FirstMerit (FMER) will buy Citizens Republic Bancorp (CRBC) of Flint, Mich., for $912 million.

The agreement ends speculation as to whether Citizens Republic would remain independent. The all-stock deal would extend the $14.6 billion-asset FirstMerit's operations into Michigan and Wisconsin, the companies said Thursday.

The deal answers weeks of speculation over the future of the $9.6 billion-asset Citizens Republic. A number of Midwestern banks, including Fifth Third Bancorp (FITB) and Huntington Bancshares (HBAN), had been mentioned by investment bankers as possible suitors. Citizens Republic was facing regulatory stress testing and other requirements as it neared $10 billion in assets.

FirstMerit had been aggressively looking for acquisitions since it bought the failed Midwest Bank of Elmwood, Ill., in 2010. The Akron, Ohio, company's last open bank acquisition was Summit Bank in Fairlawn, Ohio, in February 1999.

Under the terms of Thursday's deal, Citizens Republic's shareholders will receive 1.37 shares of FirstMerit common stock in exchange for each share of Citizens Republic common stock, or roughly $22.50 a share. FirstMerit said in a press release that it expects to raise about $350 million in capital after completing the merger, with the funds coming from selling preferred stock and issuing debt. After the capital raise and restructuring charges, the company expects to maintain a Tier 1 ratio of about 10.4%.

FirstMerit also would repay the Treasury Department for the $345 million that Citizens Republic owes as a participant in the Troubled Asset Relief Program.

"The valuation appears pricy," Andrew Marquardt, an analyst at Evercore Partners, wrote in a note to clients soon after the deal was announced. "The deal is significant for" FirstMerit's balance sheet because it will increase loans by 58% and deposits by 63%. "While the valuation appears expensive, the deal is not necessarily surprising given First Merit's acquisitive past and earnings power needs."

The acquisition, which is expected to close in the second quarter of 2013, would give FirstMerit a total of 415 branches in Ohio, Michigan, Wisconsin, Illinois and Pennsylvania.

FirstMerit's shares fell more than 9% in Thursday morning trading, to $15.61. Citizens Republic's shares rose more than 3%, to $20.59.

RBC Capital Markets and the law firm of Jones Day advised FirstMerit on the deal. Citizens Republic was advised by JP Morgan Securities and the law firm of Dykema Gossett.

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