SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~September 30, 2009~~March 31, 2010


o		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 0-10161

FIRSTMERIT CORPORATION

(Exact name of registrant as specified in its charter)


OHIO		34-1339938
(State or other jurisdiction of ~~incorporation or organization)~~		~~34-1339938~~ (IRS Employer Identification
incorporation or organization)		Number)

III CASCADE PLAZA, 7TH FLOOR, AKRON, OHIO
44308-1103
(Address of principal executive offices)

(330) 996-6300
(Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESþNOo

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESo NOþ

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). YesoNoo

~~Large accelerated filer~~þ

~~Accelerated filer~~o

~~Non-accelerated filer~~o
~~(Do not check if a smaller reporting company)~~

~~Smaller reporting company~~o

~~Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES~~oNOþ

As of ~~October 28, 2009, 85,844,862~~May 6, 2010, 91,184,700 shares, without par value, were outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 1A. RISK FACTORS
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EX-3.1
EX-3.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I —– FINANCIAL INFORMATION

~~ITEM 1. FINANCIAL STATEMENTS~~


ITEM 1.		FINANCIAL STATEMENTS

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


(In thousands)	September 30,			December 31,			September 30,
(Unaudited, except December 31, 2008, which is derived from the audited financial statements)	2009			2008			2008
(Unaudited, except December 31, 2009, which is derived from the										March 31,			December 31,			March 31,
audited financial statements)										2010			2009			2009
ASSETS
Cash and due from banks	$	193,060		$	178,406		$	186,087		$	721,938		$	161,033		$	179,397
Investment securities
Held-to-maturity		166,663			158,273			161,722			67,256			50,686			30,588
Available-for-sale		2,584,414			2,614,575			2,288,511			3,102,407			2,565,943			2,576,637
Other investments											131,376			128,209			128,007
Loans held for sale		12,519			11,141			9,126			16,009			16,828			22,408
Loans:
Noncovered Loans:
Commercial loans		4,097,252			4,352,730			4,273,065			4,389,859			4,066,522			4,344,915
Mortgage loans		481,336			547,125			559,276			447,575			463,416			524,909
Installment loans		1,481,200			1,574,587			1,613,481			1,382,522			1,425,373			1,533,885
Home equity loans		761,553			733,832			717,887			766,073			753,112			741,073
Credit card loans		147,767			149,745			148,179			145,029			153,525			141,597
Leases		60,540			67,594			69,704			59,464			61,541			64,384

Total loans		7,029,648			7,425,613			7,381,592
Less allowance for loan losses		(116,352	)		(103,757	)		(102,007	)
Total noncovered loans											7,190,522			6,923,489			7,350,763
Less: allowance for loan losses											(117,806	)		(115,092	)		(106,257	)

Net noncovered loans											7,072,716			6,808,397			7,244,506
Covered loans (includes loss share receivable of $108 million)											277,315			—			—

Net loans		6,913,296			7,321,856			7,279,585			7,350,031			6,808,397			7,244,506
Premises and equipment, net		126,416			133,184			128,570			164,408			125,205			130,920
Goodwill		139,245			139,245			139,245			187,945			139,598			139,245
Intangible assets		1,143			1,403			1,490			5,659			1,158			1,316
Other real estate covered by FDIC loss share											11,415			—			—
Accrued interest receivable and other assets		624,599			541,943			490,509			565,004			542,845			519,152

Total assets	$	10,761,355		$	11,100,026		$	10,684,845		$	12,323,448		$	10,539,902		$	10,972,176


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand-non-interest bearing	$	1,898,913		$	1,637,534			1,540,523		$	2,217,714		$	2,069,921			1,848,200
Demand-interest bearing		644,121			666,615			663,924			686,503			677,448			669,789
Savings and money market accounts		3,035,922			2,512,331			2,386,453			4,103,657			3,408,109			2,763,058
Certificates and other time deposits		1,692,318			2,781,199			2,839,656			2,362,135			1,360,318			2,397,166

Total deposits		7,271,274			7,597,679			7,430,556			9,370,009			7,515,796			7,678,213
				��
Securities sold under agreements to repurchase		1,350,475			921,390			1,244,200
Federal funds purchased and securities sold under agreements to repurchase											896,330			996,345			804,525
Wholesale borrowings		749,397			1,344,195			898,720			677,715			740,105			1,134,152
Accrued taxes, expenses, and other liabilities		331,000			298,919			185,291			224,041			222,029			271,017

Total liabilities		9,702,146			10,162,183			9,758,767			11,168,095			9,474,275			9,887,907

Commitments and contingencies
Shareholders’ equity:
Preferred stock, without par value:
authorized and unissued 7,000,000 shares		—			—			—
Preferred stock, Series A, without par value:
designated 800,000 shares; none outstanding		—			—			—
Convertible preferred stock, Series B, without par value:
designated 220,000 shares; none outstanding		—			—			—
Preferred stock, without par value: authorized and unissued 7,000,000 shares											—			—			—
Preferred stock, Series A, without par value: designated 800,000 shares; none outstanding											—			—			—
Convertible preferred stock, Series B, without par value: designated 220,000 shares; none outstanding											—			—			—
Fixed-Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 liquidation preference; authorized and issued 125,000 shares		—			—			—			—			—			120,622
Common stock, without par value:
authorized 300,000,000 shares; issued 92,635,910, 92,026,350 and 92,026,350 at September 30, 2009, December 31, 2008 and September 30, 2008, respectively.		127,937			127,937			127,937
Common stock, without par value: authorized 300,000,000 shares; issued 97,521,571, 93,633,871 and 92,026,350 at March 31, 2010, December 31, 2009 and March 31, 2009, respectively											127,937			127,937			127,937
Common stock warrant											—			—			4,582
Capital surplus		68,694			94,802			93,387			171,330			88,573			84,876
Accumulated other comprehensive loss		(7,437	)		(54,080	)		(59,190	)		(20,983	)		(25,459	)		(38,634	)
Retained earnings		1,042,752			1,053,435			1,047,781			1,047,827			1,043,625			1,057,681
Treasury stock, at cost, 6,767,053, 11,066,108 and 11,052,155 shares at September 30, 2009, December 31, 2008 and September 30, 2008, respectively		(172,737	)		(284,251	)		(283,837	)
Treasury stock, at cost, 6,711,936, 6,629,995 and 10,609,284 shares at March 31, 2010, December 31, 2009 and March 31, 2009, respectively											(170,758	)		(169,049	)		(272,795	)

Total shareholders’ equity		1,059,209			937,843			926,078			1,155,353			1,065,627			1,084,269

Total liabilities and shareholders’ equity	$	10,761,355		$	11,100,026		$	10,684,845		$	12,323,448		$	10,539,902		$	10,972,176

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


	Quarters ended						Nine months ended						Quarters ended
(Unaudited)	September 30,						September 30,						March 31,
(In thousands except per share data)	2009			2008			2009			2008			2010		2009
Interest income:
Interest and fees on loans, including held for sale	$	84,283		$	107,927			258,329		$	330,731		$	83,150	$	87,799
Interest and dividends on investment securities and federal funds sold		29,388			29,223			90,857			87,714
Investment securities
Taxable														24,870		28,295
Tax-exempt														3,339		3,262

Total investment securities interest														28,209		31,557
Other earning assets														495		—

Total interest income		113,671			137,150			349,186			418,445			111,854		119,356

Interest expense:
Interest on deposits:
Demand-interest bearing		137			589			451			2,144			152		155
Savings and money market accounts		5,763			6,932			16,592			23,075			7,601		5,377
Certificates and other time deposits		12,284			23,463			46,197			82,037			6,406		18,588
Interest on securities sold under agreements to repurchase		1,286			8,244			3,496			28,105			1,127		999
Interest on wholesale borrowings		6,824			6,801			21,064			20,133			6,174		7,343

Total interest expense		26,294			46,029			87,800			155,494			21,460		32,462

Net interest income		87,377			91,121			261,386			262,951			90,394		86,894
Provision for loan losses		23,887			15,531			68,473			41,617			25,493		18,065

Net interest income after provision for loan losses		63,490			75,590			192,913			221,334			64,901		68,829

Other income:
Trust department income		5,081			5,562			15,309			16,836			5,281		4,790
Service charges on deposits		16,782			16,648			46,798			47,412			15,366		14,163
Credit card fees		11,711			12,084			34,463			35,387			11,558		11,084
ATM and other service fees		2,935			2,717			8,380			8,281			2,509		2,606
Bank owned life insurance income		3,216			3,139			9,216			9,557			5,652		3,015
Investment services and insurance		2,498			2,899			7,686			8,554			1,928		2,918
Investment securities gains, net		2,925			—			4,103			571
Loan sales and servicing income		3,881			1,370			10,007			4,646			3,237		2,335
Gain on Visa Inc. redemption		—			—			—			7,898
Gain on acquistion														5,090		—
Gain on post medical retirement curtailment		—			—			9,543			—			—		9,543
Other operating income		2,538			2,610			12,095			9,499			3,328		4,734

Total other income		51,567			47,029			157,600			148,641			53,949		55,188

Other expenses:
Salaries, wages, pension and employee benefits		43,351			45,043			130,158			132,472			48,156		42,682
Net occupancy expense		5,739			5,741			18,468			18,699			7,140		6,871
Equipment expense		5,847			5,962			17,856			17,998			6,050		5,797
Stationery, supplies and postage		2,167			2,347			6,493			6,914			2,693		2,275
Bankcard, loan processing and other costs		7,548			7,497			23,252			22,097			7,818		7,842
Professional services		3,980			3,966			10,316			8,434			5,237		3,480
Amortization of intangibles		86			86			260			486			234		87
FDIC expense														3,765		2,556
Other operating expense		15,447			9,967			51,129			35,293			12,920		11,613

Total other expenses		84,165			80,609			257,932			242,393			94,013		83,203

Income before federal income tax expense		30,892			42,010			92,581			127,582			24,837		40,814
Federal income tax expense		8,129			12,257			24,889			37,233			6,816		11,380

Net income	$	22,763		$	29,753			67,692		$	90,349		$	18,021	$	29,434

Other comprehensive income, net of taxes
Unrealized securities’ holding gain (loss), net of taxes	$	28,172		$	(8,978	)		50,235		$	(19,488	)
Unrealized hedging gain (loss), net of taxes		—			347			(94	)		1,133
Unrealized securities’ holding gain, net of taxes													$	4,476	$	15,817
Unrealized hedging loss, net of taxes														—		(94	)
Minimum pension liability adjustment, net of taxes		(277	)		875			(831	)		2,621			—		(277	)
Less: reclassification adjustment for securities’ gain realized in net income, net of taxes		1,901			—			2,667			371

Total other comprehensive gain (loss), net of taxes		25,994			(7,756	)		46,643			(16,105	)
Total other comprehensive gain, net of taxes														4,476		15,446

Comprehensive income	$	48,757		$	21,997			114,335		$	74,244		$	22,497	$	44,880

Net income applicable to common shares	$	22,763		$	29,753			61,321		$	90,349		$	18,021	$	27,563

Net income used in diluted EPS calculation	$	22,763		$	29,753			61,321		$	90,354		$	18,021	$	27,563

Weighted average number of common shares outstanding — basic *		85,872			82,090			84,182			82,015
Weighted average number of common shares outstanding — basic*														87,771		82,514

Weighted average number of common shares outstanding — diluted *		85,880			82,117			84,190			82,062
Weighted average number of common shares outstanding — diluted*														87,777		82,523

Basic earnings per share *	$	0.27		$	0.36			0.73		$	1.10		$	0.21	$	0.33

Diluted earnings per share *	$	0.27		$	0.36			0.73		$	1.10		$	0.21	$	0.33

Stock dividend per share		0.72	%		—			0.73	%		—

Dividend per share	$	0.16		$	0.29			0.61		$	0.87		$	0.16	$	0.29

FIRSTMERIT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
~~(Unaudited)~~
~~(In thousands)~~


												Accumulated																					Accumulated
						Common						Other									Total								Common					Other									Total
	Preferred			Common		Stock			Capital			Comprehensive			Retained			Treasury			Shareholders’
	Stock			Stock		Warrant			Surplus			Income			Earnings			Stock			Equity
Balance at December 31, 2007	$	—		$	127,937	$	—		$	100,028		$	(43,085	)	$	1,027,775		$	(295,678	)	$	916,977
Net income		—			—		—			—			—			90,349			—			90,349
Cash dividends — common stock ($0.87 per share)		—			—		—			—			—			(70,343	)		—			(70,343	)
Options exercised (125,662 shares)		—			—		—			(963	)		—			—			3,027			2,064
Nonvested (restricted) shares granted (405,653 shares)		—			—		—			(10,083	)		—			—			10,084			1
Debentures converted (2,841 shares)		—			—		—			(38	)		—			—			63			25
Treasury shares purchased (42,429 shares)		—			—		—			213			—			—			(900	)		(687	)
Deferred compensation trust (23,718 shares)		—			—		—			433			—			—			(433	)		—
Share-based compensation		—			—		—			3,797			—			—			—			3,797
Net unrealized gains on investment securities, net of taxes		—			—		—			—			(19,859	)		—			—			(19,859	)
Unrealized hedging gain, net of taxes		—			—		—			—			1,133			—			—			1,133
Minimum pension liability adjustment, net of taxes		—			—		—			—			2,621			—			—			2,621

Balance at September 30, 2008	$	—		$	127,937	$	—		$	93,387		$	(59,190	)	$	1,047,781		$	(283,837	)	$	926,078


(Unaudited)																								Preferred		Common		Stock		Capital			Comprehensive			Retained			Treasury			Shareholders’
(In thousands)																								Stock		Stock		Warrant		Surplus			Income			Earnings			Stock			Equity
Balance at December 31, 2008	$	—		$	127,937		—		$	94,802		$	(54,080	)	$	1,053,435		$	(284,251	)	$	937,843		$	—	$	127,937	$	—	$	94,802		$	(54,080	)	$	1,053,435		$	(284,251	)	$	937,843
Net income		—			—		—			—			—			67,692			—			67,692			—		—		—		—			—			67,692			—			67,692
Cash dividends — preferred stock		—			—		—			—			—			(1,789	)		—			(1,789	)		—		—		—		—			—			(1,789	)		—			(1,789	)
Cash dividends — common stock ($0.61 per share)		—			—		—			—			—			(50,286	)		—			(50,286	)		—		—		—		—			—			(50,286	)		—			(50,286	)
Stock dividend		—			—		—			5,765			—			(21,718	)		15,953			—			—		—		—		5,765			—			(21,718	)		15,953			—
Options exercised (2,400 shares)		—			—		—			(18	)		—			—			58			40			—		—		—		(18	)		—			—			58			40
Nonvested (restricted) shares granted (536,058 shares)		—			—		—			(13,154	)		—			—			13,151			(3	)		—		—		—		(13,154	)		—			—			13,151			(3	)
Debentures converted		—			—		—			—			—			—			—			—
Treasury shares purchased (118,736 shares)		—			—		—			500			—			—			(2,197	)		(1,697	)		—		—		—		500			—			—			(2,197	)		(1,697	)
Deferred compensation trust (29,597 shares)		—			—		—			(32	)		—			—			32			—			—		—		—		(32	)		—			—			32			—
Share-based compensation		—			—		—			6,270			—			—			—			6,270			—		—		—		6,270			—			—			—			6,270
Issuance of common stock (3,267,751 shares)		—			—		—			(24,561	)		—			—			84,517			59,956			—		—		—		(24,561	)		—			—			84,517			59,956
Issuance of Fixed-Rate Cumulative Perpetual Preferred Stock		120,622			—		4,582			—			—			(204	)		—			125,000			120,622		—		4,582		—			—			(204	)		—			125,000
Redemption of Fixed-Rate Cumulative Perpetual Preferred Stock		(120,622	)		—		—			—			—			(4,378	)		—			(125,000	)
Repurchase of warrants		—			—		(4,582	)		(443	)		—			—			—			(5,025	)
Net unrealized gains on investment securities, net of taxes		—			—		—			—			47,568			—			—			47,568			—		—		—		—			47,568			—			—			47,568
Unrealized hedging gain, net of taxes		—			—		—			—			(94	)		—			—			(94	)		—		—		—		—			(94	)		—			—			(94	)
Minimum pension liability adjustment, net of taxes		—			—		—			—			(831	)		—			—			(831	)		—		—		—		—			(831	)		—			—			(831	)
Other		—			—		—			(435	)		—			—			—			(435	)

Balance at September 30, 2009	$	—		$	127,937	$	—		$	69,129		$	(7,437	)	$	1,042,752		$	(172,737	)	$	1,059,644
Balance at March 31, 2009																								$	120,622	$	127,937	$	4,582	$	69,572		$	(7,437	)	$	1,047,130		$	(172,737	)	$	1,189,669


Balance at December 31, 2009																								$	—	$	127,937	$	—	$	88,573		$	(25,459	)	$	1,043,625		$	(169,049	)	$	1,065,627
Net income																									—		—		—		—			—			18,021			—			18,021
Cash dividends — common stock ($0.16 per share)																									—		—		—		—			—			(13,819	)		—			(13,819	)
Options exercised (29,161 shares)																									—		—		—		(185	)		—			—			677			492
Nonvested (restricted) shares granted (4,375 shares)																									—		—		—		(99	)		—			—			99			—
Treasury shares purchased (115,477 shares)																									—		—		—		523			—			—			(2,509	)		(1,986	)
Deferred compensation trust (8,828 shares)																									—		—		—		(24	)		—			—			24			—
Share-based compensation																									—		—		—		2,543			—			—			—			2,543
Issuance of common stock (3,887,700 shares)																									—		—		—		79,999			—			—			—			79,999
Net unrealized gains on investment securities, net of taxes																									—		—		—		—			4,476			—			—			4,476

Balance at March 31, 2010																								$	—	$	127,937	$	—	$	171,330		$	(20,983	)	$	1,047,827		$	(170,758	)	$	1,155,353

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine months
	ended						Three months ended
(Unaudited)	September 30,						March 31,
(In thousands)	2009			2008			2010			2009

Operating Activities
Net income	$	67,692		$	90,349		$	18,021		$	29,434
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		68,473			41,617			25,493			18,065
Provision for depreciation and amortization		14,536			13,835
Depreciation and amortization								5,277			4,938
Accretion								(3,116	)		(889	)
Amortization of investment securities premiums, net		3,482			799			1,971			851
Accretion of income for lease financing		(2,584	)		(3,047	)
Gains on sales and calls of investment securities, net		(4,103	)		(571	)
Decrease in interest receivable		2,843			5,673
Decrease in interest payable		(8,453	)		(12,730	)
(Decrease) increase in employee pension liability		(6,068	)		19,664
(Decrease) increase in prepaid expenses		(6,017	)		397
Post medical retirement curtailment gain		(9,543	)		—			—			(9,543	)
Increase in bank owned life insurance		(9,001	)		(9,557	)
(Decrease) increase in accounts payable		(13,899	)		7,142
Gain on acquisition								(5,090	)		—
Originations of loans held for sale		(409,752	)		(232,501	)		(79,771	)		(130,899	)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary mortgage markets		411,792			238,207			81,893			120,558
(Gains) losses on sales of loans, net		(3,418	)		830
Amortization of intangible assets		260			486
Other decreases		(7,928	)		(15,809	)
Gains on sales of loans, net								(1,303	)		(926	)
Net change in assets and liabilities
(Increase) decrease in interest receivable								(1,633	)		2,589
Increase (decrease) in interest payable								1,415			(421	)
Increase in prepaid assets								(719	)		(5,175	)
Increase (decrease) in accounts payable								2,114			(9,616	)
(Decrease) increase in taxes payable								(4,297	)		6,243
Decrease (increase) in other receivables								741			(24	)
(Increase) decrease in other assets								(5,688	)		68
Other increases (decreases)								8,203			(8,394	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		88,312			144,784			43,511			16,859
Investing Activities
Dispositions of investment securities:
Available-for-sale — sales		102,564			77,985			12,161			16,552
Available-for-sale — maturities		506,976			450,538			153,567			158,998
Purchases of available-for-sale investment securities		(509,493	)		(516,606	)		(714,255	)		(97,745	)
Net decrease (increase) in loans and leases, excluding sales		324,985			(377,609	)
Net (increase) decrease in loans and leases								(12,299	)		55,776
Purchases of premises and equipment		(7,855	)		(12,052	)		(2,266	)		(2,619	)
Sales of premises and equipment		87			116			—			32
Net cash acquired from acquisitions								931,060			—

NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES		417,264			(377,628	)
NET CASH PROVIDED IN INVESTING ACTIVITIES								367,968			130,994
Financing Activities
Net increase (decrease) in demand accounts		238,885			(5,999	)
Net (decrease) increase in demand accounts								(3,671	)		213,840
Net increase in savings and money market accounts		523,591			91,306			232,767			250,727
Net (decrease) increase in certificates and other time deposits		(1,088,881	)		13,510
Net increase (decrease) in securities sold under agreements to repurchase		429,085			(11,880	)
Net (decrease) increase in wholesale borrowings		(594,798	)		193,599
Proceeds from issuance of preferred stock		125,000			—
Repurchase of preferred stock		(125,000	)		—
Repurchase of common stock warrant		(5,025	)		—
Proceeds from issuance of common stock		59,956			—
Net increase (decrease) in certificates and other time deposits								18,049			(384,033	)
Net decrease in securities sold under agreements to repurchase								(100,015	)		(116,865	)
Net decrease in wholesale borrowings								(62,390	)		(210,043	)
Net proceeds from issuance of preferred stock								—			125,000
Net proceeds from issuance of common stock								79,999			—
Cash dividends — preferred		(1,789	)		—			—			(1,667	)
Cash dividends — common		(50,286	)		(70,343	)		(13,819	)		(23,317	)
Purchase of treasury shares		(1,697	)		(687	)		(1,986	)		(542	)
Proceeds from exercise of stock options, conversion of debentures or conversion of preferred stock		37			2,090			492			38

NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES		(490,922	)		211,596
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES								149,426			(146,862	)

Increase (decrease) in cash and cash equivalents		14,654			(21,248	)
Increase in cash and cash equivalents								560,905			991
Cash and cash equivalents at beginning of period		178,406			207,335			161,033			178,406

Cash and cash equivalents at end of period	$	193,060		$	186,087		$	721,938		$	179,397


SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest, net of amounts capitalized	$	44,721		$	78,909		$	12,908		$	13,162

Federal income taxes	$	21,822		$	38,652		$	797		$	—

FirstMerit Corporation and Subsidiaries

Notes to Consolidated Financial Statements
~~September 30, 2009~~March 31, 2010(Unaudited)(Dollars in thousands except per share data)

1. Summary of Significant Accounting Policies

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

The accounting and reporting policies of FirstMerit Corporation and its subsidiaries (the “Corporation”) conform to generally accepted accounting principles (“GAAP”) in the United States of America and to general practices within the financial services industry. Effective July 1, 2009, the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) became the single source of authoritative nongovernmental ~~generally accepted accounting principles (“GAAP”) in the United States of America.~~GAAP. Other than resolving certain minor inconsistencies in current GAAP, the ASC is not intended to change GAAP, but rather to make it easier to review and research GAAP applicable to a particular transaction or specific accounting issue. Technical references to GAAP included in these Notes To Consolidated Financial Statements are provided under the new ASC structure.

The consolidated balance sheet at December 31, ~~2008~~2009 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 accruals) that are, in the opinion of ~~management,~~Management, necessary for a fair statement of the results for the interim periods presented. In preparing these financial statements, subsequent events were evaluated through October 30, 2009, the date the financial statements were issued. Financial statements are considered issued when they are filed with the Securities and Exchange Commission (“SEC”). In conjunction with applicable accounting standards, allNo material subsequent events have ~~been either recognized~~occurred requiring recognition in the financial statements or ~~disclosed~~disclosure in the notes to the financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the rules of the ~~SEC.~~Securities and Exchange Commission (“SEC”). The consolidated financial statements of the Corporation as of ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~ 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 for the fiscal year ended December 31, ~~2008.~~2009.

Certain ~~previously reported~~reclassifications of prior year’s amounts have been ~~reclassified~~made to conform to ~~the~~ current ~~reporting~~year presentation. Such reclassifications had no effect on net earnings.

2.~~Accounting Policies~~ Recently Adopted and ~~Pending~~Issued Accounting ~~Pronouncements~~Standards—~~ASC Topic 260, Earnings Per Share~~. Effective January 1, 2009, the accounting and reporting standards for earnings per share were amended. This amendment clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and should be included in the calculation of basic earnings per share using the two-class method prescribed by existing GAAP. The adoption of this amendment did not have a material effect on the Corporation’s consolidated results of operations or earnings per share.

~~ASC Topic 805, Business Combinations.~~This accounting guidance requires all businesses acquired after January 1, 2009 to be measured at the fair value of the consideration paid. It requires an entity to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, at their fair values as of that date. An entity is not permitted to recognize a separate valuation allowance as of the acquisition date for loans and other assets acquired in a business combination. Acquisition and restructuring costs are required to be expensed and are not to be included in the cost of the acquisition. The Corporation will apply these accounting standards to business combinations with acquisition dates on or after January 1, 2009.

~~ASC Topic 810, Consolidation.~~Effective January 1, 2009, the accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary were amended. The amendment clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Prior to this amendment, such noncontrolling interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. This amendment also requires expanded disclosures that identify and distinguish between the interests of the parent’s owner and the interests of the noncontrolling owners of an entity. This amendment did not have an impact on the Corporation’s consolidated financial condition or results of operations.

~~ASC Topic 815, Derivatives and Hedging.~~Effective March 31, 2009, the accounting and reporting standards for derivatives and hedging requires the Corporation to present specific disclosures which provide greater transparency as to the use of derivative instruments and hedging activity. In accordance with this guidance, the Corporation discloses in Note 8 (Accounting for Derivatives and Hedging Activities) how and why it uses derivative instruments; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the Corporation’s consolidated financial statements.

~~ASC Topic 320, Investments — Debt and Equity Securities.~~Effective June 30, 2009, the Corporation adopted the amendment to the accounting and reporting standards regarding recognition and disclosure of other-than-temporary impairment (“OTTI”). This amendment requires recognition of only the credit portion of OTTI in current earnings for those debt securities where there is no intent to sell or it is more likely than not the Corporation would not be required to sell the security prior to expected recovery. The remaining portion of the OTTI is to be included in other comprehensive income. The adoption of this amendment did not have a material impact on the Corporation’s consolidated financial condition or results of operations. See Note 3 (Investment Securities) for additional information regarding the application of this guidance to the Corporation’s investment securities.

~~ASC Topic 820, Fair Value Measurements and Disclosures.~~In April 2009, an amendment to the accounting and reporting standards of fair value measurements and disclosures was issued. The amendment provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. This amendment also provides guidance on identifying circumstances that indicate a transaction is not orderly. The Corporation adopted this additional guidance on June 30, 2009 and such adoption did not have a material impact on the Corporation’s consolidated financial condition or results of

~~operations. See Note 10 (Fair Value Measurements) for additional information on how the Corporation determines fair value.~~

~~ASC Topic 825, Financial Instruments.~~Effective June 30, 2009, the Corporation adopted the amendment to the accounting and reporting standards for disclosures about the fair value of financial instruments which requires such disclosures for all interim and annual reporting periods of publically traded companies. See Note 10 (Fair Value Measurements) for disclosures about fair value of the Corporation’s financial instruments.

~~ASC Topic 855, Subsequent Events.~~Effective June 30, 2009, the accounting and reporting standards for subsequent events requires the Corporation to disclose the date through which it has evaluated events that occur after the balance sheet date but before financial statements are issued or are available to be issued as well as the basis for that date, that is, whether that date represents the date the financial statements were issued.

~~Accounting Standards Update (“ASU”) 2009-05, Measuring Liabilities at Fair Value.~~~~This ASU allows for the use of specific valuation techniques to measure the fair value of a liability, within the scope of ASC 820,~~~~Fair Value Measurements~~, when a quoted price in an active market for a similar asset is not available. These specific valuation techniques should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The guidance in this ASU is effective for the Corporation as of October 1, 2009. The Corporation does not expect the adoption of this guidance to have a material effect on the Corporation’s financial condition and results of operations.

�� ~~ASC Topic 715, Compensation—Retirement Benefits.~~~~In December 2008, an amendment to the accounting and reporting standards of postretirement benefit plan assets was issued~~.This amendment requires expanded disclosures about the plan assets of a defined benefit pension or other postretirement plan to provide users of financial statements with an understanding of: how investment allocation decisions are made; the major categories of plan assets; the inputs and valuation techniques used to measure the fair value of plan assets; the effect of fair-value measurements using significant unobservable inputs on changes in plan assets for the period; and significant concentrations of risk within plan assets. These expanded disclosures will be effective for the Corporation’s December 31, 2009 consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standard (“SFAS”) 166, Accounting for Transfers of Financial Assets —– An Amendment of FASB Statement No. 140 ~~(“SFAS 166”~~which has been codified into ASC 860,Transfers and Servicing(“ASC 860”). ~~(The FASB has yet to incorporate SFAS 166 in the ASC.) SFAS 166~~This guidance removes the concept of a qualifying special-purpose entity from existing GAAP and removes the exception from applying the accounting and reporting standards within ASC 810,Consolidation(“ASC 810”), to

In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation No. 46(R) ~~(“SFAS 167”). (The FASB has yet to incorporate SFAS 167~~which was codified in ~~the ASC.) The new~~ASC 810. This guidance removes the scope exception for qualifying special-purpose entities, contains new criteria for determining the primary beneficiary of a variable interest entity and increases the frequency of required reassessments to determine whether an entity is the primary beneficiary of a variable interest entity. Enhanced disclosures ~~would~~are also be required. This guidance ~~will be~~was effective forthe Corporation ~~beginning~~as of January 1, ~~2010. The Corporation is in the process of analyzing the potential~~2010 and it did not have an impact ~~of the new guidance, however, it does not expect the adoption to have a material effect~~ on the Corporation’s financial condition and results of operations.

3.~~Investment Securities~~ —FASB ASU 2010-06, Improving Disclosures about Fair Value Measurements.ASU 2010-06 amends ASC 820 to require additional disclosures regarding fair value measurements. Specifically, the ASU requires disclosure of the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers; the reasons for any transfers in or out of Level 3; and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, the ASU also amends ASC 820 to clarify certain existing disclosure requirements. For example, the ASU clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities. Previously, separate fair value disclosures were required for each major category of assets and liabilities. ASU 2010-06 also clarifies the requirement to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. Except for the requirement to disclose information about purchases, sales, issuances, and settlements in the reconciliation of recurring Level 3 measurements on a gross basis, these disclosures are effective for the quarter ended March 31, 2010 and are incorporated into Note 10 (Fair Value Measurement). The requirement to separately disclose purchases, sales, issuances, and settlements of recurring Level 3 measurements becomes effective for the Corporation for the quarter ended March 31, 2011.

2. Business Combinations

Asset Based Loans

On December 16, 2009, FirstMerit Bank, N.A. (the “Bank”), acquired $102.0 million in outstanding principal of asset based lending loans (“ABL Loans”), as well as the staff to service and build new business, from First Bank Business Capital, Inc., (“FBBC”) for $93.2 million in cash. FBBC is a wholly owned subsidiary of First Bank, a Missouri state chartered bank. This acquisition expands the Corporation’s market presence and asset based lending business into the Midwest.

The purchase was accounted for under the acquisition method in accordance with ASC 805,Business Combinations(“ASC 805”). Accordingly, the ABL Loans and a non-compete

agreement acquired were recorded at their fair values, $92.7 million and $0.1 million, respectively, on the date of acquisition. The Bank recorded goodwill of $0.4 million relating to the ABL Loans and non-compete agreement it acquired. Additional information can be found in Note 5 (Goodwill and Intangible Assets).

All ABL Loans acquired were performing as of the acquisition date and as of March 31, 2010. The shortfall between the fair value of the ABL Loans acquired and the outstanding principal balance of these loans at the date of acquisition was a $9.3 million discount and will be accreted into interest income over their estimated useful life in accordance with ASC 310,Receivables.

First Bank Branches

On February 19, 2010, the Bank completed the acquisition of certain assets and the assumption of certain liabilities with respect to 24 branches of First Bank located in the greater Chicago, Illinois area. This acquisition was accounted for under the acquisition method in accordance with ASC 805. The Bank recognized $1.4 million of acquisition related costs that were expensed in the current period. These costs are included in the line item entitled professional services in the consolidated income statement. Excluding the purchase accounting adjustments, the acquisition included the assumption of approximately $1.2 billion in deposits and the purchase of $301.2 million of loans and $23.0 million in real and personal property associated with the acquired branch locations. The Bank received cash of $832.5 million to assume the net liabilities.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:


	Acquired		Fair Value			As Recorded by
	Book Value		Adjustments			FirstMerit Bank, N.A.
Assets
Cash and due from banks	$	3,725	$	—		$	3,725
Loans		301,236		(25,624	)		275,612
Premises and equipment		22,992		18,963			41,955
Goodwill		—		48,347			48,347
Core deposit intangible		—		3,154			3,154
Other assets		941		3,115			4,056

Total assets acquired	$	328,894	$	47,955		$	376,849

Liabilities
Deposits	$	1,199,279	$	7,134		$	1,206,413
Accrued expenses and other liabilities		4,192		(1,271	)		2,921

Total liabilities assumed	$	1,203,471	$	5,863		$	1,209,334

All loans acquired in the First Bank acquisition were performing as of the acquisition date and as of March 31, 2010. The shortfall between the fair value and the outstanding principal balance of these loans at the date of acquisition was a $25.6 million discount and will be accreted into interest income over their estimated useful life in accordance with ASC 310,Receivables.

Additional information regarding the goodwill and core deposit intangible acquired in the First Bank acquisition can be found in Note 5 (Goodwill and Intangible Assets).

Pro forma financial statement information is not presented because the historical results of the First Bank branches acquired are not meaningful or significant to the Corporation’s results.

George Washington Savings Bank — FDIC Assisted Acquisition

On February 19, 2010 the Bank acquired certain assets and assumed substantially all of the deposits and certain liabilities of the failed George Washington Savings Bank (“George Washington”), the subsidiary of George Washington Savings Bancorp, through a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”). The Illinois Department of Financial and Professional Regulations, Division of Banking, declared George Washington closed on February 19, 2010 and appointed the FDIC as receiver.

The Bank did not acquire the real estate, banking facilities, furniture and equipment of George Washington as part of the purchase and assumption agreement but has the option to purchase these assets at fair market value from the FDIC. This purchase option expires 90 days after acquisition date, but was extended by the FDIC. Fair market values for the real estate, facilities, furniture and equipment will be based on current appraisals and determined at a later date. The Bank is leasing these facilities and equipment from the FDIC until current appraisals are received and a final purchase decision is made.

The acquisitions of the net assets of George Washington constitute a business combination as defined by ASC 805 and, accordingly were recorded at their estimated fair value on the date of acquisition. The Bank recognized $0.3 million of acquisition related costs that were expensed in the current period. These costs are included in the line item entitled professional services in the consolidated income statement. The assets acquired and liabilities assumed were recorded at their estimated fair values on the date of acquisition. The estimated fair value of assets acquired exceeded the estimated fair value of liabilities assumed, resulting in a bargain purchase gain of $5.1 million. The Bank and the FDIC are engaged in on-going discussions that may impact which assets and liabilities are ultimately acquired or assumed by the Bank and/or the purchase price. In addition, the tax treatment of FDIC assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date.

In connection with the George Washington acquisition, the Bank entered into loss sharing agreements with the FDIC that collectively cover $327.1 million of assets including single family residential mortgage loans, commercial real estate and commercial and industrial loans, and other real estate (collectively referred to as “Covered Assets”). The Bank acquired other George Washington assets that are not covered by the loss sharing agreements with the FDIC including investment securities purchased at fair market value and other tangible assets.

Pursuant to the terms of the loss sharing agreements, the FDIC is obligated to reimburse the Bank for 80% of losses of up to $172.0 million with respect to the Covered Assets and will reimburse the Bank for 95% of losses that exceed $172.0 million. The Bank will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid the Bank 80% reimbursement under the loss sharing agreements, and for 95% of recoveries with respect to losses for which the FDIC paid the Bank 95% reimbursement under the loss sharing agreements.

The amounts covered by the loss sharing agreements are the pre-acquisition book values of the underlying Covered Assets, the contractual balance of acquired unfunded commitments,

and certain future net direct costs incurred in the collection and settlement process. The loss sharing agreements applicable to single family residential mortgage loans provides for FDIC loss sharing and the Bank reimbursement to the FDIC, in each case as described above, for ten years. The loss sharing agreements applicable to commercial loans and securities provides for FDIC loss sharing for five years and the Bank reimbursement to the FDIC for eight years, in each case as described above. The Bank will service the Covered Assets. The expected reimbursements under the loss sharing agreements were recorded on the balance sheet as part of the covered loans acquired at their estimated fair values of $107.6 million on the acquisition date.

The table below presents a summary of the assets and liabilities purchased in the George Washington acquisition recorded at estimated fair value on the acquisition date. The Bank received a cash payment from the FDIC of approximately $40.2 million to assume the net liabilities. The estimated fair value of assets acquired and cash payment received from the FDIC exceeded the estimated fair value of the liabilities assumed, resulting in a bargain purchase gain of $5.1 million.


	As Recorded		Fair Value			As Recorded by
	by FDIC		Adjustments			FirstMerit Bank, N.A.
Assets
Cash and due from banks	$	57,984	$	—		$	57,984
Investment securities		15,410		—			15,410
Covered Loans
Commercial Loan		256,832		(119,404	)		137,428
Mortgage Loan		24,078		(9,952	)		14,126
Installment Loan		27,218		(7,339	)		19,879

Total covered loans		308,128		(136,695	)		171,433
Loss share receivable		—		107,550			107,550

Total covered loans and loss share receivable							278,983
Core deposit intangible		—		962			962
Covered other real estate		19,021		(7,561	)		11,460
Other assets		3,340		—			3,340

Total assets acquired	$	403,883	$	(35,744	)	$	368,139


Liabilities
Deposits
Noninterest-bearing deposit accounts	$	54,242	$	—		$	54,242
Savings deposits		62,737		—			62,737
Time deposits		278,755		4,921			283,676

Total deposits		395,734		4,921			400,655
Accrued expenses and other liabilities		2,569		—			2,569

Total liabilities assumed	$	398,303	$	4,921		$	403,224

The operating results of the Corporation for the quarter ended March 31, 2010 include the operating results produced by the George Washington acquisition for the period of February 19, 2010 to March 31, 2010. Due primarily to the Bank acquiring only certain assets and liabilities in the George Washington acquisition, the significant amount of fair value adjustments,

the loss sharing agreements with the FDIC, and on-going discussions with the FDIC that may impact which assets and liabilities are ultimately acquired or assumed by the Bank, historical results from George Washington are not meaningful or significant to the Corporation’s results, and thus no 2010 and 2009 pro forma information is presented.

The Corporation evaluated loans purchased in conjunction with the acquisition of George Washington for impairment in accordance with the provisions of ASC 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality(“ASC 310-30”). Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected. In the assessment of credit quality deterioration, Management made numerous assumptions, interpretations and judgments, using internal and third-party credit quality information to determine whether it is probable that the Corporation will be able to collect all contractually required payments. This is a point in time assessment and inherently subjective due to the nature of the available information and judgment involved.

The Corporation has elected to recognize the accretion of the purchase discount for purchased nonimpaired loans, excluding those with revolving privileges, based on the acquired loan’s expected cash flows, as described in the ASC 310-30. All purchased impaired and nonimpaired loans, excluding those with revolving privileges, are included in the ASC 310-30 financial statement disclosures to these consolidated financial statements. Revolving loans are excluded from purchased impaired loans accounting.

The outstanding balance of all purchased loans accounted for in accordance with ASC 310-30 in the George Washington acquisition was $268.8 million and $267.2 million, as of February 19, 2010 and March 31, 2010, respectively. As of the acquisition date, the preliminary estimate of contractually required payments receivable, including interest, for all loans accounted for in accordance with ASC 310-30 acquired in the George Washington transaction was $349.4 million. The cash flows expected to be collected as of the acquisition date for these loans were $173.9 million, including interest. These amounts were determined based upon the estimated remaining life of the underlying loans, which includes the effects of estimated prepayments. The fair value of these loans as of the acquisition date was $150.9 million. Interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all purchased impaired and nonimpaired loans accounted for in accordance with ASC 310-30.

Changes in the carrying amount of accretable yield for purchased loans accounted for in accordance with ASC 310-30 were as follows for the quarter ended March 31, 2010 for George Washington.


				Carrying
	Accretable			Amount of
	Yield			Loans
Balance at the date of acquisition	$	22,999		$	150,870
Accretion		(1,044	)		1,044
Payments, received, net		—			(3,742	)

Balance at end of period	$	21,955		$	148,172

As of the acquisition date, the estimate of contractually required payments receivable, including interest, for all loans with revolving privileges acquired in the George Washington transaction was $46.3 million. The cash flows expected to be collected as of the acquisition dates for all loans with revolving privileges acquired in the George Washington transaction were $24.8 million, including interest. The fair value at acquisition date of loans with revolving privileges was $20.5 million. The difference between the fair value of the purchased loans with revolving privileges and the outstanding balance is being accreted to interest income over the remaining period the revolving lines are in effect.

3. Investment Securities

The following tables provide the amortized cost and fair value for the major categories of held-to-maturity and available-for-sale securities. Held-to-maturity securities are carried at amortized cost, which reflects historical cost, adjusted for amortization of premiums and accretion of discounts. Available-for-sale securities are carried at fair value with net unrealized gains or losses reported on an after-tax basis as a component of ~~cumulative~~ other comprehensive income in shareholders’ equity. ~~The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and illiquidity.~~

September 30, 2009
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Securities available for sale

Debt securities
U.S. Treasury and government agency $ 11,995 $ 5 $ — $ 12,000
U.S States and political subdivisions 287,882 15,868 (22 ) 303,728
Residential mortgage-backed securities:
U.S. government agencies 1,565,762 60,340 (4 ) 1,626,098
Residential collateralized mortgage securities:
U.S. government agencies 578,604 20,056 (13 ) 598,647
Non-agency 20 — — 20
Corporate debt securities 61,372 — (21,870 ) 39,502
Other debt securities 692 — — 692

Total debt securities $ 2,506,327 $ 96,269 $ (21,909 ) $ 2,580,687
Marketable equity securities 3,727 — — 3,727

Total securities available for sale $ 2,510,054 $ 96,269 $ (21,909 ) $ 2,584,414

Securities held to maturity

Debt securities
U.S States and political subdivisions $ 38,454 $ — $ — $ 38,454
Non-marketable equity securities 128,209 — — 128,209

Total securities held to maturity $ 166,663 $ — $ — $ 166,663

912


	December 31, 2008									March 31, 2010
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Securities available for sale
Debt securities
U.S. Treasury and government agency	$	20,000	$	38	$	—		$	20,038
U.S States and political subdivisions		286,758		2,726		(3,580	)		285,904
Debt Securities
U.S. government agency debentures										$	280,333	$	50	$	(743	)	$	279,640
U.S. States and political subdivisions											288,439		4,964		(417	)		292,986
Residential mortgage-backed securities:
U.S. government agencies		1,681,378		29,643		(2,795	)		1,708,226		1,653,689		56,189		(299	)		1,709,579
Residential collateralized mortgage securities:
Residential collateralized mortgage-backed securities:
U.S. government agencies		539,382		7,071		(1,159	)		545,294		752,443		20,103		(228	)		772,318
Non-agency		20,450		—		(787	)		19,663		20		—		(1	)		19
Corporate debt securities		61,335		—		(29,979	)		31,356		61,397		—		(17,603	)		43,794
Other debt securities		730		—		—			730		667		—		—			667

Total debt securities	$	2,610,033	$	39,478	$	(38,300	)	$	2,611,211		3,036,988		81,306		(19,291	)		3,099,003
Marketable equity securities		3,364		—		—			3,364		3,404		—		—			3,404

Total securities available for sale	$	2,613,397	$	39,478	$	(38,300	)	$	2,614,575	$	3,040,392	$	81,306	$	(19,291	)	$	3,102,407


Securities held to maturity
Debt securities
U.S States and political subdivisions	$	30,266	$	—	$	—		$	30,266
Non-marketable equity securities		128,007		—		—			128,007
Debt Securities
U.S. States and political subdivisions										$	67,256	$	—	$	—		$	67,256

Total securities held to maturity	$	158,273	$	—	$	—		$	158,273	$	67,256	$	—	$	—		$	67,256


	September 30, 2008										March 31, 2009
			Gross		Gross								Gross		Gross
	Amortized		Unrealized		Unrealized			Fair			Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value			Cost		Gains		Losses			Value
Securities available for sale
Debt securities
U.S. Treasury and government agency	$	501	$	—	$	—		$	501
U.S States and political subdivisions		282,998		566		(18,135	)		265,429
Debt Securities
U.S. States and political subdivisions											$	288,470	$	3,722	$	(2,416	)	$	289,776
Residential mortgage-backed securities:
U.S. government agencies		1,588,237		7,077		(11,179	)		1,584,135			1,655,231		44,634		(405	)		1,699,460
Residential collateralized mortgage securities:
Residential collateralized mortgage-backed securities:										Residential collateralized mortgage-backed securities:
U.S. government agencies		374,203		1,419		(3,550	)		372,072			522,930		15,106		(164	)		537,872
Non-agency		21,157		—		(26	)		21,131			19,480		—		(404	)		19,076
Corporate debt securities		61,321		—		(20,049	)		41,272			61,347		—		(34,561	)		26,786
Other debt securities		743		—		—			743			717		—		—			717

Total debt securities	$	2,328,659	$	9,062	$	(52,939	)	$	2,285,283			2,548,175		63,462		(37,950	)		2,573,687
Marketable equity securities		3,228		—		—			3,228			2,950		—		—			2,950

Total securities available for sale	$	2,331,887	$	9,062	$	(52,939	)	$	2,288,511		$	2,551,125	$	63,462	$	(37,950	)	$	2,576,637


Securities held to maturity
Debt securities
U.S States and political subdivisions	$	33,791	$	—	$	—		$	33,791
Non-marketable equity securities		127,931		—		—			127,931
Debt Securities
U.S. States and political subdivisions											$	30,588	$	—	$	—		$	30,588

Total securities held to maturity	$	161,722	$	—	$	—		$	161,722		$	30,588	$	—	$	—		$	30,588

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 ~~accumulated~~ other comprehensive ~~loss.~~income. Equity securities are also evaluated to determine whether the unrealized loss is expected to be recoverable based on whether evidence exists to support a realizable value equal to or greater than the amortized cost basis. If it is probable that the Corporation will not recover the amortized cost basis, taking into consideration the estimated recovery period and its ability to hold the equity security until recovery, OTTI is recognized.

The security-level assessment is performed on each security, regardless of the classification of the security as available for sale or held to maturity. The assessments are based on the nature of the securities, the financial condition of the issuer, the extent and duration of the securities, the extent and duration of the loss and the intent and whether ~~management~~Management intends to sell or it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis, which may be maturity. For those securities for which the assessment shows the Corporation will recover the entire cost basis, ~~management~~Management does not intend to sell

these securities and it is not more likely than not that the Corporation will be required to sell them before the anticipated recovery of the amortized cost basis, the gross unrealized losses are recognized in other comprehensive income, net of tax.

As of ~~September 30, 2009,~~March 31, 2010, gross unrealized losses are concentrated within corporate debt securities which is composed of eight, single issuer, trust preferred securities with stated maturities. Such investments are less than 1%2% of the fair value of the entire investment portfolio. None of the corporate issuers have deferred paying dividends on their issued trust preferred shares in which the Corporation is invested. The fair values of these investments have been impacted by the recent market conditions which have caused risk premiums to increase markedly, resulting in the significant decline in the fair value of the trust preferred securities. Management believes the Corporation will fully recover the cost of these securities and it does not intend to sell these securities and it is not more likely than not that it will be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, ~~management~~Management concluded that these securities were not other-than-temporarily impaired at ~~September 30, 2009~~March 31, 2010 and has recognized the total amount of the impairment in other comprehensive income, net of tax.

Realized Gains and Losses

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

Quarter ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
Proceeds $ 17,327 $ — $ 102,564 $ 77,985

Realized gains $ 2,925 $ — $ 4,103 $ 571
Realized losses — — — —

Net securities gains $ 2,925 $ — $ 4,103 $ 571

There were no material gains or losses on sales of available-for-sale securities for the quarters ended March 31, 2010 and 2009.

Contractual Maturity of Debt Securities

The following table shows the remaining contractual maturities and contractual yields of debt securities held-to-maturity and available-for-sale as of ~~September 30, 2009.~~

Residential
Residential collateralized
collateralized mortgage
U.S. Residential mortgage obligations -
Treasury and U.S. States mortgage backed obligations - U.S. non U.S.
government and securities - U.S. Government Government Corporate Weighted
agency political Government agency agency debt Other Average
obligations subdivisions agency obligations obligations obligations securities securities Total Yield
Securities Available for Sale

Remaining maturity:
One year or less $ — $ 5,475 $ 34,355 $ 17,901 $ — $ — $ 51 $ 57,782 4.03 %
Over one year through five years — 15,060 1,505,040 567,166 22 — 203 2,087,491 4.45 %
Over five years through ten years — 41,193 86,703 13,580 — — 252 141,728 5.58 %
Over ten years 12,000 242,000 — — — 39,500 186 293,686 4.96 %

Fair Value $ 12,000 $ 303,728 $ 1,626,098 $ 598,647 $ 22 $ 39,500 $ 692 $ 2,580,687 4.58 %

Amortized Cost $ 11,995 $ 287,882 $ 1,565,762 $ 578,604 $ 22 $ 61,370 $ 692 $ 2,506,329

Weighted-Average Yield 3.13 % 6.06 % 4.55 % 4.27 % 4.67 % 1.18 % 0.00 % 4.58 %
Weighted-Average Maturity 13.7 11.0 3.5 2.5 4.1 18.1 13.7 4.5

Securities Held to Maturity

Remaining maturity:
One year or less $ — $ 21,588 $ — $ — $ — $ — $ — $ 21,588 5.66 %
Over one year through five years — 3,782 — — — — — 3,782 5.66 %
Over five years through ten years — 10,769 — — — — — 10,769 5.66 %
Over ten years — 2,315 — — — — — 2,315 5.66 %

Fair Value $ — $ 38,454 $ — $ — $ — $ — $ — $ 38,454 5.66 %

Amortized Cost $ — $ 38,454 $ — $ — $ — $ — $ — $ 38,454

Weighted-Average Yield 5.66 % 5.66 %
Weighted-Average Maturity 4.5 4.5
March 31, 2010. Estimated lives on mortgage-backed securities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

1417


													Residential
										Residential			collateralized
										collateralized			mortgage
							Residential			mortgage			obligations -
	U.S.						mortgage backed			obligations - U.S.			non U.S.
	Government			U.S. States			securities - U.S.			Government			Government			Corporate									Weighted
	agency			and political			Government			agency			agency			debt			Other						Average
	debentures			subdivisions			agency obligations			obligations			obligations			securities			securities			Total			Yield
Securities Available for Sale
Remaining maturity:
One year or less	$	40,053		$	11,477		$	22,709		$	22,302		$	—		$	—		$	51		$	96,592			2.62	%
Over one year through five years		227,554			14,157			1,686,870			750,017			20			—			203			2,678,821			3.61	%
Over five years through ten years		—			59,542			—			—			—			—			253			59,795			5.97	%
Over ten years		12,026			207,810			—			—			—			43,794			160			263,790			4.86	%

Fair Value	$	279,633		$	292,986		$	1,709,579		$	772,319		$	20		$	43,794		$	667		$	3,098,998			3.82	%

Amortized Cost	$	280,327		$	288,439		$	1,653,689		$	752,443		$	20		$	61,397		$	667		$	3,036,982

Weighted-Average Yield		0.95	%		6.07	%		4.15	%		3.41	%		3.93	%		0.96	%		0.00	%		3.82	%
Weighted-Average Maturity		2.4			10.4			3.3			2.5			4.0			17.6			13.2			4.0

Securities Held to Maturity
Remaining maturity:
One year or less	$	—		$	19,163		$	—		$	—		$	—		$	—		$	—		$	19,163			5.97	%
Over one year through five years		—			3,417			—			—			—			—			—			3,417			5.97	%
Over five years through ten years		—			9,619			—			—			—			—			—			9,619			5.97	%
Over ten years		—			35,057			—			—			—			—			—			35,057			7.46	%

Fair Value	$	—		$	67,256		$	—		$	—		$	—		$	—		$	—		$	67,256			6.74	%

Amortized Cost	$	—		$	67,256		$	—		$	—		$	—		$	—		$	—		$	67,256

Weighted-Average Yield					6.74	%																	6.74	%
Weighted-Average Maturity					9.6																		9.6

4.Allowance for loan losses ~~(“ALL”)~~ —

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.

Note 1 (Summary of Significant Accounting Policies) and Note 4 (Allowance for Loan Losses) in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2008~~2009 (the ~~“2008~~“2009 Form 10-K”) more fully describe the components of the allowance for loan loss model.

There was no further credit detioriation requiring an allowance for loan losses related to the $523.3 million of acquired loans at March 31, 2010.

The activity within the ~~ALL~~allowance for loan loss for the quarters ~~and nine months~~ ended ~~September 30,~~March 31, 2010 and 2009 and ~~2008 and full~~the year ended December 31, ~~2008,~~2009, is shown in the following table:

Quarter ended Nine months ended Year ended
September 30, September 30, December 31,
2009 2008 2009 2008 2008
Allowance for loan losses-beginning of period $ 111,222 $ 98,239 $ 103,757 $ 94,205 $ 94,205
Loans charged off:
Commercial 7,208 3,556 21,892 10,727 16,318
Mortgage 1,455 1,162 3,693 3,671 4,696
Installment 7,135 5,840 23,060 17,464 24,740
Home equity 1,911 1,154 4,943 3,446 4,153
Credit cards 3,384 2,522 10,047 7,315 9,821
Leases — 20 3 20 26
Overdrafts 726 703 1,843 1,813 2,634

Total charge-offs 21,819 14,957 65,481 44,456 62,388

Recoveries:
Commercial 90 232 521 1,986 2,388
Mortgage 41 2 260 41 76
Installment 2,104 1,757 6,527 5,598 7,071
Home equity 99 484 295 726 851
Credit cards 514 439 1,289 1,455 1,831
Manufactured housing 37 44 122 170 247
Leases 6 28 53 97 104
Overdrafts 171 208 536 568 769

Total recoveries 3,062 3,194 9,603 10,641 13,337

Net charge-offs 18,757 11,763 55,878 33,815 49,051
Provision for loan losses 23,887 15,531 68,473 41,617 58,603

Allowance for loan losses-end of period $ 116,352 $ 102,007 $ 116,352 $ 102,007 $ 103,757

5.~~Intangible Assets~~ ~~— At September 30, 2009, December 31, 2008 and September 30, 2008, the balance of the Corporation’s intangible assets, which consisted of deposit base intangibles, were as follows:~~

1518

Gross Carrying Accumulated Net Carrying
Amount Amortization Amount

September 30, 2008 $ 10,137 $ (8,646 ) $ 1,491
December 31, 2008 $ 10,137 $ (8,734 ) $ 1,403
September 30, 2009 $ 10,137 $ (8,994 ) $ 1,143


	Three months ended				Year ended
	March 31,				December 31,
	2010		2009		2009
Allowance for loan losses-beginning of period	$	115,092	$	103,757	$	103,757
Loans charged off:
Commercial		8,895		4,554		39,685
Mortgage		1,646		923		4,960
Installment		8,805		8,438		31,622
Home equity		2,070		1,535		7,200
Credit cards		4,168		2,967		13,558
Leases		20		—		97
Overdrafts		591		519		2,591

Total charge-offs		26,195		18,936		99,713

Recoveries:
Commercial		372		224		890
Mortgage		25		26		270
Installment		2,017		2,401		8,329
Home equity		257		85		494
Credit cards		473		387		1,710
Manufactured housing		31		53		171
Leases		9		5		57
Overdrafts		232		190		694

Total recoveries		3,416		3,371		12,615


Net charge-offs		22,779		15,565		87,098
Provision for loan losses		25,493		18,065		98,433

Allowance for loan losses-end of period	$	117,806	$	106,257	$	115,092

5. Goodwill and Intangible Assets

Goodwill

~~Amortization expense~~Changes in the carrying amount of goodwill for the quarter ended March 31, 2010 are as follows:


	Commercial		Retail		Wealth		Total
Balance at January 1, 2010	$	73,827	$	59,038	$	6,733	$	139,598
Goodwill acquired:
First Bank branches		46,414		1,933		—		48,347

Balance at March 31, 2010	$	120,241	$	60,971	$	6,733	$	187,945

On February 19, 2010 the Bank completed the acquisition of certain assets and the transfer of certain liabilities with respect to 24 branches of First Bank located in the greater Chicago, Illinois area and recognized $48.3 million of goodwill. $45.3 million of this goodwill is expected to be deductible for tax purposes. Goodwill associated with this acquisition was

allocated to the Corporation’s reporting units based on the composition of the assets acquired.

These acquisitions are more fully described in Note 2 (Business Combinations).

Other Intangible Assets

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


	March 31, 2010
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Core deposit intangibles	$	9,326	$	(4,380	)	$	4,946
Non-compete covenant		102		(6	)		96
Lease intangible		617		—			617

	$	10,045	$	(4,386	)	$	5,659


	December 31, 2009
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Core deposit intangibles	$	5,210	$	(4,154	)	$	1,056
Non-compete covenant		102		—			102

	$	5,312	$	(4,154	)	$	1,158


	March 31, 2009
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Core deposit intangibles	$	5,210	$	(3,894	)	$	1,316

As a result of the ABL Loan acquisition on December 15, 2009, a non-compete asset was ~~$0.09~~recognized at its acquisition date fair value of $0.1 million. This non-compete asset will be amortized on an accelerated basis over its estimated useful life of ten years.

As a result of the acquisition of the First Bank branches on February 19, 2010, a core deposit intangible asset was recognized at its acquisition date fair value of $3.2 million and a lease intangible asset was recognized at its acquisition date fair value of $0.6 million. The core deposit intangible asset will be amortized on an accelerated basis over its useful life of ten years, and the lease intangible asset will be amortized over the remaining weighted average lease terms.

A core deposit intangible asset with an acquisition date fair value of $1.0 million was recognized as a result of the George Washington acquisition on February 19, 2010. The core deposit intangible asset will be amortized on an accelerated basis over its useful life of ten years.

These acquisitions are more fully described in Note 2 (Business Combinations).

Intangible asset amortization expense was $0.2 million and $0.1 for the quarters ended March 31, 2010 and 2009, respectively. Estimated amortization expense for each of the ~~three-month periods ended September 30, 2009~~next five years is as follows: 2010 — $1.4 million; 2011 — $1.2 million; 2012 — $1.0 million; 2013 — $0.4 million; and ~~2008. The following table shows the estimated future amortization expense for deposit base intangible assets as of September 30, 2009.~~2014 — $0.4 million.

~~For the years ended:~~

December 31, 2009 $ 88
December 31, 2010 347
December 31, 2011 and beyond 708

$ 1,143

6.Earnings per share —

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

For the quarters ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~ options to purchase ~~4.8~~4.6 million and ~~6.3~~5.5 million shares, respectively, were outstanding, but not included in the computation of diluted earnings per share because they were antidilutive.

On January 9, 2009, the Corporation completed the sale to the United States Department of the Treasury ~~(the “Treasury”~~(“Treasury”) of $125.0 million of newly issued FirstMerit non-voting preferred shares as part of the Treasury’s Troubled Assets Relief Program ~~(“TARP”)~~ Capital Purchase ~~Program (“CPP”).~~Program. The Corporation issued and sold to the Treasury for an aggregate purchase price of $125.0 million in cash (1) 125,000 shares of FirstMerit’s Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value and having a liquidation preference of $1,000 per share, and (2) a warrant to purchase 952,260 FirstMerit common shares, each without par value, at an exercise price of $19.69 per share. At March 31, 2009, the warrant was outstanding, but not included in the computation of diluted earning per share because it was antidilutive.

On April 22, 2009, the Corporation ~~repurchased~~completed the repurchase of all of 125,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series ~~A for $126.2 million, which included all accrued and unpaid dividends as well as the unamortized discount on the preferred stock.~~

A. On May 27, 2009, the Corporation completed the repurchase of the warrant held by the Treasury. ~~The Corporation paid $5.0 million to the Treasury to repurchase the warrant.~~

On ~~May 6, 2009,~~March 3, 2010, the Corporation entered into ~~a Distribution Agency Agreement~~two distribution agency agreements with Credit Suisse Securities (USA) LLC ~~(“Credit Suisse”~~and RBC Capital Markets Corporation (collectively, the “Sales Agents”), pursuant to which the Corporation may, from time to time, ~~may~~ offer and sell shares of the Corporation’s common stock. Sales of the common stock are made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market at market prices, in block transactions or as otherwise agreed with ~~Credit Suisse.~~the Sales Agents. During the quarter ended ~~June 30, 2009,~~March 31, 2010, the Corporation sold ~~3.3~~3.9 million shares with an average value of ~~$18.36~~$20.91 per share. ~~No shares were sold during the quarter ended September 30, 2009.~~

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 ~~management~~Management methodologies designed to produce consistent results and reflect the underlying economics of the businesses. The development and application of these methodologies is a dynamic process. Accordingly, these measurement tools and assumptions may be revised periodically to reflect methodological, product, and/or management organizational changes. Further, these tools measure financial results that support the strategic objectives and internal organizational structure of the Corporation. Consequently, the information presented is not necessarily comparable with similar information for other financial institutions.

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, business banking (formerly known as small ~~business, government~~business), public entities, and leasing clients. Commercial also includes ~~the~~ personal business offrom commercial loan clients ~~as well as~~in coordination with the ~~“micro business” lines.~~Wealth Management segment. Products and services offered include commercial ~~loans such as~~ term loans, revolving

			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~~Other category are the parent company, eliminations companies, community development operations, the ~~treasury group,~~Treasury Group, which includes the securities portfolio, wholesale funding and asset liability management activities, and the economic impact of certain assets, capital and support function not specifically identifiable with the three primary lines of business.

The accounting policies of the lines of businesses are the same as those of the Corporation described in Note 1 (Summary of Significant Accounting Policies) to the ~~2008~~2009 Form 10-K. Funds transfer pricing is used in the determination of net interest income by assigning a cost for funds used or credit for funds provided to assets and liabilities within each business unit. Assets and liabilities are match-funded based on their maturity, prepayment and/or ~~repricing~~re-pricing 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 ~~the other category~~Other by the ~~treasury group.~~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~~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 ~~(“MSRs”)~~ and the origination business franchise value have been allocated capital based upon their respective asset/liability management risk. The provision for loan ~~losses~~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.


										FirstMerit
March 31, 2010	Commercial		Retail		Wealth		Other			Consolidated
OPERATIONS:
Net interest income	$	42,649	$	48,074	$	4,704	$	(5,033	)	$	90,394
Provision for loan losses		8,354		9,725		782		6,632			25,493
Other income		10,212		24,764		7,719		11,254			53,949
Other expenses		25,097		51,951		9,352		7,613			94,013
Net income		12,621		7,197		1,488		(3,285	)		18,021

AVERAGES :
Assets	$	4,144,987	$	2,841,569	$	294,010	$	4,076,544		$	11,357,110


	Commercial				Retail				Wealth				Other						Consolidated													FirstMerit
September 30, 2009	3rd Qtr		YTD		3rd Qtr		YTD		3rd Qtr		YTD		3rd Qtr			YTD			3rd Qtr		YTD
March 31, 2009																							Commercial		Retail		Wealth		Other			Consolidated
OPERATIONS:
Net interest income	$	39,034	$	115,748	$	46,639	$	141,021	$	4,566	$	12,986	$	(2,862	)	$	(8,369	)	$	87,377	$	261,386	$	37,647	$	46,857	$	4,046	$	(1,656	)	$	86,894
Provision for loan losses		7,041		21,934		13,159		35,624		138		4,753		3,549			6,162			23,887		68,473		4,500		9,761		2,613		1,191			18,065
Other income		10,108		30,748		26,561		77,326		7,989		24,206		6,909			25,320			51,567		157,600		10,400		23,976		8,064		12,748			55,188
Other expenses		21,826		68,586		46,736		146,331		9,452		28,055		6,151			14,960			84,165		257,932		23,582		50,662		9,335		(376	)		83,203
Net income		13,180		36,384		8,648		23,654		1,927		2,849		(992	)		4,805			22,763		67,692		12,977		6,767		106		9,584			29,434

AVERAGES :
Assets																							$	4,199,534	$	2,900,257	$	313,109	$	3,702,142		$	11,115,042

The Corporation uses interest rate ~~swap contracts~~swaps to modify its exposure to interest rate risk. For example, the Corporation employs fair value hedging strategies to convert specific fixed-rate loans into ~~variable-rate~~variable rate instruments. Gains or losses on the derivative instrument as well as the offsetting gains or losses on the hedged item attributable to the hedged risk are recognized in the same line item associated with the hedged item in current earnings. The Corporation also employs cash flow hedging strategies to effectively convert certain floating-rate liabilities into fixed-rate instruments. The effective portion of the gains or losses on the derivative instrument is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. The remaining gains or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, are recognized in the current earnings.

~~At September 30, 2009,~~As of March 31, 2010, December 31, ~~2008~~2009 and ~~September 30, 2008,~~March 31, 2009, 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
	September 30, 2009				December 31, 2008				September 30, 2008				September 30, 2009				December 31, 2008				September 30, 2008				Asset Derivatives												Liability Derivatives
	Notional/				Notional/				Notional/				Notional/				Notional/				Notional/				March 31, 2010				December 31, 2009				March 31, 2009				March 31, 2010				December 31, 2009				March 31, 2009
	Contract		Fair		Contract		Fair		Contract		Fair		Contract		Fair		Contract		Fair		Contract		Fair		Notional/				Notional/				Notional/				Notional/				Notional/				Notional/
	Amount		Value (a)		Amount		Value (a)		Amount		Value (a)		Amount		Value (b)		Amount		Value (b)		Amount		Value (b)		Contract		Fair		Contract		Fair		Contract		Fair		Contract		Fair		Contract		Fair		Contract		Fair
																									Amount		Value (a)		Amount		Value (a)		Amount		Value (a)		Amount		Value (b)		Amount		Value (b)		Amount		Value (b)
Interest rate swaps:
Fair value hedges	$	—	$	—	$	—	$	—	$	46,048	$	383	$	472,720	$	38,949	$	530,482	$	56,635	$	505,721	$	16,693	$	—	$	—	$	1,452	$	—	$	640	$	—	$	370,947	$	28,762	$	398,895	$	27,769	$	460,159	$	45,709
Cash flow hedges		—		—		—		—		—		—		—		—		100,000		875		150,000		1,754


Total	$	—	$	—	$	—	$	—	$	46,048	$	383	$	472,720	$	38,949	$	630,482	$	57,510	$	655,721	$	18,447

There were no ~~outstanding~~ cash ~~flows~~flow hedges outstanding as of ~~September 30, 2009~~March 31, 2010 and there was no activity associated with cash flow hedges for the quarter ended ~~September 30, 2009.~~March 31, 2010. For the quarter ended ~~September 30, 2008,~~March 31, 2009, the amount of the hedge effectiveness on cash flow hedges recognized in OCI and reclassified from OCI into other income as well as the amount of hedge ineffectiveness recognized in other income is as follows:

Amount of Gain / (Loss) Amount of Gain / (Loss) Amount of Gain /
Recognized in OCI on Reclassified from (Loss) Recognized in
Derivative (Effective Accumulated OCI into Income on Derivative
Portion) Income (Effective Portion) (Ineffective Portion)

$ (115) $ (8 ) $ 295


		Gain Reclassified
		from Accumulated OCI		Gain Recognized in
Amount of Gain / (Loss)		into Income		Income on Derivative
Recognized in OCI		(Effective Portion)		(Ineffective Portion)
$	0	$	692	$	328

Derivatives Not Designated in Hedge Relationships


	Asset Derivatives															Liability Derivatives																																					��
	September 30, 2009					December 31, 2008					September 30, 2008					September 30, 2009				December 31, 2008				September 30, 2008				Asset Derivatives													Liability Derivatives
	Notional/					Notional/					Notional/					Notional/				Notional/				Notional/				March 31, 2010				December 31, 2009				March 31, 2009					March 31, 2010				December 31, 2009				March 31, 2009
	Contract		Fair			Contract		Fair			Contract		Fair			Contract		Fair		Contract		Fair		Contract		Fair		Notional/				Notional/				Notional/					Notional/				Notional/				Notional/
	Amount		Value (a)			Amount		Value (a)			Amount		Value (a)			Amount		Value (b)		Amount		Value (b)		Amount		Value (b)		Contract		Fair		Contract		Fair		Contract		Fair			Contract		Fair		Contract		Fair		Contract		Fair
																												Amount		Value (a)		Amount		Value (a)		Amount		Value (a)			Amount		Value (b)		Amount		Value (b)		Amount		Value (b)
Interest rate swaps	$	637,467	$	33,620		$	469,133	$	42,371		$	308,901	$	5,346		$	637,467	$	33,620	$	469,133	$	42,371	$	308,901	$	5,346	$	694,277	$	33,510	$	639,285	$	26,840	$	543,789	$	42,385		$	694,277	$	33,510	$	686,947	$	30,717	$	594,065	$	48,914
IRLCs		57,823		1,586			58,021		591			24,265		(102	)		—		—		—		—		—		—
Mortgage loan commitments																													106,894		1,239		55,023		396		82,519		2,408			—		—		—		—		—		—
Forward sales contracts		66,815		(671	)		67,027		(517	)		29,201		115			—		—		—		—		—		—		68,290		125		67,085		884		99,565		(1,139	)		—		—		—		—		—		—
TBA Securities		—		—			—		—			24,793		(31	)		—		—		—		—		—		—		—		—		—		—		211,237		(145	)		—		—		—		—		—		—
Credit contracts		—		—			—		—			—		—			64,491		—		88,848		—		77,803		—		—		—		—		—		—		—			61,876		—		62,458		—		62,189		—
Other		—		—			—		—			—		—			14,358		—		—		—		—		—		—		—		—		—		—		—			18,912		—		18,171		—		11,551		—


Total	$	762,105	$	34,535		$	594,181	$	42,445		$	387,160	$	5,328		$	716,316	$	33,620	$	557,981	$	42,371	$	386,704	$	5,346	$	869,461	$	34,874	$	761,393	$	28,120	$	937,110	$	43,509		$	775,065	$	33,510	$	767,576	$	30,717	$	667,805	$	48,914

Mortgage ~~banking.~~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 onin which the Corporation has entered into a written mortgage loan commitment with a potential borrower ~~has set the interest rate~~that will be held for ~~the loan by entering into an IRLC.~~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.

~~IRLCs~~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. ~~IRLCs~~Written loan commitments generally have a term of up to 60 days before the closing of the loan. ~~During this period, the value of the lock changes with changes in interest rates.~~ The ~~IRLC~~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” ~~(locked pipeline loans~~(loan commitments not expected to close), using models, which consider cumulative historical fallout rates and other factors. Fallout can occur for a variety of reasons including falling rate environments when a borrower will abandon an ~~IRLC~~interest rate lock loan commitment at one lender and enter into a new lower interest rate lock loan commitment at another, when a borrower is not approved as an acceptable credit by the lender, or for a variety of other non-economic reasons. In addition, expected net future cash flows related to loan servicing activities are included in the fair value measurement of a written loan commitment.

~~During~~Written loan commitments in which the ~~term of~~borrower has locked in an interest rate ~~lock commitment,~~results in market risk to the Corporation ~~has~~to the ~~risk that~~extent market interest rates ~~will~~ 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.

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.

Effective August 1, 2008, the Corporation elected to fair value, on a prospective basis, newly originated conforming fixed-rate and adjustable-rate first mortgage warehouse loans. Prior to this election, all warehouse loans were carried at the lower of cost or market and a hedging program was utilized on its mortgage loans held for sale to gain protection for the changes in fair value of the mortgage loans held for sale and the forward sales contracts. As such, both the 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. Upon the Corporation’s election to prospectively account for substantially all of its

value of MSRs associated with increase prepayment activity that generally results from declining interest rates. In a rising interest rate environment, the value of the MSRs generally will increase while the value of the hedge instruments will decline. The hedges are economic hedges only, and are terminated and reestablished as needed to respond to changes in market conditions. ~~The Corporation held~~There were no outstanding TBA Securities contracts as of ~~September 30, 2009 and~~March 31, 2010 or December 31, ~~2008. One~~2009. The Corporation held $211.2 million in outstanding TBA ~~contract was outstanding at September 30, 2008.~~contracts as of March 31, 2009.

Credit contracts.Prior to implementation of the Back-to-Back Program, certain of the Corporation’s commercial loan customers entered into interest rate swaps with unaffiliated dealer counterparties. The Corporation entered into swap participations with these dealer counterparties whereby the Corporation guaranteed payment in the event that the counterparty experienced a loss on the interest rate swap due to a failure to pay by the Corporation’s commercial loan customer. The Corporation simultaneously entered into reimbursement agreements with the commercial loan customers obligating the customers to reimburse the Corporation for any payments it makes under the swap participations. The Corporation monitors its payment risk on its swap participations by monitoring the creditworthiness of its commercial loan customers, which is based on the normal credit review process the Corporation would have performed had it entered into these derivative instruments directly with the commercial loan customers. At ~~September 30, 2009,~~March 31, 2010, the remaining terms on these swap participation agreements generally ranged from one to nine years. The Corporation’s maximum estimated exposure to written swap participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on interest rate curve simulations and assuming 100% default by all obligors on the maximum values, was approximately ~~$7.8~~$4.1 million as of ~~September 30, 2009.~~March 31, 2010. The fair values of the written swap participations were not material at ~~September 30, 2009,~~March 31, 2010, December 31, ~~2008~~2009 and ~~September 30, 2008.~~March 31, 2009.

Gains and losses recognized in income on non-designated hedging instruments for the quarters ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~ are as follows:


		Amount of Gain / (Loss)							Amount of Gain / (Loss)
		Recognized in Income on							Recognized in Income on
		Derivative							Derivative
Derivatives not	Location of Gain / (Loss)	Quarter ended,			Quarter ended,			Location of Gain / (Loss)
designated as hedging	Recognized in Income on	September 30,			September 30,			Recognized in Income on	Quarter ended,			Quarter ended,
instruments	Derivative	2009			2008			Derivative	March 31, 2010			March 31, 2009
IRLCs	Other income	$	96		$	(102	)	Other income	$	843		$	1,817
Forward sales contracts	Other income		(886	)		115		Other income		(758	)		(622	)
TBA Securities	Other income		—			(31	)	Other income		—			(2,106	)
Credit contracts	Other income		—			—		Other income		—			—
Other	Other expenses		—			—		Other expenses		—			—

Total		$	(790	)	$	(18	)		$	85		$	(911	)

Counterparty Credit Risk

Like other financial instruments, derivatives contain an element of “credit ~~risk"~~risk”— the possibility that the Corporation will incur a loss because a counterparty, which may be a bank, a broker-dealer or a customer, fails to meet its contractual obligations. This risk is measured as the expected positive replacement value of contracts. All derivative contracts may be executed only with exchanges or counterparties approved by the Corporation’s Asset and Liability Committee, and only within the Corporation’s Board of Directors Credit Committee approved credit exposure limits. Where contracts have been created for customers, the Corporation enters into derivatives with dealers to offset its risk exposure. To manage the credit exposure to exchanges and counterparties, the Corporation generally enters into bilateral collateral agreements using standard forms published by the International Swaps and Derivatives ~~Association (“ISDA”).~~Association. These agreements are to include thresholds of credit exposure or the maximum amount of unsecured credit exposure which the Corporation is willing to assume. Beyond the threshold levels, collateral in the form of securities made available from the investment portfolio or other forms of collateral acceptable under the bilateral collateral agreements are provided. The threshold levels for each counterparty are established by the Corporation’s Asset and Liability Committee. The Corporation generally posts collateral in the form of highly rated Government Agency issued bonds or MBSs. Collateral posted against derivative liabilities was ~~$83.9~~$73.7 million, ~~$99.4~~$70.0 million and ~~$44.3~~$81.9 million as of ~~September 30, 2009,~~March 31, 2010, December 31, ~~2008~~2009 and ~~September 30, 2008,~~March 31, 2009, respectively.

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
	Quarter ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2009			2008			2009			2008			2010			2009
Components of Net Periodic Pension Cost
Service Cost	$	1,322		$	1,355		$	3,967		$	4,064		$	1,480		$	1,322
Interest Cost		2,751			2,580			8,252			7,739			2,800			2,751
Expected return on assets		(2,805	)		(2,923	)		(8,416	)		(8,770	)		(3,015	)		(2,805	)
Amortization of unrecognized prior service costs		86			40			257			120			98			85
Cumulative net loss		757			992			2,273			2,978			1,427			758

Net periodic pension cost	$	2,111		$	2,044		$	6,333		$	6,131		$	2,790		$	2,111

Level 2 — Valuations of assets and liabilities traded in less active dealer or broker markets. Valuations include quoted prices for similar assets and liabilities traded in the same market; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

~~Level 3 — Valuations based on unobservable inputs significant to the overall fair value measurement.~~

	•		Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

	•		Level 2 — Valuations of assets and liabilities traded in less active dealer or broker markets. Valuations include quoted prices for similar assets and liabilities traded in the same market; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

	•		Level 3 — Valuations based on unobservable inputs significant to the overall fair value measurement.

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.

Financial Instruments Measured at Fair Value

The following table presents the balances of assets and liabilities measured at fair value on a recurring ~~basis:~~basis at March 31, 2010:


					Internal models
	Quoted market		Significant		with significant
	prices in active		observable market		unobservable
	markets		parameters		market parameters
Quarter ended September 30, 2009	Level 1		Level 2		Level 3		Total
									Level 1		Level 2		Level 3		Total
Available-for-sale securities	$	3,160	$	2,541,732	$	39,522	$	2,584,414	$	3,404	$	3,054,523	$	43,813	$	3,101,740
Residential loans held for sale		—		12,322		—		12,322		—		16,009				16,009
Derivative assets		—		34,535		—		34,535		—		34,874				34,874

Total assets at fair value on a recurring basis	$	3,160	$	2,588,589	$	39,522	$	2,631,271	$	3,404	$	3,105,406	$	43,813	$	3,152,623


Derivative liabilities		—		72,569		—		72,569		—		62,272		—		62,272

Total liabilities at fair value on a recurring basis	$	—	$	72,569	$	—	$	72,569	$	—	$	62,272	$	—	$	62,272

Available-for-sale securities classified as Level 2 are valued using the prices obtained from an independent pricing service. The prices are not adjusted. The independent pricing service uses ~~industry-standard~~industry standard models to price U.S. Government ~~agency obligations~~agencies and MBSs that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. For collateralized mortgage securities, depending on the characteristics of a given tranche, a volatility driven multidimensional static model or Option-Adjusted Spread model is generally used. Substantially all assumptions used by the independent pricing service 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. On a quarterly basis, the Corporation obtains from the independent pricing service the inputs used to value a sample of securities held in portfolio. The Corporation reviews these inputs to ensure the appropriate classification, within the fair value hierarchy, is ascribed to a fair value measurement in its entirety. In addition, all fair value measurement are reviewed to determine the reasonableness of the measurement relative to changes in observable market data and market information received from outside market participants and analysts.

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.

Derivatives.The Corporation’s derivatives include interest rate swaps and ~~IRLCs~~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 ~~IRLCs~~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 ~~IRLCs. An IRLC~~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” (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 ~~an IRLC~~a fixed rate loan commitment at one lender and enter into a new lower ~~interest~~fixed rate ~~lock~~loan commitment at another, when a borrower is not approved as an acceptable credit by the lender, or for a variety of other non-economic reasons. Fallout is not a significant input to the fair value of the ~~IRLCs~~written loan commitments in their entirety. These measurements are classified as Level 2.

Derivative assets are typically secured through securities with financial counterparties or cross collateralization with a borrowing customer. Derivative liabilities are typically secured through the Corporation pledging securities to financial counterparties or, in the case of a borrowing customer, by the right of setoff. The Corporation considers factors such as the likelihood of default by itself and its counterparties, right of setoff, and remaining maturities in determining the appropriate fair value adjustments. All derivative counterparties approved by the Corporation’s Asset and Liability Committee are regularly reviewed, and appropriate business action is taken to adjust the exposure to certain counterparties, as necessary. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of marketable collateral securing the position. This approach used to estimate impacted exposures to counterparties is also used by the Corporation to estimate its own credit risk on derivative liability positions. To date, no material losses due to a counterparty’s inability to pay any uncollateralized position have been incurred. There was no significant change in value of derivative assets and liabilities attributed to credit risk infor the ~~three-month period~~quarter ended ~~September 30, 2009.~~March 31, 2010.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended March 31, 2010 are summarized follows:

Total changes
Total Purchases, sales Fair value in fair values
Fair Value unrealized issuances and quarter ended included in current
Quarter ended September 30, 2009 June 30, 2009 gains/(losses) (a) settlements, net Transfers September 30, 2009 period earnings

Available-for-sale securities $ 33,279 $ 6,243 $ — $ — $ 39,522 $ —


~~(a)~~		~~Reported in other comprehensive income (loss)~~

2834

Total changes
Total Purchases, sales Fair value in fair values
Fair Value unrealized issuances and nine months ended included in current
Nine months ended September 30, 2009 January 1, 2009 gains/(losses) (a) settlements, net Transfers September 30, 2009 period earnings

Available-for-sale securities $ 31,385 $ 8,137 $ — $ — $ 39,522 $ —


											Total changes
			Total		Purchases, sales				Fair value		in fair values
	Fair Value		unrealized		issuances and				quarter ended		included in current
	January 1, 2010		gains/(losses) (a)		settlements, net		Transfers		March 31, 2010		period earnings
Other debt securities	$	42,447	$	1,366	$	—	$	—	$	43,813	$	—


(a)		Reported in other comprehensive income (loss)

Certain financial assets and liabilities are measured at fair value on a nonrecurring basis. Generally, nonrecurring valuations are the result of applying accounting standards that require assets or liabilities to be assessed for impairment, or recorded at the lower-of-cost or fair value. The following table presents the balances of assets and liabilities measured at fair value on a nonrecurring ~~basis:~~basis at March 31, 2010:


			Internal models		Internal models
	Quoted market		with significant		with significant
	prices in active		observable market		unobservable
	markets		parameters		market parameters
Quarter ended September 30, 2009	Level 1		Level 2		Level 3		Total
									Level 1		Level 2		Level 3		Total
Mortgage servicing rights	$	—	$	—	$	21,567	$	21,567	$	—	$	—	$	21,201	$	21,201
Impaired and nonaccrual loans		—		—		83,487		83,487		—		—		109,645		109,645
Other property (1)		—		—		13,637		13,637		—		—		28,850		28,850

Total assets at fair value on a nonrecurring basis	$	—	$	—	$	118,691	$	118,691	$	—	$	—	$	159,696	$	159,696

borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments and could result in significant earnings volatility. To estimate prepayment speeds, the Corporation utilizes a third-party prepayment model, which is based upon statistically derived data linked to certain key principal indicators involving historical borrower prepayment activity associated with mortgage loans in the secondary market, current market interest rates and other factors, including the Corporation’s own historical prepayment experience. For purposes of model valuation, estimates are made for each product type within the mortgage servicing rights portfolio on a monthly basis.

Discount Rate: Represents the rate at which expected cash flows are discounted to arrive at the net present value of servicing income. Discount rates will change with market conditions (i.e., supply vs. demand) and be reflective of the yields expected to be earned by market participants investing in mortgage servicing rights.

Cost to Service: Expected costs to service are estimated based upon the incremental costs that a market participant would use in evaluating the potential acquisition of mortgage servicing rights.

Float Income: Estimated float income is driven by expected float balances (principal, interest and escrow payments that are held pending remittance to the investor or other third party) and current market interest rates, including the six month average of the three-month LIBOR index, which are updated on a monthly basis for purposes of estimating the fair value of mortgage servicing rights.

Impaired and nonaccrual loans.Fair value adjustments for these items typically occur when there is evidence of impairment. Loans are designated as impaired when, in the judgment of ~~management~~Management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. The Corporation measures fair value based on the value of the collateral securing the loans. 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. The value of the collateral is determined based on internal estimates as well as third party appraisals or ~~non-binding broker quotes.~~price opinions. These measurements were classified as Level 3.

Other Property.Other property includes foreclosed assets and properties securing residential and commercial loans. ~~Foreclosed assets~~Assets acquired through, or in lieu of, loan foreclosures are ~~adjusted to fair value less costs to sell upon transfer~~recorded initially at the lower of the ~~loans to foreclosed assets. Subsequently, foreclosed assets are carried at the~~

income. ~~This~~After the initial adoption, the election ~~can be~~is made at the acquisition of an eligible financial asset, financial liability or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once an election is made.

Effective August 1, 2008, the Corporation elected to fair value newly originated conforming ~~fixed-rate~~fixed rate and adjustable-rate first mortgage loans held for sale. Previously, these loans had been recorded at the lower of cost or market value. The election of the fair value option aligns the accounting for these loans with the related hedges. It also eliminates the requirements of hedge accounting under GAAP. The fair value option was not elected for loans held for investment.

The following table reflects the differences, as of March 31, 2010, between the fair value carrying amount of residential mortgages held for sale and the aggregate unpaid principal amount the Corporation is contractually entitled to receive at maturity. None of these loans were 90 days or more past due, nor were any on nonaccrual status.

Fair Value
Carrying Amount
Fair Value Aggregate Unpaid Less Aggregate
September 30, 2009 Carrying Amount Principal Unpaid Principal

Loans held for sale reported at fair value $ 12,322$ 11,950 $ 372


					Fair Value
					Carrying Amount
	Fair Value		Aggregate Unpaid		Less Aggregate
	Carrying Amount		Principal		Unpaid Principal
Loans held for sale reported at fair value	$	16,009	$	15,669	$	340

Interest income on loans held for sale is accrued on the principal outstanding primarily using the “simple-interest” method.

~~The assets accounted~~Loans held for ~~under SFAS 159~~sale are measured at fair value with changes in fair value recognized in current earnings. The ~~changes~~change in fair value ~~included in current period earnings~~ for residential loans held for sale measured at fair value ~~are shown by income statement line item, below:~~included in earnings for the quarter ended March 31, 2010 was not significant.

Three Months Ended Nine Months Ended
September 30, 2009 September 30, 2009
Changes in fair value included in net income:
Loan sales and servicing income $ 155 $ 218


	March 31, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and due from banks	$	721,938	$	721,938	$	161,033	$	161,033
Investment securities		3,301,039		3,301,039		2,744,838		2,744,838
Loan held for sale		16,009		16,009		16,828		16,828
Net noncovered loans		7,072,716		6,673,377		6,808,397		6,362,674
Covered loans and loss share receivable		277,315		277,315		—		—
Accrued interest receivable		41,763		41,763		39,274		39,274
Mortgage servicing rights		20,652		21,201		20,784		22,241
Derivative assets		34,874		34,874		28,120		28,120

Financial liabilities:
Deposits	$	9,370,009	$	9,378,490	$	7,515,796	$	7,519,604
Federal funds purchased and securities sold under agreements to repurchase		896,330		899,729		996,345		998,645
Wholesale borrowings		677,715		685,442		740,105		745,213
Accrued interest payable		15,303		15,303		11,336		11,336
Derivative liabilities		62,272		62,272		58,486		58,486

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

September 30, 2009 December 31, 2008
Carrying Fair Carrying Fair
Amount Value Amount Value

Financial assets:
Cash and due from banks $ 193,060 $ 193,060 $ 178,406 $ 178,406
Investment securities 2,751,077 2,751,077 2,772,848 2,772,848
Loan held for sale 12,519 12,519 11,141 11,141
Net loans 6,913,296 6,394,834 7,321,856 6,727,645
Accrued interest receivable 26,195 26,195 42,481 42,481
Mortgage servicing rights 20,881 21,567 18,778 18,803
Derivative assets 34,535 34,535 42,371 42,371

Financial liabilities:
Deposits $ 7,271,274 $ 7,280,232 $ 7,597,679 $ 7,620,870
Securities sold under agreements to repurchase 1,350,475 1,352,896 921,390 921,808
Wholesale borrowings 749,397 757,489 1,344,195 1,350,942
Accrued interest payable 20,565 20,565 29,018 29,018
Derivative liabilities 72,569 72,569 99,882 99,882

~~General —~~For short-term financial instruments realizable in three months or less, the carrying amount approximates fair value. Unless otherwise stated, the rates used in discounted cash flow analyses are based on market yield curves.

Cash and due from banks— The carrying amount ~~approximates~~is considered a reasonable estimate of fair ~~value primarily due to their short-term nature.~~value.

Investment Securities— See Financial Instruments Measured at Fair Value above.

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

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.

Covered loans— Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows.

Loss share receivable— This loss sharing asset is measured separately from the related covered assets as it is not contractually embedded in the covered assets and is not transferable

with the covered assets should FirstMerit Bank choose to dispose of them. Fair value was estimated using projected cash flows related to the loss sharing 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 of the loss sharing reimbursement from the FDIC.

Accrued interest receivable— The carrying amount ~~approximates~~is considered a reasonable estimate of fair ~~value primarily due to their short-term nature.~~value.

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

Deposits— The ~~carrying amounts~~estimated fair value of deposits with no stated maturity, which includes demand deposits, money market accounts and other savings accounts, ~~approximates fair~~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.

~~Securities~~Federal funds purchased and securities sold under agreements to repurchase and wholesale borrowings— The carrying ~~amounts~~amount of ~~Federal~~variable rate borrowings including federal funds purchased ~~repurchase agreements and other short term borrowings are~~is considered to be their fair ~~value because of their short term nature. For all other borrowed funds, quoted~~value. Quoted market prices or the discounted cash flow method ~~were~~was used to estimate the fair ~~values.~~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 ~~approximates~~is considered a reasonable estimate of fair ~~value primarily due to their short-term nature.~~value.

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

11.Mortgage Servicing Rights and Mortgage Servicing Activity —

The Corporation serviced for third parties approximately $2.0 billion ~~and $2.0 billion~~ of residential mortgage loans at ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008, respectively.~~2009. Loan servicing fees, not including valuation changes included in loan sales and servicing income, were $1.3 million ~~for~~and $1.2 million in each of the ~~three-month periods~~three months ended ~~September 30,~~March 31, 2010 and 2009, ~~and 2008, and $3.8 million for each of the nine-month periods ended September 30, 2009 and 2008.~~respectively.

Servicing rights are presented within other assets on the balance sheet. The retained servicing rights are initially valued at fair value. Since mortgage servicing rights do not trade in an active market with readily observable prices, the Corporation relies primarily on a discounted cash flow analysis model to estimate the fair value of its mortgage servicing rights. Additional information can be found in Note ~~10(Fair Value)~~10 (Fair Value Measurement). Mortgage servicing rights are subsequently measured using the amortization method. Accordingly, the mortgage servicing rights are amortized over the period of, and in proportion to, the estimated net servicing income and is recorded in loan sales and servicing income.

Prepayment speed assumption (annual CPR) 11.08 %
Decrease in fair value from 10% adverse change $ 831,906
Decrease in fair value from 20% adverse change 1,616,784
Discount rate assumption 9.68 %
Decrease in fair value from 100 basis point adverse change $ 748,699
Decrease in fair value from 200 basis point adverse change 1,443,269
Expected weighted-average life (in months) 104.2
12. Contingencies and Guarantees

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 serving rights are disaggregated based on loan type and interest rate which are the predominant risk characteristics of the underlying loans. If any impairment results after current market assumptions are applied, the value of the servicing rights is reduced through the use of a valuation allowance, the balance of which is $0.01 million at September 30, 2009, $0.8 million at December 31, 2008 and zero at September 30, 2008.Litigation

~~12.Contingencies~~ — The nature of the Corporation’s business results in a certain amount of litigation. Accordingly, the Corporation and its subsidiaries are subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. Management, after consultation with legal counsel, is of the opinion that the ultimate liability of such pending matters will not have a material effect on the Corporation’s financial condition and results of operations.

Commitments to Extend Credit

Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition established in the contract. Loan commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance. Additional information is provided in Note 8 (Derivatives and Hedging Activities). Commitments generally are extended at the then prevailing interest rates, have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements. Loan commitments involve credit risk not reflected on the balance sheet. The Corporation mitigates exposure to credit risk with internal controls that guide how applications for credit are reviewed and approved, how credit limits are established and, when necessary, how demands for collateral are made. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Management evaluates the creditworthiness of each prospective borrower on a case-by-case basis and, when appropriate, adjusts the allowance for probable credit losses inherent in all commitments. The allowance for unfunded lending commitments at March 31, 2010 was $6.3 million. Additional information pertaining to this allowance is included under the heading “Allowance for Loan Losses and Reserve for Unfunded Lending Commitments” within Management’s Discussion and Analysis of Financial Condition and Results of Operation of this report.

The following table shows the remaining contractual amount of each class of commitments to extend credit as of March 31, 2010. This amount represents the Corporation’s maximum exposure to loss if the customer were to draw upon the full amount of the commitment and subsequently default on payment for the total amount of the then outstanding loan.


	March 31, 2010
Loan Commitments
Commercial	$	1,435,466
Consumer		1,652,345

Total loan commitments	$	3,087,811

3541

Guarantees

The Corporation is a guarantor in certain agreements with third parties. The following table shows the types of guarantees the Corporation had outstanding as of March 31, 2010.


	March 31, 2010
Financial guarantees
Standby letters of credit	$	144,963
Loans sold with recourse		55,439

Total loan commitments	$	200,402

Standby letters of credit obligate the Corporation to pay a specified third party when a customer fails to repay an outstanding loan or debt instrument, or fails to perform some contractual nonfinancial obligation. The credit risk involved in issuing letters of credit is essentially the same as involved in extending loan facilities to customers. Collateral held varies, but may include marketable securities, equipment and real estate. Any amounts drawn under standby letters of credit are treated as loans; they bear interest and pose the same credit risk to the Corporation as a loan. Except for short-term guarantees of $88.4 million at March 31, 2010, the remaining guarantees extend in varying amounts through 2014.

In recourse arrangements, the Corporation accepts 100% recourse. By accepting 100% recourse, the Corporation is assuming the entire risk of loss due to borrower default. The Corporation uses the same credit policies originating loans which will be sold with recourse as it does for any other type of loan. The Corporation’s exposure to credit loss, if the borrower completely failed to perform and if the collateral or other forms of credit enhancement all prove to be of no value, is represented by the notional amount less any allowance for possible loan losses. An allowance of $3.0 million was established as of March 31, 2010.

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

AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)
~~Fully-tax Equivalent~~Fully Tax-equivalent Interest Rates and Interest Differential


	Three months ended								Year ended								Three months ended
FIRSTMERIT CORPORATION AND	September 30, 2009								December 31, 2008								September 30, 2008
SUBSIDIARIES	Average					Average			Average					Average			Average					Average			Three months ended								Year ended								Three months ended
(Dollars in thousands)	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate			March 31, 2010								December 31, 2009								March 31, 2009
																									Average					Average			Average					Average			Average					Average
																									Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate

ASSETS
Cash and due from banks	$	159,985							$	177,089							$	171,370							$	521,666							$	183,215							$	209,922
Investment securities and federal funds sold:
U.S. Treasury securities and U.S.
Government agency obligations (taxable)		2,210,551			24,115		4.33	%		1,985,026			94,260		4.75	%		1,943,589			23,374		4.78	%
U.S. Treasury securities and U.S. Government agency obligations (taxable)																										2,377,729			22,909		3.91	%		2,222,771			97,871		4.40	%		2,251,028			25,954		4.68	%
Obligations of states and political subdivisions (tax exempt)		318,853			4,872		6.06	%		294,724			17,910		6.08	%		301,688			4,575		6.03	%		344,899			5,139		6.04	%		321,919			19,718		6.13	%		320,943			4,914		6.21	%
Other securities and federal funds sold		199,028			2,049		4.08	%		216,794			11,326		5.22	%		216,154			2,780		5.12	%		194,991			1,986		4.13	%		204,272			8,394		4.11	%		212,995			2,341		4.46	%


Total investment securities and federal funds sold		2,728,432			31,036		4.51	%		2,496,544			123,496		4.95	%		2,461,431			30,729		4.97	%		2,917,619			30,034		4.17	%		2,748,962			125,983		4.58	%		2,784,966			33,209		4.84	%

Loans held for sale		17,357			230		5.26	%		29,419			1,602		5.45	%		12,048			178		5.88	%		14,538			184		5.13	%		19,289			1,032		5.35	%		23,248			322		5.62	%
Loans		7,057,021			84,107		4.73	%		7,203,946			434,704		6.03	%		7,282,333			107,781		5.89	%

Noncovered loans																										7,022,381			81,829		4.73	%		7,156,983			339,381		4.74	%		7,381,019			87,508		4.81	%
Covered loans and loss share receivable																										126,333			1,761		5.65	%		—			—		—			—			—		—

Total earning assets		9,802,810			115,373		4.67	%		9,729,909			559,802		5.75	%		9,755,812			138,688		5.66	%		10,080,871			113,808		4.58	%		9,925,234			466,396		4.70	%		10,189,233			121,039		4.82	%

Allowance for loan losses		(111,073	)							(96,714	)							(98,091	)							(115,031	)							(108,017	)							(102,533	)
Other assets		777,637								739,158								740,405								869,604								793,062								818,420


Total assets	$	10,629,359							$	10,549,442							$	10,569,496							$	11,357,110							$	10,793,494							$	11,115,042


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand — non-interest bearing	$	1,947,359			—		—		$	1,530,021			—		—		$	1,545,427			—		—		$	2,146,969			—		—		$	1,910,171			—		—		$	1,767,885			—		—
Demand — interest bearing		647,712			137		0.08	%		687,160			2,514		0.37	%		678,803			589		0.35	%		687,233			152		0.09	%		656,367			600		0.09	%		655,279			155		0.10	%
Savings and money market accounts		2,916,980			5,763		0.78	%		2,398,778			29,839		1.24	%		2,373,995			6,932		1.16	%		3,709,246			7,601		0.83	%		2,886,842			23,472		0.81	%		2,638,166			5,377		0.83	%
Certificates and other time deposits		1,872,456			12,284		2.60	%		2,801,623			105,853		3.78	%		2,728,139			23,463		3.42	%		1,797,348			6,406		1.45	%		2,056,208			54,610		2.66	%		2,582,788			18,588		2.92	%


Total deposits		7,384,507			18,184		0.98	%		7,417,582			138,206		1.86	%		7,326,364			30,984		1.68	%		8,340,796			14,159		0.69	%		7,509,588			78,682		1.05	%		7,644,118			24,120		1.28	%

Securities sold under agreements to repurchase		1,087,875			1,286		0.47	%		1,343,441			31,857		2.37	%		1,504,011			8,244		2.18	%		951,927			1,127		0.48	%		1,013,167			4,764		0.47	%		941,112			999		0.43	%
Wholesale borrowings		883,377			6,824		3.06	%		663,109			27,574		4.16	%		634,226			6,801		4.27	%		708,414			6,174		3.53	%		952,979			27,317		2.87	%		1,151,777			7,343		2.59	%


Total interest bearing liabilities		7,408,400			26,294		1.41	%		7,894,111			197,637		2.50	%		7,919,174			46,029		2.31	%		7,854,168			21,460		1.11	%		7,565,563			110,763		1.46	%		7,969,122			32,462		1.65	%

Other liabilities		234,776								189,222								175,400								262,405								267,835								304,759

Shareholders’ equity		1,038,824								936,088								929,495								1,093,568								1,049,925								1,073,276


Total liabilities and shareholders’ equity	$	10,629,359							$	10,549,442							$	10,569,496							$	11,357,110							$	10,793,494							$	11,115,042


Net yield on earning assets	$	9,802,810			89,079		3.61	%	$	9,729,909			362,165		3.72	%	$	9,755,812			92,659		3.78	%	$	10,080,871			92,348		3.72	%	$	9,925,234			355,633		3.58	%	$	10,189,233			88,577		3.53	%


Interest rate spread							3.26	%							3.25	%							3.35	%							3.47	%							3.24	%							3.17	%

~~AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)~~
~~Fully-tax Equivalent Interest Rates and Interest Differential~~HIGHLIGHTS OF FIRST QUARTER 2010 PERFORMANCE

FIRSTMERIT CORPORATION AND Nine months ended Year ended Nine months ended
SUBSIDIARIES September 30, 2009 December 31, 2008 September 30, 2008
Average Average Average Average Average Average
(Dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS

Cash and due from banks $ 188,010 $ 177,089 $ 171,812
Investment securities and federal funds sold:
U.S. Treasury securities and U.S.
Government agency obligations (taxable) 2,222,119 74,524 4.48 % 1,985,026 94,260 4.75 % 1,989,648 70,276 4.72 %
Obligations of states and political
subdivisions (tax exempt) 318,825 14,696 6.16 % 294,724 17,910 6.08 % 287,507 13,106 6.09 %
Other securities and federal funds sold 207,938 6,594 4.24 % 216,794 11,326 5.22 % 217,776 8,607 5.28 %

Total investment securities and federal funds sold 2,748,882 95,814 4.66 % 2,496,544 123,496 4.95 % 2,494,931 91,989 4.93 %

Loans held for sale 20,395 829 5.43 % 29,419 1,602 5.45 % 36,310 1,501 5.52 %
Loans 7,227,077 257,619 4.77 % 7,203,946 434,704 6.03 % 7,149,451 329,314 6.15 %

Total earning assets 9,996,354 354,262 4.74 % 9,729,909 559,802 5.75 % 9,680,692 422,804 5.83 %

Allowance for loan losses (106,190 ) (96,714 ) (95,309 )
Other assets 794,893 739,158 731,689

Total assets $ 10,873,067 $ 10,549,442 $ 10,488,884

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits:
Demand — non-interest bearing $ 1,869,669 — — $ 1,530,021 — — $ 1,503,871 — —
Demand — interest bearing 658,048 451 0.09 % 687,160 2,514 0.37 % 696,881 2,144 0.41 %
Savings and money market accounts 2,789,455 16,592 0.80 % 2,398,778 29,839 1.24 % 2,353,140 23,075 1.31 %
Certificates and other time deposits 2,229,694 46,197 2.77 % 2,801,623 105,853 3.78 % 2,778,077 82,037 3.94 %

Total deposits 7,546,866 63,240 1.12 % 7,417,582 138,206 1.86 % 7,331,969 107,256 1.95 %

Securities sold under agreements to repurchase 991,926 3,496 0.47 % 1,343,441 31,857 2.37 % 1,402,201 28,105 2.68 %
Wholesale borrowings 1,017,330 21,064 2.77 % 663,109 27,574 4.16 % 628,441 20,133 4.28 %

Total interest bearing liabilities 7,686,453 87,800 1.53 % 7,894,111 197,637 2.50 % 7,858,740 155,494 2.64 %

Other liabilities 273,116 189,222 188,068

Shareholders’ equity 1,043,829 936,088 938,205

Total liabilities and shareholders’ equity $ 10,873,067 $ 10,549,442 $ 10,488,884

Net yield on earning assets $ 9,996,354 266,462 3.56 % $ 9,729,909 362,165 3.72 % $ 9,680,692 267,310 3.69 %

Interest rate spread 3.21 % 3.25 % 3.19 %


~~Note:~~		~~Interest income on tax-exempt securities and loans has been adjusted to a fully-taxable equivalent basis.~~

		~~Nonaccrual loans have been included in the average balances.~~

~~SUMMARY~~Earnings Summary

~~FirstMerit~~The Corporation reported ~~third~~first quarter ~~2009~~2010 net income of ~~$22.8~~$18.0 million, or ~~$0.27~~$0.21 per diluted share. This compares with ~~$15.5~~$14.5 million, or ~~$0.13~~$0.17 per diluted share, for the ~~second~~fourth quarter 2009 and ~~$29.8~~$29.4 million, or ~~$0.36~~$0.33 per diluted share, for the ~~third~~first quarter ~~2008. Earnings per share for all periods presented have been restated to reflect stock dividends declared on April 28, 2009 and August 20,~~ 2009.

Returns on average common equity (“ROE”) and average assets (“ROA”) for the ~~third~~first quarter ~~2009~~2010 were ~~8.69%~~6.68% and ~~0.85%~~0.64%, respectively, compared with ~~6.27%~~5.38% and ~~0.57%~~0.54% for the ~~second~~fourth quarter 2009 and ~~12.73%~~12.39% and ~~1.12%~~1.07% for the ~~third~~first quarter ~~2008. Included~~2009.

In the first quarter of 2010, the Corporation completed two strategic acquisitions in the ~~second quarter 2009 results was a $3.7 million after-tax Federal Deposit Insurance Corporation (“FDIC”) Special Assessment fee ($0.04 per share). Also included in~~Chicago area: 24 branches of First Bank and certain assets and substantially all of the ~~second quarter 2009 results was a $4.5 million after-tax expense ($0.06 per share) associated with~~deposits of the ~~unamortized discount on the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued under the TARP program.~~4-branch George Washington Savings Bank.

Net interest margin was ~~3.61%~~3.72% for the ~~third~~first quarter of ~~2009,~~2010 compared with ~~3.56%~~3.64% for the ~~second~~fourth quarter of 2009 and ~~3.78%~~3.53% for the ~~third~~first quarter of ~~2008.~~2009. The ~~margin expansion in the quarter was primarily driven by lower funding costs due to a~~Corporation’s continued ~~shift in deposit mix with increased~~ emphasis on core deposit ~~products~~gathering and ~~lower~~shifting deposit mix away from higher-priced certificate of deposit ~~balances.~~products drove the expansion over both time periods.

Average loans during the ~~third~~first quarter of ~~2009 decreased $189.7~~2010 increased $150.5 million, or ~~2.62%~~2.16%, compared towith the ~~second~~fourth quarter of 2009 and decreased ~~$225.3~~$281.5 million, or ~~3.09%~~3.81%, compared with the ~~third~~first quarter of ~~2008. The fluctuation from second quarter 2009~~2009. Excluding $286.8 million in average loan balances related to ~~third quarter 2009 was due to decreases in commercial~~the aforementioned Chicago bank acquisitions, average loans ~~of $157.3~~decreased $119.9 million, or ~~3.69%~~1.73%, ~~mortgage loans~~compared with the fourth quarter of ~~$21.9~~2009 and decreased $568.4 million, or ~~4.26%, and installment loans~~7.70% compared with the first quarter of $20.9 million, or 1.38%. The decrease in the third quarter 2009 as compared to third quarter 2008 was due to decreases in commercial loans of $63.2 million, or 1.52%, mortgage loans of $77.2 million, or 13.56%, and installment loans of $125.2 million, or 7.74%.2009. The decrease in average ~~loan volume over both periods~~balances reflects ~~the current economic cycle in which business owners~~a reduced level of commercial and consumers are retrenching on their demand for leverage and borrowing. Business customers continue their trend in inventory and receivable reduction and paying down existing debt to strengthen their balance sheets. Consumer customers are taking a similar approach with lower borrowingconsumer credit demand and ~~increased usage of short-term savings products.~~the focus on debt reduction by the Corporation’s business and retail customer base.

Average deposits during the ~~third~~first quarter of ~~2009 decreased $230.3~~2010 increased $943.2 million, or ~~3.02%~~12.75%, compared with the ~~second~~fourth quarter of 2009 and increased ~~$58.1~~$696.7 million, or ~~0.79%~~9.11%, compared with the ~~third~~first quarter of ~~2008.~~2009. During the ~~third~~first quarter of ~~2009,~~2010 the Corporation increased its average core deposits, which excludes time deposits, by ~~$138.9~~$687.3 million, or ~~2.58%~~11.74%, compared with the ~~second~~fourth quarter of 2009, and ~~$913.8 million,~~$1.5 billion, or ~~19.87%~~29.28%, compared with the ~~third~~first quarter of ~~2008. These results reflect the Corporation’s continued success in growing core~~2009. Acquisitions represent $706.5 million of average deposit ~~relationships~~growth and ~~deemphasizing a reliance on higher-cost certificate~~$275.5 million of ~~deposit accounts. The~~average core deposit growth ~~reflects~~in the ~~Corporation’s success in building a strong brand name in its core markets and capitalizing on market disruption in northeast Ohio.~~first quarter of 2010.

Noninterest income net of securities transactions for the ~~third~~first quarter of ~~2009~~2010 was ~~$48.6~~$53.9 million, ~~a decrease~~an increase of ~~$1.0~~$3.2 million, or ~~2.06%~~6.27%, from the ~~second~~fourth quarter of 2009 and ~~an increase~~a decrease of ~~$1.6~~$1.2 million, or ~~3.43%~~2.25%, from the ~~third~~first quarter of ~~2008.~~2009 which included $9.5 million due to curtailment of the postretirement medical benefit plan for active employees. Included in noninterest income in the first quarter 2010 was a $5.1 million ($3.3 million after-tax) gain related to the George Washington acquisition.

The primary changes in ~~these noninterest~~other income ~~categories~~for the 2010 first quarter as compared ~~with~~to the ~~third~~first quarter of ~~2008~~2009 were as follows: trust income was ~~$5.1 million, a decrease of $0.5 million; ATM and other service fees was $2.9~~$5.3 million, an increase of ~~$0.2 million; investment services and insurance was $2.5~~10.25% primarily due to advances in the equity markets; service charges on deposits were $15.4 million, ~~a decrease~~an increase of ~~$0.4 million; and~~8.49% due to an increase in new accounts; credit card fees were $11.6 million, an increase of 4.28% attributable to the improvement in the economy; loan sales and servicing income was ~~$3.9~~$3.2 million, an increase of ~~$2.5 million. The~~38.63%, primarily attributable to refinancing in the current low rate mortgage market environment; bank owned life insurance income was $5.7 million, an increase of $2.6 million attributable to realized policy proceeds. A separate line item was added for the $5.1 million gain on the acquisition of George Washington, while also separately stated in ~~loan sales and servicing is primarily attributed~~the first quarter of 2009 was the $9.5 million adjustment due to ~~increased mortgage origination and sales volume.~~the curtailment of the postretirement medical plan for active employees.

Other income, net of securities gains, as a percentage of net revenue for the ~~third~~first quarter of ~~2009~~2010 was ~~35.32%~~36.88% compared with ~~35.87%~~36.28% for ~~second~~fourth quarter of 2009 and ~~33.67%~~38.39% for the ~~third~~first quarter of ~~2008.~~2009. Net revenue is defined as net interest income, on a FTE basis, plus other income, less gains from securities sales.

Noninterest expense for the ~~third~~first quarter of ~~2009~~2010 was ~~$84.2~~$94.0 million, a decrease of ~~$6.4~~$0.9 million, or ~~7.07%~~0.92%, from the ~~second~~fourth quarter of 2009 and an increase of ~~$3.6~~$10.8 million, or ~~4.41%~~12.99%, from the ~~third~~first quarter of ~~2008. Included~~2009. For the three months ended March 31, 2010, increases in operating expenses compared to the ~~second~~first quarter 2009 were primarily attributable to increased salary and benefits, professional services and FDIC expense. One time expenses ~~was~~associated with data processing conversions and related expenses for the ~~FDIC Special Assessment pretax fee of $5.1~~acquisitions totaled $2.7 million.

~~The~~During the first quarter of 2010, the Corporation reported an efficiency ratio ~~for the third quarter~~ of ~~2009 was 61.05%~~64.10%, compared with ~~65.34%~~67.74% for the ~~second~~fourth quarter of 2009 and ~~57.64%~~57.81% for the ~~third~~first quarter of ~~2008.~~2009.

Net charge-offs totaled ~~$18.8~~$22.8 million, or ~~1.05%~~1.36% of average loans, in the ~~third~~first quarter of ~~2009,~~2010 compared with ~~$21.6~~$31.2 million, or ~~1.19%~~1.79% of average loans, in the ~~second~~fourth quarter 2009 and ~~$11.8~~$15.6 million, or ~~0.64%~~0.86% of average loans, in the ~~third~~first quarter of ~~2008.~~2009.

Nonperforming assets totaled ~~$88.9~~$123.3 million at ~~September 30, 2009,~~March 31, 2010, an increase of ~~$15.5~~$22.3 million ~~or 21.17%,~~ compared with ~~June 30,~~December 31, 2009 and an increase of ~~$45.4~~$47.1 million ~~or 104.37%,~~ compared with ~~September 30, 2008.~~March 31, 2009. Nonperforming assets at ~~September 30, 2009~~March 31, 2010 represented ~~1.26%~~1.80% of period-end loans plus other real estate compared with ~~1.03%~~1.48% at ~~June 30,~~December 31, 2009 and ~~0.59%~~1.04% at ~~September 30, 2008.~~March 31, 2009.

The allowance for loan losses totaled ~~$116.4~~$117.8 million at ~~September 30, 2009,~~March 31, 2010, an increase of ~~$5.1~~$2.7 million from ~~June 30,~~December 31, 2009. Given the current economic environment, the Corporation has continued a strategy to increase reserve levels and year-to-date has provided $12.6 million in excess of net charge-offs to the allowance for loan losses. At ~~September 30, 2009,~~March 31, 2010, the allowance for loan losses was ~~1.66%~~1.72% of period-end loans compared with ~~1.56%~~1.68% at ~~June 30,~~December 31, 2009 and ~~1.38%~~1.45% at March 31,

3945

~~at September 30, 2008.~~2009. The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments. For comparative purposes the allowance for credit losses was ~~1.72%~~1.82% of period-end loans at ~~September 30, 2009,~~March 31, 2010, compared with ~~1.64%~~1.77% at ~~June 30,~~December 31, 2009 and ~~1.47%~~1.53% at ~~September 30, 2008.~~March 31, 2009. The allowance for credit losses to nonperforming loans was ~~153.27%~~110.80% at ~~September 30, 2009,~~March 31, 2010, compared with ~~184.71%~~131.82% at ~~June 30,~~December 31, 2009 and ~~281.28%~~159.93% at ~~September 30, 2008.~~March 31, 2009.

The Corporation’s total assets at ~~September 30, 2009~~March 31, 2010 were ~~$10.8~~$12.3 billion, an increase of ~~$64.4 million,~~$1.8 billion inclusive of intangible assets, or ~~0.60%~~16.92%, compared with ~~June 30,~~December 31, 2009 and an increase of ~~$76.5 million,~~$1.4 billion, or ~~0.72%~~12.32%, compared with ~~September 30, 2008. Growth in investment securities of $300.8~~March 31, 2009. Total loans increased $436.3 million, or ~~12.28%~~6.30%, compared with ~~September 30, 2008, provided the majority of the overall asset growth.~~December 31, 2009 and increased $9.0 million, or 0.12%, over March 31, 2009.

Total deposits were ~~$7.3~~$9.4 billion at September 30, 2009, a decrease of $179.9 million, or 2.41%, from June 30, 2009 and a decrease of $159.3 million, or 2.14%, from September 30, 2008. The decrease as compared to both June 30, 2009 and September 30, 2008 was driven by a decrease in certificates and time deposits of 18.12% and 40.40%, respectively, reflecting the Corporation’s success remixing the balance sheet and focusing on core deposit growth. Core deposits totaled $5.6 billion at September 30, 2009,March 31, 2010, an increase of ~~$194.5 million,~~$1.9 billion, or ~~3.61%~~24.67%, from ~~June 30,~~December 31, 2009 and an increase of ~~$988.1~~$1.7 billion, or 22.03%, from March 31, 2009. The increase compared with March 31, 2009 was driven by both an overall increase in savings and demand deposits and the acquisitions of the First Bank branches and George Washington. Core deposits totaled $7.0 billion at March 31, 2010, an increase of $852.4 million, or ~~21.52%~~13.85%, from ~~September 30, 2008.~~December 31, 2009 and an increase of $1.7 billion, or 32.70%, from March 31, 2009.

Shareholders’ equity was ~~$1,059.2~~$1,155.4 million at ~~September 30, 2009,~~March 31, 2010, compared with ~~$1,022.6~~$1,065.6 million at ~~June 30,~~December 31, 2009 and ~~$926.1~~$1,084.3 million at ~~September 30, 2008.~~March 31, 2009. The Corporation ~~increased its~~maintained a strong capital position as tangible common equity to assets was ~~8.65%~~7.93% at ~~September 30, 2009,~~March 31, 2010, compared with ~~8.36%~~8.89% and 7.60% at ~~June 30,~~December 31, 2009 and ~~7.45% at September 30, 2008.~~March 31, 2009, respectively. The common dividend per share paid in the ~~third~~first quarter ~~2009~~2010 was ~~$0.16 per share~~$0.16.

Acquisitions

In the first quarter of 2010, the Corporation completed two strategic acquisitions. On February 19, 2010, the Bank completed the acquisition of certain assets and the transfer of certain liabilities with respect to 24 branches of First Bank located in the greater Chicago, Illinois, area. Excluding the purchase accounting adjustments, the acquisition included the assumption of approximately $1.2 billion in deposits and the purchase of $301.2 million of loans and $23.0 million in real and personal property associated with the acquired branch locations. The Bank received cash of $832.5 million to assume the net liabilities. All of the loans in the acquired portfolio were performing and pass-grade credits. This acquisition was accounted for under the acquisition method in accordance with ASC 805.

Also, on February 19, 2010, the Bank acquired certain assets and assumed substantially all of the deposits and liabilities of George Washington through a purchase and assumption agreement with the FDIC. The Illinois Department of financial and Professional Regulation, Division of Banking, declared George Washington closed on February 19, 2010 and appointed the FDIC as ~~well as~~receiver. Excluding the effects of purchase accounting adjustments, the Bank acquired approximately $403.9 million in assets and assumed $395.7 million of deposits of George Washington.

In connection with the George Washington acquisition, the Bank entered into a ~~$0.13 per share dividend~~loss sharing agreement with the FDIC that collectively covers $327.1 million of ~~common stock.~~assets including

single family residential mortgage loans, commercial real estate and commercial and industrial loans, and other real estate. The Bank acquired other George Washington assets that are not covered by the loss sharing agreement with the FDIC including investment securities purchased at fair market value and other tangible assets.

See Note 2 (Business Combinations), in the Notes to Unaudited Consolidated Financial Statements for additional information related to the details of these transactions.

RESULTS OF OPERATION

Net Interest Income

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

Net interest income for the quarter ended ~~September 30, 2009~~March 31, 2010 was ~~$87.4~~$90.4 million compared to ~~$91.1~~$86.9 million for the quarter ended ~~September 30, 2008.~~March 31, 2009. For the purpose of this remaining discussion, net interest income is presented on an FTE basis, to provide a comparison among all types of interest earning assets. 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 non-deductible portion of interest expense incurred to acquire the tax-free assets. Net interest income presented on an FTE basis is a non-GAAP financial measure widely used by financial services organizations. The FTE adjustment was ~~$1.7~~$2.0 million and ~~$1.5~~$1.7 million for the quarters ending ~~September 30,~~March 31, 2010 and 2009, ~~and 2008, respectively. The FTE adjustment was $5.1 million and $4.4 million for the nine months ending September 30, 2009 and 2008,~~ respectively.


	Quarters ended March 31, 2010 and 2009
RATE/VOLUME ANALYSIS	Increases (Decreases)
(Dollars in thousands)	Volume			Rate			Total
INTEREST INCOME — FTE
Investment securities	$	1,565		$	(4,740	)	$	(3,175	)
Loans held for sale		(112	)		(26	)		(138	)
Noncovered loans		(4,198	)		(1,481	)		(5,679	)
Covered loans and loss share receivable		1,761			—			1,761

Total interest income — FTE	$	(984	)	$	(6,247	)	$	(7,231	)

INTEREST EXPENSE
Demand deposits-interest bearing	$	7		$	(10	)	$	(3	)
Savings and money market accounts		2,195			29			2,224
Certificates of deposits and other time deposits		(4,579	)		(7,603	)		(12,182	)
Securities sold under agreements to repurchase		12			116			128
Wholesale borrowings		(3,358	)		2,189			(1,169	)

Total interest expense	$	(5,723	)	$	(5,279	)	$	(11,002	)

Net interest income — FTE	$	4,739		$	(968	)	$	3,771

The ~~Federal Reserve discount~~net interest margin is calculated by dividing net interest income FTE by average earning assets. As with net interest income, the net interest margin is affected by the level and mix of earning assets, the proportion of earning assets funded by non-interest bearing liabilities, and the interest rate ~~decreased 25 basis points in April 2008, 100 basis points in October 2008, and 75 to 100 basis points again in December 2008 and rates held flat for~~spread. In addition, the ~~first three quarters of 2009. The section entitled “Financial Condition” contains more discussion about~~net interest margin is impacted by changes in ~~earning assets~~federal income tax rates and ~~funding sources.~~

Quarters ended September 30, 2009 and 2008 Nine months ended September 30, 2009 and 2008
RATE/VOLUME ANALYSIS Increases (Decreases) Increases (Decreases)
(Dollars in thousands) Volume Rate Total Volume Rate Total
INTEREST INCOME — FTE

Investment securities and federal funds sold $ 3,147 $ (2,840 ) $ 307 $ 9,156 $ (5,331 ) $ 3,825
Loans held for sale 72 (20 ) 52 (647 ) (25 ) (672 )
Loans (3,245 ) (20,429 ) (23,674 ) 3,538 (75,233 ) (71,695 )

Total interest income — FTE $ (26 ) $ (23,289 ) $ (23,315 ) $ 12,047 $ (80,589 ) $ (68,542 )

INTEREST EXPENSE

Demand deposits-interest bearing $ (26 ) $ (426 ) $ (452 ) $ (114 ) $ (1,579 ) $ (1,693 )
Savings and money market accounts 1,373 (2,542 ) (1,169 ) 3,739 (10,222 ) (6,483 )
Certificates of deposits and other time deposits (6,366 ) (4,813 ) (11,179 ) (14,270 ) (21,570 ) (35,840 )
Securities sold under agreements to repurchase (1,815 ) (5,143 ) (6,958 ) (6,447 ) (18,162 ) (24,609 )
Wholesale borrowings 2,236 (2,213 ) 23 9,655 (8,724 ) 931

Total interest expense $ (4,598 ) $ (15,137 ) $ (19,735 ) $ (7,437 ) $ (60,257 ) $ (67,694 )

Net interest income — FTE $ 4,572 $ (8,152 ) $ (3,580 ) $ 19,484 $ (20,332 ) $ (848 )

~~Net Interest Margin~~regulations as they affect the tax-equivalent adjustment.

The following table provides ~~2009~~2010 FTE net interest income and net interest margin totals as well as ~~2008~~2009 comparative amounts:


	Quarters ended						Nine months						Quarters ended
	September 30,						September 30,						March 31,
(Dollars in thousands)	2009			2008			2009			2008			2010			2009

Net interest income	$	87,377		$	91,121		$	261,386		$	262,951		$	90,394		$	86,894
Tax equivalent adjustment		1,702			1,538			5,076			4,359			1,954			1,683

Net interest income — FTE	$	89,079		$	92,659		$	266,462		$	267,310		$	92,348		$	88,577


Average earning assets	$	9,802,810		$	9,755,812		$	9,996,354		$	9,680,692		$	10,080,871		$	10,189,233

Net interest margin — FTE		3.61	%		3.78	%		3.56	%		3.69	%		3.72	%		3.53	%

trend in inventory and receivable reduction and paying down existing debt to strengthen their balance sheets. Consumer customers are taking a similar approach with lower borrowing demand and increased usage of short-term savings products.declined.

Specific changes in average loans outstanding, compared to the ~~third~~first quarter ~~2008,~~2009, were as follows: commercial loans were down $139.4 million or 3.22%; home equity loans were up $20.1 million or 2.73%; mortgage loans were down $82.0 million or 15.28%; installment loans, both direct and indirect declined ~~$125.2~~$155.8 million or ~~7.74%~~10.00%; ~~mortgage loans were down $77.2 million or 13.56%; commercial loans were down $63.2 million or 1.52%; leases decreased $10.2 million or 14.69%; home equity loans were up $49.0 million or 6.91%; and~~ credit card loans increased ~~$1.5~~$3.8 million or ~~1.04%~~2.57%; and leases decreased $5.3 million or 8.06%. Average covered loans have been separately stated and are described in more detail in Note 2 (Business Combinations). The majority of fixed-rate mortgage loan originations are sold to investors through the secondary mortgage loan market. Average outstanding loans for the 2010 and 2009 ~~and 2008 third~~first quarters equaled ~~71.99%~~70.91% and ~~74.65%~~72.44% of average earning assets, respectively.

Average deposits were ~~$7.4~~$8.3 billion during the ~~2009 third~~2010 first quarter, up ~~$58.1~~$696.7 million, or ~~.79%~~9.11%, from the same period last year. For the quarter ended ~~September 30, 2009,~~March 31, 2010, average core deposits (which are defined as checking accounts, savings accounts and money market savings products) increased ~~$913.8 million,~~$1.5 billion, or ~~19.87%~~29.28%, and represented ~~74.64%~~78.45% of total average deposits, compared to ~~62.76%~~66.21% for the ~~2008 third~~2009 first quarter. Average certificates of deposit (“CDs”) decreased ~~$855.7~~$785.4 million, or ~~31.37%~~30.41%, compared to the prior year quarter. These results reflect the Corporation’s continued success in growing core deposit relationships and deemphasizing a reliance on higher-cost certificate of deposit accounts. The core deposit growth reflects the Corporation’s success in building a strong brand name in its core markets and capitalizing on market disruption in northeast Ohio.year. Average wholesale borrowings ~~increased $249.2~~decreased $443.4 million, and as a percentage of total interest-bearing funds equaled ~~11.92%~~9.02% for the ~~2009 third~~2010 first quarter and ~~8.01%~~14.45% for the same quarter one year ago. Securities sold under agreements to repurchase ~~decreased $416.1~~increased $10.8 million, and as a percentage of total interest bearing funds equaled ~~14.68%~~12.12% for the 2010 first quarter and 11.81% for the 2009 ~~third quarter and 18.99% for the 2008 third~~first quarter. Average interest-bearing liabilities funded ~~75.57%~~77.91% of average earning assets in the current year quarter and ~~81.17%~~78.21% during the quarter ended ~~September 30, 2008.~~March 31, 2009.

Other Income

~~Other (non-interest)~~Excluding investment gains, other income for the quarter ended ~~September 30, 2009~~March 31, 2010 totaled ~~$51.6~~$53.9 million, ~~an increase~~a decrease of ~~$4.5~~$1.2 million from the ~~$47.0~~$55.2 million earned during the same period one year ago. ~~The Corporation continues to focus upon non-interest income (fee income) as a means by which to diversify revenue.~~

Other income ~~net of securities gains,~~ as a percentage of net revenue ~~for the third quarter~~(FTE net interest income plus other income, less security gains from securities) was ~~35.32%~~36.88%, compared to ~~33.67%~~38.39% for the same quarter one year ago. ~~Net revenue is defined as net interest income, on a FTE basis, plus other income, less gains from securities sales.~~

~~The primary changes in other income for the 2009 third quarter as compared to the third quarter of 2008, were as follows: trust~~Trust department income was ~~$5.1~~$5.3 million, ~~down 8.65%, and investment services and insurance was $2.5~~up 10.25% primarily due to advances in the equity markets. Service charges on deposits were $15.4 million, ~~down 13.83%,~~up 8.49% primarily attributable to an increase in new accounts. Credit card fees were $11.6 million, up 4.28% reflecting ~~lower balances~~the slight improvement in ~~assets under management; loan~~the economy. Loan sales and servicing income was ~~$3.9~~$3.2 million, an increase of ~~$2.5~~$0.9 million, primarily attributable ~~to a rise in mortgage banking~~improved revenue ~~as the lower rate environment drove an increase in mortgage loan production and increased profitability on loan~~

~~sales; and net investment securities gains were $2.9 million, an increase of 100%, resulting~~ from the ~~execution of a strategy to reduce increasing sensitivity to higher interest rates.~~

The changes in other income for the nine months ended September 30, 2009 compared to September 30, 2008 were similar to the quarterly analysis. The primary changes in other income for the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008, were as follows: trust department income was $15.3 million, down 9.07% and investment services andmortgage servicing function. Bank owned life insurance income was ~~$7.7~~$5.7 million, ~~down 10.15%, reflecting lower balances in assets under management; loan sales and servicing income was $10.0 million, an increase of $5.4 million, primarily~~up 87.46% attributable to ~~a rise in mortgage banking revenue as~~realized policy proceeds. A separate line item was added for the ~~lower rate environment drove an increase in mortgage loan production and increased profitability~~$5.1 million gain on ~~loan sales; and net investment securities gains were $4.1 million, an increase~~the acquisition of ~~$3.5 million, resulting from the execution of a strategy to reduce increasing sensitivity to higher interest rates. Included in other income~~George Washington, while also separately stated in the first ~~nine months~~quarter of 2009 was athe $9.5 million adjustment due to the curtailment of the postretirement medical plan for active employees. ~~Included in other~~Other operating income inwas $3.3 million, a decrease of $1.4 million over the first ~~nine months~~quarter of ~~2008 was a $7.9 million gain from the partial redemption of Visa, Inc. shares.~~2009.

Other Expenses

Other (non-interest) expenses totaled ~~$84.2~~$94.0 million for the ~~third~~first quarter ~~2009~~2010 compared to ~~$80.6~~$83.2 million for the same ~~2008~~2009 quarter, an increase of ~~$3.6~~$10.8 million, or 4.41%. Other expenses totaled $257.9 million for the nine months ended September 30, 2009 compared to $242.4 million for the nine months ended September 30, 2008, an increase of $15.5 million, or 6.41%12.99%.

For the three ~~and nine~~ months ended ~~September 30, 2009, increases~~March 31, 2010, FDIC expense increased $1.2 million over the prior year quarter due to increased assessments enacted in April 2009. Increases in operating ~~costs~~expenses compared to the three and nine months ended September 30, 2008 were primarily attributable to higher FDIC deposit insurance expense. FDIC expense was $13.3 million for the nine months ended September 30, 2009, as compared to $0.9 million for the nine months ended September 30, 2008. In the second quarter of 2009, the FDIC levied a five-basis point emergency special assessment of $5 million based on FirstMerit Bank’s average total assets. This special assessment was to restore the deposit insurance reserve ratio to the 1.15% minimum mandated by the Federal Deposit Insurance Reform Act of 2005. In addition, FDIC deposit insurance expense increased as a result of an overall increase in the FDIC deposit insurance base assessment and the use of assessment credits in 2008 and the first quarter of 2009. All assessment credits were fully utilized subsequent to the first quarter of ~~2009.~~2009 were primarily attributable to increased salary, occupancy and professional services related to the first quarter 2010 acquisitions. One time expenses associated with the data processing conversions of the acquisitions totaled $2.7 million.

~~The efficiency ratio of 61.05% for third quarter 2009 increased 341 basis points over the efficiency ratio of 57.64% recorded for the third quarter 2008.~~ The efficiency ratio for the ~~three months ended September 30, 2009~~first quarter 2010 was 64.1%, compared to 57.81% during the same period in 2009. The “lower is better” efficiency ratio indicates ~~61.05 cents~~the percentage of operating costs ~~were spent in order~~that are used to generate each dollar of net revenue — that is during 2009, 64.1 cents was spent to generate each $1 of net revenue. Net revenue is defined as net interest income, on a tax-equivalent basis, plus other income less gains from the sales of securities.

Federal Income Taxes

Federal income tax expense was ~~$8.1~~$6.8 million and ~~$12.3~~$11.4 million for the quarters ended ~~September 30,~~March 31, 2010 and 2009, ~~and 2008,~~ respectively. The effective federal income tax rate for the ~~third~~first quarter ~~2009~~2010 was ~~26.31%~~27.39%, compared to ~~29.18%~~27.88% for the same quarter ~~2008. For the nine months ended September 30, 2009 and 2008, respectively, the effective tax rate was 26.88% and~~

FINANCIAL CONDITION

Acquisitions

On February 19, 2010, the Bank completed the acquisition of certain assets and the transfer of certain liabilities with respect to 24 branches of First Bank located in the greater Chicago, Illinois, area. The Bank acquired assets with an acquisition date fair value of approximately $1.2 billion, including $276.5 million of loans, and $41.9 million of premises and equipment, and assumed $1.2 billion of deposits. The Bank received cash of $832.5 million to assume the net liabilities. The Bank recorded a core deposit intangible asset of $3.2 million and goodwill of $48.3 million.

On February 19, 2010, the Bank entered into a purchase and assumption agreement with loss share with the FDIC to acquire deposits, loans, and certain other liabilities and assets of George Washington in an FDIC-assisted transaction. The Bank acquired assets with a fair value of approximately $368.1 million, including $171.4 million of loans, $15.4 million of investment securities, $58.0 million of cash and due from banks, $11.5 million in other real estate, and $403.2 million in liabilities, including $400.7 million of deposits. The Bank recorded a core deposit intangible asset of $1.0 million and received a cash payment from the FDIC of approximately $40.2 million. The Bank entered into loss share agreements with the FDIC and recorded, at its acquisition date fair value, a loss share receivable of $107.6 million, which is classified as part of covered loans in the accompanying consolidated balance sheets. The transaction resulted in a gain on acquisition of $5.1 million, which is included in noninterest income in the accompanying consolidated statements of income and comprehensive income.

See Note 2 (Business Combinations), in the notes to unaudited consolidated financial statements for additional information related to the details of these transactions.

Investment Securities

~~Investment~~At March 31, 2010, the securities portfolio totaled $3.2 billion; $67.3 million of that amount was held-to-maturity securities and the remainder was securities available-for-sale. In comparison, as of March 31, 2009, the total portfolio was $2.6 billion, including ~~available-for-sale~~$30.6 million of held-to-maturity securities and ~~held-to-maturity totaled $2.7~~$2.6 billion ~~at September 30, 2009, compared to $2.8 billion at December 31, 2008 and $2.5 billion at September 30, 2008. Available for sale~~of securities available-for-sale.

Available-for-sale securities are held primarily for liquidity, interest rate risk management and long-term yield enhancement. Accordingly, the Corporation’s investment policy is to invest in securities with low credit risk, such as U.S. Treasury securities, U.S. Government agency obligations, state and political obligations and mortgage-backed securities. Held-to-maturity securities ~~(“MBSs”). Held to maturity~~consist principally of securities ~~are primarily~~issued by state and political subdivisions. Other investments include FHLB ~~of Cincinnati stock~~ and FRB ~~stock, which as a member~~stock.

Net unrealized gains were $62.0 million, $55.1 million and $25.5 million at March 31, 2010, December 31, 2009, and March 31, 2009, respectively. The improvement in the fair value of ~~both organizations,~~ the ~~Corporation~~investment securities is ~~required to own a certain amount of stock based its level of borrowings and other factors.~~driven by government agency securities held in portfolio.

The Corporation conducts a regular assessment of its investment securities to determine whether any securities are other-than-temporary impaired. Only the credit portion of ~~other-than-temporary impairment (“OTTI”)~~OTTI is to

be recognized in current earnings for those securities where there is no intent to sell or it is more likely than not the Corporation would not be required to sell the security prior to expected recovery. The remaining portion of OTTI is to be included in accumulated other comprehensive loss, net of income tax.

Net unrealized gains were $74.4 million, compared to $1.2 million at December 31, 2008 and net unrealized losses of $43.9 million at September 30, 2008. The improvement in the fair value of the investment securities is driven by government agency securities held in portfolio.

Gross unrealized losses of ~~$21.9~~$19.3 million, compared to $21.6 million as of ~~September 30,~~December 31, 2009, ~~compared to $38.3~~and $37.9 million at ~~December~~March 31, ~~2008 and $52.9 million at September 30, 2008~~2009 were concentrated within trust preferred securities held in the investment portfolio. The Corporation holds eight, single issuer, trust preferred securities. Such investments are less than 1%2% of the fair value of the entire investment portfolio. None of the bank issuers have deferred paying dividends on their issued trust preferred shares in which the Corporation is invested. The fair values of these investments have been impacted by market conditions which have caused risk premiums to increase markedly resulting in the ~~significant~~ decline in the fair value of the Corporation’s trust preferred securities. However, prices are recovering from their lows reflecting increased liquidity for these securities as well as an improvement in the credit profile of the issuers as improving.

Further detail of the composition of the securities portfolio and discussion of the results of the most recent OTTI assessment are in Note 3 (Investment Securities). to the consolidated financial statements.

Loans

Total loans outstanding at March 31, 2010 were $7.4 billion compared to $6.9 billion at December 31, 2009 and $7.3 billion at March 31, 2009.


	As of		As of		As of
	March 31,		December 31,		March 31,
	2010		2009		2009
			(In thousands)
Commercial loans	$	4,389,859	$	4,066,522	$	4,344,915
Mortgage loans		447,575		463,416		524,909
Installment loans		1,382,522		1,425,373		1,533,885
Home equity loans		766,073		753,112		741,073
Credit card loans		145,029		153,525		141,597
Leases		59,464		61,541		64,384

Total noncovered loans		7,190,522		6,923,489		7,350,763
Covered Loans		169,270		—		—
Less allowance for loan losses		117,806		115,092		106,257

Net loans	$	7,072,716	$	6,808,397	$	7,244,506

Despite the slowdown of the manufacturing-based economy in Northeast Ohio, commercial loans increased 1.03% from the prior year first quarter. Single family mortgage loans continue to be originated by the Corporation’s mortgage subsidiary and then sold into the secondary mortgage market or held in portfolio.

4452

Allowance for ~~Credit~~Loan Losses

~~The allowance~~ and Reserve for ~~credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments.~~

Quarter ended Year Ended Quarter ended
September 30, December 31, September 30,
(In thousands) 2009 2008 2008

Allowance for Loan Losses

Allowance for loan losses-beginning of period $ 111,222 $ 94,205 $ 98,239
Provision for loan losses 23,887 58,603 15,531
Net charge-offs (18,757 ) (49,051 ) (11,763 )

Allowance for loan losses-end of period $ 116,352 $ 103,757 $ 102,007

Reserve for Unfunded Lending Commitments

Balance at beginning of period $ 6,054 $ 7,394 $ 7,310
Provision for credit losses (1,584 ) (806 ) (817 )

Balance at end of period $ 4,470 $ 6,588 $ 6,493

Allowance for credit losses $ 120,822 $ 110,345 $ 108,500

Annualized net charge-offs as a % of average loans 1.05 % 0.68 % 0.64 %

Allowance for loan losses:
As a percentage of loans outstanding 1.66 % 1.40 % 1.38 %

As a percentage of nonperforming loans 147.60 % 198.76 % 264.45 %

As a multiple of annualized net charge offs 1.56 x 2.12 x 2.18 X

Allowance for credit losses:
As a percentage of loans outstanding 1.72 % 1.49 % 1.47 %

As a percentage of nonperforming loans 153.27 % 211.38 % 281.28 %

As a multiple of annualized net charge offs 1.62 x 2.25 x 2.32 X

The allowance for credit losses increased $10.5 million from December 31, 2008 to September 30, 2009, and increased $12.3 million from September 30, 2008 to September 30, 2009. The increase for both periods was attributable to additional reserves that were established to address identified risks associated with increasing unemployment rates and the decline in residential and commercial real estate values.Unfunded Commitments

The Corporation uses a vendor based loss migration model to forecast losses for commercial loans. The model creates loss estimates using twelve-month (monthly rolling) vintages and calculates cumulative three years loss rates within two different scenarios. One scenario uses five year historical performance data while the other one uses two year historical data. The calculated rate is the average cumulative expected loss of the two and five year data set. As a result, this approach lends more weight to the more recent performance and would be more conservative.

The uncertain economic conditions in which we are currently operating have resulted in risks that differ from our historical loss experience. Accordingly, Management deemed it appropriate and prudent to apply qualitative factors (“q-factors”) and assign additional reserves. These q-factors are supported by judgments made by experienced credit risk management personnel and represent risk associated with the portfolio given the uncertainty and the inherent imprecision of estimating future losses.

As required by current accounting guidance, the acquired loans from First Bank were recorded at fair value as of the date of acquisition, with no carryover of related allowances. The determination of the fair value of the loans resulted in a write-down in the value of the loans, which was assigned to an accretable balance which will be recognized as interest income over the remaining term of the loans. The acquired loans from George Washington were also recorded at fair value as of the date of acquisition, with no carryover of related allowances. The determination of the fair value of the loans resulted in a write-down in the value of the loans, which was assigned a nonaccretable and an accretable balance which will be recognized as interest income over the remaining term of the loans. Also in connection with the George Washington acquisition, the Bank entered into loss sharing agreements with the FDIC that collectively cover single family residential mortgage loans, commercial real estate and commercial and industrial loans, and other real estate. (See Note 2 (Business Combinations) for additional information. Because acquired loans are required to be accounted for at fair value on the date of acquisition, Management believes that asset quality measures are generally more meaningful when acquired loans are excluded from such measures. Therefore, the asset quality ratios included herein exclude the acquired loans with a period end balance of $523.3 million. In addition, ratios of nonperforming loans exclude these acquired loans and other real estate, with a period end balance of $11.4 million, covered by the FDIC loss share agreements.

At March 31, 2010 the allowance for loan losses was $117.8 million or 1.72% of loans outstanding, excluding acquired loans, compared to $115.1 million or 1.68% at year-end 2009 and $106.3 or 1.45% for the quarter ended March 31, 2009. There were no allowances for loan losses related to the $523.3 million in acquired loans at March 31, 2010. The allowance equaled 105.14% of nonperforming loans at March 31, 2010, compared to 125.55% at year-end 2009, and 151.35% for March 31, 2009. During 2008 additional reserves were established to address identified risks associated with the slow down in the housing markets and the decline in residential and commercial real estate values. These reserves totaled $20.0 million, $19.8 million, and $20.1 at March 31, 2010, December 31, 2010, and March 31, 2009, respectively. The increase in the additional allocation augmented the increase in the calculated loss migration analysis as the loans were downgraded during 2010. Nonperforming loans have increased by


	Quarter ended			Year Ended			Quarter ended
	March 31,			December 31,			March 31,
(In thousands)	2010			2009			2009
Allowance for Loan Losses
Allowance for loan losses-beginning of period	$	115,092		$	103,757		$	103,757
Provision for loan losses		25,493			98,433			18,065
Net charge-offs		(22,779	)		(87,098	)		(15,565	)

Allowance for loan losses-end of period	$	117,806		$	115,092		$	106,257


Reserve for Unfunded Lending Commitments

Balance at beginning of period	$	5,751		$	6,588		$	6,588
Provision for credit losses		586			(837	)		(569	)

Balance at end of period	$	6,337		$	5,751		$	6,019


Allowance for credit losses	$	124,143		$	120,843		$	112,276


Annualized net charge-offs as a % of average loans		1.36	%		1.22	%		0.86	%


Allowance for loan losses:
As a percentage of period-end loans, excluding acquired loans (a)		1.72	%		1.68	%		1.45	%

As a percentage of nonperforming loans		105.14	%		125.55	%		151.35	%

As a multiple of annualized net charge offs		1.28	x		1.32	x		1.68	x


Allowance for credit losses:
As a percentage of period-end loans, excluding acquired loans (a)		1.82	%		1.77	%		1.53	%

As a percentage of nonperforming loans		110.80	%		131.82	%		159.93	%

As a multiple of annualized net charge offs		1.34	x		1.39	x		1.78	x


(a)		Excludes loss share receivable

The allowance for credit losses increased $3.3 million from December 31, 2009 to March 31, 2010, and increased $11.9 million from March 31, 2009 to March 31, 2010. The increase for both periods was attributable to additional reserves that were established to address identified risks associated with the slow down in the housing markets and the decline in residential and commercial real estate values. The following tables show the overall trend in credit quality by specific asset and risk categories.

At September 30, 2009
Loan Type
Commercial
Allowance for Loan Losses Commercial R/E Installment Home Equity Credit Card Res Mortgage
Components: Loans Loans Leases Loans Loans Loans Loans Total
(In thousands)
Individually Impaired Loan Component:

Loan balance $ 24,708 $ 48,189 $ — $ — $ — $ — $ — $ 72,897
Allowance 7,911 6,957 — — — — — 14,868
Collective Loan Impairment Components:

Credit risk-graded loans
Grade 1 loan balance 45,463 5,846 7,518 58,827
Grade 1 allowance 29 1 6 36
Grade 2 loan balance 88,543 80,316 1,713 170,572
Grade 2 allowance 68 87 2 157
Grade 3 loan balance 364,463 568,110 16,370 948,943
Grade 3 allowance 620 1,123 35 1,778
Grade 4 loan balance 919,172 1,660,624 32,959 2,612,755
Grade 4 allowance 9,438 15,598 233 25,269
Grade 5 (Special Mention) loan balance 70,790 49,208 1,332 121,330
Grade 5 allowance 1,869 1,952 34 3,855
Grade 6 (Substandard) loan balance 71,261 100,555 648 172,464
Grade 6 allowance 5,986 11,277 53 17,316
Grade 7 (Doubtful) loan balance — 4 — 4
Grade 7 allowance — — — 0
Consumer loans based on payment status:

Current loan balances 1,452,218 756,735 141,322 446,273 2,796,548
Current loans allowance 17,659 5,535 7,494 3,318 34,006
30 days past due loan balance 16,062 2,312 2,356 13,896 34,626
30 days past due allowance 2,459 660 1,215 587 4,921
60 days past due loan balance 8,382 1,470 1,604 4,253 15,709
60 days past due allowance 3,524 954 1,200 619 6,297
90+ days past due loan balance 4,538 1,036 2,485 16,914 24,973
90+ days past due allowance 3,111 1,064 2,323 1,351 7,849

Total loans $ 1,584,400 $ 2,512,852 $ 60,540 $ 1,481,200 $ 761,553 $ 147,767 $ 481,336 $ 7,029,648

Total Allowance for Loan Losses $ 25,921 $ 36,995 $ 363 $ 26,753 $ 8,213 $ 12,232 $ 5,875 $ 116,352

4655


	At December 31, 2008
	Loan Type																At March 31, 2010
	Commercial		Commercial R/E				Installment		Home Equity		Credit Card		Res Mortgage				Loan Type
Allowance for Loan Losses Components:	Loans		Loans		Leases		Loans		Loans		Loans		Loans		Total		Commercial		Commercial R/E				Installment		Home Equity		Credit Card		Res Mortgage
(In thousands)																	Loans		Loans		Leases		Loans		Loans		Loans		Loans		Total
Individually Impaired Loan Component:
Loan balance	$	8,438	$	45,220	$	—	$	—	$	—	$	—	$	—	$	53,658	$	16,805	$	68,777	$	—	$	—	$	—	$	—	$	—	$	85,582
Allowance		48		3,924		—		—		—		—		—		3,972		2,185		8,419		—		—		—		—		—		10,604
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance		37,316		9,030		5,976										52,322		105,207		1,156		7,269										113,632
Grade 1 allowance		42		18		8										68		72		—		6										78
Grade 2 loan balance		199,166		138,399		3,046										340,611		43,085		38,301		63										81,449
Grade 2 allowance		664		606		12										1,282		50		63		—										113
Grade 3 loan balance		559,165		566,369		27,980										1,153,514		352,421		498,233		16,247										866,901
Grade 3 allowance		1,765		3,961		108										5,834		791		1,350		45										2,186
Grade 4 loan balance		992,118		1,583,721		28,333										2,604,172		980,056		1,621,687		35,020										2,636,763
Grade 4 allowance		8,920		27,145		287										36,352		9,165		16,206		327										25,698
Grade 5 (Special Mention) loan balance		33,940		41,215		190										75,345		69,325		89,821		852										159,998
Grade 5 allowance		1,110		2,495		6										3,611		2,717		4,402		34										7,153
Grade 6 (Substandard) loan balance		66,134		72,387		2,069										140,590		79,893		97,606		13										177,512
Grade 6 allowance		6,074		9,009		194										15,277		9,051		13,354		2										22,407
Grade 7 (Doubtful) loan balance		33		79		—										112		197		267		—										464
Grade 7 allowance		4		6		—										10		5		147		—										152
Consumer loans based on payment status:
Current loan balances								1,548,639		730,503		143,934		515,093		2,938,169						—		1,357,785		741,203		139,718		416,263		2,654,969
Current loans allowance								12,762		4,823		3,465		2,736		23,786						—		18,688		6,155		8,013		3,403		36,259
30 days past due loan balance								16,912		1,704		2,149		13,264		34,029						—		12,765		1,932		1,705		11,037		27,439
30 days past due allowance								2,078		494		866		473		3,911						—		2,031		582		917		475		4,005
60 days past due loan balance								5,728		1,087		1,550		5,339		13,704						—		3,907		642		1,270		2,516		8,335
60 days past due allowance								2,122		748		978		643		4,491						—		1,627		410		969		351		3,357
90+ days past due loan balance								3,308		538		2,112		13,429		19,387						—		2,268		1,044		2,336		17,759		23,407
90+ days past due allowance								2,097		602		1,804		660		5,163						—		1,526		1,049		2,259		960		5,794

Total loans	$	1,896,310	$	2,456,420	$	67,594	$	1,574,587	$	733,832	$	149,745	$	547,125	$	7,425,613	$	1,646,989	$	2,415,848	$	59,464	$	1,376,725	$	744,821	$	145,029	$	447,575	$	6,836,451

Total Allowance for Loan Losses	$	18,627	$	47,164	$	615	$	19,059	$	6,667	$	7,113	$	4,512	$	103,757	$	24,036	$	43,941	$	414	$	23,872	$	8,196	$	12,158	$	5,189	$	117,806


	At September 30, 2008
	Loan Type																At December 31, 2009
	Commercial		Commercial R/E				Installment		Home Equity		Credit Card		Res Mortgage				Loan Type
Allowance for Loan Losses Components:	Loans		Loans		Leases		Loans		Loans		Loans		Loans		Total		Commercial		Commercial R/E				Installment		Home Equity		Credit Card		Res Mortgage
(In thousands)																	Loans		Loans		Leases		Loans		Loans		Loans		Loans		Total
Individually Reviewed for Impairment Component:
Individually Impaired Loan Component:
Loan balance	$	—	$	55,001	$	—	$	—	$	—	$	—	$	—	$	55,001	$	17,480	$	50,345	$	—	$	—	$	—	$	—	$	—	$	67,825
Allowance		—		4,440		—		—		—		—		—		4,440		3,678		6,849		—		—		—		—		—		10,527
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance		37,728		1,002		6,098										44,828		75,598		1,178		7,441										84,217
Grade 1 allowance		54		2		11										67		47		—		6										53
Grade 2 loan balance		207,990		143,842		3,328										355,160		59,946		74,839		67										134,852
Grade 2 allowance		822		563		16										1,401		52		88		—										140
Grade 3 loan balance		549,293		526,392		30,208										1,105,893		316,535		517,338		15,246										849,119
Grade 3 allowance		1,891		3,122		126										5,139		579		1,137		36										1,752
Grade 4 loan balance		1,014,680		1,544,917		27,543										2,587,140		1,030,872		1,647,918		38,179										2,716,969
Grade 4 allowance		11,468		25,669		320										37,457		8,666		16,306		257										25,229
Grade 5 (Special Mention) loan balance		49,059		59,922		1,222										110,203		42,066		40,748		30										82,844
Grade 5 allowance		2,067		3,554		47										5,668		1,224		1,873		1										3,098
Grade 6 (Substandard) loan balance		28,206		54,895		1,305										84,406		83,884		107,635		578										192,097
Grade 6 allowance		3,092		6,824		131										10,047		7,616		12,558		53										20,227
Grade 7 (Doubtful) loan balance		59		79		—										138		68		72		—										140
Grade 7 allowance		9		9		—										18	��	1		3		—										4
Consumer loans based on payment status:
Current loan balances								1,591,362		715,395		143,624		531,714		2,982,095								1,396,198		748,207		146,906		428,150		2,719,461
Current loans allowance								12,956		5,123		3,578		4,073		25,730								18,038		5,829		8,106		3,304		35,277
30 days past due loan balance								14,261		1,538		2,000		12,252		30,051								18,057		2,306		2,245		13,515		36,123
30 days past due allowance								1,675		482		817		631		3,605								2,813		677		1,178		571		5,239
60 days past due loan balance								4,576		759		975		4,379		10,689								5,919		1,678		1,622		4,301		13,520
60 days past due allowance								1,665		542		626		767		3,600								2,461		1,081		1,217		617		5,376
90+ days past due loan balance								3,282		195		1,580		10,931		15,988								5,199		921		2,752		17,450		26,322
90+ days past due allowance								2,045		219		1,386		1,185		4,835								3,458		912		2,618		1,182		8,170

Total loans	$	1,887,015	$	2,386,050	$	69,704	$	1,613,481	$	717,887	$	148,179	$	559,276	$	7,381,592	$	1,626,449	$	2,440,073	$	61,541	$	1,425,373	$	753,112	$	153,525	$	463,416	$	6,923,489

Total Allowance for Loan Losses	$	19,403	$	44,183	$	651	$	18,341	$	6,366	$	6,407	$	6,656	$	102,007	$	21,863	$	38,814	$	353	$	26,770	$	8,499	$	13,119	$	5,674	$	115,092


	At March 31, 2009
	Loan Type
Allowance for Loan Losses Components:	Commercial		Commercial R/E				Installment		Home Equity		Credit Card		Res Mortgage
(In thousands)	Loans		Loans		Leases		Loans		Loans		Loans		Loans		Total
Individually Impaired Loan Component:
Loan balance	$	11,861	$	52,038	$	—	$	—	$	—	$	—	$	—	$	63,899
Allowance		4,567		5,421		—		—		—		—		—		9,988
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance		31,584		5,967		6,058										43,609
Grade 1 allowance		30		11		7										48
Grade 2 loan balance		194,607		129,771		2,593										326,971
Grade 2 allowance		472		618		8										1,098
Grade 3 loan balance		507,255		538,629		19,315										1,065,199
Grade 3 allowance		1,377		4,010		65										5,452
Grade 4 loan balance		1,035,542		1,617,994		34,410										2,687,946
Grade 4 allowance		7,862		27,282		275										35,419
Grade 5 (Special Mention) loan balance		33,989		40,545		157										74,691
Grade 5 allowance		889		1,901		4										2,794
Grade 6 (Substandard) loan balance		67,205		77,836		1,851										146,892
Grade 6 allowance		5,013		9,175		127										14,315
Grade 7 (Doubtful) loan balance		33		59		—										92
Grade 7 allowance		3		5		—										8
Consumer loans based on payment status:
Current loan balances								1,511,155		737,797		135,627		494,140		2,878,719
Current loans allowance								12,557		5,040		3,269		2,722		23,588
30 days past due loan balance								13,897		1,930		1,780		11,502		29,109
30 days past due allowance								1,733		575		708		421		3,437
60 days past due loan balance								5,205		766		1,547		4,074		11,592
60 days past due allowance								1,950		531		952		501		3,934
90+ days past due loan balance								3,628		580		2,643		15,193		22,044
90+ days past due allowance								2,320		659		2,169		1,028		6,176

Total loans	$	1,882,076	$	2,462,839	$	64,384	$	1,533,885	$	741,073	$	141,597	$	524,909	$	7,350,763

Total Allowance for Loan Losses	$	20,213	$	48,423	$	486	$	18,560	$	6,805	$	7,098	$	4,672	$	106,257

Asset Quality

~~Total charge-offs were $21.8 million~~Making a loan to earn an interest spread inherently includes taking the risk of not being repaid. Successful management of credit risk requires making good underwriting decisions, carefully administering the loan portfolio and diligently collecting delinquent accounts.

The Corporation’s Credit Policy Division manages credit risk by establishing common credit policies for ~~the quarter ended September 30, 2009, up $6.9 million, or 45.88%, from the year ago quarter. Criticized commercial assets (“individually impaired,” “special mention,” “substandard”~~its subsidiaries, participating in approval of their largest loans, conducting reviews of their loan portfolios, providing them with centralized consumer underwriting, collections and ~~“doubtful”) increased $116.9 million~~loan operations services, and ~~accounted~~overseeing their loan workouts. Notes 1 (Summary of Significant Accounting Policies) and 4 (Loans Allowance for ~~8.84% of total commercial loans for~~Loan Losses) in the 2009 ~~third quarter compared~~Form 10-K provide detailed information regarding the Corporation’s credit policies and practices.

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 ~~criticized commercial asset levels of 5.80% at September 30, 2008, reflecting the continued stress~~growth and profitability objectives.

Nonperforming Loans are defined as follows:

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

Restructured loanson which, due to deterioration in the ~~national housing markets and specifically~~borrower’s financial condition, the ~~residential construction portfolio. The homebuilder portfolio~~original terms have been modified in favor of the borrower or either principal or interest has been forgiven.

Nonperforming Assets are defined as follows:

Nonaccrual loanson which interest is ~~examined name-by-name, account-by-account, revalued and rerated frequently. A new appraisal~~no longer accrued because its collection is ~~ordered if~~doubtful.

Restructured loanson which, due to deterioration in the ~~projected velocity and absorption are not being met from~~borrower’s financial condition, the ~~most recent appraisal. Generally,~~original terms have been modified in favor of the appraisals are less than one year old unless velocity and absorption values are affirmed with current performance. The carrying values are further discounted to reflect current liquidation value. This rigorous valuation and resulting rating adds some volatility to commercial construction asset class but give greater transparency.borrower or either principal or interest has been forgiven.

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


	March 31,			December 31,			March 31,
	2010			2009			2009
	(Dollars in thousands)
Nonperforming commercial loans	$	94,798		$	74,033		$	54,070
Other nonaccrual loans:		17,245			17,639			16,134

Total nonperforming loans		112,043			91,672			70,204
Other real estate (“ORE”)		11,277			9,329			6,039

Total nonperforming assets	$	123,320		$	101,001		$	76,243


Loans past due 90 day or more accruing interest	$	21,099		$	35,025		$	18,602

Total nonperforming assets as a percentage of total loans and ORE		1.80	%		1.48	%		1.04	%

Commercial charge-offs were up $3.7 million over the prior year third quarter driven by one commercial credit. Loans past due 90 days on non accruing interest were up $5.6 million or 25.46% from the linked quarter ended June 30,During 2009 and ~~up $11.5 million, or 70.95%, from~~ the ~~year ago~~first quarter ~~ended September 30, 2008, reflecting~~2010 the ~~current deteriorating~~ economic conditions in our markets continued to be challenging. Residential developers and homebuilders have been the ~~retail portfolio.~~most adversely affected, with the significant decrease of buyer resulting from a combination of the restriction of available credit and economic pressure impacting the consumer. Consumers continue to be under pressure due to high debt levels, limited refinance opportunities, increased cost of living and increasing unemployment. These conditions have resulted in increases in bankruptcies as well as charge offs. Commercial nonperforming loans increased/decreased $20.8 million from December 31, 2009 and $40.7 million from March 31, 2009. Criticized loans increased $80.7 million from December 31, 2009, and $138.0 from March 31, 2009.

In nonperforming assets, other real estate includes $1.0 million of vacant land no longer considered for branch expansion which is not related to loan portfolios.

4859

~~Loans~~

Total loans outstanding at September 30, 2009 were $7.0 billion compared to $7.4 billion at December 31, 2008 and $7.4 billion at September 30, 2008. The decline in the loan portfolio of $395.9 million, or 5.33% from December 31, 2008 reflects the current economic cycle in which business owners and consumers are retrenching on their demand for leverage and borrowing. Business customers continue their trend in inventory and receivable reduction and paying down existing debt to strengthen their balance sheets. Consumer customers are taking a similar approach with lower borrowing demand and increased usage of short-term savings products.

As of As of As of
September 30, December 31, September 30,
(Dollars in thousands) 2009 2008 2008

Commercial loans $ 4,097,252 $ $4,352,730 $ 4,273,065
Mortgage loans 481,336 547,125 559,276
Installment loans 1,481,200 1,574,587 1,613,481
Home equity loans 761,553 733,832 717,887
Credit card loans 147,767 149,745 148,179
Leases 60,540 67,594 69,704

Total loans $ 7,029,648 $ 7,425,613 $ 7,381,592

~~Expected cash flow and interest rate information for commercial loans is presented in the following table:~~

As of
September 30, 2009
(Dollars in thousands)
Due in one year or less $ 1,752,470
Due after one year but within five years 1,970,643
Due after five years 374,139

Totals $ 4,097,252

Due after one year with a predetermined fixed interest rate $ 897,968
Due after one year with a floating interest rate 1,446,814

Totals $ 2,344,782

The Corporation did not originate higher risk loans such as option ARM products, high loan-to-value ratio mortgages or subprime loans. Accordingly, there is not a material impact to the results of operations from higher risk loan types.

~~The following table summarizes the Corporation’s nonperforming assets:~~

September 30, December 31, September 30,
2009 2008 2008
(Dollars in thousands)
Nonperforming commercial loans $ 63,357 $ 40,195 $ 29,245
Other nonaccrual loans: 15,474 12,007 9,328

Total nonperforming loans 78,831 52,202 38,573
Other real estate (“ORE”) 10,050 5,324 4,918

Total nonperforming assets $ 88,881 $ 57,526 $ 43,491

Loans past due 90 day or more accruing interest $ 27,764 $ 23,928 $ 16,241

Total nonperforming assets as a percentage of total loans and ORE 1.26 % 0.77 % 0.59 %

~~The allowance for credit losses covers nonperforming loans by 153.27% at September 30, 2009 compared to 211.38% at December 31, 2008 and 281.28% at September 30, 2008.~~ See Note 1 (Summary of Significant Accounting Policies) of the ~~2008~~2009 Form 10-K for a summary of the Corporation’s nonaccrual and charge-off policies.

The following table is a nonaccrual commercial loan flow analysis:

Quarter Ended
September 30, June 30, March 31, December 31, September 30,
(In thousands) 2009 2009 2009 2008 2008

Nonaccrual commercial loans beginning of period $ 48,563 $ 54,070 $ 40,195 $ 29,245 $ 26,702

Credit Actions:
New 24,491 7,259 22,912 18,217 7,504
Loan and lease losses (3,886 ) (5,951 ) (1,950 ) (1,146 ) (2,440 )
Charged down (3,321 ) (4,182 ) (2,603 ) (4,458 ) (1,135 )
Return to accruing status (24 ) (660 ) (3,333 ) (123 ) (409 )
Payments (2,466 ) (1,973 ) (1,151 ) (1,540 ) (977 )
Sales — — — — —

Nonaccrual commercial loans end of period $ 63,357 $ 48,563 $ 54,070 $ 40,195 $ 29,245

Nonaccrual commercial loans have increased $14.8 million from the second quarter of 2009 and increased $34.1 million from the third quarter of 2008. Although the Corporation has experienced manageable credit stress within segments of our Commercial loan portfolios, the business climate in our markets continues to be challenging. Residential developers and

homebuilders have been the most adversely affected. The significant decrease of home buyers due to a combination of the restriction of available credit and economic pressure impacting the consumer has negatively impacted this sub-segment of the portfolio. The Corporation participates in the U.S. Treasury Home Affordable Modification Program.


	Quarter Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009
	(Dollars in thousands)
Nonaccrual commercial loans beginning of period	$	74,033		$	63,357		$	48,563		$	54,070		$	40,195

Credit Actions:
New		31,211			34,612			24,491			7,259			22,912
Loan and lease losses		(5,367	)		(5,272	)		(3,886	)		(5,951	)		(1,950	)
Charged down		(3,567	)		(12,710	)		(3,321	)		(4,182	)		(2,603	)
Return to accruing status		(672	)		(478	)		(24	)		(660	)		(3,333	)
Payments		(840	)		(5,476	)		(2,466	)		(1,973	)		(1,151	)
Sales		—			—			—			—			—

Nonaccrual commercial loans end of period	$	94,798		$	74,033		$	63,357		$	48,563		$	54,070

Deposits, Securities Sold Under Agreements to Repurchase and Wholesale Borrowings

The following ~~schedule illustrates~~ratios and table provide additional information about the change in ~~composition~~the mix of ~~the average balances of deposits and average rates paid for the noted periods.~~customer deposits.


	Quarter Ended					Year Ended					Quarter Ended					Quarter Ended					Year Ended					Quarter Ended
	September 30, 2009					December 31, 2008					September 30, 2008					March 31, 2010					December 31, 2009					March 31, 2009
	Average		Average			Average		Average			Average		Average			Average		Average			Average		Average			Average		Average
	Balance		Rate			Balance		Rate			Balance		Rate			Balance		Rate			Balance		Rate			Balance		Rate
						(Dollars in thousands)										(Dollars in thousands)
Non-interest DDA	$	1,947,359		—		$	1,530,021		—		$	1,545,427		—		$	2,146,969		—		$	1,910,171		—		$	1,767,885		—
Interest-bearing DDA		647,712		0.08	%		687,160		0.37	%		678,803		0.35	%		687,233		0.09	%		656,367		0.09	%		655,279		0.10	%
Savings and money market		2,916,980		0.78	%		2,398,778		1.24	%		2,373,995		1.16	%		3,709,246		0.83	%		2,886,842		0.81	%		2,638,166		0.83	%
CDs and other time deposits		1,872,456		2.60	%		2,801,623		3.78	%		2,728,139		3.42	%		1,797,348		1.45	%		2,056,208		2.66	%		2,582,788		2.92	%

Total customer deposits		7,384,507		0.98	%		7,417,582		1.86	%		7,326,364		1.68	%		8,340,796		0.69	%		7,509,588		1.05	%		7,644,118		1.28	%

Securities sold under agreements to repurchase		1,087,875		0.47	%		1,343,441		2.37	%		1,504,011		2.18	%		951,927		0.48	%		1,013,167		0.47	%		941,112		0.43	%
Wholesale borrowings		883,377		3.06	%		663,109		4.16	%		634,226		4.27	%		708,414		3.53	%		952,979		2.87	%		1,151,777		2.59	%

Total funds	$	9,355,759				$	9,424,132				$	9,464,601				$	10,001,137				$	9,475,734				$	9,737,007

Total average demand deposits ~~increased as a percent~~comprised 33.98% of ~~total~~ average deposits ~~from 35.14%~~ in the ~~2009 third~~2010 first quarter compared to ~~30.36%~~31.70% in the ~~third~~first quarter ~~2008.~~2009. Savings accounts, including money market products, made up ~~39.50%~~44.46% of average deposits in the ~~2009 third~~2010 first quarter compared to ~~32.40%~~34.51% in the ~~third~~first quarter ~~2008. Higher cost~~2009. CDs made up ~~25.36%~~21.55% of average deposits in the ~~third~~first quarter ~~2009~~2010 and ~~compared to 37.24%~~33.79% in the ~~third~~first quarter ~~2008. These results reflect~~2009.

Deposits balances were elevated by the ~~Corporation’s continued success~~$395.7 million in ~~growing core~~deposits assumed as part of the George Washington transaction, and by $1.2 billion in deposits assumed on February 19, 2010 from First Bank. The Corporation received approximately $40.2 million from the FDIC associated with the George Washington transaction and believes that this provides sufficient liquidity to fund the potential at-risk deposit relationships and deemphasizing a reliance on higher-cost certificate of deposit accounts. The core deposit growth reflects the Corporation’s success in building a strong brand name in its core markets and capitalizing on market disruption in northeast Ohio.outflows.

The average cost of deposits, securities sold under agreements to repurchase and wholesale borrowings was down ~~205~~119 basis points compared to one year ago, or ~~.42%~~2.15% for the quarter ended ~~September 30, 2009 due to the drop in interest rates and the disruption in the capital markets.~~March 31, 2010.

Capital Adequacy

Capital adequacy is an important indicator of financial stability and performance. The Corporation maintained a strong capital position as tangible common equity to assets was ~~8.65%~~7.93% at ~~September 30, 2009,~~March 31, 2010, compared to ~~7.27%~~8.89% at December 31, ~~2008,~~2009, and ~~7.45%~~7.60% at ~~September 30, 2008.~~March 31, 2009.

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

The George Washington FDIC-assisted transaction, which was accounted for as a business combination, resulted in the recognition of an FDIC indemnification asset, which represents the fair value of estimated future payments by the FDIC to the Corporation for losses on covered assets. The FDIC indemnification asset, as well as covered assets, are risk-weighted at 20% for regulatory capital requirement purposes.

As of ~~September 30, 2009,~~March 31, 2010, the Corporation, on a consolidated basis, as well as FirstMerit Bank, exceeded the minimum capital levels of the well capitalized category.

5362

~~The following table reflects the various measures of capital:~~


	September 30,				December 31,				September 30,				March 31,				December 31,				March 31,
	2009				2008				2008				2010				2009				2009
	(Dollars in thousands)												(Dollars in thousands)
Consolidated
Total equity	$	1,059,209	9.84	%	$	937,843	8.45	%	$	926,078	8.67	%	$	1,155,353	9.38	%	$	1,065,627	10.11	%	$	1,084,269	9.88	%
Common equity		1,059,209	9.84	%		937,843	8.45	%		926,078	8.67	%		1,155,353	9.38	%		1,065,627	10.11	%		963,647	8.78	%
Tangible common equity (a)		918,821	8.65	%		797,195	7.27	%		785,343	7.45	%		961,749	7.93	%		924,871	8.89	%		823,086	7.60	%
Tier 1 capital (b)		945,620	11.43	%		870,870	10.19	%		865,983	10.30	%		1,002,610	11.75	%		971,013	12.09	%		1,001,901	11.86	%
Total risk-based capital (c)		1,049,287	12.68	%		1,007,679	11.80	%		1,001,141	11.90	%		1,109,453	13.01	%		1,071,682	13.34	%		1,107,571	13.11	%
Leverage (d)		945,620	9.06	%		870,870	8.19	%		865,983	8.28	%		1,002,610	9.03	%		971,013	9.39	%		1,001,901	9.13	%

Bank Only
Total equity	$	839,097	7.81	%	$	744,535	6.72	%	$	768,285	7.20	%	$	974,433	7.92	%	$	946,626	9.00	%	$	792,085	7.23	%
Common equity		839,097	7.81	%		744,535	6.72	%		768,285	7.20	%		974,433	7.92	%		946,626	9.00	%		792,085	7.23	%
Tangible common equity (a)		698,709	6.59	%		603,887	5.52	%		627,550	5.96	%		829,529	6.82	%		806,223	7.77	%		651,524	6.02	%
Tier 1 capital (b)		810,149	9.81	%		762,634	8.95	%		793,311	9.45	%		796,182	9.35	%		826,517	10.31	%		794,697	9.43	%
Total risk-based capital (c)		909,588	11.01	%		895,703	10.51	%		924,782	11.02	%		898,734	10.56	%		922,919	11.51	%		896,531	10.64	%
Leverage (d)		810,149	7.77	%		762,634	7.18	%		793,311	7.60	%		796,182	7.09	%		826,517	8.00	%		794,697	7.26	%

$19.69 per share. On April 22, 2009, the Corporation repurchased all 125,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A for $126.2 million which included all accrued and unpaid dividends as well as the unamortized discount on the preferred stock. On May 27, 2009, the Corporation completed the repurchase of the warrant held by the Treasury. The Corporation paid $5.0 million to the Treasury to repurchase the warrant.

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 Asset and Liability Committee (“ALCO”) oversees market risk management, establishing risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital. According to

these policies, responsibility for measuring and the management of interest rate risk resides in the ~~corporate treasury~~Corporate Treasury function.

~~The~~Interest rate risk on the Corporation’s balance sheets consists of reprice, option, and basis risks. Reprice risk results from differences in the maturity, or repricing, of asset and liability portfolios. Option risk arises from “embedded options” present in the investment portfolio and in many financial instruments such as loan prepayment options, deposit early withdrawal options, and interest rate options. These options allow customers opportunities to benefit when market interest rates change, which typically results in higher costs or lower revenue for the Corporation. Basis risk ~~position can be influenced by~~refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in a ~~number~~narrowing of ~~factors other than changes~~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, including economic conditions, the competitive environment within the Corporation’s markets, consumer preferences for specific loan and deposit products, and the level of interest rate exposure arising from reprice risk, option risk, and basis risk.rates. Each of these types of risks is defined in the discussion of market risk management inof the ~~2008~~2009 Form 10-K.

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

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

Presented below is the Corporation’s interest rate risk profile as of ~~September 30, 2009~~March 31, 2010 and ~~2008:~~2009:

Immediate Change in Rates and Resulting Percentage
Increase/(Decrease) in Net Interest Income:
- 100 basis + 100 basis + 200 basis + 300 basis
points points points points

September 30, 2009 * 0.47 % 0.46 % 0.02 %
September 30, 2008 (3.06 %) 1.44 % 2.77 % 4.14 %


	Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in Net Interest Income:
	- 100 basis		+ 100 basis			+ 200 basis			+ 300 basis
	points		points			points			points
March 31, 2010		*		1.99	%		3.41	%		4.22	%
March 31, 2009		*		2.43	%		4.25	%		5.36	%


*		Modeling for the decrease in 100 basis points scenario has been suspended due to the current rate environment.

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~~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~~Management’s best estimate of expected behavior and these assumptions are reviewed regularly.

Economic value of equity modeling.The Corporation also has longer-term interest rate risk exposure, which may not be appropriately measured by earnings sensitivity analysis. ALCO uses economic value of equity (“EVE”) sensitivity analysis to study the impact of long-term cash flows on earnings and capital. EVE involves discounting present values of all cash flows of on balance sheet and off balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents the Corporation’s economic value of equity. The analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base-case measurement and its sensitivity to shifts in the yield curve allow management to measure longer-term repricing and option risk in the balance sheet.

Presented below is the Corporation’s EVE profile as of ~~September 30, 2009~~March 31, 2010 and ~~2008:~~2009:

Immediate Change in Rates and Resulting Percentage
Increase/(Decrease) in EVE:
- 100 basis + 100 basis + 200 basis + 300 basis
points points points points

September 30, 2009 * 1.81 % (0.13 %) (0.44 %)
September 30, 2008 (3.20 %) 0.03 % (1.53 %) (3.49 %)


	Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in EVE:
	- 100 basis		+ 100 basis			+ 200 basis			+ 300 basis
	points		points			points			points
March 31, 2010		*		2.82	%		3.09	%		2.27	%
March 31, 2009		*		2.95	%		5.13	%		2.40	%


*		Modeling for the decrease in 100 basis points scenario has been suspended due to the current rate environment.

Management of interest rate exposure.Management uses the results of its various simulation analyses to formulate strategies to achieve a desired risk profile within the parameters of the Corporation’s capital and liquidity guidelines. Specifically, ~~management~~Management actively manages interest rate risk positions by using derivatives predominately in the form of interest rate swaps, which modify the interest rate characteristics of certain assets and liabilities. For more information about how the Corporation uses interest rate swaps to manage its balance sheet, see Note 8 (Derivatives and Hedging Activities) to the unaudited consolidated financial statements included in this ~~Report.~~report.

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 month and identifying sources and uses of funds. 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. In addition, the overall management of the Corporation’s liquidity position is integrated into retail deposit pricing policies to ensure a stable core deposit base.

The Corporation’s primary source of liquidity is its core deposit base, raised through its retail branch ~~system,~~system. Core deposits comprised approximately 78.45% of total deposits at March 31, 2010. The Corporation’s wholly owned subsidiary, FirstMerit Bank, N.A., received approximately $40.2 million from the FDIC associated with the FDIC-assisted transaction involving George Washington. The Corporation believes these funds along with ~~unencumbered, or unpledged, investment securities.~~its other sources of liquidity provides sufficient liquidity to fund potential at-risk deposit outflows from this institution.

The Corporation also has available unused wholesale sources of liquidity, including advances from the FHLB of Cincinnati, issuance through dealers in the capital markets and access to certificates of deposit issued through brokers. Liquidity is ~~also~~further provided by unencumbered, or unpledged, investment securities that totaled ~~$791.7~~$1.2 million at ~~September 30, 2009.~~March 31, 2010.

The Corporation’s liquidity could be adversely affected by both direct and indirect circumstances. An example of a direct 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 indirect 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.

Certain credit markets that the Corporation participates in (from time to time), as sources of funding have been significantly disrupted and highly volatile since July 2007. As a means of maintaining adequate liquidity, the Corporation, like many other financial institutions, has relied more heavily on the liquidity and stability present in the short-term and secured credit markets since access to unsecured term debt has been restricted. Short-term funding has been available and cost effective. However, if further market disruption were to also reduce the cost effectiveness and availability of these funds for a prolonged period of time, management may need to secure other funding alternatives.

The Corporation maintains a liquidity contingency plan that outlines the process for addressing a liquidity crisis. The plan provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and responsibilities for effectively managing liquidity through a problem period.

�� Funding Trends for the Quarter- —During the three months ended ~~September 30, 2009,~~March 31, 2010, lower cost core deposits increased by ~~$194.5~~$852.4 million from the previous quarter. In aggregate, deposits ~~decreased $179.9 million driven by a decline in higher cost CD balances.~~increased $1.9 billion. Securities sold under agreements to repurchase ~~increased $280.5~~decreased $100.0 million from ~~June 30,~~December 31, 2009. Wholesale borrowings decreased ~~$175.0~~$62.4 million from ~~June 30, 2009.~~the end of 2009 to March 31, 2010. The Corporation’s loan to deposit ratio ~~increased~~decreased to ~~96.68%~~78.55% at ~~September 30, 2009~~March 31, 2010 from ~~95.89%~~92.14% at ~~June 30,~~December 31, 2009.

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

During the quarter ended ~~September 30, 2009,~~March 31, 2010, FirstMerit Bank ~~paid $28.5 million in~~did not pay dividends to FirstMerit Corporation. As of ~~September 30, 2009,~~March 31, 2010, FirstMerit Bank had an additional ~~$55.5~~$93.1 million available to pay dividends without regulatory approval.

Recent Market and Regulatory Developments.Recent market conditions have made it difficult or uneconomical to access the capital markets. As a result, the United States Congress, the Treasury, and the ~~FDIC~~Federal Deposit Insurance Corporation (“FDIC”) have announced various programs designed to enhance market liquidity and bank capital.

In response to the ongoing financial crisis affecting the banking system and financial markets, EESA was signed into law on October 3, 2008 and established TARP. As part of TARP, the Treasury established the CPP to provide up to $700 billion of funding to eligible financial institutions through the purchase of mortgages, mortgage-backed securities, capital stock and other financial instruments for the purpose of stabilizing and providing liquidity to the U.S. financial markets. The American Recovery and Reinvestment Act of 2009 (“ARRA”), more commonly known as the economic stimulus or economic recovery package, was signed into law on February 17, 2009, by President Obama. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients until the institution has repaid the Treasury. On January 9, 2009, the Corporation completed the sale to the Treasury of $125.0 million of newly issued FirstMerit non-voting preferred shares as part of the ~~CPP.~~CPP and a warrant to purchase 952,260 FirstMerit common shares at an exercise price of $19.69 per share. On April 22, 2009, the Corporation completed the repurchase of all 125,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A for $126.2 million which included all accrued and unpaid dividends as well as the unamortized discount on the preferred stock. On May 27, 2009 the Corporation completed the repurchase of the warrant held by the Treasury. The Corporation paid $5.0 million to the Treasury to repurchase the warrant.

Separately, the FDIC announced its temporary liquidity guarantee program (“TLPG”) pursuant to which the FDIC will guarantee the payment of certain newly-issued senior unsecured debt of insured depository institutions (“Debt Guarantee”) and funds held at FDIC-insured depository institutions in noninterest-bearing transaction accounts in excess of the current standard maximum deposit insurance amount of $250,000 (“Transaction Account Guarantee”). Both guarantees were provided to eligible institutions, including the Corporation, at no cost

through December 5, 2008. Participation in the TLPG subsequent to December 5, 2008 iswas optional.

The Corporation elected to participate in the TLPG subsequent to December 5, 2008.

The Transaction Account Guarantee is effective for the Corporation through ~~January 1,~~June 30, 2010. Under the Debt Guarantee, qualifying senior unsecured debt newly issued by the Corporation during the period from October 14, 2008 to June 30, 2009, inclusive, is covered by the FDIC guarantee. The maximum amount of debt that eligible institutions can issue under the guarantee is 125% of the par value of the entity’s qualifying senior unsecured debt, excluding debt to affiliates that was outstanding as of September 30, 2008, and scheduled to mature by June 30, 2009. The FDIC will provide guarantee coverage until the earlier of the eligible debt’s maturity or June 30, 2012.

Participants in the Debt Guarantee Program are assessed an annualized fee of 75 basis points for its participation, and an annualized fee of 10 basis points for its participation in the Transaction Account Guarantee. To the extent that these initial assessments are insufficient to cover the expense or losses arising under TLPG, the FDIC is required to impose an emergency special assessment on all ~~FDIC-insured~~FDIC insured depository institutions as prescribed by the Federal Deposit Insurance Act. In May 2009, the FDIC announced it was imposing an emergency special assessment of five basis points on average assets of all FDIC-insured depository institutions as of June 30, 2009.

~~The American Recovery and Reinvestment Act~~ On November 12, 2009, the FDIC adopted a final rule requiring insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 ~~(“ARRA”), more commonly known as~~and for all of 2010, 2011 and 2012. The prepaid assessments for these periods were collected on December 30, 2009, along with the ~~economic stimulus or economic recovery package,~~regular quarterly risk-based deposit insurance assessment for the third quarter of 2009. For the fourth quarter of 2009 and for all of 2010, the prepaid assessment rate was ~~signed into law~~based on ~~February 17,~~each institution’s total basis point assessment in effect on September 30, 2009, adjusted to assume a 5% annualized deposit growth rate; for the 2011 and 2012 periods the computation is adjusted by ~~President Obama. ARRA includes a wide variety of programs intended to stimulate~~an additional three basis points increase in the ~~economy and provide~~assessment rate. The three-year prepayment for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients, including the Corporation ~~until the institution has repaid the Treasury. On April 22, 2009, the Corporation completed the~~

repurchase of all 125,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A for $126.2 million which included all accrued and unpaid dividends as well as the unamortized discount on the preferred stock. On May 27, 2009 the Corporation completed the repurchase of the warrant held by the Treasury. The Corporation paid $5.0 million to the Treasury to repurchase the warrant.totaled $43.9 million.

Critical Accounting Policies

The Corporation’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the financial services industry in which it operates. All accounting policies are important, and all policies described in Note 1 (Summary of Significant Accounting Policies) of the ~~2008~~2009 Form 10-K provide a greater understanding of how the Corporation’s financial performance is recorded and reported.

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

Management relies heavily on the use of judgment, assumptions and estimates to make a number of core decisions, including accounting for the allowance for loan losses, income taxes, derivative instruments and hedging activities, and assets and liabilities that involve valuation methodologies. A brief discussion of each of these areas appears within Management’s

Discussion and Analysis of Financial Condition and Results of Operations in the ~~2008~~2009 Form 10-K.

Purchased loans and related indemnification assets.In accordance with applicable authoritative accounting guidance, all purchased loans and related indemnification assets are recorded at fair value at date of purchase. The initial valuation of these loans and related indemnification asset requires Management to make subjective judgments concerning estimates about how the acquired loans will perform in the future using valuation methods including discounted cash flow analysis and independent third-party appraisals. Factors that may significantly affect the initial valuation include, among others, market-based and industry data related to expected changes in interest rates, assumptions related to probability and severity of credit losses, estimated timing of credit losses including those the foreclosure and liquidation of collateral, expected prepayment rates, required or anticipated loan modifications, unfunded loan commitments, the specific terms and provisions of any loss share agreements, and specific industry and market conditions that may impact discount rates and independent third-party appraisals.

On an ongoing basis, the accounting for purchased loans and related indemnification assets follows applicable authoritative accounting guidance for purchased non-impaired loans and purchased impaired loans. The amount that the Corporation realizes on these loans and related indemnification assets could differ materially from the carrying value reflected in these financial statements, based upon the timing and amount of collections on the acquired loans in future periods. The Corporation’s losses on these assets may be mitigated to the extent covered under the specific terms and provisions of any loss share agreements.

Off-Balance Sheet Arrangements

A detailed discussion of the Corporation’s off-balance sheet arrangements, including interest rate swaps, forward sale contracts, IRLCs, and TBA Securities is included in Note 8 (Derivatives and Hedging Activities) to the Corporation’s consolidated financial statements included in this ~~Report~~report and in Note 17 to the ~~2008~~2009 Form 10-K. There have been no significant changes since December 31, ~~2008.~~2009.

Forward-looking Safe-harbor Statement

Discussions in this ~~Report~~report that are not statements of historical fact (including statements that include terms such as “will,” “may,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “project,” intend,” and “plan”) are forward-looking statements that involve risks and uncertainties. Any forward-looking statement is not a guarantee of future performance and actual future results could differ materially from those contained in forward-looking information. Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detained from time to time in the Corporation’s filings with the Securities and Exchange Commission, including without limitation the risk factors disclosed in Item 1A, “Risk Factors,” of the ~~2008~~2009 Form 10-K.

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; and critical accounting estimates. 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 Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve), Financial Industry Regulatory Authority (FINRA), and other regulators; regulatory and judicial proceedings and changes in laws and regulations applicable to the Corporation; and the Corporation’s success in executing its business plans and strategies 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~~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 Section in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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,~~report, that the Corporation’s disclosure controls and procedures are effective.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, the Corporation is 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 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.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in ~~2008~~2009 Form 10-K.

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

(a)		Not applicable.

(b)		Not applicable.

(a)

The following table provides information with respect to purchases the Corporation made of its common shares during the ~~third~~first quarter of ~~2009:~~the 2010 fiscal year:

Total Number of Maximum
Shares Purchased Number of Shares
as Part of Publicly that May Yet Be
Total Number of Average Price Announced Plans Purchased Under
Shares Purchased (2) Paid per Share or Programs (1) Plans or Programs (1)

Balance as of June 30, 2009
396,272

July 1, 2009 - July 31, 2009 9,036 $ 24.11 — 396,272
August 1, 2009 - August 31, 2009 3,302 20.95 — 396,272
September 1, 2009 - September 30, 2009 877 24.02 — 396,272

Balance as of September 30, 2009
13,215 $ 23.32 — 396,272

Total Number of Maximum
Shares Purchased Number of Shares
as Part of Publicly that May Yet Be
Total Number of Average Price Announced Plans Purchased Under
Shares Purchased (2) Paid per Share or Programs (1) Plans or Programs
Balance as of December 31, 2009
396,272

January 1, 2010 - January 31, 2010 38,762 $ 22.09 — 396,272
February 1, 2010 - February 28, 2010 64,017 21.05 — 396,272
March 1, 2010 - March 31, 2010 12,698 24.16 — 396,272

Balance as of March 31, 2010:
115,477 $ 21.73 — 396,272


(1)		On January 19, 2006, the Board of Directors authorized the repurchase of up to 3 million shares (the “New Repurchase Plan”). The New Repurchase Plan, which has no expiration

6271


		date, superseded all other repurchase programs, including that authorized by the Board of Directors on July 15, 2004 (the “Prior Repurchase Plan”). The Corporation had purchased all of the shares it was authorized to acquire under the Prior Repurchase Plan.

(2)		Reflects 115,477 common shares purchased as a result of either: (1) ~~delivery~~delivered by the option holder with respect to the exercise of stock options; (2) in the case of restricted shares of common stock, shares were withheld to pay income taxes or other tax liabilities ~~associated~~ with ~~vested~~respect to the vesting of restricted ~~shares of common stock;~~shares; or (3) shares were returned upon the resignation of the restricted shareholder. ~~No shares were purchased under the program referred to in note (1) to this table during the third quarter of 2009.~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

~~None.~~The Corporation held its Annual Meeting of Shareholders on April 21, 2010, for which the Board of Directors solicited proxies.

(1) Directors were elected at the Annual Meeting for terms expiring at the 2011 Annual Meeting of Shareholders, with the following voting results:

Authority Broker
For Against Withheld Non-Votes
Steven H. Baer 64,394,273 * 6,103,010 8,410,770
Karen S. Belden 63,948,707 * 6,548,576 8,410,770
R. Cary Blair 63,259,864 * 7,237,420 8,410,770
John C. Blickle 64,023,421 * 6,473,862 8,410,769
Robert W. Briggs 64,091,003 * 6,406,281 8,410,770
Richard Colella 63,945,635 * 6,551,649 8,410,769
Gina D. France 64,408,180 * 6,089,104 8,410,769
Paul G. Greig 63,477,462 * 7,019,821 8,410,770
Terry L. Haines 63,341,507 * 7,155,777 8,410,769
J. Michael Hohhschwender 63,665,329 * 6,831,955 8,410,769
Clifford J. Isroff 63,093,621 * 7,403,663 8,410,769
Philip A. Lloyd II 62,142,643 * 8,354,640 8,410,770


*		Proxies provide that shareholders may either cast a vote for, or abstain from voting for, directors.

In addition to the election of Directors, the following matters were voted on at the Annual Meeting of Shareholders:

(2) Ratification of the selection of Ernst & Young LLP as independent registered public accounting firm for the year ending December 31, 2010:

Authority Broker
For Against Withheld Non-Votes
76,673,409 1,738,647 495,991 —
(3) Approval of amendments to Article FOURTH and Annex A of FirstMerit Corporation’s Second Amended and Restated Articles of Incorporation which contain the express terms and standard provision of the Corporation’s previously issued shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A:

Authority Broker
For Against Withheld Non-Votes
76,896,616 1,129,944 881,479 15
(4) Approval of the amendments to Article III, Section 2 of FirstMerit Corporation’s Second Amended and Restated Code of Regulations to authorize the Board of Directors to establish the number of directors within a range from nine to fifteen without shareholder approval and to establish the current number of directors at twelve:

Authority Broker
For Against Withheld Non-Votes
70,881,457 7,135,137 891,445 15
(5) Approval of the amendments to Article SEVENTH of FirstMerit Corporation’s Second Amended and Restated Articles of Incorporation to include a provision that would allow shareholders to approve, by a majority of the voting poser of the company, any matter that otherwise could require the approval of two-thirds or any other proportion (but not less than all) of the voting poser of the Corporation under Ohio law, and to eliminate the need to obtain shareholder approval for certain smaller business combinations and mergers:

Authority Broker
For Against Withheld Non-Votes
70,853,923 6,985,958 1,068,152 20
(6) Approval of the amendments to Article EIGHTH of FirstMerit Corporation’s Second Amended and Restated Articles of Incorporation to include a provision that would allow shareholders to approve all amendments to the Articles by a majority of the voting power of the Corporation:

Authority Broker
For Against Withheld Non-Votes
75,893,990 2,038,591 975,454 19

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)Exhibits

~~(a)~~

~~Exhibits~~


Exhibit
Number		Description

	2.1	Purchase and Assumption Agreement Whole Bank All Deposits, among the Federal Deposit Insurance Corporation, receiver of George Washington Savings Bank, Orland Park, Illinois, the Federal Deposit Insurance Corporation and FirstMerit Bank, N.A., dated as of February 19, 2010 (incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 22, 2010).

	3.1	Second Amended and Restated Articles of Incorporation of FirstMerit Corporation, as amended ~~(incorporated by reference from Exhibit 3.1 to the Annual Report on Form 10-K filed by the Registrant on February 18, 2009)~~(filed herewith).

	3.2	Second Amended and Restated Code of Regulations of FirstMerit Corporation, as amended ~~(incorporated by reference from Exhibit 3.2 to the Annual Report on Form 10-K filed by the Registrant on February 18, 2009)~~(filed herewith).

	10.1	FirstMerit Corporation 2010 Retention Bonus Plan (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 22, 2010).

	10.2	Distribution Agency Agreement dated March 3, 2010 between FirstMerit Corporation and Credit Suisse Securities (USA) LLC (incorporated by reference from Exhibit 99.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on March 3, 2010).

	10.3	Distribution Agency Agreement dated March 3, 2010 between FirstMerit Corporation and RBC Capital Markets Corporation (incorporated by reference from Exhibit 99.2 to the Current Report on Form 8-K filed by FirstMerit Corporation on March 3, 2010).

	31.1	Rule 13a-14(a)/Section 302 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit Corporation.

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

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

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

6475

	credit arrangements, ~~inventory and accounts receivable financing,~~asset-based lending, leasing, commercial mortgages, real estate construction lending, ~~and~~ letters of ~~credit.~~credit, cash management services and other depository products.

•		Retail —The retail line of business includes consumer lending and deposit gathering, ~~and~~ residential mortgage loan origination and ~~servicing.~~servicing, and branch-based small business banking (formerly known as the “micro business” line). Retail offers a variety of retail financial products and services including consumer direct and indirect installment loans, debit and credit cards, debit gift cards, residential mortgage loans, home equity loans and lines of credit, ~~residential mortgage loans,~~ 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


*		Average outstanding shares and per share data as of March 31, 2009 are restated to reflect the effect of stock dividends declared April 28, 2009 and August 20, 2009.


	At September 30, 2009																			At March 31, 2010
	Less than 12 months							12 months or longer							Total					Less than 12 months							12 months or longer							Total
						Number of							Number of												Number of							Number of
			Unrealized			impaired				Unrealized			impaired				Unrealized					Unrealized			Imparied				Unrealized			Imparied				Unrealized
Securities available for sale	Fair Value		Losses			securities		Fair Value		Losses			securities		Fair Value		Losses
Debt securities
U.S States and political subdivisions	$	1,697	$	(22	)		2	$	—	$	—			—	$	1,697	$	(22	)
																				Fair Value		Losses			Securities		Fair Value		Losses			Securities		Fair Value		Losses
Debt Securities
U.S. government agency debentures																				$	232,571	$	(743	)		15	$	—	$	—			—	$	232,571	$	(743	)
U.S. States and political subdivisions																					39,342		(417	)		63		—		—			—		39,342		(417	)
Residential mortgage-backed securities:
U.S. government agencies securities:		—		—			—		306		(4	)		3		306		(4	)
U.S. government agencies																					131,708		(296	)		9		238		(3	)		1		131,946		(299	)
Residential collateralized mortgage-backed securities:
U.S. government agencies		6,200		(13	)		1		—		—			—		6,200		(13	)		164,827		(228	)		13		—		—			—		164,827		(228	)
Non-agency		—		—			—		—		—			—		—		—			4		(1	)		1		—		—			—		4		(1	)
Corporate debt securities		—		—			—		39,502		(21,870	)		8		39,502		(21,870	)		—		—			—		43,794		(17,603	)		8		43,794		(17,603	)

Total temporarily impaired securities	$	7,897	$	(35	)		3	$	39,808	$	(21,874	)		11	$	47,705	$	(21,909	)	$	568,452	$	(1,685	)		101	$	44,032	$	(17,606	)		9	$	612,484	$	(19,291	)


December 31, 2009	$	88
December 31, 2010		347
December 31, 2011 and beyond		708

	$	1,143


*		Average common shares outstanding have been restated as of March 31, 2009 to reflect stock dividends of 611,582 shares declared April 28, ~~2009.~~2009 and 609,560 shares declared on August 20, 2009.


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

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


Amount of Gain / (Loss)		Amount of Gain / (Loss)			Amount of Gain /
Recognized in OCI on		Reclassified from			(Loss) Recognized in
Derivative (Effective		Accumulated OCI into			Income on Derivative
Portion)		Income (Effective Portion)			(Ineffective Portion)

$	(115)	$	(8	)	$	295


	Postretirement Benefits											Postretirement Benefits
	Quarter ended					Nine months ended						Three months ended
	September 30,					September 30,						March 31,
	2009		2008			2009			2008			2010		2009
Components of Net Periodic Postretirement Cost
Service Cost	$	15	$	249		$	44		$	746		$	15	$	15
Interest Cost		299		443			897			1,329			240		299
Amortization of unrecognized prior service costs		—		(136	)		—			(406	)
Cumulative net loss		9		71			26			211			4		9

Net Postretirement Benefit Cost		323		627			967			1,880			259		323
Curtailment Gain		—		—			(9,543	)		—			—		(9,543	)

Net periodic postretirement (benefit)/cost	$	323	$	627		$	(8,576	)	$	1,880		$	259	$	(9,220	)


Note:		There were no transfers between Levels 1 and 2 of the fair value hiearchy during the quarter ended March 31, 2010.


(1)		Represents the fair value, and related change in the value, of foreclosed real estate and other collateral owned by the Corporation during the period.


Prepayment speed assumption (annual CPR)		9.75	%
Decrease in fair value from 10% adverse change	$	776
Decrease in fair value from 25% adverse change		1,864
Discount rate assumption		9.71	%
Decrease in fair value from 100 basis point adverse change	$	731
Decrease in fair value from 200 basis point adverse change		1,409
Expected weighted-average life (in months)		106.1


Prepayment speed assumption (annual CPR)		11.08	%
Decrease in fair value from 10% adverse change	$	831,906
Decrease in fair value from 20% adverse change		1,616,784
Discount rate assumption		9.68	%
Decrease in fair value from 100 basis point adverse change	$	748,699
Decrease in fair value from 200 basis point adverse change		1,443,269
Expected weighted-average life (in months)		104.2


Note:		Interest income on tax-exempt securities and loans has been adjusted to a fully-taxable equivalent basis.

		Nonaccrual loans have been included in the average balances.


	Quarters ended September 30, 2009 and 2008									Nine months ended September 30, 2009 and 2008
RATE/VOLUME ANALYSIS	Increases (Decreases)									Increases (Decreases)
(Dollars in thousands)	Volume			Rate			Total			Volume			Rate			Total
INTEREST INCOME — FTE
Investment securities and federal funds sold	$	3,147		$	(2,840	)	$	307		$	9,156		$	(5,331	)	$	3,825
Loans held for sale		72			(20	)		52			(647	)		(25	)		(672	)
Loans		(3,245	)		(20,429	)		(23,674	)		3,538			(75,233	)		(71,695	)

Total interest income — FTE	$	(26	)	$	(23,289	)	$	(23,315	)	$	12,047		$	(80,589	)	$	(68,542	)

INTEREST EXPENSE
Demand deposits-interest bearing	$	(26	)	$	(426	)	$	(452	)	$	(114	)	$	(1,579	)	$	(1,693	)
Savings and money market accounts		1,373			(2,542	)		(1,169	)		3,739			(10,222	)		(6,483	)
Certificates of deposits and other time deposits		(6,366	)		(4,813	)		(11,179	)		(14,270	)		(21,570	)		(35,840	)
Securities sold under agreements to repurchase		(1,815	)		(5,143	)		(6,958	)		(6,447	)		(18,162	)		(24,609	)
Wholesale borrowings		2,236			(2,213	)		23			9,655			(8,724	)		931

Total interest expense	$	(4,598	)	$	(15,137	)	$	(19,735	)	$	(7,437	)	$	(60,257	)	$	(67,694	)

Net interest income — FTE	$	4,572		$	(8,152	)	$	(3,580	)	$	19,484		$	(20,332	)	$	(848	)


Maturing in:	Amount
	(In thousands)
Time until maturity:			Amount
	(In thousands)
Under 3 months	$	252,281	$	175,013
3 to 6 months		92,656		142,376
6 to 12 months		73,748		240,349
Over 1 year through 3 years		60,187		103,904
Over 3 years		8,949		32,125

	$	487,821	$	693,767


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

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

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

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


	Immediate Change in Rates and Resulting Percentage
	Increase/(Decrease) in Net Interest Income:
	- 100 basis			+ 100 basis			+ 200 basis			+ 300 basis
	points			points			points			points

September 30, 2009		*			0.47	%		0.46	%		0.02	%
September 30, 2008		(3.06	%)		1.44	%		2.77	%		4.14	%


	Immediate Change in Rates and Resulting Percentage
	Increase/(Decrease) in EVE:
	- 100 basis			+ 100 basis			+ 200 basis			+ 300 basis
	points			points			points			points

September 30, 2009		*			1.81	%		(0.13	%)		(0.44	%)
September 30, 2008		(3.20	%)		0.03	%		(1.53	%)		(3.49	%)


					Total Number of		Maximum
					Shares Purchased		Number of Shares
					as Part of Publicly		that May Yet Be
	Total Number of		Average Price		Announced Plans		Purchased Under
	Shares Purchased (2)		Paid per Share		or Programs (1)		Plans or Programs (1)

Balance as of June 30, 2009								396,272

July 1, 2009 - July 31, 2009		9,036	$	24.11		—		396,272
August 1, 2009 - August 31, 2009		3,302		20.95		—		396,272
September 1, 2009 - September 30, 2009		877		24.02		—		396,272

Balance as of September 30, 2009		13,215	$	23.32		—		396,272


					Authority		Broker
	For		Against		Withheld		Non-Votes
Steven H. Baer		64,394,273		*		6,103,010		8,410,770
Karen S. Belden		63,948,707		*		6,548,576		8,410,770
R. Cary Blair		63,259,864		*		7,237,420		8,410,770
John C. Blickle		64,023,421		*		6,473,862		8,410,769
Robert W. Briggs		64,091,003		*		6,406,281		8,410,770
Richard Colella		63,945,635		*		6,551,649		8,410,769
Gina D. France		64,408,180		*		6,089,104		8,410,769
Paul G. Greig		63,477,462		*		7,019,821		8,410,770
Terry L. Haines		63,341,507		*		7,155,777		8,410,769
J. Michael Hohhschwender		63,665,329		*		6,831,955		8,410,769
Clifford J. Isroff		63,093,621		*		7,403,663		8,410,769
Philip A. Lloyd II		62,142,643		*		8,354,640		8,410,770


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

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