AKRON, Ohio, Jan. 28, 2014 /PRNewswire/ -- 

Quarterly Highlights include:

• Profitability Sustained: 59th consecutive quarter of profitability.
• Organic growth continued: Average loan growth of $175.0 million, or 1.24% from the prior quarter; average core deposit growth of $230.5 million or 1.38% from the prior quarter.
• Credit quality remained superior:  Net charge-offs to average originated loans of 0.13%; nonperforming assets as a percent of period end originated loans plus other real estate at 0.60%.
• Balance sheet remained strong:  Strong tangible common equity ratio at 7.71%.
• Integration successfully completed: Conversion to unified operating systems in October, operating consistently across five Midwestern states.

FirstMerit Corporation (Nasdaq: FMER) (the "Corporation") reported fourth quarter 2013 net income of $57.2 million, or $0.33 per diluted share.  This compares with $40.7 million, or $0.23 per diluted share, for the third quarter 2013 and $38.2 million, or $0.35 per diluted share, for the fourth quarter 2012. Included in noninterest expense for the fourth quarter 2013 were $6.0 million of pre-tax merger related costs compared to $33.4 million for the third quarter 2013.  Pre-tax costs associated with anticipated branch closures of $1.0 million were recognized in the fourth quarter of 2013 and are included within noninterest income.

Returns on average common equity ("ROE") and average assets ("ROA") for the fourth quarter 2013 were 8.48% and 0.94%, respectively, compared with 6.07% and 0.67%, respectively, for the third quarter 2013 and 9.30% and 1.03%, respectively, for the fourth quarter 2012. 

"FirstMerit's strong performance in the fourth quarter of 2013 was representative of our entire year's accomplishments. Through our strategic acquisition of Citizens Republic Bancorp as well as our continued success in our legacy markets, we expanded our balance sheet with robust loan and core deposit growth while maintaining pristine credit metrics. We substantially completed the integration of Citizens Republic Bancorp  with a seamless conversion of all operating systems in October, and we now offer the same wide array of competitive products and industry leading services across our entire five-state Midwest footprint. We are aggressively competing in our new markets, backed with a comprehensive marketing and sponsorship program to build awareness, while maintaining a focused approach on further penetrating our legacy markets. We continue to work to take market share and enhance shareholder value," said Paul Greig, chairman, president and CEO, FirstMerit Corporation.

Except as noted, the Citizens Republic Bancorp ("Citizens") acquisition is primarily contributing to the increases over the prior year period in the income statement and balance sheets.  Citizens' results of operations are included in the reported current year to date period results since the date of acquisition, April 12, 2013.

"Acquired loans", as used herein, are those assumed in the Citizens acquisition. (As used herein, "originated loans" refer to loans that have been originated in the normal course of business and "covered loans" refer to loans covered by loss sharing agreements with the FDIC providing considerable protection against credit risk.)

Net Interest Income

Net interest income on a fully tax-equivalent ("FTE") basis was $202.1 million in the fourth quarter 2013 compared with $207.1 million in the third quarter 2013 and $119.1 million in the fourth quarter 2012.

Net interest margin was 3.89% for the fourth quarter 2013 compared with 4.05% for the third quarter 2013 and 3.58% for the fourth quarter 2012.  Fourth quarter 2013 net interest margin compression compared with the third quarter 2013 was primarily driven by both lower yields and decline in the acquired loan portfolio.  Notably present this quarter was stability in the yields of both the Corporation's investment portfolio and originated loans, compared with the prior quarter. 

Average originated loans were $10.0 billion during the fourth quarter 2013, an increase of $610.8 million, or 6.51%, compared with the third quarter 2013, and an increase of $1.5 billion, or 18.29%, compared with the fourth quarter 2012.  Average originated commercial loans increased $394.8 million, or 6.44%, compared with the prior quarter, and increased $925.7 million, or 16.53%, compared with the year ago quarter.

Average deposits were $19.5 billion during the fourth quarter 2013, an increase of $0.1 billion, or 0.31%, compared with the third quarter 2013, and an increase of $7.9 billion, or 68.33%, compared with the fourth quarter 2012.  During the fourth quarter 2013, average core deposits, which exclude time deposits, increased $0.2 billion, or 1.38%, compared with the third quarter 2013 and increased $6.8 billion, or 66.78%, compared with the fourth quarter 2012.  Average time deposits decreased $169.2 million, or 6.22%, and increased $1.1 billion, or 79.41%, respectively, over the prior and year-ago quarters.  For the fourth quarter 2013, average core deposits accounted for 86.93% of total average deposits, compared with 86.02% for the third quarter 2013 and 87.73% for the fourth quarter 2012.

Average investments increased $149.9 million, or 2.44%, compared with the third quarter 2013 and increased $2.6 billion, or 70.92% compared with the fourth quarter 2012.

Noninterest Income

Noninterest income, excluding gains and losses on securities transactions, for the fourth quarter 2013 was $72.4 million, an increase of $1.3 million, or 1.87%, from the third quarter 2013 and an increase of $13.2 million, or 22.28%, from the fourth quarter 2012.  Included in noninterest income in the fourth quarter 2013 was $0.8 million of gains on covered loans paid in full, compared to $1.8 million and $5.0 million in the third quarter 2013 and fourth quarter 2012, respectively.

Other income, excluding net securities gains and losses, as a percentage of net revenue for the fourth quarter 2013 was 26.38% compared with 25.56% for third quarter 2013 and 33.21% for the fourth quarter 2012.  Net revenue is defined as net interest income, on an FTE basis, plus other income, excluding gains and losses from securities sales.

Noninterest Expense

Noninterest expense for the fourth quarter 2013 was $179.4 million, a decrease of $32.0 million, or 15.13%, from the third quarter 2013 and an increase of $67.2 million, or 59.91%, from the fourth quarter 2012.  Included in noninterest expense in the fourth quarter 2013 and third quarter 2013 were merger related costs associated with the Citizens acquisition of $6.0 million and $33.4 million, respectively.  The majority of the merger related costs incurred in the fourth quarter of 2013 were associated with professional and legal services rendered in connection with the merger. The majority of the merger related costs incurred in the third quarter 2013 were from fees for early termination of existing agreements assumed from the merger and are included within Bankcard, loan processing and other costs in the accompanying year to date consolidated statements of comprehensive income.  The Corporation's efficiency ratio was 64.36% for the fourth quarter 2013, compared with 74.92% for the third quarter 2013 and 62.65% for the fourth quarter 2012.

Asset Quality (excluding acquired loans and covered assets)

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

Net charge-offs on originated loans totaled $3.4 million, or 0.13% of average originated loans in the fourth quarter 2013, compared with $2.9 million, or 0.12% of average originated loans, in the third quarter 2013 and $7.1 million, or 0.34% of average originated loans, in the fourth quarter 2012. 

Nonperforming assets totaled $60.9 million at December 31, 2013, an increase of $5.5 million, or 9.85%, compared with September 30, 2013 and an increase of $10.7 million, or 21.22%, compared with December 31, 2012. Nonperforming assets at December 31, 2013 represented 0.60% of period-end originated loans plus other real estate compared with 0.57% at September 30, 2013 and 0.57% at December 31, 2012.

The allowance for originated loan losses totaled $96.5 million at December 31, 2013.   At December 31, 2013, the allowance for originated loan losses was 0.94% of period-end originated loans compared with 1.00% at September 30, 2013 and 1.13% at December 31, 2012.  The allowance for credit losses is the sum of the allowance for originated loan losses and the reserve for unfunded lending commitments.  For comparative purposes, the allowance for credit losses was 1.02% of period end originated loans at December 31, 2013, compared with 1.09% at September 30, 2013 and 1.20% at December 31, 2012.  The allowance for credit losses to nonperforming loans was 247.35% at December 31, 2013, compared with 300.06% at September 30, 2013 and 284.50% at December 31, 2012.

Balance Sheet

The Corporation's total assets at December 31, 2013 were $23.9 billion, a decrease of $225.7 million, or 0.94%, compared with September 30, 2013 and an increase of $9.0 billion, or 60.32%, compared with December 31, 2012. 

Total deposits were $19.5 billion at December 31, 2013, an increase of $44.1 million, or 0.23%, from September 30, 2013 and an increase of $7.8 billion, or 66.11%, from December 31, 2012.  Core deposits totaled $17.1 billion at December 31, 2013, an increase of $220.3 million, or 1.31%, from September 30, 2013 and an increase of $6.7 billion, or 64.41%, from December 31, 2012. 

Shareholders' equity was $2.7 billion as of December 31, 2013 and September 30, 2013 and $1.6 billion as of December 31, 2012.  The increases mainly reflect the addition of $928.3 million in equity from the Citizen acquisition.  The Corporation maintained a strong capital position as tangible common equity to assets was 7.71% at December 31, 2013, compared with 7.42% at September 30, 2013 and 8.16% at December 31, 2012.  The common cash dividend per share paid in the fourth quarter 2013 was $0.16.

Acquisition and Integration Update

Professional consulting groups have been assisting the Corporation with the integration and accounting matters related to the Citizens' transaction.  Core operating systems were converted as of October 20, 2013.

Merger related costs incurred through December 31, 2013 totaled approximately $78.1 million. 

The Citizens' acquisition was considered a business combination and accounted for under FASB Accounting Standard Codification 805, Business Combinations (ASC 805). All acquired assets and liabilities were recorded at their estimated fair values as of the date of acquisition and identifiable intangible assets were recorded at their estimated fair value. Estimated fair values are considered preliminary and, in accordance with ASC 805, are subject to change up to one year after the acquisition date. This allows for adjustments to the initial purchase entries if additional information relative to closing date fair values becomes available, and we continue to analyze our estimates of the fair values of the assets acquired and the liabilities assumed. Material adjustments to acquisition date estimated fair values are recorded in the period in which the acquisition occurred and, as a result, previously reported results are subject to change. Certain reclassifications of prior periods' amounts may also be made to conform to the current period's presentation and would have no effect on previously reported net income amounts.

During the quarter ended December 31, 2013, we obtained additional information that resulted in changes to certain acquisition-data fair value estimates relating to the Citizens' acquisition. These purchase accounting adjustments have resulted in an increase to goodwill of approximately $5.4 million which was recognized for the Citizens' acquisition in the quarter ended June 30, 2013. Prior period amounts appropriately reflect these adjustments.

Fourth Quarter 2013 Conference Call

FirstMerit (Nasdaq: FMER) senior management will host an earnings conference call today at 11:00 a.m. (Eastern Time) to provide an overview of fourth quarter results and highlights.  To participate in the conference call, please dial (888) 693-3477 ten minutes before start time and provide the reservation number: 35161818.  A replay of the conference call will be available at approximately 2:00 p.m. (Eastern Time) on January 28, 2014 through February 10, 2014 by dialing (855) 859-2056, and entering the PIN: 35161818.  The Corporation will provide a slide presentation, which management will speak to during the conference call.  A copy of the presentation will be available at https://www.firstmerit.com/personal/investors.aspx; click on the Presentations link to access the slide presentation.

Non-GAAP Measures:  This news release contains financial information and performance measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Corporation's management uses these non-GAAP measures in their analysis of the Corporation's performance and the efficiency of its operations. Management believes that these non-GAAP measures provide a greater understanding of ongoing operations of the Corporation and enhance comparability of results with prior periods, and facilitate investors' assessments of business and performance trends in comparison to others in the financial services industry. The Corporation believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance. The Corporation's management believes that investors may use these non-GAAP financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the Corporation's underlying performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

About FirstMerit Corporation

FirstMerit Corporation is a diversified financial services company headquartered in Akron, Ohio, with assets of approximately $23.9 billion as of December 31, 2013, and 404 banking offices and 431 ATM locations in Ohio, Michigan, Wisconsin, Illinois and Pennsylvania. FirstMerit provides a complete range of banking and other financial services to consumers and businesses through its core operations. Principal affiliates include: FirstMerit Bank, N.A., FirstMerit Mortgage Corporation and FirstMerit Title Agency, Ltd.

Subsequent Events

The Corporation is required under generally accepted accounting principles to evaluate subsequent events through the filing of the its consolidated financial statements for the quarter ended December 31, 2013 on Form 10-Q.  As a result, the Corporation will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of December 31, 2013 and will adjust amounts preliminarily reported, if necessary.

Forward-Looking Statements

This release contains forward-looking statements relating to present or future trends or factors affecting the banking industry, and specifically the financial condition and results of operations, including without limitation, statements relating to the earnings outlook of the Corporation, as well as its operations, markets and products.  Actual results could differ materially from those indicated.  Among the important factors that could cause results to differ materially are interest rate changes, continued softening in the economy, which could materially impact credit quality trends and the ability to generate loans, changes in the mix of the Corporation's business, competitive pressures, changes in accounting, tax or regulatory practices or requirements, the Corporation's ability to realize the synergies and benefits contemplated by the acquisition of Citizens, such as it being accretive to earnings and expanding the Corporation's geographic presence, in the time frame anticipated or at all, and those risk factors detailed in the Corporation's periodic reports filed with the Securities and Exchange Commission.  The Corporation undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this release.

FirstMerit Corporation
Analysts: Thomas O'Malley/Investor Relations Officer
Phone: 330.384.7109
Media Contact: Robert Townsend/Media Relations Officer
Phone: 330.384.7075