FirstMerit (FMER) 10-Q 2013 FY Quarterly report

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, 2013
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

(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 July 31, 2013
Common Stock, no par value	165,043,294

1

TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 4. CONTROLS AND PROCEDURES.
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 1A. RISK FACTORS
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4.MINE SAFETY DISCLOSURES
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBIT INDEX
SIGNATURES
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

2

PART 1. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)	June 30,			December 31,			June 30,
(Unaudited, except for December 31, 2012)	2013			2012			2012
ASSETS
Cash and due from banks	$	421,836		$	244,223		$	226,026
Interest-bearing deposits in banks	487,654			13,791			111,909
Total cash and cash equivalents	909,490			258,014			337,935
Investment securities:
Held-to-maturity	2,551,860			622,121			352,221
Available-for-sale	3,299,392			2,920,971			3,216,365
Other investments	267,565			140,717			140,742
Loans held for sale	22,855			23,683			19,018
Loans	14,151,953			9,750,784			9,371,816
Allowance for loan losses	(147,714		)	(142,197		)	(146,455		)
Net loans	14,004,239			9,608,587			9,225,361
Premises and equipment, net	317,107			181,149			184,851
Goodwill	734,382			460,044			460,044
Intangible assets	88,419			6,373			7,274
Covered other real estate	67,786			59,855			54,549
Accrued interest receivable and other assets	1,269,034			631,498			622,984
Total assets	$	23,532,129		$	14,913,012		$	14,621,344
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	5,277,647		$	3,338,371		$	3,227,819
Interest-bearing	2,504,368			1,287,674			1,080,790
Savings and money market accounts	8,520,806			5,758,123			5,728,598
Certificates and other time deposits	2,816,901			1,375,257			1,578,634
Total deposits	19,119,722			11,759,425			11,615,841
Federal funds purchased and securities sold under agreements to repurchase	844,871			1,104,525			896,910
Wholesale borrowings	201,337			136,883			178,135
Long-term debt	324,422			—			—
Accrued taxes, expenses and other liabilities	390,868			266,977			329,643
Total liabilities	20,881,220			13,267,810			13,020,529
Shareholders' equity:
5.875% Non-Cumulative Perpetual Preferred stock, Series A, without par value: authorized 115,000 shares; 100,000 issued	100,000			—			—
Common stock warrant	3,000			—			—
Common stock, without par value; authorized 300,000,000 shares; issued: June 30, 2013 - 170,179,911 shares, December 31, 2012 and June 30, 2012 - 115,121,731 shares	127,937			127,937			127,937
Capital surplus	1,386,063			475,979			472,138
Accumulated other comprehensive loss	(71,897		)	(16,205		)	(18,425		)
Retained earnings	1,235,530			1,195,850			1,157,422
Treasury stock, at cost: June 30, 2013 - 5,134,463 shares; December 31, 2012 - 5,472,915 shares; June 30, 2012 - 5,481,058 shares	(129,724		)	(138,359		)	(138,257		)
Total shareholders' equity	2,650,909			1,645,202			1,600,815
Total liabilities and shareholders' equity	$	23,532,129		$	14,913,012		$	14,621,344

The accompanying notes are an integral part of the consolidated financial statements.

3

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands except for per share data)	Three months ended June 30,						Six months ended June 30,
(Unaudited)	2013			2012			2013			2012
Interest income:
Loans and loans held for sale	$	178,535		$	103,126		$	277,206		$	206,208
Investment securities:
Taxable	29,138			21,783			48,377			44,201
Tax-exempt	6,098			3,846			10,143			7,426
Total investment securities interest	35,236			25,629			58,520			51,627
Total interest income	213,771			128,755			335,726			257,835
Interest expense:
Deposits:
Interest bearing	656			236			974			483
Savings and money market accounts	6,469			5,033			11,784			10,136
Certificates and other time deposits	3,374			3,169			5,437			6,693
Securities sold under agreements to repurchase	329			276			642			544
Wholesale borrowings	1,169			1,118			2,019			2,269
Long-term debt	3,743			—			5,491			—
Total interest expense	15,740			9,832			26,347			20,125
Net interest income	198,031			118,923			309,379			237,710
Provision for originated loan losses	3,151			8,766			8,959			16,895
Provision for covered loan losses	4,158			3,430			8,297			9,362
Net interest income after provision for loan losses	190,722			106,727			292,123			211,453
Other income:
Trust department income	9,167			5,730			14,907			11,357
Service charges on deposits	20,582			14,478			33,168			28,887
Credit card fees	14,317			11,216			24,540			21,396
ATM and other service fees	4,945			3,890			8,280			7,680
Bank owned life insurance income	3,641			2,923			8,538			5,979
Investment services and insurance	3,429			2,388			5,844			4,635
Investment securities (losses) gains, net	(2,794		)	548			(2,803		)	808
Loan sales and servicing income	7,985			5,139			15,848			11,830
Other operating income	8,167			8,989			18,510			14,455
Total other income	69,439			55,301			126,832			107,027
Other expenses:
Salaries, wages, pension and employee benefits	105,099			61,598			163,005			125,571
Net occupancy expense	13,346			7,971			21,628			16,563
Equipment expense	10,309			7,598			17,659			14,702
Stationery, supplies and postage	3,407			2,285			5,503			4,428
Bankcard, loan processing and other costs	12,417			8,858			20,257			16,511
Professional services	17,144			9,307			22,554			12,659
Amortization of intangibles	2,411			483			2,728			966
FDIC insurance expense	4,149			3,463			7,675			7,183
Other operating expense	21,358			17,514			35,556			34,262
Total other expenses	189,640			119,077			296,565			232,845
Net income before income tax expense	70,521			42,951			122,390			85,635
Income tax expense	22,071			12,366			36,594			24,706
Net income	48,450			30,585			85,796			60,929
Other comprehensive income (loss), net of taxes:
Changes in unrealized securities' holding gains and (losses), net of taxes of ($26.7) million and $2.2 million for the quarter ended and ($31.0) million and $3.2 million for the six months ended, respectively	(49,593		)	4,103			(57,513		)	5,987
Reclassification for realized securities' (gains) and losses, net of taxes of ($0.98) million and $0.19 million for the quarter ended and ($0.98)million and $0.28 million for the six months ended, respectively	1,816			(356		)	1,822			(525		)
Total other comprehensive gain (loss), net of taxes	(47,777		)	3,747			(55,691		)	5,462
Comprehensive income	$	673		$	34,332		$	30,105		$	66,391
Net income attributable to common shareholders	$	46,597		$	30,472		$	82,584		$	60,786
Net income used in diluted EPS calculation	$	46,597		$	30,472		$	82,584		$	60,786
Weighted average number of common shares outstanding - basic	157,863			109,562			133,909			109,386
Weighted average number of common shares outstanding - diluted	157,982			109,562			133,969			109,386
Basic earnings per common share	$	0.30		$	0.28		$	0.62		$	0.56
Diluted earnings per common share	$	0.29		$	0.28		$	0.62		$	0.56
Dividend per common share	$	0.16		$	0.16		$	0.32		$	0.32

The accompanying notes are an integral part of the consolidated financial statements.

4

FIRSTMERIT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars 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, 2011	$	—	$	127,937	$	—	$	479,882		$	(23,887	)	$	1,131,203		$	(149,182	)	$	1,565,953
Net income	—		—				—			—			60,929			—			60,929
Other comprehensive income	—		—		—		—			5,462			—			—			5,462
Comprehensive income	—		—		—		—			5,462			60,929			—			66,391
Cash dividends - common stock ($0.32 per share)	—		—		—		—			—			(34,710		)	—			(34,710		)
Nonvested (restricted) shares granted (570,423 shares)	—		—		—		(14,079		)	—			—			14,079			—
Restricted stock activity (180,558 shares)	—		—		—		966			—			—			(3,244		)	(2,278		)
Deferred compensation trust (62,252 increase in shares)	—		—		—		(90		)	—			—			90			—
Share-based compensation	—		—		—		5,410			—			—			—			5,410
Other	—		—		—		49			—			—			—			49
Balance at June 30, 2012	$	—	$	127,937	$	—	$	472,138		$	(18,425	)	$	1,157,422		$	(138,257	)	$	1,600,815
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	—		—		—		—			(55,692		)	—			—			(55,692		)
Comprehensive income	—		—		—		—			(55,692		)	85,796			—			30,104
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 as of June 30, 2013	$	100,000	$	127,937	$	3,000	$	1,386,063		$	(71,897	)	$	1,235,530		$	(129,724	)	$	2,650,909

The accompanying notes are an integral part of the consolidated financial statements.

5

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Six months ended June 30,
(In thousands)	2013			2012
(Unaudited)
Operating Activities
Net income	$	85,796		$	60,929
Adjustments to reconcile net income to net cash provided and used by operating activities:
Provision for loan losses	17,256			26,257
Provision (benefit) for deferred income taxes	(25,502		)	1,671
Depreciation and amortization	14,029			11,532
Benefit attributable to FDIC loss share	7,858			11,117
Accretion of acquired loans	(108,676		)	(42,211		)
Accretion of income for lease financing	(1,808		)	(1,409		)
Amortization and accretion of investment securities, net
Available for sale	12,276			7,708
Held to maturity	3,223			124
Losses/(gains) on sales and calls of available-for-sale investment securities, net	2,803			(808		)
Originations of loans held for sale	(309,247		)	(399,140		)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary markets	316,750			414,385
Gains on sales of loans, net	(6,675		)	(4,186		)
Amortization of intangible assets	2,728			966
Recognition of stock compensation expense	6,216			5,410
Net decrease/(increase) in other assets	177,923			12,802
Net (decrease)/increase in other liabilities	(81,253		)	(35,996		)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES	113,697			69,151
Investing Activities
Proceeds from sale of investment securities
Available for sale	2,179,728			161,078
Held to maturity	897			—
Proceeds from prepayments, calls, and maturities of investment securities
Available for sale	427,115			406,055
Held to maturity	73,810			22,140
Purchases of investment securities
Available for sale	(711,170		)	(660,967		)
Held to maturity	(1,263,297		)	(66,120		)
Other	(280		)	(42		)
Net increase in loans and leases, excluding loans acquired	301,319			(119,807		)
Purchases of premises and equipment	(11,402		)	(3,434		)
Sales of premises and equipment	181			—
Cash received for acquisition, net of cash paid	189,009			—
NET CASH USED BY INVESTING ACTIVITIES	1,185,910			(261,097		)
Financing Activities
Net increase in demand accounts	131,262			215,488
Net increase in savings and money market accounts	110,152			133,189
Net increase (decrease) in certificates and other time deposits	(157,872		)	(164,445		)
Net (decrease) increase in securities sold under agreements to repurchase	(374,659		)	30,645
Proceeds from issuance of subordinated debt	249,924			—
Net increase (decrease) in wholesale borrowings	(654,866		)	(25,327		)
Net proceeds from issuance of preferred stock	96,550			—
Cash dividends - common	(43,717		)	(34,710		)
Cash dividends - preferred	(2,399		)	—
Restricted stock activity	(2,506		)	(2,278		)
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES	(648,131		)	152,562
Increase (decrease) in cash and cash equivalents	651,476			(39,384		)
Cash and cash equivalents at beginning of year	258,014			377,319
Cash and cash equivalents at end of year	$	909,490		$	337,935
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Non-cash transaction: Common stock issued in merger with Citizens	$	925,272		$	—
Non-cash transaction: Consideration from the warrant issued to the Treasury for Citizens TARP	3,000
Cash paid during the year for:
Interest, net of amounts capitalized	$	16,215		$	17,442
Federal income taxes	$	27,662		$	26,939

The accompanying notes are an integral part of the consolidated financial statements.

6

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Dollars in thousands)

FirstMerit Corporation and subsidiaries is a diversified financial services company headquartered in Akron, Ohio with 416 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

Basis of Presentation - FirstMerit Corporation (the “Parent Company”) is a bank holding company whose principal asset is the common stock of its wholly-owned subsidiary, FirstMerit Bank, N. A. (the “Bank”). The Parent Company’s other subsidiaries include Citizens Savings Corporation of Stark County, FirstMerit Capital Trust I, FirstMerit Community Development Corporation, FirstMerit Risk Management, Inc., FMT, Inc., Citizens Funding Trust I and Citizens Michigan Statutory Trust I. All significant intercompany balances and transactions have been eliminated in consolidation.

The accounting and reporting policies of FirstMerit Corporation and its subsidiaries (the “Corporation”) conform to U.S. generally accepted accounting principles (“U.S. GAAP”) and to general practices within the financial services industry.

The consolidated balance sheet at December 31, 2012 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 FirstMerit Corporation’s Management (“Management”), necessary for a fair statement of the results for the interim periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules of the Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements of the Corporation as of June 30, 2013 and 2012 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, 2012 (the “2012 Form 10-K”). 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.

As discussed in Note 2 (Business Combinations), on April 12, 2013 (the "Acquisition Date"), the Corporation completed the merger with Citizens Republic Bancorp, Inc. ("Citizens"), a Michigan corporation.

As part of the merger with Citizens, the Corporation now has two active wholly owned trusts that were formed for the purpose of issuing securities and qualify as regulatory capital. Accordingly, the Corporation made a determination as to whether it should consolidate other entities or account for them on the equity method of accounting depending on whether it has a controlling financial interest in an entity of less than 100% of the voting interest of that entity to determine if it is a variable interest entity (“VIE”). A VIE is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. An entity that holds a variable interest in a VIE is required to consolidate the VIE if the entity is subject to a majority of the risk of loss from the VIE's activities, is entitled to receive a majority of the entity's residual returns or both. VIE treatment is considered for entities in which the total equity

7

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make financial and operating decisions.

The two active wholly owned trusts acquired from the merger with Citizens are considered VIEs primarily due to the fact that the Corporation is not the primary beneficiary, and consequently, the trusts are not consolidated in the consolidated financial statements. Each of the two active trusts issued separate offerings of trust preferred securities to investors in 2006 and 2003, with respect to which there remain $48.7 million and $25.8 million in aggregate liquidation amount outstanding, respectively, as of June 30, 2013. The gross proceeds from the issuances were used to purchase junior subordinated deferrable interest debentures issued by Citizens, now assumed by the Corporation. These junior subordinated deferrable interest debentures are the sole asset of each trust. The trust preferred securities held by these entities qualify as Tier 1 capital and are classified as “long-term debt” on the Consolidated Balance Sheets, with the associated interest expense recorded in “long-term debt” on the Consolidated Statements of Comprehensive Income. The expected losses and residual returns of these entities are absorbed by the trust preferred stock holders, and consequently the Corporation is not exposed to loss related to these VIEs.

There have been no other significant changes to the Corporation’s accounting policies as disclosed in the 2012 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 and Issued Accounting Standards

FASB ASU 2013-11, Preparation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This accounting standard update is expected to reduce diversity in practice by providing guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, or similar tax loss, or a tax credit carryforward, with certain exceptions related to availability. The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, and should be applied prospectively to all unrecognized tax benefits that exist at the effective date. The Corporation does not expect this accounting update to have a material impact on its consolidated financial statements.

FASB ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 amends the guidance on ASC 220-10, by requiring an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. The objective of the update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after December 15, 2012. The Corporation has incorporated this new disclosure information into Note 14 (Changes and Reclassifications Out of Accumulated Other Comprehensive Income).

8

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

FASB ASU 2012-06, Business Combinations: Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a consensus of the FASB Emerging Issues Task Force). ASU 2012-06 amends the guidance in ASU 805-20 on the recognition of an indemnification asset as a result of a government-assisted acquisition of a financial institution when a subsequent change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification). A subsequent change in the measurement of the indemnification asset is to be accounted for on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value are limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). The amendments in ASU 2012-06 are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. The Corporation currently applies the accounting as described within ASU 2012-06; therefore, ASU 2012-06 will not have an impact on its consolidated financial statements.

FASB ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 amends the guidance in ASC 210, Balance Sheet, to require an entity to disclose information about offsetting and related arrangements to enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, with retrospective application to the disclosures of all comparative periods presented. ASU 2011-11 did not have a significant impact on the corporations derivatives, repurchase agreements and securities lending and borrowing transactions on the consolidated financial statements. The newly required disclosures are incorporated into Note 9 (Derivatives and Hedging Activities).

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. This acquisition creates a contiguous Midwest banking franchise by expanding the Corporation's foot print into Michigan and Wisconsin and creates opportunities for the Corporation to better serve its clients and grow shareholder value. The results of operations acquired in the Citizens transaction have been included in the Corporation's financial results since April 13, 2013. All of Citizens common stock was converted into the right to receive 1.37 shares of the Corporation's common stock. The conversion of Citizens' common stock into the Corporation's common stock resulted 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 $300.0 million of Citizens TARP preferred stock 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 million5.875% 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.

The Citizens transaction was accounted for using the purchase 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

9

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

values are preliminary and 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.

Preliminary goodwill of $274.3 million is calculated as the purchase premium after adjusting for the fair value of net assets acquired and represents the value expected from the synergies created from combining the businesses as well as the economies of scale expected from combining the operations of the two companies. As of June 30, 2013, the preliminary goodwill remains unallocated to the Corporation’s reporting units due to the short time between the Acquisition Date and the end of the second quarter of 2013. 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 deferred tax assets (“DTA”) of $312.9 million and deferred tax liabilities (“DTL”) of $51.3 million for a net DTA carryover of $261.6 million. This net DTA includes $224.7 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 will also be subject to regulatory capital adjustments until fully utilized. An additional net DTA of $83.2 million was established on the Acquisition Date as a result of the purchase accounting fair market value adjustments resulting in a total net DTA on the Acquisition Date of $344.8 million.

10

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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 provisional based on third-party valuations that are currently under review and are subject to refinement for up to one year after the Acquisition Date based on additional information obtained by Management that existed as of the Acquisition Date.

Purchase Price (in thousands, except share data):
FirstMerit common stock shares 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
Preliminary Statement of Net Assets Acquired at Fair Value:
ASSETS
Cash and due from banks	$	544,380
Investment Securities	3,202,577
Loans	4,624,292
Premises and equipment	138,766
Intangible assets	84,774		1
Accrued interest receivable and other assets	678,910
Total assets	$	9,273,699
LIABILITIES
Deposits	$	7,276,754
Borrowings	908,824
Accrued taxes, expenses, and other liabilities	78,816
Total liabilities	$	8,264,394
Net identifiable assets acquired				1,009,305
Goodwill				$	274,338

1 - Intangible assets consist of core deposit intangibles of $70.8 million and trust relationships of approximately $14.0 million. The useful life for which the core deposit intangible and the trust relationships are being amortized over is 15 and 12 years, respectively.

The operating results of the Corporation for the quarter ended June 30, 2013 include the operating results of the acquired assets and assumed liabilities for the 79 days subsequent to the Acquisition Date. The operations of the Wisconsin and Michigan geographic area, which primarily includes the acquired operations of Citizens, provided approximately $80.3 million in interest income, and approximately $20.8 million in net income for the period from the Acquisition Date to June 30, 2013. These amounts are included in the Corporation's consolidated financial statements as of and for the three and six month periods ending June 30, 2013. Citizens' results of operations prior to the Acquisition Date are not included in the Corporation's consolidated statements of comprehensive income.

Merger related charges of $29.3 million and $32.9 million were recorded in the consolidated statement of comprehensive income for the three and six months ended June 30, 2013, respectively, and include incremental costs to integrate the operations of the Corporation and Citizens. Such expenses were for professional services, costs related to termination of existing contractual arrangements for various services, marketing and promotion expenses, retention and severance and incentive compensation costs, travel costs, and printing, supplies and other costs. All Citizens' systems are expected to be converted to the Corporation's by the

11

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

end of 2013. The related fees associated with the conversion of these systems and integration of operations will be incurred over the remainder of 2013.

The following table provides the unaudited pro forma information for the results of operations for the three and six months ended June 30, 2013 and 2012, as if the acquisition had occurred January 1 of each year. 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, the $32.9 million in merger expenses previously discussed are included in each year. The Corporation expects to achieve further operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts. 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.

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Total revenue, net of interest expense	$	335,796	$	325,041	$	643,052	$	640,615
Net income	73,972		367,035		153,487		450,094

Note: 2012 net income includes approximately $276.8 million of tax benefits as a result of Citizens restoration of its deferred tax asset.

In many cases, determining the fair value of the acquired assets and assumed liabilities required the Corporation to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations relates to the valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments. In accordance with U.S. GAAP, there was no carry-over of Citizens previously established allowance for loan losses.

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 non-impaired). In addition, the loans are further categorized into different loan pools per loan types.

12

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

The provisional fair value of loans at the Acquisition Date are presented in the following table:

	Acquired Impaired		Acquired Non-impaired		Acquired Loans Total
Commercial
C&I	$	62,018	$	1,698,758	$	1,760,776
CRE	377,967		359,080		737,047
Construction	13,399		18,519		31,918
Total commercial	453,384		2,076,357		2,529,741
Consumer
Residential mortgages	233,005		279,735		512,740
Installment	54,377		1,165,235		1,219,612
Home equity lines	32,035		330,164		362,199
Total consumer	319,417		1,775,134		2,094,551
Total	$	772,801	$	3,851,491	$	4,624,292

The following table presents the acquired impaired and non-impaired loans receivable at the Acquisition Date:

	Accretable Yield as of April 12, 2013
	Acquired Impaired			Acquired Non-impaired			Acquired Loans Total
Contractual required payments receivable	$	1,023,481		$	4,078,355		$	5,101,836
Nonaccretable difference	(121,719		)	—			(121,719		)
Expected cash flows	901,762			4,078,355			4,980,117
Accretable yield	(128,961		)	(226,864		)	(355,825		)
Carrying balance	$	772,801		$	3,851,491		$	4,624,292

The fair value of the acquired non-impaired loans at the Acquisition Date, was $3.9 billion. The gross contractually required principal and interest payments receivable for acquired non-impaired loans was $4.1 billion. The estimate of contractual cash flows not expected to be collected is $121.7 million.

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 mortgage backed securities ("MBS"), agency collateralized mortgage obligations ("CMO"), municipal securities and private label MBS investments subsequent to the close of the acquisition. Throughout the remainder of 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' Federal Home Loan Bank ("FHLB") advances with a fair value of $719.3 million. On April 15, 2013, in conjunction with Management's strategy to de-leverage the newly acquired Citizens' balance sheet, the Corporation terminated all but two assumed FHLB advances resulting in cash outlay of approximately $591.9 million in principal and approximately $60.6 million in prepayment penalty. The two retained FHLB advances total $60.0 million and approximately $5.6 million in prepayment penalty as of June 30, 2013 and have fixed rates of 3.29% and 3.39% 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.

13

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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 Citizens and is junior in right of payment to all future senior indebtedness of Citizens. Citizens 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, a final rule on Basel III, which becomes effective in January 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 New York Stock Exchange (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 these long-term repurchase agreements were terminated.

14

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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 basis as a component of other comprehensive income in shareholders' equity.

		June 30, 2013
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	272,254	$	9,207	$	(3,527	)	$	277,934
	Residential mortgage-backed securities:
	U.S. government agencies	1,058,323		27,797		(10,192		)	1,075,928
	Commercial mortgage-backed securities:
	U.S. government agencies	58,609		29		(2,141		)	56,497
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,586,576		7,272		(27,120		)	1,566,728
	Non-agency	10		—		—			10
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	108,000		533		(1,965		)	106,568
	Asset-backed securities:
	Collateralized loan obligations	159,916		—		(1,821		)	158,095
	Corporate debt securities	61,569		—		(10,431		)	51,138
	Total debt securities	3,305,257		44,838		(57,197		)	3,292,898
Equity Securities
	Marketable equity securities	3,213		—		—			3,213
	Non-marketable equity securities	3,281		—		—			3,281
	Total equity securities	6,494		—		—			6,494
	Total securities available for sale	$	3,311,751	$	44,838	$	(57,197	)	$	3,299,392
Securities held-to-maturity
Debt securities
	U.S. treasuries	$	4,999	$	—	$	—		$	4,999
	U.S. government agency debentures	25,000		—		(1,193		)	23,807
	U.S. states and political subdivisions	436,860		3,878		(9,041		)	431,697
	Residential mortgage-backed securities:
	U.S. government agencies	253,839		—		(8,051		)	245,788
	Commercial mortgage-backed securities:
	U.S. government agencies	50,352		—		(619		)	49,733
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,510,374		67		(41,674		)	1,468,767
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	175,384		—		(7,285		)	168,099
	Corporate debt securities	95,052		132		(1,003		)	94,181
	Total securities held to maturity	$	2,551,860	$	4,077	$	(68,866	)	$	2,487,071

15

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

		December 31, 2012
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	253,198	$	15,235	$	(229	)	$	268,204
	Residential mortgage-backed securities:
	U.S. government agencies	1,058,005		49,058		—			1,107,063
	Commercial mortgage-backed securities:
	U.S. government agencies	52,014		428		(406		)	52,036
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,311,501		18,180		(260		)	1,329,421
	Non-agency	11		—		—			11
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	109,260		2,221		(138		)	111,343
	Corporate debt securities	61,541		—		(11,889		)	49,652
	Total debt securities	2,845,530		85,122		(12,922		)	2,917,730
	Marketable equity securities	3,241		—		—			3,241
	Total securities available for sale	$	2,848,771	$	85,122	$	(12,922	)	$	2,920,971
Securities held-to-maturity
Debt securities
	U.S. states and political subdivisions	$	270,005	$	5,126	$	(70	)	$	275,061
	Commercial mortgage-backed securities:
	U.S. government agencies	33,165		812		—			33,977
	Residential collateralized mortgage-backed securities:								—
	U.S. government agencies	123,563		533		(16		)	124,080
	Commercial collateralized mortgage-backed securities:								—
	U.S. government agencies	98,924		772		—			99,696
	Corporate debt securities	96,464		1,521		—			97,985
	Total securities held to maturity	$	622,121	$	8,764	$	(86	)	$	630,799

16

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

		June 30, 2012
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. government agency debentures	$	35,224	$	73	$	—		$	35,297
	U.S. states and political subdivisions	249,410		15,914		(200		)	265,124
	Residential mortgage-backed securities:
	U.S. government agencies	1,326,601		56,212		—			1,382,813
	Commercial mortgage-backed securities:
	U.S. government agencies	37,868		580		(20		)	38,428
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,258,742		18,962		(326		)	1,277,378
	Non-agency	13		—		—			13
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	66,806		1,739		—			68,545
	Corporate debt securities	157,434		1,555		(13,562		)	145,427
	Total debt securities	3,132,098		95,035		(14,108		)	3,213,025
	Marketable equity securities	3,340		—		—			3,340
	Total securities available for sale	$	3,135,438	$	95,035	$	(14,108	)	$	3,216,365
Securities held-to-maturity
Debt securities
	U.S. states and political subdivisions	$	253,161	$	3,033	$	(119	)	$	256,075
	Commercial mortgage-backed securities:
	U.S. government agencies	5,113		—		(29		)	5,084
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	93,947		61		(47		)	93,961
	Total securities held to maturity	$	352,221	$	3,094	$	(195	)	$	355,120

Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) stock constitute the majority of other investments on the consolidated balance sheets.

	June 30, 2013		December 31, 2012		June 30, 2012
FRB stock	$	52,477	$	21,045	$	21,045
FHLB stock	214,586		119,145		119,145
Other	502		527		552
Total other investments	$	267,565	$	140,717	$	140,742

FRB and FHLB stock are 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 $2.7 billion, $1.6 billion and $1.9 billion at June 30, 2013, December 31, 2012 and June 30, 2012, 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.

17

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

Realized Gains and Losses

The following table presents the proceeds from sales of available-for-sale securities and 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,
	2013			2012		2013			2012
Proceeds	$	2,154,949		$	66,213	$	2,180,624		$	161,077
Realized gains	$	3,786		$	548	$	3,786		$	808
Realized losses	(6,580		)	—		(6,589		)	—
Net securities (losses)/gains	$	(2,794	)	$	548	$	(2,803	)	$	808

Gross Unrealized Losses and Fair Value

The following table presents the gross unrealized losses and fair value of securities in the securities available-for-sale portfolio by length of time that individual securities in each category had been in a continuous loss position.

		June 30, 2013
		Less than 12 months						12 months or longer						Total
		Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	61,933	$	(3,527	)	106	$	—	$	—		—	$	61,933	$	(3,527	)
	Residential mortgage-backed securities:
	U.S. government agencies	331,857		(10,191		)	23	—		—			—	331,857		(10,191		)
	Commercial mortgage-backed securities:
	U.S. government agencies	51,378		(2,141		)	7	—		—			—	51,378		(2,141		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,070,624		(27,120		)	64	—		—			—	1,070,624		(27,120		)
	Commercial collateralized mortgage-backed securities:
	U.S. Government agencies	42,537		(1,965		)	6	—		—			—	42,537		(1,965		)
	Collateralized loan obligations:
	Non-agency	74,779		(1,822		)	14	—		—			—	74,779		(1,822		)
	Corporate debt securities	—		—			—	51,138		(10,431		)	8	51,138		(10,431		)
	Total available-for-sale securities	$	1,633,108	$	(46,766	)	220	$	51,138	$	(10,431	)	8	$	1,684,246	$	(57,197	)
Securities held-to-maturity
Debt securities
	U.S. government agency debentures	$	23,807	$	(1,193	)	1	$	—	$	—		—	$	23,807	$	(1,193	)
	U.S. states and political subdivisions	228,098		(9,041		)	362	—		—			—	228,098		(9,041		)
	Residential mortgage-backed securities:
	U.S. government agencies	225,681		(8,051		)	11	—		—			—	225,681		(8,051		)
	Commercial mortgage-backed securities:
	U.S. government agencies	39,697		(619		)	7	—		—			—	39,697		(619		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,451,813		(41,674		)	65	—		—			—	1,451,813		(41,674		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	150,223		(7,285		)	14	—		—			—	150,223		(7,285		)
	Corporate debt securities	72,017		(1,003		)	25	—		—			—	72,017		(1,003		)
	Total held-to-maturity securities	$	2,191,336	$	(68,866	)	485	$	—	$	—		—	$	2,191,336	$	(68,866	)

18

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

		December 31, 2012
		Less than 12 months						12 months or longer						Total
		Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	14,110	$	(229	)	24	$	—	$	—		—	$	14,110	$	(229	)
	Residential mortgage-backed securities:
	U.S. government agencies	14		—			1	13		—			1	27		—
	Commercial mortgage-backed securities:
	U.S. government agencies	31,237		(406		)	3	—		—			—	31,237		(406		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	133,008		(258		)	9	389		(2		)	1	133,397		(260		)
	Non-agency	—		—			—	2		—			1	2		—
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	35,316		(138		)	4	—		—			—	35,316		(138		)
	Corporate debt securities	—		—			—	49,652		(11,889		)	8	49,652		(11,889		)
	Total available-for-sale securities	$	213,685	$	(1,031	)	41	$	50,056	$	(11,891	)	11	$	263,741	$	(12,922	)
Securities held-to-maturity
Debt securities
	U.S. states and political subdivisions	$	6,543	$	(70	)	12	$	—	$	—		—	$	6,543	$	(70	)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	17,413		(16		)	1	—		—			—	17,413		(16		)
	Total held-to-maturity securities	$	23,956	$	(86	)	13	$	—	$	—		—	$	23,956	$	(86	)

		June 30, 2012
		Less than 12 months						12 months or longer						Total
		Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses			Number Impaired Securities	Fair Value		Unrealized Losses
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	15,742	$	(200	)	28	$	—	$	—		—	$	15,742	$	(200	)
	Residential mortgage-backed securities:
	U.S. government agencies	30		—			2	—		—			—	30		—
	Commercial mortgage-backed securities:
	U.S. government agencies	5,137		(20		)	1	—		—			—	5,137		(20		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	88,482		(326		)	9	—		—			—	88,482		(326		)
	Non-agency	—		—			—	2		—			1	2		—
	Corporate debt securities	21,359		(133		)	6	48,085		(13,429		)	8	69,444		(13,562		)
	Total available-for-sale securities	$	130,750	$	(679	)	46	$	48,087	$	(13,429	)	9	$	178,837	$	(14,108	)
Securities held-to-maturity
Debt securities
	U.S. states and political subdivisions	$	53,450	$	(119	)	74	$	—	$	—		—	$	53,450	$	(119	)
	Commercial mortgage-backed securities:													—		—
	U.S. government agencies	5,084		(29		)	1	—		—			—	5,084		(29		)
	Commercial collateralized mortgage-backed securities:													—		—
	U.S. government agencies	41,494		(47		)	4	—		—			—	41,494		(47		)
	Total held-to-maturity securities	$	100,028	$	(195	)	79	$	—	$	—		—	$	100,028	$	(195	)

19

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

At least quarterly, the Corporation conducts a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if other-than-temporary impairment ("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 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 other comprehensive income. 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 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 other comprehensive income, net of tax.

Management does not believe that the investment securities that were in an unrealized loss position as of June 30, 2013 represent an other-than-temporary impairment. Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. The Corporation does not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that the Corporation will be required to sell the investment securities before recovery of their amortized cost bases, which may be at maturity.

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, 2013. Estimated lives on mortgage-backed securities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

20

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(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
Securities Available for Sale
Remaining maturity:
One year or less	$	—		$	—		$	16,178		$	3,011		$	17,460		$	13,062		$	—		$	—		$	7,538		$	—		$	57,249		4.06	%
Over one year through five years	—			—			50,151			747,924			—			1,198,392			10			78,705			11,568			—			2,086,750			2.32	%
Over five years through ten years	—			—			175,056			324,993			39,037			355,274			—			27,863			138,989			—			1,061,212			2.44	%
Over ten years	—			—			36,549			—			—			—			—			—			—			51,138			87,687			2.17	%
Fair Value	$	—		$	—		$	277,934		$	1,075,928		$	56,497		$	1,566,728		$	10		$	106,568		$	158,095		$	51,138		$	3,292,898		2.38	%
Amortized Cost	$	—		$	—		$	272,254		$	1,058,323		$	58,609		$	1,586,576		$	10		$	108,000		$	159,916		$	61,569		$	3,305,257
Weighted-Average Yield							4.95		%	2.74		%	2.11		%	1.81		%	3.84		%	1.81		%	2.33		%	0.99		%	2.38		%
Weighted-Average Maturity							7.19			4.12			4.42			4.22			1.52			4.51			6.44			14.31			4.74
Securities Held to Maturity
Remaining maturity:
One year or less	$	—		$	—		$	51,941		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	51,941		3.50	%
Over one year through five years	—			4,999			42,404			88,609			5,054			1,041,822			—			61,831			—			65,397			1,310,116			1.56	%
Over five years through ten years	23,807			—			144,676			157,179			44,679			426,945			—			106,268			—			28,784			932,338			0.20	%
Over ten years	—			—			192,676			—			—			—			—			—			—			—			192,676			3.47	%
Fair Value	$	23,807		$	4,999		$	431,697		$	245,788		$	49,733		$	1,468,767		$	—		$	168,099		$	—		$	94,181		$	2,487,071		1.91	%
Amortized Cost	$	25,000		$	4,999		$	436,860		$	253,839		$	50,352		$	1,510,374		$	—		$	175,384		$	—		$	95,052		$	2,551,860
Weighted-Average Yield	1.43		%	0.62		%	3.29		%	1.41		%	1.47		%	1.51		%				2.95		%				2.22		%	1.91		%
Weighted-Average Maturity	6.33			1.58			11.60			4.96			5.97			4.70						6.29						4.54			5.73

21

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

4.     Loans

    Loans outstanding as of June 30, 2013, December 31, 2012 and June 30, 2012, net of unearned income, consisted of the following:

		June 30, 2013			December 31, 2012			June 30, 2012
Originated loans (a):
Commercial		$	5,997,812		$	5,866,489		$	5,404,971
Residential mortgage		462,427			445,211			438,147
Installment		1,496,663			1,328,258			1,262,877
Home equity		845,051			806,078			766,840
Credit cards		142,319			146,387			142,586
Leases		188,353			139,236			84,507
	Total originated loans (a)	9,132,625			8,731,659			8,099,928
Allowance for originated loan losses		(98,645		)	(98,942		)	(103,849		)
	Net originated loans	$	9,033,980		$	8,632,717		$	7,996,079
Acquired loans:
Commercial		$	2,275,243		$	—		$	—
Residential mortgage		440,394			—			—
Installment		1,221,060			—			—
Home equity		322,195			—			—
	Total acquired loans	4,258,892			—			—
Allowance for acquired loan losses		—			—			—
	Net acquired loans	$	4,258,892		$	—		$	—
Covered loans:
Commercial		505,706			718,437			915,038
Residential mortgage		56,056			61,540			65,772
Installment		7,794			8,189			8,835
Home equity		106,970			117,225			129,628
Indemnification asset		83,910			113,734			152,615
	Total covered loans	760,436			1,019,125			1,271,888
Allowance for covered loan losses		(49,069		)	(43,255		)	(42,606		)
	Net covered loans	$	711,367		$	975,870		$	1,229,282
Total loans:
Commercial		$	8,778,761		$	6,584,926		$	6,320,009
Residential mortgage		958,877			506,751			503,919
Installment		2,725,517			1,336,447			1,271,712
Home equity		1,274,216			923,303			896,468
Credit cards		142,319			146,387			142,586
Leases		188,353			139,236			84,507
Indemnification asset		83,910			113,734			152,615
	Total loans	14,151,953			9,750,784			9,371,816
Total allowance for loan losses		(147,714		)	(142,197		)	(146,455		)
	Total Net loans	$	14,004,239		$	9,608,587		$	9,225,361

(a) Includes acquired FirstBank loans of $52.9 million, $54.2 million, $67.9 million as of June 30, 2013, December 31, 2012 and June 30, 2012, respectively.

22

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

The following describes the distinction between originated, acquired and covered 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, the allowance for loan losses, 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 $6.7 million, $6.5 million and $6.6 million at June 30, 2013, December 31, 2012 and June 30, 2012, respectively.

Acquired Loans

Acquired loans are those purchased in the Citizens acquisition (See Note 2 (Business Combinations) for further information). These loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related allowance for loan losses. The acquired loans were segregated between those considered to be performing (“non-impaired acquired loans”) and those with evidence of credit deterioration (“acquired impaired loans”). Acquired loans are considered impaired if there is evidence of credit deterioration at origination 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. The outstanding balance, including contractual principal, interest, fees and penalties, of all acquired loans was $4.3 billion as of June 30, 2013.

The following table presents the provisional fair value of loans acquired from Citizens as of the Acquisition Date:

	Acquired Impaired		Acquired Non-Impaired		Acquired Loans Total
Commercial
C&I	$	62,018	$	1,698,758	$	1,760,776
CRE	377,967		359,080		737,047
Construction	13,399		18,519		31,918
Total commercial	453,384		2,076,357		2,529,741
Consumer
Residential mortgages	233,005		279,735		512,740
Installment	54,377		1,165,235		1,219,612
Home equity lines	32,035		330,164		362,199
Total consumer	319,417		1,775,134		2,094,551
Total	$	772,801	$	3,851,491	$	4,624,292

23

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

The following table presents the acquired impaired and non-impaired loans receivable at the Acquisition Date:

	Acquired Impaired			Acquired Non-Impaired			Acquired Loans Total
Contractual required payments receivable	$	1,023,481		$	4,078,355		$	5,101,836
Nonaccretable difference	(121,719		)	—			(121,719		)
Expected cash flows	901,762			4,078,355			4,980,117
Accretable yield	(128,961		)	(226,864		)	(355,825		)
Carrying balance	$	772,801		$	3,851,491		$	4,624,292

The fair value estimates for acquired loans is based on expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value. In determining the Acquisition Date fair value of acquired impaired loans, and in subsequent accounting, the Corporation aggregates purchased consumer loans and commercial loans into pools of loans with common risk characteristics.

The difference between the fair value of a non-impaired acquired loan and contractual amounts due at the Acquisition Date is accreted into income over the estimated life of the loan. Contractually required payments represent the total undiscounted amount of all uncollected principal and interest payments. Non-impaired acquired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

The excess of an acquired impaired loan's contractually required payments over the amount of its undiscounted cash flows expected to be collected is referred to as the non-accretable difference. The non-accretable difference, which is neither accreted into income nor recorded on the consolidated balance sheet, reflects estimated future credit losses and uncollectible contractual interest expected to be incurred over the life of the acquired impaired loan. The excess of cash flows expected to be collected over the carrying amount of the acquired impaired loans is referred to as the accretable yield. This amount is accreted into interest income over the remaining life of the acquired impaired loans or pools using the level yield method. The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment speed assumptions and changes in expected principal and interest payments over the estimated lives of the acquired impaired loans.

Over the life of acquired impaired loans, the Corporation evaluates the remaining contractual required payments receivable and estimates cash flows expected to be collected. Contractually required payments receivable 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 Date. 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 period's estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period.

24

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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 allowance for loan losses.

Covered Loans and Related Loss Share Receivable

The loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and Midwest are 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 allowance for loan losses and are accounted for as acquired impaired loans as described above. A loss share receivable was recorded at 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 loans. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets. The loss share receivable continues to be measured on the same basis as the related covered loans. Deterioration in the credit quality of the covered loans (recorded as an adjustment to the covered allowance for loan losses) would immediately increase the basis of the loss share receivable, with the offset recorded through the consolidated statement of comprehensive income. Increases in the credit quality or cash flows of covered loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the basis of the loss share receivable, with such decrease being accreted into income over 1) the same period or 2) the life of the loss share agreements, whichever is shorter. Loss assumptions used in the basis of the loss share receivable are consistent with the loss assumptions used to measure the related covered loans.

Upon the determination of an incurred loss the loss share receivable will be reduced by the amount owed by the FDIC. A corresponding claim receivable is recorded in accrued interest receivable and other assets on the consolidated balance sheet until cash is received from the FDIC.

Changes in the loss share receivable associated with covered loans for the three and six months ended June 30, 2013 and 2012 were as follows:

	Three Months Ended						Six Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Balance at beginning of period	$	95,593		$	171,136		$	113,734		$	205,664
Accretion	(5,998		)	(8,877		)	(14,101		)	(18,534		)
Increase due to impairment	2,319			6,218			7,858			11,117
FDIC reimbursement	(5,397		)	(10,651		)	(15,947		)	(38,081		)
Covered loans paid in full	(2,607		)	(5,211		)	(7,634		)	(7,551		)
Balance at end of the period	$	83,910		$	152,615		$	83,910		$	152,615

25

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

Acquired and Covered Impaired Loans

Changes in the carrying amount and accretable yield for acquired impaired loans were as follows for the three months ended June 30, 2013:

Acquired Impaired Loans	Three Months Ended
	June 30, 2013
	Accretable Yield			Carrying Amount of loans
Balance at beginning of period	$	—		$	—
Additions	128,961			772,801
Accretion	(8,560		)	8,560
Net reclassifications from non-accretable to accretable	—			—
Payments received, net	(4,107		)	(72,229		)
Disposals	—			—
Balance at end of period	$	116,294		$	709,132

A reconciliation of the contractual required payments receivable to the carrying amount of the acquired impaired loans as of June 30, 2013 is as follows:

Acquired Impaired Loans	June 30, 2013
Contractual required payments receivable	$	850,330
Nonaccretable difference	(24,904		)
Expected cash flows	825,426
Accretable yield	(116,294		)
Carrying balance	$	709,132

Changes in the carrying amount and accretable yield for covered impaired loans were as follows for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended												Six Months Ended
	June 30, 2013						June 30, 2012						June 30, 2013						June 30, 2012
Covered Impaired 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	$	102,130		$	656,670		$	161,292		$	1,043,519		$	113,288		$	762,386		$	176,736		$	1,128,978
Accretion	(17,757		)	17,757			(25,405		)	25,405			(37,271		)	37,271			(51,847		)	51,847
Net reclassifications from non-accretable to accretable	5,413			—			12,993			—			15,982			—			24,806			—
Payments received, net	—			(137,170		)	—			(104,610		)	—			(262,400		)	—			(216,511		)
Disposals	(8,027		)	—			(1,304		)	—			(10,241		)	—			(2,119		)	—
Balance at end of period	$	81,758		$	537,257		$	147,576		$	964,314		$	81,758		$	537,257		$	147,576		$	964,314

26

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

A reconciliation of the contractual required payments receivable to the carrying amount of covered impaired loans as of June 30, 2013 and 2012 is as follows:

Covered Impaired Loans	June 30, 2013			June 30, 2012
Contractual required payments receivable	$	915,421		$	1,413,526
Nonaccretable difference	(296,406		)	(301,636		)
Expected cash flows	619,015			1,111,890
Accretable yield	(81,758		)	(147,576		)
Carrying balance	$	537,257		$	964,314

The most recent quarterly evaluation of the remaining contractual required payments receivable and cash flows expected to be collected resulted in a decline in cash flow expectations of certain pools of loans and improvements in cash flow expectations in other loans and pools of loans. The decline in cash flow expectations was the result of deteriorations in risk ratings, declines in the underlying value of collateral dependent loans and actual cash flows received lower than originally expected. The improvement in cash flow expectations was the result of positive changes in risk ratings, improvements in the underlying value of collateral dependent loans and actual cash flows received higher than expected. There were no significant changes from prior periods to key assumptions used in the most recent quarterly evaluation of cash flows expected to be collected.

The decline in expected cash flows resulted in a provision for covered loan losses of $6.5 million for the three months ended June 30, 2013 compared to a provision of $9.6 million for the three months ended June 30, 2012. Provision for covered loan losses for the six months endedJune 30, 2013 was $16.2 million compared to $20.5 million for the six months endedJune 30, 2012. The provision for covered loan losses was partially offset by an increase in the loss share receivable for the portion of the losses recoverable under the loss sharing agreements. (See Note 5 (Allowance for Loan losses) for further information.)

The increase in cash flows resulted in the reclassification from nonaccretable difference to accretable yield of $5.4 million during the three months ended June 30, 2013 compared to a reclassification of $13.0 million in the three months ended June 30, 2012. Reclassifications to accretable yield were $16.0 million during the six months endedJune 30, 2013 and $24.8 million during the six months endedJune 30, 2012. Reclassifications result in yield adjustments on loans and pools on a prospective basis to interest income. Improved cash flows expectations for loans or pools that were impaired during prior periods were recorded first as a recapture of any previously recorded impairment and then as an increase in the prospective yield. Additionally, the loss share receivable was also reduced by the guaranteed portion of the additional cash flows expected to be received, resulting in a corresponding reduction in the prospective yield of the remaining loss share receivable.

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.

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

27

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

for 120 days are placed on nonaccrual status. Acquired and covered impaired loans are considered to be accruing and performing even though collection of contractual payments may be in doubt because income is accreted on the loan or loan pool.

When a loan is placed on nonaccrual status, interest deemed uncollectible which had been accrued in prior years is charged against the allowance for loan losses 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.

28

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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, 2013
Originated Loans													≥ 90 Days
	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 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.

29

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

As of December 31, 2012
Originated Loans													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (a)		Loans
Commercial
C&I	$	3,814	$	1,986	$	3,571	$	9,371	$	3,297,155	$	3,306,526	$	104	$	5,255
CRE	4,181		4,530		11,535		20,246		2,204,170		2,224,416		382		15,780
Construction	981		—		597		1,578		333,969		335,547		—		731
Leases	6		—		—		6		139,230		139,236		—		—
Consumer
Installment	11,722		3,193		5,639		20,554		1,307,704		1,328,258		4,942		2,914
Home Equity Lines	1,584		880		1,227		3,691		802,387		806,078		475		1,557
Credit Cards	969		558		954		2,481		143,906		146,387		438		598
Residential Mortgages	13,291		2,488		5,231		21,010		424,201		445,211		3,076		9,852
Total	$	36,548	$	13,635	$	28,754	$	78,937	$	8,652,722	$	8,731,659	$	9,417	$	36,687
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	$	931	$	981	$	24,111	$	26,023	$	102,486	$	128,509	n/a		n/a
CRE	4,130		15,019		172,444		191,593		348,002		539,595		n/a		n/a
Construction	589		7,925		34,314		42,828		7,505		50,333		n/a		n/a
Consumer
Installment	1		65		21		87		8,102		8,189		n/a		n/a
Home Equity Lines	1,528		654		2,211		4,393		112,832		117,225		n/a		n/a
Residential Mortgages	10,005		442		7,763		18,210		43,330		61,540		n/a		n/a
Total	$	17,184	$	25,086	$	240,864	$	283,134	$	622,257	$	905,391	n/a		n/a

(a) Installment loans 90 days or more past due and accruing include $3.4 million of loans guaranteed by the U.S. government as of December 31, 2012.

(b) Excludes loss share receivable of $113.7 million as of December 31, 2012.

(c) Covered impaired loans were not classified as nonperforming assets at December 31, 2012 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 covered impaired loans. These asset quality disclosures are, therefore, not applicable to covered impaired loans.

30

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

As of June 30, 2012
Originated Loans													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (a)		Loans
Commercial
C&I	$	2,688	$	291	$	3,335	$	6,314	$	2,974,688	$	2,981,002	$	—	$	11,188
CRE	9,867		1,338		15,480		26,685		2,098,075		2,124,760		460		25,399
Construction	646		—		1,653		2,299		296,910		299,209		—		1,794
Leases	—		—		—		—		84,507		84,507		—		—
Consumer
Installment	8,338		2,889		4,738		15,965		1,246,912		1,262,877		4,384		355
Home Equity Lines	1,815		772		1,014		3,601		763,239		766,840		1		1,088
Credit Cards	783		517		772		2,072		140,514		142,586		289		502
Residential Mortgages	10,561		4,531		7,856		22,948		415,199		438,147		1,411		6,361
Total	$	34,698	$	10,338	$	34,848	$	79,884	$	8,020,044	$	8,099,928	$	6,545	$	46,687
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	$	3,299	$	1,454	$	25,146	$	29,899	$	137,089	$	166,988	n/a		n/a
CRE	17,443		24,079		161,282		202,804		471,487		674,291		n/a		n/a
Construction	—		1,034		49,501		50,535		23,224		73,759		n/a		n/a
Consumer
Installment	—		615		22		637		8,198		8,835		n/a		n/a
Home Equity Lines	1,690		643		1,314		3,647		125,981		129,628		n/a		n/a
Residential Mortgages	11,452		1,571		9,509		22,532		43,240		65,772		n/a		n/a
Total	$	33,884	$	29,396	$	246,774	$	310,054	$	809,219	$	1,119,273	n/a		n/a

(a) Installment loans 90 days or more past due and accruing include $3.5 million of loans guaranteed by the U.S. government as of June 30, 2012.

(b) Excludes loss share receivable of $152.6 million as of June 30, 2012.

(c) Covered impaired loans were not classified as nonperforming assets at June 30, 2012 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 covered impaired loans. These asset quality disclosures are, therefore, not applicable to 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.

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” 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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

“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.

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

As of June 30, 2013
Originated Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	40,185	$	1,250	$	—	$	12,815
Grade 2	124,748		3,859		—		709
Grade 3	721,517		297,052		19,119		36,743
Grade 4	2,483,972		1,826,543		282,034		134,834
Grade 5	41,698		32,705		1,363		3,042
Grade 6	66,070		53,448		2,249		210
Grade 7	—		—		—		—
Total	$	3,478,190	$	2,214,857	$	304,765	$	188,353
Acquired Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	—	$	—	$	—	$	—
Grade 2	107		—		—		—
Grade 3	24,511		28,509		—		—
Grade 4	1,050,350		848,214		15,558		—
Grade 5	58,399		125,154		1,217		—
Grade 6	26,977		96,247		—		—
Grade 7	—		—		—		—
Total	$	1,160,344	$	1,098,124	$	16,775	$	—
Covered Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	—	$	—	$	—	$	—
Grade 2	1,001		—		—		—
Grade 3	—		—		—		—
Grade 4	44,148		131,889		556		—
Grade 5	661		24,255		1,364		—
Grade 6	38,065		224,533		33,856		—
Grade 7	2,056		1,414		1,909		—
Total	$	85,931	$	382,091	$	37,685	$	—

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

As of December 31, 2012
Originated Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	42,211	$	—	$	—	$	13,119
Grade 2	114,480		3,138		—		179
Grade 3	661,692		254,749		17,652		20,042
Grade 4	2,408,669		1,845,686		311,271		104,037
Grade 5	44,969		53,675		3,057		1,561
Grade 6	34,505		67,168		3,567		298
Grade 7	—		—		—		—
Grade 8	—		—		—		—
Total	$	3,306,526	$	2,224,416	$	335,547	$	139,236
Covered Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	—	$	—	$	—	$	—
Grade 2	1,526		—		—		—
Grade 3	—		—		—		—
Grade 4	73,480		214,987		476		—
Grade 5	3,215		30,708		1,331		—
Grade 6	47,468		292,158		45,838		—
Grade 7	2,820		1,742		2,688		—
Grade 8	—		—		—		—
Total	$	128,509	$	539,595	$	50,333	$	—

As of June 30, 2012
Originated Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	41,042	$	—	$	—	$	13,141
Grade 2	94,362		3,432		—		114
Grade 3	562,886		313,337		19,800		9,372
Grade 4	2,150,162		1,647,565		268,496		61,522
Grade 5	53,427		67,758		3,885		—
Grade 6	79,123		92,668		7,028		358
Grade 7	—		—		—		—
Grade 8	—		—		—		—
Total	$	2,981,002	$	2,124,760	$	299,209	$	84,507
Covered Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	36	$	—	$	—	$	—
Grade 2	2,090		—		—		—
Grade 3	90		473		—		—
Grade 4	96,675		270,278		491		—
Grade 5	6,768		51,807		595		—
Grade 6	52,396		346,058		69,851		—
Grade 7	8,933		5,675		2,822		—
Total	$	166,988	$	674,291	$	73,759	$	—

33

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

5.    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 allowance for loan losses 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 allowance for loan losses of originated, acquired and covered loan portfolios as well as certain significant accounting policies relevant to each category.

Originated Allowance for 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 allowance for loan losses 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 allowance for loan losses 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 allowance for loan losses 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.

Acquired Allowance for Loan Losses

An allowance for loan losses for non-impaired acquired loans is estimated using a methodology similar to that used for originated loans. The allowance determined for each non-impaired acquired loan is compared to the remaining fair value discount for that loan. If the allowance is greater, the excess is added to the allowance through a provision for loan losses. If the allowance is less, no additional allowance or provision is recognized. Actual losses first reduce any remaining fair value discount for the loan. Once the discount is fully depleted, losses are applied against the allowance established for that loan.

Management reforecasts the estimate of cash flows expected to be collected on each acquired impaired loan pool on a quarterly basis. If the present value of expected cash flows for a pool is less than its carrying value, impairment is recognized by an increase in the allowance for loan losses 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

34

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

previously established allowance for loan losses 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.

In accordance with purchase accounting, the Citizens' loans were recorded at their fair value as of the Acquisition Date and the prior allowance for loan losses was eliminated. No allowance for loan losses was necessary on these acquired loans as of June 30, 2013.

Covered Allowance for Loan Losses

The allowance for loan losses on covered 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.

The following tables show activity in the originated allowance for loan losses, by portfolio segment for the three and six months ended June 30, 2013 and 2012, as well as the corresponding recorded investment in originated loans at the end of the period:

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

35

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

As of June 30, 2012
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		$	37,172		$	27,778		$	5,124		$	334		$	14,753		$	6,269		$	6,520		$	5,899		$	103,849
Charge-offs		(4,841		)	(2,100		)	—			—			(3,696		)	(1,854		)	(1,645		)	(878		)	(15,014		)
Recoveries		1,362			564			40			1			3,019			741			465			56			6,248
Provision for loan losses		6,634			944			(17		)	23			(1,047		)	293			1,350			586			8,766
Allowance for originated loan losses, ending balance		$	40,327		$	27,186		$	5,147		$	358		$	13,029		$	5,449		$	6,690		$	5,663		$	103,849
Six Months Ended
Allowance for originated loan losses, beginning balance		$	32,363		$	31,857		$	5,173		$	341		$	17,981		$	6,766		$	7,369		$	5,849		$	107,699
Charge-offs		(11,133		)	(2,769		)	(38		)	—			(8,934		)	(4,589		)	(3,228		)	(1,740		)	(32,431		)
Recoveries		1,712			645			303			38			6,221			1,581			1,095			91			11,686
Provision for loan losses		17,385			(2,547		)	(291		)	(21		)	(2,239		)	1,691			1,454			1,463			16,895
Allowance for originated loan losses, ending balance		$	40,327		$	27,186		$	5,147		$	358		$	13,029		$	5,449		$	6,690		$	5,663		$	103,849
Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	5,327		$	1,977		$	115		$	—		$	1,773		$	22		$	128		$	1,649		$	10,991
	Collectively evaluated for impairment	35,000			25,209			5,032			358			11,256			5,427			6,562			4,014			92,858
Total ending allowance for originated loan losses balance		$	40,327		$	27,186		$	5,147		$	358		$	13,029		$	5,449		$	6,690		$	5,663		$	103,849
Originated loans:
	Originated loans individually evaluated for impairment	$	25,250		$	33,145		$	5,204		$	—		$	31,043		$	6,063		$	1,998		$	18,579		$	121,282
	Originated loans collectively evaluated for impairment	2,955,752			2,091,615			294,005			84,507			1,231,834			760,777			140,588			419,568			7,978,646
Total ending originated loan balance		$	2,981,002		$	2,124,760		$	299,209		$	84,507		$	1,262,877		$	766,840		$	142,586		$	438,147		$	8,099,928

The following table presents the originated allowance for loan loss and the recorded investment as of December 31, 2012:

As of December 31, 2012
	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:
	Individually evaluated for impairment	$	577	$	913	$	105	$	—	$	1,526	$	34	$	127	$	1,722	$	5,004
	Collectively evaluated for impairment	35,632		19,213		3,716		639		9,628		13,690		7,257		4,163		93,938
Total ending allowance for originated loan losses balance		$	36,209	$	20,126	$	3,821	$	639	$	11,154	$	13,724	$	7,384	$	5,885	$	98,942
Originated loans:
	Loans individually evaluated for impairment	$	6,187	$	24,007	$	3,405	$	—	$	30,870	$	6,281	$	1,612	$	24,009	$	96,371
	Loans collectively evaluated for impairment	3,300,339		2,200,409		332,142		139,236		1,297,388		799,797		144,775		421,202		8,635,288
Total ending originated loan balance		$	3,306,526	$	2,224,416	$	335,547	$	139,236	$	1,328,258	$	806,078	$	146,387	$	445,211	$	8,731,659

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

The following table presents activity in the covered allowance for loan loss for the three and six months ended June 30, 2013 and 2012:

		Three Months Ended						Six Months Ended
Covered Allowance for Loan Losses		June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Balance at beginning of the period		$	47,945		$	41,070		$	43,255		$	36,417
	Provision for loan losses before benefit attributable to FDIC loss share agreements	6,477			9,648			16,154			20,479
	Benefit attributable to FDIC loss share agreements	(2,319		)	(6,218		)	(7,858		)	(11,117		)
Net provision for loan losses		4,158			3,430			8,296			9,362
Increase in indemnification asset		2,319			6,218			7,858			11,117
Loans charged-off		(5,353		)	(8,112		)	(10,340		)	(14,290		)
Balance at end of the period		$	49,069		$	42,606		$	49,069		$	42,606

In the three months ended June 30, 2013, the Corporation increased the covered allowance for loan losses to $49.1 million to reserve for estimated additional losses. The increase in the allowance was recorded by a charge to the provision for covered loan losses of $6.5 million that was partially offset by an increase of $2.3 million in the loss share receivable for the portion of the losses recoverable under the loss sharing agreements. In the three months ended June 30, 2012, the Corporation increased the covered allowance for loan losses to $42.6 million to reserve for estimated additional losses. The increase in the allowance was recorded by a charge to the provision for covered loan losses of $9.6 million that was partially offset by an increase of $6.2 million in the loss share receivable for the portion of the losses recoverable under the loss sharing agreements.

Credit Quality

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. Acquired and covered impaired loans are not subject to individual evaluation for impairment and are not reported with impaired loans. Non-impaired acquired loans that are subsequently placed on non-accrual status are reported as impaired loans. Interest income recognized on impaired loans during the quarters ended June 30, 2013 and 2012 was not material.

Loan impairment for 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 troubled debt restructurings (“TDRs”).

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

As of June 30, 2013
Originated Loans				Unpaid				Average
		Recorded		Principal		Related		Recorded
		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	1,031	$	3,423	$	—	$	3,075
	CRE	17,021		23,892		—		19,143
	Construction	1,005		1,282		—		2,294
Consumer
	Installment	3,464		4,882		—		3,838
	Home equity line	1,158		1,481		—		1,217
	Credit card	57		57		—		76
	Residential mortgages	10,682		13,294		—		10,934
Subtotal		34,418		48,311		—		40,577
Impaired loans with a related allowance
Commercial
	C&I	8,408		11,553		3,169		10,469
	CRE	7,379		7,416		1,010		7,558
	Construction	—		—		—		—
Consumer
	Installment	26,676		26,772		557		27,032
	Home equity line	5,661		5,661		197		5,784
	Credit card	1,205		1,205		255		1,310
	Residential mortgages	12,539		12,611		1,280		12,578
Subtotal		61,868		65,218		6,468		64,731
	Total impaired loans	$	96,286	$	113,529	$	6,468	$	105,308

Note 1: These tables exclude loans fully charged off.

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

38

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

As of December 31, 2012
Originated Loans				Unpaid				Average
		Recorded		Principal		Related		Recorded
		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	3,098	$	14,473	$	—	$	12,533
	CRE	19,664		26,402		—		23,911
	Construction	2,684		3,306		—		3,861
Consumer
	Installment	2,527		3,947		—		4,251
	Home equity line	642		849		—		860
	Credit card	467		467		—		568
	Residential mortgages	9,578		12,142		—		10,645
Subtotal		38,660		61,586		—		56,629
Impaired loans with a related allowance
Commercial
	C&I	3,089		4,943		577		4,231
	CRE	4,343		4,927		913		3,834
	Construction	721		721		105		730
Consumer
	Installment	28,343		28,706		1,526		29,583
	Home equity line	5,639		5,639		34		5,924
	Credit card	1,145		1,145		127		1,311
	Residential mortgages	14,431		14,520		1,722		14,537
Subtotal		57,711		60,601		5,004		60,150
	Total impaired loans	$	96,371	$	122,187	$	5,004	$	116,779

Note 1: These tables exclude loans fully charged off.

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

39

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

As of June 30, 2012
Originated Loans				Unpaid				Average
		Recorded		Principal		Related		Recorded
		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	18,773	$	22,139	$	—	$	16,455
	CRE	20,426		26,942		—		21,586
	Construction	4,218		6,810		—		4,956
Consumer
	Installment	—		—		—		—
	Home equity line	—		—		—		—
	Credit card	—		—		—		—
	Residential mortgages	4,411		4,411		—		4,718
Subtotal		47,828		60,302		—		47,715
Impaired loans with a related allowance
Commercial
	C&I	6,477		10,511		5,327		6,641
	CRE	12,718		14,817		1,977		11,007
	Construction	987		987		115		991
Consumer
	Installment	31,043		31,043		1,773		31,581
	Home equity line	6,063		6,063		22		6,192
	Credit card	1,998		1,998		128		2,159
	Residential mortgages	14,168		14,168		1,649		14,192
Subtotal		73,454		79,587		10,991		72,763
	Total impaired loans	$	121,282	$	139,889	$	10,991	$	120,478

Note 1: These tables exclude loans fully charged off.

Note 2: The differences between the recorded investment and unpaid principal balance amounts represents 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 for purposes of the Corporation's accounting and disclosure 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. As of June 30, 2013 and December 31, 2012, $9.4 million and $7.7 million,

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

respectively, in consumer loans were identified as troubled debt restructurings whereby the borrower's obligation to the Corporation has been discharged in bankruptcy and the borrower has not reaffirmed the debt. Modifications of mortgages retained in portfolio are handled using 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 Fannie Mae and Freddie Mac.

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.

41

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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, 2013, December 31, 2012 and June 30, 2012.

			As of June 30, 2013
			Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans
	Commercial
		C&I	31	$	7,806	$	11,489
		CRE	47	17,361		21,742
		Construction	31	1,005		1,282
		Total originated commercial	109	26,172		34,513
	Consumer
		Installment	1,757	30,140		31,654
		Home equity lines	239	6,819		7,142
		Credit card	329	1,262		1,262
		Residential mortgages	293	23,221		25,905
		Total originated consumer	2,618	61,442		65,963
Total originated loans			2,727	$	87,614	$	100,476
Covered loans
	Commercial
		C&I	3	$	1,635	$	1,880
		CRE	21	46,314		57,021
		Construction	10	6,082		26,155
		Total covered commercial	34	54,031		85,056
	Consumer
		Home equity lines	42	5,562		5,590
Total covered loans			76	$	59,593	$	90,646
Total loans
	Commercial
		C&I	34	$	9,441	$	13,369
		CRE	68	63,675		78,763
		Construction	41	7,087		27,437
		Total commercial	143	80,203		119,569
	Consumer
		Installment	1,757	30,140		31,654
		Home equity lines	281	12,381		12,732
		Credit card	329	1,262		1,262
		Residential mortgages	293	23,221		25,905
		Total consumer	2,660	67,004		71,553
Total loans			2,803	$	147,207	$	191,122

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

			As of December 31, 2012
			Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans
	Commercial
		C&I	24	$	2,617	$	8,044
		CRE	40	16,305		20,701
		Construction	28	2,955		3,419
		Total originated commercial	92	21,877		32,164
	Consumer
		Installment	1,769	30,870		32,653
		Home equity lines	226	6,281		6,488
		Credit card	389	1,612		1,612
��		Residential mortgages	298	24,009		26,662
		Total originated consumer	2,682	62,772		67,415
Total originated loans			2,774	$	84,649	$	99,579
Covered loans
	Commercial
		C&I	3	$	1,763	$	1,998
		CRE	20	50,272		57,483
		Construction	10	8,171		37,547
		Total covered commercial	33	60,206		97,028
	Consumer
		Home equity lines	35	5,632		5,666
Total covered loans			68	$	65,838	$	102,694
Total loans
	Commercial
		C&I	27	$	4,380	$	10,042
		CRE	60	66,577		78,184
		Construction	38	11,126		40,966
		Total commercial	125	82,083		129,192
	Consumer
		Installment	1,769	30,870		32,653
		Home equity lines	261	11,913		12,154
		Credit card	389	1,612		1,612
		Residential mortgages	298	24,009		26,662
		Total consumer	2,717	68,404		73,081
Total loans			2,842	$	150,487	$	202,273

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

43

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

			As of June 30, 2012
			Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans
	Commercial
		C&I	19	$	4,074	$	10,584
		CRE	35	18,618		22,135
		Construction	27	3,970		4,542
		Total originated commercial	81	26,662		37,261
	Consumer
		Installment	1,485	31,043		31,043
		Home equity lines	194	6,063		6,063
		Credit card	461	1,998		1,998
		Residential mortgages	187	18,579		18,579
		Total originated consumer	2,327	57,683		57,683
Total originated loans			2,408	$	84,345	$	94,944
Covered loans
	Commercial
		C&I	11	$	5,099	$	6,668
		CRE	25	53,205		57,766
		Construction	10	15,351		43,427
		Total covered commercial	46	73,655		107,861
	Consumer		—	—		—
		Home equity lines	—	—		—
Total covered loans			46	$	73,655	$	107,861
Total loans
	Commercial
		C&I	30	$	9,173	$	17,252
		CRE	60	71,823		79,901
		Construction	37	19,321		47,969
		Total commercial	127	100,317		145,122
	Consumer
		Installment	1,485	31,043		31,043
		Home equity lines	194	6,063		6,063
		Credit card	461	1,998		1,998
		Residential mortgages	187	18,579		18,579
		Total consumer	2,327	57,683		57,683
Total loans			2,454	$	158,000	$	202,805

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

The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the quarters ended June 30, 2013 and 2012 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 quarters ended June 30, 2013 and 2012 did not involve the forgiveness of 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

44

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

quarters ended June 30, 2013 and 2012 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 provisioning methodology. At June 30, 2013, the Corporation had $0.2 million in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

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, 2013, December 31, 2012 and June 30, 2012, including TDRs that continue to accrue interest and TDRs included in nonperforming assets.

As of June 30, 2013
	Accruing TDRs						Nonaccruing TDRs						Total		Total
	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
CRE	11,200		—		11,200		1,726		4,435		6,161		17,361		510
Construction	404		537		941		64		—		64		1,005		—
Total originated commercial	12,625		537		13,162		8,038		4,972		13,010		26,172		3,079
Consumer
Installment	25,800		913		26,713		3,227		200		3,427		30,140		557
Home equity lines	5,321		144		5,465		1,354		—		1,354		6,819		197
Credit card	1,222		40		1,262		—		—		—		1,262		255
Residential mortgages	13,514		2,147		15,661		4,518		3,042		7,560		23,221		1,280
Total originated consumer	45,857		3,244		49,101		9,099		3,242		12,341		61,442		2,289
Total originated TDRs	$	58,482	$	3,781	$	62,263	$	17,137	$	8,214	$	25,351	$	87,614	$	5,368
Covered loans
Commercial
C&I	$	897	$	738	$	1,635	$	—	$	—	$	—	$	1,635	$	518
CRE	5,269		41,045		46,314		—		—		—		46,314		3,749
Construction	1,542		4,540		6,082		—		—		—		6,082		900
Total covered commercial	7,708		46,323		54,031		—		—		—		54,031		5,167
Consumer
Home equity lines	5,065		497		5,562		—		—		—		5,562		—
Total covered TDRs	$	12,773	$	46,820	$	59,593	$	—	$	—	$	—	$	59,593	$	5,167
Total loans
Commercial
C&I	$	1,918	$	738	$	2,656	$	6,248	$	537	$	6,785	$	9,441	$	3,087
CRE	16,469		41,045		57,514		1,726		4,435		6,161		63,675		4,259
Construction	1,946		5,077		7,023		64		—		64		7,087		900
Total commercial	20,333		46,860		67,193		8,038		4,972		13,010		80,203		8,246
Consumer
Installment	25,800		913		26,713		3,227		200		3,427		30,140		557
Home equity lines	10,386		641		11,027		1,354		—		1,354		12,381		197
Credit card	1,222		40		1,262		—		—		—		1,262		255
Residential mortgages	13,514		2,147		15,661		4,518		3,042		7,560		23,221		1,280
Total consumer	50,922		3,741		54,663		9,099		3,242		12,341		67,004		2,289
Total TDRs	$	71,255	$	50,601	$	121,856	$	17,137	$	8,214	$	25,351	$	147,207	$	10,535

45

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

As of December 31, 2012
	Accruing TDRs						Nonaccruing TDRs						Total		Total
	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	704	$	1,004	$	1,708	$	844	$	65	$	909	$	2,617	$	217
CRE	12,719		793		13,512		461		2,332		2,793		16,305		869
Construction	1,860		960		2,820		135		—		135		2,955		105
Total originated commercial	15,283		2,757		18,040		1,440		2,397		3,837		21,877		1,191
Consumer
Installment	27,085		1,547		28,632		2,064		174		2,238		30,870		1,526
Home equity lines	5,183		236		5,419		636		226		862		6,281		34
Credit card	1,483		118		1,601		—		11		11		1,612		127
Residential mortgages	12,510		3,413		15,923		5,196		2,890		8,086		24,009		1,722
Total originated consumer	46,261		5,314		51,575		7,896		3,301		11,197		62,772		3,409
Total originated TDRs	$	61,544	$	8,071	$	69,615	$	9,336	$	5,698	$	15,034	$	84,649	$	4,600
Covered loans
Commercial
C&I	$	435	$	1,328	$	1,763	$	—	$	—	$	—	$	1,763	$	518
CRE	7,658		42,614		50,272		—		—		—		50,272		4,959
Construction	2,361		5,810		8,171		—		—		—		8,171		1,220
Total covered commercial	10,454		49,752		60,206		—		—		—		60,206		6,697
Consumer
Home equity lines	5,632		—		5,632		—		—		—		5,632		—
Total covered TDRs	$	16,086	$	49,752	$	65,838	$	—	$	—	$	—	$	65,838	$	6,697
Total loans
Commercial
C&I	$	1,139	$	2,332	$	3,471	$	844	$	65	$	909	$	4,380	$	735
CRE	20,377		43,407		63,784		461		2,332		2,793		66,577		5,828
Construction	4,221		6,770		10,991		135		—		135		11,126		1,325
Total commercial	25,737		52,509		78,246		1,440		2,397		3,837		82,083		7,888
Consumer
Installment	27,085		1,547		28,632		2,064		174		2,238		30,870		1,526
Home equity lines	10,815		236		11,051		636		226		862		11,913		34
Credit card	1,483		118		1,601		—		11		11		1,612		127
Residential mortgages	12,510		3,413		15,923		5,196		2,890		8,086		24,009		1,722
Total consumer	51,893		5,314		57,207		7,896		3,301		11,197		68,404		3,409
Total TDRs	$	77,630	$	57,823	$	135,453	$	9,336	$	5,698	$	15,034	$	150,487	$	11,297

46

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

As of June 30, 2012
	Accruing TDRs						Nonaccruing TDRs						Total		Total
	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	746	$	25	$	771	$	1,086	$	2,217	$	3,303	$	4,074	$	319
CRE	14,810		—		14,810		2,020		1,788		3,808		18,618		424
Construction	3,536		—		3,536		134		300		434		3,970		115
Total originated commercial	19,092		25		19,117		3,240		4,305		7,545		26,662		858
Consumer
Installment	30,035		1,002		31,037		—		6		6		31,043		1,773
Home equity lines	5,508		156		5,664		298		101		399		6,063		22
Credit card	1,902		90		1,992		—		6		6		1,998		128
Residential mortgages	12,475		3,246		15,721		952		1,906		2,858		18,579		1,649
Total originated consumer	49,920		4,494		54,414		1,250		2,019		3,269		57,683		3,572
Total originated TDRs	$	69,012	$	4,519	$	73,531	$	4,490	$	6,324	$	10,814	$	84,345	$	4,430
Covered loans
Commercial
C&I	$	1,185	$	3,914	$	5,099	$	—	$	—	$	—	$	5,099	$	1,384
CRE	33,107		20,098		53,205		—		—		—		53,205		7,721
Construction	8,444		6,907		15,351		—		—		—		15,351		923
Total covered TDRs	$	42,736	$	30,919	$	73,655	$	—	$	—	$	—	$	73,655	$	10,028
Total loans
Commercial
C&I	$	1,931	$	3,939	$	5,870	$	1,086	$	2,217	$	3,303	$	9,173	$	1,703
CRE	47,917		20,098		68,015		2,020		1,788		3,808		71,823		8,145
Construction	11,980		6,907		18,887		134		300		434		19,321		1,038
Total commercial	61,828		30,944		92,772		3,240		4,305		7,545		100,317		10,886
Consumer
Installment	30,035		1,002		31,037		—		6		6		31,043		1,773
Home equity lines	5,508		156		5,664		298		101		399		6,063		22
Credit card	1,902		90		1,992		—		6		6		1,998		128
Residential mortgages	12,475		3,246		15,721		952		1,906		2,858		18,579		1,649
Total consumer	49,920		4,494		54,414		1,250		2,019		3,269		57,683		3,572
Total TDRs	$	111,748	$	35,438	$	147,186	$	4,490	$	6,324	$	10,814	$	158,000	$	14,458

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 allowance for loan losses may be increased, adjustments may be made in the allocation of the allowance for loan losses, or partial charge-offs may be taken to further write-down the carrying value of the loan.

47

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

The following table provides the number of loans modified in a TDR during the previous 12 months that subsequently defaulted during the three months ended June 30, 2013, as well as the recorded investment in these restructured loans as of June 30, 2013.

	As of June 30, 2013
	Number of Loans	Recorded Investment
Originated loans
Commercial
C&I	—	$	—
CRE	1	85
Construction	1	537
Total originated commercial	2	622
Consumer
Installment	109	1,737
Home equity lines	14	794
Credit card	8	72
Residential mortgages	—	—
Total originated consumer	131	$	2,603
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	109	1,737
Home equity lines	14	794
Credit card	8	72
Residential mortgages	—	—
Total consumer	131	2,603
Total	133	$	3,225

48

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

6.     Goodwill and Other Intangible Assets

Goodwill

Goodwill totaled $734.4 million as of June 30, 2013, and $460.0 million as of December 31, 2012 and June 30, 2012. As discussed in Note 2 (Business Combinations), the Corporation recorded $274.3 million of provisional goodwill in the quarter ended June 30, 2013 in connection with the acquisition of Citizens. As of June 30, 2013, the additional goodwill remains unallocated to the Corporation’s reporting units due to the short time between the Acquisition Date and the end of the second quarter of 2013.

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, 2012 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.

Other Intangible Assets

The following tables show the gross carrying amount and the amount of accumulated amortization of intangible assets subject to amortization.

	June 30, 2013
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Core deposit intangibles	$	87,533	$	(12,416	)	$	75,117
Non-compete covenant	102		(89		)	13
Lease intangible	618		(502		)	116
Trust relationships	14,000		(827		)	13,173
	$	102,253	$	(13,834	)	$	88,419
	December 31, 2012
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Core deposit intangibles	16,759		(10,546		)	6,213
Non-compete covenant	102		(76		)	26
Lease intangible	$	618	$	(484	)	$	134
	$	17,479	$	(11,106	)	$	6,373
	June 30, 2012
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Core deposit intangibles	$	16,759	$	(9,689	)	$	7,070
Non-compete covenant	102		(63		)	39
Lease intangible	618		(453		)	165
	$	17,479	$	(10,205	)	$	7,274

Core deposit intangibles comprise the majority of the intangible asset total as of June 30, 2013. As discussed in Note 2 (Business Combinations ), the Corporation recorded approximately $84.8 million of intangible assets in connection with its acquisition with Citizens. These assets consist of $70.8 million in core

49

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

deposit intangibles which are being amortized on an accelerated basis over their useful lives of 15 years , and $14.0 million in trust relationship intangibles which are being amortized on an accelerated basis over their useful lives of 12 years . The remaining core deposit intangibles were acquired through various prior acquisitions and are being amortized on an accelerated basis over their useful lives of 10 years .

Amortization expense for intangible assets was $2.4 million and $2.7 million in the three and six months ended June 30, 2013, respectively, compared to $0.5 million and $1.0 million in the three and six months ended June 30, 2012, respectively. Estimated amortization expense for each of the next five years is as follows: 2013 - $5.7 million; 2014 - $11.7 million; 2015 - $10.4 million; 2016 - $9.2 million; and 2017 - $8.2 million.

7.     Shareholders' Equity

Citizens Acquisition

On April 12, 2013, the Corporation completed the acquisition of Citizens, which resulted in all of Citizens' common stock being converted into the right to receive 1.37 shares of the Corporation's common stock. The conversion of Citizens' common stock into the Corporation's common stock resulted in the Corporation issuing 55,468,283 shares of its common stock. 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 at an exercise price of $18.69. The warrant qualifies as Tier 1 capital and is exercisable in whole or in part since the execution date of April 12, 2013. The warrant has an expiration date of December 12, 2018. Additional information about the acquisition is included in Note 2Business Combinations.

Preferred Stock

The Corporation has three different types of preferred stock, none of which have any issued or outstanding shares. There are 7,000,000 shares of authorized and unissued shares of no par value, preferred stock; 800,000 designated shares of no par value, preferred stock, series A, with none outstanding; and 220,000 designated shares of no par value convertible preferred stock, series B, with none outstanding.

On February 4, 2013, the Corporation issued100,000 shares of its 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, which began paying cash dividends on May 4, 2013, quarterly in arrears on the 4th day of February, May, August and November.

Earnings Per Share

The Corporation calculates earnings per share using the two-class method. The two-class method allocates net income to each class of common stock and participating security according to the common dividends declared and participation rights in undistributed earnings. Participating securities consist of unvested stock-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents.

50

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

The reconciliation between basic and diluted earnings per share using the two-class method is presented as follows:

	Three Months Ended				Six Months Ended
	June 30, 2013		June 30, 2012		June 30, 2013		June 30, 2012
Basic EPS:
Net income	$	48,450	$	30,585	85,796		$	60,929
Less:
Cash dividends on 5.875% non-cumulative perpetual series A, preferred stock	1,469		—		2,399		$	—
Income allocated to participating securities	384		113		813		$	143
Net income attributable to common shareholders	$	46,597	$	30,472	$	82,584	$	60,786
Average common shares outstanding	159,158		110,598		135,204		110,422
Less: participating shares included in average shares outstanding	1,295		1,036		1,295		1,036
Average common shares outstanding used in basic EPS	157,863		109,562		133,909		109,386
Basic net income per share	$	0.30	$	0.28	$	0.62	$	0.56
Diluted EPS:
Income used in diluted earnings per share calculation	$	46,597	$	30,472	$	82,584	$	60,786
Average common shares outstanding	159,158		110,598		135,204		110,422
Add: common stock equivalents:
Stock option plans	119		—		60		—
Less: participating shares included in average shares outstanding	1,295		1,036		1,295		1,036
Average common and common stock equivalent shares outstanding	157,982		109,562		133,969		109,386
Diluted net income per share	$	0.29	$	0.28	$	0.62	$	0.56

Potential common shares consist of employee stock options and the common stock warrant. These potential common shares do not enter into the calculation of diluted earnings per share if the impact would be anti-dilutive, that is, increase earnings per share or reduce a loss per share. Antidilutive potential common shares for the three months ended June 30, 2013 and 2012 totaled 3.9 million and 1.8 million, respectively.

8.     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 management methodologies 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, business banking (formerly known as small business), public entities, and leasing clients. Commercial also includes personal business from

51

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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 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 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 function 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 2012 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. 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.

52

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

The Corporation’s business is conducted solely in the United States of America. The following tables present a summary of financial results as of and for the three and six months endedJune 30, 2013 and June 30, 2012:

																				FirstMerit
	Commercial				Retail				Wealth					Other						Consolidated
June 30, 2013	QTD		YTD		QTD		YTD		QTD			YTD		QTD			YTD			QTD		YTD
OPERATIONS:
Net interest income (loss)	$	109,705	$	175,224	$	89,701	$	136,132	$	3,774		$	7,549	$	(5,149	)	$	(9,526	)	$	198,031	$	309,379
Provision for loan losses	2,120		6,886		2,101		6,174		(42		)	166		3,130			4,030			7,309		17,256
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		38,405			39,222			189,640		296,565
Net income (loss)	49,783		73,805		23,021		32,016		1,824			2,930		(26,178		)	(22,955		)	48,450		85,796
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

																				FirstMerit
	Commercial				Retail				Wealth					Other						Consolidated
June 30, 2012	QTD		YTD		QTD		YTD		QTD			YTD		QTD			YTD			QTD		YTD
OPERATIONS:
Net interest income (loss)	$	64,476	$	128,329	$	53,287	$	107,564	$	4,590		$	9,189	$	(3,430	)	$	(7,372	)	$	118,923	$	237,710
Provision for loan losses	3,465		12,570		1,728		4,265		(24		)	201		7,027			9,221			12,196		26,257
Other income	18,047		32,356		24,177		49,443		8,392			16,460		4,685			8,768			55,301		107,027
Other expenses	40,128		83,479		56,784		115,830		9,792			20,007		12,373			13,529			119,077		232,845
Net income (loss)	25,304		42,013		12,319		23,992		2,090			3,536		(9,128		)	(8,612		)	30,585		60,929
AVERAGES:
Assets	6,364,148		6,346,311		2,918,710		2,914,532		237,548			237,060		5,038,108			5,029,609			14,558,514		14,527,512

9.     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 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.

53

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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.

Through the Corporation's Fixed Rate Advantage Program ("FRAP Program"), a customer received a fixed interest rate commercial loan and the Corporation subsequently converted that fixed rate loan to a variable rate instrument over the term of the loan by entering into an interest rate swap with a dealer counterparty. The Corporation receives a fixed rate payment from the customer on the loan and pays the equivalent amount to the dealer counterparty on the swap in exchange for a variable rate payment based on the one month London Inter-Bank Offered Rate index. These interest rate swaps are designated as fair value hedges. Through application of the "short cut method of accounting", there is an assumption that the hedges are effective. The Corporation discontinued originating interest rate swaps under the FRAP Program in February 2008 and subsequently began a new interest rate swap program for commercial loan customers, termed the Back-to-Back Program. These swaps do not qualify as designated hedges; therefore, each swap is accounted for as a stand-alone derivative.

At June 30, 2013, December 31, 2012 and June 30, 2012, 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
	June 30, 2013				December 31, 2012				June 30, 2012				June 30, 2013				December 31, 2012				June 30, 2012
	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)
Interest rate swaps:
Fair value hedges	$	4,632	$	—	$	—	$	—	$	—	$	—	$	136,186	$	14,319	$	161,133	$	19,080	$	196,798	$	23,229

(a) Included in Other Assets on the Consolidated Balance Sheet

(b) Included in Other Liabilities on the Consolidated Balance Sheet

54

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

Derivatives Not Designated in Hedge Relationships

As of June 30, 2013, December 31, 2012 and June 30, 2012, 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
	June 30, 2013				December 31, 2012				June 30, 2012				June 30, 2013				December 31, 2012				June 30, 2012
	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)
Interest rate swaps	$	1,502,079	$	47,804	$	1,204,835	$	58,769	$	1,094,355	$	61,319	$	1,502,079	$	47,804	$	1,204,835	$	58,769	$	1,094,355	$	61,319
Mortgage loan commitments	251,198		779		168,271		4,400		239,901		5,248		—		—		—		—		—		—
Forward sales contracts	139,093		4,458		—		—		—		—		—		—		124,017		62		151,018		1,201
Credit contracts	—		—		—		—		—		—		50,754		—		25,225		—		13,215		—
Foreign exchange	8,940		117		6,662		62		4,492		52		7,235		94		6,026		57		5,533		54
Other	—		—		—		—		—		—		52,370		—		31,492		—		25,685		—
Total	$	1,901,310	$	53,158	$	1,379,768	$	63,231	$	1,338,748	$	66,619	$	1,612,438	$	47,898	$	1,391,595	$	58,888	$	1,289,806	$	62,574

(a) Included in Other Assets on the Consolidated Balance Sheet

(b) Included in Other Liabilities on the Consolidated Balance Sheet

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 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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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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. Prior to implementation of the Back-to-Back Program, certain of the Corporation's commercial loan customers entered into interest rate swaps with unaffiliated dealer counterparties. The Corporation entered into swap participations with these dealer counterparties whereby the Corporation guaranteed payment in the event that the counterparty experienced a loss on the interest rate 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 commercial loan customers. At June 30, 2013, the remaining terms on these swap participation agreements generally ranged from less than one year to six years. The Corporation's maximum estimated exposure to written 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 $3.4 million as of June 30, 2013. The fair values of the written swap participations were not material at June 30, 2013, December 31, 2012 and June 30, 2012.

Gains and losses recognized in income on non-designated hedging instruments for the three and six months ended June 30, 2013 and 2012 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
		Three Months Ended						Six Months Ended
		June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Mortgage loan commitments	Other operating income	$	(3,374	)	$	1,980		$	(3,622	)	$	289
Forward sales contracts	Other operating income	4,742			(1,646		)	4,519			598
Foreign exchange contracts	Other operating income	(122		)	15			(313		)	60
Other	Other operating expense	—			—			—			—
Total		$	1,246		$	349		$	584		$	947

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 or a customer, fails to meet its contractual obligations. This risk is measured as the expected positive replacement value of contracts. All derivative contracts may be executed only with exchanges or counterparties approved by the Corporation's Asset and Liability Committee, and only within the Corporation's Board of Directors Credit Committee approved credit exposure limits. Where contracts have been created for customers, the 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 International Swaps and Derivatives Association. These agreements are to include thresholds

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

of credit exposure or the maximum amount of unsecured credit exposure that the Corporation is willing to assume. 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 Asset and Liability Committee. The Corporation generally posts collateral in the form of highly rated Government Agency issued bonds or MBSs. Collateral posted against derivative liabilities was $82.2 million, $96.5 million and $101.9 million as of June 30, 2013, December 31, 2012 and June 30, 2012, 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 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 statement of financial position as of June 30, 2013, December 31, 2012 and June 30, 2012. 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, 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
							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	)	$	—

As of December 31, 2012
	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
							Financial instruments (a)			Collateral (b)
Derivative assets
Interest rate swaps - non-designated	$	55	$	—	$	55	$	(55	)	$	—		$	—
Foreign exchange	14		—		14		(14		)	—			—
Total derivative assets	$	69	$	—	$	69	$	(69	)	$	—		$	—
Derivative Liabilities
Interest rate swaps - designated	$	19,080	$	—	$	19,080	$	—		$	(19,080	)	$	—
Interest rate swaps - non-designated	58,714		—		58,714		(55		)	(58,659		)	—
Foreign exchange	45		—		45		(14		)	(31		)	—
Total derivative liabilities	$	77,839	$	—	$	77,839	$	(69	)	$	(77,770	)	$	—

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

As of June 30, 2012
	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
							Financial instruments (a)			Collateral (b)
Derivative assets
Interest rate swaps - non-designated	$	105	$	—	$	105	$	(105	)	$	—		$	—
Foreign exchange	43		—		43		(16		)	(27		)	—
Total derivative assets	$	148	$	—	$	148	$	(121	)	$	(27	)	$	—
Derivative Liabilities
Interest rate swaps - designated	$	23,229	$	—	$	23,229	$	—		$	(23,229	)	$	—
Interest rate swaps - non-designated	61,214		—		61,214		(105		)	(61,109		)	—
Foreign exchange	16		—		16		(16		)	—			—
Total derivative liabilities	$	84,459	$	—	$	84,459	$	(121	)	$	(84,338	)	$	—

(a) 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.

(b) 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 Sheet 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 Sheet unless the Corporation defaults.

10.     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
	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Components of Net Periodic Pension Cost
Service Cost	$	585		$	1,799		$	1,170		$	3,598
Interest Cost	2,632			2,965			5,264			5,930
Expected return on assets	(2,960		)	(3,034		)	(5,920		)	(6,068		)
Amortization of unrecognized prior service costs	117			97			234			194
Cumulative net loss	1,174			2,593			2,348			5,186
Net periodic pension cost	$	1,548		$	4,420		$	3,096		$	8,840

	Postretirement Benefits
	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Components of Net Periodic Postretirement Cost
Service Cost	$	25		$	19		$	50		$	38
Interest Cost	130			174			260			348
Amortization of unrecognized prior service costs	(117		)	(117		)	(234		)	(234		)
Cumulative net loss	67			72			134			144
Net periodic postretirement cost	$	105		$	148		$	210		$	296

Effective December 31, 2012, the qualified defined benefit pension plan was frozen resulting in no benefits accruing after December 31, 2012. Employees will have an accrued benefit which will be paid upon retirement, or for deferred vested participants, at the time they request and are eligible for their pension benefit.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

The Corporation also maintains a retirement savings plan under Section 401(k) of the Internal Revenue Code of 1986, as amended, covering substantially all full-time and part-time employees beginning in the quarter following three months of continuous employment. The savings plan was approved for non-vested employees in the defined benefit pension plan and new hires as of January 1, 2007. Starting January 1, 2013, the employer's matching contribution to the savings plan increased to 100% on the first 3% and then 50% on the next 2% of the employee's qualifying salary. Matching contributions vest in accordance with plan specifications.

Citizens Acquisition

The Corporation is in the process of transitioning the legacy Citizens employees to the Corporation's benefit plans. Citizens defined benefit pension plan has been frozen since 2006 and remains frozen. Citizens also had an unfunded nonqualified supplemental benefit plan that provided retirement benefits to designated executive officers. Benefits that become payable under the nonqualified plan will be paid by the Corporation. Citizens had a postretirement benefit plan which provided postretirement health and dental care to full-time employees who retired with eligibility for coverage based on historical plan terms.

Net periodic benefits and costs for the Citizens sponsored plans including the following components for the quarter ended June 30, 2013:

	Pension Benefits
	Three months ended June 30, 2013
Interest Cost	$	795
Expected return on assets	(1,096		)
Net periodic pension benefit	$	(301	)

	Postretirement Benefits
	Three months ended June 30, 2013
Interest Cost	$	16
Net periodic postretirement cost	$	16

Citizens sponsored an employee savings plan under Section 401(k) of the Internal Revenue Code that covered substantially all legacy Citizens employees. This plan continues to operate as before and will admit new participants if those participants meet the eligibility conditions and perform services at a legacy Citizen location. Contributions to the legacy Citizens 401(k) plan are matched 50% on the first 2% of salary deferred and 25% on the next 6% deferred.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

11.     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.

U.S. 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:

• 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.

• Level 2 — Significant other observable inputs other than Level 1 prices such 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.  

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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."

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

The following tables present the balance of assets and liabilities measured at fair value on a recurring and nonrecurring basis as of June 30, 2013, December 31, 2012 and June 30, 2012:

			Fair Value by Hierarchy
	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, non-agency issued	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 - fair value hedges	—		—		—		—
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		—
Other	—		—		—		—
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

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

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(Dollars in thousands)

(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 recognition of $0.8 million in recoveries included in loans sales and servicing income 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) - Amounts do not include assets held at cost at June 30, 2013. During the three months ended June 30, 2013, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.3 million included in noninterest expense.

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

			Fair Value by Hierarchy
	December 31, 2012		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	3,241	$	3,241	$	—	$	—
U.S. States and political subdivisions	268,204		—		268,204		—
Residential mortgage-backed securities:
U.S. government agencies	1,107,063		—		1,107,063		—
Commercial mortgage-backed securities:
U.S. government agencies	52,036		—		52,036		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,329,421		—		1,329,421		—
Non-agency	11		—		2		9
Commercial collateralized mortgage-backed securities:
U.S. government agencies	111,343		—		111,343		—
Corporate debt securities	49,652		—		—		49,652
Total available-for-sale securities	2,920,971		3,241		2,868,069		49,661
Residential loans held for sale	23,683		—		23,683		—
Derivative assets:
Interest rate swaps - fair value hedges	—		—		—		—
Interest rate swaps - nondesignated	58,769		—		58,769		—
Mortgage loan commitments	4,400		—		4,400		—
Forward sale contracts	—		—		—		—
Foreign exchange	62		—		62		—
Total derivative assets	63,231		—		63,231		—
Total fair value of assets (a)	$	3,007,885	$	3,241	$	2,954,983	$	49,661
Derivative liabilities:
Interest rate swaps - fair value hedges	$	19,080	$	—	$	19,080	$	—
Interest rate swaps - nondesignated	58,769		—		58,769		—
Forward sale contracts	62		—		62		—
Foreign exchange	57		—		57		—
Other	—		—		—		—
Total derivative liabilities	77,968		—		77,968		—
True-up liability	12,259		—		—		12,259
Total fair value of liabilities (a)	$	90,227	$	—	$	77,968	$	12,259
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	18,833	$	—	$	—	$	18,833
Impaired loans (c)	54,491		—		—		54,491
Other property (d)	7,540		—		—		7,540
Other real estate covered by loss share (e)	12,631		—		—		12,631
Total fair value	$	93,495	$	—	$	—	$	93,495

(a) - There were no transfers between levels 1 and 2 of the fair value hierarchy during the year ended December 31, 2012.  

(b) - MSRs with a recorded investment of $21.3 million were reduced by a specific valuation allowance totaling $2.6 million to a reported carrying value of $18.8 million resulting in the recognition of an impairment charge of $1.0 million in the year ended December 31, 2012.

(c) - Collateral dependent impaired loans with a recorded investment of $57.8 million were reduced by specific valuation allowance allocations totaling $3.3 million to a reported net carrying value of $54.5 million.

(d) Amounts do not include assets held at cost at December 31, 2012. During the year ended December 31, 2012, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $2.2 million included in noninterest expense.

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(Dollars in thousands)

(e) Amounts do not include assets held at cost at December 31, 2012. During the year ended December 31, 2012, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $1.7 million included in noninterest expense.

			Fair Value by Hierarchy
	June 30, 2012		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	3,340	$	3,340	$	—	$	—
U.S. government agency debentures	35,297		—		35,297		—
U.S. States and political subdivisions	265,124		—		265,124		—
Residential mortgage-backed securities:
U.S. government agencies	1,382,813		—		1,382,813		—
Commercial mortgage-backed securities:
U.S. government agencies	38,428		—		38,428		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,277,378		—		1,277,378		—
Non-agency	13		—		2		11
Commercial collateralized mortgage-backed securities:
U.S. government agencies	68,545		—		68,545		—
Corporate debt securities	145,427		—		97,342		48,085
Total available-for-sale securities	3,216,365		3,340		3,164,929		48,096
Residential loans held for sale	19,018		—		19,018		—
Derivative assets:
Interest rate swaps - fair value hedges	—		—		—		—
Interest rate swaps - nondesignated	61,319		—		61,319		—
Mortgage loan commitments	5,248		—		5,248		—
Forward sale contracts	—		—		—		—
Foreign exchange	52		—		52		—
Total derivative assets	66,619		—		66,619		—
Total fair value of assets (a)	$	3,302,002	$	3,340	$	3,250,566	$	48,096
Derivative liabilities:
Interest rate swaps - fair value hedges	23,229		—		23,229		—
Interest rate swaps - nondesignated	61,319		—		61,319		—
Forward sale contracts	1,201		—		1,201		—
Foreign exchange	54		—		54		—
Other	—		—		—		—
Total derivative liabilities	85,803		—		85,803		—
True-up liability	11,820		—		—		11,820
Total fair value of liabilities (a)	$	97,623	$	—	$	85,803	$	11,820
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	17,913	$	—	$	—	$	17,913
Impaired loans (c)	73,110		—		—		73,110
Other property (d)	10,839		—		—		10,839
Other real estate covered by loss share (e)	51,557		—		—		51,557
Total fair value	$	153,419	$	—	$	—	$	153,419

(a) - There were no transfers between levels 1 and 2 of the fair value hierarchy during the three months ended June 30, 2012.

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(Dollars in thousands)

(b) - Mortgage servicing rights with a recorded investment of $21.3 million were reduced by a specific valuation allowance totaling $3.5 million to a reported carrying value of $17.8 million resulting in recognition of a recovery of $1.3 million in the three months ended June 30, 2012.

(c) - Collateral dependent impaired loans with a recorded investment of $82.2 million were reduced by specific valuation allowance allocations totaling $9.1 million to a reported net carrying value of $73.1 million.

(d) - Amounts do not include assets held at cost at June 30, 2012. During the three months ended June 30, 2012, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.4 million included in noninterest expense.

(e) - Amounts do not include assets held at cost at June 30, 2012. During the three months ended June 30, 2012, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.7 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, 2013 and 2012, there were no significant changes to the valuation techniques used by the Corporation to measure fair value.    

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 93% 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; mortgage-backed securities ("MBSs"); securities issued by the U.S. Treasury; and certain agency and corporate collateralized mortgage obligations.  The independent pricing service uses industry-standard models to price U.S. Government agencies and MBSs 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, 2013, less than 7% of the available-for-sale portfolio is Level 3, which consists of single issuer trust preferred securities and collateralized loan obligations ("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.

CLOs 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

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(Dollars in thousands)

trading volumes and wide bid-ask spreads, all driven by more limited market participants. Although estimated 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 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 the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, 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 allowance for loan losses 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 allowance for loan losses 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 mortgage servicing rights at lower of cost or fair value, and, therefore, they subject to fair value measurements on a nonrecurring basis. Since sales of mortgage servicing rights 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 mortgage

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(Dollars in thousands)

servicing rights. 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 mortgage servicing rights within Level 3.

The Corporation utilizes a third-party vendor to perform the modeling to estimate the fair value of its mortgage servicing rights. 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 12 (Mortgage Servicing Rights and Mortgage Servicing Activity) for further information on mortgage servicing rights 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 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, 2013.

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

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(Dollars in thousands)

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.

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 discount rate used to value the true-up liability was 3.59% and 3.41% as of June 30, 2013 and 2012, respectively. Increasing or decreasing the discount rate by one percentage point would change the liability by approximately $0.7 million and $0.8 million, respectively, as of June 30, 2013.

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 $20 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 $6.8 million, $7.6 million and $6.9 million as of June 30, 2013, December 31, 2012 and June 30, 2012, 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 $47 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 $4.1 million, $4.6 million and $4.9 million as of June 30, 2013, December 31, 2012 and June 30, 2012, 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 4 (Loans) and Note 5 (Allowance for Loan Losses) for additional information on the estimated cash flows of the acquired loan portfolios.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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, 2013 and 2012 are summarized as follows:

	Three Months Ended											Six Months Ended
	June 30, 2013						June 30, 2012					June 30, 2013						June 30, 2012
	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	$	51,234		$	12,783		$	88,487		$	11,725	$	49,661		$	12,259		$	87,539		$	11,551
Fair value of assets acquired	3,271			—			—			—		3,271			—			—			—
(Gains) losses included in earnings (a)	—			(1,846		)	—			95		—			(1,322		)	—			269
Unrealized gains (losses) (b)	(1,923		)	—			1,323			—		(363		)	—			3,742			—
Purchases	159,916			—			—			—		159,916			—			—			—
Sales	—			—			(40,520		)	—		—			—			(40,520		)	—
Settlements	14			—			(1,194		)	—		27			—			(2,665		)	—
Net transfers into (out of) Level 3	—			—			—			—		—			—			—			—
Balance at ending of period	$	212,512		$	10,937		$	48,096		$	11,820	$	212,512		$	10,937		$	48,096		$	11,820

(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 U.S. 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, 2013, December 31, 2012 and June 30, 2012. The aggregate fair value, contractual balance and gain or loss on loans held for sale was as follows:

	June 30, 2013			December 31, 2012		June 30, 2012
Aggregate fair value carrying amount	$	22,855		$	23,683	$	19,018
Aggregate unpaid principal / contractual balance	23,220			22,765		18,267
Carrying amount over aggregate unpaid principal (a)	$	(365	)	$	918	$	751

(a) These changes are included in loan sales and servicing income in the Consolidated Statements of Comprehensive Income.

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, 2013, December 31, 2012 and June 30, 2012 are shown in the tables below.

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(Dollars in thousands)

	June 30, 2013
	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	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	4,258,892		4,258,892		—		—		4,258,892
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		—

	December 31, 2012
	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	258,014	$	258,014	$	—	$	258,014	$	—
Available-for-sale securities	2,920,971		2,920,971		3,241		2,868,069		49,661
Held-to-maturity securities	622,121		630,799		—		630,799		—
Other securities	140,717		140,717		—		140,717		—
Loans held for sale	23,683		23,683		—		23,683		—
Net originated loans	8,632,717		8,604,872		—		—		8,604,872
Net covered loans and loss share receivable	975,870		975,870		—		—		975,870
Accrued interest receivable	40,389		40,389		—		40,389		—
Derivatives	63,231		63,231		—		63,231		—
Financial liabilities:
Deposits	$	11,759,425	$	11,765,873	$	—	$	11,765,873	$	—
Federal funds purchased and securities sold under agreements to repurchase	1,104,525		1,104,525		—		1,104,525		—
Wholesale borrowings	136,883		143,029		—		143,029		—
Accrued interest payable	2,515		2,515		—		2,515		—
Derivatives	77,968		77,968		—		77,968		—

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(Dollars in thousands)

	June 30, 2012
	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	337,935	$	337,935	$	—	$	337,935	$	—
Available for sale securities	3,216,365		3,216,365		3,340		3,164,929		48,096
Held to maturity securities	352,221		355,120		—		355,120		—
Other securities	140,742		140,742		—		140,742		—
Loans held for sale	19,018		19,018		—		19,018		—
Net originated loans	7,996,079		7,677,176		—		—		7,677,176
Net covered loans and loss share receivable	1,229,282		1,229,282		—		—		1,229,282
Accrued interest receivable	43,727		43,727		—		43,727		—
Derivatives	66,619		66,619		—		66,619		—
Financial liabilities:
Deposits	$	11,615,841	$	11,625,406	$	—	$	11,625,406	$	—
Federal funds purchased and securities sold under agreements to repurchase	896,910		896,910		—		896,910		—
Wholesale borrowings	178,135		186,458		—		186,458		—
Accrued interest payable	3,266		3,266		—		3,266		—
Derivatives	85,803		85,803		—		85,803		—

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

Cash and due from banks – For these short-term instruments, the carrying amount is considered a reasonable estimate of 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 loans - Acquired loans were recorded at the preliminary estimated fair value on Acquisition Date. As of June 30, 2013, the carrying value of net acquired loans is considered a reasonable estimate of fair value due to the close proximity to the Acquisition Date and lack of significant changes in assumptions used to estimate the preliminary fair value as of the Acquisition Date such as expected prepayments and the amount and timing of expected principal, interest and other cash flows.

Net covered loansand loss share receivable – Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status,

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(Dollars in thousands)

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 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 projected cash flows related to the 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 fair value. Quoted market prices or the discounted cash flow method was used to 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.

12.     Mortgage Servicing Rights and Mortgage Servicing Activity

In the six months endedJune 30, 2013and2012, the Corporation sold residential mortgage loans from the held for sale portfolio with unpaid principal balances of $310.1 million and $410.2 million, respectively, and recognized pretax gains of $6.7 million and $4.2 million, respectively, which are included as a component of loan sales and servicing income.As of June 30, 2013and2012, the Corporation retained the related mortgage servicing rights on $285.3 million and $394.3 million, respectively, of the loans sold and receives servicing fees.

The Corporation serviced for third parties approximately $2.7 billion of residential mortgage loans at June 30, 2013, which includes $0.2 billion acquired in connection with the Citizens acquisition, and $2.4 billion at June 30, 2012. For the six months ended June 30, 2013 and 2012, loan servicing fees, not including valuation changes included in loan sales and servicing income, were $3.1 million and $2.8 million, respectively.

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(Dollars in thousands)

Servicing rights are presented within other assets on the accompanying consolidated balance sheets. The retained servicing rights are initially valued at fair value. Since mortgage servicing rights do not trade in an active market with readily observable prices, the Corporation relies primarily on a discounted cash flow analysis model to estimate the fair value of its mortgage servicing rights. Additional information can be found in Note 11 (Fair Value Measurement). Mortgage servicing rights are subsequently measured using the amortization method. Accordingly, the mortgage servicing rights are amortized over the period of, and in proportion to, the estimated net servicing income and is recorded in loan sales and servicing income.

In connection with the acquisition of Citizens, the Corporation recorded approximately $1.1 million of mortgage servicing rights on the Acquisition Date, which are included in the table below. Changes in the carrying amount of mortgage servicing rights and mortgage servicing rights valuation allowance are as follows:

	Three Months Ended						Six months ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Balance at beginning of period	$	21,378		$	20,946		$	21,316		$	21,179
Addition of Citizens Mortgage Servicing Rights on Acquisition Date	1,065			—			1,065			—
Additions	1,434			1,794			2,701			3,188
Amortization	(1,273		)	(1,467		)	(2,478		)	(3,094		)
Balance at end of period	22,604			21,273			22,604			21,273
Valuation allowance at beginning of period	(1,234		)	(2,193		)	(2,564		)	(3,539		)
Recoveries (Additions)	752			(1,295		)	2,082			51
Valuation Allowance at end of period	(482		)	(3,488		)	(482		)	(3,488		)
Mortgage servicing rights, net carrying balance	$	22,122		$	17,785		$	22,122		$	17,785
Fair value at end of period	$	22,529		$	17,913		$	22,529		$	17,913

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 mortgage servicing rights exceeds the 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 months endedJune 30, 2013 and 2012.

Key economic assumptions and the sensitivity of the current fair value of the mortgage servicing rights related to immediate 10% and 25% adverse changes in those assumptions at June 30, 2013 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 mortgage servicing rights 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.

74

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

Prepayment speed assumption (annual CPR)	8.97		%
Decrease in fair value from 10% adverse change	$	680
Decrease in fair value from 25% adverse change	$	1,635
Discount rate assumption	9.63		%
Decrease in fair value from 100 basis point adverse change	$	685
Decrease in fair value from 200 basis point adverse change	$	1,325
Expected weighted-average life (in months)	104.7

13.     Contingencies and Guarantees

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.

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 certified the class and the Bank and Corporation have appealed the determination.

365/360 Interest Litigation

In August 2008, a lawsuit was filed in the Cuyahoga County Court of Common Pleas against the Bank. The breach-of-contract complaint was brought as a putative class action on behalf of Ohio commercial borrowers who allegedly had the interest they owed calculated improperly by using the 365/360 method. The complaint seeks actual damages, interest, injunctive relief and attorney fees. In June 2012, the trial court certified the class and the Bank appealed the determination. In May 2013, the court of appeals reversed the trial court's decision on class certification, thereby decertifying the class, and remanded the case back to the trial court for further proceedings.

75

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

Shareholder Derivative Litigation

In July 2012, three related shareholder derivative lawsuits were filed in the United States District Court for the Northern District of Ohio. The lawsuits name as defendants the members of the Corporation's board of directors and certain senior executives, and generally alleged that the defendants breached fiduciary duties owed to the Corporation in connection with decisions concerning executive compensation and that the senior executives named as defendants were unjustly enriched by receiving excessive compensation. The lawsuits also alleged that the defendants caused the Corporation to issue incomplete or misleading disclosures concerning executive compensation in its 2012 proxy statement. Following consolidation of the lawsuits, the court dismissed the plaintiffs' consolidated complaint with prejudice in May 2013, and the matter is now concluded.

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 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, subject to approval of the court. Under the settlement, the defendants amended the joint proxy statement/prospectus relating to the merger to include certain supplemental disclosures to shareholders of Citizens. FirstMerit has agreed to pay the plaintiffs' attorneys' fees and expenses as awarded by the court, subject to court approval of the settlement.

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 reserved an amount that is immaterial to the results of operations for the Merger Litigation. No other reserves have been established 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

76

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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 allowance for unfunded lending commitments at June 30, 2013, December 31, 2012 and June 30, 2012 was $8.1 million, $5.4 million, and $5.7 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, 2013, December 31, 2012 and June 30, 2012. 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.

		June 30, 2013		December 31, 2012		June 30, 2012
Loan Commitments
	Commercial	$	3,020,138	$	2,431,023	$	2,227,184
	Consumer	2,096,495		1,720,518		1,665,681
	Total loan commitments	$	5,116,633	$	4,151,541	$	3,892,865

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, 2013, December 31, 2012 and June 30, 2012.

		June 30, 2013		December 31, 2012		June 30, 2012
Financial guarantees
	Standby letters of credit	$	243,787	$	136,202	$	138,260
	Loans sold with recourse	54,944		42,383		28,544
	Total financial guarantees	$	298,731	$	178,585	$	166,804

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 $130.0 million at June 30, 2013, the remaining guarantees extend in varying amounts through 2018.

Asset Sales

The Corporation regularly sells residential mortgage loans service retained to government sponsored enterprises ("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

77

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

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, 2013, December 31, 2012 and June 30, 2012, the Corporation had sold $45.3 million, $32.5 million and $17.8 million, respectively, of outstanding residential mortgage loans to GSEs and other investors with recourse provisions. The Corporation had reserved $7.3 million, $1.5 million, and $0.8 million as of June 30, 2013, December 31, 2012 and June 30, 2012, respectively, for potential losses from representation and warranty obligations and early payment default recourse provisions.

Due to prior acquisitions, as of June 30, 2013, the Corporation continued to service approximately $8.2 million in manufactured housing loans that were sold with recourse compared to $8.2 million and $10.7 million as of December 31, 2012 and June 30, 2012, respectively. As of June 30, 2013, the Corporation had reserved $1.1 million for potential losses from these manufactured housing loans compared to $1.2 million and $1.3 million as of December 31, 2012 and June 30, 2012, respectively.

The total reserve associated with loans sold with recourse was approximately $8.4 million, $2.7 million and $2.0 million as of June 30, 2013, December 31, 2012 and June 30, 2012, respectively, and is included in accrued taxes, expenses and other liabilities on the consolidated balance sheet. As a result of the merger with Citizens, $6.0 million was recorded in the three months ended June 30, 2013 to reflect the fair value of the liability associated with the expected commitment to repurchase mortgage loans previously sold by Citizens subject to recourse provisions. 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 and six months ended June 30, 2013 and 2012 are as follows:

	Three months ended June 30, 2013
	Reserve on residential mortgage loans			Reserve on manufactured housing loans			Total repurchase 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

	Three months ended June 30, 2012
	Reserve on residential mortgage loans			Reserve on manufactured housing loans			Total repurchased reserve
Balance at beginning of period	$	400		$	1,278		$	1,678
Net realized losses	(161		)	—			(161		)
Net increase (decrease) to reserve	511			(15		)	496
Balance at end of period	$	750		$	1,263		$	2,013

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

	Six months ended June 30, 2013
	Reserve on residential mortgage loans			Reserve on manufactured housing loans			Total repurchased 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

	Six months ended June 30, 2012
	Reserve on residential mortgage loans			Reserve on manufactured housing loans			Total repurchased reserve
Balance at beginning of period	$	470		$	1,273		$	1,743
Net realized losses	(367		)	—			(367		)
Net increase (decrease) to reserve	647			(10		)	637
Balance at end of period	$	750		$	1,263		$	2,013

14.     Changes and Reclassifications Out of Accumulated Other Comprehensive Income

The following table presents the changes in accumulated other comprehensive income by component of comprehensive income for the three and six months ended June 30, 2013:

	Three months ended June 30, 2013									Six months ended June 30, 2013
	Unrealized securities gains and losses			Pension and post- retirement costs			Total			Unrealized securities gains and losses			Pension and post- retirement costs			Total
Balance at the beginning of the period	$	47,504		$	(71,623	)	$	(24,119	)	$	55,418		$	(71,623	)	$	(16,205	)
Amounts recognized in other comprehensive income, net of taxes of $26.7 million and $31.0 million	(49,593		)	—			(49,593		)	(57,513		)	—			(57,513		)
Reclassified amounts out of accumulated other comprehensive income, net of tax of $0.978 million and $0.981 million	1,815			—			1,815			1,821			—			1,821
Balance at the end of the period	$	(274	)	$	(71,623	)	$	(71,897	)	$	(274	)	$	(71,623	)	$	(71,897	)

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

	Three months ended June 30, 2013			Six months ended June 30, 2013			Income statement line item presentation
Realized (gains) losses on sale of securities	$	2,793		$	2,802		Investment securities losses (gains), net
Tax expense (benefit) (35%)	(978		)	(981		)	Income tax expense (benefit)
Reclassified amount, net of tax	$	1,815		$	1,821

79

FIRSTMERIT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

(Dollars in thousands)

15.     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. 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.

AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)

Fully Tax-equivalent Interest Rates and Interest Differential

	Three months ended							Three months ended							Three months ended
	June 30, 2013							March 31, 2013							June 30, 2012
(Dollars in thousands)	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
ASSETS
Cash and due from banks	$	806,129						$	394,896						$	410,533
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)	4,714,823			$	24,679	2.10	%	2,790,039			$	16,294	2.37	%	2,823,055			$	19,028	2.71	%
Obligations of states and political subdivisions (tax exempt)	710,579			9,217		5.20	%	541,014			6,595		4.94	%	482,475			6,254		5.21	%
Other securities and federal funds sold	504,343			4,459		3.55	%	366,926			2,944		3.25	%	392,394			2,756		2.82	%
Total investment securities and federal funds sold	5,929,745			38,355		2.59	%	3,697,979			25,833		2.83	%	3,697,924			28,038		3.05	%
Loans held for sale	17,394			143		3.30	%	14,884			144		3.92	%	22,731			238		4.21	%
Loans, including loss share receivable	13,662,835			178,847		5.25	%	9,695,926			99,006		4.14	%	9,266,333			103,245		4.48	%
Total earning assets	19,609,974			217,345		4.45	%	13,408,789			124,983		3.78	%	12,986,988			131,521		4.07	%
Total allowance for loan losses	(146,565		)					(141,735		)					(143,565		)
Other assets	2,541,164							1,321,593							1,304,558
Total assets	$	22,810,702						$	14,983,543						$	14,558,514
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	5,095,977		$	—	—	%	$	3,321,660		$	—	—	%	$	3,144,183		$	—	—	%
Interest-bearing	2,347,155			656		0.11	%	1,300,816			318		0.10	%	1,060,771			236		0.09	%
Savings and money market accounts	8,210,780			6,469		0.32	%	5,835,750			5,315		0.37	%	5,732,007			5,033		0.35	%
Certificates and other time deposits	2,680,332			3,374		0.50	%	1,331,558			2,063		0.63	%	1,618,322			3,169		0.79	%
Total deposits	18,334,244			10,499		0.23	%	11,789,784			7,696		0.26	%	11,555,283			8,438		0.29	%
Securities sold under agreements to repurchase	927,451			329		0.14	%	906,717			313		0.14	%	920,352			276		0.12	%
Wholesale borrowings	237,887			1,169		1.97	%	136,298			850		2.53	%	177,987			1,118		2.53	%
Long-term debt	314,597			3,743		4.77	%	155,506			1,748		4.56	%	—			—		—	%
Total interest-bearing liabilities	14,718,202			15,740		0.43	%	9,666,645			10,607		0.45	%	9,509,439			9,832		0.42	%
Other liabilities	424,559							280,233							305,705
Shareholders’ equity	2,571,964							1,715,005							1,599,187
Total liabilities and shareholders’ equity	$	22,810,702						$	14,983,543						$	14,558,514
Net yield on earning assets	$	19,609,974		$	201,605	4.12	%	$	13,408,789		$	114,376	3.46	%	$	12,986,988		$	121,689	3.77	%
Interest rate spread						4.02	%						3.34	%						3.66	%

Note: Interest income on tax-exempt securities and loans has been adjusted to a fully-taxable equivalent basis. Nonaccrual loans have been included in the average balances.

81

	Six months ended							Six months ended
	June 30, 2013							June 30, 2012
(Dollars in thousands)	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
ASSETS
Cash and due from banks	$	601,649						$	394,634
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)	3,757,748			$	40,974	2.20	%	2,852,550			$	38,707	2.73	%
Obligations of states and political subdivisions (tax exempt)	626,265			15,812		5.09	%	459,640			12,118		5.30	%
Other securities and federal funds sold	436,014			7,403		3.42	%	382,184			5,494		2.89	%
Total investment securities and federal funds sold	4,820,027			64,189		2.69	%	3,694,374			56,319		3.07	%
Loans held for sale	16,146			287		3.58	%	24,607			522		4.27	%
Loans, including loss share receivable	11,690,339			277,852		4.79	%	9,242,105			206,400		4.49	%
Total earning assets	16,526,512			342,328		4.18	%	12,961,086			263,241		4.08	%
Total allowance for loan losses	(144,164		)					(143,096		)
Other assets	1,930,584							1,314,888
Total assets	$	18,914,581						$	14,527,512
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	4,213,720		$	—	—	%	$	3,090,386		$	—	—%
Interest-bearing	1,826,876			974		0.11	%	1,063,451			483		0.09	%
Savings and money market accounts	7,029,826			11,784		0.34	%	5,703,530			10,136		0.36	%
Certificates and other time deposits	2,009,671			5,437		0.55	%	1,656,284			6,693		0.81	%
Total deposits	15,080,093			18,195		0.24	%	11,513,651			17,312		0.30	%
Securities sold under agreements to repurchase	917,141			642		0.14	%	904,033			544		0.12	%
Wholesale borrowings	187,373			2,019		2.17	%	181,323			2,269		2.52	%
Long-term debt	235,491			5,491		4.70	%	—			—		—	%
Total interest-bearing liabilities	12,206,378			26,347		0.44	%	9,508,621			20,125		0.43	%
Other liabilities	348,632							338,408
Shareholders’ equity	2,145,851							1,590,097
Total liabilities and shareholders’ equity	$	18,914,581						$	14,527,512
Net yield on earning assets	$	16,526,512		$	315,981	3.86	%	$	12,961,086		$	243,116	3.77	%
Interest rate spread						3.74	%						3.66	%

Note: Interest income on tax-exempt securities and loans has been adjusted to a fully-taxable equivalent basis. Nonaccrual loans have been included in the average balances.

82

HIGHLIGHTS OF SECOND QUARTER2013 PERFORMANCE

Earnings Summary

The Corporation reported second quarter 2013 net income of $48.5 million, or $0.29 per diluted share. This compares with $37.3 million, or $0.33 per diluted share, for the first quarter 2013 and $30.6 million, or $0.28 per diluted share, for the second quarter 2012. Included in net income for the second quarter of 2013 were $29.3 million of one time pre-tax merger-related costs as well as a loss on sale of securities of $2.8 million resulting from the sale of securities acquired from Citizens. One time pre-tax merger costs for the first quarter of 2013 totaled $3.6 million and were recorded as noninterest expense.

    The Corporation completed its acquisition of Citizens headquartered in Flint, Michigan in the quarter ended June 30, 2013. The impact of the acquisition is reflected in the Corporation's financial information from Acquisition Date. The acquisition added $9.3 billion in assets, $4.6 billion in loans and $7.3 billion in deposits. The purchase price of the acquisition was $1.3 billion, including the exchange of Citizens' common stock for 55.5 million shares of the Corporation's outstanding common stock and $355.4 million paid to the U.S. Treasury for Citizens' preferred stock and unpaid dividends and interest. Citizens' results of operations are included in the results for the three and six month periods ending June 30, 2013 since the Acquisition Date. Additional information can be found in the Financial Condition section under the heading "Acquisitions".

Returns on average common equity (“ROE”) and average assets (“ROA”) for the second quarter 2013 were 7.56% and 0.85%, respectively, compared with 8.83% and 1.01%, respectively, for the first quarter 2013 and 7.69% and 0.84% for the second quarter 2012.

Net Interest Income

Net interest income on a fully tax-equivalent (“FTE”) basis was $201.6 million in the second quarter 2013 compared with $114.4 million in the first quarter 2013 and $121.7 million in the second quarter 2012.

Net interest margin was 4.12% for the second quarter 2013 compared with 3.46% for the first quarter 2013 and 3.77% for the second quarter 2012. Net interest margin in the second quarter 2013 was impacted by the net accretion of the fair value adjustments on the acquired loans and certificates of deposits.

Average originated loans were $8.9 billion during the second quarter 2013, an increase of $142.4 million, or 1.63%, compared with the first quarter 2013, and an increase of $936.6 million, or 11.79%, compared with the second quarter 2012. Average originated commercial loans increased$29.1 million, or 0.50%, compared with the prior quarter, and increased$614.6 million, or 11.65%, compared with the year ago quarter.

Average deposits were $18.3 billion during the second quarter 2013, an increase of $6.5 billion, or 55.51%, compared with the first quarter 2013, and an increase of $6.8 billion, or 58.67%, compared with the second quarter 2012. Average balances include Citizens' deposit portfolio since the Acquisition Date. During the second quarter 2013, average core deposits, which exclude time deposits, increased$5.2 billion, or 49.68%, compared with the first quarter 2013 and increased$5.7 billion, or 57.53%, compared with the second quarter 2012. Average time deposits increased$1.3 billion, or 101.29%, and increased$1.1 billion, or 65.62%, respectively, over prior and year-ago quarters. For the second quarter 2013, average core deposits accounted for 85.38% of total average deposits, compared with 88.71% for thefirst quarter 2013 and 85.99% for the second quarter 2012.

83

Average investments increased$2.2 billion, or 60.35%, compared with the first quarter 2013 and increased$2.2 billion, or 60.35% compared with the second quarter 2012.

Noninterest Income

Noninterest income for the second quarter 2013, excluding losses on securities transactions of $2.8 million related to dispositions of securities acquired from Citizens, was $72.2 million, an increase of $14.8 million, or 25.84%, from the first quarter 2013 and an increase of $17.5 million, or 31.93%, from the second quarter 2012. Included in noninterest income in the second quarter of 2013, the first quarter of 2013 and the second quarter of 2012 was approximately $1.0 million, $5.0 million and $2.6 million of gains on covered loans paid in full, respectively.

Other income, excluding net securities gains and losses, as a percentage of net revenue for the second quarter 2013 was 26.38% compared with 33.42% for first quarter 2013 and 31.03% for the second quarter 2012. Net revenue is defined as net interest income, on an FTE basis, plus other income, excluding gains and losses from securities sales.

Noninterest Expense

Noninterest expense for the second quarter 2013 was $189.6 million, an increase of $82.7 million, or 77.36%, from the first quarter 2013 and an increase of $70.6 million, or 59.26%, from the second quarter 2012. Included in noninterest expense in the second quarter of 2013 and first quarter of 2013 were one-time merger related costs associated with the Citizens acquisition of $29.3 million and $3.6 million, respectively. The majority of these one time costs were from severance arrangements and professional and legal services rendered in connection with the merger. The Corporation's efficiency ratio was 68.37% for the second quarter 2013, compared with 62.06% for the first quarter 2013 and 67.21% for the second quarter 2012.

Asset Quality (excluding acquired loans and covered assets)

Due to the impact of acquisition 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 allowance brought forward in accordance with acquisition accounting. Impaired acquired and covered loans are considered to be performing due to the application of the accretion method under acquisition accounting.

Net charge-offs on originated loans totaled $3.3 million, or 0.15% of average originated loans in the second quarter 2013, compared with $5.9 million, or 0.27% of average originated loans, in the first quarter 2013 and $8.8 million, or 0.44% of average originated loans, in the second quarter 2012.

Nonperforming assets totaled $66.2 million at June 30, 2013, an increase of $13.9 million, or 26.70%, compared with March 31, 2013 and an increase of $5.1 million, or 8.34%, compared with June 30, 2012. Nonperforming assets at June 30, 2013 represented 0.72% of period-end originated loans plus other real estate compared with 0.59% at March 31, 2013 and 0.75% at June 30, 2012.

The allowance for originated loan losses totaled $98.6 million at June 30, 2013. At June 30, 2013, the allowance for originated loan losses was 1.08% of period-end originated loans compared with 1.13% at

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March 31, 2013 and 1.28% at June 30, 2012. The allowance for credit losses is the sum of the allowance for originated loan losses and the reserve for unfunded lending commitments. For comparative purposes, the allowance for credit losses was 1.17% of period end originated loans at June 30, 2013, compared with 1.18% at March 31, 2013 and 1.35% at June 30, 2012. The allowance for credit losses to nonperforming loans was 234.82% at June 30, 2013, compared with 254.32% at March 31, 2013 and 234.57% at June 30, 2012.

Balance Sheet

The Corporation’s total assets at June 30, 2013 were $23.5 billion, an increase of $8.3 billion, or 54.08%, compared with March 31, 2013 and an increase of $8.9 billion, or 60.94%, compared with June 30, 2012.

Total deposits were $19.1 billion at June 30, 2013, an increase of $7.2 billion, or 60.32%, from March 31, 2013 and an increase of $7.5 billion, or 64.60%, from June 30, 2012. Core deposits totaled $16.3 billion at June 30, 2013, an increase of $5.7 billion, or 53.47%, from March 31, 2013 and an increase of $6.3 billion, or 62.42%, from June 30, 2012.

Shareholders’ equity was $2.7 billion as of June 30, 2013 and $1.8 billion as of March 31, 2013 and $1.6 billion as of June 30, 2012. The increases mainly reflect the addition of $928.3 million in equity from the Citizen acquisition. The Corporation maintained a strong capital position as tangible common equity to assets was 7.61% at June 30, 2013, compared with 8.03% at March 31, 2013 and 8.01% at June 30, 2012. The common cash dividend per share paid in the second quarter 2013 was $0.16.

SUPERVISION AND REGULATION

In response to the worldwide economic and credit conditions, and in efforts to stabilize and strengthen the financial markets and banking industries, the United States Congress and governmental agencies have taken a number of significant actions over the past several years, including the passage of legislation and implementation of a number of programs and regulations. The most comprehensive of these actions was the passage into law, on July 21, 2010, of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). The Dodd-Frank Act affects almost every aspect of the nation’s financial services industry and mandates change in several key areas, including regulation and compliance (both with respect to financial institutions and systemically important nonbank financial companies), securities regulation, executive compensation, regulation of derivatives, corporate governance, and consumer protection.

The preemption of certain state laws previously granted to national banking associations by the OCC under the National Bank Act have 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 new Bureau of Consumer Financial Protection (the “Bureau” or "CFPB"). The Bureau 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 July 31, 2013, a United States District Court in Washington D.C., granted summary judgment to several retailers and retail trade associations regarding their claims that the Federal Reserve had not properly evaluated and set debit card interchange fees consistent with the Durbin Amendment to the Dodd-Frank Act. If this ruling stands, the Federal Reserve may revisit its interchange fees analysis and may further decrease

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permissible interchanges fees from those it initially determined under the Durbin Amendment, which could adversely affect our revenue from these activities.

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

On June 10, 2013, the Bank became subject to the Dodd-Frank 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. (Chicago Mercantile Exchange) and LCH.Clearnet Group Ltd. are the Bank's approved clearing houses.

New Capital Rules

In July 2013, the Federal Reserve and the OCC jointly adopted final rules to implement the Basel Committee on Banking Supervision's (the “Basel Committee”) regulatory capital reforms ("Basel III") and regulatory capital changes required by the Dodd-Frank Act.

These changes will apply to the Corporation and the Bank. Among other things, the rules include new minimum risk-based and leverage capital requirements for all banking organizations and removal of references to credit ratings. Consistent with the Basel III framework, the rules include a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5%. A new common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets is being phased-in over a transition period ending December 31, 2018. The minimum ratio of tier 1 capital to risk-weighted assets is increased from 4.0% to 6.0% and includes a minimum leverage ratio of 4.0% for all banking organizations. The required total risk based capital ratio will not change. The new rules provide strict eligibility criteria for regulatory capital instruments, and change the prompt corrective action scheme to reflect the new 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 to enhance risk sensitivity.

Management is evaluating the new rules and their effects on the Corporation, but Management believes the Corporation 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. There are various transition rules. Other changes are being considered and the Federal Reserve and the other federal banking agencies have not yet proposed rules implementing Basel III's liquidity rules.

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 beginning Fall 2013 under rules the federal bank regulatory agencies issued in October 2012. The first stress tests by medium sized companies currently are due to be submitted to the regulators in early March 2014.

Stress tests assess the potential impact of scenarios on the consolidated earnings, balance sheet and capital of a bank holding company or bank over a designated planning horizon of nine quarters, taking into

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account the organization's current condition, risks, exposures, strategies, and activities, and such factors as the regulators may request of a specific organization. These are tested against baseline, adverse, and severely adverse scenarios specified by the Federal Reserve for the Corporation and by the OCC for the Bank.

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 expectations for stress tests by medium sized companies.

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 (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 is in the process of preparing for our initial stress tests.

Other Legislation

Various legislation affecting financial institutions and the financial industry will likely continue to be introduced in Congress, 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 cost of doing business, limit or expand permissible activities or affect the competitive balance depending upon whether any of this potential legislation is enacted, and if enacted, the effect that it or any implementing regulations, would have on the financial condition or results of operations of the Corporation or any of its subsidiaries.

To the extent that the previous 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 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.

NON-GAAP FINANCIAL MEASURES

The table below presents computations of earnings (loss) and certain other financial measures including "tangible common equity," "Tier 1 common equity", "tangible common equity to tangible assets ratio", "Basel III Tier 1 common ratio", "fee income ratio" and "efficiency ratio", all of which are non-GAAP measures. The table below also reconciles the U.S. GAAP performance measures to the corresponding non-GAAP 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. Management and the Board of Directors utilize these non-GAAP financial measures as follows:

• Preparation of operating budgets

• Monthly financial performance reporting

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• 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

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 Bank Holding Company ("BHC") capital adequacy based on Tier 1 capital, the calculation of which is codified in federal banking regulations. In connection with the Federal Reserve's Comprehensive Capital Analysis and Review ("CCAR") process, these regulators are supplementing their assessment of the capital adequacy of a bank based on a variation of Tier 1 capital, known as Tier 1 common equity, and the new Basel III rules include a common equity Tier I capital to risk-weighted assets 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 measure including on a risk-weighted basis. Tangible common equity and Tier 1 common equity are not formally defined by U.S. 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, Management believes that it is useful to provide investors information enabling them to assess the Corporation's capital adequacy on these same bases.

Tier 1 common equity is often expressed as a percentage of risk-weighted assets. Under the risk-based capital framework, a bank's balance sheet assets and credit equivalent amounts of off-balance sheet items are assigned to one of the 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 (non-GAAP). Tier 1 common equity is also divided by the risk-weighted assets to determine the Tier 1 common equity ratio. The amounts disclosed as risk-weighted assets are calculated consistent with banking regulatory requirements.

The Corporation currently calculates its risk-based capital ratios under guidelines adopted by the Federal Reserve based on the Basel Committee's 1988 Capital Accord ("Basel I"). In December 2010, the Basel Committee released its final framework for Basel III, which will strengthen international capital and liquidity regulation. When implemented by U.S. bank regulatory agencies and fully phased-in, Basel III 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 framework, including the Corporation's reading of the requirements, and informal feedback received through the regulatory process. The Corporation's understanding of the Federal Reserve's 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 on January 1, 2015. Because the Basel III rules are not formally defined by U.S. GAAP, these measures are considered to be non-GAAP financial measures, and other entities may calculate them differently from the Corporation's disclosed calculations. Since analysts and banking regulators may assess the Corporation's capital adequacy using the Basel III framework, Management believes that it is useful to provide investors information enabling them to assess the Corporation's capital adequacy on the same basis.

The efficiency ratio (non-GAAP), which is a measure of productivity, is generally calculated as other expense divided by total revenue on a taxable equivalent basis. The fee income ratio (non-GAAP) is generally calculated as other income divided by total revenue. Management uses these ratios to monitor performance and believes these measures provide meaningful information to investors. Other expense may be presented

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excluding adjustments to arrive at adjusted other expense (non-GAAP), which is the numerator for the efficiency ratio. Other income may be presented excluding adjustments to arrive at adjusted other income (non-GAAP), which is the numerator for the fee income ratio. Net interest income on a taxable equivalent basis (non-GAAP) and other income are added together to arrive at total adjusted revenue (non-GAAP). Adjustments are made to arrive at adjusted total revenue (non-GAAP), which is the denominator for the fee income and efficiency ratios. 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.

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.

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GAAP to Non-GAAP Reconciliations
			June 30, 2013			December 31, 2012			June 30, 2012
			(Dollars in thousands)
Tangible common equity to tangible assets at period end
	Shareholders’ equity (GAAP)		$	2,650,909		$	1,645,202		$	1,600,815
	Less:	Intangible assets	88,419			6,373			7,274
		Goodwill	734,382			460,044			460,044
		Preferred Stock	100,000			—			—
	Tangible common equity (non-GAAP)		$	1,728,108		$	1,178,785		$	1,133,497
	Total assets (GAAP)		23,532,129			14,913,012			14,621,344
	Less:	Intangible assets	88,419			6,373			7,274
		Goodwill	734,382			460,044			460,044
	Tangible assets (non-GAAP)		$	22,709,328		$	14,446,595		$	14,154,026
	Tangible common equity to tangible assets ratio (non-GAAP)		7.61		%	8.16		%	8.01		%
Tier 1 common equity (1)
	Shareholders' equity (GAAP)		$	2,650,909		$	1,645,202		$	1,600,815
	Plus:	Net unrealized (gains) losses on available-for-sale securities	274			(55,418		)	(59,187		)
		Losses recorded in AOCI related to defined benefit postretirement plans (6)	71,623			71,623			77,612
		Trust Preferred	74,499			—			—
	Less:	Goodwill	734,382			460,044			460,044
		Intangible assets	88,419			6,373			7,274
		Disallowed deferred tax asset	130,693			—			—
		Other adjustments (4)	2,841			1,802			1,663
	Tier 1 capital (regulatory)		1,840,970			1,193,188			1,150,259
	Less:	Preferred stock	100,000			—			—
	Tier 1 common equity (non-GAAP)		$	1,740,970		$	1,193,188		$	1,150,259
	Risk-weighted assets (regulatory)		$	16,152,240		$	10,607,832		$	10,093,465
	Tier 1 common equity ratio (non-GAAP)		10.78		%	11.25		%	11.40		%
Basel III Tier 1 Common Ratio (2)
	Shareholders' equity (GAAP)		$	2,650,909		$	1,645,202		$	1,600,815
	Less:	Non-qualifying goodwill	734,382			460,044			460,044
		Non-qualifying intangible assets (3)	88,419			6,373			7,274
		Other adjustments (4)	2,841			1,802			1,663
	Basel III tier 1 capital (regulatory)		1,825,267			1,176,983			1,131,834
	Less:	Preferred stock	100,000			—			—
	Basel III tier 1 common equity (regulatory)		$	1,725,267		$	1,176,983		$	1,131,834
	Basel III risk-weighted assets (regulatory) (5)		$	16,411,917		$	10,607,832		$	10,093,465
	Basel III tier 1 common equity ratio (non-GAAP)		10.51		%	11.10		%	11.21		%

(1) Tier 1 common equity is a measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews this measure along with other measures of capital as part of its internal financial analysis.

(2) Estimate based on July 2013 Notice of Final Rule by the Federal Reserve and the OCC.

(3) Under Basel III, regulatory capital must be reduced by purchased credit card relationship intangible assets on a phased in basis with a 40% reduction beginning January 1, 2015 with a 100% reduction beginning January 1, 2018. These assets are partially allowed in Basel I capital.

(4) These include adjustments to other comprehensive income related to threshold deductions and other adjustments.

(5) The Corporation continues to develop systems and internal controls to calculate risk-weighted assets as required by Basel III. The amount included above is an approximation, based on our understanding of the requirements.

(6) Management is in the process of determining whether or not the Corporation will make a one-time "opt-out" election, allowing such banking organizations consistent, with the July 2013 Basel III regulatory rules, to exclude most AOCI elements from regulatory capital. This opt-out election is available only to banking organizations not subject to the advanced approaches rule and must be made in the first Consolidated Reports of Condition and Income (call report) or FR-Y9 series report filed after a banking organization becomes subject to the final rule.

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GAAP to Non-GAAP Reconciliations, continued
			Three months ended						Six months ended
			June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
			(Dollars in thousands)
Fee Income and Efficiency Ratios
	Other expense (GAAP)		$	189,640		$	119,077		$	296,565		$	232,845
	Significant items:
	Less:	Intangible asset amortization	2,411			483			2,728			966
		Other intangible asset amortization	—			—			—			—
		Adjusted other expense (non-GAAP)	$	187,229		$	118,594		$	293,837		$	231,879
	Net interest income (FTE) (non-GAAP)		$	201,605		$	121,689		$	315,980		$	243,116
	Other income (GAAP)		69,439			55,301			126,832			107,027
	Significant Items:
	Less:	Securities gains (losses)	(2,794		)	548			(2,803		)	808
		Adjusted other income (non-GAAP)	72,233			54,753			129,635			106,219
		Adjusted revenue (non-GAAP)	$	273,838		$	176,442		$	445,615		$	349,335
	Fee income ratio (non-GAAP)		26.38		%	31.03		%	29.09		%	30.41		%
	Efficiency ratio (non-GAAP)		68.37		%	67.21		%	65.94		%	66.38		%

RESULTS OF OPERATIONS

Net Interest Income

Net interest income, the Corporation's principal source of earnings, is the difference between interest income generated by earning assets (primarily loans and investment securities) and interest paid on interest-bearing funds (namely customer deposits, wholesale borrowings and long-term debt). Net interest income is affected by market interest rates on both earning assets and interest bearing liabilities, the level of earning assets being funded by interest bearing liabilities, noninterest-bearing liabilities, the mix of funding between interest bearing liabilities, noninterest-bearing liabilities and equity, and the growth in earning assets.

Net interest income for the three months ended June 30, 2013 was $198.0 million compared to $118.9 million for three months ended June 30, 2012 and $309.4 million compared to $237.7 million for the six months endedJune 30, 2013 and 2012, respectively.

For the purpose of this remaining discussion, net interest income is presented on a FTE basis, to provide a comparison among all types of interest earning assets. 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 non-deductible portion of interest expense incurred to acquire the tax-free assets. Net interest income presented on a FTE basis is a financial measure that is calculated and presented other than in accordance with U.S. 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 FTE adjustment was $3.6 million and $2.8 million for the three months ended June 30, 2013 and 2012, respectively and $6.6 million and $5.4 million for the six months endedJune 30, 2013 and 2012, respectively.

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Net interest income presented on an FTE basis for the three months ended June 30, 2013increased$79.9 million or 65.67% to $201.6 million compared to $121.7 million for the three months ended June 30, 2012 and increased$72.9 million or 29.99% to $316.0 million for the six months endedJune 30, 2013, compared to $243.1 million for the six months endedJune 30,2012. Net interest margin in the current period was impacted by the net accretion of the fair value adjustments on the acquired loans and certificates of deposits.

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.

CHANGES IN NET INTEREST INCOME- FULLY TAX-EQUIVALENT RATE/VOLUME ANALYSIS
	Three months ended June 30,									Six months ended June 30,
	2013 and 2012									2013 and 2012
	Increase (Decrease) In Interest Income/Expense									Increase (Decrease) In Interest Income/Expense
	Volume			Yield/ Rate			Total			Volume			Yield/ Rate			Total
	( Dollars in thousands)									( Dollars in thousands)
INTEREST INCOME -FTE
Investment securities and federal funds sold:
Taxable	$	11,713		$	(4,359	)	$	7,354		$	11,766		$	(7,590	)	$	4,176
Tax-exempt	2,959			4			2,963			4,226			(532		)	3,694
Loans held for sale	(50		)	(45		)	(95		)	(159		)	(76		)	(235		)
Loans	55,243			20,359			75,602			57,503			13,949			71,452
Total interest income -FTE	69,865			15,959			85,824			73,336			5,751			79,087
INTEREST EXPENSE
Interest on deposits:
Interest bearing	347			73			420			395			96			491
Savings and money market accounts	1,996			(560		)	1,436			2,249			(601		)	1,648
Certificates and other time deposits ("CDs")	1,599			(1,394		)	205			1,243			(2,499		)	(1,256		)
Securities sold under agreements to repurchase	3			50			53			8			90			98
Wholesale borrowings	326			(275		)	51			74			(324		)	(250		)
Long-term debt	3,743			—			3,743			5,491			—			5,491
Total interest expense	8,014			(2,106		)	5,908			9,460			(3,238		)	6,222
Net interest income - FTE	$	61,851		$	18,065		$	79,916		$	63,876		$	8,989		$	72,865
Note: Rate/volume variances are allocated on the basis of absolute value of the change in each.

The net interest margin is calculated by dividing net interest income - FTE by average earning assets. As with net interest income, the net interest margin is affected by the level and mix of earning assets, the proportion of earning assets funded by non-interest 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.

The following table provides FTE net interest income and net interest margin totals for the three and six months ended June 30, 2013 and 2012:

	Three months ended June 30,						Six months ended June 30,
	2013			2012			June 30, 2013			June 30, 2012
	(Dollars in thousands)
Net interest income	$	198,031		$	118,923		$	309,379		$	237,710
Tax equivalent adjustment	6,601			2,766			6,601			5,407
Net interest income - FTE	$	201,605		121,689			315,980			243,117
Average earning assets	$	19,609,974		$	12,986,988		$	16,526,512		$	12,961,086
Net interest margin	4.12		%	3.77		%	3.86		%	3.77		%

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The average yield on earning assets increased from 4.07% in the second quarter of 2012 to 4.45% in the second quarter of 2013. Average earning assets include Citizens' assets from the date of acquisition resulting in the overall increase in total quarterly average earning assets. The net accretion of the fair value adjustments on the acquired loans and certificates of deposits resulted in an increase in average yield during the second quarter of 2013, thereby causing interest income to increase$85.8 million from year-ago levels. Quarterly average balances for investment securities were also up from the year ago quarter increasing investment interest income by $14.7 million, while lower rates earned on the securities decreased investment interest income by $4.4 million year over year. Higher quarterly average loans outstanding, which include Citizens' loan portfolio from the date of acquisition, increased loan interest income by $55.2 million and higher yields earned on the acquired loans increased loan interest income by $20.4 million from year-ago levels. Outstanding balances on quarterly average deposits increased as a result of the acquisition of Citizens' deposit portfolio. The increase in average balances were partially offset by lower rates paid on deposits causing a net increase of $2.1 million in interest expense for the three months ended June 30, 2013. Quarterly average long-term debt issued in the first quarter of 2013 caused interest expense to increase by $3.7 million during the three months ended June 30, 2013. The cost of funds for the year as a percentage of average earning assets remained flat at 0.08% for the three months ended June 30, 2012 and June 30, 2013.

Other Income

Excluding investment securities transactions, other income for the three months and six months ended June 30, 2013 totaled $72.2 million and $129.6 million, respectively, compared with $54.8 million and $106.2 millionin the same periods one year ago. Other income as a percentage of net revenue (FTE net interest income plus other income, less securities transactions) was 26.38% for the three months ended June 30, 2013 compared to 31.03% for the same three month period one year ago and 29.09% for the six months ended June 30, 2013 compared to 30.41% for the same six month period one year ago. Except as noted below, the Citizens acquisition is primarily contributing to the quarter over quarter increase of $14.8 million or 25.84% and the year over year increase of $23.4 million or 22.05%.

	Three months ended June 30,					Six months ended June 30,
	2013			2012		2013			2012
	(In thousands)
Trust department income	$	9,167		$	5,730	$	14,907		$	11,357
Service charges on deposits	20,582			14,478		33,168			28,887
Credit card fees	14,317			11,216		24,540			21,396
ATM and other service fees	4,945			3,890		8,280			7,680
Bank owned life insurance income	3,641			2,923		8,538			5,979
Investment services and life insurance	3,429			2,388		5,844			4,635
Investment securities (losses)/gains, net	(2,794		)	548		(2,803		)	808
Loan sales and servicing income	7,985			5,139		15,848			11,830
Other operating income	8,167			8,989		18,510			14,455
	$	69,439		$	55,301	$	126,832		$	107,027

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 merger with Citizens. Certain acquired investments were sold to reduce prepayment and credit risk with reinvestment of approximately $1.5

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billion and liquidation of high-cost borrowings in the amount of $695.0 million. Loan sales and servicing income in the three months ended June 30, 2012 included $1.3 million in impairment charges on mortgage servicing rights. The rise in rates year over year resulted in an $0.8 million recovery of impairment charges on mortgage servicing rights during the three months ended June 30, 2013.

Bank owned life insurance income increased$2.6 million or 42.80% from the first six months of 2012 as a result of a death benefit received in the first quarter of 2013. Other operating income increased$4.1 million or 28.05% from the first six months of 2012. Included in other operating income for the six months ended June 30, 2013 was $5.0 million in gains from covered loan payoffs and related income compared to $3.0 million in gains in the six months ended June 30, 2012. Gains on covered loan payoffs represent the difference between the credit mark on the paid-off loans less the remaining associated indemnification asset.

Other Expenses

Other expenses for the three and six months ended June 30, 2013 totaled $189.6 million and $296.6 million, respectively, compared with $119.1 millionand $232.8 million in the same periods one year ago. Except as noted below, the Citizens acquisition is primarily contributing to the quarter over quarter increase of $70.6 million or 59.26% and the year over year increase of $63.7 million or 27.37%.

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
	(In thousands)
Salaries and wages	$	85,680	$	48,766	$	132,071	$	94,476
Pension and employee benefits	19,419		12,832		30,933		31,095
Net occupancy expense	13,346		7,971		21,628		16,563
Equipment expense	10,309		7,598		17,659		14,702
Taxes, other than federal income taxes	2,891		2,020		4,814		3,975
Stationery, supplies and postage	3,407		2,285		5,503		4,428
Bankcard, loan processing, and other costs	12,417		8,858		20,257		16,511
Advertising	3,745		2,280		5,814		3,964
Professional services	17,144		9,307		22,554		12,659
Telephone	2,728		1,379		3,905		2,777
Amortization of intangibles	2,411		483		2,728		966
FDIC expense	4,149		3,463		7,675		7,183
Other operating expense	11,994		11,835		21,024		23,546
	$	189,640	$	119,077	$	296,565	$	232,845

Total salaries and wages and pension and employee benefits increased $43.5 million or 70.62% compared to the prior year ago quarter and increased $37.4 million or 29.81% compared to the same year ago period. The increases are mainly due to additional full time equivalent employees, additional incentive expense and salary increases associated with the Citizens acquisition. Included in this amount is $18.4 million in merger-related retention and severance costs. Additionally, pension expense decreased $3.1 million quarter over quarter and $6.1 million year over year as a result of the qualified defined benefit pension plan being frozen effective December 31, 2012 resulting in no benefits accruing after December 31, 2012. Professional services expense for the three and six months ended June 30, 2013 included one-time merger related costs of $9.5 million and $12.6 million, respectively. Other merger-related and integration costs include $0.3 million in stationary and supplies and $0.4 million in advertising.

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The efficiency ratio for the second quarter of 2013 was 68.37% compared to 67.21% in the same period of 2012. Net revenue is defined as net interest income, on an FTE basis, plus other income less gains from the sales of securities.

Income Taxes

Income tax expense was $22.1 million and $12.4 million for the three months ended June 30, 2013 and 2012, respectively. The effective income tax rate for the three months ended June 30, 2013 was 31.30% compared to 28.79% for the three months ended June 30, 2012.

Income tax expense was $36.6 million and $24.7 million for the six months ended June 30, 2013 and 2012, respectively. The effective income tax rate for the six months ended June 30, 2013 was 29.90% compared to 28.85% for the six months ended June 30, 2012.

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. The following tables present a summary of financial results for the three and six months endedJune 30, 2013 and 2012. Except as noted below, the Citizens acquisition is primarily contributing to the period over period variances.

	Commercial				Retail				Wealth					Other						FirstMerit Consolidated
June 30, 2013	QTD		YTD		QTD		YTD		QTD			YTD		QTD			YTD			QTD		YTD
OPERATIONS:
Net interest income (loss) - FTE	$	110,604	$	177,045	$	89,701	$	136,132	$	3,774		$	7,549	$	(2,474	)	$	(4,746	)	$	201,605	$	315,980
Provision for loan losses	2,120		6,886		2,101		6,174		(42		)	166		3,130			4,030			7,309		17,256
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		38,405			39,222			189,640		296,565
Net income (loss)	49,783		73,805		23,021		32,016		1,824			2,930		(26,178		)	(22,955		)	48,450		85,796
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
Loans (noncovered and covered)	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
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
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
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

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	Commercial				Retail				Wealth					Other						FirstMerit Consolidated
June 30, 2012	QTD		YTD		QTD		YTD		QTD			YTD		QTD			YTD			QTD		YTD
OPERATIONS:
Net interest income (loss) - FTE	$	65,297	$	129,970	$	53,287	$	107,564	$	4,590		$	9,189	$	(1,485	)	$	(3,607	)	$	121,689	$	243,116
Provision for loan losses	3,465		12,570		1,728		4,265		(24		)	201		7,027			9,221			12,196		26,257
Other income	18,047		32,356		24,177		49,443		8,392			16,460		4,685			8,768			55,301		107,027
Other expenses	40,128		83,479		56,784		115,830		9,792			20,007		12,373			13,529			119,077		232,845
Net income (loss)	25,304		42,013		12,319		23,992		2,090			3,536		(9,128		)	(8,612		)	30,585		60,929
AVERAGES:
Assets	6,364,148		6,346,311		2,918,710		2,914,532		237,548			237,060		5,038,108			5,029,609			14,558,514		14,527,512
Loans (noncovered and covered)	6,335,933		6,321,190		2,642,000		2,638,351		223,903			223,517		64,497			59,047			9,266,333		9,242,105
Earnings assets	6,436,799		6,416,955		2,673,725		2,671,895		223,928			223,543		3,652,536			3,648,693			12,986,988		12,961,086
Deposits	3,203,039		3,171,118		7,529,162		7,497,015		705,824			702,262		117,258			143,256			11,555,283		11,513,651
Economic Capital	392,352		389,712		209,979		212,122		49,521			48,813		947,335			939,450			1,599,187		1,590,097

Loan growth in the originated loan portfolio and lower losses on loans during the three months ended June 30, 2013 resulted in an increase in the commercial segment's net income of $24.5 million to $49.8 million. FTE adjusted net interest income for the commercial segment totaled $110.6 million for the three months ended June 30, 2013 compared to $65.3 million for the three months ended June 30, 2012, an increase of $45.3 million, or 69.39%. Provision for credit losses for the commercial segment totaled $2.1 million for the three months ended June 30, 2013 compared to $3.5 million for the three months ended June 30, 2012, a decrease of $1.3 million, or 38.82%. The continued decline in provision for loan losses reflected the results of Management's focused efforts to improve asset quality and portfolio credit metrics. Net charge-offs declined $4.8 million to $0.2 million for the three months ended June 30, 2013. The remaining provision covered substantial loan growth in originated loans. Non-interest income was $20.9 million for the three months ended June 30, 2013 compared to $18.0 million for the same period in 2012. Lower gains realized on covered loans paid in full partially offset the period over period increase resulting from the acquisition of Citizens. Non-interest expense for the commercial segment was $51.9 million for the three months ended June 30, 2013 compared to $40.1 million for the same period of 2012. Growth in expenses was driven by the build-out of specialized banking capabilities which was partially offset by the results of management's efficiency initiative.

The retail segment's net income increased $10.7 million for the three months ended June 30, 2013 to $23.0 million compared to three months ended June 30, 2012. FTE adjusted net interest income totaled $89.7 million for the three months ended June 30, 2013 compared to $53.3 million for the three months ended June 30, 2012, an increase of $36.4 million or 68.34%. Provision for credit losses totaled $2.1 million for the three months ended June 30, 2013 compared to $1.7 million for the three months ended June 30, 2012, an increase of $0.4 million. Net charge-offs declined $0.6 million to $3.1 million for the three months ended June 30, 2013. Non-interest income was $33.3 million for the three months ended June 30, 2013 compared to $24.1 million for the three months ended June 30, 2012, an increase of $9.2 million, or 37.86%. Lower service charges on deposits driven by the effects of new regulations on charges for non-sufficient funds and overdrafts, as well as the effects of the Durbin Interchange Amendment on ATM interchange fees partially offset the increase in expense attributable to the Citizen's acquisition. Noninterest expense increased $28.7 million, or 50.59%, to $85.5 million for the three months ended June 30, 2013 compared to $56.8 million for the three months ended June 30, 2012. The results of management's efficiency initiative partially offset the increase in expense

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attributable to the Citizen's acquisition.

The wealth segment's net income of $1.8 million for the three months ended June 30, 2013 was essentially unchanged compared to the three months ended June 30, 2012.

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 operations, 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 operating loss of $26.2 million for the three months ended June 30, 2013, a decline of

$17.0 million compared to the three months ended June 30, 2012. The decrease was attributable to nonrecurring expenses related to the Citizen's acquisition, partially offset by lower expenses as a result of management's successful efficiency initiative.

FINANCIAL CONDITION

Acquisitions

On April 12, 2013, the Corporation completed the merger with Citizens pursuant to the Merger Agreement, which resulted in all of Citizens common stock being converted into the right to receive 1.37 shares of the Corporation's common stock. The conversion of Citizens' common stock into the Corporation's common stock resulted 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 preferred stock 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.

The Citizens transaction was accounted for using the purchase 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 are preliminary and 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.

Preliminary goodwill of $274.3 million is calculated as the purchase premium after adjusting for the fair value of net assets acquired and represents the value expected from the synergies created from combining the businesses as well as the economies of scale expected from combining the operations of the two companies. None of the goodwill is deductible for income tax purposes as the merger is accounted for as a tax-free exchange. As of June 30, 2013, the preliminary goodwill remains unallocated to the Corporation’s reporting units due to the short time between the date of the merger transaction and the end of the second quarter of 2013.

The following tables provide the purchase price calculation as of the Acquisition Date and the identifiable assets purchased and the liabilities assumed at their estimated fair value:

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Purchase Price (in thousands, except share data):
FirstMerit common stock shares 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
Preliminary Statement of Net Assets Acquired at Fair Value:
ASSETS
Cash and due from banks	$	544,380
Investment Securities	3,202,577
Loans	4,624,292
Premises and equipment	138,766
Intangible assets	84,774		1
Accrued interest receivable and other assets	678,910
Total assets	$	9,273,699
LIABILITIES
Deposits	$	7,276,754
Borrowings	908,824
Accrued taxes, expenses, and other liabilities	78,816
Total liabilities	$	8,264,394
Net identifiable assets acquired				1,009,305
Goodwill				$	274,338

1 - Intangible assets consist of core deposit intangibles of $70.8 million, net trust relationships of approximately $14.0 million, The useful life for which the core deposit intangible and the trust relationships are amortized over is 15 and 12 years, respectively.

As part of the merger, the Corporation assumed Citizens' Federal Home Loan Bank ("FHLB") advances with a fair value of $719.3 million. On April 15, 2013, in conjunction with Management's strategy to de-leverage the newly acquired Citizens' balance sheet, the Corporation terminated all but two assumed FHLB advances resulting in cash outlay of approximately $591.9 million in principal and approximately $60.6 million in prepayment penalty. The two retained FHLB advances total $60.0 million and approximately $5.6 million in prepayment penalty as of June 30, 2013 and have fixed rates of 3.29% and 3.39% 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.

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

Integration Update

The integration of Citizens into the Corporation continues to progress as scheduled. Professional consulting groups have been assisting the Corporation with the integration and accounting matters related to the transaction. The main systems conversion is currently scheduled for the fourth quarter of 2013.

One-time merger costs incurred to-date totaled approximately $38.7 million. Management expects a total of approximately $79.4 million in one time pre-tax merger costs related to the Citizens acquisition.

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To date the Corporation has achieved merger-related cost savings related mainly to reduction in headcount. The timeline for realization of these expected cost synergies remains on track and Management remains confident it will meet its total projected annual cost saves of $59.0 million.

Investment Securities

At June 30, 2013, total investment securities were $6.1 billion compared to $3.7 billion at December 31, 2012 and June 30, 2012. Available-for-sale securities were $3.3 billion, $2.9 billionand$3.2 billion as of June 30, 2013, December 31, 2012 and June 30, 2012, respectively. During the second quarter, the Corporation acquired $3.2 billion of investment securities from the merger with Citizens. Shortly after acquisition, approximately $2.2 billion of these securities were sold to reduce prepayment and credit risk. A loss of approximately $2.8 million was realized in the current quarter as a result of these sales.

Available-for-sale securities are held primarily for liquidity, interest rate risk management and long-term yield enhancement. Accordingly, the Corporation's 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, mortgage-backed securities ("MBSs"), corporate bonds, and collateralized loan obligations. During the quarter ended June 30, 2013, the Bank began purchasing collateralized loan obligations into its available for sale portfolio. Approximately $159.9 million of collateralized loan obligations have been purchased as of June 30, 2013. 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 asset liability risk position.

Held-to-maturity securities totaled $2.6 billion at June 30, 2013 compared to $622.1 millionand$352.2 million at December 31, 2012andJune 30, 2012, respectively. Available-for-sale securities increased$378.4 million from December 31, 2012 to June 30, 2013 and increased$83.0 million from June 30, 2012 to June 30, 2013. Held-to-maturity securities increased $1.9 billion and $2.2 billion from December 31, 2012 to June 30, 2013 and from June 30, 2012 to June 30, 2013, respectively. This movement in the investment portfolio was in response to potential future changes in regulatory capital rules.

Other investments consist primarily of FHLB and FRB stock and totaled $267.6 million at June 30, 2013, and $140.7 million at December 31, 2012 and June 30, 2012. FRB stock of $31.2 million and FHLB stock of $95.6 million were acquired from the merger with Citizens.

The investment securities portfolio was in a net unrealized loss position of $12.4 million at June 30, 2013, compared to a net unrealized gain position of $72.2 million and $80.9 million at December 31, 2012andJune 30, 2012, respectively. Gross unrealized losses were $57.2 million as of June 30, 2013, compared to $12.9 million and $14.1 million at December 31, 2012andJune 30, 2012, respectively. This increase in gross unrealized loss positions on temporarily impaired investment securities was primarily due to an increase in interest rates in the second quarter of 2013, relative to the interest rate environment when the investment securities were purchased. The gross unrealized loss positions were primarily related to mortgage-backed securities issued by government agencies, state and municipal bond holdings, and corporate bonds.

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, 2013 were $14.2 billion compared to $9.8 billion at December 31, 2012 and $9.4 billion at June 30, 2012. The increase is a result of the acquisition of Citizens (See Note 2 (Business Combinations). These loans, which are presented as acquired loans, were recorded at estimated fair value at the Acquisition Date in the amount of $4.6 billion with no carryover of the related allowance for loan losses. Loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and Midwest, which are presented as covered loans, are 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 allowance for loan losses and are accounted for as acquired impaired loans.

Originated Allowance for Loans Losses

Total originated loans increased from December 31, 2012by$401.0 million, or 4.59%, and increased from June 30, 2012 by $1.0 billion, or 12.75%. This increase was driven primarily by higher commercial loans, which increased 2.24%from December 31, 2012and10.97% from June 30, 2012 due to the Corporation's expansion into the Chicago, Illinois area. This growth 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, 2013, leases totaled $188.4 million compared to $139.2 million and $84.5 million at December 31, 2012 and June 30, 2012, respectively, resulting in increases of $49.1 million, or 35.28%, from December 31, 2012 to June 30, 2013 and $103.8 million, or 122.88%, from June 30, 2012 to June 30, 2013. While the Corporation is adding new commercial loans in both its core Ohio and newer Chicago, Illinois markets, low credit line utilization by existing customers is mitigating new loan production with respect to the overall portfolio balances.

Residential mortgage loans are originated and then sold into the secondary market or held in portfolio. Low interest rates during 2012 contributed to an increase in mortgage loan originations, particularly refinancing activity. Total residential mortgage loan balances increased from December 31, 2012 by $17.2 million, or 3.87%, and increased from June 30, 2012 by $24.3 million, or 5.54%, as a larger amount of shorter maturity and adjustable rate mortgages were held in portfolio compared to the prior year.

Outstanding home equity loans increased from December 31, 2012 by $39.0 million, or 4.83%, and increased from June 30, 2012 by $78.2 million, or 10.20%. Installment loans increased from December 31, 2012 by $168.4 million, or 12.68%, and increased from June 30, 2012 by $233.8 million, or 18.51%.

Total covered loans, including the loss share receivable, decreased from December 31, 2012 and June 30, 2012 by $258.7 million, or 25.38%, and $511.5 million, or 40.21%, respectively. The covered 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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The following table breaks down outstanding originated loans by category. There is no predominant concentration of loans in any particular industry or group of industries.

	June 30, 2013			December 31, 2012			June 30, 2012
(Dollars in thousands)
Commercial	$	5,997,812		$	5,866,489		$	5,404,971
Residential mortgage	462,427			445,211			438,147
Installment	1,496,663			1,328,258			1,262,877
Home equity	845,051			806,078			766,840
Credit card	142,319			146,387			142,586
Leases	188,353			139,236			84,507
Total originated loans (a)	9,132,625			8,731,659			8,099,928
Allowance for originated loan losses	(98,645		)	(98,942		)	(103,849		)
Net originated loans	$	9,033,980		$	8,632,717		$	7,996,079

(a) Includes remaining loans outstanding acquired in 2010 from FirstBank of $52.9 million, $54.2 million, $67.9 million as of June 30, 2013, December 31, 2012 and June 30, 2012, respectively.

respectively.

The Corporation has approximately $3.4 billion of loans secured by real estate. Approximately 92.82% of the property underlying these loans is located within the Corporation's primary market area of Ohio, Western Pennsylvania, and Chicago, Illinois.

Acquired Loans

Acquired loans are those purchased in the Citizens acquisition. These loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related allowance for loan losses. The acquired loans were segregated between those considered to be performing (“non-impaired acquired loans”) and those with evidence of credit deterioration (“acquired impaired loans”). Acquired loans are considered impaired if there is evidence of credit deterioration at origination and if it is probable all contractually required payments will not be collected. Revolving loans, including lines of credit, are excluded from acquired impaired loan accounting. The difference between the fair value of a non-impaired acquired loan and contractual amounts due at the Acquisition Date is accreted into income over the estimated life of the loan. Contractually required payments represent the total undiscounted amount of all uncollected principal and interest payments.

The fair value estimates for acquired loans is based on expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value. The difference between the fair value of a non-impaired acquired loan and contractual amounts due at the Acquisition Date is accreted into income over the estimated life of the loan. Contractually required payments represent the total undiscounted amount of all uncollected principal and interest payments. Non-impaired acquired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

The excess of an acquired impaired loan's contractually required payments over the amount of its undiscounted cash flows expected to be collected is referred to as the non-accretable difference. The non-accretable difference, which is neither accreted into income nor recorded on the consolidated balance sheet, reflects estimated future credit losses and uncollectible contractual interest expected to be incurred over the life of the acquired impaired loan. The excess of cash flows expected to be collected over the carrying amount of the acquired impaired loans is referred to as the accretable yield. This amount is accreted into interest income over the remaining life of the acquired impaired loans or pools using the level yield method. The accretable

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yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment speed assumptions and changes in expected principal and interest payments over the estimated lives of the acquired impaired loans. Acquired impaired loans are not subject to individual evaluation for impairment and are not reported as nonperforming or impaired loans based on acquired impaired loan accounting.

Over the life of acquired impaired loans, the Corporation evaluates the remaining contractual required payments receivable and estimates cash flows expected to be collected. Contractually required payments receivable 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 period's 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 allowance for loan losses.

Covered Loans and Related Loss Share Receivable

The loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and Midwest are 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 allowance for loan losses and are accounted for as acquired impaired loans as described above. A loss share receivable was recorded at 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 loans. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets. The loss share receivable continues to be measured on the same basis as the related covered loans. Deterioration in the credit quality of the covered loans (recorded as an adjustment to the covered allowance for loan losses) would immediately increase the basis of the loss share receivable, with the offset recorded through the consolidated statement of comprehensive income. Increases in the credit quality or cash flows of covered loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the basis of the loss share receivable, with such decrease being accreted into income over 1) the same period or 2) the life of the loss share agreements, whichever is shorter. Loss assumptions used in the basis of the loss share receivable are consistent with the loss assumptions used to measure the related covered loans.

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Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

Originated Loans

The Corporation maintains what Management believes is an adequate originated allowance for loan losses. 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. Note 1 (Summary of Significant Accounting Policies) and note 5 (Allowance for Loan Losses) in the notes to the consolidated financial statements provide detailed 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 loss 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, 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.

At June 30, 2013, the allowance for originated loan losses was $98.6 million, or 1.08% of originated loans outstanding, compared to $98.9 million, or1.13%and$103.8 million, or 1.28% at December 31, 2012andJune 30, 2012, respectively. The allowance equaled 216.97% of nonperforming loans at June 30, 2013 compared to 269.69% and 222.44% at December 31, 2012andJune 30, 2012. The additional reserves related to qualitative risk factors totaled $34.4 million at June 30, 2013 compared to $32.3 millionand$20.4 million at December 31, 2012andJune 30, 2012, respectively. Nonperforming loans have increased by $8.8 million or 23.92% when compared to December 31, 2012 but decreased by $1.2 million or 2.62% when compared to June 30, 2012.

Net charge-offs on originated loans were $3.3 million and 0.15% of average originated loans outstanding during the three months ended June 30, 2013 compared to $8.8 million and 0.44% of average originated loans outstanding during the three months ended June 30, 2012. Losses are charged against the allowance for loan losses as soon as they are identified.

The reserve for unfunded lending commitments at June 30, 2013, December 31, 2012 and June 30, 2012 was $8.1 million, $5.4 million and $5.7 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 $106.8 million, $104.4 million, and $109.5 million at June 30, 2013, December 31, 2012 and June 30, 2012, respectively.

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The following table is a summary of the allowance for credit losses.

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
(dollars in thousands)
Allowance for Noncovered Loan Losses
Allowance for loan losses-beginning of period	$	98,843		$	103,849		$	98,942		$	107,699
Provision for loan losses	3,151			8,766			8,959			16,895
(Less) net charge-offs	3,349			8,766			9,256			20,745
Allowance for loan losses-end of period	$	98,645		$	103,849		$	98,645		$	103,849
Reserve for Unfunded Lending Commitments
Balance at beginning of period	$	4,941		$	5,410		$	5,433		$	6,373
Provision for/(relief of) credit losses	3,173			256			2,681			(707		)
Balance at end of period	8,114			5,666			8,114			5,666
Allowance for credit losses	$	106,759		$	109,515		$	106,759		$	109,515
Annualized net charge-offs as a % of average originated loans	0.15		%	0.44		%	0.21		%	0.53		%
Allowance for originated loan losses:
As a percentage of period-end originated loans	1.08		%	1.28		%	1.08		%	1.28		%
As a percentage of nonperforming originated loans	216.97		%	222.44		%	216.97		%	222.44		%
As a multiple of annualized net charge offs	7.34			2.95			5.28			2.49
Allowance for credit losses:
As a percentage of period-end originated loans	1.17		%	1.35		%	1.17		%	1.35		%
As a percentage of nonperforming originated loans	234.82		%	234.57		%	234.82		%	234.57		%
As a multiple of annualized net charge offs	7.95			3.11			5.72			2.63

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The following tables show the overall credit quality by specific asset and risk categories of originated loan.

	As of June 30, 2013
	Loan Type
			CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	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
Allowance	3,169		1,010		—		557		197		255		1,280		6,468
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance	40,185		1,250		12,815										54,250
Grade 1 allowance	12		—		4										16
Grade 2 loan balance	124,748		3,859		709										129,316
Grade 2 allowance	90		4		1										95
Grade 3 loan balance	721,517		316,171		36,743										1,074,431
Grade 3 allowance	948		617		67										1,632
Grade 4 loan balance	2,483,827		2,099,371		134,834										4,718,032
Grade 4 allowance	27,530		11,775		679										39,984
Grade 5 (Special Mention) loan balance	41,698		33,504		3,042										78,244
Grade 5 allowance	2,863		1,063		138										4,064
Grade 6 (Substandard) loan balance	56,776		40,062		210										97,048
Grade 6 allowance	10,555		4,398		20										14,973
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
Current loans allowance							5,990		9,573		4,879		1,925		22,367
30 days past due loan balance							8,602		960		792		10,939		21,293
30 days past due allowance							548		563		561		341		2,013
60 days past due loan balance							2,938		1,024		343		2,521		6,826
60 days past due allowance							544		1,237		379		392		2,552
90+ days past due loan balance							4,589		1,122		776		5,600		12,087
90+ days past due allowance							1,086		1,696		1,214		485		4,481
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

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	As of December 31, 2012
	Loan Type
			CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	6,187	$	27,412	$	—	$	30,870	$	6,281	$	1,612	$	24,009	$	96,371
Allowance	577		1,018		—		1,526		34		127		1,722		5,004
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance	42,211		—		13,119										55,330
Grade 1 allowance	14		—		5										19
Grade 2 loan balance	114,480		3,138		179										117,797
Grade 2 allowance	93		4		—										97
Grade 3 loan balance	661,692		272,401		20,042										954,135
Grade 3 allowance	916		711		35										1,662
Grade 4 loan balance	2,408,670		2,148,580		104,037										4,661,287
Grade 4 allowance	26,155		13,552		507										40,214
Grade 5 (Special Mention) loan balance	44,969		56,118		1,561										102,648
Grade 5 allowance	3,105		2,033		63										5,201
Grade 6 (Substandard) loan balance	28,317		52,314		298										80,929
Grade 6 allowance	5,349		6,629		29										12,007
Grade 7 (Doubtful) loan balance	—		—		—										—
Grade 7 allowance	—		—		—										—
Consumer loans based on payment status:
Current loan balances							1,278,555		796,568		142,424		406,495		2,624,042
Current loans allowance							6,596		9,766		4,815		2,617		23,794
30 days past due loan balance							10,471		1,407		922		9,928		22,728
30 days past due allowance							855		774		587		487		2,703
60 days past due loan balance							2,979		825		541		1,219		5,564
60 days past due allowance							773		1,021		540		453		2,787
90+ days past due loan balance							5,383		997		888		3,560		10,828
90+ days past due allowance							1,404		2,129		1,315		606		5,454
Total loans	$	3,306,526	$	2,559,963	$	139,236	$	1,328,258	$	806,078	$	146,387	$	445,211	$	8,731,659
Total Allowance for Loan Losses	$	36,209	$	23,947	$	639	$	11,154	$	13,724	$	7,384	$	5,885	$	98,942

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	As of June 30, 2012
	Loan Type
			CRE and						Home Equity		Credit		Residential
Allowance for Loan Losses Components:	C & I		Construction		Leases		Installment		Lines		Cards		Mortgages		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	25,250	$	38,349	$	—	$	31,043	$	6,063	$	1,998	$	18,579	$	121,282
Allowance	5,327		2,092		—		1,773		22		128		1,649		10,991
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance	41,042		—		13,141										54,183
Grade 1 allowance	15		—		6										21
Grade 2 loan balance	94,362		3,432		114										97,908
Grade 2 allowance	85		7		—										92
Grade 3 loan balance	562,886		333,137		9,372										905,395
Grade 3 allowance	867		1,126		17										2,010
Grade 4 loan balance	2,150,162		1,914,491		61,522										4,126,175
Grade 4 allowance	21,732		16,272		297										38,301
Grade 5 (Special Mention) loan balance	52,927		63,666		—										116,593
Grade 5 allowance	1,809		3,073		—										4,882
Grade 6 (Substandard) loan balance	54,373		70,894		358										125,625
Grade 6 allowance	10,492		9,763		38										20,293
Grade 7 (Doubtful) loan balance	—		—		—										—
Grade 7 allowance	—		—		—										—
Consumer loans based on payment status:
Current loan balances							1,216,877		757,434		138,612		401,773		2,514,696
Current loans allowance							9,050		4,037		4,726		2,322		20,135
30 days past due loan balance							7,531		1,774		748		8,514		18,567
30 days past due allowance							680		245		427		355		1,707
60 days past due loan balance							2,719		710		484		3,337		7,250
60 days past due allowance							704		381		455		612		2,152
90+ days past due loan balance							4,707		859		744		5,944		12,254
90+ days past due allowance							822		764		954		725		3,265
Total loans	$	2,981,002	$	2,423,969	$	84,507	$	1,262,877	$	766,840	$	142,586	$	438,147	$	8,099,928
Total Allowance for Loan Losses	$	40,327	$	32,333	$	358	$	13,029	$	5,449	$	6,690	$	5,663	$	103,849

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Acquired Allowance for Loan Losses

An allowance for loan losses for non-impaired acquired loans is estimated using a methodology similar to that used for originated loans. The allowance determined for each non-impaired acquired loan is compared to the remaining fair value discount for that loan. If the allowance is greater, the excess is added to the allowance through a provision for loan losses. If the allowance is less, no additional allowance or provision is recognized. Actual losses first reduce any remaining fair value discount for the loan. Once the discount is fully depleted, losses are applied against the allowance established for that loan.

Management reforecasts the estimate of cash flows expected to be collected on each acquired impaired loan pool on a quarterly basis. If the present value of expected cash flows for a pool is less than its carrying value, impairment is recognized by an increase in the allowance for loan losses 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 allowance for loan losses 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.

In accordance with purchase accounting rules, the Citizens' loans were recorded at their fair value at the Acquisition Date and the prior allowance for loan losses was eliminated. No allowance has been established on these acquired loans since the Acquisition Date through June 30, 2013.

Covered Allowance for Loan Losses

The allowance for loan losses on covered 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.

In the three months ended June 30, 2013, the Corporation increased the covered allowance for loan losses to $49.1 million to reserve for estimated additional losses. The increase in the allowance was recorded by a charge to the provision for covered loan losses of $6.5 million that was partially offset by an increase of $2.3 million in the loss share receivable for the portion of the losses recoverable under the loss sharing agreements. In the three months ended June 30, 2012, the Corporation increased the covered allowance for loan losses to $42.6 million to reserve for estimated additional losses. The increase in the allowance was recorded by a charge to the provision for covered loan losses of $9.6 million that was partially offset by an increase of $6.2 million in the loss share receivable for the portion of the losses recoverable under the loss sharing agreements.

Asset Quality (excluding acquired loans and covered assets)

Due to the impact of acquisition 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 allowance brought forward in accordance with acquisition accounting. Impaired acquired and covered loans are considered to be performing due to the application of the accretion method under acquisition accounting.

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.

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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, provide detailed information regarding the Corporation's credit policies and practices and the credit-risk grading process for commercial loans.

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, 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 (ORE)acquired through foreclosure in satisfaction of a loan.

(Dollars in thousands)	June 30, 2013			December 31, 2012			June 30, 2012
Nonperforming originated loans:
Restructured nonaccrual loans:
Commercial loans	$	13,010		$	3,837		$	7,545
Consumer loans	12,341			11,197			3,269
Total restructured loans	25,351			15,034			10,814
Other nonaccrual loans:
Commercial loans	15,925			17,929			30,836
Consumer loans	4,188			3,724			5,037
Total nonaccrual loans	20,113			21,653			35,873
Total nonperforming originated loans	45,464			36,687			46,687
Other real estate, excluding covered assets	20,713			13,537			14,393
Total nonperforming assets	$	66,177		$	50,224		$	61,080
Originated loans past due 90 days or more accruing interest	$	11,760		$	9,417		$	6,545
Total nonperforming assets as a percentage of total originated loans and ORE	0.72		%	0.57		%	0.75		%

Total nonperforming assets as of June 30, 2013 were $66.2 million, an increase of $16.0 million, or 31.76%, from December 31, 2012 and an increase of $5.1 million, or 8.34%, from June 30, 2012. Total

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originated loans past due 30-89 days totaled $98.5 million at June 30, 2013, an increase of $48.4 million, or 96.37%, from December 31, 2012 and an increase of $53.5 million, or 118.81%, from June 30, 2012. Delinquency trends are observable in the Allowance for Loan Loss Allocation tables within this section. Commercial nonperforming originated loans increased$7.2 million, or 32.94%, from December 31, 2012 and decreased$9.4 million, or 24.61%, from June 30, 2012. Total other real estate owned increased$7.2 million or 53.01%, from December 31, 2012 and $6.3 million, or 43.91%, from June 30, 2012. Included in other real estate owned of $20.7 million as of June 30, 2013 is $12.7 million of other real estate acquired from Citizens.

Net charge offs within the originated consumer portfolio were $3.1 million for the three months ended June 30, 2013 compared to $3.8 million for the three months ended June 30, 2012. Average FICO scores on the originated consumer portfolio subcomponents are excellent with average scores on installment loans at 726, home equity lines at 785, residential mortgages at 768 and credit cards at 752.

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, 2013, accruing originated loans 90 days or more past due totaled $11.8 million compared to $9.4 million and $6.5 million at December 31, 2012 and June 30, 2012, 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 which had been accrued in prior years is charged against the allowance for loan losses 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.

The following table is a nonaccrual originated commercial loan flow analysis:

	Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2013			2013			2012			2012			2012
	(In thousands)
Nonaccrual originated commercial loans beginning of period	$	23,843		$	21,766		$	31,492		$	38,381		$	44,546
Credit Actions:
New	15,197			7,217			2,183			25,182			10,091
Loan and lease losses	(1,348		)	(2,191		)	(2,670		)	(400		)	(6,675		)
Charged down	(2,639		)	(481		)	(2,555		)	(9,227		)	(266		)
Return to accruing status	(3,981		)	(179		)	—			(2,177		)	(1,247		)
Payments	(2,137		)	(2,289		)	(6,684		)	(20,267		)	(8,068		)
Sales	—			—			—			—			—
Nonaccrual originated commercial loans end of period	$	28,935		$	23,843		$	21,766		$	31,492		$	38,381

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 troubled debt restructurings

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("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. 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 TDR portfolio, excluding acquired and covered loans, totaled $87.6 million, $84.6 million, and $84.3 million as of June 30, 2013, December 31, 2012 and June 30, 2012, respectively. These TDRs are predominately composed of originated consumer installment loans, first and second lien residential mortgages and home equity lines of credit and represented 70.13%, 74.16% and 68.39%, respectively, of the total originated TDR portfolio as of June 30, 2013, December 31, 2012 and June 30, 2012, 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 reductions in interest rates and extensions in terms. Modifications of mortgages retained in portfolio are handled using proprietary modification guidelines, or the FDIC's Modification Program for residential first mortgages covered by loss share agreements.  The Corporation participates in the U.S. Treasury's Home Affordable Modification Program for originated mortgages sold to and serviced for Fannie Mae and Freddie Mac.

In addition, 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 loans restructured after acquisition are not considered TDRs for purposes of the Corporation's accounting and disclosure if the loans evidenced credit deterioration as of the Acquisition Date and are accounted for in pools.

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

Average deposits as of June 30, 2013 totaled $18.3 billion compared to $11.6 billion and $11.6 billion as of December 31, 2012 and June 30, 2012, respectively. 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.

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The following table provides additional information about the Corporation's deposit products and their respective rates.

	Three Months Ended
	June 30, 2013				December 31, 2012				June 30, 2012
	Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate
	(Dollars in thousands)
Noninterest-bearing	$	5,095,977	—	%	$	3,306,444	—	%	$	3,144,183	—	%
Interest-bearing	2,347,155		0.11	%	1,122,796		0.09	%	1,060,771		0.09	%
Savings and money market accounts	8,210,780		0.32	%	5,743,599		0.36	%	5,732,007		0.35	%
Certificates and other time deposits	2,680,332		0.50	%	1,422,246		0.64	%	1,618,322		0.79	%
Total customer deposits	18,334,244		0.23	%	11,595,085		0.27	%	11,555,283		0.29	%
Securities sold under agreements to repurchase	927,451		0.14	%	957,564		0.13	%	920,352		0.12	%
Wholesale borrowings	237,887		1.97	%	163,405		2.49	%	177,987		2.53	%
Long-term debt	314,597		4.77	%	—		—	%	—		—	%
Total funds	$	19,814,179	0.32	%	$	12,716,054	0.29	%	$	12,653,622	0.31	%

Average demand deposits comprised 40.60% of average deposits in the during the three months ended June 30, 2013 compared to 38.20% in fourth quarter of 2012 and 36.39% during the three months ended June 30, 2012. Savings accounts, including money market products, made up 44.78% of average deposits during the three months ended June 30, 2013 compared to 49.53% during the three months ended December 31, 2012 and 49.61% in during the three months ended June 30, 2012. Certificates and other time deposits made up 14.62% of average deposits during the three months ended June 30, 2013, 12.27% during the three months ended December 31, 2012 and 14.01% during the three months ended June 30, 2012.

The average cost of deposits, securities sold under agreements to repurchase, wholesale borrowings and long-term debt was up1 basis points compared to one year ago, or 2.38% for the three months ended June 30, 2013 due to a drop in interest rates.

The following table summarizes certificates and other time deposits in amounts of $100 thousand or more for the three months ended June 30, 2013 by time remaining until maturity.

	Amount
Time until maturity:	(In thousands)
Under 3 months	$	294,139
3 to 6 months	205,931
6 to 12 months	197,456
Over 12 months	310,688
Total	$	1,008,214

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.

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Shareholders' Equity

Shareholders' equity was $2.7 billion as of June 30, 2013, compared with $1.6 billion as of December 31, 2012 and June 30, 2012. At June 30, 2013 the Corporation's book value per common share was $15.46 based on 165.0 million shares outstanding at June 30, 2013, compared to $15.00 based on 109.6 million shares outstanding at December 31, 2012, and $14.60 based on 109.6 million shares outstanding at June 30, 2012. At June 30, 2013, the Corporation's tangible book value per common share was $10.47 compared to $10.75 at December 31, 2012, and $10.34 at June 30, 2012. At June 30, 2013, the Corporation had 5.1 million treasury shares, compared to 5.5 million treasury shares at December 31, 2012 and 5.5 million treasury shares at June 30, 2012. Going forward we expect to reissue treasury shares as needed in connection with stock-based compensation awards and for other corporate purposes.

During the second quarter of 2013, the Corporation made a dividend payment of $0.16 per share, or $26.3 million, on its common stock. As of June 30, 2013, the dividend of $0.16 cents per share has an indicated annual rate of $0.64 per share.

Also in the second quarter of 2013, the Corporation made a quarterly dividend payment of $1.5 million, or $14.69 per share, or $0.36725 per depository share, on the Corporations 5.87% Non-Cumulative Perpetual Preferred Stock, Series A, and the Board of Directors of the Corporation approved a dividend in the same amount on these same preferred shares payable August 5, 2013, to shareholders of record as of July 19, 2013.

As previously reported, on April 12, 2013, the Corporation completed the merger with Citizens, which resulted in the Corporation issuing 55,468,283 shares of its common stock. Additionally, the Corporation purchased the Citizens TARP Preferred issued to the United States Treasury ("Treasury") as part of the Troubled Assets Relief Program (the "Citizens TARP Preferred") in the amount of $300 million plus accumulated but unpaid dividends and interest of approximately $55.4 million. On the Acquisition Date a warrant to purchase 1,757,812.5 shares of Citizens' common stock that had been issued to the Treasury on December 12, 2008 as part of Citizens' participation in the Treasury's Capital Purchase Program, was converted into a warrant to purchase 2,408,203 shares of FirstMerit common stock. The Corporation used the net proceeds from its February 4, 2013 public offerings to repurchase the Citizens TARP Preferred and pay all accrued, accumulated and unpaid dividends and interest. The Corporation's public offerings consisted of $250 million aggregate principal amount of subordinated notes due February 4, 2023 bearing interest at an annual rate of 4.35% payable semi-annually in arrears on February 4 and August 4 of each year and 4,000,000 depositary shares (each representing a 1/40th interest in a share of the Corporation's Series A Non-Cumulative Perpetual Preferred Stock), which resulted in gross proceeds of $100 million. Additional information can be found in Note 2 (Business Combinations).

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 assets of 7.61% at June 30, 2013, compared with 8.16% at December 31, 2012 and 8.01% at June 30, 2012.

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.

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To be considered well capitalized an institution must have a total risk-based capital ratio of at least 10%, a Tier 1 capital ratio of at least 6%, a leverage capital ratio of at least 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 I capital ratio of at least 4% 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.

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.

As of June 30, 2013, the Corporation, on a consolidated basis, as well as FirstMerit Bank, exceeded the minimum capital levels of the well capitalized category.

	June 30, 2013				December 31, 2012				June 30, 2012
	(Dollars in thousands)
Consolidated
Total equity	$	2,650,909	11.27	%	$	1,645,202	11.03	%	$	1,600,815	10.95	%
Common equity	2,550,909		10.84	%	1,645,202		11.03	%	1,600,815		10.95	%
Tangible common equity (a)	1,728,108		7.61	%	1,178,785		8.16	%	1,133,497		8.01	%
Tier 1 capital (b)	1,840,970		11.40	%	1,193,188		11.25	%	1,150,259		11.40	%
Total risk-based capital (c)	2,246,721		13.91	%	1,325,971		12.50	%	1,276,748		12.65	%
Leverage (d)	1,840,970		8.44	%	1,193,188		8.43	%	1,150,259		8.22	%
	June 30, 2013				December 31, 2012				June 30, 2012
Bank Only
Total equity	$	2,813,453	11.98	%	$	1,487,513	9.98	%	$	1,540,530	10.55	%
Common equity	2,813,453		11.98	%	1,487,513		9.98	%	1,540,530		10.55	%
Tangible common equity (a)	1,990,652		8.78	%	1,021,096		7.07	%	1,073,212		7.59	%
Tier 1 capital (b)	1,927,191		11.96	%	1,030,585		9.73	%	1,085,274		10.77	%
Total risk-based capital (c)	2,077,885		12.90	%	1,158,312		10.93	%	1,206,836		11.98	%
Leverage (d)	1,927,191		8.87	%	1,030,585		7.29	%	1,085,274		7.77	%
a) Common equity less all intangibles; computed as a ratio to total assets less intangible assets.
b) Shareholders' equity less goodwill; computed as a ratio to risk-adjusted assets, as defined in the 1992 risk-based capital guidelines.
c) Tier 1 capital plus qualifying loan loss allowance, computed as a ratio to risk adjusted assets as defined in the 1992 risk-based capital guidelines.
d) Tier 1 capital computed as a ratio to the latest quarter's average assets less goodwill.

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 risk.” The Corporation is primarily exposed to interest rate risk as a result of offering a wide array of financial products to its customers.

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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 Asset and Liability Committee (“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 function.

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” 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 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. Each of these types of risks is defined in the discussion of market risk management of the 2012 Form 10-K.

The interest rate risk position is measured and monitored using risk management tools, including earnings simulation modeling and economic value of equity 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, 2013and2012:

	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, 2013	(3.86	)%	0.69	%	1.53	%	2.02	%
June 30, 2012	(8.00	)%	3.19	%	5.56	%	7.28	%

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

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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 economic value of equity (“EVE”) sensitivity analysis to study the impact of long-term cash flows on earnings and capital. EVE involves discounting present values of 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 economic value of equity. 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. Presented below is the Corporation’s EVE profile as of June 30, 2013 and 2012:

	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, 2013	(5.57	)%	(1.07	)%	(2.71	)%	(5.06	)%
June 30, 2012	(3.21	)%	1.24	%	1.13	%	(0.17	)%

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 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 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 9 (Derivatives and Hedging Activities) to the unaudited consolidated financial statements.

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 and identifying sources and uses of funds.

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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, raised through its retail branch system. Core deposits comprised approximately 85.27% of total deposits at June 30, 2013. The Corporation also has available unused 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 enhanced by an excess reserve position that averaged greater than one half billion dollars through the second quarter of 2013 in addition to unencumbered, or unpledged, investment securities that totaled $2.8 billion as of June 30, 2013.

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 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, 2013, lower cost core deposits increased by $5.7 billion from the first quarter 2013. In aggregate, deposits increased $7.2 billion from March 31, 2013. Securities sold under agreements to repurchase increased$18.0 million from March 31, 2013. Wholesale borrowings and long-term debt had a net increase of $139.8 million from March 31, 2013. As previously reported, the Corporation issued $250 million aggregate principal amount of subordinated notes in the first quarter 2013. The Corporation’s loan to deposit ratio decreased to 74.02% as of June 30, 2013 from 81.14% as of March 31, 2013.

Parent Company Liquidity - The Corporation manages its liquidity principally through dividends from the bank subsidiary. The parent company 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, 2013, FirstMerit Bank paid $10.0 million in dividends to FirstMerit Corporation. As of June 30, 2013, FirstMerit Bank had an additional $137.2 million available to pay dividends without regulatory approval.

Operational risk management

Like all businesses, we are 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 cybersecurity, since we rely upon information systems and the internet to conduct our business activities. We 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,

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result in monetary losses, adversely affect our reputation and regulatory relations and our ability to implement our business plans and pursue expansion opportunities. We seek to mitigate operational risk through identification and measurement of risk, alignment of business strategies within risk guidelines, and through our system of internal controls and reporting. We regularly evaluate and seek to strengthen our system of internal controls to improve the 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 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 (Summary of Significant Accounting Policies) to the consolidated financial statements of the 2012 Form 10-K provide a greater understanding of how the Corporation’s financial performance is recorded and reported.

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 policies require Management to exercise judgment and make certain assumptions and estimates that affect amounts reported in the financial statements. These assumptions and estimates are based on information available as of the date of the financial statements.

Management relies heavily on the use of judgment, assumptions and estimates to make a number of core decisions, including accounting for the allowance for loan losses, 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 2012 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 9 (Derivatives and Hedging Activities) to the Corporation’s unaudited consolidated financial statements included in this report and in Note 18 to the consolidated financial statements in the 2012 Form 10-K. There have been no significant changes since December 31, 2012.

Forward-looking Safe-harbor Statement

Discussions in this report that 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 forward-looking statements that involve risks and uncertainties. Any forward-looking statement is not a guarantee of future performance and actual future results could differ materially from those contained in forward-looking information. Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detailed from time to time in the Corporation’s filings with the Securities and Exchange Commission, including without limitation the risk factors disclosed in Item 1A, “Risk Factors,” of the 2012 Form 10-K.

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

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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 periodic reports and registration statements filed with the Securities and Exchange Commission. Other factors are those 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, Financial Industry Regulatory Authority, 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 Risk 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 covered by this report, there was no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART 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 for 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 13 (Contingencies and Guarantees) in the notes to the consolidated financial statements.

ITEM 1A. RISK FACTORS.

There have been no material changes in our risk factors from those disclosed in the 2012 Form 10-K.

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

(a) Not applicable.

(b) Not applicable.

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(c) The following table provides information with respect to purchases the Corporation made of shares of its common stock during the second quarter of the 2013 fiscal year:

	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)
Balances as of December 31, 2012					396,272
April 1, 2013 - April 30, 2013	157,974	$	16.12	—	396,272
May 1, 2013 - May 31, 2013	5,073	21.79		—	396,272
June 1, 2013 - June 30, 2013	4,959	23.71		—	396,272
Balances as of June 30, 2013	168,006	$	16.52	—	396,272

(1) Reflects 168,006 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 quarter of 2013.

(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. EXHIBIT INDEX

Exhibit
Number	Description
3.1	Second Amended and Restated Articles of Incorporation of FirstMerit Corporation, as amended amended (incorporated by reference from Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed by FirstMerit Corporation on May 3, 2013 (File No. 001-11267)).
3.2	Second Amended and Restated Code of Regulations of FirstMerit Corporation as amended (incorporated by reference from Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 filed by FirstMerit Corporation on May 10, 2010) (File No. 000-10161)). .
10.1	FirstMerit Corporation 2013 Annual Incentive Plan (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on April 5, 2013) (File No. 001-11267)).
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, 2013 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 6, 2013

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