EX-99.1 2 l19765aexv99w1.htm EX-99.1 PRESS RELEASE EX-99.1 PRESS RELEASE
 

(FIRSTMERIT LOGO)
For Release April 20, 2006, 7:30 a.m. EST
         
 
  Analysts: Tom O’Malley   Media: Jacque Sir Louis
 
  (330) 384-7109   (330) 849-8877
FirstMerit Reports Increase in First Quarter
2006 Earnings Per Share
First Quarter Highlights
  •   Diluted earnings per share of $0.37
 
  •   Increase in net interest margin from balance sheet restructuring initiative
 
  •   Average commercial loan growth of 6.6%
 
  •   Net income of $30.0 million
 
  •   Return on average common equity of 13.67%
 
  •   Return on average assets of 1.20%
AKRON, Ohio, — April 20, 2006 — FirstMerit Corporation (Nasdaq: FMER) today announced first quarter 2006 net income of $30.0 million, or $0.37 per diluted share. This compares with $30.1 million, or $0.36 per diluted share, for the first quarter 2005.
Returns on average common equity (“ROE”) and average assets (“ROA”) for the first quarter were 13.67% and 1.20%, respectively, compared with 12.48% and 1.19% for the first quarter 2005.
“We have established five key strategic initiatives – improving credit quality, accelerating revenue growth, remixing our balance sheet, operating more efficiently and effective capital management – that we believe will position FirstMerit for strong future performance and growth in shareholder returns. I am pleased to report that we made solid progress on these initiatives during the first quarter of 2006,” said John R. Cochran, chairman and CEO.
“Effective execution on our balance sheet restructuring initiative, which seeks to grow net interest income by reducing lower-yielding investment securities and growing the higher-yielding loan portfolio, contributed to a seven basis point expansion in the net interest margin over the prior and year-ago quarters. While revenues were affected by lower earning asset levels that resulted from this restructuring strategy, these measures position FirstMerit for increased revenue growth in the upcoming quarters, given the realization of balance sheet growth in 2006.”
Mr. Cochran continued, “Fee income, excluding securities gains, grew 5.37% year-over-year, with positive results from a number of initiatives developed in 2005 to boost service charges and credit card fees. First quarter operating expenses show an increase in our

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promotional activity that should translate into loans, deposits and higher fee income during the balance of the year.”
Total revenue, defined as net interest income on a fully tax-equivalent (“FTE”) basis plus noninterest income net of securities transactions, totaled $131.9 million for the first quarter 2006, compared with $129.8 million reported in the first quarter 2005. FTE net interest income was $86.6 million for the first quarter 2006, a decline of $0.1 million, or 0.14%, compared with the year-ago quarter.
The Company is progressing on its plan to reduce lower-yielding investment securities from the earning asset mix and generate increased levels of net interest income from expected loan portfolio growth during 2006. For the first quarter of 2006, average investment securities accounted for 24.72% of average assets, compared with 28.13% for the first quarter 2005. Over that time, average loan growth, supported by commercial growth of $220.8 million, or 6.6%, offset a $376.4 million, or 13.09%, decrease in investment securities. In the first quarter of 2006, average loans grew $205.7 million, or 3.17%, and average earning assets declined by $175.8 million, or 1.87%, compared with the first quarter 2005. The reduction of the investment portfolio is a key element in the Company’s strategy to grow the balance sheet more profitably.
Noninterest income excluding securities transactions totaled $45.4 million for the first quarter 2006, compared with $43.1 million for the first quarter 2005, an increase of $2.3 million, or 5.37%. Service charges increased $1.2 million, or 8.41%, while credit card fees increased $1.3 million, or 13.39%. Compared with the fourth quarter 2005, noninterest income decreased $2.2 million, or 4.60%, reflecting an absence of seasonal credit card and deposit account activity.
Noninterest expense totaled $81.9 million for the first quarter 2006, compared with $75.9 million for the first quarter 2005. Increased employee benefits expense was the main driver of a $3.6 million, or 9.24% increase in salaries, wages and pension and employee benefits compared with the year-ago quarter. During the first quarter 2006, the Company also increased its marketing expenditures $1.5 million, compared with the first quarter of 2005, by implementing a direct marketing campaign designed to grow profitable new households. The efficiency ratio for the first quarter 2006 was 61.90%, compared with 58.33% for the first quarter 2005.
Net charge-offs totaled $9.2 million in the first quarter 2006, compared with $11.8 million for the first quarter 2005, or 0.56% and 0.74% of average loans, respectively. The $2.6 million, or 22.19%, reduction in net charge-offs reflects a return for the Company to its trend of improvement in year over year net charge-offs. As of March 31, 2006, nonperforming assets were $72.9 million, or 1.09%, of period-end loans plus other real estate, compared with $72.3 million, or 1.08% , at December 31, 2005, and $46.7 million, or 0.72%, at March 31, 2005.
The Company recorded $6.1 million of loan loss provision expenses in the first quarter 2006, compared with loan loss provision expenses of $11.6 million in the first quarter 2005. On March 31, 2006, criticized commercial assets (“substandard” and “doubtful”) accounted for 7.47% of total commercial loans, compared with criticized commercial asset levels of 9.19% on March 31, 2005, reflecting a $46.2 million decrease in criticized

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commercial credits. For the first quarter of 2006, loan loss provision expenses were $3.3 million below the level of reported net charge-offs which includes $3.1 million of charges associated with $9.0 million of commercial loans the Company intends to sell in the second quarter of 2006.
At March 31 2006, the allowance for loan losses was 1.31% of loans, compared with 1.36% at December 31, 2005, and 1.49% at March 31, 2005. The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments. For comparative purposes the allowance for credit losses was 1.40% at March 31, 2006, compared with 1.45% at December 31, 2005, and 1.59% at March 31, 2005.
Assets at March 31, 2006 totaled $10.1 billion, compared with $10.3 billion at March 31, 2005, representing a decrease of $168.2 million, or 1.64%. Period-end loan growth of $152.1 million, or 2.33%, was driven by a $180.9 million, or 5.35% increase in the commercial lending portfolio. Offsetting the growth in the loan portfolio was a $399.7 decrease in the investment portfolio as part of the Company’s emphasis on restructuring the balance sheet for higher yielding earning asset mix.
Deposits totaled $7.5 billion at March 31, 2006, an increase of $186.0 million, or 2.54%, from $7.3 billion at March 31, 2005. Included in the total deposit growth is a $111.0 million reduction in brokered CDs. Noninterest bearing demand deposit accounts (DDA) increased $37.9 million, or 2.65%. Growth in noninterest interest DDA accounts primarily from new account acquisitions offset the declines in money market and savings account balances as customers sought higher returns than traditional savings investments.
Shareholders’ equity was $870.6 million at March 31, 2006. The Company’s capital position remains strong as the tangible equity to assets ratio was 7.31% at March 31, 2006. The common dividend per share paid in the first quarter 2006 was $0.28, a $0.01, or 3.7%, increase from the first quarter 2005. The Company also successfully executed an accelerated share repurchase program of 2,618,588 shares in the first quarter 2006, which reduced average diluted shares outstanding by 4.56% from the first quarter 2005.
First Quarter 2006
Conference Call: FirstMerit Corporation will host a conference call on April 20, 2006, at 2:00 p.m. Eastern time. To participate in the conference call, please dial (888) 335-5539 ten minutes before start time and provide the reservation number: 7280148. A replay of the conference call will be available at approximately 4:30 p.m., on April 20, 2006 through May 19, 2006, by dialing (877) 519-4471, and entering the PIN: 7280148.
The 2006 earnings release will be available at approximately 7:30 a.m. on the Internet at www.firstmerit.com under the Investor Relations portion of the Web site. Any material non-public information will be posted on the Web site immediately after the conference call ends.
FirstMerit Corporation is a diversified financial services company headquartered in Akron, Ohio, with assets of $10.1 billion as of March 30, 2006 and 160 banking offices in 24 Ohio and Western Pennsylvania counties. FirstMerit provides a complete range of

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES
Consolidated Financial Highlights
(FIRSTMERIT LOGO)
                                         
(Unaudited)   Quarters  
(Dollars in thousands)                              
    2006     2005     2005     2005     2005  
EARNINGS   1st Qtr     4th Qtr     3rd Qtr     2nd Qtr     1st Qtr  
 
Net interest income FTE (a)
   $ 86,563       88,152       88,347       88,432       86,685  
Provision for loan losses
     6,106       16,260       9,974       5,972       11,614  
Other income
     45,397       47,586       47,846       50,095       44,939  
Other expenses
     81,899       79,274       78,926       79,397       75,911  
FTE adjustment (a)
     590       650       641       655       675  
Net income
     29,964       27,656       36,594       36,145       30,088  
Diluted EPS
     0.37       0.34       0.43       0.43       0.36  
 
                                        
PERFORMANCE RATIOS
                                        
Return on average assets (ROA)
     1.20 %     1.07 %     1.41 %     1.40 %     1.19 %
Return on average common equity (ROE)
     13.67 %     11.52 %     14.90 %     15.07 %     12.48 %
Net interest margin FTE (a)
     3.80 %     3.73 %     3.70 %     3.74 %     3.73 %
Efficiency ratio
     61.90 %     58.26 %     57.81 %     57.14 %     58.33 %
Number of full-time equivalent employees
     3,104       3,057       3,073       3,078       3,081  
 
                                        
MARKET DATA
                                        
Book value/common share
   $ 10.91       11.39       11.65       11.69       11.32  
Period-end common share mkt value
     24.66       25.91       26.79       26.11       26.76  
Market as a % of book
     226 %     228 %     230 %     223 %     236 %
Cash dividends/common share
   $ 0.28       0.28       0.28       0.27       0.27  
Common stock dividend payout ratio
     75.68 %     82.35 %     65.12 %     62.79 %     75.00 %
Average basic common shares
     80,374       82,786       83,489       83,603       84,097  
Average diluted common shares
     80,648       83,082       83,978       83,890       84,497  
Period end common shares
     79,766       82,335       83,442       83,522       83,612  
Common shares repurchased
     2,618,588       1,228,293       178,872       145,143       816,208  
Common stock market capitalization
   $ 1,967,030       2,133,300       2,235,411       2,180,759       2,237,457  
 
                                        
ASSET QUALITY
                                        
Gross charge-offs
   $ 14,914       22,736       14,207       15,422       16,740  
Net charge-offs
     9,178       18,379       10,002       10,278       11,795  
Allowance for loan losses
     87,589       90,661       92,780       92,808       97,115  
Reserve for unfunded lending commitments
     5,853       6,072       5,857       5,785       6,479  
Nonperforming assets (NPAs)
     72,941       72,257       51,398       53,985       46,703  
Net charge-off/average loans ratio
     0.56 %     1.09 %     0.60 %     0.62 %     0.74 %
Allowance for loan losses/period-end loans
     1.31 %     1.36 %     1.39 %     1.40 %     1.49 %
Allowance for credit losses/period-end loans
     1.40 %     1.45 %     1.47 %     1.49 %     1.59 %
NPAs/loans and other real estate
     1.09 %     1.08 %     0.77 %     0.82 %     0.71 %
Allowance for loan losses/nonperforming loans
     136.22 %     145.61 %     221.46 %     208.74 %     235.71 %
Allowance for credit losses/nonperforming loans
     145.32 %     155.36 %     235.44 %     221.76 %     251.44 %
 
                                        
CAPITAL & LIQUIDITY
                                        
Period-end tangible equity to assets
     7.31 %     7.94 %     8.18 %     8.19 %     7.93 %
Average equity to assets
     8.79 %     9.33 %     9.46 %     9.32 %     9.56 %
Average equity to loans
     13.27 %     14.22 %     14.66 %     14.58 %     15.06 %
Average loans to deposits
     91.58 %     92.11 %     91.73 %     90.16 %     88.27 %
 
                                        
AVERAGE BALANCES
                                        
Assets
   $ 10,111,553       10,211,619       10,295,827       10,329,167       10,226,765  
Deposits
     7,313,509       7,273,980       7,245,562       7,321,860       7,354,689  
Loans
     6,697,732       6,699,997       6,646,112       6,601,204       6,492,044  
Earning assets
     9,245,882       9,368,139       9,465,288       9,489,431       9,421,693  
Shareholders’ equity
     888,818       952,715       974,147       962,239       977,888  
 
                                        
ENDING BALANCES
                                        
Assets
   $ 10,100,717       10,154,359       10,285,329       10,313,955       10,268,898  
Deposits
     7,510,562       7,233,650       7,352,026       7,173,857       7,324,551  
Loans
     6,672,102       6,667,327       6,685,462       6,610,385       6,520,034  
Goodwill
     139,245       139,245       139,245       139,245       139,245  
Intangible assets
     3,533       3,756       3,978       4,200       4,424  
Earning assets
     9,193,741       9,256,389       9,419,355       9,491,957       9,443,226  
Total shareholders’ equity
     870,552       937,580       972,348       976,016       946,731  
NOTES:
 (a) – Net interest income on a fully tax-equivalent (“FTE”) basis restates interest on tax-exempt securities and loans as if such interest were subject to federal income tax at the statutory rate. Net interest income on an FTE basis is not an accounting principle generally accepted in the United States of America.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                         
(In thousands)                  
(Unaudited, except December 31, 2005, which is derived from the   March 31,     December 31,     March 31,  
audited financial statements)   2006     2005     2005  
 
                        
ASSETS
                        
Cash and due from banks
   $ 206,912       225,953       191,582  
Investment securities (at fair value) and federal funds sold
     2,460,321       2,546,496       2,860,021  
Loans held for sale
     61,318       42,566       63,171  
Loans:
                        
Commercial loans
     3,562,968       3,519,483       3,382,102  
Mortgage loans
     625,514       628,581       637,885  
Installment loans
     1,509,714       1,524,355       1,601,498  
Home equity loans
     772,308       778,697       677,724  
Credit card loans
     135,916       145,592       137,044  
Leases
     65,682       70,619       83,781  
 
                  
Total loans
     6,672,102       6,667,327       6,520,034  
Less allowance for loan losses
     (87,589 )     (90,661 )     (97,115 )
 
                  
Net loans
     6,584,513       6,576,666       6,422,919  
Premises and equipment, net
     119,571       120,420       118,059  
Goodwill
     139,245       139,245       139,245  
Intangible assets
     3,533       3,756       4,424  
Accrued interest receivable and other assets
     525,304       499,257       469,477  
 
                  
Total assets
   $ 10,100,717       10,154,359       10,268,898  
 
                  
 
                        
LIABILITIES AND SHAREHOLDERS’ EQUITY
                        
Deposits:
                        
Demand-non-interest bearing
   $ 1,465,168       1,523,731       1,427,307  
Demand-interest bearing
     923,491       830,248       827,507  
Savings and money market accounts
     2,320,360       2,304,177       2,379,464  
Certificates and other time deposits
     2,801,543       2,575,494       2,690,273  
 
                  
Total deposits
     7,510,562       7,233,650       7,324,551  
 
                  
Securities sold under agreements to repurchase
     1,272,362       1,426,037       1,281,745  
Wholesale borrowings
     285,143       401,104       557,282  
Accrued taxes, expenses, and other liabilities
     162,098       155,988       158,589  
 
                  
Total liabilities
     9,230,165       9,216,779       9,322,167  
 
                  
Commitments and contingencies
                        
Shareholders’ equity:
                        
Preferred stock, without par value: authorized and unissued 7,000,000 shares
     —       —       —  
Preferred stock, Series A, without par value: designated 800,000 shares; none outstanding
     —       —       —  
Convertible preferred stock, Series B, without par value: designated 220,000 shares; none outstanding
     —       —       —  
Common stock, without par value: authorized 300,000,000 shares; issued 92,026,350 at March 31, 2006 and March 31, 2005
     127,937       127,937       127,937  
Capital surplus
     108,958       108,210       108,903  
Accumulated other comprehensive loss
     (53,395 )     (42,850 )     (38,194 )
Retained earnings
     1,002,035       994,487       963,618  
Treasury stock, at cost, 12,257,585, 9,691,424 and 8,414,363 shares at March 31, 2006, December 31, 2005 and March 31, 2005, respectively
     (314,983 )     (250,204 )     (215,533 )
 
                  
Total shareholders’ equity
     870,552       937,580       946,731  
 
                  
Total liabilities and shareholders’ equity
   $ 10,100,717       10,154,359       10,268,898  
 
                  
The accompanying notes are an integral part of the consolidated financial statements.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES
AVERAGE CONSOLIDATED BALANCE SHEETS
(FIRSTMERIT LOGO)
                                         
    Quarterly Periods  
(Unaudited)                              
(Dollars in thousands)   March 31,     December 31,     September 30,     June 30,     March 31,  
    2006     2005     2005     2005     2005  
 
                                        
ASSETS
                                        
Cash and due from banks
   $ 194,042       192,189       197,412       197,548       190,740  
Investment securities/fed funds sold
     2,500,021       2,619,248       2,764,724       2,833,818       2,876,415  
Loans held for sale
     48,129       48,894       54,452       54,409       53,234  
Loans:
                                        
Commercial loans
     3,567,263       3,519,807       3,441,231       3,434,946       3,346,425  
Mortgage loans
     630,702       637,877       641,532       641,865       646,528  
Installment loans
     1,513,938       1,556,212       1,594,801       1,601,775       1,598,953  
Home equity loans
     775,728       772,757       754,492       704,054       674,913  
Credit card loans
     141,821       142,743       140,873       137,919       141,440  
Leases
     68,280       70,601       73,183       80,645       83,785  
 
                              
Total loans
     6,697,732       6,699,997       6,646,112       6,601,204       6,492,044  
Less allowance for loan losses (a)
     90,229       91,916       91,852       96,342       96,438  
 
                              
 
                                        
Net loans
     6,607,503       6,608,081       6,554,260       6,504,862       6,395,606  
 
                                        
Total earning assets
     9,245,882       9,368,139       9,465,288       9,489,431       9,421,693  
 
                                        
Premises and equipment, net
     120,155       117,387       117,471       118,392       119,916  
Accrued interest receivable and other assets
     641,703       625,820       607,508       620,138       590,854  
 
                              
 
                                        
TOTAL ASSETS
   $ 10,111,553       10,211,619       10,295,827       10,329,167       10,226,765  
 
                              
 
                                        
LIABILITIES
                                        
Deposits:
                                        
Demand-non-interest bearing
   $ 1,462,671       1,488,679       1,457,487       1,470,673       1,447,226  
Demand-interest bearing
     848,209       817,009       838,549       834,708       820,974  
Savings and money market accounts
     2,292,865       2,332,528       2,333,331       2,370,280       2,392,023  
Certificates and other time deposits
     2,709,764       2,635,764       2,616,195       2,646,199       2,694,466  
 
                              
 
                                        
Total deposits
     7,313,509       7,273,980       7,245,562       7,321,860       7,354,689  
 
                                        
Securities sold under agreements to repurchase
     1,295,178       1,443,740       1,478,857       1,385,644       1,326,242  
Wholesale borrowings
     433,257       375,167       442,035       498,088       412,149  
 
                              
 
                                        
Total funds
     9,041,944       9,092,887       9,166,454       9,205,592       9,093,080  
Accrued taxes, expenses and other liabilities (a)
     180,791       166,017       155,226       161,336       155,797  
 
                              
 
                                        
Total liabilities
     9,222,735       9,258,904       9,321,680       9,366,928       9,248,877  
 
                                        
SHAREHOLDERS’ EQUITY
                                        
Preferred stock
     —       —       —       —       —  
Common stock
     127,937       127,937       127,937       127,937       127,937  
Capital surplus
     108,330       108,303       108,564       108,559       108,478  
Accumulated other comprehensive (loss) income
     (44,150 )     (39,834 )     (25,682 )     (26,883 )     (16,998 )
Retained earnings
     998,173       994,301       982,419       968,408       960,740  
Treasury stock
     (301,472 )     (237,992 )     (219,091 )     (215,782 )     (202,269 )
 
                              
 
                                        
Total shareholders’ equity
     888,818       952,715       974,147       962,239       977,888  
 
                              
 
                                        
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 10,111,553       10,211,619       10,295,827       10,329,167       10,226,765  
 
                              
(a)   As of December 31, 2004, the reserve for unfunded lending commitments has been reclassified from the allowance for loan losses. Amounts presented prior to December 31, 2004 have been reclassified to conform to the current presentation.

Page 7

 

AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)
Fully-tax Equivalent Interest Rates and Interest Differential
 
                                                                         
FIRSTMERIT CORPORATION AND SUBSIDIARIES   Three months ended     Year ended     Three months ended  
(Dollars in thousands)   March 31, 2006     December 31, 2005     March 31, 2005  
    Average             Average     Average             Average     Average             Average  
    Balance     Interest     Rate     Balance     Interest     Rate     Balance     Interest     Rate  
ASSETS
                                                                        
Cash and due from banks
   $ 194,042                       194,485                       190,740                  
Investment securities and federal funds sold:
                                                                        
U.S. Treasury securities and U.S. Government agency obligations (taxable)
     2,161,306       20,850       3.91 %     2,416,360       91,814       3.80 %     2,518,784       23,818       3.83 %
Obligations of states and political subdivisions (tax exempt)
     90,622       1,527       6.83 %     99,487       6,707       6.74 %     101,571       1,763       7.04 %
Other securities and federal funds sold
     248,093       3,526       5.76 %     255,568       12,291       4.81 %     256,060       2,763       4.38 %
 
                                                            
Total investment securities and federal funds sold
     2,500,021       25,903       4.20 %     2,771,415       110,812       4.00 %     2,876,415       28,344       4.00 %
Loans held for sale
     48,129       762       6.42 %     52,740       2,854       5.41 %     53,234       627       4.78 %
Loans
     6,697,732       116,997       7.08 %     6,610,509       430,402       6.51 %     6,492,044       99,546       6.22 %
 
                                                            
Total earning assets
     9,245,882       143,662       6.30 %     9,434,664       544,068       5.77 %     9,421,693       128,517       5.53 %
Allowance for loan losses
     (90,229 )                     (94,118 )                     (96,438 )                
Other assets
     761,858                       729,398                       710,770                  
 
                                                                  
Total assets
   $ 10,111,553                       10,264,429                       10,226,765                  
 
                                                                  
 
                                                                        
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                                                        
Deposits:
                                                                        
Demand — non-interest bearing
   $ 1,462,671       —       —       1,466,106       —       —       1,447,226       —       —  
Demand — interest bearing
     848,209       2,362       1.13 %     827,829       5,871       0.71 %     820,974       956       0.47 %
Savings and money market accounts
     2,292,865       10,748       1.90 %     2,356,813       32,944       1.40 %     2,392,023       6,375       1.08 %
Certificates and other time deposits
     2,709,764       26,101       3.91 %     2,647,908       86,764       3.28 %     2,694,466       20,600       3.10 %
 
                                                            
Total deposits
     7,313,509       39,211       2.17 %     7,298,656       125,579       1.72 %     7,354,689       27,931       1.54 %
 
                                                                        
Securities sold under agreements to repurchase
     1,295,178       11,923       3.73 %     1,409,135       45,423       3.22 %     1,326,242       8,841       2.70 %
Wholesale borrowings
     433,257       5,965       5.58 %     431,787       21,449       4.97 %     412,149       5,059       4.98 %
 
                                                            
Total interest bearing liabilities
     7,579,273       57,099       3.06 %     7,673,472       192,451       2.51 %     7,645,854       41,831       2.22 %
Other liabilities
     180,791                       158,125                       155,797                  
 
                                                                        
Shareholders’ equity
     888,818                       966,726                       977,888                  
 
                                                                  
Total liabilities and shareholders’ equity
   $ 10,111,553                       10,264,429                       10,226,765                  
 
                                                                  
 
                                                                        
Net yield on earning assets
   $ 9,245,882       86,563       3.80 %     9,434,664       351,617       3.73 %     9,421,693       86,686       3.73 %
 
                                                      
Interest rate spread
                     3.25 %                     3.26 %                     3.31 %
 
                                                                  
Notes: Interest income on tax-exempt securities and loans have been adjusted to a fully-taxable equivalent basis. Nonaccrual loans have been included in the average balances.

Page 8

 

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(FIRSTMERIT LOGO)
                 
(Unaudited)   Quarters ended  
(In thousands except per share data)   March 31,  
    2006     2005  
Interest income:
                
Interest and fees on loans, including held for sale
   $ 117,740       100,149  
Interest and dividends on investment securities and federal funds sold
     25,332       27,692  
 
            
Total interest income
     143,072       127,841  
 
            
Interest expense:
                
Interest on deposits:
                
Demand-interest bearing
     2,362       956  
Savings and money market accounts
     10,748       6,375  
Certificates and other time deposits
     26,101       20,600  
Interest on securities sold under agreements to repurchase
     11,923       8,841  
Interest on wholesale borrowings
     5,965       5,059  
 
            
Total interest expense
     57,099       41,831  
 
            
Net interest income
     85,973       86,010  
Provision for loan losses
     6,106       11,614  
 
            
Net interest income after provision for loan losses
     79,867       74,396  
 
            
Other income:
                
Trust department income
     5,394       5,505  
Service charges on deposits
     16,066       14,820  
Credit card fees
     10,671       9,411  
ATM and other service fees
     3,108       2,959  
Bank owned life insurance income
     2,986       3,074  
Investment services and insurance
     2,597       2,858  
Manufactured housing income
     3       102  
Investment securities gains, net
     16       1,872  
Loan sales and servicing income
     1,445       1,133  
Other operating income
     3,111       3,205  
 
            
Total other income
     45,397       44,939  
 
            
Other expenses:
                
Salaries, wages, pension and employee benefits
     43,031       39,393  
Net occupancy expense
     6,549       6,536  
Equipment expense
     2,958       3,185  
Stationery, supplies and postage
     2,453       2,461  
Bankcard, loan processing and other costs
     5,827       5,724  
Professional services
     2,763       2,150  
Amortization of intangibles
     223       223  
Other operating expense
     18,095       16,239  
 
            
Total other expenses
     81,899       75,911  
 
            
Income before income tax expense
     43,365       43,424  
Federal income taxes
     13,401       13,336  
 
            
Net income
   $ 29,964       30,088  
 
            
Other comprehensive income (loss), net of taxes
                  
Unrealized securities’ holding gains (losses), net of taxes
     (9,748 )     (22,604 )
Unrealized hedging gain (loss), net of taxes
     (787 )     18  
Minimum pension liability adjustment, net of taxes
     —       (183 )
Less: reclassification adjustment for securities’ gains (losses) realized in net income, net of taxes
     10       1,217  
 
            
Total other comprehensive income (loss), net of taxes
     (10,545 )     (23,986 )
 
            
Comprehensive income
   $ 19,419       6,102  
 
            
Net income applicable to common shares
   $ 29,964       30,088  
 
            
Net income used in diluted EPS calculation
   $ 29,969       30,095  
 
            
Weighted average number of common shares outstanding - basic
     80,374       84,097  
 
            
Weighted average number of common shares outstanding - diluted
     80,648       84,497  
 
            
Basic earnings per share
   $ 0.37       0.36  
 
            
Diluted earnings per share
   $ 0.37       0.36  
 
            
Dividend per share
   $ 0.28       0.27  
 
            
The accompanying notes are an integral part of the consolidated financial statements.

Page 9

 

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME—LINKED QUARTERS
(FIRSTMERIT LOGO)
                                         
(Unaudited)   Quarterly Results  
(Dollars in thousands, except share data)   2006     2005     2005     2005     2005  
    1st Q     4th Q     3rd Q     2nd Q     1st Q  
Interest and fees on loans, including held for sale
   $ 117,740       115,850       111,169       105,975       100,149  
Interest and dividends — securities and federal funds sold
     25,332       26,109       26,700       27,802       27,692  
 
                              
Total interest income
     143,072       141,959       137,869       133,777       127,841  
 
                              
Interest on deposits:
                                        
Demand-interest bearing
     2,362       1,953       1,732       1,230       956  
Savings and money market accounts
     10,748       10,352       8,700       7,517       6,375  
Certificates and other time deposits
     26,101       23,831       21,637       20,696       20,600  
Securities sold under agreements to repurchase
     11,923       13,423       12,535       10,624       8,841  
Wholesale borrowings
     5,965       4,898       5,559       5,933       5,059  
 
                              
Total interest expense
     57,099       54,457       50,163       46,000       41,831  
 
                              
Net interest income
     85,973       87,502       87,706       87,777       86,010  
Provision for loan losses
     6,106       16,260       9,974       5,972       11,614  
 
                              
Net interest income after provision for loan losses
     79,867       71,242       77,732       81,805       74,396  
 
                              
Other income:
                                        
Trust department income
     5,394       5,430       5,515       5,684       5,505  
Service charges on deposits
     16,066       17,884       18,561       17,800       14,820  
Credit card fees
     10,671       10,601       10,437       10,523       9,411  
ATM and other service fees
     3,108       3,157       3,453       3,298       2,959  
Bank owned life insurance income
     2,986       3,092       3,074       3,024       3,074  
Investment services and insurance
     2,597       2,696       2,226       2,828       2,858  
Manufactured housing income
     3       3       3       40       102  
Investment securities gains (losses), net
     16       39       40       (25 )     1,872  
Loan sales and servicing income
     1,445       1,668       2,076       1,520       1,133  
Other operating income
     3,111       3,016       2,461       5,403       3,205  
 
                              
Total other income
     45,397       47,586       47,846       50,095       44,939  
 
                              
Other expenses:
                                        
Salaries, wages, pension and employee benefits
     43,031       40,790       42,149       41,351       39,393  
Net occupancy expense
     6,549       5,746       5,567       5,881       6,536  
Equipment expense
     2,958       4,152       2,962       3,002       3,185  
Stationery, supplies and postage
     2,453       2,546       2,559       2,484       2,461  
Bankcard, loan processing and other costs
     5,827       7,042       5,802       5,444       5,724  
Professional services
     2,763       3,389       2,632       3,843       2,150  
Amortization of intangibles
     223       222       222       222       223  
Other operating expense
     18,095       15,387       17,033       17,170       16,239  
 
                              
Total other expenses
     81,899       79,274       78,926       79,397       75,911  
 
                              
Income before income tax expense
     43,365       39,554       46,652       52,503       43,424  
Federal income taxes
     13,401       11,898       10,058       16,358       13,336  
 
                              
Net income
   $ 29,964       27,656       36,594       36,145       30,088  
 
                              
Other comprehensive income (loss), net of taxes
     (10,545 )     (8,927 )     (14,272 )     18,540       (23,986 )
 
                              
Comprehensive income
   $ 19,419       18,729       22,322       54,685       6,102  
 
                              
Net income applicable to common shares
     29,964       27,656       36,594       36,145       30,088  
 
                              
Adjusted net income used in diluted EPS calculation
     29,969       27,659       36,601       36,152       30,095  
 
                              
Weighted-average common shares — basic
     80,374       82,786       83,489       83,603       84,097  
 
                              
Weighted-average common shares — diluted
     80,648       83,082       83,978       83,890       84,497  
 
                              
 
                                        
Basic net income per share
   $ 0.37       0.33       0.44       0.43       0.36  
 
                              
 
                                        
Diluted net income per share
   $ 0.37       0.34       0.43       0.43       0.36  
 
                              
Note: Certain prior year balances have been reclassified to conform to the current year presentation.

Page 10

 

FIRSTMERIT CORPORATION AND SUBSIDIARIES
ASSET QUALITY INFORMATION
(FIRSTMERIT LOGO)
                                                 
(Unaudited, except December 31, 2005 annual period which            
is derived from the audited financial statements)            
(Dollars in thousands, except ratios)            
    Quarterly Periods     Annual Period  
                                     
    Mar 31     Dec 31     Sep 30     June 30     Mar 31     Dec 31  
Allowance for Credit Losses   2006     2005     2005     2005     2005     2005  
 
                                                
Allowance for loan losses, beginning of period
   $ 90,661       92,780       92,808       97,115       97,296       97,296  
Allowance related to loans sold
     —       —       —       —       —       —  
Provision for loan losses
     6,106       16,260       9,974       5,971       11,614       43,820  
Charge-offs
     14,914       22,736       14,207       15,422       16,740       69,105  
Recoveries
     5,736       4,357       4,205       5,144       4,945       18,650  
 
                                    
Net charge-offs
     9,178       18,379       10,002       10,278       11,795       50,455  
 
                                    
Allowance for loan losses, end of period
   $ 87,589       90,661       92,780       92,808       97,115       90,661  
 
                                    
Reserve for unfunded lending commitments, beginning of period
   $ 6,072       5,857       5,785       6,479       5,774       5,774  
Provision for credit losses
     (219 )     215       72       (694 )     705       298  
 
                                    
Reserve for unfunded lending commitments, end of period
   $ 5,853       6,072       5,857       5,785       6,479       6,072  
 
                                    
Allowance for Credit Losses
   $ 93,442       96,733       98,637       98,593       103,594       96,733  
 
                                    
 
                                                
Ratios
                                                
                                                 
 
                                                
Provision for loan losses as a % of average loans
     0.37 %     0.96 %     0.60 %     0.36 %     0.73 %     0.66 %
Provision for credit losses as a % of average loans
     -0.01 %     0.01 %     0.00 %     -0.04 %     0.04 %     0.00 %
Net charge-offs as a % of average loans
     0.56 %     1.09 %     0.60 %     0.62 %     0.74 %     0.76 %
Allowance for loan losses as a % of period-end loans
     1.31 %     1.36 %     1.39 %     1.40 %     1.49 %     1.36 %
Allowance for credit losses as a % of period-end loans
     1.40 %     1.45 %     1.48 %     1.49 %     1.59 %     1.45 %
Allowance for loan losses as a % of nonperforming loans
     136.22 %     145.61 %     221.46 %     208.74 %     235.71 %     145.61 %
Allowance for credit losses as a % of nonperforming loans
     145.32 %     155.36 %     235.44 %     221.76 %     251.44 %     155.36 %
 
                                                
 
                                                
Asset Quality
                                                
                                                 
 
                                                
Impaired loans:
                                                
Nonaccrual
   $ 56,258       54,176       34,144       38,124       34,207       54,176  
Other nonperforming loans:
                                                
Nonaccrual
     8,044       8,086       7,751       6,336       6,994       8,086  
 
                                    
 
                                                
Total nonperforming loans
     64,302       62,262       41,895       44,460       41,201       62,262  
 
                                                
Other real estate (“ORE”)
     8,639       9,995       9,503       9,525       5,502       9,995  
 
                                    
 
                                                
Total nonperforming assets (“NPAs”)
   $ 72,941       72,257       51,398       53,985       46,703       72,257  
 
                                    
 
                                                
NPAs as % of period-end loans + ORE
     1.09 %     1.08 %     0.77 %     0.82 %     0.72 %     1.08 %
 
                                    
 
                                                
Past due 90 days or more & accruing interest
   $ 18,640       17,931       21,451       17,969       22,899       17,931  
 
                                    

Page 11

 

FIRSTMERIT CORPORATION
NONINTEREST INCOME AND NONINTEREST EXPENSE DETAIL
(FIRSTMERIT LOGO)
                                         
(Unaudited)                              
(Dollars in thousands)                              
    2006     2005     2005     2005     2005  
QUARTERLY OTHER INCOME DETAIL   1st Qtr     4th Qtr     3rd Qtr     2nd Qtr     1st Qtr  
 
                                        
Trust department income
   $ 5,394       5,430       5,515       5,684       5,505  
Service charges on deposits
     16,066       17,884       18,561       17,800       14,820  
Credit card fees
     10,671       10,601       10,437       10,523       9,411  
ATM and other service fees
     3,108       3,157       3,453       3,298       2,959  
Bank owned life insurance income
     2,986       3,092       3,074       3,024       3,074  
Investment services and insurance
     2,597       2,696       2,226       2,828       2,858  
Manufactured housing income
     3       3       3       40       102  
Investment securities gains (losses), net
     16       39       40       (25 )     1,872  
Loan sales and servicing income
     1,445       1,668       2,076       1,520       1,133  
Other operating income
     3,111       3,016       2,461       5,403       3,205  
 
                              
Total Other Income
   $ 45,397       47,586       47,846       50,095       44,939  
 
                              
                                         
    2006     2005     2005     2005     2005  
QUARTERLY OTHER EXPENSES DETAIL   1st Qtr     4th Qtr     3 Qtr     2nd Qtr     1st Qtr  
 
                                        
Salaries, wages, pension and employee benefits
   $ 43,031       40,790       42,149       41,351       39,393  
Net occupancy expense
     6,549       5,746       5,567       5,881       6,536  
Equipment expense
     2,958       4,152       2,962       3,002       3,185  
Taxes, other than federal income taxes
     1,819       1,578       849       880       735  
Stationery, supplies and postage
     2,453       2,546       2,559       2,484       2,461  
Bankcard, loan processing and other costs
     5,827       7,042       5,802       5,444       5,724  
Advertising
     2,766       1,415       1,863       3,182       1,244  
Professional services
     2,763       3,389       2,632       3,843       2,150  
Telephone
     1,128       1,136       1,206       1,095       1,119  
Amortization of intangibles
     223       222       222       222       223  
Other operating expense
     12,382       11,258       13,115       12,013       13,141  
 
                              
Total Other Expenses
   $ 81,899       79,274       78,926       79,397       75,911  
 
                              

Page 12

 

FIRSTMERIT CORPORATION AND SUBSIDIARIES
ALLOWANCE FOR LOAN LOSSES — Net Charge-off Detail
(FIRSTMERIT LOGO)
                         
(Unaudited)            
(Dollars in thousands)   Quarters ended     Year ended  
    March 31,     December 31,  
    2006     2005     2005  
 
                        
Allowance for loan losses — beginning of period
   $ 90,661       97,296       97,296  
Loans charged off:
                        
Commercial
     6,066       4,151       19,349  
Mortgage
     373       267       1,721  
Installment
     6,030       7,543       29,307  
Home equity
     620       752       4,340  
Credit cards
     1,774       2,420       11,320  
Leases
     51       1,607       3,068  
 
                  
Total
     14,914       16,740       69,105  
 
                  
Recoveries:
                        
Commercial
     1,437       1,028       4,166  
Mortgage
     56       55       190  
Installment
     3,146       2,725       9,495  
Home equity
     378       293       1,302  
Credit cards
     449       576       2,348  
Manufactured housing
     169       208       710  
Leases
     101       60       439  
 
                  
Total
     5,736       4,945       18,650  
 
                  
 
                        
Net charge-offs
     9,178       11,795       50,455  
Provision for loan losses
     6,106       11,614       43,820  
 
                  
Allowance for loan losses — end of period
   $ 87,589       97,115       90,661  
 
                  
 
                        
Average loans outstanding
   $ 6,697,732       6,492,044       6,610,509  
 
                  
Ratio to average loans:
                        
(Annualized) net charge-offs
     0.56 %     0.74 %     0.76 %
 
                  
Provision for loan losses
     0.37 %     0.73 %     0.66 %
 
                  
Loans outstanding — period-end
   $ 6,672,102       6,520,034       6,667,237  
 
                  
 
                        
Allowance for loan losses:
                        
As a percent of period-end loans outstanding
     1.31 %     1.49 %     1.36 %
 
                  
As a multiple of (annualized) net charge-offs
     2.35       2.03       1.80  
 
                  

Page 13