UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended ~~June 30, 2014~~March 31, 2015

OR
	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: 001-11267

(Exact name of registrant as specified in its charter)



Ohio		34-1339938
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
III Cascade Plaza, 7th Floor, Akron Ohio		44308
(Address of principal executive offices)		(Zip Code)

(330) ~~996-6300~~996-6000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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. Yes þ No ¨

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). Yes þ No ¨

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



Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.



Class		Outstanding as of 7/4/28/~~2014~~2015
Common Stock, no par value		~~165,394,486~~165,787,937

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDARIES FORM 10-Q TABLE OF CONTENTS	FIRSTMERIT CORPORATION AND SUBSIDARIES FORM 10-Q TABLE OF CONTENTS				FIRSTMERIT CORPORATION AND SUBSIDARIES FORM 10-Q TABLE OF CONTENTS

				Page				Page
Glossary of Acronyms and Abbreviations	Glossary of Acronyms and Abbreviations			5	Glossary of Acronyms and Abbreviations			4
PART 1. FINANCIAL INFORMATION	PART 1. FINANCIAL INFORMATION			6	PART 1. FINANCIAL INFORMATION			5
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS	ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS			6	ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS			5
	CONSOLIDATED BALANCE SHEETS			6	CONSOLIDATED BALANCE SHEETS			5
	CONSOLIDATED STATEMENTS OF INCOME			7	CONSOLIDATED STATEMENTS OF INCOME			6
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			8	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			7
	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY			9	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY			8
	CONSOLIDATED STATEMENTS OF CASH FLOWS			10	CONSOLIDATED STATEMENTS OF CASH FLOWS			9
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			11	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS			10
	Note	1	Summary of Significant Accounting Policies	11	Note	1	Summary of Significant Accounting Policies	10
	Note	2	Business Combinations	13	Note	2	Investment Securities	13
	Note	3	Investment Securities	19	Note	3	Loans	25
	Note	4	Loans	29	Note	4	Allowance for Loan Losses	35
	Note	5	Allowance for Loan Losses	39	Note	5	Goodwill and Other Intangible Assets	55
	Note	6	Goodwill and Other Intangible Assets	60	Note	6	Shareholders' Equity	56
	Note	7	Shareholders' Equity	61	Note	7	Segment Information	57
	Note	8	Segment Information	62	Note	8	Derivatives and Hedging Activities	59
	Note	9	Derivatives and Hedging Activities	64	Note	9	Benefit Plans	65
	Note	10	Benefit Plans	69	Note	10	Fair Value Measurement	65
	Note	11	Fair Value Measurement	69	Note	11	Mortgage Servicing Rights and Mortgage Servicing Activity	78
	Note	12	Mortgage Servicing Rights and Mortgage Servicing Activity	82	Note	12	Commitments and Guarantees	80
	Note	13	Contingencies and Guarantees	83	Note	13	Changes and Reclassifications Out of Accumulated Other Comprehensive Income	85
	Note	14	Changes and Reclassifications Out of Accumulated Other Comprehensive Income	88	Note	14	Subsequent Events	86
	Note	15	Subsequent Events	89
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.				90
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS					ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			87
	Consolidated Financial Highlights			90	Consolidated Financial Highlights			87
	Highlights of Second Quarter of 2014 Performance			91	Highlights of First Quarter of 2015 Performance			88
	Regulation and Supervision			93	Regulation and Supervision			90
		New Capital Rules		94		New Capital Rules		91
		Stress Testing		94		Stress Testing		91
		Other Legislation		95		Other Legislation		92
	Non-GAAP Financial Measures			95	Non-GAAP Financial Measures			92
	Results of Operations			101	Results of Operations			98
		Average Tax-Equivalent Balance Sheets		101		Average Tax-Equivalent Balance Sheets		98
		Net Interest Income		103		Net Interest Income		99
		Noninterest Income		105		Noninterest Income		101
		Noninterest Expense		106		Noninterest Expense		102
		Income Taxes		107		Income Taxes		102
	Line of Business Results			107	Line of Business Results			102
	Financial Condition			109	Financial Condition			105
		Acquisitions		109		Investment Securities		105
		Investment Securities		109		Loans		106
							Originated Loans	107

Table of Contents

FIRSTMERIT CORPORATION AND SUBSIDARIES FORM 10-Q TABLE OF CONTENTS

				Page
			Acquired Loans	~~111~~108
			~~Originated Loans~~	~~112~~
			FDIC Acquired ~~Loans~~	~~113~~
			~~Covered~~ Loans and Related Loss Share Receivable	~~113~~108
		Allowance for Loan Losses and Reserve for Unfunded Lending Commitments		~~113~~110
			Allowance for Originated Loan ~~and Lease~~ Losses	~~114~~110
			Allowance for Acquired Loan Losses	~~119~~115
			Allowance for ~~Covered~~FDIC Acquired Loan Losses	~~119~~116
		Asset Quality ~~(excluding acquired loans and covered assets)~~		~~120~~116
		Deposits, Securities Sold Under Agreements to Repurchase, Wholesale Borrowings and Long-Term Debt		~~123~~119
		Capital Resources		~~124~~120
			Shareholders' Equity	~~124~~120
			Capital Adequacy	~~125~~121
	Risk Management			~~126~~122
		Market Risk Management		~~126~~122
		Liquidity Risk Management		~~128~~124
		Operational Risk Management		~~129~~125
		Critical Accounting Policies		~~129~~126
		Off-Balance Sheet Arrangements		~~130~~126
		~~Forward-Looking Statements -~~Forward-looking Safe-harbor Statement		~~130~~127
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET ~~RISK.~~RISK				~~131~~127
ITEM 4. CONTROLS AND ~~PROCEDURES.~~PROCEDURES				~~132~~128
PART II. OTHER INFORMATION				~~132~~128
	ITEM 1. LEGAL PROCEEDINGS			~~132~~128
	ITEM 1A. RISK FACTORS			~~132~~128
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			~~133~~129
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES			~~133~~129
	ITEM 4. MINE SAFETY DISCLOSURES			~~133~~129
	ITEM 5. OTHER INFORMATION			~~133~~129
	ITEM 6. EXHIBIT ~~INDEX~~S			~~134~~130
SIGNATURES				~~135~~131
~~EX-31.1~~
~~EX-31.2~~
~~EX-32.1~~
~~EX-32.2~~
~~EX-101 INSTANCE DOCUMENT~~
~~EX-101 SCHEMA DOCUMENT~~
~~EX-101 CALCULATION LINKBASE DOCUMENT~~
~~EX-101 LABELS LINKBASE DOCUMENT~~
~~EX-101 PRESENTATION LINKBASE DOCUMENT~~
~~EX-101 DEFINITION LINKBASE DOCUMENT~~
Index to Exhibits

~~Table of Contents~~

Table of Contents

The acronyms and abbreviations identified below are used in this Form 10-Q including the Notes to Consolidated Financial Statements (unaudited) as well as in Management's Discussion & Analysis of Financial Condition and Results of Operations.



Acquisition Date	Citizens Republic ~~Bancorp~~BanCorp Inc. acquisition date of April 12, 2013	Federal Reserve	The Board of Governors of the Federal Reserve System
ALCO	Asset/Liability Management Committee	FHLB	Federal Home Loan Bank
ALL	Allowance for loan losses	FHLMC	Federal Home Loan Mortgage Corporation
AOCI	Accumulated other comprehensive income (loss)	FICO	Fair Isaac Corporation
APBO	Accumulated pension benefit obligation	FINRA	Financial Industry Regulatory Authority
ASC	Accounting standards codification	FNMA	Federal National Mortgage Association
ASU	Accounting standards update	FRAP	Fixed Rate Advantage Program
Bank	FirstMerit Bank N.A.	FRB	Federal Reserve Bank
Basel I	Basel ~~Committee's~~Committee’s 1988 Capital Accord	~~GAAP~~FSOC	~~United States generally accepted accounting principles~~Financial Stability Oversight Council
Basel III	Basel Committee regulatory capital reforms, Third Basel Accord	~~GSE~~GAAP	~~Government sponsored enterprise~~United States generally accepted accounting principles
Basel Committee	Basel Committee on Banking Supervision	GSE	Government sponsored enterprise
BHC	Bank holding company	ISDA	International Swaps and Derivatives Association
~~BHC~~BHCA	Bank ~~holding company~~Holding Company Act of 1956, as amended	LIBOR	London Interbank Offered Rate
CCAR	Comprehensive Capital Analysis and Review	Management	FirstMerit ~~Corporation's~~Corporation’s Management
~~CFPB~~CET1	~~Bureau of Consumer Financial Protection~~Common equity tier 1	MBS	Mortgage-backed securities
CFPB	Consumer Financial Protection Bureau	MSRs	Mortgage servicing rights
Citizens	Citizens Republic Bancorp Inc.	~~MSRs~~NASDAQ	~~Mortgage servicing rights~~The NASDAQ Stock Market LLC
Citizens TARP Preferred	Citizens TARP Preferred issued to the U.S. Treasury as part of the Troubled Assets Relief Program	NYSE	New York Stock Exchange
~~CME Group Inc.~~CLO	~~Chicago Mercantile Exchange~~Collateralized loan obligations	OCC	Office of the Comptroller of the Currency
~~CLO~~CMO	Collateralized ~~loan~~mortgage obligations	OCI	Other comprehensive income (loss)
~~CMO~~	~~Collateralized mortgage obligations~~	~~OREO~~	~~Other real estate owned~~
Common Stock	Common Shares, without par value	~~OTTI~~OREO	~~Other-than-temporary impairment~~Other real estate owned
Corporation	FirstMerit Corporation and its Subsidiaries	OTTI	Other-than-temporary impairment
CPR	Conditional Prepayment Rate	Parent Company	FirstMerit Corporation
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010	Preferred Stock	5.875% Non-Cumulative Perpetual Preferred Stock, Series A
DIF	Federal Deposit Insurance Fund	RIP	Retirement Investment Plan
DTA	Deferred tax asset	ROA	Return on average assets
DTL	Deferred tax liability	ROE	Return on average equity
EPS	Earnings per share	SEC	United States Securities and Exchange Commission
~~EVE~~ERISA	~~Economic value~~Employee Retirement Income Security Act of ~~equity~~1974	TARP	Troubled Asset Relief Program
~~FASB~~ERM	~~Financial Accounting Standards Board~~Enterprise risk management	TDR	Troubled debt restructuring
~~FDIC~~ESOP	~~The Federal Deposit Insurance Corporation~~Employee stock ownership plan	TE	Fully taxable equivalent
~~FCM~~EVE	~~Futures commission merchant~~Economic value of equity	U.S. Treasury	United States Department of the Treasury
FASB	Financial Accounting Standards Board	UTB	Unrecognized tax balance
FDIA	Federal Deposit Insurance Act	VIE	Variable interest entity
FDIC	The Federal Deposit Insurance Corporation

Table of Contents

PART 1.I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.

																			CONSOLIDATED BALANCE SHEETS	FIRSTMERIT CORPORATION AND SUBSIDARIES

(In thousands, except share data)	June 30,			December 31,			June 30,
(Unaudited, except for December 31, 2013)	2014			2013			2013
(In thousands)										March 31,			December 31,			March 31,
(Unaudited, except for December 31, 2014)										2015			2014			2014
ASSETS
Cash and due from banks	$	523,027		$	571,171		$	421,836		$	426,247		$	480,998		$	520,976
Interest-bearing deposits in banks	119,543			346,651			487,654			106,178			216,426			438,309
Total cash and cash equivalents	642,570			917,822			909,490			532,425			697,424			959,285
Investment securities:
Held-to-maturity	3,052,118			2,935,688			2,551,860			2,855,174			2,903,609			3,079,620
Available-for-sale	3,478,420			3,273,174			3,299,392			3,791,059			3,545,288			3,433,171
Other investments	148,433			180,803			267,565			148,475			148,654			148,446
Loans held for sale	21,632			11,622			22,855			3,568			13,428			7,143
Loans	14,969,627			14,300,972			14,143,423			15,490,889			15,326,147			14,608,613
Allowance for loan losses	(142,036		)	(141,252		)	(147,714		)	(146,552		)	(143,649		)	(145,060		)
Net loans	14,827,591			14,159,720			13,995,709			15,344,337			15,182,498			14,463,553
Premises and equipment, net	315,770			327,054			316,877			320,392			332,297			323,335
Goodwill	741,740			741,740			741,740			741,740			741,740			741,740
Intangible assets	76,886			82,755			88,419			68,422			71,020			79,819
Covered other real estate	51,072			65,234			67,786
FDIC acquired other real estate										43,660			49,641			59,848
Accrued interest receivable and other assets	1,208,199			1,216,416			1,273,180			1,268,868			1,216,748			1,202,701
Total assets	$	24,564,431		$	23,912,028		$	23,534,873		$	25,118,120		$	24,902,347		$	24,498,661
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	5,525,484		$	5,459,029		$	5,277,647		$	5,666,752		$	5,786,662		$	5,595,899
Interest-bearing	3,028,479			3,026,735			2,504,368			3,277,118			3,028,888			3,081,658
Savings and money market accounts	8,476,096			8,587,167			8,520,806			8,610,553			8,399,612			8,750,182
Certificates and other time deposits	2,268,337			2,460,670			2,816,901			2,371,172			2,289,503			2,383,935
Total deposits	19,298,396			19,533,601			19,119,722			19,925,595			19,504,665			19,811,674
Federal funds purchased and securities sold under agreements to repurchase	1,218,855			851,535			844,871			1,113,371			1,272,591			926,195
Wholesale borrowings	649,021			200,600			201,337			316,628			428,071			349,277
Long-term debt	324,433			324,428			324,422			512,625			505,192			324,430
Accrued taxes, expenses and other liabilities	281,988			298,970			393,612			361,115			357,547			344,119
Total liabilities	21,772,693			21,209,134			20,883,964			22,229,334			22,068,066			21,755,695
Shareholders' equity:
5.875% Non-Cumulative Perpetual Preferred Stock, Series A, without par value: authorized 115,000 shares; 100,000 issued	100,000			100,000			100,000			100,000			100,000			100,000
Common Stock warrant	3,000			3,000			3,000			3,000			3,000			3,000
Common Stock, without par value; authorized 300,000,000 shares; issued: June 30, 2014 and December 31, 2013 - 170,183,540 shares; June 30, 2013 - 170,179,911 shares	127,937			127,937			127,937
Common Stock, without par value; authorized 300,000,000 shares; issued: March 31, 2015, December 31, 2014 and March 31, 2014 - 170,183,540 shares										127,937			127,937			127,937
Capital surplus	1,387,253			1,390,643			1,386,063			1,394,933			1,393,090			1,393,749
Accumulated other comprehensive loss	(39,507		)	(66,876		)	(71,897		)	(49,267		)	(71,892		)	(55,504		)
Retained earnings	1,335,371			1,277,975			1,235,530			1,433,926			1,404,717			1,303,626
Treasury stock, at cost: June 30, 2014 - 4,790,517 December 31, 2013 - 5,127,332 shares; June 30, 2013 - 5,134,463 shares	(122,316		)	(129,785		)	(129,724		)
Treasury stock, at cost: March 31, 2015 - 4,730,374; December 31, 2014 - 4,793,566 shares; March 31, 2014 - 5,096,157 shares										(121,743		)	(122,571		)	(129,842		)
Total shareholders' equity	2,791,738			2,702,894			2,650,909			2,888,786			2,834,281			2,742,966
Total liabilities and shareholders' equity	$	24,564,431		$	23,912,028		$	23,534,873		$	25,118,120		$	24,902,347		$	24,498,661

See accompanying ~~notes~~Notes to the ~~consolidated financial statements.~~Consolidated Financial Statements

Table of Contents

															CONSOLIDATED STATEMENTS OF INCOME	FIRSTMERIT CORPORATION AND SUBSIDIARIES

(In thousands except for per share data)	Three Months Ended June 30,					Six Months Ended June 30,
(In thousands, except per share amounts)											Three Months Ended March 31,
(Unaudited)	2014		2013			2014		2013			2015		2014
Interest income:
Loans and loans held for sale	$	172,517	$	178,535		$	343,030	$	277,206		$	161,539	$	170,514
Investment securities:
Taxable	32,253		29,138			64,275		48,377			31,950		32,022
Tax-exempt	5,555		6,098			10,895		10,143			6,026		5,340
Total investment securities interest	37,808		35,236			75,170		58,520			37,976		37,362
Total interest income	210,325		213,771			418,200		335,726			199,515		207,876
Interest expense:
Deposits:
Interest bearing	745		656			1,481		974			767		737
Savings and money market accounts	5,477		6,469			11,035		11,784			5,547		5,559
Certificates and other time deposits	3,009		3,374			5,473		5,437			2,177		2,464
Securities sold under agreements to repurchase	233		329			429		642
Federal funds purchased and securities sold under agreements to repurchase											243		197
Wholesale borrowings	1,391		1,169			2,520		2,019			2,340		1,129
Long-term debt	3,893		3,743			7,783		5,491			2,818		3,890
Total interest expense	14,748		15,740			28,721		26,347			13,892		13,976
Net interest income	195,577		198,031			389,479		309,379			185,623		193,900
Provision for loan losses	15,253		7,309			29,790		17,256			8,248		14,536
Net interest income after provision for loan losses	180,324		190,722			359,689		292,123			177,375		179,364
Noninterest income:
Trust department income	10,070		9,167			19,818		14,907			10,149		9,748
Service charges on deposits	18,528		20,582			35,176		33,168			15,668		16,648
Credit card fees	13,455		14,317			25,607		24,540			12,649		12,152
ATM and other service fees	5,996		4,945			11,816		8,280			6,099		5,819
Bank owned life insurance income	4,040		3,641			7,622		8,538			3,592		3,582
Investment services and insurance	3,852		3,429			7,368		5,844			3,704		3,516
Investment securities gains/(losses), net	80		(2,794		)	136		(2,803		)	354		56
Loan sales and servicing income	4,462		7,985			8,192		15,848			1,600		3,730
Other operating income	12,077		8,167			24,096		18,510			12,032		12,019
Total noninterest income	72,560		69,439			139,831		126,832			65,847		67,270
Noninterest expense:
Salaries, wages, pension and employee benefits	89,465		105,099			178,478		163,005			90,526		89,013
Net occupancy expense	14,347		13,346			31,361		21,628			15,954		17,014
Equipment expense	12,267		10,309			24,178		17,659			11,025		11,911
Stationery, supplies and postage	3,990		3,407			8,097		5,503			3,528		4,108
Bankcard, loan processing and other costs	11,810		12,417			22,644		20,257			11,139		10,834
Professional services	4,745		17,144			10,103		22,554			4,010		5,359
Amortization of intangibles	2,933		2,411			5,869		2,728			2,598		2,936
FDIC insurance expense	5,533		4,149			11,504		7,675			5,167		5,971
Other operating expense	22,310		20,606			44,499		34,025			16,705		22,185
Total noninterest expense	167,400		188,888			336,733		295,034			160,652		169,331
Income before income tax expense	85,484		71,273			162,787		123,921			82,570		77,303
Income tax expense	25,965		22,823			49,813		38,125			25,431		23,848
Net income	59,519		48,450			112,974		85,796			57,139		53,455
Less: income allocated to participating shareholders	489		383			926		813
Less: Net income allocated to participating shareholders											407		380
Preferred Stock dividends	1,469		1,469			2,938		2,399			1,469		1,469
Net income attributable to common shareholders	$	57,561	$	46,598		$	109,110	$	82,584		$	55,263	$	51,606
Net income used in diluted EPS calculation	$	57,561	$	46,598		$	109,110	$	82,584		$	55,263	$	51,606
Weighted average number of common shares outstanding - basic	165,335		157,863			165,198		133,909			165,411		165,060
Weighted average number of common shares outstanding - diluted	166,147		158,390			166,052		134,406			166,003		166,004
Basic earnings per common share	$	0.35	$	0.30		$	0.66	$	0.62		$	0.33	$	0.31
Diluted earnings per common share	$	0.35	$	0.29		$	0.66	$	0.61		$	0.33	$	0.31
Dividend per common share	$	0.16	$	0.16		$	0.32	$	0.32
Cash dividend per common share											$	0.16	$	0.16

See accompanying ~~notes~~Notes to the ~~consolidated financial statements.~~Consolidated Financial Statements

																												CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	FIRSTMERIT CORPORATION AND SUBSIDIARIES

(In thousands) (Unaudited)	Three Months Ended June 30, 2014									Six Months Ended June 30, 2014
	Pre-tax			Tax			After-tax			Pre-tax			Tax			After-tax
(In thousands)																			Three Months Ended March 31, 2015
(Unaudited)																			Pretax			Tax			After tax
Net Income	$	85,484		$	25,965		$	59,519		$	162,787		$	49,813		$	112,974		$	82,570		$	25,431		$	57,139
Other comprehensive income/(loss)
Unrealized gains and losses on securities available for sale:
Changes in unrealized securities' holding gains/(losses)	22,456			7,860			14,596			40,500			14,175			26,325			34,117			11,941			22,176
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred into available-for-sale from held-to-maturity	(494		)	(173		)	(321		)	(988		)	(346		)	(642		)
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale to held-to-maturity																			(504		)	(176		)	(328		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(80		)	(28		)	(52		)	(136		)	(48		)	(88		)	(354		)	(124		)	(230		)
Net change in unrealized gains/(losses) on securities available for sale	21,882			7,659			14,223			39,376			13,781			25,595			33,259			11,641			21,618
Pension plans and other postretirement benefits:
Net gains/(losses) arising during the period	—			—			—			—			—			—
Amortization of actuarial gain	1,631			571			1,060			1,631			571			1,060
Amortization of actuarial losses/(gains)																			1,138			398			740
Amortization of prior service cost reclassified to other noninterest expense	1,097			383			714			1,097			383			714			410			143			267
Net change from defined benefit pension plans	2,728			954			1,774			2,728			954			1,774			1,548			541			1,007
Total other comprehensive gains/(losses)	24,610			8,613			15,997			42,104			14,735			27,369			34,807			12,182			22,625
Comprehensive income	$	110,094		$	34,578		$	75,516		$	204,891		$	64,548		$	140,343		$	117,377		$	37,613		$	79,764


(In thousands) (Unaudited)	Three Months Ended June 30, 2013									Six months ended June 30, 2013
	Pre-tax			Tax			After-tax			Pre-tax			Tax			After-tax
(In thousands)																			Three Months Ended March 31, 2014
(Unaudited)																			Pretax			Tax			After tax
Net Income	$	71,273		$	22,823		$	48,450		$	123,921		$	38,125		$	85,796		$	77,303		$	23,848		$	53,455
Other comprehensive income/(loss)
Unrealized gains and losses on securities available for sale:
Changes in unrealized securities' holding gains/(losses)	(75,729		)	(26,505		)	(49,224		)	(87,362		)	(30,577		)	(56,785		)	18,044			6,315			11,729
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred into available-for-sale from held-to-maturity	(568		)	(199		)	(369		)	(1,120		)	(392		)	(728		)
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity																			(494		)	(173		)	(321		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	2,794			978			1,816			2,803			982			1,821			(56		)	(20		)	(36		)
Net change in unrealized gains/(losses) on securities available for sale	(73,503		)	(25,726		)	(47,777		)	(85,679		)	(29,987		)	(55,692		)	17,494			6,122			11,372
Pension plans and other postretirement benefits:
Net gain/(loss) arising during the period	—			—			—			—			—			—
Amortization of actuarial gain	—			—			—			—			—			—
Amortization of prior service cost reclassified to other noninterest expense	—			—			—			—			—			—
Net change from defined benefit pension plans	—			—			—			—			—			—
Total other comprehensive gains/(losses)	(73,503		)	(25,726		)	(47,777		)	(85,679		)	(29,987		)	(55,692		)	17,494			6,122			11,372
Comprehensive income	$	(2,230	)	$	(2,903	)	$	673		$	38,242		$	8,138		$	30,104		$	94,797		$	29,970		$	64,827

See accompanying ~~notes~~Notes to the ~~consolidated financial statements.~~Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FIRSTMERIT CORPORATION AND SUBSIDIARIES

(In thousands) (Unaudited)	Preferred Stock		Common Stock		Common Stock Warrant		Capital Surplus			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders' Equity
Balance at December 31, 2013	$	100,000	$	127,937	$	3,000	$	1,390,643		$	(66,876	)	$	1,277,975		$	(129,785	)	$	2,702,894
Net income	—		—		—		—			—			53,455			—			53,455
Other comprehensive income	—		—		—		—			11,372			—			—			11,372
Comprehensive income	—		—		—		—			11,372			53,455			—			64,827
Cash dividends - Preferred Stock	—		—		—		—			—			(1,469		)	—			(1,469		)
Cash dividends - Common Stock ($0.16 per share)	—		—		—		—			—			(26,335		)	—			(26,335		)
Nonvested (restricted) shares granted (82,241 shares)	—		—		—		(1,485		)	—			—			1,485			—
Restricted stock activity (51,066 shares)	—		—		—		419			—			—			(1,136		)	(717		)
Deferred compensation trust (1,967 increase in shares)	—		—		—		406			—			—			(406		)	—
Share-based compensation	—		—		—		3,766			—			—			—			3,766
Balance at March 31, 2014	$	100,000	$	127,937	$	3,000	$	1,393,749		$	(55,504	)	$	1,303,626		$	(129,842	)	$	2,742,966

Balance at December 31, 2014	$	100,000	$	127,937	$	3,000	$	1,393,090		$	(71,892	)	$	1,404,717		$	(122,571	)	$	2,834,281
Net income	—		—		—		—			—			57,139			—			57,139
Other comprehensive income	—		—		—		—			22,625			—			—			22,625
Comprehensive income	—		—		—		—			22,625			57,139			—			79,764
Cash dividends - Preferred Stock	—		—		—		—			—			(1,469		)	—			(1,469		)
Cash dividends - Common Stock ($0.16 per share)	—		—		—		—			—			(26,461		)	—			(26,461		)
Nonvested (restricted) shares granted (129,444 shares)	—		—		—		(2,631		)	—			—			2,631			—
Restricted stock activity (66,252 shares)	—		—		—		326			—			—			(1,296		)	(970		)
Deferred compensation trust (163,965 increase in shares)	—		—		—		507			—			—			(507		)	—
Share-based compensation	—		—		—		3,641			—			—			—			3,641
Balance as of March 31, 2015	$	100,000	$	127,937	$	3,000	$	1,394,933		$	(49,267	)	$	1,433,926		$	(121,743	)	$	2,888,786

See accompanying Notes to the Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FIRSTMERIT CORPORATION AND SUBSIDIARIES

(In thousands) (Unaudited)
Preferred
Stock

Common
Stock
Common Stock Warrant
Capital
Surplus

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Treasury
Stock

Total
Shareholders'
Equity
Balance at December 31, 2012 $ —
$ 127,937
$ —
$ 475,979
$ (16,205 ) $ 1,195,850
$ (138,359 ) $ 1,645,202
Net income —
—
—
—
85,796
—
85,796
Other comprehensive income —
—
—
—
(55,691 ) —
—
(55,691 )
Comprehensive income —
—
—
—
(55,691 ) 85,796
—
30,105
Cash dividends - Preferred Stock —
—
—
—
—
(2,399 ) —
(2,399 )
Cash dividends - Common Stock ($0.32 per share) —
—
—
—
—
(43,717 ) —
(43,717 )
Common stock issued in connection with Citizens acquisition (55,468,283 shares) —
—
—
925,272
—
—
—
925,272
Nonvested (restricted) shares granted (532,282 shares) —
—
—
(19,094 ) —
—
12,281
(6,813 )
Restricted stock activity (193,830 shares) —
—
—
894
—
—
(3,400 ) (2,506 )
Deferred compensation trust (144,923 increase in shares) —
—
—
246
—
—
(246 ) —
Share-based compensation —
—
—
6,216
—
—
—
6,216
Issuance of 5.875% Non-Cumulative Perpetual Preferred Stock, Series A 100,000
—
—
(3,450 ) —
—
—
96,550
Issuance of a Common Stock warrant to the U.S. Treasury for Citizens TARP warrant (2,408,203 shares) —
—
3,000
—
—
—
—
3,000
Balance at June 30, 2013 $ 100,000
$ 127,937
$ 3,000
$ 1,386,063
$ (71,896 ) $ 1,235,530
$ (129,724 ) $ 2,650,910

Balance at December 31, 2013 $ 100,000
$ 127,937
$ 3,000
$ 1,390,643
$ (66,876 ) $ 1,277,975
$ (129,785 ) $ 2,702,894
Net income —
—
—
—
—
112,974
—
112,974
Other comprehensive income —
—
—
—
27,369
—
—
27,369
Comprehensive income —
—
—
—
27,369
112,974
—
140,343
Cash dividends - Preferred Stock —
—
—
—
—
(2,938 ) —
(2,938 )
Cash dividends - Common Stock ($0.32 per share) —
—
—
—
—
(52,640 ) —
(52,640 )
Nonvested (restricted) shares granted (573,881 shares) —
—
—
(12,993 ) —
—
13,092
99
Restricted stock activity (237,066 shares) —
—
—
802
—
—
(5,023 ) (4,221 )
Deferred compensation trust (173,959 increase in shares) —
—
—
600
—
—
(600 ) —
Share-based compensation —
—
—
8,201
—
—
—
8,201
Balance as of June 30, 2014 $ 100,000
$ 127,937
$ 3,000
$ 1,387,253
$ (39,507 ) $ 1,335,371
$ (122,316 ) $ 2,791,738



CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited)	Three Months Ended March 31,
	2015			2014
Operating Activities
Net income	$	57,139		$	53,455
Adjustments to reconcile net income to net cash provided and used by operating activities:
Provision for loan losses	8,248			14,536
Provision/(benefit) for deferred income taxes	(1,663		)	3,081
Depreciation and amortization	14,739			8,367
Benefit attributable to FDIC loss share	4,227			4,824
Accretion of acquired loans	(26,339		)	(37,965		)
Amortization and accretion of investment securities, net
Available for sale	2,680			1,949
Held to maturity	814			2,089
Losses/(gains) on sales and calls of available-for-sale investment securities, net	(354		)	(56		)
Originations of loans held for sale	(40,442		)	(61,109		)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary markets	50,868			66,904
Gains on sales of loans, net	(566		)	(1,316		)
Amortization of intangible assets	2,598			2,936
Recognition of stock compensation expense	3,641			3,766
Net decrease/(increase) in other assets	(48,684		)	6,506
Net increase/(decrease) in other liabilities	25,224			26,800
NET CASH PROVIDED BY OPERATING ACTIVITIES	52,130			94,767
Investing Activities
Proceeds from sale of investment securities
Available for sale	39,302			7,809
Other	—			32,486
Held to maturity	1,015			2,495
Proceeds from prepayments, calls, and maturities of investment securities
Available for sale	129,296			112,747
Held to maturity	92,241			61,734
Other	166			—
Purchases of investment securities
Available for sale	(404,163		)	(245,403		)
Held to maturity	(46,164		)	(214,611		)
Other	—			(142		)
Net decrease/(increase) in loans and leases	(152,359		)	(277,708		)
Purchases of premises and equipment	(5,795		)	(16,859		)
Sales of premises and equipment	7,965			11,259
NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES	(338,496		)	(526,193		)
Financing Activities
Net increase in demand accounts	128,320			191,793
Net increase/(decrease) in savings and money market accounts	210,941			163,015
Net decrease in certificates and other time deposits	81,669			(76,735		)
Net increase/(decrease) in securities sold under agreements to repurchase	(159,220		)	74,660
Net increase/(decrease) in long-term debt	—			—
Net increase/(decrease) in wholesale borrowings	(111,443		)	148,677
Net proceeds from issuance of preferred stock	—			—
Cash dividends - common	(26,461		)	(26,335		)
Cash dividends - preferred	(1,469		)	(1,469		)
Restricted stock activity	(970		)	(717		)
NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES	121,367			472,889
Increase/(Decrease) in cash and cash equivalents	(164,999		)	41,463
Cash and cash equivalents at beginning of year	697,424			917,822
Cash and cash equivalents at end of year	$	532,425		$	959,285

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest	$	14,036		$	11,140
Federal income taxes	2,000			—

See accompanying ~~notes~~Notes to the ~~consolidated financial statements.~~Consolidated Financial Statements

~~Table of Contents~~

CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited) Six Months Ended June 30,
2014 2013
Operating Activities
Net income $ 112,974
$ 85,796
Adjustments to reconcile net income to net cash provided and used by operating activities:
Provision for loan losses 29,790
17,256
Provision/(benefit) for deferred income taxes 13,352
(25,502 )
Depreciation and amortization 25,450
17,650
Benefit attributable to FDIC loss share 927
7,858
Accretion of acquired loans (74,126 ) (54,264 )
Amortization and accretion of investment securities, net
Available for sale 4,137
12,276
Held to maturity 4,236
3,223
(Gains)/losses on sales and calls of available-for-sale investment securities, net (136 ) 2,803
Originations of loans held for sale (153,569 ) (309,247 )
Proceeds from sales of loans, primarily mortgage loans sold in the secondary markets 147,015
316,750
Gains on sales of loans, net (3,456 ) (6,675 )
Amortization of intangible assets 5,869
2,728
Recognition of stock compensation expense 8,201
6,216
Net decrease (increase) in other assets 4,168
177,984
Net increase in other liabilities (21,506 ) (74,440 )
NET CASH PROVIDED BY OPERATING ACTIVITIES 103,326
180,412
Investing Activities
Proceeds from sale of investment securities
Available for sale 8,438
2,179,728
Other 32,487
—
Held to maturity 2,495
897
Proceeds from prepayments, calls, and maturities of investment securities
Available for sale 232,087
427,115
Held to maturity 151,133
73,810
Purchases of investment securities
Available for sale (411,463 ) (711,170 )
Held to maturity (278,407 ) (1,263,297 )
Other (142 ) (280 )
Net (increase)/decrease in loans and leases (628,735 ) 241,478
Purchases of premises and equipment (31,599 ) (11,402 )
Sales of premises and equipment 24,292
181
Cash received for acquisition, net of cash paid —
188,948
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (899,414 ) 1,126,008
Financing Activities
Net increase in demand accounts 68,199
131,262
Net (decrease)/increase in savings and money market accounts (111,071 ) 110,152
Net decrease in certificates and other time deposits (192,333 ) (157,872 )
Net increase/(decrease) in securities sold under agreements to repurchase 367,320
(374,659 )
Proceeds from issuance of subordinated debt —
249,924
Net increase/(decrease) in wholesale borrowings 448,421
(654,866 )
Net proceeds from issuance of Preferred Stock —
96,550
Cash dividends - common (52,640 ) (43,717 )
Cash dividends - preferred (2,938 ) (2,399 )
Restricted stock activity (4,122 ) (9,319 )
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 520,836
(654,944 )
(Decrease)/Increase in cash and cash equivalents (275,252 ) 651,476
Cash and cash equivalents at beginning of year 917,822
258,014
Cash and cash equivalents at end of year $ 642,570
$ 909,490

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Non-cash transaction: Common Stock issued in merger with Citizens $ —
$ 925,211
Non-cash transaction: Consideration from the warrant issued to the Treasury for Citizens TARP —
3,000
Cash paid during the year for:
Interest expense $ 28,732
$ 20,779
Federal income taxes 11,547
27,662

~~See accompanying notes to the consolidated financial statements.~~

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FIRSTMERIT CORPORATION AND SUBSIDIARIES

FirstMerit Corporation and subsidiaries is a diversified financial services company headquartered in Akron, Ohio with ~~379~~384 banking offices in the Ohio, Michigan, Wisconsin, Illinois, and Pennsylvania areas. The Corporation provides a complete range of banking and other financial services to consumers and businesses through its core operations.

1. Summary of Significant Accounting Policies

Unless otherwise indicated, defined terms and abbreviations used herein have the meanings set forth in the accompanying Glossary of Acronyms and Abbreviations.

Basis of Presentation - FirstMerit Corporation is a BHC whose principal asset is the Common Stock of its wholly-owned subsidiary, FirstMerit Bank, N. A. The Parent Company’s other subsidiaries include Citizens Savings Corporation of Stark County, FirstMerit Capital Trust I, and FirstMerit Risk Management, Inc.~~, FMT, Inc.~~ All significant intercompany balances and transactions have been eliminated in consolidation.

The accounting and reporting policies of the Corporation conform to GAAP and to general practices within the financial services industry.

The Consolidated Balance Sheet at December 31, ~~2013~~2014 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 adjustments) that are, in the opinion of Management, necessary for a fair statement of the results for the interim periods presented. Certain reclassifications of prior year’s amounts have been made to conform to the current year presentation. Such reclassifications had no effect on net earnings or equity. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules of the SEC. The unaudited consolidated financial statements of the Corporation as of ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014 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 and notes included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014 (the “~~2013~~2014 Form 10-K”). There have been no significant changes in the current quarter to the Corporation’s accounting policies as disclosed in the ~~2013~~2014 Form 10-K.

In preparing these accompanying unaudited interim consolidated financial statements, subsequent events were evaluated through the time the consolidated financial statements were issued.

Recently Adopted Accounting Standards

FASB ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure—a consensus of the FASB Emerging Issues Task Force. The objective of this update is to reduce diversity in practice by addressing the classification of certain foreclosed mortgage loans held by creditors that are either fully or partially guaranteed under government programs. The amendments in this update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the

following conditions are met: 1) the loan has a government guarantee that is not separable from the

loan before foreclosure; 2) at the time of foreclosure, the creditor has the intent to convey the real

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and 3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The ASU is effective for interim and annual periods beginning after December 15, 2014. The amendments can be adopted using either a prospective transition method or a modified retrospective transition method. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2014-11, Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this update require entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), eliminate accounting guidance on linking repurchase financing transactions, and expand disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers, such as repos, securities lending transactions, and repurchase-to-maturity transactions, accounted for as secured borrowings. The amendments in ASU 2014-11 are effective for the first interim or annual period beginning after December 15, 2014. The amendments must present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Early application is prohibited. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2014-08, Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update change the definition of a discontinued operation in ASC 205-20 and require additional disclosures for transactions that meet the definition of a discontinued operation and certain other significant transactions that do not meet the discontinued operations criteria. The amendments in ASU 2014-08 are effective prospectively for all disposals, except disposals classified as held for sale before the adoption date or components initially classified as held for sale in periods beginning on or after December 15, 2014, with early adoption permitted. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

FASB ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. ASU 2014-04 amends the guidance in ASC 310-40 by clarifying when an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. Additionally, the amendments require interim and annual disclosure of both 1) the amount of foreclosed residential real estate property held by the creditor and 2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in ASU 2014-04 are effective for annual periods, and interim period within those annual periods, beginning after December 15, 2014. The amendments can either be adopted using a modified retrospective or a prospective transition method. The adoption of this accounting guidance did not have a material effect on the Corporation’s financial position or results of operations.

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

Recently ~~Adopted~~Issued Accounting Standards

FASB ASU ~~2014-01,~~ 2015-5, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for ~~Investments~~Fees Paid in ~~Qualified Affordable Housing Projects.~~a Cloud Computing Arrangement. The amendments in ASU ~~2014-01 do~~2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. In addition, the ~~existing accounting methods, but permit reporting entities to make an accounting policy election to account~~guidance in this Update supersedes paragraph 350-40-25-16. Consequently, all software licenses within the scope of Subtopic 350-40 will be accounted for their investments in qualified affordable projects using the proportional amortization method, if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial costconsistent with other licenses of ~~the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit).~~intangible assets. The amendments ~~in ASU 2014-01~~ are effective for public business entities for annual ~~periods~~ and interim ~~reporting~~ periods within those annual periods, beginning after December 15, ~~2014,~~2015. An entity can elect to adopt the amendments either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. For prospective transition, the only disclosure requirements at transition are the nature of and reason for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change. For retrospective transition, the disclosure requirements

at transition include the requirements for prospective transition and quantitative information about the effects of the accounting change. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements.

FASB ASU 2015-3, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03, require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from that debt liability, consistent with the presentation of a debt discount. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be applied retrospectively to all periods presented. The Corporation early adopted ASU 2014-01 in the first quarter of 2014. 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 restatedadjusted to reflect the period-specific effects of applying the new guidance. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. The adoption of this guidance is not expected to have a material effect on the ~~amendment, which resulted in an offsetting decrease to other noninterest expense and increase to the provision for income taxes~~Corporations financial position or results of ~~approximately $0.8 million and $1.5 million for the three and six months ended June 30, 2013, respectively.~~operations.

~~Recently Issued Accounting Standards~~FASB ASU 2015-2, Amendments to the Consolidation Analysis. The amendments in ASU 2015-02 affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. These amendments modify the evaluation of whether limited partnerships and other similar entities are variable interest entities; eliminate the presumption that a general partner should consolidate a limited partnership; affect the consolidation analysis that are involved with variable interest entities; and provide a scope exception from consolidation for entities that are required to comply or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. A reporting entity may apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal

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year of adoption. A reporting entity also may apply the amendments retrospectively. The adoption of this guidance is not expected to have a material effect on the Corporations financial position or results of operations.

FASB ASU 2014–12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period— a consensus of the FASB Emerging Issues Task Force. The amendments in this update clarify that entities should treat performance targets that can be met after the requisite service period of a share-based payment award as performance conditions that affect vesting. Therefore, an entity would not record compensation expense (measured as of the grant date without taking into account the effect of the performance target) related to an award for which transfer to the employee is contingent on the entity’s satisfaction of a performance target until it becomes probable that the performance target will be met. The ASU does not contain any new disclosure requirements. The ASU is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. In addition, entities will have the option of applying the guidance either prospectively (i.e., only to awards granted or modified on or after the effective date) or retrospectively. Retrospective application would only apply to awards with performance targets outstanding at or after the beginning of the first annual period presented (i.e., the earliest presented comparative period). The ~~Corporation is in process of assessing the potential impact the~~ adoption of this ~~guidance will have on its consolidated financial statements.~~

~~FASB ASU 2014-11,~~ ~~Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures~~. The amendments in this update require entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), eliminates accounting guidance on linking repurchase financing transactions, and expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers, such as repos, securities lending transactions, and repurchase-to-maturity transactions, accounted for as secured borrowings. The amendments in ASU 2014-11 are effective for the first interim or annual period beginning after December 15, 2014. The amendments must present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Early application is prohibited. The adoption of this accounting guidance is not expected to have a material effect on the ~~Corporation's~~Corporations financial position or results of operations.

FASB ASU 2014-09, Revenue from Contracts with Customers. The amendments in this update supersede virtually all existing GAAP revenue recognition guidance, including most industry-specific revenue

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

recognition guidance. ASU 2014-09 creates a single, principle-based revenue recognition framework and will require entities to apply significantly more judgment and expanded disclosures surrounding revenue recognition. The core principle requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 applies to contracts with customers to provide goods and services, with certain exclusions such as lease contracts, financing arrangements, and financial instruments. The amendments in ASU 2014-09 are effective for fiscal years beginning after December 15, 2016. On April 1, 2015, the FASB proposed to defer the effective date by one year, permitting public organizations to apply this guidance to annual reporting periods beginning after December 15, 2017, with early adoption permitted, but not before the original public organization effective date. The amendments can be adopted using either the full retrospective approach or a modified retrospective approach. Early adoption is prohibited. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements.

~~FASB ASU 2014-08,~~ ~~Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.~~ The amendments in this update change the definition of a discontinued operation in ASC 205-20 and requires additional disclosures for transactions that meet the definition of a discontinued operation and certain other significant transactions that do not meet the discontinued operations criteria. The amendments in ASU 2014-08 are effective prospectively for all disposals, except disposals classified as held for sale before the adoption date or components initially classified as held for sale in periods beginning on or after December 15, 2014, with early adoption permitted. The adoption of this accounting guidance is not expected to have a material effect on the Corporation's financial position or results of operations.

~~FASB ASU 2014-04,~~ ~~Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.~~ ASU 2014-04 amends the guidance in ASC 310-40 by clarifying when an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. Additionally, the amendments require interim and annual disclosure of both 1) the amount of foreclosed residential real estate property held by the creditor and 2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in ASU 2014-04 are effective for annual periods, and interim period within those annual periods, beginning after December 15, 2014. The amendments can either be adopted using a modified retrospective or a prospective transition method. The adoption of this accounting guidance is not expected to have a material effect on the Corporation's financial position or results of operations.

2. ~~Business Combinations~~

The Corporation completed the merger with Citizens, a Michigan corporation with approximately $9.6 billion in assets and 219 branches, in the quarter ended June 30, 2013. All of Citizens' common shareholders received 1.37 shares of the Corporation's Common Stock in exchange for one share of Citizens' common stock, resulting in the Corporation issuing 55,468,283 shares of its Common Stock. In conjunction with the completion of the merger, the Corporation fully repurchased the $300 million of Citizens TARP Preferred plus accumulated but unpaid dividends and interest of approximately $55.4 million previously issued to the U.S. Treasury under the Capital Purchase Program. The Corporation used the net proceeds from its February 4, 2013 public offerings, which consisted of $250 million aggregate principal amount of 4.35% subordinated notes due February 4, 2023, and $100 million 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, to repurchase the Citizens TARP Preferred and pay all accrued, accumulated and unpaid dividends and interest. Additionally, a warrant issued by Citizens to the U.S. Treasury to purchase up to 1,757,812.5 shares of Citizens' common stock has been converted into a warrant issued by the Corporation to the U.S. Treasury to purchase 2,408,203 shares of FirstMerit Common Stock.

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The Citizens transaction was accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the Acquisition Date. Per the applicable accounting guidance for business combinations, these fair values were subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values become available. The measurement period ended on March 31, 2014.

The following table provides the purchase price calculation as of the Acquisition Date and the identifiable assets purchased and the liabilities assumed at their estimated fair value. These fair value measurements are based on third-party valuations.

Purchase Price:
FirstMerit shares of Common Stock issued for Citizens' shares 55,468,283
Closing price per share of the Corporation's Common Stock on April 12, 2013 $ 16.68
Consideration from Common Stock conversion (1.37 ratio) 925,211
Cash paid to the Treasury for Citizens' TARP Preferred 355,371
Cash paid in lieu of fractional shares to the former Citizens' shareholders 61
Consideration from the warrant issued to the Treasury for Citizens' TARP warrant 3,000
Total purchase price $ 1,283,643
Statement of Net Assets Acquired at Fair Value:
ASSETS
Cash and due from banks $ 544,380

Investment securities 3,202,575

Loans 4,617,004

Premises and equipment 138,536

Intangible assets 84,774
^(a)

Accrued interest receivable and other assets 681,100

Total assets $ 9,268,369

LIABILITIES
Deposits $ 7,276,754

Borrowings 908,824

Accrued taxes, expenses, and other liabilities 80,842

Total liabilities $ 8,266,420

Net identifiable assets acquired 1,001,949
Goodwill $ 281,694

~~(a) Intangible assets consist of core deposit intangibles of~~ ~~$70.8 million~~ ~~and trust relationships of approximately~~ ~~$14.0 million. The useful lives for which the core deposit intangibles and the trust relationships are being amortized over is 15 years and 12 years, respectively.~~

The amount of goodwill recorded reflects the increased market share and related synergies that are expected to result from the acquisition, and represents the excess purchase price over the estimated fair value of the net assets acquired. None of the goodwill is deductible for income tax purposes as the merger is accounted for as a tax-free exchange. The tax-free exchange resulted in a carryover of tax attributes and tax basis to the Corporation's subsequent income tax filings. These carryovers were comprised of DTA of $313.0 million and DTL of $51.3 million for a net DTA carryover of $261.7 million. This net DTA includes $224.8 million of net operating loss and tax credit carryovers. The carryover of these tax attributes is subject to limitation as to the tax period in which they can be used to reduce future tax payments. The amounts recorded are expected to be substantially used by 2016, however, some will continue to carryover until 2032. These tax attribute benefits

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will also be subject to regulatory capital adjustments until fully utilized. An additional net DTA of $87.6 million was established on the Acquisition Date as a result of the purchase accounting fair value adjustments resulting in a total net DTA on the Acquisition Date of $349.3 million.

~~The following table summarizes the fair value of both acquired impaired and nonimpaired loans by product type as of the Acquisition Date.~~

(In thousands) Acquired Impaired Loans Acquired Nonimpaired Loans Acquired Loans Total
Commercial
C&I $ 93,735
$ 1,660,199
$ 1,753,934
CRE 378,569
359,066
737,635
Construction 13,399
17,135
30,534
Total commercial 485,703
2,036,400
2,522,103
Consumer
Residential mortgages 232,291
278,404
510,695
Installment 54,108
1,165,235
1,219,343
Home equity lines 47,613
317,250
364,863
Total consumer 334,012
1,760,889
2,094,901
Total $ 819,715
$ 3,797,289
$ 4,617,004

The determination of estimated fair values of the acquired loans required the Corporation to make certain estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature. Based on such factors as past due status, nonaccrual status and credit risk ratings, the acquired loans were divided into loans with evidence of credit quality deterioration, which are accounted for under ASC 310-30 (acquired impaired), and loans that do not meet this criteria, which are accounted for under ASC 310-20 (acquired nonimpaired). The acquired loans were further segregated into loan pools designed to facilitate the development of expected cash flows to be used in estimating fair value. Acquired loans were segregated into pools based on characteristics such as loan type, credit risk profiles, contractual interest rate and repayment terms and market area in which originated. Expected cash flows, both principal and interest, were estimated based on key assumptions covering such factors as prepayments, default rates and severity of loss given default. These assumptions were developed using both Citizens' historical experience and the portfolio characteristics at Acquisition Date as well as available market research. The fair value estimates for acquired loans was based on the amount and timing of expected principal, interest and other cash flows, included expected prepayments, discounted at prevailing market interest rates.

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For acquired nonimpaired loans, the difference between the Acquisition Date fair value and the contractual amounts due at the Acquisition Date represents the fair value adjustment. The fair value adjustment may be a discount (or premium) to an individual loan's cost basis and is accreted (or amortized) to interest income over the loan's remaining life using the level yield method. Acquired nonimpaired loans are reported net of the unamortized fair value adjustment. The fair value adjustment for acquired nonimpaired loans as of the Acquisition Date is presented in the following table.

(In thousands) Acquired Nonimpaired Loans
Outstanding balance $ 4,017,304
Less: Fair value adjustment 220,015
Fair value of acquired nonimpaired loans $ 3,797,289

~~The table below details contractually required payments, cash flows not expected to be collected and cash flows expected to be collected on acquired nonimpaired loans as of the Acquisition Date.~~

(In thousands) Acquired Nonimpaired Loans
Contractually required payments including interest ^(a)
$ 4,955,180
Less: Contractual cash flows not expected to be collected 680,664
Cash flows expected to be collected $ 4,274,516

~~(a) Total undiscounted amounts of all uncollected contractual principal and interest, including any fees and penalties, both past due and scheduled for the future, assuming no loss or prepayment.~~

For acquired impaired loans, the excess of cash flows expected over the estimated fair value at the Acquisition Date represents the accretable yield and is recognized as interest income using a level yield method over the remaining life of the pooled impaired loans. Each pool of acquired impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Acquired impaired loans in pools with an accretable yield are considered to be accruing and performing even though collection of contractual payments on loans within the pool may be in doubt, because the pool is the unit of accounting and income continues to be accreted on the pool as long as expected cash flows are reasonably estimable.

Total outstanding acquired impaired loans as of the Acquisition Date were $1.1 billion. A reconciliation of the contractual required payments to the fair value of the acquired impaired loans at the Acquisition Date is as follows:

(In thousands) Acquired Impaired Loans
Contractually required payments including interest ^(a)
$ 1,231,172
Nonaccretable difference ^(b)
(279,899 )
Cash flows expected to be collected ^(c)
951,273
Accretable yield ^(d)
(131,558 )
Fair value of loans acquired $ 819,715

~~(a) Total undiscounted amounts of all uncollected contractual principal and interest, including any fees and penalties, both past due and scheduled for the future, assuming no loss or prepayment.~~

(b) The nonaccretable difference represents, as of the Acquisition Date, the amount of contractually required payments, including interest, that are not expected to be collected based on estimated credit losses and other factors, such as prepayments.

(c) Represents the estimate, at Acquisition Date, of the amount and timing of undiscounted principal, interest, and other cash flows expected to be collected. This estimate includes the effect of anticipated prepayments.

(d) The accretable yield represents the excess of cash flows expected at Acquisition Date over the estimated fair value and is recognized as interest income over the remaining life of the loan using the level yield method.

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The fair value of the investment securities acquired was approximately $3.2 billion. Management's strategy to reduce prepayment and credit risk of the acquired investment securities portfolio resulted in the sale of approximately $2.2 billion in agency MBS, agency CMO, municipal securities and private label MBS investments subsequent to the close of the acquisition. During the second quarter of 2013, Management repurchased approximately $1.5 billion of agency MBS and CMO securities in accordance with the Corporation's investment polices.

As part of the merger, the Corporation assumed Citizens' FHLB advances with a fair value of $719.3 million. On April 15, 2013, in conjunction with Management's strategy to de-leverage the acquired Citizens' balance sheet, the Corporation terminated all but two assumed FHLB advances resulting in cash outlay of $652.5 million, which approximated the fair value. The fair value of the two retained FHLB advances totaled $66.8 million and mature on May 16, 2016. FHLB advances are reflected in the line item "Federal funds purchased and securities sold under agreements to repurchase" on the Consolidated Balance Sheets.

The Corporation also assumed obligations under junior subordinated debentures at fair value in the amount of $74.5 million, payable to two unconsolidated trusts that issued trust preferred securities. The junior subordinated debentures are the sole assets of each trust. The variable interest rate junior subordinated debenture has a maturity date of June 26, 2033 and bears interest at an annual rate equal to the three-month LIBOR plus 3.10% and adjusts on a quarterly basis not to exceed 11.75%. The junior subordinated debenture is an unsecured obligation of the Corporation and is junior in right of payment to all future senior indebtedness of the Corporation. The Corporation has guaranteed that interest payments on the junior subordinated debenture made to the trust will be distributed by the trust to the holders of the trust preferred securities. The trust preferred securities of the special purpose trust are callable at par and must be redeemed in thirty years after issuance. Under the risk-based capital guidelines, the trust preferred securities currently qualify as Tier 1 capital; however, the final rule under Basel III, which became effective January 1, 2014, phases out trust preferred securities from qualifying as Tier 1 Capital beginning January 1, 2015, with complete elimination by January 1, 2016. The fixed 7.50% interest rate junior subordinated debenture has a maturity date of September 15, 2066 and is listed on the NYSE (NYSE symbol CTZ-PA). Interest is payable quarterly in arrears and became callable on September 15, 2011.

The Corporation also assumed long-term repurchase agreements with a fair value amount of $115.0 million. On April 15, 2013, in conjunction with Management's strategy to de-leverage the newly acquired Citizens' balance sheet, all of these long-term repurchase agreements were terminated.

There were no merger-related charges recorded in the Consolidated Statements of Income for the three months ended June 30, 2014 and $1.0 million for the six months ended June 30, 2014. These costs were primarily composed of professional service fees.

The following table provides the unaudited pro forma information for the results of operations for the three and six months ended June 30, 2013, as if the acquisition had occurred on January 1, 2013. These adjustments include the impact of certain purchase accounting adjustments including accretion of loan marks, which makes up the vast majority of the adjustments, followed by intangible assets amortization, investment securities amortization, fixed assets depreciation and deposit accretion. In addition, merger-related charges of $32.1 million and $35.7 million for the three and six months ended June 30, 2013 are included in the pro forma information. These unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined corporation that would have been achieved had the acquisition occurred at the beginning of each period presented, nor are they intended to represent or be indicative of future results of operations.

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(In thousands) Three Months Ended June 30, 2013 Six Months Ended June 30, 2013
Total revenue, net of interest expense $ 335,796 $ 643,052
Net income 73,972 153,487

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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~~after tax basis as a component of OCI in shareholders' equity.

June 30, 2014
(In thousands)
Amortized
Cost
Gross Unrealized Gains Gross Unrealized Losses
Fair
Value
Securities available-for-sale
Debt securities
U.S. states and political subdivisions $ 233,228
$ 8,600
$ (1,023 ) $ 240,805
Residential mortgage-backed securities:
U.S. government agencies 998,698
24,965
(5,489 ) 1,018,174
Commercial mortgage-backed securities:
U.S. government agencies 86,870
351
(1,523 ) 85,698
Residential collateralized mortgage-backed securities:
U.S. government agencies 1,627,871
5,009
(34,849 ) 1,598,031
Non-agency 8
—
—
8
Commercial collateralized mortgage-backed securities:
U.S. government agencies 182,151
1,008
(1,126 ) 182,033
Asset-backed securities:
Collateralized loan obligations 297,334
883
(4,252 ) 293,965
Corporate debt securities 61,624
—
(8,134 ) 53,490
Total debt securities 3,487,784
40,816
(56,396 ) 3,472,204
Equity securities
Marketable equity securities 2,935
—
—
2,935
Non-marketable equity securities 3,281
—
—
3,281
Total equity securities 6,216
—
—
6,216
Total securities available for sale $ 3,494,000
$ 40,816
$ (56,396 ) $ 3,478,420
Securities held-to-maturity
Debt securities
U.S. treasuries $ 5,000
$ 5
$ —
$ 5,005
U.S. government agency debentures 25,000
—
(707 ) 24,293
U.S. states and political subdivisions 549,850
10,072
(1,253 ) 558,669
Residential mortgage-backed securities:
U.S. government agencies 624,605
6,825
(4,933 ) 626,497
Commercial mortgage-backed securities:
U.S. government agencies 56,020
176
(445 ) 55,751
Residential collateralized mortgage-backed securities:
U.S. government agencies 1,450,479
114
(54,263 ) 1,396,330
Commercial collateralized mortgage-backed securities:
U.S. government agencies 248,974
641
(7,252 ) 242,363
Corporate debt securities 92,190
768
—
92,958
Total securities held to maturity $ 3,052,118
$ 18,601
$ (68,853 ) $ 3,001,866

1913

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		December 31, 2013										March 31, 2015
(In thousands)	(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale	Securities available-for-sale										Securities available-for-sale
Debt securities	Debt securities										Debt securities
											U.S. treasury notes & bonds	$	—	$	—	$	—		$	—
											U.S. government agency debentures	2,500		13		—			2,513
	U.S. states and political subdivisions	$	258,787	$	7,376	$	(3,796	)	$	262,367	U.S. states and political subdivisions	208,800		6,750		(386		)	215,164
	Residential mortgage-backed securities:										Residential mortgage-backed securities:
	U.S. government agencies	962,687		21,662		(14,427		)	969,922		U.S. government agencies	924,453		24,799		(1,949		)	947,303
	Commercial mortgage-backed securities:										Commercial mortgage-backed securities:
	U.S. government agencies	72,048		7		(2,488		)	69,567		U.S. government agencies	139,789		1,231		(661		)	140,359
	Residential collateralized mortgage-backed securities:										Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,566,262		4,199		(52,068		)	1,518,393		U.S. government agencies	1,895,112		11,305		(13,857		)	1,892,560
	Non-agency	9		—		—			9		Non-agency	6		—		—			6
	Commercial collateralized mortgage-backed securities:										Commercial collateralized mortgage-backed securities:
	U.S. government agencies	104,152		273		(2,157		)	102,268		U.S. government agencies	241,839		2,602		(382		)	244,059
	Asset-backed securities:										Asset-backed securities:
	Collateralized loan obligations	297,259		760		(4,332		)	293,687		Collateralized loan obligations	297,506		587		(4,131		)	293,962
	Corporate debt securities	61,596		—		(10,952		)	50,644		Corporate debt securities	61,668		—		(9,404		)	52,264
	Total debt securities	3,322,800		34,277		(90,220		)	3,266,857		Total debt securities	3,771,673		47,287		(30,770		)	3,788,190
Equity securities	Equity securities										Equity securities
	Marketable equity securities	3,036		—		—			3,036		Marketable equity securities	2,869		—		—			2,869
	Non-marketable equity securities	3,281		—		—			3,281		Non-marketable equity securities	—		—		—			—
	Total equity securities	6,317		—		—			6,317		Total equity securities	2,869		—		—			2,869
	Total securities available for sale	$	3,329,117	$	34,277	$	(90,220	)	$	3,273,174	Total securities available-for-sale	$	3,774,542	$	47,287	$	(30,770	)	$	3,791,059
Securities held-to-maturity	Securities held-to-maturity										Securities held-to-maturity
Debt securities	Debt securities										Debt securities
	U.S. Treasuries	$	5,000	$	4	$	—		$	5,004	U.S. treasury notes & bonds	$	5,000	$	—	$	—		$	5,000
	U.S. government agencies debentures	25,000		—		(1,348		)	23,652		U.S. government agency debentures	25,000		—		(178		)	24,822
	U.S. states and political subdivisions	480,703		5,335		(10,459		)	475,579		U.S. states and political subdivisions	523,501		8,864		(1,147		)	531,218
	Residential mortgage-backed securities:										Residential mortgage-backed securities:
	U.S. government agencies	569,960		1,108		(11,617		)	559,451		U.S. government agencies	577,278		10,745		(1,677		)	586,346
	Commercial mortgage-backed securities:										Commercial mortgage-backed securities:
	U.S. government agencies	56,596		—		(1,190		)	55,406		U.S. government agencies	57,818		765		(108		)	58,475
	Residential collateralized mortgage-backed securities:										Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,464,732		—		(81,818		)	1,382,914		U.S. government agencies	1,320,215		1,959		(24,846		)	1,297,328
	Commercial collateralized mortgage-backed securities:										Commercial collateralized mortgage-backed securities:
	U.S. government agencies	240,069		6		(11,052		)	229,023		U.S. government agencies	256,352		1,659		(3,377		)	254,634
	Corporate debt securities	93,628		308		(725		)	93,211		Corporate debt securities	90,010		1,079		—			91,089
	Total securities held to maturity	$	2,935,688	$	6,761	$	(118,209	)	$	2,824,240	Total securities held-to-maturity	$	2,855,174	$	25,071	$	(31,333	)	$	2,848,912

2014

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		June 30, 2013											December 31, 2014
(In thousands)	(In thousands)	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses			Fair Value		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale	Securities available-for-sale											Securities available-for-sale
Debt securities	Debt securities											Debt securities
	U.S. states and political subdivisions	$	272,254	$	9,207		$	(3,527	)	$	277,934	U.S. government agency debentures	$	2,500	$	—	$	(18	)	$	2,482
	Residential mortgage-backed securities:											U.S. states and political subdivisions	221,052		6,756		(466		)	227,342
	U.S. government agencies	1,058,323		27,797			(10,192		)	1,075,928		Residential mortgage-backed securities:
	Commercial mortgage-backed securities:											U.S. government agencies	951,839		22,377		(3,218		)	970,998
	U.S. government agencies	58,609		29			(2,141		)	56,497		Commercial mortgage-backed securities:
	Residential collateralized mortgage-backed securities:											U.S. government agencies	104,176		598		(1,371		)	103,403
	U.S. government agencies	1,586,576		7,272			(27,120		)	1,566,728		Residential collateralized mortgage-backed securities:
	Non-agency	10		—			—			10		U.S. government agencies	1,698,015		4,777		(26,225		)	1,676,567
	Commercial collateralized mortgage-backed securities:					��						Non-agency	7		—		—			7
	U.S. government agencies	108,000		533			(1,965		)	106,568		Commercial collateralized mortgage-backed securities:
	Asset-backed securities:											U.S. government agencies	222,876		863		(1,405		)	222,334
	Collateralized loan obligations	159,916		—			(1,821		)	158,095		Asset-backed securities:
	Corporate debt securities	61,569		—			(10,431		)	51,138		Collateralized loan obligations	297,446		11		(9,613		)	287,844
	Total debt securities	3,305,257		44,838			(57,197		)	3,292,898		Corporate debt securities	61,652		—		(10,315		)	51,337
Equity Securities
	Marketable equity securities	3,213		—			—			3,213		Total debt securities	3,559,563		35,382		(52,631		)	3,542,314
Equity securities												Equity securities
	Non-marketable equity securities	3,281		—			—			3,281		Marketable equity securities	2,974		—		—			2,974
	Total equity securities	6,494		—			—			6,494		Total equity securities	2,974		—		—			2,974
	Total securities available for sale	$	3,311,751	$	44,838		$	(57,197	)	$	3,299,392	Total securities available-for-sale	$	3,562,537	$	35,382	$	(52,631	)	$	3,545,288
Securities held-to-maturity	Securities held-to-maturity											Securities held-to-maturity
Debt securities	Debt securities											Debt securities
	U.S. treasuries	$	4,999	$	—		$	—		$	4,999	U.S. treasury notes & bonds	$	5,000	$	—	$	—		$	5,000
	U.S. government agency debentures	25,000		—			(1,193		)	23,807		U.S. government agency debentures	25,000		—		(537		)	24,463
	U.S states and political subdivisions	436,860		3,878			(9,041		)	431,697		U.S. states and political subdivisions	517,824		12,645		(191		)	530,278
	Residential mortgage-backed securities:											Residential mortgage-backed securities:
	U.S. government agencies	253,839		—			(8,051		)	245,788		U.S. government agencies	580,727		7,495		(3,045		)	585,177
	Commercial mortgage-backed securities:											Commercial mortgage-backed securities:
	U.S. government agencies	50,352		—			(619		)	49,733		U.S. government agencies	58,143		281		(329		)	58,095
	Residential collateralized mortgage-backed securities:											Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,510,374		67			(41,674		)	1,468,767		U.S. government agencies	1,368,534		718		(38,875		)	1,330,377
	Commercial collateralized mortgage-backed securities:											Commercial collateralized mortgage-backed securities:
	U.S. government agencies	175,384		—			(7,285		)	168,099		U.S. government agencies	257,642		557		(6,768		)	251,431
	Corporate debt securities	95,052		132			(1,003		)	94,181		Corporate debt securities	90,739		412		(52		)	91,099
	Total securities held to maturity	$	2,551,860	$	4,077		$	(68,866	)	$	2,487,071	Total securities held-to-maturity	$	2,903,609	$	22,108	$	(49,797	)	$	2,875,920

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FIRSTMERIT CORPORATION AND SUBSIDIARIES



		March 31, 2014
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	245,534	$	7,541	$	(2,095	)	$	250,980
	Residential mortgage-backed securities:
	U.S. government agencies	1,013,085		21,415		(10,506		)	1,023,994
	Commercial mortgage-backed securities:
	U.S. government agencies	87,258		36		(2,161		)	85,133
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,586,051		3,857		(41,804		)	1,548,104
	Non-agency	8		—		—			8
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	173,951		331		(1,813		)	172,469
	Asset-backed securities:
	Collateralized loan obligations	297,293		958		(3,692		)	294,559
	Corporate debt securities	61,610		—		(10,022		)	51,588
	Total debt securities	3,464,790		34,138		(72,093		)	3,426,835
Equity Securities
	Marketable equity securities	3,055		—		—			3,055
	Non-marketable equity securities	3,281		—		—			3,281
	Total equity securities	6,336		—		—			6,336
	Total securities available-for-sale	$	3,471,126	$	34,138	$	(72,093	)	$	3,433,171
Securities held-to-maturity
Debt securities
	U.S. treasury notes & bonds	$	4,999	$	6	$	—		$	5,005
	U.S. government agency debentures	25,000		—		(1,117		)	23,883
	U.S states and political subdivisions	517,221		159		(7,186		)	510,194
	Residential mortgage-backed securities:
	U.S. government agencies	644,820		2,311		(8,584		)	638,547
	Commercial mortgage-backed securities:
	U.S. government agencies	56,339		32		(877		)	55,494
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,488,641		—		(64,734		)	1,423,907
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	249,688		138		(9,749		)	240,077
	Corporate debt securities	92,912		437		(295		)	93,054
	Total securities held-to-maturity	$	3,079,620	$	3,083	$	(92,542	)	$	2,990,161

The Corporation's U.S. states and political subdivisions portfolio is composed of general obligation bonds issued by a highly diversified number of states, cities, counties, and school districts. The amortized cost and fair value of the Corporation's portfolio of general obligation bonds are summarized by U.S. state in the tables below. As illustrated in the tables below, the aggregate fair value of the Corporation's general obligation bonds was greater than $10.0 million in eleven of the ~~thirty-six~~thirty-seven U.S. states in which it holds investments.

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(Dollars in thousands)	June 30, 2014							March 31, 2015
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value		# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Ohio	152	$	1,065	$	158,773	$	161,809	136	$	925	$	124,908	$	125,864
Michigan	174	862		146,565		150,052		164	857		138,091		140,620
Illinois	74	1,578		113,501		116,741		62	1,841		111,649		114,150
Wisconsin	87	864		72,616		75,155		73	760		53,877		55,497
Texas	65	794		50,845		51,632		63	784		48,388		49,396
Pennsylvania	49	972		47,870		47,623		46	1,018		46,085		46,816
Minnesota	42	678		27,864		28,468		35	697		23,821		24,405
Washington	30	955		28,191		28,660		31	930		28,194		28,836
New Jersey	37	751		26,815		27,805		37	747		26,724		27,623
Missouri	19	1,022		18,855		19,413		15	1,098		16,032		16,472
New York	21	612		12,627		12,860		19	629		11,646		11,948
Other	123	640		78,100		78,724		121	639		76,127		77,365
Total general obligation bonds	873	$	915	$	782,622	$	798,942	802	$	896	$	705,542	$	718,992


(Dollars in thousands)	December 31, 2013							December 31, 2014
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value		# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Ohio	154	$	1,041	$	159,674	$	160,265	137	$	979	$	130,741	$	134,127
Michigan	166	744		122,198		123,571		169	842		138,325		142,292
Illinois	75	1,314		96,863		98,521		66	1,897		121,560		125,169
Wisconsin	87	645		54,921		56,152		77	841		62,543		64,776
Texas	69	771		54,295		53,204		64	801		50,307		51,293
Pennsylvania	51	891		48,319		45,451		45	1,000		44,443		45,006
Minnesota	45	663		29,840		29,816		42	674		27,740		28,326
Washington	30	930		28,393		27,906		30	952		27,987		28,558
New Jersey	38	722		27,101		27,440		37	746		26,755		27,612
Missouri	20	969		19,253		19,382		19	1,011		18,764		19,207
New York	22	585		13,064		12,878		19	628		11,659		11,929
California	18	599		10,651		10,788
Other	115	631		74,918		72,572		120	650		76,849		78,020
Total general obligation bonds	890	$	829	$	739,490	$	737,946	825	$	917	$	737,673	$	756,315


(Dollars in thousands)	June 30, 2013							March 31, 2014
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value		# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Ohio	155	$	983	$	151,243	$	152,289	153	$	1,033	$	159,883	$	158,074
Illinois	68	1,045		69,718		71,055		72	1,496		107,451		107,717
Texas	70	774		55,132		54,201		68	779		52,807		52,941
Pennsylvania	57	885		52,581		50,428		51	969		50,579		49,428
Wisconsin	82	646		51,660		52,933		87	683		58,635		59,428
Minnesota	47	658		30,675		30,927		42	672		27,925		28,213
New Jersey	39	720		27,485		28,078		37	744		26,844		27,518
Michigan	174	689		119,040		119,916		171	789		135,588		134,965
Washington	31	947		29,696		29,371		30	940		28,292		28,210
Missouri	20	981		19,351		19,624		19	1,012		18,904		19,232
New York	22	609		13,484		13,400		22	594		13,046		13,075
California	20	591		11,592		11,821
Other	118	636		76,974		75,021		129	634		82,317		81,807
Total general obligation bonds	903	$	605	$	708,631	$	709,064	881	$	863	$	762,271	$	760,608

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~~The Corporation owns one revenue bond with an estimated fair value of~~ ~~$0.5 million~~ ~~and an amortized cost of~~ ~~$0.5 million~~ ~~as of~~ ~~June 30, 2014. This bond was purchased in~~ ~~1999~~, prior to the Corporation adopting an internal investment policy prohibiting purchases of revenue bonds. The revenue bond's maturity has been pre-refunded with U.S. treasuries. Pre-refunded municipal bonds are those that are backed by an escrow account and invested in U.S. Treasuries which is used to pay bondholders at maturity. Thus the revenue bond carries the credit risk of the U.S. Treasury.

The Corporation's investment policy states that municipal securities purchased are to be investment grade and allows for a 20% maximum portfolio concentration in municipal securities with a combined individual state to total municipal outstanding equal to or less than 25%. A municipal security is investment grade if (1) the security has a low risk of default by the obligor and (2) the full and timely payment of principal and interest is expected over the anticipated life of the instrument. The fact that a municipal security is rated by one nationally recognized credit rating agency is indicative, but not sufficient evidence, that a municipal security is investment grade. In all cases, the Corporation considers and documents within a security pre-purchase analysis factors such as capacity to pay, market and economic data, and such other factors as are available and relevant to the security or issuer. Factors to be considered in the ongoing monitoring of municipal securities and in the pre-purchase analysis include soundness of budgetary position and sources of revenue, financial strength, and stability of tax or enterprise revenues. The Corporation also considers spreads to U.S. Treasuries on comparable bonds of similar credit quality, in addition to the above analysis, to assess whether municipal securities are investment grade. The Corporation performs a risk analysis for any security that is downgraded below investment grade to determine if the security should be retained or sold. This risk analysis includes, but is not limited to, discussions with the Corporation's credit department as well as third-party municipal credit analysts and review of the nationally recognized credit rating agency's analysis describing the downgrade.

The Corporation's evaluation of its municipal bond portfolio at ~~June 30, 2014~~March 31, 2015 did not uncover any facts or circumstances resulting in significantly different credit ratings than those assigned by a nationally recognized credit rating agency.

FRB and FHLB stock ~~constitute~~constitutes the majority of other investments on the Consolidated Balance Sheets.


(In thousands)	June 30, 2014		December 31, 2013		June 30, 2013		March 31, 2015		December 31, 2014		March 31, 2014
FRB stock	$	55,435	$	55,294	$	52,477	$	55,681	$	55,681	$	55,435
FHLB stock	92,547		125,032		214,586		92,381		92,547		92,547
Other	451		477		502		413		426		464
Total other investments	$	148,433	$	180,803	$	267,565	$	148,475	$	148,654	$	148,446

FRB and FHLB stock ~~are~~is classified as a restricted investment, carried at cost and valued based on the ultimate recoverability of par value. Cash and stock dividends received on the stock are reported as interest income. There are no identified events or changes in circumstances that may have a significant adverse effect on these investments carried at cost.

Securities with a carrying value of ~~$3.2~~$3.5 billion, $~~3.2~~2.8 billion, and $~~2.7~~3.4 billion at ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014, respectively, were pledged to secure trust and public deposits and securities sold under agreements to repurchase and for other purposes required or permitted by law.

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Realized Gains and Losses

The following table presents 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 using the specific identification method.


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended March 31,
(In thousands)	2014		2013			2014			2013			2015			2014
Realized gains	$	80	$	3,786		$	300		$	3,786		$	392		$	220
Realized losses	—		(6,580		)	(164		)	(6,589		)	(38		)	(164		)
Net securities (losses)/gains	$	80	$	(2,794	)	$	136		$	(2,803	)	$	354		$	56

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

Gross Unrealized Losses and Fair Value

The following table presents the gross unrealized losses and fair value of securities by length of time that individual securities had been in a continuous loss position by major categories of available-for-sale and held-to-maturity securities.


		June 30, 2014																		March 31, 2015
		Less than 12 months						12 months or longer						Total						Less than 12 months						12 months or longer						Total
(In thousands)	(In thousands)	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			(In thousands)	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale	Securities available-for-sale																		Securities available-for-sale
Debt securities	Debt securities																		Debt securities
	U.S. states and political subdivisions	$	10,988	$	(16	)	14	$	30,271	$	(1,007	)	50	$	41,259	$	(1,023	)	U.S. treasury notes & bonds	$	—	$	—		0	$	—	$	—		0	$	—	$	—
	Residential mortgage-backed securities:																		U.S. states and political subdivisions	14,380		(117		)	23	6,004		(269		)	10	20,384		(386		)
	U.S. government agencies	11,636		(3		)	1	259,470		(5,486		)	19	271,106		(5,489		)	Residential mortgage-backed securities:
	Commercial mortgage-backed securities:																		U.S. government agencies	74,517		(360		)	5	108,052		(1,589		)	8	182,569		(1,949		)
	U.S. government agencies	5,105		(4		)	1	45,739		(1,519		)	6	50,844		(1,523		)	Commercial mortgage-backed securities:
	Residential collateralized mortgage-backed securities:																		U.S. government agencies	49,129		(175		)	7	17,690		(486		)	2	66,819		(661		)
	U.S. government agencies	279,311		(2,358		)	19	904,821		(32,491		)	60	1,184,132		(34,849		)	Residential collateralized mortgage-backed securities:
	Non-agency	—		—			—	—		—			—	—		—			U.S. government agencies	70,574		(762		)	6	745,621		(13,095		)	53	816,195		(13,857		)
	Commercial collateralized mortgage-backed securities:																		Commercial collateralized mortgage-backed securities:
	U.S. government agencies	24,431		(97		)	1	43,212		(1,029		)	6	67,643		(1,126		)	U.S. government agencies	13,206		(24		)	2	61,132		(358		)	6	74,338		(382		)
	Asset-backed securities:																		Asset-backed securities:
	Collateralized loan obligations	141,506		(2,568		)	19	81,749		(1,684		)	12	223,255		(4,252		)	Collateralized loan obligations	24,087		(209		)	3	181,498		(3,922		)	27	205,585		(4,131		)
	Corporate debt securities	—		—			—	53,490		(8,134		)	8	53,490		(8,134		)	Corporate debt securities	—		—			0	52,263		(9,404		)	8	52,263		(9,404		)
	Total available-for-sale securities	$	472,977	$	(5,046	)	55	$	1,418,752	$	(51,350	)	161	$	1,891,729	$	(56,396	)	Total securities available-for-sale	$	245,893	$	(1,647	)	46	$	1,172,260	$	(29,123	)	114	$	1,418,153	$	(30,770	)
Securities held-to-maturity	Securities held-to-maturity																		Securities held-to-maturity
Debt securities	Debt securities																		Debt securities
	U.S. government agency debentures	$	—	$	—		—	$	24,293	$	(707	)	1	$	24,293	$	(707	)	U.S. treasury notes & bonds	$	5,000	$	—		1	$	—	$	—		0	$	5,000	$	—
	U.S. states and political subdivisions	59,958		(334		)	56	66,557		(919		)	90	126,515		(1,253		)	U.S. government agency debentures	$	—	$	—		0	$	24,822	$	(178	)	1	$	24,822	$	(178	)
	Residential mortgage-backed securities:																		U.S. states and political subdivisions	38,202		(1,093		)	26	4,448		(54		)	6	42,650		(1,147		)
	U.S. government agencies	—		—			—	206,911		(4,933		)	11	206,911		(4,933		)	Residential mortgage-backed securities:
	Commercial mortgage-backed securities:																		U.S. government agencies	28,386		(123		)	2	110,329		(1,554		)	6	138,715		(1,677		)
	U.S. government agencies	—		—			—	23,977		(445		)	3	23,977		(445		)	Commercial mortgage-backed securities:
	Residential collateralized mortgage-backed securities:																		U.S. government agencies	—		—			0	9,554		(108		)	1	9,554		(108		)
	U.S. government agencies	127,284		(1,100		)	8	1,241,883		(53,163		)	60	1,369,167		(54,263		)	Residential collateralized mortgage-backed securities:
	Commercial collateralized mortgage-backed securities:																		U.S. government agencies	19,016		(71		)	1	1,095,375		(24,775		)	56	1,114,391		(24,846		)
	U.S. government agencies	—		—			—	183,957		(7,252		)	17	183,957		(7,252		)	Commercial collateralized mortgage-backed securities:
	Corporate debt securities	—		—			—	—		—			—	—		—			U.S. government agencies	—		—			0	144,970		(3,377		)	13	144,970		(3,377		)
	Total held-to-maturity securities	$	187,242	$	(1,434	)	64	$	1,747,578	$	(67,419	)	182	$	1,934,820	$	(68,853	)	Collateralized loan obligations:
																			Non-agency	—		—			0	—		—			0	—		—
																			Corporate debt securities	—		—			0	—		—			0	—		—
																			Total securities held-to-maturity	$	90,604	$	(1,287	)	30	$	1,389,498	$	(30,046	)	83	$	1,480,102	$	(31,333	)

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		December 31, 2013																		December 31, 2014
		Less than 12 months						12 months or longer						Total						Less than 12 months						12 months or longer						Total
(In thousands)	(In thousands)	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			(In thousands)	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale	Securities available-for-sale																		Securities available-for-sale
	Debt securities:
Debt securities:																			Debt securities:
	U.S. states and political subdivisions	$	38,039	$	(1,996	)	65	$	14,157	$	(1,800	)	25	$	52,196	$	(3,796	)	U.S. government agency debentures	$	2,482	$	(18	)	1	$	—	$	—		—	$	2,482	$	(18	)
	Residential mortgage-backed securities:																		U.S. states and political subdivisions	5,637		(11		)	11	22,528		(455		)	36	28,165		(466		)
	U.S. government agencies	434,761		(13,109		)	35	14,890		(1,318		)	2	449,651		(14,427		)	Residential mortgage-backed securities:
	Commercial mortgage-backed securities:																		U.S. government agencies	50,126		(182		)	5	199,773		(3,036		)	14	249,899		(3,218		)
	U.S. government agencies	33,387		(1,491		)	5	16,944		(997		)	2	50,331		(2,488		)	Commercial mortgage-backed securities:
	Residential collateralized mortgage-backed securities:																		U.S. government agencies	12,284		(55		)	2	45,485		(1,316		)	6	57,769		(1,371		)
	U.S. government agencies	1,135,151		(44,775		)	74	100,530		(7,293		)	7	1,235,681		(52,068		)	Residential collateralized mortgage-backed securities:
	Nonagency	—		—			—	1		—			1	1		—			U.S. government agencies	243,970		(906		)	15	905,478		(25,319		)	64	1,149,448		(26,225		)
	Commercial collateralized mortgage-backed securities:																		Commercial collateralized mortgage-backed securities:
	U.S. government agencies	43,747		(2,055		)	6	2,525		(102		)	1	46,272		(2,157		)	U.S. government agencies	31,375		(229		)	4	67,169		(1,176		)	7	98,544		(1,405		)
	Asset-backed securities																		Asset-backed securities:
	Collateralized loan obligations	223,458		(4,332		)	33	—		—			—	223,458		(4,332		)	Collateralized loan obligations	79,042		(1,406		)	15	193,687		(8,207		)	27	272,729		(9,613		)
	Corporate debt securities	—		—			—	50,644		(10,952		)	8	50,644		(10,952		)	Corporate debt securities	—		—			—	51,338		(10,315		)	8	51,338		(10,315		)
	Total available-for-sale securities	$	1,908,543	$	(67,758	)	218	$	199,691	$	(22,462	)	46	$	2,108,234	$	(90,220	)	Total securities available-for-sale	$	424,916	$	(2,807	)	53	$	1,485,458	$	(49,824	)	162	$	1,910,374	$	(52,631	)
Securities held-to-maturity	Securities held-to-maturity																		Securities held-to-maturity
Debt securities:																			Debt securities:
	Debt securities:																		U.S. government agency debentures	$	—	$	—		—	$	24,463	$	(537	)	1	$	24,463	$	(537	)
	U.S. government agency debentures	$	23,652	$	(1,348	)	1	$	—	$	—		—	$	23,652	$	(1,348	)	U.S. states and political subdivisions	9,085		(17		)	9	18,371		(174		)	21	27,456		(191		)
	U.S. states and political subdivisions	222,154		(10,276		)	353	2,478		(183		)	6	224,632		(10,459		)	Residential mortgage-backed securities:
	Residential mortgage-backed securities:																		U.S. government agencies	—		—			—	185,361		(3,045		)	10	185,361		(3,045		)
	U.S. government agencies	422,192		(11,617		)	22	—		—			11	422,192		(11,617		)	Commercial mortgage-backed securities:
	Commercial mortgage-backed securities:																		U.S. government agencies	9,950		(4		)	2	16,735		(325		)	2	26,685		(329		)
	U.S. government agencies	48,831		(1,190		)	8	—		—			3	48,831		(1,190		)	Residential collateralized mortgage-backed securities:
	Residential collateralized mortgage-backed securities:																		U.S. government agencies	28,333		(149		)	3	1,161,297		(38,726		)	58	1,189,630		(38,875		)
	U.S. government agencies	1,382,915		(81,818		)	66	—		—			—	1,382,915		(81,818		)	Commercial collateralized mortgage-backed securities:
	Commercial collateralized mortgage-backed securities:																		U.S. government agencies	41,474		(55		)	3	171,570		(6,713		)	16	213,044		(6,768		)
	U.S. government agencies	208,863		(11,052		)	19	—		—			—	208,863		(11,052		)	Corporate debt securities	36,933		(52		)	13	—		—			—	36,933		(52		)
	Corporate debt securities	64,541		(725		)	23	—		—			—	64,541		(725		)	Total securities held-to-maturity	$	125,775	$	(277	)	30	$	1,577,797	$	(49,520	)	108	$	1,703,572	$	(49,797	)
	Total held-to-maturity securities	$	2,373,148	$	(118,026	)	492	$	2,478	$	(183	)	6	$	2,375,626	$	(118,209	)

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		June 30, 2013																		March 31, 2014
		Less than 12 months						12 months or longer						Total						Less than 12 months						12 months or longer						Total
(In thousands)	(In thousands)	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			(In thousands)	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale	Securities available-for-sale																		Securities available-for-sale
Debt securities	Debt securities																		Debt securities
	U.S. states and political subdivisions	$	61,933	$	(3,527	)	106	$	—	$	—		—	$	61,933	$	(3,527	)	U.S. states and political subdivisions	$	32,307	$	(937	)	53	$	17,231	$	(1,158	)	29	$	49,538	$	(2,095	)
	Residential mortgage-backed securities:																		Residential mortgage-backed securities:
	U.S. government agencies	331,857		(10,192		)	23	—		—			—	331,857		(10,192		)	U.S. government agencies	399,152		(9,543		)	28	15,013		(963		)	3	414,165		(10,506		)
	Commercial mortgage-backed securities:																		Commercial mortgage-backed securities:
	U.S. government agencies	51,378		(2,141		)	7	—		—			—	51,378		(2,141		)	U.S. government agencies	63,129		(1,206		)	8	16,891		(955		)	2	80,020		(2,161		)
	Residential collateralized mortgage-backed securities:																		Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,070,624		(27,120		)	64	—		—			—	1,070,624		(27,120		)	U.S. government agencies	966,458		(28,054		)	62	273,543		(13,750		)	18	1,240,001		(41,804		)
	Commercial collateralized mortgage-backed securities:																		Commercial collateralized mortgage-backed securities:
	U.S. government agencies	42,537		(1,965		)	6	—		—			—	42,537		(1,965		)	U.S. government agencies	90,804		(1,475		)	8	6,014		(338		)	2	96,818		(1,813		)
	Asset-backed securities																		Asset-backed securities:
	Collateralized loan obligations	74,779		(1,821		)	14	—		—			—	74,779		(1,821		)	Collateralized loan obligations	201,854		(3,692		)	28	—		—			—	201,854		(3,692		)
	Corporate debt securities	—		—			—	51,138		(10,431		)	8	51,138		(10,431		)	Corporate debt securities	—		—			—	51,588		(10,022		)	8	51,588		(10,022		)
	Total available-for-sale securities	$	1,633,108	$	(46,766	)	220	$	51,138	$	(10,431	)	8	$	1,684,246	$	(57,197	)	Total securities available-for-sale	$	1,753,704	$	(44,907	)	187	$	380,281	$	(27,186	)	63	$	2,133,985	$	(72,093	)
Securities held-to-maturity	Securities held-to-maturity																		Securities held-to-maturity
Debt securities	Debt securities																		Debt securities
	U.S. government agency debentures	$	23,807	$	(1,193	)	1	$	—	$	—		—	$	23,807	$	(1,193	)	U.S. government agency debentures	$	23,883	$	(1,117	)	1	$	—	$	—		—	$	23,883	$	(1,117	)
	U.S. states and political subdivisions	228,098		(9,041		)	362	—		—			—	228,098		(9,041		)	U.S. states and political subdivisions	476,766		(6,833		)	735	15,544		(353		)	14	492,310		(7,186		)
	Residential mortgage-backed securities:																		Residential mortgage-backed securities:
	U.S. government agencies	225,681		(8,051		)	11	—		—			—	225,681		(8,051		)	U.S. government agencies	295,148		(7,471		)	16	19,730		(1,113		)	1	314,878		(8,584		)
	Commercial mortgage-backed securities:																		Commercial mortgage-backed securities:
	U.S. government agencies	39,697		(619		)	7	—		—			—	39,697		(619		)	U.S. government agencies	50,533		(877		)	8	—		—			—	50,533		(877		)
	Residential collateralized mortgage securities:																		Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,451,813		(41,674		)	65	—		—			—	1,451,813		(41,674		)	U.S. government agencies	865,651		(36,384		)	42	558,256		(28,350		)	27	1,423,907		(64,734		)
	Commercial collateralized mortgage-backed securities:																		Commercial collateralized mortgage-backed securities:
	U.S. government agencies	150,223		(7,285		)	14	—		—			—	150,223		(7,285		)	U.S. government agencies	200,487		(8,507		)	18	19,459		(1,242		)	2	219,946		(9,749		)
	Corporate debt securities	72,017		(1,003		)	25	—		—			—	72,017		(1,003		)	Corporate debt securities	62,051		(295		)	22	—		—			—	62,051		(295		)
	Total held-to-maturity securities	$	2,191,336	$	(68,866	)	485	$	—	$	—		—	$	2,191,336	$	(68,866	)	Total securities held-to-maturity	$	1,974,519	$	(61,484	)	842	$	612,989	$	(31,058	)	44	$	2,587,508	$	(92,542	)

At least quarterly, the Corporation conducts a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if OTTI exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. ~~Under the current OTTI accounting model for debt securities, an~~An OTTI loss must be recognized for a debt security in an unrealized loss position if the Corporation intends to sell the security or it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis. In this situation, the amount of loss 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 OCI. 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~~

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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 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 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 OCI, net of tax.

The investment securities portfolio was in a net unrealized ~~loss~~gain position of ~~$15.6~~$10.3 million at ~~June 30, 2014,~~March 31, 2015, compared to a net unrealized loss position of ~~$55.9~~$44.9 million at December 31, ~~2013~~2014 and a net unrealized loss position of ~~$12.4~~$127.4 million at ~~June 30, 2013.~~March 31, 2014. Gross unrealized losses were ~~$56.4~~$62.1 million as of ~~June 30, 2014,~~March 31, 2015, compared to ~~$90.2~~$102.4 million at December 31, ~~2013,~~2014, and ~~$57.2~~$164.6 million at ~~June 30, 2013.~~March 31, 2014. As of ~~June 30, 2014,~~March 31, 2015, gross unrealized losses are concentrated within agency MBS, CLOs, and corporate debt securities. ~~The fair values of the agency MBSs~~Lower term interest rates have ~~been~~positively impacted ~~by the rising interest rate environment relative~~MBS prices quarter to ~~when they were purchased.~~date while a favorable macro economy and belief that oil and gas related losses are well contained have resulted in tighter CLO spreads. Corporate debt securities are composed of eight, single issuer, trust preferred securities with stated maturities. Such investments are less than 2%1% 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 market conditions which have caused risk premiums to increase, resulting in the decline in the fair value of the trust preferred securities.

Management believes the Corporation will fully recover the cost of these agency MBSs, CLOs, and corporate debt 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 concluded that these securities were not other-than-temporarily impaired at ~~June 30, 2014~~March 31, 2015 and has recognized the total amount of the impairment in OCI, net of tax.

The Corporation also holds $294.0 million of CLOs with a gross unrealized loss position of ~~$4.3~~$4.1 million as of ~~June 30, 2014.~~March 31, 2015. The new Volcker regulations, as originally adopted, may affect the Corporation's ability to hold these CLOs. Management believes that its holdings of CLOs are not ownership interests in a covered fund prohibited by the Volcker regulations and, therefore, expects to be able to hold these investments until their stated maturities with no restriction.

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 ~~June 30, 2014~~March 31, 2015. Estimated lives on MBSs may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

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(Dollars in thousands)	U.S. Government agency debentures			U.S. Treasuries			U.S. States and political subdivisions obligations			Residential mortgage-backed securities - U.S. govt. agency obligations			Commercial mortgage-backed securities - U.S. govt. agency obligations			Residential collateralized mortgage obligations - U.S. govt. agency obligations			Residential collateralized mortgage obligations - non- U.S. govt. agency issued			Commercial collateralized mortgage obligations - U.S. govt. agency obligations			Collateralized loan obligations			Corporate debt securities			Total			Weighted Average Yield		U.S. Treasury notes & bonds			U.S. Government agency debentures			U.S. States and political subdivisions			Residential mortgage-backed securities - U.S. govt. agencies			Commercial mortgage-backed securities - U.S. govt. agencies			Residential collateralized mortgage obligations - U.S. govt. agencies			Residential collateralized mortgage obligations - non-agency			Commercial collateralized mortgage obligations - U.S. govt. agencies			Asset backed securities - collateralized loan obligations			Corporate debt securities			Total			Weighted Average Yield
Securities Available for Sale
Securities Available-for-Sale
Remaining maturity:
One year or less	$	—		$	—		$	11,238		$	1,134		$	16,985		$	9,923		$	—		$	—		$	16,009		$	—		$	55,289		3.34	%	$	—		$	—		$	14,933		$	1,742		$	15,907		$	14,287		$	—		$	—		$	7,504		$	—		$	54,373		2.71	%
Over one year through five years	—			—			62,611			820,491			24,214			1,507,289			8			142,483			8,509			—			2,565,605			2.23	%	—			—			74,124			789,867			44,313			1,827,726			6			168,720			—			—			2,904,756			2.15	%
Over five years through ten years	—			—			135,495			196,549			44,499			80,819			—			39,550			269,447			—			766,359			2.98	%	—			2,513			100,111			155,694			80,139			50,547			—			75,339			286,458			—			750,801			2.93	%
Over ten years	—			—			31,461			—			—			—			—			—			—			53,490			84,951			2.00	%	—			—			25,996			—			—			—			—			—			—			52,264			78,260			1.89	%
Fair Value	$	—		$	—		$	240,805		$	1,018,174		$	85,698		$	1,598,031		$	8		$	182,033		$	293,965		$	53,490		$	3,472,204		2.41	%	$	—		$	2,513		$	215,164		$	947,303		$	140,359		$	1,892,560		$	6		$	244,059		$	293,962		$	52,264		$	3,788,190		2.31	%
Amortized Cost	$	—		$	—		$	233,228		$	998,698		$	86,870		$	1,627,871		$	8		$	182,151		$	297,334		$	61,624		$	3,487,784				$	—		$	2,500		$	208,800		$	924,453		$	139,789		$	1,895,112		$	6		$	241,839		$	297,506		$	61,668		$	3,771,673
Weighted-Average Yield	—		%	—		%	5.21		%	2.63		%	2.08		%	1.96		%	3.64		%	1.82		%	2.66		%	0.95		%	2.41		%			—		%	1.25		%	5.24		%	2.55		%	2.05		%	1.92		%	3.39		%	1.89		%	2.70		%	0.98		%	2.31		%
Weighted-Average Maturity	—			—			6.46			4.00			4.12			3.89			1.74			3.97			6.40			13.31			4.49
Weighted-Average Maturity (in years)																																				—			3.17			5.79			3.67			4.66			3.60			1.99			3.82			6.06			12.56			4.13

Securities Held to Maturity
Securities Held-to-Maturity
Remaining maturity:
One year or less	$	—		$	5,005		$	99,753		$	—		$	6,380		$	—		$	—		$	—		$	—		$	—		$	111,138		1.49	%	$	5,000		$	—		$	57,026		$	—		$	16,384		$	—		$	—		$	—		$	—		$	—		$	78,410		2.05	%
Over one year through five years	—			—			66,844			496,849			15,075			1,283,181			—			120,997			—			92,958			2,075,904			1.86	%	—			—			93,443			472,347			31,832			1,274,419			—			160,403			—			91,089			2,123,533			1.88	%
Over five years through ten years	24,293			—			204,954			129,648			34,296			113,149			—			121,366			—			—			627,705			2.73	%	—			24,822			220,062			113,999			10,259			22,909			—			94,231			—			—			486,282			3.21	%
Over ten years	—			—			187,118			—			—			—			—			—			—			—			187,119			5.58	%	—			—			160,687			—			—			—			—			—			—			—			160,687			5.50	%
Fair Value	$	24,293		$	5,005		$	558,669		$	626,497		$	55,751		$	1,396,330		$	—		$	242,363		$	—		$	92,958		$	3,001,866		2.25	%	$	5,000		$	24,822		$	531,218		$	586,346		$	58,475		$	1,297,328		$	—		$	254,634		$	—		$	91,089		$	2,848,912		2.31	%
Amortized Cost	$	25,000		$	5,000		$	549,850		$	624,605		$	56,020		$	1,450,479		$	—		$	248,974		$	—		$	92,190		$	3,052,118				$	5,000		$	25,000		$	523,501		$	577,278		$	57,818		$	1,320,215		$	—		$	256,352		$	—		$	90,010		$	2,855,174
Weighted-Average Yield	1.43		%	0.26		%	4.80		%	2.15		%	1.98		%	1.60		%	—		%	2.28		%	—		%	2.24		%	2.25		%			0.31		%	1.43		%	4.70		%	2.17		%	2.15		%	1.60		%	—		%	2.27		%	—		%	2.23		%	2.31		%
Weighted-Average Maturity	5.33			0.58			10.03			4.71			4.77			4.18			—			5.01			—			3.53			5.02
Weighted-Average Maturity (in years)																																				1.00			4.58			9.28			4.06			3.27			3.76			—			4.41			—			2.78			4.59

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

43. Loans

Loans outstanding as of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014, net of unearned income, consisted of the following:


(In thousands)	(In thousands)	June 30, 2014			December 31, 2013			June 30, 2013			(In thousands)	March 31, 2015			December 31, 2014			March 31, 2014
Originated loans:	Originated loans:										Originated loans:
Commercial	Commercial	$	7,365,499		$	6,648,279		$	5,997,812		Commercial	$	8,031,892		$	7,830,085		$	7,083,192
Residential mortgage	Residential mortgage	580,166			529,253			462,427			Residential mortgage	639,980			625,283			555,971
Installment	Installment	2,051,587			1,727,925			1,496,663			Installment	2,500,288			2,393,451			1,835,522
Home equity	Home equity	998,179			920,066			845,051			Home equity	1,134,238			1,110,336			946,802
Credit cards	Credit cards	151,967			148,313			142,319			Credit cards	160,766			164,478			147,917
Leases	Leases	319,795			239,551			188,353			Leases	388,873			370,179			257,509
	Total originated loans	11,467,193			10,213,387			9,132,625			Total originated loans	12,856,037			12,493,812			10,826,913
Allowance for originated loan losses	Allowance for originated loan losses	(91,950		)	(96,484		)	(98,645		)	Allowance for originated loan losses	(97,545		)	(95,696		)	(92,116		)
	Net originated loans	$	11,375,243		$	10,116,903		$	9,033,980		Net originated loans	$	12,758,492		$	12,398,116		$	10,734,797
Acquired loans:	Acquired loans:										Acquired loans:
Commercial	Commercial	$	1,457,903		$	1,725,970		$	2,267,811		Commercial	$	1,011,170		$	1,086,899		$	1,562,878
Residential mortgage	Residential mortgage	425,584			470,652			439,380			Residential mortgage	378,192			394,484			446,374
Installment	Installment	872,034			1,004,569			1,221,060			Installment	717,693			764,168			943,354
Home equity	Home equity	268,266			294,424			322,111			Home equity	217,824			233,629			283,309
	Total acquired loans	3,023,787			3,495,615			4,250,362			Total acquired loans	2,324,879			2,479,180			3,235,915
Allowance for acquired loan losses	Allowance for acquired loan losses	(4,977		)	(741		)	—			Allowance for acquired loan losses	(7,493		)	(7,457		)	(2,974		)
	Net acquired loans	$	3,018,810		$	3,494,874		$	4,250,362		Net acquired loans	$	2,317,386		$	2,471,723		$	3,232,941
Covered loans:
FDIC acquired loans:											FDIC acquired loans:
Commercial	Commercial	$	292,782		$	375,860		$	505,706		Commercial	$	179,547		$	211,607		$	341,267
Residential mortgage	Residential mortgage	46,705			50,679			56,056			Residential mortgage	40,470			41,276			49,411
Installment	Installment	5,364			6,162			7,794			Installment	4,781			4,874			5,531
Home equity	Home equity	89,815			97,442			106,970			Home equity	65,170			73,365			94,828
Loss share receivable	Loss share receivable	43,981			61,827			83,910			Loss share receivable	20,005			22,033			54,748
	Total covered loans	478,647			591,970			760,436			Total FDIC acquired loans	309,973			353,155			545,785
Allowance for covered loan losses		(45,109		)	(44,027		)	(49,069		)
Allowance for FDIC acquired loan losses											Allowance for FDIC acquired loan losses	(41,514		)	(40,496		)	(49,970		)
	Net covered loans	$	433,538		$	547,943		$	711,367		Net FDIC acquired loans	$	268,459		$	312,659		$	495,815
Total loans:	Total loans:										Total loans:
Commercial	Commercial	$	9,116,184		$	8,750,109		$	8,771,329		Commercial	$	9,222,609		$	9,128,591		$	8,987,337
Residential mortgage	Residential mortgage	1,052,455			1,050,584			957,863			Residential mortgage	1,058,642			1,061,043			1,051,756
Installment	Installment	2,928,985			2,738,656			2,725,517			Installment	3,222,762			3,162,493			2,784,407
Home equity	Home equity	1,356,260			1,311,932			1,274,132			Home equity	1,417,232			1,417,330			1,324,939
Credit cards	Credit cards	151,967			148,313			142,319			Credit cards	160,766			164,478			147,917
Leases	Leases	319,795			239,551			188,353			Leases	388,873			370,179			257,509
Loss share receivable	Loss share receivable	43,981			61,827			83,910			Loss share receivable	20,005			22,033			54,748
	Total loans	14,969,627			14,300,972			14,143,423			Total loans	15,490,889			15,326,147			14,608,613
Total allowance for loan losses	Total allowance for loan losses	(142,036		)	(141,252		)	(147,714		)	Total allowance for loan losses	(146,552		)	(143,649		)	(145,060		)
	Total Net loans	$	14,827,591		$	14,159,720		$	13,995,709		Total Net loans	$	15,344,337		$	15,182,498		$	14,463,553

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

The following describes the distinction between originated, acquired and ~~covered~~FDIC acquired loan portfolios and certain significant accounting policies relevant to each of these portfolios.

Originated Loans

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the "simple-interest" method based on the principal balance outstanding. Interest is not accrued on loans where collectability is uncertain. Accrued interest is presented separately in the consolidated balance sheet, except for accrued interest on credit card loans, which is included in the outstanding loan balance. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield. Net deferred loan origination fees and costs amounted to $~~6.1~~4.6 million, ~~$6.6~~$5.4 million, and $~~6.7~~7.1 million at ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014, respectively.

Acquired Loans

Acquired loans are those purchased in the Citizens ~~acquisition (See Note 2 (Business Combinations) for further information).~~acquisition. These loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related ALL. The acquired loans were segregated as of the Acquisition Date between those considered to be performing ~~(“non-impaired acquired loans”)~~(acquired nonimpaired loans) and those with evidence of credit deterioration ~~(“acquired~~(acquired impaired ~~loans”)~~loans). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Revolving loans, including lines of credit, are excluded from acquired impaired loan accounting.

Total outstanding acquired impaired loans as of ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014 were ~~$714.2~~$548.2 million and ~~$1.0 billion,~~$774.5 million, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for acquired impaired loans were as follows for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013:~~2014:


	Three Months Ended June 30,												Six Months Ended June 30,												Three Months Ended March 31,
Acquired Impaired Loans	2014						2013						2014						2013						2015						2014
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	142,284		$	557,199		$	—		$	—		$	136,646		$	601,000		$	—		$	—		$	119,450		$	423,209		$	136,646		$	601,000
Additions due to Citizens acquisition on April 12, 2013	—			—			131,558			819,715			—			—			131,558			819,715
Accretion	(12,746		)	12,746			(9,090		)	9,090			(24,487		)	24,487			(9,090		)	9,090			(11,218		)	11,218			(11,741		)	11,741
Net reclassifications from nonaccretable to accretable	10,499			—			—			—			30,013			—			—			—			12,995			—			19,514			—
Payments received, net	—			(50,695		)	—			(76,123		)	—			(106,237		)	—			(76,123		)	—			(46,114		)	—			(55,542		)
Disposals	$	(2,595	)	$	—		$	(2,401	)	$	—		$	(4,730	)	$	—		$	(2,401	)	$	—		(2,471		)	—			(2,135		)	—
Balance at end of period	$	137,442		$	519,250		$	120,067		$	752,682		$	137,442		$	519,250		$	120,067		$	752,682		$	118,756		$	388,313		$	142,284		$	557,199

Cash flows expected to be collected on acquired impaired loans are estimated quarterly by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

~~Covered~~Improved cash flow expectations for loans or pools that were impaired in prior periods are recorded first as a reversal of previously recorded impairment and then as an increase in prospective yield when all previously recorded impairment has been recaptured. Decreases in expected cash flows are recognized as an impairment through a provision for loan loss and an increase to the allowance for acquired impaired loans.

During the quarter ended March 31, 2015, there was an overall improvement in cash flow expectations, which resulted in the reclassification of $13.0 million from the nonaccretable difference to accretable yield. This reclassification results in prospective yield adjustments on these loan pools.

FDIC Acquired Loans and Related Loss Share Receivable

~~The~~FDIC acquired loans include loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and ~~Midwest are~~Midwest. George Washington non-single family loss share agreements with the FDIC expired at March 31, 2015 resulting in $5.0 million of loans no longer being covered. As of March 31, 2015, $174.6 million of FDIC acquired loans remained covered by ~~loss sharing agreements between~~ the FDIC and the Corporation that afford the Bank significant loss protection. These covered loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related ALL and are accounted for as acquired impaired loans. AMidwest non-single family loss share ~~receivable was recorded at the Acquisition Date which represents the estimated fair value~~agreement. The Midwest non-single family loss share agreement will expire as of ~~reimbursement the Corporation expects to receive from the FDIC for incurred losses on certain~~June 30, 2015. As of March 31, 2015, $110.4 million of loans remained covered ~~loans. These expected reimbursements are recorded as part of covered loans.~~by single family loss share agreements.

Changes in the loss share receivable ~~associated with covered loans~~ for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014 were as follows:


Loss Share Receivable	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(In thousands)	2014			2013			2014			2013			2015			2014
Balance at beginning of period	$	54,748		$	95,593		$	61,827		$	113,734		$	22,033		$	61,827
Amortization	(4,185		)	(5,998		)	(10,048		)	(14,101		)	(2,187		)	(5,863		)
Increase/(decrease) due to impairment (recapture) on covered loans	(3,897		)	2,319			927			7,858
Increase/(decrease) due to impairment (recapture) on FDIC acquired loans													4,227			4,824
FDIC reimbursement	(1,237		)	(5,397		)	(6,324		)	(15,947		)	(4,013		)	(5,087		)
Covered loans paid in full	(1,448		)	(2,607		)	(2,401		)	(7,634		)
FDIC acquired loans paid in full													(55		)	(953		)
Balance at end of the period(1)	$	43,981		$	83,910		$	43,981		$	83,910		$	20,005		$	54,748

(1) As of March 31, 2015, $6.3 million of the loss share receivable related to non-single family covered loans and $13.8 million related to single family covered loans.

Total outstanding ~~covered~~FDIC acquired impaired loans were ~~$637.6~~$404.4 million and ~~$915.4~~$702.4 million as of ~~June 30,~~March 31, 2015 and 2014, ~~and 2013,~~ respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for ~~covered~~FDIC acquired impaired loans were as follows for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014:


	Three Months Ended June 30,												Six Months Ended June 30,												Three Months Ended March 31,
Covered Impaired Loans	2014						2013						2014						2013
FDIC Acquired Impaired Loans																									2015						2014
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	63,003		$	364,488		$	102,130		$	656,670		$	67,282		$	403,692		$	113,288		$	762,386		$	37,511		$	232,452		$	67,282		$	403,692
Accretion	(12,139		)	12,139			(17,757		)	17,757			(24,755		)	24,755			(37,271		)	37,271			(5,567		)	5,567			(12,616		)	12,616
Net reclassifications from non-accretable to accretable	5,549			—			5,413			—			11,606			—			15,982			—
Net reclassifications between non-accretable and accretable																									(56		)	—			6,057			—
Payments received, net	—			(60,146		)	—			(137,170		)	—			(111,966		)	—			(262,400		)	—			(38,794		)	—			(51,820		)
Disposals	(2,758		)	—			(8,027		)	—			(478		)	—			(10,241		)	—
(Disposals)/Additions																									(2,021		)	—			2,280			—
Balance at end of period	$	53,655		$	316,481		$	81,758		$	537,257		$	53,655		$	316,481		$	81,758		$	537,257		$	29,867		$	199,225		$	63,003		$	364,488

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

The cash flows expected to be collected on covered impaired loans are estimated quarterly in a similar manner as described above for acquired impaired loans. During the quarter ended March 31, 2015, the re-estimation process resulted in a net reclassification of $56.0 thousand from accretable yield to nonaccretable difference. This reclassification results in prospective yield adjustments on the loan pools.

Credit Quality Disclosures

The credit quality of the Corporation's loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Corporation. These credit quality ratings are an important part of the Corporation's overall credit risk management process and evaluation of the allowance for credit losses.

~~Table of Contents~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~ - ~~Continued~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

Generally, loans, except for certain commercial, credit card and mortgage loans, and leases on which payments are past due for 90 days are placed on nonaccrual status, unless those loans are in the process of collection and, in Management's opinion, are fully secured. Credit card loans on which payments are past due for 120 days are placed on nonaccrual status. Acquired and ~~covered~~FDIC acquired impaired loans are considered to be accruing and performing even though collection of contractual payments may be in doubt because income continues to be accreted on the loan pool as long as expected cash flows are reasonably estimable.

When a loan is placed on nonaccrual status, interest deemed uncollectible which had been accrued in prior years is charged against the ALL and interest deemed uncollectible accrued in the current year is reversed against interest income. Interest on mortgage loans is accrued until Management deems it uncollectible based upon the specific identification method. Payments subsequently received on nonaccrual loans are generally applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable. This generally requires timely principal and interest payments for a minimum of six consecutive payment cycles. Loans are generally written off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, terms and other factors.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

The following tables provide a summary of loans by portfolio type, including the delinquency status of those loans that continue to accrue interest and those loans that are nonaccrual:


As of June 30, 2014
As of March 31, 2015																	As of March 31, 2015
(In thousands)													≥ 90 Days																≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ^(a)		Loans		30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽¹⁾		Loans
Commercial
C&I	$	1,094	$	1,087	$	6,029	$	8,210	$	4,849,405	$	4,857,615	$	80	$	9,991	$	525	$	515	$	5,846	$	6,886	$	5,311,011	$	5,317,897	$	498	$	18,838
CRE	2,010		1,934		14,333		18,277		2,079,741		2,098,018		6,633		11,028		4,401		1,177		3,481		9,059		2,123,958		2,133,017		150		9,640
Construction	—		—		—		—		409,866		409,866		—		53		—		—		—		—		580,978		580,978		—		—
Leases	103		—		—		103		319,692		319,795		—		—		255		—		—		255		388,618		388,873		—		—
Consumer
Installment	11,205		3,164		4,041		18,410		2,033,177		2,051,587		3,505		3,334		11,294		3,215		4,157		18,666		2,481,622		2,500,288		3,332		3,016
Home Equity Lines	1,549		604		815		2,968		995,211		998,179		535		1,329		1,480		323		1,395		3,198		1,131,040		1,134,238		622		1,780
Credit Cards	677		385		510		1,572		150,395		151,967		258		446		654		301		637		1,592		159,174		160,766		312		523
Residential Mortgages	13,087		1,820		7,527		22,434		557,732		580,166		4,632		10,560		9,236		2,515		7,402		19,153		620,827		639,980		3,000		12,288
Total	$	29,725	$	8,994	$	33,255	$	71,974	$	11,395,219	$	11,467,193	$	15,643	$	36,741	$	27,845	$	8,046	$	22,918	$	58,809	$	12,797,228	$	12,856,037	$	7,914	$	46,085
Acquired Loans													≥ 90 Days																≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing^(c)		Loans ^(c)		30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	1,164	$	511	$	4,239	$	5,914	$	654,347	$	660,261	$	40	$	787	$	66	$	131	$	5,366	$	5,563	$	415,247	$	420,810	$	44	$	700
CRE	1,678		1,162		23,604		26,444		757,299		783,743		—		1,736		4,507		1,380		23,420		29,307		554,765		584,072		252		4,172
Construction	—		—		666		666		13,233		13,899		—		—		—		—		676		676		5,612		6,288		—		—
Consumer
Installment	6,148		1,859		1,296		9,303		862,731		872,034		1,021		419		4,859		1,322		1,121		7,302		710,391		717,693		521		746
Home Equity Lines	5,417		3,089		1,989		10,495		257,771		268,266		643		534		2,850		1,544		1,172		5,566		212,258		217,824		462		639
Residential Mortgages	158		1,372		7,298		8,828		416,756		425,584		847		1,506		9,894		590		5,250		15,734		362,458		378,192		425		997
Total	$	14,565	$	7,993	$	39,092	$	61,650	$	2,962,137	$	3,023,787	$	2,551	$	4,982	$	22,176	$	4,967	$	37,005	$	64,148	$	2,260,731	$	2,324,879	$	1,704	$	7,254
Covered Loans ^(b)													≥ 90 Days
FDIC Acquired Loans ⁽²⁾																													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ^(c)		Loans ^(c)		30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	2,929	$	—	$	6,893	$	9,822	$	46,601	$	56,423	n/a		n/a		$	815	$	144	$	4,566	$	5,525	$	37,289	$	42,814	n/a		n/a
CRE	643		1,702		79,916		82,261		134,995		217,256		n/a		n/a		413		5,218		44,023		49,654		78,254		127,908		n/a		n/a
Construction	—		—		17,278		17,278		1,823		19,101		n/a		n/a		—		—		6,906		6,906		1,919		8,825		n/a		n/a
Consumer
Installment	25		163		44		232		5,132		5,364		n/a		n/a		—		110		—		110		4,671		4,781		n/a		n/a
Home Equity Lines	579		540		2,036		3,155		86,661		89,816		n/a		n/a		2,291		564		3,651		6,506		58,664		65,170		n/a		n/a
Residential Mortgages	7,141		381		5,356		12,878		33,828		46,706		n/a		n/a		5,714		163		3,684		9,561		30,909		40,470		n/a		n/a
Total	$	11,317	$	2,786	$	111,523	$	125,626	$	309,040	$	434,666	n/a		n/a		$	9,233	$	6,199	$	62,830	$	78,262	$	211,706	$	289,968	n/a		n/a

(1)^(a)Installment loans 90 days or more past due and accruing include ~~$2.5~~$2.4 million of loans guaranteed by the U.S. government as of ~~June 30, 2014~~March 31, 2015.

(2)^(b)Excludes loss share receivable of $~~44.0~~20.0 million as of ~~June 30,~~March 31, 2015.

(3) Acquired and FDIC acquired impaired loans were not classified as nonperforming assets at March 31, 2015 as the loans are considered to be performing under ASC 310-30. As a result, interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired and covered impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and FDIC acquired impaired loans.

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES



As of December 31, 2014
(In thousands)														≥ 90 Days
Originated Loans	Days Past Due							Total				Total		Past Due and		Nonaccrual
	30-59		60-89			≥ 90		Past Due		Current		Loans		Accruing ⁽¹⁾		Loans
Commercial
C&I	$	2,212	$	1,162		$	2,670	$	6,044	$	5,169,157	$	5,175,201	$	1,547	$	6,114
CRE	2,155		1,460			8,864		12,479		2,104,639		2,117,118		1,696		11,033
Construction	—		—			—		—		537,766		537,766		—		—
Leases	—		—			—		—		370,179		370,179		—		—
Consumer
Installment	14,621		3,647			4,716		22,984		2,370,467		2,393,451		3,695		3,268
Home Equity Lines	1,357		587			1,206		3,150		1,107,186		1,110,336		569		1,654
Credit Cards	668		516			860		2,044		162,434		164,478		407		596
Residential Mortgages	12,086		2,744			8,013		22,843		602,440		625,283		4,242		11,952
Total	$	33,099	$	10,116	��	$	26,329	$	69,544	$	12,424,268	$	12,493,812	$	12,156	$	34,617

Acquired Loans														≥ 90 Days
	Days Past Due							Total				Total		Past Due and		Nonaccrual
	30-59		60-89			≥ 90		Past Due		Current		Loans		Accruing ⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	92	$	234		$	4,791	$	5,117	$	444,137	$	449,254	$	—	$	787
CRE	3,479		3,398			23,509		30,386		600,288		630,674		44		4,171
Construction	—		—			685		685		6,286		6,971		—		—
Consumer
Installment	6,204		2,029			1,861		10,094		754,074		764,168		615		1,218
Home Equity Lines	2,819		2,123			2,333		7,275		226,354		233,629		1,519		631
Residential Mortgages	13,062		1,648			7,089		21,799		372,685		394,484		1,293		1,249
Total	$	25,656	$	9,432		$	40,268	$	75,356	$	2,403,824	$	2,479,180	$	3,471	$	8,056
FDIC Acquired Loans ⁽²⁾														≥ 90 Days
	Days Past Due							Total				Total		Past Due and		Nonaccrual
	30-59		60-89			≥ 90		Past Due		Current		Loans		Accruing⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	58	$	—		$	6,041	$	6,099	$	42,738	$	48,837	n/a		n/a
CRE	234		1,517			47,233		48,984		104,524		153,508		n/a		n/a
Construction	—		—			6,064		6,064		3,198		9,262		n/a		n/a
Consumer
Installment	23		—			34		57		4,817		4,874		n/a		n/a
Home Equity Lines	1,395		870			3,859		6,124		67,241		73,365		n/a		n/a
Residential Mortgages	6,205		91			3,572		9,868		31,408		41,276		n/a		n/a
Total	$	7,915	$	2,478		$	66,803	$	77,196	$	253,926	$	331,122	n/a		n/a

(1) Installment loans 90 days or more past due and accruing include $2.4 million of loans guaranteed by the U.S. government as of December 31, 2014.

^(c)(2) Excludes loss share receivable of $22.0 million as of December 31, 2014.

(3) Acquired and covered impaired loans were not classified as nonperforming assets at ~~June 30,~~December 31, 2014 as the loans are considered to be performing under ASC 310-30. As a result, interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired and covered impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and covered impaired loans.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES


As of December 31, 2013
As of March 31, 2014																	As of March 31, 2014
(In thousands)													≥ 90 Days																≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ^(a)		Loans		30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽¹⁾		Loans
Commercial
C&I	$	8,941	$	994	$	10,622	$	20,557	$	4,119,010	$	4,139,567	$	151	$	11,323	$	4,088	$	561	$	5,546	$	10,195	$	4,465,961	$	4,476,156	$	2,000	$	6,388
CRE	4,507		2,400		9,688		16,595		2,153,192		2,169,787		460		14,229		13,549		3,644		7,999		25,192		2,222,093		2,247,285		804		20,679
Construction	351		21		66		438		338,487		338,925		—		122		369		—		—		369		359,382		359,751		—		55
Leases	902		—		—		902		238,649		239,551		—		—		—		—		—		—		257,509		257,509		—		—
Consumer
Installment	15,433		4,050		4,462		23,945		1,703,980		1,727,925		3,735		3,681		9,162		2,659		3,762		15,583		1,819,939		1,835,522		3,286		3,222
Home Equity Lines	1,864		918		965		3,747		916,319		920,066		418		1,819		1,644		444		902		2,990		943,812		946,802		509		1,653
Credit Cards	729		471		735		1,935		146,378		148,313		404		558		783		438		573		1,794		146,123		147,917		262		488
Residential Mortgages	19,858		2,072		9,350		31,280		497,973		529,253		6,008		10,471		9,632		1,882		8,455		19,969		536,002		555,971		4,999		10,963
Total	$	52,585	$	10,926	$	35,888	$	99,399	$	10,113,988	$	10,213,387	$	11,176	$	42,203	$	39,227	$	9,628	$	27,237	$	76,092	$	10,750,821	$	10,826,913	$	11,860	$	43,448

Acquired Loans													≥ 90 Days				Acquired Loans												≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ^{( c )}		Loans ^{( c )}		30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	1,295	$	862	$	3,744	$	5,901	$	788,178	$	794,079	$	40	$	795	$	776	$	720	$	4,224	$	5,720	$	705,912	$	711,632	$	170	$	241
CRE	5,603		5,281		26,366		37,250		881,395		918,645		403		651		5,356		3,639		21,995		30,990		806,886		837,876		5		1,259
Construction	2,675		—		—		2,675		10,571		13,246		—		—		—		650		—		650		12,720		13,370		—		—
Consumer
Installment	14,528		4,076		3,354		21,958		982,611		1,004,569		2,263		679		7,216		2,563		1,619		11,398		931,956		943,354		665		678
Home Equity Lines	4,774		1,933		3,606		10,313		284,111		294,424		1,039		1,300		3,606		811		3,596		8,013		275,296		283,309		1,078		1,090
Residential Mortgages	$	3,918	$	1,426	$	8,063	$	13,407	$	457,245	$	470,652	$	403	$	582	11,743		1,822		7,090		20,655		425,719		446,374		31		1,405
Total	$	32,793	$	13,578	$	45,133	$	91,504	$	3,404,111	$	3,495,615	$	4,148	$	4,007	$	28,697	$	10,205	$	38,524	$	77,426	$	3,158,489	$	3,235,915	$	1,949	$	4,673
Covered Loans ^(b)													≥ 90 Days

FDIC Acquired Loans ⁽²⁾																													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual		Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing^(c)		Loans ^(c)		30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	836	$	1,489	$	12,957	$	15,282	$	60,955	$	76,237	n/a		n/a		$	1,744	$	—	$	11,867	$	13,611	$	51,641	$	65,252	n/a		n/a
CRE	2,855		3,443		103,077		109,375		164,219		273,594		n/a		n/a		582		449		97,596		98,627		156,966		255,593		n/a		n/a
Construction	2,191		1,917		20,388		24,496		1,533		26,029		n/a		n/a		1,008		—		16,337		17,345		3,076		20,421		n/a		n/a
Consumer
Installment	33		—		—		33		6,130		6,163		n/a		n/a		—		—		—		—		5,531		5,531		n/a		n/a
Home Equity Lines	544		1,467		1,651		3,662		93,780		97,442		n/a		n/a		758		538		2,093		3,389		91,439		94,828		n/a		n/a
Residential Mortgages	7,463		1,565		5,165		14,193		36,485		50,678		n/a		n/a		8,374		435		5,872		14,681		34,731		49,412		n/a		n/a
Total	$	13,922	$	9,881	$	143,238	$	167,041	$	363,102	$	530,143	n/a		n/a		$	12,466	$	1,422	$	133,765	$	147,653	$	343,384	$	491,037	n/a		n/a

~~(a)~~(1) Installment loans 90 days or more past due and accruing include $~~2.1~~2.3 million of loans guaranteed by the U.S. government as of ~~December~~March 31, ~~2013~~2014.

~~(b)~~(2) Excludes loss share receivable of $~~61.8~~54.7 million as of ~~December~~March 31, ~~2013~~2014.

~~(c)~~(3) Acquired and covered impaired loans were not classified as nonperforming assets at ~~December~~March 31, ~~2013~~ as the loans are considered to be performing under ASC 310-30. As a result, interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired and covered impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and covered impaired loans.

~~Table of Contents~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~ - ~~Continued~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

As of June 30, 2013
(In thousands) ≥ 90 Days
Originated Loans Days Past Due Total Total Past Due and Nonaccrual
30-59 60-89 ≥ 90 Past Due Current Loans
Accruing ^(a)
Loans
Commercial
C&I $ 732
$ 587
$ 3,537
$ 4,856
$ 3,473,334
$ 3,478,190
$ 10
$ 9,834
CRE 7,950
2,413
11,584
21,947
2,192,910
2,214,857
1,602
18,954
Construction 523
537
430
1,490
303,275
304,765
348
147
Leases —
—
—
—
188,353
188,353
—
—
Consumer
Installment 9,141
3,080
5,021
17,242
1,479,421
1,496,663
4,184
4,146
Home Equity Lines 1,080
1,048
1,122
3,250
841,801
845,051
710
1,841
Credit Cards 817
350
783
1,950
140,369
142,319
423
433
Residential Mortgages 13,378
3,733
7,138
24,249
438,178
462,427
4,483
10,108
Total $ 33,621
$ 11,748
$ 29,615
$ 74,984
$ 9,057,641
$ 9,132,625
$ 11,760
$ 45,463

Acquired Loans ≥ 90 Days
Days Past Due Total Total Past Due and Nonaccrual
30-59 60-89 ≥ 90 Past Due Current Loans
Accruing^{( c )}

Loans ^{( c )}
Commercial
C&I $ 607
$ 85
$ 1,914
$ 2,606
$ 1,157,738
$ 1,160,344
$ —
$ 2,245
CRE 6,731
6,875
24,775
38,381
1,059,743
1,098,124
—
494
Construction —
—
724
724
16,051
16,775
724
—
Consumer
Installment 11,576
2,440
2,252
16,268
1,204,792
1,221,060
151
715
Home Equity Lines 4,785
1,579
2,404
8,768
313,427
322,195
—
5,396
Residential Mortgages 14,460
4,036
7,591
26,087
414,307
440,394
45
77
Total $ 38,159
$ 15,015
$ 39,660
$ 92,834
$ 4,166,058
$ 4,258,892
$ 920
$ 8,927

Covered Loans ^(b)
≥ 90 Days
Days Past Due Total Total Past Due and Nonaccrual
30-59 60-89 ≥ 90 Past Due Current Loans
Accruing ^(c)

Loans ^(c)
Commercial
C&I $ 4,451
$ 497
$ 13,693
$ 18,641
$ 67,290
$ 85,931
n/a n/a
CRE 5,751
10,666
145,368
161,785
220,306
382,091
n/a n/a
Construction 1,308
—
32,183
33,491
4,194
37,685
n/a n/a
Consumer
Installment 17
54
—
71
7,723
7,794
n/a n/a
Home Equity Lines 1,027
153
1,834
3,014
103,955
106,969
n/a n/a
Residential Mortgages 8,760
1,538
8,090
18,388
37,668
56,056
n/a n/a
Total $ 21,314
$ 12,908
$ 201,168
$ 235,390
$ 441,136
$ 676,526
n/a n/a

^(a) ~~Installment loans 90 days or more past due and accruing include~~ ~~$3.1 million~~ ~~of loans guaranteed by the U.S. government as of~~ ~~June 30, 2013~~.

^(b)~~Excludes loss share receivable of~~ ~~$83.9 million~~ ~~as of~~ ~~June 30, 2013~~.

^(c) ~~Acquired and covered impaired loans were not classified as nonperforming assets at~~ ~~June 30, 2013~~2014 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired and covered impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and covered impaired loans.

Individual commercial loans are assigned credit risk grades based on an internal assessment of conditions that affect a borrower’s ability to meet its contractual obligation under the loan agreement. The assessment process includes reviewing a borrower’s current financial information, historical payment experience, credit documentation, public information, and other information specific to each borrower. Commercial loans are reviewed on an annual, quarterly or rotational basis or as Management becomes aware of information during a borrower’s ability to fulfill its obligation. For consumer loans, Management evaluates credit quality based on the aging status of the loan as well as by payment activity, which is presented in the above tables.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

The credit-risk grading process for commercial loans is summarized as follows:

“Pass” Loans (Grades 1, 2, 3, 4) are not considered a greater than normal credit risk. Generally, the borrowers have the apparent ability to satisfy obligations to the bank, and the Corporation anticipates insignificant uncollectible amounts based on its individual loan review.

“~~Special-Mention”~~Special Mention” Loans (Grade 5) are commercial loans that have identified potential weaknesses that deserve Management’s close attention. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the institution’s credit position.

“Substandard” Loans (Grade 6) are inadequately protected by the current financial condition and paying capacity of the obligor or by any collateral pledged. Loans so classified have a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt pursuant to the contractual principal and interest terms. Such loans are characterized by the distinct possibility that the Corporation may sustain some loss if the deficiencies are not corrected.

“Doubtful” Loans (Grade 7) have all the weaknesses inherent in those classified as substandard, with the added characteristic that existing facts, conditions, and values make collection or liquidation in full highly improbable. Such loans are currently managed separately to determine the highest recovery alternatives.

“Loss” Loans (Grade 8) are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. These loans are charged off when loss is identified.

3632

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

The following tables provide a summary of commercial loans by portfolio type and the Corporation's internal credit quality rating:


As of June 30, 2014
As of March 31, 2015									As of March 31, 2015
(In thousands)
	Originated Commercial Loans
Originated Loans									Commercial
	C&I		CRE		Construction		Leases		C&I		CRE		Construction		Leases		Total
Grade 1	$	33,855	$	—	$	—	$	9,408	$	59,380	$	667	$	—	$	13,052	$	73,099
Grade 2	134,682		3,610		—		10,971		191,008		3,368		—		5,782		200,158
Grade 3	1,100,807		290,652		36,954		55,648		1,405,007		339,027		62,821		69,686		1,876,541
Grade 4	3,439,210		1,725,808		371,488		236,324		3,504,600		1,724,516		516,852		297,790		6,043,758
Grade 5	100,776		29,382		—		7,092		103,432		29,034		942		1,307		134,715
Grade 6	48,285		48,566		1,424		352		54,470		36,405		363		1,256		92,494
Grade 7	—		—		—		—		—		—		—		—		—
Total	$	4,857,615	$	2,098,018	$	409,866	$	319,795	$	5,317,897	$	2,133,017	$	580,978	$	388,873	$	8,420,765

	Acquired Commercial Loans
Acquired Loans									Commercial
	C&I		CRE		Construction		Leases		C&I		CRE		Construction		Leases		Total
Grade 1	$	700	$	—	$	—	$	—	$	1,069	$	—	$	—	$	—	$	1,069
Grade 2	—		—		—		—		—		—		—		—		—
Grade 3	35,608		26,652		—		—		22,875		24,834		—		—		47,709
Grade 4	553,293		651,011		13,899		—		359,751		496,213		5,612		—		861,576
Grade 5	41,213		50,267		—		—		15,363		21,487		—		—		36,850
Grade 6	29,447		55,813		—		—		21,752		41,538		676		—		63,966
Grade 7	—		—		—		—		—		—		—		—		—
Total	$	660,261	$	783,743	$	13,899	$	—	$	420,810	$	584,072	$	6,288	$	—	$	1,011,170

	Covered Commercial Loans
FDIC Acquired Loans									Commercial
	C&I		CRE		Construction		Leases		C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Grade 2	1,015		—		—		—		1,040		—		—		—		1,040
Grade 3	—		—		—		—		—		—		—		—		—
Grade 4	38,892		104,455		707		—		33,352		74,128		579		—		108,059
Grade 5	999		3,984		—		—		39		2,134		—		—		2,173
Grade 6	15,517		108,637		18,045		—		8,383		51,646		8,246		—		68,275
Grade 7	—		180		349		—		—		—		—		—		—
Total	$	56,423	$	217,256	$	19,101	$	—	$	42,814	$	127,908	$	8,825	$	—	$	179,547

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As of December 31, 2013
As of December 31, 2014									As of December 31, 2014
(In thousands)
	Originated Commercial Loans
Originated Loans									Commercial
	C&I		CRE		Construction		Leases		C&I		CRE		Construction		Leases		Total
Grade 1	$	34,909	$	241	$	—	$	9,271	$	52,676	$	683	$	678	$	4,451	$	58,488
Grade 2	108,709		3,730		—		2,900		186,278		3,454		—		14,959		204,691
Grade 3	802,624		315,150		25,632		54,446		1,340,100		294,281		46,074		71,908		1,752,363
Grade 4	3,083,458		1,759,383		306,795		167,022		3,413,446		1,745,470		490,757		277,277		5,926,950
Grade 5	71,857		34,969		267		5,750		139,083		29,990		257		1,389		170,719
Grade 6	38,010		56,314		6,231		162		43,618		43,240		—		195		87,053
Grade 7	—		—		—		—		—		—		—		—		—
Total	$	4,139,567	$	2,169,787	$	338,925	$	239,551	$	5,175,201	$	2,117,118	$	537,766	$	370,179	$	8,200,264

	Acquired Commercial Loans
Acquired Loans									Commercial
	C&I		CRE		Construction		Leases		C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	1,076	$	—	$	—	$	—	$	1,076
Grade 2	1,741		703		—		—		—		—		—		—		—
Grade 3	79,634		29,224		—		—		20,891		24,867		—		—		45,758
Grade 4	643,495		722,307		13,246		—		376,129		532,447		6,286		—		914,862
Grade 5	46,807		93,499		—		—		23,268		28,382		685		—		52,335
Grade 6	22,402		72,912		—		—		27,890		44,978		—		—		72,868
Grade 7	—		—		—		—		—		—		—		—		—
Total	$	794,079	$	918,645	$	13,246	$	—	$	449,254	$	630,674	$	6,971	$	—	$	1,086,899

	Covered Commercial Loans
FDIC Acquired Loans									Commercial
	C&I		CRE		Construction		Leases		C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Grade 2	968		—		—		—		1,347		—		—		—		1,347
Grade 3	—		—		—		—		—		—		—		—		—
Grade 4	41,115		113,863		601		—		36,406		86,779		823		—		124,008
Grade 5	427		6,219		—		—		167		3,401		—		—		3,568
Grade 6	31,621		153,318		23,208		—		10,917		63,328		8,248		—		82,493
Grade 7	2,106		194		2,220		—		—		—		191		—		191
Total	$	76,237	$	273,594	$	26,029	$	—	$	48,837	$	153,508	$	9,262	$	—	$	211,607

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As of June 30, 2013
As of March 31, 2014									As of March 31, 2014
(In thousands)
	Originated Commercial Loans
Originated Loans									Commercial
	C&I		CRE		Construction		Leases		C&I		CRE		Construction		Leases		Total
Grade 1	$	40,185	$	1,250	$	—	$	12,815	$	28,610	$	240	$	299	$	8,452	$	37,601
Grade 2	124,748		3,859		—		709		135,574		3,797		—		3,620		142,991
Grade 3	721,517		297,052		19,119		36,743		940,937		329,377		24,731		58,397		1,353,442
Grade 4	2,483,972		1,826,543		282,034		134,834		3,276,975		1,823,877		332,227		179,795		5,612,874
Grade 5	41,698		32,705		1,363		3,042		61,507		39,245		259		6,857		107,868
Grade 6	66,070		53,448		2,249		210		32,553		50,749		2,235		388		85,925
Grade 7	—		—		—		—		—		—		—		—		—
Grade 8	—		—		—		—
Total	$	3,478,190	$	2,214,857	$	304,765	$	188,353	$	4,476,156	$	2,247,285	$	359,751	$	257,509	$	7,340,701

Acquired Loans									Commercial
	Acquired Commercial Loans
	C&I		CRE		Construction		Leases		C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	700	$	—	$	—	$	—	$	700
Grade 2	107		—		—		—		—		—		—		—		—
Grade 3	24,511		28,509		—		—		37,829		24,177		—		—		62,006
Grade 4	1,050,350		848,214		15,558		—		609,383		696,070		13,370		—		1,318,823
Grade 5	58,399		125,154		1,217		—		43,721		51,253		—		—		94,974
Grade 6	26,977		96,247		—		—		19,999		66,376		—		—		86,375
Grade 7	—		—		—		—		—		—		—		—		—
Grade 8	—		—		—		—
Total	$	1,160,344	$	1,098,124	$	16,775	$	—	$	711,632	$	837,876	$	13,370	$	—	$	1,562,878

	Covered Commercial Loans
FDIC Acquired Loans									Commercial
	C&I		CRE		Construction		Leases		C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Grade 2	1,001		—		—		—		957		—		—		—		957
Grade 3	—		—		—		—		—		—		—		—		—
Grade 4	44,148		131,889		556		—		42,228		111,610		653		—		154,491
Grade 5	661		24,255		1,364		—		387		2,883		—		—		3,270
Grade 6	38,065		224,533		33,856		—		19,864		140,927		19,459		—		180,250
Grade 7	2,056		1,414		1,909		—		1,816		173		309		—		2,298
Grade 8	—		—		—		—
Total	$	85,931	$	382,091	$	37,685	$	—	$	65,252	$	255,593	$	20,421	$	—	$	341,266

54. Allowance for Loan Losses

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.

The ALL is Management's estimate of the amount of probable credit losses inherent in a loan portfolio at the balance sheet date. The following describes the distinctions in methodology used to estimate the ALL of originated, acquired and ~~covered~~FDIC acquired loan portfolios as well as certain significant accounting policies relevant to each category.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

Allowance for Originated Loan Losses

Management estimates credit losses based on originated individual loans determined to be impaired and on all other loans grouped based on similar risk characteristics. Management also considers internal and external factors such as economic conditions, loan management practices, portfolio monitoring, and other risks, collectively known as qualitative factors, or Q-factors, to estimate credit losses in the loan portfolio. Q-factors are used to reflect changes in the portfolio's collectability characteristics not captured by historical loss data.

The Corporation's historical loss component is the most significant of the ALL components and is based on historical loss experience by credit-risk grade (for commercial loan pools) and payment status (for mortgage and consumer loan pools). The historical loss experience component of the ALL represents the results of migration analysis of historical net charge-offs for portfolios of loans (including groups of commercial loans within each credit-risk grade and groups of consumer loans by payment status). For measuring loss exposure in a pool of loans, the historical net charge-off or migration experience is utilized to estimate expected losses to be realized from the pool of loans.

If a nonperforming, substandard loan has an outstanding balance of $0.3 million or greater or if a doubtful loan has an outstanding balance of $0.1 million or greater, as determined by the Corporation's credit-risk grading process, further analysis is performed to determine the probable loss content and assign a specific allowance to the loan, if deemed appropriate. The ALL relating to originated loans that have become impaired is based on either expected cash flows discounted using the original effective interest rate, the observable market price, or the fair value of the collateral for certain collateral dependent loans.

~~Loans are generally written off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, terms, and other factors.~~

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The following tables show activity in the originated ALL, by portfolio segment for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014, as well as the corresponding recorded investment in originated loans at the end of the period:


As of June 30, 2014
As of March 31, 2015																													As of March 31, 2015
(In thousands)																													(In thousands)
Originated Loans	Originated Loans	C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total			Originated Loans	C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Three Months Ended	Three Months Ended																												Three Months Ended
Allowance for originated loan losses, beginning balance	Allowance for originated loan losses, beginning balance	$	40,175		$	13,385		$	1,470		$	1,027		$	11,604		$	13,160		$	6,851		$	4,444		$	92,116		Allowance for originated loan losses, beginning balance	$	37,375		$	10,492		$	2,202		$	674		$	12,918		$	19,324		$	7,966		$	4,745		$	95,696
Charge-offs	Charge-offs	(361		)	(2,696		)	—			—			(4,076		)	(1,870		)	(1,311		)	(834		)	(11,148		)	Charge-offs	(510		)	(215		)	—			—			(5,055		)	(911		)	(1,452		)	(424		)	(8,567		)
Recoveries	Recoveries	372			30			2			372			2,741			966			439			67			4,989			Recoveries	341			—			1			4			3,020			613			366			35			4,380
Provision for loan losses	Provision for loan losses	3,070			(1,989		)	(149		)	(371		)	1,974			1,647			1,349			462			5,993			Provision for loan losses	2,632			(1,464		)	(451		)	(49		)	2,475			407			921			1,565			6,036
Allowance for originated loan losses, ending balance	Allowance for originated loan losses, ending balance	$	43,256		$	8,730		$	1,323		$	1,028		$	12,243		$	13,903		$	7,328		$	4,139		$	91,950		Allowance for originated loan losses, ending balance	$	39,838		$	8,813		$	1,752		$	629		$	13,358		$	19,433		$	7,801		$	5,921		$	97,545
Six Months Ended
Allowance for originated loan losses, beginning balance		$	42,981		$	12,265		$	2,810		$	1,081		$	11,935		$	12,900		$	7,740		$	4,772		$	96,484
Charge-offs		(5,435		)	(2,775		)	—			—			(8,660		)	(3,279		)	(2,766		)	(1,393		)	(24,308		)
Recoveries		1,369			34			30			372			5,490			1,870			857			105			10,127
Provision for loan losses		4,341			(794		)	(1,517		)	(425		)	3,478			2,412			1,497			655			9,647
Allowance for originated loan losses, ending balance		$	43,256		$	8,730		$	1,323		$	1,028		$	12,243		$	13,903		$	7,328		$	4,139		$	91,950

Ending allowance for originated loan losses balance attributable to loans:	Ending allowance for originated loan losses balance attributable to loans:																												Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	5,092		$	112		$	9		$	—		$	1,008		$	201		$	361		$	1,019		$	7,802		Individually evaluated for impairment	$	10,042		$	317		$	—		$	—		$	1,005		$	254		$	263		$	1,416		$	13,297
	Collectively evaluated for impairment	38,164			8,618			1,314			1,028			11,235			13,702			6,967			3,120			84,148			Collectively evaluated for impairment	29,796			8,496			1,752			629			12,353			19,179			7,538			4,505			84,248
Total ending allowance for originated loan losses balance	Total ending allowance for originated loan losses balance	$	43,256		$	8,730		$	1,323		$	1,028		$	12,243		$	13,903		$	7,328		$	4,139		$	91,950		Total ending allowance for originated loan losses balance	$	39,838		$	8,813		$	1,752		$	629		$	13,358		$	19,433		$	7,801		$	5,921		$	97,545
Originated loans:	Originated loans:																												Originated loans:
	Originated loans individually evaluated for impairment	$	10,404		$	25,484		$	53		$	—		$	24,394		$	6,956		$	979		$	26,297		$	94,567		Originated loans individually evaluated for impairment	$	35,792		$	15,000		$	—		$	—		$	26,882		$	7,632		$	815		$	24,822		$	110,943
	Originated loans collectively evaluated for impairment	4,847,211			2,072,534			409,813			319,795			2,027,193			991,223			150,988			553,869			11,372,626			Originated loans collectively evaluated for impairment	5,282,105			2,118,017			580,978			388,873			2,473,406			1,126,606			159,951			615,158			12,745,094
Total ending originated loan balance	Total ending originated loan balance	$	4,857,615		$	2,098,018		$	409,866		$	319,795		$	2,051,587		$	998,179		$	151,967		$	580,166		$	11,467,193		Total ending originated loan balance	$	5,317,897		$	2,133,017		$	580,978		$	388,873		$	2,500,288		$	1,134,238		$	160,766		$	639,980		$	12,856,037



As of March 31, 2014
(In thousands)
Originated Loans		C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Three Months Ended
Allowance for originated loan losses, beginning balance		$	42,981		$	12,265		$	2,810		$	1,081		$	11,935		$	12,900		$	7,740		$	4,772		$	96,484
Charge-offs		(5,074		)	(79		)	—			—			(4,584		)	(1,409		)	(1,455		)	(559		)	(13,160		)
Recoveries		997			4			28			—			2,749			904			418			38			5,138
Provision for loan losses		1,271			1,195			(1,368		)	(54		)	1,504			765			148			193			3,654
Allowance for originated loan losses, ending balance		$	40,175		$	13,385		$	1,470		$	1,027		$	11,604		$	13,160		$	6,851		$	4,444		$	92,116
Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	2,866		$	2,918		$	—		$	—		$	1,006		$	223		$	307		$	1,241		$	8,561
	Collectively evaluated for impairment	37,309			10,467			1,470			1,027			10,598			12,937			6,544			3,203			83,555
Total ending allowance for originated loan losses balance		$	40,175		$	13,385		$	1,470		$	1,027		$	11,604		$	13,160		$	6,851		$	4,444		$	92,116
Originated loans:
	Originated loans individually evaluated for impairment	$	7,143		$	31,576		$	404		$	—		$	25,818		$	6,931		$	1,034		$	26,198		$	99,104
	Originated loans collectively evaluated for impairment	4,469,013			2,215,709			359,347			257,509			1,809,704			939,871			146,883			529,773			10,727,809
Total ending originated loan balance		$	4,476,156		$	2,247,285		$	359,751		$	257,509		$	1,835,522		$	946,802		$	147,917		$	555,971		$	10,826,913

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As of June 30, 2013
Originated Loans C&I CRE Construction Leases Installment Home Equity Lines Credit Cards Residential Mortgages Total
Three Months Ended
Allowance for originated loan losses, beginning balance $ 40,427
$ 18,399
$ 2,741
$ 1,129
$ 9,151
$ 14,568
$ 7,069
$ 5,359
$ 98,843
Charge-offs (2,000 ) (750 ) —
(1,237 ) (3,612 ) (1,497 ) (1,459 ) (414 ) (10,969 )
Recoveries 3,528
203
31
—
2,739
599
469
51
7,620
Provision for loan losses 3,212
(1,029 ) (728 ) 1,017
447
(404 ) 1,209
(573 ) 3,151
Allowance for originated loan losses, ending balance $ 45,167
$ 16,823
$ 2,044
$ 909
$ 8,725
$ 13,266
$ 7,288
$ 4,423
$ 98,645
Six Months Ended
Allowance for originated loan losses, beginning balance $ 36,209
$ 20,126
$ 3,821
$ 639
$ 11,154
$ 13,724
$ 7,384
$ 5,885
$ 98,942
Charge-offs (4,103 ) (803 ) (516 ) (1,237 ) (8,206 ) (3,334 ) (2,862 ) (684 ) (21,745 )
Recoveries 4,583
335
89
89
5,235
1,082
982
94
12,489
Provision for loan losses 8,478
(2,835 ) (1,350 ) 1,418
542
1,794
1,784
(872 ) 8,959
Allowance for originated loan losses, ending balance $ 45,167
$ 16,823
$ 2,044
$ 909
$ 8,725
$ 13,266
$ 7,288
$ 4,423
$ 98,645

Ending allowance for originated loan losses balance attributable to loans:
Individually evaluated for impairment $ 3,169
$ 1,010
$ —
$ —
$ 557
$ 197
$ 255
$ 1,280
$ 6,468
Collectively evaluated for impairment 41,998
15,813
2,044
909
8,168
13,069
7,033
3,143
92,177
Total ending allowance for originated loan losses balance $ 45,167
$ 16,823
$ 2,044
$ 909
$ 8,725
$ 13,266
$ 7,288
$ 4,423
$ 98,645
Originated loans:
Originated loans individually evaluated for impairment $ 9,439
$ 24,400
$ 1,005
$ —
$ 30,140
$ 6,819
$ 1,262
$ 23,221
$ 96,286
Originated loans collectively evaluated for impairment 3,468,751
2,190,457
303,760
188,353
1,466,523
838,232
141,057
439,206
9,036,339
Total ending originated loan balance $ 3,478,190
$ 2,214,857
$ 304,765
$ 188,353
$ 1,496,663
$ 845,051
$ 142,319
$ 462,427
$ 9,132,625

The following table presents the originated ALL and the recorded investment as of December 31, ~~2013~~2014:


As of December 31, 2013
As of December 31, 2014																				As of December 31, 2014
																				(In thousands)
	Originated Loans	C&I		CRE		Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total		Originated Loans	C&I		CRE		Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total
Ending allowance for originated loan losses balance attributable to loans:	Ending allowance for originated loan losses balance attributable to loans:																			Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	3,235	$	229	$	—	$	—	$	1,014	$	223	$	312	$	1,133	$	6,146	Individually evaluated for impairment	$	72	$	2,914	$	—	$	—	$	1,178	$	207	$	296	$	1,283	$	5,950
	Collectively evaluated for impairment	39,746		12,036		2,810		1,081		10,921		12,677		7,428		3,639		90,338		Collectively evaluated for impairment	37,303		7,578		2,202		674		11,740		19,117		7,670		3,462		89,746
Total ending allowance for originated loan losses balance	Total ending allowance for originated loan losses balance	$	42,981	$	12,265	$	2,810	$	1,081	$	11,935	$	12,900	$	7,740	$	4,772	$	96,484	Total ending allowance for originated loan losses balance	$	37,375	$	10,492	$	2,202	$	674	$	12,918	$	19,324	$	7,966	$	4,745	$	95,696
Originated loans:	Originated loans:																			Originated loans:
	Loans individually evaluated for impairment	$	8,053	$	20,616	$	906	$	—	$	27,285	$	6,726	$	1,112	$	23,066	$	87,764	Loans individually evaluated for impairment	$	11,759	$	23,300	$	—	$	—	$	24,905	$	7,379	$	854	$	25,251	$	93,448
	Loans collectively evaluated for impairment	4,131,514		2,149,171		338,019		239,551		1,700,640		913,340		147,201		506,187		10,125,623		Loans collectively evaluated for impairment	5,163,442		2,093,818		537,766		370,179		2,368,546		1,102,957		163,624		600,032		12,400,364
Total ending originated loan balance	Total ending originated loan balance	$	4,139,567	$	2,169,787	$	338,925	$	239,551	$	1,727,925	$	920,066	$	148,313	$	529,253	$	10,213,387	Total ending originated loan balance	$	5,175,201	$	2,117,118	$	537,766	$	370,179	$	2,393,451	$	1,110,336	$	164,478	$	625,283	$	12,493,812

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

Allowance for Acquired Loan Losses

~~In accordance with the acquisition method of accounting, the~~The Citizens' loans were recorded at their fair value as of the Acquisition Date and the prior ALL was eliminated. An ALL for acquired nonimpaired loans is estimated using a methodology similar to that used for originated ~~loans, that~~loans. The allowance determined for each acquired nonimpaired loan is based on a specific reserve analysis for loans individually evaluated for impairment and based on historical loss rates for loans collectively evaluated for impairment. If the computed ALL is greater thancompared to the remaining fair value ~~discount,~~adjustment for that loan. If the computed allowance is greater, the excess is added to the ~~ALL~~allowance through a provision for loan losses. If the computed ~~ALL~~allowance is less, no additional ~~ALL~~allowance is recognized. As of ~~June 30, 2014~~March 31, 2015, the computed ALL was less than the remaining fair value ~~discount,~~discount; therefore, no ALL for acquired nonimpaired loans was ~~required.~~recorded.

Charge-offs and actual losses on an acquired nonimpaired loan first reduce any remaining fair value discount for that loan. Once a loan's discount is depleted, charge-offs and actual losses are applied against the acquired ALL. During the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015, provision for loan losses, equal to net charge-offs, of ~~$3.8~~$2.2 million ~~and $9.4 million, respectively, were~~was recorded. Charge-offs on acquired nonimpaired loans were mainly related to consumer loans that were written off in accordance with the Corporation's credit policies based on a predetermined number of days past due.

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The following table presents activity in the allowance for acquired impaired loan losses for the three ~~and six~~ months ended ~~June 30,~~ March 31, 2015 and 2014~~. There was no allowance for acquired impaired loans as of~~ ~~June 30, 2013~~.:


Allowance for Acquired Impaired Loan Losses	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended March 31,
(In thousands)	2014				2015		2014
Balance at beginning of the period	$	2,974	$	741	$	7,457	$	741
Charge-offs	—		—		—		—
Recoveries	—		—		—		—
Provision for loan losses	2,003		4,236		36		2,233
Balance at end of the period	$	4,977	$	4,977	$	7,493	$	2,974

Allowance for ~~Covered~~FDIC Acquired Loan Losses

The ALL on ~~covered~~FDIC acquired nonimpaired loans is estimated similar to acquired loans as described above except any increase to the ALL and provision for loan losses is partially offset by an increase in the loss share receivable for the portion of the losses recoverable under the loss sharing agreements with the FDIC. Additionally, the Corporation elected to account for all covered loans as impaired except for those loans acquired with revolving privileges, which are outside the scope of impaired loan accounting, and, therefore, are accounted

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

~~for as covered nonimpaired loans.~~ As of ~~June 30, 2014~~March 31, 2015, the computed ALL was less than the remaining fair value discount, therefore, no ALL for ~~covered~~FDIC acquired nonimpaired loans was recorded.

The following table presents activity in the allowance for ~~covered~~FDIC acquired impaired loan losses for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014:

Allowance for Covered Impaired Loan Losses Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2014 2013 2014 2013
Balance at beginning of the period $ 49,970
$ 47,945
$ 44,027
$ 43,255
Net provision/(recapture) of loan losses before benefit attributable to FDIC loss share agreements (451 ) 6,477
7,428
16,154
Net (benefit)/recapture attributable to FDIC loss share agreements 3,897
(2,319 ) (927 ) (7,858 )
Net provision for loan losses 3,446
4,158
6,501
8,296
Increase (decrease) in loss share receivable (3,897 ) 2,319
927
7,858
Loans charged-off (4,410 ) (5,353 ) (6,346 ) (10,340 )
Balance at end of the period $ 45,109
$ 49,069
$ 45,109
$ 49,069

~~During the three months ended~~ ~~June 30, 2014~~, $0.5 million of previously recognized losses on covered impaired loans were recaptured with an offsetting decrease of $3.9 million in the loss share receivable. This net provision of $3.4 million compares to $4.2 million in the three months ended ~~June 30, 2013. During the six months ended~~ ~~June 30, 2014~~, ~~$7.4 million~~ ~~of provision on covered impaired loans was recognized with an offsetting increase of $0.9 million in the loss share receivable. This net provision of~~ ~~$6.5 million~~ ~~compares to~~ ~~$8.3 million~~ ~~in the six months ended~~ ~~June 30, 2013~~.



Allowance for FDIC acquired Impaired Loan Losses		Three Months Ended March 31,
(In thousands)		2015			2014
Balance at beginning of the period		$	40,496		$	44,027
	Net provision/(recapture) of loan losses before benefit attributable to FDIC loss share agreements	4,225			7,879
	Net (benefit)/recapture attributable to FDIC loss share agreements	(4,227		)	(4,824		)
Net provision/(recapture) for loan losses		(2		)	3,055
Increase (decrease) in loss share receivable		4,227			4,824
Loans charged-off		(3,207		)	(1,936		)
Balance at end of the period		$	41,514		$	49,970

An acquired or ~~covered~~FDIC acquired loan may be resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party, or foreclosure of the collateral. In the period of resolution of a nonimpaired loan, any remaining unamortized fair value adjustment is recognized as interest income. In the period of resolution of an impaired loan accounted for on an individual basis, the difference between the carrying amount of the loan and the proceeds received is recognized as a gain or loss within noninterest income. The majority of impaired loans are accounted for within a pool of loans which results in any difference between the proceeds received and the loan carrying amount being deferred as part of the carrying amount of the pool. The accretable amount of the pool remains unaffected from the resolution until the subsequent quarterly cash flow re-estimation. Favorable results from removal of the resolved loan from the pool increase the future accretable yield of the pool, while unfavorable results are recorded as impairment in the quarter of the cash flow re-estimation. Acquired or ~~covered~~FDIC acquired impaired loans subject to modification are not removed from a pool even if those loans would otherwise be deemed TDRs as the pool, and not the individual loan, represents the unit of account.

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Credit Quality

Interest income recognized on impaired loans was ~~$20.0 thousand and~~ ~~$123.0 thousand~~ ~~for the three months and six months ended~~ ~~June 30, 2014, respectively, compared to $79.0 thousand and $165.0~~$118.0 thousand for the three months ~~and six~~ended March 31, 2015, compared to $103.0 thousand for the three months ended ~~June 30, 2013~~March 31, 2014~~, respectively.~~. Interest income which would have been earned in accordance with the original terms was ~~$0.5 million and $1.3~~$0.9 million for the three months ~~and six months~~ ended ~~June 30, 2014~~March 31, 2015, ~~respectively,~~ compared to ~~$1.1 million and $1.8~~$0.8 million for the three months ~~and six months~~ ended ~~June 30, 2013~~March 31, 2014~~, respectively.~~.

Loan impairment is measured based on either the present value of expected future cash flows discounted at the loan's effective interest rate, at the observable market price of the loan, or the fair value of the collateral for certain collateral dependent loans. Impaired loans include all nonaccrual commercial, agricultural, construction, and commercial real estate loans, and loans modified as a TDR, regardless of nonperforming status. Acquired and ~~covered~~FDIC acquired impaired loans are not considered or reported as impaired loans. Nonimpaired acquired loans that are subsequently placed on nonaccrual status are reported as impaired loans and included in the ~~tables~~Troubled Debt Restructurings section below. Acquired loans restructured after acquisition are not considered or reported as TDRs if the loans evidenced credit deterioration as of the date of acquisition and are accounted for in pools.

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The following tables provide further detail on impaired loans individually evaluated for impairment and the associated ALL. Certain impaired loans do not have a related ALL as the valuation of these impaired loans exceeded the recorded investment.


As of June 30, 2014
As of March 31, 2015										As of March 31, 2015
Originated Loans	Originated Loans			Unpaid				Average		Originated Loans			Unpaid				Average
		Recorded		Principal		Related		Recorded			Recorded		Principal		Related		Recorded
(In thousands)	(In thousands)	Investment		Balance		Allowance		Investment		(In thousands)	Investment		Balance		Allowance		Investment
Impaired loans with no related allowance	Impaired loans with no related allowance									Impaired loans with no related allowance
Commercial	Commercial									Commercial
	C&I	$	2,538	$	4,980	$	—	$	3,543	C&I	$	28,513	$	35,307	$	—	$	25,006
	CRE	20,635		26,026		—		22,249		CRE	9,343		15,478		—		9,634
	Construction	53		76		—		256		Construction	—		—		—		—
Consumer	Consumer									Consumer
	Installment	4,510		4,620		—		4,636		Installment	1,846		2,428		—		1,881
	Home equity line	1,041		1,047		—		1,067		Home equity line	977		1,222		—		987
	Credit card	34		34		—		48		Credit card	21		21		—		23
	Residential mortgages	12,729		15,748		—		12,828		Residential mortgages	12,424		15,125		—		12,488
Subtotal	Subtotal	41,540		52,531		—		44,627		Subtotal	53,124		69,581		—		50,019
Impaired loans with a related allowance	Impaired loans with a related allowance									Impaired loans with a related allowance
Commercial	Commercial									Commercial
	C&I	7,866		11,562		5,092		8,071		C&I	7,279		7,350		10,042		5,984
	CRE	4,849		4,851		112		829		CRE	5,657		5,664		317		5,668
	Construction	—		—		9		—		Construction	—		—		—		—
Consumer	Consumer									Consumer
	Installment	19,884		20,673		1,008		20,498		Installment	25,036		25,100		1,005		24,181
	Home equity line	5,915		6,145		201		5,995		Home equity line	6,655		6,655		254		6,715
	Credit card	945		945		361		1,019		Credit card	794		794		263		823
	Residential mortgages	13,568		13,678		1,019		13,612		Residential mortgages	12,398		12,487		1,416		12,414
Subtotal	Subtotal	53,027		57,854		7,802		50,024		Subtotal	57,819		58,050		13,297		55,785
	Total impaired loans	$	94,567	$	110,385	$	7,802	$	94,651	Total impaired loans	$	110,943	$	127,631	$	13,297	$	105,804

Note 1: These tables exclude loans fully charged off.

Note 2: The differences between the recorded investment and unpaid principal balance amounts ~~represents~~represent partial charge offs.

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As of December 31, 2013
As of December 31, 2014											As of December 31, 2014
Originated Loans	Originated Loans			Unpaid					Average		Originated Loans			Unpaid				Average
		Recorded		Principal		Related			Recorded			Recorded		Principal		Related		Recorded
(In thousands)	(In thousands)	Investment		Balance		Allowance			Investment		(In thousands)	Investment		Balance		Allowance		Investment
Impaired loans with no related allowance	Impaired loans with no related allowance										Impaired loans with no related allowance
Commercial	Commercial										Commercial
	C&I	$	2,503	$	6,679	$	—		$	7,256	C&I	$	11,451	$	18,207	$	—	$	14,193
	CRE	17,871		23,709		—			18,639		CRE	16,874		22,696		—		18,027
	Construction	906		1,179		—			1,035		Construction	—		—		—		—
Consumer	Consumer										Consumer
	Installment	2,813		3,978		—			3,338		Installment	4,460		4,584		—		4,272
	Home equity line	1,018		1,347		—		��	1,079		Home equity line	1,723		1,754		—		1,792
	Credit card	49		49		—			91		Credit card	16		16		—		32
	Residential mortgages	10,250		12,778		—			10,258		Residential mortgages	12,204		15,119		—		12,425
Subtotal	Subtotal	35,410		49,719		—			41,696		Subtotal	46,728		62,376		—		50,741
Impaired loans with a related allowance	Impaired loans with a related allowance										Impaired loans with a related allowance
Commercial	Commercial										Commercial
	C&I	5,551		7,428		3,235			5,009		C&I	308		344		72		326
	CRE	2,744		2,870		229			2,836		CRE	6,426		6,440		2,914		4,497
	Construction	—		—		—			—		Construction	—		—		—		—
Consumer	Consumer										Consumer
	Installment	24,472		24,558		1,014			24,985		Installment	20,445		21,024		1,178		19,513
	Home equity line	5,707		5,707		223			5,874		Home equity line	5,656		5,875		207		5,944
	Credit card	1,064		1,064		312			1,238		Credit card	838		838		296		966
	Residential mortgages	12,816		12,898		1,133			12,064		Residential mortgages	13,047		13,158		1,283		13,121
Subtotal	Subtotal	52,354		54,525		6,146			52,006		Subtotal	46,720		47,679		5,950		44,367
	Total impaired loans	$	87,764	$	104,244	$	6,146		$	93,702	Total impaired loans	$	93,448	$	110,055	$	5,950	$	95,108

Note 1: These tables exclude loans fully charged off.

Note 2: The differences between the recorded investment and unpaid principal balance amounts ~~represents~~represent partial charge offs.

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As of June 30, 2013
As of March 31, 2014										As of March 31, 2014
Originated Loans	Originated Loans			Unpaid				Average		Originated Loans			Unpaid				Average
		Recorded		Principal		Related		Recorded			Recorded		Principal		Related		Recorded
(In thousands)	(In thousands)	Investment		Balance		Allowance		Investment		(In thousands)	Investment		Balance		Allowance		Investment
Impaired loans with no related allowance	Impaired loans with no related allowance									Impaired loans with no related allowance
Commercial	Commercial									Commercial
	C&I	$	1,031	$	3,423	$	—	$	3,075	C&I	$	2,776	$	5,078	$	—	$	4,690
	CRE	17,021		23,892		—		19,143		CRE	21,777		20,050		—		20,196
	Construction	1,005		1,282		—		2,294		Construction	404		2,777		—		2,943
Consumer	Consumer									Consumer
	Installment	3,464		4,882		—		3,838		Installment	2,498		3,502		—		2,579
	Home equity line	1,158		1,481		—		1,217		Home equity line	997		1,309		—		1,004
	Credit card	57		57		—		76		Credit card	42		42		—		50
	Residential mortgages	10,682		13,294		—		10,934		Residential mortgages	12,137		14,845		—		12,201
Subtotal	Subtotal	34,418		48,311		—		40,577		Subtotal	40,631		47,603		—		43,663
Impaired loans with a related allowance	Impaired loans with a related allowance									Impaired loans with a related allowance
Commercial	Commercial									Commercial
	C&I	8,408		11,553		3,169		10,469		C&I	4,367		9,022		2,866		7,406
	CRE	7,379		7,416		1,010		7,558		CRE	9,799		9,878		2,918		9,864
	Construction	—		—		—		—		Construction	—		—		—		—
Consumer	Consumer									Consumer
	Installment	26,676		26,772		557		27,032		Installment	23,320		23,409		1,006		23,548
	Home equity line	5,661		5,661		197		5,784		Home equity line	5,934		5,934		223		5,891
	Credit card	1,205		1,205		255		1,310		Credit card	992		992		307		1,025
	Residential mortgages	12,539		12,611		1,280		12,578		Residential mortgages	14,061		14,161		1,241		14,067
Subtotal	Subtotal	61,868		65,218		6,468		64,731		Subtotal	58,473		63,396		8,561		61,801
	Total impaired loans	$	96,286	$	113,529	$	6,468	$	105,308	Total impaired loans	$	99,104	$	110,999	$	8,561	$	105,464

Note 1: These tables exclude loans fully charged off.

Note 2: The differences between the recorded investment and unpaid principal balance amounts ~~represents~~represent partial charge offs.

Troubled Debt Restructurings

In certain circumstances, the Corporation may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or modification of the adjustable rate provisions of the loan that would otherwise not be considered; however, forgiveness of principal is rarely granted. Concessionary modifications are classified as TDRs unless the modification is short-term, typically less than 90 days. TDRs accrue interest if the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms for a minimum of six consecutive payment cycles after the restructuring date. Acquired loans restructured after acquisition are not considered TDRs if the loans evidenced credit deterioration as of the Acquisition Date and are accounted for in pools.

The substantial majority of the Corporation's residential mortgage TDRs involve reducing the client's loan payment through an interest rate reduction for a set period of time based on the borrower's ability to service the modified loan payment. Modifications of mortgages retained in portfolio are handled using

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proprietary modification guidelines, or the FDIC's Modification Program for residential first mortgages covered by loss share agreements (agreements between the Bank and the FDIC that afford the Bank significant protection against future losses). The Corporation participates in the U.S. Treasury's Home Affordable Modification Program for originated mortgages sold to and serviced for FNMA and FHLMC.

Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial real estate and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. The Corporation has modified certain loans according to provisions in loss share agreements. Losses associated with modifications on these loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under the loss share agreements.

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The following tables provide the number of loans modified in a TDR and the recorded investment and unpaid principal balance by loan portfolio as of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014.


			As of June 30, 2014							As of March 31, 2015
(Dollars in thousands)	(Dollars in thousands)		Number of Loans	Recorded Investment		Unpaid Principal Balance		(Dollars in thousands)		Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans	Originated loans							Originated loans
	Commercial							Commercial
		C&I	41	$	7,062	$	13,200		C&I	47	$	16,923	$	23,666
		CRE	60	21,407		25,567			CRE	64	12,076		17,325
		Construction	31	53		76			Construction	31	—		—
		Total originated commercial	132	28,522		38,843			Total originated commercial	142	28,999		40,991
	Consumer							Consumer
		Installment	1,350	24,394		25,293			Installment	1,186	26,882		27,528
		Home equity lines	260	6,956		7,192			Home equity lines	276	7,632		7,877
		Credit card	253	979		979			Credit card	230	815		815
		Residential mortgages	326	26,297		29,426			Residential mortgages	316	24,822		27,612
		Total originated consumer	2,189	58,626		62,890			Total originated consumer	2,008	60,151		63,832
Total originated loans	Total originated loans		2,321	$	87,148	$	101,733	Total originated loans		2,150	$	89,150	$	104,823
Acquired loans	Acquired loans							Acquired loans
	Commercial							Commercial
		C&I	1	$	4	$	4		C&I	1	$	2	$	3
		CRE	1	1,661		1,661			CRE	3	2,453		2,635
		Total acquired commercial	2	1,665		1,665			Total acquired commercial	4	2,455		2,638
	Consumer							Consumer
		Installment	30	979		1,032			Installment	51	1,195		1,281
		Home equity lines	90	4,710		4,750			Home equity lines	162	7,310		7,370
		Residential mortgages	21	1,461		1,635			Residential mortgages	30	2,186		2,403
		Total acquired consumer	141	7,150		7,417			Total acquired consumer	243	10,691		11,054
Total acquired loans	Total acquired loans		143	$	8,815	$	9,082	Total acquired loans		247	$	13,146	$	13,692
Covered loans
FDIC acquired loans								FDIC acquired loans
	Commercial							Commercial
		C&I	6	$	177	$	1,070		C&I	8	$	—	$	1,355
		CRE	24	37,385		54,480			CRE	24	23,895		39,596
		Construction	10	2,605		21,331			Construction	9	346		9,552
		Total covered commercial	40	40,167		76,881			Total FDIC acquired commercial	41	24,241		50,503
	Consumer							Consumer
		Home equity lines	62	8,489		8,489			Home equity lines	70	8,909		8,914
		Residential mortgages	2	337		337			Residential mortgages	1	185		185
		Total covered consumer	64	8,826		8,826			Total FDIC acquired consumer	71	9,094		9,099
Total covered loans			104	$	48,993	$	85,707
Total FDIC acquired loans								Total FDIC acquired loans		112	$	33,335	$	59,602
Total loans	Total loans							Total loans
	Commercial							Commercial
		C&I	48	$	7,243	$	14,274		C&I	56	$	16,925	$	25,024
		CRE	85	60,453		81,708			CRE	91	38,424		59,556
		Construction	41	2,658		21,407			Construction	40	346		9,552
		Total commercial	174	70,354		117,389			Total commercial	187	55,695		94,132
	Consumer							Consumer
		Installment	1,380	25,373		26,325			Installment	1,237	28,077		28,809
		Home equity lines	412	20,155		20,431			Home equity lines	508	23,851		24,161
		Credit card	253	979		979			Credit card	230	815		815
		Residential mortgages	349	28,095		31,398			Residential mortgages	347	27,193		30,200
		Total consumer	2,394	74,602		79,133			Total consumer	2,322	79,936		83,985
Total loans	Total loans		2,568	$	144,956	$	196,522	Total loans		2,509	$	135,631	$	178,117

Note 1: The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES


			As of December 31, 2013							As of December 31, 2014
(Dollars in thousands)	(Dollars in thousands)		Number of Loans	Recorded Investment		Unpaid Principal Balance		(Dollars in thousands)		Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans	Originated loans							Originated loans
	Commercial							Commercial
		C&I	35	$	4,449	$	7,660		C&I	41	$	7,123	$	13,887
		CRE	52	15,932		20,569			CRE	67	17,607		22,645
		Construction	30	905		1,179			Construction	31	—		—
		Total originated commercial	117	21,286		29,408			Total originated commercial	139	24,730		36,532
	Consumer							Consumer
		Installment	1,553	27,285		28,536			Installment	1,205	24,905		25,608
		Home equity lines	231	6,725		7,054			Home equity lines	270	7,379		7,629
		Credit card	307	1,113		1,113			Credit card	238	854		854
		Residential mortgages	301	23,067		25,676			Residential mortgages	315	25,251		28,277
		Total originated consumer	2,392	58,190		62,379			Total originated consumer	2,028	58,389		62,368
Total originated loans	Total originated loans		2,509	$	79,476	$	91,787	Total originated loans		2,167	$	83,119	$	98,900
Acquired loans	Acquired loans							Acquired loans
	Commercial							Commercial
		C&I	1	6		5			C&I	2	18		19
		CRE	1	1,730		1,730			CRE	3	2,542		2,595
		Total acquired commercial	2	1,736		1,735			Total acquired commercial	5	2,560		2,614
	Consumer							Consumer
		Installment	12	505		542			Installment	40	975		1,054
		Home equity lines	8	245		270			Home equity lines	145	6,932		6,983
		Residential mortgages	7	431		502			Residential mortgages	26	1,633		1,823
		Total acquired consumer	27	1,181		1,314			Total acquired consumer	211	9,540		9,860
Total acquired loans	Total acquired loans		29	$	2,917	$	3,049	Total acquired loans		216	$	12,100	$	12,474
Covered loans
FDIC acquired loans								FDIC acquired loans
	Commercial							Commercial
		C&I	4	$	1,104	$	2,331		C&I	8	$	177	$	1,589
		CRE	24	39,995		57,008			CRE	24	25,499		42,226
		Construction	10	4,144		24,547			Construction	9	339		9,552
		Total covered commercial	38	45,243		83,886			Total FDIC acquired commercial	41	26,015		53,367
	Consumer							Consumer
		Home equity lines	47	5,401		5,421			Home equity lines	68	8,890		8,901
		Residential Mortgages	1	150		150			Residential Mortgages	2	334		334
		Total covered consumer	48	5,551		5,571			Total FDIC acquired consumer	70	9,224		9,235
Total covered loans			86	$	50,794	$	89,457
Total FDIC acquired loans								Total FDIC acquired loans		111	$	35,239	$	62,602
Total loans	Total loans							Total loans
	Commercial							Commercial
		C&I	40	$	5,559	$	9,996		C&I	51	$	7,318	$	15,495
		CRE	77	57,657		79,307			CRE	94	45,648		67,466
		Construction	40	5,049		25,726			Construction	40	339		9,552
		Total commercial	157	68,265		115,029			Total commercial	185	53,305		92,513
	Consumer							Consumer
		Installment	1,565	27,790		29,078			Installment	1,245	25,880		26,662
		Home equity lines	286	12,371		12,745			Home equity lines	483	23,201		23,513
		Credit card	307	1,113		1,113			Credit card	238	854		854
		Residential mortgages	309	23,648		26,328			Residential mortgages	343	27,218		30,434
		Total consumer	2,467	64,922		69,264			Total consumer	2,309	77,153		81,463
Total loans	Total loans		2,624	$	133,187	$	184,293	Total loans		2,494	$	130,458	$	173,976

Note 1: The differences between the recorded investment and unpaid principal balance amounts ~~represents~~represent partial charge offs.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES


			As of June 30, 2013							As of March 31, 2014
(Dollars in thousands)	(Dollars in thousands)		Number of Loans	Recorded Investment		Unpaid Principal Balance		(Dollars in thousands)		Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans	Originated loans							Originated loans
	Commercial							Commercial
		C&I	31	$	7,806	$	11,489		C&I	40	$	5,588	$	12,546
		CRE	47	17,361		21,742			CRE	57	16,432		17,079
		Construction	31	1,005		1,282			Construction	32	2,769		2,777
		Total originated commercial	109	26,172		34,513			Total originated commercial	129	24,789		32,402
	Consumer							Consumer
		Installment	1,757	30,140		31,654			Installment	1,434	25,818		26,911
		Home equity lines	239	6,819		7,142			Home equity lines	244	6,931		7,243
		Credit card	329	1,262		1,262			Credit card	278	1,034		1,034
		Residential mortgages	293	23,221		25,905			Residential mortgages	320	26,199		29,006
		Total originated consumer	2,618	61,442		65,963			Total originated consumer	2,276	59,982		64,194
Total originated loans	Total originated loans		2,727	$	87,614	$	100,476	Total originated loans		2,405	$	84,771	$	96,596
Covered loans
Acquired loans								Acquired loans
	Commercial							Commercial
		C&I	3	$	1,635	$	1,880		C&I	1	5		5
		CRE	21	46,314		57,021			CRE	1	1,695		1,687
		Construction	10	6,082		26,155			Total acquired commercial	2	1,700		1,692
		Total covered commercial	34	54,031		85,056		Consumer
	Consumer								Installment	23	797		828
		Home equity lines	42	5,562		5,590			Home equity lines	40	1,926		1,953
Total covered loans			76	$	59,593	$	90,646
									Residential mortgages	11	758		864
									Total acquired consumer	74	3,481		3,645
Total acquired loans								Total acquired loans		76	$	5,181	$	5,337
FDIC acquired loans								FDIC acquired loans
								Commercial
									C&I	4	$	677	$	2,232
									CRE	25	39,939		56,485
									Construction	10	2,560		21,340
									Total FDIC acquired commercial	39	43,176		80,057
								Consumer
									Home equity lines	52	6,269		6,269
									Residential mortgages	2	339		339
									Total FDIC acquired consumer	54	6,608		6,608
Total FDIC acquired loans								Total FDIC acquired loans		93	$	49,784	$	86,665
Total loans	Total loans							Total loans
	Commercial							Commercial
		C&I	34	$	9,441	$	13,369		C&I	45	$	6,270	$	14,783
		CRE	68	63,675		78,763			CRE	83	58,066		75,251
		Construction	41	7,087		27,437			Construction	42	5,329		24,117
		Total commercial	143	80,203		119,569			Total commercial	170	69,665		114,151
	Consumer							Consumer
		Installment	1,757	30,140		31,654			Installment	1,457	26,615		27,739
		Home equity lines	281	12,381		12,732			Home equity lines	336	15,126		15,465
		Credit card	329	1,262		1,262			Credit card	278	1,034		1,034
		Residential mortgages	293	23,221		25,905			Residential mortgages	333	27,296		30,209
		Total consumer	2,660	67,004		71,553			Total consumer	2,404	70,071		74,447
Total loans	Total loans		2,803	$	147,207	$	191,122	Total loans		2,574	$	139,736	$	188,598

Note 1: The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014 were not materially different. Post-modification balances may include capitalization of unpaid accrued interest and fees associated with the modification as well as forgiveness of principal. Loans modified as TDRs during the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014 did not involve the forgiveness of ~~principal,~~principal; accordingly, the Corporation did not record a charge-off at the modification date. Additionally, capitalization of any unpaid accrued interest and fees assessed to loans modified in the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014 were not material to the accompanying consolidated financial statements. Specific allowances for loan losses are established for loans whose terms have been modified in a TDR. Specific reserve allocations are generally assessed prior to loans being modified in a TDR, as most of these loans migrate from the Corporation's internal watch list and have been specifically allocated for as part of the Corporation's normal loan loss

~~Table of Contents~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~ - ~~Continued~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

provisioning methodology. At ~~June 30, 2014~~March 31, 2015, December 31, 2014, and March 31, 2014, the Corporation had $~~1.6~~6.1 million, $0.2 million, and $0.4 million, respectively, in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

The following tables provide a summary of the delinquency status of TDRs along with the specific allowance for loan loss, by loan type, as of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014, including TDRs that continue to accrue interest and TDRs included in nonperforming assets.


As of June 30, 2014
As of March 31, 2015																	As of March 31, 2015
	Accruing TDRs						Nonaccruing TDRs						Total		Total		Accruing TDRs						Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance		Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	1,659	$	—	$	1,659	$	3,375	$	2,028	$	5,403	$	7,062	$	2,443	$	16,558	$	—	$	16,558	$	—	$	365	$	365	$	16,923	$	124
CRE	15,387		1,529		16,916		1,419		3,072		4,491		21,407		93		6,031		1,493		7,524		3,724		828		4,552		12,076		71
Construction	—		—		—		53		—		53		53		9		—		—		—		—		—		—		—		—
Total originated commercial	17,046		1,529		18,575		4,847		5,100		9,947		28,522		2,545		22,589		1,493		24,082		3,724		1,193		4,917		28,999		195
Consumer
Installment	21,404		694		22,098		2,074		222		2,296		24,394		1,008		24,701		409		25,110		1,528		244		1,772		26,882		1,005
Home equity lines	5,767		188		5,955		1,001		—		1,001		6,956		201		6,680		113		6,793		811		28		839		7,632		254
Credit card	857		86		943		—		36		36		979		361		721		77		798		—		17		17		815		263
Residential mortgages	15,256		2,349		17,605		5,335		3,357		8,692		26,297		1,019		14,299		2,286		16,585		5,020		3,217		8,237		24,822		1,416
Total originated consumer	43,284		3,317		46,601		8,410		3,615		12,025		58,626		2,589		46,401		2,885		49,286		7,359		3,506		10,865		60,151		2,938
Total originated TDRs	$	60,330	$	4,846	$	65,176	$	13,257	$	8,715	$	21,972	$	87,148	$	5,134	$	68,990	$	4,378	$	73,368	$	11,083	$	4,699	$	15,782	$	89,150	$	3,133
Acquired loans
Commercial
C&I	—		—		—		4		—		4		4		4		—		—		—		2		—		2		2		2
CRE	1,661		—		1,661		—		—		—		1,661		182		—		—		—		954		1,499		2,453		2,453		135
Total acquired commercial	1,661		—		1,661		4		—		4		1,665		186		—		—		—		956		1,499		2,455		2,455		137
Consumer
Installment	702		250		952		27		—		27		979		14		1,139		33		1,172		23		—		23		1,195		48
Home equity lines	4,026		576		4,602		108		—		108		4,710		—		6,610		564		7,174		136		—		136		7,310		—
Residential mortgages	670		—		670		764		27		791		1,461		—		1,335		—		1,335		616		235		851		2,186		—
Total acquired consumer	5,398		826		6,224		899		27		926		7,150		14		9,084		597		9,681		775		235		1,010		10,691		48
Total acquired TDRs	$	7,059	$	826	$	7,885	$	903	$	27	$	930	$	8,815	$	200	$	9,084	$	597	$	9,681	$	1,731	$	1,734	$	3,465	$	13,146	$	185
Covered loans
FDIC acquired loans
Commercial
C&I	$	—	$	177	$	177	$	—	$	—	$	—	$	177	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
CRE	4,909		32,476		37,385		—		—		—		37,385		1,129		—		23,895		23,895		—		—		—		23,895		2,026
Construction	666		1,939		2,605		—		—		—		2,605		68		—		346		346		—		—		—		346		293
Total covered commercial	5,575		34,592		40,167		—		—		—		40,167		1,197
Total FDIC acquired commercial																	—		24,241		24,241		—		—		—		24,241		2,319
Consumer
Home equity lines	8,038		115		8,153		336		—		336		8,489		—		7,703		939		8,642		267		—		267		8,909		24
Residential mortgages	337		—		337		—		—		—		337		—		185		—		185		—		—		—		185		—
Total covered consumer	8,375		115		8,490		336		—		336		8,826		—
Total covered TDRs	$	13,950	$	34,707	$	48,657	$	336	$	—	$	336	$	48,993	$	1,197
Total FDIC acquired consumer																	7,888		939		8,827		267		—		267		9,094		24
Total FDIC acquired TDRs																	$	7,888	$	25,180	$	33,068	$	267	$	—	$	267	$	33,335	$	2,343
Total loans
Commercial
C&I	$	1,659	$	177	$	1,836	$	3,379	$	2,028	$	5,407	$	7,243	$	2,447	$	16,558	$	—	$	16,558	$	2	$	365	$	367	$	16,925	$	126
CRE	21,957		34,005		55,962		1,419		3,072		4,491		60,453		1,404		6,031		25,388		31,419		4,678		2,327		7,005		38,424		2,232
Construction	666		1,939		2,605		53		—		53		2,658		77		—		346		346		—		—		—		346		293
Total commercial	24,282		36,121		60,403		4,851		5,100		9,951		70,354		3,928		22,589		25,734		48,323		4,680		2,692		7,372		55,695		2,651
Consumer
Installment	22,106		944		23,050		2,101		222		2,323		25,373		1,022		25,840		442		26,282		1,551		244		1,795		28,077		1,053
Home equity lines	17,831		879		18,710		1,445		—		1,445		20,155		201		20,993		1,616		22,609		1,214		28		1,242		23,851		278
Credit card	857		86		943		—		36		36		979		361		721		77		798		—		17		17		815		263
Residential mortgages	16,263		2,349		18,612		6,099		3,384		9,483		28,095		1,019		15,819		2,286		18,105		5,636		3,452		9,088		27,193		1,416
Total consumer	57,057		4,258		61,315		9,645		3,642		13,287		74,602		2,603		63,373		4,421		67,794		8,401		3,741		12,142		79,936		3,010
Total TDRs	$	81,339	$	40,379	$	121,718	$	14,496	$	8,742	$	23,238	$	144,956	$	6,531	$	85,962	$	30,155	$	116,117	$	13,081	$	6,433	$	19,514	$	135,631	$	5,661

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FIRSTMERIT CORPORATION AND SUBSIDIARIES


As of December 31, 2013
As of December 31, 2014																	As of December 31, 2014
	Accruing TDRs						Nonaccruing TDRs						Total		Total		Accruing TDRs							Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance		Current		Delinquent		Total			Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	1,438	$	879	$	2,317	$	177	$	1,955	$	2,132	$	4,449	$	665	$	6,740	$	—	$	6,740		$	—	$	383	$	383	$	7,123	$	72
CRE	10,442		382		10,824		1,208		3,900		5,108		15,932		32		12,885		952		13,837			394		3,376		3,770		17,607		159
Construction	848		—		848		—		57		57		905		—		—		—		—			—		—		—		—		—
Total originated commercial	12,728		1,261		13,989		1,385		5,912		7,297		21,286		697		19,625		952		20,577			394		3,759		4,153		24,730		231
Consumer
Installment	23,342		1,238		24,580		2,483		222		2,705		27,285		1,014		22,254		726		22,980			1,663		262		1,925		24,905		1,178
Home equity lines	5,313		194		5,507		1,206		12		1,218		6,725		223		6,239		269		6,508			871		—		871		7,379		207
Credit card	1,046		66		1,112		—		1		1		1,113		312		775		60		835			15		4		19		854		296
Residential mortgages	12,276		3,327		15,603		4,360		3,104		7,464		23,067		1,133		13,440		3,538		16,978			5,006		3,267		8,273		25,251		1,283
Total originated consumer	41,977		4,825		46,802		8,049		3,339		11,388		58,190		2,682		42,708		4,593		47,301			7,555		3,533		11,088		58,389		2,964
Total originated TDRs	$	54,705	$	6,086	$	60,791	$	9,434	$	9,251	$	18,685	$	79,476	$	3,379	$	62,333	$	5,545	$	67,878		$	7,949	$	7,292	$	15,241	$	83,119	$	3,195
Acquired loans
Commercial
C&I	$	—	$	—	$	—	$	6	$	—	$	6	$	6	$	—	$	15	$	—	$	15		$	3	$	—	$	3	$	18	$	18
CRE	1,730		—		1,730		—		—		—		1,730		—		—		—		—			978		1,564		2,542		2,542		134
Total acquired commercial	1,730		—		1,730		6		—		6		1,736		—		15		—		15			981		1,564		2,545		2,560		152
Consumer
Installment	369		136		505		—		—		—		505		—		841		87		928			24		23		47		975		65
Home equity lines	182		—		182		63		—		63		245		—		6,186		607		6,793			139		—		139		6,932		9
Residential mortgages	245		—		245		32		154		186		431		—		868		—		868			470		295		765		1,633		2
Total acquired consumer	796		136		932		95		154		249		1,181		—		7,895		694		8,589			633		318		951		9,540		76
Total acquired TDRs	$	2,526	$	136	$	2,662	$	101	$	154	$	255	$	2,917	$	—	$	7,910	$	694	$	8,604		$	1,614	$	1,882	$	3,496	$	12,100	$	228
Covered loans
FDIC acquired loans
Commercial
C&I	$	362	$	742	$	1,104	$	—	$	—	$	—	$	1,104	$	—	$	—	$	177	$	177		$	—	$	—	$	—	$	177	$	—
CRE	5,259		34,736		39,995		—		—		—		39,995		3,022		5,123		20,376		25,499			—		—		—		25,499		2,879
Construction	698		3,446		4,144		—		—		—		4,144		800		339		—		339		��	—		—		—		339		295
Total covered commercial	6,319		38,924		45,243		—		—		—		45,243		3,822
Total FDIC acquired commercial																	5,462		20,553		26,015			—		—		—		26,015		3,174
Consumer
Home equity lines	5,377		24		5,401		—		—		—		5,401		—		8,561		—		8,561			329		—		329		8,890		27
Residential mortgages	150		—		150		—		—		—		150		—		334		—		334			—		—		—		334		21
Total covered consumer	5,527		24		5,551		—		—		—		5,551		—
Total covered TDRs	$	11,846	$	38,948	$	50,794	$	—	$	—	$	—	$	50,794	$	3,822
Total FDIC acquired consumer																	8,895		—		8,895			329		—		329		9,224		48
Total FDIC acquired TDRs																	$	14,357	$	20,553	$	34,910		$	329	$	—	$	329	$	35,239	$	3,222

Commercial
C&I	$	1,800	$	1,621	$	3,421	$	183	$	1,955	$	2,138	$	5,559	$	665	$	6,755	$	177	$	6,932		$	3	$	383	$	386	$	7,318	$	90
CRE	17,431		35,118		52,549		1,208		3,900		5,108		57,657		3,054		18,008		21,328		39,336			1,372		4,940		6,312		45,648		3,172
Construction	1,546		3,446		4,992		—		57		57		5,049		800		339		—		339			—		—		—		339		295
Total commercial	20,777		40,185		60,962		1,391		5,912		7,303		68,265		4,519		25,102		21,505		46,607			1,375		5,323		6,698		53,305		3,557
Consumer
Installment	23,711		1,374		25,085		2,483		222		2,705		27,790		1,014		23,095		813		23,908			1,687		285		1,972		25,880		1,243
Home equity lines	10,872		218		11,090		1,269		12		1,281		12,371		223		20,986		876		21,862			1,339		—		1,339		23,201		243
Credit card	1,046		66		1,112		—		1		1		1,113		312		775		60		835			15		4		19		854		296
Residential mortgages	12,671		3,327		15,998		4,392		3,258		7,650		23,648		1,133		14,642		3,538		18,180			5,476		3,562		9,038		27,218		1,306
Total consumer	48,300		4,985		53,285		8,144		3,493		11,637		64,922		2,682		59,498		5,287		64,785			8,517		3,851		12,368		77,153		3,088
Total TDRs	$	69,077	$	45,170	$	114,247	$	9,535	$	9,405	$	18,940	$	133,187	$	7,201	$	84,600	$	26,792	$	111,392		$	9,892	$	9,174	$	19,066	$	130,458	$	6,645

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FIRSTMERIT CORPORATION AND SUBSIDIARIES


As of June 30, 2013
As of March 31, 2014																	As of March 31, 2014
	Accruing TDRs						Nonaccruing TDRs						Total		Total		Accruing TDRs						Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance		Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	1,021	$	—	$	1,021	$	6,248	$	537	$	6,785	$	7,806	$	2,569	$	1,779	$	—	$	1,779	$	541	$	3,268	$	3,809	$	5,588	$	2,265
CRE	11,200		—		11,200		1,726		4,435		6,161		17,361		510		9,254		1,884		11,138		2,124		3,170		5,294		16,432		37
Construction	404		537		941		64		—		64		1,005		—		2,363		350		2,713		56		—		56		2,769		—
Total originated commercial	12,625		537		13,162		8,038		4,972		13,010		26,172		3,079		13,396		2,234		15,630		2,721		6,438		9,159		24,789		2,302
Consumer
Installment	25,800		913		26,713		3,227		200		3,427		30,140		557		22,757		480		23,237		2,352		229		2,581		25,818		1,006
Home equity lines	5,321		144		5,465		1,354		—		1,354		6,819		197		5,571		150		5,721		1,210		—		1,210		6,931		223
Credit card	1,222		40		1,262		—		—		—		1,262		255		930		95		1,025		—		9		9		1,034		307
Residential mortgages	13,514		2,147		15,661		4,518		3,042		7,560		23,221		1,280		14,749		2,876		17,625		4,968		3,606		8,574		26,199		1,241
Total originated consumer	45,857		3,244		49,101		9,099		3,242		12,341		61,442		2,289		44,007		3,601		47,608		8,530		3,844		12,374		59,982		2,777
Total originated TDRs	$	58,482	$	3,781	$	62,263	$	17,137	$	8,214	$	25,351	$	87,614	$	5,368	$	57,403	$	5,835	$	63,238	$	11,251	$	10,282	$	21,533	$	84,771	$	5,079
Covered loans
Acquired loans
Commercial
C&I																	$	—	$	—	$	—	$	5	$	—	$	5	$	5	$	—
CRE																	1,695		—		1,695		—		—		—		1,695		—
Total acquired commercial																	1,695		—		1,695		5		—		5		1,700		—
Consumer
Installment																	707		77		784		—		13		13		797		—
Home equity lines																	1,322		494		1,816		110		—		110		1,926		—
Residential mortgages																	758		—		758		—		—		—		758		—
Total acquired consumer																	2,787		571		3,358		110		13		123		3,481		—
Total acquired TDRs																	$	4,482	$	571	$	5,053	$	115	$	13	$	128	$	5,181	$	—
FDIC acquired loans
Commercial
C&I	$	897	$	738	$	1,635	$	—	$	—	$	—	$	1,635	$	518	$	300	$	377	$	677	$	—	$	—	$	—	$	677	$	12
CRE	5,269		41,045		46,314		—		—		—		46,314		3,749		5,035		34,904		39,939		—		—		—		39,939		3,915
Construction	1,542		4,540		6,082		—		—		—		6,082		900		682		1,878		2,560		—		—		—		2,560		68
Total covered commercial	7,708		46,323		54,031		—		—		—		54,031		5,167
Total FDIC acquired commercial																	6,017		37,159		43,176		—		—		—		43,176		3,995
Consumer
Home equity lines	5,065		497		5,562		—		—		—		5,562		—		5,793		140		5,933		336		—		336		6,269		—
Total covered TDRs	$	12,773	$	46,820	$	59,593	$	—	$	—	$	—	$	59,593	$	5,167
Residential mortgages																	339		—		339		—		—		—		339		—
Total FDIC acquired consumer																	6,132		140		6,272		336		—		336		6,608		—
Total FDIC acquired TDRs																	$	12,149	$	37,299	$	49,448	$	336	$	—	$	336	$	49,784	$	3,995
Total loans
Commercial
C&I	$	1,918	$	738	$	2,656	$	6,248	$	537	$	6,785	$	9,441	$	3,087	$	2,079	$	377	$	2,456	$	546	$	3,268	$	3,814	$	6,270	$	2,277
CRE	16,469		41,045		57,514		1,726		4,435		6,161		63,675		4,259		15,984		36,788		52,772		2,124		3,170		5,294		58,066		3,952
Construction	1,946		5,077		7,023		64		—		64		7,087		900		3,045		2,228		5,273		56		—		56		5,329		68
Total commercial	20,333		46,860		67,193		8,038		4,972		13,010		80,203		8,246		21,108		39,393		60,501		2,726		6,438		9,164		69,665		6,297
Consumer
Installment	25,800		913		26,713		3,227		200		3,427		30,140		557		23,464		557		24,021		2,352		242		2,594		26,615		1,006
Home equity lines	10,386		641		11,027		1,354		—		1,354		12,381		197		12,686		784		13,470		1,656		—		1,656		15,126		223
Credit card	1,222		40		1,262		—		—		—		1,262		255		930		95		1,025		—		9		9		1,034		307
Residential mortgages	13,514		2,147		15,661		4,518		3,042		7,560		23,221		1,280		15,846		2,876		18,722		4,968		3,606		8,574		27,296		1,241
Total consumer	50,922		3,741		54,663		9,099		3,242		12,341		67,004		2,289		52,926		4,312		57,238		8,976		3,857		12,833		70,071		2,777
Total TDRs	$	71,255	$	50,601	$	121,856	$	17,137	$	8,214	$	25,351	$	147,207	$	10,535	$	74,034	$	43,705	$	117,739	$	11,702	$	10,295	$	21,997	$	139,736	$	9,074

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Corporation evaluates the loan for possible further impairment. The ALL may be increased, adjustments may be made in the allocation of the ALL, or partial charge-offs may be taken to further write-down the carrying value of the loan.

On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. In the event of a subsequent default, the ALL continues to be reassessed on the basis onof an individual evaluation of the loan.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

The following ~~table provides~~tables provide the number of loans modified in a TDR ~~during~~within the previous 12 months that subsequently defaulted during the three months ended ~~June 30,~~March 31, 2015and March 31, 2014,, as well as the ~~recorded investment~~amount defaulted in these restructured ~~loans as of~~ ~~June 30, 2014~~.loans.


	As of June 30, 2014			As of March 31, 2015
(Dollars in thousands)	Number of Loans	Recorded Investment		Number of Loans	Amount Defaulted
Originated loans
Commercial
C&I	1	$	170	—	$	—
CRE	1	363		—	—
Construction	—	—		—	—
Total originated commercial	2	533		—	—
Consumer
Installment	1	3		2	—
Home equity lines	—	—		—	—
Credit card	7	31		2	17
Residential mortgages	1	99		—	—
Total originated consumer	9	$	133	4	$	17
Covered loans
FDIC acquired loans
Commercial
C&I	—	$	—	1	$	427
CRE	—	—		—	—
Construction	—	—		—	—
Total covered commercial	—	$	—
Total FDIC acquired commercial				1	$	427
Acquired loans
Commercial
C&I				1	$	55
CRE				—	—
Construction				—	—
Total acquired commercial				1	$	55
Total loans
Commercial
C&I	1	$	170	2	$	482
CRE	1	363		—	—
Construction	—	—		—	—
Total commercial	2	533		2	482
Consumer
Installment	1	3		2	—
Home equity lines	—	—		—	—
Credit card	7	31		2	17
Residential mortgages	1	99		—	—
Total consumer	9	133		4	17
Total	11	$	666	6	$	499

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FIRSTMERIT CORPORATION AND SUBSIDIARIES


	As of December 31, 2013			As of March 31, 2014
(Dollars in thousands)	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Originated loans
Commercial
C&I	4	$	1,773	1	$	1,557
CRE	6	3,101		1	376
Construction	1	231		—	—
Total originated commercial	11	5,105		2	1,933
Consumer
Installment	17	170		—	—
Home equity lines	—	—		—	—
Credit card	33	245		3	4,839
Residential mortgages	1	75		—	—
Total originated consumer	51	$	490	3	$	4,839
Covered loans
FDIC acquired loans
Commercial
C&I	—	$	—	—	$	—
CRE	1	—		—	—
Construction	1	45		—	—
Total covered commercial	2	$	45
Total FDIC acquired commercial				—	$	—
Total loans
Commercial
C&I	4	$	1,773	1	$	1,557
CRE	7	3,101		1	376
Construction	2	276		—	—
Total commercial	13	5,150		2	1,933
Consumer
Installment	17	170		—	—
Home equity lines	—	—		—	—
Credit card	33	245		3	4,839
Residential mortgages	1	75		—	—
Total consumer	51	490		3	4,839
Total	64	$	5,640	5	$	6,772

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~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~ - ~~Continued~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

As of June 30, 2013
(Dollars in thousands) Number of Loans Recorded Investment
Originated loans
Commercial
C&I —
$ —
CRE 1
85
Construction 1
537
Total originated commercial 2
622
Consumer
Installment 2
37
Home equity lines 1
15
Credit card 9
79
Residential mortgages —
—
Total originated consumer 12
$ 131
Covered loans
Commercial
C&I —
$ —
CRE —
—
Construction —
—
Total covered commercial —
$ —
Total loans
Commercial
C&I —
$ —
CRE 1
85
Construction 1
537
Total commercial 2
622
Consumer
Installment 2
37
Home equity lines 1
15
Credit card 9
79
Residential mortgages —
—
Total consumer 12
131
Total 14
$ 753

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

65. Goodwill and Other Intangible Assets

Goodwill

Goodwill totaled $741.7 million as of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014. Goodwill is not amortized but is evaluated for impairment on an annual basis at November 30 of each year or whenever events or changes in circumstances indicate the carrying value may not be recoverable. No events or circumstances since the November 30, ~~2013~~2014 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.

Other Intangible Assets

The Corporation has other intangible assets that are amortized, consisting of core deposit intangibles, lease intangibles and trust relationship intangibles. The following tables show the gross carrying amount, accumulated amortization, and net carrying amount of these intangible assets.


	June 30, 2014							March 31, 2015
	Gross Carrying		Accumulated			Net Carrying		Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount		Amount		Amortization			Amount
Core deposit intangibles ^(a)(1)	$	87,533	$	(20,637	)	$	66,896	$	82,323	$	(22,073	)	$	60,250
Lease intangible	618		(538		)	80		238		(185		)	53
Trust relationships	14,000		(4,090		)	9,910
Trust Relationships ⁽²⁾								14,000		(5,881		)	8,119
	$	102,253	$	(25,367	)	$	76,886	$	96,561	(28,139		)	$	68,422

	December 31, 2013							December 31, 2014
	Gross Carrying		Accumulated			Net Carrying		Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount		Amount		Amortization			Amount
Core deposit intangibles ^(a)(1)	$	87,533	$	(16,065	)	$	71,468	$	82,323	$	(19,996	)	$	62,327
Non-compete covenant	102		(102		)	—
Lease intangible	618		(520		)	98		238		(176		)	62
Trust Relationships ^(b)	14,000		(2,811		)	11,189
Trust Relationships ⁽²⁾								14,000		(5,369		)	8,631
	$	102,253	$	(19,498	)	$	82,755	$	96,561	$	(25,541	)	$	71,020

	June 30, 2013							March 31, 2014
	Gross Carrying		Accumulated			Net Carrying		Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount		Amount		Amortization			Amount
Core deposit intangibles^(a)	$	87,533	$	(12,416	)	$	75,117
Non-compete covenant	102		(89		)	13
Core deposit intangibles⁽¹⁾								$	87,533	$	(18,352	)	$	69,181
Lease intangible	618		(502		)	116		238		(149		)	89
Trust relationships ^(b)	14,000		(827		)	13,173
Trust relationships ⁽²⁾								14,000		(3,451		)	10,549
	$	102,253	$	(13,834	)	$	88,419	$	101,771	$	(21,952	)	$	79,819

^(a)(1) Core deposit intangibles are amortized on an accelerated basis over their estimated useful lives ~~which~~,which range from 10-15 years.

^(b)(2) Trust relationship intangibles are amortized on an accelerated basis on their estimated useful lives of 12 years.

Amortization expense for intangible assets was ~~$5.9~~$2.6 million in the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015, compared to ~~$2.7~~$2.9 million in the ~~six~~three months ended ~~June 30, 2013~~March 31, 2014. Estimated amortization expense for each of the next five years is as follows: remainder of 2015 - $7.8 million~~2014~~ ~~- $5.9 million;~~ ~~2015~~ ~~- $10.4 million;~~; 2016 - $9.2 million; 2017 - $8.2 million; ~~and~~ 2018 - $7.3 million; and 2019 - $6.5 million.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

76. Shareholders' Equity

Common Stock Warrant

The Corporation has an outstanding warrant previously issued by Citizen’s to the U.S. Treasury to initially purchase 2,408,203 shares of FirstMerit Common Stock. Due to a dividend protection clause, ~~which reduces~~ the ~~exercise~~strike price is reduced by an amount equivalent to the dividend as a percentage of the closing market price on ~~a penny for penny basis for any dividend paid along~~the day prior to the ex-dividend date. The adjusted shares are calculated by dividing the original proceeds by the adjusted strike price. At March 31, 2015, the adjusted strike price is $17.50 with a corresponding ~~increase in~~adjusted number of 2,571,998 shares issuable upon exercise of the ~~amount of shares available~~warrant issued to ~~purchase,~~ the U.S. Treasury ~~can purchase up to 2,515,892 shares at an adjusted exercise price of $17.89 as of~~ ~~June 30,2014~~.and currently available for purchase.

Preferred Stock

The Corporation has 7,000,000 shares of authorized Preferred Stock and has designated 115,000 shares of its Preferred Stock as 5.875% Non-Cumulative Perpetual Preferred Stock, Series ~~A. On February 4, 2013, the Corporation issued~~A, of which 100,000 shares ~~of its 5.875% Non-Cumulative Perpetual~~were issued. The Preferred Stock ~~Series A, which began paying~~pays cash dividends ~~on May 4, 2013,~~ quarterly in arrears on the 4^th day of February, May, August, and November.

Earnings Per Share

Basic net income per common share is calculated using the two-class method to determine income attributable to common shareholders. Net income attributable to Common Stock is then divided by the weighted-average number of Common Stock outstanding during the period.

Diluted net income per common share is calculated under the more dilutive of either the treasury method or two-class method. Adjustments to the weighted-average number of shares of Common Stock outstanding are made only when such adjustments will dilute earnings per common share. Net income attributable to Common Stock is then divided by the weighted-average number of Common Stock and Common Stock equivalents outstanding during the period.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

The reconciliation between basic and diluted EPS using the two-class method and treasury stock method is presented as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
(In thousands)	2014		2013		2014		2013
(Dollars in thousands, except per share amounts)									2015		2014
Basic EPS:
Net income	$	59,519	$	48,450	$	112,974	$	85,796	$	57,139	$	53,455
Less:
Cash dividends on 5.875% non-cumulative perpetual series A, Preferred Stock	1,469		1,469		2,938		2,399		1,469		1,469
Income allocated to participating securities	489		383		926		813		407		380
Net income attributable to common shareholders	$	57,561	$	46,598	$	109,110	$	82,584	$	55,263	$	51,606
Weighted average Common Stock outstanding used in basic EPS	165,335		157,863		165,198		133,909		165,411		165,060
Basic net income per common share	$	0.35	$	0.30	$	0.66	$	0.62	$	0.33	$	0.31

Diluted EPS:
Income used in diluted earnings per share calculation	$	57,561	$	46,598	$	109,110	$	82,584

Income used in diluted earnings per common share calculation									$	55,263	$	51,606
Weighted average Common Stock outstanding used in basic EPS	165,335		157,863		165,198		133,909		165,411		165,060
Add: Common Stock equivalents:
Warrant and stock plans	812		527		854		497		592		944
Weighted average Common and Common Stock equivalent shares outstanding	166,147		158,390		166,052		134,406		166,003		166,004
Diluted net income per share	$	0.35	$	0.29	$	0.66	$	0.61
Diluted net income per common share									$	0.33	$	0.31

Common Stock equivalents consist of employee stock award plans and the Common Stock warrant. These Common Stock equivalents do not enter into the calculation of diluted EPS if the impact would be anti-dilutive, that is, increase EPS or reduce a loss per share. Antidilutive potential Common Stock for the ~~six~~three months ended ~~June 30,~~March 31, ~~2014~~2015 and ~~2013~~2014 totaled ~~1.0~~0.8 million and ~~1.5~~1.0 million, respectively.

87. 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 financial management practices 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, core business banking, public entities, and leasing clients. Commercial also includes personal business from commercial loan clients in coordination with the Wealth Management segment. Products and services offered include commercial term loans, revolving credit arrangements, asset-based lending, leasing, commercial

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mortgages, real estate construction lending, letters of credit, treasury management, government banking, international banking, merchant card and other depository products and services.

Retail – The retail line of business includes consumer lending and deposit gathering, residential mortgage loan origination and 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, 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 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 category are the Parent Company, ~~eliminations~~eliminating companies, community development operations, the treasury group, which includes the securities portfolio, wholesale funding and asset liability management activities, and the economic impact of certain assets, capital and support functions 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 ~~2013~~2014 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. In the first quarter of 2014, Management changed the estimate regarding the funds transfer pricing crediting rate provided on non-maturity ~~deposits, including amounts for prior periods.~~deposits. Assets and liabilities are match-funded based on their maturity, prepayment and/or repricing 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 Other by the 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 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 and the origination business franchise value have been allocated capital based upon their respective asset/liability management risk. The provision for loan 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.

6358

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Substantially all of the Corporation’s business is conducted in the United States of America. The following tables present a summary of financial results as of and for the ~~three and~~ ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 and ~~June 30, 2013~~March 31, 2014:


																				FirstMerit															FirstMerit
	Commercial					Retail				Wealth				Other						Consolidated
June 30, 2014	QTD			YTD		QTD		YTD		QTD		YTD		QTD			YTD			QTD		YTD
(In thousands)																								Commercial			Retail		Wealth			Other			Consolidated
March 31, 2015																								QTD			QTD		QTD			QTD			QTD
OPERATIONS:
Net interest income (loss)	$	106,924		$	211,987	$	94,879	$	188,129	$	4,799	$	9,477	$	(11,025	)	$	(20,114	)	$	195,577	$	389,479
Net interest income/(loss)																								$	99,844		$	91,095	$	5,353		$	(10,669	)	$	185,623
Provision (recapture) for loan losses	(4,874		)	167		14,905		17,522		396		351		4,826			11,750			15,253		29,790		(526		)	7,533		(170		)	1,411			8,248
Noninterest income	26,681			47,987		25,345		52,381		14,052		27,516		6,482			11,947			72,560		139,831		22,490			21,737		13,976			7,644			65,847
Noninterest expense	61,230			123,215		87,603		183,377		12,370		25,097		6,197			5,044			167,400		336,733		61,653			88,271		13,719			(2,991		)	160,652
Net income (loss)	50,211			88,784		11,515		25,747		3,955		7,504		(6,162		)	(9,061		)	59,519		112,974
Net income/(loss)																								39,785			11,068		3,756			2,530			57,139
AVERAGES:
Assets	$	9,192,463		$	9,132,758	$	5,541,566	$	5,495,965	$	258,845	$	250,279	$	9,298,402		$	9,337,457		$	24,291,276	$	24,216,459	$	9,454,218		$	5,845,417	$	302,186		$	9,303,273		$	24,905,094
Loans																								9,506,529			5,570,590		292,016			58,046			15,427,181
Earning assets																								9,794,483			5,582,849		292,016			6,431,069			22,100,417
Deposits																								6,886,945			11,124,158		1,240,960			536,862			19,788,925
Economic capital																								848,890			479,188		55,187			1,483,097			2,866,362


																				FirstMerit														FirstMerit
	Commercial				Retail				Wealth					Other						Consolidated
June 30, 2013	QTD		YTD		QTD		YTD		QTD			YTD		QTD			YTD			QTD		YTD
(In thousands)																								Commercial		Retail		Wealth			Other			Consolidated
March 31, 2014																								QTD		QTD		QTD			QTD			QTD
OPERATIONS:
Net interest income (loss)	$	114,557	$	182,947	$	95,904	$	145,658	$	4,288		$	8,441	$	(16,718	)	$	(27,667	)	$	198,031	$	309,379
Net interest income/(loss)																								$	105,063	$	93,250	$	4,678		$	(9,091	)	$	193,900
Provision (recapture) for loan losses	2,120		6,886		2,101		6,174		(42		)	166		3,130			4,030			7,309		17,256		5,706		8,339		(45		)	536			14,536
Noninterest income	20,895		40,127		33,330		57,718		12,821			21,131		2,393			7,856			69,439		126,832		21,306		27,035		13,464			5,465			67,270
Noninterest expense	51,891		94,918		85,512		138,419		13,832			24,006		37,653			37,691			188,888		295,034		63,966		96,701		13,518			(4,854		)	169,331
Net income (loss)	52,680		78,569		26,919		38,074		2,027			3,379		(33,176		)	(34,226		)	48,450		85,796
Net income/(loss)																								36,884		9,909		3,035			3,627			53,455
AVERAGES:
Assets	$	8,852,267	$	7,800,594	$	5,006,423	$	4,016,956	$	263,454		$	250,206	$	8,688,558		$	6,846,825		$	22,810,702	$	18,914,581	$	9,072,390	$	5,449,856	$	241,618		$	9,380,706		$	24,144,570
Loans																								9,061,371		5,084,555		230,429			36,126			14,412,481
Earning assets																								9,308,031		5,101,740		230,429			6,263,663			20,903,863
Deposits																								6,645,640		11,753,015		1,009,811			228,039			19,636,505
Economic capital																								654,922		320,090		57,784			1,700,430			2,733,226

98. Derivatives and Hedging Activities

The Corporation, through its mortgage banking and risk management operations, is party to various derivative instruments that are used for asset and liability management and customers' financing needs. Derivative instruments are contracts between two or more parties that have a notional amount and underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index or other component. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the market value of the derivative contract.

The predominant derivative and hedging activities include interest rate swaps and certain mortgage banking activities. Generally, these instruments help the Corporation manage exposure to market risk, and meet customer financing needs. Market risk represents the possibility that economic value or net interest income will

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be adversely affected by fluctuations in external factors, such as interest rates, market-driven rates and prices or other economic factors. Foreign exchange contracts are entered into to accommodate the needs of customers.

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

Derivatives Designated in Hedge Relationships

The Corporation's fixed rate loans result in exposure to losses in value as interest rates change. The risk management objective for hedging fixed rate loans is to convert the fixed rate received to a floating rate. The Corporation hedges exposure to changes in the fair value of fixed rate loans through the use of swaps. For a qualifying fair value hedge, changes in the value of the derivatives that have been highly effective as hedges are recognized in current period earnings along with the corresponding changes in the fair value of the designated hedged item attributable to the risk being hedged.

At ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014, 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												Asset Derivatives												Liability Derivatives
	June 30, 2014				December 31, 2013				June 30, 2013				June 30, 2014				December 31, 2013				June 30, 2013				March 31, 2015				December 31, 2014				March 31, 2014				March 31, 2015				December 31, 2014				March 31, 2014
(In thousands)	Notional/ Contract Amount		Fair Value ^(a)		Notional/ Contract Amount		Fair Value ^(a)		Notional/ Contract Amount		Fair Value ^(a)		Notional/ Contract Amount		Fair Value ^(b)		Notional/ Contract Amount		Fair Value ^(b)		Notional/ Contract Amount		Fair Value ^(b)		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽²⁾		Notional/ Contract Amount		Fair Value ⁽²⁾		Notional/ Contract Amount		Fair Value ⁽²⁾
Interest rate swaps:
Commercial Loan Swaps (FRAPS)																									$	—	$	—	$	—	$	—	$	5,389	$	1	$	89,591	$	6,063	$	93,313	$	6,683	$	117,543	$	10,392
Sub Debt Swap																									250,000		12,688		250,000		5,256		—		—		—		—		—		—		—		—
Fair value hedges	$	—	$	—	$	—	$	—	$	4,632	$	—	$	102,828	$	8,989	$	126,637	$	11,574	$	136,186	$	14,319	$	250,000	$	12,688	$	250,000	$	5,256	$	5,389	$	1	$	89,591	$	6,063	$	93,313	$	6,683	$	117,543	$	10,392

⁽1)^a)Included in "Other assets" on the Consolidated Balance Sheets

(2)^(b)Included in "Other liabilities" on the Consolidated Balance Sheets

Fair Value Hedges. Prior to 2009, the Corporation entered into interest rate swaps with dealer counterparties to convert certain fixed rate loans to variable rate instruments over the terms of the loans (termed by the Corporation as the FRAP Program). These interest rate swaps are designated as fair value hedges and met the criteria to qualify for the short cut method of accounting. Based on this shortcut method of accounting treatment, no ineffectiveness is assumed. The Corporation discontinued originating interest rate swaps under the FRAP Program in February 2008.

During the fourth quarter of 2014, the Corporation entered into a $250.0 million interest rate swap simultaneously with its long-term debt issuance for interest rate risk management purposes. This interest rate swap effectively modifies the receipt of fixed-rate interest amounts in exchange for floating-rate interest payments over the life of the swap, without an exchange of the underlying principal amount. This interest rate swap was designated as a fair value hedge, and through application of the “short cut method of accounting”, there is an assumption that the hedge is effective in offsetting changes in the fair value of the long-term debt due to changes in the U.S. LIBOR swap rate (the designated benchmark interest rate).

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Derivatives Not Designated in Hedge Relationships

As of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014, the notional values or contractual amounts and fair value of the Corporation's derivatives not designated in hedge relationships were as follows:


	Asset Derivatives												Liability Derivatives												Asset Derivatives												Liability Derivatives
	June 30, 2014				December 31, 2013				June 30, 2013				June 30, 2014				December 31, 2013				June 30, 2013				March 31, 2015				December 31, 2014				March 31, 2014				March 31, 2015				December 31, 2014				March 31, 2014
(In thousands)	Notional/ Contract Amount		Fair Value ^(a)		Notional/ Contract Amount		Fair Value ^(a)		Notional/ Contract Amount		Fair Value ^(a)		Notional/ Contract Amount		Fair Value^(b)		Notional/ Contract Amount		Fair Value ^(b)		Notional/ Contract Amount		Fair Value ^(b)		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value ⁽¹⁾		Notional/ Contract Amount		Fair Value⁽²⁾		Notional/ Contract Amount		Fair Value ⁽²⁾		Notional/ Contract Amount		Fair Value ⁽²⁾
Interest rate swaps	$	1,618,463	$	47,952	$	1,622,525	$	46,577	$	1,502,079	$	47,804	$	1,618,463	$	47,952	$	1,622,531	$	46,577	$	1,502,079	$	47,804	$	1,718,850	$	59,147	$	1,673,012	$	48,366	$	1,603,125	$	44,672	$	1,718,850	$	59,147	$	1,673,012	$	48,366	$	1,603,125	$	44,672
Mortgage loan commitments	169,232		2,491		90,541		891		251,198		779		—		—		—		—		—		—		51,937		388		102,523		1,408		132,614		1,575		—		—		—		—		—		—
Forward sales contracts	—		—		40,906		384		139,093		4,458		80,161		545		—		—		—		—		11,758		—		47,657		—		53,404		167		—		68		—		272		—		—
Credit contracts	15,269		—		—		—		—		—		52,319		10		49,914		—		50,754		—		—		—		10,001		—		—		—		80,047		—		69,227		—		49,456		—
Foreign exchange	25,623		107		6,478		50		8,940		117		7,568		48		6,893		50		7,235		94		40,537		350		22,406		167		17,630		52		10,052		169		6,580		118		15,898		42
Other	—		—		—		—		—		—		60,383		—		63,813		—		52,370		—
Equity swap																									—		—		—		—		—		—		30,896		—		75,138		—		61,859		—
Total	$	1,828,587	$	50,550	$	1,760,450	$	47,902	$	1,901,310	$	53,158	$	1,818,894	$	48,555	$	1,743,151	$	46,627	$	1,612,438	$	47,898	$	1,823,082	$	59,885	$	1,855,599	$	49,941	$	1,806,773	$	46,466	$	1,839,845	$	59,384	$	1,823,957	$	48,756	$	1,730,338	$	44,714

(1)^(a)Included in "Other assets" on the Consolidated Balance Sheets

^(b)(2) Included in "Other liabilities" on the Consolidated Balance Sheets

Interest Rate Swaps. The Corporation's Back-to-Back Program is an interest rate swap program for commercial loan customers that provides the customer with a fixed rate loan while creating a variable rate asset

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for the Corporation through the customer entering into an interest rate swap with the Corporation on terms that match the loan. The Corporation offsets its risk exposure by entering into an offsetting interest rate swap with a dealer counterparty. These swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative.

Mortgage 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 in which the Corporation has entered into a written mortgage loan commitment with a potential borrower that will be held for 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.

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. Written loan commitments generally have a term of up to 60 days before the closing of the loan. The 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" (loan commitments not expected to close), using models which consider cumulative historical fallout rates and other factors. In addition, expected net future cash flows related to loan servicing activities are included in the fair value measurement of a written loan commitment.

Written loan commitments in which the borrower has locked in an interest rate results in market risk to the Corporation to the extent market interest rates 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.

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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. 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.

Credit contracts. The Corporation has bought and sold credit protection in the form of participations on interest rate swaps (swap participations). These swap participations, which meet the definition of credit derivatives, were entered into in the ordinary course of business. Credit derivatives, whereby the Corporation has purchased credit protection, entitles the Corporation to receive a payment from the counterparty when the customer fails to make payment on any amounts due to the Corporation. Swap participations whereby the Corporation has purchased credit protection have maturities that range between three to ~~nine~~eight years. For swap participations where the Corporation sold credit protection, the Corporation has guaranteed payment in the event that the counterparty experiences a loss on the 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

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

commercial loan customers. Credit derivatives whereby the Corporation has sold credit protection have maturities ranging from less than one year to ~~eight~~nine years. The Corporation's maximum estimated exposure to sold 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 ~~$3.2~~$5.7 million as of ~~June 30, 2014~~March 31, 2015. The fair values of the ~~sold~~written swap participations were not material at ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014.

Gains and losses recognized in income on non-designated hedging instruments for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014 are as follows:


Derivatives not designated as hedging instruments	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain / (Loss) Recognized in Income on Derivatives (In thousands)												Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain / (Loss) Recognized in Income on Derivatives (In thousands)
		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2014			2013			2014			2013				2015			2014
Mortgage loan commitments	Other operating income	$	916		$	(3,374	)	$	1,600		$	(3,622	)	Loan sales and servicing income	$	(1,020	)	$	684
Forward sales contracts	Other operating income	(713		)	4,742			(929		)	4,519			Loan sales and servicing income	204			(216		)
Foreign exchange contracts	Other operating income	328			(122		)	107			(313		)	Other operating income	(877		)	(221		)
Equity swap														Other operating expense	—			—
Total		$	531		$	1,246		$	778		$	584			$	(1,693	)	$	247

Counterparty Credit Risk

Like other financial instruments, derivatives contain an element of "credit risk" or the possibility that the Corporation will incur a loss because a counterparty, which may be a bank, a broker-dealer, a derivative clearing organization, or a customer, fails to meet its contractual obligations. This risk is measured as the expected positive replacement value of contracts. ~~Derivative~~All derivative contracts may be executed only with ~~a counterparty~~exchanges or ~~cleared through a FCM with a derivative clearing organization~~counterparties approved by the Corporation's ALCO, and only within the Corporation's Board of Directors Credit Committee approved credit exposure limits. Where contracts have been created for customers, the

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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 ISDA. These agreements are to include~~with collateral delivery thresholds ~~of credit exposure or the maximum amount of unsecured credit exposure that the Corporation is willing to assume.~~on all bilateral derivatives. 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 ALCO. Under the Dodd-Frank legislation, as of June 10, 2013, the Corporation must clear all interest rate swaps through a clearing house and the credit exposure is to the recognized derivative clearing organization. Margin requirements are established by the derivative clearing organization. When entering into cleared swap, the Corporation must post collateral to the FCM in the amount required by the clearing organization. The Corporation generally posts collateral in the form of highly rated Government Agency issued bonds or MBS.

The majority of the Corporation's over-the-counter derivative transactions are cleared through a recognized derivative clearing organization ("Clearinghouse"). For cleared derivatives, the Clearinghouse is the Corporation's counterparty. For cleared derivatives, the Clearinghouse is the Corporation's counterparty. The Clearinghouse notifies the clearing agent of the required initial and variation margin and the clearing agent notifies the Corporation of the required initial and variation margin. The requirement that the Corporation post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the Corporation to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral is posted daily through a clearing agent for changes in the value of cleared derivatives.

Collateral posted against derivative liabilities was ~~$64.0~~$53.6 million, $~~70.5~~53.5 million, and $~~82.2~~67.7 million as of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014, respectively.

Derivative assets and liabilities are recorded at fair value on the balance sheet and do not take into account the effects of master netting agreements the Corporation has with its financial institution counterparties. These master netting agreements allow the Corporation to settle all derivative contracts held with a single financial institution counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. Collateral, usually in the form of investment securities, is posted by the counterparty ~~with~~in the net liability position in accordance with contract thresholds. The following tables illustrate the potential effect of the Corporation's derivative master netting arrangements, by type of financial instrument, on the Corporation's

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statement of financial position as of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014. The swap agreements the Corporation has in place with its commercial customers are not subject to enforceable master netting arrangements, and, therefore, are excluded from these tables.


	As of June 30, 2014																		As of March 31, 2015
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet			Net amounts presented in the consolidated balance sheet			Gross amounts not offset in the consolidated balance sheet								Net amount		Gross amounts recognized			Gross amounts offset in the consolidated balance sheet			Net amounts presented in the consolidated balance sheet				Gross amounts not offset in the consolidated balance sheet								Net amount
(In thousands)	Gross amounts recognized				Financial instruments (a)				Collateral (b)							Financial instruments ⁽¹⁾			Gross amounts recognized			Gross amounts offset in the consolidated balance sheet		Collateral⁽²⁾													Net amount
Derivative Assets			Gross amounts offset in the consolidated balance sheet
Interest rate swaps - designated																			$	12,688		$	—		Net amounts presented in the consolidated balance sheet		$	12,688			$	—			$	—			$	12,688
Interest rate swaps - non-designated	$	839	$	—		Net amounts presented in the consolidated balance sheet	$	839		$	(839	)		$	—		Net amount		$	—	$	67		$	—			$	67			$	(67	)		$	—			$	—
Foreign exchange	19		—			19			(19		)		—				—		219			—			219				47				(266		)		—
Total derivative assets	$	858	$	—		$	858		$	(858	)		$	—			$	—	$	12,974		$	—		$	12,974			$	(20	)		$	(266	)		$	12,688

Derivative liabilities
Interest rate swaps - designated	$	8,989	$	—		$	8,989		$	—			$	(8,989	)		$	—	$	6,063		$	—		$	6,063			$	—			$	(6,063	)		$	—
Interest rate swaps - non-designated	47,114		—			47,114			(839		)		(46,275		)		—		59,080			—			59,080				(67		)		(59,013		)		—
Foreign exchange	35		—			35			(19		)		(16		)		—		47			—			47				47				(94		)		—
Total derivative liabilities	$	56,138	$	—		$	56,138		$	(858	)		$	(55,280	)		$	—	$	65,190		$	—		$	65,190			$	(20	)		$	(65,170	)		$	—

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

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	As of December 31, 2014
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet		Net amounts presented in the consolidated balance sheet		Gross amounts not offset in the consolidated balance sheet						Net amount
(In thousands)	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet		Net amounts presented in the consolidated balance sheet		Financial instruments ⁽¹⁾			Collateral⁽²⁾			Net amount
Derivative assets
Interest rate swaps - designated	5,256		—		5,256		—			—			5,256
Interest rate swaps - non-designated	$	352	$	—	$	352	$	(352	)	$	—		$	—
Foreign exchange	134		—		134		28			(162		)	—
Total derivative assets	$	5,742	$	—	$	5,742	$	(324	)	$	(162	)	$	5,256

Derivative liabilities
Interest rate swaps - designated	$	6,683	$	—	$	6,683	$	—		$	(6,683	)	$	—
Interest rate swaps - non-designated	48,014		—		48,014		(352		)	(47,662		)	—
Foreign exchange	28		—		28		28			(56		)	—
Total derivative liabilities	$	54,725	$	—	$	54,725	$	(324	)	$	(54,401	)	$	—


	As of December 31, 2013																		As of March 31, 2014
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet			Net amounts presented in the consolidated balance sheet			Gross amounts not offset in the consolidated balance sheet								Net amount		Gross amounts recognized			Gross amounts offset in the consolidated balance sheet			Net amounts presented in the consolidated balance sheet			Gross amounts not offset in the consolidated balance sheet							Net amount
(In thousands)	Gross amounts recognized				Financial instruments (a)				Collateral (b)							Financial instruments ⁽¹⁾			Gross amounts recognized			Gross amounts offset in the consolidated balance sheet		Collateral⁽²⁾											Net amount
Derivative assets			Gross amounts offset in the consolidated balance sheet
Interest rate swaps - non-designated	$	4,791	$	—		Net amounts presented in the consolidated balance sheet	$	4,791		$	(4,791	)		$	—		Net amount		$	—	$	2,811		$	Net amounts presented in the consolidated balance sheet		—		$	2,811		$	(2,811	)		$	—	$	—
Foreign exchange	4		—			4			(4		)		—				—		33			—			33			(17		)	(16		)		—
Total derivative assets	$	4,795	$	—		$	4,795		$	(4,795	)		$	—			$	—	$	2,844		$	—		$	2,844		$	(2,828	)	$	(16	)		$	—

Derivative liabilities
Interest rate swaps - designated	$	11,574	$	—		$	11,574		$	—			$	(11,574	)		$	—	$	10,392		$	—		$	10,392		$	—		$	(10,392	)		$	—
Interest rate swaps - non-designated	41,787		—			41,787			(4,791		)		(36,996		)		—		41,861			—			41,861			(2,811		)	(39,050		)		—
Foreign exchange	46		—			46			(4		)		(42		)		—		17			—			17			(17		)	—				—
Total derivative liabilities	$	53,407	$	—		$	53,407		$	(4,795	)		$	(48,612	)		$	—	$	52,270		$	—		$	52,270		$	(2,828	)	$	(49,442	)		$	—

As of June 30, 2013
Gross amounts recognized Gross amounts offset in the consolidated balance sheet Net amounts presented in the consolidated balance sheet Gross amounts not offset in the consolidated balance sheet Net amount
(In thousands) Financial instruments (a) Collateral (b)
Derivative assets
Interest rate swaps - non-designated $ 3,010
$ —
$ 3,010
$ (3,010 ) $ —
$ —
Foreign exchange 53
—
53
(22 ) (31 ) —
Total derivative assets $ 3,063
$ —
$ 3,063
$ (3,032 ) $ (31 ) $ —

Derivative liabilities
Interest rate swaps - designated $ 14,319
$ —
$ 14,319
$ —
$ (14,319 ) $ —
Interest rate swaps - non-designated 44,794
—
44,794
(3,010 ) (41,784 ) —
Foreign exchange 22
—
22
(22 ) —
—
Total derivative liabilities $ 59,135
$ —
$ 59,135
$ (3,032 ) $ (56,103 ) $ —

^(a)(1) For derivative assets, this includes any derivative liability fair values that could be offset in the event of counterparty default. For derivative liabilities, this includes any derivative asset fair values that could be offset in the event of counterparty default.

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

^(b)(2) For derivate assets, this includes the fair value of collateral received by the Corporation from the counterparty. Securities received as collateral are not included in the Consolidated Balance Sheets unless the counterparty defaults. For derivative liabilities, this includes the fair value of securities pledged by the Corporation to the counterparty. These securities are included in the Consolidated Balance Sheets unless the Corporation defaults.

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10NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

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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
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(In thousands)	2014			2013			2014			2013			2015			2014
Service cost	$	182		$	585		$	364		$	1,170		$	207		$	182
Interest cost	3,584			2,632			7,168			5,264			3,517			3,584
Expected return on assets	(4,009		)	(2,960		)	(8,017		)	(5,920		)	(3,902		)	(4,009		)
Amortization of unrecognized prior service costs	698			117			1,331			234			570			634
Amortization of Actuarial Gain	804			1,174			1,513			2,348			1,057			708
Net periodic pension cost	$	1,259		$	1,548		$	2,359		$	3,096		$	1,449		$	1,099


	Postretirement Benefits												Postretirement Benefits
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(In thousands)	2014			2013			2014			2013			2015			2014
Service cost	$	16		$	25		$	33		$	50		$	41		$	16
Interest cost	164			130			327			260			144			164
Amortization of unrecognized prior service costs	(117		)	(117		)	(234		)	(234		)	(160		)	(117		)
Amortization of Actuarial Gain	59			67			118			134
Amortization of actuarial losses/(gains)													81			59
Net periodic postretirement cost	$	122		$	105		$	244		$	210		$	106		$	122

For further information on the Corporation's employee benefit plans, refer to Note 1314 (Benefit Plans) to the consolidated financial statements in the ~~2013~~2014 Form 10-K.

11.10. Fair Value Measurement

As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market or most advantageous market for the asset or liability. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, Management determines the fair value of the Corporation's assets and liabilities using valuation models or third-party pricing services. Both of these approaches rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on Management's judgment, assumptions and estimates related to credit quality, liquidity, interest rates and other relevant inputs.

GAAP establishes a three-level valuation hierarchy for determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy, highest ranking to lowest, are as follow:

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~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~ - ~~Continued~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

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Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Significant unobservable inputs that reflect a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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.

Valuation adjustments, such as those pertaining to counterparty and the Corporation's own credit quality and liquidity, may be necessary to ensure that assets and liabilities are recorded at fair value. Credit valuation adjustments are made when market pricing does not accurately reflect the counterparty's credit quality. As determined by Management, liquidity valuation adjustments may be made to the fair value of certain assets to reflect the uncertainty in the pricing and trading of the instruments when Management is unable to observe recent market transactions for identical or similar instruments. Liquidity valuation adjustments are based on the following factors:

the amount of time since the last relevant valuation;

whether there is an actual trade or relevant external quote available at the measurement date; and

volatility associated with the primary pricing components.

Management ensures that fair value measurements are accurate and appropriate by relying upon various controls, including:

an independent review and approval of valuation models;

recurring detailed reviews of profit and loss; and

a validation of valuation model components against benchmark data and similar products, where possible.

Management reviews any changes to its valuation methodologies to ensure they are appropriate and justified, and refines valuation methodologies as more market-based data becomes available. Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period.

Additional information regarding the Corporation's accounting policies for determining fair value is provided in Note 1 (Summary of Significant Accounting Policies) under the heading "Fair Value Measurements" to the ~~2013~~2014 Form 10-K.

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The following tables present the balance of assets and liabilities measured at fair value on a recurring and nonrecurring basis as of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014:


			Fair Value by Hierarchy								Fair Value by Hierarchy
(In thousands)	June 30, 2014		Level 1		Level 2		Level 3		March 31, 2015		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	2,935	$	2,935	$	—	$	—	$	2,869	$	2,869	$	—	$	—
Non-marketable equity securities	3,281		—		10		3,271
U.S. treasury notes & bonds									—		—		—		—
U.S. government agency debentures									2,513		—		2,513		—
U.S. States and political subdivisions	240,805		—		240,805		—		215,164		—		215,164		—
Residential mortgage-backed securities:
U.S. government agencies	1,018,174		—		1,018,174		—		947,303		—		947,303		—
Commercial mortgage-backed securities:
U.S. government agencies	85,698		—		85,698		—		140,359		—		140,359		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,598,031		—		1,598,031		—		1,892,560		—		1,892,560		—
Non-agency	8		—		1		7		6		—		1		5
Commercial collateralized mortgage-backed securities:
U.S. government agencies	182,033		—		182,033		—		244,059		—		244,059		—
Corporate debt securities	53,490		—		—		53,490		52,264		—		—		52,264
Asset-backed securities:
Collateralized loan obligations	293,965		—		—		293,965		293,962		—		—		293,962
Total available for sale securities	3,478,420		2,935		3,124,752		350,733		3,791,059		2,869		3,441,959		346,231
Residential loans held for sale	21,632		—		21,632		—		3,568		—		3,568		—
Derivative assets:
Interest rate swaps - fair value hedges									12,688		—		12,688		—
Interest rate swaps - nondesignated	47,952		—		47,952		—		59,147		—		59,147		—
Mortgage loan commitments	2,491		—		2,491		—		388		—		388		—
Forward sale contracts	—		—		—		—
Foreign exchange	107		—		107		—		350		—		350		—
Total derivative assets	50,550		—		50,550		—		72,573		—		72,573		—
Total fair value of assets (a)	$	3,550,602	$	2,935	$	3,196,934	$	350,733
Total fair value of assets ⁽¹⁾									$	3,867,200	$	2,869	$	3,518,100	$	346,231
Derivative liabilities:
Interest rate swaps - fair value hedges	$	8,989	$	—	$	8,989	$	—	$	6,063	$	—	$	6,063	$	—
Interest rate swaps - nondesignated	47,952		—		47,952		—		59,147		—		59,147		—
Forward sales contracts	545		—		545		—		68		—		68		—
Foreign exchange	48		—		48		—		169		—		169		—
Credit contracts	10		—		10		—
Equity swap									—		—		—		—
Total derivative liabilities	57,544		—		57,544		—		65,447		—		65,447		—
True-up liability	12,581		—		—		12,581		13,707		—		—		13,707
Total fair value of liabilities (a)	$	70,125	$	—	$	57,544	$	12,581
Total fair value of liabilities ⁽¹⁾									$	79,154	$	—	$	65,447	$	13,707
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	21,987	$	—	$	—	$	21,987
Impaired loans (c)	56,006		—		—		56,006
Other property (d)	17,052		—		—		17,052
Other real estate covered by loss share (e)	22,782		—		—		22,782
Total fair value	$	117,827	$	—	$	—	$	117,827
Mortgage servicing rights ⁽²⁾									$	20,526	$	—	$	—	$	20,526
Impaired loans ⁽³⁾									63,839		—		—		63,839
Other property⁽⁴⁾									16,956		—		—		16,956
Other real estate covered by loss share ⁽⁵⁾									7,293		—		—		7,293
Total nonrecurring fair value									$	108,614	$	—	$	—	$	108,614

~~(a) -~~

(1) There were no transfers between levels 1, ~~and~~ 2 or 3 of the fair value hierarchy during the three months ended ~~June 30, 2014~~.

~~(b) - MSRs with a recorded investment of~~ ~~$22.2 million~~ ~~were reduced by a specific valuation allowance totaling~~ ~~$0.6 million~~ ~~to a reported carrying value of~~ ~~$21.6 million~~ ~~resulting in recognition of $0.1 million in expense included in loans sales and servicing income in the three months ended~~ ~~June 30, 2014~~.March 31, 2015.

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~~(c) -~~(2) MSRs with a recorded investment of $21.5 million were reduced by a specific valuation allowance totaling $1.1 million to a reported carrying value of $20.4 million resulting in recognition of $0.2 million in expense included in loan sales and servicing income in the three months ended March 31, 2015.

(3) Collateral dependent impaired loans with a recorded investment of ~~$62.2~~$75.6 million were reduced by specific valuation allowance allocations totaling ~~$6.2~~$11.8 million to a reported net carrying value of ~~$56.0~~$63.8 million.

~~(d) -~~(4) Amounts do not include assets held at cost at ~~June 30, 2014~~.March 31, 2015. During the three months ended ~~June 30, 2014~~,March 31, 2015, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of ~~$0.7~~$0.9 million included in noninterest expense.

~~(e) -~~(5) Amounts do not include assets held at cost at ~~June 30, 2014~~.March 31, 2015. During the three months ended ~~June 30, 2014~~,March 31, 2015, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses ~~$0.7~~of $0.1 million included in noninterest expense.

Fair Value by Hierarchy
(In thousands) December 31, 2013 Level 1 Level 2 Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities $ 3,036
$ 3,036
$ —
$ —
Nonmarketable equity securities 3,281
—
10
3,271
U.S. States and political subdivisions 262,367
—
262,367
—
Residential mortgage-backed securities:
U.S. government agencies 969,922
—
969,922
—
Commercial mortgage-backed securities:
U.S. government agencies 69,567
—
69,567
—
Residential collateralized mortgage-backed securities:
U.S. government agencies 1,518,393
—
1,518,393
—
Non-agency 9
—
—
9
Commercial collateralized mortgage-backed securities:
U.S. government agencies 102,268
—
102,268
—
Corporate debt securities 50,644
—
—
50,644
Asset-backed securities
Collateralized loan obligations 293,687
—
—
293,687
Total available-for-sale securities 3,273,174
3,036
2,922,527
347,611
Residential loans held for sale 11,622
—
11,622
—
Derivative assets:
Interest rate swaps - nondesignated 46,577
—
46,577
—
Mortgage loan commitments 891
—
891
—
Forward sale contracts 384
—
384
—
Foreign exchange 50
—
50
—
Total derivative assets 47,902
—
47,902
—
Total fair value of assets (a) $ 3,332,698
$ 3,036
$ 2,982,051
$ 347,611
Derivative liabilities:
Interest rate swaps - fair value hedges $ 11,574
$ —
$ 11,574
$ —
Interest rate swaps - nondesignated 46,577
—
46,577
—
Foreign exchange 50
—
50
—
Total derivative liabilities 58,201
—
58,201
—
True-up liability 11,463
—
—
11,463
Total fair value of liabilities (a) $ 69,664
$ —
$ 58,201
$ 11,463
Nonrecurring fair value measurement
Mortgage servicing rights (b) $ 23,041
$ —
$ —
$ 23,041
Impaired loans (c) 47,870
—
—
47,870
Other property (d) 10,018
—
—
10,018
Other real estate covered by loss share (e) 8,754
—
—
8,754
Total fair value $ 89,683
$ —
$ —
$ 89,683

~~(a) - There were no transfers between levels 1, 2 or 3 of the fair value hierarchy during the year ended~~ ~~December 31, 2013~~.

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			Fair Value by Hierarchy
(In thousands)	December 31, 2014		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	2,974	$	2,974	$	—	$	—
U.S. government agency debentures	2,482		—		2,482		—
U.S. States and political subdivisions	227,342		—		227,342		—
Residential mortgage-backed securities:
U.S. government agencies	970,998		—		970,998		—
Commercial mortgage-backed securities:
U.S. government agencies	103,403		—		103,403		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,676,567		—		1,676,567		—
Non-agency	7		—		1		6
Commercial collateralized mortgage-backed securities:
U.S. government agencies	222,334		—		222,334		—
Corporate debt securities	51,337		—		—		51,337
Asset-backed securities
Collateralized loan obligations	287,844		—		—		287,844
Total available-for-sale securities	3,545,288		2,974		3,203,127		339,187
Residential loans held for sale	13,428		—		13,428		—
Derivative assets:
Interest rate swaps - fair value hedges	5,256		—		5,256		—
Interest rate swaps - nondesignated	48,366		—		48,366		—
Mortgage loan commitments	1,408		—		1,408		—
Forward sale contracts	—		—		—		—
Foreign exchange	167		—		167		—
Total derivative assets	55,197		—		55,197		—
Total fair value of assets ⁽¹⁾	$	3,613,913	$	2,974	$	3,271,752	$	339,187
Derivative liabilities:
Interest rate swaps - fair value hedges	$	6,683	$	—	$	6,683	$	—
Interest rate swaps - nondesignated	48,366		—		48,366		—
Forward sale contracts	272		—		272		—
Foreign exchange	118		—		118		—
Total derivative liabilities	55,439		—		55,439		—
True-up liability	13,294		—		—		13,294
Total fair value of liabilities ⁽¹⁾	$	68,733	$	—	$	55,439	$	13,294
Nonrecurring fair value measurement
Mortgage servicing rights ⁽²⁾	$	21,228	$	—	$	—	$	21,228
Impaired loans ⁽³⁾	56,041		—		—		56,041
Other property ⁽⁴⁾	12,510		—		—		12,510
Other real estate covered by loss share ⁽⁵⁾	3,614		—		—		3,614
Total nonrecurring fair value	$	93,393	$	—	$	—	$	93,393

~~(b) -~~(1) There were no transfers between levels 1, 2 or 3 of the fair value hierarchy during the year ended December 31, 2014.

(2) MSRs with a recorded investment of ~~$22.8~~$22.0 million were reduced by a specific valuation allowance totaling ~~$0.3~~$1.0 million to a reported carrying value of ~~$22.5~~$21.1 million resulting in a recovery of previously recognized expense of ~~$2.3~~$0.7 million in recoveries included in loans sales and servicing income in the year ended ~~ended~~ December 31, ~~2013~~.2014.

~~(c) -~~ (3)Collateral dependent impaired loans with a recorded investment of ~~$52.6~~$60.3 million were reduced by specific valuation allowance allocations totaling ~~$4.8~~$4.3 million to a reported net carrying value of ~~$47.9~~$56.0 million.

~~(d) Amounts do not include assets held at cost at~~ ~~December 31, 2013. During the year ended~~ ~~December 31, 2013, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of~~ ~~$1.4 million~~ ~~included in noninterest expense.~~

~~(e) Amounts do not include assets held at cost at~~ ~~December 31, 2013. During the year ended~~ ~~December 31, 2013, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of~~ ~~$1.0 million~~ ~~included in noninterest expense.~~

Fair Value by Hierarchy
(In thousands) June 30, 2013 Level 1 Level 2 Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities $ 3,213
$ 3,213
$ —
$ —
Non-marketable equity securities 3,281
10
3,271
U.S. States and political subdivisions 277,934
—
277,934
—
Residential mortgage-backed securities:
U.S. government agencies 1,075,928
—
1,075,928
—
Commercial mortgage-backed securities:
U.S. government agencies 56,497
—
56,497
—
Residential collateralized mortgage-backed securities:
U.S. government agencies 1,566,728
—
1,566,728
—
Non-agency 10
—
2
8
Commercial collateralized mortgage-backed securities:
U.S. government agencies 106,568
—
106,568
—
Corporate debt securities 51,138
—
—
51,138
Asset-backed securities:
Collateralized loan obligations 158,095
—
—
158,095
Total available-for-sale securities 3,299,392
3,213
3,083,667
212,512
Residential loans held for sale 22,855
—
22,855
—
Derivative assets:
Interest rate swaps - nondesignated 47,804
—
47,804
—
Mortgage loan commitments 779
—
779
—
Forward sale contracts 4,458
—
4,458
—
Foreign exchange 117
—
117
—
Total derivative assets 53,158
—
53,158
—
Total fair value of assets (a) $ 3,375,405
$ 3,213
$ 3,159,680
$ 212,512
Derivative liabilities:
Interest rate swaps - fair value hedges 14,319
—
14,319
—
Interest rate swaps - nondesignated 47,804
—
47,804
—
Foreign exchange 94
—
94
—
Total derivative liabilities 62,217
—
62,217
—
True-up liability 10,937
—
—
10,937
Total fair value of liabilities (a) $ 73,154
$ —
$ 62,217
$ 10,937
Nonrecurring fair value measurement
Mortgage servicing rights (b) $ 22,529
$ —
$ —
$ 22,529
Impaired loans (c) 52,606
—
—
52,606
Other property (d) 16,825
—
—
16,825
Other real estate covered by loss share (e) 18,338
—
—
18,338
Total fair value $ 110,298
$ —
$ —
$ 110,298

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~~(a) - There were no transfers between levels 1 and 2 of the fair value hierarchy during the three months ended~~ ~~June 30, 2013~~.

~~(b) - MSRs with a recorded investment of~~ ~~$22.6 million~~ ~~were reduced by a specific valuation allowance totaling~~ ~~$0.5 million~~ ~~to a reported carrying value of~~ ~~$22.1 million~~ ~~resulting in recovery of a previously recognized expense of~~ ~~$0.8 million~~ ~~in the three months ended~~ ~~June 30, 2013~~.

~~(c) - Collateral dependent impaired loans with a recorded investment of~~ ~~$58.1 million~~ ~~were reduced by specific valuation allowance allocations totaling~~ ~~$5.5 million~~ ~~to a reported net carrying value of~~ ~~$52.6 million~~.

~~(d) -~~(4) Amounts do not include assets held at cost at ~~June 30, 2013~~.December 31, 2014. During the ~~three months~~year ended ~~June 30, 2013~~,December 31, 2014, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of ~~$0.3~~$2.6 million included in noninterest expense.

~~(e) -~~(5) Amounts do not include assets held at cost at ~~June 30, 2013~~.December 31, 2014. During the ~~three months~~year ended ~~June 30, 2013~~,December 31, 2014, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $~~0.6~~1.2 million included in noninterest expense.



			Fair Value by Hierarchy
(In thousands)	March 31, 2014		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	3,055	$	3,055	$	—	$	—
Non-marketable equity securities	3,281				10		3,271
U.S. States and political subdivisions	250,980		—		250,980		—
Residential mortgage-backed securities:
U.S. government agencies	1,023,994		—		1,023,994		—
Commercial mortgage-backed securities:
U.S. government agencies	85,133		—		85,133		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,548,104		—		1,548,104		—
Non-agency	8		—		1		7
Commercial collateralized mortgage-backed securities:
U.S. government agencies	172,469		—		172,469		—
Corporate debt securities	51,588		—		—		51,588
Asset-backed securities:
Collateralized loan obligations	294,559		—		—		294,559
Total available-for-sale securities	3,433,171		3,055		3,080,691		349,425
Residential loans held for sale	7,143		—		7,143		—
Derivative assets:
Interest rate swaps - fair value hedges	1		—		1		—
Interest rate swaps - nondesignated	44,672		—		44,672		—
Mortgage loan commitments	1,575		—		1,575		—
Forward sale contracts	167		—		167		—
Foreign exchange	52		—		52		—
Total derivative assets	46,467		—		46,467		—
Total fair value of assets ⁽¹⁾	$	3,486,781	$	3,055	$	3,134,301	$	349,425
Derivative liabilities:
Interest rate swaps - fair value hedges	10,392		—		10,392		—
Interest rate swaps - nondesignated	44,672		—		44,672		—
Foreign exchange	42		—		42		—
Total derivative liabilities	55,106		—		55,106		—
True-up liability	11,983		—		—		11,983
Total fair value of liabilities ⁽¹⁾	$	67,089	$	—	$	55,106	$	11,983
Nonrecurring fair value measurement
Mortgage servicing rights ⁽²⁾	$	22,631	$	—	$	—	$	22,631
Impaired loans ⁽³⁾	58,296		—		—		58,296
Other property ⁽⁴⁾	11,568		—		—		11,568
Other real estate covered by loss share ⁽⁵⁾	19,708		—		—		19,708
Total nonrecurring fair value	$	112,203	$	—	$	—	$	112,203

(1) There were no transfers between levels 1, 2 and 3 of the fair value hierarchy during the three months ended March 31, 2014.

(2) MSRs with a recorded investment of $22.5 million were reduced by a specific valuation allowance totaling $0.4 million to a reported carrying value of $22.0 million resulting in recovery of a previously recognized expense of $0.1 million in the three months ended March 31, 2014.

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(3) Collateral dependent impaired loans with a recorded investment of $65.3 million were reduced by specific valuation allowance allocations totaling $7.0 million to a reported net carrying value of $58.3 million.

(4) Amounts do not include assets held at cost at March 31, 2014. During the three months ended March 31, 2014, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.8 million included in noninterest expense.

(5) Amounts do not include assets held at cost at March 31, 2014. During the three months ended March 31, 2014, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.4 million included in noninterest expense.

The following section describes the valuation methodologies used by the Corporation to measure financial assets and liabilities at fair value. During the three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014, there were no significant changes to the valuation techniques used by the Corporation to measure fair value.

A~~vailable-for-sale~~Available-for-sale securities. When quoted prices are available in an active market, securities are valued using the quoted price and are classified as Level 1. The quoted prices are not adjusted. Level 1 instruments include money market mutual funds.

Securities are classified as Level 2 if quoted prices for identical securities are not available, and fair value is determined using pricing models by a third-party pricing service. Approximately ~~90%~~91% of the available-for-sale portfolio is Level 2. For the majority of available-for sale securities, the Corporation obtains fair value measurements from an independent third-party pricing service. These instruments include: municipal bonds; bonds backed by the U.S. government; corporate bonds; MBS; securities issued by the U.S. Treasury; and certain agency CMOs. The independent pricing service uses industry-standard models to price U.S. ~~Government~~government agencies and MBS 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. Obligations of state and political subdivisions are valued using a 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 for securities classified as Level 2 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.

Securities are classified as Level 3 when there is limited activity in the market for a particular instrument and fair value is determined by obtaining broker quotes. As of ~~June 30, 2014~~March 31, 2015, ~~less than~~ ~~10%~~9% of the available-for-sale portfolio is Level 3, which consists of single issuer trust preferred securities and CLOs.

The single issuer trust preferred securities are measured at unadjusted prices obtained from the independent pricing service. The independent pricing service prices these instruments through a broker quote when sufficient information, such as cash flows or other security structure or market information, is not available to produce an evaluation. Broker-quoted securities are adjusted by the independent pricing service based solely on the receipt of updated quotes from market makers or broker-dealers recognized as market participants. A list of such issues is compiled by the independent pricing service daily. For broker-quoted issues, the independent pricing service applies a zero spread relationship to the bid-side valuation, resulting in the same values for the mean and ask.

CLO are securitized products where payments from multiple middle-sized and large business loans are pooled together and segregated into different classes of bonds with payments on these bonds based on their priority within the overall deal structure. The markets for such securities are generally characterized by low trading volumes and wide bid-ask spreads, all driven by more limited market participants. Although estimated

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

prices are generally obtained for such securities, the level of market observable assumptions used is limited in the valuation. Specifically, market assumptions regarding credit adjusted cash flows and liquidity influences on

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

discount rates were difficult to observe at the individual bond level. Accordingly, the securities are currently valued by a third-party that primarily utilizes dealer or pricing service prices and, subsequently, verifies this pricing through a disciplined process to ensure proper valuations and to highlight differences in cash flow modeling or other risks to determine if the market perception of the risk of a CLO is beginning to deviate from other similar tranches. This is done by establishing ranges for appropriate pricing yields for each CLO tranche and, using a standardized cash flow scenario, ensuring yields are consistent with expectations.

On a monthly basis, Management validates the pricing methodologies utilized by our independent pricing service to ensure the fair-value determination is consistent with the applicable accounting guidance and that the investments are properly classified in the fair value hierarchy. Management substantiates the fair values determined for a sample of securities held in portfolio by reviewing the key assumptions used by the independent pricing service to value the securities and comparing the fair values to prices from other independent sources for the same and similar securities. Management analyzes variances and conducts additional research with the independent pricing service, if necessary, and takes appropriate action based on its findings.

Loans held for sale. These loans are regularly traded in active markets through programs offered by FHLMC and FNMA, and observable pricing information is available from market participants. The prices are adjusted as necessary to include any embedded servicing value in the loans and to take into consideration 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.

Impaired loans. Certain impaired collateral dependent loans are reported at fair value less costs to sell the collateral. Collateral values are estimated using Level 3 inputs, consisting of third-party appraisals or price opinions and internal adjustments necessary in the judgment of Management to reflect current market conditions and current operating results for the specific collateral. 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. When impaired collateral dependent loans are individually re-measured and reported at fair value of the collateral, less costs to sell, a direct loan charge off to the ALL and/or a specific valuation allowance allocation is recorded.

Other Property. Certain other property which consists of foreclosed assets and properties securing residential and commercial loans, upon initial recognition and transfer from loans, are re-measured and reported at fair value less costs to sell to the property through a charge-off to the ALL based on the fair value of the foreclosed assets. The fair value of a foreclosed asset, upon initial recognition, is estimated using Level 3 inputs, consisting of third-party appraisals or price opinions and internal adjustments necessary in the judgment of Management to reflect current market conditions and current operating results for the specific collateral. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down further through a charge to noninterest expense.

Mortgage Servicing Rights. The Corporation carries its MSRs at lower of cost or fair value, and, therefore, they are subject to fair value measurements on a nonrecurring basis. Since sales of MSRs tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of MSRs. As such, like other participants in the mortgage banking business, the Corporation relies primarily on a discounted cash flow model, incorporating assumptions about loan prepayment rates, discount rates, servicing costs and other economic factors, to estimate the fair value of its mortgage servicing rights. Since the valuation model uses significant unobservable inputs, the Corporation classifies MSRs within Level 3.

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~~the fair value of its mortgage servicing rights. Since the valuation model uses significant unobservable inputs, the Corporation classifies MSRs within Level 3.~~

The Corporation utilizes a third-party vendor to perform the modeling to estimate the fair value of its MSRs. The Corporation reviews the estimated fair values and assumptions used by the third-party in the model on a quarterly basis. The Corporation also compares the estimates of fair value and assumptions to recent market activity and against its own experience. See Note 1211 (Mortgage Servicing Rights and Mortgage Servicing Activity) for further information on MSRs valuation assumptions.

Derivatives. The Corporation's derivatives include interest rate swaps and 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 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 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" (interest rate 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 a fixed rate loan commitment at one lender and enter into a new lower fixed rate 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 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~~Bank's Board 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 have been incurred due to a counterparty's inability to pay any uncollateralized position. There was no significant change in value of derivative assets and liabilities attributed to credit risk for the three months ended ~~June 30, 2014~~March 31, 2015.

True-up liability. In connection with the George Washington and Midwest acquisitions in 2010, the Bank has agreed to pay the FDIC should the estimated losses on the acquired loan portfolios as well as servicing fees earned on the acquired loan portfolios not meet thresholds as stated in the loss sharing agreements (the "true-up liability"). This contingent consideration is classified as a liability within accrued taxes, expenses and other liabilities on the consolidated balance sheets and is remeasured at fair value each reporting date until the contingency is resolved. The changes in fair value are recognized in earnings in the current period.

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

An expected value methodology is used as a starting point for determining the fair value of the true-up liability based on the contractual terms prescribed in the loss sharing agreements. The resulting values under both calculations are discounted over 10 years (the period defined in the loss sharing agreements) to reflect the uncertainty in the timing and payment of the true-up liability by the Bank to arrive at a net present value. The

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discount rate used to value the true-up liability was ~~3.12%~~3.05% and ~~3.59%~~3.46% as of ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014, respectively. Increasing or decreasing the discount rate by one percentage point would change the liability by approximately ~~$0.7~~$0.7 million and ~~$0.8~~$0.7 million,, respectively, as of ~~June 30,~~March 31, 2015 and March 31, 2014.

In accordance with the loss sharing agreements governing the Midwest acquisition, on July 15, 2020 (the “Midwest True-Up Measurement Date”), the Bank has agreed to pay to the FDIC half of the amount, if positive, calculated as: (1) 20% of the intrinsic loss estimate of the FDIC (approximately $152 million); minus (2) the sum of (A) 25% of the asset premium paid in connection with the Midwest acquisition (approximately $21 million); plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). The fair value of the true-up liability associated with the Midwest acquisition was $8.6 million, $~~7.9 million~~, ~~$7.1~~8.5 million, and $~~6.8~~7.4 million as of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014, respectively.

In accordance with the loss sharing agreements governing the George Washington acquisition, on April 14, 2020 (the “George Washington True-Up Measurement Date”), the Bank has agreed to pay to the FDIC 50% of the excess, if any, of (1) 20% of the stated threshold (approximately $34.4 million) less (2) the sum of (A) 25% of the asset discount (approximately $12 million) received in connection with the George Washington acquisition plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). The fair value of the true-up liability associated with the George Washington acquisition was $5.1 million, $~~4.7 million~~, ~~$4.3~~4.8 million, and $~~4.1~~4.6 million as of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014, respectively.

For the purposes of the above calculations, cumulative shared-loss payments means: (i) the aggregate of all of the payments made or payable to the Bank under the loss sharing agreements minus (ii) the aggregate of all of the payments made or payable to the FDIC. The cumulative servicing amount means the period servicing amounts (as defined in the loss sharing agreements) for every consecutive twelve-month period prior to and ending on the Midwest and George Washington True-Up Measurement Dates. The cumulative loss share payments and cumulative service amounts components of the true-up calculations are estimated each period end based on the expected amount and timing of cash flows of the acquired loan portfolios. See Note 43 (Loans) and Note 54 (Allowance for Loan Losses) for additional information on the estimated cash flows of the acquired loan portfolios.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2015 and 2014 are summarized as follows:



	Three Months Ended March 31,
	2015				2014
(In thousands)	Available-for-sale securities		True-up liability		Available-for-sale securities		True-up liability
Balance at beginning of period	$	339,187	$	13,294	$	347,610	$	11,463
(Gains) losses included in earnings ⁽¹⁾	—		413		—		520
Unrealized gains (losses) ⁽²⁾	6,682		—		1,768		—
Purchases	—		—		—		—
Settlements	362		—		47		—
Balance at ending of period	$	346,231	$	13,707	$	349,425	$	11,983

(1)Reported in "Other expense"

(2) Reported in "Other comprehensive income (loss)"

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~~The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three and six months ended June 30, 2014 and~~ ~~2013~~ ~~are summarized as follows:~~

Three Months Ended June 30, Six Months Ended June 30,
2014 2013 2014 2013
(In thousands) Available-for-sale securities True-up liability Available-for-sale securities True-up liability Available-for-sale securities True-up liability Available-for-sale securities True-up liability
Balance at beginning of period $ 349,425
$ 11,983
$ 51,234
$ 12,783
$ 347,610
$ 11,463
$ 49,661
$ 12,259
Fair value of assets acquired —
—
3,271
—
—
—
3,271
—
(Gains) losses included in earnings ^(a)
—
598
—
(1,846 ) —
1,118
—
(1,322 )
Unrealized gains (losses) ^(b)
1,253
—
(1,923 ) —
3,021
—
(363 ) —
Purchases —
—
159,916
—
—
—
159,916
—
Settlements 55
—
14
—
102
—
27
—
Balance at ending of period $ 350,733
$ 12,581
$ 212,512
$ 10,937
$ 350,733
$ 12,581
$ 212,512
$ 10,937

^(a)~~Reported in "Other expense"~~

^(b) ~~Reported in "Other comprehensive income (loss)"~~

Fair Value Option

Residential mortgage loans held for sale are recorded at fair value under fair value option accounting guidance. The election of the fair value option aligns the accounting for these loans with the related hedges. It also eliminates the requirements of the hedge accounting under GAAP.

Interest income on loans held for sale is accrued on the principal outstanding primarily using the “simple-interest” method. None of these loans were 90 days or more past due, nor were any on nonaccrual as of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014. The aggregate fair value, contractual balance and gain or loss on loans held for sale was as follows:


(In thousands)	June 30, 2014		December 31, 2013		June 30, 2013			March 31, 2015		December 31, 2014		March 31, 2014
Aggregate fair value carrying amount	$	21,632	$	11,622	$	22,855		$	4,657	$	14,389	$	7,143
Aggregate unpaid principal / contractual balance	20,886		11,438		23,220			4,489		13,873		6,955
Carrying amount over aggregate unpaid principal ^(a)(1)	$	746	$	184	$	(365	)	$	168	$	516	$	188

^(a)(1) These changes are included in "Loan sales and servicing income" in the Consolidated Statements of Income.

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

Disclosures about Fair Value of Financial Instruments

The carrying amount and estimated fair value of the Corporation’s financial instruments that are carried at either fair value or cost as of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014 are shown in the tables below.


	June 30, 2014										March 31, 2015
	Carrying Amount		Fair Value								Carrying Amount		Fair Value
(In thousands)			Total		Level 1		Level 2		Level 3				Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	642,570	$	642,570	$	642,570	$	—	$	—	$	532,425	$	532,425	$	532,425	$	—	$	—
Available-for-sale securities	3,478,420		3,478,420		2,935		3,124,752		350,733		3,791,059		3,791,059		2,869		3,441,959		346,231
Held-to-maturity securities	3,052,118		3,001,866		—		3,001,866		—		2,855,174		2,848,912		—		2,848,912		—
Other securities	148,433		148,433		—		148,433		—		148,475		148,475		—		148,475		—
Loans held for sale	21,632		21,632		—		21,632		—		3,568		3,568		—		3,568		—
Net originated loans	11,375,243		11,458,318		—		—		11,458,318		12,758,492		12,588,147		—		—		12,588,147
Net acquired loans	3,018,810		3,166,228		—		—		3,166,228		2,317,386		2,393,942		—		—		2,393,942
Net covered loans and loss share receivable	433,538		433,538		—		—		433,538
Net FDIC acquired loans and loss share receivable											268,459		268,459		—		—		268,459
Accrued interest receivable	63,172		63,172		—		63,172		—		69,086		69,086		—		69,086		—
Derivatives	50,550		50,550		—		50,550		—		72,573		72,573		—		72,573		—
Financial liabilities:
Deposits	$	19,298,396	$	19,300,842	$	—	$	19,300,842	$	—	$	19,925,595	$	19,932,571	$	—	$	19,932,571	$	—
Federal funds purchased and securities sold under agreements to repurchase	1,218,855		1,218,855		—		1,218,855		—		1,113,371		1,113,371		—		1,113,371		—
Wholesale borrowings	649,021		652,615		—		652,615		—		316,628		320,180		—		320,180		—
Long-term debt	324,433		335,757		—		335,757		—		512,625		527,018		—		527,018		—
Accrued interest payable	8,311		8,311		—		8,311		—		9,620		9,620		—		9,620		—
Derivatives	57,544		57,544		—		57,544		—		65,447		65,447		—		65,447		—

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	December 31, 2013										December 31, 2014
	Carrying Amount		Fair Value								Carrying Amount		Fair Value
(In thousands)			Total		Level 1		Level 2		Level 3				Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	917,822	$	917,822	$	917,822	$	—	$	—	$	697,424	$	697,424	$	697,424	$	—	$	—
Available-for-sale securities	3,273,174		3,273,174		3,036		2,922,527		347,611		3,545,288		3,545,288		2,974		3,203,127		339,187
Held-to-maturity securities	2,935,688		2,824,240		—		2,824,240		—		2,903,609		2,875,920		—		2,875,920		—
Other securities	180,803		180,803		—		180,803		—		148,654		148,654		—		148,654		—
Loans held for sale	11,622		11,622		—		11,622		—		13,428		13,428		—		13,428		—
Net originated loans	10,116,903		10,017,722		—		—		10,017,722		12,398,116		12,235,530		—		—		12,235,530
Net acquired loans	3,494,874		3,627,275						3,627,275		2,471,723		2,564,842		—		—		2,564,842
Net covered loans and loss share receivable	547,943		547,943		—		—		547,943
Net FDIC acquired loans and loss share receivable											312,659		312,659		—		—		312,659
Accrued interest receivable	52,929		52,929		—		52,929		—		63,657		63,657		—		63,657		—
Derivatives	47,902		47,902		—		47,902		—		55,197		55,197		—		55,197		—
Financial liabilities:
Deposits	$	19,533,601	$	19,532,368	$	—	$	19,532,368	$	—	$	19,504,665	$	19,510,192	$	—	$	19,510,192	$	—
Federal funds purchased and securities sold under agreements to repurchase	851,535		851,535		—		851,535		—		1,272,591		1,272,591		—		1,272,591		—
Wholesale borrowings	200,600		204,124		—		204,124		—		428,071		430,676		—		430,676		—
Long-term debt	324,428		319,711		—		319,711		—		505,192		516,476		—		516,476		—
Accrued interest payable	9,339		9,339		—		9,339		—		9,820		9,820		—		9,820		—
Derivatives	58,201		58,201		—		58,201		—		55,439		55,439		—		55,439		—

June 30, 2013

Carrying
Amount
Fair Value
(In thousands) Total Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 909,490
$ 909,490
$ 909,490
$ —
$ —
Available for sale securities 3,299,392
3,299,392
3,213
3,083,667
212,512
Held to maturity securities 2,551,860
2,487,071
—
2,487,071
—
Other securities 267,565
267,565
—
267,565
—
Loans held for sale 22,855
22,855
—
22,855
—
Net originated loans 9,033,980
8,984,845
—
—
8,984,845
Net acquired loans 4,250,362
4,250,362
4,250,362
Net covered loans and loss share receivable 711,367
711,367
—
—
711,367
Accrued interest receivable 48,635
48,635
—
48,635
—
Derivatives 53,158
53,158
—
53,158
—
Financial liabilities:
Deposits $ 19,119,722
$ 19,125,843
$ —
$ 19,125,843
$ —
Federal funds purchased and securities sold under agreements to repurchase 844,871
844,871
—
844,871
—
Wholesale borrowings 201,337
205,210
—
205,210
—
Long-term debt 324,422
322,322
—
322,322
—
Accrued interest payable 9,066
9,066
—
9,066
—
Derivatives 62,217
62,217
—
62,217
—

8076

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	March 31, 2014
	Carrying Amount		Fair Value
(In thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	959,285	$	959,285	$	959,285	$	—	$	—
Available for sale securities	3,433,171		3,433,171		3,055		3,080,691		349,425
Held to maturity securities	3,079,620		2,990,161		—		2,990,161		—
Other securities	148,446		148,446		—		148,446		—
Loans held for sale	7,143		7,143		—		7,143		—
Net originated loans	10,734,797		10,621,047		—		—		10,621,047
Net acquired loans	3,232,941		3,367,024		—		—		3,367,024
Net FDIC acquired loans and loss share receivable	495,815		495,815		—		—		495,815
Accrued interest receivable	64,555		64,555		—		64,555		—
Derivatives	46,467		46,467		—		46,467		—
Financial liabilities:
Deposits	$	19,811,674	$	19,810,963	$	—	$	19,810,963	$	—
Federal funds purchased and securities sold under agreements to repurchase	926,195		926,195		—		926,195		—
Wholesale borrowings	349,277		352,923		—		352,923		—
Long-term debt	324,430		330,337		—		330,337		—
Accrued interest payable	5,682		5,682		—		5,682		—
Derivatives	55,106		55,106		—		55,106		—

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

Cash and cash equivalents – ~~For these~~Due to their short-term ~~instruments,~~nature, the carrying amount ~~is considered a reasonable estimate~~ of these instruments approximates the estimated fair value.

Investment securities – See Financial Instruments Measured at Fair Value above.

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.

Net originated loans – The originated 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.

Net acquired and ~~covered~~FDIC acquired loans – Fair values for acquired and ~~covered~~FDIC acquired loans were estimated based on a discounted projected 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

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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 the Bank choose to dispose of them. Fair value was estimated using discounted projected cash flows related to the FDIC loss share 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 from the FDIC.

Accrued interest receivable – The carrying amount is considered a reasonable estimate of fair value.

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

Deposits – The estimated fair value of deposits with no stated maturity, which includes demand deposits, money market accounts and other savings accounts, 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.

Federal funds purchased and securities sold under agreements to repurchase, wholesale borrowings and long-term debt – The carrying amount of variable rate borrowings including federal funds purchased ~~is considered to be their~~approximates the estimated fair value. Quoted market prices or the discounted cash flow method was used to

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estimate the fair 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 is considered a reasonable estimate of fair value.

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

True-up liability – See Financial Instruments Measured at Fair Value above.

1211. Mortgage Servicing Rights and Mortgage Servicing Activity

In the ~~three and~~ ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014, the Corporation sold residential mortgage loans from the held for sale portfolio with unpaid principal balances of ~~$143.6~~$50.3 million and $~~310.1~~65.6 million, respectively, and recognized pretax gains of $~~3.5~~0.6 million and $~~6.7~~1.3 million, respectively, which are included as a component of loan sales and servicing income. As of ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014, the Corporation retained the related MSRs on ~~$125.2~~$45.2 million and $~~285.3~~57.1 million, respectively, of the loans sold and receives servicing fees.

The Corporation serviced for third parties approximately ~~$2.7~~$2.6 billion of residential mortgage loans at ~~June 30, 2014~~March 31, 2015 and $2.7 billion at ~~June 30, 2013~~March 31, 2014. For the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014, loan servicing fees, not including valuation changes included in loan sales and servicing income, were $~~3.3~~1.6 million and $~~3.1~~1.6 million, respectively.

Servicing rights are presented within other assets on the accompanying Consolidated Balance Sheets. The retained servicing rights are initially valued at fair value. Since MSRs do not trade in an active market with

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readily observable prices, the Corporation relies primarily on a discounted cash flow analysis model to estimate the fair value of its MSRs. Additional information can be found in Note 1110 (Fair Value Measurement). MSRs are subsequently measured using the amortization method. Accordingly, the MSRs are amortized over the period of, and in proportion to, the estimated net servicing income and is recorded in loan sales and servicing income.

Changes in the carrying amount of MSRs and MSRs valuation allowance are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(In thousands)	2014			2013			2014			2013			2015			2014
Balance at beginning of period	$	22,469		$	21,378		$	22,760		$	21,316		$	22,011		$	22,760
Addition of Citizens' MSRs on Acquisition Date	—			1,065			—			1,065
Additions	643			1,434			1,207			2,701			470			564
Amortization	(963		)	(1,273		)	(1,817		)	(2,478		)	(991		)	(855		)
Balance at end of period	22,150			22,604			22,150			22,604			21,490			22,469
Valuation allowance at beginning of period	(425		)	(1,234		)	(282		)	(2,564		)	(955		)	(282		)
Recoveries (Additions)	(137		)	752			(280		)	2,082
Additions													(176		)	(143		)
Valuation allowance at end of period	(562		)	(482		)	(562		)	(482		)	(1,131		)	(425		)
MSRs, net carrying balance	$	21,588		$	22,122		$	21,588		$	22,122		$	20,359		$	22,044
Fair value at end of period	$	21,987		$	22,529		$	21,987		$	22,529		$	20,526		$	22,631

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 servicing rights are disaggregated based on loan type and interest rate which are the predominant risk characteristics of the underlying loans. A valuation allowance is established through a charge to earnings to the extent the amortized cost of the MSRs exceeds the

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for the stratification, the valuation is reduced through a recovery to earnings. No permanent impairment losses were written off against the allowance during the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014.

Key economic assumptions and the sensitivity of the current fair value of the MSRs related to immediate 10% and 25% adverse changes in those assumptions at ~~June 30, 2014~~March 31, 2015 are presented in the following table below. These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in the fair value based on 10% variation in the prepayment speed assumption generally cannot be extrapolated because the relationship of the change in the prepayment speed assumption to the change in fair value may not be linear. Also, in the below table, the effect of a variation in the discount rate assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in prepayment speed estimates could result in changes in the discount rates), which might magnify or counteract the sensitivities.

(Dollars in thousands)


Prepayment speed assumption (annual CPR)	10.64		%	12.63		%
Decrease in fair value from 10% adverse change	$	743		$	778
Decrease in fair value from 25% adverse change	$	1,783		$	1,510
Discount rate assumption	9.90		%	9.39		%
Decrease in fair value from 100 basis point adverse change	$	682		$	632
Decrease in fair value from 200 basis point adverse change	$	1,320		$	1,222
Expected weighted-average life (in months)	99.30			93

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1312. ~~Contingencies~~Commitments and Guarantees

Commitments to Extend Credit

To accommodate the financial needs its customers, the Corporation issues off-balance sheet financial instruments in connection with commercial and consumer lending activities. The credit risk associated with these instruments is essentially the same as that involved in extending loans to customers and is subject to the Corporation's normal credit approval policies. The Corporation maintains an allowance to cover probable credit losses inherent in lending-related commitments. The reserve for unfunded lending commitments at March 31, 2015, December 31, 2014, and March 31, 2014, included in “accrued expenses and other liabilities” on the Consolidated Balance Sheets, was $4.3 million, $5.8 million, and $7.5 million, respectively.

The Corporation's credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.



Unused commitments to extend credit
(In thousands)		March 31, 2015		December 31, 2014		March 31, 2014
	Commercial	$	3,691,193	$	3,748,690	$	3,394,877
	Consumer	2,343,677		2,387,623		2,237,324
	Total unused commitments to extend credit	$	6,034,870	$	6,136,313	$	5,632,201

Unused Commitments to Extend Credit. Commitments to extend credit are legally binding agreements to lend to a customer, provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Since many commitments expire without being drawn upon, the total contractual amount of commitments does not necessarily represent future cash requirements of the Corporation.

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 sheets. Additional information is provided in Note 8 (Derivatives and Hedging Activities).

Guarantees

The Corporation is a guarantor in certain agreements with third parties. The Corporation's maximum credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.



Financial guarantees
(In thousands)		March 31, 2015		December 31, 2014		March 31, 2014
	Standby letters of credit	$	275,736	$	242,390	$	194,118
	Loans sold with recourse	39,996		45,071		38,072
	Total financial guarantees	$	315,732	$	287,461	$	232,190

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Standby Letters of Credit. 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 Corporation has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit. Collateral held varies, but may include marketable securities, equipment, inventory, and real estate. Except for short-term guarantees of $199.8 million at March 31, 2015, the remaining guarantees extend in varying amounts through 2019.

Loans Sold with Recourse. The Corporation regularly sells service retained residential mortgage loans to GSEs as part of its mortgage banking activities. The Corporation provides customary representation and warranties to the GSEs in conjunction with these sales. These representations and warranties generally require the Corporation to repurchase assets if it is subsequently determined that a loan did not meet specified criteria, such as a documentation deficiency or rescission of mortgage insurance. If the Corporation is unable to cure or refute a repurchase request, the Corporation is generally obligated to repurchase the loan or otherwise reimburse the counterparty for losses. The Corporation also sells service released residential mortgage loans to other investors which contain early payment default recourse provisions. As of March 31, 2015, December 31, 2014, and March 31, 2014, the Corporation had sold $33.1 million, $38.1 million, and $27.5 million, respectively, of outstanding residential mortgage loans to GSEs and other investors with recourse provisions. The Corporation had reserved $6.7 million, $7.3 million, and $8.2 million as of March 31, 2015, December 31, 2014, and March 31, 2014, respectively, for estimated losses from representation and warranty obligations and early payment default recourse provisions.

Due to prior acquisitions, as of March 31, 2015, the Corporation continued to service approximately $3.7 million in manufactured housing loans that were sold with recourse compared to $3.7 million and $6.4 million as of December 31, 2014 and March 31, 2014. As of March 31, 2015, the Corporation had reserved $1.1 million for potential losses from these manufactured housing loans, consistent with the reserve balance at December 31, 2014 and March 31, 2014.

The total reserve associated with loans sold with recourse was approximately $7.8 million, $8.4 million, and $9.3 million as of March 31, 2015, December 31, 2014, and March 31, 2014, respectively, and is included in accrued taxes, expenses and other liabilities on the Consolidated Balance Sheets. The Corporation's reserve reflects Management's best estimate of losses. The Corporation's reserving methodology uses current information about investor repurchase requests, and assumptions about repurchase mix and loss severity, based upon the Corporation's most recent loss trends. The Corporation also considers qualitative factors that may result in anticipated losses differing from historical loss trends, such as loan vintage, underwriting characteristics and macroeconomic trends.

Changes in the amount of the repurchase reserve for the three months ended March 31, 2015 and 2014 are as follows:



	Three Months Ended March 31, 2015
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchase reserve
Balance at beginning of period	$	7,250		$	1,124	$	8,374
Net realized losses	(198		)	—		(198		)
Net increase (decrease) to reserve	(402		)	2		(400		)
Balance at end of period	$	6,650		$	1,126	$	7,776

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	Three Months Ended March 31, 2014
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchased reserve
Balance at beginning of period	$	8,737		$	1,114	$	9,851
Net realized losses	(2,593		)	—		(2,593		)
Net increase to reserve	2,056			3		2,059
Balance at end of period	$	8,200		$	1,117	$	9,317

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Litigation

In the normal course of business, the Corporation and its subsidiaries are 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 based on the information currently available the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the results of operations or shareholders' equity of the Corporation. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations in a particular future period as the time and amount of any resolution of such actions and its relationship to the future results of operations are not known.

Reserves are established for legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, including almost all of the class action lawsuits, it is not possible to determine whether a liability will be incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case a reserve will not be recognized until that time.

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Overdraft Litigation

Commencing in December 2010, two separate lawsuits were filed in the Summit County Court of Common Pleas and the Lake County Court of Common Pleas against the Corporation and the Bank. The complaints were brought as putative class actions on behalf of Ohio residents who maintained a checking account at the Bank and who incurred one or more overdraft fees as a result of the alleged re-sequencing of debit transactions. The lawsuit that had been filed in Summit County Court of Common Pleas was dismissed without prejudice on July 11, 2011. The remaining suit in Lake County seeks actual damages, disgorgement of overdraft fees, punitive damages, interest, injunctive relief and attorney fees. In December 2012, the trial court issued an order certifying a proposed class and the Bank and Corporation appealed the order to the Eleventh District Court of Appeals. In September 2013, the Eleventh District Court of Appeals affirmed in part and reversed in part the trial court's class certification order, and remanded the case back to the trial court for further consideration, in particular with respect to the class definition. On October 9, 2013, the Bank and Corporation filed with the Eleventh District Court of Appeals an application for reconsideration and application for consideration en banc. On November 20, 2013, the Eleventh District denied those applications. On December 4, 2013, the Bank and Corporation filed a notice of appeal with the Ohio Supreme Court, and on January 3, 2014, they filed with the Ohio Supreme Court a memorandum in support of the Court's exercising its jurisdiction and accepting the appeal. The plaintiffs filed an opposition, and, on April 24, 2014, the Ohio Supreme Court declined to accept jurisdiction. On ~~July 16,~~August 6, 2014, the Bank and Corporation filed a motion asking the trial court ~~held~~to stay the lawsuit pending arbitration of claims subject to an arbitration agreement. That motion has been fully briefed and is awaiting a ~~status conference, at which time it ordered briefing on~~decision by the ~~issue of~~court. On August 25, 2014, the parties stipulated to a revised class definition (without affecting the pending motion to stay), and ~~addressed certain other matters.~~an order approving that stipulation is awaiting court approval.

Merger Litigation

Between September 17, 2012 and October 5, 2012, alleged shareholders of Citizens filed six purported class action lawsuits in the Circuit Court of Genesee County, Michigan, relating to the proposed merger between Citizens and FirstMerit, which merger closed in April 2013. The lawsuits were consolidated under the caption In re Citizens Republic Bancorp, Inc. Shareholder Litigation, Case No. 12-99027-CK (the "Lawsuit"). The consolidated complaint in the Lawsuit alleges that the former directors of Citizens breached their fiduciary

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duties by failing to obtain the best available price in the merger and by not providing Citizens shareholders with all material information related to the merger, and that FirstMerit and Citizens aided and abetted those alleged breaches of fiduciary duty. The Complaint sought declaratory and injunctive relief to prevent the consummation of the merger, rescissory damages and other equitable relief.

The plaintiffs and defendants have entered into a settlement of the Lawsuit, ~~and~~which the court approved ~~the settlement~~ on September 20, 2013. Under the settlement, the defendants amended the joint proxy statement/prospectus relating to the merger to include certain supplemental disclosures to shareholders of Citizens and agreed to pay attorneys' fees and expenses as awarded by the court. An ~~alleged former shareholder of Citizens objected to the settlement and has filed an~~ appeal of the ~~court's approval of the settlement;~~settlement was dismissed in March 2015 and the settlement ~~will not~~has become ~~final until that appeal has been resolved.~~final.

CRBC 401(k) Litigation

Participants in the Citizens Republic Bancorp 401(k) Plan filed a lawsuit in the United States Court for the Eastern District of Michigan in 2011, alleging that Citizens and certain of its officers and directors violated the Employee Retirement Income Security Act by offering Citizens common stock as an investment alternative in the Plan during periods when it was imprudent to do so and by failing to adequately monitor fiduciaries responsible for administering the Plan. The lawsuit, captioned Kidd v. Citizens Republic Bancorp, Inc. et al., Case No. 2:11-cv-11709, asserts claims for monetary and injunctive relief on behalf of a purported class of

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

participants and beneficiaries in the Plan who held Citizens stock in their Plan accounts during the period from April 17, 2008 to "the present." In April 2014, the court denied the defendants' motion to dismiss the second amended ~~complaint, but stayed the action pending the outcome of a case currently before the U.S. Supreme Court. The court lifted the stay in July 2014.~~complaint.

Based on information currently available, consultation with counsel, available insurance coverage and established reserves, Management believes that the eventual outcome of all claims against the Corporation and its subsidiaries will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position or results of operations. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations for a particular period. The Corporation has not established any reserves with respect to any of this disclosed litigation because it is not possible to determine (i) whether a liability has been incurred; or (ii) an estimate of the ultimate or minimum amount of such liability.

~~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 sheets. Additional information is provided in Note 9 (~~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 reserve for unfunded lending commitments at ~~June 30, 2014~~, ~~December 31, 2013, and~~ ~~June 30, 2013~~ ~~was $7.1 million, $7.9 million and $8.1 million, respectively. Additional information pertaining to this allowance is included in Note~~ 5 (~~Allowance for Loan Losses) and 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~~ ~~June 30, 2014~~, ~~December 31, 2013, and~~ ~~June 30, 2013~~. 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.

Loan commitments
(In thousands) June 30, 2014 December 31, 2013 June 30, 2013
Commercial $ 3,386,052
$ 3,367,625
$ 3,020,138
Consumer 2,280,431
2,179,010
2,096,495
Total loan commitments $ 5,666,483
$ 5,546,635
$ 5,116,633

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~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

~~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~~ ~~June 30, 2014~~, ~~December 31, 2013, and~~ ~~June 30, 2013~~.

Financial guarantees
(In thousands) June 30, 2014 December 31, 2013 June 30, 2013
Standby letters of credit $ 201,212
$ 196,400
$ 239,181
Loans sold with recourse 34,662
45,082
54,944
Total financial guarantees $ 235,874
$ 241,482
$ 294,125

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 ~~$113.7 million~~ at ~~June 30, 2014, the remaining guarantees extend in varying amounts through~~ ~~2019~~.

~~Asset Sales~~

The Corporation regularly sells residential mortgage loans service retained to GSEs as part of its mortgage banking activities. The Corporation provides customary representation and warranties to the GSEs in conjunction with these sales. These representations and warranties generally require the Corporation to repurchase assets if it is subsequently determined that a loan did not meet specified criteria, such as a documentation deficiency or rescission of mortgage insurance. If the Corporation is unable to cure or refute a repurchase request, the Corporation is generally obligated to repurchase the loan or otherwise reimburse the counterparty for losses. The Corporation also sells residential mortgage loans serviced released to other investors which contain early payment default recourse provisions. As of ~~June 30, 2014~~, ~~December 31, 2013, and~~ ~~June 30, 2013, the Corporation had sold~~ ~~$24.1 million~~, ~~$34.6 million, and~~ ~~$41.9 million, respectively, of outstanding residential mortgage loans to GSEs and other investors with recourse provisions. The Corporation had reserved~~ ~~$7.9 million~~, ~~$8.7 million, and~~ ~~$7.3 million~~ ~~as of~~ ~~June 30, 2014~~, ~~December 31, 2013, and~~ ~~June 30, 2013, respectively, for potential losses from representation and warranty obligations and early payment default recourse provisions.~~

~~Due to prior acquisitions, as of~~ ~~June 30, 2014~~, ~~the Corporation continued to service approximately~~ ~~$6.4 million~~ ~~in manufactured housing loans that were sold with recourse compared to~~ ~~$6.4 million~~ ~~and~~ ~~$8.2 million~~ ~~as of~~ ~~December 31, 2013~~ ~~and~~ ~~June 30, 2013, respectively. As of~~ ~~June 30, 2014, the Corporation had reserved~~ ~~$1.1 million~~ ~~for potential losses from these manufactured housing loans, consistent with the reserve balance at~~ ~~December 31, 2013~~ ~~and~~ ~~June 30, 2013~~.

~~The total reserve associated with loans sold with recourse was approximately~~ ~~$9.0 million~~, ~~$9.9 million, and~~ ~~$8.4 million~~ ~~as of~~ ~~June 30, 2014~~, ~~December 31, 2013, and~~ ~~June 30, 2013~~, respectively, and is included in accrued taxes, expenses and other liabilities on the Consolidated Balance Sheets. The Corporation's reserve reflects Management's best estimate of losses. The Corporation's reserving methodology uses current information about investor repurchase requests, and assumptions about repurchase mix and loss severity, based

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~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~ - ~~Continued~~

~~FIRSTMERIT CORPORATION AND SUBSIDIARIES~~

upon the Corporation's most recent loss trends. The Corporation also considers qualitative factors that may result in anticipated losses differing from historical loss trends, such as loan vintage, underwriting characteristics and macroeconomic trends.

~~Changes in the amount of the repurchase reserve for the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2014~~ ~~and~~ ~~2013~~ ~~are as follows:~~

Three Months Ended June 30, 2014
(In thousands) Reserve on residential mortgage loans Reserve on manufactured housing loans Total repurchase reserve
Balance at beginning of period $ 8,200
$ 1,117
$ 9,317
Net realized losses (164 ) —
(164 )
Net increase (decrease) to reserve (136 ) 5
(131 )
Balance at end of period $ 7,900
$ 1,122
$ 9,022

Three Months Ended June 30, 2013
(In thousands) Reserve on residential mortgage loans Reserve on manufactured housing loans Total repurchased reserve
Balance at beginning of period $ 1,600
$ 1,138
$ 2,738
Assumed obligation 6,000
—
6,000
Net realized losses (928 ) —
(928 )
Net increase (decrease) to reserve 615
(32 ) 583
Balance at end of period $ 7,287
$ 1,106
$ 8,393

Six Months Ended June 30, 2014
(In thousands) Reserve on residential mortgage loans Reserve on manufactured housing loans Total repurchase reserve
Balance at beginning of period $ 8,737
$ 1,114
$ 9,851
Net realized losses (2,757 ) —
(2,757 )
Net increase (decrease) to reserve 1,920
8
1,928
Balance at end of period $ 7,900
$ 1,122
$ 9,022

Six Months Ended June 30, 2013
(In thousands) Reserve on residential mortgage loans Reserve on manufactured housing loans Total repurchase reserve
Balance at beginning of period $ 1,500
$ 1,167
$ 2,667
Assumed obligation 6,000
—
6,000
Net realized losses (1,070 ) —
(1,070 )
Net increase (decrease) to reserve 857
(61 ) 796
Balance at end of period $ 7,287
$ 1,106
$ 8,393

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

1413. Changes and Reclassifications Out of Accumulated Other Comprehensive Income

The following table presents the changes in AOCI by component of comprehensive income for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013:~~2014:


	Three Months Ended June 30, 2014									Six Months Ended June 30, 2014									Three Months Ended March 31, 2015
(In thousands)	Pre-tax			Tax			After-tax			Pre-tax			Tax			After-tax			Pretax			Tax			After tax
Unrealized and realized securities gains and losses:
Balance at the beginning of the period	$	(27,578	)	$	(9,653	)	$	(17,925	)	$	(45,072	)	$	(15,775	)	$	(29,297	)	$	(8,531	)	$	(2,985	)	$	(5,546	)
Changes in unrealized securities' holding gains/(losses)	22,456			7,860			14,596			40,500			14,175			26,325			34,117			11,941			22,176
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred into available-for-sale from held-to-maturity	(494		)	(173		)	(321		)	(988		)	(346		)	(642		)
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity																			(504		)	(176		)	(328		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(80		)	(28		)	(52		)	(136		)	(48		)	(88		)	(354		)	(124		)	(230		)
Balance at the end of the period	(5,696		)	(1,994		)	(3,702		)	(5,696		)	(1,994		)	(3,702		)	24,728			8,656			16,072
Pension plans and other postretirement benefits:
Balance at the beginning and end of the period	(57,812		)	(20,233		)	(37,579		)	(57,812		)	(20,233		)	(37,579		)	(102,068		)	(35,722		)	(66,346		)
Current year actual losses (gains)	—			—			—			—			—			—
Amortization of actuarial gain	1,631			571			1,060			1,631			571			1,060			1,138			398			740
Amortization of prior service cost reclassified to other noninterest expense	1,097			383			714			1,097			383			714			410			143			267
Balance at the end of the period	$	(55,084	)	$	(19,279	)	$	(35,805	)	$	(55,084	)	$	(19,279	)	$	(35,805	)	(100,520		)	(35,181		)	(65,339		)
Total Accumulated Other Comprehensive Income	$	(60,780	)	$	(21,273	)	$	(39,507	)	$	(60,780	)	$	(21,273	)	$	(39,507	)	$	(75,792	)	$	(26,525	)	$	(49,267	)


	Three Months Ended June 30, 2013									Six months ended June 30, 2013									Three Months Ended March 31, 2014
(In thousands)	Pre-tax			Tax			After-tax			Pretax			Tax			After-tax			Pretax			Tax			After tax
Unrealized and realized securities gains and losses:
Balance at the beginning of the period	$	73,083		$	25,579		$	47,504		$	85,259		$	29,841		$	55,418		$	(45,072	)	$	(15,775	)	$	(29,297	)
Changes in unrealized securities' holding gains/(losses)	(75,729		)	(26,505		)	(49,224		)	(87,362		)	(30,577		)	(56,785		)	18,044			6,315			11,729
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred into available-for-sale from held-to-maturity	(568		)	(199		)	(369		)	(1,120		)	(392		)	(728		)
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity																			(494		)	(173		)	(321		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	2,794			978			1,816			2,803			981			1,822			(56		)	(20		)	(36		)
Balance at the end of the period	(420		)	(147		)	(273		)	(420		)	(147		)	(273		)	(27,578		)	(9,653		)	(17,925		)
Pension plans and other postretirement benefits:
Balance at the beginning and end of the period	(110,188		)	(38,565		)	(71,623		)	(110,188		)	(38,565		)	(71,623		)	(57,812		)	(20,233		)	(37,579		)
Current year actual losses (gains)	—			—			—			—			—			—
Amortization of actuarial gain	—			—			—			—			—			—
Current year actual losses/(gains)																			—			—			—
Amortization of actuarial losses/(gains)																			—			—			—
Amortization of prior service cost reclassified to other noninterest expense	—			—			—			—			—			—			—			—			—
Balance at the end of the period	$	(110,188	)	$	(38,565	)	$	(71,623	)	$	(110,188	)	$	(38,565	)	$	(71,623	)	(57,812		)	(20,233		)	(37,579		)
Total Accumulated Other Comprehensive Income	$	(110,608	)	$	(38,712	)	$	(71,896	)	$	(110,608	)	$	(38,712	)	$	(71,896	)	$	(85,390	)	$	(29,886	)	$	(55,504	)

The following table presents current period reclassifications out of AOCI by component of comprehensive income for the three months ended March 31, 2015 and 2014:



(In thousands)	Three Months Ended March 31, 2015			Income statement line item presentation
Realized (gains)/losses on sale of securities	$	(354	)	Investment securities losses (gains), net
Tax expense (benefit) (35%)	(124		)	Income tax expense (benefit)
Reclassified amount, net of tax	$	(230	)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES

~~The following table presents current period reclassifications out of AOCI by component of comprehensive income for the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2014~~ ~~and 2013:~~

(In thousands) Three Months Ended June 30, 2014 Six Months Ended June 30, 2014 Income statement line item presentation
Realized (gains)/losses on sale of securities $ (80 ) $ (136 ) Investment securities losses (gains), net
Tax expense (benefit) (35%) (28 ) (48 ) Income tax expense (benefit)
Reclassified amount, net of tax $ (52 ) $ (88 )


(In thousands)	Three Months Ended June 30, 2013		Six months ended June 30, 2013		Income statement line item presentation	Three Months Ended March 31, 2014			Income statement line item presentation
Realized (gains)/losses on sale of securities	$	2,794	$	2,803	Investment securities losses (gains), net	$	(56	)	Investment securities losses (gains), net
Tax expense (benefit) (35%)	978		982		Income tax expense (benefit)	(20		)	Income tax expense (benefit)
Reclassified amount, net of tax	$	1,816	$	1,821		$	(36	)

1514. Subsequent Events

In preparing these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users, or filed with the ~~Securities and Exchange Commission.~~SEC. In accordance with applicable accounting standards, all material subsequent events have been either recognized in the financial statements or disclosed in the notes to the financial statements.

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

Figure 1. Consolidated Financial Highlights


Consolidated Financial Highlights
(Unaudited)	Three Months Ended															Six Months Ended						Three Months Ended
(Dollars in thousands, except per share amounts)	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,						March 31,			December 31,			September 30,			June 30,			March 31,
	2014						2013									2014			2013			2015			2014
EARNINGS
Net interest income TE ^(a)(1)	$	199,666		$	197,854		$	202,145		$	207,079		$	201,605		$	397,520		$	315,980		$	189,554		$	196,509		$	197,644		$	199,666		$	197,854
TE adjustment ^(a)(1)	4,089			3,954			4,077			3,739			3,574			8,041			6,601			3,931			3,998			4,066			4,089			3,954
Provision for originated loan losses	5,993			3,654			1,552			2,523			3,151			9,647			8,959			6,036			8,662			4,862			5,993			3,654
Provision for acquired loan losses	5,815			7,827			5,515			2,033			—			13,642			—			2,214			3,407			4,411			5,815			7,827
Provision for covered loan losses	3,445			3,055			2,983			1,823			4,158			6,501			8,297
Provision/(recapture) for FDIC acquired loan losses																						(2		)	1,228			(81		)	3,445			3,055
Noninterest income	72,560			67,270			72,420			71,090			69,439			139,831			126,832			65,847			71,960			69,733			72,560			67,270
Noninterest expense	167,400			169,331			178,620			210,599			188,888			336,733			295,034			160,652			165,041			163,145			167,400			169,331
Net income	59,519			53,455			57,174			40,715			48,450			112,974			85,796			57,139			61,079			63,898			59,519			53,455
Diluted EPS ^(c)(3)	0.35			0.31			0.33			0.23			0.29			0.66			0.61			0.33			0.36			0.37			0.35			0.31
PERFORMANCE RATIOS
Return on average assets (ROA)	0.98		%	0.90		%	0.94		%	0.67		%	0.85		%	0.94		%	0.91		%	0.93		%	0.98		%	1.03		%	0.98		%	0.90		%
Return on average equity (ROE)	8.62		%	7.93		%	8.48		%	6.07		%	7.56		%	8.28		%	8.06		%	8.08		%	8.50		%	9.03		%	8.62		%	7.93		%
Return on average tangible common equity ^(d)(1)	12.92		%	11.98		%	12.96		%	9.29		%	11.49		%	12.45		%	12.01		%	11.85		%	12.52		%	13.41		%	12.92		%	11.98		%
Net interest margin TE ^(a)(1)	3.75		%	3.84		%	3.89		%	4.05		%	4.12		%	3.79		%	3.86		%	3.48		%	3.56		%	3.60		%	3.75		%	3.84		%
Efficiency ratio ^(d)(1)	60.43		%	62.77		%	64.08		%	74.64		%	68.10		%	61.59		%	65.60		%	61.97		%	60.39		%	59.92		%	60.43		%	62.77		%
Number of full-time equivalent employees	4,392			4,521			4,570			4,666			4,619			4,392			4,619			4,103			4,273			4,302			4,392			4,521
MARKET DATA
Book value per common share	$	16.88		$	16.62		$	16.38		$	16.08		$	16.06		$	16.88		$	16.06		$	17.46		$	17.14		$	17.05		$	16.88		$	16.62
Tangible book value per common share ^(d)(1)	11.33			11.03			10.77			10.47			10.43			11.33			10.43			11.96			11.62			11.52			11.33			11.03
Period end common share market value	19.75			20.83			22.23			21.72			20.03			19.75			20.03			19.06			18.89			17.62			19.75			20.83
Market as a % of book	117		%	125		%	136		%	135		%	125		%	117		%	125		%	109		%	110		%	103		%	117		%	125		%
Cash dividends per common share	$	0.16		$	0.16		$	0.16		$	0.16		$	0.16		$	0.32		$	0.32		$	0.16		$	0.16		$	0.16		$	0.16		$	0.16
Common Stock dividend payout ratio	45.71		%	51.61		%	48.48		%	69.57		%	55.17		%	48.48		%	52.46		%	48.48		%	44.44		%	43.24		%	45.71		%	51.61		%
Average basic common shares	165,335			165,060			165,054			165,044			157,863			165,198			133,909			165,411			165,395			165,389			165,335			165,060
Average diluted common shares	166,147			166,004			166,097			165,874			158,390			166,052			134,406			166,003			165,974			165,804			166,147			166,004
Period end common shares	165,393			165,087			165,056			165,045			165,045			165,393			165,045			165,453			165,390			165,384			165,393			165,087
Common shares repurchased	186			51			17			7			168			237			194			66			15			10			186			51
Common Stock market capitalization	$	3,266,512		$	3,438,762		$	3,669,195		$	3,584,777		$	3,305,851		$	3,266,512		$	3,305,851		$	3,153,534		$	3,124,217		$	2,914,066		$	3,266,512		$	3,438,762
ASSET QUALITY (excluding acquired and covered loans)^(b)
ASSET QUALITY (excluding acquired and FDIC acquired loans, covered OREO)⁽²⁾
Gross charge-offs	$	11,148		$	13,160		$	9,913		$	8,515		$	10,969		$	24,308		$	21,745		$	8,567		$	9,205		$	11,410		$	11,148		$	13,160
Net charge-offs	6,159			8,022			3,359			2,877			3,349			14,181			9,256			4,187			3,849			5,929			6,159			8,022
Allowance for originated loan losses	91,950			92,116			96,484			98,291			98,645			91,950			98,645			97,545			95,696			90,883			91,950			92,116
Reserve for unfunded lending commitments	7,107			7,481			7,907			8,493			8,114			7,107			8,114			4,330			5,848			6,966			7,107			7,481
Nonperforming assets (NPAs)	60,922			62,711			60,883			55,426			66,177			60,922			66,177			68,606			55,038			63,119			60,922			62,711
Net charge-offs to average loans ratio	0.22		%	0.31		%	0.13		%	0.12		%	0.15		%	0.27		%	0.21		%	0.13		%	0.12		%	0.20		%	0.22		%	0.31		%
Allowance for originated loan losses to period-end loans	0.80		%	0.85		%	0.94		%	1.00		%	1.08		%	0.80		%	1.08		%	0.76		%	0.77		%	0.75		%	0.80		%	0.85		%
Allowance for credit losses to period-end loans	0.86		%	0.92		%	1.02		%	1.09		%	1.17		%	0.86		%	1.17		%	0.79		%	0.81		%	0.81		%	0.86		%	0.92		%
NPAs to loans and other real estate	0.53		%	0.58		%	0.60		%	0.57		%	0.72		%	0.53		%	0.72		%	0.53		%	0.44		%	0.52		%	0.53		%	0.58		%
Allowance for originated loan losses to nonperforming loans	250.27		%	212.01		%	228.62		%	276.19		%	216.97		%	250.27		%	216.97		%	211.66		%	276.44		%	231.13		%	250.27		%	212.01		%
Allowance for credit losses to nonperforming loans	269.61		%	229.23		%	247.35		%	300.06		%	234.82		%	269.61		%	234.82		%	221.06		%	293.34		%	248.85		%	269.61		%	229.23		%
CAPITAL & LIQUIDITY
Period end tangible common equity to assets ^(d)(1)	7.89		%	7.69		%	7.70		%	7.41		%	7.58		%	7.89		%	7.58		%	8.14		%	7.98		%	8.01		%	7.89		%	7.69		%
Average equity to assets	11.40		%	11.32		%	11.12		%	11.08		%	11.28		%	11.36		%	11.34		%	11.51		%	11.55		%	11.42		%	11.40		%	11.32		%
Average equity to total loans	18.90		%	19.04		%	18.81		%	18.97		%	18.95		%	18.97		%	18.51		%	18.60		%	18.67		%	18.58		%	18.90		%	19.04		%
Average total loans to deposits	75.15		%	73.11		%	72.84		%	72.11		%	74.04		%	74.13		%	76.89		%	77.86		%	78.47		%	77.36		%	75.15		%	73.11		%
AVERAGE BALANCES
Assets	$	24,291,276		$	24,144,570		$	24,034,846		$	24,013,594		$	22,810,702		$	24,216,459		$	18,914,581		$	24,905,094		$	24,664,987		$	24,583,776		$	24,291,276		$	24,144,570
Deposits	19,496,795			19,636,506			19,517,476			19,456,231			18,334,244			19,566,264			15,080,093			19,788,925			19,450,647			19,531,800			19,496,795			19,636,506
Originated loans	11,092,101			10,448,383			9,988,587			9,377,826			8,877,754			10,772,020			8,806,924			12,689,791			12,306,171			11,814,314			11,092,101			10,448,383
Acquired loans, including covered loans, less loss share receivable	3,558,810			3,907,802			4,227,693			4,652,101			4,696,740			3,732,341			2,787,415
Acquired loans, including FDIC acquired loans, less loss share receivable																						2,717,884			2,956,867			3,295,547			3,558,810			3,907,802
Earning assets	21,367,496			20,903,863			20,593,750			20,276,825			19,609,974			21,136,960			16,526,512			22,100,417			21,920,889			21,804,243			21,367,496			20,903,863
Shareholders' equity	2,768,352			2,733,226			2,673,635			2,661,546			2,571,964			2,750,886			2,145,851			2,866,362			2,849,618			2,807,886			2,768,352			2,733,226
ENDING BALANCES
Assets	$	24,564,431		$	24,498,661		$	23,912,028		$	24,137,730		$	23,534,873		$	24,564,431		$	23,534,873		$	25,118,120		$	24,902,347		$	24,608,207		$	24,564,431		$	24,498,661
Deposits	19,298,396			19,811,674			19,533,601			19,489,533			19,119,722			19,298,396			19,119,722			19,925,595			19,504,665			19,366,911			19,298,396			19,811,674
Originated loans	11,467,193			10,826,913			10,213,387			9,789,139			9,132,625			11,467,193			9,132,625			12,856,037			12,493,812			12,071,759			11,467,193			10,826,913
Acquired loans, including covered loans,less loss share receivable	3,458,453			3,726,952			4,025,758			4,401,711			4,926,888			3,458,453			4,926,888
Acquired loans, including FDIC acquired loans,less loss share receivable																						2,614,847			2,810,302			3,139,521			3,458,453			3,726,952
Goodwill	741,740			741,740			741,740			741,740			741,740			741,740			741,740			741,740			741,740			741,740			741,740			741,740
Intangible assets	76,886			79,819			82,755			85,447			88,419			76,886			88,419			68,422			71,020			73,953			76,886			79,819
Earning assets	21,789,773			21,715,302			21,048,910			21,297,250			20,772,749			21,789,773			20,772,749			22,395,343			22,153,552			21,930,840			21,789,773			21,715,302
Total shareholders' equity	2,791,738			2,742,966			2,702,894			2,654,645			2,650,909			2,791,738			2,650,909			2,888,786			2,834,281			2,820,431			2,791,738			2,742,966
NOTES:

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(a) - The interest income earned on certain earning assets is completely or partially exempt from federal and/or state income taxes. As such, these tax-exempt securities typically yield lower returns than taxable securities. To provide more meaningful comparisons of net interest margins(1) Represents a non-GAAP financial measure. Refer to the Non-GAAP Financial Measures section for ~~all earning assets, net interest income on~~ a ~~taxable-equivalent basis is used in calculating net interest margin by increasing the interest earned on tax-exempt assets~~reconciliation to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles in the Consolidated Statements of Comprehensive Income.GAAP financial measures.

~~(b) -~~(2) Due to the impact of business combination accounting and protection of FDIC loss sharing agreements, which provide considerable protection against credit risk, acquired loans, FDIC acquired loans and covered ~~assets~~OREO are excluded from this table to provide for improved comparability to prior periods and better perspective into asset quality trends. Certain non-single family loss share agreements with the FDIC expired at March 31, 2015. As of March 31, 2015, $174.6 million and $110.4 million of FDIC acquired loans remained covered by non-single family loss share agreement and single family loss share agreements, respectively, providing considerable protection against credit risk.

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~~(c) -~~(3) Net income used to determine diluted EPS was reduced by the cash dividends payable on the Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series A of approximately ~~$1.5~~$1.5 million in each of the three months ended ~~June 30, 2014~~March 31, 2015, ~~March~~December 31, 2014, ~~December 31, 2013~~September 30, 2014, ~~September 30, 2013, and~~ June 30, ~~2013.~~2014, and March 31, 2014.

~~(d) - See Figure~~ 2 ~~entitled~~ ~~GAAP to Non-GAAP Reconciliations~~, which presents the computations of certain financial measures related to tangible common equity and efficiency ratios. The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period to period comparisons.

HIGHLIGHTS OF ~~SECOND~~FIRST QUARTER OF ~~2014~~2015 PERFORMANCE

The Corporation reported ~~second~~first quarter ~~2014~~2015 net income of $~~59.5~~57.1 million, or $~~0.35~~0.33 per diluted share. This compares with$61.1 million, or $0.36 per diluted share, for the fourth quarter 2014 and $53.5 million, or $0.31 per diluted share, for the first quarter 2014 ~~and~~ ~~$48.5 million, or $0.29 per diluted share, for the~~ ~~second quarter 2013~~. ~~Pre-tax costs associated with branch closures of $4.0 million were recognized in the second quarter of 2014 and are included within noninterest income.~~

ROE and ROA for the ~~second~~first quarter ~~2014~~2015 were ~~8.62%~~8.08% and 0.93%, respectively, compared with 8.50% and 0.98%, respectively, ~~compared with~~for the fourth quarter 2014 and 7.93% and 0.90%, respectively, for the first quarter 2014 ~~and~~ ~~7.56%~~ ~~and~~ ~~0.85%, respectively, for the~~ ~~second quarter 2013~~.

Net Interest Income

Net interest income on a ~~fully tax-equivalent~~TE basis was $~~199.7~~189.6 million in the ~~second~~first quarter 2015 compared with $196.5 million in the fourth quarter 2014 ~~compared with~~and $197.9 million in the first quarter 2014 ~~and~~ ~~$201.6 million~~ ~~in the~~ ~~second quarter 2013~~.

Net interest margin on a TE basis was ~~3.75%~~3.48% for the ~~second~~first quarter 2015 compared with 3.56% for the fourth quarter 2014 ~~compared with~~and 3.84% for the first quarter 2014 ~~and~~ ~~4.12%~~ ~~for the~~ ~~second quarter 2013~~. ~~Second quarter 2014 net~~Net interest margin compression in the first quarter, compared with the ~~first~~prior quarter, ~~2014 was primarily driven by declining volume~~resulted from anticipated lower accretion from the acquired and FDIC acquired loan portfolios due to the continued decline in the ~~acquired~~ loan ~~portfolio and lower investment portfolio yields, partially offset by increased volume of originated loans and day count.~~balances.

Average originated loans were $~~11.1~~12.7 billion during the ~~second~~first quarter ~~2014~~2015, an increase of $~~643.7~~383.6 million, or ~~6.16%~~3.12%, compared with the ~~first~~fourth quarter 2014, and an increase of $2.2 billion, or ~~24.94%~~21.45%, compared with the ~~second~~first quarter ~~2013~~2014. Average originated commercial loans increased $~~365.5~~245.0 million, or ~~5.36%~~3.17%, compared with the prior quarter, and increased $~~1.3~~1.2 billion, or ~~22.01%~~17.02%, compared with the year-ago quarter.

Average deposits were $~~19.5~~19.8 billion during the ~~second~~first quarter ~~2014~~2015, ~~a decrease~~an increase of $~~139.7~~338.3 million, or ~~0.71%~~1.74%, compared with the ~~first~~fourth quarter 2014, and an increase of $~~1.2 billion~~152.4 million, or ~~6.34%~~0.78%, compared with the ~~second~~first quarter ~~2013~~2014. During the ~~second~~first quarter ~~2014~~2015, average core deposits, which exclude time deposits, ~~decreased~~increased $~~70.6~~370.8 million, or ~~0.41%~~2.17%, compared with the fourth quarter 2014 and increased$246.7 million, or 1.43%, compared with the first quarter 2014 ~~and~~ ~~increased$1.5 billion, or~~ ~~9.64%, compared with the~~ ~~second quarter 2013~~. Average time deposits decreased $~~69.1~~32.6 million, or ~~2.88%~~1.39%, and decreased $~~346.5~~94.3 million, or ~~12.93%~~3.92%, respectively, over the prior and year-ago quarters. For the ~~second~~first quarter ~~2014~~2015, average core deposits accounted for ~~88.03%~~88.33% of total average deposits, compared with ~~87.76%~~87.96% for the ~~first~~fourth quarter 2014 and ~~85.38%~~87.76% for the ~~second~~first quarter ~~2013~~2014.

Average investments increased $~~170.4~~53.5 million, or ~~2.63%~~0.81%, compared with the fourth quarter 2014 and increased$183.2 million, or 2.82%, compared with the first quarter 2014 ~~and~~ ~~increased$725.2 million, or~~ ~~12.23%~~ ~~compared with the~~ ~~second quarter 2013~~.

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Noninterest Income

Noninterest income, excluding gains and losses on securities transactions, for the ~~second~~first quarter ~~2014~~2015 was $~~72.5~~65.5 million, ~~an increase~~a decrease of $~~5.3~~6.5 million, or ~~7.83%~~8.97%, from the fourth quarter 2014 and a decrease of $1.7 million, or 2.56%, from the first quarter 2014 ~~and~~ ~~an increase~~ of ~~$0.2 million, or~~ ~~0.34%, from the~~ ~~second quarter 2013~~. Included in noninterest income in the ~~second~~first quarter ~~2014~~2015 was $~~4.1~~2.8 million of net gains on covered ~~loans paid in full,~~loan resolutions, compared to net gains of $~~1.6~~0.5 million and ~~$1.0~~$1.6 million in thefourth quarter 2014 and first quarter 2014 ~~and~~ ~~second quarter 2013~~, respectively. ~~Also included~~Offsetting this increase in noninterest income in the ~~second~~first quarter of ~~2014~~2015 were costs of ~~$4.0~~$1.2 million associated with branch ~~closures.~~closures, a decrease in bank-owned life insurance income of $3.5 million due to death benefit proceeds received in the fourth quarter of 2014, a decrease in service charges on deposits of $1.9 million, and a decrease in loan sales and servicing income of $1.5 million.

Noninterest income, excluding net securities gains and losses, as a percentage of net revenue for the ~~second~~first quarter ~~2014~~2015 was ~~26.63%~~25.68% compared with ~~25.36%~~26.80% for ~~first~~fourth quarter 2014 and ~~26.38%~~25.36% for the ~~second~~first quarter ~~2013~~2014. ~~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 ~~second~~first quarter ~~2014~~2015 was $~~167.4~~160.7 million, a decrease of $~~1.9~~4.4 million, or ~~1.14%~~2.66%, from the ~~first~~fourth quarter 2014 and a decrease of $~~21.5~~8.7 million, or ~~11.38%~~5.13%, from ~~the~~ ~~second quarter 2013. Included in noninterest expense in~~ the first quarter 2014 ~~and~~ ~~second~~. Noninterest expense in the current quarter ~~2013~~ ~~were merger related costs associated with the Citizens acquisition~~included $1.8 million of ~~$1.0 million and $32.1 million, respectively.~~restructure costs. The Corporation's efficiency ratio was ~~60.43%~~61.97% for the ~~second~~first quarter ~~2014~~2015, compared with60.39% for the fourth quarter 2014 and 62.77% for the first quarter 2014 ~~and~~ ~~68.10%~~ ~~for the~~ ~~second quarter 2013~~.

The effective tax rate was ~~30.37%~~30.80% for the ~~second~~first quarter 2015 compared with 29.09% for the fourth quarter 2014 ~~compared with~~and 30.85% for the first quarter 2014 ~~and~~ ~~32.02%~~ ~~for the~~ ~~second 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 $~~6.2~~4.2 million~~, or~~ ~~0.22%~~ ~~of average originated loans~~ in the ~~second~~first quarter 2015, compared to $3.8 million in the fourth quarter 2014, ~~compared with~~and $8.0 million~~, or~~ ~~0.31%~~ ~~of average originated loans,~~ in the first quarter 2014 ~~and~~. Net charge-offs on originated loans were ~~$3.3 million, or~~ ~~0.15%~~0.13% of average originated loans ~~in the~~at ~~second quarter 2013~~March 31, 2015, compared to 0.12% at December 31, 2014 and 0.31% at March 31, 2014.

Nonperforming assets totaled $~~60.9~~68.6 million at ~~June 30, 2014~~March 31, 2015, ~~a decrease~~an increase of $~~1.8~~13.6 million, or ~~2.85%~~24.65%, compared with ~~March~~December 31, 2014 and ~~a decrease~~an increase of $~~5.3~~5.9 million, or ~~7.94%~~9.40%, compared with ~~June 30, 2013~~March 31, 2014. Nonperforming assets at ~~June 30, 2014~~March 31, 2015 represented 0.53% of period-end originated loans plus other real estate compared with ~~0.58%~~0.44% at ~~March~~December 31, 2014 and ~~0.72%~~0.58% at ~~June 30, 2013~~March 31, 2014. Included in first quarter 2015 nonperforming assets were $3.4 million of OREO no longer covered by FDIC loss share agreements.

The allowance for originated loan losses totaled $~~92.0~~97.5 million at ~~June 30, 2014~~March 31, 2015. At ~~June 30, 2014~~March 31, 2015, the allowance for originated loan losses was ~~0.80%~~0.76% of period-end originated loans compared with ~~0.85%~~0.77% at ~~March~~

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December 31, 2014 and ~~1.08%~~0.85% at ~~June 30, 2013~~March 31, 2014. The allowance for originated loan losses at March 31, 2015 compared to December 31, 2014 increased by $1.8 million. 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

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allowance for credit losses was ~~0.86%~~0.79% of period end originated loans at ~~June 30, 2014~~March 31, 2015, compared with ~~0.92%~~0.81% at ~~March~~December 31, 2014 and ~~1.17%~~0.92% at ~~June 30, 2013~~March 31, 2014. The allowance for credit losses to nonperforming loans was ~~269.61%~~221.06% at ~~June 30, 2014~~March 31, 2015, compared with ~~229.23%~~293.34% at ~~March~~December 31, 2014 and ~~234.82%~~229.23% at ~~June 30, 2013~~March 31, 2014.

Balance Sheet

The Corporation’s total assets at ~~June 30, 2014~~March 31, 2015 were $~~24.6~~25.1 billion, an increase of $~~65.8~~215.8 million, or ~~0.27%~~0.87%, compared with ~~March~~December 31, 2014 and an increase of $~~1.0 billion~~619.5 million, or ~~4.37%~~2.53%, compared with ~~June 30, 2013~~March 31, 2014.

Total gross loans (originated, acquired, and FDIC acquired) and total deposits were $15.5 billion and $~~19.3~~19.9 billion, respectively, at March 31, 2015, $15.3 billion and $19.5 billion, respectively, at December 31, 2014 and $14.6 billion and $19.8 billion, respectively, at March 31, 2014. Core deposits totaled $17.6 billion at ~~June 30, 2014~~March 31, 2015, ~~a decrease~~an increase of $~~513.3~~339.3 million, or ~~2.59%~~1.97%, from ~~March~~December 31, 2014 and an increase of $~~178.7~~126.7 million, or ~~0.93%~~0.73%, from ~~June 30, 2013. Core deposits totaled~~ ~~$17.0 billion~~ at ~~June 30, 2014~~, ~~a decrease~~ of ~~$397.7 million, or~~ ~~2.28%, from~~ March 31, 2014 ~~and~~ ~~an increase~~ of ~~$727.2 million, or~~ ~~4.46%, from~~ ~~June 30, 2013~~.

Shareholders’ equity was $2.9 billion, $2.8 billion ~~as of~~ ~~June 30, 2014~~, and $2.7 billion as of March 31, 2015, December 31, 2014, and ~~June 30, 2013~~March 31, 2014. The Corporation maintained a strong capital position as tangible common equity to assets was ~~7.89%~~8.14% at ~~June 30, 2014~~March 31, 2015, compared with ~~7.69%~~7.98% at ~~March~~December 31, 2014 and ~~7.58%~~7.69% at ~~June 30, 2013~~March 31, 2014. The common share cash dividend paid in the ~~second~~first quarter ~~2014~~2015 was $0.16 per share.

On January 1, 2015, the Corporation became subject to the Basel III capital framework and standardized approach for calculating risk-weighted assets. At March 31, 2015, Basel III capital ratios on a transitional basis remain well in excess of applicable regulatory requirements, with a total risk-based capital ratio of 13.72%, and a common equity tier 1 risk-based capital ratio of 10.60%.

REGULATION AND SUPERVISION

The United States and the banking, securities and commodities regulators, as well as fiscal and monetary authorities, have taken a number of significant actions over the past several years in response to the ~~2008~~ credit ~~crisis.~~crisis that began in 2008. The single most important of these was the enactment of the Dodd-Frank Act in July 2010. The Dodd-Frank Act affects almost every aspect of the nation’s financial services industry, including regulation and compliance of financial institutions and systemically important nonbank financial companies, securities regulation, executive compensation, regulation of derivatives, corporate governance and consumer protection. Hundreds of implementing regulations are required, but these are only partially finished.

~~Federal~~The preemption of certain state laws previously granted to national banking associations by the OCC under the National Bank Act has been limited, especially with respect to consumer laws. Thus, Congress has authorized states to enact their own substantive protections and to allow state attorneys general to initiate civil actions to enforce federal consumer protections. The Corporation is also subject to regulation by the CFPB. ~~The CFPB has the power to examine the Corporation and to make and interpret the rules under the "various" consumer financial laws, and to enforce such laws and rules.~~

On March 21, 2014, the United States Court of Appeals for the District of Columbia upheld the Federal Reserve debit card interchange rules as consistent with the Durbin Amendment to the Dodd-Frank Act.

Many aspects of the Dodd-Frank Act remain subject to intensive agency rulemaking and subsequent public comment prior to implementation, and it is difficult to predict at this time the ultimate effect of the Dodd-Frank Act on the Corporation. ~~In addition, some of the regulations adopted lack any interpretive guidance.~~

It is likely, however, that the Corporation’s expenses will increase as a result of new compliance requirements.

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On June 10, 2013, the Bank became subject to the Dodd-Frank ~~Act's central clearing rules for~~Act requirements to centrally clear certain interest rate swaps. A cleared swap is subject to continuous collateralization of swap obligations, real time reporting, additional agreements and other regulatory constraints. The CME Group Inc. and LCH.Clearnet Group Ltd. are the Bank's approved clearing houses.

93To the extent that the information contained within this section describes statutory and regulatory provisions applicable to the Corporation or its subsidiaries, it is qualified in its entirety by reference to the full text of those provisions. Also, such statues, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies and are subject to change at any time, particularly in the current economic and regulatory environment. Any such change in statutes, regulations or regulatory policies applicable to the Corporation could have a material effect on the business of the Corporation.

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New Capital Rules

~~In July 2013, the Federal Reserve and the OCC jointly adopted final rules effective generally on~~On January 1, 2015, ~~to implement~~the Corporation and the Bank adopted the Basel III capital framework and ~~regulatory capital changes required by~~standardized approach for calculating risk-weighted assets. The implementation of the ~~Dodd-Frank Act.~~

~~The new rules will apply to the Bank and the Corporation on a consolidated basis. The rules revise minimum~~Basel III capital requirements is transitional and ~~prompt corrective action thresholds~~phases in from January 1, 2015 through the end of 2018. The Basel III capital requirements emphasize CET1, which replaces tier 1 common equity. CET1 capital primarily includes common shareholders’ equity less certain deductions for goodwill and ~~introduce a new~~other intangibles, net of taxes, MSRs, net of taxes, and DTAs that arise from tax loss and credit carryforwards. Tier 1 capital is primarily comprised of common equity tier 1 capital ~~or "CET1" requirement.~~and perpetual preferred stock. Tier 2 capital primarily includes qualifying subordinated debt and qualifying ALL. Periods presented prior to March 31, 2015 are reported on a Basel I basis.

Basel III includes new minimum risk-based and leverage capital requirements for all banking organizations and removal of references to credit ratings. Basel III, when fully phased-in on January 1, 2019, requires a new minimum CET1 risk-based capital of 4.5%. The ~~new~~ minimum ratio of tier 1 capital to risk-weighted assets ~~requirements~~is increased from 4.0% to 6.0% and all banking organizations are now subject to a ~~common equity tier 1~~4.0% minimum leverage ratio. The required total risk based capital ratio ~~of 4.5% and a tier 1 capital ratio of 6.0%, which~~ is an increase from 4.0%, and a total capital ratio that remains at 8.0%. The minimum leverage ratio (tier 1 capital to total assets) is 4.0%. The rules adopt stricter eligibility criteria for regulatory capital instruments that would disallow the inclusion of instruments such as trust preferred securities in tier 1 capital going forward, and new constraints on the inclusion of minority interests, mortgage-servicing assets, deferred tax assets, and certain investments in the capital of unconsolidated financial institutions. A new capital conservation buffer of 2.5% of risk-weighted assets is being phased-in over a transition period ending December 31, 2018.not changed. Failure to maintain the ~~in excess of the~~required capital conservation buffer will restrict or prohibit dividends, share repurchases and discretionary bonuses. ~~When the~~The new rules ~~are fully phased in,~~provide strict eligibility criteria for regulatory capital instruments, and change the ~~minimum capital requirements plus the capital conservation buffer will exceed the prior~~ prompt corrective action well-capitalized thresholds. The new rules increases the risk weights for past-due loans, certain commercial real estate loans, and some equity exposures, and makes selected other changes in risk weights and credit conversion factors. The rules remove any referencescheme to ~~external credit ratings in determining risk weights.~~

~~Management is evaluating~~reflect the new ~~rules~~capital ratios. The final rule also changes the method for calculating risk-weighted assets in an effort to better identify riskier assets requiring higher capital cushions and their effects on the Corporation and the Bank, but Management believes the Corporation and the Bank will remain "well-capitalized” under the new rules. The new rules generally will be effective for the Corporation and the Bank beginning January 1, 2015.to enhance risk sensitivity.

Stress Testing

The Dodd-Frank Act requires stress testing of bank holding companies and banks, such as the Corporation and the Bank, that have more than $10 billion but less than $50 billion of consolidated assets (“medium-sized companies”). Additional stress testing is required for banking organizations having $50 billion or more of assets. Medium-sized companies, including the Corporation and the Bank, are required to conduct annual company-run stress tests under rules the federal bank regulatory agencies issued in October 2012. ~~The first stress tests by medium-sized companies were submitted to the regulators at the end of March 2014.~~

Stress tests assess the potential impact of scenarios on the consolidated earnings, balance sheet and capital of a BHC or bank over a designated planning horizon of nine quarters, taking into account the organization's current condition, risks, exposures, strategies and activities, and such factors as the regulators may request of a specific organization. The stress tests are conducted under at least three required economic scenarios, consisting of a baseline, adverse, and severely adverse economic scenario as provided by the Federal Reserve for the Corporation and by the OCC for the Bank. ~~Final~~

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The banking agencies issued Supervisory Guidance on Stress Testing for Banking Organizations With More Than $10 Billion in Total Consolidated Assets on May 17, 2012. On July 30, 2013, the federal banking agencies issued Proposed Supervisory Guidance on Implementing Dodd-Frank Act Company-Run Stress Tests for Banking Organizations with Total Consolidated Assets of more than $10 Billion but less than $50 Billion, which describes supervisory ~~guidance~~expectations for stress ~~testing~~tests by medium-sized ~~companies,~~companies. In March 2014, the ~~“Supervisory Guidance,” was issued on March 5, 2014,~~OCC, the Federal Reserve and the ~~OCC has proposed moving the date such stress tests are due from March 31 to July 31 each year.~~FDIC issued Final Supervisory Guidelines on Implementing Dodd Frank Act Company-Run Stress Tests for Banking Organizations with Total Consolidated Assets of More Than $10 Billion but Less Than $50 billion.

Each banking organization's board of directors and senior management are required to approve and review the policies and procedures of their stress testing processes as frequently as economic conditions or the condition of the organization may warrant, and at least annually. They are also required to consider the results of the stress test in the normal course of business, including the banking organization's capital planning

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~~(including~~ (including dividends and share buybacks), assessment of capital adequacy and maintaining capital consistent with its risks and risk management practices. The results of the stress tests are provided to the applicable federal banking agencies. Public disclosure of stress test results is required beginning in 2015. ~~The Corporation submitted its initial stress tests to the regulators in March 2014.~~

Other Legislation

~~Various legislation~~Legislation affecting financial institutions and the financial industry will ~~likely~~ continue to be introduced in Congress and state legislatures, and such legislation may further change banking statutes and the operating environment of the Corporation and its subsidiaries in substantial and unpredictable ways, and could increase or decrease the ~~Corporation's~~Corporation’s cost of doing business, limit or expand permissible activities or affect ~~the~~its competitive ~~balance depending upon whether any of this potential legislation~~position. Legislation that is enacted, ~~and if enacted, the effect that it or~~together with any implementing regulations, ~~would have on~~could affect the financial condition or results of operations of the Corporation or any of its subsidiaries.

To the extent this Regulation and Supervision information describes statutory and regulatory provisions applicable to the Corporation or its subsidiaries, it is qualified in its entirety by reference to the full text of those provisions. Also, such statutes, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies and are subject to interpretation and change at any time, particularly in the current economic and regulatory environment. Any such change in statutes, regulations or regulatory policies applicable to the Corporation could have a material effect on the Corporation's business. For additional information on regulatory developments, refer to Item 1. “Business, Regulation and Supervision” of the ~~2013~~2014 Form 10-K.

NON-GAAP FINANCIAL MEASURES

Figure 2 below presents computations of earnings (loss) and certain other financial measures that exclude certain items that are included in the financial results presented in accordance with GAAP and are therefore considered non-GAAP financial measures. Management believes these non-GAAP financial measures enhance an investor's understanding of the business by providing a meaningful base for period-to-period comparisons, assisting in operating results analysis, and predicting future performance on the same basis as applied by Management and the Board of Directors. These non-GAAP financial measures are also used by Management to assess the performance of the Corporation's business, ~~because~~in comparison to the Corporation's other ongoing operations. Management does not consider the activities related to the adjustments to be indications of ongoing operations. Management and the Board of Directors utilize these non-GAAP financial measures as ~~follows:~~follows, among others:

Preparation of operating budgets

Monthly financial performance reporting

Monthly, quarterly and year-to-date assessment of the Corporation's business

Monthly close-out reporting of consolidated results (Management only)

Presentations to investors of corporate performance

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Net interest income is presented on a TE ~~basis and excludes net securities gains and losses.~~basis. Net interest income-TE includes the effects of taxable-equivalent adjustments using a 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 TE enhances comparability of net interest income arising from taxable and tax exempt sources and is the preferred industry measurement of net interest income.

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Total revenue is calculated as net interest income-TE plus noninterest income and excludes net securities gains or losses. Management believes that noninterest income without net securities gains or losses is more indicative of the Corporation's performance because it isolates income that is primarily client relationship and client transaction driven and is more indicative of normalized operations.

The efficiency ratio is a non-GAAP financial measure which measures productivity and is generally calculated as noninterest expense divided by total revenue-TE. The efficiency ratio removes the impact of the Corporation's intangible asset amortization from the calculation. The adjusted efficiency ratio further removes the impact of the Citizens' merger related charges. The fee income ratio is another non-GAAP financial measure calculated as noninterest income without net securities gains or losses divided by total revenue-TE. Management uses these ratios to monitor performance and believes these measures provide meaningful information to investors.

Tangible common equity ratios have been a focus of some investors in analyzing the capital position of the Corporation absent the effects of intangible assets and preferred stock. Traditionally, the banking regulators have assessed bank and BHC capital adequacy based on Tier 1 capital, the calculation of which is codified in federal banking regulations. The new Basel III rules, ~~adopted in July 2013, include a~~effective January 1, 2015, replace tier 1 common equity ~~Tier I capital to risk-weighted assets~~and the tier 1 common equity ratio with CET1 and CET1 risk-based capital ratio. Analysts and banking regulators have assessed the Corporation's capital adequacy using the tangible common shareholders' equity and/or the ~~Tier 1 common equity~~CET1 measure, including on a risk-weighted basis. Tangible common equity and ~~Tier 1 common equity~~CET1 are not formally defined by ~~GAAP,~~GAAP; accordingly, these measures are considered to be non-GAAP financial measures, and other entities may calculate them differently than the Corporation's disclosed calculations. Since analysts and banking regulators assess the Corporation's capital adequacy using tangible common shareholders' equity and ~~Tier 1 common equity,~~CET1, Management believes this information will assist investors to assess the Corporation's capital adequacy on these same bases.

~~Tier 1 common equity~~CET1 capital is often expressed as a percentage of risk-weighted assets. Under the risk-based capital framework, a bank's various balance sheet assets and credit equivalent amounts of off-balance sheet items are assigned to one of several regulatory risk categories. The aggregated dollar amount in each category is then multiplied by the risk weighting assigned to that category. The resulting weighted values are added together and this sum is the risk-weighted assets total that, as adjusted, comprises the denominator of certain risk-based capital ratios. Tier 1 capital is then divided by this denominator (risk-weighted assets) to determine the Tier 1 capital ratio. Adjustments are made to Tier 1 capital to arrive at ~~Tier 1 common equity~~CET1 (non-GAAP). ~~Tier 1 common equity~~CET1 is also divided by the risk-weighted assets to determine the ~~Tier 1 common equity~~CET1 risk-based capital ratio. The amounts disclosed as risk-weighted assets are calculated consistent with current banking regulatory requirements.

The Corporation ~~currently~~ calculates its risk-based capital ratios under guidelines adopted by the Federal Reserve based on the Basel ~~I capital ratios. When fully phased-in,~~III, which became effective for the new Basel III capital rules adopted in July 2013, will change capital requirements and place greater emphasis on common equity. The calculations provided below are estimates, based on the Corporation's current understanding of the 2013 regulatory capital rules implementing Basel III in the United States, including the Corporation's reading of the requirements, and informal feedback received through the regulatory process. The Corporation's understanding of the Federal Reserve'sCorporation and the ~~OCC's July 2013 Basel III capital rules is evolving and will likely change as the Corporation gains more experience with the new regulations before these become effective~~Bank on January 1, 2015. Because the Basel III rules are not formally defined by GAAP, these measures are considered to be non-GAAP financial measures, and other entities may calculate them differently from the ~~Corporation's~~Corporation’s disclosed calculations. Since analysts and banking regulators may assess the ~~Corporation's~~Corporation’s capital adequacy using the Basel III framework,

~~Table of Contents~~

Management believes that it is useful to provide investors information enabling them to assess the ~~Corporation's~~Corporation’s capital adequacy on the same basis.

Table of Contents

Tangible book value per share (non-GAAP) and common equity per share (non-GAAP) are approximate measures of the Corporation's common equity excluding goodwill and other intangible assets, and liquidation values. Management uses these values to evaluate the current market value and believes these measures are useful for evaluating the performance of a business consistently, whether acquired or developed internally. These per share values are calculated by deducting preferred stock from shareholder's equity for common equity value (non-GAAP) and deducting intangible assets from the common equity value for tangible book value (non-GAAP). Both values (numerator) are then divided by period end ~~common shares~~Common Stock outstanding.

Return on average tangible common shareholders' equity calculates the return on average common shareholders' equity excluding goodwill and other intangible assets. This measure is useful for evaluating the performance of a business consistently, whether acquired or developed internally.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of results as reported under GAAP. These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies.

9794

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Figure 2. GAAP to Non-GAAP Reconciliations


(Dollars in thousands)	(Dollars in thousands)		June 30, 2014			December 31, 2013			June 30, 2013			(Dollars in thousands)		March 31, 2015			December 31, 2014			March 31, 2014
Tangible common equity to tangible assets at period end	Tangible common equity to tangible assets at period end											Tangible common equity to tangible assets at period end
	Shareholders’ equity (GAAP)		$	2,791,738		$	2,702,894		$	2,650,909		Shareholders’ equity (GAAP)		$	2,888,786		$	2,834,281		$	2,742,966
	Less:	Intangible assets	76,886			82,755			88,419			Less:	Intangible assets	68,422			71,020			79,819
		Goodwill	741,740			741,740			741,740				Goodwill	741,740			741,740			741,740
		Preferred Stock	100,000			100,000			100,000				Preferred Stock	100,000			100,000			100,000
	Tangible common equity (non-GAAP)		$	1,873,112		$	1,778,399		$	1,720,750		Tangible common equity (non-GAAP)		$	1,978,624		$	1,921,521		$	1,821,407
	Total assets (GAAP)		24,564,431			23,912,028			23,534,873			Total assets (GAAP)		25,118,120			24,902,347			24,498,661
	Less:	Intangible assets	76,886			82,755			88,419			Less:	Intangible assets	68,422			71,020			79,819
		Goodwill	741,740			741,740			741,740				Goodwill	741,740			741,740			741,740
	Tangible assets (non-GAAP)		$	23,745,805		$	23,087,533		$	22,704,714		Tangible assets (non-GAAP)		$	24,307,958		$	24,089,587		$	23,677,102
	Tangible common equity to tangible assets ratio (non-GAAP)		7.89		%	7.70		%	7.58		%	Tangible common equity to tangible assets ratio (non-GAAP)		8.14		%	7.98		%	7.69		%
Tier 1 common equity - Basel I
Capital ⁽¹⁾												Capital ⁽¹⁾		(Basel III)			(Basel I)			(Basel I)
	Shareholders' equity (GAAP)		$	2,791,738		$	2,702,894		$	2,650,909		Shareholders' equity (GAAP)		$	2,888,786		$	2,834,281		$	2,742,966
	Plus:	Net unrealized (gains) losses on available-for-sale securities	3,702			29,297			274			Plus:	Net unrealized (gains)/ losses on investment securities related to AOCI	(16,072		)	5,546			17,925
		Losses recorded in AOCI related to defined benefit postretirement plans	35,805			37,579			71,623				Defined benefit postretirement plan losses related to AOCI	65,339			66,346			37,579
		Trust preferred securities	74,502			74,500			74,499				Trust preferred securities	—			—			74,501
	Less:	Goodwill	741,740			741,740			741,740				Goodwill (GAAP)	741,740			741,740			741,740
		Intangible assets	76,886			82,755			88,419				Less: Deferred tax liability associated with goodwill ⁽¹⁾	19,023			—			—
		Disallowed deferred tax asset	107,090			137,027			130,693			Less:	Net non-qualifying goodwill (regulatory) ⁽¹⁾	722,717			741,740			741,740
		Other adjustments	1,798			1,944			2,841				Intangible assets (GAAP)	68,422			71,020			79,819
	Tier 1 capital - Basel I (regulatory)		1,978,233			1,880,804			1,833,612				Less: Deferred tax liability associated with intangible assets ⁽¹⁾	21,187			—			—
	Less:	Preferred Stock	100,000			100,000			100,000			Less:	Net intangible assets (Regulatory)	47,235			71,020			79,819
		Trust preferred securities	74,502			74,500			74,499				Disallowed deferred tax asset ⁽¹⁾	190,102			87,001			129,200
	Tier 1 common equity - Basel I (non-GAAP)		$	1,803,731		$	1,706,304		$	1,659,113			Other adjustments ⁽¹⁾	(28,341		)	1,951			1,774
	Risk-weighted assets - Basel I (regulatory)		$	17,104,892		$	16,320,833		$	16,151,960		Tier 1 capital (regulatory)		2,006,340			2,004,461			1,920,438
	Tier 1 common equity ratio - Basel I (non-GAAP)		10.55		%	10.45		%	10.27		%	Less:	Preferred Stock	100,000			100,000			100,000
Tier 1 common ratio - Basel III (estimates) ⁽¹⁾
	Shareholders' equity (GAAP)		$	2,791,738		$	2,702,894		$	2,650,909			Trust preferred securities	—			—			74,501
	Plus:	Net unrealized (gains) losses on available-for-sale securities	3,702			29,297			274			Plus:	Tier 1 capital adjustments	100,000			—			—
		Defined benefit postretirement plans in accumulated other comprehensive income	35,805			37,579			71,623			Tier 1 common equity (non-GAAP) ⁽¹⁾		N/A			$	1,904,461		$	1,745,937
	Less:	Non-qualifying goodwill	741,740			741,740			741,740			CET1 capital (non-GAAP) ⁽¹⁾		$	2,006,340		N/A			N/A
		Non-qualifying intangible assets	76,886			82,755			88,419			Risk-weighted assets (regulatory) ⁽¹⁾		$	18,934,941		$	17,391,022		$	16,687,071
		Disallowed deferred tax asset	173,039			205,962			174,500			Tier 1 common equity ratio (non-GAAP) ⁽¹⁾		N/A			10.95		%	10.46		%
		Other adjustments	1,798			1,944			2,841			CET1 risk-based capital ratio (non-GAAP) ⁽¹⁾		10.60		%	N/A			N/A
	Tier 1 capital - Basel III (regulatory)		1,837,782			1,737,369			1,715,306
	Less:	Preferred Stock	100,000			100,000			100,000
	Tier 1 common equity - Basel III (regulatory)		$	1,737,782		$	1,637,369		$	1,615,306
	Risk-weighted assets - Basel III (regulatory)		$	17,863,506		$	17,114,143		$	16,411,917
	Tier 1 common equity ratio - Basel III		9.73		%	9.57		%	9.84		%



GAAP to Non-GAAP Reconciliations, continued
(Dollars in thousands, except per share amounts)			March 31, 2015		December 31, 2014		March 31, 2014
Book value, common equity value and tangible book value, per share
	Shareholders’ equity (GAAP)		$	2,888,786	$	2,834,281	$	2,742,966
	Less:	Preferred Stock	100,000		100,000		100,000
	Common shareholders' equity (non-GAAP)		2,788,786		2,734,281		2,642,966
	Less:	Intangible assets	68,422		71,020		79,819
		Goodwill	741,740		741,740		741,740
	Tangible common equity (non-GAAP)		$	1,978,624	$	1,921,521	$	1,821,407
	Period end common shares		165,453		165,390		165,087
	Book value per share		$	17.46	$	17.14	$	16.62
	Common equity per share		16.86		16.53		16.01
	Tangible book value per common share		11.96		11.62		11.03

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GAAP to Non-GAAP Reconciliations, continued
(Dollars in thousands, except per share amounts) June 30, 2014 December 31, 2013 June 30, 2013
Book value, common equity value and tangible book value, per share
Shareholders’ equity (GAAP) $ 2,791,738
$ 2,702,894
$ 2,650,909
Less: Preferred Stock 100,000
100,000
100,000
Common shareholders' equity 2,691,738
2,602,894
2,550,909
Less: Intangible assets 76,886
82,755
88,419
Goodwill 741,740
741,740
741,740
Tangible common equity (non-GAAP) $ 1,873,112
$ 1,778,399
$ 1,720,750
Period end common shares 165,393
165,056
165,045
Book value per share $ 16.88
$ 16.38
$ 16.06
Common equity per share 16.27
15.77
15.46
Tangible book value per common share 11.33
10.77
10.43

Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 2014 2013 2014 2013
Net income $ 59,519
$ 48,450
$ 112,974
$ 85,796

Adjustments to net income, net of tax ⁽²⁾

Plus: Acquisition related expenses —
20,851
706
23,191
Branch closure costs $ 2,646
$ —
$ 2,568
$ —
Adjusted net income (non-GAAP) $ 62,165
$ 69,301
$ 116,248
$ 108,987
Average assets (GAAP) $ 24,291,276
$ 22,810,702
$ 24,216,459
$ 18,914,581
Average equity (GAAP) 2,768,352
2,571,964
2,750,886
2,145,851
Less: Average Preferred Stock 100,000
100,000
100,000
81,215
Average common shareholders' equity (non-GAAP) 2,668,352
2,471,964
2,650,886
2,064,636
Less: Average intangible assets 78,314
79,972
79,775
43,289
Average goodwill 741,739
701,220
741,739
581,299
Average tangible common equity (non-GAAP) $ 1,848,299
$ 1,690,772
$ 1,829,372
$ 1,440,048

Return on average assets 0.98 % 0.85 % 0.94 % 0.91 %
Adjusted return on average assets net of Citizens' merger related charges (non-GAAP) 1.03 % 1.22 % 0.97 % 1.16 %
Return on average equity 8.62 % 7.56 % 8.28 % 8.06 %
Adjusted return on average equity net of Citizens' merger related charges (non-GAAP) 9.01 % 10.81 % 8.52 % 10.24 %

Return on average tangible common equity (non-GAAP) ⁽³⁾
12.92 % 11.49 % 12.45 % 12.01 %
Adjusted return on average tangible common equity net of Citizens' merger related charges (non-GAAP) 13.49 % 16.44 % 12.81 % 15.26 %



			Three Months Ended March 31,
(Dollars in thousands)			2015			2014
	Net income (GAAP)		$	57,139		$	53,455
	Adjustments to net income, net of tax ⁽²⁾
	Plus:	Acquisition related expenses, net of taxes	—			628
		Branch closure costs	783			—
		Restructure expenses	1,149			—
		Total adjusted charges	1,932			628
		Adjusted net income (non-GAAP)	$	59,071		$	54,083
	Annualized net income (GAAP)		$	231,730		$	216,790
		Annualized adjusted net income (non-GAAP)	$	239,566		$	219,337
	Average assets (GAAP)		$	24,905,094		$	24,144,570
	Average equity (GAAP)		2,866,362			2,733,226
	Less:	Average Preferred Stock	100,000			100,000
	Average common shareholders' equity (non-GAAP)		2,766,362			2,633,226
	Less:	Average intangible assets	69,692			81,253
		Average goodwill	741,740			741,739
	Average tangible common equity (non-GAAP)		$	1,954,930		$	1,810,234

	Return on average assets (GAAP)		0.93		%	0.90		%
	Adjusted return on average assets net of adjusted charges (non-GAAP)		0.96		%	0.91		%
	Return on average equity (GAAP)		8.08		%	7.93		%
	Adjusted return on average equity net of adjusted charges (non-GAAP)		8.36		%	8.02		%
	Return on average tangible common equity (non-GAAP) ⁽³⁾		11.85		%	11.98		%
	Adjusted return on average tangible common equity net adjusted charges (non-GAAP)		12.25		%	12.12		%

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GAAP to Non-GAAP Reconciliations, continued

Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 2014 2013 2014 2013
Net interest income (GAAP) $ 195,577
$ 198,031
$ 389,479
$ 309,379
TE Adjustment 4,089
3,574
8,041
6,601
Net interest income - TE (non-GAAP) 199,666
201,605
397,520
315,980
Noninterest income (GAAP) 72,560
69,439
139,831
126,832

Adjustments to noninterest income ⁽²⁾

Less: Securities gains (losses) 80
(2,794 ) 136
(2,803 )
Plus:
Branch closure costs⁽³⁾
3,951
—
3,951
—
Adjusted noninterest income (non-GAAP) 76,431
72,233
143,646
129,635
Total revenue, TE excluding securities gains (losses) (non-GAAP) 276,097
273,838
541,166
445,615
Noninterest expense (GAAP) 167,400
188,888
336,733
295,034

Adjustments to noninterest expense ⁽²⁾

Less: Intangible asset amortization 2,933
2,411
5,869
2,728

Branch closures costs and acquisition related expenses ⁽³⁾
120
29,284
1,086
32,884
Adjusted noninterest expense (non-GAAP) $ 164,347
$ 157,193
$ 329,778
$ 259,422

Fee income ratio (non-GAAP) 26.63 % 26.38 % 26.00 % 29.09 %
Efficiency ratio (non-GAAP) 60.43 % 68.10 % 61.59 % 65.60 %
Adjusted efficiency ratio net of Citizens' merger related charges (non-GAAP) 59.53 % 57.40 % 60.94 % 58.22 %



			Three Months Ended March 31,
(Dollars in thousands)			2015			2014
	Net interest income (GAAP)		$	185,623		$	193,900
	TE Adjustment		3,931			3,954
	Net interest income TE (non-GAAP)		189,554			197,854
	Noninterest income (GAAP)		65,847			67,270
	Adjustments to noninterest income ⁽²⁾
	Less:	Securities gains /(losses)	354			56
	Plus:	Branch closure costs and acquisition related expenses⁽³⁾	1,205			—
		Adjusted noninterest income (non-GAAP)	66,698			67,214
	Adjusted total revenue, TE excluding securities gains/(losses) (non-GAAP)		256,252			265,068
	Noninterest expense (GAAP)		160,652			169,331
	Adjustments to noninterest expense ⁽²⁾
	Less:	Intangible asset amortization	2,598			2,936
		Adjusted noninterest expense, excluding amortization of intangibles	158,054			166,395
	Less:	Restructure expenses	1,767			—
		Branch closures costs and acquisition related expenses ⁽³⁾	—			966
		Adjusted noninterest expense (non-GAAP)	$	156,287		$	165,429

	Net interest margin on a TE basis (non-GAAP)		3.48		%	3.84		%
	Fee income ratio (non-GAAP)		25.68		%	25.36		%
	Efficiency ratio, excluding amortization of intangible assets and security gains/(losses) (non-GAAP)		61.97		%	62.77		%
	Adjusted efficiency ratio (non-GAAP)		60.99		%	62.41		%

(1) The Basel III ~~calculations of Tier~~capital rules, effective effective January 1, 2015, replace tier 1 common equity ~~RWA~~ and the ~~Tier~~associated tier 1 common equity ratio with CET1 and the CET1 risk-based capital ratio. These ratios reflect the transitional capital requirements and phase-in provisions, including the standardized approach for calculating risk weighted assets. Periods prior to March 31, 2015 are ~~based upon Management's current interpretation of the final Basel III rules issued by the Federal Reserve in July 2013,~~reported on a ~~fully phased in~~Basel I basis.

(2) Management believes these adjustments increase comparability of period-to-period results and uses these measures to assess performance and believes investors may find them useful in their analysis of the Corporation. It is possible that the activities related to the adjustments may recur; however, Management does not consider the activities related to the adjustments to be indications of ongoing operations.

(3) Management determines these costs to be significant, non-reoccurring items in the period and, therefore, removes these additional costs in calculating an adjusted efficiency ratio. Management believes removal of these significant, non-reoccurring items improves comparability period to period.

~~100~~97

Table of Contents

RESULTS OF OPERATIONS

Figure 3. Average Tax-Equivalent Balance Sheets-Quarter to Date

Three Months Ended
June 30, 2014 March 31, 2014 June 30, 2013
(Dollars in thousands)
Average
Balance

Interest ⁽¹⁾

Average
Rate

Average
Balance

Interest ⁽¹⁾

Average
Rate

Average
Balance

Interest ⁽¹⁾

Average
Rate
ASSETS
Cash and cash equivalents $ 662,000
$ 959,071
$ 806,129

Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable) 5,303,645
$ 26,751
2.02 % 5,151,341
$ 25,910
2.04 % 4,714,823
$ 24,679
2.10 %
Obligations of states and political subdivisions (tax exempt) 767,731
8,753
4.57 % 739,875
8,613
4.72 % 710,579
9,217
5.20 %
Other securities and federal funds sold 583,605
5,501
3.78 % 593,362
6,112
4.18 % 504,343
4,459
3.55 %
Total investment securities and federal funds sold 6,654,981
41,005
2.47 % 6,484,578
40,635
2.54 % 5,929,745
38,355
2.59 %
Loans held for sale 10,196
89
3.51 % 6,804
59
3.53 % 17,394
143
3.30 %
Loans, including loss share receivable ⁽²⁾
14,702,319
173,320
4.73 % 14,412,481
171,136
4.82 % 13,662,835
178,847
5.25 %
Total earning assets 21,367,496
$ 214,414
4.02 % 20,903,863
$ 211,830
4.11 % 19,609,974
$ 217,345
4.45 %
Total allowance for loan losses (146,368 ) (138,891 ) (146,565 )
Other assets 2,408,148
2,420,527
2,541,164

Total assets $ 24,291,276
$ 24,144,570
$ 22,810,702

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing $ 5,515,807
$ —
— % $ 5,488,751
$ —
— % $ 5,095,977
$ —
— %
Interest-bearing 3,066,201
745
0.10 % 3,045,952
737
0.10 % 2,347,155
656
0.11 %
Savings and money market accounts 8,580,928
5,477
0.26 % 8,698,817
5,559
0.26 % 8,210,780
6,469
0.32 %
Certificates and other time deposits 2,333,859
3,009
0.52 % 2,402,986
2,464
0.42 % 2,680,332
3,374
0.50 %
Total deposits 19,496,795
9,231
0.19 % 19,636,506
8,760
0.18 % 18,334,244
10,499
0.23 %
Securities sold under agreements to repurchase 1,024,598
233
0.09 % 884,065
197
0.09 % 927,451
329
0.14 %
Wholesale borrowings 373,213
1,391
1.49 % 276,324
1,129
1.66 % 237,887
1,169
1.97 %
Long-term debt 324,431
3,893
4.81 % 324,428
3,890
4.86 % 314,597
3,743
4.77 %
Total interest-bearing liabilities 15,703,230
14,748
0.38 % 15,632,572
13,976
0.36 % 14,718,202
15,740
0.43 %
Other liabilities 303,887
290,021
424,559

Shareholders’ equity 2,768,352
2,733,226
2,571,964

Total liabilities and shareholders’ equity $ 24,291,276
$ 24,144,570
$ 22,810,702

Net yield on earning assets $ 21,367,496
$ 199,666
3.75 % $ 20,903,863
$ 197,854
3.84 % $ 19,609,974
$ 201,605
4.12 %
Interest rate spread 3.65 % 3.75 % 4.02 %

⁽¹⁾The net yield on earning assets is calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal and/or state income taxes. As such, these tax-exempt securities typically yield lower returns than taxable securities. To provide more meaningful comparisons of net interest margins for all earning assets, net interest income on a taxable-equivalent basis is used in calculating net interest margin by increasing the interest earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles in the Consolidated Statements of Income. The taxable-equivalent adjustment to net interest income were ~~$4.1 million, $4.0 million, and~~ ~~$3.6 million~~ ~~for the three months ended~~ ~~June 30, 2014, March 31, 2014, and~~ ~~June 30, 2013, respectively.~~

⁽²⁾ ~~Nonaccrual loans have been included in the average balances.~~

~~101~~

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		Six Months Ended														Three Months Ended
		June 30, 2014							June 30, 2013							March 31, 2015							December 31, 2014							March 31, 2014
(Dollars in thousands)		Average Balance			Interest ⁽¹⁾		Average Rate		Average Balance			Interest ⁽¹⁾		Average Rate		Average Balance			Interest ⁽¹⁾		Average Rate		Average Balance			Interest ⁽¹⁾		Average Rate		Average Balance			Interest ⁽¹⁾		Average Rate
ASSETS
Cash and cash equivalents		$	809,715						$	601,649						$	563,265						$	500,559						$	959,071
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)		5,227,913			$	52,661	2.03	%	3,757,748			$	40,974	2.20	%
U.S. Treasury securities and U.S. government agency obligations (taxable)																5,329,725			$	26,760	2.04	%	5,257,657			$	26,803	2.02	%	5,151,341			$	25,910	2.04	%
Obligations of states and political subdivisions (tax exempt)		753,880			17,365		4.65	%	626,265			15,812		5.09	%	733,157			9,147		5.06	%	767,026			8,636		4.47	%	739,875			8,613		4.72	%
Other securities and federal funds sold		588,457			11,614		3.98	%	436,014			7,403		3.42	%	604,876			5,190		3.48	%	589,608			5,213		3.51	%	593,362			6,113		4.18	%
Total investment securities and federal funds sold		6,570,250			81,640		2.51	%	4,820,027			64,189		2.69	%	6,667,758			41,097		2.50	%	6,614,291			40,652		2.44	%	6,484,578			40,636		2.54	%
Loans held for sale		8,510			148		3.52	%	16,146			287		3.58	%	5,478			57		4.22	%	16,708			145		3.44	%	6,804			59		3.53	%
Loans, including loss share receivable ⁽²⁾		14,558,200			344,453		4.77	%	11,690,339			277,852		4.79	%	15,427,181			162,292		4.27	%	15,289,890			169,302		4.39	%	14,412,481			171,135		4.82	%
Total earning assets		21,136,960			426,241		4.07	%	16,526,512			342,328		4.18	%	22,100,417			$	203,446	3.73	%	21,920,889			$	210,099	3.80	%	20,903,863			$	211,830	4.11	%
Total allowance for loan losses		(142,649		)					(144,164		)					(144,363		)					(138,540		)					(138,891		)
Other assets		2,412,433							1,930,584							2,385,775							2,382,079							2,420,527
Total assets		$	24,216,459						$	18,914,581						$	24,905,094						$	24,664,987						$	24,144,570
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY															LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing		$	5,502,354		$	—	—	%	$	4,213,720		$	—	—		$	5,728,763		$	—	—	%	$	5,706,631		$	—	—	%	$	5,488,751		$	—	—	%
Interest-bearing		3,056,132			1,481		0.10	%	1,826,876			974		0.11	%	3,209,285			767		0.10	%	3,021,188			727		0.10	%	3,045,952			737		0.10	%
Savings and money market accounts		8,639,547			11,035		0.26	%	7,029,826			11,784		0.34	%	8,542,154			5,547		0.26	%	8,381,548			5,496		0.26	%	8,698,817			5,559		0.26	%
Certificates and other time deposits		2,368,231			5,473		0.47	%	2,009,671			5,437		0.55	%	2,308,723			2,177		0.38	%	2,341,280			2,525		0.43	%	2,402,986			2,464		0.42	%
Total deposits		19,566,264			17,989		0.19	%	15,080,093			18,195		0.24	%	19,788,925			8,491		0.17	%	19,450,647			8,748		0.18	%	19,636,506			8,760		0.18	%
Securities sold under agreements to repurchase		954,719			429		0.09	%	917,141			642		0.14	%	1,024,863			243		0.10	%	1,241,948			294		0.09	%	884,065			197		0.09	%
Wholesale borrowings		325,036			2,520		1.56	%	187,373			2,019		2.17	%	350,991			2,340		2.70	%	450,587			2,360		2.08	%	276,324			1,129		1.66	%
Long-term debt		324,430			7,783		4.84	%	235,491			5,491		4.70	%	505,275			2,818		2.26	%	350,535			2,188		2.48	%	324,428			3,890		4.86	%
Total interest-bearing liabilities		15,668,095			28,721		0.37	%	12,206,378			26,347		0.44	%	15,941,291			13,892		0.35	%	15,787,086			13,590		0.34	%	15,632,572			13,976		0.36	%
Other liabilities		295,124							348,632							368,678							321,652							290,021
Shareholders’ equity		2,750,886							2,145,851							2,866,362							2,849,618							2,733,226
Total liabilities and shareholders’ equity		$	24,216,459						$	18,914,581						$	24,905,094						$	24,664,987						$	24,144,570
Net yield on earning assets		$	21,136,960		$	397,520	3.79	%	$	16,526,512		$	315,981	3.86	%	$	22,100,417		$	189,554	3.48	%	$	21,920,889		$	196,509	3.56	%	$	20,903,863		$	197,854	3.84	%
Interest rate spread							3.70	%						3.74	%						3.38	%						3.46	%						3.75	%

⁽¹⁾The net yield on earning assets is calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal and/or state income taxes. As such, these tax-exempt securities typically yield lower returns than taxable securities. To provide more meaningful comparisons of net interest margins for all earning assets, net interest income on a taxable-equivalent basis is used in calculating net interest margin by increasing the interest earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles in the Consolidated Statements of Income. The taxable-equivalent adjustments to net interest income were ~~$8.0~~$3.9 million, $4.0 million, and ~~$6.6~~$4.0 million for the ~~six~~three months ended ~~June 30,~~March 31, 2015, December 31, 2014, and ~~June 30, 2013,~~March 31, 2014, respectively.

⁽²⁾ Nonaccrual loans have been included in the average balances.

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Net Interest Income

Net interest income, the Corporation's principal source of revenue, is the difference between interest income generated by earning assets (primarily loans and investment securities) and interest expense on deposits and borrowings. Net interest income is affected by the volume, pricing, mix and maturity of earnings assets and interest-bearing liabilities; the volume and value of net free funds, such as noninterest-bearing deposits and equity capital; the use of derivative instruments to manage interest rate risk; interest rate fluctuations and competitive conditions within the marketplace; and asset quality.

To make it easier to compare results among several periods and the yields on various types of earning assets (some taxable, some not), net interest income is presented in this discussion on a TE basis. 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 nondeductible portion of interest expense incurred to acquire the tax-free assets. Net interest income presented on a TE basis is a financial measure that is calculated and presented other than in accordance with GAAP and is widely used by financial services organizations. Therefore, Management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons. The net interest margin, which is an indicator of the profitability of the earning assets portfolio less cost of funding, is calculated by dividing net interest income-TE by average earning assets. As with net interest income-TE, the net interest margin is affected by the level and mix of earning assets, the proportion of earning assets funded by noninterest-bearing liabilities and the interest rate spread. In addition, the net interest margin is impacted by changes in federal income tax rates and regulations as they affect the tax-equivalent adjustment.

~~For the three months ended~~ ~~June 30, 2014, net interest income-TE was $199.7 million,~~ ~~a decrease~~ of ~~$1.9 million~~ or ~~0.96%~~ from the year ago period. The decrease in taxable equivalent net interest income was attributable to unfavorable rate variances (as the impact of changes in the interest rate environment and product pricing decreased taxable equivalent net interest income by $18.6 million) and favorable volume variances (as balance sheet changes in both volume and mix increased taxable equivalent net interest income by $16.6 million).

~~The net interest margin for the three months ended~~ ~~June 30, 2014~~ was 3.75%, 37 basis points lower than 4.12% for the same year ago quarter. Second quarter 2014 net interest margin compression was primarily driven by declining volume in the acquired and covered loan portfolios and lower investment portfolio yields, partially offset by increased volume of originated loans.

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The impact of changes in the volume of interest-earning assets and interest-bearing liabilities and interest rates on net interest income is illustrated in the following table.

Figure 4. Changes in Net Interest Income Tax-Equivalent Rate/Volume Analysis



	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended March 31,
	2014 and 2013									2014 and 2013									2015 and 2014
	Increase (Decrease) In Interest Income/Expense									Increase (Decrease) In Interest Income/Expense									Increase (Decrease) In Interest Income/Expense
(In thousands)	Volume			Yield/ Rate			Total			Volume			Yield/ Rate			Total			Due to Volume			Due to Rate			Net
INTEREST INCOME-TE
Investment securities and federal funds sold:
Taxable	$	3,669		$	(555	)	$	3,114		$	18,009		$	(2,110	)	$	15,899		$	1,040		$	(1,113	)	$	(73	)
Tax-exempt	706			(1,170		)	(464		)	3,025			(1,472		)	1,553			(79		)	613			534
Loans held for sale	(62		)	8			(54		)	(133		)	(6		)	(139		)	(13		)	11			(2		)
Loans	13,020			(18,547		)	(5,527		)	67,861			(1,260		)	66,601			11,525			(20,368		)	(8,843		)
Total interest income-TE	17,333			(20,264		)	(2,931		)	88,762			(4,848		)	83,914			12,473			(20,857		)	(8,384		)
INTEREST EXPENSE
Interest on deposits:
Interest bearing	183			(94		)	89			603			(96		)	507			39			(9		)	30
Savings and money market accounts	280			(1,272		)	(992		)	2,383			(3,132		)	(749		)	(101		)	89			(12		)
Certificates and other time deposits	(445		)	80			(365		)	892			(856		)	36			(94		)	(193		)	(287		)
Securities sold under agreements to repurchase	31			(127		)	(96		)	25			(238		)	(213		)	32			14			46
Wholesale borrowings	552			(330		)	222			1,182			(681		)	501			363			848			1,211
Long-term debt	118			32			150			2,130			162			2,292			1,577			(2,649		)	(1,072		)
Total interest expense	719			(1,711		)	(992		)	7,215			(4,841		)	2,374			1,816			(1,900		)	(84		)
Net interest income-TE	$	16,614		$	(18,553	)	$	(1,939	)	$	81,547		$	(7	)	$	81,540		$	10,657		$	(18,957	)	$	(8,300	)

Note: Rate/volume variances are allocated on the basis of absolute value of the change in each.

Table of Contents

The following table in Figure 5 provides net interest income-TE and net interest margin totals for the ~~three and~~ ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014:

Figure 5. Net Interest Income and Net Interest Margin


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(Dollars in thousands)	2014			2013			2014			2013			2015			2014
Net interest income	$	195,577		$	198,031		$	389,479		$	309,379		$	185,623		$	193,900
Tax equivalent adjustment	4,089			3,574			8,041			6,601			3,931			3,954
Net interest income-TE	199,666			201,605			397,520			315,980			189,554			197,854
Average earning assets	$	21,367,496		$	19,609,974		21,136,960			16,526,512			$	22,100,417		$	20,903,863
Net interest margin	3.75		%	4.12		%	3.79		%	3.86		%	3.48		%	3.84		%

For the three months ended March 31, 2015, net interest income-TE was $189.6 million, a decrease of $8.3 million, or 4.20%, from the year ago period. The net interest margin for the three months ended March 31, 2015 was 3.48%, 36 basis points lower than 3.84% for the same year ago quarter. The decrease in taxable equivalent net interest income was attributable to a decrease in originated and covered loan yields, partially offset by the benefit provided by an increase in average earning assets. Average earning assets increased by $1.2 billion, or 5.72%, for the three months ended March 31, 2015, compared to the same period in 2014. The increase in average earnings assets primarily reflected a $1.0 billion increase in average total loans and a $183.2 million increase in average investments. The average yield on earning assets decreased from ~~4.45%~~4.11% in the ~~second quarter~~ of ~~2013~~ to ~~4.02%~~ ~~in the~~ ~~second~~first quarter of 2014~~. Loan~~ to 3.73% in the first quarter of 2015 primarily from decreased yields on originated and covered loans. Originated loan yields were down 5217 basis points to ~~4.73%~~3.51% from the year ago ~~quarter. Quarterly average originated loans were up year over year increasing interest income, while the yield on these loans were down 20 basis points~~quarter due to competitive pricing pressures in a low rate environment ~~decreasing interest income. While both~~and repayments on higher yielding loans. The yield on covered loans was down 86 basis points from the ~~acquired and~~year ago quarter due to a $8.1 million decrease in covered loan ~~portfolios continue to run-off thereby decreasing interest income,~~discount accretion, partly offset by a $3.7 million favorable reduction in the indemnification asset amortization. These reductions are the result of the continued decline in FDIC acquired loan average balances. The average balances have declined $233.5 million, or 41.4%, from the year ago quarter. The yield on acquired loans was down 31 basis ~~points while~~point to 7.93%, partially offsetting the ~~yield on covered loans improved by 65 basis points, reflecting improvement~~decreases in the ~~re-estimated cash flows~~yields of the ~~portfolios, thereby increasing interest income.~~ originated and covered loan portfolios.

Quarterly average balances for investment securities were up from the year ago quarter increasing investment interest income by $~~4.4~~1.0 million, while the ~~low~~lower interest rate environment ~~and reduction of higher cost deposit products~~ resulted in a decrease in investment interest income of $~~1.7~~0.5 million year over year. The ~~low~~lower rates paid

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on interest bearing deposits during the current quarter resulted in a net decrease of $~~1.3~~0.3 million in interest expense for the three months ended ~~June 30, 2014~~March 31, 2015, compared to the same prior year period. ~~Increases in~~Higher quarterly average wholesale borrowings and ~~long-term debt~~lower rates during the ~~second~~first quarter of ~~2014~~2015 caused a net increase in interest expense to ~~increase~~ ~~by 0.4~~of $1.2 million compared to the same year ago period. The cost of funds for the year as a percentage of average earning assets remained flat at approximately ~~0.07%~~0.06% for the three months ended ~~June 30, 2014~~March 31, 2015 and 0.07% at ~~0.08%for the three months endedJune 30, 2013~~March 31, 2014.

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Noninterest Income

Excluding investment securities transactions, noninterest income for the three months ended March 31, 2015 and ~~six months ended June 30,~~March 31, 2014 totaled $~~72.5~~65.5 million and ~~$139.7~~$67.2 million, respectively. Noninterest income ~~remained relatively flat compared with the same three month period of 2013 and increased $13.0~~decreased $1.4 million, or ~~10.25%~~2.12%, compared to the ~~six~~three month period ended ~~June 30, 2013~~March 31, 2014. Noninterest income as a percentage of net revenue (net interest income-TE plus noninterest income, less securities transactions) was ~~26.63%~~25.68% for the three months ended ~~June 30, 2014~~March 31, 2015, up slightly from ~~26.38%~~25.36% in the year ago quarter. ~~For the~~ ~~six months ended June 30, 2014, noninterest income as a percentage of net revenue was 26.00%, down from 29.09% for the same period one year ago.~~ Significant changes in noninterest income for the ~~three and~~ ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 are discussed immediately after Figure 6. ~~Unless otherwise noted, the Citizens acquisition is contributing to the year over year variances for the six months ended June 30.~~

Figure 6. Noninterest Income


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,						% Increase (Decrease) 2015 vs. 2014
(In thousands)	2014		2013			2014		2013									% Increase (Decrease) 2015 vs. 2014
(Dollars in thousands)											2015			2014			% Increase (Decrease) 2015 vs. 2014
Trust department income	$	10,070	$	9,167		$	19,818	$	14,907		$	10,149		$	9,748		% Increase (Decrease) 2015 vs. 2014
Service charges on deposits	18,528		20,582			35,176		33,168			15,668			16,648			(5.89	)%
Credit card fees	13,455		14,317			25,607		24,540			12,649			12,152			4.09	%
ATM and other service fees	5,996		4,945			11,816		8,280			6,099			5,819			4.81	%
Bank owned life insurance income	4,040		3,641			7,622		8,538			3,592			3,582			0.28	%
Investment services and life insurance	3,852		3,429			7,368		5,844			3,704			3,516			5.35	%
Investment securities (losses)/gains, net	80		(2,794		)	136		(2,803		)
Investment securities gains/(losses), net											354			56			532.14	%
Loan sales and servicing income	4,462		7,985			8,192		15,848			1,600			3,730			(57.10	)%
Other operating income	12,077		8,167			24,096		18,510			12,032			12,019			0.11	%
Total noninterest income											$	65,847		$	67,270		(2.12	)%
	$	72,560	$	69,439		$	139,831	$	126,832
Noninterest income as a percent of net revenue ⁽¹⁾											25.68		%	25.36		%

(1) TE net interest income plus noninterest income, less gains/(losses) from securities.

~~Bank owned life insurance income for the~~ ~~six months ended June 30, 2014decreased$0.9 million, or~~ ~~10.73%, from the same year ago period as a result of a death benefit received in the first quarter of 2013.~~

Losses of $2.8 million were realized on the sale of investment securities in the second quarter of 2013 as a result of the sale of approximately $2.2 billion of investments acquired in the Citizens merger which were sold shortly after acquisition to reduce prepayment and credit risk.

Loan sales and servicing income includes amortization and impairment or recovery of MSRs, changes in the fair value value of residential mortgage loans held for sale, as well as changes in the value of derivatives used to hedge those loans held for sale. Total loan sales and servicing income decreased ~~year over year~~ by $~~3.5~~2.1 million, or ~~44.12%~~57.10%, in the three months ended ~~June 30, 2014~~March 31, 2015 as compared to the same prior year period. The overall decrease is being driven by lower loan sales and ~~$7.7 million, or 48.31%,~~servicing income. The Corporation's mortgage banking business was restructured as of January 1, 2015 and resulted in a lower volume of loans sold in the ~~six~~three months ended ~~June 30, 2014~~.March 31, 2015. While the Corporation continues to originate residential mortgage loans, it has partnered with a third party to process, underwrite, close, and service the Corporation's residential mortgage loan production. The Corporation will retain for its balance sheet and continue to service community reinvestment act eligible loans, jumbos, and adjustable rate mortgages. The Corporation serviced for third parties approximately ~~$2.7~~$2.6 billion of residential mortgage loans at ~~June 30,~~March 31, 2015 and $2.7 billion at March 31, 2014 resulting in loan servicing fees of approximately $1.6 million in each of the three month periods ended March 31, 2015 and March 31, 2014. Also contributing to the decrease in income year over year is the recognition of $1.2 million in costs associated with branch closures which were recorded as a reduction to other operating income in the three months ended March 31, 2015.

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~~and~~ ~~June 30, 2013. Loan servicing fees were $1.6 million and $3.3 million in the three and six months ended~~ ~~June 30, 2014~~, respectively, relatively flat to the same year ago periods. The decline in the 30-year mortgage coupon rate year over year coupled with a decrease in mortgage production has contributed to an overall decline in net gains on sales of loans and the net fair value of the mortgage pipeline, and additional impairment on mortgage servicing rights.

~~Other operating income increased~~ ~~$3.9 million, or~~ ~~47.88%, and $5.6 million, or 30.18%, for the three and six months ended~~ ~~June 30, 2014, respectively, compared to the three and six months ended~~ ~~June 30, 2013~~. Contributing to the quarter over quarter increase were additional gains from covered loan payoffs and related income of $3.7 million and $2.0 million in recoveries on acquired loans that were charged off prior to acquisition. For the ~~three and six~~ ~~months ended~~ ~~June 30, 2014, gains from covered loan payoffs and related income was~~ ~~$4.1 million~~ ~~and $5.7 million, respectively, compared to $1.0 million and $6.0 million for the three and six months ended~~ ~~June 30, 2013, respectively. Gains on covered loan payoffs represent the difference between the credit mark on the paid-off loans less the remaining associated loss share receivable. For the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2014~~, recoveries on acquired loans that were charged off prior to acquisition were $2.0 million and $4.1 million, respectively. There were no such recoveries in 2013. Partially offsetting this additional income in the current quarter was approximately $4.0 million of costs associated with branch closures.

Noninterest Expenses

Noninterest expenses for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 totaled $~~167.4~~160.7 million ~~and $336.7 million, respectively,~~ compared with $~~188.9~~169.3 million ~~and $295.0 million, respectively,~~ in the same ~~periods~~period one year ~~ago. The quarter over quarter~~ago, a decrease of $~~21.5~~8.7 million, or ~~11.38%~~5.13%~~, and~~. Significant changes in noninterest expense for the ~~year over year increase of $41.7 million or 14.13%,~~three months ended March 31, 2015 are discussed immediately after ~~figure~~Figure 7. ~~Unless otherwise noted, the Citizens acquisition is contributing to the year over year variances for the six months ended June 30.~~

Figure 7. Noninterest Expense


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,				% Increase (Decrease) 2015 vs 2014
(In thousands)	2014		2013		2014		2013						% Increase (Decrease) 2015 vs 2014
(Dollars in thousands)									2015		2014		% Increase (Decrease) 2015 vs 2014
Salaries and wages	$	69,892	$	85,680	$	141,561	$	132,071	$	71,914	$	71,669	% Increase (Decrease) 2015 vs 2014
Pension and employee benefits	19,573		19,419		36,917		30,934		18,612		17,344		7.31	%
Net occupancy expense	14,347		13,346		31,361		21,628		15,954		17,014		(6.23	)%
Equipment expense	12,267		10,309		24,178		17,659		11,025		11,911		(7.44	)%
Taxes, other than federal income taxes	2,576		2,891		5,353		4,814		2,014		2,774		(27.40	)%
Stationery, supplies and postage	3,990		3,407		8,097		5,503		3,528		4,108		(14.12	)%
Bankcard, loan processing, and other costs	11,810		12,417		22,644		20,257		11,139		10,834		2.82	%
Advertising	3,801		3,745		7,319		5,814		2,747		3,516		(21.87	)%
Professional services	4,745		17,144		10,103		22,554		4,010		5,359		(25.17	)%
Telephone	2,857		2,728		5,764		3,905		2,574		2,908		(11.49	)%
Amortization of intangibles	2,933		2,411		5,869		2,728		2,598		2,936		(11.51	)%
FDIC expense	5,533		4,149		11,504		7,675
FDIC insurance expense									5,167		5,971		(13.47	)%
Other operating expense	13,076		11,242		26,063		19,492		9,370		12,987		(27.85	)%
Total Noninterest Expense									$	160,652	$	169,331	(5.13	)%
	$	167,400	$	188,888	$	336,733	$	295,034

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~~Total salaries and wages~~Net occupancy expense decreased~~$15.8~~ $1.1 million,, or ~~18.43%~~6.23%, as compared to the ~~second~~first quarter ~~2013.~~of 2014. The ~~number~~first quarter of ~~full time equivalent employees were~~ ~~4,392~~2014 had higher than usual snow removal and ~~4,619~~utility costs due to the severe weather across the Corporation's entire footprint. Professional services expense decreased $1.3 million, or 25.17%, as of ~~June 30, 2014~~ ~~and~~ ~~June 30, 2013, respectively.~~compared to the first quarter 2014. Included in expense in the ~~prior year second quarter was severance and retention expense of $18.4 million associated with the Citizens acquisition.~~three months ended

~~Professional services expense decreased $12.4 million, or 72.32%, as compared to the second quarter 2013. Included in expense in the prior year second quarter was~~March 31, 2014 were professional and legal fees of ~~$9.5~~$0.7 million related to the Citizens acquisition. ~~Professional services expense related to the Citizens acquisition in the six months ended June 30, 2013 totaled $12.7 million.~~

Income Taxes

Income tax expense was $~~26.0~~25.4 million and $~~22.8~~23.8 million for the three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014, respectively. The effective income tax rate for the three months ended ~~June 30, 2014~~March 31, 2015 was ~~30.37%~~30.80% compared to ~~32.02%~~30.85% for the three months ended ~~June 30, 2013~~.

~~Income tax expense was $49.8 million and $38.1 million for the~~ ~~six~~ ~~months ended~~ ~~June 30,~~March 31, 2014 ~~and~~ ~~2013, respectively. The effective income tax rate for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2014~~ ~~was 30.60% compared to 30.77% for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2013~~.

LINE OF BUSINESS RESULTS

Line of business results are presented in the table below. A description of each business line, important financial performance data and the methodologies used to measure financial performance are presented in Note 8 (~~Segment Information) to the consolidated financial statements.~~ The Corporation's profitability is primarily dependent on the net interest income, provision for credit losses, non-interest income and operating expenses of its commercial and retail segments as well as the asset management and trust operations of the wealth segment.

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The following tables present a summary of financial results for the ~~three and~~ ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014. A description of each business line, important financial performance data and the methodologies used to measure financial performance are presented in Note 7 (Segment Information) to the consolidated financial statements.

Figure 8. Line of Business Results


	Commercial					Retail				Wealth				Other						FirstMerit Consolidated				Commercial			Retail		Wealth			Other			FirstMerit Consolidated
June 30, 2014	QTD			YTD		QTD		YTD		QTD		YTD		QTD			YTD			QTD		YTD
March 31, 2015																								QTD			QTD		QTD			QTD			QTD
(In thousands)
OPERATIONS:
Net interest income (loss)-TE	$	108,235		$	214,396	$	94,879	$	188,129	$	4,799	$	9,477	$	(8,247	)	$	(14,482	)	$	199,666	$	397,520
Net interest income/(loss) -TE																								$	101,056		$	91,095	$	5,353		$	(7,950	)	$	189,554
Provision/(recapture) for loan losses	(4,874		)	167		14,905		17,522		396		351		4,826			11,750			15,253		29,790		(526		)	7,533		(170		)	1,411			8,248
Noninterest income	26,681			47,987		25,345		52,381		14,052		27,516		6,482			11,947			72,560		139,831		22,490			21,737		13,976			7,644			65,847
Noninterest expense	61,230			123,215		87,603		183,377		12,370		25,097		6,197			5,044			167,400		336,733		61,653			88,271		13,719			(2,991		)	160,652
Net income (loss)	50,211			88,784		11,515		25,747		3,955		7,504		(6,162		)	(9,061		)	59,519		112,974
Net income/(loss)																								39,785			11,068		3,756			2,530			57,139
AVERAGES:
Assets	9,192,463			9,132,758		5,541,566		5,495,965		258,845		250,279		9,298,402			9,337,457			24,291,276		24,216,459		9,454,218			5,845,417		302,186			9,303,273			24,905,094
Loans	9,176,853			9,119,431		5,197,857		5,141,519		248,188		239,358		79,421			57,893			14,702,319		14,558,201		9,506,529			5,570,590		292,016			58,046			15,427,181
Earnings assets	9,465,291			9,387,095		5,218,245		5,160,314		248,188		239,358		6,435,772			6,350,193			21,367,496		21,136,960		9,794,483			5,582,849		292,016			6,431,069			22,100,417
Deposits	6,545,608			6,595,348		11,720,727		11,736,782		1,050,002		1,030,018		180,458			204,117			19,496,795		19,566,265		6,886,945			11,124,158		1,240,960			536,862			19,788,925
Economic Capital	707,399			681,305		349,616		334,934		58,834		58,312		1,652,503			1,676,335			2,768,352		2,750,886
Economic capital																								848,890			479,188		55,187			1,483,097			2,866,362

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	Commercial				Retail				Wealth					Other						FirstMerit Consolidated				Commercial		Retail		Wealth			Other			FirstMerit Consolidated
June 30, 2013	QTD		YTD		QTD		YTD		QTD			YTD		QTD			YTD			QTD		YTD
March 31, 2014																								QTD		QTD		QTD			QTD			QTD
(In thousands)
OPERATIONS:
Net interest income (loss)-TE	$	115,456	$	184,768	$	95,904	$	145,658	$	4,288		$	8,441	$	(14,043	)	$	(22,887	)	$	201,605	$	315,980
Net interest income/(loss) -TE																								$	106,163	$	93,250	$	4,678		$	(6,237	)	$	197,854
Provision/(recapture) for loan losses	2,120		6,886		2,101		6,174		(42		)	166		3,130			4,030			7,309		17,256		5,706		8,339		(45		)	536			14,536
Other income	20,895		40,127		33,330		57,718		12,821			21,131		2,393			7,856			69,439		126,832
Other expenses	51,891		94,918		85,512		138,419		13,832			24,006		37,653			37,691			188,888		295,034
Net income (loss)	52,680		78,569		26,919		38,074		2,027			3,379		(33,176		)	(34,226		)	48,450		85,796
Noninterest income																								21,306		27,035		13,464			5,465			67,270
Noninterest expense																								63,966		96,701		13,518			(4,854		)	169,331
Net income/(loss)																								36,884		9,909		3,035			3,627			53,455
AVERAGES:
Assets	8,852,267		7,800,594		5,006,423		4,016,956		263,454			250,206		8,688,558			6,846,825			22,810,702		18,914,581		9,072,390		5,449,856		241,618			9,380,706			24,144,570
Loans	8,737,762		7,713,431		4,613,188		3,680,252		228,597			225,930		83,288			70,726			13,662,835		11,690,339		9,061,371		5,084,555		230,429			36,126			14,412,481
Earnings assets	8,924,876		7,875,314		4,638,416		3,705,414		228,622			225,957		5,818,060			4,719,827			19,609,974		16,526,512		9,308,031		5,101,740		230,429			6,263,663			20,903,863
Deposits	5,627,946		4,570,272		11,663,874		9,551,733		812,645			778,744		229,779			179,344			18,334,244		15,080,093		6,645,640		11,753,015		1,009,811			228,039			19,636,505
Economic Capital	563,672		513,039		240,984		226,878		75,411			62,529		1,691,897			1,343,405			2,571,964		2,145,851
Economic capital																								654,922		320,090		57,784			1,700,430			2,733,226

The commercial segment's net income resulted in ~~a decrease~~an increase of ~~$2.5~~$2.9 million, or 7.87% for the three months ended March 31, 2015 to $39.8 million, from $36.9 million for the ~~quarter~~three months ended ~~June 30, 2014 to $50.2 million, from $52.7 million for the quarter ended June 30, 2013.~~March 31, 2014. TE adjusted net interest income for the commercial segment totaled ~~$108.2~~$101.1 million for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~$115.5~~$106.2 million for the three months ended ~~June 30, 2013,~~March 31, 2014, a decrease of ~~$7.2~~$5.1 million, or ~~6.25%~~4.81%. This decrease is a result of margin compression in the commercial ~~loan~~ portfolio of acquired and covered loans, partially offset by higher ~~levels of~~ commercial loan balances. ~~Recapture of~~The provision for loan losses for the commercial segment was ~~$4.9~~a recapture of $0.5 million for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~$2.1 million of provision for loan losses for the three months ended June 30, 2013, a decrease of $7.0 million. Net charge-offs increased $2.2 million to $2.4~~$5.7 million for the three months ended June 30, 2014, compared to the same period in 2013. The reduction in other provision for loan losses reflected the results of Management's focused efforts to improve asset quality and portfolio credit metrics. Noninterest income was $26.7March 31, 2014. Net charge-offs were $0.4 million for the three months ended ~~June 30, 2014~~March 31, 2015, compared to ~~$20.9~~$4.1 million ~~for~~during the same period in ~~2013, driven by gains on covered loan payoffs and loan sales and servicing fees.~~2014. Noninterest income increased $1.2 million to $22.5 million for the three months ended March 31, 2015 compared to $21.3 million for the

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same period in 2014. Noninterest expense for the commercial segment was ~~$61.2~~$61.7 million for the three months ended ~~June 30, 2014 compared to $51.9~~March 31, 2015, down from $64.0 million for the same period of ~~2013 attributable to increased salary and benefit, FDIC, and credit management expenses.~~2014.

The retail segment's net income resulted in ~~a decrease~~an increase of ~~$15.4~~$1.2 million or 11.70% for the three months ended March 31, 2015 to $11.1 million, from $9.9 million for the three months ended ~~June 30, 2014 to $11.5 million, compared to three months ended June 30, 2013.~~March 31, 2014. TE adjusted net interest income totaled ~~$94.9~~$91.1 million for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~$95.9~~$93.3 million for the three months ended ~~June 30, 2013,~~March 31, 2014, a decrease of ~~$1.0~~$2.2 million, or ~~1.07%.~~2.31%, attributable primarily to margin compression from lower yields and declines in the acquired loan portfolio. Provision for loan losses totaled ~~$14.9~~$7.5 million for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~$2.1~~$8.3 million for the three months ended ~~June 30, 2013, an increase~~March 31, 2014, a decrease of ~~$12.8 million, attributable to provision expenses for loans acquired in the Citizens' acquisition.~~$0.8 million. Net charge-offs increased ~~$0.8 million~~slightly to ~~$3.9~~$3.8 million for the three months ended ~~June 30, 2014,~~March 31, 2015, compared to $3.5 million during the same period in ~~2013.~~2014. Noninterest income was ~~$25.3~~$21.7 million for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~$33.3~~$27.0 million for the three months ended ~~June 30, 2013,~~March 31, 2014, a decrease of ~~$8.0~~$5.3 million, or ~~23.96%~~19.60%, attributable to ~~one-time~~lower service charges on deposits and loan sales and servicing income. Also, retail experienced a $1.2 million charge related to branch ~~closures and a reduction in mortgage volumes.~~consolidations. Noninterest expense ~~increased $2.1~~decreased $8.4 million, or ~~2.45%~~8.72%, to ~~$87.6~~$88.3 million for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~$85.5~~$96.7 million for the three months ended ~~June 30, 2013.~~March 31, 2014. This reduction was driven mainly by lower personnel expenses from branch consolidations and lower operating losses in the Mortgage business.

The wealth segment's net income resulted in an increase of ~~$1.9~~$0.7 million or 23.8% for the three months ended March 31, 2015 to $3.8 million, from $3.0 million for the three months ended

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~~June 30, 2014 to $4.0 million, compared to three months ended June 30, 2013.~~ March 31, 2014. Net interest income totaled ~~$4.8~~$5.4 million for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~$4.3~~$4.7 million for the three months ended ~~June 30, 2013,~~March 31, 2014, an increase of ~~$0.5~~$0.7 million, or ~~11.92%~~14.43%, attributable to an increase in loan and deposit balances. ~~Provision~~Recapture of provision expense increased by ~~$0.4~~$0.1 million ~~due to loan balance increases.~~from the same period in 2014. Noninterest ~~income-TE~~income was ~~$14.1~~$14.0 million for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~$12.8~~$13.5 million for the three months ended ~~June 30, 2013,~~March 31, 2014, an increase of ~~$1.2~~$0.5 million, or ~~9.60%~~3.80%, attributable to greater brokerage and trust fees. Noninterest expense resulted in ~~a decrease~~an increase of ~~$1.5~~$0.2 million, or ~~10.57%~~1.49%, to ~~$12.4~~$13.7 million for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~$13.8~~$13.5 million for the three months ended ~~June 30, 2013.~~March 31, 2014.

Activities that are not directly attributable to one of the primary lines of business are included in the Other segment. Included in this category are the Parent Company, community development operations, treasury group, including the securities portfolio, wholesale funding and asset liability management activities, inter-company eliminations, acquisition related expenses, and the economic impact of certain assets, capital and support functions not specifically identifiable with the three primary lines of business. The Other segment recorded a net ~~loss~~gain of ~~$6.2~~$2.5 million for the three months ended ~~June 30, 2014, an improvement~~March 31, 2015, a decrease of

~~$27.0~~ $1.1 million compared to the three months ended ~~June 30, 2013 due to reduced expenses related to the Citizens acquisition.~~March 31, 2014.

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FINANCIAL CONDITION

~~Acquisitions~~Investment Securities

~~On April 12, 2013, the Corporation completed the merger~~The following table provides information with ~~Citizens, a Michigan corporation with approximately $9.6 billion in assets~~respect to amortized cost and 219 branches, in a stock and cash transaction. The total purchase price was approximately $1.3 billion, including 55.5 million shares of its Common Stock issued to Citizen's common shareholders at a fair value of $925.2 million and paid by the Corporation to repurchase Citizens TARP Preferred plus accumulated but unpaid dividends and interest of approximately $355.4 million. Additionally, a warrant issued by Citizens to the U.S. Treasury to purchase shares of Citizens' common stock was converted into a warrant with a fair value of $3.0 million issued by the Corporation to the U.S. Treasury to purchase shares of FirstMerit Common Stock. The fair value of the ~~assets acquired, excluding goodwill, totaled $9.3 billion, and included $4.6 billion in loans and $3.2 billion of~~Corporation's investment ~~securities. Liabilities assumed were $8.3 billion, including $7.3 billion of deposits.~~

~~Additional information can be found in Note~~ 2 (~~Business Combinations~~).

~~Investment Securities~~

At ~~June 30, 2014, the carrying amount of investment securities were~~ ~~$6.7 billion~~ ~~compared to $6.4 billion at~~ ~~December 31, 2013~~ ~~and~~ ~~$6.1 billion~~ at ~~June 30, 2013~~ ~~and are comprised of the following:~~security portfolio.

Figure 9. Investment Securities


	June 30, 2014				December 31, 2013				June 30, 2013				March 31, 2015							December 31, 2014							March 31, 2014
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair value		Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)			Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)			Amortized Cost		Fair value		Net Unrealized Gain/(Loss)
Available-for-sale securities ⁽¹⁾	$	3,494,000	$	3,478,420	$	3,329,117	$	3,273,174	$	3,311,751	$	3,299,392	$	3,774,542	$	3,791,059	$	16,517		$	3,562,537	$	3,545,288	$	(17,249	)	$	3,471,126	$	3,433,171	$	(37,955	)
Held to maturity securities ⁽²⁾	3,052,118		3,001,866		2,935,688		2,824,240		2,551,860		2,487,071
Held-to-maturity securities ⁽²⁾													2,855,174		2,848,912		(6,262		)	2,903,609		2,875,920		(27,689		)	3,079,620		2,990,161		(89,459		)
Other securities ⁽³⁾	148,433		148,433		180,803		180,803		267,565		267,565		148,475		148,475		—			148,654		148,654		—			148,446		148,446		—
Total investment securities	$	6,694,551	$	6,628,719	$	6,445,608	$	6,278,217	$	6,131,176	$	6,054,028	$	6,778,191	$	6,788,446	$	10,255		$	6,614,800	$	6,569,862	$	(44,938	)	$	6,699,192	$	6,571,778	$	(127,414	)

⁽¹⁾ Carried at fair value on the Consolidated Balance Sheets.

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(2)⁽²⁾Carried at amortized cost on the Consolidated Balance Sheets.

(3)⁽³⁾Carried at amortized cost on the ~~Consolidate~~Consolidated Balance Sheets and consist primarily of FHLB and FRB stock.

Available-for-sale securities are held primarily for liquidity, interest rate risk management and long-term yield enhancement. The movement in the investment portfolio between available-for-sale and held to maturity after the first quarter of 2013 was a result of Management's change in intent and commitment to hold certain securities to maturity in order to reduce the impact of the price volatility on accumulated other comprehensive income and certain capital measures, taking into consideration market conditions and changes to regulatory requirements under Basel III capital standards.

~~The Corporation's~~Corporation’s available-for-sale investment policy is to invest in securities viewed to have low credit risk, such as U.S. Treasury securities, U.S. Government agency obligations, state and political obligations, MBS, and corporate ~~bonds, and CLOs. During the second quarter of 2013, the Bank began purchasing~~bonds. The Corporation has invested in CLOs ~~into its available-for-sale portfolio. Approximately $294.0 million of CLOs are held in the available-for-sale portfolio~~ as of ~~June 30, 2014. These~~these securities are viewed as offering relative value compared to other investment vehicles in addition to being a floating rate asset, which is conducive to the ~~Corporation's~~Corporation’s asset liability risk position. No CLO investments were made until the second quarter of 2013. The CLO portfolio had an amortized cost of $297.5 million as of March 31, 2015, compared to $297.4 million as of December 31, 2014 and $297.3 million as of March 31, 2014. Net unrealized losses on the CLO portfolio amounted to $3.5 million, $9.6 million, and $2.7 million at March 31, 2015, December 31, 2014, and March 31, 2014, respectively. The fair value of the CLOs have been impacted by increased supply which has widened spreads. The current weighted average yield on our CLO portfolio approximates 2.70% as of March 31, 2015. The new Volcker regulations, as originally adopted, may affect the ~~Corporation's~~Corporation’s ability to hold these CLOs. Management believes that its holdings of CLOs are not ownership interests in a covered fund prohibited by the Volcker regulations and, therefore, expects to be able to hold these investments until their stated maturities with no restriction.

~~The investment securities portfolio was in a net unrealized loss position of~~ ~~$15.6 million~~ at ~~June 30, 2014, compared to a net unrealized loss position of~~ ~~$55.9 million~~ at ~~December 31, 2013~~ ~~and a net unrealized loss position of~~ ~~$12.4 million~~ at~~June 30, 2013. Gross unrealized losses were~~ ~~$56.4 million~~ ~~as of~~ ~~June 30, 2014, compared to~~ ~~$90.2 million~~ ~~and~~ ~~$57.2 million~~ at ~~December 31, 2013andJune 30, 2013~~, respectively. The gross unrealized loss positions were primarily related to MBS issued by government agencies and corporate bonds. The decrease in gross unrealized loss positions on temporarily impaired investment securities was primarily due to declining interest rates in the first half of 2014 relative to the interest rate environment when the investment securities were purchased. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility, and liquidity conditions. The fair value of investment securities generally decreases when interest rates increase and vice versa. In addition, the fair value generally decreases when credit spreads widen and vice versa.

The Corporation conducts a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if OTTI exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Management believes the Corporation will fully recover the cost of the agency MBSs and corporate debt securities in an unrealized loss position at June 30, 2014, 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 concluded that these securities were not other-than-temporarily impaired at June 30, 2014 and has recognized the total amount of the impairment in OCI, net of tax.

~~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) in the notes to the consolidated financial statements.~~

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Loans

Total loans ~~held~~ at ~~June 30, 2014~~March 31, 2015 were ~~$14.9~~$15.5 billion compared to ~~$14.2~~$15.3 billion at December 31, ~~2013~~2014 and ~~$14.1~~$14.6 billion at ~~June 30, 2013~~March 31, 2014. Total loans as of ~~June 30, 2014~~March 31, 2015 include $~~3.0~~2.3 billion in acquired loans and ~~$434.7~~$310.0 million in ~~covered~~FDIC acquired loans, ~~excluding the~~including a loss share receivable of ~~$44.0~~$20.0 million. Acquired loans resulted from the acquisition of Citizens in the second quarter of 2013. ~~Covered~~FDIC acquired loans resulted from the 2010 FDIC-assisted acquisitions of George Washington and Midwest. ~~These acquired and covered loans were recorded at estimated fair value at the date of acquisition with no carryover of the related ALL.~~ The major categories of loans outstanding and concentration distributions are presented in the following tables, segregated ~~into~~between originated, acquired, and ~~covered~~FDIC acquired loans.

Figure 10. Period End Loans by Product Type


	As of June 30, 2014												As of March 31, 2015
(In thousands)	Originated Loans			Acquired Loans ⁽¹⁾			Covered Loans ⁽²⁾			Total Loans
													Originated Loans				Acquired Loans ⁽¹⁾				FDIC Acquired Loans ⁽²⁾				Total Loans
(Dollars in thousands)													Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage
Commercial	$	7,365,499		$	1,457,903		$	292,782		$	9,116,184		$	8,031,892		62.5%	$	1,011,170		43.5%	$	179,547		61.9%	$	9,222,609		59.6%
Residential mortgages	580,166			425,584			46,705			1,052,455			639,980			5.0%	378,192			16.2%	40,470			14.0%	1,058,642			6.9%
Installment	2,051,587			872,034			5,364			2,928,985			2,500,288			19.4%	717,693			30.9%	4,781			1.6%	3,222,762			20.8%
Home equity lines	998,179			268,266			89,815			1,356,260			1,134,238			8.8%	217,824			9.4%	65,170			22.5%	1,417,232			9.2%
Credit card	151,967			—			—			151,967			160,766			1.3%	—			—%	—			—%	160,766			1.0%
Leases	319,795			—			—			319,795			388,873			3.0%	—			—%	—			—%	388,873			2.5%
Subtotal	11,467,193			3,023,787			434,666			14,925,646			12,856,037			100.0%	2,324,879			100.0%	289,968			100.0%	15,470,884			100.0%
Loss share receivable	—			—			43,981			43,981			—			n/m	—			n/m	20,005			n/m	20,005			n/m
Total Loans	11,467,193			3,023,787			478,647			14,969,627			12,856,037			n/m	2,324,879			n/m	309,973			n/m	15,490,889			n/m
Allowance for loan losses	(91,950		)	(4,977		)	(45,109		)	(142,036		)	(97,545		)	n/m	(7,493		)	n/m	(41,514		)	n/m	(146,552		)	n/m
Net Loans	$	11,375,243		$	3,018,810		$	433,538		$	14,827,591		$	12,758,492		n/m	$	2,317,386		n/m	$	268,459		n/m	$	15,344,337		n/m


	As of December 31, 2013												As of December 31, 2014
(In thousands)	Originated Loans			Acquired Loans ⁽¹⁾			Covered Loans ⁽²⁾			Total Loans
													Originated Loans				Acquired Loans ⁽¹⁾				FDIC Acquired Loans ⁽²⁾				Total Loans
(Dollars in thousands)													Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage
Commercial	$	6,648,279		$	1,725,970		$	375,860		$	8,750,109		$	7,830,085		62.7%	$	1,086,899		43.9%	$	211,607		63.9%	$	9,128,591		59.6%
Residential mortgages	529,253			470,652			50,679			1,050,584			625,283			5.0%	394,484			15.9%	41,276			12.5%	1,061,043			6.9%
Installment	1,727,925			1,004,569			6,162			2,738,656			2,393,451			19.1%	764,168			30.8%	4,874			1.5%	3,162,493			20.7%
Home equity lines	920,066			294,424			97,442			1,311,932			1,110,336			8.9%	233,629			9.4%	73,365			22.1%	1,417,330			9.3%
Credit card	148,313			—			—			148,313			164,478			1.3%	—			—%	—			—%	164,478			1.1%
Leases	239,551			—			—			239,551			370,179			3.0%	—			—%	—			—%	370,179			2.4%
Subtotal	10,213,387			3,495,615			530,143			14,239,145			12,493,812			100.0%	2,479,180			100.0%	331,122			100.0%	15,304,114			100.0%
Loss share receivable	—			—			61,827			61,827			—			n/m	—			n/m	22,033			n/m	22,033			n/m
Total Loans	10,213,387			3,495,615			591,970			14,300,972			12,493,812			n/m	2,479,180			n/m	353,155			n/m	15,326,147			n/m
Allowance for loan losses	(96,484		)	(741		)	(44,027		)	(141,252		)	(95,696		)	n/m	(7,457		)	n/m	(40,496		)	n/m	(143,649		)	n/m
Net Loans	$	10,116,903		$	3,494,874		$	547,943		$	14,159,720		$	12,398,116		n/m	$	2,471,723		n/m	$	312,659		n/m	$	15,182,498		n/m

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As of June 30, 2013
(In thousands) Originated Loans
Acquired Loans ⁽¹⁾
Covered Loans ⁽²⁾
Total Loans
Commercial $ 5,997,812
$ 2,267,811
$ 505,706
$ 8,771,329
Residential mortgages 462,427
439,380
56,056
957,863
Installment 1,496,663
1,221,060
7,794
2,725,517
Home equity lines 845,051
322,111
106,970
1,274,132
Credit card 142,319
—
—
142,319
Leases 188,353
—
—
188,353
Subtotal 9,132,625
4,250,362
676,526
14,059,513
Loss share receivable —
—
83,910
83,910
Total Loans 9,132,625
4,250,362
760,436
14,143,423
Allowance for loan losses (98,645 ) —
(49,069 ) (147,714 )
Net Loans $ 9,033,980
$ 4,250,362
$ 711,367
$ 13,995,709



	As of March 31, 2014
	Originated Loans				Acquired Loans ⁽¹⁾				FDIC Acquired Loans ⁽²⁾				Total Loans
(Dollars in thousands)	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage
Commercial	$	7,083,192		65.4%	$	1,562,878		48.2%	$	341,267		69.5%	$	8,987,337		61.8%
Residential mortgages	555,971			5.1%	446,374			13.8%	49,411			10.1%	1,051,756			7.2%
Installment	1,835,522			17.0%	943,354			29.2%	5,531			1.1%	2,784,407			19.1%
Home equity lines	946,802			8.7%	283,309			8.8%	94,828			19.3%	1,324,939			9.1%
Credit card	147,917			1.4%	—			—%	—			—%	147,917			1.0%
Leases	257,509			2.4%	—			—%	—			—%	257,509			1.8%
Subtotal	10,826,913			100.0%	3,235,915			100.0%	491,037			100.0%	14,553,865			100.0%
Loss share receivable	—			n/m	—			n/m	54,748			n/m	54,748			n/m
Total Loans	10,826,913			n/m	3,235,915			n/m	545,785			n/m	14,608,613			n/m
Allowance for loan losses	(92,116		)	n/m	(2,974		)	n/m	(49,970		)	n/m	(145,060		)	n/m
Net Loans	$	10,734,797		n/m	$	3,232,941		n/m	$	495,815		n/m	$	14,463,553		n/m

n/m = Not Meaningful

(1) Loans assumed from Citizens.

(2) Loans acquired ~~from Citizens. No allowance was brought forward~~ in ~~accordance with the acquisition method of accounting.~~

⁽²⁾ ~~Loans which are covered by~~an FDIC-assisted transaction. Certain non-single family loss ~~sharing~~share agreements with the FDIC expired at March 31, 2015. As of March 31, 2015, $174.6 million and $110.4 million of FDIC acquired loans remained covered by non-single family loss share agreement and single family loss share agreements, respectively, providing considerable protection against credit risk.

Originated Loans

Total originated loans increased from December 31, ~~2013~~2014 by $~~1.3~~0.4 billion, or ~~12.28%~~2.90%, and increased from ~~June 30, 2013~~March 31, 2014 by $~~2.3~~2.0 billion, or ~~25.56%~~18.74%. This increase was driven primarily by higher commercial loans, which increased ~~10.79%~~2.58% from December 31, ~~2013~~2014 and ~~22.80%~~13.39% from ~~June 30, 2013~~March 31, 2014 due to the Corporation's expansion into the Chicago, Illinois, Michigan and Wisconsin areas. The growth in commercial loans was also attributable to increases in asset-based lending as well as new business within the specialty lending group such as the capital markets, healthcare, and leasing lines of business. The leasing line of business has seen considerable increase in activity. As of ~~June 30, 2014~~March 31, 2015, leases totaled $~~319.8~~388.9 million compared to $~~239.6~~370.2 million and $~~188.4~~257.5 million at December 31, ~~2013~~2014 and ~~June 30, 2013~~March 31, 2014, respectively, resulting in increases of $~~80.2~~18.7 million, or ~~33.50%~~5.05%, from December 31, ~~2013~~2014 and $131.4 million, or ~~69.78%~~51.01%, from ~~June 30, 2013~~March 31, 2014.

Residential mortgage loans are originated and then sold into the secondary market or held in portfolio. Total residential mortgage loan balances increased from December 31, ~~2013~~2014 by $~~50.9~~14.7 million, or ~~9.62%~~2.35%, and increased from ~~June 30, 2013~~March 31, 2014 by $~~117.7~~84.0 million, or ~~25.46%~~15.11%, as a larger amount of shorter maturity and adjustable rate mortgages were held in portfolio compared to the prior year. The Corporation's mortgage banking business was restructured as of January 1, 2015. The Corporation will continue to originate residential mortgage loans but has partnered with a third party to process, underwrite, close and service the Corporation's residential mortgage loan production. The Corporation will retain for its balance sheet and continue to service community reinvestment act eligible loans, jumbos, and adjustable rate mortgages.

Outstanding home equity loans increased from December 31, ~~2013~~2014 by $~~78.1~~23.9 million, or ~~8.49%~~2.15%, and increased from ~~June 30, 2013~~March 31, 2014 by $~~153.1~~187.4 million, or ~~18.12%~~19.80%. Installment loans increased from December 31, ~~2013~~2014 by $~~323.7~~106.8 million, or ~~18.73%~~4.46%, and increased from ~~June 30, 2013~~March 31, 2014 by $~~554.9~~664.8 million, or ~~37.08%~~36.22%.

The Corporation has approximately ~~$5.0~~$4.9 billion of loans secured by real estate. Approximately ~~87.03%~~85.36% of the property underlying these loans is located within the Corporation's primary market area of Ohio, the Chicago, Illinois-metropolitan area, Michigan, Wisconsin, and Western ~~Pennsylvania, and Chicago, Illinois.~~Pennsylvania.

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Acquired Loans

Acquired loans are those purchased in the Citizens' acquisition during the second quarter of 2013. Total acquired loans was ~~$3.0~~$2.3 billion as of ~~June 30, 2014~~March 31, 2015, a decrease from December 31, ~~2013~~2014 and ~~June 30, 2013~~March 31, 2014 of ~~$471.8~~$154.3 million, or ~~13.50%~~6.22%, and ~~$1.2~~$0.9 billion, or ~~28.86%~~28.15%, respectively. The acquired loan portfolio will continue to decline, through payoffs, charge-offs, or terminations, unless the Corporation acquires additional loans in the future.

These loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related ALL. The acquired loans were segregated between those considered to be performing (“nonimpaired acquired loans”) and those with evidence of credit deterioration (“acquired impaired loans”). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Revolving loans, including lines of credit, are excluded from acquired impaired loan accounting.

For acquired nonimpaired loans, the difference between the Acquisition Date fair value and the contractual amounts due at the Acquisition Date represents the fair value adjustment. Fair value adjustments may be discounts (or premiums) to a loan's cost basis and are accreted (or amortized) to interest income over the loan's remaining life using the level yield method. Acquired nonimpaired loans are reported net of the unamortized fair value adjustment. Nonimpaired acquired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

~~Covered~~FDIC Acquired Loans and Related Loss Share Receivable

~~The~~FDIC acquired loans include loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and ~~Midwest are~~Midwest. George Washington non-single family loans covered by loss ~~sharing~~share agreement expired on March 31, 2015. As of March 31, 2015, $5.0 million of FDIC acquired George Washington loans were no longer covered by the non-single family loss share agreement while $174.6 million of FDIC acquired Midwest loans remained covered by the non-single family loss share agreement. The non-single family loss share agreement for the Midwest loans will expire as of June 30, 2015. As of March 31, 2015, $110.4 million single family loans remained covered by loss share agreements between the FDIC and the Corporation, ~~that afford~~until the ~~Bank significant loss protection.~~ agreements expire in 2020.

Total ~~covered~~FDIC acquired loans, including the loss share receivable, were ~~$478.6~~$310.0 million as of ~~June 30, 2014~~March 31, 2015, a decrease from December 31, ~~2013~~2014 and ~~June 30, 2013~~March 31, 2014 of $~~113.3~~43.2 million, or ~~19.14%~~12.23%, and $~~281.8~~235.8 million, or ~~37.06%~~43.21%, respectively. The ~~covered~~FDIC acquired loan portfolio will continue to decline, through payoffs, charge-offs, termination or expiration of loss share coverage, unless the Corporation acquires additional loans subject to loss share agreements in the future.

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These ~~covered~~FDIC acquired loans were recorded at estimated fair value at the date of acquisition with no carryover of the related ALL and are accounted for as acquired impaired ~~loans as described above.~~loans. A loss share receivable was recorded as of the acquisition date which represents the estimated fair value of reimbursement the Corporation expects to receive from the FDIC for incurred losses on certain ~~covered~~FDIC acquired loans. These expected reimbursements are recorded as part of ~~covered~~FDIC acquired loans.

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Allowance for Loan Losses and Reserve For Unfunded Lending Commitments

Allowance for Originated Loan Losses

The Corporation maintains what Management believes is an adequate originated ALL. The Corporation and the Bank regularly analyze the adequacy of their allowance through ongoing review of trends in risk ratings, delinquencies, nonperforming assets, charge-offs, economic conditions, and changes in the composition of the loan portfolio. See Note 1 (Summary of Significant Accounting Policies) and Note 54 (Allowance for Loan Losses) in the notes to the consolidated financial statements in this Form 10-Q for further information regarding the Corporation's credit policies and practices.

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 losslevel of the ~~two- and five-year data set. As a result, this approach lends more weight to the more recent performance.~~

~~Management also considers internal and external factors such as economic conditions,~~allowance for loan ~~management practices, portfolio monitoring, and other risks, collectively known as qualitative factors, or Q-factors, to~~losses represents Management’s best estimate of probable credit losses inherent in the loan ~~portfolio. Q-factors are used to reflect~~portfolio at the balance sheet date. The evaluation of the ALL is based on ongoing review of trends in risk ratings, delinquencies, nonperforming assets, charge-offs, economic conditions, and changes in the ~~portfolio's collectability characteristics~~composition of the loan portfolio.

The Corporation’s credit administration division manages credit risk by establishing credit policies, processes, and review mechanisms. The credit administration division formulates procedures and guidelines, defines credit standards, establishes and maintains credit controls, and produces Management reports in support of these activities.

The Corporation’s credit risk management division is responsible for the analysis and reporting for all credit risks. To preserve portfolio diversification and to manage the risks inherent to portfolio concentrations, monitoring metrics are established and applied to a range of portfolio segments based on industry, collateral, or purpose. One of three portfolio strategies (Growth, Stable or Contract) are assigned to each segment. The assigned strategies are intended to guide management behavior in matters concerning pricing, underwriting and mitigation of portfolio risk. These metrics are monitored and updated on an on-going basis and reviewed quarterly with senior management and the Board of Directors Risk Management Committee.

The primary indicators of credit quality are delinquency status and our internal risk ratings for our commercial loan portfolio segment, and delinquency status and current FICO scores for our consumer loan portfolio segment. Assignment of internal risk ratings are based on the most current information available from a financial statement standpoint, as well as from an industry and geographic perspective. All aspects of the credit relationship are considered in the risk rating decisioning process, including, but not ~~captured~~limit to, credit structure and terms, compliance with loan covenants and loan agreements, and the impact of weak or improper credit structure. Relationship managers perform regular reviews to access the accuracy of risk ratings. A formal review of all customer risk ratings on any aggregate credit exposure of $250,000 or more is performed at a minimum of once every twelve months unless administered in Core Banking and monitored by ~~historical loss data.~~Portfolio Management (including the Private Client Services portfolio) in which case the threshold is $350,000. The review is documented with current financial statements for all obligors, co-obligors and guarantors, a current credit status memo and a current risk rating sheet. Additionally, the risk rating is referenced and attested to in a quarterly status review with the risk rating being adjusted as financial results or events require. Risk rating reviews of criticized loans are performed on a quarterly basis jointly between the relationship managers and the regional or senior-regional credit officer and supported with written updates by the loan officer, which include the progress of the credit, action plans, and improvement or deterioration since the previous quarter.

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As part of our credit monitoring process, our loan review department serves to independently monitor credit quality and assess the effectiveness of credit risk management to provide Management with objective oversight of all lending activities. The loan review department is independent of the line lending and credit administration functions of the Corporation. The primary responsibilities of the loan review department are to provide an independent analysis of risk rating accuracy and timeliness, credit quality (including regulatory, policy, and underwriting compliance), credit administration management, processes, and controls.

At ~~June 30, 2014~~March 31, 2015, the allowance for originated loan losses was $~~92.0~~97.5 million, or ~~0.80%~~0.76% of originated loans outstanding, compared to $~~96.5~~95.7 million, or ~~0.94%~~0.77%, and $~~98.6~~92.1 million, or ~~1.08%~~0.85%, at December 31, ~~2013~~2014 and ~~June 30, 2013~~March 31, 2014, respectively. The allowance equaled ~~250.27%~~211.66% of nonperforming loans at ~~June 30, 2014~~March 31, 2015 compared to ~~228.62%~~276.44% and ~~216.97%~~212.01% at December 31, ~~2013~~2014 and ~~June 30, 2013~~March 31, 2014. The additional reserves related to qualitative risk factors totaled ~~$44.5~~$55.1 million at ~~June 30, 2014~~March 31, 2015 compared to ~~$42.9~~$57.0 million and ~~$34.4~~$40.9 million at December 31, ~~2013~~2014 and ~~June 30, 2013~~March 31, 2014, respectively. Nonperforming loans have ~~decreased~~increased by $~~5.5~~11.5 million or ~~12.94%~~33.13% when compared to December 31, ~~2013~~2014 ~~but~~and ~~decreased~~increased by $~~8.7~~2.6 million, or ~~19.19%~~6.07%, when compared to ~~June 30, 2013~~March 31, 2014.

Net charge-offs on originated loans were $~~6.2~~4.2 million and ~~0.22%~~0.13% of average originated loans outstanding during the three months ended ~~June 30, 2014~~March 31, 2015 compared to $~~3.3~~8.0 million and ~~0.15%~~0.31% of average originated loans outstanding during the three months ended ~~June 30, 2013~~March 31, 2014. Losses are charged against the ALL as soon as they are identified.

The reserve for unfunded lending commitments at ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014 was $~~7.1~~4.3 million, $~~7.5~~5.8 million, and ~~$8.1~~$7.5 million,, respectively. Binding unfunded lending commitments include items such as letters of credit, financial guarantees and binding unfunded loan commitments. The allowance for credit losses, which includes both the allowance for originated loan losses and the reserve for unfunded lending commitments, amounted to $~~99.1~~101.9 million, $~~104.4~~101.5 million, and $~~106.8~~99.6 million at ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014, respectively.

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Figure 11. Summary of the Allowance for Credit Losses


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013			Three Months Ended March 31,
(Dollars in thousands)													2015			2014
Allowance for Originated Loan Losses-beginning of period	$	92,116		$	98,843		$	96,484		$	98,942		$	95,696		$	96,484
Originated loans charged off:
Commercial	3,057			2,750			8,210			5,422			685			5,153
Mortgage	834			414			1,393			684			424			559
Installment	4,076			3,612			8,660			8,206			4,605			4,584
Home equity	1,204			1,133			2,042			2,439			911			838
Credit cards	1,311			1,459			2,766			2,862			1,452			1,455
Leases	—			1,237			—			1,237			—			—
Overdrafts	666			364			1,237			895			490			571
Total charge-offs	11,148			10,969			24,308			21,745			8,567			13,160
Originated Recoveries:
Commercial	404			3,762			1,433			5,007			325			1,029
Mortgage	67			51			105			94			35			38
Installment	2,728			2,728			5,466			5,197			2,868			2,738
Home equity	820			486			1,519			833			613			699
Credit cards	439			469			857			982			366			418
Manufactured housing	13			11			24			38			13			11
Leases	372			—			372			89			4			—
Overdrafts	146			113			351			249			156			205
Total recoveries	4,989			7,620			10,127			12,489			4,380			5,138
Originated net charge-offs	6,159			3,349			14,181			9,256			4,187			8,022
Provision for originated loan losses	5,993			3,151			9,647			8,959			6,036			3,654
Allowance for originated loan losses-end of period	$	91,950		$	98,645		$	91,950		$	98,645		$	97,545		$	92,116
Reserve for Unfunded Lending Commitments
Reserve for Unfunded Lending Commitments ⁽¹⁾
Balance at beginning of period	$	7,481		$	4,941		$	7,907		$	5,433		$	5,848		$	7,907
Provision for/(relief of) credit losses	(374		)	3,173			(800		)	2,681			(1,518		)	(426		)
Balance at end of period	7,107			8,114			7,107			8,114			4,330			7,481
Allowance for credit losses ⁽¹⁾	$	99,057		$	106,759		$	99,057		$	106,759
Allowance for credit losses													$	101,875		$	99,597
Average originated loans outstanding	11,092,101			8,877,754			10,772,020			8,806,924			12,689,791			10,448,383
Ratio to average originated loans:
Originated net charge-offs	0.22		%	0.15		%	0.27		%	0.21		%	0.13		%	0.31		%
Provision for originated loan losses	0.22		%	0.14		%	0.18		%	0.21		%	0.19		%	0.14		%
Originated loans outstanding-end of period	11,467,193			9,132,625			11,467,193			9,132,625			12,856,037			10,826,913
Allowance for originated loan losses:
As a percentage of period-end originated loans	0.80		%	1.08		%	0.80		%	1.08		%	0.76		%	0.85		%
As a percentage of nonperforming originated loans	250.27		%	216.97		%	250.27		%	216.97		%	211.66		%	212.01		%
As a multiple of originated net charge-offs	3.72			7.34			3.22			5.28			5.74			2.83
Allowance for credit losses:
As a percentage of period-end originated loans	0.86		%	1.17		%	0.86		%	1.17		%	0.79		%	0.92		%
As a percentage of nonperforming originated loans	269.61		%	234.82		%	269.61		%	234.82		%	221.06		%	229.23		%
As a multiple of annualized net charge-offs	4.01			7.95			3.46			5.72			6.00			3.06

⁽¹⁾ The reserve for unfunded commitments is recorded in "Other liabilities" in the Consolidated Balance Sheets.

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Figure 12. Overall Credit Quality by Specific Asset and Risk Categories of Originated Loans


	As of June 30, 2014																As of March 31, 2015
	Loan Type																Loan Type
			CRE and						Home Equity		Credit		Residential						CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total		C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	10,404	$	25,537	$	—	$	24,394	$	6,956	$	979	$	26,297	$	94,567	$	35,792	$	15,000	$	—	$	26,882	$	7,632	$	815	$	24,822	$	110,943
Allowance	5,092		121		—		1,008		201		361		1,019		7,802		10,042		317		—		1,005		254		263		1,416		13,297
Collective Loan Impairment Components:
Credit risk-graded loans
Commercial loans based on risk rating:
Grade 1 loan balance	33,855		—		9,408										43,263		59,380		667		13,052										73,099
Grade 1 allowance	3		—		1										4		3		—		1										4
Grade 2 loan balance	134,682		3,610		10,971										149,263		191,008		3,368		5,782										200,158
Grade 2 allowance	63		2		7										72		9		3		—										12
Grade 3 loan balance	1,100,807		327,606		55,648										1,484,061		1,405,007		401,848		69,686										1,876,541
Grade 3 allowance	878		255		61										1,194		1,045		186		45										1,276
Grade 4 loan balance	3,438,768		2,089,669		236,324										5,764,761		3,503,044		2,240,985		297,790										6,041,819
Grade 4 allowance	24,194		7,060		693										31,947		17,451		7,118		506										25,075
Grade 5 (Special Mention) loan balance	100,776		29,382		7,092										137,250		88,445		29,976		1,307										119,728
Grade 5 allowance	7,553		526		245										8,324		6,831		678		28										7,537
Grade 6 (Substandard) loan balance	38,323		32,080		352										70,755		35,221		22,151		1,256										58,628
Grade 6 allowance	5,473		2,089		21										7,583		4,457		2,263		49										6,769
Grade 7 (Doubtful) loan balance	—		—		—										—		—		—		—										—
Grade 7 allowance	—		—		—										—		—		—		—										—
Consumer loans based on payment status:
Current loan balances							2,009,699		988,443		149,538		537,140		3,684,820								2,455,393		1,123,549		158,453		601,509		4,338,904
Current loans allowance							8,860		11,863		5,256		2,471		28,450								10,427		16,607		5,480		3,612		36,126
30 days past due loan balance							10,764		1,445		641		10,958		23,808								10,971		1,345		625		6,368		19,309
30 days past due allowance							631		575		509		212		1,927								671		649		528		215		2,063
60 days past due loan balance							2,980		520		348		801		4,649								3,032		323		273		1,872		5,500
60 days past due allowance							643		405		430		68		1,546								517		297		378		255		1,447
90+ days past due loan balance							3,750		815		461		4,970		9,996								4,010		1,389		600		5,409		11,408
90+ days past due allowance							1,101		859		772		369		3,101								738		1,626		1,152		423		3,939
Total loans	$	4,857,615	$	2,507,884	$	319,795	$	2,051,587	$	998,179	$	151,967	$	580,166	$	11,467,193
Total Allowance for Loan Losses	$	43,256	$	10,053	$	1,028	$	12,243	$	13,903	$	7,328	$	4,139	$	91,950
Total originated loans																	$	5,317,897	$	2,713,995	$	388,873	$	2,500,288	$	1,134,238	$	160,766	$	639,980	$	12,856,037
Total allowance for originated loan losses																	$	39,838	$	10,565	$	629	$	13,358	$	19,433	$	7,801	$	5,921	$	97,545

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	As of December 31, 2013																As of December 31, 2014
	Loan Type																Loan Type
			CRE and						Home Equity		Credit		Residential						CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total		C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	8,053	$	21,522	$	—	$	27,285	$	6,726	$	1,112	$	23,066	$	87,764	$	11,759	$	23,300	$	—	$	24,905	$	7,379	$	854	$	25,251	$	93,448
Allowance	3,235		229		—		1,014		223		312		1,133		6,146		72		2,914		—		1,178		207		296		1,283		5,950
Collective Loan Impairment Components:
Credit risk-graded loans
Commercial loans based on risk rating:
Grade 1 loan balance	34,909		241		9,271										44,421		52,676		1,361		4,451										58,488
Grade 1 allowance	10		—		2										12		2		—		1										3
Grade 2 loan balance	108,709		3,730		2,900										115,339		186,278		3,454		14,959										204,691
Grade 2 allowance	80		3		3										86		8		—		1										9
Grade 3 loan balance	802,624		340,782		54,446										1,197,852		1,340,100		340,355		71,908										1,752,363
Grade 3 allowance	869		421		85										1,375		830		191		6										1,027
Grade 4 loan balance	3,083,312		2,057,357		167,022										5,307,691		3,413,446		2,228,833		277,277										5,919,556
Grade 4 allowance	28,114		9,255		732										38,101		23,562		6,118		625										30,305
Grade 5 (Special Mention) loan balance	70,978		34,687		5,750										111,415		132,764		30,247		1,389										164,400
Grade 5 allowance	5,385		1,023		246										6,654		8,022		751		32										8,805
Grade 6 (Substandard) loan balance	30,982		50,393		162										81,537		38,178		27,334		195										65,707
Grade 6 allowance	5,288		4,144		13										9,445		4,879		2,720		9										7,608
Grade 7 (Doubtful) loan balance	—		—		—										—		—		—		—										—
Grade 7 allowance	—		—		—										—		—		—		—										—
Consumer loans based on payment status:
Current loan balances							1,678,155		909,799		145,332		481,338		3,214,624								2,346,551		1,100,076		161,644		583,994		4,192,265
Current loans allowance							7,964		10,063		5,123		2,403		25,553								9,465		16,544		5,115		2,715		33,839
30 days past due loan balance							14,524		1,683		696		16,335		33,238								14,019		1,191		639		9,231		25,080
30 days past due allowance							1,044		685		541		482		2,752								859		581		492		209		2,141
60 days past due loan balance							3,729		906		449		1,276		6,360								3,506		569		498		1,645		6,218
60 days past due allowance							920		710		542		221		2,393								667		545		607		203		2,022
90+ days past due loan balance							4,232		952		724		7,238		13,146								4,470		1,121		843		5,162		11,596
90+ days past due allowance							993		1,219		1,222		533		3,967								749		1,447		1,456		335		3,987
Total loans	$	4,139,567	$	2,508,712	$	239,551	$	1,727,925	$	920,066	$	148,313	$	529,253	$	10,213,387
Total Allowance for Loan Losses	$	42,981	$	15,075	$	1,081	$	11,935	$	12,900	$	7,740	$	4,772	$	96,484
Total originated loans																	$	5,175,201	$	2,654,884	$	370,179	$	2,393,451	$	1,110,336	$	164,478	$	625,283	$	12,493,812
Total allowance for originated loan losses																	$	37,375	$	12,694	$	674	$	12,918	$	19,324	$	7,966	$	4,745	$	95,696

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	As of June 30, 2013																As of March 31, 2014
	Loan Type																Loan Type
			CRE and						Home Equity		Credit		Residential						CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total		C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	9,439	$	25,405	$	—	$	30,140	$	6,819	$	1,262	$	23,221	$	96,286	$	7,143	$	31,980	$	—	$	25,818	$	6,931	$	1,034	$	26,198	$	99,104
Allowance	3,169		1,010		—		557		197		255		1,280		6,468		2,866		2,918		—		1,006		223		307		1,241		8,561
Collective Loan Impairment Components:
Credit risk-graded loans
Commercial loans based on risk rating:
Grade 1 loan balance	40,185		1,250		12,815										54,250		28,610		539		8,452										37,601
Grade 1 allowance	12		—		4										16		2		—		2										4
Grade 2 loan balance	124,748		3,859		709										129,316		135,574		3,797		3,620										142,991
Grade 2 allowance	90		4		1										95		89		3		3										95
Grade 3 loan balance	721,517		316,171		36,743										1,074,431		940,937		354,108		58,397										1,353,442
Grade 3 allowance	948		617		67										1,632		746		456		76										1,278
Grade 4 loan balance	2,483,827		2,099,371		134,834										4,718,032		3,276,466		2,147,946		179,795										5,604,207
Grade 4 allowance	27,530		11,775		679										39,984		27,884		7,892		662										36,438
Grade 5 (Special Mention) loan balance	41,698		33,504		3,042										78,244		61,507		38,312		6,857										106,676
Grade 5 allowance	2,863		1,063		138										4,064		4,734		994		260										5,988
Grade 6 (Substandard) loan balance	56,776		40,062		210										97,048		25,919		30,354		388										56,661
Grade 6 allowance	10,555		4,398		20										14,973		3,854		2,592		24										6,470
Grade 7 (Doubtful) loan balance	—		—		—										—		—		—		—										—
Grade 7 allowance	—		—		—										—		—		—		—										—
Consumer loans based on payment status:
Current loan balances							1,450,394		835,126		139,146		420,146		2,844,812								1,794,831		937,032		145,192		516,286		3,393,341
Current loans allowance							5,990		9,573		4,879		1,925		22,367								8,819		10,992		4,627		2,400		26,838
30 days past due loan balance							8,602		960		792		10,939		21,293								8,751		1,503		747		7,002		18,003
30 days past due allowance							548		563		561		341		2,013								591		714		549		218		2,072
60 days past due loan balance							2,938		1,024		343		2,521		6,826								2,553		440		395		1,136		4,524
60 days past due allowance							544		1,237		379		392		2,552								541		307		478		189		1,515
90+ days past due loan balance							4,589		1,122		776		5,600		12,087								3,569		896		549		5,349		10,363
90+ days past due allowance							1,086		1,696		1,214		485		4,481								647		924		890		396		2,857
Total loans	$	3,478,190	$	2,519,622	$	188,353	$	1,496,663	$	845,051	$	142,319	$	462,427	$	9,132,625
Total Allowance for Loan Losses	$	45,167	$	18,867	$	909	$	8,725	$	13,266	$	7,288	$	4,423	$	98,645
Total originated loans																	$	4,476,156	$	2,607,036	$	257,509	$	1,835,522	$	946,802	$	147,917	$	555,971	$	10,826,913
Total allowance for originated loan losses																	$	40,175	$	14,855	$	1,027	$	11,604	$	13,160	$	6,851	$	4,444	$	92,116

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Allowance for Acquired Loan Losses

The Citizens’ loans were recorded at their fair value as of the Acquisition Date and the prior ALL was eliminated. An ALL for nonimpaired acquired loans is estimated using a methodology similar to that used for originated ~~loans,~~loans. The allowance determined for each acquired nonimpaired loan is compared to the remaining fair value adjustment for that ~~is, based on a specific reserve analysis for loans individually evaluated for impairment and based on historical loss rates for loans collectively evaluated for impairment.~~loan. If the computed allowance is greater, ~~than the remaining fair value discount,~~ the excess is added to the allowance through a provision for loan losses. If the computed allowance is less, no additional allowance is recognized. As of ~~June 30, 2014~~March 31, 2015, the computed allowance was less than the remaining fair value discount; therefore, no ALL for acquired nonimpaired loans was ~~required.~~recorded.

Charge-offs and actual losses on an acquired nonimpaired loan first reduce any remaining fair value discount for that loan. Once a loan's discount is depleted, charge-offs and actual losses are applied against the ALL. During the three months ended ~~June 30,~~March 31, 2015 and 2014,, provision for loan losses, equal to net charge-offs, of ~~$3.8~~$2.2 million and $5.6 million was recorded. Charge-offs on acquired nonimpaired loans were mainly related to consumer loans that were written off in accordance with the ~~Corporation's~~Corporation’s credit policies based on a predetermined number of days past due.

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The ALL for acquired impaired loans is determined by comparing the present value of the cash flows expected to be collected to the carrying amount for a given pool of loans. Management reforecasts the estimated cash flows expected to be collected on acquired impaired loans on a quarterly basis. Expected cash flows may increase or decrease for a variety of reasons, for example, when the contractual terms of the loan agreement are modified, when interest rates on variable rate loans change, or when principal and/or interest payments are received. Cash flows expected to be collected on acquired impaired loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, loss given default, and the amount of actual prepayments after the Acquisition Dates. Prepayments affect the estimated life of loans and could change the amount of interest income, and possibly principal, expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. These adjustments are based, in part, on actual loss severities recognized for each loan type, as well as changes in the probability of default. For periods in which estimated cash flows are not re-forecasted, the prior reporting ~~periods~~periods' estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period.

Increases in expected cash flows of acquired impaired loans subsequent to acquisition are recognized prospectively through adjustment of the yield on the loans or pools over its remaining life, while decreases in expected cash flows are recognized as impairment through a provision for loan loss and an increase in the ALL. If the present value of expected cash flows for a pool is less than its carrying value, impairment is recognized in the current period by an increase in the acquired ALL and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying value, any previously established acquired ALL is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool.

During the ~~six~~three months ended ~~June 30,~~March 31, 2015 and 2014, provision for acquired impaired loan losses of ~~$2.0~~$36.0 thousand and $2.2 million, respectively, was recognized resulting in an allowance for acquired impaired loan losses of ~~$5.0~~$7.5 million and $3.0 million as of ~~June 30,~~March 31, 2015 and 2014,. respectively.

Allowance for ~~Covered~~FDIC Acquired Loan Losses

The ALL on ~~covered~~FDIC nonimpaired acquired loans is estimated similar to acquired loans as described above except any increase to the allowance and provision for loan losses is partially offset by an increase in the loss share receivable for the portion of the losses recoverable under the loss sharing agreements with the FDIC. Additionally, the Corporation elected to account for all covered loans as impaired except for those loans acquired with revolving privileges, which are outside the scope of impaired loan accounting, and, therefore, are accounted for as covered

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~~nonimpaired loans.~~ As of ~~June 30, 2014~~March 31, 2015, the computed allowance was less than the remaining fair value discount, therefore, no ~~allowance~~ALL for ~~covered~~FDIC acquired nonimpaired loans was recorded.

The ~~allowance~~ALL for ~~covered~~FDIC acquired impaired ~~for loan losses~~loans was ~~$45.1~~$41.5 million, ~~$44.0~~$40.5 million, and ~~$49.1~~$50.0 million as of ~~June 30, 2014~~March 31, 2015, December 31, ~~2013~~2014, and ~~June 30, 2013~~March 31, 2014, respectively. During the three months ended ~~June 30, 2014~~March 31, 2015, ~~$0.5~~$4.2 million of ~~previously recognized~~ losses on ~~covered~~FDIC acquired impaired loans were ~~recaptured~~recognized with an offsetting ~~decrease~~increase of ~~$3.9~~$4.2 million to the loss share receivable. The net provision from the impaired ~~covered~~FDIC acquired portfolio was ~~$3.4~~$2.0 thousand in the three months ended March 31, 2015 compared to a net provision of $3.1 million in the three months ended ~~June 30,~~March 31, 2014 ~~compared to $4.2 million in the three months ended~~ ~~June 30, 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 with no ALL brought forward in accordance with business combination accounting. Acquired and covered impaired loans with an accretable yield are considered to be accruing and performing even though collection of contractual payments on loans within the pool may be in doubt, because the pool is the unit of accounting and income continues to be accreted on the pool as long as expected cash flows are reasonably estimable.

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 its subsidiaries, participating in approval of their largest loans, conducting reviews of their loan portfolios, providing them with centralized consumer underwriting, collections and loan operations services, and overseeing their 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. Individual commercial loans are assigned credit risk grades based on an internal assessment of conditions that affect a borrower's ability to meet its contractual obligation under the loan agreement. The assessment process includes reviewing a borrower's current financial information, historical payment experience, credit documentation, public information, and other information specific to each borrower. Commercial loans are reviewed on an annual, quarterly or rotational basis or as Management becomes aware of information during a borrower's ability to fulfill its obligation. For consumer loans, Management evaluates credit quality based on the aging status of the loan as well as by payment activity, which is presented in the above tables.

~~Note~~ 1 (~~Summary of Significant Accounting Policies) and Note~~ 5 (~~Allowance for Loan Losses~~) in the notes to the consolidated financial statements in this Form 10-Q, provide detailed information regarding the Corporation's credit policies and practices and the credit-risk grading process for commercial loans.

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Nonperforming Loans are defined as follows:

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

Restructured loans on which, due to a borrower experiencing financial difficulties or expected to experience difficulties in the ~~near-term,~~near term, the original terms of the loan are modified to maximize the collection of amounts due.

Nonperforming Assets are defined as follows:

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

Restructured loans on which, due to deterioration in the borrower's financial condition, the original terms have been modified in favor of the borrower or either principal or interest has been forgiven.

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

Figure 13. Asset Quality⁽¹⁾


(Dollars in thousands)	June 30, 2014			December 31, 2013			June 30, 2013			March 31, 2015			December 31, 2014			March 31, 2014
Nonperforming originated loans:
Restructured nonaccrual loans:
Commercial loans	$	9,947		$	7,297		$	13,010		$	4,917		$	4,153		$	9,159
Consumer loans	12,025			11,388			12,341			10,865			11,088			12,374
Total restructured loans	21,972			18,685			25,351			15,782			15,241			21,533
Other nonaccrual loans:
Commercial loans	11,125			18,377			15,925			23,561			12,994			17,963
Consumer loans	3,644			5,141			4,188			6,742			6,382			3,952
Total nonaccrual loans	14,769			23,518			20,113			30,303			19,376			21,915
Total nonperforming originated loans	36,741			42,203			45,464			46,085			34,617			43,448
Other real estate, excluding covered assets	24,181			18,680			20,713
Total nonperforming assets	$	60,922		$	60,883		$	66,177
Other real estate, excluding covered assets ^{(2) (3)}										22,521			20,421			19,263
Total nonperforming assets ("NPAs") ⁽³⁾										$	68,606		$	55,038		$	62,711
Originated loans past due 90 days or more accruing interest	$	15,643		$	11,176		$	11,760		$	7,914		$	12,156		$	11,860
Total nonperforming assets as a percentage of total originated loans and ORE	0.53		%	0.60		%	0.72		%
Total NPAs as a percentage of total originated loans and ORE ⁽³⁾										0.53		%	0.44		%	0.58		%

(1) Due to the impact of acquisition accounting and protection against credit risk from FDIC loss sharing agreements, acquired loans, FDIC acquired loans and covered OREO are excluded from the asset quality figures to provide for improved comparability to prior periods and better perspective into asset quality trends. Acquired loans are recorded at fair value with no allowance brought forward in accordance with acquisition accounting. Acquired and covered impaired loans with an accretable yield are considered to be accruing and performing even though collection of contractual payments on loans within the pool may be in doubt, because the pool is the unit of accounting and income continues to be accreted on the pool as long as expected cash flows are reasonably estimable.

~~Total nonperforming assets as of~~ ~~June 30, 2014~~ ~~were~~ ~~$60.9 million~~, ~~an increase~~ of ~~$39.0 thousand, or~~ ~~0.06%, from~~ ~~December 31, 2013~~ ~~and~~ ~~a decrease~~ of ~~$5.3 million, or~~ ~~7.94%, from~~ ~~June 30, 2013. Total originated loans past due 30-89 days totaled~~ ~~$38.7 million~~ at ~~June 30, 2014~~, ~~a decrease~~ of ~~$24.8 million, or~~ ~~39.04%, from~~ ~~December 31, 2013, and a~~ ~~decrease~~ of ~~$6.7 million, or~~ ~~14.66%, from~~ ~~June 30, 2013. Delinquency trends are observable in the Allowance for Loan Loss Allocation tables within this section. Commercial nonperforming originated loans~~ ~~decreased$4.6 million, or~~ ~~17.92%, from~~ ~~December 31, 2013~~ ~~and~~ ~~decreased$7.9 million, or~~ ~~27.17%, from~~ ~~June 30, 2013. Total OREO~~ ~~increased$5.5 million, or~~ ~~29.45%, from~~ ~~December 31, 2013~~ ~~and~~ ~~$3.5 million, or~~ ~~16.74%, from~~ ~~June 30, 2013. During the three months ended~~ ~~June 30, 2014, 16 closed branches were transferred into other real estate at a value of $3.8 million.~~(2) As of ~~June 30, 2014, other real estate~~March 31, 2015, OREO included 1711 former banking facilities that the Corporation no longer intends to use for banking purposes valued at approximately ~~$4.6~~$2.5 million.

(3) As of March 31, 2015, $3.4 million of OREO was no longer covered by a FDIC loss share agreement, therefore, was included in NPAs. OREO that remains covered by FDIC loss share agreements has considerable protection against credit risk and are not reported as NPAs.

Total nonperforming assets as of March 31, 2015 were $68.6 million, an increase of $13.6 million, or 24.65%, from December 31, 2014 and an increase of $5.9 million, or 9.40%, from March 31, 2014. Commercial nonperforming originated loans increased$11.3 million, or 66.08%, from December 31, 2014 and increased$1.4 million, or 5.00%, from March 31, 2014. The increase in this quarters commercial nonperforming originated loans is due to credit deterioration of two loans. Total OREO increased$2.1 million, or 10.28%, from December 31, 2014 and $3.3 million, or 16.91%, from March 31, 2014. Due to the expiration of certain FDIC loss share agreements in the first quarter of 2015, previously covered OREO of $3.4 million has been reclassed into nonperforming assets. Certain FDIC loss share agreements will expire in the second quarter of 2015 and will result in an increase in nonperforming assets from OREO previously covered under such agreements.

~~Net charge offs within~~Borrower FICO scores provide information about the ~~originated~~credit quality of our consumer loan portfolio ~~were~~as they provide an indication as to the likelihood that debtors will repay their debts. We obtain the scores from a

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nationally recognized consumer rating agency on a quarterly basis and trends are evaluated for consideration as a qualitative adjustment to the allowance. As of ~~$3.9 million~~March 31, 2015 ~~for~~, the ~~three months ended~~ ~~June 30, 2014~~ ~~compared to~~ ~~$3.1 million~~ ~~for the three months ended~~ ~~June 30, 2013. Average~~average FICO scores on the originated consumer portfolio subcomponents are excellent with average scores on installment loans at ~~753~~,751, home equity lines at ~~777~~,776, residential mortgages at ~~741~~,750, and credit cards at ~~770~~.768.

~~Originated loans past due 90 days or more but still accruing interest are classified as such where the~~

~~underlying loans are both well secured (the collateral value is sufficient to cover principal and accrued interest) and are in the process of collection. At~~ ~~June 30, 2014, accruing originated loans 90 days or more past due~~

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~~totaled $15.6 million compared to~~ ~~$11.2 million~~ ~~and~~ ~~$11.8 million~~ at ~~December 31, 2013~~ ~~and~~ ~~June 30, 2013, respectively. Credit card loans on which payments are past due for 120 days are placed on nonaccrual status.~~When a loan is placed on nonaccrual status, interest deemed uncollectible that had been accrued in prior years is charged against the ALL and interest deemed uncollectible accrued in the current year is reversed against interest income. Interest on mortgage loans is accrued until Management deems it uncollectible based upon the specific identification method. Payments subsequently received on nonaccrual loans are generally applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable. This generally requires timely principal and interest payments for a minimum of six consecutive payment cycles. Loans are generally written off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, terms, and other factors.

Figure 14. Nonaccrual Originated Commercial Loan Flow Analysis


	Three Months Ended															Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
(In thousands)	2014			2014			2013			2013			2013			2015			2014			2014			2014			2014
Nonaccrual originated commercial loans beginning of period	$	27,122		$	25,674		$	19,140		$	28,935		$	23,843		$	17,147		$	22,347		$	21,072		$	27,122		$	25,674
Credit Actions:
New	7,846			14,334			10,527			943			15,197			14,557			3,275			10,381			7,846			14,334
Loan and lease losses	—			—			—			(1,223		)	(1,348		)
Charged down	(2,783		)	(5,176		)	(885		)	—			(2,639		)	(221		)	(330		)	(4,037		)	(2,783		)	(5,176		)
Return to accruing status	—			(1,088		)	(221		)	(394		)	(3,981		)	(322		)	—			—			—			(1,088		)
Payments	(11,113		)	(6,622		)	(2,887		)	(9,121		)	(2,137		)	(2,683		)	(8,145		)	(5,069		)	(11,113		)	(6,622		)
Sales	—			—			—			—			—
Nonaccrual originated commercial loans end of period	$	21,072		$	27,122		$	25,674		$	19,140		$	28,935		$	28,478		$	17,147		$	22,347		$	21,072		$	27,122

A loan is considered to be impaired when, based on current events or information, it is probable the Corporation will be unable to collect all amounts due (principal and interest) per the contractual terms of the loan agreement. Loan impairment for all loans is measured based on either the present value of expected future cash flows discounted at the loan's effective interest rate, at the observable market price of the loan, or the fair value of the collateral for certain collateral dependent loans. Impaired loans include all nonaccrual commercial, agricultural, construction, and commercial real estate loans, and loans modified as TDRs. In certain circumstances, the Corporation may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the ~~near term.~~near-term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or modification of the adjustable rate provisions of the loan that would otherwise not be considered. Concessionary modifications are classified as TDRs unless the modification is short-term (30 to 90 days) and considered to be an insignificant delay while awaiting additional information from the borrower. All amounts due, including interest accrued at the contractual interest rate, are expected to be collected. TDRs return to accrual status once the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles. A sustained period of repayment performance would be a minimum of six consecutive payment cycles from the date of restructure.

The ~~Corporation's~~Corporation’s TDR portfolio ~~excluding~~is summarized in the following table.

Figure 15. TDR Portfolio



(In thousands)	March 31, 2015		March 31, 2014
Originated TDRs	$	89,150	$	84,771
Acquired TDRs ⁽¹⁾	13,146		5,181
FDIC Acquired TDRs ⁽¹⁾	33,335		49,784
Total TDRs	$	135,631	$	139,736
Nonperforming TDRs	$	19,514	$	21,997

(1) Acquired and FDIC acquired loans restructured after acquisition are not considered TDRs for purposes of the Corporation’s accounting and ~~covered~~disclosure if the loans ~~totaled~~ ~~$87.1 million~~, ~~$79.5 million, and~~ ~~$87.6 million~~evidenced credit deterioration as of ~~June 30, 2014~~, ~~December 31, 2013~~,the date of acquisition and are accounted for in pools.

~~June 30, 2013, respectively. These~~Originated consumer TDRs are predominately composed of ~~originated consumer~~ installment loans, first and second lien residential mortgages and home equity lines of ~~credit~~ credit. Total originated consumer TDRs represented 67.47%and ~~represented~~ ~~67.27%~~, ~~73.22%, and~~ ~~70.13%, respectively,~~70.76% of the total originated TDR portfolio as of ~~June 30,~~March 31, 2015, and March 31, 2014,, ~~December 31, 2013, and~~ ~~June 30, 2013~~, respectively. We restructure residential mortgages in a variety of ways to help our clients remain in their homes and to mitigate the potential for additional losses. The primary restructuring methods being offered to our residential clients are

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reductions in interest rates and extensions in terms. Modifications of mortgages retained in portfolio are handled using proprietary modification guidelines, or the ~~FDIC's~~FDIC’s Modification Program for residential first mortgages covered by loss share agreements. The Corporation participates in the U.S. ~~Treasury's~~Treasury’s Home Affordable Modification Program for originated mortgages sold to and serviced for FNMA and FHLMC.

~~In addition, the~~The Corporation has also modified certain loans according to provisions in loss share agreements. Losses associated with modifications on these loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under the loss share agreements.

~~Acquired~~A loan is considered to be impaired when, based on current events or information, it is probable the Corporation will be unable to collect all amounts due (principal and ~~covered loans restructured after acquisition are not considered TDRs for purposes~~interest) per the contractual terms of the ~~Corporation's accounting and disclosure if~~loan agreement. Loan impairment for all loans is measured based on either the ~~loans evidenced credit deterioration as~~present value of expected future cash flows discounted at the loan’s effective interest rate, at the observable market price of the ~~Acquisition Date~~loan, or the fair value of the collateral for certain collateral dependent loans. Impaired loans include all nonaccrual commercial, agricultural, construction, and ~~are accounted~~commercial real estate loans, and loans modified as TDRs. Interest income recognized on impaired loans was $0.1 million for the three months ended March 31, 2015, compared to $0.1 million for the three months ended March 31, 2014. Interest income which would have been earned in ~~pools.~~accordance with the original terms was $0.9 million for the three months ended March 31, 2015, compared to $0.8 million for the three months ended March 31, 2014.

Deposits, Securities Sold Under Agreements to Repurchase, Wholesale Borrowings and Long-term Debt

Average quarter to date deposits ~~as of~~ ~~June 30, 2014~~ totaled $~~19.5 billion~~ ~~compared to $19.5 billion and~~ ~~$18.3~~19.8 billion as of March 31, 2015, $19.5 billion as of December 31, ~~2013~~ ~~and~~ ~~June 30, 2013~~2014, ~~respectively.~~and $19.6 billion as of March 31, 2014. The Corporation has successfully executed a strategy to increase the concentration of lower cost deposits within the overall deposit mix by focusing on growth in checking, money market and savings account products with less emphasis on renewing maturing certificate of deposit accounts. In addition to efficiently funding balance sheet growth, the increased concentration in core deposit accounts generally deepens and extends the length of customer relationships.

The following table ~~in Figure~~ 15 ~~presents~~provides additional information about the Corporation's deposit products and their respective ~~rates for the three months ended~~ ~~June 30, 2014~~, ~~December 31, 2013, and~~ ~~June 30, 2013~~.rates.

Figure 1516. Respective Rates of Deposit Products and ~~Respective Rates~~Funding


	Three Months Ended												Three Months Ended
	June 30, 2014				December 31, 2013				June 30, 2013				March 31, 2015				December 31, 2014				March 31, 2014
(Dollars in thousands)	Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate
Noninterest-bearing	$	5,515,807	—	%	$	5,546,316	—	%	$	5,095,977	—	%	$	5,728,763	—	%	$	5,706,631	—	%	$	5,488,751	—	%
Interest-bearing	3,066,201		0.10	%	2,875,375		0.10	%	2,347,155		0.11	%	3,209,285		0.10	%	3,021,188		0.10	%	3,045,952		0.10	%
Savings and money market accounts	8,580,928		0.26	%	8,544,097		0.28	%	8,210,780		0.32	%	8,542,154		0.26	%	8,381,548		0.26	%	8,698,817		0.26	%
Certificates and other time deposits	2,333,859		0.52	%	2,551,688		0.39	%	2,680,332		0.50	%	2,308,723		0.38	%	2,341,280		0.43	%	2,402,986		0.42	%
Total customer deposits	19,496,795		0.19	%	19,517,476		0.19	%	18,334,244		0.23	%	19,788,925		0.17	%	19,450,647		0.18	%	19,636,506		0.18	%
Securities sold under agreements to repurchase	1,024,598		0.09	%	948,959		0.12	%	927,451		0.14	%	1,024,863		0.10	%	1,241,948		0.09	%	884,065		0.09	%
Wholesale borrowings	373,213		1.49	%	200,622		1.85	%	237,887		1.97	%	350,991		2.70	%	450,587		2.08	%	276,324		1.66	%
Long-term debt	324,431		4.81	%	324,426		4.77	%	314,597		4.77	%	505,275		2.26	%	350,535		2.48	%	324,428		4.86	%
Total funds	$	21,219,037	0.28	%	$	20,991,483	0.27	%	$	19,814,179	0.32	%	$	21,670,054	0.26	%	$	21,493,717	0.25	%	$	21,121,323	0.27	%

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Average quarter to date demand deposits comprised ~~44.02%~~45.17% of average deposits during the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~43.15%~~44.87% during the three months ended December 31, ~~2013~~2014, and ~~40.60%~~43.46% during the three months ended ~~June 30, 2013~~March 31, 2014. Savings accounts, including money market products, made up ~~44.01%~~43.17% of average deposits during the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~43.78%~~43.09% during the three months ended December 31, ~~2013~~2014, and ~~44.78%~~44.30% during the three months ended ~~June 30, 2013~~March 31, 2014. Certificates and other time deposits made up ~~11.97%~~11.67% of average deposits during the three months ended ~~June 30, 2014~~March 31, 2015, ~~13.07%~~12.04% during the three months ended December 31, ~~2013~~2014, and ~~14.62%~~12.24% during the three months ended ~~June 30, 2013~~March 31, 2014.

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The average cost of deposits, federal funds purchased and securities sold under agreements to repurchase, wholesale borrowings and long-term debt was down 51 basis ~~points~~point compared to the same period one year ago, or ~~11.63%~~2.78% for the three months ended ~~June 30, 2014~~March 31, 2015 ~~due to a drop in interest rates.~~.

The following table in Figure 1617 summarizes certificates and other time deposits in amounts of $100 thousand or more for the three months ended ~~June 30, 2014~~March 31, 2015 by time remaining until maturity.

Figure 1617. Certificates and Other Time Deposits in increments of $100 Thousand or More


	Amount
(In thousands)
Time until maturity:	(In thousands)		Amount
Under 3 months	$	236,083	$	210,135
3 to 6 months	195,574		140,314
6 to 12 months	198,057		132,614
Over 12 months	160,391		233,289
Total	$	790,105	$	716,352

Capital Resources

The capital management objectives of the Corporation are to provide capital sufficient to cover the risks inherent in the Corporation's businesses, to maintain excess capital to well-capitalized standards and to assure ready access to the capital markets.

Shareholders' Equity

Shareholders' equity was $~~2.8~~2.9 billion as of ~~June 30, 2014~~March 31, 2015, compared with ~~$2.7~~$2.8 billion as of December 31, ~~2013~~2014 and $2.7 billion as of ~~June 30, 2013~~March 31, 2014. The Corporation's Common Stock is traded on the ~~NYSE~~NASDAQ under the symbol FMER with ~~12,469~~12,060 holders of record at ~~June 30, 2014~~March 31, 2015.

•At ~~June 30, 2014~~,March 31, 2015, the Corporation's common equity value per common share was ~~$16.27~~$16.86 based on approximately ~~165.4~~165.5 million shares outstanding at ~~June 30, 2014~~,March 31, 2015, compared to ~~$15.77~~$16.53 based on approximately ~~165.1~~165.4 million shares outstanding at December 31, ~~2013~~,2014, and ~~$15.46~~$16.01 based on approximately ~~165.0~~165.1 million shares outstanding at ~~June 30, 2013~~.March 31, 2014.

•At ~~June 30, 2014~~,March 31, 2015, the Corporation's tangible book value per common share was ~~$11.33~~$11.96 compared to ~~$10.77~~$11.62 at December 31, ~~2013~~,2014, and ~~$10.43~~$11.03 at ~~June 30, 2013~~.March 31, 2014.

•At ~~June 30, 2014~~,March 31, 2015, the Corporation's book value per common share was ~~$16.88~~$17.46 compared to ~~$16.38~~$17.14 at December 31, ~~2013~~,2014, and ~~$16.06~~$16.62 at ~~June 30, 2013~~.March 31, 2014.

•

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At ~~June 30, 2014~~,March 31, 2015, the Corporation had approximately ~~4.8~~4.7 million treasury shares, compared to approximately ~~5.1~~4.8 million treasury shares at December 31, ~~2013~~2014 and approximately 5.1 million treasury shares at ~~June 30, 2013~~.March 31, 2014. Treasury shares are typically issued as needed in connection with stock-based compensation awards and for other corporate purposes.

During the ~~second~~first quarter of ~~2014~~2015, the Corporation made a dividend payment of $0.16 per share, or ~~$26.3~~$26.5 million in the aggregate, on its Common Stock. As of ~~June 30, 2014~~March 31, 2015, the dividend of $0.16 ~~cents~~ per common share has ~~an indicated annual~~annualized rate of $0.64 per common share. Also in the ~~second~~first quarter of ~~2014~~2015, the Corporation made a quarterly dividend payment of $1.5 million in the aggregate, or $14.69 per share, or $0.36725 per depositary share, on the Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series A.A, which trades on the NYSE.

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The following table in Figure 1718 shows activities that caused the change in outstanding Common Stock over the past five quarters.

Figure 1718. Changes in Common Stock Outstanding


	2014		2014		2013		2013		2013		2015		2014		2014		2014		2014
(Shares in thousands)	2nd qtr		1st qtr		4th qtr		3rd qtr		2nd qtr		1st qtr		4th qtr		3rd qtr		2nd qtr		1st qtr
Beginning of period	165,087		165,056		165,045		165,045		109,746		165,390		165,384		165,393		165,087		165,056
Issued (repurchased)	(186	)	(51	)	(13	)	7		55,467		(66	)	(15	)	(10	)	(186	)	(51	)
Reissued (returned) under employee benefit plans	492		82		24		(7	)	(168	)
Reissued (returned) under employee benefit plans, net											129		21		1		492		82
End of period	165,393		165,087		165,056		165,045		165,045		165,453		165,390		165,384		165,393		165,087

Capital Adequacy

Capital adequacy is an important indicator of financial stability and performance. The Corporation maintained a strong capital position with tangible common equity to tangible assets of ~~7.89%~~8.14% at ~~June 30, 2014~~March 31, 2015, compared with ~~7.70%~~7.98% at December 31, ~~2013~~2014, and ~~7.58%~~7.69% at ~~June 30, 2013~~March 31, 2014.

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~~tier 1 capital ratio of at least 6%8%, a leverage capital ratio of at least 5%, a CET1 ratio of at least 6.5%, 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~~tier I capital ratio of at least 4%6%, a CET1 ratio of at least 4.5%, 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.

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The George Washington and Midwest FDIC-assisted acquisitions in 2010 resulted in the recognition of loss share receivables from the FDIC, which represents the fair value of estimated future payments by the FDIC to the Corporation for losses on covered assets. The FDIC loss share receivables, as well as covered assets, are risk-weighted at 20% for regulatory capital requirement purposes. No loans acquired in the Citizens merger are subject to loss share receivables from the FDIC.

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As of ~~June 30, 2014~~March 31, 2015, the Corporation, on a consolidated basis, as well as the Bank, exceeded the minimum capital levels of the well-capitalized category.

Figure 1819. Capitalization Tables

(Dollars in thousands) June 30, 2014 December 31, 2013 June 30, 2013
Consolidated
Total equity $ 2,791,738
11.36 % $ 2,702,894
11.30 % $ 2,650,909
11.26 %
Common equity ^(a)
2,691,738
10.96 % 2,602,894
10.89 % 2,550,909
10.84 %
Tangible common equity ^{(a) (b)}
1,873,112
7.89 % 1,778,399
7.70 % 1,720,750
7.58 %
Tier 1 capital ^{(a) (b)}
1,978,233
11.57 % 1,880,804
11.52 % 1,833,612
11.35 %
Total risk-based capital^{(a) (b)}
2,377,307
13.90 % 2,279,891
13.97 % 2,239,363
13.86 %
Leverage ^(b)
1,978,233
8.46 % 1,880,804
8.14 % 1,833,612
8.41 %

June 30, 2014 December 31, 2013 June 30, 2013
Bank Only
Total equity $ 2,948,000
12.01 % $ 2,859,515
11.98 % $ 2,813,453
11.98 %
Common equity ^(a)
2,948,000
12.01 % 2,859,515
11.98 % 2,813,453
11.98 %
Tangible common equity ^{(a) (b)}
2,129,374
8.98 % 2,036,941
8.84 % 1,990,652
8.78 %
Tier 1 capital ^{(a) (b)}
2,079,510
12.16 % 1,978,140
12.14 % 1,927,191
11.96 %
Total risk-based capital ^{(a) (b)}
2,223,493
13.00 % 2,122,124
13.02 % 2,077,885
12.90 %
Leverage ^(b)
2,079,510
8.93 % 1,978,140
8.58 % 1,927,191
8.87 %



(Dollars in thousands)	March 31, 2015				December 31, 2014				March 31, 2014
Consolidated
Total equity	$	2,888,786	11.50	%	$	2,834,281	11.38	%	$	2,742,966	11.20	%
Common equity ⁽¹⁾	2,788,786		11.10	%	2,734,281		10.98	%	2,642,966		10.79	%
CET1 capital ^{(1) (2)}	2,006,340		10.60	%	N/A		N/A		N/A		N/A
Tier 1 common equity ^{(1) (2)}	N/A		N/A		1,904,461		10.95	%	1,745,937		10.46	%
Tier 1 capital ^{(1) (2)}	2,006,340		10.60	%	2,004,461		11.53	%	1,920,438		11.51	%
Total risk-based capital^{(1) (2)}	2,597,358		13.72	%	2,653,893		15.26	%	2,322,908		13.92	%
Tier 1 leverage ⁽²⁾	2,006,340		8.31	%	2,004,461		8.43	%	1,920,438		8.27	%
Tangible common equity ⁽¹⁾	1,978,624		8.14	%	1,921,521		7.98	%	1,821,407		7.69	%

	March 31, 2015				December 31, 2014				March 31, 2014
Bank Only
Total equity	$	3,020,048	12.03	%	$	2,932,847	11.79	%	$	2,895,511	11.83	%
Common equity ⁽¹⁾	3,020,048		12.03	%	2,932,847		11.79	%	2,895,511		11.83	%
Tier 1 capital ^{(1) (2)}	2,129,378		11.26	%	2,127,065		12.22	%	2,017,602		12.09	%
Total risk-based capital ^{(1) (2)}	2,530,261		13.38	%	2,521,412		14.49	%	2,164,993		12.97	%
Tier 1 Leverage ⁽²⁾	2,129,378		8.87	%	2,127,065		8.94	%	2,017,602		8.71	%
Tangible common equity ⁽¹⁾	2,209,886		9.10	%	2,120,087		8.81	%	2,073,952		8.77	%

(1)^(a)See Figure 2 entitled GAAP to Non-GAAP Reconciliations, which presents the computations of certain financial measures related to tangible common equity and efficiency ratios. The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period to period comparisons.

^(b)~~December~~(2) The Basel III capital rules, effective January 1, 2015, replace tier 1 common equity and the associated tier 1 common equity ratio with common equity tier 1 ("CET1") capital and the CET1 risk-based capital ratio. March 31, ~~2013~~2015 figures are preliminary and ~~June 30, 2013 data reflects purchase accounting adjustments which resulted in an increase~~presented on a Basel III basis and reflect transitional capital requirements and phase-in provisions, including the standardized approach for calculating risk weighted assets. Periods prior to ~~goodwill of approximately~~ ~~$1.9 million~~ ~~and $7.4 million, respectively, from that previously reported.~~March 31, 2015 are reported on a Basel I basis.

RISK MANAGEMENT

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~~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 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.

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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”~~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 refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in a narrowing of profit spread on an earning asset or liability. Basis risk is also present in administered rate liabilities, such as interest-bearing checking accounts, savings

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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.

The interest rate risk position is measured and monitored using risk management tools, including earnings simulation modeling and EVE sensitivity analysis, which capture both 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 ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014:

Figure 1920. Net Interest Income Simulation Results

Immediate Change in Rates and Resulting Percentage
Increase/(Decrease) in Net Interest Income:
- 100
basis
points + 100
basis
points + 200
basis
points + 300
basis
points
June 30, 2014 (3.52 )% 1.64 % 3.27 % 4.55 %
June 30, 2013 (3.86 )% 0.69 % 1.53 % 2.02 %



	Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in Net Interest Income:
	- 100 basis points		+ 100 basis points		+ 200 basis points		+ 300 basis points
March 31, 2015	(4.71	)%	2.31	%	4.45	%	6.04	%
March 31, 2014	(5.22	)%	2.16	%	4.22	%	5.95	%

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 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 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 EVE sensitivity analysis to study the impact of long-term cash flows on earnings and capital. EVE involves discounting present values of

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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 EVE. 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.

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Presented below is the Corporation’s EVE profile as of ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014:

Figure 2021. EVE Simulation Results

Immediate Change in Rates and Resulting Percentage
Increase/(Decrease) in EVE:
- 100
basis
points + 100
basis
points + 200
basis
points + 300
basis
points
June 30, 2014 (2.42 )% 0.38 % (0.18 )% (1.26 )%
June 30, 2013 (5.57 )% (1.07 )% (2.71 )% (5.06 )%



	Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in EVE:
	- 100 basis points		+ 100 basis points		+ 200 basis points		+ 300 basis points
March 31, 2015	(4.88	)%	2.14	%	3.00	%	2.90	%
March 31, 2014	(2.35	)%	(0.71	)%	(1.12	)%	(2.06	)%

Management reviews and takes appropriate action if this analysis indicates that the Corporation’s EVE will change by more than 5% in response to an immediate 100 basis point increase or decrease in interest rates or EVE will change by more than 15% in response to an immediate 200 basis point increase ~~or decrease~~ in interest rates. The Corporation is operating within these guidelines.

Management of interest rate exposure. Management uses the results of its various simulation analysis to formulate strategies to achieve a desired risk profile within the parameters of the Corporation’s capital and liquidity guidelines. Specifically, Management actively manages interest rate risk positions by structuring investment portfolio cash flows to support the desired risk position, and 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 98 (Derivatives and Hedging Activities) in the notes to the ~~unaudited~~ consolidated financial ~~statements.~~statements in this Form 10-Q.

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~~months and identifying sources and uses of funds. The overall management of the Corporation’s liquidity position is also 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. Core deposits comprised approximately ~~88.25%~~88.10% of total deposits at ~~June 30, 2014~~March 31, 2015. The Corporation also has available unused

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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 further provided by unencumbered, or unpledged, investment securities that totaled $2.8 billion as of ~~June 30, 2014~~March 31, 2015.

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. An example of an institution

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specific 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 systemic 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. The liquidity contingency plan therefore 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 ~~June 30, 2014~~March 31, 2015, lower cost core deposits ~~decreased~~increased by $~~397.7~~339.3 million from the ~~first~~fourth quarter 2014. In the aggregate, there was an increase in deposits ~~decreased~~of $~~513.3~~420.9 million from December 31, 2014. The Corporation’s loan to deposit ratio decreased to 77.74% as of March 31, 2015 from 78.58% as of December 31, 2014. Securities sold under agreements to repurchase ~~increased~~decreased $~~292.7~~159.2 million from ~~March~~December 31, 2014. Wholesale borrowings and long-term debt had a net ~~increase~~decrease of $~~299.7~~104.0 million from ~~March 31, 2014. The Corporation’s loan to deposit ratio~~ ~~increased~~ to ~~77.57%~~ ~~as of~~ ~~June 30, 2014~~ ~~from~~ ~~73.74%~~ ~~as of~~ ~~March~~December 31, 2014.

Parent Company Liquidity - The Corporation manages its liquidity principally through dividends from the ~~bank subsidiary.~~Bank. The ~~Parent Company~~Corporation 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; and pay dividends to shareholders.

During the three months ended ~~June 30, 2014~~March 31, 2015, the Bank ~~paid $69.3 million in~~did not pay dividends to the Corporation. As of ~~June 30, 2014~~March 31, 2015, the Bank had an additional $~~174.1~~356.5 million available to pay dividends without regulatory approval.

Operational Risk Management

Like all businesses, ~~we are~~the Corporation is subject to operational risks, including, but not limited to, risks of human error, internal processes and systems that turn out to be inadequate and external events. These events include, among other things, threats to ~~our~~the Corporation's cybersecurity, since ~~we rely~~it relys upon information systems and the ~~internet~~Internet to conduct ~~our~~its business activities. WeThe Corporation is also ~~are~~ exposed to the costs of complying with laws, regulations and prescribed practices, which are changing rapidly and in large volumes, especially as a result of the Dodd-Frank Act and the proposal and adoption of implementing rules. Noncompliance may increase ~~our~~ operating costs, result in monetary losses, adversely affect ~~our~~the Corporation's reputation and regulatory relations and ~~our~~ ability to implement ~~our~~its business plans and pursue expansion opportunities. ~~We seek~~

The Corporation also faces the risk of operational disruption, failure or capacity constraints due to its dependency on third party vendors for components of its business infrastructure. While the Corporation has selected these third party vendors carefully, it does not control their operations. As such, any failure on the part of these business partners to perform their various responsibilities could also adversely affect the Corporation's business and operations.

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The Corporation may be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control, which may include, for example, computer viruses, cyber attacks, spikes in transaction volume and/or customer activity, electrical or telecommunications outages, or natural disasters. Although the Corporation has programs in place related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity and availability of its systems, business applications and customer information, such disruptions may give rise to interruptions in service to customers and loss or liability to the Corporation.

The Corporation seeks to mitigate operational risk through identification and ~~management~~measurement of risk, alignment of business strategies within risk guidelines, and ~~the Corporations tolerance for risk as well as~~ through ~~our~~its system of internal controls and reporting. WeFurther, the Corporation regularly ~~evaluate~~evaluates and ~~seek~~seeks to strengthen ~~our~~its system of internal controls to improve ~~the~~its oversight of ~~our~~ operational risk and compliance with applicable laws, and regulations and prescribed standards.

Critical Accounting Policies

The Corporation’s consolidated financial statements are prepared in conformity with ~~accounting principles generally accepted in the United States of America~~GAAP and follow general practices within the financial services industry in which it operates. All accounting policies are important, and all policies described in Note 1.1 (Summary of Significant Accounting Policies) to the consolidated financial statements of the ~~2013~~2014 Form 10-K provide a greater understanding of how the Corporation’s financial performance is recorded and reported.

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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~~Critical accounting policies require ~~Management to exercise~~application of Management’s most difficult, subjective, or complex judgment and make certain assumptions and estimates about the effect of matters that ~~affect amounts reported~~are inherently uncertain or may change in ~~the financial statements. These assumptions and estimates are based on information available as of the date of the financial statements.~~future periods.

Management relies heavily on the use of judgment, assumptions and estimates to make a number of core decisions, including accounting for the ALL, 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 ~~2013~~2014 Form 10-K.

Off-Balance Sheet Arrangements

A detailed discussion of the Corporation’s off-balance sheet arrangements, including interest rate swaps, forward sale contracts and mortgage loan commitments is included in Note 98 (Derivatives and Hedging Activities) to the Corporation’s unaudited consolidated financial statements included in this ~~report~~Form 10-Q and in Note 1819 to the consolidated financial statements in the ~~2013~~2014 Form 10-K. There have been no significant changes since December 31, ~~2013~~2014.

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Forward-looking Safe-harbor Statement

~~Discussions~~Statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and elsewhere within this ~~report that~~Form 10-Q, which 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~~or factual in nature, constitute forward-looking statements. These forward-looking statements ~~that~~relate to, among other things, expectations for future shifts in loan portfolio to consumer and commercial loans, increase in core deposits base, allowance for loan losses, demands for the Corporation’s services and products, future services and products to be offered, increased numbers of customers, and like items, and involve a number of risks and uncertainties. ~~Any forward-looking statement is not a guarantee of future performance and~~The following factors are among the factors that could cause actual ~~future~~ results ~~could~~to differ materially from ~~those contained in~~the forward-looking ~~information. Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detailed from time to time~~statements: general economic conditions, including their impact on capital expenditures; business conditions in the ~~Corporation’s filings~~banking industry; the regulatory environment; rapidly changing technology and evolving banking industry standards; competitive factors, including increased competition with ~~the Securities~~regional and ~~Exchange Commission, including without limitation the risk factors disclosed in Item 1A, “Risk Factors,” of the~~ ~~2013~~ ~~Form 10-K.~~national financial institutions; new service and product offerings by competitors and price pressures; and like items.

Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic and competitive uncertainties and contingencies, many of which are beyond a company’s control, and many of 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; critical accounting estimates; 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~~Corporation’s periodic reports and registration statements filed with the SEC. Other factors are those

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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 SEC, the FASB, the OCC, the Federal Reserve System, FINRA, and other regulators; regulatory and judicial proceedings and changes in laws and regulations applicable to the Corporation including the costs of complying with any such laws and regulations; and the Corporation’s success in executing its business plans and strategies, including efforts to reduce operating expenses, 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 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~~"Market Risk Management" Section in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

During the quarter ended ~~June 30, 2014~~March 31, 2015, there was no change in internal control over financial reporting, ~~under the original Internal~~as described in "Internal Control-Integrated Framework, ~~issued~~" as updated by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART ~~II -~~II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS.

In the normal course of business, the Corporation is subject to pending and threatened legal actions, ~~including claims~~some for which material 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.

For additional information on litigation, see Note 1312 (~~Contingencies~~Commitments and Guarantees) in the notes to the consolidated financial ~~statements.~~statements in this Form 10-Q.


ITEM 1A.	RISK FACTORS.

There have been no material changes in our risk factors from those disclosed in the ~~2013~~2014 Form 10-K.

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

The following table provides information with respect to purchases the Corporation made of shares of its Common Stock during the ~~second~~first quarter of the ~~2014~~2015 fiscal year:

Calendar Month
Total Number of
Shares Purchased (1)

Average Price
Paid per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (2)

Maximum
Number of Shares
that May Yet Be
Purchased Under
Plans or Programs
(2)
April 1- April 30, 2014 164,751
$ 20.06
—
396,272
May 1- May 31, 2014 13,242
22.46
—
396,272
June 1- June 30, 2014 8,007
23.23
—
396,272
Total 186,000
$ —
—
396,272



Calendar Month	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs ⁽²⁾
January 1- January 31, 2015	3,428	$	20.73	—	396,272
February 1- February 28, 2015	4,521	18.68		—	396,272
March 1- March 31, 2015	58,303	19.59		—	396,272
Total	66,252	$	19.59	—	396,272

(1)

Reflects ~~186,000~~66,252 shares of Common Stock purchased as a result of either: (1) delivered by the option holder with respect to the exercise of stock options; (2) shares withheld to pay income taxes or other tax liabilities associated with vested restricted shares of Common Stock; or (3) shares returned upon the resignation of the restricted shareholder. No shares were purchased under the program referred to in note (2) to this table during the ~~second~~first quarter of ~~2014~~2015.


(2)	On January 19, 2006, the Board of Directors authorized the repurchase of up to 3 million shares of Common Stock (the “New Repurchase Plan”). The New Repurchase Plan, which has no expiration date, superseded all other repurchase programs, including that authorized by the Board of Directors on July 15, 2004.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.

None.


ITEM 4.	MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5. OTHER INFORMATION.

Not Applicable.

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ITEM 6.	EXHIBITS



Exhibit
Number		Description
3.2		Second Amended and Restated Code of Regulations of FirstMerit Corporation, as Amended, as of April 15, 2015.
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, Senior Executive Vice President and Chief Financial Officer of FirstMerit Corporation.
32.1		Rule 13a-14(b)/Section 906 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit Corporation.
32.2		Rule 13a-14(b)/Section 906 Certification of Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer of FirstMerit Corporation.
101.1		The following financial information from FirstMerit Corporation's Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2014~~March 31, 2015 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Comprehensive Income; (iii) the Consolidated Statements of Changes in Shareholders’ Equity; (iv) the Consolidated Statements of Cash Flows; and (iv) Notes to Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	FIRSTMERIT CORPORATION

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

~~August~~May 1, ~~2014~~2015

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FirstMerit Corporation

Form 10-Q

Index to Exhibits



Exhibit		Description
3.2		Second Amended and Restated Code of Regulations of FirstMerit Corporation, as Amended, as of April 15, 2015.
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, Senior Executive Vice President and Chief Financial Officer of FirstMerit Corporation.
32.1		Rule 13a-14(b)/Section 906 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit Corporation.
32.2		Rule 13a-14(b)/Section 906 Certification of Terrence E. Bichsel, Senior Executive Vice President and Chief Financial Officer of FirstMerit Corporation.
101.1		The following financial information from FirstMerit Corporation's Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2014~~March 31, 2015 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Comprehensive Income; (iii) the Consolidated Statements of Changes in Shareholders’ Equity; (iv) the Consolidated Statements of Cash Flows; and (iv) Notes to Consolidated Financial Statements.

~~136~~132



Purchase Price:
FirstMerit shares of Common Stock issued for Citizens' shares				55,468,283
Closing price per share of the Corporation's Common Stock on April 12, 2013				$	16.68
Consideration from Common Stock conversion (1.37 ratio)				925,211
Cash paid to the Treasury for Citizens' TARP Preferred				355,371
Cash paid in lieu of fractional shares to the former Citizens' shareholders				61
Consideration from the warrant issued to the Treasury for Citizens' TARP warrant				3,000
Total purchase price				$	1,283,643
Statement of Net Assets Acquired at Fair Value:
ASSETS
Cash and due from banks	$	544,380
Investment securities	3,202,575
Loans	4,617,004
Premises and equipment	138,536
Intangible assets	84,774		^(a)
Accrued interest receivable and other assets	681,100
Total assets	$	9,268,369
LIABILITIES
Deposits	$	7,276,754
Borrowings	908,824
Accrued taxes, expenses, and other liabilities	80,842
Total liabilities	$	8,266,420
Net identifiable assets acquired				1,001,949
Goodwill				$	281,694



(In thousands)	Acquired Impaired Loans		Acquired Nonimpaired Loans		Acquired Loans Total
Commercial
C&I	$	93,735	$	1,660,199	$	1,753,934
CRE	378,569		359,066		737,635
Construction	13,399		17,135		30,534
Total commercial	485,703		2,036,400		2,522,103
Consumer
Residential mortgages	232,291		278,404		510,695
Installment	54,108		1,165,235		1,219,343
Home equity lines	47,613		317,250		364,863
Total consumer	334,012		1,760,889		2,094,901
Total	$	819,715	$	3,797,289	$	4,617,004



(In thousands)	Acquired Nonimpaired Loans
Outstanding balance	$	4,017,304
Less: Fair value adjustment	220,015
Fair value of acquired nonimpaired loans	$	3,797,289



(In thousands)	Acquired Nonimpaired Loans
Contractually required payments including interest ^(a)	$	4,955,180
Less: Contractual cash flows not expected to be collected	680,664
Cash flows expected to be collected	$	4,274,516



Loan commitments
(In thousands)		June 30, 2014		December 31, 2013		June 30, 2013
	Commercial	$	3,386,052	$	3,367,625	$	3,020,138
	Consumer	2,280,431		2,179,010		2,096,495
	Total loan commitments	$	5,666,483	$	5,546,635	$	5,116,633



Calendar Month	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs (2)
April 1- April 30, 2014	164,751	$	20.06	—	396,272
May 1- May 31, 2014	13,242	22.46		—	396,272
June 1- June 30, 2014	8,007	23.23		—	396,272
Total	186,000	$	—	—	396,272