UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended ~~March 31,~~June 30, 2015

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

Commission file number: 001-11267

(Exact name of registrant as specified in its charter)



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

(330) 996-6000

(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

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



Class		Outstanding as of 4/7/28/2015
Common Stock, no par value		~~165,787,937~~165,765,245

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDARIES FORM 10-Q TABLE OF CONTENTS	FIRSTMERIT CORPORATION AND SUBSIDARIES FORM 10-Q TABLE OF CONTENTS				FIRSTMERIT CORPORATION AND SUBSIDARIES FORM 10-Q TABLE OF CONTENTS

				Page				Page
Glossary of Acronyms and Abbreviations	Glossary of Acronyms and Abbreviations			4	Glossary of Acronyms and Abbreviations			4
PART 1. FINANCIAL INFORMATION	PART 1. FINANCIAL INFORMATION			5	PART 1. FINANCIAL INFORMATION			5
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS	ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS			5	ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS			5
	CONSOLIDATED BALANCE SHEETS			5	CONSOLIDATED BALANCE SHEETS			5
	CONSOLIDATED STATEMENTS OF INCOME			6	CONSOLIDATED STATEMENTS OF INCOME			6
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			7	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			7
	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY			8	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY			8
	CONSOLIDATED STATEMENTS OF CASH FLOWS			9	CONSOLIDATED STATEMENTS OF CASH FLOWS			9
	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS			10	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS			10
	Note	1	Summary of Significant Accounting Policies	10	Note	1	Summary of Significant Accounting Policies	10
	Note	2	Investment Securities	13	Note	2	Investment Securities	14
	Note	3	Loans	25	Note	3	Loans	25
	Note	4	Allowance for Loan Losses	35	Note	4	Allowance for Loan Losses	35
	Note	5	Goodwill and Other Intangible Assets	55	Note	5	Goodwill and Other Intangible Assets	55
	Note	6	Shareholders' Equity	56	Note	6	Shareholders' Equity	56
	Note	7	Segment Information	57	Note	7	Segment Information	58
	Note	8	Derivatives and Hedging Activities	59	Note	8	Derivatives and Hedging Activities	60
	Note	9	Benefit Plans	65	Note	9	Benefit Plans	66
	Note	10	Fair Value Measurement	65	Note	10	Fair Value Measurement	66
	Note	11	Mortgage Servicing Rights and Mortgage Servicing Activity	78	Note	11	Mortgage Servicing Rights and Mortgage Servicing Activity	79
	Note	12	Commitments and Guarantees	80	Note	12	Commitments and Guarantees	81
	Note	13	Changes and Reclassifications Out of Accumulated Other Comprehensive Income	85	Note	13	Changes and Reclassifications Out of Accumulated Other Comprehensive Income	86
	Note	14	Subsequent Events	86	Note	14	Subsequent Events	87
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			87	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			88
	Consolidated Financial Highlights			87	Consolidated Financial Highlights			89
	Highlights of First Quarter of 2015 Performance			88	Highlights of Second Quarter of 2015 Performance			90
	Regulation and Supervision			90	Regulation and Supervision			92
		New Capital Rules		91		New Capital Rules		93
		Stress Testing		91		Stress Testing		93
		Other Legislation		92		Other Legislation		94
	Non-GAAP Financial Measures			92	Non-GAAP Financial Measures			94
	Results of Operations			98	Results of Operations			99
		Average Tax-Equivalent Balance Sheets		98		Average Tax-Equivalent Balance Sheets		99
		Net Interest Income		99		Net Interest Income		101
		Noninterest Income		101		Noninterest Income		103
		Noninterest Expense		102		Noninterest Expense		104
		Income Taxes		102		Income Taxes		105
	Line of Business Results			102	Line of Business Results			105
	Financial Condition			105	Financial Condition			107
		Investment Securities		105		Investment Securities		107
		Loans		106		Loans		108
			Originated Loans	107			Originated Loans	109

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDARIES FORM 10-Q TABLE OF CONTENTS

				Page
			Acquired Loans	~~108~~110
			FDIC Acquired Loans and Related Loss Share Receivable	~~108~~110
		Allowance for Loan Losses and Reserve for Unfunded Lending Commitments		~~110~~111
			Allowance for Originated Loan Losses	~~110~~111
			Allowance for Acquired Loan Losses	~~115~~116
			Allowance for FDIC Acquired Loan Losses	~~116~~117
		Asset Quality		~~116~~118
		Deposits, Securities Sold Under Agreements to Repurchase, Wholesale Borrowings and Long-Term Debt		~~119~~120
		Capital Resources		~~120~~121
			Shareholders' Equity	~~120~~122
			Capital Adequacy	~~121~~123
	Risk Management			~~122~~124
		Market Risk Management		~~122~~124
		Liquidity Risk Management		~~124~~126
		Operational Risk Management		~~125~~127
		Critical Accounting Policies		~~126~~128
		Off-Balance Sheet Arrangements		~~126~~128
		Forward-looking Safe-harbor Statement		~~127~~129
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK				~~127~~129
ITEM 4. CONTROLS AND PROCEDURES				~~128~~130
PART II. OTHER INFORMATION				~~128~~130
	ITEM 1. LEGAL PROCEEDINGS			~~128~~130
	ITEM 1A. RISK FACTORS			~~128~~130
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			~~129~~131
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES			~~129~~131
	ITEM 4. MINE SAFETY DISCLOSURES			~~129~~131
	ITEM 5. OTHER INFORMATION			~~129~~131
	ITEM 6. EXHIBITS			~~130~~132
SIGNATURES				~~131~~133
Index to Exhibits

Table of Contents

The acronyms and abbreviations identified below are used in this Form 10-Q including the Notes to Consolidated Financial Statements (unaudited) as well as in Management's Discussion & Analysis of Financial Condition and Results of Operations.



Acquisition Date	Citizens Republic BanCorp Inc. acquisition date of April 12, 2013	Federal Reserve	The Board of Governors of the Federal Reserve System
ALCO	Asset/Liability Management Committee	FHLB	Federal Home Loan Bank
ALL	Allowance for loan losses	FHLMC	Federal Home Loan Mortgage Corporation
AOCI	Accumulated other comprehensive income (loss)	FICO	Fair Isaac Corporation
APBO	Accumulated pension benefit obligation	FINRA	Financial Industry Regulatory Authority
ASC	Accounting standards codification	FNMA	Federal National Mortgage Association
ASU	Accounting standards update	FRAP	Fixed Rate Advantage Program
Bank	FirstMerit Bank N.A.	FRB	Federal Reserve Bank
Basel I	Basel Committee’s 1988 Capital Accord	FSOC	Financial Stability Oversight Council
Basel III	Basel Committee regulatory capital reforms, Third Basel Accord	GAAP	United States generally accepted accounting principles
Basel Committee	Basel Committee on Banking Supervision	GSE	Government sponsored enterprise
BHC	Bank holding company	ISDA	International Swaps and Derivatives Association
BHCA	Bank Holding Company Act of 1956, as amended	LIBOR	London Interbank Offered Rate
CCAR	Comprehensive Capital Analysis and Review	Management	FirstMerit Corporation’s Management
CET1	Common equity tier 1	MBS	Mortgage-backed securities
CFPB	Consumer Financial Protection Bureau	MSRs	Mortgage servicing rights
Citizens	Citizens Republic Bancorp Inc.	NASDAQ	The NASDAQ Stock Market LLC
Citizens TARP Preferred	Citizens TARP Preferred issued to the U.S. Treasury as part of the Troubled Assets Relief Program	NYSE	New York Stock Exchange
CLO	Collateralized loan obligations	OCC	Office of the Comptroller of the Currency
CMO	Collateralized mortgage obligations	OCI	Other comprehensive income (loss)
Common Stock	Common Shares, without par value	OREO	Other real estate owned
Corporation	FirstMerit Corporation and its Subsidiaries	OTTI	Other-than-temporary impairment
CPR	Conditional Prepayment Rate	Parent Company	FirstMerit Corporation
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010	Preferred Stock	5.875% Non-Cumulative Perpetual Preferred Stock, Series A
DIF	Federal Deposit Insurance Fund	RIP	Retirement Investment Plan
DTA	Deferred tax asset	ROA	Return on average assets
DTL	Deferred tax liability	ROE	Return on average equity
EPS	Earnings per share	SEC	United States Securities and Exchange Commission
ERISA	Employee Retirement Income Security Act of 1974	TARP	Troubled Asset Relief Program
ERM	Enterprise risk management	TDR	Troubled debt restructuring
ESOP	Employee stock ownership plan	TE	Fully taxable equivalent
EVE	Economic value of equity	U.S. Treasury	United States Department of the Treasury
FASB	Financial Accounting Standards Board	UTB	Unrecognized tax balance
FDIA	Federal Deposit Insurance Act	VIE	Variable interest entity
FDIC	The Federal Deposit Insurance Corporation

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.

																			CONSOLIDATED BALANCE SHEETS	FIRSTMERIT CORPORATION AND SUBSIDARIES

(In thousands)	March 31,			December 31,			March 31,			June 30,			December 31,			June 30,
(Unaudited, except for December 31, 2014)	2015			2014			2014			2015			2014			2014
ASSETS
Cash and due from banks	$	426,247		$	480,998		$	520,976		$	472,848		$	480,998		$	523,027
Interest-bearing deposits in banks	106,178			216,426			438,309			114,741			216,426			119,543
Total cash and cash equivalents	532,425			697,424			959,285			587,589			697,424			642,570
Investment securities:
Held-to-maturity	2,855,174			2,903,609			3,079,620			2,787,513			2,903,609			3,052,118
Available-for-sale	3,791,059			3,545,288			3,433,171			3,838,509			3,545,288			3,478,420
Other investments	148,475			148,654			148,446			147,967			148,654			148,433
Loans held for sale	3,568			13,428			7,143			5,432			13,428			21,632
Loans	15,490,889			15,326,147			14,608,613			15,705,110			15,326,147			14,969,627
Allowance for loan losses	(146,552		)	(143,649		)	(145,060		)	(148,259		)	(143,649		)	(142,036		)
Net loans	15,344,337			15,182,498			14,463,553			15,556,851			15,182,498			14,827,591
Premises and equipment, net	320,392			332,297			323,335			313,819			332,297			315,770
Goodwill	741,740			741,740			741,740			741,740			741,740			741,740
Intangible assets	68,422			71,020			79,819			65,824			71,020			76,886
FDIC acquired other real estate	43,660			49,641			59,848
Covered other real estate										1,065			49,641			51,072
Accrued interest receivable and other assets	1,268,868			1,216,748			1,202,701			1,250,705			1,216,748			1,208,199
Total assets	$	25,118,120		$	24,902,347		$	24,498,661		$	25,297,014		$	24,902,347		$	24,564,431
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	5,666,752		$	5,786,662		$	5,595,899		$	5,725,850		$	5,786,662		$	5,525,484
Interest-bearing	3,277,118			3,028,888			3,081,658			3,304,969			3,028,888			3,028,479
Savings and money market accounts	8,610,553			8,399,612			8,750,182			8,418,716			8,399,612			8,476,096
Certificates and other time deposits	2,371,172			2,289,503			2,383,935			2,224,315			2,289,503			2,268,337
Total deposits	19,925,595			19,504,665			19,811,674			19,673,850			19,504,665			19,298,396
Federal funds purchased and securities sold under agreements to repurchase	1,113,371			1,272,591			926,195			1,519,250			1,272,591			1,218,855
Wholesale borrowings	316,628			428,071			349,277			366,074			428,071			649,021
Long-term debt	512,625			505,192			324,430			497,393			505,192			324,433
Accrued taxes, expenses and other liabilities	361,115			357,547			344,119			352,490			357,547			281,988
Total liabilities	22,229,334			22,068,066			21,755,695			22,409,057			22,068,066			21,772,693
Shareholders' equity:
5.875% Non-Cumulative Perpetual Preferred Stock, Series A, without par value: authorized 115,000 shares; 100,000 issued	100,000			100,000			100,000			100,000			100,000			100,000
Common Stock warrant	3,000			3,000			3,000			—			3,000			3,000
Common Stock, without par value; authorized 300,000,000 shares; issued: March 31, 2015, December 31, 2014 and March 31, 2014 - 170,183,540 shares	127,937			127,937			127,937
Common Stock, without par value; authorized 300,000,000 shares; issued: June 30, 2015, December 31, 2014 and June 30, 2014 - 170,183,540 shares										127,937			127,937			127,937
Capital surplus	1,394,933			1,393,090			1,393,749			1,379,194			1,393,090			1,387,253
Accumulated other comprehensive loss	(49,267		)	(71,892		)	(55,504		)	(67,621		)	(71,892		)	(39,507		)
Retained earnings	1,433,926			1,404,717			1,303,626			1,462,859			1,404,717			1,335,371
Treasury stock, at cost: March 31, 2015 - 4,730,374; December 31, 2014 - 4,793,566 shares; March 31, 2014 - 5,096,157 shares	(121,743		)	(122,571		)	(129,842		)
Treasury stock, at cost: June 30, 2015 - 4,410,939; December 31, 2014 - 4,793,566 shares; June 30, 2014 - 4,790,517 shares										(114,412		)	(122,571		)	(122,316		)
Total shareholders' equity	2,888,786			2,834,281			2,742,966			2,887,957			2,834,281			2,791,738
Total liabilities and shareholders' equity	$	25,118,120		$	24,902,347		$	24,498,661		$	25,297,014		$	24,902,347		$	24,564,431

See accompanying Notes to the Consolidated Financial Statements

Table of Contents

													CONSOLIDATED STATEMENTS OF INCOME	FIRSTMERIT CORPORATION AND SUBSIDIARIES

(In thousands, except per share amounts)	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(Unaudited)	2015		2014		2015		2014		2015		2014
Interest income:
Loans and loans held for sale	$	161,539	$	170,514	$	161,872	$	172,517	$	323,411	$	343,030
Investment securities:
Taxable	31,950		32,022		32,175		32,253		64,125		64,275
Tax-exempt	6,026		5,340		5,327		5,555		11,353		10,895
Total investment securities interest	37,976		37,362		37,502		37,808		75,478		75,170
Total interest income	199,515		207,876		199,374		210,325		398,889		418,200
Interest expense:
Deposits:
Interest bearing	767		737		783		745		1,550		1,481
Savings and money market accounts	5,547		5,559		5,588		5,477		11,135		11,035
Certificates and other time deposits	2,177		2,464		2,510		3,009		4,687		5,473
Federal funds purchased and securities sold under agreements to repurchase	243		197		329		233		572		429
Wholesale borrowings	2,340		1,129		2,351		1,391		4,691		2,520
Long-term debt	2,818		3,890		2,695		3,893		5,513		7,783
Total interest expense	13,892		13,976		14,256		14,748		28,148		28,721
Net interest income	185,623		193,900		185,118		195,577		370,741		389,479
Provision for loan losses	8,248		14,536		8,966		15,253		17,214		29,790
Net interest income after provision for loan losses	177,375		179,364		176,152		180,324		353,527		359,689
Noninterest income:
Trust department income	10,149		9,748		10,820		10,070		20,969		19,818
Service charges on deposits	15,668		16,648		16,704		18,528		32,372		35,176
Credit card fees	12,649		12,152		14,124		13,455		26,773		25,607
ATM and other service fees	6,099		5,819		6,345		5,996		12,444		11,816
Bank owned life insurance income	3,592		3,582		3,697		4,040		7,289		7,622
Investment services and insurance	3,704		3,516		3,871		3,852		7,575		7,368
Investment securities gains/(losses), net	354		56		567		80		921		136
Loan sales and servicing income	1,600		3,730		3,276		4,462		4,876		8,192
Other operating income	12,032		12,019		7,178		12,077		19,210		24,096
Total noninterest income	65,847		67,270		66,582		72,560		132,429		139,831
Noninterest expense:
Salaries, wages, pension and employee benefits	90,526		89,013		86,020		89,465		176,546		178,478
Net occupancy expense	15,954		17,014		13,727		14,347		29,681		31,361
Equipment expense	11,025		11,911		12,592		12,267		23,617		24,178
Stationery, supplies and postage	3,528		4,108		3,370		3,990		6,898		8,097
Bankcard, loan processing and other costs	11,139		10,834		12,461		11,810		23,600		22,644
Professional services	4,010		5,359		5,358		4,745		9,368		10,103
Amortization of intangibles	2,598		2,936		2,598		2,933		5,196		5,869
FDIC insurance expense	5,167		5,971		5,077		5,533		10,244		11,504
Other operating expense	16,705		22,185		20,471		22,310		37,176		44,499
Total noninterest expense	160,652		169,331		161,674		167,400		322,326		336,733
Income before income tax expense	82,570		77,303		81,060		85,484		163,630		162,787
Income tax expense	25,431		23,848		24,476		25,965		49,907		49,813
Net income	57,139		53,455		56,584		59,519		113,723		112,974
Less: Net income allocated to participating shareholders	407		380		467		489		937		926
Preferred Stock dividends	1,469		1,469		1,469		1,469		2,938		2,938
Net income attributable to common shareholders	$	55,263	$	51,606	$	54,648	$	57,561	$	109,848	$	109,110
Net income used in diluted EPS calculation	$	55,263	$	51,606	$	54,648	$	57,561	$	109,848	$	109,110
Weighted average number of common shares outstanding - basic	165,411		165,060		165,736		165,335		165,574		165,198
Weighted average number of common shares outstanding - diluted	166,003		166,004		166,277		166,147		166,089		166,052
Basic earnings per common share	$	0.33	$	0.31	$	0.33	$	0.35	$	0.66	$	0.66
Diluted earnings per common share	$	0.33	$	0.31	$	0.33	$	0.35	$	0.66	$	0.66
Cash dividend per common share	$	0.16	$	0.16	$	0.16	$	0.16	$	0.32	$	0.32

See accompanying Notes to the Consolidated Financial Statements

																												CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	FIRSTMERIT CORPORATION AND SUBSIDIARIES

(In thousands)	Three Months Ended March 31, 2015									Three Months Ended June 30, 2015									Six Months Ended June 30, 2015
(Unaudited)	Pretax			Tax			After tax			Pretax			Tax			After tax			Pretax			Tax			After tax
Net Income	$	82,570		$	25,431		$	57,139		$	81,060		$	24,476		$	56,584		$	163,630		$	49,907		$	113,723
Other comprehensive income/(loss)
Unrealized gains and losses on securities available for sale:
Changes in unrealized securities' holding gains/(losses)	34,117			11,941			22,176			(28,642		)	(10,024		)	(18,618		)	5,475			1,916			3,559
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale to held-to-maturity	(504		)	(176		)	(328		)
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity										(575		)	(203		)	(372		)	(1,079		)	(378		)	(701		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(354		)	(124		)	(230		)	(567		)	(198		)	(369		)	(921		)	(322		)	(599		)
Net change in unrealized gains/(losses) on securities available for sale	33,259			11,641			21,618			(29,784		)	(10,425		)	(19,359		)	3,475			1,216			2,259
Pension plans and other postretirement benefits:
Amortization of actuarial losses/(gains)	1,138			398			740			1,138			399			739			2,276			797			1,479
Amortization of prior service cost reclassified to other noninterest expense	410			143			267			410			144			266			820			287			533
Net change from defined benefit pension plans	1,548			541			1,007			1,548			543			1,005			3,096			1,084			2,012
Total other comprehensive gains/(losses)	34,807			12,182			22,625			(28,236		)	(9,882		)	(18,354		)	6,571			2,300			4,271
Comprehensive income	$	117,377		$	37,613		$	79,764		$	52,824		$	14,594		$	38,230		$	170,201		$	52,207		$	117,994


(In thousands)	Three Months Ended March 31, 2014									Three Months Ended June 30, 2014									Six Months Ended June 30, 2014
(Unaudited)	Pretax			Tax			After tax			Pretax			Tax			After tax			Pretax			Tax			After tax
Net Income	$	77,303		$	23,848		$	53,455		$	85,484		$	25,965		$	59,519		$	162,787		$	49,813		$	112,974
Other comprehensive income/(loss)
Unrealized gains and losses on securities available for sale:
Changes in unrealized securities' holding gains/(losses)	18,044			6,315			11,729			22,456			7,860			14,596			40,500			14,175			26,325
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity	(494		)	(173		)	(321		)	(494		)	(173		)	(321		)	(988		)	(346		)	(642		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(56		)	(20		)	(36		)	(80		)	(28		)	(52		)	(136		)	(48		)	(88		)
Net change in unrealized gains/(losses) on securities available for sale	17,494			6,122			11,372			21,882			7,659			14,223			39,376			13,781			25,595
Pension plans and other postretirement benefits:
Net gain/(loss) arising during the period										—			—			—			—			—			—
Amortization of actuarial losses/(gains)										1,631			571			1,060			1,631			571			1,060
Amortization of prior service cost reclassified to other noninterest expense										1,097			383			714			1,097			383			714
Net change from defined benefit pension plans										2,728			954			1,774			2,728			954			1,774
Total other comprehensive gains/(losses)	17,494			6,122			11,372			24,610			8,613			15,997			42,104			14,735			27,369
Comprehensive income	$	94,797		$	29,970		$	64,827		$	110,094		$	34,578		$	75,516		$	204,891		$	64,548		$	140,343

See accompanying Notes to the Consolidated Financial Statements

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

(In thousands) (Unaudited)	Preferred Stock		Common Stock		Common Stock Warrant		Capital Surplus			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders' Equity			Preferred Stock		Common Stock		Common Stock Warrant			Capital Surplus			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders' Equity
Balance at December 31, 2013	$	100,000	$	127,937	$	3,000	$	1,390,643		$	(66,876	)	$	1,277,975		$	(129,785	)	$	2,702,894		$	100,000	$	127,937	$	3,000		$	1,390,643		$	(66,876	)	$	1,277,975		$	(129,785	)	$	2,702,894
Net income	—		—		—		—			—			53,455			—			53,455			—		—		—			—			—			112,974			—			112,974
Other comprehensive income	—		—		—		—			11,372			—			—			11,372			—		—		—			—			27,369			—			—			27,369
Comprehensive income	—		—		—		—			11,372			53,455			—			64,827			—		—		—			—			27,369			112,974			—			140,343
Cash dividends - Preferred Stock	—		—		—		—			—			(1,469		)	—			(1,469		)	—		—		—			—			—			(2,938		)	—			(2,938		)
Cash dividends - Common Stock ($0.16 per share)	—		—		—		—			—			(26,335		)	—			(26,335		)
Nonvested (restricted) shares granted (82,241 shares)	—		—		—		(1,485		)	—			—			1,485			—
Restricted stock activity (51,066 shares)	—		—		—		419			—			—			(1,136		)	(717		)
Deferred compensation trust (1,967 increase in shares)	—		—		—		406			—			—			(406		)	—
Cash dividends - Common Stock ($0.32 per share)																						—		—		—			—			—			(52,640		)	—			(52,640		)
Nonvested (restricted) shares granted (573,881 shares)																						—		—		—			(12,993		)	—			—			13,092			99
Restricted stock activity (237,066 shares)																						—		—		—			802			—			—			(5,023		)	(4,221		)
Deferred compensation trust (173,959 increase in shares)																						—		—		—			600			—			—			(600		)	—
Share-based compensation	—		—		—		3,766			—			—			—			3,766			—		—		—			8,201			—			—			—			8,201
Balance at March 31, 2014	$	100,000	$	127,937	$	3,000	$	1,393,749		$	(55,504	)	$	1,303,626		$	(129,842	)	$	2,742,966
Balance at June 30, 2014																						$	100,000	$	127,937	$	3,000		$	1,387,253		$	(39,507	)	$	1,335,371		$	(122,316	)	$	2,791,738

Balance at December 31, 2014	$	100,000	$	127,937	$	3,000	$	1,393,090		$	(71,892	)	$	1,404,717		$	(122,571	)	$	2,834,281		$	100,000	$	127,937	$	3,000		$	1,393,090		$	(71,892	)	$	1,404,717		$	(122,571	)	$	2,834,281
Net income	—		—		—		—			—			57,139			—			57,139			—		—		—			—			—			113,723			—			113,723
Other comprehensive income	—		—		—		—			22,625			—			—			22,625			—		—		—			—			4,271			—			—			4,271
Comprehensive income	—		—		—		—			22,625			57,139			—			79,764			—		—		—			—			4,271			113,723			—			117,994
Cash dividends - Preferred Stock	—		—		—		—			—			(1,469		)	—			(1,469		)	—		—		—			—			—			(2,938		)	—			(2,938		)
Cash dividends - Common Stock ($0.16 per share)	—		—		—		—			—			(26,461		)	—			(26,461		)
Nonvested (restricted) shares granted (129,444 shares)	—		—		—		(2,631		)	—			—			2,631			—
Restricted stock activity (66,252 shares)	—		—		—		326			—			—			(1,296		)	(970		)
Deferred compensation trust (163,965 increase in shares)	—		—		—		507			—			—			(507		)	—
Cash dividends - Common Stock ($0.32 per share)																						—		—		—			—			—			(52,643		)	—			(52,643		)
Nonvested (restricted) shares granted (659,432 shares)																						—		—		—			(14,340		)	—			—			14,340			—
Restricted stock activity (276,805 shares)																						—		—		—			1,291			—			—			(5,544		)	(4,253		)
Deferred compensation trust (234,703 increase in shares)																						—		—		—			637			—			—			(637		)	—
Share-based compensation	—		—		—		3,641			—			—			—			3,641			—		—		—			7,666			—			—			—			7,666
Balance as of March 31, 2015	$	100,000	$	127,937	$	3,000	$	1,394,933		$	(49,267	)	$	1,433,926		$	(121,743	)	$	2,888,786
Repurchase of a Common Stock warrant to the U.S. Treasury for Citizens TARP warrant (2,571,998 shares)																						$	—	$	—	$	(3,000	)	$	(9,150	)	$	—		$	—		$	—		$	(12,150	)
Balance as of June 30, 2015																						$	100,000	$	127,937	$	—		$	1,379,194		$	(67,621	)	$	1,462,859		$	(114,412	)	$	2,887,957

See accompanying Notes to the Consolidated Financial Statements

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													CONSOLIDATED STATEMENTS OF CASH FLOWS	FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited)	Three Months Ended March 31,						Six Months Ended June 30,
	2015			2014			2015			2014
Operating Activities
Net income	$	57,139		$	53,455		$	113,723		$	112,974
Adjustments to reconcile net income to net cash provided and used by operating activities:
Provision for loan losses	8,248			14,536			17,214			29,790
Provision/(benefit) for deferred income taxes	(1,663		)	3,081			4,162			13,352
Depreciation and amortization	14,739			8,367			31,274			25,450
Benefit attributable to FDIC loss share	4,227			4,824			6,046			927
Accretion of acquired loans	(26,339		)	(37,965		)	(51,170		)	(74,126		)
Amortization and accretion of investment securities, net
Available for sale	2,680			1,949
Held to maturity	814			2,089
Available-for-sale							5,407			4,137
Held-to-maturity							2,110			4,236
Losses/(gains) on sales and calls of available-for-sale investment securities, net	(354		)	(56		)	(921		)	(136		)
Originations of loans held for sale	(40,442		)	(61,109		)	(51,673		)	(153,569		)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary markets	50,868			66,904			60,429			147,015
Gains on sales of loans, net	(566		)	(1,316		)	(760		)	(3,456		)
Amortization of intangible assets	2,598			2,936			5,196			5,869
Recognition of stock compensation expense	3,641			3,766			7,666			8,201
Net decrease/(increase) in other assets	(48,684		)	6,506			1,442			4,168
Net increase/(decrease) in other liabilities	25,224			26,800			(1,519		)	(21,506		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	52,130			94,767			148,626			103,326
Investing Activities
Proceeds from sale of investment securities
Available for sale	39,302			7,809
Available-for-sale							171,725			8,438
Held-to-maturity							1,015			2,495
Other	—			32,486			668			32,487
Held to maturity	1,015			2,495
Proceeds from prepayments, calls, and maturities of investment securities
Available for sale	129,296			112,747
Held to maturity	92,241			61,734
Available-for-sale							285,541			232,087
Held-to-maturity							211,636			151,133
Other	166			—			165			—
Purchases of investment securities
Available for sale	(404,163		)	(245,403		)
Held to maturity	(46,164		)	(214,611		)
Available-for-sale							(758,486		)	(411,463		)
Held-to-maturity							(94,756		)	(278,407		)
Other	—			(142		)	(172		)	(142		)
Net decrease/(increase) in loans and leases	(152,359		)	(277,708		)	(356,117		)	(628,735		)
Purchases of premises and equipment	(5,795		)	(16,859		)	(9,950		)	(31,599		)
Sales of premises and equipment	7,965			11,259			8,407			24,292
NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES	(338,496		)	(526,193		)	(540,324		)	(899,414		)
Financing Activities
Net increase in demand accounts	128,320			191,793			215,269			68,199
Net increase/(decrease) in savings and money market accounts	210,941			163,015			19,104			(111,071		)
Net decrease in certificates and other time deposits	81,669			(76,735		)	(65,188		)	(192,333		)
Net increase/(decrease) in securities sold under agreements to repurchase	(159,220		)	74,660			246,659			367,320
Net increase/(decrease) in long-term debt	—			—
Net increase/(decrease) in wholesale borrowings	(111,443		)	148,677			(61,997		)	448,421
Net proceeds from issuance of preferred stock	—			—
Repurchase of common stock warrant							(12,150		)	—
Cash dividends - common	(26,461		)	(26,335		)	(52,643		)	(52,640		)
Cash dividends - preferred	(1,469		)	(1,469		)	(2,938		)	(2,938		)
Restricted stock activity	(970		)	(717		)	(4,253		)	(4,122		)
NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES	121,367			472,889			281,863			520,836
Increase/(Decrease) in cash and cash equivalents	(164,999		)	41,463			(109,835		)	(275,252		)
Cash and cash equivalents at beginning of year	697,424			917,822			697,424			917,822
Cash and cash equivalents at end of year	$	532,425		$	959,285		$	587,589		$	642,570

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest	$	14,036		$	11,140		$	27,970		$	28,732
Federal income taxes	2,000			—			26,125			11,547

See accompanying Notes to the Consolidated Financial Statements

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FIRSTMERIT CORPORATION AND SUBSIDIARIES

FirstMerit Corporation and subsidiaries is a diversified financial services company headquartered in Akron, Ohio with ~~384~~367 banking offices in the Ohio, Michigan, Wisconsin, Illinois, and Pennsylvania areas. The Corporation provides a complete range of banking and other financial services to consumers and businesses through its core operations.

1. 1. Summary of Significant Accounting Policies

Unless otherwise indicated, defined terms and abbreviations used herein have the meanings set forth in the accompanying Glossary of Acronyms and Abbreviations.

Basis of Presentation - FirstMerit Corporation is a BHC whose principal asset is the Common Stock of its wholly-owned subsidiary, FirstMerit Bank, N. A. The Parent Company’s other subsidiaries include Citizens Savings Corporation of Stark County, FirstMerit Capital Trust I, and FirstMerit Risk Management, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

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

The Consolidated Balance Sheet at December 31, 2014 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 Management, necessary for a fair statement of the results for the interim periods presented. 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. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules of the SEC. The unaudited consolidated financial statements of the Corporation as of ~~March 31,~~June 30, 2015 and 2014 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, 2014 (the “2014 Form 10-K”). There have been no significant changes in the current quarter to the Corporation’s accounting policies as disclosed in the 2014 Form 10-K.

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

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Recently Adopted Accounting Standards

FASB ASU 2015-10, Technical Corrections and Improvements. The amendments in this update cover a wide range of Topics in the Codification. The amendments in this update represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the accounting guidance and are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Additionally, some of these amendments will make the accounting guidance easier to understand and eliminate inconsistencies. The SEC Update is effective immediately. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2015-8, Business Combinations (Topic 805): Pushdown Accounting—Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115 (SEC Update). The amendments in the SEC Update conform the accounting guidance with the various SEC paragraphs pursuance to the SEC Staff Accounting Bulletin No. 115. The SEC Update is effective immediately. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2015-3, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03, require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from that debt liability, consistent with the presentation of a debt discount. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, these amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and early adoption is permitted. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. As of June 30, 2015, the Corporation adopted this accounting standard by classifying $3.7 million of deferred debt issuance costs as a deduction to long term debt. Management concluded that the classification of debt issuance costs capitalized in prior periods was immaterial as a component of other assets, total assets, total long term debt, and total liabilities. As such, the Corporation's comparative periods have not been recasted. The amount of unamortized debt issuance costs not recasted are $3.8 million as of March 31, 2015, $3.7 million as of December 31, 2014, $1.9 million as of September 31, 2014, and $1.8 million as of June 30, 2014.

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FASB ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure—a consensus of the FASB Emerging Issues Task Force. The objective of this update is to reduce diversity in practice by addressing the classification of certain foreclosed mortgage loans held by creditors that are either fully or partially guaranteed under government programs. The amendments in this update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the

following conditions are met: 1) the loan has a government guarantee that is not separable from the

loan before foreclosure; 2) at the time of foreclosure, the creditor has the intent to convey the real

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and 3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The ASU is effective for interim and annual periods beginning after December 15, 2014. The amendments can be adopted using either a prospective transition method or a modified retrospective transition method. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2014-11, Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this update require entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), eliminate accounting guidance on linking repurchase financing transactions, and expand disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers, such as repos, securities lending transactions, and repurchase-to-maturity transactions, accounted for as secured borrowings. The amendments in ASU 2014-11 are effective for the first interim or annual period beginning after December 15, 2014. The amendments must present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Early application is prohibited. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2014-08, Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update change the definition of a discontinued operation in ASC 205-20 and require additional disclosures for transactions that meet the definition of a discontinued operation and certain other significant transactions that do not meet the discontinued operations criteria. The amendments in ASU 2014-08 are effective prospectively for all disposals, except disposals classified as held for sale before the adoption date or components initially classified as held for sale in periods beginning on or after December 15, 2014, with early adoption permitted. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. ASU 2014-04 amends the guidance in ASC 310-40 by clarifying when an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. Additionally, the amendments require interim and annual disclosure of both 1) the amount of foreclosed residential real estate property held by the creditor and 2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in ASU 2014-04 are effective for annual periods, and interim period within those annual periods, beginning after December 15, 2014. The amendments can either be adopted using a modified retrospective or a prospective transition method. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

1112

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Recently Issued Accounting Standards

FASB ASU 2015-5, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in ASU 2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. In addition, the guidance in this Update supersedes paragraph 350-40-25-16. Consequently, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. The amendments are effective for public business entities for annual and interim periods within those annual periods, beginning after December 15, 2015. An entity can elect to adopt the amendments either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. For prospective transition, the only disclosure requirements at transition are the nature of and reason for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change. For retrospective transition, the disclosure requirements

at transition include the requirements for prospective transition and quantitative information about the effects of the accounting change. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements.

~~FASB ASU 2015-3,~~ ~~Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.~~ The amendments in ASU 2015-03, require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from that debt liability, consistent with the presentation of a debt discount. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. The adoption of this guidance is not expected to have a material effect on the Corporations financial position or results of operations.

FASB ASU 2015-2, Amendments to the Consolidation Analysis. The amendments in ASU 2015-02 affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. These amendments modify the evaluation of whether limited partnerships and other similar entities are variable interest entities; eliminate the presumption that a general partner should consolidate a limited partnership; affect the consolidation analysis that are involved with variable interest entities; and provide a scope exception from consolidation for entities that are required to comply or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. A reporting entity may apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

year of adoption. A reporting entity also may apply the amendments retrospectively. The adoption of this guidance is not expected to have a material effect on the Corporations financial position or results of operations.

FASB ASU 2014–12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period — a consensus of the FASB Emerging Issues Task Force. The amendments in this update clarify that entities should treat performance targets that can be met after the requisite service period of a share-based payment award as performance conditions that affect vesting. Therefore, an entity would not record compensation expense (measured as of the grant date without taking into account the effect of the performance target) related to an award for which transfer to the employee is contingent on the entity’s satisfaction of a performance target until it becomes probable that the performance target will be met. The ASU does not contain any new disclosure requirements. The ASU is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. In addition, entities will have the option of applying the guidance either prospectively ~~(i.e.~~

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

(i.e., only to awards granted or modified on or after the effective date) or retrospectively. Retrospective application would only apply to awards with performance targets outstanding at or after the beginning of the first annual period presented (i.e., the earliest presented comparative period). The adoption of this guidance is not expected to have a material effect on the Corporations financial position or results of operations.

FASB ASU 2014-09, Revenue from Contracts with Customers. The amendments in this update supersede virtually all existing GAAP revenue recognition guidance, including most industry-specific revenue recognition guidance. ASU 2014-09 creates a single, principle-based revenue recognition framework and will require entities to apply significantly more judgment and expanded disclosures surrounding revenue recognition. The core principle requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 applies to contracts with customers to provide goods and services, with certain exclusions such as lease contracts, financing arrangements, and financial instruments. ~~The amendments in ASU 2014-09 are effective for fiscal years beginning after December 15, 2016.~~ On ~~April 1,~~July 9, 2015, the FASB ~~proposed~~decided to ~~defer the effective date~~delay, by one year, the effective dates, permitting public ~~organizations~~entities to apply this guidance to annual reporting periods beginning after December 15, 2017, with early adoption permitted, but not before ~~the original public organization effective date.~~December 15, 2016. The amendments can be adopted using either the full retrospective approach or a modified retrospective approach. ~~Early adoption is prohibited.~~ The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial ~~statements.~~statements and related disclosures.

2. 2. Investment Securities

The following tables provide the amortized cost and fair value for the major categories of held-to-maturity and available-for-sale securities. Held-to-maturity securities are carried at amortized cost, which reflects historical cost, adjusted for amortization of premiums and accretion of discounts. Available-for-sale securities are carried at fair value with net unrealized gains or losses reported on an after tax basis as a component of OCI in shareholders' equity.

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		March 31, 2015										June 30, 2015
(In thousands)	(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale	Securities available-for-sale										Securities available-for-sale
Debt securities	Debt securities										Debt securities
	U.S. treasury notes & bonds	$	—	$	—	$	—		$	—	U.S. treasury notes & bonds	$	5,004	$	1	$	—		$	5,005
	U.S. government agency debentures	2,500		13		—			2,513		U.S. government agency debentures	2,500		10		—			2,510
	U.S. states and political subdivisions	208,800		6,750		(386		)	215,164		U.S. states and political subdivisions	203,449		5,191		(1,023		)	207,617
	Residential mortgage-backed securities:										Residential mortgage-backed securities:
	U.S. government agencies	924,453		24,799		(1,949		)	947,303		U.S. government agencies	947,347		18,068		(4,563		)	960,852
	Commercial mortgage-backed securities:										Commercial mortgage-backed securities:
	U.S. government agencies	139,789		1,231		(661		)	140,359		U.S. government agencies	171,842		643		(2,147		)	170,338
	Residential collateralized mortgage-backed securities:										Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,895,112		11,305		(13,857		)	1,892,560		U.S. government agencies	1,968,918		4,779		(24,308		)	1,949,389
	Non-agency	6		—		—			6		Non-agency	5		—		—			5
	Commercial collateralized mortgage-backed securities:										Commercial collateralized mortgage-backed securities:
	U.S. government agencies	241,839		2,602		(382		)	244,059		U.S. government agencies	227,889		1,254		(705		)	228,438
	Asset-backed securities:										Asset-backed securities:
	Collateralized loan obligations	297,506		587		(4,131		)	293,962		Collateralized loan obligations	259,743		801		(2,463		)	258,081
	Corporate debt securities	61,668		—		(9,404		)	52,264		Corporate debt securities	61,681		—		(8,231		)	53,450
	Total debt securities	3,771,673		47,287		(30,770		)	3,788,190		Total debt securities	3,848,378		30,747		(43,440		)	3,835,685
Equity securities	Equity securities										Equity securities
	Marketable equity securities	2,869		—		—			2,869		Marketable equity securities	2,824		—		—			2,824
	Non-marketable equity securities	—		—		—			—		Non-marketable equity securities	—		—		—			—
	Total equity securities	2,869		—		—			2,869		Total equity securities	2,824		—		—			2,824
	Total securities available-for-sale	$	3,774,542	$	47,287	$	(30,770	)	$	3,791,059	Total securities available-for-sale	$	3,851,202	$	30,747	$	(43,440	)	$	3,838,509
Securities held-to-maturity	Securities held-to-maturity										Securities held-to-maturity
Debt securities	Debt securities										Debt securities
	U.S. treasury notes & bonds	$	5,000	$	—	$	—		$	5,000	U.S. government agency debentures	$	25,000	$	—	$	(323	)	$	24,677
	U.S. government agency debentures	25,000		—		(178		)	24,822		U.S. states and political subdivisions	529,441		8,104		(1,942		)	535,603
	U.S. states and political subdivisions	523,501		8,864		(1,147		)	531,218		Residential mortgage-backed securities:
	Residential mortgage-backed securities:										U.S. government agencies	555,273		6,919		(2,940		)	559,252
	U.S. government agencies	577,278		10,745		(1,677		)	586,346		Commercial mortgage-backed securities:
	Commercial mortgage-backed securities:										U.S. government agencies	57,462		412		(219		)	57,655
	U.S. government agencies	57,818		765		(108		)	58,475		Residential collateralized mortgage-backed securities:
	Residential collateralized mortgage-backed securities:										U.S. government agencies	1,267,321		445		(35,025		)	1,232,741
	U.S. government agencies	1,320,215		1,959		(24,846		)	1,297,328		Commercial collateralized mortgage-backed securities:
	Commercial collateralized mortgage-backed securities:										U.S. government agencies	263,741		1,004		(4,523		)	260,222
	U.S. government agencies	256,352		1,659		(3,377		)	254,634		Corporate debt securities	89,275		695		—			89,970
	Corporate debt securities	90,010		1,079		—			91,089		Total securities held-to-maturity	$	2,787,513	$	17,579	$	(44,972	)	$	2,760,120
	Total securities held-to-maturity	$	2,855,174	$	25,071	$	(31,333	)	$	2,848,912

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		December 31, 2014
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. government agency debentures	$	2,500	$	—	$	(18	)	$	2,482
	U.S. states and political subdivisions	221,052		6,756		(466		)	227,342
	Residential mortgage-backed securities:
	U.S. government agencies	951,839		22,377		(3,218		)	970,998
	Commercial mortgage-backed securities:
	U.S. government agencies	104,176		598		(1,371		)	103,403
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,698,015		4,777		(26,225		)	1,676,567
	Non-agency	7		—		—			7
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	222,876		863		(1,405		)	222,334
	Asset-backed securities:
	Collateralized loan obligations	297,446		11		(9,613		)	287,844
	Corporate debt securities	61,652		—		(10,315		)	51,337
	Total debt securities	3,559,563		35,382		(52,631		)	3,542,314
Equity securities
	Marketable equity securities	2,974		—		—			2,974
	Total equity securities	2,974		—		—			2,974
	Total securities available-for-sale	$	3,562,537	$	35,382	$	(52,631	)	$	3,545,288
Securities held-to-maturity
Debt securities
	U.S. treasury notes & bonds	$	5,000	$	—	$	—		$	5,000
	U.S. government agency debentures	25,000		—		(537		)	24,463
	U.S. states and political subdivisions	517,824		12,645		(191		)	530,278
	Residential mortgage-backed securities:
	U.S. government agencies	580,727		7,495		(3,045		)	585,177
	Commercial mortgage-backed securities:
	U.S. government agencies	58,143		281		(329		)	58,095
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,368,534		718		(38,875		)	1,330,377
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	257,642		557		(6,768		)	251,431
	Corporate debt securities	90,739		412		(52		)	91,099
	Total securities held-to-maturity	$	2,903,609	$	22,108	$	(49,797	)	$	2,875,920

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		March 31, 2014										June 30, 2014
(In thousands)	(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale	Securities available-for-sale										Securities available-for-sale
Debt securities	Debt securities										Debt securities
	U.S. states and political subdivisions	$	245,534	$	7,541	$	(2,095	)	$	250,980	U.S. states and political subdivisions	$	233,228	$	8,600	$	(1,023	)	$	240,805
	Residential mortgage-backed securities:										Residential mortgage-backed securities:
	U.S. government agencies	1,013,085		21,415		(10,506		)	1,023,994		U.S. government agencies	998,698		24,965		(5,489		)	1,018,174
	Commercial mortgage-backed securities:										Commercial mortgage-backed securities:
	U.S. government agencies	87,258		36		(2,161		)	85,133		U.S. government agencies	86,870		351		(1,523		)	85,698
	Residential collateralized mortgage-backed securities:										Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,586,051		3,857		(41,804		)	1,548,104		U.S. government agencies	1,627,871		5,009		(34,849		)	1,598,031
	Non-agency	8		—		—			8		Non-agency	8		—		—			8
	Commercial collateralized mortgage-backed securities:										Commercial collateralized mortgage-backed securities:
	U.S. government agencies	173,951		331		(1,813		)	172,469		U.S. government agencies	182,151		1,008		(1,126		)	182,033
	Asset-backed securities:										Asset-backed securities:
	Collateralized loan obligations	297,293		958		(3,692		)	294,559		Collateralized loan obligations	297,334		883		(4,252		)	293,965
	Corporate debt securities	61,610		—		(10,022		)	51,588		Corporate debt securities	61,624		—		(8,134		)	53,490
	Total debt securities	3,464,790		34,138		(72,093		)	3,426,835		Total debt securities	3,487,784		40,816		(56,396		)	3,472,204
Equity Securities	Equity Securities										Equity Securities
	Marketable equity securities	3,055		—		—			3,055		Marketable equity securities	2,935		—		—			2,935
	Non-marketable equity securities	3,281		—		—			3,281		Non-marketable equity securities	3,281		—		—			3,281
	Total equity securities	6,336		—		—			6,336		Total equity securities	6,216		—		—			6,216
	Total securities available-for-sale	$	3,471,126	$	34,138	$	(72,093	)	$	3,433,171	Total securities available-for-sale	$	3,494,000	$	40,816	$	(56,396	)	$	3,478,420
Securities held-to-maturity	Securities held-to-maturity										Securities held-to-maturity
Debt securities	Debt securities										Debt securities
	U.S. treasury notes & bonds	$	4,999	$	6	$	—		$	5,005	U.S. treasury notes & bonds	$	5,000	$	5	$	—		$	5,005
	U.S. government agency debentures	25,000		—		(1,117		)	23,883		U.S. government agency debentures	25,000		—		(707		)	24,293
	U.S states and political subdivisions	517,221		159		(7,186		)	510,194		U.S states and political subdivisions	549,850		10,072		(1,253		)	558,669
	Residential mortgage-backed securities:										Residential mortgage-backed securities:
	U.S. government agencies	644,820		2,311		(8,584		)	638,547		U.S. government agencies	624,605		6,825		(4,933		)	626,497
	Commercial mortgage-backed securities:										Commercial mortgage-backed securities:
	U.S. government agencies	56,339		32		(877		)	55,494		U.S. government agencies	56,020		176		(445		)	55,751
	Residential collateralized mortgage-backed securities:										Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,488,641		—		(64,734		)	1,423,907		U.S. government agencies	1,450,479		114		(54,263		)	1,396,330
	Commercial collateralized mortgage-backed securities:										Commercial collateralized mortgage-backed securities:
	U.S. government agencies	249,688		138		(9,749		)	240,077		U.S. government agencies	248,974		641		(7,252		)	242,363
	Corporate debt securities	92,912		437		(295		)	93,054		Corporate debt securities	92,190		768		—			92,958
	Total securities held-to-maturity	$	3,079,620	$	3,083	$	(92,542	)	$	2,990,161	Total securities held-to-maturity	$	3,052,118	$	18,601	$	(68,853	)	$	3,001,866

The Corporation's U.S. states and political subdivisions portfolio is composed of general obligation bonds issued by a highly diversified number of states, cities, counties, and school districts. The amortized cost and fair value of the Corporation's portfolio of general obligation bonds are summarized by U.S. state in the tables below. As illustrated in the tables below, the aggregate fair value of the Corporation's general obligation bonds was greater than $10.0 million in eleven of the thirty-seven U.S. states in which it holds investments.

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(Dollars in thousands)	March 31, 2015							June 30, 2015
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value		# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Ohio	136	$	925	$	124,908	$	125,864	127	$	964	$	121,716	$	122,474
Michigan	164	857		138,091		140,620		153	1,018		152,499		155,712
Illinois	62	1,841		111,649		114,150		60	1,784		105,581		107,033
Wisconsin	73	760		53,877		55,497		70	585		39,774		40,950
Texas	63	784		48,388		49,396		67	759		50,370		50,877
Pennsylvania	46	1,018		46,085		46,816		46	1,014		46,547		46,666
Minnesota	35	697		23,821		24,405		34	692		23,267		23,540
Washington	31	930		28,194		28,836		30	939		27,783		28,169
New Jersey	37	747		26,724		27,623		34	720		23,916		24,472
Missouri	15	1,098		16,032		16,472		15	1,084		15,981		16,265
New York	19	629		11,646		11,948		18	633		11,187		11,392
Other	121	639		76,127		77,365		119	639		75,670		76,040
Total general obligation bonds	802	$	896	$	705,542	$	718,992	773	$	910	$	694,291	$	703,590



(Dollars in thousands)	December 31, 2014
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Ohio	137	$	979	$	130,741	$	134,127
Michigan	169	842		138,325		142,292
Illinois	66	1,897		121,560		125,169
Wisconsin	77	841		62,543		64,776
Texas	64	801		50,307		51,293
Pennsylvania	45	1,000		44,443		45,006
Minnesota	42	674		27,740		28,326
Washington	30	952		27,987		28,558
New Jersey	37	746		26,755		27,612
Missouri	19	1,011		18,764		19,207
New York	19	628		11,659		11,929
Other	120	650		76,849		78,020
Total general obligation bonds	825	$	917	$	737,673	$	756,315


(Dollars in thousands)	March 31, 2014							June 30, 2014
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value		# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Ohio	153	$	1,033	$	159,883	$	158,074	152	$	1,065	$	158,773	$	161,809
Illinois	72	1,496		107,451		107,717		74	1,578		113,501		116,741
Texas	68	779		52,807		52,941		65	794		50,845		51,632
Pennsylvania	51	969		50,579		49,428		49	972		47,870		47,623
Wisconsin	87	683		58,635		59,428		87	864		72,616		75,155
Minnesota	42	672		27,925		28,213		42	678		27,864		28,468
New Jersey	37	744		26,844		27,518		37	751		26,815		27,805
Michigan	171	789		135,588		134,965		174	862		146,565		150,052
Washington	30	940		28,292		28,210		30	955		28,191		28,660
Missouri	19	1,012		18,904		19,232		19	1,022		18,855		19,413
New York	22	594		13,046		13,075		21	612		12,627		12,860
Other	129	634		82,317		81,807		123	640		78,100		78,724
Total general obligation bonds	881	$	863	$	762,271	$	760,608	873	$	915	$	782,622	$	798,942

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The Corporation's investment policy states that municipal securities purchased are to be investment grade and allows for a 20% maximum portfolio concentration in municipal securities with a combined individual state to total municipal outstanding equal to or less than 25%. A municipal security is investment grade if (1) the security has a low risk of default by the obligor and (2) the full and timely payment of principal and interest is expected over the anticipated life of the instrument. The fact that a municipal security is rated by one nationally recognized credit rating agency is indicative, but not sufficient evidence, that a municipal security is investment grade. In all cases, the Corporation considers and documents within a security pre-purchase analysis factors such as capacity to pay, market and economic data, and such other factors as are available and relevant to the security or issuer. Factors to be considered in the ongoing monitoring of municipal securities and in the pre-purchase analysis include soundness of budgetary position and sources of revenue, financial strength, and stability of tax or enterprise revenues. The Corporation also considers spreads to U.S. Treasuries on comparable bonds of similar credit quality, in addition to the above analysis, to assess whether municipal securities are investment grade. The Corporation performs a risk analysis for any security that is downgraded below investment grade to determine if the security should be retained or sold. This risk analysis includes, but is not limited to, discussions with the Corporation's credit department as well as third-party municipal credit analysts and review of the nationally recognized credit rating agency's analysis describing the downgrade.

The Corporation's evaluation of its municipal bond portfolio at ~~March 31,~~June 30, 2015 did not uncover any facts or circumstances resulting in significantly different credit ratings than those assigned by a nationally recognized credit rating agency.

FRB and FHLB stock constitutes the majority of other investments on the Consolidated Balance Sheets.


(In thousands)	March 31, 2015		December 31, 2014		March 31, 2014		June 30, 2015		December 31, 2014		June 30, 2014
FRB stock	$	55,681	$	55,681	$	55,435	$	55,853	$	55,681	$	55,435
FHLB stock	92,381		92,547		92,547		91,713		92,547		92,547
Other	413		426		464		401		426		451
Total other investments	$	148,475	$	148,654	$	148,446	$	147,967	$	148,654	$	148,433

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 ~~$3.5~~$3.2 billion, $2.8 billion, and $~~3.4~~3.2 billion at ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, respectively, were pledged to secure trust and public deposits and securities sold under agreements to repurchase and for other purposes required or permitted by law.

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Realized Gains and Losses

The following table presents 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,						Three Months Ended June 30,					Six Months Ended June 30,
(In thousands)	2015			2014			2015			2014		2015			2014
Realized gains	$	392		$	220		$	672		$	80	$	1,064		$	300
Realized losses	(38		)	(164		)	(105		)	—		(143		)	(164		)
Net securities (losses)/gains	$	354		$	56		$	567		$	80	$	921		$	136

~~Table of Contents~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~ - ~~Continued~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

Gross Unrealized Losses and Fair Value

The following table presents the gross unrealized losses and fair value of securities by length of time that individual securities had been in a continuous loss position by major categories of available-for-sale and held-to-maturity securities.


		March 31, 2015																		June 30, 2015
		Less than 12 months						12 months or longer						Total						Less than 12 months						12 months or longer						Total
(In thousands)		Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
(Dollars in thousands)																			(Dollars in thousands)	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale	Securities available-for-sale																		Securities available-for-sale
Debt securities	Debt securities																		Debt securities
	U.S. treasury notes & bonds	$	—	$	—		0	$	—	$	—		0	$	—	$	—
	U.S. states and political subdivisions	14,380		(117		)	23	6,004		(269		)	10	20,384		(386		)	U.S. states and political subdivisions	$	32,237	$	(587	)	52	$	5,642	$	(436	)	9	$	37,879	$	(1,023	)
	Residential mortgage-backed securities:																		Residential mortgage-backed securities:
	U.S. government agencies	74,517		(360		)	5	108,052		(1,589		)	8	182,569		(1,949		)	U.S. government agencies	196,219		(2,087		)	15	103,498		(2,476		)	8	299,717		(4,563		)
	Commercial mortgage-backed securities:																		Commercial mortgage-backed securities:
	U.S. government agencies	49,129		(175		)	7	17,690		(486		)	2	66,819		(661		)	U.S. government agencies	96,573		(1,457		)	14	17,335		(690		)	2	113,908		(2,147		)
	Residential collateralized mortgage-backed securities:																		Residential collateralized mortgage-backed securities:
	U.S. government agencies	70,574		(762		)	6	745,621		(13,095		)	53	816,195		(13,857		)	U.S. government agencies	596,646		(4,398		)	42	706,376		(19,910		)	53	1,303,022		(24,308		)
	Commercial collateralized mortgage-backed securities:																		Commercial collateralized mortgage-backed securities:
	U.S. government agencies	13,206		(24		)	2	61,132		(358		)	6	74,338		(382		)	U.S. government agencies	46,771		(71		)	5	61,120		(634		)	7	107,891		(705		)
	Asset-backed securities:																		Asset-backed securities:
	Collateralized loan obligations	24,087		(209		)	3	181,498		(3,922		)	27	205,585		(4,131		)	Collateralized loan obligations	84,565		(1,204		)	10	86,082		(1,259		)	11	170,647		(2,463		)
	Corporate debt securities	—		—			0	52,263		(9,404		)	8	52,263		(9,404		)	Corporate debt securities	4,225		(765		)	1	49,225		(7,466		)	7	53,450		(8,231		)
	Total securities available-for-sale	$	245,893	$	(1,647	)	46	$	1,172,260	$	(29,123	)	114	$	1,418,153	$	(30,770	)	Total securities available-for-sale	$	1,057,236	$	(10,569	)	139	$	1,029,278	$	(32,871	)	97	$	2,086,514	$	(43,440	)
Securities held-to-maturity	Securities held-to-maturity																		Securities held-to-maturity
Debt securities	Debt securities																		Debt securities
	U.S. treasury notes & bonds	$	5,000	$	—		1	$	—	$	—		0	$	5,000	$	—		U.S. government agency debentures	$	—	$	—		—	$	24,677	$	(323	)	1	$	24,677	$	(323	)
	U.S. government agency debentures	$	—	$	—		0	$	24,822	$	(178	)	1	$	24,822	$	(178	)	U.S. states and political subdivisions	98,867		(1,872		)	112	4,430		(70		)	6	103,297		(1,942		)
	U.S. states and political subdivisions	38,202		(1,093		)	26	4,448		(54		)	6	42,650		(1,147		)	Residential mortgage-backed securities:
	Residential mortgage-backed securities:																		U.S. government agencies	83,112		(483		)	5	105,289		(2,457		)	6	188,401		(2,940		)
	U.S. government agencies	28,386		(123		)	2	110,329		(1,554		)	6	138,715		(1,677		)	Commercial mortgage-backed securities:
	Commercial mortgage-backed securities:																		U.S. government agencies	7,263		(41		)	1	9,430		(178		)	1	16,693		(219		)
	U.S. government agencies	—		—			0	9,554		(108		)	1	9,554		(108		)	Residential collateralized mortgage-backed securities:
	Residential collateralized mortgage-backed securities:																		U.S. government agencies	111,360		(835		)	8	1,042,351		(34,190		)	56	1,153,711		(35,025		)
	U.S. government agencies	19,016		(71		)	1	1,095,375		(24,775		)	56	1,114,391		(24,846		)	Commercial collateralized mortgage-backed securities:
	Commercial collateralized mortgage-backed securities:																		U.S. government agencies	5,025		(2		)	1	142,937		(4,521		)	13	147,962		(4,523		)
	U.S. government agencies	—		—			0	144,970		(3,377		)	13	144,970		(3,377		)	Total securities held-to-maturity	$	305,627	$	(3,233	)	127	$	1,329,114	$	(41,739	)	83	$	1,634,741	$	(44,972	)
	Collateralized loan obligations:
	Non-agency	—		—			0	—		—			0	—		—
	Corporate debt securities	—		—			0	—		—			0	—		—
	Total securities held-to-maturity	$	90,604	$	(1,287	)	30	$	1,389,498	$	(30,046	)	83	$	1,480,102	$	(31,333	)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

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December 31, 2014
Less than 12 months 12 months or longer Total
(In thousands) Fair Value
Unrealized
Losses

Number
Impaired
Securities
Fair Value
Unrealized
Losses

Number
Impaired Securities
Fair Value
Unrealized
Losses
Securities available-for-sale
   Debt securities:
U.S. government agency debentures $ 2,482
$ (18 ) 1
$ —
$ —
—
$ 2,482
$ (18 )
U.S. states and political subdivisions 5,637
(11 ) 11
22,528
(455 ) 36
28,165
(466 )
Residential mortgage-backed securities:
U.S. government agencies 50,126
(182 ) 5
199,773
(3,036 ) 14
249,899
(3,218 )
Commercial mortgage-backed securities:
U.S. government agencies 12,284
(55 ) 2
45,485
(1,316 ) 6
57,769
(1,371 )
Residential collateralized mortgage-backed securities:
U.S. government agencies 243,970
(906 ) 15
905,478
(25,319 ) 64
1,149,448
(26,225 )
Commercial collateralized mortgage-backed securities:
    U.S. government agencies 31,375
(229 ) 4
67,169
(1,176 ) 7
98,544
(1,405 )
Asset-backed securities:
Collateralized loan obligations 79,042
(1,406 ) 15
193,687
(8,207 ) 27
272,729
(9,613 )
Corporate debt securities —
—
—
51,338
(10,315 ) 8
51,338
(10,315 )
Total securities available-for-sale $ 424,916
$ (2,807 ) 53
$ 1,485,458
$ (49,824 ) 162
$ 1,910,374
$ (52,631 )
Securities held-to-maturity
   Debt securities:
U.S. government agency debentures $ —
$ —
—
$ 24,463
$ (537 ) 1
$ 24,463
$ (537 )
U.S. states and political subdivisions 9,085
(17 ) 9
18,371
(174 ) 21
27,456
(191 )
Residential mortgage-backed securities:
U.S. government agencies —
—
—
185,361
(3,045 ) 10
185,361
(3,045 )
Commercial mortgage-backed securities:
U.S. government agencies 9,950
(4 ) 2
16,735
(325 ) 2
26,685
(329 )
Residential collateralized mortgage-backed securities:
U.S. government agencies 28,333
(149 ) 3
1,161,297
(38,726 ) 58
1,189,630
(38,875 )
Commercial collateralized mortgage-backed securities:
U.S. government agencies 41,474
(55 ) 3
171,570
(6,713 ) 16
213,044
(6,768 )
Corporate debt securities 36,933
(52 ) 13
—
—
—
36,933
(52 )
Total securities held-to-maturity $ 125,775
$ (277 ) 30
$ 1,577,797
$ (49,520 ) 108
$ 1,703,572
$ (49,797 )



		December 31, 2014
		Less than 12 months						12 months or longer						Total
(Dollars in thousands)		Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale
Debt securities
	U.S. government agency debentures	$	2,482	$	(18	)	1	$	—	$	—		—	$	2,482	$	(18	)
	U.S. states and political subdivisions	5,637		(11		)	11	22,528		(455		)	36	28,165		(466		)
	Residential mortgage-backed securities:
	U.S. government agencies	50,126		(182		)	5	199,773		(3,036		)	14	249,899		(3,218		)
	Commercial mortgage-backed securities:
	U.S. government agencies	12,284		(55		)	2	45,485		(1,316		)	6	57,769		(1,371		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	243,970		(906		)	15	905,478		(25,319		)	64	1,149,448		(26,225		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	31,375		(229		)	4	67,169		(1,176		)	7	98,544		(1,405		)
	Asset-backed securities:
	Collateralized loan obligations	79,042		(1,406		)	15	193,687		(8,207		)	27	272,729		(9,613		)
	Corporate debt securities	—		—			—	51,338		(10,315		)	8	51,338		(10,315		)
	Total securities available-for-sale	$	424,916	$	(2,807	)	53	$	1,485,458	$	(49,824	)	162	$	1,910,374	$	(52,631	)
Securities held-to-maturity
Debt securities
	U.S. government agency debentures	$	—	$	—		—	$	24,463	$	(537	)	1	$	24,463	$	(537	)
	U.S. states and political subdivisions	9,085		(17		)	9	18,371		(174		)	21	27,456		(191		)
	Residential mortgage-backed securities:
	U.S. government agencies	—		—			—	185,361		(3,045		)	10	185,361		(3,045		)
	Commercial mortgage-backed securities:
	U.S. government agencies	9,950		(4		)	2	16,735		(325		)	2	26,685		(329		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	28,333		(149		)	3	1,161,297		(38,726		)	58	1,189,630		(38,875		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	41,474		(55		)	3	171,570		(6,713		)	16	213,044		(6,768		)
	Corporate debt securities	36,933		(52		)	13	—		—			—	36,933		(52		)
	Total securities held-to-maturity	$	125,775	$	(277	)	30	$	1,577,797	$	(49,520	)	108	$	1,703,572	$	(49,797	)

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		March 31, 2014																		June 30, 2014
		Less than 12 months						12 months or longer						Total						Less than 12 months						12 months or longer						Total
(In thousands)		Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
(Dollars in thousands)																			(Dollars in thousands)	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale	Securities available-for-sale																		Securities available-for-sale
Debt securities	Debt securities																		Debt securities
	U.S. states and political subdivisions	$	32,307	$	(937	)	53	$	17,231	$	(1,158	)	29	$	49,538	$	(2,095	)	U.S. states and political subdivisions	$	10,988	$	(16	)	14	$	30,271	$	(1,007	)	50	$	41,259	$	(1,023	)
	Residential mortgage-backed securities:																		Residential mortgage-backed securities:
	U.S. government agencies	399,152		(9,543		)	28	15,013		(963		)	3	414,165		(10,506		)	U.S. government agencies	11,636		(3		)	1	259,470		(5,486		)	19	271,106		(5,489		)
	Commercial mortgage-backed securities:																		Commercial mortgage-backed securities:
	U.S. government agencies	63,129		(1,206		)	8	16,891		(955		)	2	80,020		(2,161		)	U.S. government agencies	5,105		(4		)	1	45,739		(1,519		)	6	50,844		(1,523		)
	Residential collateralized mortgage-backed securities:																		Residential collateralized mortgage-backed securities:
	U.S. government agencies	966,458		(28,054		)	62	273,543		(13,750		)	18	1,240,001		(41,804		)	U.S. government agencies	279,311		(2,358		)	19	904,821		(32,491		)	60	1,184,132		(34,849		)
	Commercial collateralized mortgage-backed securities:																		Commercial collateralized mortgage-backed securities:
	U.S. government agencies	90,804		(1,475		)	8	6,014		(338		)	2	96,818		(1,813		)	U.S. government agencies	24,431		(97		)	1	43,212		(1,029		)	6	67,643		(1,126		)
	Asset-backed securities:																		Asset-backed securities:
	Collateralized loan obligations	201,854		(3,692		)	28	—		—			—	201,854		(3,692		)	Collateralized loan obligations	141,506		(2,568		)	19	81,749		(1,684		)	12	223,255		(4,252		)
	Corporate debt securities	—		—			—	51,588		(10,022		)	8	51,588		(10,022		)	Corporate debt securities	—		—			—	53,490		(8,134		)	8	53,490		(8,134		)
	Total securities available-for-sale	$	1,753,704	$	(44,907	)	187	$	380,281	$	(27,186	)	63	$	2,133,985	$	(72,093	)	Total securities available-for-sale	$	472,977	$	(5,046	)	55	$	1,418,752	$	(51,350	)	161	$	1,891,729	$	(56,396	)
Securities held-to-maturity	Securities held-to-maturity																		Securities held-to-maturity
Debt securities	Debt securities																		Debt securities
	U.S. government agency debentures	$	23,883	$	(1,117	)	1	$	—	$	—		—	$	23,883	$	(1,117	)	U.S. government agency debentures	$	—	$	—		—	$	24,293	$	(707	)	1	$	24,293	$	(707	)
	U.S. states and political subdivisions	476,766		(6,833		)	735	15,544		(353		)	14	492,310		(7,186		)	U.S. states and political subdivisions	59,958		(334		)	56	66,557		(919		)	90	126,515		(1,253		)
	Residential mortgage-backed securities:																		Residential mortgage-backed securities:
	U.S. government agencies	295,148		(7,471		)	16	19,730		(1,113		)	1	314,878		(8,584		)	U.S. government agencies	—		—			—	206,911		(4,933		)	11	206,911		(4,933		)
	Commercial mortgage-backed securities:																		Commercial mortgage-backed securities:
	U.S. government agencies	50,533		(877		)	8	—		—			—	50,533		(877		)	U.S. government agencies	—		—			—	23,977		(445		)	3	23,977		(445		)
	Residential collateralized mortgage-backed securities:																		Residential collateralized mortgage-backed securities:
	U.S. government agencies	865,651		(36,384		)	42	558,256		(28,350		)	27	1,423,907		(64,734		)	U.S. government agencies	127,284		(1,100		)	8	1,241,883		(53,163		)	60	1,369,167		(54,263		)
	Commercial collateralized mortgage-backed securities:																		Commercial collateralized mortgage-backed securities:
	U.S. government agencies	200,487		(8,507		)	18	19,459		(1,242		)	2	219,946		(9,749		)	U.S. government agencies	—		—			—	183,957		(7,252		)	17	183,957		(7,252		)
	Corporate debt securities	62,051		(295		)	22	—		—			—	62,051		(295		)	Corporate debt securities	—		—			—	—		—			—	—		—
	Total securities held-to-maturity	$	1,974,519	$	(61,484	)	842	$	612,989	$	(31,058	)	44	$	2,587,508	$	(92,542	)	Total securities held-to-maturity	$	187,242	$	(1,434	)	64	$	1,747,578	$	(67,419	)	182	$	1,934,820	$	(68,853	)

At least quarterly, the Corporation conducts a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if OTTI exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. An OTTI loss must be recognized for a debt security in an unrealized loss position if the Corporation intends to sell the security or it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis. In this situation, the amount of loss recognized in income is equal to the difference between the fair value and the amortized cost basis of the security. Even if the Corporation does not expect to sell the security, the Corporation must evaluate the expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in income. The portion of the unrealized loss relating to other factors, such as liquidity conditions in the market or changes in market interest rates, is recorded in OCI. Equity securities are also evaluated to determine whether the unrealized loss is expected to be recoverable based on whether evidence exists to support a realizable value equal to or greater than the amortized cost basis. If it is probable that the Corporation will not recover the

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

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

The investment securities portfolio was in a net unrealized ~~gain~~loss position of ~~$10.3~~$40.1 million at ~~March 31,~~June 30, 2015, compared to a net unrealized loss position of $44.9 million at December 31, 2014 and a net unrealized loss position of ~~$127.4~~$65.8 million at ~~March 31,~~June 30, 2014. Gross unrealized losses were ~~$62.1~~$88.4 million as of ~~March 31,~~June 30, 2015, compared to $102.4 million at December 31, 2014, and ~~$164.6~~$125.2 million at ~~March 31,~~June 30, 2014. As of ~~March 31,~~June 30, 2015, gross unrealized losses are concentrated within agency MBS, CLOs, and corporate debt securities. ~~Lower term~~While the tightening of CLO spreads over the course of the second quarter have benefited the CLOs' valuations, the move to higher interest rates ~~have positively impacted MBS prices quarter to date while~~and a ~~favorable macro economy and belief that oil and gas related losses are well contained~~steeper yield curve have resulted in ~~tighter CLO spreads.~~a net unrealized loss position for the portfolio as a whole. Corporate debt securities are composed of eight, single issuer, trust preferred securities with stated maturities. Such investments are ~~less than~~only 1% of the fair value of the ~~entire~~available-for-sale investment portfolio. None of the corporate issuers have deferred paying dividends on their issued trust preferred shares in which the Corporation is invested. The fair values of these investments have been impacted by the market conditions which have caused risk premiums to increase, resulting in the decline in the fair value of the trust preferred securities.

Management believes the Corporation will fully recover the cost of these agency MBSs, CLOs, and corporate debt securities, and it does not intend to sell these securities and it is not more likely than not that it will be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, Management concluded that these securities were not other-than-temporarily impaired at ~~March 31,~~June 30, 2015 and has recognized the total amount of the impairment in OCI, net of tax.

The Corporation also holds ~~$294.0~~$258.1 million of CLOs with a gross unrealized loss position of ~~$4.1~~$2.5 million as of ~~March 31,~~June 30, 2015. The new Volcker ~~regulations,~~Rule, as originally adopted, may affect the Corporation's ability to hold these CLOs. Management believes that its holdings of CLOs are not ownership interests in a covered ~~fund~~funds prohibited by the Volcker Rule regulations and, therefore, expects to be able to hold these investments until their stated ~~maturities with no restriction.~~maturities.

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 ~~March 31,~~June 30, 2015. Estimated lives on MBSs may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES


(Dollars in thousands)	U.S. Treasury notes & bonds			U.S. Government agency debentures			U.S. States and political subdivisions			Residential mortgage-backed securities - U.S. govt. agencies			Commercial mortgage-backed securities - U.S. govt. agencies			Residential collateralized mortgage obligations - U.S. govt. agencies			Residential collateralized mortgage obligations - non-agency			Commercial collateralized mortgage obligations - U.S. govt. agencies			Asset backed securities - collateralized loan obligations			Corporate debt securities			Total			Weighted Average Yield		U.S. Treasury notes & bonds			U.S. Government agency debentures			U.S. States and political subdivisions			Residential mortgage-backed securities - U.S. govt. agencies			Commercial mortgage-backed securities - U.S. govt. agencies			Residential collateralized mortgage obligations - U.S. govt. agencies			Residential collateralized mortgage obligations - non-agency			Commercial collateralized mortgage obligations - U.S. govt. agencies			Asset backed securities - collateralized loan obligations			Corporate debt securities			Total			Weighted Average Yield
Securities Available-for-Sale
Remaining maturity:
One year or less	$	—		$	—		$	14,933		$	1,742		$	15,907		$	14,287		$	—		$	—		$	7,504		$	—		$	54,373		2.71	%	$	5,005		$	—		$	20,063		$	2,279		$	15,549		$	7,436		$	—		$	6,322		$	—		$	—		$	56,654		2.52	%
Over one year through five years	—			—			74,124			789,867			44,313			1,827,726			6			168,720			—			—			2,904,756			2.15	%	—			2,510			75,373			808,704			65,023			1,793,341			5			150,920			—			—			2,895,876			2.15	%
Over five years through ten years	—			2,513			100,111			155,694			80,139			50,547			—			75,339			286,458			—			750,801			2.93	%	—			—			88,239			149,869			89,766			148,612			—			71,196			258,081			—			805,763			2.88	%
Over ten years	—			—			25,996			—			—			—			—			—			—			52,264			78,260			1.89	%	—			—			23,942			—			—			—			—			—			—			53,450			77,392			1.85	%
Fair Value	$	—		$	2,513		$	215,164		$	947,303		$	140,359		$	1,892,560		$	6		$	244,059		$	293,962		$	52,264		$	3,788,190		2.31	%	$	5,005		$	2,510		$	207,617		$	960,852		$	170,338		$	1,949,389		$	5		$	228,438		$	258,081		$	53,450		$	3,835,685		2.30	%
Amortized Cost	$	—		$	2,500		$	208,800		$	924,453		$	139,789		$	1,895,112		$	6		$	241,839		$	297,506		$	61,668		$	3,771,673				$	5,004		$	2,500		$	203,449		$	947,347		$	171,842		$	1,968,918		$	5		$	227,889		$	259,743		$	61,681		$	3,848,378
Weighted-Average Yield	—		%	1.25		%	5.24		%	2.55		%	2.05		%	1.92		%	3.39		%	1.89		%	2.70		%	0.98		%	2.31		%			0.27		%	1.25		%	5.14		%	2.47		%	2.05		%	1.98		%	3.36		%	1.63		%	2.97		%	1.00		%	2.30		%
Weighted-Average Maturity (in years)	—			3.17			5.79			3.67			4.66			3.60			1.99			3.82			6.06			12.56			4.13					0.75			2.92			5.50			3.90			4.51			3.88			2.00			3.80			6.34			12.31			4.29

Securities Held-to-Maturity
Remaining maturity:
One year or less	$	5,000		$	—		$	57,026		$	—		$	16,384		$	—		$	—		$	—		$	—		$	—		$	78,410		2.05	%	$	—		$	—		$	51,848		$	—		$	16,020		$	—		$	—		$	—		$	—		$	—		$	67,868		2.39	%
Over one year through five years	—			—			93,443			472,347			31,832			1,274,419			—			160,403			—			91,089			2,123,533			1.88	%	—			24,677			126,680			450,306			31,459			1,188,398			—			172,222			—			89,970			2,081,419			1.82	%
Over five years through ten years	—			24,822			220,062			113,999			10,259			22,909			—			94,231			—			—			486,282			3.21	%	—			—			198,461			108,946			10,176			44,343			—			88,000			—			—			449,926			3.23	%
Over ten years	—			—			160,687			—			—			—			—			—			—			—			160,687			5.50	%	—			—			158,614			—			—			—			—			—			—			—			158,614			5.37	%
Fair Value	$	5,000		$	24,822		$	531,218		$	586,346		$	58,475		$	1,297,328		$	—		$	254,634		$	—		$	91,089		$	2,848,912		2.31	%	$	—		$	24,677		$	535,603		$	559,252		$	57,655		$	1,232,741		$	—		$	260,222		$	—		$	89,970		$	2,760,120		2.26	%
Amortized Cost	$	5,000		$	25,000		$	523,501		$	577,278		$	57,818		$	1,320,215		$	—		$	256,352		$	—		$	90,010		$	2,855,174				$	—		$	25,000		$	529,441		$	555,273		$	57,462		$	1,267,321		$	—		$	263,741		$	—		$	89,275		$	2,787,513
Weighted-Average Yield	0.31		%	1.43		%	4.70		%	2.17		%	2.15		%	1.60		%	—		%	2.27		%	—		%	2.23		%	2.31		%			—		%	1.43		%	4.62		%	2.13		%	2.10		%	1.59		%	—		%	1.87		%	—		%	2.27		%	2.26		%
Weighted-Average Maturity (in years)	1.00			4.58			9.28			4.06			3.27			3.76			—			4.41			—			2.78			4.59					—			4.33			9.02			4.25			3.26			3.87			—			4.32			—			2.53			4.64

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

3. 3. Loans

Loans outstanding as of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, net of unearned income, consisted of the following:


(In thousands)	(In thousands)	March 31, 2015			December 31, 2014			March 31, 2014			(In thousands)	June 30, 2015			December 31, 2014			June 30, 2014
Originated loans:	Originated loans:										Originated loans:
Commercial	Commercial	$	8,031,892		$	7,830,085		$	7,083,192		Commercial	$	8,196,630		$	7,830,085		$	7,365,499
Residential mortgage	Residential mortgage	639,980			625,283			555,971			Residential mortgage	653,143			625,283			580,166
Installment	Installment	2,500,288			2,393,451			1,835,522			Installment	2,720,059			2,393,451			2,051,587
Home equity	Home equity	1,134,238			1,110,336			946,802			Home equity	1,180,802			1,110,336			998,179
Credit cards	Credit cards	160,766			164,478			147,917			Credit cards	168,576			164,478			151,967
Leases	Leases	388,873			370,179			257,509			Leases	436,702			370,179			319,795
	Total originated loans	12,856,037			12,493,812			10,826,913			Total originated loans	13,355,912			12,493,812			11,467,193
Allowance for originated loan losses	Allowance for originated loan losses	(97,545		)	(95,696		)	(92,116		)	Allowance for originated loan losses	(101,682		)	(95,696		)	(91,950		)
	Net originated loans	$	12,758,492		$	12,398,116		$	10,734,797		Net originated loans	$	13,254,230		$	12,398,116		$	11,375,243
Acquired loans:	Acquired loans:										Acquired loans:
Commercial	Commercial	$	1,011,170		$	1,086,899		$	1,562,878		Commercial	$	877,598		$	1,086,899		$	1,457,903
Residential mortgage	Residential mortgage	378,192			394,484			446,374			Residential mortgage	358,559			394,484			425,584
Installment	Installment	717,693			764,168			943,354			Installment	659,348			764,168			872,034
Home equity	Home equity	217,824			233,629			283,309			Home equity	200,179			233,629			268,266
	Total acquired loans	2,324,879			2,479,180			3,235,915			Total acquired loans	2,095,684			2,479,180			3,023,787
Allowance for acquired loan losses	Allowance for acquired loan losses	(7,493		)	(7,457		)	(2,974		)	Allowance for acquired loan losses	(4,950		)	(7,457		)	(4,977		)
	Net acquired loans	$	2,317,386		$	2,471,723		$	3,232,941		Net acquired loans	$	2,090,734		$	2,471,723		$	3,018,810
FDIC acquired loans:	FDIC acquired loans:										FDIC acquired loans:
Commercial	Commercial	$	179,547		$	211,607		$	341,267		Commercial	$	145,821		$	211,607		$	292,782
Residential mortgage	Residential mortgage	40,470			41,276			49,411			Residential mortgage	38,029			41,276			46,705
Installment	Installment	4,781			4,874			5,531			Installment	2,299			4,874			5,364
Home equity	Home equity	65,170			73,365			94,828			Home equity	55,545			73,365			89,815
Loss share receivable	Loss share receivable	20,005			22,033			54,748			Loss share receivable	11,820			22,033			43,981
	Total FDIC acquired loans	309,973			353,155			545,785			Total FDIC acquired loans	253,514			353,155			478,647
Allowance for FDIC acquired loan losses	Allowance for FDIC acquired loan losses	(41,514		)	(40,496		)	(49,970		)	Allowance for FDIC acquired loan losses	(41,627		)	(40,496		)	(45,109		)
	Net FDIC acquired loans	$	268,459		$	312,659		$	495,815		Net FDIC acquired loans	$	211,887		$	312,659		$	433,538
Total loans:	Total loans:										Total loans:
Commercial	Commercial	$	9,222,609		$	9,128,591		$	8,987,337		Commercial	$	9,220,049		$	9,128,591		$	9,116,184
Residential mortgage	Residential mortgage	1,058,642			1,061,043			1,051,756			Residential mortgage	1,049,731			1,061,043			1,052,455
Installment	Installment	3,222,762			3,162,493			2,784,407			Installment	3,381,706			3,162,493			2,928,985
Home equity	Home equity	1,417,232			1,417,330			1,324,939			Home equity	1,436,526			1,417,330			1,356,260
Credit cards	Credit cards	160,766			164,478			147,917			Credit cards	168,576			164,478			151,967
Leases	Leases	388,873			370,179			257,509			Leases	436,702			370,179			319,795
Loss share receivable	Loss share receivable	20,005			22,033			54,748			Loss share receivable	11,820			22,033			43,981
	Total loans	15,490,889			15,326,147			14,608,613			Total loans	15,705,110			15,326,147			14,969,627
Total allowance for loan losses	Total allowance for loan losses	(146,552		)	(143,649		)	(145,060		)	Total allowance for loan losses	(148,259		)	(143,649		)	(142,036		)
	Total Net loans	$	15,344,337		$	15,182,498		$	14,463,553		Total Net loans	$	15,556,851		$	15,182,498		$	14,827,591

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

The following describes the distinction between originated, acquired and FDIC acquired loan portfolios and certain significant accounting policies relevant to each of these portfolios.

Originated Loans

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the "simple-interest" method based on the principal balance outstanding. Interest is not accrued on loans where collectability is uncertain. Accrued interest is presented separately in the consolidated balance sheet, except for accrued interest on credit card loans, which is included in the outstanding loan balance. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield. Net deferred loan origination fees and costs amounted to $~~4.6~~5.4 million, $5.4 million, and $~~7.1~~6.1 million at ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, respectively.

Acquired Loans

Acquired loans are those purchased in the Citizens acquisition. These loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related ALL. The acquired loans were segregated as of the Acquisition Date between those considered to be performing (acquired nonimpaired loans) and those with evidence of credit deterioration (acquired impaired loans). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Revolving loans, including lines of credit, are excluded from acquired impaired loan accounting.

Total outstanding acquired impaired loans as of ~~March 31,~~June 30, 2015and 2014 were ~~$548.2~~$504.7 million and ~~$774.5~~$714.2 million, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for acquired impaired loans were as follows for the three and six months ended ~~March 31,~~June 30, 2015 and 2014:


	Three Months Ended March 31,												Three Months Ended June 30,												Six Months Ended June 30,
Acquired Impaired Loans	2015						2014						2015						2014						2015						2014
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	119,450		$	423,209		$	136,646		$	601,000		$	118,756		$	388,313		$	142,284		$	557,199		$	119,450		$	423,209		$	136,646		$	601,000
Accretion	(11,218		)	11,218			(11,741		)	11,741			(10,285		)	10,285			(12,746		)	12,746			(21,503		)	21,503			(24,487		)	24,487
Net reclassifications from nonaccretable to accretable	12,995			—			19,514			—			8,217			—			10,499			—			21,212			—			30,013			—
Payments received, net	—			(46,114		)	—			(55,542		)	—			(42,434		)	—			(50,695		)	—			(88,548		)	—			(106,237		)
Disposals	(2,471		)	—			(2,135		)	—			(4,657		)	—			(2,595		)	—			(7,128		)	—			(4,730		)	—
Balance at end of period	$	118,756		$	388,313		$	142,284		$	557,199		$	112,031		$	356,164		$	137,442		$	519,250		$	112,031		$	356,164		$	137,442		$	519,250

Cash flows expected to be collected on acquired impaired loans are estimated quarterly by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

Improved cash flow expectations for loans or pools that were impaired in prior periods are recorded first as a reversal of previously recorded impairment and then as an increase in prospective yield when all previously recorded impairment has been recaptured. Decreases in expected cash flows are recognized as an impairment through a provision for loan loss and an increase to the allowance for acquired impaired loans.

During the quarter ended ~~March 31,~~June 30, 2015, there was an overall improvement in cash flow expectations, which resulted in the reclassification of ~~$13.0~~$8.2 million from the nonaccretable difference to accretable yield. This reclassification results in prospective yield adjustments on these loan pools.

FDIC Acquired Loans and Related Loss Share Receivable

FDIC acquired loans include loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and Midwest. George Washington and Midwest non-single family loss share agreements with the FDIC expired at March 31, 2015 and June 30, 2015, respectively, resulting in ~~$5.0~~$2.6 million and $143.2 million of loans no longer being ~~covered. As of March 31, 2015, $174.6 million of FDIC acquired loans remained~~ covered ~~by the Midwest non-single family loss share agreement. The Midwest non-single family loss share agreement will expire~~ as of June 30, 2015. As of ~~March 31,~~June 30, 2015, ~~$110.4~~$13.1 million and $82.8 million of George Washington and Midwest loans, respectively, remained covered by single family loss share agreements.

Changes in the loss share receivable for the three and six months ended ~~March 31,~~June 30, 2015 and 2014 were as follows:


Loss Share Receivable	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2015			2014			2015			2014			2015			2014
Balance at beginning of period	$	22,033		$	61,827		$	20,005		$	54,748		$	22,033		$	61,827
Amortization	(2,187		)	(5,863		)	(1,185		)	(4,185		)	(3,372		)	(10,048		)
Increase/(decrease) due to impairment (recapture) on FDIC acquired loans	4,227			4,824			1,819			(3,897		)	6,046			927
FDIC reimbursement	(4,013		)	(5,087		)	(8,713		)	(1,237		)	(12,726		)	(6,324		)
FDIC acquired loans paid in full	(55		)	(953		)	(106		)	(1,448		)	(161		)	(2,401		)
Balance at end of the period ⁽¹⁾	$	20,005		$	54,748		$	11,820		$	43,981		$	11,820		$	43,981

(1) As of ~~March 31,~~June 30, 2015, ~~$6.3 million of~~ the loss share receivable ~~related to non-single family covered loans and $13.8~~of $11.8 million was related to single family covered loans.

Total outstanding FDIC acquired impaired loans were ~~$404.4~~$351.1 million and ~~$702.4~~$637.6 million as of ~~March 31,~~June 30, 2015 and 2014, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for FDIC acquired impaired loans were as follows for the three and six months ended ~~March 31,~~June 30, 2015 and 2014:


	Three Months Ended March 31,												Three Months Ended June 30,												Six Months Ended June 30,
FDIC Acquired Impaired Loans	2015						2014						2015						2014						2015						2014
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	37,511		$	232,452		$	67,282		$	403,692		$	29,867		$	199,225		$	63,003		$	364,488		$	37,511		$	232,452		$	67,282		$	403,692
Accretion	(5,567		)	5,567			(12,616		)	12,616			(4,100		)	4,100			(12,139		)	12,139			(9,667		)	9,667			(24,755		)	24,755
Net reclassifications between non-accretable and accretable	(56		)	—			6,057			—			2,136			—			5,549			—			2,080			—			11,606			—
Payments received, net	—			(38,794		)	—			(51,820		)	—			(45,517		)	—			(60,146		)	—			(84,311		)	—			(111,966		)
(Disposals)/Additions	(2,021		)	—			2,280			—			(1,753		)	—			(2,758		)	—			(3,774		)	—			(478		)	—
Balance at end of period	$	29,867		$	199,225		$	63,003		$	364,488		$	26,150		$	157,808		$	53,655		$	316,481		$	26,150		$	157,808		$	53,655		$	316,481

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

The cash flows expected to be collected on covered impaired loans are estimated quarterly in a similar manner as described above for acquired impaired loans. During the quarter ended ~~March 31,~~June 30, 2015, the re-estimation process resulted in a net reclassification of ~~$56.0 thousand~~$2.1 million from accretable yield to nonaccretable difference. This reclassification results in prospective yield adjustments on the loan pools.

Credit Quality Disclosures

The credit quality of the Corporation's loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Corporation. These credit quality ratings are an important part of the Corporation's overall credit risk management process and evaluation of the allowance for credit losses.

Generally, loans, except for certain commercial, credit card and mortgage loans, and leases on which payments are past due for 90 days are placed on nonaccrual status, unless those loans are in the process of collection and, in Management's opinion, are fully secured. Credit card loans on which payments are past due for 120 days are placed on nonaccrual status. Acquired and FDIC acquired impaired loans are considered to be accruing and performing even though collection of contractual payments may be in doubt because income continues to be accreted on the loan pool as long as expected cash flows are reasonably estimable.

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

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

The following tables provide a summary of loans by portfolio type, including the delinquency status of those loans that continue to accrue interest and those loans that are nonaccrual:


As of March 31, 2015
As of June 30, 2015																	As of June 30, 2015
(In thousands)													≥ 90 Days																≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽¹⁾		Loans		30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽¹⁾		Loans
Commercial
C&I	$	525	$	515	$	5,846	$	6,886	$	5,311,011	$	5,317,897	$	498	$	18,838	$	5,837	$	1,949	$	3,780	$	11,566	$	5,459,797	$	5,471,363	$	—	$	29,241
CRE	4,401		1,177		3,481		9,059		2,123,958		2,133,017		150		9,640		3,758		119		2,780		6,657		2,131,715		2,138,372		418		7,486
Construction	—		—		—		—		580,978		580,978		—		—		483		—		—		483		586,412		586,895		—		—
Leases	255		—		—		255		388,618		388,873		—		—		17,862		—		—		17,862		418,840		436,702		—		1,162
Consumer
Installment	11,294		3,215		4,157		18,666		2,481,622		2,500,288		3,332		3,016		11,526		3,010		4,191		18,727		2,701,332		2,720,059		3,386		2,903
Home Equity Lines	1,480		323		1,395		3,198		1,131,040		1,134,238		622		1,780		2,268		720		1,032		4,020		1,176,782		1,180,802		249		1,591
Credit Cards	654		301		637		1,592		159,174		160,766		312		523		679		338		558		1,575		167,001		168,576		337		459
Residential Mortgages	9,236		2,515		7,402		19,153		620,827		639,980		3,000		12,288		9,792		1,935		7,595		19,322		633,821		653,143		3,619		12,300
Total	$	27,845	$	8,046	$	22,918	$	58,809	$	12,797,228	$	12,856,037	$	7,914	$	46,085	$	52,205	$	8,071	$	19,936	$	80,212	$	13,275,700	$	13,355,912	$	8,009	$	55,142
Acquired Loans													≥ 90 Days																≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing⁽³⁾		Loans ⁽³⁾		30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	66	$	131	$	5,366	$	5,563	$	415,247	$	420,810	$	44	$	700	$	33	$	99	$	3,279	$	3,411	$	334,012	$	337,423	$	—	$	661
CRE	4,507		1,380		23,420		29,307		554,765		584,072		252		4,172		3,353		3,115		17,473		23,941		510,004		533,945		—		5,545
Construction	—		—		676		676		5,612		6,288		—		—		—		—		694		694		5,536		6,230		—		—
Consumer
Installment	4,859		1,322		1,121		7,302		710,391		717,693		521		746		3,999		1,029		1,083		6,111		653,237		659,348		475		671
Home Equity Lines	2,850		1,544		1,172		5,566		212,258		217,824		462		639		2,349		785		1,353		4,487		195,692		200,179		762		246
Residential Mortgages	9,894		590		5,250		15,734		362,458		378,192		425		997		186		1,173		4,902		6,261		352,298		358,559		411		929
Total	$	22,176	$	4,967	$	37,005	$	64,148	$	2,260,731	$	2,324,879	$	1,704	$	7,254	$	9,920	$	6,201	$	28,784	$	44,905	$	2,050,779	$	2,095,684	$	1,648	$	8,052
FDIC Acquired Loans ⁽²⁾													≥ 90 Days																≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽³⁾		Loans ⁽³⁾		30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	815	$	144	$	4,566	$	5,525	$	37,289	$	42,814	n/a		n/a		$	—	$	—	$	2,916	$	2,916	$	35,221	$	38,137	n/a		n/a
CRE	413		5,218		44,023		49,654		78,254		127,908		n/a		n/a		664		1,959		32,076		34,699		67,110		101,809		n/a		n/a
Construction	—		—		6,906		6,906		1,919		8,825		n/a		n/a		—		—		3,701		3,701		2,174		5,875		n/a		n/a
Consumer
Installment	—		110		—		110		4,671		4,781		n/a		n/a		—		—		—		—		2,299		2,299		n/a		n/a
Home Equity Lines	2,291		564		3,651		6,506		58,664		65,170		n/a		n/a		1,256		246		3,454		4,956		50,589		55,545		n/a		n/a
Residential Mortgages	5,714		163		3,684		9,561		30,909		40,470		n/a		n/a		5,391		319		2,961		8,671		29,358		38,029		n/a		n/a
Total	$	9,233	$	6,199	$	62,830	$	78,262	$	211,706	$	289,968	n/a		n/a		$	7,311	$	2,524	$	45,108	$	54,943	$	186,751	$	241,694	n/a		n/a

(1)Installment loans 90 days or more past due and accruing include ~~$2.4~~$2.7 million of loans guaranteed by the U.S. government as of ~~March 31,~~June 30, 2015.

(2)Excludes loss share receivable of $~~20.0~~11.8 million as of ~~March 31,~~June 30, 2015.

(3) Acquired and FDIC acquired impaired loans were not classified as nonperforming assets at ~~March 31,~~June 30, 2015 as the loans are considered to be performing under ASC 310-30. As a result, interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired and ~~covered~~FDIC Acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and FDIC acquired impaired loans.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES



As of December 31, 2014
(In thousands)													≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽¹⁾		Loans
Commercial
C&I	$	2,212	$	1,162	$	2,670	$	6,044	$	5,169,157	$	5,175,201	$	1,547	$	6,114
CRE	2,155		1,460		8,864		12,479		2,104,639		2,117,118		1,696		11,033
Construction	—		—		—		—		537,766		537,766		—		—
Leases	—		—		—		—		370,179		370,179		—		—
Consumer
Installment	14,621		3,647		4,716		22,984		2,370,467		2,393,451		3,695		3,268
Home Equity Lines	1,357		587		1,206		3,150		1,107,186		1,110,336		569		1,654
Credit Cards	668		516		860		2,044		162,434		164,478		407		596
Residential Mortgages	12,086		2,744		8,013		22,843		602,440		625,283		4,242		11,952
Total	$	33,099	$	10,116	$	26,329	$	69,544	$	12,424,268	$	12,493,812	$	12,156	$	34,617

Acquired Loans													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	92	$	234	$	4,791	$	5,117	$	444,137	$	449,254	$	—	$	787
CRE	3,479		3,398		23,509		30,386		600,288		630,674		44		4,171
Construction	—		—		685		685		6,286		6,971		—		—
Consumer
Installment	6,204		2,029		1,861		10,094		754,074		764,168		615		1,218
Home Equity Lines	2,819		2,123		2,333		7,275		226,354		233,629		1,519		631
Residential Mortgages	13,062		1,648		7,089		21,799		372,685		394,484		1,293		1,249
Total	$	25,656	$	9,432	$	40,268	$	75,356	$	2,403,824	$	2,479,180	$	3,471	$	8,056
FDIC Acquired Loans ⁽²⁾													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	58	$	—	$	6,041	$	6,099	$	42,738	$	48,837	n/a		n/a
CRE	234		1,517		47,233		48,984		104,524		153,508		n/a		n/a
Construction	—		—		6,064		6,064		3,198		9,262		n/a		n/a
Consumer
Installment	23		—		34		57		4,817		4,874		n/a		n/a
Home Equity Lines	1,395		870		3,859		6,124		67,241		73,365		n/a		n/a
Residential Mortgages	6,205		91		3,572		9,868		31,408		41,276		n/a		n/a
Total	$	7,915	$	2,478	$	66,803	$	77,196	$	253,926	$	331,122	n/a		n/a

(1) Installment loans 90 days or more past due and accruing include $2.4 million of loans guaranteed by the U.S. government as of December 31, 2014.

(2) Excludes loss share receivable of $22.0 million as of December 31, 2014.

(3) Acquired and ~~covered~~FDIC acquired impaired loans were not classified as nonperforming assets at December 31, 2014 as the loans are considered to be performing under ASC 310-30. As a result, interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired and ~~covered impaired~~FDIC Acquired loans. These asset quality disclosures are, therefore, not applicable to acquired and ~~covered~~FDIC acquired impaired loans.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES


As of March 31, 2014
As of June 30, 2014																	As of June 30, 2014
(In thousands)													≥ 90 Days																≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽¹⁾		Loans		30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽¹⁾		Loans
Commercial
C&I	$	4,088	$	561	$	5,546	$	10,195	$	4,465,961	$	4,476,156	$	2,000	$	6,388	$	1,094	$	1,087	$	6,029	$	8,210	$	4,849,405	$	4,857,615	$	80	$	9,991
CRE	13,549		3,644		7,999		25,192		2,222,093		2,247,285		804		20,679		2,010		1,934		14,333		18,277		2,079,741		2,098,018		6,633		11,028
Construction	369		—		—		369		359,382		359,751		—		55		—		—		—		—		409,866		409,866		—		53
Leases	—		—		—		—		257,509		257,509		—		—		103		—		—		103		319,692		319,795		—		—
Consumer
Installment	9,162		2,659		3,762		15,583		1,819,939		1,835,522		3,286		3,222		11,205		3,164		4,041		18,410		2,033,177		2,051,587		3,505		3,334
Home Equity Lines	1,644		444		902		2,990		943,812		946,802		509		1,653		1,549		604		815		2,968		995,211		998,179		535		1,329
Credit Cards	783		438		573		1,794		146,123		147,917		262		488		677		385		510		1,572		150,395		151,967		258		446
Residential Mortgages	9,632		1,882		8,455		19,969		536,002		555,971		4,999		10,963		13,087		1,820		7,527		22,434		557,732		580,166		4,632		10,560
Total	$	39,227	$	9,628	$	27,237	$	76,092	$	10,750,821	$	10,826,913	$	11,860	$	43,448	$	29,725	$	8,994	$	33,255	$	71,974	$	11,395,219	$	11,467,193	$	15,643	$	36,741

Acquired Loans	Acquired Loans												≥ 90 Days				Acquired Loans												≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing⁽³⁾		Loans ⁽³⁾		30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	776	$	720	$	4,224	$	5,720	$	705,912	$	711,632	$	170	$	241	$	1,164	$	511	$	4,239	$	5,914	$	654,347	$	660,261	$	40	$	787
CRE	5,356		3,639		21,995		30,990		806,886		837,876		5		1,259		1,678		1,162		23,604		26,444		757,299		783,743		—		1,736
Construction	—		650		—		650		12,720		13,370		—		—		—		—		666		666		13,233		13,899		—		—
Consumer
Installment	7,216		2,563		1,619		11,398		931,956		943,354		665		678		6,148		1,859		1,296		9,303		862,731		872,034		1,021		419
Home Equity Lines	3,606		811		3,596		8,013		275,296		283,309		1,078		1,090		5,417		3,089		1,989		10,495		257,771		268,266		643		534
Residential Mortgages	11,743		1,822		7,090		20,655		425,719		446,374		31		1,405		158		1,372		7,298		8,828		416,756		425,584		847		1,506
Total	$	28,697	$	10,205	$	38,524	$	77,426	$	3,158,489	$	3,235,915	$	1,949	$	4,673	$	14,565	$	7,993	$	39,092	$	61,650	$	2,962,137	$	3,023,787	$	2,551	$	4,982

FDIC Acquired Loans ⁽²⁾													≥ 90 Days																≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽³⁾		Loans ⁽³⁾		30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	1,744	$	—	$	11,867	$	13,611	$	51,641	$	65,252	n/a		n/a		$	2,929	$	—	$	6,893	$	9,822	$	46,601	$	56,423	n/a		n/a
CRE	582		449		97,596		98,627		156,966		255,593		n/a		n/a		643		1,702		79,916		82,261		134,995		217,256		n/a		n/a
Construction	1,008		—		16,337		17,345		3,076		20,421		n/a		n/a		—		—		17,278		17,278		1,823		19,101		n/a		n/a
Consumer
Installment	—		—		—		—		5,531		5,531		n/a		n/a		25		163		44		232		5,132		5,364		n/a		n/a
Home Equity Lines	758		538		2,093		3,389		91,439		94,828		n/a		n/a		579		540		2,036		3,155		86,661		89,816		n/a		n/a
Residential Mortgages	8,374		435		5,872		14,681		34,731		49,412		n/a		n/a		7,141		381		5,356		12,878		33,828		46,706		n/a		n/a
Total	$	12,466	$	1,422	$	133,765	$	147,653	$	343,384	$	491,037	n/a		n/a		$	11,317	$	2,786	$	111,523	$	125,626	$	309,040	$	434,666	n/a		n/a

(1) Installment loans 90 days or more past due and accruing include $~~2.3~~2.5 million of loans guaranteed by the U.S. government as of ~~March 31, 2014~~.June 30, 2014.

(2) Excludes loss share receivable of $~~54.7~~44.0 million as of ~~March 31,~~June 30, 2014.

(3) Acquired and ~~covered~~FDIC acquired impaired loans were not classified as nonperforming assets at ~~March 31,~~June 30, 2014 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired and ~~covered~~FDIC Acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and ~~covered~~FDIC acquired impaired loans.

Individual commercial loans are assigned credit risk grades based on an internal assessment of conditions that affect a borrower’s ability to meet its contractual obligation under the loan agreement. The assessment process includes reviewing a borrower’s current financial information, historical payment experience, credit documentation, public information, and other information specific to each borrower. Commercial loans are reviewed on an annual, quarterly or rotational basis or as Management becomes aware of information ~~during~~about a borrower’s ability to fulfill its obligation. For consumer loans, Management evaluates credit quality based on the aging status of the loan as well as by payment activity, which is presented in the above tables.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

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.~~

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

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


As of March 31, 2015
As of June 30, 2015											As of June 30, 2015
(In thousands)
Originated Loans	Commercial										Commercial
	C&I		CRE		Construction		Leases		Total		C&I		CRE		Construction		Leases		Total
Grade 1	$	59,380	$	667	$	—	$	13,052	$	73,099	$	65,856	$	807	$	—	$	14,688	$	81,351
Grade 2	191,008		3,368		—		5,782		200,158		206,384		1,166		—		29,564		237,114
Grade 3	1,405,007		339,027		62,821		69,686		1,876,541		1,417,295		367,457		55,889		65,664		1,906,305
Grade 4	3,504,600		1,724,516		516,852		297,790		6,043,758		3,567,387		1,715,998		529,517		321,268		6,134,170
Grade 5	103,432		29,034		942		1,307		134,715		98,137		25,466		360		2,956		126,919
Grade 6	54,470		36,405		363		1,256		92,494		112,661		27,478		1,129		2,562		143,830
Grade 7	—		—		—		—		—		3,643		—		—		—		3,643
Total	$	5,317,897	$	2,133,017	$	580,978	$	388,873	$	8,420,765	$	5,471,363	$	2,138,372	$	586,895	$	436,702	$	8,633,332

Acquired Loans	Commercial										Commercial
	C&I		CRE		Construction		Leases		Total		C&I		CRE		Construction		Leases		Total
Grade 1	$	1,069	$	—	$	—	$	—	$	1,069	$	1,061	$	—	$	—	$	—	$	1,061
Grade 2	—		—		—		—		—		—		—		—		—		—
Grade 3	22,875		24,834		—		—		47,709		17,338		27,190		—		—		44,528
Grade 4	359,751		496,213		5,612		—		861,576		289,027		453,830		5,536		—		748,393
Grade 5	15,363		21,487		—		—		36,850		13,283		16,815		—		—		30,098
Grade 6	21,752		41,538		676		—		63,966		16,714		36,110		694		—		53,518
Grade 7	—		—		—		—		—		—		—		—		—		—
Total	$	420,810	$	584,072	$	6,288	$	—	$	1,011,170	$	337,423	$	533,945	$	6,230	$	—	$	877,598

FDIC Acquired Loans	Commercial										Commercial
	C&I		CRE		Construction		Leases		Total		C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Grade 2	1,040		—		—		—		1,040		1,129		—		—		—		1,129
Grade 3	—		—		—		—		—		—		—		—		—		—
Grade 4	33,352		74,128		579		—		108,059		33,992		65,906		817		—		100,715
Grade 5	39		2,134		—		—		2,173		—		625		—		—		625
Grade 6	8,383		51,646		8,246		—		68,275		3,016		35,278		5,058		—		43,352
Grade 7	—		—		—		—		—		—		—		—		—		—
Total	$	42,814	$	127,908	$	8,825	$	—	$	179,547	$	38,137	$	101,809	$	5,875	$	—	$	145,821

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES



As of December 31, 2014
(In thousands)
Originated Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	52,676	$	683	$	678	$	4,451	$	58,488
Grade 2	186,278		3,454		—		14,959		204,691
Grade 3	1,340,100		294,281		46,074		71,908		1,752,363
Grade 4	3,413,446		1,745,470		490,757		277,277		5,926,950
Grade 5	139,083		29,990		257		1,389		170,719
Grade 6	43,618		43,240		—		195		87,053
Grade 7	—		—		—		—		—
Total	$	5,175,201	$	2,117,118	$	537,766	$	370,179	$	8,200,264

Acquired Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	1,076	$	—	$	—	$	—	$	1,076
Grade 2	—		—		—		—		—
Grade 3	20,891		24,867		—		—		45,758
Grade 4	376,129		532,447		6,286		—		914,862
Grade 5	23,268		28,382		685		—		52,335
Grade 6	27,890		44,978		—		—		72,868
Grade 7	—		—		—		—		—
Total	$	449,254	$	630,674	$	6,971	$	—	$	1,086,899

FDIC Acquired Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	1,347		—		—		—		1,347
Grade 3	—		—		—		—		—
Grade 4	36,406		86,779		823		—		124,008
Grade 5	167		3,401		—		—		3,568
Grade 6	10,917		63,328		8,248		—		82,493
Grade 7	—		—		191		—		191
Total	$	48,837	$	153,508	$	9,262	$	—	$	211,607

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES


As of March 31, 2014
As of June 30, 2014											As of June 30, 2014
(In thousands)
Originated Loans	Commercial										Commercial
	C&I		CRE		Construction		Leases		Total		C&I		CRE		Construction		Leases		Total
Grade 1	$	28,610	$	240	$	299	$	8,452	$	37,601	$	33,855	$	—	$	—	$	9,408	$	43,263
Grade 2	135,574		3,797		—		3,620		142,991		134,682		3,610		—		10,971		149,263
Grade 3	940,937		329,377		24,731		58,397		1,353,442		1,100,807		290,652		36,954		55,648		1,484,061
Grade 4	3,276,975		1,823,877		332,227		179,795		5,612,874		3,439,210		1,725,808		371,488		236,324		5,772,830
Grade 5	61,507		39,245		259		6,857		107,868		100,776		29,382		—		7,092		137,250
Grade 6	32,553		50,749		2,235		388		85,925		48,285		48,566		1,424		352		98,627
Grade 7	—		—		—		—		—		—		—		—		—		—
Total	$	4,476,156	$	2,247,285	$	359,751	$	257,509	$	7,340,701	$	4,857,615	$	2,098,018	$	409,866	$	319,795	$	7,685,294

Acquired Loans	Commercial										Commercial
	C&I		CRE		Construction		Leases		Total		C&I		CRE		Construction		Leases		Total
Grade 1	$	700	$	—	$	—	$	—	$	700	$	700	$	—	$	—	$	—	$	700
Grade 2	—		—		—		—		—		—		—		—		—		—
Grade 3	37,829		24,177		—		—		62,006		35,608		26,652		—		—		62,260
Grade 4	609,383		696,070		13,370		—		1,318,823		553,293		651,011		13,899		—		1,218,203
Grade 5	43,721		51,253		—		—		94,974		41,213		50,267		—		—		91,480
Grade 6	19,999		66,376		—		—		86,375		29,447		55,813		—		—		85,260
Grade 7	—		—		—		—		—		—		—		—		—		—
Total	$	711,632	$	837,876	$	13,370	$	—	$	1,562,878	$	660,261	$	783,743	$	13,899	$	—	$	1,457,903

FDIC Acquired Loans	Commercial										Commercial
	C&I		CRE		Construction		Leases		Total		C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Grade 2	957		—		—		—		957		1,015		—		—		—		1,015
Grade 3	—		—		—		—		—		—		—		—		—		—
Grade 4	42,228		111,610		653		—		154,491		38,892		104,455		707		—		144,054
Grade 5	387		2,883		—		—		3,270		999		3,984		—		—		4,983
Grade 6	19,864		140,927		19,459		—		180,250		15,517		108,637		18,045		—		142,199
Grade 7	1,816		173		309		—		2,298		—		180		349		—		529
Total	$	65,252	$	255,593	$	20,421	$	—	$	341,266	$	56,423	$	217,256	$	19,101	$	—	$	292,780

4. 4. Allowance for Loan Losses

The Corporation's Credit Policy Division manages credit risk by establishing common credit policies for its subsidiary bank, participating in approval of its loans, conducting reviews of loan portfolios, providing centralized consumer underwriting, collections and loan operation services, and overseeing loan workouts. The Corporation's objective is to minimize losses from its commercial lending activities and to maintain consumer losses at acceptable levels that are stable and consistent with growth and profitability objectives.

The ALL is Management's estimate of the amount of probable credit losses inherent in a loan portfolio at the balance sheet date. The following describes the distinctions in methodology used to estimate the ALL of originated, acquired and FDIC acquired loan portfolios as well as certain significant accounting policies relevant to each category.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

Allowance for Originated Loan Losses

Management estimates credit losses based on originated individual loans determined to be impaired and on all other loans grouped based on similar risk characteristics. Management also considers internal and external factors such as economic conditions, loan management practices, portfolio monitoring, and other risks, collectively known as qualitative factors, or Q-factors, to estimate credit losses in the loan portfolio. Q-factors are used to reflect changes in the portfolio's collectability characteristics not captured by historical loss data.

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

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

The following tables show activity in the originated ALL, by portfolio segment for the three and six months ended ~~March 31,~~June 30, 2015 and 2014, as well as the corresponding recorded investment in originated loans at the end of the period:

As of March 31, 2015
(In thousands)
Originated Loans C&I CRE Construction Leases Installment Home Equity Lines Credit Cards Residential Mortgages Total
Three Months Ended
Allowance for originated loan losses, beginning balance $ 37,375
$ 10,492
$ 2,202
$ 674
$ 12,918
$ 19,324
$ 7,966
$ 4,745
$ 95,696
Charge-offs (510 ) (215 ) —
—
(5,055 ) (911 ) (1,452 ) (424 ) (8,567 )
Recoveries 341
—
1
4
3,020
613
366
35
4,380
Provision for loan losses 2,632
(1,464 ) (451 ) (49 ) 2,475
407
921
1,565
6,036
Allowance for originated loan losses, ending balance $ 39,838
$ 8,813
$ 1,752
$ 629
$ 13,358
$ 19,433
$ 7,801
$ 5,921
$ 97,545
Ending allowance for originated loan losses balance attributable to loans:
Individually evaluated for impairment $ 10,042
$ 317
$ —
$ —
$ 1,005
$ 254
$ 263
$ 1,416
$ 13,297
Collectively evaluated for impairment 29,796
8,496
1,752
629
12,353
19,179
7,538
4,505
84,248
Total ending allowance for originated loan losses balance $ 39,838
$ 8,813
$ 1,752
$ 629
$ 13,358
$ 19,433
$ 7,801
$ 5,921
$ 97,545
Originated loans:
Originated loans individually evaluated for impairment $ 35,792
$ 15,000
$ —
$ —
$ 26,882
$ 7,632
$ 815
$ 24,822
$ 110,943
Originated loans collectively evaluated for impairment 5,282,105
2,118,017
580,978
388,873
2,473,406
1,126,606
159,951
615,158
12,745,094
Total ending originated loan balance $ 5,317,897
$ 2,133,017
$ 580,978
$ 388,873
$ 2,500,288
$ 1,134,238
$ 160,766
$ 639,980
$ 12,856,037


As of March 31, 2014
As of June 30, 2015																													As of June 30, 2015
(In thousands)	(In thousands)																												(In thousands)
Originated Loans	Originated Loans	C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total			Originated Loans	C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Three Months Ended	Three Months Ended																												Three Months Ended
Allowance for originated loan losses, beginning balance	Allowance for originated loan losses, beginning balance	$	42,981		$	12,265		$	2,810		$	1,081		$	11,935		$	12,900		$	7,740		$	4,772		$	96,484		Allowance for originated loan losses, beginning balance	$	39,838		$	8,813		$	1,752		$	629		$	13,358		$	19,433		$	7,801		$	5,921		$	97,545
Charge-offs	Charge-offs	(5,074		)	(79		)	—			—			(4,584		)	(1,409		)	(1,455		)	(559		)	(13,160		)	Charge-offs	(3,247		)	(408		)	—			—			(5,090		)	(971		)	(1,209		)	(373		)	(11,298		)
Recoveries	Recoveries	997			4			28			—			2,749			904			418			38			5,138			Recoveries	453			1			39			3			2,844			839			358			89			4,626
Provision for loan losses	Provision for loan losses	1,271			1,195			(1,368		)	(54		)	1,504			765			148			193			3,654			Provision for loan losses	5,832			94			(251		)	(13		)	3,798			738			868			(257		)	10,809
Allowance for originated loan losses, ending balance	Allowance for originated loan losses, ending balance	$	40,175		$	13,385		$	1,470		$	1,027		$	11,604		$	13,160		$	6,851		$	4,444		$	92,116		Allowance for originated loan losses, ending balance	$	42,876		$	8,500		$	1,540		$	619		$	14,910		$	20,039		$	7,818		$	5,380		$	101,682
Six Months Ended																													Six Months Ended
Allowance for originated loan losses, beginning balance																													Allowance for originated loan losses, beginning balance	$	37,375		$	10,492		$	2,202		$	674		$	12,918		$	19,324		$	7,966		$	4,745		$	95,696
Charge-offs																													Charge-offs	(3,757		)	(623		)	—			—			(10,145		)	(1,882		)	(2,661		)	(797		)	(19,865		)
Recoveries																													Recoveries	794			1			40			7			5,864			1,452			724			124			9,006
Provision for loan losses																													Provision for loan losses	8,464			(1,370		)	(702		)	(62		)	6,273			1,145			1,789			1,308			16,845
Allowance for originated loan losses, ending balance																													Allowance for originated loan losses, ending balance	$	42,876		$	8,500		$	1,540		$	619		$	14,910		$	20,039		$	7,818		$	5,380		$	101,682

Ending allowance for originated loan losses balance attributable to loans:	Ending allowance for originated loan losses balance attributable to loans:																												Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	2,866		$	2,918		$	—		$	—		$	1,006		$	223		$	307		$	1,241		$	8,561		Individually evaluated for impairment	$	9,117		$	151		$	—		$	—		$	1,001		$	217		$	250		$	890		$	11,626
	Collectively evaluated for impairment	37,309			10,467			1,470			1,027			10,598			12,937			6,544			3,203			83,555			Collectively evaluated for impairment	33,759			8,349			1,540			619			13,909			19,822			7,568			4,490			90,056
Total ending allowance for originated loan losses balance	Total ending allowance for originated loan losses balance	$	40,175		$	13,385		$	1,470		$	1,027		$	11,604		$	13,160		$	6,851		$	4,444		$	92,116		Total ending allowance for originated loan losses balance	$	42,876		$	8,500		$	1,540		$	619		$	14,910		$	20,039		$	7,818		$	5,380		$	101,682
Originated loans:	Originated loans:																												Originated loans:
	Originated loans individually evaluated for impairment	$	7,143		$	31,576		$	404		$	—		$	25,818		$	6,931		$	1,034		$	26,198		$	99,104		Originated loans individually evaluated for impairment	$	45,969		$	12,072		$	—		$	1,162		$	31,927		$	7,421		$	787		$	24,697		$	124,035
	Originated loans collectively evaluated for impairment	4,469,013			2,215,709			359,347			257,509			1,809,704			939,871			146,883			529,773			10,727,809			Originated loans collectively evaluated for impairment	5,425,394			2,126,300			586,895			435,540			2,688,132			1,173,381			167,789			628,446			13,231,877
Total ending originated loan balance	Total ending originated loan balance	$	4,476,156		$	2,247,285		$	359,751		$	257,509		$	1,835,522		$	946,802		$	147,917		$	555,971		$	10,826,913		Total ending originated loan balance	$	5,471,363		$	2,138,372		$	586,895		$	436,702		$	2,720,059		$	1,180,802		$	168,576		$	653,143		$	13,355,912

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES



As of June 30, 2014
(In thousands)
Originated Loans		C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Three Months Ended
Allowance for originated loan losses, beginning balance		$	40,175		$	13,385		$	1,470		$	1,027		$	11,604		$	13,160		$	6,851		$	4,444		$	92,116
Charge-offs		(361		)	(2,696		)	—			—			(4,076		)	(1,870		)	(1,311		)	(834		)	(11,148		)
Recoveries		372			30			2			372			2,741			966			439			67			4,989
Provision for loan losses		3,070			(1,989		)	(149		)	(371		)	1,974			1,647			1,349			462			5,993
Allowance for originated loan losses, ending balance		$	43,256		$	8,730		$	1,323		$	1,028		$	12,243		$	13,903		$	7,328		$	4,139		$	91,950
Six Months Ended
Allowance for originated loan losses, beginning balance		$	42,981		$	12,265		$	2,810		$	1,081		$	11,935		$	12,900		$	7,740		$	4,772		$	96,484
Charge-offs		(5,435		)	(2,775		)	—			—			(8,660		)	(3,279		)	(2,766		)	(1,393		)	(24,308		)
Recoveries		1,369			34			30			372			5,490			1,870			857			105			10,127
Provision for loan losses		4,341			(794		)	(1,517		)	(425		)	3,478			2,412			1,497			655			9,647
Allowance for originated loan losses, ending balance		$	43,256		$	8,730		$	1,323		$	1,028		$	12,243		$	13,903		$	7,328		$	4,139		$	91,950

Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	5,092		$	112		$	9		$	—		$	1,008		$	201		$	361		$	1,019		$	7,802
	Collectively evaluated for impairment	38,164			8,618			1,314			1,028			11,235			13,702			6,967			3,120			84,148
Total ending allowance for originated loan losses balance		$	43,256		$	8,730		$	1,323		$	1,028		$	12,243		$	13,903		$	7,328		$	4,139		$	91,950
Originated loans:
	Originated loans individually evaluated for impairment	$	10,404		$	25,484		$	53		$	—		$	24,394		$	6,956		$	979		$	26,297		$	94,567
	Originated loans collectively evaluated for impairment	4,847,211			2,072,534			409,813			319,795			2,027,193			991,223			150,988			553,869			11,372,626
Total ending originated loan balance		$	4,857,615		$	2,098,018		$	409,866		$	319,795		$	2,051,587		$	998,179		$	151,967		$	580,166		$	11,467,193

The following table presents the originated ALL and the recorded investment as of December 31, 2014:



As of December 31, 2014
	(In thousands)
	Originated Loans	C&I		CRE		Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total
Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	72	$	2,914	$	—	$	—	$	1,178	$	207	$	296	$	1,283	$	5,950
	Collectively evaluated for impairment	37,303		7,578		2,202		674		11,740		19,117		7,670		3,462		89,746
Total ending allowance for originated loan losses balance		$	37,375	$	10,492	$	2,202	$	674	$	12,918	$	19,324	$	7,966	$	4,745	$	95,696
Originated loans:
	Loans individually evaluated for impairment	$	11,759	$	23,300	$	—	$	—	$	24,905	$	7,379	$	854	$	25,251	$	93,448
	Loans collectively evaluated for impairment	5,163,442		2,093,818		537,766		370,179		2,368,546		1,102,957		163,624		600,032		12,400,364
Total ending originated loan balance		$	5,175,201	$	2,117,118	$	537,766	$	370,179	$	2,393,451	$	1,110,336	$	164,478	$	625,283	$	12,493,812

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

Allowance for Acquired Loan Losses

The Citizens' loans were recorded at their fair value as of the Acquisition Date and the prior ALL was eliminated. An ALL for acquired nonimpaired loans is estimated using a methodology similar to that used for originated loans. The allowance determined for each acquired nonimpaired loan is compared to the remaining fair value adjustment for that loan. If the computed allowance is greater, the excess is added to the allowance through a provision for loan losses. If the computed allowance is less, no additional allowance is recognized. As of ~~March 31,~~June 30, 2015, the computed ALL was less than the remaining fair value discount; therefore, no ALL for acquired nonimpaired loans was recorded.

Charge-offs and actual losses on an acquired nonimpaired loan first reduce any remaining fair value discount for that loan. Once a loan's discount is depleted, charge-offs and actual losses are applied against the acquired ALL. During the three and six months ended ~~March 31,~~June 30, 2015, provision for loan losses, equal to net charge-offs, of ~~$2.2~~$1.6 million ~~was~~and $3.8 million, respectively, were recorded. Charge-offs on acquired nonimpaired loans were mainly related to consumer loans that were written off in accordance with the Corporation's credit policies based on a predetermined number of days past due.

~~Table of Contents~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~ - ~~Continued~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

The following table presents activity in the allowance for acquired impaired loan losses for the three and six months ended ~~March 31,~~June 30, 2015 and 2014:


Allowance for Acquired Impaired Loan Losses	Three Months Ended March 31,				Three Months Ended June 30,					Six Months Ended June 30,
(In thousands)	2015		2014		2015			2014		2015			2014
Balance at beginning of the period	$	7,457	$	741	$	7,493		$	2,974	$	7,457		$	741
Charge-offs	—		—		—			—		—			—
Recoveries	—		—		—			—		—			—
Provision for loan losses	36		2,233
Provision/(recapture) for loan losses					(2,543		)	2,003		(2,507		)	4,236
Balance at end of the period	$	7,493	$	2,974	$	4,950		$	4,977	$	4,950		$	4,977

Allowance for FDIC Acquired Loan Losses

The ALL on FDIC acquired nonimpaired loans is estimated similar to acquired loans as described above except any increase to the ALL and provision for loan losses is partially offset by an increase in the loss share receivable for the portion of the losses recoverable under the loss sharing agreements with the FDIC. As of ~~March 31,~~June 30, 2015, the computed ALL was less than the remaining fair value ~~discount,~~discount; therefore, no ALL for FDIC acquired nonimpaired loans was recorded.

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

The following table presents activity in the allowance for FDIC acquired impaired loan losses for the three and six months ended ~~March 31,~~June 30, 2015 and 2014:


Allowance for FDIC acquired Impaired Loan Losses	Allowance for FDIC acquired Impaired Loan Losses	Three Months Ended March 31,						Allowance for FDIC acquired Impaired Loan Losses	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	(In thousands)	2015			2014			(In thousands)	2015			2014			2015			2014
Balance at beginning of the period	Balance at beginning of the period	$	40,496		$	44,027		Balance at beginning of the period	$	41,514		$	49,970		$	40,496		$	44,027
	Net provision/(recapture) of loan losses before benefit attributable to FDIC loss share agreements	4,225			7,879			Net provision/(recapture) of loan losses before benefit attributable to FDIC loss share agreements	928			(451		)	5,153			7,428
	Net (benefit)/recapture attributable to FDIC loss share agreements	(4,227		)	(4,824		)	Net (benefit)/recapture attributable to FDIC loss share agreements	(1,819		)	3,897			(6,046		)	(927		)
Net provision/(recapture) for loan losses		(2		)	3,055
Increase (decrease) in loss share receivable		4,227			4,824
Net (recapture)/provision for loan losses								Net (recapture)/provision for loan losses	(891		)	3,446			(893		)	6,501
Increase/(decrease) in loss share receivable								Increase/(decrease) in loss share receivable	1,819			(3,897		)	6,046			927
Loans charged-off	Loans charged-off	(3,207		)	(1,936		)	Loans charged-off	(815		)	(4,410		)	(4,022		)	(6,346		)
Balance at end of the period	Balance at end of the period	$	41,514		$	49,970		Balance at end of the period	$	41,627		$	45,109		$	41,627		$	45,109

An acquired or FDIC acquired loan may be resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party, or foreclosure of the collateral. In the period of resolution of a nonimpaired loan, any remaining unamortized fair value adjustment is recognized as interest income. In the period of resolution of an impaired loan accounted for on an individual basis, the difference between the carrying amount of the loan and the proceeds received is recognized as a gain or loss within noninterest income. The majority of impaired loans are accounted for within a pool of loans which results in any difference between the proceeds received and the loan carrying amount being deferred as part of the carrying amount of the pool. The accretable amount of the pool remains unaffected from the resolution until the subsequent quarterly cash flow re-estimation. Favorable results from removal of the resolved loan from the pool increase the future accretable yield of the pool, while unfavorable results are recorded as impairment in the quarter of the cash flow re-estimation. Acquired or FDIC acquired impaired loans subject to modification are not removed from a pool even if those loans would otherwise be deemed TDRs as the pool, and not the individual loan, represents the unit of account.

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~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~ - ~~Continued~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

Credit Quality

Interest income recognized on impaired loans was $118.0 thousand ~~for the three months ended~~ ~~March 31, 2015, compared to $103.0~~and $236.0 thousand for the three and six months ended ~~March 31,~~June 30, 2015, respectively, compared to $20.0 thousand and $123.0 thousand for the three and six months ended June 30, 2014,. respectively. Interest income which would have been earned in accordance with the original terms was $0.9 million ~~for the three months ended~~ ~~March 31, 2015, compared to $0.8~~and $1.8 million for the three and six months ended ~~March 31,~~June 30, 2015, respectively, compared to $0.5 million and $1.3 million for the three and six months ended June 30, 2014,. respectively.

Loan impairment is measured based on either the present value of expected future cash flows discounted at the loan's effective interest rate, at the observable market price of the loan, or the fair value of the collateral for certain collateral dependent loans. Impaired loans include all nonaccrual commercial, agricultural, construction, and commercial real estate loans, and loans modified as a TDR, regardless of nonperforming status. Acquired and FDIC acquired impaired loans are not considered or reported as impaired loans. Nonimpaired acquired loans that are subsequently placed on nonaccrual status are reported as impaired loans and included in the Troubled Debt Restructurings section below. Acquired loans restructured ~~after acquisition are not considered or reported as TDRs if the loans evidenced credit deterioration as of the date of acquisition and are accounted for in pools.~~

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

after acquisition are not considered or reported as TDRs if the loans evidenced credit deterioration as of the date of acquisition and are accounted for in pools.

The following tables provide further detail on impaired loans individually evaluated for impairment and the associated ALL. Certain impaired loans do not have a related ALL as the valuation of these impaired loans exceeded the recorded investment.


As of March 31, 2015
As of June 30, 2015										As of June 30, 2015
Originated Loans	Originated Loans			Unpaid				Average		Originated Loans			Unpaid				Average
		Recorded		Principal		Related		Recorded			Recorded		Principal		Related		Recorded
(In thousands)	(In thousands)	Investment		Balance		Allowance		Investment		(In thousands)	Investment		Balance		Allowance		Investment
Impaired loans with no related allowance	Impaired loans with no related allowance									Impaired loans with no related allowance
Commercial	Commercial									Commercial
										C&I	$	28,076	$	37,358	$	—	$	27,238
	C&I	$	28,513	$	35,307	$	—	$	25,006	CRE	11,482		17,585		—		12,983
	CRE	9,343		15,478		—		9,634		Construction	—		—		—		—
	Construction	—		—		—		—		Leases	1,162		1,162		—		598
Consumer	Consumer									Consumer
	Installment	1,846		2,428		—		1,881		Installment	1,678		2,183		—		1,753
	Home equity line	977		1,222		—		987		Home equity line	884		1,132		—		906
	Credit card	21		21		—		23		Credit card	19		19		—		26
	Residential mortgages	12,424		15,125		—		12,488		Residential mortgages	12,047		14,700		—		12,146
Subtotal	Subtotal	53,124		69,581		—		50,019		Subtotal	55,348		74,139		—		55,650
Impaired loans with a related allowance	Impaired loans with a related allowance									Impaired loans with a related allowance
Commercial	Commercial									Commercial
	C&I	7,279		7,350		10,042		5,984		C&I	17,893		18,062		9,117		7,199
	CRE	5,657		5,664		317		5,668		CRE	590		593		151		600
	Construction	—		—		—		—		Construction	—		—		—		—
										Leases	—		—		—		—
Consumer	Consumer									Consumer
	Installment	25,036		25,100		1,005		24,181		Installment	30,249		30,302		1,001		25,722
	Home equity line	6,655		6,655		254		6,715		Home equity line	6,537		6,537		217		6,684
	Credit card	794		794		263		823		Credit card	768		768		250		823
	Residential mortgages	12,398		12,487		1,416		12,414		Residential mortgages	12,650		12,739		890		12,675
Subtotal	Subtotal	57,819		58,050		13,297		55,785		Subtotal	68,687		69,001		11,626		53,703
	Total impaired loans	$	110,943	$	127,631	$	13,297	$	105,804	Total impaired loans	$	124,035	$	143,140	$	11,626	$	109,353

Note 1: These tables exclude loans fully charged off.

Note 2: The differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.

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As of December 31, 2014
Originated Loans				Unpaid				Average
		Recorded		Principal		Related		Recorded
(In thousands)		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	11,451	$	18,207	$	—	$	14,193
	CRE	16,874		22,696		—		18,027
	Construction	—		—		—		—
Consumer
	Installment	4,460		4,584		—		4,272
	Home equity line	1,723		1,754		—		1,792
	Credit card	16		16		—		32
	Residential mortgages	12,204		15,119		—		12,425
Subtotal		46,728		62,376		—		50,741
Impaired loans with a related allowance
Commercial
	C&I	308		344		72		326
	CRE	6,426		6,440		2,914		4,497
	Construction	—		—		—		—
Consumer
	Installment	20,445		21,024		1,178		19,513
	Home equity line	5,656		5,875		207		5,944
	Credit card	838		838		296		966
	Residential mortgages	13,047		13,158		1,283		13,121
Subtotal		46,720		47,679		5,950		44,367
	Total impaired loans	$	93,448	$	110,055	$	5,950	$	95,108

Note 1: These tables exclude loans fully charged off.

Note 2: The differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES


As of March 31, 2014
As of June 30, 2014										As of June 30, 2014
Originated Loans	Originated Loans			Unpaid				Average		Originated Loans			Unpaid				Average
		Recorded		Principal		Related		Recorded			Recorded		Principal		Related		Recorded
(In thousands)	(In thousands)	Investment		Balance		Allowance		Investment		(In thousands)	Investment		Balance		Allowance		Investment
Impaired loans with no related allowance	Impaired loans with no related allowance									Impaired loans with no related allowance
Commercial	Commercial									Commercial
	C&I	$	2,776	$	5,078	$	—	$	4,690	C&I	$	2,538	$	4,980	$	—	$	3,543
	CRE	21,777		20,050		—		20,196		CRE	20,635		26,026		—		22,249
	Construction	404		2,777		—		2,943		Construction	53		76		—		256
Consumer	Consumer									Consumer
	Installment	2,498		3,502		—		2,579		Installment	4,510		4,620		—		4,636
	Home equity line	997		1,309		—		1,004		Home equity line	1,041		1,047		—		1,067
	Credit card	42		42		—		50		Credit card	34		34		—		48
	Residential mortgages	12,137		14,845		—		12,201		Residential mortgages	12,729		15,748		—		12,828
Subtotal	Subtotal	40,631		47,603		—		43,663		Subtotal	41,540		52,531		—		44,627
Impaired loans with a related allowance	Impaired loans with a related allowance									Impaired loans with a related allowance
Commercial	Commercial									Commercial
	C&I	4,367		9,022		2,866		7,406		C&I	7,866		11,562		5,092		8,071
	CRE	9,799		9,878		2,918		9,864		CRE	4,849		4,851		112		829
	Construction	—		—		—		—		Construction	—		—		9		—
Consumer	Consumer									Consumer
	Installment	23,320		23,409		1,006		23,548		Installment	19,884		20,673		1,008		20,498
	Home equity line	5,934		5,934		223		5,891		Home equity line	5,915		6,145		201		5,995
	Credit card	992		992		307		1,025		Credit card	945		945		361		1,019
	Residential mortgages	14,061		14,161		1,241		14,067		Residential mortgages	13,568		13,678		1,019		13,612
Subtotal	Subtotal	58,473		63,396		8,561		61,801		Subtotal	53,027		57,854		7,802		50,024
	Total impaired loans	$	99,104	$	110,999	$	8,561	$	105,464	Total impaired loans	$	94,567	$	110,385	$	7,802	$	94,651

Note 1: These tables exclude loans fully charged off.

Note 2: The differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.

Troubled Debt Restructurings

In certain circumstances, the Corporation may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or modification of the adjustable rate provisions of the loan that would otherwise not be considered; however, forgiveness of principal is rarely granted. Concessionary modifications are classified as TDRs unless the modification is short-term, typically less than 90 days. TDRs accrue interest if the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms for a minimum of six consecutive payment cycles after the restructuring date. Acquired loans restructured after acquisition are not considered TDRs if the loans evidenced credit deterioration as of the Acquisition Date and are accounted for in pools.

The substantial majority of the Corporation's residential mortgage TDRs involve reducing the client's loan payment through an interest rate reduction for a set period of time based on the borrower's ability to service the modified loan payment. Modifications of mortgages retained in portfolio are handled using

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

proprietary modification guidelines, or the FDIC's Modification Program for residential first mortgages covered by loss share agreements (agreements between the Bank and the FDIC that afford the Bank significant protection against future losses). The Corporation participates in the U.S. Treasury's Home Affordable Modification Program for originated mortgages sold to and serviced for FNMA and FHLMC.

Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial real estate and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. The Corporation has modified certain loans according to provisions in loss share agreements. Losses associated with modifications on these loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under the loss share agreements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

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 ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014.


			As of March 31, 2015							As of June 30, 2015
(Dollars in thousands)	(Dollars in thousands)		Number of Loans	Recorded Investment		Unpaid Principal Balance		(Dollars in thousands)		Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans	Originated loans							Originated loans
	Commercial							Commercial
		C&I	47	$	16,923	$	23,666		C&I	56	$	29,454	$	36,538
		CRE	64	12,076		17,325			CRE	69	10,362		15,681
		Construction	31	—		—			Construction	31	—		—
		Total originated commercial	142	28,999		40,991			Total originated commercial	156	39,816		52,219
	Consumer							Consumer
		Installment	1,186	26,882		27,528			Installment	1,215	31,927		32,485
		Home equity lines	276	7,632		7,877			Home equity lines	271	7,421		7,669
		Credit card	230	815		815			Credit card	231	787		787
		Residential mortgages	316	24,822		27,612			Residential mortgages	316	24,697		27,439
		Total originated consumer	2,008	60,151		63,832			Total originated consumer	2,033	64,832		68,380
Total originated loans	Total originated loans		2,150	$	89,150	$	104,823	Total originated loans		2,189	$	104,648	$	120,599
Acquired loans	Acquired loans							Acquired loans
	Commercial							Commercial
		C&I	1	$	2	$	3		C&I	2	$	—	$	55
		CRE	3	2,453		2,635			CRE	3	930		1,018
		Total acquired commercial	4	2,455		2,638			Total acquired commercial	5	930		1,073
	Consumer							Consumer
		Installment	51	1,195		1,281			Installment	50	1,144		1,227
		Home equity lines	162	7,310		7,370			Home equity lines	174	7,138		7,205
		Residential mortgages	30	2,186		2,403			Residential mortgages	31	2,150		2,386
		Total acquired consumer	243	10,691		11,054			Total acquired consumer	255	10,432		10,818
Total acquired loans	Total acquired loans		247	$	13,146	$	13,692	Total acquired loans		260	$	11,362	$	11,891
FDIC acquired loans	FDIC acquired loans							FDIC acquired loans
	Commercial							Commercial
		C&I	8	$	—	$	1,355		C&I	8	$	—	$	1,299
		CRE	24	23,895		39,596			CRE	24	11,704		27,933
		Construction	9	346		9,552			Construction	9	525		9,542
		Total FDIC acquired commercial	41	24,241		50,503			Total FDIC acquired commercial	41	12,229		38,774
	Consumer							Consumer
		Home equity lines	70	8,909		8,914			Home equity lines	77	10,563		10,739
		Residential mortgages	1	185		185			Residential mortgages	1	184		184
		Total FDIC acquired consumer	71	9,094		9,099			Total FDIC acquired consumer	78	10,747		10,923
Total FDIC acquired loans	Total FDIC acquired loans		112	$	33,335	$	59,602	Total FDIC acquired loans		119	$	22,976	$	49,697
Total loans	Total loans							Total loans
	Commercial							Commercial
		C&I	56	$	16,925	$	25,024		C&I	66	$	29,454	$	37,892
		CRE	91	38,424		59,556			CRE	96	22,996		44,632
		Construction	40	346		9,552			Construction	40	525		9,542
		Total commercial	187	55,695		94,132			Total commercial	202	52,975		92,066
	Consumer							Consumer
		Installment	1,237	28,077		28,809			Installment	1,265	33,071		33,712
		Home equity lines	508	23,851		24,161			Home equity lines	522	25,122		25,613
		Credit card	230	815		815			Credit card	231	787		787
		Residential mortgages	347	27,193		30,200			Residential mortgages	348	27,031		30,009
		Total consumer	2,322	79,936		83,985			Total consumer	2,366	86,011		90,121
Total loans	Total loans		2,509	$	135,631	$	178,117	Total loans		2,568	$	138,986	$	182,187

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

Note 2: For acquired and FDIC acquired loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs and remaining purchase discount.



			As of December 31, 2014
(Dollars in thousands)			Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans
	Commercial
		C&I	41	$	7,123	$	13,887
		CRE	67	17,607		22,645
		Construction	31	—		—
		Total originated commercial	139	24,730		36,532
	Consumer
		Installment	1,205	24,905		25,608
		Home equity lines	270	7,379		7,629
		Credit card	238	854		854
		Residential mortgages	315	25,251		28,277
		Total originated consumer	2,028	58,389		62,368
Total originated loans			2,167	$	83,119	$	98,900
Acquired loans
	Commercial
		C&I	2	18		19
		CRE	3	2,542		2,595
		Total acquired commercial	5	2,560		2,614
	Consumer
		Installment	40	975		1,054
		Home equity lines	145	6,932		6,983
		Residential mortgages	26	1,633		1,823
		Total acquired consumer	211	9,540		9,860
Total acquired loans			216	$	12,100	$	12,474
FDIC acquired loans
	Commercial
		C&I	8	$	177	$	1,589
		CRE	24	25,499		42,226
		Construction	9	339		9,552
		Total FDIC acquired commercial	41	26,015		53,367
	Consumer
		Home equity lines	68	8,890		8,901
		Residential Mortgages	2	334		334
		Total FDIC acquired consumer	70	9,224		9,235
Total FDIC acquired loans			111	$	35,239	$	62,602
Total loans
	Commercial
		C&I	51	$	7,318	$	15,495
		CRE	94	45,648		67,466
		Construction	40	339		9,552
		Total commercial	185	53,305		92,513
	Consumer
		Installment	1,245	25,880		26,662
		Home equity lines	483	23,201		23,513
		Credit card	238	854		854
		Residential mortgages	343	27,218		30,434
		Total consumer	2,309	77,153		81,463
Total loans			2,494	$	130,458	$	173,976

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

As of March 31, 2014
(Dollars in thousands) Number of Loans Recorded Investment Unpaid Principal Balance
Originated loans
Commercial
C&I 40
$ 5,588
$ 12,546
CRE 57
16,432
17,079
Construction 32
2,769
2,777
Total originated commercial 129
24,789
32,402
Consumer
Installment 1,434
25,818
26,911
Home equity lines 244
6,931
7,243
Credit card 278
1,034
1,034
Residential mortgages 320
26,199
29,006
Total originated consumer 2,276
59,982
64,194
   Total originated loans 2,405
$ 84,771
$ 96,596
Acquired loans
Commercial
C&I 1
5
5
CRE 1
1,695
1,687
Total acquired commercial 2
1,700
1,692
Consumer
Installment 23
797
828
Home equity lines 40
1,926
1,953
Residential mortgages 11
758
864
Total acquired consumer 74
3,481
3,645
   Total acquired loans 76
$ 5,181
$ 5,337
FDIC acquired loans
Commercial
C&I 4
$ 677
$ 2,232
CRE 25
39,939
56,485
Construction 10
2,560
21,340
Total FDIC acquired commercial 39
43,176
80,057
Consumer
Home equity lines 52
6,269
6,269
Residential mortgages 2
339
339
Total FDIC acquired consumer 54
6,608
6,608
   Total FDIC acquired loans 93
$ 49,784
$ 86,665
Total loans
Commercial
C&I 45
$ 6,270
$ 14,783
CRE 83
58,066
75,251
Construction 42
5,329
24,117
Total commercial 170
69,665
114,151
Consumer
Installment 1,457
26,615
27,739
Home equity lines 336
15,126
15,465
Credit card 278
1,034
1,034
Residential mortgages 333
27,296
30,209
Total consumer 2,404
70,071
74,447
   Total loans 2,574
$ 139,736
$ 188,598

Note ~~1: The~~2: For acquired and FDIC acquired loans, the differences between the recorded investment and unpaid principal balance amounts ~~represents~~represent partial charge ~~offs.~~offs and remaining purchase discount.



			As of June 30, 2014
(Dollars in thousands)			Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans
	Commercial
		C&I	41	$	7,062	$	13,200
		CRE	60	21,407		25,567
		Construction	31	53		76
		Total originated commercial	132	28,522		38,843
	Consumer
		Installment	1,350	24,394		25,293
		Home equity lines	260	6,956		7,192
		Credit card	253	979		979
		Residential mortgages	326	26,297		29,426
		Total originated consumer	2,189	58,626		62,890
Total originated loans			2,321	$	87,148	$	101,733
Acquired loans
	Commercial
		C&I	1	4		4
		CRE	1	1,661		1,661
		Total acquired commercial	2	1,665		1,665
	Consumer
		Installment	30	979		1,032
		Home equity lines	90	4,710		4,750
		Residential mortgages	21	1,461		1,635
		Total acquired consumer	141	7,150		7,417
Total acquired loans			143	$	8,815	$	9,082
FDIC acquired loans
	Commercial
		C&I	6	$	177	$	1,070
		CRE	24	37,385		54,480
		Construction	10	2,605		21,331
		Total FDIC acquired commercial	40	40,167		76,881
	Consumer
		Home equity lines	62	8,489		8,489
		Residential mortgages	2	337		337
		Total FDIC acquired consumer	64	8,826		8,826
Total FDIC acquired loans			104	$	48,993	$	85,707
Total loans
	Commercial
		C&I	48	$	7,243	$	14,274
		CRE	85	60,453		81,708
		Construction	41	2,658		21,407
		Total commercial	174	70,354		117,389
	Consumer
		Installment	1,380	25,373		26,325
		Home equity lines	412	20,155		20,431
		Credit card	253	979		979
		Residential mortgages	349	28,095		31,398
		Total consumer	2,394	74,602		79,133
Total loans			2,568	$	144,956	$	196,522

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

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

Note 2: For acquired and FDIC acquired loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs and remaining purchase discount.

The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the three and six months ended ~~March 31,~~June 30, 2015 and 2014 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 three and six months ended ~~March 31,~~June 30, 2015 and 2014 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 three and six months ended ~~March 31,~~June 30, 2015 and 2014 were not material to the accompanying consolidated financial statements. Specific allowances for loan losses are established for loans whose terms have been modified in a TDR. Specific reserve allocations are generally assessed prior to loans being modified in a TDR, as most of these loans migrate from the Corporation's internal watch list and have been specifically allocated for as part of the Corporation's normal loan loss provisioning methodology. At ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, the Corporation had $~~6.1~~3.7 million, $0.2 million, and ~~$0.4~~$1.6 million, respectively, in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

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 ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, including TDRs that continue to accrue interest and TDRs included in nonperforming assets.


As of March 31, 2015
As of June 30, 2015																	As of June 30, 2015
	Accruing TDRs						Nonaccruing TDRs						Total		Total		Accruing TDRs							Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance		Current		Delinquent			Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	16,558	$	—	$	16,558	$	—	$	365	$	365	$	16,923	$	124	$	17,346	$	—		$	17,346	$	9,260	$	2,848	$	12,108	$	29,454	$	2,893
CRE	6,031		1,493		7,524		3,724		828		4,552		12,076		71		5,968		—			5,968		1,598		2,796		4,394		10,362		63
Construction	—		—		—		—		—		—		—		—		—		—			—		—		—		—		—		—
Total originated commercial	22,589		1,493		24,082		3,724		1,193		4,917		28,999		195		23,314		—			23,314		10,858		5,644		16,502		39,816		2,956
Consumer
Installment	24,701		409		25,110		1,528		244		1,772		26,882		1,005		29,715		603			30,318		1,390		219		1,609		31,927		1,001
Home equity lines	6,680		113		6,793		811		28		839		7,632		254		6,611		107			6,718		557		146		703		7,421		217
Credit card	721		77		798		—		17		17		815		263		684		100			784		—		3		3		787		250
Residential mortgages	14,299		2,286		16,585		5,020		3,217		8,237		24,822		1,416		13,925		2,105			16,030		4,957		3,710		8,667		24,697		890
Total originated consumer	46,401		2,885		49,286		7,359		3,506		10,865		60,151		2,938		50,935		2,915			53,850		6,904		4,078		10,982		64,832		2,358
Total originated TDRs	$	68,990	$	4,378	$	73,368	$	11,083	$	4,699	$	15,782	$	89,150	$	3,133	$	74,249	$	2,915		$	77,164	$	17,762	$	9,722	$	27,484	$	104,648	$	5,314
Acquired loans
Commercial
C&I	—		—		—		2		—		2		2		2		—		—			—		—		—		—		—		—
CRE	—		—		—		954		1,499		2,453		2,453		135		—		—			—		930		—		930		930		98
Total acquired commercial	—		—		—		956		1,499		2,455		2,455		137		—		—			—		930		—		930		930		98
Consumer
Installment	1,139		33		1,172		23		—		23		1,195		48		1,082		47			1,129		15		—		15		1,144		44
Home equity lines	6,610		564		7,174		136		—		136		7,310		—		6,387		618			7,005		133		—		133		7,138		—
Residential mortgages	1,335		—		1,335		616		235		851		2,186		—		1,313		—			1,313		615		222		837		2,150		—
Total acquired consumer	9,084		597		9,681		775		235		1,010		10,691		48		8,782		665			9,447		763		222		985		10,432		44
Total acquired TDRs	$	9,084	$	597	$	9,681	$	1,731	$	1,734	$	3,465	$	13,146	$	185	$	8,782	$	665		$	9,447	$	1,693	$	222	$	1,915	$	11,362	$	142
FDIC acquired loans
Commercial
C&I	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	—
CRE	—		23,895		23,895		—		—		—		23,895		2,026		—		11,704			11,704		—		—		—		11,704		2,393
Construction	—		346		346		—		—		—		346		293		525		—			525		—		—		—		525		96
Total FDIC acquired commercial	—		24,241		24,241		—		—		—		24,241		2,319		525		11,704			12,229		—		—		—		12,229		2,489
Consumer
Home equity lines	7,703		939		8,642		267		—		267		8,909		24		9,505		89			9,594		143		826		969		10,563		23
Residential mortgages	185		—		185		—		—		—		185		—		184		—			184		—		—		—		184		—
Total FDIC acquired consumer	7,888		939		8,827		267		—		267		9,094		24		9,689		89			9,778		143		826		969		10,747		23
Total FDIC acquired TDRs	$	7,888	$	25,180	$	33,068	$	267	$	—	$	267	$	33,335	$	2,343	$	10,214	$	11,793		$	22,007	$	143	$	826	$	969	$	22,976	$	2,512
Total loans
Commercial
C&I	$	16,558	$	—	$	16,558	$	2	$	365	$	367	$	16,925	$	126	$	17,346	$	—	��	$	17,346	$	9,260	$	2,848	$	12,108	$	29,454	$	2,893
CRE	6,031		25,388		31,419		4,678		2,327		7,005		38,424		2,232		5,968		11,704			17,672		2,528		2,796		5,324		22,996		2,554
Construction	—		346		346		—		—		—		346		293		525		—			525		—		—		—		525		96
Total commercial	22,589		25,734		48,323		4,680		2,692		7,372		55,695		2,651		23,839		11,704			35,543		11,788		5,644		17,432		52,975		5,543
Consumer
Installment	25,840		442		26,282		1,551		244		1,795		28,077		1,053		30,797		650			31,447		1,405		219		1,624		33,071		1,045
Home equity lines	20,993		1,616		22,609		1,214		28		1,242		23,851		278		22,503		814			23,317		833		972		1,805		25,122		240
Credit card	721		77		798		—		17		17		815		263		684		100			784		—		3		3		787		250
Residential mortgages	15,819		2,286		18,105		5,636		3,452		9,088		27,193		1,416		15,422		2,105			17,527		5,572		3,932		9,504		27,031		890
Total consumer	63,373		4,421		67,794		8,401		3,741		12,142		79,936		3,010		69,406		3,669			73,075		7,810		5,126		12,936		86,011		2,425
Total TDRs	$	85,962	$	30,155	$	116,117	$	13,081	$	6,433	$	19,514	$	135,631	$	5,661	$	93,245	$	15,373		$	108,618	$	19,598	$	10,770	$	30,368	$	138,986	$	7,968

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

																																		As of December 31, 2014
	Accruing TDRs							Nonaccruing TDRs						Total		Total		Accruing TDRs						Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total			Current		Delinquent		Total		TDRs		Allowance		Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	6,740	$	—	$	6,740		$	—	$	383	$	383	$	7,123	$	72	$	6,740	$	—	$	6,740	$	—	$	383	$	383	$	7,123	$	72
CRE	12,885		952		13,837			394		3,376		3,770		17,607		159		12,885		952		13,837		394		3,376		3,770		17,607		159
Construction	—		—		—			—		—		—		—		—		—		—		—		—		—		—		—		—
Total originated commercial	19,625		952		20,577			394		3,759		4,153		24,730		231		19,625		952		20,577		394		3,759		4,153		24,730		231
Consumer
Installment	22,254		726		22,980			1,663		262		1,925		24,905		1,178		22,254		726		22,980		1,663		262		1,925		24,905		1,178
Home equity lines	6,239		269		6,508			871		—		871		7,379		207		6,239		269		6,508		871		—		871		7,379		207
Credit card	775		60		835			15		4		19		854		296		775		60		835		15		4		19		854		296
Residential mortgages	13,440		3,538		16,978			5,006		3,267		8,273		25,251		1,283		13,440		3,538		16,978		5,006		3,267		8,273		25,251		1,283
Total originated consumer	42,708		4,593		47,301			7,555		3,533		11,088		58,389		2,964		42,708		4,593		47,301		7,555		3,533		11,088		58,389		2,964
Total originated TDRs	$	62,333	$	5,545	$	67,878		$	7,949	$	7,292	$	15,241	$	83,119	$	3,195	$	62,333	$	5,545	$	67,878	$	7,949	$	7,292	$	15,241	$	83,119	$	3,195
Acquired loans
Commercial
C&I	$	15	$	—	$	15		$	3	$	—	$	3	$	18	$	18	$	15	$	—	$	15	$	3	$	—	$	3	$	18	$	18
CRE	—		—		—			978		1,564		2,542		2,542		134		—		—		—		978		1,564		2,542		2,542		134
Total acquired commercial	15		—		15			981		1,564		2,545		2,560		152		15		—		15		981		1,564		2,545		2,560		152
Consumer
Installment	841		87		928			24		23		47		975		65		841		87		928		24		23		47		975		65
Home equity lines	6,186		607		6,793			139		—		139		6,932		9		6,186		607		6,793		139		—		139		6,932		9
Residential mortgages	868		—		868			470		295		765		1,633		2		868		—		868		470		295		765		1,633		2
Total acquired consumer	7,895		694		8,589			633		318		951		9,540		76		7,895		694		8,589		633		318		951		9,540		76
Total acquired TDRs	$	7,910	$	694	$	8,604		$	1,614	$	1,882	$	3,496	$	12,100	$	228	$	7,910	$	694	$	8,604	$	1,614	$	1,882	$	3,496	$	12,100	$	228
FDIC acquired loans
Commercial
C&I	$	—	$	177	$	177		$	—	$	—	$	—	$	177	$	—	$	—	$	177	$	177	$	—	$	—	$	—	$	177	$	—
CRE	5,123		20,376		25,499			—		—		—		25,499		2,879		5,123		20,376		25,499		—		—		—		25,499		2,879
Construction	339		—		339		��	—		—		—		339		295		339		—		339		—		—		—		339		295
Total FDIC acquired commercial	5,462		20,553		26,015			—		—		—		26,015		3,174		5,462		20,553		26,015		—		—		—		26,015		3,174
Consumer
Home equity lines	8,561		—		8,561			329		—		329		8,890		27		8,561		—		8,561		329		—		329		8,890		27
Residential mortgages	334		—		334			—		—		—		334		21		334		—		334		—		—		—		334		21
Total FDIC acquired consumer	8,895		—		8,895			329		—		329		9,224		48		8,895		—		8,895		329		—		329		9,224		48
Total FDIC acquired TDRs	$	14,357	$	20,553	$	34,910		$	329	$	—	$	329	$	35,239	$	3,222	$	14,357	$	20,553	$	34,910	$	329	$	—	$	329	$	35,239	$	3,222

Total Loans
Commercial
C&I	$	6,755	$	177	$	6,932		$	3	$	383	$	386	$	7,318	$	90	$	6,755	$	177	$	6,932	$	3	$	383	$	386	$	7,318	$	90
CRE	18,008		21,328		39,336			1,372		4,940		6,312		45,648		3,172		18,008		21,328		39,336		1,372		4,940		6,312		45,648		3,172
Construction	339		—		339			—		—		—		339		295		339		—		339		—		—		—		339		295
Total commercial	25,102		21,505		46,607			1,375		5,323		6,698		53,305		3,557		25,102		21,505		46,607		1,375		5,323		6,698		53,305		3,557
Consumer
Installment	23,095		813		23,908			1,687		285		1,972		25,880		1,243		23,095		813		23,908		1,687		285		1,972		25,880		1,243
Home equity lines	20,986		876		21,862			1,339		—		1,339		23,201		243		20,986		876		21,862		1,339		—		1,339		23,201		243
Credit card	775		60		835			15		4		19		854		296		775		60		835		15		4		19		854		296
Residential mortgages	14,642		3,538		18,180			5,476		3,562		9,038		27,218		1,306		14,642		3,538		18,180		5,476		3,562		9,038		27,218		1,306
Total consumer	59,498		5,287		64,785			8,517		3,851		12,368		77,153		3,088		59,498		5,287		64,785		8,517		3,851		12,368		77,153		3,088
Total TDRs	$	84,600	$	26,792	$	111,392		$	9,892	$	9,174	$	19,066	$	130,458	$	6,645	$	84,600	$	26,792	$	111,392	$	9,892	$	9,174	$	19,066	$	130,458	$	6,645

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES


As of March 31, 2014
As of June 30, 2014																	As of June 30, 2014
	Accruing TDRs						Nonaccruing TDRs						Total		Total		Accruing TDRs						Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance		Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	1,779	$	—	$	1,779	$	541	$	3,268	$	3,809	$	5,588	$	2,265	$	1,659	$	—	$	1,659	$	3,375	$	2,028	$	5,403	$	7,062	$	2,443
CRE	9,254		1,884		11,138		2,124		3,170		5,294		16,432		37		15,387		1,529		16,916		1,419		3,072		4,491		21,407		93
Construction	2,363		350		2,713		56		—		56		2,769		—		—		—		—		53		—		53		53		9
Total originated commercial	13,396		2,234		15,630		2,721		6,438		9,159		24,789		2,302		17,046		1,529		18,575		4,847		5,100		9,947		28,522		2,545
Consumer
Installment	22,757		480		23,237		2,352		229		2,581		25,818		1,006		21,404		694		22,098		2,074		222		2,296		24,394		1,008
Home equity lines	5,571		150		5,721		1,210		—		1,210		6,931		223		5,767		188		5,955		1,001		—		1,001		6,956		201
Credit card	930		95		1,025		—		9		9		1,034		307		857		86		943		—		36		36		979		361
Residential mortgages	14,749		2,876		17,625		4,968		3,606		8,574		26,199		1,241		15,256		2,349		17,605		5,335		3,357		8,692		26,297		1,019
Total originated consumer	44,007		3,601		47,608		8,530		3,844		12,374		59,982		2,777		43,284		3,317		46,601		8,410		3,615		12,025		58,626		2,589
Total originated TDRs	$	57,403	$	5,835	$	63,238	$	11,251	$	10,282	$	21,533	$	84,771	$	5,079	$	60,330	$	4,846	$	65,176	$	13,257	$	8,715	$	21,972	$	87,148	$	5,134
Acquired loans
Commercial
C&I	$	—	$	—	$	—	$	5	$	—	$	5	$	5	$	—	$	—	$	—	$	—	$	4	$	—	$	4	$	4	$	4
CRE	1,695		—		1,695		—		—		—		1,695		—		1,661		—		1,661		—		—		—		1,661		182
Total acquired commercial	1,695		—		1,695		5		—		5		1,700		—		1,661		—		1,661		4		—		4		1,665		186
Consumer
Installment	707		77		784		—		13		13		797		—		702		250		952		27		—		27		979		14
Home equity lines	1,322		494		1,816		110		—		110		1,926		—		4,026		576		4,602		108		—		108		4,710		—
Residential mortgages	758		—		758		—		—		—		758		—		670		—		670		764		27		791		1,461		—
Total acquired consumer	2,787		571		3,358		110		13		123		3,481		—		5,398		826		6,224		899		27		926		7,150		14
Total acquired TDRs	$	4,482	$	571	$	5,053	$	115	$	13	$	128	$	5,181	$	—	$	7,059	$	826	$	7,885	$	903	$	27	$	930	$	8,815	$	200
FDIC acquired loans
Commercial
C&I	$	300	$	377	$	677	$	—	$	—	$	—	$	677	$	12	$	—	$	177	$	177	$	—	$	—	$	—	$	177	$	—
CRE	5,035		34,904		39,939		—		—		—		39,939		3,915		4,909		32,476		37,385		—		—		—		37,385		1,129
Construction	682		1,878		2,560		—		—		—		2,560		68		666		1,939		2,605		—		—		—		2,605		68
Total FDIC acquired commercial	6,017		37,159		43,176		—		—		—		43,176		3,995		5,575		34,592		40,167		—		—		—		40,167		1,197
Consumer
Home equity lines	5,793		140		5,933		336		—		336		6,269		—		8,038		115		8,153		336		—		336		8,489		—
Residential mortgages	339		—		339		—		—		—		339		—		337		—		337		—		—		—		337		—
Total FDIC acquired consumer	6,132		140		6,272		336		—		336		6,608		—		8,375		115		8,490		336		—		336		8,826		—
Total FDIC acquired TDRs	$	12,149	$	37,299	$	49,448	$	336	$	—	$	336	$	49,784	$	3,995	$	13,950	$	34,707	$	48,657	$	336	$	—	$	336	$	48,993	$	1,197
Total loans
Commercial
C&I	$	2,079	$	377	$	2,456	$	546	$	3,268	$	3,814	$	6,270	$	2,277	$	1,659	$	177	$	1,836	$	3,379	$	2,028	$	5,407	$	7,243	$	2,447
CRE	15,984		36,788		52,772		2,124		3,170		5,294		58,066		3,952		21,957		34,005		55,962		1,419		3,072		4,491		60,453		1,404
Construction	3,045		2,228		5,273		56		—		56		5,329		68		666		1,939		2,605		53		—		53		2,658		77
Total commercial	21,108		39,393		60,501		2,726		6,438		9,164		69,665		6,297		24,282		36,121		60,403		4,851		5,100		9,951		70,354		3,928
Consumer
Installment	23,464		557		24,021		2,352		242		2,594		26,615		1,006		22,106		944		23,050		2,101		222		2,323		25,373		1,022
Home equity lines	12,686		784		13,470		1,656		—		1,656		15,126		223		17,831		879		18,710		1,445		—		1,445		20,155		201
Credit card	930		95		1,025		—		9		9		1,034		307		857		86		943		—		36		36		979		361
Residential mortgages	15,846		2,876		18,722		4,968		3,606		8,574		27,296		1,241		16,263		2,349		18,612		6,099		3,384		9,483		28,095		1,019
Total consumer	52,926		4,312		57,238		8,976		3,857		12,833		70,071		2,777		57,057		4,258		61,315		9,645		3,642		13,287		74,602		2,603
Total TDRs	$	74,034	$	43,705	$	117,739	$	11,702	$	10,295	$	21,997	$	139,736	$	9,074	$	81,339	$	40,379	$	121,718	$	14,496	$	8,742	$	23,238	$	144,956	$	6,531

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Corporation evaluates the loan for possible further impairment. The ALL may be increased, adjustments may be made in the allocation of the ALL, or partial charge-offs may be taken to further write-down the carrying value of the loan.

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

The following tables provide the number of loans modified in a TDR within the previous 12 months that subsequently defaulted during the three months ended June 30, 2015 and June 30, 2014, as well as the amount defaulted in these restructured loans.

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~~The following tables provide the number of loans modified in a TDR within the previous 12 months that subsequently defaulted during the three months ended~~ ~~March 31, 2015and March 31, 2014, as well as the amount defaulted in these restructured loans.~~


	As of March 31, 2015			As of June 30, 2015
(Dollars in thousands)	Number of Loans	Amount Defaulted		Number of Loans	Amount Defaulted
Originated loans
Commercial
C&I	—	$	—	—	$	—
CRE	—	—		—	—
Construction	—	—		—	—
Total originated commercial	—	—		—	—
Consumer
Installment	2	—		1	6
Home equity lines	—	—		—	—
Credit card	2	17		1	1
Residential mortgages	—	—		1	368
Total originated consumer	4	$	17	3	$	375
FDIC acquired loans
Commercial
C&I	1	$	427	—	$	—
CRE	—	—		—	—
Construction	—	—		—	—
Total FDIC acquired commercial	1	$	427	—	$	—
Acquired loans
Commercial
C&I	1	$	55	—	$	—
CRE	—	—		—	—
Construction	—	—		—	—
Total acquired commercial	1	$	55	—	$	—
Consumer
Installment				1	33
Home equity lines				—	—
Residential mortgages				—	—
Total acquired consumer				1	$	33
Total loans
Commercial
C&I	2	$	482	—	$	—
CRE	—	—		—	—
Construction	—	—		—	—
Total commercial	2	482		—	—
Consumer
Installment	2	—		2	39
Home equity lines	—	—		—	—
Credit card	2	17		1	1
Residential mortgages	—	—		1	368
Total consumer	4	17		4	408
Total	6	$	499	4	$	408

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FIRSTMERIT CORPORATION AND SUBSIDIARIES


	As of March 31, 2014			As of June 30, 2014
(Dollars in thousands)	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Originated loans
Commercial
C&I	1	$	1,557	1	$	170
CRE	1	376		1	363
Construction	—	—		—	—
Total originated commercial	2	1,933		2	533
Consumer
Installment	—	—		1	3
Home equity lines	—	—		—	—
Credit card	3	4,839		7	31
Residential mortgages	—	—		1	99
Total originated consumer	3	$	4,839	9	$	133
FDIC acquired loans
Commercial
C&I	—	$	—	—	$	—
CRE	—	—		—	—
Construction	—	—		—	—
Total FDIC acquired commercial	—	$	—	—	$	—
Acquired loans
Commercial
C&I				—	$	—
CRE				—	—
Construction				—	—
Total acquired commercial				—	—
Consumer
Installment				—	—
Home equity lines				—	—
Residential mortgages				—	—
Total acquired consumer				—	$	—
Total loans
Commercial
C&I	1	$	1,557	1	$	170
CRE	1	376		1	363
Construction	—	—		—	—
Total commercial	2	1,933		2	533
Consumer
Installment	—	—		1	3
Home equity lines	—	—		—	—
Credit card	3	4,839		7	31
Residential mortgages	—	—		1	99
Total consumer	3	4,839		9	133
Total	5	$	6,772	11	$	666

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5. 5. Goodwill and Other Intangible Assets

Goodwill

Goodwill totaled $741.7 million as of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014. Goodwill is not amortized but is evaluated for impairment on an annual basis at November 30 of each year or whenever events or changes in circumstances indicate the carrying value may not be recoverable. No events or circumstances since the November 30, 2014 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.

Other Intangible Assets

The Corporation has other intangible assets that are amortized, consisting of core deposit intangibles, lease intangibles and trust relationship intangibles. The following tables show the gross carrying amount, accumulated amortization, and net carrying amount of these intangible assets.


	March 31, 2015							June 30, 2015
	Gross Carrying		Accumulated			Net Carrying		Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount		Amount		Amortization			Amount
Core deposit intangibles ⁽¹⁾	$	82,323	$	(22,073	)	$	60,250	$	82,323	$	(24,150	)	$	58,173
Lease intangible	238		(185		)	53		238		(194		)	44
Trust Relationships ⁽²⁾	14,000		(5,881		)	8,119		14,000		(6,393		)	7,607
	$	96,561	(28,139		)	$	68,422	$	96,561	(30,737		)	$	65,824

	December 31, 2014							December 31, 2014
	Gross Carrying		Accumulated			Net Carrying		Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount		Amount		Amortization			Amount
Core deposit intangibles ⁽¹⁾	$	82,323	$	(19,996	)	$	62,327	$	82,323	$	(19,996	)	$	62,327
Lease intangible	238		(176		)	62		238		(176		)	62
Trust Relationships ⁽²⁾	14,000		(5,369		)	8,631		14,000		(5,369		)	8,631
	$	96,561	$	(25,541	)	$	71,020	$	96,561	$	(25,541	)	$	71,020

	March 31, 2014							June 30, 2014
	Gross Carrying		Accumulated			Net Carrying		Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount		Amount		Amortization			Amount
Core deposit intangibles⁽¹⁾	$	87,533	$	(18,352	)	$	69,181	$	87,533	$	(20,637	)	$	66,896
Lease intangible	238		(149		)	89		618		(538		)	80
Trust relationships ⁽²⁾	14,000		(3,451		)	10,549		14,000		(4,090		)	9,910
	$	101,771	$	(21,952	)	$	79,819	$	102,151	$	(25,265	)	$	76,886

(1) Core deposit intangibles are amortized on an accelerated basis over their estimated useful lives, ~~,which~~which range from 10-15 years.

(2) Trust relationship intangibles are amortized on an accelerated basis on their estimated useful lives of 12 years.

Amortization expense for intangible assets was ~~$2.6~~$5.2 million in the ~~three~~six months ended ~~March 31,~~June 30, 2015, compared to ~~$2.9~~$5.9 million in the ~~three~~six months ended ~~March 31,~~June 30, 2014. Estimated amortization expense for each of the next five years is as follows: remainder of 2015 - ~~$7.8 million~~;$5.2 million; 2016 - $9.2 million; 2017 - $8.2 million; 2018 - $7.3 million; and 2019 - $6.5 million.

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6. 6. Shareholders' Equity

Common Stock Warrant

~~The~~On May 13, 2015, the Corporation ~~has an outstanding~~repurchased a warrant previously issued by ~~Citizen’s~~Citizens to the U.S. Treasury. The warrant, which entitled the U.S. Treasury to ~~initially~~ purchase ~~2,408,203~~2,571,998 shares of FirstMerit Common ~~Stock. Due to a dividend protection clause, the strike price is reduced by~~Stock at an amount equivalent to the dividend as a percentage of the closing market price on the day prior to the ex-dividend date. The adjusted shares are calculated by dividing the original proceeds by the adjusted strike price. At March 31, 2015, the adjusted strike price isof $17.50, was purchased for $12.2 million. In accordance with GAAP, the Corporation recorded a ~~corresponding adjusted number~~reduction to capital surplus in the amount of ~~2,571,998 shares issuable upon exercise of~~$9.2 million in conjunction with this warrant repurchase that reflected the ~~warrant issued to~~excess amount paid over the ~~U.S. Treasury and currently available for purchase.~~previously stated amount.

Preferred Stock

The Corporation has 7,000,000 shares of authorized Preferred Stock and has designated 115,000 shares of its Preferred Stock as 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, of which 100,000 shares were issued. The Preferred Stock pays cash dividends quarterly in arrears on the 4^th day of February, May, August, and November.

Earnings Per Share

Basic net income per common share is calculated using the two-class method to determine income attributable to common shareholders. Net income attributable to Common Stock is then divided by the weighted-average number of Common Stock outstanding during the period.

Diluted net income per common share is calculated under the more dilutive of either the treasury method or two-class method. Adjustments to the weighted-average number of shares of Common Stock outstanding are made only when such adjustments will dilute earnings per common share. Net income attributable to Common Stock is then divided by the weighted-average number of Common Stock and Common Stock equivalents outstanding during the period.

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The reconciliation between basic and diluted EPS using the two-class method and treasury stock method is presented as follows:


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands, except per share amounts)	2015		2014		2015		2014		2015		2014
Basic EPS:
Net income	$	57,139	$	53,455	$	56,584	$	59,519	$	113,723	$	112,974
Less:
Cash dividends on 5.875% non-cumulative perpetual series A, Preferred Stock	1,469		1,469		1,469		1,469		2,938		2,938
Income allocated to participating securities	407		380		467		489		937		926
Net income attributable to common shareholders	$	55,263	$	51,606	$	54,648	$	57,561	$	109,848	$	109,110
Weighted average Common Stock outstanding used in basic EPS	165,411		165,060		165,736		165,335		165,574		165,198
Basic net income per common share	$	0.33	$	0.31	$	0.33	$	0.35	$	0.66	$	0.66

Diluted EPS:
Income used in diluted earnings per common share calculation	$	55,263	$	51,606	$	54,648	$	57,561	$	109,848	$	109,110
Weighted average Common Stock outstanding used in basic EPS	165,411		165,060		165,736		165,335		165,574		165,198
Add: Common Stock equivalents:
Warrant and stock plans	592		944		541		812		515		854
Weighted average Common and Common Stock equivalent shares outstanding	166,003		166,004		166,277		166,147		166,089		166,052
Diluted net income per common share	$	0.33	$	0.31	$	0.33	$	0.35	$	0.66	$	0.66

Common Stock equivalents consist of employee stock award plans and the Common Stock warrant. These Common Stock equivalents do not enter into the calculation of diluted EPS if the impact would be anti-dilutive, that is, increase EPS or reduce a loss per share. Antidilutive potential Common Stock for the ~~three~~six months ended ~~March 31,~~June 30, 2015 and 2014 totaled 0.8 million and 1.0 million, respectively.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

7. Segment Information

Management monitors the Corporation’s results by an internal performance measurement system, which provides lines of business results and key performance measures. The profitability measurement system is based on internal financial management practices designed to produce consistent results and reflect the underlying economics of the businesses. The development and application of these methodologies is a dynamic process. Accordingly, these measurement tools and assumptions may be revised periodically to reflect methodological, product, and/or management organizational changes. Further, these tools measure financial results that support the strategic objectives and internal organizational structure of the Corporation. Consequently, the information presented is not necessarily comparable with similar information for other financial institutions.

A description of each business, selected financial performance, and the methodologies used to measure financial performance are presented below.

Commercial – The commercial line of business provides a full range of lending, depository, and related financial services to middle-market corporate, industrial, financial, core business banking, public entities, and leasing clients. Commercial also includes personal business from commercial loan clients in coordination with the Wealth Management segment. Products and services offered include commercial term loans, revolving credit arrangements, asset-based lending, leasing, commercial

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

mortgages, real estate construction lending, letters of credit, treasury management, government banking, international banking, merchant card and other depository products and services.

Retail – The retail line of business includes consumer lending and deposit gathering, residential mortgage loan origination and servicing, and branch-based small business ~~banking (formerly known as the "micro business" line).~~banking. 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, eliminating companies, community development operations, the treasury group, which includes the securities portfolio, wholesale funding and asset liability management activities, and the economic impact of certain assets, capital and support functions not specifically identifiable with the three primary lines of business.

The accounting policies of the lines of businesses are the same as those of the Corporation described in Note 1 (Summary of Significant Accounting Policies) to the 2014 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

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and liabilities within each business unit. In the first quarter of 2014, Management changed the estimate regarding the funds transfer pricing crediting rate provided on non-maturity deposits. Assets and liabilities are match-funded based on their maturity, prepayment and/or repricing characteristics. As a result, the three primary lines of business are generally insulated from changes in interest rates. Changes in net interest income due to changes in rates are reported in Other by the treasury group. Capital has been allocated on an economic risk basis. Loans and lines of credit have been allocated capital based upon their respective credit risk. Asset management holdings in the Wealth segment have 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 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.

5859

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Substantially all of the Corporation’s business is conducted in the United States of America. The following tables present a summary of financial results as of and for the three and six months ended~~March 31,~~June 30, 2015 and ~~March 31,~~June 30, 2014:


												FirstMerit																						FirstMerit
(In thousands)	Commercial			Retail		Wealth			Other			Consolidated		Commercial				Retail				Wealth						Other						Consolidated
March 31, 2015	QTD			QTD		QTD			QTD			QTD
June 30, 2015														QTD		YTD		QTD		YTD		QTD			YTD			QTD			YTD			QTD		YTD
OPERATIONS:
Net interest income/(loss)	$	99,844		$	91,095	$	5,353		$	(10,669	)	$	185,623	$	101,342	$	202,830	$	92,501	$	184,527	$	5,452		$	10,932		$	(14,177	)	$	(27,548	)	$	185,118	$	370,741
Provision (recapture) for loan losses	(526		)	7,533		(170		)	1,411			8,248
Provision/ (recapture) for loan losses														2,285		1,759		8,447		15,981		(1		)	(171		)	(1,765		)	(355		)	8,966		17,214
Noninterest income	22,490			21,737		13,976			7,644			65,847		21,918		44,408		23,964		45,701		14,816			28,792			5,884			13,528			66,582		132,429
Noninterest expense	61,653			88,271		13,719			(2,991		)	160,652		61,032		122,685		87,799		176,070		13,461			27,181			(618		)	(3,610		)	161,674		322,326
Net income/(loss)	39,785			11,068		3,756			2,530			57,139		38,963		79,816		13,142		24,815		4,425			8,264			54			828			56,584		113,723
AVERAGES:
Assets	$	9,454,218		$	5,845,417	$	302,186		$	9,303,273		$	24,905,094	$	9,437,824	$	9,445,975	$	5,951,665	$	5,898,835	$	290,798		$	296,461		$	9,449,572		$	9,374,463		$	25,129,859	$	25,015,734
Loans	9,506,529			5,570,590		292,016			58,046			15,427,181		9,533,843		9,520,262		5,702,015		5,636,666		281,013			286,484			60,490			59,274			15,577,361		15,502,686
Earning assets	9,794,483			5,582,849		292,016			6,431,069			22,100,417		9,828,867		9,811,770		5,707,400		5,645,469		281,013			286,484			6,535,441			6,483,544			22,352,721		22,227,267
Deposits	6,886,945			11,124,158		1,240,960			536,862			19,788,925		6,777,434		6,831,887		11,105,954		11,115,005		1,188,563			1,214,617			610,711			573,990			19,682,662		19,735,499
Economic capital	848,890			479,188		55,187			1,483,097			2,866,362		1,355,049		1,349,289		767,803		763,446		111,770			109,969			657,810			656,765			2,892,432		2,879,469


											FirstMerit																					FirstMerit
(In thousands)	Commercial		Retail		Wealth			Other			Consolidated		Commercial					Retail				Wealth				Other						Consolidated
March 31, 2014	QTD		QTD		QTD			QTD			QTD
June 30, 2014													QTD			YTD		QTD		YTD		QTD		YTD		QTD			YTD			QTD		YTD
OPERATIONS:
Net interest income/(loss)	$	105,063	$	93,250	$	4,678		$	(9,091	)	$	193,900	$	106,217		$	210,422	$	96,108	$	190,454	$	4,927	$	9,717	$	(11,675	)	$	(21,114	)	$	195,577	$	389,479
Provision (recapture) for loan losses	5,706		8,339		(45		)	536			14,536
Provision/ (recapture) for loan losses													(1,346		)	4,360		12,443		20,782		396		351		3,760			4,297			15,253		29,790
Noninterest income	21,306		27,035		13,464			5,465			67,270		26,681			47,987		25,345		52,380		14,052		27,516		6,482			11,948			72,560		139,831
Noninterest expense	63,966		96,701		13,518			(4,854		)	169,331		63,441			127,407		89,383		186,091		13,177		26,695		1,399			(3,460		)	167,400		336,733
Net income/(loss)	36,884		9,909		3,035			3,627			53,455		46,875			83,885		12,758		23,375		3,515		6,622		(3,629		)	(907		)	59,519		112,974
AVERAGES:
Assets	$	9,072,390	$	5,449,856	$	241,618		$	9,380,706		$	24,144,570	$	9,192,463		$	9,132,758	$	5,546,492	$	5,504,382	$	258,845	$	250,279	$	9,293,476		$	9,329,040		$	24,291,276	$	24,216,459
Loans	9,061,371		5,084,555		230,429			36,126			14,412,481		9,176,853			9,119,431		5,198,481		5,142,098		248,188		239,358		78,797			57,313			14,702,319		14,558,200
Earning assets	9,308,031		5,101,740		230,429			6,263,663			20,903,863		9,465,291			9,387,095		5,218,868		5,160,893		248,188		239,358		6,435,149			6,349,614			21,367,496		21,136,960
Deposits	6,645,640		11,753,015		1,009,811			228,039			19,636,505		6,545,608			6,595,348		11,720,730		11,736,766		1,050,002		1,030,018		180,455			204,132			19,496,795		19,566,264
Economic capital	654,922		320,090		57,784			1,700,430			2,733,226		1,301,532			1,300,177		744,110		724,203		100,361		98,684		622,349			627,822			2,768,352		2,750,886

8. 8. Derivatives and Hedging Activities

The Corporation, through its mortgage banking and risk management operations, is party to various derivative instruments that are used for asset and liability management and customers' financing needs. Derivative instruments are contracts between two or more parties that have a notional amount and underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index or other component. The interaction between the

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notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the market value of the derivative contract.

The predominant derivative and hedging activities include interest rate swaps and certain mortgage banking activities. Generally, these instruments help the Corporation manage exposure to market risk, and meet customer financing needs. Market risk represents the possibility that economic value or net interest income will

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

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.

Derivatives Designated in Hedge Relationships

The Corporation's fixed rate loans result in exposure to losses in value as interest rates change. The risk management objective for hedging fixed rate loans is to convert the fixed rate received to a floating rate. The Corporation hedges exposure to changes in the fair value of fixed rate loans through the use of swaps. For a qualifying fair value hedge, changes in the value of the derivatives that have been highly effective as hedges are recognized in current period earnings along with the corresponding changes in the fair value of the designated hedged item attributable to the risk being hedged.

At ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, the notional values or contractual amounts and fair value of the Corporation's derivatives designated in hedge relationships were as follows:


	Asset Derivatives												Liability Derivatives												Asset Derivatives												Liability Derivatives
	March 31, 2015				December 31, 2014				March 31, 2014				March 31, 2015				December 31, 2014				March 31, 2014				June 30, 2015				December 31, 2014				June 30, 2014				June 30, 2015				December 31, 2014				June 30, 2014
(In thousands)	Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽²⁾		Notional/ Contract Amount		Fair Value ⁽²⁾		Notional/ Contract Amount		Fair Value ⁽²⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽²⁾		Notional/ Contract Amount		Fair Value ⁽²⁾		Notional/ Contract Amount		Fair Value ⁽²⁾
Interest rate swaps:
Commercial Loan Swaps (FRAPS)	$	—	$	—	$	—	$	—	$	5,389	$	1	$	89,591	$	6,063	$	93,313	$	6,683	$	117,543	$	10,392	$	—	$	—	$	—	$	—	$	—	$	—	$	75,794	$	5,104	$	93,313	$	6,683	$	102,828	$	8,989
Sub Debt Swap	250,000		12,688		250,000		5,256		—		—		—		—		—		—		—		—		250,000		1,153		250,000		5,256		—		—		—		—		—		—		—		—
Fair value hedges	$	250,000	$	12,688	$	250,000	$	5,256	$	5,389	$	1	$	89,591	$	6,063	$	93,313	$	6,683	$	117,543	$	10,392	$	250,000	$	1,153	$	250,000	$	5,256	$	—	$	—	$	75,794	$	5,104	$	93,313	$	6,683	$	102,828	$	8,989

(1)Included in "Other assets" on the Consolidated Balance Sheets

(2)Included in "Other liabilities" on the Consolidated Balance Sheets

Fair Value Hedges. Prior to 2009, the Corporation entered into interest rate swaps with dealer counterparties to convert certain fixed rate loans to variable rate instruments over the terms of the loans (termed by the Corporation as the FRAP Program). These interest rate swaps are designated as fair value hedges and met the criteria to qualify for the short cut method of accounting. Based on this shortcut method of accounting treatment, no ineffectiveness is assumed. The Corporation discontinued originating interest rate swaps under the FRAP Program in February 2008.

During the fourth quarter of 2014, the Corporation entered into a $250.0 million interest rate swap simultaneously with its long-term debt issuance for interest rate risk management purposes. This interest rate swap effectively modifies the receipt of fixed-rate interest amounts in exchange for floating-rate interest payments over the life of the swap, without an exchange of the underlying principal amount. This interest rate swap was designated as a fair value hedge, and through application of the ~~“short cut~~“shortcut method of accounting”, there is an assumption that the hedge is effective in offsetting changes in the fair value of the long-term debt due to changes in the U.S. LIBOR swap rate (the designated benchmark interest rate).

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Derivatives Not Designated in Hedge Relationships

As of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, the notional values or contractual amounts and fair value of the Corporation's derivatives not designated in hedge relationships were as follows:


	Asset Derivatives												Liability Derivatives												Asset Derivatives												Liability Derivatives
	March 31, 2015				December 31, 2014				March 31, 2014				March 31, 2015				December 31, 2014				March 31, 2014				June 30, 2015				December 31, 2014				June 30, 2014				June 30, 2015				December 31, 2014				June 30, 2014
(In thousands)	Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value⁽²⁾		Notional/ Contract Amount		Fair Value ⁽²⁾		Notional/ Contract Amount		Fair Value ⁽²⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value⁽²⁾		Notional/ Contract Amount		Fair Value ⁽²⁾		Notional/ Contract Amount		Fair Value ⁽²⁾
Interest rate swaps	$	1,718,850	$	59,147	$	1,673,012	$	48,366	$	1,603,125	$	44,672	$	1,718,850	$	59,147	$	1,673,012	$	48,366	$	1,603,125	$	44,672	$	1,726,600	$	46,216	$	1,673,012	$	48,366	$	1,618,463	$	47,952	$	1,726,600	$	46,216	$	1,673,012	$	48,366	$	1,618,463	$	47,952
Mortgage loan commitments	51,937		388		102,523		1,408		132,614		1,575		—		—		—		—		—		—		52,024		342		102,523		1,408		169,232		2,491		—		—		—		—		—		—
Forward sales contracts	11,758		—		47,657		—		53,404		167		—		68		—		272		—		—		15,200		106		—		—		—		—		—		—		47,657		272		80,161		545
Credit contracts	—		—		10,001		—		—		—		80,047		—		69,227		—		49,456		—		—		—		10,001		—		15,269		—		73,512		—		69,227		—		52,319		10
Foreign exchange	40,537		350		22,406		167		17,630		52		10,052		169		6,580		118		15,898		42		29,687		256		22,406		167		25,623		107		15,823		177		6,580		118		7,568		48
Equity swap	—		—		—		—		—		—		30,896		—		75,138		—		61,859		—		—		—		—		—		—		—		31,718		—		25,198		—		25,397		—
Total	$	1,823,082	$	59,885	$	1,855,599	$	49,941	$	1,806,773	$	46,466	$	1,839,845	$	59,384	$	1,823,957	$	48,756	$	1,730,338	$	44,714	$	1,823,511	$	46,920	$	1,807,942	$	49,941	$	1,828,587	$	50,550	$	1,847,653	$	46,393	$	1,821,674	$	48,756	$	1,783,908	$	48,555

(1)Included in "Other assets" on the Consolidated Balance Sheets

(2) Included in "Other liabilities" on the Consolidated Balance Sheets

Interest Rate Swaps. The Corporation's Back-to-Back Program is an interest rate swap program for commercial loan customers that provides the customer with a fixed rate loan while creating a variable rate asset for the Corporation through the customer entering into an interest rate swap with the Corporation on terms that match the loan. The Corporation offsets its risk exposure by entering into an offsetting interest rate swap with a dealer counterparty. These swaps do not qualify as designated hedges; therefore, each swap is accounted for as a 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" and the "mortgage warehouse". A pipeline loan is one in which the Corporation has entered into a written mortgage loan commitment with a potential borrower that will be held for resale. Once a mortgage loan is closed and funded, it is included within the mortgage warehouse of loans awaiting sale and delivery into the secondary market.

Written loan commitments that relate to the origination of mortgage loans that will be held for resale are considered free-standing derivatives and do not qualify for hedge accounting. Written loan commitments generally have a term of up to 60 days before the closing of the loan. The loan commitment does not bind the potential borrower to entering into the loan, nor does it guarantee that the Corporation will approve the potential borrower for the loan. Therefore, when determining fair value, the Corporation makes estimates of expected "fallout" (loan commitments not expected to close), using models which consider cumulative historical fallout rates and other factors. In addition, expected net future cash flows related to loan servicing activities are included in the fair value measurement of a written loan commitment.

Written loan commitments in which the borrower has locked in an interest rate ~~results~~result 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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The Corporation's warehouse (mortgage loans held for sale) is subject to changes in fair value, due to fluctuations in interest rates from the loan's closing date through the date of sale of the loan into the secondary market. Typically, the fair value of the warehouse declines in value when interest rates increase and rises in value when interest rates decrease. To mitigate this risk, the Corporation enters into forward sales contracts on a significant portion of the warehouse to provide an economic hedge against those changes in fair value. Mortgage loans held for sale and the forward sales contracts were recorded at fair value with ineffective changes in value recorded in current earnings as Loan sales and servicing income.

Credit contracts. The Corporation has bought and sold credit protection in the form of participations onin interest rate swaps (swap participations). These swap participations, which meet the definition of credit derivatives, were entered into in the ordinary course of business. Credit derivatives, whereby the Corporation has purchased credit protection, entitles the Corporation to receive a payment from the counterparty when the customer fails to make payment on any amounts due to the Corporation. Swap participations whereby the Corporation has purchased credit protection have maturities that range between ~~three~~3 to ~~eight~~8 years. For swap participations where the Corporation sold credit protection, the Corporation has guaranteed payment in the event that the counterparty experiences a loss on the swap due to a failure to pay by the Corporation's commercial loan customer. The Corporation simultaneously entered into reimbursement agreements with the commercial loan customers obligating the customers to reimburse the Corporation for any payments it makes under the swap participations. The Corporation monitors its payment risk on its swap participations by monitoring the creditworthiness of its commercial loan customers, which is based on the normal credit review process the Corporation would have performed had it entered into these derivative instruments directly with the commercial loan customers. Credit derivatives whereby the Corporation has sold credit protection have maturities ranging from less than ~~one~~1 year to ~~nine~~9 years. The Corporation's maximum estimated exposure to sold swap participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on interest rate curve simulations and assuming 100% default by all obligors on the maximum values, was approximately ~~$5.7~~$4.5 million as of ~~March 31,~~June 30, 2015. The fair values of the written swap participations were not material at ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014.

Gains and losses recognized in income on non-designated hedging instruments for the three and six months ended ~~March 31,~~June 30, 2015 and 2014 are as follows:


Derivatives not designated as hedging instruments	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain / (Loss) Recognized in Income on Derivatives (In thousands)						Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain / (Loss) Recognized in Income on Derivatives (In thousands)
		Three Months Ended March 31,							Three Months Ended June 30,						Six Months Ended June 30,
		2015			2014				2015			2014			2015			2014
Mortgage loan commitments	Loan sales and servicing income	$	(1,020	)	$	684		Loan sales and servicing income	$	(46	)	$	916		$	(1,066	)	$	1,600
Forward sales contracts	Loan sales and servicing income	204			(216		)	Loan sales and servicing income	175			(713		)	378			(929		)
Foreign exchange contracts	Other operating income	(877		)	(221		)	Other operating income	165			328			(712		)	107
Equity swap	Other operating expense	—			—			Other operating expense	—			—			—			—
Total		$	(1,693	)	$	247			$	294		$	531		$	(1,400	)	$	778

Counterparty Credit Risk

Like other financial instruments, derivatives contain an element of "credit risk" or the possibility that the Corporation will incur a loss because a counterparty, which may be a bank, a broker-dealer, a derivative clearing organization, 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 ALCO, and only within the Corporation's Board of Directors Credit Committee approved credit exposure limits. Where contracts have been created for customers, the

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Corporation enters into derivatives with dealers to offset its risk exposure. To manage the credit exposure to exchanges and counterparties, the Corporation generally enters into bilateral collateral agreements with collateral delivery thresholds on all bilateral derivatives. Beyond the threshold levels, collateral in the form of securities made available from the investment portfolio or other forms of collateral acceptable under the bilateral collateral agreements are provided. The threshold levels for each counterparty are ~~established~~approved by the Corporation's ~~ALCO.~~Board of Directors. The Corporation generally posts collateral in the form of highly rated Government Agency issued bonds or MBS.

The majority of the Corporation's over-the-counter derivative transactions are cleared through a recognized derivative clearing organization ("Clearinghouse"). ~~For cleared derivatives, the Clearinghouse is the Corporation's counterparty.~~ For cleared derivatives, the Clearinghouse is the Corporation's counterparty. The Clearinghouse notifies the clearing agent of the required initial and variation margin and the clearing agent notifies the Corporation of the required initial and variation margin. The requirement that the Corporation post initial and variation margin through the clearing agent to the Clearinghouse exposes the Corporation to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral is posted daily through a clearing agent for changes in the value of cleared derivatives.

~~Collateral~~The fair value of investment securities posted as collateral against derivative liabilities was ~~$53.6~~$45.6 million, $53.5 million, and $~~67.7~~64.0 million as of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, respectively.

Derivative assets and liabilities are recorded at fair value on the balance sheet and do not take into account the effects of master netting agreements the Corporation has with its financial institution counterparties. These master netting agreements allow the Corporation to settle all derivative contracts held with a single financial institution counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. Collateral, usually in the form of investment securities, is posted by the counterparty in the net liability position in accordance with contract thresholds. The following tables illustrate the potential effect of the Corporation's derivative master netting arrangements, by type of financial instrument, on the Corporation's statement of financial position as of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014. The swap agreements the Corporation has in place with its commercial customers are not subject to enforceable master netting arrangements, and, therefore, are excluded from these tables.


	As of March 31, 2015																	As of June 30, 2015
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet			Net amounts presented in the consolidated balance sheet			Gross amounts not offset in the consolidated balance sheet							Net amount		Gross amounts recognized			Gross amounts offset in the consolidated balance sheet			Net amounts presented in the consolidated balance sheet			Gross amounts not offset in the consolidated balance sheet						Net amount
(In thousands)	Gross amounts recognized				Financial instruments ⁽¹⁾				Collateral⁽²⁾						Financial instruments ⁽¹⁾			Gross amounts recognized			Gross amounts offset in the consolidated balance sheet		Collateral⁽²⁾										Net amount
Derivative Assets			Gross amounts offset in the consolidated balance sheet
Interest rate swaps - designated	$	12,688	$	—		Net amounts presented in the consolidated balance sheet	$	12,688		$	—		$	—		Net amount		$	12,688	$	1,153		$	Net amounts presented in the consolidated balance sheet		—		$	1,153		$	—		$	—	$	1,153
Interest rate swaps - non-designated	$	67	$	—		$	67		$	(67	)	$	—			$	—	414			$	—		414			(414		)	—			—
Foreign exchange	219		—			219			47			(266		)		—		164			—			164			(49		)	(115		)	—
Total derivative assets	$	12,974	$	—		$	12,974		$	(20	)	$	(266	)		$	12,688	$	1,731		$	—		$	1,731		$	(463	)	$	(115	)	$	1,153

Derivative liabilities
Interest rate swaps - designated	$	6,063	$	—		$	6,063		$	—		$	(6,063	)		$	—	$	5,104		$	—		$	5,104		$	—		$	(5,104	)	$	—
Interest rate swaps - non-designated	59,080		—			59,080			(67		)	(59,013		)		—		45,802			—			45,802			(414		)	(45,388		)	—
Foreign exchange	47		—			47			47			(94		)		—		49			—			49			(49		)	—			—
Total derivative liabilities	$	65,190	$	—		$	65,190		$	(20	)	$	(65,170	)		$	—	$	50,955		$	—		$	50,955		$	(463	)	$	(50,492	)	$	—

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	As of December 31, 2014																As of December 31, 2014
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet			Net amounts presented in the consolidated balance sheet		Gross amounts not offset in the consolidated balance sheet							Net amount		Gross amounts recognized			Gross amounts offset in the consolidated balance sheet			Net amounts presented in the consolidated balance sheet			Gross amounts not offset in the consolidated balance sheet						Net amount
(In thousands)	Gross amounts recognized				Financial instruments ⁽¹⁾			Collateral⁽²⁾						Financial instruments ⁽¹⁾			Gross amounts recognized			Gross amounts offset in the consolidated balance sheet		Collateral⁽²⁾										Net amount
Derivative assets			Gross amounts offset in the consolidated balance sheet
Interest rate swaps - designated	5,256		—			Net amounts presented in the consolidated balance sheet	5,256		—			—			Net amount		5,256		$	5,256		$	Net amounts presented in the consolidated balance sheet		—		$	5,256		$	—		$	—	$	5,256
Interest rate swaps - non-designated	$	352	$	—		$	352	$	(352	)	$	—			$	—	352			—			352			(352		)	—			—
Foreign exchange	134		—			134		28			(162		)		—		134			—			134			(28		)	(106		)	—
Total derivative assets	$	5,742	$	—		$	5,742	$	(324	)	$	(162	)		$	5,256	$	5,742		$	—		$	5,742		$	(380	)	$	(106	)	$	5,256

Derivative liabilities
Interest rate swaps - designated	$	6,683	$	—		$	6,683	$	—		$	(6,683	)		$	—	$	6,683		$	—		$	6,683		$	—		$	(6,683	)	$	—
Interest rate swaps - non-designated	48,014		—			48,014		(352		)	(47,662		)		—		48,014			—			48,014			(352		)	(47,662		)	—
Foreign exchange	28		—			28		28			(56		)		—		28			—			28			(28		)	—			—
Total derivative liabilities	$	54,725	$	—		$	54,725	$	(324	)	$	(54,401	)		$	—	$	54,725		$	—		$	54,725		$	(380	)	$	(54,345	)	$	—


	As of March 31, 2014																		As of June 30, 2014
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet			Net amounts presented in the consolidated balance sheet			Gross amounts not offset in the consolidated balance sheet								Net amount		Gross amounts recognized			Gross amounts offset in the consolidated balance sheet			Net amounts presented in the consolidated balance sheet			Gross amounts not offset in the consolidated balance sheet							Net amount
(In thousands)	Gross amounts recognized				Financial instruments ⁽¹⁾				Collateral⁽²⁾							Financial instruments ⁽¹⁾			Gross amounts recognized			Gross amounts offset in the consolidated balance sheet		Collateral⁽²⁾											Net amount
Derivative assets			Gross amounts offset in the consolidated balance sheet
Interest rate swaps - non-designated	$	2,811	$	—		Net amounts presented in the consolidated balance sheet	$	2,811		$	(2,811	)		$	—		Net amount		$	—	$	839		$	Net amounts presented in the consolidated balance sheet		—		$	839		$	(839	)		$	—	$	—
Foreign exchange	33		—			33			(17		)		(16		)		—		19			—			19			(19		)	—				—
Total derivative assets	$	2,844	$	—		$	2,844		$	(2,828	)		$	(16	)		$	—	$	858		$	—		$	858		$	(858	)	$	—			$	—

Derivative liabilities
Interest rate swaps - designated	$	10,392	$	—		$	10,392		$	—			$	(10,392	)		$	—	$	8,989		$	—		$	8,989		$	—		$	(8,989	)		$	—
Interest rate swaps - non-designated	41,861		—			41,861			(2,811		)		(39,050		)		—		47,114			—			47,114			(839		)	(46,275		)		—
Foreign exchange	17		—			17			(17		)		—				—		35			—			35			(19		)	(16		)		—
Total derivative liabilities	$	52,270	$	—		$	52,270		$	(2,828	)		$	(49,442	)		$	—	$	56,138		$	—		$	56,138		$	(858	)	$	(55,280	)		$	—

(1) For derivative assets, this includes any derivative liability fair values that could be offset in the event of counterparty default. For derivative liabilities, this includes any derivative asset fair values that could be offset in the event of counterparty default.

(2) For derivate assets, this includes the fair value of collateral received by the Corporation from the counterparty. Securities received as collateral are not included in the Consolidated Balance Sheets unless the counterparty defaults. For derivative liabilities, this includes the fair value of securities pledged by the Corporation to the counterparty. These securities are included in the Consolidated Balance Sheets unless the Corporation defaults.

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9. 9. 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 March 31,						Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2015			2014			2015			2014			2015			2014
Service cost	$	207		$	182		$	207		$	182		$	415		$	364
Interest cost	3,517			3,584			3,517			3,584			7,035			7,168
Expected return on assets	(3,902		)	(4,009		)	(3,902		)	(4,009		)	(7,804		)	(8,017		)
Amortization of unrecognized prior service costs	570			634			570			698			1,140			1,331
Amortization of Actuarial Gain	1,057			708
Amortization of actuarial losses/(gains)							1,057			804			2,113			1,513
Net periodic pension cost	$	1,449		$	1,099		$	1,449		$	1,259		$	2,899		$	2,359


	Postretirement Benefits						Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2015			2014			2015			2014			2015			2014
Service cost	$	41		$	16		$	41		$	16		$	83		$	33
Interest cost	144			164			144			164			288			327
Amortization of unrecognized prior service costs	(160		)	(117		)	(160		)	(117		)	(319		)	(234		)
Amortization of actuarial losses/(gains)	81			59			81			59			163			118
Net periodic postretirement cost	$	106		$	122		$	106		$	122		$	215		$	244

For further information on the Corporation's employee benefit plans, refer to Note 14 (Benefit Plans) to the consolidated financial statements in the 2014 Form 10-K.

10. Fair Value Measurement

As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market or most advantageous market for the asset or liability. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, Management determines the fair value of the Corporation's assets and liabilities using valuation models or third-party pricing services. Both of these approaches rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on Management's judgment, assumptions and estimates related to credit quality, liquidity, interest rates and other relevant inputs.

GAAP establishes a three-level valuation hierarchy for determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy, highest ranking to lowest, are as 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.

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Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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

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

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

the amount of time since the last relevant valuation;

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

volatility associated with the primary pricing components.

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

an independent review and approval of valuation models;

recurring detailed reviews of profit and loss; and

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

Management reviews any changes to its valuation methodologies to ensure they are appropriate and justified, and refines valuation methodologies as more market-based data becomes available. Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period.

Additional information regarding the Corporation's accounting policies for determining fair value is provided in Note 1 (Summary of Significant Accounting Policies) under the heading "Fair Value Measurements" to the 2014 Form 10-K.

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The following tables present the balance of assets and liabilities measured at fair value on a recurring and nonrecurring basis as of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014:


			Fair Value by Hierarchy								Fair Value by Hierarchy
(In thousands)	March 31, 2015		Level 1		Level 2		Level 3		June 30, 2015		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	2,869	$	2,869	$	—	$	—	$	2,824	$	2,824	$	—	$	—
U.S. treasury notes & bonds	—		—		—		—		5,005		—		5,005		—
U.S. government agency debentures	2,513		—		2,513		—		2,510		—		2,510		—
U.S. States and political subdivisions	215,164		—		215,164		—		207,617		—		207,617		—
Residential mortgage-backed securities:
U.S. government agencies	947,303		—		947,303		—		960,852		—		960,852		—
Commercial mortgage-backed securities:
U.S. government agencies	140,359		—		140,359		—		170,338		—		170,338		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,892,560		—		1,892,560		—		1,949,389		—		1,949,389		—
Non-agency	6		—		1		5		5		—		—		5
Commercial collateralized mortgage-backed securities:
U.S. government agencies	244,059		—		244,059		—		228,438		—		228,438		—
Corporate debt securities	52,264		—		—		52,264		53,450		—		—		53,450
Asset-backed securities:
Collateralized loan obligations	293,962		—		—		293,962		258,081		—		—		258,081
Total available for sale securities	3,791,059		2,869		3,441,959		346,231		3,838,509		2,824		3,524,149		311,536
Residential loans held for sale	3,568		—		3,568		—		8,302		—		8,302		—
Derivative assets:
Interest rate swaps - fair value hedges	12,688		—		12,688		—		1,153		—		1,153		—
Interest rate swaps - nondesignated	59,147		—		59,147		—		46,216		—		46,216		—
Mortgage loan commitments	388		—		388		—		342		—		342		—
Forward sale contracts									106		—		106		—
Foreign exchange	350		—		350		—		256		—		256		—
Total derivative assets	72,573		—		72,573		—		48,073		—		48,073		—
Total fair value of assets ⁽¹⁾	$	3,867,200	$	2,869	$	3,518,100	$	346,231	$	3,894,884	$	2,824	$	3,580,524	$	311,536
Derivative liabilities:
Interest rate swaps - fair value hedges	$	6,063	$	—	$	6,063	$	—	$	5,104	$	—	$	5,104	$	—
Interest rate swaps - nondesignated	59,147		—		59,147		—		46,216		—		46,216		—
Forward sales contracts	68		—		68		—
Foreign exchange	169		—		169		—		177		—		177		—
Equity swap	—		—		—		—
Total derivative liabilities	65,447		—		65,447		—		51,497		—		51,497		—
True-up liability	13,707		—		—		13,707		13,408		—		—		13,408
Total fair value of liabilities ⁽¹⁾	$	79,154	$	—	$	65,447	$	13,707	$	64,905	$	—	$	51,497	$	13,408
Nonrecurring fair value measurement
Mortgage servicing rights ⁽²⁾	$	20,526	$	—	$	—	$	20,526	$	20,809	$	—	$	—	$	20,809
Impaired loans ⁽³⁾	63,839		—		—		63,839		72,580		—		—		72,580
Other property⁽⁴⁾	16,956		—		—		16,956		33,078		—		—		33,078
Other real estate covered by loss share ⁽⁵⁾	7,293		—		—		7,293		4		—		—		4
Total nonrecurring fair value	$	108,614	$	—	$	—	$	108,614	$	126,471	$	—	$	—	$	126,471

(1) There were no transfers between levels 1, 2 or 3 of the fair value hierarchy during the three months ended ~~March 31,~~June 30, 2015.

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

(2) MSRs with a recorded investment of ~~$21.5~~$20.6 million were reduced by a specific valuation allowance totaling ~~$1.1~~$0.5 million to a reported carrying value of ~~$20.4~~$20.1 million resulting in recognition of ~~$0.2~~$0.6 million in ~~expense~~recoveries included in loan sales and servicing income in the three months ended ~~March 31,~~June 30, 2015.

(3) Collateral dependent impaired loans with a recorded investment of $75.6 million were reduced by specific valuation allowance allocations totaling $11.8 million to a reported net carrying value of $63.8 million.

(4) Amounts do not include assets held at cost at March 31, 2015. During the three months ended March 31, 2015, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.9 million included in noninterest expense.

(5) Amounts do not include assets held at cost at March 31, 2015. During the three months ended March 31, 2015, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.1 million included in noninterest expense.

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(3) Collateral dependent impaired loans with a recorded investment of $82.7 million were reduced by specific valuation allowance allocations totaling $10.2 million to a reported net carrying value of $72.6 million.

(4) Amounts do not include assets held at cost at June 30, 2015. During the three months ended June 30, 2015, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $2.1 million included in noninterest expense.

(5) Amounts do not include assets held at cost at June 30, 2015. During the three months ended June 30, 2015, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition was immaterial.


			Fair Value by Hierarchy								Fair Value by Hierarchy
(In thousands)	December 31, 2014		Level 1		Level 2		Level 3		December 31, 2014		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	2,974	$	2,974	$	—	$	—	$	2,974	$	2,974	$	—	$	—
U.S. government agency debentures	2,482		—		2,482		—		2,482		—		2,482		—
U.S. States and political subdivisions	227,342		—		227,342		—		227,342		—		227,342		—
Residential mortgage-backed securities:
U.S. government agencies	970,998		—		970,998		—		970,998		—		970,998		—
Commercial mortgage-backed securities:
U.S. government agencies	103,403		—		103,403		—		103,403		—		103,403		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,676,567		—		1,676,567		—		1,676,567		—		1,676,567		—
Non-agency	7		—		1		6		7		—		1		6
Commercial collateralized mortgage-backed securities:
U.S. government agencies	222,334		—		222,334		—		222,334		—		222,334		—
Corporate debt securities	51,337		—		—		51,337		51,337		—		—		51,337
Asset-backed securities
Collateralized loan obligations	287,844		—		—		287,844		287,844		—		—		287,844
Total available-for-sale securities	3,545,288		2,974		3,203,127		339,187		3,545,288		2,974		3,203,127		339,187
Residential loans held for sale	13,428		—		13,428		—		14,389		—		14,389		—
Derivative assets:
Interest rate swaps - fair value hedges	5,256		—		5,256		—		5,256		—		5,256		—
Interest rate swaps - nondesignated	48,366		—		48,366		—		48,366		—		48,366		—
Mortgage loan commitments	1,408		—		1,408		—		1,408		—		1,408		—
Forward sale contracts	—		—		—		—		—		—		—		—
Foreign exchange	167		—		167		—		167		—		167		—
Total derivative assets	55,197		—		55,197		—		55,197		—		55,197		—
Total fair value of assets ⁽¹⁾	$	3,613,913	$	2,974	$	3,271,752	$	339,187	$	3,614,874	$	2,974	$	3,272,713	$	339,187
Derivative liabilities:
Interest rate swaps - fair value hedges	$	6,683	$	—	$	6,683	$	—	$	6,683	$	—	$	6,683	$	—
Interest rate swaps - nondesignated	48,366		—		48,366		—		48,366		—		48,366		—
Forward sale contracts	272		—		272		—		272		—		272		—
Foreign exchange	118		—		118		—		118		—		118		—
Total derivative liabilities	55,439		—		55,439		—		55,439		—		55,439		—
True-up liability	13,294		—		—		13,294		13,294		—		—		13,294
Total fair value of liabilities ⁽¹⁾	$	68,733	$	—	$	55,439	$	13,294	$	68,733	$	—	$	55,439	$	13,294
Nonrecurring fair value measurement
Mortgage servicing rights ⁽²⁾	$	21,228	$	—	$	—	$	21,228	$	21,228	$	—	$	—	$	21,228
Impaired loans ⁽³⁾	56,041		—		—		56,041		56,041		—		—		56,041
Other property ⁽⁴⁾	12,510		—		—		12,510		12,510		—		—		12,510
Other real estate covered by loss share ⁽⁵⁾	3,614		—		—		3,614		3,614		—		—		3,614
Total nonrecurring fair value	$	93,393	$	—	$	—	$	93,393	$	93,393	$	—	$	—	$	93,393

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

(1) There were no transfers between levels 1, 2 or 3 of the fair value hierarchy during the year ended December 31, 2014.

(2) MSRs with a recorded investment of $22.0 million were reduced by a specific valuation allowance totaling $1.0 million to a reported carrying value of $21.1 million resulting in a recovery of previously recognized expense of $0.7 million in recoveries included in loans sales and servicing income in the year ended December 31, 2014.

(3)Collateral dependent impaired loans with a recorded investment of $60.3 million were reduced by specific valuation allowance allocations totaling $4.3 million to a reported net carrying value of $56.0 million.

~~Table of Contents~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~ - ~~Continued~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

(4) Amounts do not include assets held at cost at December 31, 2014. During the year ended December 31, 2014, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $2.6 million included in noninterest expense.

(5) Amounts do not include assets held at cost at December 31, 2014. During the year ended December 31, 2014, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $1.2 million included in noninterest expense.

Fair Value by Hierarchy
(In thousands) March 31, 2014 Level 1 Level 2 Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities $ 3,055
$ 3,055
$ —
$ —
Non-marketable equity securities 3,281
10
3,271
U.S. States and political subdivisions 250,980
—
250,980
—
Residential mortgage-backed securities:
U.S. government agencies 1,023,994
—
1,023,994
—
Commercial mortgage-backed securities:
U.S. government agencies 85,133
—
85,133
—
Residential collateralized mortgage-backed securities:
U.S. government agencies 1,548,104
—
1,548,104
—
Non-agency 8
—
1
7
Commercial collateralized mortgage-backed securities:
U.S. government agencies 172,469
—
172,469
—
Corporate debt securities 51,588
—
—
51,588
Asset-backed securities:
Collateralized loan obligations 294,559
—
—
294,559
       Total available-for-sale securities 3,433,171
3,055
3,080,691
349,425
Residential loans held for sale 7,143
—
7,143
—
Derivative assets:
Interest rate swaps - fair value hedges 1
—
1
—
Interest rate swaps - nondesignated 44,672
—
44,672
—
Mortgage loan commitments 1,575
—
1,575
—
Forward sale contracts 167
—
167
—
Foreign exchange 52
—
52
—
       Total derivative assets 46,467
—
46,467
—
       Total fair value of assets ⁽¹⁾
$ 3,486,781
$ 3,055
$ 3,134,301
$ 349,425
Derivative liabilities:
Interest rate swaps - fair value hedges 10,392
—
10,392
—
Interest rate swaps - nondesignated 44,672
—
44,672
—
Foreign exchange 42
—
42
—
       Total derivative liabilities 55,106
—
55,106
—
True-up liability 11,983
—
—
11,983
       Total fair value of liabilities ⁽¹⁾
$ 67,089
$ —
$ 55,106
$ 11,983
Nonrecurring fair value measurement
Mortgage servicing rights ⁽²⁾
$ 22,631
$ —
$ —
$ 22,631
Impaired loans ⁽³⁾
58,296
—
—
58,296
Other property ⁽⁴⁾
11,568
—
—
11,568
Other real estate covered by loss share ⁽⁵⁾
19,708
—
—
19,708
Total nonrecurring fair value $ 112,203
$ —
$ —
$ 112,203

~~(1) There were no transfers between levels 1, 2 and 3 of the fair value hierarchy during the three months ended March 31, 2014.~~

(2) MSRs with a recorded investment of $22.5 million were reduced by a specific valuation allowance totaling $0.4 million to a reported carrying value of $22.0 million resulting in recovery of a previously recognized expense of $0.1 million in the three months ended March 31, 2014.

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			Fair Value by Hierarchy
(In thousands)	June 30, 2014		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	2,935	$	2,935	$	—	$	—
Non-marketable equity securities	3,281				10		3,271
U.S. States and political subdivisions	240,805		—		240,805		—
Residential mortgage-backed securities:
U.S. government agencies	1,018,174		—		1,018,174		—
Commercial mortgage-backed securities:
U.S. government agencies	85,698		—		85,698		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,598,031		—		1,598,031		—
Non-agency	8		—		1		7
Commercial collateralized mortgage-backed securities:
U.S. government agencies	182,033		—		182,033		—
Corporate debt securities	53,490		��		—		53,490
Asset-backed securities:
Collateralized loan obligations	293,965		—		—		293,965
Total available-for-sale securities	3,478,420		2,935		3,124,752		350,733
Residential loans held for sale	21,632		—		21,632		—
Derivative assets:
Interest rate swaps - fair value hedges	—		—		—		—
Interest rate swaps - nondesignated	47,952		—		47,952		—
Mortgage loan commitments	2,491		—		2,491		—
Forward sale contracts	—		—		—		—
Foreign exchange	107		—		107		—
Total derivative assets	50,550		—		50,550		—
Total fair value of assets ⁽¹⁾	$	3,550,602	$	2,935	$	3,196,934	$	350,733
Derivative liabilities:
Interest rate swaps - fair value hedges	$	8,989	$	—	$	8,989	$	—
Interest rate swaps - nondesignated	47,952		—		47,952		—
Forward sale contracts	545		—		545		—
Foreign exchange	48		—		48		—
Credit contracts	10		—		10		—
Total derivative liabilities	57,544		—		57,544		—
True-up liability	12,581		—		—		12,581
Total fair value of liabilities ⁽¹⁾	$	70,125	$	—	$	57,544	$	12,581
Nonrecurring fair value measurement
Mortgage servicing rights ⁽²⁾	$	21,987	$	—	$	—	$	21,987
Impaired loans ⁽³⁾	56,006		—		—		56,006
Other property ⁽⁴⁾	17,052		—		—		17,052
Other real estate covered by loss share ⁽⁵⁾	22,782		—		—		22,782
Total nonrecurring fair value	$	117,827	$	—	$	—	$	117,827

(1) There were no transfers between levels 1, 2 and 3 of the fair value hierarchy during the three months ended June 30, 2014.

(2) MSRs with a recorded investment of $22.2 million were reduced by a specific valuation allowance totaling $0.6 million to a reported carrying value of $21.6 million resulting in recovery of a previously recognized expense of $0.1 million in the three months ended June 30, 2014.

(3) Collateral dependent impaired loans with a recorded investment of ~~$65.3~~$62.2 million were reduced by specific valuation allowance allocations totaling ~~$7.0~~$6.2 million to a reported net carrying value of ~~$58.3~~$56.0 million.

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(4) Amounts do not include assets held at cost at ~~March 31,~~June 30, 2014. During the three months ended ~~March 31,~~June 30, 2014, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of ~~$0.8~~$0.7 million included in noninterest expense.

(5) Amounts do not include assets held at cost at ~~March 31,~~June 30, 2014. During the three months ended ~~March 31,~~June 30, 2014, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of ~~$0.4~~$0.7 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 three months ended ~~March 31,~~June 30, 2015 and 2014, there were no significant changes to the valuation techniques used by the Corporation to measure fair value.

Available-for-sale securities. When quoted prices are available in an active market, securities are valued using the quoted price and are classified as Level 1. The quoted prices are not adjusted. Level 1 instruments include money market mutual funds.

Securities are classified as Level 2 if quoted prices for identical securities are not available, and fair value is determined using pricing models by a third-party pricing service. Approximately ~~91%~~92% 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~~third party pricing service. These instruments include: municipal bonds; bonds backed by the U.S. government; corporate bonds; MBS; securities issued by the U.S. Treasury; and certain agency CMOs. The independent pricing service uses industry-standard models to price U.S. government agencies and MBS that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Obligations of state and political subdivisions are valued using a matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. For collateralized mortgage securities, depending on the characteristics of a given tranche, a volatility driven multidimensional static model or Option-Adjusted Spread model is generally used. Substantially all assumptions used by the independent pricing service for securities classified as Level 2 are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.

Securities are classified as Level 3 when there is limited activity in the market for a particular instrument and fair value is determined by obtaining broker quotes. As of ~~March 31,~~June 30, 2015, 9%8% of the available-for-sale portfolio is Level 3, which consists of single issuer trust preferred securities and CLOs.

The single issuer trust preferred securities are measured at unadjusted prices obtained from the independent pricing service. The independent pricing service prices these instruments through a broker quote when sufficient information, such as cash flows or other security structure or market information, is not available to produce an evaluation. Broker-quoted securities are adjusted by the independent pricing service based solely on the receipt of updated quotes from market makers or broker-dealers recognized as market participants. A list of such issues is compiled by the independent pricing service daily. For broker-quoted issues, the independent pricing service applies a zero spread relationship to the bid-side valuation, resulting in the same values for the mean and ask.

CLO are securitized products where payments from multiple middle-sized and large business loans are pooled together and segregated into different classes of bonds with payments on these bonds based on their priority within the overall deal structure. The markets for such securities are generally characterized by low trading volumes and wide bid-ask spreads, all driven by more limited market participants. Although estimated prices are generally obtained for such securities, the level of market observable assumptions used is limited in the valuation. Specifically, market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the individual bond level. Accordingly, the securities are currently

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~~discount rates were difficult to observe at the individual bond level. Accordingly, the securities are currently~~ valued by a ~~third-party~~third party that primarily utilizes dealer or pricing service prices and, subsequently, verifies this pricing through a disciplined process to ensure proper valuations and to highlight differences in cash flow modeling or other risks to determine if the market perception of the risk of a CLO is beginning to deviate from other similar tranches. This is done by establishing ranges for appropriate pricing yields for each CLO tranche and, using a standardized cash flow scenario, ensuring yields are consistent with expectations.

On a monthly basis, Management validates the pricing methodologies utilized by our independent pricing service to ensure the fair-value determination is consistent with the applicable accounting guidance and that the investments are properly classified in the fair value hierarchy. Management substantiates the fair values determined for a sample of securities held in portfolio by reviewing the key assumptions used by the independent pricing service to value the securities and comparing the fair values to prices from other independent sources for the same and similar securities. Management analyzes variances and conducts additional research with the independent pricing service, if necessary, and takes appropriate action based on its findings.

Loans held for sale. These loans are regularly traded in active markets through programs offered by FHLMC and FNMA, and observable pricing information is available from market participants. The prices are adjusted as necessary to include any embedded servicing value in the loans and to take into consideration the specific characteristics of certain loans. These adjustments represent unobservable inputs to the valuation but are not considered significant to the fair value of the loans. Accordingly, residential real estate loans held for sale are classified as Level 2.

Impaired loans. Certain impaired collateral dependent loans are reported at fair value less costs to sell the collateral. Collateral values are estimated using Level 3 inputs, consisting of third-party appraisals or price opinions and internal adjustments necessary in the judgment of Management to reflect current market conditions and current operating results for the specific collateral. Collateral may be in the form of real estate or personal property including equipment and inventory. The vast majority of the collateral is real estate. When impaired collateral dependent loans are individually re-measured and reported at fair value of the collateral, less costs to sell, a direct loan charge off to the ALL and/or a specific valuation allowance allocation is recorded.

Other Property. Certain other property which consists of foreclosed assets and properties securing residential and commercial loans, upon initial recognition and transfer from loans, are re-measured and reported at fair value less costs to sell to the property through a charge-off to the ALL based on the fair value of the foreclosed assets. The fair value of a foreclosed asset, upon initial recognition, is estimated using Level 3 inputs, consisting of third-party appraisals or price opinions and internal adjustments necessary in the judgment of Management to reflect current market conditions and current operating results for the specific collateral. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down further through a charge to noninterest expense.

Mortgage Servicing Rights. The Corporation carries its MSRs at lower of cost or fair value, and, therefore, they are subject to fair value measurements on a nonrecurring basis. Since sales of MSRs tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of MSRs. 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 MSRs within Level 3.

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The Corporation utilizes a ~~third-party~~third party vendor to perform the modeling to estimate the fair value of its MSRs. The Corporation reviews the estimated fair values and assumptions used by the third-party in the model on a quarterly basis. The Corporation also compares the estimates of fair value and assumptions to recent market activity and against its own experience. See Note 11 (Mortgage Servicing Rights and Mortgage Servicing Activity) for further information on MSRs valuation assumptions.

Derivatives. The Corporation's derivatives include interest rate swaps and written loan commitments and forward sales contracts related to residential mortgage loan origination activity. Valuations for interest rate swaps are derived from third-party models whose significant inputs are readily observable market parameters, primarily yield curves, with appropriate adjustments for liquidity and credit risk. These fair value measurements are classified as Level 2. The fair values of written loan commitments and forward sales contracts on the associated loans are based on quoted prices for similar loans in the secondary market, consistent with the valuation of residential mortgage loans held for sale. Expected net future cash flows related to loan servicing activities are included in the fair value measurement of written loan commitments. A written loan commitment does not bind the potential borrower to entering into the loan, nor does it guarantee that the Corporation will approve the potential borrower for the loan. Therefore, when determining fair value, the Corporation makes estimates of expected "fallout" (interest rate locked pipeline loans not expected to close), using models, which consider cumulative historical fallout rates and other factors. Fallout can occur for a variety of reasons including falling rate environments when a borrower will abandon a fixed rate loan commitment at one lender and enter into a new lower fixed rate loan commitment at another, when a borrower is not approved as an acceptable credit 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 Bank's Board are regularly reviewed, and appropriate business action is taken to adjust the exposure to certain counterparties, as necessary. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of marketable collateral securing the position. This approach used to estimate impacted exposures to counterparties is also used by the Corporation to estimate its own credit risk on derivative liability positions. To date, no material losses have been incurred due to a counterparty's inability to pay any uncollateralized position. There was no significant change in value of derivative assets and liabilities attributed to credit risk for the three months ended ~~March 31,~~June 30, 2015.

True-up liability. In connection with the George Washington and Midwest FDIC assisted 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

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discount rate used to value the true-up liability was ~~3.05%~~3.58% and ~~3.46%~~3.12% as of ~~March 31,~~June 30, 2015 and 2014, respectively. Increasing or decreasing the discount rate by one percentage point would change the liability by approximately ~~$0.7~~$0.6 million and $0.7 million, respectively, as of ~~March 31,~~June 30, 2015 ~~and~~ ~~March 31, 2014~~.

In accordance with the loss sharing agreements governing the Midwest acquisition, on July 15, 2020 (the “Midwest True-Up Measurement Date”), the Bank has agreed to pay to the FDIC half of the amount, if positive, calculated as: (1) 20% of the intrinsic loss estimate of the FDIC (approximately $152 million); minus (2) the sum of (A) 25% of the asset premium paid in connection with the Midwest acquisition (approximately $21 million); plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). The fair value of the true-up liability associated with the Midwest acquisition was ~~$8.6~~$8.4 million, $8.5 million, and $~~7.4~~7.9 million as of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, respectively.

In accordance with the loss sharing agreements governing the George Washington acquisition, on April 14, 2020 (the “George Washington True-Up Measurement Date”), the Bank has agreed to pay to the FDIC 50% of the excess, if any, of (1) 20% of the stated threshold (approximately $34.4 million) less (2) the sum of (A) 25% of the asset discount (approximately $12 million) received in connection with the George Washington acquisition plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). The fair value of the true-up liability associated with the George Washington acquisition was ~~$5.1~~$5.0 million, $4.8 million, and $~~4.6~~4.7 million as of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, respectively.

For the purposes of the above calculations, cumulative shared-loss payments means: (i) the aggregate of all of the payments made or payable to the Bank under the loss sharing agreements minus (ii) the aggregate of all of the payments made or payable to the FDIC. The cumulative servicing amount means the period servicing amounts (as defined in the loss sharing agreements) for every consecutive twelve-month period prior to and ending on the Midwest and George Washington True-Up Measurement Dates. The cumulative loss share payments and cumulative service amounts components of the true-up calculations are estimated each period end based on the expected amount and timing of cash flows of the acquired loan portfolios. See Note 3 (Loans) and Note 4 (Allowance for Loan Losses) for additional information on the estimated cash flows of the acquired loan portfolios.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three and six months ended ~~March 31,~~June 30, 2015 and 2014 are summarized as follows:



	Three Months Ended June 30,										Six Months Ended June 30,
	2015						2014				2015					2014
(In thousands)	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	$	346,685		$	13,707		$	349,425	$	11,983	$	339,187		$	13,294	$	347,610	$	11,463
(Gains) losses included in earnings ⁽¹⁾	—			(299		)	—		598		—			114		—		1,118
Unrealized gains (losses) ⁽²⁾	4,561			—			1,253		—		11,697			—		3,021		—
Purchases	41,509			—			—		—		41,509			—		—		—
Sales	(71,832		)	—			—		—		(71,832		)	—		—		—
Settlements	(9,387		)	—			55		—		(9,025		)	—		102		—
Balance at ending of period	$	311,536		$	13,408		$	350,733	$	12,581	$	311,536		$	13,408	$	350,733	$	12,581

Three Months Ended March 31,
2015 2014
(In thousands) Available-for-sale securities True-up liability Available-for-sale securities True-up liability
Balance at beginning of period $ 339,187
$ 13,294
$ 347,610
$ 11,463
(Gains) losses included in earnings ⁽¹⁾
—
413
—
520
Unrealized gains (losses) ⁽²⁾
6,682
—
1,768
—
Purchases —
—
—
—
Settlements 362
—
47
—
Balance at ending of period $ 346,231
$ 13,707
$ 349,425
$ 11,983

(1)Reported in "Other expense"

(2) Reported in "Other comprehensive income (loss)"

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Fair Value Option

Residential mortgage loans held for sale are recorded at fair value under fair value option accounting guidance. The election of the fair value option aligns the accounting for these loans with the related hedges. It also eliminates the requirements of the hedge accounting under GAAP.

Interest income on loans held for sale is accrued on the principal outstanding primarily using the “simple-interest” method. None of these loans were 90 days or more past due, nor were any on nonaccrual as of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014. The aggregate fair value, contractual balance and gain or loss on loans held for sale was as follows:


(In thousands)	March 31, 2015		December 31, 2014		March 31, 2014		June 30, 2015		December 31, 2014		June 30, 2014
Aggregate fair value carrying amount	$	4,657	$	14,389	$	7,143	$	8,302	$	14,389	$	21,632
Aggregate unpaid principal / contractual balance	4,489		13,873		6,955		8,155		13,873		20,886
Carrying amount over aggregate unpaid principal ⁽¹⁾	$	168	$	516	$	188	$	147	$	516	$	746

(1) These changes are included in "Loan sales and servicing income" in the Consolidated Statements of 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 ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014 are shown in the tables below.

March 31, 2015

Carrying
Amount
Fair Value
(In thousands) Total Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 532,425
$ 532,425
$ 532,425
$ —
$ —
Available-for-sale securities 3,791,059
3,791,059
2,869
3,441,959
346,231
Held-to-maturity securities 2,855,174
2,848,912
—
2,848,912
—
Other securities 148,475
148,475
—
148,475
—
Loans held for sale 3,568
3,568
—
3,568
—
Net originated loans 12,758,492
12,588,147
—
—
12,588,147
Net acquired loans 2,317,386
2,393,942
—
—
2,393,942
Net FDIC acquired loans and loss share receivable 268,459
268,459
—
—
268,459
Accrued interest receivable 69,086
69,086
—
69,086
—
Derivatives 72,573
72,573
—
72,573
—
Financial liabilities:
Deposits $ 19,925,595
$ 19,932,571
$ —
$ 19,932,571
$ —
Federal funds purchased and securities sold under agreements to repurchase 1,113,371
1,113,371
—
1,113,371
—
Wholesale borrowings 316,628
320,180
—
320,180
—
Long-term debt 512,625
527,018
—
527,018
—
Accrued interest payable 9,620
9,620
—
9,620
—
Derivatives 65,447
65,447
—
65,447
—

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~


	December 31, 2014										June 30, 2015
	Carrying Amount		Fair Value								Carrying Amount		Fair Value
(In thousands)			Total		Level 1		Level 2		Level 3				Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	697,424	$	697,424	$	697,424	$	—	$	—	$	587,589	$	587,589	$	587,589	$	—	$	—
Available-for-sale securities	3,545,288		3,545,288		2,974		3,203,127		339,187		3,838,509		3,838,509		2,824		3,524,149		311,536
Held-to-maturity securities	2,903,609		2,875,920		—		2,875,920		—		2,787,513		2,760,120		—		2,760,120		—
Other securities	148,654		148,654		—		148,654		—		147,967		147,967		—		147,967		—
Loans held for sale	13,428		13,428		—		13,428		—		5,432		8,302		—		8,302		—
Net originated loans	12,398,116		12,235,530		—		—		12,235,530		13,254,230		13,077,485		—		—		13,077,485
Net acquired loans	2,471,723		2,564,842		—		—		2,564,842		2,090,734		2,167,304		—		—		2,167,304
Net FDIC acquired loans and loss share receivable	312,659		312,659		—		—		312,659		211,887		211,887		—		—		211,887
Accrued interest receivable	63,657		63,657		—		63,657		—		66,501		66,501		—		66,501		—
Derivatives	55,197		55,197		—		55,197		—		48,073		48,073		—		48,073		—
Financial liabilities:
Deposits	$	19,504,665	$	19,510,192	$	—	$	19,510,192	$	—	$	19,673,850	$	19,681,270	$	—	$	19,681,270	$	—
Federal funds purchased and securities sold under agreements to repurchase	1,272,591		1,272,591		—		1,272,591		—		1,519,250		1,519,250		—		1,519,250		—
Wholesale borrowings	428,071		430,676		—		430,676		—		366,074		369,337		—		369,337		—
Long-term debt	505,192		516,476		—		516,476		—		497,393		509,900		—		509,900		—
Accrued interest payable	9,820		9,820		—		9,820		—		9,910		9,910		—		9,910		—
Derivatives	55,439		55,439		—		55,439		—		51,497		51,497		—		51,497		—

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	March 31, 2014										December 31, 2014
	Carrying Amount		Fair Value								Carrying Amount		Fair Value
(In thousands)			Total		Level 1		Level 2		Level 3				Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	959,285	$	959,285	$	959,285	$	—	$	—	$	697,424	$	697,424	$	697,424	$	—	$	—
Available for sale securities	3,433,171		3,433,171		3,055		3,080,691		349,425
Held to maturity securities	3,079,620		2,990,161		—		2,990,161		—
Available-for-sale securities											3,545,288		3,545,288		2,974		3,203,127		339,187
Held-to-maturity securities											2,903,609		2,875,920		—		2,875,920		—
Other securities	148,446		148,446		—		148,446		—		148,654		148,654		—		148,654		—
Loans held for sale	7,143		7,143		—		7,143		—		13,428		14,389		—		14,389		—
Net originated loans	10,734,797		10,621,047		—		—		10,621,047		12,398,116		12,235,530		—		—		12,235,530
Net acquired loans	3,232,941		3,367,024		—		—		3,367,024		2,471,723		2,564,842		—		—		2,564,842
Net FDIC acquired loans and loss share receivable	495,815		495,815		—		—		495,815		312,659		312,659		—		—		312,659
Accrued interest receivable	64,555		64,555		—		64,555		—		63,657		63,657		—		63,657		—
Derivatives	46,467		46,467		—		46,467		—		55,197		55,197		—		55,197		—
Financial liabilities:
Deposits	$	19,811,674	$	19,810,963	$	—	$	19,810,963	$	—	$	19,504,665	$	19,510,192	$	—	$	19,510,192	$	—
Federal funds purchased and securities sold under agreements to repurchase	926,195		926,195		—		926,195		—		1,272,591		1,272,591		—		1,272,591		—
Wholesale borrowings	349,277		352,923		—		352,923		—		428,071		430,676		—		430,676		—
Long-term debt	324,430		330,337		—		330,337		—		505,192		516,476		—		516,476		—
Accrued interest payable	5,682		5,682		—		5,682		—		9,820		9,820		—		9,820		—
Derivatives	55,106		55,106		—		55,106		—		55,439		55,439		—		55,439		—

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	June 30, 2014
	Carrying Amount		Fair Value
(In thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	642,570	$	642,570	$	642,570	$	—	$	—
Available for sale securities	3,478,420		3,478,420		2,935		3,124,752		350,733
Held to maturity securities	3,052,118		3,001,866		—		3,001,866		—
Other securities	148,433		148,433		—		148,433		—
Loans held for sale	21,632		21,632		—		21,632		—
Net originated loans	11,375,243		11,458,318		—		—		11,458,318
Net acquired loans	3,018,810		3,166,228		—		—		3,166,228
Net FDIC acquired loans and loss share receivable	433,538		433,538		—		—		433,538
Accrued interest receivable	63,172		63,172		—		63,172		—
Derivatives	50,550		50,550		—		50,550		—
Financial liabilities:
Deposits	$	19,298,396	$	19,300,842	$	—	$	19,300,842	$	—
Federal funds purchased and securities sold under agreements to repurchase	1,218,855		1,218,855		—		1,218,855		—
Wholesale borrowings	649,021		652,615		—		652,615		—
Long-term debt	324,433		335,757		—		335,757		—
Accrued interest payable	8,311		8,311		—		8,311		—
Derivatives	57,544		57,544		—		57,544		—

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

Cash and cash equivalents – Due to their short-term nature, the carrying amount of these instruments approximates the estimated fair value.

Investment securities – See Financial Instruments Measured at Fair Value above.

Loans held for sale – The majority of loans held for sale are residential mortgage loans which are recorded at fair value. All other loans held for sale are recorded at the lower of cost or market, less costs to sell. See Financial Instruments Measured at Fair Value above.

Net originated loans – The originated loan portfolio was segmented based on loan type and repricing characteristics. Carrying values are used to estimate fair values of variable rate loans. A discounted cash flow method was used to estimate the fair value of fixed-rate loans. Discounting was based on the contractual cash flows, and discount rates are based on the year-end yield curve plus a spread that reflects current pricing on loans with similar characteristics. If applicable, prepayment assumptions are factored into the fair value determination based on historical experience and current economic conditions.

Net acquired and FDIC acquired loans – Fair values for acquired and FDIC acquired loans were estimated based on a discounted projected cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. Loans were grouped together according to similar

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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 discounted projected cash flows related to the FDIC loss share agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These cash flows were discounted to reflect the uncertainty of the timing and receipt from the FDIC.

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

Mortgage servicing rights – See Financial Instruments Measured at Fair Value above.

Deposits – The estimated fair value of deposits with no stated maturity, which includes demand deposits, money market accounts and other savings accounts, are established at carrying value because of the customers' ability to withdraw funds immediately. A discounted cash flow method is used to estimate the fair value of fixed rate time deposits. Discounting was based on the contractual cash flows and the current rates at which similar deposits with similar remaining maturities would be issued.

Federal funds purchased and securities sold under agreements to repurchase, wholesale borrowings and long-term debt – The carrying amount of variable rate borrowings including federal funds purchased approximates the estimated fair value. Quoted market prices or the discounted cash flow method was used to estimate the fair value of the Corporation's long-term debt. Discounting was based on the contractual cash flows and the current rate at which debt with similar terms could be issued.

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

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

True-up liability – See Financial Instruments Measured at Fair Value above.

11. 11. Mortgage Servicing Rights and Mortgage Servicing Activity

~~In the~~ ~~three months endedMarch 31, 2015and2014, the Corporation sold residential mortgage loans from the held for sale portfolio with unpaid principal balances of $50.3 million and~~ ~~$65.6 million, respectively, and recognized pretax gains of~~ ~~$0.6 million~~ ~~and~~ ~~$1.3 million, respectively, which are included as a component of loan sales and servicing income.As of~~ ~~March 31, 2015and2014, the Corporation retained the related MSRs on $45.2 million and~~ ~~$57.1 million, respectively, of the loans sold and receives servicing fees.~~

The Corporation serviced for third parties approximately ~~$2.6~~$2.5 billion of residential mortgage loans at ~~March 31,~~June 30, 2015 and $2.7 billion at ~~March 31,~~June 30, 2014. ~~For the~~ ~~three months ended March 31, 2015~~ ~~and~~ ~~2014, loan~~Loan servicing fees, not including valuation changes included in loan sales and servicing income, were $1.6 million and $1.6 million, respectively, for the three months ended June 30, 2015 and 2014, and were $~~1.6~~3.2 million and $~~1.6~~3.3 million, ~~respectively.~~respectively, for the six months ended June 30, 2015 and 2014.

Servicing rights are presented within other assets on the accompanying Consolidated Balance Sheets. The retained servicing rights are initially valued at fair value. Since MSRs do not trade in an active market with

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~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~ - ~~Continued~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

readily observable prices, the Corporation relies primarily on a discounted cash flow analysis model to estimate the fair value of its MSRs. Additional information can be found in Note 10 (Fair Value Measurement). MSRs are subsequently measured using the amortization method. Accordingly, the MSRs are amortized over the

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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 MSRs and MSRs valuation allowance are as follows:


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2015			2014			2015			2014			2015			2014
Balance at beginning of period	$	22,011		$	22,760
Carrying amount of MSRs
Beginning balance							$	21,490		$	22,469		$	22,011		$	22,760
Additions	470			564			63			643			533			1,207
Amortization	(991		)	(855		)	(918		)	(962		)	(1,909		)	(1,817		)
Balance at end of period	21,490			22,469
Valuation allowance at beginning of period	(955		)	(282		)
Ending balance							20,635			22,150			20,635			22,150

Valuation Allowance:
Beginning balance							(1,131		)	(425		)	(955		)	(282		)
Additions	(176		)	(143		)	641			(137		)	465			(280		)
Valuation allowance at end of period	(1,131		)	(425		)
Ending balance							(490		)	(562		)	(490		)	(562		)
MSRs, net carrying balance	$	20,359		$	22,044		$	20,145		$	21,588		$	20,145		$	21,588

Fair value at end of period	$	20,526		$	22,631		$	20,809		$	21,987		$	20,809		$	21,987

On a quarterly basis, the Corporation assesses its capitalized servicing rights for impairment based on their current fair value. For purposes of the impairment, the servicing rights are disaggregated based on loan type and interest rate which are the predominant risk characteristics of the underlying loans. A valuation allowance is established through a charge to earnings to the extent the amortized cost of the MSRs exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for the stratification, the valuation is reduced through a recovery to earnings. No permanent impairment losses were written off against the allowance during the three and ~~three~~six months ended ~~March 31,~~June 30, 2015 and 2014.

Key economic assumptions and the sensitivity of the current fair value of the MSRs related to immediate 10% and 25% adverse changes in those assumptions at ~~March 31,~~June 30, 2015 are presented in the following table below. These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in the fair value based on 10% variation in the prepayment speed assumption generally cannot be extrapolated because the relationship of the change in the prepayment speed assumption to the change in fair value may not be linear. Also, in the below table, the effect of a variation in the discount rate assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in prepayment speed estimates could result in changes in the discount rates), which might magnify or counteract the sensitivities.

~~(Dollars in thousands)~~

Prepayment speed assumption (annual CPR) 12.63 %
    Decrease in fair value from 10% adverse change $ 778
    Decrease in fair value from 25% adverse change $ 1,510
Discount rate assumption 9.39 %
    Decrease in fair value from 100 basis point adverse change $ 632
    Decrease in fair value from 200 basis point adverse change $ 1,222
Expected weighted-average life (in months) 93

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(Dollars in thousands)



Prepayment speed assumption (annual CPR)	10.10		%
Decrease in fair value from 10% adverse change	$	701
Decrease in fair value from 25% adverse change	$	1,363
Discount rate assumption	9.38		%
Decrease in fair value from 100 basis point adverse change	$	656
Decrease in fair value from 200 basis point adverse change	$	1,268
Expected weighted-average life (in months)	100

12. 12. Commitments and Guarantees

Commitments to Extend Credit

To accommodate the financial needs of its customers, the Corporation issues off-balance sheet financial instruments in connection with commercial and consumer lending activities. The credit risk associated with these instruments is essentially the same as that involved in extending loans to customers and is subject to the Corporation's normal credit approval policies. The Corporation maintains an allowance to cover probable credit losses inherent in lending-related commitments. The reserve for unfunded lending commitments at ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, included in “accrued expenses and other liabilities” on the Consolidated Balance Sheets, was ~~$4.3~~$3.9 million, $5.8 million, and ~~$7.5~~$7.1 million, respectively.

The Corporation's credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.


Unused commitments to extend credit	Unused commitments to extend credit							Unused commitments to extend credit
(In thousands)	(In thousands)	March 31, 2015		December 31, 2014		March 31, 2014		(In thousands)	June 30, 2015		December 31, 2014		June 30, 2014
	Commercial	$	3,691,193	$	3,748,690	$	3,394,877	Commercial	$	3,746,824	$	3,748,690	$	3,386,052
	Consumer	2,343,677		2,387,623		2,237,324		Consumer	2,397,353		2,387,623		2,280,431
	Total unused commitments to extend credit	$	6,034,870	$	6,136,313	$	5,632,201	Total unused commitments to extend credit	$	6,144,177	$	6,136,313	$	5,666,483

Unused Commitments to Extend Credit. Commitments to extend credit are legally binding agreements to lend to a customer, provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Since many commitments expire without being drawn upon, the total contractual amount of commitments does not necessarily represent future cash requirements of the Corporation.

Loan commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance sheets. Additional information is provided in Note 8 (Derivatives and Hedging Activities).

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Guarantees

The Corporation is a guarantor in certain agreements with third parties. The Corporation's maximum credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.


Financial guarantees	Financial guarantees							Financial guarantees
(In thousands)	(In thousands)	March 31, 2015		December 31, 2014		March 31, 2014		(In thousands)	June 30, 2015		December 31, 2014		June 30, 2014
	Standby letters of credit	$	275,736	$	242,390	$	194,118	Standby letters of credit	$	255,418	$	242,390	$	201,212
	Loans sold with recourse	39,996		45,071		38,072		Loans sold with recourse	28,891		45,071		34,662
	Total financial guarantees	$	315,732	$	287,461	$	232,190	Total financial guarantees	$	284,309	$	287,461	$	235,874

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~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~ - ~~Continued~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

Standby Letters of Credit. Standby letters of credit obligate the Corporation to pay a specified third party when a customer fails to repay an outstanding loan or debt instrument, or fails to perform some contractual nonfinancial obligation. The Corporation has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit. Collateral held varies, but may include marketable securities, equipment, inventory, and real estate. Except for short-term guarantees of ~~$199.8~~$145.8 million at ~~March 31,~~June 30, 2015, the remaining guarantees extend in varying amounts through ~~2019.~~2022.

Loans Sold with Recourse. The Corporation regularly sells service retained residential mortgage loans to GSEs as part of its mortgage banking activities. The Corporation provides customary representation and warranties to the GSEs in conjunction with these sales. These representations and warranties generally require the Corporation to repurchase assets if it is subsequently determined that a loan did not meet specified criteria, such as a documentation deficiency or rescission of mortgage insurance. If the Corporation is unable to cure or refute a repurchase request, the Corporation is generally obligated to repurchase the loan or otherwise reimburse the counterparty for losses. The Corporation also sells service released residential mortgage loans to other investors which contain early payment default recourse provisions. As of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, the Corporation had sold $~~33.1~~22.2 million, $38.1 million, and $~~27.5~~24.1 million, respectively, of outstanding residential mortgage loans to GSEs and other investors with recourse provisions. The Corporation had reserved $6.7 million, $7.3 million, and $~~8.2~~7.9 million as of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, respectively, for estimated losses from representation and warranty obligations and early payment default recourse provisions.

Due to prior acquisitions, as of ~~March 31,~~June 30, 2015, the Corporation continued to service approximately $3.7 million in manufactured housing loans that were sold with recourse ~~compared to $3.7 million~~ and ~~$6.4 million as of~~ ~~December 31, 2014~~ ~~and~~ ~~March 31, 2014. As of~~ ~~March 31, 2015, the Corporation~~ had reserved $1.1 million for potential losses from these manufactured housing ~~loans, consistent with the reserve balance at~~ ~~December 31, 2014~~ ~~and~~ ~~March 31, 2014~~.loans.

The total reserve associated with loans sold with recourse was approximately $7.8 million, $8.4 million, and $~~9.3~~9.0 million as of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, respectively, and is included in accrued taxes, expenses and other liabilities on the Consolidated Balance Sheets. The Corporation's reserve reflects Management's best estimate of losses. The Corporation's reserving methodology uses current information about investor repurchase requests, and assumptions about repurchase mix and loss severity, based upon the Corporation's most recent loss trends. The Corporation also considers qualitative factors that may result in anticipated losses differing from historical loss trends, such as loan vintage, underwriting characteristics and macroeconomic trends.

~~Changes in the amount of the repurchase reserve for the~~ ~~three~~ ~~months ended~~ ~~March 31, 2015~~ ~~and~~ ~~2014~~ ~~are as follows:~~

Three Months Ended March 31, 2015
(In thousands) Reserve on residential mortgage loans Reserve on manufactured housing loans Total repurchase reserve
Balance at beginning of period $ 7,250
$ 1,124
$ 8,374
Net realized losses (198 ) —
(198 )
Net increase (decrease) to reserve (402 ) 2
(400 )
Balance at end of period $ 6,650
$ 1,126
$ 7,776

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Changes in the repurchase reserves for the three and six months ended June 30, 2015 and 2014 are as follows:


	Three Months Ended March 31, 2014								Three Months Ended June 30, 2015
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchased reserve			Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchase reserve
Balance at beginning of period	$	8,737		$	1,114	$	9,851		$	6,650		$	1,126	$	7,776
Net realized losses	(2,593		)	—		(2,593		)
Net increase to reserve	2,056			3		2,059
Net increase/(decrease) to reserve									363			—		363
Net realized (losses)/gains									(363		)	2		(361		)
Balance at end of period	$	8,200		$	1,117	$	9,317		$	6,650		$	1,128	$	7,778



	Three Months Ended June 30, 2014
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchased reserve
Balance at beginning of period	$	8,200		$	1,117	$	9,317
Net increase/(decrease) to reserve	164			—		164
Net realized (losses)/gains	(464		)	5		(459		)
Balance at end of period	$	7,900		$	1,122	$	9,022



	Six Months Ended June 30, 2015
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchase reserve
Balance at beginning of period	$	7,250		$	1,124	$	8,374
Net increase/(decrease) to reserve	(39		)	—		(39		)
Net realized (losses) /gains	(561		)	4		(557		)
Balance at end of period	$	6,650		$	1,128	$	7,778



	Six Months Ended June 30, 2014
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchase reserve
Balance at beginning of period	$	8,737		$	1,114	$	9,851
Net increase/(decrease) to reserve	2,757			—		2,757
Net realized (losses)/gains	(3,594		)	8		(3,586		)
Balance at end of period	$	7,900		$	1,122	$	9,022

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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' 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 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 Pleas against the Corporation and the Bank. The complaints were brought as putative class actions on behalf of Ohio residents who maintained a checking account at the Bank and who incurred one or more overdraft fees as a result of the alleged re-sequencing of debit transactions. The lawsuit that had been filed in Summit County Court of Common Pleas was dismissed without prejudice on July 11, 2011. The remaining suit in Lake County seeks actual damages, disgorgement of overdraft fees, punitive damages, interest, injunctive relief and attorney fees. In December 2012, the trial court issued an order certifying a proposed class and the Bank and Corporation appealed the order to the Eleventh District Court of Appeals. In September 2013, the Eleventh District Court of Appeals affirmed in part and reversed in part the trial court's class certification order, and remanded the case back to the trial court for further consideration, in particular with respect to the class definition. On October 9, 2013, the Bank and Corporation filed with the Eleventh District Court of Appeals an application for reconsideration and application for consideration en banc. On November 20, 2013, the Eleventh District denied those applications. On December 4, 2013, the Bank and Corporation filed a notice of appeal with the Ohio Supreme Court, and on January 3, 2014, they filed with the Ohio Supreme Court a memorandum in support of the Court's exercising its jurisdiction and accepting the appeal. The plaintiffs filed an opposition, and, on April 24, 2014, the Ohio Supreme Court declined to accept jurisdiction. On August 6, 2014, the Bank and Corporation filed a motion asking the trial court to stay the lawsuit pending arbitration of claims subject to an arbitration agreement. That motion has been fully briefed and is awaiting a decision by the court. On August 25, 2014, the parties stipulated to a revised class definition (without affecting the pending motion to stay), and an order approving that stipulation is awaiting court approval.

Merger Litigation

Between September 17, 2012 and October 5, 2012, alleged shareholders of Citizens filed six purported class action lawsuits in the Circuit Court of Genesee County, Michigan, relating to the proposed merger between Citizens and FirstMerit, which merger closed in April 2013. The lawsuits were consolidated under the caption In re Citizens Republic Bancorp, Inc. Shareholder Litigation, Case No. 12-99027-CK (the "Lawsuit"). The consolidated complaint in the Lawsuit alleges that the former directors of Citizens breached their fiduciary

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

duties by failing to obtain the best available price in the merger and by not providing Citizens shareholders with all material information related to the merger, and that FirstMerit and Citizens aided and abetted those alleged breaches of fiduciary duty. The Complaint sought declaratory and injunctive relief to prevent the consummation of the merger, rescissory damages and other equitable relief.

The plaintiffs and defendants have entered into a settlement of the Lawsuit, which the court approved on September 20, 2013. Under the settlement, the defendants amended the joint proxy statement/prospectus relating to the merger to include certain supplemental disclosures to shareholders of Citizens and agreed to pay attorneys' fees and expenses as awarded by the court. An appeal of the settlement was dismissed in March 2015 and the settlement has become final.

CRBC 401(k) Litigation

Participants in the Citizens Republic Bancorp 401(k) Plan filed a lawsuit in the United States Court for the Eastern District of Michigan in 2011, alleging that Citizens and certain of its officers and directors violated the Employee Retirement Income Security Act by offering Citizens common stock as an investment alternative in the Plan during periods when it was imprudent to do so and by failing to adequately monitor fiduciaries responsible for administering the Plan. The lawsuit, captioned Kidd v. Citizens Republic Bancorp, Inc. et al., Case No. 2:11-cv-11709, asserts claims for monetary and injunctive relief on behalf of a purported class of participants and beneficiaries in the Plan who held Citizens stock in their Plan accounts during the period from April 17, 2008 to "the present." In April 2014, the court denied the defendants' motion to dismiss the second amended complaint.

Based on information currently available, consultation with counsel, available insurance coverage and established reserves, Management believes that the eventual outcome of all claims against the Corporation and its subsidiaries will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position or results of operations. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations for a particular period. The Corporation has not established any reserves with respect to any of this disclosed litigation because it is not possible to determine (i) whether a liability has been incurred; or (ii) an estimate of the ultimate or minimum amount of such liability.

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13. 13. Changes and Reclassifications Out of Accumulated Other Comprehensive Income

The following table presents the changes in AOCI by component of comprehensive income for the three and six months ended ~~March 31,~~June 30, 2015 and 2014:


	Three Months Ended March 31, 2015									Three Months Ended June 30, 2015									Six Months Ended June 30, 2015
(In thousands)	Pretax			Tax			After tax			Pretax			Tax			After tax			Pretax			Tax			After tax
Unrealized and realized securities gains and losses:
Balance at the beginning of the period	$	(8,531	)	$	(2,985	)	$	(5,546	)	$	24,728		$	8,656		$	16,072		$	(8,531	)	$	(2,985	)	$	(5,546	)
Changes in unrealized securities' holding gains/(losses)	34,117			11,941			22,176			(28,642		)	(10,024		)	(18,618		)	5,475			1,916			3,559
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity	(504		)	(176		)	(328		)	(575		)	(203		)	(372		)	(1,079		)	(378		)	(701		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(354		)	(124		)	(230		)	(567		)	(198		)	(369		)	(921		)	(322		)	(599		)
Balance at the end of the period	24,728			8,656			16,072			(5,056		)	(1,769		)	(3,287		)	(5,056		)	(1,769		)	(3,287		)
Pension plans and other postretirement benefits:
Balance at the beginning and end of the period	(102,068		)	(35,722		)	(66,346		)	(100,520		)	(35,181		)	(65,339		)	(102,068		)	(35,722		)	(66,346		)
Current year actual losses (gains)										—			—			—			—			—			—
Amortization of actuarial gain	1,138			398			740			1,138			399			739			2,276			797			1,479
Amortization of prior service cost reclassified to other noninterest expense	410			143			267			410			144			266			820			287			533
Balance at the end of the period	(100,520		)	(35,181		)	(65,339		)	(98,972		)	(34,638		)	(64,334		)	(98,972		)	(34,638		)	(64,334		)
Total Accumulated Other Comprehensive Income	$	(75,792	)	$	(26,525	)	$	(49,267	)	$	(104,028	)	$	(36,407	)	$	(67,621	)	$	(104,028	)	$	(36,407	)	$	(67,621	)

Three Months Ended March 31, 2014
(In thousands) Pretax Tax After tax
Unrealized and realized securities gains and losses:
Balance at the beginning of the period $ (45,072 ) $ (15,775 ) $ (29,297 )
Changes in unrealized securities' holding gains/(losses) 18,044
6,315
11,729

Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity (494 ) (173 ) (321 )
Net losses/(gains) realized on sale of securities reclassified to noninterest income (56 ) (20 ) (36 )
Balance at the end of the period (27,578 ) (9,653 ) (17,925 )
Pension plans and other postretirement benefits:
Balance at the beginning and end of the period (57,812 ) (20,233 ) (37,579 )
Current year actual losses/(gains) —
—
—

Amortization of actuarial losses/(gains) —
—
—

Amortization of prior service cost reclassified to other noninterest expense —
—
—

Balance at the end of the period (57,812 ) (20,233 ) (37,579 )
Total Accumulated Other Comprehensive Income $ (85,390 ) $ (29,886 ) $ (55,504 )

~~The following table presents current period reclassifications out of AOCI by component of comprehensive income for the~~ ~~three~~ ~~months ended~~ ~~March 31, 2015~~ ~~and 2014:~~

(In thousands) Three Months Ended March 31, 2015 Income statement line item presentation
Realized (gains)/losses on sale of securities $ (354 ) Investment securities losses (gains), net
Tax expense (benefit) (35%) (124 ) Income tax expense (benefit)
Reclassified amount, net of tax $ (230 )



	Three Months Ended June 30, 2014									Six Months Ended June 30, 2014
(In thousands)	Pretax			Tax			After tax			Pretax			Tax			After tax
Unrealized and realized securities gains and losses:
Balance at the beginning of the period	$	(27,578	)	$	(9,653	)	$	(17,925	)	$	(45,072	)	$	(15,775	)	$	(29,297	)
Changes in unrealized securities' holding gains/(losses)	22,456			7,860			14,596			40,500			14,175			26,325
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity	(494		)	(173		)	(321		)	(988		)	(346		)	(642		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(80		)	(28		)	(52		)	(136		)	(48		)	(88		)
Balance at the end of the period	(5,696		)	(1,994		)	(3,702		)	(5,696		)	(1,994		)	(3,702		)
Pension plans and other postretirement benefits:
Balance at the beginning and end of the period	(57,812		)	(20,233		)	(37,579		)	(57,812		)	(20,233		)	(37,579		)
Current year actual losses/(gains)	—			—			—			—			—			—
Amortization of actuarial losses/(gains)	1,631			571			1,060			1,631			571			1,060
Amortization of prior service cost reclassified to other noninterest expense	1,097			383			714			1,097			383			714
Balance at the end of the period	(55,084		)	(19,279		)	(35,805		)	(55,084		)	(19,279		)	(35,805		)
Total Accumulated Other Comprehensive Income	$	(60,780	)	$	(21,273	)	$	(39,507	)	$	(60,780	)	$	(21,273	)	$	(39,507	)

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The following table presents current period reclassifications out of AOCI by component of comprehensive income for the three and six months ended June 30, 2015 and 2014:


(In thousands)	Three Months Ended March 31, 2014			Income statement line item presentation	Three Months Ended June 30, 2015			Six Months Ended June 30, 2015			Income statement line item presentation
Realized (gains)/losses on sale of securities	$	(56	)	Investment securities losses (gains), net	$	(567	)	$	(921	)	Investment securities losses (gains), net
Tax expense (benefit) (35%)	(20		)	Income tax expense (benefit)	(198		)	(322		)	Income tax expense (benefit)
Reclassified amount, net of tax	$	(36	)		$	(369	)	$	(599	)



(In thousands)	Three Months Ended June 30, 2014			Six Months Ended June 30, 2014			Income statement line item presentation
Realized (gains)/losses on sale of securities	$	(80	)	$	(136	)	Investment securities losses (gains), net
Tax expense (benefit) (35%)	(28		)	(48		)	Income tax expense (benefit)
Reclassified amount, net of tax	$	(52	)	$	(88	)

14. 14. Subsequent Events

In preparing these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users, or filed with the SEC. In accordance with applicable accounting standards, all material subsequent events have been either recognized in the financial statements or disclosed in the notes to the financial statements.

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

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Figure 1. 1. Consolidated Financial Highlights


Consolidated Financial Highlights
(Unaudited)	Three Months Ended															Three Months Ended															Six Months Ended
(Dollars in thousands, except per share amounts)	March 31,			December 31,			September 30,			June 30,			March 31,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,
	2015			2014												2015						2014									2015			2014
EARNINGS
Net interest income TE ⁽¹⁾	$	189,554		$	196,509		$	197,644		$	199,666		$	197,854		$	189,018		$	189,554		$	196,509		$	197,644		$	199,666		$	378,572		$	397,520
TE adjustment ⁽¹⁾	3,931			3,998			4,066			4,089			3,954			3,900			3,931			3,998			4,066			4,089			7,831			8,041
Provision for originated loan losses	6,036			8,662			4,862			5,993			3,654			10,809			6,036			8,662			4,862			5,993			16,845			9,647
Provision for acquired loan losses	2,214			3,407			4,411			5,815			7,827			(952		)	2,214			3,407			4,411			5,815			1,262			13,642
Provision/(recapture) for FDIC acquired loan losses	(2		)	1,228			(81		)	3,445			3,055			(891		)	(2		)	1,228			(81		)	3,445			(893		)	6,501
Noninterest income	65,847			71,960			69,733			72,560			67,270			66,582			65,847			71,960			69,733			72,560			132,429			139,831
Noninterest expense	160,652			165,041			163,145			167,400			169,331			161,674			160,652			165,041			163,145			167,400			322,326			336,733
Net income	57,139			61,079			63,898			59,519			53,455			56,584			57,139			61,079			63,898			59,519			113,723			112,974
Diluted EPS ⁽³⁾	0.33			0.36			0.37			0.35			0.31			0.33			0.33			0.36			0.37			0.35			0.66			0.66
PERFORMANCE RATIOS
Return on average assets (ROA)	0.93		%	0.98		%	1.03		%	0.98		%	0.90		%	0.90		%	0.93		%	0.98		%	1.03		%	0.98		%	0.92		%	0.94		%
Return on average equity (ROE)	8.08		%	8.50		%	9.03		%	8.62		%	7.93		%	7.85		%	8.08		%	8.50		%	9.03		%	8.62		%	7.96		%	8.28		%
Return on average tangible common equity ⁽¹⁾	11.85		%	12.52		%	13.41		%	12.92		%	11.98		%	11.44		%	11.85		%	12.52		%	13.41		%	12.92		%	11.65		%	12.45		%
Net interest margin TE ⁽¹⁾	3.48		%	3.56		%	3.60		%	3.75		%	3.84		%	3.39		%	3.48		%	3.56		%	3.60		%	3.75		%	3.43		%	3.79		%
Efficiency ratio ⁽¹⁾	61.97		%	60.39		%	59.92		%	60.43		%	62.77		%	62.37		%	61.97		%	60.39		%	59.92		%	60.43		%	62.17		%	61.59		%
Number of full-time equivalent employees	4,103			4,273			4,302			4,392			4,521			4,017			4,103			4,273			4,302			4,392			4,017			4,392
MARKET DATA
Book value per common share	$	17.46		$	17.14		$	17.05		$	16.88		$	16.62		$	17.42		$	17.46		$	17.14		$	17.05		$	16.88		$	17.42		$	16.88
Tangible book value per common share ⁽¹⁾	11.96			11.62			11.52			11.33			11.03			11.95			11.96			11.62			11.52			11.33			11.95			11.33
Period end common share market value	19.06			18.89			17.62			19.75			20.83			20.83			19.06			18.89			17.62			19.75			20.83			19.75
Market as a % of book	109		%	110		%	103		%	117		%	125		%	120		%	109		%	110		%	103		%	117		%	120		%	117		%
Cash dividends per common share	$	0.16		$	0.16		$	0.16		$	0.16		$	0.16		$	0.16		$	0.16		$	0.16		$	0.16		$	0.16		$	0.32		$	0.32
Common Stock dividend payout ratio	48.48		%	44.44		%	43.24		%	45.71		%	51.61		%	48.48		%	48.48		%	44.44		%	43.24		%	45.71		%	48.48		%	48.48		%
Average basic common shares	165,411			165,395			165,389			165,335			165,060			165,736			165,411			165,395			165,389			165,335			165,574			165,198
Average diluted common shares	166,003			165,974			165,804			166,147			166,004			166,277			166,003			165,974			165,804			166,147			166,089			166,052
Period end common shares	165,453			165,390			165,384			165,393			165,087			165,773			165,453			165,390			165,384			165,393			165,773			165,393
Common shares repurchased	66			15			10			186			51			211			66			15			10			186			277			237
Common Stock market capitalization	$	3,153,534		$	3,124,217		$	2,914,066		$	3,266,512		$	3,438,762		$	3,453,052		$	3,153,534		$	3,124,217		$	2,914,066		$	3,266,512		$	3,453,052		$	3,266,512
ASSET QUALITY (excluding acquired and FDIC acquired loans, covered OREO)⁽²⁾
Gross charge-offs	$	8,567		$	9,205		$	11,410		$	11,148		$	13,160		$	11,298		$	8,567		$	9,205		$	11,410		$	11,148		$	19,865		$	24,308
Net charge-offs	4,187			3,849			5,929			6,159			8,022			6,672			4,187			3,849			5,929			6,159			10,859			14,181
Allowance for originated loan losses	97,545			95,696			90,883			91,950			92,116			101,682			97,545			95,696			90,883			91,950			101,682			91,950
Reserve for unfunded lending commitments	4,330			5,848			6,966			7,107			7,481			3,905			4,330			5,848			6,966			7,107			3,905			7,107
Nonperforming assets (NPAs)	68,606			55,038			63,119			60,922			62,711			117,311			68,606			55,038			63,119			60,922			117,311			60,922
Net charge-offs to average loans ratio	0.13		%	0.12		%	0.20		%	0.22		%	0.31		%	0.20		%	0.13		%	0.12		%	0.20		%	0.22		%	0.17		%	0.27		%
Allowance for originated loan losses to period-end loans	0.76		%	0.77		%	0.75		%	0.80		%	0.85		%	0.76		%	0.76		%	0.77		%	0.75		%	0.80		%	0.76		%	0.80		%
Allowance for credit losses to period-end loans	0.79		%	0.81		%	0.81		%	0.86		%	0.92		%	0.79		%	0.79		%	0.81		%	0.81		%	0.86		%	0.79		%	0.86		%
NPAs to loans and other real estate	0.53		%	0.44		%	0.52		%	0.53		%	0.58		%	0.87		%	0.53		%	0.44		%	0.52		%	0.53		%	0.87		%	0.53		%
Allowance for originated loan losses to nonperforming loans	211.66		%	276.44		%	231.13		%	250.27		%	212.01		%	184.40		%	211.66		%	276.44		%	231.13		%	250.27		%	184.40		%	250.27		%
Allowance for credit losses to nonperforming loans	221.06		%	293.34		%	248.85		%	269.61		%	229.23		%	191.48		%	221.06		%	293.34		%	248.85		%	269.61		%	191.48		%	269.61		%
CAPITAL & LIQUIDITY
Period end tangible common equity to assets ⁽¹⁾	8.14		%	7.98		%	8.01		%	7.89		%	7.69		%	8.09		%	8.14		%	7.98		%	8.01		%	7.89		%	8.09		%	7.89		%
Average equity to assets	11.51		%	11.55		%	11.42		%	11.40		%	11.32		%	11.51		%	11.51		%	11.55		%	11.42		%	11.40		%	11.51		%	11.36		%
Average equity to total loans	18.60		%	18.67		%	18.58		%	18.90		%	19.04		%	18.59		%	18.60		%	18.67		%	18.58		%	18.90		%	18.60		%	18.97		%
Average total loans to deposits	77.86		%	78.47		%	77.36		%	75.15		%	73.11		%	79.06		%	77.86		%	78.47		%	77.36		%	75.15		%	78.46		%	74.13		%
AVERAGE BALANCES
Assets	$	24,905,094		$	24,664,987		$	24,583,776		$	24,291,276		$	24,144,570		$	25,129,859		$	24,905,094		$	24,664,987		$	24,583,776		$	24,291,276		$	25,015,734		$	24,216,459
Deposits	19,788,925			19,450,647			19,531,800			19,496,795			19,636,506			19,682,662			19,788,925			19,450,647			19,531,800			19,496,795			19,735,499			19,566,264
Originated loans	12,689,791			12,306,171			11,814,314			11,092,101			10,448,383			13,092,972			12,689,791			12,306,171			11,814,314			11,092,101			12,892,495			10,772,020
Acquired loans, including FDIC acquired loans, less loss share receivable	2,717,884			2,956,867			3,295,547			3,558,810			3,907,802			2,468,035			2,717,884			2,956,867			3,295,547			3,558,810			2,592,270			3,732,341
Earning assets	22,100,417			21,920,889			21,804,243			21,367,496			20,903,863			22,352,721			22,100,417			21,920,889			21,804,243			21,367,496			22,227,267			21,136,960
Shareholders' equity	2,866,362			2,849,618			2,807,886			2,768,352			2,733,226			2,892,432			2,866,362			2,849,618			2,807,886			2,768,352			2,879,469			2,750,886
ENDING BALANCES
Assets	$	25,118,120		$	24,902,347		$	24,608,207		$	24,564,431		$	24,498,661		$	25,297,014		$	25,118,120		$	24,902,347		$	24,608,207		$	24,564,431		$	25,297,014		$	24,564,431
Deposits	19,925,595			19,504,665			19,366,911			19,298,396			19,811,674			19,673,850			19,925,595			19,504,665			19,366,911			19,298,396			19,673,850			19,298,396
Originated loans	12,856,037			12,493,812			12,071,759			11,467,193			10,826,913			13,355,912			12,856,037			12,493,812			12,071,759			11,467,193			13,355,912			11,467,193
Acquired loans, including FDIC acquired loans,less loss share receivable	2,614,847			2,810,302			3,139,521			3,458,453			3,726,952			2,337,378			2,614,847			2,810,302			3,139,521			3,458,453			2,337,378			3,458,453
Goodwill	741,740			741,740			741,740			741,740			741,740			741,740			741,740			741,740			741,740			741,740			741,740			741,740
Intangible assets	68,422			71,020			73,953			76,886			79,819			65,824			68,422			71,020			73,953			76,886			65,824			76,886
Earning assets	22,395,343			22,153,552			21,930,840			21,789,773			21,715,302			22,599,272			22,395,343			22,153,552			21,930,840			21,789,773			22,599,272			21,789,773
Total shareholders' equity	2,888,786			2,834,281			2,820,431			2,791,738			2,742,966			2,887,957			2,888,786			2,834,281			2,820,431			2,791,738			2,887,957			2,791,738

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

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(2) Due to the impact of business combination accounting and protection of FDIC loss sharing agreements, which provide considerable protection against credit risk, acquired loans, FDIC acquired loans and covered OREO are excluded from this table to provide for improved comparability to prior periods and better perspective into asset quality trends. ~~Certain~~George Washington and Midwest non-single family loss share agreements with the FDIC expired at March 31, ~~2015.~~2015 and June 30, 2015, respectively. As of ~~March 31,~~June 30, 2015, ~~$174.6 million and $110.4~~$95.9 million of FDIC acquired loans remained covered by ~~non-single family loss share agreement and~~ single family loss share agreements, ~~respectively,~~ providing considerable protection against credit risk.

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(3) Net income used to determine diluted EPS was reduced by the cash dividends payable on the Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series A of approximately $1.5 million in each of the three months ended June 30, 2015, March 31, 2015,, December 31, 2014,, September ~~30, 2014, June~~ 30, 2014, and ~~March 31,~~June 30, 2014.

HIGHLIGHTS OF ~~FIRST~~SECOND QUARTER OF 2015 PERFORMANCE

The Corporation reported ~~first~~second quarter 2015 net income of ~~$57.1~~$56.6 million,, or ~~$0.33~~$0.33 per diluted share. This compares with ~~$61.1~~$57.1 million,, or ~~$0.36~~$0.33 per diluted share, for the ~~fourth~~first quarter ~~2014~~2015 and ~~$53.5~~$59.5 million,, or ~~$0.31~~$0.35 per diluted share, for the ~~first~~second quarter ~~2014~~.2014.

Returns on average ROE and average ROA for the ~~first~~second quarter 2015 were ~~8.08%~~7.85% and ~~0.93%~~0.90%, respectively, compared with ~~8.50%~~8.08% and ~~0.98%~~0.93%, respectively, for the ~~fourth~~first quarter ~~2014~~2015 and ~~7.93%~~8.62% and ~~0.90%~~0.98%, respectively, for the ~~first~~second quarter ~~2014~~.2014.

~~Net Interest Income~~

Net interest income on a fully TE basis was ~~$189.6~~$189.0 million in the second quarter 2015 compared with $189.6 million in the first quarter 2015 ~~compared with~~ ~~$196.5~~ and $199.7 million in the ~~fourth~~second quarter ~~2014~~ ~~and~~ ~~$197.9 million~~ ~~in the~~ ~~first quarter 2014~~.2014.

Net interest margin on a TE basis was ~~3.48%~~3.39% for the second quarter 2015 compared with 3.48% for the first quarter 2015 ~~compared with~~ ~~3.56%~~ and 3.75% for the ~~fourth~~second quarter ~~2014~~ ~~and~~ ~~3.84%~~ ~~for the~~ ~~first quarter 2014~~.2014. Net interest margin compression in the ~~first~~second quarter 2015, compared with the prior quarter, resulted from anticipated lower accretion from the acquired and FDIC acquired loan portfolios due to the continued decline in the loan ~~balances.~~balances and lower yields on the investment portfolio.

Average originated loans were ~~$12.7~~$13.1 billion during the ~~first~~second quarter 2015,, an increase of ~~$383.6~~$403.2 million,, or ~~3.12%~~3.18%, compared with the ~~fourth~~first quarter ~~2014~~,2015, and an increase of ~~$2.2~~$2.0 billion,, or ~~21.45%~~18.04%, compared with the ~~first~~second quarter ~~2014~~.2014. Average originated commercial loans increased~~$245.0~~ during the second quarter 2015 by $118.8 million,, or ~~3.17%~~1.49%, compared with the prior quarter, and increased~~$1.2 billion~~, $913.6 million, or ~~17.02%~~12.72%, compared with the year-ago quarter.

Average deposits were ~~$19.8~~$19.7 billion during the ~~first~~second quarter 2015,, ~~an increase~~ a decrease of ~~$338.3~~$106.3 million,, or ~~1.74%~~0.54%, compared with the ~~fourth~~first quarter ~~2014~~,2015, and an increase of ~~$152.4~~$185.9 million,, or ~~0.78%~~0.95%, compared with the ~~first~~second quarter ~~2014~~.2014. During the ~~first~~second quarter 2015,, average core deposits, which exclude time deposits, ~~increased$370.8~~decreased $86.3 million,, or ~~2.17%~~0.49%, compared with the ~~fourth~~first quarter ~~2014~~2015 and increased~~$246.7~~ $231.0 million,, or ~~1.43%~~1.35%, compared with the ~~first~~second quarter ~~2014~~.2014. Average time deposits decreased~~$32.6~~ $20.0 million,, or ~~1.39%~~0.87%, and decreased~~$94.3~~ $45.1 million,, or ~~3.92%~~1.93%, respectively, over the prior and year-ago quarters. For the ~~first~~second quarter 2015,, average core deposits accounted for ~~88.33%~~88.37% of total average deposits, compared with ~~87.96%~~88.33% for the~~fourth~~ first quarter ~~2014~~2015 and ~~87.76%~~88.03% for the ~~first~~second quarter ~~2014~~.2014.

Average investments increased~~$53.5~~ during the second quarter 2015 by $104.0 million,, or ~~0.81%~~1.56%, compared with the ~~fourth~~first quarter ~~2014~~2015 and increased~~$183.2~~ $116.7 million,, or ~~2.82%~~1.75%, compared with the ~~first~~second quarter ~~2014~~.2014.

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Noninterest Income

Noninterest income, excluding gains and losses on securities transactions, for the ~~first~~second quarter 2015 was ~~$65.5~~$66.0 million,, ~~a decrease~~ an increase of ~~$6.5~~$0.5 million,, or ~~8.97%~~0.80%, from the ~~fourth~~first quarter ~~2014~~2015 and a decrease of ~~$1.7~~$6.5 million, or ~~2.56%~~,8.92% from the ~~first~~second quarter ~~2014~~.2014. Included in noninterest income infor the ~~first~~second quarter ~~2015~~ ~~was~~ ~~$2.8 million~~ ~~of net gains on covered loan resolutions, compared to net gains of~~ ~~$0.5 million~~ ~~and $1.6 million in the~~ ~~fourth quarter 2014~~ ~~and~~ ~~first quarter 2014, respectively. Offsetting this increase in noninterest income in the first quarter of~~ 2015 were costs of ~~$1.2~~$1.8 million associated with branch ~~closures, a decrease in bank-owned life insurance income~~closures.

Table of $3.5 million due to death benefit proceeds received in the fourth quarter of 2014, a decrease in service charges on deposits of $1.9 million, and a decrease in loan sales and servicing income of $1.5 million.Contents

Noninterest income, excluding net securities gains and losses, as a percentage of net revenue for the second quarter 2015 was 25.88% compared with 25.68% for first quarter 2015 ~~was~~ ~~25.68%~~ ~~compared with~~ ~~26.80%~~ ~~for~~ ~~fourth quarter 2014~~ and ~~25.36%~~26.63% for the ~~first~~second quarter ~~2014~~.2014.

Noninterest Expense

Noninterest expense for the ~~first~~second quarter 2015 was ~~$160.7~~$161.7 million,, ~~a decrease~~ an increase of ~~$4.4~~$1.0 million,, or ~~2.66%~~0.64%, from the ~~fourth~~first quarter ~~2014~~2015 and a decrease of ~~$8.7~~$5.7 million,, or ~~5.13%~~3.42%, from the ~~first~~second quarter ~~2014. Noninterest expense in the current quarter included $1.8 million of restructure costs.~~2014. The Corporation's efficiency ratio was ~~61.97%~~62.37% for the second quarter 2015, compared with 61.97% for the first quarter 2015~~, compared with~~ ~~60.39%~~ and 60.43% for the ~~fourth~~second quarter ~~2014~~ ~~and~~ ~~62.77%~~ ~~for the~~ ~~first quarter 2014~~.2014.

The effective tax rate was 30.19% for the second quarter 2015 compared with 30.80% for the first quarter 2015 ~~compared with~~ ~~29.09%~~ and 30.37% for the ~~fourth~~second quarter ~~2014~~ ~~and~~ ~~30.85%~~ ~~for the~~ ~~first quarter 2014~~.2014.

Asset Quality ~~(excluding~~(excluding acquired loans and covered assets)

Due to the impact of business combination accounting and protection against credit risk from FDIC loss sharing agreements, acquired loans and covered assets are excluded from the asset quality discussion to provide for improved comparability to prior periods and better perspective into asset quality trends. Acquired loans are recorded at fair value at the date of acquisition with no allowance brought forward in accordance with business combination accounting. Impaired acquired and covered loans are considered to be performing due to the application of the accretion method under the applicable accounting guidance.

Net charge-offs on originated loans totaled ~~$4.2~~$6.7 million in the second quarter 2015, compared to $4.2 million in the first quarter 2015,~~, compared to~~ ~~$3.8~~ and $6.2 million in the ~~fourth~~second quarter ~~2014, and~~ ~~$8.0 million~~ ~~in the~~ ~~first quarter 2014~~.2014. Net charge-offs on originated loans were ~~0.13%~~0.20% of average originated loans at June 30, 2015, compared to 0.13% at March 31, 2015~~, compared to~~ ~~0.12%~~ and 0.22% at ~~December 31, 2014 and~~ ~~0.31%~~ at ~~March 31, 2014~~.June 30, 2014.

Nonperforming assets totaled ~~$68.6~~$117.3 million at ~~March 31,~~June 30, 2015,, an increase of ~~$13.6~~$48.7 million,, or ~~24.65%~~70.99%, compared with ~~December~~March 31, ~~2014~~2015 and an increase of ~~$5.9~~$56.4 million,, or ~~9.40%~~92.56%, compared with ~~March 31, 2014~~.June 30, 2014. Nonperforming assets at ~~March 31,~~June 30, 2015 represented ~~0.53%~~0.87% of period-end originated loans plus noncovered other real estate compared with ~~0.44%~~0.53% at ~~December 31, 2014 and~~ ~~0.58%~~ at March 31, ~~2014~~.2015 and 0.53% at June 30, 2014. The increase in nonperforming assets is primarily attributable to OREO no longer covered by FDIC loss share agreements. Included in ~~first quarter 2015~~nonperforming assets as of June 30, 2015 were ~~$3.4~~$42.0 million of OREO no longer covered by FDIC loss share agreements.

The allowance for originated loan losses totaled ~~$97.5~~$101.7 million at ~~March 31,~~June 30, 2015. At June 30, 2015,~~. At~~ ~~March 31, 2015~~, the allowance for originated loan losses was 0.76% of period-end originated loans, compared with ~~0.77%~~0.76% at

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~~December 31, 2014 and~~ ~~0.85%~~ at March 31, ~~2014~~.2015 and 0.80% at June 30, 2014. The allowance for originated loan losses at June 30, 2015 compared to March 31, 2015 ~~compared to December 31, 2014~~ increased by ~~$1.8~~$4.1 million. The allowance for credit losses is the sum of the allowance for originated loan losses and the reserve for unfunded lending commitments. For comparative purposes, the allowance for credit losses was 0.79% of period end originated loans at June 30, 2015, compared with 0.79% at March 31, 2015~~, compared with~~ ~~0.81%~~ and 0.86% at ~~December 31, 2014 and~~ ~~0.92%~~ at ~~March 31, 2014~~.June 30, 2014. The allowance for credit losses to nonperforming loans was ~~221.06%~~191.48% at June 30, 2015, compared with 221.06% at March 31, 2015~~, compared with~~ ~~293.34%~~ and 269.61% at ~~December 31, 2014 and~~ ~~229.23%~~ at ~~March 31, 2014~~.June 30, 2014.

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Balance Sheet

The Corporation’s total assets at ~~March 31,~~June 30, 2015 were ~~$25.1~~$25.3 billion,, an increase of ~~$215.8~~$178.9 million,, or ~~0.87%~~0.71%, compared with ~~December~~March 31, ~~2014~~2015 and an increase of ~~$619.5~~$732.6 million,, or ~~2.53%~~2.98%, compared with ~~March 31, 2014~~.June 30, 2014. Total gross loans (originated, acquired, and FDIC acquired) and total deposits were $15.7 billion and $19.7 billion, respectively, at June 30, 2015, $15.5 billion and ~~$19.9 billion, respectively, at~~ ~~March 31, 2015, $15.3 billion and $19.5 billion~~, ~~respectively, at December 31, 2014 and $14.6 billion and $19.8~~$19.9 billion, respectively, at March 31, ~~2014~~.2015 and $15.0 billion and $19.3 billion, respectively, at June 30, 2014. Core deposits totaled ~~$17.6~~$17.4 billion at June 30, 2015, a decrease of $104.9 million, or 0.60%, from March 31, 2015, and an increase of ~~$339.3~~$419.5 million,, or ~~1.97%~~2.46%, from ~~December 31, 2014 and~~ ~~an increase~~ of ~~$126.7 million, or~~ ~~0.73%, from~~ ~~March 31, 2014~~.June 30, 2014.

Shareholders’ equity was ~~$2.9~~$2.9 billion,, ~~$2.8~~ $2.9 billion and ~~$2.7~~$2.8 billion as of June 30, 2015, March 31, 2015,~~, December 31, 2014,~~ and ~~March 31, 2014~~.June 30, 2014. During the second quarter 2015, the Corporation repurchased warrants excercisable for 2.6 million Common Stock warrants issued by Citizens under the U.S. Treasury's Capital Purchase Program at a cost of $12.2 million, which reduced tangible book value per share by $0.07. The Corporation maintained a strong capital position as tangible common equity to assets was ~~8.14%~~8.09% at June 30, 2015, compared with 8.14% at March 31, 2015~~, compared with~~ ~~7.98%~~ and 7.89% at ~~December 31, 2014 and~~ ~~7.69%~~ at ~~March 31, 2014~~.June 30, 2014. The common share cash dividend paid in the ~~first~~second quarter 2015 was ~~$0.16~~$0.16 per share.

On January 1, 2015, the Corporation became subject to the Basel III capital framework and standardized approach for calculating risk-weighted assets. At ~~March 31,~~June 30, 2015, Basel III capital ratios on a transitional basis ~~remain~~remained well in excess of applicable regulatory requirements, with a total risk-based capital ratio of ~~13.72%~~13.61%, and a common equity tier 1 risk-based capital ratio of ~~10.60%~~10.47%.

REGULATION AND SUPERVISION

The United States and the banking, securities and commodities regulators, as well as fiscal and monetary authorities, have taken a number of significant actions over the past several years in response to the credit crisis that began in 2008. The single most important of these was the enactment of the Dodd-Frank Act in July 2010. The Dodd-Frank Act affects almost every aspect of the nation’s financial services industry, including regulation and compliance of financial institutions and systemically important nonbank financial companies, securities regulation, executive compensation, regulation of derivatives, corporate governance and consumer protection. Hundreds of implementing regulations are required, but these ~~are only partially~~remain finished. The Dodd-Frank Act also created the CFPB to regulate and supervise consumer financial products and providers.

The preemption of certain state laws previously granted to national banking associations by the OCC under the National Bank Act has been limited, especially with respect to consumer laws. 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. The Corporation is also subject to regulation by the CFPB.

Many aspects of the Dodd-Frank Act remain subject to ~~intensive~~ agency rulemaking and subsequent public comment prior to implementation, and 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~~The Corporation’s expenses ~~will increase~~have increased as a result of new ~~compliance requirements.~~regulatory requirements following the Dodd-Frank Act.

~~Table of Contents~~

On June 10, 2013, the Bank became subject to the Dodd-Frank Act requirements to centrally clear certain interest rate swaps. A cleared swap is subject to continuous collateralization of swap obligations, real time reporting, additional agreements and other regulatory constraints. The CME Group Inc. and LCH.Clearnet Group Ltd. are the Bank's approved clearing houses.

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To the extent that the information contained within this section 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 statues, regulations, policies, and ~~policies~~interpretations 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 or other rule makings applicable to the Corporation and its subsidiaries could have a material effect on the ~~business of the Corporation.~~Corporation's business.

New Capital Rules

On January 1, 2015, the Corporation and the Bank adopted the Basel III capital framework and standardized approach for calculating risk-weighted assets. The implementation of the Basel III capital requirements is ~~transitional and phases in~~being phased-in from January 1, 2015 through the end of 2018. The Basel III capital requirements emphasize CET1, which replaces tier 1 common equity. CET1 capital primarily includes common shareholders’ equity less certain deductions for goodwill and other intangibles, net of taxes, MSRs, net of taxes, and DTAs that arise from tax loss and credit carryforwards. Tier 1 capital is primarily comprised of common equity tier 1 capital and perpetual noncumulative preferred stock. Tier 2 capital primarily includes qualifying subordinated debt and qualifying ALL. Periods presented prior to March 31, 2015 are reported on a Basel I basis.

Basel III includes new minimum risk-based and leverage capital requirements for all banking organizations and removal of references to credit ratings. Basel III, when fully phased-in on January 1, 2019, requires a new minimum CET1 risk-based capital of 4.5%. The minimum ratio of tier 1 capital to risk-weighted assets is increased from 4.0% to 6.0% and all banking organizations are now subject to a 4.0% minimum leverage ratio. The required total risk based capital ratio is not changed. Failure to maintain the required capital conservation buffer will restrict or prohibit dividends, share repurchases and discretionary bonuses. The new rules provide strict eligibility criteria for regulatory capital instruments, and change the prompt corrective action scheme to reflect the new capital ratios. The final rule also changes the method for calculating risk-weighted assets in an effort to better identify riskier assets requiring higher capital cushions and to enhance risk sensitivity.

Stress Testing

The Dodd-Frank Act requires stress testing of bank holding companies and banks, such as the Corporation and the Bank, that have more than $10 billion of consolidated assets. Medium-sized Companies with consolidated assets of more than $10 billion but less than $50 billion ~~of consolidated assets (“~~("medium-sized ~~companies”~~companies")~~. Additional stress testing is required for banking organizations having $50 billion or more of assets. Medium-sized companies,~~, including the Corporation and the Bank, are required to conduct annual company-run stress tests under rules the federal bank regulatory agencies issued in October 2012. Additional stress testing is required for banking organizations having $50 billion or more of assets.

Stress tests assess the potential ~~impact~~effects of economic scenarios on the consolidated earnings, balance sheet and capital of a BHC or bank over a designated planning horizon of nine quarters, taking into account the organization's current condition, risks, exposures, strategies and activities, and such factors as the regulators may request of a specific organization. The stress tests are conducted under at least three required economic scenarios, consisting of a baseline, adverse, and severely adverse economic scenario as provided by the Federal Reserve for the Corporation and by the OCC for the Bank.

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The banking agencies issued Supervisory Guidance on Stress Testing for Banking Organizations With More Than $10 Billion in Total Consolidated Assets on May 17, 2012. On July 30, 2013, the federal banking agencies issued Proposed Supervisory Guidance on Implementing Dodd-Frank Act Company-Run Stress Tests for Banking Organizations with Total Consolidated Assets of more than $10 Billion but less than $50 Billion, which describes supervisory expectations for stress tests by medium-sized companies. In March 2014, the OCC, the Federal Reserve and the FDIC issued Final Supervisory Guidelines on Implementing Dodd Frank Act Company-Run Stress Tests for Banking Organizations with Total Consolidated Assets of More Than $10 Billion but Less Than $50 billion.

Each banking organization's board of directors and senior management are required to approve and review the policies and procedures of their stress testing processes as frequently as economic conditions or the condition of the organization may warrant, and at least annually. They are also required to consider the results of the stress test in the normal course of business, including the banking organization's capital planning (including dividends and share buybacks), assessment of capital adequacy and maintaining capital consistent with its risks and risk management practices. The results of the stress tests are provided to the applicable federal banking agencies. ~~Public disclosure~~The Corporation and the Bank publicly disclosed the results of its 2015 capital stress ~~test results is required beginning in~~testing on June 19, 2015.

Other Legislation

Legislation affecting financial institutions and the financial industry ~~will~~ continue to be introduced in Congress and state legislatures, and such legislation and regulatory changes 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 Corporation’s cost of doing business, limit or expand permissible activities or otherwise affect its competitive ~~position. Legislation that is enacted, together with any implementing regulations, could affect the~~position, financial condition or results of operations of the ~~Corporation or any of its subsidiaries.~~Corporation.

For additional information on ~~regulatory developments,~~regulation and supervision, refer to Item 1. “Business, Regulation and Supervision” of the 2014 Form 10-K.

NON-GAAP FINANCIAL MEASURES

Figure 2 below presents computations of earnings (loss) and certain other financial measures that exclude certain items that are included in the financial results presented in accordance with GAAP and are therefore considered non-GAAP financial measures. Management believes these non-GAAP financial measures enhance an investor's understanding of the business by providing a meaningful base for period-to-period comparisons, assisting in operating results analysis, and predicting future performance on the same basis as applied by Management and the Board of Directors. These non-GAAP financial measures are also used by Management to assess the performance of the Corporation's business, in comparison to the Corporation's other ongoing operations. Management does not consider the activities related to the adjustments to be indications of ongoing operations. Management and the Board of Directors utilize these non-GAAP financial measures as follows, among others:

Preparation of operating budgets

Monthly financial performance reporting

Monthly, quarterly and year-to-date assessment of the Corporation's business

Monthly close-out reporting of consolidated results (Management only)

Presentations to investors of corporate performance

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Net interest income is presented on a TE basis. Net interest income-TE includes the effects of taxable-equivalent adjustments using a statutory federal income tax rate of 35% adjusted for the non-deductible portion of interest expense incurred to acquire the tax-free assets. Net interest income TE enhances comparability of net interest income arising from taxable and tax exempt sources and is the preferred industry measurement of net interest income.

Total revenue is calculated as net interest income-TE plus noninterest income and excludes net securities gains or losses. Management believes that noninterest income without net securities gains or losses is more indicative of the Corporation's performance because it isolates income that is primarily client relationship and client transaction driven and is more indicative of normalized operations.

The efficiency ratio is a non-GAAP financial measure which measures productivity and is generally calculated as noninterest expense divided by total revenue-TE. The efficiency ratio removes the impact of the Corporation's intangible asset amortization from the calculation. The adjusted efficiency ratio further removes the impact of the Citizens' merger related charges. The fee income ratio is another non-GAAP financial measure calculated as noninterest income without net securities gains or losses divided by total revenue-TE. Management uses these ratios to monitor performance and believes these measures provide meaningful information to investors.

Tangible common equity ratios have been a focus of some investors in analyzing the capital position of the Corporation absent the effects of intangible assets and preferred stock. Traditionally, the banking regulators have assessed bank and BHC capital adequacy based on Tier 1 capital, the calculation of which is codified in federal banking regulations. The Corporation calculates its risk-based capital ratios under guidelines adopted by the Federal Reserve based on Basel III, which became effective for the Corporation and the Bank on January 1, 2015. The new Basel III rules ~~effective January 1, 2015, replace tier 1 common equity and the tier 1 common equity ratio with~~added CET1 and CET1 risk-based capital ~~ratio.~~ratios. Analysts and banking regulators have assessed the Corporation's capital adequacy using the tangible common shareholders' equity and/or the CET1 measure, ~~including~~ on a risk-weighted basis. Tangible common equity and CET1 are not formally defined by GAAP; accordingly, 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 assess the Corporation's capital adequacy using tangible common shareholders' equity and CET1, Management believes this information will assist investors to assess the Corporation's capital adequacy on these same bases.

CET1 capital is often expressed as a percentage of risk-weighted assets. Under the risk-based capital framework, a bank's various balance sheet assets and credit equivalent amounts of off-balance sheet items are assigned to one of several regulatory risk categories. The aggregated dollar amount in each category is then multiplied by the risk weighting assigned to that category. The resulting weighted values are added together and this sum is the risk-weighted assets total that, as adjusted, comprises the denominator of certain risk-based capital ratios. Tier 1 capital is then divided by this denominator (risk-weighted assets) to determine the Tier 1 capital ratio. Adjustments are made to Tier 1 capital to arrive at CET1 (non-GAAP). CET1 is also divided by the risk-weighted assets to determine the CET1 risk-based capital ratio. The amounts disclosed as risk-weighted assets are calculated consistent with current banking regulatory requirements.

The Corporation calculates its risk-based capital ratios under guidelines adopted by the Federal Reserve based on the Basel III, which became effective for the Corporation and the Bank on January 1, 2015. Because the Basel III rules are not formally defined by GAAP, therefore, these measures are considered to be non-GAAP financial measures, and other entities may calculate them differently from the Corporation’s disclosed calculations. Since analysts and banking regulators may assess the Corporation’s capital adequacy using the Basel III framework, Management believes that it is useful to provide investors information enabling them to assess the Corporation’s capital adequacy on the same basis.

~~Table of Contents~~

Tangible book value per share (non-GAAP) and common equity per share (non-GAAP) are approximate measures of the Corporation's common equity excluding goodwill and other intangible assets, and liquidation values. Management uses these values to evaluate the current market value and believes these measures are useful for evaluating the performance of a business consistently, whether acquired or developed internally. These per share values are calculated by deducting preferred stock from shareholder's equity for common equity

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value (non-GAAP) and deducting intangible assets from the common equity value for tangible book value (non-GAAP). Both values (numerator) are then divided by period end Common Stock outstanding.

Return on average tangible common shareholders' equity calculates the return on average common shareholders' equity excluding goodwill and other intangible assets. This measure is useful for evaluating the performance of a business consistently, whether acquired or developed internally.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of results as reported under GAAP. These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies.

~~Table of Contents~~

Figure 2. 2. GAAP to Non-GAAP Reconciliations


(Dollars in thousands)	(Dollars in thousands)		March 31, 2015			December 31, 2014			March 31, 2014			(Dollars in thousands)		June 30, 2015			December 31, 2014			June 30, 2014
Tangible common equity to tangible assets at period end	Tangible common equity to tangible assets at period end											Tangible common equity to tangible assets at period end
	Shareholders’ equity (GAAP)		$	2,888,786		$	2,834,281		$	2,742,966		Shareholders’ equity (GAAP)		$	2,887,957		$	2,834,281		$	2,791,738
	Less:	Intangible assets	68,422			71,020			79,819			Less:	Intangible assets	65,824			71,020			76,886
		Goodwill	741,740			741,740			741,740				Goodwill	741,740			741,740			741,740
		Preferred Stock	100,000			100,000			100,000				Preferred Stock	100,000			100,000			100,000
	Tangible common equity (non-GAAP)		$	1,978,624		$	1,921,521		$	1,821,407		Tangible common equity (non-GAAP)		$	1,980,393		$	1,921,521		$	1,873,112
	Total assets (GAAP)		25,118,120			24,902,347			24,498,661			Total assets (GAAP)		25,297,014			24,902,347			24,564,431
	Less:	Intangible assets	68,422			71,020			79,819			Less:	Intangible assets	65,824			71,020			76,886
		Goodwill	741,740			741,740			741,740				Goodwill	741,740			741,740			741,740
	Tangible assets (non-GAAP)		$	24,307,958		$	24,089,587		$	23,677,102		Tangible assets (non-GAAP)		$	24,489,450		$	24,089,587		$	23,745,805
	Tangible common equity to tangible assets ratio (non-GAAP)		8.14		%	7.98		%	7.69		%	Tangible common equity to tangible assets ratio (non-GAAP)		8.09		%	7.98		%	7.89		%
Capital ⁽¹⁾	Capital ⁽¹⁾		(Basel III)			(Basel I)			(Basel I)			Capital ⁽¹⁾		(Basel III)			(Basel I)			(Basel I)
	Shareholders' equity (GAAP)		$	2,888,786		$	2,834,281		$	2,742,966		Shareholders' equity (GAAP)		$	2,887,957		$	2,834,281		$	2,791,738
	Plus:	Net unrealized (gains)/ losses on investment securities related to AOCI	(16,072		)	5,546			17,925			Plus:	Net unrealized (gains)/ losses on investment securities related to AOCI	3,287			5,546			3,702
		Defined benefit postretirement plan losses related to AOCI	65,339			66,346			37,579				Defined benefit postretirement plan losses related to AOCI	64,334			66,346			35,805
		Trust preferred securities	—			—			74,501				Trust preferred securities	—			—			74,502
		Goodwill (GAAP)	741,740			741,740			741,740				Goodwill (GAAP)	741,740			741,740			741,740
		Less: Deferred tax liability associated with goodwill ⁽¹⁾	19,023			—			—				Less: Deferred tax liability associated with goodwill ⁽¹⁾	21,472			—			—
	Less:	Net non-qualifying goodwill (regulatory) ⁽¹⁾	722,717			741,740			741,740			Less:	Net non-qualifying goodwill (regulatory) ⁽¹⁾	720,268			741,740			741,740
		Intangible assets (GAAP)	68,422			71,020			79,819				Intangible assets (GAAP)	65,824			71,020			76,886
		Less: Deferred tax liability associated with intangible assets ⁽¹⁾	21,187			—			—				Less: Deferred tax liability associated with intangible assets ⁽¹⁾	47,636			—			—
	Less:	Net intangible assets (Regulatory)	47,235			71,020			79,819			Less:	Net intangible assets (regulatory)	18,188			71,020			76,886
		Disallowed deferred tax asset ⁽¹⁾	190,102			87,001			129,200				Disallowed deferred tax asset ⁽¹⁾	74,888			87,001			107,090
		Other adjustments ⁽¹⁾	(28,341		)	1,951			1,774				Other adjustments ⁽¹⁾	112,332			1,951			1,798
	Tier 1 capital (regulatory)		2,006,340			2,004,461			1,920,438			Tier 1 capital (regulatory)		2,029,902			2,004,461			1,978,233
	Less:	Preferred Stock	100,000			100,000			100,000			Less:	Preferred Stock	100,000			100,000			100,000
		Trust preferred securities	—			—			74,501				Trust preferred securities	—			—			74,502
	Plus:	Tier 1 capital adjustments	100,000			—			—			Plus:	Tier 1 capital adjustments	100,000			—			—
	Tier 1 common equity (non-GAAP) ⁽¹⁾		N/A			$	1,904,461		$	1,745,937		Tier 1 common equity (non-GAAP) ⁽¹⁾		N/A			$	1,904,461		$	1,803,731
	CET1 capital (non-GAAP) ⁽¹⁾		$	2,006,340		N/A			N/A			CET1 capital (non-GAAP) ⁽¹⁾		2,029,902			N/A			N/A
	Risk-weighted assets (regulatory) ⁽¹⁾		$	18,934,941		$	17,391,022		$	16,687,071		Risk-weighted assets (regulatory) ⁽¹⁾		$	19,386,096		$	17,391,022		$	17,104,892
	Tier 1 common equity ratio (non-GAAP) ⁽¹⁾		N/A			10.95		%	10.46		%	Tier 1 common equity ratio (non-GAAP) ⁽¹⁾		N/A			10.95		%	10.55		%
	CET1 risk-based capital ratio (non-GAAP) ⁽¹⁾		10.60		%	N/A			N/A			CET1 risk-based capital ratio (non-GAAP) ⁽¹⁾		10.47		%	N/A			N/A

GAAP to Non-GAAP Reconciliations, continued
(Dollars in thousands, except per share amounts) March 31, 2015 December 31, 2014 March 31, 2014
Book value, common equity value and tangible book value, per share
Shareholders’ equity (GAAP) $ 2,888,786
$ 2,834,281
$ 2,742,966
Less: Preferred Stock 100,000
100,000
100,000
Common shareholders' equity (non-GAAP) 2,788,786
2,734,281
2,642,966
Less: Intangible assets 68,422
71,020
79,819
Goodwill 741,740
741,740
741,740
Tangible common equity (non-GAAP) $ 1,978,624
$ 1,921,521
$ 1,821,407
Period end common shares 165,453
165,390
165,087
Book value per share $ 17.46
$ 17.14
$ 16.62
Common equity per share 16.86
16.53
16.01
Tangible book value per common share 11.96
11.62
11.03

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Three Months Ended March 31,
(Dollars in thousands) 2015 2014
Net income (GAAP) $ 57,139
$ 53,455

Adjustments to net income, net of tax ⁽²⁾

Plus: Acquisition related expenses, net of taxes —
628
Branch closure costs 783
—
Restructure expenses 1,149
—
Total adjusted charges 1,932
628
Adjusted net income (non-GAAP) $ 59,071
$ 54,083
Annualized net income (GAAP) $ 231,730
$ 216,790
Annualized adjusted net income (non-GAAP) $ 239,566
$ 219,337
Average assets (GAAP) $ 24,905,094
$ 24,144,570
Average equity (GAAP) 2,866,362
2,733,226
Less: Average Preferred Stock 100,000
100,000
Average common shareholders' equity (non-GAAP) 2,766,362
2,633,226
Less: Average intangible assets 69,692
81,253
Average goodwill 741,740
741,739
Average tangible common equity (non-GAAP) $ 1,954,930
$ 1,810,234

Return on average assets (GAAP) 0.93 % 0.90 %
Adjusted return on average assets net of adjusted charges (non-GAAP) 0.96 % 0.91 %
Return on average equity (GAAP) 8.08 % 7.93 %
Adjusted return on average equity net of adjusted charges (non-GAAP) 8.36 % 8.02 %

Return on average tangible common equity (non-GAAP) ⁽³⁾
11.85 % 11.98 %
Adjusted return on average tangible common equity net adjusted charges (non-GAAP) 12.25 % 12.12 %



GAAP to Non-GAAP Reconciliations, continued
(Dollars in thousands, except per share amounts)			June 30, 2015		December 31, 2014		June 30, 2014
Book value, common equity value and tangible book value, per share
	Shareholders’ equity (GAAP)		$	2,887,957	$	2,834,281	$	2,791,738
	Less:	Preferred Stock	100,000		100,000		100,000
	Common shareholders' equity (non-GAAP)		2,787,957		2,734,281		2,691,738
	Less:	Intangible assets	65,824		71,020		76,886
		Goodwill	741,740		741,740		741,740
	Tangible common equity (non-GAAP)		$	1,980,393	$	1,921,521	$	1,873,112
	Period end common shares		165,773		165,390		165,393
	Book value per share		$	17.42	$	17.14	$	16.88
	Common equity per share		16.82		16.53		16.27
	Tangible book value per common share		11.95		11.62		11.33



			Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)			2015			2014			2015			2014
	Net income (GAAP)		$	56,584		$	59,519		$	113,723		$	112,974
	Adjustments to net income, net of tax ⁽²⁾
	Plus:	Acquisition related expenses, net of taxes	—			—			—			706
		Branch closure costs	1,149			2,646			1,932			2,568
		Restructure expenses	—			—			1,149			—
		Total adjusted charges	1,149			2,646			3,081			3,274
		Adjusted net income (non-GAAP)	$	57,733		$	62,165		$	116,804		$	116,248
	Annualized net income (GAAP)		$	226,958		$	238,730		$	229,331		$	227,820
		Annualized adjusted net income (non-GAAP)	$	231,566		$	249,343		$	235,544		$	234,423
	Average assets (GAAP)		$	25,129,859		$	24,291,276		$	25,015,734		$	24,216,459
	Average equity (GAAP)		2,892,432			2,768,352			2,879,469			2,750,886
	Less:	Average Preferred Stock	100,000			100,000			100,000			100,000
	Average common shareholders' equity (non-GAAP)		2,792,432			2,668,352			2,779,469			2,650,886
	Less:	Average intangible assets	67,089			78,314			68,383			79,775
		Average goodwill	741,740			741,739			741,740			741,739
	Average tangible common equity (non-GAAP)		$	1,983,603		$	1,848,299		$	1,969,346		$	1,829,372

	Return on average assets (GAAP)		0.90		%	0.98		%	0.92		%	0.94		%
	Adjusted return on average assets net of adjusted charges (non-GAAP)		0.92		%	1.03		%	0.94		%	0.97		%
	Return on average equity (GAAP)		7.85		%	8.62		%	7.96		%	8.28		%
	Adjusted return on average equity net of adjusted charges (non-GAAP)		8.01		%	9.01		%	8.18		%	8.52		%
	Return on average tangible common equity (non-GAAP) ⁽³⁾		11.44		%	12.92		%	11.65		%	12.45		%
	Adjusted return on average tangible common equity net adjusted charges (non-GAAP)		11.67		%	13.49		%	11.96		%	12.81		%

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GAAP to Non-GAAP Reconciliations, continued

Three Months Ended March 31,
(Dollars in thousands) 2015 2014
Net interest income (GAAP) $ 185,623
$ 193,900
TE Adjustment 3,931
3,954
Net interest income TE (non-GAAP) 189,554
197,854
Noninterest income (GAAP) 65,847
67,270

Adjustments to noninterest income ⁽²⁾

Less: Securities gains /(losses) 354
56
Plus:
Branch closure costs and acquisition related expenses⁽³⁾
1,205
—
Adjusted noninterest income (non-GAAP) 66,698
67,214
Adjusted total revenue, TE excluding securities gains/(losses) (non-GAAP) 256,252
265,068
Noninterest expense (GAAP) 160,652
169,331

Adjustments to noninterest expense ⁽²⁾

Less: Intangible asset amortization 2,598
2,936
Adjusted noninterest expense, excluding amortization of intangibles 158,054
166,395
Less: Restructure expenses 1,767
—

Branch closures costs and acquisition related expenses ⁽³⁾
—
966
Adjusted noninterest expense (non-GAAP) $ 156,287
$ 165,429

Net interest margin on a TE basis (non-GAAP) 3.48 % 3.84 %
Fee income ratio (non-GAAP) 25.68 % 25.36 %
Efficiency ratio, excluding amortization of intangible assets and security gains/(losses) (non-GAAP) 61.97 % 62.77 %
Adjusted efficiency ratio (non-GAAP) 60.99 % 62.41 %



			Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)			2015			2014			2015			2014
	Net interest income (GAAP)		$	185,118		$	195,577		$	370,741		$	389,479
	TE Adjustment		3,900			4,089			7,831			8,041
	Net interest income TE (non-GAAP)		189,018			199,666			378,572			397,520
	Noninterest income (GAAP)		66,582			72,560			132,429			139,831
	Adjustments to noninterest income ⁽²⁾
	Less:	Securities gains /(losses)	567			80			921			136
	Plus:	Branch closure costs and acquisition related expenses⁽³⁾	1,768			3,951			2,973			3,951
		Adjusted noninterest income (non-GAAP)	67,783			76,431			134,481			143,646
	Adjusted total revenue, TE excluding securities gains/(losses) (non-GAAP)		256,801			276,097			513,053			541,166
	Noninterest expense (GAAP)		161,674			167,400			322,326			336,733
	Adjustments to noninterest expense ⁽²⁾
	Less:	Intangible asset amortization	2,598			2,933			5,196			5,869
		Adjusted noninterest expense, excluding amortization of intangibles	159,076			164,467			317,130			330,864
	Less:	Restructure expenses	—			—			1,767			—
		Branch closures costs and acquisition related expenses ⁽³⁾	—			120			—			1,086
		Adjusted noninterest expense (non-GAAP)	$	159,076		$	164,347		$	315,363		$	329,778

	Net interest margin on a TE basis (non-GAAP)		3.39		%	3.75		%	3.43		%	3.79		%
	Fee income ratio (non-GAAP)		25.88		%	26.63		%	25.78		%	26.00		%
	Efficiency ratio, excluding amortization of intangible assets and security gains/(losses) (non-GAAP)		62.37		%	60.43		%	62.17		%	61.59		%
	Adjusted efficiency ratio (non-GAAP)		61.95		%	59.53		%	61.47		%	60.94		%

(1) The Basel III capital rules, ~~effective~~ effective January 1, 2015, replace tier 1 common equity and the associated tier 1 common equity ratio with CET1 and the CET1 risk-based capital ratio. These ratios reflect the transitional capital requirements and phase-in provisions, including the standardized approach for calculating ~~risk~~risk- weighted assets. ~~Periods prior to March~~December 31, ~~2015~~2014 and June 30, 2014 amounts and ratios are reported on a Basel I basis.

(2) Management believes these adjustments increase comparability of period-to-period results and uses these measures to assess performance and believes investors may find them useful in their analysis of the Corporation. It is possible that the activities related to the adjustments may recur; however, Management does not consider the activities related to the adjustments to be indications of ongoing operations.

(3) Management determines these costs to be significant, ~~non-reoccurring~~nonreccurring items in the period and, therefore, removes these additional costs in calculating an adjusted efficiency ratio. Management believes removal of these significant, ~~non-reoccurring~~nonreccurring items improves comparability ~~period to period.~~period-to-period.

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RESULTS OF OPERATIONS

Figure 3. 3. Average Tax-Equivalent Balance ~~Sheets-Quarter~~Sheets - Quarter to Date


	Three Months Ended																					Three Months Ended
	March 31, 2015							December 31, 2014							March 31, 2014							June 30, 2015							March 31, 2015							June 30, 2014
(Dollars in thousands)	Average Balance			Interest ⁽¹⁾		Average Rate		Average Balance			Interest ⁽¹⁾		Average Rate		Average Balance			Interest ⁽¹⁾		Average Rate		Average Balance			Interest ⁽¹⁾		Average Rate		Average Balance			Interest ⁽¹⁾		Average Rate		Average Balance			Interest ⁽¹⁾		Average Rate
ASSETS
Cash and cash equivalents	$	563,265						$	500,559						$	959,071						$	518,820						$	563,265						$	662,000
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. government agency obligations (taxable)	5,329,725			$	26,760	2.04	%	5,257,657			$	26,803	2.02	%	5,151,341			$	25,910	2.04	%	5,452,598			$	27,098	1.99	%	5,329,725			$	26,760	2.04	%	5,303,645			$	26,751	2.02	%
Obligations of states and political subdivisions (tax exempt)	733,157			9,147		5.06	%	767,026			8,636		4.47	%	739,875			8,613		4.72	%	724,653			8,443		4.67	%	733,157			9,147		5.06	%	767,731			8,753		4.57	%
Other securities and federal funds sold	604,876			5,190		3.48	%	589,608			5,213		3.51	%	593,362			6,113		4.18	%	594,478			5,077		3.43	%	604,876			5,190		3.48	%	583,605			5,501		3.78	%
Total investment securities and federal funds sold	6,667,758			41,097		2.50	%	6,614,291			40,652		2.44	%	6,484,578			40,636		2.54	%	6,771,729			40,618		2.41	%	6,667,758			41,097		2.50	%	6,654,981			41,005		2.47	%
Loans held for sale	5,478			57		4.22	%	16,708			145		3.44	%	6,804			59		3.53	%	3,631			46		5.08	%	5,478			57		4.22	%	10,196			89		3.51	%
Loans, including loss share receivable ⁽²⁾	15,427,181			162,292		4.27	%	15,289,890			169,302		4.39	%	14,412,481			171,135		4.82	%	15,577,361			162,610		4.19	%	15,427,181			162,292		4.27	%	14,702,319			173,320		4.73	%
Total earning assets	22,100,417			$	203,446	3.73	%	21,920,889			$	210,099	3.80	%	20,903,863			$	211,830	4.11	%	22,352,721			$	203,274	3.65	%	22,100,417			$	203,446	3.73	%	21,367,496			$	214,414	4.02	%
Total allowance for loan losses	(144,363		)					(138,540		)					(138,891		)					(146,558		)					(144,363		)					(146,368		)
Other assets	2,385,775							2,382,079							2,420,527							2,404,876							2,385,775							2,408,148
Total assets	$	24,905,094						$	24,664,987						$	24,144,570						$	25,129,859						$	24,905,094						$	24,291,276
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY																					LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	5,728,763		$	—	—	%	$	5,706,631		$	—	—	%	$	5,488,751		$	—	—	%	$	5,722,240		$	—	—	%	$	5,728,763		$	—	—	%	$	5,515,807		$	—	—	%
Interest-bearing	3,209,285			767		0.10	%	3,021,188			727		0.10	%	3,045,952			737		0.10	%	3,203,836			783		0.10	%	3,209,285			767		0.10	%	3,066,201			745		0.10	%
Savings and money market accounts	8,542,154			5,547		0.26	%	8,381,548			5,496		0.26	%	8,698,817			5,559		0.26	%	8,467,845			5,588		0.26	%	8,542,154			5,547		0.26	%	8,580,928			5,477		0.26	%
Certificates and other time deposits	2,308,723			2,177		0.38	%	2,341,280			2,525		0.43	%	2,402,986			2,464		0.42	%	2,288,741			2,510		0.44	%	2,308,723			2,177		0.38	%	2,333,859			3,009		0.52	%
Total deposits	19,788,925			8,491		0.17	%	19,450,647			8,748		0.18	%	19,636,506			8,760		0.18	%	19,682,662			8,881		0.18	%	19,788,925			8,491		0.17	%	19,496,795			9,231		0.19	%
Securities sold under agreements to repurchase	1,024,863			243		0.10	%	1,241,948			294		0.09	%	884,065			197		0.09	%	1,285,920			329		0.10	%	1,024,863			243		0.10	%	1,024,598			233		0.09	%
Wholesale borrowings	350,991			2,340		2.70	%	450,587			2,360		2.08	%	276,324			1,129		1.66	%	393,379			2,351		2.40	%	350,991			2,340		2.70	%	373,213			1,391		1.49	%
Long-term debt	505,275			2,818		2.26	%	350,535			2,188		2.48	%	324,428			3,890		4.86	%	508,744			2,695		2.12	%	505,275			2,818		2.26	%	324,431			3,893		4.81	%
Total interest-bearing liabilities	15,941,291			13,892		0.35	%	15,787,086			13,590		0.34	%	15,632,572			13,976		0.36	%	16,148,465			14,256		0.35	%	15,941,291			13,892		0.35	%	15,703,230			14,748		0.38	%
Other liabilities	368,678							321,652							290,021							366,722							368,678							303,887
Shareholders’ equity	2,866,362							2,849,618							2,733,226							2,892,432							2,866,362							2,768,352
Total liabilities and shareholders’ equity	$	24,905,094						$	24,664,987						$	24,144,570						$	25,129,859						$	24,905,094						$	24,291,276
Net yield on earning assets	$	22,100,417		$	189,554	3.48	%	$	21,920,889		$	196,509	3.56	%	$	20,903,863		$	197,854	3.84	%	$	22,352,721		$	189,018	3.39	%	$	22,100,417		$	189,554	3.48	%	$	21,367,496		$	199,666	3.75	%
Interest rate spread						3.38	%						3.46	%						3.75	%						3.30	%						3.38	%						3.65	%

⁽¹⁾The net yield on earning assets is calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal and/or state income taxes. As such, these tax-exempt securities typically yield lower returns than taxable securities. To provide more meaningful comparisons of net interest margins for all earning assets, net interest income on a taxable-equivalent basis is used in calculating net interest margin by increasing the interest earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles in the Consolidated Statements of Income. The taxable-equivalent adjustments to net interest income were $3.9 million, ~~$4.0~~$3.9 million, and $~~4.0~~4.1 million for the three months ended June 30, 2015, March 31, 2015,~~, December 31, 2014,~~ and ~~March 31,~~June 30, 2014, respectively.

⁽²⁾ Nonaccrual loans have been included in the average balances.

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Figure 4. Average Tax-Equivalent Balance Sheets - Year to Date



	Six Months Ended
	June 30, 2015							June 30, 2014
(Dollars in thousands)	Average Balance			Interest ⁽¹⁾		Average Rate		Average Balance			Interest ⁽¹⁾		Average Rate
ASSETS
Cash and cash equivalents	$	540,920						$	809,715
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)	5,391,501			$	53,858	2.01	%	5,227,913			$	52,661	2.03	%
Obligations of states and political subdivisions (tax exempt)	728,882			17,590		4.87	%	753,880			17,365		4.65	%
Other securities and federal funds sold	599,648			10,267		3.45	%	588,457			11,614		3.98	%
Total investment securities and federal funds sold	6,720,031			81,715		2.45	%	6,570,250			81,640		2.51	%
Loans held for sale	4,550			103		4.56	%	8,510			148		3.52	%
Loans, including loss share receivable ⁽²⁾	15,502,686			324,902		4.23	%	14,558,200			344,453		4.77	%
Total earning assets	22,227,267			406,720		3.69	%	21,136,960			426,241		4.07	%
Total allowance for loan losses	(145,467		)					(142,649		)
Other assets	2,393,014							2,412,433
Total assets	$	25,015,734						$	24,216,459
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	5,725,483		$	—	—	%	$	5,502,354		$	—	—
Interest-bearing	3,206,545			1,550		0.10	%	3,056,132			1,481		0.10	%
Savings and money market accounts	8,504,794			11,135		0.26	%	8,639,547			11,035		0.26	%
Certificates and other time deposits	2,298,677			4,687		0.41	%	2,368,231			5,473		0.47	%
Total deposits	19,735,499			17,372		0.18	%	19,566,264			17,989		0.19	%
Securities sold under agreements to repurchase	1,156,113			572		0.10	%	954,719			429		0.09	%
Wholesale borrowings	372,302			4,691		2.54	%	325,036			2,520		1.56	%
Long-term debt	505,125			5,513		2.20	%	324,430			7,783		4.84	%
Total interest-bearing liabilities	16,043,556			28,148		0.35	%	15,668,095			28,721		0.37	%
Other liabilities	367,226							295,124
Shareholders’ equity	2,879,469							2,750,886
Total liabilities and shareholders’ equity	$	25,015,734						$	24,216,459
Net yield on earning assets	$	22,227,267		$	378,572	3.43	%	$	21,136,960		$	397,520	3.79	%
Interest rate spread						3.34	%						3.70	%

⁽¹⁾The net yield on earning assets is calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal and/or state income taxes. As such, these tax-exempt securities typically yield lower returns than taxable securities. To provide more meaningful comparisons of net interest margins for all earning assets, net interest income on a taxable-equivalent basis is used in calculating net interest margin by increasing the interest earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles in the Consolidated Statements of Income. The taxable-equivalent adjustments to net interest income were $7.8 million and $8.0 million for the six months ended June 30, 2015 and June 30, 2014, respectively.

⁽²⁾ Nonaccrual loans have been included in the average balances.

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Net Interest Income

Net interest income, the Corporation's principal source of revenue, is the difference between interest income generated by earning assets (primarily loans and investment securities) and interest expense on deposits and borrowings. Net interest income is affected by the volume, pricing, mix and maturity of ~~earnings~~earning assets and interest-bearing liabilities; the volume and value of net free funds, such as noninterest-bearing deposits and equity capital; the use of derivative instruments to manage interest rate risk; interest rate fluctuations and competitive conditions within the marketplace; and asset quality.

To make it easier to compare results among several periods and the yields on various types of earning assets (some taxable, some not), net interest income is presented in this discussion on a TE basis. That is, interest on tax-free securities and tax-exempt loans has been restated as if such interest were taxed at the statutory federal income tax rate of 35% adjusted for the nondeductible portion of interest expense incurred to acquire the tax-free assets. Net interest income presented on a TE basis is a financial measure that is calculated and presented other than in accordance with GAAP and is widely used by financial services organizations. Therefore, Management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons. The net interest margin, which is an indicator of the profitability of the earning assets portfolio less cost of funding, is calculated by dividing net interest income-TE by average earning assets. As with net interest income-TE, the net interest margin is affected by the level and mix of earning assets, the proportion of earning assets funded by noninterest-bearing liabilities and the interest rate spread. In addition, the net interest margin is impacted by changes in federal income tax rates and regulations as they affect the tax-equivalent adjustment.

The impact of changes in the volume of interest-earning assets and interest-bearing liabilities and interest rates on net interest income is illustrated in the following table.

Figure 45. Changes in Net Interest Income Tax-Equivalent Rate/Volume Analysis



	Three Months Ended March 31,									Three Months Ended June 30,									Six Months Ended June 30,
	2015 and 2014									2015 and 2014									2015 and 2014
	Increase (Decrease) In Interest Income/Expense									Increase (Decrease) In Interest Income/Expense									Increase (Decrease) In Interest Income/Expense
(In thousands)	Due to Volume			Due to Rate			Net			Due to Volume			Due to Rate			Net			Due to Volume			Due to Rate			Net
INTEREST INCOME-TE
Investment securities and federal funds sold:
Taxable	$	1,040		$	(1,113	)	$	(73	)	$	863		$	(940	)	$	(77	)	$	1,902		$	(2,052	)	$	(150	)
Tax-exempt	(79		)	613			534			(499		)	189			(310		)	(587		)	812			225
Loans held for sale	(13		)	11			(2		)	(72		)	29			(43		)	(82		)	37			(45		)
Loans	11,525			(20,368		)	(8,843		)	9,911			(20,621		)	(10,710		)	21,422			(40,973		)	(19,551		)
Total interest income-TE	12,473			(20,857		)	(8,384		)	10,203			(21,343		)	(11,140		)	22,655			(42,176		)	(19,521		)
INTEREST EXPENSE
Interest on deposits:
Interest bearing	39			(9		)	30			34			4			38			73			(4		)	69
Savings and money market accounts	(101		)	89			(12		)	(74		)	185			111			(174		)	274			100
Certificates and other time deposits	(94		)	(193		)	(287		)	(57		)	(442		)	(499		)	(157		)	(629		)	(786		)
Securities sold under agreements to repurchase	32			14			46			65			31			96			97			46			143
Wholesale borrowings	363			848			1,211			80			880			960			410			1,761			2,171
Long-term debt	1,577			(2,649		)	(1,072		)	1,588			(2,786		)	(1,198		)	3,141			(5,411		)	(2,270		)
Total interest expense	1,816			(1,900		)	(84		)	1,636			(2,128		)	(492		)	3,390			(3,963		)	(573		)
Net interest income-TE	$	10,657		$	(18,957	)	$	(8,300	)	$	8,567		$	(19,215	)	$	(10,648	)	$	19,265		$	(38,213	)	$	(18,948	)

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

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The following table in Figure 56 provides net interest income-TE and net interest margin totals for the three and six months ended ~~March 31,~~June 30, 2015 and 2014:

Figure 5. 6. Net Interest Income and Net Interest Margin


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014			2015			2014
Net interest income	$	185,623		$	193,900		$	185,118		$	195,577		$	370,741		$	389,479
Tax equivalent adjustment	3,931			3,954			3,900			4,089			7,831			8,041
Net interest income-TE	189,554			197,854			189,018			199,666			378,572			397,520
Average earning assets	$	22,100,417		$	20,903,863		$	22,352,721		$	21,367,496		22,227,267			21,136,960
Net interest margin	3.48		%	3.84		%	3.39		%	3.75		%	3.43		%	3.79		%

For the three months ended ~~March 31,~~June 30, 2015, net interest income-TE was ~~$189.6~~$189.0 million, a decrease of $~~8.3~~10.6 million, or ~~4.20%~~5.33%, from the year ago period. The net interest margin for the three months ended ~~March 31,~~June 30, 2015 was ~~3.48%~~3.39%, 36 basis points lower than ~~3.84%~~3.75% for the same year ago quarter. The decrease in taxable equivalent net interest income was attributable to a decrease in originated and ~~covered~~FDIC acquired loan yields, partially offset by the benefit provided by an increase in average earning assets. Average earning assets increased by ~~$1.2~~$1.0 billion, or ~~5.72%~~4.61%, for the three months ended ~~March 31,~~June 30, 2015, compared to the same period in 2014. The increase in average earnings assets primarily reflected a ~~$1.0 billion~~$875.0 million increase in average total loans and a ~~$183.2~~$116.7 million increase in average investments. The average yield on earning assets decreased from ~~4.11%~~4.02% in the ~~first~~second quarter of 2014 to ~~3.73%~~3.65% in the ~~first~~second quarter of 2015 primarily from decreased yields on ~~originated and covered loans.~~the loan portfolios. Originated loan yields were down 1720 basis points to ~~3.51%~~3.47% from the year ago quarter due to competitive pricing pressures in a low rate environment and repayments on higher yielding loans. The yield on ~~covered~~FDIC acquired loans was down 86204 basis points from the year ago quarter due to a ~~$8.1~~$8.5 million decrease in ~~covered~~FDIC acquired loan discount accretion, partly offset by a ~~$3.7~~$3.0 million favorable reduction in the indemnification asset amortization. These reductions are the result of the continued decline in FDIC acquired loan average balances. The average balances have declined ~~$233.5~~$219.3 million, or ~~41.4%~~43.8%, from the year ago quarter. The yield on acquired loans was ~~down 1~~up 19 basis point to ~~7.93%~~8.12%, partially offsetting the decreases in the yields of the originated and ~~covered~~FDIC acquired loan portfolios.

Quarterly average balances for investment securities were up from the year ago quarter increasing investment interest income by $~~1.0~~0.4 million, while the lower interest rate environment resulted in a decrease in investment interest income of $~~0.5~~0.8 million year over year. The lower rates paid on interest bearing deposits during the current quarter resulted in a net decrease of $~~0.3~~0.4 million in interest expense for the three months ended ~~March 31,~~June 30, 2015, compared to the same prior year period. Higher quarterly average wholesale borrowings and lower rates during the ~~first~~second quarter of 2015 caused a net increase in interest expense of ~~$1.2~~$1.0 million compared to the same year ago period. The cost of funds for the year as a percentage of average earning assets remained flat at approximately 0.06% for the three months ended ~~March 31,~~June 30, 2015and 0.07% at ~~March 31,~~June 30, 2014.

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Noninterest Income

Excluding investment securities transactions, noninterest income for the three and six months ended ~~March 31,~~June 30, 2015 ~~and~~ ~~March 31, 2014~~ totaled $~~65.5~~66.0 million and ~~$67.2~~$131.5 million, respectively. and totaled $72.5 million and $139.7 million, respectively, for the three and six months ended June 30, 2014. Noninterest income decreased ~~$1.4~~$6.0 million, or ~~2.12%~~8.24%, compared to the three month period ended June 30, 2014, and decreased $7.4 million, or 5.29%, compared to the six month period ended ~~March 31,~~June 30, 2014. Noninterest income as a percentage of net revenue (net interest income-TE plus noninterest income, less securities transactions) was ~~25.68%~~25.88% for the three months ended ~~March 31,~~June 30, 2015, updown slightly from ~~25.36%~~26.63% in the year ago ~~quarter.~~quarter, and 25.78% for the six months ended June 30, 2015, down slightly from 26.00% in 2014. Significant changes in noninterest income for the three and ~~three~~six months ended ~~March 31,~~June 30, 2015 are discussed immediately after Figure 67.

Figure 67. Noninterest Income


	Three Months Ended March 31,						% Increase (Decrease) 2015 vs. 2014		Three Months Ended June 30,						% Increase (Decrease) 2015 vs. 2014			Six Months Ended June 30,							% Increase (Decrease) 2015 vs. 2014
(Dollars in thousands)	2015			2014			% Increase (Decrease) 2015 vs. 2014		2015			2014					2015				2014				% Increase (Decrease) 2015 vs. 2014
Trust department income	$	10,149		$	9,748		4.11	%	$	10,820		$	10,070		% Increase (Decrease) 2015 vs. 2014	7.45	%		$	20,969			$	19,818		5.81	%
Service charges on deposits	15,668			16,648			(5.89	)%	16,704			18,528			(9.84	)%		32,372				35,176			(7.97	)%
Credit card fees	12,649			12,152			4.09	%	14,124			13,455			4.97	%		26,773				25,607			4.55	%
ATM and other service fees	6,099			5,819			4.81	%	6,345			5,996			5.82	%		12,444				11,816			5.31	%
Bank owned life insurance income	3,592			3,582			0.28	%	3,697			4,040			(8.49	)%		7,289				7,622			(4.37	)%
Investment services and life insurance	3,704			3,516			5.35	%	3,871			3,852			0.49	%		7,575				7,368			2.81	%
Investment securities gains/(losses), net	354			56			532.14	%	567			80			608.75	%		921				136			577.21	%
Loan sales and servicing income	1,600			3,730			(57.10	)%	3,276			4,462			(26.58	)%		4,876				8,192			(40.48	)%
Other operating income	12,032			12,019			0.11	%	7,178			12,077			(40.56	)%		19,210				24,096			(20.28	)%
Total noninterest income	$	65,847		$	67,270		(2.12	)%	$	66,582		$	72,560		(8.24	)%		$	132,429			$	139,831		(5.29	)%

Noninterest income as a percent of net revenue ⁽¹⁾	25.68		%	25.36		%			25.88		%	26.63		%				25.78		%		26.00		%

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

Service charges on deposits decreased $1.8 million, or 9.84%, in the three months ended June 30, 2015 as compared to the same prior year period and decreased $2.8 million, or 7.97%, in the six months ended June 30, 2015 as compared to the same prior year period due to fewer overdraft incident levels as customers increasingly use mobile devices to manage their accounts.

Loan sales and servicing income includes amortization and impairment or recovery of MSRs, changes in the fair value value of residential mortgage loans held for sale, as well as changes in the value of derivatives used to hedge those loans held for sale. Total loan sales and servicing income decreased by ~~$2.1~~$1.2 million,, or ~~57.10%~~26.58%, in the three months ended ~~March 31,~~June 30, 2015 as compared to the same prior year ~~period. The overall decrease is being driven~~period and decreased by ~~lower loan sales and servicing income.~~$3.3 million, or 40.48% in the six months ended June 30, 2015 as compared to the six months ended June 30, 2014. The Corporation's mortgage banking business was restructured as of January 1, 2015 and resulted in a lower volume of loans sold in the three and six months ended ~~March 31,~~June 30, 2015. While the Corporation continues to originate residential mortgage loans, it has partnered with a third party to process, underwrite, close, and service the Corporation's residential mortgage loan production. The Corporation will retain for its balance sheet and continue to service community reinvestment act eligible loans, jumbos, and adjustable rate mortgages. The Corporation serviced for third parties approximately ~~$2.6~~$2.5 billion of residential mortgage loans at ~~March 31,~~June 30, 2015

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and $2.7 billion at ~~March 31,~~June 30, 2014 resulting in loan servicing fees of approximately $1.6 million and $3.2 million in ~~each of~~ the three ~~month periods~~months ended ~~March 31,~~June 30, 2015 and 2014, respectively, and $1.6 million and $3.3 million in the six months ended June 30, 2015 and 2014, respectively.~~March 31, 2014~~.

Also contributing to the decrease in noninterest income year over year is the recognition of ~~$1.2~~$1.8 million in costs associated with branch closures which were recorded as a reduction to other operating income in the three months ended ~~March 31,~~June 30, 2015.

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Noninterest Expenses

Noninterest expenses for the three and six months ended ~~March 31,~~June 30, 2015 totaled $~~160.7~~161.7 million and $322.3 million, respectively, compared with $~~169.3~~167.4 million and $336.7 million, respectively, in the same ~~period~~periods one year ~~ago,~~ago. This resulted in a decrease of $~~8.7~~5.7 million, or ~~5.13%~~3.42%., for the quarter-to-date period and a decrease of $14.4 million, or 4.28%, for the year-to-date period. Significant changes in noninterest expense for the three and six months ended ~~March 31,~~June 30, 2015 are discussed immediately after Figure 78.

Figure 78. Noninterest Expense


	Three Months Ended March 31,				% Increase (Decrease) 2015 vs 2014		Three Months Ended June 30,				% Increase (Decrease) 2015 vs 2014		Six Months Ended June 30,				% Increase (Decrease) 2015 vs 2014
(Dollars in thousands)	2015		2014		% Increase (Decrease) 2015 vs 2014		2015		2014		% Increase (Decrease) 2015 vs 2014		2015		2014		% Increase (Decrease) 2015 vs 2014
Salaries and wages	$	71,914	$	71,669	0.34	%	$	67,485	$	69,892	(3.44	)%	$	139,400	$	141,561	(1.53	)%
Pension and employee benefits	18,612		17,344		7.31	%	18,535		19,573		(5.30	)%	37,146		36,917		0.62	%
Net occupancy expense	15,954		17,014		(6.23	)%	13,727		14,347		(4.32	)%	29,681		31,361		(5.36	)%
Equipment expense	11,025		11,911		(7.44	)%	12,592		12,267		2.65	%	23,617		24,178		(2.32	)%
Taxes, other than federal income taxes	2,014		2,774		(27.40	)%	2,032		2,576		(21.12	)%	4,045		5,353		(24.43	)%
Stationery, supplies and postage	3,528		4,108		(14.12	)%	3,370		3,990		(15.54	)%	6,898		8,097		(14.81	)%
Bankcard, loan processing, and other costs	11,139		10,834		2.82	%	12,461		11,810		5.51	%	23,600		22,644		4.22	%
Advertising	2,747		3,516		(21.87	)%	3,103		3,801		(18.36	)%	5,850		7,319		(20.07	)%
Professional services	4,010		5,359		(25.17	)%	5,358		4,745		12.92	%	9,368		10,103		(7.28	)%
Telephone	2,574		2,908		(11.49	)%	2,599		2,857		(9.03	)%	5,173		5,764		(10.25	)%
Amortization of intangibles	2,598		2,936		(11.51	)%	2,598		2,933		(11.42	)%	5,196		5,869		(11.47	)%
FDIC insurance expense	5,167		5,971		(13.47	)%	5,077		5,533		(8.24	)%	10,244		11,504		(10.95	)%
Other operating expense	9,370		12,987		(27.85	)%	12,737		13,076		(2.59	)%	22,108		26,063		(15.17	)%
Total Noninterest Expense	$	160,652	$	169,331	(5.13	)%	$	161,674	$	167,400	(3.42	)%	$	322,326	$	336,733	(4.28	)%

~~Net occupancy expense~~Salaries and benefits decreased ~~$1.1~~$3.4 million, or ~~6.23%~~3.85%, as compared to the first quarter of 2014. The first quarter of 2014 had higher than usual snow removal and utility costs due to the severe weather across the Corporation's entire footprint. Professional services expense decreased $1.3 million, or 25.17%, as compared to the first quarter 2014. Included in expense in the three months ended ~~March 31, 2014~~June 30, 2015 as compared to the same prior year period and decreased $1.9 million, or 1.08%, in the six months ended June 30, 2015 as compared to the same prior year period due to 375, or 8.54%, fewer full time equivalent employees year over year.

Net occupancy expense decreased year over year reflecting the Corporation's recent branch rationalization efforts. Bankcard, loan processing, and other costs increased year over year due to higher processing volumes.

Professional fees were ~~professional and~~higher in the three months ended June 30, 2015 as compared to the same prior year period as a result of legal ~~fees of $0.7 million~~work related to the ~~Citizens acquisition.~~expiration of the Midwest loss share agreement and

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professional fees incurred for the digital loan processing project. Included in total noninterest expense in the six months ended June 30, 2014 were $1.0 million in acquisition related expenses, of which $0.7 million were professional service expenses.

Income Taxes

Income tax expense was $~~25.4~~24.5 million and $~~23.8~~26.0 million for the three months ended ~~March 31,~~June 30, 2015 and 2014, respectively. The effective income tax ~~rate~~rates for the three months ended ~~March 31,~~June 30, 2015 was ~~30.80%~~30.19% compared to ~~30.85%~~30.37% for the three months ended ~~March 31,~~June 30, 2014.

Income tax expense was $49.9 million and $49.8 million for the six months ended June 30, 2015 and 2014, respectively. The effective income tax rate for the six months ended June 30, 2015 was 30.50% compared to 30.60% for the six months ended June 30, 2014.

LINE OF BUSINESS RESULTS

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.

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The following tables present a summary of financial results for the three and six months ended~~March 31,~~June 30, 2015 and 2014. A description of each business line, important financial performance data and the methodologies used to measure financial performance are presented in Note 7 (Segment Information) to the consolidated financial statements.

Figure 89. Line of Business Results


	Commercial			Retail		Wealth			Other			FirstMerit Consolidated		Commercial				Retail				Wealth						Other						FirstMerit Consolidated
March 31, 2015	QTD			QTD		QTD			QTD			QTD
June 30, 2015														QTD		YTD		QTD		YTD		QTD			YTD			QTD			YTD			QTD		YTD
(In thousands)
OPERATIONS:
Net interest income/(loss) -TE	$	101,056		$	91,095	$	5,353		$	(7,950	)	$	189,554	$	102,528	$	205,228	$	92,501	$	184,527	$	5,452		$	10,932		$	(11,463	)	$	(22,115	)	$	189,018	$	378,572
Provision/(recapture) for loan losses	(526		)	7,533		(170		)	1,411			8,248		2,285		1,759		8,447		15,981		(1		)	(171		)	(1,765		)	(355		)	8,966		17,214
Noninterest income	22,490			21,737		13,976			7,644			65,847		21,918		44,408		23,964		45,701		14,816			28,792			5,884			13,528			66,582		132,429
Noninterest expense	61,653			88,271		13,719			(2,991		)	160,652		61,032		122,685		87,799		176,070		13,461			27,181			(618		)	(3,610		)	161,674		322,326
Net income/(loss)	39,785			11,068		3,756			2,530			57,139		38,963		79,816		13,142		24,815		4,425			8,264			54			828			56,584		113,723
AVERAGES:
Assets	9,454,218			5,845,417		302,186			9,303,273			24,905,094		$	9,437,824	$	9,445,975	$	5,951,665	$	5,898,835	$	290,798		$	296,461		$	9,449,572		$	9,374,463		$	25,129,859	$	25,015,734
Loans	9,506,529			5,570,590		292,016			58,046			15,427,181		9,533,843		9,520,262		5,702,015		5,636,666		281,013			286,484			60,490			59,274			15,577,361		15,502,686
Earnings assets	9,794,483			5,582,849		292,016			6,431,069			22,100,417		9,828,867		9,811,770		5,707,400		5,645,469		281,013			286,484			6,535,441			6,483,544			22,352,721		22,227,267
Deposits	6,886,945			11,124,158		1,240,960			536,862			19,788,925		6,777,434		6,831,887		11,105,954		11,115,005		1,188,563			1,214,617			610,711			573,990			19,682,662		19,735,499
Economic capital	848,890			479,188		55,187			1,483,097			2,866,362		1,355,049		1,349,289		767,803		763,446		111,770			109,969			657,810			656,765			2,892,432		2,879,469

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	Commercial		Retail		Wealth			Other			FirstMerit Consolidated		Commercial					Retail				Wealth				Other						FirstMerit Consolidated
March 31, 2014	QTD		QTD		QTD			QTD			QTD
June 30, 2014													QTD			YTD		QTD		YTD		QTD		YTD		QTD			YTD			QTD		YTD
(In thousands)
OPERATIONS:
Net interest income/(loss) -TE	$	106,163	$	93,250	$	4,678		$	(6,237	)	$	197,854	$	107,528		$	212,831	$	96,108	$	190,454	$	4,927	$	9,717	$	(8,897	)	$	(15,482	)	$	199,666	$	397,520
Provision/(recapture) for loan losses	5,706		8,339		(45		)	536			14,536		(1,346		)	4,360		12,443		20,782		396		351		3,760			4,297			15,253		29,790
Noninterest income	21,306		27,035		13,464			5,465			67,270		26,681			47,987		25,345		52,380		14,052		27,516		6,482			11,948			72,560		139,831
Noninterest expense	63,966		96,701		13,518			(4,854		)	169,331		63,441			127,407		89,383		186,091		13,177		26,695		1,399			(3,460		)	167,400		336,733
Net income/(loss)	36,884		9,909		3,035			3,627			53,455		46,875			83,885		12,758		23,375		3,515		6,622		(3,629		)	(907		)	59,519		112,974
AVERAGES:
Assets	9,072,390		5,449,856		241,618			9,380,706			24,144,570		$	9,192,463		$	9,132,758	$	5,546,492	$	5,504,382	$	258,845	$	250,279	$	9,293,476		$	9,329,040		$	24,291,276	$	24,216,459
Loans	9,061,371		5,084,555		230,429			36,126			14,412,481		9,176,853			9,119,431		5,198,481		5,142,098		248,188		239,358		78,797			57,313			14,702,319		14,558,200
Earnings assets	9,308,031		5,101,740		230,429			6,263,663			20,903,863		9,465,291			9,387,095		5,218,868		5,160,893		248,188		239,358		6,435,149			6,349,614			21,367,496		21,136,960
Deposits	6,645,640		11,753,015		1,009,811			228,039			19,636,505		6,545,608			6,595,348		11,720,730		11,736,766		1,050,002		1,030,018		180,455			204,132			19,496,795		19,566,264
Economic capital	654,922		320,090		57,784			1,700,430			2,733,226		1,301,532			1,300,177		744,110		724,203		100,361		98,684		622,349			627,822			2,768,352		2,750,886

The commercial segment's net income resulted in ~~an increase~~a decrease of ~~$2.9~~$7.9 million, or ~~7.87%~~16.88%, for the three months ended ~~March 31,~~June 30, 2015 to ~~$39.8~~$39.0 million, from ~~$36.9~~$46.9 million for the three months ended ~~March 31,~~June 30, 2014. TE adjusted net interest income for the commercial segment totaled ~~$101.1~~$102.5 million for the three months ended ~~March 31,~~June 30, 2015 compared to ~~$106.2~~$107.5 million for the three months ended ~~March 31,~~June 30, 2014, a decrease of ~~$5.1~~$5.0 million, or ~~4.81%~~4.65%. This decrease is a result of margin compression in the commercial portfolio of ~~acquired~~originated and ~~covered~~FDIC acquired loans, partially offset by higher commercial loan balances. The provision for loan losses for the commercial segment was a recapture of ~~$0.5~~$2.3 million for the three months ended ~~March 31,~~June 30, 2015 compared to ~~$5.7~~$1.3 million for the three months ended ~~March 31,~~June 30, 2014. Net charge-offs were ~~$0.4~~$3.2 million for the three months ended ~~March 31,~~June 30, 2015, compared to ~~$4.1~~$2.4 million during the same period in 2014. Noninterest income ~~increased $1.2~~decreased $4.8 million to ~~$22.5~~$21.9 million for the three months ended ~~March 31,~~June 30, 2015 compared to ~~$21.3~~$26.7 million for the

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same period in ~~2014.~~2014, primarily due to lower gains on FDIC acquired loan payoffs, which was partially offset by higher credit card income. Noninterest expense for the commercial segment was ~~$61.7~~$61.0 million for the three months ended ~~March 31,~~June 30, 2015, down from ~~$64.0~~$63.4 million for the same period of 2014.

The retail segment's net income resulted in an increase of ~~$1.2~~$0.4 million, or ~~11.70%~~3.01%, for the three months ended ~~March 31,~~June 30, 2015 to ~~$11.1~~$13.1 million, from ~~$9.9~~$12.8 million for the three months ended ~~March 31,~~June 30, 2014. ~~TE adjusted net~~Net interest income totaled ~~$91.1~~$92.5 million for the three months ended ~~March 31,~~June 30, 2015 compared to ~~$93.3~~$96.1 million for the three months ended ~~March 31,~~June 30, 2014, a decrease of ~~$2.2~~$3.6 million, or ~~2.31%~~3.75%, attributable primarily to margin compression ~~from lower yields and declines~~ in the acquired loan portfolio. Provision for loan losses totaled ~~$7.5~~$8.4 million for the three months ended ~~March 31,~~June 30, 2015 compared to ~~$8.3~~$12.4 million for the three months ended ~~March 31,~~June 30, 2014, a decrease of ~~$0.8~~$4.0 million. Net charge-offs increased slightly to ~~$3.8~~$4.0 million for the three months ended ~~March 31,~~June 30, 2015, compared to ~~$3.5~~$3.8 million during the same period in 2014. Noninterest income was ~~$21.7~~$24.0 million for the three months ended ~~March 31,~~June 30, 2015 compared to ~~$27.0~~$25.3 million for the three months ended ~~March 31,~~June 30, 2014, a decrease of ~~$5.3~~$1.4 million, or ~~19.60%~~5.45%, attributable to lower service charges on deposits and loan sales and servicing income. ~~Also, retail experienced a $1.2 million charge~~These reductions were offset by lower charges related to branch ~~consolidations.~~ consolidations which declined to $1.8 million in the three months ended June 30, 2015 from $3.7 million during the same period in 2014.

Noninterest expense decreased ~~$8.4~~$1.6 million, or ~~8.72%~~1.77%, to ~~$88.3~~$87.8 million for the three months ended ~~March 31,~~

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June 30, 2015 compared to ~~$96.7~~$89.4 million for the three months ended ~~March 31,~~June 30, 2014. This reduction was driven mainly by lower personnel expenses from branch ~~consolidations and lower operating losses in the Mortgage business.~~consolidations.

The wealth segment's net income resulted in an increase of ~~$0.7~~$0.9 million, or ~~23.8%~~25.89%, for the three months ended ~~March 31,~~June 30, 2015 to ~~$3.8~~$4.4 million, from ~~$3.0~~$3.5 million for the three months ended ~~March 31,~~June 30, 2014. Net interest income totaled ~~$5.4~~$5.5 million for the three months ended ~~March 31,~~June 30, 2015 compared to ~~$4.7~~$4.9 million for the three months ended ~~March 31,~~June 30, 2014, an increase of ~~$0.7~~$0.5 million, or ~~14.43%~~10.66%, attributable to an increase in loan and deposit balances. Recapture of provision expense increased by ~~$0.1~~$0.4 million from the same period in 2014. Noninterest income was ~~$14.0~~$14.8 million for the three months ended ~~March 31,~~June 30, 2015 compared to $14.1 million for the three months ended June 30, 2014, an increase of $0.8 million, or 5.44%, attributable to increased trust revenue. Noninterest expense resulted in an increase of $0.3 million, or 2.16%, to $13.5 million for the three months ended ~~March 31, 2014, an increase of $0.5 million, or 3.80%, attributable~~June 30, 2015 compared to ~~greater brokerage and trust fees. Noninterest expense resulted in an increase of $0.2 million, or 1.49%, to $13.7~~$13.2 million for the three months ended ~~March 31, 2015 compared to $13.5 million for the three months ended March 31,~~June 30, 2014.

Activities that are not directly attributable to one of the primary lines of business are included in the Other segment. Included in this category are the Parent Company, community development operations, treasury group, 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 gain of ~~$2.5~~$0.1 million for the three months ended ~~March 31,~~June 30, 2015, a decrease of ~~$1.1~~$3.7 million compared to the three months ended ~~March 31,~~June 30, 2014.

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FINANCIAL CONDITION

Investment Securities

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

Figure 9.10. Investment Securities


	March 31, 2015							December 31, 2014							March 31, 2014							June 30, 2015							December 31, 2014							June 30, 2014
(In thousands)	Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)			Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)			Amortized Cost		Fair value		Net Unrealized Gain/(Loss)			Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)			Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)			Amortized Cost		Fair value		Net Unrealized Gain/(Loss)
Available-for-sale securities ⁽¹⁾	$	3,774,542	$	3,791,059	$	16,517		$	3,562,537	$	3,545,288	$	(17,249	)	$	3,471,126	$	3,433,171	$	(37,955	)	$	3,851,202	$	3,838,509	$	(12,693	)	$	3,562,537	$	3,545,288	$	(17,249	)	$	3,494,000	$	3,478,420	$	(15,580	)
Held-to-maturity securities ⁽²⁾	2,855,174		2,848,912		(6,262		)	2,903,609		2,875,920		(27,689		)	3,079,620		2,990,161		(89,459		)	2,787,513		2,760,120		(27,393		)	2,903,609		2,875,920		(27,689		)	3,052,118		3,001,866		(50,252		)
Other securities ⁽³⁾	148,475		148,475		—			148,654		148,654		—			148,446		148,446		—			147,967		147,967		—			148,654		148,654		—			148,433		148,433		—
Total investment securities	$	6,778,191	$	6,788,446	$	10,255		$	6,614,800	$	6,569,862	$	(44,938	)	$	6,699,192	$	6,571,778	$	(127,414	)	$	6,786,682	$	6,746,596	$	(40,086	)	$	6,614,800	$	6,569,862	$	(44,938	)	$	6,694,551	$	6,628,719	$	(65,832	)

(1) Carried at fair value on the Consolidated Balance Sheets.

(2)Carried at amortized cost on the Consolidated Balance Sheets.

(3)Carried at amortized cost on the Consolidated Balance Sheets and consist primarily of FHLB and FRB stock.

Available-for-sale securities are held primarily for liquidity, interest rate risk management and long-term yield enhancement. The Corporation’s available-for-sale investment policy is to invest in securities viewed to have low credit risk, such as U.S. Treasury securities, U.S. Government agency obligations, state and political obligations, MBS, and corporate bonds. The Corporation has invested in ~~CLOs as these securities are viewed as offering relative value compared to other investment vehicles in addition to being a~~ floating rate ~~asset, which is conducive to the Corporation’s asset liability risk position. No CLO investments were made until~~CLOs beginning in the second quarter of 2013. The CLO portfolio had an amortized cost of ~~$297.5~~$259.7 million as of ~~March 31,~~June 30, 2015, compared to $297.4 million as of December 31, 2014 and $297.3 million as of ~~March~~June 30, 2014. The $38.0 million decline in the amortized cost of CLOs since December 31, ~~2014.~~2014 is due to CLOs either being called or

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sold. Net unrealized losses on the CLO portfolio amounted to ~~$3.5~~$1.7 million, $9.6 million, and ~~$2.7~~$3.4 million at ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, respectively. ~~The fair value of the CLOs have been impacted by increased supply which has widened spreads.~~ The current weighted average yield on ~~our~~the CLO portfolio approximates ~~2.70%~~2.97% as of ~~March 31,~~June 30, 2015. ~~The new Volcker regulations, as originally adopted, may affect the Corporation’s ability to hold these CLOs.~~ Management believes that its holdings of CLOs are not ownership interests in a covered ~~fund~~funds prohibited by the Volcker Rule regulations and, therefore, expects to be able to hold these investments until their stated ~~maturities~~maturities. Management seeks to maintain a CLO portfolio consistent with ~~no restriction.~~the requirements of the Volcker Rule, and new CLO investments are being made in accordance with this strategy.

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Loans

Total loans at ~~March 31,~~June 30, 2015 were ~~$15.5~~$15.7 billion, compared to $15.3 billion at December 31, 2014, and ~~$14.6~~$15.0 billion at ~~March 31,~~June 30, 2014. Total loans as of ~~March 31,~~June 30, 2015 include $~~2.3~~2.1 billion in acquired loans and ~~$310.0~~$253.5 million in FDIC acquired loans, including a loss share receivable of ~~$20.0~~$11.8 million. Acquired loans resulted from the acquisition of Citizens in the second quarter of 2013. FDIC acquired loans resulted from the 2010 FDIC-assisted acquisitions of George Washington and Midwest. The major categories of loans outstanding and concentration distributions are presented in the following tables, segregated between originated, acquired, and FDIC acquired loans.

Figure ~~10.~~11. Period End Loans by Product Type


	As of March 31, 2015																As of June 30, 2015
	Originated Loans				Acquired Loans ⁽¹⁾				FDIC Acquired Loans ⁽²⁾				Total Loans				Originated Loans				Acquired Loans ⁽¹⁾				FDIC Acquired Loans ⁽²⁾				Total Loans
(Dollars in thousands)	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage
Commercial	$	8,031,892		62.5%	$	1,011,170		43.5%	$	179,547		61.9%	$	9,222,609		59.6%	$	8,196,630		61.3%	$	877,598		41.9%	$	145,821		60.3%	$	9,220,049		58.7%
Residential mortgages	639,980			5.0%	378,192			16.2%	40,470			14.0%	1,058,642			6.9%	653,143			4.9%	358,559			17.1%	38,029			15.7%	1,049,731			6.7%
Installment	2,500,288			19.4%	717,693			30.9%	4,781			1.6%	3,222,762			20.8%	2,720,059			20.4%	659,348			31.5%	2,299			1.0%	3,381,706			21.5%
Home equity lines	1,134,238			8.8%	217,824			9.4%	65,170			22.5%	1,417,232			9.2%	1,180,802			8.8%	200,179			9.5%	55,545			23.0%	1,436,526			9.2%
Credit card	160,766			1.3%	—			—%	—			—%	160,766			1.0%	168,576			1.3%	—			—%	—			—%	168,576			1.1%
Leases	388,873			3.0%	—			—%	—			—%	388,873			2.5%	436,702			3.3%	—			—%	—			—%	436,702			2.8%
Subtotal	12,856,037			100.0%	2,324,879			100.0%	289,968			100.0%	15,470,884			100.0%	13,355,912			100.0%	2,095,684			100.0%	241,694			100.0%	15,693,290			100.0%
Loss share receivable	—			n/m	—			n/m	20,005			n/m	20,005			n/m	—			n/m	—			n/m	11,820			n/m	11,820			n/m
Total Loans	12,856,037			n/m	2,324,879			n/m	309,973			n/m	15,490,889			n/m	13,355,912			n/m	2,095,684			n/m	253,514			n/m	15,705,110			n/m
Allowance for loan losses	(97,545		)	n/m	(7,493		)	n/m	(41,514		)	n/m	(146,552		)	n/m	(101,682		)	n/m	(4,950		)	n/m	(41,627		)	n/m	(148,259		)	n/m
Net Loans	$	12,758,492		n/m	$	2,317,386		n/m	$	268,459		n/m	$	15,344,337		n/m	$	13,254,230		n/m	$	2,090,734		n/m	$	211,887		n/m	$	15,556,851		n/m



	As of December 31, 2014
	Originated Loans				Acquired Loans ⁽¹⁾				FDIC Acquired Loans ⁽²⁾				Total Loans
(Dollars in thousands)	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage
Commercial	$	7,830,085		62.7%	$	1,086,899		43.9%	$	211,607		63.9%	$	9,128,591		59.6%
Residential mortgages	625,283			5.0%	394,484			15.9%	41,276			12.5%	1,061,043			6.9%
Installment	2,393,451			19.1%	764,168			30.8%	4,874			1.5%	3,162,493			20.7%
Home equity lines	1,110,336			8.9%	233,629			9.4%	73,365			22.1%	1,417,330			9.3%
Credit card	164,478			1.3%	—			—%	—			—%	164,478			1.1%
Leases	370,179			3.0%	—			—%	—			—%	370,179			2.4%
Subtotal	12,493,812			100.0%	2,479,180			100.0%	331,122			100.0%	15,304,114			100.0%
Loss share receivable	—			n/m	—			n/m	22,033			n/m	22,033			n/m
Total Loans	12,493,812			n/m	2,479,180			n/m	353,155			n/m	15,326,147			n/m
Allowance for loan losses	(95,696		)	n/m	(7,457		)	n/m	(40,496		)	n/m	(143,649		)	n/m
Net Loans	$	12,398,116		n/m	$	2,471,723		n/m	$	312,659		n/m	$	15,182,498		n/m

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	As of March 31, 2014																As of June 30, 2014
	Originated Loans				Acquired Loans ⁽¹⁾				FDIC Acquired Loans ⁽²⁾				Total Loans				Originated Loans				Acquired Loans ⁽¹⁾				FDIC Acquired Loans ⁽²⁾				Total Loans
(Dollars in thousands)	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage
Commercial	$	7,083,192		65.4%	$	1,562,878		48.2%	$	341,267		69.5%	$	8,987,337		61.8%	$	7,365,499		64.2%	$	1,457,903		48.2%	$	292,782		67.4%	$	9,116,184		61.1%
Residential mortgages	555,971			5.1%	446,374			13.8%	49,411			10.1%	1,051,756			7.2%	580,166			5.1%	425,584			14.1%	46,705			10.7%	1,052,455			7.1%
Installment	1,835,522			17.0%	943,354			29.2%	5,531			1.1%	2,784,407			19.1%	2,051,587			17.9%	872,034			28.8%	5,364			1.2%	2,928,985			19.6%
Home equity lines	946,802			8.7%	283,309			8.8%	94,828			19.3%	1,324,939			9.1%	998,179			8.7%	268,266			8.9%	89,815			20.7%	1,356,260			9.1%
Credit card	147,917			1.4%	—			—%	—			—%	147,917			1.0%	151,967			1.3%	—			—%	—			—%	151,967			1.0%
Leases	257,509			2.4%	—			—%	—			—%	257,509			1.8%	319,795			2.8%	—			—%	—			—%	319,795			2.1%
Subtotal	10,826,913			100.0%	3,235,915			100.0%	491,037			100.0%	14,553,865			100.0%	11,467,193			100.0%	3,023,787			100.0%	434,666			100.0%	14,925,646			100.0%
Loss share receivable	—			n/m	—			n/m	54,748			n/m	54,748			n/m	—			n/m	—			n/m	43,981			n/m	43,981			n/m
Total Loans	10,826,913			n/m	3,235,915			n/m	545,785			n/m	14,608,613			n/m	11,467,193			n/m	3,023,787			n/m	478,647			n/m	14,969,627			n/m
Allowance for loan losses	(92,116		)	n/m	(2,974		)	n/m	(49,970		)	n/m	(145,060		)	n/m	(91,950		)	n/m	(4,977		)	n/m	(45,109		)	n/m	(142,036		)	n/m
Net Loans	$	10,734,797		n/m	$	3,232,941		n/m	$	495,815		n/m	$	14,463,553		n/m	$	11,375,243		n/m	$	3,018,810		n/m	$	433,538		n/m	$	14,827,591		n/m

n/m = Not Meaningful

(1) Loans assumed from Citizens.

(2) Loans acquired in an FDIC-assisted transaction. ~~Certain~~George Washington and Midwest non-single family loss share agreements with the FDIC expired at March 31, ~~2015.~~2015 and June 30, 2015, respectively. As of ~~March 31,~~June 30, 2015, ~~$174.6 million and $110.4~~$95.9 million of FDIC acquired loans remained covered by ~~non-single family loss share agreement and~~ single family loss share agreements, ~~respectively,~~ providing considerable protection against credit risk.

Originated Loans

Total originated loans increased from December 31, 2014by$~~0.4 billion~~862.1 million, or ~~2.90%~~6.90%, and increased from ~~March 31,~~June 30, 2014 by $~~2.0~~1.9 billion, or ~~18.74%~~16.47%. This increase was driven primarily by higher commercial loans, which increased ~~2.58%~~4.68%from December 31, 2014and~~13.39%~~11.28% from ~~March 31,~~June 30, 2014 due to the Corporation's expansion into the Chicago, Illinois, Michigan and Wisconsin areas. ~~The growth~~Growth in commercial loans was ~~also attributable to increases in asset-based lending as well as~~impacted by the permanent mortgage market where insurance companies are refinancing commercial real estate into fixed-rate loans and new business within the specialty lending ~~group such as the capital markets, healthcare, and leasing lines of business.~~group. The leasing line of business has seen considerable increase in activity. As of ~~March 31,~~June 30, 2015, leases totaled $~~388.9~~436.7 million compared to $370.2 million and $~~257.5~~319.8 million at December 31, 2014 and ~~March 31,~~June 30, 2014, respectively, resulting in increases of $~~18.7~~66.5 million, or ~~5.05%~~17.97%, from December 31, 2014 and $~~131.4~~116.9 million, or ~~51.01%~~36.56%, from ~~March 31,~~June 30, 2014.

Residential mortgage loans are originated and then sold into the secondary market or held in portfolio. Total residential mortgage loan balances increased from December 31, 2014 by $~~14.7~~27.9 million, or ~~2.35%~~4.46%, and increased from ~~March 31,~~June 30, 2014 by $~~84.0~~73.0 million, or ~~15.11%~~12.58%, as a larger amount of shorter maturity and adjustable rate mortgages were held in portfolio compared to the prior year. The Corporation's mortgage banking business was restructured as of January 1, 2015. The Corporation will continue to originate residential mortgage loans but has partnered with a third party to process, underwrite, close and service the Corporation's residential mortgage loan production. The Corporation will retain for its balance sheet and continue to service community reinvestment act eligible loans, jumbos, and adjustable rate mortgages.

Outstanding home equity loans increased from December 31, 2014 by ~~$23.9~~$70.5 million,, or ~~2.15%~~6.35%, and increased from ~~March 31,~~June 30, 2014 by ~~$187.4~~$182.6 million,, or ~~19.80%~~18.30%. Installment loans increased from December 31, 2014 by ~~$106.8~~$326.6 million,, or ~~4.46%~~13.65%, and increased from ~~March 31,~~June 30, 2014 by ~~$664.8~~$668.5 million,, or ~~36.22%~~.32.58% as a result of the Corporation expanding Citizens' indirect recreational lending into its legacy markets and expanding its indirect auto lending into Michigan and Wisconsin.

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The Corporation has approximately ~~$4.9~~$4.8 billion of loans secured by real estate. Approximately ~~85.36%~~84.26% of the property underlying these loans is located within the Corporation's primary market area of Ohio, the Chicago, Illinois-metropolitan area, Michigan, Wisconsin, and Western Pennsylvania.

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Acquired Loans

Acquired loans are those purchased in the ~~Citizens'~~Citizens acquisition during the second quarter of 2013. Total acquired loans was ~~$2.3~~$2.1 billion as of ~~March 31,~~June 30, 2015, a decrease from December 31, 2014 and ~~March 31,~~June 30, 2014 of ~~$154.3~~$383.5 million, or ~~6.22%~~15.47%, and ~~$0.9 billion,~~$928.1 million, or ~~28.15%~~30.69%, respectively. The acquired loan portfolio will continue to decline, through payoffs, charge-offs, or terminations, unless the Corporation acquires additional loans in the future.

These loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related ALL. The acquired loans were segregated between those considered to be performing (“nonimpaired acquired loans”) and those with evidence of credit deterioration (“acquired impaired loans”). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Revolving loans, including lines of credit, are excluded from acquired impaired loan accounting.

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

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

FDIC Acquired Loans and Related Loss Share Receivable

FDIC acquired loans include loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and Midwest. George Washington and Midwest non-single family loans covered by loss share ~~agreement~~agreements expired on March 31, ~~2015. As of March 31,~~ 2015 ~~$5.0~~and June 30, 2015, respectively, resulting in $2.6 million and $143.2 million of ~~FDIC acquired George Washington~~ loans ~~were~~ no longer being covered by the non-single family loss share agreement while $174.6 million of FDIC acquired Midwest loans remained covered by the non-single family loss share agreement. The non-single family loss share agreement for the Midwest loans will expire as of June 30, 2015. As of ~~March 31,~~June 30, 2015, ~~$110.4~~$13.1 million ~~single family~~and $82.8 million of George Washington and Midwest loans, respectively, remained covered by single family loss share agreements, ~~between the FDIC and the Corporation,~~ until the agreements expire in March and June of 2020.

Total FDIC acquired loans, including the loss share receivable, were ~~$310.0~~$253.5 million as of ~~March 31,~~June 30, 2015,, a decrease from December 31, 2014 and ~~March 31,~~June 30, 2014 of ~~$43.2~~$99.6 million,, or ~~12.23%~~28.21%, and ~~$235.8~~$225.1 million,, or ~~43.21%~~47.04%, respectively. The FDIC acquired loan portfolio will continue to decline, through payoffs, charge-offs, termination or expiration of loss share coverage, unless the Corporation acquires additional loans subject to loss share agreements in the future.

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~~These FDIC acquired loans were recorded at estimated fair value at~~June 30, 2015, the ~~date of acquisition with no carryover of the related ALL and are accounted for as acquired impaired loans. A~~ loss share receivable related to the remaining single family covered loans was recorded as of the acquisition date which represents the estimated fair value of reimbursement the Corporation expects to receive from the FDIC for incurred losses on certain FDIC acquired loans. These expected reimbursements are$11.8 million and recorded as part of FDIC acquired loans. The loss share receivable related to the Midwest non-single family loans was $3.4 million as of June 30, 2015 and was recorded within Accrued Interest Receivable and Other Assets in the Consolidated Balance Sheet. The loss share receivable for the Midwest non-single family loans is expected to be the collected from the FDIC after the Corporation files the final claim in July 2015. The loss share receivable associated with the George Washington non-single family loans has been fully collected as of June 30, 2015.

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Allowance for Loan Losses and Reserve For Unfunded Lending Commitments

Allowance for Originated Loan Losses

The Corporation maintains what Management believes is an adequate originated ALL. The Corporation and the Bank regularly analyze the adequacy of 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. See Note 1 (Summary of Significant Accounting Policies) and Note 4 (Allowance for Loan Losses) in the notes to the consolidated financial statements in this Form 10-Q for further information regarding the Corporation's credit policies and practices.

The level of the allowance for loan losses represents Management’s best estimate of probable credit losses inherent in the loan portfolio at the balance sheet date. The evaluation of the ALL is based on ongoing review of trends in risk ratings, delinquencies, nonperforming assets, charge-offs, economic conditions, and changes in the composition of the loan portfolio.

The Corporation’s credit administration division manages credit risk by establishing credit policies, processes, and review mechanisms. The credit administration division formulates procedures and guidelines, defines credit standards, establishes and maintains credit controls, and produces Management reports in support of these activities.

The Corporation’s credit risk management division is responsible for the analysis and reporting for all credit risks. To preserve portfolio diversification and to manage the risks inherent to portfolio concentrations, monitoring metrics are established and applied to a range of portfolio segments based on industry, collateral, or purpose. One of three portfolio strategies (Growth, Stable or Contract) are assigned to each segment. The assigned strategies are intended to guide management behavior in matters concerning pricing, underwriting and mitigation of portfolio risk. These metrics are monitored and updated on an on-going basis and reviewed quarterly with senior management and the Board of Directors Risk Management Committee.

The primary indicators of credit quality are delinquency status and our internal risk ratings for our commercial loan portfolio segment, and delinquency status and current FICO scores for our consumer loan portfolio segment. Assignment of internal risk ratings are based on the most current information available from a financial statement standpoint, as well as from an industry and geographic perspective. All aspects of the credit relationship are considered in the risk rating decisioning process, including, but not ~~limit~~limited to, credit structure and terms, compliance with loan covenants and loan agreements, and the impact of weak or improper credit structure. Relationship managers perform regular reviews to ~~access~~assess the accuracy of risk ratings. A formal review of all customer risk ratings on any aggregate credit exposure of $250,000 or more is performed at a minimum of once every twelve months unless administered in Core Banking and monitored by Portfolio Management (including the Private Client Services portfolio) in which case the threshold is $350,000. The review is documented with current financial statements for all obligors, co-obligors and guarantors, a current credit status memo and a current risk rating sheet. ~~Additionally, the risk rating is referenced and attested to in a quarterly status review with the risk rating being adjusted as financial results or events require.~~ Risk rating reviews of criticized loans are performed on a quarterly basis jointly between the relationship managers and the regional or senior-regional credit officer and supported with written updates by the loan officer, which include the progress of the credit, action plans, and improvement or deterioration since the previous quarter.

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As part of our credit monitoring process, our loan review department serves to independently monitor credit quality and assess the effectiveness of credit risk management to provide Management with objective

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oversight of all lending activities. The loan review department is independent of the line lending and credit administration functions of the Corporation. The primary responsibilities of the loan review department are to provide an independent analysis of risk rating accuracy and timeliness, credit quality (including regulatory, policy, and underwriting compliance), credit administration management, processes, and controls.

At ~~March 31,~~June 30, 2015, the allowance for originated loan losses was $~~97.5~~101.7 million, or 0.76% of originated loans outstanding, compared to $95.7 million, or 0.77%, and $~~92.1~~92.0 million, or ~~0.85%~~0.80%, at December 31, 2014 and ~~March 31,~~June 30, 2014, respectively. The allowance equaled ~~211.66%~~184.40% of nonperforming loans at ~~March 31,~~June 30, 2015 compared to 276.44% and ~~212.01%~~250.27% at December 31, 2014 and ~~March 31,~~June 30, 2014., respectively. The additional reserves related to qualitative risk factors totaled ~~$55.1~~$60.2 million at ~~March 31,~~June 30, 2015, compared to $57.0 million and ~~$40.9~~$44.5 million at December 31, 2014 and ~~March 31,~~June 30, 2014, respectively. Nonperforming loans have increased by $~~11.5~~20.5 million or ~~33.13%~~59.29% when compared to December 31, 2014 and increased by $~~2.6~~18.4 million, or ~~6.07%~~50.08%, when compared to ~~March 31,~~June 30, 2014.

Net charge-offs on originated loans were $~~4.2~~6.7 million and ~~0.13%~~0.20% of average originated loans outstanding during the three months ended ~~March 31,~~June 30, 2015, compared to $~~8.0~~6.2 million and ~~0.31%~~0.22% of average originated loans outstanding during the three months ended ~~March 31,~~June 30, 2014. Losses are charged against the ALL as soon as they are identified.

The reserve for unfunded lending commitments at ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014 was $~~4.3~~3.9 million, ~~$5.8~~$5.8 million, and ~~$7.5~~$7.1 million, respectively. Binding unfunded lending commitments include items such as letters of credit, financial guarantees and binding unfunded loan commitments. The allowance for credit losses, which includes both the allowance for originated loan losses and the reserve for unfunded lending commitments, amounted to $~~101.9~~105.6 million, $101.5 million, and $~~99.6~~99.1 million at ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, respectively.

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Figure 11. 12. Summary of the Allowance for Credit Losses


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014			2015			2014
Allowance for Originated Loan Losses-beginning of period	$	95,696		$	96,484		$	97,545		$	92,116		$	95,696		$	96,484
Originated loans charged off:
Commercial	685			5,153			3,577			3,057			4,262			8,210
Mortgage	424			559			373			834			797			1,393
Installment	4,605			4,584			4,621			4,076			9,226			8,660
Home equity	911			838			971			1,204			1,882			2,042
Credit cards	1,452			1,455			1,209			1,311			2,661			2,766
Leases	—			—			—			—			—			—
Overdrafts	490			571			547			666			1,037			1,237
Total charge-offs	8,567			13,160			11,298			11,148			19,865			24,308
Originated Recoveries:
Commercial	325			1,029			448			404			773			1,433
Mortgage	35			38			89			67			124			105
Installment	2,868			2,738			2,716			2,728			5,584			5,466
Home equity	613			699			839			820			1,452			1,519
Credit cards	366			418			358			439			724			857
Manufactured housing	13			11			6			13			19			24
Leases	4			—			3			372			7			372
Overdrafts	156			205			167			146			323			351
Total recoveries	4,380			5,138			4,626			4,989			9,006			10,127
Originated net charge-offs	4,187			8,022			6,672			6,159			10,859			14,181
Provision for originated loan losses	6,036			3,654			10,809			5,993			16,845			9,647
Allowance for originated loan losses-end of period	$	97,545		$	92,116		$	101,682		$	91,950		$	101,682		$	91,950
Reserve for Unfunded Lending Commitments ⁽¹⁾
Balance at beginning of period	$	5,848		$	7,907		$	4,330		$	7,481		$	5,848		$	7,907
Provision for/(relief of) credit losses	(1,518		)	(426		)	(425		)	(374		)	(1,943		)	(800		)
Balance at end of period	4,330			7,481			3,905			7,107			3,905			7,107
Allowance for credit losses	$	101,875		$	99,597		$	105,587		$	99,057		$	105,587		$	99,057
Average originated loans outstanding	12,689,791			10,448,383			13,092,972			11,092,101			12,892,495			10,772,020
Ratio to average originated loans:
Originated net charge-offs	0.13		%	0.31		%	0.20		%	0.22		%	0.17		%	0.27		%
Provision for originated loan losses	0.19		%	0.14		%	0.33		%	0.22		%	0.26		%	0.18		%
Originated loans outstanding-end of period	12,856,037			10,826,913			13,355,912			11,467,193			13,355,912			11,467,193
Allowance for originated loan losses:
As a percentage of period-end originated loans	0.76		%	0.85		%	0.76		%	0.80		%	0.76		%	0.80		%
As a percentage of nonperforming originated loans	211.66		%	212.01		%	184.40		%	250.27		%	184.40		%	250.27		%
As a multiple of originated net charge-offs	5.74			2.83			3.80			3.72			4.64			3.22
Allowance for credit losses:
As a percentage of period-end originated loans	0.79		%	0.92		%	0.79		%	0.86		%	0.79		%	0.86		%
As a percentage of nonperforming originated loans	221.06		%	229.23		%	191.48		%	269.61		%	191.48		%	269.61		%
As a multiple of annualized net charge-offs	6.00			3.06			3.95			4.01			4.82			3.46

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

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Figure 12. 13. Overall Credit Quality by Specific Asset and Risk Categories of Originated Loans


	As of March 31, 2015																As of June 30, 2015
	Loan Type																Loan Type
			CRE and						Home Equity		Credit		Residential						CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total		C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	35,792	$	15,000	$	—	$	26,882	$	7,632	$	815	$	24,822	$	110,943	$	45,969	$	12,072	$	1,162	$	31,927	$	7,421	$	787	$	24,697	$	124,035
Allowance	10,042		317		—		1,005		254		263		1,416		13,297		9,117		151		—		1,001		217		250		890		11,626
Collective Loan Impairment Components:
Commercial loans based on risk rating:
Grade 1 loan balance	59,380		667		13,052										73,099		65,856		807		14,688										81,351
Grade 1 allowance	3		—		1										4		2		—		—										2
Grade 2 loan balance	191,008		3,368		5,782										200,158		206,384		1,166		29,564										237,114
Grade 2 allowance	9		3		—										12		8		2		1										11
Grade 3 loan balance	1,405,007		401,848		69,686										1,876,541		1,417,295		423,346		65,664										1,906,305
Grade 3 allowance	1,045		186		45										1,276		912		154		37										1,103
Grade 4 loan balance	3,503,044		2,240,985		297,790										6,041,819		3,566,115		2,245,135		321,268										6,132,518
Grade 4 allowance	17,451		7,118		506										25,075		16,169		7,038		469										23,676
Grade 5 (Special Mention) loan balance	88,445		29,976		1,307										119,728		92,430		25,801		2,956										121,187
Grade 5 allowance	6,831		678		28										7,537		6,943		621		62										7,626
Grade 6 (Substandard) loan balance	35,221		22,151		1,256										58,628		73,671		16,940		1,400										92,011
Grade 6 allowance	4,457		2,263		49										6,769		9,666		2,074		50										11,790
Grade 7 (Doubtful) loan balance	—		—		—										—		3,643		—		—										3,643
Grade 7 allowance	—		—		—										—		59		—		—										59
Consumer loans based on payment status:
Current loan balances							2,455,393		1,123,549		158,453		601,509		4,338,904								2,670,226		1,169,615		166,317		614,938		4,621,096
Current loans allowance							10,427		16,607		5,480		3,612		36,126								11,931		17,054		5,639		3,673		38,297
30 days past due loan balance							10,971		1,345		625		6,368		19,309								11,088		2,073		645		6,789		20,595
30 days past due allowance							671		649		528		215		2,063								739		979		540		226		2,484
60 days past due loan balance							3,032		323		273		1,872		5,500								2,893		661		289		1,326		5,169
60 days past due allowance							517		297		378		255		1,447								592		625		407		199		1,823
90+ days past due loan balance							4,010		1,389		600		5,409		11,408								3,925		1,032		538		5,393		10,888
90+ days past due allowance							738		1,626		1,152		423		3,939								647		1,164		982		392		3,185
Total originated loans	$	5,317,897	$	2,713,995	$	388,873	$	2,500,288	$	1,134,238	$	160,766	$	639,980	$	12,856,037	$	5,471,363	$	2,725,267	$	436,702	$	2,720,059	$	1,180,802	$	168,576	$	653,143	$	13,355,912
Total allowance for originated loan losses	$	39,838	$	10,565	$	629	$	13,358	$	19,433	$	7,801	$	5,921	$	97,545	$	42,876	$	10,040	$	619	$	14,910	$	20,039	$	7,818	$	5,380	$	101,682

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	As of December 31, 2014
	Loan Type
			CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	11,759	$	23,300	$	—	$	24,905	$	7,379	$	854	$	25,251	$	93,448
Allowance	72		2,914		—		1,178		207		296		1,283		5,950
Collective Loan Impairment Components:
Commercial loans based on risk rating:
Grade 1 loan balance	52,676		1,361		4,451										58,488
Grade 1 allowance	2		—		1										3
Grade 2 loan balance	186,278		3,454		14,959										204,691
Grade 2 allowance	8		—		1										9
Grade 3 loan balance	1,340,100		340,355		71,908										1,752,363
Grade 3 allowance	830		191		6										1,027
Grade 4 loan balance	3,413,446		2,228,833		277,277										5,919,556
Grade 4 allowance	23,562		6,118		625										30,305
Grade 5 (Special Mention) loan balance	132,764		30,247		1,389										164,400
Grade 5 allowance	8,022		751		32										8,805
Grade 6 (Substandard) loan balance	38,178		27,334		195										65,707
Grade 6 allowance	4,879		2,720		9										7,608
Grade 7 (Doubtful) loan balance	—		—		—										—
Grade 7 allowance	—		—		—										—
Consumer loans based on payment status:
Current loan balances							2,346,551		1,100,076		161,644		583,994		4,192,265
Current loans allowance							9,465		16,544		5,115		2,715		33,839
30 days past due loan balance							14,019		1,191		639		9,231		25,080
30 days past due allowance							859		581		492		209		2,141
60 days past due loan balance							3,506		569		498		1,645		6,218
60 days past due allowance							667		545		607		203		2,022
90+ days past due loan balance							4,470		1,121		843		5,162		11,596
90+ days past due allowance							749		1,447		1,456		335		3,987
Total originated loans	$	5,175,201	$	2,654,884	$	370,179	$	2,393,451	$	1,110,336	$	164,478	$	625,283	$	12,493,812
Total allowance for originated loan losses	$	37,375	$	12,694	$	674	$	12,918	$	19,324	$	7,966	$	4,745	$	95,696

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	As of March 31, 2014																As of June 30, 2014
	Loan Type																Loan Type
			CRE and						Home Equity		Credit		Residential						CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total		C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	7,143	$	31,980	$	—	$	25,818	$	6,931	$	1,034	$	26,198	$	99,104	$	10,404	$	25,537	$	—	$	24,394	$	6,956	$	979	$	26,297	$	94,567
Allowance	2,866		2,918		—		1,006		223		307		1,241		8,561		5,092		121		—		1,008		201		361		1,019		7,802
Collective Loan Impairment Components:
Commercial loans based on risk rating:
Grade 1 loan balance	28,610		539		8,452										37,601		33,855		—		9,408										43,263
Grade 1 allowance	2		—		2										4		3		—		1										4
Grade 2 loan balance	135,574		3,797		3,620										142,991		134,682		3,610		10,971										149,263
Grade 2 allowance	89		3		3										95		63		2		7										72
Grade 3 loan balance	940,937		354,108		58,397										1,353,442		1,100,807		327,606		55,648										1,484,061
Grade 3 allowance	746		456		76										1,278		878		255		61										1,194
Grade 4 loan balance	3,276,466		2,147,946		179,795										5,604,207		3,438,768		2,089,669		236,324										5,764,761
Grade 4 allowance	27,884		7,892		662										36,438		24,194		7,060		693										31,947
Grade 5 (Special Mention) loan balance	61,507		38,312		6,857										106,676		100,776		29,382		7,092										137,250
Grade 5 allowance	4,734		994		260										5,988		7,553		526		245										8,324
Grade 6 (Substandard) loan balance	25,919		30,354		388										56,661		38,323		32,080		352										70,755
Grade 6 allowance	3,854		2,592		24										6,470		5,473		2,089		21										7,583
Grade 7 (Doubtful) loan balance	—		—		—										—		—		—		—										—
Grade 7 allowance	—		—		—										—		—		—		—										—
Consumer loans based on payment status:
Current loan balances							1,794,831		937,032		145,192		516,286		3,393,341								2,009,699		988,443		149,538		537,140		3,684,820
Current loans allowance							8,819		10,992		4,627		2,400		26,838								8,860		11,863		5,256		2,471		28,450
30 days past due loan balance							8,751		1,503		747		7,002		18,003								10,764		1,445		641		10,958		23,808
30 days past due allowance							591		714		549		218		2,072								631		575		509		212		1,927
60 days past due loan balance							2,553		440		395		1,136		4,524								2,980		520		348		801		4,649
60 days past due allowance							541		307		478		189		1,515								643		405		430		68		1,546
90+ days past due loan balance							3,569		896		549		5,349		10,363								3,750		815		461		4,970		9,996
90+ days past due allowance							647		924		890		396		2,857								1,101		859		772		369		3,101
Total originated loans	$	4,476,156	$	2,607,036	$	257,509	$	1,835,522	$	946,802	$	147,917	$	555,971	$	10,826,913	$	4,857,615	$	2,507,884	$	319,795	$	2,051,587	$	998,179	$	151,967	$	580,166	$	11,467,193
Total allowance for originated loan losses	$	40,175	$	14,855	$	1,027	$	11,604	$	13,160	$	6,851	$	4,444	$	92,116	$	43,256	$	10,053	$	1,028	$	12,243	$	13,903	$	7,328	$	4,139	$	91,950

Allowance for Acquired Loan Losses

The Citizens’ loans were recorded at their fair value as of the Acquisition Date and the prior ALL was eliminated. An ALL for nonimpaired acquired loans is estimated using a methodology similar to that used for originated loans. The allowance determined for each acquired nonimpaired loan is compared to the remaining fair value adjustment for that loan. If the computed allowance is greater, the excess is added to the allowance through a provision for loan losses. If the computed allowance is less, no additional allowance is recognized. As of ~~March 31,~~June 30, 2015, the computed ~~allowance~~ALL was less than the remaining fair value discount; therefore, no ALL for acquired nonimpaired loans was recorded.

Charge-offs and actual losses on an acquired nonimpaired loan first reduce any remaining fair value discount for that loan. Once a loan's discount is depleted, charge-offs and actual losses are applied against the ALL. During the three months ended ~~March 31,~~June 30, 2015 and 2014, provision for loan losses, equal to net charge-offs, of ~~$2.2~~$1.6 million and ~~$5.6~~$3.8 million, respectively, was recorded. Charge-offs on acquired nonimpaired loans were mainly related to consumer loans that were written off in accordance with the Corporation’s credit policies based on a predetermined number of days past due.

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The ALL for acquired impaired loans is determined by comparing the present value of the cash flows expected to be collected to the carrying amount for a given pool of loans. Management reforecasts the estimated cash flows expected to be collected on acquired impaired loans on a quarterly basis. Expected cash flows may increase or decrease for a variety of reasons, for example, when the contractual terms of the loan agreement are modified, when interest rates on variable rate loans change, or when principal and/or interest payments are received. Cash flows expected to be collected on acquired impaired loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, loss given default, and the amount of actual prepayments after the Acquisition Dates. Prepayments affect the estimated life of loans and could change the amount of interest income, and possibly principal, expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. These adjustments are based, in part, on actual loss severities recognized for each loan type, as well as changes in the probability of default. For periods in which estimated cash flows are not re-forecasted, the prior reporting periods' estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period.

Increases in expected cash flows of acquired impaired loans subsequent to 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 ALL. If the present value of expected cash flows for a pool is less than its carrying value, impairment is recognized in the current period by an increase in the acquired ALL and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying value, any previously established acquired ALL is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool.

During the ~~three~~six months ended ~~March 31,~~June 30, 2015 and 2014, recapture and provision for acquired impaired loan losses of ~~$36.0 thousand~~$2.5 million and ~~$2.2~~$4.2 million, respectively, was recognized resulting in an allowance for acquired impaired loan losses of ~~$7.5 million and $3.0~~$5.0 million as of ~~March 31,~~June 30, 2015 and ~~2014, respectively.~~2014. In addition to the recapture of provision in the current period, an additional $8.2 million of cash flow was reclassified from non-accretable to accretable cash flow within the quarter. Life to date, the acquired impaired portfolio’s performance has exceeded original expectations with $113.4 million being reclassified from non-accretable to accretable cash flow, while total cumulative provision has totaled $4.9 million.

Allowance for FDIC Acquired Loan Losses

The ALL on FDIC nonimpaired acquired loans is estimated similar to acquired loans as described above except any increase to the allowance and provision for loan losses is partially offset by an increase in the loss share receivable for the portion of the losses recoverable under the loss sharing agreements with the FDIC. As of ~~March 31,~~June 30, 2015, the computed ~~allowance~~ALL was less than the remaining fair value ~~discount,~~discount; therefore, no ALL for FDIC acquired nonimpaired loans was recorded.

The ALL for FDIC acquired impaired loans was ~~$41.5~~$41.6 million, $40.5 million, and ~~$50.0~~$45.1 million as of ~~March 31,~~June 30, 2015, December 31, 2014, and ~~March 31,~~June 30, 2014, respectively. During the three months ended ~~March 31,~~June 30, 2015, ~~$4.2~~$0.9 million of losses on FDIC acquired impaired loans were recognized with an offsetting increase of ~~$4.2~~$1.8 million to the loss share receivable. The net ~~provision~~recapture from the impaired FDIC acquired portfolio was ~~$2.0~~$891.0 thousand in the three months ended ~~March 31,~~June 30, 2015 compared to a net provision of ~~$3.1~~$3.4 million in the three months ended ~~March 31,~~June 30, 2014.

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Asset Quality

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Nonperforming Loans are defined as follows:

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

Restructured loans on which, due to a borrower experiencing financial difficulties or expected to experience difficulties in the near term, the original terms of the loan are modified to maximize the collection of amounts due.

Nonperforming Assets are defined as follows:

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

Restructured loans on which, due to deterioration in the borrower's financial condition, the original terms have been modified in favor of the borrower or either principal or interest has been forgiven.

Other real estate acquired through foreclosure in satisfaction of a loan.

Figure 1314. Asset Quality ⁽¹⁾


(Dollars in thousands)	March 31, 2015			December 31, 2014			March 31, 2014			June 30, 2015			December 31, 2014			June 30, 2014
Nonperforming originated loans:
Restructured nonaccrual loans:
Commercial loans	$	4,917		$	4,153		$	9,159		$	16,502		$	4,153		$	9,947
Consumer loans	10,865			11,088			12,374			10,982			11,088			12,025
Total restructured loans	15,782			15,241			21,533			27,484			15,241			21,972
Other nonaccrual loans:
Commercial loans	23,561			12,994			17,963			21,387			12,994			11,125
Consumer loans	6,742			6,382			3,952			6,271			6,382			3,644
Total nonaccrual loans	30,303			19,376			21,915			27,658			19,376			14,769
Total nonperforming originated loans	46,085			34,617			43,448			55,142			34,617			36,741
Other real estate, excluding covered assets ^{(2) (3)}	22,521			20,421			19,263			62,169			20,421			24,181
Total nonperforming assets ("NPAs") ⁽³⁾	$	68,606		$	55,038		$	62,711		$	117,311		$	55,038		$	60,922
Originated loans past due 90 days or more accruing interest	$	7,914		$	12,156		$	11,860		$	8,009		$	12,156		$	15,643
Total NPAs as a percentage of total originated loans and ORE ⁽³⁾	0.53		%	0.44		%	0.58		%
Total NPAs as a percentage of total originated loans and noncovered OREO ⁽³⁾										0.87		%	0.44		%	0.53		%

(1) Due to the impact of acquisition accounting and protection against credit risk from FDIC loss sharing agreements, acquired loans, FDIC acquired loans and covered OREO are excluded from the asset quality figures to provide for improved comparability to prior periods and better perspective into asset quality trends. Acquired loans are recorded at fair value with no allowance brought forward in accordance with acquisition accounting. Acquired and ~~covered~~FDIC acquired impaired loans with an accretable yield are considered to be accruing and performing even though collection of contractual payments on loans within the pool may be in doubt, because the pool is the unit of accounting and income continues to be accreted on the pool as long as expected cash flows are reasonably estimable.

(2) As of ~~March 31,~~June 30, 2015, OREO included 1125 former banking facilities that the Corporation no longer intends to use for banking purposes valued at approximately ~~$2.5~~$5.8 million.

(3) As of ~~March 31,~~June 30, 2015, ~~$3.4~~$42.0 million of OREO was no longer covered by a FDIC loss share agreement, therefore, was included in NPAs. OREO that remains covered by FDIC loss share agreements has considerable protection against credit risk and are not reported as NPAs.

Total nonperforming assets as of ~~March 31,~~June 30, 2015 were $~~68.6~~117.3 million, an increase of $~~13.6~~62.3 million, or ~~24.65%~~113.15%, from December 31, 2014 and an increase of $~~5.9~~56.4 million, or ~~9.40%~~92.56%, from ~~March 31,~~June 30, 2014. Commercial nonperforming originated loans increased $~~11.3~~20.7 million, or ~~66.08%~~120.97%, from December 31, 2014 and increased $~~1.4~~16.8 million, or ~~5.00%~~79.81%, from ~~March 31,~~June 30, 2014. The increase in this quarters commercial nonperforming originated loans is due to credit deterioration of two loans. Total OREO increased $~~2.1~~41.7 million, or ~~10.28%~~204.44%, from December 31, 2014 and $~~3.3~~38.0 million, or ~~16.91%~~157.10%, from ~~March 31,~~June 30, 2014. Due to the expiration of certain FDIC loss share agreements in the first and second quarter of 2015, previously covered OREO of ~~$3.4~~$42.0 million has been reclassed into nonperforming assets. ~~Certain FDIC loss share agreements will expire in the second quarter of 2015 and will result in an increase in nonperforming assets from OREO previously covered under such agreements.~~

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Borrower FICO scores provide information about the credit quality of our consumer loan portfolio as they provide an indication as to the likelihood that debtors will repay their debts. We obtain the scores from a

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nationally recognized consumer rating agency on a quarterly basis and trends are evaluated for consideration as a qualitative adjustment to the allowance. As of ~~March 31,~~June 30, 2015, the average FICO scores on the originated consumer portfolio subcomponents are excellent with average scores on installment loans at ~~751,~~760, home equity lines at ~~776,~~777, residential mortgages at ~~750,~~754, and credit cards at ~~768.~~766.

Figure 1415. Nonaccrual Originated Commercial Loan Flow Analysis


	Three Months Ended															Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			June 30,			March 31,			December 31,			September 30,			June 30,
(In thousands)	2015			2014			2014			2014			2014			2015			2015			2014			2014			2014
Nonaccrual originated commercial loans beginning of period	$	17,147		$	22,347		$	21,072		$	27,122		$	25,674		$	28,478		$	17,147		$	22,347		$	21,072		$	27,122
Credit Actions:
New	14,557			3,275			10,381			7,846			14,334			22,400			14,557			3,275			10,381			7,846
Charged down	(221		)	(330		)	(4,037		)	(2,783		)	(5,176		)	(3,104		)	(221		)	(330		)	(4,037		)	(2,783		)
Return to accruing status	(322		)	—			—			—			(1,088		)	(6,923		)	(322		)	—			—			—
Payments	(2,683		)	(8,145		)	(5,069		)	(11,113		)	(6,622		)	(2,962		)	(2,683		)	(8,145		)	(5,069		)	(11,113		)
Nonaccrual originated commercial loans end of period	$	28,478		$	17,147		$	22,347		$	21,072		$	27,122		$	37,889		$	28,478		$	17,147		$	22,347		$	21,072

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.~~near term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or modification of the adjustable rate provisions of the loan that would otherwise not be considered. Concessionary modifications are classified as TDRs unless the modification is short-term (30 to 90 days) and considered to be an insignificant delay while awaiting additional information from the borrower. All amounts due, including interest accrued at the contractual interest rate, are expected to be collected. TDRs return to accrual status once the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles. A sustained period of repayment performance would be a minimum of six consecutive payment cycles from the date of restructure.

The Corporation’s TDR portfolio is summarized in the following table.

Figure ~~15.~~16. TDR Portfolio


(In thousands)	March 31, 2015		March 31, 2014		June 30, 2015		June 30, 2014
Originated TDRs	$	89,150	$	84,771	$	104,648	$	87,148
Acquired TDRs ⁽¹⁾	13,146		5,181		11,362		8,815
FDIC Acquired TDRs ⁽¹⁾	33,335		49,784		22,976		48,993
Total TDRs	$	135,631	$	139,736	$	138,986	$	144,956
Nonperforming TDRs	$	19,514	$	21,997	$	30,368	$	23,238

(1) Acquired and FDIC acquired loans restructured after acquisition are not considered TDRs for purposes of the Corporation’s accounting and disclosure if the loans evidenced credit deterioration as of the date of acquisition and are accounted for in pools.

Originated consumer TDRs are ~~predominately~~predominantly composed of installment loans, first and second lien residential mortgages and home equity lines of credit. Total originated consumer TDRs represented ~~67.47%~~61.95% and ~~70.76%~~67.27% of the total originated TDR portfolio as of ~~March 31,~~June 30, 2015, and ~~March 31,~~June 30, 2014, respectively. We restructure residential mortgages in a variety of ways to help our clients remain in their homes and to mitigate

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the potential for additional losses. The primary restructuring methods being offered to our residential clients are

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reductions in interest rates and extensions in terms. Modifications of mortgages retained in portfolio are handled using proprietary modification guidelines, or the FDIC’s Modification Program for residential first mortgages covered by loss share agreements. The Corporation participates in the U.S. Treasury’s Home Affordable Modification Program for originated mortgages sold to and serviced for FNMA and FHLMC.

The Corporation has also modified certain loans according to provisions in loss share agreements. Losses associated with modifications on these loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under the loss share agreements.

A loan is considered to be impaired when, based on current events or information, it is probable the Corporation will be unable to collect all amounts due (principal and interest) per the contractual terms of the loan agreement. Loan impairment for all loans is measured based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, at the observable market price of the loan, or the fair value of the collateral for certain collateral dependent loans. Impaired loans include all nonaccrual commercial, agricultural, construction, and commercial real estate loans, and loans modified as TDRs. Interest income recognized on impaired loans was ~~$0.1 million~~$118.0 thousand and $236.0 thousand for the three and six months ended ~~March 31,~~June 30, 2015,, respectively, compared to ~~$0.1 million~~$20.0 thousand and $123.0 thousand for the three and six months ended ~~March 31,~~June 30, 2014,. respectively. Interest income which would have been earned in accordance with the original terms was $0.9 million ~~for the three months ended~~ ~~March 31, 2015, compared to $0.8~~and $1.8 million for the three and six months ended ~~March 31,~~June 30, 2015, respectively, compared to $0.5 million and $1.3 million for the three and six months ended June 30, 2014,. respectively.

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

Average quarter to date deposits totaled $~~19.8~~19.7 billion as of ~~March 31,~~June 30, 2015, $19.5 billion as of December 31, 2014, and ~~$19.6~~$19.5 billion as of ~~March 31,~~June 30, 2014. The Corporation has successfully executed a strategy to increase the concentration of lower cost deposits within the overall deposit mix by focusing on growth in checking, money market and savings account products with less emphasis on renewing maturing certificate of deposit accounts. In addition to efficiently funding balance sheet growth, the increased concentration in core deposit accounts generally deepens and extends the length of customer relationships.

The following table provides additional information about the Corporation's deposit products and their respective rates.

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Figure 1617. Respective Rates of Deposit Products and Funding


	Three Months Ended												Three Months Ended
	March 31, 2015				December 31, 2014				March 31, 2014				June 30, 2015				December 31, 2014				June 30, 2014
(Dollars in thousands)	Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate
Noninterest-bearing	$	5,728,763	—	%	$	5,706,631	—	%	$	5,488,751	—	%	$	5,722,240	—	%	$	5,706,631	—	%	$	5,515,807	—	%
Interest-bearing	3,209,285		0.10	%	3,021,188		0.10	%	3,045,952		0.10	%	3,203,836		0.10	%	3,021,188		0.10	%	3,066,201		0.10	%
Savings and money market accounts	8,542,154		0.26	%	8,381,548		0.26	%	8,698,817		0.26	%	8,467,845		0.26	%	8,381,548		0.26	%	8,580,928		0.26	%
Certificates and other time deposits	2,308,723		0.38	%	2,341,280		0.43	%	2,402,986		0.42	%	2,288,741		0.44	%	2,341,280		0.43	%	2,333,859		0.52	%
Total customer deposits	19,788,925		0.17	%	19,450,647		0.18	%	19,636,506		0.18	%	19,682,662		0.18	%	19,450,647		0.18	%	19,496,795		0.19	%
Securities sold under agreements to repurchase	1,024,863		0.10	%	1,241,948		0.09	%	884,065		0.09	%	1,285,920		0.10	%	1,241,948		0.09	%	1,024,598		0.09	%
Wholesale borrowings	350,991		2.70	%	450,587		2.08	%	276,324		1.66	%	393,379		2.40	%	450,587		2.08	%	373,213		1.49	%
Long-term debt	505,275		2.26	%	350,535		2.48	%	324,428		4.86	%	508,744		2.12	%	350,535		2.48	%	324,431		4.81	%
Total funds	$	21,670,054	0.26	%	$	21,493,717	0.25	%	$	21,121,323	0.27	%	$	21,870,705	0.26	%	$	21,493,717	0.25	%	$	21,219,037	0.28	%

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Average quarter to date demand deposits comprised ~~45.17%~~45.35% of average deposits during the three months ended ~~March 31,~~June 30, 2015, compared to 44.87% during the three months ended December 31, 2014, and ~~43.46%~~44.02% during the three months ended ~~March 31,~~June 30, 2014. Savings accounts, including money market products, made up ~~43.17%~~43.02% of average deposits during the three months ended ~~March 31,~~June 30, 2015 compared to 43.09% during the three months ended December 31, 2014, and ~~44.30%~~44.01% during the three months ended ~~March 31,~~June 30, 2014. Certificates and other time deposits made up ~~11.67%~~11.63% of average deposits during the three months ended ~~March 31,~~June 30, 2015, 12.04% during the three months ended December 31, 2014, and ~~12.24%~~11.97% during the three months ended ~~March 31,~~June 30, 2014.

The average cost of interest-bearing deposits, federal funds purchased and securities sold under agreements to repurchase, wholesale borrowings and long-term debt was down 13 basis ~~point~~points compared to the same period one year ago, or ~~2.78%~~7.89% for the three months ended ~~March 31,~~June 30, 2015.

The following table in Figure 1718 summarizes certificates and other time deposits in amounts of $100 thousand or more for the three months ended ~~March 31,~~June 30, 2015 by time remaining until maturity.

Figure 1718. Certificates and Other Time Deposits in increments of $100 Thousand or More


(In thousands)
Time until maturity:	Amount		Amount
Under 3 months	$	210,135	$	175,824
3 to 6 months	140,314		133,049
6 to 12 months	132,614		136,134
Over 12 months	233,289		209,086
Total	$	716,352	$	654,093

Capital Resources

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

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Shareholders' Equity

Shareholders' equity was $2.9 billion as of ~~March 31,~~June 30, 2015, compared with $2.8 billion as of December 31, 2014, and ~~$2.7~~$2.8 billion as of ~~March 31,~~June 30, 2014. The Corporation's Common Stock is traded on the NASDAQ under the symbol FMER with ~~12,060~~11,909 holders of record at ~~March 31,~~June 30, 2015.

At ~~March 31,~~June 30, 2015, the Corporation's common equity value per common share was ~~$16.86~~$16.82 based on approximately ~~165.5~~165.8 million shares outstanding at ~~March 31,~~June 30, 2015, compared to $16.53 based on approximately 165.4 million shares outstanding at December 31, 2014, and ~~$16.01~~$16.27 based on approximately ~~165.1~~165.4 million shares outstanding at ~~March 31,~~June 30, 2014.

At ~~March 31,~~June 30, 2015, the Corporation's tangible book value per common share was ~~$11.96~~$11.95 compared to $11.62 at December 31, 2014, and ~~$11.03~~$11.33 at ~~March 31,~~June 30, 2014.

At ~~March 31,~~June 30, 2015, the Corporation's book value per common share was ~~$17.46~~$17.42, compared to $17.14 at December 31, 2014, and ~~$16.62~~$16.88 at ~~March 31,~~June 30, 2014.

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At ~~March 31,~~June 30, 2015, the Corporation had approximately ~~4.7~~4.4 million treasury shares, compared to approximately 4.8 million treasury shares at December 31, 2014 and approximately ~~5.1~~4.8 million treasury shares at ~~March 31,~~June 30, 2014. Treasury shares are typically issued as needed in connection with stock-based compensation awards and for other corporate purposes.

During the ~~first~~second quarter of 2015, the Corporation made a dividend payment of $0.16 per share, or ~~$26.5~~$26.2 million in the aggregate, on its Common Stock. As of ~~March 31,~~June 30, 2015, the dividend of $0.16 per common share has annualized rate of $0.64 per common share. Also in the ~~first~~second quarter of 2015, the Corporation made a quarterly dividend payment of $1.5 million in the aggregate, or $14.69 per share, or ~~$0.36725~~$0.37 per depositary share, on the Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, which trades on the NYSE.

On May 13, 2015, the Corporation repurchased a warrant previously issued by Citizens to the U.S. Treasury for $12.2 million, which resulted in a reduction to capital surplus in the amount of $9.2 million.

The following table in Figure 1819 shows activities that caused the change in outstanding Common Stock over the past five quarters.

Figure 1819. Changes in Common Stock Outstanding


	2015		2014		2014		2014		2014		2015		2015		2014		2014		2014
(Shares in thousands)	1st qtr		4th qtr		3rd qtr		2nd qtr		1st qtr		2nd qtr		1st qtr		4th qtr		3rd qtr		2nd qtr
Beginning of period	165,390		165,384		165,393		165,087		165,056		165,453		165,390		165,384		165,393		165,087
Issued (repurchased)	(66	)	(15	)	(10	)	(186	)	(51	)
Reissued (returned) under employee benefit plans, net	129		21		1		492		82
Issued/(repurchased)											(210	)	(66	)	(15	)	(10	)	(186	)
Reissued/(returned) under employee benefit plans, net											530		129		21		1		492
End of period	165,453		165,390		165,384		165,393		165,087		165,773		165,453		165,390		165,384		165,393

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Capital Adequacy

Capital adequacy is an important indicator of financial stability and performance. The Corporation maintained a strong capital position with tangible common equity to tangible assets of ~~8.14%~~8.09% at ~~March 31,~~June 30, 2015, compared with 7.98% at December 31, 2014, and ~~7.69%~~7.89% at ~~March 31,~~June 30, 2014.

Financial institutions are subject to a strict uniform system of capital-based regulations. Under this system, there are five different categories of capitalization, with "prompt corrective actions" and significant operational restrictions imposed on institutions that are capital deficient under the categories. The five categories are: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

To be considered well-capitalized, an institution must have a total risk-based capital ratio of at least 10%, a tier 1 capital ratio of at least 8%, a leverage capital ratio of at least 5%, a CET1 ratio of at least 6.5%, and must not be subject to any order or directive requiring the institution to improve its capital level. An adequately capitalized institution has a total risk-based capital ratio of at least 8%, a tier I1 capital ratio of at least 6%, a CET1 ratio of at least 4.5%, and a leverage capital ratio of at least 4%. Institutions with lower capital levels are deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized, depending on their actual capital levels. The appropriate federal regulatory agency may also downgrade an institution to the next lower capital category upon a determination that the institution is in an unsafe or unsound practice. Institutions are required to monitor closely their capital levels and to notify their appropriate regulatory agency of any basis for a change in capital category.

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The George Washington and Midwest FDIC-assisted acquisitions in 2010 resulted in the recognition of loss share receivables from the FDIC, which represents the fair value of estimated future payments by the FDIC to the Corporation for losses on covered assets. The FDIC loss share receivables, as well as covered assets, are risk-weighted at 20% for regulatory capital requirement purposes. No loans acquired in the Citizens merger are subject to loss share receivables from the FDIC.

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As of ~~March 31,~~June 30, 2015, the Corporation, on a consolidated basis, as well as the Bank, exceeded the minimum capital levels of the well-capitalized category.

Figure 1920. Capitalization Tables


(Dollars in thousands)	March 31, 2015				December 31, 2014				March 31, 2014				June 30, 2015				December 31, 2014				June 30, 2014
Consolidated
Total equity	$	2,888,786	11.50	%	$	2,834,281	11.38	%	$	2,742,966	11.20	%	$	2,887,957	11.42	%	$	2,834,281	11.38	%	$	2,791,738	11.36	%
Common equity ⁽¹⁾	2,788,786		11.10	%	2,734,281		10.98	%	2,642,966		10.79	%	2,787,957		11.02	%	2,734,281		10.98	%	2,691,738		10.96	%
CET1 capital ^{(1) (2)}	2,006,340		10.60	%	N/A		N/A		N/A		N/A		2,029,902		10.47	%	N/A		N/A		N/A		N/A
Tier 1 common equity ^{(1) (2)}	N/A		N/A		1,904,461		10.95	%	1,745,937		10.46	%	N/A		N/A		1,904,461		10.95	%	1,803,731		10.55	%
Tier 1 capital ^{(1) (2)}	2,006,340		10.60	%	2,004,461		11.53	%	1,920,438		11.51	%	2,029,902		10.47	%	2,004,461		11.53	%	1,978,233		11.57	%
Total risk-based capital^{(1) (2)}	2,597,358		13.72	%	2,653,893		15.26	%	2,322,908		13.92	%	2,638,942		13.61	%	2,653,893		15.26	%	2,377,307		13.90	%
Tier 1 leverage ⁽²⁾	2,006,340		8.31	%	2,004,461		8.43	%	1,920,438		8.27	%	2,029,902		8.36	%	2,004,461		8.43	%	1,978,233		8.46	%
Tangible common equity ⁽¹⁾	1,978,624		8.14	%	1,921,521		7.98	%	1,821,407		7.69	%	1,980,392		8.09	%	1,921,521		7.98	%	1,873,112		7.89	%

	March 31, 2015				December 31, 2014				March 31, 2014				June 30, 2015				December 31, 2014				June 30, 2014
Bank Only
Total equity	$	3,020,048	12.03	%	$	2,932,847	11.79	%	$	2,895,511	11.83	%	$	3,035,571	12.01	%	$	2,932,847	11.79	%	$	2,948,000	12.01	%
Common equity ⁽¹⁾	3,020,048		12.03	%	2,932,847		11.79	%	2,895,511		11.83	%	3,035,571		12.01	%	2,932,847		11.79	%	2,948,000		12.01	%
CET1 capital ^{(1) (2)}													2,169,590		11.20	%	N/A		N/A		N/A		N/A
Tier 1 common equity ^{(1) (2)}													N/A		N/A		2,132,217		12.25	%	1,974,664		11.54	%
Tier 1 capital ^{(1) (2)}	2,129,378		11.26	%	2,127,065		12.22	%	2,017,602		12.09	%	2,169,590		11.20	%	2,127,065		12.22	%	2,079,510		12.16	%
Total risk-based capital ^{(1) (2)}	2,530,261		13.38	%	2,521,412		14.49	%	2,164,993		12.97	%	2,569,644		13.27	%	2,521,412		14.49	%	2,223,493		13.00	%
Tier 1 Leverage ⁽²⁾	2,129,378		8.87	%	2,127,065		8.94	%	2,017,602		8.71	%
Tier 1 leverage ⁽²⁾													2,169,590		8.95	%	2,127,065		8.94	%	2,079,510		8.93	%
Tangible common equity ⁽¹⁾	2,209,886		9.10	%	2,120,087		8.81	%	2,073,952		8.77	%	2,228,007		9.10	%	2,120,087		8.81	%	2,129,374		8.98	%

(1)See Figure 2 entitled GAAP to Non-GAAP Reconciliations, which presents the computations of certain financial measures related to tangible common equity and efficiency ratios. The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period to period comparisons.

(2) The Basel III capital rules, effective January 1, 2015, replace tier 1 common equity and the associated tier 1 common equity ratio with common equity tier 1 ("CET1") capital and the CET1 risk-based capital ratio. ~~March 31,~~June 30, 2015 figures are preliminary and presented on a Basel III basis and reflect transitional capital requirements and phase-in provisions, including the standardized approach for calculating risk weighted assets. ~~Periods prior to March~~December 31, ~~2015~~2014 and June 30, 2014 amounts and ratios are reported on a Basel I basis.

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 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 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.

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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

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opportunities to benefit when market interest rates change, which typically results in higher costs or lower revenue for the Corporation. Basis risk refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in a narrowing of profit spread on an earning asset or liability. Basis risk is also present in administered rate liabilities, such as interest-bearing checking accounts, savings accounts and money market accounts where historical pricing relationships to market rates may change due to the level or directional change in market interest rates.

The interest rate risk position is measured and monitored using risk management tools, including earnings simulation modeling and EVE sensitivity analysis, which capture both near term and long-term interest rate risk exposures. Combining the results from these separate risk measurement processes allows a reasonably comprehensive view of short-term and long-term interest rate risk in the Corporation.

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

Presented below is the Corporation’s interest rate risk profile as of ~~March 31,~~June 30, 2015and2014:

Figure 2021. Net Interest Income Simulation Results

Immediate Change in Rates and Resulting Percentage
Increase/(Decrease) in Net Interest Income:
- 100
basis
points + 100
basis
points + 200
basis
points + 300
basis
points
March 31, 2015 (4.71 )% 2.31 % 4.45 % 6.04 %
March 31, 2014 (5.22 )% 2.16 % 4.22 % 5.95 %



	Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in Net Interest Income:
	- 100 basis points		+ 100 basis points		+ 200 basis points		+ 300 basis points
June 30, 2015	(5.01	)%	1.89	%	3.67	%	5.00	%
June 30, 2014	(3.52	)%	1.64	%	3.27	%	4.55	%

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

Economic value of equity modeling. The Corporation also has longer-term interest rate risk exposure, which may not be appropriately measured by earnings sensitivity analysis. ALCO uses EVE sensitivity analysis to study the impact of long-term cash flows on earnings and capital. EVE involves discounting present values of

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all cash flows of ~~on balance~~on-balance sheet and ~~off balance~~off-balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents the Corporation’s EVE. The analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base-case measurement and its sensitivity to shifts in the yield curve allow Management to measure longer-term repricing and option risk in the balance sheet.

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Presented below is the Corporation’s EVE profile as of ~~March 31,~~June 30, 2015 and 2014:

Figure 2122. EVE Simulation Results

Immediate Change in Rates and Resulting Percentage
Increase/(Decrease) in EVE:
- 100
basis
points + 100
basis
points + 200
basis
points + 300
basis
points
March 31, 2015 (4.88 )% 2.14 % 3.00 % 2.90 %
March 31, 2014 (2.35 )% (0.71 )% (1.12 )% (2.06 )%



	Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in EVE:
	- 100 basis points		+ 100 basis points		+ 200 basis points		+ 300 basis points
June 30, 2015	(3.86	)%	1.49	%	1.92	%	1.61	%
June 30, 2014	(2.42	)%	0.38	%	(0.18	)%	(1.26	)%

Management reviews and takes appropriate action if this analysis indicates that the Corporation’s EVE will change by more than 5% in response to an immediate 100 basis point increase or decrease in interest rates or EVE will change by more than 15% in response to an immediate 200 basis point increase in interest rates. The Corporation is operating within these guidelines.

Management of interest rate exposure. Management uses the results of its various simulation analysis to formulate strategies to achieve a desired risk profile within the parameters of the Corporation’s capital and liquidity guidelines. Specifically, Management actively manages interest rate risk positions by structuring investment portfolio cash flows to support the desired risk position, and by using derivatives predominately in the form of interest rate swaps, which modify the interest rate characteristics of certain assets and liabilities. For more information about how the Corporation uses interest rate swaps to manage its balance sheet, see Note 8 (Derivatives and Hedging Activities) in the notes to the consolidated financial statements in this Form 10-Q.

Liquidity Risk Management

Liquidity risk is the possibility of the Corporation being unable to meet current and future financial obligations in a timely manner. Liquidity is managed to ensure stable, reliable and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. The Corporation considers core earnings, strong capital ratios and credit quality essential for maintaining high credit ratings, which allow the Corporation cost-effective access to market-based liquidity. The Corporation relies on a large, stable core deposit base and a diversified base of wholesale funding sources to manage liquidity risk.

The treasury group is responsible for identifying, measuring and monitoring the Corporation’s liquidity profile. The position is evaluated daily, weekly, and monthly by analyzing the composition of all funding sources, reviewing projected liquidity commitments by future months 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. Core deposits comprised approximately ~~88.10%~~88.69% of total deposits at ~~March 31,~~June 30, 2015. The Corporation also has available unused

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wholesale sources of liquidity, including advances from the FHLB of Cincinnati, issuance through dealers in the capital markets and access to certificates of deposit issued through brokers. Liquidity is further provided by unencumbered, or unpledged, investment securities that totaled ~~$2.8~~$2.9 billion as of ~~March 31,~~June 30, 2015.

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The treasury group also prepares a contingency funding plan that details the potential erosion of funds in the event of a systemic financial market crisis or institutional-specific stress. An example of an institution specific event would be a downgrade in the Corporation’s public credit rating by a rating agency due to factors such as deterioration in asset quality, a large charge to earnings, a decline in profitability or other financial measures, or a significant merger or acquisition. Examples of systemic events unrelated to the Corporation that could have an effect on its access to liquidity would be terrorism or war, natural disasters, political events, or the default or bankruptcy of a major corporation, mutual fund or hedge fund. Similarly, market speculation or rumors about the Corporation or the banking industry in general may adversely affect the cost and availability of normal funding sources. The liquidity contingency plan therefore outlines the process for addressing a liquidity crisis. The plan provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and responsibilities for effectively managing liquidity through a problem period.

Funding Trends for the Quarter - During the three months ended ~~March 31,~~June 30, 2015, lower cost core deposits ~~increased~~decreased by $~~339.3~~104.9 million from the ~~fourth~~first quarter ~~2014~~2015. In the aggregate, there was ~~an increase~~a decrease in deposits of $~~420.9~~251.7 million from ~~December~~March 31, ~~2014~~2015. The Corporation’s loan to deposit ratio ~~decreased~~increased to79.83% as of June 30, 2015 from 77.74% as of March 31, 2015 ~~from~~ ~~78.58%~~ ~~as of~~ ~~December 31, 2014~~. Securities sold under agreements to repurchase ~~decreased~~increased $~~159.2~~405.9 million from ~~December~~March 31, ~~2014~~2015. Wholesale borrowings and long-term debt had a net ~~decrease~~increase of $~~104.0~~34.2 million from ~~December~~March 31, ~~2014~~2015.

Parent Company Liquidity - The Corporation manages its liquidity principally through dividends from the Bank. The Corporation has sufficient liquidity to service its debt; support customary corporate operations and activities (including acquisitions) at a reasonable cost, in a timely manner and without adverse consequences; and pay dividends to shareholders.

During the three months ended ~~March 31,~~June 30, 2015, the Bank ~~did not pay~~paid $31.1 million in dividends to the Corporation. As of ~~March 31,~~June 30, 2015, the Bank had an additional $~~356.5~~386.4 million available to pay dividends without regulatory approval.

Operational Risk Management

Like all businesses, the Corporation is subject to operational risks, including, but not limited to, risks of human error, internal processes and systems that turn out to be inadequate and external events. These events include, among other things, threats to the Corporation's cybersecurity, since it ~~relys~~relies upon information systems and the Internet to conduct its business activities. The Corporation is also exposed to the costs of complying with laws, regulations and prescribed practices, which are changing rapidly and in large volumes, especially as a result of the Dodd-Frank Act and the proposal and adoption of implementing rules. Noncompliance may increase operating costs, result in monetary losses, adversely affect the Corporation's reputation and regulatory relations and ability to implement its business plans and pursue expansion opportunities.

The Corporation also faces the risk of operational disruption, failure or capacity constraints due to its dependency on third party vendors for components of its business infrastructure. While the Corporation has selected these third party vendors carefully, it does not control their operations. As such, any failure on the part of these business partners to perform their various responsibilities could also adversely affect the Corporation's business and operations.

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The Corporation may be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control, which may include, for example, computer viruses, cyber attacks, spikes in transaction volume and/or customer activity, electrical or telecommunications outages, or natural disasters.

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Although the Corporation has programs in place related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity and availability of its systems, business applications and customer information, such disruptions may give rise to interruptions in service to customers and loss or liability to the Corporation.

The Corporation seeks to mitigate operational risk through identification and measurement of risk, alignment of business strategies within risk guidelines, and through its system of internal controls and reporting. Further, the Corporation regularly evaluates and seeks to strengthen its system of internal controls to improve its oversight of operational risk and compliance with applicable laws, and regulations and prescribed standards.

Critical Accounting Policies

The Corporation’s consolidated financial statements are prepared in conformity with GAAP and follow general practices within the financial services industry in which it operates. All accounting policies are important, and all policies described in Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements of the 2014 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. Critical accounting policies require application of Management’s most difficult, subjective, or complex judgment and make certain assumptions and estimates about the effect of matters that are inherently uncertain or may change in future periods.

Management relies heavily on the use of judgment, assumptions and estimates to make a number of core decisions, including accounting for the ALL, 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 2014 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 is included in Note 8 (Derivatives and Hedging Activities) to the Corporation’s unaudited consolidated financial statements included in this Form 10-Q and in Note 19 to the consolidated financial statements in the 2014 Form 10-K. There have been no significant changes since December 31, 2014.

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Forward-looking Safe-harbor Statement

Statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and elsewhere within this Form 10-Q, which are not historical or factual in nature, constitute forward-looking statements. These forward-looking statements relate to, among other things, expectations for future shifts in loan portfolio to consumer and commercial loans, increase in core deposits base, allowance for loan losses, demands for the Corporation’s services and products, future services and products to be offered, increased numbers of customers, and like items, and involve a number of risks and uncertainties. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements: general economic conditions, including their impact on capital expenditures; business conditions in the banking industry; the regulatory environment; rapidly changing technology and evolving banking industry standards; competitive factors, including increased competition with regional and national financial institutions; new service and product offerings by competitors and price pressures; and like items.

Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic and competitive uncertainties and contingencies, many of which are beyond a company’s control, and many of which, with respect to future business decisions and actions (including acquisitions and divestitures), are subject to change. Examples of uncertainties and contingencies include, among other important factors: general and local economic and business conditions; recession or other economic downturns; expectations of, and actual timing and amount of, interest rate movements, including the slope of the yield curve (which can have a significant impact on a financial services institution); market and monetary fluctuations; inflation or deflation; customer and investor responses to these conditions; the financial condition of borrowers and other counterparties; competition within and outside the financial services industry; geopolitical developments including possible terrorist activity; recent and future legislative and regulatory developments; natural disasters; effectiveness of the Corporation’s hedging practices; technology; demand for the Corporation’s product offerings; new products and services in the industries in which the Corporation operates; critical accounting estimates; and those risk factors detailed in the Corporation’s periodic reports and registration statements filed with the SEC. Other factors are those inherent in originating, selling and servicing loans including prepayment risks, pricing concessions, fluctuation in U.S. housing prices, fluctuation of collateral values and changes in customer profiles. Additionally, the actions of the SEC, the FASB, the OCC, the Federal Reserve System, FINRA, and other regulators; regulatory and judicial proceedings and changes in laws and regulations applicable to the Corporation including the costs of complying with any such laws and regulations; and the Corporation’s success in executing its business plans and strategies, including efforts to reduce operating expenses, and managing the risks involved in the foregoing, could cause actual results to differ.

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


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

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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 ended ~~March 31,~~June 30, 2015, there was no change in internal control over financial reporting, as described in "Internal Control-Integrated Framework," as updated by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), 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, some for which material relief or damages sought are substantial. Although the Corporation is not able to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, Management believes that the outcome of any or all such actions will not have a material adverse effect on the results of operations or shareholders' equity of the Corporation.

For additional information on litigation, see Note 12 (Commitments and Guarantees) in the notes to the consolidated financial statements in this Form 10-Q.


ITEM 1A.	RISK FACTORS.

There have been no material changes in our risk factors from those disclosed in the 2014 Form 10-K.

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

The following table provides information with respect to purchases the Corporation made of shares of its Common Stock during the ~~first~~second quarter of the 2015 fiscal year:

Calendar Month
Total Number of
Shares Purchased ⁽¹⁾

Average Price
Paid per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs⁽²⁾

Maximum
Number of Shares
that May Yet Be
Purchased Under
Plans or Programs ⁽²⁾
January 1- January 31, 2015 3,428
$ 20.73
—
396,272
February 1- February 28, 2015 4,521
18.68
—
396,272
March 1- March 31, 2015 58,303
19.59
—
396,272
Total 66,252
$ 19.59
—
396,272



Calendar Month	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs ⁽²⁾
April 1 - April 30, 2015	183,667	$	19.74	—	396,272
May 1 - May 31, 2015	20,702	20.43		—	396,272
June 1 - June 30, 2015	6,184	20.98		—	396,272
Total	210,553	$	19.85	—	396,272

(1)

Reflects ~~66,252~~210,553 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 ~~first~~second quarter of 2015.


(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.

Not Applicable.

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ITEM 6.	EXHIBITS



Exhibit
Number		Description
3.2		Second Amended and Restated Code of Regulations of FirstMerit Corporation, as Amended, as of April 15, ~~2015.~~2015 (filed as Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, and incorporated herein by reference).
31.1		Rule 13a-14(a)/Section 302 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit ~~Corporation.~~Corporation (filed herewith).
31.2		Rule 13a-14(a)/Section 302 Certification of Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer of FirstMerit ~~Corporation.~~Corporation (filed herewith).
32.1		Rule 13a-14(b)/Section 906 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit ~~Corporation.~~Corporation (furnished herewith).
32.2		Rule 13a-14(b)/Section 906 Certification of Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer of FirstMerit ~~Corporation.~~Corporation (furnished herewith).
101.1		The following financial information from FirstMerit Corporation's Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2015 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Comprehensive Income; (iii) the Consolidated Statements of Changes in Shareholders’ Equity; (iv) the Consolidated Statements of Cash Flows; and (iv) Notes to Consolidated Financial Statements.

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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)

~~May 1,~~July 31, 2015

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FirstMerit Corporation

Form 10-Q

Index to Exhibits



Exhibit		Description
3.2		Second Amended and Restated Code of Regulations of FirstMerit Corporation, as Amended, as of April 15, ~~2015.~~2015 (filed as Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, and incorporated herein by reference).
31.1		Rule 13a-14(a)/Section 302 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit ~~Corporation.~~Corporation (filed herewith).
31.2		Rule 13a-14(a)/Section 302 Certification of Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer of FirstMerit ~~Corporation.~~Corporation (filed herewith).
32.1		Rule 13a-14(b)/Section 906 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit ~~Corporation.~~Corporation (furnished herewith).
32.2		Rule 13a-14(b)/Section 906 Certification of Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer of FirstMerit ~~Corporation.~~Corporation (furnished herewith).
101.1		The following financial information from FirstMerit Corporation's Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2015 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Comprehensive Income; (iii) the Consolidated Statements of Changes in Shareholders’ Equity; (iv) the Consolidated Statements of Cash Flows; and (iv) Notes to Consolidated Financial Statements.

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Prepayment speed assumption (annual CPR)	12.63		%
Decrease in fair value from 10% adverse change	$	778
Decrease in fair value from 25% adverse change	$	1,510
Discount rate assumption	9.39		%
Decrease in fair value from 100 basis point adverse change	$	632
Decrease in fair value from 200 basis point adverse change	$	1,222
Expected weighted-average life (in months)	93