UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 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)

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

Title of each class	Name of each exchange on which registered
Common Stock, without par value	The NASDAQ Stock Market LLC
5.875% Non-Cumulative Perpetual Preferred Stock, Series A, without par value	New York Stock Exchange

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

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

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

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

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

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 ¨ (Do not check if a smaller reporting company) 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

As of June 30, 2015 the aggregate market value of the registrant’s common stock (the only common equity of the registrant) held by non-affiliates of the registrant was $3,453,043,279 based on the closing sale price as reported on the NASDAQ Global Select Market.

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

Class	Outstanding as of February 19, 2016
Common Stock, no par value	165,754,538

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
Proxy Statement for the Annual Meeting of Shareholders to be held on 4/20/2016	Part III
(Proxy Statement)

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TABLE OF CONTENTS
PART I		4
	ITEM 1. BUSINESS.	4
	ITEM 1A. RISK FACTORS.	22
	ITEM 1B. UNRESOLVED STAFF COMMENTS.	40
	ITEM 2. PROPERTIES.	40
	ITEM 3. LEGAL PROCEEDINGS.	41
	ITEM 4. MINE SAFETY DISCLOSURES.	41
EXECUTIVE OFFICERS OF THE REGISTRANT		42
PART II		43
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.	43
	ITEM 6. SELECTED FINANCIAL DATA.	44
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	45
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	98
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.	99
MANAGEMENT’S REPORT OF INTERNAL CONTROL OVER FINANCIAL REPORTING		212
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting		213
Report of Independent Registered Public Accounting Firm		215
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.	216
	ITEM 9A. CONTROLS AND PROCEDURES.	216
	ITEM 9B. OTHER INFORMATION.	216
PART III		217
	ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.	217
	ITEM 11. EXECUTIVE COMPENSATION.	217
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.	218
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.	218
	ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.	219
PART IV		220
	ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.	220
SIGNATURES		224

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The acronyms and abbreviations identified below are used in this Form 10-K including the Notes to Consolidated Financial Statements as well as in Management’s Discussion and 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, including the Federal Home Loan
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	G-SIFI	Globally Systematically Important Financial Institution
BHCA	Bank Holding Company Act of 1956, as amended	ISDA	International Swaps and Derivatives Association
CCAR	Comprehensive Capital Analysis and Review	LIBOR	London Interbank Offered Rate
CET1	Common equity tier 1 capital	Management	FirstMerit Corporation’s Management
CFPB	Consumer Financial Protection Bureau	MBS	Mortgage-backed securities
Citizens	Citizens Republic Bancorp Inc.	MSRs	Mortgage servicing rights
Citizens TARP Preferred	Citizens TARP Preferred issued to the U.S. Treasury as part of the Troubled Assets Relief Program	NASDAQ	The NASDAQ Stock Market LLC
CLO	Collateralized loan obligations	NPR	Notice of Proposal Rulemaking
CMO	Collateralized mortgage obligations	NYSE	New York Stock Exchange
Common Stock	Common Shares, without par value	OCC	Office of the Comptroller of the Currency
Corporation	FirstMerit Corporation and its Subsidiaries	OCI	Other comprehensive income (loss)
CPR	Conditional Prepayment Rate	OREO	Other real estate owned
CRA	The Community Reinvestment Act	OTTI	Other-than-temporary impairment
CRE	Commercial Real Estate	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

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PART I

ITEM 1. BUSINESS.

OVERVIEW

The Corporation (“we,” “our,” “ours,” and “us”) is a $25.5 billion bank holding company organized in 1981 under the laws ofthe State ofOhio and registered under the Bank Holding Company Act of 1965 (The ”BHCA”). The Corporation’s principal business consists of owning and supervising its affiliates. The principal executive offices of the Corporation are located at III Cascade Plaza, Akron, Ohio 44308, and its telephone number is (330) 996-6300.

We operate primarily through the Bank and its other subsidiaries, providing a wide range of banking, fiduciary, financial, insurance and investment services to corporate, institutional and individual customers throughout Ohio, the Chicago, Illinois—metropolitan area, Michigan, Wisconsin and Western Pennsylvania.

At December 31, 2015, the Bank, the Corporation’s principal subsidiary, operated a network of 366 banking offices and 400 automated teller locations. Its offices span a total of 42 counties in Michigan (primarily in the lower peninsula in the geographic areas of mid-Michigan and southeast Michigan with concentrations in Genesee, Oakland and Saginaw counties), 27 counties in Wisconsin (including Brown, Calumet, Crawford, Dane, Door, Douglas, Grant, Green, Jefferson, Kewaunee, Lafayette, Langlade, Lincoln, Manitowoc, Marinette, Milwaukee,Oconto, Oneida, Outagamie, Polk, Portage, Vilas, Walworth, Waukesha, Waupaca, Waushara and Winnebagao), 22 counties in Ohio (including Ashland, Ashtabula, Crawford, Cuyahoga, Delaware, Erie, Franklin, Geauga, Huron, Knox, Lake, Lorain, Lucas, Madison, Medina, Portage, Richland, Stark, Summit, Tuscarawas, Wayne and Wood), six counties in Illinois (including Cook, DuPage, Kane, Lake, McHenry and Will), and Lawrence County in Pennsylvania. In our principal markets in Northeastern Ohio, we serve over 421,000 retail households and commercial businesses in the 21^st largest consolidated metropolitan statistical area in the United States by population (which combines the primary metropolitan statistical areas for Cleveland-Elyria-Mentor, Akron and Ashtabula, Ohio). In the Detroit-Warren-Dearborn-Ann Arbor geographic area, we serve over 196,000 retail households and commercial businesses in the 11^th largest metropolitan area with a population of 4.7 million. In the Milwaukee metropolitan area, we serve over 58,000 retail households and commercial businesses with a population of 1.6 million. We have 39 branches in the Chicago, Illinois area, which is the third largest metropolitan statistical area in the United States by population (the Chicago-Naperville-Joliet, IL-IN-WI area) with a population of over 9.6 million, where we serve approximately 74,000 retail households and commercial businesses.

The Corporation had 4,112 employees at December 31, 2015.

MERGER WITH HUNTINGTON

On January 25, 2016, the Corporation entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Huntington Bancshares Incorporated, Columbus, Ohio (“Huntington”) and West Subsidiary Corporation, an Ohio corporation and a direct, wholly owned subsidiary of Huntington (“Merger Sub”). Upon the terms and subject to the conditions of the Merger Agreement, Merger Sub will merge with and into the Corporation (the “Merger”), with the Corporation as the surviving corporation. As soon as reasonably practicable thereafter, the Corporation will merge with and into Huntington, with Huntington surviving (the “Second Step Merger” and, together with the Merger, the “Mergers”). Following the Second Step Merger, the Bank will merge with and into The Huntington National Bank (“Huntington Bank”), a national bank that is a

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wholly owned subsidiary of Huntington (the “Bank Merger”), with Huntington Bank as the surviving bank. The Merger Agreement has been approved by the Boards of Directors of each of FirstMerit, Huntington and Merger Sub.

Subject to the terms and conditions of the Merger Agreement, at the Merger’s effective time (the “Effective Time”), the Corporation’s shareholders will have the right to receive (i) 1.72 shares (the “Exchange Ratio”) of Huntington common stock, par value $0.01 per share, and (ii) $5.00 in cash, for each share of Corporation common stock, without par value (the consideration described in clauses (i) and (ii), the “Per Share Merger Consideration”). Subject to the terms and conditions of the Merger Agreement, at the effective time of the Second Step Merger, each share of Corporation 5.875% Non-Cumulative Perpetual Preferred Stock, Series A without par value (“Corporation Preferred Stock”), will be converted into the right to receive a share of a newly created series of preferred stock of Huntington having such rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole, not materially less favorable to the holders thereof than such Corporation Preferred Stock. In addition, certain Corporation equity awards will vest and be settled at the Effective Time based on the Per Share Merger Consideration, and certain Corporation equity awards will be converted into equity awards in respect of Huntington common stock as adjusted to reflect the transaction, in each case, as provided for in the Merger Agreement.

The Merger Agreement also provides, among other things, that at the Effective Time, four current members of the Corporation’s board of directors selected by Huntington in consultation with the Corporation will be appointed as directors of Huntington. Each such director appointed will be given the opportunity to serve on at least one committee of the board of directors of Huntington and at least one Corporation director will be appointed to the Community Development Committee of the board of directors of Huntington. The Merger Agreement also provides that Huntington will invite the Corporation directors who do not join the board of directors of Huntington to serve as members of Huntington’s existing Greater Akron-Canton Region Advisory Board for three years.

Additionally, the Merger Agreement provides that prior to the closing date of the Merger, Huntington will establish a new charitable foundation dedicated to grant making, charitable contributions and support in the city of Akron, Ohio, to which it will contribute $20,000,000 over a ten-year period.

The Merger Agreement contains customary representations and warranties from both the Corporation and Huntington, and each party has agreed to customary covenants, including, among others, covenants relating to (1) the conduct of the Corporation’s and Huntington’s respective businesses during the interim period between the execution of the Merger Agreement and the Effective Time, (2) the Corporation’s obligation to call a meeting of its shareholders to adopt the Merger Agreement and, subject to certain exceptions, to recommend that its shareholders adopt the Merger Agreement, (3) Huntington’s obligations to call a meeting of its stockholders to approve the issuance of Huntington common stock as consideration in the Merger and to recommend that its stockholders approve such issuance and (4) the Corporation’s non-solicitation obligations relating to alternative acquisition proposals. The Corporation and Huntington have agreed to use their reasonable best efforts to prepare and file all applications, notices, and other documents to obtain all necessary consents and approvals for consummation of the transactions contemplated by the Merger Agreement.

The completion of the Mergers is subject to customary conditions, including, among others, (1) the adoption of the Merger Agreement by the Corporation’s shareholders and the approval by Huntington’s stockholders of the issuance of Huntington common stock in connection therewith, (2) authorization for listing on the NASDAQ of the shares of Huntington common stock to be issued in the Merger and authorization for listing on the New York Stock Exchange or the NASDAQ of the shares of Huntington preferred stock to be

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issued in the Second Step Merger, (3) the effectiveness of the registration statement on Form S-4 for the Huntington common stock and the Huntington preferred stock to be issued in the Mergers, (4) the absence of any order, injunction or other legal restraint preventing the completion of the Mergers or the Bank Merger or making the consummation of the Mergers illegal and (5) the receipt of required regulatory approvals, including the approval of the FRB and the OCC. Each party’s obligation to complete the Mergers is also subject to certain additional customary conditions, including (i) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (ii) performance in all material respects by the other party of its obligations under the Merger Agreement and (iii) receipt by such party of an opinion from its counsel to the effect that the Mergers, taken together, will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed. The Merger Agreement provides certain termination rights for both the Corporation and Huntington and further provides that a termination fee of $100.6 million will be payable by the Corporation to Huntington in connection with the termination of the Merger Agreement under certain circumstances.

The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which has been previously filed with the SEC on a Form 8-K dated January 28, 2016. The representations, warranties and covenants of each party set forth in the Merger Agreement have been made only for purposes of, and were and are solely for the benefit of the parties to, the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors.

OPERATIONS AND SUBSIDIARIES

The Corporation manages its operations through the following primary lines of business: Commercial, Retail, Wealth and Other. The Corporation’s profitability is primarily dependent on the net interest income, provision for credit losses, noninterest income and operating expenses of its Commercial and Retail segments as well as the asset management and trust operations of the Wealth segment. Other includes the parent company, elimination 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. A description of each business line, financial performance data and the methodologies used to measure financial performance of each business line areincorporated herein by reference from Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Line of Business Results section, and Note 16 (Segment Information) in the notes to the consolidated financial statements.

Banking services are primarily provided by the Corporation’s national bank subsidiary FirstMerit Bank. The Bank’s trust department offers wealth management and trust services. The majority of its customers are comprised of consumers and small and medium sized businesses. The Bank has a small international department to service clients in its markets. The Bank is not dependent upon any one significant customer or specific industry.

The Bank has 20 wholly-owned subsidiaries. A complete list of its subsidiaries are included in Exhibit 21 to this Form 10-K. The following are the principal operating subsidiaries of the Bank:

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

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

• FirstMerit Insurance Group, Inc., which provides financial and insurance consulting services;

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

• FirstMerit Title Agency, Ltd., an insurance agency providing complete title insurance services; and

• CPHCSUB, LLC and CREPD, LLC, each of which holds foreclosed commercial and construction real properties.

Several Bank subsidiaries, including CPHCSUB, LLC and CREPD, LLC, hold distressed commercial and construction real properties, received through the loan foreclosure process. These properties are held as OREO while being managed and remarketed for sale. The assets held as OREO for CPHCSUB, LLC was zero at December 31, 2015, as compared to $0.1 million, at December 31, 2014. The assets held as OREO for CREPD, LLC was $0.5 million at December 31, 2015, as compared to and $3.8 million at December 31, 2014.

Although the Corporation is a corporate entity legally separate and distinct from its affiliates, bank holding companies such as FirstMerit, which are subject to the BHCA, are expected to act as a source of financial strength for their subsidiary banks. The principal source of the Corporation’s income is dividends from its subsidiaries, especially the Bank. Depository institution subsidiaries are limited by law as to the amount of dividends and funds they can pay or provide their parent bank holding companies and other affiliates. Transactions between the Bank and the Corporation are limited by Federal Reserve Regulation W.

COMPETITION

The financial services industry is highly competitive. The Corporation competes with other local, regional and national providers of financial services such as other bank holding companies, commercial banks, savings associations, credit unions, consumer and commercial finance companies, equipment leasing companies, mortgage banking companies, investment brokers and other brokerage institutions, money market and mutual funds and insurance companies. Major financial institution competitors in the Corporation’s primary markets include Associated Banc-Corp, Bank of America Corporation, PNC Financial Services Group, Inc., KeyCorp, Huntington Bancshares, Inc., Fifth Third Bancorp, First Midwest Bank, U.S. Bancorp, BMO Harris Bank N.A., MB Financial, Inc., JP Morgan Chase & Co., Wells Fargo & Company and Wintrust Financial Corporation.

The Corporation competes in its markets by offering high quality personal services at competitive prices in connection with its super community banking model.

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AVAILABILITY OF SEC FILINGS

We use our website, www.firstmerit.com, as a channel for routine distribution of important information, including news releases, analyst presentations, and financial information. We post filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC, including our annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K; our proxy statements; and any amendments to those reports or statements. All such postings and filings are available on our website free of charge. In addition, this website allows investors and other interested persons to sign up to automatically receive e-mail alerts when we post news releases and financial information on our website. The SEC also maintains a website, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers who file electronically with the SEC. The content on any website referred to in this Form 10-K is not incorporated by reference into this Form 10-K, unless expressly noted.

REGULATION AND SUPERVISION

Introduction

The Corporation and its subsidiaries are subject to extensive regulation, examination and supervision under federal and state law. The regulation of bank holding companies and their subsidiaries is intended primarily for the protection of depositors, borrowers, other customers, the FDIC’s DIF and the banking system as a whole and not for the protection of our security holders. This intensive regulatory environment, among other things, may restrict our ability to diversify our services, acquire depository institutions in certain markets or pay dividends on or repurchase our capital stock. It also may require the Corporation to provide financial support to its banking subsidiary, maintain capital balances in excess of those desired by management and pay higher deposit insurance premiums depending upon the condition and performance of the DIF and its compliance with the FDIA as a result of the financial condition of depository institutions in general.

Significant aspects of the laws and regulations that apply to the Corporation are described below. These descriptions are qualified in their entirety by reference to the full text of the applicable statutes, legislation, regulations and policies, as they may be amended, and as interpreted and applied, by federal or state regulatory agencies. Such statutes, regulations and policies are continually under review and are subject to change at any time, particularly in the current economic and regulatory environment. The numerous regulations required by changes in applicable statutes, legislation, including the Dodd-Frank Act, regulations, policies and practices, including changes in the capital adequacy rules applicable to the banking industry, including us and our subsidiaries, may have a material adverse effect on the Corporation and its business.

The Dodd-Frank Act

The Dodd-Frank Act was signed into law on July 21, 2010, and effected sweeping financial regulatory reforms, including the following:

• Created the CFPB as a new agency to centralize responsibility for regulating consumer financial services and products, including implementing, examining and enforcing compliance with federal consumer financial laws;

• Authorized the elimination by the Federal Reserve of federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;

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

• Restricted federal preemption of state laws for subsidiaries and affiliates of national banks and federal thrifts;

• Permitted banks to establish branch offices of banks throughout the U.S.;

• Extended to most bank holding companies the same leverage and risk-based capital requirements that apply to insured depository institutions, which, among other things, will disallow treatment of trust preferred securities as Tier 1 capital, subject to certain phase-in periods and grandfathered exceptions;

• Required capital requirements to be countercyclical so they increase during economic expansions ;

• Expanded the requirement for holding companies to serve as sources of financial strength to their subsidiary FDIC-insured depository institutions;

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

• Changed the federal deposit insurance assessment base from the amount of insured deposits to average consolidated assets less average tangible capital, eliminated the maximum size of the DIF, and increased the minimum size of the DIF and the DIF’s reserve ratio and facilitated the FDIC’s changes to risk-based insurance assessments;

• Permanently adopted the $250,000 per depositor limit for FDIC insurance coverage;

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

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

• Implemented corporate governance revisions applicable to all public companies (not just financial institutions), including revisions regarding executive compensation disclosure;

• Restricted the ability of banks to sponsor or invest in private equity or hedge funds and to engage in proprietary trading under the “Volcker Rule”;

• Increased the authority of the Federal Reserve and the FDIC to examine nonbank subsidiaries; and

• Required annual capital stress testing for institutions with $10 billion or more in assets.

Many aspects of the Dodd-Frank Act are subject to rulemaking which is continuing, and various rules are being phased in. This makes it difficult to assess the overall financial impact the Dodd-Frank Act will have on the Corporation, and its customers and the financial services industry, generally. However, the legislative provisions that affect the payment of interest on demand deposits and assessment of interchange fees have increased and are likely to continue to increase the costs associated with deposits as well as place limitations on certain revenues those deposits may generate (for more information, see Item 1A, Risk Factors – “Debit card interchange fee regulation may have a material adverse effect on our business, financial condition and results of operations”). Provisions in the Dodd-Frank Act and the final U.S. “Basel III” capital rules, which revise the definitions and types of capital and the risk weightings of on- and off-balance sheet exposures may increase our capital requirements, which could require us to seek other sources of capital in the future and will limit the types

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of instruments includable in capital. Compliance and other operating costs have increased as a result of the Dodd-Frank Act and related rules and policies. Some of the rules that have been proposed and, in some cases, adopted, under the Dodd-Frank Act are discussed further below, along with other regulatory matters affecting the Corporation.

Regulatory Agencies

Bank Holding Company. The Corporation, as a bank holding company, is registered with the Federal Reserve under the BHCA and is subject to examination, supervision, and regulation by the Federal Reserve.

Subsidiary Bank. The Bank is subject to regulation and examination generally by the OCC and the CFPB for consumer compliance. As a FDIC member, the Bank is also subject to deposit insurance assessments payable to the DIF and various FDIC requirements.

Nonbank Subsidiaries. Many of the Corporation’s nonbank subsidiaries also are subject to regulation by the Federal Reserve and other applicable federal and state agencies. The Corporations investment advisory subsidiary, FirstMerit Advisors, Inc., is regulated and examined by the SEC and state securities regulators. The Corporation’s broker-dealer subsidiary, FirstMerit Financial Services, Inc. was regulated and examined by the SEC, FINRA and state securities regulators.    The Corporation’s broker-dealer subsidiary filed its withdrawal from Broker-Dealer Registration with the SEC on November 19, 2013, with the SEC acknowledging the withdrawal on January 18, 2014.  Other nonbank subsidiaries of the Corporation are subject to laws and regulations of both the federal government and the various states in which they conduct business, including federal and state laws regarding the mortgage banking business.

SEC and NASDAQ. The Corporation’s Common Stock is listed on NASDAQ under the symbol “FMER,” and the Corporation’s Preferred Stock is listed on the NYSE under the symbol “FMER-A”and are subject to the rules and listing requirements of NASDAQ and the NYSE, respectively.

Bank Holding Company Regulation

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

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

• assess civil money penalties;

• issue cease and desist, removal orders and other formal and informal enforcement actions;

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

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

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A bank holding company is expected by the Federal Reserve to serve as a source of financial and managerial strength to each subsidiary bank and to commit resources to support those subsidiary banks. The Federal Reserve may require a bank holding company to contribute additional capital to an under-capitalized subsidiary bank and may limit the payment of dividends and payment of interest or other distributions to the holding company’s shareholders and holders of its other capital instruments. The Dodd-Frank Act codified the Federal Reserve’s source of strength policy as Section 38A of the FDIA, requiring holding companies to provide financial assistance to their FDIC insured depository institution subsidiaries in financial distress. The Dodd-Frank Act required regulations to be adopted by the Federal Reserve implementing Section 38A of the FDIA. The prompt corrective action rules require “undercapitalized” institutions to submit capital restoration plans guaranteed, up to limitations, by their holding companies.

The BHCA requires prior approval by the Federal Reserve for a bank holding company to directly or indirectly acquire more than 5% of the voting shares in any bank or bank holding company. Factors taken into consideration in making such a determination include the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the applicant’s anti-money laundering compliance, the institutions financial and managerial resources, and the acquiring institution’s record under the Community Reinvestment Act of addressing the credit needs of the communities it serves. The Dodd-Frank Act also requires the Federal Reserve to consider a transaction’s risks to the stability of the U.S. banking or financial system.

The BHCA also restricts the nonbanking activities of the Corporation to those determined by the Federal Reserve to be so closely related to managing or controlling banks as to be properly incident thereto. The BHCA allows bank holding companies to elect to become financial holding companies that can engage in a broader range of activities that are financial in nature, or incidental or complementary to such financial activity. FirstMerit has not elected to become a financial holding company. Transactions among the Bank and its affiliates are also subject to certain limitations and restrictions under the Federal Reserve Act and Federal Reserve Regulation W, as described more fully below under “Dividends and Transactions with Affiliates.”

Dividends and Transactions with Affiliates

The Corporation is a legal entity separate and distinct from the Bank and its other subsidiaries. The Corporation’s principal source of funds to pay dividends on its Common Stock and Preferred Stock and service its debt is dividends from the Bank and its other subsidiaries. The National Bank Act and OCC regulations limit the amount of dividends that the Bank may pay to the Corporation without prior regulatory approval, including requirements to maintain adequate capital above regulatory minimums (as discussed further below under “Capital Requirements”) and adequate liquidity. The Federal Reserve and the OCC have policies that provide that FDIC insured banks and bank holding companies should generally pay dividends only out of current operating earnings. In addition, the prior approval of the OCC is required for the payment of a dividend by the Bank, if the total of all dividends declared in a calendar year would exceed the total of its net income for the year combined with its retained net income for the two preceding years.

If, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice, such authority may require, after notice and hearing, that such bank cease and desist from such practice. The OCC has the authority to limit dividends payable by national banks. The Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels, unless both asset quality and capital are very strong, and at the end of 2015 reinforced it guidance on dividends, stock repurchases, and other “capital actions”. Lastly, the U.S. Basel III capital rules adopted in 2013 have a new capital measure called

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“Common Equity Tier 1” (“CET1”) and a CET1 conservation buffer of 2.50% when fully phased in on January 1, 2019. There is a “CET1” to risk weighted measure. Deficiencies in the CET1 conservation buffer will restrict or prohibit dividends, stock buybacks and discretionary cash bonuses. These capital actions and discretionary bonuses are subject to regulatory discretion in light of various factors such as bank risks, results of stress tests and enforcement actions, among other things. Thus, the ability of the Corporation to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies, capital guidelines, the annual stress tests and our capital planning activities.

The Bank is subject to restrictions under Federal Reserve Regulation W that limit the transfer of funds or other items of value from the Bank to the Corporation and its nonbanking affiliates, whether in the form of loans and other extensions of credit, investments and asset or security purchases, or as other transactions involving the transfer of value from a subsidiary to an affiliate or for the benefit of an affiliate including guarantees, each of which is referred to as a “covered transaction.” These regulations limit the types and amounts of transactions (including loans and extensions of credit from bank subsidiaries) that may take place and generally require those transactions to be on an arm’s-length basis. These regulations generally require that any “covered transaction” by the Bank (or its subsidiaries) with an affiliate must be secured by designated amounts of specified collateral and must be limited, as to any one of the Corporation or its nonbank subsidiaries, to 10% of the Bank’s capital stock and surplus, and, as to the Corporation and all nonbank subsidiaries in the aggregate, to 20% of the Bank’s capital stock and surplus.

In the event of the Corporation’s bankruptcy, commitments by the Corporation to a federal bank regulatory agency to maintain the capital of the Bank pursuant to a capital restoration plan will be entitled to priority of payment.

Regulation of National Banks

As a national bank, the Bank is subject to regulation and regular examinations by the OCC. OCC regulations govern permissible activities, capital requirements, branching, dividend limitations, investments, loans and other matters. Under the Bank Merger Act, the prior approval of the OCC is required for a national bank to merge with, or purchase the assets or assume the deposits of, another bank. In reviewing applications to approve merger and other acquisition transactions, the OCC is required to consider factors similar to the Federal Reserve under the BHCA, including the applicant’s financial and managerial resources, competitive effects and public benefits of the transactions, the applicant’s performance in meeting community needs under the Community Reinvestment Act and the effectiveness of the entities in restricting money laundering activities.

The Bank is a member of the FDIC’s DIF and its deposits are insured by the FDIC to the fullest extent permitted by law. As a result, it is subject to regulation and deposit insurance assessments by the FDIC (as described more fully below under “Deposit Insurance”).

Under the Dodd-Frank Act, the Bank also is subject to regulation and examination by the CFPB, with respect to consumer financial services and products.

Consumer Mortgage Rules. In January 2013, the CFPB issued its final rule to establish certain minimum requirements for creditors when making ability-to-pay determinations and establish certain protections from liability for mortgages meeting the definition of “qualified mortgages”. The final rule became effective on January 10, 2014.

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The CFPB also issued final mortgage servicing rules in January 2013. Among other things, the final rules provide for error correction, forced-place collateral insurance, rate adjustment notices on adjustable rate mortgages, and certain periodic disclosures to borrowers. These rules apply directly to the Bank and to any third-party mortgage servicer we engage, and became effective on January 10, 2014.

The Volcker Rule. The Volcker Rule,Section 13 of the BHCA, prohibits an insured depository institution and its affiliates from engaging in certain types of proprietary trading and restricts the ability of banks to sponsor or take ownership interests in private equity or hedge funds.

Among other things, the Volcker Rule regulations, as originally adopted, may affect holdings of CLOs. Based on current information available, we believe that as holders of senior secured debt, we do not hold any equity or other “ownership interests” in these CLOs, and therefore expect to be able to hold these investments until their stated maturities with no restriction. In December 2014, the Federal Reserve extended its Volcker Rule compliance period to July 21, 2016, and stated its interest to grant, in 2015, a further extension to July 21, 2017. The Federal Reserve did not act in 2015 on the further one year extension, as contemplated. A forced sale of some of these investments could result in the Bank receiving less value than it would otherwise have received.

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 but less than $50 billion of consolidated assets (“medium-sized companies”). Additional stress testing is required for banking organizations having $50 billion or more of assets. Medium-sized companies, including the Corporation and the Bank, are required to conduct annual company-run stress tests under rules the federal bank regulatory agencies issued in October 2012. The first stress tests by medium-sized companies were submitted to the regulators at the end of March 2014.

Stress tests assess the potential impact of scenarios on the consolidated earnings, balance sheet and capital of a BHC or 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. These are tested against baseline, adverse, and severely adverse economic scenarios specified 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. 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. The OCC released its Annual Stress Test Baseline, Adverse, and Severely Adverse Scenarios for 2016 on January 28, 2016.

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.

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Capital Requirements

The Federal Reserve has risk-based capital guidelines for bank holding companies (such as the Corporation) and the OCC has risk-based capital guidelines for national banks (such as the Bank). The guidelines provide a systematic analytical framework that makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy, and minimizes disincentives to holding assets considered by the OCC to be liquid and low-risk.

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

Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of four risk weights (0%, 20%, 50% and 100%) is applied to different balance sheet and off-balance sheet assets. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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

The Federal Reserve review of certain bank holding company transactions is affected by whether the applying bank holding company is “well-capitalized.” To be deemed “well-capitalized,” the bank holding company must have a Tier 1 risk-based capital ratio of at least 6.0% and a total risk-based capital ratio of at least 10.0%, and must not be subject to any written agreement, order, capital directive or prompt corrective action directive issued by the Federal Reserve Board to meet and maintain a specific capital level for any capital measure. FirstMerit’s capital ratios meet the requirements to be deemed “well-capitalized” under Federal Reserve guidelines. See Note 22 (Regulatory Matters) in the notes to the consolidated financial statements.

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Section 38 of the FDIA established a system of prompt corrective action to identify undercapitalized depositary institutions and to resolve these promptly. This system is based on five capital level categories for insured depository institutions: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” Each federal banking regulator has regulated and implemented prompt corrective action.

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

In order to be “well-capitalized,” a bank must have total risk-based capital of at least 10.0%, Tier 1 risk-based capital of at least 6.0% and a leverage ratio of at least 5.0%, and the bank must not be subject to any written agreement, order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. The Corporation’s management believes that the Bank meets the requirements to be deemed “well-capitalized” according to the guidelines described above. See Note 22 (Regulatory Matters) in the notes to the consolidated financial statements.

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

The risk-based capital guidelines adopted by the federal banking agencies are based on the “International Convergence of Capital Measurement and Capital Standards” (Basel I), published by Basel Committee in 1988.

In December 2010, the Basel Committee released a final framework for strengthening international capital and liquidity regulation, Basel III, and in October 2013, the Federal Reserve and OCC released final U.S. Basel III rules. When fully phased-in, U.S. Basel III will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. The U.S. Basel III final capital framework, among other things, (i) introduces a new capital measure of tangible common equity called “CET1”, (ii) specifies that Tier 1 capital consist of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) expands the scope of the adjustments as compared to existing regulations, (iv) establishes capital conservation buffers, which if not maintained, will limit or prohibit, based on the size of the deficiency, the payment of dividends or discretionary bonuses and stock repurchases, and (v) revises the prompt corrective action rules to conform to the revised capital rules.

Under the U.S. Basel III capital requirements, each element of regulatory capital has been redefined as to the character of instruments included as regulatory capital, and instruments that comprise regulatory capital have been limited. The following are the components of regulatory capital under these rules:

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• CET1 capital — common stock and related surplus, retained earnings, AOCI, common equity Tier 1 minority interest;

• Additional Tier 1 capital — perpetual noncumulative preferred stock that is classified as equity under GAAP, and Tier 1 minority interest not included in CET1 capital; and

• Tier 2 capital — subordinated debt and preferred stock not included in Tier 1, total capital minority interests not included in Tier 1 capital, allowance for loan and lease losses not exceeding 1.25% of risk-weighted assets.

In each case, these are subject to applicable regulatory adjustments and deductions.

The following shows the minimum U.S. Basel III capital rules applicable to the Corporation and the Bank when fully phased in on January 1, 2019:

• CET1 to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer,” totaling 7.0%;

• Tier 1 capital to risk-weighted assets of 6.0%, plus the 2.50% capital conservation, totaling 8.5%;

• Total (Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer, totaling 10.5%; and

• Leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to total assets.

The phase-in period started on January 1, 2015, banks are now required to maintain 4.5% CET1 to risk-weighted assets, 6.0% Tier 1 capital to risk-weighted assets, and 8.0% total capital to risk-weighted assets. As of January 1, 2015, the deductions from CET1 capital are now limited to 40% of the final phased in deduction. As of January 1, 2016, the capital conservation buffer began at 0.625% and is being phased in over a four-year period (increasing each subsequent January 1 by the same amount until it reaches 2.50% on January 1, 2019).

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

The U.S. Basel III final rule provides for a number of new deductions from and adjustments to CET1, including the deduction of goodwill and intangibles, net of associated DTLs, deferred tax assets arising from net operating losses and tax credit carryforwards, gains on sales from any securitization exposure and defined benefit pension fund net assets. Generally CET1 is further reduced by threshold deductions of mortgage servicing assets, DTAs and significant common stock investments in unconsolidated financial institutions that are individually greater than or collectively greater than 10.0% of CET1 or 15.0% of CET1 after the specified deductions. Implementation of the deductions and other adjustments to CET1 are being phased-in over a five-year period.

The Basel Committee is considering further amendments to U.S. Basel III, including imposition of additional capital surcharges on globally systemically important financial institutions or “G-SIFIs.” The Company and the Bank are not G-SIFIs. In addition to U.S. Basel III, the Dodd-Frank Act requires or permits

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federal banking agencies to adopt regulations affecting capital requirements in a number of respects, including potentially more stringent capital requirements for systemically important financial institutions or “SIFIs”, and has adopted separate rules regarding liquidity. U.S. regulatory agencies also are considering the Basel Committee’s proposals, as well as other capital and liquidity rules, especially with respect to larger, systemically important institutions. Our regulators may impose additional capital requirements in light of an individual institution’s risks and condition. Requirements of higher capital levels or higher levels of liquid assets could adversely impact the Corporation’s net income and return on equity, even though we are not a SIFI.

Deposit Insurance

The FDIC assesses deposit insurance premiums on all FDIC insured depository institutions based on average consolidated assets less average tangible capital and FDIC risk categories. Insurance premiums for each insured institution are determined based upon the institution’s capital level and supervisory rating provided to the FDIC by the institution’s primary federal regulator and has applied by the FDIC’s risk rating system.

In November 2009, the FDIC adopted a final rule requiring insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The prepaid assessments for these periods were collected on December 30, 2009, along with the regular quarterly risk-based deposit insurance assessment for the third quarter of 2009.

In October 2010, the FDIC adopted a new DIF restoration plan to increase the DIF reserve ratio to 1.35% by September 30, 2020, as required by the Dodd-Frank Act. At least semi-annually during the five-year amended DIF Restoration Plan adopted in 2010, the FDIC will update its loss and income projections for the DIF and, if needed, change deposit insurance assessment rates. In its last publicly available report, dated March 28, 2014, the FDIC projected that the DIF balance “remains on track to meet the requirements of the Restoration Plan and Dodd-Frank” and that no adjustments were needed at that time. The DIF was $70.1 billion at September 30, 2015 and the DIF ratio was 1.09%.

The FDIC has risk scorecards, one for most large institutions such as the Bank that have more than $10 billion in assets, and another for “highly complex” institutions that generally have over $50 billion in assets and are controlled by a parent with over $500 billion in assets. Each scorecard has a performance score and a loss-severity score which are weighted by their components. Large banks’ deposit insurance scorecard combines (i) CAMELS component ratings, (ii) financial measures of a bank’s ability to withstand asset-related and funding-related stresses, and (iii) a measure of loss severity that estimates the relative magnitude of potential losses to the FDIC in the event of the bank’s failure. The score is converted to an assessment rate.

For large institutions, including the Bank, generally the base assessment rate currently ranges from 5 to 35 annual basis points. Adjustments for long-term unsecured debt, holdings of other depository institutions’ long-term debt, and for banks not well rated or well-capitalized could change the ranges of total base assessment rate, which currently is 2.5 to 45 basis points annually.

Assessment rates for both large and small banks are subject to adjustment. Assessment rates decrease for issuance of long-term unsecured debt, including senior unsecured debt and subordinated debt; (ii) increase for holdings of long-term unsecured or subordinated debt issued by other insured banks (the “Depository Institution Debt Adjustment” or “DIDA”); and (iii) increase for banks that are not well-rated or well-capitalized, and for significant holdings of brokered deposits.

All FDIC insured depository institutions must pay an additional quarterly assessment, based on average consolidated assets less average tangible capital, to pay interest on bonds issued by the FICO. The FICO bonds

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were issued to capitalize the Federal Savings and Loan Insurance Corporation, which formerly insured the Federal thrifts. The FICO assessments are adjusted quarterly, and have been declining. These are 0.58 basis points annually for the first quarter of 2016 compared to 0.60 and 0.62 basis points annually in the fourth quarters of 2015 and 2014, respectively. All outstanding FICO bonds are scheduled to mature in 2017-2019. The Corporation’s FICO assessments have averaged $1.37 million annually since 2013.

The Corporation’s total FDIC insurance expense was $20.7 million, $20.5 million, and $17.7 million in 2015, 2014, and 2013, respectively. FDIC deposit insurance assessments are based upon the FDIC’s DIF reserve ratio and the FDIC’s DIF restoration plan, DIF’s losses, including losses from bank failures, and continuing changes to the FDIC’s deposit insurance assessment methods, as well as our assessment ratings. Therefore, we may experience further increases in our FDIC insurance assessments due not only to growth in our assessment base, but due to these other factors, which are difficult to predict, and which could have a material adverse effect on the Corporation’s interest margins and earnings.

On October 22, 2015, the FDIC Board of Directors approved a Notice of Proposed Rulemaking ("NPR") to implement Dodd-Frank provisions (1) raising the DIF’s minimum reserve ratio from 1.15 % to 1.35 %; (2) requiring that the DIF reserve ratio reach 1.35 % by September 30, 2020; and (3) requiring that the FDIC offset the effect of the increase in the minimum reserve ratio on insured depository institutions with total consolidated assets of less than $10 billion ("Small Banks"). The NPR proposes to surcharge insured depository institutions with total consolidated assets of $10 billion or more and grant credits to banks with fewer assets for the portion of their regular assessments that contribute to increasing the reserve ratio from 1.15 % to 1.35 %. This proposal could increase our FDIC insurance assessments.

Fiscal and Monetary Policies

The Corporation’s business and earnings are affected significantly by federal fiscal and monetary policies. The Corporation is particularly affected by the policies of the Federal Reserve, which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the Federal Reserve are (a)conducting open market operations inUnited States government securities,(b) changing thediscount rates charged to depository institutions for borrowings from the Federal reserve, and (c) imposing or changing reserve requirements against depository institutions’ deposits. These methods are used in varying degrees and combinations to affect directly the availability of bank loans and deposits, as well as interest rates generally, which, in turn affect the interest rates charged on loans and paid on deposits. Federal Reserve policies have a material effect on the earnings of the Corporation. Since September 21, 2011, the Federal Reserve has been engaged in a series of securities purchase programs called “quantitative easing” and until the Federal Reserve’s Federal Open Market Committee (“FOMC”) December 16, 2015 meeting, has set the targeted federal funds rate at 0% - 0.25% annually. These actions have resulted in historically low interest rates. The Federal Reserve indicated in March 2015 that it expects that it would raise the target range for the federal funds rate when it had seen further improvement in the labor market and was reasonably confident that inflation would move back to its 2% objective over the medium term. At its December 2015 meeting, the FOMC, for the first time in seven years, raised its target federal ratio. This ratio was increased to 25 to 50 basis points and the Federal Reserve indicated further increases would be gradual and based on economic conditions. The Federal Reserve also increased the discount rate 25 basis points to 1.00% in December 2015. The Federal Reserve has stopped adding to its securities holdings under “quantitative easing,” but continues to reinvest the principal of its current holdings as these mature.

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Privacy Provisions of Gramm-Leach-Bliley Act

Under the Gramm-Leach-Bliley Act of 1999, federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose nonpublic information about individuals to third parties. These limitations require disclosure of privacy policies to individuals. In some circumstances, individuals may opt out, and prevent their financial institution from sharing information with third parties. The use of nonpublic personal information is restricted also.

Anti-Money Laundering and the USA Patriot Act

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

Repurchase of Warrants Held by U.S. Treasury

As part of TARP, the Treasury established in the Fall of 2008 the Capital Purchase Program (“CPP”). The Corporation has had no TARP preferred stock outstanding since April 22, 2009. Citizens, which the Corporation acquired in April 2013, had $300 million of TARP CPP preferred stock outstanding, plus accrued but unpaid dividends and interest on the arrearage of approximately $55.4 million. The Corporation purchased all of Citizens TARP preferred stock from the U.S. Treasury as part of the Citizens acquisition and is not subject to TARP.

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.

Corporate Governance

The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) broadly reformed corporate governance and financial reporting for public companies. Significant additional corporate governance and financial reporting reforms have since been implemented by NASDAQ, which apply to the Corporation. The Corporation’s corporate governance policies include an Audit Committee Charter, a Compensation Committee Charter, Corporate Governance Guidelines, a Corporate Governance and Nominating Committee Charter, and a Code of Business Conduct and Ethics. Our Board of Directors reviews our corporate governance practices on a continuing basis. Our corporate governance policies have been provided previously to shareholders and are available, along with other information on the Corporation’s corporate governance practices, on the Corporation’s website at www.firstmerit.com. The content on our website is not incorporated by reference into this Form 10-K, unless expressly noted.

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As directed by Section 302(a) of the Sarbanes-Oxley Act, the Corporation’s chief executive officer and chief financial officer are each required to certify that the Corporation’s quarterly and annual reports do not contain any untrue statement of a material fact. The rules have several certification requirements, including:

• these officers are responsible for establishing, maintaining, and regularly evaluating the effectiveness of the Corporation’s internal controls;

• these officers have made certain disclosures about the Corporation’s internal controls to its auditors and the audit committee of the Board of Directors; and

• these officers have included information in the Corporation’s quarterly and annual reports about their evaluation and whether there have been significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation.

The Dodd-Frank Act contains further significant corporate governance measures, some of which are applicable to all public companies, while others apply only to financial institutions, and many of which are not yet fully implemented. For example, on January 5, 2012, the Federal Reserve proposed regulations under the Dodd-Frank Act requiring each publicly-traded bank holding with total consolidated assets of not less than $10 billion, such as the Corporation, to establish a risk committee responsible for the oversight of the enterprise-wide risk management practices of the bank holding company. Such risk committees will be required to include such number of independent directors as the Federal Reserve may determine to be appropriate, based on the nature of operations, size of assets and other appropriate criteria, and include at least one risk management expert having experience in identifying, assessing and managing risk exposures of large, complex firms. The Corporation already has a risk committee of management and a risk committee of its Board of Directors, and intends to adapt those committees to comply with the final rules adopted under the Dodd-Frank Act. Many of the other Dodd-Frank corporate governance provisions involve executive and incentive compensation practices and annual disclosures relating thereto, certain of which are summarized under “Executive and Incentive Compensation” below.

Executive and Incentive Compensation

In June 2010, the Federal Reserve, OCC and FDIC issued joint interagency guidance on incentive compensation policies (the “Incentive Guidance”). The Incentive Guidance seeks to promote incentive compensation policies for banking organizations that do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. This Incentive Guidance covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group. A banking organization’s incentive compensation arrangements should:

• provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks;

• be compatible with effective internal controls and risk management; and

• be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

The Federal Reserve and the OCC review, as part of a regular, risk-focused examination process, the incentive compensation arrangements of financial institutions such as the Corporation and the Bank, respectively. Such reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. Findings are included in reports of examination and deficiencies are incorporated into the institution’s supervisory ratings, which can

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affect the institution’s ability to make acquisitions and take other actions. Enforcement actions may be taken against an institution if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and prompt and effective measures are not being taken to correct the deficiencies.

On April 14, 2011, the federal banking regulatory agencies jointly issued proposed additional rules on Incentive-Based Compensation Arrangements under applicable provisions of the Dodd-Frank Act (the “Proposed Incentives Rules”). The Proposed Incentives Rules generally apply to financial institutions with $1.0 billion or more in assets that maintain incentive-based compensation arrangements for certain covered employees. The Proposed Incentives Rules:

• prohibit covered financial institutions from maintaining incentive-based compensation arrangements that encourage covered persons to expose the institution to inappropriate risk by providing the covered person with “excessive” compensation;

• prohibit covered financial institutions from establishing or maintaining incentive-based compensation arrangements for covered persons that encourage inappropriate risks that could lead to a material financial loss;

• require covered financial institutions to maintain policies and procedures appropriate to their size, complexity and use of incentive based compensation to help ensure compliance with the Proposed Rules; and

• require covered financial institutions to provide enhanced disclosure to regulators regarding their incentive-based compensation arrangements for covered persons within 90 days following the end of the fiscal year.

Final rules have not been adopted. The Proposed Incentive Rules seek to promote incentive compensation that balance risk and personal financial rewards, is compatible with effective controls and risk management, and which is supported by strong corporate governance.

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

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

Future Legislation and Regulation

Various legislative and regulatory proposals affecting financial institutions are considered regularly by Congress, our financial services regulatory agencies and the states where we operate. Such legislation may change our related operating environment in substantial and unpredictable ways, and could significantly change our costs of doing business, change our permissible activities, and affect the competitive balance among financial institutions. Various Dodd-Frank Act rulemakings have not yet been proposed or finalized as of December 31, 2015. The continuing implementation of various Dodd-Frank Act interpretations, as well as the nature and extent of future legislative and regulatory changes cannot be predicted.

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ITEM 1A. RISK FACTORS.

Financial services organizations are subject to numerous risks. Various risks that could have a material and adverse effect on our business, financial condition, results of operation or cash flows, and our liquidity are described below. These risks and uncertainties are not the only risks we face, however.

Our ERM program incorporates risk management throughout our organization to identify, understand, and manage risks presented by our business activities. Our ERM program identifies the Corporation’s major risk categories as:

• credit risks, which are the risks of loss due to loan customers or other counterparties not being able to meet their financial obligations under agreed upon terms;

• market and price risk, which is the risk of loss due to changes in market value of assets and liabilities;

• liquidity risk, which is a risk of loss due to the possibility that funds may not be available to satisfy current or future commitments based on external market issues, investor and customer perception of financial strength, and events unrelated to us such as war, terrorism, or issues affecting the financial services industry, generally, including market disruptions, perceptions, and risk of loss based on our ability to satisfy current or future commitments due to the mix and maturity of our balance sheet, amount of cash on-hand and unencumbered securities and the availability of contingent sources of funding;

• operational risk, which is the risk of loss due to human error, inadequate or failed internal systems and controls, violations of, or noncompliance with laws, rules, regulations, prescribed practices, or ethical standards, and external influences such as market conditions, fraudulent activities, disasters, and security risks;

• legal and compliance risks, which expose us to money penalties, enforcement actions or other sanctions and damages as a result of nonconformance with laws and regulations that apply to the financial services industry;

• reputation risk, which is the risk from negative public opinion from our constituents and the public;

• interest rate risk, which is the risk to earnings, asset and liability values, costs and liquidity, asset/liability mixes, customer behaviors and/or capital arising from movements in interest rates;

• financial risk, which is the risk associated with financial operations that can occur from incorrect financial reporting, inaccurate reconciliation, lack of segregation of duties, and inadequate controls or management oversight;

• technology risk, which is associated with the continuous widespread developments of new technologies, products and services;

• people risk, which is associated with staff availability, competency, experience, technical expertise, fraud, compensation, and benefits; and

• strategic risk, which is the risk of loss from adverse business decisions or inadequate implementation of those decisions.

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CREDIT RISKS

We may have more credit risk and higher credit losses, and may be required to maintain higher capital levels, to the extent our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral.

Our credit risk and credit losses can increase if our loans are concentrated to borrowers engaged in the same or similar activities or to borrowers that as a group may be uniquely or disproportionately affected by economic or market conditions. Our regulators may require higher capital levels if we were deemed to have significant loan concentrations, and all federal bank regulators are currently especially sensitive regarding CRE concentrations in the banking industry. Our business strategy includes the origination of commercial and industrial loans and, to a lesser extent, CRE loans, which are generally larger, and have higher risk-adjusted returns and shorter maturities than one-to-four-family mortgage loans. At December 31, 2015, our portfolio of originated commercial and industrial loans totaled $5.8 billion, or 41.03% of total originated loans, and originated commercial real estate loans totaled $2.1 billion or 14.71% of total originated loans. Pools of individual transactions that may perform similarly because of common characteristics or common sensitivity to economic, financial, or business developments have been the primary cause of credit related distress in the financial services industry. If these common characteristics become a common source of weakness, loans in the pool pose risks to earnings and capital, even within a pool that is soundly underwritten at origination.

While we seek to reduce credit risks through our underwriting policies, which generally require that loans be qualified on the basis of the cash flows, collateral, appraised value, and debt service coverage ratio, among other factors, there can be no assurance that our underwriting policies will protect us from credit-related losses or delinquencies.

The ability of our borrowers to repay their loans could be adversely affected by weakness in economic conditions.

Our business depends significantly on general economic conditions in our markets in Ohio, Michigan, Wisconsin, Chicago, Illinois, and Western Pennsylvania. Accordingly, the ability of our borrowers to repay their loans, and the value of the collateral securing such loans, may be significantly affected by general economic conditions in these regions or by changes in the local real estate markets. A significant decline in general economic conditions caused by changes in inflation or deflation, recession, unemployment, changes in government fiscal and monetary policies, acts of terrorism, or other factors beyond our control could cause our borrowers to default on their loan payments, and the collateral values securing such loans to decline and be insufficient to repay any outstanding indebtedness. In such events, we could experience significant loan losses, which could have a material adverse effect on our financial condition and results of operations. See Item 1. “Business - Fiscal and Monetary Policies.”

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Various factors may cause our allowance for loan losses to increase.

We maintain an allowance for loan losses (a reserve established through provisions for loan losses charged as expenses on our income statements) that represents our estimate of losses based on our evaluation of risk within our existing portfolio of loans. The level of the allowance reflects our ongoing evaluation of industry concentrations, specific credit risks, historical levels of loan losses, projected default rates and loss severities, present economic, political and regulatory conditions, incurred losses inherent in the current loan portfolios, and whether or not the loans are covered by loss sharing agreements with the FDIC with respect to our FDIC assisted acquisitions. Approximately $88.4 million of residential mortgage loans remained covered by FDIC loss sharing at December 31, 2015. If our estimated assumptions and judgments regarding such matters prove to be incorrect, our allowance for loan losses might not be sufficient to cover losses in our loan portfolio, resulting in additions to the allowance. Changes in economic conditions affecting borrowers, including adverse changes in unemployment and real estate values, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance through additional provisions for loan losses. Furthermore, our bank regulators periodically review our allowance and the regulators’ judgments can differ from those of Management, which may require increases to the provision for loan losses or further loan charge-offs. Material additions to the allowance through provisions for loan losses or loan charge-offs could materially decrease our net income and capital. Additional information regarding our allowance for loan losses is included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the sections captioned “Allowance for Loan Losses and Reserve for Unfunded Lending Commitments” and “Asset Quality.” We have made and may make additional FDIC assisted acquisitions of failed banks, which could present additional risks to our business. See“We have made and may make additional FDIC assisted acquisitions of failed banks, which could present additional risks to our business.”

MARKET AND PRICE RISK

Market conditions and economic trends may adversely affect our industry and our business.

Our success depends, to a certain extent, upon economic and political conditions, local and national, as well as governmental fiscal and monetary policies. Conditions such as inflation or deflation, recession, wages and business income, unemployment, taxes, changes in interest rates, money supply and other factors beyond our control may adversely affect our asset quality, loan and deposit levels and margins and, therefore, our earnings and our capital. Because we have a significant amount of real estate loans, decreases in the value of real estate collateral securing the payment of such loans or low values and/or low sales could result in increased delinquencies, foreclosures and customer bankruptcies, any of which could have a material adverse effect on our credit losses and on our operating results. Adverse changes in the economy may also have a negative effect on our borrowers’ ability to make timely payments of their loans, which could have adverse effects on our earnings and cash flows.

Overall, while economic and market conditions have improved in the United States since the credit crisis and in our primary geographic markets, there can be no assurance that these improvements will continue or that the economic and market conditions will not deteriorate in the future.

Our profitability depends on economic conditions in our primary market areas.

A majority of our lending and deposit gathering activities are to individuals and small- to medium-sized businesses in Ohio, Chicago, Illinois, Michigan, Wisconsin and Western Pennsylvania, and our profitability

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depends in part on the general economic conditions of these areas. Real estate values in Ohio, Illinois, Michigan, Wisconsin and Western Pennsylvania continue to be negatively affected by the slow economic recovery. Worsening conditions in the national economy and/or changes in interest rates also could reduce our growth rate, impair our ability to collect payments on loans, increase delinquencies, increase problem assets and foreclosures and related expenses, increase claims and lawsuits, decrease the demand for, and/or change the mix of our products and services and decrease the value and liquidity of collateral for loans, especially real estate values, which could have a material adverse affect on our financial condition, results of operations and cash flows.

We may be affected by the soundness of other financial institutions.

The actions and commercial soundness of other financial institutions could affect our ability to engage in routine funding transactions and the risks of our counterparties. Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. We have exposure to different industries and counterparties, and execute transactions with various counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, and other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may increase when the collateral held by us cannot be realized upon or is liquidated at prices insufficient to recover the full amount of our collateralized exposure. Such losses could materially and adversely affect our results of operations and financial condition.

Competitive product and pricing pressures among financial institutions within our markets may change.

We operate in a highly competitive environment, which is characterized by competition from a number of other financial institutions nationally, and in each market in which we operate. We compete in terms of products, pricing and service with commercial banks, savings banks, credit unions, and investment banks for deposits and competitive products, and with the same financial institutions and others (including mortgage brokers, finance companies, mutual funds, insurance companies, and brokerage houses) for loans. We also compete with companies that solicit loans and deposits over the Internet. This significant competition in attracting and retaining deposits and making loans as well as in providing other financial services may adversely affect our growth and future earnings.

Our success depends, in part, on the ability to develop and offer competitive products and services. There is increasing pressure to provide products and services at lower prices and at a faster pace. This can reduce net interest income and non-interest income from fee-based products and services. In addition, new technology-driven products and services are often introduced and adopted, which could require us to make substantial capital expenditures to modify or adapt existing products and services, develop new products and services, and develop new means of delivering our products and services. We may not be successful in introducing new products and services, or in achieving market acceptance. We could lose business, be forced to price products and services on less advantageous terms to retain or attract clients, or be subject to cost increases. New delivery systems and customer preferences may adversely affect our existing systems, including our branch network and we may have to incur the costs and risks of changing legacy delivery systems and locations. As a result, our business, financial condition or results of operations may be adversely affected.

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LIQUIDITY RISK

Liquidity risks associated with loan and deposit demand and the wholesale funding markets could adversely affect our financial results and condition.

We require sufficient liquidity to meet customer loan requests, customer deposit maturities/withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances causing industry or general financial market stress. An inability to raise funds through deposits or borrowings, including repurchase agreements, federal funds purchased, FHLB advances and other means, secured and unsecured, at a reasonable cost could have a substantial negative effect on our liquidity and earnings. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could adversely affect our access to liquidity sources include increased funding costs associated with higher interest rates, difficult credit market conditions, the liquidity needs of our depositors, and the availability of market liquidity, generally.

Our primary source of liquidity is our core deposit base, which is raised through our retail branch system. Additional available wholesale sources of liquidity include advances from the FHLB, issuances through dealers in the capital markets and access to certificates of deposit issued through brokers. Additionally, a portfolio of high-quality unencumbered, or unpledged, investment securities is available for pledging to meet liquidity needs through federal funds and repurchase agreement borrowings. Alternative sources of liquidity may be available to us in the markets from the sale of debt or equity, depending upon market conditions at the time. Our ability to use brokered deposits is affected by regulatory views that limit the aggregate amount of brokered deposits considered appropriate, as well as the adverse effects these could have on our FDIC deposit insurance assessments.

In September 2014, U.S. regulatory agencies finalized rules intended to implement Basel III liquidity requirements. The regulations apply a modified liquidity coverage ratio to bank holding companies with more than $50 billion in total assets. These liquidity rules began phasing in on January 1, 2015, but do not apply to organizations our size. These rules may affect industry demand for deposit funding and may lead to increased competition and costs for certain deposits and other sources of liquidity.

Capital and liquidity requirements imposed by the Dodd-Frank Act will require banks and BHCs to maintain more and higher quality capital than has historically been the case.

The Corporation and the Bank are each subject to capital adequacy rules and liquidity guidelines and other regulatory requirements specifying minimum amounts and types of capital and liquidity that must be maintained. From time to time, the regulators implement changes to these regulatory capital adequacy and liquidity guidelines. If we fail to meet these minimum guidelines and requirements, we or our subsidiaries may be restricted in the types and volumes of activities we may conduct and may be prohibited from taking certain capital actions, such as paying dividends and volumes, repurchasing or redeeming capital securities and paying discretionary bonuses, all of which may otherwise be in the best interests of our business and our shareholders.

Under the Dodd-Frank Act and bank rules, we are required to perform annual stress testing, which may result in increased capital needs depending on the risk indicated from the stress testing.

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We may elect to raise additional capital to support our business growth or to finance acquisitions, or as a result of losses. Our ability to raise additional capital will depend on our financial performance, conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control. Accordingly, there can be no assurance that we can raise additional capital if needed or on terms and costs acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations, growth and prospects.

Maintaining higher levels of capital and liquidity may reduce our profitability and otherwise adversely affect our business, and financial condition.

We are a holding company and depend on dividends by our subsidiaries for most of our funds.

The Corporation is an entity separate and distinct from the Bank. The Bank conducts most of our operations and the Corporation depends upon dividends from the Bank to service the Corporation's debt and to pay dividends to Corporation's shareholders. The availability of dividends from the Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition including liquidity and capital adequacy of the Bank and other factors, that the OCC could limit the payment of dividends or other payments by the Bank. In addition, the payment of dividends by our other subsidiaries is also subject to the laws of the subsidiary’s state of incorporation, and regulatory capital and liquidity requirements applicable to such subsidiaries. At December 31, 2015, the Bank could pay dividends of $438.2 million without prior OCC approval. In the event that the Bank was unable to pay dividends to us, we in turn would likely have to reduce or stop paying dividends on our Preferred and Common Stock. Our failure to pay dividends on our Preferred stock and Common Stock could have a material adverse effect on the market price of our Common Stock. Additional information regarding dividend restrictions is provided in Item 1. “Business” in the section captioned “Regulation and Supervision — Dividends and Transactions with Affiliates.”

A reduction in our credit rating could adversely affect our ability to raise funds including capital, and/or the holders of our securities.

The credit rating agencies rating our indebtedness regularly evaluate the Corporation and the Bank, and credit ratings are based on a number of factors, including our financial strength and ability to generate earnings, as well as factors not entirely within our control, including conditions affecting the financial services industry, the economy, and changes in rating methodologies. There can be no assurance that we will maintain our current credit ratings. A downgrade of the credit ratings of the Corporation or the Bank could adversely affect our access to liquidity and capital, and could significantly increase our cost of funds, trigger additional collateral or funding requirements, and decrease the number of investors and counterparties willing to lend to us or purchase our securities. This could affect our growth, profitability and financial condition, including liquidity.

OPERATIONAL RISK

Operational difficulties, failure of our systems or information security incidents, including as a result of cyber attacks or data privacy breaches, could adversely affect our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.

The Corporation is exposed to many types of operational risk, failure of the Corporation’s controls and procedures and unauthorized transactions by employees or operational errors, including clerical or

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recordkeeping errors or those resulting from computer or telecommunications systems malfunctions, and fraud or theft. Given the high volume of transactions that occur in a financial services business, certain errors may be repeated or compounded before they are identified and resolved. In particular, the Corporation’s operations rely on the secure processing, storage and transmission of confidential and other information on its technology systems and networks. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Corporation’s customer relationships, general ledger, deposit, loan and other systems, and breaches of our customers’ data privacy.

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 and monitors these third-party vendors through our vendor management processes, 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 applications and customer information, such disruptions may give rise to interruptions in service to customers, loss of data privacy and loss or liability to the Corporation.

Any failure or interruption in the Corporation’s operations or information systems, or any security or data breach, could cause reputational damage, jeopardize the confidentiality of customer information, result in a loss of customer business, subject the Corporation to regulatory intervention or expose it to civil litigation and financial loss or liability, any of which could have a material adverse effect on the Corporation’s results of operations, financial condition, and liquidity.

Further, the Corporation may be affected by data breaches at retailers and other third parties who participate in data interchanges with us and our customers that involve the theft of customer credit and debit card data, which may include the theft of the Corporation’s debit card PIN numbers and commercial card information used to make purchases at such retailers and other third parties. Such data breaches could result in us incurring significant expenses to reissue debit cards and cover losses, which could result in a material adverse effect on the Corporation’s results of operations or financial condition.

To date, we have not experienced any material losses relating to cyber attacks or other information security breaches, but there can be no assurance that we will not suffer such attacks or attempted breaches, or incur such losses in the future. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature and growth of these threats, our plans to continue to implement and increase Internet and mobile banking to meet customer demand, and the current economic and political environment. As cyber and other data security threats continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate and remediate any security vulnerabilities.

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Our business may be adversely impacted by severe weather, natural disasters, acts of war or terrorism and other adverse external events.

Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have significant effects on our ability to conduct business. In addition, such events could materially and adversely affect business and economic conditions in our markets and nationally, the stability of our deposit base, the ability of our borrowers to repay outstanding loans, the value of collateral securing loans, which could reduce our revenue and/or cause us to incur additional expenses. Although Management has established business continuity and disaster recovery policies and procedures, the occurrence of any such event in the future could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

We are exposed to risk of environmental liability we own or operate.

During the ordinary course of business, we may foreclose on and real estate collateral. As a result, we could become subject to environmental liabilities with respect to these and other properties that we may own and/or operate. We may be held liable by governmental entity or third parties for property damage, personal injury, investigation and clean-up costs incurred in connection with environmental contamination or may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or operator of a contaminated site, we may become subject to claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we become subject to significant environmental liabilities, our business, financial condition or results of operations could be adversely affected.

We are subject to a variety of risks in connection with any sale of loans we may conduct and any servicing of such loans.

We sell loans and participation or syndicated interest in loans. Among other loans sales, we have sold residential mortgage loans to GSEs, while retaining servicing as part of its mortgage banking activities. The Corporation provides customary representations and warranties to the GSEs in conjunction with these sales. If any of these representations and warranties is incorrect, we may be required to indemnify the purchaser for any related losses, or we may be required to repurchase part or all of the effected loans. We may also be required to repurchase loans as a result of borrower fraud or in the event of early payment default by the borrower on a loan we have sold. If we are required to make any indemnity payments or repurchases and do not have a remedy available to us against a solvent counterparty, we may not be able to recover our losses resulting from these indemnity payments and repurchases. Mortgage service obligations are increasing and are subject to CFPB and other regulatory scrutiny and new requirements, which may increase our costs of loan servicing and expose us to additional liabilities. Consequently, our results of operations and financial conditions may be adversely affected.

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

In deciding whether to extend credit, accept customer relationships, or enter into other transactions with customers and counterparties, we rely on information provided to us by customers and counterparties, including financial statements, credit reports and other financial information. We may also rely on representations of customers, counterparties, or other third parties, such as independent auditors, as to the accuracy and completeness of that information. The majority of our customers are consumers and small- and medium-sized businesses that may not have the same sophisticated internal controls and financial reporting systems as larger businesses. We also consider such customer and counterparty information as part of our anti-money laundering processes. Our financial condition and results of operations could be adversely impacted to the extent we receive and rely on financial statements, credit reports, or other financial or customer or counterparty information that turn out to be inaccurate or misleading.

LEGAL AND COMPLIANCE RISKS

We are subject to extensive government regulation and supervision.

We are subject to extensive federal and state regulation and supervision, which has increased in recent years due to the implementation of the Dodd-Frank Act and other financial and regulatory initiatives. Banking regulations are primarily intended to protect depositors, the FDIC's DIF and the banking system as a whole, not our debtholders or shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy, ability to repurchase or redeem our capital securities, and growth, the types, products and services we offer, and the types of customers we acquire or retain, among other things. Further, we must obtain approval from our regulators before engaging in certain expansion and other activities, and our regulators have the ability to compel us to, or restrict us from, taking certain actions entirely. There can be no assurance that any regulatory approvals we may require will be obtained, either in a timely manner or at all. Any regulatory approvals may include conditions or commitments that limit the activities proposed.

Congress, state legislatures, and federal and state regulatory agencies continually review and change banking laws, regulations and policies for possible changes. Changes to statutes, regulations, or regulatory policies or their interpretation or implementation could affect us in substantial and unpredictable ways. These changes could subject us to additional compliance costs, limit the types of financial services and products we may offer and the manner and costs of these offerings, and/or increase the ability of non-banks to offer competing financial services and products, among other things. In general, the CFPB and other bank regulators have increased their focus on consumer compliance, and we expect this focus to continue. Additional compliance requirements can be costly to implement, may require additional compliance personnel and may limit our ability to offer competitive products to our customers,especially in light of increasing competition for loans by generally unregulated or lightly regulated lenders.

Recent areas of legislative focus include housing finance reform and cyber security. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us and our subsidiaries. Any changes in any federal and state law, as well as regulations and governmental policies, income tax laws and accounting principles, could affect us in substantial and unpredictable ways, which may adversely affect our business, financial condition or results of operations.

Failure to comply with laws, regulations or policies could result in civil or criminal sanctions by state and federal agencies, civil money penalties and restitution and/or reputation damage, which could have material adverse effects on our business, our ability to expand by acquisition or otherwise, financial condition

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and results of operations. Failure to comply with anti-money laundering laws could be a basis for the revocation of the Bank charter. See “Regulation and Supervision” in Item 1. ”Business” for more information about the regulations to which we are subject. Additionally, our regulatory position is discussed in greater detail in Note 22 (Regulatory Matters) in the consolidated financial statements.

The regulatory environment for the financial services industry is being significantly affected by financial regulatory reform initiatives, including the Dodd-Frank Act.

The Dodd-Frank Act, which was enacted in July 2010, was a comprehensive overhaul of financial services industry regulation. There are a number of reform provisions that are likely to significantly impact the ways in which banks and bank holding companies, including us and the Bank, do business.

Many provisions of the Dodd-Frank Act have yet to be implemented and will require rulemaking and interpretation by federal regulators. We are closely monitoring all relevant sections of the Dodd-Frank Act to ensure continued compliance with laws and regulations. While the ultimate effect of the Dodd-Frank Act on us cannot currently be determined, the law and its implementing rules and regulations are likely to continue to increase our compliance costs and the costs of noncompliance, including possible restrictions on our operations, all of which may have a material adverse affect on our operating results and financial condition. See “Regulation and Supervision” in Item 1. “Business.”

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

From time to time, we are subject to claims or legal action from customers, employees and/or others. Financial institutions are facing significant class actions, which have included claims challenging the assessment of fees, such as overdraft fees. Past, present and future litigation have included or could include claims for substantial compensatory and/or punitive damages, disgorgement of previously earned, current or future profits, or claims for indeterminate amounts of damages. We are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding our business. The CFPB is also considering limiting the use of dispute arbitration provisions, which could result in more litigation at higher cost than arbitration. These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Like other large financial institutions, we are also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial legal liability or significant regulatory actions against us could materially adversely affect our business, financial condition or results of operations and/or cause significant reputational harm to our business. Additional information regarding litigation is included in Note 19 (Commitments and Guarantees) in the consolidated financial statements and in Item 3. “Legal Proceedings.”

Our FDIC deposit insurance assessments may increase.

Our FDIC deposit insurance assessments may increase due to growth in our deposit assessment base (average consolidated assets less average tangible capital), as well as changes in our risk ratings, and also due to further changes in the FDIC assessments. The FDIC’s October 2015 NPR proposes to surcharge insured depository institutions, such as the Bank, with total consolidated assets of $10 billion or more and grant credits to banks with fewer assets for the portion of their regular assessments to fund an increase in the DIF’s reserve

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ratio from 1.15 % to 1.35 % by the end of September 2020. This proposal, if adopted, likely would increase our FDIC insurance assessments.

REPUTATION RISKS

Negative publicity could damage our reputation and could significantly harm our business.

Our ability to attract and retain customers, clients, investors, and highly-skilled management and employees is affected by our reputation. Public perception of the financial services industry in general was damaged as a result of the credit crisis that started in 2008. We face increased public and regulatory scrutiny resulting from the credit crisis and economic downturn. Significant harm to our reputation can also arise from other sources, including employee misconduct, actual or perceived unethical behavior, conflicts of interest, litigation, GSE or regulatory actions, failing to deliver minimum or required standards of service and quality, failing to address customer and agency complaints, compliance failures, unauthorized release of confidential information due to cyber attacks or otherwise, and the activities of our clients, customers and counterparties, including vendors. Actions by the financial service industry generally or by institutions or individuals in the industry can adversely affect our reputation, indirectly by association. All of these could adversely affect our growth, results of operation and financial condition.

INTEREST RATE RISKS

Changes in interest rates and financial market values could change our mix of assets and liabilities, adversely affect our net interest income and earnings, and negatively impact the value of our loans, securities, and other assets.

Our primary source of income is net interest income, which is the difference between the interest income generated by our interest-earning assets (consisting primarily of loans and, to a lesser extent, securities) and the interest expense generated by our interest-bearing liabilities (consisting primarily of deposits and wholesale borrowings). Prevailing economic conditions, fiscal and monetary policies and the policies of various regulatory agencies all affect market rates of interest and the availability and cost of credit, which, in turn, significantly affect financial institutions’ net interest income. During the last seven years, the Federal Reserve has maintained low interest rates, which have reduced our funding costs, but which have adversely affected the banking industry’s net interest income, and the returns realizable on our loans and investments. If the interest we pay on deposits and other borrowings increases at a faster rate than increases in the interest we receive on loans and investments, net interest income, and, therefore, our earnings, could be adversely affected. Earnings could also be adversely affected if the interest we receive on loans and other investments falls more quickly than the interest we pay on deposits and other borrowings. Volatility in interest rates can also result in disintermediation, which is the flow of funds away from financial institutions into direct investments, such as federal government and corporate securities and other investment vehicles, which, may pay higher rates of interests than deposits.

Changes in interest rates could influence the amount of interest we receive on loans and securities, the amount of interest we pay on deposits and borrowings, our ability to originate loans and obtain deposits, and the fair value of our financial assets and liabilities and our liquidity. Increases in interest rates may decrease loan demand, reduce loan growth, including residential mortgage origination, and decrease the values of our securities and collateral for loans we have made and could result in higher credit losses as borrowers may have more difficulty making higher interest payments.

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Certain securities in our investment portfolio, most notably MBS, are very sensitive to rising and falling rates. Generally when rates rise, prepayments of principal and interest will decrease and the duration of MBS will increase. Conversely, when rates fall, prepayments of principal and interest will increase and the duration of MBS will decrease. In either case, interest rates will have a significant impact on the value of MBS investments.

All of these could adversely affect our growth, results of operation and financial condition including liquidity.

FINANCIAL RISKS

Changes in accounting policies or accounting standards, and changes in how accounting standards are interpreted or applied, could materially impact our financial statements.

From time to time, accounting standards setters change the financial accounting and reporting standards that govern the preparation of our financial statements. Additionally, those bodies that establish and interpret the accounting standards (such as the FASB, SEC and banking regulators) may change or even reverse prior interpretations or positions on how these standards should be applied. These changes may be beyond our control, can be difficult to predict and could materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in material changes to previously reported financial results, or a material cumulative charge to retained earnings.

Our accounting policies are fundamental to determining and understanding our financial results and condition. Some of these policies require Management to use estimates and judgment about matters that are uncertain. In some cases, Management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in us reporting materially different results than would have been reported under a different alternative. Any changes in accounting policies could materially affect our financial statements. Among other proposals, the FASB is working on a new “Current Expected Credit Loss (“CECL”) model to determine losses in the loan and held to maturity securities portfolios. Compared to the current standards which are based on historic experience, CECL is forward looking. Depending on whether CECL is adopted and its final terms, this proposed accounting standard could materially affect our allowance for loan loss methodology in future periods and our financial condition and results of operations, including our costs to implement such a standard.

We have established detailed policies and control procedures that are intended to ensure these critical accounting estimates and judgments are well controlled and applied consistently. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. See “Critical Accounting Policies” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1 (Summary of Significant Accounting Policies) in the consolidated financial statements.

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Our financial statements depend on the effectiveness of our internal control over financial reporting.

The Sarbanes-Oxley Act requires our Management to evaluate the Corporation’s disclosure controls and procedures and its internal control over financial reporting and requires our auditors to issue a report on our internal control over financial reporting. Our banking regulations also evaluate our internal controls. We are required to disclose, in our annual reports on Form 10-K, the existence of any “material weaknesses” in our internal control over financial reporting. We cannot assure that we will not identify one or more material or other weaknesses as of the end of any given quarter or year, nor can we predict the effect on our stock price of disclosure of a material weakness.

The value of our deferred tax assets could adversely affect our operating results and regulatory capital ratios.

As of December 31, 2015, the Corporation had approximately $252.4 million in net deferred tax assets. The value of our deferred tax assets also could be adversely affected by a change in statutory tax rates. As of January 1, 2015, the Basel III capital rules began phasing in and will be fully phased in by 2019. Our deferred tax assets are subject to an evaluation of whether it is more likely than not that they will be realized for financial statement purposes. In making this determination, we consider all positive and negative evidence available including the impact of recent operating results as well as potential carryback of tax to prior years’ taxable income, reversals of existing taxable temporary differences, tax planning strategies and projected earnings within the statutory tax loss carryover period. We have determined that the deferred tax assets are more likely than not to be realized at December 31, 2015. If we were to conclude that a significant portion of our deferred tax assets were not more likely than not to be realized, the required valuation allowance could adversely affect our financial position, results of operations and regulatory capital ratios.

The portion of our deferred tax assets includable in our regulatory capital will decrease under the U.S. Basel III capital rules. See “Regulation and Supervision - Capital.”

Our goodwill could become impaired in the future. If goodwill were to become impaired, it could limit the ability of the Bank to pay dividends to our holding company, adversely impacting the holding company's liquidity and ability to pay dividends or repay debt.

The most significant assumptions affecting our goodwill impairment evaluation are variables including the market price of our Common Stock, projections of earnings, and the control premium above our current stock price that an acquirer would pay to obtain control of us. We are required to test goodwill for impairment at least annually or when impairment indicators are present. If an impairment determination is made in a future reporting period, our earnings and book value of goodwill will be reduced by the amount of the impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our Common Stock, or our regulatory capital levels, but such an impairment loss could significantly reduce the Bank’s earnings and thereby restrict the Bank's ability to make dividend payments to us without prior regulatory approval. At December 31, 2015, the book value of our goodwill was $741.7 million, all of which was recorded at the Bank. Any such write down of goodwill or other acquisition related intangibles will reduce the Corporation’s earnings, as well. Federal Reserve policy states the bank holding company dividends should be paid from current earnings.

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TECHNOLOGY RISKS

We may not be able to utilize technology to efficiently and effectively develop, market, and deliver new products and services to our customers.

The continuous, widespread adoption of new technologies, including internet services, smart phones and other mobile devices, requires us to evaluate and change our product and service offerings to remain competitive. Our success depends, in part, on our ability to adapt our products and services, as well as our distribution of them, to evolving industry standards and consumer preferences. New technologies have altered consumer behavior by allowing consumers to complete transactions such as paying bills and transferring funds, and obtaining loans, directly outside historical banking transactions. New products allow consumers to maintain funds in brokerage accounts or mutual funds that would have historically been held as bank deposits. The process of eliminating or reducing the role of banks as intermediaries, known as disintermediation, could result in the loss of fee income, as well as the loss of customer deposits, loans and related income generated from those deposits.

The increasing pressure from our competitors, both bank and non-bank, to keep pace and adopt new technologies and products and services may require us to incur substantial expense. We may be unsuccessful in developing or introducing new products or services, modifying our existing products and services, adapting to changing customer preferences and spending, saving and borrowing habits, achieving market acceptance or regulatory approval, sufficiently developing or maintaining a loyal customer base or offering products and services at prices and service levels competitive with those offered by our non-bank and bank competitors. These risks may affect our ability to grow and could reduce both our revenue streams from certain products and services and our net interest margin. Our results of operations and financial condition could be adversely affected.

Our business is highly reliant on technology and our ability to manage the operational risks associated with technology.

Our business involves storing and processing sensitive customer data. A cyber security breach may result in the theft of such data or disruption of our transaction processing systems. We depend on internal systems and outsourced technology to support these data storage and processing operations. If we or our customers are unable to use or access these information systems consistently or at critical points in time, this could unfavorably impact the timeliness and efficiency of our business operations, as well as our reputation and customary relationships. A material breach of customer data security may negatively impact our business reputation and cause a loss of customers, result in increased expense to restore our systems and remediate the breach, and/or require that we provide credit monitoring services for affected customers. Regulatory and enforcement actions and/or litigation also could result. Cyber security is increasingly important in light of growing cyber risks and the increased use of internet and mobile and electronic banking services. Cyber

risk management programs are expensive to maintain and will not protect the Corporation from a wide range of changing risks and threats associated with maintaining the security of customer data and the Corporation’s proprietary data from external and internal intrusions, disaster recovery and failures in the controls used by our vendors. In addition, Congress and the legislatures of states in which we operate regularly consider legislation that would impose more stringent data privacy requirements.

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PEOPLE RISKS

We may be unable to attract or retain key officers and employees.

The Corporation’s future operating results depend substantially upon the continued service of its executive officers and key personnel. The Corporation’s future operating results also depend in significant part upon its ability to attract and retain qualified management, financial, technical, marketing, sales, compliance, and support personnel. Competition for qualified personnel is intense, and the Corporation cannot ensure success in attracting or retaining qualified personnel. There may be only a limited number of persons with the requisite skills to serve in these positions, and it may be increasingly difficult and costly for the Corporation to hire personnel over time. Regulatory rules regarding financial institutions limit incentive compensation where it may be deemed to promote undue risk taking, and the regulatory focus on compliance may affect our ability to attract and retain highly qualified people who expect incentive compensation, and have increased the compensation paid to and costs of compliance personnel, respectively.

Loss of key employees may disrupt relationships with certain customers.

Our business is primarily relationship-driven, and many of our key employees have extensive customer relationships. Loss of a key employee with such customer relationships may lead to the loss of business if the customers were to follow that employee or teams of key people to a competitor. Loss of such key personnel, should they enter into an employment relationship with one of our competitors, could result in the loss of customers and potential adverse effects on our results of operations and financial condition.

STRATEGIC RISKS

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

We continue to pursue a growth strategy both within our existing markets and in new markets. Our ability to grow successfully will depend on a variety of factors, including the continued availability of desirable business opportunities, the quality of people and services, the competitive responses from other financial institutions in our market areas and our ability to integrate acquisitions and manage our growth. Our April 2013 acquisition of Citizens reflects this strategy. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies seeking significant growth. We cannot guarantee that we will be able to expand our market presence in our existing markets or successfully enter new markets or that any such expansion will not adversely affect our results of operations, even if only on a short-term basis. Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations and could adversely affect our ability to successfully implement our business strategy. Also, if we grow more slowly than anticipated or fail to successfully integrate newly acquired operations, our operating results could be materially adversely affected. Our Merger Agreement with Huntington requires us to operate in the ordinary course of business prior to completion of the Merger and limits expansion without Huntington’s prior consent. See “We will be subject to contractual restrictions and business uncertainties while the Merger with Huntington is pending”.

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

The market areas in Michigan and Wisconsin served by the assets and branches we acquired as part of our acquisition of Citizens in April 2013 are areas where we previously did not conduct significant banking activities. Our ability to compete effectively in these new markets will depend on our ability to understand the local market and competitive dynamics and identify and retain and attract key employees knowledgeable in these markets. We may also encounter obstacles when incorporating the acquired operations with our operations and management.

Our loans, deposits, fee businesses and employees have increased as a result of our organic growth and acquisitions. Our failure to successfully manage and support this growth with sufficient human resources, training and operational, financial and technology resources in challenging markets and economic conditions could have a material adverse effect on our operating results and financial condition. We may not be able to sustain our historical growth rates.

We face risks with respect to expansion activities.

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

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

• the estimates and judgments used to evaluate credit, operations, management and market risks with respect to the target institution may not be accurate and we may face risks of unknown contingent liabilities;

• the exposures to potential asset quality issues with respect to acquired businesses;

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

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

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

• entry into new markets or products where we have limited experience;

• risks that growth will strain our infrastructure, staff, internal controls, management and operations, which may require additional personnel, time and expenditures;

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

• the creation and possible impairment of goodwill and other intangible assets associated with an acquisition and potential short-term decreases in profitability;

• the customer disruption, time, costs, and technology and other risks of integrating our operations systems and product with an acquired business; and

• the risk of loss of key employees, customers, assets and deposits.

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We may incur substantial costs to expand, and there is no assurance such expansion including costs for transactions or new products will be completed or launched. There can be no assurance that integration efforts for any future mergers or acquisitions will be successful. Also, we may issue equity and/or debt securities in connection with future acquisitions, which could increase any costs, and dilute our current shareholders. There is no assurance that, following any future mergers or acquisitions, our integration efforts will be successful or that, after giving effect to the acquisition, we will achieve profits comparable to or better than our historical experience, or that we will realize the benefits, including cost savings, which we originally estimated, in connection with any such transaction.

We have made and may make additional FDIC assisted acquisitions of failed banks, which could present additional risks to our business.

We made two FDIC assisted acquisitions in 2010, both with loss sharing agreements with the FDIC. As of December 31, 2015, total assets under loss sharing agreements, or “covered assets,” with the FDIC were $88.4 million of residential mortgage loans. Loss sharing agreements on all other types of loans expired in February and May 2015 . Loss sharing on residential mortgage loans are scheduled to expire in February and May 2020. We may consider additional opportunities to acquire the assets and liabilities of failed banks in FDIC assisted transactions, which present the risks of acquisitions, generally, as well as some risk specific to these transactions. Although these FDIC assisted transactions typically provide for FDIC assistance to an acquiror to mitigate certain risks, which may or may not include loss sharing agreements, where the FDIC absorbs certain losses on covered assets and provides some indemnity, we would be subject to many of the same risks we would face in acquiring another bank in a negotiated transaction, without FDIC assistance, including risks associated with pricing such transactions, the risks of loss of deposits and maintaining customer relationships and failure to realize the anticipated acquisition benefits in the amounts and within the time frames we expect. In addition, because these acquisitions provide for limited diligence and negotiation of termsand involve risks due to the target’s failure, FDIC assisted transactions may require additional resources and time, costs related to integration of personnel and operating systems, the establishment of processes and time required to service acquired assets including acquired problem loans and may require us to raise additional capital, which may be dilutive to our existing shareholders. Loss sharing agreements with the FDIC also involves additional reporting to and examination by the FDIC of our performance under the loss sharing agreements. Loss sharing assets create volatility in earnings based on performance of assets covered by loss sharing agreements. In general, the receivable from the FDIC is reduced with an adverse effect on earnings as performance of covered assets improves versus expectations, which adversely affect our net income for the related periods. We and the FDIC also may disagree as to the value or treatment of certain assets and liabilities under failed bank acquisition agreements with the FDIC.

If we are unable to manage these risks, FDIC assisted acquisitions could have a material adverse effect on our business, financial condition and results of operations.

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

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

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Certain provisions in our charter documents and Ohio law may prevent a change in management or a takeover attempt that you may consider to be in your best interest.

We are subject to Chapter 1704 of the Ohio Revised Code, which prohibits certain business combinations and transactions between an “issuing public corporation” and an “Ohio law interested shareholder” for at least three years after the Ohio law interested shareholder attains 10% ownership, unless the Board of Directors of the issuing public corporation approves the transaction before the Ohio law interest shareholder attains 10% ownership.  We are also subject to Section 1701.831 of the Ohio Revised Code, which provides that certain notice and informational filings and special shareholder meeting and voting procedures must be followed prior to consummation of a proposed “control share acquisition.”  Assuming compliance with the notice and information filings prescribed by the statute, a proposed control share acquisition may be made only if the acquisition is approved by a majority of the voting power of the issuer represented at the meeting and at least a majority of the voting power remaining after excluding the combined voting power of the “interested shares.”

Certain provisions contained in our amended and restated articles of incorporation and amended and restated code of regulations and Ohio law could delay or prevent the removal of directors and other management and could make a merger, tender offer or proxy contest involving us that you may consider to be in your best interest more difficult.  For example, these provisions:

• allow our Board of Directors to issue preferred shares without shareholder approval;

• limit who can call a special meeting of shareholders; and

• establish advance notice requirements for nomination for election to the Board of Directors.

These provisions, as well certain aspects of the BHCA and other governing statutes and regulations, may discourage potential takeover attempts, discourage bids for our Common Stock at a premium over market price or adversely affect the market price of, and the voting and other rights of the holders of our Common Stock. 

These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors other than the candidates nominated by our Board of Directors.

We will be subject to contractual restrictions and business uncertainties while the Merger with Huntington is pending.

Although there is no assurance as to the exact timing, the Merger currently is expected to close in the third quarter of 2016. The Merger Agreement requires us to operate in the ordinary course of business pending the Merger’s completion, including restricting us from certain activities, including making acquisitions or opening of new branches, divestitures, issuance of securities and other customary restrictions without Huntington’s consent. These restrictions may limit or prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Merger, and which we might pursue absent the Merger Agreement.

Uncertainty about the effects of the Merger and the Bank Merger, including branch consolidation and any divestitures that may be required, on our employees and customers may have an adverse effect on us. Certain employees may experience uncertainty about their future roles. These uncertainties may make it more difficult for us to attract, retain and motivate key personnel until the Merger is completed, and could cause our customers and others that deal with us to consider changing existing business relationships with us. It is not unusual for competitors to use mergers as an opportunity to seek the merging parties’ customers and to hire

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certain of their staffs. If key employees depart the Corporation or the Bank in light of uncertainty over the Merger or our integration efforts with Huntington, our business could be adversely affected.

Termination of the Merger Agreement could negatively affect us.

If, for any reason, the Merger Agreement is terminated, our business may be adversely affected as a result of not pursuing other beneficial opportunities prior to such termination and our management focus on completing the Merger. If the Merger Agreement is terminated and our board of directors seeks another merger or business combination, we may not be able to find a party willing to offer equivalent or more attractive consideration than the consideration Huntington has agreed to provide in the Merger, especially if the termination fee of $100.6 million becomes payable as a result. See “Our business strategy includes planned growth. Our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.”

As of December 31, 2015, our goodwill was $741.7 million. In the event the Merger Agreement is terminated, the market price of Corporation common stock might decline to the extent that the current market price reflects assumptions that the Merger will be completed. In the event the Merger is terminated and the market price of Corporation common stock declines, we will evaluate whether a goodwill impairment would be recognized. See “Our goodwill could become impaired in the future. If goodwill were to become impaired, it could limit the ability of the Bank to pay dividends to our holding company, adversely impacting the holding company’s liquidity and ability to pay dividends or repay debt.”

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

FirstMerit Corporation

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

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

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FirstMerit Bank

The Bank operates 366 banking offices, which include 142 branches in Ohio, 39 branches in Chicago, Illinois, 135 Michigan branches, 46 Wisconsin branches and 4 branches in Western Pennsylvania. The principal executive offices of the Bank are located in a 28-story office building at 106 South Main Street, Akron, Ohio, which is owned by the Bank. FirstMerit Bank Akron is the principal tenant of the building, occupying or utilizing approximately 195,000 square feet of the building. The remaining portion is leased to tenants unrelated to the Bank. The properties occupied by 247 of the Bank’s other branches are owned by the Bank, while the properties occupiedby its remaining 119 branches are leased with various expiration dates. FirstMerit Mortgage Corporation, FirstMerit Title Agency, Ltd., and certain of the Bank’s loan operation and documentation preparation activities are conducted in owned space in Canton, Ohio. There is no mortgage debt owing on any of the above property owned by the Bank. The Bank also owns automated teller machines, on-line teller terminals and other computers and related equipment for use in its business.

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

ITEM 3. LEGAL PROCEEDINGS.

In the normal course of business, the Corporation is subject to pending and threatened legal actions, including claims 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 19 (Commitments and Guarantees) in the notes to the consolidated financial statements.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following persons were the executive officers of the Corporation as of February 22, 2016.Unless otherwise stated, each listed position was held on January 1, 2011.

Name	Age	Date Appointed To FirstMerit	Position and Business Experience
Paul G. Greig	60	05/18/2006	President and Chief Executive Officer of FirstMerit and of FirstMerit Bank since May 18, 2006; Chairman of FirstMerit Bank since January 1, 2007.
Sandra E. Pierce	57	02/01/2013	Vice Chairman of FirstMerit and Chairman of FirstMerit, Michigan; previously President and Chief Executive Officer of Charter One Bank Michigan from 2004 through June 30, 2012.
Terrence E. Bichsel	67	09/16/1999	Senior Executive Vice President and Chief Financial Officer of FirstMerit and FirstMerit Bank.
N. James Brocklehurst	50	07/07/2010	Executive Vice President, Retail, since July 7, 2010; previously Senior Vice President, Retail Banking of FirstMerit.
Mark DuHamel	58	02/16/2005	Executive Vice President, Deputy Chief Financial Officer, since May 26, 2015 and Corporate Development Officer; previously Treasurer since February16, 2005.
David G. Goodall	50	05/16/2013	Vice Chairman and Chief Commercial Banking Officer of FirstMerit Corporation since June 1, 2015; previously Senior Executive Vice President, Commercial Banking since November 11, 2009.
Carlton E. Langer	61	02/21/2013	Executive Vice President, Chief Legal Officer and Corporate Secretary of FirstMerit since February 21, 2013; previously, Senior Vice President, Assistant Counsel and Assistant Secretary FirstMerit since February 16, 2010.
Christopher J. Maurer	66	05/22/1999	Executive Vice President, Chief Human Resources Officer.
Mark D. Quinlan	55	01/02/2013	Executive Vice President and Chief Information Officer of FirstMerit since January 2, 2013; previously Executive Vice President, Chief Information and Operations Officer of Associated Banc-Corp from November 2005 to April 2012.
William P. Richgels	65	05/01/2007	Senior Executive Vice President, Chief Credit Officer since May 1, 2007.
Michael G. Robinson	52	08/01/2012	Executive Vice President, Wealth Management since August 1, 2012; previously Managing Director in Asset Management of JPMorgan Private Bank, from 1985 through July 2012.
Brian C. Williams	57	11/01/2014	Executive Vice President, Chief Risk Officer since November 1, 2014; previously Executive Vice President, Director Audit Services of FirstMerit since June 8, 2008.
Nancy H. Worman	67	12/20/2014	Executive Vice President and Chief Accounting Officer since December 20, 2014; previously Senior Vice President and Corporate Controller of FirstMerit since November 1, 2003.

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PART II

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

The Corporation’s Common Stock is quoted on the NASDAQ under the trading symbol “FMER”. The following table contains market price and cash dividend information for the Corporation’s Common Stock by quarter for the two most recent fiscal years:

Stock Performance and Dividends (1)
					Per Share
	Market Price				Dividend		Book
Quarter Ended	High		Low		Rate		Value (2)
March 31, 2014	$	23.36	$	19.24	$	0.16	$	16.62
June 30, 2014	21.67		18.50		0.16		16.88
September 30, 2014	20.32		16.97		0.16		17.05
December 31, 2014	19.40		16.34		0.16		17.14
March 31, 2015	19.67		16.26		0.16		17.46
June 30, 2015	21.49		18.60		0.16		17.42
September 30, 2015	21.37		16.52		0.17		17.72
December 31, 2015	20.99		16.75		0.17		17.74

⁽¹⁾   This table sets forth the high and low bid quotations and dividend rates for the Corporation’s Common Stock for each quarterly period presented. These quotations are furnished by the NASDAQ and represent prices between dealers, do not included retail markup, markdowns, or commissions, and may not represent actual transaction prices.

⁽²⁾  Based upon number of shares outstanding at the end of each quarter.

On February 19, 2016, there were 11,563 shareholders of record of the Corporation’s Common Stock.

The following table provides information with respect to purchases the Corporation made of its shares of Common Stock during the fourth 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)
October 1 - October 31, 2015	4,789	$	18.71	—	396,272
November 1 - November 30, 2015	941	21.93		—	396,272
December 1 - December 31, 2015	9,397	22.07		—	396,272
Total	15,127	$	21.00	—	396,272

⁽¹⁾  Reflects 15,127 shares purchased as a result of either: (1) delivery by the option holder with respect to the exercise of stock options; (2) shares withheld to pay income taxes or other tax liabilities associated with vested restricted shares; or (3) shares returned upon the resignation of the shareholder. No shares were purchased under the program referred to in note (2) to this table during the fourth quarter of 2015.

⁽²⁾  On January 19, 2006, the Board of Directors authorized the repurchase of up to three million shares (the “New Repurchase Plan”). The New Repurchase Plan, which has no expiration date, superseded all other repurchase programs, including that authorized by the Board of Directors on July 15, 2004.

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ITEM 6. SELECTED FINANCIAL DATA.

Consolidated Selected Financial Data	Years Ended December 31,
(Dollars in thousands, except per share amounts)	2015			2014			2013			2012			2011
Results of Operations
Interest income	$	799,517		$	832,498		$	765,803		$	510,683		$	538,256
TE adjustment (1)	15,375			16,107			14,417			11,158			9,687
Interest income TE (1)	814,892			848,605			780,220			521,841			547,943
Interest expense	58,222			56,930			55,018			38,853			58,629
Net interest income TE (1)	756,670			791,675			725,202			482,988			489,314
Provision for loan losses	45,100			52,279			33,684			54,698			74,388
Net interest income after provision for loan losses TE (1)	711,570			739,396			691,518			428,290			414,926
Noninterest income	268,998			281,524			270,343			223,604			224,757
Noninterest expense (3)	638,690			664,919			684,253			450,937			461,744
Income before federal income taxes TE (1)	341,878			356,001			277,608			200,957			177,939
Federal income taxes (3)	97,019			101,943			79,507			55,693			48,694
TE adjustment (1)	15,375			16,107			14,417			11,158			9,687
Federal income taxes TE (1)	112,394			118,050			93,924			66,851			58,381
Net income	$	229,484		$	237,951		$	183,684		$	134,106		$	119,558
Per common share
Basic net income (2)	$	1.34		$	1.39		$	1.18		$	1.22		$	1.10
Diluted net income (2)	1.33			1.39			1.18			1.22			1.10
Cash dividends per common share	0.66			0.64			0.64			0.64			0.64
Performance Ratios
Return on total average assets	0.91		%	0.97		%	0.85		%	0.92		%	0.82		%
Return on average shareholders’ equity	7.90		%	8.53		%	7.63		%	8.34		%	7.72		%
Net interest margin TE (1)	3.37		%	3.68		%	3.92		%	3.69		%	3.84		%
Efficiency ratio (1)	61.31		%	60.87		%	67.70		%	63.90		%	65.37		%
Book value per common share	$	17.74		$	17.14		$	16.38		$	15.00		$	14.33
Average shareholders’ equity to total average assets	11.54		%	11.43		%	11.21		%	11.00		%	10.68		%
Common stock dividend payout ratio	49.62		%	46.04		%	54.24		%	52.46		%	58.18		%
Balance Sheet Data
Total assets	$	25,524,604		$	24,902,347		$	23,912,028		$	14,913,012		$	14,441,702
Wholesale borrowings	580,648			428,071			200,600			136,883			203,462
Long-term debt	505,173			505,192			324,428			—			—
Daily averages
Total assets	$	25,155,792		$	24,418,211		$	21,489,775		$	14,620,627		$	14,495,330
Earning assets	22,439,516			21,502,747			18,492,995			13,072,691			12,728,724
Deposits and other funds	21,882,635			21,328,350			18,725,129			12,679,543			12,637,139
Shareholders’ equity	2,903,160			2,790,139			2,408,865			1,608,108			1,548,353
(1) Represents a non-GAAP financial measure. Refer to the Non-GAAP Financial Measures section for a reconciliation to GAAP financial measures.
(2) 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 $5.9 million, $5.9 million and $5.3 million for the years ended December 31, 2015, 2014, and 2013, respectively.
(3) The Corporation early adopted ASU 2014-01 in the first quarter of 2014, whereby, amortization of the initial investment in qualified affordable housing projects is now recorded in the provision for income taxes together with the tax credits and benefits received. Previously, the amortization was recorded as other noninterest expense. All prior period amounts have been restated to reflect the adoption of the amendment, which resulted in an offsetting decrease to other noninterest expense and increase to the provision for income taxes of approximately $3.1 million, $2.7 million and $2.6 million for the years ended, December 31, 2013, 2012, and 2011, respectively.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Consolidated Financial Highlights			46
Highlights of 2015 Performance			47
Regulation and Supervision			49
Non-GAAP Financial Measures			50
Results of Operations			55
	Net Interest Income		55
	Noninterest Income		59
	Noninterest Expense		61
	Income Taxes		62
Line of Business Results			63
Financial Condition			66
	Investment Securities		66
	Loans		67
		Originated Loans	69
		Acquired Loans	70
		FDIC Acquired Loans and Related Loss Share Receivable	71
	Allowance for Loan Losses and Reserve for Unfunded Commitments		71
		Allowance for Originated Loan Losses	71
		Allowance for Acquired Loan Losses	77
		Allowance for FDIC Acquired Loan Losses	78
	Asset Quality		78
	Deposits, Securities Sold Under Agreements to Repurchase, Wholesale Borrowings and Long-term Debt		81
	Capital Resources		82
		Shareholders' Equity	82
		Capital Availability	83
		Capital Adequacy	83
Risk Management			85
	Market Risk and Interest Rate Risk Management		85
	Liquidity Risk Management		87
	Operational Risk Management		88
	Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements		90
Quarterly Financial Data			91
Critical Accounting Policies			92
Forward-Looking Statements - Safe Harbor Statement			97

The following commentary presents a discussion and analysis of the Corporation’s financial condition and results of operations by Management. The review highlights the principal factors affecting earnings and the significant changes in balance sheet items for the years ended December 31, 2015, 2014, and 2013. Financial information for prior years is presented when appropriate. The objective of this financial review is to enhance the reader’s understanding of the accompanying tables and charts, the consolidated financial statements, notes to financial statements, and financial statistics appearing elsewhere in this Form 10-K. Where applicable, this discussion also reflects Management’s insights of known events and trends that have or may reasonably be expected to have a material effect on the Corporation’s operations and financial condition.

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Figure 1. Consolidated Financial Highlights

Consolidated Financial Highlights	Three Months Ended															Years Ended
(Unaudited)	December 31,			September 30,			June 30,			March 31,			December 31,			December 31,
(Dollars in thousands, except per share amounts)	2015			2015			2015			2015			2014			2015			2014
EARNINGS
Net interest income TE (1)	$	188,979		$	189,119		$	189,018		$	189,554		$	196,509		$	756,670		$	791,675
TE adjustment (1)	3,748			3,796			3,900			3,931			3,998			15,375			16,107
Provision for originated loan losses	12,487			10,402			10,809			6,036			8,662			39,734			23,171
Provision/(recapture) for acquired loan losses	1,503			144			(952		)	2,214			3,407			2,909			21,460
Provision/(recapture) for FDIC acquired loan losses	(379		)	3,729			(891		)	(2		)	1,228			2,457			7,648
Noninterest income	65,143			71,426			66,582			65,847			71,960			268,998			281,524
Noninterest expense	155,622			160,742			161,674			160,652			165,041			638,690			664,919
Net income	56,749			59,012			56,584			57,139			61,079			229,484			237,951
Diluted EPS (3)	0.33			0.34			0.33			0.33			0.36			1.33			1.39
PERFORMANCE RATIOS
Return on average assets (ROA)	0.89		%	0.93		%	0.90		%	0.93		%	0.98		%	0.91		%	0.97		%
Return on average equity (ROE)	7.65		%	8.05		%	7.85		%	8.08		%	8.50		%	7.90		%	8.53		%
Return on average tangible common equity (1)	11.04		%	11.69		%	11.44		%	11.85		%	12.52		%	11.50		%	12.71		%
Net interest margin TE (1)	3.30		%	3.33		%	3.39		%	3.48		%	3.56		%	3.37		%	3.68		%
Efficiency ratio (1)	60.22		%	60.71		%	62.37		%	61.97		%	60.39		%	61.31		%	60.87		%
Number of full-time equivalent employees	3,926			3,961			4,017			4,103			4,273			3,926			4,273
MARKET DATA
Book value per common share	$	17.74		$	17.72		$	17.42		$	17.46		$	17.14		$	17.74		$	17.14
Tangible book value per common share (1)	12.29			12.26			11.95			11.96			11.62			12.29			11.62
Period-end common share market value	18.65			17.67			20.83			19.06			18.89			18.65			18.89
Market value as a % of book	105		%	100		%	120		%	109		%	110		%	105		%	110		%
Cash dividends per common share	$	0.17		$	0.17		$	0.16		$	0.16		$	0.16		$	0.66		$	0.64
Common Stock dividend payout ratio	51.52		%	50.00		%	48.48		%	48.48		%	44.44		%	49.62		%	46.04		%
Average basic common shares	165,762			165,762			165,736			165,411			165,395			165,669			165,296
Average diluted common shares	166,222			166,058			166,277			166,003			165,974			166,127			166,054
Period end common shares	165,758			165,759			165,773			165,453			165,390			165,758			165,390
Common shares repurchased	15			20			211			66			15			312			262
Common Stock market capitalization	$	3,091,387		$	2,928,962		$	3,453,052		$	3,153,534		$	3,124,217		$	3,091,387		$	3,124,217
ASSET QUALITY (excluding acquired and FDIC acquired loans, covered OREO)(2)
Gross charge-offs	$	15,514		$	13,398		$	11,298		$	8,567		$	9,205		$	48,778		$	44,923
Net charge-offs	11,407			8,029			6,672			4,187			3,849			30,295			23,959
Allowance for originated loan losses	105,135			104,055			101,682			97,545			95,696			105,135			95,696
Reserve for unfunded lending commitments	4,068			3,574			3,905			4,330			5,848			4,068			5,848
Nonperforming assets (NPAs)	94,498			107,058			117,311			68,606			55,038			94,498			55,038
Net charge-offs to average loans ratio	0.33		%	0.24		%	0.20		%	0.13		%	0.12		%	0.23		%	0.21		%
Allowance for originated loan losses to period-end loans	0.74		%	0.76		%	0.76		%	0.76		%	0.77		%	0.74		%	0.77		%
Allowance for credit losses to period-end loans	0.77		%	0.79		%	0.79		%	0.79		%	0.81		%	0.77		%	0.81		%
NPAs to loans and other real estate	0.67		%	0.78		%	0.87		%	0.53		%	0.44		%	0.67		%	0.44		%
Allowance for originated loan losses to nonperforming loans	238.37		%	221.22		%	184.40		%	211.66		%	276.44		%	238.37		%	276.44		%
Allowance for credit losses to nonperforming loans	247.60		%	228.82		%	191.48		%	221.06		%	293.34		%	247.60		%	293.34		%
CAPITAL & LIQUIDITY
Period-end tangible common equity to assets (1)	8.24		%	8.31		%	8.09		%	8.14		%	7.98		%	8.24		%	7.98		%
Average equity to assets	11.60		%	11.54		%	11.51		%	11.51		%	11.55		%	11.54		%	11.43		%
Average equity to total loans	18.50		%	18.48		%	18.59		%	18.60		%	18.67		%	18.54		%	18.79		%
Average total loans to deposits	79.54		%	78.91		%	79.06		%	77.86		%	78.47		%	78.85		%	76.03		%
AVERAGE BALANCES
Assets	$	25,370,946		$	25,217,856		$	25,129,859		$	24,905,094		$	24,664,987		$	25,155,792		$	24,418,211
Deposits	20,002,793			19,957,586			19,682,662			19,788,925			19,450,647			19,858,850			19,528,435
Originated loans	13,863,910			13,528,268			13,092,972			12,689,791			12,306,171			13,297,594			11,421,426
Acquired loans, including FDIC acquired loans, less loss share receivable	2,047,167			2,219,488			2,468,035			2,717,884			2,956,867			2,360,913			3,426,784
Earning assets	22,747,631			22,548,977			22,352,721			22,100,417			21,920,889			22,439,515			21,502,747
Shareholders’ equity	2,943,268			2,909,660			2,892,432			2,866,362			2,849,618			2,903,160			2,790,139
ENDING BALANCES
Assets	$	25,524,604		$	25,246,917		$	25,297,014		$	25,118,120		$	24,902,347		$	25,524,604		$	24,902,347
Deposits	20,108,003			19,821,916			19,673,850			19,925,595			19,504,665			20,108,003			19,504,665
Originated loans	14,118,505			13,648,325			13,355,912			12,856,037			12,493,812			14,118,505			12,493,812
Acquired loans, including FDIC acquired loans, less loss share receivable	1,948,493			2,140,029			2,337,378			2,614,847			2,810,302			1,948,493			2,810,302
Goodwill	741,740			741,740			741,740			741,740			741,740			741,740			741,740
Intangible assets	60,628			63,226			65,824			68,422			71,020			60,628			71,020
Earning assets	22,955,435			22,661,171			22,599,272			22,395,343			22,153,552			22,955,435			22,153,552
Total shareholders’ equity	2,940,095			2,937,300			2,887,957			2,888,786			2,834,281			2,940,095			2,834,281

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

(2) Due to the impact of business combination accounting and protection of FDIC loss sharing agreements, which provide considerable protection against credit risk, acquired and FDIC acquired loans, covered OREO are excluded from this table to provide for improved comparability to prior periods and better perspective into asset quality trends.

(3) Net income used to determine diluted EPS was reduced by the cash dividends payable on the Corporation’s 5.875% Non-Cumulative Perpetual Preferred Stock, Series A of approximately $1.5 million in each of the quarters ended and $5.9 million in each of the years ended December 31, 2015 and 2014.

HIGHLIGHTS OF 2015 PERFORMANCE

On January 26, 2016, the Corporation announced a merger with Huntington Bancshares Incorporated. The details of the merger are contained within a Form 8-K filed by the Corporation on January 28, 2016.

The Corporation reported 2015 net income of $229.5 million, or $1.33 per diluted share, a decrease of $8.5 million, or 3.56%, from the year ago period. Net interest margin on a TE basis was 3.37% in 2015, a decrease of 31 basis points from the year ago period.

Figure 2. Earnings Summary

							Percent
(Dollars in thousands, except per share amounts)	2015			2014			Change
Net interest income TE (1)	$	756,670		$	791,675		(4.42	)%
Net income	229,484			237,951			(3.56	)%
Diluted earnings per common share	1.33			1.39			(4.32	)%
Net interest margin on TE basis	3.37		%	3.68		%
Return on average assets	0.91			0.97
Return on average common equity (1)	7.90			8.53
Return on average tangible common equity (1)	11.50			12.71

(1) Refer to GAAP to Non-GAAP Reconciliations

Net interest income TE decreased $35.0 million, or 4.42%, from the year ago period, and net interest margin on a TE basis decreased 31 basis points to 3.37% from the year ago period. The net interest margin on a TE basis declined primarily from runoff in the acquired and FDIC acquired portfolios, and marginally lower yields on earning assets.

Noninterest income was $269.0 million in 2015, a decrease of $12.5 million, or 4.45%, compared to 2014. Fee based income increased year over year across multiple areas including wealth management, treasury management, and ATM and other service fees. Offsetting this increase in fees were declines in service charges on deposits, bank owned life insurance, loan sales and servicing income, and other income. Service charges on deposits decreased in 2015 as compared to the year ago period due to fewer overdraft incident levels as customers increasingly use mobile devices to manage their accounts. Bank owned life insurance income was down in 2015 as a result of a decrease of $3.5 million in death benefit proceeds year over year. Total loan sales and servicing income decreased in 2015 as compared to the year ago period due to a decrease in volume in 2015. In addition, other income declined primarily due to the denial in the fourth quarter of 2015 by the FDIC of four disputed claims of $6.0 million claimed on the final commercial loss share certificate at June 30, 2015.

47

Noninterest expense was $638.7 million in 2015, a decrease of $26.2 million or, 3.94%, over 2014. Included in noninterest expense in 2014 were $1.0 million of merger-related costs associated with the Citizens acquisition. Salaries and wages expense and pension and employee benefits expenses decreased year over year primarily due to fewer full-time equivalent employees. Net occupancy expense decreased due to branch closure and other restructuring initiatives executed during 2015. Other operating expense decreased year over year primarily due to the favorable re-estimation of certain repurchase reserve liabilities as of December 31, 2015.

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 below 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 FDIC acquired loans are considered to be performing due to the application of the accretion method under the applicable accounting guidance.

Figure 3. Asset Quality

							Percent
(Dollars in thousands)	2015			2014			Change
Net charge-offs	$	30,295		$	23,959		26.45	%
Net charge-offs on average originated loans	0.23		%	0.21		%	9.52	%
Nonperforming loans at period end	$	44,105		$	34,617		27.41	%
Nonperforming assets at period end	94,498			55,038			71.70	%
Allowance for loan losses	105,135			95,696			9.86	%
Allowance for loan losses to nonperforming loans	238.37		%	276.44		%	(13.77	)%
Provision for originated loan losses	$	39,734		$	23,171		71.48	%

Total nonperforming assets as of December 31, 2015increased $39.5 million, or 71.70%, from December 31, 2014. Nonperforming assets at December 31, 2015 represented 0.67% of period-end originated loans plus noncovered other real estate compared with 0.44% at December 31, 2014. The overall increase was driven by an increase of $11.0 million, or 63.92%, in commercial nonperforming loans. Consumer nonperforming loans were relatively flat year over year. Total OREO increased $30.0 million, or 146.77%, from December 31, 2014. Due to the expiration of certain FDIC loss share agreements in 2015, $33.5 million of OREO no longer covered by a FDIC loss share agreement is being being reported as nonperforming assets as of December 31, 2015.

The allowance for originated loan losses totaled $105.1 million at December 31, 2015. At December 31, 2015, the allowance for originated loan losses was 0.74% of period-end originated loans, compared with 0.77% at December 31, 2014. The allowance for originated loan losses at December 31, 2015 compared to December 31, 2014increased by $9.4 million due to continued loan growth. 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 0.77% of period end originated loans at December 31, 2015, compared with 0.81% at December 31, 2014. The allowance for credit losses to nonperforming loans was 247.60% at December 31, 2015, compared with 293.34% at December 31, 2014.

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The Corporation maintained a strong capital position as tangible common equity to assets was 8.24% at December 31, 2015, compared with and 7.98% at December 31, 2014. The common share cash dividend paid in 2015 was $108.9 million, or $0.66 per share, an increase of $36.0 million, or $.02 per share.

REGULATION AND SUPERVISION

For information on regulatory developments, refer to the section captioned “Regulation and Supervision” in Item 1. “Business.”

49

NON-GAAP FINANCIAL MEASURES

Figure 4 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

50

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 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 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.

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Figure 4. GAAP to Non-GAAP Reconciliations

(Dollars in thousands)			December 31, 2015			December 31, 2014
Tangible common equity to tangible assets at period end
	Shareholders’ equity (GAAP)		$	2,940,095		$	2,834,281
	Less:	Intangible assets	60,628			71,020
		Goodwill	741,740			741,740
		Preferred Stock	100,000			100,000
	Tangible common equity (non-GAAP)		$	2,037,727		$	1,921,521
	Total assets (GAAP)		$	25,524,604		$	24,902,347
	Less:	Intangible assets	60,628			71,020
		Goodwill	741,740			741,740
	Tangible assets (non-GAAP)		$	24,722,236		$	24,089,587
	Tangible common equity to tangible assets ratio (non-GAAP)		8.24		%	7.98		%
Capital (1)			(Basel III)			(Basel I)
	Shareholders’ equity (GAAP)		$	2,940,095		$	2,834,281
	Plus:	Net unrealized (gains)/losses on investment securities related to AOCI	16,946			5,546
		Defined benefit postretirement plan losses related to AOCI	62,328			66,346
		Goodwill (GAAP)	741,740			741,740
		Less: Deferred tax liability associated with goodwill (1)	26,886			—
	Less:	Net non-qualifying goodwill (regulatory) (1)	714,854			741,740
		Intangible assets (GAAP)	60,628			71,020
		Less: Deferred tax liability associated with intangible assets (1)	43,856			—
	Less:	Net intangible assets (regulatory)	16,772			71,020
		Disallowed deferred tax asset (1)	67,487			87,001
		Other adjustments	101,231			1,951
	Tier 1 capital (regulatory)		2,119,025			2,004,461
	Less:	Preferred Stock	100,000			100,000
	Plus;	Tier 1 capital adjustments	100,000			—
	Tier 1 common equity (non-GAAP) (1)		N/A			1,904,461
	CET1 capital (non-GAAP) (1)		2,119,025			N/A
	Risk-weighted assets (regulatory) (1)		19,891,759			17,391,022
	Tier 1 common equity ratio (non-GAAP) (1)		N/A			10.95		%
	CET1 capital (non-GAAP)(1)		10.65		%	N/A

52

GAAP to Non-GAAP Reconciliations, continued
(In thousands, except per share amounts)			December 31, 2015		December 31, 2014
Book value, common equity value and tangible book value, per share
	Shareholders’ equity (GAAP)		$	2,940,095	$	2,834,281
	Less:	Preferred Stock	100,000		100,000
	Common shareholders’ equity		2,840,095		2,734,281
	Less:	Intangible assets	60,628		71,020
		Goodwill	741,740		741,740
	Tangible common equity (non-GAAP)		$	2,037,727	$	1,921,521
	Period end common shares		165,758		165,390
	Book value per share		$	17.74	$	17.14
	Common equity per share		17.13		16.53
	Tangible book value per common share		12.29		11.62

			Three Months Ended December 31,						Year Ended December 31,
(Dollars in thousands)			2015			2014			2015			2014
	Net income (GAAP)		$	56,749		$	61,079		$	229,484		$	237,951
	Adjustments to net income, net of tax (2)
	Plus:	Branch closure costs	—			—			1,932			2,568
		Acquisition related charges	—			—			—			706
		Restructure expenses	(200		)	564			949			564
		Total adjusted charges	(200		)	564			2,881			3,838
		Adjusted net income (non-GAAP)	$	56,549		$	61,643		$	232,365		$	241,789
	Annualized net income (GAAP)		$	225,145		$	242,324		$	229,484		$	237,951
		Annualized adjusted net income (non-GAAP)	224,352			244,562			232,365			241,789
	Average assets (GAAP)		25,370,946			24,664,987			25,155,792			24,418,211
	Average equity (GAAP)		2,943,268			2,849,618			2,903,160			2,790,139
	Less:	Average preferred stock	100,000			100,000			100,000			100,000
	Average common shareholders’ equity (non-GAAP)		2,843,268			2,749,618			2,803,160			2,690,139
	Less:	Average intangible assets	61,889			72,443			65,767			76,821
		Average goodwill	741,740			741,740			741,740			741,740
	Average tangible common equity (non-GAAP)		$	2,039,639		$	1,935,435		$	1,995,653		$	1,871,578
	Return on average assets (GAAP)		0.89		%	0.98		%	0.91		%	0.97		%
	Adjusted return on average assets, net of adjusted charges (non-GAAP)		0.88		%	0.99		%	0.92		%	0.99		%
	Return on average equity (GAAP)		7.65		%	8.50		%	7.90		%	8.53		%
	Adjusted return on average equity, net of adjusted charges (non-GAAP)		7.62		%	8.58		%	8.00		%	8.67		%
	Return on average tangible common equity (non-GAAP)		11.04		%	12.52		%	11.50		%	12.71		%
	Adjusted return on average tangible common equity, net of adjusted charges (non-GAAP)		11.00		%	12.64		%	11.64		%	12.92		%

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GAAP to Non-GAAP Reconciliations, continued

			Three Months Ended December 31,						Year Ended December 31,
(Dollars in thousands)			2015			2014			2015			2014
	Net interest income (GAAP)		$	185,231		$	192,511		$	741,295		$	775,568
	TE Adjustment (non-GAAP)		3,748			3,998			15,375			16,107
	Net interest income TE (non-GAAP)		188,979			196,509			756,670			791,675
	Noninterest income (GAAP)		65,143			71,960			268,998			281,524
	Adjustments to noninterest income(2)
	Less:	Securities gains (losses)	(5		)	16			957			166
	Plus:	Branch closure costs and acquisition related expenses (3)	—			—			2,973			3,951
		Adjusted noninterest income (non-GAAP)	65,148			71,944			271,014			285,309
	Adjusted total revenue, TE excluding securities gains (losses) (non-GAAP)		254,127			268,453			1,027,684			1,076,984
	Noninterest expense (GAAP)		155,622			165,041			638,690			664,919
	Adjustments to noninterest expense (2)
	Less:	Intangible asset amortization	2,598			2,933			10,392			11,735
		Adjusted noninterest expense, excluding amortization of intangibles	153,024			162,108			628,298			653,184
	Less:	Severance and related employee benefits (3)	(307		)	868			1,460			868
		Branch closure costs and acquisition related expenses (3)	—			—			—			1,086
		Adjusted noninterest expense (non-GAAP)	$	153,331		$	161,240		$	626,838		$	651,230
	Annualized net interest income TE (non-GAAP)		$	749,754		$	779,628		$	756,670		$	791,675
	Average earning assets		22,747,631			21,920,889			22,439,516			21,502,747
	Net interest margin on an TE basis (non-GAAP)		3.30		%	3.56		%	3.37		%	3.68		%
	Fee income ratio (non-GAAP)		25.64		%	26.80		%	26.16		%	26.22		%
	Efficiency ratio, excluding amortization of intangible assets and securities gains/(losses) (non-GAAP)		60.22		%	60.39		%	61.31		%	60.87		%
	Adjusted efficiency ratio (non-GAAP)		60.34		%	60.06		%	61.00		%	60.47		%

(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. December 31, 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 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, non-reoccurring items in the period and, therefore, removes these additional costs in calculating an adjusted efficiency ratio. Management believes removal of these significant, non-reoccurring items improves comparability period to period.

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RESULTS OF OPERATIONS

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 earnings 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.

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The following table presents the individual components of net interest income and the net interest margin.

Figure 5. Average Tax-Equivalent Balance Sheets - Year to Date

	Year Ended							Year Ended							Year Ended
	December 31, 2015							December 31, 2014							December 31, 2013
	Average					Average		Average					Average		Average					Average
(Dollars in thousands)	Balance			Interest (1)		Rate		Balance			Interest (1)		Rate		Balance			Interest (1)		Rate
ASSETS
Cash and cash equivalents	$	488,299						$	659,072						$	941,356
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. government agency obligations (taxable)	5,428,832			$	109,109	2.01	%	5,247,620			$	105,966	2.02	%	4,319,524			$	88,761	2.05	%
Obligations of states and political subdivisions (tax exempt)	740,942			34,184		4.61	%	762,864			34,736		4.55	%	673,695			33,311		4.94	%
Other securities and federal funds sold	591,776			20,700		3.50	%	588,123			22,398		3.81	%	535,916			20,063		3.74	%
Total investment securities and federal funds sold	6,761,550			163,993		2.43	%	6,598,607			163,100		2.47	%	5,529,135			142,135		2.57	%
Loans held for sale	4,766			228		4.78	%	12,825			447		3.49	%	15,194			553		3.64	%
Loans, including loss share receivable	15,673,200			650,671		4.15	%	14,891,315			685,058		4.60	%	12,948,666			637,532		4.92	%
Total earning assets	22,439,516			814,892		3.63	%	21,502,747			848,605		3.95	%	18,492,995			780,220		4.22	%
Allowance for loan losses	(147,330		)					(140,953		)					(153,190		)
Other assets	2,375,307							2,397,345							2,208,614
Total assets	$	25,155,792						$	24,418,211						$	21,489,775
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	5,833,611		$	—	—	%	$	5,579,237		$	—	—	%	$	4,859,659		$	—	—	%
Interest bearing	3,280,488			3,054		0.09	%	3,058,609			2,963		0.10	%	2,316,421			2,543		0.11	%
Savings and money market accounts	8,474,496			22,385		0.26	%	8,537,371			22,101		0.26	%	7,799,943			24,406		0.31	%
Certificates and other time deposits	2,270,255			10,822		0.48	%	2,353,218			10,844		0.46	%	2,325,565			9,649		0.41	%
Total deposits	19,858,850			36,261		0.18	%	19,528,435			35,908		0.18	%	17,301,588			36,598		0.21	%
Securities sold under agreements to repurchase	1,138,307			1,126		0.10	%	1,084,532			991		0.09	%	949,068			1,240		0.13	%
Wholesale borrowings	381,293			4,662		1.22	%	385,392			5,210		1.35	%	194,150			3,893		2.01	%
Long-term debt	504,185			16,173		3.21	%	329,991			14,821		4.49	%	280,323			13,287		4.74	%
Total interest bearing liabilities	16,049,024			58,222		0.36	%	15,749,113			56,930		0.36	%	13,865,470			55,018		0.40	%
Other liabilities	369,997							299,722							355,781
Shareholders’ equity	2,903,160							2,790,139							2,408,865
Total liabilities and shareholders’ equity	$	25,155,792						$	24,418,211						$	21,489,775
Net yield on earning assets (1)	$	22,439,516		$	756,670	3.37	%	$	21,502,747		$	791,675	3.68	%	$	18,492,995		$	725,202	3.92	%
Interest rate spread						3.27	%						3.59	%						3.82	%

⁽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 GAAP in the Consolidated Statement of Income. The taxable-equivalent adjustments to net interest income were $15.4 million, $16.1 million, and $14.4 million for the years ended December 31, 2015, 2014, and 2013, respectively.

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The following table in Figure 6 provides net interest income-TE and net interest margin totals for the years ended December 31, 2015, 2014, and 2013:

Figure 6. Net Interest Income and Net Interest Margin

	Year Ended December 31,									% Increase (Decrease)
(Dollars in thousands)	2015			2014			2013			2015 vs. 2014		2014 vs. 2013
Net interest income	$	741,295		$	775,568		$	710,785		(4.42	)%	9.11	%
Tax equivalent adjustment	15,375			16,107			14,417			(4.54	)%	11.72	%
Net interest income - TE	756,670			791,675			725,202			(4.42	)%	9.17	%
Average earning assets	$	22,439,516		$	21,502,747		$	18,492,995		4.36	%	16.28	%
Net interest margin	3.37		%	3.68		%	3.92		%	(8.42	)%	(6.12	)%

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

	Year Ended December 31,
	2015 and 2014									2014 and 2013
	Increase (Decrease) In Interest Income/Expense									Increase (Decrease) In Interest Income/Expense
(In thousands)	Volume			Yield/ Rate			Total			Volume			Yield/ Rate			Total
INTEREST INCOME -TE
Investment securities and federal funds sold:
Taxable	$	4,017		$	(2,572	)	$	1,445		$	21,597		$	(2,057	)	$	19,540
Tax-exempt	(1,007		)	455			(552		)	4,191			(2,766		)	1,425
Loans held for sale	(347		)	128			(219		)	(84		)	(22		)	(106		)
Loans	34,742			(69,129		)	(34,387		)	91,279			(43,753		)	47,526
Total interest income -TE	37,405			(71,118		)	(33,713		)	116,983			(48,598		)	68,385
INTEREST EXPENSE
Interest on deposits:
Interest bearing	210			(119		)	91			745			(325		)	420
Savings and money market accounts	(164		)	448			284			2,166			(4,471		)	(2,305		)
Certificates and other time deposits	(389		)	367			(22		)	115			1,080			1,195
Securities sold under agreements to repurchase	50			85			135			160			(409		)	(249		)
Wholesale borrowings	(55		)	(493		)	(548		)	2,895			(1,578		)	1,317
Long-term debt	6,373			(5,021		)	1,352			2,259			(725		)	1,534
Total interest expense	6,025			(4,733		)	1,292			8,340			(6,428		)	1,912
Net interest income - TE	$	31,380		$	(66,385	)	$	(35,005	)	$	108,643		$	(42,170	)	$	66,473
Note: Rate/volume variances are allocated on the basis of absolute value of the change in each.

2015 compared to 2014

For the year ended December 31, 2015, net interest income-TE was $756.7 million, a decrease of $35.0 million, or 4.42%, from the year ago period. The net interest margin for the year ended December 31, 2015 was 3.37%, 31 basis points lower than 3.68% for the same year ago period. 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 earnings assets. Average earnings assets increased by $936.8 million, or 4.36%, for the year ended December 31, 2015, compared to the same year ago period. The increase in average earnings assets primarily reflected a $781.9 million increase in average total loans and a $162.9 million increase in average investments. The average yield on earning assets decreased from 3.95% in 2014 to

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3.63% in 2015 primarily from decreased yields on the loan portfolios. Originated loan yields were down year over year due to competitive pricing pressure in a low rate environment and repayments on higher yielding loans. The yield on FDIC acquired loans was down104 basis points from the year ago period due to a $32.4 million decrease in FDIC acquired loan discount accretion, partly offset by a $16.8 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 $202.6 million, or 42.82%, from the year ago period. Average balances for investment securities were up from 2014, increasing interest income by $3.0 million, while the lower interest rate environment resulted in a decrease to interest income of $2.1 million. Higher outstanding balances on average deposits resulted in a net increase to interest expense of $0.4 million in 2015. The issuance of $250.0 million in subordinated debt in the fourth quarter of 2014 caused interest expense to increase by $0.8 million in 2015. The cost of funds as a percentage of average earning assets for 2015remained flat in comparison to 2014 at 0.26%.

2014 compared to 2013

For the year ended December 31, 2014, net interest income-TE was $791.7 million, an increase of $66.5 million, or 9.17%, from the year ago period. The net interest margin for the year ended December 31, 2014 was 3.68%, 24 basis points lower than 3.92% for the same year ago period. The increase in net interest income-TE in 2014 compared with 2013 was primarily due to the full year impact of the Citizens acquisition compared to a nine-month impact in 2013 and organic loan growth. The average yield on earning assets decreased from 4.22% in 2013 to 3.95% in 2014 primarily from decreased yields on the loan portfolios. Average loans outstanding, up $1.9 billion or 15.00% from 2013, increased2014 interest income by $91.3 million and lower yields on those loans decreased2014 interest income by $43.8 million. Average balances for investment securities were up from 2013, increasing interest income by $25.8 million, and lower rates earned on the securities decreased interest income by $4.8 million. Higher outstanding balances on average deposits and lower rates paid on deposits resulted in a net decrease to interest expense of $0.7 million in 2014. Increased wholesale borrowings and the issuance of $250.0 million in subordinated debt in the fourth quarter of 2014 caused interest expense to increase by $2.9 million in 2014. The cost of funds as a percentage of average earning assets for 2014decreased4 basis points to 0.26%, in comparison to 0.30% for 2013.

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Noninterest Income

Significant changes in noninterest income for the years ended December 31, 2015, 2014, and 2013 are discussed immediately after Figure 8.

Figure 8. Noninterest Income

	Year Ended December 31,									% Increase (Decrease)
(Dollars in thousands)	2015			2014			2013			2015 vs. 2014		2014 vs. 2013
Trust department income	$	42,125		$	39,949		$	34,770		5.45	%	14.90	%
Service charges on deposits	66,460			71,457			74,399			(6.99	)%	(3.95	)%
Credit card fees	54,643			52,666			50,542			3.75	%	4.20	%
ATM and other service fees	25,588			24,179			19,155			5.83	%	26.23	%
Bank owned life insurance income	15,747			19,177			16,926			(17.89	)%	13.30	%
Investment services and life insurance	15,423			15,145			12,777			1.84	%	18.53	%
Investment securities (losses)/gains, net	957			166			(2,803		)	476.51	%	(105.92	)%
Loan sales and servicing income	9,566			16,044			23,069			(40.38	)%	(30.45	)%
Other operating income	38,489			42,741			41,508			(9.95	)%	2.97	%
Total noninterest income	$	268,998		$	281,524		$	270,343		(4.45	)%	4.14	%
Noninterest income as a percent of net revenue (1)	26.16		%	26.22		%	27.36		%

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

2015 compared to 2014

Noninterest income decreased$12.5 million, or 4.45%, for 2015 compared to 2014. Excluding net realized gain on sales of investment securities of $1.0 millionand$0.2 million recognized in 2015 and 2014, respectively, the change in noninterest income from 2015 to 2014 was a decrease of $13.3 million. Fee-based income increased across multiple areas including wealth management, treasury management, and ATM and other service fees. Service charges on deposits decreased $5.0 million, or 6.99%, in 2015 as compared to the year ago period due to fewer overdraft incident levels as customers increasingly use mobile devices to manage their accounts.

Bank owned life insurance income was down as a result of a decrease of $3.5 million in death benefit proceeds year over year.

Total loan sales and servicing income decreased by $6.5 million, or 40.38%, in 2015 as compared to the year ago period. 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, gain on sale of mortgages sold into the secondary market, production fee income, as well as changes in the value of derivatives used to hedge those loans held for sale. Interest rates for 2015 remained relatively flat, however, the decrease is primarily caused by a drop in originated volumes, combined with a decrease in production fee income due to competition. The Corporation serviced for third parties approximately $2.4 billion of residential mortgage loans at December 31, 2015 compared to $2.6 billion at December 31, 2014 resulting in loan servicing fees of approximately $6.3 million and $6.6 million in 2015 and 2014, respectively. Higher interest rates in 2015 caused a net recovery of the MSRs of approximately $0.6 million contrasted to 2014 during which a $0.7 million net impairment was recognized.

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Other operating income decreased$4.3 million, or 9.95%, in 2015 as compared to the year ago period as primarily due to the denial in the fourth quarter of 2015 by the FDIC of four disputed claims of $6.0 million claimed on the final commercial loss share certificate at June 30, 2015.

2014 compared to 2013

Noninterest income increased$11.2 million, or 4.14%, in 2014 compared to 2013. Noninterest income for 2013 included a net realized loss of $2.8 million on the sale of $2.2 billion in securities assumed in the Citizens acquisition that were sold shortly after acquisition to reduce prepayment and credit risk. Excluding this loss, the increase in noninterest income from 2013 to 2014 was $8.2 million and resulted primarily from the full year impact of the Citizens acquisition in 2014 compared to a nine-month impact in 2013. Additionally, bank owned life insurance income increased as a result of death benefit proceeds of $3.5 million in 2014 compared to $1.0 million in 2013. Costs associated with branch closures of $4.0 million were recognized in 2014 as a reduction to noninterest income compared to $1.0 million in 2013.

Total loan sales and servicing income decreased $7.0 million, or 30.45%, year over year. The Corporation serviced for third parties approximately $2.6 billion of residential mortgage loans at December 31, 2014; compared to $2.7 billion at December 31, 2013. Interest rates were flat through most of 2014, however, decreased during the last quarter of 2014. This decrease caused a net impairment of its MSRs of approximately $0.7 million contrasted to 2013 during which a $2.3 million net recovery of previously recognized impairment was recognized; however the decrease was not substantial enough to increase new origination volumes during 2014.

Included in other operating income in 2014 was $5.0 million in gains on covered loan resolutions, compared to $8.6 million of similar gains in 2013, and $6.9 million of recoveries on loans acquired in the 2013 Citizens acquisition and charged-off in full prior to the acquisition, contrasted to $1.8 million of similar recoveries in 2013.

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Noninterest Expense

Significant changes in noninterest income for the years ended December 31, 2015, 2014, and 2013 are discussed immediately after Figure 9.

Figure 9. Noninterest Expense

	Year Ended December 31,						% Increase (Decrease)
(Dollars in thousands)	2015		2014		2013		2015 vs. 2014		2014 vs. 2013
Salaries and wages	$	276,326	$	284,968	$	288,125	(3.03	)%	(1.10	)%
Pension and employee benefits	72,482		74,002		65,891		(2.05	)%	12.31	%
Net occupancy expense	55,937		59,436		49,510		(5.89	)%	20.05	%
Equipment expense	47,926		48,499		41,875		(1.18	)%	15.82	%
Taxes, other than federal income taxes	8,144		8,300		10,217		(1.88	)%	(18.76	)%
Stationery, supplies and postage	13,424		15,587		14,199		(13.88	)%	9.78	%
Bankcard, loan processing and other costs	47,081		45,625		71,929		3.19	%	(36.57	)%
Advertising	13,516		14,847		15,101		(8.96	)%	(1.68	)%
Professional services	19,578		21,813		40,680		(10.25	)%	(46.38	)%
Telephone	10,183		11,375		10,659		(10.48	)%	6.72	%
Amortization of intangibles	10,392		11,735		8,392		(11.44	)%	39.84	%
FDIC expense	20,730		20,481		17,707		1.22	%	15.67	%
Other operating expense	42,971		48,251		49,968		(10.94	)%	(3.44	)%
Total noninterest expense	$	638,690	$	664,919	$	684,253	(3.94	)%	(2.83	)%

2015 compared to 2014

Noninterest expense decreased $26.2 million, or 3.94%, over 2014. Included in noninterest expense in 2014 were $1.0 million of merger-related costs associated with the Citizens acquisition. Other factors contributing to changes in noninterest expense are described as follows.

Salaries and wages expense and pension and employee benefits expenses decreased$8.6 million, or 3.03%, and $1.5 million, or 2.05%, respectively, when compared to 2014 primarily due to 347, or 8.12% fewer full-time equivalent employees year over year. Net occupancy expense decreased$3.5 million, or 5.89%, over 2014 due to branch closure and other restructuring initiatives executed during 2015. Other operating expense decreased $5.3 million, or 10.94%, year over year primarily due to the favorable re-estimation of certain repurchase reserve liabilities as of December 31, 2015.

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2014 compared to 2013

Noninterest expense decreased$19.3 million, or 2.83%, over 2013. Included in noninterest expense in 2013 were $72.3 million of merger-related costs associated with the Citizens acquisition. These costs were primarily composed of severance and retention employee benefits of $21.6 million, professional services of $20.2 million, and $23.6 million in fees for early termination of existing agreements assumed from the merger (reported within bankcard, loan processing and other costs). Excluding these merger-related costs in 2013, noninterest expenses increased $53.0 million. Higher noninterest expenses for 2014 were primarily due to the full year impact of the Citizens acquisition in 2014, compared to a nine-month impact in 2013. Other factors contributing to changes in noninterest expense are described as follows.

Excluding the $21.6 million in severance and retention employee benefits from the Citizens acquisition in 2013, salaries and wages increased $18.4 million, or 6.9%, over 2013 primarily due to annual merit increases, partially offset by lower staffing levels and lower incentive compensation.

Net occupancy expense increased $9.9 million, or 20.05%, over 2013 due to higher than usual snow removal and utility costs due to the severe weather in the first several months of 2014 across the Corporation’s footprint.

Other operating expense for 2014 included a noncash charge of $3.1 million related to estimated losses on residential mortgage loans sold with recourse, compared to a similar charge of $5.8 million in 2013.

Income Taxes

Income tax expense totaled $97.0 million in 2015 compared to $101.9 million in 2014, and $79.5 million in 2013. The effective income tax rate for the year ended December 31, 2015, was 29.71% compared to 29.99%, and 30.21% for the years ended December 31, 2014 and 2013, respectively. Higher pre-tax income in 2014 and nondeductible merger-related expenses in 2013 led to an increase in income tax expense and a decrease in the effective tax rate from 2013 to 2014. Further income tax information, including the effective tax rate analysis, is contained in Note 12 (Income Taxes) to the consolidated financial statements.

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LINE OF BUSINESS RESULTS

Line of business results are presented in the table below. A description of each business line, important financial performance data and the methodologies used to measure financial performance are presented in Note 16 (Segment Information) to the consolidated financial statements. The Corporation’s profitability is primarily dependent on the net interest income, provision for credit losses, noninterest 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 as of and for the years ended December 31, 2015, 2014, and 2013.

Figure 10. Line of Business Results

	December 31, 2015
(In thousands)	Commercial		Retail		Wealth		Other			FirstMerit Consolidated
OPERATIONS:
Net interest income (loss) - TE	$	411,199	$	370,781	$	22,403	$	(47,713	)	$	756,670
Provision/(recapture) for loan losses	16,373		28,152		94		481			45,100
Noninterest income	88,384		96,979		57,995		25,640			268,998
Noninterest expense	240,634		345,827		54,681		(2,452		)	638,690
Net income (loss)	154,632		60,957		16,654		(2,759		)	229,484
AVERAGES :
Assets	9,464,876		6,022,529		298,435		9,369,952			25,155,792
Loans	9,550,421		5,775,543		289,044		58,192			15,673,200
Earnings assets	9,868,378		5,783,272		289,044		6,498,822			22,439,516
Deposits	7,071,238		11,035,639		1,215,174		536,799			19,858,850
Economic Capital	1,309,589		807,150		115,447		670,974			2,903,160

	December 31, 2014
(In thousands)	Commercial		Retail		Wealth		Other			FirstMerit Consolidated
OPERATIONS:
Net interest income (loss) - TE	$	422,610	$	383,151	$	20,330	$	(34,416	)	$	791,675
Provision/(recapture) for loan losses	2,898		39,618		1,895		7,868			52,279
Noninterest income	91,483		106,716		55,800		27,525			281,524
Noninterest expense	247,258		359,848		54,204		3,609			664,919
Net income (loss)	171,560		58,760		13,021		(5,390		)	237,951
AVERAGES :
Assets	9,265,088		5,641,517		271,975		9,239,631			24,418,211
Loans	9,262,224		5,305,071		261,321		62,699			14,891,315
Earnings assets	9,549,341		5,328,107		261,321		6,363,978			21,502,747
Deposits	6,679,007		11,484,763		1,089,068		275,597			19,528,435
Economic Capital	1,318,357		741,165		100,327		630,290			2,790,139

63

	December 31, 2013
(In thousands)	Commercial		Retail		Wealth			Other			FirstMerit Consolidated
OPERATIONS:
Net interest income (loss) - TE	$	411,985	$	349,433	$	17,192		$	(53,408	)	$	725,202
Provision/(recapture) for loan losses	17,072		16,151		(692		)	1,153			33,684
Noninterest income	83,933		114,679		48,289			23,442			270,343
Noninterest expense	209,936		330,875		54,196			89,246			684,253
Net income (loss)	172,206		76,105		7,784			(72,411		)	183,684
AVERAGES :
Assets	8,397,357		4,746,277		259,601			8,086,540			21,489,775
Loans	8,292,805		4,367,701		226,152			62,008			12,948,666
Earnings assets	8,480,005		4,392,937		226,179			5,393,874			18,492,995
Deposits	5,572,287		10,749,725		826,794			152,782			17,301,588
Economic Capital	602,561		256,362		72,244			1,477,698			2,408,865

2015 compared with 2014

The commercial segment’s net income was $154.6 million, a decreaseof$16.9 million from 2014. Net interest income - TE totaled $411.2 million compared to $422.6 million for 2014, a decrease of $11.4 million, or 2.70%. 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 totaled $16.4 million compared to $2.9 million in 2014, an increase of $13.5 million, or 464.98%. Net charge-offs increased $5.8 million to $14.1 million in 2015 from $8.3 million in 2014. Noninterest income was $88.4 million compared to $91.5 million for 2014, a decrease of $3.1 million, or 3.39%, primarily attributable to reduced gains on the covered loan portfolio, although partially offset by higher credit card fees. Noninterest expense was $240.6 million compared to $247.3 million for 2014, a decrease of 2.7%. The reduction of expenses was primarily attributable to management’s efficiency initiatives.

The retail segment’s net income was $61.0 million, an increase of $2.2 million from 2014. Net interest income totaled $370.8 million compared to $383.2 million in 2014, a decrease of $12.4 million or 3.23%. The decrease is due to the run-off of the higher margin portfolio of acquired loans, partially offset by higher originated consumer loan balances. Provision for credit losses totaled $28.2 million compared to $39.6 million for the same period in 2014, a decrease of $11.5 million, or 28.94%. Noninterest income was $97.0 million compared to $106.7 million in 2014, a decrease of $9.7 million, or 9.12%, attributable to lower service charges on deposits due to lower non sufficient funds/over draft incidence rates, as well as lower loan sales and servicing income. Noninterest expense was $345.8 million compared to $359.8 million in 2014. This reduction was driven mainly by lower expenses from branch consolidation, and lower losses on mortgage repurchases.

The wealth management segment’s net income of $16.7 million was an increase of $3.6 million from 2014. Net interest income increased $2.1 million to $22.4 million in 2015, attributable primarily to deposit growth of $126.1 million or 11.6%. Noninterest income increased $2.2 million due to increased income from higher trust income. Noninterest expense was $54.7 million compared to $54.2 million in 2014, an increase of $0.5 million.

Activities that are not directly attributable to one of the primary lines of business are included in the other business line. This category includes the parent company, community development operations,

64

FirstMerit’s treasury operations, including the securities portfolio, wholesale funding and asset liability management activities, inter-company eliminations, and the economic impact of certain capital and support functions not specifically identifiable with the three primary lines of business. The Other segment recorded a net loss before income taxes of $2.8 million, which was $2.6 million less than 2014.

2014 compared with 2013

The commercial segment’s net income was $171.6 million, a decrease of $0.6 million from 2013. Net interest income - TE totaled $422.6 million compared to $412.0 million for 2013, an increase of $10.6 million, or 2.57%. The increase was primarily attributable to asset growth driven by both the Citizens acquisition and organic loan growth. The provision for loan losses totaled $2.9 million compared to $17.1 million in 2013, a decrease of $14.2 million, or 83.02%. Net charge-offs increased $8.2 million from $0.1 million in 2013 to $8.3 million in 2014. Noninterest income was $91.5 million compared to $83.9 million for 2013, an increase of $7.6 million or 9.00%, primarily attributable to growth in service charges, merchant card fees and commercial loan fees. Noninterest expense was $247.3 million compared to $209.9 million for 2013, an increase of 17.8%. Growth in expenses was primarily attributable to a full-year impact of the Citizens acquisition, FDIC fees and the continued build-out of specialized and regional banking capabilities, partially offset by the results of management’s efficiency initiative.

The retail segment’s net income was $58.8 million, a decrease of $17.3 million from 2013. Net interest income - TE totaled $383.2 million compared to $349.4 million in 2013, an increase of $33.8 million or 9.67%. The increase was primarily attributable to growth in earning assets acquired through the Citizens acquisition. Provision for credit losses totaled $39.6 million compared to $16.2 million for the same period in 2013, an increase of $23.5 million, or 145.30%, due to the full-year impact of the Citizens acquisition. Noninterest income was $106.7 million compared to $114.7 million in 2013, a decrease of $8.0 million, or 6.97%. The largest drivers of this reduction were lower mortgage sales and services charges on deposits. Noninterest expense was $359.8 million compared to $330.9 million in 2013. The results of management’s efficiency initiative partially offset the increase in expense attributable to a full-year expense impact of the Citizens acquisition.

The wealth management segment’s net income of $13.0 million was an increase of $5.2 million from 2013. Net interest income increased $3.1 million to $20.3 million in 2014, attributable primarily to deposit growth of $262.3 million or 31.7%. Noninterest income increased $7.5 million due to increased income from trust and investment agency, offset by lower insurance premiums. Noninterest expense was $54.2 million, nearly unchanged from 2013. The results of management’s efficiency initiative partially offset the increase in expense attributable to the full-year expense impact of the Citizens acquisition.

Activities that are not directly attributable to one of the primary lines of business are included in the other business line. This category includes the parent company, community development operations, FirstMerit’s treasury operations, including the securities portfolio, wholesale funding and asset liability management activities, inter-company eliminations, and the economic impact of certain capital and support functions not specifically identifiable with the three primary lines of business. The Other line of business recorded net loss of $5.4 million, which was $67.0 million less than 2013. The net loss was attributable to a decrease in non-interest expense of $70.0 million due primarily to the Citizens acquisition that occurred in 2013.

65

FINANCIAL CONDITION

Investment Securities

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

Figure 11. Investment Securities

	December 31, 2015							December 31, 2014
(In thousands)	Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)			Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)
Available-for-sale securities (1)	$	4,005,782	$	3,967,735	$	(38,047	)	$	3,562,537	$	3,545,288	$	(17,249	)
Held-to-maturity securities (2)	2,674,093		2,659,119		(14,974		)	2,903,609		2,875,920		(27,689		)
Other securities (3)	148,172		148,172		—			148,654		148,654		—
Total investment securities	$	6,828,047	$	6,775,026	$	(53,021	)	$	6,614,800	$	6,569,862	$	(44,938	)

(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 December 31, 2015, compared to $297.4 million as of December 31, 2014. Net unrealized losses on the CLO portfolio amounted to $8.4 million and $9.6 million at December 31, 2015, and 2014, respectively. The current weighted average yield on our CLO portfolio approximates 2.77% as of December 31, 2015. Management believes that its holdings of CLOs are not ownership interests in a covered fund prohibited by the Volcker 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 December 31, 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.

66

Loans

Total loans at December 31, 2015, were $16.1 billion compared to $15.3 billion at December 31, 2014. Total loans as of December 31, 2015, include $1.7 billion in acquired loans and $205.4 million in FDIC acquired loans, excluding the loss share receivable of $9.9 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, at December 31 for each of the five past years.

Figure 12. Period End Loans by Product Type

	As of December 31, 2015
(Dollars in thousands)	Originated Loans					Acquired Loans (1)					FDIC Acquired Loans (2)					Total Loans
	Amount			Percentage		Amount			Percentage		Amount			Percentage		Amount			Percentage
C&I	$	5,793,408		41.0	%	$	240,145		13.8	%	$	35,466		17.3	%	$	6,069,019		37.8	%
CRE	2,077,344			14.7	%	430,891			24.7	%	87,774			42.7	%	2,596,009			16.2	%
Construction	645,337			4.6	%	6,113			0.4	%	5,869			2.9	%	657,319			4.1	%
Leases	491,741			3.5	%	—			—	%	—			—	%	491,741			3.1	%
Total Commercial	9,007,830			63.8	%	677,149			38.8	%	129,109			62.9	%	9,814,088			61.1	%
Residential mortgages	689,045			4.9	%	324,008			18.6	%	35,568			17.3	%	1,048,621			6.5	%
Installment	2,990,349			21.2	%	573,372			32.9	%	2,077			1.0	%	3,565,798			22.2	%
Home equity lines	1,248,438			8.8	%	168,542			9.7	%	38,668			18.8	%	1,455,648			9.1	%
Credit card	182,843			1.3	%	—			—	%	—			—	%	182,843			1.1	%
Total Consumer	5,110,675			36.2	%	1,065,922			61.2	%	76,313			37.1	%	6,252,910			38.9	%
Subtotal	14,118,505			100.0	%	1,743,071			100.0	%	205,422			100.0	%	16,066,998			100.0	%
Loss share receivable	—			n/m		—			n/m		9,947			n/m		9,947			n/m
Total Loans	14,118,505			n/m		1,743,071			n/m		215,369			n/m		16,076,945			n/m
Allowance for loan losses	(105,135		)	n/m		(3,877		)	n/m		(44,679		)	n/m		(153,691		)	n/m
Net Loans	$	14,013,370		n/m		$	1,739,194		n/m		$	170,690		n/m		$	15,923,254		n/m

	As of December 31, 2014
(Dollars in thousands)	Originated Loans					Acquired Loans (1)					FDIC Acquired Loans (2)					Total Loans
	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			19.2	%	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

67

	As of December 31, 2013
(Dollars in thousands)	Originated Loans					Acquired Loans (1)					FDIC Acquired Loans (2)					Total
	Amount			Percentage		Amount			Percentage		Amount			Percentage		Amount			Percentage
C&I	$	4,139,567		40.5	%	$	794,079		22.7	%	$	76,237		14.4	%	$	5,009,883		35.2	%
CRE	2,169,787			21.2	%	918,645			26.3	%	273,594			51.6	%	3,362,026			23.6	%
Construction	338,925			3.3	%	13,246			0.4	%	26,029			4.9	%	378,200			2.7	%
Leases	239,551			2.3	%	—			—	%	—			—	%	239,551			1.7	%
Total Commercial	6,887,830			67.4	%	1,725,970			49.4	%	375,860			70.9	%	8,989,660			63.1	%
Residential mortgages	529,253			5.2	%	470,652			13.5	%	50,678			9.6	%	1,050,583			7.4	%
Installment	1,727,925			16.9	%	1,004,569			28.7	%	6,163			1.2	%	2,738,657			19.2	%
Home equity lines	920,066			9.0	%	294,424			8.4	%	97,442			18.4	%	1,311,932			9.2	%
Credit card	148,313			1.5	%	—			—	%	—			—	%	148,313			1.0	%
Total Consumer	3,325,557			32.6	%	1,769,645			50.6	%	154,283			29.1	%	5,249,485			36.9	%
Subtotal	10,213,387			100.0	%	3,495,615			100.0	%	530,143			100.0	%	14,239,145			100.0	%
Loss share receivable	—			n/m		—			n/m		61,827			n/m		61,827			n/m
Total Loans	10,213,387			n/m		3,495,615			n/m		591,970			n/m		14,300,972			n/m
Allowance for loan losses	(96,484		)	n/m		(741		)	n/m		(44,027		)	n/m		(141,252		)	n/m
Net Loans	$	10,116,903		n/m		$	3,494,874		n/m		$	547,943		n/m		$	14,159,720		n/m

	As of December 31, 2012
(Dollars in thousands)	Originated Loans					Acquired Loans (1)			FDIC Acquired Loans (2)					Total
	Amount			Percentage		Amount		Percentage	Amount			Percentage		Amount			Percentage
C&I	$	3,306,526		37.9	%	$	—	n/m	$	128,509		14.2	%	$	3,435,035		35.6	%
CRE	2,224,416			25.5	%	—		n/m	539,595			59.6	%	2,764,011			28.7	%
Construction	335,547			3.8	%	—		n/m	50,333			5.6	%	385,880			4.0	%
Leases	139,236			1.6	%	—		n/m	—			—	%	139,236			1.4	%
Total Commercial	6,005,725			68.8	%	—		n/m	718,437			79.4	%	6,724,162			69.8	%
Residential mortgages	445,211			5.1	%	—		n/m	61,540			6.8	%	506,751			5.3	%
Installment	1,328,258			15.2	%	—		n/m	8,189			0.9	%	1,336,447			13.9	%
Home equity lines	806,078			9.2	%	—		n/m	117,225			12.9	%	923,303			9.6	%
Credit card	146,387			1.7	%	—		n/m	—			—	%	146,387			1.5	%
Total Consumer	2,725,934			31.2	%	—		n/m	186,954			20.6	%	2,912,888			30.2	%
Subtotal	8,731,659			100.0	%	—		n/m	905,391			100.0	%	9,637,050			100.0	%
Loss share receivable	—			n/m		—		n/m	113,734			n/m		113,734			n/m
Total Loans	8,731,659			n/m		—		n/m	1,019,125			n/m		9,750,784			n/m
Allowance for loan losses	(98,942		)	n/m		—		n/m	(43,255		)	n/m		(142,197		)	n/m
Net Loans	$	8,632,717		n/m		$	—	n/m	$	975,870		n/m		$	9,608,587		n/m

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	As of December 31, 2011
(Dollars in thousands)	Originated Loans					Acquired Loans (1)			FDIC Acquired Loans (2)					Total
	Amount			Percentage		Amount		Percentage	Amount			Percentage		Amount			Percentage
C&I	$	2,775,476		35.8	%	$	—	n/m	$	197,539		15.3	%	$	2,973,015		32.9	%
CRE	2,054,936			26.5	%	—		n/m	777,848			60.2	%	2,832,784			31.3	%
Construction	277,335			3.6	%	—		n/m	89,909			7.0	%	367,244			4.1	%
Leases	73,530			1.0	%	—		n/m	—			—	%	73,530			0.8	%
Total Commercial	5,181,277			66.9	%	—		n/m	1,065,296			82.5	%	6,246,573			69.1	%
Residential mortgages	413,664			5.3	%	—		n/m	74,510			5.7	%	488,174			5.4	%
Installment	1,263,665			16.3	%	—		n/m	10,122			0.8	%	1,273,787			14.1	%
Home equity lines	743,982			9.6	%	—		n/m	141,548			11.0	%	885,530			9.8	%
Credit card	146,356			1.9	%	—		n/m	—			—	%	146,356			1.6	%
Total Consumer	2,567,667			33.1	%	—		n/m	226,180			17.5	%	2,793,847			30.9	%
Subtotal	7,748,944			100.0	%	—		n/m	1,291,476			100.0	%	9,040,420			100.0	%
Loss share receivable	—			n/m		—		n/m	205,664			n/m		205,664			n/m
Total Loans	7,748,944			n/m		—		n/m	1,497,140			n/m		9,246,084			n/m
Allowance for loan losses	(107,699		)	n/m		—		n/m	(36,417		)	n/m		(144,116		)	n/m
Net Loans	$	7,641,245		n/m		$	—	n/m	$	1,460,723		n/m		$	9,101,968		n/m

(1) Loans acquired from Citizens. No allowance was brought forward in accordance with the acquisition method of accounting.

(2) Loans which are covered by loss sharing agreements with the FDIC providing considerable protection against credit risk.

n/m = Not Meaningful

The following table summarizes the maturity of originated, acquired, and FDIC acquired loans, excluding the loss share receivable of $9.9 million, as of December 31, 2015.

Figure 13. Loan Maturity Excluding Loss Share Receivable

	As of December 31, 2015
(Dollars in thousands)	Commercial				Residential mortgages				Installment				Home equity lines				Credit card				Leases
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Due in one year or less	$	2,833,560	30.4	%	$	182,983	17.4	%	$	1,002,582	28.1	%	$	299,611	20.6	%	$	169,984	93.0	%	$	181,064	36.8	%
Due after one year but within five years	6,078,221		65.2	%	571,701		54.6	%	1,997,332		56.0	%	706,930		48.5	%	8,110		4.4	%	291,894		59.4	%
Due after five years	410,566		4.4	%	293,937		28.0	%	565,884		15.9	%	449,107		30.9	%	4,749		2.6	%	18,783		3.8	%
Total	$	9,322,347	100.0	%	$	1,048,621	100.0	%	$	3,565,798	100.0	%	$	1,455,648	100.0	%	$	182,843	100.0	%	$	491,741	100.0	%
Loans due after one year with interest at
a predetermined fixed rate	$	1,001,476	15.4	%	$	470,693	54.4	%	$	2,553,359	99.6	%	$	66,625	5.8	%	$	12,859	100.0	%	$	310,677	100.0	%
Loans due after one year with interest at
a floating rate	5,487,311		84.6	%	394,946		45.6	%	9,857		0.4	%	1,089,411		94.2	%	—		—	%	—		—	%
Total	$	6,488,787	100.0	%	$	865,639	100.0	%	$	2,563,216	100.0	%	$	1,156,036	100.0	%	$	12,859	100.0	%	$	310,677	100.0	%

Originated Loans

Total originated loans increased from December 31, 2014by$1.6 billion, or 13.00%. This increase was driven primarily by higher commercial loans, which increased 9.85% from December 31, 2014 due to the Corporation's continued expansion into the Chicago, Illinois, Michigan and Wisconsin areas. Growth in commercial loans was impacted by the permanent mortgage market where insurance companies are refinancing commercial real estate into fixed-rate loans and new business within the specialty lending group. The leasing line of business has seen considerable increase in activity. As of December 31, 2015, leases totaled $491.7 million compared to $370.2 million at December 31, 2014, resulting in an increase of $121.6 million, or 32.84%, from December 31, 2014.

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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 $63.8 million, or 10.20%, as a larger amount of shorter maturity and adjustable rate mortgages were held in portfolio compared to 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 $138.1 million, or 12.44%. Installment loans increased from December 31, 2014 by $596.9 million, or 24.94% as a result of the Corporation expanding Citizens' indirect recreational lending into its legacy markets and expanding its indirect auto lending into Michigan and Wisconsin.

The Corporation has approximately $3.9 billion of loans secured by real estate. Approximately 82.59% 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. The carrying amount of these loans was $1.7 billion as of December 31, 2015, a decrease from December 31, 2014 of $0.7 billion, or 29.69%. The acquired loan portfolio will continue to decline, through payoffs, charge-offs, or terminations, unless the Corporation acquires additional loans in the future. Additional information regarding the accounting for acquired loans is included in the section captioned “Critical Accounting Policies”.

These loans were recorded at estimated fair value on the Acquisition Date with no carryover of the related ALL. The acquired loans were segregated between those considered to be performing (“nonimpaired acquired 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.

For acquired nonimpaired loans, the difference between the Acquisition Date fair value and the contractual amounts due at the Acquisition Date represents the fair value adjustment. Fair value adjustments may be discounts (or premiums) to a loan’s cost basis and are accreted (or amortized) to interest income over the loan’s remaining life using the level yield method. Acquired nonimpaired loans are reported net of the unamortized fair value adjustment. Nonimpaired acquired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

For acquired impaired loans, the excess of cash flows expected over the estimated fair value at the Acquisition Date represents the accretable yield and is recognized as interest income using a level yield method over the remaining life of the pooled impaired loans. Each pool of acquired impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Acquired impaired loans in pools with an accretable yield are considered to be accruing and performing even though collection of

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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.

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 expired on March 31, 2015 and June 30, 2015, respectively, resulting in $129.1 million of loans no longer being covered as of December 31, 2015. As of December 31, 2015, $76.3 million of loans 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 $215.4 million as of December 31, 2015, a decrease from December 31, 2014 of $137.8 million, or 39.02%. 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 December 31, 2015, the loss share receivable related to the remaining single family covered loans was $9.9 million and recorded as part of FDIC acquired loans. The loss share receivable related to the Midwest non-single family loans, representing open certificates initiated with the FDIC after the expiration of the non-single family loss sharing agreements, was $2.0 million as of December 31, 2015 and was recorded within Accrued Interest Receivable and Other Assets in the Consolidated Balance Sheet. The loss share receivable associated with the George Washington non-single family loans has been fully collected as of December 31, 2015.

These FDIC acquired loans were recorded at estimated fair value at the date of acquisition with no carryover of the related ALL and are accounted for as acquired impaired loans as described in the section captioned “Critical Accounting Policies”. A loss share receivable was recorded as of the acquisition date which represents the estimated fair value of reimbursement the Corporation expects to receive from the FDIC for incurred losses on certain FDIC acquired loans. These expected reimbursements are recorded as part of FDIC acquired loans. Additional information regarding the accounting for FDIC acquired loans and the related loss share receivable is included in the section captioned “Critical Accounting Policies”.

Allowance for Loan Losses and Reserve For Unfunded Lending Commitments

Allowance for Originated Loan Losses

A detailed description of our methodology for calculating our ALL is included in “Critical Accounting Policies” in Item 7. Management’s Discussion and Analysis. Also, refer to 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-K 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,

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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 limit 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 access 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 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 December 31, 2015, the allowance for originated loan losses was $105.1 million, or 0.74% of originated loans outstanding, compared to $95.7 million, or 0.77%, at December 31, 2014 . The allowance equaled 238.37% of nonperforming loans at December 31, 2015 compared to 276.44% at December 31, 2014. The additional reserves related to qualitative risk factors totaled $61.3 million at December 31, 2015, compared to $57.0 millionDecember 31, 2014. Nonperforming loans have increased by $9.5 million, or 27.41%, when compared to December 31, 2014.

Net charge-offs on originated loans were $30.3 million and 0.23% of average originated loans outstanding during the year ended December 31, 2015, compared to $24.0 million and 0.21% of average originated loans outstanding during the year ended December 31, 2014. Losses are charged against the ALL as soon as they are identified.

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The reserve for unfunded lending commitments at December 31, 2015 and December 31, 2014 was $4.1 million and $5.8 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 $109.2 million and $101.5 millionat December 31, 2015 and December 31, 2014, respectively.

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The following table presents a five-year summary of activity in the ALL and credit quality performance ratios.

Figure 14. Five-Year Summary of the Allowance for Credit Losses

	Years Ended December 31,
(Dollars in thousands)	2015			2014			2013			2012			2011
Allowance for originated loan losses at January 1,	$	95,696		$	96,484		$	98,942		$	107,699		$	114,690
Originated loans charged off:
Commercial	15,270			12,701			7,637			28,648			31,943
Mortgage	1,443			2,031			1,903			3,964			4,819
Installment	19,546			17,932			16,683			18,029			25,839
Home equity	4,032			4,831			5,036			7,249			8,691
Credit cards	4,867			4,604			5,541			6,171			7,846
Leases	1,268			—			1,237			144			778
Overdrafts	2,352			2,824			2,136			1,700			2,852
Total charge-offs	48,778			44,923			40,173			65,905			82,768
Originated Recoveries:
Commercial	1,798			4,332			9,012			5,626			2,703
Mortgage	257			318			230			235			221
Installment	11,062			10,513			10,459			11,635			13,639
Home equity	2,606			2,940			2,492			2,819			1,985
Credit cards	1,395			1,716			1,841			2,138			2,264
Manufactured housing	31			87			60			59			119
Leases	787			379			100			38			37
Overdrafts	547			679			487			622			774
Total recoveries	18,483			20,964			24,681			23,172			21,742
Originated net charge-offs	30,295			23,959			15,492			42,733			61,026
Provision for originated loan losses	39,734			23,171			13,034			33,976			54,035
Allowance for originated loan losses at December 31,	105,135			95,696			96,484			98,942			107,699
Reserve for Unfunded Lending Commitments (1)
Balance at January 1,	5,848			7,907			5,433			6,373			8,849
Provision for/(relief of) credit losses	(1,780		)	(2,059		)	2,474			(940		)	(2,476		)
Balance at December 31,	4,068			5,848			7,907			5,433			6,373
Allowance for credit losses	$	109,203		$	101,544		$	104,391		$	104,375		$	114,072
Average originated loans outstanding	$	13,297,594		$	11,421,426		$	9,252,555		$	8,089,317		$	7,409,502
Ratio to average originated loans:
Originated net charge-offs	0.23		%	0.21		%	0.17		%	0.53		%	0.82		%
Provision for originated loan losses	0.30		%	0.20		%	0.14		%	0.42		%	0.75		%
Originated loans outstanding at end of year	$	14,118,505		$	12,493,812		$	10,213,387		$	8,731,659		$	7,748,944
Allowance for originated loan losses:
As a percent of originated loans outstanding at end of year	0.74		%	0.77		%	0.94		%	1.13		%	1.39		%
As a percent of nonperforming originated loans	238.37		%	276.44		%	228.62		%	269.69		%	166.64		%
As a multiple of originated net charge-offs	3.47			3.99			6.23			2.32			1.76
Allowance for credit losses:
As a percentage of period-end originated loans	0.77		%	0.81		%	1.02		%	1.20		%	1.47		%
As a percentage of nonperforming originated loans	247.60		%	293.34		%	247.35		%	284.50		%	176.50		%
As a multiple of annualized net charge offs	241.30		%	664.97		%	783.34		%	368.70		%	208.91		%

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

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Figure 15. Overall Credit Quality by Specific Asset and Risk Categories of Originated Loans

	As of December 31, 2015
	Loan Type
Allowance for Loan Losses Components:			CRE and							Home Equity		Credit		Residential
(In thousands)	C & I		Construction			Leases		Installment		Lines		Cards		Mortgages		Total
Individually Impaired Loan Component:
Loan balance	$	43,818	$	16,614		$	—	$	36,904	$	7,080	$	717	$	23,905	$	129,038
Allowance	11,837		128			—		1,009		188		243		944		14,349
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance	60,440		773			12,732										73,945
Grade 1 allowance	2		—			—										2
Grade 2 loan balance	353,581		831			69,258										423,670
Grade 2 allowance	9		2			1										12
Grade 3 loan balance	1,371,850		379,169			49,956										1,800,975
Grade 3 allowance	742		102			25										869
Grade 4 loan balance	3,756,333		2,266,131			344,763										6,367,227
Grade 4 allowance	13,127		6,144			732										20,003
Grade 5 (Special Mention) loan balance	119,051		25,561			7,858										152,470
Grade 5 allowance	6,743		1,025			178										7,946
Grade 6 (Substandard) loan balance	85,754		33,603			7,174										126,531
Grade 6 allowance	12,285		3,824			377										16,486
Grade 7 (Doubtful) loan balance	2,581		(1		)	—										2,580
Grade 7 allowance	15		—			—										15
Consumer loans based on payment status:
Current loan balances								2,927,641		1,237,185		179,693		652,255		4,996,774
Current loans allowance								10,068		16,230		5,525		2,984		34,807
30 days past due loan balance								17,366		1,811		1,362		7,890		28,429
30 days past due allowance								1,123		707		1,183		248		3,261
60 days past due loan balance								4,612		884		477		1,254		7,227
60 days past due allowance								1,050		792		683		156		2,681
90+ days past due loan balance								3,827		1,478		594		3,741		9,640
90+ days past due allowance								933		2,177		1,197		397		4,704
Total originated loans	$	5,793,408	$	2,722,681		$	491,741	$	2,990,350	$	1,248,438	$	182,843	$	689,045	$	14,118,506
Total allowance for originated loan losses	$	44,760	$	11,225		$	1,313	$	14,183	$	20,094	$	8,831	$	4,729	$	105,135

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	As of December 31, 2014
	Loan Type
			CRE and						Home Equity		Credit		Residential
(In thousands)	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
Individually Impaired Loan 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
Collective Loan Impairment Components:
Credit risk-graded loans
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 balances							2,346,551		1,100,076		161,644		583,994		4,192,265
Current loans 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

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	As of December 31, 2013
	Loan Type
			CRE and						Home Equity		Credit		Residential
(In thousands)	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
Individually Impaired Loan Component:
Loan balance	$	8,053	$	21,522	$	—	$	27,285	$	6,726	$	1,112	$	23,066	$	87,764
Allowance	3,235		229		—		1,014		223		312		1,133		6,146
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance	34,909		241		9,271										44,421
Grade 1 allowance	10		—		2										12
Grade 2 loan balance	108,709		3,730		2,900										115,339
Grade 2 allowance	80		3		3										86
Grade 3 loan balance	802,624		340,782		54,446										1,197,852
Grade 3 allowance	869		421		85										1,375
Grade 4 loan balance	3,083,312		2,057,357		167,022										5,307,691
Grade 4 allowance	28,114		9,255		732										38,101
Grade 5 (Special Mention) loan balance	70,978		34,687		5,750										111,415
Grade 5 allowance	5,385		1,023		246										6,654
Grade 6 (Substandard) loan balance	30,982		50,393		162										81,537
Grade 6 allowance	5,288		4,144		13										9,445
Grade 7 (Doubtful) loan balance	—		—		—										—
Grade 7 allowance	—		—		—										—
Consumer loans based on payment status:
Current loan balances							1,678,155		909,799		145,332		481,338		3,214,624
Current loans allowance							7,964		10,063		5,123		2,403		25,553
30 days past due loan balance							14,524		1,683		696		16,335		33,238
30 days past due allowance							1,044		685		541		482		2,752
60 days past due loan balance							3,729		906		449		1,276		6,360
60 days past due allowance							920		710		542		221		2,393
90+ days past due loan balance							4,232		952		724		7,238		13,146
90+ days past due allowance							993		1,219		1,222		533		3,967
Total originated loans	$	4,139,567	$	2,508,712	$	239,551	$	1,727,925	$	920,066	$	148,313	$	529,253	$	10,213,387
Total allowance for originated loan losses	$	42,981	$	15,075	$	1,081	$	11,935	$	12,900	$	7,740	$	4,772	$	96,484

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 December 31, 2015, the computed ALL was less than the remaining fair value discount; therefore, no allowance for acquired nonimpaired loan losses 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 years endedDecember 31, 2015 and 2014, provision for loan losses, equal to net charge-offs, of $6.5 million and $14.7 million, respectively, was recorded. Charge-offs on acquired nonimpaired loans

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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. 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.

The allowance for acquired impaired loan losses for the years ended December 31, 2015, and 2014, was $3.9 million and $7.5 million, respectively. During the year ended December 31, 2015, a recapture of acquired impaired loan losses of $3.6 million was recognized, compared to a $6.7 million provision recognized in the year ended December 31, 2014.

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 December 31, 2015, the computed ALL was less than the remaining fair value discount, therefore, no ALL for FDIC acquired nonimpaired loans was recorded.

The FDIC acquired allowance for impaired loan losses was $44.7 millionand $40.5 million as of December 31, 2015, and December 31, 2014, respectively. During the year ended December 31, 2015, provision for FDIC acquired impaired loan losses of $8.8 million and an offsetting increase of $6.4 million in the loss share receivable resulted in the recognition of a net provision for loan losses of $2.5 million. This net provision compares to $7.6 million in the year ended December 31, 2014, and $13.1 million in the year ended December 31, 2013.

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.

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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.

The following table provides detailed information regarding nonperforming assets, which include nonaccrual loans and other real estate owned.

Figure 16. Asset Quality⁽¹⁾  

	Years Ended December 31,
(Dollars in thousands)	2015			2014			2013			2012			2011
Nonperforming originated loans:
Restructured nonaccrual loans:
Commercial loans	$	12,567		$	4,153		$	7,297		$	3,837		$	8,311
Consumer loans	9,805			11,088			11,388			11,197			3,442
Total restructured loans	22,372			15,241			18,685			15,034			11,753
Other nonaccrual loans:
Commercial loans	15,541			12,994			18,377			17,929			47,504
Consumer loans	6,192			6,382			5,141			3,724			5,374
Total nonaccrual loans	21,733			19,376			23,518			21,653			52,878
Total nonperforming originated loans	44,105			34,617			42,203			36,687			64,631
Other real estate, excluding covered assets (2) (3)	50,393			20,421			18,680			13,537			16,463
Total nonperforming assets ("NPAs") (3)	$	94,498		$	55,038		$	60,883		$	50,224		$	81,094
Originated loans past due 90 days or more accruing interest	$	8,022		$	12,156		$	11,176		$	9,417		$	11,376
Total nonperforming assets as a percentage of total originated loans and ORE (3)	0.67		%	0.44		%	0.60		%	0.57		%	1.04		%

(1) Due to the impact of acquisition accounting and protection against credit risk from FDIC loss sharing agreements, acquired loans and covered assets 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 covered 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 December 31, 2015, OREO included 16 former banking facilities that the Corporation no longer intends to use for banking purposes valued at approximately $4.1 million.

(3) As of December 31, 2015, $33.5 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 December 31, 2015increased $39.5 million, or 71.70%, from December 31, 2014. The overall increase was driven by an increase of $11.0 million, or 63.92%, in commercial nonperforming loans. Total OREO increased $30.0 million, or 146.77%, from December 31, 2014. Consumer nonperforming loans were relatively flat year over year. Due to the expiration of certain FDIC loss share agreements in 2015, $33.5 million of OREO no longer covered by a FDIC loss share agreement is being being reported as nonperforming assets as of December 31, 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. We obtain the scores 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 December 31, 2015, the average FICO scores on the originated consumer portfolio subcomponents are excellent with average scores on installment loans at 754, home equity lines at 777, residential mortgages at 758, and credit cards at 764.

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Figure 17. Nonaccrual Originated Commercial Loan Flow Analysis

	Quarters Ended
	December 31,			September 30,			June 30,			March 31,			December 31,
(In thousands)	2015			2015			2015			2015			2014
Nonaccrual originated commercial loans beginning of period	$	30,821		$	37,889		$	28,478		$	17,147		$	22,347
Credit Actions:
New	11,720			16,899			22,400			14,557			3,275
Charged down	(6,961		)	(4,372		)	(3,104		)	(221		)	(330		)
Return to accruing status	—			(8,904		)	(6,923		)	(322		)	—
Payments	(7,472		)	(10,691		)	(2,962		)	(2,683		)	(8,145		)
Nonaccrual originated commercial loans end of period	$	28,108		$	30,821		$	37,889		$	28,478		$	17,147

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 18. TDR Portfolio

(In thousands)	December 31, 2015		December 31, 2014
Originated TDRs	$	116,364	$	83,119
Acquired TDRs (1)	19,518		12,100
FDIC Acquired TDRs (1)	25,046		35,239
Total TDRs	$	160,928	$	130,458
Nonperforming TDRs	$	24,318	$	19,066

(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.

Total TDRs are predominately composed of originated consumer installment loans, first and second lien residential mortgages and home equity lines of credit which represented 58.96%and 70.25% of the total originated TDR portfolio as of December 31, 2015, and December 31, 2014, respectively. The Corporation restructures residential mortgages in a variety of ways to help our clients remain in their homes and to mitigate the potential for additional losses. The primary restructuring methods being offered to our residential clients are reductions in interest rates and extensions in terms. Modifications of mortgages retained in portfolio are handled using proprietary modification guidelines, or the FDIC’s Modification Program for residential first mortgages covered by loss share agreements. The Corporation participates in the U.S. Treasury’s Home Affordable Modification Program for originated mortgages sold to and serviced for FNMA and FHLMC.

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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 $0.6 million, $0.9 million, and $1.3 million during the years ended 2015, 2014, and 2013, respectively. Interest income which would have been earned in accordance with the original terms was $3.2 million, $2.8 million, and $5.5 million during the years ended 2015, 2014, and 2013, respectively.

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

Average deposits for 2015 totaled $19.9 billion compared to $19.5 billion in 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 over the past three years.

Figure 19. Deposit Products, Borrowings and Respective Rates

	At December 31,
	2015				2014				2013
(Dollars in thousands)	Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate
Noninterest-bearing	$	5,833,611	—	%	$	5,579,237	—	%	$	4,859,659	—	%
Interest-bearing	3,280,488		0.09	%	3,058,609		0.10	%	2,316,421		0.11	%
Savings and money market accounts	8,474,496		0.26	%	8,537,371		0.26	%	7,799,943		0.31	%
Certificates and other time deposits	2,270,255		0.48	%	2,353,218		0.46	%	2,325,565		0.41	%
Total customer deposits	19,858,850		0.18	%	19,528,435		0.18	%	17,301,588		0.21	%
Securities sold under agreements to repurchase	1,138,307		0.10	%	1,084,532		0.09	%	949,068		0.13	%
Wholesale borrowings	381,293		1.22	%	385,392		1.35	%	194,150		2.01	%
Long-term debt	504,185		3.21	%	329,991		4.49	%	280,323		4.74	%
Total funds	$	21,882,635			$	21,328,350			$	18,725,129

Average demand deposits comprised 45.89% of average deposits in 2015 compared to 44.23% in 2014, and 41.48% in 2013. Savings accounts, including money market products, made up 42.67% of average deposits in 2015 compared to 43.72% in 2014, and 45.08% in 2013. Certificates and other time deposits made up 11.43% of average deposits in 2015, 12.05% in 2014, and 13.44% in 2013.

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The average cost of deposits, securities sold under agreements to repurchase and wholesale borrowings was flat compared to one year ago.

The following table in Figure 20 summarizes certificates and other time deposits in amounts of $100 thousand or more for the year ended December 31, 2015 by time remaining until maturity.

Figure 20. Maturity Distribution of Time Deposits of $100,000 or more

(In thousands)
Time until maturity:	Amount
Under 3 months	$	220,579
3 to 6 months	133,085
6 to 12 months	187,379
Over 12 months	253,746
Total time deposits	$	794,789

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.

Shareholders’ Equity

Shareholders’ equity was $2.9 billion as of December 31, 2015, compared with $2.8 billion as of December 31, 2014. The Corporation’s Common Stock is traded on the NASDAQ, under the symbol FMER with 11,628 holders of record at December 31, 2015. The market price ranges of the Corporation’s Common Stock and dividends by quarter for each of the last two years is shown in Item 5. “Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

•At December 31, 2015, the Corporation’s common equity value per common share was $17.13 based on approximately 165.8 million shares outstanding at December 31, 2015, compared to $16.53 based on approximately 165.4 million shares outstanding at December 31, 2014.

•At December 31, 2015, the Corporation’s tangible book value per common share was $12.29 compared to $11.62 at December 31, 2014.

•At December 31, 2015, the Corporation’s book value per common share was $17.74 compared to $17.14 at December 31, 2014.

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

During the fourth quarter of 2015, the Corporation made a quarterly common dividend payment of $0.17 per share, or $28.1 million in the aggregate, on its Common Stock. For the full year of 2015, the Common Stock dividend was $108.9 million in the aggregate, or $0.66 per share. The market price ranges of the Corporation’s Common Stock and dividends by quarter for each of the last two years in shown in Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.” Also during the fourth quarter of 2015, the Corporation made a quarterly preferred dividend

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payment of $1.5 million in the aggregate, or $14.69 per share, or $0.36725 per depositary share, on the Corporation’s 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, which trades on the NYSE. As of December 31, 2015, the annual preferred dividend payment was $5.9 million.

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 21 shows activities that caused the change in outstanding Common Stock over the four quarters of 2015 and year to date 2015 and 2014.

Figure 21. Changes in Common Stock Outstanding

			2015 Quarters
(Shares in thousands)	2015		fourth		third		second		first		2014
Beginning of period	165,390		165,759		165,773		165,453		165,390		165,056
Issued/(repurchased), net	(311	)	(15	)	(20	)	(210	)	(66	)	(262	)
Reissued/(returned) under employee benefit plans, net	679		14		6		530		129		596
End of period	165,758		165,758		165,759		165,773		165,453		165,390

Capital Availability

On November 25, 2014, the Bank issued $250 million in aggregate principal of subordinated notes, due November 25, 2026, bearing interest at an annual rate of 4.27% payable semi-annually in arrears on May 25 and November 25 of each year. The net proceeds were used to initially pay down existing federal funds purchased and securities sold under repurchase agreements, general corporate purposes and as capital to support the Bank’s growth. These subordinated notes are not redeemable by the Bank or callable by the holders prior to maturity. Based on the Corporation’s understanding of the current Tier 2 eligibility criteria, the subordinated notes meet this criteria and qualify for Tier 2 treatment.

The Corporation has Distribution Agency Agreements pursuant to which the Corporation, from time to time, may offer and sell Common Stock of the Corporation’s Common Stock. There were no sales of the Corporation’s Common Stock under Distribution Agency Agreements during 2015 and 2014.

Capital Adequacy

Capital adequacy is an important indicator of financial stability and performance. The Corporation maintained a strong capital position with tangible common equity to assets of 8.24% at December 31, 2015, compared with 7.98% at December 31, 2014.

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

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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 were subject to loss share agreements with FDIC.

As of December 31, 2015, the Corporation, on a consolidated basis, as well as the Bank, exceeded the minimum capital levels of the well capitalized category. See Figure 4 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.

Figure 22. Capital Position

(Dollars in thousands)	December 31, 2015				December 31, 2014				December 31, 2013
Consolidated
Total equity	$	2,940,095	11.52	%	$	2,834,281	11.38	%	$	2,702,894	11.30	%
Common equity (1)	2,840,095		11.13	%	2,734,281		10.98	%	2,602,894		10.89	%
CET1 capital (1) (2)	2,119,025		10.65	%	N/A		N/A		N/A		N/A
Tier 1 common equity (1) (2)	N/A		N/A		1,904,461		10.95	%	1,706,304		10.45	%
Tier 1 capital (1) (2)	2,119,025		10.65	%	2,004,461		11.53	%	1,880,804		11.52	%
Total risk-based capital (1) (2)	2,733,143		13.74	%	2,653,893		15.26	%	2,279,891		13.97	%
Tier 1 leverage (2)	2,119,025		8.63	%	2,004,461		8.43	%	1,880,804		8.14	%
Tangible common equity (1)	2,037,727		8.24	%	1,921,521		7.98	%	1,778,399		7.70	%
	December 31, 2015				December 31, 2014				December 31, 2013
Bank Only
Total equity	$	3,083,117	12.08	%	$	2,932,847	11.79	%	$	2,859,515	11.98	%
Common equity (1)	3,083,117		12.08	%	2,932,847		11.79	%	2,859,515		11.98	%
CET1 capital (1) (2)	2,262,669		11.38	%	N/A		N/A		N/A		N/A
Tier 1 common equity (1) (2)	N/A		N/A		2,132,217		12.25	%	1,873,277		11.50	%
Tier 1 capital (1) (2)	2,262,669		11.38	%	2,127,065		12.22	%	1,978,140		12.14	%
Total risk-based capital (1) (2)	2,668,419		13.42	%	2,521,412		14.49	%	2,122,124		13.02	%
Tier 1 leverage (2)	2,262,669		9.23	%	2,127,065		8.94	%	1,978,140		8.58	%
Tangible common equity (1)	2,280,749		9.23	%	2,120,087		8.81	%	2,036,941		8.84	%

(1) See Figure 4 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 common equity tier 1 ("CET1") capital and the CET1 risk-based capital ratio. December 31, 2015 figures are 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 December 31, 2013 amounts and ratios are reported on a Basel I basis.

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RISK MANAGEMENT

Market Risk and Interest Rate 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.

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.

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

Presented below is the Corporation’s interest rate risk profile as of December 31, 2015 and 2014:

Figure 23. 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
December 31, 2015	(7.70)%	2.31%	4.38%	6.28%
December 31, 2014	(4.25)%	2.07%	4.13%	5.78%

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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.

Management reviews and takes appropriate action if this analysis indicates that the Corporation’s NII will change by more than +/-5% in response to an immediate 100 basis point increase or decrease in interest rates or NII will change by more than +/-10% in response to an immediate 200 basis point increase in interest rates. The Corporation is operating within these guidelines.

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.

Presented below is the Corporation’s EVE profile as of December 31, 2015 and 2014:

Figure 24. 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
December 31, 2015	(4.00)%	1.61%	2.10%	1.40%
December 31, 2014	(4.43)%	1.81%	2.54%	2.56%

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.

Interest rate sensitivity analysis. The Corporation analyzes the historical sensitivity of its interest bearing transaction accounts to determine the portion that it classifies as interest rate sensitive versus the portion classified over one year. The following analysis divides interest bearing assets and liabilities into maturity categories and measures the “GAP” between maturing assets and liabilities in each category. The analysis shows that assets maturing within one year exceed liabilities maturing within the same period by $3.5 billion. Focusing on estimated repricing activity within one year, the Corporation was in an asset sensitive position at December 31, 2015 as illustrated in the following table in Figure 25.

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Figure 25. Interest Rate Sensitivity Analysis

(In thousands)	1-30 Days		31-60 Days			61-90 Days			91-180 Days		181-365 Days		Over 1 Year		Total
Interest Earning Assets:
Loans and leases	$	9,136,979	$	341,331		$	523,162		$	597,216	$	1,139,070	$	4,344,659	$	16,082,417
Investment securities and federal funds sold	239,645		116,614			536,100			326,038		614,514		4,957,089		6,790,000
Total Interest Earning Assets	9,376,624		457,945			1,059,262			923,254		1,753,584		9,301,748		22,872,417
Interest Bearing Liabilities:
Demand interest-bearing	241,449		205,704			561,128			—		—		2,468,448		3,476,729
Savings and money market accounts	5,359,993		342,290			448,844			—		—		2,298,996		8,450,123
Certificate and other time deposits	216,849		196,329			128,116			411,915		573,678		712,016		2,238,903
Securities sold under agreements to repurchase	1,037,075		—			—			—		—		—		1,037,075
Wholesale borrowings	200,000		7			4			110,011		19		270,607		580,648
Long-term debt	5,229		—			—			—		—		499,944		505,173
Total Interest Bearing Liabilities	7,060,595		744,330			1,138,092			521,926		573,697		6,250,011		16,288,651
Total GAP	$	2,316,029	$	(286,385	)	$	(78,830	)	$	401,328	$	1,179,887	$	3,051,737	$	6,583,766
Cumulative GAP	$	2,316,029	$	2,029,644		$	1,950,814		$	2,352,142	$	3,532,029	$	6,583,766

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 1 (Summary of Significant Accounting Policies) and Note 18 (Derivatives and Hedging Activity) in the notes to the consolidated financial statements.

Liquidity Risk Management

Liquidity risk is the possibility of the Corporation being unable to meet current and future financial obligations 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 month and identifying sources and uses of funds. The overall management of the Corporation’s liquidity position is also integrated into retail and commercial 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 88.87% of total deposits at December 31, 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 $3.1 billion at December 31, 2015.

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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 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 December 31, 2015, lower cost core deposits increased by $287.7 million from the third quarter 2015. In the aggregate, there was an increase in deposits of $286.1 million from September 30, 2015. The Corporation’s loan to deposit ratio increased to 79.95% as of December 31, 2015 from 79.71% as of September 30, 2015. Securities sold under agreements to repurchase decreased$171.2 million from September 30, 2015. Wholesale borrowings and long-term debt had a net increase of $195.6 million from September 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 year ended December 31, 2015, the Bank paid $103.5 million in dividends to the Corporation. As of December 31, 2015, the Bank had an additional $438.2 million available to pay dividends without regulatory approval.

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

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

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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 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.

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

Contractual Obligations

The Corporation has various contractual obligations which are recorded as liabilities in its consolidated financial statements. The following table summarizes the Corporation’s significant obligations at December 31, 2015, and the future periods in which such obligations are expected to be settled in cash. Additional details regarding these obligations are provided in the footnotes to the consolidated financial statements, as referenced in the table in Figure 26:

Figure 26. Maturity / Expiration Distribution of Contractual Obligations

		Payments Due in
(In thousands)	Financial Statement Note Reference	Total		One Year or Less		One to Three Years		Three to Five Years		Over Five Years
Deposits without a stated maturity (1)	-	$	17,869,100	$	17,869,100	$	—	$	—	$	—
Consumer and brokered certificates of deposits (1)	9	2,238,903		1,525,838		532,529		177,052		3,484
Federal funds purchased and security repurchase agreements	10	1,037,075		1,037,075		—		—		—
Wholesale borrowings	11	580,648		310,787		230,269		—		39,592
Long-term debt	11	505,173		—		—		—		505,173
Operating leases (2)	19	66,068		11,942		21,130		14,475		18,521
Capital lease obligations (3)	19	—		—		—		—		—
Purchase obligations (5)	19	473,358		334,145		98,207		40,638		—
Reserves for uncertain tax positions (4)	12	506		506		—		—		—
Total		$	22,297,946	$	20,755,582	$	784,026	$	191,568	$	566,770

(1) Excludes interest.

(2) The Corporation’s operating lease obligations represent commitments under noncancellable operating leases on branch facilities.

(3) There were no material capital lease obligations outstanding at December 31, 2015.

(4) Gross unrecognized income tax benefits.

(5) Includes purchase obligations for goods and services covered by noncancellable contracts and contracts including cancellation fees.

Commitments and Off-Balance Sheet Arrangements

The following table details the amounts and expected maturities of significant commitments and off-balance sheet arrangements as of December 31, 2015. Additional details of these commitments are provided in the footnotes to the consolidated financial statements, as referenced in the following table:

Figure 27. Maturity / Expiration Distribution of Commitments and Off-Balance Sheet Arrangements

		Payments Due in
(In thousands)	Financial Statement Note Reference	Total		One Year or Less		One to Three Years		Three to Five Years		Over Five Years
Commitments to extend credit (1)	19	$	6,385,147	$	2,634,777	$	1,498,268	$	832,163	$	1,419,939
Standby letters of credit	19	254,703		131,720		63,167		48,736		11,080
Loans sold with recourse	19	12,902		—		14		5		12,883
Postretirement benefits (2)	13	4,391		982		1,746		453		1,210
Total		$	6,657,143	$	2,767,479	$	1,563,195	$	881,357	$	1,445,112
(1) Commitments to extend credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.
(2) The postretirement benefit payments represent actuarially determined future benefits to eligible plan participants. Accounting standards require that the liability be recorded at net present value while the future payments contained in this table have not been discounted.

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Figure 28. Quarterly Financial Data

Quarterly financial and per share data for the years ended 2015 and 2014 are summarized as follows:

	2015 Quarters								2014 Quarters
(In thousands, except per share amounts)	Fourth		Third		Second		First		Fourth		Third		Second		First
Total interest income	$	200,569	$	200,059	$	199,374	$	199,515	$	206,101	$	208,197	$	210,325	$	207,876
Total interest expense	15,338		14,736		14,256		13,892		13,590		14,619		14,748		13,976
Net interest income	185,231		185,323		185,118		185,623		192,511		193,578		195,577		193,900
Provision for loan losses	13,611		14,275		8,966		8,248		13,297		9,192		15,253		14,536
Net income	56,749		59,012		56,584		57,139		61,079		63,898		59,519		53,455
Net income per basic share	0.33		0.34		0.33		0.33		0.36		0.37		0.35		0.31
Net income per diluted share	0.33		0.34		0.33		0.33		0.36		0.37		0.35		0.31

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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) in the notes to the consolidated financial statements provide a greater understanding of how the Corporation’s financial performance is recorded and reported.

Some accounting policies are more likely than others to have a significant effect on the Corporation’s financial results and to expose those results to potentially greater volatility. 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 believes the following policies are both important to the portrayal of the Corporation’s financial condition and results of operations and require subjective or complex judgments and, therefore, Management considers the following to be critical accounting polices.

Accounting for Acquired and FDIC acquired loans, the Allowance for Acquired and FDIC acquired Losses and the Related FDIC Loss Share Receivable

Loans acquired are initially recorded at their acquisition date fair values. The fair value estimates for acquired loans are based on the estimate of expected cash flows, both principal and interest and prepayments, discounted at prevailing market interest rates. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value; therefore, an allowance for loan losses is not recorded at the acquisition date. Fair value estimates involve assumptions and judgments as to credit risk, interest rate risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Acquired and FDIC acquired loans, including those covered under loss share, are evaluated for impairment and are considered impaired if there is evidence of credit deterioration since origination and if it is probable as of the acquisition date that not all contractually required payments will be collected. In the assessment of credit quality, numerous assumptions, interpretations and judgments must be made, based on internal and third-party credit quality information and ultimately the determination as to the probability that all contractual cash flows will not be able to be collected. This is a point in time assessment and inherently subjective due to the nature of the available information and judgment involved. Expected cash flows at the acquisition date in excess of the fair value of impaired loans is referred to as the accretable yield and recorded as interest income over the life of the loans. Acquired and FDIC acquired impaired loans, including those covered under loss share, are not classified as nonaccrual or nonperforming as they are considered to be accruing loans because their interest income relates to the accretable yield recognized at the pool level and not to contractual interest payments at the loan level.

Subsequent to the acquisition date, Management continues to estimate the amount and timing of cash flows expected to be collected on impaired loans. Increases in expected cash flows will generally result in a recovery of any previously recorded ALL, to the extent applicable, and/or a reclassification from the nonaccretable difference to accretable yield, which will be recognized prospectively. The present value of any decreases in expected cash flows after the acquisition date will generally result in an impairment charge recorded as a provision for loan losses, resulting in an increase to the ALL, net of any expected reimbursement under FDIC Loss Share Agreements, to the extent applicable.

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For acquired and FDIC acquired nonimpaired loans, including those covered under loss share, the difference between the acquisition date fair value and the contractual amounts due at the acquisition date represents the fair value adjustment. Fair value adjustments may be discounts (or premiums) to a loan’s cost basis and are accreted (or amortized) to interest income over the the loan’s remaining life using the level yield method. Subsequent to the acquisition date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans, however, the Corporation records a provision for loan losses only when the required allowance, net of any expected reimbursement under any FDIC Loss Share Agreements, to the extent applicable, exceeds the remaining fair value adjustment.

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

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

Allowance for Loan Losses

As explained in Note 1 (Summary of Significant Accounting Policies) and Note 4 (Allowance for Loan Losses) in the notes to the consolidated financial statements, the allowance for loan losses represents Management’s estimate of probable credit losses inherent in the loan portfolio. Management estimates credit losses based on individual loans determined to be impaired and on all other loans grouped based on similar risk characteristics. This estimate is based on the current economy’s impact on the timing and expected amounts of future cash flows on impaired loans as well as historical loss experience associated with homogeneous pools of loans.

The Corporation uses a vendor-based loss migration model to forecast losses for commercial loans based on historical performance. The model creates loss estimates using twelve-month (monthly rolling) vintages and calculates cumulative three year annual loss rates within two different scenarios. One scenario uses five-year historical performance data while the other one uses two-year historical data. The calculated rate is the average cumulative expected loss of the two- and five-year data set. As a result, this approach lends more weight to the more recent performance. This amount is then adjusted, as necessary, for qualitative considerations (“Q-factors”) to reflect changes in the portfolio’s collectability characteristics not captured by the historical loss data resulting from changes in market or industry conditions, underwriting, or based on changes in trends in the composition of the portfolio, including risk composition, seasoning, and underlying collateral. The allowance

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included additional calculated amounts for qualitative risk factors that totaled $61.3 million at December 31, 2015 compared to $57.0 million at December 31, 2014.

Management’s estimate of the allowance for the commercial portfolio is also based on risk rating. The Corporation’s risk rating system is described in Note 1 (Summary of Significant Accounting Policies) and Note 4 (Allowance for Loan Losses) in the notes to the consolidated financial statements. Changes in risk ratings can result from fluctuations in the general economy, developments within a particular industry, or changes in an individual credit due to factors particular to that credit such as competition, management or business performance. A reasonably possible scenario would be an estimated 10% migration of lower risk-related pass credits to criticized status which could increase the inherent losses by $22.1 million.

The Corporation utilizes a 24-month roll rate period and a twelve month loss emergence period to estimate losses in the consumer portfolio. Where individual products are reviewed on a group basis or in loan pools, losses can be affected by such things as collateral value, loss severity, the economy, and other uncontrollable factors. The consumer portfolio is largely comprised of loans that are secured by primary residences and home equity lines and loans. A 10 basis point increase in the estimated loss rates on the residential mortgage and home equity line and loan portfolios would increase the inherent losses by $1.9 million. The remaining consumer portfolio inherent loss analysis includes reasonably possible scenarios with estimated loss rates increasing by 25 basis points, which would change the related inherent losses by $7.9 million.

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

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

Income Taxes

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

In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Assessing the need for, or the sufficiency of, a valuation allowance requires Management to evaluate all available evidence, both negative and positive, including the recent trend of quarterly earnings. Positive evidence necessary to overcome the

negative evidence includes whether future taxable income in sufficient amounts and character within the carryback and carryforward periods is available under the tax law, including the use of tax planning strategies. When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carryforwards expiring unused) exists, more positive evidence than negative evidence will be necessary. The

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Corporation has concluded that based on the level of positive evidence, it is more likely than not that the deferred tax asset will be realized. At December 31, 2015, net deferred tax assets were $252.4 million. The impact of each of these impairment matters could have a material adverse effect on our business, results of operations, and financial condition.

Note 12 (Income Taxes) in the notes to the consolidated financial statements provides an analysis of the Corporation’s income taxes.

Derivative Instruments and Hedging Activities

In various aspects of its business, the Corporation uses derivative financial instruments to modify exposures to changes in interest rates and market prices for other financial instruments. Derivative instruments are required to be carried at fair value on the balance sheet with changes in the fair value recorded directly in earnings. To qualify for and maintain hedge accounting, the Corporation must meet formal documentation and effectiveness evaluation requirements both at the hedge's inception and on an ongoing basis. The application of the hedge accounting policy requires strict adherence to documentation and effectiveness testing requirements, judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings, and measurement of changes in the fair value of hedged items. If in the future derivative financial instruments used by the Corporation no longer qualify for hedge accounting, the impact on the consolidated results of operations and reported earnings could be significant. When hedge accounting is discontinued, the Corporation would continue to carry the derivative on the balance sheet at its fair value; however, for a cash flow derivative, changes in its fair value would be recorded in earnings instead of through other comprehensive income, and for a fair value derivative, the changes in fair value of the hedged asset or liability would no longer be recorded through earnings. See also Note 1 (Summary of Significant Accounting Policies) and Note 18 (Derivatives and Hedging Activity) in the notes to the consolidated financial statements.

Valuation Methodologies

Fair value measurement applies whenever accounting guidance requires or permits assets or liabilities to be measured at fair value. Fair value is an estimate of the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the measurement date and is based on the assumptions market participants would use when pricing an asset or liability.

Fair value measurement and disclosure guidance establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on the markets in which the assets and liabilities are traded and whether the inputs used for measurement are observable or unobservable. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect management’s estimates about market data. Level 1 valuations are based on quoted prices for identical instruments traded in active markets. Level 2 valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 valuations are generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. Fair value measurements for assets and liabilities where limited or no observable market data exists are based primarily upon estimates which cannot be determined with precision and in many cases may not reflect amounts

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exchanged in a current sale of the financial instrument. Fair value measurement and disclosure guidance differentiates between those assets and liabilities required to be carried at fair value at every reporting period (“recurring”) and those assets and liabilities that are only required to be adjusted to fair value under certain circumstances (“nonrecurring”).

See Note 17 (Fair Value Measurement) in the notes to the consolidated financial statements for a complete discussion of the Corporation’s use of fair value and the related measurement techniques.

Goodwill

Goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired. The Corporation is required to evaluate goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Corporation has elected to test for goodwill impairment as of November 30 of each year. The valuation and testing methodologies used in the Corporation’s analysis of goodwill impairment are summarized in Note 1 (Summary of Significant Accounting Policies) under the heading “Goodwill and Intangible Assets” in the notes to the consolidated financial statements. The first step in testing for goodwill impairment is to determine the fair value of each reporting unit. The Corporation’s reporting units for purposes of this testing are its major lines of business, Commercial, Retail and Wealth. The Corporation engaged an independent valuation firm to assist in the computation of the fair value estimates of each reporting unit as part of its annual impairment assessment. Fair values are estimated using comparable external market data or market approach (which include the Publicly Traded Guideline Method, Guideline Transaction Method) and an income approach (a discounted cash flow modeling that incorporates an appropriate risk premium and earnings forecast information). A sensitivity analysis of the estimated fair value of each reporting unit is also performed. Management believe the estimates and assumptions used in the goodwill impairment analysis for our reporting units are reasonable. However, if actual results and market conditions differ from the assumptions or estimates used, the fair value of each reporting unit could change in the future.

The valuation utilized market and income approach methodologies and applied a weighted average to each in order to determine the fair value of each reporting unit. Fair values of reporting units are estimated using a discounted cash flow analysis derived from internal earnings forecasts. The primary assumptions Management uses in the implied fair value calculation include discount rates, asset and liability growth rates, and other income and expense estimates. The Corporation utilized the best information currently available to estimate future performance for each reporting unit; however, future adjustments to these projections may be necessary if conditions differ substantially from the assumptions utilized in making these assumptions.

The second step of impairment testing is necessary only if the carrying amount of either reporting unit exceeds its fair value, suggesting goodwill impairment. In such a case, the Corporation would estimate a hypothetical purchase price for the reporting unit (representing the unit’s fair value) and then compare that hypothetical purchase price with the fair value of the unit’s net assets (excluding goodwill). Any excess of the estimated purchase price over the fair value of the reporting unit’s net assets represents the implied fair value of goodwill. An impairment loss would be recognized as a charge to earnings if the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of goodwill. Based on the Corporation’s analysis performed in the fourth quarter, the fair value of each reporting unit exceeded its carrying amount.

Note 5 (Goodwill and Other Intangible Assets) in the notes to the consolidated financial statements for the components of the Corporation’s goodwill by business segment.

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Forward-Looking Statements - 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-K, 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.

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, in the time frame anticipated or at all, 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 FDIC, 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.

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

See the information presented in the “Market Risk and Interest Rate Risk Management” section at pages 85 through 87 under Item 7 of this Form 10-K.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA				99
	CONSOLIDATED BALANCE SHEETS			100
	CONSOLIDATED STATEMENTS OF INCOME			101
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			102
	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY			103
	CONSOLIDATED STATEMENTS OF CASH FLOWS			104
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			105
	Note	1	Summary of Significant Accounting Policies	105
	Note	2	Investment Securities	122
	Note	3	Loans	131
	Note	4	Allowance for Loan Losses	141
	Note	5	Goodwill and Other Intangible Assets	158
	Note	6	Mortgage Servicing Rights and Mortgage Servicing Activity	159
	Note	7	Restrictions on Cash and Dividends	161
	Note	8	Premises and Equipment	161
	Note	9	Certificates and Other Time Deposits	162
	Note	10	Federal Funds Purchased and Securities Sold under Agreements to Repurchase	162
	Note	11	Borrowed Funds	163
	Note	12	Income Taxes	164
	Note	13	Benefit Plans	167
	Note	14	Share-Based Compensation	175
	Note	15	Parent Company	179
	Note	16	Segment Information	180
	Note	17	Fair Value Measurement	183
	Note	18	Derivatives and Hedging Activity	195
	Note	19	Commitments and Guarantees	200
	Note	20	Shareholders' Equity	205
	Note	21	Changes and Reclassifications Out of Accumulated Other Comprehensive Income	207
	Note	22	Regulatory Matters	208
	Note	23	Subsequent Events	210
	Management’s Report of Internal Control over Financial Reporting			212
	Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting			213
	Report of Independent Registered Public Accounting Firm			215

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CONSOLIDATED BALANCE SHEETS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
	December 31,
(In thousands)	2015			2014
ASSETS
Cash and due from banks	$	380,799		$	480,998
Interest-bearing deposits in banks	83,018			216,426
Total cash and cash equivalents	463,817			697,424
Investment securities:
Held-to-maturity	2,674,093			2,903,609
Available-for-sale	3,967,735			3,545,288
Other investments	148,172			148,654
Loans held for sale	5,472			13,428
Loans	16,076,945			15,326,147
Allowance for loan losses	(153,691		)	(143,649		)
Net loans	15,923,254			15,182,498
Premises and equipment, net	319,488			332,297
Goodwill	741,740			741,740
Intangible assets	60,628			71,020
FDIC acquired other real estate	2,134			49,641
Accrued interest receivable and other assets	1,218,071			1,216,748
Total assets	$	25,524,604		$	24,902,347
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	5,942,248		$	5,786,662
Interest-bearing	3,476,729			3,028,888
Savings and money market accounts	8,450,123			8,399,612
Certificates and other time deposits	2,238,903			2,289,503
Total deposits	20,108,003			19,504,665
Federal funds purchased and securities sold under agreements to repurchase	1,037,075			1,272,591
Wholesale borrowings	580,648			428,071
Long-term debt	505,173			505,192
Accrued taxes, expenses and other liabilities	353,610			357,547
Total liabilities	22,584,509			22,068,066
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
Common stock warrant	—			3,000
Common Stock, without par value; authorized 300,000,000 shares; issued: December 31, 2015 - 170,183,515 shares; December 31, 2014 - 170,183,515 shares	127,937			127,937
Capital surplus	1,386,677			1,393,090
Accumulated other comprehensive loss	(79,274		)	(71,892		)
Retained earnings	1,519,438			1,404,717
Treasury stock, at cost: December 31, 2015 - 4,425,927; December 31, 2014 - 4,793,566 shares	(114,683		)	(122,571		)
Total shareholders’ equity	2,940,095			2,834,281
Total liabilities and shareholders’ equity	$	25,524,604		$	24,902,347

See accompanying Notes to Consolidated Financial Statements

100

CONSOLIDATED STATEMENTS OF INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES
	Years Ended December 31,
(In thousands, except per share amounts)	2015		2014		2013
Interest income:
Loans and loans held for sale	$	647,783	$	682,328	$	635,872
Investment securities:
Taxable	129,809		128,363		108,824
Tax-exempt	21,925		21,807		21,107
Total investment securities interest	151,734		150,170		129,931
Total interest income	799,517		832,498		765,803
Interest expense:
Deposits:
Interest bearing	3,054		2,963		2,543
Savings and money market accounts	22,385		22,101		24,406
Certificates and other time deposits	10,822		10,844		9,649
Federal funds purchased and securities sold under agreements to repurchase	1,126		991		1,240
Wholesale borrowings	4,662		5,210		3,893
Long-term debt	16,173		14,821		13,287
Total interest expense	58,222		56,930		55,018
Net interest income	741,295		775,568		710,785
Provision for loan losses	45,100		52,279		33,684
Net interest income after provision for loan losses	696,195		723,289		677,101
Noninterest income:
Trust department income	42,125		39,949		34,770
Service charges on deposits	66,460		71,457		74,399
Credit card fees	54,643		52,666		50,542
ATM and other service fees	25,588		24,179		19,155
Bank owned life insurance income	15,747		19,177		16,926
Investment services and insurance	15,423		15,145		12,777
Investment securities gains/(losses), net	957		166		(2,803		)
Loan sales and servicing income	9,566		16,044		23,069
Other operating income	38,489		42,741		41,508
Total noninterest income	268,998		281,524		270,343
Noninterest expense:
Salaries, wages, pension and employee benefits	348,808		358,970		354,016
Net occupancy expense	55,937		59,436		49,510
Equipment expense	47,926		48,499		41,875
Stationery, supplies and postage	13,424		15,587		14,199
Bankcard, loan processing and other costs	47,081		45,625		71,929
Professional services	19,578		21,813		40,680
Amortization of intangibles	10,392		11,735		8,392
FDIC insurance expense	20,730		20,481		17,707
Other operating expense	74,814		82,773		85,945
Total noninterest expense	638,690		664,919		684,253
Income before income tax expense	326,503		339,894		263,191
Income tax expense	97,019		101,943		79,507
Net income	229,484		237,951		183,684
Less: Net income allocated to participating shareholders	1,836		1,930		1,545
Preferred Stock dividends	5,876		5,876		5,337
Net income attributable to common shareholders	221,772		230,145		176,802
Net income used in diluted EPS calculation	$	221,772	$	230,145	$	176,802
Basic earnings per common share	$	1.34	$	1.39	$	1.18
Diluted earnings per common share	1.33		1.39		1.18
Cash dividend per common share	0.66		0.64		0.64
Weighted average number of common shares outstanding - basic	165,669		165,296		149,607
Weighted average number of common shares outstanding - diluted	166,127		166,054		150,421

See accompanying Notes to Consolidated Financial Statements

101

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands)	Year Ended December 31, 2015									Year Ended December 31, 2014									Year Ended December 31, 2013
	Pre-tax			Tax			After-tax			Pre-tax			Tax			After-tax			Pre-tax			Tax			After-tax
Net Income	$	326,503		$	97,019		$	229,484		$	339,894		$	101,943		$	237,951		$	263,191		$	79,507		$	183,684
Other comprehensive income/(loss)
Unrealized gains and losses on securities available for sale:
Changes in unrealized securities’ holding gains/(losses)	(19,842		)	(11,253		)	(8,589		)	38,864			13,602			25,262			(130,947		)	(45,833		)	(85,114		)
Changes in unrealized securities’ holding gains/(losses) that result from securities being transferred into available-for-sale from held-to-maturity	(3,456		)	(1,254		)	(2,202		)	(2,157		)	(753		)	(1,404		)	(2,187		)	(765		)	(1,422		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(957		)	(348		)	(609		)	(166		)	(58		)	(108		)	2,803			981			1,822
Net change in unrealized gains/(losses) on securities available for sale	(24,255		)	(12,855		)	(11,400		)	36,541			12,791			23,750			(130,331		)	(45,617		)	(84,714		)
Pension plans and other postretirement benefits:
Net gains/(losses) arising during the period	116			42			74			(49,552		)	(17,344		)	(32,208		)	47,939			16,779			31,160
Amortization of actuarial losses/(gains)	4,552			1,652			2,900			3,166			1,108			2,058			4,437			1,553			2,884
Amortization of prior service cost reclassified to other noninterest expense	1,640			596			1,044			2,131			747			1,384			(1		)	—			(1		)
Net change from defined benefit pension plans	6,308			2,290			4,018			(44,255		)	(15,489		)	(28,766		)	52,375			18,332			34,043
Total other comprehensive gains/(losses)	(17,947		)	(10,565		)	(7,382		)	(7,714		)	(2,698		)	(5,016		)	(77,956		)	(27,285		)	(50,671		)
Comprehensive income	$	308,556		$	86,454		$	222,102		$	332,180		$	99,245		$	232,935		$	185,235		$	52,222		$	133,013

See accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands)	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, 2012	$	—	$	127,937	$	—		$	475,979		$	(16,205	)	$	1,195,850		$	(138,359	)	$	1,645,202
Net income	—		—		—			—			—			183,684			—			183,684
Other comprehensive income	—		—		—			—			(50,671		)	—			—			(50,671		)
Comprehensive income	—		—		—			—			(50,671		)	183,684			—			133,013
Cash dividends - Preferred Stock	—		—		—			—			—			(5,337		)	—			(5,337		)
Cash dividends - common stock ($0.64 per share)	—		—		—			—			—			(96,222		)	—			(96,222		)
Common stock issued in connection with Citizens acquisition (55,468,283 shares)	—		—		—			925,272			—			—			—			925,272
Nonvested (restricted) shares granted (563,257 shares)	—		—		—			(19,790		)	—			—			12,977			(6,813		)
Restricted stock activity (217,674 shares)	—		—		—			1,261			—			—			(3,969		)	(2,708		)
Deferred compensation trust (198,207 increase in shares)	—		—		—			434			—			—			(434		)	—
Share-based compensation	—		—		—			10,937			—			—			—			10,937
Issuance of 5.875% Non-Cumulative Perpetual Preferred Stock, Series A	100,000		—		—			(3,450		)	—			—			—			96,550
Issuance of a Common Stock warrant to the U.S. Treasury for Citizens TARP warrant (2,408,203 shares)	—		—		3,000			—			—			—			—			3,000
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	—		—		—			—			—			$	237,951		—			$	237,951
Other comprehensive income	—		—		—			—			(5,016		)	—			—			(5,016		)
Comprehensive income	—		—		—			—			(5,016		)	237,951			—			232,935
Cash dividends - Preferred Stock	—		—		—			—			—			(5,876		)	—			(5,876		)
Cash dividends - common stock ($0.64 per share)	—		—		—			—			—			(105,333		)	—			(105,333		)
Nonvested (restricted) shares granted (595,906 shares)	—		—		—			(13,469		)	—			—			13,568			99
Restricted stock activity (262,140 shares)	—		—		—			1,219			—			—			(5,579		)	(4,360		)
Deferred compensation trust (291,419 increase in shares)	—		—		—			775			—			—			(775		)	—
Share-based compensation	—		—		—			13,922			—			—			—			13,922
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	$	—	$	—	$	—		$	—		$	—		$	229,484		$	—		$	229,484
Other comprehensive income	—		—		—			—			(7,382		)	—			—			(7,382		)
Comprehensive income	—		—		—			—			(7,382		)	229,484			—			222,102
Cash dividends - Preferred Stock	—		—		—			—			—			(5,876		)	—			(5,876		)
Cash dividends - Common Stock ($0.66 per share)	—		—		—			—			—			(108,887		)	—			(108,887		)
Nonvested (restricted) shares granted (680,066 shares)	—		—		—			(14,798		)	—			—			14,798			—
Restricted stock activity (312,427 shares)	—		—		—			1,917			—			—			(6,312		)	(4,395		)
Deferred compensation trust (238,670 increase in shares)	—		—		—			598			—			—			(598		)	—
Share-based compensation	—		—		—			15,020			—			—			—			15,020
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 at December 31, 2015	$	100,000	$	127,937	$	—		$	1,386,677		$	(79,274	)	$	1,519,438		$	(114,683	)	$	2,940,095

See accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
	Years Ended December 31,
(In thousands)	2015			2014			2013
Operating Activities
Net income	$	229,484		$	237,951		$	183,684
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	45,100			52,279			33,684
Provision (benefit) for deferred income taxes	47,269			44,666			(17,819		)
Depreciation and amortization	63,919			53,802			38,236
Benefit attributable to FDIC loss share	6,373			2,920			10,790
Accretion of acquired loans	(92,995		)	(136,776		)	(154,487		)
Amortization and accretion of investment securities, net
Available for sale	9,393			11,734			17,274
Held to maturity	4,828			4,800			7,609
Losses (gains) on sales and calls of available-for-sale investment securities, net	(957		)	(166		)	2,803
Originations of loans held for sale	(68,747		)	(358,301		)	(550,193		)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary markets	77,913			363,732			574,321
Gains on sales of loans, net	(1,210		)	(7,237		)	(12,067		)
Amortization of intangible assets	10,392			11,735			8,392
Recognition of stock compensation expense	15,020			13,922			10,937
Net decrease (increase) in other assets	11,751			(26,707		)	181,772
Net increase (decrease) in other liabilities	(43,833		)	16,283			(25,570		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	313,700			284,637			309,366
Investing Activities
Proceeds from sale of securities
Available-for-sale	370,946			22,463			2,179,728
Held-to-maturity	1,413			7,088			897
Other	668			32,486			89,554
Proceeds from prepayments, calls, and maturities
Available-for-sale	584,833			486,100			699,647
Held-to-maturity	438,882			390,882			245,259
Other	165			—			—
Purchases of securities
Available-for-sale	(1,371,644		)	(754,518		)	(1,059,130		)
Held-to-maturity	(214,062		)	(378,678		)	(1,832,993		)
Other	(402		)	(388		)	(3,098		)
Net decrease (increase) in loans and leases	(719,311		)	(952,518		)	171,929
Purchases of premises and equipment	(37,358		)	(69,346		)	(40,632		)
Sales of premises and equipment	9,472			26,509			1,110
Cash received for acquisition, net of cash paid	—			—			188,948
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES	(936,398		)	(1,189,920		)	641,219
Financing Activities
Net increase in demand accounts	603,427			329,786			835,011
Net increase (decrease) in savings and money market accounts	50,511			(187,555		)	176,513
Net (decrease) in certificates and other time deposits	(50,600		)	(171,167		)	(514,103		)
Net increase (decrease) in securities sold under agreements to repurchase	(235,516		)	421,056			(367,995		)
Increase (decrease) in long-term debt	—			180,764			249,930
Net increase (decrease) in wholesale borrowings	152,577			227,471			(655,603		)
Repurchase of common stock warrant	(12,150		)	—			—
Net proceeds from issuance of preferred stock	—			—			96,550
Cash dividends - common	(108,887		)	(105,333		)	(96,222		)
Cash dividends - preferred	(5,876		)	(5,876		)	(5,337		)
Restricted stock activity	(4,395		)	(4,261		)	(9,521		)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES	389,091			684,885			(290,777		)
Increase (decrease) in cash and cash equivalents	(233,607		)	(220,398		)	659,808
Cash and cash equivalents at beginning of year	697,424			917,822			258,014
Cash and cash equivalents at end of year	$	463,817		$	697,424		$	917,822
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Non-cash transaction: Common Stock issued in merger with Citizens	$	—		$	—		$	925,211
Non-cash transaction: Consideration from the warrant issued to the Treasury for Citizens TARP	—			—			3,000
Cash paid during the year for:
Interest expense	57,284			55,424			50,055
Federal income taxes	46,825			35,981			27,662

See accompanying Notes to Consolidated Financial Statements

104

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FIRSTMERIT CORPORATION AND SUBSIDARIES

The Corporation is a diversified financial services company headquartered in Akron, Ohio with 366 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.

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

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

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

(a) Principles of Consolidation

The Parent Company is a bank holding company whose principal asset is the common stock of its wholly-owned subsidiary, the Bank. The Parent Company has one other active subsidiary, FirstMerit Risk Management, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

(b) Use of Estimates

Management must make certain estimates and assumptions that affect the amounts reported in the financial statements and related notes. If these estimates prove to be inaccurate, actual results could differ from those reported.    

(c) Business Combinations

Business combinations are accounted for using the acquisition method of accounting. Under this accounting method, the acquired company's net assets are recorded at fair value on the date of acquisition, and the results of operations of the acquired company are combined with the Corporation's results from that date forward. Costs related to the acquisition are expensed as incurred. The difference between the purchase price and the fair value of the net assets acquired (including intangible assets with finite lives) is recorded as goodwill. The accounting policy for goodwill and intangible assets is summarized in this note under the heading "Goodwill and Other Intangible Assets".

(d) Cash and Cash Equivalents

Cash and cash equivalents consist of cash and due from banks, interest bearing deposits in other banks and checks in the process of collection.

105

(e) Investment Securities

Debt securities are classified as held-to-maturity when the Corporation has the positive intent and ability to hold the securities to maturity. These securities are reported at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity using the effective yield method. This method produces a constant rate of return on the adjusted carrying amount.

Securities are classified as available-for-sale when the Corporation intends to hold the securities for an indefinite period of time but may be sold in response to changes in interest rates, prepayment risk, liquidity needs or other factors. Securities available-for-sale are reported at fair value, with unrealized gains and losses, net of income tax, reported as a separate component of other comprehensive income (loss) in shareholders’ equity.

In certain situations, Management may elect to transfer certain debt securities from the available-for-sale to the held to maturity classification. In such cases, any unrealized gain or loss included in accumulated other comprehensive income (loss) at the time of transfer is amortized over the remaining life of the security as a yield adjustment such that only the remaining initial discount or premium from the purchase date is recognized in income.

Interest and dividends on securities, including the amortization of premiums and accretion of discount, are included in interest income. Realized gains or losses on the sales of available-for-sale securities are recorded on the trade date and determined using the specific identification method.

On at least a quarterly basis, Management evaluates securities that are in an unrealized loss position for OTTI. An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. As part of the impairment evaluation, Management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in earnings, and 2) OTTI related to other factors, such as liquidity conditions in the market or changes in market interest rates, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized in earnings.

Other investments include FHLB and FRB stock. As a member of the FHLB system, the Bank is required to own a certain amount of stock based on the level of borrowings and other factors. The Bank is also a member of its regional FRB. Both FHLB and FRB stock are carried at cost and evaluated for impairment based on the ultimate recovery of par value. Cash and stock dividends received on the stock are reported as interest income in the Consolidated Statement of Income.

(f) Originated Loans and Loan Income

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

106

loans where collectability is uncertain. Accrued interest is presented separately in the balance sheet, except for accrued interest on credit card loans, which is included in the outstanding loan balance. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.

(g) Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at fair value. The election of the fair value option aligns the accounting for these loans with the related economic hedges. Loan origination fees are recorded when earned and related direct loan origination costs are recognized when incurred. Upon their sale, differences between carrying value and sales proceeds realized are recorded to loan sales and servicing income in the Consolidated Statement of Income.

A discussion of the valuation methodology applied to the Corporation’s loans held for sale is described in Note 17 (Fair Value Measurement).

(h) Nonperforming Loans

Loans and leases on which payments are past due for 90 days are placed on nonaccrual, with the exception of certain commercial, credit card and mortgage loans and loans that are fully secured and in process of collection. Credit card loans on which payments are past due for 120 days are placed on nonaccrual status.Interest on mortgage loans is accrued until Management deems it uncollectible based upon the specific identification method. Past due status is based on the contractual terms of the loan. Loans are placed on nonaccrual or charged off at an earlier date if principal or interest is considered uncollectible.

Loans are generally written off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, terms, and other factors. When a loan is placed on nonaccrual status, interest deemed uncollectible that had been accrued in prior years is charged against the allowance for loan losses and interest deemed uncollectible accrued in the current year is reversed against interest income. Payments subsequently received on nonaccrual loans are generally applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable. This generally requires timely principal and interest payments for a minimum of six payment cycles.

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

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

107

Acquired nonimpaired loans are placed on nonaccrual and considered and reported as nonperforming or past due using the same criteria applied to the originated portfolio. Acquired impaired loans are not classified as nonperforming assets as the loans are considered to be performing under the provisions of ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). Acquired loans restructured after acquisition are not considered TDRs for purposes of the Corporation’s accounting and disclosure if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools.

(i) Allowance for Loan Losses

The allowance for loan losses is Management’s estimate of the amount of probable credit losses inherent in the loan portfolio at the balance sheet date. Increases to the allowance for loan losses are made by charges to the provisions for loan losses. Loans deemed uncollectible are charged against the allowance for loan losses. Recoveries of previously charged-off amounts are credited to the allowance for loan losses. Management estimates credit losses based on individual loans determined to be impaired and on all other loans grouped based on similar risk characteristics.

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

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

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

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

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

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

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

If a nonperforming, substandard loan has an outstanding balance of $0.3 million or greater or if a doubtful loan has an outstanding balance of $0.1 million or greater, as determined by the Corporation’s credit-risk grading process, further analysis is performed to determine the probable loss, if any, and assign a specific allowance to the loan if needed. The allowance for loan losses relating to originated loans that have become impaired is based on either expected cash flows discounted at the loan’s original effective interest rate, the observable market price, or the fair value of the collateral for certain collateral dependent loans.

Management also considers internal and external factors such as economic conditions, credit quality trends, 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 also assesses the credit risk associated with off-balance sheet loan commitments and letters of credit. The liability for off-balance sheet credit exposure related to loan commitments and other credit guarantees is included in other liabilities on the Consolidated Balance Sheet.

(j) Acquired Loans, FDIC acquired loans, covered and Related Loss Share Receivable

Acquired loans (nonimpaired and impaired) are initially measured at fair value as of the acquisition date. The fair value estimates for acquired loans are based on the estimate of expected cash flows, both principal and interest and prepayments, discounted at prevailing market interest rates. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.

The Corporation evaluates acquired loans for impairment in accordance with the provisions of ASC 310-30. Acquired loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable at time of acquisition that all contractually required payments will not be collected. In determining the acquisition date fair value of acquired impaired loans, and in subsequent accounting, the Corporation generally aggregates impaired loans into pools of loans with common characteristics. Each pool is accounted for as a single asset with one composite interest rate and an aggregate expectation of cash flows. Expected cash flows at the acquisition date in excess of the fair value of the loans is referred to as the accretable yield and recorded as interest income over the life of the loans. Acquired impaired loans are not classified as nonaccrual or nonperforming as they are considered to be accruing loans because their interest income relates to the accretable yield recognized at the pool level and not to contractual interest payments at the loan level. Subsequent to the acquisition date, increases in expected cash flows will generally result in a recovery of any previously recorded ALL, to the extent applicable, and/or a reclassification from the nonaccretable difference to accretable yield, which will be recognized prospectively. The present value of any decreases in expected cash flows after the acquisition date will generally result in an impairment charge recorded as a provision for loan losses, resulting in an increase to the ALL, net of any expected reimbursement under FDIC Loss Share Agreements, to the extent applicable. Revolving loans, including lines of credit and credit cards loans, and leases are excluded from acquired impaired loan accounting.

For acquired nonimpaired loans, the difference between the acquisition date fair value and the contractual amounts due at the acquisition date represents the fair value adjustment. Fair value adjustments

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may be discounts (or premiums) to a loan’s cost basis and are accreted (or amortized) to interest income over the loan’s remaining life using the level yield method. Subsequent to the acquisition date, the method utilized to estimate the required allowance for loan losses for these loans is similar to originated loans, however, the Corporation records an allowance for loan losses only when the required allowance, net of any expected reimbursement under any FDIC Loss Share Agreements, to the extent applicable, exceeds the remaining fair value adjustment. Acquired nonimpaired loans are reported net of the unamortized fair value adjustment. Nonimpaired acquired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

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

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

Upon the determination of an incurred loss the loss share receivable will be reduced by the amount owed by the FDIC. A corresponding claim receivable is recorded in accrued interest receivable and other assets on the Consolidated Balance Sheet until cash is received from the FDIC.

FDIC acquired loans are loans acquired in FDIC assisted transactions for which the FDIC loss share agreement has expired. FDIC acquired loans are subsequently valued and accounted for in the same manner as the acquired loans disclosed above, with the exception that there is no offsetting loss share receivable.

An acquired, FDIC acquired or covered 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, FDIC acquired or covered impaired loans subject to

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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.

For further discussion of the Corporation’s acquisitions and loan accounting, see Note 3 (Loans), and Note 4 (Allowance for Loan Losses).

(k) Equipment Lease Financing

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

(l) Mortgage Servicing Rights

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

MSRs are initially valued at fair value. Servicing assets and liabilities are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Amortization is recorded in loan sales and servicing income in the Consolidated Statement of Income.

At each reporting period, MSRs are assessed for impairment based on fair value of those rights on a stratum-by-stratum basis. The Corporation stratifies its servicing rights portfolio into tranches based on loan type and interest rate, the predominant risk characteristics of the underlying loans. Any impairment is recognized through a valuation allowance for each impaired stratum through a charge to income. If the Corporation later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income.

The Corporation also reviews MSRs for OTTI each quarter and recognizes a direct write-down when the recoverability of a recorded allowance for impairment is determined to be remote. Unlike an allowance for impairment, a direct write-down permanently reduces the unamortized cost of the MSR and the allowance for impairment.

MSRs do not trade in an active open market with readily observable market prices. Although sales of MSRs do occur, the exact terms and conditions may not be available. As a result, the fair value of MSRs is estimated using discounted cash flow modeling techniques which require Management to make assumptions regarding future net servicing income, adjusted for such factors as net servicing income, discount rate and

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prepayments. The primary assumptions used in determining the current fair value of the Corporation’s MSRs as well as a sensitivity analysis are presented in Note 6 (Mortgage Servicing Rights and Mortgage Servicing Activity).

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

(m) Depreciation and Amortization

Premises and equipment are reported at cost less accumulated depreciation and amortization and principally depreciated using the straight-line method over their estimated useful lives. Estimated useful lives for furniture and equipment range from three to 15 years, and depreciable buildings ranges from 10 to 35 years. Amortization of leasehold improvements is computed on the straight-line method based on related lease terms or the estimated useful lives of the assets of up to 15 years, whichever is shorter.

The Corporation purchases, as well as internally develops and customizes, certain software to enhance or perform internal business functions. Software development costs incurred in the planning and post-development project stages are charged to noninterest expense. Costs associated with designing software configuration and interfaces, installation, coding programs and testing systems are capitalized and amortized using the straight-line method over periods ranging from three to seven years.

(n) Goodwill and Other Intangible Assets

Goodwill represents the amount by which the cost of net assets acquired in a business combination exceeds their fair value. Goodwill is evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The goodwill impairment test is a two-step process. The first step compares the reporting unit’s estimated fair values, including goodwill, to its carrying amount. If the carrying amount exceeds its fair value, then goodwill impairment may be indicated. The second step allocates the reporting units fair value to its assets and liabilities. If the unallocated fair value does not exceed the carrying amount of goodwill then an impairment loss would be recognized as a charge to earnings.

Other intangible assets represent the present value of the future stream of income to be derived from the purchase of core deposits and trust relationships. Other intangible assets are amortized on an accelerated basis over their estimated useful lives. Goodwill and other intangible assets deemed to have indefinite lives are not amortized.

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(o) Other Real Estate Owned

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

(p) Derivative Instruments and Hedging Activities

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

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

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

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

The Corporation enters into commitments to originate mortgage loans whereby the interest rate on the prospective loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with

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any related fees received from potential borrowers, are recorded at fair value as derivative assets or liabilities, with changes in fair value recorded in net gain or loss on sale of mortgage loans.

(q) Income Taxes

Management evaluates two components of income tax expense: current and deferred.  Current income tax expense reflects taxes to be paid or refunded for the current period as adjusted by prior year provision to return adjustments. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

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

In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Assessing the need for, or the sufficiency of, a valuation allowance requires Management to evaluate all available evidence, both negative and positive, including the recent trend of quarterly earnings. Positive evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character within the carryback and carryforward periods is available under the tax law, including the use of tax planning strategies. When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carryforwards expiring unused) exists, more positive evidence than negative evidence will be necessary.

Additional information regarding income taxes is included in Note 12 (Income Taxes).

(r) Treasury Stock

Treasury stock is accounted for using the cost method in which reacquired shares reduce outstanding Common Stock and capital surplus. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on the last-in, first-out basis.

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(s) Per Share Data

Basic net income per common share is calculated using the two-class method to determine income attributable to common shareholders. The two-class method is an earnings allocation formula that determines earnings per share for each share of common stock and participating securities according to dividends declared (distributed earnings) and participation rights in undistributed earnings. Distributed and undistributed earnings are allocated between common and participating security shareholders based on their respective rights to receive dividends. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities (i.e., nonvested restricted stock). Undistributed net losses are not allocated to nonvested restricted shareholders, as these shareholders do not have a contractual obligation to fund the losses incurred by the Corporation. 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. For the diluted calculation, the weighted-average number of shares of Common Stock outstanding by the assumed conversion of outstanding convertible preferred stock from the beginning of the year or date of issuance, if later, and the number of shares of Common Stock that would be issued assuming the exercise of stock options and warrants using the treasury stock method. The treasury stock method assumes that the Corporation uses the proceeds from a hypothetical exercise of any options and warrants to repurchase Common Stock at the average market price during the period. These adjustments to the weighted-average number of shares of Common Stock outstanding are made only when such adjustments will dilute earnings per common share.

All earnings per share disclosures appearing in these financial statements, related notes and management’s discussion and analysis, are computed assuming dilution unless otherwise indicated. The Corporation’s earnings per share calculations are illustrated in Note 20 (Shareholders' Equity) under the heading “Earnings per Share.”

(t) Trust Department Assets and Income

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

(u) Share-Based Compensation

The Corporation’s share-based compensation plans are described in detail in Note 14 (Share-Based Compensation). The Corporation recognizes share-based compensation expense using the straight-line method over the requisite service period for all stock awards, including those with graded vesting, and reduced by assumed forfeitures. The requisite service period is the period an employee is required to provide service in order to vest in the award, which cannot extend beyond the date at which the employee is no longer required to perform any service to receive the share-based compensation (the retirement-eligible date). Certain awards are contingent upon performance conditions, which affect the number of awards ultimately granted. The Corporation periodically evaluates the probable outcome of the performance conditions and makes cumulative adjustments to compensation expense as appropriate.

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(v) Pension and Other Postretirement Plans

Pension and other postretirement costs are based on assumptions concerning future events that will affect the amount and timing of required benefit payments under the Corporation’s plans. These assumptions include demographic assumptions such as retirement age and mortality, a compensation rate increase, a discount rate used to determine the current benefit obligation and a long-term expected rate of return on plan assets. Net periodic benefit cost includes service and interest cost based on the assumed discount rate, an expected return on plan assets based on an actuarially derived market-related value and amortization of prior service cost and net actuarial gains or losses. The amortization of any prior service costs is determined using a straight line amortization of the cost over the average remaining lifetime of participants expected to receive benefits under the plans. Actuarial gains and losses include the impact of plan amendments and various unrecognized gains and losses, which are deferred and amortized over the future service periods of active employees. The overfunded or underfunded status of the plans is recorded as an asset or liability, respectively, in the Consolidated Balance Sheet, with changes in that status recognized through other comprehensive income. Additional information about pension and other postretirement plans is included in Note 13 (Benefit Plans).

(w) Revenue Recognition

The Corporation recognizes revenues as they are earned based on contractual terms, as transactions occur, or as services are provided and collectability is reasonably assured. The Corporation’s principal source of revenue is interest income, which is recognized on an accrual basis primarily according to nondiscretionary formulas in written contracts, such as loan agreements or securities contracts.

(x) Fair Value Measurement

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

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

When measuring the fair value of a liability, the Corporation assumes that the nonperformance risk associated with the liability is the same before and after the transfer. Nonperformance risk is the risk that an obligation will not be satisfied and encompasses not only the Corporation’s own credit risk (i.e., the risk that the Corporation will fail to meet its obligation), but also other risks such as settlement risk. The Corporation considers the effect of its own credit risk on the fair value for any period in which fair value is measured.

There are three acceptable valuation techniques that can be used to measure fair value: the market approach, the income approach and the cost approach. Selection of the appropriate technique for valuing a particular asset or liability takes into consideration the exit market, the nature of the asset or liability being

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valued, and how a market participant would value the same asset or liability. Ultimately, determination of the appropriate valuation method requires significant judgment, and sufficient knowledge and expertise are required to apply the valuation techniques.

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

Assets and liabilities are considered to be fair valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly or quarterly). Recurring valuation occurs at a minimum on the measurement date. Assets and liabilities are considered to be fair valued on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements which require assets or liabilities to be assessed for impairment or recorded at the lower of cost or fair value. The fair value of assets or liabilities transferred in or out of Level 3 is measured on the transfer date, with any additional changes in fair value subsequent to the transfer considered to be realized or unrealized gains or losses. Additional information regarding fair value measurements is provided in Note 17 (Fair Value Measurement).

(y) Reclassifications

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

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(z) 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 Codification. The amendments in this update represent changes to clarify the Codification, 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. The 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 recasted. The amount of unamortized debt issuance costs not recasted are $3.7 million as of December 31, 2014.

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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

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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.

FASB ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. The amendments in ASU 2014-01 do not change the existing accounting methods, but permit reporting entities to make an accounting policy election to account for their investments in qualified affordable projects using the proportional amortization method, if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in ASU 2014-01 are effective for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014, and should be applied retrospectively to all periods presented. The Corporation early adopted ASU 2014-01 in the first quarter of 2014. Amortization of the initial investment cost of qualifying projects is now recorded in the provision for income taxes together with the tax credits and benefits received. Previously, the amortization was recorded as other noninterest expense. All prior period amounts have been restated to reflect the adoption of the amendment, which resulted in an offsetting decrease to other noninterest expense and increase to the provision for income taxes of approximately $3.1 million for the year ended December 31, 2013.

(aa) Recently Issued Accounting Standards

FASB ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures about those investments. The amendments improve financial reporting by providing relevant information about an entity’s equity investments and reducing the number of items that are recognized in other comprehensive income. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. 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 2015-16, 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.

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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 adoption of this guidance is not expected to have a material effect on the Corporation's financial position or results of operations.

FASB ASU 2015-2, 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.

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.

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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.

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		December 31, 2015
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities:
	U.S. treasury bonds & notes	$	5,001	$	—	$	(1	)	$	5,000
	U.S. government agency debentures	2,500		—		(2		)	2,498
	U.S. states and political subdivisions	188,829		4,170		(204		)	192,795
	Residential mortgage-backed securities:
	U.S. government agencies	900,358		11,325		(5,454		)	906,229
	Commercial mortgage-backed securities:
	U.S. government agencies	173,912		220		(2,023		)	172,109
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	2,155,808		2,659		(30,147		)	2,128,320
	Nonagency	4		—		—			4
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	217,008		580		(1,269		)	216,319
	Asset-backed securities:
	Collateralized loan obligations	297,831		26		(8,446		)	289,411
	Corporate debt securities	61,710		—		(9,481		)	52,229
	Total debt securities	4,002,961		18,980		(57,027		)	3,964,914
Equity securities:
	Marketable equity securities	2,821		—		—			2,821
	Total equity securities	2,821		—		—			2,821
	Total securities available for sale	$	4,005,782	$	18,980	$	(57,027	)	$	3,967,735
Securities held-to-maturity
Debt securities:
	U.S. government agency debentures	$	25,000	$	19	$	—		$	25,019
	U.S. states and political subdivisions	571,738		22,180		(262		)	593,656
	Residential mortgage-backed securities:
	U.S. government agencies	507,908		4,767		(2,999		)	509,676
	Commercial mortgage-backed securities:
	U.S. government agencies	64,951		294		(574		)	64,671
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,161,340		75		(35,881		)	1,125,534
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	255,359		676		(3,611		)	252,424
	Corporate debt securities	87,797		364		(22		)	88,139
	Total securities held to maturity	$	2,674,093	$	28,375	$	(43,349	)	$	2,659,119

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		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
	Nonagency	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

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 million in 11 of the 37 U.S. states in which it holds investments.

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(Dollars in thousands)	December 31, 2015
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Michigan	137	$	1,381	$	180,508	$	189,259
Ohio	111	1,091		116,783		121,117
Illinois	55	1,870		99,524		102,867
Texas	58	807		45,818		46,805
Wisconsin	69	673		44,794		46,454
Pennsylvania	42	1,020		42,185		42,835
Washington	29	950		27,080		27,548
New Jersey	35	725		24,810		25,372
Minnesota	33	667		21,679		22,020
Missouri	15	1,078		15,878		16,174
New York	18	635		11,161		11,422
Other	110	759		81,815		83,477
Total general obligation bonds	712	$	1,033	$	712,035	$	735,350

(Dollars in thousands)	December 31, 2014
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Michigan	169	$	842	$	138,325	$	142,292
Ohio	137	979		130,741		134,127
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
Washington	30	952		27,987		28,558
Minnesota	42	674		27,740		28,326
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

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, 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

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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 December 31, 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 constitute the majority of other investments on the Consolidated Balance Sheet.

	December 31,
(In thousands)	2015		2014
FRB stock	$	56,083	$	55,681
FHLB stock	91,714		92,547
Other	375		426
Total other investments	$	148,172	$	148,654

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 $2.9 billion and $2.8 billion at December 31, 2015 and 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.

Realized Gains and Losses

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

	Year Ended December 31,
(In thousands)	2015			2014			2013
Realized gains	$	2,608		$	382		$	3,786
Realized losses	(1,651		)	(216		)	(6,589		)
Net securities (losses)/gains	$	957		$	166		$	(2,803	)

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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.

		December 31, 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. government agency debentures	$	2,498	$	(2	)	1	$	—	$	—		—	$	2,498	$	(2	)
	U.S. treasury notes & bonds	5,000		(1		)	1	—		—			—	5,000		(1		)
	U.S. states and political subdivisions	10,178		(37		)	20	5,899		(167		)	9	16,077		(204		)
	Residential mortgage-backed securities:
	U.S. government agencies	328,156		(3,026		)	27	95,895		(2,428		)	7	424,051		(5,454		)
	Commercial mortgage-backed securities:
	U.S. government agencies	107,074		(1,447		)	15	12,401		(576		)	1	119,475		(2,023		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,130,779		(10,587		)	78	597,403		(19,560		)	49	1,728,182		(30,147		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	113,825		(893		)	12	23,400		(376		)	2	137,225		(1,269		)
	Asset-backed securities:
	Collateralized loan obligations	151,810		(3,576		)	26	126,422		(4,870		)	15	278,232		(8,446		)
	Corporate debt securities	—		—			—	52,229		(9,481		)	8	52,229		(9,481		)
	Total available-for-sale securities	$	1,849,320	$	(19,569	)	180	$	913,649	$	(37,458	)	91	$	2,762,969	$	(57,027	)
Securities held-to-maturity
	Debt Securities
	U.S. government agency debentures	$	—	$	—		—	$	—	$	—		—	$	—	$	—
	U.S. states and political subdivisions	18,465		(224		)	21	4,174		(38		)	6	22,639		(262		)
	Residential mortgage-backed securities:
	U.S. government agencies	85,738		(715		)	6	97,880		(2,284		)	6	183,618		(2,999		)
	Commercial mortgage-backed securities:
	U.S. government agencies	34,833		(346		)	6	9,269		(228		)	1	44,102		(574		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	140,514		(1,225		)	12	941,982		(34,656		)	55	1,082,496		(35,881		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	71,812		(384		)	7	117,992		(3,227		)	11	189,804		(3,611		)
	Corporate debt securities	19,243		(22		)	6	—		—			—	19,243		(22		)
	Total held-to-maturity securities	$	370,605	$	(2,916	)	58	$	1,171,297	$	(40,433	)	79	$	1,541,902	$	(43,349	)

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		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		$	—	$	—		—	$	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	—		—			—		51,338		(10,315		)	8	51,338		(10,315		)
	Total available-for-sale securities	$	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	$	—	$	—		$	—	$	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		—		—			0	36,933		(52		)
	Total held-to-maturity securities	$	125,775	$	(277	)	30		$	1,577,797	$	(49,520	)	108	$	1,703,572	$	(49,797	)

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

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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 for which the assessment shows the Corporation will recover the entire cost basis, Management does not intend to sell these securities and it is not more likely than not that the Corporation will be required to sell them before the anticipated recovery of the amortized cost basis, the gross unrealized losses are recognized in OCI, net of tax.

The investment securities portfolio was in a net unrealized loss position of $53.0 million at December 31, 2015, compared to a net unrealized loss position of $44.9 million at December 31, 2014. Gross unrealized losses were $100.4 million as of December 31, 2015, compared to $102.4 million at December 31, 2014. As of December 31, 2015, gross unrealized losses are concentrated within agency MBS, CLOs, and corporate debt securities. Securities classified as corporate debt securities 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 December 31, 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 CLOs. As of December 31, 2015, the Corporation holds $289.4 million of CLOs with a gross unrealized loss position of $8.4 million. Management believes that its holdings of CLOs are not ownership interested 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 the strategy.

Contractual Maturity of Debt Securities

The following table shows the remaining contractual maturities and contractual yields of debt securities held-to-maturity and available-for-sale as of December 31, 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.

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December 31, 2015
(Dollars in thousands)	U.S. Government agency debentures			U.S. Treasuries			U.S. States and political subdivisions obligations			Residential mortgage-backed securities - U.S. govt. agency obligations			Commercial mortgage-backed securities - U.S. govt. agency obligations			Residential collateralized mortgage obligations - U.S. govt. agency obligations			Residential collateralized mortgage obligations - non- U.S. govt. agency issued			Commercial collateralized mortgage obligations - U.S. govt. agency obligations			Collateralized loan obligations			Corporate debt securities			Total			Weighted Average Yield
Securities Available for Sale
Remaining maturity:
One year or less	$	—		$	5,000		$	8,640		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	13,640		1.99	%
Over one year through five years	2,498			—			78,968			37,010			14,825			10,922			4			46,105			—			—			190,332			3.84	%
Over five years through ten years	—			—			83,928			71,478			136,728			23,697			—			67,299			207,480			—			590,610			3.02	%
Over ten years	—			—			21,259			797,741			20,556			2,093,701			—			102,915			81,931			52,229			3,170,332			2.09	%
Fair Value	$	2,498		$	5,000		$	192,795		$	906,229		$	172,109		$	2,128,320		$	4		$	216,319		$	289,411		$	52,229		$	3,964,914		2.31	%
Amortized Cost	$	2,500		$	5,001		$	188,829		$	900,358		$	173,912		$	2,155,808		$	4		$	217,008		$	297,831		$	61,710		$	4,002,961
Weighted-Average Yield	1.25		%	0.28		%	5.19		%	2.39		%	2.03		%	2.04		%	3.07		%	2.11		%	2.77		%	1.24		%	2.31		%
Weighted-Average Maturity (in years)	2.42			—			2.17			3.78			4.52			3.89			0.90			4.00			6.51			11.81			4.13
Securities Held to Maturity
Remaining maturity:
One year or less	$	—		$	—		$	63,383		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	63,383		1.99	%
Over one year through five years	25,019			—			144,134			—			35,953			—			—			79,833			—			88,139			373,078			2.34	%
Over five years through ten years	—			—			216,331			23,421			28,718			—			—			41,190			—			—			309,660			3.79	%
Over ten years	—			—			169,808			486,255			—			1,125,534			—			131,401			—			—			1,912,998			2.12	%
Fair Value	$	25,019		$	—		$	593,656		$	509,676		$	64,671		$	1,125,534		$	—		$	252,424		$	—		$	88,139		$	2,659,119		2.33	%
Amortized Cost	$	25,000		$	—		$	571,738		$	507,908		$	64,951		$	1,161,340		$	—		$	255,359		$	—		$	87,797		$	2,674,093
Weighted-Average Yield	1.43		%	—		%	4.01		%	2.15		%	2.55		%	1.60		%	—		%	2.34		%	—		%	2.28		%	2.33		%
Weighted-Average Maturity (in years)	0.08			—			4.83			4.04			2.91			3.76			—			4.04			—			2.02			3.96

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3.    Loans

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

(In thousands)		December 31, 2015			December 31, 2014
Originated loans:
Commercial		$	9,007,830		$	8,200,264
Residential mortgage		689,045			625,283
Installment		2,990,349			2,393,451
Home equity		1,248,438			1,110,336
Credit cards		182,843			164,478
	Total originated loans	14,118,505			12,493,812
Allowance for originated loan losses		(105,135		)	(95,696		)
	Net originated loans	$	14,013,370		$	12,398,116
Acquired loans:
Commercial		$	677,149		$	1,086,899
Residential mortgage		324,008			394,484
Installment		573,372			764,168
Home equity		168,542			233,629
	Total acquired loans	1,743,071			2,479,180
Allowance for acquired loan losses		(3,877		)	(7,457		)
	Net acquired loans	$	1,739,194		$	2,471,723
FDIC acquired loans:
Commercial		129,109			211,607
Residential mortgage		35,568			41,276
Installment		2,077			4,874
Home equity		38,668			73,365
Loss share receivable		9,947			22,033
	Total FDIC acquired loans	215,369			353,155
Allowance for FDIC acquired loan losses		(44,679		)	(40,496		)
	Net FDIC acquired loans	$	170,690		$	312,659
Total loans:
Commercial		$	9,814,088		$	9,498,770
Residential mortgage		1,048,621			1,061,043
Installment		3,565,798			3,162,493
Home equity		1,455,648			1,417,330
Credit cards		182,843			164,478
Loss share receivable		9,947			22,033
	Total loans	16,076,945			15,326,147
Total allowance for loan losses		(153,691		)	(143,649		)
	Total Net loans	$	15,923,254		$	15,182,498

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Loan activity with related parties for the years ended December 31, 2015, 2014, and 2013 is summarized as follows:

	Years Ended December 31,
(In thousands)	2015			2014			2013
Aggregate amount at beginning of year	$	20,682		$	24,536		$	16,578
New loans	5,365			2,534			11,507
Repayments	(5,619		)	(6,388		)	(4,374		)
Changes in directors and their affiliations	—			—			825
Aggregate amount at end of year	$	20,428		$	20,682		$	24,536

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 $4.1 million and $5.4 million at December 31, 2015 and 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.

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Total outstanding acquired impaired loans were $406.0 million and $590.9 million as of December 31, 2015 and 2014. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loan terms, 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 years ended December 31, 2015 and 2014:

	Years Ended
Acquired Impaired Loans	December 31, 2015						December 31, 2014
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	119,450		$	423,209		$	136,646		$	601,000
Accretion	(40,756		)	40,756			(49,271		)	49,271
Net reclassifications from nonaccretable to accretable	37,245			—			45,824			—
Payments received, net	—			(179,256		)	—			(227,062		)
Disposals	(26,116		)	—			(13,749		)	—
Balance at end of period	$	89,823		$	284,709		$	119,450		$	423,209

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.

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 year ended December 31, 2015, there was an overall improvement in cash flow expectations which resulted in a net reclassification of $37.2 million from the nonaccretable difference to accretable yield. This reclassification was $45.8 million for the year ended December 31, 2014. 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 $129.1 million of loans no longer being covered as of December 31, 2015. As of December 31, 2015, $76.3 millionof loans remained covered by single family loss share agreements.

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Changes in the loss share receivable for the years ended December 31, 2015 and 2014, respectively, were as follows:

Loss Share Receivable	Years Ended
(In thousands)	December 31, 2015			December 31, 2014
Balance at beginning of period	$	22,033		$	61,827
Amortization	(4,141		)	(20,943		)
Increase due to impairment on FDIC acquired loans	6,373			2,920
FDIC reimbursement	(13,795		)	(17,837		)
FDIC acquired loans paid in full	(523		)	(3,934		)
Balance at end of period (1)	$	9,947		$	22,033

(1) As of December 31, 2015, the loss share receivable of $9.9 million was related to single family covered loans.

Total outstanding FDIC acquired impaired loans were $323.7 million and $451.2 million as of December 31, 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 loan terms, 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 years ended December 31, 2015 and 2014:

	Years Ended December 31,
FDIC Acquired Impaired Loans	2015						2014
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	37,511		$	232,452		$	67,282		$	403,692
Accretion	(14,947		)	14,947			(42,161		)	42,161
Net reclassifications from nonaccretable to accretable	4,818			—			16,841			—
Payments received, net	—			(116,751		)	—			(213,401		)
(Disposals)/Additions	(4,474		)	—			(4,451		)	—
Balance at end of period	$	22,908		$	130,648		$	37,511		$	232,452

The cash flows expected to be collected on FDIC acquired impaired loans are estimated quarterly in a similar manner as described above for acquired impaired loans. During the year ended December 31, 2015, the re-estimation process resulted in a net reclassification of $4.8 million from the nonaccretable difference to accretable yield. This reclassification was $16.8 million for the year ended December 31, 2014. 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

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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 covered 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.

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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 December 31, 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	$	4,684	$	115	$	8,824	$	13,623	$	5,779,785	$	5,793,408	$	236	$	23,123
CRE	12,880		—		2,260		15,140		2,062,204		2,077,344		153		4,503
Construction	1,360		—		486		1,846		643,491		645,337		—		482
Leases	—		—		—		—		491,741		491,741		—		—
Consumer
Installment	17,934		4,828		3,920		26,682		2,963,667		2,990,349		3,519		2,178
Home equity lines	1,952		913		1,478		4,343		1,244,095		1,248,438		513		1,674
Credit cards	1,449		494		632		2,575		180,268		182,843		725		545
Residential mortgages	11,099		1,519		6,693		19,311		669,734		689,045		2,876		11,600
Total originated loans	$	51,358	$	7,869	$	24,293	$	83,520	$	14,034,985	$	14,118,505	$	8,022	$	44,105
													≥ 90 Days
Acquired Loans							Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (3)		Loans
Commercial
C&I	$	311	$	31	$	3,336	$	3,678	$	236,467	$	240,145	$	13	$	782
CRE	3,192		1,681		9,657		14,530		416,361		430,891		522		4,948
Construction	—		—		733		733		5,380		6,113		—		—
Consumer
Installment	5,059		1,329		974		7,362		566,010		573,372		236		835
Home equity lines	1,365		660		1,260		3,285		165,257		168,542		644		514
Residential mortgages	8,760		567		6,792		16,119		307,889		324,008		1,681		1,166
Total acquired loans	$	18,687	$	4,268	$	22,752	$	45,707	$	1,697,364	$	1,743,071	$	3,096	$	8,245
													≥ 90 Days
FDIC Acquired Loans (2)	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	$	—	$	—	$	1,054	$	1,054	$	34,412	$	35,466	n/a		n/a
CRE	296		354		28,501		29,151		58,623		87,774		n/a		n/a
Construction	—		—		3,761		3,761		2,108		5,869		n/a		n/a
Consumer
Installment	—		—		—		—		2,077		2,077		n/a		n/a
Home equity lines	2,230		52		1,917		4,199		34,469		38,668		n/a		n/a
Residential mortgages	4,616		172		2,655		7,443		28,125		35,568		n/a		n/a
Total FDIC acquired loans	$	7,142	$	578	$	37,888	$	45,608	$	159,814	$	205,422	n/a		n/a

(1) Installment loans 90 days or more past due and accruing include $2.3 million of loans guaranteed by the U.S. government as of December 31, 2015.

(2) Excludes loss share receivable of $9.9 million as of December 31, 2015.

(3) Acquired and FDIC acquired impaired loans were not classified as nonperforming assets at December 31, 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.

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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
													≥ 90 Days
Acquired Loans							Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (3)		Loans
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)	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 $2.4 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.

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 regarding 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.

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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 Corporation, 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 Corporation’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.

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

As of December 31, 2015
(In thousands)
Originated Loans	Commercial
	C&I		CRE			Construction		Leases		Total
Grade 1	$	60,440	$	773		$	—	$	12,732	$	73,945
Grade 2	353,581		831			—		69,258		423,670
Grade 3	1,371,850		319,987			59,182		49,956		1,800,975
Grade 4	3,756,333		1,697,261			569,098		344,763		6,367,455
Grade 5	124,140		18,388			7,193		7,858		157,579
Grade 6	124,483		40,105			9,864		7,174		181,626
Grade 7	2,581		(1		)	—		—		2,580
Total	$	5,793,408	$	2,077,344		$	645,337	$	491,741	$	9,007,830
Acquired Loans	Commercial
	C&I		CRE			Construction		Leases		Total
Grade 1	$	346	$	—		$	—	$	—	$	346
Grade 2	—		—			—		—		—
Grade 3	15,548		27,387			—		—		42,935
Grade 4	200,736		361,518			5,380		—		567,634
Grade 5	11,735		12,546			—		—		24,281
Grade 6	11,780		29,440			733		—		41,953
Grade 7	—		—			—		—		—
Total	$	240,145	$	430,891		$	6,113	$	—	$	677,149
FDIC Acquired Loans	Commercial
	C&I		CRE			Construction		Leases		Total
Grade 1	$	—	$	—		$	—	$	—	$	—
Grade 2	1,072		—			—		—		1,072
Grade 3	—		7,004			—		—		7,004
Grade 4	31,637		49,917			819		—		82,373
Grade 5	295		—			—		—		295
Grade 6	2,462		30,853			5,050		—		38,365
Grade 7	—		—			—		—		—
Total	$	35,466	$	87,774		$	5,869	$	—	$	129,109

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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

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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.

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.

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The following tables show activity in the originated ALL, by portfolio segment for the years ended December 31, 2015, 2014 and 2013, as well as the corresponding recorded investment in originated loans at the end of the period:

As of December 31, 2015
(In thousands)
Originated Loans		C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Year 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		(14,913		)	(625		)	—			(1,268		)	(21,630		)	(4,032		)	(4,867		)	(1,443		)	(48,778		)
Recoveries		1,196			517			178			787			11,547			2,606			1,395			257			18,483
Provision for loan losses		21,102			(753		)	(786		)	1,120			11,348			2,196			4,337			1,170			39,734
Allowance for originated loan losses, ending balance		$	44,760		$	9,631		$	1,594		$	1,313		$	14,183		$	20,094		$	8,831		$	4,729		$	105,135
Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	11,837		$	128		$	—		$	—		$	1,009		$	188		$	243		$	944		$	14,349
	Collectively evaluated for impairment	32,923			9,503			1,594			1,313			13,174			19,906			8,588			3,785			90,786
Total ending allowance for originated loan losses balance		$	44,760		$	9,631		$	1,594		$	1,313		$	14,183		$	20,094		$	8,831		$	4,729		$	105,135
Originated loans:
	Originated loans individually evaluated for impairment	$	43,818		$	16,614		$	—		$	—		$	36,904		$	7,080		$	717		$	23,905		$	129,038
	Originated loans collectively evaluated for impairment	5,749,590			2,060,730			645,337			491,741			2,953,445			1,241,358			182,126			665,140			13,989,467
Total originated loans		$	5,793,408		$	2,077,344		$	645,337		$	491,741		$	2,990,349		$	1,248,438		$	182,843		$	689,045		$	14,118,505

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As of December 31, 2014
(In thousands)
Originated Loans		C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Year 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		(9,617		)	(3,512		)	—			—			(20,328		)	(4,831		)	(4,604		)	(2,031		)	(44,923		)
Recoveries		3,872			515			39			379			11,185			2,940			1,716			318			20,964
Provision for loan losses		139			1,224			(647		)	(786		)	10,126			8,315			3,114			1,686			23,171
Allowance for originated loan losses, ending balance		$	37,375		$	10,492		$	2,202		$	674		$	12,918		$	19,324		$	7,966		$	4,745		$	95,696
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:
	Originated loans individually evaluated for impairment	$	11,759		$	23,300		$	—		$	—		$	24,905		$	7,379		$	854		$	25,251		$	93,448
	Originated 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

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As of December 31, 2013
(In thousands)
Originated Loans		C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Year ended
Allowance for originated loan losses, beginning balance		$	36,209		$	20,126		$	3,821		$	639		$	11,154		$	13,724		$	7,384		$	5,885		$	98,942
Charge-offs		(5,840		)	(1,281		)	(516		)	(1,237		)	(16,683		)	(7,172		)	(5,541		)	(1,903		)	(40,173		)
Recoveries		7,981			524			507			100			10,519			2,979			1,841			230			24,681
Provision for loan losses		4,631			(7,104		)	(1,002		)	1,579			6,945			3,369			4,056			560			13,034
Allowance for originated loan losses, ending balance		$	42,981		$	12,265		$	2,810		$	1,081		$	11,935		$	12,900		$	7,740		$	4,772		$	96,484
Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	3,235		$	229		$	—		$	—		$	1,014		$	223		$	312		$	1,133		$	6,146
	Collectively evaluated for impairment	39,746			12,036			2,810			1,081			10,921			12,677			7,428			3,639			90,338
Total ending allowance for originated loan losses balance		$	42,981		$	12,265		$	2,810		$	1,081		$	11,935		$	12,900		$	7,740		$	4,772		$	96,484
Originated loans:
	Originated loans individually evaluated for impairment	$	8,053		$	20,616		$	906		$	—		$	27,285		$	6,726		$	1,112		$	23,066		$	87,764
	Originated loans collectively evaluated for impairment	4,131,514			2,149,171			338,019			239,551			1,700,640			913,340			147,201			506,187			10,125,623
Total ending originated loan balance		$	4,139,567		$	2,169,787		$	338,925		$	239,551		$	1,727,925		$	920,066		$	148,313		$	529,253		$	10,213,387

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 December 31, 2015 and 2014, the computed ALL was less than the remaining fair value discount; therefore, no allowance for acquired nonimpaired loan losses 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 years endedDecember 31, 2015 and 2014, provision for loan losses, equal to net charge-offs, of $6.5 million and $14.7 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.

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

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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 years ended December 31, 2015, 2014 and 2013:

Allowance for Acquired Impaired Loan Losses	Years Ended December 31,
(In thousands)	2015			2014		2013
Balance at beginning of the period	$	7,457		$	741	$	—
Charge-offs	—			—		—
Recoveries	—			—		—
Provision/(recapture) for loan losses	(3,580		)	6,716		741
Balance at end of the period	$	3,877		$	7,457	$	741

Allowance for FDIC Acquired Loan Losses

The ALL for FDIC acquired nonimpaired 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 sharing agreements with the FDIC. As of December 31, 2015 and 2014, the computed ALL was less than the remaining fair value discount, therefore, no ALL for FDIC acquired nonimpaired loans was recorded.

The following table presents activity in the allowance for FDIC acquired impaired loan losses for the years ended December 31, 2015, 2014, and 2013:

Allowance for FDIC Acquired Impaired Loan Losses		Years Ended December 31,
(In thousands)		2015			2014			2013
Balance at beginning of the period		$	40,496		$	44,027		$	43,255
	Net provision/(recapture) for loan losses before benefit attributable to FDIC loss share agreements	8,830			10,568			23,892
	Net (benefit)/recapture attributable to FDIC loss share agreements	(6,373		)	(2,920		)	(10,790		)
Net provision/(recapture) for loan losses		2,457			7,648			13,102
Increase/(decrease) in loss share receivable		6,373			2,920			10,790
Loans charged-off		(4,647		)	(14,099		)	(23,120		)
Balance at end of the period		$	44,679		$	40,496		$	44,027

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

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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 $0.6 million, $0.9 million, and $1.3 million during the years ended 2015, 2014, and 2013, respectively. Interest income which would have been earned in accordance with the original terms was $3.2 million, $2.8 million, and $5.5 million during the years ended December 31, 2015, 2014, and 2013, 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 and individually evaluated are reported as impaired loans 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.

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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 December 31, 2015
Originated Loans				Unpaid				Average
		Recorded		Principal		Related		Recorded
(In thousands)		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	21,066	$	23,854	$	—	$	27,215
	CRE	15,465		17,456		—		13,031
	Construction	—		—		—		—
Consumer
	Installment	1,369		1,658		—		1,807
	Home equity line	670		919		—		999
	Credit card	21		21		—		20
	Residential mortgages	11,550		13,901		—		11,979
Subtotal		50,141		57,809		—		55,051
Impaired loans with a related allowance
Commercial
	C&I	22,752		28,881		11,837		11,284
	CRE	1,149		1,173		128		3,037
	Construction	—		—		—		—
Consumer
	Installment	35,535		35,592		1,009		28,808
	Home equity line	6,410		6,411		188		6,382
	Credit card	696		696		243		757
	Residential mortgages	12,355		12,458		944		12,619
Subtotal		78,897		85,211		14,349		62,887
	Total impaired loans	$	129,038	$	143,020	$	14,349	$	117,938

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.

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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.

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 or reported as 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

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proprietary 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.

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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 December 31, 2015, and 2014.

			As of December 31, 2015
(Dollars in thousands)			Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans
	Commercial
		C&I	26	$	33,087	$	33,740
		CRE	24	14,671		16,648
		Construction	—	—		—
		Total originated commercial	50	47,758		50,388
	Consumer
		Installment	1,223	36,904		37,250
		Home equity lines	257	7,080		7,330
		Credit card	212	717		717
		Residential mortgages	312	23,905		26,359
		Total originated consumer	2,004	68,606		71,656
Total originated loans			2,054	$	116,364	$	122,044
Acquired Loans
	Commercial
		C&I	1	$	7,611	$	7,611
		CRE	3	918		1,044
		Construction	—	—		—
		Total acquired commercial	4	8,529		8,655
	Consumer
		Installment	51	1,117		1,211
		Home equity lines	176	7,718		7,778
		Residential mortgages	31	2,154		2,382
		Total acquired consumer	258	10,989		11,371
Total acquired loans			262	$	19,518	$	20,026
FDIC Acquired loans
	Commercial
		C&I	—	$	—	$	—
		CRE	3	14,056		12,479
		Construction	1	593		682
		Total FDIC acquired commercial	4	14,649		13,161
	Consumer
		Home equity lines	81	10,215		10,281
		Residential mortgages	1	182		182
		Total FDIC acquired consumer	82	10,397		10,463
Total FDIC acquired loans			86	$	25,046	$	23,624
Total loans
	Commercial
		C&I	27	$	40,698	$	41,351
		CRE	30	29,645		30,171
		Construction	1	593		682
		Total commercial	58	70,936		72,204
	Consumer
		Installment	1,274	38,021		38,461
		Home equity lines	514	25,013		25,389
		Credit card	212	717		717
		Residential mortgages	344	26,241		28,923
		Total consumer	2,344	89,992		93,490
Total loans			2,402	$	160,928	$	165,694

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.

150

			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

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

151

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.

The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the years ended December 31, 2015, 2014 and 2013 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 years ended December 31, 2015, 2014 and 2013 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 years ended December 31, 2015, 2014 and 2013 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 December 31, 2015 and 2014, the Corporation had $7.0 million and $0.2 million, respectively, in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

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 December 31, 2015 and 2014, including TDRs that continue to accrue interest and TDRs included in nonperforming assets.

152

As of December 31, 2015
	Accruing TDRs						Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	22,566	$	107	$	22,673	$	4,229	$	6,185	$	10,414	$	33,087	$	6,052
CRE	10,271		2,247		12,518		746		1,407		2,153		14,671		20
Construction	—		—		—		—		—		—		—		—
Total originated commercial	32,837		2,354		35,191		4,975		7,592		12,567		47,758		6,072
Consumer
Installment	34,902		794		35,696		1,125		83		1,208		36,904		1,009
Home equity lines	6,511		114		6,625		399		56		455		7,080		188
Credit card	575		140		715		—		2		2		717		243
Residential mortgages	12,869		2,896		15,765		4,611		3,529		8,140		23,905		944
Total originated consumer	54,857		3,944		58,801		6,135		3,670		9,805		68,606		2,384
Total originated TDRs	$	87,694	$	6,298	$	93,992	$	11,110	$	11,262	$	22,372	$	116,364	$	8,456
Acquired loans
Commercial
C&I	$	7,611	$	—	$	7,611	$	—	$	—	$	—	$	7,611	$	—
CRE	—		—		—		659		259		918		918		201
Construction	—		—		—		—		—		—		—		—
Total acquired commercial	7,611		—		7,611		659		259		918		8,529		201
Consumer
Installment	967		126		1,093		14		10		24		1,117		45
Home equity lines	6,941		655		7,596		122		—		122		7,718		70
Residential mortgages	1,096		256		1,352		802		—		802		2,154		—
Total acquired consumer	9,004		1,037		10,041		938		10		948		10,989		115
Total acquired TDRs	$	16,615	$	1,037	$	17,652	$	1,597	$	269	$	1,866	$	19,518	$	316
FDIC acquired loans
Commercial
C&I	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
CRE	—		14,056		14,056		—		—		—		14,056		2,333
Construction	593		—		593		—		—		—		593		—
Total FDIC acquired commercial	593		14,056		14,649		—		—		—		14,649		2,333
Consumer
Home equity lines	10,065		70		10,135		6		74		80		10,215		23
Residential mortgages	182		—		182		—		—		—		182		—
Total FDIC acquired consumer	10,247		70		10,317		6		74		80		10,397		23
Total FDIC acquired TDRs	$	10,840	$	14,126	$	24,966	$	6	$	74	$	80	$	25,046	$	2,356
Total loans
Commercial
C&I	$	30,177	$	107	$	30,284	$	4,229	$	6,185	$	10,414	$	40,698	$	6,052
CRE	10,271		16,303		26,574		1,405		1,666		3,071		29,645		2,554
Construction	593		—		593		—		—		—		593		—
Total commercial	41,041		16,410		57,451		5,634		7,851		13,485		70,936		8,606
Consumer
Installment	35,869		920		36,789		1,139		93		1,232		38,021		1,054
Home equity lines	23,517		839		24,356		527		130		657		25,013		281
Credit card	575		140		715		—		2		2		717		243
Residential mortgages	14,147		3,152		17,299		5,413		3,529		8,942		26,241		944
Total consumer	74,108		5,051		79,159		7,079		3,754		10,833		89,992		2,522
Total TDRs	$	115,149	$	21,461	$	136,610	$	12,713	$	11,605	$	24,318	$	160,928	$	11,128

153

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

154

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.

On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. In the event of a subsequent default, the ALL continues to be reassessed on the basis of an individual evaluation of the loan.

155

The following table provides the number of loans modified in a TDR during the previous 12 months that subsequently defaulted during the years ended December 31, 2015 and 2014, as well as the amount defaulted in these restructured loans as of December 31, 2015 and 2014.

	As of December 31, 2015
(Dollars in thousands)	Number of Loans	Amount Defaulted
Originated loans
Commercial
C&I	—	$	—
CRE	—	—
Construction	—	—
Total originated commercial	—	—
Consumer
Installment	8	113
Home equity lines	—	—
Credit card	10	51
Residential mortgages	—	—
Total originated consumer	18	$	164
FDIC acquired loans
Commercial
C&I	—	$	—
CRE	—	—
Construction	—	—
Total FDIC acquired commercial	—	$	—
Acquired loans
Consumer
Installment	2	$	61
Home equity lines	1	105
Residential mortgages	—	—
Total acquired consumer	3	$	166
Total loans
Commercial
C&I	—	$	—
CRE	—	—
Construction	—	—
Total commercial	—	—
Consumer
Installment	10	174
Home equity lines	2	348
Credit card	10	51
Residential mortgages	—	—
Total consumer	22	573
Total	22	$	573

156

	As of December 31, 2014
(Dollars in thousands)	Number of Loans	Amount Defaulted
Originated loans
Commercial
C&I	3	$	4,930
CRE	1	363
Construction	—	—
Total originated commercial	4	5,293
Consumer
Installment	11	40
Home equity lines	1	29
Credit card	28	140
Residential mortgages	3	183
Total originated consumer	43	$	392
FDIC acquired loans
Commercial
C&I	1	$	427
CRE	—	—
Construction	—	—
Total FDIC acquired commercial	1	$	427
Acquired loans
Consumer
Installment	2	165
Home equity lines	1	61
Residential mortgages	—	—
Total acquired consumer	3	$	226
Total loans
Commercial
C&I	4	$	5,357
CRE	1	363
Construction	—	—
Total commercial	5	5,720
Consumer
Installment	13	205
Home equity lines	2	90
Credit card	28	140
Residential mortgages	3	183
Total consumer	46	618
Total	51	$	6,338

157

5.     Goodwill and Other Intangible Assets

Goodwill

Goodwill totaled $741.7 million as of December 31, 2015 and 2014. The following table shows goodwill allocated by business segment.

(In thousands)	Commercial		Retail		Wealth		Total
Balance at December 31, 2014	$	527,406	$	193,961	$	20,373	$	741,740
Balance at December 31, 2015	$	527,406	$	193,961	$	20,373	$	741,740

The Corporation performed its annual impairment test of goodwill as of November 30, 2015 and determined that no impairment of goodwill had been incurred. Key changes in the market and our operations were monitored from our impairment test date of November 30 to year end in order to identify circumstances necessitating further testing of impairment. No such changes were noted for 2015. It is possible that a future conclusion could be reached that all or a portion of the Corporation’s goodwill may be impaired, in which case a noncash charge for the amount of such impairment would be recorded in earnings.

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.

	December 31, 2015
	Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount
Core deposit intangibles (1)	$	82,323	$	(28,304	)	$	54,019
Lease intangible	238		(212		)	26
Trust relationships (2)	14,000		(7,417		)	6,583
Total intangibles	$	96,561	$	(35,933	)	$	60,628
	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
Total intangibles	$	96,561	$	(25,541	)	$	71,020

(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 $10.4 million in 2015, $11.7 million in 2014, and $8.4 million in 2013.

158

The following table shows the estimated future amortization expense for intangible assets subject to amortization as of December 31, 2015.

(In thousands)
For the years ended:
December 31, 2016	$	9,209
December 31, 2017	8,161
December 31, 2018	7,273
December 31, 2019	6,500
December 31, 2020	5,214
Total estimated future amortization	$	36,357

6.     Mortgage Servicing Rights and Mortgage Servicing Activity

In the years ended December 31, 2015 and 2014, the Corporation sold residential mortgage loans from the held for sale portfolio with unpaid principal balances of $76.7 million and $356.5 million, respectively, and recognized pretax gains of $1.2 million and $7.2 million, respectively, which are included as a component of loan sales and servicing income. As of December 31, 2015 and 2014, the Corporation retained the related MSRs, for which it receives servicing fees, on $60.3 million and $314.4 million, respectively, of the loans sold.

The Corporation serviced for third parties approximately $2.4 billion of residential mortgage loans at December 31, 2015, and $2.6 billion at December 31, 2014. Loan servicing fees, not including valuation changes on MSRs included in loan sales and servicing income, were $6.3 million, $6.6 million, and $6.4 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Servicing rights are presented within other assets on the accompanying Consolidated Balance Sheet. 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 mortgage servicing rights. Additional information can be found in Note 17 (Fair Value Measurement). MSRs are subsequently measured using the amortization method. Accordingly, the MSRs are amortized over the period of, and in proportion to, the estimated net servicing income and the related amortization is recorded in loan sales and servicing income.

159

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

	Year Ended December 31,
(In thousands)	2015			2014			2013
Balance at beginning of period	$	22,011		$	22,760		$	21,316
Addition of Citizens’ MSRs on Acquisition Date	—			—			1,065
Additions	619			3,049			4,952
Amortization	(3,693		)	(3,798		)	(4,573		)
Balance at end of period	18,937			22,011			22,760
Valuation allowance at beginning of period	(955		)	(282		)	(2,564		)
Recoveries (Additions)	556			(673		)	2,282
Valuation Allowance at end of period	(399		)	(955		)	(282		)
MSRs, net carrying balance	$	18,538		$	21,056		$	22,478
Fair value at end of period	$	19,149		$	21,228		$	23,041

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 years ended December 31, 2015, 2014, and 2013.

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 December 31, 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.

(Dollars in thousands)
Prepayment speed assumption (annual CPR)	10.93		%
Decrease in fair value from 10% adverse change	$	1,032
Decrease in fair value from 25% adverse change	$	1,292
Discount rate assumption	9.39		%
Decrease in fair value from 100 basis point adverse change	$	599
Decrease in fair value from 200 basis point adverse change	$	1,155
Expected weighted-average life (in months)	97.6

160

The following table shows the estimated future amortization for net MSRs as of December 31, 2015:

(In thousands)
Year Ended December 31,
2016	$	3,075
2017	2,723
2018	2,281
2019	1,917
2020	1,608
more than 5 years	6,934
Total estimated future amortization	$	18,538

7.    Restrictions on Cash and Dividends

The average balance on deposit with the FRB or other governing bodies to satisfy reserve requirements amounted to $15.3 million and $5.9 million during 2015 and 2014, respectively. The level of this balance is based upon amounts and types of customers’ deposits held by the banking subsidiary of the Corporation. In addition, deposits are maintained with other banks at levels determined by Management based upon the volumes of activity and prevailing interest rates to compensate for check-clearing, safekeeping, collection and other bank services performed by these banks. At December 31, 2015, cash and due from banks included $0.3 million deposited with other banks for these reasons.

Dividends paid by the subsidiaries are the principal source of funds to enable the payment of dividends by the Corporation to its shareholders. These payments by the subsidiaries in 2015 were restricted, by the regulatory agencies, principally to the total of 2015 net income plus undistributed net income of the previous two calendar years. Regulatory approval must be obtained for the payment of dividends of any greater amount.

8.     Premises and Equipment

The components of premises and equipment are as follows:

	As of December 31,				Estimated
(In thousands)	2015		2014		useful lives
Land	$	57,040	$	60,397	-
Buildings	309,754		308,144		10-35 yrs
Equipment	182,385		176,906		3-15 yrs
Leasehold improvements	24,765		25,151		1-20 yrs
Software	116,280		103,782		3-7 yrs
	690,224		674,380
Less accumulated depreciation and amortization	370,736		342,083
Total premises and equipment	$	319,488	$	332,297

Amounts included in noninterest expense in the accompanying Consolidated Statement of Income for depreciation and amortization aggregated $40.7 million, $37.6 million, and $32.2 million for the years ended 2015, 2014, and 2013, respectively.

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9.     Certificates and Other Time Deposits

The aggregate amounts of certificates and other time deposits of $100 thousand and over at December 31, 2015, 2014, and 2013, were $794.8 million, $716.5 million, and $882.4 million, respectively. Interest expense on these certificates and time deposits amounted to $3.1 million, $3.8 million, and $4.5 million in 2015, 2014, and 2013, respectively.

Maturities of certificates and other time deposits as of December 31, 2015 are as follows:

(In thousands)
For the year ended December 31,
2016	$	1,525,838
2017	407,919
2018	124,610
2019	103,921
2020	73,131
2021 and after	3,484
Total certificates and other time deposits	$	2,238,903

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

The following table presents federal funds purchased and securities sold under agreements to repurchase as of December 31, 2015 and 2014.

	As of December 31,
(In thousands)	2015		2014
Federal funds purchased and securities sold under agreements to repurchase	$	1,037,075	$	1,272,591

Securities sold under agreements to repurchase are secured by securities with a carrying value of $813.3 million and $888.4 million at December 31, 2015 and 2014, respectively. Securities sold under agreements to repurchase have an overnight maturity at December 31, 2015.

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

	As of December 31,
(Dollars in thousands)	2015			2014			2013
Average balance during the year	$	1,138,307		$	1,084,532		$	949,068
Weighted-average annual interest rate during the year	0.10		%	0.09		%	0.13		%
Maximum month-end balance	$	1,519,250		$	1,289,460		$	1,123,795

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11.     Borrowed Funds

The following table presents wholesale borrowings and long-term debt as of December 31, 2015 and 2014.

	As of December 31,
(In thousands)	2015		2014
FHLB advances	$	580,501	$	427,857
Subordinated debentures	505,173		505,192
Other	147		214
Total borrowed funds	$	1,085,821	$	933,263

FHLB advances were secured by a lien on residential and other real estate-related loans totaling $5.1 billion at December 31, 2015, and $5.1 billion at December 31, 2014. The FHLB advances have interest rates that range from 0.34% to 4.12% as of December 31, 2015.

On November 25, 2014, the Bank issued $250 million in aggregate principal of subordinated notes, due November 25, 2026, and bearing interest at an annual rate of 4.27% payable semi-annually in arrears on May 25 and November 25 of each year. The net proceeds were used to initially pay down existing federal funds purchased and securities sold under repurchase agreements, general corporate purposes, and as capital to support the Bank’s growth. The subordinated notes are not redeemable by the Bank or callable by the holders prior to maturity.

As part of the merger with Citizens, the Corporation assumed two active wholly owned trusts formed for the purpose of issuing securities. Each of the two active trusts had issued separate offerings of trust preferred securities to investors in 2006 and 2003. In accordance with GAAP, the financial statements of the Trusts were not included in the Corporation's consolidated financial statements. In conjunction with these trusts, the Corporation assumed a variable rate junior subordinated deferrable debenture in an aggregate principal amount approximating $25.8 million. This debenture bore interest at an annual rate equal to three-month LIBOR plus 3.10%, payable quarterly. Interest was adjusted on a quarterly basis not exceeding 11.75%. The Corporation assumed a 7.50% junior subordinated debenture in an aggregate principal amount approximating $48.7 million. These trust preferred securities and the junior subordinated debentures, totaling $74.5 million, were redeemed on September 26, 2014 and the associated debentures were paid off.

Selected financial statement information pertaining to the Corporation’s borrowed funds is as follows:

	As of December 31,
(Dollars in thousands)	2015			2014			2013
Average balance during the year	$	885,478		$	715,383		$	474,473
Weighted-average annual interest rate during the year	2.35		%	2.80		%	3.62		%
Maximum month-end balance	$	1,189,093		$	973,453		$	527,155

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The following table illustrates the contractual maturities of the Corporation's borrowed funds at December 31, 2015:

	One Year		One to		Three to		Over Five
(In thousands)	or Less		Three Years		Five Years		Years		Total
FHLB advances	$	310,716	$	230,193	$	—	$	39,592	$	580,501
Subordinated debentures	—		—		—		505,173		505,173
Other	71		76		—		—		147
Total borrowed funds	$	310,787	$	230,269	$	—	$	544,765	$	1,085,821

12.     Income Taxes

Income tax expense is comprised of the following:

	Year Ended December 31,
(In thousands)	2015			2014		2013
Taxes currently payable
Federal	$	52,869		$	52,514	$	24,426
State	(3,119		)	4,763		3,496
Deferred expense	47,269			44,666		51,585
Total income tax expense	$	97,019		$	101,943	$	79,507

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

		Year Ended December 31,
		2015		2014		2013
Statutory rate		35.00	%	35.00	%	35.00	%
Increase (decrease) in rate due to:
	Interest on tax-exempt securities and tax-free loans, net	(2.75	)	(2.77	)	(3.16	)
	Merger expenses at acquisition	—		—		0.54
	Reduction in excess tax reserves	—		—		0.11
	Bank owned life insurance	(1.76	)	(2.10	)	(2.53	)
	State income tax (net)	0.59		0.91		0.87
	Tax credits	(0.82	)	(0.96	)	(1.06	)
	ESOP Dividends	(0.14	)	(0.13	)	(0.14	)
	Nondeductible meals and entertainment	0.25		0.22		0.27
	Other	(0.66	)	(0.18	)	0.31
Effective tax rates		29.71	%	29.99	%	30.21	%

Income tax expense as reflected in the previous table excludes net worth-based taxes, which are assessed on financial institutions in lieu of income tax in Ohio, Pennsylvania and Michigan. These taxes are $8.1 million, $8.2 million, and $9.9 million in 2015, 2014, and 2013, respectively, and are recorded in other operating expense in the accompanying Consolidated Statement of Income.

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

		Year Ended
		December 31,
(In thousands)		2015			2014
Deferred tax assets:
	Allowance for credit losses	$	40,069		$	35,760
	Employee benefits	50,868			51,584
	Real Estate Mortgage Investment Credit	3,791			4,831
	Acquired liabilities	5,931			6,296
	Acquired loans	25,388			51,701
	Available for sale securities	11,475			3,862
	Loan fees and expenses	—			—
	Federal NOL carryforwards	102,194			131,195
	Alternative minimum tax credit carryforward	112,861			83,428
	General business tax credit carryforward	2,924			1,982
	State income tax (net of federal benefit)	2,441			1,970
	Other	1,789			467
	Total deferred tax assets	359,731			373,076
Deferred tax liabilities:
	Leased assets and depreciation	(41,649		)	(24,699		)
	FHLB stock	(18,641		)	(18,165		)
	Loan fees and expenses	(1,480		)	(2,537		)
	Goodwill	(26,885		)	(16,580		)
	Core deposit intangibles	(18,697		)	(22,013		)
	Other	—			—
	Total deferred tax liabilities	(107,352		)	(83,994		)
Total net deferred tax asset		$	252,379		$	289,082

At December 31, 2015 and 2014, there was no valuation allowance for deferred tax assets.

At December 31, 2015, the Corporation had gross federal loss carryforwards of $292.0 million that expire in 2028 through 2032, general business credits of $2.9 million that expire in 2028, and $112.9 million of federal alternative minimum tax credits with an indefinite life. In addition, future state income taxes are expected to be reduced by $450.0 thousand resulting from state non-operating losses at various levels in various states. This benefit is expected to be fully used during the expiration period of 2015 through 2027.

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The period change in deferred taxes recorded both directly to shareholders’ equity and as a part of the income tax expense is summarized as follows:

		Year Ended December 31,
(In thousands)		2015			2014
Deferred tax changes reflected in other comprehensive income		$	(10,565	)	$	(2,698	)
Deferred tax changes reflected in Federal income tax expense		47,269			44,666
	Net decrease/(increase) in DTA	$	36,704		$	41,968

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

A reconciliation of the change in the reserve for uncertain tax positions for 2015 and 2014 is as follows:

(In thousands)	Federal and State Tax			Accrued Interest and Penalties			Gross Unrecognized Income Tax Benefits
Balance as of January 1, 2015	$	305		$	19		$	324
Additions for tax provisions related to prior year	299			17			316
Reduction for tax positions related to prior year due closed tax years	—			—			—
Reduction for tax positions related to prior tax years	(134		)	—			(134		)
Balance at December 31, 2015	$	470		$	36		$	506
Components of Reserve:
State income tax exposure	$	470		$	36		$	506
Balance at December 31, 2015	$	470		$	36		$	506
(In thousands)	Federal and State Tax			Accrued Interest and Penalties			Gross Unrecognized Income Tax Benefits
Balance as of January 1, 2014	$	1,003		$	262		$	1,265
Additions for tax provisions related to prior year	798			14			812
Reduction for tax positions related to prior year due closed tax years	(31		)	(3		)	(34		)
Reduction for tax positions related to prior tax years	(1,465		)	(254		)	(1,719		)
Balance at December 31, 2014	$	305		$	19		$	324
Components of Reserve:
State income tax exposure	$	305		$	19		$	324
Balance at December 31, 2014	$	305		$	19		$	324

The Corporation recognized accrued interest and penalties, as appropriate, related to UTBs, in the effective tax rate. The balance of accrued interest and penalties at the reporting periods is presented in the table

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above. The reserve of uncertain tax positions is recorded in accrued taxes, expenses and other liabilities on the Consolidated Balance Sheet.

The Corporation is routinely examined by various taxing authorities. With few exceptions, the Corporation is no longer subject to federal, state and local tax examinations by tax authorities for years before 2012. The expiration of statutes of limitation for various jurisdictions is expected to reduce the UTB balance by approximately $50 thousand within the next twelve months. Management anticipates that the UTB balance will increase by $0.2 million as a result of the 2015 tax filings in the next twelve months. If the total amount of UTBs were recognized the effective tax rate would decrease by 0.15 to 29.71% at December 31, 2015.

Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to uncertain income tax positions. As of December 31, 2015, Management had identified no other potential U.S. Treasury regulations or legislative initiatives that could have a significant impact on the UTB balance within the next twelve months.

13.     Benefit Plans

Pension plans. The Corporation had a noncontributory qualified defined benefit pension plan that covered all eligible legacy FirstMerit employees vested in the pension plan as of December 31, 2006 (“FirstMerit Pension Plan”). The FirstMerit Pension Plan was frozen for nonvested employees and closed to new entrants after December 31, 2006. Effective December 31, 2012, the FirstMerit Pension Plan was frozen for vested employees resulting in no benefits accruing after December 31, 2012. Employees will have an accrued benefit which will be paid upon retirement.

Certain former Citizens’ employees were covered by a cash balance defined benefit pension plan after the Acquisition Date through December 31, 2013 (“Citizens Pension Plan”). Effective December 31, 2006, the Citizens Pension Plan was frozen, preserving prior earned benefits but discontinuing the accrual of future benefits.

As of December 31, 2013, the Corporation adopted one noncontributory qualified defined pension plan covering all eligible FirstMerit and former Citizens employees, with the FirstMerit Pension Plan being the surviving plan. The Citizens Pension Plan ceased to exist after December 31, 2013. The plan assets of the FirstMerit Pension Plan and the Citizens Pension Plan were combined and invested in a single trust as of December 31, 2013. Benefits remain frozen in the combined plan with the unique benefit structure under each of the FirstMerit and Citizens Pension Plans retained in the combined plan.

A supplemental nonqualified, nonfunded pension plan for certain officers is also maintained and is being provided for by charges to earnings sufficient to meet the projected benefit obligation. The pension cost for this plan is based on substantially the same actuarial methods and economic assumptions as those used for the FirstMerit Pension Plan. On December 18, 2013, the FirstMerit Corporation Amended and Restated Supplemental Executive Retirement Plan was amended to freeze the benefit payable to the Corporation’s Chairman, President and Chief Executive Officer (“CEO”) at the level of the benefit accrued by the CEO under the plan as of November 30, 2013. Subsequent increases or decreases in the CEO’s compensation nor any changes in circumstances will cause any increase or decrease in the amount payable to the CEO under this plan.

Postretirement medical and life insurance plan. The Corporation also sponsors a benefit plan that provided postretirement medical and life insurance for retired employees (“FirstMerit Postretirement Plan”).

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The Corporation’s medical contribution was limited to 200% of the 1993 level for employees who retire after January 1, 1993.

Effective March 1, 2009, the Corporation discontinued the subsidy for retiree medical for current eligible active employees. Eligible employees who retired on or prior to March 1, 2009, were offered subsidized retiree medical coverage until age 65. Employees who retired after March 1, 2009, do not receive a Corporation subsidy toward retiree medical coverage.

Effective January 1, 2012, the FirstMerit Postretirement Plan was amended to cap the Corporation’s subsidy on retiree medical costs. Any cost incurred over the cap will be the responsibility of the retiree.

Effective January 1, 2016, the FirstMerit Postretirement Plan was amended to cap the life insurance benefits for all retirees at $10,000.

Employer-provided subsidies under the postretirement medical plan will be discontinued after 2018. As a result, a three-year sunset of this subsidized coverage is reflected in the December 31, 2015 disclosures.

Postretirement medical and life insurance plans were also maintained for certain former Citizens employees after the Acquisition Date through December 31, 2013, (“Citizens Postretirement Plan”). Citizens’ Postretirement Plan provided postretirement health and dental care to full-time employees who retired with eligibility for coverage based on historical plan terms.

As of December 31, 2013, the Corporation adopted one postretirement plan covering all eligible FirstMerit and former Citizens employees, with the FirstMerit Postretirement Plan being the surviving plan. The Citizens Postretirement Plan ceased to exist after December 31, 2013, and future benefits to the existing participants of the Citizens Postretirement Plan will be provided under the FirstMerit Postretirement Plan.The Corporation reserves the right to terminate or amend the FirstMerit Postretirement Plan at any time.

Other employee benefits. FirstMerit’s Amended and Restated Executive Deferred Compensation Plan (“FirstMerit Deferred Compensation Plan”) allows participating executives to elect to receive incentive compensation payable with respect to any year in whole Common Stock or cash, or to elect to defer receipt of any incentive compensation otherwise payable with respect to any year in increments of 1%. An account is maintained in the name of each participant and is credited with cash or Common Stock equal to the number of shares that could have been purchased with the amount of any compensation so deferred, at the closing price of the Common Stock on the day as of which the share account is so credited. The deferred compensation liability at December 31, 2015, and 2014, was $18.6 million and $19.0 million, respectively, and is included in accrued taxes, expenses and other liabilities on the accompanying Consolidated Balance Sheet.

Savings plans. The Corporation maintains a retirement savings plan under Section 401(k) of the Internal Revenue Code of 1986, as amended, covering substantially all full-time and part-time employees beginning in the quarter following three months of continuous employment (“FirstMerit 401(k) Plan”). For the years ended December 31, 2015 and 2014, the employer’s matching contribution to the FirstMerit 401(k) Plan was 100% on the first 3% and then 50% on the next 2% of the employee’s qualifying salary. Contributions made by the Corporation to the FirstMerit 401(k) Plan were $7.6 million for 2015, $7.7 million in 2014, and $4.4 million in 2013. Matching contributions vest in accordance with plan specifications.

From the Acquisition Date through the close of business December 31, 2013, eligible Citizens employees who were employed by the Corporation continued to be covered by an employee savings plan under

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Section 401(k) ("Citizens 401(k) Plan"). Contributions to the Citizens 401(k) Plan were matched 50% on the first 2% of salary deferred and 25% on the next 6% deferred. The Corporation contributed $1.1 million to the Citizens 401(k) Plan from Acquisition Date through December 31, 2013. The Citizens 401(k) Plan was merged with the FirstMerit 401(k) Plan as of close of business December 31, 2013. The plan terms of the merged plans are substantially the same as the FirstMerit 401(k) Plan.

The Corporation maintained a qualified defined contribution plan known as Retirement Investment Plan through December 31, 2012. Effective with the termination of this plan as of January 1, 2013, the Corporation will provide, for a five-year period, a transition contribution equal to 3% of an employee’s qualifying salary to all eligible plan participants that have earned 60 age-plus-service points, as of December 31, 2012. This transition contribution totaled $0.9 million and $0.7 million for the years ended December 31, 2015 and December 31, 2014, respectively.

The combined components of net periodic pension and postretirement benefits and other amounts recognized in AOCI for the Corporation's pension and postretirement benefit plans as of December 31, 2015, 2014 and 2013, are as follows:

	Pension Benefits									Postretirement Benefits
(In thousands)	2015			2014			2013			2015			2014			2013
Net periodic cost consists of:
Service cost	$	830		$	728		$	2,339		$	165		$	65		$	99
Interest cost	14,069			14,337			12,814			575			655			563
Expected return on plan assets	(15,607		)	(16,035		)	(14,938		)	—			—			—
Amortization of prior service cost/(credit)	2,279			2,599			467			(639		)	(468		)	(468		)
Amortization of actuarial (gains)/losses	4,227			2,930			4,693			325			236			268
Settlement / curtailment income	—			—			(524		)	—			—			—
Net periodic cost (benefit)	5,798			4,559			4,851			426			488			462
Other changes in plan assets and benefit obligations recognized in Other comprehensive income:
Current year actuarial losses/(gains)	7,987			49,488			(47,257		)	(8,103		)	64			(682		)
Amortization of actuarial gains/(losses)	(4,227		)	(2,930		)	(4,169		)	(325		)	(236		)	(268		)
Amortization of prior service (cost)/credit	(2,279		)	(2,599		)	(467		)	639			468			468
Total recognized in AOCI, before income taxes	1,481			43,959			(51,893		)	(7,789		)	296			(482		)
Total recognized in net periodic cost and AOCI	$	7,279		$	48,518		$	(47,042	)	$	(7,363	)	$	784		$	(20	)

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A measurement date of December 31 is used for plan assets and benefit obligations. The following table sets forth a reconciliation of the changes in the projected benefit obligation for the Corporation’s pension and postretirement benefit plans as of December 31, 2015, and 2014, as well as the change in plan assets for the Corporation’s qualified pension plans:

	Pension Benefits						Postretirement Benefits
(In thousands)	2015			2014			2015			2014
Accumulated benefit obligation, end of year	$	339,661		$	354,402
Change in projected benefit obligation:
Projected benefit obligation, beginning of year	355,642			308,834			$	15,164		$	15,544
Service cost	830			728			165			65
Interest cost	14,069			14,337			575			655
Plan amendments	—			—			(7,657		)	(1,979		)
Participant contributions	—			—			1,805			1,851
Actuarial (gains)/losses and change in assumptions	(10,469		)	50,115			(446		)	2,046
Benefits paid	(19,252		)	(18,372		)	(2,765		)	(3,018		)
Projected benefit obligation, end of year	$	340,820		$	355,642		$	6,841		$	15,164
Change in plan assets, at fair value:
Fair value of plan assets, beginning of year	$	257,355		$	257,510		$	—		$	—
Actual return on plan assets	(2,849		)	16,663			—			—
Participant contributions	—			—			1,805			1,851
Employer contributions	1,527			1,554			960			1,167
Benefits paid	(19,252		)	(18,372		)	(2,765		)	(3,018		)
Fair value of plan assets, end of year	$	236,781		$	257,355		$	—		$	—
Funded status (1)	(104,039		)	(98,287		)	(6,841		)	(15,164		)
Amounts recognized in AOCI before income taxes:
Prior service cost (credit)	$	308		$	2,587		$	(12,389	)	$	(5,370	)
Net actuarial loss	103,477			99,715			4,364			5,138
Amount recognized in AOCI	$	103,785		$	102,302		$	(8,025	)	$	(232	)

(1) The Corporation recognizes the underfunded status of the plans in accrued taxes, expenses and other liabilities on the Consolidated Balance Sheet.

As indicated in the table above, the benefit obligation and accumulated benefit obligation for all of the Corporation’s pension plans were in excess of the fair value of plan assets.

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Actuarial assumptions. The actuarial assumptions used to determine year end obligations for the Corporation’s pension and postretirement plans were as follows:

Weighted-average assumptions for year end obligations	2015		2014		2013
Discount rate
Qualified pensions	4.57	%	4.19	%	4.99	%
Nonqualified pensions	3.99	%	3.61	%	4.12	%
Postretirement medical benefits, FirstMerit’s plan	1.76	%	3.50	%	4.01	%
Postretirement medical benefits, Citizens’ plan	1.77	%	3.61	%	3.98	%
Postretirement life insurance benefits	4.79	%	4.36	%	5.08	%
Expected long-term rate of return	6.00	%	6.50	%	6.75	%
Rate of compensation increase
Qualified pensions	na		na		na
Nonqualified pensions	3.75	%	3.75	%	3.75	%
Assumed health care cost trend rate, pre-65 (1) (2)
Initial trend	na		7.00	%	7.50	%
Ultimate trend	na		5.00	%	5.00	%
Year ultimate trend reached	na		2019		2019
Assumed health care cost trend rate, post-65 (1) (2)
Initial trend	na		11.00	%	11.50	%
Ultimate trend	na		5.00	%	5.00	%
Year ultimate trend reached	na		2027		2027
Prescription Drugs (2)
Initial trend	na		7.00	%	7.50	%
Ultimate trend	na		5.00	%	5.00	%
Year ultimate trend reached	na		2019		2019

(1) The health care cost trend assumptions relate only to the postretirement benefit plans. Increasing or decreasing the assumed health care cost trend rates by one percentage point each future year would not have a material impact on total service and interest cost or the year end benefit obligation.

(2) Employer-provided subsidies under the postretirement medical plan will be discontinued after 2018. As a result, a three-year sunset of this subsidized coverage is reflected in the December 31, 2015 disclosures. Since employer subsidies are not expected to change from current levels, health care trend rates no longer have any impact on the accounting liabilities.

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The actuarial assumptions used as of the beginning of the year to determine the net periodic costs for the Corporation’s pension and postretirement plans were as follows:

Weighted-average assumptions for benefit cost at beginning of year	2015		2014		2013
Discount rate
Qualified pension	4.19	%	4.99	%	4.21	%
Nonqualified pensions	3.61	%	4.12	%	4.21	%
Postretirement medical benefits	3.50	%	4.01	%	3.18	%
Postretirement life insurance benefits	4.36	%	5.08	%	4.30	%
Expected long-term rate of return	6.50	%	6.75	%	7.00	%
Rate of compensation increase
Qualified pension	na		na		na
Nonqualified pensions	3.75	%	3.75	%	3.75	%
Assumed health care cost trend rate, pre-65 (1)
Initial trend	7.00	%	7.50	%	8.00	%
Ultimate trend	5.00	%	5.00	%	5.00	%
Year ultimate trend reached	2019		2019		2019
Assumed health care cost trend rate, post-65 (1)
Initial trend	11.50	%	11.50	%	12.00	%
Ultimate trend	5.00	%	5.00	%	5.00	%
Year ultimate trend reached	2027		2027		2027
Prescription Drugs
Initial trend	7.50	%	7.50	%	8.00	%
Ultimate trend	5.00	%	5.00	%	5.00	%
Year ultimate trend reached	2019		2019		2019

(1) The health care cost trend assumptions relate only to the postretirement benefit plans. Increasing or decreasing the assumed health care cost trend rates by one percentage point each future year would not have a material impact on total service and interest cost or the year end benefit obligation

The discount rates are determined independently for each plan and reflect the market rate for high-quality fixed income debt instruments, that are rated double-A or higher by a recognized ratings agency.

The rate of return on plan assets is a long-term assumption established by considering historic plan asset returns and anticipated returns of the asset classes invested in by the pension plan and the allocation strategy currently in place among those classes. The expected return on equities was computed using a valuation framework, which projected future returns based on current equity valuations rather than historical returns. Due to active management of the plan’s assets, the return on the plan equity investments historically has exceeded market averages. Management estimated the rate by which the plan assets would outperform the market in the future based on historical experience adjusted for changes in asset allocation and expectations for overall future returns on equities compared to past periods.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 introduced a prescription drug benefit under Medicare, and provides a federal subsidy to sponsors of retiree healthcare benefit plans that offer “actuarially equivalent” prescription drug coverage to retirees. For the years ended December 31, 2015, 2014, and 2013, these subsidies did not have a material effect on the APBO and net postretirement benefit cost for the Corporation.

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Net unrecognized actuarial gains or losses and prior service costs are recognized as an adjustment to accumulated other comprehensive income, net of tax, in the period they arise and, subsequently, recognized as a component of net periodic benefit cost over the average remaining service period of the active employees. The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost (credit) during the next fiscal year are as follows:

(In thousands)	Pension		Postretirement			Total
Prior service cost/(credit)	$	300	$	(2,542	)	$	(2,242	)
Actuarial net loss	3,321		981			4,302

At December 31, 2015, the FirstMerit Pension Plan was sufficiently funded under the requirements of ERISA, consequently, the Corporation was not required to make a minimum contribution to that plan in 2015. The Corporation expects to make a $35.0 million contribution to its qualified pension plan during 2016 but does not expect to make any significant discretionary contributions to its non-qualified or postretirement plans during 2016.

At December 31, 2015, the following table shows when benefit payments were expected to be paid. The expected benefits were estimated using the same assumptions as those used to calculate the benefit obligations in the preceding tables and includes benefits attributable to estimated future employee service.

(In thousands)
For the year ended December 31,	Pension		Postretirement
2016	$	31,328	$	982
2017	25,366		903
2018	24,653		843
2019	21,567		225
2020	19,463		228
2021 through 2025	95,975		1,210

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FirstMerit Pension Plan Investment Policy and Strategy. The FirstMerit Pension Plan invests in equities and other return-seeking assets such as real assets, as well as liability-hedging assets, primarily fixed income.  The Investment Policy recognizes that the plan’s asset return requirements and risk tolerances will change over time.  The Corporation utilizes a dynamic investment policy, whereby the allocation to return-seeking assets and liability-hedging assets is determined by comparing plan assets to the plan liabilities. As the plan’s funded ratio status improves, the allocation to liability-hedging assets will increase.

Dynamic Investment Policy Schedule
Return-Seeking (and Diversification) Allocation Strategy
Funded Ratio	Minimum	Target	Maximum
≤97%	36%	40%	44%
98%	34%	38%	42%
99%	31%	35%	39%
100%	30%	33%	36%
101%	28%	31%	34%
102%	26%	29%	32%
103%	23%	26%	29%
104%	21%	24%	27%
105%	18%	21%	24%
106%	16%	18%	20%
107%	12%	14%	16%
≥108%	8%	10%	12%

The weighted-average allocations for the FirstMerit Pension Plan as of December 31, 2015 and 2014, by asset category, are as follows:

	Percentage of Plan Assets on Measurement Date
	December 31,
Asset Category	2015		2014
Cash and domestic money market funds	1.95	%	1.49	%
U.S. Treasury obligations	2.40	%	1.97	%
U.S. Government agencies	1.08	%	1.12	%
Corporate bonds	2.74	%	2.79	%
Common stocks	14.30	%	13.54	%
Equity mutual funds	17.61	%	18.85	%
Fixed income mutual funds	49.62	%	50.11	%
Foreign mutual funds	10.30	%	10.13	%
	100.00	%	100.00	%

The following is a description of the valuation methodologies used to measure assets held by the FirstMerit Pension Plans at fair value.

• Domestic and foreign money market funds: Valued at quoted prices as reported on the active market in which the money market funds are traded.

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

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

• Registered equity, fixed income and foreign mutual funds: Valued at quoted prices as reported on the active market in which the securities are traded.

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

The following table sets forth by level, within the fair value hierarchy, the FirstMerit Pension Plan’s assets at fair value as of December 31, 2015:

(In thousands)	Level 1		Level 2		Level 3		Total
Domestic money market funds	$	4,620	$	—	$	—	$	4,620
United States government securities	—		5,675		—		5,675
United States government agency issues	—		2,588		—		2,588
Corporate bonds	—		6,479		—		6,479
Common stocks	33,851		—		—		33,851
Equity mutual funds	41,706		—		—		41,706
Fixed income mutual funds	117,485		—		—		117,485
Foreign mutual funds	24,377		—		—		24,377
Total assets at fair value	$	222,039	$	14,742	$	—	$	236,781

14.     Share-Based Compensation

The Corporation’s 2002, 2006 and 2011 Stock and Equity Plans, and the Citizens Republic Bancorp, Inc. Stock Compensation plan, and the Republic Bancorp, Inc 1998 Stock Option Plan that were assumed by the Corporation in connection with the Citizens acquisition (the “Plans”), provide stock options and restricted stock awards available to grant to employees for up to 5,298,056 shares of Common Stock of the Corporation. The Plans also provide for the granting of nonqualified stock options and nonvested (restricted) shares to certain nonemployee directors of the Corporation. Outstanding options under these Plans are generally not exercisable for twelve months from date of grant. The total share-based compensation expense recognized during the years ended December 31, 2015, 2014, and 2013, was $14.2 million, $13.9 million, and $10.9 million, respectively, and the related tax benefit was $5.0 million, $4.9 million, and $3.8 million, respectively. Share-based compensation expense related to awards granted to employees as well as awards granted to directors is recorded in salaries, wages, pension and employee benefits in the accompanying Consolidated Statements of Income.

Certain of the Corporation’s share-based award grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Corporation has elected to recognize compensation expense for awards with graded vesting schedule on a straight-line basis

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over the service period for the entire award. Compensation expense is recognized based on the estimated number of stock options and awards for which service is to be rendered. Upon stock option exercise or stock unit conversion, it is the policy of the Corporation to issue shares from treasury stock. No open market repurchases of Common Stock are planned in the upcoming calendar year. The Corporation has the authority to issue shares well in excess of the total number of stock option and restricted stock awards available for grant.

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

Stock Option Awards

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

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

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A summary of stock option activity under the Plans as of December 31, 2015, 2014, and 2013, and changes during the years then ended is as follows:

Options	Shares (000’s)		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value (000’s)
Outstanding at January 1, 2013	1,820		$	24.73	1.82	—
Acquired	63		218.01
Exercised	—		—
Forfeited	(8	)	23.93
Expired	(479	)	36.64
Outstanding at December 31, 2013	1,396		$	28.84	1.14	$	87
Exercised	—		—
Forfeited	—		—
Expired	(558	)	31.91
Outstanding at December 31, 2014	838		$	26.64	0.62	$	—
Exercised	—		—
Forfeited	—		—
Expired	(582	)	28.25
Outstanding at December 31, 2015	256		$	23.00	0.52	$	—
Exercisable at December 31, 2015	256		$	23.00	0.52	$	—

There were no options granted in the years ended December 31, 2015, 2014, and 2013. During the years ended December 31, 2015, 2014, and 2013, no options were exercised.

At December 31, 2015, there were no unrecognized compensation costs related to stock options granted to be realized under the Plans.

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Nonvested (Restricted) Stock Awards

The market price of the Corporation’s Common Stock at the date of grant is used to estimate the fair value of nonvested (restricted) stock awards. A summary of the status of the Corporation’s nonvested shares as of December 31, 2015, 2014, and 2013, and changes during the years then ended, is as follows:

			Weighted-Average
			Grant Date
Nonvested (restricted) Stock Awards	Shares (000’s)		Fair Value
Nonvested at January 1, 2013	1,079		$	17.00
Granted	823		16.47
Vested	(508	)	17.90
Forfeited or expired	(52	)	16.89
Nonvested at December 31, 2013	1,342		$	16.34
Granted	777		19.67
Vested	(664	)	16.30
Forfeited or expired	(42	)	18.16
Nonvested at December 31, 2014	1,413		$	18.16
Granted	792		19.48
Vested	(711	)	18.95
Forfeited or expired	(88	)	18.99
Nonvested at December 31, 2015	1,406		$	19.10

At December 31, 2015, there was $16.4 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of 1.47 years. The total fair value of shares vested during the year ended December 31, 2015, 2014, and 2013, was $13.5 million, $10.8 million, and $9.1 million, respectively.

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15.     Parent Company

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

(In thousands)			As of December 31,
Condensed Balance Sheets			2015		2014
	Assets:
		Cash and due from banks	$	99,638	$	142,950
		Investment securities	1,553		1,553
		Investment in subsidiaries, at equity in underlying value of their net assets	3,087,651		2,936,865
		Other assets	16,565		20,479
		Total Assets	$	3,205,407	$	3,101,847
	Liabilities and Shareholders’ Equity:
		Long-term debt	$	248,443	$	249,935
		Accrued and other liabilities	16,869		17,631
		Shareholders’ equity	2,940,095		2,834,281
	Total Liabilities and Shareholders’ Equity		$	3,205,407	$	3,101,847

(In thousands)			Years Ended December 31,
Condensed Statements of Income			2015			2014			2013
	Income:
		Cash dividends from subsidiaries	$	103,500		$	82,642		$	81,715
		Noninterest income	480			437			483
	Total income		103,980			83,079			82,198
		Interest and other expenses	27,096			30,613			29,684
	Income before income tax benefit and equity in undistributed income of subsidiaries		76,884			52,466			52,514
		Income tax benefit	(9,451		)	(10,324		)	(9,341		)
	Income before equity in undistributed net income of subsidiaries		86,335			62,790			61,855
		Equity in undistributed income of subsidiaries	143,149			175,161			121,829
	Net income		$	229,484		$	237,951		$	183,684

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(In thousands)		Years Ended December 31,
Condensed Statements of Cash Flows		2015			2014			2013
Operating activities:
	Net income	$	229,484		$	237,951		$	183,684
	Adjustments to reconcile net income to net cash provided by operating activities
	Equity in undistributed income of subsidiaries	(143,149		)	(175,161		)	(121,829		)
	Decrease (increase) in Federal income tax receivable	4,863			35,672			(30,399		)
	Decrease (increase) in deferred Federal tax asset	1,776			(1,449		)	27,032
	Increase in interest payable	—			—			4,618
	Other	(4,978		)	(552		)	924
	Net cash provided by operating activities	87,996			96,461			64,030
Investing activities:
	Loans or advances to subsidiaries	—			—			(50		)
	Repayment of loans to or investment in subsidiaries	—			110,675			—
	Cash paid for acquisition, net of cash received	—			—			(315,069		)
	Sale of investment securities	—			784			—
	Purchases of investment securities	—			(81		)	(215		)
	Net cash provided (used) by investing activities	—			111,378			(315,334		)
Financing activities:
	Proceeds from issuance of subordinated debt	—			—			249,927
	Proceeds from issuance of preferred stock	—			—			96,550
	Repayment of long-term debt	—			(74,451		)	—
	Cash dividends - common stock	(108,887		)	(105,333		)	(96,222		)
	Cash dividends - preferred stock	(5,876		)	(5,876		)	(5,337		)
	Purchase of treasury shares	(4,395		)	(4,261		)	(9,521		)
	Repurchase of common stock warrant	(12,150		)	—			—
	Net cash (used) provided by financing activities	(131,308		)	(189,921		)	235,397
(Decrease) increase in cash and cash equivalents		(43,312		)	17,918			(15,907		)
Cash and cash equivalents at beginning of year		142,950			125,032			140,939
Cash and cash equivalents at end of year		$	99,638		$	142,950		$	125,032

16.     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.

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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, eliminations companies, community development operations, the treasury group, which includes the securities portfolio, wholesale funding and asset liability management activities, and the economic impact of certain assets, capital and support 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). Funds transfer pricing is used in the determination of net interest income by assigning a cost for funds used or credit for funds provided to assets and liabilities within each business unit. In the first quarter of 2014, Management changed the estimate regarding the funds transfer pricing crediting rate provided on non-maturity deposits, including amounts for 2013. 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 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 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.

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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.

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 years ended December 31, 2015, 2014, and 2013:

(In thousands)										FirstMerit
December 31, 2015	Commercial		Retail		Wealth		Other			Consolidated
OPERATIONS:
Net interest income/(expense)	$	406,520	$	370,781	$	22,403	$	(58,409	)	$	741,295
Provision for loan losses	16,373		28,152		94		481			45,100
Noninterest income	88,384		96,979		57,995		25,640			268,998
Noninterest expense	240,634		345,827		54,681		(2,452		)	638,690
Net income/(loss)	154,632		60,957		16,654		(2,759		)	229,484
AVERAGES:
Assets	9,464,876		6,022,529		298,435		9,369,952			25,155,792
Loans	9,550,421		5,775,543		289,044		58,192			15,673,200
Earnings assets	9,868,378		5,783,272		289,044		6,498,822			22,439,516
Deposits	7,071,238		11,035,639		1,215,174		536,799			19,858,850
Economic capital	1,309,589		807,150		115,447		670,974			2,903,160

(In thousands)										FirstMerit
December 31, 2014	Commercial		Retail		Wealth		Other			Consolidated
OPERATIONS:
Net interest income/(expense)	$	417,788	$	383,151	$	20,330	$	(45,701	)	$	775,568
Provision for loan losses	2,898		39,618		1,895		7,868			52,279
Noninterest income	91,483		106,716		55,800		27,525			281,524
Noninterest expense	247,258		359,848		54,204		3,609			664,919
Net income/(loss)	171,560		58,760		13,021		(5,390		)	237,951
AVERAGES:
Assets	9,265,088		5,641,517		271,975		9,239,631			24,418,211
Loans	9,262,224		5,305,071		261,321		62,699			14,891,315
Earnings assets	9,549,341		5,328,107		261,321		6,363,978			21,502,747
Deposits	6,679,007		11,484,763		1,089,068		275,597			19,528,435
Economic capital	1,318,357		741,165		100,327		630,290			2,790,139

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(In thousands)											FirstMerit
December 31, 2013	Commercial		Retail		Wealth			Other			Consolidated
OPERATIONS:
Net interest income/(expense)	$	408,006	$	349,433	$	17,192		$	(63,846	)	$	710,785
Provision for loan losses	17,072		16,151		(692		)	1,153			33,684
Noninterest income	83,933		114,679		48,289			23,442			270,343
Noninterest expense	209,936		330,875		54,196			89,246			684,253
Net income/(loss)	172,206		76,105		7,784			(72,411		)	183,684
AVERAGES:
Assets	8,397,357		4,746,277		259,601			8,086,540			21,489,775
Loans	8,292,805		4,367,701		226,152			62,008			12,948,666
Earnings assets	8,480,005		4,392,937		226,179			5,393,874			18,492,995
Deposits	5,572,287		10,749,725		826,794			152,782			17,301,588
Economic capital	602,561		256,362		72,244			1,477,698			2,408,865

17.     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.

• 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

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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.”

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

			Fair Value by Hierarchy
(In thousands)	December 31, 2015		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	2,821	$	2,821	$	—	$	—
U.S. treasury notes & bonds	5,000				5,000
U.S. government agency debentures	2,498		—		2,498		—
U.S. States and political subdivisions	192,795		—		192,795		—
Residential mortgage-backed securities:
U.S. government agencies	906,229		—		906,229		—
Commercial mortgage-backed securities:
U.S. government agencies	172,109		—		172,109		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	2,128,320		—		2,128,320		—
Nonagency	4		—		—		4
Commercial collateralized mortgage-backed securities:
U.S. government agencies	216,319		—		216,319		—
Corporate debt securities	52,229		—		—		52,229
Asset-backed securities:
Collateralized loan obligations, nonagency issued	289,411		—		—		289,411
Total available-for-sale securities	3,967,735		2,821		3,623,270		341,644
Residential loans held for sale	5,472		—		5,472		—
Derivative assets:
Interest rate swaps - fair value hedges	8,739		—		8,739		—
Interest rate swaps - nondesignated	48,920		—		48,920		—
Mortgage loan commitments	149		—		149		—
Foreign exchange	299		—		299		—
Total derivative assets	58,107		—		58,107		—
Total fair value of assets (1)	$	4,031,314	$	2,821	$	3,686,849	$	341,644
Derivative liabilities:
Interest rate swaps - fair value hedges	3,536		—		3,536		—
Interest rate swaps - nondesignated	48,920		—		48,920		—
Forward sales contracts	5		—		5		—
Foreign exchange	284		—		284		—
Total derivative liabilities	52,745		—		52,745		—
True-up liability	14,750		—		—		14,750
Total fair value of liabilities (1)	$	67,495	$	—	$	52,745	$	14,750
Nonrecurring fair value measurement
Mortgage servicing rights (2)	$	19,149	$	—	$	—	$	19,149
Impaired loans (3)	71,428		—		—		71,428
Other property (4)	18,576		—		—		18,576
Other real estate covered by loss share (5)	365		—		—		365
Total fair value	$	109,518	$	—	$	—	$	109,518

(1) There were no transfers between levels 1, 2, or 3 of the fair value hierarchy during the year ended December 31, 2015.

(2) MSRs with a recorded investment of $18.9 million were reduced by a specific valuation allowance totaling $0.4 million to a reported carrying value of $18.5 million resulting in a recovery of previously recognized a credit of $0.6 million included in loans sales and servicing income in the year ended December 31, 2015.

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(3) Collateral dependent impaired loans with a recorded investment of $84.3 million were reduced by specific valuation allowance allocations totaling $12.9 million to a reported net carrying value of $71.4 million.

(4) Amounts do not include assets held at cost at December 31, 2015. During the year ended December 31, 2015, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $4.5 million included in noninterest expense.

(5) Amounts do not include assets held at cost at December 31, 2015. During the year ended December 31, 2015, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.6 million included in noninterest expense.

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			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		—
Nonagency	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, nonagency issued	287,844		—		—		287,844
Total available-for-sale securities	3,545,288		2,974		3,203,127		339,187
Residential loans held for sale	13,428		—		13,428		—
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		—
Foreign exchange	167		—		167		—
Total derivative assets	55,197		—		55,197		—
Total fair value of assets (1)	$	3,613,913	$	2,974	$	3,271,752	$	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 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 the recovery of previously recognized expense of $0.7 million included in loan sales and servicing income in the year ended December 31, 2014.

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(3) 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.

The following section describes the valuation methodologies used by the Corporation to measure financial assets and liabilities at fair value. During years ended December 31, 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 and corporate CMO.  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 December 31, 2015, approximately 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.

CLOs 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 limited market participants. Although estimated prices are generally obtained for such securities, the level of market observable assumptions used is limited in the

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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 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 mortgage servicing rights. As such, like other participants in the mortgage banking business, the Corporation relies primarily on a discounted cash flow model, incorporating assumptions about loan prepayment rates, discount rates, servicing costs and other

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economic factors, to estimate the fair value of its MSRs. Since the valuation model uses significant unobservable inputs, the Corporation classifies mortgage servicing rights within Level 3.

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 6 (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 risk by the lender or for a variety of other noneconomic 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 in the year ended December 31, 2015.

True-up liability. In connection with the George Washington and Midwest 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 sharing agreements (the “true-up liability”). This contingent consideration is classified as a liability within accrued taxes, expenses and other liabilities on the Consolidated Balance Sheet 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.

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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 sharing agreements. The resulting values under both calculations are discounted over 10 years (the period defined in the loss sharing 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 discount rate used to value the true-up liability was 3.77% and 3.36% as of December 31, 2015 and 2014, respectively. Increasing or decreasing the discount rate by one percentage point would change the liability by approximately $0.6 million and $0.7 million, respectively, as of December 31, 2015.

In accordance with the loss sharing 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 $9.3 million and $8.5 million as of December 31, 2015, and December 31, 2014, respectively.

In accordance with the loss sharing 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 $5.5 million and $4.8 million as of December 31, 2015, and December 31, 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 sharing 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 sharing 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 components of the true-up calculations 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.

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The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the years ended December 31, 2015 and 2014 are summarized as follows:

	Year Ended
	December 31, 2015					December 31, 2014
(In thousands)	Available-for-sale securities			True-up liability		Available-for-sale securities			True-up liability
Balance at beginning of period	$	339,187		$	13,294	$	347,611		$	11,463
Fair value of assets acquired	—			—		—			—
(Gains) losses included in earnings (1)	—			1,456		—			1,831
Unrealized gains (losses) (2)	2,653			—		(6,030		)	—
Purchases	79,446			—		—			—
Sales	(71,832		)	—		—			—
Settlements	(7,810		)	—		(2,394		)	—
Balance at ending of period	$	341,644		$	14,750	$	339,187		$	13,294

(1) Reported in noninterest expense

(2) Reported in other comprehensive income (loss)

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 December 31, 2015 and 2014. The aggregate fair value, contractual balance, and gain or loss on loans held for sale was as follows:

(In thousands)	December 31, 2015		December 31, 2014
Aggregate fair value carrying amount	$	5,472	$	13,428
Aggregate unpaid principal / contractual balance	5,320		12,912
Carrying amount over aggregate unpaid principal (1)	$	152	$	516

(1) These changes are included in loan sales and servicing income in the Consolidated Statement of Income.

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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 December 31, 2015, and 2014, are shown in the tables below.

	December 31, 2015
	Carrying Amount		Fair Value
(In thousands)			Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	463,817	$	463,817	$	463,817	$	—	$	—
Available-for-sale securities	3,967,735		3,967,735		2,821		3,623,270		341,644
Held-to-maturity securities	2,674,093		2,659,119		—		2,659,119		—
Other securities	148,172		148,172		—		148,172		—
Loans held for sale	5,472		5,472		—		5,472		—
Net originated loans	14,013,370		13,795,058		—		—		13,795,058
Net acquired loans	1,739,194		1,796,314		—		—		1,796,314
Net FDIC acquired loans and loss share receivable	170,690		170,690		—		—		170,690
Accrued interest receivable	67,887		67,887		—		67,887		—
Derivatives	58,107		58,107		—		58,107		—
Financial liabilities:
Deposits	$	20,108,003	$	20,116,298	$	—	$	20,116,298	$	—
Federal funds purchased and securities sold under agreements to repurchase	1,037,075		1,037,075		—		1,037,075		—
Wholesale borrowings	580,648		582,120		—		582,120		—
Long-term debt	505,173		503,675		—		503,675		—
Accrued interest payable	10,758		10,758		—		10,758		—
Derivatives	52,745		52,745		—		52,745		—

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	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	13,428		13,428		—		13,428		—
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	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		—

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

Cash and cash equivalents – For these short-term instruments, the carrying amount is considered a reasonable estimate of 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 year-end yield curve plus a spread that reflects current pricing on loans with similar characteristics. If applicable, prepayment assumptions are factored into the fair value determination based on historical experience and current economic conditions.

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 characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates

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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 is considered to be their fair value. Quoted market prices or the discounted cash flow method was used to estimate the fair value of the Corporation’s long-term debt. Discounting was based on the contractual cash flows and the current rate at which debt with similar terms could be issued.

Accrued interest payable – The carrying amount is considered a reasonable estimate of fair value.

Derivative assets and liabilities – See Financial Instruments Measured at Fair Value above.

True-up liability – See Financial Instruments Measured at Fair Value above.

18.     Derivatives and Hedging Activity

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.

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.

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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 December 31, 2015 and 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
	December 31, 2015				December 31, 2014				December 31, 2015				December 31, 2014
(In thousands)	Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (2)		Notional/ Contract Amount		Fair Value (2)
Interest rate swaps:
Commercial Loan Swaps (FRAPS)	$	—	$	—	$	—	$	—	$	55,689	$	3,536	$	93,313	$	6,683
Sub Debt Swap	250,000		8,739		250,000		5,256		—		—		—		—
Fair value hedges	$	250,000	$	8,739	$	250,000	$	5,256	$	55,689	$	3,536	$	93,313	$	6,683

(1) Included in Other Assets on the Consolidated Balance Sheet

(2) Included in Other Liabilities on the Consolidated Balance Sheet

Commercial Loan Swaps. Prior to 2008, 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 meet 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.

Sub Debt Swap. During the fourth quarter of 2014, the Bank 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 short cut 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).

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Derivatives Not Designated in Hedge Relationships

As of December 31, 2015 and 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
	December 31, 2015				December 31, 2014				December 31, 2015				December 31, 2014
(In thousands)	Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (2)		Notional/ Contract Amount		Fair Value (2)
Interest rate swaps	$	1,824,576	$	48,920	$	1,673,012	$	48,366	$	1,824,576	$	48,920	$	1,673,012	$	48,366
Mortgage loan commitments	20,635		149		102,523		1,408		—		—		—		—
Forward sales contracts	—		—		—		—		9,659		5		47,657		272
Credit contracts	—		—		10,001		—		73,715		—		69,227		—
Foreign exchange	13,671		299		22,406		167		11,706		284		6,580		118
Equity swap	—		—		—		—		36,631		—		25,198		—
Total	$	1,858,882	$	49,368	$	1,807,942	$	49,941	$	1,956,287	$	49,209	$	1,821,674	$	48,756

(1) Included in Other Assets on the Consolidated Balance Sheet

(2) Included in Other Liabilities on the Consolidated Balance Sheet

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 stand-alone 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 results in market risk to the Corporation to the extent market interest rates change from the rate quoted to the borrower. The Corporation economically hedges the risk of changing interest rates associated with its interest rate lock commitments by entering into forward sales contracts.

The Corporation’s warehouse (mortgage loans held for sale) is subject to changes in fair value, due to fluctuations in interest rates from the loan’s closing date through the date of sale of the loan into the secondary

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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 two 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 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 $4.7 million as of December 31, 2015. The fair values of the written swap participations were not material at December 31, 2015 or 2014.

Gains and losses recognized in income on nondesignated hedging instruments for the years ended December 31, 2015, 2014 and 2013, are as follows:

(In thousands)
Derivatives not designated as hedging instruments	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain / (Loss) Recognized in Income on Derivatives
		Year Ended December 31,
		2015			2014			2013
Mortgage loan commitments	Other operating income	$	(1,260	)	$	517		$	(3,509	)
Forward sales contracts	Other operating income	267			(656		)	446
Foreign exchange contracts	Other operating income	(2,154		)	(210		)	(233		)
Other	Other operating expense	—			(515		)	—
Total		$	(3,147	)	$	(864	)	$	(3,296	)

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 or a customer, fails to meet its contractual obligations. This risk is measured as the expected positive replacement value of contracts. All derivative contracts may be executed only with exchanges or counterparties approved by the Corporation’s 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

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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 established 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 $47.2 million and $53.5 million as of December 31, 2015 and 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 with 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 December 31, 2015 and 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 December 31, 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	$	8,739	$	—	$	8,739	$	—		$	—		$	8,739
Interest rate swaps - nondesignated	155		—		155		(155		)	—			—
Foreign exchange	—		—		—		—			—			—
Total derivative assets	$	8,894	$	—	$	8,894	$	(155	)	$	—		$	8,739
Derivative Liabilities
Interest rate swaps - designated	$	3,536	$	—	$	3,536	$	—		$	(3,536	)	$	—
Interest rate swaps - nondesignated	48,765		—		48,765		(155		)	(48,610		)	—
Foreign exchange	—		—		—		—			—			—
Total derivative liabilities	$	52,301	$	—	$	52,301	$	(155	)	$	(52,146	)	$	—

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	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 - nondesignated	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 - nondesignated	48,014		—		48,014		(352		)	(47,662		)	—
Foreign exchange	28		—		28		(28		)	—			—
Total derivative liabilities	$	54,725	$	—	$	54,725	$	(380	)	$	(54,345	)	$	—

(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 Sheet 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 Sheet unless the Corporation defaults.

19.     Commitments and Guarantees

Obligations Under Noncancelable Leases

The Corporation is obligated under various noncancelable operating leases on branch offices. Minimum future rental payments under noncancelable operating leases at December 31, 2015 are as follows:

(In thousands)
Years Ended December 31,	Lease Commitments
2016	$	11,942
2017	11,288
2018	9,842
2019	7,870
2020	6,605
2021-2034	18,521
Total minimum future rental payments	$	66,068

Commitments to Extend Credit

Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition established in the contract. Loan commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance sheets. Additional information is provided in Note 17 (Fair Value Measurement). Commitments generally are extended at the then-prevailing interest rates, have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Loan commitments involve credit risk not reflected on the balance sheet. The Corporation mitigates exposure to credit risk with internal controls that guide how applications for credit are reviewed and approved, how credit limits are established and, when necessary, how

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demands for collateral are made. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Management evaluates the creditworthiness of each prospective borrower on a case-by-case basis and, when appropriate, adjusts the allowance for probable credit losses inherent in all commitments. The reserve for unfunded lending commitments at December 31, 2015, was $4.1 million, compared with $5.8 million at December 31, 2014. Additional information pertaining to this allowance is included in Note 4 (Allowance for Loan Losses) and under the heading “Allowance for Loan Losses and Reserve For Unfunded Lending Commitments” within Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation”of this report.

The following table shows the remaining contractual amount of each class of commitments to extend credit as of December 31, 2015 and 2014. This amount represents the Corporation’s maximum exposure to loss if the customer were to draw upon the full amount of the commitment and subsequently default on payment for the total amount of the then outstanding loan.

		At December 31,
(In thousands)		2015		2014
Loan Commitments
	Commercial	$	3,992,089	$	3,748,690
	Consumer	2,393,058		2,387,623
	Total loan commitments	$	6,385,147	$	6,136,313

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.

		At December 31,
(In thousands)		2015		2014
Financial guarantees
	Standby letters of credit	$	254,703	$	242,390
	Loans sold with recourse	12,902		45,071
	Total financial guarantees	$	267,605	$	287,461

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 and real estate. Any amounts drawn under standby letters of credit are treated as loans; they bear interest and pose the same credit risk to the Corporation as a loan. Except for short-term guarantees of $131.7 million at December 31, 2015, the remaining guarantees extend in varying amounts through 2022.

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Asset Sales

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 December 31, 2015 and 2014, the Corporation had sold $10.1 million and $38.1 million, respectively, of outstanding residential mortgage loans to GSEs and other investors with recourse provisions. The Corporation had reserved $2.7 million and $7.3 million as of December 31, 2015 and 2014, respectively, for estimated losses from representation and warranty obligations and early payment default recourse provisions.

Due to prior acquisitions, as of December 31, 2014 the Corporation had serviced approximately $3.7 million of manufactured housing loans that were sold with recourse. The reserve associated with these manufactured loans was $1.1 million as of December 31, 2014. As of December 31, 2015 the Corporation did not service any manufactured housing loans sold with recourse, and, as a result, did not recognize a reserve for estimated losses.

The total reserve associated with loans sold with recourse was approximately $2.7 million and $8.4 million as of December 31, 2015 and 2014, respectively, and is included in accrued taxes, expenses and other liabilities on the consolidated balance sheet. 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.

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Changes in the amount of the repurchase reserve for the years ended December 31, 2015, and 2014, are as follows:

	Year Ended December 31, 2015
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans			Total repurchased reserve
Balance at beginning of period	$	7,250		$	1,124		$	8,374
Net increase/(decrease) to reserve	(3,638		)	(1,130		)	(4,768		)
Net realized gains/(losses)	(887		)	6			(881		)
Balance at end of period	$	2,725		$	—		$	2,725

	Year Ended December 31, 2014
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchased reserve
Balance at beginning of period	$	8,737		$	1,114	$	9,851
Net increase/(decrease) to reserve	(4,564		)	10		(4,554		)
Net realized gains/(losses)	3,077			—		3,077
Balance at end of period	$	7,250		$	1,124	$	8,374

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.

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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 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." The plaintiffs filed a third amended complaint in November 2015, and the defendants have filed a motion that the complaint be dismissed.

Merger litigation

On February 11, 2016 and February 17, 2016, two putative derivative and class action lawsuits were filed by separate shareholders of FirstMerit Corporation in the Summit County Common Pleas Court, Ohio, entitled W. Patrick Murray vs. Huntington Bancshares Incorporated, Case No. CV-2016-02-0917 and The Robinson Family Trust vs. Paul Greig, Case No. CV-2016-02-0981 (the “Lawsuits”), relating to the proposed merger between Huntington Bancshares, Inc. and FirstMerit.  The Murray complaint alleges that the individual board of directors of FirstMerit breached their fiduciary duties by approving a proposed merger that allegedly undervalues FirstMerit and purportedly provides the directors with benefits not afforded FirstMerit shareholders.  It is also alleged that the Board, FirstMerit and Huntington aided and abetted those alleged breaches of fiduciary duty.  The Robinson complaint makes similar allegations, and also alleges that the board

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approved deal protection devices to allegedly ensure that the acquisition would be consummated.  The Complaints seek  declaratory and injunctive relief to prevent the consummation of the merger, monetary damages, an award of fees and costs and other equitable relief.  

20.     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. 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. On February 4, 2013, the Corporation issued 100,000 shares of its 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, which began paying cash dividends on May 4, 2013, 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.

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

	Year Ended December 31,
(In thousands, except per share amounts)	2015		2014		2013
Basic EPS:
Net income	$	229,484	$	237,951	$	183,684
Less:
Cash dividends on 5.875% non-cumulative perpetual series A, preferred stock	5,876		5,876		5,337
Income allocated to participating securities	1,836		1,930		1,545
Net income attributable to common shareholders	$	221,772	$	230,145	$	176,802
Weighted average Common Stock outstanding used in basic EPS	165,669		165,296		149,607
Basic net income per common share	$	1.34	$	1.39	$	1.18
Diluted EPS:
Income used in diluted earnings per share calculation	$	221,772	$	230,145	$	176,802
Weighted average Common Stock outstanding used in basic EPS	165,669		165,296		149,607
Add: Common Stock equivalents:
Employee stock award plans	458		758		814
Weighted average Common and Common Stock equivalent shares outstanding	166,127		166,054		150,421
Diluted net income per common share	$	1.33	$	1.39	$	1.18

Common Stock equivalents consist of employee stock award plans. 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. There were $0.8 million antidilutive Common Stock equivalents for the year ended December 31, 2015, and $0.8 million and $1.4 million antidilutive Common Stock equivalents for the years ended December 31,2014 and 2013, respectively.

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21.     Changes and Reclassifications Out of Accumulated Other Comprehensive Income

The following table presents the changes in AOCI by components of comprehensive income for the years ended December 31, 2015 and 2014:

	Year Ended December 31, 2015
(In thousands)	Pre-tax			Tax			After-tax
Unrealized and realized securities gains and losses:
Balance at the beginning of the period	$	(8,531	)	$	(2,985	)	$	(5,546	)
Changes in unrealized securities’ holding gains/(losses)	(19,842		)	(11,253		)	(8,589		)
Changes in unrealized securities’ holding gains/(losses) that result from securities being transferred into available-for-sale from held-to-maturity	(3,456		)	(1,254		)	(2,202		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(957		)	(348		)	(609		)
Balance at the end of the period	(32,786		)	(15,840		)	(16,946		)
Pension plans and other postretirement benefits:
Balance at the beginning and end of the period	(102,068		)	(35,722		)	(66,346		)
Current year actual gains/(losses)	116			42			74
Amortization of actuarial losses/(gains)	4,552			1,652			2,900
Amortization of prior service cost reclassified to other noninterest expense	1,640			596			1,044
Balance at the end of the period	(95,760		)	(33,432		)	(62,328		)
Total Accumulated Other Comprehensive Income	$	(128,546	)	$	(49,272	)	$	(79,274	)

	Year Ended December 31, 2014
(In thousands)	Pre-tax			Tax			After-tax
Unrealized and realized securities gains and losses:
Balance at the beginning of the period	$	(45,072	)	$	(15,776	)	$	(29,296	)
Changes in unrealized securities’ holding gains/(losses)	38,864			13,602			25,262
Changes in unrealized securities’ holding gains/(losses) that result from securities being transferred into available-for-sale from held-to-maturity	(2,157		)	(753		)	(1,404		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(166		)	(58		)	(108		)
Balance at the end of the period	(8,531		)	(2,985		)	(5,546		)
Pension plans and other postretirement benefits:
Balance at the beginning and end of the period	(57,813		)	(20,233		)	(37,580		)
Current year actual gains/(losses)	(49,552		)	(17,344		)	(32,208		)
Amortization of actuarial losses/(gains)	3,166			1,108			2,058
Amortization of prior service cost reclassified to other noninterest expense	2,131			747			1,384
Balance at the end of the period	(102,068		)	(35,722		)	(66,346		)
Total Accumulated Other Comprehensive Income	$	(110,599	)	$	(38,707	)	$	(71,892	)

The following table presents current period reclassifications out of AOCI by component of comprehensive income for the years ended December 31, 2015 and 2014:

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(In thousands)	Year Ended December 31, 2015			Statement of Income line item presentation
Realized (gains) losses on sale of securities	$	(957	)	Investment securities losses (gains), net
Tax expense (benefit) (36.3%)	(348		)	Income tax expense (benefit)
Reclassified amount, net of tax	$	(609	)

(In thousands)	Year Ended December 31, 2014			Statement of Income line item presentation
Realized (gains) losses on sale of securities	$	(166	)	Investment securities losses (gains), net
Tax expense (benefit) (35%)	(58		)	Income tax expense (benefit)
Reclassified amount, net of tax	$	(108	)

22.    Regulatory Matters

The Corporation is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also subject to quantitative judgments by regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios (set forth in the following table) of total risk-based capital, CET1 and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. At December 31, 2015 and 2014, Management believes the Corporation meets all capital adequacy requirements to which it is subject. The capital terms used in this note to the consolidated financial statements are defined in the regulations as well as in the “Capital Resources” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-K.

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(Dollars in thousands)	Consolidated
	Actual				Adequately Capitalized:				Well Capitalized:
As of December 31, 2015	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total risk-based capital (1) (2)
(to Risk Weighted Assets)	$	2,733,143	13.74	%	$	1,591,341	8.00	%	$	1,989,176	10.00	%
CET1 capital (1) (2)
(to Risk Weighted Assets)	2,119,025		10.65	%	895,129		4.50	%	1,292,964		6.50	%
Tier 1 Capital (1) (2)
(to Risk Weighted Assets)	2,119,025		10.65	%	1,193,506		6.00	%	1,591,341		8.00	%
Tier 1 leverage (1) (2)
(to Average Assets)	2,119,025		8.63	%	981,690		4.00	%	1,227,113		5.00	%
	Actual				Adequately Capitalized:				Well Capitalized:
As of December 31, 2014	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total risk-based capital (1) (2)
(to Risk Weighted Assets)	$	2,653,893	15.26	%	$	1,391,282	8.00	%	$	1,739,102	10.00	%
Tier 1 Capital (1) (2)
(to Risk Weighted Assets)	2,004,461		11.53	%	695,641		4.00	%	1,043,461		6.00	%
Tier 1 leverage (1) (2)
(to Average Assets)	2,004,461		8.43	%	951,430		4.00	%	1,189,287		5.00	%

(1) See Figure 4 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. December 31, 2015 figures are 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 amounts and ratios are reported on a Basel I basis.

At December 31, 2015 and 2014, the most recent notification from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized the Bank must maintain minimum total risk-based, CET1 risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. In Management’s opinion, there are no conditions or events since the OCC’s notification that have changed the Bank’s categorization as “well-capitalized.”

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	Bank Only
(Dollars in thousands)	Actual				Adequately Capitalized:				Well Capitalized:
As of December 31, 2015	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total risk-based capital (1) (2)
(to Risk Weighted Assets)	$	2,668,419	13.42	%	$	1,590,382	8.00	%	$	1,987,978	10.00	%
CET1 capital (1) (2)
(to Risk Weighted Assets)	2,262,669		11.38	%	894,590		4.50	%	1,292,185		6.50	%
Tier 1 Capital (1) (2)
(to Risk Weighted Assets)	2,262,669		11.38	%	1,192,787		6.00	%	1,590,382		8.00	%
Tier 1 leverage (1) (2)
(to Average Assets)	2,262,669		9.23	%	980,975		4.00	%	1,226,219		5.00	%
	Actual				Adequately Capitalized:				Well Capitalized:
As of December 31, 2014	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total risk-based capital (1) (2)
(to Risk Weighted Assets)	$	2,521,412	14.49	%	$	1,391,988	8.00	%	$	1,739,986	10.00	%
Tier 1 Capital (1) (2)
(to Risk Weighted Assets)	2,127,065		12.22	%	695,994		4.00	%	1,043,991		6.00	%
Tier 1 leverage (1) (2)
(to Average Assets)	2,127,065		8.94	%	951,455		4.00	%	1,189,319		5.00	%

(1) See Figure 4 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. December 31, 2015 figures are 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 amounts and ratios are reported on a Basel I basis.

FirstMerit Mortgage Corporation, a subsidiary of the Corporation, is subject to net worth requirements issued by the U.S. Department of Housing and Urban Development (“HUD”). Failure to meet minimum capital requirements of HUD can result in certain mandatory and possibly additional discretionary actions that, if undertaken, could have a direct material effect on FirstMerit Mortgage Corporation's operations.

The minimum net worth requirement of HUD at December 31, 2015, and 2014, was $1.0 million. FirstMerit Mortgage Corporations’ net worth significantly exceeded the HUD requirements at December 31, 2015, and 2014.

23.     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.

On January 26, 2016, the Corporation and Huntington Bancshares Incorporated (“Huntington”)announced the signing of a definitive merger agreement under which the Corporation will merge into a subsidiary of Huntington in a stock and cash transaction. Based on the closing price of Huntington's common

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shares on January 25, 2016 of $8.80, the total transaction value is approximately $3.40 billion, including outstanding options and other equity-linked securities.

Under the terms of the definitive agreement, the Corporation will merge with a subsidiary of Huntington Bancshares, and FirstMerit Bank will merge with and into The Huntington National Bank. In conjunction with the closing of the transaction, four independent members of the Corporation’s Board of Directors will join the Huntington Board, which will be expanded accordingly.

Shareholders of the Corporation will receive 1.72 shares of Huntington common stock, and $5.00 in cash, for each share of the Corporation common stock. The per share consideration is valued at $20.14 per share based on the closing price of Huntington Common Stock on January 25, 2016. The transaction is expected to be completed in the third quarter of 2016, subject to the satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of Huntington and the Corporation.

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MANAGEMENT’S REPORT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

FirstMerit Corporation is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements and related notes included in this Form 10-K. The consolidated financial statements and notes included in this Form 10-K have been prepared in conformity with U.S. generally accepted accounting principles and necessarily include some amounts that are based on Management’s best estimates and judgments. The Management of FirstMerit Corporation is responsible for establishing and maintaining adequate internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in conformity with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of FirstMerit Corporation’s system of internal control over financial reporting as of December 31, 2015, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013 Framework). Based on that assessment, Management concluded that FirstMerit Corporation maintained effective internal control over financial reporting as of December 31, 2015.

Ernst & Young LLP, the independent registered public accounting firm, that audited our consolidated financial statements as of and for the year December 31, 2015, has issued a report on the effectiveness of internal control over financial reporting as of December 31, 2015. The report of Ernst & Young LLP is included under Item 8 of this Form 10-K.

/s/ PAUL G. GREIG /s/ TERRENCE E. BICHSEL

Chairman, President and Chief Senior Executive Vice President and

Executive Officer Chief Financial Officer

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Report of Independent Registered Public Accounting Firm

on Internal Control over Financial Reporting

Shareholders and Board of Directors

FirstMerit Corporation

We have audited FirstMerit Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). FirstMerit Corporation and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, FirstMerit Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based onthe COSO criteria.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of FirstMerit Corporation and subsidiaries as of December 31, 2015 and 2014 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2015 and our report dated February 22, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Akron, Ohio

February 22, 2016

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

FirstMerit Corporation

We have audited the accompanying consolidated balance sheets of FirstMerit Corporation and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of FirstMerit Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FirstMerit Corporation and subsidiaries as of December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FirstMerit Corporation’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 22, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Akron, Ohio

February 22, 2016

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not Applicable.

ITEM 9A. CONTROLS AND PROCEDURES.

Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of December 31, 2015, an evaluation was performed under the supervision and with the participation of Management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, Management concluded that disclosure controls and procedures as of December 31, 2015, were effective.

Management’s responsibilities related to establishing and maintaining effective disclosure controls and procedures include maintaining effective internal control over financial reporting that are designed to produce reliable financial statements in accordance with GAAP. As disclosed in Management’s Report of Internal Control Over Financial Reporting on page 212 of this Form 10-K, Management assessed the Corporation's system of internal control over financial reporting as of December 31, 2015, in relation to criteria for effective 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). Based on this assessment, Management believes that, as of December 31, 2015, FirstMerit Corporation maintained effective internal control over financial reporting.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Report of Management on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm thereon are set forth in Part II, Item 8 of this Form 10-K and are incorporated herein by reference.

ITEM 9B. OTHER INFORMATION.

Not Applicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors, Executive Officers and Persons Nominated or Chosen to Become Directors or Executive Officers

The information required by Item 401 of Regulation S-K concerning the directors of FirstMerit and the nominees for re-election as directors of FirstMerit at the 2016 Annual Meeting of Shareholders (the “2016 Annual Meeting”) is incorporated herein by reference from the applicable disclosure to be included in FirstMerit’s definitive proxy statement relating to the 2016 Annual Meeting to be filed with the SEC (“FirstMerit’s 2016 Proxy Statement”).

The information required by Item 401 of Regulation S-K concerning the executive officers of FirstMerit is incorporated herein by reference from the disclosure provided under the caption “Executive Officers of the Registrant” included in Part I of this Form 10-K.

Section 16(a) Beneficial Ownership Reporting Compliance

The information required by Item 405 of Regulation S-K is incorporated herein by reference from the applicable disclosure to be included in FirstMerit’s 2016 Proxy Statement.

Code of Business Conduct and Ethics

FirstMerit has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that covers all employees, including its principal executive, financial and accounting officers, and is posted on FirstMerit’s websitewww.firstmerit.com. In the event of any amendment to, or waiver from, a provision of the Code of Ethics that applies to its principal executive, financial or accounting officers, FirstMerit intends to disclose such amendment or waiver on its website.

Procedures for Recommending Directors Nominees

Information concerning the procedures by which shareholders of FirstMerit may recommend nominees to FirstMerit’s Board of Directors is incorporated herein by reference from the applicable disclosure to be included in FirstMerit’s 2016 Proxy Statement. These procedures have not materially changed from those described in FirstMerit’s definitive proxy materials for the 2015 Annual Meeting of Shareholders held on April 15, 2015.

Audit Committee

The information required by Items 407(d)(4) and 407(d)(5) of Regulation S-K is incorporated herein by reference from the applicable disclosure to be included in FirstMerit’s 2016 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by Item 402 of Regulation S-K is incorporated herein by reference from the applicable disclosure to be included in FirstMerit’s 2016 Proxy Statement.

The information required by Item 407(e)(4) of Regulation S-K is incorporated herein by reference from the applicable disclosure to be included in FirstMerit’s 2016 Proxy Statement.

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The information required by Item 407(e)(5) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “The Compensation Committee Report” in FirstMerit’s 2016 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by Item 403 of Regulation S-K is incorporated herein by reference from the applicable disclosure to be included in FirstMerit’s 2016 Proxy Statement.

Equity Compensation Plan Information
(Dollars in thousands, except per share data) Plan category	Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a)	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (b)		Number of Securities available for grant for Options, Warrants and Rights (c)
Equity Compensation Plans Approved by Security Holders
2006	195,300	$	23.42	—
2006D	60,900	21.65		—
2011	—	—		3,376,636
Republic Bancorp 1998 Stock Option Plan	6	241.00		94
Citizens Republic Bancorp Stock Compensation Plan	—	—		1,921,326
Total	256,206			5,298,056

Equity Compensation Plans Not Approved by Security Holders

None.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by Item 404 of Regulation S-K is incorporated herein by reference from the applicable disclosure to be included in FirstMerit’s 2016 Proxy Statement.

The information required by Item 407(a) of Regulation S-K is incorporated herein by reference from the applicable disclosure to be included in FirstMerit’s 2016 Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item 14 is incorporated herein by reference from the applicable disclosure to be included in the Corporation’s 2016 Proxy Statement.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES

(a)(1) The following financial statements and the auditor’s reports thereon are filed as part of this Form 10-K under Item 8. Financial Statements and Supplementary Data:

Consolidated Balance Sheets as of December 31, 2015 and 2014;

Consolidated Statements of Income for Years ended December 31, 2015, 2014 and 2013;

Consolidated Statements of Comprehensive Income for Years ended December 31, 2015, 2014 and 2013;

Consolidated Statements of Changes in Shareholders’ Equity for Years ended December 31, 2015, 2014 and 2013;

Consolidated Statements of Cash Flows for Years ended December 31, 2015, 2014 and 2013;

Notes to Consolidated Financial Statements for Years ended December 31, 2015, 2014 and 2013;

Report of Management on Internal Control Over Financial Reporting; and

Reports of Independent Registered Public Accounting Firms.

(a)(2) Financial Statement Schedules

All financial statement schedules have been included in this Form 10-K in the consolidated financial statements or the related notes, or they are either inapplicable or not required.

(a)(3) Exhibits

All documents referenced below were filed pursuant to the Securities Exchange Act of 1934 by FirstMerit Corporation (file number 00-10161), unless otherwise noted.

Exhibit
Number	Description
2.1	Agreement and Plan of Merger, dated September 12, 2012, by and between FirstMerit Corporation and Citizens Republic Bancorp, Inc. (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on September 13, 2012).
2.2	Agreement and Plan of Merger, dated January 25, 2016, by and among Huntington Bancshares Incorporated, FirstMerit Corporation and West Subsidiary Corporation (incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on January 28, 2016 (File No. 001-11267)).
3.1	Second Amended and Restated Articles of Incorporation of FirstMerit Corporation, as amended January 28, 2013 (incorporated by reference from Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed by FirstMerit Corporation on May 3, 2013 (File No. 001-11267)).
3.2	Second Amended and Restated Code of Regulations of FirstMerit Corporation, as Amended, as of April 15, 2015 (incorporated by reference from Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 filed by FirstMerit Corporation on May 1, 2015 (File No. 001-11267)).
4.1	Subordinated Indenture, dated as of February 4, 2013, by and between FirstMerit Corporation and Wells Fargo Bank, National Association, as Trustee (incorporated by reference from Exhibit 4.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 4, 2013 (File No. 001-11267)).

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4.2	First Supplemental Subordinated Indenture, dated as of February 4, 2013, by and between FirstMerit Corporation and Wells Fargo Bank, National Association, as Trustee (incorporated by reference from Exhibit 4.2 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 4, 2013 (File No. 001-11267)).
4.3	Deposit Agreement, dated as of February 4, 2013, by and between FirstMerit Corporation and American Stock Transfer & Trust Company, LLC, as Depositary (incorporated by reference from Exhibit 4.3 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 4, 2013 (File No. 001-11267)).
4.4	Issuing and Paying Agent Agreement, dated November 25, 2014, between the Bank and U.S. Bank National Association.
10.1	Credit Agreement between FirstMerit and Citibank, N.A. (incorporated by reference from Exhibit 99.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on December 7, 2006).
10.2*	Amended and Restated 1999 Stock Plan (incorporated by reference from Exhibit 10.5 to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2000 filed by FirstMerit Corporation on April 30, 2001).
10.3*	First Amendment to the Amended and Restated 1999 Stock Plan (incorporated by reference from Exhibit 10.5 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.4*	Amended and Restated 2002 Stock Plan (incorporated by reference from Exhibit 10.6 to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2003 filed by FirstMerit Corporation on April 30, 2004).
10.5*	First Amendment to the Amended and Restated 2002 Stock Plan (incorporated by reference from Exhibit 10.7 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.6*	Amended and Restated 2006 Equity Plan (incorporated by reference from Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2, 2008).
10.7*	First Amendment to the Amended and Restated 2006 Equity Plan (incorporated by reference from Exhibit 10.9 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.8*	Amended and Restated Executive Deferred Compensation Plan (incorporated by reference from Exhibit 10.10 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.9*	Firstmerit Corporation Director Deferred Compensation Plan, Amended and Restated Effective as of December 12, 2012 (incorporated by reference from Exhibit 10.9 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed by FirstMerit Corporation on February 28, 2013 (File No. 001-11267).
10.10*	Amended and Restated Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10.12 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.11*	Republic Bancorp Inc. 1998 Stock Option Plan  (incorporated by reference from Exhibit 4.4 to the Registration Statement on Form S-8 filed by FirstMerit Corporation on June 21, 2013 (Registration No. 333-189519).
10.12*	2008 Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10.14 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.13*	Amendment to the Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10.15 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.14*	Amended and Restated Unfunded Supplemental Benefit Plan (incorporated by reference from Exhibit 10.16 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.15*	2008 Excess Benefit Plan (incorporated by reference from Exhibit 10.18 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.16*	First Amendment to the 2008 Excess Benefit Plan (incorporated by reference from Exhibit 10.19 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.17*	Executive Life Insurance Program Summary (incorporated by reference from Exhibit 10.20 to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2001 filed by FirstMerit Corporation on April 30, 2002).
10.18*	Long-Term Disability Benefit Summary (incorporated by reference from Exhibit 10.21 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).

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10.19*	Citizens Republic Bancorp, Inc. Stock Compensation Plan (Amended, Restated and Renamed Effective March 19, 2012)  (incorporated by reference from Exhibit 4.3 to the Registration Statement on Form S-8 filed by FirstMerit Corporation on June 21, 2013 (Registration No. 333-189519).
10.20*	Form of Amended and Restated Change in Control Termination Agreement (Tier 1) (incorporated by reference from Exhibit 10.23 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.21*	Form of Amended and Restated Change in Control Termination Agreement (Tier 1/2008 SERP) (incorporated by reference from Exhibit 10.24 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.22*	Form of Amended and Restated Displacement Agreement (Tier 1) (incorporated by reference from Exhibit 10.22 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed by FirstMerit Corporation on February 25, 2011).
10.23*	Form of Displacement Agreement (Tier 1/2008 SERP) (incorporated by reference from Exhibit 10.23 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed by FirstMerit Corporation on February 25, 2011).
10.24*	Amended and Restated Employment Agreement by and between FirstMerit Corporation and Paul G. Greig (incorporated by reference from Exhibit 10.27 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.25*	Amended and Restated Change in Control Termination Agreement (Greig) (incorporated by reference from Exhibit 10.28 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed by FirstMerit Corporation on February 18, 2009).
10.26*	Amended and Restated Displacement Agreement (Greig) (incorporated by reference from Exhibit 10.29 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed by FirstMerit Corporation on February 18, 2009).
10.27*	Form of Employee Restricted Stock Award Agreement (Change in Control) (incorporated by reference from Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2, 2008).
10.28*	Form of Employee Restricted Stock Award Agreement (no Change in Control) (incorporated by reference from Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2, 2008).
10.29*	Form of Director Nonqualified Stock Option Award Agreement (incorporated by reference from Exhibit 10.6 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2, 2008).
10.30*	Form of Employee Nonqualified Stock Option Award Agreement (Change in Control) (incorporated by reference from Exhibit 10.7 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2 2008).
10.31*	Form of Employee Nonqualified Stock Option Award Agreement (no Change in Control) (incorporated by reference from Exhibit 10.8 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed by FirstMerit Corporation on May 2, 2008).
10.32	Purchase and Assumption Agreement Whole Bank All Deposits, among the Federal Deposit Insurance Corporation, receiver of George Washington Savings Bank, Orland Park, Illinois, the Federal Deposit Insurance Corporation and FirstMerit Bank, N.A., dated as of February 19, 2010 (incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 22, 2010).
10.33*	FirstMerit Corporation 2010 Retention Bonus Plan (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 22, 2010).
10.34	Purchase and Assumption Agreement Whole Bank All Deposits, among the Federal Deposit Insurance Corporation, receiver of Midwest Bank and Trust Company, Elmwood Park, Illinois, the Federal Deposit Insurance Corporation and FirstMerit Bank, N.A., dated as of May 14, 2010. (incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on May 17, 2010).
10.35*	Form of Director Annual Restricted Stock Award (incorporated by reference from Exhibit 10.50 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed by FirstMerit Corporation on February 25, 2011).
10.36*	Form of Employee Restricted Stock Award (Change in Control) (incorporated by reference from Exhibit 10.51 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed by FirstMerit Corporation on February 25, 2011).
10.37*	Form of Employee Restricted Stock Award (no Change in Control) (incorporated by reference from Exhibit 10.52 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed by FirstMerit Corporation on February 25, 2011).

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10.38*	FirstMerit Corporation 2011 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on April 20, 2011).
10.39*	FirstMerit Corporation 2011 Equity Incentive Plan Form of Restricted Share Award Agreement (Section 16 Officers) (incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K filed by FirstMerit Corporation on April 20, 2011).
10.40*	Amended and Restated FirstMerit Corporation Executive Cash Annual Incentive Plan (incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K filed by FirstMerit Corporation on April 20, 2011).
10.41*	FirstMerit Corporation 2011 Equity Incentive Plan Form of Restricted Share Award Agreement (Directors) (incorporated by reference from Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed by FirstMerit Corporation on July 29, 2011).
10.42*	FirstMerit Corporation Form of Indemnification Agreement with Officers and Directors. (incorporated by reference from Exhibit 10.53 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 filed by FirstMerit Corporation on November 2, 2012).
10.43*	First Amendment to the Amended and Restated Change in Control Termination Agreement (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 26, 2013).
10.44*	First Amendment to the Amended and Restated Displacement Agreement (incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 26, 2013).
10.45*	Securities Purchase Agreement, dated as of February 19, 2013, by and among the United States Department of the Treasury, FirstMerit Corporation and Citizens Republic Bancorp, Inc. (incorporated by reference from Exhibit 10.54 to the Registration Statement on Form S-4/A filed by FirstMerit Corporation on February 21, 2013 (Registration No. 333-18521)).
10.46*	Amendment to the FirstMerit Corporation Amended and Restated Supplemental Executive Retirement Plan, dated December 20, 2013 (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on December 20, 2013 (File No. 001-11267)).
10.47*	FirstMerit Corporation 2013 Annual Incentive Plan (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on April 5, 2013 (File No. 001-11267)).
12	Computations of Consolidated Ratios of Earnings to Fixed Charges (filed herewith).
21	Subsidiaries of FirstMerit (filed herewith).
23	Consent of Ernst & Young LLP (filed herewith).
24	Power of Attorney (filed herewith).
31.1	Rule 13a-14(a)/Section 302 Certification of Paul G. Greig, Chairman, President and Chief Executive Officer of FirstMerit (filed herewith).
31.2	Rule 13a-14(a)/Section 302 Certification of Terrence E. Bichsel, Executive Vice President and Chief Financial Officer of FirstMerit (filed herewith).
32.1	Rule 13a-14(b)/Section 906 Certification of Paul G. Greig, Chairman, President and Chief Executive Officer of FirstMerit (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 (furnished herewith).
101.1	The following financial information from FirstMerit Corporation's Annual Report on Form 10-K for the year ended December 31, 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.
*	Management contract or compensatory plan.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Akron, State of Ohio, on the 22^nd of February 2016.                    

FIRSTMERIT CORPORATION
By:	/s/ Paul G. Greig
	Paul G. Greig, Chairman, President and Chief Executive Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.        

/s/ Paul G. Greig	/s/ Terrence E. Bichsel
Paul G. Greig                 Chairman, President, Chief Executive Officer and Director (principal executive officer)	Terrence E. Bichsel                  Senior Executive Vice President and Chief Financial Officer (principal financial officer)
/s/ Nancy H. Worman
Nancy H. Worman              Executive Vice President and Chief Accounting Officer (principal accounting officer)
/s/ Lizabeth Ardisana*	/s/ Robert S. Cubbin*
Lizabeth Ardisana Director	Robert S. Cubbin Director
/s/ Steven H. Baer*	/s/ Gina D. France*
Steven H. Baer Director	Gina D. France Director
/s/ Karen S. Belden*	/s/ Terry L. Haines*
Karen S. Belden Director	Terry L. Haines Director
	/s/ J. Michael Hochschwender*
R. Cary Blair Director	J. Michael Hochschwender Director
/s/ John C. Blickle*	/s/ Philip A. Lloyd, II*
John C. Blickle Director	Philip A. Lloyd, II Director
/s/ Robert W. Briggs*	/s/ Russ M. Strobel*
Robert W. Briggs Director	Russ M. Strobel Director
/s/ Richard Colella*
Richard Colella Director

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*The undersigned, by signing his name hereto, does hereby sign and execute this Form 10-K on behalf of each of the indicated directors of FirstMerit Corporation pursuant to a Power of Attorney executed by each such director and filed with this Form 10-K.

		/s/ Carlton E. Langer
Dated:	February 22, 2016	Carlton E. Langer, Executive Vice President, Chief Legal Officer and Corporate Secretary

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