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~~ ~~September 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 ~~October 29, 2012~~, ~~109,652,246~~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.		64
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.		97
ITEM 4. CONTROLS AND PROCEDURES.		97
PART II. OTHER INFORMATION		97
	ITEM 1. LEGAL PROCEEDINGS	97
	ITEM 1A. RISK FACTORS	97
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	97
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES	98
	ITEM 4. MINE SAFETY DISCLOSURES	98
	ITEM 5. OTHER INFORMATION	98
	ITEM 6. EXHIBIT INDEX	99
SIGNATURES		~~100~~
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)	September 30, 2012			December 31, 2011			September 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	$	201,359		$	219,256		$	202,886		$	183,430		$	244,223		$	188,789
Interest-bearing deposits in banks	37,058			158,063			116,059			163,673			13,791			301,196
Total cash and cash equivalents	238,417			377,319			318,945			347,103			258,014			489,985
Investment securities
Investment securities:
Held-to-maturity	620,631			82,764			92,214			665,589			622,121			100,840
Available-for-sale	2,911,993			3,353,553			3,198,046			3,243,835			2,920,971			3,491,647
Other investments	140,730			140,726			160,793			140,984			140,717			140,713
Loans held for sale	17,540			30,077			39,340			14,459			23,683			42,447
Noncovered loans:
Commercial	5,511,678			5,107,747			5,018,857			5,888,337			5,866,489			5,220,051
Residential mortgage	439,062			413,664			397,309
Mortgage										451,522			445,211			428,950
Installment	1,321,081			1,263,665			1,271,327			1,322,795			1,328,258			1,259,930
Home equity	789,743			743,982			743,377			812,458			806,078			739,548
Credit cards	143,918			146,356			142,710
Credit card										140,721			146,387			140,618
Leases	110,938			73,530			57,992			164,137			139,236			74,112
Total noncovered loans	8,316,420			7,748,944			7,631,572			8,779,970			8,731,659			7,863,209
Allowance for noncovered loan losses	(98,942		)	(107,699		)	(109,187		)	(98,843		)	(98,942		)	(103,849		)
Net noncovered loans	8,217,478			7,641,245			7,522,385			8,681,127			8,632,717			7,759,360
Covered loans (includes loss share receivable of $131.9 million, $205.7 million and $220.5million at September 30, 2012, December 31, 2011 and September 30, 2011, respectively)	1,174,929			1,497,140			1,647,218
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	(43,644		)	(36,417		)	(34,603		)	(47,945		)	(43,255		)	(41,070		)
Net covered loans	1,131,285			1,460,723			1,612,615			848,887			975,870			1,337,080
Net loans	9,348,763			9,101,968			9,135,000			9,530,014			9,608,587			9,096,440
Premises and equipment, net	182,043			192,949			193,075			177,137			181,149			188,347
Goodwill	460,044			460,044			460,044			460,044			460,044			460,044
Intangible assets	6,817			8,239			8,782			6,055			6,373			7,756
Covered other real estate (includes loss share receivable of $0.1 million, $1.3 million and $3.5 million at September 30, 2012, December 31, 2011 and September 30, 2011, respectively)	56,795			54,505			61,890
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	645,070			639,558			1,020,149			616,997			631,498			596,188
Total assets	$	14,628,843		$	14,441,702		$	14,688,278		$	15,272,484		$	14,913,012		$	14,670,818
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	3,231,500		$	3,030,225		$	2,971,555		$	3,360,841		$	3,338,371		$	3,136,595
Interest-bearing	1,079,913			1,062,896			967,574			1,371,359			1,287,674			1,119,102
Savings and money market accounts	5,744,103			5,595,409			5,513,472			5,890,369			5,758,123			5,742,547
Certificates and other time deposits	1,476,910			1,743,079			1,943,520			1,303,198			1,375,257			1,649,921
Total deposits	11,532,426			11,431,609			11,396,121			11,925,767			11,759,425			11,648,165
Federal funds purchased and securities sold under agreements to repurchase	963,455			866,265			987,030			826,855			1,104,525			928,760
Wholesale borrowings	178,083			203,462			248,006			136,003			136,883			176,611
Accrued taxes, expenses, and other liabilities	330,175			374,413			486,467
Long-term debt										249,921			—			—
Accrued taxes, expenses and other liabilities										379,088			266,977			333,177
Total liabilities	13,004,139			12,875,749			13,117,624			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: September 30, 2012, December 31, 2011 and September 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	473,781			479,882			478,738			472,975			475,979			484,491
Accumulated other comprehensive loss	(13,900		)	(23,887		)	(4,654		)	(24,119		)	(16,205		)	(22,172		)
Retained earnings	1,175,001			1,131,203			1,118,027			1,214,889			1,195,850			1,144,210
Treasury stock, at cost: September 30, 2012 - 5,468,853 shares; December 31, 2011 - 5,870,923 shares; September 30, 2011 -5,874,748 shares	(138,115		)	(149,182		)	(149,394		)
Total shareholders’ equity	1,624,704			1,565,953			1,570,654
Total liabilities and shareholders’ equity	$	14,628,843		$	14,441,702		$	14,688,278
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 Nine Months Ended
(Unaudited) September 30, September 30,
2012 2011 2012 2011
Interest income:
Loans and loans held for sale $ 103,005
$ 108,417
$ 309,213
$ 330,877
Investment securities
Taxable 20,633
21,949
64,834
65,610
Tax-exempt 3,844
3,189
11,270
9,521
Total investment securities interest 24,477
25,138
76,104
75,131
Total interest income 127,482
133,555
385,317
406,008
Interest expense:
Deposits:
Demand-interest bearing 243
218
726
579
Savings and money market accounts 5,166
6,929
15,302
22,172
Certificates and other time deposits 2,743
4,370
9,436
16,803
Securities sold under agreements to repurchase 310
977
854
2,832
Wholesale borrowings 1,130
1,669
3,399
4,963
Total interest expense 9,592
14,163
29,717
47,349
Net interest income 117,890
119,392
355,600
358,659
Provision for noncovered loan losses 9,965
14,604
26,860
41,760
Provision for covered loan losses 6,214
4,768
15,576
17,580
Net interest income after provision for loan losses 101,711
100,020
313,164
299,319
Other income:
Trust department income 6,124
5,607
17,481
16,983
Service charges on deposits 14,603
17,838
43,490
48,460
Credit card fees 11,006
13,640
32,402
39,357
ATM and other service fees 3,680
3,801
11,360
9,781
Bank owned life insurance income 3,094
3,182
9,073
11,439
Investment services and insurance 2,208
1,965
6,843
6,384
Investment securities gains, net 553
4,402
1,361
5,291
Loan sales and servicing income 7,255
3,426
19,085
9,102
Other operating income 6,402
6,911
20,857
18,222
Total other income 54,925
60,772
161,952
165,019
Other expenses:
Salaries, wages, pension and employee benefits 58,061
61,232
183,632
177,815
Net occupancy expense 8,077
8,464
24,640
25,144
Equipment expense 7,143
7,073
21,845
20,725
Stationery, supplies and postage 2,210
2,517
6,638
7,972
Bankcard, loan processing and other costs 8,424
8,449
24,935
24,278
Professional services 4,702
5,732
17,361
17,466
Amortization of intangibles 456
543
1,422
1,629
FDIC expense 1,832
3,240
9,015
12,187
Other operating expense 17,682
18,707
51,944
53,254
Total other expenses 108,587
115,957
341,432
340,470
Income before income tax expense 48,049
44,835
133,684
123,868
Income tax expense 13,096
13,098
37,802
34,808
Net income $ 34,953
$ 31,737
$ 95,882
$ 89,060
Other comprehensive income, net of taxes
Changes in unrealized securities' holding gains and losses $ 4,884
$ 7,353
$ 10,872
$ 24,889
Reclassification for realized securities' gains (359 ) (2,862 ) (885 ) (3,440 )
Total other comprehensive gain, net of taxes 4,525
4,491
9,987
21,449
Comprehensive income $ 39,478
$ 36,228
$ 105,869
$ 110,509
Net income applicable to common shares $ 34,953
$ 31,737
$ 95,882
$ 89,060
Net income used in diluted EPS calculation $ 34,953
$ 31,737
$ 95,882
$ 89,060
Weighted average number of common shares outstanding - basic 109,645
109,245
109,473
109,052
Weighted average number of common shares outstanding - diluted 109,645
109,246
109,473
109,053
Basic earnings per common share $ 0.32
$ 0.29
$ 0.88
$ 0.82
Diluted earnings per common share $ 0.32
$ 0.29
$ 0.88
$ 0.82
Dividend per common share $ 0.16
$ 0.16
$ 0.48
$ 0.48

~~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 —
—
—
—
—
89,060
—
89,060
Cash dividends - common stock ($0.48 per share) —
—
—
—
—
(51,933 ) —
(51,933 )
Nonvested (restricted) shares granted (576,138 shares) —
—
—
(13,985 ) —
—
13,985
—
Restricted stock activity (145,668 shares) —
—
—
494
—
—
(2,751 ) (2,257 )
Deferred compensation trust (10,182 increase in shares) —
—
—
42
—
—
(42 ) —
Share-based compensation —
—
—
6,620
—
—
—
6,620
Net unrealized gains on investment securities, net of taxes —
—
—
—
21,449
—
—
21,449
Balance at September 30, 2011 $ —
$ 127,937
$ —
$ 478,738
$ (4,654 ) $ 1,118,027
$ (149,394 ) $ 1,570,654
Balance at December 31, 2011 $ —
$ 127,937
$ —
$ 479,882
$ (23,887 ) $ 1,131,203
$ (149,182 ) $ 1,565,953
Net income —
—
—
—
—
95,882
—
95,882
Cash dividends - common stock ($0.48 per share) —
—
—
—
—
(52,084 ) —
(52,084 )
Nonvested (restricted) shares granted (588,765 shares) —
—
—
(14,481 ) —
—
14,481
—
Restricted stock activity (186,695 shares) —
—
—
1,023
—
—
(3,364 ) (2,341 )
Deferred compensation trust (86,174 increase in shares) —
—
—
50
—
—
(50 ) —
Share-based compensation —
—
—
7,258
—
—
—
7,258
Net unrealized gains on investment securities, net of taxes —
—
—
—
9,987
—
—
9,987
Other —
—
—
49
—
—
—
49
Balance at September 30, 2012 $ —
$ 127,937
$ —
$ 473,781
$ (13,900 ) $ 1,175,001
$ (138,115 ) $ 1,624,704

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	$	—		$	—

Nine months ended September 30,
(Dollars in thousands) 2012 2011
(Unaudited)
Operating Activities
Net income $ 95,882
$ 89,060
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 42,436
59,340
Depreciation and amortization 17,307
17,016
Benefit attributable to FDIC loss share 12,601
31,078
Accretion of acquired loans (62,191 ) (91,872 )
Accretion income for lease financing (2,168 ) (1,928 )
Amortization and accretion of securities, net
Available for sale 11,352
11,129
Held to maturity 1,239
25
Gain on sales and calls of investment securities, net
Available for sale (1,361 ) (5,291 )
Originations of loans held for sale (575,972 ) (322,760 )
Proceeds from sales of loans, primarily mortgage loans sold in the secondary mortgage markets 596,412
329,967
Gains on sales of loans, net (7,903 ) (5,208 )
Amortization of intangible assets 1,422
1,629
Net change in assets and liabilities
Interest receivable (1,375 ) (195 )
Interest payable (1,117 ) (1,934 )
Prepaid assets 2,420
(5,989 )
Bank owned life insurance (9,073 ) (7,378 )
Employee pension liability (258 ) (2,287 )
Other assets and liabilities 3,888
(1,501 )
NET CASH PROVIDED BY OPERATING ACTIVITIES 123,541
92,901
Investing Activities
Proceeds from sales of securities
Available for sale 190,813
182,781
Proceeds from prepayments, calls, and maturities
Available for sale 611,382
778,697
Held to maturity 42,409
18,901
Other —
12
Purchases of securities
Available for sale (878,624 ) (1,338,279 )
Held to maturity (98,893 ) (51,151 )
Other (42 ) (79 )
Net decrease in loans and leases (241,290 ) (81,096 )
Purchases of premises and equipment, net (6,401 ) (12,225 )
NET CASH USED BY INVESTING ACTIVITIES (380,646 ) (502,439 )
Financing Activities
Net increase in demand accounts 218,292
280,175
Net increase in savings and money market accounts 148,694
701,689
Net decrease in certificates and other time deposits (266,169 ) (853,748 )
Net increase in securities sold under agreements to repurchase 97,190
209,445
Net decrease in wholesale borrowings (25,379 ) (78,001 )
Cash dividends - common (52,084 ) (51,933 )
Restricted stock activity (2,341 ) (2,257 )
NET CASH PROVIDED BY FINANCING ACTIVITIES 118,203
205,370
Decrease in cash and cash equivalents (138,902 ) (204,168 )
Cash and cash equivalents at beginning of period 377,319
523,113
Cash and cash equivalents at end of period $ 238,417
$ 318,945
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest, net of amounts capitalized $ 27,462
$ 43,055
Federal income taxes $ 43,421
$ 7,915

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~~

~~September 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 ~~September 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. ~~The Corporation has~~ASU 2011-11

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

did not ~~completed evaluating~~have a significant impact on the ~~impact of ASU 2011-11~~corporations derivatives, repurchase agreements, reverse repurchase agreements, and securities lending and borrowing transactions on ~~its~~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. ~~Early adoption is permitted.~~ The Corporation currently applies the accounting as described within ASU ~~2012-06,~~2012-06; therefore, ASU 2012-06 will not have an impact on its consolidated financial statements.

2. ~~Restructuring~~

During the quarter ended June 30, 2012, Management announced its implementation plans to enhance the operating efficiency and profitability of the Corporation. 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 result of the initiative, the Corporation estimated that it would reduce its workforce by approximately 340 positions. The elimination of the assistant branch manager positions represent the majority of those reductions. The majority of these positions were eliminated as of June 30, 2012. Management expects to complete its reduction in workforce by December 31, 2012. All branch closures occurred in the quarter ended September 30, 2012.

~~During the quarter ended September 30, 2012, the Corporation recognized the balance of estimated restructuring costs of~~ ~~$0.5 million~~ which primarily consisted of costs associated with the closing of the branches. 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
$ 415
$ 337
$ 200
$ 4,206
Balance at June 30, 2012 $ 1,443
$ —
$ —
$ —
$ 1,443
Charge to expense —
415
—
38
453
Cash payments (1,128 ) (168 ) —
(38 ) (1,334 )
Noncash utilization —
—
—
—
—
Balance at September 30, 2012 $ 315
$ 247
$ —
$ —
$ 562
Remaining expected restructuring charge $ —
$ —
$ —
$ —
$ —

~~Severance expense of~~ ~~$3.3 million~~ was recognized in the quarter ended June 30, 2012. The remaining obligation related to employee separation costs is included in accrued taxes, expenses and other liabilities in the accompanying unaudited consolidated balance sheets as of September 30, 2012.

FASB ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 amends the guidance on ASC 220-10, by requiring an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the 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 objective of the update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after December 15, 2012. The Corporation ~~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

~~Citizens Republic Bancorp, Inc. – Merger Agreement~~

On September 12, 2012, the Corporation and Citizens Republic Bancorp, Inc. ~~(“Citizens”~~("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”~~"Merger Agreement").

On April 12, 2013, the Corporation completed its merger (the "Merger") with Citizens. The results of operations acquired in the Citizens transaction will be included in the Corporation's financial results beginning on April 13, 2013. The Merger ~~Agreement provides that Citizens will merge with and into the Corporation (the “Merger”) and each share of Citizens common stock~~ will be ~~canceled~~accounted for using the purchase acquisition method of accounting and ~~converted into the right to receive~~ ~~1.37~~ shares of the Corporation's common stock (except that any shares of Citizens common stock that are owned by Citizens, the Corporation or any of their respective subsidiaries, other than in a fiduciary capacity,accordingly, assets acquired, liabilities assumed and consideration exchanged will be ~~canceled without any consideration therefor). Each outstanding option~~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 ~~acquire, and each outstanding equity award relating~~refinement for up to one ~~share of Citizens' common stock will be converted into an option to acquire, or an equity award~~

~~relating to,~~ ~~1.37~~ ~~shares of~~year after the Corporation's common stock, as applicable. As a result of the Merger, the former shareholders of Citizens will become shareholders of the Corporation. At the effective time of the Merger, the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, of Citizens issued to the United States Treasury as part of the Troubled Assets Relief Program (the “TARP Preferred”), will be canceled and converted into the right to receive cash in the aggregate amount equal to the liquidation preference of the TARP Preferred plus all accrued, accumulated and unpaid dividends thereon.

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

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

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

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

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

~~Midwest Bank and Trust Company – FDIC Assisted Acquisition~~

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

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

~~George Washington Savings Bank – FDIC Assisted Acquisition~~

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

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

~~First Bank Branches~~

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

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

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.

September 30, 2012

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
Securities available for sale
Debt Securities
U.S. government agency debentures $ 35,109
$ 28
$ —
$ 35,137
U.S. States and political subdivisions 241,436
17,003
(21 ) 258,418
Residential mortgage-backed securities:
U.S. government agencies 1,216,671
61,160
—
1,277,831
Commercial mortgage-backed securities:
U.S. government agencies 15,434
233
—
15,667
Residential collateralized mortgage-backed securities:
U.S. government agencies 1,188,072
17,836
(383 ) 1,205,525
Non-agency 12
—
—
12
Commercial collateralized mortgage-backed securities:
U.S. government agencies 66,316
2,349
—
68,665
Corporate debt securities 61,527
—
(14,034 ) 47,493
Total debt securities 2,824,577
98,609
(14,438 ) 2,908,748
Marketable equity securities 3,245
—
—
3,245
Total securities available for sale $ 2,827,822
$ 98,609
$ (14,438 ) $ 2,911,993
Securities held to maturity
Debt Securities
U.S. States and political subdivisions $ 262,091
$ 6,946
$ (17 ) $ 269,020
Commercial mortgage-backed securities:
U.S. government agency obligations 33,149
792
—
33,941
Residential collateralized mortgage-backed securities:
U.S. government agencies 129,265
396
—
129,661
Commercial collateralized mortgage obligations:
U.S. government agency obligations 98,961
1,054
—
100,015
Corporate debt securities 97,165
1,435
—
98,600
Total securities held to maturity $ 620,631
$ 10,623
$ (17 ) $ 631,237



		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

1210

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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

September 30, 2011

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
Securities available for sale
Debt Securities
U.S. government agency debentures $ 203,148
$ 590
$ (20 ) $ 203,718
U.S. States and political subdivisions 298,140
16,426
(125 ) 314,441
Residential mortgage-backed securities:
U.S. government agencies 1,419,808
61,416
(2 ) 1,481,222
Residential collateralized mortgage-backed securities:
U.S. government agencies 1,080,627
23,327
(45 ) 1,103,909
Non-agency 44,715
139
—
44,854
Corporate debt securities 61,474
—
(15,287 ) 46,187
Total debt securities 3,107,912
101,898
(15,479 ) 3,194,331
Marketable equity securities 3,715
—
—
3,715
Total securities available for sale $ 3,111,627
$ 101,898
$ (15,479 ) $ 3,198,046
Securities held to maturity
Debt Securities
U.S. States and political subdivisions $ 92,214
$ 2,707
$ —
$ 94,921
Total securities held to maturity $ 92,214
$ 2,707
$ —
$ 94,921



		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

1311

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)



		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.


	September 30, 2012		December 31, 2011		September 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	540		578		591		515		527		565
Total other investments	$	140,730	$	140,726	$	160,793	$	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 $~~2.2~~1.9 billion ~~as of~~at ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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.

September 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 3,560
(21 ) 8
—
—
—
3,560
(21 )
Residential mortgage-backed securities:
U.S. government agencies —
—
—
14
—
1
14
—
Commercial mortgage-backed securities:
U.S. government agencies —
—
—
—
—
—
—
—
Residential collateralized mortgage-backed securities:
U.S. government agencies 121,427
(379 ) 8
1,581
(4 ) 1
123,008
(383 )
U.S. non agencies —
—
—
2
—
1
2
—
Commercial collateralized mortgage-backed securities:
U.S. government agencies —
—
—
—
—
—
—
—
Corporate debt securities —
—
—
47,493
(14,034 ) 8
47,493
(14,034 )
Total temporarily impaired securities $ 124,987
$ (400 ) 16
$ 49,090
$ (14,038 ) 11
$ 174,077
$ (14,438 )

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 )

September 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 $ 15,032
$ (20 ) 1
$ —
$ —
—
$ 15,032
$ (20 )
U.S. States and political subdivisions 16,180
(102 ) 18
648
(23 ) 1
16,828
(125 )
Residential mortgage-backed securities:
U.S. government agencies —
—
—
174
(2 ) 2
174
(2 )
Residential collateralized mortgage-backed securities:
U.S. government agencies 21,505
(45 ) 3
—
—
—
21,505
(45 )
Corporate debt securities —
—
—
46,187
(15,287 ) 8
46,187
(15,287 )
Total temporarily impaired securities $ 52,717
$ (167 ) 22
$ 47,009
$ (15,312 ) 11
$ 99,726
$ (15,479 )



	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~~ ~~September 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 ~~September 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 September 30,					Nine Months Ended September 30,					Three months ended March 31,
	2012		2011			2012		2011			2013			2012
Proceeds	$	29,735	$	179,133		$	190,813	$	182,781		$	25,674		$	94,865

Realized gains	553		4,473			1,361		5,418			$	—		$	260
Realized losses	—		(71		)	—		(127		)	(9		)	—
Net securities gains	$	553	$	4,402		$	1,361	$	5,291
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	)

1613

Table of Contents

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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		)

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 ~~September 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.

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		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	$	35,137		$	7,322		$	4,032		$	5,073		$	62,769		$	—		$	—		$	—		$	114,333		2.68	%	$	11,950		$	2,360		$	17,976		$	27,621		$	—		$	—		$	—		$	59,907		3.58	%
Over one year through five years	—			27,234			1,265,886			—			1,111,218			12			63,358			—			2,467,708			2.55	%	37,903			1,070,345			—			1,448,836			11			81,606			—			2,638,701			2.20	%
Over five years through ten years	—			177,836			7,913			10,594			31,538			—			5,307			—			233,188			4.74	%	171,780			79,621			40,598			128,822			—			28,996			—			449,817			3.09	%
Over ten years	—			46,026			—			—			—			—			—			47,493			93,519			2.74	%	40,973			—			—			—			—			—			51,225			92,198			2.24	%
Fair Value	$	35,137		$	258,418		$	1,277,831		$	15,667		$	1,205,525		$	12		$	68,665		$	47,493		$	2,908,748		2.74	%	$	262,606		$	1,152,326		$	58,574		$	1,605,279		$	11		$	110,602		$	51,225		$	3,240,623		2.35	%
Amortized Cost	$	35,109		$	241,436		$	1,216,671		$	15,434		$	1,188,072		$	12		$	66,316		$	61,527		$	2,824,577				$	249,750		$	1,109,905		$	58,827		$	1,591,341		$	11		$	108,658		$	61,555		$	3,180,047
Weighted-Average Yield	0.73		%	5.37		%	2.98		%	1.75		%	2.14		%	3.81		%	2.13		%	1.09		%	2.74		%			5.14		%	2.64		%	2.14		%	1.80		%	3.41		%	1.82		%	0.99		%	2.35		%
Weighted-Average Maturity	0.14			7.83			3.02			4.00			2.94			1.92			4.35			15.06			3.66					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	$	—		$	45,126		$	—		$	—		$	—		$	—		$	—		$	—		$	45,126		1.61	%	$	56,981		$	—		$	—		$	—		$	—		$	—		$	—		$	56,981		1.64	%
Over one year through five years	—			15,116			—			—			129,661			—			21,160			33,529			199,466			2.17	%	19,031			—			—			138,519			—			41,746			40,625			239,921			2.21	%
Over five years through ten years	—			30,309			—			33,941			—			—			78,855			65,071			208,176			2.81	%	60,079			—			41,187			—			—			57,187			56,751			215,204			3.30	%
Over ten years	—			178,469			—			—			—			—			—			—			178,469			5.14	%	161,395			—			—			—			—			—			—			161,395			5.50	%
Fair Value	$	—		$	269,020		$	—		$	33,941		$	129,661		$	—		$	100,015		$	98,600		$	631,237		3.18	%	$	297,486		$	—		$	41,187		$	138,519		$	—		$	98,933		$	97,376		$	673,501		3.30	%
Amortized Cost	$	—		$	262,091		$	—		$	33,149		$	129,265		$	—		$	98,961		$	97,165		$	620,631				$	292,689		$	—		$	40,413		$	137,839		$	—		$	98,887		$	95,761		$	665,589
Weighted-Average Yield	—		%	5.10		%	—		%	1.42		%	1.89		%	—		%	2.91		%	2.23		%	3.18		%			5.48		%	—		%	1.85		%	1.92		%	—		%	2.91		%	2.18		%	3.30		%
Weighted-Average Maturity	—			13.48			—			6.03			2.70			—			6.86			5.29			7.35					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 ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~March 31, 2012 were as follows:

September 30, 2012 December 31, 2011 September 30, 2011
Commercial $ 5,511,678
$ 5,107,747
$ 5,018,857
Residential mortgage 439,062
413,664
397,309
Installment 1,321,081
1,263,665
1,271,327
Home equity 789,743
743,982
743,377
Credit card 143,918
146,356
142,710
Leases 110,938
73,530
57,992
Total noncovered loans (a) 8,316,420
7,748,944
7,631,572
Allowance for noncovered loan losses (98,942 ) (107,699 ) (109,187 )
Net noncovered loans 8,217,478
7,641,245
7,522,385
Covered loans (b) 1,174,929
1,497,140
1,647,218
Allowance for covered loan losses (43,644 ) (36,417 ) (34,603 )
Net covered loans 1,131,285
1,460,723
1,612,615
Net loans $ 9,348,763
$ 9,101,968
$ 9,135,000

~~(a)~~

~~Includes acquired, noncovered loans of~~ ~~$56.0 million, $113.2 million~~ ~~and~~ ~~$178.0 million~~ ~~as of~~ ~~September 30,~~



		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, December 31, 2012 and March 31, 2012, respectively.

(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~~ ~~September 30, 2011~~, respectively.


~~(b)~~	~~Includes loss share receivable of~~ ~~$131.9 million~~, ~~$205.7 million~~ ~~and~~ ~~$220.5 million~~ ~~as of~~ ~~September 30, 2012~~, ~~December 31, 2011~~ ~~and~~ ~~September 30, 2011, respectively.~~

Originated loans are presented net of deferred loan origination fees and costs, which amounted to $~~5.8~~6.8 million, $~~6.0~~6.5 million and $~~5.8~~6.6 million at ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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~~ ~~nine~~three months ended~~September 30, 2012~~ March 31, 2013 and ~~2011~~2012, respectively, were as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011			March 31, 2013			March 31, 2012
Balance at beginning of period	$	152,615		$	239,424		$	205,664		$	288,605		$	113,734		$	205,664
Accretion	(8,401		)	(9,322		)	(26,935		)	(30,821		)	(8,104		)	(9,657		)
Increase due to impairment	1,484			8,224			12,601			31,077			5,539			4,899
FDIC reimbursement	(12,597		)	(14,493		)	(50,678		)	(62,895		)	(10,549		)	(27,430		)
Covered loans paid in full	(1,229		)	(3,362		)	(8,780		)	(5,495		)	(5,027		)	(2,340		)
Balance at end of the period	$	131,872		$	220,471		$	131,872		$	220,471		$	95,593		$	171,136

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Acquired Loans

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 that not all contractually required payments will be collected. Acquired impaired loans are not classified as nonperforming assets as the loans are considered to be performing under ASC 310-30.

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 $~~1.3~~1.0 billion, $~~1.6~~1.2 billion, and $~~1.7~~1.5 billion as of ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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~~ ~~nine~~three months ended~~September 30, 2012~~ March 31, 2013 and ~~2011~~2012:


	Three Months Ended												Nine Months Ended												Three Months Ended
	September 30, 2012						September 30, 2011						September 30, 2012						September 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	$	147,576		$	964,314		$	196,525		$	1,337,921		$	176,736		$	1,128,978		$	227,652		$	1,512,817		$	113,288		$	762,386		$	176,736		$	1,128,978
Accretion	(23,631		)	23,631			(31,120		)	31,120			(75,478		)	75,478			(101,244		)	101,244			(19,514		)	19,514			(26,442		)	26,442
Net Reclassifications from non-accretable to accretable	6,008			—			27,160			—			30,814			—			67,118			—
Net reclassifications from non-accretable to accretable																									10,569			—			11,813			—
Payments received, net	—			(96,593		)	—			(114,500		)	—			(313,104		)	—			(359,520		)	—			(125,230		)	—			(111,901		)
Disposals	(1,929		)	—			(1,057		)	—			(4,048		)	—			(2,018		)	—			(2,213		)	—			(815		)	—
Balance at end of period	$	128,024		$	891,352		$	191,508		$	1,254,541		$	128,024		$	891,352		$	191,508		$	1,254,541		$	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 as of ~~September 30, 2012~~March 31, 2013 and ~~2011~~2012 is as follows:


	September 30, 2012			September 30, 2011			March 31, 2013			March 31, 2012
Contractual required payments receivable	$	1,333,127		$	1,742,815		$	1,040,245		$	1,515,024
Nonaccretable difference	(313,751		)	(296,766		)	(281,445		)	(310,213		)
Expected cash flows	1,019,376			1,446,049			758,800			1,204,811
Accretable yield	(128,024		)	(191,508		)	(102,130		)	(161,292		)
Carrying balance	$	891,352		$	1,254,541		$	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 $~~6.0~~10.6 million during the three months ended ~~September 30, 2012~~March 31, 2013. 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 also reduced by the guaranteed portion of the additional cash flows expected to be received through an increase in provision expense and a corresponding reduction 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 ~~September 30, 2012~~March 31, 2013. The decline in expected cash flows was recorded as provision expense of $~~7.7~~9.7 million in the ~~quarter~~three months ended ~~September 30, 2012~~March 31, 2013 with a related increase of $~~1.5~~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 provision for covered loan losses of $~~6.2~~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 in~~for the ~~quarter~~three months ended ~~September 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 September 30, 2012

Legacy Loans
≥ 90 Days
Past Due
and
Accruing (a)

Days Past Due Total Past Due Current
Total
Loans

Nonaccrual
Loans (b)
30-59 60-89 ≥ 90
Commercial
C&I $ 8,781
$ 2,795
$ 1,469
$ 13,045
$ 3,033,770
$ 3,046,815
$ 57
$ 9,926
CRE 3,197
3,856
14,311
21,364
2,099,760
2,121,124
1,862
17,812
Construction 116
—
853
969
308,136
309,105
—
923
Leases 7
—
—
7
110,931
110,938
—
—
Consumer
Installment 8,884
3,430
4,834
17,148
1,301,995
1,319,143
4,439
3,267
Home Equity Lines 1,784
463
1,311
3,558
768,013
771,571
409
1,858
Credit Cards 991
556
808
2,355
141,563
143,918
393
525
Residential Mortgages 14,364
2,777
6,233
23,374
414,438
437,812
2,399
13,169
Total $ 38,124
$ 13,877
$ 29,819
$ 81,820
$ 8,178,606
$ 8,260,426
$ 9,559
$ 47,480

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 $ —
$ —
$ 50
$ 50
$ 2,366
$ 2,416
$ —
$ 69
CRE —
—
2,565
2,565
29,653
32,218
—
2,762
Consumer

Installment 50
—
—
50
1,888
1,938
—
—
Home Equity Lines 56
9
100
165
18,007
18,172
132
—
Residential Mortgages 63
—
—
63
1,187
1,250
—
—
Total $ 169
$ 9
$ 2,715
$ 2,893
$ 53,101
$ 55,994
$ 132
$ 2,831

Covered Loans (c) ≥ 90 Days Past Due and Accruing (d)
   Days Past Due Total Past Due Current Total Loans Nonaccrual Loans (d)
   30-59 60-89 ≥ 90
Commercial
C&I $ 2,962
$ 973
$ 27,035
$ 30,970
$ 131,721
$ 162,691
n/a n/a
CRE 4,965
21,919
184,067
210,951
412,323
623,274
n/a n/a
Construction —
998
41,325
42,323
19,453
61,776
n/a n/a
Consumer

Installment 2,289
—
35
2,324
6,036
8,360
n/a n/a
Home Equity Lines 1,398
435
1,981
3,814
119,364
123,178
n/a n/a
Residential Mortgages 10,382
1,248
8,576
20,206
43,573
63,779
n/a n/a
Total $ 21,996
$ 25,573
$ 263,019
$ 310,588
$ 732,470
$ 1,043,058
n/a n/a


~~(a)~~	~~Installment loans 90 days or more past due and accruing include~~ ~~$3.1 million~~ ~~of loans guaranteed by the U.S. government as of~~ ~~September 30, 2012~~.


~~(b)~~	~~Nonaccrual loans at September 30, 2012 include~~ ~~$10.6 million~~ ~~of loans resulting from consumer loans classified as troubled debt restructurings where the borrower's obligation to the Corporation has been restructured in bankruptcy.~~


~~(c)~~	~~Excludes loss share receivable of~~ ~~$131.9 million~~ ~~as of~~ ~~September 30, 2012~~.

~~(d)~~

~~Acquired impaired loans were not classified as nonperforming assets at~~ ~~September 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.

As of December 31, 2011

Legacy Loans Total Past Due Current
Total
Loans

≥ 90 Days
Past Due
and
Accruing (a)
Nonaccrual Loans
Days Past Due
30-59 60-89 ≥ 90
Commercial
C&I $ 1,521
$ 940
$ 5,490
$ 7,951
$ 2,740,751
$ 2,748,702
$ 465
$ 9,266
CRE 6,187
4,819
29,976
40,982
1,951,211
1,992,193
984
36,025
Construction 39
—
7,837
7,876
269,459
277,335
609
7,575
Leases —
—
—
—
73,530
73,530
—
—
Consumer
Installment 11,531
3,388
5,167
20,086
1,241,059
1,261,145
4,864
624
Home Equity Lines 2,627
778
1,241
4,646
720,045
724,691
796
1,102
Credit Cards 1,090
707
1,019
2,816
143,540
146,356
403
622
Residential Mortgages 11,778
2,059
9,719
23,556
388,268
411,824
3,252
6,468
Total $ 34,773
$ 12,691
$ 60,449
$ 107,913
$ 7,527,863
$ 7,635,776
$ 11,373
$ 61,682

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

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.

As of September 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 $ 12,639
$ 6,255
$ 5,361
$ 24,255
$ 2,633,735
$ 2,657,990
$ 123
$ 6,096
CRE 5,145
11,030
33,003
49,178
1,907,048
1,956,226
—
39,560
Construction 779
1,719
8,943
11,441
241,137
252,578
—
10,580
Leases —
—
—
—
57,992
57,992
—
—
Consumer
Installment 9,090
4,225
5,052
18,367
1,249,676
1,268,043
1,125
438
Home Equity Lines 2,474
731
922
4,127
718,494
722,621
922
753
Credit Cards 1,222
701
771
2,694
140,016
142,710
357
614
Residential Mortgages 9,687
2,412
7,648
19,747
375,706
395,453
1,481
6,166
Total $ 41,036
$ 27,073
$ 61,700
$ 129,809
$ 7,323,804
$ 7,453,613
$ 4,008
$ 64,207

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 $ 448
$ —
$ 138
$ 586
$ 43,682
$ 44,268
$ —
$ 138
CRE 1,746
1,696
3,284
6,726
101,069
107,795
394
3,558
Consumer
Installment 1
—
—
1
3,283
3,284
—
—
Home Equity Lines —
37
1
38
20,718
20,756
1
—
Residential Mortgages 78
—
—
78
1,778
1,856
—
—
Total $ 2,273
$ 1,733
$ 3,423
$ 7,429
$ 170,530
$ 177,959
$ 395
$ 3,696


As of March 31, 2013																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)																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 Past Due and Accruing(c)														≥ 90 Days
	Days Past Due						Total Past Due		Current			Total Loans			Nonaccrual Loans (c)	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90						30-59						60-89		≥ 90		Past Due		Current		Loans		Accruing (c)		Loans (c)
Commercial
C&I	$	3,913	$	2,108	$	32,491	$	38,512	$	178,882		$	217,394	n/a	n/a	$	1,685	$	1,038	$	21,343	$	24,066	$	87,357	$	111,423	n/a		n/a
CRE	17,486		11,963		198,957		228,406		649,812			878,218		n/a	n/a	2,617		13,964		161,256		177,837		290,125		467,962		n/a		n/a
Construction	913		1,346		68,016		70,275		29,779			100,054		n/a	n/a	—		—		36,157		36,157		5,646		41,803		n/a		n/a
Consumer
Installment	505		136		42		683		10,455			11,138		n/a	n/a	20		—		41		61		8,020		8,081		n/a		n/a
Home Equity Lines	500		896		979		2,375		143,757			146,132		n/a	n/a	1,567		119		1,881		3,567		109,776		113,343		n/a		n/a
Residential Mortgages	14,807		1,062		9,364		25,233		48,578			73,811		n/a	n/a	9,849		724		6,509		17,082		41,545		58,627		n/a		n/a
Total	$	38,124	$	17,511	$	309,849	$	365,484	$	1,061,263		$	1,426,747	n/a	n/a	$	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 $~~2.6~~3.5 million of loans guaranteed by the U.S. government as of ~~September 30, 2011~~March 31, 2013.

(b) Excludes loss share receivable of $~~220.5~~95.6 million as of ~~September 30, 2011~~March 31, 2013.

(c) Acquired impaired loans were not classified as nonperforming assets at ~~September 30, 2011~~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.

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)



As of December 31, 2012
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	$	3,814	$	1,788	$	3,571	$	9,173	$	3,294,527	$	3,303,700	$	104	$	5,255
CRE	4,181		4,483		8,901		17,565		2,175,967		2,193,532		382		13,018
Construction	981		—		597		1,578		333,969		335,547		—		731
Leases	6		—		—		6		139,230		139,236		—		—
Consumer
Installment	11,722		3,193		5,608		20,523		1,305,921		1,326,444		4,909		2,911
Home Equity Lines	1,584		880		1,227		3,691		784,988		788,679		475		1,557
Credit Cards	969		558		954		2,481		143,906		146,387		438		598
Residential Mortgages	13,228		2,488		5,231		20,947		423,028		443,975		3,076		9,852
Total	$	36,485	$	13,390	$	26,089	$	75,964	$	8,601,536	$	8,677,500	$	9,384	$	33,922

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.

(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.

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)



As of March 31, 2012
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	$	9,683	$	598	$	4,464	$	14,745	$	2,858,427	$	2,873,172	$	260	$	5,450
CRE	7,066		2,270		23,439		32,775		1,951,798		1,984,573		614		32,145
Construction	279		—		5,309		5,588		280,127		285,715		—		5,451
Leases	775		—		—		775		73,337		74,112		—		—
Consumer
Installment	7,979		2,226		4,380		14,585		1,243,165		1,257,750		4,141		434
Home Equity Lines	2,229		469		1,126		3,824		717,013		720,837		556		1,113
Credit Cards	913		476		809		2,198		138,420		140,618		309		522
Residential Mortgages	8,269		2,444		10,029		20,742		406,540		427,282		3,381		6,648
Total	$	37,193	$	8,483	$	49,556	$	95,232	$	7,668,827	$	7,764,059	$	9,261	$	51,763

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.

(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.

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

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.

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 September 30, 2012

Legacy Loans
Commercial
C&I CRE Construction Leases
Grade 1 $ 37,327
$ —
$ —
$ 13,785
Grade 2 105,504
3,170
—
190
Grade 3 573,561
278,017
19,312
8,857
Grade 4 2,213,241
1,709,667
282,438
87,259
Grade 5 60,544
53,980
2,893
514
Grade 6 56,638
76,290
4,462
333
Grade 7 —
—
—
—
$ 3,046,815
$ 2,121,124
$ 309,105
$ 110,938
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	2,095		28,590		—		—		4,179		25,168		—		—
Grade 5	259		675		—		—		—		1,155		—		—
Grade 6	62		2,953		—		—		—		3,708		—		—
Grade 7	—		—		—		—		—		—		—		—
Total									$	4,179	$	30,031	$	—	$	—
Covered Loans
	$	2,416	$	32,218	$	—	$	—	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 $ —
$ —
$ —
$ —
Grade 2 1,742
—
—
—
Grade 3 92
449
—
—
Grade 4 91,101
240,630
494
—
Grade 5 3,844
39,883
—
—
Grade 6 61,192
340,063
58,586
—
Grade 7 4,720
2,249
2,696
—
$ 162,691
$ 623,274
$ 61,776
$ —

Table of Contents

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 September 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	$	48,173	$	11,299	$	1,429	$	—	$	42,211	$	—	$	—	$	13,119
Grade 2	100,058		3,843		620		—		114,480		3,138		—		179
Grade 3	487,017		245,756		18,067		4,219		661,692		254,749		17,652		20,042
Grade 4	1,930,074		1,490,214		209,307		53,771		2,406,174		1,818,818		311,271		104,037
Grade 5	49,251		73,815		4,851		—		44,638		53,008		3,057		1,561
Grade 6	43,417		130,584		18,304		2		34,505		63,819		3,567		298
Grade 7	—		715		—		—		—		—		—		—
Total									$	3,303,700	$	2,193,532	$	335,547	$	139,236
Acquired Loans (Noncovered)
	$	2,657,990	$	1,956,226	$	252,578	$	57,992	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 3
1,968
—
—
Grade 4 43,250
98,668
—
—
Grade 5 160
—
—
—
Grade 6 855
6,491
—
—
Grade 7 —
668
—
—
$ 44,268
$ 107,795
$ —
$ —


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	$	915	$	—	$	—	$	—	$	926	$	—	$	—	$	—
Grade 2	1,801		—		—		—		1,384		—		—		—
Grade 3	—		538		—		—		523		495		—		—
Grade 4	101,794		343,697		4,207		—		98,347		272,278		487		—
Grade 5	32,094		154,591		1,992		—		7,913		90,901		1,613		—
Grade 6	78,153		348,152		83,051		—		67,000		349,702		72,675		—
Grade 7	2,637		31,240		10,804		—		5,873		12,727		8,444		—
Total									$	181,966	$	726,103	$	83,219	$	—
	$	217,394	$	878,218	$	100,054	$	—

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~~ ~~nine~~three months ended~~September 30, 2012~~ March 31, 2013 and ~~2011~~2012 is shown in the following tables:


	Nine Months Ended September 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	(19,906		)	(3,496		)	(165		)	—		(14,441		)	(7,373		)	(4,618		)	(3,431		)	(53,430		)	(2,103		)	(53		)	(516		)	—		(4,594		)	(1,837		)	(1,403		)	(270		)	(10,776		)
Recoveries	3,120			825			364			38		9,104			2,588			1,583			191			17,813			1,055			132			58			89		2,496			483			513			43			4,869
Provision for noncovered loan losses	23,582			(4,008		)	(568		)	127		(809		)	2,904			2,901			2,731			26,860
Provision for loan losses																											5,266			(1,806		)	(622		)	401		95			2,198			575			(299		)	5,808
Allowance for loan losses, ending balance	$	39,159		$	25,178		$	4,804		$	506	$	11,835		$	4,885		$	7,235		$	5,340		$	98,942		$	40,427		$	18,399		$	2,741		$	1,129	$	9,151		$	14,568		$	7,069		$	5,359		$	98,843


	Three Months Ended September 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	$	40,327		$	27,186		$	5,147		$	358	$	13,029		$	5,449		$	6,690		$	5,663		$	103,849		$	32,363		$	31,857		$	5,173		$	341		$	17,981		$	6,766		$	7,369		$	5,849		$	107,699
Charge-offs	(8,773		)	(727		)	(127		)	—		(5,507		)	(2,784		)	(1,390		)	(1,691		)	(20,999		)	(6,292		)	(669		)	(38		)	—			(5,238		)	(2,735		)	(1,583		)	(862		)	(17,417		)
Recoveries	1,408			180			61			—		2,883			1,007			488			100			6,127			350			81			263			37			3,202			840			630			35			5,438
Provision for noncovered loan losses	6,197			(1,461		)	(277		)	148		1,430			1,213			1,447			1,268			9,965
Provision for loan losses																											10,751			(3,491		)	(274		)	(44		)	(1,192		)	1,398			104			877			8,129
Allowance for loan losses, ending balance	$	39,159		$	25,178		$	4,804		$	506	$	11,835		$	4,885		$	7,235		$	5,340		$	98,942		$	37,172		$	27,778		$	5,124		$	334		$	14,753		$	6,269		$	6,520		$	5,899		$	103,849

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Nine Months Ended September 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 (13,517 ) (7,763 ) (3,245 ) (778 ) (20,204 ) (8,356 ) (6,135 ) (3,786 ) (63,784 )
Recoveries 1,254
54
545
35
10,812
1,840
1,789
192
16,521
Provision for noncovered loan losses 12,837
8,984
2,335
593
6,160
5,542
1,235
4,074
41,760
Allowance for loan losses, ending balance $ 30,338
$ 33,301
$ 6,815
$ 325
$ 18,323
$ 6,243
$ 7,996
$ 5,846
$ 109,187

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

Credit
Cards

Residential
Mortgages
Total
Allowance for loan losses, beginning balance $ 28,366
$ 32,946
$ 7,876
$ 353
$ 18,089
$ 7,142
$ 8,403
$ 6,012
$ 109,187
Charge-offs (4,528 ) (3,304 ) (550 ) (651 ) (5,911 ) (2,779 ) (1,520 ) (771 ) (20,014 )
Recoveries 540
6
171
1
3,375
658
585
74
5,410
Provision for noncovered loan losses 5,960
3,653
(682 ) 622
2,770
1,222
528
531
14,604
Allowance for loan losses, ending balance $ 30,338
$ 33,301
$ 6,815
$ 325
$ 18,323
$ 6,243
$ 7,996
$ 5,846
$ 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 ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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 September 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	$	2,900	$	1,953	$	117	$	—	$	1,674	$	95	$	106	$	1,599	$	8,444
Collectively evaluated for impairment	36,259		23,225		4,687		506		10,161		4,790		7,129		3,741		90,498
Total ending allowance for noncovered loan losses balance	$	39,159	$	25,178	$	4,804	$	506	$	11,835	$	4,885	$	7,235	$	5,340	$	98,942	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	$	9,994	$	28,972	$	3,577	$	—	$	32,577	$	6,922	$	1,767	$	24,569	$	108,378
Collectively evaluated for impairment	3,039,235		2,124,370		305,528		110,938		1,288,505		782,820		142,152		414,494		8,208,042
																			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	$	3,049,229	$	2,153,342	$	309,105	$	110,938	$	1,321,082	$	789,742	$	143,919	$	439,063	$	8,316,420	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

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

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 September 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	$	256	$	2,064	$	1,264	$	—	$	1,568	$	52	$	121	$	1,346	$	6,671
Collectively evaluated for impairment	30,082		31,237		5,551		325		16,755		6,191		7,875		4,500		102,516
Total ending allowance for noncovered loan losses balance	$	30,338	$	33,301	$	6,815	$	325	$	18,323	$	6,243	$	7,996	$	5,846	$	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	$	4,271	$	39,288	$	11,789	$	—	$	34,654	$	4,413	$	2,356	$	16,316	$	113,087
Collectively evaluated for impairment	2,697,987		2,024,734		240,788		57,992		1,236,673		738,964		140,354		380,993		7,518,485
																			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	$	2,702,258	$	2,064,022	$	252,577	$	57,992	$	1,271,327	$	743,377	$	142,710	$	397,309	$	7,631,572	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 ~~September 30, 2012~~March 31, 2013, the Corporation increased its allowance for covered loan losses to $~~43.6~~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~~ ~~September 30, 2012~~by a charge to the provision for covered loan losses of $~~7.7~~9.7 million ~~and~~that was partially offset by an increase of $~~1.5~~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 $~~0.3~~0.4 million, $~~0.7~~0.3 million and $~~0.6~~0.4 million as of ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~March 31, 2012, respectively.

The activity within the allowance for covered loan losses for the ~~three and~~ ~~nine~~three months ended~~September 30, 2012~~ March 31, 2013 and ~~2011~~2012 is shown in the following table:


	Three Months Ended September 30,						Nine Months Ended September 30,							Three months ended March 31,
	2012			2011			2012			2011				2013			2012
Balance at beginning of the period	$	42,606		$	33,360		$	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	7,698			12,992			28,177			48,657
Benefit attributable to FDIC loss share agreements	(1,484		)	(8,224		)	(12,601		)	(31,077		)
Net provision for covered loan losses	6,214			4,768			15,576			17,580
													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	1,484			8,224			12,601			31,077			Increase in indemnification asset	5,539			4,899
Loans charged-off	(6,660		)	(11,749		)	(20,950		)	(27,787		)	Loans charged-off	(4,987		)	(6,178		)
Balance at end of the period	$	43,644		$	34,603		$	43,644		$	34,603		Balance at end of the period	$	47,945		$	41,070

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

~~Credit Quality Disclosures~~

As of September 30, 2012

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment
Impaired loans with no related allowance
Commercial
C&I $ 1,443
$ 10,154
$ —
$ 9,903
CRE 16,910
22,337
—
19,217
Construction 3,370
3,944
—
4,080
Consumer
Installment 2,902
4,739
—
4,888
Home equity line 959
1,239
—
1,237
Credit card 4
4
—
4
Residential mortgages 10,693
12,838
—
11,542
Subtotal $ 36,281
$ 55,255
$ —
$ 50,871
Impaired loans with a related allowance
Commercial
C&I 8,551
12,555
2,900
10,163
CRE 11,543
14,113
1,953
10,559
Construction 726
726
117
733
Consumer
Installment 29,675
29,675
1,674
30,361
Home equity line 5,963
5,963
95
6,206
Credit card 1,763
1,763
106
1,975
Residential mortgages 13,876
13,967
1,599
13,946
Subtotal 72,097
78,762
8,444
73,943
Total impaired loans $ 108,378
$ 134,017
$ 8,444
$ 124,814

~~(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
5,746
—
4,450
Subtotal 48,331
75,286
—
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
33,723
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
13,167
1,364
13,155
Subtotal 63,279
65,277
7,080
60,318
Total impaired loans $ 111,610
$ 140,563
$ 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.

3331

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

As of September 30, 2011

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment
Impaired loans with no related allowance
Commercial
C&I $ 843
$ 1,831
$ —
$ 1,613
CRE 28,728
40,092
—
34,838
Construction 5,883
8,657
—
6,850
Consumer
Installment —
—
—
—
Home equity line —
—
—
—
Credit card —
—
—
—
Residential mortgages 2,872
4,229
—
2,999
Subtotal $ 38,326
$ 54,809
$ —
$ 46,300
Impaired loans with a related allowance
Commercial
C&I 3,428
4,725
256
4,053
CRE 10,560
15,444
2,064
12,286
Construction 5,906
8,840
1,264
6,386
Consumer
Installment 34,654
34,703
1,568
34,485
Home equity line 4,413
4,412
52
4,581
Credit card 2,359
2,359
121
2,560
Residential mortgages 13,444
13,469
1,346
13,409
Subtotal 74,764
83,952
6,671
77,760
Total impaired loans $ 113,090
$ 138,761
$ 6,671
$ 124,060



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 ~~quarter~~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. ~~These~~As of March 31, 2013 and December 31, 2012, non-reaffirmed consumer loans reported as nonaccrual were ~~reclassified from performing loans to nonaccrual status as of September 30, 2012~~$10.0 million and ~~consisted of $6.7~~$7.7 million ~~of first mortgages, $1.0 million of junior liens and $2.9 million of automobile loans.~~, 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 ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~March 31, 2012~~, respectively.~~.


			As of September 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	22	$	2,413	$	8,478		C&I	25	$	2,627	$	7,864
		CRE	36	17,763		21,307			CRE	45	17,217		22,187
		Construction	27	3,577		4,025			Construction	31	2,779		3,266
		Subtotal	85	23,753		33,810			Total noncovered commercial	101	22,623		33,317
	Consumer							Consumer
		Installment	1,840	32,577		34,414			Installment	1,840	31,117		32,635
		Home equity lines	229	6,922		7,202			Home equity lines	238	6,917		7,247
		Credit card	426	1,767		1,767			Credit card	343	1,388		1,388
		Residential mortgages	308	24,569		26,805			Residential mortgages	294	23,527		26,118
		Subtotal	2,803	65,835		70,188			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	5,278		6,216			C&I	3	1,723		1,958
		CRE	25	52,079		57,681			CRE	20	48,327		57,426
		Construction	10	14,640		42,567			Construction	10	6,296		26,502
		Subtotal	46	71,997		106,464			Total covered commercial	33	56,346		85,886
	Consumer							Consumer
		Home equity lines	30	4,742		4,774			Home equity lines	36	5,113		5,144
		Total	2,964	$	166,327	$	215,236
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.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

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		33,723			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		18,913			Residential mortgages	298	24,009		26,662
		Subtotal	2,394	57,934		59,601			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	$	185,587	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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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)


			As of September 30, 2011							As of March 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	8	$	1,096	$	2,654		C&I	15	$	3,388	$	6,031
		CRE	20	8,068		10,725			CRE	30	9,136		12,745
		Construction	16	3,443		3,657			Construction	27	4,593		5,250
		Subtotal	44	12,607		17,036			Total noncovered commercial	72	17,117		24,026
	Consumer							Consumer
		Installment	1,568	34,654		34,703			Installment	1,506	32,378		32,378
		Home equity lines	166	4,413		4,412			Home equity lines	184	5,522		5,522
		Credit card	529	2,359		2,359			Credit card	454	2,060		2,060
		Residential mortgages	161	16,316		17,698			Residential mortgages	184	18,076		18,076
		Subtotal	2,424	57,742		59,172			Total noncovered consumer	2,328	58,036		58,036
Total noncovered loans								Total noncovered loans		2,400	75,153		82,062
Covered loans	Covered loans							Covered loans
	Commercial							Commercial
		C&I	8	7,287		10,901			C&I	12	7,662		14,877
		CRE	15	41,403		45,282			CRE	23	54,824		60,075
		Construction	11	10,940		21,918			Construction	9	13,687		33,791
		Subtotal	34	59,630		78,101			Total covered commercial	44	76,173		108,743
		Total	2,502	$	129,979	$	154,309
Total loans								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 ~~September 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 ~~September 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 ~~September 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 ~~September 30, 2012~~March 31, 2013, the Corporation had $~~0.3~~0.2 million in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

Table of Contents

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


	As of September 30, 2012
As of March 31, 2013																	As of March 31, 2013
	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	$	955	$	—	$	955	$	865	$	593	$	1,458	$	2,413	$	126	$	1,580	$	—	$	1,580	$	—	$	1,047	$	1,047	$	2,627	$	293
CRE	11,609		2,464		14,073		473		3,217		3,690		17,763		401		14,441		—		14,441		991		1,785		2,776		17,217		769
Construction	3,507		—		3,507		70		—		70		3,577		117		1,716		707		2,423		356		—		356		2,779		90
Total noncovered commercial	16,071		2,464		18,535		1,408		3,810		5,218		23,753		644		17,737		707		18,444		1,347		2,832		4,179		22,623		1,152
Consumer
Installment	28,604		1,071		29,675		2,882		20		2,902		32,577		1,674		26,031		1,166		27,197		3,744		176		3,920		31,117		1,458
Home equity lines	5,394		171		5,565		1,131		226		1,357		6,922		95		5,122		240		5,362		1,329		226		1,555		6,917		89
Credit card	1,655		109		1,764		—		3		3		1,767		106		1,283		95		1,378		—		10		10		1,388		74
Residential mortgages	11,386		3,339		14,725		6,611		3,233		9,844		24,569		1,599		13,168		2,543		15,711		5,229		2,587		7,816		23,527		1,713
Total noncovered consumer	47,039		4,690		51,729		10,624		3,482		14,106		65,835		3,474		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
Commercial
C&I	1,000		4,278		5,278		—		—		—		5,278		1,527		984		738		1,722		—		—		—		1,722		518
CRE	17,298		34,782		52,080		—		—		—		52,080		8,088		5,371		42,958		48,329		—		—		—		48,329		4,701
Construction	6,324		8,315		14,639		—		—		—		14,639		1,632		2,482		3,813		6,295		—		—		—		6,295		1,220
Total covered commercial	24,622		47,375		71,997		—		—		—		71,997		11,247		8,837		47,509		56,346		—		—		—		56,346		6,439
Consumer
Home equity lines	4,698		44		4,742		—		—		—		4,742		—		4,616		497		5,113		—		—		—		5,113		—
Total covered TDRs																	$	13,453	$	48,006	$	61,459	$	—	$	—	$	—	$	61,459	$	6,439
Total TDRs	$	92,430	$	54,573	$	147,003	$	12,032	$	7,292	$	19,324	$	166,327	$	15,365	$	76,794	$	52,757	$	129,551	$	11,649	$	5,831	$	17,480	$	147,031	$	10,925

3738

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)


	As of December 31, 2011
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	$	91	$	—	$	91	$	—	$	2,421	$	2,421	$	2,512	$	247	$	704	$	1,004	$	1,708	$	844	$	65	$	909	$	2,617	$	217
CRE	3,305		513		3,818		3,590		1,759		5,349		9,167		236		12,719		793		13,512		461		2,332		2,793		16,305		869
Construction	2,782		—		2,782		304		237		541		3,323		99		1,860		960		2,820		135		—		135		2,955		105
Total noncovered commercial	6,178		513		6,691		3,894		4,417		8,311		15,002		582		15,283		2,757		18,040		1,440		2,397		3,837		21,877		1,191
Consumer
Installment	31,637		1,800		33,437		—		134		134		33,571		1,382		27,085		1,547		28,632		2,064		174		2,238		30,870		1,526
Home equity lines	4,226		222		4,448		76		239		315		4,763		31		5,183		236		5,419		636		226		862		6,281		34
Credit card	2,073		110		2,183		—		19		19		2,202		108		1,483		118		1,601		—		11		11		1,612		127
Residential mortgages	13,736		688		14,424		1,622		1,352		2,974		17,398		1,364		12,510		3,413		15,923		5,196		2,890		8,086		24,009		1,722
Total noncovered consumer	51,672		2,820		54,492		1,698		1,744		3,442		57,934		2,885		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	1,587		5,991		7,578		—		—		—		7,578		1,384		435		1,328		1,763		—		—		—		1,763		518
CRE	35,083		22,703		57,786		—		—		—		57,786		6,567		7,658		42,614		50,272		—		—		—		50,272		4,959
Construction	5,838		6,218		12,056		—		—		—		12,056		696		2,361		5,810		8,171		—		—		—		8,171		1,220
Total covered commercial	42,508		34,912		77,420		—		—		—		77,420		8,647		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	$	100,358	$	38,245	$	138,603	$	5,592	$	6,161	$	11,753	$	150,356	$	12,114	$	77,630	$	57,823	$	135,453	$	9,336	$	5,698	$	15,034	$	150,487	$	11,297


	As of September 30, 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	$	129	$	—	$	129	$	—	$	967	$	967	$	1,096	$	215	$	1,791	$	—	$	1,791	$	—	$	1,597	$	1,597	$	3,388	$	822
CRE	4,778		—		4,778		1,215		2,075		3,290		8,068		125		3,672		510		4,182		3,152		1,802		4,954		9,136		224
Construction	2,760		—		2,760		180		503		683		3,443		772		4,077		—		4,077		137		379		516		4,593		224
Total noncovered commercial	7,667		—		7,667		1,395		3,545		4,940		12,607		1,112		9,540		510		10,050		3,289		3,778		7,067		17,117		1,270
Consumer
Installment	32,882		1,772		34,654		—		—		—		34,654		1,568		31,167		1,134		32,301		—		77		77		32,378		1,901
Home equity lines	3,885		528		4,413		—		—		—		4,413		52		4,828		387		5,215		75		232		307		5,522		66
Credit card	2,201		158		2,359		—		—		—		2,359		121		1,997		60		2,057		—		3		3		2,060		92
Residential mortgages	12,313		1,570		13,883		1,485		948		2,433		16,316		1,346		15,099		—		15,099		2,918		59		2,977		18,076		1,504
Total noncovered consumer	51,281		4,028		55,309		1,485		948		2,433		57,742		3,087		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	6,052		1,235		7,287		—		—		—		7,287		746		2,405		5,257		7,662		—		—		—		7,662		1,384
CRE	41,403		—		41,403		—		—		—		41,403		1,542		36,419		18,405		54,824		—		—		—		54,824		7,720
Construction	10,940		—		10,940		—		—		—		10,940		394		3,835		9,852		13,687		—		—		—		13,687		1,245
Total covered commercial	58,395		1,235		59,630		—		—		—		59,630		2,682
Total covered TDRs																	42,659		33,514		76,173		—		—		—		76,173		10,349
Total TDRs	$	117,343	$	5,263	$	122,606	$	2,880	$	4,493	$	7,373	$	129,979	$	6,881	$	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.

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 ~~September 30, 2012~~March 31, 2013, as well as the recorded investment in these restructured loans as of ~~September 30, 2012~~March 31, 2013.


	As of September 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	122	4,385		134	2,155
Home equity lines	15	669		16	322
Credit card	18	122		17	106
Residential mortgages	1	80		—	—
Total noncovered consumer	156	5,256		167	2,583
Covered loans
Commercial
C&I	—	—		—	—
CRE	—	—		—	—
Construction	—	—		—	—
Total covered commercial	—	—		—	—
Total	156	$	5,256	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 ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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.

September 30, 2012

Gross Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount
Core deposit intangibles $ 16,759
$ (10,117 ) $ 6,642
Non-compete covenant 102
(70 ) 32
Lease intangible 618
(475 ) 143
$ 17,479
$ (10,662 ) $ 6,817

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 intangible 618
(360 ) 258
$ 17,479
$ (9,240 ) $ 8,239


								March 31, 2013
	September 30, 2011							Gross Carrying		Accumulated			Net Carrying
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Amount		Amortization			Amount
Core deposit intangibles	$	16,760	$	(8,339	)	$	8,421	$	16,759	$	(10,848	)	$	5,911
Non-compete covenant	102		(45		)	57		102		(83		)	19
Lease intangible	617		(313		)	304		618		(493		)	125
	$	17,479	$	(8,697	)	$	8,782	$	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 ~~September 30,~~March 31, 2012 ~~and~~ ~~2011~~. Estimated amortization expense for each of the next five years is as follows: ~~2012~~ - ~~$0.4 million~~; 2013 - $~~1.2~~0.9 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				Nine Months Ended				Three Months Ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011		March 31, 2013		March 31, 2012
BASIC EPS:
Basic EPS:
Net income	$	34,953	$	31,737	$	95,882	$	89,060	$	37,346	$	30,344
Net income available to common shareholders	$	34,953	$	31,737	$	95,882	$	89,060
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	109,645		109,245		109,473		109,052		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	$	0.32	$	0.29	$	0.88	$	0.82	$	0.33	$	0.28
DILUTED EPS:

Diluted EPS:
Income used in diluted earnings per share calculation	$	34,953	$	31,737	$	95,882	$	89,060	$	36,125	$	30,207
Average common shares outstanding									110,807		110,041
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	109,645		109,246		109,473		109,053		109,689		109,211
Diluted net income per share	$	0.32	$	0.29	$	0.88	$	0.82	$	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 ~~September 30, 2012~~March 31, 2013 and ~~2011~~2012, options to purchase ~~1.8~~1.6 million shares and ~~3.3~~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
September 30, 2012 3rd Qtr YTD 3rd Qtr YTD 3rd Qtr YTD 3rd Qtr YTD 3rd Qtr YTD
OPERATIONS:
Net interest income (loss) $ 65,446
$ 193,776
$ 51,181
$ 158,745
$ 4,223
$ 13,412
$ (2,960 ) $ (10,333 ) $ 117,890
$ 355,600
Provision for loan losses 10,401
22,970
1,194
5,459
(519 ) (318 ) 5,103
14,325
16,179
42,436
Other income 15,247
47,603
26,783
76,226
8,528
24,987
4,367
13,136
54,925
161,952
Other expenses 39,595
123,074
53,788
169,618
9,711
29,718
5,493
19,022
108,587
341,432
Net income (loss) 19,954
61,967
14,939
38,931
2,313
5,849
(2,253 ) (10,865 ) 34,953
95,882
AVERAGES:
Assets $ 6,466,355
$ 6,386,617
$ 2,960,336
$ 2,929,911
$ 242,539
$ 238,899
$ 5,064,786
$ 5,041,099
$ 14,734,016
$ 14,596,526
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
September 30, 2011	3rd Qtr		YTD		3rd Qtr		YTD		3rd Qtr		YTD		3rd Qtr			YTD			3rd 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)	$	65,998	$	198,197	$	56,705	$	168,718	$	4,568	$	14,205	$	(7,879	)	$	(22,461	)	$	119,392	$	358,659
Net interest income																							65,519	46,431	3,775	(4,376	)	111,349
Provision for loan losses	4,546		29,653		5,249		17,715		1,261		2,587		8,316			9,385			19,372		59,340		4,766	4,073	208	899		9,946
Other income	16,219		43,632		28,333		78,309		7,784		24,066		8,436			19,012			60,772		165,019		19,232	24,388	8,310	5,462		57,392
Other expenses	36,745		110,073		57,567		177,201		10,004		30,363		11,641			22,833			115,957		340,470		43,027	52,907	10,174	817		106,925
Net income (loss)	40,644		100,519		20,464		45,779		1,199		5,420		(30,570		)	(62,658		)	31,737		89,060
Net income																							24,022	8,996	1,107	3,221		37,346
AVERAGES:
Assets	$	6,258,625	$	6,162,742	$	2,925,345	$	2,937,888	$	237,638	$	240,919	$	5,189,020		$	5,110,001		$	14,610,628	$	14,451,550	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.

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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 ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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
	September 30, 2012				December 31, 2011				September 30, 2011				September 30, 2012				December 31, 2011				September 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	$	—	$	—	$	—	$	182,950	$	22,071	$	234,330	$	25,889	$	248,447	$	28,278	$	—	$	—	$	—	$	—	$	—	$	—	$	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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Derivatives Not Designated in Hedge Relationships

As of ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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
	September 30, 2012					December 31, 2011					September 30, 2011					September 30, 2012				December 31, 2011				September 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	$	1,166,765	$	62,796		$	976,823	$	58,875		$	934,248	$	61,299		$	1,166,765	$	62,796	$	976,823	$	58,875	$	934,248	$	61,299	$	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	221,057		7,394			191,514		4,959			227,999		5,525			—		—		—		—		—		—		214,573		4,152			168,271		4,400			247,453		3,268		—		—		—		—		—		—
Forward sales contracts	144,849		(2,223		)	159,377		(1,798		)	182,588		(1,591		)	—		—		—		—		—		—		122,795		(284		)	124,017		(62		)	201,637		446		—		—		—		—		—		—
Credit contracts	—		—			—		—			—		—			20,861		—		17,951		—		24,435		—		—		—			—		—			—		—		40,541		—		25,225		—		17,805		—
Foreign exchange	4,363		80			3,582		65			2,461		85			4,371		71		3,793		62		2,456		80		8,063		105			6,662		62			7,969		103		8,080		96		6,026		57		8,043		90
Other	—		—			—		—			—		—			27,898		—		21,094		1,324		17,809		—		—		—			—		—			—		—		35,286		—		31,492		—		24,516		—
Total	$	1,537,034	$	68,047		$	1,331,296	$	62,101		$	1,347,296	$	65,318		$	1,219,895	$	62,867	$	1,019,661	$	60,261	$	978,948	$	61,379	$	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 ~~September 30, 2012~~, ~~December 31, 2011~~ or ~~September 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 ~~September 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 ~~September 30, 2012~~March 31, 2013. The fair values of the written swap participations were not material ~~as of~~at ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~March 31, 2012.

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


		Amount of Gain / (Loss) Recognized in Income on Derivatives
		Three Months Ended,			Three Months Ended,
		September 30, 2012			September 30, 2011
Derivatives not designated as hedging instruments								Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain / (Loss) Recognized in Income on Derivatives
									Three Months Ended
									March 31, 2013			March 31, 2012
Mortgage loan commitments	Loan sales and servicing income	$	2,146		$	3,986		Other operating income	$	(248	)	$	(1,691	)
Forward sales contracts	Loan sales and servicing income	(1,023		)	(1,596		)	Other operating income	(223		)	2,244
Foreign exchange contracts	Other income	136			6			Other operating income	(191		)	45
Other								Other operating expense	—			—
Total		$	1,259		$	2,396			$	(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 $~~103.0~~100.4 million, $~~107.0~~96.5 million and $~~113.8~~100.3 million as of ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~March 31, 2012, respectively.

Derivative assets and liabilities are recorded at fair value on the balance sheet and do not take into account the effects of master netting agreements. 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	$	—

4548

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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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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

1110. 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 September 30,						Nine Months Ended September 30,						Three months ended March 31,
	2012			2011			2012			2011			2013			2012
Components of Net Periodic Pension Cost
Service Cost	$	1,799		$	1,531		$	5,397		$	4,593		$	585		$	1,799
Interest Cost	2,965			2,860			8,895			8,580			2,632			2,965
Expected return on assets	(3,034		)	(3,328		)	(9,102		)	(9,984		)	(2,960		)	(3,034		)
Amortization of unrecognized prior service costs	97			98			291			294			117			97
Cumulative net loss	2,593			1,780			7,779			5,340			1,174			2,593
Net periodic pension cost	$	4,420		$	2,941		$	13,260		$	8,823		$	1,548		$	4,420


	Postretirement Benefits										Postretirement Benefits
	Three Months Ended September 30,					Nine Months Ended September 30,					Three months ended March 31,
	2012			2011		2012			2011		2013			2012
Components of Net Periodic Postretirement Cost
Service Cost	$	19		$	14	$	57		$	42	$	25		$	19
Interest Cost	174			221		522			663		130			174
Amortization of unrecognized prior service costs	(117		)	—		(351		)	—		(117		)	(117		)
Cumulative net loss	72			28		216			84		67			72
Net periodic postretirement cost	$	148		$	263	$	444		$	789	$	105		$	148

~~Management contributed~~ ~~$10.0 million~~ toEffective December 31, 2012, the qualified defined benefit pension plan was frozen resulting in 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 ~~quarter ended~~ ~~September 30, 2012~~.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.

4651

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)


12 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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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."

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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 ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~March 31, 2012:


				Fair Value by Hierarchy										Fair Value by Hierarchy
	September 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	$	3,245		$	3,245	$	—		$	—	$	3,212		$	3,212	$	—		$	—
U.S. government agency debentures	35,137			—		35,137			—
U.S. States and political subdivisions	258,418			—		258,418			—		262,606			—		262,606			—
Residential mortgage-backed securities:
U.S. government agencies	1,277,831			—		1,277,831			—		1,152,326			—		1,152,326			—
Commercial mortgage-backed securities:
U.S. government agencies	15,667			—		15,667			—		58,574			—		58,574			—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,205,525			—		1,205,525			—		1,605,279			—		1,605,279			—
Non-agency	12			—		1			11		11			—		2			9
Commercial collateralized mortgage-backed securities:
U.S. government agencies	68,665			—		68,665			—		110,602			—		110,602			—
Corporate debt securities	47,493			—		—			47,493		51,225			—		—			51,225
Total available-for-sale securities	2,911,993			3,245		2,861,244			47,504		3,243,835			3,212		3,189,389			51,234
Residential loans held for sale	17,540			—		17,540			—		14,459			—		14,459			—
Derivative assets:
Interest rate swaps - fair value hedges	—			—		—			—		—			—		—			—
Interest rate swaps - nondesignated	62,796			—		62,796			—		54,590			—		54,590			—
Mortgage loan commitments	7,394			—		7,394			—		4,152			—		4,152			—
Forward sale contracts	(2,223		)	—		(2,223		)	—		(284		)	—		(284		)	—
Foreign exchange	80			—		80			—		105			—		105			—
Total derivative assets	68,047			—		68,047			—		58,563			—		58,563			—
Total fair value of assets (a)	$	2,997,580		$	3,245	$	2,946,831		$	47,504	$	3,316,857		$	3,212	$	3,262,411		$	51,234
Derivative liabilities:
Interest rate swaps - fair value hedges	22,071			—		22,071			—		17,247			—		17,247			—
Interest rate swaps - nondesignated	62,796			—		62,796			—		54,590			—		54,590			—
Foreign exchange	71			—		71			—		96			—		96			—
Other											—			—		—			—
Total derivative liabilities	84,938			—		84,938			—		71,933			—		71,933			—
True-up liability	12,642			—		—			12,642		12,783			—		—			12,783
Total fair value of liabilities (a)	$	97,580		$	—	$	84,938		$	12,642	$	84,716		$	—	$	71,933		$	12,783
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	17,294		$	—	$	—		$	17,294	$	20,223		$	—	$	—		$	20,223
Impaired loans (c)	44,010			—		—			44,010		54,382			—		—			54,382
Other property (d)	6,333			—		—			6,333		5,532			—		—			5,532
Other real estate covered by loss share (e)	14,695			—		—			14,695		16,504			—		—			16,504
Total fair value	$	82,332		$	—	$	—		$	82,332	$	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 ~~September 30,~~March 31, 2013.

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

(c) - Collateral dependent impaired loans with a recorded investment of $58.9 million were reduced by specific valuation allowance allocations totaling $4.5 million to a reported net carrying value of $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 March 31, 2013. During the three months ended March 31, 2013, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.2 million included in noninterest expense.

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



				Fair Value by Hierarchy
	December 31, 2012			Level 1		Level 2			Level 3
Recurring fair value measurement
Available-for-sale securities:
Money market mutual funds	$	3,241		$	3,241	$	—		$	—
U.S. States and political subdivisions	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	52,036			—		52,036			—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,329,421			—		1,329,421			—
Non-agency	11			—		2			9
Commercial collateralized mortgage-backed securities:
U.S. government agencies	111,343			—		111,343			—
Corporate debt securities	49,652			—		—			49,652
Total available-for-sale securities	2,920,971			3,241		2,868,069			49,661
Residential loans held for sale	23,683			—		23,683			—
Derivative assets:
Interest rate swaps - fair value hedges	—			—		—			—
Interest rate swaps - nondesignated	58,769			—		58,769			—
Mortgage loan commitments	4,400			—		4,400			—
Forward sale contracts	(62		)	—		(62		)	—
Foreign exchange	62			—		62			—
Total derivative assets	63,169			—		63,169			—
Total fair value of assets (a)	$	3,007,823		$	3,241	$	2,954,921		$	49,661
Derivative liabilities:
Interest rate swaps - fair value hedges	19,080			—		19,080			—
Interest rate swaps - nondesignated	58,769			—		58,769			—
Foreign exchange	57			—		57			—
Other	—			—		—			—
Total derivative liabilities	77,906			—		77,906			—
True-up liability	12,259			—		—			12,259
Total fair value of liabilities (a)	$	90,165		$	—	$	77,906		$	12,259
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	18,833		$	—	$	—		$	18,833
Impaired loans (c)	54,491			—		—			54,491
Other property (d)	7,540			—		—			7,540
Other real estate covered by loss share (e)	12,631			—		—			12,631
Total fair value	$	93,495		$	—	$	—		$	93,495

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

(b) - MSRs with a recorded investment of $21.3 million were reduced by a specific valuation allowance totaling $~~4.1~~2.6 million to a reported carrying value of $~~17.3~~18.8 million resulting in the recognition of an impairment charge of $1.0 million in the year ended December 31, 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 $57.8 million were reduced by specific valuation allowance allocations totaling $3.3 million to a reported net carrying value of $54.5 million.

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

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)



			Fair Value by Hierarchy
	March 31, 2012		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Money market mutual funds	$	3,308	$	3,308	$	—	$	—
U.S. government agency debentures	35,455		—		35,455		—
U.S. States and political subdivisions	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	27,663		—		27,663		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,251,304		—		1,251,304		—
Non-agency	41,832		—		2		41,830
Commercial collateralized mortgage-backed securities:
U.S. government agencies	147,355		—		147,355		—
Corporate debt securities	143,789		—		97,132		46,657
Total available-for-sale securities	3,491,647		3,308		3,399,852		88,487
Residential loans held for sale	42,447		—		42,447		—
Derivative assets:
Interest rate swaps - fair value hedges	—		—		—		—
Interest rate swaps - nondesignated	56,298		—		56,298		—
Mortgage loan commitments	3,268		—		3,268		—
Forward sale contracts	446		—		446		—
Foreign exchange	103		—		103		—
Total derivative assets	60,115		—		60,115		—
Total fair value of assets (a)	$	3,594,209	$	3,308	$	3,502,414	$	88,487
Derivative liabilities:
Interest rate swaps - fair value hedges	23,786		—		23,786		—
Interest rate swaps - nondesignated	56,298		—		56,298		—
Foreign exchange	90		—		90		—
Other	—		—		—		—
Total derivative liabilities	80,174		—		80,174		—
True-up liability	11,725		—		—		11,725
Total fair value of liabilities (a)	$	91,899	$	—	$	80,174	$	11,725
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	18,869	$	—	$	—	$	18,869
Impaired loans (c)	60,018		—		—		60,018
Other property (d)	4,768		—		—		4,768
Other real estate covered by loss share (e)	47,765		—		—		47,765
Total fair value	$	131,420	$	—	$	—	$	131,420

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

(b) - 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 $18.8 million resulting in recognition of a recovery of $~~0.6~~1.3 million in ~~expense included in loans sales and servicing income in~~ the ~~quarter~~three months ended ~~September 30,~~March 31, 2012.

(c) - Collateral dependent impaired loans with a recorded investment of $~~52.5~~65.2 million were reduced by specific valuation allowance allocations totaling $~~8.5~~5.2 million to a reported net carrying value of $~~44.0~~60.0 million.

(d) - Amounts do not include assets held at cost at ~~September 30,~~March 31, 2012. During the ~~quarter~~three months ended ~~September 30,~~March 31, 2012, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $~~0.1~~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 ~~September 30,~~March 31, 2012. During the ~~quarter~~three months ended ~~September 30,~~March 31, 2012~~, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses~~ ~~$0.2 million~~ ~~included in noninterest expense.~~

Fair Value by Hierarchy
December 31, 2011 Level 1 Level 2 Level 3
Recurring fair value measurement
Available-for-sale securities:
Money market mutual funds $ 3,299
$ 3,299
$ —
$ —
U.S. government agency debentures 123,069
—
123,069
—
U.S. States and political subdivisions 357,731
—
357,731
—
Residential mortgage-backed securities:
U.S. government agencies 1,460,343
—
1,460,343
—
Residential collateralized mortgage-backed securities:

U.S. government agencies 1,137,835
—
1,137,835
—
Non-agency 43,307
—
2
43,305
Commercial collateralized mortgage-backed securities:
U.S. government agencies 129,127
—
129,127
—
Corporate debt securities 98,842
—
54,608
44,234
Total available-for-sale securities 3,353,553
3,299
3,262,715
87,539
Residential loans held for sale 30,077
—
30,077
—
Derivative assets:
Interest rate swaps - fair value hedges —
—
—
—
Interest rate swaps - nondesignated 58,875
—
58,875
—
Mortgage loan commitments 4,959
—
4,959
—
Forward sale contracts (1,798 ) —
(1,798 ) —
Foreign exchange 20
—
65
—
Total derivative assets 62,056
—
62,101
—
Total fair value of assets (a) $ 3,445,686
$ 3,299
$ 3,354,893
$ 87,539
Derivative liabilities:
Interest rate swaps - fair value hedges 25,889
—
25,889
—
Interest rate swaps - nondesignated 58,875
—
58,875
—
Foreign exchange 18
—
62
—
Other 1,324
—
1,324
—
Total derivative liabilities 86,106
—
86,150
—
True-up liability 11,551
—
—
11,551
Total fair value of liabilities (a) $ 97,657
$ —
$ 86,150
$ 11,551
Nonrecurring fair value measurement
Mortgage servicing rights (b) $ 17,749
$ —
$ —
$ 17,749
Impaired loans (c) 56,739
—
—
56,739
Other property (d) 4,087
—
—
4,087
Other real estate covered by loss share (e) 18,707
—
—
18,707
Total fair value $ 97,282
$ —
$ —
$ 97,282

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

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

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

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

~~(e) Amounts do not include assets held at cost at~~ ~~December 31, 2011. During the year ended~~ ~~December 31, 2011~~, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $~~3.0~~0.6 million included in noninterest expense.

Fair Value by Hierarchy
September 30, 2011 Level 1 Level 2 Level 3
Recurring fair value measurement
Available-for-sale securities:
Money market mutual funds $ 3,715
$ 3,715
$ —
$ —
U.S. government agency debentures 203,718
—
203,718
—
U.S. States and political subdivisions 314,441
—
314,441
—
Residential mortgage-backed securities:

U.S. government agencies 1,481,222
—
1,481,222
—
Residential collateralized mortgage-backed securities:
U.S. government agencies 1,103,906
—
1,103,906
—
Non-agency 44,857
—
3
44,854
Commercial collateralized mortgage-backed securities:
U.S. government agencies —
—
—
—
Corporate debt securities 46,187
—
—
46,187
Total available-for-sale securities 3,198,046
3,715
3,103,290
91,041
Residential loans held for sale 39,340
—
39,340
—
Derivative assets:
Interest rate swaps - fair value hedges —
—
—
—
Interest rate swaps - nondesignated 61,299
—
61,299
—
Mortgage loan commitments 5,525
—
5,525
—
Forward sale contracts (1,591 ) —
(1,591 ) —
Foreign exchange 85
—
85
—
Total derivative assets 65,318
—
65,318
—
Total fair value of assets (a) $ 3,302,704
$ 3,715
$ 3,207,948
$ 91,041
Derivative liabilities:
Interest rate swaps - fair value hedges 28,278
—
28,278
—
Interest rate swaps - nondesignated 61,299
—
61,299
—
Foreign exchange 80
—
80
—
Other —
—
—
—
Total derivative liabilities 89,657
—
89,657
—
True-up liability 11,913
—
—
11,913
Total fair value of liabilities (a) $ 101,570
$ —
$ 89,657
$ 11,913
Nonrecurring fair value measurement
Mortgage servicing rights (b) $ 16,866
$ —
$ —
$ 16,866
Impaired loans (c) 59,155
—
—
59,155
Other property (d) 8,648
—
—
8,648
Other real estate covered by loss share (e) 29,350
—
—
29,350
Total fair value $ 114,019
$ —
$ —
$ 114,019

~~(a) - There were no transfers between levels 1 and 2 of the fair value hierarchy during the quarter endedSeptember 30, 2011~~.

~~(b) - MSRs were recorded at carrying value of~~ ~~$16.8 million~~ ~~as of~~ ~~September 30, 2011~~.

~~(c) - Collateral dependent impaired loans with a recorded investment of~~ ~~$66.2 million~~ ~~were reduced by specific valuation allowance allocations totaling~~ ~~$7.1 million~~ ~~to a reported net carrying value of~~ ~~$59.2 million~~.

~~(d) - Amounts do not include assets held at cost at~~ ~~September 30, 2011. During the quarter ended~~ ~~September 30, 2011, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of~~ ~~$1.0 million~~ ~~included in noninterest expense.~~

~~(e) Amounts do not include assets held at cost at~~ ~~September 30, 2011. During the quarter ended~~ ~~September 30, 2011, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of~~ ~~$1.1 million~~ ~~included in noninterest expense.~~

The following section describes the valuation methodologies used by the Corporation to measure financial assets and liabilities at fair value. During the ~~quarters~~three months ended ~~September 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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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(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 ~~September 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 ~~2.99%~~2.91% and ~~3.81%~~3.56% as of ~~September 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 ~~September 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 $~~7.7~~8.4 million, $~~7.2~~7.6 million and $~~7.3~~7.4 million as of ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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 $~~5.0~~4.4 million, $~~4.3~~4.6 million and $~~4.6~~4.3 million as of ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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											Nine Months Ended											Three Months Ended
	September 30, 2012					September 30, 2011						September 30, 2012					September 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	$	48,096		$	11,820	$	144,570		$	12,196		$	87,539		$	11,551	$	60,344		$	12,061		$	49,661	$	12,259	$	87,539		$	11,551
(Gains) losses included in earnings (a)	—			822		—			(283		)	—			1,091		—			(148		)	—		524		—			174
Unrealized gains (losses) (b)	(605		)	—		(4,549		)	—			3,137			—		(4,199		)	—			1,560		—		2,419			—
Purchases	—			—		—			—			—			—		83,876			—			—		—		—			—
Sales	—			—		(44,924		)	—			(40,520		)	—		(44,924		)	—			—		—		—			—
Settlements	13			—		(4,056		)	—			(2,652		)	—		(4,056		)	—			13		—		(1,471		)	—
Net transfers into (out of) Level 3	—			—		—			—			—			—		—			—			—		—		—			—
Balance at ending of period	$	47,504		$	12,642	$	91,041		$	11,913		$	47,504		$	12,642	$	91,041		$	11,913		$	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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(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 ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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
September 30, 2012 December 31, 2011 September 30, 2011
Aggregate fair value $ 17,540
$ 30,077
$ 39,340
Contractual balance 16,635
28,948
37,786
Gain (a) 905
1,129
1,554



	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 ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~March 31, 2012 are shown in the tables below.


	September 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	$	238,417	$	238,417	$	—	$	238,417	$	—	$	347,103	$	347,103	$	—	$	347,103	$	—
Available for sale securities	2,911,993		2,911,993		3,245		2,861,244		47,504
Held to maturity securities	620,631		631,237		—		631,237		—
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	140,730		140,730		—		140,730		—		140,984		140,984		—		140,984		—
Loans held for sale	17,540		17,540		—		17,540		—		14,459		14,459		—		14,459		—
Net noncovered loans	8,217,478		7,898,195		—		—		7,898,195		8,681,127		8,649,899		—		—		8,649,899
Net covered loans and loss share receivable	1,131,285		1,131,285		—		—		1,131,285		848,887		848,887		—		—		848,887
Accrued interest receivable	43,901		43,901		—		43,901		—		43,701		43,701		—		43,701		—
Derivatives	68,047		68,047		—		68,047		—		58,563		58,563		—		58,563		—
Financial liabilities:
Deposits	$	11,532,426	$	11,540,681	$	—	$	11,540,681	$	—	$	11,925,767	$	11,931,015	$	—	$	11,931,015	$	—
Federal funds purchased and securities sold under agreements to repurchase	963,455		963,455		—		963,455		—		826,855		826,855		—		826,855		—
Wholesale borrowings	178,083		187,230		—		187,230		—		136,003		141,613		—		141,613		—
Long-term debt											249,921		259,048		—		259,048		—
Accrued interest payable	2,798		2,798		—		2,798		—		3,853		3,853		—		3,853		—
Derivatives	84,938		84,938		—		84,938		—		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		62,101		—		62,101		—		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		86,150		—		86,150		—		77,906		77,906		—		77,906		—


	September 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	$	318,945	$	318,945	$	—	$	318,945	$	—	$	489,985	$	489,985	$	—	$	489,985	$	—
Available for sale securities	3,198,046		3,198,046		3,715		3,103,290		91,041		3,491,647		3,491,647		3,308		3,399,852		88,487
Held to maturity securities	92,214		94,921		—		94,921		—		100,840		103,865		—		103,865		—
Other securities	160,793		160,793		—		160,793		—		140,713		140,713		—		140,713		—
Loans held for sale	39,340		39,340		—		39,340		—		42,447		42,447		—		42,447		—
Net noncovered loans	7,522,385		7,148,775		—		—		7,148,775		7,759,360		7,496,821		—		—		7,496,821
Net covered loans and loss share receivable	1,612,615		1,612,615		—		—		1,612,615		1,337,080		1,337,080		—		—		1,337,080
Accrued interest receivable	41,199		41,199		—		41,199		—		45,270		45,270		—		45,270		—
Derivatives	65,318		65,318		—		65,318		—		60,115		60,115		—		60,115		—
Financial liabilities:
Deposits	$	11,396,121	$	11,412,576	$	—	$	11,412,576	$	—	$	11,648,165	$	11,659,976	$	—	$	11,659,976	$	—
Federal funds purchased and securities sold under agreements to repurchase	987,030		991,304		—		991,304		—		928,760		928,760		—		928,760		—
Wholesale borrowings	248,006		256,069		—		256,069		—		176,611		184,640		—		184,640		—
Long-term debt											—		—		—		—		—
Accrued interest payable	4,627		4,627		—		4,627		—		3,350		3,350		—		3,350		—
Derivatives	89,657		89,657		—		89,657		—		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~~Investment 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.– See Financial Instruments Measured at Fair Value above.

~~Other securities -~~Loans held for sale – ~~Other securities is mainly composed~~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 ~~nine~~three months ended~~September 30,~~ March 31, 2013and2012 ~~and~~ ~~2011~~, the Corporation sold residential mortgage loans from the held for sale portfolio with unpaid principal balances of $~~588.6~~149.9 million and $~~324.8~~182.1 million, respectively, and recognized ~~pre-tax~~pretax gains of $~~7.9~~4.2 million and $~~5.2~~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 $~~560.9~~136.4 million and $~~283.2~~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 ~~September 30, 2012~~March 31, 2013 and $~~2.2~~2.3 billion at ~~September 30, 2011~~March 31, 2012. For the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013 and ~~2011~~2012, loan servicing fees, not including valuation changes included in loan sales and servicing income, were $~~4.2~~1.5 million and $~~4.0~~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 ~~the~~ mortgage servicing rights valuation allowance are as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three months ended
	2012			2011			2012			2011			March 31, 2013			March 31, 2012
Balance at beginning of period	$	21,273		$	21,094		$	21,179		$	21,317		$	21,316		$	21,179
Additions	1,408			798			4,597			2,660			1,267			1,394
Amortization	(1,390		)	(1,111		)	(4,485		)	(3,196		)	(1,205		)	(1,627		)
Balance at end of period	21,291			20,781			21,291			20,781			21,378			20,946
Valuation allowance at beginning of period	(3,488		)	(350		)	(3,539		)	—			(2,564		)	(3,539		)
Recoveries (Additions)	(590		)	(3,639		)	(539		)	(3,989		)	1,330			1,346
Valuation allowance at end of period	(4,078		)	(3,989		)	(4,078		)	(3,989		)
Valuation Allowance at end of period													(1,234		)	(2,193		)
Mortgage servicing rights, net carrying balance	$	17,213		$	16,792		$	17,213		$	16,792		$	20,144		$	18,753
Fair value at end of period	$	17,294		$	16,866		$	17,294		$	16,866		$	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~~September 30, 2012~~March 31, 2013 and ~~September 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 ~~September 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)	17.5		%	12.26		%
Decrease in fair value from 10% adverse change	$	921		$	789
Decrease in fair value from 25% adverse change	2,193			$	1,885
Discount rate assumption	9.7		%	9.64		%
Decrease in fair value from 100 basis point adverse change	$	478		$	624
Decrease in fair value from 200 basis point adverse change	926			$	1,206
Expected weighted-average life (in months)	71.5			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. In June 2012, the court granted the Corporation's and Bank's motion to dismiss and that decision is now final.

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

InBetween September 17, 2012 and October 5, 2012, alleged shareholders of Citizens filed six ~~shareholder~~purported class action lawsuits ~~were separately filed~~ in the ~~Genesee County~~ Circuit Court of Genesee County, Michigan, ~~by purported shareholders of~~which have been consolidated as In re Citizens Republic Bancorp, ~~against~~Inc. Shareholder Litigation, Case No. 12-99027-CK (the "Lawsuit"). The consolidated complaint (the "Complaint") names as defendants Citizens, the members of ~~Citizens’~~Citizens' board of directors and ~~the Corporation, arising out of the Corporation’s proposed acquisition of Citizens.~~FirstMerit. The ~~lawsuits generally allege~~complaint alleges that the ~~terms and the price of the proposed acquisition are unfair to Citizens’ shareholders and that the Citizens' directors~~director defendants breached their fiduciary duties by failing to ~~Citizens' shareholders~~obtain the best available price in connection with the merger, by ~~approving~~not utilizing a proper process to evaluate the ~~proposed transaction. It is alleged~~merger and by agreeing to protective devices that ~~the Corporation~~ensured that no entity other than FirstMerit would seek to acquire Citizens. The Complaint also alleges that FirstMerit and Citizens aided and abetted ~~the~~those alleged breaches of ~~duties by Citizens’ directors. Plaintiffs, on behalf of all Citizens' shareholders, seek~~fiduciary duty. The Complaint seeks declaratory and injunctive relief ~~against~~to prevent the consummation of the ~~proposed transaction, request rescission~~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 ~~transaction~~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 ~~damages~~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 ~~extent~~MOU, the ~~transaction is consummated,~~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 ~~costs~~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 ~~attorney fees.~~ 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 ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~March 31, 2012 was $~~5.8~~4.9 million, $~~6.4~~5.4 million, and $~~6.4~~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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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 ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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.

September 30, 2012 December 31, 2011 September 30, 2011
Loan Commitments
Commercial $ 2,406,226
$ 2,023,284
$ 2,047,840
Consumer 1,687,955
1,585,655
1,610,924
Total loan commitments $ 4,094,181
$ 3,608,939
$ 3,658,764



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

September 30, 2012 December 31, 2011 September 30, 2011
Financial guarantees
Standby letters of credit $ 125,791
$ 135,039
$ 130,186
Loans sold with recourse 39,251
38,808
40,763
Total financial guarantees $ 165,042
$ 173,847
$ 170,949



		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 $~~69.6~~55.1 million at ~~September 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~~ ~~nine~~months ended ~~September 30, 2012~~March 31, 2013 and ~~2011~~2012 are as follows:


	Three Months Ended September 30, 2012									Three months ended March 31, 2013
	Reserve on residential mortgage loans			Reserve on manufactured housing loans			Total repurchase reserve			Reserve on residential mortgage loans			Reserve on manufactured housing loans			Total repurchased reserve
Balance at beginning of period	$	750		$	1,263		$	2,013		$	1,500		$	1,167		$	2,667
Net realized losses	(202		)	—			(202		)	(56		)	—			(56		)
Net increase to reserve	552			(70		)	482
Net increase (decrease) to reserve										156			(29		)	127
Balance at end of period	$	1,100		$	1,193		$	2,293		$	1,600		$	1,138		$	2,738

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands)

Three Months Ended September 30, 2011
Reserve on residential mortgage loans Reserve on manufactured housing loans Total repurchase reserve
Balance at beginning of period $ 465
$ 1,598
$ 2,063
Net realized losses (96 ) —
(96 )
Net increase to reserve 1
6
7
Balance at end of period $ 370
$ 1,604
$ 1,974

Nine Months Ended September 30, 2012
Reserve on residential mortgage loans Reserve on manufactured housing loans Total repurchase reserve
Balance at beginning of period $ 470
$ 1,273
$ 1,743
Net realized losses (569 ) —
(569 )
Net increase to reserve 1,199
(80 ) 1,119
Balance at end of period $ 1,100
$ 1,193
$ 2,293


	Nine Months Ended September 30, 2011									Three months ended March 31, 2012
	Reserve on residential mortgage loans			Reserve on manufactured housing loans			Total repurchase 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	(321		)	(35		)	(356		)	(206		)	—		(206		)
Net increase to reserve	91			(594		)	(503		)
Net increase (decrease) to reserve										136			5		141
Balance at end of period	$	370		$	1,604		$	1,974		$	400		$	1,278	$	1,678

The total reserve associated with loans sold with recourse was approximately $~~2.3~~2.7 million, $~~1.7~~2.7 million and $~~2.0~~1.7 million as of ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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 ~~September 30, 2012~~, March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~,March 31, 2012, the Corporation had sold ~~$28.5~~$34.9 million,, ~~$28.1~~ $32.5 million and ~~$29.4~~$17.2 million,, respectively, of outstanding residential mortgage loans to GSEs and other investors with recourse provisions. The Corporation had reserved ~~$1.1~~$1.6 million,, ~~$0.5~~ $1.5 million, and ~~$0.4~~$0.4 million as of ~~September 30, 2012~~, March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~,March 31, 2012, respectively, for potential losses from representation and warranty obligations and early payment default recourse provisions.

Due to prior acquisitions, as of ~~September 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 $~~11.4~~8.2 million and $10.7 million as of ~~September 30, 2011~~December 31, 2012. and March 31, 2012, respectively. As of ~~September 30, 2012~~March 31, 2013, the Corporation had reserved $~~1.2~~1.1 million for potential losses from these manufactured housing loans compared to $~~1.3~~1.2 millionand$~~1.6~~1.3 million as of December 31, ~~2011~~2012and~~September 30, 2011~~March 31, 2012, respectively.

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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.

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 pay all accrued, accumulated and unpaid

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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.

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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
		September 30, 2012							September 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		$	440,231						$	517,150							$	394,896						$	238,366						$	378,736
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)		2,688,658			$	17,981	2.66	%	2,974,656			$	19,864	2.65	%		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)		660,143			6,332		3.82	%	385,055			5,275		5.44	%		541,014			6,595		4.94	%	510,722			6,583		5.13	%	436,804			5,864		5.40	%
Other securities and federal funds sold		344,823			2,652		3.06	%	316,383			2,084		2.61	%		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		3,693,624			26,965		2.90	%	3,676,094			27,223		2.94	%		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		23,631			240		4.04	%	24,524			284		4.59	%		14,884			144		3.92	%	20,485			199		3.86	%	26,483			283		4.30	%
Loans, including loss share receivable		9,402,218			103,128		4.36	%	9,177,487			108,444		4.69	%
Noncovered loans, covered loans and loss share receivable																	9,695,926			99,006		4.14	%	9,539,393			101,288		4.22	%	9,217,879			103,156		4.50	%
Total earning assets		13,119,473			130,333		3.95	%	12,878,105			135,951		4.19	%		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		(145,061		)					(138,441		)						(141,735		)					(141,270		)					(142,628		)
Other assets		1,319,373							1,353,814								1,321,593							1,358,426							1,325,645
Total assets		$	14,734,016						$	14,610,628							$	14,983,543						$	14,702,215						$	14,496,937
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY															LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing		$	3,236,703		$	—	—	%	$	2,988,521		$	—	—			$	3,321,660		$	—	—	%	$	3,306,444		$	—	—	%	$	3,036,590		$	—	—
Interest-bearing		1,080,841			243		0.09	%	913,252			218		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		5,746,210			5,166		0.36	%	5,446,351			6,929		0.50	%		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		1,528,177			2,743		0.71	%	2,099,558			4,370		0.83	%		1,331,558			2,063		0.63	%	1,422,246			2,287		0.64	%	1,694,247			3,524		0.84	%
Total deposits		11,591,931			8,152		0.28	%	11,447,682			11,517		0.40	%		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		1,032,401			310		0.12	%	969,020			977		0.40	%		906,717			313		0.14	%	957,564			303		0.13	%	887,715			268		0.12	%
Wholesale borrowings		178,022			1,130		2.53	%	320,691			1,669		2.06	%		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		9,565,651			9,592		0.40	%	9,748,872			14,163		0.58	%		9,666,645			10,607		0.45	%	9,409,610			9,136		0.39	%	9,507,805			10,293		0.44	%
Other liabilities		315,093							302,824								280,233							350,886							371,533
Shareholders’ equity		1,616,569							1,570,411								1,715,005							1,635,275							1,581,009
Total liabilities and shareholders’ equity		$	14,734,016						$	14,610,628							$	14,983,543						$	14,702,215						$	14,496,937
Net yield on earning assets		$	13,119,473		$	120,741	3.66	%	$	12,878,105		$	121,788	3.75	%		$	13,408,789		$	114,376	3.46	%	$	13,246,693		$	119,130	3.58	%	$	12,935,184		$	121,428	3.78	%
Interest rate spread							3.55	%						3.61	%							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.

6473

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

Nine Months Ended Nine Months Ended
September 30, 2012 September 30, 2011
(Dollars in thousands) Average Balance Interest Average Rate Average Balance Interest Average Rate
ASSETS
Cash and due from banks $ 409,944
$ 541,992

Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable) 2,797,521
$ 56,688
2.71 % 2,906,269
$ 59,174
2.72 %
Obligations of states and political subdivisions (tax exempt) 526,962
18,450
4.68 % 370,553
15,709
5.67 %
Other securities and federal funds sold 369,639
8,146
2.94 % 296,976
6,436
2.90 %
Total investment securities and federal funds sold 3,694,122
83,284
3.01 % 3,573,798
81,319
3.04 %
Loans held for sale 24,279
761
4.19 % 21,877
779
4.76 %
Loans, including loss share receivable 9,295,866
309,530
4.45 % 9,126,596
330,965
4.85 %
Total earning assets 13,014,267
393,575
4.04 % 12,722,271
413,063
4.34 %
Allowance for loan losses (143,756 ) (138,758 )
Other assets 1,316,071
1,326,045

Total assets $ 14,596,526
$ 14,451,550

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 3,139,515
$ —
— % $ 2,954,172
$ —
— %
Interest-bearing 1,069,290
726
0.09 % 859,903
579
0.09 %
Savings and money market accounts 5,717,860
15,302
0.36 % 5,236,540
22,172
0.57 %
Certificates and other time deposits 1,613,270
9,436
0.78 % 2,360,522
16,803
0.95 %
Total deposits 11,539,935
25,464
0.29 % 11,411,137
39,554
0.46 %
Securities sold under agreements to repurchase 947,135
854
0.12 % 900,920
2,832
0.42 %
Wholesale borrowings 180,215
3,399
2.52 % 323,678
4,963
2.05 %
Total interest bearing liabilities 9,527,770
29,717
0.42 % 9,681,563
47,349
0.65 %
Other liabilities 330,254
275,452

Shareholders' equity 1,598,987
1,540,363

Total liabilities and shareholders' equity $ 14,596,526
$ 14,451,550

Net yield on earning assets $ 13,014,267
$ 363,858
3.73 % $ 12,722,271
$ 365,714
3.84 %
Interest rate spread 3.62 % 3.69 %

~~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.~~

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

Earnings Summary

The Corporation reported ~~third~~first quarter ~~2012~~2013 net income of $~~35.0~~37.3 million, or $~~0.32~~0.33 per diluted share. This compares with $~~30.6~~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 ~~second~~first quarter 2012 ~~and~~ ~~$31.7 million, or~~ ~~$0.29~~ ~~per diluted share, for the~~ ~~third~~ ~~quarter~~ ~~2011~~.

Returns on average common equity (“ROE”) and average assets (“ROA”) for the ~~third~~first quarter ~~2012~~2013 were ~~8.60%~~8.83% and ~~0.94%~~1.01%, respectively, compared with ~~7.69%~~9.30% and ~~0.84%~~1.03%, respectively, for the ~~second~~fourth quarter 2012 and ~~8.02%~~7.72% and ~~0.86%~~0.84%~~, respectively,~~ for the ~~third~~first quarter ~~2011~~2012.

Net interest margin was ~~3.66%~~3.46% for the ~~third~~first quarter of ~~2012~~2013 compared with ~~3.77%~~3.58% for the ~~second~~fourth quarter of 2012 and ~~3.75%~~3.78% for the ~~third~~first quarter 2012. 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 points of compression during the first quarter of ~~2011~~. The net interest margin compressed 11 basis points compared with the second quarter of 2012 due to reductions in overall loan and investment portfolio yields. Despite the persistent low rate environment, the Corporation partially offset earning asset pressure by continuing to remix the deposit base with lower costing liabilities.2013.

Average noncovered loans during the ~~third~~first quarter of ~~2012~~2013 increased $~~244.4~~291.1 million, or ~~3.08%~~3.45%, compared with the ~~second~~fourth quarter of 2012 and also increased $~~702.2~~953.9 million, or ~~9.38%~~12.26%, compared with the ~~third~~first quarter of ~~2011~~2012. Average noncovered commercial loans increased $~~169.4~~259.3 million, or ~~3.21%~~4.63%, compared with the prior quarter, and increased $~~567.7~~716.7 million, or ~~11.64%, compared with the year ago quarter. The average consumer loan portfolio grew for the fifth consecutive quarter, increasing~~ ~~$65.3 million, or~~ ~~2.52%, compared to the prior quarter, and~~ ~~$102.8 million, or~~ ~~4.03%~~13.94%, compared with the year ago quarter.

Average deposits were $~~11.6~~11.8 billion during the ~~third~~first quarter of ~~2012~~2013, an increase of $~~36.6~~194.7 million, or ~~0.32%~~1.68%, compared with the ~~second~~fourth quarter of 2012, and an increase of $~~144.2~~317.8 million, or ~~1.26%~~2.77%, compared with the ~~third~~first quarter of ~~2011~~2012. During the ~~third~~first quarter ~~2012~~2013, average core deposits, which exclude time deposits, increased $~~126.8~~285.4 million, or ~~1.28%~~2.81%, compared with the ~~second~~fourth quarter 2012 and ~~increased~~$~~715.6~~680.5 million, or ~~7.66%~~6.96%, compared with the ~~third~~first quarter ~~2011~~2012. Average time deposits decreased $~~90.1~~90.7 million, or ~~5.57%~~6.38%, and decreased $~~571.4~~362.7 million, or ~~27.21%~~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 ~~third~~first quarter of ~~2012~~2013, average core deposits accounted for ~~86.82%~~88.71% of total average deposits, compared with ~~85.99%~~87.73% for thefourth quarter 2012 and 85.23% for the ~~second~~first quarter of 2012 ~~and~~ ~~81.66%~~ ~~for the~~ ~~third~~ ~~quarter of~~ ~~2011~~.

Average investments ~~decreased~~increased $~~4.3~~11.2 million, or ~~0.12%~~0.30%, compared with the ~~second~~fourth quarter of 2012 and increased $~~17.5~~7.2 million, or ~~0.48%~~0.19% compared with the ~~third~~first quarter of ~~2011~~2012.

Net interest income on a fully tax-equivalent (“FTE”) basis was $~~120.7~~114.4 million in the ~~third~~first quarter ~~2012~~2013 compared with $~~121.7~~119.1 million in the ~~second~~fourth quarter of 2012 and $~~121.8~~121.4 million in the ~~third~~first quarter of ~~2011~~2012.

Noninterest income, excluding gains on securities transactions, of ~~$0.6 million~~, for the ~~third~~first quarter of ~~2012~~2013 was $~~54.4~~57.4 million, a decrease of $~~0.4~~1.8 million, or ~~0.70%~~3.08%, from the ~~second~~fourth quarter of 2012 and ~~a decrease~~an increase of $~~2.0~~5.9 million, or ~~3.54%~~11.53%, from the ~~third~~first quarter of ~~2011~~2012. ~~The decrease~~Included in noninterest income ~~from~~in both the ~~second~~first quarter of 2013 and the fourth quarter of 2012 were ~~2012~~$5.0 million ~~was attributable to a decrease~~ of ~~$2.6 million in~~ gains on covered loans paid in ~~full partially offset by~~ ~~increased~~ ~~loan sales and servicing income of~~ ~~$2.1 million. The decrease in noninterest income from the~~ ~~third~~ ~~quarter of~~ ~~2011~~ ~~was attributable a decline in service charges on deposits of~~ ~~$3.2 million~~ ~~as a result of regulatory revisions to overdraft fee policies which took effect in the fourth quarter of 2011 and a decline in~~

~~credit card fees of~~ ~~$2.6 million~~ as a result of the implementation of the Durbin Interchange Amendment in the fourth quarter of 2011. These declines in income were partially offset by an increase in loans sales and servicing income of ~~$3.8 million~~ ~~resulting from an increase in mortgage loan originations and refinancings activity due to a decrease in interest rates in 2012.~~full.

Other income, net of~~$0.6 million~~ in securities gains, as a percentage of net revenue for the ~~third~~first quarter of ~~2012~~2013 was ~~31.05%~~33.42% compared with ~~31.03%~~33.21% for ~~second~~fourth quarter of 2012 and ~~31.64%~~29.77% for the ~~third~~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 ~~third~~first quarter of ~~2012~~2013 was $~~108.6~~106.9 million, a decrease of $~~10.5~~5.3 million, or ~~8.81%~~4.69%, from the ~~second~~fourth quarter of 2012~~, which included $8.9 million in one-time charges related to the Efficiency Initiative announced in the prior quarter,~~ and a decrease of $~~7.4~~6.8 million, or ~~6.36%~~6.01%, from the ~~third~~first quarter 2012. Included in

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noninterest expense in the first quarter of ~~2011. Other one-time charges incurred in the third~~2013 and fourth quarter of 2012 ~~included $0.5 million~~were acquisition related costs associated with the Citizens Republic Bancorp, Inc. ("Citizens") merger of $3.6 million and $2.1 million, respectively. The majority of these acquisition related costs ~~of closing eight full service branches and $1.1 million of~~were from professional and legal ~~fees associated~~services rendered in connection with the ~~proposed acquisition~~merger. Also included in noninterest expense in the fourth quarter of ~~Citizens. The Corporation demonstrated significant ongoing progress in reducing operating expenses in response~~2012 was $2.3 million of fees related to the ~~challenging industry environment.~~early termination of Federal Home Loan Bank advances.

During the ~~third~~first quarter of ~~2012~~2013, the Corporation reported an efficiency ratio of ~~61.75%~~62.06%, compared with ~~67.21%~~62.65% for the ~~second~~fourth quarter of 2012 and ~~64.78%~~65.52% for the ~~third~~first quarter of ~~2011. Excluding the $8.9 million in one-time charges related to the Efficiency Initiative announced in the prior quarter, the reported efficiency ratio for the second quarter of~~ 2012 ~~would be~~ ~~62.15%~~.

As a result of guidance from the OCC, $10.6 million of consumer loans were 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. These loans were reclassified from performing loans to nonaccrual status and consisted of $6.7 million of first mortgages, $1.0 million of junior liens and $2.9 million of automobile loans, and net loan charge-offs of $2.8 million were recognized.

Net ~~charge-offs of~~ noncovered ~~loans~~charge-offs totaled $~~14.9~~5.9 million, or ~~0.72%~~0.27% of average noncovered loans in the ~~third~~first quarter of ~~2012~~2013, ~~including $2.8 million in charge-offs relating to the aforementioned troubled debt restructured loans,~~ compared with $~~8.8~~7.1 million, or ~~0.44%~~0.34% of average noncovered loans, in the ~~second~~fourth quarter 2012 and $~~14.6~~12.0 million, or ~~0.77%~~0.62% of average noncovered loans, in the ~~third~~first quarter of ~~2011~~2012.

Nonperforming assets totaled $~~64.1~~52.2 million at ~~September 30, 2012~~March 31, 2013, ana increase of $~~3.0~~2.0 million, or ~~4.87%~~4.00%, compared with ~~June 30,~~December 31, 2012 and a decrease of $~~26.0~~15.7 million, or ~~28.89%~~23.11%, compared with ~~September 30, 2011~~March 31, 2012. ~~The increase in nonperforming assets in the third quarter is a result of the $10.6 million in loans noted above. Excluding the impact of the OCC guidance, nonperforming assets decreased~~ ~~$7.6 million~~ or ~~12.44%~~ ~~compared with June 30, 2012 and~~ ~~$36.6 million~~ or ~~40.63%~~ ~~compared with September 30, 2011.~~ Nonperforming assets at ~~September 30, 2012~~March 31, 2013 represented ~~0.77%~~0.59% of period-end noncovered loans plus ~~noncovered~~ other real estate compared with ~~0.75%~~0.57% at ~~June 30,~~December 31, 2012 and ~~1.18%~~0.86% at ~~September 30, 2011~~March 31, 2012.

The allowance for noncovered loan losses totaled $~~98.9~~98.8 million at ~~September 30, 2012~~March 31, 2013~~, down from~~ ~~$103.8 million~~ ~~at June 30, 2012.~~. At ~~September 30, 2012~~March 31, 2013, the allowance for noncovered loan losses was ~~1.19%~~1.13% of period-end noncovered loans compared with ~~1.28%~~1.13% at ~~June 30,~~December 31, 2012 and ~~1.43%~~1.32% at ~~September 30, 2011~~March 31, 2012. 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 ~~1.26%~~1.18% of ~~period-end~~period end noncovered loans at ~~September 30, 2012~~March 31, 2013, compared with ~~1.35%~~1.20% at ~~June 30,~~December 31, 2012 and ~~1.51%~~1.39% at ~~September 30, 2011~~March 31, 2012. The allowance for credit losses to nonperforming ~~noncovered~~ loans was ~~208.11%~~254.32% at ~~September 30, 2012~~March 31, 2013,

compared with ~~234.57%~~284.50% at ~~June 30,~~December 31, 2012 and ~~170.16%~~205.13% at ~~September 30, 2011~~March 31, 2012.

The ~~Corporation's~~Corporation’s total assets at ~~September 30, 2012~~March 31, 2013 were $~~14.6~~15.3 billion, an increase of $~~7.5~~359.5 million, or ~~0.05%~~2.41%, compared with ~~June 30,~~December 31, 2012 and a ~~decrease~~an increase of $~~59.4~~601.7 million, or ~~0.40%~~4.10%, compared with ~~September 30, 2011~~March 31, 2012.

Total deposits were $~~11.5~~11.9 billion at ~~September 30, 2012~~March 31, 2013, ~~a decrease~~an increase of $~~83.4~~166.3 million, or ~~0.72%~~1.41%, from ~~June 30,~~December 31, 2012 and an increase of $~~136.3~~277.6 million, or ~~1.20%~~2.38%, from ~~September 30, 2011~~March 31, 2012. Core deposits totaled $~~10.1~~10.6 billion at ~~September 30, 2012~~March 31, 2013, an increase of $~~18.3~~238.4 million, or ~~0.18%~~2.30%, from ~~June 30,~~December 31, 2012 and an increase of $~~0.6 billion~~624.3 million, or ~~6.38%~~6.24%, from ~~September 30, 2011~~March 31, 2012.

~~Shareholders'~~Shareholders’ equity was$1.8 billion as of March 31, 2013 and $1.6 billion atas of ~~September 30, 2012~~, ~~June 30,~~December 31, 2012 and ~~September 30, 2011~~March 31, 2012~~, respectively.~~. 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 ~~8.18%~~8.03% at ~~September 30, 2012~~March 31, 2013, compared with ~~8.01%~~8.16% at ~~June 30,~~December 31, 2012 and ~~7.75%~~7.86% at ~~September 30, 2011~~March 31, 2012. The common cash dividend per share paid in the ~~third~~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~~ ~~nine~~months ended ~~September 30, 2012~~March 31, 2013 was $~~117.9~~111.3 million ~~and~~ ~~$355.6 million, respectively,~~ compared to $~~119.4 million~~ ~~and~~ ~~$358.7~~118.8 million for ~~the~~ three ~~and~~ ~~nine~~ ~~month~~months ended ~~September 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 $~~2.9~~3.0 million and $~~2.4~~2.6 million for the ~~three months ending~~quarters ended ~~September 30, 2012~~March 31, 2013 and ~~2011, respectively, and~~ ~~$8.3 million~~ ~~and~~ ~~$7.1 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~September 30,~~ 2012 ~~and~~ ~~September 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~~ ~~nine~~ ~~month periods~~months ended ~~September 30, 2012~~March 31, 2013 ~~was~~ ~~$120.7 million~~ ~~and~~ ~~$363.9 million, respectively,~~ compared to $~~121.8~~121.4 million ~~and~~in the same period of ~~$365.7 million~~2012 ~~for the three and~~ ~~nine~~ ~~months ended~~ ~~September 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 September 30, 2012 and 2011									Nine Months Ended September 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	$	(1,745	)	$	430		$	(1,315	)	$	(739	)	$	(37	)	$	(776	)	Taxable	$	(652	)	$	(2,528	)	$	(3,180	)
Tax-exempt	2,973			(1,916		)	1,057			5,813			(3,072		)	2,741			Tax-exempt	1,306			(575		)	731
Loans held for sale	(10		)	(34		)	(44		)	80			(98		)	(18		)	Loans held for sale	(114		)	(25		)	(139		)
Loans	2,607			(7,923		)	(5,316		)	6,045			(27,480		)	(21,435		)	Loans	5,175			(9,325		)	(4,150		)
Total interest income - FTE	3,825			(9,443		)	(5,618		)	11,199			(30,687		)	(19,488		)
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	38			(13		)	25			142			5			147
Interest bearing																			Interest bearing	56			15			71
Savings and money market accounts	364			(2,127		)	(1,763		)	1,888			(8,758		)	(6,870		)	Savings and money market accounts	145			67			212
Certificates of deposits and other time deposits	(1,081		)	(546		)	(1,627		)	(4,713		)	(2,654		)	(7,367		)
Certificates and other time deposits ("CDs")																			Certificates and other time deposits ("CDs")	(666		)	(795		)	(1,461		)
Securities sold under agreements to repurchase	60			(727		)	(667		)	139			(2,117		)	(1,978		)	Securities sold under agreements to repurchase	6			39			45
Wholesale borrowings	(852		)	313			(539		)	(2,533		)	969			(1,564		)	Wholesale borrowings	(302		)	1			(301		)
Long-term debt																			Long-term debt	1,748			—			1,748
Total interest expense	(1,471		)	(3,100		)	(4,571		)	(5,077		)	(12,555		)	(17,632		)	Total interest expense	987			(673		)	314
Net interest income - FTE	$	5,296		$	(6,343	)	$	(1,047	)	$	16,276		$	(18,132	)	$	(1,856	)	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 September 30,						Nine Months Ended September 30,						Three months ended March 31,
(Dollars in thousands)	2012			2011			2012			2011
													2013			2012
													(Dollars in thousands)
Net interest income	$	117,890		$	119,392		$	355,600		$	358,659		$	111,349		$	118,787
Tax equivalent adjustment	2,851			2,396			8,258			7,055			3,027			2,641
Net interest income - FTE	$	120,741		$	121,788		$	363,858		$	365,714		$	114,376		121,428
Average earning assets	$	13,119,473		$	12,878,105		$	13,014,267		$	12,722,271		$	13,408,789		$	12,935,184
Net interest margin - FTE	3.66		%	3.75		%	3.73		%	3.84		%
Net interest margin													3.46		%	3.78		%

The average yield on earning assets decreased from ~~4.19%~~4.10% in the ~~quarter ended~~ ~~September 30, 2011~~first quarter of 2012 to ~~3.95%~~3.78% in the ~~quarter ended~~ ~~September 30, 2012~~first quarter of 2013. ~~Higher~~Lower outstanding balances on total average earning assets in ~~the quarter~~three months ended ~~September 30, 2012~~March 31, 2013 did not mitigate the decrease in average yield, which caused interest income to ~~decrease~~ decrease$~~5.6~~6.7 million from year-ago levels. Average balances for investment securities were up from the year ago quarter ~~third~~increasing ~~quarter of~~ ~~2011, increasing~~ interest income by $~~1.2~~0.7 million, and lower rates earned on the securities decreased interest income by $~~1.5~~3.1 million. year over year. Average loans outstanding, up from the year ago quarter, ~~third~~increased ~~quarter of~~ ~~2011, increased~~ interest income ~~from~~ for

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the ~~quarter~~three months ended ~~September 30, 2011~~March 31, 2013 by $~~2.6~~5.2 million and lower yields earned on ~~the~~ loans, decreased loan interest income ~~in the quarter~~for three months ended ~~September 30, 2012~~March 31, 2013 by $~~7.9~~9.3 million. ~~Higher~~Lower outstanding balances on average deposits and lower rates paid on deposits caused interest expense to ~~decrease~~ decrease$~~3.4~~1.2 million in the ~~quarter~~three months ended ~~September 30, 2012~~March 31, 2013. ~~Lower average outstanding balances on wholesale~~New long-term debt issued in the

~~and lower rates paid~~three months ended March 31, 2013 caused interest expense to ~~decrease~~increase by $~~0.5~~1.7 million in the ~~quarter~~three months ended ~~September 30, 2012~~March 31, 2013.

The cost of funds for the year as a percentage of average earning assets ~~decreased~~remained flat at 18 ~~basis points from~~ ~~0.11%~~0.08% for the ~~quarter~~three months ended ~~September 30, 2011~~March 31, 2012 toand ~~0.07%~~ ~~for the quarter ended~~ ~~September 30, 2012~~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~~ ~~nine~~months ended ~~September 30, 2012~~March 31, 2013 totaled $~~54.4 million~~ ~~and~~ ~~$160.6~~57.4 million, ~~respectively, compared with~~ ~~$56.4 million~~ ~~and~~ ~~$159.7 million~~ i~~n the same periods of~~ ~~2011. The latter represents~~ ~~a decrease~~ of ~~$2.0 million~~ or ~~3.54%~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2012~~ ~~and~~ an increase of $~~0.9~~5.9 million or ~~0.54%~~11.53% induring the ~~first~~ ~~nine~~ ~~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 ~~31.05%~~ ~~and~~ ~~30.62%~~33.42% for the three ~~and~~ ~~nine~~months ended ~~September 30, 2012~~March 31, 2013~~, respectively,~~ compared to ~~31.64%~~29.77% ~~and~~ ~~30.40%~~ 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				Nine Months Ended				Three months ended March 31,
(In thousands)	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
									2013			2012
									(In thousands)
Trust department income	$	6,124	$	5,607	$	17,481	$	16,983	$	5,741		$	5,627
Service charges on deposits	14,603		17,838		43,490		48,460		12,585			14,409
Credit card fees	11,006		13,640		32,402		39,357		10,222			10,180
ATM and other service fees	3,680		3,801		11,360		9,781		3,335			3,790
Bank owned life insurance income	3,094		3,182		9,073		11,439		4,897			3,056
Investment services and life insurance	2,208		1,965		6,843		6,384		2,415			2,247
Investment securities gains, net	553		4,402		1,361		5,291
Investment securities (losses)/gains, net									(9		)	260
Loan sales and servicing income	7,255		3,426		19,085		9,102		7,863			6,691
Other operating income	6,402		6,911		20,857		18,222		10,343			5,466
Total other income	$	54,925	$	60,772	$	161,952	$	165,019
									$	57,392		$	51,726

Service charges on deposits decreased $~~3.2~~1.8 million ~~and~~or ~~$5.0 million~~12.66% from the year ago quarter reflecting a change in ~~the three and~~ ~~nine~~ ~~months ended~~ ~~September 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 that took effect in the fourth quarter of 2011. Credit card fees~~ ~~decreased$2.6~~a $1.6 million ~~and~~ ~~$7.0 million~~ death benefit received in the three ~~and~~ ~~nine~~months ended ~~September 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 $~~3.8~~1.2 million, or ~~111.76%, in the~~ ~~third~~ ~~quarter of~~ ~~2012~~ ~~and~~ ~~$10.0 million, or~~ ~~109.68%, in the first~~ ~~nine~~ ~~months of~~ ~~2012~~17.52% due to ~~an increase~~higher pricing margins in ~~mortgage~~the current period versus prior year. Other operating income increased$4.9 million or 89.22% from the year ago quarter as other operating income for the three months ended March 31, 2013 included $5.0 million in gains from covered loan ~~originations~~payoffs and ~~refinancing activity as a result of lower interest rates in~~ ~~2012, partially offset by impairment charges of mortgage servicing rights in~~ ~~2012~~.related income. Gains on covered loan payoffs represent the difference between the credit mark on the paid-off loans less the remaining associated indemnification asset.

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Other Expenses

Other expenses totaled $~~108.6 million~~ ~~and~~ ~~$341.4~~106.9 million for the three ~~and~~ ~~nine~~months ended ~~September 30, 2012~~March 31, 2013~~, respectively,~~ compared ~~with~~to $~~116.0 million~~ ~~and~~ ~~$340.5 million~~ ~~the same periods of~~ ~~2011. The latter represents an increase of~~ ~~$7.4 millionand~~ ~~$1.0~~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 ~~nine~~$11.5 million for three months ended ~~September 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~~ ~~nine~~months ended ~~September 30, 2012~~March 31, 2013 ~~and~~ ~~2011~~.

Three Months Ended Nine Months Ended
September 30, 2012 September 30, 2011 September 30, 2012 September 30, 2011
Salaries, wages, pension and employee benefits $ 58,061
$ 61,232
$ 183,632
$ 177,815
Net occupancy expense 8,077
8,464
24,640
25,144
Equipment expense 7,143
7,073
21,845
20,725
Taxes, other than federal income taxes 2,051
1,507
6,025
4,389
Stationery, supplies and postage 2,210
2,517
6,638
7,972
Bankcard, loan processing, and other costs 8,424
8,449
24,935
24,278
Advertising 2,472
2,391
6,436
7,061
Professional services 4,702
5,732
17,361
17,466
Telephone 1,316
1,570
4,094
4,518
Amortization of intangibles 456
543
1,422
1,629
FDIC expense 1,832
3,240
9,015
12,187
Other operating expense 11,843
13,239
35,389
37,286
Total other expense $ 108,587
$ 115,957
$ 341,432
$ 340,470

During the second quarter ended June 30, 2012, management announced its implementation plan to enhance the operating efficiency and profitability of the Corporation and as a result recognized $8.9 million in one-time charges primarily consisting of employee separationwere acquisition related costs and professional services fees. 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. Other one-time charges incurred in the third quarter of 2012 included $0.5 million associated with costs of closing eight full service branches and $1.1 million of professional and legal fees associated with the ~~proposed acquisition~~Citizens merger of ~~Citizens. For further information on these one-time charges, refer to Note~~ 2$3.1 million. Other operating expense decreased$2.7 million (or ~~Restructuring~~22.89%). year over year.

The efficiency ratio for the ~~third~~first quarter ~~quarter~~of ~~2012~~2013 was ~~61.75%~~62.06%, compared to ~~64.78%~~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~~ ~~third~~ ~~quarter~~ 2012~~, 61.75 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 $~~13.1~~14.5 million ~~(an effective tax rate of~~ ~~27.26%) and~~ ~~$13.1 million~~ ~~(an effective tax rate of~~ ~~29.21%) for the quarter ended~~ ~~September 30, 2012~~ and ~~2011, respectively, and~~ $~~37.8~~12.3 million ~~(an effective tax rate of~~ ~~28.28%) and~~ ~~$34.8 million~~ ~~(an effective tax rate of~~ ~~28.10%~~) for the ~~nine~~three months ended ~~September 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~~ ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013 and ~~2011~~2012:.


	Commercial				Retail				Wealth						Other						FirstMerit Consolidated
September 30, 2012	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	$	66,446	$	196,729	$	51,181	$	158,745	$	4,223		$	13,412		$	(1,109	)	$	(5,028	)	$	120,741	$	363,858	$	66,441	$	46,431	$	3,775	$	(2,271	)	$	114,376
Provision for loan losses	10,401		22,970		1,194		5,459		(519		)	(318		)	5,103			14,325			16,179		42,436		4,766		4,073		208		899			9,946
Other income	15,247		47,603		26,783		76,226		8,528			24,987			4,367			13,136			54,925		161,952		19,232		24,388		8,310		5,462			57,392
Other expenses	39,595		123,074		53,788		169,618		9,711			29,718			5,493			19,022			108,587		341,432		43,027		52,907		10,174		817			106,925
Net income (loss)	20,954		64,920		14,939		38,931		2,313			5,849			(3,253		)	(13,818		)	34,953		95,882		24,022		8,996		1,107		3,221			37,346
AVERAGES :
AVERAGES:
Assets	$	6,466,355	$	6,386,617	$	2,960,336	$	2,929,911	$	242,539		$	238,899		$	5,064,786		$	5,041,099		$	14,734,016	$	14,596,526	6,737,236		3,016,495		236,811		4,993,001			14,983,543
Loans (noncovered and covered)	6,424,591		6,355,908		2,683,439		2,653,490		228,973			225,349			65,215			61,119			9,402,218		9,295,866		6,677,719		2,736,949		223,234		58,024			9,695,926
Earnings assets	6,529,888		6,454,874		2,716,445		2,686,854		228,998			225,375			3,644,142			3,647,164			13,119,473		13,014,267		6,814,089		2,762,045		223,263		3,609,392			13,408,789
Deposits	3,391,783		3,245,210		7,357,534		7,450,182		706,616			703,724			135,998			140,819			11,591,931		11,539,935		3,500,846		7,416,124		744,466		128,348			11,789,784
Economic Capital	395,725		391,731		215,412		213,227		49,781			49,138			955,651			944,891			1,616,569		1,598,987		462,614		212,815		49,534		990,042			1,715,005


	Commercial				Retail				Wealth				Other						FirstMerit Consolidated
September 30, 2011	QTD		YTD		QTD		YTD		QTD		YTD		QTD			YTD			QTD		YTD
March 31, 2012																							Commercial		Retail		Wealth		Other			FirstMerit Consolidated
OPERATIONS:
Net interest income (loss) - FTE	$	66,674	$	200,154	$	56,705	$	168,718	$	4,568	$	14,205	$	(6,159	)	$	(17,363	)	$	121,788	$	365,714	$	64,674	$	54,277	$	4,598	$	(2,121	)	$	121,428
Provision for loan losses	4,546		29,653		5,249		17,715		1,261		2,587		8,316			9,385			19,372		59,340		9,104		2,537		225		2,195			14,061
Other income	16,219		43,632		28,333		78,309		7,784		24,066		8,436			19,012			60,772		165,019		14,309		25,265		8,068		4,084			51,726
Other expenses	36,745		110,073		57,567		177,201		10,004		30,363		11,641			22,833			115,957		340,470		43,351		57,481		10,214		2,722			113,768
Net income (loss)	27,674		69,392		14,448		33,876		708		3,455		(11,093		)	(17,663		)	31,737		89,060		16,709		12,691		1,447		(503		)	30,344
AVERAGES :
AVERAGES:
Assets	$	6,258,625	$	6,162,742	$	2,925,345	$	2,937,888	$	237,638	$	240,919	$	5,189,020		$	5,110,001		$	14,610,628	$	14,451,550	6,328,473		2,910,354		236,571		5,021,539			14,496,937
Loans (noncovered and covered)	6,247,841		6,164,243		2,644,160		2,667,285		224,077		227,851		61,409			67,217			9,177,487		9,126,596		6,306,446		2,634,702		223,131		53,600			9,217,879
Earnings assets	6,333,506		6,240,618		2,677,173		2,723,413		224,077		227,850		3,643,349			3,530,390			12,878,105		12,722,271		6,397,111		2,670,067		223,159		3,644,847			12,935,184
Deposits	3,131,268		2,982,536		7,463,753		7,531,653		628,028		640,232		224,633			256,716			11,447,682		11,411,137		3,139,197		7,464,867		698,700		169,257			11,472,021
Economic Capital	368,948		368,901		220,946		222,097		44,320		50,574		936,197			898,791			1,570,411		1,540,363		387,073		214,265		48,106		931,565			1,581,009

~~On a quarterly basis, the~~The commercial segment's net income ~~decreased $5.8~~increased $7.3 million ~~from September 30, 2011~~ to ~~$21.0~~$24.0 million for the ~~quarter~~three months ended ~~September 30, 2012.~~March 31, 2013 driven by higher revenues and lower loan losses. FTE adjusted net interest income totaled $66.4 million for the ~~quarter~~three months ended ~~September 30, 2012~~March 31, 2013 compared to ~~$66.7~~$64.7 million for the ~~quarter~~three months ended ~~September 30, 2011, a decrease~~March 31, 2012, an increase of ~~$0.3~~$1.8 million, or ~~0.50%~~2.73%. The ~~decrease~~increase was primarily attributable to ~~a $428.2~~an $803.4 million, ~~decrease in covered loan balances acquired via FDIC-assisted acquisitions, offset by $605.0 million~~or 15.69%, increase in noncovered ~~loans.~~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 via the 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 or 11.5% to $3.5 billion due primarily to growth in small business deposits and government-related deposits. Provision for credit losses for the commercial segment totaled ~~$10.4~~$4.8 million for the ~~quarter~~three months ended ~~September 30, 2012~~March 31, 2013 compared to ~~$4.5~~$9.1 million for the ~~quarter~~three months ended September 30, 2011, an increase of $5.9 million. The increase in the provision for loan losses reflected the timing of reserves associated with of a few larger credits in the Commercial Bank. On a year-to-date basis, however, provision is down from the same period in 2011. Non-interest income was $15.2 million for the quarter ended September 30,March 31, 2012, compared to $16.2 million for the same period in 2011. The decrease was primarily attributable to lower gains recognized from covered loans paid in full, offset partially by higher syndication fees, swap fees, merchant fees and letter of credit fees. Non-interest expense for the commercial segment was $39.6 million for the quarter ended September 30, 2012 compared to $36.7 million for the quarter ended September 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 quarterly basis, the retail segment's net income decreased $0.3 million for the quarter ended September 30, 2012 to $15.0 million for the quarter ended September 30, 2011. FTE adjusted net interest income totaled $51.2 million for the quarter ended September 30, 2012 compared to $56.7 million for the quarter ended September 30, 2011, a decrease of ~~$5.5~~$4.3 million, or ~~9.74%~~47.65%. The ~~decrease was primarily attributable to a $49.3 million decrease~~continued decline in covered loan balances. Additionally, deposit spreads decreased 23 basis points due to a lower internal credit applied to deposits, which was driven by lower market rates. Deposit balances decreased $106.2 million from the third quarter of 2011. The retail segment shifted deposit mix from higher cost time deposits to lower cost core deposits. Provision for credit losses totaled $1.2 million for the quarter ended September 30, 2012 compared to $5.2 million for the quarter ended September 30, 2011, a decrease of $4.1 million, or 77.25%. 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 ~~$0.3~~$4.8 million to ~~$4.8~~$1.6 million for the ~~quarter~~three months ended ~~September 30, 2012.~~March 31, 2013. The remaining provision covered substantial loan growth in noncovered loans. Non-interest income was ~~$26.8~~$19.2 million for the ~~quarter~~three months ended ~~September 30, 2012~~March 31, 2013 compared to ~~$28.3~~$14.3 million for the ~~quarter~~same period in 2012. The increase was primarily attributable to higher gains recognized from covered loans paid in full, coupled with growth in asset-based lending fees and international fees. Non-interest expense for the commercial segment was essentially unchanged at $43.0 million for the three months ended ~~September 30, 2011,~~March 31, 2013 compared to the same period of 2012. Growth in expenses driven by the build-out of specialized banking capabilities was offset by the results of management's efficiency initiative.

The retail segment's net income decreased $3.7 million for the three months ended March 31, 2013 to $9.0 million compared to three months ended March 31, 2012. FTE adjusted net interest income totaled $46.4 million for the three months ended March 31, 2013 compared to $54.3 million for the three months ended March 31, 2012, a decrease of ~~$1.6~~$7.8 million or ~~5.47%~~14.46%. The decrease was primarily attributable to a $43.6 million decrease in covered loan balances acquired via FDIC assisted acquisitions, along with lower deposit income associated with the internal credit on deposits. Deposit balances were essentially consistent with the quarterly average in 2012. Provision for credit losses totaled $4.1 million for the three months ended March 31, 2013 compared to $2.5 million for the three months ended 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 $0.9 million, or 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 $53.8~~declined $4.5 million, or 7.96%, to $52.9 million for the ~~quarter~~three months ended ~~September 30, 2012~~March 31, 2013 compared to ~~$57.6~~$57.5 million for the ~~quarter~~three months ended ~~September 30, 2011.~~March 31, 2012. The decrease in expenses was primarily attributable ~~to lower FTEs associated with~~ the ~~Efficiency Initiative announced in the second quarter, as well as the change in the FDIC assessment calculation from using deposit balances to risk-weighted assets.~~results of management's efficiency initiative.

~~On a quarterly basis, the~~The wealth segment's net income of ~~$2.3~~$1.1 million for the ~~quarter~~three months ended ~~September 30, 2012 increased $1.6~~March 31, 2013 decreased $0.3 million from the ~~quarter~~three months ended ~~September 30, 2011.~~March 31, 2012. The ~~increase~~decrease was attributable to lower ~~provision for loan losses. Additionally, non-interest~~deposit income ~~of $8.5 million is $0.7 million, or 9.56%,~~associated with the internal credit on deposits, offset partially by higher ~~than the quarter ended September 30, 2011 due to growth in both~~ trust fee income and higher income associated with investment fees and ~~brokerage revenue. Deposits have grown $78.6~~insurance. Deposit balances increased $45.8 million to ~~$706.6 million as of September 30, 2012. Non-interest expense was $9.7~~$744.5 million for the ~~quarter~~three months ended ~~September 30, 2012~~March 31, 2013 compared to ~~$10.0~~$698.7 for the ~~quarter ended September 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~~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~~income of ~~$3.3~~$3.2 million for the ~~quarter~~three months ended ~~September 30, 2012,~~March 31, 2013 which was ~~$ 7.8~~$3.7 million ~~lower~~higher than ~~for~~ the ~~quarter~~three months ended ~~September 30, 2011.~~March 31, 2012. The ~~decrease in losses~~improvement was ~~primarily~~ attributable to lower expenses ~~driven by Management's~~as a result of management's successful efficiency initiative, ~~coupled with lower other real estate expenses. Additionally, net interest income was higher due to the rate compression impact on internal funds transfer pricing.~~

On a year-to-date basis, the commercial segment's net income increased $1.7 million from September 30, 2011 to $65.1 million for the nine months ended September 30, 2012. FTE adjusted net interest income totaled $196.7 million for the nine months ended September 30, 2012 compared to $200.2 million for the quarter ended September 30, 2011, a decrease of $3.5 million, or 1.7% The decrease was primarily attributable to a $426.0 million decrease in covered loan balances, offset by the $617.7 million increase in noncovered loan balances. Additionally deposit spreads decreased, offsetting strong growth in deposit balances, which grew $262.7 million to $3.2 billion. Provision for credit losses for the commercial segment totaled $23.0 million for the nine months ended September 30, 2012 compared to $29.7 million for the nine months ended September 30,

2011, a decrease of $6.7 million, or 22.54%. 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 $3.8 million to $19.3 million for the nine months ended September 30, 2012. The remaining provision covered the substantial loan growth. Non-interest income was $47.6 million for the nine months ended September 30, 2012 compared to $43.6 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, offset partially by ~~lower gains from~~expenses associated with the ~~sale~~acquisition of ~~covered loans. Non-interest expense for~~Citizen's. Also contributing to the ~~commercial segment~~improvement was ~~$123.1~~receipt of a death benefit in the amount of $1.6 million ~~for~~during the ~~nine~~three months ended ~~September 30, 2012 compared to $110.1 million for the nine months ended September 30, 2011. The increase in expenses was primarily attributable to the build-out~~March 31, 2013.

Table of ~~specialized banking capabilities, including leasing, asset based lending, capital markets, and treasury management.~~Contents

On a year-to-date basis, the retail segment's net income increased $2.8 million for the nine months ended September 30, 2012 to $38.9 million for the nine months ended September 30, 2011. FTE adjusted net interest income totaled $158.7 million for the nine months ended September 30, 2012 compared to $168.8 million for the nine months ended September 30, 2011, a decrease of $10.0 million, or 5.9%. The decrease was primarily attributable to a $49.1 million decrease in covered loan balances. Additionally, deposit spreads decreased eleven basis points due to a lower internal credit applied to deposits, which was driven by lower market rates. Deposit balances decreased $81.5 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 $5.5 million for the nine months ended September 30, 2012 compared to $17.7 million for the nine months ended September 30, 2011, a decrease of $12.3 million, or 69.18%. 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 $6.7 million to $14.1 million for the nine months ended September 30, 2012. Non-interest income was $76.2 million for the nine months ended September 30, 2012 compared to $78.3 million for the nine months ended September 30, 2011, a decrease of $2.1 million, or 2.66%. 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 $169.6 million for the nine months ended September 30, 2012 compared to $177.2 million for the nine months ended September 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 $5.5 million for the nine months ended September 30, 2012 increased $2.1 million from the nine months ended September 30, 2011. The increase was attributable to lower provision for loan losses. Deposits have grown $63.5 million to $703.7 million as of September 30, 2012. Non-interest expense was $29.7 million for the nine months ended September 30, 2012 compared to $30.4 million for the nine-months ended September 30, 2011.

The other segment recorded a net loss of $5.0 million for the nine months ended September 30, 2012, which was better than prior year's net loss of $17.6 million. The decrease in losses was primarily attributable to lower expenses driven by Management's efficiency initiative. Additionally, net interest income was higher due to the rate compression impact on internal funds transfer pricing.

FINANCIAL CONDITION

Acquisitions

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

On ~~September~~April 12, ~~2012~~,2013, the Corporation ~~and~~completed its merger (the “Merger”) with Citizens ~~a Michigan corporation, entered into a Merger Agreement.~~

~~The Merger Agreement provides that Citizens will merge with and into the Corporation and each share of~~which resulted in Citizens common stock ~~will be canceled and~~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 ~~are~~were owned by Citizens, the Corporation or any of their respective subsidiaries, other than in a fiduciary capacity, ~~will be~~were canceled without any consideration therefor). Each outstanding option to acquire, and each outstanding equity award relating to, one share of ~~Citizens~~Citizens' common stock ~~will be~~was converted into an option to acquire, or an equity award relating to, 1.37 shares of the ~~Corporation~~Corporation's common stock, as applicable. AsThe 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 ~~result~~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.

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

Effective April 12, 2013, the ~~effective time of the Merger,~~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 ~~will be canceled~~(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 ~~right~~net proceeds from its February 4, 2013 public offerings to ~~receive cash in~~repurchase the ~~aggregate amount equal to the liquidation preference of the~~Citizens TARP Preferred ~~plus~~and pay all accrued, accumulated and unpaid dividends ~~thereon.~~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 ~~Merger Agreement provides that upon completion of the Merger, the Corporation will increase its board of directors by two directors. The new directorships~~Citizens acquisition will be ~~filled with current members~~accounted for using the purchase acquisition method of ~~the Citizens board as recommended by the Citizens board,~~accounting and ~~the recommended directors must~~accordingly, assets acquired, liabilities assumed and consideration exchanged will be ~~reasonably acceptable to the Corporation’s board.~~

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~~were made only as~~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 ~~Merger Agreement or such other~~acquisition as additional information relative to closing date ~~or dates~~fair values becomes available. Any resulting goodwill will not be deductible for income

tax purposes as ~~may be specified~~the acquisition is accounted for as a tax-free exchange for tax purposes

Management's strategy to de-leverage the newly acquired Citizens' balance sheet resulted in the ~~Merger Agreement. Moreover, information concerning~~Corporation repaying on April 15, 2013 approximately $591.0 million in principal of Federal Home Loan advances. Management's strategy to re-balance the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by the Corporation or Citizens. Accordingly, the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Corporation or Citizens should not be relied upon.

~~Midwest Bank and Trust Company – FDIC Assisted Acquisition~~

On May 14, 2010, the Bank entered into a purchase and assumption agreement with a loss share arrangement with the FDIC, as receiver of Midwest, 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 locatedinvestment portfolio acquired in the ~~greater Chicago, Illinois area. The Bank made a cash payment to~~Citizens merger resulted in the ~~FDIC~~sale of approximately ~~$227.5 million to assume~~$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 ~~net assets. The estimated fair value~~second quarter 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.~~

The acquisitions of First Bank, George Washington and Midwest were considered business combinations and all acquired assets and liabilities were recorded at their estimated fair value. The one-year measurement period for the three acquisitions expired before June 30, 2011. Material adjustments to acquisition date estimated 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 of prior periods’ amounts may also be made to conform to the current period’s presentation and would have no effect on previously reported net income amounts.

~~George Washington Savings Bank – FDIC Assisted Acquisition~~

On February 19, 2010, the Bank entered into a purchase and assumption agreement with a loss share arrangement with the FDIC, as receiver of George Washington to acquire certain assets and assume substantially all of the deposits and certain liabilities in a whole-bank acquisition of George Washington, a full service Illinois-chartered savings bank headquartered in Orland Park, Illinois. The Bank received a cash payment from the FDIC of approximately $40.2 million to assume the net liabilities. The estimated fair value of assets acquired, intangible assets and the cash payment received from the FDIC exceeded the estimated fair value of the liabilities assumed, resulting in a bargain purchase gain of $1.0 million, or $0.7 million net of tax.

~~First Bank Branches~~

On February 19, 2010, the Bank completed the acquisition of certain assets and the assumption of certain liabilities with respect to 24 branches of First Bank located in the greater Chicago, Illinois area.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 ~~September 30, 2012~~March 31, 2013, total investment securities were $~~3.7~~4.1 billion compared to $~~3.6~~3.7 billion at December 31, ~~2011~~2012 and ~~$3.5 billion~~ at ~~September 30, 2011~~March 31, 2012. Available-for-sale securities were $3.2 billion, $2.9 billion at and~~September 30, 2012~~ ~~compared to~~ $~~3.4~~3.5 billion atas of March 31, 2013, December 31, ~~2011~~2012 and ~~$3.2 billion~~March 31, 2012 at~~September 30, 2011. The available-for-sale~~, 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 $~~620.6~~665.6 million at ~~September 30, 2012~~March 31, 2013 compared to $~~82.8~~622.1 millionand$100.8 million at December 31, ~~2011~~2012andMarch 31, 2012 ~~and~~ ~~$92.2 million~~ at ~~September 30, 2011~~ ~~and consist principally of securities issued by state and political subdivisions.~~

, respectively. Available-for-sale securities ~~decreased~~ ~~$441.6 million~~increased ~~and~~ $~~286.1~~322.9 million from December 31, ~~2011~~2012 ~~and~~to ~~September 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 $~~537.9~~43.5 million and $~~528.4~~564.7 million from December 31, ~~2011~~2012 to March 31, 2013 and from ~~September 30, 2011~~March 31, 2012 to March 31, 2013, respectively. This movement in the investment portfolio was in response to potential future changes in regulatory capital rules.

Other investments ~~totaled~~ ~~$140.7 million~~ at ~~September 30, 2012~~ ~~and~~ ~~December 31, 2011~~ ~~compared to~~ ~~$160.8 million~~ at ~~September 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~~ ~~nine months endedSeptember 30, 2012~~and ~~September 30, 2011, net realized gains of~~totaled $~~1.4 million~~ ~~and~~ ~~$5.3 million, respectively, from the sale of available-for-sale securities were recorded. Net unrealized gains were~~ ~~$84.2 million~~, ~~$82.7 million~~ ~~and~~ ~~$86.4~~141.0 million at ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012, and ~~September 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 ~~OTTI~~other-than-temporary impairment ("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 $~~14.4~~15.1 million as of ~~September 30, 2012~~March 31, 2013, compared to $~~17.8~~12.9 million ~~as of~~ ~~December 31, 2011~~ and $~~15.5~~16.7 million at ~~September 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$~~567.5~~48.3 million, or ~~7.32%~~0.55%, and increased from ~~September 30, 2011~~March 31, 2012 by $~~684.8~~916.8 million, or ~~8.97%~~11.66%. This increase was driven primarily by higher commercial loans, which increased ~~7.91%~~0.37%from December 31, ~~2011~~2012and~~9.82%~~12.80% from ~~September 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 $~~25.4~~6.3 million, or ~~6.14%~~1.42%, and increasedfrom ~~December~~March 31, ~~2011~~2012 ~~and~~by $~~41.8~~22.6 million, or ~~10.51%~~5.26%, ~~from~~ ~~September 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 $~~57.4~~6.4 million, or ~~4.54%~~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 $~~49.8~~5.5 million, or ~~3.91%~~0.41%, and increasedfrom ~~September 30, 2011~~March 31, 2012 ~~reflecting continued consumer loans pay downs. Credit card loans decreased~~by $~~2.4~~62.9 million, or ~~1.67%, from~~ ~~December 31, 2011~~ ~~and~~ ~~$1.2 million, or~~ ~~0.85%, from~~ ~~September 30, 2011~~4.99%.

Total covered loans, including the loss share receivable, decreased from December 31, ~~2011~~2012 and March 31, 2012 by $~~322.2~~122.3 million, or ~~21.52%~~12.00%, and ~~decreased from~~ ~~September 30, 2011~~ by $~~472.3~~481.3 million, or ~~28.67%~~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.


	September 30, 2012			December 31, 2011			September 30, 2011			March 31, 2013			December 31, 2012			March 31, 2012
(dollars in thousands)
(Dollars in thousands)
Commercial	$	5,511,678		$	5,107,747		$	5,018,857		$	5,888,337		$	5,866,489		$	5,220,051
Residential mortgage	439,062			413,664			397,309			451,522			445,211			428,950
Installment	1,321,081			1,263,665			1,271,327			1,322,795			1,328,258			1,259,930
Home equity	789,743			743,982			743,377			812,458			806,078			739,548
Credit card	143,918			146,356			142,710			140,721			146,387			140,618
Leases	110,938			73,530			57,992			164,137			139,236			74,112
Total noncovered loans (a)	8,316,420			7,748,944			7,631,572			8,779,970			8,731,659			7,863,209
Allowance for noncovered loan losses	(98,942		)	(107,699		)	(109,187		)
Less allowance for noncovered loan losses										(98,843		)	(98,942		)	(103,849		)
Net noncovered loans	8,217,478			7,641,245			7,522,385			8,681,127			8,632,717			7,759,360
Covered loans (b)	1,174,929			1,497,140			1,647,218			896,832			1,019,125			1,378,150
Allowance for covered loan losses	(43,644		)	(36,417		)	(34,603		)
Less allowance for covered loan losses										(47,945		)	(43,255		)	(41,070		)
Net covered loans	1,131,285			1,460,723			1,612,615			848,887			975,870			1,337,080
Net loans	$	9,348,763		$	9,101,968		$	9,135,000		$	9,530,014		$	9,608,587		$	9,096,440

(a) Includes acquired, noncovered loans of $~~56.0~~54.1 million, $~~113.2~~54.2 million ~~and~~, $~~178.0~~99.2 million as of ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~March 31, 2012, respectively.

(b) Includes loss share receivable of $~~131.9~~95.6 million, $~~205.7~~113.7 million and $~~220.5~~171.1 million as of ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~March 31, 2012, respectively.

The Corporation has approximately $~~3.3~~3.2 billion of loans secured by real estate. Approximately ~~85.52%~~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.~~310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 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") 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"). 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 ~~September 30, 2012~~March 31, 2013, the Corporation increased its allowance for covered loan losses to $~~43.6~~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 $~~7.7~~9.7 million and an increase of $~~1.5~~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 $~~0.3~~0.4 million, $~~0.7~~0.3 million and $~~0.6~~0.4 million as of ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~March 31, 2012, respectively, and is included in the allowance for noncovered loan losses on the consolidated balance sheets.

At ~~September 30, 2012~~March 31, 2013, the allowance for noncovered loan losses ~~on noncovered loans~~ was $~~98.9~~98.8 million, or ~~1.19%~~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 ~~1.43%, as of~~ ~~September 30, 2011~~.respectively. The allowance equaled ~~196.66%~~242.21% of nonperforming loans at ~~September 30, 2012~~March 31, 2013, compared to ~~166.64%~~269.69% and 194.97% at December 31, ~~2011~~2012, and~~160.80%~~ at ~~September 30, 2011~~March 31, 2012. The additional reserves related to qualitative risk factors totaled $~~26.0~~34.4 million, at March 31, 2013 compared to $32.3 millionand$14.5 million ~~and~~ ~~$14.2 million~~at~~September 30, 2012~~, December 31, ~~2011~~2012and~~September 30, 2011~~March 31, 2012, respectively. Nonperforming ~~noncovered loans~~assets have ~~decreased~~increased by $~~14.3~~2.0 million ~~over~~when compared to December 31, ~~2011~~2012 ~~and~~but decreased $~~17.6~~15.7 million ~~over~~when compared to ~~September 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 $~~14.9~~5.9 million ~~for~~in the first quarter of ~~third~~ ~~quarter ended~~ ~~2012~~ ~~and~~ ~~$35.6 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2012~~2013 compared to $~~14.6~~12.0 million ~~and~~ ~~$47.3 million~~ ~~for the same periods~~ in ~~2011~~2012. As a percentage of average noncovered ~~average~~ loans outstanding, net charge-offs equaled ~~0.72%~~0.27% in the first quarter of 2013 and ~~0.77%~~0.62% ~~for the quarter ended~~in ~~September 30,~~ 2012 ~~and~~ ~~2011, respectively, and~~ ~~0.60%~~ ~~and~~ ~~0.86%~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~September 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 ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~March 31, 2012 was $~~5.8~~4.9 million, $~~6.4~~5.4 million and $~~6.4~~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 $~~104.7~~103.8 million, $~~114.1~~104.4 million, and $~~115.0~~109.3 million at ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 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						Nine Months Ended						Three Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011			March 31, 2013			December 31, 2012			March 31, 2012
(dollars in thousands)
Allowance for Noncovered Loan Losses
Allowance for loan losses-beginning of period	$	103,849		$	109,187		$	107,699		$	114,690		$	98,942		$	98,942		$	107,699
Provision for loan losses	9,965			14,604			26,860			41,760			5,808			7,116			8,129
(Less) net charge-offs	14,872			14,604			35,617			47,263			5,907			7,116			11,979
Allowance for loan losses-end of period	$	98,942		$	109,187		$	98,942		$	109,187		$	98,843		$	98,942		$	103,849
Reserve for Unfunded Lending Commitments
Balance at beginning of period	$	5,666		$	5,799		$	6,372		$	8,849		$	5,433		$	5,760		$	6,373
Provision for/(relief of) credit losses	94			561			(612		)	(2,489		)	(492		)	(327		)	(963		)
Balance at end of period	5,760			6,360			5,760			6,360			4,941			5,433			5,410
Allowance for credit losses	$	104,702		$	115,547		$	104,702		$	115,547		$	103,784		$	104,375		$	109,259
Annualized net charge-offs as a % of average noncovered loans	0.72		%	0.77		%	0.60		%	0.86		%	0.27		%	0.34		%	0.62		%
Allowance for noncovered loan losses:
As a percentage of period-end noncovered loans	1.19		%	1.43		%	1.19		%	1.43		%	1.13		%	1.13		%	1.32		%
As a percentage of nonperforming noncovered loans	196.66		%	160.80		%	196.66		%	160.80		%	242.21		%	269.69		%	194.97		%
As a multiple of annualized net charge offs	1.67			1.88			2.08			1.73			4.13			3.50			2.16
Allowance for credit losses:
As a percentage of period-end noncovered loans	1.26		%	1.51		%	1.26		%	1.51		%	1.18		%	1.20		%	1.39		%
As a percentage of nonperforming noncovered loans	208.11		%	170.16		%	208.11		%	170.16		%	254.32		%	284.50		%	205.13		%
As a multiple of annualized net charge offs	1.77			1.99			2.20			1.83			4.33			3.69			2.27

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


																	As of March 31, 2013
	At September 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	$	9,994	$	32,549	$	—	$	32,577	$	6,922	$	1,767	$	24,569	$	108,378	$	8,445	$	26,939	$	—	$	31,117	$	6,917	$	1,388	$	23,527	$	98,333
Allowance	2,900		2,070		—		1,674		95		106		1,599		8,444		1,957		859		—		1,458		89		74		1,713		6,150
Collective Loan Impairment Components:	Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance	37,327		—		13,785										51,112		39,433		271		13,330										53,034
Grade 1 allowance	16		—		6										22		11		—		4										15
Grade 2 loan balance	105,504		3,170		190										108,864		148,253		3,968		731										152,952
Grade 2 allowance	96		5		—										101		117		5		1										123
Grade 3 loan balance	573,561		297,329		8,857										879,747		688,264		270,907		25,808										984,979
Grade 3 allowance	749		939		16										1,704		953		579		46										1,578
Grade 4 loan balance	2,215,334		2,012,160		87,259										4,314,753		2,404,091		2,111,995		116,314										4,632,400
Grade 4 allowance	23,035		15,991		430										39,456		26,212		12,150		566										38,928
Grade 5 (Special Mention) loan balance	60,803		56,802		514										118,119		63,287		47,277		4,636										115,200
Grade 5 allowance	3,068		2,441		20										5,529		5,202		1,636		193										7,031
Grade 6 (Substandard) loan balance	46,706		60,437		333										107,476		30,850		44,357		3,318										78,525
Grade 6 allowance	9,295		8,536		34										17,865		5,975		5,911		319										12,205
Grade 7 (Doubtful) loan balance	—		—		—										—		—		—		—										—
Grade 7 allowance	—		—		—										—		—		—		—										—
Consumer loans based on payment status:	Consumer loans based on payment status:
Current loan balances							1,272,397		779,494		139,909		397,628		2,589,428								1,277,648		802,862		137,260		413,096		2,630,866
Current loans allowance							7,657		3,496		4,916		2,364		18,433								5,670		10,690		4,674		2,417		23,451
30 days past due loan balance							8,234		1,683		957		10,672		21,546								6,832		1,208		769		8,338		17,147
30 days past due allowance							664		310		589		473		2,036								514		742		541		365		2,162
60 days past due loan balance							3,193		462		506		2,159		6,320								2,379		419		541		1,781		5,120
60 days past due allowance							675		189		530		410		1,804								565		729		610		335		2,239
90+ days past due loan balance							4,681		1,181		780		4,035		10,677								4,819		1,052		763		4,780		11,414
90+ days past due allowance							1,165		795		1,094		494		3,548								944		2,318		1,170		529		4,961
Total loans	$	3,049,229	$	2,462,447	$	110,938	$	1,321,082	$	789,742	$	143,919	$	439,063	$	8,316,420	$	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	$	39,159	$	29,982	$	506	$	11,835	$	4,885	$	7,235	$	5,340	$	98,942	$	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 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	$	6,187	$	27,412	$	—	$	30,870	$	6,281	$	1,612	$	24,009	$	96,371
Allowance	2,497		1,698		—		1,382		31		108		1,364		7,080		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	37,607		—		10,636										48,243		42,211		—		13,119										55,330
Grade 1 allowance	15		—		6										21		14		—		5										19
Grade 2 loan balance	122,124		4,833		—										126,957		114,480		3,138		179										117,797
Grade 2 allowance	117		12		—										129		93		4		—										97
Grade 3 loan balance	479,119		268,005		5,868										752,992		661,692		272,401		20,042										954,135
Grade 3 allowance	756		1,015		9										1,780		916		711		35										1,662
Grade 4 loan balance	1,999,707		1,844,851		57,026										3,901,584		2,408,670		2,148,580		104,037										4,661,287
Grade 4 allowance	17,643		16,968		326										34,937		26,155		13,552		507										40,214
Grade 5 (Special Mention) loan balance	50,789		63,525		—										114,314		44,969		56,118		1,561										102,648
Grade 5 allowance	2,226		2,841		—										5,067		3,105		2,033		63										5,201
Grade 6 (Substandard) loan balance	77,861		105,387		—										183,248		28,317		52,314		298										80,929
Grade 6 allowance	9,109		14,496		—										23,605		5,349		6,629		29										12,007
Grade 7 (Doubtful) loan balance	—		263		—										263		—		—		—										—
Grade 7 allowance	—		—		—										—		—		—		—										—
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								1,278,555		796,568		142,424		406,495		2,624,042
Current loans allowance							12,286		4,619		5,158		3,045		25,108								6,596		9,766		4,815		2,617		23,794
30 days past due loan balance							11,531		2,694		1,090		11,778		27,093								10,471		1,407		922		9,928		22,728
30 days past due allowance							1,333		623		529		498		2,983								855		774		587		487		2,703
60 days past due loan balance							3,388		778		707		2,059		6,932								2,979		825		541		1,219		5,564
60 days past due allowance							1,104		442		530		315		2,391								773		1,021		540		453		2,787
90+ days past due loan balance							5,168		1,242		1,019		9,719		17,148								5,383		997		888		3,560		10,828
90+ days past due allowance							1,876		1,051		1,044		627		4,598								1,404		2,129		1,315		606		5,454
Total loans	$	2,775,476	$	2,332,271	$	73,530	$	1,263,665	$	743,982	$	146,356	$	413,664	$	7,748,944	$	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	$	32,363	$	37,030	$	341	$	17,981	$	6,766	$	7,369	$	5,849	$	107,699	$	36,209	$	23,947	$	639	$	11,154	$	13,724	$	7,384	$	5,885	$	98,942

8493

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																	As of March 31, 2012
	September 30, 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	$	4,271	$	51,077	$	—	$	34,654	$	4,413	$	2,356	$	16,316	$	113,087	$	6,079	$	41,041	$	—	$	32,378	$	5,522	$	2,060	$	18,077	$	105,157
Allowance	256		3,328		—		1,568		52		121		1,346		6,671		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	48,173		12,728		—										60,901		40,605		—		10,706										51,311
Grade 1 allowance	15		—		4										19		16		—		5										21
Grade 2 loan balance	100,058		4,463		—										104,521		97,078		6,820		—										103,898
Grade 2 allowance	116		12		—										128		90		14		—										104
Grade 3 loan balance	487,020		265,791		4,219										757,030		521,791		261,669		7,098										790,558
Grade 3 allowance	871		1,155		7										2,033		830		857		10										1,697
Grade 4 loan balance	1,973,312		1,796,912		53,771										3,823,995		2,087,819		1,860,227		55,930										4,003,976
Grade 4 allowance	20,482		17,728		314										38,524		18,326		15,473		277										34,076
Grade 5 (Special Mention) loan balance	49,411		78,198		—										127,609		51,591		73,740		—										125,331
Grade 5 allowance	3,153		3,826		—										6,979		2,413		2,908		—										5,321
Grade 6 (Substandard) loan balance	40,013		106,762		2										146,777		85,694		85,829		378										171,901
Grade 6 allowance	5,445		14,067		—										19,512		14,511		10,948		42										25,501
Grade 7 (Doubtful) loan balance	—		668		—										668		68		—		—										68
Grade 7 allowance	—		—		—										—		14		—		—										14
Consumer loans based on payment status:	Consumer loans based on payment status:
Current loan balances							1,220,076		735,364		137,815		363,685		2,456,940								1,214,164		730,575		136,423		390,191		2,471,353
Current loans allowance							13,528		4,496		5,889		3,052		26,965								10,544		4,407		4,683		2,909		22,543
30 days past due loan balance							7,918		1,994		1,123		9,765		20,800								7,268		2,013		868		8,269		18,418
30 days past due allowance							1,098		542		625		538		2,803								803		519		460		338		2,120
60 days past due loan balance							3,728		721		676		1,751		6,876								2,020		494		458		2,444		5,416
60 days past due allowance							1,251		399		544		287		2,481								666		292		379		387		1,724
90+ days past due loan balance							4,951		885		740		5,792		12,368								4,100		943		809		9,970		15,822
90+ days past due allowance							878		754		817		623		3,072								838		985		906		760		3,489
Total loans	$	2,702,258	$	2,316,599	$	57,992	$	1,271,327	$	743,377	$	142,710	$	397,309	$	7,631,572	$	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	$	30,338	$	40,116	$	325	$	18,323	$	6,243	$	7,996	$	5,846	$	109,187	$	37,172	$	32,902	$	334	$	14,753	$	6,269	$	6,520	$	5,899	$	103,849

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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.

85Note 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 favor~~ 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)	September 30, 2012			December 31, 2011			September 30, 2011			March 31, 2013			December 31, 2012			March 31, 2012
Nonperforming noncovered loans:
Nonperforming loans:
Restructured nonaccrual noncovered loans:
Commercial loans	$	5,218		$	8,311		$	4,940		$	4,179		$	3,837		$	7,067
Consumer loans	14,106			3,465			2,433			13,301			11,197			3,364
Total restructured loans	19,324			11,776			7,373			17,480			15,034			10,431
Other nonaccrual noncovered loans:
Commercial loans	26,274			47,504			54,992			19,664			17,929			37,479
Consumer loans	4,713			5,351			5,538			3,665			3,724			5,353
Total nonaccrual loans	30,987			52,855			60,530			23,329			21,653			42,832
Total nonperforming noncovered loans	50,311			64,631			67,903			40,809			36,687			53,263
Other noncovered real estate	13,744			16,463			22,172			11,422			13,537			14,670
Total nonperforming noncovered assets	$	64,055		$	81,094		$	90,075		$	52,231		$	50,224		$	67,933
Noncovered loans past due 90 days or more accruing interest	$	9,691		$	11,376		$	4,403		$	12,393		$	9,417		$	9,261
Total nonperforming noncovered assets as a percentage of total noncovered loans and ORE	0.77		%	1.05		%	1.18		%	0.59		%	0.57		%	0.86		%

Credit quality ~~continued to improve during~~improved throughout the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013. Total nonperforming ~~noncovered~~ assets as of ~~September 30, 2012~~March 31, 2013 were $~~64.1~~52.2 million, aan ~~decrease~~increase of $~~17.0~~2.0 million, or ~~21.01%~~4.00%, from December 31, ~~2011~~2012 and a decrease of $~~26.0~~15.7 million, or ~~28.89%~~23.11%, from ~~September 30, 2011~~March 31, 2012. Total noncovered loans past due 30-89 days totaled $~~52.2~~39.6 million at ~~September 30, 2012~~March 31, 2013,~~an increase~~ of ~~$4.2 million, or~~ ~~8.74%, from~~ ~~December 31, 2011~~ ~~and~~ a decrease of $~~19.9~~10.6 million, or ~~27.64%~~21.04%, from ~~September 30, 2011~~December 31, 2012 and a decrease of $7.1 million, or 15.25%, from March 31, 2012. Delinquency trends are observable in the Allowance for Loan Loss Allocation tables within this section. Commercial nonperforming noncovered loans ~~decreased~~increased $~~24.3~~2.1 million, or 9.54%, from December 31, ~~2011~~2012 and decreased$~~28.4~~20.7 million, or 46.48%, from ~~September 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 ~~September 30, 2012~~March 31, 2013. Total other noncovered real estate owned decreased $~~2.7~~2.1 million or 15.62%, from December 31, ~~2011~~2012 and ~~decreased~~$~~8.4~~3.2 million, or 22.14%, from ~~September 30, 2011~~March 31, 2012, reflecting the disposition of foreclosed properties and a slow down in new foreclosures. As of ~~September 30, 2012~~March 31, 2013, other ~~noncovered~~ real estate includes $~~1.2~~828.8 million of vacant land no longer considered for branch expansion.

Net charge offs within the noncovered consumer portfolio were $~~6.9 million~~ ~~and~~ ~~$16.4~~4.6 million for the three ~~and~~ ~~nine~~months ended ~~September 30, 2012~~March 31, 2013 compared to $~~6.3 million~~ ~~and~~ ~~$23.8~~5.7 million for the three ~~and~~

~~nine~~months ended ~~September 30, 2011~~March 31, 2012. Average FICO scores on the noncovered consumer portfolio subcomponents are excellent with average scores on installment loans at ~~717~~715, home equity lines at 775, residential mortgages at ~~753~~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 ~~September 30, 2012~~March 31, 2013, accruing noncovered loans 90 days or more past due totaled $~~9.7~~12.4 million compared to $~~11.4~~9.4 million and $9.3 million at December 31, ~~2011~~2012 and ~~$4.4 million~~March 31, 2012 at ~~September 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
	September 30, 2012			June 30, 2012			March 31, 2012			December 31, 2011			September 30, 2011			March 31,			December 31,			September 30,			June 30,			March 31,
Nonaccrual noncovered commercial loans beginning of period	$	38,381		$	44,546		$	55,815		$	59,932		$	63,688
																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	25,182			10,091			5,980			11,402			9,232			7,217			2,183			25,182			10,091			5,980
Loan and lease losses	(400		)	(6,675		)	(3,296		)	(648		)	(5,047		)	(2,191		)	(2,670		)	(400		)	(6,675		)	(3,296		)
Charged down	(9,227		)	(266		)	(3,703		)	(6,769		)	(3,987		)	(481		)	(2,555		)	(9,227		)	(266		)	(3,703		)
Return to accruing status	(2,177		)	(1,247		)	(1,990		)	(119		)	(38		)	(179		)	—			(2,177		)	(1,247		)	(1,990		)
Payments	(20,267		)	(8,068		)	(8,260		)	(7,983		)	(3,916		)	(2,289		)	(6,684		)	(20,267		)	(8,068		)	(8,260		)
Nonaccrual noncovered commercial loans end of period	$	31,492		$	38,381		$	44,546		$	55,815		$	59,932
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 ~~TDRs.~~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, totaled $~~89.6~~85.6 million, $~~72.9~~84.6 million, and $~~70.3~~75.2 million as of ~~September 30, 2012~~March 31, 2013, December 31, ~~2011~~2012 and ~~September 30, 2011~~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 and represented ~~73.49%~~73.56%, ~~79.43%~~74.16% and ~~82.08%~~77.22%, respectively, of the total noncovered TDR portfolio as of ~~September 30, 2012~~March 31, 2013, and December 31, ~~2011~~2012 and ~~September 30, 2011~~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. As a result of guidance from the OCC, in the quarter ended September 30, 2012, approximately $10.6 million of consumer loans were 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. These loans were reclassified from performing loans to nonaccrual status as of September 30, 2012 and consisted of $6.7 million of first mortgages, $1.0 million of junior liens and $2.9 million of automobile loans.

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 ~~September 30, 2012~~ ~~totaled and~~ ~~December~~March 31, ~~2011~~2013 totaled $~~11.6~~11.8 billion compared to $~~11.4~~11.6 billion atand ~~September 30, 2011~~$11.5 billion. as of 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
	September 30, 2012				December 31, 2011				September 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	$	3,236,703	—		$	3,144,183	—		$	2,988,521	—		$	3,321,660	—	%	$	3,306,444	—	%	$	3,036,590	—	%
Interest-bearing	1,080,841		0.09	%	1,060,771		0.09	%	913,252		0.09	%	1,300,816		0.10	%	1,122,796		0.09	%	1,066,132		0.09	%
Savings and money market accounts	5,746,210		0.36	%	5,732,007		0.35	%	5,446,351		0.50	%	5,835,750		0.37	%	5,743,599		0.36	%	5,675,052		0.36	%
Certificates and other time deposits	1,528,177		0.71	%	1,618,322		0.79	%	2,099,558		0.83	%	1,331,558		0.63	%	1,422,246		0.64	%	1,694,247		0.84	%
Total customer deposits	11,591,931		0.28	%	11,555,283		0.29	%	11,447,682		0.40	%	11,789,784		0.26	%	11,595,085		0.27	%	11,472,021		0.31	%
Securities sold under agreements to repurchase	1,032,401		0.12	%	920,352		0.12	%	969,020		0.40	%	906,717		0.14	%	957,564		0.13	%	887,715		0.12	%
Wholesale borrowings	178,022		2.53	%	177,987		2.53	%	320,691		2.06	%	136,298		2.53	%	163,405		2.49	%	184,659		2.51	%
Long-term debt													155,506		4.56	%	—		—	%	—		—	%
Total funds	$	12,802,354			$	12,653,622			$	12,737,393			$	9,666,645	0.45	%	$	9,409,610	0.39	%	$	9,507,805	0.44	%

Average demand deposits comprised ~~37.25%~~39.21% of average deposits in the during the three months ended ~~2012third~~March 31, 2013 ~~quarter~~ compared to ~~34.08%~~38.20% in ~~the~~fourth quarter of ~~2011third~~2012 ~~quarter.~~and 35.76% during the three months ended March 31, 2012. Savings accounts, including money market products, made up ~~49.57%~~49.50% of average deposits induring the three months ended ~~2012third~~March 31, 2013 ~~quarter~~ compared to ~~47.58%~~49.53% during the three months ended December 31, 2012 and 49.47% in during the three months ended ~~2011third~~March 31, 2012 ~~quarter.~~. Certificates ofand other time deposits made up ~~13.18%~~11.29% of average deposits induring the three months ended ~~third~~March 31, 2013, 12.27% ~~quarter~~during the three months ended December 31, 2012 and ~~18.34%~~14.77% induring the three months ended ~~third~~ ~~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 181 basis points compared to ~~the same period~~ one year ago, or ~~45.00%~~2.27%, for the ~~quarter~~three months ended ~~September 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 ~~September 30, 2012~~March 31, 2013, by time remaining until ~~maturity:~~maturity.


	Amount		Amount
Time until maturity:	(In thousands)		(In thousands)
Under 3 months	$	126,357	$	95,540
3 to 6 months	110,978		145,104
6 to 12 months	172,281		130,182
Over 1 year through 3 years	92,916
Over 3 years	20,711
	$	523,243

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 ~~September 30, 2012~~$1.8 billion as of March 31, 2013, ~~December 31, 2011~~ ~~and~~ ~~September 30, 2011~~ ~~totaled~~compared with $1.6 billion as of December 31, 2012 and March 31, 2012. As of March 31, 2013, ~~respectively. The cash~~the dividend of ~~$0.16~~$0.16 cents per share ~~paid in the~~ ~~third~~ ~~quarter of~~ ~~2012~~ has an indicated annual rate of $0.64 per share.

89Effective 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 ~~8.18%~~8.03% at ~~September 30, 2012~~March 31, 2013, compared towith 8.16% at December 31, 2012 and 7.86% at ~~December~~March 31, ~~2011, and~~ ~~7.75%~~ at ~~September 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 ~~September 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.

September 30, 2012 December 31, 2011 September 30, 2011
(dollars in thousands)
Consolidated
Total equity $ 1,624,704
11.11 % $ 1,565,953
10.84 % $ 1,570,654
10.69 %
Common equity 1,624,704
11.11 % 1,565,953
10.84 % 1,570,654
10.69 %
Tangible common equity (a) 1,157,843
8.18 % 1,097,670
7.86 % 1,101,828
7.75 %
Tier 1 capital (b) 1,170,095
11.37 % 1,119,892
11.48 % 1,104,869
11.02 %
Total risk-based capital (c) 1,298,944
12.63 % 1,242,177
12.73 % 1,230,519
12.27 %
Leverage (d) 1,170,095
8.25 % 1,119,892
7.95 % 1,104,869
7.86 %
Bank Only
Total equity $ 1,565,513
10.71 % $ 1,483,743
10.29 % $ 1,487,926
10.14 %
Common equity 1,565,513
10.71 % 1,483,743
10.29 % 1,487,926
10.14 %
Tangible common equity (a) 1,098,652
7.77 % 1,015,460
7.28 % 1,019,100
7.18 %
Tier 1 capital (b) 1,106,099
10.77 % 1,033,171
10.62 % 1,017,738
10.17 %
Total risk-based capital (c) 1,229,922
11.98 % 1,150,675
11.82 % 1,138,725
11.38 %
Leverage (d) 1,106,099
7.81 % 1,033,171
7.35 % 1,017,738
7.26 %


~~(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 ~~September 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
September 30, 2012 (7.65 )% 3.40 % 5.80 % 7.70 %
September 30, 2011 (3.06 )% 2.79 % 3.92 % 4.81 %



	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 ~~September 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
September 30, 2012 (3.02 )% 1.66 % 1.74 % 0.45 %
September 30, 2011 0.18 % 4.77 % 7.01 % 7.89 %



	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 ~~87.19%~~89.07% of total deposits at ~~September 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 ~~third~~first quarter ~~quarter~~ of ~~2012~~2013 in addition to unencumbered, or unpledged, investment securities that totaled $~~1.4~~0.9 billion as of ~~September 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 ~~September 30, 2012~~March 31, 2013, lower cost core deposits increased by $~~18.3~~238.4 million from the previous quarter. In aggregate, deposits ~~decreased~~increased $~~83.4~~166.3 million from ~~June 30,~~December 31, 2012. Securities sold under agreements to repurchase decreased ~~increased~~$~~66.5~~277.7 million from ~~June 30,~~December 31, 2012. Wholesale borrowings and long-term debt had a net increase of ~~decreased~~$~~0.1~~249.0 million from ~~June 30,~~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 ~~82.30%~~81.14% atas of ~~September 30, 2012~~March 31, 2013 from ~~80.68%~~82.92% atas of ~~June 30,~~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 ~~September 30, 2012~~March 31, 2013, FirstMerit Bank ~~paid~~ ~~$17.5 million~~ indid not pay dividends to FirstMerit Corporation. As of ~~September 30, 2012~~March 31, 2013, FirstMerit Bank had an additional $~~203.2~~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 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 December 31, ~~2011~~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; expectations of, and actual timing and amount of, interest rate movements, including the slope of the yield curve (which can have a significant impact on a financial services institution); market and monetary fluctuations; inflation or deflation; customer and investor responses to these conditions; the financial condition of borrowers and other counterparties; competition within and outside the financial services industry; geopolitical developments including possible terrorist activity; recent and future legislative and regulatory developments; natural disasters; effectiveness of the Corporation’s hedging practices; technology; demand for the Corporation’s product offerings; new products and services in the industries in which the Corporation operates; critical accounting estimates; the ~~possibility that regulatory~~Corporation's ability to realize the synergies and ~~other approvals~~benefits contemplated by the acquisition of Citizens, such as it being accretive to earnings and ~~conditions to~~expanding the ~~Merger are not received or satisfied on a timely basis~~Corporation's geographic presence, in the time frame anticipated or at all, ~~or contain unanticipated terms~~ and ~~conditions; the possibility that modifications to the terms of the Merger may be required~~those risk factors detailed in ~~order to obtain or satisfy such approvals or conditions; the timing of approvals by Citizens' and~~ the Corporation's ~~shareholders; delays in closing~~periodic reports and registration statements filed with the ~~Merger~~Securities and the Merger of the parties' bank subsidiaries; difficulties, delays and unanticipated costs in integrating the merging organizations' businesses or realizing expected cost savings and other benefits; business disruptions as a result of the integration of the merging organizations, including possible loss of customers; diversion of management time to address Merger related issues; changes in asset quality and credit risk as a result of the Merger.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, 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 ~~third~~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
July 1, 2012 - July 31, 2012 248
$ 24.63
—
396,272
August 1, 2012 - August 31, 2012 936
16.49
—
396,272
September 1, 2012 - September 30, 2012 4,953
19.61
—
396,272
Balances as of September 30, 2012 6,137
$ 19.34
—
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 ~~6,137~~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 ~~third~~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

~~2.1~~		Agreement and Plan of Merger, dated September 12, 2012, by and between FirstMerit Corporation and Citizens Republic Bancorp, Inc. (incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on September 13, 2012).

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).
4.1		Subordinated Indenture, dated as of February 4, 2013, by and between FirstMerit Corporation and Wells Fargo Bank, National Association, as Trustee (incorporated by reference from Exhibit 4.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 4, 2013).
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		~~Transition and Retirement~~Securities Purchase Agreement, dated ~~August 31, 2012,~~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 ~~Bank, N.A.~~Corporation and ~~Larry A.Shoff.~~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).

~~10.53~~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 ~~of Indemnification Agreement with Officers and Directors.~~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 ~~September 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)

~~November 2, 2012~~May 3, 2013

~~100~~110



(Dollars in thousands except per share data)	Quarters ended						Nine Months Ended
(Unaudited)	September 30,						September 30,
	2012			2011			2012			2011
Interest income:
Loans and loans held for sale	$	103,005		$	108,417		$	309,213		$	330,877
Investment securities
Taxable	20,633			21,949			64,834			65,610
Tax-exempt	3,844			3,189			11,270			9,521
Total investment securities interest	24,477			25,138			76,104			75,131
Total interest income	127,482			133,555			385,317			406,008
Interest expense:
Deposits:
Demand-interest bearing	243			218			726			579
Savings and money market accounts	5,166			6,929			15,302			22,172
Certificates and other time deposits	2,743			4,370			9,436			16,803
Securities sold under agreements to repurchase	310			977			854			2,832
Wholesale borrowings	1,130			1,669			3,399			4,963
Total interest expense	9,592			14,163			29,717			47,349
Net interest income	117,890			119,392			355,600			358,659
Provision for noncovered loan losses	9,965			14,604			26,860			41,760
Provision for covered loan losses	6,214			4,768			15,576			17,580
Net interest income after provision for loan losses	101,711			100,020			313,164			299,319
Other income:
Trust department income	6,124			5,607			17,481			16,983
Service charges on deposits	14,603			17,838			43,490			48,460
Credit card fees	11,006			13,640			32,402			39,357
ATM and other service fees	3,680			3,801			11,360			9,781
Bank owned life insurance income	3,094			3,182			9,073			11,439
Investment services and insurance	2,208			1,965			6,843			6,384
Investment securities gains, net	553			4,402			1,361			5,291
Loan sales and servicing income	7,255			3,426			19,085			9,102
Other operating income	6,402			6,911			20,857			18,222
Total other income	54,925			60,772			161,952			165,019
Other expenses:
Salaries, wages, pension and employee benefits	58,061			61,232			183,632			177,815
Net occupancy expense	8,077			8,464			24,640			25,144
Equipment expense	7,143			7,073			21,845			20,725
Stationery, supplies and postage	2,210			2,517			6,638			7,972
Bankcard, loan processing and other costs	8,424			8,449			24,935			24,278
Professional services	4,702			5,732			17,361			17,466
Amortization of intangibles	456			543			1,422			1,629
FDIC expense	1,832			3,240			9,015			12,187
Other operating expense	17,682			18,707			51,944			53,254
Total other expenses	108,587			115,957			341,432			340,470
Income before income tax expense	48,049			44,835			133,684			123,868
Income tax expense	13,096			13,098			37,802			34,808
Net income	$	34,953		$	31,737		$	95,882		$	89,060
Other comprehensive income, net of taxes
Changes in unrealized securities' holding gains and losses	$	4,884		$	7,353		$	10,872		$	24,889
Reclassification for realized securities' gains	(359		)	(2,862		)	(885		)	(3,440		)
Total other comprehensive gain, net of taxes	4,525			4,491			9,987			21,449
Comprehensive income	$	39,478		$	36,228		$	105,869		$	110,509
Net income applicable to common shares	$	34,953		$	31,737		$	95,882		$	89,060
Net income used in diluted EPS calculation	$	34,953		$	31,737		$	95,882		$	89,060
Weighted average number of common shares outstanding - basic	109,645			109,245			109,473			109,052
Weighted average number of common shares outstanding - diluted	109,645			109,246			109,473			109,053
Basic earnings per common share	$	0.32		$	0.29		$	0.88		$	0.82
Diluted earnings per common share	$	0.32		$	0.29		$	0.88		$	0.82
Dividend per common share	$	0.16		$	0.16		$	0.48		$	0.48



	Employee Separation			Contract Termination			Long-Lived Asset Charges		Other			Total
Total expected restructuring charge	$	3,254		$	415		$	337	$	200		$	4,206
Balance at June 30, 2012	$	1,443		$	—		$	—	$	—		$	1,443
Charge to expense	—			415			—		38			453
Cash payments	(1,128		)	(168		)	—		(38		)	(1,334		)
Noncash utilization	—			—			—		—			—
Balance at September 30, 2012	$	315		$	247		$	—	$	—		$	562
Remaining expected restructuring charge	$	—		$	—		$	—	$	—		$	—



	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available for sale
Debt Securities
U.S. government agency debentures	$	35,109	$	28	$	—		$	35,137
U.S. States and political subdivisions	241,436		17,003		(21		)	258,418
Residential mortgage-backed securities:
U.S. government agencies	1,216,671		61,160		—			1,277,831
Commercial mortgage-backed securities:
U.S. government agencies	15,434		233		—			15,667
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,188,072		17,836		(383		)	1,205,525
Non-agency	12		—		—			12
Commercial collateralized mortgage-backed securities:
U.S. government agencies	66,316		2,349		—			68,665
Corporate debt securities	61,527		—		(14,034		)	47,493
Total debt securities	2,824,577		98,609		(14,438		)	2,908,748
Marketable equity securities	3,245		—		—			3,245
Total securities available for sale	$	2,827,822	$	98,609	$	(14,438	)	$	2,911,993
Securities held to maturity
Debt Securities
U.S. States and political subdivisions	$	262,091	$	6,946	$	(17	)	$	269,020
Commercial mortgage-backed securities:
U.S. government agency obligations	33,149		792		—			33,941
Residential collateralized mortgage-backed securities:
U.S. government agencies	129,265		396		—			129,661
Commercial collateralized mortgage obligations:
U.S. government agency obligations	98,961		1,054		—			100,015
Corporate debt securities	97,165		1,435		—			98,600
Total securities held to maturity	$	620,631	$	10,623	$	(17	)	$	631,237



As of September 30, 2012

Legacy Loans													≥ 90 Days Past Due and Accruing (a)
	Days Past Due						Total Past Due		Current		Total Loans					Nonaccrual Loans (b)
	30-59		60-89		≥ 90		Total Past Due		Current		Total Loans					Nonaccrual Loans (b)
Commercial
C&I	$	8,781	$	2,795	$	1,469	$	13,045	$	3,033,770	$	3,046,815	$	57	$	9,926
CRE	3,197		3,856		14,311		21,364		2,099,760		2,121,124		1,862		17,812
Construction	116		—		853		969		308,136		309,105		—		923
Leases	7		—		—		7		110,931		110,938		—		—
Consumer
Installment	8,884		3,430		4,834		17,148		1,301,995		1,319,143		4,439		3,267
Home Equity Lines	1,784		463		1,311		3,558		768,013		771,571		409		1,858
Credit Cards	991		556		808		2,355		141,563		143,918		393		525
Residential Mortgages	14,364		2,777		6,233		23,374		414,438		437,812		2,399		13,169
Total	$	38,124	$	13,877	$	29,819	$	81,820	$	8,178,606	$	8,260,426	$	9,559	$	47,480



Covered Loans (c)													≥ 90 Days Past Due and Accruing (d)
	Days Past Due						Total Past Due		Current		Total Loans			Nonaccrual Loans (d)
	30-59		60-89		≥ 90		Total Past Due		Current		Total Loans			Nonaccrual Loans (d)
Commercial
C&I	$	2,962	$	973	$	27,035	$	30,970	$	131,721	$	162,691	n/a	n/a
CRE	4,965		21,919		184,067		210,951		412,323		623,274		n/a	n/a
Construction	—		998		41,325		42,323		19,453		61,776		n/a	n/a
Consumer
Installment	2,289		—		35		2,324		6,036		8,360		n/a	n/a
Home Equity Lines	1,398		435		1,981		3,814		119,364		123,178		n/a	n/a
Residential Mortgages	10,382		1,248		8,576		20,206		43,573		63,779		n/a	n/a
Total	$	21,996	$	25,573	$	263,019	$	310,588	$	732,470	$	1,043,058	n/a	n/a



As of September 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	$	12,639	$	6,255	$	5,361	$	24,255	$	2,633,735	$	2,657,990	$	123	$	6,096
CRE	5,145		11,030		33,003		49,178		1,907,048		1,956,226		—		39,560
Construction	779		1,719		8,943		11,441		241,137		252,578		—		10,580
Leases	—		—		—		—		57,992		57,992		—		—
Consumer
Installment	9,090		4,225		5,052		18,367		1,249,676		1,268,043		1,125		438
Home Equity Lines	2,474		731		922		4,127		718,494		722,621		922		753
Credit Cards	1,222		701		771		2,694		140,016		142,710		357		614
Residential Mortgages	9,687		2,412		7,648		19,747		375,706		395,453		1,481		6,166
Total	$	41,036	$	27,073	$	61,700	$	129,809	$	7,323,804	$	7,453,613	$	4,008	$	64,207



	Three Months Ended September 30, 2011
	C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Allowance for loan losses, beginning balance	$	28,366		$	32,946		$	7,876		$	353		$	18,089		$	7,142		$	8,403		$	6,012		$	109,187
Charge-offs	(4,528		)	(3,304		)	(550		)	(651		)	(5,911		)	(2,779		)	(1,520		)	(771		)	(20,014		)
Recoveries	540			6			171			1			3,375			658			585			74			5,410
Provision for noncovered loan losses	5,960			3,653			(682		)	622			2,770			1,222			528			531			14,604
Allowance for loan losses, ending balance	$	30,338		$	33,301		$	6,815		$	325		$	18,323		$	6,243		$	7,996		$	5,846		$	109,187



	As of September 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans with no related allowance
Commercial
C&I	$	1,443	$	10,154	$	—	$	9,903
CRE	16,910		22,337		—		19,217
Construction	3,370		3,944		—		4,080
Consumer
Installment	2,902		4,739		—		4,888
Home equity line	959		1,239		—		1,237
Credit card	4		4		—		4
Residential mortgages	10,693		12,838		—		11,542
Subtotal	$	36,281	$	55,255	$	—	$	50,871
Impaired loans with a related allowance
Commercial
C&I	8,551		12,555		2,900		10,163
CRE	11,543		14,113		1,953		10,559
Construction	726		726		117		733
Consumer
Installment	29,675		29,675		1,674		30,361
Home equity line	5,963		5,963		95		6,206
Credit card	1,763		1,763		106		1,975
Residential mortgages	13,876		13,967		1,599		13,946
Subtotal	72,097		78,762		8,444		73,943
Total impaired loans	$	108,378	$	134,017	$	8,444	$	124,814



	Quarter ended		Year ended		Quarter ended
	September 30, 2012		December 31, 2011		September 30, 2011
Aggregate fair value	$	17,540	$	30,077	$	39,340
Contractual balance	16,635		28,948		37,786
Gain (a)	905		1,129		1,554