AKRON, Ohio, April 22, 2014 /PRNewswire/ --

Quarterly Highlights include:

• Profitability Sustained: 60th consecutive quarter of profitability.
• Organic growth continued: Total loan growth of $307.6 million, or 2.15% from the prior quarter.
• Credit quality remained solid:  Net charge-offs to average originated loans of 0.31%; nonperforming assets as a percent of period end originated loans plus other real estate at 0.58%.
• Balance sheet remained strong:  Strong tangible common equity ratio at 7.69%.

FirstMerit Corporation (Nasdaq: FMER) (the "Corporation") reported first quarter 2014 net income of $53.5 million, or $0.31 per diluted share.  This compares with $57.2 million, or $0.33 per diluted share, for the fourth quarter 2013 and $37.3 million, or $0.33 per diluted share, for the first quarter 2013.  Included in noninterest expense for the first quarter 2014 were approximately $1.0 million of pre-tax merger related costs compared to approximately $6.0 million for the fourth quarter of 2013.

Returns on average common equity ("ROE") and average assets ("ROA") for the first quarter 2014 were 7.93% and 0.90%, respectively, compared with 8.48% and 0.94%, respectively, for the fourth quarter 2013 and 8.83% and 1.01%, respectively, for the first quarter 2013. 

"The results of the first quarter of 2014 reflected our continued focus on our business strategy of providing the products of a much larger bank through local community bankers throughout our Midwest markets. The first quarter also began our first calendar year operating across five Midwest states and FirstMerit's customer acceptance in Michigan and Wisconsin validates our strategy of entering those markets. Across the Corporation, our balance sheet reflects solid credit metrics as well as loan and core deposit increases representative of our primary focus on disciplined organic growth," 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 ("TE") basis was $197.9 million in the first quarter 2014 compared with $202.1 million in the fourth quarter 2013 and $114.4 million in the first quarter 2013.

Net interest margin was 3.84% for the first quarter 2014 compared with 3.89% for the fourth quarter 2013 and 3.46% for the first quarter 2013.  First quarter 2014 net interest margin compression compared with the fourth quarter 2013 was primarily driven by declining volume in the acquired and covered loan portfolios and lower day count, partially offset by increased volume of originated loans, higher investment portfolio yields and lower deposit costs. 

Average originated loans were $10.4 billion during the first quarter 2014, an increase of $459.8 million, or 4.60%, compared with the fourth quarter 2013, and an increase of $1.7 billion, or 19.61%, compared with the first quarter 2013.  Average originated commercial loans increased $293.3 million, or 4.49%, compared with the prior quarter, and increased $959.7 million, or 16.38%, compared with the year ago quarter.

Average deposits were $19.6 billion during the first quarter 2014, an increase of $0.1 billion, or 0.61%, compared with the fourth quarter 2013, and an increase of $7.8 billion, or 66.56%, compared with the first quarter 2013.  During the first quarter 2014, average core deposits, which exclude time deposits, increased $0.3 billion, or 1.58%, compared with the fourth quarter 2013 and increased $6.8 billion, or 64.78%, compared with the first quarter 2013.  Average time deposits decreased $148.7 million, or 5.83%, and increased $1.1 billion, or 80.46%, respectively, over the prior and year-ago quarters.  For the first quarter 2014, average core deposits accounted for 87.76% of total average deposits, compared with 86.93% for the fourth quarter 2013 and 88.71% for the first quarter 2013.

Average investments increased $182.9 million, or 2.90%, compared with the fourth quarter 2013 and increased $2.8 billion, or 75.35% compared with the first quarter 2013.

Noninterest Income

Noninterest income, excluding gains and losses on securities transactions, for the first quarter 2014 was $67.2 million, a decrease of $5.2 million, or 7.19%, from the fourth quarter 2013 and an increase of $9.8 million, or 17.10%, from the first quarter 2013.  Noninterest income trends for the recent quarter reflected a slowdown in customer activity across most income categories. Severe weather conditions throughout the Corporation's footprint factored into these trends. Included in noninterest income in the first quarter 2014 was $1.6 million of gains on covered loans paid in full, compared to $0.8 million and $5.0 million in the fourth quarter 2013 and first quarter 2013, respectively.

Noninterest income, excluding net securities gains and losses, as a percentage of net revenue for the first quarter 2014 was 25.36% compared with 26.38% for fourth quarter 2013 and 33.42% for the first quarter 2013.  Net revenue is defined as net interest income, on an TE basis, plus other income, excluding gains and losses from securities sales.

Noninterest Expense

Noninterest expense for the first quarter 2014 was $169.3 million, a decrease of $9.3 million, or 5.20%, from the fourth quarter 2013 and an increase of $63.2 million, or 59.53%, from the first quarter 2013.  Overall expense trends compared with the prior quarter were favorable despite higher than usual snow removal and utility costs due to the severe weather throughout the quarter and across the Corporation's entire footprint. Included in noninterest expense in the first quarter 2014, fourth quarter 2013 and first quarter 2013 were merger related costs associated with the Citizens acquisition of $1.0 million, $6.0 million and $3.6 million, respectively.  The Corporation's efficiency ratio was 62.77% for the first quarter 2014, compared with 64.08% for the fourth quarter 2013 and 61.61% for the first quarter 2013.

The effective tax rate was 30.85% for the first quarter 2014 compared with 30.12% for the fourth quarter 2013 and 29.07% for the first quarter 2013.

The Corporation early adopted an amendment to U.S. generally accepted accounting principles in the first quarter 2014 related to the accounting for affordable housing projects that qualify for the low-income housing tax credit.  Amortization of the initial investment cost of qualifying projects is now recorded in the provision for income taxes together with the tax credits and benefits received.  Previously, the amortization was recorded as other noninterest expense.  All prior period amounts have been restated to reflect the adoption of the amendment, which resulted in an offsetting decrease to other noninterest expense and increase to the provision for income taxes of approximately $1.0 million in the first quarter 2014 and $0.8 million in the fourth quarter 2013 and first quarter 2013.

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 $8.0 million, or 0.31% of average originated loans in the first quarter 2014, compared with $3.4 million, or 0.13% of average originated loans, in the fourth quarter 2013 and $5.9 million, or 0.27% of average originated loans, in the first quarter 2013.  Quarterly charge-offs on originated loans were elevated this quarter as a result of one commercial credit.

Nonperforming assets totaled $62.7 million at March 31, 2014, an increase of $1.8 million, or 3.00%, compared with December 31, 2013 and an increase of $10.5 million, or 20.06%, compared with March 31, 2013. Nonperforming assets at March 31, 2014 represented 0.58% of period-end originated loans plus other real estate compared with 0.60% at December 31, 2013 and 0.59% at March 31, 2013.

The allowance for originated loan losses totaled $92.1 million at March 31, 2014.   At March 31, 2014, the allowance for originated loan losses was 0.85% of period-end originated loans compared with 0.94% at December 31, 2013 and 1.13% at March 31, 2013.  The allowance for credit losses is the sum of the allowance for originated loan losses and the reserve for unfunded lending commitments.  For comparative purposes, the allowance for credit losses was 0.92% of period end originated loans at March 31, 2014, compared with 1.02% at December 31, 2013 and 1.18% at March 31, 2013.  The allowance for credit losses to nonperforming loans was 229.23% at March 31, 2014, compared with 247.35% at December 31, 2013 and 254.32% at March 31, 2013.

Balance Sheet

The Corporation's total assets at March 31, 2014 were $24.5 billion, an increase of $586.6 million, or 2.45%, compared with December 31, 2013 and an increase of $9.2 billion, or 60.41%, compared with March 31, 2013. 

Total deposits were $19.8 billion at March 31, 2014, an increase of $278.1 million, or 1.42%, from December 31, 2013 and an increase of $7.9 billion, or 66.12%, from March 31, 2013.  Core deposits totaled $17.4 billion at March 31, 2014, an increase of $354.8 million, or 2.08%, from December 31, 2013 and an increase of $6.8 billion, or 64.06%, from March 31, 2013. 

Shareholders' equity was $2.7 billion as of March 31, 2014 and December 31, 2013 and $1.8 billion as of March 31, 2013.  The increase from the prior year mainly reflects 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 7.69% at March 31, 2014, compared with 7.70% at December 31, 2013 and 8.03% at March 31, 2013.  The common cash dividend per share paid in the first quarter 2014 was $0.16.

Acquisition Update

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 March 31, 2014, 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 $1.9 million from the prior quarter and was recognized as of the date of the Citizens' acquisition, April 12, 2013. Prior period amounts appropriately reflect these adjustments.

First Quarter 2014 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 first 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: 31595410.  A replay of the conference call will be available at approximately 2:00 p.m. (Eastern Time) on April 22, 2014 through May 6, 2014 by dialing (855) 859-2056, and entering the PIN: 31595410.  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 $24.5 billion as of March 31, 2014, and 401 banking offices and 429 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 March 31, 2014 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 March 31, 2014 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