UNITED STATES SECURITIES AND EXCHANGE COMMISSION

~~WASHINGTON,~~Washington, D.C. 20549

~~FORM~~Form 10-Q

~~_______________________________________________~~



xX	QUARTERLY REPORT PURSUANT TO SECTION 13 OR ~~15 (d)~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~for the quarterly period ended~~ ~~June 30, 2012~~

	For the quarterly period ended March 31, 2013

¨OR
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

~~For the transition period from to~~ Commission file number: 001-11267

~~COMMISSION FILE NUMBER 0-10161~~

~~_______________________________________________~~

~~FIRSTMERIT CORPORATION~~

(Exact name of registrant as specified in its charter)

~~_______________________________________________~~



~~OHIO~~Ohio		34-1339938
(State or other jurisdiction of incorporation or organization)		~~(IRS~~ (I.R.S. Employer Identification ~~Number)~~ No.)
III Cascade Plaza, 7th Floor, Akron Ohio		44308
(Address of principal executive offices)		(Zip Code)

~~III CASCADE PLAZA, 7TH FLOOR, AKRON, OHIO~~

~~44308-1103~~

~~(Address of principal executive offices, zip code)~~

(330) 996-6300

(Registrant's telephone number, including area code)

~~_______________________________________________~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the ~~Securities~~ Exchange Act ~~of 1934~~ 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~~Yes xþ NONo ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to ~~Rule~~rule 405 of Regulation S-T ~~(§232.405~~(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~~Yes xþ NONo ¨

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 ~~definitions~~definition of ~~“large~~"large accelerated filer,~~” “accelerated filer”~~" "accelerated filer" and ~~“smaller~~"smaller reporting ~~company”~~company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filerþ	x	Accelerated filer¨	Non-accelerated filer ¨	Smaller reporting company ¨

~~Non-accelerated filer~~	¨ ~~(Do~~(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~~Yes ¨ NONo xþ

AsIndicate the number of ~~July 30, 2012~~, ~~109,642,025~~shares outstanding of each of the registrant's classes of common stock, ~~without par value, were outstanding.~~as of the latest practicable date.



Class		Outstanding as of 4/30/2013
Common Stock, no par value		165,738,117

Table of Contents

TABLE OF CONTENTS

PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS		2
	CONSOLIDATED BALANCE SHEETS	2
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	3
	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY	4
	CONSOLIDATED STATEMENTS OF CASH FLOWS	5
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.		61
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.		91
ITEM 4. CONTROLS AND PROCEDURES.		91
PART II. OTHER INFORMATION		91
	ITEM 1. LEGAL PROCEEDINGS	91
	ITEM 1A. RISK FACTORS	91
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	92
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES	92
	ITEM 4. MINE SAFETY DISCLOSURES	92
	ITEM 5. OTHER INFORMATION	92
	ITEM 6. EXHIBIT INDEX	93
SIGNATURES		94
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Table of Contents

PART 1. FINANCIAL INFORMATION

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED BALANCE SHEETS~~


ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS.


(Dollars in thousands) (Unaudited, except December 31, 2011, which is derived from the audited financial statements)	June 30, 2012			December 31, 2011			June 30, 2011
CONSOLIDATED BALANCE SHEETS										CONSOLIDATED BALANCE SHEETS
FIRSTMERIT CORPORATION AND SUBSIDIARIES										FIRSTMERIT CORPORATION AND SUBSIDIARIES
(Dollars in thousands)										March 31,			December 31,			March 31,
(Unaudited, except for December 31, 2012)										2013			2012			2012
ASSETS
Cash and due from banks	$	226,026		$	219,256		$	191,965		$	183,430		$	244,223		$	188,789
Interest-bearing deposits in banks	111,909			158,063			32,113			163,673			13,791			301,196
Total cash and cash equivalents	337,935			377,319			224,078			347,103			258,014			489,985
Investment securities
Investment securities:
Held-to-maturity	352,221			82,764			80,857			665,589			622,121			100,840
Available-for-sale	3,216,365			3,353,553			3,498,272			3,243,835			2,920,971			3,491,647
Other investments	140,742			140,726			160,805			140,984			140,717			140,713
Loans held for sale	19,018			30,077			22,951			14,459			23,683			42,447
Noncovered loans:
Commercial	5,404,971			5,107,747			4,808,305			5,888,337			5,866,489			5,220,051
Residential mortgage	438,147			413,664			400,661
Mortgage										451,522			445,211			428,950
Installment	1,262,877			1,263,665			1,259,072			1,322,795			1,328,258			1,259,930
Home equity	766,840			743,982			738,719			812,458			806,078			739,548
Credit cards	142,586			146,356			143,828
Credit card										140,721			146,387			140,618
Leases	84,507			73,530			57,634			164,137			139,236			74,112
Total noncovered loans	8,099,928			7,748,944			7,408,219			8,779,970			8,731,659			7,863,209
Allowance for noncovered loan losses	(103,849		)	(107,699		)	(109,187		)	(98,843		)	(98,942		)	(103,849		)
Net noncovered loans	7,996,079			7,641,245			7,299,032			8,681,127			8,632,717			7,759,360
Covered loans (includes loss share receivable of $152.6 million, $205.7 million and $239.4 million at June 30, 2012, December 31, 2011 and June 30, 2011, respectively)	1,271,888			1,497,140			1,755,107
Covered loans (includes loss share receivable of $95.6 million, $113.7 million and $171.1 million at March 31, 2013, December 31, 2012 and March 31, 2012, respectively)										896,832			1,019,125			1,378,150
Allowance for covered loan losses	(42,606		)	(36,417		)	(33,360		)	(47,945		)	(43,255		)	(41,070		)
Net covered loans	1,229,282			1,460,723			1,721,747			848,887			975,870			1,337,080
Net loans	9,225,361			9,101,968			9,020,779			9,530,014			9,608,587			9,096,440
Premises and equipment, net	184,851			192,949			191,674			177,137			181,149			188,347
Goodwill	460,044			460,044			460,044			460,044			460,044			460,044
Intangible assets	7,274			8,239			9,325			6,055			6,373			7,756
Covered other real estate (includes loss share receivable of $0.3 million, $1.3 million and $5.1 million at June 30, 2012, December 31, 2011 and June 30, 2011, respectively)	54,549			54,505			58,502
Covered other real estate (includes loss share receivable of $.04 million, $.05 million, and $0.7 million at March 31, 2013, December 31, 2012 and March 31, 2012, respectively)										70,267			59,855			56,411
Accrued interest receivable and other assets	622,984			639,558			620,270			616,997			631,498			596,188
Total assets	$	14,621,344		$	14,441,702		$	14,347,557		$	15,272,484		$	14,913,012		$	14,670,818
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	3,227,819		$	3,030,225		$	2,944,117		$	3,360,841		$	3,338,371		$	3,136,595
Interest-bearing	1,080,790			1,062,896			842,280			1,371,359			1,287,674			1,119,102
Savings and money market accounts	5,728,598			5,595,409			5,305,584			5,890,369			5,758,123			5,742,547
Certificates and other time deposits	1,578,634			1,743,079			2,248,958			1,303,198			1,375,257			1,649,921
Total deposits	11,615,841			11,431,609			11,340,939			11,925,767			11,759,425			11,648,165
Federal funds purchased and securities sold under agreements to repurchase	896,910			866,265			809,570			826,855			1,104,525			928,760
Wholesale borrowings	178,135			203,462			325,133			136,003			136,883			176,611
Accrued taxes, expenses, and other liabilities	329,643			374,413			321,528
Long-term debt										249,921			—			—
Accrued taxes, expenses and other liabilities										379,088			266,977			333,177
Total liabilities	13,020,529			12,875,749			12,797,170			13,517,634			13,267,810			13,086,713
Shareholders’ equity:
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: June 30, 2012, December 31, 2011 and June 30, 2011 - 115,121,731 shares	127,937			127,937			127,937
5.875% Non-Cumulative Perpetual Preferred stock, Series A, without par value: authorized 115,000 shares; 100,000 issued										100,000			—			—
Common stock, without par value; authorized 300,000,000 shares; issued: March 31, 2013, December 31, 2012 and March 31, 2012 - 115,121,731 shares										127,937			127,937			127,937
Capital surplus	472,138			479,882			477,449			472,975			475,979			484,491
Accumulated other comprehensive loss	(18,425		)	(23,887		)	(9,145		)	(24,119		)	(16,205		)	(22,172		)
Retained earnings	1,157,422			1,131,203			1,103,608			1,214,889			1,195,850			1,144,210
Treasury stock, at cost: June 30, 2012 - 5,481,058 shares; December 31, 2011 - 5,870,923 shares; June 30, 2011 -5,880,692 shares	(138,257		)	(149,182		)	(149,462		)
Total shareholders’ equity	1,600,815			1,565,953			1,550,387
Total liabilities and shareholders’ equity	$	14,621,344		$	14,441,702		$	14,347,557
Treasury stock, at cost: March 31, 2013 - 5,375,905 shares; December 31, 2012 - 5,472,915 shares; March 31, 2012 - 5,935,169 shares										(136,832		)	(138,359		)	(150,361		)
Total shareholders' equity										1,754,850			1,645,202			1,584,105
Total liabilities and shareholders' equity										$	15,272,484		$	14,913,012		$	14,670,818

Table of Contents

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(Dollars in thousands except for per share data)
(Unaudited)
	Three months ended March 31,
	2013			2012

Interest income:
Loans and loans held for sale	$	98,672		$	103,082
Investment securities:
Taxable	19,239			22,418
Tax-exempt	4,045			3,580
Total investment securities interest	23,284			25,998
Total interest income	121,956			129,080
Interest expense:
Deposits:
Interest bearing	318			247
Savings and money market accounts	5,315			5,103
Certificates and other time deposits	2,063			3,524
Securities sold under agreements to repurchase	313			268
Wholesale borrowings	850			1,151
Long-term debt	1,748			—
Total interest expense	10,607			10,293
Net interest income	111,349			118,787
Provision for noncovered loan losses	5,808			8,129
Provision for covered loan losses	4,138			5,932
Net interest income after provision for loan losses	101,403			104,726
Other income:
Trust department income	5,741			5,627
Service charges on deposits	12,585			14,409
Credit card fees	10,222			10,180
ATM and other service fees	3,335			3,790
Bank owned life insurance income	4,897			3,056
Investment services and insurance	2,415			2,247
Investment securities (losses) gains, net	(9		)	260
Loan sales and servicing income	7,863			6,691
Other operating income	10,343			5,466
Total other income	57,392			51,726
Other expenses:
Salaries, wages, pension and employee benefits	57,906			63,973
Net occupancy expense	8,282			8,592
Equipment expense	7,349			7,104
Stationery, supplies and postage	2,096			2,143
Bankcard, loan processing and other costs	7,840			7,653
Professional services	5,410			3,352
Amortization of intangibles	317			483
FDIC insurance expense	3,526			3,720
Other operating expense	14,199			16,748
Total other expenses	106,925			113,768
Income before income tax expense	51,870			42,684
Income tax expense	14,524			12,340
Net income	37,346			30,344
Other comprehensive income (loss), net of taxes:
Changes in unrealized securities' holding gains and (losses), net of taxes of ($4.3) million and $1.0 million	(7,920		)	1,884
Reclassification for realized securities' (gains) and losses, net of taxes of ($.003) million and $.09 million	6			(169		)
Total other comprehensive gain (loss), net of taxes	(7,914		)	1,715
Comprehensive income	$	29,432		$	32,059
Net income attributable to common shareholders	$	36,125		$	30,207
Net income used in diluted EPS calculation	$	36,125		$	30,207
Weighted average number of common shares outstanding - basic	109,689			109,211
Weighted average number of common shares outstanding - diluted	109,689			109,211
Basic earnings per common share	$	0.33		$	0.28
Diluted earnings per common share	$	0.33		$	0.28
Dividend per common share	$	0.16		$	0.16

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

(Dollars in thousands except per share data) Quarters ended Six Months Ended
(Unaudited) June 30, June 30,
2012 2011 2012 2011
Interest income:
Loans and loans held for sale $ 103,126
$ 107,904
$ 206,208
$ 222,460
Investment securities
Taxable 21,783
22,176
44,201
43,661
Tax-exempt 3,846
3,137
7,426
6,332
Total investment securities interest 25,629
25,313
51,627
49,993
Total interest income 128,755
133,217
257,835
272,453
Interest expense:
Deposits:
Demand-interest bearing 236
177
483
361
Savings and money market accounts 5,033
7,398
10,136
15,243
Certificates and other time deposits 3,169
5,606
6,693
12,433
Securities sold under agreements to repurchase 276
940
544
1,855
Wholesale borrowings 1,118
1,653
2,269
3,292
Total interest expense 9,832
15,774
20,125
33,184
Net interest income 118,923
117,443
237,710
239,269
Provision for noncovered loan losses 8,766
10,138
16,895
27,156
Provision for covered loan losses 3,430
7,481
9,362
12,812
Net interest income after provision for loan losses 106,727
99,824
211,453
199,301
Other income:
Trust department income 5,730
5,863
11,357
11,377
Service charges on deposits 14,478
15,712
28,887
30,622
Credit card fees 11,216
13,510
21,396
25,717
ATM and other service fees 3,890
3,063
7,680
5,980
Bank owned life insurance income 2,923
3,015
5,979
8,256
Investment services and insurance 2,388
1,972
4,635
4,419
Investment securities gains, net 548
889
808
889
Loan sales and servicing income 5,139
2,891
11,830
5,676
Other operating income 8,989
4,576
14,455
11,311
Total other income 55,301
51,491
107,027
104,247
Other expenses:
Salaries, wages, pension and employee benefits 61,598
56,713
125,571
116,583
Net occupancy expense 7,971
8,086
16,563
16,680
Equipment expense 7,598
6,816
14,702
13,652
Stationery, supplies and postage 2,285
2,750
4,428
5,455
Bankcard, loan processing and other costs 8,858
8,266
16,511
15,829
Professional services 9,307
5,940
12,659
11,734
Amortization of intangibles 483
543
966
1,086
FDIC expense 3,463
4,581
7,183
8,947
Other operating expense 17,514
16,373
34,262
34,548
Total other expenses 119,077
110,068
232,845
224,514
Income before income tax expense 42,951
41,247
85,635
79,034
Income tax expense 12,366
11,484
24,706
21,710
Net income $ 30,585
$ 29,763
$ 60,929
$ 57,324
Other comprehensive income, net of taxes
Changes in unrealized securities' holding gains and losses $ 4,103
$ 17,198
$ 5,987
$ 17,536
Reclassification for realized securities' gains (356 ) (578 ) (525 ) (578 )
Total other comprehensive gain, net of taxes 3,747
16,620
5,462
16,958
Comprehensive income $ 34,332
$ 46,383
$ 66,391
$ 74,282
Net income applicable to common shares $ 30,585
$ 29,763
$ 60,929
$ 57,324
Net income used in diluted EPS calculation $ 30,585
$ 29,763
$ 60,929
$ 57,324
Weighted average number of common shares outstanding - basic 109,562
109,138
109,386
108,954
Weighted average number of common shares outstanding - diluted 109,562
109,139
109,386
108,955
Basic earnings per common share $ 0.28
$ 0.27
$ 0.56
$ 0.53
Diluted earnings per common share $ 0.28
$ 0.27
$ 0.56
$ 0.53
Dividend per common share $ 0.16
$ 0.16
$ 0.32
$ 0.32

~~The accompanying notes are an integral part of the consolidated financial statements.~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~

(In thousands)
Preferred
Stock

Common
Stock

Common
Stock
Warrant

Capital
Surplus

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Treasury
Stock

Total
Shareholders’
Equity
(Unaudited)
Balance at December 31, 2010 $ —
$ 127,937
$ —
$ 485,567
$ (26,103 ) $ 1,080,900
$ (160,586 ) $ 1,507,715
Net income —
—
—
—
—
57,324
—
57,324
Cash dividends - common stock ($0.32 per share) —
—
—
—
—
(34,616 ) —
(34,616 )
Nonvested (restricted) shares granted (560,438 shares) —
—
—
(13,656 ) —
—
13,657
1
Restricted stock activity (135,912 shares) —
—
—
312
—
—
(2,535 ) (2,223 )
Deferred compensation trust (6,582 increase in shares) —
—
—
(2 ) —
—
2
—
Share-based compensation —
—
—
5,228
—
—
—
5,228
Net unrealized gains on investment securities, net of taxes —
—
—
—
16,958
—
—
16,958
Balance at June 30, 2011 $ —
$ 127,937
$ —
$ 477,449
$ (9,145 ) $ 1,103,608
$ (149,462 ) $ 1,550,387
Balance at December 31, 2011 $ —
$ 127,937
$ —
$ 479,882
$ (23,887 ) $ 1,131,203
$ (149,182 ) $ 1,565,953
Net income —
—
—
—
—
60,929
—
60,929
Cash dividends - common stock ($0.32 per share) —
—
—
—
—
(34,710 ) —
(34,710 )
Nonvested (restricted) shares granted (570,423 shares) —
—
—
(14,079 ) —
—
14,079
—
Restricted stock activity (180,558 shares) —
—
—
966
—
—
(3,244 ) (2,278 )
Deferred compensation trust (62,252 increase in shares) —
—
—
(90 ) —
—
90
—
Share-based compensation —
—
—
5,410
—
—
—
5,410
Net unrealized gains on investment securities, net of taxes —
—
—
—
5,462
—
—
5,462
Other —
—
—
49
—
—
—
49
Balance at June 30, 2012 $ —
$ 127,937
$ —
$ 472,138
$ (18,425 ) $ 1,157,422
$ (138,257 ) $ 1,600,815

FIRSTMERIT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Dollars in thousands) (Unaudited)	Preferred Stock		Common Stock		Capital Surplus			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders' Equity
Balance at December 31, 2011	$	—	$	127,937	$	479,882		$	(23,887	)	$	1,131,203		$	(149,182	)	$	1,565,953
Net income	—		—		—			—			30,344			—			30,344
Cash dividends - common stock ($0.16 per share)	—		—		—			—			(17,337		)	—			(17,337		)
Nonvested (restricted) shares granted (5,200 shares)	—		—		(126		)	—			—			126			—
Restricted stock activity (69,446 shares)	—		—		574			—			—			(1,313		)	(739		)
Deferred compensation trust (52,891 increase in shares)	—		—		(8		)	—			—			8			—
Share-based compensation	—		—		4,169			—			—			—			4,169
Net unrealized gains on investment securities, net of taxes	—		—		—			1,715			—			—			1,715
Balance at March 31, 2012	$	—	$	127,937	$	484,491		$	(22,172	)	$	1,144,210		$	(150,361	)	$	1,584,105
Balance at December 31, 2012	$	—	$	127,937	$	475,979		$	(16,205	)	$	1,195,850		$	(138,359	)	$	1,645,202
Net income	—		—		—			—			37,346			—			37,346
Cash dividends - preferred stock	—		—		—			—			(930		)	—			(930		)
Cash dividends - common stock ($0.16 per share)	—		—		—			—			(17,377		)	—			(17,377		)
Nonvested (restricted) shares granted (122,834 shares)	—		—		(2,270		)	—			—			2,270			—
Restricted stock activity (25,824 shares)	—		—		606			—			—			(625		)	(19		)
Deferred compensation trust (113,049 increase in shares)	—		—		118			—			—			(118		)	—
Share-based compensation	—		—		1,972			—			—			—			1,972
Issuance of 5.875% Non-Cumulative Perpetual Preferred Stock, Series A	100,000		—		(3,430		)	—			—			—			96,570
Net unrealized losses on investment securities, net of taxes	—		—		—			(7,914		)	—			—			(7,914		)
Balance as of March 31, 2013	$	100,000	$	127,937	$	472,975		$	(24,119	)	$	1,214,889		$	(136,832	)	$	1,754,850

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~



CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
	Three months ended March 31,
(In thousands)	2013			2012
(Unaudited)
Operating Activities
Net income	$	37,346		$	30,344
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	9,946			14,061
Provision (benefit) for deferred income taxes	(4,903		)	2,615
Depreciation and amortization	5,630			5,692
Benefit attributable to FDIC loss share	5,539			4,899
Accretion of acquired loans	(15,511		)	(21,484		)
Accretion of income for lease financing	(915		)	(709		)
Amortization and accretion of investment securities, net
Available for sale	3,135			3,760
Held to maturity	1,308			13
Losses/(gains) on sales and calls of available-for-sale investment securities, net	9			(260		)
Originations of loans held for sale	(140,723		)	(194,576		)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary markets	154,143			183,778
Gains on sales of loans, net	(4,196		)	(1,572		)
Amortization of intangible assets	317			483
Recognition of stock compensation expense	1,972			4,169
Net decrease/(increase) in other assets	(7,451		)	28,706
Net (decrease)/increase in other liabilities	4,047			(38,354		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	49,693			21,565
Investing Activities
Proceeds from sale of securities
Available for sale	25,674			94,865
Proceeds from prepayments, calls, and maturities
Available for sale	173,778			218,006
Held to maturity	17,010			1,591
Purchases of securities
Available for sale	(405,053		)	(443,434		)
Held to maturity	(61,773		)	(19,620		)
Other	(280		)	—
Net decrease (increase) in loans and leases	77,681			6,659
Purchases of premises and equipment	(1,753		)	(1,090		)
Sales of premises and equipment	135			—
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES	(174,581		)	(143,023		)
Financing Activities
Net increase in demand accounts	106,155			162,576
Net increase in savings and money market accounts	132,246			147,138
Net decrease in certificates and other time deposits	(72,059		)	(93,158		)
Net (decrease) increase in securities sold under agreements to repurchase	(277,670		)	62,495
Proceeds from issuance of subordinated debt	247,941			—
Net decrease in wholesale borrowings	(880		)	(26,851		)
Net proceeds from issuance of preferred stock	96,570			—
Cash dividends - common	(17,377		)	(17,337		)
Cash dividends - preferred	(930		)	—
Restricted stock activity	(19		)	(739		)
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES	213,977			234,124
Increase (decrease) in cash and cash equivalents	89,089			112,666
Cash and cash equivalents at beginning of year	258,014			377,319
Cash and cash equivalents at end of year	$	347,103		$	489,985
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized	$	6,765		$	6,788
Federal income taxes	$	—		$	—

Six months ended June 30,
(Dollars in thousands) 2012 2011
(Unaudited)
Operating Activities
Net income $ 60,929
$ 57,324
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 26,257
39,968
Depreciation and amortization 11,532
11,324
Benefit attributable to FDIC loss share 11,117
22,854
Accretion of acquired loans (42,211 ) (63,508 )
Accretion income for lease financing (1,409 ) (1,304 )
Amortization and accretion of securities, net
Available for sale 7,708
7,530
Held to maturity 124
13
Gain on sales and calls of investment securities, net
Available for sale (808 ) (889 )
Originations of loans held for sale (399,140 ) (193,212 )
Proceeds from sales of loans, primarily mortgage loans sold in the secondary mortgage markets 414,385
214,996
Gains on sales of loans, net (4,186 ) (3,395 )
Amortization of intangible assets 966
1,086
Net change in assets and liabilities
Interest receivable (1,951 ) (1,273 )
Interest payable (649 ) (709 )
Prepaid assets (1,317 ) (16,552 )
Bank owned life insurance (5,979 ) (4,195 )
Employee pension liability 6,289
4,303
Other assets and liabilities (12,506 ) (10,560 )
NET CASH PROVIDED BY OPERATING ACTIVITIES 69,151
63,801
Investing Activities
Proceeds from sales of securities
Available for sale 161,078
3,648
Proceeds from prepayments, calls, and maturities
Available for sale 406,055
503,105
Held to maturity 22,140
15,568
Other —
12
Purchases of securities
Available for sale (660,967 ) (939,552 )
Held to maturity (66,120 ) (36,461 )
Other (42 ) (79 )
Net decrease in loans and leases (119,807 ) 28,850
Purchases of premises and equipment (3,434 ) (5,132 )
NET CASH USED BY INVESTING ACTIVITIES (261,097 ) (430,041 )
Financing Activities
Net increase in demand accounts 215,488
127,443
Net increase in savings and money market accounts 133,189
493,800
Net decrease in certificates and other time deposits (164,445 ) (548,310 )
Net increase in securities sold under agreements to repurchase 30,645
31,985
Net decrease in wholesale borrowings (25,327 ) (874 )
Cash dividends - common (34,710 ) (34,616 )
Restricted stock activity (2,278 ) (2,223 )
NET CASH PROVIDED BY FINANCING ACTIVITIES 152,562
67,205
Decrease in cash and cash equivalents (39,384 ) (299,035 )
Cash and cash equivalents at beginning of period 377,319
523,113
Cash and cash equivalents at end of period $ 337,935
$ 224,078
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest, net of amounts capitalized $ 17,442
$ 27,741
Federal income taxes $ 26,939
$ 2,615

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

(Dollars in thousands)

FirstMerit Corporation and ~~Subsidiaries~~

~~Notes~~subsidiaries is a diversified financial services company headquartered in Akron, Ohio with 196 banking offices in the Ohio, Chicago, Illinois, and Western Pennsylvania areas. The Corporation provides a complete range of banking and other financial services to ~~Consolidated Financial Statements~~

~~June 30, 2012(Unaudited~~) ~~(Dollars in thousands except per share data)~~consumers and businesses through its core operations.

1.1. Summary of Significant Accounting Policies

Basis of Presentation - FirstMerit Corporation (the “Parent Company”) is a bank holding company whose principal asset is the common stock of its wholly-owned subsidiary, FirstMerit Bank, N. A. (the “Bank”). The Parent Company’s other subsidiaries include Citizens Savings Corporation of Stark County, FirstMerit Capital Trust I, FirstMerit Community Development Corporation, FirstMerit Risk Management, Inc., and FMT, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

The accounting and reporting policies of FirstMerit Corporation and its subsidiaries (the “Corporation”) conform to U.S. generally accepted accounting principles ~~in the United States of America~~ (“U.S. GAAP”) and to general practices within the financial services industry.

The consolidated balance sheet at December 31, ~~2011~~2012 has been derived from the audited consolidated financial statements at that date. The accompanying unaudited interim financial statements reflect all adjustments (consisting only of normally recurring adjustments) that are, in the opinion of FirstMerit Corporation’s Management (“Management”), necessary for a fair statement of the results for the interim periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules of the Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements of the Corporation as of ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012 are not necessarily indicative of the results that may be achieved for the full fiscal year or for any future period. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012 (the “~~2011~~2012 Form 10-K”). Certain reclassifications of prior year’s amounts have been made to conform to the current year presentation. Such reclassifications had no effect on net earnings or equity.

There have been no significant changes to the Corporation’s accounting policies as disclosed in the ~~Annual Report on~~2012 Form ~~10-K for the year ended~~ ~~December 31, 2011~~.10-K.

In preparing these accompanying unaudited interim consolidated financial statements, subsequent events were evaluated through the time the consolidated financial statements were issued. ~~No material subsequent events have occurred requiring recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.~~

Recently Adopted and Issued Accounting Standards -

~~FASB ASU 2011-03,~~ ~~Reconsideration of Effective Control for Repurchase Agreements.~~ ASU 2011-03 removes from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. Other criteria applicable to the assessment of effective control are not changed by the amendments in the update. ASU 2011-03 is effective prospectively for all transactions or modifications of existing transactions that occur on or after January 1, 2012. ASU 2011-03 did not have a significant impact on the Corporation's consolidated financial statements.

~~FASB ASU 2011-04,~~ ~~Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.~~ This amendment was issued as result of an effort to develop common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRSs”). While ASU 2011-04 is largely consistent with existing fair value measurement principles under U.S. GAAP, it expands the disclosure requirements for fair value measurements and clarifies the existing guidance or wording changes to align with IRFS No. 13. Many of the requirements for the amendments in ASU 2011-04 do not result in a change in the application of the requirements in ASC 820. ASU 2011-04 was effective for the Corporation on a prospective basis beginning in the quarter ended March 31, 2012. The adoption of ASU 2011-04 did not have a significant impact on the Corporation's consolidated financial statements. The newly required disclosures are incorporated into Note 12 (~~Fair Value Measurement~~).

~~FASB ASU 2011-05,~~ ~~Presentation of Comprehensive Income.~~ ASU 2011-05 provides entities with the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income, along with a total for other comprehensive income, and a total amount for comprehensive income. As originally issued, ASU 2011-05 required entities to present reclassification adjustments out of accumulated other comprehensive income by component in the statement in which net income is presented and the statement in which other comprehensive income is presented. This requirement was deferred by ASU 2011-12, ~~Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05~~. ASU 2011-05 was effective for the Corporation on a retrospective basis beginning in the quarter ended March 31, 2012. The adoption of ASU 2011-05 did not have an impact on the Corporation's financial statements as the Corporation reports comprehensive income in a single continuous statement with all of the components required by ASU 2011-05.

~~FASB ASU 2011-08,~~ ~~TestingGoodwill for Impairment.~~ ASU 2011-08 amends the guidance in ASC 350-20 on testing goodwill for impairment and provides the option of performing a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying amount, before applying the current two-step goodwill impairment test. If the entity determines that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. Otherwise, the entity would not need to apply the two-step test. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Corporation has not had to test goodwill for impairment since ASU 2011-08 became effective for the Corporation, January 1, 2012. ASU 2011-08 is not expected to have a significant impact on the Corporation's consolidated financial statements.

FASB ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 amends the guidance in ASC 210, Balance Sheet, to require an entity to disclose information about offsetting and related arrangements to enable users of an entity's financial statements to evaluate the effect or potential effect of netting ~~arrangements with certain financial instruments and derivative instruments.~~arrangements. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, with retrospective application to the disclosures of all comparative periods presented. ASU 2011-11

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

did not have a significant impact on the corporations derivatives, repurchase agreements, reverse repurchase agreements, and securities lending and borrowing transactions on the consolidated financial statements. The newly required disclosures are incorporated into Note 9 (Derivatives and Hedging Activities).

FASB ASU 2012-06, Business Combinations: Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a consensus of the FASB Emerging Issues Task Force). ASU 2012-06 amends the guidance in ASU 805-20 on the recognition of an indemnification asset as a result of a government-assisted acquisition of a financial institution when a subsequent change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification). A subsequent change in the measurement of the indemnification asset is to be accounted for on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value are limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). The amendments in ASU 2012-06 are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. The Corporation ~~has~~currently applies the accounting as described within ASU 2012-06; therefore, ASU 2012-06 will not ~~completed evaluating the~~have an impact ~~of ASU 2011-11~~ on its consolidated financial statements.

2.FASB ASU 2013-02, ~~Restructuring~~Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.

~~During~~ASU 2013-02 amends the ~~quarter ended June 30, 2012, Management announced its implementation plans~~guidance on ASC 220-10, by requiring an entity to ~~enhance~~provide information about the ~~operating efficiency and profitability~~amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the ~~Corporation.~~statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. The efficiency initiative is a long-term plan to optimize service channels and lower the overall cost structure. It includes the elimination of assistant branch manager positions and closing of eight full service branches. As a resultobjective of the ~~initiative,~~update is to improve the ~~Corporation estimated that it would reduce its workforce by approximately 340 positions. The elimination~~reporting of ~~the assistant branch manager positions represent the majority~~reclassifications out of those reductions. The majority of these positions have been eliminated as of June 30, 2012. Management expects to complete its reduction in workforce by December 31, 2012. All branch closures are expected to occur in the quarter ended September 30, 2012.

~~During the quarter ended June 30, 2012, the Corporation recognized~~ ~~$3.8 million~~ in restructuring charges primarily consisting of employee separation and professional services. The balance of the costs is anticipated to be recognized during the quarter ended September 30, 2012. The following table summarizes the restructuring activity, including the reserves established and the total amount expected to be incurred.

Employee Separation Contract Termination Long-Lived Asset Charges Other Total
Total expected restructuring charge $ 3,254
$ 561
$ 337
$ 214
$ 4,366
Balance at April 1, 2012 $ —
$ —
$ —
$ —
$ —
Charge to expense 3,254
—
337
162
3,753
Cash payments (1,811 ) —
—
(162 ) (1,973 )
Noncash utilization —
—
(337 ) —
(337 )
Balance at June 30, 2012 $ 1,443
$ —
$ —
$ —
$ 1,443
Remaining expected restructuring charge $ —
$ 561
$ —
$ 52
$ 613

~~During the quarter ended June 30, 2012, severance expense for separated employees of~~ ~~$3.3 million~~ ~~was reported in salaries, wages, pension and employee benefits in the accompanying unaudited consolidated statements of~~accumulated other comprehensive income. The ~~obligation related to employee separation costs is included~~amendments in ~~accrued taxes, expenses and other liabilities in the accompanying unaudited consolidated balance sheets.~~

ASU 2013-02 are effective prospectively for reporting periods beginning after December 15, 2012. The Corporation ~~also recognized~~has incorporated this new disclosure information into Note ~~$5.2 million~~14 ~~in professional service fees in the quarter ended June 30, 2012 related to the efficiency initiative which was reported in professional services in the accompanying unaudited consolidated statements~~(Changes and Reclassifications Out of ~~comprehensive income.~~Accumulated Other ~~costs include costs related to closing the branches and other expenditures associated with the Corporation's restructuring initiative and are expensed as incurred.~~Comprehensive Income).

32. Business Combinations

~~First Bank Branches~~

On ~~February 19, 2010~~September 12, 2012, ~~FirstMerit (“~~the ~~Bank”~~Corporation and Citizens Republic Bancorp, Inc. ("Citizens") ~~completed the acquisition of certain~~, a Michigan corporation with approximately $9.6 billion in assets and ~~the assumption of certain liabilities with respect to~~ 24219 branches, entered into an Agreement and Plan 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”~~Merger (the "Merger Agreement").

~~All loans~~On April 12, 2013, the Corporation completed its merger (the "Merger") with Citizens. The results of operations acquired in the ~~First Bank~~Citizens transaction will be included in the Corporation's financial results beginning on April 13, 2013. The Merger will be accounted for using the purchase acquisition ~~were performing as~~method of ~~the date of acquisition. The difference between the fair value~~accounting 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”).~~

~~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 Federal Deposit Insurance Corporation (“FDIC”), as receiver of George Washington Savings Bank (“George Washington”), the subsidiary of George Washington Savings Bancorp, to acquire certainaccordingly, 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~~acquired, liabilities assumed ~~were~~and consideration exchanged will be recorded at ~~their estimated fair values on the date of acquisition. The~~ estimated fair value on the acquisition date. The Corporation is in the process of ~~assets acquired, intangible assets and~~determining the ~~cash payment received from~~preliminary fair values which are subject to refinement for up to one year after the ~~FDIC exceeded the estimated fair value~~closing date of the ~~liabilities assumed, resulting in a bargain purchase gain of~~ ~~$1.0 million~~ or ~~$0.7 million~~ ~~net of tax.~~

~~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 FDIC,~~acquisition as ~~receiver of Midwest Bank and Trust Company (“Midwest”), a wholly-owned subsidiary of Midwest Bank Holdings, Inc.,~~additional information relative 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~~closing date fair values onbecomes available. Any resulting goodwill will not be deductible for income tax purposes as 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~~.

acquisition is accounted for as a tax-free exchange for federal income tax purposes. Additional information on ~~these three acquisitions~~the Merger with Citizens can be found in Note 515 (~~Loans), Note~~ 7 (~~Goodwill and Other Intangible Assets) and Note~~ 12 (~~Fair Value Measurement~~Subsequent Events).

Table of Contents

4FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

3. 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 other comprehensive income in ~~the statements of comprehensive income and shareholders’~~shareholders' equity.



		March 31, 2013
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	249,750	$	13,646	$	(790	)	$	262,606
	Residential mortgage-backed securities:
	U.S. government agencies	1,109,905		43,084		(663		)	1,152,326
	Commercial mortgage-backed securities:
	U.S. government agencies	58,827		406		(659		)	58,574
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,591,341		16,292		(2,354		)	1,605,279
	Non-agency	11		—		—			11
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	108,658		2,291		(347		)	110,602
	Corporate debt securities	61,555		—		(10,330		)	51,225
	Total debt securities	3,180,047		75,719		(15,143		)	3,240,623
Marketable equity securities		3,212		—		—			3,212
	Total securities available for sale	$	3,183,259	$	75,719	$	(15,143	)	$	3,243,835
Securities held-to-maturity
Debt securities
	U.S. states and political subdivisions	$	292,689	$	5,041	$	(244	)	$	297,486
	Commercial mortgage-backed securities:
	U.S. government agencies	40,413		774		—			41,187
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	137,839		680		—			138,519
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	98,887		385		(339		)	98,933
	Corporate debt securities	95,761		1,615		—			97,376
	Total securities held to maturity	$	665,589	$	8,495	$	(583	)	$	673,501

910

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

June 30, 2012

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
Securities available for sale
Debt Securities
U.S. government agency debentures $ 35,224
$ 73
$ —
$ 35,297
U.S. States and political subdivisions 249,410
15,914
(200 ) 265,124
Residential mortgage-backed securities:
U.S. government agencies 1,326,601
56,212
—
1,382,813
Commercial mortgage-backed securities:
U.S. government agencies 37,868
580
(20 ) 38,428
Residential collateralized mortgage-backed securities:
U.S. government agencies 1,258,742
18,962
(326 ) 1,277,378
Non-agency 13
—
—
13
Commercial collateralized mortgage-backed securities:
U.S. government agencies 66,806
1,739
—
68,545
Corporate debt securities 157,434
1,555
(13,562 ) 145,427
Total debt securities 3,132,098
95,035
(14,108 ) 3,213,025
Marketable equity securities 3,340
—
—
3,340
Total securities available for sale $ 3,135,438
$ 95,035
$ (14,108 ) $ 3,216,365
Securities held to maturity
Debt Securities
U.S. States and political subdivisions $ 253,161
$ 3,033
$ (119 ) $ 256,075
Commercial mortgage-backed securities:
U.S. government agency obligations $ 5,113
$ —
$ (29 ) $ 5,084
Commercial collateralized mortgage obligations:
U.S. government agency obligations $ 93,947
$ 61
$ (47 ) $ 93,961
Total securities held to maturity $ 352,221
$ 3,094
$ (195 ) $ 355,120



		December 31, 2012
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	253,198	$	15,235	$	(229	)	$	268,204
	Residential mortgage-backed securities:
	U.S. government agencies	1,058,005		49,058		—			1,107,063
	Commercial mortgage-backed securities:
	U.S. government agencies	52,014		428		(406		)	52,036
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,311,501		18,180		(260		)	1,329,421
	Non-agency	11		—		—			11
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	109,260		2,221		(138		)	111,343
	Corporate debt securities	61,541		—		(11,889		)	49,652
	Total debt securities	2,845,530		85,122		(12,922		)	2,917,730
	Marketable equity securities	3,241		—		—			3,241
	Total securities available for sale	$	2,848,771	$	85,122	$	(12,922	)	$	2,920,971
Securities held-to-maturity
Debt securities
	U.S. states and political subdivisions	$	270,005	$	5,126	$	(70	)	$	275,061
	Commercial mortgage-backed securities:
	U.S. government agencies	33,165		812		—			33,977
	Residential collateralized mortgage-backed securities:								—
	U.S. government agencies	123,563		533		(16		)	124,080
	Commercial collateralized mortgage-backed securities:								—
	U.S. government agencies	98,924		772		—			99,696
	Corporate debt securities	96,464		1,521		—			97,985
	Total securities held to maturity	$	622,121	$	8,764	$	(86	)	$	630,799

1011

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

December 31, 2011

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
Securities available for sale
Debt Securities
U.S. government agency debentures $ 122,711
$ 358
$ —
$ 123,069
U.S. States and political subdivisions 334,916
22,865
(50 ) 357,731
Residential mortgage-backed securities:
U.S. government agencies 1,407,345
53,129
(131 ) 1,460,343
Residential collateralized mortgage-backed securities:
U.S. government agencies 1,115,832
22,058
(55 ) 1,137,835
Non-agency 43,225
82
—
43,307
Commercial collateralized mortgage-backed securities:
U.S. government agencies 127,624
1,648
(145 ) 129,127
Corporate debt securities 115,947
276
(17,381 ) 98,842
Total debt securities 3,267,600
100,416
(17,762 ) 3,350,254
Marketable equity securities 3,299
—
—
3,299
Total securities available for sale $ 3,270,899
$ 100,416
$ (17,762 ) $ 3,353,553
Securities held to maturity
Debt Securities
U.S. States and political subdivisions $ 82,764
$ 2,348
$ —
$ 85,112
Total securities held to maturity $ 82,764
$ 2,348
$ —
$ 85,112

June 30, 2011

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
Securities available for sale
Debt Securities
U.S. government agency debentures $ 370,649
$ 743
$ (148 ) $ 371,244
U.S. States and political subdivisions 299,238
10,728
(181 ) 309,785
Residential mortgage-backed securities:
U.S. government agencies 1,528,537
60,524
(90 ) 1,588,971
Residential collateralized mortgage-backed securities:
U.S. government agencies 1,061,393
19,883
(1,326 ) 1,079,950
Non-agency 93,733
114
—
93,847
Corporate debt securities 61,461
—
(10,738 ) 50,723
Total debt securities 3,415,011
91,992
(12,483 ) 3,494,520
Marketable equity securities 3,752
—
—
3,752
Total securities available for sale $ 3,418,763
$ 91,992
$ (12,483 ) $ 3,498,272
Securities held to maturity
Debt Securities
U.S. States and political subdivisions $ 80,857
$ 2,048
$ —
$ 82,905
Total securities held to maturity $ 80,857
$ 2,048
$ —
$ 82,905



		March 31, 2012
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. government agency debentures	$	35,340	$	115	$	—		$	35,455
	U.S. states and political subdivisions	365,543		21,733		(751		)	386,525
	Residential mortgage-backed securities:
	U.S. government agencies	1,401,241		53,388		(213		)	1,454,416
	Commercial mortgage-backed securities:
	U.S. government agencies	27,689		34		(60		)	27,663
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,226,260		25,046		(2		)	1,251,304
	Non-agency	41,741		91		—			41,832
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	147,214		675		(534		)	147,355
	Corporate debt securities	158,019		955		(15,185		)	143,789
	Total debt securities	3,403,047		102,037		(16,745		)	3,488,339
	Marketable equity securities	3,308		—		—			3,308
	Total securities available for sale	$	3,406,355	$	102,037	$	(16,745	)	$	3,491,647
Securities held-to-maturity
Debt securities
	U.S. states and political subdivisions	$	100,840	$	3,025	$	—		$	103,865
	Total securities held to maturity	$	100,840	$	3,025	$	—		$	103,865

Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) stock constitute the majority of other investments on the consolidated balance sheets.


	June 30, 2012		December 31, 2011		June 30, 2011		March 31, 2013		December 31, 2012		March 31, 2012
FRB stock	$	21,045	$	21,003	$	20,804	$	21,324	$	21,045	$	21,003
FHLB stock	119,145		119,145		139,398		119,145		119,145		119,145
Other	552		578		603		515		527		565
Total other investments	$	140,742	$	140,726	$	160,805	$	140,984	$	140,717	$	140,713

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 $~~1.9~~2.7 billion, $~~1.9~~1.6 billion and $~~2.0~~1.9 billion ~~as of~~at ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, 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.

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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.



	Three months ended March 31,
	2013			2012
Proceeds	$	25,674		$	94,865

Realized gains	$	—		$	260
Realized losses	(9		)	—
Net securities (losses)/gains	$	(9	)	$	260

~~Gross Unrealized Losses~~Realized Gains and ~~Fair Value~~Losses

The following table presents the proceeds from sales of available-for-sale securities and the gross ~~unrealized~~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 ~~fair value of securities in~~are determined using the ~~securities available-for-sale portfolio by length of time that individual securities in each category had been in a continuous loss position.~~specific identification method.

June 30, 2012
Less than 12 months 12 months or longer Total

Fair
Value

Unrealized
Losses

Number of
Impaired
Securities

Fair
Value

Unrealized
Losses

Number of
Impaired
Securities

Fair
Value

Unrealized
Losses
Debt Securities
U.S. government agency debentures $ —
$ —
—
$ —
$ —
—
$ —
$ —
U.S. States and political subdivisions 15,742
(200 ) 28
—
—
—
15,742
(200 )
Residential mortgage-backed securities:
U.S. government agencies 30
—
2
—
—
—
30
—
Commercial mortgage-backed securities:
U.S. government agencies 5,137
(20 ) 1
—
—
—
5,137
(20 )
Residential collateralized mortgage-backed securities:
U.S. government agencies 88,482
(326 ) 9
—
—
—
88,482
(326 )
U.S. non agencies —
—
—
2
—
1
2
—
Commercial collateralized mortgage-backed securities:
U.S. government agencies —
—
—
—
—
—
—
—
Corporate debt securities 21,359
(133 ) 6
48,085
(13,429 ) 8
69,444
(13,562 )
Total temporarily impaired securities $ 130,750
$ (679 ) 46
$ 48,087
$ (13,429 ) 9
$ 178,837
$ (14,108 )

December 31, 2011
Less than 12 months 12 months or longer Total

Fair
Value

Unrealized
Losses

Number of
Impaired
Securities

Fair
Value

Unrealized
Losses

Number of
Impaired
Securities

Fair
Value

Unrealized
Losses
Debt Securities
U.S. States and political subdivisions $ 5,249
$ (50 ) 6
$ —
$ —
—
$ 5,249
$ (50 )
Residential mortgage-backed securities:
U.S. government agencies 40,020
(129 ) 4
149
(2 ) 1
40,169
(131 )
Residential collateralized mortgage-backed securities:
U.S. government agencies 48,003
(55 ) 6
—
—
—
48,003
(55 )
Non-agency —
—
—
2
—
1
2
—
Commercial collateralized mortgage-backed securities:
U.S. government agencies 30,227
(145 ) 2
—
—
—
30,227
(145 )
Corporate debt securities 24,846
(127 ) 8
44,234
(17,254 ) 8
69,080
(17,381 )
Total temporarily impaired securities $ 148,345
$ (506 ) 26
$ 44,385
$ (17,256 ) 10
$ 192,730
$ (17,762 )

June 30, 2011
Less than 12 months 12 months or longer Total

Fair
Value

Unrealized
Losses

Number of
Impaired
Securities

Fair
Value

Unrealized
Losses

Number of
Impaired
Securities

Fair
Value

Unrealized
Losses
Debt Securities
U.S. government agency debentures $ 23,538
$ (148 ) 2
$ —
$ —
—
$ 23,538
$ (148 )
U.S. States and political subdivisions 18,176
(158 ) 24
655
(23 ) 1
18,831
(181 )
Residential mortgage-backed securities:
U.S. government agencies 14,229
(87 ) 1
182
(3 ) 2
14,411
(90 )
Residential collateralized mortgage-backed securities:
U.S. government agencies 265,319
(1,326 ) 18
—
—
—
265,319
(1,326 )
Corporate debt securities —
—
—
50,723
(10,738 ) 8
50,723
(10,738 )
Total temporarily impaired securities $ 321,262
$ (1,719 ) 45
$ 51,560
$ (10,764 ) 11
$ 372,822
$ (12,483 )



	Three months ended March 31,
	2013			2012
Proceeds	$	25,674		$	94,865

Realized gains	$	—		$	260
Realized losses	(9		)	—
Net securities (losses)/gains	$	(9	)	$	260

At least quarterly the Corporation conducts a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if other-than-temporary impairment (“OTTI”) exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Under the current OTTI accounting model for debt securities, 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 other comprehensive income. 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 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 other comprehensive income, net of tax.

~~As of~~ ~~June 30, 2012, gross unrealized losses are concentrated within corporate debt securities and is composed of~~ ~~eight, single issuer, trust preferred securities with stated maturities. Such investments are less than~~ 2%of the fair value of the entire 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 market conditions that 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 securities, 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 OTTI at ~~June 30, 2012~~ ~~and has recognized the total amount of the impairment in other comprehensive income, net of tax.~~

Realized Gains and Losses

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


	Three Months Ended June 30,					Six Months Ended June 30,					Three months ended March 31,
	2012		2011			2012		2011			2013			2012
Proceeds	$	66,213	$	32,900		$	161,077	$	32,900		$	25,674		$	94,865

Realized gains	548		945			808		945			$	—		$	260
Realized losses	—		(56		)	—		(56		)	(9		)	—
Net securities gains	$	548	$	889		$	808	$	889
Net securities (losses)/gains											$	(9	)	$	260

Gross Unrealized Losses and Fair Value

The following table presents the gross unrealized losses and fair value of securities in the securities available-for-sale portfolio by length of time that individual securities in each category had been in a continuous loss position.



		March 31, 2013
		Less than 12 months						12 months or longer						Total
		Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	33,648	$	(790	)	51	$	—	$	—		—	$	33,648	$	(790	)
	Residential mortgage-backed securities:
	U.S. government agencies	45,345		(663		)	5	—		—			—	45,345		(663		)
	Commercial mortgage-backed securities:
	U.S. government agencies	30,799		(659		)	3	—		—			—	30,799		(659		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	339,462		(2,354		)	21	—		—			—	339,462		(2,354		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	44,219		(347		)	6	—		—			—	44,219		(347		)
	Corporate debt securities	—		—			—	51,225		(10,330		)	8	51,225		(10,330		)
	Total available-for-sale securities	$	493,473	$	(4,813	)	86	$	51,225	$	(10,330	)	8	$	544,698	$	(15,143	)
Securities held-to-maturity
Debt securities
	U.S. states and political subdivisions	$	29,823	$	(244	)	54	$	—	$	—		—	$	29,823	$	(244	)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	$	40,892	$	(339	)	4	$	—	$	—		—	$	40,892	$	(339	)
	Total held-to-maturity securities	$	70,715	$	(583	)	58	$	—	$	—		—	$	70,715	$	(583	)

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)



		December 31, 2012
		Less than 12 months						12 months or longer						Total
		Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	14,110	$	(229	)	24	$	—	$	—		—	$	14,110	$	(229	)
	Residential mortgage-backed securities:
	U.S. government agencies	14		—			1	13		—			1	27		—
	Commercial mortgage-backed securities:
	U.S. government agencies	31,237		(406		)	3	—		—			—	31,237		(406		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	133,008		(258		)	9	389		(2		)	1	133,397		(260		)
	Non-agency	—		—			—	2		—			1	2		—
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	35,316		(138		)	4	—		—			—	35,316		(138		)
	Corporate debt securities	—		—			—	49,652		(11,889		)	8	49,652		(11,889		)
	Total available-for-sale securities	$	213,685	$	(1,031	)	41	$	50,056	$	(11,891	)	11	$	263,741	$	(12,922	)
Securities held-to-maturity
Debt securities
	U.S. states and political subdivisions	$	6,543	$	(70	)	12	$	—	$	—		—	$	6,543	$	(70	)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	$	17,413	$	(16	)	1	$	—	$	—		—	$	17,413	$	(16	)
	Total held-to-maturity securities	$	23,956	$	(86	)	13	$	—	$	—		—	$	23,956	$	(86	)



		March 31, 2012
		Less than 12 months						12 months or longer						Total
		Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	26,915	$	(751	)	39	$	—	$	—		—	$	26,915	$	(751	)
	Residential mortgage-backed securities:
	U.S. government agencies	40,036		(213		)	4	—		—			—	40,036		(213		)
	Commercial mortgage-backed securities:
	U.S. government agencies	12,329		(60		)	2	—		—			—	12,329		(60		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	4,322		(2		)	1	—		—			—	4,322		(2		)
	Non-agency	—		—			—	2		—			1	2		—
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	64,435		(534		)	6	—		—			—	64,435		(534		)
	Corporate debt securities	33,250		(342		)	12	46,657		(14,843		)	8	79,907		(15,185		)
	Total temporarily impaired securities	$	181,287	$	(1,902	)	64	$	46,659	$	(14,843	)	9	$	227,946	(16,745		)

At least quarterly, the Corporation conducts a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if other-than-temporary impairment ("OTTI") exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Under the current OTTI accounting model for debt securities, 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

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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 other comprehensive income. 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 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 the intent 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 other comprehensive income, net of tax.

As of March 31, 2013, gross unrealized losses are concentrated within corporate debt securities which is composed of eight, single issuer, trust preferred securities with stated maturities. Such investments are less than 2% of the fair value of the entire 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 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 March 31, 2013 and has recognized the total amount of the impairment in other comprehensive income, net of tax.

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 ~~June 30, 2012~~March 31, 2013. Estimated lives on mortgage-backed securities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

1415

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

U.S.
Government
agency
debentures

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

Corporate
debt
securities
Total
Weighted
Average
Yield
Securities Available for Sale
Remaining maturity:
One year or less $ 35,297
$ 15,897
$ 5,134
$ —
$ 64,846
$ —
$ —
$ —
$ 121,174
3.22 %
Over one year through five years —
27,984
1,330,029
—
1,180,481
13
63,366
23,944
2,625,817
2.72 %
Over five years through ten years —
173,985
47,650
38,428
32,051
—
5,179
73,398
370,691
3.69 %
Over ten years —
47,258
—
—
—
—
—
48,085
95,343
2.83 %
Fair Value $ 35,297
$ 265,124
$ 1,382,813
$ 38,428
$ 1,277,378
$ 13
$ 68,545
$ 145,427
$ 3,213,025
2.85 %
Amortized Cost $ 35,224
$ 249,410
$ 1,326,601
$ 37,868
$ 1,258,742
$ 13
$ 66,806
$ 157,434
$ 3,132,098

Weighted-Average Yield 0.73 % 5.36 % 3.09 % 1.70 % 2.37 % 3.99 % 2.16 % 1.84 % 2.85 %
Weighted-Average Maturity 0.40
7.76
3.25
6.10
3.07
2.09
4.52
9.36
3.87

Securities Held to Maturity
Remaining maturity:
One year or less $ —
$ 41,042
$ —
$ —
$ —
$ —
$ —
$ —
$ 41,042
1.54 %
Over one year through five years —
14,567
—
—
—
—
—
—
14,567
4.48 %
Over five years through ten years —
22,318
—
5,084
—
—
93,961
—
121,363
2.51 %
Over ten years —
178,148
—
—
—
—
—
—
178,148
5.57 %
Fair Value $ —
$ 256,075
$ —
$ 5,084
$ —
$ —
$ 93,961
$ —
$ 355,120
4.01 %
Amortized Cost $ —
$ 253,161
$ —
$ 5,113
$ —
$ —
$ 93,947
$ —
$ 352,221

Weighted-Average Yield — % 5.58 % — % 1.90 % — % — % 1.77 % — % 4.01 %
Weighted-Average Maturity —
13.75
—
6.17
—
—
7.09
—
9.96



	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 obligations			Commercial collateralized mortgage obligations - U.S. govt. agency obligations			Corporate debt securities			Total			Weighted Average Yield
Securities Available for Sale
Remaining maturity:
One year or less	$	11,950		$	2,360		$	17,976		$	27,621		$	—		$	—		$	—		$	59,907		3.58	%
Over one year through five years	37,903			1,070,345			—			1,448,836			11			81,606			—			2,638,701			2.20	%
Over five years through ten years	171,780			79,621			40,598			128,822			—			28,996			—			449,817			3.09	%
Over ten years	40,973			—			—			—			—			—			51,225			92,198			2.24	%
Fair Value	$	262,606		$	1,152,326		$	58,574		$	1,605,279		$	11		$	110,602		$	51,225		$	3,240,623		2.35	%
Amortized Cost	$	249,750		$	1,109,905		$	58,827		$	1,591,341		$	11		$	108,658		$	61,555		$	3,180,047
Weighted-Average Yield	5.14		%	2.64		%	2.14		%	1.80		%	3.41		%	1.82		%	0.99		%	2.35		%
Weighted-Average Maturity	7.67			3.60			4.53			3.72			1.52			4.81			14.52			4.25

Securities Held to Maturity
Remaining maturity:
One year or less	$	56,981		$	—		$	—		$	—		$	—		$	—		$	—		$	56,981		1.64	%
Over one year through five years	19,031			—			—			138,519			—			41,746			40,625			239,921			2.21	%
Over five years through ten years	60,079			—			41,187			—			—			57,187			56,751			215,204			3.30	%
Over ten years	161,395			—			—			—			—			—			—			161,395			5.50	%
Fair Value	$	297,486		$	—		$	41,187		$	138,519		$	—		$	98,933		$	97,376		$	673,501		3.30	%
Amortized Cost	$	292,689		$	—		$	40,413		$	137,839		$	—		$	98,887		$	95,761		$	665,589
Weighted-Average Yield	5.48		%	—		%	1.85		%	1.92		%	—		%	2.91		%	2.18		%	3.30		%
Weighted-Average Maturity	12.96			—			5.82			3.31			—			6.39			4.75			7.05

Table of Contents

5FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

4. Loans

Total noncovered and covered loans outstanding as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012 were as follows:

June 30, 2012 December 31, 2011 June 30, 2011
Commercial $ 5,404,971
$ 5,107,747
$ 4,808,305
Residential mortgage 438,147
413,664
400,661
Installment 1,262,877
1,263,665
1,259,072
Home equity 766,840
743,982
738,719
Credit card 142,586
146,356
143,828
Leases 84,507
73,530
57,634
Total noncovered loans (a) 8,099,928
7,748,944
7,408,219
Allowance for noncovered loan losses (103,849 ) (107,699 ) (109,187 )
Net noncovered loans 7,996,079
7,641,245
7,299,032
Covered loans (b) 1,271,888
1,497,140
1,755,107
Allowance for covered loan losses (42,606 ) (36,417 ) (33,360 )
Net covered loans 1,229,282
1,460,723
1,721,747
Net loans $ 9,225,361
$ 9,101,968
$ 9,020,779

~~(a)~~

~~Includes acquired, noncovered loans of~~ ~~$67.9~~



		March 31, 2013			December 31, 2012			March 31, 2012
Commercial		$	5,888,337		$	5,866,489		$	5,220,051
Residential mortgage		451,522			445,211			428,950
Installment		1,322,795			1,328,258			1,259,930
Home equity		812,458			806,078			739,548
Credit cards		140,721			146,387			140,618
Leases		164,137			139,236			74,112
	Total noncovered loans (a)	8,779,970			8,731,659			7,863,209
Allowance for noncovered loan losses		(98,843		)	(98,942		)	(103,849		)
	Net noncovered loans	8,681,127			8,632,717			7,759,360
Covered loans (b)		896,832			1,019,125			1,378,150
Allowance for covered loan losses		(47,945		)	(43,255		)	(41,070		)
	Net covered loans	848,887			975,870			1,337,080
	Net loans	$	9,530,014		$	9,608,587		$	9,096,440

(a) Includes acquired, noncovered loans of $54.1 million, $54.2 million, $99.2 million as of March 31, 2013, ~~$113.2 million~~ ~~and~~ ~~$192.2 million~~ ~~as of~~ ~~June 30, 2012~~,

December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, respectively.


~~(b)~~	~~Includes loss share receivable of~~ ~~$152.6 million~~, ~~$205.7 million~~ ~~and~~ ~~$239.4 million~~ ~~as of~~ ~~June 30,~~ (b) Includes loss share receivable of $95.6 million, $113.7 million and $171.1 million as of March 31, 2013, December 31, 2012 and March 31, 2012, ~~December 31, 2011~~ ~~and~~ ~~June 30, 2011~~, respectively.

Originated loans are presented net of deferred loan origination fees and costs, which amounted to $~~6.6~~6.8 million, $~~6.0~~6.5 million and $~~5.1~~6.6 million at ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, respectively.

Acquired loans, including covered loans, are recorded at fair value as of the date of purchase with no allowance for loan loss. ~~As discussed in Note~~ 3 (~~Business Combinations~~),In 2010, the Bank acquired loans ~~with a fair value~~ of $275.6 million ~~on February 19, 2010~~ in its acquisition of the First Bank branches, and $177.8 million ~~on February 19, 2010~~ and $1.8 billion ~~on May 14, 2010~~ in conjunction with the FDIC-assisted acquisitions of George Washington and Midwest, respectively. The loans that were acquired in these FDIC-assisted transactions are covered by loss sharing agreements, ~~that~~which afford the Bank significant loss protection. Loans covered under loss sharing agreements, including the amounts of expected reimbursements from the FDIC under these agreements, are reported as covered loans in the accompanying consolidated balance sheets.

Changes in the loss share receivable associated with covered loans for the ~~three and~~ ~~six~~three months ended~~June 30, 2012~~ March 31, 2013 and ~~2011~~2012, respectively, were as follows:


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011			March 31, 2013			March 31, 2012
Balance at beginning of period	$	171,136		$	265,981		$	205,664		$	288,605		$	113,734		$	205,664
Accretion	(8,877		)	(9,868		)	(18,534		)	(21,498		)	(8,104		)	(9,657		)
Increase due to impairment	6,218			7,675			11,117			22,854			5,539			4,899
FDIC reimbursement	(10,651		)	(22,771		)	(38,081		)	(48,402		)	(10,549		)	(27,430		)
Covered loans paid in full	(5,211		)	(1,593		)	(7,551		)	(2,135		)	(5,027		)	(2,340		)
Balance at end of the period	$	152,615		$	239,424		$	152,615		$	239,424		$	95,593		$	171,136

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Acquired Loans

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 First Bank acquired loans is being accreted to interest income over the remaining term of the loans.

The Corporation has elected to account for all loans acquired in the George Washington and Midwest acquisitions under ASC 310-30 (“("Acquired Impaired ~~Loans”~~Loans") except for $162.6 million of acquired loans with revolving privileges, which are outside the scope of this guidance and which are being accounted for in accordance with ASC 310 (“("Acquired Non-Impaired ~~Loans”~~Loans"). The outstanding balance, including contractual principal, interest, fees and penalties, of all covered loans accounted for in accordance with ASC 310-30 was $~~1.4~~1.0 billion, $~~1.6~~1.2 billion, and $~~1.9~~1.5 billion as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, respectively.

Over the life of the loans acquired and considered to be impaired under ASC 310-30, the Corporation evaluates the remaining contractual required payments receivable and estimates cash flows expected to be collected, considering the impact of prepayments. The excess of an acquired impaired loan's contractually required payments over the amount of its undiscounted cash flows expected to be collected is referred to as the nonaccretable difference. The nonaccretable difference, which is neither accreted into income nor recorded on our consolidated balance sheet, reflects estimated future credit losses and uncollectible contractual interest expected to be incurred over the life of the acquired impaired loan. The excess of cash flows expected to be collected over the carrying amount of the acquired impaired loans is referred to as the accretable yield. This amount is accreted into interest income over the remaining life of the acquired impaired loans or pools using the

level yield method. The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment speed assumptions and changes in expected principal and interest payments over the estimated lives of the acquired impaired loans.

The contractually required payments receivable represents the total undiscounted amount of all uncollected principal and interest payments. Contractually required payments receivable 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 reforecasted, the prior reporting period's estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period.

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Changes in the carrying amount and accretable yield for Acquired Impaired Loans were as follows for the ~~three and~~ ~~six~~three months ended~~June 30, 2012~~ March 31, 2013 and ~~2011~~2012:


	Three Months Ended												Six Months Ended												Three Months Ended
	June 30, 2012						June 30, 2011						June 30, 2012						June 30, 2011						March 31, 2013						March 31, 2012
	Accretable Yield			Carrying Amount			Accretable Yield			Carrying Amount			Accretable Yield			Carrying Amount			Accretable Yield			Carrying Amount			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	161,292		$	1,043,519		$	212,446		$	1,425,758		$	176,736		$	1,128,978		$	227,652		$	1,512,817		$	113,288		$	762,386		$	176,736		$	1,128,978
Accretion	(25,405		)	25,405			(34,237		)	34,237			(51,847		)	51,847			(70,124		)	70,124			(19,514		)	19,514			(26,442		)	26,442
Net Reclassifications from non-accretable to accretable	12,993			—			18,712			—			24,806			—			39,958			—
Payments, received, net	—			(104,610		)	—			(122,074		)	—			(216,511		)	—			(245,020		)
Net reclassifications from non-accretable to accretable																									10,569			—			11,813			—
Payments received, net																									—			(125,230		)	—			(111,901		)
Disposals	(1,304		)	—			(396		)	—			(2,119		)	—			(961		)	—			(2,213		)	—			(815		)	—
Balance at end of period	$	147,576		$	964,314		$	196,525		$	1,337,921		$	147,576		$	964,314		$	196,525		$	1,337,921		$	102,130		$	656,670		$	161,292		$	1,043,519

A reconciliation of the contractual required payments receivable to the carrying amount of Acquired Impaired Loans ~~for the three months ended~~as of ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012 is as follows:


	June 30, 2012			June 30, 2011			March 31, 2013			March 31, 2012
Contractual required payments receivable	$	1,413,526		$	1,857,424		$	1,040,245		$	1,515,024
Nonaccretable difference	(301,636		)	(322,978		)	(281,445		)	(310,213		)
Expected cash flows	1,111,890			1,534,446			758,800			1,204,811
Accretable yield	(147,576		)	(196,525		)	(102,130		)	(161,292		)
Carrying balance	$	964,314		$	1,337,921		$	656,670		$	1,043,519

Increases in expected cash flows subsequent to the acquisition are recognized prospectively through adjustment of the yield on the loans or pools over its remaining life, while decreases in expected cash flows are recognized as impairment through a provision for loan loss and an increase in the allowance for covered loan losses. The most recent quarterly evaluation of the remaining contractual required payments receivable and cash flows expected to be collected resulted in an overall improvement in the cash flow expectations as a result of positive changes in risk ratings, improvements in the underlying value of collateral dependent loans and

actual cash flows received higher than expected. There were no significant changes from prior periods to key assumptions used in the most recent quarterly evaluation of cash flows expected to be collected.

The overall improvement in the cash flow expectations resulted in the reclassification from nonaccretable difference to accretable yield of $~~13.0~~10.6 million during the three months ended ~~June 30, 2012~~March 31, 2013~~, respectively.~~. These reclassifications resulted in yield adjustments on these loans and pools on a prospective basis to interest income. Improved cash flow expectations for loans or pools that were impaired during prior periods were 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. Additionally, the FDIC loss share receivable was ~~prospectively~~also reduced by the guaranteed portion of the additional cash flows expected to be received ~~with~~through an increase in provision expense and a corresponding reduction ~~to interest income.~~in the prospective yield of the remaining loss share receivable.

The most recent quarterly evaluation of the remaining contractual required payments receivable and cash flows expected to be collected resulted in the decline in the cash flow expectations of certain loans and pools during the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013. The decline in expected cash flows was recorded as provision expense of $~~9.6~~9.7 million in the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013 with a related increase of $~~6.2~~5.5 million in the loss share receivable for the portion of the losses recoverable under the loss share agreements with the FDIC. This decrease in cash flows resulted in a net ~~increase to the allowance~~provision for covered loan losses of $~~3.4~~4.1 million

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

for the three months ended March 31, 2013 compared to a net provision of $5.9 million ~~as of~~for the three months ended ~~June 30,~~March 31, 2012. ~~Further detail on impairment and provision expense related to acquired impaired loans can be found in the Note~~ 6 (~~Allowance for Loan Losses~~).

Credit Quality Disclosures

The credit quality of the ~~Corporation’s~~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~~Corporation's overall credit risk management process and evaluation of the allowance for credit losses. ~~See Note~~ 6 (~~Allowance for Loan Losses) for further information.~~

Generally, loans, except for certain commercial, credit card and mortgage loans, and leases on which payments are past due for 90 days are placed on nonaccrual status, unless those loans are in the process of collection and, in ~~Management’s~~Management's opinion, are fully secured. Credit card loans on which payments are past due for 120 days are placed on nonaccrual status. When a loan is placed on nonaccrual status, interest deemed uncollectible which 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. 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.

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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 March 31, 2013
Legacy Loans													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (a)		Loans
Commercial
C&I	$	3,828	$	1,372	$	4,188	$	9,388	$	3,369,057	$	3,378,445	$	—	$	8,274
CRE	2,872		3,442		8,668		14,982		2,149,975		2,164,957		1,683		11,676
Construction	—		—		1,134		1,134		309,591		310,725		1,058		439
Leases	—		—		—		—		164,137		164,137		—		—
Consumer
Installment	7,778		2,614		4,932		15,324		1,305,753		1,321,077		4,321		4,695
Home Equity Lines	1,287		479		1,172		2,938		792,540		795,478		275		2,275
Credit Cards	825		580		773		2,178		138,543		140,721		364		510
Residential Mortgages	11,312		2,732		5,921		19,965		430,334		450,299		4,508		9,484
Total	$	27,902	$	11,219	$	26,788	$	65,909	$	8,659,930	$	8,725,839	$	12,209	$	37,353
Acquired Loans (Noncovered)													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing		Loans
Commercial
C&I	$	—	$	—	$	—	$	—	$	4,179	$	4,179	$	—	$	—
CRE	—		324		2,696		3,020		27,011		30,031		—		3,454
Consumer
Installment	19		29		—		48		1,670		1,718		—		2
Home Equity Lines	51		17		139		207		16,773		16,980		184		—
Residential Mortgages	63		—		—		63		1,160		1,223		—		—
Total	$	133	$	370	$	2,835	$	3,338	$	50,793	$	54,131	$	184	$	3,456
Covered Loans (b)													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (c)		Loans (c)
Commercial
C&I	$	1,685	$	1,038	$	21,343	$	24,066	$	87,357	$	111,423	n/a		n/a
CRE	2,617		13,964		161,256		177,837		290,125		467,962		n/a		n/a
Construction	—		—		36,157		36,157		5,646		41,803		n/a		n/a
Consumer
Installment	20		—		41		61		8,020		8,081		n/a		n/a
Home Equity Lines	1,567		119		1,881		3,567		109,776		113,343		n/a		n/a
Residential Mortgages	9,849		724		6,509		17,082		41,545		58,627		n/a		n/a
Total	$	15,738	$	15,845	$	227,187	$	258,770	$	542,469	$	801,239	n/a		n/a

(a) Installment loans 90 days or more past due and accruing include $3.5 million of loans guaranteed by the U.S. government as of March 31, 2013.

(b) Excludes loss share receivable of $95.6 million as of March 31, 2013.

(c) Acquired impaired loans were not classified as nonperforming assets at March 31, 2013 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 impaired loans. These asset quality disclosures are, therefore, not applicable to acquired impaired loans.

1821

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)


As of June 30, 2012

As of December 31, 2012																	As of December 31, 2012
Legacy Loans													≥ 90 Days Past Due and Accruing (a)																≥ 90 Days
	Days Past Due						Total Past Due		Current		Total Loans				Nonaccrual Loans		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90												30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (a)		Loans
Commercial
C&I	$	2,688	$	291	$	3,272	$	6,251	$	2,965,741	$	2,971,992	$	—	$	11,119	$	3,814	$	1,788	$	3,571	$	9,173	$	3,294,527	$	3,303,700	$	104	$	5,255
CRE	9,503		1,338		12,810		23,651		2,064,261		2,087,912		460		22,621		4,181		4,483		8,901		17,565		2,175,967		2,193,532		382		13,018
Construction	646		—		1,653		2,299		296,910		299,209		—		1,794		981		—		597		1,578		333,969		335,547		—		731
Leases	—		—		—		—		84,507		84,507		—		—		6		—		—		6		139,230		139,236		—		—
Consumer
Installment	8,338		2,889		4,738		15,965		1,244,869		1,260,834		4,384		355		11,722		3,193		5,608		20,523		1,305,921		1,326,444		4,909		2,911
Home Equity Lines	1,208		772		1,014		2,994		745,468		748,462		1		1,088		1,584		880		1,227		3,691		784,988		788,679		475		1,557
Credit Cards	783		517		772		2,072		140,514		142,586		289		502		969		558		954		2,481		143,906		146,387		438		598
Residential Mortgages	10,561		4,531		7,856		22,948		413,548		436,496		1,411		6,361		13,228		2,488		5,231		20,947		423,028		443,975		3,076		9,852
Total	$	33,727	$	10,338	$	32,115	$	76,180	$	7,955,818	$	8,031,998	$	6,545	$	43,840	$	36,485	$	13,390	$	26,089	$	75,964	$	8,601,536	$	8,677,500	$	9,384	$	33,922

Acquired Loans (Noncovered)																	Acquired Loans (Noncovered)												≥ 90 Days
																	Days Past Due						Total				Total		Past Due and		Nonaccrual
																	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing		Loans
Commercial
C&I																	$	—	$	198	$	—	$	198	$	2,628	$	2,826	$	—	$	—
CRE																	—		47		2,634		2,681		28,203		30,884		—		2,762
Consumer
Installment																	—		—		31		31		1,783		1,814		33		3
Home Equity Lines																	—		—		—		—		17,399		17,399		—		—
Residential Mortgages																	63		—		—		63		1,173		1,236		—		—
Total																	$	63	$	245	$	2,665	$	2,973	$	51,186	$	54,159	$	33	$	2,765

Covered Loans (b)																													≥ 90 Days
																	Days Past Due						Total				Total		Past Due and		Nonaccrual
																	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (c)		Loans (c)
Commercial
C&I																	$	931	$	981	$	24,111	$	26,023	$	102,486	$	128,509	n/a		n/a
CRE																	4,130		15,019		172,444		191,593		348,002		539,595		n/a		n/a
Construction																	589		7,925		34,314		42,828		7,505		50,333		n/a		n/a
Consumer
Installment																	1		65		21		87		8,102		8,189		n/a		n/a
Home Equity Lines																	1,528		654		2,211		4,393		112,832		117,225		n/a		n/a
Residential Mortgages																	10,005		442		7,763		18,210		43,330		61,540		n/a		n/a
Total																	$	17,184	$	25,086	$	240,864	$	283,134	$	622,257	$	905,391	n/a		n/a

(a) Installment loans 90 days or more past due and accruing include $3.4 million of loans guaranteed by the U.S. government as of December 31, 2012.

Acquired Loans (Noncovered)
Days Past Due
Total
Past Due
Current
Total
Loans

≥ 90 Days
Past Due
and
Accruing

Nonaccrual
Loans
30-59 60-89 ≥ 90
Commercial
C&I $ —
$ —
$ 63
$ 63
$ 8,947
$ 9,010
$ —
$ 69
CRE 364
—
2,670
3,034
33,814
36,848
—
2,778
Consumer

Installment —
—
—
—
2,043
2,043
—
—
Home Equity Lines 607
—
—
607
17,771
18,378
—
—
Residential Mortgages —
—
—
—
1,651
1,651
—
—
Total $ 971
$ —
$ 2,733
$ 3,704
$ 64,226
$ 67,930
$ —
$ 2,847
(b) Excludes loss share receivable of $113.7 million as of December 31, 2012.

(c) Acquired impaired loans were not classified as nonperforming assets at December 31, 2012 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 impaired loans. These asset quality disclosures are, therefore, not applicable to acquired impaired loans.

Covered Loans (b)
≥ 90 Days
Past Due
and
Accruing(c)

   Days Past Due
Total
Past Due
Current
Total
Loans

Nonaccrual
Loans (c)
   30-59 60-89 ≥ 90
Commercial
C&I $ 3,299
$ 1,454
$ 25,146
$ 29,899
$ 137,089
$ 166,988
n/a n/a
CRE 17,443
24,079
161,282
202,804
471,487
674,291
n/a n/a
Construction —
1,034
49,501
50,535
23,224
73,759
n/a n/a
Consumer

Installment —
615
22
637
8,198
8,835
n/a n/a
Home Equity Lines 1,690
643
1,314
3,647
125,981
129,628
n/a n/a
Residential Mortgages 11,452
1,571
9,509
22,532
43,240
65,772
n/a n/a
Total $ 33,884
$ 29,396
$ 246,774
$ 310,054
$ 809,219
$ 1,119,273
n/a n/a


~~(a)~~	~~Installment loans 90 days or more past due and accruing include~~ ~~$3.5 million~~ ~~of loans guaranteed by the U.S. government as of~~ ~~June 30, 2012~~.


~~(b)~~	~~Excludes loss share receivable of~~ ~~$152.6 million~~ ~~as of~~ ~~June 30, 2012~~.

~~(c)~~

~~Acquired impaired loans were not classified as nonperforming assets at~~ ~~June 30, 2012~~ 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 impaired loans. These asset quality disclosures are, therefore, not applicable to acquired impaired loans.

1922

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)


As of December 31, 2011

As of March 31, 2012																	As of March 31, 2012
Legacy Loans							Total Past Due		Current		Total Loans		≥ 90 Days Past Due and Accruing (a)		Nonaccrual Loans														≥ 90 Days
	Days Past Due																Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90												30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (a)		Loans
Commercial
C&I	$	1,521	$	940	$	5,490	$	7,951	$	2,740,751	$	2,748,702	$	465	$	9,266	$	9,683	$	598	$	4,464	$	14,745	$	2,858,427	$	2,873,172	$	260	$	5,450
CRE	6,187		4,819		29,976		40,982		1,951,211		1,992,193		984		36,025		7,066		2,270		23,439		32,775		1,951,798		1,984,573		614		32,145
Construction	39		—		7,837		7,876		269,459		277,335		609		7,575		279		—		5,309		5,588		280,127		285,715		—		5,451
Leases	—		—		—		—		73,530		73,530		—		—		775		—		—		775		73,337		74,112		—		—
Consumer
Installment	11,531		3,388		5,167		20,086		1,241,059		1,261,145		4,864		624		7,979		2,226		4,380		14,585		1,243,165		1,257,750		4,141		434
Home Equity Lines	2,627		778		1,241		4,646		720,045		724,691		796		1,102		2,229		469		1,126		3,824		717,013		720,837		556		1,113
Credit Cards	1,090		707		1,019		2,816		143,540		146,356		403		622		913		476		809		2,198		138,420		140,618		309		522
Residential Mortgages	11,778		2,059		9,719		23,556		388,268		411,824		3,252		6,468		8,269		2,444		10,029		20,742		406,540		427,282		3,381		6,648
Total	$	34,773	$	12,691	$	60,449	$	107,913	$	7,527,863	$	7,635,776	$	11,373	$	61,682	$	37,193	$	8,483	$	49,556	$	95,232	$	7,668,827	$	7,764,059	$	9,261	$	51,763

Acquired Loans (Noncovered)																	Acquired Loans (Noncovered)												≥ 90 Days
																	Days Past Due						Total				Total		Past Due and		Nonaccrual
																	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing		Loans
Commercial
C&I																	$	—	$	—	$	65	$	65	$	17,488	$	17,553	$	—	$	70
CRE																	818		—		706		1,524		57,514		59,038		—		1,430
Consumer
Installment																	—		14		—		14		2,166		2,180		—		—
Home Equity Lines																	220		25		—		245		18,466		18,711		—		—
Residential Mortgages																	—		—		—		—		1,668		1,668		—		—
Total																	$	1,038	$	39	$	771	$	1,848	$	97,302	$	99,150	$	—	$	1,500

Covered Loans (b)																													≥ 90 Days
																	Days Past Due						Total				Total		Past Due and		Nonaccrual
																	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (c)		Loans (c)
Commercial
C&I																	$	3,736	$	105	$	28,654	$	32,495	$	149,471	$	181,966	n/a		n/a
CRE																	29,417		3,318		162,963		195,698		530,405		726,103		n/a		n/a
Construction																	1,695		11,688		57,628		71,011		12,208		83,219		n/a		n/a
Consumer
Installment																	23		—		22		45		9,163		9,208		n/a		n/a
Home Equity Lines																	1,093		1,141		260		2,494		134,003		136,497		n/a		n/a
Residential Mortgages																	11,995		2,197		14,532		28,724		41,297		70,021		n/a		n/a
Total																	$	47,959	$	18,449	$	264,059	$	330,467	$	876,547	$	1,207,014	n/a		n/a

(a) Installment loans 90 days or more past due and accruing include $3.3 million of loans guaranteed by the U.S. government as of March 31, 2012.

Acquired Loans (Noncovered)
Total
Past Due
Current
Total
Loans

≥ 90 Days
Past Due
and
Accruing

Nonaccrual
Loans
Days Past Due
30-59 60-89 ≥ 90
Commercial
C&I $ —
$ —
$ 66
$ 66
$ 26,708
$ 26,774
$ —
$ 69
CRE —
452
1,675
2,127
60,616
62,743
—
2,880
Consumer
Installment —
—
1
1
2,519
2,520
1
—
Home Equity Lines 67
—
1
68
19,223
19,291
2
—
Residential Mortgages —
—
—
—
1,840
1,840
—
—
Total $ 67
$ 452
$ 1,743
$ 2,262
$ 110,906
$ 113,168
$ 3
$ 2,949
(b) Excludes loss share receivable of $171.1 million as of March 31, 2012.

(c) Acquired impaired loans were not classified as nonperforming assets at March 31, 2012 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 impaired loans. These asset quality disclosures are, therefore, not applicable to acquired impaired loans.

Covered Loans (b)
Total
Past Due
Current
Total
Loans

≥ 90 Days
Past Due
and
Accruing (c)

Nonaccrual
Loans (c)
Days Past Due
30-59 60-89 ≥ 90
Commercial
C&I $ 7,451
$ 2,137
$ 25,801
$ 35,389
$ 162,150
$ 197,539
n/a n/a
CRE 20,379
12,895
170,795
204,069
573,779
777,848
n/a n/a
Construction 4,206
1,674
57,978
63,858
26,051
89,909
n/a n/a
Consumer
Installment 24
25
60
109
10,013
10,122
n/a n/a
Home Equity Lines 2,656
1,094
1,088
4,838
136,710
141,548
n/a n/a
Residential Mortgages 14,106
164
14,254
28,524
45,986
74,510
n/a n/a
Total $ 48,822
$ 17,989
$ 269,976
$ 336,787
$ 954,689
$ 1,291,476
n/a n/a


~~(a)~~	~~Installment loans 90 days or more past due and accruing include~~ ~~$3.0 million~~ ~~of loans guaranteed by the U.S. government as of~~ ~~December 31, 2011~~.


~~(b)~~	~~Excludes loss share receivable of~~ ~~$205.7 million~~ ~~as of~~ ~~December 31, 2011~~.

~~(c)~~

~~Acquired impaired loans were not classified as nonperforming assets at~~ ~~December 31, 2011~~ 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 impaired loans. These asset quality disclosures are, therefore, not applicable to acquired impaired loans.

2023

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

As of June 30, 2011

Legacy Loans
≥ 90 Days
Past Due
and
Accruing

Days Past Due
Total
Past Due
Current
Total
Loans

Nonaccrual
Loans
30-59 60-89 ≥ 90
Commercial
C&I $ 3,415
$ 6,346
$ 3,102
$ 12,863
$ 2,402,784
$ 2,415,647
$ 202
$ 5,168
CRE 8,286
4,848
42,535
55,669
1,917,646
1,973,315
1,900
47,164
Construction 529
2,091
10,150
12,770
240,609
253,379
31
10,495
Leases —
—
—
—
57,634
57,634
—
—
Consumer
Installment 9,636
3,243
5,055
17,934
1,238,299
1,256,233
3,316
787
Home Equity Lines 2,086
835
571
3,492
713,297
716,789
571
938
Credit Cards 915
496
797
2,208
141,620
143,828
349
563
Residential Mortgages 9,559
1,560
8,129
19,248
379,942
399,190
3,715
6,663
Total $ 34,426
$ 19,419
$ 70,339
$ 124,184
$ 7,091,831
$ 7,216,015
$ 10,084
$ 71,778

Acquired Loans (Noncovered)
≥ 90 Days
Past Due
and
Accruing

Days Past Due
Total
Past Due
Current
Total
Loans

Nonaccrual
Loans
30-59 60-89 ≥ 90
Commercial
C&I $ 177
$ 169
$ 68
$ 414
$ 53,807
$ 54,221
$ —
$ 68
CRE 4,110
309
3,676
8,095
103,648
111,743
2,883
793
Consumer
Installment 3
70
15
88
2,751
2,839
15
—
Home Equity Lines 140
—
19
159
21,771
21,930
19
—
Residential Mortgages 62
—
—
62
1,409
1,471
—
—
Total $ 4,492
$ 548
$ 3,778
$ 8,818
$ 183,386
$ 192,204
$ 2,917
$ 861

Covered Loans (b)
≥ 90 Days
Past Due
and
Accruing(c)

   Days Past Due
Total
Past Due
Current
Total
Loans

Nonaccrual
Loans (c)
   30-59 60-89 ≥ 90
Commercial
C&I $ 4,969
$ 7,569
$ 39,501
$ 52,039
$ 184,482
$ 236,521
n/a n/a
CRE 27,684
35,750
205,958
269,392
660,039
929,431
n/a n/a
Construction 139
673
73,265
74,077
27,841
101,918
n/a n/a
Consumer
Installment 41
33
2,074
2,148
9,379
11,527
n/a n/a
Home Equity Lines 1,174
1,428
403
3,005
148,961
151,966
n/a n/a
Residential Mortgages 17,105
1,278
9,809
28,192
56,128
84,320
n/a n/a
Total $ 51,112
$ 46,731
$ 331,010
$ 428,853
$ 1,086,830
$ 1,515,683
n/a n/a


~~(a)~~	~~Installment loans 90 days or more past due and accruing include~~ ~~$2.5 million~~ ~~of loans guaranteed by the U.S. government as of~~ ~~June 30, 2011~~.


~~(b)~~	~~Excludes loss share receivable of~~ ~~$239.4 million~~ ~~as of~~ ~~June 30, 2011~~.

~~(c)~~

~~Acquired impaired loans were not classified as nonperforming assets at~~ ~~June 30, 2011~~ 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 impaired loans. These asset quality disclosures are, therefore, not applicable to 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 during 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.

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

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

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

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

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

“Loss” Loans (Grade 8) are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. These loans are charged off when loss is identified.

2224

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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

As of June 30, 2012

Legacy Loans
Commercial
C&I CRE Construction Leases
Grade 1 $ 41,042
$ —
$ —
$ 13,141
Grade 2 94,362
3,432
—
114
Grade 3 562,886
313,337
19,800
9,372
Grade 4 2,141,353
1,615,003
268,496
61,522
Grade 5 53,427
67,758
3,885
—
Grade 6 78,922
88,382
7,028
358
Grade 7 —
—
—
—
$ 2,971,992
$ 2,087,912
$ 299,209
$ 84,507
rating.


As of March 31, 2013									As of March 31, 2013
Legacy Loans
									Commercial
									C&I		CRE		Construction		Leases
Grade 1									$	39,433	$	271	$	—	$	13,330
Grade 2									148,253		3,968		—		731
Grade 3									688,264		251,664		19,243		25,808
Grade 4									2,399,913		1,807,724		286,093		116,314
Grade 5									63,287		45,328		1,367		4,636
Grade 6									39,295		56,002		4,022		3,318
Grade 7									—		—		—		—
Total									$	3,378,445	$	2,164,957	$	310,725	$	164,137
Acquired Loans (Noncovered)
	Commercial								Commercial
	C&I		CRE		Construction		Leases		C&I		CRE		Construction		Leases
Grade 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Grade 2	—		—		—		—		—		—		—		—
Grade 3	—		—		—		—		—		—		—		—
Grade 4	8,809		32,562		—		—		4,179		25,168		—		—
Grade 5	—		—		—		—		—		1,155		—		—
Grade 6	201		4,286		—		—		—		3,708		—		—
Grade 7	—		—		—		—		—		—		—		—
Total									$	4,179	$	30,031	$	—	$	—
Covered Loans
	$	9,010	$	36,848	$	—	$	—	Commercial
									C&I		CRE		Construction		Leases
Grade 1									$	—	$	—	$	—	$	—
Grade 2									1,009		—		—		—
Grade 3									92		—		—		—
Grade 4									61,012		184,920		551		—
Grade 5									1,028		25,048		1,586		—
Grade 6									46,233		256,565		36,449		—
Grade 7									2,049		1,429		3,217		—
Total									$	111,423	$	467,962	$	41,803	$	—

Covered Loans
Commercial
C&I CRE Construction Leases
Grade 1 $ 36
$ —
$ —
$ —
Grade 2 2,090
—
—
—
Grade 3 90
473
—
—
Grade 4 96,675
270,278
491
—
Grade 5 6,768
51,807
595
—
Grade 6 52,396
346,058
69,851
—
Grade 7 8,933
5,675
2,822
—
$ 166,988
$ 674,291
$ 73,759
$ —

2325

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

As of December 31, 2011

Legacy Loans
Commercial
C&I CRE Construction Leases
Grade 1 $ 37,607
$ —
$ —
$ 10,636
Grade 2 122,124
4,218
615
—
Grade 3 479,119
249,382
16,752
5,868
Grade 4 1,973,671
1,548,420
241,302
57,026
Grade 5 50,789
58,942
4,583
—
Grade 6 85,392
130,968
14,083
—
Grade 7 —
263
—
—
$ 2,748,702
$ 1,992,193
$ 277,335
$ 73,530
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Acquired Loans (Noncovered)
Commercial
C&I CRE Construction Leases
Grade 1 $ —
$ —
$ —
$ —
Grade 2 —
—
—
—
Grade 3 —
1,871
—
—
Grade 4 26,036
55,129
—
—
Grade 5 —
—
—
—
Grade 6 738
5,743
—
—
Grade 7 —
—
—
—
$ 26,774
$ 62,743
$ —
$ —

Covered Loans
Commercial
C&I CRE Construction Leases
Grade 1 $ 948
$ —
$ —
$ —
Grade 2 1,376
—
—
—
Grade 3 —
516
—
—
Grade 4 109,360
303,231
487
—
Grade 5 9,661
103,919
1,567
—
Grade 6 69,330
344,445
80,009
—
Grade 7 6,864
25,737
7,846
—
$ 197,539
$ 777,848
$ 89,909
$ —


As of June 30, 2011

As of December 31, 2012									As of December 31, 2012
Legacy Loans
	Commercial								Commercial
	C&I		CRE		Construction		Leases		C&I		CRE		Construction		Leases
Grade 1	$	47,596	$	10,844	$	1,361	$	—	$	42,211	$	—	$	—	$	13,119
Grade 2	98,521		2,786		—		—		114,480		3,138		—		179
Grade 3	439,392		231,142		25,797		4,451		661,692		254,749		17,652		20,042
Grade 4	1,743,893		1,510,966		198,203		53,177		2,406,174		1,818,818		311,271		104,037
Grade 5	41,771		90,629		7,027		—		44,638		53,008		3,057		1,561
Grade 6	44,474		126,796		20,991		6		34,505		63,819		3,567		298
Grade 7	—		152		—		—		—		—		—		—
Total									$	3,303,700	$	2,193,532	$	335,547	$	139,236
Acquired Loans (Noncovered)
	$	2,415,647	$	1,973,315	$	253,379	$	57,634	Commercial
									C&I		CRE		Construction		Leases
Grade 1									$	—	$	—	$	—	$	—
Grade 2									—		—		—		—
Grade 3									—		—		—		—
Grade 4									2,495		26,868		—		—
Grade 5									331		667		—		—
Grade 6									—		3,349		—		—
Grade 7									—		—		—		—
Total									$	2,826	$	30,884	$	—	$	—
Covered Loans
									Commercial
									C&I		CRE		Construction		Leases
Grade 1									$	—	$	—	$	—	$	—
Grade 2									1,526		—		—		—
Grade 3									—		—		—		—
Grade 4									73,480		214,987		476		—
Grade 5									3,215		30,708		1,331		—
Grade 6									47,468		292,158		45,838		—
Grade 7									2,820		1,742		2,688		—
Total									$	128,509	$	539,595	$	50,333	$	—

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Acquired Loans (Noncovered)
Commercial
C&I CRE Construction Leases
Grade 1 $ —
$ —
$ —
$ —
Grade 2 —
—
—
—
Grade 3 335
1,977
—
—
Grade 4 52,235
105,292
—
—
Grade 5 863
—
—
—
Grade 6 788
4,474
—
—
Grade 7 —
—
—
—
$ 54,221
$ 111,743
$ —
$ —


As of March 31, 2012									As of March 31, 2012
Legacy Loans
									Commercial
									C&I		CRE		Construction		Leases
Grade 1									$	40,605	$	—	$	—	$	10,706
Grade 2									97,078		6,210		610		—
Grade 3									521,791		243,461		18,208		7,098
Grade 4									2,070,512		1,554,118		251,354		55,930
Grade 5									51,591		70,452		4,257		—
Grade 6									91,527		110,332		11,286		378
Grade 7									68		—		—		—
Total									$	2,873,172	$	1,984,573	$	285,715	$	74,112
Acquired Loans (Noncovered)
									Commercial
									C&I		CRE		Construction		Leases
Grade 1									$	—	$	—	$	—	$	—
Grade 2									—		—		—		—
Grade 3									—		—		—		—
Grade 4									17,307		56,341		—		—
Grade 5									—		—		—		—
Grade 6									246		2,697		—		—
Grade 7									—		—		—		—
Total									$	17,553	$	59,038	$	—	$	—
Covered Loans
	Commercial								Commercial
	C&I		CRE		Construction		Leases		C&I		CRE		Construction		Leases
Grade 1	$	923	$	—	$	—	$	—	$	926	$	—	$	—	$	—
Grade 2	445		—		—		—		1,384		—		—		—
Grade 3	4,033		2,659		—		—		523		495		—		—
Grade 4	98,395		378,213		4,679		—		98,347		272,278		487		—
Grade 5	45,824		191,595		2,551		—		7,913		90,901		1,613		—
Grade 6	85,410		341,158		84,576		—		67,000		349,702		72,675		—
Grade 7	1,491		15,806		10,112		—		5,873		12,727		8,444		—
Total									$	181,966	$	726,103	$	83,219	$	—
	$	236,521	$	929,431	$	101,918	$	—

65. Allowance for Loan Losses

The ~~Corporation’s~~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~~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 allowance for loan losses is ~~Management’s~~Management's estimate of the amount of probable credit losses inherent in the portfolio at the balance sheet date. Management estimates credit losses based on 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~~portfolio's collectability characteristics not captured by historical loss data.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

The ~~Corporation’s~~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)~~. Balances by credit-risk grade and payment status, as well as descriptions of the credit-risk grades are included in Note~~ 5 (~~Loans~~). 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.

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~~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 allowance for loan losses 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. To the extent credit deterioration occurs on purchased loans after the date of acquisition, the Corporation records an allowance for loan losses, net of any expected reimbursement under any loss sharing agreements with the FDIC.

The activity within the allowance for noncovered loan losses, by portfolio type, for the ~~three and~~ ~~six~~three months ended~~June 30, 2012~~ March 31, 2013 and ~~2011~~2012 is shown in the following tables:


	Six Months Ended June 30, 2012
Three Months Ended March 31, 2013																												Three Months Ended March 31, 2013
	C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total			C&I			CRE			Construction			Leases		Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Allowance for loan losses, beginning balance	$	32,363		$	31,857		$	5,173		$	341		$	17,981		$	6,766		$	7,369		$	5,849		$	107,699		$	36,209		$	20,126		$	3,821		$	639	$	11,154		$	13,724		$	7,384		$	5,885		$	98,942
Charge-offs	(11,934		)	(2,769		)	(38		)	—			(8,934		)	(3,789		)	(3,228		)	(1,740		)	(32,432		)	(2,103		)	(53		)	(516		)	—		(4,594		)	(1,837		)	(1,403		)	(270		)	(10,776		)
Recoveries	2,055			645			303			38			6,185			1,238			1,095			128			11,687			1,055			132			58			89		2,496			483			513			43			4,869
Provision for noncovered loan losses	17,843			(2,547		)	(291		)	(21		)	(2,203		)	1,234			1,454			1,426			16,895
Provision for loan losses																												5,266			(1,806		)	(622		)	401		95			2,198			575			(299		)	5,808
Allowance for loan losses, ending balance	$	40,327		$	27,186		$	5,147		$	358		$	13,029		$	5,449		$	6,690		$	5,663		$	103,849		$	40,427		$	18,399		$	2,741		$	1,129	$	9,151		$	14,568		$	7,069		$	5,359		$	98,843


	Three Months Ended June 30, 2012
Three Months Ended March 31, 2012																											Three Months Ended March 31, 2012
	C&I			CRE			Construction			Leases		Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total			C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Allowance for loan losses, beginning balance	$	37,172		$	27,778		$	5,124		$	334	$	14,753		$	6,269		$	6,520		$	5,899		$	103,849		$	32,363		$	31,857		$	5,173		$	341		$	17,981		$	6,766		$	7,369		$	5,849		$	107,699
Charge-offs	(5,231		)	(2,100		)	—			—		(3,696		)	(1,465		)	(1,645		)	(878		)	(15,015		)	(6,292		)	(669		)	(38		)	—			(5,238		)	(2,735		)	(1,583		)	(862		)	(17,417		)
Recoveries	1,510			564			40			1		3,005			593			465			71			6,249			350			81			263			37			3,202			840			630			35			5,438
Provision for noncovered loan losses	6,876			944			(17		)	23		(1,033		)	52			1,350			571			8,766
Provision for loan losses																											10,751			(3,491		)	(274		)	(44		)	(1,192		)	1,398			104			877			8,129
Allowance for loan losses, ending balance	$	40,327		$	27,186		$	5,147		$	358	$	13,029		$	5,449		$	6,690		$	5,663		$	103,849		$	37,172		$	27,778		$	5,124		$	334		$	14,753		$	6,269		$	6,520		$	5,899		$	103,849

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Six Months Ended June 30, 2011
C&I CRE Construction Leases Installment
Home
Equity
Lines

Credit
Cards

Residential
Mortgages
Total
Allowance for loan losses, beginning balance $ 29,764
$ 32,026
$ 7,180
$ 475
$ 21,555
$ 7,217
$ 11,107
$ 5,366
$ 114,690
Charge-offs (8,989 ) (4,459 ) (2,695 ) (127 ) (14,293 ) (5,577 ) (4,615 ) (3,015 ) (43,770 )
Recoveries 714
48
374
34
7,437
1,182
1,204
118
11,111
Provision for noncovered loan losses 6,877
5,331
3,017
(29 ) 3,390
4,320
707
3,543
27,156
Allowance for loan losses, ending balance $ 28,366
$ 32,946
$ 7,876
$ 353
$ 18,089
$ 7,142
$ 8,403
$ 6,012
$ 109,187

Three Months Ended June 30, 2011
C&I CRE Construction Leases Installment
Home
Equity
Lines

Credit
Cards

Residential
Mortgages
Total
Allowance for loan losses, beginning balance $ 31,649
$ 33,128
$ 7,639
$ 480
$ 20,709
$ 6,883
$ 8,712
$ 5,490
$ 114,690
Charge-offs (4,274 ) (2,608 ) (1,337 ) (127 ) (6,202 ) (2,762 ) (2,297 ) (1,351 ) (20,958 )
Recoveries 188
47
293
2
3,718
483
557
29
5,317
Provision for noncovered loan losses 803
2,379
1,281
(2 ) (136 ) 2,538
1,431
1,844
10,138
Allowance for loan losses, ending balance $ 28,366
$ 32,946
$ 7,876
$ 353
$ 18,089
$ 7,142
$ 8,403
$ 6,012
$ 109,187

The following tables present the allowance for noncovered loan losses and the recorded investment in noncovered loans, by portfolio type, based on impairment method as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012.


As of March 31, 2013																			As of March 31, 2013
																				C&I		CRE		Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total
Ending allowance for noncovered loan losses balance attributable to loans:																			Ending allowance for noncovered loan losses balance attributable to loans:
	As of June 30, 2012																		Individually evaluated for impairment	$	1,957	$	769	$	90	$	—	$	1,458	$	89	$	74	$	1,713	$	6,150
	C&I		CRE		Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total		Collectively evaluated for impairment	38,470		17,630		2,651		1,129		7,693		14,479		6,995		3,646		92,693
Ending allowance for noncovered loan losses balance attributable to loans:
Individually evaluated for impairment	$	5,327	$	1,977	$	115	$	—	$	1,773	$	22	$	128	$	1,649	$	10,991
Collectively evaluated for impairment	35,000		25,209		5,032		358		11,256		5,427		6,562		4,014		92,858
Total ending allowance for noncovered loan losses balance	$	40,327	$	27,186	$	5,147	$	358	$	13,029	$	5,449	$	6,690	$	5,663	$	103,849	Total ending allowance for noncovered loan losses balance	$	40,427	$	18,399	$	2,741	$	1,129	$	9,151	$	14,568	$	7,069	$	5,359	$	98,843
Noncovered loans:																			Noncovered loans:
Individually evaluated for impairment	$	25,250	$	33,145	$	5,204	$	—	$	31,043	$	6,063	$	1,998	$	18,579	$	121,282
Collectively evaluated for impairment	2,955,752		2,091,615		294,005		84,507		1,231,834		760,777		140,588		419,568		7,978,646
																			Loans individually evaluated for impairment	$	8,445	$	24,160	$	2,779	$	—	$	31,117	$	6,917	$	1,388	$	23,527	$	98,333
																			Loans collectively evaluated for impairment	3,374,178		2,170,829		307,946		164,137		1,291,678		805,541		139,333		427,995		8,681,637
Total ending noncovered loan balance	$	2,981,002	$	2,124,760	$	299,209	$	84,507	$	1,262,877	$	766,840	$	142,586	$	438,147	$	8,099,928	Total ending noncovered loan balance	$	3,382,623	$	2,194,989	$	310,725	$	164,137	$	1,322,795	$	812,458	$	140,721	$	451,522	$	8,779,970



As of December 31, 2012
		C&I		CRE		Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total
Ending allowance for noncovered loan losses balance attributable to loans:
	Individually evaluated for impairment	$	577	$	913	$	105	$	—	$	1,526	$	34	$	127	$	1,722	$	5,004
	Collectively evaluated for impairment	35,632		19,213		3,716		639		9,628		13,690		7,257		4,163		93,938
Total ending allowance for noncovered loan losses balance		$	36,209	$	20,126	$	3,821	$	639	$	11,154	$	13,724	$	7,384	$	5,885	$	98,942
Noncovered loans:
	Loans individually evaluated for impairment	$	6,187	$	24,007	$	3,405	$	—	$	30,870	$	6,281	$	1,612	$	24,009	$	96,371
	Loans collectively evaluated for impairment	3,300,339		2,200,409		332,142		139,236		1,297,388		799,797		144,775		421,202		8,635,288
Total ending noncovered loan balance		$	3,306,526	$	2,224,416	$	335,547	$	139,236	$	1,328,258	$	806,078	$	146,387	$	445,211	$	8,731,659

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

As of December 31, 2011
C&I CRE Construction Leases Installment
Home
Equity
Lines

Credit
Cards

Residential
Mortgages
Total
Ending allowance for noncovered loan losses balance attributable to loans:
Individually evaluated for impairment $ 2,497
$ 1,599
$ 99
$ —
$ 1,382
$ 31
$ 108
$ 1,364
$ 7,080
Collectively evaluated for impairment 29,866
30,258
5,074
341
16,599
6,735
7,261
4,485
100,619
Total ending allowance for noncovered loan losses balance $ 32,363
$ 31,857
$ 5,173
$ 341
$ 17,981
$ 6,766
$ 7,369
$ 5,849
$ 107,699
Noncovered loans:
Individually evaluated for impairment $ 8,269
$ 36,087
$ 9,320
$ —
$ 33,571
$ 4,763
$ 2,202
$ 17,398
$ 111,610
Collectively evaluated for impairment 2,767,207
2,018,849
268,015
73,530
1,230,094
739,219
144,154
396,266
7,637,334
Total ending noncovered loan balance $ 2,775,476
$ 2,054,936
$ 277,335
$ 73,530
$ 1,263,665
$ 743,982
$ 146,356
$ 413,664
$ 7,748,944


As of March 31, 2012																			As of March 31, 2012
																				C&I		CRE		Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total
Ending allowance for noncovered loan losses balance attributable to loans:																			Ending allowance for noncovered loan losses balance attributable to loans:
	As of June 30, 2011																		Individually evaluated for impairment	$	972	$	2,478	$	224	$	—	$	1,902	$	66	$	92	$	1,505	$	7,239
	C&I		CRE		Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total		Collectively evaluated for impairment	36,200		25,300		4,900		334		12,851		6,203		6,428		4,394		96,610
Ending allowance for noncovered loan losses balance attributable to loans:
Individually evaluated for impairment	$	290	$	3,169	$	1,038	$	—	$	662	$	20	$	28	$	1,209	$	6,416
Collectively evaluated for impairment	28,076		29,777		6,838		353		17,427		7,122		8,375		4,803		102,771
Total ending allowance for noncovered loan losses balance	$	28,366	$	32,946	$	7,876	$	353	$	18,089	$	7,142	$	8,403	$	6,012	$	109,187	Total ending allowance for noncovered loan losses balance	$	37,172	$	27,778	$	5,124	$	334	$	14,753	$	6,269	$	6,520	$	5,899	$	103,849
Noncovered loans:																			Noncovered loans:
Individually evaluated for impairment	$	3,573	$	45,008	$	9,407	$	—	$	15,703	$	1,242	$	2,453	$	14,851	$	92,237
Collectively evaluated for impairment	2,466,295		2,040,050		243,972		57,634		1,243,369		737,477		141,375		385,810		7,315,982
																			Loans individually evaluated for impairment	$	6,079	$	32,112	$	8,929	$	—	$	32,378	$	5,522	$	2,060	$	18,077	$	105,157
																			Loans collectively evaluated for impairment	2,884,646		2,011,499		276,786		74,112		1,227,552		734,025		138,558		410,874		7,758,052
Total ending noncovered loan balance	$	2,469,868	$	2,085,058	$	253,379	$	57,634	$	1,259,072	$	738,719	$	143,828	$	400,661	$	7,408,219	Total ending noncovered loan balance	$	2,890,725	$	2,043,611	$	285,715	$	74,112	$	1,259,930	$	739,547	$	140,618	$	428,951	$	7,863,209

To the extent there is a decrease in the present value of cash flows from Acquired Impaired Loans after the date of acquisition, the Corporation records an allowance for loan losses, net of expected reimbursement under any loss ~~sharing~~share agreements. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets. ~~During~~In the three months ended ~~June 30, 2012~~March 31, 2013, the Corporation increased its allowance for covered loan losses to $~~42.6~~47.9 million to reserve for estimated additional losses on certain Acquired Impaired Loans. The increase in the allowance was recorded ~~in the three months ended~~ ~~June 30, 2012~~by a charge to the provision for covered loan losses of $~~9.6~~9.7 million ~~and~~that was partially offset by an increase of $~~6.2~~5.5 million in the loss share receivable for the portion of the losses recoverable under the loss sharing agreements. During the three months ended March 31, 2012, provision for covered loan losses of $10.8 million was partially offset by an increase of $4.9 million in the loss share receivable resulting in an allowance for covered loan losses of $41.1 million.

To the extent credit deterioration occurs in Acquired Non-Impaired loans after the date of acquisition, the Corporation records a provision for loan losses only when the required allowance, net of any expected reimbursement under the loss sharing agreements exceeds any remaining credit discount. The allowance for losses on Acquired Nonimpaired loans, included in the allowance for noncovered covered loan losses on the consolidated balance sheets was $0.4 million, $~~0.7~~0.3 million and $~~0.9~~0.4 million as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, respectively.

The activity within the allowance for covered loan losses for the ~~three and~~ ~~six~~three months ended~~June 30,~~

~~2012~~ March 31, 2013 and ~~2011~~2012 is shown in the following table:


	Three Months Ended June 30,						Six Months Ended June 30,							Three months ended March 31,
	2012			2011			2012			2011				2013			2012
Balance at beginning of the period	$	41,070		$	28,405		$	36,417		$	13,733		Balance at beginning of the period	$	43,255		$	36,417
Provision for loan losses before benefit attributable to FDIC loss share agreements	9,648			15,156			20,479			35,666
Benefit attributable to FDIC loss share agreements	(6,218		)	(7,675		)	(11,117		)	(22,854		)
Net provision for covered loan losses	3,430			7,481			9,362			12,812
													Provision for loan losses before benefit attributable to FDIC loss share agreements	9,677			10,831
													Benefit attributable to FDIC loss share agreements	(5,539		)	(4,899		)
Net provision for loan losses													Net provision for loan losses	4,138			5,932
Increase in indemnification asset	6,218			7,675			11,117			22,854			Increase in indemnification asset	5,539			4,899
Loans charged-off	(8,112		)	(10,201		)	(14,290		)	(16,039		)	Loans charged-off	(4,987		)	(6,178		)
Balance at end of the period	$	42,606		$	33,360		$	42,606		$	33,360		Balance at end of the period	$	47,945		$	41,070

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

~~Credit Quality Disclosures~~

As of June 30, 2012

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment
Impaired loans with no related allowance
Commercial
C&I $ 18,773
$ 22,139
$ —
$ 16,455
CRE 20,426
26,942
—
21,586
Construction 4,218
6,810
—
4,956
Consumer
Installment —
—
—
—
Home equity line —
—
—
—
Credit card —
—
—
—
Residential mortgages 4,411
4,411
—
4,718
Subtotal $ 47,828
$ 60,302
$ —
$ 47,715
Impaired loans with a related allowance
Commercial
C&I 6,477
10,511
5,327
6,641
CRE 12,718
14,817
1,977
11,007
Construction 987
987
115
991
Consumer
Installment 31,043
31,043
1,773
31,581
Home equity line 6,063
6,063
22
6,192
Credit card 1,998
1,998
128
2,159
Residential mortgages 14,168
14,168
1,649
14,192
Subtotal 73,454
79,587
10,991
72,763
Total impaired loans $ 121,282
$ 139,889
$ 10,991
$ 120,478

~~(a) These tables exclude loans fully charged off.~~

~~(b) The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.~~

As of December 31, 2011

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment
Impaired loans with no related allowance
Commercial
C&I $ 6,999
$ 9,121
$ —
$ 8,442
CRE 29,566
46,744
—
37,720
Construction 7,522
13,675
—
9,908
Consumer
Installment —
—
—
—
Home equity line —
—
—
—
Credit card —
—
—
—
Residential mortgages 4,244
4,262
—
4,450
Subtotal 48,331
73,802
—
60,520
Impaired loans with a related allowance
Commercial
C&I 1,270
1,769
2,497
752
CRE 6,521
6,789
1,599
3,247
Construction 1,798
2,864
99
1,929
Consumer
Installment 33,571
33,621
1,382
33,742
Home equity line 4,763
4,763
31
4,996
Credit card 2,202
2,202
108
2,497
Residential mortgages 13,154
13,160
1,364
13,155
Subtotal 63,279
65,168
7,080
60,318
Total impaired loans $ 111,610
$ 138,970
$ 7,080
$ 120,838



As of March 31, 2013
				Unpaid				Average
		Recorded		Principal		Related		Recorded
		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	2,724	$	15,614	$	—	$	3,835
	CRE	19,969		27,259		—		20,681
	Construction	2,072		2,559		—		2,341
Consumer
	Installment	3,734		5,160		—		4,002
	Home equity line	1,090		1,420		—		1,172
	Credit card	58		58		—		65
	Residential mortgages	9,374		11,876		—		9,469
Subtotal		39,021		63,946		—		41,565
Impaired loans with a related allowance
Commercial
	C&I	5,721		7,578		1,957		6,143
	CRE	4,191		4,191		769		4,206
	Construction	707		707		90		712
Consumer
	Installment	27,383		27,475		1,458		27,564
	Home equity line	5,827		5,827		89		5,886
	Credit card	1,330		1,330		74		1,378
	Residential mortgages	14,153		14,242		1,713		14,168
Subtotal		59,312		61,350		6,150		60,057
	Total impaired loans	$	98,333	$	125,296	$	6,150	$	101,622

(a) These tables exclude loans fully charged off.

(b) The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

As of June 30, 2011

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment
Impaired loans with no related allowance
Commercial
C&I $ 1,985
$ 4,467
$ —
$ 2,513
CRE 31,986
43,575
—
33,799
Construction 4,838
9,109
—
4,919
Consumer
Installment —
—
—
—
Home equity line —
—
—
—
Credit card 1,916
1,916
—
1,974
Residential mortgages 2,654
3,966
—
2,673
Subtotal $ 43,379
$ 63,033
$ —
$ 45,878
Impaired loans with a related allowance
Commercial
C&I 1,588
2,010
290
1,588
CRE 13,022
18,600
3,169
13,566
Construction 4,569
7,181
1,038
4,591
Consumer
Installment 15,703
15,724
662
15,794
Home equity line 1,242
1,242
20
1,256
Credit card 537
537
28
548
Residential mortgages 12,197
12,284
1,209
12,206
Subtotal 48,858
57,578
6,416
49,549
Total impaired loans $ 92,237
$ 120,611
$ 6,416
$ 95,427



As of December 31, 2012
				Unpaid				Average
		Recorded		Principal		Related		Recorded
		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	3,098	$	14,473	$	—	$	12,533
	CRE	19,664		26,402		—		23,911
	Construction	2,684		3,306		—		3,861
Consumer
	Installment	2,527		3,947		—		4,251
	Home equity line	642		849		—		860
	Credit card	467		467		—		568
	Residential mortgages	9,578		12,142		—		10,645
Subtotal		38,660		61,586		—		56,629
Impaired loans with a related allowance
Commercial
	C&I	3,089		4,943		577		4,231
	CRE	4,343		4,927		913		3,834
	Construction	721		721		105		730
Consumer
	Installment	28,343		28,706		1,526		29,583
	Home equity line	5,639		5,639		34		5,924
	Credit card	1,145		1,145		127		1,311
	Residential mortgages	14,431		14,520		1,722		14,537
Subtotal		57,711		60,601		5,004		60,150
	Total impaired loans	$	96,371	$	122,187	$	5,004	$	116,779

(a) These tables exclude loans fully charged off.

(b) The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)



As of March 31, 2012
				Unpaid				Average
		Recorded		Principal		Related		Recorded
		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	3,272	$	9,937	$	—	$	4,357
	CRE	25,734		36,073		—		26,449
	Construction	7,764		12,785		—		7,945
Consumer
	Installment	—		—		—		—
	Home equity line	—		—		—		—
	Credit card	223		223		—		251
	Residential mortgages	4,409		4,409		—		4,925
Subtotal		41,402		63,427		—		43,927
Impaired loans with a related allowance
Commercial
	C&I	2,807		3,206		972		2,919
	CRE	6,378		6,568		2,478		6,120
	Construction	1,165		1,165		224		1,168
Consumer
	Installment	32,378		32,378		1,901		32,504
	Home equity line	5,522		5,522		66		5,556
	Credit card	1,837		1,837		92		1,885
	Residential mortgages	13,667		13,667		1,504		13,692
Subtotal		63,754		64,343		7,237		63,844
	Total impaired loans	$	105,156	$	127,770	$	7,237	$	107,771

(a) These tables exclude loans fully charged off.

(b) The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.

Interest income recognized on impaired loans during quarters ended March 31, 2013, 2012 and 2011 was not material.

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.

The substantial majority of the ~~Corporation’s~~Corporation's residential mortgage TDRs involve reducing the ~~client’s~~client's loan payment through an interest rate reduction for a set period of time based on the ~~borrower’s~~borrower's ability to service the modified loan payment. As a result of guidance from the Office of the Comptroller of the Currency ("OCC"), in the three months ended September 30, 2012, approximately $10.6 million of consumer loans were

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

identified as troubled debt restructurings whereby the borrower's obligation to the Corporation has been discharged in bankruptcy and the borrower has not reaffirmed the debt. As of March 31, 2013 and December 31, 2012, non-reaffirmed consumer loans reported as nonaccrual were $10.0 million and $7.7 million, respectively. Modifications of mortgages retained in portfolio are handled using proprietary modification guidelines, or the ~~FDIC’s~~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~~Treasury's Home Affordable Modification Program for originated mortgages sold to and serviced for Fannie Mae and Freddie Mac.

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. Acquired loans restructured after acquisition are not considered TDRs for purposes of the ~~Corporation’s~~Corporation's accounting and disclosure if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools. 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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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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 ~~June 30,~~March 31, 2013, December 31, 2012 and ~~December~~March 31, ~~2011~~2012.


			As of June 30, 2012							As of March 31, 2013
			Number of Loans	Recorded Investment		Unpaid Principal Balance				Number of Loans	Recorded Investment		Unpaid Principal Balance
Noncovered loans	Noncovered loans							Noncovered loans
	Commercial							Commercial
		C&I	19	$	4,074	$	10,584		C&I	25	$	2,627	$	7,864
		CRE	35	18,618		22,135			CRE	45	17,217		22,187
		Construction	27	3,970		4,542			Construction	31	2,779		3,266
		Subtotal	81	26,662		37,261			Total noncovered commercial	101	22,623		33,317
	Consumer							Consumer
		Installment	1,485	31,043		31,043			Installment	1,840	31,117		32,635
		Home equity lines	194	6,063		6,063			Home equity lines	238	6,917		7,247
		Credit card	461	1,998		1,998			Credit card	343	1,388		1,388
		Residential mortgages	187	18,579		18,579			Residential mortgages	294	23,527		26,118
		Subtotal	2,327	57,683		57,683			Total noncovered consumer	2,715	62,949		67,388
Total noncovered loans								Total noncovered loans		2,816	85,572		100,705
Covered loans	Covered loans							Covered loans
	Commercial							Commercial
		C&I	11	5,099		6,668			C&I	3	1,723		1,958
		CRE	25	53,205		57,766			CRE	20	48,327		57,426
		Construction	10	15,351		43,427			Construction	10	6,296		26,502
		Subtotal	46	73,655		107,861			Total covered commercial	33	56,346		85,886
		Total	2,454	$	158,000	$	202,805	Consumer
									Home equity lines	36	5,113		5,144
Total covered loans								Total covered loans		69	$	61,459	$	91,030
Total loans								Total loans		2,885	$	147,031	$	191,735

(a) The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.

3335

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)


			As of December 31, 2011							As of December 31, 2012
			Number of Loans	Recorded Investment		Unpaid Principal Balance				Number of Loans	Recorded Investment		Unpaid Principal Balance
Noncovered loans	Noncovered loans							Noncovered loans
	Commercial							Commercial
		C&I	14	$	2,512	$	4,336		C&I	24	$	2,617	$	8,044
		CRE	28	9,167		12,659			CRE	40	16,305		20,701
		Construction	22	3,323		3,985			Construction	28	2,955		3,419
		Subtotal	64	15,002		20,980			Total noncovered commercial	92	21,877		32,164
	Consumer							Consumer
		Installment	1,547	33,571		33,621			Installment	1,769	30,870		32,653
		Home equity lines	174	4,763		4,763			Home equity lines	226	6,281		6,488
		Credit card	496	2,202		2,202			Credit card	389	1,612		1,612
		Residential mortgages	177	17,398		17,422			Residential mortgages	298	24,009		26,662
		Subtotal	2,394	57,934		58,008			Total noncovered consumer	2,682	62,772		67,415
Total noncovered loans								Total noncovered loans		2,774	84,649		99,579
Covered loans	Covered loans							Covered loans
	Commercial							Commercial
		C&I	15	7,578		10,812			C&I	3	1,763		1,998
		CRE	21	57,786		62,159			CRE	20	50,272		57,483
		Construction	8	12,056		32,035			Construction	10	8,171		37,547
		Subtotal	44	77,420		105,006			Total covered commercial	33	60,206		97,028
		Total	2,502	$	150,356	$	183,994	Consumer
									Home equity lines	35	5,632		5,666
Total covered loans								Total covered loans		68	$	65,838	$	102,694
Total loans								Total loans		2,842	$	150,487	$	202,273

(a) The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)



			As of March 31, 2012
			Number of Loans	Recorded Investment		Unpaid Principal Balance
Noncovered loans
	Commercial
		C&I	15	$	3,388	$	6,031
		CRE	30	9,136		12,745
		Construction	27	4,593		5,250
		Total noncovered commercial	72	17,117		24,026
	Consumer
		Installment	1,506	32,378		32,378
		Home equity lines	184	5,522		5,522
		Credit card	454	2,060		2,060
		Residential mortgages	184	18,076		18,076
		Total noncovered consumer	2,328	58,036		58,036
Total noncovered loans			2,400	75,153		82,062
Covered loans
	Commercial
		C&I	12	7,662		14,877
		CRE	23	54,824		60,075
		Construction	9	13,687		33,791
		Total covered commercial	44	76,173		108,743
Total loans			2,444	$	151,326	$	190,805

(a) The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.

The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the quarters ended ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012 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 quarters ended ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012 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 quarters ended ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012 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~~Corporation's internal watch list and have been specifically allocated for as part of the ~~Corporation’s~~Corporation's normal loan loss provisioning methodology. At ~~June 30, 2012~~March 31, 2013, the Corporation had $0.2 million in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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 ~~June 30,~~March 31, 2013, December 31, 2012 and ~~December~~March 31, ~~2011~~2012, including TDRs that continue to accrue interest and TDRs included in nonperforming assets.



As of March 31, 2013
	Accruing TDRs						Nonaccruing TDRs						Total		Total
	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Noncovered loans
Commercial
C&I	$	1,580	$	—	$	1,580	$	—	$	1,047	$	1,047	$	2,627	$	293
CRE	14,441		—		14,441		991		1,785		2,776		17,217		769
Construction	1,716		707		2,423		356		—		356		2,779		90
Total noncovered commercial	17,737		707		18,444		1,347		2,832		4,179		22,623		1,152
Consumer
Installment	26,031		1,166		27,197		3,744		176		3,920		31,117		1,458
Home equity lines	5,122		240		5,362		1,329		226		1,555		6,917		89
Credit card	1,283		95		1,378		—		10		10		1,388		74
Residential mortgages	13,168		2,543		15,711		5,229		2,587		7,816		23,527		1,713
Total noncovered consumer	45,604		4,044		49,648		10,302		2,999		13,301		62,949		3,334
Total noncovered TDRs	63,341		4,751		68,092		11,649		5,831		17,480		85,572		4,486
Covered loans
C&I	984		738		1,722		—		—		—		1,722		518
CRE	5,371		42,958		48,329		—		—		—		48,329		4,701
Construction	2,482		3,813		6,295		—		—		—		6,295		1,220
Total covered commercial	8,837		47,509		56,346		—		—		—		56,346		6,439
Home equity lines	4,616		497		5,113		—		—		—		5,113		—
Total covered TDRs	$	13,453	$	48,006	$	61,459	$	—	$	—	$	—	$	61,459	$	6,439
Total TDRs	$	76,794	$	52,757	$	129,551	$	11,649	$	5,831	$	17,480	$	147,031	$	10,925

3438

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)


	As of June 30, 2012
As of December 31, 2012																			As of December 31, 2012
	Accruing TDRs							Nonaccruing TDRs							Total		Total		Accruing TDRs						Nonaccruing TDRs						Total		Total
	Current		Delinquent			Total		Current		Delinquent			Total		TDRS		Allowance		Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Noncovered loans
Commercial
C&I	$	746	$	25		$	771	$	1,086	$	2,217		$	3,303	$	4,074	$	319	$	704	$	1,004	$	1,708	$	844	$	65	$	909	$	2,617	$	217
CRE	14,810		—			14,810		2,020		1,788			3,808		18,618		424		12,719		793		13,512		461		2,332		2,793		16,305		869
Construction	3,536		—			3,536		134		300			434		3,970		115		1,860		960		2,820		135		—		135		2,955		105
Total noncovered commercial	19,092		25			19,117		3,240		4,305			7,545		26,662		858		15,283		2,757		18,040		1,440		2,397		3,837		21,877		1,191
Consumer
Installment	30,035		1,002			31,037		—		6			6		31,043		1,773		27,085		1,547		28,632		2,064		174		2,238		30,870		1,526
Home equity lines	5,508		156			5,664		298		101			399		6,063		22		5,183		236		5,419		636		226		862		6,281		34
Credit card	1,902		90			1,992		—		6			6		1,998		128		1,483		118		1,601		—		11		11		1,612		127
Residential mortgages	12,475		3,246			15,721		952		1,906			2,858		18,579		1,649		12,510		3,413		15,923		5,196		2,890		8,086		24,009		1,722
Total noncovered consumer	49,920		4,494			54,414		1,250		2,019			3,269		57,683		3,572		46,261		5,314		51,575		7,896		3,301		11,197		62,772		3,409
Total noncovered TDRs																			61,544		8,071		69,615		9,336		5,698		15,034		84,649		4,600
Covered loans
Commercial
C&I	520		—			520		665		3,914			4,579		5,099		1,384		435		1,328		1,763		—		—		—		1,763		518
CRE	9,437		3,801			13,238		23,670		16,297			39,967		53,205		7,721		7,658		42,614		50,272		—		—		—		50,272		4,959
Construction	—		—			—		8,444		6,907			15,351		15,351		923		2,361		5,810		8,171		—		—		—		8,171		1,220
Total covered commercial	9,957		3,801		—	13,758		32,779		27,118		—	59,897		73,655		10,028		10,454		49,752		60,206		—		—		—		60,206		6,697
Home equity lines																			5,632		—		5,632		—		—		—		5,632		—
Total covered TDRs																			$	16,086	$	49,752	$	65,838	$	—	$	—	$	—	$	65,838	$	6,697
Total TDRs	$	78,969	$	8,320		$	87,289	$	37,269	$	33,442		$	70,711	$	158,000	$	14,458	$	77,630	$	57,823	$	135,453	$	9,336	$	5,698	$	15,034	$	150,487	$	11,297


	As of December 31, 2011
As of March 31, 2012																			As of March 31, 2012
	Accruing TDRs							Nonaccruing TDRs							Total		Total		Accruing TDRs						Nonaccruing TDRs						Total		Total
	Current		Delinquent			Total		Current		Delinquent			Total		TDRS		Allowance		Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Noncovered loans
Commercial
C&I	$	91	$	—		$	91	$	—	$	2,421		$	2,421	$	2,512	$	247	$	1,791	$	—	$	1,791	$	—	$	1,597	$	1,597	$	3,388	$	822
CRE	3,305		513			3,818		3,590		1,759			5,349		9,167		236		3,672		510		4,182		3,152		1,802		4,954		9,136		224
Construction	2,782		—			2,782		304		237			541		3,323		99		4,077		—		4,077		137		379		516		4,593		224
Total noncovered commercial	6,178		513			6,691		3,894		4,417			8,311		15,002		582		9,540		510		10,050		3,289		3,778		7,067		17,117		1,270
Consumer
Installment	31,635		1,802			33,437		—		134			134		33,571		1,382		31,167		1,134		32,301		—		77		77		32,378		1,901
Home equity lines	4,226		222			4,448		76		239			315		4,763		31		4,828		387		5,215		75		232		307		5,522		66
Credit card	2,073		110			2,183		—		19			19		2,202		108		1,997		60		2,057		—		3		3		2,060		92
Residential mortgages	13,694		707			14,401		1,635		1,362			2,997		17,398		1,364		15,099		—		15,099		2,918		59		2,977		18,076		1,504
Total noncovered consumer	51,628		2,841			54,469		1,711		1,754			3,465		57,934		2,885		53,091		1,581		54,672		2,993		371		3,364		58,036		3,563
Total noncovered TDRs																			62,631		2,091		64,722		6,282		4,149		10,431		75,153		4,833
Covered loans
Commercial
C&I	565		—			565		1,022		5,991			7,013		7,578		1,384		2,405		5,257		7,662		—		—		—		7,662		1,384
CRE	13,562		—			13,562		21,521		22,703			44,224		57,786		6,567		36,419		18,405		54,824		—		—		—		54,824		7,720
Construction	—		—			—		5,838		6,218			12,056		12,056		696		3,835		9,852		13,687		—		—		—		13,687		1,245
Total covered commercial	14,127		—		—	14,127		28,381		34,912		—	63,293		77,420		8,647
Total covered TDRs																			42,659		33,514		76,173		—		—		—		76,173		10,349
Total TDRs	$	71,933	$	3,354		$	75,287	$	33,986	$	41,083		$	75,069	$	150,356	$	12,114	$	105,290	$	35,605	$	140,895	$	6,282	$	4,149	$	10,431	$	151,326	$	15,182

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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 allowance for loan losses may be increased, adjustments may be made in the allocation of the allowance for loan losses, or partial charge-offs may be taken to further write-down the carrying value of the loan.

~~loan.~~ The following table provides the number of loans modified in a TDR during the previous 12 months ~~which~~that subsequently defaulted during the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013, as well as the recorded investment in these restructured loans as of ~~June 30, 2012~~March 31, 2013.


	As of June 30, 2012			As of March 31, 2013
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Noncovered loans
Commercial
C&I	—	$	—	1	$	231
CRE	—	—		—	—
Construction	—	—		1	707
Total noncovered commercial	—	—		2	938
Consumer
Installment	105	1,834		134	2,155
Home equity lines	12	450		16	322
Credit card	14	88		17	106
Residential mortgages	17	1,658		—	—
Total noncovered consumer	148	4,030		167	2,583
Covered loans
Commercial
C&I	—	—		—	—
CRE	—	—		—	—
Construction	—	—		—	—
Total covered commercial	—	—		—	—
Total	148	$	4,030	167	$	2,583

Table of Contents

7FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

6. Goodwill and Other Intangible Assets

Goodwill

Goodwill totaled $460.0 million atas of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012. Goodwill is not amortized but is evaluated for impairment on an annual basis at November ~~30th~~30 of each year or whenever events or changes in circumstances indicate the carrying value may not be recoverable. No events or ~~changes in~~ circumstances since the November 30, ~~2011~~2012 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.

Other Intangible Assets

The following tables show the gross carrying amount and the amount of accumulated amortization of intangible assets subject to amortization.

June 30, 2012

Gross Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount
Core deposit intangibles $ 16,759
$ (9,689 ) $ 7,070
Non-compete covenant 102
(63 ) 39
Lease intangible 618
(453 ) 165
$ 17,479
$ (10,205 ) $ 7,274

December 31, 2011

Gross Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount
Core deposit intangibles $ 16,759
$ (8,829 ) $ 7,930
Non-compete covenant 102
(51 ) 51
Lease covenant 618
(360 ) 258
$ 17,479
$ (9,240 ) $ 8,239


								March 31, 2013
	June 30, 2011							Gross Carrying		Accumulated			Net Carrying
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Amount		Amortization			Amount
Core deposit intangibles	$	16,760	$	(7,850	)	$	8,910	$	16,759	$	(10,848	)	$	5,911
Non-compete covenant	102		(38		)	64		102		(83		)	19
Lease covenant	617		(266		)	351
Lease intangible								618		(493		)	125
	$	17,479	$	(8,154	)	$	9,325	$	17,479	$	(11,424	)	$	6,055

								December 31, 2012
								Gross Carrying		Accumulated			Net Carrying
								Amount		Amortization			Amount
Core deposit intangibles								16,759		(10,546		)	6,213
Non-compete covenant								102		(76		)	26
Lease intangible								$	618	$	(484	)	$	134
								$	17,479	$	(11,106	)	$	6,373

								March 31, 2012
								Gross Carrying		Accumulated			Net Carrying
								Amount		Amortization			Amount
Core deposit intangibles								$	16,759	$	(9,246	)	$	7,513
Non-compete covenant								102		(70		)	32
Lease intangible								618		(407		)	211
								$	17,479	$	(9,723	)	$	7,756

~~Intangible~~Core deposit intangibles comprise the majority of the intangible asset ~~amortization~~total as of March 31, 2013. Core deposit intangibles were acquired through various acquisitions and are amortized on an accelerated basis over their useful lives of 10 years.

Amortization expense for intangible assets was$0.3 million in the three months ended March 31, 2013 and $0.5 million in ~~each of~~ the three months ended ~~June 30,~~March 31, 2012 ~~and~~ ~~2011~~. Estimated amortization expense for each of the next five years is as follows: ~~2012~~2013 - $0.9 ~~million~~; ~~2013~~ - ~~$1.2~~ million; 2014 - $1.1 million; 2015 - $1.0 million; ~~and~~ 2016 - $0.9 million; and 2017 - $0.8 million.

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

87. Earnings Per Share

The reconciliation between basic and diluted earnings per share ~~(“EPS”)~~ is ~~calculated using the treasury stock method and~~ presented as follows:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011		March 31, 2013		March 31, 2012
BASIC EPS:
Basic EPS:
Net income	$	30,585	$	29,763	$	60,929	$	57,324	$	37,346	$	30,344
Net income available to common shareholders	$	30,585	$	29,763	$	60,929	$	57,324
Less:
Cash dividends on 5.875% non-cumulative perpetual series A, preferred stock									930		—
Income allocated to participating securities									291		137
Net income attributable to common shareholders									$	36,125	$	30,207
Average common shares outstanding	109,562		109,138		109,386		108,954		110,807		110,041
Less: participating shares included in average shares outstanding									1,118		830
Average common shares outstanding used in basic EPS									109,689		109,211
Basic net income per share	$	0.28	$	0.27	$	0.56	$	0.53	$	0.33	$	0.28
DILUTED EPS:

Diluted EPS:
Income used in diluted earnings per share calculation	$	30,585	$	29,763	$	60,929	$	57,324	$	36,125	$	30,207
Average common shares outstanding	109,562		109,138		109,386		108,954		110,807		110,041
Equivalents from stock option plans	—		1		—		1
Add: common stock equivalents:
Stock option plans									—		—
Less: participating shares included in average shares outstanding									1,118		830
Average common and common stock equivalent shares outstanding	109,562		109,139		109,386		108,955		109,689		109,211
Diluted net income per share	$	0.28	$	0.27	$	0.56	$	0.53	$	0.33	$	0.28

On February 4, 2013, the Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, began accruing cash dividends, with dividends payable quarterly in arrears on the 4th day of February, May, August and November, beginning May 4, 2013. Accrued cash dividends were $0.9 million for the three months ended March 31, 2013. Net income used to determine basic and diluted EPS for the three months ended March 31, 2013 were reduced by the accrued cash dividends.

For the three months ended ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012, options to purchase ~~1.8~~1.6 million shares and ~~3.4~~2.3 million shares, respectively, were outstanding but not included in the computation of diluted ~~EPS~~earnings per share because they were antidilutive.

98. 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 ~~Management~~management methodologies 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.

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

A description of each ~~line of~~ 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, business banking (formerly known as small business), 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, ~~cash~~treasury management, ~~services~~government banking, international banking, merchant card and other depository ~~products.~~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 (formerly known as the ~~“micro business”~~"micro business" line). Retail offers a variety of retail financial products and services including consumer direct and indirect installment loans, debit and credit cards, debit gift 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 function 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~~ (Summary of Significant Accounting ~~Policies)~~Policies) to the ~~2011~~2012 Form 10-K. Funds transfer pricing is used in the determination of net interest income by assigning a cost for funds used or credit for funds provided to assets and liabilities within each business unit. Assets and liabilities are match-funded based on their maturity, prepayment and/or ~~re-pricing~~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.~~Group. Capital has been allocated on an economic risk basis. Loans and lines of credit have been allocated capital based upon their respective credit risk. Asset management holdings in the Wealth segment have been allocated capital based upon their respective market risk related to assets under management. Normal business operating risk has been allocated to each line of business by the level of noninterest expense. Mismatch between asset and liability cash flow as well as interest rate risk for mortgage

servicing rights and the origination business franchise value have been allocated capital based upon their respective asset/liability management risk. The provision for loan loss is allocated based upon the actual net charge-offs of each respective line of business, adjusted for loan growth and changes in risk profile. Noninterest

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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.

Commercial Retail Wealth Other Consolidated
June 30, 2012 2nd Qtr YTD 2nd Qtr YTD 2nd Qtr YTD 2nd Qtr YTD 2nd Qtr YTD
OPERATIONS:
Net interest income (loss) $ 64,476
$ 128,329
$ 53,287
$ 107,564
$ 4,590
$ 9,189
$ (3,430 ) $ (7,372 ) $ 118,923
$ 237,710
Provision for noncovered loan losses 3,465
12,570
—
1,728
4,265
(24 ) —
201
7,027
—
9,221
12,196
26,257
Other income 18,047
32,356
—
24,177
49,443
8,392
—
16,460
4,685
—
8,768
55,301
107,027
Other expenses 40,128
83,479
—
56,784
115,830
9,792
—
20,007
12,373
—
13,529
119,077
232,845
Net income (loss) 25,304
42,013
—
12,319
23,992
2,090
—
3,536
(9,128 ) —
(8,612 ) 30,585
60,929
AVERAGES:
Assets $ 6,364,148
$ 6,346,311
$ 2,918,710
$ 2,914,532
$ 237,548
$ 237,060
$ 5,038,108
$ 5,029,609
�� $ 14,558,514
$ 14,527,512
The Corporation’s business is conducted solely in the United States of America. The following tables present a summary of financial results as of and for the three month ended March 31, 2013 and March 31, 2012:


	Commercial				Retail				Wealth				Other						Consolidated									FirstMerit
June 30, 2011	2nd Qtr		YTD		2nd Qtr		YTD		2nd Qtr		YTD		2nd Qtr			YTD			2nd Qtr		YTD
																							Commercial	Retail	Wealth	Other		Consolidated
March 31, 2013																							1st Qtr	1st Qtr	1st Qtr	1st Qtr		1st Qtr
OPERATIONS:
Net interest income (loss)	$	64,587	$	132,162	$	56,272	$	112,043	$	4,707	$	9,531	$	(8,123	)	$	(14,467	)	$	117,443	$	239,269
Provision for noncovered loan losses	15,090		25,107		6,517		12,466		707		1,326		(4,695		)	1,069			17,619		39,968
Net interest income																							65,519	46,431	3,775	(4,376	)	111,349
Provision for loan losses																							4,766	4,073	208	899		9,946
Other income	12,620		27,413		25,785		49,976		8,089		16,282		4,997			10,576			51,491		104,247		19,232	24,388	8,310	5,462		57,392
Other expenses	35,732		73,346		58,539		119,370		10,140		20,437		5,657			11,361			110,068		224,514		43,027	52,907	10,174	817		106,925
Net income (loss)	17,150		39,729		11,050		19,619		1,267		2,632		296			(4,656		)	29,763		57,324
Net income																							24,022	8,996	1,107	3,221		37,346
AVERAGES:
Assets	$	6,133,210	$	6,114,006	$	2,934,633	$	2,944,264	$	241,929	$	242,586	$	5,171,436		$	5,074,596		$	14,481,208	$	14,375,452	6,737,236	3,016,495	236,811	4,993,001		14,983,543



										FirstMerit
	Commercial		Retail		Wealth		Other			Consolidated
March 31, 2012	1st Qtr		1st Qtr		1st Qtr		1st Qtr			1st Qtr
OPERATIONS:
Net interest income	$	63,853	$	54,277	$	4,598	$	(3,941	)	$	118,787
Provision for loan losses	9,104		2,537		225		2,195			14,061
Other income	14,309		25,265		8,068		4,084			51,726
Other expenses	43,351		57,481		10,214		2,722			113,768
Net income	16,709		12,691		1,447		(503		)	30,344
AVERAGES:
Assets	6,328,473		2,910,354		236,571		5,021,539			14,496,937

109. Derivatives and Hedging Activities

The Corporation, through its mortgage banking ~~foreign exchange~~ and risk management operations, is party to various derivative instruments that are used for asset and liability management and ~~customers’~~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. 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. Master netting agreements allow the Corporation to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable.

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.

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Derivatives Designated in Hedge Relationships

The ~~Corporation’s~~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.

Through the ~~Corporation’s~~Corporation's Fixed Rate Advantage Program (“("FRAP ~~Program”~~Program"), a customer received a fixed interest rate commercial loan and the Corporation subsequently converted that fixed rate loan to a variable rate instrument over the term of the loan by entering into an interest rate swap with a dealer counterparty. The Corporation receives a fixed rate payment from the customer on the loan and pays the equivalent amount to the dealer counterparty on the swap in exchange for a variable rate payment based on the one month London Inter-Bank Offered Rate index. These interest rate swaps are designated as fair value hedges. Through application of the ~~“short~~"short cut method of ~~accounting”~~accounting", there is an assumption that the hedges are effective. The Corporation discontinued originating interest rate swaps under the FRAP program in February 2008 and subsequently began a new interest rate swap program for commercial loan customers, termed the Back-to-Back Program. These swaps do not qualify as designated hedges; therefore, each swap is accounted for as a stand-alone derivative.

~~As of~~At ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, the notional values or contractual amounts and fair value of the ~~Corporation’s~~Corporation's derivatives designated in hedge relationships were as follows:


	Asset Derivatives												Liability Derivatives												Asset Derivatives												Liability Derivatives
	June 30, 2012				December 31, 2011				June 30, 2011				June 30, 2012				December 31, 2011				June 30, 2011				March 31, 2013				December 31, 2012				March 31, 2012				March 31, 2013				December 31, 2012				March 31, 2012
	Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)
Interest rate swaps:	Interest rate swaps:
Fair value hedges	$	—	$	—	$	819	$	—	$	—	$	—	$	196,798	$	23,229	$	234,330	$	25,889	$	267,792	$	25,772	$	—	$	—	$	—	$	—	$	—	$	—	$	145,382	$	17,247	$	161,133	$	19,080	$	220,630	$	23,786


~~(a)~~	~~Included in Other Assets on the Consolidated Balance Sheets~~


~~(b)~~	~~Included in Other Liabilities on the Consolidated Balance Sheets~~

(a) Included in Other Assets on the Consolidated Balance Sheet

(b) Included in Other Liabilities on the Consolidated Balance Sheet

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Derivatives Not Designated in Hedge Relationships

As of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, the notional values or contractual amounts and fair value of the ~~Corporation’s~~Corporation's derivatives not designated in hedge relationships were as follows:


	Asset Derivatives														Liability Derivatives												Asset Derivatives														Liability Derivatives
	June 30, 2012					December 31, 2011					June 30, 2011				June 30, 2012				December 31, 2011				June 30, 2011				March 31, 2013					December 31, 2012					March 31, 2012				March 31, 2013				December 31, 2012				March 31, 2012
	Notional/ Contract Amount		Fair Value (a)			Notional/ Contract Amount		Fair Value (a)			Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value(a)			Notional/ Contract Amount		Fair Value(a)			Notional/ Contract Amount		Fair Value(a)		Notional/ Contract Amount		Fair Value(b)		Notional/ Contract Amount		Fair Value(b)		Notional/ Contract Amount		Fair Value(b)
Interest rate swaps	$	1,094,355	$	61,319		$	976,823	$	58,875		$	863,344	$	46,246	$	1,094,355	$	61,319	$	976,823	$	58,875	$	863,344	$	46,246	$	1,266,831	$	54,590		$	1,204,835	$	58,769		$	1,016,626	$	56,298	$	1,266,831	$	54,590	$	1,204,835	$	58,769	$	1,016,626	$	56,298
Mortgage loan commitments	239,901		5,248			191,514		4,959			129,909		1,539		—		—		—		—		—		—		214,573		4,152			168,271		4,400			247,453		3,268		—		—		—		—		—		—
Forward sales contracts	151,018		(1,201		)	159,377		(1,798		)	84,517		5		—		—		—		—		—		—		122,795		(284		)	124,017		(62		)	201,637		446		—		—		—		—		—		—
Credit contracts	—		—			—		—			—		—		13,215		—		17,951		—		24,714		—		—		—			—		—			—		—		40,541		—		25,225		—		17,805		—
Foreign exchange	4,492		52			3,582		65			4,076		19		5,533		54		3,793		62		4,076		19		8,063		105			6,662		62			7,969		103		8,080		96		6,026		57		8,043		90
Other	—		—			—		—			—		—		25,685		—		21,094		1,324		17,506		—		—		—			—		—			—		—		35,286		—		31,492		—		24,516		—
Total	$	1,489,766	$	65,418		$	1,331,296	$	62,101		$	1,081,846	$	47,809	$	1,138,788	$	61,373	$	1,019,661	$	60,261	$	909,640	$	46,265	$	1,612,262	$	58,563		$	1,503,785	$	63,169		$	1,473,685	$	60,115	$	1,350,738	$	54,686	$	1,267,578	$	58,826	$	1,066,990	$	56,388


~~(a)~~	~~Included in Other Assets on the Consolidated Balance Sheet~~


~~(b)~~	~~Included in Other Liabilities on the Consolidated Balance Sheet~~

(a) Included in Other Assets on the Consolidated Balance Sheet

(b) Included in Other Liabilities on the Consolidated Balance Sheet

Interest Rate Swaps.In 2008, the Corporation implemented the Back-to-Back Program, which is an interest rate swap program for commercial loan customers. The Back-to-Back Program 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~~standalone derivative.

Mortgage banking. In the normal course of business, the Corporation sells originated mortgage loans into the secondary mortgage loan markets. During the period of loan origination and prior to the sale of the loans in the secondary market, the Corporation has exposure to movements in interest rates associated with mortgage loans that are in the ~~“mortgage pipeline”~~"mortgage pipeline" and the ~~“mortgage warehouse”~~"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”~~"fallout" (loan commitments 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 an interest rate lock loan commitment at one lender and enter into a new lower interest rate lock loan commitment at another, when a borrower is not approved as an acceptable credit by the lender or for a variety of other non-economic reasons. 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.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

The ~~Corporation’s~~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~~loan's closing date through the date of sale of the loan into the secondary market. Typically, the fair value of the warehouse declines in value when interest rates increase and rises in value when interest rates decrease. To mitigate this risk, the Corporation enters into forward sales contracts on a significant portion of the warehouse to provide an economic hedge against those changes in fair value. Mortgage loans held for sale and the forward sales contracts were recorded at fair value with ineffective changes in value recorded in current earnings as Loan sales and servicing income.

The Corporation periodically enters into derivative contracts by purchasing to be announced (“TBA”) securities that are utilized as economic hedges of its mortgage servicing rights (“MSRs”) to minimize the effects of loss of value of MSRs associated with increase prepayment activity that generally results from declining interest rates. In a rising interest rate environment, the value of the MSRs generally will increase while the value of the hedged instruments will decline. The hedges are economic hedges only, and are terminated and reestablished as needed to respond to changes in market conditions. There were no outstanding TBA securities contracts as of ~~June 30, 2012~~, ~~December 31, 2011~~ or ~~June 30, 2011~~.

Credit contracts. Prior to implementation of the Back-to-Back Program, certain of the ~~Corporation’s~~Corporation's commercial loan customers entered into interest rate swaps with unaffiliated dealer counterparties. The Corporation entered into swap participations with these dealer counterparties whereby the Corporation guaranteed payment in the event that the counterparty experienced a loss on the interest rate swap due to a failure to pay by the ~~Corporation’s~~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. At ~~June 30, 2012~~March 31, 2013, the remaining terms on these swap participation agreements generally ranged from less than one year to ~~six~~ten years. The ~~Corporation’s~~Corporation's maximum estimated exposure to written 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 $~~2.9~~4.3 million as of ~~June 30, 2012~~March 31, 2013. The fair values of the written swap participations were not material ~~as of~~at ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012.

Gains and losses recognized in income on non-designated hedging instruments for the three months ended ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012 are as follows:


		Amount of Gain / (Loss) Recognized in Income on
Derivatives not designated as hedging instruments	Location of Gain / (Loss) Recognized in Income on Derivative	Derivatives					Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain / (Loss) Recognized in Income on Derivatives
		Three Months Ended,			Three Months Ended,			Three Months Ended
		June 30, 2012			June 30, 2011			March 31, 2013			March 31, 2012
Mortgage loan commitments	Loan sales and servicing income	$	1,980		$	107	Other operating income	$	(248	)	$	(1,691	)
Forward sales contracts	Loan sales and servicing income	(1,646		)	175		Other operating income	(223		)	2,244
Foreign exchange contracts	Other income	15			—		Other operating income	(191		)	45
Other	Other expenses	—			—		Other operating expense	—			—
Total		$	349		$	282		$	(662	)	$	598

Counterparty Credit Risk

Like other financial instruments, derivatives contain an element of ~~“credit risk”—~~"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~~Corporation's Asset and Liability Committee, and only within the ~~Corporation’s~~Corporation's Board of Directors Credit Committee approved credit exposure limits. 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 using standard forms published by the International Swaps and Derivatives Association. These agreements are to include thresholds

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

of credit exposure or the maximum amount of unsecured credit exposure ~~which~~that the Corporation is willing to assume. 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~~Corporation's Asset and Liability Committee. The Corporation generally posts collateral in the form of highly rated Government Agency issued bonds or ~~mortgage backed securities (“MBSs”).~~MBSs. Collateral posted against derivative liabilities was $~~101.9~~100.4 million, $~~107.0~~96.5 million and $~~91.2~~100.3 million as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, respectively.

11Derivative assets and liabilities are recorded at fair value on the balance sheet and do not take into account the effects of master netting agreements. Master netting agreements allow the Corporation to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. 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 March 31, 2013, December 31, 2012 and March 31, 2012.



As of March 31, 2013
	Gross amounts of recognized assets		Gross amounts offset in the statement of financial position		Net amounts of assets presented in the statement of financial position		Gross amounts of financial instruments not offset in the statement of financial position					Total of gross amounts of financial instruments not offset in the statement of financial position including applicable netting agreement and fair value of collateral		Net amount

							Netting adjustment per applicable master netting agreements			Fair value of financial collateral
Derivative Assets	(i)		(ii)		(iii) = (i) - (ii)							(iv)		(v) = (iii) - (iv)
Interest rate swaps - designated	$	—	$	—	$	—	$	—		$	—	$	—	$	—
Interest rate swaps - non-designated	54,590		—		54,590		—			54,590		54,590		—
Credit contracts	—		—		—		—			—		—		—
Foreign exchange	105		—		105		(21		)	126		105		—
Total	$	54,695	$	—	$	54,695	$	(21	)	$	54,716	$	54,695	$	—

	Gross amounts of recognized liabilities		Gross amounts offset in the statement of financial position		Net amounts of liabilities presented in the statement of financial position		Gross amounts of financial instruments not offset in the statement of financial position					Total of gross amounts of financial instruments not offset in the statement of financial position including applicable netting agreement and fair value of collateral		Net amount

							Netting adjustment per applicable master netting agreements			Fair value of financial collateral
Derivative Liabilities	(i)		(ii)		(iii) = (i) - (ii)							(iv)		(v) = (iii) - (iv)
Interest rate swaps - designated	$	17,247	$	—	$	17,247	$	—		$	17,247	$	17,247	$	—
Interest rate swaps - non-designated	54,590		—		54,590		(59		)	54,649		54,590		—
Credit contracts	—		—		—		—			—		—		—
Foreign exchange	96		—		96		—			96		96		—
Total	$	71,933	$	—	$	71,933	$	(59	)	$	71,992	$	71,933	$	—

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)



As of December 31, 2012
	Gross amounts of recognized assets		Gross amounts offset in the statement of financial position		Net amounts of assets presented in the statement of financial position		Gross amounts of financial instruments not offset in the statement of financial position					Total of gross amounts of financial instruments not offset in the statement of financial position including applicable netting agreement and fair value of collateral		Net amount

							Netting adjustment per applicable master netting agreements			Fair value of financial instrument collateral
Derivative assets	(i)		(ii)		(iii) = (i) - (ii)							(iv)		(v) = (iii) - (iv)
Interest rate swaps - designated	—		—		—		—			—		—		—
Interest rate swaps - non-designated	$	58,769	$	—	$	58,769	$	—		$	58,769	$	58,769	$	—
Credit contracts	—		—		—		—			—		—		—
Foreign exchange	62		—		62		—			62		62		—
Total	$	58,831	$	—	$	58,831	$	—		$	58,831	$	58,831	$	—

	Gross amounts of recognized liabilities		Gross amounts offset in the statement of financial position		Net amounts of liabilities presented in the statement of financial position		Gross amounts of financial instruments not offset in the statement of financial position					Total of gross amounts of financial instruments not offset in the statement of financial position including applicable netting agreement and fair value of collateral		Net amount

							Netting adjustment per applicable master netting agreements			Fair value of financial instrument collateral
Derivative Liabilities	(i)		(ii)		(iii) = (i) - (ii)							(iv)		(v) = (iii) - (iv)
Interest rate swaps - designated	$	19,080	$	—	$	19,080	$	—		$	19,080	$	19,080	$	—
Interest rate swaps - non-designated	58,769		—		58,769		(55		)	58,824		58,769		—
Credit contracts	—		—		—		—			—		—		—
Foreign exchange	57		—		57		(14		)	71		57		—
Total	$	77,906	$	—	$	77,906	$	(69	)	$	77,975	$	77,906	$	—

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)



As of March 31, 2012
	Gross amounts of recognized assets		Gross amounts offset in the statement of financial position		Net amounts of assets presented in the statement of financial position		Gross amounts of financial instruments not offset in the statement of financial position					Total of gross amounts of financial instruments not offset in the statement of financial position including applicable netting agreement and fair value of collateral		Net amount

							Netting adjustment per applicable master netting agreements			Fair value of financial instrument collateral
Derivative assets	(i)		(ii)		(iii) = (i) - (ii)							(iv)		(v) = (iii) - (iv)
Interest rate swaps - designated	—		—		—		—			—		—		—
Interest rate swaps - non-designated	$	56,298	$	—	$	56,298	$	—		$	56,298	$	56,298	$	—
Credit contracts	—		—		—		—			—		—		—
Foreign exchange	103		—		103		—			103		103		—
Total	$	56,401	$	—	$	56,401	$	—		$	56,401	$	56,401	$	—

	Gross amounts of recognized liabilities		Gross amounts offset in the statement of financial position		Net amounts of liabilities presented in the statement of financial position		Gross amounts of financial instruments not offset in the statement of financial position					Total of gross amounts of financial instruments not offset in the statement of financial position including applicable netting agreement and fair value of collateral		Net amount

							Netting adjustment per applicable master netting agreements			Fair value of financial instrument collateral
Derivative Liabilities	(i)		(ii)		(iii) = (i) - (ii)							(iv)		(v) = (iii) - (iv)
Interest rate swaps - designated	$	23,786	$	—	$	23,786	$	—		$	23,786	$	23,786	$	—
Interest rate swaps - non-designated	56,298		—		56,298		(204		)	56,502		56,298		—
Credit contracts	—		—		—		—			—		—		—
Foreign exchange	90		—		90		(24		)	114		90		—
Total	$	80,174	$	—	$	80,174	$	(228	)	$	80,402	$	80,174	$	—

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

10. Benefit Plans

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


	Pension Benefits												Pension Benefits
	Three Months Ended June 30,						Six Months Ended June 30,						Three months ended March 31,
	2012			2011			2012			2011			2013			2012
Components of Net Periodic Pension Cost
Service Cost	$	1,799		$	1,531		$	3,598		$	3,062		$	585		$	1,799
Interest Cost	2,965			2,860			5,930			5,720			2,632			2,965
Expected return on assets	(3,034		)	(3,328		)	(6,068		)	(6,656		)	(2,960		)	(3,034		)
Amortization of unrecognized prior service costs	97			98			194			196			117			97
Cumulative net loss	2,593			1,780			5,186			3,560			1,174			2,593
Net periodic pension cost	$	4,420		$	2,941		$	8,840		$	5,882		$	1,548		$	4,420


	Postretirement Benefits										Postretirement Benefits
	Three Months Ended June 30,					Six Months Ended June 30,					Three months ended March 31,
	2012			2011		2012			2011		2013			2012
Components of Net Periodic Postretirement Cost
Service Cost	$	19		$	14	$	38		$	28	$	25		$	19
Interest Cost	174			221		348			442		130			174
Amortization of unrecognized prior service costs	(117		)	—		(234		)	—		(117		)	(117		)
Cumulative net loss	72			28		144			56		67			72
Net periodic postretirement cost	$	148		$	263	$	296		$	526	$	105		$	148

~~Management anticipates contributing~~ ~~$10.0 million~~ toEffective December 31, 2012, the qualified defined benefit pension plan was frozen resulting in ~~2012~~.no benefits accruing after December 31, 2012. Employees will have an accrued benefit which will be paid upon retirement, or for deferred vested participants, at the time they request and are eligible for their pension benefit.

The Corporation also 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. The savings plan was approved for non-vested employees in the defined benefit pension plan and new hires as of January 1, 2007. Effective January 1, 2009, the Corporation suspended its matching contribution to the savings plan. Effective April 1, 2011, the Corporation reinstated its matching contribution at $.50 of each $1.00 up to 1% of an employee's qualifying salary. Starting January 1, 2013, the employer's matching contribution to ~~$.50 for each $1.00 up~~the savings plan increased to 1%100% on the first 3% and then 50% on the next 2% of ~~an employee’s~~the employee's qualifying ~~salary~~.salary. Matching contributions vest in accordance with plan specifications.


12 51 Table of Contents FIRSTMERIT CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued (Dollars in thousands) 11. .	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.

U.S. 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 follow:

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 quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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

The level in the fair value hierarchy ascribed to a fair value measurement in its entirety is based on the lowest level input that is significant to the overall fair value measurement.

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

the amount of time since the last relevant valuation;

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

volatility associated with the primary pricing components.

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

an independent review and approval of valuation models;

recurring detailed reviews of profit and loss; and

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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."

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

The following tables ~~presents~~present the ~~balances~~balance of assets and liabilities measured at fair value on a recurring and nonrecurring basis as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012:


				Fair Value by Hierarchy										Fair Value by Hierarchy
	June 30, 2012			Level 1		Level 2			Level 3		March 31, 2013			Level 1		Level 2			Level 3
Recurring fair value measurement
Available-for-sale securities:
Money market mutual funds	$	3,340		$	3,340	$	—		$	—	$	3,212		$	3,212	$	—		$	—
U.S. government agency debentures	35,297			—		35,297			—
U.S. States and political subdivisions	265,124			—		265,124			—		262,606			—		262,606			—
Residential mortgage-backed securities:
U.S. government agencies	1,382,813			—		1,382,813			—		1,152,326			—		1,152,326			—
Commercial mortgage-backed securities:
U.S. government agencies	38,428			—		38,428			—		58,574			—		58,574			—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,277,378			—		1,277,378			—		1,605,279			—		1,605,279			—
Non-agency	13			—		2			11		11			—		2			9
Commercial collateralized mortgage-backed securities:
U.S. government agencies	68,545			—		68,545			—		110,602			—		110,602			—
Corporate debt securities	145,427			—		97,342			48,085		51,225			—		—			51,225
Total available-for-sale securities	3,216,365			3,340		3,164,929			48,096		3,243,835			3,212		3,189,389			51,234
Residential loans held for sale	19,018					19,018					14,459			—		14,459			—
Derivative assets:
Interest rate swaps - fair value hedges	—			—		—			—		—			—		—			—
Interest rate swaps - nondesignated	61,319			—		61,319			—		54,590			—		54,590			—
Mortgage loan commitments	5,248			—		5,248			—		4,152			—		4,152			—
Forward sale contracts	(1,201		)	—		(1,201		)	—		(284		)	—		(284		)	—
Foreign exchange	52			—		52			—		105			—		105			—
Total derivative assets	65,418			—		65,418			—		58,563			—		58,563			—
Total fair value of assets (a)	$	3,300,801		$	3,340	$	3,249,365		$	48,096	$	3,316,857		$	3,212	$	3,262,411		$	51,234
Derivative liabilities:
Interest rate swaps - fair value hedges	23,229			—		23,229			—		17,247			—		17,247			—
Interest rate swaps - nondesignated	61,319			—		61,319			—		54,590			—		54,590			—
Foreign exchange	54			—		54			—		96			—		96			—
Other											—			—		—			—
Total derivative liabilities	84,602			—		84,602			—		71,933			—		71,933			—
True-up liability	11,820			—		—			11,820		12,783			—		—			12,783
Total fair value of liabilities (a)	$	96,422		$	—	$	84,602		$	11,820	$	84,716		$	—	$	71,933		$	12,783
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	17,913		$	—	$	—		$	17,913	$	20,223		$	—	$	—		$	20,223
Impaired loans (c)	62,094			—		—			62,094		54,382			—		—			54,382
Other property (d)	10,839			—		—			10,839		5,532			—		—			5,532
Other real estate covered by loss share (e)	51,557			—		—			51,557		16,504			—		—			16,504
Total fair value	$	142,403		$	—	$	—		$	142,403	$	96,641		$	—	$	—		$	96,641

(a) - There were no transfers between levels 1 and 2 of the fair value hierarchy during the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013.

(b) - ~~Mortgage servicing rights~~MSRs with a recorded investment of $~~21.3~~21.4 million were reduced by a specific valuation allowance totaling $~~3.5~~1.2 million to a reported carrying value of $~~17.8~~20.1 million resulting in recognition of $1.3 million in expense included in loans sales and servicing income in the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013.

(c) - Collateral dependent impaired loans with a recorded investment of $~~73.4~~58.9 million were reduced by specific valuation allowance allocations totaling $~~11.3~~4.5 million to a reported net carrying value of $~~62.1~~54.4 million.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

(d) - Amounts do not include assets held at cost at ~~June 30, 2012~~March 31, 2013. During the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $~~0.4~~0.2 million included in noninterest expense.

(e) - Amounts do not include assets held at cost at ~~June 30, 2012~~March 31, 2013. During the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses $~~0.7~~0.1 million included in noninterest expense.


				Fair Value by Hierarchy										Fair Value by Hierarchy
	December 31, 2011			Level 1		Level 2			Level 3		December 31, 2012			Level 1		Level 2			Level 3
Recurring fair value measurement
Available-for-sale securities:
Money market mutual funds	$	3,299		$	3,299	$	—		$	—	$	3,241		$	3,241	$	—		$	—
U.S. government agency debentures	123,069			—		123,069			—
U.S. States and political subdivisions	357,731			—		357,731			—		268,204			—		268,204			—
Residential mortgage-backed securities:
U.S. government agencies											1,107,063			—		1,107,063			—
Commercial mortgage-backed securities:
U.S. government agencies	1,460,343			—		1,460,343			—		52,036			—		52,036			—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,137,835			—		1,137,835			—		1,329,421			—		1,329,421			—
Non-agency	43,307			—		2			43,305		11			—		2			9
Commercial collateralized mortgage-backed securities:
U.S. government agencies	129,127			—		129,127			—		111,343			—		111,343			—
Corporate debt securities	98,842			—		54,608			44,234		49,652			—		—			49,652
Total available-for-sale securities	3,353,553			3,299		3,262,715			87,539		2,920,971			3,241		2,868,069			49,661
Residential loans held for sale	30,077			—		30,077			—		23,683			—		23,683			—
Derivative assets:
Interest rate swaps - fair value hedges	—			—		—			—		—			—		—			—
Interest rate swaps - nondesignated	58,875			—		58,875			—		58,769			—		58,769			—
Mortgage loan commitments	4,959			—		4,959			—		4,400			—		4,400			—
Forward sale contracts	(1,798		)	—		(1,798		)	—		(62		)	—		(62		)	—
Foreign exchange	20			—		20			—		62			—		62			—
Total derivative assets	62,056			—		62,056			—		63,169			—		63,169			—
Total fair value of assets (a)	$	3,445,686		$	3,299	$	3,354,848		$	87,539	$	3,007,823		$	3,241	$	2,954,921		$	49,661
Derivative liabilities:
Interest rate swaps - fair value hedges	25,889			—		25,889			—		19,080			—		19,080			—
Interest rate swaps - nondesignated	58,875			—		58,875			—		58,769			—		58,769			—
Foreign exchange	18			—		18			—		57			—		57			—
Other	1,324			—		1,324			—		—			—		—			—
Total derivative liabilities	86,106			—		86,106			—		77,906			—		77,906			—
True-up liability	11,551			—		—			11,551		12,259			—		—			12,259
Total fair value of liabilities (a)	$	97,657		$	—	$	86,106		$	11,551	$	90,165		$	—	$	77,906		$	12,259
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	17,749		$	—	$	—		$	17,749	$	18,833		$	—	$	—		$	18,833
Impaired loans (c)	56,739			—		—			56,739		54,491			—		—			54,491
Other property (d)	4,087			—		—			4,087		7,540			—		—			7,540
Other real estate covered by loss share (e)	43,616			—		—			43,616		12,631			—		—			12,631
Total fair value	$	122,191		$	—	$	—		$	122,191	$	93,495		$	—	$	—		$	93,495

(a) - There were no transfers between levels 1 and 2 of the fair value hierarchy during the ~~quarter~~year ended December 31, ~~2011~~2012.

(b) - ~~Mortgage servicing rights~~MSRs with a recorded investment of $~~21.2~~21.3 million were reduced by a specific valuation allowance totaling $~~3.5~~2.6 million to a reported carrying value of $~~17.6~~18.8 million resulting in the recognition of an impairment charge of $~~3.5~~1.0 million in the year ended December 31, ~~2011~~2012.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

(c) - Collateral dependent impaired loans with a recorded investment of $~~64.5~~57.8 million were reduced by specific valuation allowance allocations totaling $~~7.7~~3.3 million to a reported net carrying value of $~~56.7~~54.5 million.

(d) Amounts do not include assets held at cost at December 31, ~~2011~~2012. During the year ended December 31, ~~2011~~,2012, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $~~5.4~~2.2 million included in noninterest expense.

(e) Amounts do not include assets held at cost at December 31, ~~2011~~2012. During the year ended December 31, ~~2011~~2012, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $~~3.0~~1.7 million included in noninterest expense.

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(Dollars in thousands)


			Fair Value by Hierarchy								Fair Value by Hierarchy
	June 30, 2011		Level 1		Level 2		Level 3		March 31, 2012		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Money market mutual funds	$	3,752	$	3,752	$	—	$	—	$	3,308	$	3,308	$	—	$	—
U.S. government agency debentures	371,244		—		371,244		—		35,455		—		35,455		—
U.S. States and political subdivisions	309,785		—		309,785		—		386,525		—		386,525		—
Residential mortgage-backed securities:
U.S. government agencies									1,454,416		—		1,454,416		—
Commercial mortgage-backed securities:
U.S. government agencies	1,588,971		—		1,588,971		—		27,663		—		27,663		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,079,950		—		1,079,947		3		1,251,304		—		1,251,304		—
Non-agency	93,847		—		3		93,844		41,832		—		2		41,830
Commercial collateralized mortgage-backed securities:
U.S. government agencies	—		—		—		—		147,355		—		147,355		—
Corporate debt securities	50,723		—		—		50,723		143,789		—		97,132		46,657
Total available-for-sale securities	3,498,272		3,752		3,349,950		144,570		3,491,647		3,308		3,399,852		88,487
Residential loans held for sale	22,951		—		22,951		—		42,447		—		42,447		—
Derivative assets:
Interest rate swaps - fair value hedges	—		—		—		—		—		—		—		—
Interest rate swaps - nondesignated	46,246		—		46,246		—		56,298		—		56,298		—
Mortgage loan commitments	1,539		—		1,539		—		3,268		—		3,268		—
Forward sale contracts	5		—		5		—		446		—		446		—
Foreign exchange	19		—		19		—		103		—		103		—
Total derivative assets	47,809		—		47,809		—		60,115		—		60,115		—
Total fair value of assets (a)	$	3,569,032	$	3,752	$	3,420,710	$	144,570	$	3,594,209	$	3,308	$	3,502,414	$	88,487
Derivative liabilities:
Interest rate swaps - fair value hedges	25,772		—		25,772		—		23,786		—		23,786		—
Interest rate swaps - nondesignated	46,246		—		46,246		—		56,298		—		56,298		—
Foreign exchange	19		—		19		—		90		—		90		—
Other	—		—		—		—		—		—		—		—
Total derivative liabilities	72,037		—		72,037		—		80,174		—		80,174		—
True-up liability	12,196		—		—		12,196		11,725		—		—		11,725
Total fair value of liabilities (a)	$	84,233	$	—	$	72,037	$	12,196	$	91,899	$	—	$	80,174	$	11,725
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	20,766	$	—	$	—	$	20,766	$	18,869	$	—	$	—	$	18,869
Impaired loans (c)	72,289		—		—		72,289		60,018		—		—		60,018
Other property (d)	8,916		—		—		8,916		4,768		—		—		4,768
Other real estate covered by loss share (e)	34,376		—		—		34,376		47,765		—		—		47,765
Total fair value	$	136,347	$	—	$	—	$	136,347	$	131,420	$	—	$	—	$	131,420

(a) - There were no transfers between levels 1 and 2 of the fair value hierarchy during the ~~quarter~~three months ended~~June 30, 2011~~March 31, 2012.

(b) - ~~Recorded at~~Mortgage servicing rights with a recorded investment of $20.9 million were reduced by a specific valuation allowance totaling $2.2 million to a reported carrying value of $~~20.7~~18.8 million asresulting in recognition of a recovery of ~~June 30, 2011~~$1.3 million in the three months ended March 31, 2012.

(c) - Collateral dependent impaired loans with a recorded investment of $~~86.5~~65.2 million were reduced by specific valuation allowance allocations totaling $~~14.2~~5.2 million to a reported net carrying value of $~~72.3~~60.0 million.

(d) - Amounts do not include assets held at cost at ~~June 30, 2011~~March 31, 2012. During the ~~quarter~~three months ended ~~June 30, 2011~~March 31, 2012, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.9 million included in noninterest expense.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

(e) - Amounts do not include assets held at cost at ~~June 30, 2011~~March 31, 2012. During the ~~quarter~~three months ended ~~June 30, 2011~~March 31, 2012, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $~~0.7~~0.6 million included in noninterest expense.

The following section describes the valuation methodologies used by the Corporation to measure financial assets and liabilities at fair value. During the ~~quarters~~three months ended ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012, 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 ~~are predominantly~~include money market mutual ~~funds and represent less than 1% of the available-for-sale portfolio.~~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 98% 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; ~~MBSs;~~mortgage-backed securities ("MBSs"); securities issued by the U.S. Treasury; and certain agency and corporate collateralized mortgage obligations. The independent pricing service uses industry-standard models to price U.S. Government agencies and MBSs 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 ~~type of~~ 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. ~~Less~~As of March 31, 2013, less than 2% of the available-for-sale portfolio is Level 3, ~~and~~which consists of ~~mortgage-backed securities issued and guaranteed by the National Credit Union Administration and~~ single issuer trust preferred securities. These instruments 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.

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.

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(Dollars in thousands)

Loans held for sale. These loans are regularly traded in active markets through programs offered by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, 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 allowance for loan losses 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 allowance for loan losses 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 mortgage servicing rights at lower of cost or fair value, and, therefore, they subject to fair value measurements on a nonrecurring basis. Since sales of mortgage servicing rights 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 economic factors, to estimate the fair value of its mortgage servicing rights. 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 mortgage servicing rights. 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 1312 (Mortgage Servicing Rights and Mortgage Servicing Activity) for further information on mortgage servicing rights 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~~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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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”~~"fallout" (interest rate locked pipeline loans not expected to close), using models, which consider cumulative historical fallout rates and other factors. Fallout can occur for a variety of reasons including falling rate environments when a borrower will abandon a fixed rate loan commitment at one lender and enter into a new lower fixed rate loan commitment at another, when a borrower is not approved as an acceptable credit by the lender or for a variety of other non-economic reasons. Fallout is not a significant input to the fair value of the written loan commitments in their entirety. These measurements are classified as Level 2.

Derivative assets are typically secured through securities with financial counterparties or cross collateralization with a borrowing customer. Derivative liabilities are typically secured through the Corporation pledging securities to financial counterparties or, in the case of a borrowing customer, by the right of setoff. The Corporation considers factors such as the likelihood of default by itself and its counterparties, right of setoff, and remaining maturities in determining the appropriate fair value adjustments. All derivative counterparties approved by the Corporation's Asset and Liability Committee are regularly reviewed, and appropriate business action is taken to adjust the exposure to certain counterparties, as necessary. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of marketable collateral securing the position. This approach used to estimate impacted exposures to counterparties is also used by the Corporation to estimate its own credit risk on derivative liability positions. To date, no material losses have been incurred due to a counterparty's inability to pay any uncollateralized position. There was no significant change in value of derivative assets and liabilities attributed to credit risk for the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013.

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 sheets and is remeasured at fair value each reporting date until the contingency is resolved. The changes in fair value are recognized in earnings in the current period.

An expected value methodology is used as a starting point for determining the fair value of the true-up liability based on the contractual terms prescribed in the loss 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 ~~3.41%~~2.91% and ~~4.03%~~3.56% as of ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012, respectively. Increasing or decreasing the discount rate by one percentage point would change the liability by approximately $0.9 million ~~and~~ ~~$1.0 million, respectively,~~ as of ~~June 30, 2012~~March 31, 2013.

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)~~$152 million); minus (2) the sum of (A) 25% of the asset premium paid in connection with the Midwest acquisition (approximately ~~$20 million)~~$20 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 $~~6.9~~8.4 million, $~~7.2~~7.6 million and $~~7.7~~7.4 million as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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 ~~($172.0 million)~~(approximately $172 million) less (2) the sum of (A) 25% of the asset discount ~~($47.0 million)~~(approximately $47 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 $~~4.9~~4.4 million, $~~4.3~~4.6 million and $~~4.5~~4.3 million as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, 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 4 (Loans) and Note 5 (~~Loans~~Allowance for Loan Losses) for additional information on the estimated cash flows of the acquired loan portfolios.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters ended March 31, 2013 and 2012are summarized as follows:


	Three months ended										Six Months Ended									Three Months Ended
	June 30, 2012					June 30, 2011					June 30, 2012					June 30, 2011				March 31, 2013				March 31, 2012
	Available-for-sale securities			True-up liability		Available-for-sale securities			True-up liability		Available-for-sale securities			True-up liability		Available-for-sale securities		True-up liability		Available-for-sale securities		True-up liability		Available-for-sale securities			True-up liability
Balance at beginning of period	$	88,487		$	11,725	$	126,914		$	11,601	$	87,539		$	11,551	$	60,344	$	12,061	$	49,661	$	12,259	$	87,539		$	11,551
(Gains) losses included in earnings (a)	—			95		—			595		—			269		—		135		—		524		—			174
Unrealized gains (losses) (b)	1,323			—		(2,344		)	—		3,742			—		350		—		1,560		—		2,419			—
Purchases	—			—		20,000			—		—			—		83,876		—		—		—		—			—
Sales	(40,520		)	—		—			—		(40,520		)	—		—		—		—		—		—			—
Settlements	(1,194		)	—		—			—		(2,665		)	—		—		—		13		—		(1,471		)	—
Net transfers into (out of) Level 3	—			—		—			—		—			—		—		—		—		—		—			—
Balance at ending of period	$	48,096		$	11,820	$	144,570		$	12,196	$	48,096		$	11,820	$	144,570	$	12,196	$	51,234	$	12,783	$	88,487		$	11,725

(a) Reported in other expense

(b) 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 U.S. GAAP.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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 ~~status~~ as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012. The aggregate fair value, contractual

balance and ~~gains~~gain or loss on loans held for sale ~~are~~was as follows:

Quarter ended Year ended Quarter ended
June 30, 2012 December 31, 2011 June 30, 2011
Aggregate fair value $ 19,018
$ 30,077
$ 22,951
Contractual balance 18,267
28,948
22,419
Gain (a) 751
1,129
532



	March 31, 2013		December 31, 2012		March 31, 2012
Aggregate fair value carrying amount	$	14,459	$	23,683	$	42,447
Aggregate unpaid principal / contractual balance	13,960		22,765		41,542
Carrying amount over aggregate unpaid principal (a)	$	499	$	918	$	905

(a) ~~Included~~These changes are included in loan sales and servicing income.

Disclosures about Fair Value of Financial Instruments

The carrying amount and estimated fair value of the Corporation’s financial instruments that are carried at either fair value or cost as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012 are shown in the tables below.


	June 30, 2012										March 31, 2013
	Carrying Amount		Fair Value								Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3				Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	337,935	$	337,935	$	—	$	337,935	$	—	$	347,103	$	347,103	$	—	$	347,103	$	—
Available for sale securities	3,216,365		3,216,365		3,340		3,164,929		48,096
Held to maturity securities	352,221		355,120		—		355,120		—
Available-for-sale securities											3,243,835		3,243,835		3,212		3,189,389		51,234
Held-to-maturity securities											665,589		673,501		—		673,501		—
Other securities	140,742		140,742		—		140,742		—		140,984		140,984		—		140,984		—
Loans held for sale	19,018		19,018		—		19,018		—		14,459		14,459		—		14,459		—
Net noncovered loans	7,996,079		7,677,176		—		—		7,677,176		8,681,127		8,649,899		—		—		8,649,899
Net covered loans and loss share receivable	1,229,282		1,229,282		—		—		1,229,282		848,887		848,887		—		—		848,887
Accrued interest receivable	43,727		43,727		—		43,727		—		43,701		43,701		—		43,701		—
Derivatives	65,418		65,418		—		65,418		—		58,563		58,563		—		58,563		—
Financial liabilities:
Deposits	$	11,615,841	$	11,625,406	$	—	$	11,625,406	$	—	$	11,925,767	$	11,931,015	$	—	$	11,931,015	$	—
Federal funds purchased and securities sold under agreements to repurchase	896,910		896,910		—		896,910		—		826,855		826,855		—		826,855		—
Wholesale borrowings	178,135		186,458		—		186,458		—		136,003		141,613		—		141,613		—
Long-term debt											249,921		259,048		—		259,048		—
Accrued interest payable	3,266		3,266		—		3,266		—		3,853		3,853		—		3,853		—
Derivatives	84,602		84,602		—		84,602		—		71,933		71,933		—		71,933		—

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(Dollars in thousands)


	December 31, 2011										December 31, 2012
	Carrying Amount		Fair Value								Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3				Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	377,319	$	377,319	$	—	$	377,319	$	—	$	258,014	$	258,014	$	—	$	258,014	$	—
Available for sale securities	3,353,553		3,353,553		3,299		3,262,715		87,539
Held to maturity securities	82,764		85,112		—		85,112		—
Available-for-sale securities											2,920,971		2,920,971		3,241		2,868,069		49,661
Held-to-maturity securities											622,121		630,799		—		630,799		—
Other securities	140,726		140,726		—		140,726		—		140,717		140,717		—		140,717		—
Loans held for sale	30,077		30,077		—		30,077		—		23,683		23,683		—		23,683		—
Net noncovered loans	7,641,245		7,373,801		—		—		7,373,801		8,632,717		8,604,872		—		—		8,604,872
Net covered loans and loss share receivable	1,460,723		1,460,723		—		—		1,460,723		975,870		975,870		—		—		975,870
Accrued interest receivable	42,274		42,274		—		42,274		—		40,389		40,389		—		40,389		—
Derivatives	62,056		62,056		—		62,056		—		63,169		63,169		—		63,169		—
Financial liabilities:
Deposits	$	11,431,609	$	11,445,777	$	—	$	11,445,777	$	—	$	11,759,425	$	11,765,873	$	—	$	11,765,873	$	—
Federal funds purchased and securities sold under agreements to repurchase	866,265		866,265		—		866,265		—		1,104,525		1,104,525		—		1,104,525		—
Wholesale borrowings	203,462		211,623		—		211,623		—		136,883		143,029		—		143,029		—
Long-term debt											—		—		—		—		—
Accrued interest payable	3,915		3,915		—		3,915		—		2,515		2,515		—		2,515		—
Derivatives	86,106		86,106		—		86,106		—		77,906		77,906		—		77,906		—


	June 30, 2011										March 31, 2012
	Carrying Amount		Fair Value								Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3				Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	224,078	$	224,078	$	—	$	224,078	$	—	$	489,985	$	489,985	$	—	$	489,985	$	—
Available for sale securities	3,498,272		3,498,272		3,752		3,349,950		144,570		3,491,647		3,491,647		3,308		3,399,852		88,487
Held to maturity securities	80,857		82,905		—		82,905		—		100,840		103,865		—		103,865		—
Other securities	160,805		160,805		—		160,805		—		140,713		140,713		—		140,713		—
Loans held for sale	22,951		22,951		—		22,951		—		42,447		42,447		—		42,447		—
Net noncovered loans	7,299,032		6,929,941		—		—		6,929,941		7,759,360		7,496,821		—		—		7,496,821
Net covered loans and loss share receivable	1,721,747		1,721,747		—		—		1,721,747		1,337,080		1,337,080		—		—		1,337,080
Accrued interest receivable	42,276		42,276		—		42,276		—		45,270		45,270		—		45,270		—
Derivatives	47,809		47,809		—		47,809		—		60,115		60,115		—		60,115		—
Financial liabilities:
Deposits	$	11,340,939	$	11,359,102	$	—	$	11,359,102	$	—	$	11,648,165	$	11,659,976	$	—	$	11,659,976	$	—
Federal funds purchased and securities sold under agreements to repurchase	809,570		814,030		—		814,030		—		928,760		928,760		—		928,760		—
Wholesale borrowings	325,133		328,808		—		328,808		—		176,611		184,640		—		184,640		—
Long-term debt											—		—		—		—		—
Accrued interest payable	5,851		5,851		—		5,851		—		3,350		3,350		—		3,350		—
Derivatives	72,037		72,037		—		72,037		—		80,174		80,174		—		80,174		—

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

The following methods and assumptions were used to estimate the fair ~~value~~values of ~~the remaining classes~~each class of financial ~~instruments not measured at fair value on a recurring or nonrecurring basis:~~instrument presented:

Cash and due from banks– For these short-term instruments, the carrying amount is considered a

reasonable estimate of fair value.

~~Held to maturity securities -~~ The held to maturity portfolio was segmented based on security type and repricing characteristics. Carrying values are used to estimate fair values of variable rate securities. A discounted cash flow method was used to estimate the fair value of fixed-rate securities. 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 securities with similar characteristics. If applicable, prepayment assumptions are factored into the fair value determination based on historical experience and current economic conditions.

~~Other~~Investment securities - ~~Other securities is mainly composed~~– See Financial Instruments Measured at Fair Value above.

Loans held for sale – The majority of ~~FRB and FHLB stock. The carrying amount~~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 ~~this stock is a reasonable fair value estimate given their restricted nature.~~cost or market, less costs to sell. See Financial Instruments Measured at Fair Value above.

Net noncovered loans– The 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 covered loans and loss share receivable – Fair values for loans were based on a discounted 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 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 projected cash flows related to the 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’~~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, ~~and~~ 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~~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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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.


13 12. .	Mortgage Servicing Rights and Mortgage Servicing Activity

In the ~~six~~three months ended~~June 30,~~ March 31, 2013and2012 ~~and~~ ~~2011~~, the Corporation sold residential mortgage loans from the held for sale portfolio with unpaid principal balances of $~~410.2~~149.9 million and $~~211.6~~182.1 million, respectively, and recognized ~~pre-tax~~pretax gains of $4.2 million and $~~3.4~~1.6 million, respectively, which are included as a component of loan sales and servicing income. ~~The~~As of March 31, 2013and2012, the Corporation retained the related mortgage servicing rights on $~~394.3~~136.4 million and $~~185.9~~178.0 million, respectively, of the loans sold and receives servicing fees.

The Corporation serviced for third parties approximately $2.4 billion of residential mortgage loans at ~~June 30, 2012~~March 31, 2013 and $~~2.2~~2.3 billion at ~~June 30, 2011~~March 31, 2012. For the ~~six~~three months ended ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012, loan servicing fees, not including valuation changes included in loan sales and servicing income, were $~~2.8~~1.5 million and $~~2.7~~1.4 million, respectively.

Servicing rights are presented within other assets on the accompanying consolidated balance ~~sheet.~~sheets. The retained servicing rights are initially valued at fair value. Since mortgage servicing rights 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 1211 (Fair Value Measurement). Mortgage servicing rights are subsequently measured using the amortization method. Accordingly, the mortgage servicing rights are amortized over the period of, and in proportion to, the estimated net servicing income and is recorded in loan sales and servicing income.

Changes in the carrying amount of mortgage servicing rights and mortgage servicing rights valuation allowance are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three months ended
	2012			2011			2012			2011			March 31, 2013			March 31, 2012
Balance at beginning of period	$	20,946		$	21,539		$	21,179		$	21,317		$	21,316		$	21,179
Additions	1,794			554			3,188			1,862			1,267			1,394
Amortization	(1,467		)	(999		)	(3,094		)	(2,085		)	(1,205		)	(1,627		)
Balance at end of period	21,273			21,094			21,273			21,094			21,378			20,946
Valuation allowance at beginning of period	(2,193		)	—			(3,539		)	—			(2,564		)	(3,539		)
Recoveries (Additions)	(1,295		)	(350		)	51			(350		)	1,330			1,346
Valuation allowance at end of period	(3,488		)	(350		)	(3,488		)	(350		)
Valuation Allowance at end of period													(1,234		)	(2,193		)
Mortgage servicing rights, net carrying balance	$	17,785		$	20,744		$	17,785		$	20,744		$	20,144		$	18,753
Fair value at end of period	$	17,913		$	20,766		$	17,913		$	20,766		$	20,223		$	18,869

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 mortgage servicing rights exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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 ~~quarters~~three months ended~~June 30, 2012~~March 31, 2013 and ~~June 30, 2011~~2012.

Key economic assumptions and the sensitivity of the current fair value of the mortgage servicing rights

related to immediate 10% and 25% adverse changes in those assumptions at ~~June 30, 2012~~March 31, 2013 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 mortgage servicing rights 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.



Prepayment speed assumption (annual CPR)	16.9		%	12.26		%
Decrease in fair value from 10% adverse change	$	945		$	789
Decrease in fair value from 25% adverse change	2,238			$	1,885
Discount rate assumption	9.7		%	9.64		%
Decrease in fair value from 100 basis point adverse change	$	498		$	624
Decrease in fair value from 200 basis point adverse change	965			$	1,206
Expected weighted-average life (in months)	71.3			92.9

1413. Contingencies and Guarantees

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. Although the Corporation is not able to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, Management believes that based on the information currently available the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the results of operations or ~~shareholders'~~shareholders’ equity of the Corporation. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations in a particular future period as the time and amount of any resolution of such actions and its relationship to the future results of operations are not known.

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 ~~has been~~will be incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case a reserve will not be recognized until that time.

Overdraft Litigation

Commencing in December 2010, two separate lawsuits were filed in the Summit County Court of Common Pleas and the Lake County Court of Common ~~Plea~~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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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 certified the class and the Bank and Corporation have appealed the determination.

365/360 Interest Litigation

In August 2008, a lawsuit was filed in the Cuyahoga County Court of Common Pleas against the Bank.

The ~~breach of contract~~breach-of-contract complaint was brought as a putative class action on behalf of Ohio commercial borrowers who ~~had~~ allegedly had the interest they owed calculated improperly by using the 365/360 method. The complaint seeks actual damages, interest, injunctive relief and attorney fees.In June 2012, the trial court certified the class and the Bank has appealed the determination.

~~Indirect Lending Litigation~~

In April 2012 a lawsuit was filed in the United States District Court for the Northern District of Ohio, Eastern Division, against the Corporation and Bank. The complaint was brought as a putative class action on behalf of all persons who purchased a motor vehicle in Ohio from an Ohio motor vehicle dealer, which purchase and sale was financed by the Bank. The lawsuit alleges a violation of the Clayton Act, as amended by the Robinson-Patman Act, breach of common law of agency, a violation of the Ohio Retail Installment Sales Act and a violation of the federal Truth in Lending Act. The complaint seeks disgorgement of fees, treble damages, interest and attorney fees.

Shareholder Derivative Litigation

In July 2012, three related shareholder derivative lawsuits were filed in the United States District Court for the Northern District of Ohio. The lawsuits name as defendants the members of the Corporation's board of directors and certain senior executives. The lawsuits are purportedly brought on behalf of the ~~Company~~Corporation and seek a recovery for its benefit. The lawsuits generally allege that the defendants breached fiduciary duties owed to the Corporation in connection with decisions concerning executive compensation, and allege that the senior executives named as defendants were unjustly enriched by receiving excessive compensation. The lawsuits also allege that the defendants caused the Corporation to issue incomplete or misleading disclosures concerning executive compensation in its 2012 proxy statement. The complaints seek an award against the defendants of monetary damages to be paid to the Corporation, and various other forms of relief. In September 2012, the lawsuits were consolidated.

Merger Litigation

Between September 17, 2012 and October 5, 2012, alleged shareholders of Citizens filed six purported class action lawsuits in the Circuit Court of Genesee County, Michigan, which have been consolidated as In re Citizens Republic Bancorp, Inc. Shareholder Litigation, Case No. 12-99027-CK (the "Lawsuit"). The consolidated complaint (the "Complaint") names as defendants Citizens, the members of Citizens' board of directors and FirstMerit. The complaint alleges that the director defendants breached their fiduciary duties by failing to obtain the best available price in connection with the merger, by not utilizing a proper process to evaluate the merger and by agreeing to protective devices that ensured that no entity other than FirstMerit would seek to acquire Citizens. The Complaint also alleges that FirstMerit and Citizens aided and abetted those alleged breaches of fiduciary duty. The Complaint seeks declaratory and injunctive relief to prevent the consummation of the merger, rescissory damages and other equitable relief. The defendants filed a motion to dismiss the Complaint.

On February 21, 2013, the plaintiffs and defendants entered into a memorandum of understanding (the “MOU”) setting forth their agreement in principle to settle the Lawsuit. While the defendants deny the allegations made in the Complaint, they agreed to enter into the MOU to avoid the costs and disruptions of any further litigation and to permit the timely closing of the merger. The MOU sets forth the principal terms of the settlement that the parties will document in a formal settlement agreement concerning the Complaint (the “Settlement Agreement”), subject to confirmatory discovery by the plaintiffs, and describes the actions that the parties will take or refrain from taking between the date of the MOU and the date that the Settlement Agreement is finally approved.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Pursuant to the MOU, the defendants amended the joint proxy statement/prospectus relating to the merger to include certain supplemental disclosures. The MOU also provides that the Settlement Agreement will include an injunction against proceedings in connection with the Complaint and any additional complaints concerning claims covered by the Settlement Agreement. In addition, the MOU provides that the Settlement Agreement will include a release on behalf of the plaintiffs, along with other members of the class of Citizens' shareholders certified for purposes of the Settlement Agreement, in favor of the defendants and their related parties from any claims that arose from or are related to the merger. The defendants have agreed to pay the plaintiff's attorneys' fees and expenses as awarded by the court, subject to court approval of the Settlement Agreement and the consummation of the merger.

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 either (i) whether a liability has been incurred or (ii) to estimate the ultimate or minimum amount of that liability or both at this time.

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.~~balance sheets. Additional information is provided in Note 109 (Derivatives and Hedging Activities). 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 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 allowance for unfunded lending commitments at ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012 was $~~5.7~~4.9 million, $~~6.4~~5.4 million, and $~~5.8~~5.4 million, respectively. Additional information pertaining to this allowance is included in Note 5 (Allowance for Loan Losses) and under the heading ~~“Allowance~~"Allowance for Loan Losses and Reserve for Unfunded Lending ~~Commitments”~~Commitments" within ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operation of this report.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

The following table shows the remaining contractual amount of each class of commitments to extend credit as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012. This amount represents the ~~Corporation’s~~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.

June 30, 2012 December 31, 2011 June 30, 2011
Loan Commitments
Commercial $ 2,227,184
$ 2,023,284
$ 1,933,575
Consumer 1,665,681
1,585,655
1,615,678
Total loan commitments $ 3,892,865
$ 3,608,939
$ 3,549,253



		March 31, 2013		December 31, 2012		March 31, 2012
Loan Commitments
	Commercial	$	2,317,997	$	2,431,023	$	2,534,452
	Consumer	1,750,913		1,720,518		1,624,660
	Total loan commitments	$	4,068,910	$	4,151,541	$	4,159,112

Guarantees

The Corporation is a guarantor in certain agreements with third parties. The following table shows the types of guarantees the Corporation had outstanding as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012.

June 30, 2012 December 31, 2011 June 30, 2011
Financial guarantees
Standby letters of credit $ 138,260
$ 135,039
$ 109,621
Loans sold with recourse 28,544
38,808
41,576
Total financial guarantees $ 166,804
$ 173,847
$ 151,197



		March 31, 2013		December 31, 2012		March 31, 2012
Financial guarantees
	Standby letters of credit	$	120,508	$	136,202	$	132,216
	Loans sold with recourse	44,672		42,383		27,886
	Total financial guarantees	$	165,180	$	178,585	$	160,102

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 credit risk involved in issuing letters of credit is essentially the same as involved in extending loan facilities to customers. 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 $~~80.2~~55.1 million at ~~June 30, 2012~~March 31, 2013, the remaining guarantees extend in varying amounts through 2017.

Changes in the amount of the repurchase reserve for the three ~~and~~ ~~six~~months ended ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012 are as follows:


	Three Months Ended June 30, 2012									Three months ended March 31, 2013
	Reserve on residential mortgage loans			Reserve on manufactured housing loans			Total repurchased reserve			Reserve on residential mortgage loans			Reserve on manufactured housing loans			Total repurchased reserve
Balance at beginning of period	$	400		$	1,278		$	1,678		$	1,500		$	1,167		$	2,667
Net realized losses	(161		)	—			(161		)	(56		)	—			(56		)
Net increase to reserve	511			(15		)	496
Net increase (decrease) to reserve										156			(29		)	127
Balance at end of period	$	750		$	1,263		$	2,013		$	1,600		$	1,138		$	2,738

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Three Months Ended June 30, 2011
Reserve on residential mortgage loans Reserve on manufactured housing loans Total repurchased reserve
Balance at beginning of period $ 465
$ 2,215
$ 2,680
Net realized losses —
(17 ) (17 )
Net increase to reserve —
(600 ) (600 )
Balance at end of period $ 465
$ 1,598
$ 2,063

Six Months Ended June 30, 2012
Reserve on residential mortgage loans Reserve on manufactured housing loans Total repurchased reserve
Balance at beginning of period $ 470
$ 1,273
$ 1,743
Net realized losses (367 ) —
(367 )
Net increase to reserve 647
(10 ) 637
Balance at end of period $ 750
$ 1,263
$ 2,013


	Six Months Ended June 30, 2011									Three months ended March 31, 2012
	Reserve on residential mortgage loans			Reserve on manufactured housing loans			Total repurchased reserve			Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchased reserve
Balance at beginning of period	$	600		$	2,233		$	2,833		$	470		$	1,273	$	1,743
Net realized losses	(225		)	(35		)	(260		)	(206		)	—		(206		)
Net increase to reserve	90			(600		)	(510		)
Net increase (decrease) to reserve										136			5		141
Balance at end of period	$	465		$	1,598		$	2,063		$	400		$	1,278	$	1,678

The total reserve associated with loans sold with recourse was approximately $~~2.0~~2.7 million, $~~1.7~~2.7 million and $~~2.1~~1.7 million as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, respectively, and is included in accrued taxes, expenses and other liabilities on the consolidated balance sheet. The ~~Corporation’s~~Corporation's reserve reflects ~~management’s~~management's best estimate of losses. The Corporation's reserving methodology uses current information about investor repurchase requests, and assumptions about defect concur rate, repurchase mix, and loss severity, based upon the ~~Corporation’s~~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.

The Corporation regularly sells residential mortgage loans service retained to government sponsored enterprises ~~(“GSEs”~~("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 residential mortgage loans serviced released to other investors which contain early payment default recourse provisions. As of ~~June 30, 2012~~, March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~,March 31, 2012, the Corporation had ~~$17.8~~sold $34.9 million,, ~~$28.1~~ $32.5 million and ~~$29.6~~$17.2 million,, respectively, of outstanding residential mortgage loans ~~sold~~ to GSEs and other investors with recourse provisions. ~~As of~~ ~~June 30, 2012, the~~The Corporation had reserved ~~$0.8~~$1.6 million, $1.5 million, and $0.4 million as of March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011$0.5 million~~March 31, 2012, respectively, for potential losses from representation and warranty obligations and early payment

default recourse provisions.

Due to prior acquisitions, as of ~~June 30, 2012~~ ~~and~~ ~~December~~March 31, ~~2011~~2013, the Corporation continued to service approximately $~~10.7~~8.2 million in manufactured housing loans ~~which~~that were sold with recourse compared to $~~11.9~~8.2 million and $10.7 million as of ~~June 30, 2011. As of~~ ~~June 30,~~December 31, 2012 and ~~December~~March 31, ~~2011~~2012, respectively. As of March 31, 2013, the Corporation had reserved $~~1.3~~1.1 million for potential losses from these manufactured housing loans compared to $~~1.6~~1.2 million and $1.3 million as of ~~June 30, 2011~~December 31, 2012. and March 31, 2012, respectively.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

14. Changes and Reclassifications Out of Accumulated Other Comprehensive Income

The following table presents the changes in accumulated other comprehensive income by component of comprehensive income for the three months ended March 31, 2013:



	Unrealized securities gains and losses			Pension and postretirement costs			Total
Balance as of January 1, 2013	$	55,418		$	(71,623	)	$	(16,205	)
Amounts recognized in other comprehensive income, net of taxes of $4.3 million	(7,920		)	—			(7,920		)
Reclassified amounts out of accumulated other comprehensive income, net of tax of $0.003 million	6			—			6
Balance as of March 31, 2013	$	47,504		$	(71,623	)	$	(24,119	)

The following table presents current period reclassifications out of accumulated other comprehensive income by component of comprehensive income for the three months ended March 31, 2013:



	Three months ended March 31, 2013			Income statement line item presentation
Realized (gains) losses on sale of securities	$	9		Investment securities losses (gains), net
Tax expense (benefit) (35%)	(3		)	Income tax expense (benefit)
Reclassified amount, net of tax	$	6

15. Subsequent Events

On April 12, 2013, the Corporation completed the Merger with Citizens which resulted in Citizens common stock being converted into the right to receive 1.37 shares of the Corporation's common stock (except that any shares of Citizens common stock that were owned by Citizens, the Corporation or any of their respective subsidiaries, other than in a fiduciary capacity, were canceled without any consideration therefor). Each outstanding option to acquire, and each outstanding equity award relating to, one share of Citizens' common stock was converted into an option to acquire, or an equity award relating to, 1.37 shares of the Corporation's common stock, as applicable. The conversion of Citizens' common stock into the Corporation's common stock resulted in the Corporation issuing approximately 55 million shares of its common stock.

Immediately following the Merger, Citizens Bank, a Michigan chartered bank and wholly owned subsidiary of Citizens, merged with and into FirstMerit Bank, N.A., a national banking association and wholly owned subsidiary of FirstMerit, with FirstMerit Bank, N.A. surviving the merger and continuing its corporate existence under the name “FirstMerit Bank, N.A.”

The Merger Agreement provided that upon completion of the Merger, the Corporation increase its board of directors by two directors. The new directorships were filled with current members of the Citizens board.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

dividends and interest. The Corporation's public offerings consisted of $250 million aggregate principal amount of subordinated notes due February 4, 2023 bearing interest at an annual rate of 4.35% payable semi-annually in arrears on February 4 and August 4 of each year and 4,000,000 depositary shares (each representing a 1/40th interest in a share of the Corporation's Series A Non-Cumulative Perpetual Preferred Stock) with dividends payable quarterly in arrears on the 4th day of February, May, August and November, beginning May 4, 2013, which resulted in gross proceeds of $100 million.

The following components make up the consideration for the Merger transaction: approximately $930 million in converted common stock, $355 million paid to the Treasury to purchase the Citizens TARP Preferred and approximately $3 million in a warrant issued to the Treasury to purchase the Corporation's common stock in conjunction with the purchase of the Citizens TARP Preferred.

The Citizens acquisition will be accounted for using the purchase acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged will be recorded at estimated fair value on the acquisition date. The Corporation is in the process of determining the preliminary fair values which are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Any resulting goodwill will not be deductible for income

tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes. The results of operations acquired in the Citizens transaction will be included in the Corporation's financial results beginning on April 13, 2013.

Management's strategy to de-leverage the newly acquired Citizens' balance sheet resulted in the Corporation repaying on April 15, 2013 approximately $591.0 million in principal of Federal Home Loan advances. Management's strategy to re-balance the investment portfolio acquired in the Citizens merger resulted in the sale of approximately $2.1 billion in agency MBS, agency CMOs, municipal securities and private label MBS investments in April 2013. Management intends on repurchasing $1.4 billion of agency MBS and CMO securities throughout the second quarter of 2013.

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 Securities and Exchange Commission. 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.

Table of Contents


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

AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)

Fully Tax-equivalent Interest Rates and Interest Differential


Average Consolidated Balance Sheets (Unaudited)
Fully Tax-equivalent Interest Rates and Interest Differential

		Three months ended							Three months ended								Three months ended							Three months ended							Three months ended
		June 30, 2012							June 30, 2011								March 31, 2013							December 31, 2012							March 31, 2012
(Dollars in thousands)		Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
ASSETS
Cash and due from banks		$	410,533						$	588,487							$	394,896						$	238,366						$	378,736
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)		2,823,055			$	19,028	2.71	%	2,958,993			$	19,942	2.70	%		2,790,039			$	16,294	2.37	%	2,794,524			$	16,767	2.39	%	2,882,045			$	19,679	2.75	%
Obligations of states and political subdivisions (tax exempt)		482,475			6,254		5.21	%	368,790			5,155		5.61	%		541,014			6,595		4.94	%	510,722			6,583		5.13	%	436,804			5,864		5.40	%
Other securities and federal funds sold		392,394			2,756		2.82	%	294,983			2,235		3.04	%		366,926			2,944		3.25	%	381,569			3,429		3.58	%	371,973			2,739		2.96	%
Total investment securities and federal funds sold		3,697,924			28,038		3.05	%	3,622,766			27,332		3.03	%		3,697,979			25,833		2.83	%	3,686,815			26,779		2.89	%	3,690,822			28,282		3.08	%
Loans held for sale		22,731			238		4.21	%	18,512			221		4.79	%		14,884			144		3.92	%	20,485			199		3.86	%	26,483			283		4.30	%
Noncovered loans, covered loans and loss share receivable		9,266,333			103,245		4.48	%	9,082,991			107,956		4.77	%		9,695,926			99,006		4.14	%	9,539,393			101,288		4.22	%	9,217,879			103,156		4.50	%
Total earning assets		12,986,988			131,521		4.07	%	12,724,269			135,509		4.27	%		13,408,789			124,983		3.78	%	13,246,693			128,266		3.85	%	12,935,184			131,721		4.10	%
Total allowance for loan losses		(143,565		)					(143,721		)						(141,735		)					(141,270		)					(142,628		)
Other assets		1,304,558							1,312,173								1,321,593							1,358,426							1,325,645
Total assets		$	14,558,514						$	14,481,208							$	14,983,543						$	14,702,215						$	14,496,937
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY															LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing		$	3,144,183		$	—	—	%	$	2,998,090		$	—	—			$	3,321,660		$	—	—	%	$	3,306,444		$	—	—	%	$	3,036,590		$	—	—
Interest-bearing		1,060,771			236		0.09	%	824,125			177		0.09	%		1,300,816			318		0.10	%	1,122,796			261		0.09	%	1,066,132			247		0.09	%
Savings and money market accounts		5,732,007			5,033		0.35	%	5,279,353			7,398		0.56	%		5,835,750			5,315		0.37	%	5,743,599			5,261		0.36	%	5,675,052			5,103		0.36	%
Certificates and other time deposits		1,618,322			3,169		0.79	%	2,363,170			5,606		0.95	%		1,331,558			2,063		0.63	%	1,422,246			2,287		0.64	%	1,694,247			3,524		0.84	%
Total deposits		11,555,283			8,438		0.29	%	11,464,738			13,181		0.46	%		11,789,784			7,696		0.26	%	11,595,085			7,809		0.27	%	11,472,021			8,874		0.31	%
Securities sold under agreements to repurchase		920,352			276		0.12	%	884,244			940		0.43	%		906,717			313		0.14	%	957,564			303		0.13	%	887,715			268		0.12	%
Wholesale borrowings		177,987			1,118		2.53	%	325,057			1,653		2.04	%		136,298			850		2.53	%	163,405			1,024		2.49	%	184,659			1,151		2.51	%
Long-term debt																	155,506			1,748		4.56	%	—			—		—	%	—			—		—	%
Total interest-bearing liabilities		9,509,439			9,832		0.42	%	9,675,949			15,774		0.65	%		9,666,645			10,607		0.45	%	9,409,610			9,136		0.39	%	9,507,805			10,293		0.44	%
Other liabilities		305,705							273,314								280,233							350,886							371,533
Shareholders’ equity		1,599,187							1,533,855								1,715,005							1,635,275							1,581,009
Total liabilities and shareholders’ equity		$	14,558,514						$	14,481,208							$	14,983,543						$	14,702,215						$	14,496,937
Net yield on earning assets		$	12,986,988		$	121,689	3.77	%	$	12,724,269		$	119,735	3.77	%		$	13,408,789		$	114,376	3.46	%	$	13,246,693		$	119,130	3.58	%	$	12,935,184		$	121,428	3.78	%
Interest rate spread							3.66	%						3.62	%							3.34	%						3.47	%						3.66	%

Note: Interest income on tax-exempt securities and loans has been adjusted to a fully-taxable equivalent basis. Nonaccrual loans have been included in the average balances.

6173

Average Consolidated Balance Sheets (Unaudited)
Superior credit quality: Nonperforming assets as a percent of period end loans declined 10.14% from 0.87% to 0.76% ; net charge-offs to average loans, excluding covered loans, decreased to 0.45% from 0.63% in the prior quarter.

Fully Tax-equivalent Interest Rates and Interest Differential

Six Months Ended Six Months Ended
June 30, 2012 June 30, 2011
Average Average Average Average
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
ASSETS
Cash and due from banks $ 394,634
$ 554,732

Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable) 2,852,550
$ 38,707
2.73 % 2,871,510
$ 39,309
2.76 %
Obligations of states and political subdivisions (tax exempt) 459,640
12,118
5.30 % 363,182
10,436
5.79 %
Other securities and federal funds sold 382,184
5,494
2.89 % 287,111
4,352
3.06 %
Total investment securities and federal funds sold 3,694,374
56,319
3.07 % 3,521,803
54,097
3.10 %
Loans held for sale 24,607
522
4.27 % 20,532
494
4.85 %
Loans, including loss share receivable 9,242,105
206,400
4.49 % 9,100,729
222,520
4.93 %
Total earning assets 12,961,086
263,241
4.08 % 12,643,064
277,111
4.42 %
Allowance for loan losses (143,096 ) (138,920 )
Other assets 1,314,888
1,316,576

Total assets $ 14,527,512
$ 14,375,452

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 3,090,386
$ —
— % $ 2,936,827
$ —
— %
Interest-bearing 1,063,451
483
0.09 % 832,787
361
0.09 %
Savings and money market accounts 5,703,530
10,136
0.36 % 5,129,894
15,243
0.60 %
Certificates and other time deposits 1,656,284
6,693
0.81 % 2,493,167
12,433
1.01 %
Total deposits 11,513,651
17,312
0.30 % 11,392,675
28,037
0.50 %
Securities sold under agreements to repurchase 904,033
544
0.12 % 866,306
1,855
0.43 %
Wholesale borrowings 181,323
2,269
2.52 % 325,197
3,292
2.04 %
Total interest bearing liabilities 9,508,621
20,125
0.43 % 9,647,351
33,184
0.65 %
Other liabilities 338,408
266,184

Shareholders' equity 1,590,097
1,525,090

Total liabilities and shareholders' equity $ 14,527,512
$ 14,375,452

Net yield on earning assets $ 12,961,086
$ 243,116
3.77 % $ 12,643,064
$ 243,927
3.89 %
Interest rate spread 3.66 % 3.72 %

~~Note: Interest income on tax-exempt securities and loans has been adjusted to a fully-taxable equivalent basis. Nonaccrual loans have been included in the average balances.~~

Table of Contents

HIGHLIGHTS OF ~~SECOND~~FIRST QUARTER ~~QUARTER~~ ~~2012~~2013 PERFORMANCE

Earnings Summary

~~FirstMerit~~The Corporation ~~and its subsidiaries (the “Corporation”)~~ reported ~~second~~first quarter ~~2012~~2013 net income of $~~30.6~~37.3 million, or $~~0.28~~0.33 per diluted share. This compares with$38.2 million, or $0.35 per diluted share, for the fourth quarter 2012 and $30.3 million, or $0.28 per diluted share, for the first quarter 2012 ~~and~~ ~~$29.8 million, or~~ ~~$0.27~~ ~~per diluted share, for the~~ ~~second~~ ~~quarter~~ ~~2011~~.

Returns on average common equity (“ROE”) and average assets (“ROA”) for the ~~second~~first quarter ~~2012~~2013 were ~~7.69%~~8.83% and ~~0.84%~~1.01%, respectively, compared with9.30% and 1.03%, respectively, for the fourth quarter 2012 and 7.72% and 0.84%~~, respectively,~~ for the first quarter 2012 ~~and~~ ~~7.78%~~ ~~and~~ ~~0.82%~~ ~~for the~~ ~~second~~ ~~quarter~~ ~~2011, respectively.~~.

Net interest margin was ~~3.77%~~3.46% for the ~~second~~first quarter of ~~2012~~2013 compared with3.58% for the fourth quarter 2012 and 3.78% for the first quarter of 2012 ~~and~~ ~~3.77%~~ ~~for the~~ ~~second~~ ~~quarter of~~ ~~2011~~. ~~The net interest margin compressed one~~Increased borrowing costs, primarily related to the Corporation's issuance of $250 million aggregate principal amount of subordinated notes in an underwritten public offering completed on February 4, 2013, accounted for six basis ~~point compared with~~points of compression during the first quarter of 2012 with earning asset yields declining three basis points offset by two basis points of improved funding costs. The decline in funding costs in the quarter resulted from the Corporation’s continued execution on its strategy of core deposit growth through new customer acquisition and transitioning certificates of deposit customers into lower cost deposits. The net interest margin was unchanged from the second quarter of 2011.2013.

Average ~~loans, not including covered~~noncovered loans during the ~~second~~first quarter of ~~2012~~2013 increased $~~159.7~~291.1 million, or ~~2.05%~~3.45%, compared with the fourth quarter 2012 and also increased$953.9 million, or 12.26%, compared with the first quarter of 2012 ~~and~~. Average noncovered commercial loans increased $~~668.1~~259.3 million, or ~~9.19%, compared with the~~ ~~second~~ ~~quarter of~~ ~~2011. Average commercial loans, excluding covered loans,~~ ~~increased$131.3 million, or~~ ~~2.55%~~4.63%, compared with the prior quarter, and increased $~~608.8~~716.7 million, or ~~13.05%~~13.94%, compared with the year ago quarter. ~~While commercial loans were the primary driver of overall average loan growth, the Corporation has experienced increased average consumer loans for four consecutive quarters.~~

Average deposits were $~~11.6~~11.8 billion during the ~~second~~first quarter of ~~2012~~2013, an increase of $~~83.3~~194.7 million, or ~~0.73%~~1.68%, compared with the ~~first~~fourth quarter of 2012, and an increase of $~~90.5~~317.8 million, or ~~0.79%~~2.77%, compared with the ~~second~~first quarter of ~~2011~~2012. During the ~~second~~first quarter ~~2012~~2013, average core deposits, which exclude time deposits, increased $~~159.2~~285.4 million, or ~~1.63%~~2.81%, compared with the fourth quarter 2012 and $680.5 million, or 6.96%, compared with the first quarter 2012 ~~and~~ ~~increased$835.4 million, or~~ ~~9.18%, compared with the~~ ~~second~~ ~~quarter~~ ~~2011~~. Average time deposits decreased $~~75.9~~90.7 million, or ~~4.48%~~6.38%, and decreased $~~744.8~~362.7 million, or ~~31.52%~~21.41%, respectively, over prior and year-ago quarters. ~~The Corporation continues to emphasize growth in lower cost core deposit products and decrease its reliance on certificates of deposit accounts to support balance sheet growth.~~ For the ~~second~~first quarter of ~~2012~~2013, average core deposits accounted for ~~85.99%~~88.71% of total average deposits, compared with 87.73% for thefourth quarter 2012 and 85.23% for the first quarter of 2012 ~~and~~ ~~79.39%~~ ~~for the~~ ~~second~~ ~~quarter of~~ ~~2011~~.

Average investments increased $~~7.1~~11.2 million, or 0.30%, compared with the fourth quarter 2012 and increased$7.2 million, or 0.19%, compared with the first quarter of 2012 ~~and~~ ~~increased$75.2 million, or~~ ~~2.07%, compared with the~~ ~~second~~ ~~quarter of~~ ~~2011~~.

Net interest income on a fully tax-equivalent (“FTE”) basis was $~~121.7~~114.4 million in the ~~second~~first quarter ~~2012~~2013 compared with$119.1 million in the fourth quarter 2012 and $121.4 million in the first quarter of 2012 ~~and~~ ~~$119.7 million~~ ~~in the~~ ~~second~~ ~~quarter of~~ ~~2011~~.

During the quarter ended June 30, 2012, management announced its implementation plan to enhance the operating efficiency and profitability of the Corporation (the "Efficiency Initiative") and as a result recognized ~~$8.9 million~~ in one-time charges primarily consisting of employee separation costs and professional services fees. The Efficiency Initiative is a long-term plan to optimize service channels and lower the overall cost

structure. It includes the elimination of assistant branch manager positions and closing of eight full service branches. All branch closures are expected to occur in the quarter ended September 30, 2012.

Noninterest income, excluding gains on securities transactions, of ~~$0.5 million~~, for the ~~second~~first quarter of ~~2012~~2013 was $~~54.8~~57.4 million, ~~an increase~~a decrease of $~~3.3~~1.8 million, or ~~6.39%~~3.08%, from the ~~first~~fourth quarter of 2012 and an increase of $~~4.2~~5.9 million, or ~~8.20%~~11.53%, from the ~~second~~first quarter 2012. Included in noninterest income in both the first quarter of ~~2011. Loan sales~~2013 and ~~servicing income decreased~~ ~~$1.6 million~~ ~~from~~ the ~~first~~ ~~quarter of~~ ~~2012, which included a change in the valuation of mortgage servicing rights of~~ ~~$2.6 million, and increased~~ ~~$2.2 million~~ ~~from the~~ ~~second~~ ~~quarter of~~ ~~2011. Other operating income in the~~ ~~second~~ ~~quarter of~~ ~~2012increased$3.5 million~~ ~~compared with the prior quarter and increased~~ ~~$4.4 million~~ ~~compared with the prior year quarter. Other operating income in the second~~fourth quarter of 2012 ~~included~~were $~~2.6~~5.0 million inof gains on covered loans paid in full.

Other income, net of ~~$0.5 million~~ in securities gains, as a percentage of net revenue for the ~~second~~first quarter of ~~2012~~2013 was ~~31.03%~~33.42% compared with ~~29.77%~~33.21% for ~~first~~fourth quarter of 2012 and ~~29.71%~~29.77% for the ~~second~~first quarter of ~~2011~~2012. Net revenue is defined as net interest income, on an FTE basis, plus other income, less gains from securities sales.

Noninterest expense for the ~~second~~first quarter of ~~2012~~2013 was $~~119.1~~106.9 million, ~~an increase~~a decrease of $5.3 million, or ~~4.67%~~4.69%, from the fourth quarter 2012 and a decrease of $6.8 million, or 6.01%, from the first quarter 2012. Included in

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noninterest expense in the first quarter of 2013 and fourth quarter of 2012 were acquisition related costs associated with the Citizens Republic Bancorp, Inc. ("Citizens") merger of ~~2012~~$3.6 million and ~~an increase~~ of $~~9.0~~2.1 million, or ~~8.18%~~,respectively. The majority of these acquisition related costs were from professional and legal services rendered in connection with the ~~second~~ ~~quarter of~~ ~~2011. Excluding the~~ ~~$8.9 million~~merger. Also included in ~~one-time charges from implementation of the Efficiency Initiative~~noninterest expense in the ~~second~~fourth quarter of 2012 ~~the Corporation has displayed significant progress in reducing operating expenses in response~~was $2.3 million of fees related to the ~~challenging industry environment. Of the total one-time charges,~~ ~~$3.3 million~~ ~~was related to employee separation costs and~~ ~~$5.2 million~~ ~~was related to professional services fees.~~early termination of Federal Home Loan Bank advances.

During the ~~second~~first quarter of ~~2012~~2013, the Corporation reported an efficiency ratio of ~~67.21%~~62.06%, compared with62.65% for the fourth quarter 2012 and 65.52% for the first quarter of 2012 ~~and~~ ~~64.30%~~ ~~for the~~ ~~second~~ ~~quarter of~~ ~~2011~~.

Net noncovered charge-offs ~~excluding covered loans,~~ totaled $~~8.8~~5.9 million, or ~~0.45%~~0.27% of average ~~loans, excluding acquired~~noncovered loans in the ~~second~~first quarter of ~~2012~~2013, compared with$7.1 million, or 0.34% of average noncovered loans, in the fourth quarter 2012 and $12.0 million, or ~~0.63%~~0.62% of average noncovered loans, in the first quarter 2012 ~~and~~ ~~$15.6 million, or~~ ~~0.89%~~ ~~of average loans, in the~~ ~~second~~ ~~quarter of~~ ~~2011~~.

Nonperforming assets totaled $~~61.1~~52.2 million at ~~June 30, 2012~~March 31, 2013, a ~~decrease~~increase of $~~6.9~~2.0 million, or ~~10.14%~~4.00%, compared with ~~March~~December 31, 2012 and a decrease of $~~38.8~~15.7 million, or ~~38.83%~~23.11%, compared with ~~June 30, 2011~~March 31, 2012. Nonperforming assets at ~~June 30, 2012~~March 31, 2013 represented ~~0.76%~~0.59% of period-end noncovered loans plus other real estate compared with ~~0.87%~~0.57% at December 31, 2012 and 0.86% at March 31, 2012 ~~and~~ ~~1.38%~~ at ~~June 30, 2011~~.

The allowance for noncovered loan losses totaled $~~103.8~~98.8 million at ~~June 30, 2012~~March 31, 2013. At ~~June 30, 2012~~March 31, 2013, the allowance for noncovered loan losses was ~~1.29%~~1.13% of period-end noncovered loans compared with ~~1.34%~~1.13% at December 31, 2012 and 1.32% at March 31, 2012 ~~and~~ ~~1.51%~~ at ~~June 30, 2011~~. The allowance for credit losses is the sum of the allowance for noncovered loan losses and the reserve for unfunded lending commitments. For comparative purposes, the allowance for credit losses was ~~1.36%~~1.18% of period end ~~loans, excluding acquired~~noncovered loans at ~~June 30, 2012~~March 31, 2013, compared with ~~1.41%~~1.20% at December 31, 2012 and 1.39% at March 31, 2012 ~~and~~ ~~1.59%~~ at ~~June 30, 2011~~. The allowance for credit losses to nonperforming loans was ~~234.57%~~254.32% at ~~June 30, 2012~~March 31, 2013, compared with ~~204.98%~~284.50% at December 31, 2012 and 205.13% at March 31, 2012 ~~and~~ ~~158.30%~~ at ~~June 30, 2011~~.

The ~~Corporation's~~Corporation’s total assets at ~~June 30, 2012~~March 31, 2013 were $~~14.6~~15.3 billion, ~~a decrease~~an increase of $~~49.5~~359.5 million, or ~~0.34%~~2.41%, compared with ~~March 31, 2012~~ ~~and an~~ ~~increase~~ of ~~$273.8 million, or~~ ~~1.91%, compared with~~ ~~June 30, 2011~~.

~~Total deposits were~~ ~~$11.6 billion~~ at ~~June 30, 2012~~, ~~a decrease~~ of ~~$32.3 million, or~~ ~~0.28%, from~~ ~~March~~December 31, 2012 and an increase of $~~274.9~~601.7 million, or ~~2.42%~~4.10%, ~~from~~compared with ~~June 30, 2011~~March 31, 2012. ~~Core~~

Total deposits ~~totaled~~were $~~10.0~~

11.9 billion at ~~June 30, 2012~~March 31, 2013, an increase of $~~39.0~~166.3 million, or ~~0.39%~~1.41%, from ~~March~~December 31, 2012 and an increase of $~~945.2~~277.6 million, or ~~10.40%~~2.38%, from ~~June 30, 2011~~March 31, 2012.

~~Shareholders' equity was~~ Core deposits totaled $~~1.6 billion~~ at ~~June 30, 2012, compared with~~ ~~$1.6~~10.6 billion at March 31, 2013, an increase of $238.4 million, or 2.30%, from December 31, 2012 and an increase of $624.3 million, or 6.24%, from March 31, 2012.

Shareholders’ equity was $1.8 billion as of March 31, 2013 and $1.6 billion atas of ~~June 30, 2011~~December 31, 2012 and March 31, 2012. On February 4, 2013, the Corporation issued 4,000,000 depositary shares (each representing a 1/40th interest in a share of the Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series A) for total gross proceeds of $100 million. Dividends are payable quarterly in arrears on the 4th day of February, May, August and November, beginning May 4, 2013. As of March 31, 2013, $0.9 million of dividends were accrued and payable on May 4, 2013 and accounted for approximately a one cent reduction in diluted EPS for the three months ended March 31, 2013. The Corporation maintained a strong capital position as tangible common equity to assets was ~~8.01%~~8.03% at ~~June 30, 2012~~March 31, 2013, compared with8.16% at December 31, 2012 and 7.86% at March 31, 2012 ~~and~~ ~~7.79%~~ at ~~June 30, 2011~~. The common cash dividend per share paid in the ~~second~~first quarter ~~2012~~2013 was ~~$0.16.~~$0.16.

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Non-GAAP Financial Measures

The table below presents computations of earnings (loss) and certain other financial measures including "tangible common equity," "Tier 1 common equity", "tangible common equity to tangible assets ratio", "Basel III Tier 1 common ratio", "fee income ratio" and "efficiency ratio", all of which are non-GAAP measures. The table below also reconciles the U.S. GAAP performance measures to the corresponding non-GAAP 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. Management and the Board of Directors utilize these non-GAAP financial measures as follows:

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

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 Bank Holding Company ("BHC") capital adequacy based on Tier 1 capital, the calculation of which is codified in federal banking regulations. In connection with the Federal Reserve's Comprehensive Capital Analysis and Review ("CCAR") process, these regulators are supplementing their assessment of the capital adequacy of a bank based on a variation of Tier 1 capital, known as Tier 1 common equity. While not codified, analysts and banking regulators have assessed the Corporation's capital adequacy using the tangible common shareholders' equity and/or the Tier 1 common equity measure. Because tangible common equity and Tier 1 common equity are not formally defined by U.S. GAAP or codified in the federal banking regulations, these measures are considered to be non-GAAP financial measures and other entities may calculate them differently than the Corporation's disclosed calculations. Since analysts and banking regulators may assess the Corporation's capital adequacy using tangible common shareholders' equity and Tier 1 common equity, Management believes that it is useful to provide investors information enabling them to assess the Corporation's capital adequacy on these same bases.

Tier 1 common equity is often expressed as a percentage of risk-weighted assets. Under the risk-based capital framework, a bank's balance sheet assets and credit equivalent amounts of off-balance sheet items are assigned to one of four broad risk categories. The aggregated dollar amount in each category is then multiplied by the risk weighting assigned to that category. The resulting weighted values from each of the four categories 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 Tier 1 common equity (non-GAAP). Tier 1 common equity is also divided by the risk-weighted assets to determine the Tier 1 common equity ratio. The amounts disclosed as risk-weighted assets are calculated consistent with banking regulatory requirements.

The Corporation currently calculates its risk-based capital ratios under guidelines adopted by the Federal Reserve based on the 1988 Capital Accord ("Basel I") of the Basel Committee on Banking Supervision (the "Basel Committee"). In December 2010, the Basel Committee released its final framework for Basel III, which will strengthen international capital and liquidity regulation. When implemented by U.S. bank regulatory agencies and fully phased-in, Basel III will change capital requirements and place greater emphasis on common equity. The U.S. bank regulatory agencies have not yet adopted final regulations governing the implementation

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of Basel III. Accordingly, the calculations provided below are estimates, based on the Corporation's current understanding of the framework, including the Corporation's reading of the requirements, and informal feedback received through the regulatory process. The Corporation's understanding of the framework is evolving and will likely change as the regulations are finalized. Because the Basel III implementation regulations are not formally defined by U.S. GAAP and have not yet been finalized and codified, 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.

The efficiency ratio (non-GAAP), which is a measure of productivity, is generally calculated as other expense divided by total revenue on a taxable equivalent basis. The fee income ratio (non-GAAP) is generally calculated as other income divided by total revenue. Management uses these ratios to monitor performance and believes these measures provide meaningful information to investors. Other expense may be presented excluding adjustments to arrive at adjusted other expense (non-GAAP), which is the numerator for the efficiency ratio. Other income may be presented excluding adjustments to arrive at adjusted other income (non-GAAP), which is the numerator for the fee income ratio. Net interest income on a taxable equivalent basis (non-GAAP) and other income are added together to arrive at total adjusted revenue (non-GAAP). Adjustments are made to arrive at adjusted total revenue (non-GAAP), which is the denominator for the fee income and efficiency ratios. 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.

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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GAAP to Non-GAAP Reconciliations
			March 31, 2013			March 31, 2012
			(Dollars in thousands)
Tangible common equity to tangible assets at period end
	Shareholders’ equity (GAAP)		$	1,754,850		$	1,584,105
	Less:	Intangible assets	6,055			7,756
		Goodwill	460,044			460,044
		Preferred Stock	100,000			—
	Tangible common equity (non-GAAP)		$	1,188,751		$	1,116,305
	Total assets (GAAP)		15,272,484			14,670,818
	Less:	Intangible assets	6,055			7,756
		Goodwill	460,044			460,044
	Tangible assets (non-GAAP)		$	14,806,385		$	14,203,018
	Tangible common equity to tangible assets ratio (non-GAAP)		8.03		%	7.86		%
Tier 1 common equity (1)
	Shareholders' equity (GAAP)		$	1,754,850		$	1,584,105
	Plus:	Net unrealized (gains) losses on available-for-sale securities	(47,504		)	(55,440		)
		Losses recorded in AOCI related to defined benefit postretirement plans	71,623			77,612
	Less:	Goodwill	460,044			460,044
		Intangible assets	6,055			7,756
		Disallowed servicing asset	1,943			1,771
	Tier 1 capital (regulatory)		1,310,927			1,136,706
	Less:	Preferred Stock	100,000			—
	Tier 1 common equity (non-GAAP)		$	1,210,927		$	1,136,706
	Risk-weighted assets (regulatory)		$	10,609,418		$	9,841,806
	Tier 1 common equity ratio (non-GAAP)		11.41		%	11.55		%
Basel III Tier 1 Common Ratio (2)
	Shareholders' equity (GAAP)		$	1,754,850		$	1,584,105
	Less:	Non-qualifying goodwill	460,044			460,044
		Non-qualifying intangible assets (3)	6,055			7,756
		Other adjustments (4)	1,943			1,771
	Basel III tier 1 capital (regulatory)		1,286,808			1,114,534
	Less:	Preferred Stock	$	100,000		$	—
	Basel III tier 1 common equity (regulatory)		$	1,186,808		$	1,114,534
	Basel III risk-weighted assets (regulatory) (5)		$	10,609,418		$	9,841,806
	Basel III tier 1 common equity ratio (non-GAAP)		11.19		%	11.32		%


(1)	Tier 1 common equity is a measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews this measure along with other measures of capital as part of its internal financial analysis.


(2)	Estimate based on June 2012 U.S. Notices of Proposed Rulemaking.


(3)	Under Basel III, regulatory capital must be reduced by purchased credit card relationship intangible assets. These assets are partially allowed in Basel I capital.


(4)	These include adjustments to other comprehensive income related to cash flow hedges, disallowed deferred tax assets, threshold deductions and other adjustments.


(5)	FirstMerit continues to develop systems and internal controls to calculate risk-weighted assets as required by Basel III. The amount included above is a reasonable approximation, based on our understanding of the requirements.

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GAAP to Non-GAAP Reconciliations, continued
			March 31, 2013			March 31, 2012
			(Dollars in thousands)
Fee Income and Efficiency Ratios
	Other expense (GAAP)		$	106,925		$	113,768
	Significant items:
	Less:	Intangible asset amortization	317			483
		Other intangible asset amortization	—			—
		Adjusted other expense (non-GAAP)	$	106,608		$	113,285
	Net interest income (FTE) (non-GAAP)		114,376			121,428
	Other income (GAAP)		57,392			51,726
	Significant Items:
		Securities gains (losses)	(9		)	260
		Adjusted other income (non-GAAP)	57,401			51,466
		Adjusted revenue (non-GAAP)	$	171,777		$	172,894
	Fee income ratio (non-GAAP)		33.42		%	29.77		%
	Efficiency ratio (non-GAAP)		62.06		%	65.52		%

RESULTS OF ~~OPERATION~~OPERATIONS

Net Interest Income

Net interest income, the ~~Corporation’s~~Corporation's principal source of earnings, is the difference between interest income generated by earning assets (primarily loans and investment securities) and interest paid on interest-bearing funds (namely customer deposits, wholesale borrowings and ~~wholesale borrowings)~~long-term debt). Net interest income is affected by market interest rates on both earning assets and interest bearing liabilities, the level of earning assets being funded by interest bearing liabilities, noninterest-bearing liabilities, the mix of funding between interest bearing liabilities, noninterest-bearing liabilities and equity, and the growth in earning assets.

Net interest income for the three ~~and~~ ~~six~~months ended ~~June 30, 2012~~March 31, 2013 was $~~118.9~~111.3 million ~~and~~ ~~$237.7 million, respectively,~~ compared to $~~117.4 million~~ ~~and~~ ~~$239.3~~118.8 million for ~~the~~ three ~~and~~ ~~six~~ ~~month~~months ended ~~June 30, 2011~~March 31, 2012. For the purpose of this remaining discussion, net interest income is presented on ana FTE basis, to ~~make tax-exempt loans and investment securities comparable to other taxable products.~~provide a comparison among all types of interest earning assets. That is, interest on ~~tax-exempt investment~~tax-free securities and tax-exempt loans has been restated as if such interest were taxed at the statutory ~~Federal~~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 presented on ana FTE basis is a ~~non-GAAP~~ financial measure ~~which~~that is calculated and presented other than in accordance with U.S. 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 be the preferred industry measurement of net interest income and enhances comparability of net interest income arising from taxable and tax-exempt sources. In addition, Management believes this metric assists investors in understanding management’s view of particular financial measures, as well as aligns presentation of these financial measures with peers in the industry who may also provide a similar presentation.make peer comparisons. The FTE adjustment was $~~2.8~~3.0 million and $~~2.3~~2.6 million for the ~~three months ending~~quarters ended ~~June 30, 2012~~March 31, 2013 and ~~2011, respectively, and~~ ~~$5.4 million~~ ~~and~~ ~~$4.7 million~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~June 30,~~ 2012 ~~and~~ ~~June 30, 2011~~, respectively.

~~FTE net~~Net interest income ~~for~~presented on an FTE basis decreased$7.0 million or 5.77% to $114.4 million in the three ~~and~~ ~~six~~ ~~month periods~~months ended ~~June 30, 2012~~March 31, 2013 ~~was~~ ~~$121.7 million~~ ~~and~~ ~~$243.1 million, respectively,~~ compared to $~~119.7~~121.4 million ~~and~~in the same period of ~~$243.9 million~~2012 ~~for the three and~~ ~~six~~ ~~months ended~~ ~~June 30, 2011, respectively.~~.

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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.


RATE/VOLUME ANALYSIS	Three Months Ended June 30, 2012 and 2011									Six Months Ended June 30, 2012 and 2011
CHANGES IN NET INTEREST INCOME- FULLY TAX-EQUIVALENT RATE/VOLUME ANALYSIS																			CHANGES IN NET INTEREST INCOME- FULLY TAX-EQUIVALENT RATE/VOLUME ANALYSIS
	Increases (Decreases)									Increases (Decreases)
(Dollars in thousands)	Volume			Rate			Total			Volume			Rate			Total
INTEREST INCOME - FTE
																				Three months ended March 31,
																				2013 and 2012
																				Increase (Decrease) In Interest Income/Expense
																				Volume			Yield/ Rate			Total
																				( Dollars in thousands)
INTEREST INCOME -FTE																			INTEREST INCOME -FTE
Investment securities and federal funds sold:																			Investment securities and federal funds sold:
Taxable	$	(262	)	$	(131	)	$	(393	)	$	1,044		$	(504	)	$	540		Taxable	$	(652	)	$	(2,528	)	$	(3,180	)
Tax-exempt	1,496			(397		)	1,099			2,597			(915		)	1,682			Tax-exempt	1,306			(575		)	731
Loans held for sale	46			(29		)	17			(90		)	118			28			Loans held for sale	(114		)	(25		)	(139		)
Loans	2,146			(6,857		)	(4,711		)	3,411			(19,531		)	(16,120		)	Loans	5,175			(9,325		)	(4,150		)
Total interest income - FTE	3,426			(7,414		)	(3,988		)	6,962			(20,832		)	(13,870		)
Total interest income -FTE																			Total interest income -FTE	5,715			(12,453		)	(6,738		)
INTEREST EXPENSE																			INTEREST EXPENSE
Interest on deposits:																			Interest on deposits:
Interest-bearing	53			6			59			104			18			122
Interest bearing																			Interest bearing	56			15			71
Savings and money market accounts	590			(2,955		)	(2,365		)	1,555			(6,662		)	(5,107		)	Savings and money market accounts	145			67			212
Certificates of deposits and other time deposits	(1,569		)	(868		)	(2,437		)	(3,668		)	(2,072		)	(5,740		)
Certificates and other time deposits ("CDs")																			Certificates and other time deposits ("CDs")	(666		)	(795		)	(1,461		)
Securities sold under agreements to repurchase	38			(702		)	(664		)	78			(1,389		)	(1,311		)	Securities sold under agreements to repurchase	6			39			45
Wholesale borrowings	(864		)	329			(535		)	(1,680		)	657			(1,023		)	Wholesale borrowings	(302		)	1			(301		)
Long-term debt																			Long-term debt	1,748			—			1,748
Total interest expense	(1,752		)	(4,190		)	(5,942		)	(3,611		)	(9,448		)	(13,059		)	Total interest expense	987			(673		)	314
Net interest income - FTE	$	5,178		$	(3,224	)	$	1,954		$	10,573		$	(11,384	)	$	(811	)	Net interest income - FTE	$	4,728		$	(11,780	)	$	(7,052	)

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

The net interest margin is calculated by dividing net interest income FTE by average earning assets. As with net interest income, the net interest margin is affected by the level and mix of earning assets, the proportion of earning assets funded by non-interest bearing liabilities, and the interest rate spread. In addition, the net interest margin is impacted by changes in federal income tax rates and regulations as they affect the tax-equivalent adjustment.

The following table provides~~2012~~ FTE net interest income and net interest margin totals ~~as well as~~for the ~~2011~~three months ended March 31, 2013 ~~comparative amounts:~~and 2012:


	Three Months Ended June 30,						Six Months Ended June 30,						Three months ended March 31,
(Dollars in thousands)	2012			2011			2012			2011
													2013			2012
													(Dollars in thousands)
Net interest income	$	118,923		$	117,443		$	237,710		$	239,269		$	111,349		$	118,787
Tax equivalent adjustment	2,766			2,292			5,407			4,659			3,027			2,641
Net interest income - FTE	$	121,689		$	119,735		$	243,117		$	243,928		$	114,376		121,428
Average earning assets	$	12,986,988		$	12,724,269		$	12,961,086		$	12,643,063		$	13,408,789		$	12,935,184
Net interest margin - FTE	3.77		%	3.77		%	3.77		%	3.89		%
Net interest margin													3.46		%	3.78		%

The average yield on earning assets decreased from ~~4.27%~~4.10% in the ~~quarter ended~~ ~~June 30, 2011~~first quarter of 2012 to ~~4.07%~~3.78% in the ~~quarter ended~~ ~~June 30, 2012~~first quarter of 2013. ~~Higher~~Lower outstanding balances on total average earning assets in ~~the quarter~~three months ended ~~June 30, 2012~~March 31, 2013 did not mitigate the decrease in average yield, which caused interest income to ~~decrease~~ decrease$~~4.0~~6.7 million from year-ago levels. Average balances for investment securities were up from the ~~second~~year ago quarter ~~of 2011,~~ increasing interest income by $~~1.2~~0.7 million, and lower rates earned on the securities decreased interest income by $~~0.5~~3.1 million. year over year. Average loans outstanding, up from the ~~second~~year ago quarter, ~~of 2011,~~ increased interest income ~~from~~ for

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the ~~quarter~~three months ended ~~June 30, 2011~~March 31, 2013 by $~~2.1~~5.2 million and lower yields earned on ~~the~~ loans, decreased loan interest income ~~in the quarter~~for three months ended ~~June 30, 2012~~March 31, 2013 by $~~6.9~~9.3 million. ~~Higher~~Lower outstanding balances on average deposits and lower rates paid on deposits caused interest expense to ~~decrease~~ decrease$~~4.7~~1.2 million in the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013. ~~Lower average outstanding balances on wholesale~~New long-term debt ~~and lower rates paid~~issued in the three months ended March 31, 2013 caused interest expense to ~~decrease~~increase by $~~0.5~~1.7 million in the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013.

The cost of funds for the year as a percentage of average earning assets ~~decreased~~ 23 ~~basis points from~~

~~0.12%~~ ~~for the quarter ended~~ ~~June 30, 2011~~ toremained flat at 0.08% for the ~~quarter~~three months ended ~~June 30,~~March 31, 2012 and March 31, 2013. ~~The drop in interest rates was the primary factor driving this decrease.~~

Other Income

Excluding investment ~~gains,~~securities transactions, other income for the three ~~and~~ ~~six~~months ended ~~June 30, 2012~~March 31, 2013 totaled $~~54.8~~57.4 million ~~and~~ ~~$106.2 million~~, ~~respectively, compared with~~ ~~$50.6 million~~ ~~and~~ ~~$103.4 million~~ i~~n the same periods of~~ ~~2011. The latter represents~~ an increase of $~~4.2~~5.9 million or ~~8.20%~~11.53% induring the ~~second~~ ~~quarter of~~ ~~2012~~ ~~and an~~ ~~increase~~ of ~~$2.9 million~~ or ~~2.77%~~ ~~in the first~~ ~~six~~ ~~months of~~ ~~2012~~.same period a year ago. Other income as a percentage of net revenue (FTE net interest income plus other income, less ~~security~~ gains from securities) was ~~31.03%~~ ~~and~~ ~~30.41%~~33.42% for the three ~~and~~ ~~six~~months ended ~~June 30, 2012~~March 31, 2013~~, respectively,~~ compared to ~~29.71%~~29.77% ~~and~~ ~~29.76%~~ infor the same ~~periods of~~ ~~2011~~.three month period one year ago. Explanations for the most significant changes in the components of other income are discussed immediately after the following table.



	Three Months Ended				Six Months Ended				Three months ended March 31,
(In thousands)	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
									2013			2012
									(In thousands)
Trust department income	$	5,730	$	5,863	$	11,357	$	11,377	$	5,741		$	5,627
Service charges on deposits	14,478		15,712		28,887		30,622		12,585			14,409
Credit card fees	11,216		13,510		21,396		25,717		10,222			10,180
ATM and other service fees	3,890		3,063		7,680		5,980		3,335			3,790
Bank owned life insurance income	2,923		3,015		5,979		8,256		4,897			3,056
Investment services and life insurance	2,388		1,972		4,635		4,419		2,415			2,247
Investment securities gains, net	548		889		808		889
Investment securities (losses)/gains, net									(9		)	260
Loan sales and servicing income	5,139		2,891		11,830		5,676		7,863			6,691
Other operating income	8,989		4,576		14,455		11,311		10,343			5,466
Total other income	$	55,301	$	51,491	$	107,027	$	104,247
									$	57,392		$	51,726

Service charges on deposits decreased $~~1.2~~1.8 million ~~and~~or ~~$1.7 million~~12.66% from the year ago quarter reflecting a change in ~~the three and~~ ~~six~~ ~~months ended~~ ~~June 30, 2012, respectively, compared to the same periods of~~ ~~2011~~,customer behavior. Bank owned life insurance income increased $1.8 million or 60.24% year over year as a result of ~~regulatory revisions to overdraft fee policies which took effect in the fourth quarter of 2011. Credit card fees~~ ~~decreased$2.3~~a $1.6 million ~~and~~ ~~$4.3 million~~ death benefit received in the three ~~and~~ ~~six~~months ended ~~June 30, 2012, respectively, compared to the same periods of~~ ~~2011~~ ~~as a result of the implementation of the Durbin Interchange Amendment in the fourth quarter of 2011.~~March 31, 2013. Loan sales and servicing income increased year over year $~~2.2~~1.2 million or ~~77.76%~~17.52% due to higher pricing margins in the current period versus prior year. Other operating income ~~second~~increased ~~quarter of~~ ~~2012~~ ~~and~~ $~~6.2~~4.9 million or ~~108.42%~~89.22% infrom the ~~first~~ ~~six~~ ~~months of~~ ~~2012~~ ~~due to an increase in mortgage loan originations and refinancing activity due a decrease in interest rates in~~ ~~2012. Offsetting these positive variances were impairment charges of mortgage servicing rights in~~ ~~2012. Other~~year ago quarter as other operating income infor the three ~~and~~ ~~six~~ months ended ~~June 30, 2012~~March 31, 2013 ~~increased~~included $5.0 million in gains from covered loan payoffs and related income. Gains on covered loan payoffs represent the ~~same periods of~~ ~~2011~~ ~~as a result of gains~~difference between the credit mark on ~~payoffs of covered~~the paid-off loans ~~which occurred in 2012.~~less the remaining associated indemnification asset.

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Other Expenses

Other expenses totaled $~~119.1 million~~ ~~and~~ ~~$232.8~~106.9 million for the three ~~and~~ ~~six~~months ended ~~June 30, 2012~~March 31, 2013~~, respectively,~~ compared ~~with~~to $~~110.1 million~~ ~~and~~ ~~$224.5 million~~ ~~the same periods of~~ ~~2011. The latter represents an increase of~~ ~~$9.0 millionand~~ ~~$8.3~~113.8 million in the same three month period one year ago, a decrease of $6.8 million or 6.01% year over year.



	Three months ended March 31,
	2013		2012
	(In thousands)
Salaries and wages	$	46,391	$	45,710
Pension and employee benefits	11,515		18,263
Net occupancy expense	8,282		8,592
Equipment expense	7,349		7,104
Taxes, other than federal income taxes	1,922		1,955
Stationery, supplies and postage	2,096		2,143
Bankcard, loan processing, and other costs	7,840		7,653
Advertising	2,070		1,684
Professional services	5,410		3,352
Telephone	1,177		1,398
Amortization of intangibles	317		483
FDIC expense	3,526		3,720
Other operating expense	9,030		11,711
	$	106,925	$	113,768

Pension and employee benefit expenses were ~~six~~$11.5 million for three months ended ~~June 30, 2012~~March 31, 2013, ~~respectively, compared with~~a decrease of $6.7 million or 36.95% from the same ~~periods~~three month period one year ago. Pension expense decreased $3.0 million year over year as a result of the qualified defined benefit pension plan being frozen effective December 31, 2012 resulting in no benefits accruing after December 31, 2012. Professional services expenses were $5.4 million for the three months ended March 31, 2013, an increase of ~~2011~~$2.1 million. or

~~The following table compares~~61.40% over the ~~components of other~~same three month period one year ago. Included in professional services expenses for the three ~~and~~ ~~six~~months ended ~~June 30, 2012~~March 31, 2013 ~~and~~were acquisition related costs associated with the Citizens merger of ~~2011~~$3.1 million.

Three Months Ended Six Months Ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
Salaries, wages, pension and employee benefits $ 61,598
$ 56,713
$ 125,571
$ 116,583
Net occupancy expense 7,971
8,086
16,563
16,680
Equipment expense 7,598
6,816
14,702
13,652
Taxes, other than federal income taxes 2,020
922
3,975
2,882
Stationery, supplies and postage 2,285
2,750
4,428
5,455
Bankcard, loan processing, and other costs 8,858
8,266
16,511
15,829
Advertising 2,280
2,287
3,964
4,670
Professional services 9,307
5,940
12,659
11,734
Telephone 1,379
1,462
2,777
2,948
Amortization of intangibles 483
543
966
1,086
FDIC expense 3,463
4,581
7,183
8,947
Other operating expense 11,835
11,702
23,546
24,048
Total other expense $ 119,077
$ 110,068
$ 232,845
$ 224,514

~~During the second quarter ended June 30, 2012, management announced its implementation plan to enhance the~~ Other operating ~~efficiency and profitability of the Corporation (the "Efficiency Initiative") and as a result recognized~~expense decreased$~~8.9~~2.7 million ~~in one-time charges primarily consisting of employee separation costs and professional services fees. Of the total one-time charges,~~or ~~$3.3 million~~22.89% ~~was related to employee separation costs and~~ ~~$5.2 million~~ ~~was related to professional services fees. Excluding the~~ ~~$8.9 million~~ ~~in one-time charges from implementation of the Efficiency Initiative, other expenses were flat quarter over quarter and~~ year over year. ~~For further information on these one-time charges, refer to Note~~ 2 (~~Restructuring~~).

The efficiency ratio for the ~~second~~first quarter ~~quarter~~of ~~2012~~2013 was ~~67.21%~~62.06%, compared to ~~64.30%~~65.52% ~~during~~in the same period in ~~2011. The efficiency ratio indicates the percentage~~ of ~~operating costs that are used to generate each dollar of net revenue - that is, during the~~ ~~second~~ ~~quarter~~ 2012~~, 67.21 cents was spent to generate each $1 of net revenue.~~. Net revenue is defined as net interest income, on ~~a tax-equivalent~~an FTE basis, plus other income less gains from the sales of securities.

Income Taxes

Income tax expense was $~~12.4~~14.5 million ~~(an effective tax rate of~~ ~~28.79%) and~~ ~~$11.5 million~~ ~~(an effective tax rate of~~ ~~27.84%) for the quarter ended~~ ~~June 30, 2012~~ and ~~2011, respectively, and~~ $~~24.7~~12.3 million ~~(an effective tax rate of~~ ~~28.85%) and~~ ~~$21.7 million~~ ~~(an effective tax rate of~~ ~~27.47%~~) for the ~~six~~three months ended ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012, respectively. The effective income tax rate for the three months ended March 31, 2013 was 28.00% compared to 28.91% for the three months ended March 31, 2012.

~~Line~~

Table of ~~Business Results~~Contents

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 98 (Segment Information) to the consolidated financial statements. The Corporation's profitability is primarily dependent on the net interest income, provision for credit losses, non-interest income and operating expenses of its commercial and retail segments as well as the asset management and trust operations of the wealth segment. The following tables present a summary of financial results as of and for the ~~three and~~ ~~six~~three months ended ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012:.

Commercial Retail Wealth Other FirstMerit Consolidated
June 30, 2012 QTD YTD QTD YTD QTD YTD QTD YTD QTD YTD
OPERATIONS:
Net interest income (loss) - FTE $ 65,463
$ 130,283
$ 53,280
$ 107,552
$ 4,402
$ 9,001
$ (1,456 ) $ (3,720 ) $ 121,689
$ 243,116
Provision for loan losses 3,465
12,570
1,728
4,265
(24 ) 201
7,027
9,221
12,196
26,257
Other income 18,047
32,356
24,177
49,443
8,392
16,460
4,685
8,768
55,301
107,027
Other expenses 40,128
83,479
56,784
115,830
9,792
20,007
12,373
13,529
119,077
232,845
Net income (loss) 26,449
44,063
12,299
23,985
1,939
3,219
(10,102 ) (10,338 ) 30,585
60,929
AVERAGES :
Assets $ 6,364,148
$ 6,346,311
$ 2,918,710
$ 2,914,532
$ 237,548
$ 237,060
$ 5,038,108
$ 5,029,609
$ 14,558,514
$ 14,527,512
Loans (noncovered and covered) 6,335,933
6,321,190
2,642,000
2,638,351
223,903
223,517
64,497
59,047
9,266,333
6,335,933
9,242,105
Earnings assets 6,436,799
6,416,955
2,673,725
2,671,895
223,928
223,543
3,652,536
3,648,693
12,986,988
6,436,799
12,961,086
Deposits 3,203,039
3,171,118
7,529,162
7,497,015
705,824
702,262
117,258
143,256
11,555,283
3,203,039
11,513,651
Economic Capital 392,352
389,712
209,979
212,122
49,521
48,813
947,335
939,450
1,599,187
392,352
1,590,097


	Commercial				Retail				Wealth				Other						FirstMerit Consolidated
June 30, 2011	QTD		YTD		QTD		YTD		QTD		YTD		QTD			YTD			QTD		YTD
March 31, 2013																							Commercial		Retail		Wealth		Other			FirstMerit Consolidated
OPERATIONS:
Net interest income (loss) - FTE	$	65,239	$	133,443	$	56,265	$	112,036	$	4,725	$	9,547	$	(6,434	)	$	(11,039	)	$	119,795	$	243,987	$	66,441	$	46,431	$	3,775	$	(2,271	)	$	114,376
Provision for loan losses	15,090		25,107		6,517		12,466		707		1,326		(4,695		)	1,069			17,619		39,968		4,766		4,073		208		899			9,946
Other income	12,620		27,413		25,785		49,976		8,089		16,282		4,997			10,576			51,491		104,247		19,232		24,388		8,310		5,462			57,392
Other expenses	35,732		73,346		58,539		119,370		10,140		20,437		5,657			11,361			110,068		224,514		43,027		52,907		10,174		817			106,925
Net income (loss)	17,812		41,023		11,195		19,880		1,341		2,704		(585		)	(6,283		)	29,763		57,324		24,022		8,996		1,107		3,221			37,346
AVERAGES :
AVERAGES:
Assets	$	6,133,210	$	6,114,006	$	2,934,633	$	2,944,264	$	241,929	$	242,586	$	5,171,436		$	5,074,596		$	14,481,208	$	14,375,452	6,737,236		3,016,495		236,811		4,993,001			14,983,543
Loans (noncovered and covered)	6,127,754		6,121,751		2,657,308		2,679,264		227,872		229,769		70,057			69,945			9,082,991		9,100,729		6,677,719		2,736,949		223,234		58,024			9,695,926
Earnings assets	6,206,766		6,193,404		2,684,374		2,747,141		228,357		230,252		3,604,772			3,472,267			12,724,269		12,643,064		6,814,089		2,762,045		223,263		3,609,392			13,408,789
Deposits	2,962,379		2,906,938		7,640,199		7,566,166		637,464		646,435		224,696			273,136			11,464,738		11,392,675		3,500,846		7,416,124		744,466		128,348			11,789,784
Economic Capital	357,750		366,987		217,819		224,165		51,882		52,428		906,404			881,510			1,533,855		1,525,090		462,614		212,815		49,534		990,042			1,715,005

~~On a quarterly basis, the~~



March 31, 2012	Commercial		Retail		Wealth		Other			FirstMerit Consolidated
OPERATIONS:
Net interest income (loss) - FTE	$	64,674	$	54,277	$	4,598	$	(2,121	)	$	121,428
Provision for loan losses	9,104		2,537		225		2,195			14,061
Other income	14,309		25,265		8,068		4,084			51,726
Other expenses	43,351		57,481		10,214		2,722			113,768
Net income (loss)	16,709		12,691		1,447		(503		)	30,344
AVERAGES:
Assets	6,328,473		2,910,354		236,571		5,021,539			14,496,937
Loans (noncovered and covered)	6,306,446		2,634,702		223,131		53,600			9,217,879
Earnings assets	6,397,111		2,670,067		223,159		3,644,847			12,935,184
Deposits	3,139,197		7,464,867		698,700		169,257			11,472,021
Economic Capital	387,073		214,265		48,106		931,565			1,581,009

The commercial segment's net income increased ~~$8.6~~$7.3 million ~~from June 30, 2011~~ to ~~$26.5~~$24.0 million for the ~~quarter~~three months ended ~~June 30, 2012.~~March 31, 2013 driven by higher revenues and lower loan losses. FTE adjusted net interest income totaled ~~$65.5~~$66.4 million for the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013 compared to ~~$65.2~~$64.7 million for the ~~quarter~~three months ended ~~June 30, 2011,~~March 31, 2012, an increase of ~~$0.3~~$1.8 million, or ~~0.30%~~2.73%. The increase was primarily attributable to ~~a $635.7~~an $803.4 million, or 15.69%, increase in noncovered loan balances. The strong loan growth was prevalent in all major divisions of the commercial segment. Growth in loan interest income was offset partially by lower interest income associated with acquired loans ~~offsetting~~via the ~~$427.5~~FDIC-assisted acquisitions, lower loan yields, and lower

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deposit income associated with the internal credit on deposits. Deposit balances grew $361.6 million ~~decrease~~or 11.5% to $3.5 billion due primarily to growth in ~~covered loan balances acquired via FDIC-assisted acquisitions.~~small business deposits and government-related deposits. Provision for credit losses for the commercial segment totaled ~~$3.5~~$4.8 million for the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013 compared to ~~$15.1~~$9.1 million for the ~~quarter~~three months ended ~~June 30, 2011,~~March 31, 2012, a decrease of ~~$11.6~~$4.3 million, or ~~77.04%~~47.65%. The ~~decrease~~continued decline in ~~the~~ provision for loan losses reflected the results of Management's focused efforts to improve asset quality and portfolio credit metrics. Net charge-offs declined ~~$2.9~~$4.8 million to ~~$5.0~~$1.6 million for the ~~quarter~~three months ended ~~June 30, 2012.~~March 31, 2013. The remaining provision covered substantial loan growth in noncovered loans. Non-interest income was ~~$18.0~~$19.2 million for the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013 compared to ~~$12.6~~$14.3 million for the same period in ~~2011.~~2012. The increase was primarily attributable to higher gains recognized from covered loans paid in full, ~~as well as higher syndication fees, swap fees, merchant~~coupled with growth in asset-based lending fees and ~~letter of credit~~international fees. Non-interest expense for the commercial segment was ~~$40.1~~essentially unchanged at $43.0 million for the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013 compared to ~~$35.7 million for~~ the ~~quarter ended June 30, 2011. The increase~~same period of 2012. Growth in expenses ~~was primarily attributable to a change in the FDIC assessment calculation from using deposit balances to risk-weighted assets. Additionally, expenses are higher due to~~driven by the build-out of specialized banking capabilities ~~including leasing, asset based lending, capital markets, and treasury management.~~was offset by the results of management's efficiency initiative.

~~On a quarterly basis, the~~The retail segment's net income ~~increased $1.1~~decreased $3.7 million for the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013 to ~~$12.3~~$9.0 million ~~for the quarter~~compared to three months ended ~~June 30, 2011.~~March 31, 2012. FTE adjusted net interest income totaled ~~$53.3~~$46.4 million for the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013 compared to ~~$56.3~~$54.3 million for the ~~quarter~~three months ended ~~June 30, 2011,~~March 31, 2012, a decrease of ~~$3.0~~$7.8 million or ~~5.31%~~14.46%. The decrease was primarily attributable to a ~~$50.1~~$43.6 million decrease in covered loan ~~balances. Additionally,~~balances acquired via FDIC assisted acquisitions, along with lower deposit ~~spreads decreased 13 basis points due to a lower~~income associated with the internal credit ~~applied to deposits, which was driven by lower market rates.~~on deposits. Deposit balances ~~decreased $111.0 million from~~were essentially consistent with the ~~second quarter of 2011. The retail segment shifted deposit mix from higher cost time deposits to lower cost core deposits.~~quarterly average in 2012. Provision for credit losses totaled ~~$1.7~~$4.1 million for the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013 compared to ~~$6.5~~$2.5 million for the ~~quarter~~three months ended ~~June 30, 2011,~~March 31, 2012, an increase of $1.6 million. Net charge-offs declined $1.3 million to $4.3 million for the three months ended March 31, 2013. Non-interest income was $24.4 million for the three months ended March 31, 2013 compared to $25.3 million for the three months ended March 31, 2012, a decrease of ~~$4.8~~$0.9 million, or 73.48%. The decrease in the provision for loan losses reflected the results of focused efforts to improve asset quality and portfolio credit metrics. Net charge-offs declined $3.2 million to $3.7 million for the quarter ended June 30, 2012. Non-interest income was $24.2 million for the quarter ended June 30, 2012 compared to $25.8 million for the quarter ended June 30, 2011, a decrease of $1.6 million, or 5.94%3.47%. The decrease was primarily attributable to lower service charges on deposits driven by the effects of new regulations on charges for non-sufficient funds and overdrafts, as well as the effects of the Durbin Interchange Amendment on ATM interchange ~~fees,~~fees. The fee income decline was offset partially by ~~strong~~continued strength in mortgage fee income. Non-interest expense ~~was $56.8~~declined $4.5 million, or 7.96%, to $52.9 million for the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013 compared to ~~$58.5~~$57.5 million for the ~~quarter~~three months ended ~~June 30, 2011.~~March 31, 2012. The decrease in expenses was primarily attributable to the ~~change in FDIC assessment methodology. The internal allocations were shifted from allocating based upon deposits to an allocation based upon risk-wighted assets.~~results of management's efficiency initiative.

~~On a quarterly basis, the~~The wealth segment's net income of ~~$1.9~~$1.1 million for the ~~quarter~~three months ended ~~June 30, 2012 increased $0.6~~March 31, 2013 decreased $0.3 million from the ~~quarter~~three months ended ~~June 30, 2011.~~March 31, 2012. The ~~increase~~decrease was attributable to lower ~~provision for loan losses. Deposits have grown $68.4~~deposit income associated with the internal credit on deposits, offset partially by higher trust fee income and higher income associated with investment fees and insurance. Deposit balances increased $45.8 million to ~~$705.8 million as of June 30, 2012. Non-interest expense was $9.8~~$744.5 million for the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013 compared to ~~$10.1~~$698.7 for the ~~quarter ended June 30, 2011.~~same period of 2012.

Activities that are not directly attributable to one of the primary lines of business are included in the Other segment. Included in this category are the parent company, community development operations, treasury operations, including the securities portfolio, wholesale funding and asset liability management activities, inter-company eliminations, acquisition related expenses, and the economic impact of certain assets, capital and support functions not specifically identifiable with the three primary lines of business. The Other segment recorded a net loss of $10.1 million for the quarter ended June 30, 2012, which was $ 9.5 million greater than for the quarter ended June 30, 2011. The increase in losses was primarily attributable to one-time charges of $8.9 million related to the recently announced efficiency project.

On a year-to-date basis, the commercial segment's net income increased $3.0 million from June 30, 2011 to $44.1 million for the six months ended June 30, 2012. FTE adjusted net interest income totaled $130.3 million for the six months ended June 30, 2012 compared to $133.4 million for the quarter ended June 30, 2011, a decrease of $3.1 million, or 2.4% The decrease was primarily attributable to a $425.2 million decrease in covered loans, offset by the $624.6 million increase in noncovered loan balances. Additionally deposit spreads decreased, offsetting strong growth in deposit balances, which grew $264.2 million to $3.2 billion. Provision for credit losses for the commercial segment totaled $12.6 million for the six months ended June 30, 2012 compared to $25.1 million for the six months ended June 30, 2011, a decrease of $12.5 million, or 49.93%. The decrease in the provision for loan losses reflected the results of Management's focused efforts to improve asset quality and portfolio credit metrics. Net charge-offs declined $4.0 million to $11.3 million for the six months ended June 30, 2012. The remaining provision covered substantial loan growth in noncovered loans. Non-interest income was $32.4 million for the six months ended June 30, 2012 compared to $27.4 million for the same period in 2011. The increase was primarily attributable to higher syndication fees, swap fees, merchant fees and letter of credit fees. Non-interest expense for the commercial segment was $83.5 million for the six

months ended June 30, 2012 compared to $73.3 million for the six months ended June 30, 2011. The increase in expenses was primarily attributable to a change in the FDIC assessment calculation from using deposit balances to risk-weighted assets. Additionally, expenses are higher due to the build-out of specialized banking capabilities, including leasing, asset based lending, capital markets, and treasury management.

On a year-to-date basis, the retail segment's net income increased $4.1 million for the six months ended June 30, 2012 to $24.0 million for the six months ended June 30, 2011. FTE adjusted net interest income totaled $107.6 million for the six months ended June 30, 2012 compared to $112.0 million for the six months ended June 30, 2011, a decrease of $4.4 million, or 4.0%. The decrease was primarily attributable to a $49.0 million decrease in covered loan balances. Additionally, deposit spreads decreased five basis points due to a lower internal credit applied to deposits, which was driven by lower market rates. Deposit balances decreased $69.2 million with the year-to-date average in 2011. The retail segment shifted deposit mix from higher cost time deposits to lower cost core deposits. Provision for credit losses totaled $4.3 million for the six months ended June 30, 2012 compared to $12.5 million for the quarter ended June 30, 2011, a decrease of $8.2 million, or 65.79%. The decrease in the provision for loan losses reflected the results of focused efforts to improve asset quality and portfolio credit metrics. Net charge-offs declined $6.4 million to $9.3 million for the six months ended June 30, 2012. Non-interest income was $49.4 million for the six months ended June 30, 2012 compared to $50.0 million for the six months ended June 30, 2011, a decrease of $0.6 million, or 0.74%. The decrease was primarily attributable to the effects of new regulations on charges for non-sufficient funds and overdrafts, as well as the effects of the Durbin Interchange Amendment on interchange fees, offset partially by strong mortgage fee income. Non-interest expense was $115.8 million for the six months ended June 30, 2012 compared to $119.4 million for the six months ended June 30, 2011. The decrease in expenses was primarily attributable to the change in FDIC assessment methodology. The internal allocations were shifted from allocating based upon deposits to an allocation based upon risk-weighted assets.

~~On a year-to-date basis, the wealth segment's~~ net income of $3.2 million for the ~~six~~three months ended ~~June 30, 2012 increased $0.5~~March 31, 2013 which was $3.7 million ~~from~~higher than the ~~six~~three months ended ~~June 30, 2011.~~March 31, 2012. The ~~increase~~improvement was attributable to lower ~~provision for loan losses. Deposits have grown $55.8~~expenses as a result of management's successful efficiency initiative, offset partially by expenses associated with the acquisition of Citizen's. Also contributing to the improvement was receipt of a death benefit in the amount of $1.6 million ~~to $702.3 million as of June 30, 2012. Non-interest expense was $20.0 million for~~during the ~~quarter ended June 30, 2012 compared to $20.4 million for the quarter ended June 30, 2011.~~

~~The Other segment recorded a net loss of $10.3 million for the six~~three months ended ~~June 30, 2012, which was $4.1 million greater than for the six months ended June 30, 2011. The increase in losses was primarily attributable to one-time charges~~March 31, 2013.

Table of ~~$8.9 million related to the recently announced efficiency project.~~Contents

FINANCIAL CONDITION

Acquisitions

~~First Bank Branches~~On September 12, 2012, the Corporation and Citizens Republic Bancorp, Inc. ("Citizens"), a Michigan corporation, with approximately $9.6 billion in assets and 219 branches entered into an Agreement and Plan of Merger (the "Merger Agreement").

On ~~February 19, 2010~~,April 12, 2013, the ~~Bank~~Corporation completed its merger (the “Merger”) with Citizens which resulted in Citizens common stock being converted into the ~~acquisition~~right to receive 1.37 shares of ~~certain assets~~the Corporation's common stock (except that any shares of Citizens common stock that were owned by Citizens, the Corporation or any of their respective subsidiaries, other than in a fiduciary capacity, were canceled without any consideration therefor). Each outstanding option to acquire, and each outstanding equity award relating to, one share of Citizens' common stock was converted into an option to acquire, or an equity award relating to, 1.37 shares of the ~~assumption~~Corporation's common stock, as applicable. The conversion of ~~certain liabilities with respect to~~ 24 ~~branches of First Bank located~~Citizens' common stock into the Corporation's common stock resulted in the ~~greater Chicago, Illinois area.~~Corporation issuing approximately 55 million shares of its common stock.

~~George Washington Savings~~Immediately following the Merger, Citizens Bank, ~~– FDIC Assisted Acquisition~~a Michigan chartered bank and wholly owned subsidiary of Citizens, merged with and into FirstMerit Bank, N.A., a national banking association and wholly owned subsidiary of FirstMerit, with FirstMerit Bank, N.A. surviving the merger and continuing its corporate existence under the name “FirstMerit Bank, N.A.” The results of operations acquired in the Citizens transaction will be included in the Corporation's financial results beginning on April 13, 2013.

~~On February 19, 2010,~~The Merger Agreement provided that upon completion of the ~~Bank entered~~Merger, the Corporation increase its board of directors by two directors. The new directorships were filled with current members of the Citizens board.

Effective April 12, 2013, the Corporation purchased 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 "Citizens TARP Preferred") in the amount of $300 million plus accumulated but unpaid dividends and interest of approximately $55.4 million. In addition, effective April 12, 2013, a warrant to purchase 1,757,812.5 shares of Citizens' common stock that had been issued to the Treasury on December 12, 2008 as part of Citizens' participation in the Treasury's Capital Purchase Program, was converted into a warrant to purchase 2,408,203 shares of FirstMerit common stock. The Corporation used the net proceeds from its February 4, 2013 public offerings to repurchase the Citizens TARP Preferred and ~~assumption agreement with~~pay all accrued, accumulated and unpaid dividends and interest. The Corporation's public offerings consisted of $250 million aggregate principal amount of subordinated notes due February 4, 2023 bearing interest at an annual rate of 4.35% payable semi-annually in arrears on February 4 and August 4 of each year and 4,000,000 depositary shares (each representing a ~~loss~~1/40th interest in a share ~~arrangement with the FDIC, as receiver of George Washington to acquire certain assets and assume substantially all~~ of the ~~deposits~~Corporation's Series A Non-Cumulative Perpetual Preferred Stock) with dividends payable quarterly in arrears on the 4th day of February, May, August and ~~certain liabilities~~November, beginning May 4, 2013, which resulted in ~~a whole-bank acquisition~~gross proceeds 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 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.~~

~~Midwest Bank and Trust Company – FDIC Assisted Acquisition~~$100 million.

OnThe following components make up the consideration for the merger transaction: approximately ~~May 14, 2010~~$930 million, in converted common stock, $355 million paid to the ~~Bank entered into~~Treasury to purchase the Citizens TARP Preferred and approximately $3 million in a warrant issued to the Treasury to purchase ~~and assumption agreement with a loss share arrangement~~the Corporation's common stock in conjunction with the ~~FDIC, as receiver of Midwest, to acquire substantially all~~purchase 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 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~~.Citizens TARP Preferred.

The ~~acquisitions~~Citizens acquisition will be accounted for using the purchase acquisition method of ~~First Bank, George Washington~~accounting and ~~Midwest were considered business combinations~~accordingly, assets acquired, liabilities assumed and ~~all acquired assets and liabilities were~~consideration exchanged will be recorded at ~~their~~ estimated fair ~~value.~~

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value on the acquisition date. The ~~one-year measurement period for~~Corporation is in the ~~three acquisitions expired before June 30, 2011. Material adjustments to acquisition date estimated~~process of determining the preliminary fair values ~~were recorded in the period in~~ which ~~the acquisition occurred and, as a result, previously reported results~~ are subject to ~~change. Certain reclassifications~~refinement for up to one year after the closing date of ~~prior periods’ amounts may also~~the acquisition as additional information relative to closing date fair values becomes available. Any resulting goodwill will not be ~~made~~deductible for income

tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes

Management's strategy to ~~conform~~de-leverage the newly acquired Citizens' balance sheet resulted in the Corporation repaying on April 15, 2013 approximately $591.0 million in principal of Federal Home Loan advances. Management's strategy to re-balance the ~~current period’s presentation~~investment portfolio acquired in the Citizens merger resulted in the sale of approximately $2.1 billion in agency MBS, agency CMOs, municipal securities and ~~would have no effect~~private label MBS investments in April 2013. Management intends on ~~previously reported net income amounts.~~repurchasing $1.4 billion of agency MBS and CMO securities throughout the second quarter of 2013.

Additional information ~~on these three acquisitions~~ can be found in Note 32 (Business Combinations)~~, Note~~ 5 (~~Loans), Note~~ 7 (~~Goodwill and Other Intangible Assets~~) and Note 12 (~~Fair Value Measurement~~)15 (Subsequent Events) in the notes to ~~unaudited~~the consolidated financial statements.

Investment Securities

At ~~June 30, 2012~~March 31, 2013, total investment securities were $~~3.7~~4.1 billion compared to~~$3.6 billion~~ at ~~December 31, 2011~~ ~~and~~ $3.7 billion at ~~June 30, 2011~~December 31, 2012 and March 31, 2012. Available-for-sale securities were $3.2 billion at, ~~June 30, 2012~~ ~~compared to~~ $~~3.4~~2.9 billion at and~~December 31, 2011~~ ~~and~~ $3.5 billion atas of ~~June 30, 2011~~March 31, 2013~~. The available-for-sale~~, December 31, 2012 and March 31, 2012, respectively. Available-for-sale securities are held primarily for liquidity, interest rate risk management and long-term yield enhancement. Accordingly, the ~~Corporation’s~~Corporation's investment policy is to invest in securities with low credit risk, such as U.S. Treasury securities, U.S. Government agency obligations, state and political obligations, mortgage-backed securities ("MBSs") and ~~mortgage-backed securities.~~corporate bonds. Held-to-maturity securities totaled $~~352.2~~665.6 million at ~~June 30, 2012~~March 31, 2013 compared to $~~82.8~~622.1 millionand$100.8 million at December 31, ~~2011~~2012andMarch 31, 2012 ~~and~~ ~~$80.9 million~~ at ~~June 30, 2011~~ ~~and consist principally of securities issued by state and political subdivisions.~~

, respectively. Available-for-sale securities ~~decreased~~ ~~$137.2 million~~increased ~~and~~ $~~281.9~~322.9 million from December 31, ~~2011~~2012 ~~and~~to ~~June 30, 2011~~March 31, 2013~~, respectively, while held-to-maturity~~ but decreased$247.8 million from March 31, 2012 to March 31, 2013. Held-to-maturity securities increased $~~269.5~~43.5 million and $~~271.4~~564.7 million from December 31, ~~2011~~2012 to March 31, 2013 and from ~~June 30, 2011~~March 31, 2012 to March 31, 2013, respectively. This movement in the investment portfolio ~~in the quarter ended June 30, 2012~~ was in response to potential future changes in regulatory capital rules.

Other investments ~~totaled~~ ~~$140.7 million~~ at ~~June 30, 2012~~ ~~and~~ ~~December 31, 2011~~ ~~compared to~~ ~~$160.8 million~~ at ~~June 30, 2011~~ ~~and consisted~~consist primarily of FHLB and FRB ~~stock. The Corporation redeemed $20.3 million in FHLB Chicago~~ stock ~~in the quarter ended December 31, 2011.~~

~~During the~~ ~~six months endedJune 30, 2012~~and ~~June 30, 2011, net realized gains of~~totaled $~~0.8 million~~ ~~and~~ ~~$0.9 million, respectively, from the sale of available-for-sale securities were recorded. Net unrealized gains~~

~~were~~ ~~$83.8 million~~, ~~$85.0 million~~ ~~and~~ ~~$81.6~~141.0 million at ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012, and ~~June 30, 2011~~March 31, 2012~~, respectively. The improvement in the fair value of~~.

Net unrealized gains on the investment securities ~~is driven by government agency securities held in portfolio.~~portfolio were $60.6 million at March 31, 2013, compared to $72.2 million and $85.3 million at December 31, 2012andMarch 31, 2012, respectively.

The Corporation conducts a regular assessment of its investment securities to determine whether any securities are other-than-temporarily impaired. Only the credit portion of other-than-temporary impairment ~~(“OTTI”~~("OTTI") is recognized in current earnings for those securities where there is no intent to sell or it is more likely than not the Corporation would not be required to sell the security prior to expected recovery. The remaining portion of OTTI is to be included in accumulated other comprehensive loss, net of income tax.

Gross unrealized losses of $~~14.1~~15.1 million as of ~~June 30, 2012~~March 31, 2013, compared to $~~17.8~~12.9 million ~~as of~~ ~~December 31, 2011~~ and $~~12.5~~16.7 million at ~~June 30, 2011~~December 31, 2012andMarch 31, 2012, respectively, were concentrated within trust preferred securities held in the investment portfolio. The Corporation holds eight, single issuer, trust preferred securities. Such investments are less than 2% of the fair value of the entire investment portfolio. None of the bank 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 market conditions, which have caused risk premiums to increase resulting in the decline in the fair value of the ~~Corporation’s~~Corporation's trust preferred securities.

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Further detail of the composition of the securities portfolio and discussion of the results of the most recent OTTI assessment are in Note 43 (Investment Securities) in the notes to the ~~unaudited~~ consolidated financial statements.

Loans

Loans acquired under loss share agreements with the FDIC include the amounts of expected reimbursements from the FDIC ~~under these agreements~~ and are presented as ~~“covered loans”~~"covered loans" below. Loans not subject to loss share agreements are presented below as ~~“non-covered loans”~~"noncovered loans". Acquired loans are initially measured at fair value as of the acquisition date. Fair value measurements include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. 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.

Total noncovered loans increased from December 31, ~~2011~~2012by$~~351.0~~48.3 million, or ~~4.53%~~0.55%, and increased from ~~June 30, 2011~~March 31, 2012 by $~~691.7~~916.8 million, or ~~9.34%~~11.66%. This increase was driven primarily by higher commercial loans, which increased ~~5.82%~~0.37%from December 31, ~~2011~~2012and~~12.41%~~12.80% from ~~June 30, 2011~~March 31, 2012 due to the Corporation's expansion into the Chicago, Illinois area. This growth was also attributable to increases in asset-based lending as well as new business within the specialty lending group such as the capital markets, healthcare, and ~~healthcare~~leasing lines of business. The leasing line of business has seen considerable increase in activity. As of March 31, 2013, leases totaled $164.1 million compared to $139.2 million and $74.1 million at December 31, 2012 and March 31, 2012, respectively, resulting in increases of $24.9 million, or 17.88%, from December 31, 2012 to March 31, 2013 and $90.0 million, or 121.47%, from March 31, 2012 to March 31, 2013. While the Corporation is adding new commercial loans in both its core Ohio and newer Chicago, Illinois markets, low credit line utilization by existing customers is mitigating new loan production with respect to the overall portfolio balances.

Residential mortgage loans are originated and then sold into the secondary market or held in portfolio. Low interest rates during 2012contributed to an increase in mortgage loan originations, particularly refinancing activity. Total residential mortgage loan balances increased from December 31, 2012 by $~~24.5~~6.3 million, or ~~5.92%~~1.42%, and increasedfrom ~~December~~March 31, ~~2011~~2012 ~~and~~by $~~37.5~~22.6 million, or ~~9.36%~~5.26%, ~~from~~ ~~June 30, 2011~~as a larger amount of shorter maturity and adjustable rate mortgages were held in portfolio ~~than in previous periods.~~compared to the prior year.

~~Installment~~Outstanding home equity loans ~~decreased~~increased from December 31, 2012 by $~~0.8~~6.4 million, or ~~0.06%~~0.79%, and increased from March 31, 2012 by $72.9 million, or 9.86%. Installment loans decreased from December 31, ~~2011~~2012 ~~and~~by $~~3.8~~5.5 million, or ~~0.30%~~0.41%, and increasedfrom ~~June 30, 2011~~March 31, 2012 ~~reflecting continued consumer loans pay downs. Credit card loans decreased~~by $~~3.8~~

62.9 million, or ~~2.58%, from~~ ~~December 31, 2011~~ ~~and~~ ~~$1.2 million, or~~ ~~0.86%, from~~ ~~June 30, 2011~~4.99%.

Total covered loans, including the loss share receivable, decreased from December 31, ~~2011~~2012 and March 31, 2012 by $~~225.3~~122.3 million, or ~~15.05%~~12.00%, and ~~decreased from~~ ~~June 30, 2011~~ by $~~483.2~~481.3 million, or ~~27.53%~~34.92%., respectively. The covered 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.

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The following table breaks down outstanding loans by ~~category for the period ended.~~category. There is no predominant concentration of loans in any particular industry or group of industries.


	June 30, 2012			December 31, 2011			June 30, 2011			March 31, 2013			December 31, 2012			March 31, 2012
(dollars in thousands)
(Dollars in thousands)
Commercial	$	5,404,971		$	5,107,747		$	4,808,305		$	5,888,337		$	5,866,489		$	5,220,051
Residential mortgage	438,147			413,664			400,661			451,522			445,211			428,950
Installment	1,262,877			1,263,665			1,259,072			1,322,795			1,328,258			1,259,930
Home equity	766,840			743,982			738,719			812,458			806,078			739,548
Credit card	142,586			146,356			143,828			140,721			146,387			140,618
Leases	84,507			73,530			57,634			164,137			139,236			74,112
Total noncovered loans (a)	8,099,928			7,748,944			7,408,219			8,779,970			8,731,659			7,863,209
Allowance for noncovered loan losses	(103,849		)	(107,699		)	(109,187		)
Less allowance for noncovered loan losses										(98,843		)	(98,942		)	(103,849		)
Net noncovered loans	7,996,079			7,641,245			7,299,032			8,681,127			8,632,717			7,759,360
Covered loans (b)	1,271,888			1,497,140			1,755,107			896,832			1,019,125			1,378,150
Allowance for covered loan losses	(42,606		)	(36,417		)	(33,360		)
Less allowance for covered loan losses										(47,945		)	(43,255		)	(41,070		)
Net covered loans	1,229,282			1,460,723			1,721,747			848,887			975,870			1,337,080
Net loans	$	9,225,361		$	9,101,968		$	9,020,779		$	9,530,014		$	9,608,587		$	9,096,440

(a) Includes acquired, noncovered loans of $~~67.9~~54.1 million, $~~113.2~~54.2 million ~~and~~, $~~192.2~~99.2 million as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, respectively.

(b) Includes loss share receivable of $~~152.6~~95.6 million, $~~205.7~~113.7 million and $~~239.4~~171.1 million as of ~~June 30, 2012~~March 31, 2013, ~~March~~December 31, 2012 and ~~June 30, 2011~~March 31, 2012, respectively.

The Corporation has approximately $~~3.4~~3.2 billion of loans secured by real estate. Approximately ~~85.99%~~86.79% of the property underlying these loans is located within the ~~Corporation’s~~Corporation's primary market area of Ohio, Western Pennsylvania, and Chicago, Illinois.

The Corporation evaluates acquired loans for impairment in accordance with the provisions of ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“"ASC ~~310-30”~~310-30"). Acquired loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable all contractually required payments will not be collected. Expected cash flows at the purchase date in excess of the fair value of acquired impaired loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. The present value of any decreases in expected cash flows after the purchase date is recognized as a provision for loans losses net of any expected reimbursement under any loss share agreements. Revolving loans, including lines of credit and credit cards loans, and leases are excluded from acquired impaired loan accounting.

A loss share receivable is recorded at the acquisition date, which represents the estimated fair value of reimbursement the Corporation expects to receive under any loss share agreements. 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.

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All loans acquired in the First Bank acquisition were performing as of the date of acquisition and, therefore, the difference between the fair value and the outstanding balance of these loans is being accreted to interest income over the remaining term of the loans.

In 2010, the Bank acquired $177.8 million and $1.8 billion of loans in conjunction with the FDIC assisted acquisitions of George Washington and Midwest, respectively. All loans acquired in the George Washington and Midwest acquisitions were acquired with loss share agreements. The Corporation has elected to account for all loans acquired in the George Washington and Midwest acquisitions as impaired loans under ASC 310-30 (“("Acquired Impaired ~~Loans”~~Loans") except for $162.6 million of acquired loans with revolving privileges, which are outside the scope of this guidance, and which are being accounted for in accordance with ASC 310 (“("Acquired Non-Impaired ~~Loans”~~Loans"). Interest income, through accretion of the difference between the carrying amount of the Acquired Impaired Loans and the expected cash flows, is recognized on all Acquired Impaired Loans. The difference between the fair value of the Acquired Non-Impaired Loans and their outstanding balances is being accreted to interest income over the remaining period the revolving lines are in effect.

Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

The Corporation maintains what Management believes is an adequate allowance for loan losses. The Corporation and the Bank regularly analyze the adequacy of ~~this~~their allowance through ongoing review of trends in risk ratings, delinquencies, nonperforming assets, charge-offs, economic conditions, and changes in the composition of the loan portfolio. ~~Notes~~Note 1 (Summary of Significant Accounting Policies) and ~~4 (Loans and~~ note 5 (Allowance for Loan ~~Losses)~~Losses in the notes to the consolidated financial statements ~~in the~~ ~~2011~~ ~~Form 10-K~~ provide detailed information regarding the ~~Corporation’s~~Corporation's credit policies and practices.

The Corporation uses a vendor based loss migration model to forecast losses for commercial loans. The model creates loss estimates using twelve-month (monthly rolling) vintages and calculates cumulative three years loss rates within two different scenarios. One scenario uses ~~five-year~~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~~two- and five-year data set. As a result, this approach lends more weight to the more recent performance.

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~~portfolio's collectability characteristics not captured by historical loss data.

Acquired loans are recorded at acquisition date at their acquisition date fair values, and, therefore, are excluded from the calculation of loan loss reserves as of the acquisition date. To the extent there is a decrease in the present value of cash flows from Acquired Impaired Loans after the date of acquisition, the Corporation records an allowance for loan losses, net of expected reimbursement under any loss share agreements. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets. During the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013, the Corporation increased its allowance for covered loan losses to $~~42.6~~47.9 million to reserve for estimated additional losses on certain Acquired Impaired Loans. The increase in the allowance was recorded by a charge to the provision for covered loan losses of $~~9.6~~9.7 million and an increase

of $~~6.2~~5.5 million in the loss share receivable for the portion of the losses recoverable under the loss share agreements. During the three months ended March 31, 2012, provision for covered loan losses of $10.8 million was partially offset by an increase of $4.9 million in the loss share receivable resulting in an allowance for covered loan losses of $41.1 million.

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For acquired loans that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value. Subsequent to the purchase date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated ~~loans;~~loans, however, the Corporation records a provision for loan losses only when the required allowance, net of any expected reimbursement under any loss share agreements, exceeds any remaining credit discounts. The allowance for loan losses on Acquired Non-Impaired Loans was $0.4 million, $~~0.7~~0.3 million and $~~0.9~~0.4 million as of ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, respectively, and is included in the allowance for noncovered loan losses on the consolidated balance sheets.

At ~~June 30, 2012~~March 31, 2013, the allowance for noncovered loan losses ~~on noncovered loans~~ was $~~103.8~~98.8 million, or ~~1.28%~~1.13% of noncovered loans outstanding, compared to $~~107.7~~98.9 million, or1.13%and$103.8 million, or ~~1.39%~~1.32%, at December 31, ~~2011~~2012and~~$109.2 million~~March 31, 2012, or ~~1.47%, as of~~ ~~June 30, 2011~~.respectively. The allowance equaled ~~222.44%~~242.21% of nonperforming loans at ~~June 30, 2012~~March 31, 2013, compared to ~~166.64%~~269.69% and 194.97% at December 31, ~~2011~~2012, and~~150.31%~~ at ~~June 30, 2011~~March 31, 2012. The additional reserves related to qualitative risk factors totaled $~~20.4~~34.4 million, at March 31, 2013 compared to $32.3 millionand$14.5 million ~~and~~ ~~$11.9 million~~at~~June 30, 2012~~, December 31, ~~2011~~2012and~~June 30, 2011~~March 31, 2012, respectively. Nonperforming ~~noncovered loans~~assets have ~~decreased~~increased by $~~17.9~~2.0 million ~~over~~when compared to December 31, ~~2011~~2012 ~~and~~but decreased $~~26.0~~15.7 million ~~over~~when compared to ~~June 30, 2011~~March 31, 2012, which is primarily attributable to the improving economic conditions and extensive loan work out activities.

Net charge-offs on noncovered loans were $~~8.8~~5.9 million ~~for~~in the first quarter of ~~second~~ ~~quarter ended~~ ~~2012~~ ~~and~~ ~~$20.7 million~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2012~~2013 compared to $~~15.6~~12.0 million ~~and~~ ~~$32.7 million~~ ~~for the same periods~~ in ~~2011~~2012. As a percentage of average noncovered ~~average~~ loans outstanding, net charge-offs equaled ~~0.44%~~0.27% in the first quarter of 2013 and ~~0.86%~~0.62% ~~for the quarter ended~~in ~~June 30,~~ 2012 ~~and~~ ~~2011, respectively, and~~ ~~0.53%~~ ~~and~~ ~~0.91%~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2012~~ ~~and~~ ~~2011, respectively.~~. Losses are charged against the allowance for loan losses as soon as they are identified.

The ~~allowance~~reserve for unfunded lending commitments at ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012 was $~~5.7~~4.9 million, $~~6.4~~5.4 million and $~~5.8~~5.4 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 noncovered loan losses and the reserve for unfunded lending commitments, amounted to $~~109.5~~103.8 million, $~~114.1~~104.4 million, and $~~115.0~~109.3 million at ~~June 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~June 30, 2011~~March 31, 2012, respectively.

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The following table is a summary of the allowance for credit losses.



	Three Months Ended
	March 31, 2013			December 31, 2012			March 31, 2012
(dollars in thousands)
Allowance for Noncovered Loan Losses
Allowance for loan losses-beginning of period	$	98,942		$	98,942		$	107,699
Provision for loan losses	5,808			7,116			8,129
(Less) net charge-offs	5,907			7,116			11,979
Allowance for loan losses-end of period	$	98,843		$	98,942		$	103,849
Reserve for Unfunded Lending Commitments
Balance at beginning of period	$	5,433		$	5,760		$	6,373
Provision for/(relief of) credit losses	(492		)	(327		)	(963		)
Balance at end of period	4,941			5,433			5,410
Allowance for credit losses	$	103,784		$	104,375		$	109,259
Annualized net charge-offs as a % of average noncovered loans	0.27		%	0.34		%	0.62		%
Allowance for noncovered loan losses:
As a percentage of period-end noncovered loans	1.13		%	1.13		%	1.32		%
As a percentage of nonperforming noncovered loans	242.21		%	269.69		%	194.97		%
As a multiple of annualized net charge offs	4.13			3.50			2.16
Allowance for credit losses:
As a percentage of period-end noncovered loans	1.18		%	1.20		%	1.39		%
As a percentage of nonperforming noncovered loans	254.32		%	284.50		%	205.13		%
As a multiple of annualized net charge offs	4.33			3.69			2.27

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Three Months Ended Six Months Ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
(dollars in thousands)
Allowance for Noncovered Loan Losses
Allowance for loan losses-beginning of period $ 103,849
$ 114,690
$ 107,699
$ 114,690
Provision for loan losses 8,766
10,138
8,129
10,138
(Less) net charge-offs 8,766
15,641
11,979
15,641
Allowance for loan losses-end of period $ 103,849
$ 109,187
$ 103,849
$ 109,187
Reserve for Unfunded Lending Commitments
Balance at beginning of period $ 5,410
$ 7,202
$ 6,360
$ 8,849
Provision for/(relief of) credit losses 256
(1,403 ) (950 ) (3,050 )
Balance at end of period 5,666
5,799
5,410
5,799
Allowance for credit losses $ 109,515
$ 114,986
$ 109,259
$ 114,986
Annualized net charge-offs as a % of average noncovered loans 0.44 % 0.86 % 0.53 % 0.86 %
Allowance for noncovered loan losses:
As a percentage of period-end noncovered loans 1.28 % 1.47 % 1.28 % 1.47 %
As a percentage of nonperforming noncovered loans 222.44 % 150.31 % 222.44 % 150.31 %
As a multiple of annualized net charge offs 2.95
1.74
2.49
1.66
Allowance for credit losses:
As a percentage of period-end noncovered loans 1.35 % 1.55 % 1.35 % 1.55 %
As a percentage of nonperforming noncovered loans 234.57 % 158.30 % 234.57 % 158.30 %
As a multiple of annualized net charge offs 3.11
1.83
2.63
1.75

The following tables show the overall credit quality by specific asset and risk categories of noncovered ~~loans.~~loan.



	As of March 31, 2013
	Loan Type
			CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	8,445	$	26,939	$	—	$	31,117	$	6,917	$	1,388	$	23,527	$	98,333
Allowance	1,957		859		—		1,458		89		74		1,713		6,150
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance	39,433		271		13,330										53,034
Grade 1 allowance	11		—		4										15
Grade 2 loan balance	148,253		3,968		731										152,952
Grade 2 allowance	117		5		1										123
Grade 3 loan balance	688,264		270,907		25,808										984,979
Grade 3 allowance	953		579		46										1,578
Grade 4 loan balance	2,404,091		2,111,995		116,314										4,632,400
Grade 4 allowance	26,212		12,150		566										38,928
Grade 5 (Special Mention) loan balance	63,287		47,277		4,636										115,200
Grade 5 allowance	5,202		1,636		193										7,031
Grade 6 (Substandard) loan balance	30,850		44,357		3,318										78,525
Grade 6 allowance	5,975		5,911		319										12,205
Grade 7 (Doubtful) loan balance	—		—		—										—
Grade 7 allowance	—		—		—										—
Consumer loans based on payment status:
Current loan balances							1,277,648		802,862		137,260		413,096		2,630,866
Current loans allowance							5,670		10,690		4,674		2,417		23,451
30 days past due loan balance							6,832		1,208		769		8,338		17,147
30 days past due allowance							514		742		541		365		2,162
60 days past due loan balance							2,379		419		541		1,781		5,120
60 days past due allowance							565		729		610		335		2,239
90+ days past due loan balance							4,819		1,052		763		4,780		11,414
90+ days past due allowance							944		2,318		1,170		529		4,961
Total loans	$	3,382,623	$	2,505,714	$	164,137	$	1,322,795	$	812,458	$	140,721	$	451,522	$	8,779,970
Total Allowance for Loan Losses	$	40,427	$	21,140	$	1,129	$	9,151	$	14,568	$	7,069	$	5,359	$	98,843

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																	As of December 31, 2012
	At June 30, 2012																Loan Type
	Loan Type																		CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C&I		CRE and Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total		C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Loan Component:	Individually Impaired Loan Component:
Loan balance	$	25,250	$	38,349	$	—	$	31,043	$	6,063	$	1,998	$	18,579	$	121,282	$	6,187	$	27,412	$	—	$	30,870	$	6,281	$	1,612	$	24,009	$	96,371
Allowance	5,327		2,092		—		1,773		22		128		1,649		10,991		577		1,018		—		1,526		34		127		1,722		5,004
Collective Loan Impairment Components:	Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance	41,042		—		13,141										54,183		42,211		—		13,119										55,330
Grade 1 allowance	15		—		6										21		14		—		5										19
Grade 2 loan balance	94,362		3,432		114										97,908		114,480		3,138		179										117,797
Grade 2 allowance	85		7		—										92		93		4		—										97
Grade 3 loan balance	562,886		333,137		9,372										905,395		661,692		272,401		20,042										954,135
Grade 3 allowance	867		1,126		17										2,010		916		711		35										1,662
Grade 4 loan balance	2,150,162		1,914,491		61,522										4,126,175		2,408,670		2,148,580		104,037										4,661,287
Grade 4 allowance	21,732		16,272		297										38,301		26,155		13,552		507										40,214
Grade 5 (Special Mention) loan balance	52,927		63,666		—										116,593		44,969		56,118		1,561										102,648
Grade 5 allowance	1,809		3,073		—										4,882		3,105		2,033		63										5,201
Grade 6 (Substandard) loan balance	54,373		70,894		358										125,625		28,317		52,314		298										80,929
Grade 6 allowance	10,492		9,763		38										20,293		5,349		6,629		29										12,007
Grade 7 (Doubtful) loan balance	—		—		—										—		—		—		—										—
Grade 7 allowance	—		—		—										—		—		—		—										—
Consumer loans based on payment status:	Consumer loans based on payment status:
Current loan balances							1,216,877		757,434		138,612		401,773		2,514,696								1,278,555		796,568		142,424		406,495		2,624,042
Current loans allowance							9,050		4,037		4,726		2,322		20,135								6,596		9,766		4,815		2,617		23,794
30 days past due loan balance							7,531		1,774		748		8,514		18,567								10,471		1,407		922		9,928		22,728
30 days past due allowance							680		245		427		355		1,707								855		774		587		487		2,703
60 days past due loan balance							2,719		710		484		3,337		7,250								2,979		825		541		1,219		5,564
60 days past due allowance							704		381		455		612		2,152								773		1,021		540		453		2,787
90+ days past due loan balance							4,707		859		744		5,944		12,254								5,383		997		888		3,560		10,828
90+ days past due allowance							822		764		954		725		3,265								1,404		2,129		1,315		606		5,454
Total loans	$	2,981,002	$	2,423,969	$	84,507	$	1,262,877	$	766,840	$	142,586	$	438,147	$	8,099,928	$	3,306,526	$	2,559,963	$	139,236	$	1,328,258	$	806,078	$	146,387	$	445,211	$	8,731,659
Total Allowance for Loan Losses	$	40,327	$	32,333	$	358	$	13,029	$	5,449	$	6,690	$	5,663	$	103,849	$	36,209	$	23,947	$	639	$	11,154	$	13,724	$	7,384	$	5,885	$	98,942

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																	As of March 31, 2012
	At December 31, 2011																Loan Type
	Loan Type																		CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C&I		CRE and Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total		C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Loan Component:	Individually Impaired Loan Component:
Loan balance	$	8,269	$	45,407	$	—	$	33,571	$	4,763	$	2,202	$	17,398	$	111,610	$	6,079	$	41,041	$	—	$	32,378	$	5,522	$	2,060	$	18,077	$	105,157
Allowance	2,497		1,698		—		1,382		31		108		1,364		7,080		972		2,702		—		1,902		66		92		1,505		7,239
Collective Loan Impairment Components:	Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance	37,607		—		10,636										48,243		40,605		—		10,706										51,311
Grade 1 allowance	15		—		6										21		16		—		5										21
Grade 2 loan balance	122,124		4,833		—										126,957		97,078		6,820		—										103,898
Grade 2 allowance	117		12		—										129		90		14		—										104
Grade 3 loan balance	479,119		268,005		5,868										752,992		521,791		261,669		7,098										790,558
Grade 3 allowance	756		1,015		9										1,780		830		857		10										1,697
Grade 4 loan balance	1,999,707		1,844,851		57,026										3,901,584		2,087,819		1,860,227		55,930										4,003,976
Grade 4 allowance	17,643		16,968		326										34,937		18,326		15,473		277										34,076
Grade 5 (Special Mention) loan balance	50,789		63,525		—										114,314		51,591		73,740		—										125,331
Grade 5 allowance	2,226		2,841		—										5,067		2,413		2,908		—										5,321
Grade 6 (Substandard) loan balance	77,861		105,387		—										183,248		85,694		85,829		378										171,901
Grade 6 allowance	9,109		14,496		—										23,605		14,511		10,948		42										25,501
Grade 7 (Doubtful) loan balance	—		263		—										263		68		—		—										68
Grade 7 allowance	—		—		—										—		14		—		—										14
Consumer loans based on payment status:	Consumer loans based on payment status:
Current loan balances							1,210,007		734,505		141,338		372,710		2,458,560								1,214,164		730,575		136,423		390,191		2,471,353
Current loans allowance							12,286		4,619		5,158		3,045		25,108								10,544		4,407		4,683		2,909		22,543
30 days past due loan balance							11,531		2,694		1,090		11,778		27,093								7,268		2,013		868		8,269		18,418
30 days past due allowance							1,333		623		529		498		2,983								803		519		460		338		2,120
60 days past due loan balance							3,388		778		707		2,059		6,932								2,020		494		458		2,444		5,416
60 days past due allowance							1,104		442		530		315		2,391								666		292		379		387		1,724
90+ days past due loan balance							5,168		1,242		1,019		9,719		17,148								4,100		943		809		9,970		15,822
90+ days past due allowance							1,876		1,051		1,044		627		4,598								838		985		906		760		3,489
Total loans	$	2,775,476	$	2,332,271	$	73,530	$	1,263,665	$	743,982	$	146,356	$	413,664	$	7,748,944	$	2,890,725	$	2,329,326	$	74,112	$	1,259,930	$	739,547	$	140,618	$	428,951	$	7,863,209
Total Allowance for Loan Losses	$	32,363	$	37,030	$	341	$	17,981	$	6,766	$	7,369	$	5,849	$	107,699	$	37,172	$	32,902	$	334	$	14,753	$	6,269	$	6,520	$	5,899	$	103,849

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June 30, 2011
Loan Type
Allowance for Loan Losses Components: C&I
CRE and
Construction
Leases Installment
Home Equity
Lines

Credit
Cards

Residential
Mortgages
Total
(In thousands)
Individually Impaired Loan Component:
Loan balance $ 3,573
$ 54,415
$ —
$ 15,703
$ 1,242
$ 2,453
$ 14,851
$ 92,237
Allowance 290
4,207
—
662
20
28
1,209
6,416
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance 47,596
12,205
—
59,801
Grade 1 allowance 18
—
6
24
Grade 2 loan balance 98,521
2,786
—
101,307
Grade 2 allowance 124
8
—
132
Grade 3 loan balance 439,727
258,916
4,451
703,094
Grade 3 allowance 889
982
10
1,881
Grade 4 loan balance 1,796,108
1,813,176
53,177
3,662,461
Grade 4 allowance 18,658
17,611
336
36,605
Grade 5 (Special Mention) loan balance 42,634
97,656
—
140,290
Grade 5 allowance 1,895
4,674
—
6,569
Grade 6 (Substandard) loan balance 41,710
99,284
6
141,000
Grade 6 allowance 6,492
13,340
1
19,833
Grade 7 (Doubtful) loan balance —
—
—
—
Grade 7 allowance —
—
—
—
Consumer loans based on payment status:
Current loan balances 1,226,604
733,844
139,254
368,288
2,467,990
Current loans allowance 14,645
5,461
6,681
3,440
30,227
30 days past due loan balance 8,682
2,217
882
9,621
21,402
30 days past due allowance 1,065
551
486
511
2,613
60 days past due loan balance 3,063
825
464
1,014
5,366
60 days past due allowance 1,182
495
386
269
2,332
90+ days past due loan balance 5,020
590
774
6,887
13,271
90+ days past due allowance 535
615
822
583
2,555
Total loans $ 2,469,869
$ 2,338,438
$ 57,634
$ 1,259,072
$ 738,718
$ 143,827
$ 400,661
$ 7,408,219
Total Allowance for Loan Losses $ 28,366
$ 40,822
$ 353
$ 18,089
$ 7,142
$ 8,403
$ 6,012
$ 109,187

Asset Quality

Making a loan to earn an interest spread inherently includes taking the risk of not being repaid. Successful management of credit risk requires making good underwriting decisions, carefully administering the loan portfolio and diligently collecting delinquent accounts.

The ~~Corporation’s~~Corporation's Credit Policy Division manages credit risk by establishing common credit policies for its subsidiaries, participating in approval of their largest loans, conducting reviews of their loan portfolios, providing them with centralized consumer underwriting, collections and loan operations services, and overseeing their loan workouts. ~~Notes 1 (Summary of Significant Accounting Policies) and 4 (Loans Allowance for Loan Losses) to the consolidated financial statements in the~~ ~~2011~~ ~~Form 10-K provide detailed information regarding the Corporation’s credit policies and practices.~~

The ~~Corporation’s~~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. 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 during 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.

80Note 1 (Summary of Significant Accounting Policies) and note 5 (Allowance for Loan Losses) in the notes to the consolidated financial statements, provide detailed information regarding the Corporation's credit policies and practices and the credit-risk grading process for commercial loans.

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 ~~deterioration~~a borrower experiencing financial difficulties or expected to experience difficulties in the ~~borrower’s financial condition,~~near-term, the original terms ~~have been modified in favour~~ of the ~~borrower or either principal or interest has been forgiven.~~loan are modified to maximize the collection of amounts due.

Nonperforming Assets are defined as follows:

Nonaccrual loans on which interest is no longer accrued because its collection is doubtful.

Restructured loans on which, due to deterioration in the ~~borrower’s~~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 estate ~~(“ORE”)~~(ORE)acquired through foreclosure in satisfaction of a loan.

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(Dollars in thousands)	June 30, 2012			December 31, 2011			June 30, 2011			March 31, 2013			December 31, 2012			March 31, 2012
Nonperforming noncovered loans:
Nonperforming loans:
Restructured nonaccrual noncovered loans:
Commercial loans	$	7,545		$	8,311		$	5,261		$	4,179		$	3,837		$	7,067
Consumer loans	3,269			3,465			2,342			13,301			11,197			3,364
Total restructured loans	10,814			11,776			7,603			17,480			15,034			10,431
Other nonaccrual noncovered loans:
Commercial loans	30,836			47,504			58,427			19,664			17,929			37,479
Consumer loans	5,037			5,351			6,609			3,665			3,724			5,353
Total nonaccrual loans	35,873			52,855			65,036			23,329			21,653			42,832
Total nonperforming noncovered loans	46,687			64,631			72,639			40,809			36,687			53,263
Other noncovered real estate	14,393			16,463			27,207			11,422			13,537			14,670
Total nonperforming noncovered assets	$	61,080		$	81,094		$	99,846		$	52,231		$	50,224		$	67,933
Noncovered loans past due 90 days or more accruing interest	$	6,545		$	11,376		$	13,001		$	12,393		$	9,417		$	9,261
Total nonperforming noncovered assets as a percentage of total noncovered loans and ORE	0.75		%	1.05		%	1.35		%	0.59		%	0.57		%	0.86		%

Credit quality ~~continued to improve during~~improved throughout the ~~six~~three months ended ~~June 30, 2012~~March 31, 2013. Total nonperforming ~~noncovered~~ assets as of ~~June 30, 2012~~March 31, 2013 were $~~61.1~~52.2 million, aan ~~decrease~~increase of $~~20.0~~2.0 million, or ~~24.68%~~4.00%, from December 31, ~~2011~~2012 and a decrease of $~~38.8~~15.7 million, or ~~38.83%~~23.11%, from ~~June 30, 2011~~March 31, 2012. Total noncovered loans past due 30-89 days totaled $~~45.0~~39.6 million at ~~June 30, 2012~~March 31, 2013, a decrease of $~~2.9~~10.6 million, or ~~6.14%~~21.04%, from December 31, ~~2011~~2012 and a a decrease of $~~13.8~~7.1 million, or ~~23.52%~~15.25%, from ~~June 30, 2011~~March 31, 2012. Delinquency trends are observable in the Allowance for Loan Loss Allocation tables within this section. Commercial nonperforming noncovered loans ~~decreased~~increased $~~17.4~~2.1 million, or 9.54%, from December 31, ~~2011~~2012 and decreased$~~25.3~~20.7 million, or 46.48%, from ~~June 30, 2011~~March 31, 2012 reflecting movement of assets for disposition into other real estate along with loan payments and charge-downs. New nonperforming noncovered commercial loans have continued to decline from ~~December~~March 31, ~~2011~~2012 through ~~June 30, 2012~~March 31, 2013. Total other noncovered real estate owned decreased $2.1 million or 15.62%, from December 31, ~~2011~~2012 and ~~decreased~~$~~12.8~~3.2 million, or 22.14%, from ~~June 30, 2011~~March 31, 2012, reflecting the disposition of foreclosed properties and a slow down in new foreclosures. As of ~~June 30, 2012~~March 31, 2013, other ~~noncovered~~ real estate includes $~~0.5~~828.8 million of vacant land no longer considered for branch expansion.

Net charge offs within the noncovered consumer portfolio were $~~3.6 million~~ ~~and~~ ~~$9.0~~4.6 million for the three ~~and~~ ~~six~~months ended ~~June 30, 2012~~March 31, 2013 compared to $~~7.8 million~~ ~~and~~ ~~$17.6~~5.7 million for the three ~~and~~ ~~six~~

months ended ~~June 30, 2011~~March 31, 2012. Average FICO scores on the noncovered consumer portfolio subcomponents are excellent with average scores on installment loans at ~~716~~715, home equity lines at ~~776~~775, residential mortgages at ~~750~~752 and credit cards at ~~773~~745.

Noncovered loans past due 90 days or more but still accruing interest are classified as such where the

underlying loans are both well secured (the collateral value is sufficient to cover principal and accrued interest) and are in the process of collection. At ~~June 30, 2012~~March 31, 2013, accruing noncovered loans 90 days or more past due totaled $~~6.5~~12.4 million compared to $~~11.4~~9.4 million and $9.3 million at December 31, ~~2011~~2012 and ~~$13.0 million~~March 31, 2012 at ~~June 30, 2011~~., respectively. Credit card loans on which payments are past due for 120 days are placed on nonaccrual status.When a loan is placed on nonaccrual status, interest deemed uncollectible ~~that~~which 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. 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 table is a nonaccrual noncovered commercial loan flow analysis:


	Three Months Ended															Three Months Ended
	June 30, 2012			March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31,			December 31,			September 30,			June 30,			March 31,
Nonaccrual noncovered commercial loans beginning of period	$	44,546		$	55,815		$	59,928		$	63,688		$	71,247
																2013			2012			2012			2012			2012
																(In thousands)
Nonaccrual commercial loans beginning of period																$	21,766		$	31,492		$	38,381		$	44,546		$	55,815
Credit Actions:
New	10,091			5,980			11,402			9,232			5,219			7,217			2,183			25,182			10,091			5,980
Loan and lease losses	(6,675		)	(3,296		)	(648		)	(5,047		)	(4,469		)	(2,191		)	(2,670		)	(400		)	(6,675		)	(3,296		)
Charged down	(266		)	(3,703		)	(6,769		)	(3,987		)	(3,877		)	(481		)	(2,555		)	(9,227		)	(266		)	(3,703		)
Return to accruing status	(1,247		)	(1,990		)	(119		)	(38		)	(334		)	(179		)	—			(2,177		)	(1,247		)	(1,990		)
Payments	(8,068		)	(8,260		)	(7,979		)	(3,920		)	(4,098		)	(2,289		)	(6,684		)	(20,267		)	(8,068		)	(8,260		)
Nonaccrual noncovered commercial loans end of period	$	38,381		$	44,546		$	55,815		$	59,928		$	63,688
Sales																—			—			—			—			—
Nonaccrual commercial loans end of period																$	23,843		$	21,766		$	31,492		$	38,381		$	44,546

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 troubled debt restructurings ("TDRs"). 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, excluding covered loans, istotaled $85.6 million, $84.6 million, and $75.2 million as of March 31, 2013, December 31, 2012 and March 31, 2012, respectively. These TDRs are predominately composed of noncovered consumer installment loans, first and second lien residential mortgages and home equity lines of credit ~~that total, in aggregate~~ and ~~as a percentage~~represented 73.56%, 74.16% and 77.22%, respectively, of the ~~Corporation's~~ total noncovered TDR portfolio ~~$57.7 million, or~~ ~~68.39%, and~~ ~~$57.9 million, or~~ ~~79.43%~~, as of ~~June 30, 2012~~March 31, 2013 and December 31, ~~2011~~2012 and March 31, 2012, respectively. We restructure 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 Fannie Mae and Freddie Mac.

In addition, 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.

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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.

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

Average deposits as of ~~June 30, 2012~~ ~~and~~ ~~December~~March 31, ~~2011~~2013 totaled $~~11.6~~11.8 billion compared to $11.6 billion and $11.5 billion atas of ~~June 30, 2011~~December 31, 2012. and March 31, 2012, respectively. 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.~~rates over the past three years.


	Three Months Ended												Three Months Ended
	June 30, 2012				December 31, 2011				June 30, 2011				March 31, 2013				December 31, 2012				March 31, 2012
	Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate
(dollars in thousands)
													(Dollars in thousands)
Noninterest-bearing	$	3,144,183	—		$	3,036,590	—		$	2,998,090	—		$	3,321,660	—	%	$	3,306,444	—	%	$	3,036,590	—	%
Interest-bearing	1,060,771		0.09	%	1,066,132		0.09	%	824,125		0.09	%	1,300,816		0.10	%	1,122,796		0.09	%	1,066,132		0.09	%
Savings and money market accounts	5,732,007		0.35	%	5,675,052		0.36	%	5,279,353		0.56	%	5,835,750		0.37	%	5,743,599		0.36	%	5,675,052		0.36	%
Certificates and other time deposits	1,618,322		0.79	%	1,694,247		0.84	%	2,363,170		0.95	%	1,331,558		0.63	%	1,422,246		0.64	%	1,694,247		0.84	%
Total customer deposits	11,555,283		0.29	%	11,472,021		0.31	%	11,464,738		0.46	%	11,789,784		0.26	%	11,595,085		0.27	%	11,472,021		0.31	%
Securities sold under agreements to repurchase	920,352		0.12	%	887,715		0.12	%	884,244		0.43	%	906,717		0.14	%	957,564		0.13	%	887,715		0.12	%
Wholesale borrowings	177,987		2.53	%	184,659		2.51	%	325,057		2.04	%	136,298		2.53	%	163,405		2.49	%	184,659		2.51	%
Long-term debt													155,506		4.56	%	—		—	%	—		—	%
Total funds	$	12,653,622			$	12,544,395			$	12,674,039			$	9,666,645	0.45	%	$	9,409,610	0.39	%	$	9,507,805	0.44	%

Average demand deposits comprised ~~36.39%~~39.21% of average deposits in the during the three months ended ~~2012second~~March 31, 2013 ~~quarter~~ compared to ~~33.34%~~38.20% in ~~the~~fourth quarter of ~~2011second~~2012 ~~quarter.~~and 35.76% during the three months ended March 31, 2012. Savings accounts, including money market products, made up ~~49.61%~~49.50% of average deposits induring the three months ended ~~2012second~~March 31, 2013 ~~quarter~~ compared to ~~46.05%~~49.53% during the three months ended December 31, 2012 and 49.47% in during the three months ended ~~2011second~~March 31, 2012 ~~quarter.~~. Certificates of

and other time deposits made up ~~14.00%~~11.29% of average deposits induring the three months ended ~~second~~March 31, 2013, 12.27% ~~quarter~~during the three months ended December 31, 2012 and ~~20.61%~~14.77% induring the three months ended ~~second~~ ~~quarter~~ ~~2011~~March 31, 2012.

The average cost of deposits, securities sold under agreements to repurchase, ~~and~~ wholesale borrowings and long-term debt was ~~down~~up 231 basis points compared to ~~the same period~~ one year ago, or ~~54.76%~~2.27%, for the ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013 due to a drop in interest rates.

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The following table summarizes certificates ofand other time deposits in amounts of $100 thousand or more ~~as of~~for the three months ended ~~June 30, 2012~~March 31, 2013, by time remaining until ~~maturity:~~maturity.


	Amount		Amount
Time until maturity:	(In thousands)		(In thousands)
Under 3 months	$	162,840	$	95,540
3 to 6 months	99,057		145,104
6 to 12 months	143,064		130,182
Over 1 year through 3 years	122,170
Over 3 years	17,960
	$	545,091

Over 12 months			101,089
Total			$	471,915

Capital Resources

The capital management objectives of the Corporation are to provide capital sufficient to cover the risks inherent in the ~~Corporation’s~~Corporation's businesses, to maintain excess capital to well-capitalized standards and to assure ready access to the capital markets.

~~Shareholders~~’Shareholders' Equity

~~Shareholders’~~Shareholders' equity atwas ~~June 30,~~$1.8 billion as of March 31, 2013, compared with $1.6 billion as of December 31, 2012 and ~~December~~March 31, ~~2011~~ ~~totaled~~ ~~$1.6 billion~~ ~~compared to~~ ~~$1.6 billion~~ at ~~June 30, 2011~~2012. ~~The cash~~As of March 31, 2013, the dividend of ~~$0.16~~$0.16 cents per share ~~paid in the~~ ~~second~~ ~~quarter of~~ ~~2012~~ has an indicated annual rate of $0.64 per share.

Effective April 12, 2013, the Corporation purchased the Citizens TARP Preferred issued to the United States Treasury ("Treasury") as part of the Troubled Assets Relief Program (the "Citizens TARP Preferred") in the amount of $300 million plus accumulated but unpaid dividends and interest of approximately $55.4 million. In addition, effective April 12, 2013, a warrant to purchase 1,757,812.5 shares of Citizens' common stock that had been issued to the Treasury on December 12, 2008 as part of Citizens' participation in the Treasury's Capital Purchase Program, was converted into a warrant to purchase 2,408,203 shares of FirstMerit common stock. The Corporation used the net proceeds from its February 4, 2013 public offerings to repurchase the Citizens TARP Preferred and pay all accrued, accumulated and unpaid dividends and interest. The Corporation's public offerings consisted of $250 million aggregate principal amount of subordinated notes due February 4, 2023 bearing interest at an annual rate of 4.35% payable semi-annually in arrears on February 4 and August 4 of each year and 4,000,000 depositary shares (each representing a 1/40th interest in a share of the Corporation's Series A Non-Cumulative Perpetual Preferred Stock) with dividends payable quarterly in arrears on the 4th day of February, May, August and November, beginning May 4, 2013, which resulted in gross proceeds of $100 million. The Board of Directors of the Corporation approved a dividend of $14.69 per share, or $0.36725 per depository share, on the Company's 5.87% Non-Cumulative Perpetual Preferred Stock, Series A, payable May 6, 2013, to shareholders of record as of April 19, 2013. Additional information can be found in Note 2 (Business Combinations) and Note 15 (Subsequent Events).

Capital Adequacy

Capital adequacy is an important indicator of financial stability and performance. The Corporation maintained a strong capital position aswith tangible common equity to assets ~~was~~of ~~8.01%~~8.03% at ~~June 30, 2012~~March 31, 2013, compared towith 8.16% at December 31, 2012 and 7.86% at ~~December~~March 31, ~~2011, and~~ ~~7.79%~~ at ~~June 30, 2011~~2012.

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~~"prompt corrective ~~actions”~~actions" and significant

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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 I1 capital ratio of at least 6%, a leverage capital ratio of at least 5%, and must not be subject to any order or directive requiring the institution to improve its capital level. An adequately capitalized institution has a total risk-based capital ratio of at least 8%, a Tier I capital ratio of at least 4% 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 transactions, which were accounted for as business combinations,~~FDIC assisted acquisitions resulted in the recognition of anloss share receivables from the FDIC, ~~indemnification asset,~~ which represents the fair value of estimated future payments by the FDIC to the Corporation for losses on covered assets. The FDIC ~~indemnification asset,~~loss share receivables, as well as covered assets, are risk-weighted at 20% for regulatory capital requirement purposes.

As of ~~June 30, 2012~~March 31, 2013, the Corporation, on a consolidated basis, as well as FirstMerit Bank, exceeded the minimum capital levels of the well capitalized category.

June 30, 2012 December 31, 2011 June 30, 2011
(Dollars in thousands)
Consolidated
Total equity $ 1,600,815
10.95 % $ 1,565,953
10.84 % $ 1,550,387
10.81 %
Common equity 1,600,815
10.95 % 1,565,953
10.84 % 1,550,387
10.81 %
Tangible common equity (a) 1,133,497
8.01 % 1,097,670
7.86 % 1,081,018
7.79 %
Tier 1 capital (b) 1,150,259
11.40 % 1,119,892
11.48 % 1,088,108
11.51 %
Total risk-based capital (c) 1,276,748
12.65 % 1,242,177
12.73 % 1,206,613
12.77 %
Leverage (d) 1,150,259
8.22 % 1,119,892
7.95 % 1,088,108
7.80 %
Bank Only
Total equity $ 1,540,530
10.55 % $ 1,483,743
10.29 % $ 1,358,025
9.48 %
Common equity 1,540,530
10.55 % 1,483,743
10.29 % 1,468,054
10.25 %
Tangible common equity (a) 1,073,212
7.59 % 1,015,460
7.28 % 998,685
7.21 %
Tier 1 capital (b) 1,085,274
10.77 % 1,033,171
10.62 % 1,001,429
10.62 %
Total risk-based capital (c) 1,206,836
11.98 % 1,150,675
11.82 % 1,115,310
11.83 %
Leverage (d) 1,085,274
7.77 % 1,033,171
7.35 % 1,001,429
7.19 %


~~(a)~~	~~Common equity less all intangibles; computed as a ratio to total assets less intangible assets.~~


~~(b)~~	~~Shareholders' equity less goodwill; computed as a ratio to risk-adjusted assets, as defined in the 1992 risk-based capital guidelines.~~


~~(c)~~	~~Tier 1 capital plus qualifying loan loss allowance, computed as a ratio to risk adjusted assets as defined in the 1992 risk-based capital guidelines.~~


~~(d)~~	~~Tier 1 capital computed as a ratio to the latest quarter's average assets less goodwill.~~



	March 31, 2013				December 31, 2012				March 31, 2012
	(Dollars in thousands)
Consolidated
Total equity	$	1,754,850	11.49	%	$	1,645,202	11.03	%	$	1,584,105	10.80	%
Common equity	1,654,850		10.84	%	1,645,202		11.03	%	1,584,105		10.80	%
Tangible common equity (a)	1,188,751		8.03	%	1,178,785		8.16	%	1,116,304		7.86	%
Tier 1 capital (b)	1,310,927		12.36	%	1,193,188		11.25	%	1,136,705		11.55	%
Total risk-based capital (c)	1,693,702		15.96	%	1,325,971		12.50	%	1,260,065		12.80	%
Leverage (d)	1,310,927		9.07	%	1,193,188		8.43	%	1,136,705		8.16	%

	March 31, 2013				December 31, 2012				March 31, 2012
Bank Only
Total equity	$	1,521,149	9.97	%	$	1,487,513	9.98	%	$	1,503,320	10.26	%
Common equity	1,521,149		9.97	%	1,487,513		9.98	%	1,503,320		10.26	%
Tangible common equity (a)	1,055,050		7.13	%	1,021,096		7.07	%	1,035,519		7.30	%
Tier 1 capital (b)	1,072,153		10.12	%	1,030,585		9.73	%	1,051,301		10.71	%
Total risk-based capital (c)	1,199,763		11.32	%	1,158,312		10.93	%	1,169,762		11.91	%
Leverage (d)	1,072,153		7.43	%	1,030,585		7.29	%	1,051,301		7.50	%

a) Common equity less all intangibles; computed as a ratio to total assets less intangible assets.
b) Shareholders' equity less goodwill; computed as a ratio to risk-adjusted assets, as defined in the 1992 risk-based capital guidelines.
c) Tier 1 capital plus qualifying loan loss allowance, computed as a ratio to risk adjusted assets as defined in the 1992 risk-based capital guidelines.
d) Tier 1 capital computed as a ratio to the latest quarter's average assets less goodwill.

RISK MANAGEMENT

Market Risk Management

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. When the

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value of an instrument is tied to such external factors, the holder faces “market risk.” The Corporation is primarily exposed to interest rate risk as a result of offering a wide array of financial products to its customers.

Interest rate risk management

Changes in market interest rates may result in changes in the fair market value of the Corporation’s financial instruments, cash flows, and net interest income. The Corporation seeks to achieve consistent growth in net interest income and capital while managing volatility arising from shifts in market interest rates. The Asset and Liability Committee (“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. Each of these types of risks is defined in the discussion of market risk management of the ~~2011~~2012 Form 10-K.

The interest rate risk position is measured and monitored using risk management tools, including earnings simulation modeling and economic value of equity 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 ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012:

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
June 30, 2012 (8.00 )% 3.19 % 5.56 % 7.28 %
June 30, 2011 (3.23 )% 1.57 % 3.10 % 6.37 %



	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
March 31, 2013	(7.50	)%	3.51	%	6.41	%	8.98	%
March 31, 2012	(7.54	)%	2.90	%	5.07	%	6.64	%

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

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different than what was assumed, actual net interest earnings sensitivity may be different than projected. The assumptions used in the models are Management’s best estimate based on studies conducted by the ALCO department. The ALCO department uses a data-warehouse to study interest rate risk at a transactional level and uses various ad-hoc reports to refine assumptions continuously. Assumptions and methodologies regarding administered rate liabilities (e.g., savings, money market and interest-bearing checking accounts), balance trends, and repricing relationships reflect Management’s best estimate of expected behavior and these assumptions are reviewed regularly.

Economic value of equity modeling. The Corporation also has longer-term interest rate risk exposure, which may not be appropriately measured by earnings sensitivity analysis. ALCO uses economic value of equity (“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

economic value of equity. 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 ~~June 30, 2012~~March 31, 2013 and ~~2011~~2012:

Immediate Change in Rates and Resulting Percentage
Increase/(Decrease) in EVE:
- 100
basis
points + 100
basis
points + 200
basis
points + 300
basis
points
June 30, 2012 (3.21 )% 1.24 % 1.13 % (0.17 )%
June 30, 2011 (8.17 )% 3.25 % 7.62 % 8.05 %



	Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in EVE:
	- 100 basis points		+ 100 basis points		+ 200 basis points		+ 300 basis points
March 31, 2013	(6.95	)%	1.48	%	1.36	%	0.05	%
March 31, 2012	(1.69	)%	0.12	%	(0.98	)%	(3.02	)%

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

Management of interest rate exposure. Management uses the results of its various simulation analysis to formulate strategies to achieve a desired risk profile within the parameters of the Corporation’s capital and liquidity guidelines. Specifically, Management actively manages interest rate risk positions by 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 109 (Derivatives and Hedging Activities) to the unaudited 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.

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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 deposit pricing policies to ensure a stable core deposit base.

The Corporation’s primary source of liquidity is its core deposit base, raised through its retail branch system. Core deposits comprised approximately ~~86.41%~~89.07% of total deposits at ~~June 30, 2012~~March 31, 2013. 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 enhanced by an excess reserve position that averaged greater than one half billion dollars through the ~~second~~first quarter ~~quarter~~ of ~~2012~~2013 in addition to unencumbered, or unpledged, investment securities that totaled $~~1.4~~0.9 billion as of ~~June 30, 2012~~March 31, 2013.

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 ~~June 30, 2012~~March 31, 2013, lower cost core deposits increased by $~~39.0~~238.4 million from the previous quarter. In aggregate, deposits ~~decreased~~increased $~~32.3~~166.3 million from ~~March~~December 31, 2012. Securities sold under agreements to repurchase decreased ~~decreased~~$~~31.9~~277.7 million from ~~March~~December 31, 2012. Wholesale borrowings and long-term debt had a net increase of ~~increased~~$~~1.5~~249.0 million from ~~March~~December 31, 2012. The Corporation issued $250 million aggregate principal amount of subordinated notes in the first quarter 2013. The Corporation’s loan to deposit ratio increased to ~~80.68%~~81.14% atas of ~~June 30, 2012~~March 31, 2013 from ~~79.34%~~82.92% atas of ~~March~~December 31, 2012.

Parent Company Liquidity - The Corporation manages its liquidity principally through dividends from the bank subsidiary. The parent company 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 ~~quarter~~three months ended ~~June 30, 2012~~March 31, 2013, FirstMerit Bank ~~paid~~ ~~$17.5 million~~ indid not pay dividends to FirstMerit Corporation. As of ~~June 30, 2012~~March 31, 2013, FirstMerit Bank had an additional $~~152.4~~92.0 million available to pay dividends without regulatory approval.

Recent Market and Regulatory Developments. In response to the current national and international economic recession, and in efforts to stabilize and strengthen the financial markets and banking industries, the United States Congress and governmental agencies have taken a number of significant actions over the past several years, including the passage of legislation and implementation of a number of programs. The most recent of these actions was the passage into law, on July 21, 2010, of the Dodd-Frank Wall Street Reform and

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Consumer Protection Act of 2010 (the “Dodd-Frank Act”). The Dodd-Frank Act is the most comprehensive change to banking laws and the financial regulatory environment since the Great Depression of the 1930s. The Dodd-Frank Act affects almost every aspect of the nation’s financial services industry and mandates change in several key areas, including regulation and compliance (both with respect to financial institutions and systemically important nonbank financial companies), securities regulation, executive compensation, regulation of derivatives, corporate governance, and consumer protection.

In this respect, it is noteworthy that preemptive rights heretofore granted to national banking associations by the ~~Office of the Comptroller of the Currency (“OCC”)~~OCC under the National Bank Act will diminish with respect to consumer financial laws and regulations. Thus, Congress has authorized states to enact their own substantive protections and to allow state attorneys general to initiate civil actions to enforce federal consumer protections. In this respect, the Corporation will be subject to regulation by a new consumer protection bureau known as the Bureau of Consumer Financial Protection (the “Bureau”) under the Board of Governors of the Federal Reserve System. The Bureau will consolidate enforcement currently undertaken by myriad financial regulatory agencies, and will have substantial power to define the rights of consumers and responsibilities of providers, including the Corporation.

In addition, and among many other legislative changes as a result of the Dodd-Frank Act that the

Corporation will assess, the Corporation (1) experienced a new assessment model from the FDIC based on assets, not deposits, (2) will be subject to enhanced executive compensation and corporate governance requirements, and (3) will be able, for the first time to offer interest on business transaction and other accounts.

The extent to which the Dodd-Frank Act and initiatives thereunder will succeed in addressing the credit markets or otherwise result in an improvement in the national economy is not yet known. In addition, because most aspects of this legislation will be subject to intensive agency rulemaking and subsequent public comment prior to implementation, it is difficult to predict at this time the ultimate effect of the Dodd-Frank Act on the Corporation. It is likely, however, that the Corporation’s expenses will increase as a result of new compliance requirements.

In December 2010, the Basel Committee on Banking Supervision (the “Basel Committee”) released its final framework for strengthening international capital and liquidity regulation (“Basel III”). Minimum global liquidity standards under Basel III are meant to ensure banks maintain adequate levels of liquidity on both a short and medium to longer horizon. Expected liquidity standard implementation dates are January 1, 2015 and January 1, 2018. When implemented by the federal banking agencies and fully phased-in, Basel III will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. When fully phased in on January 1, 2019, Basel III will require banking institutions to maintain heightened Tier 1 common equity, Tier 1 capital and total capital ratios, as well as maintaining a “capital conservation buffer.” Regulations implementing Basel III are expected to be proposed in mid-2012, with adoption of final regulations unknown. Notwithstanding its release of the Basel III framework as a final framework, the Basel Committee is considering further amendments to Basel III, including imposition of additional capital surcharges on globally systemically important financial institutions. In addition to Basel III, the Dodd-Frank Act requires or permits 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. Accordingly, the regulations ultimately applicable to the Corporation may differ substantially from the currently published final Basel III framework. Requirements of higher capital levels or higher levels of liquid assets could adversely impact the Corporation’s net income and return on equity.

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Various legislation affecting financial institutions and the financial industry will likely continue to be introduced in Congress, and such legislation may further change banking statutes and the operating environment of the Corporation and its subsidiaries in substantial and unpredictable ways, and could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance depending upon whether any of this potential legislation will be enacted, and if enacted, the effect that it or any implementing regulations, would have on the financial condition or results of operations of the Corporation or any of its subsidiaries. With the enactment of the Dodd-Frank Act, the nature and extent of future legislative and regulatory changes affecting financial institutions remains very unpredictable.

To the extent that the previous information describes statutory and regulatory provisions applicable to the Corporation or its subsidiaries, it is qualified in its entirety by reference to the full text of those provisions. Also, such statutes, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies and are subject to change at any time, particularly in the current economic and regulatory environment. Any such change in statutes, regulations or regulatory policies applicable to the Corporation could have a material effect on the business of the Corporation.

Critical Accounting Policies

The Corporation’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the financial

services industry in which it operates. All accounting policies are important, and all policies described in Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements of the ~~2011~~2012 Form 10-K provide a greater understanding of how the Corporation’s financial performance is recorded and reported.

Some accounting policies are more likely than others to have a significant effect on the Corporation’s financial results and to expose those results to potentially greater volatility. The policies require Management to exercise judgment and make certain assumptions and estimates that affect amounts reported in the financial statements. These assumptions and estimates are based on information available as of the date of the financial statements.

Management relies heavily on the use of judgment, assumptions and estimates to make a number of core decisions, including accounting for the allowance for loan losses, income taxes, derivative instruments and hedging activities, and assets and liabilities that involve valuation methodologies. A brief discussion of each of these areas appears within Management’s Discussion and Analysis of Financial Condition and Results of Operations in the ~~2011~~2012 Form 10-K.

Off-Balance Sheet Arrangements

A detailed discussion of the Corporation’s off-balance sheet arrangements, including interest rate swaps, forward sale contracts and mortgage loan commitments ~~and TBA Securities~~ is included in Note 109 ~~(Derivatives~~(Derivatives and Hedging ~~Activities)~~Activities) to the Corporation’s unaudited consolidated financial statements included in this report and in Note 1718 to the consolidated financial statements in the ~~2011~~2012 Form 10-K. There have been no significant changes since ~~March~~December 31, 2012.

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Forward-looking Safe-harbor Statement

Discussions in this report that are not statements of historical fact (including statements that include terms such as “will,” “may,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “project,” intend,” and “plan”) are forward-looking statements that involve risks and uncertainties. Any forward-looking statement is not a guarantee of future performance and actual future results could differ materially from those contained in forward-looking information. Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detailed from time to time in the Corporation’s filings with the Securities and Exchange Commission, including without limitation the risk factors disclosed in Item 1A, “Risk Factors,” of the ~~2011~~2012 Form 10-K.

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,~~factors: general and local economic and business conditions; recession or other economic ~~downturns,~~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; ~~and~~ critical accounting ~~estimates.~~estimates; the Corporation's ability to realize the synergies and benefits contemplated by the acquisition of Citizens, such as it being accretive to earnings and expanding the Corporation's geographic presence, 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 Securities and Exchange Commission. Other factors are those inherent in originating, selling and servicing loans including prepayment risks, pricing concessions, fluctuation in U.S.

housing prices, fluctuation of collateral values, and changes in customer profiles. Additionally, the actions of the SEC, the FASB, the OCC, the Federal Reserve System, Financial Industry Regulatory Authority, ~~(“FINRA” ),~~ and other regulators; regulatory and judicial proceedings and changes in laws and regulations applicable to the Corporation including the costs of complying with any such laws and regulations; and the Corporation’s success in executing its business plans and strategies, including efforts to reduce operating expenses, and managing the risks involved in the foregoing, could cause actual results to differ.

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


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET ~~RISK~~RISK.

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

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~~ITEM 4.~~	~~CONTROLS AND PROCEDURES.~~

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ITEM 4. CONTROLS AND PROCEDURES.

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

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

During the quarter covered by this report, there was no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II - OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS.

In the normal course of business, the Corporation is subject to pending and threatened legal actions, including claims for 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 1413 (Contingencies and Guarantees) in the notes to the ~~unaudited~~ consolidated financial statements.


ITEM 1A.	RISK FACTORS.

There have been no material changes in our risk factors from those disclosed in the ~~2011~~2012 Form 10-K.


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

(a) Not applicable.

(b) Not applicable.

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(c) The following table provides information with respect to purchases the Corporation made of shares of its common stock during the ~~second~~first quarter ~~quarter~~ of the ~~2012~~2013 fiscal year:

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)
Balances as of December 31, 2011 396,272
April 1, 2012 - April 30, 2012 94,418
$ 16.23
—
396,272
May 1, 2012 - May 31, 2012 13,586
24.40
—
396,272
June 1, 2012 - June 30, 2012 3,108
21.55
—
396,272
Balances as of June 30, 2012 111,112
$ 17.38
—
396,272



	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)
Balances as of December 31, 2012					396,272
January 1, 2013 - January 31, 2013	413	$	22.63	—	396,272
February 1, 2013 - February 28, 2013	970	18.64		—	396,272
March 1, 2013 - March 31, 2013	24,441	24.46		—	396,272
Balances as of March 31, 2013	25,824	$	24.22	—	396,272

(1)

Reflects ~~111,112~~25,824 shares of common stock purchased as a result of either: (1) delivered by the option holder with respect to the exercise of stock options; (2) shares withheld to pay income taxes or other tax liabilities associated with vested restricted shares of common stock; or (3) shares returned upon the resignation of the restricted shareholder. No shares were purchased under the program referred to in note (2) to this table during the ~~second~~first quarter ~~quarter~~ of ~~2012~~2013.


(2)	On January 19, 2006, the Board of Directors authorized the repurchase of up to 3 million shares of common stock (the “New Repurchase Plan”). The New Repurchase Plan, which has no expiration date, superseded all other repurchase programs, including that authorized by the Board of Directors on July 15, 2004.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.

None.


ITEM 4.	MINE SAFETY DISCLOSURES.

Not Applicable.


~~ITEM 5.~~	~~OTHER INFORMATION.~~

ITEM 5. OTHER INFORMATION.

~~None.~~

Not Applicable.

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ITEM 6.	~~EXHIBITS.~~EXHIBIT INDEX

~~Exhibit Index~~



Exhibit
~~Exhibit~~ Number		Description

3.1		Second Amended and Restated Articles of Incorporation of FirstMerit Corporation, as ~~amended (incorporated by reference from Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No. 000-10161) filed by FirstMerit Corporation on May 10, 2010).~~
	amended.
3.2		Second Amended and Restated Code of Regulations of FirstMerit Corporation as amended (incorporated by reference from Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 ~~(File No. 000-10161)~~ filed by FirstMerit Corporation on May 10, 2010).

~~10.53~~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 ~~of Indemnification Agreement with Officers and Directors.~~8-K filed by FirstMerit Corporation on February 4, 2013).
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).
4.3		Specimen Certificate for 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, without par value, of FirstMerit Corporation (incorporated by reference from Exhibit 4.4 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 4, 2013).
4.4		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).
10.1		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)).
10.2		First Amendment to the Amended and Restated Change in Control Termination Agreement, dated February 21, 2013, by and between FirstMerit Corporation and Paul Greig (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 26, 2013).
10.3		First Amendment to the Amended and Restated Change Displacement Agreement, dated February 21, 2013, by and between FirstMerit Corporation and Paul Greig (incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 26, 2013).
10.4		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).
31.1		Rule 13a-14(a)/Section 302 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit Corporation.

31.2		Rule 13a-14(a)/Section 302 Certification of Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer of FirstMerit Corporation.

32.1		Rule 13a-14(b)/Section 906 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit Corporation.

32.2		Rule 13a-14(b)/Section 906 Certification of Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer of FirstMerit Corporation.

~~101~~101.1		The following ~~materials~~financial information from FirstMerit ~~Corporation’s~~Corporation's Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2012,~~March 31, 2013 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.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	FIRSTMERIT CORPORATION

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

~~August~~May 3, ~~2012~~2013

94110



(Dollars in thousands except per share data)	Quarters ended						Six Months Ended
(Unaudited)	June 30,						June 30,
	2012			2011			2012			2011
Interest income:
Loans and loans held for sale	$	103,126		$	107,904		$	206,208		$	222,460
Investment securities
Taxable	21,783			22,176			44,201			43,661
Tax-exempt	3,846			3,137			7,426			6,332
Total investment securities interest	25,629			25,313			51,627			49,993
Total interest income	128,755			133,217			257,835			272,453
Interest expense:
Deposits:
Demand-interest bearing	236			177			483			361
Savings and money market accounts	5,033			7,398			10,136			15,243
Certificates and other time deposits	3,169			5,606			6,693			12,433
Securities sold under agreements to repurchase	276			940			544			1,855
Wholesale borrowings	1,118			1,653			2,269			3,292
Total interest expense	9,832			15,774			20,125			33,184
Net interest income	118,923			117,443			237,710			239,269
Provision for noncovered loan losses	8,766			10,138			16,895			27,156
Provision for covered loan losses	3,430			7,481			9,362			12,812
Net interest income after provision for loan losses	106,727			99,824			211,453			199,301
Other income:
Trust department income	5,730			5,863			11,357			11,377
Service charges on deposits	14,478			15,712			28,887			30,622
Credit card fees	11,216			13,510			21,396			25,717
ATM and other service fees	3,890			3,063			7,680			5,980
Bank owned life insurance income	2,923			3,015			5,979			8,256
Investment services and insurance	2,388			1,972			4,635			4,419
Investment securities gains, net	548			889			808			889
Loan sales and servicing income	5,139			2,891			11,830			5,676
Other operating income	8,989			4,576			14,455			11,311
Total other income	55,301			51,491			107,027			104,247
Other expenses:
Salaries, wages, pension and employee benefits	61,598			56,713			125,571			116,583
Net occupancy expense	7,971			8,086			16,563			16,680
Equipment expense	7,598			6,816			14,702			13,652
Stationery, supplies and postage	2,285			2,750			4,428			5,455
Bankcard, loan processing and other costs	8,858			8,266			16,511			15,829
Professional services	9,307			5,940			12,659			11,734
Amortization of intangibles	483			543			966			1,086
FDIC expense	3,463			4,581			7,183			8,947
Other operating expense	17,514			16,373			34,262			34,548
Total other expenses	119,077			110,068			232,845			224,514
Income before income tax expense	42,951			41,247			85,635			79,034
Income tax expense	12,366			11,484			24,706			21,710
Net income	$	30,585		$	29,763		$	60,929		$	57,324
Other comprehensive income, net of taxes
Changes in unrealized securities' holding gains and losses	$	4,103		$	17,198		$	5,987		$	17,536
Reclassification for realized securities' gains	(356		)	(578		)	(525		)	(578		)
Total other comprehensive gain, net of taxes	3,747			16,620			5,462			16,958
Comprehensive income	$	34,332		$	46,383		$	66,391		$	74,282
Net income applicable to common shares	$	30,585		$	29,763		$	60,929		$	57,324
Net income used in diluted EPS calculation	$	30,585		$	29,763		$	60,929		$	57,324
Weighted average number of common shares outstanding - basic	109,562			109,138			109,386			108,954
Weighted average number of common shares outstanding - diluted	109,562			109,139			109,386			108,955
Basic earnings per common share	$	0.28		$	0.27		$	0.56		$	0.53
Diluted earnings per common share	$	0.28		$	0.27		$	0.56		$	0.53
Dividend per common share	$	0.16		$	0.16		$	0.32		$	0.32



	Employee Separation			Contract Termination		Long-Lived Asset Charges			Other			Total
Total expected restructuring charge	$	3,254		$	561	$	337		$	214		$	4,366
Balance at April 1, 2012	$	—		$	—	$	—		$	—		$	—
Charge to expense	3,254			—		337			162			3,753
Cash payments	(1,811		)	—		—			(162		)	(1,973		)
Noncash utilization	—			—		(337		)	—			(337		)
Balance at June 30, 2012	$	1,443		$	—	$	—		$	—		$	1,443
Remaining expected restructuring charge	$	—		$	561	$	—		$	52		$	613



	June 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available for sale
Debt Securities
U.S. government agency debentures	$	35,224	$	73	$	—		$	35,297
U.S. States and political subdivisions	249,410		15,914		(200		)	265,124
Residential mortgage-backed securities:
U.S. government agencies	1,326,601		56,212		—			1,382,813
Commercial mortgage-backed securities:
U.S. government agencies	37,868		580		(20		)	38,428
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,258,742		18,962		(326		)	1,277,378
Non-agency	13		—		—			13
Commercial collateralized mortgage-backed securities:
U.S. government agencies	66,806		1,739		—			68,545
Corporate debt securities	157,434		1,555		(13,562		)	145,427
Total debt securities	3,132,098		95,035		(14,108		)	3,213,025
Marketable equity securities	3,340		—		—			3,340
Total securities available for sale	$	3,135,438	$	95,035	$	(14,108	)	$	3,216,365
Securities held to maturity
Debt Securities
U.S. States and political subdivisions	$	253,161	$	3,033	$	(119	)	$	256,075
Commercial mortgage-backed securities:
U.S. government agency obligations	$	5,113	$	—	$	(29	)	$	5,084
Commercial collateralized mortgage obligations:
U.S. government agency obligations	$	93,947	$	61	$	(47	)	$	93,961
Total securities held to maturity	$	352,221	$	3,094	$	(195	)	$	355,120



	U.S. Government agency debentures			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			Corporate debt securities			Total			Weighted Average Yield
Securities Available for Sale
Remaining maturity:
One year or less	$	35,297		$	15,897		$	5,134		$	—		$	64,846		$	—		$	—		$	—		$	121,174		3.22	%
Over one year through five years	—			27,984			1,330,029			—			1,180,481			13			63,366			23,944			2,625,817			2.72	%
Over five years through ten years	—			173,985			47,650			38,428			32,051			—			5,179			73,398			370,691			3.69	%
Over ten years	—			47,258			—			—			—			—			—			48,085			95,343			2.83	%
Fair Value	$	35,297		$	265,124		$	1,382,813		$	38,428		$	1,277,378		$	13		$	68,545		$	145,427		$	3,213,025		2.85	%
Amortized Cost	$	35,224		$	249,410		$	1,326,601		$	37,868		$	1,258,742		$	13		$	66,806		$	157,434		$	3,132,098
Weighted-Average Yield	0.73		%	5.36		%	3.09		%	1.70		%	2.37		%	3.99		%	2.16		%	1.84		%	2.85		%
Weighted-Average Maturity	0.40			7.76			3.25			6.10			3.07			2.09			4.52			9.36			3.87
Securities Held to Maturity
Remaining maturity:
One year or less	$	—		$	41,042		$	—		$	—		$	—		$	—		$	—		$	—		$	41,042		1.54	%
Over one year through five years	—			14,567			—			—			—			—			—			—			14,567			4.48	%
Over five years through ten years	—			22,318			—			5,084			—			—			93,961			—			121,363			2.51	%
Over ten years	—			178,148			—			—			—			—			—			—			178,148			5.57	%
Fair Value	$	—		$	256,075		$	—		$	5,084		$	—		$	—		$	93,961		$	—		$	355,120		4.01	%
Amortized Cost	$	—		$	253,161		$	—		$	5,113		$	—		$	—		$	93,947		$	—		$	352,221
Weighted-Average Yield	—		%	5.58		%	—		%	1.90		%	—		%	—		%	1.77		%	—		%	4.01		%
Weighted-Average Maturity	—			13.75			—			6.17			—			—			7.09			—			9.96



Covered Loans (b)													≥ 90 Days Past Due and Accruing(c)
	Days Past Due						Total Past Due		Current		Total Loans			Nonaccrual Loans (c)
	30-59		60-89		≥ 90		Total Past Due		Current		Total Loans			Nonaccrual Loans (c)
Commercial
C&I	$	3,299	$	1,454	$	25,146	$	29,899	$	137,089	$	166,988	n/a	n/a
CRE	17,443		24,079		161,282		202,804		471,487		674,291		n/a	n/a
Construction	—		1,034		49,501		50,535		23,224		73,759		n/a	n/a
Consumer
Installment	—		615		22		637		8,198		8,835		n/a	n/a
Home Equity Lines	1,690		643		1,314		3,647		125,981		129,628		n/a	n/a
Residential Mortgages	11,452		1,571		9,509		22,532		43,240		65,772		n/a	n/a
Total	$	33,884	$	29,396	$	246,774	$	310,054	$	809,219	$	1,119,273	n/a	n/a



As of June 30, 2011

Legacy Loans													≥ 90 Days Past Due and Accruing
	Days Past Due						Total Past Due		Current		Total Loans				Nonaccrual Loans
	30-59		60-89		≥ 90		Total Past Due		Current		Total Loans				Nonaccrual Loans
Commercial
C&I	$	3,415	$	6,346	$	3,102	$	12,863	$	2,402,784	$	2,415,647	$	202	$	5,168
CRE	8,286		4,848		42,535		55,669		1,917,646		1,973,315		1,900		47,164
Construction	529		2,091		10,150		12,770		240,609		253,379		31		10,495
Leases	—		—		—		—		57,634		57,634		—		—
Consumer
Installment	9,636		3,243		5,055		17,934		1,238,299		1,256,233		3,316		787
Home Equity Lines	2,086		835		571		3,492		713,297		716,789		571		938
Credit Cards	915		496		797		2,208		141,620		143,828		349		563
Residential Mortgages	9,559		1,560		8,129		19,248		379,942		399,190		3,715		6,663
Total	$	34,426	$	19,419	$	70,339	$	124,184	$	7,091,831	$	7,216,015	$	10,084	$	71,778



	Three Months Ended June 30, 2011
	C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Allowance for loan losses, beginning balance	$	31,649		$	33,128		$	7,639		$	480		$	20,709		$	6,883		$	8,712		$	5,490		$	114,690
Charge-offs	(4,274		)	(2,608		)	(1,337		)	(127		)	(6,202		)	(2,762		)	(2,297		)	(1,351		)	(20,958		)
Recoveries	188			47			293			2			3,718			483			557			29			5,317
Provision for noncovered loan losses	803			2,379			1,281			(2		)	(136		)	2,538			1,431			1,844			10,138
Allowance for loan losses, ending balance	$	28,366		$	32,946		$	7,876		$	353		$	18,089		$	7,142		$	8,403		$	6,012		$	109,187



	As of June 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans with no related allowance
Commercial
C&I	$	18,773	$	22,139	$	—	$	16,455
CRE	20,426		26,942		—		21,586
Construction	4,218		6,810		—		4,956
Consumer
Installment	—		—		—		—
Home equity line	—		—		—		—
Credit card	—		—		—		—
Residential mortgages	4,411		4,411		—		4,718
Subtotal	$	47,828	$	60,302	$	—	$	47,715
Impaired loans with a related allowance
Commercial
C&I	6,477		10,511		5,327		6,641
CRE	12,718		14,817		1,977		11,007
Construction	987		987		115		991
Consumer
Installment	31,043		31,043		1,773		31,581
Home equity line	6,063		6,063		22		6,192
Credit card	1,998		1,998		128		2,159
Residential mortgages	14,168		14,168		1,649		14,192
Subtotal	73,454		79,587		10,991		72,763
Total impaired loans	$	121,282	$	139,889	$	10,991	$	120,478



	Quarter ended		Year ended		Quarter ended
	June 30, 2012		December 31, 2011		June 30, 2011
Aggregate fair value	$	19,018	$	30,077	$	22,951
Contractual balance	18,267		28,948		22,419
Gain (a)	751		1,129		532



Average Consolidated Balance Sheets (Unaudited)	Superior credit quality: Nonperforming assets as a percent of period end loans declined 10.14% from 0.87% to 0.76% ; net charge-offs to average loans, excluding covered loans, decreased to 0.45% from 0.63% in the prior quarter.
Fully Tax-equivalent Interest Rates and Interest Differential

	Six Months Ended							Six Months Ended
	June 30, 2012							June 30, 2011
	Average					Average		Average					Average
(Dollars in thousands)	Balance			Interest		Rate		Balance			Interest		Rate
ASSETS
Cash and due from banks	$	394,634						$	554,732
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)	2,852,550			$	38,707	2.73	%	2,871,510			$	39,309	2.76	%
Obligations of states and political subdivisions (tax exempt)	459,640			12,118		5.30	%	363,182			10,436		5.79	%
Other securities and federal funds sold	382,184			5,494		2.89	%	287,111			4,352		3.06	%
Total investment securities and federal funds sold	3,694,374			56,319		3.07	%	3,521,803			54,097		3.10	%
Loans held for sale	24,607			522		4.27	%	20,532			494		4.85	%
Loans, including loss share receivable	9,242,105			206,400		4.49	%	9,100,729			222,520		4.93	%
Total earning assets	12,961,086			263,241		4.08	%	12,643,064			277,111		4.42	%
Allowance for loan losses	(143,096		)					(138,920		)
Other assets	1,314,888							1,316,576
Total assets	$	14,527,512						$	14,375,452
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	3,090,386		$	—	—	%	$	2,936,827		$	—	—	%
Interest-bearing	1,063,451			483		0.09	%	832,787			361		0.09	%
Savings and money market accounts	5,703,530			10,136		0.36	%	5,129,894			15,243		0.60	%
Certificates and other time deposits	1,656,284			6,693		0.81	%	2,493,167			12,433		1.01	%
Total deposits	11,513,651			17,312		0.30	%	11,392,675			28,037		0.50	%
Securities sold under agreements to repurchase	904,033			544		0.12	%	866,306			1,855		0.43	%
Wholesale borrowings	181,323			2,269		2.52	%	325,197			3,292		2.04	%
Total interest bearing liabilities	9,508,621			20,125		0.43	%	9,647,351			33,184		0.65	%
Other liabilities	338,408							266,184
Shareholders' equity	1,590,097							1,525,090
Total liabilities and shareholders' equity	$	14,527,512						$	14,375,452
Net yield on earning assets	$	12,961,086		$	243,116	3.77	%	$	12,643,064		$	243,927	3.89	%
Interest rate spread						3.66	%						3.72	%