EX-99.1 2 l16525aexv99w1.htm EX-99.1 PRESS RELEASE DATED OCTOBER 20, 2005 Exhibit 99.1
 

Exhibit 99.1
(FIRSTMERIT CORPORATION LOGO)
2005 Financial Information Third Quarter
Table of Contents
         
Earnings Release
   Page 2
 
        
Consolidated Financial Highlights
   Page 7
 
        
Consolidated Balance Sheets
   Page 8
 
        
Average Consolidated Balance Sheets
   Page 9
 
        
Average Consolidated Balance Sheets
   Page 10
(Fully-tax Equivalent Interest Rates and Interest Differential)
        
 
        
Consolidated Statements of Income and Comprehensive Income
   Page 11
 
        
Consolidated Statements of Income and Comprehensive Income
   Page 12
(Linked Quarters)
        
 
        
Asset Quality Information
   Page 13
 
        
Non Interest Income and Non Interest Expense Detail
   Page 14
 
        
Allowance for Loan Losses – Net Charge-off Detail
   Page 15
     
 
  FirstMerit Corporation
 
  III Cascade Plaza
 
  Akron, Ohio 44308
 
    
 
  Investor Relations:
 
  Tom O’Malley
 
  p. 330-384-7109

 

 

         
FOR RELEASE:
  IMMEDIATE   (FIRSTMERIT CORPORATION LOGO)
         
CONTACT:
  Analysts: Tom O’Malley   Media: Jacque Sir Louis
 
 
  (330) 384-7109   (330) 849-8877
FIRSTMERIT REPORTS 16% INCREASE
IN THIRD QUARTER 2005 EARNINGS PER SHARE
Third Quarter Highlights
  •   Diluted earnings per share of $0.43
 
  •   Net income of $36.6 million
 
  •   Return on average common equity of 14.90%
 
  •   Return on average assets of 1.41%
Akron, Ohio — October 20, 2005 — FirstMerit Corporation (Nasdaq: FMER) today announced third quarter 2005 net income of $36.6 million, or $0.43 per diluted share, up from $31.1 million, or $0.37 per diluted share, for the third quarter of 2004. Annualized returns on average common equity (“ROE”) and average assets (“ROA”) for the quarter were 14.90% and 1.41%, respectively, compared with 12.78% and 1.21% for the third quarter of 2004.
For the first nine months of 2005, the Company reported net income of $102.8 million, or $1.22 per diluted share, up from $74.9 million, or $0.88 per diluted share, for the first nine months of 2004. ROE and ROA were 14.15% and 1.34%, respectively, compared with 10.16% and 0.96% for the prior-year period.
“FirstMerit’s third quarter results reflect continued progress with improving our overall earning asset mix to generate robust, longer-term revenue growth. We are steadily reducing the proportion of lower-yielding investment securities on our balance sheet and growing our loan portfolio.” said John R. Cochran, chairman and CEO. “These steps supported our net interest margin against further erosion this quarter amidst a challenging interest rate environment.”
Focusing on FirstMerit’s loan growth during the third quarter of 2005, Mr. Cochran added, “End of period commercial loan balances increased $80 million, or 2.33%, from the prior quarter. These strong results from our commercial banking team reflect significant activity in the latter part of September enhanced by a seasonal strengthening in demand. This pickup also provides us with momentum for the latter part of this year and into 2006.”

Page 2

 

Mr. Cochran also commented on the Company’s fee income during the third quarter, “Service charges improved strongly over the past quarter and on a year-over-year basis. Additionally, our strong sales culture drove another quarter of improved performance within our cross-sell metrics and is a key part of our initiative to promote higher levels of profitability in every client relationship.”
Total revenue, defined as net interest income on a fully-tax equivalent (“FTE”) basis plus non-interest income net of securities transactions, was $136.2 million for the third quarter of 2005, compared with $132.1 million in the prior-year quarter, an increase of 3.07%. FTE net interest income increased 0.34% year-over-year, to $88.3 million. The net interest margin declined 1 basis point to 3.70%, while average earning assets increased $23.9 million to $9.5 billion. The Company continues to progress on its goal of remixing the balance sheet by replacing lower-yielding investment securities with higher-yielding assets. During the third quarter of 2005, the average investment portfolio decreased by $148.7 million, or 5.10%, compared with the third quarter of 2004, while average loans increased $171.6 million, or 2.65%, to $6.6 billion.
Non-interest income for the third quarter of 2005 totaled $47.8 million, compared with $44.1 million for the third quarter of 2004, an increase of 8.55%. Excluding net securities gains, non-interest income was $47.8 million in the third quarter of 2005 and $44.0 million in the same period last year. Once again this quarter the Company is executing on its initiative of building a more profitable retail client relationship. During the third quarter of 2005, service charges on deposits rose $2.7 million, or 16.71%, compared with the third quarter of 2004. Credit card fees increased $0.9 million, or 8.93%, in the third quarter of 2005 compared with the year-ago quarter.
Non-interest expense totaled $78.9 million for the third quarter of 2005, compared with $77.3 million for the third quarter of 2004, an increase of 2.17%. The efficiency ratio for the quarter was 57.81%, compared with 58.31% for the year ago quarter.
Federal income tax expense was $10.1 million and $13.8 million for the quarters ended September 30, 2005 and 2004, respectively. The effective tax rate for the third quarter 2005 was 21.6% compared to 30.7% for the same quarter in 2004. The reduction in the third quarter 2005 was the result of the release of tax reserves which had been established for tax years no longer subject to review because the tax statute expired. For the nine months ended September 30, 2005 and 2004, the federal income tax expense was $39.8 million (effective rate of 27.9%) and $27.3 million (effective rate of 26.7%) for 2005 and 2004, respectively.
As of September 30, 2005, nonperforming assets were $51.4 million, or 0.77% of period-end loans plus other real estate, compared with $54.0 million, or 0.82%, as of June 30, 2005, and $47.8 million or 0.74%, as of September 30, 2004. Net charge-offs for the third quarter of 2005 were $10.0 million, compared with $10.4 million for the third quarter of 2004, a decline of $0.4 million, or 3.85%. Compared with the previous quarter, net charge-offs decreased $0.3 million, or 2.69%. Annualized net charge-offs to average loans in the third quarter of 2005 improved to 0.60%, compared with 0.62% for

Page 3

 

the prior quarter and 0.64% for the third quarter of 2004. The third quarter of 2005 annualized net charge-offs to average loans results marks the Company’s seventh consecutive quarter of year-over-year net charge-off improvement.
The Company recorded $10.0 million of loan loss provision in the third quarter of 2005, compared with $9.3 million in the third quarter of 2004. In the second quarter of 2005, the loan loss provision was $6.0 million. The increase in loan loss provision from the previous quarter reflects the dramatic drop in the Company’s level of criticized commercial loans in the second quarter of 2005 resulting in a lower loan loss provision for that quarter. During the third quarter of 2005, the level of criticized loans improved moderately from the prior quarter and this level of recovery factored into the Company’s reserving methodology. The allowance for credit losses (sum of the allowance for loan losses and the reserve for unfunded lending commitments) at September 30, 2005 was 1.47% of period-end loans, compared with 1.49% on June 30, 2005 and 1.64% on September 30, 2004.
Assets at September 30, 2005 totaled $10.3 billion, up 1.19% from September 30, 2004. Period-end loan growth of $233.5 million, or 3.61%, was driven by commercial loans and home equity loans increasing 6.49% and 15.09%, respectively. Investment securities and federal funds sold decreased $195.2 million, or 6.79%, over the same time period.
Deposits totaled $7.4 billion at September 30, 2005, compared with $7.4 billion on September 30, 2004. Compared with June 30, 2005, total deposits increased $178.2 million, or 2.48%. The Company’s focus on generating increased volume of lower cost demand deposit accounts (DDA) over the past year partly offset a decline in savings and money market accounts and relieved some pressure on funding costs during a time of rising short term interest rates. Year-over-year, DDA have increased $148.5 million, or 6.74%, while DDA totals at September 30, 2005 increased $77.2 million, or 3.40%, compared with June 30, 2005. Over those same time periods, savings and money market accounts have declined $122.4 million, or 5.04%, and $43.0 million, or 1.83%, respectively. The Company’s core deposit concentration is 63.37% of deposits at September 30, 2005, compared with 62.80% at September 30, 2004.
Shareholders’ equity was $972.3 million on September 30, 2005. The Company’s capital position remains strong as tangible equity to assets was 8.17%, compared with 8.34% on September 30, 2004. The common dividend paid during the quarter was $0.28 per share, a $0.01 increase from the prior-year quarter. During the third quarter of 2005 the Company repurchased 178,872 common shares. Period-end common shares outstanding totaled 83.4 million.

Page 4

 

Third Quarter 2005 Highlights
FirstMerit Corp. announced an increase in quarterly dividend to $.28 per share, up $.01 from the previous quarterly dividend of $0.27 per common share.
FirstMerit Bank has been listed as a “Blue Ribbon Bank” by Veribanc Inc. The rating is given to banks that demonstrate fiscal safety and financial strength for a minimum of eight consecutive quarters.
FirstMerit Corp. has appointed Michael Hochschwender, president & CEO, The Smithers Group, to its corporate board of directors. The appointment fills an existing vacancy on the board and increases the number of directors to 14. Mr. Hochschwender has more than 20 years of corporate management and consulting experience. Currently, he is president and CEO of The Smithers Group, a position he has held since 1996.
Conference Call Information
FirstMerit’s senior management will host an earnings conference call on October 20, 2005, at 2:00 p.m. EDT to provide an overview of third quarter results and highlights. To participate in the conference call, please dial (800) 322-0079 ten minutes before start time. A replay of the conference call will be available at approximately 4:30 p.m., on October 21, 2005 through 12:00 a.m. on November 5, 2005, by dialing (877) 519-4471, reservation number 6610353.
The third quarter 2005 earnings release will be available at approximately 7:30 a.m. on the Internet at http://www.firstmerit.com under the Investor Relations portion of the Web site. Any material non-public information that might be disclosed during the conference call will be posted on the Web site immediately after the conference call ends.
About FirstMerit
FirstMerit Corporation is a diversified financial services company headquartered in Akron, Ohio, with assets of $10.3 billion as of September 30, 2005, and 160 banking offices in 24 Ohio and Western Pennsylvania counties. FirstMerit provides a complete range of banking and other financial services to consumers and businesses through its wholly-owned subsidiaries which include: FirstMerit Bank, N.A., FirstMerit Mortgage Corporation, FirstMerit Title Agency, Ltd., FirstMerit Credit Life Insurance Company, and FirstMerit Community Development Corporation.

Page 5

 

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

Page 6

 

FIRSTMERIT CORPORATION AND SUBSIDIARIES
Consolidated Financial Highlights

(Unaudited)
(Dollars in thousands) 		  (FIRSTMERIT CORPORATION LOGO)
                                         
    Quarters
    2005   2005   2005   2004   2004
EARNINGS   3rd Qtr   2nd Qtr   1st Qtr   4th Qtr   3rd Qtr
 
Net interest income FTE (a)
   $ 88,347       88,432       86,685       87,993       88,051  
Provision for loan losses
     9,974       5,972       11,614       9,358       9,325  
Other income
     47,846       50,095       44,939       39,402       44,078  
Other expenses
     78,926       79,397       75,911       80,279       77,250  
FTE adjustment (a)
     641       655       675       669       679  
Net income
     36,594       36,145       30,088       28,369       31,111  
Diluted EPS
     0.43       0.43       0.36       0.33       0.37  
 
                                        
PERFORMANCE RATIOS
                                        
Return on average assets (ROA)
     1.41 %     1.40 %     1.19 %     1.12 %     1.21 %
Return on average common equity (ROE)
     14.90 %     15.07 %     12.48 %     11.49 %     12.78 %
Net interest margin FTE (a)
     3.70 %     3.74 %     3.73 %     3.76 %     3.71 %
Efficiency ratio
     57.81 %     57.14 %     58.33 %     60.69 %     58.31 %
Number of full-time equivalent employees
     3,073       3,078       3,081       3,158       3,232  
 
                                        
MARKET DATA
                                        
Book value/common share
   $ 11.65       11.69       11.32       11.66       11.62  
Period-end common share mkt value
     26.79       26.11       26.76       28.49       26.31  
Market as a % of book
     230 %     223 %     236 %     244 %     226 %
Cash dividends/common share
   $ 0.28       0.27       0.27       0.27       0.27  
Common stock dividend payout ratio
     65.12 %     62.79 %     75.00 %     81.82 %     72.97 %
Average basic common shares
     83,489       83,603       84,097       84,286       84,544  
Average diluted common shares
     83,978       83,890       84,497       84,777       84,962  
Period end common shares
     83,442       83,522       83,612       84,191       84,302  
Common shares repurchased
     178,872       145,143       816,208       197,235       562,538  
Common stock market capitalization
   $ 2,235,411       2,180,759       2,237,457       2,398,602       2,217,986  
 
                                        
ASSET QUALITY
                                        
Gross charge-offs
   $ 14,207       15,422       16,740       17,873       16,119  
Net charge-offs
     10,002       10,278       11,795       12,553       10,403  
Allowance for loan losses (b)
     92,780       92,808       97,115       97,296       100,491  
Reserve for unfunded lending commitments (b)
     5,857       5,785       6,479       5,774       5,619  
Nonperforming assets (NPAs)
     51,398       53,985       46,703       45,891       47,789  
Net charge-off/average loans ratio
     0.60 %     0.62 %     0.74 %     0.78 %     0.64 %
Allowance for loan losses/period-end loans
     1.39 %     1.40 %     1.49 %     1.51 %     1.56 %
Allowance for credit losses/period-end loans (c)
     1.47 %     1.49 %     1.59 %     1.60 %     1.64 %
NPAs/loans and other real estate
     0.77 %     0.82 %     0.71 %     0.71 %     0.74 %
Allowance for loan losses/nonperforming loans
     221.46 %     208.74 %     235.71 %     240.14 %     240.03 %
Allowance for credit losses/nonperforming loans (c)
     235.44 %     221.76 %     251.44 %     254.39 %     253.45 %
 
                                        
CAPITAL & LIQUIDITY
                                        
Period-end tangible equity to assets
     8.17 %     8.19 %     7.93 %     8.39 %     8.34 %
Average equity to assets
     9.46 %     9.32 %     9.56 %     9.70 %     9.43 %
Average equity to loans
     14.66 %     14.58 %     15.06 %     15.26 %     14.96 %
Average loans to deposits
     91.73 %     90.16 %     88.27 %     86.69 %     86.79 %
 
                                        
AVERAGE BALANCES
                                        
Assets (b)
   $ 10,295,827       10,329,167       10,226,765       10,120,109       10,268,456  
Deposits
     7,245,562       7,321,860       7,354,689       7,421,815       7,459,927  
Loans
     6,646,112       6,601,204       6,492,044       6,434,115       6,474,512  
Earning assets
     9,465,288       9,489,431       9,421,693       9,314,744       9,441,368  
Shareholders’ equity
     974,147       962,239       977,888       982,147       968,697  
 
                                        
ENDING BALANCES
                                        
Assets (b)
   $ 10,290,243       10,314,268       10,274,154       10,122,627       10,164,098  
Deposits
     7,352,026       7,173,857       7,324,551       7,365,447       7,377,108  
Loans
     6,695,290       6,611,011       6,530,546       6,433,083       6,461,741  
Goodwill
     139,245       139,245       139,245       139,245       139,245  
Intangible assets
     3,978       4,200       4,424       4,647       4,869  
Earning assets
     9,429,183       9,492,583       9,453,738       9,343,491       9,377,760  
Total shareholders’ equity
     972,348       976,016       946,731       981,257       979,640  
 
NOTES:
 
(a)  - Net interest income on a fully tax-equivalent (“FTE”) basis restates interest on tax-exempt securities and loans as if such interest were subject to federal income tax at the statutory rate. Net interest income on an FTE basis is not an accounting principle generally accepted in the United States of America.
 
(b)  - As of December 31, 2004, the reserve for unfunded lending commitments has been reclassified from the allowance for loan losses to other liabilities. Amounts presented prior to December 31, 2004, have been reclassified to conform to the current presentation.
 
(c)  - The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments.

Page 7

 

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands) 		  (FIRSTMERIT CORPORATION LOGO)
                         
(Unaudited, except December 31, 2004, which is derived from the   September 30,     December 31,     September 30,  
audited financial statements)   2005     2004     2004  
ASSETS
                        
Cash and due from banks
   $ 216,236       169,052       184,428  
Investment securities (at fair value) and federal funds sold
     2,679,650       2,862,015       2,874,878  
Loans held for sale
     54,243       48,393       41,141  
Loans:
                        
Commercial loans
     3,503,276       3,285,012       3,289,907  
Mortgage loans
     634,914       639,715       633,545  
Installment loans
     1,578,883       1,598,588       1,631,269  
Home equity loans
     765,476       676,230       665,127  
Credit card loans
     140,314       145,042       140,635  
Leases
     72,427       88,496       101,258  
 
                  
Total loans
     6,695,290       6,433,083       6,461,741  
Less allowance for loan losses (a)
     (92,780 )     (97,296 )     (100,491 )
 
                  
Net loans
     6,602,510       6,335,787       6,361,250  
Premises and equipment, net
     115,916       121,198       120,891  
Goodwill
     139,245       139,245       139,245  
Intangible assets
     3,978       4,647       4,869  
Accrued interest receivable and other assets
     478,465       442,290       443,015  
 
                  
Total assets
   $ 10,290,243       10,122,627       10,169,717  
 
                  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                        
Deposits:
                        
Demand-non-interest bearing
   $ 1,472,471       1,470,543       1,388,745  
Demand-interest bearing
     878,851       841,595       814,103  
Savings and money market accounts
     2,307,824       2,384,510       2,430,188  
Certificates and other time deposits
     2,692,880       2,668,799       2,744,072  
 
                  
Total deposits
     7,352,026       7,365,447       7,377,108  
 
                  
Securities sold under agreements to repurchase
     1,465,697       1,336,471       1,361,442  
Wholesale borrowings
     352,250       300,220       300,784  
Accrued taxes, expenses, and other liabilities (a)
     147,922       139,232       150,743  
 
                  
Total liabilities
     9,317,895       9,141,370       9,190,077  
 
                  
 
                  
 
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 92,026,350 at September 30, 2005, December 31, 2004 and September 30, 2004
     127,937       127,937       127,937  
Capital surplus
     108,711       110,513       110,296  
Accumulated other comprehensive loss
     (33,923 )     (14,208 )     (13,385 )
Retained earnings
     990,219       956,802       951,319  
Treasury stock, at cost, 8,584,782, 7,835,399 and 7,724,341 shares at September 30, 2005, December 31, 2004 and September 30, 2004, respectively
     (220,596 )     (199,787 )     (196,527 )
 
                  
Total shareholders’ equity
     972,348       981,257       979,640  
 
                  
Total liabilities and shareholders’ equity
   $ 10,290,243       10,122,627       10,169,717  
 
                  
(a) As of December 31, 2004, the reserve for unfunded lending commitments has been reclassified from the allowance for loan losses to other liabilities. Amounts presented prior to December 31, 2004 have been reclassifed to conform to the current presentation.
The accompanying notes are an integral part of the consolidated financial statements.

Page 8

 

FIRSTMERIT CORPORATION AND SUBSIDIARIES
AVERAGE CONSOLIDATED BALANCE SHEETS 		  (FIRSTMERIT CORPORATION LOGO)
                                         
          Quarterly Periods  
(Unaudited)   Sept 30,     June 30,     March 31,     Dec 31,     Sept 30,  
(Dollars in thousands)   2005     2005     2005     2004     2004  
ASSETS
                                        
Cash and due from banks
   $ 197,412       197,548       190,740       198,077       219,025  
Investment securities/fed funds sold
     2,764,724       2,833,818       2,876,415       2,831,253       2,913,395  
Loans held for sale
     54,452       54,409       53,234       49,376       53,461  
Loans:
                                        
Commercial loans
     3,441,231       3,434,946       3,346,425       3,272,545       3,286,775  
Mortgage loans
     641,532       641,865       646,528       642,569       637,796  
Installment loans
     1,594,801       1,601,775       1,598,953       1,612,132       1,646,826  
Home equity loans
     754,492       704,054       674,913       670,366       654,882  
Credit card loans
     140,873       137,919       141,440       141,953       141,751  
Leases
     73,183       80,645       83,785       94,550       106,482  
 
                              
Total loans
     6,646,112       6,601,204       6,492,044       6,434,115       6,474,512  
Less allowance for loan losses (a)
     91,852       96,342       96,438       99,675       101,119  
 
                              
 
                                        
Net loans
     6,554,260       6,504,862       6,395,606       6,334,440       6,373,393  
 
                                        
Total earning assets
     9,465,288       9,489,431       9,421,693       9,314,744       9,441,368  
 
                                        
Premises and equipment, net
     117,471       118,392       119,916       121,147       121,672  
Accrued interest receivable and other assets
     607,508       620,138       590,854       585,816       587,510  
 
                              
 
                                        
TOTAL ASSETS
   $ 10,295,827       10,329,167       10,226,765       10,120,109       10,268,456  
 
                              
 
                                        
LIABILITIES
                                        
Deposits:
                                        
Demand-non-interest bearing
   $ 1,457,487       1,470,673       1,447,226       1,462,830       1,396,593  
Demand-interest bearing
     838,549       834,708       820,974       829,650       809,707  
Savings and money market accounts
     2,333,331       2,370,280       2,392,023       2,423,790       2,495,659  
Certificates and other time deposits
     2,616,195       2,646,199       2,694,466       2,705,545       2,757,968  
 
                              
 
                                        
Total deposits
     7,245,562       7,321,860       7,354,689       7,421,815       7,459,927  
 
                                        
Securities sold under agreements to repurchase
     1,478,857       1,385,644       1,326,242       1,262,156       1,394,398  
Wholesale borrowings
     442,035       498,088       412,149       300,550       300,477  
 
                              
 
                                        
Total funds
     9,166,454       9,205,592       9,093,080       8,984,521       9,154,802  
Accrued taxes, expenses and other liabilities (a)
     155,226       161,336       155,797       153,441       144,957  
 
                              
 
                                        
Total liabilities
     9,321,680       9,366,928       9,248,877       9,137,962       9,299,759  
 
                                        
SHAREHOLDERS’ EQUITY
                                        
Preferred stock
     —       —       —       —       —  
Common stock
     127,937       127,937       127,937       127,937       127,937  
Capital surplus
     108,564       108,559       108,478       110,217       110,297  
Accumulated other comprehensive (loss) income
     (25,682 )     (26,883 )     (16,998 )     (12,559 )     (29,493 )
Retained earnings
     982,419       968,408       960,740       953,566       950,094  
Treasury stock
     (219,091 )     (215,782 )     (202,269 )     (197,014 )     (190,138 )
 
                              
 
                                        
Total shareholders’ equity
     974,147       962,239       977,888       982,147       968,697  
 
                              
 
                                        
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 10,295,827       10,329,167       10,226,765       10,120,109       10,268,456  
 
                              
 
(a)   As of December 31, 2004, the reserve for unfunded lending commitments has been reclassified from the allowance for loan losses. Amounts presented prior to December 31, 2004 have been reclassified to conform to the current presentation.

Page 9

 

AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)
Fully-tax Equivalent Interest Rates and Interest Differential
FIRSTMERIT CORPORATION AND SUBSIDIARIES
                                                                         
    Three months ended     Year ended     Three months ended  
(Dollars in thousands)   September 30, 2005     December 31, 2004     September 30, 2004  
                                                   
    Average             Average     Average             Average     Average             Average  
    Balance     Interest     Rate     Balance     Interest     Rate     Balance     Interest     Rate  
ASSETS
                                                                        
Cash and due from banks
   $ 197,412                       213,994                       219,025                  
Investment securities and federal funds sold:
                                                                        
U.S. Treasury securities and U.S. Government agency obligations (taxable)
     2,408,219       22,621       3.73 %     2,602,317       97,037       3.73 %     2,550,174       23,871       3.72 %
Obligations of states and political subdivisions (tax exempt)
     99,273       1,638       6.55 %     103,402       7,311       7.07 %     104,296       1,839       7.01 %
Other securities and federal funds sold
     257,232       3,056       4.71 %     261,765       9,765       3.73 %     258,925       2,404       3.69 %
 
                                                            
 
                                                                        
Total investment securities and federal funds sold
     2,764,724       27,315       3.92 %     2,967,484       114,113       3.85 %     2,913,395       28,114       3.84 %
 
                                                                        
Loans held for sale
     54,452       660       4.81 %     55,002       2,089       3.80 %     53,461       535       3.98 %
Loans
     6,646,112       110,535       6.60 %     6,493,472       383,905       5.91 %     6,474,512       95,858       5.89 %
 
                                                            
 
                                                                        
Total earning assets
     9,465,288       138,510       5.81 %     9,515,958       500,107       5.26 %     9,441,368       124,507       5.25 %
 
                                                                        
Allowance for loan losses
     (91,852 )                     (100,959 )                     (101,119 )                
Other assets
     724,979                       689,312                       709,182                  
 
                                                                  
 
                                                                        
Total assets
   $ 10,295,827                       10,318,305                       10,268,456                  
 
                                                                  
 
                                                                        
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                                                        
Deposits:
                                                                        
Demand — non-interest bearing
   $ 1,457,487       —       —       1,398,112       —       —       1,396,593       —       —  
Demand — interest bearing
     838,549       1,732       0.82 %     805,419       2,152       0.27 %     809,707       579       0.28 %
Savings and money market accounts
     2,333,331       8,700       1.48 %     2,473,728       19,145       0.77 %     2,495,659       5,009       0.80 %
Certificates and other time deposits
     2,616,195       21,637       3.28 %     2,762,975       81,540       2.95 %     2,757,968       19,848       2.86 %
 
                                                            
 
                                                                        
Total deposits
     7,245,562       32,069       1.76 %     7,440,234       102,837       1.38 %     7,459,927       25,436       1.36 %
 
                                                                        
Securities sold under agreements to repurchase
     1,478,857       12,535       3.36 %     1,447,629       26,259       1.81 %     1,394,398       6,668       1.90 %
Wholesale borrowings
     442,035       5,559       4.99 %     307,867       17,494       5.68 %     300,477       4,352       5.76 %
 
                                                            
 
                                                                        
Total interest bearing liabilities
     7,708,967       50,163       2.58 %     7,797,618       146,590       1.88 %     7,758,209       36,456       1.87 %
 
                                                                        
Other liabilities
     155,226                       139,046                       144,957                  
 
                                                                        
Shareholders’ equity
     974,147                       983,529                       968,697                  
 
                                                                  
 
                                                                        
Total liabilities and shareholders’ equity
   $ 10,295,827                       10,318,305                       10,268,456                  
 
                                                                  
 
                                                                        
Net yield on earning assets
   $ 9,465,288       88,347       3.70 %     9,515,958       353,517       3.71 %     9,441,368       88,051       3.71 %
 
                                                      
 
                                                                        
Interest rate spread
                     3.22 %                     3.38 %                     3.38 %
 
                                                                  
Notes: Interest income on tax-exempt securities and loans have been adjusted to a fully-taxable equivalent basis.
            Nonaccrual loans have been included in the average balances.
Page 10

 

 

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME 		  (FIRSTMERIT CORPORATION LOGO)
                                 
    Quarters ended     Nine months ended  
(Unaudited)   September 30,     September 30,  
(In thousands except per share data)   2005     2004     2005     2004  
Interest income:
                                
Interest and fees on loans, including held for sale
   $ 111,169       96,374       317,293       287,127  
Interest and dividends on investment securities and federal funds sold
     26,700       27,454       82,194       84,886  
 
                        
Total interest income
     137,869       123,828       399,487       372,013  
 
                        
Interest expense:
                                
Interest on deposits:
                                
Demand-interest bearing
     1,732       579       3,918       1,448  
Savings and money market accounts
     8,700       5,009       22,592       13,835  
Certificates and other time deposits
     21,637       19,848       62,933       61,077  
Interest on securities sold under agreements to repurchase
     12,535       6,668       32,000       19,077  
Interest on wholesale borrowings
     5,559       4,352       16,551       13,095  
 
                        
Total interest expense
     50,163       36,456       137,994       108,532  
 
                        
Net interest income
     87,706       87,372       261,493       263,481  
Provision for loan losses
     9,974       9,325       27,560       64,565  
 
                        
Net interest income after provision for loan losses
     77,732       78,047       233,933       198,916  
 
                        
Other income:
                                
Trust department income
     5,515       5,228       16,704       16,280  
Service charges on deposits
     18,561       15,903       51,181       47,027  
Credit card fees
     10,437       9,581       30,371       27,791  
ATM and other service fees
     3,453       3,168       9,710       8,987  
Bank owned life insurance income
     3,074       2,992       9,172       9,201  
Investment services and insurance
     2,226       2,931       7,912       10,290  
Manufactured housing income
     3       5       145       155  
Investment securities gains, net
     40       29       1,887       1,511  
Loan sales and servicing income
     2,076       1,630       4,729       4,042  
Other operating income
     2,461       2,611       11,069       9,599  
 
                        
Total other income
     47,846       44,078       142,880       134,883  
 
                        
Other expenses:
                                
Salaries, wages, pension and employee benefits
     42,149       41,096       122,893       119,296  
Net occupancy expense
     5,567       5,546       17,984       17,089  
Equipment expense
     2,962       3,140       9,149       9,998  
Stationery, supplies and postage
     2,559       2,606       7,504       7,895  
Bankcard, loan processing and other costs
     5,802       6,261       16,970       17,952  
Professional services
     2,632       2,780       8,625       9,903  
Amortization of intangibles
     222       222       667       667  
Other operating expense
     17,033       15,599       50,442       48,850  
 
                        
Total other expenses
     78,926       77,250       234,234       231,650  
 
                        
Income before income tax expense
     46,652       44,875       142,579       102,149  
Federal income taxes
     10,058       13,764       39,752       27,304  
 
                        
Net income
   $ 36,594       31,111       102,827       74,845  
 
                        
Other comprehensive income (loss), net of taxes
 
Unrealized securities’ holding gains (losses), net of taxes
     (14,246 )     28,235       (18,305 )     (2,928 )
Minimum pension liability adjustment, net of taxes
     —       —       (183 )     —  
Less: reclassification adjustment for securities’ gains (losses) realized in net income, net of taxes
     26       19       1,227       982  
 
                        
Total other comprehensive income (loss), net of taxes
     (14,272 )     28,216       (19,715 )     (3,910 )
 
                        
Comprehensive income
   $ 22,322       59,327       83,112       70,935  
 
                        
Net income applicable to common shares
   $ 36,594       31,111       102,827       74,845  
 
                        
Net income used in diluted EPS calculation
   $ 36,601       31,119       102,848       74,867  
 
                        
Weighted average number of common shares outstanding — basic
     83,489       84,544       83,727       84,707  
 
                        
Weighted average number of common shares outstanding — diluted
     83,978       84,962       84,105       85,087  
 
                        
Basic earnings per share
   $ 0.44       0.36       1.23       0.88  
 
                        
Diluted earnings per share
   $ 0.43       0.37       1.22       0.88  
 
                        
Dividend per share
   $ 0.28       0.27       0.82       0.79  
 
                        
Note: Certain prior year balances have been reclassified to conform to the current year presentation.
The accompanying notes are an integral part of the consolidated financial statements.

Page 11

 

     
FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME—LINKED QUARTERS
  (FIRSTMERIT CORPORATION LOGO)
(Unaudited)
(Dollars in thousands, except share data)
                                         
            Quarterly Results  
    2005     2005     2005     2004     2004  
    3rd Q     2nd Q     1st Q     4th Q     3rd Q  
Interest and fees on loans, including held for sale
   $ 111,169       105,975       100,149       98,792       96,374  
Interest and dividends — securities and federal funds sold
     26,700       27,802       27,692       26,590       27,454  
 
                              
Total interest income
     137,869       133,777       127,841       125,382       123,828  
 
                              
Interest on deposits:
                                        
Demand-interest bearing
     1,732       1,230       956       704       579  
Savings and money market accounts
     8,700       7,517       6,375       5,310       5,009  
Certificates and other time deposits
     21,637       20,696       20,600       20,463       19,848  
Securities sold under agreements to repurchase
     12,535       10,624       8,841       7,182       6,668  
Wholesale borrowings
     5,559       5,933       5,059       4,399       4,352  
 
                              
Total interest expense
     50,163       46,000       41,831       38,058       36,456  
 
                              
Net interest income
     87,706       87,777       86,010       87,324       87,372  
Provision for loan losses
     9,974       5,972       11,614       9,358       9,325  
 
                              
Net interest income after provision for loan losses
     77,732       81,805       74,396       77,966       78,047  
 
                              
Other income:
                                        
Trust department income
     5,515       5,684       5,505       5,315       5,228  
Service charges on deposits
     18,561       17,800       14,820       15,135       15,903  
Credit card fees
     10,437       10,523       9,411       9,937       9,581  
ATM and other service fees
     3,453       3,298       2,959       2,892       3,168  
Bank owned life insurance income
     3,074       3,024       3,074       3,113       2,992  
Investment services and insurance
     2,226       2,828       2,858       2,560       2,931  
Manufactured housing income
     3       40       102       10       5  
Investment securities gains (losses), net
     40       (25 )     1,872       (4,508 )     29  
Loan sales and servicing income
     2,076       1,520       1,133       2,033       1,630  
Other operating income
     2,461       5,403       3,205       2,915       2,611  
 
                              
Total other income
     47,846       50,095       44,939       39,402       44,078  
 
                              
Other expenses:
                                        
Salaries, wages, pension and employee benefits
     42,149       41,351       39,393       40,756       41,096  
Net occupancy expense
     5,567       5,881       6,536       5,468       5,546  
Equipment expense
     2,962       3,002       3,185       3,347       3,140  
Stationery, supplies and postage
     2,559       2,484       2,461       2,821       2,606  
Bankcard, loan processing and other costs
     5,802       5,444       5,724       6,355       6,261  
Professional services
     2,632       3,843       2,150       3,785       2,780  
Amortization of intangibles
     222       222       223       222       222  
Other operating expense
     17,033       17,170       16,239       17,525       15,599  
 
                              
Total other expenses
     78,926       79,397       75,911       80,279       77,250  
 
                              
Income before income tax expense
     46,652       52,503       43,424       37,089       44,875  
Federal income taxes
     10,058       16,358       13,336       8,720       13,764  
 
                              
Net income
   $ 36,594       36,145       30,088       28,369       31,111  
 
                              
Other comprehensive income (loss), net of taxes
     (14,272 )     18,540       (23,983 )     (823 )     28,216  
 
                              
Comprehensive income
   $ 22,322       54,685       6,105       27,546       59,327  
 
                              
Net income applicable to common shares
     36,594       36,145       30,088       28,369       31,111  
 
                              
Adjusted net income used in diluted EPS calculation
     36,601       36,152       30,095       28,377       31,119  
 
                              
Weighted-average common shares — basic
     83,489       83,603       84,097       84,286       84,544  
 
                              
Weighted-average common shares — diluted
     83,978       83,890       84,497       84,777       84,962  
 
                              
 
                                        
Basic net income per share
   $ 0.44       0.43       0.36       0.34       0.36  
 
                              
 
                                        
Diluted net income per share
   $ 0.43       0.43       0.36       0.33       0.37  
 
                              
Note: Certain prior year balances have been reclassified to conform to the current year presentation.

Page 12

 

     
FIRSTMERIT CORPORATION AND SUBSIDIARIES
ASSET QUALITY INFORMATION
  (FIRSTMERIT CORPORATION LOGO)
(Unaudited, except December 31, 2004 annual period which
  is derived from the audited financial statements)
(Dollars in thousands, except ratios)
                                                 
    Quarterly Periods     Annual Period  
    Sep 30     June 30     Mar 31     Dec 31     Sep 30     Dec 31  
    2005     2005     2005     2004     2004     2004  
Allowance for Credit Losses (a)
                                                
 
                                                
Allowance for loan losses, beginning of period (b)
   $ 92,808       97,115       97,296       100,491       101,569       91,459  
Allowance related to loans sold
     —       —       —       —       —       (12,671 )
Provision for loan losses
     9,974       5,971       11,614       9,358       9,325       73,923  
Charge-offs
     14,207       15,422       16,740       17,873       16,119       78,999  
Recoveries
     4,205       5,144       4,945       5,320       5,716       23,584  
 
                                    
Net charge-offs
     10,002       10,278       11,795       12,553       10,403       55,415  
 
                                    
Allowance for loan losses, end of period
   $ 92,780       92,808       97,115       97,296       100,491       97,296  
 
                                    
Reserve for unfunded lending commitments, beginning of period (b)
   $ 5,785       6,479       5,774       5,619       5,992       6,094  
Provision for credit losses
     72       (694 )     705       155       (373 )     (320 )
 
                                    
Reserve for unfunded lending commitments, end of period
   $ 5,857       5,785       6,479       5,774       5,619       5,774  
 
                                    
 
                                                
Allowance for Credit Losses
   $ 98,637       98,593       103,594       103,070       106,110       103,070  
 
                                    
 
                                                
Ratios (a) (b)
                                                
 
                                                
Provision for loan losses as a % of average loans
     0.60 %     0.36 %     0.73 %     0.58 %     0.57 %     1.13 %
Provision for credit losses as a % of average loans
     0.00 %     -0.04 %     0.04 %     0.01 %     -0.02 %     0.00 %
Net charge-offs as a % of average loans
     0.60 %     0.62 %     0.74 %     0.78 %     0.64 %     0.85 %
Allowance for loan losses as a % of period-end loans
     1.39 %     1.40 %     1.49 %     1.51 %     1.56 %     1.51 %
Allowance for credit losses as a % of period-end loans
     1.47 %     1.49 %     1.59 %     1.60 %     1.64 %     1.60 %
Allowance for loan losses as a % of nonperforming loans
     221.46 %     208.74 %     235.71 %     240.14 %     240.03 %     240.14 %
Allowance for credit losses as a % of nonperforming loans
     235.44 %     221.76 %     251.44 %     254.39 %     253.45 %     254.39 %
 
                                                
Asset Quality
                                                
 
                                                
Impaired loans:
                                                
Nonaccrual
   $ 34,144       38,124       34,207       33,831       33,812       33,831  
Other nonperforming loans:
                                                
Nonaccrual
     7,751       6,336       6,994       6,685       8,054       6,685  
 
                                    
 
                                                
Total nonperforming loans
     41,895       44,460       41,201       40,516       41,866       40,516  
 
                                                
Other real estate (“ORE”)
     9,503       9,525       5,502       5,375       5,923       5,375  
 
                                    
 
                                                
Total nonperforming assets (“NPAs”)
   $ 51,398       53,985       46,703       45,891       47,789       45,891  
 
                                    
 
                                                
NPAs as % of period-end loans + ORE
     0.77 %     0.82 %     0.71 %     0.71 %     0.74 %     0.71 %
 
                                    
 
                                                
Past due 90 days or more & accruing interest
   $ 21,451       17,969       22,899       20,703       30,882       20,703  
 
                                    
 
(a)   The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments.
 
(b)   As of December 31, 2004, the reserve for unfunded lending commitments has been reclassified from the allowance for loan losses. Amounts presented prior to December 31, 2004 have been reclassified to conform to the current presentation.

Page 13

 

     
FIRSTMERIT CORPORATION
NONINTEREST INCOME AND NONINTEREST EXPENSE DETAIL
  (FIRSTMERIT CORPORATION LOGO)
(Unaudited)
(Dollars in thousands)
                                         
    2005     2005     2005     2004     2004  
    3rd Qtr     2nd Qtr     1st Qtr     4th Qtr     3rd Qtr  
QUARTERLY OTHER INCOME DETAIL
                                        
Trust department income
   $ 5,515       5,684       5,505       5,315       5,228  
Service charges on deposits
     18,561       17,800       14,820       15,135       15,903  
Credit card fees
     10,437       10,523       9,411       9,937       9,581  
ATM and other service fees
     3,453       3,298       2,959       2,892       3,168  
Bank owned life insurance income
     3,074       3,024       3,074       3,113       2,992  
Investment services and insurance
     2,226       2,828       2,858       2,560       2,931  
Manufactured housing income
     3       40       102       10       5  
Investment securities gains (losses), net
     40       (25 )     1,872       (4,508 )     29  
Loan sales and servicing income
     2,076       1,520       1,133       2,033       1,630  
Other operating income
     2,461       5,403       3,205       2,915       2,611  
 
                                        
 
                              
Total Other Income
   $ 47,846       50,095       44,939       39,402       44,078  
 
                              
                                         
    2005     2005     2005     2004     2004  
    3rd Qtr     2nd Qtr     1st Qtr     4th Qtr     3rd Qtr  
QUARTERLY OTHER EXPENSES DETAIL
                                        
Salaries, wages, pension and employee benefits
   $ 42,149       41,351       39,393       40,756       41,096  
Net occupancy expense
     5,567       5,881       6,536       5,468       5,546  
Equipment expense
     2,962       3,002       3,185       3,347       3,140  
Taxes, other than federal income taxes
     849       880       735       908       1,387  
Stationery, supplies and postage
     2,559       2,484       2,461       2,821       2,606  
Bankcard, loan processing and other costs
     5,802       5,444       5,724       6,355       6,261  
Advertising
     1,863       3,182       1,244       2,984       1,807  
Professional services
     2,632       3,843       2,150       3,785       2,780  
Telephone
     1,206       1,095       1,119       1,204       1,146  
Amortization of intangibles
     222       222       223       222       222  
Other operating expense
     13,115       12,013       13,141       12,429       11,259  
 
                                        
 
                              
Total Other Expenses
   $ 78,926       79,397       75,911       80,279       77,250  
 
                              
Note: Certain prior year balances have been reclassified to conform to the current year presentation.

Page 14

 

     
FIRSTMERIT CORPORATION AND SUBSIDIARIES
ALLOWANCE FOR LOAN LOSSES — Net Charge-off Detail
  (FIRSTMERIT CORPORATION LOGO)
(Unaudited)
(Dollars in thousands)
                                 
    Quarters ended     Nine months ended  
    September 30,     September 30,  
    2005     2004     2005     2004  
Allowance for loan losses — beginning of period (a)
   $ 92,808       101,569       97,296       91,459  
Loans charged off:
                                
Commercial
     2,805       2,866       11,458       20,828  
Mortgage
     400       306       1,082       598  
Installment
     6,187       8,540       20,244       26,762  
Home equity
     1,918       995       3,241       2,322  
Credit cards
     2,652       3,009       7,734       8,705  
Manufactured housing
     —       130       —       443  
Leases
     245       273       2,610       1,468  
 
                        
Total
     14,207       16,119       46,369       61,126  
 
                        
Recoveries:
                                
Commercial
     698       1,477       2,910       4,841  
Mortgage
     70       —       177       32  
Installment
     2,312       2,747       7,617       8,788  
Home equity
     317       392       928       1,073  
Credit cards
     549       791       1,859       2,265  
Manufactured housing
     153       219       507       896  
Leases
     106       90       295       369  
 
                        
Total
     4,205       5,716       14,293       18,264  
 
                        
 
                                
Net charge-offs
     10,002       10,403       32,076       42,862  
Allowance related to loans sold
     —       —       —       (12,671 )
Provision for loan losses
     9,974       9,325       27,560       64,565  
 
                        
Allowance for loan losses — end of period
   $ 92,780       100,491       92,780       100,491  
 
                        
 
                                
Average loans outstanding
   $ 6,646,112       6,474,512       6,580,351       6,513,403  
Ratio to average loans:
                                
(Annualized) net charge-offs
     0.60 %     0.64 %     0.65 %     0.88 %
 
                        
Provision for loan losses
     0.60 %     0.57 %     0.56 %     1.32 %
 
                        
Loans outstanding — period-end
   $ 6,695,290       6,461,741       6,695,290       6,461,741  
 
                        
 
                                
Allowance for loan losses:
                                
As a percent of period-end loans outstanding
     1.39 %     1.56 %     1.39 %     1.56 %
 
                        
As a multiple of (annualized) net charge-offs
     2.34       2.43       2.16       1.76  
 
                        
As a multiple of (annualized) net charge-offs and allowance related to loans sold
     2.34       2.43       2.16       1.44  
 
                        
 
(a)   As of December 31, 2004, the reserve for unfunded lending commitments has been reclassified from the allowance for loan losses to other liabilities. Amounts presented prior to December 31, 2004 have been reclassified to conform to the current presentation.

Page 15