FirstMerit's 2Q EPS Up 6% at 37 Cents

AKRON, Ohio, July 24 — FirstMerit Corporation today announced second quarter 2007 net income of $29.9 million, or $0.37 per diluted share. This compares with $27.7 million, or $0.35 per diluted share, for the prior-year quarter. Returns on average common equity ("ROE") and average assets ("ROA") for the second quarter 2007 were 13.75% and 1.16%, respectively, compared with 12.75% and 1.10% for the prior-year quarter. For the first six months of 2007, the Company reported net income of$61.3 million, or $0.76 per diluted share, compared with $57.6 million, or$0.72 per diluted share, for the first six months of 2006. ROE and ROA were14.32% and 1.20%, respectively, compared with 13.21% and 1.15% for theprior-year period. "The improvements in loan portfolio management practices we have madeover the past year has laid a solid foundation for growth and for buildingshareholder value," said Paul G. Greig, Chairman and Chief ExecutiveOfficer of FirstMerit. "I am pleased to report that in the second quarterwe saw solid, sequential commercial loan growth, as well as aquarter-to-quarter increase in net interest margin and continued tightexpense control." "While incentives tied to credit quality improvement are embeddeddeeply throughout the organization, our bankers are competing for-and arebeing rewarded for-bringing in profitable and sound new business. Winningand deepening relationships in our markets are critical elements of ourstrategy to build a sustainable and consistent high-quality earnings streamfor our shareholders." Net interest margin was 3.62% for the second quarter of 2007 comparedwith 3.58% for the first quarter of 2007 and 3.78% for the second quarterof 2006. The Company's expanding net interest margin during the secondquarter of 2007, compared with the first quarter of 2007, reflectsincreasing investment portfolio securities' yields and declining fundingcosts. The decrease in net interest margin compared with the second quarterof 2006 reflected the shift in consumer preference for higher-costing termdeposit products as well as increased deposit costs due to a higherinterest rate environment. Net interest income on a fully tax-equivalent ("FTE") basis was $85.6million in the second quarter of 2007 compared with $83.2 million in thefirst quarter of 2007 and $86.4 million in the second quarter of 2006. Theincrease in FTE net interest income compared with the first quarter of 2007reflected net interest margin expansion and modest average earning assetgrowth of $48.4 million, or 0.51%. The decrease in FTE net interest incomecompared with the second quarter of 2006 resulted from net interest margincontraction, partly offset by an increase in average earning assets of$311.8 million, or 3.40%. Average loans for the second quarter of 2007 increased $84.1 million,or 1.22%, compared with the first quarter of 2007. Average commercial loansgrew $96.3 million, or 2.57%, during the period offsetting a $5.8 million,or 0.19%, decrease in the average consumer portfolio of loans and a $6.5million, or 8.29%, decrease in average leases. Compared with the secondquarter of 2006, average loans increased $272.2 million, or 4.04%, led by a$242.3 million, or 6.73%, increase in average commercial loans. Averageinvestments for the second quarter of 2007 increased $10.5 million, or0.43%, compared with the first quarter of 2007. Compared with the secondquarter of 2006, average investments increased $47.8 million, or 2.00%.Average investments represent 23.64% of average assets for the secondquarter of 2007, compared with 23.64% and 23.80% for the first quarter of2007 and the second quarter of 2006, respectively. Average deposits in the second quarter of 2007 were $7.5 billion, anincrease of $33.2 million, or 0.44%, compared with the first quarter of2007. The growth came solely from increased transaction account categories,namely in demand-non-interest bearing deposits which rose $19.4 million, or1.4%, resulting in an increased core deposit mix. The increased compositionof core deposits contributed to lower funding costs and an expanded netinterest margin for the quarter. Compared with the second quarter of 2006,average deposits increased $89.2 million, or 1.20%. Average certificatesand other time deposits increased $224.3 million, or 7.94%, reflectingconsumer preference for higher-yielding term deposits. Noninterest income net of securities transactions for the secondquarter of 2007 was $48.9 million, compared with $48.9 million in the firstquarter of 2007 which included net gains of $3.5 million from previouslydisclosed asset sales. Excluding loan sales and servicing income, whichdeclined $3.5 million compared with the first quarter of 2007, all otherfee income categories increased in the second quarter of 2007. The primarygrowth in fee income came from service charges on deposits, which increased$0.8 million, or 4.96%, compared with the first quarter of 2007 and creditcard fees, which increased $0.6 million, or 5.52%. Compared with the second quarter of 2006, noninterest income decreased$3.1 million, or 6.04%. The year-over-year quarterly comparison is impactedby $3.3 million in noninterest income reported in the second quarter of2006 and identified by the Company as related to one-time events reportedin loan sales and servicing income and bank owned life insurance.Noninterest income, net of securities gains, as a percentage of net revenuefor the first quarter of 2007 was 36.37% compared with 37.00% for the firstquarter of 2007 and 37.61% for the second quarter of 2006. Net revenue isdefined as net interest income, on a FTE basis, plus other income, lessgains from securities sales. For the second quarter of 2007, noninterest expense was $81.4 million,a decrease of $0.2 million, or 0.19%, from the first quarter of 2007 and adecrease of $3.8 million, or 4.51%, from the second quarter of 2006. Mr. Greig added, "Our expense levels came in as expected this quarterand we will continue to scrutinize all categories within noninterestexpense to achieve greater efficiencies in our operations." Net charge-offs totaled $7.6 million, or 0.43% of average portfolioloans, in the second quarter of 2007, $3.5 million, or 0.21% of averageportfolio loans, in the first quarter of 2007 and $13.0 million, or 0.78%of average portfolio loans, in the second quarter of 2006. Nonperforming assets totaled $37.0 million at June 30, 2007, comparedwith $32.7 million on March 31, 2007 and $58.8 million on June 30, 2006.Nonperforming assets at June 30, 2007 represented 0.52% of period-end loansplus other real estate, compared with 0.47% at March 31, 2007 and 0.86% atJune 30, 2006. The provision for loan losses was $10.0 million in the second quarterof 2007, compared with $4.2 million in the first quarter of 2007 and $13.2million in the second quarter of 2006. The provision for loan lossesexceeded net charge-offs by $2.4 million to support balance sheet growth inthe second quarter of 2007. The allowance for loan losses totaled $94.4 million at June 30, 2007,an increase of $2.4 million and $6.7 million from March 31, 2007 and June30, 2006, respectively. At June 30, 2007, the allowance for loan losses was1.34% of period-end loans compared with 1.32% at March 31, 2007 and 1.29%at June 30, 2006. The allowance for credit losses is the sum of theallowance for loan losses and the reserve for unfunded lending commitments.For comparative purposes the allowance for credit losses as a percentage ofperiod end loans was 1.43% at June 30, 2007, compared with 1.42% at March31, 2007 and 1.37% at June 30, 2006. The allowance for credit losses tononperforming loans was 315.56% at June 30, 2007 compared with 356.26% onMarch 31, 2007 and 186.19% on June 30, 2006. FirstMerit's total assets at June 30, 2007 were $10.4 billion, anincrease of $82.0 million, or 0.79%, compared with March 31, 2007 and anincrease of $174.3 million, or 1.70%, compared with June 30, 2006. Theincrease from March 31, 2007, was driven by commercial loan growth of $98.8million, or 2.60%, offsetting a $6.5 million, or 0.21%, decrease inconsumer loans and a $4.5 million, or 5.99%, decrease in the leaseportfolio. Commercial loan growth of $239.2 million, or 6.54%, supportedoverall asset growth from June 30, 2006. Total deposits were $7.5 billion at June 30, 2007, a decrease of $226.7million, or 2.94%, from March 31, 2007, and an increase of $72.2 million,or 0.98%, from June 30, 2006. Core deposits, which exclude all timedeposits, totaled $4.4 billion at June 30, 2007, a decrease of $133.1million, or 2.91%, from March 31, 2007 and a decrease of $126.9 million, or2.78%, from June 30, 2006. Shareholders' equity was $862.3 million at June 30, 2007 and theCompany's capital position remains strong as tangible equity to assets was7.00%. The common dividend per share paid in the second quarter 2007 was$0.29. Second Quarter 2007 Conference Call FirstMerit's senior management will host an earnings conference call onJuly 24, 2007, at 2:00 p.m. Eastern time to provide an overview of secondquarter results and highlights. To participate in the conference call,please dial 866-425-6191 ten minutes before start time and provide thereservation number: 9031144. A replay of the conference call will beavailable at approximately 4:30 p.m., on July 24, 2007 through July 31,2007, by dialing 877-519-4471, and entering the PIN: 9031144. About FirstMerit FirstMerit Corporation is a diversified financial services companyheadquartered in Akron, Ohio, with assets of $10.4 billion as of June 30,2007 and 160 banking offices and 176 ATMs in 25 Ohio and WesternPennsylvania counties. FirstMerit provides a complete range of banking andother financial services to consumers and businesses through its coreoperations. Principal wholly-owned subsidiaries include: FirstMerit Bank,N.A., FirstMerit Mortgage Corporation, FirstMerit Title Agency, Ltd., andFirstMerit Community Development Corporation. Forward-Looking Statement This release contains forward-looking statements relating to present orfuture trends or factors affecting the banking industry, and specificallythe financial condition and results of operations, including withoutlimitation, statements relating to the earnings outlook of the Company, aswell as its operations, markets and products. Actual results could differmaterially from those indicated. Among the important factors that couldcause results to differ materially are interest rate changes, continuedsoftening in the economy, which could materially impact credit qualitytrends and the ability to generate loans, changes in the mix of theCompany's business, competitive pressures, changes in accounting, tax orregulatory practices or requirements and those risk factors detailed in theCompany's periodic reports and registration statements filed with theSecurities and Exchange Commission. The Company undertakes no obligation torelease revisions to these forward-looking statements or reflect events orcircumstances after the date of this release. Analysts and Media: Thomas P. O'Malley (330) 384-7109 FIRSTMERIT CORPORATION AND SUBSIDIARIES Consolidated Financial Highlights (Unaudited) (Dollars in thousands) Quarters 2007 2007 2006 EARNINGS 2nd Qtr 1st Qtr 4th Qtr Net interest income FTE (a) $85,593 $83,218 $84,502 Provision for loan losses 9,967 4,210 44,235 Other income 48,930 48,876 48,332 Other expenses 81,375 81,526 83,987 FTE adjustment (a) 1,368 1,212 919 Net income 29,885 31,421 6,117 Diluted EPS 0.37 0.39 0.07 PERFORMANCE RATIOS Return on average assets (ROA) 1.16% 1.24% 0.24% Return on average common equity (ROE) 13.75% 14.91% 2.66% Net interest margin FTE (a) 3.62% 3.58% 3.58% Efficiency ratio 60.33% 61.55% 63.06% Number of full-time equivalent employees 2,725 2,751 2,755 MARKET DATA Book value/common share $10.71 $10.78 $10.56 Period-end common share mkt value 20.93 21.11 24.14 Market as a % of book 195% 196% 229% Cash dividends/common share $0.29 $0.29 $0.29 Common stock dividend payout ratio 78.38% 74.36% 414.29% Average basic common shares 80,426 80,113 80,091 Average diluted common shares 80,570 80,298 80,316 Period end common shares 80,477 80,112 80,101 Common shares repurchased 36,159 27,011 15,876 Common stock market capitalization $1,684,384 $1,691,164 $1,933,638 ASSET QUALITY Gross charge-offs $10,609 $9,424 $22,323 Net charge-offs 7,580 3,507 18,559 Allowance for loan losses 94,432 92,045 91,342 Reserve for unfunded lending commitments 6,553 6,746 6,294 Nonperforming assets (NPAs) 37,038 32,664 64,177 Net charge-offs/average loans ratio 0.43% 0.21% 1.06% Net charge-offs and allowance related to loans held for sale/average loans ratio 0.43% 0.21% 1.40% Allowance for loan losses/period- end loans 1.34% 1.32% 1.33% Allowance for credit losses/period- end loans 1.43% 1.42% 1.42% NPAs/loans and other real estate 0.52% 0.47% 0.93% Allowance for loan losses/nonperforming loans 295.08% 331.93% 168.03% Allowance for credit losses/nonperforming loans 315.56% 356.26% 179.60% CAPITAL & LIQUIDITY Period-end tangible equity to assets 7.00% 7.07% 6.96% Average equity to assets 8.45% 8.32% 8.91% Average equity to loans 12.45% 12.35% 13.17% Average loans to deposits 93.18% 92.47% 92.97% AVERAGE BALANCES Assets $10,319,454 $10,276,241 $10,227,154 Deposits 7,515,205 7,481,969 7,440,331 Loans 7,002,750 6,918,636 6,917,572 Earning assets 9,485,819 9,437,418 9,374,223 Shareholders' equity 871,554 854,713 911,348 ENDING BALANCES Assets $10,429,099 $10,347,121 $10,252,572 Deposits 7,474,466 7,701,202 7,498,921 Loans 7,052,390 6,951,631 6,878,873 Goodwill 139,245 139,245 139,245 Intangible assets 2,422 2,644 2,865 Earning assets 9,545,752 9,447,346 9,382,033 Total shareholders' equity 862,265 863,641 846,111 NOTES: (a) - Net interest income on a fully tax-equivalent ("FTE") basis restates interest on tax-exempt securities and loans as if such interest were subject to federal income tax at the statutory rate. Net interest income on an FTE basis is not an accounting principle generally accepted in the United States of America. FIRSTMERIT CORPORATION AND SUBSIDIARIES Consolidated Financial Highlights (Unaudited) (Dollars in thousands) Quarters 2006 2006 EARNINGS 3rd Qtr 2nd Qtr Net interest income FTE (a) $85,850 $86,377 Provision for loan losses 12,612 13,159 Other income 49,341 52,078 Other expenses 76,983 85,218 FTE adjustment (a) 763 647 Net income 31,204 27,661 Diluted EPS 0.39 0.35 PERFORMANCE RATIOS Return on average assets (ROA) 1.22% 1.10% Return on average common equity (ROE) 13.93% 12.75% Net interest margin FTE (a) 3.68% 3.78% Efficiency ratio 56.78% 61.39% Number of full-time equivalent employees 2,769 2,986 MARKET DATA Book value/common share $11.28 $10.88 Period-end common share mkt value 23.17 20.94 Market as a % of book 205% 193% Cash dividends/common share $0.29 $0.28 Common stock dividend payout ratio 74.36% 80.00% Average basic common shares 80,066 79,983 Average diluted common shares 80,262 80,203 Period end common shares 80,072 80,058 Common shares repurchased 0 1,329 Common stock market capitalization $1,855,268 $1,676,415 ASSET QUALITY Gross charge-offs $15,453 $18,038 Net charge-offs 11,584 13,021 Allowance for loan losses 88,755 87,727 Reserve for unfunded lending commitments 6,307 5,716 Nonperforming assets (NPAs) 72,464 58,786 Net charge-offs/average loans ratio 0.67% 0.78% Net charge-offs and allowance related to loans held for sale/average loans ratio 0.67% 0.78% Allowance for loan losses/period-end loans 1.28% 1.29% Allowance for credit losses/period- end loans 1.37% 1.37% NPAs/loans and other real estate 1.05% 0.86% Allowance for loan losses/nonperforming loans 143.73% 174.80% Allowance for credit losses/nonperforming loans 153.94% 186.19% CAPITAL & LIQUIDITY Period-end tangible equity to assets 7.55% 7.20% Average equity to assets 8.77% 8.66% Average equity to loans 12.99% 12.93% Average loans to deposits 93.05% 90.63% AVERAGE BALANCES Assets $10,138,856 $10,051,623 Deposits 7,355,877 7,426,029 Loans 6,844,593 6,730,531 Earning assets 9,249,769 9,174,008 Shareholders' equity 888,841 870,234 ENDING BALANCES Assets $10,217,968 $10,254,773 Deposits 7,389,633 7,402,239 Loans 6,917,347 6,804,769 Goodwill 139,245 139,245 Intangible assets 3,088 3,311 Earning assets 9,344,841 9,315,062 Total shareholders' equity 903,383 870,698 NOTES: (a) - Net interest income on a fully tax-equivalent ("FTE") basis restates interest on tax-exempt securities and loans as if such interest were subject to federal income tax at the statutory rate. Net interest income on an FTE basis is not an accounting principle generally accepted in the United States of America. FIRSTMERIT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited, except December 31, 2006, which is derived from the June 30, December 31, June 30, audited financial statements) 2007 2006 2006 ASSETS Cash and due from banks $210,722 $200,204 $228,690 Investment securities (at fair value) and federal funds sold 2,442,906 2,407,888 2,461,086 Loans held for sale 50,456 95,272 49,207 Loans: Commercial loans 3,898,943 3,694,121 3,659,687 Mortgage loans 586,612 608,008 618,560 Installment loans 1,641,790 1,619,747 1,561,757 Home equity loans 712,021 731,473 763,585 Credit card loans 141,162 147,553 136,966 Leases 71,862 77,971 64,214 Total loans 7,052,390 6,878,873 6,804,769 Less allowance for loan losses (94,432) (91,342) (87,727) Net loans 6,957,958 6,787,531 6,717,042 Premises and equipment, net 118,294 122,954 119,233 Goodwill 139,245 139,245 139,245 Intangible assets 2,422 2,865 3,311 Accrued interest receivable and other assets 507,096 496,613 536,959 Total assets $10,429,099 $10,252,572 $10,254,773 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand-non-interest bearing $1,424,892 $1,455,097 $1,466,628 Demand-interest bearing 755,931 799,571 842,354 Savings and money market accounts 2,262,828 2,267,686 2,261,557 Certificates and other time deposits 3,030,815 2,976,567 2,831,700 Total deposits 7,474,466 7,498,921 7,402,239 Securities sold under agreements to repurchase 1,302,175 1,261,821 1,156,346 Wholesale borrowings 578,659 464,227 658,720 Accrued taxes, expenses, and other liabilities 211,534 181,492 166,770 Total liabilities 9,566,834 9,406,461 9,384,075 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 -- -- -- Common stock, without par value: authorized 300,000,000 shares; issued 92,026,350 at June 30, 2007, December 31, 2006 and June 30, 2006 127,937 127,937 127,937 Capital surplus 100,700 106,916 105,397 Accumulated other comprehensive loss (82,073) (79,508) (62,013) Retained earnings 1,012,699 998,079 1,007,346 Treasury stock, at cost, 11,548,911, 11,925,803 and 11,968,035 shares at June 30, 2007, December 31, 2006 and June 30, 2006, respectively (296,998) (307,313) (307,969) Total shareholders' equity 862,265 846,111 870,698 Total liabilities and shareholders' equity $10,429,099 $10,252,572 $10,254,773 FIRSTMERIT CORPORATION AND SUBSIDIARIES AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited) Quarterly Periods (Dollars in thousands) June 30, March 31, December 31, 2007 2007 2006 ASSETS Cash and due from banks $177,524 $179,566 $175,735 Investment securities/fed funds sold 2,440,015 2,429,539 2,410,879 Loans held for sale 43,054 89,243 45,772 Loans: Commercial loans 3,845,395 3,749,067 3,730,110 Mortgage loans 596,758 607,602 614,204 Installment loans 1,636,669 1,622,324 1,625,962 Home equity loans 711,113 717,806 738,630 Credit card loans 141,294 143,853 144,351 Leases 71,521 77,984 64,315 Total loans 7,002,750 6,918,636 6,917,572 Less allowance for loan losses 92,298 91,256 88,175 Net loans 6,910,452 6,827,380 6,829,397 Total earning assets 9,485,819 9,437,418 9,374,223 Premises and equipment, net 119,818 121,988 121,956 Accrued interest receivable and other assets 628,591 628,525 643,415 TOTAL ASSETS $10,319,454 $10,276,241 $10,227,154 LIABILITIES Deposits: Demand-non-interest bearing $1,408,827 $1,389,455 $1,413,682 Demand-interest bearing 763,907 756,678 767,430 Savings and money market accounts 2,293,567 2,284,549 2,267,268 Certificates and other time deposits 3,048,904 3,051,287 2,991,951 Total deposits 7,515,205 7,481,969 7,440,331 Securities sold under agreements to repurchase 1,458,982 1,352,961 1,269,873 Wholesale borrowings 280,914 399,638 446,950 Total funds 9,255,101 9,234,568 9,157,154 Accrued taxes, expenses and other liabilities 192,799 186,960 158,652 Total liabilities 9,447,900 9,421,528 9,315,806 SHAREHOLDERS' EQUITY Preferred stock -- -- -- Common stock 127,937 127,937 127,937 Capital surplus 102,355 107,178 106,339 Accumulated other comprehensive (loss) income (72,170) (76,926) (36,045) Retained earnings 1,012,675 1,003,605 1,020,518 Treasury stock (299,243) (307,081) (307,401) Total shareholders' equity 871,554 854,713 911,348 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,319,454 $10,276,241 $10,227,154 FIRSTMERIT CORPORATION AND SUBSIDIARIES AVERAGE CONSOLIDATED BALANCE SHEETS Quarterly Periods (Unaudited) (Dollars in thousands) September 30, June 30, 2006 2006 ASSETS Cash and due from banks $185,628 $188,915 Investment securities/fed funds sold 2,360,494 2,392,208 Loans held for sale 44,682 51,269 Loans: Commercial loans 3,674,988 3,603,083 Mortgage loans 619,542 626,476 Installment loans 1,592,917 1,526,094 Home equity loans 755,044 772,196 Credit card loans 139,117 137,545 Leases 62,985 65,137 Total loans 6,844,593 6,730,531 Less allowance for loan losses 87,127 86,583 Net loans 6,757,466 6,643,948 Total earning assets 9,249,769 9,174,008 Premises and equipment, net 120,088 119,666 Accrued interest receivable and other assets 670,498 655,617 TOTAL ASSETS $10,138,856 $10,051,623 LIABILITIES Deposits: Demand-non-interest bearing $1,407,653 $1,455,229 Demand-interest bearing 794,886 865,563 Savings and money market accounts 2,246,386 2,280,657 Certificates and other time deposits 2,906,952 2,824,580 Total deposits 7,355,877 7,426,029 Securities sold under agreements to repurchase 1,357,746 1,212,470 Wholesale borrowings 367,640 371,309 Total funds 9,081,263 9,009,808 Accrued taxes, expenses and other liabilities 168,752 171,581 Total liabilities 9,250,015 9,181,389 SHAREHOLDERS' EQUITY Preferred stock -- -- Common stock 127,937 127,937 Capital surplus 105,587 104,477 Accumulated other comprehensive (loss) income (52,601) (54,132) Retained earnings 1,015,749 1,001,647 Treasury stock (307,831) (309,695) Total shareholders' equity 888,841 870,234 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,138,856 $10,051,623 AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited) Fully-tax Equivalent Interest Rates and Interest Differential FIRSTMERIT CORPORATION AND SUBSIDIARIES Three months ended (Dollars in thousands) June 30, 2007 Average Average Balance Interest Rate ASSETS Cash and due from banks $177,524 Investment securities and federal funds sold: U.S. Treasury securities and U.S. Government agency obligations (taxable) 1,936,833 20,359 4.22% Obligations of states and political subdivisions (tax exempt) 256,153 3,883 6.08% Other securities and federal funds sold 247,029 4,477 7.27% Total investment securities and federal funds sold 2,440,015 28,719 4.72% Loans held for sale 43,054 739 6.88% Loans 7,002,750 131,369 7.52% Total earning assets 9,485,819 160,827 6.80% Allowance for loan losses (92,298) Other assets 748,409 Total assets $10,319,454 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - non-interest bearing $1,408,827 -- -- Demand - interest bearing 763,907 1,876 0.99% Savings and money market accounts 2,293,567 13,992 2.45% Certificates and other time deposits 3,048,904 36,725 4.83% Total deposits 7,515,205 52,593 2.81% Securities sold under agreements to repurchase 1,458,982 18,005 4.95% Wholesale borrowings 280,914 4,636 6.62% Total interest bearing liabilities 7,846,274 75,234 3.85% Other liabilities 192,799 Shareholders' equity 871,554 Total liabilities and shareholders' equity $10,319,454 Net yield on earning assets $9,485,819 85,593 3.62% Interest rate spread 2.95% AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited) Fully-tax Equivalent Interest Rates and Interest Differential FIRSTMERIT CORPORATION AND SUBSIDIARIES Year ended (Dollars in thousands) December 31, 2006 Average Average Balance Interest Rate ASSETS Cash and due from banks $186,029 Investment securities and federal funds sold: U.S. Treasury securities and U.S. Government agency obligations (taxable) 2,050,736 81,207 3.96% Obligations of states and political subdivisions (tax exempt) 114,548 7,390 6.45% Other securities and federal funds sold 250,221 15,264 6.10% Total investment securities and federal funds sold 2,415,505 103,861 4.30% Loans held for sale 47,449 3,153 6.65% Loans 6,798,338 499,746 7.35% Total earning assets 9,261,292 606,760 6.55% Allowance for loan losses ( 88,020) Other assets 770,714 Total assets $10,130,015 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - non-interest bearing $1,434,539 -- -- Demand - interest bearing 818,735 9,217 1.13% Savings and money market accounts 2,271,654 50,083 2.20% Certificates and other time deposits 2,859,218 123,877 4.33% Total deposits 7,384,146 183,177 2.48% Securities sold under agreements to repurchase 1,283,951 56,151 4.37% Wholesale borrowings 404,723 24,140 5.96% Total interest bearing liabilities 7,638,281 263,468 3.45% Other liabilities 167,266 Shareholders' equity 889,929 Total liabilities and shareholders' equity $10,130,015 Net yield on earning assets $9,261,292 343,292 3.71% Interest rate spread 3.10% AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited) Fully-tax Equivalent Interest Rates and Interest Differential FIRSTMERIT CORPORATION AND SUBSIDIARIES Three months ended (Dollars in thousands) June 30, 2006 Average Average Balance Interest Rate ASSETS Cash and due from banks $188,915 Investment securities and federal funds sold: U.S. Treasury securities and U.S. Government agency obligations (taxable) 2,054,338 20,102 3.92% Obligations of states and political subdivisions (tax exempt) 88,144 1,490 6.78% Other securities and federal funds sold 249,726 3,823 6.14% Total investment securities and federal funds sold 2,392,208 25,415 4.26% Loans held for sale 51,269 512 4.01% Loans 6,730,531 122,990 7.33% Total earning assets 9,174,008 148,917 6.51% Allowance for loan losses (86,583) Other assets 775,283 Total assets $10,051,623 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - non-interest bearing $1,455,229 -- -- Demand - interest bearing 865,563 2,583 1.20% Savings and money market accounts 2,280,657 12,079 2.12% Certificates and other time deposits 2,824,580 29,326 4.16% Total deposits 7,426,029 43,988 2.38% Securities sold under agreements to repurchase 1,212,470 12,957 4.29% Wholesale borrowings 371,309 5,595 6.04% Total interest bearing liabilities 7,554,579 62,540 3.32% Other liabilities 171,581 Shareholders' equity 870,234 Total liabilities and shareholders' equity $10,051,623 Net yield on earning assets $9,174,008 86,377 3.78% Interest rate spread 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. FIRSTMERIT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) (In thousands except per share data) Quarters ended Six months ended June 30, June 30, 2007 2006 2007 2006 Interest income: Interest and fees on loans, including held for sale $132,076 $123,450 $262,165 $241,190 Interest and dividends on investment securities and federal funds sold 27,383 24,820 54,229 50,152 Total interest income 159,459 148,270 316,394 291,342 Interest expense: Interest on deposits: Demand-interest bearing 1,876 2,583 3,795 4,945 Savings and money market accounts 13,992 12,079 27,998 22,827 Certificates and other time deposits 36,725 29,326 72,805 55,427 Interest on securities sold under agreements to repurchase 18,005 12,957 34,790 24,880 Interest on wholesale borrowings 4,636 5,595 10,775 11,560 Total interest expense 75,234 62,540 150,163 119,639 Net interest income 84,225 85,730 166,231 171,703 Provision for loan losses 9,967 13,159 14,177 19,265 Net interest income after provision for loan losses 74,258 72,571 152,054 152,438 Other income: Trust department income 6,096 5,744 11,692 11,138 Service charges on deposits 17,055 18,010 33,304 34,076 Credit card fees 11,712 11,478 22,811 22,149 ATM and other service fees 3,189 3,273 6,260 6,381 Bank owned life insurance income 3,290 5,310 6,458 8,296 Investment services and insurance 2,660 2,581 5,113 5,178 Investment securities gains, net 1 4 1 20 Loan sales and servicing income 1,911 2,833 7,349 4,278 Other operating income 3,016 2,845 4,818 5,959 Total other income 48,930 52,078 97,806 97,475 Other expenses: Salaries, wages, pension and employee benefits 43,538 46,721 86,038 89,752 Net occupancy expense 6,521 6,120 13,207 12,669 Equipment expense 2,851 2,914 5,935 5,872 Stationery, supplies and postage 2,252 2,403 4,585 4,856 Bankcard, loan processing and other costs 7,607 7,417 15,077 13,244 Professional services 4,525 3,738 9,354 6,501 Amortization of intangibles 222 222 445 445 Other operating expense 13,859 15,683 28,260 33,778 Total other expenses 81,375 85,218 162,901 167,117 Income before federal income tax expense 41,813 39,431 86,959 82,796 Federal income tax expense 11,928 11,770 25,653 25,171 Net income $29,885 $27,661 $61,306 $57,625 Other comprehensive income (loss), net of taxes Unrealized securities' holding gain (loss), net of taxes $(13,051) $(8,652) $(4,938) $(18,400) Unrealized hedging gain (loss), net of taxes 561 37 628 (750) Minimum pension liability adjustment, net of taxes 1,746 -- 1,746 -- Less: reclassification adjustment for securities' gains losses realized in net income, net of taxes 1 3 1 13 Total other comprehensive income (loss), net of taxes (10,745) (8,618) (2,565) (19,163) Comprehensive income $19,140 $19,043 $58,741 $38,462 Net income applicable to common shares $29,885 $27,661 $61,306 $57,625 Net income used in diluted EPS calculation $29,889 $27,666 $61,314 $57,635 Weighted average number of common shares outstanding - basic 80,426 79,983 80,270 80,177 Weighted average number of common shares outstanding - diluted 80,570 80,203 80,433 80,420 Basic earnings per share $0.37 $0.35 $0.76 $0.72 Diluted earnings per share $0.37 $0.35 $0.76 $0.72 Dividend per share $0.29 $0.28 $0.58 $0.56 FIRSTMERIT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME---LINKED QUARTERS (Unaudited) (Dollars in thousands, Quarterly Results except share data) 2007 2007 2006 2006 2006 2nd Q 1st Q 4th Q 3rd Q 2nd Q Interest and fees on loans, including held for sale $132,076 $130,089 $131,683 $129,890 $123,450 Interest and dividends - securities and federal funds sold 27,383 26,846 25,795 25,131 24,820 Total interest income 159,459 156,935 157,478 155,021 148,270 Interest on deposits: Demand-interest bearing 1,876 1,919 2,031 2,241 2,583 Savings and money market accounts 13,992 14,006 14,068 13,188 12,079 Certificates and other time deposits 36,725 36,080 35,569 32,881 29,326 Securities sold under agreements to repurchase 18,005 16,785 15,393 15,878 12,957 Wholesale borrowings 4,636 6,139 6,834 5,746 5,595 Total interest expense 75,234 74,929 73,895 69,934 62,540 Net interest income 84,225 82,006 83,583 85,087 85,730 Provision for loan losses 9,967 4,210 44,235 12,612 13,159 Net interest income after provision for loan losses 74,258 77,796 39,348 72,475 72,571 Other income: Trust department income 6,096 5,596 5,794 5,721 5,744 Service charges on deposits 17,055 16,249 18,198 19,250 18,010 Credit card fees 11,712 11,099 11,325 11,251 11,478 ATM and other service fees 3,189 3,071 3,135 3,301 3,273 Bank owned life insurance income 3,290 3,168 3,001 3,042 5,310 Investment services and insurance 2,660 2,453 2,011 2,631 2,581 Investment securities gains (losses), net 1 -- -- 2 4 Loan sales and servicing income 1,911 5,438 1,504 1,731 2,833 Other operating income 3,016 1,802 3,364 2,412 2,845 Total other income 48,930 48,876 48,332 49,341 52,078 Other expenses: Salaries, wages, pension and employee benefits 43,538 42,500 43,700 43,248 46,721 Net occupancy expense 6,521 6,686 6,143 6,002 6,120 Equipment expense 2,851 3,084 3,030 3,097 2,914 Stationery, supplies and postage 2,252 2,333 2,633 2,423 2,403 Bankcard, loan processing and other costs 7,607 7,470 7,508 7,459 7,417 Professional services 4,525 4,829 5,000 5,470 3,738 Amortization of intangibles 222 223 222 222 222 Other operating expense 13,859 14,401 15,751 9,062 15,683 Total other expenses 81,375 81,526 83,987 76,983 85,218 Income before income tax expense 41,813 45,146 3,693 44,833 39,431 Federal income taxes 11,928 13,725 (2,424) 13,629 11,770 Net income $29,885 $31,421 $6,117 $31,204 $27,661 Other comprehensive income (loss), net of taxes (10,745) 8,180 (41,365) 23,870 (8,618) Comprehensive income $19,140 $39,601 $(35,248) $55,074 $19,043 Net income applicable to common shares 29,885 31,421 6,117 31,204 27,661 Adjusted net income used in diluted EPS calculation 29,889 31,425 6,121 31,209 27,666 Weighted-average common shares - basic 80,426 80,113 80,091 80,066 79,983 Weighted-average common shares - diluted 80,570 80,298 80,316 80,262 80,203 Basic net income per share $0.37 $0.39 $0.07 $0.39 $0.35 Diluted net income per share $0.37 $0.39 $0.07 $0.39 $0.35 FIRSTMERIT CORPORATION AND SUBSIDIARIES ASSET QUALITY INFORMATION (Unaudited, except December 31, 2006 annual period which is derived from the audited financial statements) (Dollars in thousands, except ratios) Quarterly Periods 30-Jun 31-Mar 31-Dec Allowance for Credit Losses 2007 2007 2006 Allowance for loan losses, beginning of period $92,045 $91,342 $88,755 Allowance related to loans held for sale -- -- (23,089) Provision for loan losses 9,967 4,210 44,235 Charge-offs 10,609 9,424 22,323 Recoveries 3,029 5,917 3,764 Net charge-offs 7,580 3,507 18,559 Allowance for loan losses, end of period $94,432 $92,045 $91,342 Reserve for unfunded lending commitments, beginning of period $6,746 $6,294 $6,307 Provision for credit losses (193) 452 (13) Reserve for unfunded lending commitments, end of period $6,553 $6,746 $6,294 Allowance for Credit Losses $100,985 $98,791 $97,636 Ratios Provision for loan losses as a % of average loans 0.57% 0.25% 2.54% Provision for credit losses as a % of average loans -0.01% 0.03% 0.00% Net charge-offs as a % of average loans 0.43% 0.21% 1.06% Net charge-offs and allowance related to loans held for sale as a % of average loans 0.43% 0.21% 1.40% Allowance for loan losses as a % of period-end loans 1.34% 1.32% 1.33% Allowance for credit losses as a % of period-end loans 1.43% 1.42% 1.42% Allowance for loan losses as a % of nonperforming loans 295.08% 331.93% 168.03% Allowance for credit losses as a % of nonperforming loans 315.56% 356.26% 179.60% Asset Quality Impaired loans: Nonaccrual $20,877 $17,049 $45,045 Other nonperforming loans: Nonaccrual 11,125 10,681 9,317 Total nonperforming loans 32,002 27,730 54,362 Other real estate ("ORE") 5,036 4,934 9,815 Total nonperforming assets ("NPAs") $37,038 $32,664 $64,177 NPAs as % of period-end loans + ORE 0.52% 0.47% 0.93% Past due 90 days or more & accruing interest $10,536 $15,209 $16,860 FIRSTMERIT CORPORATION AND SUBSIDIARIES ASSET QUALITY INFORMATION (Unaudited, except December 31, 2006 annual period which is derived from the audited financial statements) (Dollars in thousands, except ratios) Annual Quarterly Periods Period Sep 30 June 30 Dec 31 Allowance for Credit Losses 2006 2006 2006 Allowance for loan losses, beginning of period $87,727 $87,589 $90,661 Allowance related to loans held for sale -- -- (23,089) Provision for loan losses 12,612 13,159 76,112 Charge-offs 15,453 18,038 70,728 Recoveries 3,869 5,017 18,386 Net charge-offs 11,584 13,021 52,342 Allowance for loan losses, end of period $88,755 $87,727 $91,342 Reserve for unfunded lending commitments, beginning of period $5,716 $5,853 $6,072 Provision for credit losses 591 (137) 222 Reserve for unfunded lending commitments, end of period $6,307 $5,716 $6,294 Allowance for Credit Losses $95,062 $93,443 $97,636 Ratios Provision for loan losses as a % of average loans 0.73% 0.78% 1.12% Provision for credit losses as a % of average loans 0.03% -0.01% 0.00% Net charge-offs as a % of average loans 0.67% 0.78% 0.77% Net charge-offs and allowance related to loans held for sale as a % of average loans 0.67% 0.78% 1.11% Allowance for loan losses as a % of period-end loans 1.28% 1.29% 1.33% Allowance for credit losses as a % of period-end loans 1.37% 1.37% 1.42% Allowance for loan losses as a % of nonperforming loans 143.73% 174.80% 168.03% Allowance for credit losses as a % of nonperforming loans 153.94% 186.19% 179.60% Asset Quality Impaired loans: Nonaccrual $52,621 $41,927 $45,045 Other nonperforming loans: Nonaccrual 9,132 8,261 9,317 Total nonperforming loans 61,753 50,188 54,362 Other real estate ("ORE") 10,711 8,598 9,815 Total nonperforming assets ("NPAs") $72,464 $58,786 $64,177 NPAs as % of period-end loans + ORE 1.05% 0.86% 0.93% Past due 90 days or more & accruing interest $15,311 $16,483 $16,860 FIRSTMERIT CORPORATION NONINTEREST INCOME AND NONINTEREST EXPENSE DETAIL (Unaudited) (Dollars in thousands) QUARTERLY OTHER INCOME 2007 2007 2006 2006 2006 DETAIL 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr Trust department income $6,096 $5,596 $5,794 $5,721 $5,744 Service charges on deposits 17,055 16,249 18,198 19,250 18,010 Credit card fees 11,712 11,099 11,325 11,251 11,478 ATM and other service fees 3,189 3,071 3,135 3,301 3,273 Bank owned life insurance income 3,290 3,168 3,001 3,042 5,310 Investment services and insurance 2,660 2,453 2,011 2,631 2,581 Investment securities gains (losses), net 1 - - 2 4 Loan sales and servicing income 1,911 5,438 1,504 1,731 2,833 Other operating income 3,016 1,802 3,364 2,412 2,845 Total Other Income $48,930 $48,876 $48,332 $49,341 $52,078 QUARTERLY OTHER EXPENSES 2007 2007 2006 2006 2006 DETAIL 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr Salaries, wages, pension and employee benefits $43,538 $42,500 $43,700 $43,248 $46,721 Net occupancy expense 6,521 6,686 6,143 6,002 6,120 Equipment expense 2,851 3,084 3,030 3,097 2,914 Taxes, other than federal income taxes 1,655 1,662 1,753 (7,703) 1,802 Stationery, supplies and postage 2,252 2,333 2,633 2,423 2,403 Bankcard, loan processing and other costs 7,607 7,470 7,508 7,459 7,417 Advertising 1,260 1,420 798 1,152 2,369 Professional services 4,525 4,829 5,000 5,470 3,738 Telephone 1,094 1,120 1,362 1,138 1,094 Amortization of intangibles 222 223 222 222 222 Other operating expense 9,850 10,199 11,838 14,475 10,418 Total Other Expenses $81,375 $81,526 $83,987 $76,983 $85,218 FIRSTMERIT CORPORATION AND SUBSIDIARIES ALLOWANCE FOR LOAN LOSSES - Net Charge-off Detail (Unaudited) (Dollars in thousands) Quarters ended Six months ended June 30, June 30, 2007 2006 2007 2006 Allowance for loan losses - beginning of period $92,045 $87,589 $91,342 $90,661 Loans charged off: Commercial 1,212 10,086 1,660 16,152 Mortgage 1,568 325 2,558 698 Installment 4,321 4,524 9,067 10,554 Home equity 1,478 1,146 2,298 1,766 Credit cards 2,025 1,951 4,424 3,725 Leases 5 6 26 57 Total 10,609 18,038 20,033 32,952 Recoveries: Commercial 11 945 2,889 2,382 Mortgage -- 30 8 86 Installment 2,092 2,965 4,206 6,111 Home equity 307 307 564 685 Credit cards 474 585 948 1,034 Manufactured housing 96 84 170 185 Leases 49 101 161 270 Total 3,029 5,017 8,946 10,753 Net charge-offs 7,580 13,021 11,087 22,199 Provision for loan losses 9,967 13,159 14,177 19,265 Allowance related to loans held for sale -- -- -- -- Allowance for loan losses - end of period $94,432 $87,727 $94,432 $87,727 Average loans outstanding $7,002,750 $6,730,531 $6,961,099 $6,714,222 Ratio to average loans: (Annualized) net charge-offs 0.43% 0.78% 0.32% 0.67% (Annualized) net charge-offs and allowance related to loans held for sale 0.43% 0.78% 0.32% 0.67% Provision for loan losses 0.57% 0.78% 0.41% 0.58% Loans outstanding - period-end $7,052,390 $6,804,769 $7,052,390 $6,804,769 Allowance for credit losses: 100,985 93,443 100,985 93,443 As a multiple of (annualized) net charge-offs 3.32 1.79 4.52 2.09 As a multiple of (annualized) net charge-offs and allowance related to loans held for sale 3.32 1.79 4.52 2.09 Allowance for loan losses: As a percent of period-end loans outstanding 1.34% 1.29% 1.34% 1.29% As a multiple of (annualized) net charge-offs 3.11 1.68 4.22 1.96 As a multiple of (annualized) net charge-offs and allowance related to loans held for sale 3.11 1.68 4.22 1.96