Business Combinations

9 Months Ended

Sep. 30, 2012

Business Combinations [Abstract]

Business Combinations

Citizens Republic Bancorp, Inc. – Merger Agreement

On September 12, 2012, the Corporation and Citizens Republic Bancorp, Inc. (“Citizens”), a Michigan corporation, entered into an Agreement and Plan of Merger (the “Merger Agreement”).

The Merger Agreement provides that Citizens will merge with and into the Corporation (the “Merger”) and each share of Citizens common stock will be canceled and converted into the right to receive 1.37 shares of the Corporation's common stock (except that any shares of Citizens common stock that are owned by Citizens, the Corporation or any of their respective subsidiaries, other than in a fiduciary capacity, will be canceled without any consideration therefor). Each outstanding option to acquire, and each outstanding equity award relating to, one share of Citizens' common stock will be converted into an option to acquire, or an equity award relating to, 1.37 shares of the Corporation's common stock, as applicable. As a result of the Merger, the former shareholders of Citizens will become shareholders of the Corporation. At the effective time of the Merger, the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, of Citizens issued to the United States Treasury as part of the Troubled Assets Relief Program (the “TARP Preferred”), will be canceled and converted into the right to receive cash in the aggregate amount equal to the liquidation preference of the TARP Preferred plus all accrued, accumulated and unpaid dividends thereon.

The Merger Agreement provides that upon completion of the Merger, the Corporation will increase its board of directors by two directors. The new directorships will be filled with current members of the Citizens board as recommended by the Citizens board, and the recommended directors must be reasonably acceptable to the Corporation’s board.

The Corporation and Citizens have each made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants to conduct their businesses in the ordinary course between the execution of the Merger Agreement and the completion of the Merger and covenants not to engage in certain kinds of transactions during that period.

Consummation of the Merger is subject to customary conditions, including, among others, (i) approval of the stockholders of each of the Corporation and Citizens, (ii) absence of any material adverse effect, (iii) absence of any order or injunction prohibiting the consummation of the Merger, (iv) the registration statement of the Corporation filed on Form S-4 having become effective, (v) shares of the Corporation's common stock to be issued in connection with the Merger having been approved for listing on the Nasdaq Stock Market, (vi) subject to certain exceptions, the accuracy of representations and warranties with respect to the Corporation's and Citizens’ business, as applicable, (vii) compliance with the Corporation’s and Citizens’ respective covenants, (viii) receipt of customary tax opinions, (ix) receipt of all required regulatory approvals from, among others, various banking regulators and the United States Treasury, and (x) no materially adverse condition or restriction is included in any such regulatory approval.

The Merger Agreement contains certain termination rights for both FirstMerit and Citizens, and further provides that, upon termination of the Merger Agreement under specified circumstances, a party would be required to pay to the other party a termination fee of $37.5 million and the other party’s fees and expenses.

The Merger Agreement has been filed as an exhibit to this report to provide security holders with information regarding its terms. It is not intended to provide any other factual information about the Corporation, Citizens or their respective subsidiaries and affiliates. The Merger Agreement contains representations and warranties by each of the parties to the Merger Agreement. These representations and warranties were made solely for the benefit of the other party to the Merger Agreement and (a) are not intended to be treated as categorical statements of fact, but rather as a way of allocating risk to one of the parties if those statements prove to be inaccurate, (b) may have been qualified in the Merger Agreement by confidential disclosure schedules that were delivered to the other party in connection with the signing of the Merger Agreement, which disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set forth in the Merger Agreement, (c) may be subject to standards of materiality applicable to the parties that differ from what might be viewed as material to stockholders and (d) were made only as of the date of the Merger Agreement or such other date or dates as may be specified in the Merger Agreement. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by the Corporation or Citizens. Accordingly, the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Corporation or Citizens should not be relied upon.

Midwest Bank and Trust Company – FDIC Assisted Acquisition

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

The acquisition of the net assets of Midwest constituted a business combination and, accordingly, were recorded at their estimated fair values on the date of acquisition. The estimated fair value of the liabilities assumed and cash payment made to the FDIC exceeded the revised fair value of assets acquired, resulting in recognition of goodwill of $272.1 million.

George Washington Savings Bank – FDIC Assisted Acquisition

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

The purchased assets and liabilities assumed were recorded at their estimated fair values on the date of acquisition. The estimated fair value of assets acquired, intangible assets and the cash payment received from the FDIC exceeded the estimated fair value of the liabilities assumed, resulting in a bargain purchase gain of $1.0 million or $0.7 million net of tax.

First Bank Branches

On February 19, 2010, the Bank completed the acquisition of certain assets and the assumption of certain liabilities with respect to 24 branches of First Banks, Inc. (“First Bank”) located in the greater Chicago, Illinois area. This acquisition was accounted for under the acquisition method in accordance with ASC 805, Business Combinations (“ASC 805”).

All loans acquired in the First Bank acquisition were performing as of the date of acquisition. The difference between the fair value and the outstanding principal balance of the purchased loans is being accreted to interest income over the remaining term of the loans in accordance with ASC 310, Receivables (“ASC 310”).

Additional information on these three acquisitions can be found in Note 5 (Loans), Note 7 (Goodwill and Other Intangible Assets) and Note 12 (Fair Value Measurement).