entity or any Related Entity or (z) breach of any term of this Agreement; or

          (vii) any intentional cooperation with any party attempting to effect a Displacement unless (y) the Board has approved or ratified that action before the Displacement or (z) that cooperation is required by law.

     However, Cause will not arise solely because the Employee is absent from active employment during periods of vacation, consistent with the Employer’s applicable vacation policy, sickness or illness or while suffering from an incapacity due to physical or mental illness, including a condition that does or may result in a Disability or other period of absence initiated by the Employee and approved by the Employer.

     The term “Confidential Information” shall mean any and all information (other than information in the public domain) related to the Company’s, any Subsidiary’s, the Displacement Entity’s or any Related Entity’s business, including all processes, inventions, trade secrets, computer programs, technical data, drawings or designs, information concerning pricing and pricing policies, marketing techniques, plans and forecasts, new product information, information concerning methods and manner of operations and information relating to the identity and location of all past, present and prospective customers and suppliers.

          (c) Good Reason. The term “Good Reason” shall mean any of the following to which the Employee has not consented in writing:

          (i) at any time during the Protection Period, any breach of this Agreement (including breach of the commitments undertaken under paragraph 9(d) of any nature whatsoever) by or on behalf of the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity;

          (ii) at any time during the Protection Period, a reduction in the Employee’s title, duties, responsibilities or status, as compared to either (y) the Employee’s title, duties, responsibilities or status immediately before the beginning of the Protection Period or (z) any enhanced or increased title, duties, responsibilities or status assigned to the Employee during the Protection Period;

          (iii) at any time during the Protection Period, the permanent assignment to the Employee of duties that are inconsistent with (y) the Employee’s office immediately before the beginning of the Protection Period or (z) any more senior office to which the Employee is promoted during the Protection Period;

          (iv) during any calendar year ending during the Protection Period (or any fractional calendar year ending within the Protection Period), a 15 percent (or larger) reduction (other than a reduction that is attributable to any termination for death, after reaching age 65 (but only if the Employee is then entitled to an immediate, unreduced benefit under a deferred compensation plan described in Section 401(a) of the Code), Disability or Cause, voluntary termination by the Employee other than for Good Reason or for any period of temporary absence protected by law or initiated by the Employee and approved by the Employer) in the aggregate value of the highest of the Employee’s total compensation for the calendar year ending before the Date of Termination (including base salary, cash

bonus potential, the value of employee benefits, other than value associated solely with the performance of investments the Employee controls, and fringe benefits but excluding compensation attributable to the exercise or liquidation of stock options) or, if higher, the Employee’s total compensation for the last calendar year ending before the beginning of the Protection Period (including base salary, cash bonus potential, the value of employee benefits, other than value associated solely with the performance of investments the Employee controls, and fringe benefits) but, in both cases, determined without regard to any amounts, paid or payable, under paragraphs 6, 7, 8 and 11;

          (v) at any time during the Protection Period, a requirement that the Employee relocate to a principal office or worksite (or accept indefinite assignment) to a location more than 50 miles distant from (y) the principal office or worksite to which the Employee was assigned immediately before the beginning of the Protection Period or (z) any location to which the Employee agreed, in writing, to be assigned after a Displacement;

          (vi) at any time during the Protection Period, the imposition on the Employee of business travel obligations substantially greater than the Employee’s business travel obligations during the 12-consecutive-calendar-month period ending immediately before the beginning of the Protection Period but determined without regard to any special business travel obligations associated with activities relating to the Displacement;

          (vii) at any time during the Protection Period, the Employer’s (u) failure to continue in effect any material fringe benefit or compensation plan, retirement or deferred compensation plan, life insurance plan, health and accident plan, sick pay plan or disability plan in which the Employee is participating (or was eligible to participate) immediately before the beginning of the Protection Period, (v) modification of any of the plans or programs just described that adversely affects the potential value of the Employee’s benefits under those plans (other than value associated solely with the performance of investments the Employee controls) or (w) failure to provide the Employee, after a Displacement, with the same number of paid vacation days to which the Employee is or becomes entitled at or anytime during the Protection Period under the terms of the Employer’s vacation policy or program. However, Good Reason will not arise under this subsection solely because (x) the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity terminates or modifies any such program during the Protection Period solely to comply with applicable law but only to the extent required to meet applicable legal standards, (y) a plan or benefit program expires under self-executing terms contained in that plan or benefit program before the Displacement or (z) the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity replaces a plan or program with a successor plan or program of equal or equivalent value to the Employee;

          (viii) for the duration of any period of any absence from active employment that begins or continues at any time during the Protection Period, failure to provide or continue for the Employee any benefits (including disability benefits) available to employees who are absent from active employment (including because of disability) under programs maintained by the Company, the Displacement Entity or any Related Entity on the date the absence (including disability) begins;

          (ix) during the Protection Period, the Employee is unable to perform normally assigned duties because of a physical or mental condition and before his/her Disability is established under paragraph 4(a), the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity terminates the Employee before the end of the Disability determination period described in paragraph 4(a);

          (x) during the Protection Period, the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity unsuccessfully attempts to terminate the Employee for Cause, in which case the Effective Period will not end earlier than 60 days after the conclusion of the Employer’s unsuccessful attempt to terminate the Employee for Cause;

          (xi) during the Protection Period, the Employer attempts to amend or terminate this Agreement without regard to the procedures described in paragraphs 10 or 13;

          (xii) failure at any time to obtain an assumption of the Company’s or any Subsidiary’s, before a Displacement, or, after a Displacement, the Displacement Entity’s or any Related Entity’s obligations under this Agreement by any successor to any of them, regardless of whether such entity becomes a successor to the Company or any Subsidiary, before a Displacement, or, after a Displacement, the Displacement Entity or any Related Entity as a result of a merger, consolidation, sale of assets or any other form of reorganization; or

          (xiii) termination of employment which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph 5 herein.

     5. Notice of Termination. Any purported termination of the Employee’s employment shall be communicated by a written Notice of Termination to the other party delivered no later than 60 days after the Employee, in the case of Good Reason, or, in other cases, the Change Entity and any Related Entity, knows or with reasonable diligence should have known of the event constituting Good Reason, Cause or Disability. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provisions in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment under the provisions so indicated and shall specify a “Date of Termination”, which shall be the date of the Employee’s termination of employment.

     6. Compensation and Benefits Upon Termination.

          (a) If a Displacement has occurred and during the Protection Period the Employee’s employment is terminated (i) by the Employer other than for Cause, Disability or death, or (ii) by the Employee for Good Reason, the Employee shall be entitled to (and each of the Displacement Entity and all Related Entities shall be jointly liable for) the compensation and benefits provided in subparagraph (c) below.

          (b) The compensation described in subparagraphs (c)(i), (c)(ii) and (c)(iii) shall be paid by the Displacement Entity or the Employer (or jointly by them) to the Employee in a single lump sum cash payment on or before the fifth business day following the effective Date of Termination. The compensation and

benefits described in subparagraphs (c)(iv), (c)(v), (c)(vi) and (c)(vii) will be paid as provided in those subparagraphs.

          (c) The compensation and benefits payable to an Employee pursuant to this paragraph 6 shall be as follows:

          (i) Base Salary to Date of Termination. The Employee’s full base salary through the Date of Termination.

          (ii) Base Salary. An amount equal to the Employee’s annual base salary (at the highest annualized rate in effect at any time during the Protection Period) multiplied by the number indicated in Item 6(c)(ii) on Exhibit A, which Exhibit is attached hereto and incorporated by reference herein.

          (iii) Incentive Compensation. An amount equal to (y) the value of the incentive compensation payment the Employee would receive if payout was made at the “target” percentage for the Employee under the Company’s Executive Incentive Plan (and/or any analogous plan adopted after the date of this Agreement) for the year of the Employee’s Date of Termination (or any higher percentage based on objective criteria specified in the Executive Incentive Compensation Plan for the year in which the Date of Termination occurs and/or any analogous plan adopted after the date of this Agreement that the Employee has achieved before the Date of Termination) or, if higher, the value of the incentive compensation payment the Employee received under the Company’s Executive Incentive Plan (and/or any analogous plan adopted after the date of this Agreement) at any time during the Protection Period multiplied by (z) the number indicated in Item 6(c)(iii) on Exhibit A.

          (vi) Stock Plans. The Employee’s outstanding stock options and other stock, phantom stock, stock appreciation rights or similar arrangements in which he/she participates, whether issued before, in connection with or after the Displacement will be fully vested and exercisable and settled in accordance with the terms of the applicable plan or plans. Notwithstanding any provisions to the effect that rights terminate upon termination of employment, the Employee (or his/her beneficiary) shall be given the longer of 90 days after the Date of Termination, or the remaining period provided in the grant (determined without regard to the Employee’s termination), to realize or exercise all rights or options provided under such plans with respect to any stock option, and other stock, phantom stock, stock appreciation rights or similar grants.

          (v) Medical Benefits and Life Insurance. The Employer or the Displacement Entity shall maintain in full force and effect for the Employee’s (and for his/her family if family coverage is then in effect) continued benefit until the earlier of the number of months listed in Item 6(c)(v) on Exhibit A after the Date of Termination, or the end of the calendar month in which the Employee reaches the age of 67, all medical insurance (including health care, dental and prescription drug insurance), life insurance, and accidental death and dismemberment insurance including conversion rights (collectively “Welfare Benefits”), with coverage and limits, separately for each Welfare Benefit and in the aggregate, identical to those in effect with respect to the Employee (including family coverage if family coverage is then in effect), immediately before the Date of Termination or, if higher (both

separately and in the aggregate) at any time during the Protection Period. If the Employer or the Displacement Entity is unable to provide some or all of the Welfare Benefits through its insured program for the duration of the period described in the first sentence of this paragraph, the Employer or the Displacement Entity will distribute to the Employee a lump sum cash amount equal to the highest aggregate premium amount paid during the Protection Period with respect to the Welfare Benefit it is unable to provide through its insured programs multiplied by the number of whole and fractional premium periods for which it is unable to provide this coverage through its insured program, plus an additional amount equal to the Premium Tax Obligation (as defined below). If the Employee is a participant in the Company’s Executive Committee Life Insurance Program (and/or any analogous plan adopted after the date of this Agreement) on the Date of Termination, the Displacement Entity and/or the Employer shall pay the premium for the Employee on such insurance for a period ending the earlier of the number of months listed in Item 6(c)(v) on Exhibit A after the Date of Termination, or the calendar month in which the Employee reaches the age of 67, plus an additional amount to the Employee equal to the Premium Tax Obligation. For the sole purpose of determining the Employee’s eligibility to participate in the Company’s Welfare Benefit programs, the Employee shall be considered to be on a paid leave of absence as long as he/she is receiving benefits under this Agreement.

     The term “Premium Tax Obligation” shall mean an additional cash amount equal to all applicable federal, state and local, income, wage, employment and excise taxes (including those imposable under Code § 4999) so that, after payment of all taxes due on the cash payments described in this subparagraph (c)(v) (i.e., the cash equivalent of the premiums needed to provide the Welfare Benefits the Displacement Entity and/or the Company are unable to provide through their insured programs), the Employee will retain cash equal to the highest aggregate premium amount paid during the Protection Period with respect to the Welfare Benefit it is unable to provide through its insured programs multiplied by the number of whole and fractional premium periods for which it is unable to provide this coverage through its insured program.

          Notwithstanding the foregoing, (A) any amounts or benefits that will be paid or provided under this subparagraph with respect to health or dental coverage after completion of the time period described in Treasury Regulation §1.409A-1(b)(9)(v)(B) and (B) any other amounts or benefits that will be paid or provided under this subparagraph shall be subject to the following requirements: (1) the amount of expenses eligible for reimbursement or benefits provided during any taxable year of the Employee may not affect the expenses eligible for reimbursement or benefits to be provided in any other taxable year of the Employee; (2) any reimbursement of an eligible expense shall be made on or before the last day of the taxable year of the Employee following the taxable year of the Employee in which the expense was incurred; and (3) the right to such reimbursement or benefit may not be subject to liquidation or exchange for another benefit.

          (vi) Supplemental Executive Retirement Plan. The following shall apply for purposes of calculating the Employee’s benefits, if applicable, under the FirstMerit Corporation Amended and Restated Supplemental Executive Retirement Plan, originally effective on February 13, 1987 and amended and restated effective of as November 20, 2008, and as maybe amended from time to time,

and/or any other nonqualified plan of deferred compensation in effect during the Protection Period (the “SERP”):

          (x) for purposes of calculating the Employee’s Monthly Retirement Income (as defined in the SERP) under Sections 4.01 and 4.02 (or successor section) of the SERP and for purposes of determining the Employee’s vested Monthly Retirement Income under Section 4.05 (or successor section) of the SERP, the Employee’s Years of Service (as defined in the SERP) shall be increased by 24 months;

          (y) for purposes of calculating the Employee’s Monthly Retirement Income under Section 4.02 of the SERP, the Employee’s Attained Age (as defined in the SERP) shall be increased by 24 months; and

          (z) the Employee’s Average Monthly Earnings for purposes of the SERP shall be deemed to be equal to the total of the highest monthly base salary earned by the Employee during the 24 months immediately preceding the Displacement and the value of the incentive compensation payment the Employee would receive if payout was made at the “target” percentage for the Employee under the Company’s Executive Incentive Plan (and/or any analogous plan adopted after the date of this Agreement) in the year of Employee’s Date of Termination (or any higher percentage based on objective criteria specified in the Incentive Compensation Plan for the year in which the Date of Termination occurs and/or any analogous plan adopted after the date of this Agreement) that the Employee has achieved before the Effective Date of Termination in the year of Employee’s Date of Termination divided by 12.

     The terms of this subparagraph (vi) shall apply only if Employee is a participant in the SERP, and shall supersede any contrary provisions of the SERP and any membership agreement executed between the Company and the Employee in connection with the Employee’s participation in the SERP, unless expressly provided otherwise in such membership agreement. The Employee’s SERP benefit, calculated using the provisions of subparagraphs (vi)(x), (y) and (z) above, is assumed to commence on the earliest date upon which the Employee is eligible to retire under the SERP for purposes of determining the Actuarial Equivalent (as defined in the SERP) of such benefit.

     If the SERP is terminated and the Employee cites that termination as a basis for Good Reason termination, the benefits due under this subparagraph will be calculated as if the SERP had not been terminated.

          (vii) Outplacement Fees. For a period not to exceed one year after the Date of Termination, the Displacement Entity, the Employer or any Related Entity will pay directly to the provider the reasonable expenses associated with outplacement training of the Employee by a professional placement firm and in an amount not to exceed that listed as Item 6(c)(vii) on Exhibit A.

     (d) Notwithstanding anything in this Agreement to the contrary, if the Employee is a “specified employee” (within the meaning of Section 409A of the Code and as determined under the relevant entity’s policy for determining specified employees), on the Employee’s date of termination and

the Employee is entitled to a payment and/or a benefit under this Agreement that is required to be delayed pursuant to Section 409A(a)(2)(B)(i) of the Code, then such payment or benefit, as the case may be, shall not be paid or provided (or begin to be paid or provided) until the first business day of the seventh month following the date of the Employee’s termination of employment (or, if earlier, the date of the Employee’s death). The first payment that can be made to the Employee following such postponement period shall include the cumulative amount of any payments or benefits that could not be paid or provided during such postponement period due to the application of Section 409A(a)(2)(B)(i) of the Code.

     7. Overall Limitation on Benefits. Notwithstanding any provision in this Agreement to the contrary (other than paragraphs 6(c)(v), 8 and 11 which will apply under the circumstances described in those paragraphs and below), if, as of the date of the Displacement, the Displacement Entity (after consulting with an independent accounting or compensation consulting company) ascertains that the compensation and benefits provided to the Employee pursuant to or under this Agreement (other than the Welfare Benefit Replacement Cost defined below and the amounts described in paragraphs 8 and 11), either alone or when combined with other compensation and benefits received by the Employee, would constitute “parachute payments” within the meaning of Section 280G of the Code, or the regulations adopted thereunder, then the compensation and benefits payable pursuant to or under this Agreement (other than the Welfare Benefit Replacement Cost and the amounts described in paragraphs 8 and 11) shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code (“Excise Taxes”). The Employee or any other party entitled to receive the compensation or benefits hereunder may request a determination as to whether the compensation or benefit would constitute a parachute payment and, if requested, such determination shall be made by an independent accounting or compensation consulting company (other than the entity described in the first sentence of this subparagraph) selected by the Displacement Entity and approved by the party requesting such determination, the fees of which will be borne solely by the Displacement Entity. Any reduction required under this paragraph 7 shall be made consistent with the requirements of Section 409A of the Code.

     If the Internal Revenue Service subsequently and finally decides that the amount of the reduction applied under this paragraph 7 is not sufficient to avoid the Excise Taxes on compensation and benefits (other than the Welfare Benefit Replacement Cost and those amounts described in paragraphs 8 and 11), the Employee will immediately remit an additional amount to the Displacement Entity equal to the difference between the amount paid (other than the Welfare Benefit Replacement Cost and those amounts described in paragraphs 8 and 11) and the amount the Internal Revenue Service is necessary to avoid the Excise Taxes. Also, the Employee agrees to promptly notify the Displacement Entity of an assessment or inquiry from the Internal Revenue Service relating to payments under this Agreement that would, if made final, result in imposition of an Excise Tax and also agrees to cooperate with the Displacement Entity in resisting any Excise Tax assessment. However, the Displacement Entity will have complete control over resolution of any claim by the Internal Revenue Service that might generate an Excise Tax (although it will have no dispositive power over any other tax matter that may be subject to the same audit) and the Company will bear all costs associated with that effort.

     For purposes of this paragraph 7, Welfare Benefit Replacement Cost equals the sum of the amount required to enable the Employee to purchase the Welfare Benefits the Displacement Entity and the Company are unable to provide through their insured programs throughout the period described in paragraph 6(c)(v) plus

the Premium Tax Obligation. When applying the rules described in this paragraph 7, the Welfare Benefit Replacement Cost and those amounts described in paragraphs 8 and 11 will be disregarded entirely and the calculation of any Excise Tax liability (and, if appropriate, reduction of compensation and benefits to avoid any Excise Tax liability) will be performed without reference to the Welfare Benefit Replacement Cost and the amounts described in paragraphs 8 and 11.

     8. Legal, Etc. Fees. The Displacement Entity shall pay all reasonable legal, accounting and actuarial fees and expenses incurred by the Employee in enforcing any right or benefit provided by this Agreement. If it is subsequently determined that payment of these fees are parachute payments, the Displacement Entity or the Employer will fully gross-up the Employee for the income, wage, employment and excise taxes associated with that payment so that, after all applicable federal, state and local, income, wage, employment and excise taxes (plus any assessed interest and penalties), the Employee will have incurred no liability (either for these fees or the taxes just listed) with respect to the matters encompassed in this paragraph. Any legal, accounting and actuarial fees and expenses being reimbursed must relate to a claim brought during the lifetime of the Employee or the duration of the Employee’s estate arising from the alleged breach of any obligation of Employer under this Agreement and the reimbursement or payment is subject to the following: (a) the amount eligible for reimbursement during any taxable year of the Employee or the Employee’s estate may not affect the amount eligible for reimbursement in any other taxable year of the Employee or the Employee’s estate; (b) any reimbursement must be made on or before the last day of the Employee’s of the Employee’s estate’s taxable year following the taxable year in which the cost was incurred; and (c) the right to reimbursement for such costs may not be subject to liquidation or exchange for another benefit. Any gross-up payment of taxes shall be made by the end of the taxable year following the year in which the Employee of the Employee’s estate remits the taxes being grossed-up.

     9. Obligations. By signing this Agreement, the Employee agrees to be bound by and to comply with the following restrictions, whether or not the Employee also receives the compensation and benefits described in paragraph 6 (except as otherwise provided in this paragraph 9):

          (a) For a period of twelve (12) full calendar months after the Employee’s employment terminates for any reason described in paragraph 6(a), he will not directly or indirectly engage in, assist or have an active interest in (whether as proprietor, partner, investor, shareholder, officer, director or any type of principal whatsoever) or enter the employment of or act as agent for or adviser or consultant to any person or entity who is (or is about to become) engaged in any business that competes with the Company or in any national banking association with deposits in excess of $5.0 billion anywhere in the state of Ohio and in any county in Pennsylvania (or any other state) in which FirstMerit has an office or branch on the date of termination. The Company and the Employee expressly agree that a portion of the consideration described in paragraph 6 is allocable to the non-competition covenant described in this paragraph 9(a) and that the amount so allocated shall reduce the amount of any “parachute payment” (within the meaning of Section 280G of the Code) to which the Employee may be entitled under this Agreement. Notwithstanding the foregoing, to the extent that any applicable law prohibits allocation of all or any portion of the consideration described in this paragraph 6 to the non-competition covenant described in this Paragraph 9(a) such that the amount so allocated reduces the amount of any parachute payment to which the Executive may be entitled under this Agreement, the non-competition covenant described in this Section 9(a) shall not apply to the Employee.

     (b) If any “person” (as used in paragraph 2(b)) initiates a tender or exchange offer, distributes proxy materials to the Company’s shareholders or takes other steps to effect, or that may result in, a Displacement, the Employee agrees not to terminate employment voluntarily during the pendency of that activity (other than by reason of termination after reaching retirement age or Disability or for Good Reason) and to continue to serve as a full-time employee until those efforts are abandoned, that activity is terminated or until a Displacement has occurred.

     (c) Except as otherwise required by applicable law, Employee expressly agrees to keep and maintain Confidential Information (as defined in paragraph 4(b)) confidential and not, at any time during or subsequent to the Employee’s employment, to use any Confidential Information for Employee’s own benefit or to divulge, disclose or communicate any Confidential Information to any person or entity in any manner except (i) to employees or agents of the Company, any Subsidiary, the Displacement Entity and any Related Entity that need the Confidential Information to perform their duties on behalf of the Company, any Subsidiary, the Displacement Entity and any Related Entity, (ii) in the performance of Employee’s duties, (iii) as a necessary (and only to the extent necessary) part of any undertaking by the Employee to enforce the Employee’s rights under this Agreement or (iv) pursuant to a subpoena. Employee also agrees to notify the Company, before a Displacement and, after a Displacement, the Displacement Entity promptly of any circumstance Employee believes may legally compel the disclosure of Confidential Information and to give this notice before disclosing any Confidential Information.

     (d) The Employee agrees that during and after employment and without additional compensation (other than reimbursement for reasonable associated expenses, which shall be made consistent with the Employer’s normal policy relating to the reimbursement of expenses) to cooperate with the Company, any Subsidiary, the Displacement Entity and any Related Entity in the following areas:

     (i) the Employee agrees (w) to be reasonably available to answer questions for the Company’s, any Subsidiary’s, the Displacement Entity’s and any Related Entity’s officers regarding any matter, project, initiative or effort for which the Employee was responsible while employed by the Employer and (x) to cooperate with the Company, any Subsidiary, the Displacement Entity and any Related Entity during the course of all third-party proceedings arising out of the Company’s, any Subsidiary’s, the Displacement Entity’s or any Related Entity’s business about which the Employee has knowledge or information. For purposes of this Agreement, (y) “proceedings” includes internal investigations, administrative investigations or proceedings and lawsuits (including pre-trial discovery and trial testimony) and (z) “cooperation” includes the Employee’s being reasonably available for interviews, meetings, depositions, hearings and/or trials without the need for subpoena or assurances by the Company, any Subsidiary, the Displacement Entity or any Related Entity providing any and all documents in the Employee’s possession that relate to the proceeding and providing assistance in locating any and all relevant notes and/or documents.

     (ii) unless compelled to do so by lawfully-served subpoena or court order, the Employee agrees not to communicate with, or give statements or testimony to, any attorney representing an interest opposed to the Company’s, any Subsidiary’s, the Displacement Entity’s or any Related Entity’s interest (“Opposing Attorney”), Opposing Attorney’s representative (including private investigators) or current or former employee relating to any matter (including pending or threatened lawsuits or administrative investigations) about which the Employee has knowledge or information (other than knowledge or information that is not Confidential

Information as defined in paragraph 4(b)) as a result of employment with the Company, any Subsidiary, the Displacement Entity or any Related Entity. The Employee also agrees to notify the Employer after being contacted by a third party or receiving a subpoena or court order to appear and testify with respect to any matter that may include a claim opposed to the Company’s, any Subsidiary’s, the Displacement Entity’s or any Related Entity’s interest. However, this subsection will not apply to any effort undertaken by the Employee to enforce the Employee’s rights under this Agreement but only to the extent necessary for that purpose.

     (iii) the Employee agrees not to communicate with, or give statements to, any member of the media (including print, television or radio media) relating to any matter (including pending or threatened lawsuits or administrative investigations) about which the Employee has knowledge or information (other than knowledge or information that is not Confidential Information as defined in paragraph 4(b)) as a result of employment with the Company, before a Displacement, or, after a Displacement, the Displacement Entity immediately after being contacted by any member of the media with respect to any matter affected by this section.

     (e) The Employee, the Company, any Subsidiary, the Displacement Entity and any Related Entity agree that none will make any disparaging remarks about the others. However, this restriction will not preclude (i) remarks by any employee made in the normal course of business, (ii) remarks by the Employee that are required to discharge the Employee’s regular duties or other duties described in this Agreement, (iii) the Company, any Subsidiary, the Displacement Entity or any Related Entity from making (or eliciting from any person) disparaging remarks about the Employee concerning any conduct that may lead to a termination for Cause (including initiating an inquiry or investigation that may result in a termination for Cause), but only to the extent reasonably necessary to investigate the Employee’s conduct and to protect the Company’s, any Subsidiary’s, the Displacement Entity’s and any Related Entity’s interests or (iv) any remarks made by any party that are necessary (but only to the extent necessary) to resolve any dispute arising under this Agreement and that are made solely in the context of proceeding undertaken pursuant to paragraph 11.

     (f) If the Employee breaches any obligation described in this Agreement:

     (i) If that breach occurs before a Displacement, this Agreement will terminate as of the date of the breach, even if the fact of the breach becomes apparent at a later date and no amounts will be due under this Agreement;

     (ii) If that breach occurs after a Displacement but before the Employee has terminated, this Agreement will terminate as of the date of the breach, even if the fact of the breach becomes apparent at a later date, and no amounts will be due under this Agreement; or

     (iii) If that breach occurs after a Displacement and after the Employee terminates employment, (y) the Displacement Entity will be entitled to treat the Employee as having terminated for Cause and (z) Employee will repay the amounts already received in paragraph 6 plus interest calculated with reference to the mid-term applicable federal rate [as defined in Section 1274(d) of the Code] for January 1 of each calendar year, compounded annually until paid and will be entitled to no further amounts under this Agreement.

     10. Term of Agreement. The Term of this Agreement shall be from the Effective Date through the last day of the calendar month which is the number of months listed in Item 10 on Exhibit A beginning after a Displacement. Nevertheless, this Agreement will terminate on the earliest of the following to occur:

          (a) Except as provided in paragraph 6, the Employee’s employment with the Company or any Subsidiary, before a Displacement, or, after a Displacement, the Displacement Entity or any Related Entity terminates before the beginning of the Protection Period;

          (b) Before the beginning of a Protection Period, the Employee is reassigned to a more junior position than that held on the date of this Agreement; however, if the more junior position is in an employee classification, the majority of whose members have displacement agreements (or analogous agreements, other than a Change in Control Termination Agreement), this Agreement will remain in effect, although benefit levels will automatically be adjusted to the level established under those agreements;

          (c) The Employee mutually agrees, in writing, to terminate this Agreement, whether or not it is replaced with a similar agreement;

          (d) The Company notifies the Employee, in writing, that the Agreement is to terminate at the end of its then current term. To be effective, however, this written notice (i) must be given no later than 60 consecutive calendar days before the end of the then current term but (ii) may never be effective during a Protection Period, although a notice of termination of this Agreement given during the portion of the Protection Period before a Displacement may be effective if a Displacement does not occur; or

          (e) All payments due under this Agreement have been fully paid.

     However this Agreement will not terminate if, before the beginning of or during a Protection Period, the Employee is reassigned to a more senior position than that held on the date of this Agreement. In this case, the Agreement will remain in effect, although the benefit levels will automatically be adjusted to the level established for other employees assigned to that classification or, if there is no other employee in that classification, to the highest level in effect under this Agreement.

     11. Dispute Resolution. Any disagreement concerning the calculation of any payment due under this Agreement that is not resolved by agreement between the parties (or by the independent accounting or compensation consulting company described in paragraph 7 with reference to matters described in that paragraph) or other dispute or controversy arising out of or relating to this Agreement that is not resolved by agreement between the parties, including the basis on which the Employee’s employment is terminated, will be resolved by arbitration in accordance with the rules of the American Arbitration Association. The award of the arbitrator will be final, conclusive and nonappealable and judgment upon the award rendered by the arbitrator may be entered in any court having competent jurisdiction. The arbitrator must be an arbitrator qualified to serve in accordance with the rules of the American Arbitration Association and one who is approved by the Company, before a Displacement, or, after a Displacement, the Displacement Entity and the Employee. If the Employee and the Company, before a Displacement, or, after a Displacement, the Displacement Entity fail to agree on an arbitrator, each must designate a person qualified to serve as an arbitrator in accordance with the rules of the American Arbitration Association and these persons will select the arbitrator from among those

persons qualified to serve in accordance with the rules of the American Arbitration Association. Any arbitration relating to this Agreement will be held in Summit County, Ohio (or other geographical area acceptable to the parties).

     The Company, before a Displacement, or, after a Displacement, the Displacement Entity or any Related Entity will bear all reasonable costs associated with any dispute arising under this Agreement, including reasonable accounting and legal fees incurred by the Employee in connection with the arbitration proceedings just described. If it is subsequently determined that payment of these costs are parachute payments, the Company, before a Displacement, or, after a Displacement, the Displacement Entity will fully gross-up the Employee for the income, wage, employment and excise taxes associated with that payment so that, after all applicable federal, state and local, income, wage, employment and excise taxes (plus any assessed interest and penalties), the Employee will have incurred no liability (either for these fees or the taxes just listed) with respect to the matters encompassed in this paragraph 11. The treatment of payments or reimbursements and gross-ups pursuant to this paragraph are described in paragraph 8.

     If otherwise due, payments not being contested under the procedures described in this paragraph will not be deferred during the pendency of procedures described in this paragraph.

     If the arbitrator decides, at the conclusion of the arbitration proceedings described in this paragraph, that the Company, before a Displacement, or, after a Displacement, the Displacement Entity has understated the amount due under this Agreement, the Company, before a Displacement, or, after a Displacement, the Displacement Entity will, subject to application of paragraph 7 to the aggregate of the amount initially paid under paragraph 6 and the additional award, pay the additional amount, if any, to the Employee within 30 days after the date of the award along with interest calculated at the interest rate prescribed by the arbitrator. However, if, after application of paragraph 7 to the arbitrator’s award, the net amount due to the Employee would not increase, no amounts will be paid under this subsection, regardless of the arbitrator’s award.

     12. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, provided that all notices to the Company or any Subsidiary, before a Displacement, or, after a Displacement, the Displacement Entity, the Employer or any Related Entity shall be directed to the attention of the President of the Company with a copy to the Secretary of the Company, before a Displacement or, after a Displacement, to the President of the Displacement Entity with a copy to the Secretary of the Displacement Entity (or, in the case of the President, directed to the notice of the Chairman of the Board of the Company, before a Displacement, or, after a Displacement, to the Chairman of the board of directors of the Displacement Entity with a copy to the Secretary of the Displacement Entity), or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. If the last address given by the Employee is not current, the Employer will use reasonable means to locate the Employee.

     13. Miscellaneous.

          (a) No provisions of this Agreement may be modified, waived, or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Employee and such officer as may

be specifically designated by the Board or the board of directors of the Displacement Entity. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar provisions or conditions at the same or at any prior or subsequent time.

          (b) This Agreement is intended to replace and supersede the existing Displacement Agreement between the Company and the Employee, which prior agreement shall become invalid as of the date of signing this Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement; provided, however, that this Agreement shall not supersede or in any way limit the rights, duties or obligations the Employee may have under any other written agreement with the Company or any Subsidiary, the Displacement Entity, the Employer or any Related Entity that are not inconsistent with the terms of this Agreement.

          (c) Except as expressly provided in this Agreement, the Employee’s right to receive the payments described in this Agreement will not decrease the amount of, or otherwise adversely affect, any other benefits payable to the Employee under any other plan, agreement or arrangement.

          (d) The Employee is not required to mitigate the amount of any payment described in this Agreement by seeking other employment or otherwise, nor will the amount of any payment or benefit provided for in this Agreement be reduced by any compensation or benefits the Employee earns, or is entitled to receive, in any capacity after termination or by reason of the Employee’s receipt of or right to receive any retirement or other benefits attributable to employment.

          (e) Except as expressly provided elsewhere in this Agreement, the amount of any payment made under this Agreement will be reduced by amounts the Employer is required to withhold in payment (or in anticipation of payment) of any income, wage or employment taxes imposed on the payment.

          (f) The right of an Employee or any other person to receive any amount under this Agreement may not be assigned, transferred, pledged or encumbered except by will or by applicable laws of descent and distribution. Any attempt to assign, transfer, pledge or encumber any amount that is or may be receivable under this Agreement will be null and void and of no legal effect. However, this paragraph will not preclude payment under paragraph 13(g) of any benefit to which a deceased Employee is entitled.

          (g) Subject to the preceding subparagraph (f), this Agreement inures to the benefit of and may be enforced by the Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

          (h) If:

          (i) the Employee’s employment relationship shifts between the Company and any Subsidiary before a Displacement or after a Displacement, between the Displacement Entity and any Related Entity and there has been no intervening termination, this Agreement will remain in full force and effect and for all purposes of this Agreement, the Employee’s new employer will be substituted for the Employee’s prior employer.

          (ii) if the Employee’s employer is no longer a Subsidiary, whether or not as part of a transaction that constitutes a Displacement, this Agreement will remain in full force and effect. However, the Employee will not be entitled to any amount under this Agreement on account of a Displacement that solely affects the Company after that transfer and is not part of the same transaction through which the employer stopped being a Subsidiary.

     14. Validity. The validity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws (other than the laws of conflict of laws) of the State of Ohio.

     15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original by all of which together will constitute one and the same instrument.

     16. Section 409A of the Code. This Agreement is intended to comply with the requirements of Section 409A of the Code, and, to the maximum extent permitted by law, shall be interpreted, construed and administered consistent with this intent. None of the Company, the Employer, any Related Entity, the Change Entity, the Board or any other person shall have liability in the event this Agreement fails to comply with the requirements of Section 409A of the Code. Nothing in this Agreement shall be construed as the guarantee of any particular tax treatment to the Employee.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date above first written.

FirstMerit Corporation
By:
	Christopher J. Maurer,
	Executive Vice President
Employee:
(Signature)
(Print Name)

Amended and Restated
Displacement Agreement
(Tier I)

Exhibit A

Name of Executive:	(print)
Item 6(c)(ii): Multiplied By:	(insert number)
Item 6(c)(iii): Multiplied By:	(insert number)
Item 6(c)(v):	(insert number of months)
Item 6(c)(vii): Outplacement Fee:	$[insert]
Item 10	(insert number of months)

EX-10.23

Exhibit 10.23

FIRSTMERIT CORPORATION
2009 TIER I DISPLACEMENT AGREEMENT

     This FirstMerit Corporation 2009 Tier I Displacement Agreement (“Agreement”) is effective [insert date] (“Effective Date”), by and between FirstMerit Corporation, an Ohio corporation (the “Company”), and [insert executive name], the executive employee who has executed this Agreement (“Employee”).

RECITALS:

A.	The Employee serves as an executive and is considered a key corporate officer of the Company or one of its affiliates.
B.	The Board of Directors of the Company (“Board”) has determined that the interests of the Company’s shareholders will be best served by ensuring that key corporate officers will adhere to the policies of the Board and senior management with respect to any merger, acquisition or like transaction that does not result or involve a Change in Control of the Company.
C.	The Board has also determined that it is in the best interests of the shareholders to promote stability among key officers and employees, particularly during the period leading up to and after a merger, acquisition or like transaction.
D.	Employee and the Company may enter into a Change in Control Termination Agreement which protects Employee in the circumstances of a termination of employment following a Change in Control of the Company. If an event (or a series of events) creates an entitlement under both the Change in Control Termination Agreement and this Agreement, the Employee will not be entitled to be paid benefits under both this Agreement and the Change in Control Termination Agreement but will be entitled to a benefit under this Agreement or under the Change in Control Termination Agreement, whichever produces the largest after-tax benefit to the Employee.

          IN CONSIDERATION OF THE FOREGOING, the mutual covenants hereinafter contained and other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Employee agree as follows:

1. Duties of Employee. In exchange for the compensation and benefits described in this Agreement, the Employee agrees to discharge the obligations described in paragraph 9 and, consistent with his or her duties to shareholders and other legal obligations, Employee shall support the position of the Board and the Company’s senior management and shall take any action reasonably requested by the Board and the Company’s senior management with respect to any merger, acquisition or like transaction not involving a Change in Control of the Company. The Employee agrees (on his/her own behalf and in behalf of his/her heirs, assigns and beneficiaries) that the compensation and benefits described in this Agreement are adequate consideration for the obligations assumed in this Agreement.

2. Displacement and Change in Control.

(a)	The term “Displacement” shall mean a merger, acquisition or like transaction where no Change in Control of the Company has occurred.
(b)	The term “Change in Control” shall mean the occurrence of the earliest to occur of any one of the following events on or after the Effective Date and while in the employ of the Company or any Subsidiary (as defined below) before a Change in Control or, after a Change in Control, the Change Entity or any Related Entity (each as defined below), and shall occur on the date that:

(i)	The individuals who, on April 19, 2000, constituted the Board (the “Incumbent Directors”) are replaced during any 12-month period by directors whose appointment or election was not endorsed by a majority of the members of the Incumbent Board before the date of appointment or election;
(ii)	Any “person” (as such term is defined in Section 409A of the Internal Revenue Code of 1986, as amended (“Code”)) or more than one person acting as a “group” (as such term is defined in Section 409A of the Code) acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company;
(iii)	Any “person” (as such term is defined in Section 409A of the Code) or more than one person acting as a “group” (as such term is defined in Section 409A of the Code) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company; provided, however, that the event described in this paragraph (iii) shall not be deemed to be a Change in Control for purposes of this paragraph (iii) by virtue of any of the following acquisitions:

(u)	by the Company or any entity related to the Company through common ownership as determined under Sections 414 or 1563 of the Code (a “Subsidiary”);
(v)	by or through any employee benefit plan sponsored or maintained by the Company or any Subsidiary and described (or intended to be described) in Section 401(a) of the Code;
(w)	directly through an equity compensation plan maintained by the Company or any Subsidiary, including a program described in Section 423 of the Code;
(x)	by any underwriter temporarily holding securities pursuant to an offering of such securities;
(y)	by any entity or “person” (including a “group” as contemplated by Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934 (“Exchange Act”))

with respect to which that acquirer has filed SEC Schedule 13G indicating that the securities were not acquired and are not held for the purpose of or with the effect of changing or influencing, directly or indirectly, the Company’s management or policies (regardless of whether such acquisition of securities is considered to constitute the acquisition of control under the Bank Holding Company Act of 1956 pursuant to Regulation Y promulgated thereunder), unless and until that entity or person files SEC Schedule 13D, at which point this exception will not apply to outstanding securities eligible to vote for the election of the Board (“Company Voting Securities”), including those previously subject to an SEC Schedule 13G filing; or

(z)

pursuant to a Non-Control Transaction (as defined in subparagraph (iv)).

(iv) The date of the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company’s shareholders, whether with respect to such transaction or the issuance of securities in connection with the transaction (a “Business Combination”) that results in an event described in subparagraphs (i), (ii) or (iii) or (vi), unless immediately following such Business Combination:

(y)

more than 50% of the total voting power of (I) the corporation resulting from such Business Combination (the “Surviving Entity”), or (II) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors (“Total Voting Power”) of the Surviving Entity (the “Parent Entity”), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination; and

(z)

at least a majority of the members of the board of directors of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) following the consummation of the Business Combination were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination

Any Business Combination which satisfies all of the criteria specified in (iv)(A) and (iv)(B) shall be deemed to be a “Non-Control Transaction”);

(v) The date that the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company resulting in any of the events described in subparagraphs (i), (ii) or (iii) or (vi); or

(vi) The date that any one person (as defined in Section 409A of the Code) or more than one person acting as a group (as defined in Section 409A of the Code), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all assets of the Company immediately before such acquisition or acquisitions; provided, however, that for purposes of determining whether a Change in Control has occurred pursuant to this subparagraph (vi), any transfer described in Treasury Regulation §1.409A-3(i)(5)(vii)(B) shall be disregarded.

The foregoing definition of Change in Control shall be construed consistent with the definition of “change in control event” in Section 409A of the Code.

Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person or group acquires beneficial ownership of more than 30% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if within the 12-month period after such acquisition by the Company such person or persons becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person or persons by more than one percent, a Change in Control of the Company shall then occur.

	For purposes of this Agreement, the entity resulting from a Displacement (including, if appropriate, the Company) or succeeding to the Company’s interest in connection with a Displacement is referred to as the “Displacement Entity.”
	If more than one event that constitutes a Displacement occurs during a Protection Period, the Employee shall be entitled to the amount that equals the largest after-tax amount generated by any of the Displacements.
	If one or more events generate a payment under both this Agreement and the Change in Control Termination Agreement, the Employee will be entitled only to the benefit described in this Agreement or in the Change in Control Termination Agreement, whichever provides the highest after-tax value to the Employee, but will not be entitled to amounts under both agreements.
	Notwithstanding any other provision of this Agreement, the Employee will not be entitled to any amount under this Agreement if he/she acted in concert with any person or group (as defined above) to effect a Displacement, other than at the specific direction of the Board and in his/her capacity as an employee of the Company or any Subsidiary.
3.	Company’s Right to Terminate. The entity with which the Employee has a direct employment relationship (“Employer”) may terminate the Employee’s employment at any time during the term of this Agreement, subject to the terms of this Agreement and the obligation to provide the amounts stated herein if due. For purposes of this Agreement, any reference to the Employee’s “termination” or

“termination of employment” (or any form thereof) shall mean the Employee’s “separation from service”, within the meaning of Section 409A of the Code, from the Employer and all entities that, along with the Employer would be treated as a single employer under Sections 414(b) and (c) of the Code.

4.

Termination in Connection With a Displacement. In the event of a termination of employment from the Company or any Subsidiary after a Displacement, the Displacement Entity or any Related Entity (including an involuntary termination while the employee is absent from active employment pending determination of Disability under the procedures described in paragraph 4(a)) within the period beginning on the date of the Displacement, even if that period begins before the Effective Date, and ending on the last day of the number of calendar months specified in Item 10 on Exhibit A beginning coincident with or immediately after a Displacement (the “Protection Period”), the Employee shall be entitled to the benefits provided in paragraph 6 unless such termination is because of the Employee’s death or determination of Disability (as described in paragraph 4(a)), for Cause, or by the Employee other than for Good Reason (as defined below).

(a)

Disability. The term “Disability” shall mean termination because of Total and Permanent Disability as defined in the Long-Term Disability Plan in effect at any time during the Protection Period in which the Employee is or was participating when the condition began (or, if the Employee is or was not participating in a Long-Term Disability Plan when the condition begins, as defined under any long-term disability program in effect at any time during the Protection Period). If the Employee is deemed Disabled, his date of termination will be the end of any period prescribed under the long-term disability plan for determining eligibility for long term disability benefits and any termination occurring before that date will not be a termination for Disability. Also, any adjustment to the Employee’s compensation, job duties or other circumstances of employment during the period his Disability is being established will not constitute a basis for “Good Reason” under paragraph 4(c).

(b)

Cause. The term “Cause” shall mean one or more of the following acts of the Employee:

(i)	any act of fraud, intentional misrepresentation, embezzlement, misappropriation or conversion by the Employee of the assets or business opportunities of the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any entity related through common ownership (as determined under Sections 414 and 1563 of the Code) to the Displacement Entity (“Related Entity”);
(ii)	conviction of the Employee of (or plea by the Employee of guilty to) a felony (or a misdemeanor that originally was charged as a felony but was reduced to a misdemeanor as part of a plea bargain) or intentional and repeated violations by the Employee of the Employer’s written policies or procedures;
(iii)	disclosure, other than through mere inadvertence, to unauthorized persons of any Confidential Information (as defined below);

(iv)	intentional breach of any contract with or violation of any legal obligation owed to the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity;
(v)	dishonesty relating to the duties owed by the Employee to the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity;
(vi)	the Employee’s (x) willful and continued refusal to substantially perform assigned duties (other than any refusal resulting from sickness or illness or while suffering from an incapacity due to physical or mental illness, including a condition that does or may result in a Disability, or attributable to an event that constitutes Good Reason, as defined in paragraph (c)), (y) willful engagement in gross misconduct materially and demonstrably injurious to the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity or (z) breach of any term of this Agreement; or
(vii)	any intentional cooperation with any party attempting to effect a Displacement unless (y) the Board has approved or ratified that action before the Displacement or (z) that cooperation is required by law.

	However, Cause will not arise solely because the Employee is absent from active employment during periods of vacation, consistent with the Employer’s applicable vacation policy, sickness or illness or while suffering from an incapacity due to physical or mental illness, including a condition that does or may result in a Disability or other period of absence initiated by the Employee and approved by the Employer.
	The term “Confidential Information” shall mean any and all information (other than information in the public domain) related to the Company’s, any Subsidiary’s, the Displacement Entity’s or any Related Entity’s business, including all processes, inventions, trade secrets, computer programs, technical data, drawings or designs, information concerning pricing and pricing policies, marketing techniques, plans and forecasts, new product information, information concerning methods and manner of operations and information relating to the identity and location of all past, present and prospective customers and suppliers.
(c)	Good Reason. The term “Good Reason” shall mean any of the following to which the Employee has not consented in writing:

(i)	at any time during the Protection Period, any breach of this Agreement (including breach of the commitments undertaken under paragraph 9(d) of any nature whatsoever) by or on behalf of the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity;
(ii)	at any time during the Protection Period, a reduction in the Employee’s title, duties, responsibilities or status, as compared to either (y) the Employee’s title, duties,

	responsibilities or status immediately before the beginning of the Protection Period or (z) any enhanced or increased title, duties, responsibilities or status assigned to the Employee during the Protection Period;
(iii)	at any time during the Protection Period, the permanent assignment to the Employee of duties that are inconsistent with (y) the Employee’s office immediately before the beginning of the Protection Period or (z) any more senior office to which the Employee is promoted during the Protection Period;
(iv)	during any calendar year ending during the Protection Period (or any fractional calendar year ending within the Protection Period), a 15% (or larger) reduction (other than a reduction that is attributable to any termination for death, after reaching age 65 (but only if the Employee is then entitled to an immediate, unreduced benefit under a deferred compensation plan described in Section 401(a) of the Code), Disability or Cause, voluntary termination by the Employee other than for Good Reason or for any period of temporary absence protected by law or initiated by the Employee and approved by the Employer) in the aggregate value of the highest of the Employee’s total compensation for the calendar year ending before the Date of Termination (including base salary, cash bonus potential, the value of employee benefits, other than value associated solely with the performance of investments the Employee controls, and fringe benefits but excluding compensation attributable to the exercise or liquidation of stock options) or, if higher, the Employee’s total compensation for the last calendar year ending before the beginning of the Protection Period (including base salary, cash bonus potential, the value of employee benefits, other than value associated solely with the performance of investments the Employee controls, and fringe benefits) but, in both cases, determined without regard to any amounts, paid or payable, under paragraphs 6, 7, 8 and 11;
(v)	at any time during the Protection Period, a requirement that the Employee relocate to a principal office or worksite (or accept indefinite assignment) to a location more than 50 miles distant from (y) the principal office or worksite to which the Employee was assigned immediately before the beginning of the Protection Period or (z) any location to which the Employee agreed, in writing, to be assigned after a Displacement;
(vi)	at any time during the Protection Period, the imposition on the Employee of business travel obligations substantially greater than the Employee’s business travel obligations during the 12-consecutive-calendar-month period ending immediately before the beginning of the Protection Period but determined without regard to any special business travel obligations associated with activities relating to the Displacement;
(vii)	at any time during the Protection Period, the Employer’s (u) failure to continue in effect any material fringe benefit or compensation plan, retirement or deferred compensation plan, life insurance plan, health and accident plan, sick pay plan or disability plan in which the Employee is participating (or was eligible to participate) immediately before the beginning of the Protection Period, (v) modification of any of the plans or programs

	just described that adversely affects the potential value of the Employee’s benefits under those plans (other than value associated solely with the performance of investments the Employee controls) or (w) failure to provide the Employee, after a Displacement, with the same number of paid vacation days to which the Employee is or becomes entitled at or anytime during the Protection Period under the terms of the Employer’s vacation policy or program. However, Good Reason will not arise under this subsection solely because (x) the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity terminates or modifies any such program during the Protection Period solely to comply with applicable law but only to the extent required to meet applicable legal standards, (y) a plan or benefit program expires under self-executing terms contained in that plan or benefit program before the Displacement or (z) the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity replaces a plan or program with a successor plan or program of equal or equivalent value to the Employee;
(viii)	for the duration of any period of any absence from active employment that begins or continues at any time during the Protection Period, failure to provide or continue for the Employee any benefits (including disability benefits) available to employees who are absent from active employment (including because of disability) under programs maintained by the Company, the Displacement Entity or any Related Entity on the date the absence (including disability) begins;
(ix)	during the Protection Period, the Employee is unable to perform normally assigned duties because of a physical or mental condition and before his/her Disability is established under paragraph 4(a), the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity terminates the Employee before the end of the Disability determination period described in paragraph 4(a);
(x)	during the Protection Period, the Company or any Subsidiary before a Displacement or, after a Displacement, the Displacement Entity or any Related Entity unsuccessfully attempts to terminate the Employee for Cause, in which case the Effective Period will not end earlier than 60 days after the conclusion of the Employer’s unsuccessful attempt to terminate the Employee for Cause;
(xi)	during the Protection Period, the Employer attempts to amend or terminate this Agreement without regard to the procedures described in paragraphs 10 or 13;
(xii)	failure at any time to obtain an assumption of the Company’s or any Subsidiary’s, before a Displacement, or, after a Displacement, the Displacement Entity’s or any Related Entity’s obligations under this Agreement by any successor to any of them, regardless of whether such entity becomes a successor to the Company or any Subsidiary, before a Displacement, or, after a Displacement, the Displacement Entity or any Related Entity as a result of a merger, consolidation, sale of assets or any other form of reorganization; or

(xiii) termination of employment which is not effected pursuant to a Notice of Termination satisfying the requirements of
         paragraph 5 herein.

5. Notice of Termination. Any purported termination of the Employee’s employment shall be communicated by a written Notice of Termination to the other party delivered no later than 60 days after the Employee, in the case of Good Reason, or, in other cases, the Change Entity and any Related Entity, knows or with reasonable diligence should have known of the event constituting Good Reason, Cause or Disability. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provisions in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment under the provisions so indicated and shall specify a “Date of Termination”, which shall be the date of the Employee’s termination of employment.

6. Compensation and Benefits Upon Termination.

(a)	If a Displacement has occurred and during the Protection Period the Employee’s employment is terminated (i) by the Employer other than for Cause, Disability or death, or (ii) by the Employee for Good Reason, the Employee shall be entitled to (and each of the Displacement Entity and all Related Entities shall be jointly liable for) the compensation and benefits provided in subparagraph (c) below.
(b)	The compensation described in subparagraphs (c)(i), (c)(ii) and (c)(iii) shall be paid by the Displacement Entity or the Employer (or jointly by them) to the Employee in a single lump sum cash payment on or before the fifth business day following the effective Date of Termination. The compensation and benefits described in subparagraphs (c)(iv), (c)(v), (c)(vi) and (c)(vii) will be paid as provided in those subparagraphs.
(c)	The compensation and benefits payable to an Employee pursuant to this paragraph 6 shall be as follows:

(i)	Base Salary to Date of Termination. The Employee’s full base salary through the Date of Termination.
(ii)	Base Salary. An amount equal to the Employee’s annual base salary (at the highest annualized rate in effect at any time during the Protection Period) multiplied by the number indicated in Item 6(c)(ii) on Exhibit A, which Exhibit is attached hereto and incorporated by reference herein.
(iii)	Incentive Compensation. An amount equal to (y) the value of the incentive compensation payment the Employee would receive if payout was made at the “target” percentage for the Employee under the Company’s Executive Incentive Plan (and/or any analogous plan adopted after the date of this Agreement) for the year of the Employee’s Date of Termination (or any higher percentage based on objective criteria specified in the Executive Incentive Compensation Plan for the year in which the Date of Termination occurs and/or any analogous plan adopted after the date of this Agreement that the

	Employee has achieved before the Date of Termination) or, if higher, the value of the incentive compensation payment the Employee received under the Company’s Executive Incentive Plan (and/or any analogous plan adopted after the date of this Agreement) at any time during the Protection Period multiplied by (z) the number indicated in Item 6(c)(iii) on Exhibit A.
(iv)	Stock Plans. The Employee’s outstanding stock options and other stock, phantom stock, stock appreciation rights or similar arrangements in which he/she participates, whether issued before, in connection with or after the Displacement will be fully vested and exercisable and settled in accordance with the terms of the applicable plan or plans. Notwithstanding any provisions to the effect that rights terminate upon termination of employment, the Employee (or his/her beneficiary) shall be given the remaining period provided in the grant (determined without regard to the Employee’s termination), to realize or exercise all rights or options provided under such plans with respect to any stock option, and other stock, phantom stock, stock appreciation rights or similar grants.
(v)	Medical Benefits and Life Insurance. The Employer or the Displacement Entity shall maintain in full force and effect for the Employee’s (and for his/her family if family coverage is then in effect) continued benefit until the earlier of the number of months listed in Item 6(c)(v) on Exhibit A after the Date of Termination, or the end of the calendar month in which the Employee reaches the age of 67, all medical insurance (including health care, dental, vision and prescription drug insurance), life insurance, and accidental death and dismemberment insurance including conversion rights (collectively “Welfare Benefits”), with coverage and limits, separately for each Welfare Benefit and in the aggregate, identical to those in effect with respect to the Employee (including family coverage if family coverage is then in effect), immediately before the Date of Termination or, if higher (both separately and in the aggregate) at any time during the Protection Period. If the Employer or the Displacement Entity is unable to provide some or all of the Welfare Benefits through its insured program for the duration of the period described in the first sentence of this paragraph, the Employer or the Displacement Entity will distribute to the Employee a lump sum cash amount equal to the highest aggregate premium amount paid during the Protection Period with respect to the Welfare Benefit it is unable to provide through its insured programs multiplied by the number of whole and fractional premium periods for which it is unable to provide this coverage through its insured program, plus an additional amount equal to the Premium Tax Obligation (as defined below). If the Employee is a participant in the Company’s Executive Committee Life Insurance Program (and/or any analogous plan adopted after the date of this Agreement) on the Date of Termination, the Displacement Entity and/or the Employer shall pay the premium for the Employee on such insurance for a period ending the earlier of the number of months listed in Item 6(c)(v) on Exhibit A after the Date of Termination, or the calendar month in which the Employee reaches the age of 67, plus an additional amount to the Employee equal to the Premium Tax Obligation. For the sole purpose of determining the Employee’s eligibility to participate in the Company’s

Welfare Benefit programs, the Employee shall be considered to be on a paid leave of absence as long as he/she is receiving benefits under this Agreement.

The term “Premium Tax Obligation” shall mean an additional cash amount equal to all applicable federal, state and local, income, wage, employment and excise taxes (including those imposable under Code § 4999) so that, after payment of all taxes due on the cash payments described in this subparagraph (c)(v) (i.e., the cash equivalent of the premiums needed to provide the Welfare Benefits the Displacement Entity and/or the Company are unable to provide through their insured programs), the Employee will retain cash equal to the highest aggregate premium amount paid during the Protection Period with respect to the Welfare Benefit it is unable to provide through its insured programs multiplied by the number of whole and fractional premium periods for which it is unable to provide this coverage through its insured program.

Notwithstanding the foregoing, (A) any amounts or benefits that will be paid or provided under this subparagraph with respect to health or dental coverage after completion of the time period described in Treasury Regulation §1.409A-1(b)(9)(v)(B) and (B) any other amounts or benefits that will be paid or provided under this subparagraph shall be subject to the following requirements: (1) the amount of expenses eligible for reimbursement or benefits provided during any taxable year of the Employee may not affect the expenses eligible for reimbursement or benefits to be provided in any other taxable year of the Employee; (2) any reimbursement of an eligible expense shall be made on or before the last day of the taxable year of the Employee following the taxable year of the Employee in which the expense was incurred; and (3) the right to such reimbursement or benefit may not be subject to liquidation or exchange for another benefit.

(vi) Supplemental Executive Retirement Plan. The following shall apply for purposes of calculating the Employee’s benefits, if applicable, under the FirstMerit Corporation 2008 Supplemental Executive Retirement Plan effective as of January 1, 2008, and as maybe amended from time to time (“SERP”):

(y)

the vested portion of the Employee’s Account (as defined in Section 5.01 of the SERP) shall be increased by the amount of contributions described in Section 3.01 of the SERP that the Employee would have received had the Employee remained a Participant (as defined in the SERP) for an additional 2 Plan Years (as defined in the SERP); and

(z)

the Employee’s “Compensation” for purposes of the SERP shall be deemed to be equal to the total of the highest monthly base salary and bonus compensation earned by the Employee for any 12 month period during the 24 month period immediately preceding the Change in Control and the value of the incentive compensation payment the Employee would receive if payout was made at the “target” percentage for the Employee under the Company’s Executive Incentive Plan (and/or any analogous plan adopted after the date of this Agreement) in the

year of Employee’s Date of Termination (or any higher percentage based on objective criteria specified in the Incentive Compensation Plan for the year in which the Date of Termination occurs and/or any analogous plan adopted after the date of this Agreement) that the Employee has achieved before the Effective Date of Termination in the year of Employee’s Date of Termination.

The terms of this subparagraph (vi) shall apply only if Employee is a participant in the SERP, and shall supersede any contrary provisions of the SERP and any membership agreement executed between the Company and the Employee in connection with the Employee’s participation in the SERP, unless expressly provided otherwise in such membership agreement. The Employee’s SERP benefit, calculated using the provisions of subparagraphs (vi) (y) and (z) above, is assumed to commence on the earliest date upon which the Employee is eligible to retire and receive a benefit under the SERP.

If the SERP is terminated and the Employee cites that termination as a basis for Good Reason termination, the benefits due under this subparagraph will be calculated as if the SERP had not been terminated. (vii) Outplacement Fees. For a period not to exceed one year after the Date of Termination, the Displacement Entity, the Employer or any Related Entity will pay directly to the provider the reasonable expenses associated with outplacement training of the Employee by a professional placement firm and in an amount not to exceed that listed as Item 6(c)(vii) on Exhibit A.

(d) Notwithstanding anything in this Agreement to the contrary, if the Employee is a “specified employee” (within the meaning of Section 409A of the Code and as determined under the relevant entity’s policy for determining specified employees), on the Employee’s date of termination and the Employee is entitled to a payment and/or a benefit under this Agreement that is required to be delayed pursuant to Section 409A(a)(2)(B)(i) of the Code, then such payment or benefit, as the case may be, shall not be paid or provided (or begin to be paid or provided) until the first business day of the seventh month following the date of the Employee’s termination of employment (or, if earlier, the date of the Employee’s death). The first payment that can be made to the Employee following such postponement period shall include the cumulative amount of any payments or benefits that could not be paid or provided during such postponement period due to the application of Section 409A(a)(2)(B)(i) of the Code.

7. Overall Limitation on Benefits. Notwithstanding any provision in this Agreement to the contrary (other than paragraphs 6(c)(v), 8 and 11 which will apply under the circumstances described in those paragraphs and below), if, as of the date of the Displacement, the Displacement Entity (after consulting with an independent accounting or compensation consulting company) ascertains that the compensation and benefits provided to the Employee pursuant to or under this Agreement (other than the Welfare Benefit Replacement Cost defined below and the amounts described in paragraphs 8 and 11), either alone or when combined with other compensation and benefits received by the Employee, would constitute “parachute payments” within the meaning of Section 280G of the Code, or the regulations adopted thereunder, then the compensation and benefits payable pursuant to or under this Agreement (other than the Welfare Benefit Replacement Cost and the amounts described in paragraphs 8 and 11)

shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code (“Excise Taxes”). The Employee or any other party entitled to receive the compensation or benefits hereunder may request a determination as to whether the compensation or benefit would constitute a parachute payment and, if requested, such determination shall be made by an independent accounting or compensation consulting company (other than the entity described in the first sentence of this subparagraph) selected by the Displacement Entity and approved by the party requesting such determination, the fees of which will be borne solely by the Displacement Entity. Any reduction required under this paragraph 7 shall be made consistent with the requirements of Section 409A of the Code.

If the Internal Revenue Service subsequently and finally decides that the amount of the reduction applied under this paragraph 7 is not sufficient to avoid the Excise Taxes on compensation and benefits (other than the Welfare Benefit Replacement Cost and those amounts described in paragraphs 8 and 11), the Employee will immediately remit an additional amount to the Displacement Entity equal to the difference between the amount paid (other than the Welfare Benefit Replacement Cost and those amounts described in paragraphs 8 and 11) and the amount the Internal Revenue Service is necessary to avoid the Excise Taxes. Also, the Employee agrees to promptly notify the Displacement Entity of an assessment or inquiry from the Internal Revenue Service relating to payments under this Agreement that would, if made final, result in imposition of an Excise Tax and also agrees to cooperate with the Displacement Entity in resisting any Excise Tax assessment. However, the Displacement Entity will have complete control over resolution of any claim by the Internal Revenue Service that might generate an Excise Tax (although it will have no dispositive power over any other tax matter that may be subject to the same audit) and the Company will bear all costs associated with that effort.

For purposes of this paragraph 7, “Welfare Benefit Replacement Cost” equals the sum of the amount required to enable the Employee to purchase the Welfare Benefits the Displacement Entity and the Company are unable to provide through their insured programs throughout the period described in paragraph 6(c)(v) plus the Premium Tax Obligation. When applying the rules described in this paragraph 7, the Welfare Benefit Replacement Cost and those amounts described in paragraphs 8 and 11 will be disregarded entirely and the calculation of any Excise Tax liability (and, if appropriate, reduction of compensation and benefits to avoid any Excise Tax liability) will be performed without reference to the Welfare Benefit Replacement Cost and the amounts described in paragraphs 8 and 11.

8. Legal, Etc. Fees. The Displacement Entity shall pay all reasonable legal, accounting and actuarial fees and expenses incurred by the Employee in enforcing any right or benefit provided by this Agreement. If it is subsequently determined that payment of these fees are parachute payments, the Displacement Entity or the Employer will fully gross-up the Employee for the income, wage, employment and excise taxes associated with that payment so that, after all applicable federal, state and local, income, wage, employment and excise taxes (plus any assessed interest and penalties), the Employee will have incurred no liability (either for these fees or the taxes just listed) with respect to the matters encompassed in this paragraph. Any legal, accounting and actuarial fees and expenses being reimbursed must relate to a claim brought during the lifetime of the Employee or the duration of the Employee’s estate arising from the alleged breach of any obligation of Employer under this Agreement and the reimbursement or

payment is subject to the following: (a) the amount eligible for reimbursement during any taxable year of the Employee or the Employee’s estate may not affect the amount eligible for reimbursement in any other taxable year of the Employee or the Employee’s estate; (b) any reimbursement must be made on or before the last day of the Employee’s of the Employee’s estate’s taxable year following the taxable year in which the cost was incurred; and (c) the right to reimbursement for such costs may not be subject to liquidation or exchange for another benefit. Any gross-up payment of taxes shall be made by the end of the taxable year following the year in which the Employee of the Employee’s estate remits the taxes being grossed-up.

9.

Obligations. By signing this Agreement, the Employee agrees to be bound by and to comply with the following restrictions, whether or not the Employee also receives the compensation and benefits described in paragraph 6 (except as otherwise provided in this paragraph 9):

(a)	For a period of twelve (12) full calendar months after the Employee’s employment terminates for any reason described in paragraph 6(a), he will not directly or indirectly engage in, assist or have an active interest in (whether as proprietor, partner, investor, shareholder, officer, director or any type of principal whatsoever) or enter the employment of or act as agent for or adviser or consultant to any person or entity who is (or is about to become) engaged in any business that competes with the Company or in any national banking association with deposits in excess of $5.0 billion anywhere in the state of Ohio and in any county in Pennsylvania (or any other state) in which FirstMerit has an office or branch on the date of termination. The Company and the Employee expressly agree that a portion of the consideration described in paragraph 6 is allocable to the non-competition covenant described in this paragraph 9(a) and that the amount so allocated shall reduce the amount of any “parachute payment” (within the meaning of Section 280G of the Code) to which the Employee may be entitled under this Agreement. Notwithstanding the foregoing, to the extent that any applicable law prohibits allocation of all or any portion of the consideration described in this paragraph 6 to the non-competition covenant described in this Paragraph 9(a) such that the amount so allocated reduces the amount of any parachute payment to which the Executive may be entitled under this Agreement, the non-competition covenant described in this Section 9(a) shall not apply to the Employee.
(b)	If any “person” (as used in paragraph 2(b)) initiates a tender or exchange offer, distributes proxy materials to the Company’s shareholders or takes other steps to effect, or that may result in, a Displacement, the Employee agrees not to terminate employment voluntarily during the pendency of that activity (other than by reason of termination after reaching retirement age or Disability or for Good Reason) and to continue to serve as a full-time employee until those efforts are abandoned, that activity is terminated or until a Displacement has occurred.
(c)	Except as otherwise required by applicable law, Employee expressly agrees to keep and maintain Confidential Information (as defined in paragraph 4(b)) confidential and not, at any time during or subsequent to the Employee’s employment, to use any Confidential Information for Employee’s own benefit or to divulge, disclose or communicate any Confidential Information to any person or entity in any manner except (i) to employees or agents of the Company, any Subsidiary, the Displacement Entity and any Related Entity that need the Confidential

Information to perform their duties on behalf of the Company, any Subsidiary, the Displacement Entity and any Related Entity, (ii) in the performance of Employee’s duties, (iii) as a necessary (and only to the extent necessary) part of any undertaking by the Employee to enforce the Employee’s rights under this Agreement or (iv) pursuant to a subpoena. Employee also agrees to notify the Company, before a Displacement and, after a Displacement, the Displacement Entity promptly of any circumstance Employee believes may legally compel the disclosure of Confidential Information and to give this notice before disclosing any Confidential Information.

(d)

The Employee agrees that during and after employment and without additional compensation (other than reimbursement for reasonable associated expenses, which shall be made consistent with the Employer’s normal policy relating to the reimbursement of expenses) to cooperate with the Company, any Subsidiary, the Displacement Entity and any Related Entity in the following areas:

(i)

the Employee agrees (w) to be reasonably available to answer questions for the Company’s, any Subsidiary’s, the Displacement Entity’s and any Related Entity’s officers regarding any matter, project, initiative or effort for which the Employee was responsible while employed by the Employer and (x) to cooperate with the Company, any Subsidiary, the Displacement Entity and any Related Entity during the course of all third-party proceedings arising out of the Company’s, any Subsidiary’s, the Displacement Entity’s or any Related Entity’s business about which the Employee has knowledge or information. For purposes of this Agreement, (y) “proceedings” includes internal investigations, administrative investigations or proceedings and lawsuits (including pre-trial discovery and trial testimony) and (z) “cooperation” includes the Employee’s being reasonably available for interviews, meetings, depositions, hearings and/or trials without the need for subpoena or assurances by the Company, any Subsidiary, the Displacement Entity or any Related Entity providing any and all documents in the Employee’s possession that relate to the proceeding and providing assistance in locating any and all relevant notes and/or documents.

(ii)

unless compelled to do so by lawfully-served subpoena or court order, the Employee agrees not to communicate with, or give statements or testimony to, any attorney representing an interest opposed to the Company’s, any Subsidiary’s, the Displacement Entity’s or any Related Entity’s interest (“Opposing Attorney”), Opposing Attorney’s representative (including private investigators) or current or former employee relating to any matter (including pending or threatened lawsuits or administrative investigations) about which the Employee has knowledge or information (other than knowledge or information that is not Confidential Information as defined in paragraph 4(b)) as a result of employment with the Company, any Subsidiary, the Displacement Entity or any Related Entity. The Employee also agrees to notify the Employer after being contacted by a third party or receiving a subpoena or court order to appear and testify with respect to any matter that may include a claim opposed to the Company’s, any Subsidiary’s, the Displacement Entity’s or any Related Entity’s interest. However, this subsection will not

apply to any effort undertaken by the Employee to enforce the Employee’s rights under this Agreement but only to the extent necessary for that purpose.

(iii)

the Employee agrees not to communicate with, or give statements to, any member of the media (including print, television or radio media) relating to any matter (including pending or threatened lawsuits or administrative investigations) about which the Employee has knowledge or information (other than knowledge or information that is not Confidential Information as defined in paragraph 4(b)) as a result of employment with the Company, before a Displacement, or, after a Displacement, the Displacement Entity immediately after being contacted by any member of the media with respect to any matter affected by this section.

(e)

The Employee, the Company, any Subsidiary, the Displacement Entity and any Related Entity agree that none will make any disparaging remarks about the others. However, this restriction will not preclude (i) remarks by any employee made in the normal course of business, (ii) remarks by the Employee that are required to discharge the Employee’s regular duties or other duties described in this Agreement, (iii) the Company, any Subsidiary, the Displacement Entity or any Related Entity from making (or eliciting from any person) disparaging remarks about the Employee concerning any conduct that may lead to a termination for Cause (including initiating an inquiry or investigation that may result in a termination for Cause), but only to the extent reasonably necessary to investigate the Employee’s conduct and to protect the Company’s, any Subsidiary’s, the Displacement Entity’s and any Related Entity’s interests or (iv) any remarks made by any party that are necessary (but only to the extent necessary) to resolve any dispute arising under this Agreement and that are made solely in the context of proceeding undertaken pursuant to paragraph 11.

(f)

If the Employee breaches any obligation described in this Agreement:

(i)	If that breach occurs before a Displacement, this Agreement will terminate as of the date of the breach, even if the fact of the breach becomes apparent at a later date and no amounts will be due under this Agreement;
(ii)	If that breach occurs after a Displacement but before the Employee has terminated, this Agreement will terminate as of the date of the breach, even if the fact of the breach becomes apparent at a later date, and no amounts will be due under this Agreement; or
(iii)	If that breach occurs after a Displacement and after the Employee terminates employment, (y) the Displacement Entity will be entitled to treat the Employee as having terminated for Cause and (z) Employee will repay the amounts already received in paragraph 6 plus interest calculated with reference to the mid-term applicable federal rate [as defined in Section 1274(d) of the Code] for January 1 of each calendar year, compounded annually until paid and will be entitled to no further amounts under this Agreement.

10. Term of Agreement. The Term of this Agreement shall be from the Effective Date through the last day of the calendar month which is the number of months listed in Item 10 on Exhibit A beginning after a Displacement. Nevertheless, this Agreement will terminate on the earliest of the following to occur:

(a)	Except as provided in paragraph 6, the Employee’s employment with the Company or any Subsidiary, before a Displacement, or, after a Displacement, the Displacement Entity or any Related Entity terminates before the beginning of the Protection Period;
(b)	Before the beginning of a Protection Period, the Employee is reassigned to a more junior position than that held on the date of this Agreement; however, if the more junior position is in an employee classification, the majority of whose members have displacement agreements (or analogous agreements, other than a Change in Control Termination Agreement), this Agreement will remain in effect, although benefit levels will automatically be adjusted to the level established under those agreements;
(c)	The Employee mutually agrees, in writing, to terminate this Agreement, whether or not it is replaced with a similar agreement;
(d)	The Company notifies the Employee, in writing, that the Agreement is to terminate at the end of its then current term. To be effective, however, this written notice (i) must be given no later than 60 consecutive calendar days before the end of the then current term but (ii) may never be effective during a Protection Period, although a notice of termination of this Agreement given during the portion of the Protection Period before a Displacement may be effective if a Displacement does not occur; or
(e)	All payments due under this Agreement have been fully paid.

However this Agreement will not terminate if, before the beginning of or during a Protection Period, the Employee is reassigned to a more senior position than that held on the date of this Agreement. In this case, the Agreement will remain in effect, although the benefit levels will automatically be adjusted to the level established for other employees assigned to that classification or, if there is no other employee in that classification, to the highest level in effect under this Agreement.

11.

Dispute Resolution. Any disagreement concerning the calculation of any payment due under this Agreement that is not resolved by agreement between the parties (or by the independent accounting or compensation consulting company described in paragraph 7 with reference to matters described in that paragraph) or other dispute or controversy arising out of or relating to this Agreement that is not resolved by agreement between the parties, including the basis on which the Employee’s employment is terminated, will be resolved by arbitration in accordance with the rules of the American Arbitration Association. The award of the arbitrator will be final, conclusive and nonappealable and judgment upon the award rendered by the arbitrator may be entered in any court having competent jurisdiction. The arbitrator must be an arbitrator qualified to serve in accordance with the rules of the American Arbitration Association and one who is approved by the Company, before a Displacement, or, after a Displacement, the Displacement Entity and the Employee. If the Employee and the Company, before a

	Displacement, or, after a Displacement, the Displacement Entity fail to agree on an arbitrator, each must designate a person qualified to serve as an arbitrator in accordance with the rules of the American Arbitration Association and these persons will select the arbitrator from among those persons qualified to serve in accordance with the rules of the American Arbitration Association. Any arbitration relating to this Agreement will be held in Summit County, Ohio (or other geographical area acceptable to the parties).
	The Company, before a Displacement, or, after a Displacement, the Displacement Entity or any Related Entity will bear all reasonable costs associated with any dispute arising under this Agreement, including reasonable accounting and legal fees incurred by the Employee in connection with the arbitration proceedings just described. If it is subsequently determined that payment of these costs are parachute payments, the Company, before a Displacement, or, after a Displacement, the Displacement Entity will fully gross-up the Employee for the income, wage, employment and excise taxes associated with that payment so that, after all applicable federal, state and local, income, wage, employment and excise taxes (plus any assessed interest and penalties), the Employee will have incurred no liability (either for these fees or the taxes just listed) with respect to the matters encompassed in this paragraph 11. The treatment of payments or reimbursements and gross-ups pursuant to this paragraph are described in paragraph 8.
	If otherwise due, payments not being contested under the procedures described in this paragraph will not be deferred during the pendency of procedures described in this paragraph.
	If the arbitrator decides, at the conclusion of the arbitration proceedings described in this paragraph, that the Company, before a Displacement, or, after a Displacement, the Displacement Entity has understated the amount due under this Agreement, the Company, before a Displacement, or, after a Displacement, the Displacement Entity will, subject to application of paragraph 7 to the aggregate of the amount initially paid under paragraph 6 and the additional award, pay the additional amount, if any, to the Employee within 30 days after the date of the award along with interest calculated at the interest rate prescribed by the arbitrator. However, if, after application of paragraph 7 to the arbitrator’s award, the net amount due to the Employee would not increase, no amounts will be paid under this subsection, regardless of the arbitrator’s award.
12.	Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, provided that all notices to the Company or any Subsidiary, before a Displacement, or, after a Displacement, the Displacement Entity, the Employer or any Related Entity shall be directed to the attention of the President of the Company with a copy to the Secretary of the Company, before a Displacement or, after a Displacement, to the President of the Displacement Entity with a copy to the Secretary of the Displacement Entity (or, in the case of the President, directed to the notice of the Chairman of the Board of the Company, before a Displacement, or, after a Displacement, to the Chairman of the board of directors of the Displacement Entity with a copy to the Secretary of the Displacement Entity), or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. If the last address given by the Employee is not current, the Employer will use reasonable means to locate the Employee.

13. Miscellaneous.

(a)	No provisions of this Agreement may be modified, waived, or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Employee and such officer as may be specifically designated by the Board or the board of directors of the Displacement Entity. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar provisions or conditions at the same or at any prior or subsequent time.
(b)	No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement; provided, however, that this Agreement shall not supersede or in any way limit the rights, duties or obligations the Employee may have under any other written agreement with the Company or any Subsidiary, the Displacement Entity, the Employer or any Related Entity that are not inconsistent with the terms of this Agreement.
(c)	Except as expressly provided in this Agreement, the Employee’s right to receive the payments described in this Agreement will not decrease the amount of, or otherwise adversely affect, any other benefits payable to the Employee under any other plan, agreement or arrangement.
(d)	The Employee is not required to mitigate the amount of any payment described in this Agreement by seeking other employment or otherwise, nor will the amount of any payment or benefit provided for in this Agreement be reduced by any compensation or benefits the Employee earns, or is entitled to receive, in any capacity after termination or by reason of the Employee’s receipt of or right to receive any retirement or other benefits attributable to employment.
(e)	Except as expressly provided elsewhere in this Agreement, the amount of any payment made under this Agreement will be reduced by amounts the Employer is required to withhold in payment (or in anticipation of payment) of any income, wage or employment taxes imposed on the payment.
(f)	The right of an Employee or any other person to receive any amount under this Agreement may not be assigned, transferred, pledged or encumbered except by will or by applicable laws of descent and distribution. Any attempt to assign, transfer, pledge or encumber any amount that is or may be receivable under this Agreement will be null and void and of no legal effect. However, this paragraph will not preclude payment under paragraph 13(g) of any benefit to which a deceased Employee is entitled.
(g)	Subject to the preceding subparagraph (f), this Agreement inures to the benefit of and may be enforced by the Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
(h)	If:

(i)

the Employee’s employment relationship shifts between the Company and any Subsidiary before a Displacement or after a Displacement, between the Displacement Entity and any Related Entity and there has been no intervening termination, this Agreement will remain in full force and effect and for all purposes of this Agreement, the Employee’s new employer will be substituted for the Employee’s prior employer.

(ii)

the Employee’s employer is no longer a Subsidiary, whether or not as part of a transaction that constitutes a Displacement, this Agreement will remain in full force and effect. However, the Employee will not be entitled to any amount under this Agreement on account of a Displacement that solely affects the Company after that transfer and is not part of the same transaction through which the employer stopped being a Subsidiary.

14.	Validity. The validity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws (other than the laws of conflict of laws) of the State of Ohio.
15.	Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original by all of which together will constitute one and the same instrument.
16.	Section 409A of the Code. This Agreement is intended to comply with the requirements of Section 409A of the Code, and, to the maximum extent permitted by law, shall be interpreted, construed and administered consistent with this intent. None of the Company, the Employer, any Related Entity, the Change Entity, the Board or any other person shall have liability in the event this Agreement fails to comply with the requirements of Section 409A of the Code. Nothing in this Agreement shall be construed as the guarantee of any particular tax treatment to the Employee.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date above first written.

FirstMerit Corporation
By:
	Christopher J. Maurer,
	Executive Vice President
Employee:
(Signature)
(Print Name)

FirstMerit Corporation
2009 Displacement Agreement

(Tier I/2008 SERP)

Exhibit A

Name of Executive:	(print)
Item 6(c)(ii): Multiplied By:	(insert number)
Item 6(c)(iii): Multiplied By:	(insert number)
Item 6(c)(v):	(insert number of months)
Item 6(c)(vii): Outplacement Fee:	$[insert]
Item 10	(insert number of months)

EX-10.50

Exhibit 10.50

FIRSTMERIT CORPORATION
AMENDED AND RESTATED
2006 EQUITY PLAN

DIRECTORS’ ANNUAL RESTRICTED STOCK AWARD AGREEMENT

     This RESTRICTED STOCK AWARD AGREEMENT (“Agreement”) is made and entered by and between FIRSTMERIT CORPORATION (the “Company”) and the Grantee on the Grant Date (each as set forth on attached Exhibit A).

WITNESSETH, THAT:

     WHEREAS, the Company maintains the FirstMerit Corporation Amended and Restated 2006 Equity Plan (the “Plan”), as amended from time to time; and

     WHEREAS, one of purposes of the Plan is to enable nonemployee directors of the Company and its Related Entities to acquire a proprietary interest (or to increase an existing proprietary interest) in the Company, and to provide them with a more direct stake in the future and welfare of the Company and its Related Entities; and

     WHEREAS, the Grantee understands that this Agreement will be revoked retroactively (and will be of no effect whatsoever), unless the acknowledgement appearing at the end of this Agreement is signed and returned no later than 30 days after the Grant Date.

     NOW, THEREFORE, the Company and the Grantee agree as follows:

     1. Grant of Award Shares. The Grantee is hereby granted an Award consisting of the number of restricted common shares, without par value (“Stock”) of the Company set forth on attached Exhibit A (the “Award Shares”). The Award is subject to the following terms and conditions and to the provisions of the Plan, the terms of which are hereby incorporated by reference. Capitalized terms used but not expressly defined in this Agreement will have the meanings given to them in the Plan.

     Subject to the terms of the Plan, if, before the restrictions imposed on the Award Shares lapse, there is a Stock dividend or Stock split, recapitalization (including payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to shareholders, exchange of shares or other similar corporate change affecting Stock, an appropriate adjustment will be made to the number of Award Shares and other limitations applicable to the Award Shares.

     2. Transfer Restrictions. Subject to the terms and conditions of the Plan and this Agreement, none of the Award Shares may be sold, assigned or transferred, in whole or in part, voluntarily or involuntarily, by the Grantee, nor made subject to any lien, directly or indirectly, by operation of law or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. However, the Grantee may designate a Beneficiary to receive any Award Shares issuable after the Grantee’s death.

     3. Release of Restrictions.

     A. Except as provided in Sections 3(B) and 4, and subject to the Grantee’s continued employment with the Company and its Related Entities, the restrictions on the Award Shares shall lapse and the Award Shares shall vest as described on Exhibit A.

     B. The restrictions set forth in Section 2 above will lapse and all of the Award Shares will vest on the date of any Change in Control.

     4. Rights to Award Shares upon Departure from the Board.

A.	Death or Disability:
	If the Grantee dies or becomes Disabled, all Award Shares that are unvested will be fully vested.
B.	Termination for any Other Reason:
	If the Grantee Terminates for any reason not described in Section 4(A), all unvested Award Shares will be forfeited immediately.

     5. Taxes. The Grantee is solely responsible for satisfying any tax liability associated with this Award.

     6. Rights as Shareholder. The Grantee will be entitled to all of the rights of a shareholder with respect to the Award Shares, including the right to vote the Award Shares and to receive dividends and other distributions payable with respect to the Award Shares after the Grant Date; provided, however, that if any dividends or other distributions are paid in shares of Stock, those shares will be subject to the same restrictions on transferability and forfeitability as the Award Shares with respect to which they were issued.

     7. Escrow of Share Certificates. For the purposes of securing the re-transfer of the Award Shares into the name of the Company in the event of forfeiture, certificates for the Award Shares will be issued in the Grantee’s name and will be held in escrow by, and subject to a security interest in favor of, the Company until restrictions with respect to the Award Shares lapse or the Award Shares are forfeited as provided in this Agreement; provided, however, that the terms of the escrow will make allowance for the transactions contemplated by Section 3(B). A certificate or certificates representing the Award Shares as to which restrictions have lapsed will be delivered to the Grantee after those restrictions have lapsed.

     8. Beneficiary Designation. The Grantee may name a Beneficiary or Beneficiaries (who may be named contingently or successively) to receive any Award Shares that are vested but are settled after the Grantee’s death. Each designation made will revoke all prior designations, must be made on a form prescribed by the Committee and will be effective only when filed in writing with the Committee. If the Grantee has not made an effective Beneficiary designation, the deceased Grantee’s Beneficiary will be the Grantee’s surviving spouse or, if there is no surviving spouse, the deceased Grantee’s estate.

     9. Severability. If any one or more of the provisions contained in this Agreement is conclusively determined to be invalid, illegal or unenforceable in any respect under applicable law, the validity, legality and

enforceability of the remaining provisions of this Agreement will not, in any way, be ineffective or impaired thereby.

     10. Governing Law. This Agreement is made and entered into in the state of Ohio, and will in all respects be interpreted, enforced and governed under the laws of that state notwithstanding its conflict of laws rules. In the event of any dispute or controversy arising under or in connection with this Agreement, the parties consent to the jurisdiction of the Common Pleas Court of the State of Ohio (Summit County) or The United States District Court for the Northern District of Ohio, Eastern Division.

     11. Other Agreements. The Award Shares and this Agreement will be subject to the terms of any other written agreements between the Grantee and the Company and any Related Entity to the extent that those other agreements do not directly conflict with the terms of the Plan or this Agreement.

     12. Other Rules. The Award Shares and this Agreement are subject to more rules described in the Plan.

     13. Assignment. This Agreement will be binding upon the Company and the Grantee, their respective heirs, personal representatives, executors, administrators, and successors. The Company may freely assign or transfer this Agreement without the Grantee’s consent.

     14. Acknowledgement; Return of Agreement. This Agreement (and the Award Shares) will be revoked automatically unless the Grantee signs the acknowledgement appearing at the end of this Agreement and returns a copy of the signed Agreement to the Committee no later than 30 days after the Grant Date.

     15. Listing, Registration, Qualification. If the Board concludes that the listing, registration or qualification upon any securities exchange, under any state or federal law, or the approval or consent of any governmental body is necessary or desirable as a condition to the issuance of the Award Shares, the Award Shares may not be issued in whole or in part unless and until that listing, registration, qualification or approval has been obtained, free of any conditions which are not acceptable to the Board and the sale and delivery of stock under this Agreement is also subject to the same requirements and conditions.

     IN WITNESS WHEREOF, the Company has caused the Award to be granted pursuant to this Agreement on the date first above written.

FIRSTMERIT CORPORATION
By:
	Christopher J. Maurer
	Executive Vice President, Human Resources

EXHIBIT A

DIRECTORS’ ANNUAL RESTRICTED STOCK AWARD AGREEMENT

1.	Employee Name:___________________________
2.	Grant Date:__________________________, 20__
3.	Number of Award Shares:____________________
4.	Vesting Schedule: Subject to the terms of the Award Agreement, the restrictions set forth in Section 2 of the Award Agreement will lapse and the Award Shares will vest on February 21, 20__.

ACKNOWLEDGEMENT

By signing below, the Grantee acknowledges and agrees that:

• A copy of the Plan and Award Agreement have been made available to the Grantee;

•	The Grantee has received a copy of the Plan’s Prospectus;
•	The Grantee has read and understands and accepts the conditions placed on the Award Shares, including the clawback provision described in Section 9(F) of the Award Agreement;
•	If the Grantee does not return a signed copy of this Award Agreement, including Exhibit A, to the address shown below not later than 30 days after the Grant Date, the Award Shares will be forfeited and the Award Agreement shall terminate and be of no further force or effect.
	FirstMerit Corporation
	Compensation Department, CAS 82
	III Cascade Plaza
	Akron, Ohio 44308

GRANTEE

By:

Printed Name: 

FIRSTMERIT CORPORATION
AMENDED AND RESTATED
2006 EQUITY PLAN

INSTRUCTIONS FOR COMPLETING SECTION 83(b) ELECTION FORM

A Grantee of restricted stock may make a Section 83(b) Election by completing this Section 83(b) Election Form. To do this:

•	The Grantee must make the election by completing the attached form;
•	Within 30 days of the Grant Date, the Grantee must send a copy of this form to the internal revenue office at which the Grantee files his or her federal income tax return;
•	A copy of this form must be submitted with the Grantee’s income tax return for the taxable year in which the property is transferred; and
•	The Grantee also must send a copy of this form to:
	FirstMerit Corporation
	Compensation Department, CAS 82
	III Cascade Plaza
	Akron, Ohio 44308

FIRSTMERIT CORPORATION
AMENDED AND RESTATED
2006 EQUITY PLAN

ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986

The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code, to include in taxpayer’s gross income for the current taxable year, the amount of any income that may be taxable to taxpayer in connection with taxpayer’s receipt of the property described below:

1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows:

NAME AND ADDRESS OF TAXPAYER: _____________________________

     _____________________________

     _____________________________

IDENTIFICATION NUMBER OF TAXPAYER: ________________________

TAXABLE YEAR: Calendar year 20__.

2.	The property with respect to which the election is made is:
	_________ common shares, without par value, of FirstMerit Corporation, an Ohio corporation (“Company”).
3.	The date on which the property was transferred is: __________________
4.	The property is subject to the following restrictions:
	Forfeiture of all shares, unless the taxpayer is serving as a director of the Company on February 21, 20___, subject to accelerated vesting if the taxpayer dies, becomes disabled or a change in control occurs.
5.	The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $________.
6.	The amount (if any) paid for such property: $0.00
	The undersigned has submitted a copy of this statement to the Company. The transferee of such property is the person performing the services in connection with the transfer of said property.

The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner.

Dated:
	(signature)

EX-10.51

Exhibit 10.51

FIRSTMERIT CORPORATION
AMENDED AND RESTATED
2006 EQUITY PLAN

EMPLOYEES’ RESTRICTED STOCK AWARD AGREEMENT

     This RESTRICTED STOCK AWARD AGREEMENT (“Agreement”) is made and entered by and between FIRSTMERIT CORPORATION (the “Company”) and the Grantee on the Grant Date (each as set forth on attached Exhibit A).

     WITNESSETH, THAT:

     WHEREAS, the Company maintains the FirstMerit Corporation Amended and Restated 2006 Equity Plan (the “Plan”), as amended from time to time; and

     WHEREAS, one of purposes of the Plan is to enable employees of the Company and its Related Entities to acquire a proprietary interest (or to increase an existing proprietary interest) in the Company, and to provide employees with a more direct stake in the future and welfare of the Company and its Related Entities and to encourage them to remain employed with the Company or its Related Entities; and

     WHEREAS, the Grantee understands that this Agreement will be revoked retroactively (and will be of no effect whatsoever), unless the acknowledgement appearing at the end of this Agreement is signed and returned no later than 30 days after the Grant Date.

     NOW, THEREFORE, the Company and the Grantee agree as follows:

     1. Grant of Award Shares. The Grantee is hereby granted an Award consisting of the number of restricted common shares, without par value (“Stock”) of the Company set forth on attached Exhibit A (the “Award Shares”). The Award is subject to the following terms and conditions and to the provisions of the Plan, the terms of which are hereby incorporated by reference. Capitalized terms used but not expressly defined in this Agreement will have the meanings given to them in the Plan.

     Subject to the terms of the Plan, if, before restrictions imposed on the Award Shares lapse, there is a Stock dividend or Stock split, recapitalization (including payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to shareholders, exchange of shares or other similar corporate change affecting Stock, an appropriate adjustment will be made to the number of Award Shares and other limitations applicable to the Award Shares.

     2. Transfer Restrictions. Subject to the terms and conditions of the Plan and this Agreement, none of the Award Shares may be sold, assigned or transferred, in whole or in part, voluntarily or involuntarily, by the Grantee, nor made subject to any lien, directly or indirectly, by operation of law or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. However, the Grantee may designate a Beneficiary to receive any Award Shares issuable after the Grantee’s death.

     3. Release of Restrictions.

     A. Except as provided in Sections 3(B) and 4, and subject to the Grantee’s continued employment with the Company and its Related Entities, the restrictions on the Award Shares shall lapse and the Award Shares shall vest as described on Exhibit A.

          B. Upon a Change in Control, the restrictions set forth in Section 2 will fully lapse and the Award Shares will vest only as provided in a Change in Control Termination Agreement and/or Displacement Agreement.

     4. Effect of Terminating Employment.

A.	Retirement:
	If the Grantee Retires, all Award Shares that are unvested will be forfeited immediately.
B.	Death or Disability:
	If the Grantee dies or becomes Disabled, all Award Shares that are unvested will be fully vested.
C.	Termination for any Other Reason:
	Except as provided in Section 3(B), if the Grantee Terminates for any reason not described in Sections 4(A) or 4(B), all unvested Award Shares will be forfeited immediately.

     5. Taxes. When Award Shares vest, any taxes required to be withheld shall be (A) paid to the Company from the Grantee’s payroll account an amount sufficient to satisfy any federal, state and local tax withholding requirements or (B) withheld from the vested Award Shares that would otherwise be issued under the Plan with a Fair Market Value equal to the minimum amount that must be withheld to comply with applicable federal, state and local income, employment and wage tax laws or (C) any combination of the foregoing. The Company will defer issuance of the vested Award Shares until the earlier of (i) 30 days after the settlement date or (ii) the date the Grantee remits the required amount. If the Grantee has not remitted the required amount within 30 days after the settlement date, the Company will permanently withhold a number of Award Shares that would otherwise be distributed with a Fair Market Value equal to the minimum amount that must be withheld to comply with applicable federal, state and local income, wage and employment taxes and distribute the balance of the vested Award Shares to the Grantee.

     6. Rights as Shareholder. The Grantee will be entitled to all of the rights of a shareholder with respect to the Award Shares, including the right to vote the Award Shares and to receive dividends and other distributions payable with respect to the Award Shares after the Grant Date; provided, however, that if any dividends or other distributions are paid in shares of Stock, those shares will be subject to the same restrictions on transferability and forfeitability as the Award Shares with respect to which they were issued.

     7. Escrow of Share Certificates. For the purposes of securing the re-transfer of the Award Shares into the name of the Company in the event of forfeiture, certificates for the Award Shares will be issued in the Grantee’s name and will be held in escrow by, and subject to a security interest in favor of, the Company until restrictions with respect to the Award Shares lapse or the Award Shares are forfeited as provided in this Agreement; provided, however, that the terms of the escrow will make allowance for the transactions contemplated by Section 3(B). A certificate or certificates representing the Award Shares as to which restrictions have lapsed will be delivered to the Grantee after those restrictions have lapsed.

     8. Beneficiary Designation. The Grantee may name a Beneficiary or Beneficiaries (who may be named contingently or successively) to receive any Award Shares that are vested but are settled after the Grantee’s death. Each designation made will revoke all prior designations, must be made on a form prescribed by the Committee and will be effective only when filed in writing with the Committee. If the Grantee has not

made an effective Beneficiary designation, the deceased Grantee’s Beneficiary will be the Grantee’s surviving spouse or, if there is no surviving spouse, the deceased Grantee’s estate.

     9. Restrictive Covenants.

A.

The Grantee acknowledges and agrees that as a condition to and in consideration of the grant of this Award, the Grantee will not engage in solicitation of customers of, or interference with employees of, the Company or any Related Entity (“Protected Party”), directly or indirectly, for a period of time after the Termination of employment with the Company and all Related Entities, irrespective of who initiates the Termination or the reason for the Termination. The Grantee acknowledges that the Grantee has received sufficient consideration in exchange for these covenants not to solicit or interfere.

B.

The Grantee covenants that if the Grantee’s employment is Terminated by either party for any reason whatsoever, the Grantee will not for a period of twelve (12) months (“Restrictive Period”) thereafter:

1.

Solicit, engage or otherwise interfere with any customer or client who is at that time or was within the preceding ninety (90) days a customer or client of the Protected Party for the purposes of directly or indirectly furnishing any financial or banking services that a national banking association, bank holding company, state bank, savings and loan association or other regulated financial institution is permitted by law to conduct or furnish on the date the Grantee’s employment is Terminated.

2.

Employ, solicit for employment, engage or otherwise interfere with any person who is at that time or was within the preceding ninety (90) days employed by the Protected Party, or otherwise directly or indirectly induce or take any action which would encourage or influence any such person to leave that person’s employment or terminate, reduce or modify their business or relationship with the Protected Party.

The restrictive covenants and Restrictive Period provided for herein will not be construed to limit the application of any other restrictive covenant or restriction period set forth in any other agreement entered into between the Grantee and the Company or a Related Entity.

C. The Grantee acknowledges that the Grantee is entering into this Agreement voluntarily and has given careful consideration to the restraints imposed by this Agreement. Irrespective of the manner of any employment termination, the restraints imposed by this Agreement will be operative during their full time periods and throughout the restrictive areas set forth in this Agreement. The Grantee further acknowledges that if the Grantee’s employment with the Company and all Related Entities Terminates for any reason the Grantee can earn a livelihood without violating the foregoing restrictions and that the Grantee’s ability to earn a livelihood without violating these restrictions is a material employment condition. The Grantee acknowledges and recognizes that if the Grantee’s employment Terminates for any reason, this Section 9 and Section 10 hereinbelow will survive any such Termination and any expiration of the term of this Agreement. Further, the Grantee agrees and consents that this Agreement is assignable by the Company.

D.	The Grantee agrees that if a court of law finds that the provisions of this Agreement are too harsh so that they are unenforceable, then such court of law may enforce those restrictions and limitations which are acceptable and deemed enforceable by the court.
E.	Further, in the event the Grantee breaches the terms of this Agreement, it is agreed that all time periods contained in this Agreement will be tolled until the Grantee ceases to breach this Agreement.
F.	If the Grantee violates the restrictive covenants described in this Section 9, the Grantee will be required to reimburse the Company in an amount equal to the value of any Award Shares that vested within the period beginning one year prior to the Grantee’s Termination and ending on the Grantee’s date of Termination, net of any taxes withheld (the “Clawback Amount”). The value of the Award Shares described in the preceding sentence will be the Fair Market Value of such Award Shares on the date they vested, and the Clawback Amount will be paid either in cash or by returning to the Company a number of shares of Stock with a Fair Market Value equal to such Clawback Amount. Notwithstanding the foregoing, nothing in this Section 9(F) will prevent a Protected Party from seeking any other relief or remedy described in Section 11 of this Agreement.

    10. Nondisclosure and Non-appropriation of Information.

A.

The Grantee recognizes and acknowledges that while employed by the Company and all Related Entities, the Grantee will have access to, learn, be provided with and, in some cases, prepare and create, certain confidential information, proprietary information or Trade Secrets (as defined below) of the Protected Party, including, but not limited to, processes, financial information, pricing information, operating techniques, marketing processes, training techniques, customer, vendor, and referral source lists, price and cost information, files and forms, (hereinafter collectively referred to as the “Trade Secrets”), all of which are of substantial value to the Protected Party and the businesses conducted by it.

B.

The Grantee expressly covenants and agrees:

1.	That the Grantee will hold in a fiduciary capacity and will not reveal, communicate, use or cause to be used for the Grantee’s own benefit or divulge during the period of employment by the Company and all Related Entities and for an indefinite period thereafter, any Trade Secrets, or other proprietary information or Trade Secrets right now or hereafter owned by the Protected Party;
2.	That the Grantee will not sell, exchange or give away, or otherwise dispose of any proprietary information or Trade Secrets now or hereafter owned by the Protected Party, whether the same will or may have been originated or discovered by the Protected Party, the Grantee or otherwise;
3.	That the Grantee will not reveal, divulge or make known to any person, firm, company or corporation any proprietary information or Trade Secrets of the Protected Party;
4.	That the Grantee will return to the Company or any other Protected Party, either before or immediately (within 24 hours) upon the Grantee’s termination of

employment with the Company and all Related Entities, any and all written information, material or equipment that constitutes, contains or relates in any way to proprietary information, Trade Secrets and any other documents, equipment, and material of any kind relating in any way to the business of the Protected Party, which are in the Grantee’s possession, custody and control and which are or may be property of Protected Party, whether confidential or not, including any and all copies thereof which may have been made by or for the Grantee and that the Grantee will maintain no copies thereof after termination of this Agreement; and

5.

The obligations of this paragraph will survive any Termination and any expiration of the term of this Agreement.

     11. Injunction. The parties acknowledge and agree, due to the subject matter of this Agreement, that money damages will be an inadequate remedy for a breach by the Grantee of any of the obligations hereunder. Consequently, if the Grantee breaches or threatens to breach any of the obligations under this Agreement, the Grantee agrees that the Protected Party will have the right, in addition to any other rights or remedies available to it at law or in equity, to obtain equitable relief, including, without limitation, injunctive relief and specific performance, in the event of any breach or threatened breach. Further, the parties hereto agree and declare that it may be impossible to measure in monetary terms the damages that may accrue to any Protected Party by reason of the Grantee’s violation of this Agreement. Therefore, in the event that a Protected Party, or any successor in interest thereto, will institute an action or proceeding to enforce the provisions of this Agreement, each party or other person against whom such action or proceeding is brought will and hereby does, in advance, waive the claim or defense that there is adequate remedy at law. In the event such injunctive relief is warranted and obtained by the Protected Party, the Grantee agrees to pay all costs of that action, including reasonable attorney fees.

     12. Severability. If any one or more of the provisions contained in this Agreement is conclusively determined to be invalid, illegal or unenforceable in any respect under applicable law, the validity, legality and enforceability of the remaining provisions of this Agreement will not, in any way, be ineffective or impaired thereby.

     13. Governing Law. This Agreement is made and entered into in the state of Ohio, and will in all respects be interpreted, enforced and governed under the laws of that state notwithstanding its conflict of laws rules. In the event of any dispute or controversy arising under or in connection with this Agreement, the parties consent to the jurisdiction of the Common Pleas Court of the State of Ohio (Summit County) or The United States District Court for the Northern District of Ohio, Eastern Division.

     14. Other Agreements. The Award Shares and this Agreement will be subject to the terms of any other written agreements between the Grantee and the Company and any Related Entity to the extent that those other agreements do not directly conflict with the terms of the Plan or this Agreement.

     15. Other Rules. The Award Shares and this Agreement are subject to more rules described in the Plan.

     16. Assignment. This Agreement will be binding upon the Company and the Grantee, their respective heirs, personal representatives, executors, administrators, and successors. The Company may freely assign or transfer this Agreement without the Grantee’s consent.

     17. Acknowledgement; Return of Agreement. This Agreement (and the Award Shares) will be revoked automatically unless the Grantee signs the acknowledgement appearing at the end of this Agreement and returns a copy of the signed Agreement to the Committee no later than 30 days after the Grant Date.

     18. Listing, Registration, Qualification. If the Board concludes that the listing, registration or qualification upon any securities exchange, under any state or federal law, or the approval or consent of any governmental body is necessary or desirable as a condition to the issuance of the Award Shares, the Award Shares may not be issued in whole or in part unless and until that listing, registration, qualification or approval has been obtained, free of any conditions which are not acceptable to the Board and the sale and delivery of stock under this Agreement is also subject to the same requirements and conditions.

IN WITNESS WHEREOF, the Company has caused the Award to be granted pursuant to this Agreement on the date first above written.

FIRSTMERIT CORPORATION

By:

Christopher J. Maurer

Executive Vice President, Human Resources

EXHIBIT A

EMPLOYEES’ RESTRICTED STOCK AWARD AGREEMENT

1.	Employee Name:___________________________
2.	Grant Date:__________________________, 20__
3.	Number of Award Shares:____________________
4.	Vesting Schedule: Subject to the terms of the Award Agreement, the restrictions set forth in Section 2 of the Award Agreement will lapse and the Award Shares will vest as follows:

a.	with respect to       Award Shares on February 21, 20     ;
b.	with respect to       Award Shares on February 21, 20     ; and
c.	with respect to       Award Shares on February 21, 20     .

ACKNOWLEDGEMENT

By signing below, the Grantee acknowledges and agrees that:

• A copy of the Plan and Award Agreement have been made available to the Grantee;

• The Grantee has received a copy of the Plan’s Prospectus;

• The Grantee has read and understands and accepts the conditions placed on the Award Shares, including the clawback provision described in Section 9(F) of the Award Agreement;

• If the Grantee does not return a signed copy of this Award Agreement, including Exhibit A, to the address shown below not later than 30 days after the Grant Date, the Award Shares will be forfeited and the Award Agreement shall terminate and be of no further force or effect.

FirstMerit Corporation
Compensation Department, CAS 82
III Cascade Plaza
Akron, Ohio 44308

GRANTEE

By:

Printed Name: 

EX-10.52

Exhibit 10.52

FIRSTMERIT CORPORATION
AMENDED AND RESTATED
2006 EQUITY PLAN

EMPLOYEES’ RESTRICTED STOCK AWARD AGREEMENT

     This RESTRICTED STOCK AWARD AGREEMENT (“Agreement”) is made and entered by and between FIRSTMERIT CORPORATION (the “Company”) and the Grantee on the Grant Date (each as set forth on attached Exhibit A).

WITNESSETH, THAT:

     WHEREAS, the Company maintains the FirstMerit Corporation Amended and Restated 2006 Equity Plan (the “Plan”), as amended from time to time; and

     WHEREAS, one of purposes of the Plan is to enable employees of the Company and its Related Entities to acquire a proprietary interest (or to increase an existing proprietary interest) in the Company, and to provide employees with a more direct stake in the future and welfare of the Company and its Related Entities and to encourage them to remain employed with the Company or its Related Entities; and

     WHEREAS, the Grantee understands that this Agreement will be revoked retroactively (and will be of no effect whatsoever), unless the acknowledgement appearing at the end of this Agreement is signed and returned no later than 30 days after the Grant Date.

     NOW, THEREFORE, the Company and the Grantee agree as follows:

     1. Grant of Award Shares. The Grantee is hereby granted an Award consisting of the number of restricted common shares, without par value (“Stock”) of the Company set forth on attached Exhibit A (the “Award Shares”). The Award is subject to the following terms and conditions and to the provisions of the Plan, the terms of which are hereby incorporated by reference. Capitalized terms used but not expressly defined in this Agreement will have the meanings given to them in the Plan.

     Subject to the terms of the Plan, if, before restrictions imposed on the Award Shares lapse, there is a Stock dividend or Stock split, recapitalization (including payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to shareholders, exchange of shares or other similar corporate change affecting Stock, an appropriate adjustment will be made to the number of Award Shares and other limitations applicable to the Award Shares.

     2. Transfer Restrictions. Subject to the terms and conditions of the Plan and this Agreement, none of the Award Shares may be sold, assigned or transferred, in whole or in part, voluntarily or involuntarily, by the Grantee, nor made subject to any lien, directly or indirectly, by operation of law or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. However, the Grantee may designate a Beneficiary to receive any Award Shares issuable after the Grantee’s death.

     3. Release of Restrictions.

     A. Except as provided in Sections 3(B) and 4, and subject to the Grantee’s continued employment with the Company and its Related Entities, the restrictions on the Award Shares shall lapse and the Award Shares shall vest as described on Exhibit A.

     B. The restrictions set forth in Section 2 above will fully lapse and the Award Shares will vest on the date of any Change in Control.

     4. Effect of Terminating Employment.

A.	Retirement:
	If the Grantee Retires, all Award Shares that are unvested will be forfeited immediately.
B.	Death or Disability:
	If the Grantee dies or becomes Disabled, all Award Shares that are unvested will be fully vested.
C.	Termination for any Other Reason:
	If the Grantee Terminates for any reason not described in Sections 4(A) or 4(B), all unvested Award Shares will be forfeited immediately.

     5. Taxes. When Award Shares vest, any taxes required to be withheld shall be (A) paid to the Company from the Grantee’s payroll account an amount sufficient to satisfy any federal, state and local tax withholding requirements or (B) withheld from the vested Award Shares that would otherwise be issued under the Plan with a Fair Market Value equal to the minimum amount that must be withheld to comply with applicable federal, state and local income, employment and wage tax laws or (C) any combination of the foregoing. The Company will defer issuance of the vested Award Shares until the earlier of (i) 30 days after the settlement date or (ii) the date the Grantee remits the required amount. If the Grantee has not remitted the required amount within 30 days after the settlement date, the Company will permanently withhold a number of Award Shares that would otherwise be distributed with a Fair Market Value equal to the minimum amount that must be withheld to comply with applicable federal, state and local income, wage and employment taxes and distribute the balance of the vested Award Shares to the Grantee.

     6. Rights as Shareholder. The Grantee will be entitled to all of the rights of a shareholder with respect to the Award Shares, including the right to vote the Award Shares and to receive dividends and other distributions payable with respect to the Award Shares after the Grant Date; provided, however, that if any dividends or other distributions are paid in shares of Stock, those shares will be subject to the same restrictions on transferability and forfeitability as the Award Shares with respect to which they were issued.

     7. Escrow of Share Certificates. For the purposes of securing the re-transfer of the Award Shares into the name of the Company in the event of forfeiture, certificates for the Award Shares will be issued in the Grantee’s name and will be held in escrow by, and subject to a security interest in favor of, the Company until restrictions with respect to the Award Shares lapse or the Award Shares are forfeited as provided in this Agreement; provided, however, that the terms of the escrow will make allowance for the transactions contemplated by Section 3(B). A certificate or certificates representing the Award Shares as to which restrictions have lapsed will be delivered to the Grantee after those restrictions have lapsed.

     8. Beneficiary Designation. The Grantee may name a Beneficiary or Beneficiaries (who may be named contingently or successively) to receive any Award Shares that are vested but are settled after the Grantee’s death. Each designation made will revoke all prior designations, must be made on a form prescribed by the Committee and will be effective only when filed in writing with the Committee. If the Grantee has not made an effective Beneficiary designation, the deceased Grantee’s Beneficiary will be the Grantee’s surviving spouse or, if there is no surviving spouse, the deceased Grantee’s estate.

     9.      Restrictive Covenants.

A.

The Grantee acknowledges and agrees that as a condition to and in consideration of the grant of this Award, the Grantee will not engage in solicitation of customers of, or interference with employees of, the Company or any Related Entity (“Protected Party”), directly or indirectly, for a period of time after the Termination of employment with the Company and all Related Entities, irrespective of who initiates the Termination or the reason for the Termination. The Grantee acknowledges that the Grantee has received sufficient consideration in exchange for these covenants not to solicit or interfere.

B.

The Grantee covenants that if the Grantee’s employment is Terminated by either party for any reason whatsoever, the Grantee will not for a period of twelve (12) months (“Restrictive Period”) thereafter:

1.

Solicit, engage or otherwise interfere with any customer or client who is at that time or was within the preceding ninety (90) days a customer or client of the Protected Party for the purposes of directly or indirectly furnishing any financial or banking services that a national banking association, bank holding company, state bank, savings and loan association or other regulated financial institution is permitted by law to conduct or furnish on the date the Grantee’s employment is Terminated.

2.

Employ, solicit for employment, engage or otherwise interfere with any person who is at that time or was within the preceding ninety (90) days employed by the Protected Party, or otherwise directly or indirectly induce or take any action which would encourage or influence any such person to leave that person’s employment or terminate, reduce or modify their business or relationship with the Protected Party.

The restrictive covenants and Restrictive Period provided for herein will not be construed to limit the application of any other restrictive covenant or restriction period set forth in any other agreement entered into between the Grantee and the Company or a Related Entity

C.

The Grantee acknowledges that the Grantee is entering into this Agreement voluntarily and has given careful consideration to the restraints imposed by this Agreement. Irrespective of the manner of any employment termination, the restraints imposed by this Agreement will be operative during their full time periods and throughout the restrictive areas set forth in this Agreement. The Grantee further acknowledges that if the Grantee’s employment with the Company and all Related Entities Terminates for any reason the Grantee can earn a livelihood without violating the foregoing restrictions and that the Grantee’s ability to earn a livelihood without violating these restrictions is a material employment condition. The Grantee acknowledges and recognizes that if the Grantee’s employment Terminates for any reason, this Section 9 and Section 10 hereinbelow will survive any such Termination and any expiration of the term of this Agreement. Further, the Grantee agrees and consents that this Agreement is assignable by the Company.

D.

The Grantee agrees that if a court of law finds that the provisions of this Agreement are too harsh so that they are unenforceable, then such court of law may enforce those restrictions and limitations which are acceptable and deemed enforceable by the court.

E.

Further, in the event the Grantee breaches the terms of this Agreement, it is agreed that all time periods contained in this Agreement will be tolled until the Grantee ceases to breach this Agreement.

F.

If the Grantee violates the restrictive covenants described in this Section 9, the Grantee will be required to reimburse the Company in an amount equal to the value of any Award Shares that vested within the period beginning one year prior to the Grantee’s Termination and ending on the Grantee’s date of Termination, net of any taxes withheld (the “Clawback Amount”). The value of the Award Shares described in the preceding sentence will be the Fair Market Value of such Award Shares on the date they vested, and the Clawback Amount will be paid either in cash or by returning to the Company a number of shares of Stock with a Fair Market Value equal to such Clawback Amount. Notwithstanding the foregoing, nothing in this Section 9(F) will prevent a Protected Party from seeking any other relief or remedy described in Section 11 of this Agreement.

     10.     Nondisclosure and Non-appropriation of Information.

A.

The Grantee recognizes and acknowledges that while employed by the Company and all Related Entities, the Grantee will have access to, learn, be provided with and, in some cases, prepare and create, certain confidential information, proprietary information or Trade Secrets (as defined below) of the Protected Party, including, but not limited to, processes, financial information, pricing information, operating techniques, marketing processes, training techniques, customer, vendor, and referral source lists, price and cost information, files and forms, (hereinafter collectively referred to as the “Trade Secrets”), all of which are of substantial value to the Protected Party and the businesses conducted by it.

B.

The Grantee expressly covenants and agrees:

1.	That the Grantee will hold in a fiduciary capacity and will not reveal, communicate, use or cause to be used for the Grantee’s own benefit or divulge during the period of employment by the Company and all Related Entities and for an indefinite period thereafter, any Trade Secrets, or other proprietary information or Trade Secrets right now or hereafter owned by the Protected Party;
2.	That the Grantee will not sell, exchange or give away, or otherwise dispose of any proprietary information or Trade Secrets now or hereafter owned by the Protected Party, whether the same will or may have been originated or discovered by the Protected Party, the Grantee or otherwise;
3.	That the Grantee will not reveal, divulge or make known to any person, firm, company or corporation any proprietary information or Trade Secrets of the Protected Party;
4.	That the Grantee will return to the Company or any other Protected Party, either before or immediately (within 24 hours) upon the Grantee’s termination of employment with the Company and all Related Entities, any and all written information, material or equipment that constitutes, contains or relates in any way to proprietary information, Trade Secrets and any other documents, equipment, and material of any kind relating in any way to the business of the Protected

	Party, which are in the Grantee’s possession, custody and control and which are or may be property of Protected Party, whether confidential or not, including any and all copies thereof which may have been made by or for the Grantee and that the Grantee will maintain no copies thereof after termination of this Agreement; and
5.	The obligations of this paragraph will survive any Termination and any expiration of the term of this Agreement.

     11. Injunction. The parties acknowledge and agree, due to the subject matter of this Agreement, that money damages will be an inadequate remedy for a breach by the Grantee of any of the obligations hereunder. Consequently, if the Grantee breaches or threatens to breach any of the obligations under this Agreement, the Grantee agrees that the Protected Party will have the right, in addition to any other rights or remedies available to it at law or in equity, to obtain equitable relief, including, without limitation, injunctive relief and specific performance, in the event of any breach or threatened breach. Further, the parties hereto agree and declare that it may be impossible to measure in monetary terms the damages that may accrue to any Protected Party by reason of the Grantee’s violation of this Agreement. Therefore, in the event that a Protected Party, or any successor in interest thereto, will institute an action or proceeding to enforce the provisions of this Agreement, each party or other person against whom such action or proceeding is brought will and hereby does, in advance, waive the claim or defense that there is adequate remedy at law. In the event such injunctive relief is warranted and obtained by the Protected Party, the Grantee agrees to pay all costs of that action, including reasonable attorney fees.

     12. Severability. If any one or more of the provisions contained in this Agreement is conclusively determined to be invalid, illegal or unenforceable in any respect under applicable law, the validity, legality and enforceability of the remaining provisions of this Agreement will not, in any way, be ineffective or impaired thereby.

     13. Governing Law. This Agreement is made and entered into in the state of Ohio, and will in all respects be interpreted, enforced and governed under the laws of that state notwithstanding its conflict of laws rules. In the event of any dispute or controversy arising under or in connection with this Agreement, the parties consent to the jurisdiction of the Common Pleas Court of the State of Ohio (Summit County) or The United States District Court for the Northern District of Ohio, Eastern Division.

     14. Other Agreements. The Award Shares and this Agreement will be subject to the terms of any other written agreements between the Grantee and the Company and any Related Entity to the extent that those other agreements do not directly conflict with the terms of the Plan or this Agreement.

     15. Other Rules. The Award Shares and this Agreement are subject to more rules described in the Plan.

     16. Assignment. This Agreement will be binding upon the Company and the Grantee, their respective heirs, personal representatives, executors, administrators, and successors. The Company may freely assign or transfer this Agreement without the Grantee’s consent.

     17. Acknowledgement; Return of Agreement. This Agreement (and the Award Shares) will be revoked automatically unless the Grantee signs the acknowledgement appearing at the end of this Agreement and returns a copy of the signed Agreement to the Committee no later than 30 days after the Grant Date.

     18. Listing, Registration, Qualification. If the Board concludes that the listing, registration or qualification upon any securities exchange, under any state or federal law, or the approval or consent of any governmental body is necessary or desirable as a condition to the issuance of the Award Shares, the Award Shares may not be issued in whole or in part unless and until that listing, registration, qualification or approval has been obtained, free of any conditions which are not acceptable to the Board and the sale and delivery of stock under this Agreement is also subject to the same requirements and conditions.

     IN WITNESS WHEREOF, the Company has caused the Award to be granted pursuant to this Agreement on the date first above written.

FIRSTMERIT CORPORATION
By:
	Christopher J. Maurer
	Executive Vice President, Human Resources

EXHIBIT A

EMPLOYEES’ RESTRICTED STOCK AWARD AGREEMENT

1.	Employee Name:___________________________
2.	Grant Date:__________________________, 20__
3.	Number of Award Shares:____________________
4.	Vesting Schedule: Subject to the terms of the Award Agreement, the restrictions set forth in Section 2 of the Award Agreement will lapse and the Award Shares will vest as follows:

a.	with respect to       Award Shares on February 21, 20__;
b.	with respect to       Award Shares on February 21, 20__; and
c.	with respect to       Award Shares on February 21, 20__.

ACKNOWLEDGEMENT

By signing below, the Grantee acknowledges and agrees that:

• A copy of the Plan and Award Agreement have been made available to the Grantee;

• The Grantee has received a copy of the Plan’s Prospectus;

• The Grantee has read and understands and accepts the conditions placed on the Award Shares, including the clawback provision described in Section 9(F) of the Award Agreement;

• If the Grantee does not return a signed copy of this Award Agreement, including Exhibit A, to the address shown below not later than 30 days after the Grant Date, the Award Shares will be forfeited and the Award Agreement shall terminate and be of no further force or effect.

FirstMerit Corporation
Compensation Department, CAS 82
III Cascade Plaza
Akron, Ohio 44308

GRANTEE

By:

Printed Name: 

EX-21

Exhibit 21

Direct and Indirect Operating Subsidiaries of FirstMerit Corporation

v	Citizens Savings Corporation of Stark County (Ohio)
v	FirstMerit Bank, National Association

—	CPHCSUB, LLC (Ohio)
—	CREPD, LLC (Ohio)
—	Cumberland Trail Development LLC (Ohio)
—	Cumberland Trail Golf Course LLC (Ohio)
—	FirstMerit Advisors, Inc. (Ohio)
—	FirstMerit Equipment Finance, Inc. (Ohio)
—	FirstMerit Financial Services, Inc. (Ohio)
—	FirstMerit Insurance Agency, Inc. (Ohio)
—	FirstMerit Insurance Group, Inc. (Ohio)
—	FirstMerit Mortgage Corporation (Ohio)
—	FirstMerit Mortgage Reinsurance Company, Inc. (Hawaii)
—	FirstMerit-Moss Creek Ventures, LLC (Ohio)
—	FirstMerit Securities, Inc. (Ohio)
—	FirstMerit Title Agency, Ltd. (Ohio)
—	FMRC, Inc. (Delaware)
—	FMSC, Inc. (Delaware)
—	FMTP, LLC (Delaware)
—	MBTC Investment Company (Nevada)
	—     Midwest Funding LLC (Delaware)
—	Midwest Financial and Investment Services, Inc. (Illinois)
—	Mobile Consultants, Inc. (Ohio)

v	FirstMerit Capital Trust I (Delaware)
v	FirstMerit Community Development Corporation (Ohio)
v	FirstMerit Risk Management, Inc. (Vermont)
v	FMT, Inc. (Delaware)
v	George Washington Service Corp. (Illinois)
v	G.W.S.B. LLC (Illinois)

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements of FirstMerit Corporation and subsidiaries (“FirstMerit”) of our reports dated February 25, 2011, with respect to the consolidated financial statements of FirstMerit and the effectiveness of internal control over financial reporting of FirstMerit, included in this Annual Report (Form 10-K) for the year ended December 31, 2010:

     Form S-8 No. 33-47074

     Form S-8 No. 33-47147

     Form S-8 No. 33-57557

     Form S-8 No. 33-63101

     Form S-8 No. 333-66129

     Form S-8 No. 333-72287

     Form S-8 No. 333-78953

     Form S-8 No. 333-120446

     Form S-8 No. 333-138624

     Form S-8 No. 333-156217

     Form S-3 No. 333-157163

/s/ Ernst & Young LLP Akron, Ohio

February 25, 2011

EX-24

     Exhibit 24

FirstMerit Corporation Limited Power of Attorney

2010 Annual Report on Form 10-K

     Each undersigned director and/or officer of FirstMerit Corporation whose signature appears below hereby constitutes and appoints Judith A. Steiner, Terrence E. Bichsel and J. Bret Treier, and each of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, to execute and file under the Securities and Exchange Act of 1934, as amended, the Corporation’s Annual Report on Form 10-K for the year 2010, and any and all amendments (on Form 10-K/A) and exhibits to the foregoing and any and all other documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report, with full power and authority to do and perform any and all acts and things whatsoever necessary, appropriate or desirable to be done in the premises or in the name, place and stead of each of the said directors and officers, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute.

     Effective the 25^th day of February, 2011, unless otherwise indicated below.

/s/ Paul G. Greig	/s/ Terrance E. Bichsel
Paul G. Greig Chairman, Chief Executive Officer and Director (principal executive officer)	Terrence E. Bichsel Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer)
/s/ Steven H. Baer	s/ R. Cary Blaer
Steven H. Baer Director	R. Cary Blair Director
/s/ Karen S. Belden	/s/ Robert W. Briggs
Karen S. Belden Director	Robert W. Briggs Director
/s/ John C. Blickle	/s/ Gina D. France
John C. Blickle Director	Gina D. France Director
/s/ Richard Colella	/s/ J. Michael Hochschwender
Richard Colella Director	J. Michael Hochschwender Director
/s/ Terry L. Haines	/s/ Philip A. Lloyd, II
Terry L. Haines Director	Philip A. Lloyd, II Director

/s/ Clifford J. Isroff	/s/ Richard N. Seaman
Clifford J. Isroff Director	Richard N. Seaman Director

EX-31.1

Exhibit 31.1

Certifications

I, Paul G. Greig, certify that:

1.	I have reviewed this Annual Report on Form 10-K of FirstMerit Corporation for the fiscal year ended December 31, 2010;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that has occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 25, 2011	By:	/s/ Paul G. Greig
	Printed Name:		Paul G. Greig

       Title:   Chairman and Chief Executive Officer 

EX-31.2

Exhibit 31.2

Certifications

I, Terrence E. Bichsel, certify that:

1.	I have reviewed this Annual Report on Form 10-K of FirstMerit Corporation for the fiscal year ended December 31, 2010;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that has occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 25, 2011	By:	/s/ Terrence E. Bichsel
	Printed Name: Terrence E. Bichsel
	Title: Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

SECTION 1350 CERTIFICATIONS

Pursuant to 18 U.S.C. Section 1350, each of the undersigned officer of FirstMerit Corporation (the “Corporation”), hereby certifies that the Corporation’s Form 10-K for the fiscal year ended December 31, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

Dated: February 25, 2011	By:	/s/ Paul G. Greig
	Chairman and Chief Executive Officer

A signed original of this written statement has been provided to FirstMerit Corporation and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

SECTION 1350 CERTIFICATIONS

Pursuant to 18 U.S.C. Section 1350, each of the undersigned officer of FirstMerit Corporation (the “Corporation”), hereby certifies that the Corporation’s Form 10-K for the fiscal year ended December 31, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

Dated: February 25, 2011	By:	/s/ Terrence E. Bichsel
	Printed Name: Terrence E. Bichsel
	Title: Executive Vice President and Chief Financial Officer

A signed original of this written statement has been provided to FirstMerit Corporation and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request.