UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2015
OR
	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: 001-11267

(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) 996-6000

(Registrant's telephone number, including area code)

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 ¨

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 ¨

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 definition 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 ¨	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

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

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

Class	Outstanding as of October 29, 2015
Common Stock, no par value	165,762,099

1

FIRSTMERIT CORPORATION AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS
				Page
Glossary of Acronyms and Abbreviations				4
PART 1. FINANCIAL INFORMATION				5
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS				5
	CONSOLIDATED BALANCE SHEETS			5
	CONSOLIDATED STATEMENTS OF INCOME			6
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			7
	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY			8
	CONSOLIDATED STATEMENTS OF CASH FLOWS			9
	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS			10
	Note	1	Summary of Significant Accounting Policies	10
	Note	2	Investment Securities	14
	Note	3	Loans	25
	Note	4	Allowance for Loan Losses	35
	Note	5	Goodwill and Other Intangible Assets	56
	Note	6	Shareholders' Equity	57
	Note	7	Segment Information	59
	Note	8	Derivatives and Hedging Activities	61
	Note	9	Benefit Plans	67
	Note	10	Fair Value Measurement	67
	Note	11	Mortgage Servicing Rights and Mortgage Servicing Activity	80
	Note	12	Commitments and Guarantees	82
	Note	13	Changes and Reclassifications Out of Accumulated Other Comprehensive Income	87
	Note	14	Subsequent Events	88
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS				89
	Consolidated Financial Highlights			90
	Highlights of Third Quarter of 2015 Performance			92
	Regulation and Supervision			94
		New Capital Rules		95
		Stress Testing		95
		Other Legislation		96
	Non-GAAP Financial Measures			97
	Results of Operations			102
		Average Tax-Equivalent Balance Sheets		102
		Net Interest Income		104
		Noninterest Income		106
		Noninterest Expense		107
		Income Taxes		108
	Line of Business Results			108
	Financial Condition			109
		Investment Securities		109
		Loans		111
			Originated Loans	112

2

FIRSTMERIT CORPORATION AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS
				Page
			Acquired Loans	113
			FDIC Acquired Loans and Related Loss Share Receivable	113
		Allowance for Loan Losses and Reserve for Unfunded Lending Commitments		114
			Allowance for Originated Loan Losses	114
			Allowance for Acquired Loan Losses	119
			Allowance for FDIC Acquired Loan Losses	120
		Asset Quality		122
		Deposits, Securities Sold Under Agreements to Repurchase, Wholesale Borrowings and Long-Term Debt		124
		Capital Resources		125
			Shareholders' Equity	126
			Capital Adequacy	126
	Risk Management			128
		Market Risk Management		128
		Liquidity Risk Management		130
		Operational Risk Management		131
		Critical Accounting Policies		132
		Off-Balance Sheet Arrangements		132
		Forward-looking Safe-harbor Statement		132
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK				133
ITEM 4. CONTROLS AND PROCEDURES				134
PART II. OTHER INFORMATION				134
	ITEM 1. LEGAL PROCEEDINGS			134
	ITEM 1A. RISK FACTORS			134
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			135
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES			135
	ITEM 4. MINE SAFETY DISCLOSURES			135
	ITEM 5. OTHER INFORMATION			135
	ITEM 6. EXHIBITS			136
SIGNATURES				137
Index to Exhibits

3

The acronyms and abbreviations identified below are used in this Form 10-Q including the Notes to Consolidated Financial Statements (unaudited) as well as in Management's Discussion & Analysis of Financial Condition and Results of Operations.

Acquisition Date	Citizens Republic Bancorp Inc. acquisition date of April 12, 2013	Federal Reserve	The Board of Governors of the Federal Reserve System
ALCO	Asset/Liability Management Committee	FHLB	Federal Home Loan Bank
ALL	Allowance for loan losses	FHLMC	Federal Home Loan Mortgage Corporation
AOCI	Accumulated other comprehensive income (loss)	FICO	Fair Isaac Corporation
APBO	Accumulated pension benefit obligation	FINRA	Financial Industry Regulatory Authority
ASC	Accounting standards codification	FNMA	Federal National Mortgage Association
ASU	Accounting standards update	FRAP	Fixed Rate Advantage Program
Bank	FirstMerit Bank N.A.	FRB	Federal Reserve Bank
Basel I	Basel Committee’s 1988 Capital Accord	FSOC	Financial Stability Oversight Council
Basel III	Basel Committee regulatory capital reforms, Third Basel Accord	GAAP	United States generally accepted accounting principles
Basel Committee	Basel Committee on Banking Supervision	GSE	Government sponsored enterprise
BHC	Bank holding company	ISDA	International Swaps and Derivatives Association
BHCA	Bank Holding Company Act of 1956, as amended	LIBOR	London Interbank Offered Rate
CCAR	Comprehensive Capital Analysis and Review	Management	FirstMerit Corporation’s Management
CET1	Common equity tier 1	MBS	Mortgage-backed securities
CFPB	Consumer Financial Protection Bureau	MSRs	Mortgage servicing rights
Citizens	Citizens Republic Bancorp Inc.	NASDAQ	The NASDAQ Stock Market LLC
Citizens TARP Preferred	Citizens TARP Preferred issued to the U.S. Treasury as part of the Troubled Assets Relief Program	NYSE	New York Stock Exchange
CLO	Collateralized loan obligations	OCC	Office of the Comptroller of the Currency
CMO	Collateralized mortgage obligations	OCI	Other comprehensive income (loss)
Common Stock	Common Shares, without par value	OREO	Other real estate owned
Corporation	FirstMerit Corporation and its Subsidiaries	OTTI	Other-than-temporary impairment
CPR	Conditional Prepayment Rate	Parent Company	FirstMerit Corporation
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010	Preferred Stock	5.875% Non-Cumulative Perpetual Preferred Stock, Series A
DIF	Federal Deposit Insurance Fund	RIP	Retirement Investment Plan
DTA	Deferred tax asset	ROA	Return on average assets
DTL	Deferred tax liability	ROE	Return on average equity
EPS	Earnings per share	SEC	United States Securities and Exchange Commission
ERISA	Employee Retirement Income Security Act of 1974	TARP	Troubled Asset Relief Program
ERM	Enterprise risk management	TDR	Troubled debt restructuring
ESOP	Employee stock ownership plan	TE	Fully taxable equivalent
EVE	Economic value of equity	U.S. Treasury	United States Department of the Treasury
FASB	Financial Accounting Standards Board	UTB	Unrecognized tax balance
FDIA	Federal Deposit Insurance Act	VIE	Variable interest entity
FDIC	The Federal Deposit Insurance Corporation

4

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.

CONSOLIDATED BALANCE SHEETS
FIRSTMERIT CORPORATION AND SUBSIDARIES
(In thousands)	September 30,			December 31,			September 30,
(Unaudited, except for December 31, 2014)	2015			2014			2014
ASSETS
Cash and due from banks	$	357,397		$	480,998		$	429,699
Interest-bearing deposits in banks	54,190			216,426			55,629
Total cash and cash equivalents	411,587			697,424			485,328
Investment securities:
Held-to-maturity	2,728,638			2,903,609			3,002,262
Available-for-sale	3,925,724			3,545,288			3,462,990
Other investments	147,955			148,654			148,421
Loans held for sale	5,384			13,428			19,512
Loans	15,799,280			15,326,147			15,242,026
Allowance for loan losses	(153,450		)	(143,649		)	(140,077		)
Net loans	15,645,830			15,182,498			15,101,949
Premises and equipment, net	311,129			332,297			318,690
Goodwill	741,740			741,740			741,740
Intangible assets	63,226			71,020			73,953
Covered other real estate	1,986			49,641			51,434
Accrued interest receivable and other assets	1,263,718			1,216,748			1,201,928
Total assets	$	25,246,917		$	24,902,347		$	24,608,207
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	5,865,255		$	5,786,662		$	5,535,886
Interest-bearing	3,335,190			3,028,888			3,043,952
Savings and money market accounts	8,380,921			8,399,612			8,396,064
Certificates and other time deposits	2,240,550			2,289,503			2,391,009
Total deposits	19,821,916			19,504,665			19,366,911
Federal funds purchased and securities sold under agreements to repurchase	1,208,275			1,272,591			1,273,290
Wholesale borrowings	381,299			428,071			608,463
Long-term debt	508,947			505,192			249,933
Accrued taxes, expenses and other liabilities	389,180			357,547			289,179
Total liabilities	22,309,617			22,068,066			21,787,776
Shareholders' equity:
5.875% Non-Cumulative Perpetual Preferred Stock, Series A, without par value: authorized 115,000 shares; 100,000 issued	100,000			100,000			100,000
Common Stock warrant	—			3,000			3,000
Common Stock, without par value; authorized 300,000,000 shares; issued: September 30, 2015, December 31, 2014 and September 30, 2014 - 170,183,515 shares	127,937			127,937			127,937
Capital surplus	1,382,714			1,393,090			1,390,207
Accumulated other comprehensive loss	(50,766		)	(71,892		)	(49,583		)
Retained earnings	1,492,245			1,404,717			1,371,453
Treasury stock, at cost: September 30, 2015 - 4,424,712; December 31, 2014 - 4,793,566 shares; September 30, 2014 - 4,799,239 shares	(114,830		)	(122,571		)	(122,583		)
Total shareholders' equity	2,937,300			2,834,281			2,820,431
Total liabilities and shareholders' equity	$	25,246,917		$	24,902,347		$	24,608,207

See accompanying Notes to the Consolidated Financial Statements

5

CONSOLIDATED STATEMENTS OF INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands, except per share amounts)	Three Months Ended September 30,				Nine Months Ended September 30,
(Unaudited)	2015		2014		2015		2014
Interest income:
Loans and loans held for sale	$	162,204	$	170,648	$	485,615	$	513,678
Investment securities:
Taxable	32,641		32,072		96,766		96,347
Tax-exempt	5,214		5,477		16,567		16,372
Total investment securities interest	37,855		37,549		113,333		112,719
Total interest income	200,059		208,197		598,948		626,397
Interest expense:
Deposits:
Interest bearing	750		755		2,300		2,236
Savings and money market accounts	5,639		5,570		16,774		16,605
Certificates and other time deposits	2,757		2,846		7,444		8,319
Federal funds purchased and securities sold under agreements to repurchase	254		268		826		697
Wholesale borrowings	1,171		1,397		3,459		3,917
Long-term debt	4,165		3,783		12,081		11,566
Total interest expense	14,736		14,619		42,884		43,340
Net interest income	185,323		193,578		556,064		583,057
Provision for loan losses	14,275		9,192		31,489		38,982
Net interest income after provision for loan losses	171,048		184,386		524,575		544,075
Noninterest income:
Trust department income	10,948		10,300		31,917		30,118
Service charges on deposits	17,295		18,684		49,667		53,860
Credit card fees	13,939		13,754		40,712		39,361
ATM and other service fees	6,518		6,182		18,962		17,998
Bank owned life insurance income	4,622		4,218		11,911		11,840
Investment services and insurance	4,032		3,606		11,607		10,974
Investment securities gains/(losses), net	41		14		962		150
Loan sales and servicing income	2,414		4,740		7,290		12,932
Other operating income	11,617		8,235		30,827		32,331
Total noninterest income	71,426		69,733		203,855		209,564
Noninterest expense:
Salaries, wages, pension and employee benefits	85,772		90,593		262,318		269,071
Net occupancy expense	13,540		13,887		43,221		45,248
Equipment expense	12,235		12,188		35,852		36,366
Stationery, supplies and postage	3,304		3,723		10,202		11,820
Bankcard, loan processing and other costs	12,335		11,151		35,935		33,795
Professional services	5,154		5,270		14,522		15,373
Amortization of intangibles	2,598		2,933		7,794		8,802
FDIC insurance expense	5,234		2,988		15,478		14,492
Other operating expense	20,570		20,412		57,746		64,911
Total noninterest expense	160,742		163,145		483,068		499,878
Income before income tax expense	81,732		90,974		245,362		253,761
Income tax expense	22,720		27,076		72,627		76,889
Net income	59,012		63,898		172,735		176,872
Less: Net income allocated to participating shareholders	477		519		1,401		1,433
Preferred Stock dividends	1,469		1,469		4,407		4,407
Net income attributable to common shareholders	$	57,066	$	61,910	$	166,927	$	171,032
Net income used in diluted EPS calculation	$	57,066	$	61,910	$	166,927	$	171,032
Weighted average number of common shares outstanding - basic	165,762		165,389		165,638		165,263
Weighted average number of common shares outstanding - diluted	166,058		165,804		165,939		165,916
Basic earnings per common share	$	0.34	$	0.37	$	1.01	$	1.03
Diluted earnings per common share	0.34		0.37		1.01		1.03
Cash dividend per common share	0.17		0.16		0.49		0.48

See accompanying Notes to the Consolidated Financial Statements

6

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES
	Three Months Ended									Nine Months Ended
(In thousands)	September 30, 2015									September 30, 2015
(Unaudited)	Pretax			Tax			After tax			Pretax			Tax			After tax
Net Income	$	81,732		$	22,720		$	59,012		$	245,362		$	72,627		$	172,735
Other comprehensive income/(loss)
Unrealized gains and losses on securities available for sale:
Changes in unrealized securities' holding gains/(losses)	25,691			8,991			16,700			31,166			10,908			20,258
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity	(1,266		)	(442		)	(824		)	(2,345		)	(821		)	(1,524		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(41		)	(14		)	(27		)	(962		)	(336		)	(626		)
Net change in unrealized gains/(losses) on securities available for sale	24,384			8,535			15,849			27,859			9,751			18,108
Pension plans and other postretirement benefits:
Amortization of actuarial losses/(gains)	1,138			399			739			3,414			1,195			2,219
Amortization of prior service cost reclassified to other noninterest expense	410			144			266			1,230			431			799
Net change from defined benefit pension plans	1,548			543			1,005			4,644			1,626			3,018
Total other comprehensive gains/(losses)	25,932			9,078			16,854			32,503			11,377			21,126
Comprehensive income	$	107,664		$	31,798		$	75,866		$	277,865		$	84,004		$	193,861

	Three Months Ended									Nine Months Ended
(In thousands)	September 30, 2014									September 30, 2014
(Unaudited)	Pretax			Tax			After tax			Pretax			Tax			After tax
Net Income	$	90,974		$	27,076		$	63,898		$	253,761		$	76,889		$	176,872
Other comprehensive income/(loss)
Unrealized gains and losses on securities available for sale:
Changes in unrealized securities' holding gains/(losses)	(16,207		)	(5,672		)	(10,535		)	24,293			8,503			15,790
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity	(563		)	(197		)	(366		)	(1,551		)	(543		)	(1,008		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(14		)	(5		)	(9		)	(150		)	(53		)	(97		)
Net change in unrealized gains/(losses) on securities available for sale	(16,784		)	(5,874		)	(10,910		)	22,592			7,907			14,685
Pension plans and other postretirement benefits:
Amortization of actuarial losses/(gains)	768			269			499			2,398			839			1,559
Amortization of prior service cost reclassified to other noninterest expense	516			181			335			1,614			565			1,049
Net change from defined benefit pension plans	1,284			450			834			4,012			1,404			2,608
Total other comprehensive gains/(losses)	(15,500		)	(5,424		)	(10,076		)	26,604			9,311			17,293
Comprehensive income	$	75,474		$	21,652		$	53,822		$	280,365		$	86,200		$	194,165

See accompanying Notes to the Consolidated Financial Statements

7

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited)	Preferred Stock		Common Stock		Common Stock Warrant			Capital Surplus			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders' Equity
Balance at December 31, 2013	$	100,000	$	127,937	$	3,000		$	1,390,643		$	(66,876	)	$	1,277,975		$	(129,785	)	$	2,702,894
Net income	—		—		—			—			—			176,872			—			176,872
Other comprehensive income	—		—		—			—			17,293			—			—			17,293
Comprehensive income	—		—		—			—			17,293			176,872			—			194,165
Cash dividends - Preferred Stock	—		—		—			—			—			(4,407		)	—			(4,407		)
Cash dividends - Common Stock ($0.48 per share)	—		—		—			—			—			(78,987		)	—			(78,987		)
Nonvested (restricted) shares granted (575,381 shares)	—		—		—			(13,029		)	—			—			13,128			99
Restricted stock activity (247,288 shares)	—		—		—			952			—			—			(5,242		)	(4,290		)
Deferred compensation trust (219,315 increase in shares)	—		—		—			684			—			—			(684		)	—
Share-based compensation	—		—		—			10,957			—			—			—			10,957
Balance at September 30, 2014	$	100,000	$	127,937	$	3,000		$	1,390,207		$	(49,583	)	$	1,371,453		$	(122,583	)	$	2,820,431
Balance at December 31, 2014	$	100,000	$	127,937	$	3,000		$	1,393,090		$	(71,892	)	$	1,404,717		$	(122,571	)	$	2,834,281
Net income	—		—		—			—			—			172,735			—			172,735
Other comprehensive income	—		—		—			—			21,126			—			—			21,126
Comprehensive income	—		—		—			—			21,126			172,735			—			193,861
Cash dividends - Preferred Stock	—		—		—			—			—			(4,407		)	—			(4,407		)
Cash dividends - Common Stock ($0.49 per share)	—		—		—			—			—			(80,800		)	—			(80,800		)
Nonvested (restricted) shares granted (666,154 shares)	—		—		—			(14,505		)	—			—			14,505			—
Restricted stock activity (297,300 shares)	—		—		—			1,694			—			—			(5,994		)	(4,300		)
Deferred compensation trust (314,253 increase in shares)	—		—		—			770			—			—			(770		)	—
Share-based compensation	—		—		—			10,815			—			—			—			10,815
Repurchase of a Common Stock warrant to the U.S. Treasury for Citizens TARP warrant (2,571,998 shares)	—		—		(3,000		)	(9,150		)	—			—			—			(12,150		)
Balance as of September 30, 2015	$	100,000	$	127,937	$	—		$	1,382,714		$	(50,766	)	$	1,492,245		$	(114,830	)	$	2,937,300

See accompanying Notes to the Consolidated Financial Statements

8

CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited)	Nine Months Ended September 30,
	2015			2014
Operating Activities
Net income	$	172,735		$	176,872
Adjustments to reconcile net income to net cash provided and used by operating activities:
Provision for loan losses	31,489			38,982
Provision/(benefit) for deferred income taxes	19,497			28,039
Depreciation and amortization	47,732			39,845
Benefit attributable to FDIC loss share	6,303			3,835
Accretion of acquired loans	(72,750		)	(106,997		)
Amortization and accretion of investment securities, net
Available-for-sale	7,984			7,114
Held-to-maturity	3,430			6,419
Losses/(gains) on sales and calls of available-for-sale investment securities, net	(962		)	(150		)
Originations of loans held for sale	(62,277		)	(264,856		)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary markets	71,442			262,341
Gains on sales of loans, net	(1,121		)	(5,375		)
Amortization of intangible assets	7,794			8,802
Recognition of stock compensation expense	10,815			10,957
Net decrease/(increase) in other assets	(24,808		)	(5,245		)
Net increase/(decrease) in other liabilities	7,041			(12,147		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	224,344			188,436
Investing Activities
Proceeds from sale of investment securities
Available-for-sale	172,158			13,008
Held-to-maturity	1,413			5,012
Other	668			32,486
Proceeds from prepayments, calls, and maturities of investment securities
Available-for-sale	440,060			360,600
Held-to-maturity	317,582			262,560
Other	165			—
Purchases of investment securities
Available-for-sale	(948,917		)	(545,201		)
Held-to-maturity	(144,811		)	(344,606		)
Other	(172		)	(142		)
Net decrease/(increase) in loans and leases	(443,669		)	(886,035		)
Purchases of premises and equipment	(18,427		)	(45,618		)
Sales of premises and equipment	9,263			26,114
NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES	(614,687		)	(1,121,822		)
Financing Activities
Net increase in demand accounts	384,895			94,074
Net increase/(decrease) in savings and money market accounts	(18,691		)	(191,103		)
Net decrease in certificates and other time deposits	(48,953		)	(69,661		)
Net increase/(decrease) in securities sold under agreements to repurchase	(64,316		)	421,755
Net increase/(decrease) in long-term debt	—			(74,451		)
Net increase/(decrease) in wholesale borrowings	(46,772		)	407,863
Repurchase of common stock warrant	(12,150		)	—
Cash dividends - common	(80,800		)	(78,987		)
Cash dividends - preferred	(4,407		)	(4,407		)
Restricted stock activity	(4,300		)	(4,191		)
NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES	104,506			500,892
Increase/(Decrease) in cash and cash equivalents	(285,837		)	(432,494		)
Cash and cash equivalents at beginning of year	697,424			917,822
Cash and cash equivalents at end of year	$	411,587		$	485,328
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest	$	42,642		$	46,349
Federal income taxes	36,125			12,573

See accompanying Notes to the Consolidated Financial Statements

9

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

FirstMerit Corporation and subsidiaries is a diversified financial services company headquartered in Akron, Ohio with 367 banking offices in the Ohio, Michigan, Wisconsin, Illinois, and Pennsylvania 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

Unless otherwise indicated, defined terms and abbreviations used herein have the meanings set forth in the accompanying Glossary of Acronyms and Abbreviations.

Basis of Presentation - FirstMerit Corporation is a BHC whose principal asset is the Common Stock of its wholly-owned subsidiary, FirstMerit Bank, N. A. The Parent Company’s other subsidiaries include Citizens Savings Corporation of Stark County, FirstMerit Capital Trust I, and FirstMerit Risk Management, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

The accounting and reporting policies of the Corporation conform to GAAP and to general practices within the financial services industry.

The Consolidated Balance Sheet at December 31, 2014 has been derived from the audited consolidated financial statements at that date. The accompanying unaudited interim financial statements reflect all adjustments (consisting only of normally recurring adjustments) that are, in the opinion of Management, necessary for a fair statement of the results for the interim periods presented. Certain reclassifications of prior year’s amounts have been made to conform to the current year presentation. Such reclassifications had no effect on net earnings or equity. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules of the SEC. The unaudited consolidated financial statements of the Corporation as of September 30, 2015 and 2014 are not necessarily indicative of the results that may be achieved for the full fiscal year or for any future period. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”). There have been no significant changes in the current quarter to the Corporation’s accounting policies as disclosed in the 2014 Form 10-K.

In preparing these accompanying unaudited interim consolidated financial statements, subsequent events were evaluated through the time the consolidated financial statements were issued.

10

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Recently Adopted Accounting Standards

FASB ASU 2015-10,     Technical Corrections and Improvements. The amendments in this update cover a wide range of topics in the accounting standards. The amendments in this update represent changes to clarify the accounting standards, correct unintended application of guidance, or make minor improvements to the accounting guidance and are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Additionally, some of these amendments will make the accounting guidance easier to understand and eliminate inconsistencies. This ASU is effective immediately. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2015-8, Business Combinations (Topic 805): Pushdown Accounting—Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115 (SEC Update). The amendments in the SEC Update conform the accounting guidance with the various SEC paragraphs pursuance to the SEC Staff Accounting Bulletin No. 115. The SEC Update is effective immediately. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2015-3, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03, require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from that debt liability, consistent with the presentation of a debt discount. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, these amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and early adoption is permitted. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. As of June 30, 2015, the Corporation adopted this accounting standard by classifying $3.7 million of deferred debt issuance costs as a deduction to long-term debt. Management concluded that the classification of debt issuance costs capitalized in prior periods was immaterial as a component of other assets, total assets, total long-term debt, and total liabilities. As such, the Corporation's comparative periods have not been recast. The amount of unamortized debt issuance costs not recasted are $3.8 million as of March 31, 2015, $3.7 million as of December 31, 2014, $1.9 million as of September 30, 2014, and $1.8 million as of June 30, 2014 and March 31, 2014.

11

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

FASB ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure—a consensus of the FASB Emerging Issues Task Force. The objective of this update is to reduce diversity in practice by addressing the classification of certain foreclosed mortgage loans held by creditors that are either fully or partially guaranteed under government programs. The amendments in this update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: 1) the loan has a government guarantee that is not separable from the loan before foreclosure; 2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and 3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The ASU is effective for interim and annual periods beginning after December 15, 2014. The amendments can be adopted using either a prospective transition method or a modified retrospective transition method. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2014-11, Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this update require entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), eliminate accounting guidance on linking repurchase financing transactions, and expand disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers, such as repos, securities lending transactions, and repurchase-to-maturity transactions, accounted for as secured borrowings. The amendments in ASU 2014-11 are effective for the first interim or annual period beginning after December 15, 2014. The amendments must present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Early application is prohibited. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2014-08, Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update change the definition of a discontinued operation in ASC 205-20 and require additional disclosures for transactions that meet the definition of a discontinued operation and certain other significant transactions that do not meet the discontinued operations criteria. The amendments in ASU 2014-08 are effective prospectively for all disposals, except disposals classified as held for sale before the adoption date or components initially classified as held for sale in periods beginning on or after December 15, 2014, with early adoption permitted. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. ASU 2014-04 amends the guidance in ASC 310-40 by clarifying when an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. Additionally, the amendments require interim and annual disclosure of both 1) the amount of foreclosed residential real estate property held by the creditor and 2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in ASU 2014-04 are effective for annual periods, and interim period within those annual periods, beginning after December 15, 2014. The amendments can either be adopted using a modified retrospective or a prospective transition method. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

12

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Recently Issued Accounting Standards

FASB ASU 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments. The amendments in ASU 2015-16 require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application permitted for financial statements that have not been issued. The adoption of this guidance is not expected to have a material effect on the Corporation's financial position or results of operations.

FASB ASU 2015-5, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in ASU 2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. In addition, the guidance in this update supersedes 350-40-25-16. Consequently, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. The amendments are effective for public business entities for annual and interim periods within those annual periods, beginning after December 15, 2015. An entity can elect to adopt the amendments either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. For prospective transition, the only disclosure requirements at transition are the nature of and reason for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change. For retrospective transition, the disclosure requirements at transition include the requirements for prospective transition and quantitative information about the effects of the accounting change. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements.

FASB ASU 2015-2, Amendments to the Consolidation Analysis. The amendments in ASU 2015-02 affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. These amendments modify the current accounting guidance to address limited partnerships and similar entities; certain investments funds, fees paid to a decision maker or service provider, and the impact of fee arrangements and related parties on the primary beneficiary determination. The amendments are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. A reporting entity may apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively. The adoption of this guidance is not expected to have a material effect on the Corporation's financial position or results of operations.

13

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

FASB ASU 2014–12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period — a consensus of the FASB Emerging Issues Task Force. The amendments in this update clarify that entities should treat performance targets that can be met after the requisite service period of a share-based payment award as performance conditions that affect vesting. Therefore, an entity would not record compensation expense (measured as of the grant date without taking into account the effect of the performance target) related to an award for which transfer to the employee is contingent on the entity’s satisfaction of a performance target until it becomes probable that the performance target will be met. The ASU does not contain any new disclosure requirements. The ASU is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. In addition, entities will have the option of applying the guidance either prospectively (i.e., only to awards granted or modified on or after the effective date) or retrospectively. Retrospective application would only apply to awards with performance targets outstanding at or after the beginning of the first annual period presented (i.e., the earliest presented comparative period). The adoption of this guidance is not expected to have a material effect on the Corporation's financial position or results of operations.

FASB ASU 2014-09, Revenue from Contracts with Customers. In May 2014, the FASB issued new accounting guidance that revises the criteria for determining when to recognize revenue from contracts with customers and expands disclosure requirements. The amendments in this update supersede virtually all existing GAAP revenue recognition guidance, including most industry-specific revenue recognition guidance. The core principle requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 applies to contracts with customers to provide goods and services, with certain exclusions such as lease contracts, financing arrangements, and financial instruments. On July 9, 2015, the FASB decided to delay, by one year, the effective dates, permitting public entities to apply this guidance to annual reporting periods beginning after December 15, 2017, with early adoption permitted, but not before December 15, 2016. The amendments can be adopted using either the full retrospective approach or a modified retrospective approach. There are many aspects of this new accounting guidance that are still being interpreted, and the FASB has recently proposed updates to certain aspects of the guidance. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements and related disclosures.

2.     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 OCI in shareholders' equity.

14

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

		September 30, 2015
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. treasury notes & bonds	$	5,002	$	3	$	—		$	5,005
	U.S. government agency debentures	2,500		16		—			2,516
	U.S. states and political subdivisions	196,396		4,825		(411		)	200,810
	Residential mortgage-backed securities:
	U.S. government agencies	927,715		19,624		(1,715		)	945,624
	Commercial mortgage-backed securities:
	U.S. government agencies	153,834		1,722		(480		)	155,076
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	2,023,275		12,200		(12,516		)	2,022,959
	Non-agency	5		—		—			5
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	241,788		2,462		(290		)	243,960
	Asset-backed securities:
	Collateralized loan obligations	297,776		187		(5,512		)	292,451
	Corporate debt securities	61,695		—		(7,158		)	54,537
	Total debt securities	3,909,986		41,039		(28,082		)	3,922,943
Equity securities
	Marketable equity securities	2,781		—		—			2,781
	Total equity securities	2,781		—		—			2,781
	Total securities available-for-sale	$	3,912,767	$	41,039	$	(28,082	)	$	3,925,724
Securities held-to-maturity
Debt securities
	U.S. government agency debentures	$	25,000	$	—	$	(41	)	$	24,959
	U.S. states and political subdivisions	550,769		12,271		(977		)	562,063
	Residential mortgage-backed securities:
	U.S. government agencies	529,095		9,732		(1,249		)	537,578
	Commercial mortgage-backed securities:
	U.S. government agencies	64,605		1,162		(11		)	65,756
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,210,743		1,509		(22,432		)	1,189,820
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	259,888		2,005		(2,418		)	259,475
	Corporate debt securities	88,538		722		—			89,260
	Total securities held-to-maturity	$	2,728,638	$	27,401	$	(27,128	)	$	2,728,911

15

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

		December 31, 2014
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. government agency debentures	$	2,500	$	—	$	(18	)	$	2,482
	U.S. states and political subdivisions	221,052		6,756		(466		)	227,342
	Residential mortgage-backed securities:
	U.S. government agencies	951,839		22,377		(3,218		)	970,998
	Commercial mortgage-backed securities:
	U.S. government agencies	104,176		598		(1,371		)	103,403
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,698,015		4,777		(26,225		)	1,676,567
	Non-agency	7		—		—			7
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	222,876		863		(1,405		)	222,334
	Asset-backed securities:
	Collateralized loan obligations	297,446		11		(9,613		)	287,844
	Corporate debt securities	61,652		—		(10,315		)	51,337
	Total debt securities	3,559,563		35,382		(52,631		)	3,542,314
Equity securities
	Marketable equity securities	2,974		—		—			2,974
	Total equity securities	2,974		—		—			2,974
	Total securities available-for-sale	$	3,562,537	$	35,382	$	(52,631	)	$	3,545,288
Securities held-to-maturity
Debt securities
	U.S. treasury notes & bonds	$	5,000	$	—	$	—		$	5,000
	U.S. government agency debentures	25,000		—		(537		)	24,463
	U.S. states and political subdivisions	517,824		12,645		(191		)	530,278
	Residential mortgage-backed securities:
	U.S. government agencies	580,727		7,495		(3,045		)	585,177
	Commercial mortgage-backed securities:
	U.S. government agencies	58,143		281		(329		)	58,095
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,368,534		718		(38,875		)	1,330,377
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	257,642		557		(6,768		)	251,431
	Corporate debt securities	90,739		412		(52		)	91,099
	Total securities held-to-maturity	$	2,903,609	$	22,108	$	(49,797	)	$	2,875,920

16

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

		September 30, 2014
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	229,528	$	8,146	$	(607	)	$	237,067
	Residential mortgage-backed securities:
	U.S. government agencies	983,038		20,395		(7,046		)	996,387
	Commercial mortgage-backed securities:
	U.S. government agencies	86,485		167		(1,888		)	84,764
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,635,780		3,512		(38,975		)	1,600,317
	Non-agency	7		—		—			7
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	195,512		298		(1,793		)	194,017
	Asset-backed securities:
	Collateralized loan obligations	297,389		289		(7,257		)	290,421
	Corporate debt securities	61,638		—		(7,044		)	54,594
	Total debt securities	3,489,377		32,807		(64,610		)	3,457,574
Equity Securities
	Marketable equity securities	2,916		—		—			2,916
	Non-marketable equity securities	2,500		—		—			2,500
	Total equity securities	5,416		—		—			5,416
	Total securities available-for-sale	$	3,494,793	$	32,807	$	(64,610	)	$	3,462,990
Securities held-to-maturity
Debt securities
	U.S. treasury notes & bonds	$	5,000	$	3	$	—		$	5,003
	U.S. government agency debentures	25,000		—		(756		)	24,244
	U.S states and political subdivisions	539,014		12,256		(452		)	550,818
	Residential mortgage-backed securities:
	U.S. government agencies	602,220		4,608		(5,992		)	600,836
	Commercial mortgage-backed securities:
	U.S. government agencies	65,704		28		(676		)	65,056
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,415,421		66		(56,260		)	1,359,227
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	258,436		346		(8,570		)	250,212
	Corporate debt securities	91,467		489		(180		)	91,776
	Total securities held-to-maturity	$	3,002,262	$	17,796	$	(72,886	)	$	2,947,172

The Corporation's U.S. states and political subdivisions portfolio is composed of general obligation bonds issued by a highly diversified number of states, cities, counties, and school districts. The amortized cost and fair value of the Corporation's portfolio of general obligation bonds are summarized by U.S. state in the tables below. As illustrated in the tables below, the aggregate fair value of the Corporation's general obligation bonds was greater than $10.0 million in 11 of the 37 U.S. states in which it holds investments.

17

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

(Dollars in thousands)	September 30, 2015
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Ohio	125	$	1,118	$	137,443	$	139,700
Michigan	143	1,153		159,554		163,938
Illinois	60	1,806		106,332		108,389
Wisconsin	68	619		40,767		42,080
Texas	58	808		45,940		46,839
Pennsylvania	43	1,067		45,340		45,878
Minnesota	33	669		21,732		22,074
Washington	30	941		27,681		28,225
New Jersey	35	727		24,839		25,430
Missouri	15	1,083		15,930		16,251
New York	18	635		11,174		11,424
Other	112	651		71,974		72,857
Total general obligation bonds	740	$	977	$	708,706	$	723,085

(Dollars in thousands)	December 31, 2014
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Ohio	137	$	979	$	130,741	$	134,127
Michigan	169	842		138,325		142,292
Illinois	66	1,897		121,560		125,169
Wisconsin	77	841		62,543		64,776
Texas	64	801		50,307		51,293
Pennsylvania	45	1,000		44,443		45,006
Minnesota	42	674		27,740		28,326
Washington	30	952		27,987		28,558
New Jersey	37	746		26,755		27,612
Missouri	19	1,011		18,764		19,207
New York	19	628		11,659		11,929
Other	120	650		76,849		78,020
Total general obligation bonds	825	$	917	$	737,673	$	756,315

(Dollars in thousands)	September 30, 2014
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Ohio	149	$	1,066	$	155,088	$	158,825
Michigan	175	856		145,897		149,715
Illinois	72	1,618		113,017		116,517
Wisconsin	83	846		67,681		70,251
Texas	63	800		49,440		50,431
Pennsylvania	47	987		46,010		46,389
Minnesota	41	685		27,476		28,074
Washington	30	989		29,011		29,658
New Jersey	36	754		26,145		27,143
Missouri	19	1,019		18,814		19,357
New York	19	618		11,448		11,734
Other	122	641		76,879		78,034
Total general obligation bonds	856	$	918	$	766,906	$	786,128

18

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The Corporation's investment policy states that municipal securities purchased are to be investment grade and allows for a 20% maximum portfolio concentration in municipal securities with a combined individual state to total municipal outstanding equal to or less than 25%. A municipal security is investment grade if (1) the security has a low risk of default by the obligor and (2) the full and timely payment of principal and interest is expected over the anticipated life of the instrument. The fact that a municipal security is rated by one nationally recognized credit rating agency is indicative, but not sufficient evidence, that a municipal security is investment grade. In all cases, the Corporation considers and documents within a security pre-purchase analysis factors such as capacity to pay, market and economic data, and such other factors as are available and relevant to the security or issuer. Factors to be considered in the ongoing monitoring of municipal securities and in the pre-purchase analysis include soundness of budgetary position and sources of revenue, financial strength, and stability of tax or enterprise revenues. The Corporation also considers spreads to U.S. Treasuries on comparable bonds of similar credit quality, in addition to the above analysis, to assess whether municipal securities are investment grade. The Corporation performs a risk analysis for any security that is downgraded below investment grade to determine if the security should be retained or sold. This risk analysis includes, but is not limited to, discussions with the Corporation's credit department as well as third-party municipal credit analysts and review of the nationally recognized credit rating agency's analysis describing the downgrade.

The Corporation's evaluation of its municipal bond portfolio at September 30, 2015 did not uncover any facts or circumstances resulting in significantly different credit ratings than those assigned by a nationally recognized credit rating agency.

FRB and FHLB stock constitutes the majority of other investments on the Consolidated Balance Sheets.

(In thousands)	September 30, 2015		December 31, 2014		September 30, 2014
FRB stock	$	55,853	$	55,681	$	55,435
FHLB stock	91,714		92,547		92,547
Other	388		426		439
Total other investments	$	147,955	$	148,654	$	148,421

FRB and FHLB stock is classified as a restricted investment, carried at cost and valued based on the ultimate recoverability of par value. 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.

Securities with a carrying value of $3.4 billion, $2.8 billion, and $3.3 billion at September 30, 2015, December 31, 2014, and September 30, 2014, respectively, were pledged to secure trust and public deposits and securities sold under agreements to repurchase and for other purposes required or permitted by law.

19

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Realized Gains and Losses

The following table presents 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.

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2015			2014			2015			2014
Realized gains	$	48		$	45		$	1,112		$	345
Realized losses	(7		)	(31		)	(150		)	(195		)
Net securities (losses)/gains	$	41		$	14		$	962		$	150

Gross Unrealized Losses and Fair Value

The following table presents the gross unrealized losses and fair value of securities by length of time that individual securities had been in a continuous loss position by major categories of available-for-sale and held-to-maturity securities.

		September 30, 2015
		Less than 12 months						12 months or longer						Total
(Dollars in thousands)		Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	11,972	$	(149	)	23	$	5,810	$	(262	)	9	$	17,782	$	(411	)
	Residential mortgage-backed securities:
	U.S. government agencies	153,059		(422		)	14	100,526		(1,293		)	8	253,585		(1,715		)
	Commercial mortgage-backed securities:
	U.S. government agencies	9,744		(46		)	1	12,676		(434		)	1	22,420		(480		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	122,235		(490		)	11	665,809		(12,026		)	52	788,044		(12,516		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	8,800		(12		)	1	60,177		(278		)	6	68,977		(290		)
	Asset-backed securities:
	Collateralized loan obligations	202,750		(3,434		)	28	71,904		(2,078		)	11	274,654		(5,512		)
	Corporate debt securities	—		—			0	54,537		(7,158		)	8	54,537		(7,158		)
	Total securities available-for-sale	$	508,560	$	(4,553	)	78	$	971,439	$	(23,529	)	95	$	1,479,999	$	(28,082	)
Securities held-to-maturity
Debt securities
	U.S. government agency debentures	$	—	$	—		0	$	24,959	$	(41	)	1	$	24,959	$	(41	)
	U.S. states and political subdivisions	53,159		(928		)	50	4,452		(49		)	6	57,611		(977		)
	Residential mortgage-backed securities:
	U.S. government agencies	12,516		(70		)	1	102,426		(1,179		)	6	114,942		(1,249		)
	Commercial mortgage-backed securities:
	U.S. government agencies	—		—			0	9,543		(11		)	1	9,543		(11		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	44,773		(207		)	3	995,866		(22,225		)	55	1,040,639		(22,432		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	—		—			0	128,520		(2,418		)	12	128,520		(2,418		)
	Total securities held-to-maturity	$	110,448	$	(1,205	)	54	$	1,265,766	$	(25,923	)	81	$	1,376,214	$	(27,128	)

20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

		December 31, 2014
		Less than 12 months						12 months or longer						Total
(Dollars in thousands)		Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale
Debt securities
	U.S. government agency debentures	$	2,482	$	(18	)	1	$	—	$	—		0	$	2,482	$	(18	)
	U.S. states and political subdivisions	5,637		(11		)	11	22,528		(455		)	36	28,165		(466		)
	Residential mortgage-backed securities:
	U.S. government agencies	50,126		(182		)	5	199,773		(3,036		)	14	249,899		(3,218		)
	Commercial mortgage-backed securities:
	U.S. government agencies	12,284		(55		)	2	45,485		(1,316		)	6	57,769		(1,371		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	243,970		(906		)	15	905,478		(25,319		)	64	1,149,448		(26,225		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	31,375		(229		)	4	67,169		(1,176		)	7	98,544		(1,405		)
	Asset-backed securities:
	Collateralized loan obligations	79,042		(1,406		)	15	193,687		(8,207		)	27	272,729		(9,613		)
	Corporate debt securities	—		—			0	51,338		(10,315		)	8	51,338		(10,315		)
	Total securities available-for-sale	$	424,916	$	(2,807	)	53	$	1,485,458	$	(49,824	)	162	$	1,910,374	$	(52,631	)
Securities held-to-maturity
Debt securities
	U.S. government agency debentures	$	—	$	—		0	$	24,463	$	(537	)	1	$	24,463	$	(537	)
	U.S. states and political subdivisions	9,085		(17		)	9	18,371		(174		)	21	27,456		(191		)
	Residential mortgage-backed securities:
	U.S. government agencies	—		—			0	185,361		(3,045		)	10	185,361		(3,045		)
	Commercial mortgage-backed securities:
	U.S. government agencies	9,950		(4		)	2	16,735		(325		)	2	26,685		(329		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	28,333		(149		)	3	1,161,297		(38,726		)	58	1,189,630		(38,875		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	41,474		(55		)	3	171,570		(6,713		)	16	213,044		(6,768		)
	Corporate debt securities	36,933		(52		)	13	—		—			—	36,933		(52		)
	Total securities held-to-maturity	$	125,775	$	(277	)	30	$	1,577,797	$	(49,520	)	108	$	1,703,572	$	(49,797	)

21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

		September 30, 2014
		Less than 12 months						12 months or longer						Total
(Dollars in thousands)		Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	5,298	$	(10	)	5	$	22,729	$	(597	)	37	$	28,027	$	(607	)
	Residential mortgage-backed securities:
	U.S. government agencies	25,456		(86		)	2	248,946		(6,960		)	19	274,402		(7,046		)
	Commercial mortgage-backed securities:
	U.S. government agencies	9,095		(56		)	2	45,208		(1,832		)	6	54,303		(1,888		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	436,857		(3,528		)	29	890,497		(35,447		)	63	1,327,354		(38,975		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	61,703		(264		)	6	67,029		(1,529		)	7	128,732		(1,793		)
	Asset-backed securities:
	Collateralized loan obligations	100,337		(1,904		)	13	151,668		(5,353		)	23	252,005		(7,257		)
	Corporate debt securities	—		—			0	54,594		(7,044		)	8	54,594		(7,044		)
	Total securities available-for-sale	$	638,746	$	(5,848	)	57	$	1,480,671	$	(58,762	)	163	$	2,119,417	$	(64,610	)
Securities held-to-maturity
Debt securities
	U.S. government agency debentures	$	—	$	—		—	$	24,244	$	(756	)	1	$	24,244	$	(756	)
	U.S. states and political subdivisions	16,255		(78		)	20	29,783		(374		)	38	46,038		(452		)
	Residential mortgage-backed securities:
	U.S. government agencies	10,549		(64		)	1	188,704		(5,928		)	10	199,253		(5,992		)
	Commercial mortgage-backed securities:
	U.S. government agencies	26,346		(110		)	5	23,788		(566		)	3	50,134		(676		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	121,516		(1,195		)	8	1,208,939		(55,065		)	60	1,330,455		(56,260		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	8,026		(30		)	1	182,299		(8,540		)	17	190,325		(8,570		)
	Corporate debt securities	46,907		(180		)	16	—		—			0	46,907		(180		)
	Total securities held-to-maturity	$	229,599	$	(1,657	)	51	$	1,657,757	$	(71,229	)	129	$	1,887,356	$	(72,886	)

At least quarterly, the Corporation conducts a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if OTTI exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. 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 OCI. 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

22

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

amortized cost basis, taking into consideration the estimated recovery period and its ability to hold the equity security until recovery, OTTI is recognized.

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 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 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 OCI, net of tax.

The investment securities portfolio was in a net unrealized gain position of $13.2 million at September 30, 2015, compared to a net unrealized loss position of $44.9 million at December 31, 2014 and a net unrealized loss position of $86.9 million at September 30, 2014. Gross unrealized losses were $55.2 million as of September 30, 2015, compared to $102.4 million at December 31, 2014, and $137.5 million at September 30, 2014. As of September 30, 2015, gross unrealized losses are concentrated within agency MBS, CLOs, and corporate debt securities. Securities classified as corporate debt would include eight, single issuer, trust preferred securities with stated maturities. Such investments are only 1% of the fair value of the available-for-sale 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 market conditions which have caused risk premiums to increase, resulting in the decline in the fair value of the trust preferred securities.

Management believes the Corporation will fully recover the cost of these agency MBSs, CLOs, and corporate debt 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 September 30, 2015 and has recognized the total amount of the impairment in OCI, net of tax.

The new Volcker Rule, as originally adopted, may affect the Corporation's ability to hold CLOs. As of September 30, 2015, the Corporation holds $292.5 million of CLOs with a gross unrealized loss position of $5.5 million. Management believes that its holdings of CLOs are not ownership interests in covered funds prohibited by the Volcker Rule regulations and, therefore, expects to be able to hold these investments until their stated maturities. Management seeks to maintain a CLO portfolio consistent with the requirements of the Volcker Rule, and new CLO investments are being made in accordance with this strategy. As of September 30, 2015, the Corporation has purchased $38.0 million of newly issued CLO investments that Management believes to be exempt from the Volcker Rule as these CLOs are structured in a manner consistent with the loan securitization exclusion set forth in the Volcker Rule.

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 September 30, 2015. Estimated lives on MBSs may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

23

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

(Dollars in thousands)	U.S. Treasury notes & bonds			U.S. Government agency debentures			U.S. States and political subdivisions			Residential mortgage-backed securities - U.S. govt. agencies			Commercial mortgage-backed securities - U.S. govt. agencies			Residential collateralized mortgage obligations - U.S. govt. agencies			Residential collateralized mortgage obligations - non-agency			Commercial collateralized mortgage obligations - U.S. govt. agencies			Asset backed securities - collateralized loan obligations			Corporate debt securities			Total			Weighted Average Yield
Securities Available-for-Sale
Remaining maturity:
One year or less	$	5,005		$	—		$	9,261		$	1,834		$	—		$	172		$	—		$	—		$	—		$	—		$	16,272		2.05	%
Over one year through five years	—			2,516			71,433			32,355			35,823			9,058			4			58,641			—			—			209,830			3.25	%
Over five years through ten years	—			—			95,992			81,932			113,548			25,772			—			72,503			171,303			—			561,050			3.03	%
Over ten years	—			—			24,124			829,503			5,705			1,987,957			1			112,816			121,148			54,537			3,135,791			2.07	%
Fair Value	$	5,005		$	2,516		$	200,810		$	945,624		$	155,076		$	2,022,959		$	5		$	243,960		$	292,451		$	54,537		$	3,922,943		2.27	%
Amortized Cost	$	5,002		$	2,500		$	196,396		$	927,715		$	153,834		$	2,023,275		$	5		$	241,788		$	297,776		$	61,695		$	3,909,986
Weighted-Average Yield	0.27		%	1.25		%	5.16		%	2.38		%	2.04		%	6.68		%	3.36		%	1.89		%	2.58		%	1.01		%	2.27		%
Weighted-Average Maturity (in years)	0.50			2.67			2.48			3.81			4.04			3.69			0.92			3.83			6.48			12.06			4.02
Securities Held-to-Maturity
Remaining maturity:
One year or less	$	—		$	—		$	55,553		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	55,553		2.03	%
Over one year through five years	—			24,959			109,988			—			41,964			—			—			70,643			—			89,260			336,814			2.48	%
Over five years through ten years	—			—			220,193			24,913			23,792			—			—			52,930			—			—			321,828			3.79	%
Over ten years	—			—			176,329			512,665			—			1,189,820			—			135,902			—			—			2,014,716			2.13	%
Fair Value	$	—		$	24,959		$	562,063		$	537,578		$	65,756		$	1,189,820		$	—		$	259,475		$	—		$	89,260		$	2,728,911		2.36	%
Amortized Cost	$	—		$	25,000		$	550,769		$	529,095		$	64,605		$	1,210,743		$	—		$	259,888		$	—		$	88,538		$	2,728,638
Weighted-Average Yield	—		%	1.43		%	4.21		%	2.15		%	2.87		%	1.59		%	—		%	2.51		%	—		%	2.25		%	2.36		%
Weighted-Average Maturity (in years)	—			4.08			5.36			4.08			2.63			3.69			—			4.16			—			2.28			4.08

24

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

3.     Loans

Loans outstanding as of September 30, 2015, December 31, 2014, and September 30, 2014, net of unearned income, consisted of the following:

(In thousands)		September 30, 2015			December 31, 2014			September 30, 2014
Originated loans:
Commercial		$	8,692,699		$	8,200,264		$	7,966,102
Residential mortgage		673,591			625,283			605,998
Installment		2,899,559			2,393,451			2,277,533
Home equity		1,212,084			1,110,336			1,062,013
Credit cards		170,392			164,478			160,113
	Total originated loans	13,648,325			12,493,812			12,071,759
Allowance for originated loan losses		(104,055		)	(95,696		)	(90,883		)
	Net originated loans	$	13,544,270		$	12,398,116		$	11,980,876
Acquired loans:
Commercial		$	778,414		$	1,086,899		$	1,272,244
Residential mortgage		341,278			394,484			410,065
Installment		611,061			764,168			809,820
Home equity		184,211			233,629			252,975
	Total acquired loans	1,914,964			2,479,180			2,745,104
Allowance for acquired loan losses		(4,199		)	(7,457		)	(6,206		)
	Net acquired loans	$	1,910,765		$	2,471,723		$	2,738,898
FDIC acquired loans:
Commercial		$	139,177		$	211,607		$	262,319
Residential mortgage		36,362			41,276			43,672
Installment		2,156			4,874			5,148
Home equity		47,370			73,365			83,278
Loss share receivable		10,926			22,033			30,746
	Total FDIC acquired loans	235,991			353,155			425,163
Allowance for FDIC acquired loan losses		(45,196		)	(40,496		)	(42,988		)
	Net FDIC acquired loans	$	190,795		$	312,659		$	382,175
Total loans:
Commercial		$	9,610,290		$	9,498,770		$	9,500,665
Residential mortgage		1,051,231			1,061,043			1,059,735
Installment		3,512,776			3,162,493			3,092,501
Home equity		1,443,665			1,417,330			1,398,266
Credit cards		170,392			164,478			160,113
Loss share receivable		10,926			22,033			30,746
	Total loans	15,799,280			15,326,147			15,242,026
Total allowance for loan losses		(153,450		)	(143,649		)	(140,077		)
	Total Net loans	$	15,645,830		$	15,182,498		$	15,101,949

25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The following describes the distinction between originated, acquired and FDIC acquired loan portfolios and certain significant accounting policies relevant to each of these portfolios.

Originated Loans

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, 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 consolidated 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. Net deferred loan origination fees and costs amounted to $4.2 million, $5.4 million, and $6.4 million at September 30, 2015, December 31, 2014, and September 30, 2014, respectively.

Acquired Loans

Acquired loans are those purchased in the Citizens acquisition. These loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related ALL. The acquired loans were segregated as of the Acquisition Date between those considered to be performing (acquired nonimpaired loans) and those with evidence of credit deterioration (acquired impaired loans). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Revolving loans, including lines of credit, are excluded from acquired impaired loan accounting.

Total outstanding acquired impaired loans as of September 30, 2015 and 2014 were $466.3 million and $659.7 million, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for acquired impaired loans were as follows for the three and nine months ended September 30, 2015 and 2014:    

	Three Months Ended September 30,												Nine Months Ended September 30,
Acquired Impaired Loans	2015						2014						2015						2014
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	112,031		$	356,164		$	137,442		$	519,250		$	119,450		$	423,209		$	136,646		$	601,000
Accretion	(9,924		)	9,924			(12,950		)	12,950			(31,427		)	31,427			(37,437		)	37,437
Net reclassifications from nonaccretable to accretable	6,780			—			6,646			—			27,992			—			36,659			—
Payments received, net	—			(38,840		)	—			(53,150		)	—			(127,388		)	—			(159,387		)
Disposals	(4,600		)	—			(4,714		)	—			(11,728		)	—			(9,444		)	—
Balance at end of period	$	104,287		$	327,248		$	126,424		$	479,050		$	104,287		$	327,248		$	126,424		$	479,050

Cash flows expected to be collected on acquired impaired loans are estimated quarterly by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary.

26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Improved cash flow expectations for loans or pools that were impaired in prior periods are recorded first as a reversal of previously recorded impairment and then as an increase in prospective yield when all previously recorded impairment has been recaptured. Decreases in expected cash flows are recognized as an impairment through a provision for loan loss and an increase to the allowance for acquired impaired loans.

During the quarter ended September 30, 2015, there was an overall improvement in cash flow expectations, which resulted in the net reclassification of $6.8 million from the nonaccretable difference to accretable yield. This reclassification was $28.0 million for the nine months ended September 30, 2015. The reclassification from the nonaccretable difference to the accretable yield results in prospective yield adjustments on the loan pools.

FDIC Acquired Loans and Related Loss Share Receivable

FDIC acquired loans include loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and Midwest. George Washington and Midwest non-single family loss share agreements with the FDIC expired at March 31, 2015 and June 30, 2015, respectively, resulting in $2.3 million and $136.9 million of loans no longer being covered as of September 30, 2015. As of September 30, 2015, $12.7 million and $73.2 million of George Washington and Midwest loans, respectively, remained covered by single family loss share agreements.

Changes in the loss share receivable for the three and nine months ended September 30, 2015 and 2014 were as follows:

Loss Share Receivable	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2015			2014			2015			2014
Balance at beginning of period	$	11,820		$	43,981		$	22,033		$	61,827
Amortization	(384		)	(6,932		)	(3,756		)	(16,980		)
Increase/(decrease) due to impairment (recapture) on FDIC acquired loans	257			2,908			6,303			3,835
FDIC reimbursement	(679		)	(7,006		)	(13,405		)	(13,330		)
FDIC acquired loans paid in full	(88		)	(2,205		)	(249		)	(4,606		)
Balance at end of the period (1)	$	10,926		$	30,746		$	10,926		$	30,746

(1) As of September 30, 2015, the loss share receivable of $10.9 million was related to single family covered loans.

27

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Total outstanding FDIC acquired impaired loans were $335.2 million and $520.3 million as of September 30, 2015 and 2014, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for FDIC acquired impaired loans were as follows for the three and nine months ended September 30, 2015 and 2014:

	Three Months Ended September 30,												Nine Months Ended September 30,
FDIC Acquired Impaired Loans	2015						2014						2015						2014
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	26,150		$	157,808		$	53,655		$	316,481		$	37,511		$	232,452		$	67,282		$	403,692
Accretion	(2,893		)	2,893			(9,683		)	9,683			(12,560		)	12,560			(34,438		)	34,438
Net reclassifications between non-accretable and accretable	1,785			—			8,684			—			3,865			—			20,290			—
Payments received, net	—			(18,069		)	—			(41,598		)	—			(102,380		)	—			(153,564		)
(Disposals)/Additions	(329		)	—			(711		)	—			(4,103		)	—			(1,189		)	—
Balance at end of period	$	24,713		$	142,632		$	51,945		$	284,566		$	24,713		$	142,632		$	51,945		$	284,566

The cash flows expected to be collected on covered impaired loans are estimated quarterly in a similar manner as described above for acquired impaired loans. During the quarter ended September 30, 2015, the re-estimation process resulted in a net reclassification of $1.8 million from the nonaccretable difference to accretable yield. This reclassification was $3.9 million for the nine months ended September 30, 2015. The reclassification from the nonaccretable difference to the accretable yield results in prospective yield adjustments on the loan pools.

Credit Quality Disclosures

The credit quality of the Corporation's loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Corporation. These credit quality ratings are an important part of the Corporation's overall credit risk management process and evaluation of the allowance for credit losses.

Generally, loans, except for certain commercial, credit card and mortgage 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. Acquired and FDIC acquired impaired loans are considered to be accruing and performing even though collection of contractual payments may be in doubt because income continues to be accreted on the loan pool as long as expected cash flows are reasonably estimable.

When a loan is placed on nonaccrual status, interest deemed uncollectible which had been accrued in prior years is charged against the ALL and interest deemed uncollectible accrued in the current year is reversed against interest income. Interest on mortgage loans is accrued until Management deems it uncollectible based upon the specific identification method. 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 timely principal and interest payments for a minimum of six consecutive payment cycles. 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.

28

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The following tables provide a summary of loans by portfolio type, including the delinquency status of those loans that continue to accrue interest and those loans that are nonaccrual:

As of September 30, 2015
(In thousands)													≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (1)		Loans
Commercial
C&I	$	11,794	$	509	$	6,208	$	18,511	$	5,503,444	$	5,521,955	$	40	$	24,649
CRE	7,177		138		5,018		12,333		2,077,200		2,089,533		2,327		6,172
Construction	—		4,452		—		4,452		615,117		619,569		—		—
Leases	—		—		—		—		461,642		461,642		—		—
Consumer
Installment	13,992		3,095		4,646		21,733		2,877,826		2,899,559		3,764		2,910
Home Equity Lines	2,142		756		1,593		4,491		1,207,593		1,212,084		592		1,612
Credit Cards	872		402		548		1,822		168,570		170,392		292		564
Residential Mortgages	10,029		2,883		6,494		19,406		654,185		673,591		2,873		11,129
Total	$	46,006	$	12,235	$	24,507	$	82,748	$	13,565,577	$	13,648,325	$	9,888	$	47,036
Acquired Loans													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (3)		Loans (3)
Commercial
C&I	$	1,006	$	309	$	2,366	$	3,681	$	270,871	$	274,552	$	—	$	462
CRE	4,674		2,523		10,434		17,631		480,059		497,690		—		5,187
Construction	—		—		713		713		5,459		6,172		—		—
Consumer
Installment	4,342		790		814		5,946		605,115		611,061		359		481
Home Equity Lines	2,020		876		1,018		3,914		180,297		184,211		370		427
Residential Mortgages	254		2,138		6,416		8,808		332,470		341,278		1,501		1,019
Total	$	12,296	$	6,636	$	21,761	$	40,693	$	1,874,271	$	1,914,964	$	2,230	$	7,576
FDIC Acquired Loans (2)													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (3)		Loans (3)
Commercial
C&I	$	1,065	$	—	$	2,129	$	3,194	$	35,593	$	38,787	n/a		n/a
CRE	789		—		28,586		29,375		65,156		94,531		n/a		n/a
Construction	—		—		3,722		3,722		2,137		5,859		n/a		n/a
Consumer
Installment	—		—		—		—		2,156		2,156		n/a		n/a
Home Equity Lines	1,104		10		2,566		3,680		43,690		47,370		n/a		n/a
Residential Mortgages	5,004		322		2,559		7,885		28,477		36,362		n/a		n/a
Total	$	7,962	$	332	$	39,562	$	47,856	$	177,209	$	225,065	n/a		n/a

(1)Installment loans 90 days or more past due and accruing include $2.5 million of loans guaranteed by the U.S. government as of September 30, 2015.

(2)Excludes loss share receivable of $10.9 million as of September 30, 2015.

(3) Acquired and FDIC acquired impaired loans were not classified as nonperforming assets at September 30, 2015 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 and FDIC Acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and FDIC acquired impaired loans.

29

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of December 31, 2014
(In thousands)													≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (1)		Loans
Commercial
C&I	$	2,212	$	1,162	$	2,670	$	6,044	$	5,169,157	$	5,175,201	$	1,547	$	6,114
CRE	2,155		1,460		8,864		12,479		2,104,639		2,117,118		1,696		11,033
Construction	—		—		—		—		537,766		537,766		—		—
Leases	—		—		—		—		370,179		370,179		—		—
Consumer
Installment	14,621		3,647		4,716		22,984		2,370,467		2,393,451		3,695		3,268
Home Equity Lines	1,357		587		1,206		3,150		1,107,186		1,110,336		569		1,654
Credit Cards	668		516		860		2,044		162,434		164,478		407		596
Residential Mortgages	12,086		2,744		8,013		22,843		602,440		625,283		4,242		11,952
Total	$	33,099	$	10,116	$	26,329	$	69,544	$	12,424,268	$	12,493,812	$	12,156	$	34,617
Acquired Loans													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (3)		Loans (3)
Commercial
C&I	$	92	$	234	$	4,791	$	5,117	$	444,137	$	449,254	$	—	$	787
CRE	3,479		3,398		23,509		30,386		600,288		630,674		44		4,171
Construction	—		—		685		685		6,286		6,971		—		—
Consumer
Installment	6,204		2,029		1,861		10,094		754,074		764,168		615		1,218
Home Equity Lines	2,819		2,123		2,333		7,275		226,354		233,629		1,519		631
Residential Mortgages	13,062		1,648		7,089		21,799		372,685		394,484		1,293		1,249
Total	$	25,656	$	9,432	$	40,268	$	75,356	$	2,403,824	$	2,479,180	$	3,471	$	8,056
FDIC Acquired Loans (2)													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (3)		Loans (3)
Commercial
C&I	$	58	$	—	$	6,041	$	6,099	$	42,738	$	48,837	n/a		n/a
CRE	234		1,517		47,233		48,984		104,524		153,508		n/a		n/a
Construction	—		—		6,064		6,064		3,198		9,262		n/a		n/a
Consumer
Installment	23		—		34		57		4,817		4,874		n/a		n/a
Home Equity Lines	1,395		870		3,859		6,124		67,241		73,365		n/a		n/a
Residential Mortgages	6,205		91		3,572		9,868		31,408		41,276		n/a		n/a
Total	$	7,915	$	2,478	$	66,803	$	77,196	$	253,926	$	331,122	n/a		n/a

(1) Installment loans 90 days or more past due and accruing include $2.7 million of loans guaranteed by the U.S. government as of December 31, 2014.

(2) Excludes loss share receivable of $22.0 million as of December 31, 2014.

(3) Acquired and FDIC acquired impaired loans were not classified as nonperforming assets at December 31, 2014 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 and FDIC Acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and FDIC acquired impaired loans.

30

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of September 30, 2014
(In thousands)													≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (1)		Loans
Commercial
C&I	$	1,833	$	321	$	3,302	$	5,456	$	5,033,864	$	5,039,320	$	120	$	12,124
CRE	4,111		1,251		5,918		11,280		2,108,454		2,119,734		523		10,223
Construction	255		—		—		255		466,857		467,112		—		—
Leases	—		—		—		—		339,936		339,936		—		—
Consumer
Installment	12,040		3,553		4,353		19,946		2,257,587		2,277,533		3,630		3,205
Home Equity Lines	1,975		538		705		3,218		1,058,795		1,062,013		390		1,426
Credit Cards	746		434		688		1,868		158,245		160,113		423		412
Residential Mortgages	11,533		2,836		7,703		22,072		583,926		605,998		3,452		11,931
Total	$	32,493	$	8,933	$	22,669	$	64,095	$	12,007,664	$	12,071,759	$	8,538	$	39,321
Acquired Loans													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (3)		Loans (3)
Commercial
C&I	$	626	$	5,478	$	5,303	$	11,407	$	540,082	$	551,489	$	—	$	876
CRE	4,568		2,269		20,776		27,613		682,882		710,495		370		2,072
Construction	3,179		—		687		3,866		6,394		10,260		—		—
Consumer
Installment	6,764		2,164		1,045		9,973		799,847		809,820		542		1,059
Home Equity Lines	2,540		1,234		2,872		6,646		246,329		252,975		1,279		680
Residential Mortgages	262		2,724		5,710		8,696		401,369		410,065		520		1,305
Total	$	17,939	$	13,869	$	36,393	$	68,201	$	2,676,903	$	2,745,104	$	2,711	$	5,992
FDIC Acquired Loans (2)													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (3)		Loans (3)
Commercial
C&I	$	288	$	—	$	6,535	$	6,823	$	49,253	$	56,076	n/a		n/a
CRE	1,656		1,524		66,219		69,399		123,347		192,746		n/a		n/a
Construction	—		—		11,981		11,981		1,516		13,497		n/a		n/a
Consumer
Installment	67		—		—		67		5,081		5,148		n/a		n/a
Home Equity Lines	2,327		315		4,065		6,707		76,571		83,278		n/a		n/a
Residential Mortgages	6,216		402		3,734		10,352		33,320		43,672		n/a		n/a
Total	$	10,554	$	2,241	$	92,534	$	105,329	$	289,088	$	394,417	n/a		n/a

(1) Installment loans 90 days or more past due and accruing include $2.5 million of loans guaranteed by the U.S. government as of September 30, 2014.

(2) Excludes loss share receivable of $30.7 million as of September 30, 2014.

(3) Acquired and FDIC acquired impaired loans were not classified as nonperforming assets at September 30, 2014 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 and FDIC Acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and FDIC acquired impaired 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 borrower. Commercial loans are reviewed on an annual, quarterly or rotational basis or as Management becomes aware of information about a borrower’s ability to fulfill its obligation. For consumer loans, Management evaluates credit quality based on the aging status of the loan as well as by payment activity, which is presented in the above tables.

31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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.

32

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The following tables provide a summary of commercial loans by portfolio type and the Corporation's internal credit quality rating:

As of September 30, 2015
(In thousands)
Originated Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	71,992	$	787	$	—	$	13,262	$	86,041
Grade 2	314,520		842		—		52,397		367,759
Grade 3	1,312,560		316,917		64,270		52,886		1,746,633
Grade 4	3,611,381		1,709,902		547,558		338,014		6,206,855
Grade 5	114,683		23,351		6,651		2,894		147,579
Grade 6	93,559		37,734		1,090		2,189		134,572
Grade 7	3,260		—		—		—		3,260
Total	$	5,521,955	$	2,089,533	$	619,569	$	461,642	$	8,692,699
Acquired Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	1,054	$	—	$	—	$	—	$	1,054
Grade 2	—		—		—		—		—
Grade 3	15,624		26,411		—		—		42,035
Grade 4	220,011		442,588		5,459		—		668,058
Grade 5	15,102		5,528		—		—		20,630
Grade 6	22,761		23,163		713		—		46,637
Grade 7	—		—		—		—		—
Total	$	274,552	$	497,690	$	6,172	$	—	$	778,414
FDIC Acquired Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	1,125		—		—		—		1,125
Grade 3	—		—		—		—		—
Grade 4	35,534		62,605		817		—		98,956
Grade 5	—		629		—		—		629
Grade 6	2,128		31,297		5,042		—		38,467
Grade 7	—		—		—		—		—
Total	$	38,787	$	94,531	$	5,859	$	—	$	139,177

33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of December 31, 2014
(In thousands)
Originated Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	52,676	$	683	$	678	$	4,451	$	58,488
Grade 2	186,278		3,454		—		14,959		204,691
Grade 3	1,340,100		294,281		46,074		71,908		1,752,363
Grade 4	3,413,446		1,745,470		490,757		277,277		5,926,950
Grade 5	139,083		29,990		257		1,389		170,719
Grade 6	43,618		43,240		—		195		87,053
Grade 7	—		—		—		—		—
Total	$	5,175,201	$	2,117,118	$	537,766	$	370,179	$	8,200,264
Acquired Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	1,076	$	—	$	—	$	—	$	1,076
Grade 2	—		—		—		—		—
Grade 3	20,891		24,867		—		—		45,758
Grade 4	376,129		532,447		6,286		—		914,862
Grade 5	23,268		28,382		685		—		52,335
Grade 6	27,890		44,978		—		—		72,868
Grade 7	—		—		—		—		—
Total	$	449,254	$	630,674	$	6,971	$	—	$	1,086,899
FDIC Acquired Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	1,347		—		—		—		1,347
Grade 3	—		—		—		—		—
Grade 4	36,406		86,779		823		—		124,008
Grade 5	167		3,401		—		—		3,568
Grade 6	10,917		63,328		8,248		—		82,493
Grade 7	—		—		191		—		191
Total	$	48,837	$	153,508	$	9,262	$	—	$	211,607

34

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of September 30, 2014
(In thousands)
Originated Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	42,653	$	695	$	—	$	8,929	$	52,277
Grade 2	214,307		3,523		—		12,525		230,355
Grade 3	1,164,149		285,652		36,953		58,157		1,544,911
Grade 4	3,458,074		1,761,138		420,721		258,880		5,898,813
Grade 5	119,252		29,410		9,359		1,233		159,254
Grade 6	40,885		39,316		79		212		80,492
Grade 7	—		—		—		—		—
Total	$	5,039,320	$	2,119,734	$	467,112	$	339,936	$	7,966,102
Acquired Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	—		—		—		—		—
Grade 3	14,464		26,216		—		—		40,680
Grade 4	492,667		592,969		10,260		—		1,095,896
Grade 5	19,672		44,570		—		—		64,242
Grade 6	24,686		46,740		—		—		71,426
Grade 7	—		—		—		—		—
Total	$	551,489	$	710,495	$	10,260	$	—	$	1,272,244
FDIC Acquired Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	1,373		—		—		—		1,373
Grade 3	—		—		—		—		—
Grade 4	40,902		101,360		686		—		142,948
Grade 5	1,245		3,908		—		—		5,153
Grade 6	12,556		87,478		12,659		—		112,693
Grade 7	—		—		152		—		152
Total	$	56,076	$	192,746	$	13,497	$	—	$	262,319

4.    Allowance for Loan Losses

The Corporation's Credit Policy Division manages credit risk by establishing common credit policies for its subsidiary bank, participating in approval of its loans, conducting reviews of loan portfolios, providing centralized consumer underwriting, collections and loan operation services, and overseeing loan workouts. 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.

The ALL is Management's estimate of the amount of probable credit losses inherent in a loan portfolio at the balance sheet date. The following describes the distinctions in methodology used to estimate the ALL of originated, acquired and FDIC acquired loan portfolios as well as certain significant accounting policies relevant to each category.

35

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Allowance for Originated Loan Losses

Management estimates credit losses based on originated 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 ALL 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). The historical loss experience component of the ALL 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 historical net charge-off or migration experience is utilized to estimate expected losses to be realized from the pool of loans.

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 ALL 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.

36

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The following tables show activity in the originated ALL, by portfolio segment for the three and nine months ended September 30, 2015 and 2014, as well as the corresponding recorded investment in originated loans at the end of the period:

As of September 30, 2015
(In thousands)
Originated Loans		C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Three Months Ended
Allowance for originated loan losses, beginning balance		$	42,876		$	8,500		$	1,540		$	619		$	14,910		$	20,039		$	7,818		$	5,380		$	101,682
Charge-offs		(4,540		)	(3		)	—			(1,268		)	(5,065		)	(940		)	(1,173		)	(409		)	(13,398		)
Recoveries		126			516			133			730			2,889			564			331			80			5,369
Provision for loan losses		4,532			979			(56		)	581			2,736			687			1,191			(248		)	10,402
Allowance for originated loan losses, ending balance		$	42,994		$	9,992		$	1,617		$	662		$	15,470		$	20,350		$	8,167		$	4,803		$	104,055
Nine Months Ended
Allowance for originated loan losses, beginning balance		$	37,375		$	10,492		$	2,202		$	674		$	12,918		$	19,324		$	7,966		$	4,745		$	95,696
Charge-offs		(8,298		)	(625		)	—			(1,268		)	(15,210		)	(2,822		)	(3,834		)	(1,206		)	(33,263		)
Recoveries		921			517			172			737			8,753			2,016			1,055			204			14,375
Provision for loan losses		12,996			(392		)	(757		)	519			9,009			1,832			2,980			1,060			27,247
Allowance for originated loan losses, ending balance		$	42,994		$	9,992		$	1,617		$	662		$	15,470		$	20,350		$	8,167		$	4,803		$	104,055
Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	7,790		$	703		$	—		$	—		$	1,012		$	203		$	235		$	939		$	10,882
	Collectively evaluated for impairment	35,204			9,289			1,617			662			14,458			20,147			7,932			3,864			93,173
Total ending allowance for originated loan losses balance		$	42,994		$	9,992		$	1,617		$	662		$	15,470		$	20,350		$	8,167		$	4,803		$	104,055
Originated loans:
	Originated loans individually evaluated for impairment	$	52,147		$	13,355		$	—		$	—		$	34,306		$	7,394		$	716		$	24,316		$	132,234
	Originated loans collectively evaluated for impairment	5,469,808			2,076,178			619,569			461,642			2,865,253			1,204,690			169,676			649,275			13,516,091
Total ending originated loan balance		$	5,521,955		$	2,089,533		$	619,569		$	461,642		$	2,899,559		$	1,212,084		$	170,392		$	673,591		$	13,648,325

37

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of September 30, 2014
(In thousands)
Originated Loans		C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Three Months Ended
Allowance for originated loan losses, beginning balance		$	43,256		$	8,730		$	1,323		$	1,028		$	12,243		$	13,903		$	7,328		$	4,139		$	91,950
Charge-offs		(3,569		)	(570		)	—			—			(5,041		)	(1,361		)	(778		)	(91		)	(11,410		)
Recoveries		1,262			43			5			2			2,944			708			403			114			5,481
Provision for loan losses		(3,824		)	243			170			(294		)	3,514			4,648			559			(154		)	4,862
Allowance for originated loan losses, ending balance		$	37,125		$	8,446		$	1,498		$	736		$	13,660		$	17,898		$	7,512		$	4,008		$	90,883
Nine Months Ended
Allowance for originated loan losses, beginning balance		$	42,981		$	12,265		$	2,810		$	1,081		$	11,935		$	12,900		$	7,740		$	4,772		$	96,484
Charge-offs		(9,203		)	(3,345		)	—			—			(14,739		)	(3,403		)	(3,544		)	(1,484		)	(35,718		)
Recoveries		2,681			77			35			374			8,735			2,227			1,260			219			15,608
Provision for loan losses		666			(551		)	(1,347		)	(719		)	7,729			6,174			2,056			501			14,509
Allowance for originated loan losses, ending balance		$	37,125		$	8,446		$	1,498		$	736		$	13,660		$	17,898		$	7,512		$	4,008		$	90,883
Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	1,399		$	1,620		$	—		$	—		$	1,086		$	190		$	322		$	1,435		$	6,052
	Collectively evaluated for impairment	35,726			6,826			1,498			736			12,574			17,708			7,190			2,573			84,831
Total ending allowance for originated loan losses balance		$	37,125		$	8,446		$	1,498		$	736		$	13,660		$	17,898		$	7,512		$	4,008		$	90,883
Originated loans:
	Originated loans individually evaluated for impairment	$	11,155		$	22,597		$	—		$	—		$	23,575		$	7,624		$	912		$	26,108		$	91,971
	Originated loans collectively evaluated for impairment	5,028,165			2,097,137			467,112			339,936			2,253,958			1,054,389			159,201			579,890			11,979,788
Total ending originated loan balance		$	5,039,320		$	2,119,734		$	467,112		$	339,936		$	2,277,533		$	1,062,013		$	160,113		$	605,998		$	12,071,759

The following table presents the originated ALL and the recorded investment as of December 31, 2014:

As of December 31, 2014
	(In thousands)
	Originated Loans	C&I		CRE		Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total
Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	72	$	2,914	$	—	$	—	$	1,178	$	207	$	296	$	1,283	$	5,950
	Collectively evaluated for impairment	37,303		7,578		2,202		674		11,740		19,117		7,670		3,462		89,746
Total ending allowance for originated loan losses balance		$	37,375	$	10,492	$	2,202	$	674	$	12,918	$	19,324	$	7,966	$	4,745	$	95,696
Originated loans:
	Loans individually evaluated for impairment	$	11,759	$	23,300	$	—	$	—	$	24,905	$	7,379	$	854	$	25,251	$	93,448
	Loans collectively evaluated for impairment	5,163,442		2,093,818		537,766		370,179		2,368,546		1,102,957		163,624		600,032		12,400,364
Total ending originated loan balance		$	5,175,201	$	2,117,118	$	537,766	$	370,179	$	2,393,451	$	1,110,336	$	164,478	$	625,283	$	12,493,812

38

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Allowance for Acquired Loan Losses

The Citizens' loans were recorded at their fair value as of the Acquisition Date and the prior ALL was eliminated. An ALL for acquired nonimpaired loans is estimated using a methodology similar to that used for originated loans. The allowance determined for each acquired nonimpaired loan is compared to the remaining fair value adjustment for that loan. If the computed allowance is greater, the excess is added to the allowance through a provision for loan losses. If the computed allowance is less, no additional allowance is recognized. As of September 30, 2015, the computed ALL was less than the remaining fair value discount; therefore, no ALL for acquired nonimpaired loans was recorded.

Charge-offs and actual losses on an acquired nonimpaired loan first reduce any remaining fair value discount for that loan. Once a loan's discount is depleted, charge-offs and actual losses are applied against the acquired ALL. During the three and nine months ended September 30, 2015, provision for loan losses, equal to net charge-offs, of $0.9 million and $4.7 million, respectively, were recorded. Charge-offs on acquired nonimpaired loans were mainly related to consumer loans that were written off in accordance with the Corporation's credit policies based on a predetermined number of days past due.

The ALL for acquired impaired loans is determined by comparing the present value of the cash flows expected to be collected to the carrying amount for a given pool of loans. Management reforecasts the estimated cash flows expected to be collected on acquired impaired loans on a quarterly basis. If the present value of expected cash flows for a pool is less than its carrying value, impairment is recognized by an increase in the ALL and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying value, any previously established ALL is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool. See Note 3 (Loans) for further information on changes in accretable yield.

The following table presents activity in the allowance for acquired impaired loan losses for the three and nine months ended September 30, 2015 and 2014:

Allowance for Acquired Impaired Loan Losses	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	2015			2014		2015			2014
Balance at beginning of the period	$	4,950		$	4,977	$	7,457		$	741
Charge-offs	—			—		—			—
Recoveries	—			—		—			—
Provision/(recapture) for loan losses	(751		)	1,229		(3,258		)	5,465
Balance at end of the period	$	4,199		$	6,206	$	4,199		$	6,206

Allowance for FDIC Acquired Loan Losses

The ALL on FDIC acquired nonimpaired loans is estimated similar to acquired loans as described above except any increase to the ALL and provision for loan losses is partially offset by an increase in the loss share receivable for the portion of the losses recoverable under the loss share agreements with the FDIC. As of September 30, 2015, the computed ALL was less than the remaining fair value discount; therefore, no ALL for FDIC acquired nonimpaired loans was recorded.

39

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The following table presents activity in the allowance for FDIC acquired impaired loan losses for the three and nine months ended September 30, 2015 and 2014:

Allowance for FDIC acquired Impaired Loan Losses		Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)		2015			2014			2015			2014
Balance at beginning of the period		$	41,627		$	45,109		$	40,496		$	44,027
	Net provision/(recapture) of loan losses before benefit attributable to FDIC loss share agreements	3,986			2,827			9,139			10,255
	Net (benefit)/recapture attributable to FDIC loss share agreements	(257		)	(2,908		)	(6,303		)	(3,835		)
Net provision/(recapture) for loan losses		3,729			(81		)	2,836			6,420
Increase/(decrease) in loss share receivable		257			2,908			6,303			3,835
Loans charged-off		(417		)	(4,948		)	(4,439		)	(11,294		)
Balance at end of the period		$	45,196		$	42,988		$	45,196		$	42,988

An acquired or FDIC acquired loan may be resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party, or foreclosure of the collateral. In the period of resolution of a nonimpaired loan, any remaining unamortized fair value adjustment is recognized as interest income. In the period of resolution of an impaired loan accounted for on an individual basis, the difference between the carrying amount of the loan and the proceeds received is recognized as a gain or loss within noninterest income. The majority of impaired loans are accounted for within a pool of loans which results in any difference between the proceeds received and the loan carrying amount being deferred as part of the carrying amount of the pool. The accretable amount of the pool remains unaffected from the resolution until the subsequent quarterly cash flow re-estimation. Favorable results from removal of the resolved loan from the pool increase the future accretable yield of the pool, while unfavorable results are recorded as impairment in the quarter of the cash flow re-estimation. Acquired or FDIC acquired impaired loans subject to modification are not removed from a pool even if those loans would otherwise be deemed TDRs as the pool, and not the individual loan, represents the unit of account.

Credit Quality

A loan is considered to be impaired when, based on current events or information, it is probable the Corporation will be unable to collect all amounts due (principal and interest) per the contractual terms of the loan agreement.

Interest income recognized on impaired loans was $0.1 million and $0.4 million for the three and nine months ended September 30, 2015, respectively, compared to $0.2 million and $0.4 million for the three and nine months ended September 30, 2014, respectively. Interest income which would have been earned in accordance with the original terms was $0.7 million and $2.5 million for the three and nine months ended September 30, 2015, respectively, compared to $0.7 million and $2.0 million for the three and nine months ended September 30, 2014, respectively.

Loan impairment 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. Impaired loans include all nonaccrual commercial, agricultural, construction, and commercial real estate loans, and loans modified as a TDR, regardless of nonperforming status. Acquired and FDIC acquired impaired loans are not considered or reported as impaired loans. Nonimpaired acquired loans that are subsequently placed on nonaccrual status are reported as impaired loans

40

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

and included in the Troubled Debt Restructurings section below. Acquired loans restructured after acquisition are not considered or reported as TDRs if the loans evidenced credit deterioration as of the date of acquisition and are accounted for in pools.

The following tables provide further detail on impaired loans individually evaluated for impairment and the associated ALL. Certain impaired loans do not have a related ALL as the valuation of these impaired loans exceeded the recorded investment.

As of September 30, 2015
Originated Loans				Unpaid				Average
		Recorded		Principal		Related		Recorded
(In thousands)		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	43,960	$	50,531	$	—	$	37,203
	CRE	11,993		17,458		—		13,885
	Construction	—		—		—		—
	Leases	—		—		—		—
Consumer
	Installment	1,530		1,913		—		1,623
	Home equity line	742		1,004		—		779
	Credit card	25		25		—		36
	Residential mortgages	11,670		13,980		—		11,823
Subtotal		69,920		84,911		—		65,349
Impaired loans with a related allowance
Commercial
	C&I	8,187		8,247		7,790		4,992
	CRE	1,362		1,389		703		1,679
	Construction	—		—		—		—
	Leases	—		—		—		—
Consumer
	Installment	32,776		32,842		1,012		27,389
	Home equity line	6,652		6,652		203		6,894
	Credit card	691		691		235		767
	Residential mortgages	12,646		12,745		939		12,702
Subtotal		62,314		62,566		10,882		54,423
	Total impaired loans	$	132,234	$	147,477	$	10,882	$	119,772

Note 1: These tables exclude loans fully charged off.

Note 2: The differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.

41

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of December 31, 2014
Originated Loans				Unpaid				Average
		Recorded		Principal		Related		Recorded
(In thousands)		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	11,451	$	18,207	$	—	$	14,193
	CRE	16,874		22,696		—		18,027
	Construction	—		—		—		—
Consumer
	Installment	4,460		4,584		—		4,272
	Home equity line	1,723		1,754		—		1,792
	Credit card	16		16		—		32
	Residential mortgages	12,204		15,119		—		12,425
Subtotal		46,728		62,376		—		50,741
Impaired loans with a related allowance
Commercial
	C&I	308		344		72		326
	CRE	6,426		6,440		2,914		4,497
	Construction	—		—		—		—
Consumer
	Installment	20,445		21,024		1,178		19,513
	Home equity line	5,656		5,875		207		5,944
	Credit card	838		838		296		966
	Residential mortgages	13,047		13,158		1,283		13,121
Subtotal		46,720		47,679		5,950		44,367
	Total impaired loans	$	93,448	$	110,055	$	5,950	$	95,108

Note 1: These tables exclude loans fully charged off.

Note 2: The differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.

42

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of September 30, 2014
Originated Loans				Unpaid				Average
		Recorded		Principal		Related		Recorded
(In thousands)		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	8,411	$	15,740	$	—	$	12,484
	CRE	16,576		22,625		—		17,035
	Construction	—		—		—		—
Consumer
	Installment	3,899		4,001		—		3,959
	Home equity line	2,015		2,045		—		2,073
	Credit card	27		27		—		44
	Residential mortgages	12,576		15,552		—		12,720
Subtotal		43,504		59,990		—		48,315
Impaired loans with a related allowance
Commercial
	C&I	2,744		2,798		1,399		2,896
	CRE	6,021		6,022		1,620		3,381
	Construction	—		—		—		—
Consumer
	Installment	19,676		20,314		1,086		20,039
	Home equity line	5,609		5,829		190		5,779
	Credit card	885		885		322		981
	Residential mortgages	13,532		13,641		1,435		13,566
Subtotal		48,467		49,489		6,052		46,642
	Total impaired loans	$	91,971	$	109,479	$	6,052	$	94,957

Note 1: These tables exclude loans fully charged off.

Note 2: The differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.

Troubled Debt Restructurings

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; however, forgiveness of principal is rarely granted. Concessionary modifications are classified as TDRs unless the modification is short-term, typically less than 90 days. 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 for a minimum of six consecutive payment cycles after the restructuring date. Acquired loans restructured after acquisition are not considered TDRs if the loans evidenced credit deterioration as of the Acquisition Date and are accounted for in pools.

The substantial majority of the Corporation's residential mortgage TDRs involve reducing the client's loan payment through an interest rate reduction for a set period of time based on the borrower's ability to service the modified loan payment. Modifications of mortgages retained in portfolio are handled using proprietary

43

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

modification guidelines, or the FDIC's Modification Program for residential first mortgages covered by loss share agreements (agreements between the Bank and the FDIC that afford the Bank significant protection against future losses). The Corporation participates in the U.S. Treasury's Home Affordable Modification Program for originated mortgages sold to and serviced for FNMA and FHLMC.

Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial real estate and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. The Corporation has 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.

44

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The following tables provide the number of loans modified in a TDR and the recorded investment and unpaid principal balance by loan portfolio as of September 30, 2015, December 31, 2014, and September 30, 2014.

			As of September 30, 2015
(Dollars in thousands)			Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans
	Commercial
		C&I	61	$	37,382	$	42,891
		CRE	73	10,498		14,838
		Construction	31	—		—
		Total originated commercial	165	47,880		57,729
	Consumer
		Installment	1,224	34,306		34,755
		Home equity lines	266	7,394		7,656
		Credit card	210	716		716
		Residential mortgages	315	24,316		26,725
		Total originated consumer	2,015	66,732		69,852
Total originated loans			2,180	$	114,612	$	127,581
Acquired loans
	Commercial
		C&I	1	$	7,205	$	7,205
		CRE	3	959		1,062
		Construction	—	—		—
		Total acquired commercial	4	8,164		8,267
	Consumer
		Installment	51	1,106		1,185
		Home equity lines	175	7,532		7,595
		Residential mortgages	32	2,179		2,414
		Total acquired consumer	258	10,817		11,194
Total acquired loans			262	$	18,981	$	19,461
FDIC acquired loans
	Commercial
		C&I	—	$	—	$	—
		CRE	5	11,323		13,060
		Construction	1	411		687
		Total FDIC acquired commercial	6	11,734		13,747
	Consumer
		Home equity lines	78	10,019		10,086
		Residential mortgages	1	183		183
		Total FDIC acquired consumer	79	10,202		10,269
Total FDIC acquired loans			85	$	21,936	$	24,016
Total loans
	Commercial
		C&I	62	$	44,587	$	50,096
		CRE	81	22,780		28,960
		Construction	32	411		687
		Total commercial	175	67,778		79,743
	Consumer
		Installment	1,275	35,412		35,940
		Home equity lines	519	24,945		25,337
		Credit card	210	716		716
		Residential mortgages	348	26,678		29,322
		Total consumer	2,352	87,751		91,315
Total loans			2,527	$	155,529	$	171,058

45

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Note 1: For originated loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.

Note 2: For acquired and FDIC acquired loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs and remaining purchase discount.

			As of December 31, 2014
(Dollars in thousands)			Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans
	Commercial
		C&I	41	$	7,123	$	13,887
		CRE	67	17,607		22,645
		Construction	31	—		—
		Total originated commercial	139	24,730		36,532
	Consumer
		Installment	1,205	24,905		25,608
		Home equity lines	270	7,379		7,629
		Credit card	238	854		854
		Residential mortgages	315	25,251		28,277
		Total originated consumer	2,028	58,389		62,368
Total originated loans			2,167	$	83,119	$	98,900
Acquired loans
	Commercial
		C&I	2	18		19
		CRE	3	2,542		2,595
		Total acquired commercial	5	2,560		2,614
	Consumer
		Installment	40	975		1,054
		Home equity lines	145	6,932		6,983
		Residential mortgages	26	1,633		1,823
		Total acquired consumer	211	9,540		9,860
Total acquired loans			216	$	12,100	$	12,474
FDIC acquired loans
	Commercial
		C&I	8	$	177	$	1,589
		CRE	24	25,499		42,226
		Construction	9	339		9,552
		Total FDIC acquired commercial	41	26,015		53,367
	Consumer
		Home equity lines	68	8,890		8,901
		Residential Mortgages	2	334		334
		Total FDIC acquired consumer	70	9,224		9,235
Total FDIC acquired loans			111	$	35,239	$	62,602
Total loans
	Commercial
		C&I	51	$	7,318	$	15,495
		CRE	94	45,648		67,466
		Construction	40	339		9,552
		Total commercial	185	53,305		92,513
	Consumer
		Installment	1,245	25,880		26,662
		Home equity lines	483	23,201		23,513
		Credit card	238	854		854
		Residential mortgages	343	27,218		30,434
		Total consumer	2,309	77,153		81,463
Total loans			2,494	$	130,458	$	173,976

46

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Note 1: For originated loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.

Note 2: For acquired and FDIC acquired loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs and remaining purchase discount.

47

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

			As of September 30, 2014
(Dollars in thousands)			Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans
	Commercial
		C&I	39	$	2,673	$	10,032
		CRE	63	18,087		22,905
		Construction	31	—		—
		Total originated commercial	133	20,760		32,937
	Consumer
		Installment	1,238	23,575		24,315
		Home equity lines	275	7,624		7,874
		Credit card	244	912		912
		Residential mortgages	325	26,108		29,193
		Total originated consumer	2,082	58,219		62,294
Total originated loans			2,215	$	78,979	$	95,231
Acquired loans
	Commercial
		C&I	1	3		3
		CRE	2	2,336		2,336
		Total acquired commercial	3	2,339		2,339
	Consumer
		Installment	37	960		1,021
		Home equity lines	121	5,995		6,041
		Residential mortgages	24	1,610		1,836
		Total acquired consumer	182	8,565		8,898
Total acquired loans			185	$	10,904	$	11,237
FDIC acquired loans
	Commercial
		C&I	6	$	177	$	1,620
		CRE	24	35,904		51,067
		Construction	10	650		10,899
		Total FDIC acquired commercial	40	36,731		63,586
	Consumer
		Home equity lines	62	8,458		8,458
		Residential mortgages	2	336		336
		Total FDIC acquired consumer	64	8,794		8,794
Total FDIC acquired loans			104	$	45,525	$	72,380
Total loans
	Commercial
		C&I	46	$	2,853	$	11,655
		CRE	89	56,327		76,308
		Construction	41	650		10,899
		Total commercial	176	59,830		98,862
	Consumer
		Installment	1,275	24,535		25,336
		Home equity lines	458	22,077		22,373
		Credit card	244	912		912
		Residential mortgages	351	28,054		31,365
		Total consumer	2,328	75,578		79,986
Total loans			2,504	$	135,408	$	178,848

Note 1: For originated loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.

Note 2: For acquired and FDIC acquired loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs and remaining purchase discount.

48

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the three and nine months ended September 30, 2015 and 2014 were not materially different. Post-modification balances may include capitalization of unpaid accrued interest and fees associated with the modification as well as forgiveness of principal. Loans modified as TDRs during the three and nine months ended September 30, 2015 and 2014 did not involve the forgiveness of principal; accordingly, the Corporation did not record a charge-off at the modification date. Additionally, capitalization of any unpaid accrued interest and fees assessed to loans modified in the three and nine months ended September 30, 2015 and 2014 were not material to the accompanying consolidated financial statements. Specific allowances for loan losses are established for loans whose terms have been modified in a TDR. Specific reserve allocations are generally assessed prior to loans being modified in a TDR, as most of these loans migrate from the Corporation's internal watch list and have been specifically allocated for as part of the Corporation's normal loan loss provisioning methodology. At September 30, 2015, December 31, 2014, and September 30, 2014, the Corporation had $13.0 million, $0.2 million, and $0.5 million, respectively, in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

49

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The following tables provide a summary of the delinquency status of TDRs along with the specific allowance for loan loss, by loan type, as of September 30, 2015, December 31, 2014, and September 30, 2014, including TDRs that continue to accrue interest and TDRs included in nonperforming assets.

As of September 30, 2015
	Accruing TDRs						Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	27,475	$	1,000	$	28,475	$	2,452	$	6,455	$	8,907	$	37,382	$	2,013
CRE	8,211		84		8,295		816		1,387		2,203		10,498		35
Construction	—		—		—		—		—		—		—		—
Total originated commercial	35,686		1,084		36,770		3,268		7,842		11,110		47,880		2,048
Consumer
Installment	32,062		815		32,877		1,276		153		1,429		34,306		1,012
Home equity lines	6,786		82		6,868		507		19		526		7,394		203
Credit card	643		73		716		—		—		—		716		235
Residential mortgages	13,368		2,646		16,014		4,772		3,530		8,302		24,316		939
Total originated consumer	52,859		3,616		56,475		6,555		3,702		10,257		66,732		2,389
Total originated TDRs	$	88,545	$	4,700	$	93,245	$	9,823	$	11,544	$	21,367	$	114,612	$	4,437
Acquired loans
Commercial
C&I	$	7,205	$	—	$	7,205	$	—	$	—	$	—	$	7,205	$	—
CRE	—		—		—		693		266		959		959		66
Construction	—		—		—		—		—		—		—		—
Total acquired commercial	7,205		—		7,205		693		266		959		8,164		66
Consumer
Installment	980		111		1,091		15		—		15		1,106		56
Home equity lines	7,024		384		7,408		124		—		124		7,532		—
Residential mortgages	1,357		—		1,357		810		12		822		2,179		—
Total acquired consumer	9,361		495		9,856		949		12		961		10,817		56
Total acquired TDRs	$	16,566	$	495	$	17,061	$	1,642	$	278	$	1,920	$	18,981	$	122
FDIC acquired loans
Commercial
C&I	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
CRE	283		11,040		11,323		—		—		—		11,323		2,393
Construction	411		—		411		—		—		—		411		79
Total FDIC acquired commercial	694		11,040		11,734		—		—		—		11,734		2,472
Consumer
Home equity lines	9,700		237		9,937		—		82		82		10,019		24
Residential mortgages	183		—		183		—		—		—		183		—
Total FDIC acquired consumer	9,883		237		10,120		—		82		82		10,202		24
Total FDIC acquired TDRs	$	10,577	$	11,277	$	21,854	$	—	$	82	$	82	$	21,936	$	2,496
Total loans
Commercial
C&I	$	34,680	$	1,000	$	35,680	$	2,452	$	6,455	$	8,907	$	44,587	$	2,013
CRE	8,494		11,124		19,618		1,509		1,653		3,162		22,780		2,494
Construction	411		—		411		—		—		—		411		79
Total commercial	43,585		12,124		55,709		3,961		8,108		12,069		67,778		4,586
Consumer
Installment	33,042		926		33,968		1,291		153		1,444		35,412		1,068
Home equity lines	23,510		703		24,213		631		101		732		24,945		227
Credit card	643		73		716		—		—		—		716		235
Residential mortgages	14,908		2,646		17,554		5,582		3,542		9,124		26,678		939
Total consumer	72,103		4,348		76,451		7,504		3,796		11,300		87,751		2,469
Total TDRs	$	115,688	$	16,472	$	132,160	$	11,465	$	11,904	$	23,369	$	155,529	$	7,055

50

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of December 31, 2014
	Accruing TDRs						Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	6,740	$	—	$	6,740	$	—	$	383	$	383	$	7,123	$	72
CRE	12,885		952		13,837		394		3,376		3,770		17,607		159
Construction	—		—		—		—		—		—		—		—
Total originated commercial	19,625		952		20,577		394		3,759		4,153		24,730		231
Consumer
Installment	22,254		726		22,980		1,663		262		1,925		24,905		1,178
Home equity lines	6,239		269		6,508		871		—		871		7,379		207
Credit card	775		60		835		15		4		19		854		296
Residential mortgages	13,440		3,538		16,978		5,006		3,267		8,273		25,251		1,283
Total originated consumer	42,708		4,593		47,301		7,555		3,533		11,088		58,389		2,964
Total originated TDRs	$	62,333	$	5,545	$	67,878	$	7,949	$	7,292	$	15,241	$	83,119	$	3,195
Acquired loans
Commercial
C&I	$	15	$	—	$	15	$	3	$	—	$	3	$	18	$	18
CRE	—		—		—		978		1,564		2,542		2,542		134
Total acquired commercial	15		—		15		981		1,564		2,545		2,560		152
Consumer
Installment	841		87		928		24		23		47		975		65
Home equity lines	6,186		607		6,793		139		—		139		6,932		9
Residential mortgages	868		—		868		470		295		765		1,633		2
Total acquired consumer	7,895		694		8,589		633		318		951		9,540		76
Total acquired TDRs	$	7,910	$	694	$	8,604	$	1,614	$	1,882	$	3,496	$	12,100	$	228
FDIC acquired loans
Commercial
C&I	$	—	$	177	$	177	$	—	$	—	$	—	$	177	$	—
CRE	5,123		20,376		25,499		—		—		—		25,499		2,879
Construction	339		—		339		—		—		—		339		295
Total FDIC acquired commercial	5,462		20,553		26,015		—		—		—		26,015		3,174
Consumer
Home equity lines	8,561		—		8,561		329		—		329		8,890		27
Residential mortgages	334		—		334		—		—		—		334		21
Total FDIC acquired consumer	8,895		—		8,895		329		—		329		9,224		48
Total FDIC acquired TDRs	$	14,357	$	20,553	$	34,910	$	329	$	—	$	329	$	35,239	$	3,222
Total Loans
Commercial
C&I	$	6,755	$	177	$	6,932	$	3	$	383	$	386	$	7,318	$	90
CRE	18,008		21,328		39,336		1,372		4,940		6,312		45,648		3,172
Construction	339		—		339		—		—		—		339		295
Total commercial	25,102		21,505		46,607		1,375		5,323		6,698		53,305		3,557
Consumer
Installment	23,095		813		23,908		1,687		285		1,972		25,880		1,243
Home equity lines	20,986		876		21,862		1,339		—		1,339		23,201		243
Credit card	775		60		835		15		4		19		854		296
Residential mortgages	14,642		3,538		18,180		5,476		3,562		9,038		27,218		1,306
Total consumer	59,498		5,287		64,785		8,517		3,851		12,368		77,153		3,088
Total TDRs	$	84,600	$	26,792	$	111,392	$	9,892	$	9,174	$	19,066	$	130,458	$	6,645

51

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of September 30, 2014
	Accruing TDRs						Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	594	$	—	$	594	$	116	$	1,963	$	2,079	$	2,673	$	653
CRE	14,350		—		14,350		1,562		2,175		3,737		18,087		70
Construction	—		—		—		—		—		—		—		—
Total originated commercial	14,944		—		14,944		1,678		4,138		5,816		20,760		723
Consumer
Installment	21,046		533		21,579		1,847		149		1,996		23,575		1,086
Home equity lines	6,479		180		6,659		915		50		965		7,624		190
Credit card	800		97		897		—		15		15		912		322
Residential mortgages	14,228		3,384		17,612		5,113		3,383		8,496		26,108		1,435
Total originated consumer	42,553		4,194		46,747		7,875		3,597		11,472		58,219		3,033
Total originated TDRs	$	57,497	$	4,194	$	61,691	$	9,553	$	7,735	$	17,288	$	78,979	$	3,756
Acquired loans
Commercial
C&I	$	—	$	—	$	—	$	3	$	—	$	3	$	3	$	3
CRE	1,627		—		1,627		709		—		709		2,336		148
Total acquired commercial	1,627		—		1,627		712		—		712		2,339		151
Consumer
Installment	842		75		917		25		18		43		960		137
Home equity lines	5,764		89		5,853		142		—		142		5,995		—
Residential mortgages	824		—		824		737		49		786		1,610		14
Total acquired consumer	7,430		164		7,594		904		67		971		8,565		151
Total acquired TDRs	$	9,057	$	164	$	9,221	$	1,616	$	67	$	1,683	$	10,904	$	302
FDIC acquired loans
Commercial
C&I	$	—	$	177	$	177	$	—	$	—	$	—	$	177	$	—
CRE	5,729		30,175		35,904		—		—		—		35,904		2,949
Construction	650		—		650		—		—		—		650		55
Total FDIC acquired commercial	6,379		30,352		36,731		—		—		—		36,731		3,004
Consumer
Home equity lines	7,498		624		8,122		336		—		336		8,458		—
Residential mortgages	336		—		336		—		—		—		336		26
Total FDIC acquired consumer	7,834		624		8,458		336		—		336		8,794		26
Total FDIC acquired TDRs	$	14,213	$	30,976	$	45,189	$	336	$	—	$	336	$	45,525	$	3,030
Total loans
Commercial
C&I	$	594	$	177	$	771	$	119	$	1,963	$	2,082	$	2,853	$	656
CRE	21,706		30,175		51,881		2,271		2,175		4,446		56,327		3,167
Construction	650		—		650		—		—		—		650		55
Total commercial	22,950		30,352		53,302		2,390		4,138		6,528		59,830		3,878
Consumer
Installment	21,888		608		22,496		1,872		167		2,039		24,535		1,223
Home equity lines	19,741		893		20,634		1,393		50		1,443		22,077		190
Credit card	800		97		897		—		15		15		912		322
Residential mortgages	15,388		3,384		18,772		5,850		3,432		9,282		28,054		1,475
Total consumer	57,817		4,982		62,799		9,115		3,664		12,779		75,578		3,210
Total TDRs	$	80,767	$	35,334	$	116,101	$	11,505	$	7,802	$	19,307	$	135,408	$	7,088

52

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Corporation evaluates the loan for possible further impairment. The ALL may be increased, adjustments may be made in the allocation of the ALL, or partial charge-offs may be taken to further write-down the carrying value of the loan. In the event of a subsequent default, the ALL continues to be reassessed on the basis of an individual evaluation of the loan.

The following tables provide the number of loans modified in a TDR within the previous 12 months that subsequently defaulted during the three months ended September 30, 2015 and September 30, 2014, as well as the amount defaulted in these restructured loans.

53

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

	Three Months Ended September 30, 2015
(Dollars in thousands)	Number of Loans	Amount Defaulted
Originated loans
Commercial
C&I	1	$	1,691
CRE	—	—
Construction	—	—
Total originated commercial	1	1,691
Consumer
Installment	1	26
Home equity lines	—	—
Credit card	4	23
Residential mortgages	1	82
Total originated consumer	6	$	131
FDIC acquired loans
Commercial
C&I	—	$	—
CRE	—	—
Construction	—	—
Total FDIC acquired commercial	—	$	—
Acquired loans
Commercial
C&I	—	$	—
CRE	—	—
Construction	—	—
Total acquired commercial	—	$	—
Consumer
Installment	—	—
Home equity lines	—	—
Residential mortgages	—	—
Total acquired consumer	—	$	—
Total loans
Commercial
C&I	1	$	1,691
CRE	—	—
Construction	—	—
Total commercial	1	1,691
Consumer
Installment	1	26
Home equity lines	—	—
Credit card	4	23
Residential mortgages	1	82
Total consumer	6	131
Total	7	$	1,822

54

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

	Three Months Ended September 30, 2014
(Dollars in thousands)	Number of Loans	Recorded Investment
Originated loans
Commercial
C&I	3	$	115
CRE	1	328
Construction	—	—
Total originated commercial	4	443
Consumer
Installment	4	22
Home equity lines	—	—
Credit card	—	—
Residential mortgages	—	—
Total originated consumer	4	$	22
FDIC acquired loans
Commercial
C&I	—	$	—
CRE	—	—
Construction	—	—
Total FDIC acquired commercial	—	$	—
Acquired loans
Commercial
C&I	—	$	—
CRE	—	—
Construction	—	—
Total acquired commercial	—	—
Consumer
Installment	1	77
Home equity lines	1	61
Residential mortgages	—	—
Total acquired consumer	2	$	138
Total loans
Commercial
C&I	3	$	115
CRE	1	328
Construction	—	—
Total commercial	4	443
Consumer
Installment	5	99
Home equity lines	1	61
Credit card	—	—
Residential mortgages	—	—
Total consumer	6	160
Total	10	$	603

55

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

5.     Goodwill and Other Intangible Assets

Goodwill

Goodwill totaled $741.7 million as of September 30, 2015, December 31, 2014, and September 30, 2014. Goodwill is not amortized but is evaluated for impairment on an annual basis at November 30 of each year or whenever events or changes in circumstances indicate the carrying value may not be recoverable. No events or circumstances since the November 30, 2014 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.

Other Intangible Assets

The Corporation has other intangible assets that are amortized, consisting of core deposit intangibles, lease intangibles and trust relationship intangibles. The following tables show the gross carrying amount, accumulated amortization, and net carrying amount of these intangible assets.

	September 30, 2015
	Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount
Core deposit intangibles (1)	$	82,323	$	(26,227	)	$	56,096
Lease intangible	238		(203		)	35
Trust Relationships (2)	14,000		(6,905		)	7,095
	$	96,561	(33,335		)	$	63,226
	December 31, 2014
	Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount
Core deposit intangibles (1)	$	82,323	$	(19,996	)	$	62,327
Lease intangible	238		(176		)	62
Trust Relationships (2)	14,000		(5,369		)	8,631
	$	96,561	$	(25,541	)	$	71,020
	September 30, 2014
	Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount
Core deposit intangibles (1)	$	82,323	$	(17,712	)	$	64,611
Lease intangible	238		(167		)	71
Trust relationships (2)	14,000		(4,729		)	9,271
	$	96,561	$	(22,608	)	$	73,953

(1) Core deposit intangibles are amortized on an accelerated basis over their estimated useful lives, which range from 10-15 years.

(2) Trust relationship intangibles are amortized on an accelerated basis on their estimated useful lives of 12 years.

Amortization expense for intangible assets was $7.8 million in the nine months endedSeptember 30, 2015, compared to $8.8 million in the nine months endedSeptember 30, 2014. Estimated amortization expense for each of the next five years is as follows: remainder of 2015 - $2.6 million; 2016 - $9.2 million; 2017 - $8.2 million; 2018 - $7.3 million; and 2019 - $6.5 million.

56

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

6.     Shareholders' Equity

Common Stock Warrant

On May 13, 2015, the Corporation repurchased a warrant previously issued by Citizens to the U.S. Treasury. The warrant, which entitled the U.S. Treasury to purchase 2,571,998 shares of FirstMerit Common Stock at an adjusted strike price of $17.50, was purchased for $12.2 million. In accordance with GAAP, the Corporation recorded a reduction to capital surplus in the amount of $9.2 million in conjunction with this warrant repurchase that reflected the excess amount paid over the previously stated amount.

Preferred Stock

The Corporation has 7,000,000 shares of authorized Preferred Stock and has designated 115,000 shares of its Preferred Stock as 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, of which 100,000 shares were issued. The Preferred Stock pays cash dividends quarterly in arrears on the 4^th day of February, May, August, and November.

Earnings Per Share

Basic net income per common share is calculated using the two-class method to determine income attributable to common shareholders. Net income attributable to Common Stock is then divided by the weighted-average number of Common Stock outstanding during the period.

Diluted net income per common share is calculated under the more dilutive of either the treasury method or two-class method. Adjustments to the weighted-average number of shares of Common Stock outstanding are made only when such adjustments will dilute earnings per common share. Net income attributable to Common Stock is then divided by the weighted-average number of Common Stock and Common Stock equivalents outstanding during the period.

57

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The reconciliation between basic and diluted EPS using the two-class method and treasury stock method is presented as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	2015		2014		2015		2014
Basic EPS:
Net income	$	59,012	$	63,898	$	172,735	$	176,872
Less:
Cash dividends on 5.875% non-cumulative perpetual series A, Preferred Stock	1,469		1,469		4,407		4,407
Income allocated to participating securities	477		519		1,401		1,433
Net income attributable to common shareholders	$	57,066	$	61,910	$	166,927	$	171,032
Weighted average Common Stock outstanding used in basic EPS	165,762		165,389		165,638		165,263
Basic net income per common share	$	0.34	$	0.37	$	1.01	$	1.03
Diluted EPS:
Income used in diluted earnings per common share calculation	$	57,066	$	61,910	$	166,927	$	171,032
Weighted average Common Stock outstanding used in basic EPS	165,762		165,389		165,638		165,263
Add: Common Stock equivalents:
Stock plans and warrant	296		415		301		653
Weighted average Common and Common Stock equivalent shares outstanding	166,058		165,804		165,939		165,916
Diluted net income per common share	$	0.34	$	0.37	$	1.01	$	1.03

Common Stock equivalents consist of employee stock award plans and the Common Stock warrant. These Common Stock equivalents do not enter into the calculation of diluted EPS if the impact would be anti-dilutive, that is, increase EPS or reduce a loss per share. Antidilutive potential Common Stock for the nine months endedSeptember 30,2015 and 2014 totaled 0.8 million and 0.9 million, respectively.

58

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

7.     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 financial management practices 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, core business banking, 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, treasury management, government banking, international banking, merchant card and other depository products and services.

• Retail – The retail line of business includes consumer lending and deposit gathering, residential mortgage loan origination and servicing, and branch-based small business banking. Retail offers a variety of retail financial products and services including consumer direct and indirect installment loans, debit and credit 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, eliminating 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 functions 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) to the 2014 Form 10-K. 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

59

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

and liabilities within each business unit. In the first quarter of 2014, Management changed the estimate regarding the funds transfer pricing crediting rate provided on non-maturity deposits.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.

60

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Substantially all of the Corporation’s business is conducted in the United States of America. The following tables present a summary of financial results as of and for the three and nine months ended September 30, 2015 and September 30, 2014:

																					FirstMerit
(In thousands)	Commercial				Retail				Wealth						Other						Consolidated
September 30, 2015	QTD		YTD		QTD		YTD		QTD			YTD			QTD			YTD			QTD		YTD
OPERATIONS:
Net interest income/(loss)	$	101,800	$	304,630	$	93,089	$	277,616	$	5,595		$	16,527		$	(15,161	)	$	(42,709	)	$	185,323	$	556,064
Provision/ (recapture) for loan losses	611		2,370		6,470		22,451		(10		)	(181		)	7,204			6,849			14,275		31,489
Noninterest income	24,525		68,933		25,634		71,335		15,072			43,864			6,195			19,723			71,426		203,855
Noninterest expense	59,394		182,078		87,748		263,818		13,795			40,975			(195		)	(3,803		)	160,742		483,068
Net income/(loss)	43,108		122,924		15,928		40,743		4,474			12,737			(4,498		)	(3,669		)	59,012		172,735
AVERAGES:
Assets	$	9,457,387	$	9,449,821	$	6,101,141	$	5,967,011	$	299,049		$	297,333		$	9,360,279		$	9,369,444		$	25,217,856	$	25,083,609
Loans	9,558,281		9,533,074		5,856,383		5,710,709		290,054			287,687			55,409			57,974			15,760,127		15,589,444
Earning assets	9,880,128		9,834,806		5,863,020		5,718,783		290,054			287,687			6,515,775			6,494,407			22,548,977		22,335,683
Deposits	7,315,350		6,994,812		10,936,682		11,054,911		1,186,530			1,205,152			519,024			555,466			19,957,586		19,810,341
Economic capital	1,272,961		1,323,567		841,818		789,857		122,082			114,051			672,799			662,169			2,909,660		2,889,644

																					FirstMerit
(In thousands)	Commercial						Retail				Wealth				Other						Consolidated
September 30, 2014	QTD			YTD			QTD		YTD		QTD		YTD		QTD			YTD			QTD		YTD
OPERATIONS:
Net interest income/(loss)	$	104,177		$	314,600		$	96,833	$	287,287	$	5,246	$	14,963	$	(12,678	)	$	(33,793	)	$	193,578	$	583,057
Provision/ (recapture) for loan losses	(4,988		)	(628		)	9,791		30,573		362		713		4,028			8,324			9,192		38,982
Noninterest income	21,096			69,083			28,382		80,923		14,108		41,624		6,147			17,933			69,733		209,564
Noninterest expense	59,984			187,391			87,379		273,470		13,571		40,266		2,211			(1,249		)	163,145		499,878
Net income/(loss)	46,477			130,362			18,229		41,709		3,524		10,145		(4,333		)	(5,344		)	63,898		176,872
AVERAGES:
Assets	$	9,407,684		$	9,225,407		$	5,709,775	$	5,573,598	$	289,549	$	263,513	$	9,176,768		$	9,275,135		$	24,583,776	$	24,337,653
Loans	9,409,391			9,217,146			5,394,284		5,226,262		278,930		252,694		65,495			60,892			15,148,100		14,756,994
Earning assets	9,715,918			9,497,907			5,421,861		5,248,016		278,930		252,694		6,387,534			6,363,215			21,804,243		21,361,832
Deposits	6,777,220			6,656,638			11,335,468		11,601,531		1,139,703		1,066,981		279,409			229,499			19,531,800		19,554,649
Economic capital	1,339,923			1,313,571			757,722		735,499		102,989		100,127		607,252			620,897			2,807,886		2,770,095

8.     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.

61

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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's fixed rate loans result in exposure to losses in value as interest rates change. The risk management objective for hedging fixed rate loans is to convert the fixed rate received to a floating rate. The Corporation hedges exposure to changes in the fair value of fixed rate loans through the use of swaps. For a qualifying fair value hedge, changes in the value of the derivatives that have been highly effective as hedges are recognized in current period earnings along with the corresponding changes in the fair value of the designated hedged item attributable to the risk being hedged.

At September 30, 2015, December 31, 2014, and September 30, 2014, the notional values or contractual amounts and fair value of the Corporation's derivatives designated in hedge relationships were as follows:

	Asset Derivatives												Liability Derivatives
	September 30, 2015				December 31, 2014				September 30, 2014				September 30, 2015				December 31, 2014				September 30, 2014
(In thousands)	Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (2)		Notional/ Contract Amount		Fair Value (2)		Notional/ Contract Amount		Fair Value (2)
Interest rate swaps:
Commercial Loan Swaps (FRAPS)	$	—	$	—	$	—	$	—	$	—	$	—	$	69,136	$	4,578	$	93,313	$	6,683	$	100,490	$	7,584
Sub Debt Swap	250,000		12,610		250,000		5,256		—		—		—		—		—		—		—		—
Fair value hedges	$	250,000	$	12,610	$	250,000	$	5,256	$	—	$	—	$	69,136	$	4,578	$	93,313	$	6,683	$	100,490	$	7,584

(1)Included in "Other assets" on the Consolidated Balance Sheets

(2)Included in "Other liabilities" on the Consolidated Balance Sheets

Fair Value Hedges.Prior to 2009, the Corporation entered into interest rate swaps with dealer counterparties to convert certain fixed rate loans to variable rate instruments over the terms of the loans (termed by the Corporation as the FRAP Program). These interest rate swaps are designated as fair value hedges and met the criteria to qualify for the short cut method of accounting. Based on this shortcut method of accounting treatment, no ineffectiveness is assumed. The Corporation discontinued originating interest rate swaps under the FRAP Program in February 2008.

During the fourth quarter of 2014, the Corporation entered into a $250.0 million interest rate swap simultaneously with its long-term debt issuance for interest rate risk management purposes. This interest rate swap effectively modifies the receipt of fixed-rate interest amounts in exchange for floating-rate interest payments over the life of the swap, without an exchange of the underlying principal amount. This interest rate swap was designated as a fair value hedge, and through application of the “shortcut method of accounting”, there is an assumption that the hedge is effective in offsetting changes in the fair value of the long-term debt due to changes in the U.S. LIBOR swap rate (the designated benchmark interest rate).

62

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Derivatives Not Designated in Hedge Relationships

As of September 30, 2015, December 31, 2014, and September 30, 2014, the notional values or contractual amounts and fair value of the Corporation's derivatives not designated in hedge relationships were as follows:

	Asset Derivatives												Liability Derivatives
	September 30, 2015				December 31, 2014				September 30, 2014				September 30, 2015				December 31, 2014				September 30, 2014
(In thousands)	Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (2)		Notional/ Contract Amount		Fair Value (2)		Notional/ Contract Amount		Fair Value (2)
Interest rate swaps	$	1,745,769	$	63,171	$	1,673,012	$	48,366	$	1,655,371	$	40,937	$	1,745,769	$	63,171	$	1,673,012	$	48,366	$	1,655,371	$	40,937
Mortgage loan commitments	30,500		279		102,523		1,408		167,634		1,975		—		—		—		—		—		—
Forward sales contracts	—		—		—		—		—		—		12,896		75		47,657		272		67,528		91
Credit contracts	—		—		10,001		—		20,504		—		84,219		—		69,227		—		58,157		—
Foreign exchange	12,376		136		22,406		167		14,745		185		11,946		112		6,580		118		14,074		153
Equity swap	—		—		—		—		—		—		32,904		—		25,198		—		30,964		515
Total	$	1,788,645	$	63,586	$	1,807,942	$	49,941	$	1,858,254	$	43,097	$	1,887,734	$	63,358	$	1,821,674	$	48,756	$	1,826,094	$	41,696

(1)Included in "Other assets" on the Consolidated Balance Sheets

(2) Included in "Other liabilities" on the Consolidated Balance Sheets

Interest Rate Swaps. The Corporation's Back-to-Back Program is an interest rate swap program for commercial loan customers that 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.

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. 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 result 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.

63

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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. 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.

Credit contracts. The Corporation has bought and sold credit protection in the form of participations in interest rate swaps (swap participations). These swap participations, which meet the definition of credit derivatives, were entered into in the ordinary course of business. Credit derivatives, whereby the Corporation has purchased credit protection, entitles the Corporation to receive a payment from the counterparty when the customer fails to make payment on any amounts due to the Corporation. Swap participations whereby the Corporation has purchased credit protection have maturities that range between three to eight years. For swap participations where the Corporation sold credit protection, the Corporation has guaranteed payment in the event that the counterparty experiences a loss on the 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. Credit derivatives whereby the Corporation has sold credit protection have maturities ranging from less than one year to ten years. The Corporation's maximum estimated exposure to sold 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 $5.7 million as of September 30, 2015. The fair values of the written swap participations were not material at September 30, 2015, December 31, 2014, and September 30, 2014.

Gains and losses recognized in income on non-designated hedging instruments for the three and nine months ended September 30, 2015 and 2014 are as follows:

Derivatives not designated as hedging instruments	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain / (Loss) Recognized in Income on Derivatives (In thousands)
		Three Months Ended September 30,						Nine Months Ended September 30,
		2015			2014			2015			2014
Mortgage loan commitments	Loan sales and servicing income	$	(63	)	$	(516	)	$	(1,129	)	$	1,084
Forward sales contracts	Loan sales and servicing income	(181		)	454			197			(476		)
Foreign exchange contracts	Other operating income	(936		)	(124		)	(1,648		)	(17		)
Equity swap	Other operating expense	—			(515		)	—			(515		)
Total		$	(1,180	)	$	(701	)	$	(2,580	)	$	76

Counterparty Credit Risk

Like other financial instruments, derivatives contain an element of "credit risk" or the possibility that the Corporation will incur a loss because a counterparty, which may be a bank, a broker-dealer, a derivative clearing organization, 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

64

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

counterparties approved by the Corporation's Board of Directors. 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 with collateral delivery thresholds on all bilateral derivatives. 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 approved by the Corporation's Board of Directors. The Corporation generally posts collateral in the form of highly rated Government Agency issued bonds or MBS.

The majority of the Corporation's over-the-counter derivative transactions are cleared through a recognized derivative clearing organization ("Clearinghouse"). For cleared derivatives, the Clearinghouse is the Corporation's counterparty. The Clearinghouse notifies the clearing agent of the required initial and variation margin and the clearing agent notifies the Corporation of the required initial and variation margin. The requirement that the Corporation post initial and variation margin through the clearing agent to the Clearinghouse exposes the Corporation to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral is posted daily through a clearing agent for changes in the value of cleared derivatives.

The fair value of investment securities posted as collateral against derivative liabilities was $49.0 million, $53.5 million, and $55.0 million as of September 30, 2015, December 31, 2014, and September 30, 2014, respectively.

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 the Corporation has with its financial institution counterparties. These master netting agreements allow the Corporation to settle all derivative contracts held with a single financial institution counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. Collateral, usually in the form of investment securities, is posted by the counterparty in the net liability position in accordance with contract thresholds. The following tables illustrate the potential effect of the Corporation's derivative master netting arrangements, by type of financial instrument, on the Corporation's statement of financial position as of September 30, 2015, December 31, 2014, and September 30, 2014. The swap agreements the Corporation has in place with its commercial customers are not subject to enforceable master netting arrangements, and, therefore, are excluded from these tables.

	As of September 30, 2015
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet		Net amounts presented in the consolidated balance sheet		Gross amounts not offset in the consolidated balance sheet						Net amount
(In thousands)							Financial instruments (1)			Collateral (2)
Derivative Assets
Interest rate swaps - designated	$	12,610	$	—	$	12,610	$	—		$	—		$	12,610
Interest rate swaps - non-designated	100		$	—	100		(100		)	—			—
Foreign exchange	44		—		44		(44		)	—			—
Total derivative assets	$	12,754	$	—	$	12,754	$	(144	)	$	—		$	12,610
Derivative liabilities
Interest rate swaps - designated	$	4,578	$	—	$	4,578	$	—		$	(4,578	)	$	—
Interest rate swaps - non-designated	63,068		—		63,068		(100		)	(62,968		)	—
Foreign exchange	85		—		85		(44		)	(41		)	—
Total derivative liabilities	$	67,731	$	—	$	67,731	$	(144	)	$	(67,587	)	$	—

65

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

	As of December 31, 2014
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet		Net amounts presented in the consolidated balance sheet		Gross amounts not offset in the consolidated balance sheet						Net amount
(In thousands)							Financial instruments (1)			Collateral (2)
Derivative assets
Interest rate swaps - designated	$	5,256	$	—	$	5,256	$	—		$	—		$	5,256
Interest rate swaps - non-designated	352		—		352		(352		)	—			—
Foreign exchange	134		—		134		(28		)	(106		)	—
Total derivative assets	$	5,742	$	—	$	5,742	$	(380	)	$	(106	)	$	5,256
Derivative liabilities
Interest rate swaps - designated	$	6,683	$	—	$	6,683	$	—		$	(6,683	)	$	—
Interest rate swaps - non-designated	48,014		—		48,014		(352		)	(47,662		)	—
Foreign exchange	28		—		28		(28		)	—			—
Total derivative liabilities	$	54,725	$	—	$	54,725	$	(380	)	$	(54,345	)	$	—

	As of September 30, 2014
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet		Net amounts presented in the consolidated balance sheet		Gross amounts not offset in the consolidated balance sheet						Net amount
(In thousands)							Financial instruments (1)			Collateral (2)
Derivative assets
Interest rate swaps - non-designated	$	1,498	$	—	$	1,498	$	(1,498	)	$	—		$	—
Foreign exchange	180		—		180		—			(180		)	—
Total derivative assets	$	1,678	$	—	$	1,678	$	(1,498	)	$	(180	)	$	—
Derivative liabilities
Interest rate swaps - designated	$	7,584	$	—	$	7,584	$	—		$	(7,584	)	$	—
Interest rate swaps - non-designated	39,439		—		39,439		(1,498		)	(37,941		)	—
Foreign exchange	—		—		—		—			—			—
Total derivative liabilities	$	47,023	$	—	$	47,023	$	(1,498	)	$	(45,525	)	$	—

(1) For derivative assets, this includes any derivative liability fair values that could be offset in the event of counterparty default. For derivative liabilities, this includes any derivative asset fair values that could be offset in the event of counterparty default.

(2) For derivate assets, this includes the fair value of collateral received by the Corporation from the counterparty. Securities received as collateral are not included in the Consolidated Balance Sheets unless the counterparty defaults. For derivative liabilities, this includes the fair value of securities pledged by the Corporation to the counterparty. These securities are included in the Consolidated Balance Sheets unless the Corporation defaults.

66

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

9.     Benefit Plans

The Corporation sponsors several qualified and nonqualified pension and other postretirement plans for certain of its employees. The net periodic pension cost is based on estimated values provided by an outside actuary. The components of net periodic benefit cost are as follows:

	Pension Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2015			2014			2015			2014
Service cost	$	207		$	182		$	622		$	546
Interest cost	3,517			3,584			10,552			10,753
Expected return on assets	(3,902		)	(4,009		)	(11,706		)	(12,026		)
Amortization of unrecognized prior service costs	570			633			1,709			1,965
Amortization of actuarial losses/(gains)	1,057			708			3,169			2,221
Net periodic pension cost	$	1,449		$	1,098		$	4,346		$	3,459

	Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2015			2014			2015			2014
Service cost	$	41		$	16		$	124		$	49
Interest cost	144			164			432			491
Amortization of unrecognized prior service costs	(160		)	(117		)	(479		)	(351		)
Amortization of actuarial losses/(gains)	81			59			245			177
Net periodic postretirement cost	$	106		$	122		$	322		$	366

For further information on the Corporation's employee benefit plans, refer to Note 14 (Benefit Plans) to the consolidated financial statements in the 2014 Form 10-K.

10.    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.

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 follows:

• Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

67

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

• Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3 — Significant unobservable inputs that reflect a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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.

Valuation adjustments, such as those pertaining to counterparty and the Corporation's own credit quality and liquidity, may be necessary to ensure that assets and liabilities are recorded at fair value.  Credit valuation adjustments are made when market pricing does not accurately reflect the counterparty's credit quality.  As determined by Management, liquidity valuation adjustments may be made to the fair value of certain assets to reflect the uncertainty in the pricing and trading of the instruments when Management is unable to observe recent market transactions for identical or similar instruments. Liquidity valuation adjustments are based on the following factors:

• the amount of time since the last relevant valuation;

• whether there is an actual trade or relevant external quote available at the measurement date; and

• volatility associated with the primary pricing components.

Management ensures that fair value measurements are accurate and appropriate by relying upon various controls, including:

• an independent review and approval of valuation models;

• recurring detailed reviews of profit and loss; and

• a validation of valuation model components against benchmark data and similar products, where possible.  

Management reviews any changes to its valuation methodologies to ensure they are appropriate and justified, and refines valuation methodologies as more market-based data becomes available.  Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period.

Additional information regarding the Corporation's accounting policies for determining fair value is provided in Note 1 (Summary of Significant Accounting Policies) under the heading "Fair Value Measurements" to the 2014 Form 10-K.

68

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The following tables present the balance of assets and liabilities measured at fair value on a recurring and nonrecurring basis as of September 30, 2015, December 31, 2014, and September 30, 2014:

			Fair Value by Hierarchy
(In thousands)	September 30, 2015		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	2,781	$	2,781	$	—	$	—
U.S. treasury notes & bonds	5,005		—		5,005		—
U.S. government agency debentures	2,516		—		2,516		—
U.S. States and political subdivisions	200,810		—		200,810		—
Residential mortgage-backed securities:
U.S. government agencies	945,624		—		945,624		—
Commercial mortgage-backed securities:
U.S. government agencies	155,076		—		155,076		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	2,022,959		—		2,022,959		—
Non-agency	5		—		—		5
Commercial collateralized mortgage-backed securities:
U.S. government agencies	243,960		—		243,960		—
Corporate debt securities	54,537		—		—		54,537
Asset-backed securities:
Collateralized loan obligations	292,451		—		—		292,451
Total available for sale securities	3,925,724		2,781		3,575,950		346,993
Residential loans held for sale	7,781		—		7,781		—
Derivative assets:
Interest rate swaps - fair value hedges	12,610		—		12,610		—
Interest rate swaps - nondesignated	63,171		—		63,171		—
Mortgage loan commitments	279		—		279		—
Foreign exchange	136		—		136		—
Total derivative assets	76,196		—		76,196		—
Total fair value of assets (1)	$	4,009,701	$	2,781	$	3,659,927	$	346,993
Derivative liabilities:
Interest rate swaps - fair value hedges	$	4,578	$	—	$	4,578	$	—
Interest rate swaps - nondesignated	63,171		—		63,171		—
Forward sales contracts	75		—		75		—
Foreign exchange	112		—		112		—
Total derivative liabilities	67,936		—		67,936		—
True-up liability	13,572		—		—		13,572
Total fair value of liabilities (1)	$	81,508	$	—	$	67,936	$	13,572
Nonrecurring fair value measurement
Mortgage servicing rights (2)	$	19,556	$	—	$	—	$	19,556
Impaired loans (3)	80,386		—		—		80,386
Other property (4)	16,050		—		—		16,050
Total nonrecurring fair value	$	115,992	$	—	$	—	$	115,992

(1) There were no transfers between levels 1, 2 or 3 of the fair value hierarchy during the three months ended September 30, 2015.

(2) MSRs with a recorded investment of $19.8 million were reduced by a specific valuation allowance totaling $0.6 million to a reported carrying value of $19.2 million resulting in recognition of $0.1 million in expense included in loan sales and servicing income in the three months ended September 30, 2015.

(3) At September 30, 2015, collateral dependent impaired loans with a recorded investment of $89.8 million were reduced by specific valuation allowance allocations totaling $9.4 million to a reported net carrying value of $80.4 million.

69

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

(4) Amounts do not include assets held at cost at September 30, 2015. During the three months ended September 30, 2015, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.4 million included in noninterest expense.

			Fair Value by Hierarchy
(In thousands)	December 31, 2014		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	2,974	$	2,974	$	—	$	—
U.S. government agency debentures	2,482		—		2,482		—
U.S. States and political subdivisions	227,342		—		227,342		—
Residential mortgage-backed securities:
U.S. government agencies	970,998		—		970,998		—
Commercial mortgage-backed securities:
U.S. government agencies	103,403		—		103,403		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,676,567		—		1,676,567		—
Non-agency	7		—		1		6
Commercial collateralized mortgage-backed securities:
U.S. government agencies	222,334		—		222,334		—
Corporate debt securities	51,337		—		—		51,337
Asset-backed securities
Collateralized loan obligations	287,844		—		—		287,844
Total available-for-sale securities	3,545,288		2,974		3,203,127		339,187
Residential loans held for sale	14,389		—		14,389		—
Derivative assets:
Interest rate swaps - fair value hedges	5,256		—		5,256		—
Interest rate swaps - nondesignated	48,366		—		48,366		—
Mortgage loan commitments	1,408		—		1,408		—
Forward sale contracts	—		—		—		—
Foreign exchange	167		—		167		—
Total derivative assets	55,197		—		55,197		—
Total fair value of assets (1)	$	3,614,874	$	2,974	$	3,272,713	$	339,187
Derivative liabilities:
Interest rate swaps - fair value hedges	$	6,683	$	—	$	6,683	$	—
Interest rate swaps - nondesignated	48,366		—		48,366		—
Forward sale contracts	272		—		272		—
Foreign exchange	118		—		118		—
Total derivative liabilities	55,439		—		55,439		—
True-up liability	13,294		—		—		13,294
Total fair value of liabilities (1)	$	68,733	$	—	$	55,439	$	13,294
Nonrecurring fair value measurement
Mortgage servicing rights (2)	$	21,228	$	—	$	—	$	21,228
Impaired loans (3)	56,041		—		—		56,041
Other property (4)	12,510		—		—		12,510
Other real estate covered by loss share (5)	3,614		—		—		3,614
Total nonrecurring fair value	$	93,393	$	—	$	—	$	93,393

(1) There were no transfers between levels 1, 2 or 3 of the fair value hierarchy during the year ended December 31, 2014.  

(2) MSRs with a recorded investment of $22.0 million were reduced by a specific valuation allowance totaling $1.0 million to a reported carrying value of $21.1 million resulting in a recovery of previously recognized expense of $0.7 million in recoveries included in loans sales and servicing income in the year ended December 31, 2014.

70

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

(3)At December 31, 2014, collateral dependent impaired loans with a recorded investment of $60.3 million were reduced by specific valuation allowance allocations totaling $4.3 million to a reported net carrying value of $56.0 million.

(4) Amounts do not include assets held at cost at December 31, 2014. During the year ended December 31, 2014, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $2.6 million included in noninterest expense.

(5) Amounts do not include assets held at cost at December 31, 2014. During the year ended December 31, 2014, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $1.2 million included in noninterest expense.

71

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

			Fair Value by Hierarchy
(In thousands)	September 30, 2014		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	2,916	$	2,916	$	—	$	—
Non-marketable equity securities	2,500				—		2,500
U.S. States and political subdivisions	237,067		—		237,067		—
Residential mortgage-backed securities:
U.S. government agencies	996,387		—		996,387		—
Commercial mortgage-backed securities:
U.S. government agencies	84,764		—		84,764		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,600,317		—		1,600,317		—
Non-agency	7		—		1		6
Commercial collateralized mortgage-backed securities:
U.S. government agencies	194,017		—		194,017		—
Corporate debt securities	54,594		—		—		54,594
Asset-backed securities:
Collateralized loan obligations	290,421		—		—		290,421
Total available-for-sale securities	3,462,990		2,916		3,112,553		347,521
Residential loans held for sale	19,512		—		19,512		—
Derivative assets:
Interest rate swaps - fair value hedges	—		—		—		—
Interest rate swaps - nondesignated	40,937		—		40,937		—
Mortgage loan commitments	1,975		—		1,975		—
Forward sale contracts	—		—		—		—
Foreign exchange	185		—		185		—
Total derivative assets	43,097		—		43,097		—
Total fair value of assets (1)	$	3,525,599	$	2,916	$	3,175,162	$	347,521
Derivative liabilities:
Interest rate swaps - fair value hedges	$	7,584	$	—	$	7,584	$	—
Interest rate swaps - nondesignated	40,937		—		40,937		—
Forward sale contracts	91		—		91		—
Foreign exchange	153		—		153		—
Equity swap	515		—		—		515
Total derivative liabilities	49,280		—		48,765		515
True-up liability	12,804		—		—		12,804
Total fair value of liabilities (1)	$	62,084	$	—	$	48,765	$	13,319
Nonrecurring fair value measurement
Mortgage servicing rights (2)	$	22,229	$	—	$	—	$	22,229
Impaired loans (3)	55,406		—		—		55,406
Other property (4)	14,896		—		—		14,896
Other real estate covered by loss share (5)	5,798		—		—		5,798
Total nonrecurring fair value	$	98,329	$	—	$	—	$	98,329

(1) There were no transfers between levels 1, 2 and 3 of the fair value hierarchy during the three months ended September 30, 2014.

(2) MSRs with a recorded investment of $22.2 million were reduced by a specific valuation allowance totaling $0.5 million to a reported carrying value of $21.7 million resulting in recovery of a previously recognized expense of $0.1 million in the three months ended September 30, 2014.

(3) At September 30, 2014, collateral dependent impaired loans with a recorded investment of $59.9 million were reduced by specific valuation allowance allocations totaling $4.5 million to a reported net carrying value of $55.4 million.

72

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

(4) Amounts do not include assets held at cost at September 30, 2014. During the three months ended September 30, 2014, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.7 million included in noninterest expense.

(5) Amounts do not include assets held at cost at September 30, 2014. During the three months ended September 30, 2014, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.1 million included in noninterest expense.

The following section describes the valuation methodologies used by the Corporation to measure financial assets and liabilities at fair value. During the three months ended September 30, 2015 and 2014, there were no significant changes to the valuation techniques used by the Corporation to measure fair value.    

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.

Securities are classified as Level 2 if quoted prices for identical securities are not available, and fair value is determined using pricing models by a third-party pricing service.   Approximately 91% of the available-for-sale portfolio is Level 2. For the majority of available-for sale securities, the Corporation obtains fair value measurements from an independent third party pricing service. These instruments include: municipal bonds; bonds backed by the U.S. government; corporate bonds; MBS; securities issued by the U.S. Treasury; and certain agency CMOs.  The independent pricing service uses industry-standard models to price U.S. government agencies and MBS 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. Obligations of state and political subdivisions are valued using a 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 for securities classified as Level 2 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.

Securities are classified as Level 3 when there is limited activity in the market for a particular instrument and fair value is determined by obtaining broker quotes. As of September 30, 2015, 9% of the available-for-sale portfolio is Level 3, which consists of single issuer trust preferred securities and CLOs.

The single issuer trust preferred securities are measured at unadjusted prices obtained from the independent pricing service. The independent pricing service prices these instruments through a broker quote when sufficient information, such as cash flows or other security structure or market information, is not available to produce an evaluation. Broker-quoted securities are adjusted by the independent pricing service based solely on the receipt of updated quotes from market makers or broker-dealers recognized as market participants. A list of such issues is compiled by the independent pricing service daily. For broker-quoted issues, the independent pricing service applies a zero spread relationship to the bid-side valuation, resulting in the same values for the mean and ask.

CLO are securitized products where payments from multiple middle-sized and large business loans are pooled together and segregated into different classes of bonds with payments on these bonds based on their priority within the overall deal structure. The markets for such securities are generally characterized by low trading volumes and wide bid-ask spreads, all driven by more limited market participants. Although estimated prices are generally obtained for such securities, the level of market observable assumptions used is limited in the valuation. Specifically, market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the individual bond level. Accordingly, the securities are currently

73

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

valued by a third party that primarily utilizes dealer or pricing service prices and, subsequently, verifies this pricing through a disciplined process to ensure proper valuations and to highlight differences in cash flow modeling or other risks to determine if the market perception of the risk of a CLO is beginning to deviate from other similar tranches.  This is done by establishing ranges for appropriate pricing yields for each CLO tranche and, using a standardized cash flow scenario, ensuring yields are consistent with expectations.

On a monthly basis, Management validates the pricing methodologies utilized by our independent pricing service to ensure the fair-value determination is consistent with the applicable accounting guidance and that the investments are properly classified in the fair value hierarchy. Management substantiates the fair values determined for a sample of securities held in portfolio by reviewing the key assumptions used by the independent pricing service to value the securities and comparing the fair values to prices from other independent sources for the same and similar securities. Management analyzes variances and conducts additional research with the independent pricing service, if necessary, and takes appropriate action based on its findings.

Loans held for sale. These loans are regularly traded in active markets through programs offered by FHLMC and 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.

Impaired loans. Certain impaired collateral dependent loans are reported at fair value less costs to sell the collateral. Collateral values are estimated using Level 3 inputs, consisting of third-party appraisals or price opinions and internal adjustments necessary in the judgment of Management to reflect current market conditions and current operating results for the specific collateral. 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. When impaired collateral dependent loans are individually re-measured and reported at fair value of the collateral, less costs to sell, a direct loan charge off to the ALL and/or a specific valuation allowance allocation is recorded.

Other Property. Certain other property which consists of foreclosed assets and properties securing residential and commercial loans, upon initial recognition and transfer from loans, are re-measured and reported at fair value less costs to sell to the property through a charge-off to the ALL based on the fair value of the foreclosed assets. The fair value of a foreclosed asset, upon initial recognition, is estimated using Level 3 inputs, consisting of third-party appraisals or price opinions and internal adjustments necessary in the judgment of Management to reflect current market conditions and current operating results for the specific collateral. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down further through a charge to noninterest expense.

Mortgage Servicing Rights. The Corporation carries its MSRs at lower of cost or fair value, and, therefore, they are subject to fair value measurements on a nonrecurring basis. Since sales of MSRs 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 MSRs. 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 MSRs within Level 3.

74

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The Corporation utilizes a third-party vendor to perform the modeling to estimate the fair value of its MSRs. 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. See Note 11 (Mortgage Servicing Rights and Mortgage Servicing Activity) for further information on MSRs valuation assumptions.

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 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" (interest rate 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 Bank's Board 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 have been incurred due to a counterparty's inability to pay any uncollateralized position. There was no significant change in value of derivative assets and liabilities attributed to credit risk for the three months ended September 30, 2015.

True-up liability. In connection with the George Washington and Midwest FDIC assisted acquisitions in 2010, 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 thresholds as stated in the loss share agreements (the "true-up liability"). This contingent consideration is classified as a liability within accrued taxes, expenses and other liabilities on the consolidated balance sheets and is remeasured at fair value each reporting date until the contingency is resolved. The changes in fair value are recognized in earnings in the current period.

An expected value methodology is used as a starting point for determining the fair value of the true-up liability based on the contractual terms prescribed in the loss share agreements. The resulting values under both calculations are discounted over 10 years (the period defined in the loss share agreements) to reflect the uncertainty in the timing and payment of the true-up liability by the Bank to arrive at a net present value. The

75

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

discount rate used to value the true-up liability was 3.51% and 3.31% as of September 30, 2015 and 2014, respectively. Increasing or decreasing the discount rate by one percentage point would change the liability by approximately $0.6 million and $0.6 million, respectively, as of September 30, 2015.

In accordance with the loss share agreements governing the Midwest acquisition, 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 $21 million); plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). The fair value of the true-up liability associated with the Midwest acquisition was $8.4 million, $8.5 million, and $8.0 million as of September 30, 2015, December 31, 2014, and September 30, 2014, respectively.

In accordance with the loss share agreements governing the George Washington acquisition, 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 (approximately $34.4 million) less (2) the sum of (A) 25% of the asset discount (approximately $12 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). The fair value of the true-up liability associated with the George Washington acquisition was $5.2 million, $4.8 million, and $4.8 million as of September 30, 2015, December 31, 2014, and September 30, 2014, respectively.

For the purposes of the above calculations, cumulative shared-loss payments means: (i) the aggregate of all of the payments made or payable to the Bank under the loss share agreements minus (ii) the aggregate of all of the payments made or payable to the FDIC. The cumulative servicing amount means the period servicing amounts (as defined in the loss share agreements) for every consecutive twelve-month period prior to and ending on the Midwest and George Washington True-Up Measurement Dates. The cumulative loss share payments and cumulative service amounts are components of the true-up calculations and are estimated each period end based on the expected amount and timing of cash flows of the acquired loan portfolios. See Note 3 (Loans) and Note 4 (Allowance for Loan Losses) for additional information on the estimated cash flows of the acquired loan portfolios.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2015 and 2014 are summarized as follows:

	Three Months Ended September 30,										Nine Months Ended September 30,
	2015					2014					2015					2014
(In thousands)	Available-for-sale securities			True-up liability		Available-for-sale securities			True-up liability		Available-for-sale securities			True-up liability		Available-for-sale securities			True-up liability
Balance at beginning of period	$	311,536		$	13,408	$	350,733		$	12,581	$	339,187		$	13,294	$	347,610		$	11,463
(Gains) losses included in earnings (1)	—			164		—			223		—			278		—			1,341
Unrealized gains (losses) (2)	(3,627		)	—		277			—		8,070			—		3,298			—
Purchases	37,937			—		—			—		79,446			—		—			—
Sales	—			—		—			—		(71,832		)	—		—			—
Settlements	1,147			—		(3,489		)	—		(7,878		)	—		(3,387		)	—
Balance at ending of period	$	346,993		$	13,572	$	347,521		$	12,804	$	346,993		$	13,572	$	347,521		$	12,804

(1)Reported in "Other expense"

(2) Reported in "Other comprehensive income (loss)"

76

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Fair Value Option

Residential mortgage loans held for sale are recorded at fair value under fair value option accounting guidance. The election of the fair value option aligns the accounting for these loans with the related hedges. It also eliminates the requirements of the hedge accounting under GAAP.

Interest income on loans held for sale is accrued on the principal outstanding primarily using the “simple-interest” method. None of these loans were 90 days or more past due, nor were any on nonaccrual as of September 30, 2015, December 31, 2014, and September 30, 2014. The aggregate fair value, contractual balance and gain or loss on loans held for sale was as follows:

(In thousands)	September 30, 2015		December 31, 2014		September 30, 2014
Aggregate fair value carrying amount	$	7,781	$	14,389	$	19,512
Aggregate unpaid principal / contractual balance	7,543		13,873		18,937
Carrying amount over aggregate unpaid principal (1)	$	238	$	516	$	575

(1) These changes are included in "Loan sales and servicing income" in the Consolidated Statements of Income.

Disclosures about Fair Value of Financial Instruments

The carrying amount and estimated fair value of the Corporation’s financial instruments that are carried at either fair value or cost as of September 30, 2015, December 31, 2014, and September 30, 2014 are shown in the tables below.

	September 30, 2015
	Carrying Amount		Fair Value
(In thousands)			Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	411,587	$	411,587	$	411,587	$	—	$	—
Available-for-sale securities	3,925,724		3,925,724		2,781		3,575,950		346,993
Held-to-maturity securities	2,728,638		2,728,911		—		2,728,911		—
Other securities	147,955		147,955		—		147,955		—
Loans held for sale	7,781		7,781		—		7,781		—
Net originated loans	13,544,270		13,344,826		—		—		13,344,826
Net acquired loans	1,910,765		1,979,065		—		—		1,979,065
Net FDIC acquired loans and loss share receivable	190,795		190,795		—		—		190,795
Accrued interest receivable	75,404		75,404		—		75,404		—
Derivatives	76,196		76,196		—		76,196		—
Financial liabilities:
Deposits	$	19,821,916	$	19,830,705	$	—	$	19,830,705	$	—
Federal funds purchased and securities sold under agreements to repurchase	1,208,275		1,208,275		—		1,208,275		—
Wholesale borrowings	381,299		385,216		—		385,216		—
Long-term debt	508,947		514,640		—		514,640		—
Accrued interest payable	10,062		10,062		—		10,062		—
Derivatives	67,936		67,936		—		67,936		—

77

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

	December 31, 2014
	Carrying Amount		Fair Value
(In thousands)			Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	697,424	$	697,424	$	697,424	$	—	$	—
Available-for-sale securities	3,545,288		3,545,288		2,974		3,203,127		339,187
Held-to-maturity securities	2,903,609		2,875,920		—		2,875,920		—
Other securities	148,654		148,654		—		148,654		—
Loans held for sale	14,389		14,389		—		14,389		—
Net originated loans	12,398,116		12,235,530		—		—		12,235,530
Net acquired loans	2,471,723		2,564,842		—		—		2,564,842
Net FDIC acquired loans and loss share receivable	312,659		312,659		—		—		312,659
Accrued interest receivable	63,657		63,657		—		63,657		—
Derivatives	55,197		55,197		—		55,197		—
Financial liabilities:
Deposits	$	19,504,665	$	19,510,192	$	—	$	19,510,192	$	—
Federal funds purchased and securities sold under agreements to repurchase	1,272,591		1,272,591		—		1,272,591		—
Wholesale borrowings	428,071		430,676		—		430,676		—
Long-term debt	505,192		516,476		—		516,476		—
Accrued interest payable	9,820		9,820		—		9,820		—
Derivatives	55,439		55,439		—		55,439		—

78

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

	September 30, 2014
	Carrying Amount		Fair Value
(In thousands)			Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	485,328	$	485,328	$	485,328	$	—	$	—
Available-for-sale securities	3,462,990		3,462,990		2,916		3,112,553		347,521
Held-to-maturity securities	3,002,262		2,947,172		—		2,947,172		—
Other securities	148,421		148,421		—		148,421		—
Loans held for sale	19,512		19,512		—		19,512		—
Net originated loans	11,980,876		11,995,816		—		—		11,995,816
Net acquired loans	2,738,898		2,869,303		—		—		2,869,303
Net FDIC acquired loans and loss share receivable	382,175		382,175		—		—		382,175
Accrued interest receivable	65,736		65,736		—		65,736		—
Derivatives	43,097		43,097		—		43,097		—
Financial liabilities:
Deposits	$	19,366,911	$	19,370,624	$	—	$	19,370,624	$	—
Federal funds purchased and securities sold under agreements to repurchase	1,273,290		1,273,290		—		1,273,290		—
Wholesale borrowings	608,463		611,753		—		611,753		—
Long-term debt	249,933		259,051		—		259,051		—
Accrued interest payable	5,310		5,310		—		5,310		—
Derivatives	49,280		49,280		—		48,765		515

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

Cash and cash equivalents – Due to their short-term nature, the carrying amount of these instruments approximates the estimated fair value.

Investment securities – See Financial Instruments Measured at Fair Value above.

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.

Net originated loans – The originated 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 quarter-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.

Net acquired and FDIC acquired loans – Fair values for acquired and FDIC acquired loans were estimated based on a discounted projected 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

79

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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 and include adjustments for liquidity concerns. 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 transferable with the covered assets should the Bank choose to dispose of them. Fair value was estimated using discounted projected cash flows related to the FDIC loss share 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.

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, wholesale borrowings and long-term debt – The carrying amount of variable rate borrowings including federal funds purchased approximates the estimated 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.

11.     Mortgage Servicing Rights and Mortgage Servicing Activity

The Corporation serviced for third parties approximately $2.4 billion of residential mortgage loans at September 30, 2015 and $2.6 billion at September 30, 2014. Loan servicing fees, not including valuation changes included in loan sales and servicing income, were $1.5 million and $1.6 million, respectively, for the three months ended September 30, 2015 and 2014, and were $4.8 million and $4.9 million, respectively, for the nine months ended September 30, 2015 and 2014.

Servicing rights are presented within other assets on the accompanying Consolidated Balance Sheets. The retained servicing rights are initially valued at fair value. Since MSRs 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 MSRs. Additional information can be found in Note 10 (Fair Value Measurement). MSRs are subsequently measured using the amortization method. Accordingly, the MSRs are amortized over the

80

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

period of, and in proportion to, the estimated net servicing income and is recorded in loan sales and servicing income.

Changes in the carrying amount of MSRs and MSRs valuation allowance are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2015			2014			2015			2014
Carrying amount of MSRs
Beginning balance	$	20,635		$	22,150		$	22,011		$	22,760
Additions	53			1,035			586			2,242
Amortization	(921		)	(996		)	(2,830		)	(2,813		)
Ending balance	19,767			22,189			19,767			22,189
Valuation Allowance:
Beginning balance	(490		)	(562		)	(955		)	(282		)
Recoveries/(Additions)	(60		)	57			405			(223		)
Ending balance	(550		)	(505		)	(550		)	(505		)
MSRs, net carrying balance	$	19,217		$	21,684		$	19,217		$	21,684
Fair value at end of period	$	19,556		$	22,229		$	19,556		$	22,229

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 MSRs 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 permanent impairment losses were written off against the allowance during the three and nine months endedSeptember 30, 2015 and 2014.

Key economic assumptions and the sensitivity of the current fair value of the MSRs related to immediate 10% and 25% adverse changes in those assumptions at September 30, 2015 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 MSRs 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.

81

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

(Dollars in thousands)

Prepayment speed assumption (annual CPR)	11.15		%
Decrease in fair value from 10% adverse change	$	1,093
Decrease in fair value from 25% adverse change	$	1,345
Discount rate assumption	9.39		%
Decrease in fair value from 100 basis point adverse change	$	604
Decrease in fair value from 200 basis point adverse change	$	1,169
Expected weighted-average life (in months)	96

12.     Commitments and Guarantees

Commitments to Extend Credit

To accommodate the financial needs of its customers, the Corporation issues off-balance sheet financial instruments in connection with commercial and consumer lending activities. The credit risk associated with these instruments is essentially the same as that involved in extending loans to customers and is subject to the Corporation's normal credit approval policies. The Corporation maintains an allowance to cover probable credit losses inherent in lending-related commitments. The reserve for unfunded lending commitments at September 30, 2015, December 31, 2014, and September 30, 2014, included in “accrued expenses and other liabilities” on the Consolidated Balance Sheets, was $3.6 million, $5.8 million, and $7.0 million, respectively.

The Corporation's credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.

Unused commitments to extend credit
(In thousands)		September 30, 2015		December 31, 2014		September 30, 2014
	Commercial	$	3,877,004	$	3,748,690	$	3,640,755
	Consumer	2,405,928		2,387,623		2,361,476
	Total unused commitments to extend credit	$	6,282,932	$	6,136,313	$	6,002,231

Unused Commitments to Extend Credit. Commitments to extend credit are legally binding agreements to lend to a customer, provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Since many commitments expire without being drawn upon, the total contractual amount of commitments does not necessarily represent future cash requirements of the Corporation.

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 8 (Derivatives and Hedging Activities).

82

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Guarantees

The Corporation is a guarantor in certain agreements with third parties. The Corporation's maximum credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.

Financial guarantees
(In thousands)		September 30, 2015		December 31, 2014		September 30, 2014
	Standby letters of credit	$	243,071	$	242,390	$	227,835
	Loans sold with recourse	22,467		45,071		43,260
	Total financial guarantees	$	265,538	$	287,461	$	271,095

Standby Letters of Credit. 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 Corporation has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit. Collateral held varies, but may include marketable securities, equipment, inventory, and real estate. Except for short-term guarantees of $132.7 million at September 30, 2015, the remaining guarantees extend in varying amounts through 2022.

Loans Sold with Recourse. The Corporation regularly sells service retained residential mortgage loans to GSEs as part of its mortgage banking activities. The Corporation provides customary representation and warranties to the GSEs in conjunction with these sales. These representations and warranties generally require the Corporation to repurchase assets if it is subsequently determined that a loan did not meet specified criteria, such as a documentation deficiency or rescission of mortgage insurance. If the Corporation is unable to cure or refute a repurchase request, the Corporation is generally obligated to repurchase the loan or otherwise reimburse the counterparty for losses. The Corporation also sells service released residential mortgage loans to other investors which contain early payment default recourse provisions. As of September 30, 2015, December 31, 2014, and September 30, 2014, the Corporation had sold $15.8 million, $38.1 million, and $33.0 million, respectively, of outstanding residential mortgage loans to GSEs and other investors with recourse provisions. The Corporation had reserved $6.5 million, $7.3 million, and $7.6 million as of September 30, 2015, December 31, 2014, and September 30, 2014, respectively, for estimated losses from representation and warranty obligations and early payment default recourse provisions.

Due to prior acquisitions, as of September 30, 2015, the Corporation continued to service approximately $3.7 million in manufactured housing loans that were sold with recourse and had reserved $1.1 million for potential losses from these manufactured housing loans.

The total reserve associated with loans sold with recourse was approximately $7.6 million, $8.4 million, and $8.7 million as of September 30, 2015, December 31, 2014, and September 30, 2014, respectively, and is included in accrued taxes, expenses and other liabilities on the Consolidated Balance Sheets. The Corporation's reserve reflects Management's best estimate of losses. The Corporation's reserving methodology uses current information about investor repurchase requests, and assumptions about repurchase mix and loss severity, based upon the Corporation's most recent loss trends. The Corporation also considers qualitative factors that may result in anticipated losses differing from historical loss trends, such as loan vintage, underwriting characteristics and macroeconomic trends.

83

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Changes in the repurchase reserves for the three and nine months ended September 30, 2015 and 2014 are as follows:

	Three Months Ended September 30, 2015
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchase reserve
Balance at beginning of period	$	6,650		$	1,128	$	7,778
Net increase/(decrease) to reserve	122			1		123
Net realized (losses)/gains	(322		)	—		(322		)
Balance at end of period	$	6,450		$	1,129	$	7,579

	Three Months Ended September 30, 2014
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchased reserve
Balance at beginning of period	$	7,900		$	1,122	$	9,022
Net increase/(decrease) to reserve	250			—		250
Net realized (losses)/gains	(600		)	—		(600		)
Balance at end of period	$	7,550		$	1,122	$	8,672

	Nine Months Ended September 30, 2015
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchase reserve
Balance at beginning of period	$	7,250		$	1,124	$	8,374
Net increase/(decrease) to reserve	83			1		84
Net realized (losses) /gains	(883		)	4		(879		)
Balance at end of period	$	6,450		$	1,129	$	7,579

	Nine Months Ended September 30, 2014
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchase reserve
Balance at beginning of period	$	8,737		$	1,114	$	9,851
Net increase/(decrease) to reserve	3,007			8		3,015
Net realized (losses)/gains	(4,194		)	—		(4,194		)
Balance at end of period	$	7,550		$	1,122	$	8,672

84

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Litigation

In the normal course of business, the Corporation and its subsidiaries are at all times subject to pending and threatened legal actions, some for which the relief or damages sought are substantial. 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. The Corporation has not established any reserves with respect to any of this disclosed litigation because it is not possible to determine (i) whether a liability has been incurred; or (ii) an estimate of the ultimate or minimum amount of such liability.

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 will be 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 Pleas against the Corporation and the Bank. The complaints were brought as putative class actions on behalf of Ohio residents who maintained a checking account at the Bank and who incurred one or more overdraft fees as a result of the alleged re-sequencing of debit transactions. The lawsuit that had been filed in Summit County Court of Common Pleas was dismissed without prejudice on July 11, 2011. The remaining suit in Lake County seeks actual damages, disgorgement of overdraft fees, punitive damages, interest, injunctive relief and attorney fees. In December 2012, the trial court issued an order certifying a proposed class and the Bank and Corporation appealed the order to the Eleventh District Court of Appeals. In September 2013, the Eleventh District Court of Appeals affirmed in part and reversed in part the trial court's class certification order, and remanded the case back to the trial court for further consideration, in particular with respect to the class definition. On October 9, 2013, the Bank and Corporation filed with the Eleventh District Court of Appeals an application for reconsideration and application for consideration en banc. On November 20, 2013, the Eleventh District denied those applications. On December 4, 2013, the Bank and Corporation filed a notice of appeal with the Ohio Supreme Court, and on January 3, 2014, they filed with the Ohio Supreme Court a memorandum in support of the Court's exercising its jurisdiction and accepting the appeal. The plaintiffs filed an opposition, and, on April 24, 2014, the Ohio Supreme Court declined to accept jurisdiction. On August 6, 2014, the Bank and Corporation filed a motion asking the trial court to stay the lawsuit pending arbitration of claims subject to an arbitration agreement. That motion has been fully briefed and is awaiting a decision by the court. On August 25, 2014, the parties stipulated to a revised class definition (without affecting the pending motion to stay), and an order approving that stipulation is awaiting court approval.

CRBC 401(k) Litigation

Participants in the Citizens Republic Bancorp 401(k) Plan filed a lawsuit in the United States Court for the Eastern District of Michigan in 2011, alleging that Citizens and certain of its officers and directors violated the Employee Retirement Income Security Act by offering Citizens common stock as an investment alternative in the Plan during periods when it was imprudent to do so and by failing to adequately monitor fiduciaries

85

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

responsible for administering the Plan. The lawsuit, captioned Kidd v. Citizens Republic Bancorp, Inc. et al., Case No. 2:11-cv-11709, asserts claims for monetary and injunctive relief on behalf of a purported class of participants and beneficiaries in the Plan who held Citizens stock in their Plan accounts during the period from April 17, 2008 to "the present." In April 2014, the court denied the defendants' motion to dismiss the second amended complaint.

86

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

13.     Changes and Reclassifications Out of Accumulated Other Comprehensive Income

The following table presents the changes in AOCI by component of comprehensive income for the three and nine months ended September 30, 2015 and 2014:

	Three Months Ended									Nine Months Ended
	September 30, 2015									September 30, 2015
(In thousands)	Pretax			Tax			After tax			Pretax			Tax			After tax
Unrealized and realized securities gains and losses:
Balance at the beginning of the period	$	(5,056	)	$	(1,769	)	$	(3,287	)	$	(8,531	)	$	(2,985	)	$	(5,546	)
Changes in unrealized securities' holding gains/(losses)	25,691			8,991			16,700			31,166			10,908			20,258
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity	(1,266		)	(442		)	(824		)	(2,345		)	(821		)	(1,524		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(41		)	(14		)	(27		)	(962		)	(336		)	(626		)
Balance at the end of the period	19,328			6,766			12,562			19,328			6,766			12,562
Pension plans and other postretirement benefits:
Balance at the beginning of the period	(98,972		)	(34,639		)	(64,333		)	(102,068		)	(35,722		)	(66,346		)
Current year actual losses/(gains)	—			—			—			—			—			—
Amortization of actuarial losses/(gains)	1,138			399			739			3,414			1,195			2,219
Amortization of prior service cost reclassified to other noninterest expense	410			144			266			1,230			431			799
Balance at the end of the period	(97,424		)	(34,096		)	(63,328		)	(97,424		)	(34,096		)	(63,328		)
Total Accumulated Other Comprehensive Income	$	(78,096	)	$	(27,330	)	$	(50,766	)	$	(78,096	)	$	(27,330	)	$	(50,766	)

	Three Months Ended									Nine Months Ended
	September 30, 2014									September 30, 2014
(In thousands)	Pretax			Tax			After tax			Pretax			Tax			After tax
Unrealized and realized securities gains and losses:
Balance at the beginning of the period	$	(5,696	)	$	(1,994	)	$	(3,702	)	$	(45,072	)	$	(15,775	)	$	(29,297	)
Changes in unrealized securities' holding gains/(losses)	(16,207		)	(5,672		)	(10,535		)	24,293			8,503			15,790
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity	(563		)	(197		)	(366		)	(1,551		)	(543		)	(1,008		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(14		)	(5		)	(9		)	(150		)	(53		)	(97		)
Balance at the end of the period	(22,480		)	(7,868		)	(14,612		)	(22,480		)	(7,868		)	(14,612		)
Pension plans and other postretirement benefits:
Balance at the beginning of the period	(55,084		)	(19,279		)	(35,805		)	(57,812		)	(20,233		)	(37,579		)
Current year actual losses/(gains)	—			—			—			—			—			—
Amortization of actuarial losses/(gains)	768			269			499			2,398			839			1,559
Amortization of prior service cost reclassified to other noninterest expense	516			181			335			1,614			565			1,049
Balance at the end of the period	(53,800		)	(18,829		)	(34,971		)	(53,800		)	(18,829		)	(34,971		)
Total Accumulated Other Comprehensive Income	$	(76,280	)	$	(26,697	)	$	(49,583	)	$	(76,280	)	$	(26,697	)	$	(49,583	)

87

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

The following table presents current period reclassifications out of AOCI by component of comprehensive income for the three and nine months ended September 30, 2015 and 2014:

	Three Months Ended			Nine Months Ended
(In thousands)	September 30, 2015			September 30, 2015			Income statement line item presentation
Realized (gains)/losses on sale of securities	$	(41	)	$	(962	)	Investment securities losses (gains), net
Tax expense (benefit) (35%)	(14		)	(336		)	Income tax expense (benefit)
Reclassified amount, net of tax	$	(27	)	$	(626	)

	Three Months Ended			Nine Months Ended
(In thousands)	September 30, 2014			September 30, 2014			Income statement line item presentation
Realized (gains)/losses on sale of securities	$	(14	)	$	(150	)	Investment securities losses (gains), net
Tax expense (benefit) (35%)	(5		)	(53		)	Income tax expense (benefit)
Reclassified amount, net of tax	$	(9	)	$	(97	)

14.     Subsequent Events

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 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.

88

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

89

Figure 1. Consolidated Financial Highlights

Consolidated Financial Highlights
(Unaudited)	Three Months Ended															Nine Months Ended
(Dollars in thousands, except per share amounts)	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,
	2015			2015			2015			2014			2014			2015			2014
EARNINGS
Net interest income TE (1)	$	189,119		$	189,018		$	189,554		$	196,509		$	197,644		$	567,691		$	595,166
TE adjustment (1)	3,796			3,900			3,931			3,998			4,066			11,627			12,109
Provision for originated loan losses	10,402			10,809			6,036			8,662			4,862			27,247			14,509
Provision/(recapture) for acquired loan losses	144			(952		)	2,214			3,407			4,411			1,406			18,053
Provision/(recapture) for FDIC acquired loan losses	3,729			(891		)	(2		)	1,228			(81		)	2,836			6,420
Noninterest income	71,426			66,582			65,847			71,960			69,733			203,855			209,564
Noninterest expense	160,742			161,674			160,652			165,041			163,145			483,068			499,878
Net income	59,012			56,584			57,139			61,079			63,898			172,735			176,872
Diluted EPS (3)	0.34			0.33			0.33			0.36			0.37			1.01			1.03
PERFORMANCE RATIOS
Return on average assets (ROA)	0.93		%	0.90		%	0.93		%	0.98		%	1.03		%	0.92		%	0.97		%
Return on average equity (ROE)	8.05		%	7.85		%	8.08		%	8.50		%	9.03		%	7.99		%	8.54		%
Return on average tangible common equity (1)	11.69		%	11.44		%	11.85		%	12.52		%	13.41		%	11.66		%	12.78		%
Net interest margin TE (1)	3.33		%	3.39		%	3.48		%	3.56		%	3.60		%	3.40		%	3.73		%
Efficiency ratio (1)	60.71		%	62.37		%	61.97		%	60.39		%	59.92		%	61.68		%	61.04		%
Number of full-time equivalent employees	3,961			4,017			4,103			4,273			4,302			3,961			4,302
MARKET DATA
Book value per common share	$	17.72		$	17.42		$	17.46		$	17.14		$	17.05		$	17.72		$	17.05
Tangible book value per common share (1)	12.26			11.95			11.96			11.62			11.52			12.26			11.52
Period end common share market value	17.67			20.83			19.06			18.89			17.62			17.67			17.62
Market as a % of book	100		%	120		%	109		%	110		%	103		%	100		%	103		%
Cash dividends per common share	$	0.17		$	0.16		$	0.16		$	0.16		$	0.16		$	0.49		$	0.48
Common Stock dividend payout ratio	50.00		%	48.48		%	48.48		%	44.44		%	43.24		%	48.51		%	46.60		%
Average basic common shares	165,762			165,736			165,411			165,395			165,389			165,638			165,263
Average diluted common shares	166,058			166,277			166,003			165,974			165,804			165,939			165,916
Period end common shares	165,759			165,773			165,453			165,390			165,384			165,759			165,384
Common shares repurchased	20			211			66			15			10			297			247
Common Stock market capitalization	$	2,928,962		$	3,453,052		$	3,153,534		$	3,124,217		$	2,914,066		$	2,928,962		$	2,914,066
ASSET QUALITY (excluding acquired and FDIC acquired loans, covered OREO) (2)
Gross charge-offs	$	13,398		$	11,298		$	8,567		$	9,205		$	11,410		$	33,263		$	35,718
Net charge-offs	8,029			6,672			4,187			3,849			5,929			18,888			20,110
Allowance for originated loan losses	104,055			101,682			97,545			95,696			90,883			104,055			90,883
Reserve for unfunded lending commitments	3,574			3,905			4,330			5,848			6,966			3,574			6,966
Nonperforming assets (NPAs)	107,058			117,311			68,606			55,038			63,119			107,058			63,119
Net charge-offs to average loans ratio	0.24		%	0.20		%	0.13		%	0.12		%	0.20		%	0.19		%	0.24		%
Allowance for originated loan losses to period-end loans	0.76		%	0.76		%	0.76		%	0.77		%	0.75		%	0.76		%	0.75		%
Allowance for credit losses to period-end loans	0.79		%	0.79		%	0.79		%	0.81		%	0.81		%	0.79		%	0.81		%
NPAs to loans and other real estate	0.78		%	0.87		%	0.53		%	0.44		%	0.52		%	0.78		%	0.52		%
Allowance for originated loan losses to nonperforming loans	221.22		%	184.40		%	211.66		%	276.44		%	231.13		%	221.22		%	231.13		%
Allowance for credit losses to nonperforming loans	228.82		%	191.48		%	221.06		%	293.34		%	248.85		%	228.82		%	248.85		%
CAPITAL & LIQUIDITY
Period end tangible common equity to assets (1)	8.31		%	8.09		%	8.14		%	7.98		%	8.01		%	8.31		%	8.01		%
Average equity to assets	11.54		%	11.51		%	11.51		%	11.55		%	11.42		%	11.52		%	11.38		%
Average equity to total loans	18.48		%	18.59		%	18.60		%	18.67		%	18.58		%	18.56		%	18.83		%
Average total loans to deposits	78.91		%	79.06		%	77.86		%	78.47		%	77.36		%	78.61		%	75.22		%
AVERAGE BALANCES
Assets	$	25,217,856		$	25,129,859		$	24,905,094		$	24,664,987		$	24,583,776		$	25,083,609		$	24,337,653
Deposits	19,957,586			19,682,662			19,788,925			19,450,647			19,531,800			19,810,341			19,554,649
Originated loans	13,528,268			13,092,972			12,689,791			12,306,171			11,814,314			13,106,749			11,123,269
Acquired loans, including FDIC acquired loans, less loss share receivable	2,219,488			2,468,035			2,717,884			2,956,867			3,295,547			2,466,644			3,585,143
Earning assets	22,548,977			22,352,721			22,100,417			21,920,889			21,804,243			22,335,683			21,361,832
Shareholders' equity	2,909,660			2,892,432			2,866,362			2,849,618			2,807,886			2,889,644			2,770,095
ENDING BALANCES
Assets	$	25,246,917		$	25,297,014		$	25,118,120		$	24,902,347		$	24,608,207		$	25,246,917		$	24,608,207
Deposits	19,821,916			19,673,850			19,925,595			19,504,665			19,366,911			19,821,916			19,366,911
Originated loans	13,648,325			13,355,912			12,856,037			12,493,812			12,071,759			13,648,325			12,071,759
Acquired loans, including FDIC acquired loans,less loss share receivable	2,140,029			2,337,378			2,614,847			2,810,302			3,139,521			2,140,029			3,139,521
Goodwill	741,740			741,740			741,740			741,740			741,740			741,740			741,740
Intangible assets	63,226			65,824			68,422			71,020			73,953			63,226			73,953
Earning assets	22,661,171			22,599,272			22,395,343			22,153,552			21,930,840			22,661,171			21,930,840
Total shareholders' equity	2,937,300			2,887,957			2,888,786			2,834,281			2,820,431			2,937,300			2,820,431

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

90

(2) Due to the impact of business combination accounting and protection of FDIC loss share agreements, which provide considerable protection against credit risk, acquired loans, FDIC acquired loans and covered OREO are excluded from this table to provide for improved comparability to prior periods and better perspective into asset quality trends. George Washington and Midwest non-single family loss share agreements with the FDIC expired at March 31, 2015 and June 30, 2015, respectively. As of September 30, 2015, $85.9 million of FDIC acquired loans remained covered by single family loss share agreements, providing considerable protection against credit risk.

(3) Net income used to determine diluted EPS was reduced by the cash dividends payable on the Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series A of approximately $1.5 million in each of the three months ended September 30, 2015, June 30, 2015, March 31, 2015, December 31, 2014, and September 30, 2014.

91

HIGHLIGHTS OF THIRD QUARTER2015 PERFORMANCE

The Corporation reported third quarter 2015 net income of $59.0 million, or $0.34 per diluted share. This compares with $56.6 million, or $0.33 per diluted share, for the second quarter 2015 and $63.9 million, or $0.37 per diluted share, for the third quarter 2014.

Earnings Summary

										Change 3Q 2015 vs.
	2015			2015			2014			2015		2014
(Dollars in thousands, except per share amounts)	3rd qtr			2nd qtr			3rd qtr			2nd qtr		3rd qtr
Net interest income TE	$	189,119		$	189,018		$	197,644		0.05	%	(4.31	)%
Diluted earnings per common share	0.34			0.33			0.37			3.03		(8.11	)
Net interest margin on TE basis	3.33		%	3.39		%	3.60		%
Return on average assets	0.93			0.90			1.03
Return on average common equity	8.05			7.85			9.03
Return on average tangible common equity	11.69			11.44			13.41

The increase in net interest income TE compared to the second quarter 2015 was attributable to higher earning assets and an additional day in the third quarter 2015, partially offset by lower interest income on acquired and FDIC acquired loans. The net interest margin in the third quarter of 2015 declined six basis points over the prior quarter primarily from runoff in the acquired and FDIC acquired portfolios and slightly lower yields on the investment portfolio. Originated portfolio yields increased in the third quarter 2015 primarily due to an increased mix of consumer loans.

Loans

Average originated loans were $13.5 billion during the third quarter 2015, an increase of $435.3 million, or 3.32%, compared with the second quarter 2015, and an increase of $1.7 billion, or 14.51%, compared with the third quarter 2014. The loan growth was driven primarily by installment loans. Average originated installment loans increased$198.9 million, or 7.60%, compared with the prior quarter, and increased$646.0 million, or 29.75%, compared with the year-ago quarter. This growth is a result of introducing recreational lending into the Corporation's legacy markets and expanding indirect auto lending into Michigan and Wisconsin. Average originated commercial loans also increased$177.3 million, or 2.08%, compared with the prior quarter, and increased$822.6 million, or 10.46%, compared with the year-ago quarter.

Deposits

Average deposits were $20.0 billion during the third quarter 2015, an increase of $274.9 million, or 1.40%, compared with the second quarter 2015, and an increase of $425.8 million, or 2.18%, compared with the third quarter 2014. Average core deposits were $17.7 billion during the third quarter 2015, or 88.85% of total average deposits, an increase of $338.1 million, or 1.94%, compared with the second quarter 2015 and an increase of $535.8 million, or 3.12%, compared with the third quarter 2014. Partially offsetting the increases in average core deposits was a decrease in average time deposits of $63.1 million, or 2.76%, and $110.0 million, or 4.71%, over the prior and year-ago quarters, respectively.

92

Noninterest Income

Noninterest income, excluding gains and losses on securities transactions, for the third quarter 2015 was $71.4 million, an increase of $5.4 million, or 8.13%, from the second quarter 2015 and an increase of $1.7 million, or 2.39%, from the third quarter 2014. Fee based income increased across multiple areas including wealth management, treasury management, and service charges on deposits accounts. Loan sales and servicing income decreased from the prior quarter primarily due to interest rate fluctuations that negatively impacted the value of the mortgage servicing rights. Other operating income increased over the prior quarter as a result of higher loan commitment fees, fees on interest rate swaps, and income on resolution of FDIC acquired loans. Additionally, other operating income in the prior quarter was reduced by $1.8 million from losses on branch closures.

Noninterest Expense

Noninterest expense for the third quarter 2015 was $160.7 million, a decrease of $0.9 million, or 0.58%, from the second quarter 2015, and a decrease of $2.4 million, or 1.47%, from the third quarter 2014. Salaries and wages and employee benefits were down $4.8 million, or 5.3%, compared with the year ago-period reflecting 341, or 7.9%, fewer full time equivalent employees. Compared to the second quarter 2015, salaries and wages increased $1.3 million, or 1.91%, reflecting the impact of merit increases and an additional day in the third quarter 2015.

Provision for Income Taxes

The effective tax rate was 27.80% for the third quarter 2015, compared with 30.19% for the second quarter 2015, and 29.76% for the third quarter 2014.

Asset Quality (excluding acquired loans and covered assets)

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

										Change 3Q 2015 vs.
	2015			2015			2014			2015		2014
(Dollars in thousands)	3rd qtr			2nd qtr			3rd qtr			2nd qtr		3rd qtr
Net charge-offs	$	8,029		$	6,672		$	5,929		20.34	%	35.42	%
Net charge-offs on average originated loans	0.24		%	0.20		%	0.20		%
Nonperforming loans at period end	$	47,036		$	55,142		$	34,617		(14.70	)%	19.62	%
Nonperforming assets at period end	107,058			117,311			63,119			(8.74	)%	69.61	%
Allowance for loan losses	104,055			101,682			90,883			2.33	%	14.49	%
Allowance for loan losses to nonperforming loans	221.22		%	184.40		%	231.13		%
Provision for originated loan losses	$	10,402		$	10,809		$	4,862		(3.77	)%	113.94	%

93

Nonperforming assets totaled $107.1 million at September 30, 2015, a decrease of $10.3 million, or 8.74%, compared with June 30, 2015 and an increase of $43.9 million, or 69.61%, compared with September 30, 2014. Nonperforming assets at September 30, 2015 represented 0.78% of period-end originated loans plus noncovered other real estate compared with 0.87% at June 30, 2015 and 0.52% at September 30, 2014. Included in nonperforming assets as of September 30, 2015 and June 30, 2015 were $40.0 million and $42.0 million, respectively, of OREO no longer covered by FDIC loss share agreements.

The allowance for originated loan losses totaled $104.1 million at September 30, 2015. At September 30, 2015, the allowance for originated loan losses was 0.76% of period-end originated loans, compared with 0.76% at June 30, 2015 and 0.75% at September 30, 2014. The allowance for originated loan losses at September 30, 2015 compared to June 30, 2015increased by $2.4 million and increased by $13.2 million compared to September 30, 2014. The allowance for credit losses is the sum of the allowance for originated loan losses and the reserve for unfunded lending commitments. The allowance for credit losses was 0.79% of period end originated loans at September 30, 2015, compared with 0.79% at June 30, 2015 and 0.81% at September 30, 2014. The allowance for credit losses to nonperforming loans was 228.82% at September 30, 2015, compared with 191.48% at June 30, 2015 and 248.85% at September 30, 2014.

Capital

Shareholders’ equity was $2.9 billion, as of September 30, 2015 and June 30, 2015, and $2.8 billion as of September 30, 2014, respectively. The Corporation maintained a strong capital position as tangible common equity to assets was 8.31% at September 30, 2015, compared with 8.09% at June 30, 2015 and 8.01% at September 30, 2014. The common share cash dividend paid in the third quarter 2015 was $0.17 per share, an increase of $0.01 per share, or 6.25%, from the prior quarter.

On January 1, 2015, the Corporation became subject to the Basel III capital framework and standardized approach for calculating risk-weighted assets. At September 30, 2015, Basel III capital ratios on a transitional basis remained well in excess of applicable regulatory requirements, with a total risk-based capital ratio of 13.83%, and a common equity tier 1 risk-based capital ratio of 10.67%.

REGULATION AND SUPERVISION

The United States and the banking, securities and commodities regulators, as well as fiscal and monetary authorities, have taken a number of significant actions over the past several years in response to the credit crisis that began in 2008. The single most important of these was the enactment of the Dodd-Frank Act in July 2010. The Dodd-Frank Act affects almost every aspect of the nation’s financial services industry, including regulation and compliance of financial institutions and systemically important nonbank financial companies, securities regulation, executive compensation, regulation of derivatives, corporate governance and consumer protection. Hundreds of implementing regulations are required, but these remain unfinished. The Dodd-Frank Act also created the CFPB to regulate and supervise consumer financial products and providers.

The preemption of certain state laws previously granted to national banking associations by the OCC under the National Bank Act has been limited, especially with respect to consumer laws. Thus, Congress has authorized states to enact their own substantive protections and allow state attorneys general to initiate civil actions to enforce federal consumer protections. The Corporation is also subject to regulation by the CFPB.

Many aspects of the Dodd-Frank Act remain subject to agency rulemaking and subsequent public comment prior to implementation, and it is difficult to predict at this time the ultimate effect of the Dodd-Frank

94

Act on the Corporation. The Corporation’s expenses have increased as a result of new regulatory requirements following the Dodd-Frank Act.

On June 10, 2013, the Bank became subject to the Dodd-Frank Act requirements to centrally clear certain interest rate swaps. A cleared swap is subject to continuous collateralization of swap obligations, real time reporting, additional agreements and other regulatory constraints. The CME Group Inc. and LCH.Clearnet Group Ltd. are the Bank's approved clearing houses. The Comptroller of the Currency, the Federal Reserve and other regulatory agencies adopted capital and initial and variation margin rules applicable to non-centrally cleared swaps at the end of October 2015, as required by the Dodd-Frank Act.

This section 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. Also, such statues, regulations, policies, and interpretations 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, regulatory policies or other rule makings applicable to the Corporation and its subsidiaries or their businesses could have a material effect on the Corporation's business.

New Capital Rules

On January 1, 2015, the Corporation and the Bank adopted the Basel III capital framework and standardized approach for calculating risk-weighted assets. The implementation of the Basel III capital requirements is being phased-in from January 1, 2015 through the end of 2018. The Basel III capital requirements emphasize CET1. CET1 capital primarily includes common shareholders’ equity less certain deductions for goodwill and other intangibles, net of taxes, MSRs, net of taxes, and certain DTAs that arise from tax loss and credit carryforwards. Tier 1 capital is primarily comprised of common equity tier 1 capital and perpetual noncumulative preferred stock less certain additional deductions applied during the phase-in period. Tier 2 capital primarily includes qualifying subordinated debt and qualifying ALL. Periods presented prior to March 31, 2015 are reported on a Basel I basis.

Basel III includes new minimum risk-based and leverage capital requirements for all banking organizations and removal of references to credit ratings. Basel III, when fully phased-in on January 1, 2019, requires a new minimum CET1 risk-based capital of 4.5%. The minimum ratio of tier 1 capital to risk-weighted assets is increased from 4.0% to 6.0% and all banking organizations are subject to a 4.0% minimum leverage ratio. The required total risk based capital ratio is not changed. Failure to maintain the required capital conservation buffer will restrict or prohibit dividends, share repurchases and discretionary bonuses. The new rules provide strict eligibility criteria for regulatory capital instruments, and change the prompt corrective action scheme to reflect the new capital ratios. The final rule also changes the method for calculating risk-weighted assets in an effort to better identify riskier assets requiring higher capital cushions and to enhance risk sensitivity.

Stress Testing

The Dodd-Frank Act requires stress testing of bank holding companies and banks, such as the Corporation and the Bank, that have more than $10 billion of consolidated assets. Medium-sized companies with consolidated assets of more than $10 billion but less than $50 billion ("medium-sized companies"), including the Corporation and the Bank, are required to conduct annual company-run stress tests. Additional stress testing is required for banking organizations having $50 billion or more of assets.

95

Stress tests assess the potential effects of economic scenarios on the consolidated earnings, balance sheet and capital of a BHC and bank over a designated planning horizon of nine quarters, taking into account the organization's current condition, risks, exposures, strategies and activities, and such factors as the regulators may request of a specific organization. The stress tests are conducted under at least three required economic scenarios, consisting of a baseline, adverse, and severely adverse economic scenario as provided by the Federal Reserve for the Corporation and by the OCC for the Bank.

The banking agencies issued Supervisory Guidance on Stress Testing for Banking Organizations With More Than $10 Billion in Total Consolidated Assets on May 17, 2012. On July 30, 2013, the federal banking agencies issued Proposed Supervisory Guidance on Implementing Dodd-Frank Act Company-Run Stress Tests for Banking Organizations with Total Consolidated Assets of more than $10 Billion but less than $50 Billion, which describes supervisory expectations for stress tests by medium-sized companies. In March 2014, the OCC, the Federal Reserve and the FDIC issued Final Supervisory Guidelines on Implementing Dodd Frank Act Company-Run Stress Tests for Banking Organizations with Total Consolidated Assets of More Than $10 Billion but Less Than $50 billion.

Each banking organization's board of directors and senior management are required to approve and review the policies and procedures of their stress testing processes as frequently as economic conditions or the condition of the organization may warrant, and at least annually. They are also required to consider the results of the stress test in the normal course of business, including the banking organization's capital planning (including dividends and share buybacks), assessment of capital adequacy and maintaining capital consistent with its risks and risk management practices. The results of the stress tests are provided to the applicable federal banking agencies. The Corporation and the Bank publicly disclosed the results of its 2015 capital stress testing on June 19, 2015.

Other Legislation

Legislation affecting financial institutions and the financial industry continue to be introduced in Congress and state legislatures, and such legislation and regulatory changes may further change the operating environment of the Corporation and its subsidiaries in substantial and unpredictable ways, and could increase or decrease the Corporation’s cost of doing business, limit or expand permissible activities or otherwise affect its competitive position, financial condition or results of operations of the Corporation.

For additional information on regulation and supervision, refer to Item 1. “Business, Regulation and Supervision” of the 2014 Form 10-K.

96

NON-GAAP FINANCIAL MEASURES

Figure 2 below presents computations of earnings (loss) and certain other financial measures that exclude certain items that are included in the financial results presented in accordance with GAAP and are therefore considered non-GAAP financial measures. Management believes these non-GAAP financial measures enhance an investor's understanding of the business by providing a meaningful base for period-to-period comparisons, assisting in operating results analysis, and predicting future performance on the same basis as applied by Management and the Board of Directors. These non-GAAP financial measures are also used by Management to assess the performance of the Corporation's business, in comparison to the Corporation's other ongoing operations. Management does not consider the activities related to the adjustments to be indications of ongoing operations. Management and the Board of Directors utilize these non-GAAP financial measures as follows, among others:

• Preparation of operating budgets

• Monthly financial performance reporting

• Monthly, quarterly and year-to-date assessment of the Corporation's business

• Monthly close-out reporting of consolidated results (Management only)

• Presentations to investors of corporate performance

Net interest income is presented on a TE basis. Net interest income-TE includes the effects of taxable-equivalent adjustments using a 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 TE enhances comparability of net interest income arising from taxable and tax exempt sources and is the preferred industry measurement of net interest income.

Total revenue is calculated as net interest income-TE plus noninterest income and excludes net securities gains or losses. Management believes that noninterest income without net securities gains or losses is more indicative of the Corporation's performance because it isolates income that is primarily client relationship and client transaction driven and is more indicative of normalized operations.

The efficiency ratio is a non-GAAP financial measure which measures productivity and is generally calculated as noninterest expense divided by total revenue-TE. The efficiency ratio removes the impact of the Corporation's intangible asset amortization from the calculation. The adjusted efficiency ratio further removes the impact of the Citizens' merger related charges. The fee income ratio is another non-GAAP financial measure calculated as noninterest income without net securities gains or losses divided by total revenue-TE. Management uses these ratios to monitor performance and believes these measures provide meaningful information to investors.

Tangible common equity ratios have been a focus of some investors in analyzing the capital position of the Corporation absent the effects of intangible assets and preferred stock. Traditionally, the banking regulators have assessed bank and BHC capital adequacy based on Tier 1 capital, the calculation of which is codified in federal banking regulations. The Corporation calculates its risk-based capital ratios under guidelines adopted by the Federal Reserve based on Basel III, which became effective for the Corporation and the Bank on January 1, 2015. The new Basel III rules added CET1 and CET1 risk-based capital ratios. Analysts and banking regulators have assessed the Corporation's capital adequacy using the tangible common shareholders' equity and/or the CET1 measure, on a risk-weighted basis.

CET1 capital is often expressed as a percentage of risk-weighted assets. Under the risk-based capital framework, a bank's various balance sheet assets and credit equivalent amounts of off-balance sheet items are

97

assigned to one of several regulatory risk categories. The aggregated dollar amount in each category is then multiplied by the risk weighting assigned to that category. The resulting weighted values are added together and this sum is the risk-weighted assets total that, as adjusted, comprises the denominator of certain risk-based capital ratios. Tier 1 capital is then divided by this denominator (risk-weighted assets) to determine the Tier 1 capital ratio. Adjustments are made to Tier 1 capital to arrive at CET1 (non-GAAP). CET1 is also divided by the risk-weighted assets to determine the CET1 risk-based capital ratio. The amounts disclosed as risk-weighted assets are calculated consistent with current banking regulatory requirements.

Basel III rules are not formally defined by GAAP; therefore, these measures are considered to be non-GAAP financial measures, and other entities may calculate them differently from the Corporation’s disclosed calculations. Since analysts and banking regulators may assess the Corporation’s capital adequacy using the Basel III framework, Management believes that it is useful to provide investors information enabling them to assess the Corporation’s capital adequacy on the same basis.

Tangible book value per share (non-GAAP) and common equity per share (non-GAAP) are approximate measures of the Corporation's common equity excluding goodwill and other intangible assets, and liquidation values. Management uses these values to evaluate the current market value and believes these measures are useful for evaluating the performance of a business consistently, whether acquired or developed internally. These per share values are calculated by deducting preferred stock from shareholder's equity for common equity value (non-GAAP) and deducting intangible assets from the common equity value for tangible book value (non-GAAP). Both values (numerator) are then divided by period end Common Stock outstanding.

Return on average tangible common shareholders' equity calculates the return on average common shareholders' equity excluding goodwill and other intangible assets. This measure is useful for evaluating the performance of a business consistently, whether acquired or developed internally.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of results as reported under GAAP. These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies.

98

Figure 2. GAAP to Non-GAAP Reconciliations

(Dollars in thousands)			September 30, 2015			December 31, 2014			September 30, 2014
Tangible common equity to tangible assets at period end
	Shareholders’ equity (GAAP)		$	2,937,300		$	2,834,281		$	2,820,431
	Less:	Intangible assets	63,226			71,020			73,953
		Goodwill	741,740			741,740			741,740
		Preferred Stock	100,000			100,000			100,000
	Tangible common equity (non-GAAP)		$	2,032,334		$	1,921,521		$	1,904,738
	Total assets (GAAP)		25,246,917			24,902,347			24,608,207
	Less:	Intangible assets	63,226			71,020			73,953
		Goodwill	741,740			741,740			741,740
	Tangible assets (non-GAAP)		$	24,441,951		$	24,089,587		$	23,792,514
	Tangible common equity to tangible assets ratio (non-GAAP)		8.31		%	7.98		%	8.01		%
Capital (1)			(Basel III)			(Basel I)			(Basel I)
	Shareholders' equity (GAAP)		$	2,937,300		$	2,834,281		$	2,820,431
	Plus:	Net unrealized (gains)/losses on investment securities related to AOCI	(12,562		)	5,546			14,612
		Defined benefit postretirement plan losses related to AOCI	63,328			66,346			34,971
		Goodwill (GAAP)	741,740			741,740			741,740
		Less: Deferred tax liability associated with goodwill (1)	24,441			—			—
	Less:	Net non-qualifying goodwill (regulatory) (1)	717,299			741,740			741,740
		Intangible assets (GAAP)	63,226			71,020			73,953
		Less: Deferred tax liability associated with intangible assets (1)	45,746			—			—
	Less:	Net intangible assets (regulatory)	17,480			71,020			73,953
		Disallowed deferred tax asset (1)	71,391			87,001			105,483
		Other adjustments (1)	107,087			1,951			1,677
	Tier 1 capital (regulatory)		2,074,809			2,004,461			1,947,161
	Less:	Preferred Stock	100,000			100,000			100,000
	Plus:	Tier 1 capital adjustments	100,000			—			—
	Tier 1 common equity (non-GAAP) (1)		N/A			$	1,904,461		$	1,847,161
	CET1 capital (non-GAAP) (1)		2,074,810			N/A			N/A
	Risk-weighted assets (regulatory) (1)		$	19,444,751		$	17,391,022		$	17,433,132
	Tier 1 common equity ratio (non-GAAP) (1)		N/A			10.95		%	10.60		%
	CET1 risk-based capital ratio (non-GAAP) (1)		10.67		%	N/A			N/A

GAAP to Non-GAAP Reconciliations, continued
(Dollars in thousands, except per share amounts)			September 30, 2015		December 31, 2014		September 30, 2014
Book value, common equity value and tangible book value, per share
	Shareholders’ equity (GAAP)		$	2,937,300	$	2,834,281	$	2,820,431
	Less:	Preferred Stock	100,000		100,000		100,000
	Common shareholders' equity (non-GAAP)		2,837,300		2,734,281		2,720,431
	Less:	Intangible assets	63,226		71,020		73,953
		Goodwill	741,740		741,740		741,740
	Tangible common equity (non-GAAP)		$	2,032,334	$	1,921,521	$	1,904,738
	Period end common shares		165,759		165,390		165,384
	Book value per share		$	17.72	$	17.14	$	17.05
	Common equity per share		17.12		16.53		16.45
	Tangible book value per common share		12.26		11.62		11.52

99

			Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)			2015			2014			2015			2014
	Net income (GAAP)		$	59,012		$	63,898		$	172,735		$	176,872
	Adjustments to net income, net of tax (2)
	Plus:	Acquisition related expenses, net of taxes	—			—			—			706
		Branch closure costs	—			—			1,932			2,568
		Restructure expenses	—			—			1,149			—
		Total adjusted charges	—			—			3,081			3,274
		Adjusted net income (non-GAAP)	$	59,012		$	63,898		$	175,816		$	180,146
	Annualized net income (GAAP)		$	234,124		$	253,508		$	230,946		$	236,477
		Annualized adjusted net income (non-GAAP)	234,124			253,508			235,065			240,855
	Average assets (GAAP)		25,217,856			24,583,776			25,083,609			24,337,653
	Average equity (GAAP)		2,909,660			2,807,886			2,889,644			2,770,095
	Less:	Average Preferred Stock	100,000			100,000			100,000			100,000
	Average common shareholders' equity (non-GAAP)		2,809,660			2,707,886			2,789,644			2,670,095
	Less:	Average intangible assets	64,497			75,387			67,073			78,296
		Average goodwill	741,740			741,740			741,740			741,739
	Average tangible common equity (non-GAAP)		$	2,003,423		$	1,890,759		$	1,980,831		$	1,850,060
	Return on average assets (GAAP)		0.93		%	1.03		%	0.92		%	0.97		%
	Adjusted return on average assets net of adjusted charges (non-GAAP)		0.93		%	1.03		%	0.94		%	0.99		%
	Return on average equity (GAAP)		8.05		%	9.03		%	7.99		%	8.54		%
	Adjusted return on average equity net of adjusted charges (non-GAAP)		8.05		%	9.03		%	8.13		%	8.69		%
	Return on average tangible common equity (non-GAAP) (3)		11.69		%	13.41		%	11.66		%	12.78		%
	Adjusted return on average tangible common equity net adjusted charges (non-GAAP)		11.69		%	13.41		%	11.87		%	13.02		%

100

GAAP to Non-GAAP Reconciliations, continued

			Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)			2015			2014			2015			2014
	Net interest income (GAAP)		$	185,323		$	193,578		$	556,064		$	583,057
	TE Adjustment		3,796			4,066			11,627			12,109
	Net interest income TE (non-GAAP)		189,119			197,644			567,691			595,166
	Noninterest income (GAAP)		71,426			69,733			203,855			209,564
	Adjustments to noninterest income (2)
	Less:	Securities gains/(losses)	41			14			962			150
	Plus:	Branch closure costs and acquisition related expenses (3)	—			—			2,973			3,951
		Adjusted noninterest income (non-GAAP)	71,385			69,719			205,866			213,365
	Adjusted total revenue, TE excluding securities gains/(losses) (non-GAAP)		260,504			267,363			773,557			808,531
	Noninterest expense (GAAP)		160,742			163,145			483,068			499,878
	Adjustments to noninterest expense (2)
	Less:	Intangible asset amortization	2,598			2,933			7,794			8,802
		Adjusted noninterest expense, excluding amortization of intangibles	158,144			160,212			475,274			491,076
	Less:	Severance and related employee benefits (3)	—			—			1,767			—
		Branch closures costs and acquisition related expenses (3)	—			—			—			1,086
		Adjusted noninterest expense (non-GAAP)	$	158,144		$	160,212		$	473,507		$	489,990
	Net interest margin on a TE basis (non-GAAP)		3.33		%	3.60		%	3.40		%	3.73		%
	Fee income ratio (non-GAAP)		27.40		%	26.08		%	26.33		%	26.03		%
	Efficiency ratio, excluding amortization of intangible assets and security gains/(losses) (non-GAAP)		60.71		%	59.92		%	61.68		%	61.04		%
	Adjusted efficiency ratio (non-GAAP)		60.71		%	59.92		%	61.21		%	60.60		%

(1) The Basel III capital rules, effective January 1, 2015, replace tier 1 common equity and the associated tier 1 common equity ratio with CET1 and the CET1 risk-based capital ratio. September 30, 2015 figures are preliminary and presented on a Basel III basis and reflect transitional capital requirements and phase-in provisions, including the standardized approach for calculating risk weighted assets. December 31, 2014 and September 30, 2014 amounts and ratios are reported on a Basel I basis.

(2) Management believes these adjustments increase comparability of period-to-period results and uses these measures to assess performance and believes investors may find them useful in their analysis of the Corporation. It is possible that the activities related to the adjustments may recur; however, Management does not consider the activities related to the adjustments to be indications of ongoing operations.

(3) Management determines these costs to be significant, nonreccurring items in the period and, therefore, removes these additional costs in calculating an adjusted efficiency ratio. Management believes removal of these significant, nonreccurring items improves comparability period-to-period.

101

RESULTS OF OPERATIONS

Figure 3. Average Tax-Equivalent Balance Sheets - Quarter to Date

	Three Months Ended
	September 30, 2015							June 30, 2015							September 30, 2014
(Dollars in thousands)	Average Balance			Interest (1)		Average Rate		Average Balance			Interest (1)		Average Rate		Average Balance			Interest (1)		Average Rate
ASSETS
Cash and cash equivalents	$	457,317						$	518,820						$	521,210
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. government agency obligations (taxable)	5,474,222			$	27,507	1.99	%	5,452,598			$	27,098	1.99	%	5,276,354			$	26,502	1.99	%
Obligations of states and political subdivisions (tax exempt)	737,323			8,245		4.44	%	724,653			8,443		4.67	%	776,376			8,734		4.46	%
Other securities and federal funds sold	572,376			5,134		3.56	%	594,478			5,077		3.43	%	585,980			5,571		3.77	%
Total investment securities and federal funds sold	6,783,921			40,886		2.39	%	6,771,729			40,618		2.41	%	6,638,710			40,807		2.44	%
Loans held for sale	4,929			66		5.31	%	3,631			46		5.08	%	17,433			154		3.50	%
Loans, including loss share receivable (2)	15,760,127			162,903		4.10	%	15,577,361			162,610		4.19	%	15,148,100			171,302		4.49	%
Total earning assets	22,548,977			$	203,855	3.59	%	22,352,721			$	203,274	3.65	%	21,804,243			$	212,263	3.86	%
Total allowance for loan losses	(147,136		)					(146,558		)					(140,026		)
Other assets	2,358,698							2,404,876							2,398,349
Total assets	$	25,217,856						$	25,129,859						$	24,583,776
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	5,897,768		$	—	—	%	$	5,722,240		$	—	—	%	$	5,603,104		$	—	—	%
Interest-bearing	3,353,541			750		0.09	%	3,203,836			783		0.10	%	3,100,904			755		0.10	%
Savings and money market accounts	8,480,682			5,639		0.26	%	8,467,845			5,588		0.26	%	8,492,172			5,570		0.26	%
Certificates and other time deposits	2,225,595			2,757		0.49	%	2,288,741			2,510		0.44	%	2,335,620			2,846		0.48	%
Total deposits	19,957,586			9,146		0.18	%	19,682,662			8,881		0.18	%	19,531,800			9,171		0.19	%
Securities sold under agreements to repurchase	1,109,924			254		0.09	%	1,285,920			329		0.10	%	1,182,507			268		0.09	%
Wholesale borrowings	377,594			1,171		1.23	%	393,379			1,129		1.15	%	438,941			1,397		1.26	%
Long-term debt	497,566			4,165		3.32	%	508,744			3,917		3.09	%	320,387			3,783		4.68	%
Total interest-bearing liabilities	16,044,902			14,736		0.36	%	16,148,465			14,256		0.35	%	15,870,531			14,619		0.37	%
Other liabilities	365,526							366,722							302,255
Shareholders’ equity	2,909,660							2,892,432							2,807,886
Total liabilities and shareholders’ equity	$	25,217,856						$	25,129,859						$	24,583,776
Net yield on earning assets	$	22,548,977		$	189,119	3.33	%	$	22,352,721		$	189,018	3.39	%	$	21,804,243		$	197,644	3.60	%
Interest rate spread						3.23	%						3.30	%						3.50	%

(1) The net yield on earning assets is calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal and/or state income taxes. As such, these tax-exempt securities typically yield lower returns than taxable securities. To provide more meaningful comparisons of net interest margins for all earning assets, net interest income on a taxable-equivalent basis is used in calculating net interest margin by increasing the interest earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles in the Consolidated Statements of Income. The taxable-equivalent adjustments to net interest income were $3.8 million, $3.9 million, and $4.1 million for the three months ended September 30, 2015, June 30, 2015, and September 30, 2014, respectively.

(2) Nonaccrual loans have been included in the average balances.

102

Figure 4. Average Tax-Equivalent Balance Sheets - Year to Date

	Nine Months Ended
	September 30, 2015							September 30, 2014
(Dollars in thousands)	Average Balance			Interest (1)		Average Rate		Average Balance			Interest (1)		Average Rate
ASSETS
Cash and cash equivalents	$	512,746						$	712,490
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)	5,419,377			$	81,365	2.01	%	5,244,238			$	79,162	2.02	%
Obligations of states and political subdivisions (tax exempt)	731,726			25,835		4.72	%	761,461			26,100		4.58	%
Other securities and federal funds sold	590,458			15,401		3.49	%	587,622			17,185		3.91	%
Total investment securities and federal funds sold	6,741,561			122,601		2.43	%	6,593,321			122,447		2.48	%
Loans held for sale	4,678			169		4.83	%	11,517			302		3.51	%
Loans, including loss share receivable (2)	15,589,444			487,805		4.18	%	14,756,994			515,757		4.67	%
Total earning assets	22,335,683			$	610,575	3.65	%	21,361,832			$	638,506	4.00	%
Total allowance for loan losses	(146,029		)					(141,766		)
Other assets	2,381,209							2,405,097
Total assets	$	25,083,609						$	24,337,653
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	5,783,542		$	—	—	%	$	5,536,306		$	—	—	%
Interest-bearing	3,256,082			2,300		0.09	%	3,071,220			2,236		0.10	%
Savings and money market accounts	8,496,668			16,774		0.26	%	8,589,882			16,605		0.26	%
Certificates and other time deposits	2,274,049			7,444		0.44	%	2,357,241			8,319		0.47	%
Total deposits	19,810,341			26,518		0.18	%	19,554,649			27,160		0.19	%
Securities sold under agreements to repurchase	1,140,547			826		0.10	%	1,031,483			697		0.09	%
Wholesale borrowings	374,085			3,459		1.24	%	363,422			3,917		1.44	%
Long-term debt	502,578			12,081		3.21	%	323,068			11,566		4.79	%
Total interest-bearing liabilities	16,044,009			42,884		0.36	%	15,736,316			43,340		0.37	%
Other liabilities	366,414							294,936
Shareholders’ equity	2,889,644							2,770,095
Total liabilities and shareholders’ equity	$	25,083,609						$	24,337,653
Net yield on earning assets	$	22,335,683		$	567,691	3.40	%	$	21,361,832		$	595,166	3.73	%
Interest rate spread						3.29	%						3.63	%

(1) The net yield on earning assets is calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal and/or state income taxes. As such, these tax-exempt securities typically yield lower returns than taxable securities. To provide more meaningful comparisons of net interest margins for all earning assets, net interest income on a taxable-equivalent basis is used in calculating net interest margin by increasing the interest earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles in the Consolidated Statements of Income. The taxable-equivalent adjustments to net interest income were $11.6 million and $12.1 million for the nine months endedSeptember 30, 2015 and September 30, 2014, respectively.

(2) Nonaccrual loans have been included in the average balances.

103

Net Interest Income

Net interest income, the Corporation's principal source of revenue, is the difference between interest income generated by earning assets (primarily loans and investment securities) and interest expense on deposits and borrowings. Net interest income is affected by the volume, pricing, mix and maturity of earning assets and interest-bearing liabilities; the volume and value of net free funds, such as noninterest-bearing deposits and equity capital; the use of derivative instruments to manage interest rate risk; interest rate fluctuations and competitive conditions within the marketplace; and asset quality.

To make it easier to compare results among several periods and the yields on various types of earning assets (some taxable, some not), net interest income is presented in this discussion on a TE basis. 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 nondeductible portion of interest expense incurred to acquire the tax-free assets. Net interest income presented on a TE basis is a financial measure that is calculated and presented other than in accordance with 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 net interest margin, which is an indicator of the profitability of the earning assets portfolio less cost of funding, is calculated by dividing net interest income-TE by average earning assets. As with net interest income-TE, the net interest margin is affected by the level and mix of earning assets, the proportion of earning assets funded by noninterest-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.

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.

Figure 5. Changes in Net Interest Income Tax-Equivalent Rate/Volume Analysis

	Three Months Ended September 30,									Nine Months Ended September 30,
	2015 and 2014									2015 and 2014
	Increase (Decrease) In Interest Income/Expense									Increase (Decrease) In Interest Income/Expense
(In thousands)	Due to Volume			Due to Rate			Net			Due to Volume			Due to Rate			Net
INTEREST INCOME-TE
Investment securities and federal funds sold:
Taxable	$	999		$	(431	)	$	568		$	2,900		$	(2,481	)	$	419
Tax-exempt	(437		)	(52		)	(489		)	(1,037		)	772			(265		)
Loans held for sale	(143		)	55			(88		)	(221		)	88			(133		)
Loans	6,731			(15,130		)	(8,399		)	28,028			(55,980		)	(27,952		)
Total interest income-TE	7,150			(15,558		)	(8,408		)	29,670			(57,601		)	(27,931		)
INTEREST EXPENSE
Interest on deposits:
Interest bearing	60			(65		)	(5		)	132			(68		)	64
Savings and money market accounts	(8		)	77			69			(181		)	350			169
Certificates and other time deposits	(135		)	46			(89		)	(286		)	(589		)	(875		)
Securities sold under agreements to repurchase	(17		)	3			(14		)	77			52			129
Wholesale borrowings	(191		)	(35		)	(226		)	6,105			(6,563		)	(458		)
Long-term debt	1,693			(1,311		)	382			5,099			(4,584		)	515
Total interest expense	1,402			(1,285		)	117			10,946			(11,402		)	(456		)
Net interest income-TE	$	5,748		$	(14,273	)	$	(8,525	)	$	18,724		$	(46,199	)	$	(27,475	)

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

104

The following table in Figure 6 provides net interest income-TE and net interest margin totals for the three and nine months ended September 30, 2015 and 2014:

Figure 6. Net Interest Income and Net Interest Margin

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2015			2014			2015			2014
Net interest income	$	185,323		$	193,578		$	556,064		$	583,057
Tax equivalent adjustment	3,796			4,066			11,627			12,109
Net interest income-TE	189,119			197,644			567,691			595,166
Average earning assets	$	22,548,977		$	21,804,243		22,335,683			21,361,832
Net interest margin	3.33		%	3.60		%	3.40		%	3.73		%

For the three months ended September 30, 2015, net interest income-TE was $189.1 million, a decrease of $8.5 million, or 4.31%, from the year ago period. The net interest margin for the three months ended September 30, 2015 was 3.33%, 27 basis points lower than 3.60% for the same year ago quarter. The decrease in taxable equivalent net interest income was attributable to a decrease in originated and FDIC acquired loan yields, partially offset by the benefit provided by an increase in average earning assets. Average earning assets increased by $0.7 billion, or 3.42%, for the three months ended September 30, 2015, compared to the same period in 2014. The increase in average earnings assets primarily reflected a $612.0 million increase in average total loans and a $145.2 million increase in average investments. The average yield on earning assets decreased from 3.86% in the third quarter of 2014 to 3.59% in the third quarter of 2015 primarily from decreased yields on the loan portfolios. Originated loan yields were down5 basis points to 3.50% from the year ago quarter due to competitive pricing pressures in a low rate environment and repayments on higher yielding loans. The yield on FDIC acquired loans was down57 basis points from the year ago quarter due to a $9.6 million decrease in FDIC acquired loan discount accretion, partly offset by a $6.5 million favorable reduction in the indemnification asset amortization. These reductions are the result of the continued decline in FDIC acquired loan average balances, which declined $201.3 million, or 45.2%, from the year ago quarter. The yield on acquired loans was also down11 basis point to 7.92% contributing to the overall decrease in total loan yields

Quarterly average balances for investment securities were up from the year ago quarter increasing investment interest income by $0.6 million, while the lower interest rate environment resulted in a decrease in investment interest income of $0.5 million year over year. Lower quarterly average wholesale borrowings and slightly lower rates during the third quarter of 2015 caused a net decrease in interest expense of $0.2 million compared to the same year ago period. The cost of funds for the year as a percentage of average earning assets remained flat at approximately 0.07% for the three months ended September 30, 2015 and September 30, 2014.

105

Noninterest Income

Excluding investment securities transactions, noninterest income for the three and nine months ended September 30, 2015 totaled $71.4 million and $202.9 million, respectively, and totaled $69.7 million and $209.4 million, respectively, for the three and nine months ended September 30, 2014. Noninterest income increased$1.7 million, or 2.39%, compared to the three month period ended September 30, 2014, and decreased $6.5 million, or 3.1%, compared to the nine month period ended September 30, 2014. Noninterest income as a percentage of net revenue (net interest income-TE plus noninterest income, less securities transactions) was 27.40% for the three months ended September 30, 2015, down from 26.08% in the year ago quarter, and 26.33% for the nine months ended September 30, 2015, down slightly from 26.03% in 2014. Significant changes in noninterest income for the three and nine months ended September 30, 2015 are discussed immediately after Figure 7.

Figure 7. Noninterest Income

	Three Months Ended September 30,						% Increase (Decrease) 2015 vs. 2014		Nine Months Ended September 30,						% Increase (Decrease) 2015 vs. 2014
(Dollars in thousands)	2015			2014					2015			2014
Trust department income	$	10,948		$	10,300		6.29	%	$	31,917		$	30,118		5.97	%
Service charges on deposits	17,295			18,684			(7.43	)%	49,667			53,860			(7.78	)%
Credit card fees	13,939			13,754			1.35	%	40,712			39,361			3.43	%
ATM and other service fees	6,518			6,182			5.44	%	18,962			17,998			5.36	%
Bank owned life insurance income	4,622			4,218			9.58	%	11,911			11,840			0.60	%
Investment services and life insurance	4,032			3,606			11.81	%	11,607			10,974			5.77	%
Investment securities gains/(losses), net	41			14			192.86	%	962			150			541.33	%
Loan sales and servicing income	2,414			4,740			(49.07	)%	7,290			12,932			(43.63	)%
Other operating income	11,617			8,235			41.07	%	30,827			32,331			(4.65	)%
Total noninterest income	$	71,426		$	69,733		2.43	%	$	203,855		$	209,564		(2.72	)%
Noninterest income as a percent of net revenue (1)	27.40		%	26.08		%			26.33		%	26.03		%

(1) TE net interest income plus noninterest income, less gains/(losses) from securities.

Fee based income increased across multiple areas including wealth management, treasury management, and ATM and other service fees. Service charges on depositsdecreased$1.4 million, or 7.43%, in the three months ended September 30, 2015 as compared to the same prior year period and decreased$4.2 million, or 7.78%, in the nine months ended September 30, 2015 as compared to the same prior year period due to fewer overdraft incident levels as customers increasingly use mobile devices to manage their accounts.

Loan sales and servicing income includes amortization and impairment or recovery of MSRs, changes in the fair value of residential mortgage loans held for sale, as well as changes in the value of derivatives used to hedge those loans held for sale. Total loan sales and servicing income decreased by $2.3 million, or 49.07%, in the three months ended September 30, 2015 as compared to the same prior year period and decreased by $5.6 million, or 43.63% in the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014. The Corporation's mortgage banking business was restructured as of January 1, 2015 which resulted in a lower volume of loans sold in the three and nine months ended September 30, 2015. While the Corporation continues to originate residential mortgage loans, it has partnered with a third party to process, underwrite, close, and service the Corporation's residential mortgage loan production. The Corporation will

106

retain for its balance sheet and continue to service community reinvestment act eligible loans, jumbos, and adjustable rate mortgages. The Corporation serviced for third parties approximately $2.4 billion of residential mortgage loans at September 30, 2015 and $2.6 billion at September 30, 2014 resulting in loan servicing fees of approximately $1.5 million and $4.8 million in the three and nine months ended September 30, 2015, respectively, and $1.6 million and $4.9 million in the three and nine months ended September 30, 2014, respectively.

Other operating income increased$3.4 million, or 41.07%, in the three months ended September 30, 2015 as compared to the same prior year period as a result of higher income on resolution of FDIC acquired loans.

Noninterest Expenses

Noninterest expenses for the three and nine months ended September 30, 2015 totaled $160.7 million and $483.1 million, respectively, compared with $163.1 million and $499.9 million, respectively, in the same period one year ago. This resulted in a decrease of $2.4 million, or 1.47%, for the quarter-to-date period and a decrease of $16.8 million, or 3.36%, for the year-to-date period. Significant changes in noninterest expense for the three and nine months ended September 30, 2015 are discussed immediately after Figure 8.

Figure 8. Noninterest Expense

	Three Months Ended September 30,				% Increase (Decrease) 2015 vs 2014		Nine Months Ended September 30,				% Increase (Decrease) 2015 vs 2014
(Dollars in thousands)	2015		2014				2015		2014
Salaries and wages	$	68,775	$	71,769	(4.17	)%	$	208,175	$	213,330	(2.42	)%
Pension and employee benefits	16,997		18,824		(9.71	)%	54,143		55,741		(2.87	)%
Net occupancy expense	13,540		13,887		(2.50	)%	43,221		45,248		(4.48	)%
Equipment expense	12,235		12,188		0.39	%	35,852		36,366		(1.41	)%
Taxes, other than federal income taxes	2,003		1,286		55.75	%	6,048		6,639		(8.90	)%
Stationery, supplies and postage	3,304		3,723		(11.25	)%	10,202		11,820		(13.69	)%
Bankcard, loan processing, and other costs	12,335		11,151		10.62	%	35,935		33,795		6.33	%
Advertising	4,278		3,942		8.52	%	10,128		11,261		(10.06	)%
Professional services	5,154		5,270		(2.20	)%	14,522		15,373		(5.54	)%
Telephone	2,480		2,831		(12.40	)%	7,654		8,596		(10.96	)%
Amortization of intangibles	2,598		2,933		(11.42	)%	7,794		8,802		(11.45	)%
FDIC insurance expense	5,234		2,988		75.17	%	15,478		14,492		6.80	%
Other operating expense	11,809		12,353		(4.40	)%	33,916		38,415		(11.71	)%
Total noninterest expense	$	160,742	$	163,145	(1.47	)%	$	483,068	$	499,878	(3.36	)%

Salaries and employee benefits decreased$4.8 million, or 5.32%, in the three months ended September 30, 2015 as compared to the same prior year period and decreased$6.8 million, or 2.51%, in the nine months ended September 30, 2015 as compared to the same prior year period due to 341, or 7.93%, fewer full time equivalent employees year over year.

107

Income Taxes

Income tax expense was $22.7 million and $27.1 million for the three months ended September 30, 2015 and 2014, respectively. The effective income tax rate for the three months ended September 30, 2015 was 27.80% compared to 29.76% for the three months ended September 30, 2014.

Income tax expense was $72.6 million and $76.9 million for the nine months ended September 30, 2015 and 2014, respectively. The effective income tax rate for the nine months ended September 30, 2015 was 29.60% compared to 30.30% for the nine months ended September 30, 2014.

LINE OF BUSINESS RESULTS

The Corporation's profitability is primarily dependent on the net interest income, provision for credit losses, non-interest income and operating expenses of its commercial and retail segments as well as the asset management and trust operations of the wealth segment.

The following tables present a summary of financial results for the three and nine months ended September 30, 2015 and 2014. A description of each business line, important financial performance data and the methodologies used to measure financial performance are presented in Note 7 (Segment Information) to the consolidated financial statements.

Figure 9. Line of Business Results

	Commercial				Retail				Wealth						Other						FirstMerit Consolidated
September 30, 2015	QTD		YTD		QTD		YTD		QTD			YTD			QTD			YTD			QTD		YTD
(In thousands)
OPERATIONS:
Net interest income/(loss) -TE	$	102,956	$	308,184	$	93,089	$	277,616	$	5,595		$	16,527		$	(12,521	)	$	(34,636	)	$	189,119	$	567,691
Provision/(recapture) for loan losses	611		2,370		6,470		22,451		(10		)	(181		)	7,204			6,849			14,275		31,489
Noninterest income	24,525		68,933		25,634		71,335		15,072			43,864			6,195			19,723			71,426		203,855
Noninterest expense	59,394		182,078		87,748		263,818		13,795			40,975			(195		)	(3,803		)	160,742		483,068
Net income/(loss)	43,108		122,924		15,928		40,743		4,474			12,737			(4,498		)	(3,669		)	59,012		172,735
AVERAGES:
Assets	$	9,457,387	$	9,449,821	$	6,101,141	$	5,967,011	$	299,049		$	297,333		$	9,360,279		$	9,369,444		$	25,217,856	$	25,083,609
Loans	9,558,281		9,533,074		5,856,383		5,710,709		290,054			287,687			55,409			57,974			15,760,127		15,589,444
Earnings assets	9,880,128		9,834,806		5,863,020		5,718,783		290,054			287,687			6,515,775			6,494,407			22,548,977		22,335,683
Deposits	7,315,350		6,994,812		10,936,682		11,054,911		1,186,530			1,205,152			519,024			555,466			19,957,586		19,810,341
Economic capital	1,272,961		1,323,567		841,818		789,857		122,082			114,051			672,799			662,169			2,909,660		2,889,644

	Commercial						Retail				Wealth				Other						FirstMerit Consolidated
September 30, 2014	QTD			YTD			QTD		YTD		QTD		YTD		QTD			YTD			QTD		YTD
(In thousands)
OPERATIONS:
Net interest income/(loss) -TE	$	105,403		$	318,237		$	96,833	$	287,287	$	5,246	$	14,963	$	(9,838	)	$	(25,321	)	$	197,644	$	595,166
Provision/(recapture) for loan losses	(4,988		)	(628		)	9,791		30,573		362		713		4,028			8,324			9,192		38,982
Noninterest income	21,096			69,083			28,382		80,923		14,108		41,624		6,147			17,933			69,733		209,564
Noninterest expense	59,984			187,391			87,379		273,470		13,571		40,266		2,211			(1,249		)	163,145		499,878
Net income/(loss)	46,477			130,362			18,229		41,709		3,524		10,145		(4,333		)	(5,344		)	63,898		176,872
AVERAGES:
Assets	$	9,407,684		$	9,225,407		$	5,709,775	$	5,573,598	$	289,549	$	263,513	$	9,176,768		$	9,275,135		$	24,583,776	$	24,337,653
Loans	9,409,391			9,217,146			5,394,284		5,226,262		278,930		252,694		65,495			60,892			15,148,100		14,756,994
Earnings assets	9,715,918			9,497,907			5,421,861		5,248,016		278,930		252,694		6,387,534			6,363,215			21,804,243		21,361,832
Deposits	6,777,220			6,656,638			11,335,468		11,601,531		1,139,703		1,066,981		279,409			229,499			19,531,800		19,554,649
Economic capital	1,339,923			1,313,571			757,722		735,499		102,989		100,127		607,252			620,897			2,807,886		2,770,095

The commercial segment's net income resulted in a decrease of $3.4 million, or 7.25%, for the three months ended September 30, 2015 to $43.1 million, from $46.5 million for the three months ended September 30, 2014. TE adjusted net interest income for the commercial segment totaled $103.0 million for the three months ended September 30, 2015 compared to $105.4 million for the three months ended September 30, 2014, a decrease of $2.4 million, or 2.32%. This decrease is a result of run-off of the higher margin portfolio of acquired loans, partially offset by higher originated commercial loan balances. The provision for loan losses for the commercial segment was $0.6 million for the three months ended September 30, 2015 compared to a recapture of $5.0 million for the three months ended September 30, 2014. Net charge-offs were $4.3 million for the three months ended September 30, 2015, compared to $2.8 million during the same period in 2014. Noninterest income increased $3.4 million to $24.5 million for the three months ended September 30, 2015 compared to $21.1 million for the same period in 2014, due in part to increased Letter of Credit fees. Noninterest expense for the commercial segment was $59.4 million for the three months ended September 30, 2015, down from $60.0 million for the same period of 2014.

The retail segment's net income resulted in a decrease of $2.3 million, or 12.62%, for the three months ended September 30, 2015 to $15.9 million, from $18.2 million for the three months ended September 30, 2014. Net interest income totaled $93.1 million for the three months ended September 30, 2015 compared to $96.8 million for the three months ended September 30, 2014, a decrease of $3.7 million, or 3.87%, attributable primarily to margin compression in the acquired loan portfolio. Provision for loan losses totaled $6.5 million for the three months ended September 30, 2015 compared to $9.8 million for the three months ended September 30, 2014, a decrease of $3.3 million, or 33.92%. Net charge-offs increased slightly to $3.7 million for the three months ended September 30, 2015, compared to $3.2 million during the same period in 2014. Noninterest income was $25.6 million for the three months ended September 30, 2015 compared to $28.4 million for the three months ended September 30, 2014, a decrease of $2.7 million, or 9.68%, attributable to lower service charges on deposits and loan sales and servicing income. Noninterest expense increased$0.4 million, or 0.42%, to $87.7 million for the three months ended September 30, 2015 compared to $87.4 million for the three months ended September 30, 2014.

The wealth segment's net income resulted in an increase of $1.0 million, or 26.96%, for the three months ended September 30, 2015 to $4.5 million, from $3.5 million for the three months ended September 30, 2014. Net interest income totaled $5.6 million for the three months ended September 30, 2015 compared to $5.2

108

million for the three months ended September 30, 2014, an increase of $0.3 million, or 6.65%, attributable to an increase in loan and deposit balances. Recapture of provision expense increased by $0.4 million from the same period in 2014. Noninterest income was $15.1 million for the three months ended September 30, 2015 compared to $14.1 million for the three months ended September 30, 2014, an increase of $1.0 million, or 6.83%, attributable to increased trust revenue and securities fee income. Noninterest expense resulted in an increase of $0.2 million, or 1.65%, to $13.8 million for the three months ended September 30, 2015 compared to $13.6 million for the three months ended September 30, 2014.

Activities that are not directly attributable to one of the primary lines of business are included in the Other segment. Included in this category are the Parent Company, community development operations, treasury group, including the securities portfolio, wholesale funding and asset liability management activities, inter-company eliminations, acquisition related expenses, and the economic impact of certain assets, capital and support functions not specifically identifiable with the three primary lines of business. The Other segment recorded a net loss of $4.5 million for the three months ended September 30, 2015, compared to a net loss of $4.3 million for the three months ended September 30, 2014.

FINANCIAL CONDITION

Investment Securities

The following table provides information with respect to amortized cost and fair value of the Corporation's investment security portfolio.

Figure 10. Investment Securities

	September 30, 2015						December 31, 2014							September 30, 2014
(In thousands)	Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)		Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)			Amortized Cost		Fair value		Net Unrealized Gain/(Loss)
Available-for-sale securities (1)	$	3,912,767	$	3,925,724	$	12,957	$	3,562,537	$	3,545,288	$	(17,249	)	$	3,494,793	$	3,462,990	$	(31,803	)
Held-to-maturity securities (2)	2,728,638		2,728,911		273		2,903,609		2,875,920		(27,689		)	3,002,262		2,947,172		(55,090		)
Other securities (3)	147,955		147,955		—		148,654		148,654		—			148,421		148,421		—
Total investment securities	$	6,789,360	$	6,802,590	$	13,230	$	6,614,800	$	6,569,862	$	(44,938	)	$	6,645,476	$	6,558,583	$	(86,893	)

(1) Carried at fair value on the Consolidated Balance Sheets.

(2)Carried at amortized cost on the Consolidated Balance Sheets.

(3)Carried at amortized cost on the Consolidated Balance Sheets and consist primarily of FHLB and FRB stock.

Available-for-sale securities are held primarily for liquidity, interest rate risk management and long-term yield enhancement. The Corporation’s available-for-sale investment policy is to invest in securities viewed to have low credit risk, such as U.S. Treasury securities, U.S. Government agency obligations, state and political obligations, MBS, and corporate bonds. The Corporation has invested in floating rate CLOs beginning in the second quarter of 2013. The CLO portfolio had an amortized cost of $297.8 million as of September 30, 2015, compared to $297.4 million as of December 31, 2014 and $297.4 million as of September 30, 2014. Net unrealized losses on the CLO portfolio amounted to $5.3 million, $9.6 million, and $7.0 million at September 30, 2015, December 31, 2014, and September 30, 2014, respectively. The current yield on the CLO portfolio approximates 2.58% as of September 30, 2015. Management believes that its holdings of CLOs are not ownership interests in covered funds prohibited by the Volcker Rule regulations and, therefore, expects to be able to hold these investments until their stated maturities. Management seeks to maintain a CLO portfolio

109

consistent with the requirements of the Volcker Rule, and new CLO investments are being made in accordance with this strategy. As of September 30, 2015, the Corporation has purchased $38.0 million of newly issued CLO investments that Management believes to be exempt from the Volcker Rule as these CLOs are structured in a manner consistent with the loan securitization exclusion set forth in the Volcker Rule.

110

Loans

Total loans at September 30, 2015 were $15.8 billion, compared to $15.3 billion at December 31, 2014, and $15.2 billion at September 30, 2014. Total loans as of September 30, 2015 include $1.9 billion in acquired loans and $236.0 million in FDIC acquired loans, including a loss share receivable of $10.9 million. Acquired loans resulted from the acquisition of Citizens in the second quarter of 2013. FDIC acquired loans resulted from the 2010 FDIC-assisted acquisitions of George Washington and Midwest. The major categories of loans outstanding and concentration distributions are presented in the following tables, segregated between originated, acquired, and FDIC acquired loans.

Figure 11. Period End Loans by Product Type

	As of September 30, 2015
	Originated Loans				Acquired Loans (1)				FDIC Acquired Loans (2)				Total Loans
(Dollars in thousands)	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage
C&I	$	5,521,955		40.5%	$	274,552		14.4%	$	38,787		17.2%	$	5,835,294		37.0%
CRE	2,089,533			15.3%	497,690			26.0%	94,531			42.0%	2,681,754			17.0%
Construction	619,569			4.5%	6,172			0.3%	5,859			2.6%	631,600			4.0%
Leases	461,642			3.4%	—			—%	—			—%	461,642			2.9%
Total Commercial	8,692,699			63.7%	778,414			40.7%	139,177			61.8%	9,610,290			60.9%
Residential mortgages	673,591			4.9%	341,278			17.8%	36,362			16.2%	1,051,231			6.7%
Installment	2,899,559			21.2%	611,061			31.9%	2,156			1.0%	3,512,776			22.2%
Home equity lines	1,212,084			8.9%	184,211			9.6%	47,370			21.0%	1,443,665			9.1%
Credit card	170,392			1.3%	—			—%	—			—%	170,392			1.1%
Total Consumer	4,955,626			36.3%	1,136,550			59.3%	85,888			38.2%	6,178,064			39.1%
Subtotal	13,648,325			100.0%	1,914,964			100.0%	225,065			100.0%	15,788,354			100.0%
Loss share receivable	—			n/m	—			n/m	10,926			n/m	10,926			n/m
Total Loans	13,648,325			n/m	1,914,964			n/m	235,991			n/m	15,799,280			n/m
Allowance for loan losses	(104,055		)	n/m	(4,199		)	n/m	(45,196		)	n/m	(153,450		)	n/m
Net Loans	$	13,544,270		n/m	$	1,910,765		n/m	$	190,795		n/m	$	15,645,830		n/m

	As of December 31, 2014
	Originated Loans				Acquired Loans (1)				FDIC Acquired Loans (2)				Total Loans
(Dollars in thousands)	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage
C&I	$	5,175,201		41.4%	$	449,254		18.1%	$	48,837		14.7%	$	5,673,292		37.1%
CRE	2,117,118			16.9%	630,674			25.4%	153,508			46.4%	2,901,300			19.0%
Construction	537,766			4.3%	6,971			0.3%	9,262			2.8%	553,999			3.6%
Leases	370,179			3.0%	—			—%	—			—%	370,179			2.4%
Total Commercial	8,200,264			65.6%	1,086,899			43.8%	211,607			63.9%	9,498,770			62.1%
Residential mortgages	625,283			5.0%	394,484			15.9%	41,276			12.5%	1,061,043			6.9%
Installment	2,393,451			19.1%	764,168			30.8%	4,874			1.5%	3,162,493			20.7%
Home equity lines	1,110,336			8.9%	233,629			9.4%	73,365			22.1%	1,417,330			9.3%
Credit card	164,478			1.3%	—			—%	—			—%	164,478			1.1%
Total Consumer	4,293,548			34.4%	1,392,281			56.2%	119,515			36.1%	5,805,344			37.9%
Subtotal	12,493,812			100.0%	2,479,180			100.0%	331,122			100.0%	15,304,114			100.0%
Loss share receivable	—			n/m	—			n/m	22,033			n/m	22,033			n/m
Total Loans	12,493,812			n/m	2,479,180			n/m	353,155			n/m	15,326,147			n/m
Allowance for loan losses	(95,696		)	n/m	(7,457		)	n/m	(40,496		)	n/m	(143,649		)	n/m
Net Loans	$	12,398,116		n/m	$	2,471,723		n/m	$	312,659		n/m	$	15,182,498		n/m

111

	As of September 30, 2014
	Originated Loans				Acquired Loans (1)				FDIC Acquired Loans (2)				Total Loans
(Dollars in thousands)	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage
C&I	$	5,039,320		41.7%	$	551,489		20.1%	$	56,076		14.2%	$	5,646,885		37.1%
CRE	2,119,734			17.6%	710,495			25.9%	192,746			48.9%	3,022,975			19.9%
Construction	467,112			3.9%	10,260			0.4%	13,497			3.4%	490,869			3.2%
Leases	339,936			2.8%	—			—%	—			—%	339,936			2.2%
Total Commercial	7,966,102			66.0%	1,272,244			46.4%	262,319			66.5%	9,500,665			62.4%
Residential mortgages	605,998			5.0%	410,065			14.9%	43,672			11.1%	1,059,735			7.0%
Installment	2,277,533			18.9%	809,820			29.5%	5,148			1.3%	3,092,501			20.3%
Home equity lines	1,062,013			8.8%	252,975			9.2%	83,278			21.1%	1,398,266			9.2%
Credit card	160,113			1.3%	—			—%	—			—%	160,113			1.1%
Total Consumer	4,105,657			34.0%	1,472,860			53.6%	132,098			33.5%	5,710,615			37.6%
Subtotal	12,071,759			100.0%	2,745,104			100.0%	394,417			100.0%	15,211,280			100.0%
Loss share receivable	—			n/m	—			n/m	30,746			n/m	30,746			n/m
Total Loans	12,071,759			n/m	2,745,104			n/m	425,163			n/m	15,242,026			n/m
Allowance for loan losses	(90,883		)	n/m	(6,206		)	n/m	(42,988		)	n/m	(140,077		)	n/m
Net Loans	$	11,980,876		n/m	$	2,738,898		n/m	$	382,175		n/m	$	15,101,949		n/m

n/m = Not Meaningful

(1) Loans assumed from Citizens.

(2) Loans acquired in an FDIC-assisted transaction. George Washington and Midwest non-single family loss share agreements with the FDIC expired at March 31, 2015 and June 30, 2015, respectively. As of September 30, 2015, $85.9 million of FDIC acquired loans remained covered by single family loss share agreements, providing considerable protection against credit risk.

Originated Loans

Total originated loans increased from December 31, 2014 by $1.2 billion, or 9.24%, and increased from September 30, 2014 by $1.6 billion, or 13.06%. The loan growth was driven primarily by installment loans. Installment loans increased$506.1 million, or 21.15%, compared with December 31, 2014, and increased$622.0 million, or 27.31%, compared with September 30, 2014. This growth is a result of introducing recreational lending into the Corporation's legacy markets and expanding indirect auto lending into Michigan and Wisconsin. The leasing line of business has also seen considerable increase in activity. As of September 30, 2015, leases totaled $461.6 million compared to $370.2 million and $339.9 million at December 31, 2014 and September 30, 2014, respectively, resulting in increases of $91.5 million, or 24.71%, from December 31, 2014 and $121.7 million, or 35.80%, from September 30, 2014.

Residential mortgage loans are originated and then sold into the secondary market or held in portfolio. Total residential mortgage loan balances increased from December 31, 2014 by $48.3 million, or 7.73%, and increased from September 30, 2014 by $67.6 million, or 11.15%, as a larger amount of shorter maturity and adjustable rate mortgages were held in portfolio compared to the end of the prior year. The Corporation's mortgage banking business was restructured as of January 1, 2015. The Corporation will continue to originate residential mortgage loans but has partnered with a third party to process, underwrite, close and service the Corporation's residential mortgage loan production. The Corporation will retain for its balance sheet and continue to service community reinvestment act eligible loans, jumbos, and adjustable rate mortgages.

Outstanding home equity loans increased from December 31, 2014 by $101.7 million, or 9.16%, and increased from September 30, 2014 by $150.1 million, or 14.13%.

112

The Corporation has approximately $4.8 billion of loans secured by real estate. Approximately 83.13% of the property underlying these loans is located within the Corporation's primary market area of Ohio, the Chicago, Illinois-metropolitan area, Michigan, Wisconsin, and Western Pennsylvania.

Acquired Loans

Acquired loans are those purchased in the Citizens acquisition during the second quarter of 2013. Total acquired loans was $1.9 billion as of September 30, 2015, a decrease from December 31, 2014 and September 30, 2014 of $564.2 million, or 22.76%, and $830.1 million, or 30.24%, respectively. The acquired loan portfolio will continue to decline, through payoffs, charge-offs, or terminations, unless the Corporation acquires additional loans in the future.

FDIC Acquired Loans and Related Loss Share Receivable

FDIC acquired loans include loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and Midwest. George Washington and Midwest non-single family loans covered by loss share agreements expired on March 31, 2015 and June 30, 2015, respectively, resulting in $2.3 million and $136.9 million of loans no longer being covered as of September 30, 2015. As of September 30, 2015, $12.7 million and $73.2 million of George Washington and Midwest loans, respectively, remained covered by single family loss share agreements, until the agreements expire in March and June of 2020.

Total FDIC acquired loans, including the loss share receivable, were $236.0 million as of September 30, 2015, a decrease from December 31, 2014 and September 30, 2014 of $117.2 million, or 33.18%, and $189.2 million, or 44.49%, respectively. The FDIC acquired loan portfolio will continue to decline, through payoffs, charge-offs, termination or expiration of loss share coverage, unless the Corporation acquires additional loans subject to loss share agreements in the future.

As of September 30, 2015, the loss share receivable related to the remaining single family covered loans was $10.9 million and recorded as part of FDIC acquired loans. The loss share receivable related to the Midwest non-single family loans was $6.7 million as of September 30, 2015 and was recorded within Accrued Interest Receivable and Other Assets in the Consolidated Balance Sheet.

113

Allowance for Loan Losses and Reserve For Unfunded Lending Commitments

Allowance for Originated Loan Losses

The Corporation maintains what Management believes is an adequate originated ALL. The Corporation and the 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. See Note 1 (Summary of Significant Accounting Policies) and Note 4 (Allowance for Loan Losses) in the notes to the consolidated financial statements in this Form 10-Q for further information regarding the Corporation's credit policies and practices.

The level of the allowance for loan losses represents Management’s best estimate of probable credit losses inherent in the loan portfolio at the balance sheet date. The evaluation of the ALL is based on ongoing review of trends in risk ratings, delinquencies, nonperforming assets, charge-offs, economic conditions, and changes in the composition of the loan portfolio.

The Corporation’s credit administration division manages credit risk by establishing credit policies, processes, and review mechanisms. The credit administration division formulates procedures and guidelines, defines credit standards, establishes and maintains credit controls, and produces Management reports in support of these activities.

The Corporation’s credit risk management division is responsible for the analysis and reporting for all credit risks. To preserve portfolio diversification and to manage the risks inherent to portfolio concentrations, monitoring metrics are established and applied to a range of portfolio segments based on industry, collateral, or purpose. One of three portfolio strategies (Growth, Stable or Contract) are assigned to each segment. The assigned strategies are intended to guide management behavior in matters concerning pricing, underwriting and mitigation of portfolio risk. These metrics are monitored and updated on an on-going basis and reviewed quarterly with senior management and the Board of Directors Risk Management Committee.

The primary indicators of credit quality are delinquency status and our internal risk ratings for our commercial loan portfolio segment, and delinquency status and current FICO scores for our consumer loan portfolio segment. Assignment of internal risk ratings are based on the most current information available from a financial statement standpoint, as well as from an industry and geographic perspective. All aspects of the credit relationship are considered in the risk rating decisioning process, including, but not limited to, credit structure and terms, compliance with loan covenants and loan agreements, and the impact of weak or improper credit structure. Relationship managers perform regular reviews to assess the accuracy of risk ratings. A formal review of all customer risk ratings on any aggregate credit exposure of $250,000 or more is performed at a minimum of once every twelve months unless administered in Core Banking and monitored by Portfolio Management (including the Private Client Services portfolio) in which case the threshold is $350,000. The review is documented with current financial statements for all obligors, co-obligors and guarantors, a current credit status memo and a current risk rating sheet. Risk rating reviews of criticized loans are performed on a quarterly basis jointly between the relationship managers and the regional or senior-regional credit officer and supported with written updates by the loan officer, which include the progress of the credit, action plans, and improvement or deterioration since the previous quarter.

As part of our credit monitoring process, our loan review department serves to independently monitor credit quality and assess the effectiveness of credit risk management to provide Management with objective

114

oversight of all lending activities. The loan review department is independent of the line lending and credit administration functions of the Corporation. The primary responsibilities of the loan review department are to provide an independent analysis of risk rating accuracy and timeliness, credit quality (including regulatory, policy, and underwriting compliance), credit administration management, processes, and controls.

At September 30, 2015, the allowance for originated loan losses was $104.1 million, or 0.76% of originated loans outstanding, compared to $95.7 million, or 0.77%, and $90.9 million, or 0.75%, at December 31, 2014 and September 30, 2014, respectively. The allowance equaled 221.22% of nonperforming loans at September 30, 2015 compared to 276.44% and 231.13% at December 31, 2014 and September 30, 2014, respectively. The additional reserves related to qualitative risk factors totaled $66.0 million at September 30, 2015, compared to $57.0 million and $49.6 million at December 31, 2014 and September 30, 2014, respectively. Nonperforming loans have increased by $12.4 million, or 35.88%, when compared to December 31, 2014 and increased by $7.7 million, or 19.62%, when compared to September 30, 2014.

Net charge-offs on originated loans were $8.0 million and 0.24% of average originated loans outstanding during the three months ended September 30, 2015, compared to $5.9 million and 0.20% of average originated loans outstanding during the three months ended September 30, 2014. Losses are charged against the ALL as soon as they are identified.

The reserve for unfunded lending commitments at September 30, 2015, December 31, 2014, and September 30, 2014 was $3.6 million, $5.8 million, and $7.0 million, respectively. Binding unfunded lending commitments include items such as letters of credit, financial guarantees and binding unfunded loan commitments. The allowance for credit losses, which includes both the allowance for originated loan losses and the reserve for unfunded lending commitments, amounted to $107.6 million, $101.5 million, and $97.8 million at September 30, 2015, December 31, 2014, and September 30, 2014, respectively.

115

Figure 12. Summary of the Allowance for Credit Losses

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2015			2014			2015			2014
Allowance for Originated Loan Losses - beginning of period	$	101,682		$	91,950		$	95,696		$	96,484
Originated loans charged off:
Commercial	4,476			4,046			8,738			12,256
Mortgage	409			91			1,206			1,484
Installment	4,456			4,323			13,682			12,983
Home equity	940			1,361			2,822			3,403
Credit cards	1,173			778			3,834			3,544
Leases	1,268			—			1,268			—
Overdrafts	676			811			1,713			2,048
Total charge-offs	13,398			11,410			33,263			35,718
Originated Recoveries:
Commercial	759			1,287			1,532			2,720
Mortgage	80			114			204			219
Installment	2,774			2,729			8,358			8,195
Home equity	564			708			2,016			2,227
Credit cards	331			403			1,055			1,260
Manufactured housing	7			54			26			78
Leases	730			2			737			374
Overdrafts	124			184			447			535
Total recoveries	5,369			5,481			14,375			15,608
Originated net charge-offs	8,029			5,929			18,888			20,110
Provision for originated loan losses	10,402			4,862			27,247			14,509
Allowance for originated loan losses - end of period	$	104,055		$	90,883		$	104,055		$	90,883
Reserve for Unfunded Lending Commitments (1)
Balance at beginning of period	$	3,905		$	7,107		$	5,848		$	7,907
Provision for/(relief of) credit losses	(331		)	(141		)	(2,274		)	(941		)
Balance at end of period	$	3,574		$	6,966		$	3,574		$	6,966
Allowance for credit losses	$	107,629		$	97,849		$	107,629		$	97,849
Average originated loans outstanding	13,528,268			11,814,314			13,106,749			11,123,269
Ratio to average originated loans:
Originated net charge-offs	0.24		%	0.20		%	0.19		%	0.24		%
Provision for originated loan losses	0.31		%	0.16		%	0.28		%	0.17		%
Originated loans outstanding	$	13,648,325		$	12,071,759		$	13,648,325		$	12,071,759
Allowance for originated loan losses:
As a percentage of period-end originated loans	0.76		%	0.75		%	0.76		%	0.75		%
As a percentage of nonperforming originated loans	221.22		%	231.13		%	221.22		%	231.13		%
As a multiple of originated net charge-offs	3.27			3.86			4.12			3.38
Allowance for credit losses:
As a percentage of period-end originated loans	0.79		%	0.81		%	0.79		%	0.81		%
As a percentage of nonperforming originated loans	228.82		%	248.85		%	228.82		%	248.85		%
As a multiple of annualized net charge-offs	3.38			4.16			4.26			3.64

(1) The reserve for unfunded commitments is recorded in "Other liabilities" in the Consolidated Balance Sheets.

116

Figure 13. Overall Credit Quality by Specific Asset and Risk Categories of Originated Loans

	As of September 30, 2015
	Loan Type
			CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Component:
Loan balance	$	52,147	$	13,355	$	—	$	34,306	$	7,394	$	716	$	24,316	$	132,234
Allowance	7,790		703		—		1,012		203		235		939		10,882
Collectively Impaired Components:
Commercial loans based on risk rating:
Grade 1 loan balance	71,992		787		13,262										86,041
Grade 1 allowance	—		—		—										—
Grade 2 loan balance	314,520		842		52,397										367,759
Grade 2 allowance	5		2		1										8
Grade 3 loan balance	1,312,560		381,187		52,886										1,746,633
Grade 3 allowance	460		88		21										569
Grade 4 loan balance	3,611,381		2,257,081		338,014										6,206,476
Grade 4 allowance	19,251		6,502		494										26,247
Grade 5 (Special Mention) loan balance	109,284		29,979		2,894										142,157
Grade 5 allowance	7,519		1,038		60										8,617
Grade 6 (Substandard) loan balance	46,811		25,871		2,189										74,871
Grade 6 allowance	7,948		3,276		86										11,310
Grade 7 (Doubtful) loan balance	3,260		—		—										3,260
Grade 7 allowance	21		—		—										21
Consumer loans based on payment status:
Current loan balance							2,844,487		1,200,300		167,927		636,045		4,848,759
Current loan allowance							11,746		17,108		5,531		2,887		37,272
30 days past due loan balance							13,491		2,071		836		7,374		23,772
30 days past due allowance							922		843		754		206		2,725
60 days past due loan balance							2,861		754		367		1,936		5,918
60 days past due allowance							713		515		561		301		2,090
90+ days past due loan balance							4,414		1,565		546		3,920		10,445
90+ days past due allowance							1,077		1,681		1,086		470		4,314
Total originated loans	$	5,521,955	$	2,709,102	$	461,642	$	2,899,559	$	1,212,084	$	170,392	$	673,591	$	13,648,325
Total allowance for originated loan losses	$	42,994	$	11,609	$	662	$	15,470	$	20,350	$	8,167	$	4,803	$	104,055

117

	As of December 31, 2014
	Loan Type
			CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Component:
Loan balance	$	11,759	$	23,300	$	—	$	24,905	$	7,379	$	854	$	25,251	$	93,448
Allowance	72		2,914		—		1,178		207		296		1,283		5,950
Collectively Impaired Components:
Commercial loans based on risk rating:
Grade 1 loan balance	52,676		1,361		4,451										58,488
Grade 1 allowance	2		—		1										3
Grade 2 loan balance	186,278		3,454		14,959										204,691
Grade 2 allowance	8		—		1										9
Grade 3 loan balance	1,340,100		340,355		71,908										1,752,363
Grade 3 allowance	830		191		6										1,027
Grade 4 loan balance	3,413,446		2,228,833		277,277										5,919,556
Grade 4 allowance	23,562		6,118		625										30,305
Grade 5 (Special Mention) loan balance	132,764		30,247		1,389										164,400
Grade 5 allowance	8,022		751		32										8,805
Grade 6 (Substandard) loan balance	38,178		27,334		195										65,707
Grade 6 allowance	4,879		2,720		9										7,608
Grade 7 (Doubtful) loan balance	—		—		—										—
Grade 7 allowance	—		—		—										—
Consumer loans based on payment status:
Current loan balance							2,346,551		1,100,076		161,644		583,994		4,192,265
Current loan allowance							9,465		16,544		5,115		2,715		33,839
30 days past due loan balance							14,019		1,191		639		9,231		25,080
30 days past due allowance							859		581		492		209		2,141
60 days past due loan balance							3,506		569		498		1,645		6,218
60 days past due allowance							667		545		607		203		2,022
90+ days past due loan balance							4,470		1,121		843		5,162		11,596
90+ days past due allowance							749		1,447		1,456		335		3,987
Total originated loans	$	5,175,201	$	2,654,884	$	370,179	$	2,393,451	$	1,110,336	$	164,478	$	625,283	$	12,493,812
Total allowance for originated loan losses	$	37,375	$	12,694	$	674	$	12,918	$	19,324	$	7,966	$	4,745	$	95,696

118

	As of September 30, 2014
	Loan Type
			CRE and							Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C & I		Construction			Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Component:
Loan balance	$	11,155	$	22,597		$	—	$	23,575	$	7,624	$	912	$	26,108	$	91,971
Allowance	1,399		1,620			—		1,086		190		322		1,435		6,052
Collectively Impaired Components:
Commercial loans based on risk rating:
Grade 1 loan balance	42,653		695			8,929										52,277
Grade 1 allowance	2		—			1										3
Grade 2 loan balance	214,307		3,523			12,525										230,355
Grade 2 allowance	34		(6		)	3										31
Grade 3 loan balance	1,164,149		322,605			58,157										1,544,911
Grade 3 allowance	749		194			51										994
Grade 4 loan balance	3,457,948		2,174,284			258,880										5,891,112
Grade 4 allowance	23,629		6,457			637										30,723
Grade 5 (Special Mention) loan balance	119,252		38,769			1,233										159,254
Grade 5 allowance	7,201		641			32										7,874
Grade 6 (Substandard) loan balance	29,856		24,373			212										54,441
Grade 6 allowance	4,111		1,038			12										5,161
Grade 7 (Doubtful) loan balance	—		—			—										—
Grade 7 allowance	—		—			—										—
Consumer loans based on payment status:
Current loan balance								2,234,694		1,051,401		157,446		564,585		4,008,126
Current loan allowance								10,463		15,377		5,061		2,033		32,934
30 days past due loan balance								11,698		1,863		709		8,430		22,700
30 days past due allowance								783		896		541		125		2,345
60 days past due loan balance								3,447		483		400		1,815		6,145
60 days past due allowance								623		466		488		123		1,700
90+ days past due loan balance								4,119		642		646		5,060		10,467
90+ days past due allowance								705		969		1,100		292		3,066
Total originated loans	$	5,039,320	$	2,586,846		$	339,936	$	2,277,533	$	1,062,013	$	160,113	$	605,998	$	12,071,759
Total allowance for originated loan losses	$	37,125	$	9,944		$	736	$	13,660	$	17,898	$	7,512	$	4,008	$	90,883

Allowance for Acquired Loan Losses

The Citizens’ loans were recorded at their fair value as of the Acquisition Date and the prior ALL was eliminated. An ALL for nonimpaired acquired loans is estimated using a methodology similar to that used for originated loans. The allowance determined for each acquired nonimpaired loan is compared to the remaining fair value adjustment for that loan. If the computed allowance is greater, the excess is added to the allowance through a provision for loan losses. If the computed allowance is less, no additional allowance is recognized. As of September 30, 2015, the computed ALL was less than the remaining fair value discount; therefore, no ALL for acquired nonimpaired loans was recorded.

Charge-offs and actual losses on an acquired nonimpaired loan first reduce any remaining fair value discount for that loan. Once a loan's discount is depleted, charge-offs and actual losses are applied against the ALL. During the three months ended September 30, 2015 and 2014, provision for loan losses, equal to net charge-offs, of $0.9 million and $3.2 million, respectively, was recorded. Charge-offs on acquired nonimpaired loans were mainly related to consumer loans that were written off in accordance with the Corporation’s credit policies based on a predetermined number of days past due.

119

The ALL for acquired impaired loans is determined by comparing the present value of the cash flows expected to be collected to the carrying amount for a given pool of loans. Management reforecasts the estimated cash flows expected to be collected on acquired impaired loans on a quarterly basis. Expected cash flows may increase or decrease for a variety of reasons, for example, when the contractual terms of the loan agreement are modified, when interest rates on variable rate loans change, or when principal and/or interest payments are received. Cash flows expected to be collected on acquired impaired loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, loss given default, and the amount of actual prepayments after the Acquisition Dates. Prepayments affect the estimated life of loans and could change the amount of interest income, and possibly principal, expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. These adjustments are based, in part, on actual loss severities recognized for each loan type, as well as changes in the probability of default. For periods in which estimated cash flows are not re-forecasted, the prior reporting periods' estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period.

Increases in expected cash flows of acquired impaired loans subsequent to acquisition are recognized prospectively through adjustment of the yield on the loans or pools over its remaining life, while decreases in expected cash flows are recognized as impairment through a provision for loan loss and an increase in the ALL. If the present value of expected cash flows for a pool is less than its carrying value, impairment is recognized in the current period by an increase in the acquired ALL and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying value, any previously established acquired ALL is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool.

During the nine months ended September 30, 2015 there was recapture of losses on acquired impaired loan of $3.3 million compared to a provision for losses on acquired impaired loans of $5.5 million in the nine months ended September 30, 2014. The allowance for acquired impaired loan losses was $4.2 million and $6.2 million, respectively, as of September 30, 2015 and 2014. In addition to the recapture of provision in the current period, an additional $6.8 million of cash flow was reclassified from non-accretable to accretable cash flow within the quarter. Life to date, the acquired impaired portfolio’s performance has exceeded original expectations with $120.2 million being reclassified from non-accretable to accretable cash flow, while total cumulative provision has totaled $4.2 million.

Allowance for FDIC Acquired Loan Losses

The ALL on FDIC nonimpaired acquired loans is estimated similar to acquired loans as described above except any increase to the allowance and provision for loan losses is partially offset by an increase in the loss share receivable for the portion of the losses recoverable under the loss share agreements with the FDIC. As of September 30, 2015, the computed ALL was less than the remaining fair value discount; therefore, no ALL for FDIC acquired nonimpaired loans was recorded.

The ALL for FDIC acquired impaired loans was $45.2 million, $40.5 million, and $43.0 million as of September 30, 2015, December 31, 2014, and September 30, 2014, respectively, and is determined in a manner similar to the acquired impaired loans described above. During the three months ended September 30, 2015, $4.0 million of losses on FDIC acquired impaired loans were recognized with an offsetting increase of $0.3 million to the loss share receivable. The net provision from the impaired FDIC acquired portfolio was $3.7 million in the three months ended September 30, 2015, compared to a net recapture of $0.1 million in the three

120

months ended September 30, 2014. The third quarter 2015 provision for the impaired FDIC acquired portfolio was impacted by actions taken in the second quarter to de-risk the portfolio. These actions resulted in a reduction in expected cash flows during the third quarter and lead to the additional provision in the third quarter of 2015.

121

Asset Quality

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 a borrower experiencing financial difficulties or expected to experience difficulties in the near term, the original terms of the loan are modified to maximize the collection of amounts due.

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 estateacquired through foreclosure in satisfaction of a loan.

Figure 14. Asset Quality⁽¹⁾ 

(Dollars in thousands)	September 30, 2015			December 31, 2014			September 30, 2014
Nonperforming originated loans:
Restructured nonaccrual loans:
Commercial loans	$	11,110		$	4,153		$	5,816
Consumer loans	10,257			11,088			11,472
Total restructured loans	21,367			15,241			17,288
Other nonaccrual loans:
Commercial loans	19,711			12,994			16,531
Consumer loans	5,958			6,382			5,502
Total nonaccrual loans	25,669			19,376			22,033
Total nonperforming originated loans	47,036			34,617			39,321
Other real estate, excluding covered assets (2) (3)	60,022			20,421			23,798
Total nonperforming assets ("NPAs") (3)	$	107,058		$	55,038		$	63,119
Originated loans past due 90 days or more accruing interest	$	9,888		$	12,156		$	8,538
Total NPAs as a percentage of total originated loans and noncovered OREO (3)	0.78		%	0.44		%	0.52		%

(1) Due to the impact of acquisition accounting and protection against credit risk from FDIC loss share agreements, acquired loans, FDIC acquired loans and covered OREO are excluded from the asset quality figures to provide for improved comparability to prior periods and better perspective into asset quality trends. Acquired loans are recorded at fair value with no allowance brought forward in accordance with acquisition accounting. Acquired and FDIC acquired impaired loans with an accretable yield are considered to be accruing and performing even though collection of contractual payments on loans within the pool may be in doubt, because the pool is the unit of accounting and income continues to be accreted on the pool as long as expected cash flows are reasonably estimable.

(2) As of September 30, 2015, OREO included 21 former banking facilities that the Corporation no longer intends to use for banking purposes valued at approximately $4.9 million.

(3) As of September 30, 2015, $40.0 million of OREO was no longer covered by a FDIC loss share agreement, therefore, was included in NPAs. OREO that remains covered by FDIC loss share agreements has considerable protection against credit risk and are not reported as NPAs.

Total nonperforming assets as of September 30, 2015 were $107.1 million, an increase of $52.0 million, or 94.52%, from December 31, 2014 and an increase of $43.9 million, or 69.61%, from September 30, 2014. Commercial nonperforming originated loans increased$13.7 million, or 79.75%, from December 31, 2014 and increased$8.5 million, or 37.92%, from September 30, 2014. Total OREO increased$39.6 million, or 193.92%, from December 31, 2014 and $36.2 million, or 152.21%, from September 30, 2014. Due to the expiration of certain FDIC loss share agreements in 2015, $40.0 million of OREO no longer covered by a FDIC loss share agreement is being being reported as nonperforming assets as of September 30, 2015.

Borrower FICO scores provide information about the credit quality of our consumer loan portfolio as they provide an indication as to the likelihood that debtors will repay their debts. Borrower FICO scores are

122

obtained from a nationally recognized consumer rating agency on a quarterly basis and trends are evaluated for consideration as a qualitative adjustment to the allowance. As of September 30, 2015, the average FICO scores on the originated consumer portfolio subcomponents are excellent with average scores on installment loans at 758, home equity lines at 778, residential mortgages at 746, and credit cards at 765.

Figure 15. Nonaccrual Originated Commercial Loan Flow Analysis

	Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
(In thousands)	2015			2015			2015			2014			2014
Nonaccrual originated commercial loans - beginning of period	$	37,889		$	28,478		$	17,147		$	22,347		$	21,072
Credit Actions:
New	16,899			22,400			14,557			3,275			10,381
Charged down	(4,372		)	(3,104		)	(221		)	(330		)	(4,037		)
Return to accruing status	(8,904		)	(6,923		)	(322		)	—			—
Payments	(10,691		)	(2,962		)	(2,683		)	(8,145		)	(5,069		)
Nonaccrual originated commercial loans - end of period	$	30,821		$	37,889		$	28,478		$	17,147		$	22,347

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 TDRs unless the modification is short-term (30 to 90 days) and considered to be an insignificant delay while awaiting additional information from the borrower. All amounts due, including interest accrued at the contractual interest rate, are expected to be collected. TDRs return to accrual status once 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. A sustained period of repayment performance would be a minimum of six consecutive payment cycles from the date of restructure.

The Corporation’s TDR portfolio is summarized in the following table.

Figure 16. TDR Portfolio

(In thousands)	September 30, 2015		September 30, 2014
Originated TDRs	$	114,612	$	78,979
Acquired TDRs (1)	18,981		10,904
FDIC Acquired TDRs (1)	21,936		45,525
Total TDRs	$	155,529	$	135,408
Nonperforming TDRs	$	23,369	$	19,307

(1) Acquired and FDIC 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 date of acquisition and are accounted for in pools.

Originated consumer TDRs are predominantly composed of installment loans, first and second lien residential mortgages and home equity lines of credit. Total originated consumer TDRs represented 58.22%and 73.71% of the total originated TDR portfolio as of September 30, 2015, and September 30, 2014, respectively. The Corporation restructures residential mortgages in a variety of ways to help 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

123

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 U.S. Treasury’s Home Affordable Modification Program for originated mortgages sold to and serviced for FNMA and FHLMC.

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.

A loan is considered to be impaired when, based on current events or information, it is probable the Corporation will be unable to collect all amounts due (principal and interest) per the contractual terms of the loan agreement. 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. Impaired loans include all nonaccrual commercial, agricultural, construction, and commercial real estate loans, and loans modified as TDRs. Interest income recognized on impaired loans was $0.1 million and $0.4 million for the three and nine months ended September 30, 2015, respectively, compared to $0.2 million and $0.4 million for the three and nine months ended September 30, 2014, respectively. Interest income which would have been earned in accordance with the original terms was $0.7 million and $2.5 million for the three and nine months ended September 30, 2015, respectively, compared to $0.7 million and $2.0 million for the three and nine months ended September 30, 2014, respectively.

Deposits, Securities Sold Under Agreements to Repurchase, Wholesale Borrowings and Long-term Debt

Average quarter to date deposits totaled $20.0 billion as of September 30, 2015, $19.5 billion as of December 31, 2014, and $19.5 billion as of September 30, 2014. The Corporation has successfully executed a strategy to increase the concentration of lower cost deposits within the overall deposit mix by focusing on growth in checking, money market and savings account products with less emphasis on renewing maturing certificate of deposit accounts. In addition to efficiently funding balance sheet growth, the increased concentration in core deposit accounts generally deepens and extends the length of customer relationships.

The following table provides additional information about the Corporation's deposit products and their respective rates.

124

Figure 17. Respective Rates of Deposit Products and Funding

	Three Months Ended
	September 30, 2015				December 31, 2014				September 30, 2014
(Dollars in thousands)	Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate
Noninterest-bearing	$	5,897,768	—	%	$	5,706,631	—	%	$	5,603,104	—	%
Interest-bearing	3,353,541		0.09	%	3,021,188		0.10	%	3,100,904		0.10	%
Savings and money market accounts	8,480,682		0.26	%	8,381,548		0.26	%	8,492,172		0.26	%
Certificates and other time deposits	2,225,595		0.49	%	2,341,280		0.43	%	2,335,620		0.48	%
Total customer deposits	19,957,586		0.18	%	19,450,647		0.18	%	19,531,800		0.19	%
Securities sold under agreements to repurchase	1,109,924		0.09	%	1,241,948		0.09	%	1,182,507		0.09	%
Wholesale borrowings	377,594		1.23	%	450,587		1.14	%	438,941		1.26	%
Long-term debt	497,566		3.32	%	350,535		3.69	%	320,387		4.68	%
Total funds	$	21,942,670	0.27	%	$	21,493,717	0.25	%	$	21,473,635	0.27	%

Average quarter to date demand deposits comprised 46.36% of average deposits during the three months ended September 30, 2015, compared to 44.87% during the three months ended December 31, 2014, and 44.56% during the three months ended September 30, 2014. Savings accounts, including money market products, made up 42.49% of average deposits during the three months ended September 30, 2015 compared to 43.09% during the three months ended December 31, 2014, and 43.48% during the three months ended September 30, 2014. Certificates and other time deposits made up 11.15% of average deposits during the three months ended September 30, 2015, 12.04% during the three months ended December 31, 2014, and 11.96% during the three months ended September 30, 2014.

The average cost of interest-bearing deposits, federal funds purchased and securities sold under agreements to repurchase, wholesale borrowings and long-term debt was down1 basis points compared to the same period one year ago, or 2.70% for the three months ended September 30, 2015.

The following table in Figure 18 summarizes certificates and other time deposits in amounts of $100 thousand or more for the three months ended September 30, 2015 by time remaining until maturity.

Figure 18. Certificates and Other Time Deposits in increments of $100 Thousand or More

(In thousands)
Time until maturity:	Amount
Under 3 months	$	172,171
3 to 6 months	184,726
6 to 12 months	177,595
Over 12 months	232,986
Total	$	767,478

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.

125

Shareholders' Equity

Shareholders' equity was $2.9 billion as of September 30, 2015, compared with $2.8 billion as of December 31, 2014, and $2.8 billion as of September 30, 2014. The Corporation's Common Stock is traded on the NASDAQ under the symbol FMER with 11,809 holders of record at September 30, 2015.

• At September 30, 2015, the Corporation's common equity value per common share was $17.12 based on approximately 165.8 million shares outstanding at September 30, 2015, compared to $16.53 based on approximately 165.4 million shares outstanding at December 31, 2014, and $16.45 based on approximately 165.4 million shares outstanding at September 30, 2014.

• At September 30, 2015, the Corporation's tangible book value per common share was $12.26 compared to $11.62 at December 31, 2014, and $11.52 at September 30, 2014.

• At September 30, 2015, the Corporation's book value per common share was $17.72, compared to $17.14 at December 31, 2014, and $17.05 at September 30, 2014.

• At September 30, 2015, the Corporation had approximately 4.4 million treasury shares, compared to approximately 4.8 million treasury shares at December 31, 2014 and approximately 4.8 million treasury shares at September 30, 2014. Treasury shares are typically issued as needed in connection with stock-based compensation awards and for other corporate purposes.

During the third quarter of 2015, the Corporation made a dividend payment of $0.17 per share, or $28.2 million in the aggregate, on its Common Stock. As of September 30, 2015, the dividend of $0.17 per common share has annualized rate of $0.66 per common share. Also, in the third quarter of 2015, the Corporation made a quarterly dividend payment of $1.5 million in the aggregate, or $14.69 per share, or $0.37 per depositary share, on the Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, which trades on the NYSE.

On May 13, 2015, the Corporation repurchased a warrant previously issued by Citizens to the U.S. Treasury for $12.2 million, which resulted in a reduction to capital surplus in the amount of $9.2 million.

The following table in Figure 19 shows activities that caused the change in outstanding Common Stock over the past five quarters.

Figure 19. Changes in Common Stock Outstanding

	2015		2015		2015		2014		2014
(Shares in thousands)	3rd qtr		2nd qtr		1st qtr		4th qtr		3rd qtr
Beginning of period	165,773		165,453		165,390		165,384		165,393
Issued/(repurchased)	(20	)	(210	)	(66	)	(15	)	(10	)
Reissued/(returned) under employee benefit plans, net	6		530		129		21		1
End of period	165,759		165,773		165,453		165,390		165,384

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 tangible assets of 8.31% at September 30, 2015, compared with 7.98% at December 31, 2014, and 8.01% at September 30, 2014.

126

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 8%, a leverage capital ratio of at least 5%, a CET1 ratio of at least 6.5%, 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 1 capital ratio of at least 6%, a CET1 ratio of at least 4.5%, 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.

The George Washington and Midwest FDIC-assisted acquisitions in 2010 resulted in the recognition of loss share receivables from the FDIC, which represents the fair value of estimated future payments by the FDIC to the Corporation for losses on covered assets. The FDIC loss share receivables, as well as covered assets, are risk-weighted at 20% for regulatory capital requirement purposes. No loans acquired in the Citizens merger are subject to loss share receivables from the FDIC.

As of September 30, 2015, the Corporation, on a consolidated basis, as well as the Bank, exceeded the minimum capital levels of the well-capitalized category.

Figure 20. Capitalization Tables

(Dollars in thousands)	September 30, 2015				December 31, 2014				September 30, 2014
Consolidated
Total equity	$	2,937,300	11.63	%	$	2,834,281	11.38	%	$	2,820,431	11.46	%
Common equity (1)	2,837,300		11.24	%	2,734,281		10.98	%	2,720,431		11.05	%
CET1 capital (1) (2)	2,074,810		10.67	%	N/A		N/A		N/A		N/A
Tier 1 common equity (1) (2)	N/A		N/A		1,904,461		10.95	%	1,847,161		10.60	%
Tier 1 capital (1) (2)	2,074,810		10.67	%	2,004,461		11.53	%	1,947,161		11.17	%
Total risk-based capital (1) (2)	2,689,003		13.83	%	2,653,893		15.26	%	2,344,137		13.45	%
Tier 1 leverage (2)	2,074,810		8.51	%	2,004,461		8.43	%	1,947,161		8.22	%
Tangible common equity (1)	2,032,334		8.31	%	1,921,521		7.98	%	1,904,738		8.01	%
	September 30, 2015				December 31, 2014				September 30, 2014
Bank Only
Total equity	$	3,080,513	12.21	%	$	2,932,847	11.79	%	$	2,898,040	11.79	%
Common equity (1)	3,080,513		12.21	%	2,932,847		11.79	%	2,898,040		11.79	%
CET1 capital (1) (2)	2,215,655		11.40	%	N/A		N/A		N/A		N/A
Tier 1 common equity (1) (2)	N/A		N/A		2,132,217		12.25	%	2,045,397		11.73	%
Tier 1 capital (1) (2)	2,215,655		11.40	%	2,127,065		12.22	%	2,040,230		11.70	%
Total risk-based capital (1) (2)	2,620,619		13.49	%	2,521,412		14.49	%	2,182,108		12.51	%
Tier 1 leverage (2)	2,215,655		9.10	%	2,127,065		8.94	%	2,040,230		8.64	%
Tangible common equity (1)	2,275,547		9.31	%	2,120,087		8.81	%	2,082,347		8.76	%

127

(1)See Figure 2 entitled GAAP to Non-GAAP Reconciliations, which presents the computations of certain financial measures related to tangible common equity and efficiency ratios. The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period to period comparisons.

(2) The Basel III capital rules, effective January 1, 2015, replace tier 1 common equity and the associated tier 1 common equity ratio with CET1 capital and the CET1 risk-based capital ratio. September 30, 2015 figures are preliminary and presented on a Basel III basis and reflect transitional capital requirements and phase-in provisions, including the standardized approach for calculating risk weighted assets. December 31, 2014 and September 30, 2014 amounts and ratios are reported on a Basel I basis.

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 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. 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 EVE 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.

128

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 September 30, 2015and2014:

Figure 21. Net Interest Income Simulation Results

	Immediate Change in Rates and Resulting  Percentage Increase/(Decrease) in Net Interest Income:
	- 100 basis points		+ 100 basis points		+ 200 basis points		+ 300 basis points
September 30, 2015	(5.36	)%	2.12	%	4.08	%	5.62	%
September 30, 2014	(4.16	)%	1.70	%	3.40	%	4.78	%

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 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 EVE. 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.

129

Presented below is the Corporation’s EVE profile as of September 30, 2015 and 2014:

Figure 22. EVE Simulation Results

	Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in EVE:
	- 100 basis points		+ 100 basis points		+ 200 basis points		+ 300 basis points
September 30, 2015	(4.68	)%	1.93	%	2.59	%	2.38	%
September 30, 2014	(3.25	)%	1.34	%	1.75	%	1.64	%

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

Management of interest rate exposure.Management uses the results of its various simulation analysis to formulate strategies to achieve a desired risk profile within the parameters of the Corporation’s capital and liquidity guidelines. Specifically, Management actively manages interest rate risk positions by structuring investment portfolio cash flows to support the desired risk position, and 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 8 (Derivatives and Hedging Activities) in the notes to the consolidated financial statements in this Form 10-Q.

Liquidity Risk Management

Liquidity risk is the possibility of the Corporation being unable to meet current and future financial obligations in a timely manner. 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. The overall management of the Corporation’s liquidity position is also 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. Core deposits comprised approximately 88.70% of total deposits at September 30, 2015. 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 $2.7 billion as of September 30, 2015.

The treasury group also prepares a contingency funding plan that details the potential erosion of funds in the event of a systemic financial market crisis or institutional-specific stress. An example of an institution

130

specific 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 systemic 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 liquidity contingency plan therefore 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.

Funding Trends for the Quarter - During the three months ended September 30, 2015, lower cost core deposits increased by $131.8 million from the second quarter 2015. In the aggregate, there was an increase in deposits of $148.1 million from June 30, 2015. The Corporation’s loan to deposit ratio decreased to 79.71% as of September 30, 2015 from 79.83% as of June 30, 2015. Securities sold under agreements to repurchase decreased$311.0 million from June 30, 2015. Wholesale borrowings and long-term debt had a net increase of $26.8 million from June 30, 2015.

Parent Company Liquidity - The Corporation manages its liquidity principally through dividends from the 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; and pay dividends to shareholders.

During the three months ended September 30, 2015, the Bank paid $38.9 million in dividends to the Corporation. As of September 30, 2015, the Bank had an additional $411.3 million available to pay dividends without regulatory approval.

Operational Risk Management

Like all businesses, the Corporation is subject to operational risks, including, but not limited to, risks of human error, internal processes and systems that turn out to be inadequate and external events. These events include, among other things, threats to the Corporation's cybersecurity, since it relies upon information systems and the Internet to conduct its business activities. The Corporation is also exposed to the costs of complying with laws, regulations and prescribed practices, which are changing rapidly and in large volumes, especially as a result of the Dodd-Frank Act and the proposal and adoption of implementing rules. Noncompliance may increase operating costs, result in monetary losses, adversely affect the Corporation's reputation and regulatory relations and ability to implement its business plans and pursue expansion opportunities.

The Corporation also faces the risk of operational disruption, failure or capacity constraints due to its dependency on third party vendors for components of its business infrastructure. While the Corporation has selected these third party vendors carefully, it does not control their operations. As such, any failure on the part of these business partners to perform their various responsibilities could also adversely affect the Corporation's business and operations.

The Corporation may be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control, which may include, for example, computer viruses, cyber attacks, spikes in transaction volume and/or customer activity, electrical or telecommunications outages, or natural disasters. Although the Corporation has programs in place related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity and availability of its systems, business

131

applications and customer information, such disruptions may give rise to interruptions in service to customers and loss or liability to the Corporation.

The Corporation seeks to mitigate operational risk through identification and measurement of risk, alignment of business strategies within risk guidelines, and through its system of internal controls and reporting. Further, the Corporation regularly evaluates and seeks to strengthen its system of internal controls to improve its oversight of operational risk and compliance with applicable laws, and regulations and prescribed standards.

Critical Accounting Policies

The Corporation’s consolidated financial statements are prepared in conformity with 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 of the 2014 Form 10-K 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. Critical accounting policies require application of Management’s most difficult, subjective, or complex judgment and make certain assumptions and estimates about the effect of matters that are inherently uncertain or may change in future periods.

Management relies heavily on the use of judgment, assumptions and estimates to make a number of core decisions, including accounting for the ALL, income taxes, derivative instruments and hedging activities, and assets and liabilities that involve valuation methodologies. A brief discussion of each of these areas appears within Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2014 Form 10-K.

Off-Balance Sheet Arrangements

A detailed discussion of the Corporation’s off-balance sheet arrangements, including interest rate swaps, forward sale contracts and mortgage loan commitments is included in Note 8 (Derivatives and Hedging Activities) to the Corporation’s unaudited consolidated financial statements included in this Form 10-Q and in Note 19 to the consolidated financial statements in the 2014 Form 10-K. There have been no significant changes since December 31, 2014.

Forward-looking Safe-harbor Statement

Statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and elsewhere within this Form 10-Q, which are not historical or factual in nature, constitute forward-looking statements. These forward-looking statements relate to, among other things, 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, and 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.

132

Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic and competitive uncertainties and contingencies, many of which are beyond a company’s control, and many of which, with respect to future business decisions and actions (including acquisitions and divestitures), are subject to change. Examples of uncertainties and contingencies include, among other important factors: general and local economic and business conditions; recession or other economic downturns; expectations of, and actual timing and amount of, interest rate movements, including the slope of the yield curve (which can have a significant impact on a financial services institution); market and monetary fluctuations; inflation or deflation; customer and investor responses to these conditions; the financial condition of borrowers and other counterparties; competition within and outside the financial services industry; geopolitical developments including possible terrorist activity; recent and future legislative and regulatory developments; natural disasters; effectiveness of the Corporation’s hedging practices; technology; demand for the Corporation’s product offerings; new products and services in the industries in which the Corporation operates; critical accounting estimates; and those risk factors detailed in the Corporation’s periodic reports and registration statements filed with the SEC. Other factors are those inherent in originating, selling and servicing loans including prepayment risks, pricing concessions, fluctuation in U.S. housing prices, fluctuation of collateral values and changes in customer profiles. Additionally, the actions of the SEC, the FASB, the OCC, the Federal Reserve System, FINRA, and other regulators; regulatory and judicial proceedings and changes in laws and regulations applicable to the Corporation including the costs of complying with any such laws and regulations; and the Corporation’s success in executing its business plans and strategies, including efforts to reduce operating expenses, and managing the risks involved in the foregoing, could cause actual results to differ.

Other factors not currently anticipated may also materially and adversely affect the Corporation’s results of operations, cash flows and financial position. There can be no assurance that future results will meet expectations. While the Corporation believes that the forward-looking statements in this report are reasonable, the reader should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. The Corporation does not undertake, and expressly disclaims, any obligation to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See "Market Risk Management" Section in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

133

ITEM 4. CONTROLS AND PROCEDURES.

Management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, has made an evaluation of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.

Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer have concluded, as of the end of the period covered by this report, that the Corporation’s disclosure controls and procedures are effective.

During the quarter ended September 30, 2015, there was no change in internal control over financial reporting, as described in "Internal Control-Integrated Framework," as updated by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

In the normal course of business, the Corporation is subject to pending and threatened legal actions, some for which material 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 the outcome of any or all such actions will not have a material adverse effect on the results of operations or shareholders' equity of the Corporation.

For additional information on litigation, see Note 12 (Commitments and Guarantees) in the notes to the consolidated financial statements in this Form 10-Q.

ITEM 1A. RISK FACTORS.

There have been no material changes in our risk factors from those disclosed in the 2014 Form 10-K.

134

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table provides information with respect to purchases the Corporation made of shares of its Common Stock during the third quarter of the 2015 fiscal year:

Calendar Month	Total Number of Shares  Purchased (1)	Average Price Paid per  Share		Total Number of Shares  Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number of  Shares that May Yet Be Purchased Under Plans or Programs (2)
July 1 - July 31, 2015	11,868	$	22.02	—	396,272
August 1 - August 31, 2015	5,266	21.13		—	396,272
September 1 - September 30, 2015	3,361	23.15		—	396,272
Total	20,495	$	21.98	—	396,272

(1) Reflects 20,495 shares of Common Stock purchased as a result of either: (1) delivered 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 shares of Common Stock; 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 third quarter of 2015.

(2) On January 19, 2006, the Board of Directors authorized the repurchase of up to 3 million shares of Common Stock (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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5.     OTHER INFORMATION.

Not Applicable.

135

ITEM 6. EXHIBITS

Exhibit
Number	Description
31.1	Rule 13a-14(a)/Section 302 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit Corporation (filed herewith).
31.2	Rule 13a-14(a)/Section 302 Certification of Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer of FirstMerit Corporation (filed herewith).
32.1	Rule 13a-14(b)/Section 906 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit Corporation (furnished herewith).
32.2	Rule 13a-14(b)/Section 906 Certification of Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer of FirstMerit Corporation (furnished herewith).
101.1	The following financial information from FirstMerit Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of 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.

136

SIGNATURES

Pursuant to the requirements 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.

FIRSTMERIT CORPORATION
By:	/s/    TERRENCE E. BICHSEL
	Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer (duly authorized officer of registrant and principal financial officer)

October 30, 2015

137

FirstMerit Corporation

Form 10-Q

Index to Exhibits

Exhibit	Description
31.1	Rule 13a-14(a)/Section 302 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit Corporation (filed herewith).
31.2	Rule 13a-14(a)/Section 302 Certification of Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer of FirstMerit Corporation (filed herewith).
32.1	Rule 13a-14(b)/Section 906 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit Corporation (furnished herewith).
32.2	Rule 13a-14(b)/Section 906 Certification of Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer of FirstMerit Corporation (furnished herewith).
101.1	The following financial information from FirstMerit Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of 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.

138